The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Certificate in Accounting and Finance Stage Mock Examinations
February 17, 2023
3 hours – 100 marks
Additional reading time - 15 minutes

Financial Accounting & Reporting II

Instructions to examinees:
(i) Answer all NINE questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.

Section A
Q.1 Universe Limited (UL) is listed on Pakistan Stock Exchange and has registered office in Karachi. UL engages
in manufacturing of Cement. It operates a manufacturing plant at Dera Ghazi Khan. The following
information is relevant to Financial statements of UL for the year ended December 31st 2022.
(i) During the year, UL produced 2 million tons of cement and actual operating production capacity was
70%. The shortfall was due to shutdown of factory due to overall energy crisis in the country.
(ii) Financial statements for the year ended 31 December 2022 were approved by the board of directors in
their meeting held on 15 February 2023:
(iii) Final cash dividend for the year 2022 was recommended by the board of directors at 10%
(iv) Average number of employees during the year were 800 and 780 employees were employed as at
December 31st 2022
(v) Balance of Loan to directors as on December 31st 2022 is Rs. 100 million. All of these loans are
interest free and for house financing for 6 years as per company‟s policy. Rs 40 million amount was
disbursed during the year. Repayment will start after two years.
(vi) As on December 31st 2022 the authorised share capital consists of 700 million shares of Rs. 10 each
and issued share capital is 500 million shares of Rs. 10 each. 120 million shares were issued as bonus
and rest were issued against cash
Required:
Prepare relevant notes showing possible disclosures as required under the IFRSs and the Companies Act
relevant to Financial statements of UL for the year ended 31st December 2022. (08)

Q.2 On 1st January 2022 Venus Limited (“VL”) issued Term finance certificates (TFC‟s) having face value of
90,000 at premium of 10%. Coupon rate is 15 % per annum. Transaction cost paid by VL at the time of
issuance of Term finance certificates is Rs.3, 000. Interest shall be paid at end of each year on December 31
and TFC‟s shall be redeemed after 3 years on December 31 ,2024 at premium of 11%.
Required:
Determine effective rate of interest and calculate interest expense for all three years ended December 31. (08)

Q.3 (a) Uranus Limited (UL) sells new cars on deferred payment basis whereby 30% deposit is received on sale and
the balance payment is received at the end of two years on 31st December 2022. Appropriate discount rate is
12% p.a
On 1st January 2021 UL sold car to customer for Rs 2.5 million.
Required:
Prepare necessary journal entries to record the above transaction in the books of UL for the years ended 31 st
December 2021 & 2022. (05)
(b) On 1 January 2022, Mercury Limited (ML) enters into a contract to transfer Products X and Y to Mars Private
Limited (MPL) in exchange for Rs. 20,000. Product X & Product Y are to be delivered on 28 th February
2022 & 31st March 2022respectively. Control transfers with the delivery.
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The promises to transfer Products X and Y are identified as separate performance obligations. Rs.8000 is
allocated to Product X and Rs.12000 to Product Y. Payment will be made on 4th April 2022
Required:
Journal entries in the books of ML for the year ended December 31st 2022 under following independent
situations.
Situation A: ML Limited has unconditional right to payment on delivery of each product separately
Situation B: Payment for the delivery of Product X is conditional on the delivery of Product Y.
(05)
Q.4 On 1st January 2021 Galaxy Limited (GL) purchased and installed plant for Rs. 27,000. Dismantling cost of
Rs.3,600 to be paid after four years at end of useful life of asset. Plant is measured under revaluation model
and depreciated under straight line method and relevant discount rate is 13% for GL.
Fair value along with revised estimate of dismantling cost is given below:

2022 2021
Fair Value (Excluding Dismantling Cost ) 11,200 20,500
Revised Estimate of Dismantling Cost 2,800 5,000
Required:
Extracts of statement of comprehensive income & statement of financial position for the year ended December
31, 2022 of GL. (08)
Q.5 Star Limited (SL) is a listed company has different Operating segments, which are listed as under along with
other information.

Operating
Revenue Profit /(loss) Assets
Segment
Internal External
Rs. (m) Rs. (m) Rs. (m) Rs. (m)
AB 990 1,080 198 13,500
CD 585 1,170 (135) 6,750
EF -- 630 378 3,825
GH -- 3,870 144 22,500
IJ -- 495 (63) 5,670
KL -- 765 117 12,600
Total 1,575 8,010 639 64,845

Required:
Determine the reportable segments as per the requirements of IFRS-08? (06)

Q.6 Select the most appropriate answer(s) from the options available for each of the following Multiple
Choice Questions.
1. Each of the following events occurred after the reporting date of 31 March 2021, but before the
financial statements were authorised for issue. Which would be treated as a NON-adjusting event
under IAS 10 Events After the Reporting Period?
a) A public announcement in April 2021 of a formal plan to discontinue an operation which had
been approved by the board in February 2021.
b) The settlement of an insurance claim for a loss sustained in December 2020.
c) Evidence that Rs. 20,000 of goods which were listed as part of the inventory in the statement of
financial position as at 31 March 2021 had been stolen.
d) A sale of goods in April 2021 which had been held in inventory at 31 March 2021. The sale was
made at a price below its carrying amount at 31 March 2021. (01)
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2. Which of the following statements relating to intangible assets is true?

a) All intangible assets must be carried at amortised cost or at an impaired amount; they cannot be
revalued upwards.
b) The development of a new process which is not expected to increase sales revenues may still be
recognised as an intangible asset.
c) Expenditure on the prototype of a new engine cannot be classified as an intangible asset because
the prototype has been assembled and has physical substance.
d) Impairment losses for a cash generating unit are first applied to goodwill and then to other
intangible assets before being applied to tangible assets. (02)

3. To which of the following items does IAS 41 Agriculture apply?

a) A change in the fair value of a herd of farm animals relating to the unit price of the animals.
b) Logs held in a wood yard.
c) Farm land which is used for growing vegetables.
d) The cost of developing a new type of crop seed which is resistant to tropical diseases
A. All four B. (1) only
C. (1) and (2) only D. (2) and (3) only (01)

4. A foreign company has paid up capital equivalent of Rs. 250 million, turnover of Rs. 900 million and
725 employees. How it shall be classified according to Companies Act, 2017?
a) Pubic Interest Company
b) Large Sized Company
c) Medium Sized Company
d) Small Sized Company (02)
5. In Fourth and Fifth Schedule, an executive has been defined as an employee, other than the chief
executive and directors, whose basic salary exceeds a certain amount in a financial year. What is that
amount?
a) Rs. 600,000
b) Rs. 1,200,000
c) Rs. 2,000,000
d) Rs. 3,000,000 (01)
6. Which TWO of the following situations might create a self-interest threat?
(a) Profit/incentive based compensation
(b) Reviewing self-prepared reports
(c) Fear of losing job
(d) Accepting gift of significant value (01)
7. An operating segment has just started operations but has not earned any revenues yet. Which of the
following statements is correct?
(a) It may be a reportable segment if quantitative threshold is met.
(b) It is a reportable segment even if quantitative threshold is not met.
(c) It is not a reportable segment even if quantitative threshold is met.
(d) It will be a reportable segment only after earning revenues. (01)
8. As per IAS 21, non-monetary items carried at fair value are retranslated at the exchange rate
prevailing:
(a) at year-end
(b) during the year i.e. average rate
(c) at the date when fair value was determined
(d) at acquisition date (01)
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Section B
Q.7 On 1st January, 2022, Earth Limited (EL) acquired 25% ordinary shares in Sun Limited (SL) and acquired
90% shares in Moon Limited (ML).
Statement of comprehensive income for the year ended December 31, 2022:
Rs. in million
EL ML SL
Revenue 9,000 4,800 1,900
Cost of sales (4,550) (2,200) (850)
Gross profit 4,450 2,600 1,050
Operating expenses (1,800) (800) (275)
Other income 550 300 50
Financial Cost (200) (100) (125)
Profit before taxation 3,000 2,000 700
Income tax (600) (700) (200)
Profit after tax 2,400 1,300 500
Other comprehensive income:
Fair Value Gain 100 - 20
Additional Information:
(i) EL acquired shares of ML by paying Rs.2,500 million immediately and agreed to pay Rs.200 million
after 2 years if cumulative profit before tax of ML exceed certain benchmark. Fair value of such
conditional payment on 1st January 2022 is Rs.150 million and as on December 31st,2022 is Rs.160
million. EL has only recorded cash payment of Rs.2,500 in its separate financial statements. This
investment is carried at cost on 31 December 2022.
(ii) On acquisition date, carrying values of ML‟s net assets were equal to their fair values except the
following:
a. Fair value of land exceeded its net book value by Rs.20 million at acquisition date and on 30th
November 2022, such land was sold by ML at gain of Rs. 22 million
b. Fair value of inventory was higher than its carrying value by Rs. 10 million at acquisition date and
90% of the inventory were included in the inventory of ML at 31 December 2022
c. Contingent liability of Rs.7 million disclosed by ML at acquisition date related to a legal case and
its fair value is estimated at Rs.5 million at acquisition date. Such case was settled/paid on 15 th
December 2022 at Rs 4 million and recorded by ML.
(iii) EL measures non-controlling interest at the proportionate share of acquiree‟s identifiable net assets and
impairment test carried out at December 31st 2022 indicated that goodwill of ML has been impaired by
10%.
(iv) EL acquired shares in SL by investing Rs. 260 million. This investment is carried at cost on 31
December 2022.
(v) Other income of EL include dividend income from ML & SL. During the year ended 31st December
2022, SL and ML declared and paid interim dividend of 2%.
(vi) On 30 June 2022, SL sold a machine having carrying value of Rs. 50 million to EL for Rs. 60 million.
The remaining useful life of the machine at the time of disposal was 5 years.
(vii) After acquisition, on 1st January 2022 ML bought machine for Rs 180 million and provided machine to
EL on operating lease for three years at an annual rental of Rs 25 million payable on December 31 st
every year Useful life of machine is 10 years. Discount rate is 10% p.a.
(viii) The details of each company‟s share capital and reserves at 1st January 2022 are:
Rs. in million
EL ML SL
Ordinary shares of Rs.1 each 5,000 1,200 1,000
Retained earnings 3,500 1,250 200
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Required:
Prepare consolidated statement of comprehensive income for EL Group for the year ended December 31,
2022 as per relevant International Financial Reporting standards (IFRS). (20)

Q.8 Pluto Limited (PL) has prepared draft financial statements for the year ended 31st December 2022 and
calculated profit before tax of Rs 710 million.
(i) The tax rate for 2022 & onward year is 27% while it was 30% in 2021 and prior periods except stated
otherwise.
(ii) Net deferred tax liability as on 31st December 2021 was as follows:
Rs. ‘million’
Property, plant & equipment (Rs.210 million x 30%) 63
Unused tax losses (Rs.50 million x 30%) * (15)
Investment in shares (measured at FV -OCI) (20 million x30%) 6
Interest receivables (5 million x 20%) 1
Other deductible difference (relating to P&L items) (10 million x 30%) (3)
* Total unused tax losses as at December 31st 2021 were Rs 80 million.
(iii) Accounting depreciation on Property, plant & equipment for the year exceeds tax depreciation by Rs.
90 million. During the year, PL sold an equipment whose accounting NBV exceeded tax NBV by Rs.
13 million.
(iv) On 31st December 2022, buildings were revalued for the first time resulting in a surplus of Rs. 130
million. Revaluation does not affect taxable profits.
(v) Interest receivable as at 31st December 2022 is Rs 12 million and interest received during the year was
Rs. 7 million. As per tax Interest is taxed on receipt basis at 20%.
(vi) During the year 2022 Fair value gain of Rs. 10 million was recorded on investment in shares measured
at fair value through other comprehensive income. Under tax laws, capital gain is taxable at the time of
sale.
(vii) Other deductible temporary differences (relating to P&L items) as at December 31 st 2022 was Rs. 15
million.
(viii) During the year 2022, PL started construction of its head office and Capital work in progress as at 31
December 2022 includes borrowing cost of Rs. 5 million incurred in 2022. Under tax laws, borrowing
cost is allowed in the year in which it is incurred.
(ix) Expenses include:
 Penalties of Rs. 4 million not allowable for tax purposes.
 Accrued expenses of Rs. 15 million which will be allowed in tax on payment basis.
Required:
(a) Prepare a note on taxation for inclusion in PL‟s financial statements for the year ended 31 December 2022
and a reconciliation to explain the relationship between the tax expense and accounting profit. (13)
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31 December 2022.
(03)

Q.9 Jupiter Limited (JL) is engaged in the business of manufacturing of generators. JL also provides lease
financing facility to its customers.
On 1 January 2022, JL sold ten generators to Saturn limited (SL) on lease. The terms of the lease and related
information are as follows:
(i) Down payment of Rs 4 million was received on 1st January 2022
(ii) Lease rentals amount to Rs. 8,100,000 per annum and are payable in arrears on 31 December every
year for all ten generators.
(iii) Implicit rate of lease is 11.8641% per annum and market rate of interest 11% per annum
(iv) The cost of each generator is Rs. 3,000,000. Cash sale Price of each generator is Rs. 3,600,000
(v) The expected residual value of each generator at the end of the 4th and 5th year is Rs. 310,000 and
Rs.220,000 respectively.
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(vi) The lease period is 4 years, extendable up to the expected useful life of the generators of 5 years.
(vii) It is reasonably certain that JL & SL intend to extend the lease for a period of five years. Generators will
be returned back to JL at end of lease term
(viii) JL paid commission to sales staff at 1% of cash selling price
(ix) Full Residual value is guaranteed by Neptune Limited (NL) a related party of JL.
Required:
(i) Journal entries to record the transactions for the year ended 31st December 2022 in the books of JL.
(08)
st
(ii) A note for inclusion in the financial statements of JL, for the year ended 31 December 2022, in
accordance with the requirements of IFRS-16 „Leases‟. (06)

(THE END)