CAF 5 Notes

Consolidation Summary
Consolidated Balance Sheet

Step 1: Net Assets of subsidary Step 2: Goodwill
At acquisition At Reporting Consideration (W1) xxx
Share capital xxx xxx Fair value of NCI xxx Only when full goodwill
Retained earnings xxx xxx Fair value of business xxx
Fair value adjustments: Net assets (xxx) 100 % if full goodwill other wise share % of parent
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1. Tangible assets xxx / (xxx) xxx / (xxx) Goodwill Gross xxx Parent Share
2. Intangible assets Impairment (xxx)
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- on the books having fair value xxx / (xxx) xxx / (xxx) To be taken in B/S xxx NCI SHARE ( Only if full goodwill )
- on the books not having fair value (xxx) (xxx)
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- off the books having fair value xxx xxx
3. Contingent liabilities (xxx) (xxx) Only if not settled Step 3: NCI
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URP on inventory (if subsidary is seller) - (xxx) ( Total profit x unsold inventory %) Share of Net assets at acquistion (Fair value at Acquisiont if full goodwill) xxx
URP on PPE (if subsidary is seller) - (xxx) ( Gain on disp - incremental Dep booked ) Post acquisiton profit/(loss) share of NCI from STEP 1 xxx / (xxx)
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Adjustments / error of sub books - xxx / (xxx) Impairment from step 2 only if full goodwill (xxx)
xxx xxx xxx
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B A Parent
xxx (A-B) Step 4: Group reserves
NCI Retained earnings of parent at reporting xxx
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Post acquisiton profit/(loss) share of Parent from STEP 1 xxx / (xxx)
W1: Components of consideration: Impairment of goodwill (from step 2) (xxx)
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URP on inventory (if Parent is seller) ( Total profit x unsold inventory %) (xxx)
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Cash consideration xxx URP on PPE (if Parent is seller) ( Gain on disp - incremental Dep booked ) (xxx)
Share consideration xxx ( shares of parent x share price of parent ) Parent entity separate books error adjustments (xxx) / xxx
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Deferred consideration xxx ( Present value of future payment using interest rate ) Associate equity accouting: Step 5
Property, plant and equip Consideration xxx ( Fair value of Property, plant and equipment given ) Bargain purchase gain - if any at acq due to share of NA exceeded cost xxx
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Contingent consideration xxx ( Fair value given by expert ) Share of profit / (loss) from associate xxx / (xxx)
xxx impairment of investment in associate (xxx)
Step 5: Net Assets of associate

c URP on inventory (if Parent is seller) - Adjust investment in B/S
(URP x holding in associate)
(xxx)
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At acquisition At Reporting URP on inventory (if Associate is seller) - Adjust Inventory in B/S (xxx)
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Share capital xxx xxx (URP x holding in associate)
Retained earnings xxx xxx xxx
Fair value adjustments:
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1. Tangible assets xxx / (xxx) xxx / (xxx)

2. Intangible assets
- on the books having fair value xxx / (xxx) xxx / (xxx)
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- on the books not having fair value (xxx) (xxx)

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- off the books having fair value xxx xxx

3. Contingent liabilities (xxx) (xxx) Only if not settled
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xxx xxx
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holding % in associate xxx xxx

B A
if share exeeds cost then record BPG to be taken in Group Reserves

Change ( B - A ) xxx / (xxx) Share of profit from associate take in Group reserves
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Consolidation Summary
Consolidated Profit or Loss

Step 1: Determine the date of Acquistion of subsidiary as right on profit is after acquistion:
Step 2: Prepare unadjusted Profit or loss account:

Step 3: Intra Group Adjustments Adjusted Consolidated Profit or loss
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Sales xxx Intra Group sales Sales xxx
Cost of goods sold (xxx) Intra Group sales URP URP x Holding % ( if parent to associate ) Cost of goods sold (xxx)
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Gross profit xxx Gross profit xxx
Admin expenses (xxx) FV Dep FV amortization Admin expenses (xxx)
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Selling and distribution exp (xxx) Selling and distribution exp (xxx)
Other operating expenses (xxx) Imapairment of goodwill Other operating expenses (xxx)
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xxx xxx
Finance cost (xxx) Interest on loan from Parent Finance cost (xxx)
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Other income xxx Int on loan Div from sub (Div of associatex holding % in associate) Other income xxx
Share of profit from associate N/A as sep books Refer (W1) Share of profit from associate xxx (W1)
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PBT xxx PBT xxx
Tax (xxx) Tax (xxx)
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Profit after tax xxx Profit after tax ( consolidated ) xxx
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Allocation:
(W1) : Share of profit from associate Parent ( Bal Fig ) xxx
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NCI (W2) xxx
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Share of profit from associate xxx ( Profit of associate x holding % in associate )
URP if inventory sold by associate (xxx) ( URP on inventory x holding % in associate )
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Impairment in associate (xxx) (W2): NCI share of profit:
Bargain purchase gain (if any) on acq xxx ( Compare Share of net assets on acqusiition - cost of investments )
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Fv Depreciation adjustment (xxx) (Incremental depreciation x holding %) Subsidary's profit FTY xxx
xxx URP on inventory (if subsidary is seller) (xxx)
URP on PPE (if subsidary is seller) (xxx)
c Impairment ( if full goodwill ) (xxx)

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Fair value depreciation (xxx)
xxx
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NCI % holding xxx

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Financial Instruments
Classification Possible or not ?
Security Amortized Cost Fv Throguh OCI Fv Throguh P&L
S.NO Financial Asset S.NO Financial Liability Debt a a a
1 Cash 1 r Equity* r a a
2 Right to Receive Cash 2 Obligation to Pay *If Equity security is classified as Fv through OCI then reclassification of equity security in OCI into P&L is
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3 Shares of another company 3 r not Possible.
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Classifications Capitalization
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S.NO Business Model Conditions Classification Security Amortized Cost* Fv Throguh OCI Fv Throguh P&L
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Solely SPPI Debt Fv (W1) +Tr Cost (W2) Fv (W1) +Tr Cost (W2) Fv (W1)
1 Hold to Collect Amortized Cost
No Accounting Mismatch Equity N/A Fv (W1) +Tr Cost (W2) Fv (W1)
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*If Security is carried at amortized cost it will not be subsequently reduced or increased due to change
S.NO Business Model Conditions Classification in fair value.
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Hold to Collect and Solely SPPI
2 Fv Through OCI
Sell No Accounting Mismatch (W1) How to calculate Fair value:
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S.NO Business Model Conditions Classification Face value xxx
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No Solely SPPI Preimum / (discount) xxx/(xxx)
3 Hold Sell Fv Through P&L
No Other Classification Fair value xxx
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Re-classification of OCI Balance into P&L:
(W2) Treatment of transaction cost:
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Security Amortized Cost* Fv Throguh OCI Fv Throguh P&L
Debt N/A Allowed N/A Classification Treatment
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Equity N/A Not allowed N/A Financial Asset (Investor) Add in Fair Value (in case of Fv through P&L expense out)
Financial Liability (Issuer) Less from Fair Value (in case of Fv through P&L expense out)
Concept of IRR:
c Accounting Treatment:
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Return / Cost Party 1. IRR will be applied at Carrying amount and Coupon will be applied at Face Value
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Actual Return For investor
Actual Cost For Issuer
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Party Cost / Income IRR

For investor Additional Cost
For Issuer Additional Cost
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For investor Additional Income

For Issuer Additional Income
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In Case of Transaction Cost incurred by Equity Issuer:

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Treatment -----------> Adjust in share premium
www.youtube.com/c/FarhanHyderNaqvi Prepared by Akash Mukesh Kumar

Leases IFRS 16 Summary
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PV of Lease Payments > 90% fair value
Lessor
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Lease term is > 75% of economic useful life.
Perspective All leases are “Operating Lease” by default unless any one of these
Classification
condition exist. Presence of bargain purchase option at end of lease term.
Criteria
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Compulsory Transfer
❻ Treatment of Initial Direct Cost
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Specialized Asset
Operating Lease Finance Lease
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Lessee All leases are “Finance Lease” by default but there are 2 exceptions if Low value lease Fair value of Asset < $5,000
Perspective you want to apply.
Short term Lease (< 12 months).
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❷
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Inception Date Commencement date
Earlier of the date of lease agreement and the Date on which the lessor makes an underlying Paid by Lessee Paid by Lessor
date of commitment by the parties to terms of asset available for use by a lessee.
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lease. Make Separate Asset and amortize
Make Separate Asset
over lease term
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and amortize over
lease term
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❸ ❽ Manufacturer Dealer Lessor
Lease Term Non-cancelable period including In case of manufacturer dealer lessor
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following things should be remembered: Manufacturer dealer
 Period covered by an option to extend lease term if the lessee Normal Lease
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Lessor
is reasonably certain to exercise the option. (I.e. Rental is 1. IDC should be expensed out
substantially lower than Fair Market Rental for extended
2. In case of UGRV PV of UGRV
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period).
should be deducted from both:
 Periods covered by an option to cancel a lease term if the
lessee is reasonably certain not to exercise the option.
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ii.
Sales
COGS
Manufacturer dealer
Lessor will expense

out
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❹ Paid by Lessor
Paid by Lessee
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How to calculate Fair Value xxx

Lessor start schedule by sum of these “three” called “NIFL”
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Rentals? Add: Initial direct cost paid by lessor (Normal Lease) xxx
Less: Down payment (xxx)
Less: PV of Residual Value (Guaranteed + Unguaranteed) (xxx) Capitalize in ROUA Include in rentals and
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Less: BPO (If BPO exist ignore Residual Value) (xxx) recover from lessee
xxx
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❺ ❼ Depreciation Adjustment
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How to calculate Present value of lease rentals xxx Depreciation Lower of

ROUA Add: down payment xxx
Add: Initial direct cost paid by lessee xxx Lessee will start schedule by sum of these “two” called “lease liability”.
Add: PV of decommissioning cost xxx
Add: BPO or GRV xxx Lease term Useful life
Less: Incentive by lessor (xxx)
xxx
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Operating Segments – IFRS 8
Applicable to
Aggregation Criteria:
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Operating segments often exhibit similar long-term financial performance if they have similar
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Separate Financial Statements of an entity: Consolidated Financial Statements of a group with a economic characteristics. For example, similar long-term average gross margins for two operating
segments would be expected if their economic characteristics were similar. Two or more operating
parent:
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i. Whose debt or equity instruments are segments may be aggregated into a single operating segment if aggregation is consistent with the core
principle of this IFRS, the segments have similar economic characteristics, and the segments are
traded in a public market (Domestic or
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i. Whose debt or equity instruments are
similar in each of the following respects:
Foreign Stock Exchange) traded in a public market (Domestic or
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OR Foreign Stock Exchange) 1. the nature of the products and services;
ii. That files, or is in process of filing, it OR 2. the nature of the production processes;
3. the type or class of customer for their products and services;
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financial statements with a securities ii. That files, or is in process of filing, the
4. the methods used to distribute their products or provide their services; and
commission or other regulatory consolidated financial statements with a
5. if applicable, the nature of the regulatory environment, for example, banking, insurance or
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organization for purpose of issuing any securities commission or other regulatory
public utilities.
class of instruments in a public market. organization for purpose of issuing any class
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of instruments in a public market.
Reported if:
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i. External and internal sales 10% or more of total revenue (including both internal +
external) or;
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Important! If both cases above applicable to a single entity then
segment information is required only in the consolidated
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ii. 10% or more of profit or loss (whichever is higher) or;
financial statements.
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iii. Assets are 10% or more of the combined assets of all operating segments.
Operating Segment
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Imp points!
If total external revenue reported by operating segments is less than 75% of entity’s revenue,
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That engages in business Operating results are For which discrete

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additional operating segments shall be identified as reportable segments (even if they do not meet the
activities from which it regularly reviewed by the financial information is criteria as cited above) until at least 75 per cent of the entity’s revenue is included in reportable
may earn revenues and entity’s chief operating available. segments.
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incur expenses decision maker

If one segment identified as reportable in last period but not now but is of continuing significance
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should be reported separately even if criteria in current period is not met.

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Ka Hona Alag Baat

Comparative restated for segment considered as reportable in current period for disclosure purposes
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(even if that segment didn’t meet the criteria last year). Unless necessary info is not available
Operating segment and cost do develop it would be expensive.
Report Hona Alag
Baat
IFRIC 1 - Summary changes in estimate of dismantling provision
There are a number of reasons that could necessitate a change being made to the estimated Summary: (Revaluation Model)
measurement of a provision:
Case 1: Increase in Provision
1. the unwinding of the discount as one gets closer to the date of the future outflow (e.g. getting
closer to the date on which an asset has to be decommissioned); Credit - the provision
2. a change in the estimated future cash outflow (due to a change in the amount. Debit process:
3. a change in the estimated current market discount rate; and/ - First debit the revaluation surplus account (i.e. other comprehensive income), if there is (Any) for
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4. the future outflow is no longer probable. this asset, until this balance is zero;
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- Then debit any excess to a revaluation expense account (i.e. in profit or loss).
Summary: (Cost Model) Particulars DR CR
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Case 1: Increase in Provision Revaluation surplus (OCI) (limited to the RS bal available for this asset) xxx
P&L (excess over RS or if RS does not exist) xxx
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Debit in cost of related asset Provision xxx
Credit corresponding increase in liability Case 2: Decrease in Provision
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Particulars DR CR Debit - the provision.
Asset xxx Credit process:
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Provision xxx
- First credit a profit or loss (if the decrease of provision reverses a previous revaluation expense on
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Case 2: Decrease in Provision the asset (since this revaluation expense would have been recognised in profit or loss);
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Credit: deduct from the cost of the related asset in the current period to the extent of Carrying - Then credit any excess to the revaluation surplus account (i.e. other comprehensive income). But, if
amount of Asset. (N1) the decrease in the liability exceeds the carrying amount that would have een recognised had the
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Debit: Provision asset been carried under the cost model (i.e. the historical carrying amount), the excess shall be
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(N1): if decrease exceeds the Carrying amount of Asset then remaining should be charged in P&L recognised immediately in profit or loss.
immediately.
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Particulars DR CR Particulars DR CR
Provision xxx Provision xxx
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Asset ( to the extent of CA ) xxx Revaluation surplus (OCI) (limited to historical carrying amount) xxx
P&L above CA xxx Revaluation income (P/L) (excess over historical carrying amount) xxx
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By Akash Mukesh Kumar, ACA
IAS 10 and 37 Summary
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IAS 37 - ACCOUNTING FOR AND DISCLOSURE OF PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
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Conditions for recording Provision:
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Past Event Present Obligation Probalbe outflow Reliable estimate
Chances Accounting
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Related to IAS 10 on Based on past event General term Accounting term
of outflow treatment
the basis of which whether there is any
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you will conclude present obligation or 0-5% Remote Contingent Liab Do nothing
that condition exist not? 6-50% Possible/unlikely Contingent Liab Disclose
at reporting date or 51-85% Probable/likely Provision Record
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not. 86-99% Virtual Certainty Provision Record
100% Certainty Provision Record
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2. EXPECTED DISPOSAL OF ASSET
SINGLE OBLIGATION
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LARGE POPULATION OF POTENTIAL OBLIGATIONS
Gains from the expected disposal of assets should not be taken into account in measuring a provision
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even if the expected disposal is closely linked to the event giving rise to the provision Choose the most likely option Weighted average should be used to
estimate an expected value of the cost of
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3. RECOGNITION ASSET SUMMARY future obligations
5. ONEROUS CONTRACTS
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Chances Accounting
General term Accounting term
of outflow treatment
A contract in which the unavoidable costs of meeting the obligations under the contract exceed the
0-5%
6-50%
51-85%
Remote
Possible/unlikely
Probable/likely
Contingent Asset
Contingent Asset
Contingent Asset
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Do nothing
Disclose
UNAVOIDABLE COST
economic benefits expected to be received under it
Costs that will be incurred irrespective of whether the contract is

fulfilled or not
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86-99% Virtual Certainty Recognize asset Record
100% Certainty Recognize asset Record MEASUREMENT
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4. PROVISION LOWER OF
a liabilty of uncertain time and amount
COST TO COMPLETE PENALTY TO CANCEL THE
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LEGAL OBLIGATION CONSTRUCTIVE OBLIGATION

THE CONTRACT CONTRACT
Imposed by LAW Self Imposed
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By Past Practice Current statement

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Creating a valid Expectation that such an

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action will be carried out by the company
Obligating event: is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.
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6. RESTRUCTURING COSTS
is a programme planned and controlled by management that RESTRUCTURING COSTS
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Restructuring materially changes the scope of the business or the manner in
which it is conducted Includes Doesnot Includes
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RECOGNITION! CRITERIA OF RESTRUCTURING COST Costs arising directly from
Costs associated with ongoing activities
is only recognized when both of the following conditions are met restructuring
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EXAMPLES
2. Company has raised a valid expectation in Cost of retaining employees
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1. There is a detailed formal plan
AND those affected that the plan will be Cost of relocating employees
for the restructuring
implemented – i.e. either by starting to Administration or Marketing Costs
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implement the plan or announcing its main Investment in New Systems
features to those affected
(i).The business or part of a business concerned;
Restructuring costs are recognized as soon as there is a present obligation (legal
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or constructive) resulting from a past event, and a reliable estimate of costs can
(ii)The principal locations affected;
be made. Restructurings are rarely conducted for legal reasons. Therefore,
determining whether a constructive obligation exists is the key challenge for
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(iii).The location, function and approximate number of employees whose services will be terminated;
deciding when to record a restructuring provision
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(iv).The expenditures that will be undertaken;
(v).When the plan will be implemented and completed;
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December 31, 2018 Any event
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March 3, 2019
m IAS 10 - Events After Reporting Period
EXAMPLES
1. Court case (N1)
EXAMPLES
1. Market Based Asset
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Reporting period Accounts 2. Receipt of inforatmion indicating that asset 2. Dividend declared after reporting period.
authorization date was imapored: (N2)
i. Bankruptcy of a customer
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ii.Sale of inventory at lower price

Favourable Unfavourable 3. The determination after the reporting
Co. k faidey mein Co. k nuqsan mein period of the cost of assets purchased, or the
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proceeds from assets sold, before the end of

Who event abh dekheingey the reporting period.
4. Transaction with Employees (N3)
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5. Discovery of fraud or error after reporting period.

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Adjusting Non- adjusting

those that provide evidence of conditions those that are indicative of conditions that
that existed at the end of arose after the reporting
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the reporting period (adjusting events after period (non‑adjusting events after the
the reporting period) reporting period).
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(N1) Court case: Drafting points
The settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period.
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(N2) Receipt of inforatmion indicating that asset was imapored:
1. Bankruptcy occurs by a series of events ussually and is not one off event.
2. Launch of new product by competitor
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(N3) Transaction with Employees:
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The determination after the reporting period of the amount of profit‑sharing or bonus payments
ACCOUNTING TREATMENT GOING CONCERN ASSUMPTION
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ADJUSTING EVENTS NON ADJUSTING EVENTS INVALID DOUBTFUL
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1. Record Disclose unless immaterial Adjusting Event Non Adjusting Event
(remote)
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Examples of events that are always non-adjusting but will result in disclosure:
1. A major business combination after the reporting period (IFRS 3 Business Combinations requires specific disclosures in such cases) or disposing of a major subsidiary;
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2. announcing a plan to discontinue an operation;
3. Major purchases of assets, classification of assets as held for sale in accordance with IFRS 5 Non‑current Assets Held for Sale and Discontinued Operations, other disposals of assets, or expropriation of major assets by
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government;
4. the destruction of a major production plant by a fire after thereporting period;

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5. Announcing, or commencing the implementation of, a major restructuring (see IAS 37);
6. major ordinary share transactions and potential ordinary share transactions after the reporting period (IAS 33 Earnings per Share requires an entity to disclose a description of such transactions, other than when such
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transactions involve capitalisation or bonus issues, share splits or reverse share splits all of which are required to be adjusted under IAS 33);
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7. abnormally large changes after the reporting period in asset prices or foreign exchange rates;
8. changes in tax rates or tax laws enacted or announced after the reporting period that have a significant effect on current and deferred tax assets and liabilities (see IAS 12 Income Taxes);
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9. entering into significant commitments or contingent liabilities, for example, by issuing significant guarantees; and
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10. commencing major litigation arising solely out of events that occurred after the reporting period.
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IAS 08 Summary
Cummulative summary Illustration for Changes in Policy
IAS 8 - Changes in accounting policies , changes in accounting estimates and errors Ustad k Points:
1. Closing inventory "increase" hogi change in valuation ki wajah se tou "profit increase hoga" .
No choice 2. Opening inventory "increase" hogi change in valuation ki wajah se tou "profit decrease hoga" .
Treatement:
- Adjust prospectively Concept:
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Asal mein yeh tha Jab FIFO basis tha:
Material to Immaterial to Material to Immater
2017 2018 2019 2020
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Financial Financial Financial ial to
statements statements statements Financia Sales 150 180 216 324
Cost of sales
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Op 10 15 20 30
Purchases 50 50 60 60
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Treatement: Treatement: Treatement: Treatement: Closing - 15 - 20 - 30 - 40
- Adjust retrospectively- Adjust prospectively - Adjust retrospectively - Adjust prospectively 45 45 50 50
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Gross profit 105 135 166 274
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Illustration for Changes in estimate Now basis changed and valuation method is now Weighted average:
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Steps: According to this valuation of inventory would have been for each reporting period
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1. Prepare estimate table (closing) is as follows:
2. Impact on PBT 2017 2018 2019 2020
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3. Change on estimate reason and impact on current and future profits. Inventory 20 35 8 22
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Original Revised
Year Difference
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estimate Estimate If we prepare revised P&L using new valuation method this would be as follows:
2019 100,000 100,000 -
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2020 100,000 100,000 - 2017 2018 2019 2020
2021 100,000 200,000 - 100,000 Sales 150 180 216 324
2022 100,000 200,000 - 100,000 Cost of sales
2023 100,000 - 100,000
c Op 10 20 35 8
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2024 100,000 - 100,000 Purchases 50 50 60 60
Closing - 20 - 35 - 8 - 22
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2018 2017 40 35 87 46
3 Profit before tax Gross profit 110 145 129 278
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Profit before tax is stated after taking the following into account:
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Depreciation: GP before change in valuation 105 135 166 274

Original estimate 100,000 100,000
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Change in estimate 100,000 - Change in profit 5 10 - 37 4

200,000 100,000 Increase Increase Decrease Decrease
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Change in policy ka Table:

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2017 20182019 2020

4 Change in estimate Opening - - 5 - 15 22
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Estiamted useful life of plant has been changed from 6 to 4 years. Closing 5 15 - 22 - 18
The Increase/(decrease) in profit due to change in estimate is as follows: Increase / (decrease) in profit 5 10 - 37 4
2018 2017 Increase Increase Decrease Decrease
Current year profit - 100,000 -
Future profits 100,000 -
IAS 08 Summary
Illustration for ERROR
Steps:
1. Prepare Error entries "one cumulative" then FTY . Dummy Entries:
2. Show effect on Finanical statement.
2. Show Effect on P&L. Date Particulars DR CR
3. Prepare revised profit or loss account (comparative narrated as "restated" ) cumulativ Interest receivable 77,500
4. Prepare revised statement of changes in equity (mentioning "reported balances as restated" ). e entry Tax payable 23,250
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5. Prepare revised balance sheet ( 3 column balance sheet mentioning " last 2 as restated" ). 2018 Retained earnings 54,250 77,500
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Samajhney ka manjan: Date Particulars DR CR
Current year Interest receivable 33,000
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FTY entry
Draft Tax payable 9,900
2019
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2020 2019 Retained earnings 23,100 33,000
Interest Receivable 220,000 100,000
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Tax payable 66,000 30,000 Date Particulars DR CR
Retained earnings 154,000 70,000 Interest receivable 36,300
FTY entry
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Tax rate 30% Tax payable 10,890
2020
Statement of profit or loss: Retained earnings 25,410 36,300
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Current year
Draft 8 Error Note
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2020 2019
Profit after tax 84,000 17,500 8.1 Effect on Statement of financial position:
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Just for your working
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Statement of changes in equity: 2020 2019 2018
Retained earnings Interest Receiavble 146,800 110,500 77,500
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Balance as at January 1, 2019 52,500 Tax payable 44,040 33,150 23,250
Profit FTY 2019 17,500 Retained earnings 102,760 77,350 54,250
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Balance as at December 31, 2019 70,000
8.2 Effect on Statement of profit or loss:
Balance as at January 1, 2020 70,000 2019
Profit FTY 2020 84,000
c Interest not recorded 33,000
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Balance as at December 31, 2020 154,000 Tax to be paid - 9,900
Net increase in profit 23,100
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On July 1, 2020 CFO revealed that following interest incomes not recorded pertaining to following years.
Statement of changes in Equity:
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2016 22,500 Balance as at January 1, 2019 52,500 Statement of profit or loss:

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2017 25,000 Error - adjustement till cl of 2018 54,250 2020 2019

2018 30,000 Balance as at Jan1, 2019 - restated 106,750 Restated
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2019 33,000 Profit for the year 2019 - restated 40,600 Profit after tax 109,410 40,600
2020 36,300 147,350
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Balance sheet Details of 2018: Statement of financial position:

2018 Balance as at Jan 1, 2020 - actual 70,000 2020 2019 2018
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Interest Receivable 75,000 Error - adjustement till cl of 2019 77,350 Restated Restated
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Tax payable 22,500 Balance as at Jan1, 2020 - restated 147,350 Interest Receiavble 366,800 210,500 152,500
Retained earnings 52,500 Profit for the year 2020 109,410 Tax payable 110,040 63,150 45,750
256,760 Retained earnings 256,760 147,350 106,750
IAS 21 - Effects of changes in Foreign exchange rate
Accounting for exchange differences:
Understanding of Transfer of Risk and reward
Case 1: Free on board:
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Frieght
Seller Port Insurance in transit Buyer Port In premises
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(Karachi) (USA)
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To be paid by buyer Custom duties
Clearance
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R&R Transferred here
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To be paid by buyer
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1. Sales will be recorded here by seller
2. Purchases will be recorded here by buyer
Case 2: Cost and Frieght:

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Frieght
Seller Port Insurance in transit Buyer Port In premises
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(Karachi) (USA)
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To be paid by seller Custom duties

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Clearance
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To be paid by buyer
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Case 3: Delivery on terminal:
Frieght
Seller Port Buyer Port In premises
vi
Insurance in transit
(Karachi) (USA)
aq
rN
Clearance
e
To be paid by buyer
yd
H
Case 4: Delivery duty paid:
an
Seller Port
(Karachi)
Frieght
a
Insurance in transit rh Buyer Port
(USA)
In premises
/F
/c

Clearance
m

o
To be paid by Seller
.c

e

ub
Summary:
t
ou
Particulars R&R Transfer Insurance Frieght Custom Duty

Free on board At Seller's port To be paid by buyer To be paid by buyer
.y
Cost & Frieght At Seller's port To be paid by seller To be paid by buyer

Delivery at terminal At Buyer's port To be paid by seller To be paid by buyer
w
Delivery duty paid After custom Clearance To be paid by seller To be paid by seller
w
w
Summary of Foreign Currency
ITEMS
vi
aq
Monetary Items Non-Monetary Items
rN
1. Cash
Park changes in P&L 2. Receivable
e
3. Payable
yd
Carried at Cost Carried at Fair value
H
Revalue
an
Always P&L
At every Reporting Date At Every Payment Date

a rh Revalue for Both
/F
/c
m
Fair value Foreign

o
changes exchanges
e .c
ub
OCI or P&L OCI or P&L

t
ou
.y
w
w
w
Example 1 Modification of a contract for goods
An entity promises to sell 120 products to a customer for 12,000 (100 per product). The products are
transferred to the customer over a six-month period. The entity transfers control of each product at
a point in time. After the entity has transferred control of 60 products to the customer, the contract
is modified to require the delivery of an additional 30 products (a total of 150 identical products) to
the customer. The additional 30 products were not included in the initial contract.
Case A – Additional product for a price that reflects the stand-alone selling price
When the contract is modified, the price of the contract modification for the additional 30 products is an
additional 2,850 or 95 per product. The pricing for the additional products reflects the stand-alone
selling price of the products at the time of the contract modification and the additional products are
distinct from the original products.
In accordance with IFRS 15, the contract modification for the additional 30 products is in effect, a new
and separate contract for future products that does not affect the accounting for the existing
contract. The entity recognises revenue of 100 per product for the 120 products in the original
contract and 95 per product for the 30 products in the new contracts (as and when the control is
transferred)
Case B – Additional products for a price that does not reflect the stand-alone selling price.
During the process of negotiating the purchase of an additional 30 products, the parties initially agree on
a price of 80 per product. However, the customer discovers that the initial 60 products transferred
to the customer contained minor defects that were unique to those delivered products. The entity
promises a partial credit of 15 per product to compensate the customer for the poor quality of those
products. The entity and the customer agree to incorporate the credit of 900 (15 credit × 60
products) into the price that the entity charges for the additional 30 products. Consequently, the
contract modification specifies that the price of the additional 30 products is 1,500 or 50 per
product. That price comprises the agreed-upon price for the additional 30 products of 2,400, or 80
per product, less the credit of 900.
At the time of modification, the entity recognises the 900 as a reduction of the transaction price and,
therefore, as a reduction of revenue for the initial 60 products transferred. In accounting for the sale
of the additional 30 products, the entity determines that the negotiated price of 80 per product does
not reflect the stand-alone selling price of the additional products. Consequently, the contract
modification does not meet the conditions of IFRS 15 to be accounted for as a separate contract.
Because the remaining products to be delivered are distinct from those already transferred, the
entity accounts for the modification as a termination of the original contract and the creation of a
new contract.
Consequently, the amount recognised as revenue for each of the remaining products is a blended price of
93.33 ([(100 × 60 products not yet transferred under the original contract) + (80 × 30 products to be
transferred under the contract modification)] ÷ 90 remaining products}.
Example 2 Customer simultaneously receives and consumes the benefits

An entity enters into a contract to provide monthly payroll processing services to a customer for one year.
The promised payroll processing services are accounted for as a single performance obligation. The
performance obligation is satisfied over time in accordance with IFRS 15 because the customer
simultaneously receives and consumes the benefits of the entity’s performance in processing each
payroll transaction as and when each transaction is processed. The entity recognises revenue over
time by measuring its progress towards complete satisfaction of that performance obligation by
using any of the methods available in IFRS 15 (on monthly basis)
Page 1 of 11
Example 3 – Assessing whether a performance obligation is satisfied at a point in time or over
time
An entity is developing a multi-unit residential complex. A customer enters into a binding sales contract
with the entity for a specified unit that is under construction. Each unit has similar floor plan and is
of a similar size, but other attributes of the units are different (for example, the location of the unit
within the complex).
Case A – Entity does not have an enforceable right to payment for performance completed to date
The customer pays a deposit upon entering into the contract and the deposit is refundable only if the
entity fails to complete construction of the unit in accordance with the contract. The remainder of
the contract price is payable on completion of the contract when the customer obtains physical
possession of the unit. If the customer defaults on the contract before completion of the unit, the
entity only has the right to retain the deposit.
At contract inception, the entity determines whether its promise to construct and transfer the unit to the
customer is a performance obligation satisfied over time. The entity determines that it does not
have an enforceable right to payment for performance completed to date because, until
construction of the unit is complete, the entity only has a right to the deposit paid by the customer.
Because the entity does not have a right to payment for work completed to date, the entity’s
performance obligation is not a performance obligation satisfied over time. Instead, the entity
accounts for the sale of the unit as a performance obligation satisfied at a point in time[means
when performance obligation is satisfied and unit is transferred]
Case B – Entity has an enforceable right to payment for performance completed to date
The customer pays a non-refundable deposit upon entering into the contract and will make progress
payments during construction of the unit. The contract has substantive terms that
precludes(restricts) the entity from being able to direct the unit to another customer. In addition, the
customer does not have the right to terminate the contract unless the entity fails to perform as
promised. If the customer defaults on its obligations by failing to make the promised progress
payments as and when they are due, the entity would have a right to all of the consideration
promised in the contract if it completes the construction of the unit. The courts have previously
upheld similar rights that entitle developers to require the customer to perform, subject to the entity
meeting its obligations under the contract.
At contract inception, the entity determines whether its promise to construct and transfer the unit to the
customer is a performance obligation satisfied over time. The entity determines that the asset (unit)
created by the entity’s performance does not have an alternative use to the entity because the
contract precludes the entity from transferring the specified unit to another customer.
The entity also has a right to payment for performance completed to date. This is because if the customer
were to default on its obligations, the entity would have an enforceable right to all of the
consideration promised under the contract if it continues to perform as promised (as per previous
court decisions).
Therefore the terms of the contract and the practices in the legal jurisdiction indicate that there is a right
to payment for performance completed to date. Consequently, the entity has a performance
obligation that it satisfies over time. To recognise revenue for that performance obligation satisfied
over time, the entity measures its progress towards complete satisfaction of its performance
obligation by using any relevant input/output method.
Case C – Entity has an enforceable right to payment for performance completed to date
The same facts as in Case B apply to Case C, except that in the event of a default by the customer, either
the entity can require the customer to perform as required under the contract or the entity can
cancel the contract in exchange for the asset under construction and an entitlement to a penalty of
a proportion of the contract price.
Notwithstanding that the entity could cancel the contract (in which case the customer’s obligation to the
entity would be limited to transferring control of the partially completed asset to the entity and
paying the penalty prescribed), the entity has a right to payment for performance completed to date
because the entity could also choose to enforce its rights to full payment under the contract. The
fact that the entity may choose to cancel the contract in the event the customer defaults on its
obligations would not affect that assessment, provided that the entity’s rights to require the
customer to continue to perform as required under the contract (ie pay the promised consideration)
are enforceable.
Page 2 of 11
Example 4 Measuring progress when making goods or services available
An entity, an owner and manager of health clubs, enters into a contract with a customer for one year of
access to any of its health clubs. The customer has unlimited use of the health clubs and promises
to pay 100 per month.
The entity determines that its promise to the customer is to provide a service of making the health clubs
available for the customer to use as and when the customer wishes. This is because the extent to
which the customer uses the health clubs does not affect the amount of the remaining goods and
services to which the customer is entitled. The entity concludes that the customer simultaneously
receives and consumes the benefits of th4e entity’s performance as it performs by making the
health clubs available. Consequently, the entity’s performance obligation is satisfied over time.
The entity also determines that the customer benefits from the entity’s service of making the health clubs
available evenly throughout the year. (That is, the customer benefits from having the health clubs
available, regardless of whether the customer uses it or not.) Consequently, the entity concludes
that the best measure of progress towards complete satisfaction of the performance obligation over
time is a time-based measure and it recognises revenue on a straight-line basis throughout the
year at 100 per month.
Example 5 – Penalty gives rise to variable consideration
An entity enters into a contract with a customer to build an asset for 1 million. In addition, the terms of the
contract include a penalty of 100,000 if the construction is not completed within three months of a
date specified in the contract.
The entity concludes that the consideration promised in the contract includes a fixed amount of 900,000
and a variable amount of 100,000 (which may or may be received because of charging penalty).
The entity estimates the variable consideration by using either of the following methods.
 Expected value method.
 Most likely method.
Example 6 – right of return [sale on approval basis]
An entity enters into 100 contracts with customers. Each contract includes the sale of one product for 100
(100 total products × 100 = 10,000 total consideration). Cash is received when control of a product
transfers. The entity’s customary business practice is to allow a customer to return any unused
product within 30 days and receive a full refund. The entity’s cost of each product is 60.
Because the contract allows a customer to return the products, the consideration received from the
customer is variable. To estimate the variable consideration to which the entity will be entitled, the
entity decides to use the expected value method because it is the method that the entity expects to
better predict the amount of consideration to which it will be entitled. Using the expected value
method, the entity estimates that 97 products will not be returned.
The entity concludes that it is highly probable that a significant reversal in the cumulative amount of
revenue recognised (ie 9,700) will not occur as the uncertainty is resolved (ie over the return period
of 30 days).
The entity estimates that the costs of recovering the products will be immaterial and expects that the
returned products can be resold at a profit.
Upon transfer of control of the 100 products, the entity does not recognise revenue for the three products
that is expects to be returned. Consequently, the entity recognises the following:
(a) revenue of 9,700 (100 × 97 products not expected to be returned);
(b) a refund liability of 300 (100 refund × 3 products expected to be returned); and
(c) an asset of 180 (60 × 3 products for its right to recover products from customers on settling
the refund liability).
Page 3 of 11
Example 7 – Significant financing component and right of return
An entity sells a product to a customer for 121 that is payable 2 years after right of return is expired. The
customer obtains control of the product at contract inception. The contract permits the customer to
return the product within 90 days. The product is new and the entity has no relevant historical
evidence of product returns or other available market evidence.
The cash selling price of the product is 100, which represents the amount that the customer would pay
upon delivery for the same product sold under otherwise identical terms and conditions as at
contract inception. The entity’s cost of the product is 80.
The entity does not recognise revenue when control of the product transfers to the customer. This is
because the existence of the right of return and the lack of relevant historical evidence means that
the entity cannot conclude that it is highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. Consequently, revenue is recognised after three
months when the right of return lapses.
The contract includes a significant financing component. This is evident from the difference between the
amount of promised consideration of 121 and the cash selling price of 100 at the date that the
goods are transferred to the customer.
The contract includes an implicit interest rate of 10 per cent (ie the interest rate that over 2 years
discounts the promised consideration of 121 to the cash selling price of 100).
Accounting entries:
(a) When the product is transferred to the customer.
Stock with customer 80
Inventory 80
(b) When the right of return lapses (the product is not returned):
Receivable 100
Revenue 100
Cost of sales 80
Stock with customer 80
Until the entity receives the cash payment from the customer, interest revenue would be recognised on
time basis.
Example 8 – Advance payment and assessment of discount rate
An entity enters into a contract with a customer to sell an asset. Control of the asset will transfer to the
customer in two years (ie the performance obligation will be satisfied at a point in time). The
contract includes two alternative payment options: payment of 5,000 in two years when the
customer obtains control of the asset or payment of 4,000 when the contract is signed. The
customer elects to pay 4,000 when the contract is signed.
The entity concludes that the contract contains a significant financing component because of the length of
time between when the customer pays for the asset and when the entity transfers the asset to the
customer, as well as the prevailing interest rates in the market.
The interest rate implicit in the transaction is 11.8 per cent, which is the interest rate necessary to make
the two alternative payment options economically equivalent. However, the entity determines that
the rate that should be used in adjusting the promised consideration is six per cent, which is the
entity’s incremental borrowing rate.
The following journal entries illustrate how the entity would account for the significant financing
component:
(a) Recognise a contract liability for the 4,000 payment received at contract inception:
Cash 4,000
Contract liability 4,000
(b) During the two years from contract inception until the transfer of the asset, the entity adjusts
the promised amount of consideration and accretes (increase) the contract liability by
recognising interest on 4,000 at six per cent for two years:
Page 4 of 11
At the end of first year:
Interest expense 240
Contract liability 240
4,000 contract liability × (6 per cent interest) = 240
At the end of second year:
Interest expense 254
Contract liability 254
[4,000 + 240 contract liability] × (6 per cent interest) = 254
(c) Recognise revenue for the transfer of the asset (at the end of two years):
Revenue 4,494
Example 9 – Entitlement to non-cash consideration
An entity enters into a contract with a customer to provide a weekly service for one year. The contract is
signed on 1 January 20X1 and work begins immediately. The entity concludes that the service is a
single performance obligation This is because the entity is providing a series of distinct services
that are substantially the same and have the same pattern of transfer (the services transfer to the
customer over time and use the same method to measure progress – that is, a time-based
measure of progress).
In exchange for the service, the customer promises 100 shares per week of service (a total of 5,200
shares for the contract). The terms in the contract require that the shares must be paid upon the
successful completion of each week of service.
The entity measures its progress towards complete satisfaction of the performance obligation as each
week of service is complete. To determine the transaction price (and the amount of revenue to be
recognised), the entity measures the fair value of 100 shares that are received upon completion of
each weekly service (means at the end of each week as 100 x Fair value per share).
Example 10 – Consideration payable to a customer

An entity that manufactures consumer goods enters into a one-year contract to sell goods to a customer
that is a large global chain of retail stores. The customer commits to buy at least Rs. 15 million of
products during the year. The contract also requires the entity to make a non-refundable payment
of Rs. 1.5 million to the customer at the inception of the contract. The Rs.1.5 million payment will
compensate the customer for the changes it needs to make to its shelving to a accommodate the
entity’s products.
The entity concludes that the payment to the customer is not in exchange for a distinct good or service
that transfers to the entity. This is because the entity does not obtain control of any rights to the
customer’s shelves. Consequently, the entity determines that the 1.5 million payment is a reduction
of the transaction price.
Suppose during the first month, the entity transferred goods amounting to sale value of 2 million
therefore, in the first month in which the entity transfers goods to the customer, the entity
recognises revenue of 1.8 million. (2 million ÷ 15 million x 13.5).
Page 5 of 11
Example 11 – Allocation methodology
An entity enters into a contract with a customer to sell Products A, B and C in exchange for 100. The
entity will satisfy the performance obligations for each of the products at different points in time.
The entity regularly sells product A separately and therefore the stand-alone selling price is directly
observable. The stand-alone selling prices of products B and C are not directly observable.
Because the stand-alone selling prices for Products B and C are not directly observable, the entity must
estimate them. To estimate the stand-alone selling prices, the entity uses the adjusted market
assessment approach for Product B and the expected cost plus margin approach for Product C.
The entity estimates the stand-alone selling prices as follows:
Stand-alone
Product Method
selling price
Product A 50 Directly observable

Product B 25 Adjusted market assessment approach
Product C 75 Expected cost plus a margin approach
Total 150
The customer receives a discount for purchasing the bundle of goods because the sum of the stand-
alone selling prices (150) exceeds the promised consideration (100). The entity considers whether
it has observable evidence about the performance obligation to which the entire discount belongs
and concludes that it does not. Consequently, the discount is allocated proportionately across
Products A, B and C. The discount, and therefore the transaction price, is allocated as follows:
Product Allocated transaction price
Product A 33 (50 ÷ 150 × 100)

Product B 17 (25 ÷ 150 × 100)
Product C 50 (75 ÷ 150 × 100)
Total 100
Example 12 – Allocating a discount

An entity regularly sells Products A, B and C individually, thereby establishing the following stand-alone
selling prices:
Product Stand-alone selling price
Product A 40
Product B 55
Product C 45
Total 140
In addition, the entity regularly sells Products B and C together for 60

Case A – Allocating a discount to one or more performance obligations
The entity enters into a contract with a customer to sell Products A, B and C in exchange for 100. The
entity will satisfy the performance obligations for each of the products at different points in time.
The contract includes a discount of 40 on the overall transaction, which would be allocated
proportionately to all three performance obligations when allocating the transaction price using the
relative stand-alone selling price method. However, because the entity regularly sells Products B
and C together for 60 and Product A for 40, it has evidence that the entire discount should be
allocated to the promises to transfer Products B and C.
If the entity transfers control of Products B and C at the same point in time, then the entity could, as a
practical matter, account for the transfer of those products as a single performance obligation. That
is, the entity could allocate 60 of the transaction price to the single performance obligation and
recognise revenue of 60 when Products B and C simultaneously transfer to the customer.
Page 6 of 11
Stand-alone
Product Method
selling price
Product A 40 Directly observable

Products B and 60 Directly observable with discount
C [100 - 40]
Product D (bal) 30 Residual approach
Total 130
As the contract requires the entity to transfer control of Products B and C at different points in time, then
the allocated amount of 60 is individually allocated to the promises to transfer Product B (stand-
alone selling price of 55) and Product C (stand-alone selling price of 45) as follows:
Product B 33 (55 / 100 total stand-alone selling price × 60)

Product C 27 (45 / 100 total stand-alone selling price × 60)
Total 60
Case B – Residual approach is appropriate

The entity enters into a contract with a customer to sell Products A, B and C as described in Case A. The
contract also includes a promise to transfer product D. Total consideration in the contract is 130.
The stand-alone selling price for Product D is highly variable because the entity sells Product D to
different customers for a broad range of amounts (from 15 to 45). Consequently, the entity decides
to estimate the stand-alone selling price of Product D using the residual approach.
Before estimating the stand-alone selling price of Product D using the residual approach, the entity
determines whether any discount should be allocated to the other performance obligations in the
contract.
As in Case A, because the entity regularly sells Products B and C together for 60 and Product A for 40, it
has observable evidence that 100 should be allocated to those three products and a 40 discount
should be allocated to the promises to transfer Products B and C. Using the residual approach, the
entity estimates the stand-alone selling price of Product D to be 30 as follows:
The entity observes that the resulting 30 allocated to Product D is within the range of its observable
selling prices (15 – 45). Therefore, the resulting allocation (see above table) is consistent with the
allocation objective.
Case C – Residual approach is inappropriate
The same facts as in Case B apply to Case C except the transaction price is 105 instead of 130.
Consequently, the application of the residual approach would result in a stand-alone selling price of
5 for Product D (105 transaction price less 100 allocated to Products A, B and C). The entity
concludes that 5 would not faithfully depict the amount of consideration to which the entity expects
to be entitled in exchange for satisfying its performance obligation to transfer Product D, because 5
does not approximate the stand-alone selling price of Product D, which ranges from 15 – 45. In this
case, entity should use any other method to estimate stand alone price of product D.
Example 13 – Incremental costs of obtaining a contract
An entity, a provider of consulting services, wins a competitive bid to provide consulting services to a new
customer. The entity incurred the following costs to obtain the contract:
External legal fees for due diligence 15,000

Travel costs to deliver proposal 25,000
Commissions to sales employees as a result of obtaining the contract 10,000
Total costs incurred 50,000
The entity recognises an asset for the 10,000 incremental costs of obtaining the contract arising from the
commissions to sales employees because the entity expects to recover those costs through future
fees for the consulting services.
Page 7 of 11
The entity observes that the external legal fees and travel costs would have been incurred regardless of
whether the contract was obtained. Therefore those costs are recognised as expenses when
incurred.
Example 14 – Contract liability and receivable
Case A – Cancellable contract
On 1 January 20X9, an entity enters into a cancellable contract to transfer a product to a customer on 31
March 20X9. The contract requires the customer to pay consideration of 1,000 in advance on 31
January 20X9. The customer pays the consideration on 1 March 20X9. The entity transfers the
product on 31 March 20X9. The following journal entries illustrate how the entity accounts for the
contract:
(a) The entity receives cash of 1,000 on 1 March 20X9 (cash is received in advance of
performance):
Cash 1,000
(b) The entity satisfies the performance obligation on 31 March 20X9:
Revenue 1,000
Case B – Non-cancellable contract
The same facts as in Case A apply to Case B except that the contract is non-cancellable. The following
journal entries illustrate how the entity accounts for the contract:
(a) The amount of consideration is due on 31 January 20X9 (which is when the entity
recognises a receivable because it has an unconditional right to consideration):
Receivable 1,000
(b) The entity receives the cash on 1 March 20X9:
Cash 1,000
Receivable 1,000
(c) The entity satisfies the performance obligation on 31 March 20X9:
Revenue 1,000
Example 15 – Contract asset recognized for the entity’s performance
On 1 January 20X8, and entity enters into a contract to transfer Products A and B to a customer in
exchange for 1,000. The contract requires Product A to be delivered first and states that payment
for the delivery of Product A is conditional on the delivery of Product B. In other words, the
consideration of 1,000 is due only after the entity has transferred both Products A and B to the
customer. Consequently, the entity does not have a right to consideration that is unconditional (a
receivable) until both Products A and B are transferred to the customer.
The entity identifies the promises to transfer Products A and B as performance obligations and allocates
400 to the performance obligation to transfer product A and 600 to the performance obligation to
transfer Product B on the basis of their relative stand-alone selling prices. The entity recognises
revenue for each respective performance obligation when control of the product transfers to the
customer.
The entity satisfies the performance obligation to transfer Product A:
Contract asset 400
Revenue 400
The entity satisfies the performance obligation to transfer product B and to recognise the unconditional
right to consideration:
Receivable 1,000
Contract asset 400
Revenue 600
Page 8 of 11
Example 16 – Receivable recognised for the entity’s performance
An entity enters into a contract with a customer on 1 January 20X9 to transfer products to the customer
for 150 per product. If the customer purchases more than 1 million products in a calendar year, the
contract indicates that the price per unit is retrospectively reduced to 125 per product.
Consideration is due when control of the products transfer to the customer. Therefore, the entity has an
unconditional right to consideration (ie a receivable) for 150 per product until the retrospective price
reduction applies (ie after 1 million products are shipped).
In determining the transaction price, the entity concludes at contract inception that the customer will meet
the 1 million products threshold and therefore estimates that the transaction price is 125 per
product. Consequently, upon the first shipment to the customer of 100 products the entity
recognises the following:
Receivable (150 x 100) 15,000
Revenue (125 x 100) 12,500
Payable to customer (25 x 100) 2,500
(a) 150 per product × 100 products.
(b) 125 transaction price per product × 100 products.
The refund liability (means payable to customer) represents a refund of 25 per product, which is expected
to be provided to the customer for the volume-based rebate (ie the difference between the 150
price stated in the contract that the entity has an unconditional right to receive and the 125
estimated transaction price).
Example 17 – Option that provides the customer with a material right to future products (discount
voucher)
An entity enters into a contract for the sale of Product A for 100. As part of the contract, the entity gives
the customer a 40 per cent discount voucher for any future purchases up to 100 in the next 30
days. The entity intends to offer a 10 per cent discount on all sales during the next 30 days as part
of a seasonal promotion. The 10 per cent discount cannot be used in addition to the 40 per cent
discount voucher. The standalone price of product A is 100.
Because all customers will receive a 10 per cent discount on purchases during the next 30 days, the only
discount that provides the customer with a material right is the discount that is incremental to that
10 per cent (ie the additional 30 per cent discount). The entity accounts for the promise to provide
the incremental discount as a performance obligation in the contract for the sale of product A
[means there are two performance obligations; i.e Product A and goods against discount voucher]
To estimate the stand-alone selling price of the discount voucher, the entity estimates an 80 per cent
likelihood that a customer will redeem the voucher and that a customer will, on average, purchase
Rs.50 of additional products. Consequently, the entity’s estimated stand-alone selling price of the
discount voucher is 12 (50 average purchase price of additional products × 30 per cent incremental
discount × 80 per cent likelihood of exercising the option). The stand-alone selling prices of product
A and the discount voucher and the resulting allocation of the 100 transaction price are as follows:
Performance obligation Stand-alone
selling price
Product A 100
Discount voucher 12
Total 112
Product A 89 (100 / 112 × 100)

Discount voucher 11 (12 / 112 × 100)
Total 100
Page 9 of 11
The entity allocates 89 to Product A and recognises revenue for Product A when control transfers. The
entity allocates 11 to the discount voucher and recognises revenue for the voucher when the
customer redeems it for goods or services or when it expires [means suppose if customer does not
take the goods against the discount voucher within the agreed time period].
Example 18 – Customer loyalty programme

An entity has a customer loyalty programme that rewards a customer with one customer loyalty point for
every Rs.10 of purchases. Each point is redeemable for a Rs.1 discount on any future purchases of
the entity’s products. During a reporting period, customers purchase products for 100,000 and earn
10,000 points that are redeemable for future purchases. The consideration is fixed and the stand-
alone selling price of the purchased products is 100,000. The entity expects 9,500 points to be
redeemed. The entity estimates a stand-alone selling price (totalling Rs.9,500) on the basis of the
likelihood of redemption
The points provide a material right to customers that they would not receive without entering into a
contract. Consequently, the entity concludes that the promise to provide points to the customer is a
performance obligation. The entity allocates the transaction price (100,000) to the product and the
points on a relative stand-alone selling price basis as follows:
Product 100,000 91,324 [100,000 × (100,000 stand-alone selling price + 109,500)]

Points 9,500 8,676 [100,000 × (9,500 stand-alone selling price + 109,500)]
109,500 100,000
At the end of the first reporting period, suppose 4,500 points have been redeemed and the entity
continues to expect 9,500 points to be redeemed in total. The entity recognises revenue for the
loyalty points of 4,110 [(4,500 points + 9,500 points) × 8,676] and recognises a contract liability of
4,566 (8,676 – 4,110) for the unredeemed points at the end of the first reporting period.
At the end of the second reporting period, suppose 8,500 points have been redeemed cumulatively. The
entity updates its estimate of the points that will be redeemed and now expects that 9,700 points
will be redeemed. The entity recognises revenue for the loyalty points of 3,493 [(8,500 total points
redeemed + 9,700 total points expected to be redeemed ) × 8,676 initial allocation] – 4,110
recognised in the first reporting period). The contract liability balance is 1,073 (8,676 initial
allocation – 7,603 of cumulative revenue recognised).
Example 19 – Bill-and-hold arrangement
An entity enters into a contract with a customer on 1 January 2018 for the sale of a machine and spare
parts. The manufacturing lead time for the machine and spare parts is two years.
Upon completion of manufacturing, the entity demonstrates that the machine and spare parts meet the
agreed-upon specifications in the contract. The promises to transfer the machine and spare parts
are distinct and result in two performance obligations that each will be satisfied at a point in time.
On 31 December 2019, the customer pays for the machine and spare parts, but only takes physical
possession of the machine. Although the customer inspects and accepts the spare parts, the
customer requests that the spare parts be stored at the entity’s warehouse because of its close
proximity to the customer’s factory. The customer has legal title to the spare parts and the parts
can be identified as belonging to the customer. Furthermore, the entity stores the spare parts in a
separate section of is warehouse and the parts are ready for immediate shipment at the customer’s
request. The entity expects to hold the spare parts for two to four years and the entity does not
have the ability to use the spare parts or direct them to another customer.
The entity identifies the promise to provide custodial services as a performance obligation because it is a
service provided to the customer and it is distinct from the machine and spare parts. Consequently,
the entity accounts for three performance obligations in the contract (the promises to provide the
machine, the spare parts and the custodial services). The transaction price is allocated to the three
performance obligations and revenue is recognised when (or as) control transfers to the customer.
Control of the machine transfers to the customer on 31 December 2019 when the customer takes
physical possession. The entity assesses the indicators of transfer of control to determine the point
in time at which control of the spare parts transfers to the customer, noting that the entity has
received payment, the customer has legal title to the spare parts and the customer has inspected
and accepted the spare parts. The entity recognises revenue for the spare parts on 31.12.2019
when control transfers to the customer.
Page 10 of 11
Example 20—Volume discount incentive
An entity enters into a contract with a customer on 1 January 2018 to sell Product A for 100 per unit. If
the customer purchases more than 1,000 units of Product A in a calendar year, the contract specifies
that the price per unit is retrospectively reduced to 90 per unit. Consequently, the consideration in the
contract is variable.
For the first quarter ended 31 March 2018, the entity sells 75 units of Product A to the customer. The
entity estimates that the customer’s purchases will not exceed the 1,000-unit threshold required for
the volume discount in the calendar year.
The entity determines that it has significant experience with this product and with the purchasing
pattern of the entity. Thus, the entity concludes that it is highly probable that a significant reversal in
the cumulative amount of revenue recognised (ie 100 per unit) will not occur when the uncertainty is
resolved (ie when the total amount of purchases is known). Consequently, the entity recognises
revenue of 7,500 (75 units × 100 per unit) for the quarter ended 31 March 2018.
In May 2018, the entity’s customer acquires another company and in the second quarter ended 30
June 2018 the entity sells an additional 500 units of Product A to the customer. In the light of the new
fact, the entity estimates that the customer’s purchases will exceed the 1,000-unit threshold for the
calendar year and therefore it will be required to retrospectively reduce the price per unit to 90.
Consequently, the entity recognises revenue of 44,250 for the quarter ended 30 June 2018. That
amount is calculated from 45,000 for the sale of 500 units (500 units × 90 per unit) less the change in
transaction price of 750 (75 units × 10 price reduction) for the reduction of revenue relating to units
sold for the quarter ended 31 March 2018.
Page 11 of 11
16/01/2024, 08:15 58.65.172.36:50/Question/PaperDesign?PaperID=0
Batch No: 1
Time allowed: 1 Hour(s)
Teacher Name: Sir Asjad
Maximum Marks: 17
Test: 1
Additional Reading Time: 0 min
Test Date: 01/16/2024
_______________________________________________________________________________
FINANCIAL ACCOUNTING
_______________________________________________________________________________
Instruction:
(i) Attempt all Questions.
(ii) Use Black Ink.
(iii) The marker shall take in to account clarity of presentation , logical arrangement and assumption if any.
(iv) Start each question using FRESH PAGE.

_______________________________________________________________________________
Q 1. Gold Limited (GL) is a dealer of specialized engines. GL acquires each engine from a manufacturer at a
cost of Rs. 58 million and sells it for Rs. 71 million on cash. The estimated economic life of an engine is
five years.
On 1 January 2022, Lead Limited (LL) leased an engine from GL on four years lease term. The first
annual instalment of Rs. 16 million was paid on 1 January 2022 and all subsequent annual instalments
are payable on 1 January subject to increase of Rs. 2 million in each year. LL incurred initial direct cost of
Rs. 4 million, out of which GL reimbursed Rs. 1.5 million. GL estimates the residual value of the engine at
the end of lease term to be Rs. 5 million. However, LL has guaranteed an additional amount of Rs. 3
million at the end of lease term.
Market rate for similar transaction is 15% per annum. As an incentive to LL for entering into the lease, GL
has incorporated an implicit rate of 10% per annum which is known to LL.
LL is also obliged to incur decommissioning cost of Rs. 9 million at the end of the lease term.
Discount rate of 12% per annum may be assumed wherever required but not given.
Required:
In accordance with IFRSs:
(a) prepare journal entries in the books of GL for the year ended 31 December 2022. (07)
(b) prepare relevant extracts from LL’s statement of profit or loss for the year ended 30 September 2022
and statement of financial position on that date. (10)
58.65.172.36:50/Question/PaperDesign?PaperID=0 1/1
Q.1
Operating Profit / (loss)

segment
Rs.
#1 300
#2 60
#3 600
#4 400
#5 700 2,060
#6 (600)
#7 (120)
#8 (960) (1,680)
Required: Identify reportable segments as per IFRS 8.
Q.2 A listed company has different product lines under, along with other information:
Rs. In million
Products Internal Revenue External Revenue Profit Assets
A 110 120 42 1,500

B 65 83 8 650
C - 74 10 425
D - 430 19 2,500
E - 77 7 630
F - 104 29 1,500
Total 175 888 115 7,205
Required
Determine the reportable segment and give brief explanation in the light of IFRS 8.
Q.3 Fashion & Style Textile (FST) Limited is public listed company and renowned in the textile industry.
The company has five segments, each having its own revenues, expenses, assets and liabilities. The
details of each business segment for the year ending December 31, 2016 are as follows:
Rs. In “million”
Business Revenues Gross Profit Operating Assets Liabilities
Segment expenses
Spinning 1,969 1,211 69 701 486
Weaving 238 129 63 488 391
Dyeing 250 53 25 127 103
Home Textile 272 29 18 140 119
Garments 277 34 13 145 108
Additional Information:
➢ The weaving and dyeing segment revenues include external customers as well as inter segment
revenues. Intersegments revenues of both the segments are as follows:
▪ Revenues of weaving segment include inter segment revenue of Rs. 30 million. It supplies
fabrics to Dyeing segment at margin of 25%.
▪ Revenues of Dyeing segment includes inter segment revenue of Rs. 12 million as it provides
dyeing services to Garments segment at margin of 20%.
➢ The operating expenses of the Company’s head office amounting to Rs. 80 million have not been
allocated to any segment.
➢ Assets and liabilities of Rs. 160 million and Rs. 35 million respectively have not been reported in
the asset and liabilities of any segment.
Required:
In accordance with the IFRS
i. Identify which of the above will be classified as reportable segments of FST Limited.
ii. Show how the reportable segments and the necessary reconciliation would be disclosed
in FST Limited financial statement for the year ended December 31, 2016?
Q.4 Zeshan limited,(ZL ) a listed company, is engaged in ‘spinning’, ‘weaving’, ‘knitting’, ‘dyeing’ and
’home textile’ businesses. Result of each business segment for the year ended June 30, 2018 is as
follows:
Rs. In billion
Business Segments Sales Gross Profit Operating Assets Liabilities
Expenses
Spinning 20.000 1.800 0.800 15.000 0.750
Weaving 5.500 0.825 0.275 4.000 0.250
Knitting 3.000 0.420 0.220 1.200 0.075
Dyeing 3.200 0.384 0.175 4.500 0.125
Home textile 2.500 0.200 0.100 2.500 0.150
34.200 3.629 1.570 27.200 1.350
Inter- Segment sales by ‘spinning’ to ‘weaving and ‘knitting’ is Rs. 2 billion and 0.70 billion respectively
and by ‘weaving’ to ‘dyeing’ is Rs. 1.5 billion. Spinning inter-segment sales have been sold at 9% margin
and that of ‘weaving’ at 15% margin.
Operating expenses, assets and liabilities amounting to Rs. 0.5 billion, Rs. 0.25 billion and Rs. 0.1 billion
respectively, have not been allocated to any segment.
Required:
In accordance with the requirement of IFRS 8- Operating Segments:
i. Determine the reportable segments of ZL
ii. Show how these segments would be disclosed in ZL’s financial statements for the year ended
June 30, 2018.
iii. Also prepare the reconciliation of revenues, profit or loss, Assets and Liabilities.
IAS 41: AGRIC
CHAPTER-12
Ouestion-4
Helios Ltd is an agricultural production company. . 1
Helios Ltd acquired 70% of the ordinary shares of Sol Ltd, an agncul~. based company for Rs. 600
milliv : on 1 January 2015, when the reserves of Sol Ltd were Rs. 30.0 ~Ilion. At the date of acquisitio
the fair value of the non-wntrolling interest in Sol Ltd was Rs. 160 IDl lb on. n
The fair values of the net assets of Sol Ltd are the same as their carrying values with the exception f
plot of agricultural land. This land was carried by Sol Ltd at its cost of Rs. 300 million. It was es~t~
at a fair value of Rs. 360 million.
Statement of fmancial position of Helios Ltd and Sol Ltd as at 31December 2016
I Helios Ltd II Sol Ltd 7
I,___- _Rupees
--2-__ in '000' _
.:::...._:_::..::..___:__ i
Assets
Non-current assets
Property, plant and equipment 600,000 450,000
Investments 800,000
Current assets
Inventories ·' 160,000 150,000
= Trade & other receivables 120,000 280,000
Cash and cash equivalent 20,000 50,000
Total assets 1,700,000 930,000
Equity and liabilities

Equity
Ordinary share capital
160,000 120,000
Share premium
-- - ---R-eserves- - __ 40,000 20,000
Non-current liabilities ~ __Q,000 500,000
- - ---- -----
Loan notes
Current liabilities 600,000 170,000
Trade & other payabics
Total equity & liabilities 310,000 120 000
Additi~nal information: I, 700,000 ~
Immediately after acquisition th fi 11 .
plant and equipment and inv~to~ o owing agricultural products
(i) Included in property, plant ~~of S~l Ltd as at 31 December;~\e ~rocured and included in propertY,
eqwpment of Sol Ltd are: 6.
Dairy livestock _ immatur Rupees ,ooo'
Dairy livestock - mature e 40,00o
(ii) Included in inventories of Sol Ltd . . 50,00o
Cotton plants lS.
Required 20,()()()
(a) Prepare the consolidated state
2016 as expected for an agn· ulment of financial p . .
\ (b) State how to measure agricultural
c tural busmess.
. os1tion for Helios Ltd gro 31 vecellli,er
IAS 41 on Agriculture · products harvested by up as at
. · lin
an enllty . the requireIDe1115. of
m e with
368 I -------~(I-C~AP.:.:Q:u:es:ti:oo::ba:o:k2 1
Q.1 .2)
~
12/29/23, 7:47 AM 58.65.172.36:50/Question/PaperDesign?PaperID=0
Batch No: 3
Time allowed: 1 Hour(s)
Teacher Name: Sir Asjad
Maximum Marks: 32
Test: 5
Additional Reading Time: 0 min
Test Date: 12/29/2023
_______________________________________________________________________________
Financial Accounting and Reporting II

_______________________________________________________________________________
Instruction:
(i) Attempt all Questions.
(ii) Use Black Ink.
(iii) The marker shall take in to account clarity of presentation , logical arrangement and assumption if any.
(iv) Start each question using FRESH PAGE.

_______________________________________________________________________________
Q 1. (a) Diana Limited (DL) is in the process of finalizing its financial statements for the year ended 31
December 2019. The following information have been gathered for preparing the disclosures relating to
taxation:
(i) Accounting loss before tax for the year amounted to Rs. 140 million. It includes:
an amount of Rs. 2 million recovered from a customer whose debt had been written off in 2018. As
per tax laws, receivable written offs are allowed as deduction.
dividend of Rs. 16 million earned against equity investment in a UK based company. As per tax laws,
this dividend income is exempt from tax in Pakistan as 20% tax was paid in UK.
(ii) The movement of owned property, plant and equipment for 2019 is as follows:
Accounting WDV Tax base
Rs. in million
Opening balance 1,700 1,116
Additions 460 480
Impairment (72) *
Depreciation (470) (284)
Disposals (144) (92)
Closing balance 1,474 1,220
* impairment is not allowed for tax purposes.

Difference of Rs. 20 million in ‘Additions’ represents foreign exchange loss on acquisition which was
considered as part of the cost of the asset as per tax laws.
(iii) As per tax laws, research expense for the year is allowable in the next year. Research expense for
the year amounted to Rs. 25 million (2018: Rs. 64 million).
(iv) Rent expense is allowed for tax purposes on payment basis. Rent prepaid as at 31 December 2019
amounted to Rs. 6 million (2018: Rs. 1 million).
(v) As on 31 December 2018, DL had carried forward tax losses of Rs. 90 million against which DL had
always expected that it is probable that future taxable profit will be available.
12/29/23, 7:47 AM 58.65.172.36:50/Question/PaperDesign?PaperID=0
(vi) Tax rate is 35%.
Required:
(a) Prepare a note on taxation for inclusion in DL's financial statements for the year ended 31 December
2019 and a reconciliation to explain the relationship between tax expense and accounting profit. (11)
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31 December 2019
and 2018. (05)
Q 2. Red Limited (RL) is finalizing its financial statements for the year ended 31 December 2017. In this
respect, the following information has been gathered:
i. Applicable tax rate is 30% except stated otherwise.
ii. During the year RL incurred advertising cost of Rs. 15 million. This cost is to be allowed as tax
deduction over 5 years from 2017 to 2021.
iii. Trade and other payables amounted to Rs. 40 million as on 31 December 2017 which include
unearned commission of Rs. 10 million. Commission is taxable when it is earned by the company. Tax
base of remaining trade and other payables is Rs. 25 million.
iv. Other receivables amounted to Rs. 17 million as on 31 December 2017 which include dividend
receivable of Rs. 8 million. Dividend income was taxable on receipt basis at 20% in 2017. However, with
effect from 1 January 2018, dividend received is exempt from tax. Tax base of remaining other
receivables is Rs. 6 million.
v. On 1 April 2017, RL invested Rs. 40 million in a fixed deposit account for one year at 10% per annum.
Interest will be received on maturity. Interest was taxable on receipt basis at 10% in 2017. However, with
effect from 1 January 2018, interest received is taxable at 15%.
vi. On 1 January 2016, a machine was acquired on lease for a period of 4 years at annual lease rental of
Rs. 28 million, payable in advance. Interest rate implicit in the lease is 10%. Under the tax laws, all lease
related payments are allowed in the year of payment.
vii. Details of fixed assets are as follows:
On 1 January 2017 RL acquired a plant at a cost of Rs. 250 million. It has been depreciated on
straight line basis over a useful life of six years. RL is also obliged to incur decommissioning cost of
Rs. 50 million at the end of useful life of the plant. Applicable discount rate is 8%.
On 1 July 2017 RL sold one of its four buildings for Rs. 60 million. These buildings were acquired on
1 January 2013 at a cost of Rs. 100 million each having useful life of 30 years.
The dismantling costs will be allowed for tax purposes when paid. Tax depreciation rate for all owned
fixed assets is 10% on reducing balance method. Further, full year’s tax depreciation is allowed in year of
purchase while no depreciation is allowed in year of disposal.
Required: Compute the deferred tax liability/asset to be recognized in RL’s statement of financial position
as on 31 December 2017. (16)
FLOW CHARTS ON
IAS & IFRS
(25) Flow
Charts
By: Bilal Khalid Khan (FCA)
www.cloudoutglobal.com
Table of Contents
Conceptual Framework
Ethics
IAS-01 Presentation of Financial Statements
IAS-02 Inventories
IAS-07 Statement of Cash Flows
IAS-08 Accounting Policies, Changes in Accounting Estimates

and Errors
IAS-10 Events After the Reporting Period
IAS-12 Income Taxes
IAS-16 Property, Plant and Equipment
IAS-19 Employees Benefits

IAS-20 Accounting for Government Grants and Disclosure of
Government Assistance
IAS-21 The Effects of Changes in Foreign Exchange Rates
IAS-23 Borrowing Costs
IAS-27 Separate Financial Statements
IAS-32 Financial Instruments: Presentation
IAS-33 Earning Per Share
IAS-36 Impairment of Assets
IAS-37 Provisions, Contingent Liabilities and Contingent

Assets
IFRS-02 Share Based Payements
IFRS-03 Business Combinations
IFRS-08 Operating Segments
IFRS-09 Financial Instruments
IFRS-10 Consolidated Financial Statements
IFRS-15Revenue from Contracts with Customers
IFRS-16 Leases

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Consolidation Summary

Consolidated Balance Sheet

Step 5: Net Assets of associate

1. Tangible assets xxx / (xxx) xxx / (xxx)

- on the books not having fair value (xxx) (xxx)

- off the books having fair value xxx xxx

holding % in associate xxx xxx

if share exeeds cost then record BPG to be taken in Group Reserves

Consolidated Profit or Loss

Step 2: Prepare unadjusted Profit or loss account:

c Impairment ( if full goodwill ) (xxx)

NCI % holding xxx

Party Cost / Income IRR

For investor Additional Income

In Case of Transaction Cost incurred by Equity Issuer:

Treatment -----------> Adjust in share premium

www.youtube.com/c/FarhanHyderNaqvi Prepared by Akash Mukesh Kumar

Lease Term Non-cancelable period including In case of manufacturer dealer lessor

How to calculate Fair Value xxx

How to calculate Present value of lease rentals xxx Depreciation Lower of

www.youtube.com/c/FarhanHyderNaqvi Unless BPO or compulsory transfer then useful life

That engages in business Operating results are For which discrete

incur expenses decision maker

should be reported separately even if criteria in current period is not met.

Ka Hona Alag Baat

Costs that will be incurred irrespective of whether the contract is

LEGAL OBLIGATION CONSTRUCTIVE OBLIGATION

By Past Practice Current statement

Creating a valid Expectation that such an

action will be carried out by the company

(v).When the plan will be implemented and completed;

ii.Sale of inventory at lower price

proceeds from assets sold, before the end of

5. Discovery of fraud or error after reporting period.

Adjusting Non- adjusting

ACCOUNTING TREATMENT GOING CONCERN ASSUMPTION

4. the destruction of a major production plant by a fire after thereporting period;

Depreciation: GP before change in valuation 105 135 166 274

Change in estimate 100,000 - Change in profit 5 10 - 37 4

Change in policy ka Table:

2017 20182019 2020

2016 22,500 Balance as at January 1, 2019 52,500 Statement of profit or loss:

2017 25,000 Error - adjustement till cl of 2018 54,250 2020 2019

Balance sheet Details of 2018: Statement of financial position:

Accounting for exchange differences:

Understanding of Transfer of Risk and reward

Case 1: Free on board:

Case 2: Cost and Frieght:

To be paid by seller Custom duties

R&R Transferred here

2. Purchases will be recorded here by buyer

Case 3: Delivery on terminal:

To be paid by seller Custom duties

R&R Transferred here

1. Sales will be recorded here by seller

2. Purchases will be recorded here by buyer

Particulars R&R Transfer Insurance Frieght Custom Duty

Cost & Frieght At Seller's port To be paid by seller To be paid by buyer

Summary of Foreign Currency

At every Reporting Date At Every Payment Date

Fair value Foreign

OCI or P&L OCI or P&L

Example 2 Customer simultaneously receives and consumes the benefits

Example 10 – Consideration payable to a customer