Certificate in Accounting and Finance Stage Examination

2024
35 minutes
25 marks
Additional reading time – 10 minutes
Financial Accounting and Reporting-I
Instructions to examinees:
(i) Answer all questions.
(ii) Answer in black pen only.
(iii) Start each question from new page
Section A

Question 1
Abbas Limited (AL) is engaged in the business of manufacturing near the Karachi-Hyderabad Motorway. Its property, plant
and equipment comprises of land, buildings, plant and machinery, and equipment.
The balances of the property, plant and equipment as at 30 June 2018 are given below:
Gross Carrying Accumulated Depreciation
Assets Amount (Rs. Million) (Rs. Million)
Land 12 N/A
Buildings 125 38
Plant and Machinery 500 300
Equipment 100 36
The relevant information regarding measurement and depreciation is given below:
Assets Depreciation Method Subsequent Measurement
Land Not applicable Revaluation model
Buildings Straight-line Cost model
Plant and Machinery Units of Production Cost model
Equipment Reducing balance Cost model
Additional information for the period up to 30 June 2018 are as follows
 The equipment was purchased on 1 July 2016. No disposals and acquisitions took place in the period up to 30 June
2018.
 Until 30 June 2018, 12,000 units had been produced by Abbas Limited in its factory. The plant and machinery does not
have any residual value. No additions or disposals of plant and machinery took place till this date.
 The buildings were acquired on 1 July 2014 with a residual value of Rs. 11 million. No additions and disposals took
place till 30 June 2018.
The land had actually cost Rs. 15 million on the date of its acquisition
The following information pertains to the year ended on 30 June 2019:
(i) On 1 July 2018, land was revalued to Rs. 20 million. The value was determined by an independent firm M/s Ashfaq
Valuation Services.
(ii) During the year, 5,000 units were produced in the factory of AL.
(iii) On January 1, 2019, AL disposed 25% of its area comprising of land and buildings at a price of Rs. 90 million. The
portion of land was sold at its fair value as determined on 1 July 2018. The legal costs of drafting transfer agreements
were Rs. 0.1 million. It is assumed that value of land and buildings is spread evenly across the area occupied.
(iv) Further equipment costing Rs. 60 million was acquired on 1 November 2018.
(v) In the meeting of its board of directors, it was decided to open a new factory premises near Lahore-Islamabad motorway.
An expenditure of Rs. 20 million was spent of the construction of the factory on 1 December 2018. The construction
had not been completed by the end of the year.
(vi) Moreover, the directors also made a contract with M/s Uni Power & Co. to purchase plant and machinery worth Rs. 35
million once the construction of factory building is completed.
Required:
Prepare the disclosure note in accordance with IAS 16 in relation to property, plant and equipment in the notes to the
financial statements for the year ended 30 June 2019. (Comparatives and column for total is not required). (20)

Multiple choice Question

1. A building is revalued upwards by Rs.2 million. It was acquired five years ago for Rs.10 million. Its useful life remains
same as 20 years. What is the incremental depreciationcharge for the year?
a) Rs.100,000 b) Rs.133,333
c) Rs.166,667 d) Rs.200,000 (02)

2. During the year 2019, an entity purchased a machine for Rs. 20 million to be used for 6 years. Which of the following
would represent residual value of this machine in 2019?
(a) Rs. 15 million can be currently obtained from disposal of the machine in present condition
(b) Rs. 4 million can be currently obtained from disposal of a 6 year old similar machine
(c) Rs. 18 million can be obtained in 2025 from disposal of the machine in present condition
(d) Rs. 7 million can be obtained in 2025 from disposal of a 6 year old similar machine (02)
3. The correct accounting treatment of initial operating losses incurred during the commercial production due to under-
utilization of the plant would be to:

(a) capitalise as a directly attributable cost

(b) defer and charge to profit or loss account when profit is earned from the plant
(c) charge directly to retained earnings since these are not considered to be normal operating losses
(d) charge to profit or loss account (01)