Final Accounts FR1

Final accounts:
In this topic we will discuss that how the following components of financial statements are prepared
and presented
 Statement of financial position (balance sheet)
 Statement of comprehensive income (income statement)
 Notes to the financial statements including workings
Important consideration in questions of final accounts:

 Trial balance contains closing balances unless any adjustment is required in an accounting head
appearing in trial balance.
 Every item in the trail balance shall be presented only once as per its nature in any component of
financial statements.
 Additional information generally contains adjusting entries that are required in the financial
statement.
Practice question:
ABC – Trial balance as at 31 December 2013
Rs. Rs.
Sales 428,000
Purchases 304,400
Wages and salaries 64,000
Rent 14,000
Heating and lighting 5,000
Inventory as at 1 January 2013 15,000
Drawings 22,000
Allowance for doubtful debts 4,000
Non-current assets 146,000
Accumulated depreciation: 32,000
Trade receivables 51,000
Trade payables 42,000
Cash 6,200
Capital as at 1 January 2013 121,600
627,600 627,600
Further information:
a) Rs. 400 is owed for heating and lighting expenses.
b) rent includes Rs. 700 has been prepaid for rent.
c) It is decided that a bad debt of Rs. 1,200 should be written off, and that the allowance for doubtful
debts should be increased to Rs. 4,500.
d) Depreciation is to be provided for the year at 10% on cost
e) Inventory at 31 December 2013 was valued at Rs. 16,500.
Required:
Prepare:
a) Statement of financial position as on 31-12-2013 and,
b) Statement of comprehensive income for the year ended 31-12-2013.
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Prepared by: Dawood Shahid CA(f), CPA, MPhil, MBA, OCE
Solution:
ABC – Statement of comprehensive income (statement of profit or loss)
Rs. Rs.
Revenue 428,000
Cost of Sales
Opening inventory 15,000
Purchases 304,400
Closing inventory (16,500)
(302,900)
Gross Profit 125,100
Expenses:
Depreciation (W-1) 14,600
Rent (14,000 – 700) 13,300
Heating and lighting (5,000 + 400) 5,400
Bad and doubtful debts (1,200 + 500) 1,700
(99,000)
26,100
WORKINGS:
(W-1) Depreciation: 10% of 146,000 = 14,600
ABC – Statement of financial position
Rs. Rs.
Assets
Non-current Assets
Cost 146,000
Accumulated depreciation (32,000 + 14,600) (46,600) 99,400
Current Assets
Inventories 16,500
Trade receivables (51,000 – 1,200) 49,800
Allowance for doubtful debts (4,000 + 500) (4,500)
45,300
Prepayments 700
Cash 6,200
68,700
168,100
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Equity and Liabilities
Capital
At start of year 121,600
Profit for the year 26,100
Drawings (22,000) 125,700
Current Liabilities
Trade payables 42,000
Accruals 400 42,400
Total equity and liabilities 168,100
Company Final Accounts
Company: An association of persons which is registered under the Companies Act 2017.
Shareholder: Person who owns shares in the company is called as shareholder.
Share certificate: Evidence of ownership in the company.
Shareholders elect directors to manage the affairs of the company on their behalf.
Capital of the company is divided into shares; therefore called as share capital.
Types of share capital:
Authorized Capital: Maximum number of shares that a company can issue (No accounting entry is made
for authorized share capital)
Issued Capital/Paid-up Capital: Actual number of shares in issue at any point of time.
Every share has a registered price called as face value, nominal value or par value. In Pakistan, this
registered price is normally Rs. 10 per share.
(I) Issue of shares at nominal value/face value/par value
100,000 shares of Rs. 10 each issued at Rs 10 each.

Bank 1,000,000
Share capital 1,000,000
(II) Issue of shares at a premium

Bank 2,700,000
Share premium 1,700,000
(III) Issue of shares at a discount
Bank 700,000
Discount on shares 300,000
Discount on issue of shares is an expense classified in administrative expenses or in other expenses.
Right shares: Shares issued to existing shareholders in proportion to existing number of shares against
consideration (normally cash). Its entry will be same as discussed above.
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Illustration: Cost of goods manufactured statement
XYZ Entity
Cost of goods manufactured statement
For the year ended 31 December 20XX
Rs. Rs.
Raw materials
Purchases 150,000
175,000
Less: Closing inventory (20,000)
Raw materials consumed 155,000
Manufacturing wages 100,000
Prime cost 255,000
Factory Overheads
Light and power 72,000
Depreciation of production machinery 40,000
Depreciation of factory 50,000 162,000
Manufacturing costs/Factory cost 417,000
Opening work in progress 85,000

Closing work in progress
(95,000)
Cost of goods made/Manufactured 407,000
Illustration: Statement of financial position of an individual entity
XYZ Entity
Statement of financial position
As at 31 December 20XX
Rs. M Rs. M
Assets
Non-current assets
Property, plant and equipment 205.1
Intangible assets 10.7
Investments 6.8 222.6
Current assets
Inventories 17.8
Trade and other receivables 15.3
Cash and cash equivalents 0.7 33.8
Total assets 256.4
Rs. m Rs. m
Equity and liabilities
Equity:
Share capital 50.0
Share premium 31.9
Retained earnings (accumulated profits) 60.6 142.5
Non-current liabilities
Long-term borrowings 34.5 34.5
Current liabilities
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Trade and other payables 67.1
Short-term borrowings (bank overdraft) 3.2
Current portion of long-term borrowing 5.0
Current tax payable 4.1 79.4
Total equity and liabilities 256.4
Example: statement of comprehensive income of an individual entity
XYZ Entity
Statement of comprehensive income
For the year ended 31 December 20XX
000
Revenue 678
Cost of sales (250)
Gross profit 428
Other income 12
Distribution costs (98)
Administrative expenses (61)
Other expenses (18)
Finance costs (24)
Profit before tax 271

Taxation (50)
––––––
Profit after tax 206
Taxation: tax on profits of the current period is called as current tax. It is expense for the business. Its
accounting entries are:
Current tax xxx
Current tax payable xxx
(when accrued at the period end)
Current tax payable xxx
Cash/ bank xxx
(when paid)
Dividend: It is the distribution of profits to shareholders.

Dividend* xxx
Dividend payable xxx
(when declared)
Dividend payable xxx
Cash xxx
(when paid)
*Dividend is recorded when it is declared.
Prior Period Tax (Under/Over Provision of tax of Previous Periods)

Suppose in 2014 current tax is 500,000.
Current Tax 500,000
Current Tax Payable 500,000
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 A tax return is then filed with income tax department.
 Income tax department will verify the figures (Assessment)
 Suppose assessment of 2014 is finalized in 2016, and tax assessed is Rs 550,000. Therefore under
Provision (Under charge) of tax is Rs 50,000 in 2014.
 In 2016, this Rs 50,000 is recorded as a change in accounting estimate as follows
Prior Period tax 50,000
Tax Payable/cash 50,000
Income Statement (Extracts)

Tax Rs
Current Tax (-)
Prior period tax (50,000)
Suppose in 2016, instead of tax assessed Rs 550,000, tax assessed is Rs 460,000. Therefore over
provision (over charged) of tax is Rs 40,000 in 2014. In this case in 2016, this Rs 40,000 is recorded as a
change in accounting estimate as follows
Cash/Tax Receivable 40,000
Prior Period Tax 40,000
Income Statement (Extracts)

Tax Rs
Current Tax (-)
Prior period tax 40,000
Important consideration in questions of final accounts:

 Trial balance contains closing balances unless any adjustment is required in an accounting head
appearing in trial balance.
 Every item in the trail balance shall be presented only once as per its nature in any component of
financial statements.
 Additional information contains either adjusting entries that are required in the financial
statement or disclosures that need to be mentioned in financial statements.
 If trial balance contains opening balance of stock and purchases then closing stock will be in
additional information whish needs to be adjusted.
4.1 SAGODHA SPICES LIMITED
The following trial balance has been extracted from the books of account of Sagodha Spices Limited, a
limited liability company, at 31 March 2015.
Rs. 000 Rs. 000
Administrative expenses 210

Share capital (ordinary shares of Rs.1 fully paid) 600
Trade receivables 470
Bank overdraft 80
Income tax (overprovision in 2014) 25
Retirement benefit liability 180
Distribution costs 420
Non-current asset investments 560
Investment income 75
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Plant and equipment
At cost 750
Accumulated depreciation (at 31 March 2015) 220
Accumulated profit (at 1 April 2014) 240
Purchases 960
Inventories (at 1 April 2014) 140
Trade payables 260
Revenue 1,950
Dividend paid 120
3,630 3,630
Additional information
 Inventories at 31 March 2015 were valued at Rs. 150,000.
 The following items are already included in the balances listed in the above trial balance.
Distribution Administrati
ve
costs Expenses
Rs.000 Rs.000
Depreciation (for year to 31 March 2015) 27 5
Hire of plant and machinery 20 15
Auditors’ remuneration — 30
 The income tax expense based on the profit on ordinary activities is estimated to be Rs. 54,000.
 The retirement benefit liability is to be increased by Rs. 16,000. The increase should be charged
to administrative expenses. No retirement benefits are expected to be paid for the foreseeable
future.
Required:
Prepare the company’s statement of comprehensive income for the year to 31 March2015 and a statement
of financial position at that date in accordance with IAS 1 Presentation of Financial Statements. (20)
4.2 KASUR CHEMICALS LIMITED

The list of balances of Kasur Chemicals Limited shows the following balances at 31 December 2015.
Dr Cr
Rs.000 Rs.000
Share capital (600,000 shares) 300

Share premium 20
Revaluation reserve 20
Accumulated profit 1 January 2015 40
Inventory (goods for resale) at 1 January 2015 60
Revenue 1,000
Purchases 540
Purchases returns 26
Sales returns 28
Carriage outwards 28
Warehouse wages 80
Sales representatives salaries 60
Administrative wages 40
Warehouse plant and equipment – cost 126
Accumulated depreciation - 1 January 2015 50
Delivery vehicle hire 20
Goodwill 90
Distribution expenses 10
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Directors’ salaries (charge to administrative expenses) 30
Rental income 16
Cash at bank 60
Trade payables 60
1,532 1,532
Additional information
 Inventory (goods for resale) at 31 December 2015 amounted to Rs. 100,000.
 Annual depreciation on warehouse plant and equipment of Rs. 32,000 should be provided.
 Income tax for 2015 should be taken as Rs. 50,000.
Required:
Prepare the company’s statement of comprehensive income for the year to 31 December 2015 and a
statement of financial position at that date in accordance with IAS 1 Presentation of Financial
Statements. (20)
 If trial balance contains cost of sales and closing stock then closing stock will have only one
effect in SOFP as an asset.
 If gain or loss on disposal is in the trail balance then no further accounting entry, instead only
place the figure once in other income
 If gain or loss on disposal is not appearing in the trial balance then calculate the gain or loss from
additional information (if any) and pass necessary entries
 Trail balance contains income and expenses of current period only. Effects of previous period’s
incomes and expenses should have been included in the opening balance of retained earnings
Dividend
Interim dividend Final dividend
Dividend on the basis of profits of less than one Dividend on the basis of profits of full year
year
Dividend is recorded when it is declared. If dividend is declared after the reporting period but before the
date of authorization of financial statements, then the dividend is disclosed together with the amount per
share in the notes to the financial statements of the period to which it relates.
Effect of stocks on profit:
Closing stock has direct relationship with profit (means inverse relationship with cost of sale)
Opening stock has inverse relationship with profit (means direct relationship with cost of sale)
4.3 THATTA TOURS LIMITED

The trial balance of Thatta Tours Limited as at 31 December 2015 is as follows:
DR CR
Rs.000 Rs.000
Ordinary share capital (Rs.1 shares) 980
Cash at bank 23
Tax (over-provision in 2014) 25
10% loan notes (repayable in 2020) 300
General administrative expenses 46
Administrative salaries 24
General distribution expenses 25
Distribution salaries 10
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Directors’ remuneration 35
Loan notes interest paid 15
Development costs (incurred on 31 Dec. 2015) 30
Dividend paid 30
Dividends received 20
Investments 45
Land and buildings - at cost 4,200
- accumulated depreciation at 1 January 2015 2,600
Plant and machinery - at cost 200
- accumulated depreciation at 1 January 2015 75
Retained earnings at 1 January 2015 64
Purchases and sales 405 920
Profit on disposal of factory 60
Trade receivables and trade payables 16 100
Inventory at 1 January 2015 35
Bad debts 5
5,144 5,144
Additional information:
 Closing inventory is valued at the lower of cost or net realizable value. At 31 December 2015 it
amounted to Rs. 55,000.
 Non-current assets are depreciated on a straight-line basis assuming no residual value. The
following depreciation rates are to be applied:
Buildings 5%
Plant and machinery 20%
The depreciation charge for the year is to be apportioned as follows:
Distribution costs Administrative expenses

Buildings 70% 30%
Plant and machinery 75% 25%
The cost of the land was Rs.3, 200,000. There were no purchases or sales of non-current assets during the
year.
 Development costs are an intangible asset and are to be amortized (depreciated) over a three-year
period. The amortization (depreciation) charge is to be allocated to cost of sales.
 The profit (after tax) on disposal of the factory is considered to be material amount for which
separate disclosure is required.
 Tax on the profits for the year is estimated at Rs.95, 000.
 Directors' remuneration is to be analyzed between distribution costs and administrative expenses
as follows:
Distribution Rs.15, 000

Administration Rs.20, 000
Required
Prepare the company’s statement of comprehensive income for the year ended 31 December 2015 and
statement of financial position as at 31 December 2015. (25)
Whether balance of retained earnings in trial balance is an opening balance or a closing balance:
If incomes and expenses are in trial balance then it means profit for the year is to be calculated and then to
be added in retained earnings. In that case figure of retained earnings in the trial balance is an opening
balance of retained earnings.
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If incomes and expenses are not in trial balance then it means profit for the year has already been
calculated and if profit is not appearing in the trial balance then it means profit is included in retained
earnings. In that case, figure of retained earnings in trial balance is a closing balance of retained earnings.
Suspense account:
 If sum of debit column is more than the sum of credit column in the trial balance, a temporary
account called as suspense account will appear in the credit column of the trial balance.
 If sum of credit column is more than the sum of debit column in the trial balance, a temporary
account called as suspense account will appear on the debit column of the trial balance.
 If an entry is completely omitted then there will be no suspense account.
 If an entry is wrongly recorded but there is no violation of debit and credit rule even then there
will be no suspense account.
Capital Work in Progress (CWIP)
If an asset is under process of construction or installation, then it is called as Capital Work in Progress
(CWIP). Any amount incurred on it up to the reporting date is capitalized and such an asset is presented in
the statement of financial position as a non-current asset. However, depreciation of the asset only begins
when it is available for use therefore assets under the heading Capital Work in Progress are not
depreciated.
4.4 BSZ LIMITED

The chief accountant at BSZ Limited left the company suddenly for urgent family reasons part way
through the year end adjustment process.
The following trial balance has been extracted after some of the closing adjustments but before others for
the year ended 30 June, 2015:
Dr. Cr.
Rs. M Rs. m
Cash at bank 29
Inventories (closing) 90
Accounts receivable 60
Provision for bad debts as at 1 July 2014 1
Advances to suppliers 16
Advances to staff 6
Short term deposits 11
Prepayments 16
Property, plant and equipment - cost
Freehold land and buildings 405
Furniture and fixtures 27
Machines 85
Computer equipment 10
Accumulated depreciation as at 1 July 2014
Building 26
Machines 27
Furniture and fixtures 8
Computer equipment 2
Short term loan 114
Accounts payable 75
Accrued liabilities 7
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Taxation liability 17
Share capital 400
Accumulated profits 65
Suspense account 13
755 755
Additional Information:
i. The depreciation charge for the year has not yet been calculated. The company uses the straight
line method for charging depreciation. The building is depreciated at a rate of 5% whereas 10% is
charged on machines, furniture and fixtures and computer equipment.
ii. The land element of "freehold land and buildings” cost Rs. 255 million. This is to be revalued
upwards by Rs. 120 million.
iii. The buildings element of "freehold land and buildings” includes costs associated with the
construction of an extension to the building. Construction of the extension commenced on 1
March 2015 and is expected to be completed on 30 September 2015. The cost incurred during the
year i.e. Rs. 20 million was capitalised on 30 June 2015.
iv. The cost of furniture and fixtures includes additions of Rs. 8 million made on 1 April 2015.
v. A machine was sold on 28 February 2015 at a price of Rs. 13 million. The machine cost Rs. 15
million. The accumulated depreciation on this machine as at 1 July 2014 was Rs. 4 million. The
only entry made so far has been to credit the sale proceeds to a suspense account.
vi. 5% of the receivables are considered doubtful.
vii. Advances given to suppliers include an amount of Rs. 4.0 million paid for goods which will be
supplied on 31 December 2017.
Required:
Prepare the statement of financial position as at 30 June 2015. (20)
When sale is recorded:
 Sales is recorded when control is transferred from seller to buyer.
 Control is transferred when risks and rewards are transferred from seller to buyer.
 Risks and rewards are normally transferred when the goods are dispatched or delivered. However
sometimes goods are sold on sale or return basis.
Sale or return basis:
In this case, sales are recognized at the time when the goods are either sold by the buyer to the third party
or time period of return is expired whichever is earlier.
4.5 YASIR INDUSTRIES LIMITED

The following trial balance related to Yasir Industries Limited (YIL) for the year ended June 30, 2015:
Dr Cr
Rs. m Rs. m
Share capital - 120.00
Retained earnings - 10.20
Sales - 478.40
Purchases 175.70 -
Production labour 61.00
Manufacturing overheads 39.00
Inventories (July 1, 2014) 38.90
Administrative expenses 40.00 -
Distribution expenses 19.80 -
Financial charges 0.30 -
Cash and bank - 13.25
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Trade creditors - 30.40
Accrued expenses - 16.20
Loan - 120.00
Suspense account 30.00 -
Leasehold property - at cost 230.00 -
Machines - at cost 168.60 -
Software - at cost 20.00 -
Acc. depreciation - Leasehold property (June 30, 2015) - 40.25
Acc. depreciation - Machines (June 30, 2015) - 48.60
Acc. amortization - Software (June 30, 2015) - 12.00
Trade receivables 66.00 -
889.30 889.30
 Sales include an amount of Rs. 27 million, made to a customer under sale or return agreement.
The sale has been made at cost plus 20% and the expiry date for the return of these goods is July
31, 2015.
 The value of inventories at June 30, 2015 was Rs. 42 million.
 A fraud of Rs. 30 million was discovered in March 2015. A senior employee of the company who
left in February 2015, had embezzled the funds from YIL’s bank account. The chances of
recovery are remote. The amount is presently appearing in the suspense account.
 The loan was taken on January 1, 2015 YIL. Interest is paid at 10% per annum in arrears. No
amount has been recognised for this interest.
 Financial charges comprise bank charges and bank commission.
 The provision for current taxation for the year ended June 30, 2015 after making all the above
adjustments is estimated at Rs. 16.5 million.
 On July 1, 2014, the leasehold property having a useful life of 40 years was revalued at Rs. 238
million. No adjustment in this regard has been made in the books.
 Depreciation of leasehold property is charged using the straight line method. 50% of depreciation
is allocated to manufacturing, 30% to administration and 20% to selling and distribution.
Required:
Prepare the:
(a) The statement of financial position as of June 30, 2015.
(b) The statement of comprehensive income for the year ended June 30, 2015. (20)
Summary of classification of expenses:
Cost of sales Distribution expenses Administration expenses

Opening stock Carriage outward Administrative wages
Purchases (less return) Warehouse wages Office expenses
Carriage inwards Sales representatives wages Depreciation of office assets
Depreciation of plant & Delivery vehicle hire Legal expenses
machinery
Rent of plant & machinery Distribution and selling expenses Bad debts
Closing stock Sales expenses
commission
Discount allowed
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Dividend
Interim dividend Final dividend
Dividend on the basis of profits of less than one Dividend on the basis of profits of full year
year
Dividend is recorded when it is declared. If dividend is declared after the reporting period but before the
date of authorization of financial statements, then the dividend declaration is disclosed together with the
amount per share in the notes to the financial statements of the period to which it relates.
Preparation of financial statements is the responsibility of the management of the company. Authorization
of financial statements means directors have signed the financial statements after their finalization.
Refinancing of loans
Refinancing means to postpone the due date of repayment of loan.
If the refinancing agreement is finalized before the reporting date then classify the loan according to the
revised terms and conditions in the statement of financial position.
If the refinancing agreement is finalized after the reporting date but before the date of authorization of
financial statements then classify the loan according to the original terms and conditions in the statement
of financial position and disclose the revised terms and conditions in notes to the financial statement.
Page 13 of 62
Questions with statement of changes in equity:
Q.1 Mustard Seed Limited is a small company listed on Pakistan Stock Exchange. The trial balance of the company at
28 February 20X5 is shown below:
MUSTARD SEED LIMITED
TRIAL BALANCE AT 28 FEBRUARY 20X5
Debit Credit
Sale of goods 8,422,500
Rendering of services 140,200
Dividends received 62,800
Profit on sale of fixtures, fittings and equipment 67,000
Cost of goods sold 6,053,500
Distribution costs 505,300
Administration costs 436,000
Other expenses 48,000
Retained earnings 112,000
Dividends Paid 80,000
Fixtures, fittings and equipment 1,200,000
Investments 750,000
Accounts receivable 302,300
Inventory 250,100
Bank 1,395,200
Borrowings 100,000
Accounts payable 115,900
11,020,400 11,020,400
The following information is relevant:
 Distribution costs do not include depreciation of showroom furniture and fittings of Rs 82,000 and salaries
payable of sales personnel of Rs 320,000.
 Administration costs do not include depreciation of office equipment of Rs 68,000 and salaries payable of office
personnel of Rs 312,000.
 Other costs do not include the fee for the audit of Rs 25,000payable for the year ended 28 Feb 20X5.
 The share capital comprises 2 00 000 shares of Rs 10 each. An interim dividend of 40 paisa per share was
declared on 15 September 20X4. A final dividend of 10 paisa per share was declared on 15 March 20X5. The
financial statements were authorized for issue on 20 March 20X5.
 Inventory with a cost of Rs 75,000 was estimated to have a net realizable value of Rs 52,000 at year end. This
has not been taken into account in preparing the above trial balance. The amount is considered to be material.
 Borrowings comprise the balance of 100,000 on a loan raised on 1 June 20X2 and is due be settled on 30 May
20X6. Interest on the loan is charged at 12% per annum, payable annually in arrears. The interest for the current
year has not been paid.
 The rate of income tax is 30%. Dividend income is taxed @10% as a separate block of income.
Required:
a. Statement of Financial Position as on 28 February 20X5.
b. Statement of profit or loss for the year ended 28 February 20X5
c. Statement of changes in equity for the year ended 28 February 20X5
Issue of Shares against Cash
Cash XX
*Share Capital XX
Difference can either be share premium or discount on issue of shares.
*Share capital and share premium are presented in equity.
Dividend to Shareholders:
It is distribution of profits to shareholders.
a)
*Dividend XX
Dividend Payable XX
(When the dividend is declared)
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*Dividend is not an expense instead it is deducted from retained earnings just like drawings (which are deducted
from capital).
b)
Dividend Payable XX
Cash/Bank XX
(When the dividend is paid)
Dividend
Shares
Cash
Interim Final
Interim Final
Bonus shares/ Stock dividend / Capitalization Issue
It is a situation in which company issues new shares to existing shareholders in proportion to existing
shares without any consideration.
Dividend xxxx
Share capital xxxx
Entry will be made at the amount of nominal value of shares. Therefore there will be no premium or
discount in this entry. The effect of this entry is within equity (deducted from retained earnings and added
in share capital).
Summary of discussion about dividend
It is a distribution of profits to owners (shareholder). If dividend Is given as a percentage then multiply the rate with
the amount of share capital (nominal value of share capital) which is at the date of declaration of dividend to
calculate the amount of dividend. A company may pay dividend either in cash or in form of shares.
Dividend
Cash Dividend (Either Final or Interim) Shares (Either Final or Interim)
When Declared When bonus shares are issued from Retained
Dividend(Retained Earnings) XXX Earnings
Dividend Payable A/c XXX Dividend (Retained Earnings) XXX
Share Capital A/c XXX
When Paid
Dividend Payable A/c XXX When bonus Shares are issued from “Share
Cash/ Bank A/c XXX Premium Account”
Dividend (Share Premium A/c) XXX
Share Capital A/c XXX
 If nothing is mentioned then assume that bonus shares are distributed from retained earnings.
 Dividend is recognized on the date of declaration.
 If the dividend is declared after reporting date but before the authorization of the financial statements it is
disclosed in the financial statement to which it relates.
 Dividend is adjusted against retained earnings in the statement of changes in equity,
 If the date of declaration is not given, then:
1. For interim dividend assume that dividend is declared during the accounting period.
2. For final dividend assume declared after the reporting date.
 If nature of dividend (means whether final or interim) is not given then assume final dividend.
 If type of dividend (means cash or bonus) is not available then assume cash dividend.
 Concept of allowance for bad and doubtful debts.
Page 15 of 62
Q.2 MOONLIGHT PAKISTAN LIMITED
Following is the summarized trial balance of Moonlight Pakistan Limited (MPL), a listed company, for
the year ended December 31, 2015:
Rs. in million
Debit Credit
Land and buildings - at cost 2,600 -
Plants - at cost 2,104 -
Trade receivables 702 -
Stock in trade at December 31, 2015 758 -
Cash and bank 354 -
Cost of sales 1,784 -
Selling expenses 220 -
Administrative expenses 250 -
Financial charges 210 -
Accumulated depreciation as on January 1, 2015 – Buildings - 400
Accumulated depreciation as on January 1, 2015 – Plants - 670
Ordinary shares of Rs. 10 each fully paid - 1,200
Retained earnings as at January 1, 2015 - 510
12% Long term loan - 1,600
Provision for gratuity (gratuity payable) - 8
Trade payables - 544
Revenue - 4,050
8,982 8,982
Additional Information
i. The land and buildings were acquired on January 1, 2011. The cost of land was Rs. 600 million.
On January 1, 2015 a professional valuation firm valued the buildings at Rs. 1,840 million with
no change in the value of land. The estimated life at acquisition was 20 years and the remaining
life has not changed as a result of the valuation. 60% of depreciation on buildings is allocated to
manufacturing, 25% to selling and 15% to administration.
ii. Plant is depreciated at 20% per annum using the reducing balance method.
iii. On March 31, 2015 MPL made a bonus issue of one share for every six held. The issue has not
been recorded in the books of account.
iv. 35 million right shares were issued on September 1, 2015 at Rs. 12 per share. The entry has not
yet been recorded.
v. The interest on long term loan is payable on the first day of July and January. No accrual has been
made for the interest payable on January 1, 2016.
vi. MPL operates a gratuity scheme for all its eligible employees. The provision required as on
December 31, 2015 is estimated at Rs. 23 million. Cost of gratuity is allocated to production,
selling and administration expenses in the ratio of 60%: 20%: 20%. No amount from gratuity is
payable within next 12 months.
vii. The tax charge for the current year after making all related adjustments is estimated at Rs. 37
million.
Required
In accordance with the requirements of Companies Act , 2017 and International Financial Reporting
Standards, prepare the following:
a) Statement of Financial Position as of December 31, 2015.
b) Statement of profit or loss for the year ended December 31, 2015.
c) Statement of profit or loss for the year ended December 31, 2015. (22)
Page 16 of 62
Answers
A.1
Mustard Seeds Limited
Statement of Financial Position
As on 28 February 2005
Non-current Assets
Fixtures, fittings and equipment [1,200,000-82,000-68,000] 1,050,000
Investment (assumed as non-current) 750,000
Current assets
Accounts Receivable 302,300
Inventory (250,100-23,000) 227,100
Bank 1,395,200
3,724,600

Retained Earnings W-6 609,950
2,609,950
Borrowings 100,000
Current liabilities
Account Payable 115,900
Financial charges payable 12,000
Salaries Payable [320,000+312,000] 632,000
Current tax payable 229,750
Audit fee payable 25,000
3,724,600
Statement of Comprehensive Income
For the year ended February 2005
Revenue from sales 8,422,500
Cost of goods sold (6,053,500+23,000) (6,076,500)
Gross Profit 2,346,000
Other Income W-1 270,000
Distribution costs W-2 (907,300)
Administrative Expenses W-3 (816,000)
Other expenses W-4 (73,000)
Finance costs (100,000 x 12%) (12,000)
Profit before tax 807,700
Current Tax W-5 (229,750)
Profit after tax 577,950
Statement of Changes on Equity
For the year ended 28 February, 2005
Share Capital Retained Earnings Total
Opening balance 2,000,000 112,000 2,112,000
Profit after tax 577,950 577,950
Dividend (80,000) (80,000)
Closing balance 2,000,000 609,950 2,609,950
Page 17 of 62
Workings:
1) Other Income
Rendering of services 140,200
Dividend received 62,800
Profit on disposal 67,000
270,000
2) Distribution expenses
Given 505,300
Depreciation 82,000
Salaries 320,000
907,300
3) Administrative expenses
Given 436,000
Depreciation 68,000
Salaries 312,000
816,000
4) Other expenses
Given 48,000
Audit fee 25,000
73,000
5) Current tax
Dividend Income (62,800)
Taxable profit 744,900
X 30% 223,470
Dividend @10% [62,800 x 10%] 6,280
Current tax 229,750
6) Retained Earnings
Opening Retained Earning 112,000
+ Profit after tax 577,950
(-) Dividend paid (80,000)
Closing Retained earning 609,950
7) The management has declared a final dividend of Rs 10 paisa per share after the reporting date on 15-3-2005.
Page 18 of 62
A2 (a) Moonlight Pakistan Limited
Statement of Financial Position Rs. in

As at December 31,2015 million
ASSETS
Non-current assets
Property, plant and equipment (W2) 3,472
Current assets
Stocks in trade 758
Cash and bank (354+420) 774
2,234
5,706
EQUITY
Issued, subscribed and paid-up capital 1,750
Share premium 70
Surplus on revaluation of fixed assets (240 - 15) 225
3,406
LIABILITIES
Long term loan 1,600
Provision for gratuity 23
1,623
Current liabilities
Creditor and other liabilities (544 + 96) 640
Income tax payable 37
677
5,706
(b) Moonlight Pakistan Limited Rs. in

Statement of comprehensive income million
For the year ended December 31,2015
Sales 4,050
Cost of sales (W1) (2,149)
Gross profit 1,901
Selling expenses (W1) (252)
Administrative expenses (W1) (270)
Financial charges (210 + 1,600 x 12% x 6/12) (306)
Profit before taxation 1,073
Taxation –Current Tax (37)
Profit after taxation 1,036
c) Moonlight Pakistan Limited Share capital Premium Retained Total

Statement of changes in equity earnings
For the year ended December 31,2015
Balance as on 1 January 2015 1,200 - 510 1,710

Bonus issue (1200 / 6) 200 - (200) -
Right issue (420 x 10/12) 350 70 - 420
Profit after tax - - 1,036 1,036
Transfer of surplus to retained earnings (240/16) - - 15 15
Balance as on 31-12-2015 1,750 70 1,361 3,181
Page 19 of 62
W1: Cost of sales/selling expenses/admin expenses
Cost of sales Selling expenses Admin expenses

Rs. in million
As per trial balance 1,784 220 250
Depreciation - building (60% : 25% : 15%) (W2) 69 29 17
Depreciation – plant 287 - -
Provision for gratuity (23-8) x 60%:20%:20% 9 3 3
2,149 252 270
W2: Property, plant and equipment Land Building Plant Total
Rs. in million
Cost as at January 1,2015 600 2,000 2,104 4,704
Accumulated depreciation - (400) (670) (1,070)
Revaluation (1,840 - (2,000 - 400 )) - 240 - 240
Current year depreciation (1,840/16) - (115) (287) (402)
600 1,725 1,147 3,472
W3: Share Capital/Retained Earnings Share capital Premium Retained earnings
Balance as on 1 January 2015 1,200 - 510

Bonus issue (1200 / 6) 200 - (200)
Right issue (420 x 10/12) 350 70 -
Profit after tax - - 1,036
Transfer of surplus to retained earnings (240/16) - - 15
Balance as on 31-12-2015 1,750 70 1,361
W4:Revaluation of building
01-01-2015:
Cost [2,600-600] 2,000
Accumulated Depreciation (400)
1,600
Fair Value 1,840
Revaluation Surplus 240
1,840/16 = 115
2,000/20 = 100
400/100 = 4 years
20-4 = 16 years
Revaluation surplus transferred to Retained earnings 15
[240/16]
W5:
i) Plant Depreciation: [2,104 - 670] x 20% =287 (to be included in cost of sales)
ii) *
Amount of bonus shares [20 million shares x 10] =200 million
*
Bonus Issue: 1,200/10 = 120 shares x 1⁄6 = 20 Million bonus shares
Dividend (Retained earnings) 200

Share Capital 200
iii) 35 million x 12 = 420 million
Page 20 of 62
Share Capital = 35 x 10 = 350 million
Share Premium = 35 x2 = 70 million
Cash and bank 420

Share Capital 350
Share Premium 70
iv) 1,600 x 12% x 6⁄12 = 96

Finance cost 96
Finance cost payable 96
v) Gratuity Payable
b/d (unadjusted) 8
c/d 23 Expense 15
9
3
3
vi) Current Tax 37
Current Tax payable 37
Self-Test Questions
Q.1 The following is a list of balances on December 31, 2007 and have been extracted from the books of JK
Enterprises:
Rupees
Capital 58,200,000
Freehold land 10,000,000
Building on freehold land 25,000,000
Plant and equipment 15,200,000
Motor vehicles 10,000,000
Accumulated depreciation:
Building on freehold land 7,000,000
Plant and equipment 4,800,000
Stocks:
Raw material 3,200,000
Work in progress 1,750,000
Finished goods 7,200,000
Purchase of raw materials 51,370,000
Sales 107,300,000
Manufacturing wages 21,000,000
Factory lighting and power 4,250,000
Other administration expenses 4,470,000
Sales office expenses 10,300,000
Other factory overheads 8,100,000
Debtors 8,000,000
Provision for doubtful debts 160,000
Creditors 4,500,000
Cash at bank 5,620,000
Page 21 of 62
The following information has to be taken into account:
(i) Value of stock on December 31, 2007 was as follows:
Rupees
Stocks: Raw material 4,150,000
Work in progress 2,200,000
Finished goods 8,000,000
(ii) Depreciation has to be provided as follows:

Building on freehold land 5% on straight line basis
Plant and equipment 10% on straight line basis
Motor vehicles 20% on reducing balance method
(iii) 80% of the building is being used for manufacturing purposes.

(iv) The motor vehicles are used for delivery of goods to customers.
(v) Sales office expenses include advance rent of Rs. 200,000 paid in respect of the period July 1,
2007 to June 30, 2008.
(vi) Trade debts of Rs. 70,000 have to be written off. It is estimated that 5% of the remaining trade
debts may not be recovered.
Required:
a) Cost of Goods Manufactured Statement for the year ended December 31, 2007 clearly indicating
prime cost, total factory overheads, manufacturing costs and cost of goods manufactured.
b) The statement of profit or loss for the year ended December 31, 2007.
c) The statement of financial position as at December 31, 2007
Q.2 Hamid, a toy manufacturer, has the following trial balance as at June 30, 2006:
Rupees
Particulars
Debit Credit
Land 1,000,000
Buildings 683,600
Plant and machinery 1,275,000
Fixtures and fittings 300,000
Provision for depreciation on: Buildings 130,800
Plant and machinery 375,000
Fixtures and fittings 60,000
Stocks at July 1, 2005 Raw materials 92,400
Work in process 104,850
Finished Goods 130,200
Debtors/Creditors 353,400 279,900
Provision for bad debts 27,750
Cash at bank 107,700
Bank loan 180,000
Drawings /Capital 565,200 2,625,000
Sale of finished goods 3,870,950
Miscellaneous expenses – manufacturing 42,900
Factory power 55,350
Supervisor's salary 211,500
Rent and raters 220,500
Indirect material 31,800
Discounts allowed/ received 29,550 4,000
Page 22 of 62
Purchase of raw materials 1,236,900
Return of raw materials 47,400
Selling expenses 136,950
Advertising 109,050
Heating and lighting 63,000
Machine repairs 61,950
Carriage on raw materials 36,000
General administrative expenses 99,000
Insurance 81,000
7,600,800 7,600,800
The following additional information is also available:
1. Stocks as at June 30,2006
Raw materials 95,850
Work in Process 107,700
Finished Goods 138,600
2. Debts of Rs. 23,400 are to be written off as bad. Provision for bad debts is to be made at 10% of
the outstanding debtors.
3. Rent and rates include rent of Rs. 27,000 paid for the months of July and August 2006. Rent and
rates are to be split between factory and office in the ratio of 2:1.
4. Accrued wages amounted to Rs. 27,000. Wages and salaries are to be apportioned between direct
wages, indirect wages and administrative expenses in the ratio of 6:2:2.
5. Insurance and heating & lighting are to be split between factory and office in the ratio of 3:2.
6. Depreciation policy is as follows:
a) 5% on Buildings on straight line method; 70% of the depreciation pertains to factory
building.
b) 15% on plant and machinery on straight line method;
c) 20% on fixtures and fittings on reducing balance method; 30% of the depreciation is to be
allocated to factory.
No depreciation is provided on land.
7. Bank loan was taken on January 1, 2006 with annual interest of 12%.
Required:
a) Prepare a Cost of Goods manufactured Statement for the year ended June 30, 2006.
b) Prepare income statement for the year ended June 30, 2006.
Q. 3 Following is the summarized trial balance of ABC Limited as at 30 June 2014:
Rs. In million
Sales 737
Stock at 1 July 2013 75
Purchases 301
Manufacturing expenses 240
Selling and marketing expenses 28
Factory building – cost 1 July 2013 200
Machines – cost 1 July 2013 280
Factory building – Accumulated Depreciation 1 July 2013 50
Machines – Accumulated Depreciation 1 July 2013 87
Advance income tax 4
Debtors 117
Cash and bank 51
Creditors 83
Page 23 of 62
Share capital 300
Unappropriated profit at 1 July 2013 90
1,347 1,347
Additional information:
(i) Depreciation on factory building and machines are provided on reducing balance method @ 10%
and 15% per annum respectively. 60% depreciation on factory building and 100% depreciation on
machines are charged to cost of sales. The balance depreciation is charged to administrative
expenses.
(ii) On 31 May, 2014 a fully depreciated machine was sold for Rs. 3 million. The sale proceeds were
received on 5 July 2014. No entries have been made in respect of these transactions.
(iii) Debtors include an amount of Rs. 28 million owed by a customer who experienced cash flow
problems prior to the year-end. The company has agreed to accept Rs. 18 million in full and final
settlement of the debt. Four other debtors aggregating Rs. 5 million are required to be written off.
(iv) Income tax liability for the year ended 30 June 2014 is estimated at Rs. 25 million.
(v) On 20 June 2014 an advance of Rs. 12 million was received under a contract for supply of goods
in August 2014. The advance was credited to sales.
(vi) Closing stock at 30 June 2014 amounted to Rs. 114 million. It included stock costing Rs. 20
million whereas the related invoice was booked on 4 July 2014.
(vii) In June 2014 a competitor developed a new product which has affected ABC’s ability to
sell one of its products at its normal price of Rs. 160. It is estimated that to sell the product, the
company needs to offer a discount of 25%. 150,000 units of that product were in hand as on 30
June 2014 at a cost of Rs. 120 per unit. Its selling costs are estimated at Rs. 20 per unit.
Required:
Prepare the statement of comprehensive income for the year ended 30 June 2014 and the statement of
financial position as at that date in accordance with the International Financial Reporting Standards.
(20)
Note: unappropriated profit is another name of retained earnings.
Presentation of expenses in income statement:

Expenses should be presented in income statement by either:
 according to the function of the expense method; or
 according to the nature of expenses method
IAS 1 states that entities should choose the method that provides the more relevant or reliable
information. However, Companies’ Ordinance 1984 require classification by function with additional
information on nature in notes to the financial statements.
IAS 1 encourages entities to show the analysis of expenses by nature on the face of the statement of
comprehensive income rather than in notes to the financial statements.
Analysis of expenses by their function

When expenses are analyzed according to their function, the functions are commonly ‘cost of sales’,
‘distribution expenses’, ‘administrative expenses’ and ‘other expenses’. This method of analysis is also
called the ‘cost of sales method’.
Illustration: Statement of comprehensive income - Expenses

analyzed by function
Rs. M
Page 24 of 62
Revenue 7,200
Cost of sales (2,700)
Gross profit 4,500
Other income 300
Distribution costs (2,100)
Administrative expenses (1,400)
Other expenses (390)
Finance costs (60)
Income tax expense (250)
Profit for the period 600
IAS 1 also requires that if the analysis by function method is used, additional information about nature of
expenses must be disclosed in notes.
Analysis of expenses by their nature

When expenses are analyzed according to their nature, the categories of expenses will vary according to
the nature of the business. In a manufacturing business, expenses would probably be classified as:
 raw materials and consumables used;
 staff costs (‘employee benefits costs’);
 Depreciation.
Items of expense that on their own are immaterial are presented as ‘other expenses’.
There will also be an adjustment for the increase or decrease in inventories of finished goods and work-
in-progress during the period.
Page 25 of 62
Illustration: Statement of comprehensive income - Expenses analyzed by nature
Rs. m Rs. M
Revenue 7,200
Other income 300
7,500
Changes in inventories of finished goods and 90
work-in-progress
Raw materials and consumables used 1,200
Staff costs (employee benefits expense) 2,000
Depreciation and amortization expense 1,000
Other expenses 2,300
Finance costs (interest cost) 60 (6,650)
Note: Remember that opening stock will decrease the amount of profit while closing stock will increase
the amount of profit.
Q. MINGORA IMPORTS LIMITED
The trial balance of Mingora Imports Limited at 31 December 2015 is as follows:
Rupees in million
Dr. Cr.
Patent rights 60
Work-in-progress, 1 January 2015 125
Leasehold buildings at cost 300
Ordinary share capital 600
Sales 1,740
Staff costs 260
Accumulated depreciation on buildings, 1 January 2015 60
Inventories of finished games, 1 January 2015 155
Consultancy fees 44
Directors’ salaries 360
Computers at cost 50
Accumulated depreciation on computers, 1 January 2015 20
Dividends paid 125
Cash 440
Receivables 420
Trade payables 92
Sundry expenses 294
Accumulated profits, 1 January 2015 _____ 121
2,633 2,633
The following information is also relevant.
Page 26 of 62
(1) Closing inventories of finished games are valued at Rs. 180 million. Work in progress has
increased to Rs. 140 million.
(2) The patent rights relate to a computer program with a three year lifespan.
(3) On 1 January 2015 buildings were revalued to Rs. 360 million. This has not yet been reflected in
the accounts. Computers are depreciated over five year. Buildings are now to be depreciated over
30 years.
(4) An allowance for bad debts (irrecoverable debts) of 5% is to be created.
(5) There is an estimated bill for current tax of Rs. 120 million which has not yet been recognised.
Required:
Prepare an statement of comprehensive income (analysing expenses by nature) for the year ended 31
December 2015 and a statement of financial position as at that date.
A. MINGORA IMPORTS LIMITED
Statement of comprehensive income for the year ended 31 December 2015
Rs. in
million
Revenue 1,740
Change in inventories of finished goods and work-in-progress (W3) 40
Staff costs (W3) (620)
Depreciation and other amortisation expense (W3) (42)
Other expenses (W3) (359)
Statement of financial position as at 31 December 2015
Rs. in
Assets
million
Non-current assets
Property, plant and equipment (W1) 368
Intangible assets (W2) 40
408
Current assets
Inventories (180 + 140) 320
Trade and other receivables (420 × 95%) 399
Cash 440
1,159
Total assets 1,567

Equity
Share capital 600
Page 27 of 62
Revaluation surplus 116
Retained earnings 639
1,355
Current liabilities
Trade and other payables 92
Current tax payable 120
212
Statement of changes in equity for the year ended 31 December 2015

Amounts in Rs. million
Share
Revaluation Retained Total
capital
on reserve earnings
Balance at 31 December 2014 600 121 721
Dividends paid (125) (125)
Net revaluation surplus in the year 120 - 120
(360 – (300 – 60))
Profit after tax for the period - - 639 639
Transfer of surplus (4) 4
Balance at 31 December 2015 600 116 639 1,355
Workings
(1) Property, plant and equipment
Rs. in
million
Cost brought forward
Leasehold 300
Computers 50
Revaluation 60
Cost carried forward 410
Accumulated depreciation brought forward (60 + 20) 80
Revaluation (60)
Charge for the year
Leasehold (360 ÷ 30) 12
Computers (50 ÷ 5) 10
Accumulated depreciation carried forward 42
Carrying amount carried forward 368
(2) Intangible assets

Rs. in
million
Cost 60
Page 28 of 62
Amortisation (60 ÷ 3) (20)
Carried forward 40
(3) Allocation of costs

Amounts in Rs. million
Change in Other
inventories Depreciation expenses
Staff costs
etc
Work-in-progress (140 – 125) 15
Staff costs 260
Finished goods (180 – 155) 25
Consultancy fees 44
Doubtful receivables (420 × 5%) 21
Sundry expenses 294
Amortisation of patent (W2) 20
Depreciation (12 + 10) (W1) 22
40 620 42 359
IAS 1: Presentation of financial statements

General purpose financial statements
The objective of general purpose financial statements is to provide information about the financial
position, financial performance and cash flows of a company that is useful to a wide range of users in
making economic decisions.
Users of financial statements means shareholders, lenders, customers, suppliers and government
departments etc.
To meet this objective, financial statements provide information about an entity’s:
 assets;
 liabilities;
 equity;
 income and expenses, including gains and losses; and
 cash flows.
A complete set of financial statements consists of:

 a statement of financial position as at the end of the period;
 a statement of comprehensive income for the period;
 a statement of changes in equity for the period;
 a statement of cash flows; and
 notes to these statements, consisting of explanatory information;
Reporting period
Financial statements should be presented at least annually.
Elements of financial statements

 The elements directly related to the measurement of financial position in the statement of
financial position are assets, liabilities and equity.
Page 29 of 62
 The elements directly related to the measurement of performance in the statement of
comprehensive income are income and expenses.
Assets: A resource controlled by the entity, as a result of past events, and from which future economic
benefits are expected to flow to the entity.
Liabilities: A present obligation of an entity, arising from past events, the settlement of which is expected
to result in an outflow of resources.
Equity: The residual interest in the assets of the entity after deducting all its liabilities.
Equity of companies may be sub-classified into share capital, retained profits and other reserves.
Income
Financial performance is measured by profit or loss. Profit is measured as income less expenses.
Income includes both revenue and gains.
 Revenue is income arising in the course of the ordinary activities of the entity. It includes sales
revenue, fee income, royalties’ income, rental income and income from investments (interest and
dividends).
 Gains include gains on the disposal of non-current assets.
Expenses include:
 Expenses arising in the normal course of activities, such as the cost of sales and other operating
costs, including depreciation of non-current assets. Expenses result in the outflow of assets (such
as cash or finished goods inventory) or the depletion of assets (for example, the depreciation of
non-current assets).
 Losses include for example, the loss on disposal of a non-current asset, and losses arising from
damage due to fire or flooding. Losses are usually reported as net of related income.
Accrual basis of accounting

Financial statements (except for cash flow information) must be prepared under the accrual basis of
accounting.
Current assets
IAS 1 states that an asset should be classified as a current asset if it satisfies any of the following criteria:
 The entity expects to realize the asset, or sell or consume it, its normal operating cycle.
 The asset is held for trading purposes.
 The entity expects to realize the asset within 12 months after the reporting period.
 It is cash or a cash equivalent. (Note: An example of ‘cash’ is money in a current bank account.
An example of a ‘cash equivalent’ is money held in a term deposit account with a bank.)
All other assets should be classified as non-current assets.
Illustration:
X Limited uses small amounts of platinum in its production process. Platinum price has fallen recently so
just before its year-end X Limited bought an amount of platinum sufficient to cover its production needs
for the next two years. This would be a current asset. The amount expected to be used after more than 12
months should be disclosed.
Current liabilities
IAS 1 also states that a liability should be classified as a current liability if it satisfies any of the following
criteria:
Page 30 of 62
 The entity expects to settle the liability in its normal operating cycle.
 The liability is held primarily for the purpose of trading. This means that all trade payables are
current liabilities, even if settlement is not due for over 12 months after the end of the reporting
period.
 It is due to be settled within 12 months after the end of the reporting period.
 The entity does not have the unconditional right to defer settlement of the liability for at least 12
months after the end of the reporting period.
All other liabilities should be classified as non-current liabilities.
Answers of question bank:

4.1 A.
Statement of comprehensive income for the year ended 31 March 2015
Rs.000
Revenue 1,950
Cost of sales (140 + 960 - 150) (950)
Gross profit 1,000
Other operating income 75
Distribution costs (420)
Administrative expenses (210 + 16) (226)
Profit for the year 400
Statement of financial position at 31 March 2015

Rs.000 Rs.000
ASSETS
Non-current assets
Property, plant and equipment (750 - 220) 530
Investments 560
1,090
Current assets
Inventories 150
Trade receivables 470 620
Total assets 1,710
EQUITY AND LIABILITIES
Capital and reserves
Share capital 600
Accumulated profits (240 - 120 + 400) 520
1,120
Retirement benefit obligations (180 + 16) 196
Current liabilities
Trade and other payables 260
Operating overdraft 80
Income tax payable (29 + 25) 54 394
Page 31 of 62
4.2 A.
Statement of financial position as at 31 December 2015
Rs.000 Rs.000
Non-current assets
Plant and equipment (126 - 50 - 32) 44
Goodwill 90
134
Current assets
Inventories (goods for resale) 100
Cash 60 490
624
Capital and reserves

Share capital 300
Share premium 20
Revaluation reserve 20
Accumulated profits (40 +134) 174
514
Current liabilities
Trade payables 60
Income tax 50 110
624
Statement of comprehensive income for the year ended 31 December 2015

Rs.000
Revenue (1,000 - 28) 972
Cost of sales (W) 474
Gross profit 498
Other operating income (rental income) 16
Distribution costs (W) (230)
Administrative expenses (W) (100)
Workings
Cost of Distribution Administrative
sales costs expenses
Rs.000 Rs.000 Rs.000
Opening inventory 60
Purchases 540
Purchases returns (26)
Carriage outwards 28
Warehouse wages 80
Salespersons’ salaries 60
Administrative wages 40
Page 32 of 62
Delivery vehicle hire 20
Distribution expenses 10
Closing inventory (100)
Depreciation 32
474 230 100
4.3 A.
Thatta Tours Limited: Statement of financial position as at 31 December 2015
Non-current assets Rs.000 Rs.000
Land and buildings (W1) 1,550
Plant and machinery (W1) 85
Property, plant and equipment 1,635
Intangible assets – development cost 30
Investments 45
1,710
Current
Inventoryassets: 55
Cash 23 94
Total assets 1,804
Share capital 980

Retained earnings (W5) 314
Total equity 1,294
10% loan notes repayable 2020 300
Current liabilities
Trade payables 100
Taxation payable (25 + 70) 95
Accrued loan note interest 15 210
Thatta Tours Limited: Statement of comprehensive income for the year ended 31 December 2015
Rs.000
Revenue 920
Cost of sales (W2) (385)
Gross profit 535
Other income 20
555
Distribution costs (W2) (115)
Administrative expenses (W2) (120)
Operating profit 320
Profit on disposal of factory 60
Interest costs (W3) (30)
Page 33 of 62
Income tax expense (W4) (70)
Workings
(W1) Non-current assets
Land and Plant and
buildings machinery
Rs.000 Rs.000
Cost: 4,200 200
Accumulated depreciation:
2,600 75
At 1 January 2015
Charge for the year
(5% x (4,200 - 3,200)) 50
(20% x 200) 40
At 31 December 2015 (2,650) (115)
Carrying amount 1,550 85
(W2) Cost analysis Distribution Admin

Cost of sales costs expenses
Rs.000 Rs.000 Rs.000
Purchases 405
General administration 46
Administration salaries 24
General distribution 25
Distribution salaries 10
Directors’ remuneration 15 20
Depreciation of buildings:
Distribution (70% of 50 W1) 35
Administrative expenses (30%of 50 W1) 15
Depreciation of plant and machinery:
Distribution (75% of 40 W1) 30
Administrative expenses (25%of 40 W1) 10
Bad debts 5
385 115 120
(W3) Interest charge Rs.000
Loan notes interest paid 15
Accrued interest (balance) 15
Charge for the year (10% x 300) 30
(W4) Taxation charge Rs.000
Over-provision in the previous year (25)
Tax on current year profits 95
Charge for the year 70
Page 34 of 62
(W5) Retained earnings
Rs.000
Accumulated profits at beginning of the year 64
Profit after tax 280
Dividends paid (30)
At end of year 314
4.4 A.
BSZ Limited
Statement of financial position as at June 30, 2015
2015
Rs. m
ASSETS
Non-current assets
Property, plant and equipment
Land and buildings (W2) 492.5
Furniture and fixtures (W2) 16.9
Machines (W2) 40.0
Computer equipment (W2) 7.0
556.4
Long term advances (W5) 4.0
560.4
Current assets
Inventories 90.0
Accounts receivable (W4) 57.0
Other receivables (W5) 45.0
Cash at bank 29.0
221.0
781.4
2015
Rs. m
EQUITY AND LIABILITIES
Share capital and reserves
Share capital 400.0
Accumulated profits (W6) 48.4
448.4
Revaluation surplus 120.0
568.4
Current liabilities
Short term loan 114.0
Accounts payable and other payables (75 + 7) 82.0
Taxation 17.0
213.0
781.4
Page 35 of 62
Workings
(W1) Depreciation
2015
Rs. M
Land and buildings
Cost per trial balance Less: Non-depreciable assets 405.0
Freehold land (255.0)
Capital work in progress (not yet ready for intended use) (20.0)
130
Depreciation (5%) 6.5
Furniture
Cost per trial balance Of which: 27.0
Held for the whole year (10% x 19) (1.9)
Bought 1 April (10% x 8 x 3/12) (0.2)
Depreciation 2.1
Machines
Cost per trial balance Of which: 85.0
Held for the whole year (10% x 70) (7.0)

Sold 28 February (10% x 15 x 8/12) (1.0)
Depreciation (5%) 8.0
Computer equipment
Cost per the trial balance 10.0
Accumulated depreciation as of July 1, 2014 2.0
Depreciation for the year 1.0
Accumulated depreciation as of June 30, 2015 3.0
Carrying value as at June 30, 2015 7.0
(W2) Property, plant and equipment

1.1 Operating assets
Freehold Furniture
land and And
Cost/revalued amount buildings fixtures Machines
Rs. m Rs. m Rs. m
Cost per trial balance 405.0 27.0 85.0
Revaluation 120.0 - -
Disposal - - (15.0)
Adjusted balances 525.0 27.0 70.0
Accumulated depreciation
As of July 1 2014 (per trial balance) 26.0 8.0 27.0
For the year (W1) 6.5 2.1 8.0
Disposals - - (5.0)
As at June 30 2015 (32.5) (10.1) 30.0
Carrying amount 492.5 16.9 40.0
Page 36 of 62
(W3) Profit on disposal
Rs. m
Proceeds 13.0
Cost 15.0
Accumulated depreciation (5.0)
Carrying amount (10.0)
Profit on disposal 3.0
(W4) Accounts receivable

Rs. m
Balance per trial balance 60.0
Less: Provision for bad debts (see below) 3.0
57.0
Provision for bad debts
Balance as at July 1,2014 1.0
Provision made during the year (bal. figure) 2.0
Balance as at June 30, 2015 (Rs. 60 million x 5%) 3.0
(W5) Other receivables (advances, deposits, prepayments etc.)

Rs. m
Advances to suppliers 16.0
Less amount classified as non-current (4.0)
12.0
Advances to staff 6.0
Short term deposits 11.0
Prepayments 16.0
45.0
(W6) Accumulated profits

Rs. m
Per the trial balance 65.0
Less: depreciation (6.5 + 2.1 + 8.0 + 1.0 (W1)) (17.6)
Profit on disposal (W3) 3.0
Increase in provision for bad debts(W4) (2.0)
48.4
4.5 A.
Page 37 of 62
Yasir Industries Limited
Statement of Financial Position as of June 30, 2015
2015
Assets Rs. m
Non-current assets
Property, plant and equipment (W2) 351.00
Intangible assets (20 - 12) 8.00
359.00
Current assets
Inventories (W6) 64.50
Trade receivables (W5) 39.00
103.50
462.50

Equity
Share capital 120.00
Retained earnings (W4) 97.65
217.65
Revaluation surplus 42.5
Long term loan 120.00
Current liabilities
Trade payables 30.40
Accrued expenses (W3) 22.20
Taxation 16.50
Bank overdraft 13.25
82.35
Total Equity and Liabilities 462.50
Yasir Industries Limited

Statement of Comprehensive Income for the year ended June 30, 2015
2015
Rs. m
Sales revenue (W5) 451.40
Cost of sales (W7) (250.72)
Gross profit 200.68
Distribution costs (W8) (20.05)
Administrative expenses (W8) (40.38)
Financial charges (W9) (6.30)
133.95
Loss due to fraud (30.00)
Profit before tax 103.95
Income tax expense (16.50)
Profit for the year 87.45
Workings
Page 38 of 62
(W1) Leasehold property
Annual depreciation before the revaluation (230 + 40 years) = Rs. 5.75 million per annum.
Depreciation this year has been charged incorrectly on cost (whereas it should have been on the revalued
amount).
This year’s charge must be added back
Dr Cr
Accumulated depreciation 5.75
Cost of sales (50%) 2.88
Administrative expenses (30%) 1.72
Distribution costs (20%) 1.15
Rs. m
Carrying amount at the 30 June (as per trial balance)(230.00 – 40.25) 189.75
Add back depreciation incorrectly charged (see above) 5.75
Carrying amount of property at the start of the year 195.5
Revaluation surplus Rs. M

Revalued amount of leasehold property 238.00
Less: WDV of leasehold property at revaluation 195.50
Revaluation Surplus 42.50
Depreciation of revalued property
Number of years depreciation by the year end: (40.25 + 5.75) = 7 years.
Therefore, remaining useful life as at the year-end = 33 years
Revaluation was at the start of the year
Remaining useful life at the start of the year = 34 years
Rs. m
Depreciation charge based on the revalued amount (238/34 years) 7.0
Dr Cr
Cost of sales (50%) 3.5
Administrative expenses (30%) 2.1
Distribution costs (20%) 1.4
Accumulated depreciation 7.00
(W2) Property, plant and equipment

Rs. m
Leasehold property (Rs. 238m - 7) 231
Machines (Rs. 168.6 - Rs. 48.6m) 120
351
(W3) Accrued Expenses Rs. m

As per trial balance 16.20
Accrued interest on loan (Rs. 120m * 10% * 6/12) 6.00
22.20
(W4) Retained earnings

Rs m
Balance as per trial balance 10.20
Profit for the year 87.45
Page 39 of 62
97.65
(W5) Sales and receivables

Sales. Rec.
Rs. m Rs. M
Given in the trial balance 478.40 66.00
Deduct revenue incorrectly recognized (sale or return) (27.00) (27.00)
Cost of sales 451.40 39.00
(W6) Closing inventory

Rs. M
Given in the question 42.00

Add back inventory held by customer on sale or return ( 27 x 100 /
120) 22.50
Cost of sales 64.50
(W7) Cost of sales

Rs. m
Opening inventory as of July 1, 2014 38.90
Purchases 175.70
Direct labour 61.00
Manufacturing overheads excluding incremental depreciation 39.00
Less: Closing inventory (64.50)
Deduct depreciation incorrectly charged on cost (2.88)
Add depreciation charged on revalued amount 3.50
Cost of sales 250.10
(W8) Administrative expenses and distribution costs

Admin. Dist.
Rs. m Rs. m
Given in the trial balance 40.00 19.80
Deduct depreciation incorrectly charged on cost (1.72) (1.15)
Add depreciation charged on revalued amount 2.10 1.40
Cost of sales 40.38 20.05
(W9) Financial charges

Rs m
Balance as per trial balance 0.30
Accrued interest on loan (Rs. 120m * 10% * 6/12) 6.00
6.30
SOLUTIONS
SELF-TEST QUESTIONS
A.1
Page 40 of 62
JK Enterprises
Cost of Goods Manufactured
for the Year ended 31 December 2007
Opening Raw Material 3,200,000”
Add Purchases 51,370,000”
Less Closing Raw Material (4,150,000)
Raw Material Consumed 50,420,000”
Manufacturing Wages ( Direct Labour) ”21,000,000”
Prime Cost 71,420,000”
Factory Overheads
Factory Lightning and Power 4,250,000”
Other Factory Overheads 8,100,000”
Depreciation (Working 1)
1,000,000
1,520,000 2,520,000”
14,870,000”
Total Manufacturing Cost 86,290,000”
Opening Work in Process 1,750,000”
Closing Work in Process (2,200,000)
Cost of Goods Manufactured 85,840,000
JK Enterprises
Statement of comprehensive income
for the year ended 31 December 2007
Sales 107,300,000
Cost of sales (W-1) (85,040,000)
Gross profit 22,260,000
Admin expenses(W-2) (5,026,500)
Selling and distribution expenses(W-4) (11,500,000)
Net profit 5,733,500
JK Enterprises
Statement of Financial position
As on 31 December 2007
Non current assets Rupees.
Free hold land (W-3) 10,000,000
Building (W-3) 16,750,000
Plant and machinery (W-3) 8,880,000
Motor vehicle (W-3) 5,200,000
Current assets
inventory(W-7) 14,350,000
Debtor (W-6) 7,533,500
Prepaid rent (200,000x6/12) 100,000
Cash at bank 5,620,000
68,433,500
Capital 58,200,000
Profit for the year 5,733,500
Page 41 of 62
63,933,500
Current liabilities
Creditors 4,500,000
68,433,500
Workings:
Depreciation
Method of
Asset Cost WDV Rate Depreciation
Depreciation
Straight Line
Buildings 25,000,000 18,000,000 5% 25,000,000 X 5%= 1,250,000
Method
Straight Line 15,200,000 X
Plants 15,200,000 10,400,000 10% 1,520,000
Method 10%=
Reducing
Vehicles 10,000,000 6,500,000 Balance 20% 6,500,000 X 20%= 1,300,000
Method
4,070,000
Depreciation Charged to Factory Overhead

Rupees
Building (1,250,000 X 80%) 1,000,000
Plant and Equipment 1,520,000
2,520,000
Depreciation Charged to Admin Expenses
Building (1,250,000 X 20%) 250,000
250,000
Depreciation charged to selling expenses

W-1 Cost of Sales:

Opening stock of finished goods 7,200,000
Cost of goods manufactured 85,840,000
Closing stock of finished goods (8,000,000)
85,040,000
W-2
Other admin expenses 4,470,000
Depreciation 250,000
Bad debts (70,000+236,500) 306,500
5,026,500
Working 3
WDV of Assets
Accumulated Depreciation Written Down
Asset Cost
Depreciation for the year value
Land 10,000,000 - - 10,000,000
Building 25,000,000 7,000,000 1,250,000 16,750,000
Plant 15,200,000 4,800,000 1,520,000 8,880,000
Vehicles 10,000,000 3,500,000 1,300,000 5,200,000
Page 42 of 62
Working 4
Sales Office Expense(10,300,000-100,000) 10,200,000
Depreciation 1,300,000
11,500,000
Working 5
Provision for Bad Debts
B/D(Unadjusted) 160,000
Bad Debts 236,500
C/D Adjusted (Working 6) 396,500
396,500 396,500
Working 6
Debtors
As per Trial Balance 8,000,000”
Less: Bad Debts (70,000)
7,930,000”
Provision for Bad Debts (5% ) (396,500)
7,533,500”
Working 7
Closing Stock
Ram Material 4,150,000
Work in Process 2,200,000
Finished Goods 8,000,000
14,350,000
A.2
Mr. Hamid
Cost of Goods Manufactured
for the Year ended 30 June 2006
Opening Raw Material 92,400”
Add Purchases (1,236,900-47,400) 1,189,500”
Carriage on Raw material 36,000”
Less Closing Raw Material (95,850)
Raw Material Consumed 1,222,050”
Manufacturing Wages ( Direct Labour) 360,000”
Prime Cost 1,582,050”
Factory Overheads
Misc. Expenses-manufacturing 42,900
Factory Power 55,350
Supervisor salary 211,500
Rent and rates (W-2) 129,000
Indirect material 31,800
Indirect Wages (W-1) 120,000
Heating and Lightening (63,000 X 3/5) 37,800
Machine repairs 61,950
Insurance (81,000 X 3/5) 48,600
Depreciation(W-3) 229,576 968,476”
Total Manufacturing Cost 2,550,526”
Add Opening Work in Process 104,850”
Less Closing Work in Process (107,700)
Page 43 of 62
Cost of Goods Manufactured 2,547,676”
Mr. Hamid
Income Statement
For the Year ended 30 June 2006
Particulars Rupees
Sales 3,870,950”
Less: Cost of Sales
Opening Stock 130,200”
Cost of Good Manufactured 2,547,676”
Closing Stock (138,600) (2,539,276)
Gross Profit 1,331,674”
Other income-(discount received) 4,000
Admin expense (w-5) (413,604)
Selling and distribution expenses(W-6) (275,550)
Financial charges (180,000x12%x6/12) (10,800)
Page 44 of 62
Workings
W 1 Wages And Salaries
As Per Trial Balance 573,000
Add Accrued Wages 27,000
600,000
Direct Wages (600,000 X 6/10) 360,000
Indirect Wages (600,000 X 2/10) 120,000
Administrative Expenses (600,000 X 2/10) 120,000
600,000
W 2 Rent and Rates
As per Trial 220,500”
Less: Paid in Advance (27,000)
193,500”
Factory (193,500 X 2/3) 129,000
Office (193,500 X 1/3) 64,500

193,500
Working 3 Depreciation
Charged to
Particulars
Total Manufacturing Admin
Building (683,600 X 5%) 34,180 23,926 10,254

(34,180 X 70%) (34,180 X 30%)
Plant &Machinery (1,275,000 X 15%) 191,250 191,250 -
Fixtures and Fitting (300,000 - 60,000)20% 48,000 14,400 33,600

(48,000 X 30%) (48,000 X 70%)
273,430 229,576 43,854

Working 4 Bad Debts
Debtors 353,400”
Less: Bad debts (23,400)
330,000”
Provision @ 10 % of Debtors 33,000”

Provision for Bad Debts
Page 45 of 62
b/d 27,750
Bad Debts 5,250
c/d 33,000
33,000 33,000
(W-5)Admin expenses
Heat and light (63,000x2/5) 25,200
General admin expenses 99,000
Rent and rates 64,500
Depreciation (W-3) 43,854
Insurance(81,000 x2/5) 32,400
Bad debt(5,250+23,400) 28,650
413,604
(W-6)Selling and distribution expenses
Selling expense 136,950
Discount allowed 29,550
Advertisement 109,050
275,550
A.3
a) ABC Limited
Statement of comprehensive income for the year ended 30 June 2014
Rs. In million
Sales (737 - 12) 725
Cost of sales (W1) (563)
Gross profit 162
Selling and marketing expenses (28)
Administrative expenses [(51+6(W3)]+(28- (72)
18)+5
Other income 3
Income tax expenses (25)
b) ABC Limited
Statement of financial position as at 30 June 2014
Rs. In million
Assets
Non current assets
Property plant and equipment (343 - 44) 299
Current assets
Stock 111
Debtors [117-(28-18)-5] 102
Other receivables 3
Cash and bank 51
267
Total assets 566

Owner’s equity
Page 46 of 62
Share capital 300
Unappropriated profit (90+40) 130
Total equity 430
Current liabilities
Creditors (83+20) 103
Income tax payable (25-4) 21
Advance from customer 12
136
Total equity and liabilities 566
Workings :
W-1: Cost of Sales
Opening stock 75
Purchases (301+20) 321
Manufacturing expenses 240
Depreciation (W-3) 38
Closing stock (114-3) (W-2) (111)
563
W-2: Inventory adjustment

Cost of product (150,000 x Rs. 120) 18
NRV of product (W 2.2) (15)
3
W-2.2 160 x 25% =40
Est selling price (160-40) = 120
Est selling expenses = 20
NRV = 100
100 x 150,000 = 15 millions
W-3: Depreciation
Depreciation Chargeable to
Cost of sales Administration
Factory building[(200- 15 9 6
50x10%)(60:40)
Machinery [(280-87x15%)] 29 29 -
44 38 6
Accounting adjustments required:

ii) Receivable 3
Other income 3
(No adjustment in cost and accumulated depreciation is required)
iii) Bad Debts 10 Bad debts 5
Debtors 10 Debtor 5
iv) Income tax 25
expense
Income tax payable 25
v) Sales 12
Page 47 of 62
Advance from 12
customer
vi) Purchases 20
Payable 20
Extra practice questions of Final accounts:
Q.1 Sign Pakistan Limited is incorporated in Pakistan. The company is engaged in manufacturing of
consumer appliances for local market. Following is the pre-closing trial balance of the company together
with related adjustments as at December 31, 2012.
Debit Credit
‘000’ ‘000’
Issued, subscribed and paid up capital 17,900
Long-term loans 8,000
Property, plant and equipment (net) 30,000
Long-term deposits 3,000
Inventory (01.01.2012) 1,500
Accounts receivable 7,900
Allowance for doubtful debts 106
Staff advances 125
Prepaid insurance 600
Cash and bank balances 3,620
Sates 35,770
Purchases 23,400
Carriage inward 2,600
Administrative expenses 3,200
Suspense account 128
78,173 78,173
Data for adjustments as at December 31, 2012:.
(i) During the current year, a premium of Rs.600,000 to insure factory premises was made for a period
of 3 years with effect from July 01. 2012, which was initially debited to prepaid insurance. Rent of
Gujrat office for the month of November and December 2012 has not so far been paid, which
amounts to Rs.150,000. In this connection, no adjustments have been incorporated in the accounts.
(ii) Based on past recovery trend, it is estimated that 3% of the year-end accounts receivable are to be
considered doubtful. It was also observed that discount of Rs 153 000 allowed to customers was
erroneously charged to suspense account.
(iii) An amount of Rs.25,000 received from an employee, Mr. Farooque against staff advances was
mistakenly credited to suspense account.
(iv) On March 01, 2012, an amount of Rs.3 million was invested in long term deposits. The investment
is secured by Government of Pakistan. The rate of return on the scheme is 10% p.a. and the interest
on investment is due on December 31 every year.
Page 48 of 62
(v) Previously 100% depreciation on non-current assets was being charged to production department
and nothing was apportioned to distribution and marketing departments. In order to allocate
depreciation charge appropriately, it was decided that from year 2012, the rate of depreciation on
non-current assets will be charged at 10% on reducing balance method and it will be apportioned as
follows:
(a) Production 60%
(b) Marketing 25%
(c) Administration 15%
There was no addition or disposal of property, plant and equipment during the year.
(vi) Inventory comprising finished goods has been valued at Rs.3 million.
Required:
(a) Statement of Profit or Loss for the year ended December 31. 2012.
(b) Statement of Financial Position as at December 31. 2012.
Note: The financial statements must be prepared in accordance with the approved accounting standards
and keeping in mind recording of relevant adjustments. However, formal notes to the accounts are
not required, although detailed working should be submitted with the answer.
Note: pre closing trial balance means a trial in which year end adjustments are yet to be incorporated.
Q. 2 Unadjusted trial balance of ABC Company as on June 30, 2012 is given below:
Debit Credit
Account Tile
(Rs.) (Rs.)
Opening inventory as on 1/7/11 186,400
Purchases during the year 1,748,200
Freight-in 38,100
Freight-out 47,250
Sales 3,210,000
Salaries and wages 694,200
Allowance for doubtful debts as on 01/7/11 18,200
Bad debts written off during the year 14,680
Office equipment (cost as on 01/7/11) 214,000
Accumulated depreciation at 01/7/11 (Office Equipment) 88,700
Office equipment purchased during the year 48,000
Sale proceeds of office equipment 12,600
Interest paid 30,000
Long-term loan 300,000
Capital 100,000
Page 49 of 62
Total 3,819,500 3,819,500
The following adjustments are due:
Rupees
(i) Closing inventory as on 30/6/12 219,600
(ii) Payables as on 30/6/12:
 Freight-out 1,250
 Wages and salaries 5,800
 Admin expenses 13,600
 Interest payable 30,000
(iii) Admin expenses of Rs. 4,900 were prepaid.
(iv) Salaries and wages cost to be allocated to:
 Cost of sales = 10%
 Distribution cost = 20%
 Admin expenses = 70%
(v) Further bad debts Rs. 8,000 are to be written off. Closing balance of allowance for bad debts will
be equal to 5% of the closing trade receivables balance, which is to be charged to administrative
expenses.
(vi) Depreciation on office equipment is to be provided at 20% per annum on straight-line method with
a full years charge in the year of purchase and none in the year of sale. During the year, equipments
having cost of Rs. 40,000 with accumulated depreciation of Rs. 26,800, was sold for Rs. 12,600.
(vii) Ignore tax.
Required:
(a) Prepare adjusting and correcting journal entries. (13)
(b) Statement of profit or Loss for the year ended June 30, 2012. (11)
(c) Statement of Financial Position as at June 30, 2012. (12)
Q. 3
Following is the trial balance of Akber (Private) Limited as at June 30, 2015:
Rs. ‘000’ Rs. ‘000’
Debit Credit
Page 50 of 62
Share capital (450,000 ordinary shares of Rs. 10 each) 4,500
Retained earnings 405
Trade payables 650
Sales 30,725
Other income 1,062
Accumulated depreciation – Plant and equipment 1,330
Accumulated depreciation – Motor vehicle 360
Accumulated Amortization 340
Opening inventory July 01, 2014 900
Administrative expenses 7,,450
Plant and equipment, at cost 7,000
Motor vehicle, at cost 1,440
Computer software 850
Purchases 14,000
Finance costs 55
Advances to employees 250
41,572 41,572
 Closing inventory as at June 30, 2015 was Rs. 750,000.
 Depreciation is to be provided as follows:
- Plant and equipment @ 10% on reducing balance method (allocate 70% depreciation to
administration department and 30% to marketing department).
- Motor vehicle @ 25% on reducing balance method (allocate 60% depreciation to marketing
department and 40% to administration department).
 Computer software is to be amortized @ 20% on cost. Computer software was purchased for
administration department.
 Company obtained a long-term loan from a commercial bank @ 10% per annum on January 01,
2015. The loan is repayable in 16 quarterly installments of Rs. 137,500 each. The installments start
from July 01, 2015.
 The mark-up on long-term loan is payable quarterly i.e., on April 01, July 01, October 01 and
January 01.
 During finalization of financial statements, it was observed that an amount of Rs. 225,000 received
as advance from a customer, was recorded as sales during the period. The goods were to be
delivered in the month of August 2015.
Required:
Prepare the following financial statements:
Page 51 of 62
(a) Statement of Profit or Loss for the year ended June 30, 2015. (09)
(b) Statement of Financial Position as at June 30, 2015. (11)
Q. 4 Following is the trial balance of Younus Limited (YL) as on 30 June 2017:
Debit Credit
Particular Particular
Rs. in '000 Rs. in '000
Property, plant and equipment 200,000 Share capital (Rs. 10 each) 35,000
Receivables and advances 13,000 Un -appropriated profit 66.820
Office rent 1,120 5% Bank loan 52,000
Opening stock 54,000 Trade payables 10,000
Taxation 6,000 Accumulated dep. - 30 June 2017 120,000
Cash and bank 40,000 Sales 240,000
Purchases 170,000
Financial charges 2,700
522,820 523,820
The following additional information is available:
(i) On 1 July 2016 engine of a delivery truck seized and was replaced at a cost of Rs. 2 million on the
next day. Rs. 1.2 million was paid in cash whereas the remaining amount was adjusted against the
trade in value of the seized engine. The payment was charged to selling expenses.
The delivery truck was purchased on 1 July 2010. The cost of the delivery truck is Rs. 5 million of
which approximately Rs. 1 million is attributable to the seized engine. Delivery trucks are
depreciated over their useful life of 10 years.
(ii) Certain goods despatched on 28 June 2017 reached YL's warehouse on 2 July 2017. Break-up of
the amount paid against these goods is as follows;
Rs. in '000
20% advance to supplier 500
Insurance in transit 50
Delivery charges 100
The above amounts are appearing under the head 'Receivables and advances.
(iii) Cost of stock in hand as on 30 June 2017 is Rs, 50 million.
(iv) During the year, YL gave free samples to certain customers. The selling price and gross profit on
these goods was Rs. 5.4 million and 20% of cost respectively. No adjustment has been made in the
books in this regard.
(v) Office rent pertains to the period from July 2016 to December 2017 and is inclusive of an upward
revision of 10% with effect from 1 January 2017.
(vi) Bank loan was obtained on 1 July 2015. The principal is repayable in 20 equal quarterly
instalments. The principal along with interest is paid on the first day of the next quarter.
Page 52 of 62
(vii) Tax expense for the year is Rs. 7.7 million.
Required:
Prepare statement of financial position as at 30 June 2017 and statement of profit or loss for the year
ended 30 June 2017 in accordance with International Financial Reporting Standards. (20)
A.1
Sign Pakistan Limited
Statement of profit or Loss
For the year ended December 31, 2012
2012
Rs. ‘000’ Rs. ‘000’
Sales 35,770
Less cost of sales note 1 (26,400)
Gross Profit 9,370
Other income: Interest on long-term deposits (3,000 × 10% × 10/12) 250
Distribution costs note 2 (3,003)
Administrative expenses note 3 (3,931)
Working:
Note 1: Cost of sales Rs. ‘000’ Rs. ‘000’
Opening stock 1,500
Purchases 23,400
Carriage inward 2,600
Depreciation (3,000 × 60%) 1,800
Insurance (600 × 1/3 × 6/12) 100
Less Closing stock (3,000)
Cost of sales 26,400
Note 2: Distribution costs
Given in trial balance 2,100
Depreciation (3,000 × 25%) 750
Discount allowed 153
3,003
Note 3: Administrative expenses
Given in trial balance 3,200
Rent expenses 150
Depreciation (3,000* × 15%) 450
Bad debts [(7,900 × 3%) – 106] 131
3,931
Depreciation for the year (30,000 x 10%) 3,000
Page 53 of 62
Sign Pakistan Limited
As at December 31, 2012
Assets
Non-Current Assets
Property, plant and equipment (30,000 – 3,000) 27,000
Long-term deposits 3,000
30,000
Current Assets
Pre-paid insurance (600 – 100) 500
Staff advance (125 – 25*) 100
Inventory 3,000
Accounts receivable [7,900 – (7,900 × 3%)] 7,663
Accrued interest on long term deposits 250
15,133
Total Assets 45,133
*Suspense A/c 25
Staff advances 25
Equity and Liabilities Rs. ‘000’
Equity
Issued, subscribed and paid up capital 17,900
Retained earnings note 4 13,886
31,786
Non-current Liabilities:
Long term loans 8,000
Current Liabilities:
Rent payable 150
5,347
Workings:
Note 4: Retained earnings
Balance as at 1 January 2012 11,200
Balance as at 31 December 2012 13,886
Page 54 of 62
A. 2
ABC Company
Journal Entries
Dr. Cr.
(Rs.) (Rs.)
Closing inventory as on 30-6-2012 219,600
Cost of sales / purchases 219,600
Freight out expense 1,250
Salaries and wages expenses 5,800
Admin expenses 13,600
Interest expenses 30,000
Expenses Payable 50,650
Prepaid Admin expense 4,900
Admin expenses 4,900
Bad debts expense (admin) 8,000
Trade debts receivable 8,000
*Allowance for doubtful debts [18,200 – (318,000 – 8,000) × 0.05] 2,700
Bad debts expenses 2,700
Loss on disposal of equipment (40,000 – 26,800 – 12,600) 600
Accumulated depreciation equipment 26,800
Sale proceeds 12,600
Equipment 40,000
Depreciation expenses equipment 20% (214,000 – 40,000 + 48,000) 44,400
Accumulated depreciation equipment 44,400
*Allowance for Doubtful Debts

Bad debts 2,700 Unadjusted balance 18,200
c/d (310,000 × 0.05) 15,500
18,200 18,200
Accounts Receivable
Unadjusted balance 318,000 Bad debts 8,000
c/d 310,000
318,000 318,000
ABC Company
Statement of Profit or Loss
For the year ended June 30, 2012
Rs. ‘000’ Rs. ‘000’
Page 55 of 62
Sales 3,210,000
Cost of Goods sold (note 1) (1,823,100)
Gross Profit 1,386,900
Administration expenses (note 2) (944,080)
Distribution cost: (note 3) (188,500)
Interest expense (30,000 + 30,000) (60,000)
Loss on sale of equipment (600)
(40,000 – 26,800 – 12,600)
Net profit 193,720
Note 1:Cost of goods sold

Add purchases 1,748,200
Freight in 38,100
Goods available for sale 1,972,700
Less ending inventory (219,600)
Salary and wages (700,000 × 105) 70,000
Note 2: Administration expenses

Salary and wages (700,000 × 70%) 490,000
Bad and doubtful debts 19,980
(14,680 + 8,000 – 2,700)
Admin Expenses 389,700
(381,000 + 13,600 – 4,900)
Depreciation office equipment 44,400
(222,000 × 0.20) 944,080
Note 3: Distribution cost:
Salary and wages (700,000 × 20%) 140,000
Freight out (47,250 + 1,250) 48,500
188,500
Workings:
Wages and salaries (trial balance) 694,200
Outstanding 5,800
700,000
ABC Company
Page 56 of 62
As at June 30, 2012
Assets Rs. ‘000’ Rs. ‘000’
Non-current Assets
Office equipment (214,000 + 48,000 – 40,000) 222,000
Accumulated depreciation (88,700 – 26,800 + 44,400) (106,300)
115,700
Current Assets
Inventory 219,600
Prepaid expenses 4,900
Trade receivables (318,000 – 8,000) 310,000
Less allow for bad debts (5% of 310,000) (15,500) 294,500
Cash 99,670
618,670
Total Assets 734,370
Equity and Liabilities:
Non-Current Liabilities:
Current Liabilities
Freight out 1,250
Admin Expenses 13,600
Interest 30,000
50,650
Total Liabilities 350,650
Equity
Capital 100,000
Retained earnings (90,000 + 193,720) 283,720
383,720
Total Equity and Liabilities 734,370
Alternate Workings:
Office Equipment
b/d 214,000 Disposal 40,000
Cash 48,000 c/d 222,000
262,000 262,000
Accumulated Depreciation (Office Equipment)
Page 57 of 62
Disposal 26,800 b/d 88,700
c/d 106,300 Current 44,400
133,100 133,100
Disposal
Office equipment 40,000 Acc.Depreciation 26,800
Cash 12,600
Loss on sale 600
40,000 40,000
Allowance for Doubtful Debts
Bad debt 2,700 b/d 18,200
c/d (310,000 × 0.05) 15,500
18,200 18,200
Accounts Receivable
b/d 318,000 Bad debt 8,000
c/d 310,000
318,000 318,000
A.3
Akber (Private) Limited
For the year ended June 30, 2015
Rs. ‘000’ Rs. ‘000’
Sales (30,725 – 225) 30,500
Cost of sales (note 1) (14,150)
Purchases 14,000
14,900
(14,150)
Gross profit 16,350
Other income 1,062
Administrative expenses (note 2) (8,125)
Distribution costs (note 3) (6,582)
2,705
Page 58 of 62
Finance costs (55 + 55) (110)
Akber (Private) Limited

As at June 30, 2015
Assets Rs. ‘000’
Non-current Assets
Plant and equipment (7,000 – 1,330 – 567) 5,103
Motor vehicle (1,440 – 360 – 270) 810
Computer software (850 – 340 – 170) 340
6,253
Current Assets
Inventory 750
Advances to employees 250
4,377
Total Assets 10,630
Equity
Share capital 4,500
Retained earnings (405 + 2,595) 3,000
7,500
Non-Current Liability
Long-term loan (2,200 – (137.5 x 4)) 1,650
Current Liabilities
Trade payables 650
Advances from customers 225
Accrued interest (2,200 x 10% x 3 /12) 55
Current portion of loan [137.5 x 4] 550
1,480
Total Equity and Liabilities 10,630
Note 1
Cost of sales
Purchases 14,000
14,150
Note 2
Page 59 of 62
Admin expenses
Given 7,450
Depreciation:
Plant and equipment 397
Motor vehicles 108
Amortization – software 170
8,125
Note 3
Distribution expenses
Given 6,250
Depreciation:
Plant and equipment 170
Motor vehicles 162
6,582
Calculation of depreciation:
Plant and equipment (7,000 – 1,330) x 10% 567
70% to admin expenses 397
30% to distribution expenses 170
Motor vehicles (1,440 – 360) x 25% 270
60% to selling expenses 162
40% to admin expenses 108
Computer software: (850 x 20%) 170
A.4 Younus Limited

As at 30.6.2017
Rs. ‘000’
Non-current Assets:
Property, Plant and Equipment (W-1) 81,200
Current Assets:
Stock in trade 50,000
Stock in Transit (Note) 2,650
Receivables and advances [13,000 – 650] 12,350
Prepaid rent 385
Cash and bank 40,000
Total Assets 186,585
Stock in transit [500/20%]+50+100 2,650
Receivable 650
Page 60 of 62
Payable 2,000
Equity:
Share Capital 35,000
Retained Earnings [66,820 + 18,415] 85,235 120,235
Non-current Liabilities
Long term loan (52,000 – 16,000) 36,000
Current Liabilities:
Trade and other payables (10,000 + 2,000) 12,000
Accrued mark-up [52,000×5%×3/12] (for June 2017 quater) 650
Current portion of loan [52,000/13 × 4] 16,000
Taxation – net (7,700 – 6,000) 1,700
Younus Limited
For the year ended 30.6.2017
Rs.
“Million”
Sales 240,000
Cost of Sales (54,000 + 170,000 – 4,500* – 50,000) (169,500)
Gross Profit 70,500
Other income (working) 400
Selling and distribution (20,000 – 1,200 + 500 – 100 + 4,500) (23,700)
Admin expenses [17,000 + 735 (W)] (17,735)
Financial Charges (2,700 + 650) (3,350)
Taxation (7,700)
*5,400/120 x 100 = 4,500

Purchases 4,500
(W-1) Property, Plant and Equipment:
Accumulated
Cost Book Value
Dep.
Given 200,000 120,000 80,000
Page 61 of 62
Reversal of old engine depreciation (1,000×10%) (100) 100
[as depreciation of 2017 also recorded]
Disposal of old engine (1,000) (600) (400)
Cost of new engine 2,000 2,000
Depreciation of new engine (2,000÷4) 500 (500)
201,000 119,800 81,200
Working 1:
(a) New Engine 2,000
Accumulated Depreciation (1/10 × 6) 600
Cash (Selling Expense) 1,200
Old Engine 1,000
Gain (balance) 400
(b) Reversal of Depreciation of Old Engine

(1,000 ÷ 10)
Accumulated Depreciation 100
Depreciation (selling expenses) 100
Charge of Depreciation on new Engine:
2,000/4 = 500
Depreciation (Selling) 500
Accumulated Depreciation 500
Working 2:
Lets rent per month is x.
x × 6 + 1.1x × 12 = 1,120
6x + 13.2x = 1,220
19.2x = 1,120
x = 1,120/19.2
x = 58.33
From 1 July to 31-12-2016 = 58.33 × 6 = 350
From 1-1-2017 to 31-12-2017 = 58.33 × 1.1 × 12 = 770
Expense for the year = 350 + 770/2 = 735
Prepayment = 770/2 = 385
Page 62 of 62

Final Accounts FR1

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Final Accounts FR1

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Final accounts:

Important consideration in questions of final accounts:

Company Final Accounts

100,000 shares of Rs. 10 each issued at Rs 10 each.

(II) Issue of shares at a premium

Opening work in progress 85,000

Example: statement of comprehensive income of an individual entity

Profit before tax 271

Dividend: It is the distribution of profits to shareholders.

Prior Period Tax (Under/Over Provision of tax of Previous Periods)

Income Statement (Extracts)

Income Statement (Extracts)

Important consideration in questions of final accounts:

Administrative expenses 210

4.2 KASUR CHEMICALS LIMITED

Share capital (600,000 shares) 300

4.3 THATTA TOURS LIMITED

Distribution costs Administrative expenses

Distribution Rs.15, 000

4.4 BSZ LIMITED

4.5 YASIR INDUSTRIES LIMITED

Summary of classification of expenses:

Cost of sales Distribution expenses Administration expenses

Share capital 2,000,000

Statement of Financial Position Rs. in

(b) Moonlight Pakistan Limited Rs. in

c) Moonlight Pakistan Limited Share capital Premium Retained Total

Balance as on 1 January 2015 1,200 - 510 1,710

Cost of sales Selling expenses Admin expenses

W2: Property, plant and equipment Land Building Plant Total

W3: Share Capital/Retained Earnings Share capital Premium Retained earnings

Balance as on 1 January 2015 1,200 - 510

Dividend (Retained earnings) 200

Cash and bank 420

iv) 1,600 x 12% x 6⁄12 = 96

(ii) Depreciation has to be provided as follows:

(iii) 80% of the building is being used for manufacturing purposes.

Q. 3 Following is the summarized trial balance of ABC Limited as at 30 June 2014:

Presentation of expenses in income statement:

Analysis of expenses by their function

Illustration: Statement of comprehensive income - Expenses

Analysis of expenses by their nature

Equity and liabilities

Statement of changes in equity for the year ended 31 December 2015

(2) Intangible assets

(3) Allocation of costs

IAS 1: Presentation of financial statements

A complete set of financial statements consists of:

Elements of financial statements

Accrual basis of accounting

All other assets should be classified as non-current assets.

Answers of question bank:

Statement of financial position at 31 March 2015

Capital and reserves

Statement of comprehensive income for the year ended 31 December 2015

Share capital 980

(W2) Cost analysis Distribution Admin

Held for the whole year (10% x 70) (7.0)

(W2) Property, plant and equipment

(W4) Accounts receivable

(W5) Other receivables (advances, deposits, prepayments etc.)

(W6) Accumulated profits

Equity and Liabilities