ADVANCED FINANCIAL ACCOUNTING &
STRATEGIC LEVEL-1
@ l Cc MA CORPORATE REPORTING [S1]
oe Pakistan ‘SUMMER 2019 EXAMINATIONS
Thursday, the 2nd May 2019
Extra Reading Timer 16 Minutes
Writing Time: 03 Hours
(Attempt al questions,
(il) Write your Rol No. in the space provided above,
(ii) Answers must be neat, relevant and briet. tis not necessary to maintain the sequence,
(iv) Use of non-programmable scientific calculators of any model is allowed,
(v) Read the instructions printed inside the top cover of answer soript CAREFULLY before attempting the paper.
(vi) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments, effective
presentation, language and use of clear diagrarn/ chart, where appropriate,
(vi) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(vii) Question Paper must be returned to invigilator before leaving the examination hall
DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT
EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME
Question No. 1 Proposed Time : 47 Min. | Total Marks : 26
Parent Limited is a listed manufacturing company having its registered office in Sindh. The directors
of the company have done due diligence of Children Limited and decided to acquire 75% shares of
Children Limited. This acquisition took place on October 01, 2017 by means of shares exchange of
three new shares in Parent Limited for every five shares acquired in Children Limited. In addition to
the shares exchange, it was also committed by Parent Limited that after exact one year they will pay
Rs. 11 to each share acquired in Children Limited. As both the companies are listed in the stock
exchange and their shares’ market values at acquisition were Rs.30 and Rs. 25 respectively.
Additionally, Parent Limited has cost of capital of 11% per annum. None of the considerations have
been recorded by Parent Limited.
Below are the summarized draft financial statements of both companies
Statements of Profit or Loss and Other Comprehensive Income
for the year ended June 30, 2018
Rs, ‘000°
Parent Limited
Revenue 5,112,888
Cost of sales (3,740,739)
Gross profit 1,372,149 490,053
Distribution cost (163,351) (98,011)
Administrative expense (285,864) (175,551)
Finance cost (16,335) (28,535)
Profit before tax 906,599 187,956
Income Tax expense (253,194) (81,676)
Profit after tax 653,405 106,280
Other comprehensive Income
Gain on Revaluation of property 122,513
Total Comprehensive Income 775,918 106,280
AFACR-Summer 2018 10f6
Marks
PTOMarks
‘Statements of Financial Position
as at June 30, 2018
Rs. 000"
Parent Limited Children Limited
ASSETS
Non-current assets
Property, Plant & Equipment 7,509,008 1,135,290
11% Loan - 100,000
Investments 100,000
1,609,008 1,235,290
Current assets
Inventory 251,205 108,011
Trade Receivables 483,875 199,189
Banks - 19,503
735,080 326,703
Total Assets 2,344,088 1,561,993
EQUITIES AND LIABILITIES
Equity
Equity shares of Re. 1 each 800,000 10,000
Revaluation surplus 163,351 -
Retained eamings 531,311 285,864
1,494,662 295,864
Non-current Lia
11% loan 100,000 -
12% Loan - 40,000
Current Liabilities
Trade payables 381,887 4,119,113
Running finance 138,848 -
Current tax payables 228,691 107,016
749,426 1,226,129
Total Equities and Liabilities 2,344,088 1,561,993
Below is the relevant information for the above.
(i) On June 30, 2018, Parent Limited received Rs. 100 million 11% loan from Children Limited
i) Intra-group average monthly sales from Parent Limited to Children Limited amounted to
Rs, 24.503 million
(ili) Itis group policy to charge mark up on cost @ 25% for all intra-group sales.
(iv) The goodwill was impaired by Rs.5 million during the year and reported as administrative
expense. This was due to a fraud that occurred in Children Limited
(v) At acquisition, both carrying and market values of net assets of Children Limited were same
except a property, which was situated in a posh area. Children Limited hired a valuator to
evaluate this property's actual worth and he reported that the property had a fair value of
Rs. 11.702 million above its carrying value. Children Limited had not reported the same in its
financial statements.
Additionally, for consolidation purposes re-valued property's post acquisition depreciation
amounted to Rs. 8.168 milion and needed to be recorded,
AFACR-Summer 2018 20f6(vii) Since inception, the Board of Directors of Parent Limited had resolved to revalue all of its
properties at the close of every year. Accordingly, the increases have already been recorded in
the financial statements of Parent Limited, however, Children Limited does not have such policy,
therefore, they had not re-valued its properties. Since acquisition the value of Children Limited's
properties have further increased by Rs. 49.005 million which remained unrecorded
(viii) On June 30, 2018, Parent Limited shows trade receivables of Rs. 98.011 million from Children
Limited, however, the said balance was not reconciled from the books of Children Limited. After
reconciliation it was found that one cheque of Rs. 32.670 million paid by Children Limited on
June 30, 2018 was cleared in the subsequent period
(ix) Closing inventory of Children Limited included intra-group sales of Rs. 49.005 million at cost to
Children Limited
(x) Itis group policy to value non-controlling interests at the fair value at the date of acquisition. For
this purpose Children Limited's share prices at that date may be deemed to be representative of
the fair values of the shares held by non-controliing interests.
Required:
(a) Prepare Consolidated Statement of Profit or Loss and Other Comprehensive Income of Parent
Limited for the year ended June 30, 2018.
(b) Prepare Consolidated Statement of Financial Position of Parent Limited as at June 30, 2018.
Question No. 2 Proposed Time : 36 Min. | Total Marks : 20
At the beginning of year 1, Malta Mills Limited grants 1,000 share options to each of its 60
employees, on the condition that the employees will work for the company for the next three years.
The share options have a life of 10 years. The exercise price is Rs. 40 and the entity's share price is
also Rs. 40 at the date of grant. At the date of grant, the entity concludes that it cannot estimate
reliably the fair value of the share options granted
Add
+ At the end of year 1, 5 employees have ceased employment and the entity estimates that a
further seven employees will leave during years 2 and 3,
nal Informati
+ Three employees leave during year 2, and the entity estimates that further two employees will
leave during third year.
* Four employees leave during year 3 hence, 48,000 share options vested at the end of year 3.
+ The entity's share price during years 1-10, and the number of share options exercised during
years 4-10, are set out below. Share options that were exercised during a particular year were all
exercised at the end of that year.
43
45
55
59
54
55
69
72
79
75
Cor sHsONH
3
Required:
‘As per IFRS-2, Share-based Payment, identify the annual charges to the statement of profit or loss
for each year.
AFACR-Summer 2018 30f6
Marks
"1
15
20
PTOQuestion No. 3 Proposed Time : 45 Min, | Total Marks : 25
Agri Equipment Limited is a public limited company operating in Pakistan since 1998. It
manufactures a variety of agricultural equipment for local market. At the beginning of the current
year it had 100% share-holding in Aamir Industries, which was acquired in 2005. It also had acquired
40% interest in Bagar Limited in the same year. On January 01, 2018, it acquired 75% interest in
Chaudhary Trading Company,
Following are extracts from draft consolidated statement of profit or loss and other comprehensive
income for the year ended December 31, 2018:
Rs. 000"
Income from long-term investments, 3,000
Share of profit from associate (net of tax) 5,250
Finance cost charged to profit or loss (2,250)
Profit before tax 28,275
Tax charged to profit or loss:
Income tax (5,865)
Deferred taxation (1,560)
Attributable to investment income (675)
Net profit attributable to:
‘Owners of the Parent Limited 18,675
Non-controlling interest 1,500
Draft Statement of Financial Position
as at December 31, 2018
2018
ASSETS
Non-current Assets
Property, plant and equipment 58,125 37,500
Goodwill 1,500 -
Investments in associate 16,500 15,000
Long-term investments 6,150 6,150
82,275 58,650
Current Assets
Inventories 29,625
Trade and other receivables 27,750
Cash and cash equivalents 67,725
125,100
Total Assets 207,375
EQUITY AND LIABILITIES
Equity
Share capital 59,100 30,000
‘Share premium 43,245 31,425
Retained eamings 51,675 37,500
154,020 98,925
Non-controlling interest 1,725 -
AFACR-Summer 2018 40f6
MarksRs, ‘000°
2018 2017
Non-current Liabilities
Obligations under finance leases 10,650 2,550
Loans 21,900 7,500
Deferred tax 450 195
33,000 10,245
Current Liabilities
Trade and other payables 7,500 4,200
Obligations under finance leases 3,600 3,000
Tax payable 6,930 3,255
Interest payable 600 450
18,630
Total Equity and Liabilities
Additional Information:
(i) Machinery with carrying value of Rs. 6.00 million was sold for Rs. 7.50 million. During 2018, new
machinery amounting to Rs. 12.75 million was acquired under finance leases.
(ii) Information relating to the acquisition of Chaudhary Limited during the year:
Rs, 000"
Plant & Machinery 2,475
Inventories 480
Trade and other receivables 420
Cash and cash equivalents 1,680
Trade and other payables (1,020)
Income tax payable (255)
3,780
Non-controlling interests (NCI) (945)
2,835
Goodwill 1,500
Consideration paid in cash
335
(iii) Loans were issued at discount in 2018 and the carrying amount of the loans at
December 31, 2018 included Rs. 600,000 representing the finance cost attributable to the
discount and allocated in respect of the current reporting period.
(iv) Current year charge for depreciation was Rs. 4,875,000.
Required
Prepare Consolidated Statement of Cash Flows of Agri Equipment Group for the year ended
December 31, 2018 as per IAS-7 Statement of Cash Flows using ‘Indirect Method! for cash flows
from operating activities.
Question No. 4 Proposed Time : 27 Min. | Total Marks : 15
On April 01, 2017, Yasir Limited issued a convertible debt of Rs. 2,250,000. The debt carries an
effective interest rate of 8%, Each Rs. 1,000 nominal value of the debt will be convertible
from 2022 to 2024 into ordinary shares as set out below:
* On December 31, 2022: 124 shares
* On December 31, 2023: 122 shares
* On December 31, 2024: 118 shares
AFACR-Summer 2018 5of6
Marks
25
PTOMarks
Following is the issued share capital at December 31, 2016 and since then there was no further
issue of any class of shares:
25,000 10% cumulative irredeemable preferences shares of Rs. 100.
400,000 ordinary shares of Rs. 10 each.
Relevant income tax rate is 30%.
Trading results for the years ended December 31, were as follows’
Rupees
2018 2017
Profit before interest and tax 5,500,000 4,959,090
Interest on 8% convertible debt (180,000) (135,000)
Profit before tax 5,320,000 4,824,090
Income tax (1,596,000) (1,447,227)
Profit after tax 3,724,000 3,376,863
Required:
Disclose Basic and Diluted eamings per share for the period ended June 30, 2017 and 2018 in
accordance with International Financial Reporting Standards. 15
Question No. 5 Proposed Time : 25 Min. | Total Marks : 14
(a) (i) Differentiate between IFRS and US GAAP. 03
Explain the concept of Social Responsibility as practiced in Pakistan being non-financial
reporting 03
Describe the elements of Management Commentary. 04
(b)
Equity Limited is listed in Pakistan Stock Exchange Limited (PSX) having its registered office in
Pakistan and its reporting currency is in Pak Rupees. On July 01, 2017, the said company has
taken over 100% shares of a UAE company named Al-Nayan Limited by paying consideration of
Dirham 200,000. Simultaneously, to settle the payment consideration, the company has applied
for a loan of USD 50,000 in a foreign bank, Due to good reputation of the company the loan was
approved and transaction of 200,000 Dirham was settled through USD loan. Exchange rates on
various dates are appended below.
Date Dirham USD
July 04, 2017 33.90 136.40
June 30, 2018 34.60 138.10
Required:
(i) Calculate Exchange Gain/ (Loss) on Investment carrying value at June 30, 2018 02
(i) Calculate Exchange Gain/ (Loss) on Loan carrying value at June 30, 2018. 02
THE END
AFACR-Summer 2018 6 of6