MOCK EXAMINATION

Certified Finance and Accounting Professional Stage

27 May 2021
3 hours – 100 marks
Additional reading time – 15 min

AUDIT, ASSURANCE AND RELATED SERVICES

Instructions to Examinees

(i) Answer all Eight questions.

(ii) Answer in black pen only.
(iii) Stop writing after 3 hours 15 minutes
(iv) Be honest with yourself

Q.1 You are the audit manager of Diversified Products Limited (DPL), a listed company. Following are the
extracts from the draft financial statements for the year ended 30 September 2015.

Rs. In Billion
Sales 95.0
Cost of sales 62.0
Total assets 150.0
Net equity 15.0
Creditors * 10.4
Debtors * 10.5
Deferred tax asset 1.2
*Debtors and creditors have normal credit terms of 40 days
The company is engaged in polyester, pharmaceutical and fertilizer businesses. Performance of each
segment is discussed below:
Polyester Business (PB)
Major source of revenue is the export of polyester to European countries. PB has been incurring losses
since last five years. In 2014-15, PB incurred a loss of Rs. 600 million. During the pervious year, DPL
had made a provision of Rs. 3.5 billion for impairment of existing plant.
The major reason for the losses is the non-availability of gas. Accordingly, DPL had started a project to
convert its plant from gas to coal. The original completion date of the project was 31 January 2015 but it
has been extended by two years due to delay in financing arrangements. A cost of Rs. 1.5 billion has been
incurred on the project up to 30 September 2015.
Pharmaceutical Segment
The major source of revenue is the sale of medicines imported from Xanax International Plc (XIP).
Segment profit for 2014-15 amounted to Rs. 200 million. DPL is currently negotiating with various
suppliers to replace XIP because during the past few years XIP has significantly increased the prices and
has expressed its intention to increase it further at the time of renewal of the contract, which is due in
March 2016.

1|Page