Solutions S16

Corporate Sector
Model
Solutions
Summer Exam-2016
Pakistan Institute of
Public Finance
MODEL Accountants
SOLUTIONS – DISCLAIMER
INTRODUCTION
The Model Solutions are provided to students for clear understanding of relevant subject and it
helps them to prepare for their examinations in organized way.
These Model Solutions are prepared only for the guidance of students that how they should
attempt the questions. The solutions are not meant for assessment criteria in the same pattern
mentioned in the Model Solution. The purpose of Model Solution is only to guide the students in
their future studies for appearing in examination.
The students should use these Model Solutions as a study aid. These have been prepared by the
professionals on the basis of the International Standards and laws applicable at the relevant time.
These solutions will not be updated with changes in laws or Standards, subsequently. The laws,
standards and syllabus of the relevant time would be applicable. PIPFA is not supposed to
respond to individual queries from students or any other person regarding the Model Solutions.
DISCLAIMER
The Model Solutions have been developed by the professionals, based on standards, laws, rules,
regulations, theories and practices as applicable on the date of that particular examination. No
subsequent change will be applicable on the past papers solutions.
Further, PIPFA is not liable in any way for an answer being solved in some other way or
otherwise of the Model Solution nor would it carry out any correspondence in this regard.
PIPFA does not take responsibility for any deviation of views, opinion or solution suggested by
any other person or faculty or stake holders. PIPFA assumes no responsibility for the errors or
omissions in the suggested answers. Errors or omissions, if noticed, should be brought to the
notice of the Executive Director for information.
If you are not the intended recipient, you are hereby notified that any dissemination, copying,
distributing, commenting or printing of these solutions is strictly prohibited.
Public Finance Accountants
Business
Economics
(Level-2)
Solution Economics
Pakistan Institute ofExam-2016
Summer
Ans. Opportunity Cost: 03
The value of the next best alternative which is sacrificed to attain something is called
1.(a)
opportunity cost. i.e. cost of next best alternative forgone.
Examples:
(i) The opportunity cost of buying a car, is what else that money could have bought.
(ii) The opportunity cost of deciding not to work, is the forgone wages that could have
been earned.
(b) Applications of Opportunity Cost to Households , Firms and Government: 07

Opportunity costs can be applied to all of the agents that we have discussed so far in a
number of different ways.
Households:
Households are the collective group of individuals not only consuming goods and
services, but also providing labor for firms. The opportunity cost for households is the
satisfaction foregone by consuming Good A rather than spending the money on Good
“B”.
Firms:
Firms are the collective group of organizations producing goods and services in an
economy. The Opportunity cost of firms is the revenue foregone by using productive
resources to supply Good “A” rather than using them to supply Good “B”.
Governments
The opportunity cost is the social needs forgone by using resources to provide Service
“A” (e.g. education) rather than Service “B” (e.g. health).
Total Marks 10
Ans. Cross Elasticity of Demand: 02
2.(a) A measure of the responsiveness of demand for a good A in relation to a change in
price of B.
Cross Ed=
(b) Competitor’s Price Demand for Khan’s Game 08

Rs. 650 10,000
Rs. 550 8,000
Cross Ed between Khan’s and competitor’s game
∆ ∆
= ÷ = ,
÷ = ,
× = 1.3
Cross elasticity between Khan’s and competitor’s games demand is 1.3 (Greater than 1)
Pakistan Institute of 10
Total Marks
Solution Economics
Pakistan Institute Summer ofExam-2016
Public Finance
Ans. Indifference Curve: Accountants
It is a curve that shows the different combinations of two goods which give the same
06
3.(a)
level of satisfaction.
Reason of Convexity of IC
In this instance, convexity means being bowed to the origin. The shape of the curve
has to do with how much of one good does a consumer want to exchange for another
in order to maintain the same level of utility. Suppose a consumer has a high level of
Good A, and a low level of Good B. In order to reduce his consumption of Good B,
and maintain the same utility, he would need to consume even more units of Good A.
This is why Indifference Curves are convex to the origin.
(b) Budget of Mr. Javed=100 04

Price of X= Rs.20 per unit
Price of Y= Rs.10 per unit
The maximum of X which Mr. Javed can purchase = = 100/20 = 05 units
The maximum of Y which Mr. Javed can purchase = = 100/10 = 10 units
Due to increase in income from Rs.100 to Rs.200, the Budget line will be shifted
outward.
Pakistan Institute of 10
Total Marks

Solution Economics
Summer
Ans. Price discrimination: 04
4.(a) Price discrimination is a microeconomic pricing strategy where identical or largely
similar goods or services are transacted at different prices by the same provider
in different markets. Discount in fee and concession to soldier families in joy land are
the examples of price discrimination. i.e. Charging different prices for the same
product with different persons, places or times.
(b) Super Normal Profit of Allied Private Limited: 06
Shaded Area = Super Normal Profit or Abnormal Profit

Total Revenue = PROQ
Total Cost = CTOQ
Profit = PRCT
Allied Private Limited is earning super normal profit
Total Marks 10
Ans. Marginal Propensity to Consume (MPC): 04
5.(a) It is the ratio of change in consumption to change in income. It is slope or gradient of
change in consumption w.r.t. Change in Income.
∆
MPC =
∆
Marginal Propensity to Save (MPS):
It is the ratio of change in Saving to change in income level. It is slope or gradient of
change in savings with respect to change in Income.
∆
MPS =
∆
(b) Multiplier Effect: 06

The number by which a change in investment must be multiplied to result in the final
change of total output.
∆
K=
∆
Multiplier in open economy=
Pakistan
=
Institute
=1.67
of . . .

Total Marks 10
Solution Economics
Summer
Ans. Direct Tax: 05
6.(a) A Tax paid directly to the Government by the person on which it was imposed. The
main example of this is income tax. From a government’s perspective, the following
are the advantages of Direct Tax. Examples are Property Tax, Wealth Tax and Capital
Gain Tax.
Advantages:
Cost of collection is low:
Meaning it is an economical way of raising revenue, and saving expense.
Relative certainty:
The Government can estimate how much it will receive allowing better planning of
projects.
Flexible:
If a government needs to raise revenues quickly, it can do so by raising Direct Taxes.
(b) Fiscal policy: 05
Policies undertaken by a government to influence macroeconomic conditions, and
therefore economic activity, through the use of taxation and spending.
The main objectives of fiscal policy are:

1. Keep Inflation Low
2. Keep Employment High
3. Steady Economic Growth
4. Equilibrium in Balances of Payments
Total Marks 10
Ans. Gross Domestic Product (GDP) 03
7.(i) GDP= C+I+G+(X-M)
=20, 500 + 4,920+ 8,000+(7,450-6,340) =Rs. 34,530 million
(ii) Gross National Product (GNP) 02
GNP= GDP+ Net Foreign Income
= 34,530+ 1,500 = Rs. 36,030 million
(iii) Net National Product. (NNP) 02
NNP= GNP- Depreciation of capital
= 36,030-1,830 = Rs. 34,200 million
(iv) GDP at Factor Cost 03
GDP at factor cost = GDP at Market Prices – Indirect Tax + Subsidies
= 34,530-3,260+500 = Rs. 31,77 million
Total Marks 10
Solution Economics
Summer
Public Finance
Ans. Open Market Operation: Accountants 02
8. The Central Bank can buy or sell Government Securities on the open market, to
change the level of reserves that are held by Commercial Banks. This action of
(a)(i) Central Bank is called Open Market Operation.
(ii) Change in Reserve Ratio: 02

Every Commercial Bank has to keep reserves to meet the cash demand of depositors.
In order that the reserves are kept safe, Commercial Banks will have them deposited
at the central bank. This minimum reserve ratio is fixed by Central Bank. By
manipulating this Reserve Central Bank controls the money supply and aggregate
demand.
(b) Suggestion to correct the current Account Deficit 06
1. Deflation: By bringing down the price level domestically, this can increase
the attractiveness of goods on the international market, thereby increasing
exports.
2. Exchange control: In an extreme version, a monetary authority may
command that exporters relinquish foreign exchange reserves to the central
bank. This has the effect of restricting the level of imports that are possible.
3. Tariffs: These are duties placed upon imports. This directly increases the
price of imports, making them less attractive to the domestic market. This also
gives domestic suppliers more protection to increase the supply of their own
goods.
Total Marks 10
Ans. Common Stock: 03
9. An instrument issued by companies that can be obtained via the primary or secondary
market. Investment in the business means part-ownership of the company, and also
(a)(i) rights and privileges – such as voting power, and the ability to hold a position. An
investor in debt is entitled to interest payments; the equity holder may or may not be
paid dividend, depending on the company’s policy. There is a high risk factor
involved, as the price of the stock can fluctuate greatly. Holders of the instrument
rank at the bottom of the scale if the company were to go into liquidation.
(ii) Preference Shares: 03
An instrument issued by companies that rank higher than common stock in terms of
scale of preference. They possess the same characteristics as equity in that its value is
based upon the share price fluctuating. However it also acts similar to debt
instrument, in those dividends are fixed, and the holder does not hold any voting
rights. In case of liquidation of a company, preferred shared are preferred over
common stocks.
(b) Commercial Banks create credit through advancing loans. The capacity of their credit 04
creation depends upon the money or credit multiplier. And the credit multiplier
further depends upon the reserve ratio.
The multiple of credit that can be created by an initial deposit is:
Money multiplier=1/RR
Solution Economics
Summer
Reserve Ratio:
The portion of depositors’ funds that a bank must keep for immediate delivery to its
owner. The greater the reserve ratio, the lesser will be the amount of credit created by
the commercial banks. And the lesser will be the reserve ratio, the greater will be the
amount of credit. There is inverse relation between Reserve Ratio & Credit Creation.
For example if initial deposit is Rs. 100 and RR is 10%, then

Total credit creation= 1/10% * 100= Rs. 1000
And if reserve ratio increases to 20% then
Total Credit creation=1/20% *100= Rs. 500
Total Marks 10
Ans. Foreign Exchange Rate 02
10.(i) The foreign exchange rate is the price of one currency expressed in terms of another
currency.
(ii) Demand for Money 02

Total amount of money which people prefer to hold in cash or liquid form is called
demand for money.3 Motives are Transactionary Motive, Speculative Motive and
Precautionary Motive.
(iii) Balance of Trade 02
It is the difference between the monetary value of exports and imports of tangible
goods in an economy over a certain period, measured in the currency of that economy
A positive balance is known as a trade surplus and negative is trade deficit.
(iv) Consumer Credit 02
A Consumer Credit agreement often occurs between a retailer and a consumer. In
exchange for store credit (i.e. currency to spend at the establishment) a consumer can
pay the amount back over a certain period of time.
(v) Capital Market 02
The Financial Market which is largely used to raise long-term finance (more than a
year) and capital is called Capital Market. There are a number of different instruments
that can be bought or sold. These broadly fit into two categories: Debt and Equity.
Total Marks 10
*****************************
Business
Laws
(Level-2)
Solution Business Laws
Summer
Ans. Alternate Dispute Resolution is any type of procedure of combination of procedures 02
1. voluntarily used to resolve issues in controversy, other than court based adjudication.
e.g. Mediation, Conciliation, Arbitration.
Advantages of ADR 03
i) Speedy.
Arbitration is often faster than litigation in court.
ii) Cheaper and Flexible

Arbitration can be cheaper and more flexible for businesses.
iii) Privacy.
The public and the press have no right to attend a hearing before an arbitrator.
iv) Appeal.
In most legal systems, there are very limited avenues for appeal of an arbitral
award.
v) Service of an expert.
The parties may choose the person who is an expert in the particular
commercial field that they are in to settle their dispute.
(one mark each for any three correct answers)

Disadvantages of ADR 03
i) Appeal
Limited Avenue for appeal means that an erroneous decision cannot be easily
overturned.
ii) Expensive.
in countries where the cost of court action is not so high this might be more
expensive to go to arbitration.
iii) Application of law.

Rules of applicable law are not necessarily binding on the arbitrators, although
they cannot disregard the law.
iv) Delay.
When there are multiple arbitrators on the panel, manage their schedules for
hearing dates in long cases can lead to delays.
(one mark each for any three correct answers)

Total Marks 08
Summer
Public
Ans. Baber canFinance
recover the amountAccountants
of water charges as this is quasi contract situation as 01
2.(a) payment by interested person as discussed below. 01
Payment by interested person

A person, who is interested in the payment of money which another is bound by law 01
to pay, and who therefore pays it, is entitled to be reimbursed by the other.
Thus the essential requirement of the section is:
 The payment made should be bona fide for the protection of one’s interest. 01
 The payment should not be a voluntary one. 01
 The payment must be such as the other party was bound by law to pay. 01
(b) Differences between contract of indemnity and contract of guarantee. 06
S. No. Contract of indemnity Contract of guarantee
1. Number of parties
There are three parties, principal
There are two parties, indemnifier and
debtor, creditor and surety.
indemnity holder.
2. Number of contracts
There are three contracts.
There is only one contract.
3. Object.
The surety undertakes for the
The indemnifier undertakes to save the
payment of debts of principal
indemnity holder from any loss.
debtor in case of his default.
4. Nature of liability
The liability of surety is
The liability of indemnifier is primary and
secondary and conditional and
unconditional.
co-extensive.
5. Commencement of liability
The liability arises only on the
The liability arises only on the happening of
non-performance of an existing
a contingency.
promise or non-payment of an
existing debt.
6. Right to sue
A surety, on discharging the debt
The indemnifier cannot sue a third party in
of principal debtor, can sue the
his own name because of absence of privity
principal debtor in his own name.
of contract between him and third party.
(1.5 mark for each correct identification with maximum of 06 marks)
Total Marks 12
Summer
Public
Ans. i) Finance
Wrong Accountants 0.75
3.(a) ii) Correct 0.75
iii) Wrong 0.75
iv) Wrong 0.75
v) Wrong 0.75
vi) Correct 0.75
vii) Correct 0.75
viii) Wrong 0.75
(b) Following are the cases where suit for specific performance is not maintainable 04
where:
 Monetary compensation is considered as an adequate remedy.

 Contract is of personal nature, e.g. contract of services.
 Court cannot supervise the performance of the contract e.g. construction of
building.
 One of the parties is a minor.
 Contract is inequitable to either party.
(one mark for each correct answers with maximum of four)
Total Marks 10
Ans. Yes supplier can sue all three partners jointly or sue B alone. 02
4.(a)
Every partner is liable jointly with all the other partners and also severally means 01
separately, to third parties for all acts of the firm done while he is a partner. The third
party may take legal action for non-payment of a debt or losses incurred as a result of
a breach of contract against.
 All the partners jointly, or 01

 Any individual partner A, B or C 01
If supplier chooses to sue B personally, and succeeds with his claims, B will be 01
required to pay the supplier. It will then be for B to obtain from his partners A & C 01
their share of the liability that they now owe. i.e. he will recover Rs. 50,000 each from
A & C.
(b) The mandatory duties of a partner that cannot be changed by an agreement are; 03
i) Duty to be just and faithful.

ii) Duty to carry on business to the greatest common advantage.
iii) Duty to render true accounts.
iv) Duty to provide full information.
v) Duty to indemnify for loss caused by fraud.
vi) Duty to be liable jointly and severally.
vii) Duty to act within authority.
viii) Duty in case of emergency.
Public Finance
(0.5 mark for each correct Accountants
answer with maximum 03)
Pakistan Institute SummerofExam-2016
Public
(c) Where a Finance
partner has died orAccountants
has ceased to be a partner by retirement, expulsion, 01
insolvency or any other cause, the surviving or continuing partners may carry on the
business with the property of the firm without any final settlement of accounts as
between them and the outgoing partner. In such a case in the absence of a contract to 01
the contrary, legal representative of the deceased partner or the outgoing partner, is
entitled at his option to:
 Such share of the profits as in proportionate to his share in the property of the 1.5
firm or
 Interest at the rate of 6% on the amount of his share in the property of the firm 1.5
provided continuing partners do not settle accounts.
Total Marks 15
Ans. Bela will have to bear the loss as discussed below. 01
5.(a) Where there is an unconditional contract for the sale of special goods in a deliverable 01
state, the property in the goods passes to the buyer when the contract is made, and it is 01
immaterial whether the time of payment of the price or time of delivery of the goods, 01
or both, is postponed. It is a case of bailment as well.
(b) Subject to the provisions of this Act and of any law for the time being in force,
notwithstanding that the property in the goods may have passed to the buyer, the 01
unpaid seller of goods, as such, has by implication of law.
a) A lien on the goods for the period while he is in possession of them, 01

b) In case of the insolvency of the buyer a right of stopping the goods in transit 01
after he has parted with the possession of them.
c) A right of re-sale. 01
where the property in goods has not passed to the buyer, the unpaid seller has, in 01
addition to his other remedies, a right of withholding delivery similar to and co- 01
extensive with his rights of lien and stoppage in transit where the property has passed
to the buyer.
Total Marks 10
Ans. Raja and Rehan should apply to Commission to get registered and work as a limited 01
6.(a) liability company without using the word limited.
Restrictions
 Such Association shall apply its profits, if any, or other income in promoting 01
its objects, and
 Such Association shall prohibit the payment of any dividend to its members. 01
Privileges and benefits 01

The association shall on registration enjoy all the privileges of a limited company
and be subject to all its obligations, except those of using the word or words
“Limited”, “(Private) Limited” or “Guarantee) Limited”, as the case may be, as
part of its name.
Public Finance
(b) Such association Accountants
may be set up for any of the following purposes. 03
 Commerce,
 Art,
 Science,
 Religion,
 Sports,
 Social services,
 Charity or
 Any other useful object.
(0.5 mark for any six correct answer)
(c) Zee Foods Limited can change its name by passing a special resolution and obtaining 02
written permission of the registrar for the new name.
Upon the change of name, the registrar shall enter the new name on the register in 02
place of the former name and shall issue a ‘Certificate of Incorporation on change of
name’. On the issue of this certificate, the change of name shall be complete.
After the change of name, the former shall also be mentioned for one year from the 02
date of issue of the certificate outside every office or place of business of the company
and on every document and notice of the company.
The change of name shall not affect any legal proceedings that might have 02
commenced by or against the company under its former name. It would also not affect
the rights and obligations of the company.
Total Marks 15
Ans. The books containing the minutes of proceedings of the general meetings shall be 02
7.(a) open to inspection by members for at least two hours on each day without charge
during the business hours.
Members of the company can demand a certified copy of the minutes of general 02
meeting which the company shall provide to him within seven working days of receipt
of his request.
(b) Directors shall exercise the following powers by ‘passing a resolution I board 06
meeting:
 To call the uncalled an unpaid share capital of the company.

 To issue shares, debentures or other redeemable capital or to otherwise borrow
money or invest the funds of the company.
 To make loans, provided in case of banking companies , the acceptance of
deposits and other amounts from account holders and placements of own funds
in other banking companies shall not be considered as incurring or making of a
loan.
 To approve annual and periodical accounts and to approve bonus for
employees.
 To incur capital expenditure exceeding or undertake leasing obligations
exceeding Rupee one million or to sell/dispose of assets having book value
exceeding Rupees one hundred thousand.
 To undertake leasing obligation exceeding one million rupees.
 To declare interim dividend.
 To authorize any of the following for entering into transactions with the
company.
 Director of the company.
 Partnership firm in which director of the company is a partner.
 Private Company in which director of the company is a director.
 If the amount is material as per generally accepted accounting principles.

 To write off bad debts.
 To write of inventories and other assets.
(one mark for each correct answer with maximum of 06 marks)
Total Marks 10
Ans. First Chief Executive
01
8. Directors shall appoint first chief executive within fifteen days of the date of
incorporation or right on the day of commencement of the business whichever is 01
(i) earlier. 01
First Chief Executive can be appointed for a period of maximum up to the first AGM. 01
He may earlier resign or be removed from his office.
(ii) Removal of Chief Executive

Chief Executive can be removed through any of the following modes at any point in 01
time regardless of any provisions in the articles of association or in his appointment to
the contrary.
 by passing a special resolution in general meeting of the company or 1.5

 by passing a resolution of board of directors with there at least three fourth 1.5
majority of the directors.
(iii) Company is required to file all special resolutions passed by it with the registrar. The 01
company shall file all the special resolutions passed by it within fifteen days of 01
passing the same with the registrar. Such copy to be filed shall be authenticated by the
Chief Executive or Secretary of the company. 01
Total Marks 11
Summer
Ans.
Private Company
9. Such type of a company can be registered by at least two members and it restricts. 01
(i)  The maximum number of members to fifty, members jointly holding shares 01
shall be counted as one member,
 The right to transfer the shares by its members, 01
 The invitation of subscriptions from general public for its shares or other 01
securities.
(ii) Public Unlisted Company

Public Unlisted Companies have not made an offer of their shares to general public 02
hence there shares are not traded on a Stock Exchange.
A Public Unlisted Company however is entitled to make an offer to the general public 01
as and when it thinks fit unlike private companies which are forbidden to invite
subscriptions from general public.
(iii) Holding company

It means a company or body corporate which holds (directly or indirectly) more than 01
fifty percent (50%) in the voting securities of any other company, or has a power to 01
elect and appoint majority of the directors of such other company.
Total Marks 09
**********************
Cost
Accounting
(Level-2)
Solution Cost Accounting
Public Finance Summer
Accountants
Exam-2016
Ans.1. Current Sales Turnover Rs. 600,000 01

Selling price per unit Rs. 10 01
Current Sales volume in units(Rs. 600,000\Rs. 100) 6,000 units 01
Present Capacity utilization 60% 01
Sales Volume at 100% capacity (6,000 x 100/60) 10,000 units 01
Current selling price per unit Rs. 100 01
Less: Proposed reduction @ 20% Rs. 20 01
Proposed selling price per unit Rs. 80 01
Variable cost per unit Rs. 20 01
Add: Variable cost included in semi- variable cost Rs. 5 01
Total variable cost per unit Rs. 25 01
Contribution per unit = Rs. 80 - Rs. 25 = Rs. 55 (after 20% reduction in price) 01
Contribution per unit at the present selling price of Rs. 100 = Rs. 100- Rs. 25 = Rs. 75 01
Total contribution at the present sales volume of 6,000 units @ Rs. 75 per unit is Rs. 450,000.
Sales volume on reduced selling price of Rs. 80 (assuming fixed expense remaining constant)
To earn present amount of profit will be:
=Present contribution/Contribution per unit 01
= Rs. 450,000/Rs. 55 = 8,182 units 01
Sales volume of 8,182 units is more than 80%( i.e. 100/10,000 x 8,182) capacity level, so fixed
expense will increase by Rs. 40,000. Thus to earn present amount of profit, desired contribution
will be Rs. 4,90,000 ( i.e. Rs. 4,50,000 + Rs. 40,000)
Sales volume = Rs. 4,90,000/ Rs. 55= 9,909 units
Capacity level = 8,909/10,000 * 100= 89.1%
Total Marks 15
Ibrahim Corporation (Department 2)

Ans.2. Cost of Production Report
For the Month Ended September 30, 20xx
Quantity Schedule
Units from preceding department 5,000
Units transferred to finished goods 4,000
Units still in process 02
50% Complete 1,000 5,000
Per Unit
Cost Charged to Department Total Rs.
Rs.
Cost from preceding department 20,000 4.00 01
Cost added by department
Materials 18,000 4.00
Labor
9,000 2.00
Accountants
Exam-2016
Applied overhead 9,000 2.00
Total cost added by department 36,000 8.00
Total cost to be accounted for 56,000 12.00 05
Cost Accounted for as Follows Rs. Rs.

Cost transferred to finished goods 48,000 02
4,000 units x Rs. 12.00
Work in process ending inventory
Cost from preceding department
1,000 units x Rs. 4.00 4,000
Materials 1,000 units x 50% x Rs. 4.00 2,000
Labor 1,000 units x 50% x 2.00 1,000
F.O.H 1,000 units x 50% x 2.00 1,000 8,000 03
Total cost accounted for 56,000 02
Notes:
Equivalent Production 02
4,000 units + 1,000 units x 50% = 4,500 units
Unit Cost 03
Material = Rs. 18,000 / 4,500 units =Rs. 4.00
Labor = Rs. 9,000/ 4,500 units = Rs. 2.00
Overhead = Rs. 9,000 / 4,500 units = 2.00
Total Marks 20
Ans.3. (i) Predetermined Factory Overhead Absorption Rates: 05
Predetermined FOH Absorption Rates
FOH Absorption Bases Department A Department B
1 Direct Labor cost base 80% 150%
2 Direct Labor hours base Rs. 8 Rs. 18
3 Machine hours base Rs. 4 Rs. 5
4 Direct material cost base 200% 75%
5 Prime Cost Base 57.14% 50%
Note:
Estimated FOH for the year
FOH absorption rate = (x 100 if base is Rs.)
Estimated base for the year
Accountants
Exam-2016
(ii) Total Product Cost for January 20xx:

(1) (2) (3)
Particulars Direct Labor cost Direct Labor Hours Machines Hours
Base Base Base
Department A: Rs. Rs. Rs.
Direct Materials 450,000 450,000 450,000
Direct Labor 145,000 145,000 145,000
Factory Overhead applied 116,000 112,000 104,000
Total 711,000 707,000 699,000 02
Department B:
Direct materials 250,000 250,000 250,000
Direct Labor 105,000 105,000 105,000
Factory Overhead applied 157,500 171,000 140,000
Total 512,500 526,000 495,000
Total Product cost 1,223,500 1,233,000 1,194,000 02
Notes:
Factory Overhead applied:
Department A: 03
(1) Rs. 145,000x 80% = Rs. 116,000
(2) 14,000 hours x Rs. 8 = Rs. 112,000
(3) 26,000 hours x Rs. 4 =Rs. 104,000
Department B: 03
(1) Rs. 145,000x150% =Rs. 157,500
(2) 9,500 hours x Rs. 18 = Rs. 171,000
(3) 28,000 hours x Rs. 15 = Rs. 140,000
Total Marks 15
Ans. 4 (1) Material Price Variance 04
Actual Usage ( St. unit price- Actual unit price)
Ingredient A = 157,000 kgs (Rs. 2.50 - Rs. 2.40) = Rs. 15,700 Fav.
Ingredient B = 38,000 kgs (Rs. 4 - Rs. 4.20) = Rs. 7,600 Adverse
Ingredient C = 36,000 kgs (Rs. 1 - Rs. 1.10) = Rs. 3,600 Adverse
Total Material Price Variance Rs. 4,500 Fav.
(2) Material Mix Variance 04
Standard Cost of revised St. mix-standard cost of actual mix
Revised standard mix of Ingredient A
For a standard mixture of 1,200 kgs. A’s mixture will be 800 kgs.
For actual mixture of 231,000 kgs. (157,000 kgs + 28,000 kgs + 36,000 kgs
A’s revised standard mix is 800/ 1,200x 231,000 = 154,000 kgs.
Public
Revised standard Finance
Mix of ingredient Accountants
B = 200/1,200x 231,000 = 38,500 kgs.
Accountants
Exam-2016
Revised standard Mix of ingredient C = 200/ 1,200 x 231,000 = 38,500 kgs.
Standard cost of revised standard mix: Rs.
Ingredient A: 154,000 kgs. @ Rs. 2.50 = 385,000
Ingredient B: 38,500 kgs. @ Rs. 4.00 = 154,000
Ingredient C: 38,500 kgs. @ Re. 1.00 = 38,500
577,500
Less: Standard Cost of Actual Mix:
Ingredient A: 157, 000 kgs @ Rs. 2.50 = 392,500
Ingredient B: 38,000 kgs @ Rs. 4.00 = Rs. 152,000
Ingredient C: 36,000 kgs @ Re. 1.00 = Rs. 36,000 5,80,500
Material Mix variance (Adverse) 3,000
(3) Material Yield variance 04
For a standard mix of 1,200 kgs, standard output is 1,000 kgs.
For an actual mix of 231, 000 kgs, standard output will be
1,000
x 231,000 = 192,500 kgs
1,200
Material yield Variance:
Standard Cost per kg of output (Actual output – Standard Output)
Rs. 3 ( 200,000kgs- 192, 500 kgs) = Rs. 22,500 Fav.
Total Marks 12
Ans. 5 1. Predetermined Manufacturing overhead: 04
Est. mfg. OH\ Est. Dl Costs = Rs= 1,600,000\ Rs. 1,230,800 x 100= 130%
2. OH applied: 04
DL cost (500* 4 = 2,000 hrs. * Rs. 40) Rs. 80,000
OH applied: Rs. 80,000 * 130% = Rs. 104,000
3. Under\ over Applied: 04
Actual OH Rs. 104,500
Applied OH Rs. 104,000
Under Applied OH Rs. 500
Total Marks 12
Ans. 6 Lucky Enterprise
Cost of Goods Manufactured Statement - 2015
Rs. Rs.
Opening Balance – Materials 780,000
Purchases 3,820,000
Material available 4,600,000
Pakistan Institute
Closing Balance – Materials 540,000 of
Material Consumed 4,060,000
Accountants
Exam-2016
Direct Labor [48,000* Rs. 60] 2,880,000
Manufacturing Overheads:
Indirect Material 120,000
Indirect Labor 80,000
Mfg. Overhead 1,800,000 2,000,000
8,940,000
Opening balance of work in process 540,000
9,480,000
Closing balance of work in process 360,000
COST OF GOODS MANUFACTURED 9,120,000
Total Marks 08
Ans. 7 Split of Selling Costs into Variable and Fixed Costs:
2014 Rs. 710,000 70,000
2015 Rs. 650,000 60,000
Rs. 60,000 10,000
Rs. 60,000\ 10,000= Rs. 6 Variable cost per unit
Variable cost 60,000* Rs. 6 = Rs. 360,000
Fixed Costs Rs. 290,000
Total selling costs Rs. 650,000
Manufacturing Overhead:
DL cost 1.5 hr. * 60,000 = 90,000 hours
90,000 hrs. * Rs. 60 = Rs 5,400,000
Variable manufacturing overhead 15% of DL cost = Rs. 810,000
Fixed manufacturing overhead Rs. 390,000
Total manufacturing overhead Rs. 1,200,000
HI-TECH LIMITED
Income Statement- Variable Costing
Rs. Rs.
Sales [ Rs. 650* 60, 000] 39,000,000
Variable Costs:
Direct Materials [ 6* 25*60,000] 9,000,000
Direct Labor[1.5* 60* 60,000] 5,400,000
Variable Mfg. OH 810,000
Variable Selling Costs 360,000 15,570,000
Contribution Margin 23,430,000
Fixed Mfg. costs 390,000
Fixed selling costs 290,000
Admin. Costs 480,000 1,160,000
Net income Pakistan Institute of
22,270,000

Total Marks 08
Accountants
Exam-2016
(i) Material Ledger Card 04
Material-M [FIFO]
Date Received Issued Balance
Units Unit Amount Units Unit Amount Units Unit Amount
cost Cost cost
20xx
Jan. 1 100 8.00 800
Jan. 1 100 8.50 850 100 8.00 800

100 8.50 850
Jan. 5 100 8.00 800 100 8.50 850
Jan. 8 200 8.85 1,770 100 8.50 850

200 8.85 1,770
Jan. 15 100 9.25 925 100 8.50 850

200 8.85 1,770
100 9.25 925
Jan.25 100 8.50 850 80 8.85 708

120 8.85 1,062 100 9.25 925
Jan. 31 80 8.85 708 100 9.25 925
03
(ii) Material Ledger Card
Material – M [LIFO]
cost Cost cost
20xx
Jan. 1 100 8.00 800
Jan. 1 100 8.50 850 100 8.00 800
100 8.50 850
Jan. 5 100 8.50 850 100 8.00 800
Jan. 8 200 8.85 1,770 100 8.50 850
200 8.85 1,770
Jan. 15 100 9.25 925 100 8.00 800
200 8.85 1,770
100 9.25 925
Jan.25 100 9.25 925 1000 8.800 800
120 8.85 1,062 80 8.85 708
Jan. 31 80 8.85 708 100 8.00 800
Accountants
Exam-2016
(iii) Material Ledger Card 03
Material – M [Average Cost]

cost Cost cost
20xx
Jan. 1 100 8.00 800
Jan. 1 100 8.50 850 200 8.00 800
Jan. 5 100 8.25 825 100 8.25 825
Jan. 8 200 8.85 1,770 300 8.65 2,595
Jan. 15 100 9.25 925 400 8.80 3,520
Jan.25 220 8.80 1,936 180 8.80 1,584
Jan. 31 80 8.80 704 100 8.80 880

Total Marks 10
*********************
Financial
Accounting
(Level-3)
Solution Financial Accounting
Summer
Ans. As per IAS - 18 Dividend from investment in shares are not recognized in the statement of Profit
and Loss until a right to received payment is established.
1.
(a) Since Interim Dividend is to be accounted when right to receive dividend is established. National 05
Investment Limited should account such dividend in accounting year 2015-16.
(b) National Investment Limited in this case also will accounted for the dividend in the financial year 05
2015-16 and not for the year ending March 31, 2015. Since the right to received dividend did not
exist at Balance Sheet Date i.e., as at March 31, 2015 but existed only when AGM of Zaid
Limited approved dividend on May 10, 2015.
Total Marks 10
Ans. BASIC POULTRY (PRIVATE) LIMITED
2. PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED JUNE 30, 2015
Rs. Marks
Sales 5,000,000 0.5
Cost of Goods Sold (W-01) 2,300,000 0.5
Gross Profit 2,700,000
Administrative Expenses ( W-02 ) (1,990,000)
710,000
Finance Cost (40,000 + 40,000) (80,000) 01
Net Profit for the Year 630,000 01
BASIC POULTRY (PRIVATE) LIMITED

STATEMENT OF FINANCIAL POSTION
AS ON JUNE 30, 2015
Rs.
EQUITY AND LIABILITIES
EQUITY
Paid up Capital 10,000,000 0.5
General Reserves 200,000 0.5
Retained Earnings (3,000 + 630 - 200) 3,430,000 01
Total Equity 13,630,000
8% Debentures 1,000,000 01
Current Liabilities
Notes Payable 300,000 0.5
Accounts Payable 400,000 0.5
Accrued Expenses (150,000 + 40,000) 190,000 01
Total Current Liabilities 890,000
TOTAL EQUITY AND LIABILITIES 15,520,000 01
Summer
ASSETS
Non-current assets (W-03 ) 13,100,000 01
Preliminary Expenses (100,000-10,000) 90,000
Current Assets
Closing Stocks 500,000 0.5
Accounts recently less: Provision Receivables
(1,200,000 - 60,000) 1,140,000 0.5
Prepaid Expenses (100,000 + 50,000) 150,000 0.5
Cash and Bank Balance 540,000 0.5
Total Current Assets 2,330,000
Total Assets 15,520,000 01
WORKING NOTES
Working - 01 (COST OF GOODS SOLD)
Opening Stock 800,000 0.5
Add Purchases 2,000,000 0.5
Goods Available for Sales 2,800,000 0.5
Less Closing Stocks 500,000
Cost of Goods Sold 2,300,000 0.5
Working - 02 (ADMINISTRATIVE EXPENSES)
Salaries (1,200,000 + 150,000 -50,000) 1,300,000 0.5
General Expenses 100,000 0.5
Insurance Expenses (300,000 - 100,000) 200,000 0.5
Preliminary Expenses(100,000%10) 10,000 0.5
Bad Debt Expenses (50,000 + 30,000) 80,000 0.5
Depreciation Expenses 300,000 0.5
Total Administrative Expenses 1,990,000
Working - 03 (NON-CURRENT ASSETS)

Land Plant Total
Opening Balance 10,400,000 3,000,000 13,400,000
Less Accumulated Depreciation - - -
Written Down Value 10,400,000 3,000,000 13,400,000
Depreciation Rate 10%
Depreciation for the Year - 300,000 300,000 01
Accumulated Depreciation - 300,000 300,000
Written Down Value as on June-30-2015 10,400,000 2,700,000 13,100,000 01
Total Marks 20
Summer
Ans. FRIENDS COMMODITIES (PRIVATE) LIMITED
3.
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED JUNE 30, 2015
Rs.
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before Taxes 110,000 01
Adjustments for :
Depreciation 60,000 0.5
Loss on Disposal of Equipments (20,000 - 17,000) 3,000 63,000 0.5
Operating Profit before Working Capital Changes 173,000 0.5

Decrease in Accounts Receivable (410,000 - 460,000) 50,000 0.5
Decrease in Inventory (300,000 - 320,000) 20,000 0.5
Increase in Prepaid Expenses (20,000 - 15,000) (5,000) 0.5
Increase in Accounts Payable (300,000 - 120,000) 180,000 0.5
Decrease in Accrued Liabilities (40,000 - 50,00) (10,000) 235,000 0.5
Cash Flow from Operating Activities 408,000
Cash Flow from Investing Activities

Sale Proceeds of Fixed Assets 17,000 0.5
Purchase of Investments (50,000 - 25,000) (25,000) 0.5
Purchase of Land (560,000 - 300,000) (260,000) (268,000) 0.5
Cash used in Investing Activities 140,000
Cash Flow from Financing Activities

Payment of Dividends (60,000) 0.5
Repayment of Bonds (300,000) 0.5
Increase in Share Capital 200,000 (160,000) 0.5
Net Decrease in Cash and Cash Equivalents (20,000) 0.5
Opening Balance of Cash and Cash Equivalents 50,000 0.5
Closing Balance of Cash and Cash Equivalents 30,000 01
Total Marks 10
Summer
Public Finance Accountants Units
Ans.
4. Ending Inventory 1,000
Opening Inventory 72,800 0.5
Add Purchases 73,800 0.5
Total Available (57,000)
Less Sales 16,800 0.5
Ending Inventory 0.5
Rs.
(1). Ending Inventory - Periodic - FIFO
31-05-2015 = 10,100 Units @ Rs.690/unit 6,969,000 01
05-04-2015 = 6,700 Units ((11,310,000 / 15600) * 6,700) 4,857,500 01
Ending Inventory FIFO 11,826,500 01
(2). Ending Inventory - Net Realizable Value

Sole Volume = (41,325 000 / 57,000 Units) * 16,800 Units 12,180,000 01
Less Selling Expenses @ 2% of Rs. 12,180,000 (243,600) 01
Ending Inventory - Net Realizable Value 11,936,400 01
Value of Ending Inventory
Sales 41,325,000 0.5
Cost of Sales
Opening Stock 560,000 0.5
Purchase 50,786,000 0.5
51,346,000
Less Closing Stock – at cent 11,826,500 39,519,500 0.5
Gross Profit 1,805,500 0.5
Operating and Selling Expenses 1,525,900 0.5
Net Profit for the Period 279,600 01
Total Marks 12
Ans. IN THE BOOKS OF AHMED & UMER
5. REVALUATION ACCOUNT
Debit Credit
Particulars Rs. Particulars Rs.
Inventory 1,500 Building 6,350 01
Provision for Bad Debts 100 01
Furniture 500 01
Partners Capital
Revaluation Surplus - Ahmed 2,550 01
Partners Capital
Revaluation Surplus - Umer 1,700 01
6,350 6,350
Summer
Partners Capital Account
Particulars Ahmed Umer Yousuf Total
Opening Balances of Capital 29,000 15,000 - 44,000
Reserve Account 6,000 4,000 - 10,000 0.5
Revaluation Account 2,550 1,700 - 4,250 0.5
Present Capital before admission of Yousuf 37,550 20,700 - 58,250
Cash Account 21,000 46750 0.5
Goodwill (Note # 01) 15,450 10,300 - 25,000 0.5
New Capital after Admission of Yousuf 53,000 31,000 21,000 105,000
Capital Should be after Admission of Yousuf 52,500 31,500 21,000 105,000 0.5
Capital to be Raised / (Decrease) (500) 500 - - 0.5
Balance Sheet of New Firm

As on July 01, 2015
Partners Capital - Ahmed 52,500 0.5
Partners Capital - Umer 31,500 0.5
Partners Capital - Yousuf 21,000 0.5
Partners Capital 105,000
Current Liabilities
Creditors 28,500 0.5
Accrued Expenses 4,000 32,500 0.5
Total Capital and Liabilities 137,500 0.5
Assets
Non-current Assets - Building 41,350 0.5
Non-current Assets - Machinery 19,000 0.5
Non-current Assets - Furniture 4,500 0.5
Non-current Assets 64,850
Goodwill 25,000
Current Assets
Debtors (9,400 - 500) 8,900 0.5
Inventory 13,500 0.5
Prepaid Expenses 1,500 0.5
Cash and Bank Balances 23,750 47,650 0.5
(2,000 + 21,000 + 800 - 50)
Total Assets 137,500 0.5
Summer
Working Notes
Capital of Yousuf = Rs. 21,000 for 2/10th /share
Therefore Total Capital of Firm = 21,000 x 2 / 5 105,000 01
Ahmed's Capital = Rs. 105,000 X 5 /10 = 52,500 01
Umer's Capital = Rs. 105,000 x 3 /10 31,500 - 01
Combined Capital of Ahmed and Umer 84,000
Less Present Capital of Ahmed and Umer after
Revaluation of Assets 58,250 01
Goodwill to be raised 25,750 01
Total Marks 20
COST OF BUSES
Ans.6.
List Price @ Rs. 2,000,000 each 20,000,000 0.5
Less Trade Discount @ 10% 2,000,000 0.5
18,000,000
Add Additional Cost
Excise Duty and Sales Tax 170,000 0.5
Repainting of Buses @ Rs. 10,000 each 100,000 0.5
Freight @ Rs. 13,000 each 130,000 400,000 0.5
Cost of Buses 18,400,000 0.5
I. Journal Entries
Fixed Assets - Buses 18,000,000 0.5
Cash / Bank 18,000,000 0.5
(Purchase of Buses from Ching Yong)
Fixed Assets - Buses 400,000 0.5
Cash / Bank 400,000 0.5
(To record additional cost paid on Purchase of Buses)
II. Calculation of Depreciation

Total Cost 18,400,000
Depreciation @ 15% for 2013 2,760,000 01
Written Down Value December 31, 2013 15,640,000
Depreciation @ 15% for 2014 2,346,000 01
Written Down Value December 31, 2014 13,294,000
Depreciation 2015 1,994,100 01
Written Down Value December 31, 2015 for 10 Buses 11,299,900
Written Down Value for 01 Bus 1,129,990
Summer
GAIN / LOSS ON DISPOSAL OF BUSES
Written Down Value (1,1299,900 x 5) 5,649,950 0.5

Cash received 6,650,000 0.5
Gain on Sale of 05 Buses 1,000,050 01
Journal Entries DR CR
Cash 6,650,000 0.5
Accumulated Depreciation 3,550,150 0.5
Fixed Assets Buses 9,200,000 0.5
Gain on sale of Fixed Assets - Buses 1,000,050 0.5
(To record gain on disposal of 05 Buses)
Total Marks 12
In the Book of the Marahaba (Private) Limited - Karachi - Head Office
Ans.7.
Branch Stock Account
Debit Credit
Particulars Rs. Particulars Rs. (Marks)
Opening Balance Stock 17,500 Cash Sales by Branch 131,250 0.50+0.50
Goods Sent to Branch 350,000 Credit Sales by Branch 204,167 0.50+0.50
Branch Debtors 4,375 Stock Shortage 1,215 0.50+0.50
(Return of Goods by Customer)
(1,458 x 100/120)
Branch Adjustment 243 01
Account
1,458 x 20/120)
Balance C/d 35,000
371,875 371,875
Branch Debtors Account

Debit Credit
Particulars Rs. Particulars Rupees
Balance B/d 21,875 Bank Collection 196,875 0.5
Credit Sales 204,167 Branch Stock 4,375 0.50+0.50
Bank Account 3,646 Bad Debts 1,094 0.50+0.50
(Dishonor of Branch Cheque)
Discount 729 0.5
Balance c/d 26,615
229,688 229,688
Summer
PublicIN THE
Finance Accountants
BOOKS OF THE HEAD OFFICE (ALPHA LIMITED - KARACHI) - HEAD OFFICE
BRANCH ADJUSTMENT ACCOUNT
Debit Credit
Particulars Rs. Particulars Rs. Marks
Branch Stock Account 243 Stock Reserve Account 2,917 01+01
(1,458 x 20/120) (17,500 x 20/120)
Stock Reserve Account 5,833 Stock Reserve 58,333 01+01

(35,000 x 20/120) (350,000 x 20/120)
Gross Profit C/d 55,174
61,250 61,250
BRANCH PROFIT AND LOSS ACCOUNT

Debit Rs. Credit Rs.
Particulars Particulars
Stock Shortage 1,215 Gross Profit b/f 55,174 0.50+0.50
Branch Expenses - Cash 39,010 0.5
Bad Debt Expenses 1,094 0.5
Discounts 729 0.5
0.5
Net Profit of Branch 13,126 01
55,174 55,174 01
Total Marks 16
************************
Business Commn. &

Report Writing
(Level-3)
Solution Business Communication & Report Writing
Public
Ans. EffectiveFinance Accountants
communication demonstrates the following characteristics: 06
1. (a) 1. Accuracy- It refers to the accuracy of facts and figures including number, times,
dates and names, Inaccuracies may not only create a bad impression for an
organization but also impact on its profitability.
2. Appropriate media and channel – This means selecting the media and channel
according to the target audience ( their knowledge, education, experience, etc),
the nature of the message (complexity), the available time and the cost of
communicating
3. Clarity- Clarity makes comprehension of the message easier. When there is
clarity in presenting ideas, it’s easy for the receiver to grasp the meaning being
conveyed by the sender. It requires careful choice of language and keeping the
communication as simple as possible.
4. Appropriate Language ( Image and tone) – Jargon ( technical words and
phrases common accurate, clear and appropriate for the situation. Jargon
(technical words and phrases common to a specific profession or discipline) and
slang (invented words and phrases specific to a certain group of people) should
avoided. To facilitate understanding, the message may be supported with tables,
graphs and other images.
(b) Paralanguage describes the vocal yet non-verbal part of communication. They are the 03
vocal features that accompany speech. They include the variance in speed, tone, pitch,
volume of voice and stress on words.
Paralanguage affects our communication because the use of same words with the
change in tone, volume, or pitch of voice may convey different meanings to the
recipients. The effective use of paralanguage may enhance the efficacy of a message.
Total Marks 09
Ans. A model called the ‘Universals of communication’ is used to describe the various 05
2. (a) components of interpersonal communication. The model includes following ten
components:
1. Source-receiver 6. Self feedback and feedback from others
2. Encoding-decoding 7. Context
3. Compliance and performance 8. Field of experience
4. Message and their channeling 9. Effects
5. Noise 10. Ethics
(b) Formal Communication: 10

Formal Communication refers to the communication taking place through official
channels in an organization. Such type of communication takes place between
managers or employees of same cadre or between superior and subordinate and vice
versa. It is further classified ad vertical (upward and downward), horizontal and
diagonal communication, In formal communication, the authority of superior over
subordinates is well maintained. The information has to pass through a definite route:
therefore the flow of information is very systematic.
Summer
In formal communication, secrecy can be maintained. In this type of communication,
the source of each information can be easily located.
Formal Communication increases the work load of various managers as all
communications are to be transmitted through a definite channel. Sometime the actual
message is distorted because the distance between the sender & the receiver is so big
that the information passes through many hands & by the time if reaches the receiver it
is inaccurate. Moreover formal communication is mostly conveyed in an impersonal
manner and it lacks personal warmth & involvement.
Informal Communication:
Informal communication takes place in an organization without following the formal
line of communication. Such type of communication usually takes place among the
workers to exchange their views and to satisfy their social needs. For example, workers
talking about the behavior of their superiors, discussing about some rumors etc. are
some of the examples of informal communication.
Informal communication responsibility for misleading facts can be pinpointed but it is
not so in case of informal communication. Most of the information received through
this communication in undependable & no important decision can be taken on the basis
of this along. It may lead to the leakage of important information which can prove to be
harmful for the organization.
Total Marks 15
Ans. The key points to consider in communicating a negative message while retaining
3. goodwill are as follows:
1. Use a buffer:
A buffer is a neutral or positive statement designed to soften the impact of
the negative message. A good buffer makes the reader more receptive to the
negative message.
2. Offer an explanation:
Offering of a sound reason prepares the ground for the reader to accept the
refusal. Explanation includes giving convincing reasons why the matter must
be handled differently from the expectations of the reader
3. Avoid emphasizing the refusal:
The refusal message should not be over emphasized, although it should be
clearly stated in the message.
4. Present an alternative or compromise:
Offering an alternative option would give the reader a different perspective
and create an impression that the sender cares about the reader and has a
positive and helpful attitude.
5. End with a positive statement:
The ending of an unfavorable message should be on an assuring and positive
note with a reader-friendly closing.
Total Marks 09
Public
Ans. There areFinance Accountants
generally three types of listeners we find in an organizational setting. They
4. are as follows.
1. Results-oriented– Typically low on patience, these listeners are focused on
achieving their goals as quickly and efficiently as possible. Speakers who
like listeners to demonstrate empathy and logical thought often see results-
oriented listeners as arrogant and impatient. Conversely results-oriented
would see many speakers as unfocused and become frustrated at speakers
taking too long to make their point.
2. Information-oriented – These listeners like to build a full picture, collect
and consolidate all relevant information in order to make the right decision.
The risk is that an overly analytical approach can overlook emotional
attitudes and appear unsympathetic to some speakers.
3. People-focused – The priority of this type of listener is not the business
outcome or a technical solution, but rather a focus on supporting the speaker
and being attentive to their feelings and needs. People-focused listeners have
lots of patience and are naturally gifted at providing feedback and reflective
questions that make the speaker feel good and confident about themselves.
The speaker really feels listened-to although a result-oriented or
information-oriented speaker may feel that a people-focused listener is
vague and inconclusive with too much of an emphasis on feelings.
Total Marks 06
Ans. Answers will vary but must meet the following requirements.
5. 1. Opening paragraph: Explain the general background to your enquiry so
that the reader is clear what the letter is about.
2. Body: Must provide specific details about the enquiry and list your questions
in a logical order.
3. Close: Close should contain the ‘call to action’. State clearly what the reader
should do and exactly by when.
Total Marks 10
Ans. Answers will vary but the contents of an agenda for a formal meeting would include
6. the following:
1. Title, date, time and place of the meeting.
2. Purpose of the meeting.
3. Minutes of the previous meeting:
 Matters arising from the last meeting – how any action points or
outstanding issues have been resolved.
4. Apologies for absence.
5. Main body:
(i) HR issues Pakistan Institute of
(ii) Finance matters
Public Finance
(iii) Marketing Accountants
items
(iv) Quality Control issues
6. Any other Business.
7. Date of next meeting.
Total Marks 10
Ans. Answers will vary but must contain the following:
7. 1. Introduction
2. SWOT Analysis
3. Conclusion
4. Recommendation
Total Marks 15
Ans. Answers will vary but CV must:
8. (i) Be restricted to ONE page in length or two pages at maximum.
(ii) Convey the candidate’s key experience and skills quickly.
(iii) Order information within sections with the most recent and relevant first.
(iv) Provide an overview of experience and other qualifications.
(v) Highlight the applicant’s special talents and background that will benefit the
employer.
(vi) Should demonstrate that the applicant can make a positive contribution
towards the company’s business objectives.
Total Marks 10
Ans. Benefits of email:
9. 1. An audit trail of messages is automatically retained (and can be for long
periods). This can be invaluable in disputes or simply to check the details of
an email conversation or client order.
2. The sending and receiving of emails is virtually instantaneous anywhere in the
world. This enables managers to communicate with colleagues and companies
to communicate with clients or suppliers incredibly quickly.
3. Recipients can access emails anywhere and anytime at their convenience.
4. Traditional and expensive mail shots to multiple recipients can be replaced by
significantly quicker and cheaper multi-recipient email communications
achieving much greater penetration.
5. Easy to use and organize daily correspondence.
6. Low cost.
7. Good for the environment – doesn’t use paper.
Total Marks 07
Public Finance
Ans. Video conferencing Accountants
is on the rise and just about every company utilizes it to some
10. degree. There are various reasons for its popularity few have been discussed below:
1. Improved lower-cost technology with greater bandwidth
2. Wider variety of video conferencing tools available associated with
increasingly more powerful PCs.
3. Environmentally friendly IT initiatives such reduced air travel.
4. High travel costs combined with austerity related cost saving initiatives.
5. Reliability: One can hold meeting regardless of weather, flight delays, or many
other reasons. One can always be able to connect with the members no matter
where they are.
6. Increase Productivity: Meet as much as one to get the job done instead of only
when it is scheduled. It is so easy to bring someone into the conversation that
there’s no pressure to fill up an hour to justify the scheduling.
7. Improve Employee Morale: The employees may contribute to decision making
which increases their morale.
8. Improve safety and security both for people as well as information.
Total Marks 09
***********************
Taxation
(Level-3)
Solution Taxation
Public Finance
Ans. Filer: A taxpayer whose nameAccountants
is appears in the ‘active taxpayer’ list’ or is the holder of 02
1. (i) a ‘taxpayer’s card’s is termed as ‘filer’. The active taxpayers’ list is issued by FBR from
time to time. Sec 2-(23A)
(ii) Imputable Income: ‘Imputable income’ has been defined in relation to an amount 02
which is subject to ‘final tax’ and means the income which would have resulted in the
same tax, had this amount not been subject to final tax. Sec 2-(28A)
(iii) Small Company: Small Company’ means a company which fulfills the following 02
conditions:
1. It is a company registered under the Companies Ordinance, 1984;
2. It is registered on or after 1st July, 2005; and
3. The Company:
(i) Has paid-up capital plus undistributed reserves up to rupees fifty (50) million;
(ii) Has employees not exceeding two hundred and fifty (250) at any time during the
year;
(iii) Has total annual turnover up to rupees two hundred and fifty (250) million; and
(iv) Is not formed by the splitting up or the reconstitution of company already in
existence. 2(59A)
Total Marks 06
Ans. Power of Parliament to impose tax on the income of certain Corporations:

2. 1. Parliament has, and shall be deemed always to have had, the power to make a law
to provide for the levy and recovery of a tax on the income of a corporation,
company or other body or institution established by or under a Federal law or a
Provincial law or an existing law or a corporation, company or other body or
institution owned or controlled, either directly or indirectly, by the Federal
Government or a Provincial Government, regardless of the ultimate destination of
such income.
2. All orders made, proceedings taken and acts done by any authority or person,
which were made, taken or done, or purported to have been made, taken or done,
before the commencement of the Constitution (Amendment) Order 1985, in
exercise of the powers derived from any law referred to in clause (1), or in
execution of any orders made by any authority in the exercise or purported
exercise of powers as aforesaid, shall, notwithstanding any judgment of any court
or tribunal, including the Supreme Court and a High Court, be deemed to be and
always to have been validly made, taken or done and-shall not be called in
question in any court, including the Supreme Court and a High Court, on any
ground whatsoever.
3. Every judgment or order of any court or tribunal, including the Supreme Court
and a High Court, which is repugnant to the provisions of clause (1) or clause (2)
shall be, and shall be deemed always to have been, void and of no effect
whatsoever.
Total Marks 09

Solution Taxation
Summer
Public Finance
Ans. Unexplained Accountants
Incomes or Assets:
3. The value of any income, expenditure, investment, article or asset, etc., shall be
chargeable to tax under the head “Income from Other Sources” if the following
conditions are met:
1. It is any:
(i) Amount which is credited in a person’s books of account;
(ii) Investment made by a person;
(iii) Money or valuable article owned by a person;
(iv) Expenditure incurred by a person; or
(v) Concealment of any income or furnishing of inaccurate particulars of income,
which includes:
a) The suppression of any production, sales or any amount chargeable to
tax; or
b) The suppression of any item of receipt liable to tax in whole or in
part;
2. The person offers no explanation about the nature or source of the transaction,
concealment of income or furnishing of inaccurate particulars of income or the
explanation offered by him is not, in the opinion of the Commissioner, satisfactory;
and
3. Where a person claims the ‘Agricultural income’ as his source of investment,
expenditure, etc, than it shall be accepted only to the extent of agricultural income
worked back on the basis of agricultural income tax paid under the relevant
provincial law.
4. The amount shall be included in person’s income chargeable to tax in the tax year
to which such amount relates.
5. If the foreign remittance is received from outside Pakistan through normal banking
channels which is encashed into rupee by a scheduled bank and certificate from
such bank is produced to that effect, the section 111 on such amount or assets
created from such amount , shall not be applicable
Total Marks 10
Ans. Name of Tax Payer : Mr. AKRAM

4. National Tax Number : XXX
Tax Year Ended : 30th June 2015
Tax Year : 200A
Personal Status : Individual, Non-Salaried
Residential Status : Non-Resident
Taxable Income and Tax Liability
Taxpayer has incomes under different heads. Their taxability is as below:
Contd…
Solution Taxation
Summer
Public Income
Finance
from Property Accountants Rs. Rs.
Rent chargeable to tax (RCT)
Rent (Rs. 50,000x12) 600,000 600,000
Less: Admissible deductions:
Repair Allowances (1/5th of Rs. 600,000) 120,000
Property tax paid for the year [N-1] 5,000
Interest on loan 10,000
Property tax (For the last year) paid [N-2] 5,000 140,000
Total Income 460,000
Less: Zakat on DSCs 5,000
455,000
Taxable Income
Tax Liability:
Tax on initial Rs. 400,000 Nil
Tax on next Rs. 55,000 @ 7% 3,850
Total tax 3,850
Note-1
Encashment of Saving Bank Account
This income is taxable under final tax regime. Tax at source is deducted at the time of
crediting interest to the account of account holder. Tax so deducted is treated as final
discharge of tax liability in respect of such income. Thus, no further tax shall be payable.
So encashment of DSC in not chargeable to tax.
Note-2
Income of Defense Saving Certificates
This income is also covered under FTR and tax deducted at source is considered as final
discharge of the tax liability. It does not form part of taxable income under normal
procedure.
Total Marks 15
Ans. Adjustment of Excise Duty: While determining the net liability under the Federal 06
5.(a) Excise Act, 2005 a person is allowed to deduct the duty already paid on goods specified
in the first schedule from the excise duty levied on the goods manufactured by him. This
adjustment shall be allowed if the following conditions are fulfilled:
 The goods are used directly as input goods for manufacture or production;
 The person holds a valid proof to the effect that he has paid the price of the
goods (including the excise duty) purchased by him through banking channels.
 The person has received the price of the goods (including the excise duty) sold
by him through banking channels; and
 The person is a registered person.
The Board may disallow or restrict the adjustment of the whole or a part of excise duty in
respect of any goods or class of goods. It may also regulate the adjustment of the excise
duty. Pakistan Institute of
Solution Taxation
Summer
Public Finance
Ans. Drawback of Duty: Accountants 03
5.(b) The Board is empowered to grant drawback of excise duty paid on any of the following
goods:
1. Goods used in manufacture of such goods in Pakistan which are exported out of
Pakistan.
2. Goods in nature of provisions or stores shipped for consumption on board a ship
or aircraft proceeding to a destination outside Pakistan.
The Board shall notify the rate or rates of drawback. It may also impose the conditions or
limitations applicable to the drawback of excise duty.
Prohibition of drawback of Duty: 03

Irrespective of the provisions regarding ‘zero rate of duty u/s 5(1)’ or ‘drawback of duty u/s
5(2)’ the board may prohibit the payment of drawback, refund or adjustment of duty upon
the exportation of goods or any specified goods or class of goods to any specified foreign
port or territory. The board while exercising this power shall notify the goods and territory
in the official gazette.
Total Marks 12
Ans. Provision of Minimum Tax: 08

6.(a) (i) It is applicable to:
(a) A resident company;
(b) An individual having turnover of fifty million rupees or more; and
(c) An AOP having turnover of fifty million rupees or above.
(ii) Turnover tax (Minimum Tax) is levied at the following rates applied to person’s
turnover for the tax year:
S. # Persons Tax Rate
1. a) Oil marketing companies, Oil refineries, Sui Southern Gas 0.5%
Company Limited. Sui northern Gas Pipelines Limited (for the
cases where annual turnover exceeds rupees one billion);
b) Pakistan Airlines;
c) Poultry industry including poultry breeding, broiler production,
egg production and poultry feed production; and
d) Dealers and distributors of fertilizers.
2. a) Distributors of pharmaceutical products, fast moving consumer 0.2%
goods and cigarettes;
b) Petroleum agents and distributors who are registered under
Sales tax Act, 1990;
c) Rice mills and dealers; and
d) Flour mills.
3. Motorcycle dealers registered under the Sales Tax Act, 1990. 0.25%
4. In all other cases 01%
Solution Taxation
Public Finance
(iii) Where any of above Accountants
referred persons has no tax liability under the normal tax
procedure is less than the tax as per above table, than the person shall be required to
pay this tax. In other words the tax liability of a person for any tax year shall be the
higher of the tax determine under NTR or tax computed by applying the above rates
to the person’s turnover for the tax year.
(iv) The reasons for no Tax Liability or less Tax Liability may be all or any of the
following:
(a) Sustaining of a loss;
(b) Setting off of a loss of an earlier years;
(c) Exemption from tax;
(d) Application of credits or rebates; or
(e) Claiming of allowances or deductions (including depreciation and
amortization) allowed under Income tax Ordinance or any other law.
“Tax payable or paid” does not include the tax already paid or payable in respect of
deemed income which is covered under final tax regime (FTR).
(b) Benefits and Conditions of Section 65(B) 08

A tax credit equal to 10% of the amount invested by a company in purchase of plant and
machinery shall be allowed against the tax payable by it.
Other provisions in this regard are:
1. The plant and machinery is purchased by the company for purposes of extension,
expansion, balancing, modernization and replacement (BMR) of the plant and
machinery already installed.
2. The plant and machinery is for an industrial undertaking set up in Pakistan and is
owned by the company making the investment.
3. The plant and machinery should be purchased between 01-07-2010 and 30-06-
2016.
4. The amount of tax credit shall be deducted from the tax for tax year in which plant
or machinery.
5. Where there is no tax payable for the year in which plant or machinery is installed
or tax payable for that year is less than the amount of tax credit, the unadjusted tax
credit shall be carried forward and deducted against tax payable for following tax
years.
6. The amount of unadjusted tax credit may be carried forward maximum for the two
(2) tax years.
7. The Commissioner may re-compute the tax payable for the relevant tax payable
for the tax years if subsequently it is found by him that any of the above-referred
conditions was not fulfilled. Under this case it shall be deemed that tax credit was
wrongly allowed.
Total Marks 16
Solution Taxation
Summer
Public Finance
Ans. Provisional Accountants
Assessment 122 (C) 07
7. The Income Tax Ordinance, 2001 contain the two different sections regarding to provisional
assessment. These sections deal with two different situations in which the commissioner
may make provisional assessment order. Each of these provisions is below:
Provisional assessment for non-filing of return [122(C)]
The commissioner may makes the provision assessment if a person fails to furnish a return
of income in response to a notice issued by the commissioner u/s 114 (3) and 114(4) of the
income tax ordinance, 2001. Other provision in this regard is:
1. The Commissioner shall make the provisional assessment on the basis of any
available information of material and to the best of his judgment.
2. The provisional assessment order shall specify the assessed taxable income and
amount of tax due.
3. The provisional assessment shall be treated as final assessment after the expiry
of forty – five (45) days from the date of service of provisional assessment order.
4. The provisional assessment shall not be treated as final assessment if the person
(being an individual or an AOP) files the following documents within the above
–referred period of forty-five (45) days:
(i) A Wealth Statement;
(ii) A Wealth Reconciliation Statement ; and
(iii) An explanation of Source of Assets or Income
The provisional assessment shall not be treated as final assessment if the company
electronically files the return of income along with audited account or final within the above
–referred period forty-five (45) days.
Provisional Assessment for Concealed Assets 123 03

Where the taxpayer has a concealed assets and that asset is impounded by any government
department or agency, the commissioner may make an order assessing there in the taxable
income and the tax liability of the taxpayer. This assessment is subject to the following
conditions:
1. A provisional assessment may be made before an assessment or amended
assessment is made u/s 121 or 122.
2. It is to be made in writing
3. The commissioner shall finalize the provisional assessment as soon as practicable
4. It is made on basis on the value of the ‘concealed asset’.
5. The provisional assessment order is issued for the last completed tax year.
Total Marks 10
Ans. ASSESSMENT OF TAX U/S 11 OF SALES TAX ACT 1990

8. Under the following circumstances, an authorized officer of Inland Revenue shall make an
order for assessment of tax, including imposition of penalty and default surcharge:

Solution Taxation
Public1. Finance
Where a person whoAccountants
is required to file a return has failed to file it by due date;
2. Where a person, due to some miscalculations, pays a lesser amount than actually
payable;
3. Where a has not paid the tax due on supplies made by him;
4. Where a person has claimed a credit or refund of an input tax which was not
admissible under the Sales Tax Act, 1990;
5. Where by reasons of some collusion or a deliberate act any tax or charge has not
been levied or made or has been short-levied or has been erroneously refunded;
6. Where by reason of any inadvertence, error or misconstruction, any tax or charge
has not been levied or made or short-levied or has been erroneously refunded.
The officer of Inland Revenue shall give a show-cause notice within five years and provide
an opportunity of being heard to a person before making an order for assessment of tax, etc.
Where a person files the return after a due date and pays the amount of tax payable along
with default surcharge and penalty, the show-cause notice and the order of assessment shall
abate.
Provided:
1. The assessment order shall be made within one hundred and twenty days of the
issuance of the show-cause notice. The Commissioner may extent this period
maximum upto ninety days. However, while extending the period, he must record
the reasons for extension.
2. Any period during which proceeding are adjourned on account of a stay order or
alternative dispute resolution proceeding or the time taken through the
adjournment by the petitioner shall be excluded from the computation of above
referred period.
3. The proceedings may be adjourned at the application of the petitioner for a
maximum period of sixty days.
Total Marks 10
Ans. Output tax Rs. 12,000,000@ 17% 2,040,000

9. Less: Allowable input tax N-1 1,212,100
Net tax liability 827,900
N -1 Input Tax on Purchase
Item Purchase Total Credit Not Allowed Credit Allowed

Cement - Rs. 6,000,000 @17% 1,020,000 51,000 969,000
Concrete - Rs. 700,000 @ 17% 119,000 11,900 107,100
Steel - Rs. 1,000,000@ 17% 170,000 34,000 136,000
Total 1,309,000 96,900 1,212,100
Solution Taxation
Summer
Input tax not allowed is computed as below:
Cement: (1,020,000 / 20,000) × 1,000 =51,000
Concrete: (119,000 / 20,000) × 2,000 =11,900
Steel: (170,000 / 50) × 10 =34,000
Note:
The credit of input tax is not allowed in respect of such goods, which are used for a purpose
other than manufacture or supply of taxable goods.
Total Marks 12
************************
Financial
Reporting
(Level-4)
Solution Financial Reporting
Summer
Ans. P. Co. Consolidated Statement of Comprehensive Income for the Year Ended Dec. 31 st, 2015
01. P Co. S Co. Adjust Total
ments
Rs. (000)
Revenue 50,250 30,510 (4,800) 75,960 02
Cost of sales (22,225) (12,475) 2,031.25 (32,668.75) 02
Gross profit 28,025 18,035 (2,768.75) 43,291.25
Operating expenses (12,635) (12,610) -- (25,245) 01
Operating profit 15,390 5,425 (2,768.25) 18,046.25
Finance cost (7,450) (2,500) 500 (9,450) 01
Investment income 2,500 -- (2,200) 300 01
Profit before tax 10,440 2,925 (4,468.25) 8,896.25
Tax expense (3,375) (1,236) -- (4,611) 02
Profit after tax 7,065 1,689 (4,468.25) 4,285.25
Non-controlling interest W-2 196.65 196.65 02
Profit attributable to owners of 7,065 1,885.65 (4,468.25) 4,481.90
parent
Other comprehensive income
Items that may not be reclassified to
P&L
Revaluation surplus 10,250 2,450 -- 12,700 01
Other comprehensive income 10,250 2,450 -- 12,700
Non-controlling interest (15%) -- (367.50) -- (367.50) 02
OCI attributable to owners of parent 10,250 2,082.50 -- 12,332.50
Total comprehensive income
Attributable to:-
Owners of Parent 16,814.40 01
Non-controlling interest (367.5 -196.65) 170.85
16,985.25 01
Working notes
W-1 Double entries Debit Credit
Rs. (000) Rs. 04 marks
(000)
Sales 4,800
Cost of sales 4,800
Elimination of intra group sales
Cost of sales 200
Closing stock 200
Elimination of un-realized profit (800x1/4)
Cost of sales 500
Property, plant and equipment 500
Summer
PublicElimination
Finance Accountants
of gain on disposal
Property, plant and equipment 31.25
Cost of sales 31.25
Elimination on extra depreciation
(500/4)x3/12
Investment income 1,700
Dividend 1,700
Elimination of intra group dividend
(2,000x85%)
Investment income 500
Interest expense 500
Elimination of intra group interest income
(2,500x20%)
Cost of sales 1,000
Intangible asset 1,000
Charge of amortization
Cost of sales 1,500
Goodwill 1,500
W-2 Calculation of Non-controlling interest Rs. (000) Rs. (000) 02 marks

Profit after tax 1,689
Adjustments for: -
Gain on disposal (500)
Amortization of intangible asset (1,000)
Impairment loss on goodwill (1,500) (3,000)
(1,311)
Share of NCI (1,311x15%) (196.65)
Total Marks 22
Ans. The provision should be recognized for Rs. 250,000

02mrks
as the claim has been accepted 04
2.(a) by the court and now it has become legal obligation. However,02mrks when the appeal is
accepted by the court the provision may be reduced to Rs. 100,000 .
(b) The final dividend declared will only be disclosed in the financial statement and no 03
recognition is required under IFRS.
(c) The expense to be recognized in profit or loss account will be Rs. 7 million (5+2.5) 01mrk 03
and development cost of Rs. 12.502mrks million (15-2.5) should be presented in the
statement of financial position.
Total Marks 10
Summer
Public
Ans. Finance Accountants
Notes to Financial Statements
3. Deferred Tax Liability
2015 2014
Rs. Rs.
Taxable Temporary Differences
Accelerated Depreciation
2014 (290,000 – 150,000) x 33% 46,200 02
2015 (330,000 – 180,000) x 32% 48,000 02
Revaluation Surplus
2015 (50,000 – 5,000) x 32% 14,400 -- 01
62,400 46,200
Deferred Tax Expense

2015
Rs.
Profit or loss account
Deferred Tax –Timing Differences (46,200+16,000-62,400-1,400) (1,600) 02
Deferred Tax effect of Tax Rate (300,000-160,000)x1% 1,400 02
(200)
Other comprehensive income
Deferred Tax (50,000x32%) (16,000) 01
Total Deferred Tax Expense (16,200)
Total Marks 10
Ans. Statement of Comprehensive Income
4. 2015
Rs. (000)
Revenue (25,150-1,000-200) 23,950.00 02+01
Cost of Sales (12,360-800+[(550/5)x3/12] (11,587.50) 02+01
Gross Profit - 12,362.50 01
Operating Expenses (2,658.00) 01
Operating Profit 9,704.50
Finance Cost (1252-550) (702.00) 02+01
Dividend Income (500-500) --
Profit before Tax 9,002.50 01
Tax Expense (5,727.20) 03
Profit after Tax 3,275.30
Total Marks 15
Summer
Public
Ans. Finance Accountants Rs. (m)
5. Statement of Financial Position
Cost to date 120 01
Loss to date (30)
Contract work in progress 90 01
Progress billings raised (100) 01
Due to customers (A) (10)
Progress billings raised 100
Receipts to date (85) 01
Receivables (B) 15
Net balance due from customer (A+B) 5
Statement of Comprehensive Income

Revenue to be recognized (220x120/250) 105.60 01
Cost to be expensed out (120.00)
Gross loss (14.40) 01
Provision for onerous contract (250-220-14.40) (15.60) 01
Total loss for the year (30.00) 01
Total Marks 08
Ans. This contact of sales and lease back is resulting in finance lease. The gain on disposal in sale 02
and lease back in which ultimately lease results into finance lease is deferred and amortized
6. over the lease term. In case of loss the loss is also deferred and amortized over the lease term
unless the loss is categorized as impairment loss. The impairment loss however, is charged to
profit or loss account.
Debit Credit
Rs. Rs.
Disposal account 150,000
Asset account 150,000 02
Recognition of disposal of asset
Bank account 270,000
Disposal account 270,000 02
Receipt of disposal proceeds
Disposal account 15,000
Deferred gain 15,000 02
Recognition of Deferred Gain on disposal
Lease asset 255,000
Lease liability 255,000 02
Total Marks 10
Public
Ans. BorrowingFinance Accountants
Cost on specified fund to be capitalized:
7. Rs. (m)
Rs. 50 x 12.5% x 11/12 5.73 05
Investment Income on unused specified fund: 05
(0 + 50/2) x 4% x 11/12 (0.92)
Borrowing Cost to be capitalized 4.81
Total Marks 10
Ans. Statement of Financial Position Rs. (000)
8. Cost to date 1,100.00 01
Profit to date 185.72 02
Contract work in progress 1285.72
Progress billings to date (1,120.00) 02
Due from customers 165.72
Progress billings to date 1,120.00 01

Receipts to date (750.00) 02
Adjustment against mobilization advance (500.00) 02
Receivable (130.00)
Net balance due 35.72
Statement of Comprehensive Income
Profit or loss account
Revenue [2,375 (1300/2,450)] 1,300 02
Expenses (1,114.20) 02
Profit for the year [2,450-2,100]x[1,300/2,450] 185.72 01
Total Marks 15
**************************
Management
Accounting
(Level-4)
Solution Management Accounting
Summer
Public
Ans. 01. Finance Accountants
Rasheed Textiles
i) Simple Payback
Year A B
0 (1200) (800)
1 (1000) (750)
2 (700) (700)
3 (300) (300)
(300/450 x 12)= 8 (300/500 x 12) = 7
3years, 8months 3years, 7months 1.5 + 1.5
According to the simple payback both the projects are very much the same but project B is
however paying back one month earlier than project A.
ii) Discounted Payback

Year A B
Present Values Recovery Present Values Recovery
@ 10% @ 10%
0 (1200) (1200) (800) (800)
1 182 (1018) 45 (755)
2 248 (770) 41 (714)
3 300 (470) 300 (414)
4 307 (163) 342 (72)
5 311 - 373 -
DPP of A = 4years, (163/311 x 12) months = 4years, 6months 02

DPP of B = 4years, (72/373 x 12) months = 4years, 2months 02
According to the discounted payback period, project B is recovering the present value
4months earlier than project A.
Summer
iii) NPV
Years A B
0 (1200) (800)
1 182 45
2 248 41
3 300 300
4 307 342
5 311 373
NPV 148 301 02+02
iv) IRR
Present Values @ Discount Factor 20%
Year A B
0 (1200) (800)
1 167 42
2 208 35
3 231 231
4 217 241
5 201 241
NPV (176) (10)
IRR of Project A = 10 + {[(148)/ (148 + 176)] x [20 – 10]} = 14.6% 02

IRR of Project B = 10 + {[(301)/ (301 + 10)] x [20 – 10]} = 19.7% 02
According to the IRR method both projects should be acceptable because they have IRR
greater than their cost of capitals but project B is better than project A because it has a
higher IRR than A.
According to the timing of cash flows a project that recovers major portion of its investment in
initial periods is better than a project that recovers them in the later phase of the project’s life. This
is because as further as we move into the future the more the outcomes become unpredictable.
Therefore according to this analysis project A is better than project B.
However as the other methods suggest project B is more attractive then project A.
Total Marks 15
Summer
Public
Ans. 02. Finance Accountants
M/s Superior Business
For the months of Jan-17 to June 17
Monthly Cash budget Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Total
Opening Balance 50,000 27,000 40,800 46,000 63,400 9,400 50,000
Cash sales 1,000 3,000 2,000 1,000 2,000 9,000 1.25
Collection from debtors 75,000 76,800 62,200 78,400 63,000 76,200 431,600 1.50
Receipt of dividends 5,000 5,000 0.25
Sales of assets 20,000 20,000 0.25
Total receipt 81,000 96,800 65,200 80,400 64,000 78,200 465,600
Total cash available 131,000 123,800 106,000 126,400 127,400 87,600 515,600
Payments
Cash purchases 2,000 1,000 3,000 1,000 7,000 1.00
Payment to creditors 50,000 20,000 30,000 40,000 30,000 40,000 210,000 1.50
Payments of dividends 30,000 30,000 0.25
Repayments of loan 20,000 30,000 50,000 0.50
interest payment 2,000 3,000 5,000 0.50
Purchases of assets 25,000 30,000 55,000 0.50
Salaries 10,000 10,000 10,000 10,000 10,000 10,000 60,000 0.50
Expenses 12,000 5,000 20,000 10,000 15,000 12,000 74,000 1.50
104,000 83,000 60,000 63,000 118,000 63,000 491,000
Closing balance of cash 27,000 40,800 46,000 63,400 9,400 24,600 24,600 1.50
Schedule of monthly receipts from the debtors
Months Credit Sales Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17
Nov-16 50,000 9,000 0.50
Dec-16 60,000 12,000 10,800 1.00
Jan-17 90,000 54,000 18,000 16,200 1.50
Feb-17 80,000 48,000 16,000 14,400 1.50
Mar-17 50,000 30,000 10,000 9,000 1.50
Apr-17 90,000 54,000 18,000 16,200 1.50
May-17 60,000 36,000 12,000 1.00
Jun-17 80,000 48,000 0.50
75,000 76,800 62,200 78,400 63,000 76,200
Months Credit Sales Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17
3 90,000 54,000 48,000 30,000 54,000 36,000 48,000
2 60,000 12,000 18,000 16,000 10,000 18,000 12,000
1 50,000 9,000 10,800 16,200 14,400 9,000 16,200
75,000 76,800 62,200 78,400 63,000 76,200
Total Marks 20
Summer
Public
Ans. 03.
Finance Accountants
Product A Product B
per unit per unit
Sales price 70 65
Variable cost 35 35
Contribution 35 30
Production Hours 3 2
Contribution per hour 11.67 15 2
Priority 2 1 0.5
Production Constrain under current scenario
Available maximum market for product B 7,000 units 0.5
Production time 2
Hours used by product B 14,000 hrs
Balance hours (25,000-14,000) 11,000 hrs
Per unit time required for product A 3
Units to be produced of product A 3,666 Units 2
Production Constrain after accepting additional marketing proposed

New Maximum market Product B 9,000 units 0.5
Production time product 2
Hours used by product B 18,000 hrs
Balance hours for product (25000-18000) 7,000 hrs
Time req. for product A 3
Units to be produced A 2,333 Units 2
Profit and Loss Account Under Marginal Costing as per existing production:
Product A Product B Total
Units 5,000 4,000
Sales revenue 350,000 260,000 610,000
less variable cost 175,000 140,000 315,000
Contribution Margin 175,000 120,000 295,000 2
Less Fixed cost per year 110,000
Profit for the year 185,000 0.5
Profit and loss acc Under marginal costing
Maximum possible production without additional marketing
Units 3,666 7,000
Sales revenue 256,620 455,000 711,620
Less variable cost 128,310 245,000 373,310
Profit for the year Pakistan Institute 0.5
of
228,310

Summer
Profit and loss acc Under Marginal Costing after accepting Additional Marketing
Product A Product B Total
Units 2,333 9,000
Sales revenue 163,310 585,000 748,310
Less variable cost 81,655 315,000 396,655
Profit for the year 191,655 0.5
Total Marks 15
Ans. 04.
Telecom Co.
Cost Statement
Rs. Note
Lunch 0 1
Engineer Cost 600 2
Technical Advisor 540 3
Site Visits 0 4
Training Costs 130 5
Handsets 2160 6
Control System 7700 7
Cable 1350 8
Total Cost 12,480
Notes
Note 1: Lunch 01
This past cost is a ‘sunk cost’ and should therefore be excluded from the cost statement. It has
already arisen and is therefore not incremental.
Note 2: Engineers’ Costs 03
Since one of the engineers has spare capacity, the relevant cost of his hours is Nil. This is because
relevant costs must arise as a future consequence of the decision, and since his wage will be paid
regardless of whether he now works on the contract for Plus Co, it is not an incremental cost.
Summer
The situation for the other two engineers is slightly different. Their time is currently fully utilized
and earning a contribution of Rs.6 per hour each. This is after deducting their hourly cost which,
given a salary of Rs.5,000 per month each, is Rs.31.25 per hour (Rs.5,000/ (4 x 40)). However, in
one week’s time – when they would otherwise be idle – they can complete Contract X and earn the
contribution anyway. Therefore, the only relevant cost is the penalty of Rs.600 that will be payable
for the delay on Contract X.
Note 3: Technical Advisor 02
Since the advisor would have to work overtime on this contract, the relevant cost is the overtime
rate of Rs.67.50 (Rs.45 x 1·5) per hour. This would total Rs.540 for the whole job.
Note 4: Site Visits 02
This is a cost paid directly by Plus Co to a third party. Since it is not a relevant cost for Telecom Co.
it has been excluded.
Note 5: Training Costs 03

Since the trainer is paid a monthly salary irrespective of what work he does, this element of his cost
is not relevant to the contract, since it is not incremental. However, the commission of Rs.130 will
arise directly as a consequence of the decision and must therefore be included.
Note 6: Handsets 03
Although Telecom Co has 80 of the 120 handsets required already in inventory, they are clearly in
regular use in the business. Therefore, if the 80 are used on this contract, they will simply need to be
replaced again. Consequently, the relevant cost for both the 40 that need to be bought and the 80
already in inventory is the current purchase price of Rs.18·00 each. 120 x Rs.18·00 = Rs. 2,160.
Note 7: Control System 03
The historic cost of Swipe 1, Rs.5500, is a ‘sunk’ cost and not relevant to this decision. However,
since the company could sell it for Rs.3200 if it did not use it for this contract, the Rs.3200 is an
opportunity cost here. The current market price for Swipe 1 of Rs.5400 is totally irrelevant to the
decision as Telecom Co has no intention of replacing Swipe 1, since it was bought in error. In
addition to the Rs.3200, there is a modification cost of Rs.4500, bringing the total cost of converting
Swipe 1 to Rs.7,700. This is still a cheaper option than buying Swipe 2 for Rs.11000 therefore the
company would choose to do the modification to Swipe 1. The cost of Rs.11000 of a new Swipe 2
system is therefore irrelevant now.
Note 8: 03
The cable is in regular use by Telecom Co, therefore all 1000meters should be valued at current
market price of Rs. 1.35 per meter. The Rs.1.25 meter is sunk cost and not relevant.
Total Marks 20
Summer
Ans. 05.
(i) ROCE = Operating Profit/Capital Employed x 100%

Rs.’000 ROCE
S Co. Design Division 6,000/24,000 25% 01
Gearbox Division 3,875/32,500 11.99% 01
Z Co. 7,010/83,000 8.45% 01
(ii) Asset turnover = Sales/Capital Employed x 100%

Rs.’000 Asset Turnover
S Co. Design Division 14,300/24,000 59.6 01
Gearbox Division 25,535/32,500 78.6 01
Z Co. - 15,560/83,000 18.75 01
(iii) Operating profit margin = Operating Profit/Sales x 100%

Rs.’000 Operating Profit
S Co. Design Division 6,000/14,300 41.96% 01
Gearbox Division 3,875/25,535 15.18% 01
Z Co. 7,010/15,560 45.05% 01
Overall 1.5
Both companies and both divisions within S co are clearly profitable In terms of what the
different ratios tell us, Overall if results of both Operating profit ratio and assets turnover ratio
are considered The design division of S Co. comes out top overall WS X,
ROCE 1.5
ROCE tells us the return which a company is making from its capital. The design division of S
Co is making the highest return at 25% more than twice that of the Gearbox division and
nearly three times that of Z Co. This is because that nature of a design business is such that
Profits are largely derived from the people making the designs rather than from the assets
Certain assets will obviously be necessary in order to produce the designs but it is the
employees who are mostly responsible for generating profit ROCE of Gearbox division and
Design division are fairly similar if both the division are compared in isolation. The Gearbox
division ROCE is 3% higher than Z Co because Z Cos has larger assets base than the Gearbox
division.
Assets Turnover ratio, 1.5
It can be seen that the Gearbox divisions assets generate a very high proportion of sales per Rs.
of assets (79%) compared to Z Co 19%. This is partly because the Gearbox division buys its
components in from Z Co. and therefore not need to have the large asset which Z Co. need to
make components. Pakistan Institute of
Summer
Operating Profit 1.5
The profitability of S Co Design division and Z Co is much higher Than Gear Box division i.e.
41.96% and 45.05% as against 15.18%. The design division like the Gearbox division is also
using its assets to generate sales. but then like Z Co, its units profitability is high too (42%
operating profit margin).
Total Marks 15
Ans. 06.
Contribution margin per patient

Fee 500
Variable cost 180
Contribution margin per patient 320 03
Contribution margin ratio:

320/500*100 64% 04
Break-even in number of patients

Rs.2000000/320 6,250 02
Rs.2000000/64% 3,125,000 02
Target Profit
Desired Net income 1,800,000
Add: Fixed Cost 2,000,000
Contribution Margin 3,800,000
Required Sales 5,937,500
Fee: 500
Patients must visit clinic to achieve Net Income 11,875 04
Total Marks 15
*************************
Audit,
Assurance &
Ethics
(Level-4)
Solution Audit, Assurance & Ethics
Public
Ans. 2 marks Finance Accountants
per part, 1 each for rationale and conclusion. 1 mark may be awarded
1. where rationale appears to be appropriate but conclusion is incorrect.
a. Since inventories physically verified differ from the balance shown in the books and 02
the difference is material, it can be concluded that the financial statements are
materially misstated. However the effect does not seem to be pervasive as the
misstatement is limited to only inventories and most of the other assets (i.e. fixed
assets which are 60% of total assets) are unaffected by this misstatement. In this
situation therefore, a qualified opinion should be given.
b. The item in question is material since it constitutes 10% of the company’s profits for 02
the year. Since it has been established that the prevailing law has been breached i.e.
the required maximum level of chemical release of 1 ton has been exceeded
significantly and the company has released 2.4 tons, it is clear that the company is
likely to be held responsible for the breach of law. Since a notice has not been
formally received, a liability does not accrue but a provision has to be recorded.
Management’s refusal to record the provision means the financial statements are
misstated by a material amount. In these circumstances, a qualified opinion should be
expressed in the audit report.
c. In this case since the beverage manufacturing company was formed only a year ago, it 02
is likely that the plant and machinery would be new. If there appear to be no factors
that indicate there is impairment, the matter does not warrant any modification to the
audit report. Therefore an unmodified report should be issued.
d. The refusal from management to send out letters of balance confirmation result in the 02
auditor being unable to obtain sufficient appropriate audit evidence. As per the
scenario the trade receivables are the most significant item in the balance sheet; this
implies the potential effect of the inability to obtain evidence is material. In such a
situation, a qualified opinion should be given in the audit report.
e. IAS 16 allows both forms of depreciation to be used; the purpose is to allocate the cost 02
of asset over its useful life on a systematic basis and in line with the pattern of flow of
economic benefits to the entity. In this case there appears to be no material non-
compliance with IAS-16. An unmodified report should be issued.
Total Marks 10
Ans. 1 mark each for definition of Reasonable and Negative Assurance, 1 mark each 04
2.(a) for an example.
Reasonable Assurance – a high, but not absolute, level of assurance.
Negative Assurance – assurance given in the form that nothing has come to the
attention of auditor that these financial statements do not give true and fair view.
 An example of a reasonable assurance engagement can be an audit of financial
statements wherein the auditor expresses an opinion on whether the financial
statements give a true and fair view of the state of the company’s operations.
 An example of a negative assurance engagement can be a review of interim
financial information wherein the reviewer opines that nothing has come to his
attention that causes him to believe that the interim financial information does
not give a true and fair view of the state of the company’s operations.
(b) Up to 2 marks each for description/identification of the procedures in an audit 04
and a review engagement
Reasonable Assurance
Procedures performed can include inquiry, observation, inspection of assets, analytical
review, re-performance, recalculation and inspection of records.
Negative Assurance
Procedures performed include usually inquiry and analytical procedures.
Total Marks 08
Ans.
Up to 2 marks per risk identified per assertion. 08
3.(a)
Risk relating to Inventory
Valuation
1) There is a risk that inventory is not valued according to moving average policy
of the Company.
2) Inventory average rate is not updated after every purchase
3) Net realizable value being lower than the calculated cost is not identified in
case of finished goods
4) Cost of items are mixed up resulting in incorrect calculation of value
Completeness:
1) Every inventory item relating to the Company is not recorded in the inventory
management system.
2) Listing of inventory prepared by the Company is not complete.
Rights and Obligations

1) The inventory items present at year end does not belong to entity.
2) Third party stock present at the premises of the Company may be designated
as Winter fell stock.
Existence
1) Listing of stock prepared by the Company does not actually exists
2) Inventory management system may not be updated after every issuance.

Summer
Public Finance
Presentation and Disclosure Accountants
1) Disclosure for movement in provision for slow moving stock may not be given
in the financial statements
2) Inventory held by third party may not be disclosed separately.
(b) Up to 1 mark for each internal control appropriately described (controls other 08
than the ones stated below can also be awarded marks if relevant to inventory
scenario).
 Issuances of raw material inventory from store to production factory are
authorized
 Purchases made are authorized by company representatives
 Purchases are only made from authorized vendors
 Pre-screening of vendors is performed prior to placing them on authorized
vendor list
 NRV test is performed monthly as part of closing exercise
 Periodic physical inspections are performed by staff to identify short, excess or
obsolete items
 Ageing analysis of inventory is generated periodically to take appropriate
business decisions about production, further purchases and sales
 Outward movements of finished goods are effected through gate passes
 Gate passes (in and out both) are approved
 Only authorized representatives of the company are allowed access to store
 Store records are verified by internal audit department on a periodic basis
 Inventories held by third parties (if any) are subject to periodic confirmations
Total Marks 16
Ans. Auditor's expert – An individual or organization possessing expertise in a field other
4.(a) than accounting or auditing, whose work in that field is used by the auditor to assist
the auditor in obtaining sufficient appropriate audit evidence. An auditor's expert may
be either an auditor's internal expert (who is a partner or staff, including temporary
staff, of the auditor's firm or a network firm), or an auditor's external expert.
Management's expert – An individual or organization possessing expertise in a field

other than accounting or auditing, whose work in that field is used by the entity to
assist the entity in preparing the financial statements.
(b) When determining nature, timing and extent of procedures, an auditor needs to
consider
 The nature of the matter to which that expert's work relates;
 The risks of material misstatement in the matter to which that expert's work
relates;
 The significance of that expert's work in the context of the audit;
 The auditor's knowledge of and experience with previous work performed by
that expert; and
 Pakistan Institute of
Whether that expert is subject to the auditor's firm's quality control policies and
procedures.
Summer
Public
(c) Generally,Finance Accountants
the auditor’s report should NOT refer to the work of an expert in
unmodified opinion. This is because whilst the expert may be performing his work as
per his own standards, the auditor has to provide an independent opinion on the truth
and fairness of the Financial Statements.
However, sometimes a situation may arise wherein the audit report has to be qualified
or modified and the reason for such modification is coming out of the work
undertaken by the expert. In such cases a reference would be deemed necessary in the
audit report. If reference is made (due to law enforcement or modification of report) a
statement is required that the reference does not reduce auditor’s responsibilities.
Total Marks 12
Ans. 5 marks for each part; 1 mark for identifying the threat involved, 1 mark for
5 defining the threat identified, Up to 2 for explaining the threat and linking it to
the scenario, 2 marks for each safeguard given
The threat involved in this scenario is Familiarity threat. Familiarity threat occurs
when, because of close relationships, accountant/auditor may become too sympathetic
to the interests of Client (audit client) or officers of the Client.
In this case, Talha and Umer are Childhood friends and neighbors. And Mr. Naeem ul
Haq is the father of Umer. There is a risk that Mr. Talha may be over familiar with the
CFO of the WCC and may impair his independence.
Safeguards
1) The firm should change the engagement manager deputed for the audit of
WCC
2) If this is identified at a later stage of the audit, Mr. Talha should be removed
from the audit team and any work done by Mr. Talha should be reviewed by
Quality Assurance Partner.
The threat involved in this case is Self-review threat. Self-review threat occurs when a
previous work done or judgment given by an accountant/auditor needs to be re-
evaluated by the same accountant/auditor subsequently while providing assurance.
In this case, the firm is asked to prepare fixed asset register for an audit client. There is
a risk that audit team will be reviewing the work of its own firm when performing
audit.
Safeguards
1) It is to be noted that since Tirmazi trader (Pvt.) Limited is not a listed client,
firm can provide such service to the Client as long the firm deputes separate
team for the preparation of fixed asset register and audit.
2) The two teams should be instructed to not to communicate with each other on
this matter and non-disclosure agreement should be signed by both teams.
3) It should be communicated to the client that primary responsibility for the
preparation and maintenance of fixed asset register rests with the management
of the Company.
Total Marks 10
Public
Ans. Up to 1.5Finance Accountants
mark for each point identified in accordance with the documentation
6.(a) requirement of ISA 320
The auditor shall include in the audit documentation the following amounts and the
factors considered in their determination:
(a) Materiality for the financial statements as a whole
(b) If applicable, the materiality level or levels for particular classes of
transactions, account balances or disclosures ;
(c) Performance materiality and
(d) Any revision of (a)-(c) as the audit proceeds.
(b) Up to one mark for each of the point identified in accordance with requirement
of documentation of the audit procedures performed and audit evidence obtained
The auditor shall prepare audit documentation that is sufficient to enable an
experienced auditor, having no previous connection with the audit, to understand:
(a) The nature, timing and extent of the audit procedures performed to comply
with the ISAs and applicable legal and regulatory requirements.
(b) The results of the audit procedures performed, and the audit evidence obtained.
(c) Significant matters arising during the audit, the conclusions reached hereon,
and significant professional judgments made in reaching those conclusions.
In documenting the nature, timing and extent of audit procedures performed, the
auditor shall record:
(a) The identifying characteristics of the specific items or matters tested;
(b) Who performed the audit work and the date such work was completed.
(c) Who reviewed the audit work performed and the date and extent of such
review?
Total Marks 12
Ans. Up to two marks for each point identified and explained in accordance with ISA-
7. 520.
When designing and performing substantive analytical procedures, either alone or in
combination with tests of details, as substantive procedures in accordance with ISA
330,3 the auditor shall consider:
(a) Suitability: Determine the suitability of particular substantive analytical
procedures for given assertions, taking account of the assessed risks of
material misstatement and tests of details, if any, for these assertions.
(b) Reliability: Evaluate the reliability of data from which the auditor's
expectation of recorded amounts or ratios is developed, taking account of
source, comparability, and nature and relevance of information available,
and controls over preparation;

Summer
(c) Developing an expectation: Develop an expectation of recorded amounts
or ratios and evaluate whether the expectation is sufficiently precise to
identify a misstatement that, individually or when aggregated with other
misstatements, may cause the financial statements to be materially
misstated.
(d) Further investigation/ Variance threshold: Determine the amount of any
difference of recorded amounts from expected values that is acceptable
without further investigation.
Total Marks 08
Ans. 2 marks for explaining why not conducting stock count is important and what 05
8.(a) assertions are not checked/tested, 1 mark for calculating the materiality, 1 mark
for alternative procedures, 1 mark for the impact on audit report
This is an auditing issue; stock take activity did not take place at year end because the
Company has not made necessary procedures for performing stock count.
This means that existence and completeness assertion of the stock could not be
verified.
Closing stock balance also has a direct impact of the calculation of cost of sales and
profit before tax.
Materiality: If we use profit before tax (PBT) as a base for planning materiality (PM)
and sets the PM at 10% of PBT of Rs. 500 million, then PM amounts to Rs. 50
million. Stock amounts to Rs. 300 million which is both material and may be
pervasing to the financial statements.
Alternative procedure: Auditor should ask the management to consider performing
stock count subsequent to the year-end i.e. 31 December 2015.
Then auditor can work back from the date of stock count to arrive at the position of
stock at 31 December 215.
Impact on Audit Report: If management does not agree to above, the auditor will
modify the audit report by giving disclaimer of opinion as the impact of stock on
financial statement is both material and pervasive.
(b) 2 marks for explaining why preparing the going concern assumption is not valid 05
and its impact on financial statements, 1 mark for alternative procedures, 1 mark
for the impact on audit report.
In this case, the going concern assumption of the Company is in question.
Financial statements of the client are prepared using going concern assumption. i.e. It
is an accounting issue as the basis of preparation of the financial statement is not
correct.
Going Concern assumption is that the Company will be able to continue operating for
a period of time that is sufficient to carry out its commitments, obligations, objectives,
and so on. i.e. the Company will be able to recover its assets and pay its liabilities in
an ordinary course of business.
Summer
Public
Since, theFinance
operating license ofAccountants
the Company is canceled by Court Orders, Company
cannot operate in the pharmaceutical market. So the preparation of financial
statements on going concern is not correct.
Materiality: Since going concern assumption is fundamental to the users of financial

statements, the impact of this on financial statements will be both material and
pervasive.
Alternative Course of action: The Company should prepare financial statements on

other basis. E.g. break up value basis. And fact the Company is not a going concern
shall be disclosed in the financial statements.
Impact on Audit Report: If the financial statements have been prepared using the
going concern basis of accounting but, in the auditor’s judgment, management’s use
of the going concern basis of accounting in the preparation of the financial statements
is inappropriate, the auditor shall express an adverse or qualified opinion depending
on whether the impact is material or material and pervasive as well. In the instant case,
the matter appears to be more than material as there is a disclosure fundamental to
users’ understanding of the financial statements which is missing. An adverse opinion
would therefore be appropriate.
Total Marks 10
Ans. Up to 2 marks for the definition of subsequent event 02
9.(a)
Events occurring between the date of the financial statements and the date of the
auditor's report, and facts that become known to the auditor after the date of the
auditor's report
(b) Up to 6 marks for explaining the course of action to take including assessment of 12
risk of other undisclosed litigation, Up to 3 marks each for explaining the course
of action If management amends / does not amend the financial statements
The partner/audit team has no obligation to perform any audit procedures regarding
the financial statements of light and life Limited Company after the date of the
auditor's report.
In this case, the auditor was unaware of the pending legal case at the time of signing
of Auditor’s Report. However, the partner of the firm became aware of the litigation
before financial statements are authorized for issue and became public information.
However, as per ISA 560, if after the date of the auditor's report but before the date
the financial statements are issued, a fact becomes known to the auditor that, had it
been known to the auditor at the date of the auditor's report, may have caused the
auditor to amend the auditor's report, the auditor shall:
1. Discuss the matter with management and, where appropriate, those
charged with governance.
2. Determine whether the financial statements need amendment and, if so,
Summer
3. Inquire how management intends to address the matter in the financial
statements.
Another important matter to consider here is that the management did not disclose this
litigation to the audit team. It needs to be assessed whether this omission was
deliberate on the part of management or just an oversight. This is because if factors
indicate a deliberate omission, it could be a serious issue and as an auditor we would
need to ascertain whether there are any other similar matters that may not have been
previously disclosed to us.
Addressing the aforementioned risk could include steps such as requesting
management to have the auditor perform extensive procedures on litigation and legal
fees, review of publicly available information through external media sources to
identify such cases etc.
Course Of Action If Management Amends The Financial Statements
If management amends the financial statements, the auditor shall:
(a) Carry out the audit procedures necessary in the circumstances on the
amendment.
(b) Extend the audit procedures to the date of the new auditor's report; and
(c) Provide a new auditor's report on the amended financial statements. The
new auditor's report shall not be dated earlier than the date of approval
of the amended financial statements.
Course Of Action If Management Does not Amend The Financial Statements
In this case the auditor's report has already been provided to the entity, if management
does not amend the financial statements in circumstances where the auditor believes
they need to be amended then
(a) The auditor shall notify management and, unless all of those charged
with governance are involved in managing the entity, those charged
with governance, not to issue the financial statements to third parties
before the necessary amendments have been made.
(b) If the financial statements are nevertheless subsequently issued without
the necessary amendments, the auditor shall take appropriate action, to
seek to prevent reliance on the auditor's report.
Total Marks 14
****************

Solutions S16

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Solutions S16

Uploaded by

Copyright:

Available Formats

Corporate Sector

(b) Applications of Opportunity Cost to Households , Firms and Government: 07

(b) Competitor’s Price Demand for Khan’s Game 08

(b) Budget of Mr. Javed=100 04

The maximum of Y which Mr. Javed can purchase = = 100/10 = 10 units

Public Finance Accountants

(b) Super Normal Profit of Allied Private Limited: 06

Shaded Area = Super Normal Profit or Abnormal Profit

(b) Multiplier Effect: 06

Public Finance Accountants

The main objectives of fiscal policy are:

(ii) Change in Reserve Ratio: 02

For example if initial deposit is Rs. 100 and RR is 10%, then

(ii) Demand for Money 02

ii) Cheaper and Flexible

(one mark each for any three correct answers)

iii) Application of law.

(one mark each for any three correct answers)

Payment by interested person

 The payment should not be a voluntary one. 01

(b) Differences between contract of indemnity and contract of guarantee. 06

S. No. Contract of indemnity Contract of guarantee

(1.5 mark for each correct identification with maximum of 06 marks)

 Monetary compensation is considered as an adequate remedy.

 All the partners jointly, or 01

i) Duty to be just and faithful.

a) A lien on the goods for the period while he is in possession of them, 01

Privileges and benefits 01

 To call the uncalled an unpaid share capital of the company.

 If the amount is material as per generally accepted accounting principles.

(one mark for each correct answer with maximum of 06 marks)

(ii) Removal of Chief Executive

 by passing a special resolution in general meeting of the company or 1.5

(ii) Public Unlisted Company

(iii) Holding company

Ans.1. Current Sales Turnover Rs. 600,000 01

Ibrahim Corporation (Department 2)

Cost Accounted for as Follows Rs. Rs.

(ii) Total Product Cost for January 20xx:

Public Finance Accountants

(i) Material Ledger Card 04

Jan. 1 100 8.50 850 100 8.00 800

Jan. 5 100 8.00 800 100 8.50 850

Jan. 8 200 8.85 1,770 100 8.50 850

Jan. 15 100 9.25 925 100 8.50 850

Jan.25 100 8.50 850 80 8.85 708

Jan. 31 80 8.85 708 100 9.25 925

(iii) Material Ledger Card 03

Material – M [Average Cost]

Jan. 1 100 8.50 850 200 8.00 800

Jan. 5 100 8.25 825 100 8.25 825

Jan. 8 200 8.85 1,770 300 8.65 2,595

Jan. 15 100 9.25 925 400 8.80 3,520

Jan.25 220 8.80 1,936 180 8.80 1,584

Jan. 31 80 8.80 704 100 8.80 880

BASIC POULTRY (PRIVATE) LIMITED

Working - 03 (NON-CURRENT ASSETS)

Operating Profit before Working Capital Changes 173,000 0.5

Cash Flow from Investing Activities

Cash Flow from Financing Activities

(2). Ending Inventory - Net Realizable Value

Balance Sheet of New Firm