ADVANCED ACCOUNTING & FINANCIAL REPORTING

Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2021

A.1 Pudding Limited

General Journal
Debit Credit
Date Description
--- Rs. in million ---
(i) 1 Nov 2020 Bank loan – A 140+14(140×10%)–36.93+11.71(117.07×10%) 128.78
Loss on extinguishment/Profit or loss (Bal. fig) 5.62
Share capital 30.00
Share premium (56×80%–10)×3 104.40

(ii) 1 Nov 2020 Cash 110

Repo liability / Financial liability – Bank B 110

31 Dec 2020 Investment/Interest receivable 2.28

Interest income
[114+13.68(114×12%)–13.2(120×11%)]×12%×2÷12 2.28

31 Dec 2020 Interest expense 9×2÷8 2.25

Repo / Financial liability – Bank B 2.25

(iii) 1 Dec 2020 Cash 40×90% 36.0

Receivable – Bank C 40×10% 4.0
Receivables – South Region 40.0

1 Dec 2020 Interest expense/Factoring expense/Profit and Loss 3.2

Cash 40×8% 3.2

31 Dec 2020 Cash 40×10% 4.0

Receivables – Bank C 4.0

(iv) 1 Dec 2020 Cash 50×90% 45

Loan / Financial liability – Bank D 45

1 Dec 2020 Interest expense/Factoring expense/Profit and Loss 1.5

Cash 50×3% 1.5

31 Dec 2020 Loan / Financial liability – Bank D 50×75% 37.5

Receivables – North Region 37.5

(v) 1 Dec 2020 Cash 30×95% 28.5

Loss on disposal (Bal. fig) 1.5
Receivable – Central Region 30

1 Dec 2020 Continuing involvement in transferred amounts 1.2

Liability – Bank E 30×4% 1.2

31 Dec 2020 Liability – Bank E 30×4% 1.2

Cash 0.9
Continuing involvement in transferred amounts 0.3

31 Dec 2020 Bad debt expense 30×3%×50% 0.45

Receivable – Central Region 0.45
Continuing involvement in transferred amounts 0.9

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2021

A.2 Biscotti Limited

Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December 2020

Continuing Operations: Rs. in million

Revenue (W-1) 10,200
Cost of sales (W-2) (5,111)
Gross profit 5,089
Operating expense 2,750+585(780×9/12)+80(320–240) (3,415)
Operating profit 1,674
Share of profit from associate 900×3/12×35% 79
Other income (W-3) 863
Finance cost (W-4) (355)
Profit from continuing operations 2,261

Discontinued operations:
Profit from discontinued operations (W-6) 742.4
Net profit 3,003.4

Other comprehensive income:

Foreign currency translation differences (W-8) 421.0
Reclassification of foreign currency translation difference 265(W-8)×80% (212.0)
Other comprehensive income for the year 209.0
Comprehensive income 3,212.4

Workings
W-1: Revenue Rs. in million
BL’s 9,500–2,000 7,500
CL’s 3,600×9/12 2,700
10,200

W-2: Cost of sales

BL’s 3,500
CL’s 1,860×9/12 1,395
Fair value adjustment of inventory 360(960–600)×60% 216
5,111

W-3: Other income

BL’s 305
CL’s 120×9/12 90
Increase in fair value 1st investment in CL 1,575–1,345[1,100+700(1,300–
600)×35%] 230
Bargain purchase (W-5) 238
863

W-4: Finance cost

BL’s 240
CL’s 180×9/12 135
Decrease due to fair value adj. of loan 84(800×14%×9/12) – 64(856×10%×9/12) (20)
355

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
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Certified Finance and Accounting Professional Examination – Summer 2021

W-5: Goodwill/bargain purchase on CL Rs. in million

Cash 1,400
Fair value of contingent payment 240
Fair value of existing investment 300(3000/10)×35%×15 1,575
NCI’s share in net assets 4,604×25% 1,151
4,366
Net assets:
Share capital 3,000
Retained earnings 1,300
Fair value adjustment of inventory 360
Fair value adjustment of loan 800 – 856(112/1.1+912/1.12) (56)
(4,604)
Bargain purchase (238)

W-6: Discontinued operations (DL)

Revenue 250×10.5 2,625
Cost of goods sold 120×10.5 (1,260)
Operating expense [112+2(10/5)]×10.5 (1,197)
16(18–2)×10.5 168
Gain on disposal of DL (W-7) 574.4
742.4

W-7: Gain on disposal of DL

Sale Proceeds 2,000.0
NCI on 31 December 2020 2,047 (W-8)×20% 409.4
Carrying value of DL as at 31 Dec 2020 (W-8) (2,047.0)
Gain on disposal 362.4
Translation gain classified as equity 265(W-8)×80% 212.0
574.4

W-8: Foreign currency translation differences Translation

Amount Exchange Amount
gain/(loss)
rate
F $ million --- Rs. in million ---
2019:
Net Assets on acquisition 120/0.8 150 10 1,500
Profit for the year 14–2(10/5) 12 9.5 114
Net Assets on 31 December 2019 162 1,614
Retranslation at closing rate on 31 Dec 19 162 9 1,458
Translation loss as on 31 December 2019 (156)
2020:
Profit for the year 18–2(10/5) 16 10.5 168
Net Assets on 31 December 2020 178 1,626
Retranslation at 31 December 2020 178 11.5 2,047
Translation gain for the year 2020 421
Translation gain as on 31 December 2020 265

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2021

A.3 Option 1:
Revenue would be recognized in the existing manner. The total transaction price of Rs. 11
million would be allocated proportionately to two performance obligations using the stand-alone
selling prices as follows:
Standalone price Allocated price
Sale of Alpha Rs. 10 million Rs. 8.87 million
(11×10/12.4)
Support services Rs. 2.4 million Rs. 2.13 million
(0.1×24) (11×2.4/12.4)
Rs. 12.4 million Rs. 11 million

ML may also consider the effect of significant financing component as the consideration for
support services for 2 years would be received in advance.

Option 2:
Sales under this option would be accounted for under IFRS 16. ML would recognize revenue
from sale of Alpha on commencement date i.e. the date on which ML would make Alpha available
for use by customer. As ML is charging artificially low rate, the amount of revenue would be
determined as the present value of the lease payments accruing to the lessor, discounted using a
market rate of interest as follows:
 Amount of instalment 10.0 / 4.546 (5 years advance @ 5%) = Rs. 2.20 million
 Amount of revenue from sale of Alpha would be Rs. 2.20 × 4.037 (5 years advance @ 12%) =
Rs. 8.88 million

The remaining amount of Rs. 2.12 million (2.20 × 5 – 8.88) would be recognized as interest
income over the 4 year period as follows:
Interest @ 12% Installment Balance
Year
--------------------------- Rs. in million ---------------------------
0 - 2.2 6.68
1 0.80 2.2 5.28
2 0.63 2.2 3.71
3 0.45 2.2 1.96
4 0.24 2.2 -
2.12

Option 3:
ML should account for the promise to provide the discount as a performance obligation in the
contract for the sale of Alpha. The stand-alone selling price of the discount voucher can be
estimated as Rs. 1 million (10×25%×40%). Total transaction price of Rs. 10 million will be
allocated proportionately to the 2 performance obligations using stand-alone selling prices as
under:
Standalone price Allocated price
Sale of Alpha Rs. 10 million Rs. 9.09 million
Discount option Rs. 1 million Rs. 0.91 million
Rs. 11 million Rs. 10 million

Revenue from sale of Alpha would be recognized at Rs. 9.09 million upon sale of 1 st unit of Alpha.
The remaining receipt of Rs. 0.91 million would be transferred to revenue upon exercising the
discount option /purchase of another unit of Alpha or expiry of 12 months, whichever is earlier.
Option 4:
In this case, revenue from sale of Alpha would be recognized over time as ML’s performance does
not create an asset with an alternative use as machines are customized and cannot be sold to
other customers; and ML has an enforceable right to payment for performance completed to date
as the full amount would have been received in advance.
ML would need to measure the progress towards complete satisfaction of performance
obligation using appropriate method e.g. output method or input method.
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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
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Certified Finance and Accounting Professional Examination – Summer 2021

A.4 Ice Cream Limited

(a) Effect of corrections/issues:
Total Total Profit 2020 Profit 2019
assets liabilities Working for part (b)
-------------------- Rs. in million --------------------
Balances as given 3,804.00 985.00 440.0 312.0

Lease
ROU derecognized 695(90×7.722)×3/5 (417.00)
Lease liability (W-1) (456.87)
Interest (W-1)(29.09+26.04):(34.75+31.99) 55.13 66.74
Reversal of depreciation 695/5 139.00 139.00
Rent expense 90×2 (180.00) (180.00)
(417.00) (456.87) 14.13 25.74

Share appreciation rights (SARs)

Expense for 2020 17.25 (17.25)
28.5 (30,000×10×190×2/4) –
11.25 (30,000×10×150×1/4)
Impact of modification 32(32,000×10×200×2/4)–
28.5 (28.50) (3.50)
(11.25) (20.75)

Disposal of subsidiary
Net assets of FL (405) (85)
Goodwill (57)
180+85+128[(405–85)×40%]–405–
Loss on disposal 57 (69)
Fair value of investment 300×0.6 180
(282) (85) (69)

3,105 431.88 364.38 337.74

(b) Statement of changes in equity for the year ended 31 December 2020
Share Retained Share
NCI
capital earnings options
----------------------- Rs. in million -----------------------
Balance as at 31-12-2018: 700 1,013 310
Acquisition of subsidiary 950×20% 190
Bonus issue by ICL 700×20% 140 (140)
Profit for the year: Restated 337.74–50 287.74 50
Balance as at 31-12-2019: Restated 840 1,160.74 550
Final cash dividend by ICL 840×15% (126)
Disposal of TL (405–85)×40% (128)
Dividend to NCI 500×20%×20% (20)
Modification of SARs 32.00
Profit for the year 364.38–60 304.38 60
Balance as at 31 December 2020 840 1,339.12 32.00 462

W-1: Lease schedule

Interest @ 5% Instalment Closing balance
Date
----------------------- Rs. in million -----------------------
1/01/19 - 695.00
30/06/9 34.75 90.00 639.75
31/12/19 31.99 90.00 581.74
30/06/20 29.09 90.00 520.83
31/12/20 26.04 90.00 456.87

Page 5 of 6
 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2021

A.5 Jelly Life Insurance Company

Statement of profit or loss
For the year ended 31 December 2020

Rs. in million
Premium revenue (21,533+350+4,108+439)–119 26,311
Premium ceded to reinsurers (1,156)
Net premium revenue 25,155

Investment income 17,881

Net fair value losses on financial assets at fair value through profit or loss (2,568)
Net rental income 742
Other income 362
16,417
Net income 41,572

Insurance benefits 12,448+8,105 20,553

Recoveries from reinsurers (497)
Claims related expenses 10
Net Insurance Benefits 20,066

Net change in insurance liabilities (other than outstanding claims) 9,325

Acquisition expenses 5,892
Marketing and administration expenses 1,386
Other expenses 211
Total Expenses 16,814
Finance cost 20
Profit for the year 4,672

(The End)

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