Caf-5 Far-1 Pac Book

CAF 5
FAR - I
PAC
BOOK
Catalog
Chapter 1 Accounting and Reporting concept.pdf ··········································································· 1
Chapter 2 Preparation of Financial statements.pdf ·········································································· 6
Chapter 3 IAS-7 Statement Of Cahs Flows.pdf ············································································· 14
Chapter 4 Income And Expenditure Account.pdf ··········································································· 62
Chapter 5 Incomplete Records.pdf ······························································································ 101
Chapter 6Cost of production.pdf ·································································································· 174
IChapter 8 A IAS 20 Government Grants.pdf ··············································································· 188
Chapter 8B IAS 23-Borrowing Cost.pdf ······················································································· 195
Chapter 8 C IAS 40 Investment Property.pdf ··············································································· 219
cHAPTER 9 IAS 36 Impairment.pdf ····························································································· 225
Chapter 10 IFRS 15 Revenue from contract with customers.pdf ················································· 238
Chapter 11 Interpretation Of Financial Statemente.pdf ······························································· 276
For More Visit www.castudymaterial.com.pk

CAF-05
TABLE OF CONTENTS
PREFACE
SYLLABUS
PAGE NUMBER.
Ch
Topic
#
Questions Solution s
1 Accounting and Reporting Concepts I 3
2 IAS I - Preparation of Financial Statements 5 9
3 !AS 7: Statement of Cash Flows 13 34
4 Income and Expenditure Account 61 75
5 Preparati on of Accounts from Incomplete Records 100 120
6 lntroduction to cost of production 173 178
7 !AS 16: Property, plant and equipment 187 195
8A IAS 20 - Government Grants 216 219
3B lAS 23 - Borrowing Costs 223 234
8C :AS 40 - Investment Property 248 251

I
9 lJ\S 36 - Impairment of Assets 254 259
10 lFRS 15 : Revenue from contracts with customers 267 288
11 Interpretation of Fi nancial Statements 305 319

(I)
Chapter - I ACCOUNTING AND REPORTING CONCEPTS - QUESTIONS
ACCOUNTING AND REPORTING CONCEPTS

{PART A-KNDOWLEDGE QUESTIONS}
QUESTION NO. I
Briefly discuss following measurement bases:
(a) Historical cost
(b) Current cost
(c) Realizable value
(d) Present value
QUESTION NO . 2
Differentiate between ·
(i) Financial capital ma intenance
(i i) Physical capital maintenance

{PART B - APPLICATION QUESTIONS}
QCESTIO\ :\0. 3
lde nt1 f> the measuwnent bases used for \'aluaiion in each of the foll owing:
(a) At )ear end. 500 un its of an inventory item are held in stock. These items were purchased at a cost of R~ 20 pc:r
unit. At) ear end the sak \'alue is estimated at Rs. 22 per unit after incurring selling cost of Rs. 3 per unit. As Pc:r
!AS 2. management has valued th is inventory at Rs. 9.500 [500 x (22 - 3)).
(b) A plot of land was purchased on Jul y l. 20 17 at a cost of Rs. IO mill ion . Its fair value on June 30, 2()18 was R~.
11 milhon and on June 30. 2019 it was funh er increased to Rs . 13.5 million . Since compan y follo ws cost model
this land \\'as \ alued at Rs IO million in statement of finan cial position as at June 30, 2019 . '
(c) Ra\\ material (50kg was purchased on March 31. 2019 for Rs. 50 per kg. At June 30, 2019 ,_ 15kg raw material
\\ 35still held in stock. At year end. NRY of raw material was determined at Rs . 45 per kg as Its replacement cost
in accordance \\'ith !AS 2 Therefo re management has valued this inventory in statement of financial position at
Rs. 675 [1 5 .\ Rs. ➔ 5 ] .
(d) A machine was ~bt~i.ned on a lease of 4 years. Annual rental of Rs . 50,000. is payable at end of every year. As per
IF RS 16. lease habilny has been recorded at Rs. 145 .000 (i.e. by discountmg annual rental s at applicab le interest
rate].
QGESTION NO. 4
Aj mal staned hi s business on _July l. 20 I 8 by investing Rs. I 00 ,000 cash. He purchased goods costing Rs. J 00.000
cash. All goods were sol d durmg the year for Rs. 128.000 . General inflation rate for the year 2019 was 83/t At · on
?0 I9 , . f . . - o. 1une 30
- purcnase pnce o s1m1lar goods has rncreased to Rs . 10),000. During 2019 Ajmal withdrew Rs. 12,000 cash~ .'
personal use. or his
Requ ired :
Calculate pro fit for the year ending June 30, 2019 and prepare extracts of statement of financial positio J
201 9 under: n as at une 30,
(a) Physical capital maintenance

(b) Financial capital maintenance (money)
(c) Financial capital maintenance (real )

Chap ter - l
ACCOUNTING ANO REPORTING CO~CEPTS SO LLTIO.\ S (3)
ACCOUNTING AND REPORTING CONCEPTS

SOL UTION TO QUESTION NO. I
{SOLUTIONS}
(a) Hi~torical cos t Assets arc . d h .

.. me asu re at t e am ount of cash paid, or at the fair , alue of the cons1derauon g.1\ en to
acquire them L1ab1 !111es arc measured at:
• th
c amo unt of proceeds received m exchange for the obl1gat1on (fo r example. bank loan or a bank
overdraft ), or
• the amoun t of cash that \\ ill be paid to sat1st') the habilny
st
(b) Cu rrent co or current value is the basis used m current value accounting,current cost accounting. Assets are
measu red at lhe amount that would be paid to purchase the same or a s1m1lar asset current!: Liab1li11es are
measured at the amo unt that would be req uired to settle the obligati on current!~
(c) Realisable va lue (or se ttlement value). This method of measurement 1s rele,ant when an ent1t,· is not a going
concern. and is faced \\ 1th liq uidation (and a forced sale of ns assets) Assets are measured at ihe amoun~ that
could be obtained by selli ng them L1abil11 1cs arc meas ured at the amount that \1 ould be required to settle the m
curren t!)
(d) Prese nt val ue Assets might be measured at the \ alue of the future net cash inf10\1S that the nem 1s expected to
generate. discounted to a present , alue S1m11Jrh . a liab1htv m1e.ht be measured at the discounted present , alue
of the expected cash out flo\1 s that \I I II be made t; settle the ·1iab1ln~
SOLUT ION TO QUE ST ION N0 .2
Fi11anc1al capital ma1111enance Pll\ sical ca pital maintenance

With lhe financia l co nce pt of capita l mainten ance. a profit Wnh a physical concept of capital main tenance. a
1s nol ea rned during a peri od unkss the financial \ alue of profit 1s not earned durin g a period unless (excluding
cq u1t:, al the end of the period exceeds the financial \ alue of ne\1 equ11 1 capnal raised during the period and adding
cqu1 t) :11 the beginnin g of the prriod (a ftrr ;idJusting for back an: d1 s1nbut1on of d1 \ 1dends to shareholders) the
cqu1t, c 1p11.d rai sed or d1 stribu1rd J opera11ng ca pab1ht) of the business 1s greater at the end
of the en od than at the b,g inni n~ of the eriod.
F1:1111c 1;il c; p11al maintenance 1s hkrl) 10 be th, rno~t Ph:s1cal t:apnal main tenance 1s likely 10 be most
I
1 n: lc van1 10 1n1cs1ors ;is the: arr 1ntcrestrd in ma,1m1sing the I rck \ ant to management and emp loyees as they are
re: rn on thc..:ir 111, cs1men1 and then:for, 11s purchas in g 1n1eres1cd 1n .bsessi ng an entit:, ·s abili ty to ma intain its
u erat111 ca ac 1t\
SOLUTION TO QUESTION N0.3

( 1) Re;:ilw1blc value
(~) II 1~tonca l cost
( C) Curren t cost
(J) Present value
SOLU T ION TO QUESTION NOA
(a) {b) (c)

Ru pees
Sales 128.000 128,000 128,000
Cost of sa les (100,000) ( 100,000) (100,000)
Inflation adjustment:
[100,000 x 8%1 - - (8,000)
I 105,000 100,000] (5,000) ~
-
Profit For More Visit www.castudymaterial.com.pk
23,000 28,000 20,000
< h n pll' I - I i\CCOl li\T INC ,\ ND IU~POlff l N( ; CONCE l'TS - SOL UTIONS
'- l:l ll' IIH' III ,if f1 11:111 ci ;1I flll\ili 11 11 l' \l r:il'I\
(a) (h)
------------------- ------ I{ U [lC('S (CJ
\\\l'I\ -----------------......
C.1,h 11 ~S.0011 , .., ()()() I 116,000 116,000
11 6,000
~
~
11 6,000
Fq 11 i1 _1
C:ip11:il
I 00,000 I 00,000
!11ll,111,111 .1d1u, 1mrnt
5,000 100
I 05,000 I 00,000
l'r,1li1 ,
23 ,000 28,000
Dr;1 11111g,
12,000 12,000 20,000
116,000 11 6,000
~

C ha pi er - 2 IAS I - Pn EPAltATION OF FI NANCI AL ST AT EM ENTS QUESTIO NS (5)
IAS I - PREPARATION OF FINANCIAL STATEMENTS

{PART A - KNOWLEDGE QlJ~:STIONS}
QUESTION NO. I
On .Jul y I, 20 I8 tota l paid up share ca pital of' Salute Lim ited (S I w· . .

SL pa id cash di vidend of' Rs
4 JC . . 1, . . . · ") as 40,000 shares (Rs. IO each). On October J. 201 8
slr1rc 0 11 M·ty 31 '? () 19 SI . ·. . 1'· '.. s·h
ldlle. _o n Ja nuary I , 20 I <) SL made a right iss ue of 2 for 5 at a price of Rs. 18 per
· ' ' ,~ · · p, 11c d c,1s c 1v1 de nd of 15'1/i,.
l{cquircd
Ca lculat e total cash divide nd paid during the year endin g June 30, 20 I 9 (PAC)
QUESTIO N NO. 2
On Jt'. ly I , : 0 18 total 1~a_id up share capital of Khadirn Lim ited (KL) was Rs. 600,000 (Rs. IO each). On August 1, 2018
KL. p,11 cl I O1/o bonus. d1v1clend: On. Ja nu·tr"
' , 31, 2019 KL ma de a ng · ht ·issue o f I for 3 at a price of Rs. 20 per share. On
Mi1y I , 20 19 KL pa id a cash d1v1dend of 20%.
Hequ ircd
Calcu late total cash dividend paid 0 11 May I , 20 19 (PAC)
QUESTION NO. 3
Foll owi ng info rm ation relates to Atom Limi ted (J\L):

(i) Balances as at Jul v 1' ~'? 0 17·
Rs. <000)
Share ca pital (Rs I O eac h) 20,000
Share pn.:mi um 4,500
Trcasur\ stock (500)
Reva lu mion surp lus 2,300
General rese rve s 400
Retaim:cl c::t rn ing~ 16,200
(ii ) Ex tracts of statelll cnts of colll prehcnsive income:
2019 2018
----------- Rs. (000) ---------
Pro!it ::tl'ler tax 9,300 8,100
Other com prehe nsive income :
Reva lu ation gai n / (loss ) 700 (400)
Total co mprehensi ve inco me 10,000 7,700
(iii) I ncrcmenta l de prec iati on tra nsfe rred from revaluation surplus to retained earnings during 2019 and 20 I 8 were
Rs. 0.5 mi ll ion and Rs. 0.7 milli on respectively.
(1v) ;\ I, Jlladc a bonus issue of 1 for 10 out of share premium on March 1, 2018 .
(v) AL purchased back 5,000 of its own shares at a price of Rs . 20 per share on December 31 , 2018 .
(v1) On March 3 1. 20 19 AL made a right iss ue of2 for 5 at a premium of Rs . 4 per share .
(vii) t\ L has a policy to transfer Rs. 50,000 from retained earnings to general reserves every year.
(v iii ) AL pa id cash dividends of Rs . 5 million in June 2018 and Rs. 7.2 million in June 2019 .
Req uired:
Prepare statement of changes in equity of AL for the year ending June 30, 2019 (including comparative figures). (PAC)

{PART B-APPLICATION QUESTIONS}
QUESTION NO. 4
Chand Paints LimitL·d (CPL) is engaged in the manu fac turi ng of chemicals and paints. Net profits for the year 20 I6 and
20 I~ 11n1n1111t to Rs. 11,089 mi llion and Rs. 3,723 million respectively. The share capital and un-appropriated profit of CPL
as 011 I July 2014 was Rs. 10,400 million and Rs. 19,089 111 ill ion respectively.
Thi: detai ls ol' divick nd declared ·m.

' '
: ·1s fo llows·
2016 2015
Cash dividend - Interim 10% 5%
- fi nal 15% 10%
Rcquirrd :
Prepare the statc111c11t or changes in equity for the year ended 30 J11ne 2016. (14)
(FAR II Autumn 2016, Q # 4 amended)
QUESTION NO. 5
Thi: following i11for111atio11 pertains to draft financial statements of Pak Ocean Lim ited (POL) for the year ended 3I
December 20 14.
( i)
2014 2013
Rs. in million
Profit after tax 79 51
OC I - Revaluation ga in / (loss) 12 (5)
Incremental depreciation on revaluation of property, plant and
equipment 1.5 ?
_ ,J'
(ii) Shareholders' equity as at I January 20 13 was as fo llows·

Rs, in million
Share capital (Rs. I00 each) 200
Retained earn ings 45
Revaluation surplus 10
On 30 November 2014, POL issued 25% right shares to its ordinary shareholders at Rs. 120 per share.
(iii) Cash dividend and bonuses deeb red/paid during the last three years:
Fi nal *Interim
Fo r the year end ed C.1sh Bonus Cash Bonus
31 December 2012 - 15% 16% -
31 December 2013 18% - 20% -
31 December 201 4 - 25% - 10%
* D1cclared with halfyearly ucco1111ts
Required :
Prepare Statement of Changes in Cquity for :he year ended 3 I December 2014. (15)
(FAR II Spring 2015, Q # 4 amended)
QUESTION NO. 6
The following information pertains to a listtd company, Fu-tech (Pakistan) Limited.
(i) Shareholders' equity as at 1 January 2013:
I Share capital (Rs. IOeach) Rs. 116 million

I Retained earnings Rs. 58 million
(ii) Profit after tax for the year ended 31 December 20!3 amounted to Rs. 47 million. (2012: Rs, 38 million)
(iii) Forissued
Right shares were More on 15Visit www.castudymaterial.com.pk
September 2013 at Rs. 12 per share in the ratio of I right share for every 4 shares
held by the shareholders of the company.
Chapter- 2
IAS I -PREPARATION OF FINANCIAL STATEMENTS QUESTIONS (7)
(iv) Dividend infonnation is as under:

2013 2012 2011
Cash dividend - Interim *18% - 10%
Cash dividend - Final 14% 15% -
Bonus dividend - Final - - 16%
*interim dividend was announced before the issue ofright shares.
(v) Applicable tax rate for the company is 34%.
Required:
Prepare ~ atement of changes in equity for the year ended 31 December 2013 in accordance with the requirements of the
st
Companies Act, 2017. (Show comparative figures) (13)
QUESTION NO. 7
Supreme Cement Company Limited (SCCL), a company listed on the Karach i and Lahore Stock Exchanges is in process
offinalization of its accounts for the year ended 31 December 20 I2. The following information is available: '
(i) Shareholders' equity as at 31 December 2011 and 2010 consisted of:
2011 2010
Rs. in million
10,340 7,833
6,945 4,508
(ii) The total comprehensive income for the years ended 31 December 20 IO, 20 11 and 2012 (unaudited) was Rs .
4,240 million, Rs . 4,944 million and Rs. 5,090 mill ion respectively.
(iii) Cash dividends and bonuses declared/pai d during the last three years are as follo ws:
Cas h divide nd Bonus

Interim Fi nal Interim Final
For the year ended 31 December 20 I0 10% - - 20%
For the year ended 31 December 2011 .. 15% 10% 10%
For the year ended 31 December 201?. ! - 10% 5% 5%
Interim dividend/bonus was declared at the time of announcement of half-yearly financial results.
(iv) Right shares were issued on 30 November 20 I~ in the ratio of 4 right shares for every 5 shares held by the
shareholders of the company. The ngll\ issue was made at Rs. 18 per share .
Required :
Prepare the Statement of Changes in Equ ity for the yea r ended 31 December 201 2 in accordance with the requirements of
the Companies Act, 2017 and Internation al Financial Rep011ing Standards. (13)

QUE_STION NO. 8
Clay Pakistan Limited (CPL), a public listed company is in the process of finalizing its accounts for the year ended 30
June 2011. The following infonnation is available:
(i) The profit after tax and other comprehensive income for the years ended 30 June 2009, 2010 and 2011 (based on
draft financial statements) arc as follows ·
2011 2010 2009
Rs. in million
Profit after tax 5,240 4,120 3,710
Othi>r
. - . inl'nmi>
Exchange difference on translation of foreign operations 155 120 110
Revaluation gain 2,000 - -
Total comprehensive income 7,395 4,240 3,820
Chapter- 2 IAS 1 -PREPARATION OF FINANCIAL STATEMENTS-QUESTIONS
(ii) Cash dividend and bonuses declared/paid during the three years are as follows:
Cash dividend Bonus

Interim Final Interim Final
For the vear ended 30 June 2009 15% 25% -
For the year e.1ded 30 June 2010 - 20% 10% 10%
For the year ended 30 June 2011 20% 30% - -
(iii) CPL follows a policy of transferring 30% of its profit after tax to general reserve.
(iv} Share capital and reserves as at 30 June 2009 and 20 IO were as follows :
2010 2009
Rs. in million
Share capital 10,340 9,400
Revaluation surplus 6,441 8,2 10
Translation reserve 870 750
General reserve I 0, 141 8,905
Un-appropriated profit 6,773 5,410
(v) Transfer from revaluation surplus to retained earnings amount to Rs. 1,769 million and Rs. 1,483 million in 2010
and 2011 respectively.
Required:
Prepare Statement of Changes in Equity for the year ended 30 June 20 11 111 accordance with the requirements of
Companies Act, .2017 and International Financial Reporting Standards.
(20)
(FAR II Autumn 2011, Q # 1 amended)

Chapter-2
IAS 1- PREPARATION OF FINANCIAL STATEMENTS - SOLUTIONS (9)
IAS I -PREPARATION OF FINANCIAL STATEMENTS

SOLUTION TO QUESTION NO.I
{SOLUTIONS}
Total dividend for 2019
Div. on 01 -10-18 [40,000 x Rs. 4] Rs.

Div. on31-05-19[40,000x7/5xRs. 10x 15%] 160,000
84,000
244 ,000
SOLUTION TO QUESTION NO.2

Cash dividend
Opening share capital Rs.
600,000
Bonus issue [600,000 x I 0%]
60,000
660,000
Right issue [660,000 x l /3]
220,000
Total share capital
880,000
Cash dividend I880,000 x 20 %I
176,000

Atom Limited
Statement of chan ges in equity
For the year ended June 30,
2019
Sha re
. l
capita
b: Share
.
Cap ;tal «serves
I Treasury I Revaluation
.
Revenue reserves
General I Retained Total
, rrcmium stoc,
1 surp 1us reserve earnings
---------------------------- Rs. (000) -
Balance as at O1-07- 17 20,000 4,500 (500) 2,300 400 16,200 42,900

Bonus issue r20,ooo x I/ 101 2,000 (2,000) - - - - -
Dividend - - - - - (5,000) (5,000)
Profit for the year - - - - - 8,100 8,100
Other comprehensive income - - - (400) - - (400)
Transfer to general reserves - - - - 50 (50) -
Transfer to retained earnings - - - (700) - 700 -
Balance as at 30-06-18 22,000 2,500 (500) 1,200 450 19,950 45,600
Shares buy back [5,000 x 201 - - ( I00) - - - (100)
Right issue [2,200 x 2/5 x I0](880 x 4] 8,800 3,520 - - - - 12,320
Dividend - - - - - (7,200) (7,200)
Profit for the year - - - - - 9,300 9,300
Other comprehensive income - - - 700 - - 700
Transfer to general reserves - - - - 50 (50) -
Transfer to retained earnings - - - (500) - 500 -
Balance as at 30-06-19 30,800 6,020 (600) 1,400 500 22,500 60,620

TEMENTS - SOLUTIONS
Chapter-2 IAS 1 - PREPARATION OF FINANCIAL s:TT~A~~~::......:=------ (l

Chand Paints Limited
Statement of changes in equity
for the year ended June 30, 2016
Un-appropriated profits Total
-
~S~ha~r:e~ca~p:it:al'.___~;:-;:imo~=====--
--------- Rs. (mill ion) ------
-------- - ---
19,089 29,489
Balance as at July 1, 2014 10,400
(520) (520)
Interim dividend 2015 [10,400 x 5%]
Profit 3,723 3,723
_ _ ___.:.:__-----::2;;2; ,29~2;-----33~2,692
Balance as at June 30, 2015 10,400
(1 ,040) (1 ,040)
Final dividend 2015 [10,400 x 10%]
Interim dividend 2016 [10,400 x l0¾]
(1 ,040) (1 ,040)
Profit 4,089 4,089
Balance as at June 30, 2016 10,400 24,301 34,701
Pak Ocean Limited

For the year ended December 31 , 2014
Share
capital
Reta~ned
earnmgs
I Total
- - - - Rs. million - - - -
Balance as at 01-01 -13 200 .00 - 10.00 45 .00 255,00

Final bonus 2012 r200 x 15%l 30.00 - - (30.00)
Interim dividend 2013 [230 x 20%l - - - (46.00) (46,00)·
Transfer to retained earnings - - (2.30) 2.30
Other comprehensive income - - j S.00) - (5.00)
Profit for the year - • I 51.00 51.00
Balance as at 31 -12-13 230.00 - 2.70 22.30 255.00
Final dividend 2013 [230 x 18%l - .. - (41.40) (41.40)
-
Interim bonus 2014 f230 x 10%1 23 .00 - - (23.00)
Right issue [2.53 x 25% x I001[2.53 x 25% x 20] 63.25 12.65 - - 75 ,90
Transfer to retained earnings - •
I
I (1 .50) 1.50 -
Other comprehensive income - - 12.00 - 12.00
Profit for the year - - - 79.00 79.00
Balance as at 31 -12-14 316.25 12.65 13.20 38.40 380,5Q_

Chapter 2
(11)
IAS 1 PREPARATION OF FINANCIAL STATEMENTS - SOLUTIONS

Fu-tech (Pakistan) Limited
Share Share Retained

Total
capital premium earnings
- - - - Rs. million----
Balance as at 01-01 -12 fl 16 / 1.161 [58 + 16 - 381 100.00 - 36.00 136.00

Final bonus 2011 [JOO x 16%1 16.00 - (1 6.00) -
Profit for the year - - 38.00 38.00
Balance as at 31 -12-12 116.00 - 58.00 174.00
Final dividend 2012 [116 x 15%1 - - (1 7.40) (1 7.40)
Interim dividend 2013 [116 x 18%l - - (20.88) (20.88)
Right issue [ll.6x 1/41 fll.6 x l/4 x2l 29 .00 5.80 - 34.80
Profit for the year - - 47.00 47 .00
Balance as at 31 -12-13 145.00 5.80 66.72 217.52
Supreme Cement Company Limited

For the year ended December 31 , 20 12
Sha re Share Retained

Total
capital premi um ea rnings
--------------- Rs. million----- · - -
Balance as at Ol -01 -1I

·- I 7,833 - 4,508 12,34 1
Final bonus 20 IO f7833 x 20%l I 1,567 - (1,567) -
Interim bonus 2011 [9400 x I 0% l -- -- -~ -- 9,+0 - (940) -
Profit for the year --- --- - I - 4,944 4,944
Balance as at 31 -12-11 10,340 - 6,945 17,285
Final divi dend 2011 [ I0340 x 15% l - - (1 ,551 ) (1 ,551 )
-
Final bonus 2011 f I 0340 x I 0%] ~- - -
1,034 - (1,034) -
Interim bonus 201 2 [11 374 x 5%1 569 - (569) -
Right issue r1194 x 4/51 f 11 94 x 4/5 x 81 9.554 7,643 - 17,197
Profit for the year - - 5,090 5,090
Balance as at 31 -12-12 21,497 7,643 8,881 38,021

' ----...:Oi)
~C::,:::h.:.iapr_:te::::.:r_-....::2:..___ ___:IA~S_:1_-_:P.. :RE~P.:.:ARA::.::.::..:.T.:.:IO:.:N.. :. . ::O.:. . F. :. F=IN~A..:..:N_C:.....I:.:....A_L_S_T_A_T_E_M_E_N_T_S_-_S_O_L_U_T_IO_N_S_

Clay Pakistan Limited
For the year ended June 30, 2011
Capital reserves Revenue reserves

Share
capital
Reva!. I Translation General I Reta!ned Total
Surplus reserve reserve earnmgs
Rs. million
Balance as at O1-07-09 9,400 8,2 10 750 8,905 5,410 32,675

Final dividend 2009 f9400 x 25%l - - - - (2,350) (2,350)
Interim bonus 2010 f9400 x I 0%] 940 - - - (940) -
Profit for the year - - - - 4, 120 4,120
Other comprehensive income - - 120 - - 120
Transfer to general reserves - - - 1,23 6 (1,236) -
Transfer to retained earn ings - (1,769) - - 1,769 -
Balance as at 30-06-10 10,340 6,441 870 10,141 6,773 34,565
Final dividend 20 IO f I0340 x 20%] - - - - (2,068) (2,068)
Final bonus 2010 fl0340 x 10%1 1,034 - - - (1 ,034) -
Interim div. 201 1 fl 1374 x 20%1 - - - - (2,275) (2,275)
Profit for the year - - - - 5,240 5,240
Other comprehensive income - 2,000 155 - - 2,155
I
Transfer to general reserves - - I - 1,572 ( 1,572 ) -
Transfer to retained earn ings - (].-l83'l - - 1,483 -
Balance as at 30-06-1 I I 1,374 6.958 I 1,025 11 ,713 6,547 37,617

Chapter - 3 IAS 7: STATEMENT OF CASH FLOWS QUESTIONS (13)
IAS 7: STATEMENT OF CASH FLOWS

-------------- Cash flow format-----------
[Indirect method)
Company name
Statement of cash flows
For the year ended - - - - -
Rs.'000 Rs.' 000
Cash flow from operating activities:
Profit before tax (W-1)
XXX
Add: Depreciation / Impairment loss (W-3)
XXX
Loss on disposal of asset (W-3, W-6, W-12) XXX
Interest expense (W-4)
XXX
Bad debt expense (W-5) !Note-I)
XXX
Fair value loss on investment property (W-6) XXX
Less: Interest / investment income (W-7)
(XXX)
Dividend income (W-8)
(XXX)
Fair value gain on investment property (W-6) (XXX)
Grant income (W-9)
(XXX)
Profit on sale of asset (W-3, W-6, W- 12) (XXX)
Operating profit before working capital changes: XXX
(Increase) / Decrease in debtors [Note-I] (XXX) / XXX
(Increase) I Decrease in stocks (XXX) / XXX
(Increase) / Decrease in advances [Note-21 (XXX) I XXX
(Increase) / Decrease in prepayments (XXX) / XXX
Increase / (Decrease) in creditors XXX / (XXX)
Increase / (Decrease) in accruals XXX / (XXX)
Cash generated from operations XXX
Tax paid (W-10) (XXX)
Interest paid (W-4) (XXX)
Dividend paid (W-2) (XXX)
Dividend received (W-8) XXX
Interest received (W-7) XXX
Cash inflow / (Outflow) from operati ng activities (A) XXX
Cash flow from investing activities:

Purchase of PPE (W-3) (XXX)
Sale of PPE / Insurance claim rece ived (W-3) XXX
Purchase of investment property (W-6) (XXX)
Sale of investment property (W-6) XXX
Expenditure on capital WIP (W- 11) (XXX)
Long term deposits (XXX)
Govt. grant received (W-9) XXX
Govt. grant repaid (W-9) (XXX)
Purchase of investment (W-12) (XXX)
Sale of investment (W-12) XXX
Cash inflow / (outflow) from investing activities (B) XXX
Cash flow from finarichig activities:

Issue of shares (W-13) XXX
Proceeds from loan (W-14) XXX
Repayment/ redemption of loan (W-14) (XXX)
Cash inflow / (outflow) from financing activities (C) XXX
Net cash inflow / (outflow) during the year (A+ B + C) XXX
Cash and cash equivalents at start of year XXX
Cash and cash equivalents at end of year XXX
Chapter - 3 IAS 7: STATEMENT OF CASH FLOWS QUESTIONS
CASH AND CASH EQUIVALENTS:

Opening Closing
Cash in hand XXX XXX
Bank balance XXX XXX
Bank overdraft / running finance (XXX) (XXX)
Short term investments XXX XXX
XXX XXX
EXAM NOTES:
1. Increase / decrease in debtors can be calculated in one of the following two ways :
{a) Movement in gross debtors (as done in above format)
= closing gross debtors + bad debt written off during the year - opening gross debtors
(b) Movement in net debtors

= closing debtors (net of provision) - opening debtors (net of provision)
Tips :
• If (b) is used then bad debt expense line will not appear in adjustments to profit before tax
• (a) is more practically used treatment however (b) is also acceptable in exams
2. Changes in all current assets and current liabilities are shown in this section except for followings :
(i) cash and cash equivalents
(ii) tax assets and liabilities
(iii) Dividend payable and receivable
(iv) Interest payable and receivable
(v) Any other asset or liability which is shown under investing or financing activities e.g. short term finance
investment, payable for purchase of a PPE and current portion of loan. '
Above items may be ltidtle11 in other current assets or liabilities (e.g. interest payable may be hidden ;11
"accrued expenses''). Ill this case exclude above items first while calculati11g working capital changes.
3. IAS 7 allows to show: U nd er Under
Dividend received Operating activities Investing activities

OR
Interest received Operating activities Investing activities
Dividend paid Operating activities Financing activities

OR
Interest paid Operating activities Financing activities
Workings
W- 1 Profit'before tax ·•
Retained earnin s
Cash dividend declared (W-2) XXX Open. Balance XXX

Bonus dividend XXX PAT XXX
Transfertogeneral reserve XXX Transfer from revaluation surplus XXX
Clos. Balance XXX
PBT =PAT+ Tax expense (W-10)
Chapter - 3 lAS 7: STATEMENT OF CASH FLOWS QUESTIONS (15)
W- 2 Dividend aid
Dividend a able
Cash dividend paid XXX Open. Balance XXX

Clos. Balance XXX Cash dividend declared XXX
Note- Even if there is no infonnation regarding dividend paid/ declared in other infonnation do not forget to prepare
"Retained earnings" account as it may give cash dividend declared as a balancing figure on debit side.
W-3 PPE
(i) PPE carried at cost/ revalued amount:
PPE
Open. Balance (Cost / Revalued amount) XXX Disposal (Cost/ Revalued amount) XXX
Revaluation (upwards) XXX Revaluation (downwards) XXX
Transfer from capital WIP (W- 11) XXX Transfer to investment property (W-6) XXX
Transfer from investment property (W-6) XXX Clos. Balance (Cost / Revalued amount) XXX
Addition:
Cash XXX
Non cash XX X
Examples of 11011-cash additions - Trade in allowance and credit purchase.
Accumuiated de reciation & im airment loss
Disposal (Acc . Dep) XXX Open. Balance XXX

Clos. Balance XXX Depreciation XXX
Irnpainnent loss XXX
PPE Dis osal
Cost I Revalued amount XXX Accumulated depreciation XXX

Profit on disposal XXX Sale price / Insurance claim XXX
Trade in allowance XXX
Loss on disposal XXX
(ii) PPE carried at NBV

PPE at NBV
Open. Balance (NBV) XXX Disposal (NBV) XXX

Revaluation (upwards) XXX Revaluation (downwards) XXX
Transfer from capital WIP XXX Depreciation XXX
Transfer from investment property XXX Transfer to investment property XXX
Addition: Impairment loss XXX
Cash xx;x Clos. Balance (NBV) XXX
Non cash XXX
PPE Dis osal
NBV XXX Sale price / Insurance claim OR XXX

Profit on disposal XXX Trade in allowance XXX
Loss on disposal XXX
Note - While working for PPE, do not forget to prepare accounts· fior "Capt·ta I WIP" and •'Revaluation surplus"

W - -' lnkrcst l'X >cnsc / mid
Interest Ja able
Interest paid XXX Open . Balance xxx

Clos. Balance XXX Interest expense for the year xxx
W- 5 Bad debt ex >ense ,
Provision for doubtful debts
Bad debts written off XXX Opening balance XXX

Closing balance XXX Bad debt expense for the year XXX
W- 6 Investment ro erty (carried at fair value model)

Investment ro ert
Open . Balance (Fair value) XXX Disposal (Carrying amount) XXX

Fair value gain XXX Fair value loss XXX
Transfer from PPE XXX Transfer to PPE XXX
Addition XXX Clos. Balance (Fair value) XXX
Dis osal
Carrying amount XXX Sale price XXX

Profit on disposal XXX Loss on disposal XXX
W- 7 Interest income/ Interest received · ·:\' ::.:~1~·~ .t'i,,;t:..~ \~:;,,._\""··..: ,.. ·.

Interest receivable
Open. Balance XXX Interest receh-ed XXX

Interest income for the year XXX Clos . Balance XXX
I ' I I' I ' ' ' I
Dividend receivable
Open. Balance XXX Divide!id received XXX

Dividend income for the year XXX Clos. Balance XXX
Govt. rant
Taken to income XXX Open . Balance (non current) XXX

Grant repaid during the year XXX Open . Balance (current) XXX
Clos. Balance (current) XXX Grant received during the year XXX
Clos. Balance (non current) XXX
Tax
Open . Balance (Advance tax) XXX

Open . Balance (tax payable) XXX
Tax paid XXX Tax expense XXX
Clos. Balance (tax payable) XXX
XXX Clos . Balance (Advance tax)
(17)
W - 11 Ca ital work-in- rogress _

Ca ital work in ro ress
Open . Balance (Cost) XXX Transfer to fixed assets XXX

Expenditure on capital WIP XXX Clos. Balance (Cost) XXX
W - 12 Investments
Investment at cost
Open . Balance (Cost) XXX Disposal (Cost) XXX

Addition XXX Clos. Balance (Cost) XXX
Dis osal
Cost XXX Sale price XXX

Profit on disposal XXX Loss on disposal XXX
W -13 Ca ital . . r .. . . . .. .. ' " ..... ~ ., - , • .. • • ~ • •
Shareca ital
Closing balance XXX Open ing balance XXX

Right issue / New issue (cash) XXX
Bonus issue XXX
Share premium
I
XXX I Opening balance XXX
Closing balance
XX X I Ri9.ht issue / New issue (cash) XXX
Bonus issue (011/y if issued out of premium) I ~
I
Note - Bonus issue is by defa ult madt out of retained ..:unir.gs (i.e. bonus dividend)
L () ;.111S
:<XX \ Open. Balance (current + non current) XXX

Loan repaid (principal only) XXX
Clos. Balance (current + non current) XX:-'. New loan
I
[Direct method]
Com pany name
Statement of cash nows
For the year ended --------------
Rs.' 000 ' Rs. '000'
Cash now from operating activities: XXX

Receipts from customers (W-1) (XXX)
Payments to suppliers (W-2) (XXX)
Payment to employees (W-3) (XXX)
Payment for other operating expenses (W-4) XXX
Cash generated from operations
•
Remaining fo rmat after "cash generated fru111 0p~rations" is exactly
same as Indirect method

Chapter - 3 IAS 7: STATEl\lENT OF CASH FLOWS - QUESTIONS (18)
W- I Recei ts from customers

Customers / Debtors
Opening balance (Gross) XXX · Bad debts written off XXX

Sales (Total) XXX Receipts (balancing) XXX
Closing balance (Gross) XXX
W- 2 Payments to su tiers
Creditors
Payments (balancing) XXX Opening creditors (Note) XXX

Closing creditors (Note) XXX Purchases (from COS ale) XXX
Note - If accrued interest is included, then exclude it first before using here.
Cost of sales / ln vcntorv
Opening stock XXX Cost of sales (Note) XXX

Purchases (balancing) XXX Clos ing balance XXX
Note - If depreciation is included. then exc lude it fi rst befo re using he re.
W-3 Pavmentstoem lovees .. · .,:._:·-,.>i:. ·.. ,-. · ;

Sa lar ies
I
I
Opening advance XXX , Opcnins p:iyab lc XXX
Payments (balancing) XXX Sah'. ril'' ::ind wages for the year XXX
Closing payable XXX Clo:>int.: advai1cc XXX
I I . I . • I • ' .
Opc rati11 11 cx pc11scs

Rs.' 000 ~ Rs. '000
Opening advances & prepayments (Note- I) XXX Opening accrued expenses (Note-2) XXX
Payments (balancing) XXX Operatmg expenses (Note-3) XXX
Closing accrued expe nses (Note-2) XXX Clos ing advances & prepayments (Note-1) XXX
Notes:
J. If advance income tax is incl uded, then exclude it first before using here.
2. If accrued interest is included. then exclude it first before using here. Moreover if separate line item for "payment
to employees'' is shown then also exclude salaries payable.
3. Operating expenses = Adm in expenses + Distribution cost + Other expenses - Depreciation - Amortization
- Bad debt expense - Impairment loss - loss on disposal of asset - Fair value loss on investment property
If separate working for ·'payment to employees" is made. then also deduct "salaries and wages" in above formula.

QUESTION NO. 1
{PART A-KNO WLEDGE QUESTIONS}
Following balances have been ex tr acted from b I

a ance sheets of a limited company as at:
June 30, 2017 June 30, 2016
Rs.
Share capital
340,000 210,000
Retained eamin2:s
180,000 100,000
Tax payable
11 ,000 13 ,500
Ad ditional information:
1) Tax paid during 2017 was Rs . 24,500 .
2) Cash dividend of 156 ,000 was declared d · .
Required: an paid durmg the year 2017 .
Calculate "cash inflow from issue of shares" and "pro fiit before tax" for the year ended June 30 2017 (PAC)
QUESTION NO. 2 , .
Following balances have been extr ac ted fr om balance sheets of a 1·nmte

· d company as at:
June 30, 2017 June 30, 2016

-------------- Rs.
Share capital 1,200,000 800,000
Share premium 200,000 120,000
Retained earnings 2,050,000 1,450 ,000
Dividend payable 75 ,000 50,000
Tax payable 32 ,000 26,000
..
Add1t1onal mfonnat1on .
I) Tax paid durin g 201 7 was Rs. 42,S00 .
2) Dividend paid duri ng 20 17 was F.s. 100,000 .
Required :
Calculate "cash inflow from issue of sh3re~·• and ·pro fit before tax" for the year ended June 30, 2017 . (PAC}
QUESTION NO. 3
Following balances have been extracted from balance sheets of a limited company as at:
Dec 31 , 2017 Dec 31 , 2016
-- -- Rs.
1,820 ,000 1,450 ,000
Property, plant and equi pment
163 ,000 140,000
Revaluation surplus 550,000
270 ,000
Capital work in progress
Additional information relating to year 2017 :

1) Depreciation for the amount to Rs. 425 ,000 .
2) Transfer from revaluation surplus to retained earnings during the year was Rs. 15 ,000.
3) Expenditure of Rs. 140,000 was incurred on capital work-in-progress during the year.
4) During the year a machine costing Rs. 240,000 was sold at a profit of Rs. 18,000. Accumulated depreciation of
machine at the time of disposal was Rs . 75 ,000 . There was no other disposal during the year.
Required :
Calculate "cash inflow from sale of PPE" and "cash outtlow from purchase of PPE" for the year ending December 31 ,
2017 . For More Visit www.castudymaterial.com.pk (PAC)
-----------~..c....:....;:;--=-=-~~:..=....::::~.:..:.::::..:..:....!..!:~~~~~~----~@l
QUESTION NO. 4
Following balances have been extracted from balance sheets of a limited company as at:
Dec 31 , 2017 Dec 31 , 2016
Rs.
Long term loan 225 ,000 200,000
Dividend payable 22,000 15 ,000
Additional information relating to year 2017:

I) Total principal repayments of loan made during the year were Rs. 55 ,000 .
2) Dividend of Rs . 40,000 was declared during the year.
Required:
Prepare "cashtlow from financing activities" section of cash flow statement for the year ended December 31 , 2017 .
(PAC)
QUESTION No. 5
The Balance Sheet of ABC Limited as at 30 June 2019 and the Profit and Loss account for the year then ended are as
follows :
ABC Limited
Bala nce Sheet
A ~ on 30 June 2019
2019 2018
Rs. Rs.
Assets 30 000 10 000

Land 30,000
170,000
Building 10 000
20 000
Less : Accumulated depreci ation 20,000
150,000
130,000 85,000
Inventory 6,000
4,000
Prepaid expenses 70,000
92,000
Trade debts 28,000
5,000
Cash
411,000 ~
Equity and Liabilities

110,000 100,000
Share capital 46,000
66,000
Retained earnings 20,000
Long Term loan 175,000
49,000 44,000
Accounts payable 4,000
Income taxes payable 5,000
6,000 WQQ
Accrued liabilities
411 000 219 000

ABC Limited
Profit and Loss Account
For the year ended 30 June 2019
Rs
Sales 500 ,000
Cost of goods sold (310,000)
Gross profit 190,000
Selling and administration expenses (80,000)
Interest expense {11,000)
Profit before tax 99,000
Taxation (30,000)
Profit after tax ~
The expenses include depreciation as follows :

Cost of goods sold Rs. 4,000
Selling and administration expense Rs. 6,000
Cash dividend declared and paid during the yt>ar amou .ts lo Rs . 49,000 .
Required : Prepare Cash Flow Statement for t:1e year ended 30 June 2019 in accordance with IAS-7 . (08)
(PAC)

Cha~
~ tcr-
~3~ - - - - - ~ IAS
~- 7: -
STATEMENT
- - - - - -OF
--CASH
--. FLOWS
. . . . -. _UESTIONS
_ ____;;,__ _ _ _ _ _ 22
{.PART H-APPLICATJON QUESTIONS}

QUESTION NO. 6
Following information pertains to Nadir Limited :
Extract from statement of profit or loss for the year ended 31 December 2017
Rs. in '000
Profit before taxation 8,955
Taxation (2,945)
Profit after taxation 6,010
Extract from statement of financial position as on 31 December 2017

2017 I 2016 2017 2016
Equity and liabilities Assets -
--- Rs. in '000 --- ---- Rs. in '000 ---
Share capital 12,400 I 0,000 PPE - net book value 21 ,400 15,800
Share premiwn 1,400 - Current assets :
Retained earnings 13,450 12,440 Stock-in-trade 5,600 5,750
Surplus on revaluation 4,000 - Trade receivables - net 6,840 4,446
Non-current liabilities : Other receivables 2,385 800
Long-term loans 4,100 5,000 Cash & bank 2,355 3,204
Current liabilities :
Trade payables !,9~.g_J 1,400
Accruals & other payables 680 660
Tax liability 650 500
38,580 30,000 38,580 30,000
Other information :
(i) Shares issued during the year were as follows :

• 10% bonus shares in March 2017 .
• Right shares in July 2017.
(ii) Durmg
. the year, _a plant costing Rs. 9,500,000 and havi ng a book value of Rs . 5,200,000 was disposed of for Rs.
4,800,000 of which Rs. 1,800,000 are still outstanding.
(iii) Depreciation for the year amounted to Rs. 7,350,000.
(iv) Financial charges for the year amounted to Rs. l, l 00,000. Accrued financial charges as on 31 December 2017
amounted to Rs. 112,000 (2016 : Rs. 48,000).
(v) Provision for doubtful trade receivables is _maintained at 5%.
Required:
Prepare statement of cash flows for the year ended 3 J December 2017 in i ·h
Flows ' using indirect method . , accorc ance wit IAS 7 ' Statement of Cash
(15)
(Spring 2018 Q.3)

Chapter - 3
IAS 7: STATEMENT OU' CASH FLOWS QUESTIONS (23)
QUESTION NO. 7
Following are the extracts from the fi nanc1a

. 1statements of U .
niversa I Limited
. . (UL) for the year ended 30 June 2017 :
Statement of financial position as on 30 June 2017
2017 2016
Assets 2017 2016
Rs. in '000 Equity & liabilities Rs. in '000
Property, plant and 158,500
eq ui pment
120,000 Share capital (Rs. lo each) 175,000 150,000
in
Stock trade 58,000 45 ,000 Retained earnings
Trade receivables 54,434 21 ,500
68 ,000 56,000 Revaluation surp lus 10,000 -
Cash 39,434 48 ,000 Debentures (Rs . 100 each) 18,000 20 ,000
Interest payable 1,000 2,500
Trade payables 42,000 39,000
Accrued liabilities 20 ,000 18,000
Unearned maintenance 2,000 4,000
Provision for taxation 1,500 14,000
323,934 269,000 323,934 269,000
Statement of profit or loss for the year ended 30 June 2017
Sales - Rs. in '000'

273 ,000
Cost of sa les
Gross profit ---·-
.
(1 87,500)
85,500
Operating expenses (46,766)
Other income 11 ,200
·-
Profit before ;nterest and tax 49,934
Interest expr nse
_,.____..,_.;._ ,
(2,000)
Profit before tax 47 ,934
Tax expe nse ( 15 ,000)
~ ~
Profi t after tax 32,934
Additional information :
(i) 60% of sales were made on credit.
(ii) UL maintains a prov ision fo r doubtfu l receivables at 6%. During the year, trade receivables of Rs. 7 million were
written off.
(iii) Depreciation expense for the year was Rs. 22 .5 million . 70% of the depreciation was charged to cost of sales.
(iv) Other income comprises of:

• gain of Rs. 3 million on dis;'iJSdi ,.,r' v, :des for l~s . 12 million;
• maintenance income of Rs. 8 milliv11; ·and
• discount of Rs. 10 per debenture which were redeemed during the year.
Required:
Prepare UL 's statement of cash flows
. for the year ea.ded 30 June 2017 using direct method. (FAR II Q-1, Autumn 2017)
(15)

WS QUESTIONS
CCJ!h~a_p_p~te~r.:_-~3_ _ _ _ _ __!1~A~S_J_7'.:._:~ST!AgT~E~M~E~N~TC_:OQ!F~C'J.A~SiH!_f!'.:!L~O~~_::s...::..:::.------------__ r1.
- ~
QUESTION NO. 8
b 2016 is as follows :
The statement of financial position of Liaquat Limited as at 31 Decem er 2016
2016 2015 Assets -------Ru~
Equity and liabilities es ---
-------Rupees ------- 4,778,400 ~
freehold land
5,057 ,600 ~
Share capital 9,200,000 9,000,000
Share Premium Building WOY
1,346,832 1,000,000
Vehicle WOY 600,000 ~
,100 ~
Retained earnings 3,391 ,228 3,665 ,280
Equipment WOY 1,643
Long term loan
Short term loan
1,000,000 1,000,000
Capital WIP 1,478,400 ~
Accounts payable
1,331 ,200 1,531 ,200
Long term deposits 580,800 ~
Accrued interest
417, 120 694,320
Inventory 685 ,608 ~
105 ,600 63 ,360
Accounts receivable 1273 272
' '
~ S9s
Cash 694800 ~
' 84A&o
16,791 ,980 1~
~
16,791 ,980 16,954,160
The follow mg
· mformat1on has been extracted from income statement.
Ru pees
Depreciation expenses 932 ,500
Finance cost 141 ,872
Gain on sale of fixed assets (net) 98 ,960
Net profit before tax 1,525 ,948
Additional information:
(i) Details of gain on sale of fixed assets are as follows ·

Ru pees
Gain on sale of freehold land 168,960
Loss on disposal of equipment due to fire (70 ,000)
98,960
The loss on disposal of equipment represents the WDV of the equipment. Tl'.e _amount of insurance claim
received, amounting to Rs . 30,000 was erroneously credited to accumulated depreciation.
(ii) Repairs to building amounting to Rs. 50,000 were erroneously debited to building acco unt on 31 December 2016.
(iii) Transfers from capital work in progress to building amounted to Rs. 1.200 ,000.
Required :
Prepare statement of cash flows for the year ended 3 1 December 201 6, in accordance with IAS - 7 using indirect method.
(12)
{Spring 2017, Q#6}
QUESTION NO. 9
Following are the extracts from income statement of Quality Engineering Limited (QEL) for the year ended 31 December
2015 and its statement of financial position as at that date, together with some addi tional info rmation:
Income statement for the year ended 31 December 2015
.
.. •••••-•-•M•••;" ••H-•o
Rs . •••••i
Profit from operat_io_n_s _ _ _ _ _ _ _ -----+! 6 ,402 i
_ e _ _ _ _ _ _ _ _ _ _ _ _ _ _ _+--__1,357 l
1-0_t_h_er_ 1·_n_c_om
Interest expense (100) :'
Profit before tax 7,659 \
Income tax expense 1,376) .:
'-P_r_ofi_1t_fi_o_r _th_e_y_e_ar______________ i. __ _6,_2_83____.\

Chapter- 3 IAS 7: STATEMENT OF CASH FLOWS QUESTIONS (25)
Statement of financial position as at 31 December 2015
Equity and liabilities 2015 2014 Assets 2015 2014

--- Rs. In '000'--- Non-current assets --- Rs. In ' 000'---
Share capital 9,000 7,000 Property, plant and eq uipment 19,628 11 ,845
Share premium 5,2 19 3,703 Investments 7,645 6,498
Un-appropriated profit 10,652 6,697 27,273 18,343
Revaluation surplus 2,676 1,9 I 1
10% bank loan 6,000 -
Current liabilities
Current assets
Trade and other payables 3,337 4,953 Inventories 4,642 3,073
Income tax _J)ay_able 1,300 994 Trade and other receivables 2,273 3,865
Bank overdraft - 27 Cash and bank 3,996 4
4,637 5,974 10,911 6,942
38,184 25,285 38,184 25,285
(i) During the year, movements in property, plant and equipment include:
• Depreciation amounting to Rs. 5,280,000.
• Machinery having a carrying amount of Rs. 2,481 ,000 was sold for Rs. 3,440,000 .
• Factory building was revalued from a carrying amount of Rs . 5,963 ,000 to Rs. 8,000,000 .
• An office building which had previously been revalued, was sold at its carrying amount of Rs .
2,599,000.
(ii) Cash dividends paid m December 2015 and November 2014 were Rs . 3.6 million and Rs. 2.4 million
respectively.
(iii) Trade debts written off during the year amounted to Rs . 200,000. The provision for bad debts as at 31 December
2015 was Rs . 400,000 (2014: Rs. 550,000)
(iv) The interest on bank loan is payable on JQ th June every year. The bank loan was received on 1 November 2015 .
Interest for two months has been accrued and incl uded in trade and other payables.
(v) Other income includes investment income of Rs. 398,000. As at 3 I December 2015 , trade and other receivables
included investment income receivable amounting to Rs. 96.000 (2014: Rs. 80,000).
Required:
Prepare a statement of cash flows fo r QEL for the year ended 31 December 20 15, using the indirect method.
(18)
{Spring 2016, Q # 6}
QUESTION No. 10
(a) List the elements offinancial statements . (02)
(b) Following is the draft balance sheet of XYZ Lim ited as at 31 December 2014 which was prepared by its
accountant:
Rs. in Rs. in
Assets Equities and liabilities
million million
Leasehold land cost 250 Ca_2ital 1,000
Leasehold land acc . depreciation (200) Accumulated profit 1,816
Building cost i,000 Long_ term bank loan 200
Building acc. depreciation (500) Trade payables 228
Machinery cost 1,750 Income tax payable 85
Machine_!)' accumulated depreciation (1 ,150) Accrued interest 13
Long term deposit 70
Stocks 910
Account receivables net of provision 361
Cash and bank For More Visit www.castudymaterial.com.pk
851
3,342
3,342
~C~h~a~pt=er~-~3:___ _ _ _ _ _IA'-S_7_:S_T_A_T_E_M_E_N_T_O_F_C_c__A_SH'-F~L~O~W'-S_-~Q~U_E_S_T_IO_N_S_ _ _ _ _ _ _ ~ ,
(i) Profit ~efore tax and income tax expenses for the year amounted to Rs. 275 million and Rs. 13 million
respectively.
(ii) Balances as at 31 December 2013 were as under:
Rs. in million
Stock 703
Account receivables - net of provision 418
Cash and bank 243
Trade payables 150
Income tax payable 80
Long term deposit 70
The company follows a policy of maintaining provision for bad debts equal to 5% of account
receivables.
(iii) The bank loan was obtained on l January 2014 and carries interest @ 9% per annum.
(iv) XYZ uses straight line method for depreciation. Rates of depreciation are as under:
Leasehold land 2%
Building 5%
Machinery 10%
Full month 's depreciation is provided in the month of acquisition but no depreciation is charged in the
month of disposal. Depreciation for the year 2014 has already been provided.
On review the CFO has discovered the following :
• A machine with list price of Rs. 50 million was purchased on 1 January 2014. An amount of
Rs. 30 million had been paid in cash whereas Rs . 20 million were adjusted against trade-in of a
machine costing Rs . 40 mill ion and having a book value of Rs. 25 million. The transaction was
recorded by debiting the plant and machinery account by Rs . 30 million i.e. the net amount
paid to the supplier.
• One of the company's custom ers became bankrupt during the year. Rs . 5 million out of total
debt of Rs . 25 mill ion were recovered from him. Balan ce has to be written off.
Required :
Prepare a statement of cash flo w as at 31 December 201 4. (20)
{Spring 2015, Q # 4}
QUESTION No. 11
Sky Limited (SL) commenced its business on l Jul y 20 13 by purchasing the business of Moon Enterprises for a
consideration of Rs . 60 million . The followin g information has been extracted from its financial statements for the year
ended 30 June 2014.
Particulars Debit Credit

Rs. in million
Sales 172
Cost of sales 80
Operating and sell ing expenses 40
Bad debt expense 6
Loss on settlement of insurance claim 2
Finance charges paid 8
Taxation expense 15
Closing stock in trade 10
Trade receivables 28
Provision for doubtful debts 6
Trade payables 20
Provision for taxation (net of payments) I
Property, plant and equipment - WDV 105
Cha ter- 3.
IAS 7: STATEMENT OF CASH FLOWS QUESTIONS (27
(i) At the time of acquisition, the assets and liabilities were valued as under·
Property, plant and eq uiornent Rs. in million

Stock in trade 52
Trade receivables 4
Trade payables 8
12
(ii) During the year, SL incurred a capital expenditure of Rs. 70 million.
(iii) Loss on settlement of insurance claim relates to a car which was destroyed in an accident. Its cost and written
down value at the time of accident was Rs. 5 million and Rs. 4 million respectively. There were no other
disposals during the year.
Required:
Prepare operating activities section of the statement of cash flows for the year ended 30 June 2014 using the direct method
in accordance with the International Financial Reporting Standards. (11)
(FAR II Q-4, Autumn 2014)

QUESTION No. 12
Galaxy Limited commenced its business on 1 Janw..y 2013 by issuing shares as follows :
• Rs. 50 million against cash
• Rs. 25 million against purchase of building
• Rs. 1.4 million against purchase of vehicle
Following is the summarised Tri al Balance fo r i st year as of 3 I December 2013 :
Particulars Debit I Credit

Rs. in million
Sales 136.00
Cost of sales (including deprec iation e-cpense of Rs. 9 milli on) .. 83 .50
Operating and selling expenses (i nc ludin 2: der:reciatio11 expense of Rs. 6.25 _million) 37.30
Miscellaneous income (net of loss o(_l~~_Q.} 5 on selt le . ent of total loss claim) 0.50
Finance charges 2.50
-
Taxation expense 6.00
Cash and bank balances 5.00
Bank overdraft 23 .00
Accounts receivable 18 .00
0.90
Provision for doubtful debts
10.00
Closing inventory
14.00
Accounts payable
1.20
Interest payable
1.00
Provision for taxation (net of payments)
76.40
Share capital
2.45
Dividend paid 25.00
12% Long term loan payable 128 .25
Property, plant and eauipment 15 .00
Accumulated depreciation 293.00 293.00
. n f. w car costmg Rs . 1.8 m1lhon and havmg a depreciation

. rt ·ned to an accident o a ne . h r
Settlement of the insurance claim pe .ai . e No b::. .l debts were written off dunng t e yea ·
charge of Rs. 0.25 million for the penod mus ·
Required: d , ·ember 2013. (13)

. 0 "'"'
Prepare a statement of cash fl ow for the year en cc131
For More Visit www.castudymaterial.com.pk {Spring 2014, Q # 7}
WS QUESTIONS
iC~h~ape!t~er:_:-i3_ _ __ _ ~1A~S~7~:~ST!JA~T~E~M~E~
•N~T~O;!)F~C~A~S~H!_~FL~O
~~~::;::::~~ - -- -~ ~
QUESTION No. 13
f Spanish Limited for the years ended 30 June
The following balances were extracted from the financial st atements O 20 12
and 2013
I
2013 2012 -
---------Rs. in 000-----=:-
' -
Sales 60,000 4o,oof
Interest expense 27 30
Profit after tax 7,800 4,80()
Propertv, plant and equipment cost 10,000 9,00()
accumulated deprec iation 1,000 900
Stock in trade 6,970 6,800
Trade debtors 9,000 8,000
Provision for doubtful debts 500 360
Trade creditors 5,000 4,700
Accrued expenses 300 -
Interest payable 12 14
Income tax payable 55 38
Additional information
• New machine costing Rs. 1,800,000 was purchased during the year. A machine with a can-ying amount of Rs.
200,000 was sold for Rs . 250,000
• The tax rate applicable to the company is 35%.
Req uired :
Prepare operating activities section of the statement of cas h fl ows fo r the year endect 31) June 20 I3 using the Direct
Method. Show all necessary work ings. (15)
\FA R II Q-3, Autumn 2013)
QUESTION No. 14
A summary of revenues and expenses of AB Lim ited for the year ended 30 June 20 ! 3 1s give! 1 be low:
Sales Ru pees
Cost of goods manufactured and sold 2,345,000
Gross profit (1,624,000)
Selling, general and administrative expenses 721 ,000
Net income before income tax (509,000)
Income tax 212,000
Net income (90,000)
122,000
Net changes in working capital items for the year ended 30 June 20 I3 were as follows:
Net changes
. - Dr . Cr.
Cash
Trade receivables (net) 32,000
Inventories 74,000_
Prepaid expenses (sell ing and general) l 05 ,000
6,000
Accrued expenses
15,000 -
Income tax payable
28 ,000
Trade payables
90,000 -
Depreciation for the year amounted to Rs. 68 ,000.
Required:
Prepare a cash flow statement for the year ended 30 June 2013 . (07)
{Autumn 2013, Q # 7~
Cha ter - 3
IAS 7: STATEMENT OF CASH FLOWS QUESTIONS (29)
QUESTION No. 15
The balance sheet of Amin Limited as at 3 1 August 2011 is as follows :

2011 20IO
-------- Rs. ' 000 ----- 2011 20 10
Ecwitv -------- Rs.' 000 -----
Share capital Fixed assets book value
15,450 15,172 12,346
Retained eamine:s 10,000
17,983 17,942
33,433 27,942
Current liabilities
Short term finance Current assets
1,845 1,216 rnvestments
Creditors 4,911 -
3,457 2,850 Stock-in-trade
Dividend payable
- 700 400 Trade debts net
12,178
6,732
14,950
- Bank
4,887
/
442 225
6,002 4,466
39,435 24,263 20,062
3~,~
39,43 5 32,408
The followin g informati on is also avai lable·
Profit duri ng the year ended 31 August 2011 Rs. '000

Accumulated depreciation on fi xed assets - 3 I August 20 IO 3,16 I
Accumulated depreciation on fi xed assets - 31 August 20 I I 5,605
Provision for bad debts - 3 I August 20 IO 7,470
Provision for bad debts - 3 I Au.gust 2011 385
During the year fi xed assets costing Rs . 484
1,500,000 with a book value of Rs. 867,000 were sold for Rs.
1,284,000.
Requi red :
Prepare a cash flo w statement for the year ended 31 August 20 11 Show necessaty wo rkings .
(13)
{Autumn 2011 , Q # 2}
QUESTION No. 16
Junaid Janj ua Limited has provided you the fo!low ing balance sheet and income statement.
•Bala l ·ce'Sh
, eO"· , 'as. \.,,. I December 31 20 10
r-
,__ 2010 '
l 2009
I
I
Ru ecs
Cash
Accounts receivabl e
=-L
i
145,000
280,000
32,000
104,000
Long-tem1 investments !
220,000 170,000
Inventory 424,000 200,000
Prepaid insurance 24,000 36,000
Office suoo lies 14,000 7,000
Land 1,810.000 2,500,000
Buildin_g 2,800,000 2,300,000
Accumulated deoreciation (890,000) (720,000)
Eq uipment 1,200,000 I, 150,000
Accumulated depreciation (3 80,000) (350,000)
Total assets 5,647,000 5,429,000
Accounts payable 158,000 263 ,000
Wages payable 40,000 24,000
Short-term loans '~ 580,000 580,000
Long-term loans 985 ,000 1,160,000
Share capital 1, 100,000 1,000,000
Retained earnings 2,784,000 2,402,000
For
Tota l liabilities and ea uitv More Visit www.castudymaterial.com.pk
5,64'.',000 5,429,000
Chapter - 3 IAS 7: STATEMENT OF CASH FLOWS - QUESTIONS
Income Statement for the yea r ended December 31 , 2010

Ru pees
Sales revenue 9,280,000
-
Cost of goods sold (6, 199,000)
Gross ma rgin 3,081 ,000
-
Operating expenses
Selling expenses 634,000
Administrative expenses 1,348,000
Depreciation expenses 230,000
2,212,000
Income from operations 869,000
Other revenues/expenses
Gain on sale of land 64,000
Gain on sale of long term investment 32,000
Loss on sale of equi pment ( 15,000)
81 ,000
Net income 950,000
Notes :
(a) Part of the long term loan amounti ng to Rs. I00,000 was settled by issui ng ordinary shares .
(b) Long tenn investments costing Rs . I00,000 were sold during the year.
(c) Depreciation charged during the year on equipment amounted to Rs. 60,000 . Equip ment having a book value of
Rs. 75 ,000 was so ld during the year.
Required :
Prepare a cash fl ow statement for the year ended Dece1 11ber 3 i . ::1) ! 0 (14)
{Spring 2011 , Q # 4}
QUESTION No. 17
The balance sheets of Sakhawat Hussain Limited as at December : l. 2(JU9 .:,nd ?00S are as fo ll ows:
,------
---- --- 2009 2008
Ruoccs
Current assets 4.75 0,000 2,850 ,000
Investments 2,600,000 2,500,000
Fixed assets 9,7 50.000 9,600,000
Accumulated depreciation (?,950,000) (2,450 ,000;
t 4,150,000 12 ,500,000
Current liabilities 1,850,000 1,450,000
Income tax liability 200,000 150,000
Share capital 11 ,000,000 10,000,000
Accumulated profits 1, 100,000 900,000
14,150,000 12,500,000
Other information for the year 2009 is as follow~:
(i) Investments costing Rs. 250,000 were sold for Rs. 320,000 .
(ii) Fully depreciated furniture costing Rs . 200,000 was written-off.
(iii) Fixed assets costing Rs . 960,000 with a net book value of Rs . 160,000 were sold for Rs . 250 000.
(iv) Income tax amounting to Rs. 180,000 was paid in September 2009. '
(v) Cash dividend amounting to Rs . 1,200,000 wa:; paid during the year.
(vi) 20% of the opening and closing balances of current assets are represented by cash.
Requ ired :
Prepare cash flow statement for the year ended Dece1 ,,uer 31 , 2C09 . (I 1)
{Sprin g 2010, Q # 7)
.,/
(31)
QUESTION No. 18
I
I
The comparative balance sheets as at December 31 st of Moosan i Limited show the following information:
2008 2007
Ru ees
Cash 5,200 41 ,400
Accounts receivable 31 ,700 21 ,500
Invento 25 ,000 19,400
Investments 16,900
Furniture 80,000 64,000
E ui ment 86,000 43 ,000
227 ,900 206,200
Allowance for doubtful debts 6,500 9,700

Accumulated depreciation - equipment 24,000 l 8,000
Accumulated depreciation - furniture 8,000 15 ,000
Trade creditors l 0,800 6,500
Accrued expenses 4,300 10,800
Bills payab le 6,500 8,600
Long term loans 31 ,800 53 ,800
Share capital 100,000 80 ,000
36,000 3,800
Retained earnings
227 ,900 206,200
Additional data related to 2008 is as fo ll ows:
(i) Equipment that had costed Rs . 23 .000 and w.:s 40% deprec iated at the time of disposal was sold for Rs .
6,500.
(ii) On January 1, 200 8, the furniture was completely destroyed by a fire. Proceeds received from the
insurance company amounted to P~s 60 .C!OO
(iii) Investments were sold at Rs 7. 500 above the;r cost.
(iv) Cash dividend amounting t~· Rs. i 80.000 was paid duri ng 2008 .
Required :
(12)
Prepare cash flow statement for the year endei:i Deccnw~r J l, 2li,J8 .
tSpring 2009, Q # 3}

QUESTION No. 19
Financial statements of Data Limited are as follows :
30 June 2018 30 June 2017
Rs "000" Rs "000"
Assets
Non-current assets
Fixed assets 161 ,300 160,500
Investments 20,500 12,200
·current assets
Stock in trade 34,200 36,600
Short tenn investments 1,500 2,300
Trade debts 25 ,500 18,700
Prepayments 2,700 3,000
Cash and bank 4,100
249,800 233,300
Equity and liability
Share Capital 66,000 56,000
Retained earn ings 100, 100 83 ,900
Revaluation reserve - land & Bui lding 8,000 3,000
174,100 142,900
Non-current liabilities
Bank loan 20,300 22,500
Government grant i 0,000
Current liabilities
Trade payables 20,400 35 ,100
Government grant 2,000
Accrued expenses :?3 .000 2 8,800
Overdraft 4,000
233,300
Additional informa tion :
(i) Provision for doubtfu I debt at 30 June 201 8 \ WIS Rs 1.2 mil Iion (20 17 : Rs 1.7 mi Ilion).
(ii) During the year total payment of 7.6 mill ion was rnade to bank against loan (including interest).
(iii) Dividend of Rs. 36 mil lion was declared and paid during the year.
(i v) Government grant recognized as incom~. fo r the yecir amounts to Rs . 2 .5 million.
(v) Interest and tax expense for the ye<1 : was Rs. 3.5 million and Rs 20. 1 mill ion respectively.
(vi) Accrued expenses include interest payable of Rs 1.1 million (2017 : Rs 0.4 million) and tax payable of
Rs 4 .5 million (201 7: Rs 3 mill ion).
(vii) Following is the details of fixed assets:
30 June 2018 30 June 2017
Rs "000" Rs "000"
Land and building 88 ,700 85 ,200
Plant and mach inery 65 ,600 67,30Q_
Intangibles 7,000 8,000
161 ,300 160,500
(a) Renovation of building of Rs 3 millio:1was capital ized during the year. ..

rntlh 00
(b) Depreciation expense of land & bu :!ding and plant and machinery was Rs 4. 5 million and 6.S
respectively for the year just endeJ .
(c) Few machines having net book value of P.s. .5 ,200,000 were sold at profit of Rs 500,000 .
(15)
Required : Prepare statement of cash flows using indirect method as per IAS-7 for 2018 . (PAC)

Chapter - 3
lAS 7: STATEMENT OF CASH FLOWS QUESTIONS (33)
QUESTION No. 20
Shine Limited manufactures fumitur .

were extracted from it s timancial e OJ ls for
• statement products, which
the years ·t s3e0II ~ to r~ta1~er
end;d . around the country. The following balances
une _ob and 2014 respectively.
EXTRACT FROM SHINE LIMITED

STATEMENT O F FINANCIAL POS IT ION
AS AT 30 JUNE 2014 .
2014 2013
Rs. Rs.
Debentures
66.000
Retained earnings
30.741 80.000
Trade payables 10,000
8.000
Administration expenses accrued 2,000
Advance income tax 9,575 10.000
Dividend payable 2.000
Inventory 111.500 131.500
Accounts recei vable 90.000 20.000
Distribution expenses prepaid 3.000 2,000
EXTR SHI NE LIMITED

ACT FROM STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE
Rs.
Profit before tax 53 ,2 16
Taxation (19 475)
Profit for th e period 33 ,741
_ _o
Other comprehen sive income
Total comprehen sive in come 33.74 1
Additional informati on
• The profit before ta x 1:, c;1at1.:d after lJ.hi 11!.! il,l .1ci:oun1 the fol lowi ng expe nses:
Rs .
120,000
Cost of sales 3,000
Profit on sa le of plarn 1,500
Bad debt s expense 15,000
Depreciation 14 ,500
Finance costs
• Invent ory is sold al a mJ rkup of i I0° u Oi . t i!,;
• Dividends were declared 1n the current year
• Debentures were com plett I) paid off during the year. l'otu l rcpaymenls made were Rs. 72,600 including interest
at implicit rate of I 0%.
• Entire financ e cost for the year wa~ paid during the year. Ks. 14 ,5 00 also includes interest on debentures .
• Bad debts are written off as and when they are inc urred.
Required :
Prepare the operating ac tivit ies and financing acti vities section s only of the cash flow statement of Shine Limited for the
year ended 30 June 20 14 , usi ng the direct method.
Inc lude interest and dividend paymen ts under operating activities. {PAC}

::r ~~ODW~S~-=-S~O~L:::.::U::...:T;.:;..IO_NS
_ _ __
OF CASH _FL ------- n,
. . .;C:..:.:h.::.Japi:::t.::..:er__:-.. ::3:.. .__ _ _ __..!:IA~S~7:..:.:...::S~T-A_T_EM_ENT ~
FCASHFLOWS
IAS 7: STATf:~;~NS}
SOLUTION TO QUESTION NO.l Rs.

130,000
Issue of shares [340 - 21 OJ 258,000
Profit before tax IW-1I
W- 1
Accumulated rofits Rs.
Rs. 100,000
bid 236,000
Dividend 156,000 Profit for the year
c/d 180,000 336,000
336,000
Tax a able
Rs.
Rs. 13,500
Payment 24,500 bid 22,000
c/d 11 ,000 Tax expense
35,500
35,500
PBT = 236,000 + 22,000 = Rs. 25 8,000

Rs.
Issue of shares [W- 1I 480,000
Profit before tax IW-2] 773,500
W- 1
Closing balance [1 ,200,000 + 200,000] 1,400,000
Opening balance [800,000 + 120,000] 920,000
480,000
W-2
Reta ined ea rnin s
Rs. Rs.
bid 1,450,000
Dividend 125,000 Profit for the year 725 ,000
cld 2,050,000
2,175,000 2,175,000
Dividend a able
Rs. Rs.
Payment 100,000 bid 50,000
cld 75,000 Dividend declared 125,000
175,000 175,000
C ha >l<'r - J
IA S 7 : STAT EM ENT OF Ct\S II FLOWS SOLUT ION S 35
--- Tux_ pn y ahll·

l{s.
P:1y111c11t H~.
·12. 500 hid
c/d 2 6 ,(J[)()
.12 .000 Tax l' Xpc nsc
7- 1,500 - I\ ~ ," () ()
- - - 7tl .'iQ2__
Plff 72 5 .000 -1 •IX ,500

Rs. 773 ,500
Purchase of PPE IW- 11 Rs.

Sale of PP E [240.000 - 75 ,000 + 18,000] 502 ,000
183 ,000
W-1
PPE
Rs. Rs .
bid 1,450,000 Di sposal [240 - 75) 165 ,000
Transfer from CWIP 420,000 Depreciation 425 ,000
Revaluation 38,000 c/d 1,820 ,000
Cash addition (bal) 502 ,000
2,410,000 2,410 ,000
Ca ital WIP
Rs. Rs.
bid 550,000 Transfer 420 ,000
Expenditure 140,000 cld 270,000
690,000 690 ,000
Revaluation su rplus
I
Rs. I Rs.
Transfer to RE ,;: } t·)oO i
it .1 •1I1d
, 140,000
c!d i 63 .000 Revaluation 38,000
- - - - --··-·-··
178.000 178,000

Cash flow from financing activities Rs.
90,000
Issue of shares fW-1J
(55 ,000)
Loan repayment
80 ,000
New loan [W-21
(33 ,000)
Dividend paid IW-31
82,000
Cash inflow from financing activities
Workings
W-1 430 ,000
Closing balance [310,000 + I 20,000] 340,000
Opening balance [250,000For More Visit www.castudymaterial.com.pk
+ 90,000] 90,000
-
Chapter -3 IAS 7: STATEMENT OF CASH FLOWS - SOLUTIONS
~ - -- -- -- - - - -- - - - - - - - - - - ; : _ __ _ __ _ _J,(,36)
-------...
W-2
Loan
Rs. Rs.
Repayment 55,000 bid 200,000
c/d 225,000 New loan 80,000
-------'-----i
280,000 280,000
W-3
Dividend a able
Rs. Rs.
Payment 33,000 bid 15,000
c/d 22,000 Dividend declared 40,000
55,000 55,000
ABC Limited
Cash Flow Statement
For the year ended June 30, 2019
Cash Flow from Operating Activities Rs. Rs.

Adjustment:
Depreciation 10,000
Interest 11,000
120,000
(Increase) / Decrease in current assets :
Inventory (45 ,000)
Prepaid expense 2,000
Trade Debts (22 ,000)
Increase / (Decrease) in current liabi lities :

Accounts payab le 5,000
Accrued liabilities 1,000
Cash Flow from operations 61 ,000
Less: Income tax paid (4,000 + 30,000 - 5,000) (29 ,000)
Interest paid (11,000)
Net Cash flow from operating Acti vi ties
21 ,000
Cash Flow from Investing Activities
Land acquired
(20,000)
Building acquired
(140,000)
Net Cash used in Investing Activities
(160,000)
Cash Flow from Financing Activities
Issue of shares
Dividend 10,000
Long Term Loans raised (49,000)
Net Cash Flow from Financing Activities 155,000
Net Increase I (Decrease) in Cash Flows 116,000
Opening Balance of Cash & Cash Equivalents (23 ,000)
Closing Balance of Cash & Cash Equivalents 28,000
~

Cha ter - 3
IAS 7: STATEMENT OF CASH FLOWS SOLUTIONS
(37)
ICAP EXAMINER COMMENTS
It was a traditional question requiring preparation of statement of cash flows . 65 .3% students secured passing
marks. Some of the errors noted were as follows:
• Change in net trade receivables was shown in working capital changes but increase in provision for
doubtful debts was also shown which was incorrect.
• Although adj ustment for interest expense and actual interest paid were reported correctly, the effect of
change in accrued interest was not excluded from changes in accruals and other payables.
• While reporting sale proceeds of plant under investing activity, the amount which remained
outstanding at the year-end was not excluded.
• Impact of revaluation of fi xed assets was not considered in calculating additions to property, plant and
equipment.
• In reportin g proceeds fro m iss ue of share capital, premium on right shares was shown separately .
Further, many students ignored bonu s shares in the calculation of net proceeds.
SOLUTION BY PAC
Nadir Limited
Statement of Cash Flow
For the year ended 31 December, 201 7
Rs.000 Rs.000
Cash flows from ooera tinl! a ctivities
Adiustments f or: - ---
Depreciation -- 7,350
Interest expenses ·- -----
1, 100
Loss on sale of property, plant & r:q uiprn eni '.4 .800 - 5,20 0) 400
Ooeratillf! profit bef ore worki112 capital clumf!es 17,805
(Increase) in net trade receivables (N -2) (2,394)

150
Decrease in inventories
. f800 - (2 ' 385- 1,800)] 215
Decrease in other receivables
500
Increase in trade payables
(44) -
(Decrease) in accrued expenses (6 80 - 11 2)-(660-48)
16,232
Cash Keneratedf rom operations
( 1,036) -
Interest paid (I , 100 +48- 112)
(2,795 )
Income tax paid (2,945+500-650)
(4,000)
Dividend paid (N- I) (W - 1) 8,401
Net cash flows from operating activities

'"'~~:!:..::~----~IA~S~7~:~STDA~T~E~M~E~N~T~O~F~C~A~S~H~F~L~O~W~S_-~S.:::.O=L..::..U-=-TI::..;O;__N_S_ _ _ _ _ _~
_fhapter - 3
Cash flows from InvestinQ: Activities

Rs.'000'
(1 4, 150)
------
Rs.'000'
Cash paid to acq uire propertv, plant and equipment (W - 2)

----
Cash received from disposal of propertv, plant (4,800 - 1,800)
3,000
---
Net cash flows from investinl! activities --
01 ,150)
-
Cash flows from financin 11 activities -
P,roceeds from issue of share capital incl. share premium
2,800
-
[12,400 + 1,400 - (10,000 X 1.1 )] -
(900)
Repayment of borrowings
Net cash flows from financing activities 1,900
Net (decrease) in cash and cash equivalents (849)

Cash and cash equivalents at bez inninz of the year ·-- - - ---,-·iI
I
3,204
Cash and cash equivalents at end of the year -- I
- ~-~-~L--
2,355
Notes:
I) Dividend paid can be shown in financing activities
2) Alternatively provision for doubtful debts can be adjusted sepan1tc 1:- and increase in gross debtors will be shown here
W-1 Retained earnings Rs.' 000
Opening balance 12 ,440

Profit after tax 6,010
Less : Bonus Shares (10,000 x 10%) (1 ,000)
Less: Dividend paid (Balancing figure) (4,000)
Closing balance 13 ,450
W-2 Property, plant & equipment

Opening balance 15,800
Revaluation surplus 4,000
Addition (Cash) (Balancing figure) 14,150
Less: Disposal (5,200)
Less : Depreciation (7,350)
Closing balance 21 ,400

Chapter - 3 lAS 7: STATEMENT OF CASH FLOWS SOLUTIONS (39)

Universal Limited
Cash flow statement
for the year ended June 30, 2017
cash flow from operating activities

Rs.' 000' Rs.' 000'
Receipt from customers [W-1I
253,234
Payment to suppliers IW-2I
(181 ,750)
Payment for operating expenses (W-3I
(30,250)
41 ,234
Finance cost paid [2.5 + 2 - I]
(3 ,500)
Tax paid IW-4J
(27 ,500)
Maint. Income received [2 + 8 - 4] *
6,000
Cash inflow from operating activities 16,234
Cash flow from investing activities
Purchase of PPE (W-SJ (60,000)
Sale of PPE 12,000
Cash outflow from investing activities (48 ,000)
Cash flow from financing activities
Issue of shares [175 - 150] 25,000
Redemption of debentures IW-6J (1,800)
Cash inflow from financin g activities 23 ,200
Net cash outflow during the year (8 ,566)
Cash & cash equivalent at start of year 48,000
Cash & cash equivalent at end of year 39,434
* Alternatively it can be shown bef ore cash generated from operations
W-1 Customers
Rs.'000 I Rs.'000
bid
1
59,574 Receipts (bal.)
\ 253 ,234
Sales 273 .000 Wri te off 7,000
c/d 72,340
1
332., ~·74 i 332,574
W-2 _____§ ~U?.I(J(ers______ _ _ _ _ _ _ __ _

_.::~---- - - -- - Rs iooo i Rs.'000
Payments (bal.) 18 L7 5G bid 39,000

cld 42,000 Purchases 184,750
223,750 223,750
Inventor
Rs.'000
Rs.' 000
45 ,000 COS [187 .5 - 22.5 X 70%] 171 ,750
bid
58,000
Purchases (bal.) J 84,750 cld
229,750
229,750
W-3 O eratin
Rs.'000
Rs.' 000 18,000
Payments (bal.) 30,250 bid 32,250
cld 20,000 Exp. !W-3.1 I 50,250
For More50,250
Visit www.castudymaterial.com.pk
-!!!~!.:J~
ihapter - 3 _____!I~A~S~7:JS~T~A!TE~IV~IE~N~'!:.:I
' O~!'.:_Fi~C~AS~H:!__!;FL~O~W~S_- .::::.. SO.:::.::.LU.:. .T_I_O_N_S_ _ _ _~
. exp _ Dep _ Bad debts IW-3.21

W-J.Jexpenses = Opet.atmg
Cash
32,250
W-3.2 Prov. for bad debts

Rs. '000 Rs.'000
Write off 7,000 bid 3,574
cld 4,340 Exp. (bal.) 7,766
11,340 11,340
W-4
Tax
Rs.'000 Rs.'000
Payments (bal.)
27,500 bid 14,000
cld
1,500 Expense 15,000
29,000 29,000
W-5
PPE
Rs. '000 Rs.'000
bid
120,000 Disposal [1 2 - 3] 9,000
Revaluation
10,000 Depreciation 22,500
Addition (bal.)
60,000 cld 158,500
190,000
190,000
W-6
Other income Rs. '000
Gain on vehicle 11 ,200
Maintenance income (3 ,000)
Discount on redemption _ _J8 ,0_QO)
Total redemption payment [Ax 90/1 0] IA! - - -~~Q __
t ,~9__Q_
____
W-7
RE
Rs.'000
Dividends (bal.) R~.1000
- bid
cld 2 U 00
54,434 PAT
54,434 32,934
54,434

This was a routine question requiring preparation of statement of cash flows using indirect method. The perfonnance was
reasonable as about 50% of the candidates secured passing marks. The mistakes observed were as under:
• Failure to calculate rectified profit.
• lncorrect adjustment for gain on disposal.
• Incorrect calculation of capital expenditure.
, Capital expenditure was taken in financing activity instead of investing activity.

• Amount injected by owner was not calculated correctly.
The common errors noted are discussed below:
• Only few students could classify all the items under their correct head .
• Adj ustments to netFor
profitMore Visit
before tax werewww.castudymaterial.com.pk
ignored by a number of students .
Chapter - 3
IAS 7: STATEMENT OF CASH FLOWS SOLUTIONS (41)
• Finance capital
cost and interest paid were correctly reported but change in accrued interest was also included in
working changes.
• Decrease in WDV of fixed assets was cons idered as the sale proceeds .
• Many students included changes in short tenn loan as a cash flow item and also included closing balance of short
tenn loan in cash and cash equivalent.
SOLUTION BY PAC
Liaqat Limited
Statement of Cash flow
For the year ended 31st December, 2016
Rs. Rs.
Profit before tax (1 ,525 ,948 -50,000+ 30,000)
1,505 ,948
Adjustments for:
Depreciation
932 ,500
Gain on sale of land
(I 68 ,960)
Loss on disposal of equipment (70,000-30,000)
40,000
Interest expense
141 ,872
Operating profit before working capital changes 2,451 ,360
Increase in inventories [320,628 - 685 ,608] (364,980)
Increase in receivables [595 ,452 - 1,273 ,272] (677,820)
Decrease in payables [4 I 7,120 - 694,320] (277 ,200)
Cash generated from operations I, 131 ,360
Interest paid (141 ,872 + 63 ,360 - 105 ,600) (99,632)
Net cash flow from operating activities 1,031 ,728
Cash flows from investin g act ivities
Sale of land (1 ,821 ,600 + 168 .960) 1,990,560
Insurance claim recei ved 30,000
Expenditure on capital work in progress (W - 1) (85 6,800)
Long term deposits [448 ,800 .. 580,800] ( 132,000)
Net cash flow from inv estin g acti vities 1,031 ,760
Cash flows from finan cing activi ties
Issue of shares [10 ,546 ,832 - i 0.000,000 j 546,832
Dividend paid [W-2] . ( 1,800,000)
Repayment of short term loan [ l J3 l ,200 - 1,531 ,200] (200,000)
Net cash flow from financ ing activ ities (1,453,168)
Net increase in cash and cash equ ivalents 610,320
Opening balance of cash and cash equivalents 84,480
Closing balance of cash and cash equivalents 694,800
W-1
Capital work in progress Rs
Balance c/d 1,478 ,400
Transfen-ed to Fixed assets 1,200,000
(1,821,600)
Less: Balance b/d
856,800
W-2 Retained earnings

(3 ,371,228)
Adj usted closing balance
(1 ,3938,060 - 50,000 + 30,000)
Opening balance
3/ ~5,280
1,.5D5,948
Adj usted Net profit
1,800,000
Dividend For More Visit www.castudymaterial.com.pk
Chapter- 3 IAS 7: STATEMENT OF CASH FLOWS SOLUTIONS

Above average performance was witnessed in this question also which required preparation of cash flow statement u .
the indirect method. Some of the common errors are described below: sing
• Majority of the students made mistakes in clas,sification of items between operating, investing and financi
activities. ng
• Difference in income tax payable was mentioned along with changes in working capital instead of mentionin
income tax paid separately. Some of the candidates started the cash flow from Profit after Tax instead of Profi~
before Tax.
• Various ~pes of errors were seen in the calculation of amounts related to property plant a_nd ~quip~~nt. Many
students ignored the profit on sale whereas many students ignored the amount of revaluat10n m amvmg at the
amount of purchases thereof.
• Many students treated increase/decrease in inventory, debtors and creditors incorrectly i.e. treated inflows as
outflows and vice versa. Surprisingly, it included many such students who had correctly performed many of the
more complex calculations.
SOLUTION BY PAC
Quality Engineering Limited
For the year ended 31 December 2015
----------- Rs. '000' -----------
Cash flow from operating activities
Add: Depreciation 5,280
Interest expense !00
Bad debt expense [400 + 200 - 550] 50
Less: Gain on sale of machine [3,440 - 2,48 IJ (959)
Investment income -- - ·- ----· (398) _
Operating profit 11 ,732
Decrease in debtors ((3 ,865 + 550 - 80) - (2,273 + 400 - 96 - 200)j l.558
Increase in inventory [4,642 - 3,073] ( j .569)
Decrease in accounts payable [(3 ,337 - I00) - 4,9531 (1,7 16)

Cash generated from operations 10,005
Tax paid [994 + 1,376 - 1,300] (1 ,070)
Investment income received [80 + 398 - 96] 382

Sale of machinery 3,440
Sale of office building 2,599
Purchase of PPE jW- 1) (16, 106)
Purchase of investment [7,645 - 6,498] (1 ,147)
Cash outflow from investing activities (11 ,214)

Issue of shares [14,219 - I 0,703] 3,516
Dividend paid (3 ,600)
New loan 6,000
Cash outflow from financing activities
5,916
Net cash inflow during the year
4,019
Cash and cash equivalent at start of year [27 - 4]
For More Visit www.castudymaterial.com.pk (23)
Cash and cash equivalent at end of year
Chapter - 3
IAS 7: STATEMENT OF CASH FLOWS SOLUTIONS (43 )
Workings
W-1
PPE
Rs. '000' Rs.' 000 '
bid 11 ,845 Depreciation 5,280
Revaluation 2,037 Disposal 2,599
Addition (bal.) 16, 106 Disposal 2,481
c/d 19,628
29,988 29,988
Only for cross check
- Su rp lus
Rs. '000 ' 1
Rs.'000'
Transferred to RE 1,272 : . ~1/d 1,911
cld 2,676 I Bu ilding [8 ,000 - 5,963] 2,037
3,948 I 3,948
U nano ro priate<l Drofit

Rs .'000 ' Rs.' 000'
3,600 bid 6,697
Dividend
Transfer from surplus 1,272
10,652 Profit after tax 6,283
cld
14,252 14,252

Chapter - 3 IAS 7: STATEMENT OF CASH FLOWS SOLUTIONS (44)
SOLUTION TO QUESTION NO.JO

(a) This part of the question was quite easy and majority of the students secured full marks. Some of them were
however confused and mentioned the components of financial statements instead of the Elements.
(b) This question was quite simple but majority of the students were unable to understand the non-routine
adjustments/situations though the routine calculations were performed well.
The common errors were as follows :
• Only few students worked out revised profit before tax after taking into account the adjustments
identified by the CFO.
• Additions and disposals of machinery were ignored, while calculating the depreciation .
• Reconciliation of cash and cash equivalents at beginning and end of the year were missed in many cases .
• Provision for bad debt could not be worked out c01Tectly as most of the students did not seem to
understand the whole process of calculating the required balance of the provision for bad debts and the
impact of write off thereon . They may seek guidance from ICAP 's suggested answers.
SOLUTION BY ICAP
(a) The element of financial statement are as under:
(i) The elements directly related to the measurement of fi nancial position in the statement of financial
position are assets, liabilities and equity.
(ii) The elements directly re lated to the measurement of performance in the statement of comprehensive
income are income and expenses.
(b) SOLUTION BY PAC

XYZ Limited
Cash fl ow statem.:nt
For th e year ended December 31 , 2014
- - Rs. in million ---------

Profit before tax (W-1) 253
Add: Depreciation (W-2) 228
Loss on disposal [25 - 20] 5
Interest expense [200 x 9%] 18
Operating profit 504
Increase in stock [910 - 703] (207)
Decrease in accounts receivable (W-3) 76
Increase in trade payables [228 - 150] 78
Cash generated from operations 451
Finance cost paid [ 18 - 13]
(5)
Income tax paid [85 + 13 - 80]
(8)
Cash inflow from operating activities
438

Purchase of machine
(30)
Cash outflow from investing activities
For More Visit www.castudymaterial.com.pk (30)
Cha tcr - 3 7
IAS : STATEMENT OF CASH FLOWS SOLUTIONS (45)

New loan -------- Rs. in million ---------
Cash inflow from financing activities 200
Net cash inflow during the year 200
Cash and cash equivalents at start of year 608

243
Cash and cash equivalents at end of year
851
Workings
W-1 Profit before tax

As per question
275
Overcharged depreciation [173 - 1,750 x 10%]
2
Loss on disposal not recorded [25 - 20]
(5)
Bad debts to be written off
(20)
Decrease in provision (W-3)
253
W-2 Correct depreciation
Leasehold land [250 x 2%] 5
Building [1 ,000 x 5%] 50
Machinery:
Remaining open ing [(1 ,750 - 40 - 30) x 10%] 168
Addition [50 x 10%] 5
173
228
W-3 Debtors
2014
380
Gross debtors [361 /0.95]
{202
Bad debt to be written off
360
Revised gross debtors IAI
19
Existing provision {12
Decrease in provision (balancing) 18
[Bl
Revised provision [360 x 5%]
342
IA - Bl
Revised net debtors
Decrease in debtors [418 - 3421 76

Chapter - 3 IAS 7: STATEMENT OF CASH FLOWS- SOLUTIONS
(4~
Sky Limited
Extracts from Statement of Cash Flows for the year ended 30 June 2014
Rs. in million
Cash flows from operatin2 activities
Cash receipts from customers ( 172 + 8 - 28) 152
Cash paid to suppliers (78)
(W. 1)
Cash paid for expenses (W.2) (27)
Cash generated from operations 47
Interest paid (8)
Taxation paid ( 15 - 5) (1 4)
Net cash inflow from operating activities 25
W- 1: Pavments to suppliers:
Cost of sales 80
Increase in stock in trade (1 0 - 4) 6
Increase in trade payables (20- 12) (8)
78
W-2: Pavments for exoenses:

Operating and selline: expenses 40
Depreciation expense (52+ 70-4)- 105 (1 3)
27

Cash flow is one of the most frequently tested topic of this subject Even rr1c•: the; general performance of students in this
question was not upto the mark. Mistakes were made in almost ail nreas <i'.i rn u,;;erarcd below:
Most of the students were unable to extract th e figure ol profit an:i lo~s from tilt given trial balance even though
no further adj ustments were req uired.
Many students staited the cash fl ow with pt otit after tax.
Many students computed property, plant and equ ipment by adding accumu lat ed depreciation to the closing
balance of property plant and equ ipment.
• Though depreciation included in cost of sales and operating and selling expenses was given, many candidates
also added the depreciation on vehicles disposed of during the year to the given figures.
Very few students were aware of the treatment of bank overdraft.
In calculating profit before taxation, a number of students excluded the depreciation from cost of sales and
administration expenses.
Many students added increase in current asset as cash inflow instead of showing it as cash outflow.

- chapter - 3
SOLUTION BY ICAP
7
IAS : STATEMENT OF CASH FLOWS SOLUTIONS (47)
Galaxy Limited
Statement of cash flow for the year ended 31 December
2013
.-Cash flows from operating activities Rs. in million

~ Profit before taxation W.t
Adjustment for: Depreciation 13 .20
,----- [9 + 6.25] 15 .25
Finance charges
- 2.50
Bad debt expense
- 0.90
Loss on settlement of total loss claim
r
0.35
- Closing balances: 32.20

Account receivable
(18 .00)
Inventories
r (10 .00)
Account payable
14.00
18 .20
Finance charges paid
[2 .5 - 1.2] (1.30)
Income taxes paid
[6 - 1] (5.00)
· Net cash from operating activities
'
11.90
Cash flows from investing activities
Purchase of property, plant and equipment [128.25 - 25 - 1.4] + 1.8 ( 103 .65 )
Proceeds from the settlement of total loss claim [I .8 - 0.25] - 0.35 1.20
Net cash used in investing activities
(1 02.45)
Cash flows from financin g ac tivi ties
Issue of shares 50.00
Dividend paid (2.45)
Proceeds from long term loans --
25 .00
Net cash from financin g activities 72.55
Net decrease in cash and cash equivalents (1 8.00)
Cash and cash eq uivalent at beg inn ing of the pertod -
Cash and cash equivalent at end of th~ nericd (23 - 5) (1 8.00)
W-1: Profit before taxation:

Sales 136.00
Cost of sales (83.50)
Operating and selling expenses (37.30)
0.50
Misc. income
(2.50)
Finance expenses
13.20

Chapter - 3 IAS 7: STATEMENT OF CASH FLOWS - SOLUTIONS _ _ _ _ ~
~~~----___:,:~~~~~-----.._:_--=-...;;;.....:....:....::..::..:....:..::::___

Spanish Limited
Statement of Cash Flows
th
For the year ended 30 June 2013
2013
Cash flow from operating activities Rs.
Cash received from customers (W-1) 59;000,000
Cash paid to suppliers (W-2) (46,753,000)
Expenses paid ------.:

Cash generated from operations 12,247,ooo
Interest paid (W-6) (29,000)
Income tax paid (W-7) (4.183,00.Q)
Net cash from operating activities 8.035 OQQ
{Working notes}
(W-1)
Debtors
Rs. Rs.
Balance b/d 8,000,000 Cash 59,000,000
Sales 60,000,000 Balance c/d 9,000,000
68 000 000 68,000 000
(W-2)
Creditors
Rs. Rs.
Cash (Balance) 46,753 ,000 Balance b/d 4,700,000
Balance c/d 5,000,000 Purchases (W-3) 47,053,000
51753 000 51753000
(W-3)
Cost of goods sold Opening stock + Purchases - Closi ng stock

46,883 ,000 (W-4) 6,800,000 + Purchases _ 6,970,000
Purchases 46,883,000 + 6,970,000 - 6,800,000
Purchases 47,053,000

Cha ter- 3 7
IAS : STATEMENT OF CASH FLOWS SOLUTIONS (49
(W-4)
Sales Rs.
Cost of sales (Balance) 60,000,000
Gross profit (46,883,000)
Accrued expenses (Note) 13, 117,000

(300,000)
Depreciation expense (W-5)
(700,000)
Provision for doubtful debts (500,000 - 360,000)
(140,000)
Gain on sale of asset (250,000 - 200,000)
50,000
Profit before interest and tax
12,027,000
Interest expense
(27,000)
Profit before tax
12,000,000
Income tax expense (7,800,080 x 35 I 65)
(4,200,000)
Profit after tax
7 800 000
(W-5)
Accumulated de reciation
Rs. Rs.
Asset sold (*800,000 - 200,000)
600,000 Balance bid 900,000
Balance c/d
l .000,00Q Depreciation (Balance) 700,000
l MiW.QQ 1 600 000
*Propertv plant & eq ui pmen t

Rs. Rs.
Balance bid 9,000,000 So ld (Balance) 800,000
Purchase 1,800,000 Balance cld 10,000,000
l0 800 ooo 10 800 000
(W-6)
Interest payable
Rs. Rs.
Cash (Balance) 29,000 Balance bid 14,000
Balance c/d 12,000 Profit & loss 27,000
1)_._QQ~ iLQQQ

(W-7)
Taxation
Rs.
Cash (Balance) 4,183,000 Balance bid 38,0oo
Balance c/d 55,000 Profit & loss (7,800,000 x 35 165 ) ~
4 23 8 000 1.23 8 QQQ
Note: In absence of infonnation about operating expenses, it is assumed that all expenses are to be paid as given in
accrued expenses.

It was the easiest of all the questions. The only calculation that was required was the amount of Income Tax paid. All
other amounts were given and just had to be placeJ ; , th..: appropriate format. A very good perfonnance was seen as about
80% of the students secured passing marks.
SOLUTION BY PAC
AB LIMITED
CASH FLOW STATEM ENT
FOR THE YEAR EN DED JUN E 30, 2013
Rs. Rs.
Cash llow from operating acti vities :
Net income before income tax 2 12,000
Adj ustment fo r:
Depreciatio n 68,000
Operating pro fi t before working capital change 280,000
Decrease in trade receivables 74,000
Increase in inventories ( 105,000)
Decrease in prepai d expenses 'I
6,000
Decrease in trade payab les (90 ,000)
Decrease in accrued expenses {15, 000)
Cash generated fro m operations 150,000
Income tax paid (90,000 + 28,000) ( I 18,000)
Cash generated from operating acti vit ies 32,000

Cash generated from investing activ ities
Cash flow from financing activities:
Cash generated from financ ing activities
Net increase in cash & cash equivalents ~

9apter - 3
IAS 7: STATEMENT OF CASH FLOWS SOLUTIONS (51)
SOLUTION TO QUESTION NO.JS

The cash flow statement is tested almost in all attempts. As usual, many students were able to secure full marks. An
average students suffered on account oflack of conceptual understanding in the follow ing areas:
(a) Calculation of increase/decrease in debtors . Most candidates failed to appropriately adjust provision for doubtful
debts.
(b) Calculation of fixed assets purchased. Most candidates failed to deal with the provision for depreciation, in their
calculations.
(c) In calculating the amount of capital injected, profit for the year was ignored.
SOLUTION BY PAC
Amin Limited
Cash flow statement
for the year ended ,', ugust ~ 1, 2011
___________ Rs. '000 - - -

cash flow from operating activities
Add: Depreciation IW - 1] 2,498
Less: Gain on sale of fi xed assets [ i ,284 - 867] (417)
Operating profit 5,242
Increase in accounts recei vable [6,732 - 4,88 7) (1 ,845)
Decrease in inventory [1 4,950 - 12,178] 2,772
Increase in creditors [3 ,457 - 2,850] 607
Cash flow from investing activ ities _ _ _ Rs. '000 - - -

Purchase of PPE IW- 1I (6, l 9 I)
Sale of PPE 1,284
Purchase of investment (4,911)
Cash outflow from in vesting aci.i\•itie5 (9,8 I 8)
Cash flow from finan cing nctivitics

Issue of shares [ I 5,450 - I0,000] 5,450
Dividend paid (W-2) (2,820)
New finance [1 ,845 - 1,2 16] 629
Cash inflow from financing activi ties 3,259
Net cash inflow during the year 217
Cash and cash equivalent at start of year 225
Cash and cash equivalent at end of year 442

7: STATEMENT OF CASH FLOWS- SOLUTIONS
lCJh~a_ep~te!_r.:_-13_ _ _ _ _ _~§.2~~~:.!.!!.!~~~~.:::..:.::::.-=...:~~;.,.----'----_;_,;:__-------(S2)
IAS
...:: - ~
Workings
W- 1 Fixed assets
Rs.' 000 Rs. '000
I 7,951 Disposal 1,500
bi d [12 ,346 + 5,605]
______ 6,_ 1 ~ cld [15 , 172 + 7,470]
,1_9.:.... 22,642
Addition
24, 142 24,142
Accumulated de reciation
Rs.' 000 Rs. '000
Disposal 633 bi d 5,605
cld _ _ _ _ _ _7.:. 1,c4..:...
. :.70:::...__ Depreciation 2,498
8, 103 8,103
W-2 Retained earnin s

Rs.'000 Rs.'000
Dividend declared 3, 120 bi d 17,942
c!d 17,983 Profit 3, 161
2 1, 103 2 1,103
Divide nd Ja able
Rs.' 000 Rs.' 000
Paid 2,820 bi d 400
c/d _ _ _ _ _ __ ..;:__:___.j Dcciarcci
700 3, 120
3,52.0_ 3,520
SOLUTION BY PAC
Ju naid Janjua Limited
Cas h flow st~temcnt
for the y ear ended Decembe r 3 1, 2010
- - - R s. - - -
Add: Depreciation 230,000
Loss on sale of equipment 15 ,000
Less: Gain on sale of land (64,000)
Gain on sale of investment (32,000)
Operating profit 1,099,000
Increase in accounts receivable [280 - I 04] (176,000)
(224,000)
Increase in inventory [424 - 200]
12,000
Decrease in prepaid insurance [24 - 36]
(7,000)
Increase in office supplies [14 - 7]
(105 ,000)
Decrease in accounts payable [ I 58 - 263]
16,000
Increase in wages payable [40 - 24] 615,000
For
Cash inflow from operating More Visit www.castudymaterial.com.pk
activities
Chai tcr - 3 IAS 7: STATEMENT
--...;:._:;O:::,:F~C~'A~S~l-!:!._1!_F!:_LO~W(_§S~-JS~O~L:!U~T110~N§_S_ _ _ _ _ __j2:53~
cash flow from investing activities

;'ie ofland [2,500 - 1,8 IO + 64 J - - - R s. - - -
Expenditure on building [2,800 - 2,300] 754,000
purchase of equipment IW- 1) (500,000)
Sale of equipment [75 - 15) (155 ,000)
purchase of investment fW-21 60,000
sale of investment [ I 00 + 32) (150,000)
cash inflow from investing activities 132,000
141 ,000
9sh flow from financing activities
Dividend paid (W-3)
Loan repaid [I , 160 - l 00 - 985) (568,000)
cash outflow from financing activities (75 ,000)
Net cash inflow during the year (643 ,000)
Cash and cash equivalent at start of year 113,000

32,000
cash and cash equivalent at end of year
145,000
Workings
W-1
E ui ment
Rs. Rs.
bid I, 150,000 Disposal [75 + 30) 105 ,000
Addition (bal.) 155 ,000 c/d 1,200,000
1,305,000 1,305 ,000
ment
Rs. Rs.
Disposal (bal.) J0,000 bid 350,000
cld 380,000 Charge for the year 60 ,000
410,000 410,000
W-2
Investment
Rs. Rs.
bid 170,000 Di sposal 100,000
Addition (bal.) 150,000 cld 220,000
320,000 320,000
W-3
Retained earnings
lls. Rs.
Dividend 568 ,000 bid 2,402,000
cld 2,784,000 Profit for the year 950,000
3) 52,000 3,352,000

, . , .. , CASH FLOWS - SOLUTIONS
iC~h~ap~tc~r:_:-13_ _ _ _ __!1~A~S]_7::JS~T~A~TJ1E~M!!E~N~l~J~li~ ~ ~ ~ . . : . . : : . . ~ - - - - - - -
1
~
Sakhawnt Hussain Limited

Cush flow statement
for the year ended December 31 , 2009
Rs. Rs.
Cnsh tlow from operating activities:
1,630,000
Prolit before tax (W- 1)
1,500,000
Add : Depreciation (W-3)
(70,000)
Less: Profit on investment [320 - 250]
(90,000)
Profit on fixed assets [250 - 160]
2,970,000
Operating profit before working capital changes
Increase in current assets [(4,750 - 2,850) x 80%] (1 ,520,000)
Increase in cmi-ent liabilities [1 ,850 - 1,450] 400,000
Cash generated from operations 1,850,000
Dividend paid ( l ,200,000)
Tax paid ( 180,000)

Sale of fixed assets 25 0,000
Purchase of fixed assets (W-3) (1 ,3 i 0,000)
Purchase of investment [2,600 + 250 - 2,500] {350,000)
Sale of investment 320,000
Cash out flow from investing activities (1 ,090,000)
Cash flow from financing activities :

Issue of shares [11 ,000 - I 0,000] 1,000,000
Cash inflow from financing activities 1,000,000
Net cash outflow during the year 380,000
Cash and cash equivalents at start of year [2,850 x 20%] 570,000
Cash and cash equivalents at end of year 950,000
Working 1
Accumulated profits
Rs. Rs.
Cash dividend 1,200,000 b/d 900,000
c/d 1,100,000 PAT (balance) 1.400,000_
2,300,000 2,300,000
PBT == PA r + tax expense (W-2)
== 1,400,000 + 230,000 == 1,630.000

_fE::;8J:-pt:..:.er_-_J_ _ _ _ _ _.:.:IA.. .:.:S:::.. .7'. . :~S~T:.!:.A~T~E~M:!1E~•
: N!l!:__'QOfFiC~A~S~H~F~•L~O~W~S~S~O~L~U~T~IOQ_N~SL_ _ _ _ _ _~(5~5)
~orking 2
Tax payable
Rs. Rs.
Paid 180,000 bid 150,000
cld 200,000 Tax expense (balance) 230,000
380,000 380,000
Working 3
- Fixed assets
Rs. Rs.
bid 9,600,000 Disposal 960,000
Addition
1,310,G00 Write off 200,000
cld 9,750,000
10,910,000 10,910,000
Accumu ate dd epreciation

Rs. Rs.
Disposal [960 - I 60] 800,000 bid 2,450,000
Write off 200,000 Depreciation 1,500,000
cld 2,950,000
3,950,000 3,950,000
Moo:.".rni Limited
Ca:, h How statement
for the year ended Dc~ember 31 , 2008
Rs. Rs.
Cash flow from operating activ ities :
Profit before tax (W-1) 212,200
Add: Depreciation (W-2) 23 ,200
Loss on equipment [23 ,000 x 60% - 6,500] 7,300
Less: Profit on furniture [64,000 - I5,000 -- 60 ,000] (11 ,000)
Profit on investment (7,500)
Operating profit before working capital changes 224,200
Increase in debtors [(3 I,700 - 6,500) - (21 ,500 - 9,700)] (13 ,400)
Increase in stock (5 ,600)
Increase in creditors 4,300
Decrease in accrued expenses (6 ,500)
Decrease in bills payable (2,100)

Dividend paid (180,000)
For More
Cash inflow from operating activities Visit www.castudymaterial.com.pk 20,900
Rs. Rs.
60,000
Sale of furniture
(80,000)
Purchase of furniture
Sale of equipment 6,500
Purchase of equipment (66,000)
Sale of investment [16,900 + 7,500] 24,400
Cash out flow from investing activities (55 ,100)
Cash flow from financing activities:

Issue of shares [I 00,000 _ 80,000] 20,000
Repayment of loan [53,800 _ 31 ,800] (22,000)
Cash outflow from financing activities (2,000)
Net cash outflow during the year (36,200)
Cash and cash equivalents at start of year 41,400
Cash and cash equivalents at end of year 5,200
Working 1
Accumulated orofits
Rs. Rs.
Cash dividend 180,000 bid 3,800
cld 36,000 Profit 212,200
216,000 216,000
Working 2
Furnitu re
Rs. Rs.
bid 64 ,000 Dispos,ll 64,000
Addition 80.000 cld 80,000
114,000 114,000
Acc. deoreciation - furniture

Rs. Rs.
Disposal 15,000 bid 15,000
c/d 8,000 Depreciation 8,000
23,000 23,000
Equipment
Rs. Rs.
43 ,000 Disposal 23,000
bid
66,000 cld 86,000
Addition
109,000 109,000

.f___:!!h!!.lap::_:t~er_-_3_ _ _ _ _ _ _1::.:_A~S!..7!..:.·~S~T~A~T~E~~.:!J~~~~~~~~~~~~------_J22).
. MENT OF CASH FLOWS SOLUTIONS (57)
- Acc. deoreciation - eq uioment

Rs. Rs.
Disposal [23 ,000 x 40%]
9,200 bid 18,000
c!d
24,000 Depreciation 15,200
33,200 33,200
Total depreciation = 8,000 + 15,200 = 23,200
Data Limited
For the vear eudrd 30 June 2018
Rs "000" Rs "000"
Cash flow from ooeratin e: activities
Profit before tax (W- J:52,200 + 20, J 00)
72,300
Add : Interest exoense
3,500
Add : Deoreciation (4,500 + 6.500)
11 ,000
Add : Amortization (8,000 7,000)
1,000
Less: Decrease in prov ision ( 1,200 1,700)
(500)
Less: Grant income
(2,500)
Less: Profit on sale of machine (500)
84,300
Add : Decrease in inventory (34,200 36.600) 2,400
Less : Increase in debtors (20.400-26, 700) (6,300)
Add: Decrease in prepayments (3.000-2.700) 300
Less: Decrease in payab les (35 , I00-20.400) ( 14,700)
Less: Decrease in accru ed expen ses (W-2) r17,400 25.400 1 (8,000)
Interest paid (W-3) (2,800)
Tax paid (W-4 ) ( 18,600)
Cash inflow from operat ing activit ins 36,600
Cash flow from investin g ac:tivitir:. Rs "000" Rs "000"

Cash recei ved from disposal or mG(h inerv f5 200 + 500 I 5,700
Cash oaid for purchase of mach ;ne rv (W-5) ( l 0,000)
Cash paid for renovat ion (W-6) (3,000)
Cash received from govt. gran t f I0,000 + 2,000 + 2.500 1 14,500
Cash paid for investments (20,500- 12.200) (8,300)
Cash outflow from investing activities ( 1,100)
Cash flow from financin g activities
Issue of shares (66,000 - 56,000) 10,000
Dividend paid (36,000)
Loan obtained (W- 7) 2,600
Loan repaid (7,600-2,800) (4,800)
Cash outflow from financin_g activities (28,200)
7,300
Total cash generated from all activities
Add: Opening cash and cash equivalents (2,300-4,000) (1,700)
5,600
Closing cash and cash equivalents
(W-1) Retained earnings
l>/d 83 ,900
36,000 Profit (balancing) 52,200
Dividend
c/d 100,100
136,100 136,100
' oWS - s0,1:L~U:_:,T.,:_IO::..N;_.S_ _ __
, , F CASH f◄ L
-----------==
JAS 7: STATEMEN J 0
_Cha tcr - 3
30 June 2017
30 June 2018
Rs "000"-
~ Rs "000"
(W-2) Accrued cxncnscs - = - - - - - - - - - - : - - - Z3,000 28,800
~ L . - - - 1, 100 400-
~--
Accrued expenses -~~ 4,500 3,000 -
Interest payable
Tax payable
Remain ing
- - - - 17,400 25,400
--
(W-3) Interest navable 400
bid 3,500 -
2,800
Expense -
Cash paid
1,100 3,900
-
c/d
3,900
-
(W-4) Tax pa yable 3,000
-
bid 20,100
18,600 Expense
Cash
c/d 4,500 23 ,100
23 ,100
(W-5) Plant and machiner_v . 6,500
bid 67 ,300 Depreciatton
5,200
10,000 Disposal
Cash (bal.) 65,600
c/d
77,300
77,300
(W-6) Land and buildin2
Depreciation 4,500
bid 85,200
Cash 3,000
Revaluation 5,000
cld 88 ,700
93 ,200 93 ,200
(W-7) Bank loan
bid 22,500
Cash paid (7,600-2,800) 4,800 Loan obtained ~ 2,600
c/d 20,300
25,100 25,100
SHINE LIMITED
EXTRACT FROM STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014
Rs.
Cash in/ (out) flows from operating activities
Cash receipts from customers IW-1)
180,500
Cash paid to suppliers IW-3)
Cash paid for expenses IW-4) (102,000)
Cash generated from operations (49,784)
Taxation paid IW-61 28,716
Interest paid (19,050)
Dividends paid IW-SJ (14,500)
(85,000)
Cash in/ (out) flows from financing activities (89,834)
Repayment of lease liabilities

(66 000)

Working:
1 - Accounts receivable
Balance Rs "000" Rs "000"
Sales [I20 x 210/ 100] 20 Bad debts 1.5
252 Cash (balancing) 180.5
Balance ___2Q
ill 272
2 Inventory
Balance Rs "000" Rs "000"
Purchases (balancing) 131 .5 Cost of sales 120
100 Balance I l l.5
231.S 231.5
3 Accounts payable
Cash (balancing) .Rs "000" Rs "000"
Balance 102 Balance 10
8 Purchases (W-2) 100
l!Q llQ
4 - Payment for expenses

Sales (COS: 120 000 + Mark-up : 120 000 x 110%)
252,000
Cost of sales (Given)
(120,000)
Gross profit
132,000
Profit on sale of plant
3,000
Expenses (balancing figure)
(81,784)
Profit before tax (given)
53 216
Expenses (above)
81 ,784
Adjusted for noJH3 Sh items included: Rs.

Bad debts (1 ,500)
Depreciation (15,000)
Adjusted for items shown separately on face of statement of cash flows
Finance charges (14,500)
Adjusted for related accruals and prepayments:

Admin expenses accrued (2,000)
Distribution expenses prepaid 1,000
Cash operating expenses 49,784

5 Retained earnings
Rs "000" Rs "000"
Balance 80
Dividends (balancing) 83 PAT (profit) 33 .741
Balance 30.741
11 3.741 -
l l3.74I
Dividend payable
Rs "000" Rs "000"
Balance 2
Cash (balancing) 85 Dividends 83
Balance
25
6 - Tax
Rs "000" Rs "000"
bid (Advance tax) 10
Cash (balancing) 19.050 Tax expense I 9.475
c/d (Advance tax) 9.575
29.05

-L~ -4 l"iCO.\JE ..\...'iD EXPE:'-.DfTli R.E ACCO UN T
I:--iC O\fE .-\.-"\1) L '(PE-'DIT URE ACCOUNT

QUESTIO NS
(61)
Pr..Jctice questions :
foW Practice Que:5tions .-\.n.aJysis:
rp,n T ~ pt of Q ues1io ns
ICAP
Number of Questions
PAC Total
:;.
~ I ~-:.:::cwkcif-c: Q..!-c:,-dv __5 [Q- [ t0 Q- 5] - 5 5
B .-i.ppt ctia,1 Q..:.oGo'.J..5 [Q-6 co Q- i -1 IO 2 12
Tota.1 IO 7 17
ICAP Pa.st Papers Questions Trend A.n a lni.s :

Q uestion Bank
PAC PAC
, Arumpt Question
S-r :;: Topic St: le of Quest io n Marks
Type Question Question
# #
l
S,~ - 1'7 C~h !osL Income & E.'1.-µenclirure. SOFP 6 -
I A 20
-- Sp:-- 16 Income & E.·...--pendrrure. SOFP A 20 7 -
I - Spr- U A. C. [ncome & b-µendirure. SOFP A 24 8 -
.! .,tm- [ I Income & E:..-µend irure A I8 9 4.4
I ~
A::rr-08 R~eipr & Pa}mcnL Income & Expenditure A 20 10
I - 4.3
i!
,J Spr-0: Income & b-µend irure. SOFP A 26 II -
- Spr-05 Rece ipt & Pa:ment, Income & Expenditure A 19 12 -
~ Spr--0-4 AC. Income & Expenditure. SOFP A 15 13 -
,;. Spr--03 Income & Expenditure A 18 14 -
A ?_.),
~I) Spr-0-0 income & Expenditure. SOFP 15 -

. ltlfl l ' J O. 10 1..
I l )t/ ()011
: 'i 1)00
11
•
T<>t• ., ,, (JOO 1w1n ,, mcrnt,..: r uh
I subscn puun rec, " cJ Ju, ,ng CO I8 " " lb J' 4 II'ti ono -~"
1
ll Subscnp11on rccc1vabk as al Jun e JO 2017 1nclu c'l ,,
2) and managc,ncnt " Tote off h,s rccc" abl e al h,1J dun ng th< ) c.n
(I• "
lfr<Juircd :
Cakulatc subscn puon ,ncomc fo r the"" cnd,ng J,mc JO. 20 IX
~
co I7 Snicc· n, n"urpor•'"'"' the ,,oooJ I ,uhs<'• I •""' ptr mtt t-<, i
QUESTION NO. 2
c;rcat Sports Club was ,ncorpor3teJ on Janua() I.
6,000 . F, nanrn I ) '"' ends on cs er)' Dec cm bcr 3 I " Icm hm pa) ann ua I I<-' , n ,,d ' ,,"" "" thc , J' "" , ,; '.J. re'<'
re gistrat wn " c rrcc " " from start u f th c mon• h of , he ,r Jo,mng \I ""h" s 10 "'" ' "' ) c.or, COI " ., ml C/J I ',, " I 1ll0,
r . .Joinin ~ month ,
1\1rmhcrs
J.ir1 I ...
I 01 I
Jul 17
50
·\ pr I 8
I ~o
Jul 18
.w
,- 60
Required :
Prepare sub~c npt 1on account fo r the >c..ir t·nd1n g lku:111lx·r JI 201 8
~
QUESTION NO. J
.1'111.!
. annual
I . subscnpt1011 is lb 5.()(J(J pr.:r mcmb ·r 1·o1,1· I rq;1~1crcd r11 c111b I h
Jo111cc at 111cep11on Llf club /\ ~ •1t I) ·c l ., , er, •" ,II l c-c tnhct l I 211 IX ,,re ''""
"'i.:111P",c:r 1
mcm , b•rn" Id
" a!read)' pa,d the. ,r, '" bsrn , 0 178 ,I() member'> I'·•' d "'" pdld
on J r . _Ul , t hct r su hsc r, pt "" 1Ior )Ii I - ;<
subsc ription fo r 2018 Out of th ese ~O n1t.:m bc r~ 0 ~ - b A'> ,tt Dl.'tl.'rnbl.'r 3 I :.? OIX 'iO mun bl.'I., It d nol p,,1d t: ·
· , l cd· 1·1ir.:rc \., ere no adva
write · ofT is· nct:c · nce fM\'llll.'llb a lll. tr'>
· rlH: , nut cv ' •n pa « I t h' " ,ub,rnpt ",n 1•1' 2111 7 ho•<"' ,
I) had
. . · '" 1 ccetnher 3 I 'IJ I"0
Rcqmrcd : ·-
Ca lcu late subscript ion rece ived durrn g Ihe yea r end rn g I) cee 111 bl.'r 3 1, 2018
QllESTION NO. 4
Total subscript ions rece iv'd

t.: d urrng
. -7018 · at 5t art of• rcspc:cti vc.:. month , arc as foll O\\ S'
Month
c~::JJ.:a~1:.:1.~:.-t1~
8~--+---=]H s.
360 ,0()0-
Ma\- 18 450.0()0
S
· e )- f 8
Dcc- 18 3 15,000
450,000
1,575,000

~ter-4 INCOME ANO EXPENDITURE ACCOUNT QUESTIONS (63)
The annual subscription fee is Rs. 9,000 per member for many years. Members pay annual fees in advance in the month of
their joining every year. New members joined in 2018 as follows :
Month Members
Sep- 18 20
Dec-18 30
Required:
Prepare subscription account for the year ending December 31 , 2018. (PAC)
QUESTION NO. 5
followmg 1s. th e mcome

. an d expend't
1 ure account o f AI'I services club for the year en ded 3 1st Decem ber 2018
Expenses Rs. Incomes Rs.
Expenses 4,400,600 Subscri pti on 5,900,500
-Depreciation 250,000
Surplus 1,249,900
5,900,500 5,900,500
(i) Balances: 31 -12-20 17 3 1- 12-2018
Advance subscription 1,210,000 95 4,000
Subscription receivable 346,000 444,500
Prepaid expenses 72.000 53 .000
Accrued expenses I i2 .000 87,000
Cash 71 2.UOO ?
(ii) There were no additions or deleti ons in assets duri ng t'. 1c :,,c-:.;r 201 B.
Required:
Prepare receipt and payment account for the year ending J Is t December 2018. (PAC)
I ;

~CJ!h~a~pt~e!._r.:_-.i_4_ _ _ _ _ _1!!N~C~O~M~E~A~N~D~E~X;!:P~E~N~D~l!T_!:!U~R~E-_l_A~C~C~O~U:!.:N~T:__-~Q...:::U:.=E~S..;::T~IO_N_S_ _ _ _ _ _--J~

QUESTION NO. 6
The accountant of Leisure Club was terminated on account of charges of fraud on 3 1 December
201
~ a nd Mr. Emad has
. . . ~ II · · fi tion in respect of the year ended -' I December ?0 16.
been appo10ted 10 his place. Emad has g'.lthered the 10 ow10g 10 orma - .
(i) The club has 3,300 members and the membership fee is Rs . 10,000 per annum. The fe e ~aya~le by each member
becomes due on the first day of the quarter in which he became a member. The fee received 10 each quarter was
as follows :
Third Fourth
IQuarter I First Second
ISubscription received (Rs.) 8,2 50 ,00 0 5,500,000 9,350,000
I 9,900,000
Last year the fee was Rs . 9,000 per annum. However, the number of members was the same.
(ii) A summary of the bank account for the year is shown below :
Deposits Ru pees Withdrawals Rupees

Balance as at 1 Jan . 2016 3,700,500 Insuran ce 175,000
Cash deposited into bank 37 ,848 ,500 Rent and rates 4,200,000
Written off amount recovered 1,860 ,00 0 Utilities 4,3 65,000
Disposal of fixed assets 750,000 Freehold land purchase<l 17,000,000
Members subscription received 19,800,0 00 Cash withdrav,:als f; om hank 6,120,000
directly in bank account
Paym ent to credito1~s 18,155,000
Repairs and mai nte i~ anrc ,...,..-4'00~
Exerc ise equipm ent l 7,3.S0,0(),6
Balance as at 3 J De;: '.::O I 6 ~ 00
63 ,959,000 63 ,959,000
(iii) Amounts paid from petty cash were as follow s:

Ru pees
I Salaries 2 ,300 ,000
I Sund ry expe nses 640 ,00 0
(iv) The club has a tuck shop which earns a profit marg in of 20% of sales. A ll sa les o f tuck shop are made on cash.
During the year, stock costing Rs . 500,000 was destroyed by fire .
(v) The opening WOY of fixed assets was Rs . 28 ,000,000 . Exercise equipme nt was purchased on I October 2016.
Fixed assets having opening WDV of Rs . 800,000 were disposed off on 31 March 20 J 6 . Fixed assets are
depreciated @ 20% under the reducing balanc~ method .
(vi) The openin~-(~,t closing balances of cash in hand were Rs . ~00 ,000 and Rs . 25 ,000 respectively.
(vii) The follor g bal ances have been extracted through a scrut10y of the available records :
i 2016 2015
J Creditors
Prepaid rent
Stock- tuck shop
---------- Rupees --------
3,330,000
175 ,000
2 ,500,000
2 ,500 ,000
168 ,000
2 ,300,000
Required:
(a) (09)
Determine the amount of loss incurred by the club due to fraud committed by the previous accountant.
(b) An income and expenditure account for the year ended 3 I December 20) 6 . (05)
(c) State~nent of financial position as at 3 I December 2016 . (06)
#
Q 1}
{Spring 2017,

Cha ter - 4 INCOME AND EXPENDITURE A COUNT - QUESTIONS (65)
~A)'
QUESTION NO. 7
seaview Club started its operations on I February 20 _15. Sponsor of the _c lu~ contributed Rs. 50 million towards general
fund for the start of operations and placed the amount m the bank. Following 1s the receipts and payments summary for the
·od from l February 2015 to 31 December 2015 :
pen
------ - - - - - -~=---=--:-::-::---:
Receipts Rs. in ' 000 '
:-:-----------=--------------=-------:-:-::-:---
Pa yments Rs. in ' 000'
_ _____:=:..:.=.<-'---'-;-- - - - -; -
fsponsor's contribution 50,000 Furniture & fi_x_tu_r_e s_ _ _ _ 1,200
i Joining fees 20,800 _ V_a_n_ _ _ _ _ _ 1,500
fs ubscription from members __ _ _ 29 ,9_5_2___ Salaries ____ 1,000
· Sale of beverages __ __ ___,
I,'-5_0_0 Rent 3,600
-
.----
;
- - -In-
Utilities
surance
- Repairs and maintenance
570
120
275
_p urchase of beve rag~e_s_ _ -----~ l .367
---
__ _ _ Advance for _p lot of land 65 ,000
- - - - - - - - - ' - -- -
27,620
---------
102 ,2 52
Balance
102,252
(i) The joining fee for award of membership is Rs . 50.000 . An nual subscript ion is Rs. 24.000 . A ll new m e mbers pay
three years ' subscription in advance . Th e mem berships we re a warded as follows :
Month March June Se ptember December

No. of members 112 98 101 105
_ _ _....L__ _ _ _ _ __ _L___ _ _____J
(ii) The club sells beverages at a gross pro fi r margi n o f "0° o Al: sa l::s a re bi ll ed in the firs t week of th e next m o nth
and the payment is received in th e sam e mont h. Sale ,--. f bcv~rnges during Dece mber 2015 amo unted to Rs .
150,000.
(iii) 25% of total purchases of beverages made J uri ng the.' t:ar ~ema111::?d unso ld at year-e nd .
(iv) Salaries are paid on th e first day of next mo nth . The :i nH;u nr of sa lar ies 111 c ludcs an adva nc e amounting to
Rs . I 0,000 paid to an employee o n I December 20 15 The advance is repayable o n I February 20 16 .
(v) Rent for three years was paid in advance on I February 20 15.
(vi)
Presently the club is operating on rent a l premises. However, a plot of la nd has been purchased on which
construction would commence shortly. Title of land would be tra nsfe rred after completion of lega l fonnalities .
(vii)
Payments for utilities include security deposit paid to ut ility companies amountin g to Rs . 20,000 . Utility bills are
paid on the 7 th day of the next month .
(viii)
Insurance premium was paid on I February 2015 covering a period of 12 months .
(ix)
Repairs and maintenance include an advance of Rs . I 00,000 paid to a contractor for construction of a parking
shed. Repair bills amounting to Rs . 7,000 were outstanding at year-end .
(x)
Furniture & fixtures and van were purchased on I February 2015 . Depreciation on these assets is to be charoed at
lO¾ and 20% respectively. b
Required:
Prepa st
the r: atement of financ ial position as at 31 December 2015 and income & expenditure account of Seaview Club for
Penoct ended 31 December 2015 . (20)
{Spring 2016, Q # I}

Chapter - 4 _ __ _ _!.:..::~~~~~!...!:~~~~~~.:...:..:..__::s....=...:=-=--:;,..::_
-=.::.=.t:.:::.:.:_.....::... INCOME AND EXPENDITURE ACCOUNT - QUESTIONS _ _ _ _ _ _ _ (6 -l
6
QUESTION NO. 8
The treasurer of a golf club has produced the following receipts and payments account fo r the year ended 31 December
201 2:
Receipts Ru pees Payments Rup-;;-
Balance at I January 2012 157,800 Canteen payments 213,000
Subscriptions 654,900 Wages & salaries - clubhouse 284,00Q
Canteen receipts ➔ ► (}.,{L. 331 ,400 Wages & salaries - canteen 78,900
Gol f course fees - 284,000 Course repairs 149,900
Events receipts 86,800 Insurance 72,00Q
Competition fees 46,600 Electricity 47,300
Course equipment sold 19,800 Telephone 19,700
Events expenses 47,300
Sundry expenses 15,000
Competitio n expenses 12,600
Balance at 31 December 20 l 2 641 ,600
1,581 ,300 1,581 ,300
... • I
(i) Opening and closing balances of current assets and 1Iabil 1t1es ai e as fo dows .
I Janu a ry 2012 31 December 2012
------Amount in Ru pees----------
Canteen trade payables 71,000 55,200 V I
Canteen inventory 60,000 39,500

Subscriptions in arrears 15.800 27,600
Subscriptions in advance ss,:~oo 35,500
Telephone due 3,900 5,900
Competition expenses due 3,200 3,900
(ii) Fixed assets balances at l January 201 2, and the appl icable drprec iatwn rates are as follows :
Acc umula ted Rate of dep. on
Cost
deoreciation cost
-------Amount in Ru pees-------
Clubhouse and course 3, 156,000 2 14,600 5%
Fixtures and fittings 552,000 166,000 10%
Course equipment 1,262,000 542,000 20%
(iii) The value of clubhouse and course comprises of freehold land and build ings in the ratio of 60:40.
(iv) Course equipment costing Rs. 55,000 was disposed of during the year for Rs. 19,800. The equipment
had been purchased on 1 January 2008. No depreciation is charged in the year of sale.
(v) The insurance premium paid during the year covers the period I October 20 J2 to 30 September 2013.
The premium for the ~revi~us year amounted to Rs. 48,000. ~~
(vi) The canteen manager 1s entitled to a bonus equal to 20% of canteen profits a~ charging his bonus.
(v'.'.~ Canteen trade payables at 31 December 2012 include a debit balance of Rs. 6,000. , / ,(!,:tJ._ 'f~
(vm) ~ of the opening c~nteen inventory was Rs. 55,200. ½ V--V''C) r,1 ·
Required:
- 0 ,N,l u.~¢1a_; . y().)JjQ_,
(t 1 c;nteen Trading Account for the year ended 31 December 2012. (0 4~
() n ncome & Expenditure Account for the year ended 31 December 2012 and a balance sheet of!h
club as at that date Re It Of .. a 1ine
. · su s canteen, compet1t10n and events should be shown separately as O)
item. (2
#Z)
QUESTION NO. 9 (Spring 2013, Q
(REFER Q.4.4 OF ICAP QUESTION BANK) (18)
#5l
QUESTION NO. to {Autumn 201 l ,Q
(REFER Q.4.3 OF ICAP QUESTION BANK) (20)
For More Visit www.castudymaterial.com.pk #4) I
{Autumn zoos, Q ~
~:!..r_-4..:.-_ _ _ _ _IN_C.;:_O..::;..:_M:::.::E=...A:..::..:.N.:::::D...::E:.:X~P~E::.'...:N~D~I.!..T~U~R~E.!:.A~C~C~O~U~N~T.!....::_~Q~U~E~S~T~IO:!_!N~S~_ _ _ _ __..(!(6~71)
QUESTION NO. 11
The accountant of Executive Club has re~igned and Mr. Imdad has been assigned the task of preparing the accounts for the
ear ended December ~I , 2 006 . On takmg charge, Mr. lmdad found that the books had not been written since January.
~fter searching the avai)abl~ record~ and discussing various issues with members of the management committee, he was
able to gather the followmg mfonnat10n :
I. A member of management committee controls the receipts relating to snooker table charges, which totaled
Rs.3,225 ,000 .
2. Members ' subscriptions amounting to Rs . 3,650,000 were rece ived during the year. Of these, Rs . 75 ,000 relate to
the year 2007 .
3. Rs. 3,000,000 had been donated for a new bu ilding and thi s sum is to be credited to Building Reserve account.
4. The club provides catering services on which a profit margin of 20% of sales is earned. Edibles stocks and
purchases relate to these services.
5. The carrying value of snooker tables as at Janua1y 1, 2006 wa s Rs . 4,900 ,000 . The cost of the tables was
Rs.9,000,000. Tables acquired during the year were install ed on December 3 I, 2006 . IO percent deposit on the
newly acquired tables was paid on November I , 2006 . Balance is payabl e in January 2007 . The expected life of
each table is six years with nil scrap value .
6. A summary of the bank account for the year showed rhe fo llo wing:
Rup ees Rupees

Balance at Jan . I , 2006 198,500 ln surance 90,000
Bank deposits [compris- 26 ,160,500 Ren t and rate3 1,480,000
ing of receipts from Electric it y 73 5,000
snooker table charges, Purchases 18, 155,000
subscriptions, donation Comm uni cations 92,500
and catering services] Withdrawa ls 4 ,232 ,500
I 0% deposit on new snooker
tables 130,000
Balance at Dec. 3 I , 2006 I 444 000
26 359 000 26 359 000
7. A summary of expenditure paid from petty cash is as follows :
Rupees
Glasses and crockery 430,000
Wages 1,975 ,000
Sundry club expenses 290,000
Repairs to snooker equipment 510,000
8.
Mr. lmdad was also able to ascertain the following balances as at December 31 :
2006 2005
Rupees Rupees
Prepaid rent 150,000 125,000
Electricity bills payable 155,000 120,000
Suppliers for edibles 2,330,000 1,430,000
Stocks of edibles 2,995 ,000 1,940,000
Stocks of crockery 550,000 685,000
~C~h~ap~t~er:_:-~4~_ _ _ _!!1N~C~O~M~E'..!..A~N~D~E~X~P~E~N~D~I;.:..T.!::U;.:R::::E...:.A:..::C:.:C:.:O:....:U:..:.N...:..:T:......-~Q_U_E_ST_I_O_N_S_ _ _ _ _ _~
9. There is a doubt that huge amount of cash has been stolen. The club has _a fidel ity insurance policy and any cash
deficiency upto a maximum of Rs. 1,000,000 is recoverable under the policy.
Required:
(a) An income and expenditure account for the year ended December 31 , 2006 showing separately, the results
relating to catering services. (19)
(b) A balance sheet as at December 31 , 2006. (07)
{Spring 2007, Q # 4}
QUESTION NO. 12
The Old Citizen Association furnished the following infonnation for the year ended December 3 I, 2004:
(I) They started the year with Rs. 37,600 in the bank and ended with an overdraft of Rs. 49,200, wh ich was secured
by the deposit of investments with the bank.
(2) They received subscriptions amounting to Rs . 66,800 out of which Rs. 2,000 were arrears, Rs. 60,800 and Rs.
4,000 represented current subscriptions and advance respectively.
(3) They received Rs. 41 ,600 donations for the General Fund. Rs. 68,000 donations were received for Medical Aid
Fund out of wh ich Rs. 57,600 was paid.
(4) Government securities at January I, amounted to Rs. 160,000. Half of these were sold for Rs. 100,000. The
investments produced interest of Rs. 2,800 during the year.
(5) Office premises were purchased during the year for Rs. 240,000 and a mortgage was arranged through a bank for
Rs. 120,000. Legal expenses amounted to Rs. 8,400. One installment of Rs. 6,400 was paid to the bank of which
Rs. 3,600 was interest. Alteration and renovation of the premises amounted to Rs. 45,600 of which Rs. 12,000
was still owing.
(6) Office furniture was valued at Rs. 12,000 at January I. Rs. 13,600 was paid for additions durino0 the year and Rs.
5,600 was still owing. Depreciation is estimated at IO per cent per annum .
7
( ) The only other receipt was Rs. 6,000 for sale of literature. Rs. 4,800 worth of literature was given free of co5!.
The total cost of literature amounted to Rs. 9,600, and no stocks were left at the end of the year.
(8) Other payments were :
Rupees
Office Salaries
28,000
Rent and rates
13,600 (Rs. 4,000 was payable on December 3 I, 2003)
Stationery and postage
12,000
Other expenses
69,200 (of which Rs. 6,400 related to next year)
Required:
(a) Receipt and Payment A (09)
ccount for the year ended December 3 I' 2004.
(b) ,10)
Income and Expenditure Accoun
t for the year ended December 31 , 2004. ,1
o#',
{Spring 2005, .

,
~ )ttr ~ 4
(ll'l.; ~noN Ml. tJ
~ , ~ . , fa ir ~p,,1'1s ,md ~,,1.·i,11 l 'htl 1 ' 1- ,1:;st'ts a11d Ii:lhil II IL'/, t,11 tl11,1 I11 ,,,1111, '~ 1111111, 1111 \ ,111 , ,- ,1
l 1\t l 1,1, I ii 1 11 \ 1\1 ,, ~ 1Ii 11 1\1\ lt
Al lh 1•, 111lw1 .'I , W\I)

1 1
At l)\ll1l11Uh,11· ,, . WO,\
lhttt1 1 1 1
~
It Ul'll11~
Fquipm1.'t1t I " 1 ,lH Hl 1,11),()l)(l
~11bs1.·ript i1.ms i11 :11'1\'ars 111,\)\ Hl IJ,tl(ll l
Subs1.·ripti,,11s in ad\':1111.·1.· (1 . '1()( I \ "1 ()(1
Ct\·dit,.'I~ 11.w s,,ndrinks sllwk 11: \l \l
1 1
1,"> tlll
s,,n Drinks Sh\1.'ks ,lll ,\Hl\l \ll 11HJII
R1.•nt ,,wing U llll \ (IIHI
Eb :trkity ,,,,,ing, \ . \~ 0 / ,110(1
l3ank bal:rnc1.· Ir, , I ,'I ll fl \ 111111
Ourin,.! the year the c,1sh re1.·1.•ipts were

Subscripti1.ms (i nd11di11g Rs, .\ ,tHHl ,,!' :11T1.•:11·s ll\ 11 11 IH\ '\'1 ,1 11 ~
y1.'. ar and th,· l'l.'t\1:\ ltl lng_ hnl:1111:1· b d Ill hl' " i'lth'tl ,,1n I w, ,000
S1.,tl Drinks takin gs 1 0', .tltlO
Sak ,,f tickets ti.,r :11mu:1I dinnn I ' ll .ll()O
Sak ,,f rut1k til:kds 1/ .( )(I()
The following payments Wl.'l'I.' 111:1Lk dmit1!_! th e ycur.

Atliliation let's ', . l)t)t)
Purclmse of t:quip111e11t ·10,00 0

Soll Drinks stocks l tl ,L ~IIO
Sotl Drinks saks111:m·s wa ges l '/, Wtl
Catering / I ,tll HI
Hire of band I '1 ,tllltl

Ratlle prizes \ . ()t)()
Rent of hall I 'I . IHHl

Printing and postage lll ,tHHl
Electricity 'll.() .~(I
Hon. Secretary· s cxpens,·s (1 . I( l\)
Repairs to equipment I ~.00()
Required: The Mayfair Sports and Social Club 's
(i) Soll Drinks trading aC1.:ount filr the ycur 1.'llLkd I kl' L'llllll' I' J I, .WO.I
(ii) Income and expenditure m:count for the yrnr L'IHlt.:d I kc . 1 I . .!00 \
(iii) Balance sheet as at 3 1 Dcccmlwr 200 ~. (ti~ )

lSpt'illl! 200,, . () II ,I)

QUESTION NO. 14
The following information available from the records of ABC Sports Association for the year ended June 30, 2002 :
Rupees
Subscription received 250,000
Upkeep of play-ground 30,000
Entrance fees received 80,000
Rent paid 12,000
Salaries and wages 32,000
Travelling expenses 9,000
Stock of equipment on July 1, 2001 90,000

Tournament expenses 14,000
Printing and stationary 30,000
General expenses 60,000
Tournament fees recei ved 25,000
Tournament prizes awarded 7,000
Donations received 110,000
Stock of refreshments on July ! 2001 5,400
Purchases of canteen stores and refreshments 84,600
Cash and bank balances 470,000
Tournament fund 100,000
General fund 300,000
Subscription arrears 180,000
Creditors for expenses 33 ,000
(a) Subscription in arrears as on June 30, 2002 were as follows :
For 1999-2000 20,000

For 2000-200 I 30,000
For 2001 -2002 130,000
During the year, arrear subscription totaling Rs . 90,000 relating to earlier periods has been collected.
(b) Donations of Rs. 110,000 include Rs . 40,000 received on tournament account.
(c) 25 percent of the entrance fees has to be capitalized .
(d) Stock of refreshments as on June 30, 2002 was as under:-
Rupees
Value of provisions, stores, etc. 20,000
Value of eatables and perishables 5,000
Value of mineral water bottles, cigarettes etc. 3,000

-,
.91apter - 4 INCOME AND EXPENDITURE ACCOUNT QUESTIONS (71)
(e) Separate ~nds and books of account are maintained for tournaments. The Management Committee decided to
value the items as follows :
(i) To value provisions and stores at cost.
(ii) The stock of perishables and eatables on the basis of realized sale proceeds on the subsequent day to the
closing of accounts . Sales of eatables and perishables on July I, 2002 amount to Rs. 2,750 .
(iii) Mineral water bottles and cigarettes are to be valued at 80 percent of the ir purchase price.
(f) The association has printed its annual report for 2000-200 I and the bill due from the printers is for
Rs. 5,000 . Another bill for the brochure brought out for the tournament is also pending settlement and is for Rs.
12,000 .
(g) Depreciation charge at the rate of 15% on net book va lue.

Required: Prepare income and expenditure account for ABC Sports Association onl y for the year ended June 30. 2002 .
(18)
{Spring 2003, Q # 5}
{Autumn 2000}
QUESTION NO. 15
The Accountant of Gharib Charitable Hospital has prepared fo li 1w. ing Rece ipts & Payment Account for the year ended on
December 31 , 1999:
Receip t & Paymcn! Account
For the ye ar ended on Decc1rib~r 31 , 1999
Rs .
Rs.
Medicines 49 , 131
Cash at bank and in hand 27 ,342
X-Rays f-i lm 25 ,000
OPD charges 59 ,673
Labo ratory suppli es 8,517
40,440
X-Rays charges
Consultant fees 156,500
24 ,867
Laboratory charges
567 ,230 Salaries 298 ,450
In-patient billings
345,200 Electricity 324,710
Donations
Cleaning & general 38,549
Stationery & supplies 19,825

Repairs & maintenance 25 ,221
Telephone charges 31 ,750
Equipment 54,000
Cash at bank and in hand 33 099
1 064 752
1 064 752

UNT QUESTIONS (7~
Chapter - 4 INCOME AND EXPENDITURE ACCO
Following additional information is available:

,., nd 1998 was as under:
a) Position of certain assets and liabilities as at December JI , I999 a
1999 1998
Rs. Rs.
22.520 26.780
Salaries due
2.780 1.600
X-Rays charges
57.920 27.270
In-patient bi 11 ings
2. 100 1.900
Laboratory charges
7.450 6.230
Stock of medicines
3.980 4.170
Stock of Laboratory supplies & X-Rays Films
Electricity bill due 30. 100 24,200
Telephone bill due 2,720 2.100

Cleaning & General due 3.710 2.400
Consultants fees payable 15.500 12.000
Equipment (NBV) 664 .000 560.000
Furniture (NBV) 100.000 I 00.000
Creditors for:
- medicines 4.500 4,000
- x-rays films 3,500 4,000
- lab supplies uoo 1,200
b) Equipment as at December 31. 1999 includes an instrument costing Rs. ~0.000 placed free of charge by a
supplier under Laboratory Supplies Purchase agreement.
c) Both furniture and equipment as at December 31. 1998 were purchased 11 i 1997 whe n hospital started its
operations.
d) It is hospital 's policy to charge depreciatio n @ 10% p.a. im:'.spect ivc ut' the date or purchase . Depreciation for
1999 has not yet been charged .
Required: You arc required to prepare:

(a) Income & Expenditure Account for the year ended on December 3 I, 1999 and
(b) Balance Sheet as at that date. (23)
{Spring 2000}
QUESTION NO. 16
Lahore Sports & Social Club prepares accounts annually to 30th June. Just prior to the accounts being prepared for 20 I5
the club treasurer disappeared. The club committee is concerned by this and suspects that cash may have been taken. It
requires detailed accounts to be prepared
The following is a summary of the club's bank statement for the year ended 30th June, 2015 .
Rs.000
-
Rs.000~
Balance at Ist July 2014 2,119 Bar purchases 25 ,3&!,
Bank deposits 40,340 Rates 2,3_§_
Light & heat J,5_2Q_
Telephone ~
Sundries 3,~
Fruit machine rental 5,liQ,
Glasses & crockery 2,122--
Balance at 30th June 2015 1,377 Repairs & renewals ~
Fixture & fittin gs I 634
~
Interest at 30th June, 20 I 5 3-

43,826 43 ,836
~er-4 INCOME AND EXPENDITURE ACCOUNT QUESTIONS (73)
The following infonnation is also obtained:

The annual subscription is Rs . 4 ,000 . The register of members totaled 1360 at 30th June, 2015 . Of these, 25
I. members had not paid for 2014 - 15 and 15 members had paid for 2015 - 16. At the beginning of the year 10
members had been in arrears with their subscriptions . All of these were paid during the current year. No
subscription for 2014- 15 was paid in advance . The club wishes to take credit for subscriptions as they become
due .
The club wishes to provide better facilities for entertainment. The estimated cost of this is Rs . I 0,000 ,000 . To
2.
provide for this an additional Rs . 1,000 is payable with all subscriptions . This levy has been in operation for last
few years and will continue for the foreseeable future. The levy is paid directly into a deposit account. The
balance on the deposit account at 30th June , 2014 was Rs. 4,261 ,000 . Interest was received as follows :
Rs.000
f 31st December, 2014 163
I 30th June, 2015 201
The interest is retained w ith in the fund .
3. The following noncurrent assets were owned at 30th June , 20 14 :

Cost Accumulated Net Book
Depreciation Value
Rs.000 Rs.000 Rs .000
Land & building 15 ,000 15 ,000
Fixture & fittings 10,000 6,35 7 3,643
No depreciation is provided on the land & build ings. The fix ture & fitti ngs are depreciated at 2 5% on the
reducing balance, a full year bein g prov ided in th e year of acqui sition and non in the year o f disposal.
4. It is estimated that the net book value of fixrure & fi ttings at the dat~ of disposa l was Rs. 32 1,000 . The disposal
proceeds were Rs . 250,000 .
5. Amounts outstanding, in ve ntory and prepayments (other th an subscriptions) at 30th June were:
2015 2014
R s.000 Rs.000
Rates prepaid 647 539
Telephone accrued 152 136
Electricity accrued 2 79 251
Bar purchases payables 1,40 5 1,537
Bar inventory 3,241 2 , 197
Fruit machine rental accrued 487 423
6. The bar has an average gross profit of 25% on sales .

7. Although no cash book has been written up , an analysis of the cash vouchers shows the following expenditures .
Rs.000
Sundry expenses 593
Bar wages 2,391
Repairs & renewals 634
Bar purchases 792
Rs. 50,000 float is kept in the till.
8. From the returns to the Ringer Fruit Machine Co it is ascertained i:hat the machine takings for the year amounted
to Rs. 8,793 ,000 . All takings from the fruit machine were banked during the year.
Required:
(a) Prepare a bar trading account for the year ended 30th June, 2015 .
(b) Prepare an income & expenditure account for the year ended 30th June, 2015 .
(c) (20)
Prepare statement of financial position as at 30th June, 2015 .
(PAC)

INCOME A
N
D EXPENDITURE ACCOUNT-- Q UESTIONS
~
~
Chapter - 4
('
Chr QUESTION NO. 17

t f Lahore Sports Club for the year ended 3 I st Ma h
Following is the Income & xp
E enditure Accoun ° Rs.
re , 2017
R ·
Fo\\ 7,2 00,000 s.
Income
a) Subscriptions 800,000
Admission fee 120 ,000
Profit on sale of sports equipment 60 ,000
Interest on 5% Investments 45 0 ,000
Advertising income from club magazine 22 ,500
Other income 8,652,500
Less: Expenditures 2.400 .000

Salaries 1,080,000
Rent 60 ,000
Rates
72 ,000
Communication charges
120,0 00
Affiliation fee to Tennis Association
1.5 75 ,000
Sports material used
120 ,000
Electricity charges
960 ,0 00
Repairs & maintenance
480,000
Depreciation
{6,867,000}
1,785 ,500
b Surplus
(1) Book value of sports equipment sold during the year was Rs.400 ,000 as o n 3 1st March, 20 1_6. et out
( (2) Prize fund is maintained separtely. All the receipts are being credited to it and all expenditures were m
the fund. During the year credit to the fund amounted to Rs . 280,000
(3) Interest received during the year was only for two quarters. . · nfor'
(4) The club was admitted as member of Tennis Association on I st October 2016 when it paid subscnpuo
year upto 30th September, 2017 . '
(5) Advertising income from club magazine yet to be received Rs . 45 000 .
(6) A fixed deposit of Rs. 2.5 million was made on 3 t st March, 2017 '.
31st March
2016 2017
Sports equipment ?
4 ,000 ,000
Sports material
400 ,000 650,000
Bank balance ?
Subscription in arrears 480 ,000
350,000
Subscription received in advance 475 ,000
260,000
5% Investments 140,000
Prize fund 1,200,000 1,200,000
Expenses outstanding: 32s,ooo
460 ,000
Salaries
Rent 60,000 120,oOO
Rates 9 0 ,000 1so,oOO
Tennis court maintenance 60,000
Payable for purchase of sports rn t . 32 000
. a cnals 78 000 '
Required: ' QO
Prepare Receipts & Payments Ace 140,000 295 ,0 cial (•r'
p .. ount for ti . ail ,
0s1t1on as on that date. ie year ended t of f1t1 1
31 st March, 201 7 and the Stateinen 1
tf· I
.f_hapter - 4 INCOME AND EXPENDITURE ACCOUNT - SOLUTIONS (75)
INCOME AND EXPENDITURE ACCOUNT

{SOLUTIONS}
SOLUTION TO QUESTION NO. I
Subscri tion
Rs . Rs.
bid 190,000 bi d 25 ,000
Income (bal.) 2,480,000 Write off 30,000
cld 75 ,000 Receipts 2,450,000
-----------l
cld 240,000
2,745,000 2,745,000

Subscri tion
Rs. Rs.
bi d 150,000
Income
(bal.) 1,755,000 Recei pts [400 x 6.000] 2,400,000
cld 795,000
2,550,000 2,550,000
W-1
I
Months in Monthly I
Members advance subscri ption Advance as at Dec 3i
2018 2{H7
100 - 500 - -
50 6 500 150,000 150,000
150 3 500 225 ,000 -
40 6 500 120,000 -
60 10 500 300,000 -
400 795,000 150,000

Subscri tion
Rs. Rs.
bid [40 x 5,000] 200,000 bi d (IO x 5,000] 50,000
Income [250 x 5,000] 1,250,000 Receipts [bal.) 1,125,000
- - - - - - - - - , cld [W-1I 275 ,000
1,450,000 1,450,000
W-1 Rs.
2018 [50 X 5,000] 250,000
2017 [5 X 5,000] 25,000
275 ,000

r·
Chapter - 4

INCOME AND EXPENDITURE ACCOUNT SOLUTIONS
Subscri tion
Rs. ns.
bid 405,000
Income (bat.) 1,207,500 Receipts 1,575,000
c/d 772,500
1,980,000 1,980,000
W-1
Members Members Months in
Months Receipts 2018 2017 advance c/cl 2018 c/d 201 7
!Al IB = A/9,0001 IC! IDI IBxl>x<J ,000/ 121 j<:x Dx'),000/ 121
Jan- 18 360,000 40 40 ()
May- 18 450,000 50 50 4 l 50,000 150 ,()()()
Sep- 18 315 ,000 35 15 8 2 10,000 <)(),()()()
Dec-18 450,000 50 20 11 4 12 .5 00 16 5, ()()(J
Rs. 1,575,000 Rs. 772,~00 _ _ 405,()()()
SOLUTION TO QUESTION NO .5
Ali services club
Receipt and payment account
for the year ended December 31 , 2018
Rs.
Receipts :
Subscription IW-1] 5,546,000
Payments :
Expenses IW-21 4,4 06,600
I , 139,400
Open ing cash 71 2,000
Closing cash 1,85 1,400
W-1 Subscri tion

Rs. Rs.
b/d 346,000 bid 1,2 10,000
Receipts
Income 5,900,500 (bal.) 5,546,000
c/d 954,000 c/d 444 ,500
7,200,500 7,200,500
W-2 Ex enscs
Rs. Rs.
b/d 72,000 b/d 112 ,000
Payments (bal.) 4,406,600 Expenses 4,400,600
c/d 87,000 c/d 53,000
4,565,600 4,565,600

r
f_hapter - 4
INCOME AND EXPENDITURE ACCOUNT SOLUTIONS (77)
SOLUTION TO QUESTION N0 .6
ICAP EXAMI NER COMMENTS
This question requ ir~d preparnt ion of income statement and balance sheet of a club and computation of cash defalcated by
an accountant: Cenam o~enmg balan ces and summarized recei pts and pa)ments along with other necessary infom1ation
was provided m the quest ion.
An average response was observed as almost 50% of the cand idates secured passing marks. Many students scored high
and even full marks also. However. most of the students made simple mistakes of vary ing nature on even the easier aspects
of the calculations wh ich are not expected at this level. The m:ijor errors were as fol\o ,, s
On ly few students calc ulated the opening and closing balances of unearned subscri ption correctly and tried
various incorrect methods
While computing the amount of cash defalcated. instead of considering rece ipt of subscription in cash only. total
collected amount of Rs. 33m was taken as the cash recei pts. Many studems tried to compute the amount by
preparing ban k accou nt or th ro ugh income and ex pendi ture account. instead of cash account and could not
conc lude anyth ing.
• Loss due to fraud was not shown in the income and expend iture account.
Loss of inventory due to fire was ignored 111 the calculation of cost of sales.
• Loss on dis posal of exerc ise equipment was detcm1111ed ,, 1thout the im pac t of depreciation of 3 months i.e .
Jan uary to March
• Accum ulated fun d was not shown m th e st atement 01 fi nJ11c1al pos1t1on
SOLUTION BY PAC
(a) Det erm inati on of am uunt ll f \u, \ by fra ud .
C:l'> h . \ Cl'O l! n l
\{ ',. Rs.
Balance bid 300 LUO 13ai1 r. .IC ( u llll l 37 ,848 ,500
Bank ale o I 20 OUO ~.tlur ..: , 2.300 .000
Subscr ipt ion n~cc1vcd 13 ~OU 000 \un df) i.·,pc: nsc!> 6-l 0.000
(33,000,000 - l 9.800.000 )
Tuck shop recei pt s 22 ,856 ,250 C:t~ h lost (8 nl.111c 111g, li gur1:) 1.662 .750
Balan ce c ti 25 ,000
-l2 .-l 76,250 42,476,250
(b)
Leisure Club
Income & £x pcnditure Account
For the year ended 31 st December, 2016
Rs. Rs.
Expenditures Income
Loss on di sposal (W-4) 10,000 Subscription income (W-2) 31 ,817,500
Insurance 175 .000 Written off amount reco vered 1,860.000
Rent and rates 4,193,000 Tuck shop profit (W-6) 4,571 ,250
(4200000 + 168000 - 175000)
Utilities
4,365 ,000
Loss of stock by fire 500,000
Repair & maintenance 700,000
Depreciation for the year (W-3 ) 5,847 ,500
2,300,000
Salaries
640,000
Sundry expenses
1,662,750
Cash lost (a)
17,855 ,500
Surplus for the year 38,248 ,750
38,248,750
(c) Leisure Cluh
Statement of Financial position
As at 31st December, 2016
Rs.
Rs.
Accumulated Fund & Liabilities Non current assets
f ree hold land 17,000,000
Accumulated Fund
Fixed Assets -
21 ,326,000 WOY (W-3) 28,742,SfJO
Opening balance (W- 1)
Surplus for the year I 7,855 ,500
Current Assets
Liabilities Stock 2,500,000
Creditors 3,330,000 Prepaid rent 175,000
Advance subscription (W-2) 11 ,825,000 Bank balance 5,894,000
Cash in hand 25 ,000
54,33 6,500 54,336,500
(W-1) Opening statement of affairs Rs.

Assets
Fixed assets - WDV 28 ,000 ,000
Cash in hand 308,0(J f;
Prepaid rent l6Z,OGC1
Stock tuck shop 2 3~;0 ,000
Bank balance 3.700 ,5 00
Liab ilities
Creditors (2 5(;fj ,QQ(;)
Advance subscription (W -2) _ l-'-J(.2.:,6:.. .:.4?__, 500 )
_ _f_·
Open ing accumulated fund 2 l.32G.000
(W-2) Subscription Incom e

Last yea r C urrent year
Date Members S ubscr iption O pe nin g Closing
A d va nc e S ubscription
Receipts Advance
Receipts
1/1 / 16 990 8,9 10,000 9,900 ,000
1/4/16 825 7,425 ,000 1,856,25 0 8,250,000 2,062,500
1/7/16 550 4,95 0,000 2,475 ,000 5,500,000 2,750,000
1/10/16 935 8,41 5,000 6,311 ,250 9,350,000 7,012,500
10,642 ,500 33 ,000,000 11 ,825,000
Subscription rece ived during the year 33 ,000 ,000

Add: Opening Advance 10,642,500
Less: Closing Advance (11 ,825 ,000)
31 ,817 ,500
(W-3) Fixed Assets
Opening balance 28,000,000
Exercise equipment purchased 7,350,000
Less: Disposal (800 ,000 x ( I - 20% x 3/12) (760,000)
Depreciation for the year :
On disposal (40,000)
(367 ,500)
On acquisition
On opening balance
(5 ,440,000)
(28 ,000,000-800,000)x 2 0%
28,742,500
,,...,
~::,_-4::..-_ _ _ _ _I_N_C_O_M_E_A_N-=-D-.::E:.:..X::::P_::E:.:....N:.:::D:.:..IT~U~R~E~A~C~C~O~U~N~T-=-::S~O~L~U~T~IO~N~S~_ _ _ _ ___l(7~9'}_)
Disposal of fixed asset

Rs.
Sales proceeds 750,000
Net book value of fi xed asset (760,000)
Loss on disposal (10,000)
Purchases for tuck shop
(W-5)
Payment to creditors 18,155 ,000
Add: Closing balance 3,330,000
Less: Opening balance (2,500,000)
18,985 ,000
(W-6) Tuck shop trading account
Sales (18,285 ,000 x 100/80) 22,856,25 0
Less: Cost of sales
Opening stock 2,300,000
Purchases (W-5) 18,985,000
Less: Stock destroyed by fire (5 00,000)
Less: Closing stock (2,5 00,000)
18,285,000
Profit 4,57 1,250

This question required statement of fi nancial position and income & expenditure account of a club from the Receipt and
Payment Summary and other available infonnation . Overall ir was a simple question which mostly contained routine type
of adjustments and disclosures. However, the perfo rmance was below average as the fo llowing mistakes
were commonly observed:
Very few students were able to bifurcate the amount of subscription correctly between subscription income and
deferred income on the basis of number of months passed til l year-end. Many students did not carry out this
rd
calculation altogether whereas many students took I /3 of the amount as subscription income. Further, even
fewer students bifurcated the deferred income between the short-term and long-term portion.
Most of the examinees fa iled to accrue revenue related to sale of beverages in December 2015 amounting to
Rs. 150,000 .
• Very few students seemed to understand the calculation of purchases of beverages and the closing stock
correctly. Most of them failed to realise that according to the question, 25% of the purchases remained unsold
and therefore cost of sales represented 75% of purchases and closing stock must be equal to 113rd of cost of sales
th
or I/4 of total purchases. Many students presumed the total purchases as Rs. 1,367 thousand which in fact
represented the amount paid for purchases till year end. Consequently, they also failed to recognise the amount
payable against purchases.
Rent expense, insurance and depreciation were calculated based on 12 months instead of 11 months.
Advance for land, advance for parking shed and utility deposit were included in current assets instead of non-
current assets by majority of the examinees.
Prepaid rent was not bifurcated with current and non-current.

• Sponsor's contribution was incorrectly included in income by some candidates.
• h
Salaries and utilities were paid in subsequent months; therefore accruals of sue exp
enses were required but were
missed generally.
SOLUTIONS C
Chapter - 4 INCOME AND EXPENDITURE ACCOUNT (8.Ql_
SOLUTION BY PAC
Seaview Club
Income and expenditure account
'
fo r the ear ended December 31 , 2015
Expenses: F
Rs .'000' Incomes: Rs .' 000 '
Salaries IW- 1I f
1,089 Subscription IW-31 4 ,630
Rent[3 ,600x 11 /36]
1, 100 Profit from beve rages IW-41 F
330
Utilities IW-2I
605 Joinin g fees 20 ,800
Insurance [120 x 11/12]
110
Repairs & ma int. [27 5 - I 00 + 7]
182
Depreciation:
Furniture [1 ,200 x 10% x 11 / 12]
110
Van [1 ,500 x 20% x 11/12]
275
Surplus (bal.)
22 ,289
25,760
'
25,760 p
Seaview Club
Statement of financial position
for the year ended Decembe r 31 , 20 15
ASSETS
No n C ur rent Assets R~.' 000
Furniture and fixtures [1 ,200 _ I I O]
Van [1,500 - 275] 1mo I
Advance for plot 1,225 !
Security deposit 6s ,ooo I
Advance to contractor 20 l
Long term rent prepayment [3 ,600 x 13/3 6] 100
C urrent Assets
Debtors
1,300
6 8,735
[
Stock of beverages [1 ,760 x 25%] 150
~
Advance to empl oyee 440
Short term rent prepayment [3 ,600 x 12/36] IO
Prepa id insurance [120/ 12] 1,200
Bank 10
27 ,620
29,430
CAPITAL AND LIAB ILITIES 98,165 l
fuI!!!!.y C
Capital fund 1'.·
Add : Surplus for the year 50,000
22,289
~
No n-C urrent Liabilities 72 ,289
Advance subscription IW-31 s
Current Liab il ities 15 ,338
L<
Advance subscription IW -3 I
9,984-
Creditors IW-5 1
393
Salaries payable IW - 1I
99 ~
Uti lities bi ll payable IW-2 I
55
Repairs bi ll payable P;
7
10,538 C/,

98, 165
b
INCOME AND EXPENDITURE ACCOUNT SOLUTIONS
(81)
Workings
Rs '000 '
~- I Salaries
payments during the year 1,000

Advance to employee ( 10)
Payment of IO months ' salary 990
Salary per month [990 I I 0) 99
Salary expense for 2015 [99 x 11] 1,089
W- 2 Utilities
Payments during the year 570

Security deposit (20)
Payment of 10 months' salary 550
Utilities per month [550 / 10] 55
Utilities expense for 2015 [55 x 11] 605
W - 3 Subscription
Admission Members No. of month s in 20 15 Subsc ription income
IAI IBI IA x Bx 24/121

(Rs.' 000 ')
Mar - 15 11 2 10 2,240
Jun - 15 98 7 1,372
Seo - 15 101 4 808
Dec - 15 105 I 2 10
416 4,630
Total Advance subscription 25,322
Current portion [416 x 24 ,000] (9,984)
Non Current portion 15,338
W - 4 Profit from beverages sale

Rs .' 000'
Sales [1 ,500 + 150] 1,650
Less: cost of sales [1 ,650 x 80%] (1 ,320)
330
W-5 Creditors
Rs.'000'
Rs.'000'
1,760
Payments 1,367 Purchases [1 ,320 / 75%]
c/d (bal.) 393
1,760
1,760
J
Chapter - 4
INCOME AND EXPENDITURE ACCOUNT SOLUJ'IONS

Part (a) of the question requi d C . . .
8 1 Sh re anteen Tradmg Account and part (b) required Income and Expenditure Account
a ance • e~t of a golf club. An important requirement was to show the results of Canteen, Competition and Eva nd the
separate 1me items This req · . . k ents a
· uirement was ignored by most of the students. Other common m1sta es were as follows : s
st
Opening ock was not taken at its NRV of Rs . 55,200. Instead, cost of Rs. ~ was used to work
purchases and the opening balance of the Club Fund. out
Many candidates worked out the Canteen Manager' s bonus on the basis of total profit instead of Canteen Pr fi
Moreover, most of the candidates calculated bonus on the basis of profit before bonus instead of calculatino i~ It.
profit after deduction of bonus. 0 0n
Many candidates ignored or could not correctly calculate the opening balance of the Club Fund.
It was clearly mentioned in the column where depreciation rates were given, that these rates would be applied on
cost, yet, many candidates calculated deprec iation on WDV.
Many students did not adj ust the cost of equipment disposed of, while calculatin g the depreciation whereas many
candidates deducted net book value of di sposal to arri ve at the cost of equipment on which depreciation was
charged.
Debit balance of canteen trade payables was set off aga inst trade payabl es, instead of showing it separately as an
asset (advance).
Many students were confused as between subscri pti on in mi-ears and subscription in advance and therefore were
unable to calculate subscription income correctly.
Very few students were abl e to ca lcul ate the insuran ce expenses co rrectly. Jt showed a total lack of analytical
ability on their part which can only be overcome th ro ugh a lot of practice.
SOLUTION BY PAC
(a) Golf Club

Canteen Trading Account
For the year ended Decemb er 31 , 201 2
------------ Rs. - - - -
Sales 33 J ,400
Less : cost of sales :
Opening stock 55 ,200
Purchases (W-2) 197,200
Closing stock (39,500) (212,900)
Gross profit 118,500
ef}'"t-
Less : operating expenses : # 1_\1',-'°;
<;;??°'- v
Staff wages ~ 78,900
Manager's bonus [(118,500 - 78,900) x 20/ 120] -1,~°\: 6,600 (85,500)
Net profit 33,000
\\~ f /
,vS'l• ~'i(. ~ ~ v
y~ u¢"\l

1
Chapter - 4 INCOME AND EXPENDITURE ACCOUNT SOi.UTIONS (83)

I
I
(b) Golf Club
Income and Expenditure Account
Expenses Rs. Incomes Rs.

\,/Wages & salaries 284,000 '\.p-fofit from canteen 33 ,000
.ec>urse repairs 149,900 Subscription (W-3) 686,400
0 Insurance (W-11) 54,000 Golf course fees 284,000
..-'Electricity 47 ,300 Profit on equipment IW.J,L_~ 8,800
Telephone (W-9) 21 ,700 Competition (46,600 - ~ 33,300
\,/Sundry expenses 15,000 Events (86,800 - 47 ,300) 39,500
Depreciation (W- 7] 359,720
Surplus 153 ,380
1,085 ,000 1,085 ,000
Golf Club
Balance sheet
as at December 31 , 2012
- - - R s. - - -
Non current assets
Clubhouse [W-41 2,878,280
Fixture and fittings [W-51 330,800
Equipment (W-6] 467,600 3,676,680
Current assets
Subscription in arrears [W-3 I 27 ,600
Advance to canteen supplier (W-2} 6,000
Prepaid insurance (W-11 l 54,000
Inventory 39,500
Cash and bank 641 ,600 768,700
4,445,380
Equity
Capital fund (W-1 I 4,178,900
153,380 4,332,280
Surplus
Current liabilities
Canteen payable (W-2) 61 ,200
Subscription advance (W-3} 35 ,500
5,900
Telephone due
3,900
Competition expenses due (W-10} 113,100
6,600
Bonus payable
4,445,380

ter- 4
INCOME AND EXPENDITURE ACCOUNT - SOLUTIONS
W-1 Opening capital
Dr. Cr.
---------- Rs. --------
Cash and bank 157,800
Canteen payables
71 ,000
Canteen inventory 55,200
Subscription in arrears 15,800
Subscription in advance
55,200
Telephone due 3,900
Competition expenses due 3,200
Clubhouse 3,156,000
Fixtures and fittings 552,000
Course equipment 1,262,000
Ace dep - Clubhouse 214,600
Ace dep - Fixtures 166,000
Ace dep - Equipment 542,000
Prepaid insurance 36,000
Capital fund (balancing) 4, 178,900
5,234, 800 5,234,800
W-2 OJ:> Canteen a ·able

/
Rs. Rs.
/
Payments • 21 3,000 bid 71 ,000
cld [55,200 + 6,000] 61 ,200 Pu rcha ses 197,200
- -- - - - i
cld 6,000
274,200 274,200
W-3 Subscri tion

Rs. Rs.
bid 15,800 bid 55,200
Income 686,400 Rece ip ts 654,900
cld 35,500 cld 27,600
737,700 737,700
W-4 Clubhouse
Rs. Rs.
bid (NBV) 2,941 ,400 Depreciation fW-7J 63 , 120
cld 2,878,280
2,941 ,400 2,941 ,400
W-5
Fixtures and fittin s
bid (NBV) Rs. Rs.
386,000 Depreciation (W-7J
55,200
cld 330,800
386,000
386,000

IN C OMI'
. ._ AND E XP EN DIT ll R F. ACCOUNT SOLUT ION S \85)
\\'-6 F ui H11~nt
Rs . R s.
b d (N BV ) 7 20 .000 Di~p I 55 ,ooo , 200 0 I I 1.000
Ocprcc1.1tmn (\\' - ? \ 24 I .-\00
'd 4 () 7 ,600
7 20 .000
. -, ~ 1
\\ - 7 lkpre-cin tio11
Clubhous e l3 . t -<:;6 OOO , .. 0°
e- I.;;,
I· 1'\l lJrl' .mt.I fitt Ill ••~
e
I-0° 01]
• •'i ...,
- •(
77Q;/, ~
,
,,o0
.h .
6 3 . 120
5~ ::?.00
- ·000 - .,;·:-- .ooo) , :; 00 01
Fquipment l<l .26' ~4 I .4 00
l) 1,po , n I
fh . "
NBV 5""$ ~ ),O'/ 11 000 C:wl
Profit 88 0
1q 800 \Q ,800
W- 9 1 l I( J'h < I\(' dill

R s.
Ks. .
3 ,l) QQ
l '1 .,u<.1 bo
Ca.sh 21. 700
~ t}OO l:.Apen~
cd 2 5,600
(. 11 111 Jh ( 111 o rl t' \ 1n , \ , l ._ cJ U ~

W -10 Rs.
lh . 3,200
1::: oW bJd l 3.300
Ca.sh ~,~fl)C"
cd 16 500
W - 11 -~ -
ln l. uranet
54.000
lh.
Rs .
36 000 L,pcn,<fi~ 54 ,000
b d I~ 8.000 " 9 I ~ ] cJ l- :! 000 , 9 I 21 108.000
-: 000
Cash
108 000
-·
SOLUTION TO Q UEST ION NO. 9

(REFER ANSWER NO 4.4 Of !CA P QUEST ION BANK )
SOLUTION TO QUESTION NO. JO

(REFER ANSWER NO 4 3For
OFMore
ICA P Visit
QUESTION BANK )
www.castudymaterial.com.pk
r -
C_h_a4.p.:..:te:..:.r...:::.-~4'..__ _ _ __!l~N~C~O~M~EJ.A~N~D~E~XfP!EN~D!!!JIT~U~R~E~A~C~C:!:0~U:.!.N..:..T:.---.;:;.S~O-L_U_T_I_O_N_S_____
SOLUTION TO QUESTION NO.I I

~~ -
(a)
Executive Club
Income & Expenditure Account
For the year 31st December 2006
Rs.
Rs. Income
Expenditure Catering Income (W-3) 4,500,000
Rent & Rates 1,455 ,000 3,225 ,000
Receipt - Snockers tables
Electricity (W-1) 770,000 3,575 ,000
90,000 Subscription (W-4)
Insurance Excess of expenses over income 2,189,500
Communications 92,500
Sundry club expenses 290,000
Depreciation 1,500,000
Repairs 510,000
Wages 1,975 ,000
Glass & Crockery used (W-2) 565 ,000
Misappropriation loss 6,242,000 13489500
13 489 500
(b) Executive Club

Balance Sheet
As on 31 st December 2006
Rs .
ASSETS
Non Current Assets
10,300,000
Snooker table [9,000 + 1,300]
(5 ,600,000
Acc. depreciation [4, l 00 + 1,500]
4,700 ,000
Current Assets
1,000,000
Insurance claim receivable
550,000
Stock of crockery
2,995,000
Stock
150,000
Prepaid rent (W-7)
1,444,000
Bank
6,139,000
10,839,000
CAPITAL AND LIABILITIES
Equity
Capital fund (W-5) 6,298,500
Less: Deficit for the year (2,189,500
4,109,000
Building fund 3,000,000
Current Liabilities
Supplier (W-6) 2,330,000
Payable for tables 1,170,000
Advance subscription 75 ,000
Electricity bill payable 155,000
3,730,000
For More Visit www.castudymaterial.com.pk 10,839,000

INCOME ANO FX1•1: Nl>t·1·l J . .
4 - - - - ----__;_~•~..:.:- ~ ·~ ~•~u!::.'·~A~C~C~
O~lJL!:N~'IC"_:-~ S(Q)!_:LU
_ ~ '!r_~
• o~N~Si.__
' _ _ _ _ _ _J.(!87!_l)
~
kiri~ notes!
111·or
Eltctridt y Bill
lh
uank 71\000 B'd 12() 000
cld ill.J.) OO Inco me & l:xpendi111n..: Account 770,000
890 000 890 000
(ll'-2) (All fi1.:u r t~ in llup cts)

CJ;"' & C roc ktrv Ale.
13/d 68 5 000 Income & expe ndi ture 565 000
Purchased ·130.000 c/d 550 ,000
l, 115,000 \ ,J 15 ,000
,w.JJ
T r::idin • Ale.
Opening stock 1,910.000 Re, enuc 22,500 .000
Purchases i lJ O"" fll)() c l()S ltl~ stock '.: ,995 ,000
- (. l 8,()00,(J()(Jx2() )
Gross Pro f 1t
80
:25.4 95 .000
(W-4)
:-i uh , cri1Hion 1., c
Income & ex penditure , '1 7'• n,•u c··l',h 3.650 .000
' c/d ' ! )I ill
,:.i51,,(;11(J J,65 0,QOO
(W-5)
E,c cuti , L' C lull
Ba la nce Shee t
1
A~ un 3 1' t> ece111bcr
General Fund b/f 6.298 500 Prep aid Rent 125 ,000
Electricity Bill 120 .000 Stock 1,940 ,000
Supplier 1.•no.000 Stock of crockery 685 ,000
S11 oke r Table 9,000 ,000
Acc um ul ated 4 . 100 ,000 4,900 ,000
Bank 198,500
7 848 500 7 848 so_o
(W-6)
- Bank
Su pplier Ale.
18, 155 ,000 bid 1,430 ,000
19,055,000
c/d 2,330,000 Purchase
(\V.7)
- 21> .4 85 .000 2.0&5_,0Q.O
- 13/d
Pre paid Rent Ale.
I25 ,000 Income & expenditure 1,455 ,000
150,000
--
1
Bank 1,480.000 c/d
l.fill2.. QOJ)
1.6.0i .OJill

CC~h~a!..[p!_!t~er~-:_:4!__ _ _ _ __.!!lN~CQO~M~E~A~N~D~E~X~P~E~N~D~I~T~U~R~E.!.A~C~C~O:..::U~N..:..T.:.--...;:.S::_0=-=L_U_T_l_O_N-'--S:..___ _ __
- ~
(W-8) Cash A/c.
Rs. R;-
,
3 22 5
,ooo Insurance cl ai m Rece ivable 1,000,000
1 Snooker table charges
3,650,000
1 Subscription ,000,000 Mi sappropriati o n loss 6,242,000 '.
3 26,160,500
I Donation 4,232 ,500 Bank
Bank 22,500,000 Gloss & C rockery 430,000 '
Revenue Wages 1,975 ,000
Sundry C lub Ex pe nses 290,000
Repa irs 510.000
---- 1
36,607 ,500
I 36,607 .500
SOLUTION TO QUESTION N0. 12

Ott.I Citizen Association
Receipt ant.I Payment Account
For the year e1:ded December 31 , 2004
Particulars Rs.
Particulars Ils.
Med ica l Aid Furi d 57,600
bid 37,600
O ffi ce P remi ses 240,000
Subscription (W- 1) 66,800
8,400
41 ,600 Lega l Expe nses
Donation to Gen . Fund 2,800
Donation to Medical Aid Fund 68 ,000 Lo an
3,600
Government securities 100,000 1nteres t
Alterat ion & Renovatio n (45 ,600- 12 ,000) 33,600
Interest on Securities 2 ,800
13,600
Loan Mortgage 120,000 O ffic e fun ctions
28,000
Sale of Literature 6,000 Offic e sala ri es
13 ,600
Rent & Rates
12,000
Stationery
69,200
Othe r expe nses
--2,@Q
c/d 49.200 Lite rature cost
422,QD_Q ~
Olu Cifr~en Association

Income And Expendilure Account
for the year December 3 t , 2004
Rs-
Particulars Rs. Particulars
60,800
Literature free of cost 9 ,600 Subscription 20,000
Salaries 28 ,000 Profit on encashment - Govt. Securities 2,soo
Rent & Rates 9 ,600 Interest on securities 6,000
Stationery 12,000 Income 47,520
Other expenses 62,800 Deficit
Legal expenses 8,400
Interest 3 ,600
Depreciation (W-2) 3.120
137 120

{Working notes}
(W-1)
Subscription Account
Rs. Rs.
I Bid 2.000
I !&E 60 ,800 Cash 66 ,800
: c/d 4.000
~
(W-2)
Depreciation:
Rs.
Furniture valued at January l 12,000
Additions 13.600
Additions 5.600
Office Furniture 31.200
10% 0.120)
8 080
SOLUTION TO QUESTIO N NO.13
(i) Mavfair Spo rts an 1l Socia\ C\ub

So ft Drinks Trading Account
For t he year rn dc d Decemb er 3 \ , 2003
Rs. Rs .
Opening stock 40 ,000 Solt drink takings 205 ,000
Purchase (W-4) \ 06,500 Closing slock. 30,000
Salesman wages 37 .500
Profit 5 \ .000
lli.Q..QQ ?35 000
(ii)
Mayfair Spo rts and Social Club
income anu Expenditure Account
Expenditure Rs. income Rs.

Affiliation fee 5,000 Sale of tickets for annual
Catering 72 ,000 dinner 120,000
Hire of band l 5,000 Sale of raffle tickets 9,000
Raffie prizes 3 ,000 Subscription (W -3) l \2 ,000
Printing and postage 10,000 Profit from soft drinks (i) S1,000
Hon. Secretary' s expenses 6 ,100
Repair to equipment l 5,000
Depreciation (W-2) 25 ,000
Rent (W-5) 72,500
Electricity (W-6) 30 ,800
Subscription w/off (W-3) 7 ,000
30,600
Surplus 1-92000
?.92 000

r ~C~h~!!!~~----..:.....!~~~~~~~~!J'IQ'UI!~I£.•~A~C!;C~O~U~N::!...T~.!:S:;:0:.:L:..:U::...T::...I_O:....N_S_ _ __
· apter - 4
(iii)
INCOME AND EXPEND
Mayfair Sports and Social Club

Balance Sheet
As At December 31, 2003
~
Particulars Rs.
Particulars Rs. 140,000
Equipment
General fund (W-1) 174,400
Add : Surplus 30,600 30,000
Soft drink stock
Creditors for soft drinks 21 ,500 9,000
Subscription arrears
Subscription in advance 5,500
Rent owing 5,000 65,000
7 000 Bank (W-7)
Electricity owing 244 QOO
244 QQQ
{Working notes}
(W-1)
Balance sheet as r..t December 31 , 2002
Rs. Particulars Rs.

Particulars
174,400 Equipment 125,000
General fund (Bal. figure)
Creditors for soft drinks 17,500 Stock of soft drinks 40,000
Subscription in advance 6,500 Subscription arrears 10,000
Rent owing 7,500
Electricity owing 5,250 Bank 36,150
211 liO 211 150
(W-2)
Equipment Account
Rs. Rs.
bi d 125,000 Depreciation (Bal. figure) 25,000
Cash 40,000 c/d 140,000
16'i_,D.Qf1 165 000
(W-3)
~-, 6sc1 iption Account
ns. Rs.
bid (Sub-,arrears) 10,000 b/d (Sub-advanced) 6,500
Written off (10,000 _ 3 ,000) 7,000
(Bal : figure) 112,000 Cash receipt from subscription 105,000
cld 5,500 cld 9 000
127 500
127 500
(W-4)
Creditors for Soft Drinks A ccount
Rs.
102,500 Rs.
Cash bid
21,500 17,500
cld Purchase (Bal : figure)
124 90g 106,500
)24 000
(W-5)
Rent 0~ing Account
Rs.
Cash 75,000 bid Rs.
c/d 5.000 7,500
Income & ex e .
fill._0.00 p nd1ture (Bal : figure) 72,500
~
INCOME AND EXPEHDlTURE ACCOUNT SOLUTIONS (91) . I
~er-4 l
'I·
(W-6)
Electricity Owing Account
Rs. Rs.
Cash 29,050 b/d 5,250 '1I
c/d 7.000 Income & expenditure (Bal: figure) 30 800
~ ~
(\V- 7)
Cash and Bank Account
Particulars Rs . Particulars Rs.
Opening balance 36,150 Affiliation fees 5,000
Subscriptions I 05 ,000 Purchase of equipment 40,000
Soft drinks takings 205,000 Soft drinks stock 102,500
Sale of tickets 120,000 Salesman 's wages 37,500
Sale of raffle tickets 9 .000 Cater ing 72,000
Hire of band 15,000
Raffle prizes 3,000
Rent of hall 75 ,000
Printing and postage 10,000
Electricity 29,050
Hon . Secretary's expenses 6,100
Repairs to equiprnent 15 ,000
C losi rt !. balance 65 .000
475. _l_~ 475 150

ABC SPORTS ASSOCIATION
IN COME AND EXPEN DITU RE ACCOUNT
FOR THE YEA R EN DED JUNE 30, 2002.
Rs. Income Rs .
Expenditures
5,400 Subscription (W- 1) 290,000
Opening stock of refreshments
30,000 Entrance !"ee 80,000
Upkeep of play-ground
12.000 Less : Capitalized 25% (20.000) 60,000
Rent
32,000 Donations 11 0,000
Salaries and wages
9,000 Less: For tournament (40,000) 70,000
Travelling expenses
13,500 Surplus on tournament 32,000
Dep. on equipment (90 ,000 x 15%)
Printing & stationery 30,000 Closing stock of re freshments
Pro vision, stores etc. 20,000
General expenses 60,000
Perishables eatables 2,750
Purchase for canteen 84,600
Mineral water (3,000 x 80%) 2,400 25,150
Surplus 200.650
il2JjQ
477 150
INCOME AND EXPENDITURE ACCOUNT
OF TROURNAMENT
Rs.
Expenditures Rs. Income
40,000
Tourn amentexpenses 14,000 Donations 25 ,000
1Bournament prizes 7,000 Tournament fee
/ OChure expenses 12,000
iurplus 32,000
~
SUBSCRIPTION
Rs.
Rs. 250,000
h·d(9 Casi.
In o,ooo + so ' ooo)
come
140,000
c;/J
180,000
290 000 ~
430 000
lte . l) not accounted for in 2002 .
m (1v) relates to previous year (200 , so
INCOME AND EXPENDITURE ACCOUNT- SOLUTIONS
Chapter - 4
SOLUTION TO QUESTION NO 15
Gharib Charitable Hospital
(n)
Income & Expenditure account
For the vear.en d ed 3 1- l 2-1999.
Pa rticu la rs (Rs.) Particulars
EXPENDITURE INCOME ~
OPD Charges
Donations 59,673
345,200
Consultant charges (W-4) 160,000 X-ray charges (W-2)
41 ,620
Lab Supp. & X.Ray Films(W-3) 33 ,307 In-Patient Billing (W-2)
597,880
Medicine (W-3) 48 ,411 Laboratory charges (W-2)
25,067
Salary Expense (W-4) 294,190
Stationary & Supplies 19,825
Repair & Maintenance 25 ,221
Electricity Bill (W-4) 330,610
Telephone Bill (W-4) 32,370
Clearing & Gen . Charges (W-4) 39,859
Depreciation Equipment 61 ,400
Depreciation Furniture 10,000
Surplus 14,247
1,069,440 1,069,440
(b)
Gharib Charitable Hospital
Balance Sheet as at 31 -12-1999
Particulars (Rs.) Partk ula rs <Rs.)
Rs.
General Fund Equipment (W-6) 552,600
Open. Bal. (W-1) 651 ,832 Furniture (W-6) 90,000
Add: Surplus 14,247 666 ,079 Stock of Medicine 7,450
Stock of Lab Supplies &
Consultant Fee Payable 15 ,500 Films X-ray 3,980
Telephone Bill Payable 2,720 X-ray charges due 2,780
Electricity Bill Payable 30,100 In-Patient bill due 57,920
Clearing & Gen . Charges Payable 3,710 Lab charges ,due 2,100
Salaries Payable 22,520 Cash at bank and in hand 33,099
Creditors: (W-5)
- Medicine 4,500
- X-Ray Films 3,500
- Lab Supplies -
1,300
749,929 - 749,922.
-
{Working notes}
(W-1)
Balance Sheet as at 31-12-199S
Particular Rs. Particular
General Fund 651 ,832 Equipment
(Balancing Figure) Furniture
6,230
Salaries Payable 26,780 Stock of Medicine
Electricity Bill Payable 24,200 4,170
Stock of Lab Supp. &
Telephone Bill Payable 2,100 1,600
X-Ray Films
Clearing & Gen . Charges Payable 2,400 X-Ray charges Receivable 21,270
Consultants fee Payable 12,000 1,900
In-Patient bill Receivable
Creditors:
Medicine Lab charges Receivable
4,000 2
X-Ray Films 21.34
4,COO Cash at bank and in hand
Lab Supplies 1,200
72s,51 JJ j
728,512
A
INCOME AND EXPEN~HURE ACCOUNT - SOLUTIONS (93)
Calculation of Incomes
- - - -- R s . - - - - -
X-Ray In. Patient Laboratory
2,780 57,920 2,100
Balance c/d 24,867
40,440 567,230
Add: Receipts 26,967
43 ,220 625 ,150
1,600 27,270 1,900
Less: Balance bid ll.Qfil
41 620 597 880
Income for the year
(W-3) Stock Accounts

Medicine Lab.Supplies
6,230 4,170
Balance b/d 49,631 24,500
Add: Transfer from creditors (W-5) 8,617
55 ,861 37,287
7,450 3,980
Less: Balance c/d
18 4 11 ~
Expense for the year
----------------- Rii. -··-------------- - - -

(W-4)
Ca lcu lation of Expenses
Salary Electricity Teleph one C learing & Consultant
Bill Bill General Charges
Charges
22,520 30.100 2,720 3,710 15,500
Balance c/d
Add: Payments during the year 298,450 324.710 31.750 38,549 156,500
320,970 354,810 34,470 42,259 172,000
Less: Balance b/d 26.780 24,200 2,100 2,400 12,000
Expense for the year 224 l.2S2 330 610 32 370 ~ 160 000
{W-5)
Creditors Accounts
Creditors for : Medicine X-Ray Lab.Supplies

Balance c/d 4,500 3,500 1,300
Add: Payment during the year 49,131 25,000 8,517
53 ,631 28,500 9,817
Less: Balance b/d 4,000 4,000 1,200
Purchases for the year (Transfer to Stock A/e's) ~ ~ ~
\W-6)
Fixed Assets Accounts
Eq uipment Furniture
Given balances 664,000 100,000
Less: Wrongly recorded Equipment* 50,000
614,000 100,000
Depreciation @ 10% 61,400 10,000
Balance c/d 552 600 ~
* ~s the equipment is placed free of charge therefore it will not be recorded as an asset of Hospital. Moreover it
15 also assumed that single effect of this transaction has been previously recorded.

Chapter - 4 INCOME AND EXPENDITURE ACCOUNT - SOLUTIONS (9
~~-~:..:....:!.-----~~~~~~~~~~~::..:::..:::...::.:.~~_;__----------l4
(a)
Lahore Sports & Social Club
Bar Trading Account
For the year ended 30th June, 2015
Rs. 000 Rs. 000
Sales (W-6)
Less: Cost of Sales 33,312
Opening Stock
2 ,197
Purchases (W-5)
26,028
Less: Closing stock
(3,24 I ) (24,984)
Gross profit
Less: Bar wages 8,328
Bar profit (2,391)
5,937
(b)

Income & Expenditure Account
For the year ended 30th June, 2015
Income
Rs.000
Subscription income (W - 3) 5,440
Profits from bar takings
5,937
Fruit machine takings
8,793
20, 170
Expenditures
Rates
2,252
Light & heat
1,618
Telephone
748
Sundries
4,416
Machine rental
5,424
Glasses & crockery
2,179
Repairs & renewals
1,382
Bank interest
42
Depreciation
1,239
Loss on sale (250-321)
71
Cash deficiency
3,045
22,416
Excess of expenditure over income (Deficit)
(2,246)

C hapter - 4
INCOME AND EXPENDITURE ACCOUNT SOLUTIONS (95)
(c)
Statement of financial posi tion
IQ
2
Assets
Non - Current Assets
Land & bu ilding
Fixture & fittings (W - 7)
Entertainment Fund Deposit
As on 30th June, 2015
Rs.000
1S .000
3.7 17
Rs.000
18.7 17
5.985
'
\
Current Assets
Inventory 3.241
Subscription due 100
Prepayments 647
Cash in hand (W-4) 50
-l.038
Total Assets 2S .7-W
Accumulated Fund and Li abilit ies
Capital Fund
Opening Balance (W- 1) 2 1,2 41 I
Deficit (2.246) 18.995
Entertainment Fund
Opening Balance 4 ,26 1
Add : Donations 1.360
Add : Interest 364 5.985
Non-Current Liabilities
Current Liabi Iities
Sundry payab les & acc ru al s (W - 2)
.,_.,
,__''?"'
Subscription in advanced 60
Bank overdraft 1.377 3.760
Total Capital fund and li ab ilities 28,740
Wo rkings
W- 1
Capital Fu nd Rs.000
Assets:
15,000
Land & building
3,643
Fixture & fitt ings
2, 197
Inventory
40
Subscription due
539
Prepayments I
4 ,26 1
Deposit account 2 , 119
j
Bank
50
Cash in hand
Less: Fund & Liabilities {4,261)
Entertainment fund J_
(2.34 7)
Payables & accrua ls (W - 2)
Capital Fund
ll.W
2015 2014
W-2 Rs.OOO Rs.000
Creditors & accruals 152 136
Telephone 279 251
Electricity 1,405 1,537
Purchases 487 423
Fruit machine rentals
U21~ = == = == ===2.,,,3='47
='=

(96)
Chapter - 4 INCOME AND EXPENDITURE ACCOUNT SOLUTIONS
W- 3
Subsc ri tion ale Rs.000
Rs.000
bid 40 bid 5,440
I & E ale 5,440 Cash Received
(Balancing Figure) ( 1360x4)
100
cld 60 cld
5,540
5,540
W- 4
Cash ale
Rs.000
Rs. 000
40,3 40
bid 50 Bank
Sundry ex penses 593
Fruit machine takings 8,793
Subscriptions 5,440 Bar wages 2,391
Bar takings 33 ,3 12 Repairs & ren ewals 634
Sale of fixture 250 13ar purchases 792
Cash lost (balancing) 3,045
cld 50
47,845 47,845
W-5
Trad e Pa 1a ble
Rs.000 Rs.000
Cash 792 bid 1,537
Bank 25,368 Purchases 26,028
(Ba lancing fig ure)
cld 1,-105
27,565 27,565
W-6 Rs.000
Bar Sales
Opening stock
2, 197
Purchases
26,028
Closing stock
(3 ,241)
Cost of sale
24.984
Sales (24984 x I 00/75)
~
W-7
Fixture & Fittin s
Rs.000
Rs.000
bid 3,643 Disposal
321
Bank 1,634
Depreciation 1,239
- - -- l Balance cld 3,717
5,'277
5,277

_fhapter - 4 INCOME AND EXPENDITURE ACCOUNT SOLUTIONS (97)

Lahore Sports Club
Receipts & Payments Account for the year ended 31st March , 2017
Rs. Payments Rs.
Receipts
480,000 Salaries (W-2) 2,340,000
Balance b/d
7,445 ,000 Rent (W-3) 990 ,000
Subscriptions (W- 1)
Rates (60,000 - 60,000)
800,000 Communi cations 72,000
Admission fee
Surplus on publication of club magazines Affil iation fee to Tenn is
405 ,000 Association (120,000 + 120,000) 240,000
(450,000 - 45 ,000)
520,000 Electricity charges 120,000
Sale of sports equipment (W- 7)
Repai rs & mai ntenance (W-4) 1,006,000
Interest on 5% Investments 30,000
Payment for sports material (W-8) 1,670,000
Other income 22 ,500
Price fund collections 280,000 Sports equipment
Prize awards (W-5) 415 ,000
Fixed deposits 2 ,500,000
Baianu:. c/d 629 ,500
9,982,500
9,9 82., 500
Lahore Sports Clu b

Statement of fina nc ial positi on as at 31 st Ma rch , 201 7
Rs Assets Rs.
Capital Fund & Liabilities
Sports equipment (W-6) 3,120,000
Capital fund 2,500,000
Opening balance (W- 10) 5,587,000 Fixed deposits
1,785,500 5% Investments 1,200,000
Add: Surplus 30,000
Interest accrued
120,000
325,000 Membership fee paid in advance
Prize fund 45 ,000
260,000 Advertisement charges receivable
Subscriptions received in advance 350,000
Subscription in arrear
Outstanding expenses: 629,500
120,000 Bank
Salaries 650,000
180,000 Sports material inventory
Rent
60,000
Rates
32,000
Repair & maintenance
295 ,000
Sports material payable
8,644,500
8,644,500
Subscri tions
W-t Rs.
Rs.
140.000
475 ,000 Advance b/d
Subscription in arrear b/d
7,200,000 7,445,000
Income & expenditure Receipts & Payments (Balance fig.)
260,000 350,000
Advance c/d Subscription in arrear c/d
7,935 ,000
7,935 ,000

W-2 Salaries
Rs.
Rs.
Balance bi d 60,000
Receipt & payment (Balancing fig .) 2,340,000 Income & Ex pendi ture 2,400 ,000
Balance cld 120,000

2,460,000 2,460,000
W-3 Re nt
Rs. Rs.
Ba lance b/d 90,000
Receipts & payments (Balancing fig .) 990,000 In come & expendi ture 1,080,000
Balance cld 180,000

1,170,000 I , 170,000
W-4
Re airs & ma in te nance
Rs. Rs.
Receipt & payment (Balancing fig .) l ,006,000 Balance bid 78,000
Income & expenditu re 960,000
Balance cl d 32 ,000
1,038,000 1,038,000
W-5
Prize fu nd
Rs. Rs.
Ba lance b/d 460,000
Bank (prize awarded) (Balancing fig.) 415,000
Bank 280,000
Balan9e c/d 325 ,000
74 0,000
740,000
W-6
ment
Rs.
Balance bid Rs.
4,000,000 Di sposal of sports equipm ent 400,000
Depreciation 480,000
Balance cld 3,120,000
4,000,000
4,000,000
W-7
Dis mcnt
Rs.
Rs.
Sports equipment 400,000
Profit on sale of equipment 12 0,000 Bank (Balancing figure) 520,000
520,000
520,00Q..
W-8 S 1orts material a able

Rs. Rs.
Bank (Balancing fig.) 1,670,000 Balance bid 140,000
Balance c/d 295 ,000
Purchases of sports material (W-9) 1,825,_QQQ_.
1,965,000
1,965,00J_..
-
Chapter - 4 INCOME AND EXPENDITURE ACCOUNT
S orts material
SOLUTlONS (99)
W-9
Rs. Rs.
400,000 Sports material used l ,575 ,000
Balance bid
1,825 ,000
payable (Balancing figure)
Balance c/d 650 ,000
2,225,000 2 ,225 ,000
Statement of financial osition as at 1st A ril, 2016

W-10
Rs Assets Rs.
Capital Fund & Liabilities
5,587,000 Sports Equipment 4,000 ,000
Capital fund (Balancing figure)
5% Investments 1,200 ,000
Bank 480 ,000
Subscription in arrear 475 ,000
460,000 Sports material 400 ,000
Prize fund
Subscriptions received in advance 140,000
Outstanding expenses:
Salaries 60,000
Rent 90 ,000
Repair & maintenance 78 ,000
Sports material payable 140,000 I
6,sss,ooo 1 6,555 ,000

INTRODUCTION TO COST OF PRODUCTION - QUESTIONS (173)
INTRODUCTION TO COST OF PRODUCTION

{PART A- KNOWLEDGE QUESTIONS}
QUESTION NO. I
Explain in detail the following?

(a) 0-f. . .
1 ferent1ate between cost and expense;
(b) Define c · t ·
os centre, revenue centre, profit centre, investment centre ;
(c) Differentiate direct cost and indirect cost·
(d) E I · '
xp am the different components of cost.\ (10)
(PAC)
QUESTION NO. 2
Define Cost Accounting , d escn·b e th e obJect1ves
· · · system .
and advantages of cost accounting (06)
(PAC)
QUESTION NO. 3
Describe briefly summary differences between Financial Accounting and Cost Accounting. (04)
(PAC)
QUESTION NO. 4
(04)
Define financial accounting and describe its various aspects?
(PAC)
QUESTION NO. 5
(04)
Briefly explain the p urposes of Management Information . (PAC)
QUESTION NO. 6 h fJ 2019 the books of account show the following:

. . . l oduct For the mont o anuary ,
NKL Enterpnses prod uces a smg e pr . r·- ----·--·-·--·-·1
. l ··- __. .~!!P.~ \
- -- -- --- : 845 ,000 ;
.\.......•......•..••.......•-··-··-···•···--~
Raw material p ~rchas:::s i 735 ,000 I
············•..-·•........ .... \.......-................................---·-..·-··;
Direct. 1.ab?.~; . . .. . . .. . ... . ..-........ . ··-· ·-·••··-····-··.. \ 248,QQQ.____\
····1
·----• ·""_ ..... -----······
~;t:::.:~;:jtt:h'.n~y=: .: · ........,.............. .
---··•-"''''"'''' ..............
Indirect la.~?~~... . . . . . . . . . .s~.~ ~d .............................
Indirect maten a1 con ........................ __,. . . . . . . . . . . . . . .. ---··-·•-•;---·· •"' 60,54 \

-····················· \ -----------·----·-~
Other produ~tion overheads _.... ·····t-- -··1·ss,600 \
-----···-·······················.. -·• - .....-----•--"·--..-----
:Other acc~·~nting co~!~. . ........... .... . -···--······••"''''' -······ .. ·······•·······•··•··
................................
i
.
Other admi~....................................
i~t;;ii~·~. .ov~i:~~~.~?. ....... . ····
as follows :
Opening and closing stoc ks were ------- s. -------------
00
Raw material
Finished oods
Work in rocess
f January 2019 .
Required: For More Visit www.castudymaterial.com.pk
NKL for the month 0
d tatement of
Prepare cost of goods manufacture s
Chapter - 6 INTRODUCTION TO COST OF PRODUCTION - QUESTIONS ◄
{PART B - APPLICATION QUESTIONS} ~

QUESTION NO. 7
Describe any four differences between financial accounting system and cost accountin g system.✓
(a)
Describe behaviour
. of each
. of the following costs graphically by denoting total cost on vertical
. ax · (04)
(b) 15
activity on horizontal axis: ------'-- and level of t__
A Factory building rent .- Fixed amount per month · c::;, [__ )~
✓ AID--- Direct labour cost - Fixed per umt

(iii) Supervision cost - One supervisor is required for every 20 direct workers_ > ~
(iv) Machine rental cost - Fixed monthly rent and an additional cost of Rs. 100 per unit for the r .
. . 1· . p oduct1on
exceedmg certam 1m1t. \ _/ (0 4
\,) ~ (Autumn 201 8 Q-i]
v{uESTION NO. 8
The following particulars/projections pertain to a well-maintained medium-sized car:
______________________ ..________________ _
Rupees
ICost of car ______ ·-·- ---· . --·-· _ ---·---··-•·"·-····--·······-"•'"" ________

300,000
1,200,000
__;
i
fs;lvage value after 100,000 kilometres (km) ___

Maintenance cost: ____ ____ _ --·---····.. __
- Service after every 5,000 km _ __ ______ . ·--····---· ________,___ _ _6_,0_0_0__,
- Replacement of spares/parts (per 2,000 km) _ _ _ ·-- . 4,000
·vehicle tax per annum (20% ~djustable against inccrne tax pi yable by the owner) 7,500
36,000 1
Insurance per annum 75
Cost of petrol per litre -;...---- - - - --~
-Cost of tyres replacement after 25 ,000 km
20,000 I
- ~ - ---
l.·-···
On an average, the car consumes one litre for every 15 km .
Required:
For three different levels of use i.e. I0,000, 20,000 and 30,000 km per annum, prepare a schedule showing:
• Variable, fixed and total costs
• Variable, fixed and total costs per km
In respect of each type of cost, give appropriate justification for treating it as a variable or a fixed cost. (lO)
{Spring 2016, Q # 7}
~UESTION NO. 9
Soya Fry Limited manufactures Cooking Oil. Following information is available with respect to purchases and overheads
for the year ended 31 December 2014.
Details of purchases: Rs. in '000'

Raw material purchased (including 17% sales tax which is refundable) 60,500
Packing material purchased 2,050
Settlement discount received on raw material purchases 400
Tran~portation cost relating to raw material (70%) and packing material (30%) 300
Details of overheads:
Rent 2,700
Salaries and wae.es
2,500
Other variable overheads
Other fixed overheads 5,000
1,500
Other iufornllltion :
The break-up o r ren I is us follows · Rs. in '000 '
(i)
2,000
- Factorv (SO'¾0 i-or raw material , I Oo/iu f,or pac k. . I anc I 40'¼o f'or finished
·,ng matcna - . 500
Ware 11ouse
e.oods)
- Shelf spacin!.! in super markets 200
Break-up of salaries and wages, other variable and fixed overheads is as follows :
(ii)
Allocation between
Manufacturinf! Administration
Salaries and wages *60% 40%
Other variable overheads 80% 20%
Other fixed overheads 60% 40%
*Manufacturing salaries includes 70% direct wages to labourers working in the factory which vary with the
level of production . ,
(iii) Normal production level is 45 ,000 unit s per annum . Actual production during the year was 40,000 units.
(iv) Opening and closing inventories arc as
•,
loll ows :
\. I-Jan-201 4> 31 -Dec-2014
-----------Rs. in '000' ---------
Packing material 700 ' 285
Raw material 5,000 7,780
Finished goods -
2,962 4, 162
Work in process 1,950 3,000
-- --- ---·
Required:
Prepare cost of goods manufactured st;1ti.:111e11t for the yt:'c.r (;i]Ucd 3 I December 2014 . (17)
{Spring 2015, Q # 5 amended}
QUESTION NO. 10
Adil Limited (AL) is engaged in water geysers of stan da rd size and volume . During the year ended December 31 , 20 I 5
AL manufactured 4,500 geysers, whereas, normal production was 4,000 geysers . Followings costs were incurred
during the year in manufacturing facility :
Rs.
Direct material consumed 18,000,000
Direct labor cost 9,000,000
Electricity ~ 2,000,000
Factory rent 1,200,000
Salaries of permanent staff 950,000
Packing cost- 1,000,000
Other variable overheads .- 600,000
Annual repairs & maintenance 750,000
Insurance 600,000
Required:
Calculate cost per geyser. (PAC)

Chapter- 6 INTRODUCTIQN TO COST OF PRO~CTION - QUESTIONS
(1761
QUESTION NO. 11
Junaid Shoes (JS) is engaged in manufacturing of standard size leather shoes used by labor in various factories . Durin
the year ended December 31 , 2018 following costs were incurred: g
Rs.
Leather purchases (including 17% refundable sales tax) 1,404,000
Direct labor cost 950,000
Rent (50% factory, 30% marketing office, 20% admin office) 800,000
Salaries and benefits of marketing staff 325,000
Other manufacturing overheads (80% variable) 120,000
Other admin expenses 190,000
Indirect material consumed in production 90,000
Depreciation of factory assets 250,000
(i) Leather inventory was valued at Rs . 150,000 and Rs . 210,000 at start and end of 2018 respectively.
(ii) Finished goods inventory is measured using weighted average costing method .
(iii) Normal production is 2,500 pairs, however, during the year 2018 2,000 pairs of leather shoes were produced
whereas 1,830 pairs of leather shoes were sold. As at January I, 2018, 200 pairs of leather shoes were held in
inventory valued at a per pai r cost of Rs. 1,274.50 .
(iv) There was no work in process inventory at staii or end of 2018.
Required :
Jlculate total cost of leather shoes inventory as at December 3I, 2018. (PAC)
QUESTION NO. 12
Identify which of the following costs shou ld be classifi ed as variable, fi xed, stepped or semi-variable costs:
(i) Each salesman is paid a commission of Rs. 10,000 per month plus Rs. 2 per unit sold.n~..l"'fYl. '(Cl,~ - _
(ii) Machine operator is paid wages at the wte of Rs. 400 per hour worked. -=,\{cul~ ➔ ~ 0-u.d ).t1Jx:''_,,
(iii) Goods are stored in a Yd party warehouse where storage cost is charged as follows: · ~ -
- Rs. 40,000 per month for upto 5,000 units "' I"\" d ~
- Rs . 55,000 per month for un its more than 5,000 but less than or equal to 7,0 ~ ~'c1/""""'
(iv)
(v)
- Rs . 80,000 per month for un its more than 7,000
Factory manager is paid a monthly salary of Rs. i 20,000.
Direct material cost of Rs. ~0 per 9nit. _:.:, \fto..,.J.~
+,.J,t',-,,, A
(vi) Electricity bill. ~ ~ \f'O-.,Vt/.{...,

(vii) Machine is serviced for Rs. 20,000 after use of every 2,000 hours .
(PAC)
/4uESTION NO. 13
Following expenses relate to Fine Toys for the year ended December 31 , 2018 :
r o) Factory rent for the year was Rs. 240,000.
\ (ii) Insurance premium paid for factory assets was Rs. 80,000 for the year.
(iii) Transportation paid for purchase ofraw material to the transport company at the rate of Rs. 5 per unit. Total raw
material purchased during the year was 50,000 units at a price of Rs. 60 per unit.
~(iv) Direct labor was paid at the rate of Rs. l O per hour. I otal dtrect labor hours worked for the year were 40,000
hours.
(v) Machinery repairs were carried out during the~ear as fi !lows:
- Rs. 20,000 for annual scheduled repairs '
- Rs . 5,000 for parts replacement after every 2, 00 hours usage.
During the year machinery was used for 6,000 hours.
(vi) Electricity bill for the year comprises of following :
Rs. 24,000 being fixed an.nual charge
- Rs. 5 per unit consumed. During the year 11 ,000 units of electricity were consumed
(vii) Other fixed factory overheads for the year amount to Rs. 90,000. ·
Required:
Calculate total variable production costs and fixed production costs for the year.
For More Visit www.castudymaterial.com.pk (PAC)
Cha tcr- 6
QUESTION NO. J4
V INTRODUCTION
TO COST OF PRODUCTION - UESTIONS 177
Canteen department of a manufa t· . .

c unng 6usmess pr "d
accounts manager has gathered the fi 11 . ovi es food to employees at sub ·d· d .
o owing data: si ize price of Rs . 30 per meal. The
Food cost
Rs.·t2u,~~
Wages 12.60 per meal
8.70 per meal
Depreciation
All fixed
Utilities (variable portion)
6% of sales
Maintenance (variable portion) 3% of sales
lnsurance
All fixed
During the year 2018, total 77,500 meals were served a d t

n cosswere:~ s ~
Rs.
Food cost 7757.Sb/- i,t? •➔ 976,500
Wages 774,250
Depreciation 25,000
Utilities I 68,750
Maintenance 186,500
Insurance 5,000
Required:
Calculate following for the year ending December 3 l, 20 J 8:
• Total sales for the year
• Total variable costs for the year
• Total fixed costs for the year. (PAC)
QUESTION NO. 15, ./ /
Following transac:"tions relate to Max Limited (ML) for the first month ofoperations i.e. December 2018 :
- · (i) 20,000 kg of direct material and 5,000 kg of indirect materiai were purchased at Rs. 20 per kg and Rs. IO per kg
respectively on IO days cred it.
(ii) Creditors were fully settled on due date.
(iii) 14,000 kg of direct material and 4,000 kg of ind irect material were issued to production process.
(iv) Payrol1 for the month of December 2018 comprises of direct labor of Rs . 320,000 and indirect labor of Rs .
210,000.
(v) Total wages were paid as well at end of month .
(vi) Depreciation on factory assets for the month of December amounts to Rs . 80,000 .
(vii) Other manufacturing overheads for the month amount to Rs. 280,000.
(viii)
Factory overheads are applied at 150% of direct labor cost.
(ix) 80% of the production were completed.
(x)
All produced goods were sold on cash at a profit markup of 25%.
Required:
Journalize II b
a a ove transactions . (PAC)

◄
Chapter-6 INTRODUCTION TO COST OF PRODUCTION- SOLUTIONS (1 7k~
INTRODUCTION TO COST OF PRODUCTION

{SOLUTIONS}
(a) Cost & Expenses 0~ ~~

Cost: Amount invested in obtaining a product or service which has not yet expired is called cost. It is a .~ < l
expenses. The word cost is never used in isolation i.e. always used with a p.lJlli)( e.g. m~ial cost, labour
etc. ~~ l!J . ______,, , COM
Expense: Expired cost is called expense, e.g. Cost of Mac hinery and Depreciation expenses.
(b) (i) Cost Centre.
~ r A cost centre is a locati on , person, or item of equipment or group of these for which costs arc
~ ascertained and usei:Lfu.rJ..h ~~P.Q~£QITtrol. ' ~
(ii) Revenue Centre
A revenue centre is part 0f th~ organ ization that earn s sales revenue. Its manager is responsible for the
revenues earn ed but not ~or t:·1c c0st:; of the ope ration. V)Jeu.u..L _ l$'..::- p~
(iii) Proq~c&tre --u ·
It is * ent o f acti vity or ~,re;i of ~L:SP.OJ1.,1bility tc wh ich bo th c ~ and revenues are analysed .
(iv) Investment C cnl r!:
An investmen t centTc is pr0 f: t cenu ~ wh ich tht: 12 ~1n r e manager has significant degree of control over
his division 's investment.
(c) Direct costs and indirect cos ts
A direct cost is a cost that can be t~ in ful l to the product, service or dcP.artmenJ: that is being costed. The
total of direct costs (diref!...!lliWrial, direc.Llaho.ur and dir.QQ_\cl[l\;_nses) is known as P,rimc cost.
An indirect cost / overhead is a cost that is incurred i11 the coms.c of making a product, providing a service or
running a department but which cannot be treed directly and in full to the product, service or department.
Indirect costs can be sub-divided into indirect material costs, indirect labour costs and indirect expenses.
Overheiids are often classifi~d as eroduction, administration, distribution or selling overhead.
Different Component of Cost

N..en ~ o ~
(d) ~
Total Cost
Production / Manuf. / Non-Production Cost/

Inventory 1/ Product Cost Period Cost 2
Direct Direct Factory

~lling & Distribution Admin
Material Llbor Overheads Financial
Expense Ex)J('llse Expense
Variable Vari.ble Fixed
Variable
Cost 3 OH OH
Cost 3
Direct
Direct Indirect
Variable•
Cost' For More Visit
Cost 5Cost'
www.castudymaterial.com.pk
Fixed
This is called inventory cost as it forms part of cost of inventory carried forward and charged in the
I. I ~
pe_dQd when these goods are sold as per IAS-2.
2. All non-production cost are period cost i.e. charged in the Income Statement of the period in which
these are incurred i.e . it is generally assumed that their benefit is res~d to one accounting period.
3. Generally Variable, exceptio_os may exist. .)3~

4. We will use variable portion of these for some purpose other than inventory measurement.
5. Generally Direct cost exceptions may exist.
6.
7.
Generally Indirect cost exceptions may exist.
Step Cost: An exception of the above mentioned classi fication of pure Fi~ed Cost is Step-Cost i.e. a
Cost which is constant to a certain level of activity and ri ses to a new constant level once that activity
level is achieved .
\
Dt1C.: Cost Accounting: (CIMA-UK)

It~ e ~ d. pCa~e of fi~ancial a~counting which provides management promptl y with the cost of producing and / or
sellmg each item. or rendenng a particular service. . , , ,:s
~~ /-} ,,>f D_.,}J
l;/.'r~
Objectives/ Advantagts of Cost Accountin o Syste m· ..
(i)
..
(11)
?
---
Compute cost of sales;
• .
b .
Cla~s1~cat1on and subdivision of costs: e -'"',.t c.· .tuw -· { i

. , ...- _.J • • p
~"):.~.l,(,~
I'\ila_u.cJ..b~
-
~
.. '
j\ n)
... C:Y-,(-5~ . u . , ,_r. Ii#, n)
(n:)/ J\aequacy and madequacy of sellin g price;( x~~ p~~-
~?. .cu-w~ V't
1 "'
:~~I 1~ .\ I ~ ,,.;.; r ~; ,,'-14~ •:t.Jc, v \ y o.u;o.:..._f

(WJrL--LD 0 ~sure of profitable products; , , --c- '--" . :. 1 -~
DJ
__,. · r ·
(v) \' ,._ G;'J°JJtrol of materials and supplies;

_::hj\.J(v1' ) ~ ~ ~ '
amtenance of proper investment in inventories;
(v~i) c:rrect valuation of inventories;
(viii) Whether to manufacture or purchase from outside;
(ix) Controloflabourcosp µ_.:,P"
1
(x) Use of company ~ e inc~n.ili-'.e plans;
(xi) Controllable and uncontrollable costs; ,,..-:;
(xii) c.f / v
Use of standards for measuring efllci.ency; ~ ) lS>
(xiii) Reduction of losses due to seasonal conditions (by recording relevant data);
(xiv)
(xv)
(xvi)
Budgeting and planning;
Sel~ction from alt~rnatives ; t ~m ~ ~~ ',~ (3~
;J_)
/
L:;
Deen:iination a~~l~ of costs and revenues fo~ m~asuring e~~-ency of different departments or division ;
(Xvii) Heips'J-:i~ting wastages / losses thereby resultmg m cost r e ~ n ; • ,_,.{
(Xviii)
Cd>+- t:::, 1'v I ,
Comparison with other industries; L' _( • _,. .,,...
. . _..,-,r-9:,~ . r
(xix)
A reliable check on financial accountm~ ~rjf
(Xx) ,
Cost estimation process helps in tendering; and
(XXi)
Helps in preparation of financial statement at any moment without stock taking.

r
I SOLUTION TO QUESTION NO.3
Contras\ betwee.n Cost Accounting and Financial Accounting

•-" ,!,_..(')
y
Characteristics
.1"11~
Financial Accountin2
Cost Accountin!!
Computation of Per Unit Cost
-
Objective Preparation of Financial Statements
Internal (Management)
User / :} .. I . External
Is it mandatory? Yes No
Standards (Regulations) Yes No
Past, Present, Future
Time Horizon Past
-
Hrwu'ti~ l~: Se_gments {P~
Focus -:? i Total ~-9; Less emphas is i.e. there can be a difference
Precision r ~»v :-' Emphasis on exact information
Annually, Hal f Yearly, Monthly, Q_uarterly,
Reporting Annual, Half Yearl y, Quarterly
Weekl y, Dai ly, Hourly, Product Wise,
Timing
~ ~ Depattment Wise, Sh ift Wise
Knowledge Level of User
Less High
Both Financial and Non-fin ancial information
Deals with Financial Information
L,..,-, J. ~ J,.Q;-9 r:!7 (.;
I
-~
, SOLUTION TO QUESTION NO.4 1' . • · .) "" ~ I ~~. __, . ' ~ , . .J
;' \ft "'~.,-"' ~ ~'-: I n VV'-1
(:5 Definiti~n o_f Financial_~ccountin g: (by Ar~ican A~counting j
ociatio~). The process of id~ n g ?1easuring and
_I ~o~mu~1catm~~w1c mfo croati on ~ it info.n;ne,d juctwents and dec1s1ons by users of the mformat1on .
.Ji ObJective of Fmanc,al Accounting: To prepare fin ancial statements. . . . . .
Users : Managers, shareholders, employees, potential investors, et:~d itor~ fin ancial !t1stttut1ons regardmg bodies, financial
) analysis government (tax authorities). etc. use fi nancial inform ation for th eir own µ~)1jcuLar use
, ~l•
Limitations of Financial Accounting
/ --
_; .J__;.,,-
• 1,,(.)-" '-=-
.
• Only deal with monetary aspects i.e . ignore non-mo netary items.
• 1costs ava· le but product-wise I process costs are not ava ilable .
• Department-wi se, operations-wise or any form of relevant info rmation (e .g. class ifications of cost) is not
available for dec ision making.
• Historical in nature therefore day to day decisions cannot be based on th is .

~
Pu,r.p.ose of Management Information
It provides information for:
1. Planning
2. Control
3. Decision making
Planning
(i) Setting the objectives for the organization
(ii) Making plans for achieving those objectives
(iii) Formal process
Control:
(i) Monitoring actual performance
(ii) Comparing actual performance with the ob· ·
... . ~ective or plan
(m) Takmg control action where appropriate ~~ .
(iv) Evaluating actual performance
\it;-0]
Decision ma~ing: c1~ ...J0
,-Y~ One-offdecjsions
Outside formal planning and cont ro 1systems
(ii) For More Visit www.castudymaterial.com.pk
INTRODUCTION TO COST OF PRODUCTION- SOLUTIONS (181)
~~6----~~~.:::..:::..::...:~------'-...::;___;:....::....:..::::...:::.~:..:...:.:~~~~~~~-----~~
ON TO QUESTION N0.6
soLU TI
Rs .
~ of goods man_ufactured: 240 ,000
~ning raw material 845 ,000
RaW material purc~ases (380,000)
Closing raw material
705 ,000
Raw material consumed 735 ,000
[)irect labour
1,440,000
prime cost 404,600
Factorv overheads (W-1)
1,844,600
Manufacturin2 cost
340,000
Opening work in process
(270 ,000)
- Closing work in process
1,914,600
Cost of goods manufactured
Rs.
W-1: Factorv overheads
80,000
Deoreciation on P&M
47 ,600
factory manager' s salary
148 ,000
Indirect labour
45 ,000
Indirect material consumed
84,000
Other production overheads
404,600

(a)
Financial Accountin 2 Cost Accounting
legal or Prepared to meet the needs of management.
Requirement Prepared to meet a
regulatory requirement
Used to prepare financial statements Used to prepare information for management

Utilization
for shareholders and other external (internal use only) .
users. (Might also provide some
information for management but this
is not their primary purpose).
-Time frame Prepared within a time frame
Prepared within a time frame specified by
management.
specified by a legal or regulatory
-
Activities
framework .
Records revenues,
assets and liabilities.
expenditure,
Records costs of activities and used to provide
detailed information about costs, revenues and
profits for specific products, operations and
activities .
r-:::-- Provides historical information, but also_used

Convention Used mainly to provide a historical extensively for forecasting (forward-looking).
record of performance and financial
position.

r
182) Cl
LUTtoNS
Cha ter - 6 INTROD UCTION TO COST Of PRODUCTION- SO
(h)
{J1 f [!! lf!D;_ rim/ er r m fJ nth
Uurlding rent
Actt \ 11: level
/111 [) trl!C I lahr1 11r CfJ\ I per umr
Labou r cost
l I, l'
-- -
[JJJJ_ S1t0en ·1w111 , ,,\ ,
Supc r vI sIon LO \I
1111/ Mac/1111,· ,,,111f!i
Machine n.:111 al

. estion requiring computation of variable, fi xed and total costs but som ehow proved to be the worst
This was an easy· qu some of the common mistakes
. . d below:
arc liste
auempte d qucs11on . . . .
• Cost of the car was taken as fixed whereas deprcc1at1on was ignored .
• Salvage value was co_ns!dered as a deduction against cost of car whereas it should have been used for the
calculation of deprec1at1on only.
Entire vehicle tax was included as an expense i.e. the fact that 20% of the amount was adj ustable against owner's
• income tax was ignored .
n important
· requirement of the·dquestion
d i.e. proper justification/reasoning "or
11 cons1'd enng
• an •item as
• A
fixed/variable cost was not prov1 e .
Per km cost was calculated only for the total cost whereas the requireme t . - d ts and
• variable costs also. n was to calculate It tor fixe cos
\
Chapter- 6 INTRODUCTION TO COST OF PRODUCTION- SOLUTIONS (183)
SOLUTION BY PAC
Activity levels in km
(A) 10000 20000 30000
Rs.
Variable costs
Depreciation [(1 ,200,000 - 300,000) x A /100,000] 90,000 180,000 270,000
Service cost [6,000 x A / 5,000] 12,000 24 ,000 36,000
spare parts replacement [4,000 x A / 2 ,000] 20,000 40,000 60,000
Tyre replacement [20,000 x A / 25 ,000] 8,000 16,000 24,000
Petrol [Ax 75 I 15] 50,000 I 00,000 150,000
Total lBI 180,000 360,000 540,000
Per km \C = B/A1 18 .00 18 .00 18 .00
Fixed costs
Vehicle tax (7,500 x 80%] 6.000 6,000 6,000
Insurance 36,000 36,000 36,000
Total 101 42 ,000 42,000 42,000
Per km IE = D/A J 4.20 2.10 1.40
Total costs
Total 18+ DJ 222,0(l".) 402,000 582,000
Per km IC + EJ 22. .20 20 .10 19.40
Justification :
Variable costs
All costs which relate to mileage of car are con~1de red as va1 iab1e such as :
- Depreciation
- Service
- Part replacement
- Petrol
- Tyre replacement
Fixed costs
All costs which are not linked to mi leage of car are considered as fi xed such as:
- Insurance
- Vehicle tax (80%)
Rs. in '000
Cost of goods manufactured : 5,700
Opening stock of raw material and packing material (5,000 + 700J
53.759
Add: Purchases [(60,500x 100/ 117+2,050) OR (60 ,500-8,791 +2,050 )1
300
Transportation cost 59,759
I Available for consumption (8,065 )
; Less: Closing stock (285 + 7780) 51 ,694
Raw and packine materials consumed 1,()50
1 Salaries and wa.2es (2,S00Y600/o/ 70%) 52,744
1 Prime cost 7,650
; ~anufacturing overheads (W-1) 60 ,394
I
1,950
, Total facto.ry cost
(3,00())
For More
. Work in process- opening
Visit www.castudymaterial.com.pk 59.344 1& £_... ..
Less: Closing work in pro~ess __... ~
Cost of goods manufactured

r Chn llcr - <,
INTRODUCTION TO COST OF PRODUCTION- SOLUTIONS
W - 1: Mnnufnet.urin , overheads
Ynrinblc overheads 5,000 xso01i1
Rent factor
Rent warehouse 500 x60%
Salaries 2, 500 x60% x30%1
Other fixed overheads I,500 x60%
Followin, items wc1·c to be i 111ored :

Wnrehouse rent for finished ooods
Rent for shcl f s acin
Settlement discount on raw material urchases
Cost per unit of Geyser

Rs. Rs.
Material cost 4,000.00
[, Sm t4:soo]
Labor cost 2,000.00

[9m I 4,500]
Variable overheads:
Electricity 2,000,000
Packing cost 1,000,000
Other variable overheads 600,000
3,600,000
[3 ,600,000 I 4,500] 800.00
Fixed overheads:
Factory rent ,200,000
Salaries of permanent staff 950,000
Annual repair & maintenance 750,000
Insurance 600,000
3,500,000
[3 ,500,000 I 4,000] 875.00
7,675.00
Cost of closing leather shoes inventory

= 370 (W-1) x 1,395.5 (W-2)
516,335
W-1
Closing leather shoes (pairs)
= 200 + 2,000 - 1,830
370
I \.\I .2
(185
' ,,,.,.,,,,, 111'1'/o I

( )
IJ1i11 l11 g li lOl'l
' ,,,,,. ,,,,,,.
' l
'
11,\/
' '
'!/ ,V/1111',V,'
I .~•1 11J1 c11• Pl ll'cl, iI o l li.:11t h,ll' Rs. Rs.
Rs.
{ 'I I IHl\N 11 'IO I oo
otil 11g rilocl, or lll1 , ,' () / I , 17 I 150,000
I 'lr\•c r lt1b111· llh or 1,200,000
V111'1 11h lo fii c1111· (2 10,000) 1, 140,000
( >II Y 11 Vorhc:n1dw 950,000
ll11· i11111111fitc 111 ri 11 ,
I' 1<1f ,·," "'"'ci·lu I H uvcrhc.,, 1, I KIi% I 1 2. V 1CJ,Jo ~&, / ,
6,000
l\ c.: 11111 1J)l'11d11c1io 11 - -- - - -- -- 90 000
- - ~~ 186,000
I'.~" p1dr co:;1 I1\/1I I
IAI 2,276,000
. ory ovcrheucls:
,,. , . fi1c1
I· •xod
tcfu 1y rcr,1 I XI )
.-:~- - ------------- ----:_:__-==:______+,,138.00 - - - fll l· - - - 2,000
<>11i\) . . o.ooo x -" O'Y.,1 ..._
ll 1111111f 11 c11 ,, . - - - -- - - -- - -- ----
I
l )cpn.: c j11 f jo 11 or ;'.
lll g '. ' Vcrhc11<1 s 120'½,j 12 0 0(.)\,) )(' lO(. 400,000
IIClory llssc1 s - - '
24,000
Nonna , p1·o d11 cfion
Per J>· '
,11 r cost IC/1) I
- - ------------- 250,000
IC! 674,000
IDI 2,500
A 11t'r",:e ,.0 ,. 269 .60
1
· /J<'r /lfllr:
1,407.60
Openi ng F( i stock
,,. , i 11 1; 1111 1fi1c1urct1
Per pair cost Pai rs Total
1,274.50 @ 200 254,900
A vcragc Co s 1 11,()70, I 0() / 2,20() I

1,4 07.60 e 2,000 2,8 15,200
2,200 3,070 , I00
S<_>L VT ~o ~ T o () lJ ESTto N NO, 12 1,395.SQ
1
( ) Sc11 11 variab le
(ii) Variahh:
(iii) Stepped
(iv) 1-'ixccf
(v) Vari..1blc
(vi) Se111 i v;11·iablc
(vii) Vanah lc
SOL lJTI O '\/ T O QUESTION N0. 13

To tal VHr11;h lc cos l;
(iii) l{a w 11 ,al cria l purc hase (50,000 x 60 1 Rs.
(iii) Tran sport atio n 150,000 x 51 3,000,000
(iv) D1rccl labor cost 140,000 x l(>il 250,000
(v) Mac hi nt;ry repairs 15,000 x <1,o'oo I ~,oooJ 400,000
(vi ) Lk c1rici1y I 11,000 x 51 15,000
55,000
3,720,000
Tot al fi xed cost:
Factory re nt (i)
240,000
lnsuran t;c premium (ii) 80,000
M.r chin cry repairs (v) 20,000
El cc tr icil y (vi) 24,000
Olh<.:r fi xed overheads (vi i) 90,000
454,000

INTRODUCTIO
~~£---:--~~~!!f~~~_!T~O~C~O~S~T~~OF..!P..!:R:..::O::..:D::..:U::..:C::..:T.;;;..:l.....:O_N_-_S_O_L_U_T_l_O_N_S_ _ _ _ _~(l8G\
...;;.::.J..
Chapter-
~ 6
I
I
SOLUTION T
O QUESTION N0.14
Rs.
2,325,000
Sales (77,500 x 30)
Variable Cost (77,500 x 12.6) 976,500
t
Food coS (77,500 x 8.7) 674,250
Wages (2,325 ,000 x 0.060) 139,500
Utilities (2 ,325 ,000 x 0.030) 69,750
Other variable
Contribution 1,860,000
Fixed Cost
Wages (774,250 - 674,250) 100,000
Depreciation •rj~ 25,000
Utilities (168,750 - 139,500) 29,250
Maintenance (186,500 - 69,750) 116,750
Insurance 5,000
Net profit 276,000

Ref# Dr. I Cr.
--------- Rupees --------
(i) Raw material inventory 450,000
Creditors 450,000
[purchase of raw material]
(ii) Creditors 450,000
Cash . 450,000
[Payment to creditors]
(iii) Work in process [14,000 x 20] 280 ,000
FOH control [4,000 x 10] 40,000
Raw material inventory 320,000
[Material issued to _2_roduction]
(iv) Wages control 530,000
Wages payable
530,000
[Recordin_g of p<!}!oll]
Work in process
320,000
FOH control
210 ,000
Wages control
530,000
[Chargin_g of payro ll]
(v) Wages payable
530,000
Cash
530,000
[Payment of salaries and wages]
(vi) FOH control -
80,000
Accumulated depreciation 80,000
(vii)
JDepreciation for the month]
FOH control
280,000 -
--
Cash
280,000
[Other manufacturi~ overheads paid]
(viii)
Work in process [320,000 x 150%]
---
480,000
FOH control 480,000
[FOH ~lied to _production]
(ix)
'Finished goods [(280,000 + 320,000 + 480,000) x 80%] 864 ,ooo 864,000
Work in process -----
[Goods completed] --
l{(~x)-lrc~asfh~[8i64f;,O~Oio::=x~l.~_2-;-:;
51 : - - - - - - - - - - - - - - - - t - , 1,
r uioso,ooo 1,oso,000
Sales ----
[Goods sold on cash] ~
r--llC~o~st~ojf~sai1e:;s~ ~ L - - - - - - - - - - - - - + ~ 8 6 4,000 864,000
Finished goods ~ ,.( ,
[Cost of goods sold] 1 / /
~ ,- ,.· '
{216}
Chapter 8-A IAS 20 GOVERNMENT GRANTS QUESTIONS
IAS 20 - ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE

OF GOVERNMENT ASSISTANCE
{PART A-KNOWLEDGE QUESTIONS}
QUESTION NO. I
Identify which of the following may be regarded as government grants in accordance with IAS 20 :
(a) Rs. 20 million received from government to purchase a building valuing Rs. 25 million for establishment of
hospital for workers. t ~
(b) A loan of Rs. 10 million was obtained at market interest rate repayable in full after 10 years .(Nb
(c) A subsidy of Rs . s:ooo per ton was received on purc~ase oi sug;rcane from Ra~m yar khan . ( -fv;,J
(d) A loan of Rs . 5 million was obtained from government, repayment of which wi ll be waived off by government if
at least 100 production workers were hired from Sindh. ~ J
(e) Rs. 2 million was received from government as a compensation of losses occurred due to recent flood . 't-u,
(f) Sale of 5,000 uniforms to a government agency fo r Rs. 1,200 per uniform . N_,o
QUESTION NO . 2
Define:
(i) Government assistance e/
(ii) Government grant ✓
(iii) Grant related to assets V"

(iv) Grant related to incomeV
v'
(v) Forgivable loans

IAS 20 - GOVERNMENT GRANTS -QUESTIONS {217}
~er-8-A

QUESTION NO. 3
On July I, 2018, Clock received wri~en confirmation from_a _local government agency that it would receive a Rs. 50
million grant towards the purchase pnce of a new office build mg. The grant becomes receivable on the date that Clock
transfers the Rs. 120 million purchase price to the vendor.
On September I, 20 I 8 Clock paid Rs. 120 million in cash for its new office building, which.Js estimated to have a useful
life of 50 years. By December 31 , 2018, the building was ready for use. Clock received the government grant on July I,
2019.
Required:
Discuss the possible accounting treatments of the above in the finan cial statements of Clock for t~ ear ended June 30,
2019. -- ------,
..---
QUESTION NO. 4
ABC receives the follow ing government grants in July 1, 20 i 8:
1. Grant of Rs. 400,000 to acquire a water cleaning station. The cost of the station was Rs. 900,000 and its useful
life is 8 years. ABC acquired the siation on July 1, 20 18 and recognized depreciation on a straight-line monthly
basis.
2. Grant of Rs. 600,000 to cover the expc11ses fo r ecological measures during 2019 - 2022. ABC spent Rs. 200,000
in 2019, assumes to spend Rs . 200,000 in 2020 - 2022 and Rs . 160,000 in 2023 (i.e. Rs. 960,000 in total).
3. Grant of Rs. 130,000 to cover the expcr.ses for ecological measures made by ABC in 2017-2018.
Required :
(a) Prepare the journal entries in the year ended June 30, 2019.
(b) Prepare extracts of SOC! and SOFP for 20 19 (showi ng government grant as separate deferred income)
QUESTION NO. 5
Careforrall Limited (CL), a manufacturer and suppl ier of mobility devices for elderly, has recently established a new
facility in Daska. To help in this new operation, CL has secured a number of grants from Government of Punjab but it is
unsure accounting treatment of government grants in financial statements. The company has a financial year end on
June 30th . Following transactions took place on July 1, 20 I 8:
(i) A grant of Rs. 900,000 has been received. As per conditions, CL has to provide employment in deprived area
over 3 years.
(ii) CL received a grant of Rs. 500,000 for initial training of the new employees.
(iii) CL also received a grant of Rs. 1.2 million towards the cost of Rs. 6 million of a machine. The machine has a
useful economic life of 8 years and an estimated residual value of Rs. 0.6 million. Depreciation will be charged
on straight line basis.
Required:
Briefly discuss the accounting treatment of above grants also mentioning whether these grants are "grants related to
assets" or "grants related to income" in relation to financial statements for 2019.
QUESTION NO. 6
Fast 1 1· . 'd b db d to remote areas. Fastel

e s a broadband provider which receives government assistance to prov, e roa an
in~e sted in a new server at a gross cost of Rs. 8 000 000 on October 1, 2017. The server has an eSt imated_lifedobf te? years
Wtth • ' ' . . d • · f e apport1one as1s.
a residual value equal to 15% of its gross cost. Fastel uses stratght-lme eprec1at1on on a ,m

1
r {218}
Chnptrr 8-A li\S 20 GOVERNMENT GRANTS QUESTIONS
The company received a government grant of 30% of its cost price of the server at the ti~e _o_f pur~hase: The terms of the
grant arc that if the company retains the asset for four years or more, then no repayment l1ab_1llty wi_ll be mcurred .
Fastcl has no intention of disposing of the server within the first four years. Fastel 's accountmg poll~y for grants related to
assets is to treat them as deferred income and release them to income over the life of the asset to which they relate.
Required :
Prepare extracts or SOCI and SOFP for the year ending June 30, 2019 (also show comparative figure.\).
QUESTION NO. 7
On July I, 2016 Quality Limited (QL) received a grant of Rs. 5 million from Governm ent of Punjab towards the purchase
of power plant in Sah iwal. The plant was purchased for Rs. 20 million. Further Rs. 2 million were incurred on
installation. The installation was completed on December 3 I, 2016 and plant was ava iIabl e for use. The plant has an
estimated life of IO years and will be deprec iated on stra ight line bas is. One of th e terms of grant is to provide 50% jobs
to local workers for at least four yea rs otherwise it wo uld trigger repayme nt of grant on a slidi ng scale as follows :
Conditions violated at an y tim e Amo un t of

durin!! year repayment
30-06- 17 100%
30-06-18 95%
30-06-1 9 90%
-
30-06-20 40%
Initially 50% of the workers ':ere hired from local areas but due to certai n reasons, this condition was breached in 2019
and 90% of the grant was repaid on June 30, 201 9.
Required :
Pass journal entries for the years ending June 30, 201 7, 20 18 and 20 19 if:
(a) Grant is kept separately as deferred income
(b) Grant is deducted from carrying amount of plant

-Chapter - 8-A IAS 20 - GOVERNM ENT GRANTS
IAS 20 - ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE

SOLUTIONS
{219}
OF GOVERNMENT ASSISTANCE
{SOLUTIONS}
(a) Government grant.
(b) Not a government grant.
(c) Government grant.
(d) Government grant.
(e) Government grant.
(f) Not a government grant.
Government assistance is the action by government designed to provide an economic benefit specific to an entity or
range of entities qualifyi ng under certai n criteria. Government assistance does not include benefits provided only
indirectly through action affecting general trading conditions, Sc!Ch as the provision of infrastructure in development areas
or the imposition of trading constraints on competitors.
Government grants are assistance by government in the form of transfers of resources to an ent ity in return for past or
future compliance with certain cond itions relatin g to the operating activities of the entity. They exclude those forms of
government assistance whi ch cannot reasonably have a value placed upon them and transactions with government which
cannot be distinguished from the normal trad ing transactions of the entity.
Grants related to assets are govern ment grants whose primary condition is that an entity qualifying for them should
purchase, construct or otherwise acquire long-term assets . Subsidiary conditions may also be attached restricting the type
or location of the assets or the periods during which they are to be acquired or held.
Grants related to income are government grants ot r t~:. those re lated to assets.
_.) LY ~
Forgivable Joans are loans which the lender un derta(es to w...a~ repayment of under certa in prescribed conditions.
Government grants should be recognised when there is reasonable assurance that:

• The entity will comply with any conditions attached, and
• It is reasonably certain that the grant will be received.
The only condition attached to the grant is the purchase of the new building. Therefore, the grant should be accounted for
on September I , 2018 .
A receivable will be recognised for the Rs. 50 million due from the local government. Clock could then choose to either:
(a) Reduce the cost of the building by Rs. 50 million
In this case, the building will have a cost of Rs. 70m (Rs. 120m - Rs. 50m). This will be depreciated over its useful 1!fe. of
5oyears. The depreciation charge in profit or loss for the year ended June 30, 2019 will be Rs. 700,000 [(Rs. 7o mil hon
150 years) x 6/12] and the building will have a carrying value of Rs. 69.3 million (Rs. 70 m - Rs. 0.7m) as at June 3o,
2019.
(b) Recognize deferred income of Rs. 50 million

Inth· • • d · d ·t efullifeof50years. The
is case, the building is recognised at its cost of Rs. 120m. This will be epreciate over I s us 6112 )
depreciation charge in profit or loss for the year ended June 30, 2019 will be Rs. 1.2 million (Rs. 12 0m!SO years x
and the building will have a carrying value of Rs. 118.8 million (Rs. 120m - Rs. 1.2m) as at June 3o, 2019 ·
J
,..~~:.!:..::~~------~~Q..::.~~~~~~~~:..S~O~L~
Sha ter 8-A IAS 20 GOVERNMENT GRANTS - U~T~l~O~
N~S_ _ _ _ _ _ _ _-J.220)
. 0. ful conomic life . Therefore, income of

.
The deferred mcome will be amortised to profit or loss over t he buildm ::, th
s use, ar eended 3 I Decem ber 20Xl • Th e canyino
· · (Rs.50m/50 x 6/12) will be recorde d m
Rs. 0.5 m1\hon · pro fit or loss. for et )e ··
of financial pos1t1on w1·11 be Rs. J million::,
st
value of the deferred income balance within liabil~ties_ ~n lhe !~e;~ Rs. 0.Sm _ Rs. \ m] as non-current liability at
[Rs. 50m I 50 years] as current liability and Rs. 48 .) m11l1on [Rs . -
June 30, 2019.

(aJ
fl} Grant to acquire water cleaning station
A lternative I :
Dr. (R s.) I Cr. (Rs.)
Date Pa rticu la rs
01-07- 18 Cash -W0 .000 I
Government grant (deferred income)
(Grant received)
I
I
I
-W0 .000
01-07- 18 PPE (water cleaning station) 900 .000

900.000
Cash
(Purchase of water cleaninc;z station/ !
\ 12 500
I:
30-06-19 Depreciation [900 .000 / 8]
PPE
I 112 ,500✓
( Depreciation (or 20191 I
30-06-19 Government grant (deferred income) i-- ---
50.UOO
I
50.000
P&L (grant income) [-l 00.000 I 8]
{Grant laken 10 lll come for 20191 I I
----- - I
Altemative 2 ·
-,--:::--
Date Particulars I Dr~\ !½_:_ Cr. (Rs.)
0 l-07-18 Cash 400 ,000
PPE (water cleaning station) 400 ,000
(Grant received/
01-07-18 PPE (water cleanin g station) LJ00 ,000
Cash 900,000
( Purchase of water cleanin?, stationl
30-06-19 Depreciation [500,000 / 8] 62 .500
PP E 62 ,500
(Depreciation for 2019 I
(2) Grant for ecological measures in 2019 - 2022
Date Particulars Dr. (Rs.) Cr. (Rs.)

01-07-18 Cash 600,000
Government grant (deferred income)
600,000
(Grant received!
30-06-19 P&L 200,000
Cash
200,000
(Expenses incurred in 20191
/
30-06-19 Government grant (deferred income) 12s,oocv
P&L (grant income) [600 x 200/960]
125 ,000
{Grant taken to income for 20 I 91
(3) Grant for ecological measures in 2017 - 2018
Date Particulars Dr. (Rs.) Cr. ms.)

01-07-18 Cash 130,00Q/
P&L (grant income)
130,000
(Grant receivedl

~er-8-A IAS 20 - GOVERNMENT GRANTS SOLUTIONS
{221}
,
(b)
EXtracts - SOCI
Rs.
<frant income [50,000 + 125 .000 + 130,0001
305,000
!)epreciation
112,500
Ecological measurement expenses
- 200,000
Extracts - SOFP
~
~Non-current assets
Rs. -··
- PPE r900,ooo 11 2.500 ]
787 ,500
Non-current liabilities
Government grant f 1,000,000 - 100.000 - 250 ,0001 650 ,000
Current liabilities
Government grant [50,000 + 125.000J 175 ,000
--
SOLUTION TO QUESTI ON N0.5
/'
(i) This is a grant related to in_01re :1~ ir 1s intended to compe nsate for employment opportunities. It should be taken
to P&L to match related expen:.·, over three years. Therefore grant income of Rs. 300,000 [900,000 / 3] shall be
recognized for th e year.
(ii) This is a grant re lated to income ;is :t :s ntended to com pensate for tra ining costs. Ent ire amount of Rs. 500,000
shall be recogni zed in P&L fur th-! '.I C:ar when in itial training cost is incurred.
(iii) This is a grant related to asset as n is 111tcnckd to suppo rt purchase of a machine. It can be treated in one of the
following ways :
(a) Grant will be cred ited to machine thus reduc in g the depreciable amount. ln this way a depreciation of
Rs . 525 ,000 [(6111 - 1.2m 0.6m) / 8] shall be charged as an expense for the year.
(b) Grant will be treated as deferred income and amortized over 8 years useful life of machine to match
against related depreciati on expense. In thi s way a deprec iation of Rs. 675 ,000 [(6m - 0.6m) / 8] shall
be charged as expense and grant amounting to Rs. 150,000 shall be taken to income for the year.
Extracts - SOCI
2019 (Rs.) 2018 (Rs.)
~Grant income f8m x 30% / I Ol f8m x 30% I 10 x 9/12] 240,000 180,000
_Depreciation [8m x 85% / I Ol [8m x 85% I IO x 9/121 680,000 510,000
-Extracts - SOFP
-J!.!!.n-current assets
2019 (Rs.)
6,810,000
2018 (Rs.)
7,490,000
!_PE f8m 1.19m] [8m 0.51m]
i--
J!211-curre11t liabilities
1,740,000 1,980,000
~vemment grant [1.98m - 0.24ml [2.4m - 0.18m - o.24 m]
-
~ rent liabilities
Government grant [8m x 30% I l Ol
240,000 240,000

I)
Chapter 8-A IAS 20 GOVERNMENT GRANTS SOLUTIONS {222}

(a)
Date Particulars Dr. (Rs.) Cr. ffis .)

01-07- 16 Cash 5,000,000
. Government grant (deferred income) 5,000,000
{Grant received}
01-07-16 Plant 20,000,000
Cash 20,000,000
{Purchase of plant]
31 -12-16 Plant 2,000,000
Cash 2,000,000
{Installation of plant!
30-06-17 Depreciation [22m I IO x 6/12] I , 100,000
Plant 1, 100,000
{Depreciation f or 20177
30-06-17 Government grant (deferred income) 250,000
P&L (grant income) [5m / 10 x 6/ 12] 250,000
{Grant taken to incom e for 20171
30-06-18 Depreciation [22m / 10] 2,200,000
Plant 2,200,000
{Depreciation f or 201 81
30-06-18 Government grant (deferred income) 500,000
P&L (grant income) [5m I 10] 500,000
{Grant taken to incom e for 20 I§]_
30-06-19 Depreciation [22m / 10] 2,200,000
Plant
(Depreciation for 201 81 2,200,000
30-06-19 Government grant (deferred income) [Sm - 0.75m]
Ii 4,250,000
'I
P&L
250,000
r Cas h [5m x 90%]
(Re1Javment of !{rant] 4,500,000
(b)
Date Particulars
01-07- 16 Cash Dr. (Rs.) Cr. (Rs.)
Plant 5,000,000
(Grant received/ 5,000,000
01-07-16 Plant
Cash 20,000,000
{Purchase ofplant] 20,000,000
31 -12-16 Plant
Cash 2,000,000
{Installat ion of plant! 2,000,000
30-06-17 Depreciation [ I 7m / Jo x 6/12]
Plant 850,000
{Depreciation f or 2017] 850,000
30-06-18 Depreciation [l 7m / 10]
Plant ✓ 1,700,000
(Depreciation f or 2018] 1,700,000
30-06- 19 Plant
Cash [Sm x 90%] 4,500,000
[Repayment of grant! 4,500,000
30-06- 19 Depreciation [( 17m + 4.5m) x 2 .S/1 0
Plant 2.55m] 2,825 ,000
{Depreciation f or 2019] 2,825,000

_fhapter 8-B _ _ _ _ _ _ ___J~~l2~3~B~O~RR~O~W~IN~G~C~O~S!T~S~Q~U~E~S:!_!T~I~O::,.::N:,::S:___ _ _ _ _ _ _ _~
":_!!~!!:.,::_!:.!!._ {22d,
{PART A - KNOWLEDGE QUESTIONS}

QUESTION NO. 1
Identify qualifying assets:
(a) Power plant being in the process of manufacturing;
(b) Inventories routinely manufactured;
(c)
Asset ready for use;
(d)
Special inventories requiring a substantial period for manufacturing;
(e)
Special order for a special inventory that will be manufactured in 5 months ;
(f)
Construction of office building.
QUESTION NO. 2
Swan ~imited borrowed a loan from bank on 12% per annum amounting to Rs . 1,000,000 for the construction of Powe
generation facilities of the company. The loan was received on January 0 I and utilized Rs . 300,000 on Qualifying Asse:
1
O~ January O , the company deposited the remainino amount in a bank yielding interest@ 6%. Whole of the amount wa~
Wlthdraw_n
str and paid to contractor on Auoust
0
01. The company returned the loan to bank on October 01 on which date
con uction was also completed. You are required to calculate the amount of borrowing cost eligible for capitalization.
QUESTION NO. 3 (PAC)
MCQ (Private) Limited has the following loans outstanding as at December 31. 20 14.
Rs.
Loan - I @ 6% 300,000
Loan - 2 @ 8~o 200,000
Loan - 3 @ 9%
150,000
All the three loan s were brought forward from previous> car. Neithe r loan is acqui red during the year nor is repaid.
The company spent followin g amo unt s on co nstruction of an asset.
Ja nuar:, 3 l 20 I 4
70,000
Apni 01 , 20 !4
80,000
December O:. 20 i 4
10,000
Construction was completed on December 31 . 20 1-1
Required : Calculate
(a) Capi ra li :z..ation rate
(b) Borrowing cost e! isible for capitalization.
(PAC)
QUESTION NO. 4
Sublime Sports Limited started construction of its power plant on January l , 2014. Up to December 31 , 2014, the
company has incurred costs totaling Rs. 600,000 on construction .
The following loans are outstanding:
Rs.
Loan from MCB @ 9% 500,000 { ~ t'.'C ,
Loan from HBL @ 10% 650 000 ~ b p, :- t;?. 1
'
Loan fromFor
UBLMore
@ 11 %Visit www.castudymaterial.com.pk
375,000
IAS 23 - BORROWING COSTS - QUESTIONS {225
tef ..
s-6
ct,' ~ BL was taken on July l , 2014 and other loans were brought forward from previous year.
1
frorn I-1
~o:J' \ant was incurred as follows :
wre on p
efl dI
p;P January 31 , 2014 Rs. 250,000
July3l , 20l4 Rs . 200,000
November 30, 2014 Rs. 150,000
. d to calculate:
require
~otl are . . ation rate for the year;
capita1IZ (PAC)
(a) ·ng cost to be capitalized for the year 2014 .
rotal borroWI
M
,
Ql I l•:STI( )N NO, ~ /
O11 I •111 1Y
· 2015, Minhas
, Manufacturers Limited (MML) commence d construction
. of its new factory building anct
: omplctcd the work on 30 June 2016. Following information is available in thts respect:
v·
((I) ) ·1·11~ ug1··Cl.ltI pncc
· Or the contract was Rs. I 00 • ·
I~ I II 1011 wh'IC h was fimane ed through
. the following sources:
0
-i~ t.\ V\,u,I. Bunk loan of Rs. 80 million was obtained on I June 2015 . The loan carnes a m~rk-up of l,~-?~361/o per annurn
"' p HIH.l is repayable in six semi-annualgistalments of Rs. 16 million each commencm~ fro~ ~O Nove~ber20I5 .
2· The remaining amount was financed through cash withdrawals from MML s exi st mg runnmg finance
lhcilitics. Details of these facilities are as follows :
Running finance
Nnmc of bank Limit Balance as on Average balance Markup%
I June 30, 2016 I ~
Rs. in million -
Bank A 40 11% -
Bank 13
50 I 33 I
-
40 I 5 I 30 13%
-
(ii)
Due lo delay in supply of construction material, construction work was suspended from 1 November 2015 to 30
November 2015 .
(iii)
The following payments were made to the contractor net of 5% retention money which is refundable one year
after completion of the building:
Dat ent 01-06-15 01 -08-15 01 -12-15 01-04-16 01-08-16
Net Rs. in million 9,5 28.5 28.5 19.0 9.5
(iv) Surplus funds , if any, were invested @ 7% per annum .
Required :
Show how the above information would be disclosed in MML 's statement of fina ncial position as on 30 June 2016 in
accordance with the Int ernational Financial Reporting Standards. (Show all necessary workings. Borrowing costs are to
be calculated on the hasis.jf 'munber of months.) (17)
H·1/ {FAR II Autumn 2016, Q#2}
QUESTION NO. 6 V
QP Limited (QPL) commenced construction of a warehouse on I July 2013 and completed the work on 31 December
2014 . In thi s respect the followin g infor mation is avai lable·
(i) Prior to commencement of construction, QPL incurrcu the fo llow ing expenses:
Rs. in million
Consultants fee 1.45
Prl!paration of land 0.95
Paym ent of outstanding government dues for the land 0.60
(ii) The agreed contract price is Rs. 70 million. Payments made to the contractor were as follows :
Invoice date Date of payments Description Net payments
(Rs. in million)
1-Jul-2013 16-Jul-2013 I0% Advance (Deductible 7.00
from the progress bills)
30-Sep-2013 I6-Oct-20 13 1st progress bill 6.00
3I -Dcc-2013 l 6-Jan-2014 2"0 progress bill 14.00
31 -Mar-2014 l 6-Apr-2014 3ra progress bill
12.00
30-Jun-2014 16-Jul-2014 4tn progress bill
10.00
30-Sep-2014 I6-Oct-2014 5mprogress bill
8.00
16-Jan-201 5 Final bil :
31 -Dec-2014 13 .00
70.00
IAS 23 - BORROWING COSTS - QUEST IONS {2:! 7}
the project cost, bank loans were acquired as follows :

.. fo finance
(ill) cription Loan amounts Received on Mark- up
pes R s. m
· m1·11·10n
30.0C 1-Jul-201 3 10%
40 .00 1-Jan-2014 12%
ark-UP is payable se~i-annually on 3 o June and 3 t December each year. The loans are repayable in fi ve equal
~ ents, commencmg from l January 2016 .
in sta 11 rn
. ) surplus funds , w~ enb a~a1·1a bl e, were mvested
· · short term deposits which provide a return of % per annum
m 8
(1v uted on a da1 1y as1s .
(v) cTohrn~arehouse
e was available fo r use on l January 2015 . Useful life of the warehouse is estimated at ?.)-
_ ) ,ears \\,-th
1 no
residual value .
Required :
re accounting entries for the year ended 30 June 2015 in the books of QPL. (l 6)
prepa . . . fi
(I nore taxation. Accountmg entrtes or the year ended 30 June 2014 are not required. Borrowing
c:St calculations should be based on 3 60 days a year basis)
{FAR II Autumn 2015, Q # 3}
,.,,.,-
QUESTION NO. 7
On 1 July 2014, Alpha T rad in g L imited (ATL) si gned an agreement with Quality Builders Limited for construction of an
office building at a cost of Rs. 500 mi ll ion. Construct ion commenced on l July 2014 and is planned to complete on 30
June 2016 . The payme nts made to th e bu ilders were as fo llows:
Invoice date J_
I
Pay men t date Description Net payment

(Rs. in millio n)
1-Jul- 14 I 1-Jul- 14 Advance 50.00
st
10-Sep- 14 3 I -Oct- 14 1 progress bill , 79 .90
30-Dec- 14 3 I-Jan- 15 2 nd progress bill 100.30
The progress bills were paid after de duction of advance and retention money at 10% and 5% of the gross amount of the
bills respectively . Retenti on money is to be refunded on completion of warranty period of one year from the date of
completion of the build ing.
On 1 September 201 4 , th e construction work was stopped for one month to resolve geological complications pertaining to
foundation of the buildin g.
The construction cost has bee n fin anced from the following sources:
(i) Bank Joan of Rs . 100 million was obtained on l July 2014 . The loan carries a mark-up of 11% payable semi-
annually on 31 December and 30 June each year. The principal is repayable in four equal annual instalments,
commencing from 1 April 2015 .
(ii) · t· fi ~ ·1·ty as used for balance payments Average running finance balance for the year ended
E xis mg mance 1ac1 1 w · d
31 December was Rs . 190 million . Mark-up charges for the year ended 31 December 2014 amounte to
2014
Rs . 24 .70 million .
(iii) Surplus funds available were invested in a saving account@ 7% per annum.
ATL computes finance cost on a monthly basis.

Required :
. l them under appropriate heads in ATL' s Statement
Fro h . . th elated amounts an d d 1sc ose .
. ~ t e above mformat10n , compute e r . d "th the International Financial Reportmg Standards.
offmancial Position as at 31 December 201 4 m accor ance wi (12 )
{FAR II Spring 2015, Q #7}
STS - QUESTIONS
Cha ter-8-B IAS 23 - BORROWING CO
QUESTION NO s·
. d struction of its new factory . The construcr
O oI . . (MEL) starte con c . ion
n January 2012, Marvelous Engineering Limited d t0 the contractor were as 10 11 ows.
Rs. in million -
work was complete don 30 November 2012. The paymen ts ma e
Date of payment 100 -

0l -Jan-12 310 -
90 -
0l -Apr- 12
I 5-Dec-12
The construction work was fimance d throug h the fio11 owing sources·
Rs. in million
Date Descriotion 150
0l -Jan-12 12% Redeemable preference shares 300
0 l-Apr-12 14% TFCs for four years . o/c 50
0 l-Jul-12 Issue of right shares (estimated return is 22 0 )
The following add 1't•1ona I m1ormat1on

· c • .
1s .
also available:
(i) The preference shares would be redeemed on 31 December 2016.
(ii) Surplus funds were invested in a savings scheme @ 9% per annum .
(iii) Due to delay in supply of construction material, the construction work was suspend ed from Ol June 2012 to 30
June 2012 .
Required :
C~lculate the _amount of borrowing costs that may be capitalized during the year ended 31 D~cember 2012 i~ accordance
with the reqmrements of International Financial Reporting Standards. (Assume that ca/culatwns of borrowing costs are
based on number of months) (10)
{FAR II Spring 2013, Q#6}
QUESTION NO. 9
On I March 201 Q. Granite Corporation (GC) started the construction of a new plant to meet the growing demand for its
products. The new plant was completed at a cost of Rs. I 00 mi llion on 31 May 20 l l .
GC financed the cost of the project from the fo llowi ng sources:
(i) On 1 March 20 10, a 7-year ioan of Rs . 70 mill ion was obtained specifically for the construction of the plant. The
loan carried ma°J-up @ 13% per an num payab le semiannually. A n arrangement fee @ 1% of the loan amount
was paid to the bank.
Two install ments, each comprising of repayment of principal of R~:. 5 mi Ilion with interest, were paid on 31
August 20 IO and 28 February 2011 .
(ii) GC also has a ru nning fin ance facili ty of Rs. I 00 million cal'rying mark-up @ 14% per annum . OH~stm,di1~
~ i w e ~ f - e 6 f f f i l ' t t e t -~-9--fl"ri+l-km. Any additi onal amount required for the project
was provided through th is facility.
(iii) Wiren speci fie loa11 was iecei vea, m-anag0mettt-dectcte&to-pay-e>ff--the-ootstft-1'tfflflg-&a-lanee of nmRiRg-im~
f-Hiiber 1,11,€. Remaining amount of loan was invested in savings account@ 8% per annum .
Payments made to the contractor were as follows :
Payment date Rs. in million

March I 2010 25
Jan uary 31 , 2011 65
September 30, 2011 10
The construction work was suspended from 1 F~bruary ?OJ I to 28 February 2011. The suspension was caused due to
. h' t of essential components for the mstallat1on of the plant.
delay m s 1pmen
Required : . . . 1 in
. nt of borrowing costs that ma~ be _capitalize? dunng the years ended 30 June 2010 and 20 1 )
Ca lculate the amou . ents of International Fmanc1al Reporting Standards. <
20
ordance with the reqmrem
ace For More Visit www.castudymaterial.com.pk {FAR II Autumn 2011 , Q#2 (Ame nd ed)}
ter -8-B \ IAS 23 BORROWING COSTS QUESTIONS {229}
Ch b l l " P ~ ·
~ H•v
vEsTfON NO. 10
v
Q tember l, 2008, Spin Industries Limited (SIL) t d . .
on Sep The payments mad t th s arte construction of its new office building and completed it on
MaY 31 , 2009 . e o e contractor were as follows :
Date of Payment Rupees
September I, 2008 10,000,000
December I, 2008 15,000,000
February 1, 2009 12,000,000
June I, 2009 9,000,000
In addition t~ th e above ~ay_ments, SIL paid a fee of Rs. 8 million on September l, 2008 for obtaining a permit allowino
the construction of the bu1ldmg. b
The project was financed through the followin g sources :
(I) 0~ ~ugust I, 2008 a 1:1edium term loan of Rs . 25 million was obtained specifically for the construction of the
buildmg. The loan earned mark up of 12% per annum payable semi-annually. A commitment fee@ 0.5% of the
amount of loan was charged by the bank.
Surplus funds were i~~ested in savings acco unt @ 8% per annum. On February I, 2009 SIL paid the six monthly
interest plus Rs . 5 m1ll1on to wards the principal.
(II) Existing running financ e facilities of SIL

• Runn ing finance facility of Rs . 28 million from Bank A carrying mark up of 13% payable annually . The
average outstand ing balance during the period of construction was Rs . 25 million.
• Running finan ce facility of Rs . 25 million from Bank B. The mark up accrued during the period of
construction was Rs. 3 million and the average running finance balance during that period was Rs . 20
million.
Required :
Calculate the amount of borrowing costs to be cap ita lized on June 30, 2009 in accordance with the requirements of
International Accounting Standards. (Borrowing cost calrn/ations should be based 011 number of mont/1s). (18)
{FAR II Autumn 2009, Q#4}
QUESTION NO. 11 i· I)}
ABC Company contracted with XYZ Company :o build additional factory bui lding of Rs.50,000,000 on existing land of
the company. The work was compl eted on June 30, 2004. ABC Company made first payment of Rs.5,000,000 on January
1, 2004. During the period of construction, ABC Company had availed bank loan for capital work in progress from Pak
Bank Ltd. The rate of interest was Re.0.23 per day per rupees tho usand . The amount outstanding was Rs.138,000,000 as
on June 30, 2004. Following is the further information regarding contract payments:
Date of payment Rupees

25 .01.2004 10,000,000
05.02.2004 5,000,000
03 .03.2004 20,000,000
06.06.2004 10,000,000
Required:
Calculate the borrowing cost to be capitalized in the accounts of ABC Company for the year ended June JO, 2004 in
9
accordance with IAS-23 (0 )
. J} {FAR II Spring 2004, Q#8}
QUESTION NO. 12 tl1/
/ . have a building constructed for
On January 01 , 2002 Jamal Nasir & Co contracted Wardah Constructwn Compan~ to d d . the first payment). Jamal
Rs?.8 millions on land costing Rs. 0.2 million (purchase_d from the contr~ctor
0
~1,
mclu e m
Nasir & Co made the following payments to the construct10n company dunng 2 ·
May 1 December 31 Total
March 1
January 1
Rs. 1,080,000 Rs. 900,000
Rs. 3,000,000
Rs. 420,000 Rs. 600,000
IAS 23 BORROWING COSTS - QUESTIONS
~ er__:-!8-~ B!....-------~~~~~~;;..;.:;_::..,;;...__-~---------~
uilding was ready for occupancy on December 31, 2002. Jamal Nas·
· was comp Ieted and the b ir & Co
Constructi~n d bt outstanding at December 31 , 2002 hact
the following e
S ecific Construction Debt . . .
P I to finance purchase of land and construction of the building dated December 31
15% 3-years oan . ·11 · ' 2001
(i) ble annually on December 31 - Rs .1.5 M1 10n. With
interest paya
Other Debts
ayable dated December 31, 1998, with interest payable annually on December 31
(i) I 0% 5-years loan P , ·Rs. 1
·11·
m1 10n.
,]
Z% 0-years bonds issued on December 31, 1997, with interest payable annually on December 31 _ Rs.
(ii) 1 1 12
m1·11·10n. ·
Required:
Keeping in view the requirement of IAS 23 , calculated the fol lowi ng:
(a) Total actual interest cost for the year (03)
(b) Capitalization rate of borrowing cost (05)
(c) Interest cost to be capitalized (07)
QUESTION NO. 13
Irfan Limited (IL) started constructio~ of an office b~i_i?ing on January 1, 20 1~· In th!s respect, an agreement was signed
with Junaid Constructions (JC) at a pnc.e of Rs.. 45 million for a target complet10n penod of.24 months. Immediately after
commencement, certain aggrieved parties obtained a stay order from court and work remained suspended for 2 months
As per construction agreement, JC had to be paid a penalty of Rs. 0.2 mil lion per month for any delay beyond thei;
control. Construction work recommenced on March 1, 2014 and JC submitted fo llowing progress bills:
Billing period Bill date Bill amount
Mar - Apr 30 th April Rs. 5 m
May- Jun 30 th Jure Rs. 7 m
Jul - Aug 31st Au2ust Rs. 4 m
Sep - Oct 31 st October Rs. 6 m
Nov - Dec 31 st December Rs . 3 m
Progress bills were paid after 15 days of bill date Hom'ver total penalty of Rs . 0.4 mi llion was paid on recommencement
of work. Initially IL had a plan to fin ance this construct1on by existing running fi nance facility of Rs. 100 million carrying
a markup of I8%. However, due to a change in plan . rem aining construction was decided to be financed by a specific
loan. In this regard a specifi c loan of Rs. 29 mill ion was obtained on October 1st at an interest of 14%. Surplus funds were
kept in a deposit account earn ing an interest of 6%.
Required:
Calculate cost of capital work in progress as at December 31, 201 4. (12)
QUESTION NO. 14
3
O~ ~fay 1, 2012 DCL started construction of its marketi ng office building. Total cost of building was budgeted ~t Rs. ;
mil hon. For this purpose DCL had kept Rs. 7 million in a deposit account yielding an interest of 6%. It also apphed.for 8
specific medium term loan of Rs. 25 million. Any shortage was to be financed by a running finance facility carrying
markup of 15%.
A contractor was hired for the construction and payments were made as follows :
Rs. In million
May I, 2012 4
July I, 2012 8
September l, 2012 3
December I, 2012 7
March 1, 2013 6
July 31, 20 13 For More Visit www.castudymaterial.com.pk
5 1,""-----._
September 30, 201 3 4 ini its.

lAS 23 - BORROWING COSTS QUESTJONS
~ . . . (23JL
. discrepancies m documentation, medium term loan
cert81~ Joan was 16%. Loan proceeds were first used t wdas approved and received on December 3 I 2012
oue 10 (h1s o re uce the ru · fi ' ·
eresl on f running finance, and then kept in the deposit account nnmg mance, for the amount paid to
!Jll rractor out o .
coll . mained suspended for the month of Februarv 20l"' C .
tion re h . D . -' · onstrucuon was comp! t d 0
eonstrU' building was broug t mto use on ecember 3 J. 2013 . e e on ctober 3 1, 20 13.
however,
·red'
.llell"' borrowing
. · 11ze
· dd . h
cost capita unng t e years ended December 3 I 20 12 d JO 1. ,
calculate , an _ ., . (13)
QUESTION NO. J5
en Enterprises (EE)_started cons~ction of i~s office building on August 31 , 20 13. Treasury department arranged a loan
~ Rs- 14 mill ion specifically for thi s construction on November 30, 2013 from Bank A at IS% per annum.
A con t
ractor was hired .for. this con.strutiction and a total
.·
price of Rs. 18 million was aoreed.
~
Remaining Rs. 4 million were
s
to be financed by an exi rmg running mance ca11y mg markup of 18% per annum. The contractor submitted the inv0ices
as follows:
---- Invoice -----
Date Value
(Rs.)
I
31- I 0-13 6.300.000
31-12-13 8.400.000
31-03 -14 2,100.000
During 2014, cer1ain changes m desigr \h'r J:·· :l _ ,i ~ ctim r.ictor \~ h1c h changed the contract price of building to Rs.
22 million. Due to the requirement 01 ~JtJ :1011..i ll!r J,. :1~ t'i:l ·w1c n1 d~c ided to aJTange another loan from Bank 8 . A loan
of Rs. 5 million was arranged on Jurk 1 ~ltl; !b :"o per .innum Due to certain disputes with contractor, construction
work was stopped for the month ot A pnl Ii .i \ 1, r,, ,,, a:. ri:,·nmrn <: nc cd fro m start of May 20 I4 and following invoices
were submitted:
------ Invoice -------

Date Value
(Rs.) I
30-06-14 4, I 00,000
30-09-1 4 I , I 00,000
Construction was completed on September 30, 2014 . Contractor invoices were paid one month in arrears. Surplus funds
were kept in a deposit account yielding a return of 6% per annum .
Required :
Compute cost of office building / capital work in progress as at December 31 , 20 I 3 and 2014. (JS)

ROWING COSTS - QUESTIONS
_ _Jl~A~S~23t-:JB~O~R~~~~-!:=..!.~~::.=..:;:..;:__ _ _ _ _ _ _ _~
ON NO, 16 . ffice building in 2012. The building was expected to be constructed at

QUESTI . started construction of its o finance the construction, following sources were planned: a
Alex Technolog;; million in almost I year. To
total cost of Rs. . esources set aside for this purpose
. from its own r f 15¾
Rs. 3 milhon I from bank at an interest rate o o
Rs. 17 million from a oan . .
- d On June 1, 20121 · A contractor was ·hired for this construction. It was agreed to settle the
. work starte • . F )lowing invoices were · d by th e con trac tor.·
subm1tte
ConstrUctio~ . s after 1 month of mvo1ce. o
contractor's invoice ______ lnvoic·P----
No. Date Value (Rs.)

~
1031 30-06-12 2,000,000
- 1032 30-09-12 4,500,000
- 1033 31-12-12 4,750,000
1034 31-03-13 6,500,000
1035 31-07-13 2,250,000
Due to some deti1c1ency

· · documentation , sanction of loan got delayed. ,Finally
m . bank loan
'd was fsanctioned
· · on .January ,
201 3. Till the loan sanction and after utilization of own_funds, contractors bills were pa1 out o ex1stmg running finance1
facilities. Following facilities were in use during the penod:
Bank Limit Interest Weights
A Rs. 25 m 18.00% 30%

B Rs. 35 m 15.00% 25%
I C Rs. 10 m 20.00% 45%
On receipt of specific loan, amount used (excluding interest) out of running finance facilities was repaid out of specific
loan. Construction was complete by July 31 , 2013 . However, work remained suspended for the month of April 2013.
During construction period, surplus funds were kept in a deposit account yielding an interest of 6%.
Required:
Compute cost of office building/ capital work in progress as at December 3 l , 2012 and 2013 .
(15)
QUESTION NO. 17
In the board meeting held on 15 th Dec b 2013 f · · · · ·

. em er , management o Power limited decided to construct a quahfymg asset
amoudntmgfito Rs. l,000,000. The management of Power limited approached to a bank to finance the project but the bank
agree to mance only the 50% of the estim t d t . R 1h
December 2013 and · d' 1 a e cos 1.e. s. 500,000 @ 15% p.a. The loan was sanctioned on 28
~
utilize other general P:01m~e tate put into the b~nk account of company. Management of the company decided to
se oans to mance the remammg balance of Rs. 500,000.
~h~ co~struction of qualifying asset started on 1st J . .
limited mconnection with the co tru . . a?uary 2014. Followmg 1s the schedule of payments made by Power
ns ct1on of quahfymg asset
Date of Payment
January 1, 2014 • Amount (Rs.)
Aoril 1, 2014 200,000
July 1, 2014 200,000
October 1,2014 200,000
200,000

~ 1A~S~l~3~-JB~O~RR~O~W~l~N~G~C~O~S~T~S~Q~U~ES~
Cll•~:...:8::.----------2.! l233}
· !'.!T~IO~N~S~--------~~
Jviatl agement decided to invest the unutilized . .

a. fhere was an Un-routine stoppage in trertlO~ofrf spec!~c loan in the government securities fetching an income @
st
go,4 p. . . . . wo oml June2014to31 July2014.
1
f}le followtng 1s the mfonnat1on regarding all the oans available
. to Power limited:
Description Amount Rate Loan taken On

Specific loan 500,000 \5% 28-12-2013
General purpose Joan J 600,000 12% 01-02-2014
General purpose loan 2 400,000 \4% 01-03 -2014
General purpose loan 3 300,000 14% 01-01 -2014
Th< general purpose Ioan 2 was_repaid in fu 11 on 30- l l -20 l 4 and general purpose loan 3 was repaid in full on 3l -l 0-2014.
0
Remaining loans were outstanding till 31 December 2014 .
Th< constnJCl ion of qua Ii fyin g asset was not completed up to 3 I" December 20 l 4. The accounting year ends on 3 l"
oecember 20 J4.
Required : t of borrov, mg cost and portion of borrowin2. cost eligible for capitalization for the year ended
Calculate th e arnoun ~
[)eCCITlber 20 14 .

JAS 23 - BORROWING COSTS - SOLUTIONS
Chapter 8-B
IAS 23 - BORROWING COSTS

{SOLUTIONS}
SOLUTION TO QUESTION NO.l
(a) Qualifying asset;
(b) Not qualifying asset;
(c) Not qualifying asset;
(d) Qualifying asset;
(e) Qualifying asset;
(t) Qualifying asset.
SOLUTION TO QUESTION N0.2 Rs.

90,000
9
Interest cost (1 ,000,000 x 12% x / 12) 24,500
7
Less: Interest income (700,000 x 6% x / 12) ~
Borrowing cost eligible for capitalization

(a) Capitalization rate
Amount (Rs.) Rate Interest (Rs.)
Loan
300,000 6% 18,000
Loan - l
200,000 8% 16,000
Loan - 2
150,000 9% 13,500
Loan - 3
650 000 ~
Total interest
Capitalization rate . . . X 100
0 utstan dmg borrowing
47,500
00
650,000 x l
7.31%
(b) Borrowing cost capitalized
r
, -
"',.
Date Payments I ( Cumulative\ Interest Period Borrowing
(Rs.) payments ~Zs.) cost (Rs.)
31-01 -14 70,000 70,000 7.3 1% 2/12 853
I 01-04-14 80,000 150,000 7.31% 8/ 12 7,310
01 -12-14 10,000 160,000 7.31% 1/ 12 975
I 9,138

(a) Capitalization rate
-
Bank Loan Period Period Interest Borrowing

[A] outstanding adj usted rate cost
[BJ amount [DJ [E CxD]
I..._
~ MCB 500,000
re AX Bl
12/12 500,000 9% 45,000
.___HBL 650,000 6/12 325,000 10% 32,500
.._UBL 375,000 12/12 375,000 11% 41 ,250
'--
Capitalization rate
- 1,200,000 118,750
Total interest [E]
Total outstan d'mg borrowing [C] X 100
118,750
1,200,000 X 100
a o o/
Chapter 8-B
IAS 23 BORROWING COSTS SOLUTIONS {235} ·
(b) Borrowing cost to be capitalized

Date Expenditure Cumulative Interest Period Borrowing
(Rs.) expenditure (Rs.)
31-01 -14 250,000 cost (Rs.)
250,000 9.9-o/o 6/12
31-07-14 200,000 12,375
450,000 9.9% 4/12
30-11 -14 150,000 14,850
600,000 9.9% 1/12 4,950
32,175
Notes:
It is assumed that all 3 conditions of capitalization were met on 01-06-15 even before construction i.e.:
. (i) Borrowing cost is incurred {Loan was obtained on 01-06-15J
(ii) Expenditure on asset is incurred [Payment to contractor was made on 01-06-15]
(iii) Necessary activities are undertaken [It is assumed that necessary work prior to physical construction was
started on making payment to contractor on 01-06-15]
Minhas Manufacturers Limited

Statement of financial position - Extracts
as at June 30, 2016
Rs. (million)
Non current assets
I Building[W-1) 107.23
Non current liabilities

I Bank loan [W-21 29.55
Current liabilities -·
Bank loan f 12.93 + 13.641(W-l ) 26.57
Running finance r33 + 51 38.00
Retention money payable rI00 x S% I 5.00

9.50
Payable to contractor
0.51
Accrued interest [3.07 x 1/6]
Workings
Rs. (million)
W-1 Building 100.00
Construction cost
Borrowing cost:
Specific: 1/6] (W-2) 7.90

Interest cost [4.38 x 5/6 + 3-74 + 3·07 x (1.56)
Investment income IW-3]
General: 0.89
Interest cost IW-4] 107.23

W-2 Interest cost
Rs (million)
Date Installment Interest Principal Balance
(10.9436% / 2] 80.00
30-11-15 16.00 4.38 11.62 68.38
31-05-16 16.00 3.74 12.26 56.12
30-11-16 16.00 3.07 12.93 43 .19
31-05-17 16.00 2.36 13.64 29.55
30-11-17 16.00 1.62 14.38 15.17
31-05-18 16.00 0.83 15.17 0.00
W-3 Investment income

Rs (million)
Date Months Transaction Balance Interest
7%
01-06-15 2 70.50 70.50 0.82
/80- 9.5/
01-08-15 3 (28.50) 42.00 0.74
{4-1/
30-11-15 (16.00) 26.00
01-12-15 (26.00)
1.56
W-4 Interest cost
Cumulative
Date Months Expenditure expenditure Interest (W-5)
11 .86%
01-12-15 4 2.50 2.50 0.10
/28.5-26/
01-04-16 2 19.00 21 .50 0.42
31-05-16 1 16.00 37.50 0.37
30-06-16
(year end) 0.89
W-5 Capitalization rate
Bank Avg. balance Interest% Interest
A 40 11% 4.40
B 30 13% 3.90
70.00 8.30
Capitalization rate = 8.3 /70

11.86%
Note:
Alternatively it could have been assumed that capitali'zat· d' •
. h' . ion con 1tions were m t J .
construction. In t 1s case mterest cost calculations would be different. Te on u1Y 1, 2015 on start of physical
_~ h)ll!,E~te!..-r-:_.8::..-~B
__ ROWING COSTS SOLUTIONS _ _ _ _ _ _ _ __f~
_ _ _ _ _ _ _~l~A~S!:.:.23~~Q!~~~~~~~~'.!L!!Q!~
{237}
soLUTION TO QUESTION N0.6
QualitY Pharma Limited

Accounting entries for the year ended 30 June 20tS
- Date Particulars Debit I

-- I6-07-14 Payable to contractor
Bank 10.00
Credit
Rs. in million ----------
/Paymen t of 4th bill/ 10.00

- 30-09-14 Capital WIP [8 / 0.9]
8.89
Advance payment
0.89
Payable to contractor
8.00
/Recordinf( 5th bill/
- 16-10-14 Payable to contractor
8.00
Bank
8.00
/Payment of 5th bill/
31-12-14 Capital WIP [13 / 0.9] 14.44
Advance payment 1.44
Payable to contractor 13 .00
fRecordinf! Final bill/
31-12-14 Capital WIP [30 x 10% + 40 x 12%] / 2 3.90
Bank 3.90
{Fi11ance cost fnr .Jul-Dec-14 paid/
31 -12- 14 Bank 0.74
Capital WIP 0.74
{Finance income f or Jul-Dec-14 received}
31-12-1 4 PPE - Warehouse IW-21 78.55
Capital W!P 78.55
[Transfer of completed warehouse to PPEJ
16-01 -15 Payable to contractor 13 .00
Bank 13.00
[Payment of{inal bill/- ~
16-01 -15 Bank 0.04
0.04
Interest income
/Fin ance income fo r Jan-15 received/
30-06-15 Finance cost (30 x 10% + 40 x 12%] / 2 3.90
3.90
Bank
~
/Finance cost for Jan-Jun-15 paid/
1.57
30-06-15 Depreciation [78.55/25 x 6/12] 1.57
Accumulated depreciation
- /Depreciation for tl,e year/

Chapter - 8-B IAS 23 - BORROWING COSTS - SOLUTIONS
Workings:
Transaction IBalance
Interest
Date Description Rs. in million Period (days)
(Rs~
l-Jul-13 Loan A 30.00

-
30.00 15
--
million)
0.10
--
l 6-Jul-13 10% Advance (7.00) 23.00 --::....
90
0.46
16-Oct-13 l st bill (6.00) - 17.00 75 0.28
l-Jan-14
16-Jan-14
16-Apr-14
LoanB
2nd bill
3rd bill
40.00
(1 4.00)
(1 2.00)
57.00
43 .00
31.00
15
90
75
--
0.19
0.86
0.52
30-Jun-14 Year 2014 end
-
2.41
l-Jul-14 Opening balance - 31.00 15 -

0.10
16-Jul-14 4th bill (I 0.00) 21.00 90 0.42
/
16-Oct-14 5th bill (8.00) 13 .00 75 0.22

31-Dec-14 Construction end 0.74
1-Jan-:l 5 Opening balance - 13 .00 15 0.04

16-Jan-l 5 Final bill (13 .00) - -
0.04
W -2 C os t of cam'ta I WIP
Consultants fees I
I
1.45
Preoaration of land I 0.95
Construction cost I 70.00
Interest cost: I
r3ox 10%x 18/12] 4.50
r4o x 12%1 4.80
Investment income [2.41 + 0.74] (W- 1) (3. I 5)
78.55
Note:
As loan amount is equal to payments to contractor, therefore, it is assumed that payment of interest will be made out of
other resources and not out of surplus funds invested.

IAS23 BO
~------~=--=~~R~R~Ol"WING COSTS-SOLUTIONS {239}
B
JON TO QUESTION N0.7

soLO'f . .
trading L1m1ted
J\tphll of statement of financial position
titracts
-
-
Rs. <millio!!L_
1¢ -: -
N_ n current assets -
~
l#WIP~-1) 216.35
-
current assets -
212 X 10%] 28.80
~ance to contractor [50 -
~
1.,JAIBLITIES
~ current liabilities
75.00
~
-
Loan 10.60
~ntion money f212 x 5%]
..._.
current liabilities 25 .00

....
Loan 100.30
-contractor's bill payable
-
W- 1 Capital WIP
212.00
ConstrUction cost
(79.9 / 0.85 + 100.3 / 0.85)
Specific borrowing:
Interest cost 4.58
(100m x 11% X 5/12] (0.88)
Investment income (W-2)
General borrowing: 0.65
Interest cost (W - 3) 216.35
Note - It is assumed that geological complict1tions were abnormal.
---------- -----------Amount in Rs in million------------------

W - 2 Interest income Interest% Interest
Transaction Balance 0.88
Date Months 7%
50.00 50.00
01-07-14 3
/4-1} /J00m - 50ml 7%
31-10-14 (50 .00) 0.88
Interest
W - 3 Interest cost Interest%
Cumulative
Date Months Payment
0.65
13%
29.90
29.90 ~
31-10-14
(ti\\ end)
2
/79.9-50}
[24.7 I /90}
- 0.65
-
Chapter 8-B IAS 23 - BORROWING COSTS - SOLUTIONS
SOLUTION TO QUESTION NO.ff
Borrowing cost capitalized

Specific borrowing Rs. million
Interest on preference shares 15 .00
[150m X 12% X 10/12]
Interest on TFC 24 .50
[300m X 14% X 7/12]
Investment income (W- 1) (3 .23)
36.27
Date Months Transaction Balance Interest % Interest

Rs.m Rs.m Rs.m
01-01 - 12 3 50 50 9% 1.13
{150m - J00mj
01-04-12 7 (10) 40 9% 2. 10
(end) [300m - 310mj
3.23
2011 2010
----Rs.---
Specific borrowing
Commitment fees [70m x I%] 700,000
Interest cost
[70m X 13% X 4/ 12] 3,033 ,333
[70m X 13% X 2/12] 1,516,667
[65m X 13% X 5/12] 3,520,833
[60m X 13% X J/12] 1,950,000
Investment income (W- 1) (1 ,282,333) (914,667)
General borrowing
Interest cost (W-2) 1,356,979
7,062,146 2,818,667
W-J Investment income
Date Months Transaction ------ Balance (Rs.) ----- Interest% Interest
With
Rs. No interest interest Rs.
01-03 - 10 4 44,300,000 10,000,000 34,300,000 8% 914,667
/70m - 0. 7m - 25/
01-0 7- 10 2 10,000,000 34,300,000 8% 457,333
5 (9,550,000) 10,000,000 24 ,750,000 8% 825,000
31-08- 10
/5m + 70m x 13% x 6112/
8%
31-01 - 11 For More Visit www.castudymaterial.com.pk
(34,750,000)
1,282,333
~ ~B~-------IA::.::::S:..!2~3=-~B~O~RR~OQW~IN~G~CQO~ST~S~S~O!!L~U!:!T~IO~N~SL__ _~ - - - - - ~ ' . !{241}
}_
~
Date Months Payment Cumulative Interest% Interest
Rs. Rs. Rs.
0 30,250,000 30,250,000 14%
31-01-ll
{65m - I Om - 24. 75}
3 8,520,833 38,770,833 14%
28-02-11 1,356,979
(till end) {Sm+ 65m x 13% x 5112}
1,356,979

-- 2009
Rs.
Specific borrowing:
Commitment fee [25m x 0.5%] 125,000
Interest cost
(25m X 12% X 5/12] 1,250,000
(20m X 12% X 4/12] 800,000
Investment income (W-1) (137,500)
General borrowing:
Interest cost (W - 2) 1,634,494
3,671,994
W-1
Interest income
Transaction
Months (Rs) Balance (Rs) Interest % Interest (Rs)
Date
( l8 ,000,000) 6,875 ,000 8% 137 ,500
01-09-08 3
j25m - 0.125m - ]Om - 8m}
(6,875,000) 8%
01 -12-08 0
137,500
W-2 Interest cost Interest

Payment Cumulative Interest%
Date Months Rs.
Rs. (W-3)
Rs.
16.11% 218,156
8,125,000 8,125,000
01-12-08 2
{I Sm - 6.875ml
20,125,000 16.11%
01-02-09 0 12,000,000 1,416,338
26,375,000 16.11%
01-02-09 4 6,250,000 1,634,494
(till end) [Sm+ 1.25ml

Chapter 8-B IAS 23 - BORROWI~G COSTS - SOLUTIONS
W-3
Capitalization rate
Period. adjusted
Bank Average balance Months amount (X) Interest% Interest (Y)
A 25,000,000 9 18,750,000 13 .00% 2,437,500
B 20,000,000
/
9 15,000,000
33,750,000
3,000,000
5,437,500 -
Capitalization rate (XNJ = 16.11%
SOLUTION TO QUESTION NO. I I
Borrowing cost to be capitalized
Date Days Payment Cumulative In terest Interest

Rs.'000' Rs. '000' (Rs. 0.23/1,000 ) Rs. '000'
01-01-04 24 5,000 5,000 0.00023 27.60
25-01-04 II 10,000 15,000 0.00023 37.95
05-02-04 27 5,000 20,000 0.00023 124.20
03-03-04 95 20,000 40,000 0.00023 874.00
06-06-04 25 10,000 50,000 0.00023 287.50
(till end) 1,351.25

(a) Total Interest Cost
Rupees
Specific Borrowing:
1,500,000 X 15% 225,000
General Borrowings:
I, 100,000 x 10% 110,000
1,200,000 X 12% 144,000
254,000
Total
479 000
(b) Capitalization rate
Specific Borrowing (Given) 15%

General Borrowing
Total Interest x I 00
Total Borrowing
254 000
'
(1 ,100,000 + 1,200,000)
x 100 = I 1.04%

Cha tcr-8-B
IAS 23 - DORR
OWING COSTS - SOLUTIONS
c) Interest Cost to be Cap·t . ---..;...:...::::..~~~~~~~--------_f{2~43;u_
( 'fi I a1•zed
Spec1 1c Borrowing {Full year)
1,500,000 X 15%
Rupees
General Borrowing 225,000
(May I, -- Dec. 3 I) 600 000 x 11 04¾0

[ 1,oso,000 - ( 1 500 ooo ~ 420 000· x 8112 44,160
' ' , - 600,000)]
269 160
Cost of capital WIP
2014
Rs. '000'
Construction cost 15 + 7 + 4 + 6 + 31
25,000
Specific borrowing
Interest cost
1,015
[29m X 14% X 3/12]
Investment income (W-1) (390)
General borrowing
Interest cost (W-2) 1,350
26,975
Date Month s Tran:rnct ion Balance Interest% Interest
Rs.'Ouo• Rs.'000' Rs.'000'
1-10-14 1.5 29:000 29,000 6% 217.50
15-11 -14 1.5 (6,000) 23,000 6% 172.50
(year end)
390.00
W-2 Interest cost
Date Months Payment Cumulative Interest% Interest
Rs.'000' Rs.'000' Rs.'000'
5,000 5,000 18% 150.00
15-05-14 2
7,000 12,000 18% 360.00
15-07-14 2
4,000 16,000 18% 840.00
15-09-14 3.5
1,350.00
(till end)

~~:_!!!__
~Chapter ~
8-B _ _ _ _ _ _~~'..:l!~O~RR!!OQ.W~IN~G!_.'Cgo~S!:!T~S~SO~L~U':!T'..!IO~c::NS"------------.1244)
IAS 23
SOLUTIONT0 Q UESTION NO.J 4

2012 2013
_______ Rs. '000 -------
Specific borrowing
Interest cost 3,000.00
[25m X 16% X 9/ l2]
Investment income (W-1) (150.00)
General borrowing
Interest cost (W-2) 61 2.50 87.50
612.50 2,937.50

Date Months Transaction Balance Interest % Interest
Rs.'000 Rs.'000 Rs.'000
31 -12-12 10,000 10,000 6% 50.00
/25m - 15m/
01-03-13 5 (6,000) 4,000 6% 100.00
31-07-13 (4,000)
150.00
W-2 Interest cost

Date Months Payment Cumulative Inte rest % In terest
Rs. '000' Rs.'000 ' Rs.'000 '
01-07-12 2 5,000 5,000 15% 125 .00
{4m +8m - 7mj
01-09-12 3 3,000 8,000 15% 300.00
01-12-12
7,000 15,000 15%
31-12-12 187.50
(15,000)
15%
31-07-13 2 612.50
1,000 1,000 15% 25.00
/5m - 4m/
30-09-13
4,000 5,000
(till end) 15% 62.50
87.50
Note:
Normally cash received from interest earned on deposit account is ignored in /AS 23 questions and not used as a
finance for construction, therefore, cash from interest income on initial Rs. 7 million is also ignored
Cha ter-8-B
IAS 23-BORR
SOLUTION TO QUESTIO OWI_N_G_C_O;..:S:..:.T~S=.-,:::SO~L~U~T~IO~N~S~--------~i
N NO.JS {245}
Carryin~ amount of Bu"Jd'

I lfl2
2013 . 2014
blf Rs. Rs.
Construction cost during th e year 14,836,500
Borrowing cost capitalized : 14,700,000 7,300,000
General borrowing (W- l)
Specific borrowing: 231 ,000
Investment income (W-Z)
Interest cost - Bank A (38,500) (97,500)
[14m X 15% X 1/12]
[14m X 15% X 8/1 2] 175,000
1,400,000
Interest cost - Bank B
[Sm x 16.5% x 4/ 12]
275,000
Cost as at December 31
14,836,500 23,945,000
W- 1
GeneraJ borrowing
----------------- Interest
Date Cumulative paymen t
Months Rate 2014 (Rs.)
2 18.00% 21 ,000
31-01 -14 700.000
[8.4m - 7. 7m/
5 18.00% 210,000
01-05- 14 2,800.000
(till end) /0. 7m + 2.Jmj
231,000
W- 2
Interest income
Transaction Interest rate Interest Rs
(Rs) Balance (Rs)
Date Months 6% 38,500
7,700,000 7,700,000
30-11 - 13
/14-6.3/ 38,500
6% 38,500
7,700,000
31 -12-13 6%
(7,700,000) 50,000
31-01 - 14 5,000,000 6%
s,000,000 9,000
2 900,000 6%
01-06-14
(4, l 00,000) ~
31-07- 14 2
(ti ll end)

IAS 23 _ BORROWING COSTS - SOLUTIONS
iC~h!lap~te:!_r_:.!8-~B'..-_ _ _ _ _ __!~~~~~'.!..!!.~~:::..:..::.......:~:;..;;_--------~
Carrying amount of Building
b/f
2012
Rs.
2013
Rs.
. ---
11 ,355,875
11 ,250,000 8,750,000
Construction cost during the year
Borrowing cost capitalized :
105,875
General borrowing (W - 1)
Specific borrowing:
Interest cost (W - 3) 1,275,000
Interest income (W - 4) (188,750.2_
Cost as at December 31 11 ,355,875 21,192,125
W- 1
General borrowing
----------------- Interest - - -
Date Payment Months
Rate (W-2) 2012 (Rs.) 2013 (Rs.)
31 -10-12 3,500,000 2 18.15% I05,875
(year end) /4.5m + 2m - 3111/
W- 2
Capitalization rate
Bank Interest Weight W.Avg ra ~r
A 18.00% 30% 5.40%
B 15 .00% 25% 3 '"'5° 0
C 20.00% 45% 't .UG%
18.1 5%
W-3
Specific borrowing
Interest cost = 17mx 15%x 6/12
Rs. 1,275,000
W- 4
Interest income
Payment
Date Months (Rs) Balance (Rs) Interest rate Interest (Rs)
01-01 -13 0 17,000,000 6%
01-01 -13 (3,500,000) 13,500,000 67,500
6%
31-01 -13 3-1=2 (4,750,000) 8,750,000 87,500
6%
30-04-13 3 (6,500,000) 2,250,000 6% 33,750
(till end)
For More Visit www.castudymaterial.com.pk1882750
IAS 23 - Bo
RROWING COSTS
'fJON TO QUESTION NO.I - SOLUTI_O_Ns_ _ _ _ _ _ _~Ql
~lJ 7
~n
total amount of borrowing cost
s ecific loan 0,000 x 1

General loan 600,000 x Rs.
General loan 400,000 x 75,000
General loan 300,000 x 66,000
42,000
35,000
218,000
Borrowing Cost eligible for cap·t . .
1a11zation
Specific loan: - ,....___
Rs.
-
Interest cost_[500,000 x 15% x 101121
Investment mcome (W- 1)
General loan: - 62,500
Interest cost (W-2) - (7,333)
- - 11 ,917
- - 67,084
W- 1 Working notes
Date Transaction
Balance
(Rs. Period Interest
01-01 -14 Rs.
300.000 300,000 Rs.
500 - 200 3/1 2 6,000
01-04-1 4 (200,000) 100,000 2/12
01-07-14 I 100.000) 1,333
7,333
W- 2
Exper.1iturc Cumulative
Date Borrowing
(R~.) ex penditure Interest Period cost
(Rs.)
(Rs.)
01-07-14 1 oo.oon I00,000 13% 2/12 2,167
{200 J,)0'_L_
1
01 -10-14 200.01)() 300,000 13%

--· 3/1 2 9,750
(year-end)
--·-- 11 ,917
Capitalization rate
Period
Period Interest
Bank Loan adjusted Interest cost
outstandin g rate
IAI amount IE= C X DI
!Bl IC Ax Bl !DI
Loan 1 600,000 11 /1 2 550,000 12% 66,000
Loan 2 400,000 9/12 300,000 14% 42,000
Loan 3 300,000 10/12 250,000 14% 35,000
- 1,100,000 143,000
Cap italization rate = 143,000 I 1,100,000 x 100
Notes: 13%
(i)
While calculating the capitalization rate, suspension period shall not be taken into account.
(ii)
Rs. 3_00,000 from specific loan was remained unutilized for Jan, Feb and Mar (3 months) whereas Rs.100,000
remained unutilized for Apr, May and June but due to suspension in June and July only two months income on
Rs.l00,000 could For More Visit www.castudymaterial.com.pk
be deducted from borrowing cost eligible for capitalization.
Chapter-SC IAS 40 INVESTMENT PROPERTY QUESTIONS {24~
IAS 40 - INVESTMENT PROPERTY

{PART A - KNOWLEDGE QUESTIONS}
QUESTION NO. l
Define:
(i) Investment property / c7.,. _ ...k - - «-1 r,
(ii) Owner-occupied property
XJL Nv1ri '--:::-?
..l>
1 r.&Xd(
--, (J
'TWt~
(PAC)
QUESTION NO. 2
Identify which of the following may be regarded as " investme~t property" in accordance with IAS 40 :
(a) Land held for long term capital appreciation. L-1'7Webf-,-·n.e. u. .t rp<-tU1 ~
(b) Property intended for sale in the ordinary course of business. ( 6UYY'4- ~ o~f.J rr~
(c) Property held for future use as owner-occupied property ( D.,O)'UA..., - o~t:e/ f~"-9) ,
(d) Property occupied by employees (whether or not the emp loye: pay rent at market rates) ( C?t..of\U._ - o~·J . . ]'
(e) A building that is being vacant but is held to be rented out. f .L.ryV\/(lhf'"7'Y1.:Y--U \~~ P~J
(f) Land held for currently undeterm ined fut ure use. t } <i"'A-"V;,'1 ry'('.RJJ..)- j?J~ )
(g) Property that is being constructed or deve loped for future use as investment property. J} rwl!f 'YY\lt,l.1 (PAC)
f)lO-ru~
QUESTION NO. 3
Discuss how the treatment of an investm ent property carried under the fai r value model differs from an owner-occupied
property carried under the revaluation model. ~ "0 -t'\C.
L.::1 a.p"\\J--'\Jj.;{\"'t \"-~
(PAC)
I •• \
® • OW IL i 001 ovo
c-R. f)f)G ~;(11>-J
0 012_ PPB 1'.i"10, (Sb-a

cR__ p) L 6r;Q,&vJ
~ ~VuJMA UM ~V-9
({) 0/L f2tp .1 .J~ )-01~

c(Z_ ~ ~ ,CU\) f· \/
~, CIT5D ➔ P1L ft,:..u \2tf
Dt{<JJ l } € ~ ~v,.; Y))xJlN
) ->
c-6L ~ . G•~- -"17"iT73fT
For More Visit www.castudymaterial.com.pk 11{0,o-nu

•
l
Cha ter-SC
IAS 40 INVESTMENT PROPERTY - QUESTIONS
{249} .

QUESTION NO. 4
Bilal Developers (BD) wishes to create a credible investment p fi . . .

property may be considered surplus to the fun~ objectives Th roii~~ port oho ': 1th a view to determining if any
. e o owmg portfolio of property is owned byBD:
(a) BD owns several plots of land. Some of the land is owned b BD for · . . .
any ti!J)f in the. future . Other plots of land Y capital appreciation _and this may be sold at
the landJo.J,)rovide4 rvices su~ hose provided by naf I k s B? hahs not determm~d wheth~r it will use
ofoperations. ~I::.. - - IOna par s or ,or s ort-term sale m the ordmary course
·- · ~q21 1.A&2..
(b) BD supplements it income by
buying a11 d 11 · . · ·
h . . . th 01. .
111 se _mg piopert1es. The housmg department regularly sells part of its
. ousmg mve~tor~ e dmary course of its operations as a result of changing demographics Part of the
mventory which 1s not held for sale · t · ·d h · · ·
. ' · , is o p1ov1 e ousmg to low-mcome employees at below market rental. The
. rent paid by employees covers the cost of maintenance of the property. (PAC)
Reqmred : l.}~ ~ ~ ~tv01v
Discuss how above properties shou Id be accounted for in financial statements of BD.
QUESTION NO. 5
Briefly discuss, _with reasons, whether fo ll owing properties may be classifi ed as investment properties or not:
(a) An ent1_ty rents out a buil ding it owns to independent third parties under operatino leases.
(b) An entity owns a bui lding it rents out to an independent third party (the lesseaj under an operating lease. The
lessee operates a hotel ~om the bu ilding and provides a range of services commonly provided by such hotels.
The entity does not prov ide any services to the hotel guests and its rental income is unaffected by the number of
guests that occupy the hotel.
(c) An entity acquired a tract of land to divide it into smaller plots to be sold in the ordinary course of business at an
expected 40% profit margin. No rentals are expected to be generated from the land.
(d) An entity owns a building that it rents out to independent th ird parties under operating leases. The entity provides
cleaning, security and maintenance services for_the lessees of the building. To do this, the entity's building
administration and maintenance staff occupies a ~ e buildin that measures less than 1% of the floor area
of the buildinK-----) Y.J..,,p~ :ti l~u UO' flt..u~ ~ 2/ld fQM:l~l\...,
(e) An entity owns a two-storey building. Floor I is rented out 1to 'ir?dependent1hird parties J'ndet operating leases.
Floor 2 is occupied by the entity's administration and mai ntenance staff. The entity can !J1easure._reliab~y the fair
value of each floor of the building witho ut undue cost or effort. 4 fo.c:tiM ~ ~ (PAC)
I~~~ U --~ 1 0
QUESTION NO. 6
Briefly discuss, with reasons, whether following properties may be classified as investment properties or not: . .
(i) An entity rents out a building it owns to independent third parties_u~der operating leases. The entity provides
cleaning, security and maintenance services for the lessees of the buildmg. . . .
(ii) An entity acquired a tract of land as a long-term investme~t because 1t expects its value to mcrease over
time. No rentals are expected to be generated from the land m the foreseeable fut~re . . . .
(iii) An entity owns a building which it operates as a hotel \i .e. it rents out ro~ms to mdependent ~hird parties 111
return for payments). The entity provides hotel guests with a range of services com~o_nly provided b~ hotels.
Some of the services are included in the room daily rate (e.g. breakfast and t~lev1s10n); other services are
charged for separately (e.g. other meals, minibars, and gu_ided to~rs of the surrou~dmg area). . , . .
(iv) An entity owns a building it rents out to independent third parties under operatmg leases. The entity s bmldm::,0
administration and maintenance staff occupies 25% of the building's floor area . .,, , (PAC)
i., ~rfL ~W/
QUESTION NO. 7
Alpha Limited (AL) owns following two properties:
Property X ·1r This building is mainly used for

An office building owned by AL was purchased on January 01 , 201 l for Rs. 12 mi ~~: b "!ding had a fair value of Rs.
administrative
88 activities of AL. Total estimated useful life of building was 2~ years. R isg ~ million. There has been no
· million on January 1, 2015. On January 1, 2018 its fair value as determmed at s. ·3
change in estimate of usefulFor
life. More Visit www.castudymaterial.com.pk
·i, IAS 40 INVESTMENT PROPERTY - QUESTIONS {250}
Chapter 8C .
Property y ·11 · Th ' b ·1d· h d I" th

Another building owned by AL was purchased on July I, 2017 for Rs . 8 m1 10n. 1s ~1 mg was pure ase . i_or e
objective of earning rentals. However it could be rented out on July 1, 2018 . It had a_ fair value of ~s . 8.5 ~mlh?n _on
December 31 , 2017 which was increased to Rs. 9.4 mill ion on December 31 , 2018 . Estimated useful hfe ofth1s building
was 15 years.
AL follows revaluation model for property, plant and equipment and fai r val ue model for investment properties.
Required :
Prepare journal entries for the year ending December 31 , 2018 . (PAC)
QUESTION NO. 8
Quality Limited (QL) owns following two properties:

Property A
An office building used by QL for administTative purposes has a depreciated historical cost of Rs.2 million . At July 1,
2018 it had a remaining life of20 years. After a reorganisation on January I , 2019 , the property was let to a third party
and reclassified as an investment property applying QL' s policy of the fa ir va lue model. An independent valuer assessed
the property to have a fair value of Rs . 2.3 million at January 1, 20 19, wh ich had risen to Rs. 2.5 million at June 30, 2019 .
Property B
Another office building has been rented out to a tenant. At June 30, 2019, it had a fai r value of Rs . 1.5 mill ion which had
risen to Rs. 1.65 million at June 30, 2019.
Required :
Prepare extracts of statement of comprehensive income and statement of financial position for the year ended June 30,
2019. (PAC)
QUESTION NO. 9
Beta Limited (BL) is engaged in buying and selling of properties as we ll as renting out of properties. BL had many
properties classified as investment properties. lt follows fair value model for its investment properties. On July J, 2018
BL changed use of following two properties:
Property M
Property M was purchased some years ago for Rs. 5 million with the intention of letting it out. It was given on rent for
many years. On December 31 , 2017 it was updated to a fair value of Rs . 6.2 million . On July l , 2018 , the tenant vacated
the building and BL decided to sell it in ordinary course of business. The fair value of building on July 1 2018 was Rs.
6.5 million. '
Property N
Prope~ N was purchased 5 years ago for Rs. '. million. It was given on operating lease to a lessee since then. On July J,
2018 it was vacat~d _by the tenant and BL decided to use it as administration office. This building was updated to a fair
value of Rs. 5.5 m1lhon on December 31 , 2017 . On July 1, 2018 its fair value was Rs . 5.3 million.
Required: ~Jij~ ~o
Prepare journal entries for the transfers on July I, 2018 . (PAC)

-
Ch.a ptu - S-C lAS 4-0 - l'-VESTME'.\"T PROPERTY
lAS 40 - L1'TVESTMENT PROPERTY

SOLUTIO~S {251 }
{SOLUTION S}
soLuTI01' TO QL,;ESTIO.'," :".'. 0 . ]
(iJ Investment pro p erty is property he ld to earn rentals or for capital appreciation or both rather th an :
(a) Use in the p roducti o n o r supply of goods o r serYices or for administrative purposes: or
(b) Sale in the o rd mar;. course o f business
(ii) Owner- o ccupi ed p ro perty 1s propert)- held fo r use in the production or supply of goods or services o r fo r
admin istrat ive purp oses
SOLUTION TO Q U E STI O'.\ '.\0 .2

(a) In ve stmen t pro pert)-·
(b ) Not an investment pro perr-y
(c) Not an investment property
(d) Not an in vestm ent prope rty
(e) In vestm ent property
(f) In vestment property
(g) In ve stm ent prop erty
SOLUTION TO Q UEST IO N l'.0 .3

( · .>-:'~
Superfic ia ll y, the reva luati on mod el and fa 1; vdi ue so und ve ry s imilar; both require pro pert ies to be va lued at their fair
value whi ch is us uall y a market-b ase d a~se ssm'ent (often by an inde pende nt val uer) . Howe ver. any gain (or loss) over a
previous valuati o n is taken to profit or loss 1f it relates to an inve stment property. wh ereas for an owner-occupied
property, any gain is taken to a re~ !uation surp lus (via other comprehe nsive income and the statement of changes in
equity) . A jQss ao the revalu ation of an owner-occupied property is charged to profit or loss unless it has a previous
ba lance in the re valuat ion s urp lu s which can be used to offset the lo ss unt il it is exhausted . A further difference is that
owner-occupi ed pro pe rty con tinue s to be depreciated a ft er rev aluation, whe reas i vestment properties are not depreciated .
_j ~ ~
6 U> 3>:J ~..J7 r~ <....Jj ~
SOLUTION TO QU EST IO N N 0.4 ~ l ·
(a) The land that is ow ned by BO for cap ital appreciation whi ch may be sold at any time in the future and the land
that has no current purpose are bo th co nside red to be investment pr9perty under IA1.-40 . If the land has no
current purpose , it is co ns id ered to be he ld for cap ita l appreci ation .
(b) 8D supplements its inc o m e by bu yi ng and se ll ing property , and the hou si ng department regularly sells part of its
housin g inve ntory. As these sa le s are in the ordinary course ~ fi ts operatio ns and are routinely occurring, then the
hous ing stock he ld for sa le wi ll be class ifi ed as inventory. l.16 Yb
The part of the inventory held to provide housi ng to low-income employees at below market rental will not be
treated as investment property as the property is not held for capital appreciation and the income just covers the
cost of maintainin g the properties and thus is not for profit. The property is held to provide housing services
rather than rental s. The rental revenue is incidental to the purposes for which the property is held . This property
will be accounted for under IAS 16 Prop erty , Plant and Equipment . The property is treated as owner occupied
as set out above .

(a) The building is classified as an item of investment property by the entity (lessor). It is a property_held to earn
rentals. ~
(b) The building is an investment property of the entity. The entity is a passive investor and is not engaged in the
business of operating gjiotel.
(c) The land is not classified as investment property. It is classified as inventory. It is held for sale in the ordinary
course of business .
(d) The entire building is classified as an inves~ment pr2perty by the entity (lessor). It is a property held to earn
r
rentals . The portion of the building occupied ~y the owner (o wner-occu~ hon) is insignificant and so the
building does not need to be accounted for _as a m1~ed use property. ~-¾!..I~ ~ ..
(c)
Floor J of the building is classified as an ttem of mvestment property by th entity (lessor) because 1t ts held to
earn rentals.
Chapter 8-C IAS 40 INVESTMENT PROPERTY - SOL UTIONS {252}
Floor 2 of the building is classified as property, plant and equipment because it is hel d for use in the pro duction
or supply of goods or services or for administrative purposes .
SOLUTION TO QUESTIO N N O .6 ~JY\LUL j_/" '7:itt, ~ v ~ ..

(i) If the services provided by the entity are insignificant to the arrangement as a whole, the property 1s in vestment
property. In most cases, cleaning, security and maintenance services will be insignificant, an d hence, the
build ing would be classified as investment property . !1--1 1 4)~.Let..(u.
(ii) The land is classified as investment property. It is property held for capital appreciation. T he land is not he ld for
sale in the ordinary course of business ; nor is it used in the production or supply of goods or services or fo r
adm inistrative purposes . DW'YU..l c~tJ ~
(iii) Because the entity is activeJ?engaged in operating a hotel business in the building, it shou ld be c lassi fi ed as
property, plant and equipment. Its cash inflows (i ncome from letting out the rooms and inco me fro m th e oth er
services provided) are dependent on the~ it operates the hote l .hus-i-fless. Therefore, the buildi ng is not an
investment property. ,-- ~ , ~li::lA. 3Lw2...
(iv) The entity (owner) occupies 2 5% of th e flo or area of the building. The mixed use building shoul d be separated
between investment property and property, plant and equ ipment. However, if the fair va lue of the investm ent
property component cannot be measured re iiably w ithout undue cost or effort, the entire property shou ld be
accounted for as property, plant and equipment.
SOLUTION TO Q UESTION NO.7

p roperty X
Date Particulars Dr. (Rs.) C r. (Rs.)
01-0 1- 18 Accumulated depreciation (W- 1) 1,650,000
Bu ildin g 1,650,000
{Elimination of accumulated depreciation]
01-0 1- 18 Building (W- 1) 1, 170,000
P&L
650,000
Revalu at ion surplus
520,000
{Revaluation of propertv )(J
3 1- 12- 18 Depreciation (W-1) 640,000
Accumulated deprec iation
640,000
{Depreciation for 20181
31 - 12- 18 Revaluation surplus (W-1)
40,000
Retained earnings
40,000
{Incremental depreciation (or 20 JBJ
W- 1
NBV S urplus P&L
01 -01 - 11 Cost 12,000
31 -12- 11 / 14 Dep. [ 12m x 4/20) (2 ,400)
9,600
01 -01 - 15 Reva!. (800)
(800)
8,800
31 - 12- 15/ 17 Dep. [8 .8m x 3/ 16) (800)
(1 ,650)
150
7, 150
(650)
01 -01 - 18 Reva!. 1, 170 520 650
8,320 520
31 - 12- 18 Dep . [8 .32m l 13) (640) {40)
7,680 480
Pro ert y
Date Particulars Dr. Rs. Cr. Rs.
31 - 12- 18 Investment property [9.4m - 8.5m] 900,000
P&L
900,000
,.~~
~'
_----".
~ter-8-C IAS 40 INVESTMENT PROPERTY SOLUT IONS {253}
Extracts - SOCI I l
;:;.--
1,'..)-
Rs.'000'
Depreciation [2m/20 x 6/12 ) 50 .00
Fair valu_e gain on investment oroperty (W- 1) 350 .00
Other com o rehensive income
Revaluation gain [2 .3 m (2m 0 .05m)J 350 .00
Extracts - SOFP
Rs.'000 '
Non-current assets
Investment property [2 .5m + 1.65 m] 4, 150.00
Eauitv
Revaluation surp lus 350.00
SOLUTION TO QU ESTION NO .9
Pro ert M
Date Particu lars Dr. s. Cr. s.
01-07-18 Investment property (M) [6 .5m - 6.2m] 300,000
P&L 300,000
Fair value ain at the dat e of trans er
01-07- 18 Inventory +,N'\ 6,500,000
Inve stment property (M) 61Yl 6,500,000
Investm ent ro ert reclassi ,ed as invento,
Pro ert N
Dr. Rs. Cr. s.
Date Particu lars
200,000
OI-07-18 P&L 200,000
Investment property (N) [5 .5m - 5.3m]
Fair value loss at the date o trans er
5,300,000
01-07- 18 Adm in Building (PPE) 5,300,000
Investment property (N)
Investment ro er reclassi 1ed as PPE

A
r-
~C~h~ap~t~er~-~9'..__ _ _ _ _Jl~A~S~3~6.=l!IM~PA~IRQM~E~N~T~OfF1A~S~SE~T~S~-~Q~U~E~S:.:..:T:..::I..::O.;;._N_S_ _ _ _ _ _~~
IAS 36 - IMPAIRMENT OF ASSETS

{PART A- KNOWLEDGE QUESTIONS}
QUESTION NO. I
What are the indications of impainnent?

(PAC)
QUESTION NO. 2
Calculate impairment loss of an asset from following informati on:
Rs .
Cost :240,000
Accumulated depreciation 110,000
Fair value l 20.000

Cost to sell 12.000
Value in use 105,000

(PAC)
QUESTION NO. 3
Define "fair value" and "value in use". (PAC)
QUESTION NO. 4
Calculate value in use from followin g information:
Total useful life of asset 10 years

Remain ing useful life of asset 4 years
Future net cash flows :
Year - I Rs. 50,000
Year - 2 Rs. 70 ,000
Year - 3 Rs. 60 ,000
Year - 4 Rs . 80,000
Discount rate 10%

(PAC)

r ..
-
Chapter- 9 IAS 36- IMPAIRMENT OF ASSETS- QUESTIONS
(255)

QUESTION NO. 5
Property, pl~nt and ~quip~ent as disclosed in the draft '.1nancial statements of Apricot Pakistan Limited (APL) for the
year ended .,o -~ include a pla~t ~avm~ a c,,arrymg value of Rs. 610 mj])jon . The performance of the plant has
been dete~ioratmg since last year which 1s affectmg APT's &a-Jes .
Following information/estimates relate to the plant for the year enclino 30 J11n P 20 I9·
:,
,,,
Rs. in million
N'nflows fro m sale of prod uct und er existi ng conditioH of th e olant
Ooerati onal cost other than de oreciation ' 250 ---
, 25 -
Depreciation -~
Expenses to be paid in respect of 30 June 1 Q18 accruals 170 I.
Cost of in.creasi ng the plant's caoacity ~ ~ 8 "'
____.. 60 I(,
Additional inflows (net) exoected fro m the un2:rade
Interest Of) loan v? 40 ,t..
Maintenance cost , 30 "
Tax payment on profi ts 15
18
--- ~kv
Cash flows from th e pl~nt are expected t.o dycrease _by l "% eacli year fro m 2020 and onward. The plant's residual value
1
after its remaini1ig usefu-l li fe_o'f 3 ~ imat~ct at ~s.

lQ~~ ill io,( ', ____,_ ,,--
milr◊n but APL has to incur the following costs.
An offer has been rece ived tor buy 1he ~iant :m:;1ed iatelv fo;
J
Cost of deli ven · to th e custom~~- _

__..J: ,
-->-
...-.
Rs. 570
-- Rs. in million
45
'=-
Legal cost
·----
Costs to re-organ ize the prorluction pi occs~ alter disposal of plant
IO
50
Applicable discount raie is 9%. ~ -~ 'fl
Required : ~
Calculate the amount of impairment loss (i f any) on plant, fo r the year ended 30 June 20 . (07)
{FAR II Autumn 2018, Q # 6(b)}
QUESTION NO. 6
Dominant Fertilizers has two plants. Fo llow ing informati on is available for the purpose of impairment testing:
(i) The remaining useful life of both plants is expected to be 3 years.
(ii) The fair values and written down va lues of th e plants as on 31 December 2012 were as follows :
WDV I Fair value l Incremental sellin!! cost

Plants ----- ----------- Rs. in million
P-1 220 I 210 I 7
P-2 160 I 150 I 4
(iii) Expected cash flows from each plant in next three years are as follows :
P-1 P-2
Rs. in million ---------
Annual inflows 105 55
Annual outflows !I 5
C Sale proceeds at end of year 3 8 3
Disposal costs at end of year 3 2 I
(iv) Present value factor based on a discount factor of IO O1/o, for year I ' year 2 and year 3 are 0.909, 0.826 and o.75 t
respectively. '
R.equirect •
Co111pute; . (ti)
rnpa1rrnent (if any) on each plant
For More Visit www.castudymaterial.com.pk {FAR II Spring 2013, Q#5} ,J
-------
_=:C~h~a~pt~e.!...r.:_-?_9_ _ _ _ _ __!l~A§.S13~6.::_!l~M~P~A~IR~M~E~N~T~O~F.!:.A~S~S:!:E~T~S_-....:::QL:U:...:E::-S_T_l_O_N_S_ _ _ _ _ _ _ ~
QUESTION NO. 7
On March 1, 2007 Sty! e T ext1. 1es 1mporte
. d an au t oma t·c
1 plant for Rs · 27 . million . The
. commissioning of the plant was
completed in December 2007 with a cost of Rs . 3 million . The commercial production commenced on January 1, 2008
and at that time , the economic life of the plant was estimated as 8 years .
Du~ing an exercise carried out to detennine the impairment in the value of plant as on D ece mber 31 , 2009 the following
estimates have been made :
► Due to lack of demand the estimated plant utili zation is reduced from 80% to 70% .
► It is estimated that due to underutilization of the plant, the life of the plant will be increased b~ ~ years but an
overhauling of the plant would have to be carri ed out at the end of year 20 15 at a coS t of Rs . I mil hon .
► The applicable discount rate is I 0%.

► The net annual cash flows (excluding overhauling cost) have been estimated as under :
Years 2010 2011 2012 2013 2014 2015 2016 2017

Net cash flows (Rs . in million s) 5.0 4 .0 3 .5 3 .2 3 .0 2 .5 2.3 2.0
The current selling price of a similar plant in the local market is Rs . 15 mi lli on . The present decommissioning cost of the
plant is estimated at Rs . 0 .2 million .
Required : Work out the impairment (if any) in the va lue of the plant as on December 3 1, 2009 . (11)
{FAR II Spring 2010, Q # 6)
I
QUESTION NO. 8
As part of annual routine, PQR & Company is testin g the value of its assets to asce rta in the impairment (if any).
Following information is available in respect of the assets:
Ii1 ----------------------------------Rs . in th ousand----------------------------

Asset WDV Value in use Fo rced sale value Fair value
A 3,200 3, 100 2.400 2,500
B 1,500 1,200 1,225 1,400
C 1,700 1,500 1,900 2,000
Ever!' asset is sold through public ~end er, :,vhi ~h costs aro und Rs. 50 1000. Assets A a nd Care required to be dismantled at
the time of sales and the cost of d1sma~tl111 g 1s Rs: IOO thousan~ and ks. 200 tKousand respecti:vely . Sale agreements of
the assets are prepared by the company s lega l advi sor who se annual fee is Rs . 36 5 thousajJd . It takes about 4 days to draft
a sale agreement.
- - - . l OD 1 U\_;~ 1-.,oo ~ - , ______,(07)
Required : Compute impairment (if any) on each asset. r
I. n 2007, Q! 4l
QUESTION NO. 9
?
On Octo~er 1, 2_004 ABC Limited, i~ ~he course of impr?veme~t and enhancement of its production facility bought ~
plant havmg mvo1ce ~alue of Rs . 25 mil hon f?~ the pr~duct1on of its popular brand of electrical goods. Mr. Aslam, one
0
the directors, was assigned the duty of supervising the installation of the plant. Other infonnation is given below:
0
(a) A special trade ~i~coun~ of25% was allowed by the supplier due to efforts of the agent involved in the dea\t
had close association with Mr. Aslam. Normally the supplier allows only 10% trade discount to his custome ·
(b) The following costs were incurred on site preparation :
Rs. in •oOO'
;i
1
I.
Salary of civil e ngineers and labour 1,200
ii . Civil and electrical work 2,soO

( .rnilar
iii . Electrical item received from the company' s own production department at cost plus l 0% profit ~130
items are sold to customers at cost plus 30% profit)
600
Remuneration of Mr. Aslam during site preparation
iv.
~er-9 IAS36
IMPAIRMENT OF ASSETS-QUESTIONS
(257)
1
(c) Civil and electrical work includes cost of · ·
handled by the workers and were totally da certadmNm str uments amounting to Rs . 150,000, which were poorly
mage · ow they carry no value.
(d) On January O1, 2005 test run was started d
550 000. The sale proceeds of test produ t · an successfully completed on January 31 , 2005 at a cost of Rs.
' c 10n were Rs. 320,000 .
(e) The plant went into normal production from F b .
ended on June 30, 2005 . The com an at this e rua1?' Ol , 2 oo 5 and attamed 45% capacity during the period
st
of the capacity declared by the s~pprler Th age, discove:ed th at th~ actual capacity of the plant is about 85%
finally agreed to pay a compensation of Jo/c e ~atte: was discuss~d with _the su~plier and his agent. The agent
2005 . o on mvo1ce value and issued his credit note to this effect on June 30,
(t) The company accounts for its assets d

value of the !ant y 1 . . un er co st model and on June 30, 2005 it estimated Rs . 21 million as the fair
. f d. p · tha uf,e !ml us_e is assumed to be lower th an fai r value less cost to sell. It is further estimated that
m case o 1sposa 1, e o owmg expenditure wi ll have to be incurred :
- Cost of dismantling Rs. in '000'

- Cost of tran sportation 250
100
- Terminal benefits of labour to be laid off
- Lega l costs 300
- Stamp duty 100
50
Salary of production manager during dismantl ing 100
(g) Depreciation is to be charged at l 0% on straight-line bas is from the commencement of normal production.
Required : Calculate the foll owing, also sub mit your expla nat ion if necessary:
(a) Initia l recogn it10n of the cost of plant. (05)
(b) Impai rment ioss, i f any, us at June 30, 2005 an d accounting treatment thereof. (06)
{FAR II Autumn 2005, Q # 2}

QUESTION NO. 10
Decent Limited (DL) acquired a brand on July I, 20 11 at a cost of Rs . 20 million . Useful life of brand was estimated at IO
years. Management of DL dec ided to fo ll ow reva luati on model for this brand . On June 30, 2012 it was revalued to Rs . 27
million . Following values were detem1 ined fo r impairment testing in respect of this machine:
Date Value in use Fair value
June 30, 2014 Rs. 22 million Rs . 17.5 million
June 30, 2016 Rs . 8.5 million Not available
Cost to sell can be assumed to be negligible. It is DL ' s policy to transfer required amount from revaluation surplus to
retained earnings.
Required:
Journalize all the transactions upto June 30, 2017 . (PAC)
QUESTION NO. 11
S~abih fisheries are a company fishing the Katse Dam and selling the fish to the public via retail outlet in a nearby
village. Shabih Fisheries has two small fishing boats that were purchased for a total amount of Rs . 30,000 (Rs. l 5,000
Per boat) on I January 2016 . The cost of transporting the boats to the dam was Rs . 7,000 (in total), and the co st of
:arnishing the boats with marine varnish (to protect against rotting in the water) was Rs. 13 ,000 (in total). In rd er to °
irn~rove the company image, the board of directors decided to paint the boats in its company colors of yellow and blue .
t h1
s was done immediately after applying the protective varnish at a total cost of Rs . 10,000 .
Chapter - 9 IAS 36 IMPAIRMENT OF ASSETS - QUESTIONS (258)
The company uses the cost model to measure its assets. The boats are depreciated over their estimated useful life of 3
years on the straight-line basis. The current selling price of similar price in the same condition expected of the boats after
3 years is Rs. 5,000 (Rs. 2,500 per boat), before taking into account the estimated cost of delivery of the boats to the
purchaser of Rs. 3,000 ( Rs. 1,500 per boat) .
At 30 June 2016 the financial year end of Shabih Fisheries, the boats collided with each other in the dam . The market
value per boat dropped to Rs. 7,000 as a result, before taking into account expected selling cost of Rs. 4,000 per boat. The
accountant is reluctant to make any adjustments since the most recent management approved budgets reflects a relatively
unchanged profit forecast from the use of two damaged boats - a net present value of net cash flows of Rs . 30,000 from
the use of the two damaged boats (Rs . 15,000 per boat) and an estimated net present value of the net proceeds from the
sale of the two damaged boats at the end of their useful life of Rs. 2,000 (Rs . 1,000 per boat).
Shabih Fisheries received an insurance payout on 3 July 2016 of Rs. 25 ,000 (Rs. 12,500 per boat). The two damaged
boats were traded in for two new boats valued at Rs. 33 ,000 (Rs. 16,500 per boat) on 4 July 20 16 . The trade in allowance
received for the two damaged boats was Rs . 9,000 (Rs.4,500 per boat) and the balance owing was paid by cheque. The
two new boats are to be depreciated at 20% per annum on the straight line method to a zero residual value.
Required:
a) Calculate the total amount at which the original boats should be initially measured .
b) Calculate the recoverable amount and the impairm~nt loss, if app licable, at 30 June 20 16 .
c)
Journalize all the transaction affecting the fleet of boats up to the year ended 30 June 20 I 7. (PAC)

1
--
Chapter· 9 lAS 36 - IMPAIRMENT OF ASSETS. SOLUTIONS
IAS 36 - IMPAIRMENT OF ASSETS

(259)
{SOLUTIONS}
External sources of information

(a) there are observable indications that the asset' s value has declined during the period significantl y more than
would be expected as a result of the passage of time or normal use .
(b) signi~cant changes wit~ an adverse effect on the entity have taken place during the period , or will take
place 111 the _n ear future , m the technological, market, economic or legal environment in which the entity
operates or 111 the m arket to ·which an asset is dedicated .
(c) market interest rates or other market rates of ret urn on investments have increased during the period,
and those increases are likely to affect the discou nt rate used in calculating an asset ' s value in use and
decrease the assef s recoverable amount materially .
(d) the carry ing amount of the net assets of the entity is m ore than its market capitalisation.
Internal sources of informa t io n
(e) evidence is availabl e of obsolescence or physical damage of an asset.
(t) significant chan ges with an adverse effect on the entity have taken place during the period , or are
expected to take place in th e near future. in the extent to w hich . or m anner in which , an asset is used or
is expected to be used . These c hanges include the asset becoming idle, plans to discontinue or
restructure the o peration to \.vhich an asset be longs, plans to dispose of an asset before the previously
expected date, and reassessing the useful Ii fe ofan asset as ft ni te rather than indefinite.
(g) evidence is availabl e from internal reporting t hat indicates that th e economic performance ofan asset
is, or will be , worse than expected .
Recoverable amount = Rs . 120,000 - Rs . 12,000 = Rs . 108,000

Impairment loss = (Rs . 240 ,000 - Rs. 110,000) - Rs. I 08 ,000 = Rs. 22,000
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date .
Value in use is the present value of future cash flows from using an asset, including its eventual disposal.
Rs.
Year 1 [50,000 x 0 .909] 45 ,450
Year 2 f70 ,000 x 0 .826] 57,820
Year 3 [60,000 x 0.751] 45 ,060
Year 4 rso,ooo x 0.683] 54,640
I
202,970

4
SOLUTION TO QU l~STION N0.5
Value in use 2021

2019 2020
----------- Rs. million ---------
(,
2 I 0.00 178 .~~ ,__> 151 ~731{
Net operating cash now (W-1) [LY x 0.85]
,~ 100 .00 >
RV -
2 10.00 178 .50 251 .73)
0.841 ' 0.772·
factor @ 9% 0.9 17''
\ 92-.5V 150 .12 ✓ · 194.33 v
~ ~ di
Value in use ---5-37-.02- ,8
/
Fair value less cost to sell
Rs. million
Fair value 570 .00
Cost to se II :
delivery cost
legal cost
t
Carrying value ', 610.G0
\_ '
Recoverable amount [higher of A and B] "537 .02
Impairment loss 72.98
W-1 Net operating cash flow

Inflows 250 .0Q ~
Operational cost (25 .00) .
Maint. Cost (I 5.00) /
210 .00
P-1 P-2
Rs. in million
Fair Value as given
210 .00 150 .00
Less: Incremental Selling Cost
(7.00)
(4.00)
Fair value less incremental sellinl!. cost IA!
203 .00
146 .00
Value in use (W-1) IBI 238 .19

125 .80
Recoverable Value rhigher of A and Bl -

238 .19 .__
'-
146.00
Written down value 220 .00
-~ (160 .00)
Im pairment loss - ( 14 .00)

1
-
Chapter - 9
W-1 Value in use

IAS 36- IMPAIRMENT OF ASSETS - SO LUTIO NS (261)
P-1 P-2
Year I I Year 2 I Year 3 Year 1 Year 2 Year 3
Rs. In million
Expected cash inflows each vear 105 .00 105 .00 105 .00 55 .00 55 .00 55 .00
Expected outflows per year (I 1.00) (1 1.00) (1 1.00) (5.00) (5.00) (5.00)
Sale proceeds - - 8.00 - - 3.00
Disposal costs - - (2 .00) - - ( 1.00)
Net cash flows 94 .00 94 .00 100.00 50 .00 50.00 52.00
Present value factor 0.91 0.83 0.75 0 .9 1 0.83 0.75
Present value of net cash flo ws 85.45 77 .64 75.10 45.45 41.30 39.05
238. 19 125.80
SOLUTIO N TO QUESTION NO.7

------------------ Amount in Rs. --------------------
Impairment loss Carryi ng amount - Recoverable amount

23,3 33 ,333 (W- 1) - 17,487,860 (W-3)
5.845.473
(W-1)
Import price of pl ant 27',000,000
Commissioning ex penses 3,000,000
Cost of plant 30 000 000
Value of plant on 0 1.0 I .08 30,000,000

Depreciation for 2008 & 2009 (W-2) (6 666 667)
Carrying amount at 3 1.12 .09 23 333 333
(W-2)
Depreciation for 2008 30 000,000
8
3,750,000
Depreciation for 2009 30,000,000 - 3,750,000

7+2
26,250,000
9
2,916,667
Total Depreciation 3,750,000 + 2,916,667

6,666,667

262
IAS 36 IMPAIRMENT OF ASSETS-SOLUTIONS
Cha ter - 9
(W-3) Higher of value in use or fair value less cost to sell is Rs . 17,487 ,860 .
Value in use:
-- Amount in Rs.
►
Cash outtlow Net cash Dis. factor @ 10% Value
Year Cash inflow
5,000,000 0.9091 4,545 ,500
2010 5,000,000
4,000,000 0.826 l 3,304,400
2011 4,000,000
3,500,000 0.75 13 2,629,550
2012 3,500,000
3,200,000 3,200,000 0.6830 2,185 ,600
2013
3,000,000 3,000,000 0.6209 1,862,700
2014
2,500,000 (1,000,000) 1,500,000 0.5645 846,750
2015
2016 2,300,000 2,300,000 0.5 132 I, 180,360
2017 2,000,000 2,000,000 0.4665 93 3,000
11 481 86Q
Note: Assum ing the management is comm itted to use plant ti ll 20 17.
► Fair value less cost to sell :
Fair value 15,000,000
Cost to sell (200,000)
14 8QQQQQ
Assets WDY Va lue in u!ie FV less cost to Recoverable Impairment loss

sell (W-1) value
------------- / ---- Rs. ' 000
A
B
C
-
3,200
l ,500
1,700
.
3,\ 00 v
1,200
l. 500
~
2,450
1,350
- ----
1,950 - \ 3,100
\ 1,350
\ 1,950
100
150
-
{Working notes}
(W-1)
Fair value less cost to sell:
A 2,500 ~ 50 == 2,4 50
B 1,400 - .2Q_== 1,350
C 2,000 - 5.Q__== 1,950
As every asset is sold through public tenders so, Rs . 50,000 should include in cost to sell.
Note: Assuming cost of dismantlin g of asset " A" & "C" forms ~ssets .

(a) Calculation of the Cost of Plant
Rs. '000' Rs. '000'
Invoice value 25 ,000
Less: Discount (25 ,000 x 25%) (6,250) 18,750
Salary of civil engineer 1,200
Civil and electrical work 2,800
Abnonnal loss of equipment due to mishandling (150)
330
Cost of Electrical item ( - x l 00 ) 300
110
Remuneration 600
Cost of dismantling 250
Salary of production manager 100
230
Test run cost (550 - 320)
(750)
Compensation (25000 x 0.0~~
~
For
Cost More
of plant Visit
(initial www.castudymaterial.com.pk
recogmt1on)
-
Chapter - 9
(b)
IAS 36 - IMPAIRMENT OF ASSETS - SOLUTIONS
An asset is aid to be impaired if its carrying value increases the Recoverable amount of the Asset. Impairm ent
(263)
loss will be the difference between carrying value and recoverable amount.
Rs. '000'
Carrying Amount (W- 1) 22,358
Recoverable amount (W -2) (20,750)
Impairment Loss
~
Accounting Entry w ill be:
Impairment Loss 1,60 8

Acc umulated Im pai rment Loss 1,608
{Working notes}
(W-1)
Carrying Value
Cost 23 ,330
Less : Deprec iation (23 ,330 x LO ¾ x 5 / 12) (972)
Book valu e ~
(W-2)
Recoverable Amount
Rs . '000 ' Rs. '000 '
Fair market va lue 21 ,000
Less : Legal costs 100
Stamp duty 50
Trans po rtatio n costs 100
Net Selling Price
Dr. Cr.
Date Particulars
------- Rs. million ------
01-07-11 Brand 20 .00
Bank 20 .00
[Purchase of Brandl
30-06-12 Amortization 2 .00

Accumulated Amort. & impairment loss 2 .00
_______1[A~m~o'!.!_r'.!:l1~·z~a!..l_ti~o'!.!.n'_.!_f(~o'!. . r.=.2~0:..:1.::.2J.. .l_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
30-06-12 Accumulated Amort. & impairment loss 2 .00

Brand 2 .00
=-----::::::=:=:::::l:_[~E~lz~-m~1~-n~a~t1~·o~n~o~f~a~c~c~u~m~u=l=a=te=d=A=m=o=r=t1:::"za=t=io=n:::l:::::===========:~~================
30-06-12 Brand 9 .00
Revaluation surplus 9 .00
________j['..!_R~e~v~a~lu~a?_!t~io~n~in~c~r~e~a~se~l~------------------------
30-06-13 3 .00
Amortization
Accumulated Amort. & impairment loss 3.00
--------J[&_A~m~or,:!_l'E_iz~a~t1~
·o~n'.)_fi'.£0!:,_rl_2!!_0!_1~37L_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
1
(264)
IAS36 IMPAIRMENT OF ASSETS - SOLUTIONS
Chapter - 9
Dr. Cr.
Date Particulars ------- Rs. million ------
1.00
30-06-13 Revaluation surplus
1.00
Retained earnings
[In cremental Amortization for 20 13)
Amortization 3.00
30-06-14
[Am ortization [or 20 14l
30-06-14 Revaluation surplus 1.00

Retained earnings 1.00
[Incremental Amortization for 20141
30-06-14 Accumulated Amort. & impairment loss 6.00

Brand 6.00
[Elimination of_ accumulated Amo,-/ ization j

Brand 3.50
[Revaluation decreasel
I" 30-06-15 Amortization 2 .50

l Accumulated Amort. & impairment loss 2.50
[Amortization[_or 20 15l

Retained earnings 0 .50
[Incremental Amortization for 2015 l
30-06-16 Amortization 2 .50

Acc~mulated Amort. & impairment loss 2 .50
[Amortization for 2016l

Retained earnings
0.50
[Incremental Amortization [_or 2016l

Impairment loss (P&L) 1.50
[Jmp_airment loss charg_edJ
Amortization l.70
30-06-17
For More
[Amortization for Visit
20171 www.castudymaterial.com.pk
!.2ter - 9 lAS 36 - IMP AlRMENT OF ASSETS - SOLUTIONS (265)
Working: - - - - Rs. million - - - -

Date NBV Surplus P&L
01-07-11 Cost 20 .00
30-06-12 Amortization (20 / 101 (2. 00)
18 .00
30-06-12 Revaluation 9.00 9 .00
27 .00 9 .00
30-06-13 Amortization (27 / 91 (3 .00) ( 1.00)
24 .00 8 .00
30-06- l 4 Amortization (3.00) ( 1.00)
21 .00 7 .00
30-06-14 Revaluation (3 .50) (3.5 0)
17 .50 3 .50
30-06-15 Amortization l 17 .5 i 71 (2 .50) (0 .50)
15 .00 3 .00
30-06- \ 6 Amortization (2. 50) (0 .50)
12 .50 2.50
30-06- \ 6 l mpairment (4 .00) (2.50) ( l.50)
8.50 ( l.50)
30-06-17 Amortization (8 .5 / )1 ( I .70)

Rs.
a) Initial measurement
Purchase price 30 ,000
Transport 7,000
Protective varnish 13,000
50,000
b) Recoverable amount and impairment loss as at June 30, 2016
Depreciable amount:
50,000
Cost (above)
(2,000)
Residual value (5 ,000 - 3,000)
48,000
Carrying amount:
Cost 50 ,000
(8,000)
Accumulated depreciation (48 ,000/ 3 X 6/12)
42,000
Fair value less costs to sell:

14,000
Selling price (7 ,000 X 2 boats)
(8,000)
Selling costs (4 ,000 x 2 boats)
6,000

- Chapter - 9
ssETS - S,!O~L~U:!2T~IO~N~S-
IAS 36 IMPAIRMENT OF,_:A'. :,:: :..----
- - - - - -~
Rs.
30,000
Value in use:
2,000
NPV of usage (Gi ven)
NPV of residual amount (Given) 32,000
Recoverable amount: 32,000

· · " 7 000
Higher of fair value less costs to sell : 6,000 and value m use . J- ,
Impairment loss : 42 ,000

Carrying amount (32,000)
Recoverable amount
10,000
c) Journa ls - 2016 Debit Credit

Rs. Rs:
50,000
01 Jan 16 Boats: cost [Part a]
50,000
Bank/ Accounts payable
(Initial reco 0 nition of boats)
Advertising 10,000
Bank/ Acco unts payable 10,000
(Painting of boats in comean~ colors)
30 June 16 Depreciation [Part b] 8,000

Boats: accumulated depreciation 8,000
(Deereciation of boats)
Impairment loss [Part b]

10,000
Boats: accumulated depreciation & impairment loss 10,000
(Imeairment of boats following the accident)
Jou rnals - 2017

03 July-16 Bank
P&L 25 ,000
25 ,000
(Receiet of insurance eroceeds)
04 July 16 Boats: accumulated depreciation & . .

impairment loss [8 + IO]
Boats: cost (new) 18,000
Loss on trade-in [(50,000 - 18,000) - 9 OOO] 33 ,000
Boats: cost (old) 23 ,000
Bank (33 ,000 - 9,000) so,ooo
24,000
--
(Trade-in of damaged boats for new boats)
Depreciation
30 Ju ne 17 6,600
Boats: accumulated depreciation & impa irment
· loss 6,600
(Depreciation of new boats (33 ,000 X 20%))
For More Visit www.castudymaterial.com.pk -

~
cbaPt::.e:.-r-_1_1_ _::IN:T:E:RP=RE~~T~A~T~IO~N~O~F~F~IN~~~~~~~~~~~~~~----__J~2
. ANCIAL STATEMENTS QUESTIONS (305)
INTERPRETATION 0
. F FINANCIAL STATEMENTS
-
, fotal Practice Questions Analysis·
part Type of Questions Number of Questions

,..... A ICAP PAC Total
Knowledge Questions [Q-1 to Q-6]
- B Application Questions [Q-7 to Q-21)
- 6 6
- Total
13 2 15
- 13 8 21
ICAP Past Papers Questions Trend Analysis·

Q uestion Bank
Sr # Attempt Topic I Style of Question Question PAC ICAP
Marks
Type Question Question
# #
I Aut-18 Interpretation of Ratios A 12 7 . -
2 Spr-18 Interpretation of Ratios A 11 8 -
3 Aut-17 Interpretation of Ratios A 12 9 -
4 Spr-17 Critical Analysis and Computation of Ratios A 15 10 -
5 Aut-16 Liquidity and Working Capital Ratios A 10 11 -
6 Spr-16 Liquidity, Working Capital and Debt Ratios A 6 12 -
7 Cash Operating Cycle and Limitation of Ratios A 6 13 -

Aut-11
Working Capital Ratios and Interpretation A 10 14 -
8 Aut-09
A 10 15 -
9 Spr-07 Liquidity and Working Capital Ratios
A 9 16 -
10 Aut-05 Interest Cover Ratio & Interpretation
A 6 17 -
11 Aut-02 Turnover Ratios
A 10 18 -
12 Profitability and Inventory Turnover Ratios
- Spr-02
Commentary on Working Capital
- A 15 19
- 13 Mar-98

Chapter - 11 i
l ~'lTERPRETA TION OF FINANCIAL STATEMENTS QUESTIONS (306)
i . -
I .
I
{PART
-.
A...., KNOWLEDGE
. .
QUESTJONS}
QUESTION N1 , .
1
I
Wha_t are .the advantages/of ratio analysis? ' fPAC)
QUESTION N 2 /. -
I
What are the lirni··ations /o f ratio analysis? fPAC)
QUES~ION NO! 3 I
Marvel Limited ! /
Statement of fin j'°cial position
as at December 111, 2o t!s
· I I
. 2018 2017
I -------- ~s. --------
N on-curre nt ass,1!ts I
i
ii-
Property, plant and equipment 15,000 12,400
Investments / / 7,000 4,000
22,000 · 16,400
Current assets ' I
I
Stock 4,000 5,200
I
Debtors !
I 3,100 4,300
Cash I 400 500
7,500. 10,000
-1
I 29,500 26,400
I
Equity
Retained earning~ 8,300 5,100
20,300 17, 100
Bank loan j
N on~c urrent lia J ilities
4,000 s;ooo
Current Iiabiliti .s l
I I
Current portion o bank lban 1,000 1,000

Creditors
2,300 1,900
Accrued expense
800 700
Bank overdraft
1, 100 700
5,200 4,300
29,500 26,400

INTERPRETATION OF FIN
ANCL.\L ST ATE
. MENTS - QUESTIONS (307)
'~r
'·j I 1.,imited
,
.1
,1"'' ent.of comprehensive income
~,,ietll ended December 31 , 2018
year
rortbe
2018 2017
- -- Rs. - -
:~es
,,,si of sales 54,200 51,400
c• .- profit
(-t 7,400) (45,900)
0:0>' 6,800 5,500
bution cost
")"'11
(I , 100) (1,000)
:;;.:rJJ1 cost
(900) (700)
-wraung profi t
,;
4,800 3,80 0
,.,pee cost: ._
;--t;::erest on bank loan
600 700
;;.ierest on bank overdraft
150 80 I
(750) (780)
;>;('JI before tax
4.050 3.020
(850) (700)
?rofil after tax J,200 2,320
Req uired:
;1;0fi1ab1ltry ratio s fo r 2017 are a.s folio,, s
Gro~s rro fi t ra11 0 _ _ __ ~~-
Set profit rati o 4 s 1° 0 '
Return on cap ital emp lo; eJ _ _ _ _ t 6S8° o I

ae1urn on cg u1t\ 1-l S.S 0 o
Return on total aS!-> Cts 1:2 36°:7
----'---
(3lculate above rat ios fo r 2018 :mJ comment bric fl) along,, llh possible reasons of change in ra tios. (PAC)
QCF.STIO~ NO. 4
Gsmg the same data as 1n Question 3. liquid ity rauos fo r 2017 are as follo ws:
Ju;;cmratio 2 33
~ ck ratio 1.12
Required :
Calculate above ratios fo r 201 S and comment briefl y along with possible reasons of change in ratios. (PAC)

.---- - ---------
Chap ter - 11 · QUESTIONS
:__t-~ ! I¥N~T~E~RP~RE~T~A~T~I~O~N~O~F~F~IN~AN~C~IA~L_§S~T~A~T~E~M~E:::_N~'f'.:.S
.
::=---~ ~ - - - - -- -
I
QUESTION No,. 5
Using th I . ti 2 o17 are as follows:
- e same data
I as in Question 3 working cap ital efficiency ratws or . ·
Inve t 1
'
- n ory tumqver ratio
~ Inventory Periqd i 10.09
35.69
Debtors tumov~r ratio/
13.21
Debtors' collec~ion oeriod
27.25
Creditors' turn~1ver raiio
34.96
Creditors' payqient Period
10.30
Cash operating/cycle ! I
I
52.63
I
Requ ired : I
I
I
~ssui:rung 360 dr ys m a year, calculate above ratios for 2018 and comment briefly along with possible reasons of c~ge
m ratios. . ~.. AC)
~ I
QUESTION Nl 6 I . i
U s mg the same data as in Question 3 debt ratios for 2017 are as follows :
I I . ' 1
Gearincr ratio debt I e ui 35 .09%

Gearin ratio (~ebt / ca 25.97%
Interest cover / 4.87
I
Requ ired: I
I
Calculate above atios (or 2018 and comment briefly along with possible reasons of change in ratios.
1(PAC)
I
'
For More Visit www.castudymaterial.com.pk [-0

INTERPRETATION OF. .
. FINANCIAL .
-· STATEMENTS-QUESTIONS (309)
{PART B - APPLIC ..
rioN NO, 7 . ATION QUESTIONS}
Q(Jt~ ·ted (SKL) deals in a single product. Fallo . .
J(LiJ!ll r 2017: wmg are the sununar· . -
S peceI11be t f fi . - · ized financial statements of SKL for the year ended
,1 statemen o manc1al position
- •
\,
,,_ -Fixed assets - 2017 2016
Rs. in million
Current assets 410 240
90 200
Capital 500 440
Long term loan 280 260
Current liabilities 170 100
50 80
500 440
sta temen t o f pro fi1t or loss
Units sold (million) 2017 2016
39 30
Sales Rs. in million
Cost of sales 371 300
(273) (210)
Gross profit
98 90
Selling and administrative
(55) (60)
Finance cost
(13) (8)
Net profit
30 22
. Additional information:
(i) With effect from 1 January 2017, selling price was decreased by 5% to boost sales volume.
(ii) During the year 2017 , suppliers demanded price increase of 4%. SKL resisted the price increase. However, both
parties agreed to reduce the credit period.
(iii) SKL had been running its business in a rented building whose annual rent was Rs. 15 million. During the year,
SKL purchased this building for Rs . 200 million. Funds were arranged partially through a long-term loan. Useful
life of the building is estimated at 40 years.
(Iv) 75% of the selling and administration cost incurred in 2016 was fixed cost.
Required:
(a) Compute the following ratios for 2016 'and 2017 :
• Gross profit margin • Net profit margin
• Return on assets • Return on capital employed
• Debt equity ratio • Current ratio

(08)
. . . h b information comment on profitability and liquidity position of SKL for 201 7. (04)
Keepmg m vtew t e a ove ' . . (Autumn 2018 Q-7)
QUESTION NO. 8
B f rts goods Following financial statements for the year ended 31 December
0om Limited (BL) is a manufacturer O spo_ · CEO
20l 7 have been submitted to the Chief Executive Officer ( ).
f
Statement o pro fit or loss
Rs. in '000
21 ,000
Revenues (17,500)
Cost of sales 3,500
Gross profit (1 ,900)
Operating expenses (450)
Finance cost 1,150
Profit before tax (345)
Taxation For More 805
Visit www.castudymaterial.com.pk
Profit after tax
----- -
I
I
1 EMENTS _ QUESTIONS
_9lapter - 11 (310)
lNT~RPRETATION OF FINANCIAL STAT .
I
I Statement of financial position
Rs, in '000
I 7,500_
J_rope "ty, plant and eq uipment J,50~
' I
f urren~assets I
9,000
I I 4,000
1·
Share c~oital . 1,000 I
fleserv~s
3,000
~.fon-ct}rrent liabilities
1,000
;c urren~liabilities
9,000
I I 1
I
Al though perfonnan,;e - t to compare the results with other co
of BL has improved from the last year, CE O wan s
I .
th d· · mpaJ1es
·
operating ·
m I' I
sports manufacturing · m
industry. In this respect, fio11 owmg · dustry data has been ga ere . ·
I I
:Oross wrofit margin 23 .5%
~:-let prq\fit margin 7.7%
:curren't ratio 2.75
:Oearing ratio 50:50
/Return /on non-current asset 32.9%
;Return /on capital employed 27.4%
;Rerurn :on equity 31.3%
Required : / I
(a) Compute ,L's ratios for comparison with the industry. Q}4)
(b) For each rl tio, gi-..,le one possible reason for variation from the industry. ~7)
(Spring 2018, Q 7)
QUESTION NO. 9 / I
Progress1ve
· Stee I L ·mite
· d QIPSL) commence db usmess
· · 2015 Th e fio11 ow ing comparative data pertains to the year enped
m
30June 2017:
I
I
I PSL Industry
Description 2017
I 2017 2016
Gross profit margih I 13% 13% 16%
Net profit margin I I 8% 7% 10%
Return on shareho ~ders ' equity 22% 18% 25%
Current ratio I I 1.2 1.6 1.5
Debt to equity rati9 I
40:60 30:70 50:50

Cash operating cyqle in d,:1ys I 19 135 118
Required : / I .
For each ratio/data ~ive po~sible reasons for variation from comparative and industry data. d 2)
QUESTION NO. rn
/
/
/ {Autumn 2017, Q 5}
· /
f
(a) The foUo wljing in~ormation has been gathered by an analyst, in respect of Dairy Foods Limited (DFL) w~ich
specializes in various dairy products. i
Ratio I 2016 2015 2014 Indu~try
I , _averrge
Prr,fit ma'rgin % 11 % 10% 8% 10.~5%
Q1i1cick ra~o 1.38 1.40 1.42 ~.52
Ct;irrent r~tio 1.84 1.67 1.59 ~.73
Da.~s purf hases in payables _80 91 89 182
In ,~he latf st annual report to the shareholders, Directors of DFL have claimed that liquidity position of
the Com~any has improved significantly. f
RJquire1:
dr'itically
.
.
analyze and discuss whether you agree with the cIaun.
·. t /
3)

1
I
Chllpter. 11 INTERPRETATION OF
_NANCIAL sr
·~ - FI ,
A fEMENTS - QUE-STIONS
, (b) Extracts from latest financial sta - -~=.:...:...:.::'...~E~~~-- - -- _!_(3~1~1)
tetnents of two c .
Extracts f ompanies are as follows :
.
E qmty rom stateme ts
and liabilities n of financial position
A B Assets
· Rs. in million A B
Eqmty and reserves
51 ,690 Rs. in million
Long term loan 72, 114 Fixed assets 34,460 48,076
36,057 Stock in trade
Trade creditors 21 ,700 20,000
35,790
45, 135 Trade debtors
Other payables 24,470 44,030
12,000
8.500 Cash and bank 18.850 49.700
29,480 l!il,80~ 22,480 161 806
Extracts from statements of h . .
compre em1ve income
A B
-- Rs. in million --
Revenue
161 ,600 220, 150
Cost of sales
(135 .160) (180.520)
Gross profit 26,440 39,630
Operating expenses (9,840) (13 ,870)
Interest expense ____mm (2.313)
Profit before tax 15,880 23,447
Income tax -1ill2 (409)
Profit after tax ~ ~
Required :
Analyze the profitability, liquidity and working capital ratios of both the companies. (12)
{Spring 2017, Q # 7}
QUESTION NO. 1I
Following amounts have been detennined from the record..; of Hassan Limited.
2014 2015 2016

Description Rs. in million
. 100.00 120.00 135 .00
Sales 75 .00 90.00 IO 1.25
Cost of sales 6.00 5.50 5.60
Profit before interest and tax 25 .00
16 .50 35 .00
Account receivable 13 .00 14.70 15 .00
Account payable 18.75 26.00 30.40
Inventory 5.00 (0.50) (2.00)
Cash at bank I (ove rdraft)
Required : ti and 2016 and comment on the results of your calculation,

k" capital cycle or 2015 · (10)
Calculate liquidity ratios and wor mte made on credit {Autumn 2016, Q#7}
assuming that all sales and purchases

- ~11~--!-~IN~T~k~RP~RE~T~A~T~I~O~N~O~F~FIN~AN~C~I~A~L::..::S~T~A:..::T:.:•E:.:.M:.:.E=N:..:.T.:.S.:._-~Q=-U-E_S"-"'.T~IO_N_S
..:::C:.:h:.:a£.p:::te.:..r..:_ _ _ _ __ ~
QUESTION NO. d:I II ' . . . . I
The fo !lowing info I,ation has been extracted from latest draft financial statements of a hsted company•
I .
I Rs. in million
Sales • 1,700
Gross profit 545
Tax expense 23
Profit after tax 40
Total assets 2,500
Non-current assets 900
Inventories 850
Trade receivables ' - 600
Share cap ital 800
Reserves 152
Long term debt (ci), 9% 750
r I
Following additiona1 inforri1ation is also available:
• 80% of the s~/es are/on credit
• Opening inver1tory ~vas Rs . 100 million.

• 40% of current liabilities
I
comprise of trade payables.
Required : /
• I
Compute liquidity, "il{orking capital and debt ratios of the company.

I - I . ( 6)
QUESTION NO. 1~,J ,

{Spring 2016, T3}
I
The following info p ation lpertains to Shale Distributors Limited (SOL) :
Rs. in million
II Sales
Purchases
300
140
I Cost of goods sold 150
I Trade receivables
Trade payabl es
/
50
21
. I i
All the purchases an:t:I sale~ are on credit.
Inventories 30
Required : /:
I
i
:
(a)
Calculate t~1e cash o~erating cycle of SDL and explain briefly its significance. (Assume a 360-day year) 04)
(b)
Describe af1y two /limitations of accounting ratios . . · · 02)
I -
/ · {Autumn 2011, Q 6}

INTERPRETATION OFF
· · · INANCIAL sTATEMENTS
· - QUESTIONS (313)
fJONNO, 14
Q{]tS . ·.
Limited 1s presently experiencing short t
.
. .
for \dlaIIldvice on how to unprove
· . fl ow problems. The chief executive officer has approac h ed
enn cash
the present cash fl
you for arnpany: . ow s1tuation. The· ~1ollowmg
• amounts were extracted from the records ·
of the co
2009 2008 I 2007
Sales -----Rupees in million ·
Cost of sales 400 360 300
300 270 225
.Average trade debtors
90 75 50
Average trade creditors
51 45 39
Average stocks in trade
92 78 56
Bank/ (overdraft)
(4) (2) 15
All sales are made on credit.
Require~:
(a) Calculate the ratios that would be needed to analyze the . working capital of the company .
(Assume a 360 day year)
Comment on the company' s working capital management in the light of these ratios. (10)
(b)
{Autumn 2009, Q # 5}
QUESTION NO. 15
Following data is available with Pink Limited in respect of two of its regular customers who are engaged in the same kind
of business:
Rs. in million
Customer A Customer B
Stock in trade 22.00 74.00
Trade debtors 14.67 51 .80
Other current assets 21.00 8.00-
37.40- 53 .10
Trade creditors
10.00
Bank overdraft
176.00 259 .00
Sales 149.60 212 .38
Cost of sales
Credi't • f Pink L ' ·t d has decided to allow credit limit of Rs. 18 million to both customers. However, Mr.
comnuttee o nm e d' d. £ T , ,
Alam, a member of the committee, had some reservations on exten mg ere 1t ac1 1ty to customer A .
Required:
c . · . f each customer and submit your comments on the opinion of Mr. Alam. (10)
.ompute and interpret the relevant ratios 0
· {Spring 2007, Q # 3}

' .
Ch2pter - 11 INTERPRETATION OF FINANCIAL STATEMENTS QUESTIONS
QUESTION NO. J C
Following are some of the balances worked out from the trial balances of two companies of GH Group as at June
I
!o,.
2005 . Both C<?mpani s are 1ngaged in the same business in different locations.
· · I
Rs. in '000' I •
·· · · Company A Company B
Fi ed assbts - tangible (WDV) 38,600 35,000
1
Total curtient assets 19,970 15,300
Shh.re cap,ital 20,000 27,000
Retained bamings 6,000 6,000
Prdfit aftdr tax for the year 4,576 4,615
Loha temi loan ' 20,000 . 3,000
T1o al curr'ent liabilities 5,530 7,200
In ome tak charge 2,464 2,485
Sa~es / 54,000 30,000
Cost of gdods sold 4 1,040 21 ,000
A d~inistr ~tive expenses 3,920 2,400
1
Fi lan cial charges 2,000 300
Pr fi t recJ ived on short term deposits 800
I
i
I
Required :
I
(a) Compute In ,erest c6ver for both companies and comment very briefly.
I
(b) Did companr.B pe/form better than company A ? Expl ain. (0~
{Autumn 200r}
QUESTION NO. 17 /
Given below is the inr ormati/on of a limited company.

/ Balance Sheet
I
ASyETS : Rs.
Non.-curre11t Assets:
Fixbd Ass~ts at W.D.V. 1, 150,000
I ;
Investments 300,000
I I
Current Assets:
Stodk / 310,000
Sunrtlry Deptors 350,000
Ad ances 1
100,000
Cas . and / ank Balances 40 000
800,000
To tal Assets 2 250 000
I 1-
EQ fHTY fND
LIABILITIES
~ I
Sha~·e Capi;tal 700,000

UnT propT ited Profit 250 000
950,000
Long Ternlj Loans 725,000
I
I 1
Cur-nent L'1a b 1'I'.
I
1t1es:
Acco.unts Payable 125,000
Suniry Cre;ditors 250,000
Ace 11ed an1ti other liabilities 200,000
I 575.000
2 250 000

c~apter ~_11 INTERPRETA
TIONOFFJNA
NCIALSTATEM
· ENTS - QUESTIONS
Profit and L --:::..::.::.:::.:~~- - - -__Q(3~1~5)
oss Account
Sales
Cost of Sales Rs.
Gross Profit 1,675,000
Operating Expenses: 1,000.000 _
675 ,000
Administrative E
Selling Exp Xpenses
Net Profit enses 250,000
225,000 475.000
Taxation
200,000
Net Profit after tax
50,000
Accumulated Profit bro 150,000
Accumulated Profit ~ght forward 100,000
earned forward
250 000
1
Required :
1 Calculate:
(i) Acid Test Ratio _
(ii) Debtors Turnover Ratio
(iii) Inventory Turnover Ratio
(iv) Assets Turnover Ratio (06)
{Autumn 2002, Q # 3}
QUESTION NO. 18
Jawad below.
shown is the proprietor of a shop which retails electrical apphances.
. . is
An extract from the trading account of his business
2001 2000
Rs. Rs. Rs. Rs.
Sales 520,000 327,000
Opening stock 85 ,400 57,000
432,450 290.000
Add : Purchases
517,850 347,000
60,250 85,400
Less : Closing stock 261,600
457.600
Cost of sales
~ ~
Gross profit
Mr. Jawad has studied the figures and approaches you for advice. He cannot understand why gross profit for 2001 has
fallen, when sales have increased by 59% ov~r the 2000 figures. .
Required:
Calculate ihe gross profit percentage and mark-up percentage for both years, and state six factors, which might
(a)
have caused the situation, which has worned Mr. Jawad.
Calculate the stock turnover period for each year, and comment briefly on the figures disclosed by your
(10)
(b) {Spring 2002, Q # 5}
calculations.

Chapter _ 11 I 1
~ - - - -r lN~T1E~RP~RE~T~A~T~I~O~N~O~F~F~IN~A~N~CSI~AL~S'.!T~A!TE~,M~E~NT!!S~-~QgU~E~S~T~IOQ_N~S~-:__- -- .:_i(3~l~6)
QUESTION NO. 1
Indicate the effect of , fi . .
e O1owmg transactions on working capital:
No effect w ~just~fication
.
Increase wit I
· justification
I
Decrease wi h justification
l. Purchase of aw m, terial of Rs. 50,000
2. Sale offmis :red golds of Rs . 65 ,400
3. · Depreciatio for the year Rs. 70,000
4. Operating ejpense, paid of RS. 90,000
5. Purc~ased~,uipmTt of Rs. 120,000 on account

6. Paid ~ash .. 150,0I00 on account of payable
7. Received Rs 20,oop on account ofreceivables
8. Declared & aid a ~ash dividend of Rs. 40,000
11
9.
10. Borrowed i:
Issued Rs. 1~0,000 :capital for cash only.
200,qoo on short term loan.
j {C.A. Foundation - II, March 199 }
(ll~)
QUESTION NO. 20 I
The following are the r = ~ ized Profit and Loss accounts and balance sheets of Abid Limited, I
Profit and loss acco•
its for years ended December 31 , 1999 and 1998.
I
j 1999 1998
Rs. ' 000 ' Rs. '000' Rs. '000' Rs. 'oooj
Sales 1,100
Less: Cost of sale
801
Opening stoc - j 130 110
Costs of pro uction 1
700 500 I
Closing stoc~ I LJ1Q} illQ}
660 480 I
Running expeµses (including interest charges) 362 260
Net profit / J
Prcr::osed dividend I
Retained profit , /
I
I
Balance sheets as at December 31 , 1999 and 1998
i
I
1999 (Rs. '000') 1998 (Rs. '000')
Ordi 1ary sJ are capital 200 200
Retap.ied p~ofit 138 100
12% Term Finance Certificates issued January 1, 1999 200
BanJ.: overdraft 10
Dividends ' 40
Cred~,tors 120 llQ
I
I ill 42.Q
i
. d
t
I
Fixe,i_ asset~ 338 170
Stoc)!c: I:O 130
Debtb,rs i 160 120
BanM. ! 30
·1
ill.
No dividends were pait, durini either 1998 or 1999.
ter _ 11_-.-:-_IN_T_E_RP---:RE:-:--T_A:.:.T:.:l:::O~N:_:O~F~F~IN~A~N~~~~-~~!=_~~~~---__;__f~
~ · . . CIALSTATEME~TS . QUESTIONS (317)
·red:
Fequt - . -
A calculation of the following accountin· .
(a) g ratios and p . •
tabular format. _ . ercentages for 1999 and 1998 presented m the followmg
► Liquid ratio
► Average rate of stock turnover
► Net profit as a percentage of sales
► Profit after tax before interest

as a percentage oflong-term capital employed
► Net earnings for ordinary shares holdets as a
_
t . f
percen age o equ1
..ty
► Ratio of sales to long-term capital employed. (10)
h . 1· · ·
(b)· Comments on t e unp ications of the differences on the above ratios and percentage between the two years. (05)
. {PAC}
QUESTION NO. 21
following is the balance sheet and Profit and Loss Account of Rafi Garments Ltd. for the year 1998:
Balance Sheet As at Dec. 31, 1998

Rs.
Fixed Assets 200,000
Stock-in-trade 200,000
Trade Debts 85 ,000
Cash and bank balance 25,000
510 000
Share Capital (20,000 shares of Rs . 10 each) 200,000

Profit and Loss Account 25,000
22 5,000
100,000
Long-term Finance
150,000
Trade Creditors
35.000
Accrued Expenses 510 000
Profit and Loss Account
For the year ended Dec. 31 , 1998
Rs. Rs.
1, 100,000
Sales
Cost of sales 150,000
Opening stocks 875,000
Purchases 1,025 ,000
200,000 825,000
Closing stocks 275 ,000
50,000
Gross profit
Operating Expenses 125 000
Net Profit
100,000
Appropriations:
25,000
Dividend . rofit 125 000
Unappropnated p

Chapter _ 11 IN~ ERPRETATION OF FINANCIAL Sl'A TEMENTS - QUESTIONS
I
Required: I
a) . . ~ompute fhefo ll/owing ratios :
1) aurrent/ratio I
1
1
.I
ii) ~tock turnover I
iii) ii
J"eturn n eqmtyI · . . . .
1 7,5)
iv) l°ng-tehn Debt I Equity Ratio .
b) Indicate how eacl of the following transactions will affect current ratio:
I I .
1) ,,epayjent of loan
2) bllection of trade debts
3) J I .
r /~chasf s of machinery on credit .
4) i1
nte of of a doubtful debt
I
( .5)
5) I"!Sue_oT hares for cash.
{P C}
I
/·
I
I
I
I
-I

;......._ _INT_E_RP_R-.:E:...:T.:.:A~Tl~O!:N~O~F~F~,
INANCIALST
· ATEMENTS-SOLUTIONS (319)
INTERPRETATION OFF
. {SOLU~~~F STATEMENTS
vr10NNO. l
50L . . . -
irnplifies the mterpretation and compreh .
l. Its . . ens1on of financial statements -
t [acihtates mter-company comparison. R f . . . · -
1 r . a ios highlight th f;
,.,. companies. e actors associated with successful and unsuccessful
assists management in plannino forecast" d
3. It i:i, - mg an control. _
It also makes comparison of current figure .th -
4. . . -. s WI targets and past performances of the company meaningful.
It helps prospective mvestors m making th • . ..
5. eir investment decisions.
soLUTION NO. 2
]. Inflation may distort comparison of ratios over fime.

2.
Different accounting policies may distort inter-com pany companson.
.
3. The ratios are only as good as the financial infonnation on which they are based.
4_ The accounting information used to prepare the ratios may be out of date.
5. Changes in accounting policies from year to year may produce misleading ratios.
6. Usually the information presented in the published accounts is summarized, making a detailed analysis impossible.
7. Using industry averages as a basis for comparison can be misleading as they are the average of ratios from a number
of companies .
8. Financial statements, on which the ratios are based, only reflect the financial information but not the complete picture
of business activities .
SOLUTION NO. 3
(i) Gross profit ratio
= Gross profit X l00 = ~X 100 = 12.55%
Sales 54,20 0
Comment:
• • d · 20 18 as compared to 2017. It may be cause d due to i::tO JI owmg
· reasons.·
GP ratio has increase m
S 11 · ·ce may have increased . . .
• e mg pn . d h e decreased as a result of better negotiations with supp hers
• Purchase pnce of goo 5 may av
(ii) Net profit ratio
= Net profit X l00 = ~ X 100 =5.90%
Sales 54,200
Comment: dt 17 It may be caused due to following reasons:
· 2018 as compare O 20 ·
NP ratio has improved m efficiently controlled _
• Operating expenses have been
• Finance cost has reduced
(iii) Return on capital employed 100 = 19.21%
4 ,aoo - 150 x
= PBIT
- X
100 == (20,300+4,
000+l 000+17,100+5,000+1,000)/2
'
Average capital employed •
It may be caused due to followmg reasons:
Comment: . as compared to 20 17 ·
ROCE has improved m 2018
• Higher total gross profit ting expenses
• Efficiently controlled o~e~:e to repayment
• Bank loan has decrease
I
i lNffERPRETATION OF FINANCIAL STATEMENTS - SOLUTIONS (320)
(iv)
Return o;n equi~y
- Pltr
- Averagb Equity, X l 00 = 3 200
' X 100 = 17.11 % ·'
Commenr: I (20,300+17,lOOJ/2
ROE has /~mproyed in 2018 as compared to 2017 It may be caused due to following reasons :
• Higller total gross profit ·
• Effi 1. I I
I T ent Y i on trolled operating expenses
(v)
Return 9n tota ~assets
= IPBIT 4,800 - 150
Av erag/e total assets X 100 = (29,500+ 2 6,400) / 2 X 100 = 16.64% .
Commenif: 1
ROE ~as /impro yed in 2018 as compared to 2017. It may be caused due to following reasons :
• H1g~er total gross profit
• Effi9iently (:ontrolled operating expenses
• Effi, ient uT zation of assets
~OLUTION N0., 4
(1) Current lratio
_ Curr11n c asse r.s 7,5 00
- Curr e~t liab ilities = 5,200 = l .44
Commerlt: ·
Current ~atio has not only reduced in 20 18 as compared to 201 7 but it also has fallen below the ideal level qf 2:l.
It may be caused due to fo ll owing reasons: 1
I . I
• L oier mventon es
I '
• Lo ier debtors
• High er credito rs
• Advr rse cash and bank posi tion
(ii) Quick ratio
= Curr entI assets - st ock = 7,500 - 4 000 = _
0 67
Cu rr1,m t liab ilittes 5,200
I
Commell't: 1
Quick ra 'i io has not only red uced in 20 18 as compared to 20 17 but it also has fa llen below the ideal level ~f 1:1.
le may bl
cause~ due to following reasons :
• Lo er deb~o rs
•
1
Higlier creditors
• Ad v1erse cash and bank position
I I
SOLUTION NOJ5
(i)
I
Invento ,·y tur~over rat10
1
I '
-
-
Cos! of sales - 4 7,400
,
= 10 30 t·1Il1es
•
Aver al e inventory
1
(5,2 0 0+4,00 0; / 2
Comment:
lnventof nrri:o ver has improved in 2018 as compared to 2017. It may be caused due to following reasons:
1
• Efficient I.QVentory ma:rngement .
11 Higt er lev~l of sales
(ii) Inventory peri?d
I /•
- Averah,e in v ent ory X 360 = (5 ,200+, 4,0 00)/2 X 360 -- 34
_
col ,
of sales
, 47 400 .94 days I
Commelll: f
Inventory peri_od has improved in 2018 as compared to 2017. It may be caused due to following reasons: I
• Efficient mventory management . .
For
Higher level of sales More Visit www.castudymaterial.com.pk
0
INTERPRETATION. . .
0FFIN . ·
ANC1A1 S'f A' . .
"'~ fEMENTS - SOLUTIONS (321 )
Debtors turnover ratio
(iii) Sales 54
· -----=-:---- ·2~00~
:::: Average debtors
(3 ,100 + 4,3 0o)/2 :::: 14.65 times
comment:
Debtors turnover has improved in 2018
• Better control over recove as compared to 2017 It
. . ry · may be caused due to follow ing reasons:
• Shorter ere d 1t penods allowed
• More discounts offered
Debtors collection period
(iY)
Average debtors c3 ,100 +4, 3 00)/ 2
== S I
a es
X 360 = --~.::..!_I'
54,200 - X 360 == 24.58 days
-Comment:
Debtors collection period has impro d .
ve tn2018asc d .
• Better control over recovery ompare to 2017 . It may be caused due to following reasons:
• Shorter credit periods allowed
• More discounts offered
(Y) Creditors turnover ratio
= __P_ur_c_has_es_ _ = 4 ,000 + 47.400 - 5,200
Average creditors (2,300+i, 9 oo)/ 2 == 22.00 times
Comment:
· Creditors turnover has reduced in 2018 as compare d to 2017. It may be caused due to followmg
· reasons :
• Late payment to suppliers
• No discount availed
(vi) Creditors payment period
= Average creditors X 360 = (2,300+1,900)/2
Purchases 4,000 + 47,400 - s ,200 X 360 = 16.36 days
Comment:
Creditors payment period has increased in 2018 as compared to 2017. It may be caused due to following reasons :
• No discount availed
(vii) Cash operating cycle
== inventory period + debtors period - creditors period = 34.94 + 24._
58 - 16.3 6 = 43 .15 days
Comment:
Cash operating cycle has improved in 2018 as compared to 2017 . It may be caused due to following reasons :
• Efficient inventory management
• · Better control over recovery from debtors
SOLUTION NO. 6
(i) Gearing ratio (debt/ equity)
= ~ X 100 = 4,000+1,000 X 100 =24.63%
Equity 20,300
Com'!'ent: . . . s compared to 2017. lt may be caused due to fo \lowing reasons:

Gearmg ratio has improved m 2018 a
• Increase in equity due to retained profit
• Repayment of bank loan
(ii) . Gearing ratio (debt/ capital employed)
Debt 00 _ 4,000+t,OOO X 100 = 19.76%
== . X 1 - 20 300 +4,000+1,000
Capltal employed '
Comment: . mpared to 2017. lt may be caused due to following reasons:

Gearing ratio has improved m 201 8 as co ti
For
. Moretained
• Increase in eqmty due to re
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1t
• Reoavment of bank loan
------- -- ·_ I .
. I
~ - II . . TEMENTS SOLUTIONS q 22)
_ _ _ _ _ INT;ERPRETATION OF FINANCIAL STA r-
(iii)
Hate-rest J ver I'
:::: - PB1r/ 4 ,800
Finance j' st = 750 = 6.4 times
0 ·
Comment: 1
•
/ d due to followmg reasons:

Intere st co er has /improved in 2018 as compared to 2017 · It may be cause
0
H{gher profitability .
.. L©,wer finance cost due to repayment of bank loan
SOLUTION NO. 7
I
(a) SK Trade Co,mpu
' t atmn
.
rs of ratios
I
I
2016
I I
2017
G fl . i
ross pro ,at10 I r 26.42%
[98/371 x JOO}
30.00%
[90/300 x JOO]
I
I 7.33%
Net profit /.atio I
8.09%
I
I
{22/300 x I 00)
I
[30/371 x JOO]
i
- I
Return on assets !
8.60% 6.82%
I
I I [(22 + 8)/440 x JOO]
[(30 + 13)/500 x I 00]
I I
I
9.56% 8.33%
Return on / •pita! !employed
[(30 + 13)/(280 + 170)x 100} [(22 + 8)/(2 60 + 100) x JOO]
Debt equi+ ratio ! 0.38 0.28

I I [1 70 / (28 0 + 170)] [I 00 I (260 + I 00)]
I :
I
C I. 1.80 2.50
urrent rayo
! !
{90/50) [200/80)
(b) (i)
I
Profitab ility:
I
·/
-
1
I~ :2017, 'gross profit margin of SKL has reduce from 30% to 26.42%. however, gross and net pr~fits
amounts 1have been increased by Rs. 8 million mainly.due to: · ·i
I , .
• ,focrease in sales volurne as a result of 5% decrease in selling price_This resulted in increa~e Ill
gross profit by 8.89%[(98-90)7 90 x 100]. · I
• ~ cquisition of buiJd~g ?as resulted . i~ savings. in expenses as rent saved (Rs., ~ 5. millio1) is
higher than the deprec1at10n (Rs. 5 m1Il10n) and mcreased in finance cost (Rs . 5 milhon). 1
I · I
• Since 75% of selling and administrative- cost was fixed 1 expenses did not increase du~ to
,increase in sales volume (economies of scale). I
;
(ii) Li quidity:
1
Th.e decr~ase in currentrntio from 2.5 to 1.8 is net effect of the following:
I , . .
• · ,Cash payment for purchase of building which significantly decreased current assets.
I
• ):>rompt payment to suppliers which decreased the current liabilities .

I
I
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:
- 11 INTERPRETATION O
te r FFJNANcrAL
cnll P . STATElVJ
ENrs -: SOLUTlONS (323)
10NNO, 8
5or)J\,.\l\1INER COMMENTS
1c.Al' E . 0 required calculation ·of ratios fo .
equ_es~100 with the industry. 23.3% studen r com_µa~1son With the in . .
fl1 var1at1° . : ts obtamed passing mark dustry data and explanation of one possible reason
for . While computmg return on capital employed . s. Some of the common errors were as under:
h. 1 . ... ' non-current Ii bIT .
An in-dept ana ysis was m1ssmg as m stu· a Ities were not included in the denominator.
t to interpretation M any dents seemed t0 h'
arnoun s . . . · oreover, instead of . . t mk that just stating that a ratio is higher or lower
students tned to explam ~he objectives and exp 1ainmg the possible reasons for variation from the industry,
worse as compared to the industry. They a Pdur_poses of such ratios and whether a particular ratio is better or
re a vised to seek .d
BY ICAP gu, ance from ICAP's suggested answer.
oLvr10N
S [II Limited
»oo arison of BL's ratios with industry avera e and .
CoD1P g possible reasons for variation
Ratios ·. (a) BL's ratios Industry's
ratios (b) Reasons for variation from industry
Gross profiitt- - - - 1 - - -il6~·667710¾1/:o ---t---:;2~3~.5~0~%~ ~L; o~w=e=r:th:a:n~in:d~u~
s t:ry==~=-==~ - - - ~
margin 3,500 • Purchase of raw material at higher prices
100 as compared to its competitors
21,000 x • Inability to obtain economies of scale in
productions compared to its competitors
• Higher production costs due to
inefficiencies
• Deliberately keeping selling prices lower to gain
the market share
Net profit 3.83% 7.70% Lower than industry
margin • BL's gross profit margin i~ 6.8% lower
805
than industry (16.6% Vs 23 .5%) whereas net
21,000 x!OO profit margin is only 3.9% lower which
indicates that BL's operating expenses as a
percentage of sales are approximately 2. 9%
lower than the industry
Current ratio 1.50 2.75 Lower than industry
• Since gearing ratio is lower than the
1,500 industry so BL might have:
1,000 obtained running finances as compared to
long-term financing by the industry
availed extended credit terms from
suppliers
■ Low inventory levels are maintained by BL

■ Shorter credit terms are given to debtors
37.5: 62.5 50 : 50 Lower than industry
Gearing ratio
■ Difficulty in raising long-term finance
3,000 from banks due to low profits
■ Running finance or extended cre~it terms from
4,000 + 1,000 + 3,000
suppliers are available for BL
32.90% Lower than industry
Retum on non- 21.33% ■ Lower profit margins
current assets ■ Relatively newer non-current assets have higher
1,150 + 450 x 1OO carrying value
7,500 ~-l--: -::-----.:.4~0;;--;%~ -;L:--;o:w:;e;;r-;.th~a~niiin~dhiu~st;;ry- ; - - - - - - - - - - -
- o_n_c_ap-it_a_l _ _-t___2:;.0fl,niooilio¼1/o;--
R::etu:::-m 27 ■ Lower profit margins
employed ■ High shareholder's equity
1,150 + 450 : >X~l~OO~--::::-:;~~Tn~~~~~y---- - - - - - 7
4 000 + I 000 + 3 OOO_ 1. 30% Lower than industry
3
Re::tu:-m~o-n- - - - - + ~ ~ ~l-;:61.li iO!D,Ofil, o ■ Lower profit margins
equity ■ Higher shareholder's equity/low gearing ratio
~ k &:a
STATEMENTS SOLUTIONS
Chapter - 11 INTERPRETATION OF FINANCIAL .
SOLUTION NO. 9
·
I I
ICAP EXAMINE , COMMENTS d . d try data. Only 9.9% of the students cor ld
T . • year an m us . · f · . .
t
The .question requir d coniparison of given ratio~ with pre~10uslatively infrequently exam1.ned topic o mterpretat1on of
secure passing mar ~s. Sinbe the questim~ was based on t e re ·ured \ess than 20% marks.
1 I ·
0f h
ratios , many student~ w erelunprepared . 62 .7% t es
tudents sec
.
·
~
1
lr ady given and the student ..,,
• However ratios were a e s nere
Generally, students ,only fo cus on the formulas of ~he r~tws. . The poor performance of the student was due to ~ack
required to identify reaso~s for variation from ~he given mformattonh ht that just saying a ratio had gone up or down
st 01
of their ability to i 1terpret the underlying ratios. Many udents t ~~ nominator and denominator did not carry any
· amounted to interp 1etatioi~- Also, merely stating increase or .decreaS(, Ill .
marks . ·
I
I
SOLUT[ON BY PIAC
- ,- Reason for fluctuation with industry
Ratios I 1
Reasons for fluctuation with l! revious ye~i r d +- 11
It is worse than industry ue to 10 owing
Gross profit margil '. No fluctuation 1
possible reasons :
• Lower selling price as PSL is new in I
business
• Higher purchase cost as PSL could not I
negotiate better
1
• Higher J)rnduction costs 1
I .
Net profit margin I It is better than previous year due to followmg It is worse than industry due to following \
i possible reasons: possible reasons:
• Higher total gross profit • Lower total gross profit as compared tq
• Efficiently contrqlled operating expenses competitors
• Low finance cost • Higher operating costs as compared to 1
competitors
I
Return on shareho ders' I It is better than previous year due to following It is worse than industry due to following
equity I possible reasons: · possible reasons:
I
l• Lower tax rates . • Lower profitability as PSL is new in
I• Higher profitability business
: • Higher dividends thus reducing equity • Lower div_idend distribution as comparfd
to com2et1tors ,
Current ratio \ It is worse than previous year due to followin,g It is worse than industry due to following 1
I
, possible reasons: possible reasons: 1
• Efficient debtors management • Lower credit periods to debtors

• Lower inventory levels • Lower inventory levels
i• Increase in creditors • Higher bank overdraft levels
· • Higher bank overdraft levels
! Debt to equity rati~: 1
It is more risky than previous year due to It is still less risky than industry due to j
i following possible reasons: following possible reasons:

\ • Further increase in debt to invest more in • Finance providers have not invested much
assets as PSL is relatively new in m_arket I
Higher dividends thus reducing equity
Cash operating cyr !•
\ It has much improved from previous year due to
; following possible reasons:
It is almost equal (much closer) to industry!
average
!• Efficient inventory management
• Delayed payments to creditors
1 • Lower credit periods·allowed to debtors
I
i.
I

CbllPter - 11 INTERPRETATION . -
~I . OF FINANCIAL s
\; ~Vf{0N NO. l O . TATEMENTS - SOLUTIONS (325)
S' so
\I lc1-r f:)(AMINER
Th '
coMMENTs
s) i_s part of the question r .
~- . ~h1ch were_provided in th:qu1red_the candidates to criticall . .
--·--.. H11Pi:,~ved significantly queStion and comment on th Yanalyze the vanous ratios pertaining to three years
·- · . · . e management's claim that the company's liquidity has
The overa 11 perform .
dec1are d on the ba~isance was bet
of b . ow average as the cand"d 1 . .
.
.
quick ratio. Some of th e~er current ratio that th ates dis~laye? lack o_f analytical skills. Most of them
a declining tren·d . em simply stated that curren: m~nagement s ?omt of view was correct and ignored the
·· ·. ratio with increas 0.0 1Y few could provide an over ll r~tio ~fleets an improvement whereas quick ratio indicated
are advised to see~ m ~urrent ratio was indicative ~f s~~ewk a~ed on both the ~atios. The fact tha: decline in quick
guidance from ICAP ' c build up was mentioned by few candidates only . They
This part of th . s suggested answer. •
(b) e question cont · d
analyse
f h the . liq Ul·dity,
· profitability
ame and
extracts
w k'from fi ~ancia· 1
statements of two companies. The requirement was to
o t_ e ratios correctly but interpretation sril;;g capital_ratios. Th: students were generally able to compute most
which of the two companies had ab tt . were senously lackmg as most of the students only stated that as to
Many students could . .. . e er ratio, In depth analysis was mostly missing.
not differentiate betwe h
en t e three types of ratio·s and classified them incorrectly.
SOLUTION BY ICAP
(a) :N11ile analyzing liqu'idity positions of OF . . . . .
1s better than industry average H L, it IS ~oted t~at current ratio has steadily mcreased over the years and
average. This is a clear evid · ;wehve~, th e quick ratio has steadily decl ined and is even lower then industry
ence t at t e mcrease in liquidity is caused by an increase in inventory.
Further, by considering the nature 0 f h. hl . · .
poss ibility that DFL b h' h . ig Y penshable mventories kept by a dairy food company, it is a
. . may ear ig mventory losses due to short expiry.
Based on the above, I do not agree with the claim of DFL' s directors.
(b) Profitability ratios A B
Gross profit ratio (GP+ sales) 16.36% 18.00%
Profit to sales (Profit after-tax+ sales) 9 .62% 10.46%
Return on cap ital employed (Profit before interest and tax+ capital employed) 32 . l l % 23 .81%
Return on asset employed (Profit before interest and tax+ assets) 16.69% 15 .92%
Company B's gross profit and net profit ratio is slightly higher as compared to Company A. The difference is not
significant and may be on account of higher level of sales resulting in lesser fixed costs per unit.
Company A' s return on capital employed ratio and return on asset employed ratio are better than Company B,
because Company B has accumulated large balances of cash despite of availing long term loan. Had Company B
had used its cash balances to pay off the long term loan, it would have both of these ratio better than Company
A.
A B
Liquidity Ratios
l.36 2 .12
Current ratio (current assets + current liabilities)
0.91 l .75
Quick ratio (current asset-inventory+ liabilities)
t d quick ratio However, it appears that these ratios are better than Company A
Company B ha~ bette: churren ~ of trade deb~s in term of percentage of sales as sales days. It also represents a
due to substantially h1g amoun . . bl ·
risk that these trade debts may prove rrrecovera e. · ·
. . . f ·nefficient in debt collection as well.
Moreover, they may be md1cative O 1 .

Chapter _ 11 ·
- -:--:=------~--~l~N~T~E~;RP~R~E!T~A!T~IO~N~O!F_!'.F~IN~AN~CgIA~L~S~T~A~T:!Ei~M~E~N~T~S:_:-~S~O~L~U~T~I~O~N~S~---
I
. ~
work'mg ca I
ital turnover ratios
A I
58 60
st0 ck turno er dayd (Stock+ Cost of goods sold x 365) [A] ·
55 27
Debtor turn ver da] s (Debtor+ Revenue x 365) [B] ·
96 65
Creditor ~ver di ys (Creditor+ Cost of goods sold x 365) [C] . -
17 22
Cash operati 1g cycle [A+B-C] (days) · . . · . · 22.l
Stock turno er of (Company B is better than that of Company A. Company B IS turrung over Its stock 9 t·
I , Imrs
whereas co pany AI is doing it 6 times a year. . -
Company A is mor1e effectively collecting it's debtors than Company B. Th_is could also be due to the fact t
I · Th ' ~ t · 1 at
Company B is follqwing a lenient credit policy to attract more revenue._ is iac is a so supported from hig r
1
stock turnov r ratio/of Company B. . · . . · ·

Company A~ have 'availed better credit facility from its creditors but it may have forgone some settleme 1t
. fC . B
discounts w ich might have resulted in lower gross profit ratio than that o ompany •
1
Overall cas~ operl ting cycle of Company A is better than Company B. Furtherm~re Company B has
accumulated ]arge fualances of cash despite the fact that it has also availed long term loan. Excess cash balan~e
should have :een u~ed to pay off the long term loan to reduce the finance cost.
. I .
.
.
!
I
I
SOLUTION NO. 11 · I I
I '
IC~P EXA~INER _coM~ENTS . . . . . . . . . I
1
This was a fairly stra1l ht forward question where the candidates were reqmred to calculate and analyze the hqu1d1ty rati s
and working capital cr cle o~a company for the years 2015 and 2016 .
Generally, the questiG>n was well attempted. However, many students provided incorrect and irrelevant comments al o.
1
Moreover, instead of ~aking ;average debtors, average creditors and average inventory for C(?mputation of working capi al
1
I
cycle, many students took theI closing balances . .
SOLUTION BY PAC
I
LIQUIDITY RATIOS
1) Current ratio
Calculation:
2016 2015
C .,iTcnt assets:
Accounts receivable 35 .00 25 .00
Tnventory [Al 30.40 26.00
Cash at bank
[BJ 65.40 51.00
Current liabilities:
Accounts payable 15 .00 14.70
Bank overdraft 2 .00 · 0.50
[CJ 17.00 15 .20
Current ratio [B/C] 3.85 3.36
I
Comment: _ I
Current ra~10 has incr ,ased i~12016 as compared with 20J5 . Current ratio is better ifh' h h h h'ah
current ratio [general ~ higher than 2: 1] is over capitalization of assets ig er, owever, muc .10 er .
2) Quick ratio I · - ·
i
Calculation:
I
Quick ratio [(B - A)/ :~ i 2.06 1.64
I
!
Co~men~: . I
Qmck rat1_o has mere sed in 2016
1 as compared with 2015 • QUIC· k ratio
· 1s
· bettenf
• high h
! For More Visit www.castudymaterial.com.pk
much higher qu ick ratfo [generally higher than l · l] ma
1
er, owever,
Yrepresent poor recovery from debtors
•
: te:..-r-_ll_ _ _lNTERPRE .. .
Cb9P . . TATION
___OF .nNMCMLs . .
\ . _ ~- TATEMENTS - SOLutIONS (327)
.~wo¢NG CAPITAL CYCLE

\ tPwdon:
ca11 .
.
'y/Ccycle == Debtors period (l) . · .
' + Inventory period (2) . . .
_ - Creditors period (J)
. 201
= 131.4~ 2015
101.88
conttnent:
working capital cycle has increa d . ,
. .h se m2016
p nuch h1g er cycle shows possible poor recove
as compared
fr
with 2015, WC cycle is bette r 1'fl ower.
.
· ry om debtors and over capitalization of stock
ff'orkings:
credit sales 2016 2015

[DJ 135,00 120,00
Credit purchases:
2016 2015
Cost of sales
[E] 101.25 90,00
Closing stock
30.40 26.00
Opening stock
(26.00) (18,75)
[F] 105.65 97.25
Avg, debtors [GJ 30.00 20 .75
Avg. stock [HJ 28 .20 22.38
Avg. creditors [IJ 14.85 13 ,85
Debtors period [G/D x 365] (1) 81.ll 63,11
Stock period [HIE x 365] (2) 101.66 90.74
Creditors period [VF x 365] (3) 51.30 51.98
SOLUTION NO. 12

'I:1is question tested the concept of revenue recognition and consisted of three parts. The performance in each part is
discussed below: ·
(a) The question required· two examples each _of situations where (i) legal title passes but risk and rewards are
retained and ii) legal title does not pass but nsk and reward are passed on to the customer, ·
The overall performance was
average. Generally the students were abl~ to give proper examples in the first case
but not in the second case: Many candidates· ~avr only one example m each case. Surprisingly, many students
repeated the same examples in both the scenarios.

.Shapter - ! l
. i
INTERPRETATION OF FINANCIAL STATEMENTS - SOLUTIONS (32, )
(b) This Part co t . I - I
. d be relqgnizetl.
woul amed thre T; situations
· and in each case the candidates were required to explam. when the reven~e
(1) M) t I e key observations in each case are discussed below: 15 I
f. · of
owever t< tlie student · d h
s correctly mentioned that revenue will be recognize w en con ac tr t · secure~-
hMa ! y stud'uey coul . d not explain as to what would happen if the buyer is · unable to secure the contra t.'
Ab . f
nts mcorrectly mentioned that 10% revenue shall be recognized immediately on sale.
(ii) ho ut everSO% of the candidates · mentioned correctly that revenue shall be recogmzed · on delive~·
deli •ery , on 1 y fe w could specify the treatment if the castomer paying the secu,nty
. depoSlt. does not ta e, ·
1I
· est of . 51 0·
· s b-pariepos1t
m O as the demand was high and no one would like the security · depo ·t t be ",ouelted.
-" · Liie
rec ipt as lit;
,;/u.mber of candidates mentioned incorrectly that 25% revenue shall be recognized n
Ma· '. . I unty depoSit was not refundable. ·
(iii) eithJOnty
r su answered
I I
th·ts sub-part correctly although it didn't seem to be easy. Most of those who errad
be Jecog~1~led proportionate recognition on the basis of time or recommended that no revenue shou\d
(c) The perfonn

prices were 11b-nce 1
wer i Ith.15 part was poor. The candidates were unable to understand that since sale and repurcha;,
M ost studen I" suo- 1lllan
I dthe fai r va 1ue, under the principle
. of substance over form, 1t
. was a loan rather than a salr
S "' O geste
I th at sale should be recorded and the asset should be credited. ·
OLUTION BY IC p l -
i I
(i) I (2,500 - 900)
Current Ratio = Currept Assets 1,600 ==> - - - - - - - - - - => 2.01 : 1
t urrentj Liabilities ~ 798 (2,500 - 800 - 152 - 750)
(ii)
Acid Test Ratio
.
l Curre~ t Assets - Inventories
c· urrent Liabilities
750
~-
798 (2,500
(1 ,600 - 850)
~-------'-----
- 800 - 152 - 750)
::::;, 0.940 : 1
1
(iii) Geanng Ratio I, 750 (1,600 - 850) => 0.44
==>....,.------
= Long te'n n debt ==>--
1,702 (800 + 152 + 750)
Share capital af' d rese1ives
'. + Long term debt
, I 40 + 23 + 67.S
(iv) = Profit ~e fore interest and tax 130.5 => 1.933
Interest Cover ~--
67.5
==> 67.5 ·
lpterest expense
I
600
(v) Receivable d ays --
-- Trad~, receivable
. x 365 => 600 x 365
~(1,700
--- --
X 80%)
=> 161 days
Cre.d1t sales 1,360
(BSO+ 100) + 2
=I
{vi) Inve ntory days
t
Avert ge Invento r/ x 365
Cost goods sold ~ 1,155 x 365
475 ~ (1,700 - 545) X
365 => 150 days
319.2 ~ (7 98 X 0.4)
(vii) Traqe paya ble 365 => 61 days
Creditors days
365 ==> 1,905 X 365 (1,155 - 100 + 850) X
Credit Purchases x
SOLUTION NO. 13
ICAP EXAMINER {:,:OMMENTS

I queJtion was relatively better. However many students 1acl':ed
The performance in tJis 1 •
1. prope ,d ct· ,·
sale, purchase and ot~er tran~act10ns on the stock account. Mistake. s were comrnonh'. . r un ers~an mg of effects 9f
into cost. Most stude, .'s got confused
follows : I between gross profit method and cost 1 "tade ':' convertmg of selling price I
pus met od. O!her common mistakes were i'
The special discourit allowed should have been calculated and a~d db k . · '
should have /ieen cdlculated (6000 x 1.2 = 7200), then extra discouni°sh a~ to sales. First, normal selling pribe
720). and adt, ed badk to net sales. Very few students could perform th"ts ould
· . 1 I. ha~e been calculated (7200
ca culatton. . •
x 10%.
==
Goods given as chanty should have been deducted {at cost price) fr th . ··
~
ignored this adjustrr\ent or used sale price instead of cost price. om e closmg stock balance. Many studetjts
Many studen\s ignore

· . I
I d a11 m1orma
. t"ion pertammg
· · to subsequent accountin . although it
g penod . was relevant I

INT
ERPRETATION OF
. FINANc1
soLVTION BY PAC AL STATEMENT
. S - SOLUTIONS
cash operating cycle === ------~(3~2~9)
Inventory turn · .
turnover periodover penod
·
+ Trade .
72 (W 1
78 d
- ) + 60 CW-2) - 54 (W receivable turn over peno
· d ·
- Trade payable
ays -3)
(W-1)
{Working notes}
Inventory turn
over period
_ Inventories
Cost of goods sold X 360 ·
30
150 X360
fvV-2) 72 days
Trade receivables tum .
over period Trade receivables
Sales X 360
so
300 x360
60 days
(W-3)
Trade payable turnover period Trade receivables
Purchases .X 36 0
21
140 x360
54 days
Significance:
I~ shows_tdhe time between payment of materials & recovery from debtors. The organization requires financing for this
time per10 .
b) Limitation of accounting ratios:

► Ratio analysis provides only quantitative analysis, not qualitative analysis. That means trueness and
correctness all depends on financial staterpents prepared by management.
► Ratios need to be interpreted carefully. They can provide clues to the company's performance or
financial situation. But on their own, they cannot show whether performance is good or bad.
Ratios require some quantitative information of an informed analysis to be made.
SOLUTION NO. 14
Average age of Debtors
(a)
2008 2009
2007 = 90 X 360
= 75 X 360
= 50 x360 400
360
300 = 81 days
= 75 days
= 60 days
Average age of Creditors
2009
2008
2007 = ilx360
= 45 X 360
= 39 x360 300
270 = 62 days
225 = 60 days
= 63 daysFor More Visit www.castudymaterial.com.pk
I
Chapter - 11 ;INTEilPRET ATION OF FINANCIAL STATEMENTS - SOLUTIONS (330)
-r
I
Average age of Inventory
I \·
2009
200] · 2008
= So x 360 78 X J60 = 92 X 360

2 5 I 270 300 .
=90 clays = 104 days = 111 days
. Current ratio
200 2008 2009
= 50 · 56 + 15 = 75 + 78 = 90 + 92
2 +45 51 + 4
1 39
= 3.10 = 3.26 = 3.31
Quick ratio
2007 . 2008 2009

I
= 50 t 15 _E _2Q
51 +4
2.+45
19
= 1.67 = 1.60 = 1.64
I
(b) I
I
qf
I
► Average age debtors is increasing from 2007 to 2009. These show slow & ineffective collections from
debtors . This effect c, sh inflow situation. Hence company is facing short term cash flow problems. ·
► Average age ~f creditors shows that the speedy payments to the creditors. Hence. cash flow situations are
affected. The pl yment period should match with the credit policy. ·
► Average age o, in vent~ry increasing from 2007 to 2009. This shows ineffective management of stock.
► ,Current ratio is. imprtjving with the span of time which shows good condition of the business but because of
more debtors af d stocks. In addition cash balancl.! has also been converted into overdraft ..
► Quick ratio is also go1d.
SOLUTION NO. 15 I :
I
I
Computation of Relevant Ratio
A B
Curren ratio (W-1) 1.54 times 2.12 times
Quick f~tio CW-2) 0.95 times 0.95 times
Collec~ion pe~iod (W-3) 31 days 73 days
Inventory period (W-4) 54 days 12 7 days
Paymei' , t peririd (W-5) 92 days 92 days
I
i
I fu~ ~ n~~n
Current Ratio: A has 1.5!4 rupees in current assets to pay current liability of Re. 1 whereas B has 2.12 Rs. for the
is
sa4i-e. B better than A in this ratio. , . ·
Quick Ratio: Bo!fu custjomers have 0.95 rupee in quick assets to pay Re. 1 of current liability. Therefore both
hayie sam{ potential in this ratio. ·
Collection Period: A ts coll9cting the amount from its debtors in 31 days whereas B is doing the same in 73 days.
Thr forel A is efficient and obviously having better liquidity in this regard.
ter- 11
ctia P
INTERPRETATION OF FINANCIAL STATEMENTS SOLUTIONS
(331) ,
/ entory Period:
JJJV
A is selling
compared tothe
thatstocks
ofB. in 54 days whereas B -in 127 days. It means A' s inven;ory is more liquid as
ment Period:
J'SY
Both customers are making payments to their creditors in 92 days.
~ents on the opinion of_Mr. Alam,
AS apparent .fr om a b ove ratios, A ' s hqu1d1ty

. ventory penod; · · · · pos1t10n
. . _1s
. better than B, particular
. y wit
· h re fier ence to collection and
m . . 1
furthermore, B h as b ank 0 .D . and obviously,

• A has Bank Balance. Therefore, we cant , say t h at A' s liquidity position is
bad as compared to B . So A may be allowed extending credit facility on the basis of facts and figures .
{Workin.g notes}
(W-1)
current assets :
A
B
= Current assets
Current assets
Current liabilities
Current liabilities
= 57 .67 {W-6) = 133.38 {W-6)
37.40 (W-6) 63 .10 (W-6)
= 1.54 times = 2 .12 times

(W-2)
Quick Ratio :
A B
Current assets - Inventories Current assets - Inventories

Current liabilities Current liabilities
= 57.67 -22 = 133 .38 - 74

63 .10
37.40
= 0.95 times
= 0.95 times
(W-3) .
Debtors' collection penod:
B
A
= Debtors x 365
= Debtors x_36 5 Sales
Sales
= 51.80 X 365
= 14.67 X 365 259
176
= 73 days
= 31 days
\
Shapter- 11
~~·~~~~~~~~~~~!E~M~E~N~T~S.::_-:_.::S~O~L::.::U:..:T:.
J\
r~~~:..!_! _ _ JNTEFµ>RETATION OF FINANCIAL STAT
:IO
:::._N_S_ _ _ _ _ (331.) I\,· ..
.
'l
i f
(W-4) I
Inventory Period:
B
A
== JnventofY x 365
= In ento , x 365 Co.st o~ sale I
I.
I '
Cor 1ofsale
== 74 . x365
= 2Q X 365 212.8 , · · \
't
= 54 ays
I == 127 days
(W-5)
Payment Period:
I
II B -
A
I
Creditors x 365
= Creditors\ x 365 Cost of sales
Cost of sali~
I I
I I = 53.10 x365
= 37.~Q X 3p5 212.38
149160 i
I ! == 92 days
= 92 ays I
I
(W-6) i
Current Assets I
i
1
22 74
Stock / 14.67 51.8
Debto·;5
ll ~
Other .urrent1assets
57.67 ~
Current Liabilities:
Credit©:rs 37.4 53.1

I
Bank ¼1,D 10.0
~
SOLUTION NO. 16
(a) Interest cover r tio:

I
Company A 1 Company B
!
= Eam1n before
I/ .
interest an d tax = Earning before interest and tax
· p·m;mce
!
I
cost Finance cost
. I
_ 4,57(5+ 2,4~4 + 2,000 4,615+2,485+300
=
2,0 0
- I
9 300
= 4.52 : . = 24.667
Compa1l1y A h~1s Rs. 4.52 to pay for each rupee of interest payable. Company B has 24.66i rupees. The
loan takien by company B is much less than that of company A.
I I
i
I

I I
I
Chapter - 11
INTERl'RETATION OF FINANCIAL STATEMENTS - SOLUTIONS
(333)
(b)
For comparison purposes, we need to compute some other ratios also.
Ratios
Company A Company B
Gross Profit Ratio {W-1)
Net Profit Ratio (W-2)-· 24% 30%
Return on Capital Employed (W-3) 8.47% 15.38%
Return on Equity {W-4) 19.65% 20.56%
Return on Assets {W-5) 17.60% 13 .98%
15.43% 14.71%
(W-1) {Working notes}
Gross Profit Ratio

Company A
CompanyB
Gross Profit
-~----x100 Gross Profit x
Sales 100
Sales
12,960
= -x100 = 9,000 xlOO
54,000
30,000
= 24%
= 30%
. (W-2)
Net Profit Ratio
Company A Company B
Net Profit
= --- xlOO Net Profit xlOO
Sales Sales
= 4,576 xlOO - 4,615 xlOO

54,000 30,000
= 8.47% = 15.38%
(W-3)
Return on capital employed
Company A Company B
100 Profit before interest and tax X 100
Pro f t·t before interest and
ed tax X Avg capital empoyed
Avg capital empoy .
4,615 + 300 + 2,485 X 100

4 576 + 2,000 + 2•464 X 100
27,000+3,000 + 6,000
6,~00 + 20,000 +20,000
=20.56%
= 19.65%
(W-4)
· Return on Equity
CompanyB
Company A
Profit after tax x 100
Profit after tax x 100 Average Equity
Average Equity
,6_I_s __ xl00
_ _4_
4,576 x lOO = 27,000+6,000
For More Visit
20,000+6,000 www.castudymaterial.com.pk
= 13.98%
Chapter - 11 INT~RPRETA TION ·oF FINANCIAL STATEMENTS SOLUTIONS (334)
(W-5)
Return on ssets :
I ' Company B
Com pan)~A Profit before interest and tax x 100
~rofit b)Jore interest and tax X lOO = Total assets
I iTotal assets · ,615+2,485+300 X 100
-r;~r-•
4
= <lj, 576+2,~64+2,000 X l 00 = 3
5,000+15,300
70
. - 14.71% . .
1
Performance of C,ompany B . . G . Profit and Net Profit ratio. As far as

I d
With respiet to pi·ofit margin, B performe we .
i 11 as it has high
d pared to A. However, B ut1'lize d its
ross . ass~ts 1i
utilization f funds is concerned, B's performance is not goo as com ·

in a better ay thru~that of A. - 1I
! .
SOLUTION NO. 11 i .
Current Assets - Inventory
(a) (i) Acrd Test Rat10
1
Current Liabilities
800,000 - 310,000
s?s,000 -
0.ss times or 0.85 : 1
I : • Total Credit Sales

(ii) Debtors Turnover ratio
I Average Debtors
1,675 ,000
350,000
= 4.79 times
I Cost of Sales
(Hi) I
lnVientory turnover rat10
•
I I
Average Inventory
I
1,000,000
310,000
I 3.23 times
! I
(iv) As~;ets Tu1110ver Ratio Net Sales
I
I
Average Total Assets

1,675,000
=
2,250,000
I ! _ = 0.74 times .
Note: In absence of ~pecifi;: information all sales are considered as credit sales .and closing debtors are considered as
~verage
mventorydebtors, si I :.
respective 'larly ~losing
: balances of assets and inventory is considered as ~verage total assets and aver, ge
I • •
. . -

Cb9eter - 11
INTERPRETATION OF ~TATEMENTS- SOLUTIONS --
TION NO. 18 (335)
SoriV
Gross Profit Percentage
(9)
2001
Gross Profiit 2000

Sales X 100
Gross Profiit
X 100
62,400 Sales
X 100
520,000 65,400
:::: -----
327,000 100
= 12% · X
Mark-up Percentage === 20%
2001
2000
Gross Profit
· X 100 Gross Profit
Cost of Sales·
X 100
Cost of Sales
62,400
457 ,600 X 100 65,400
:::: X 100
261 ,000
= 13 .64%
===25%
Note:
It is to be noted that mark up is calculated on the basis of cost, therefore we used Cost of Sales as base
for calculation of Mark:-up Percentage.
Six possible factors that caused a fall in Gross Profit of 2001.
Given below are the factors due to which gross profit has fallen in 2001.
(i) - Selling price per unit was decreased.
(ii) Purchase price per unit was increased.
(iii) Closing stock was overvalued in 2000.
(iv) Closing stock of 2001 was undervalued.
(v) Purchases of last year were recorded in current year.
(vi) Sales of current year were not still recorded.
(b) Stock turnover period
2001 2000
Average Stock Average Stock

X 365 X 365
Cost of Sales
Cost of Sales
71 ,200
72,825 = ---x365
---x365 261 ,600
457,600
= 99 .34 or 100 days
= 58 .09 or 59 days
Average Stock
85,400+ 57,000
= 60,250 + 85,400 =72,825 2.
2
= n,200
= 72,825
Inventory period has been improved in 20~ I, whi~h shows that_enterprise has managed its inventory more
efficiently in 200 l as compared to 2000. Tlus may include reducmg th e prn duction cycle, effective utilization
etc.
I
Chapter - 11 lN'J1ERPRETATION OF FINANCIAL STATEMENTS - SOLUTIONS (3 6)

l.
SOLUTION NO. 1 .
1. I
No effect: I
Purchase f raw t.aterial would either decrease cash or increase liability. On the 0ther hand • it will increase the
stock in trade, so there will be no effect on working capital. . .
2. Increase: / . .
Sale of fin shed goods would either increase cash or increase debtor~ with sale ~rice,.where_as st0 ck in trade ill
-decrease ith the/cost price, so working capital will increase only with the margm of profit m SUCh sale.
3. No effect: I
As one e ct wobict be in the income statement and the other would be in fixed assets.
I
4. Decrease: 1
•
By makin , payJ ent of operating expenses. cash would decrease and on the other hand expenses in inc me
statement ~vould ~ncrease. Hence, a decrease in working capit:11.
I
I
5. Decrease: I
I ·,
A long-tef asse,t would be debited whereas a current liability would be created for it. So decrease in wor ing
capital. I _
I
6. No effect: ! ·
After the {aymedtI of a current liability
.
out of a current asset( cash) the amount of working capital will rema· the
same. i
I
7. No effect: . 1 • •
. .
A s it . I f
1s copvers10 n o a current asset (debtor) into another current asset (Cash).
1
I I
8. Decrease:/ !. . · ·
By paymept of d/iv1dend declared, the amount of cash would decrease whereas current liabilities would re ain
unchanged!. Hen1e a decrease in the amount of working capital.
9. Increase: ,
Cash_(a c'f'ent + ,et) will increase by the issue of capital (a non-current item). Hence, increase in the amou t of
workrng capital. .
.I I
10. No change: /
I, I
Where~ durren_t ;asset ~cash) would increase a current liability (short term loan) would also increase. Henc , no
_ change m /workmg capital.
. I I
I
I
• .
SOLUTION NO. 1!0 !

I
i
Abid Limited
i
!
I i 1999 1998
Liquid Ratio ('V-;-I)
II I . 1.1875 : '1 I :I
Average rt te of s:tock twnover (W-2)
4.4 4
Net Profi~as a p~rcentage of sales (W-3)
7.09% 7.5%
Earning a a perqentage of capital employed (W-4)
1
Net.eami1lgs £or ,prd"mary shareholders as a percentage of equity (W-5)
1
18.96 % . 20%
~3.08 % 20%
Ratio of sales to tong-tenn capital employed (W-6)
1
! 2.04 2.671
For More Visit www.castudymaterial.com.pk I
I
~7)
ter · 11 INTERPRETATION OF FINANCIAL STATEMENTS - SOLUTIONS
~
{Working notes}
("'-1)
Liquid Ratio
1999 1998
Liquid Assets Liquid Assets
Current Liabilities Current Liabilities
190 120 .
160 120
= l.1875 : l = l :l
(W-2)
Average rate of stock turnover
1999 1998
Cost of Sales Cost of Sales
AverageStock r,,v - 2.1) Average Stoel( rwv - 2.1)
660 480
150 120
= 4.4 = 4.0
(W-2.1)
Average Stock
1998
1999
130+ 110
170+ 130
2
2
= 120
= 150
(W-3)
Net profit as percentage of sale
1998
1999
Net Profit
Net Profit
Sales
Sales
60
78 = -xl00
= -xl00 800
1100 = 7.50%
= 7.09%
(W-4)
Earning as a percentage of long-term capital employed
1998
1999 PAT + Interest Expenses ~ - 4.1 )
-----------xl0O
+
PAT Interest Expenses ~ - 4.1 )x100 Capital En:iployed
Capital Employed
60
= -xl00
102
For More Visit www.castudymaterial.com.pk 300
= -xl00
538
. ,.. ,.. ,,,,.. '
I
-.I I
(338)
· ~'lTERfRET ATION OF FINANCIAL STATEMENTS - SOLUTIONS
Chapter-11
(W-4.1) I . .
Interest is being paid o Tenn finance Certificates (TFC) @ 12%. Interest expense for 1999 1s 200 x 12% = 24. There
f
• . I
tsno Interest Expenses or 199,8.
Note: The TFCs were i sued 1-1-1999, therefore included in the oi,ening Capital Employed of 1999.
(W-4.2) 1999 (200 138+~00) = 538; 1998 (200 + 100 + 0)=300 .
(W-5)
j
Net earnings for ordinafY share holders as a percentage of equity
1998
. 1999 1
Prd>fit aft r Tax Profit after Tax
= -; -xIO0 = _ xl00
Equiey Equity
I.
1~ I 60
= - , xl00 = -xI00
338 300
I
= 20 .00%
=23! 8% ··
{W-6) ·I
. I
Ratio of sales to long t rm caP,ital employed
I
1999 l 1998
;
! Sales Sales
=
- Ai erage ¢ apital .Employed(W - 4.2) Average Capital Employed (\V - 4.2)
l, ~00 800
=- ,-
5f 8 I 300
= 2 .667
_ -2.°15 I
. (b) COMMENT$ 1
Liquidity posjtion ot Abid Limited has improved during 1999, thus increasing the entity's ability to meet its
current liabilits. T+ liqui_dity has partly increased due to raj,ing of long-term TFCs.
As here workf g capital° is in the nature of efficiency ratio s'o we take average capital employed.
i I "'
Ra~io.of sal~s jto Iong~term capital has deteriorated which does not augur well for a long-tenn prognosis. If this
ratio 1s not n"tjprove4 m the future, the entity may not be able to sustain the returns it is offering to TFC holders
I I '
and shareholders. i .
For
i
I
I
More Visit www.castudymaterial.com.pk
II
Chapter - I 1 · INTERPRETATION OF . .
FINANCIAL STATEMENTS SOLUTIONS
(339)
1,UTION NO. 21
50
(i) Current ratio
(9) Current Assets
Current Liabilities
310,000
185,000
l.68 : I
(ii) stock turnover Sales
Cost of Sales
OR
Average Stock Average Stock
1,100,000
825,000
175,000
175,000
6.29 times
4.71 times
~ verage Stock 150,000 + 200,000
2
175,000
(iii) Return on Equity Net Profit

xlOO
Average Equity
125,000
---xIOO
21 2,500
58.82%
Long Tenn Debt
. (iv) Long-tenn debt I equity ratio= xlOO
Equity
100,000
xlOO
225,000
44.44%
(b) Affect on cwTent ratio (C.R.) of the followings payments
S.#. Nature of transaction Affect on current ratio Reason

I Re-payment of loan Decrease Decrease in cash
,,
~ Collection of trade debts No change Debtors decrease & cash increase
with same amount.
'\
J Purchase of machinery on credit No change Fixed assets & Long term creditors
will be increased.
OR OR
Decrease Fixed assets & Shurt-tenn creditors

will be increased.
. Debtors balance will be reduced .
~
4 Write off of a qoubtfol debt Decrease

Increase Increase in Cash
-1 Issue of shares for cash
THE END

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CAF 5

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1 Accounting and Reporting Concepts I 3

2 IAS I - Preparation of Financial Statements 5 9

3 !AS 7: Statement of Cash Flows 13 34

4 Income and Expenditure Account 61 75

5 Preparati on of Accounts from Incomplete Records 100 120

6 lntroduction to cost of production 173 178

7 !AS 16: Property, plant and equipment 187 195

8A IAS 20 - Government Grants 216 219

3B lAS 23 - Borrowing Costs 223 234

8C :AS 40 - Investment Property 248 251

9 lJ\S 36 - Impairment of Assets 254 259

10 lFRS 15 : Revenue from contracts with customers 267 288

11 Interpretation of Fi nancial Statements 305 319

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ACCOUNTING AND REPORTING CONCEPTS

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(a) Physical capital maintenance

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ACCOUNTING AND REPORTING CONCEPTS

(a) Hi~torical cos t Assets arc . d h .

SOLUT ION TO QUE ST ION N0 .2

Fi11anc1al capital ma1111enance Pll\ sical ca pital maintenance

SOLUTION TO QUESTION N0.3

SOLU T ION TO QUESTION NOA

(a) {b) (c)

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IAS I - PREPARATION OF FINANCIAL STATEMENTS

On .Jul y I, 20 I8 tota l paid up share ca pital of' Salute Lim ited (S I w· . .

Calcu late total cash dividend paid 0 11 May I , 20 19 (PAC)

Foll owi ng info rm ation relates to Atom Limi ted (J\L):

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Thi: detai ls ol' divick nd declared ·m.

(ii) Shareholders' equity as at I January 20 13 was as fo llows·

I Share capital (Rs. IOeach) Rs. 116 million

(iv) Dividend infonnation is as under:

Cas h divide nd Bonus

(FAR II Spring 2013, Q # 1 amended)

Cash dividend Bonus

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IAS I -PREPARATION OF FINANCIAL STATEMENTS

Div. on 01 -10-18 [40,000 x Rs. 4] Rs.

SOLUTION TO QUESTION NO.2

SOLUTION TO QUESTION NO.3

Balance as at O1-07- 17 20,000 4,500 (500) 2,300 400 16,200 42,900

Balance as at 30-06-19 30,800 6,020 (600) 1,400 500 22,500 60,620

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SOLUTION TO QUESTION NO.4

Un-appropriated profits Total

SOLUTION TO QUESTION NO.5

Pak Ocean Limited

Balance as at 01-01 -13 200 .00 - 10.00 45 .00 255,00

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SOLUTION TO QUESTION NO.6

Share Share Retained

Balance as at 01-01 -12 fl 16 / 1.161 [58 + 16 - 381 100.00 - 36.00 136.00

SOLUTION TO QUESTION NO.7

Supreme Cement Company Limited

Sha re Share Retained

Balance as at Ol -01 -1I

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SOLUTION TO QUESTION N0.8

Capital reserves Revenue reserves