Financial Reporting 1 Online Test

Time: 35 minutes
Marks: 18

Financial Accounting and Reporting-I

Instructions to examinees:
i. Answer all 4 questions.
ii. Answer in black pen only.

Question # 01

On 1 January Year 1 X Limited received a cash grant of Rs. 500,000 towards the cost of employing an
environmental impact analyst on a new project for a 5 year period. The grant is repayable in full if the
project is not completed. The analyst was employed and the project commenced from the 1 January Year
1. On 1 January Year 3 the project was abandoned, and the grant became repayable in full.
Pass journal entries for year 1, year 2 , year 3 (4)

Question # 02

 An entity sets up a plant in an area of high poverty. A government grant of Rs. 4 million is
received with a condition that the grant is repayable in full if the number of its employees fell
below 250 at any time during the next 6 years. It is highly probable that the entity will comply
with the condition attached to the grant.
 The government makes a grant to an entity which is planning to develop teaching software for
children with learning difficulties. The purpose of the grant is to help the entity to meet its
general financing requirement in the initial phase. There are no further conditions attached to
the grant.

Discuss how the above should be dealt with in the financial statements (3)

Question # 03

Happy traveler Limited (HTL) operates a 5 Star Hotel facility in Narran. The hotel was constructed at a
cost of Rs.5000 million, 5 years back and it is depreciated on a straight-line basis (total useful life of 10
years and residual value of 20%). There are indications that the property is not performing as expected
due to;

(a) opening of a competing hotel nearby,

(b) a significant drop in number of tourists. There is a 40% probability that the hotel will generate net
cash flows of Rs.600 million per annum and 60% probability that the cash flows would only be Rs.400
million per annum.

The property’s net operating income is Rs.300 million which is at the rate of 15%. 5% of the proceeds
from sale would be expended in closing the deal.

Calculate the impairment loss if the appropriate discount rate is 15% (7)

By: Knowledge Geeks 1

 Financial Reporting 1 Online Test

Question # 04

Jamaat-e-Islam Limited (JIL) owns a machinery which has a carrying amount of Rs 248 million as at 1
April 2021. It is being depreciated at 12½% per annum on reducing balance method. The machinery is
used to manufacture a specific product which has been suffering a decline in sales due to obsolescence.
PL has estimated that the plant will be retired from use on 31 March 2025. The estimated net cash flows
from the use of the plant and their present values are
DATE Present value Net cash flows

31st March 2023 109.2 120

31st March 2024 66.4 80

31st March 2025 39 52

On 1 April 2022, PL had an alternative offer from the competitor to purchase the plant for Rs.200
million.

Calculate the impairment loss (4)

By: Knowledge Geeks 2