Professional Documents
Culture Documents
CR March April 2021
CR March April 2021
CR March April 2021
March-April-2021
[N.B. - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and the manner in which the answers are presented. Different parts, if any, of the same question must
be answered in one place in order of sequence.]
Marks
1. You are Arif Sazzad currently working as Audit Manager in Saad & Khalid, Chartered Accountants
(S&K). S&K has been engaged in audit of group reporting package of Apparel Bangladesh Company
Limited (ABC Limited). You have been assigned as the engagement manager and you report to Khalid
Mahmud, the engagement partner who is looking after ABC Limited Audit for several years.
You have received following email from the engagement partner Khalid Mahmud:
Hi Arif,
We have been once again appointed to audit the group reporting pack of ABC Limited for the year
ended 30 June 2020. As you are new to this engagement, let me brief you some background
information.
ABC Limited is a Bangladesh subsidiary of Prominent Holdings Limited (Prominent) from United
Kingdom. ABC Limited was incorporated on 01 July 2013 and it is engaged in production of
Sportswear and business wear in Bangladesh and business of ABC has grown since then. In 2017,
ABC acquired 95% shares of Denim First Limited (DFL) to expand its business in Denim items. In
2018, Garments Support Limited (GSL), one of the key suppliers of ABC Limited and DFL, was facing
liquidity crisis. In order to ensure stable supply chain, ABC Limited acquired 25% shares of GSL so
that it can influence the operation of GSL.
Prominent has operation in 20 Countries. For better management and control of operation, Prominent
has policy to prepare a Country Reporting Pack (CRP) in GBP (UK Currency) after consolidating all
the operations of a country.
I have received an email from Mr. Shafiq, CFO of ABC Limited (Exhibit 1) this morning where he
shared the stand-alone financial statements of ABC Limited, DFL and GSL. He also requested
assistance for proper treatment of some reporting issues. I want you to:
Requirements:
a) Draft and email where you set out and explain the appropriate adjustments for the financial
reporting queries raised by Mr. Shafiq (Exhibit 1) for stand-alone financial statements of ABC
Limited for the year ended 30 June 2020. 12
b) Prepare the Consolidated Statement of Financial Position, Consolidated Statement of Profit or Loss
and Other Comprehensive Income for Bangladesh Operation. Consider the effect of adjustments
raised by Mr. Shafiq where applicable. 20
c) Prepare Country Reporting Pack (CRP) after translating the Consolidated financial statements in
GBP (UK Currency). 8
Exhibit 1: Email from Mr. Shafiq, CFO of ABC Limited
From : Mr. Shafiq, CFO of ABC Limited
To : Khalid Mahmud, Partner, Saad & Khalid, Chartered Accountants
Subject : Stand-alone financial statements
Dear Mr. Mahmud
I’m sharing the stand-alone draft financial statements of ABC Limited, Denim First Limited (DFL)
and Garments Support Limited (GSL) (Exhibit 2) for the year ended 30 June 2020. You can
commence your audit works on these financial statements. In addition, I have shared some
information related to consolidation (Exhibit 3 and Exhibit 4).
Page 1 of 6
We have come across some issues while preparing the financial statements of ABC Limited for
which we will need your assistance. I am not sure how to address these issues. Pleas suggest us
how to address these issues and appropriate entries to incorporate them in the stand-alone financial
statements of ABC Limited.
Issue 1: Interest free loan to employees.
As part of employee retention strategy, ABC approved a scheme on May 2020 that eligible
employee will be allowed to take interest free loans maximum 5 times of their gross salary. Loan
amount will be repayable in 6 to 24 months instalments which will be deducted from employee
salary. On 30 June 2020, one of the senior level employees has taken a loan for BDT 420,000
which will deducted in 24 equal monthly instalments from his salary paid at the end of month. Our
record shows that the incremental borrowing rate for the employee was 11%. Loan paid to the
employee has been recorded as trade debtors.
Issue 2: Revenue recognition
During month of May, ABC received 2 orders from separate customers with option for partial
delivery.
First customer Sparrow Limited ordered 500 pcs of particular styled sports jersey at a total price
of BDT 57,500. Of the ordered quantity, 300 pcs have been delivered by 15th June 2020 when the
customer has requested to supply further 700 pcs of jersey at total of BDT 65,500 after a regular
volume discount of 5% on the new order. Another 300 pcs have been delivered at the year end.
Second customer, Verdin Limited, has ordered 480 pcs of jersey with its brand at a price of BDT
67,200. After delivering the 280 pcs of jersey on 20th June, ABC Limited has identified that they
have produced total of 820 pcs jersey instead of 480 pcs. On management request, Verdin has
agreed to purchase the extra produced jerseys but at a significant lower price. Verdin has demanded
40% discount on the extra jerseys which management has agreed. ABC delivered further 400 pcs
of jerseys to Verdin by the year end.
None of these sales has been recognized at the year-end but the cost of revenue has already been
incorporated in the financial statements of ABC Limited.
Kindly assist us to address these issues and finalize the stand-alone financial statements. We will
be waiting for your response.
Shafiq
Exhibit 2: Stand-alone FS of ABC Limited, DFL and GSL for YE 30 June 2020.
ABC Limited DFL GSL
BDT BDT BDT
Non-current Assets
Investment in DFL 566,589 - -
Investments in GSL 22,605 - -
Marketable Securities - 232,323 -
Property, Plant & Equipment 163,727 99,567 35,562
752,921 331,890 35,562
Current Assets
Inventories 331,838 462,187 15,311
Advance & prepayments 61,236 44,544 3,186
Trade Debtors 505,112 665,650 7,078
Receivables from ABC Limited - 364,122 126,701
Fixed Deposits in bank 18,723 - -
Cash & Cash equivalents 19,074 20,561 17,485
935,983 1,557,064 169,761
Page 2 of 6
Equity
Share Capital (BDT 1 per share) 1,000 566,600 11,860
Retained Profits 106,760 628,698 127,125
107,760 1,195,298 138,985
Non-current Liabilities
Gratuity Payables 154,937 83,267 21,314
154,937 83,267 21,314
Current Liabilities
Trade Payables 629,498 439,305 7,140
Liability for bill discounted 39,816 4,696 17,094
Bank Borrowings - 15,569 9,302
Payable to DFL & GSL 490,824 - -
Provision for Income Tax 23,972 16,879 1,102
Accruals & expense provisions 242,097 133,940 10,386
1,426,207 610,389 45,024