CAF-07 Assessment-1 Solution

Answer-1
a)
Date Particular Dr. Cr.
2015 ---------Rupees---------
15/08/15 Foreign Debtor 110,000
Sales (50,000 x 2.2) 110,000
(Sales to British Company) 0.25
15/08/15 Cost of Sale 40,000
Inventory 40,000
(Recording in inventory account) 0.25
31/10/15 Bank (25,000 x 2.65) 66,250
Exchange gain (bal.) 11,250
Foreign Debtor (25,000 x 2.2) 55,000
(Recording of receipt) 1
31/12/15 Foreign Debtor 5,000
Exchange gain 5,000
[(25,000 x 2.2) = 55,000 VS 60,000 (25,000 x 2.4)] 1
(Recording retranslation at year end)
2016
31/01/16 Bank (25,000 x 2.9) 72,500
Exchange gain (bal.) 12,500
Foreign Debtor (25,000 x 2.4) 60,000
(Recording of receipt) 1
b)
Date Particular Dr. Cr.
2015 ---------Rupees---------
25/08/15 Inventory 145,000
Creditor (100,000 x 1.45) 145,000
(Purchases from Malaysian company) 0.25
31/12/15 Bank 139,200
Sales 139,200
[(145,000 x 80%) = 116,000/ 100 x 120] 0.5
(Recording of sales)
31/12/15 Cost of Sale 116,000
Inventory (145,000 x 80%) 116,000
(Recording in inventory account) 0.25
31/12/15 Creditor 15,000
Exchange gain 15,000
[(100,000 x 1.3) = 130,000 VS 145,000 (100,000 x 1.45)] 1
(Recording retranslation at year end)
2016
31/01/16 Creditor (100,000 x 1.3) 130,000
Exchange gain (bal.) 5,000
Bank (100,000 x 1.25) 125,000
(Recording of payment) 1
Note:
When goods are shipped on a CIF basis (customs, insurance and freight), the risks and rewards of
ownership transfer on the date goods arrive safely at their destination. In this case, this means the
transaction date i.e. 25 August 2015.

Adnan Rauf, FCA Page 1

CAF-07 Assessment-1 Solution

c)
Date Particular Dr. Cr.
2015 ---------Rupees---------
01/07/15 Loan receivable 24,000
Bank 24,000 0.5
31/12/15 Loan receivable 599
Interest Income 599 0.5
31/12/15 Loan receivable 1,957
Exchange gain 1,957 0.5
2016
30/06/16 Loan receivable 685
Interest Income 685 0.5
30/06/16 Bank 3,750
Loan receivable 3,750 0.5
31/12/16 Loan receivable 668
Interest Income 668 0.5
31/12/16 Loan receivable 8,652
Exchange gain 8,652 0.5
(W-1) Amortisation Schedule in MYR
Date Installment Principal Interest Balance
01/07/15 20,000
30/06/16 2,500 1,644 856 18,356
30/06/17 2,500 1,714 786 16,642
1

(W-2) Exchange Gain/Loss on translation in Rupees

Dr. Loan receivable Cr.
01/07/15 Bank (20,000 x 1.2) 24,000
31/12/15 Interest income (*428 x 1.4) 599
31/12/15 Exchange gain (bal.) 1,957 31/12/15 c/d (20,428 x 1.3) 26,556
01/01/16 b/d 26,556
30/06/16 Interest income (428 x 1.6) 685 30/06/16 Bank (2,500 x 1.5) 3,750
31/12/16 Interest income 668
(**393 x 1.7)
31/12/16 Exchange gain (bal.) 8,652
- 31/12/16 c/d (18,749 x 1.75) 32,811
4
*856/2 = 428
**786/2 = 393

Adnan Rauf, FCA Page 2

CAF-07 Assessment-1 Solution

Answer-2
a)
Opening balance of deferred tax liability as on 1st January 1995 (W-1) Rs. 8,600. 0.5

b)
Calculation of current tax
1996 1995
Profit before tax 8,740 8,775
Add: Accounting depreciation (W-3) 7,800 4,800 0.5
Fines and penalties 700 700 0.5
Charitable donations 350 500 0.5
Healthcare benefits expense 1,000 2,000 0.5
Amortisation on development expenditures (1,250/5 years) 250 250 0.5
10,100 8,250
Less: Tax depreciation (W-4) 11,850 8,100 0.5
(11,850) (8,100)
Taxable profit 6,990 8,925
Current tax @ 40% 2,796 3,570 0.5

c) 1996 1995
Deferred tax expense 1,120 420 0.5

(W-1) Calculation of deferred tax - as on December 31, 1994

Carrying T.T.D/ D.T.L/
amount Tax Base (D.T.D) (D.T.A)
P,P&E (-):(W-4) 36,000 15,000 21,000 0.5
Development costs 500 - 500 0.5
21,500
Deferred tax liability (21,500 x 40%) 8,600 0.5

Calculation of deferred tax - as on December 31, 1995

Carrying T.T.D/ D.T.L/
amount Tax Base (D.T.D) (D.T.A)
P,P&E (-):(W-4) 37,200 12,900 24,300 0.5
Fine payable (W-8) 700 700 - 0.5
Development costs 250 - 250 0.5
Liability for healthcare benefits 2,000 - (2,000) 0.5
22,550
Deferred tax liability (22,550 x 40%) 9,020 0.5

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CAF-07 Assessment-1 Solution

Calculation of deferred tax - as on December 31, 1996

Carrying T.T.D/ D.T.L/
amount Tax Base (D.T.D) (D.T.A)
P,P&E (-):(W-4) 44,400 16,050 28,350 0.5
Fine payable (W-8) 1,400 1,400 - 0.5
Development costs - - -
Liability for healthcare benefits 3,000 - (3,000) 0.5
25,350
Deferred tax liability (25,350 x 40%) 10,140 0.5

(W-2)
Dr. Deferred tax liability /asset Cr.
b/d (1/1/95) (W-1) 8,600
c/d (31/12/95) (W-1) 9,020 Deferred tax expense (bal.) 420 2
b/d (1/1/96) 9,020
c/d (31/12/96) (W-1) 10,140 Deferred tax expense (bal.) 1,120 2

(W-3)
Dr. Property, Plant & Equipment-BV (accounting rules) Cr.
b/d (1/1/95) 36,000 Dep. (bal.) 4,800
Additions 6,000 c/d (31/12/95) 37,200 1
b/d (1/1/96) 37,200 Dep. (bal.) 7,800
Additions 15,000 c/d (31/12/96) 44,400 1

(W-4)
Dr. Property, Plant & Equipment(as per tax) Cr.
b/d (1/1/95) 15,000 Dep. (W-5)(W-6) (5,600+2,500) 8,100
(50,000-40,000)+(10,000-5,000)
Additions 6,000 c/d (31/12/95) (bal.) 12,900 0.75
b/d (1/1/96) 12,900 Dep. (W-5)(W-6) (5,600+6,250) 11,850
Additions 15,000 c/d (31/12/96) (bal.) 16,050 0.75

(W-5) Calculation of tax depreciation on building

1995
On opening (50,000 x 10%) 5,000
On additions (6,000 x 10%) 600
5,600 0.5
1996
On openings (56,000 x 10%) 5,600 0.25

(W-6) Calculation of tax depreciation on vehicles

1995
On opening (10,000 x 25%) 2,500 0.25
1996
On openings (10,000 x 25%) 2,500
On additions (15,000 x 25%) 3,750
6,250 0.5

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CAF-07 Assessment-1 Solution

(W-7)
Dr. Provision (Liability for health care benefits) Cr.
b/d (1/1/95) 0
c/d (31/12/95) 2,000 Expense 2,000
b/d (1/1/96) 2,000
c/d (31/12/96) 3,000 Expense 1,000

(W-8)
Dr. Fine expense Cr.
b/d (1/1/95) 0
c/d (31/12/95) 700 Expense 700
b/d (1/1/96) 700
c/d (31/12/96) 1,400 Expense 700

Adnan Rauf, FCA Page 5