Combined Tests Far-02

FAr-02 All Tests combined by Sir Adnan Rauf
Test Number Syllabus
Test 01 Lecture 1 to 6
Test 02 IAS 38 & IAS 41
Test 03 IFRS-16 till Lecture 19
Test 04 IFRS-16
Test 05 IAS-21
Assessment 01 IAS-41, IAS-21 & IFRS-16
Test 06 IAS-12 till Lecture 42
Test 07 IAS-12
Test 08 IAS-12
Term Test 01 Lecture 01-58 till IFRS-08
Test 09 IFRS-09
Test 10 IAS 3 & 10
Test 11 Consolidation
Test 12 Consolidation
Term test 02 IFRS-09, IFRS-16, IFRS-08, IAS-21 & IAS-10
Test 13 IAS-37
Test 14 Final Accounts

Certificate in Accounting and Finance Stage Examination
October2 ,2023
27 minutes – 15 marks
Additional Reading Time – 10 minutes
Financial Accounting and reporting –II

Test-1
Instructions to examinee
(i) Answer All Questions

(ii) Answer in Black pen only
(iii) Attempt each Question on new page.
Question-1
Following information pertains to BFL’s intangible assets.
(i) Value of intangible assets as at 30 June 2013 (Rs. in million):
Goodwill Patent
Cost 1,200 400
Accumulated amortization - 160
(ii) On 1 July 2013, BFL acquired following Intangible assets from Gamma Enterprises (GE). The
value of patents, development expenditure and the goodwill purchased was Rs. 2,100 million, Rs.
48 million and Rs. 1,822 million respectively.
(iii) The break-up of development expenditure was as follows:
Products Rs. in
million
A – 214 25
B – 917 23
Total 48
(iv) Research and development expenditure (Rs. in million) during the year ended 30 June 2014 and
2015 was as follows:
Year Product name Research Development
2014 A-214* - 8
B-917 10 45
2015 B-917 50
* because of certain reasons the management had decided to abandon this project in May
2014.
(v) Trial production of B-917 commenced in March 2015. Net cost of trial production up to 30 June
2015 amounted to Rs. 22 million.
(vi) Patents are amortized over their useful life of 10 years on straight line method.
(vii) Recoverable amounts of assets having indefinite life, determined as a result of impairment testing,
as on 30 June 2015 were as follows (Rs in million):
Goodwill 2,800
Product B-917 160
Required
Prepare a note on intangible assets, for inclusion in BFL’s financial statements for the year ended 30 June
2015 in accordance with the requirements of International Financial Reporting Standards showing
separately goodwill, patent and B-917. Total column is not required.
(13)
Financial Acccounting and reporting-II Page 2 of 2
Question-2
Solve these MCQ’s
1. Which of the statements are correct?

a) Research costs should be expensed to the statement of profit of loss.
b) All types of goodwill can be capitalized.
c) Capitalized development costs that no longer meet the criteria specified by IAS-38 must be
written off to the statement of profit or loss
d) Capitalized development costs are amortized from the date the asset is available to use.
e) Research costs written off can be re-capitalized when the developed asset is feasible.
f) Only purchased intangibles can be capitalized.
(1.5)
2. The brand name that was acquired separately should initially be recognised, according to IAS
38 Intangible assets, at:
a) recoverable amount
b) either cost or fair value at the choice of the acquirer
c) fair value
d) Cost
(0.5)
CAF-05 Test -1 Solution
Answer-1
1
Beta Foods Limited
Notes to the financial statements (Extracts only)
For the year ended 30 June 2015
(N-10) Intangible assets
Rs. In million
Goodwill Patents B-917
Cost
(a) (b) (c)
Opening 3,022 2,500 68 4.5
Additions (50 + 22) - - 72 1
Closing 3,022 2,500 140
Accumulated amortisation/impairment
Opening (W-1) 0 410 - 0.5
Amortisation 2,500/10 - 250 - `0.5
Impairment (W-2) 222 - - 0.5
Closing (222) (660)
Net book value 30.06.15 2,800 1,840 140 0.5
Useful life N/A 10 years N/A 0.5

Amortisation method N/A Straight N/A 0.5
line
Measurement model Cost Cost 0.5
(a) 1,200 + 1,822 = 3,022
(b) 400 + 2,100 = 2,500
(c) 23 + 45 = 68
(W-1) 1
Dr. Accumulated Amor. (Patents a/c) Cr.
01/07/13 b/d 160
Amortisation 250
[(400 + 2,100) /10]
30/06/14 c/d 410
(W-2) Calculation of Impairment loss

Goodwill B-917
Book value – 30/6/2015 3,022 140
Less: Recoverable Amount (2,800) (160)
Impairment loss 222 -* 2
*As recoverable amount of B-917 is higher than carrying amount therefore no impairment loss shall be
recognised.
Page 1
Only for Student understanding

Entries for year ended 30 June 2014 & 2015
Date Particulars Dr. Cr.
Patents 2,100
A-214 25
B-917 23
Goodwill 1,822
Bank 3,970
( Intangible assets acquired)
A-214 8
B-917 45
Bank 53
(Recording of development expenditure)
Profit and loss a/c 33
A-214 (25 + 8) 33
(Derocognition of development expenditure)
Research Expense 10
Bank 10
(Recording of research expense)
30/6/2014 Amortization (400+2100)/10 250
Accumulated amortization 250
(Recording of amortistion expense for the year)
B-917 (50 + 22) 72
Bank 72
(Recording of development expenditure and trial production cost)
30/6/2015 Amortization (400+2,100)/10 250
Accumulated amortization 250
(Recording of amortistion expense for the year)
30/6/2015 Impairment loss (W-1) 222
Accumulated Impairment –Goodwill 222
(Impairment loss on good will recorded)
Answer-2 (1.5+0.5=)2
1. A,C&D
2. D
Page 2
October 9 ,2023
Financial Accounting and Reporting-II

Test-2
(i) Answer All 4 Questions

Question-1
Delta is a farming entity specializing in milk production. Cows are milked on a daily basis. Milk is kept in
cold storage immediately after milking and sold to retail distributors on a weekly basis.
1. On 1 April 20X4, Delta had a herd of 500 cows which were all three years old.
2. During the year, some of the cows became sick and on 30 September 20X4 20 cows died. On 1
October 20X4, Delta purchased 20 replacement cows from the market for Rs. 2,100 each. These
20 cows were all one year old when they were purchased.
Information relating to fair value is given below:

Date Fair value of a dairy cow
1 year old 1½ years old 3 years old 4 years old
Rs. Rs. Rs. Rs.
1 April 20X4 2,000 2,200 2,700 2,500
1 October 20X4 2,100 2,300 2,800 2,600
31 March 20X5 2,150 2,350 2,900 2,650
Information relating to costs to buy and cost to sell is given below:

Cost to buy Cost to sell
Transportation cost 1% of fair value -
Commission to broker 5% of fair value 6.5% of fair value
Transfer duties 2% of fair value 3% of fair value
Finance cost Rs. 2,500 on buying 200 cows -
Required: Prepare journal entries for year ended 31 March 20X5. (8)
Question-2
Ted started running a farm that is involved in agricultural activity whereby it buys dairy producing cows.
At the start of the financial year Ted purchased 1,000 dairy cows, with an average age of 2 years old, for
Rs. 1.50 million.
Ted has the following data on fair values of agricultural activity:
Fair value less cost to sell
Start of year End of year
Rs. Rs.
Two-year-old cows (per cow) 1,500.00 1,550.25
Three-year-old cows (per cow) 1,590.00 1,650.10
During the year entity sold 40,000 gallons of milk at an average price of Rs. 5 a gallon.
Required: Prepare the journal entries for current year. (4)

Financial Accounting and Reporting-II | Page 2 of 2
Question-3
A Company grows and harvests mangoes. Mango trees produce a new harvest of mangoes each year. Mangoes
are sold to mangoes juice producers. With regards to property, plant and equipment, company accounts for land
using the revaluation model and all other classes of assets using cost model. On 1 January 2019, its mango trees
had a carrying amount of Rs. 300,000 and remaining useful life of 20 years. The mangoes were plucked from
trees on 28 December 2019 and had a fair value less cost to sell of Rs. 70,000 and these were still held at year
end. The land used for growing the mangoes had a fair value of Rs. 200,000 at year end.
Required: Discuss how it should be dealt with in the financial statements for the year ended 31.12 2019. (5)
Question-4
1) The Anemone Company owns a number of herds of cattle. Where should changes in the fair value of a
herd of cattle be recognised in the financial statements, according to IAS41 Agriculture?
A In profit or loss only
B In other comprehensive income only
C In profit or loss or other comprehensive income
D In the statement of cash flows only
2) According to IAS41 Agriculture, which ONE of the following would be classified as a product that is
the result of processing after harvest?
A Cotton
B Wool
C Bananas
D Cheese
3) According to IAS41 Agriculture, which TWO of the following criteria must be satisfied before a
biological asset can be recognised in an entity's financial statements?
A The entity controls the asset as a result of past events
B It is probable that economic benefits relating to the asset will flow to the entity
C An active market for the asset exists
D The asset forms a homogenous biological group
4) According to IAS41 Agriculture, which TWO of the following expenses would be classified as cost to
sell when valuing biological assets and agricultural produce?
A Commissions to brokers
-B Income Tax
C Transfer taxes and duties
D Advertising costs
5) According to IAS41 Agriculture, which TWO of the following items would be classified as biological
assets?
A Oranges
B Chickens
C Eggs
D Trees
6) Are the following statements about classification according to IAS41 Agriculture true or false?
(1) Sugar should be classified as agricultural produce.
(2) Wool should be classified as agricultural produce.
Statement (1) Statement (2)
A False False
B False True
C True False
D True True (6)
Answer-1
Date Particulars Dr. Cr. Marks

Rs. in ‘000’
30-Sep- Expense (P/L) 48,870
20X4 Biological Assets 48,870 1
(20 dead cows)
2700 x 20 cows = 54,000 – 6.5% of 54,000 - 3% of 54,000 OR
54,000 x 90.5%
1-Oct- Biological Assets (F.V - C.T.S) (W-1) OR (2100 x 20 x 90.5%) 38,010
20X4 Expense (P/L) (bal.) 7,350 1
Bank (W-2) OR (2100 x 20 x 108%) 45,360
(Initial Recognition for biological asset purchased)
1-Oct- Finance Cost Expense 250
20X4 Bank 250 0.5
(2500/200) x 20 (We bought only 20)
31-Mar- Expense (P /L ) (W-3) 17,195
20X5
Biological Assets 17,195 0.5
(Recording of re-measurement Gain on Biological Assets)
(W-1) Fair value less cost to sell of cows bought (1-Oct-20X4)
Fair value 2,100 x 20 cows 42,000 0.5

Less: Cost to sell:
Transfer duties (42,000 x 3%) (1,260) 0.25
Commission to broker (42,000 x 6.5%) (2,730) 0.25
38,010
(W-2) Cash Paid on 1-Oct-20X4

Cash for Cows (2100 x 20) 42,000 0.25
Transport cost (42,000 x 1%) 420 0.25
Commission to broker (42,000 x 5%) 2,100 0.25
Transfer duties (42,000 x 2%) 840 0.25
45,360
(W-3) Gain on measurement at year end

Opening value (FV – CTS) 2700 x 500 cows = 1,350,000 x 90.5% * 1,221,750 1
Dead cows (First Journal entry) (48,870) 0.25
Purchases (FV – CTS) (W-1) 38,010 0.25
Gain/(loss) (bal.) (17,195) 0.5
Closing (FV – CTS) 2650 x 480 cows = 1,272,000 x 90.5% 0.5
And newly bought 2,350 x 20 cows = 47,000 x 90.5% 1,193,695 0.5
100 – 6.5 – 3 = 90.5% *
Page 1
Answer-2
1/1/Yr1 Biological Asset (Cows) 1,500,000 0.25
Bank 1,500,000 0.25
31/12/Yr1 Biological Asset 150,100 0.5
P/L 150,100 0.5
(1,650.1 x 1,000 – 1,500,000)
31/12/Yr1 Milk Agricultural Produce 200,000 0.25
P/L (40,000 x 5) 200,000 0.25
31/12/Yr1 Milk Inventory 200,000 0.5
Milk Agricultural Produce 200,000 0.5
31/12/Yr1 Cash 200,000 0.25
Sale 200,000 0.25
31/12/Yr1 Cost of Sales 200,000 0.25
Milk-Inventory 200,000 0.25
Answer-3
Land:
Under revaluation model, increase in the fair value of the land should be reported in other
comprehensive income. At 31 December 2019, the land should be revalued to Rs. 200,000 and
any gain should be reported in other comprehensive income. [1 marks]
Mango trees:
The mango trees are bearer plants and are therefore also accounted for under IAS 16. Under cost
model, depreciation of Rs. 15,000 (300,000/20) will be charged to profit or loss and mango trees
will have a value of Rs. 285,000 (300,000 - 15,000) at 31 December 2019. [2 marks]
Mangoes:
Mangoes are agricultural produce and should initially be recognized at fair value less cost to sell.
Any gain or loss on initial recognition is included in profit or loss. The harvested mangoes should be
initially recognized at Rs. 70,000 with a gain of Rs. 70,000 in profit or loss. After initial recognition,
agricultural produce is treated as inventories under IAS 2. Thus Rs. 70,000 will be the cost of
inventory. [2 marks]
Answer-4
1 mark for each
1) A
2) D
3) A and B
4) A and C
5) B and D
6) B
Page 2
October 16 ,2023

Test-3
Question-1
Mardan Inc. was incorporated in 2010 to operate as a computer software service firm with an
accounting year ending September 30. Mardan Inc. has leased a large computer system from
manufacturer. The lease calls for a 2 monthly rental for 3 years of the lease term. Total lease payments
are equal to Rs. 720,000. The estimated useful life of the computer is 5 years. All rentals are payable
on the last day of the 2nd month. The lease period starts from April 1, 2012, the date the computer was
installed and the lease agreement was signed. Fair value of the Alpha-3 computer system is Rs.
650,000 at April 1, 2012. The implicit rate for lease is 12%.
Required:
Prepare statement of financial position as on September 30, 2012 in the books of Mardan Inc. (10)
.
Question-2
On July 01, 2013, Georgia-Atlantic, Inc. leased a warehouse from Builders, Inc. The lease agreement
calls for Georgia-Atlantic to make semi-annual lease payments of Rs. 689,561 over a three-year lease
term, payable each June 30 and December 31, with the first payment at 31 December, 2013. The
interest rate implicit in the lease is 10% per annum. Builders used to calculate lease payment amounts.
The fair value of asset is Rs. 3,500,000.
Required
a) Prepare a lease amortization schedule
b) Prepare accounting entries in the books of Builders Inc. for the year ended 31 December, 2013
and 2014. (8)
Answer-1
Mardan Inc.
Statement of Financial Position (Extracts)
As on September 30, 2012 1
Rupees
Assets
Non-Current Assets
Right of use Asset (W-5) 499,734 0.5
Equity & Liabilities
Non-Current Liabilities
Obligation under Lease (W-4) 326,489 0.5
Current Liabilities
Current portion of Obligation under Lease 187,482 2.0
(29,721+30,315+30,921+31,540+32,171+32,814)
(W-1) 2 monthly rentals 1.0

There are 18 two monthly rentals in 3 years. So rent per 2 month is calculated as below:
Rent per 2 month = Total LP = 720,000
18 18
= 40,000
(W-2) 2 monthly interest rate 0.5

Annual interest rate 12%
2 monthly interest rate (12% x 2/12) = 2%
(W-3) Calculation of PV of LP 1
= 40,000 x [1-(1+0.02)-18]
0.02
= 599,681
(W-4) Lease amortization schedule 2

Date Installment Principal Interest Balance
1/4/12 599,681
31/5/12 40,000 28,006 11,994 571,675
31/7/12 40,000 28,566 11,434 543,109
30/9/12 40,000 29,138 10,862 513,971
30/11/12 40,000 29,721 10,279 484,250
31/1/13 40,000 30,315 9,685 453,935
31/3/13 40,000 30,921 9,079 423,014
31/5/13 40,000 31,540 8,460 391,474
31/7/13 40,000 32,171 7,829 359,303
30/9/13 40,000 32,814 7,186 326,489
Page 1
(W-5) Right of Use Asset 1.5

Cost (Recording of asset PV of LP) 599,681
Less: Accumulated depreciation [(599,681 /3) x 6/12] (99,947)
WDV at September 30, 2012 499,734
Answer-2
(a) Lease Amortization Schedule
Semi-annual rate (10%/2) 5%

Date Installment Principal Interest Balance 2
1/7/13 3,500,000
31/12/13 689,561 514,561 175,000 2,985,439
30/6/14 689,561 540,289 149,272 2,445,150
31/12/14 689,561 567,303 122,258 1,877,847
30/6/15 689,561 595,669 93,892 1,282,178
31/12/15 689,561 625,452 64,109 656,726
30/6/16 689,561 656,726 32,835 -
b) Builders Inc.
Entries in the books of lessor
1/7/13 Lease receivable 3,500,000
Asset 3,500,000 0.5
(Transfer of asset under finance lease)
31/12/13 Bank 689,561
Lease receivable 514,561
Finance income 175,000 1.5
(Receipt of lease receivable and finance income)
30/6/14 Bank 689,561
31/12/04 Bank 689,561
(W-1) Calculation of Net Investment 1
Gross investment = ( 689,561 x 6)
= 4,137,366
Net investment = 689,561 x [1-(1+0.05)-6]
0.05
= 3,500,000
Page 2
October 23 ,2023

Test-4

Question-1
For year ended 31 December 2022 X Company has entered into following lease transactions as a lessee:
Machine A 1. Lease commenced on 1 October 2022
leased from 2. The lease term is 4 years with semi annual rental of Rs. 50,000 payable in arrears.
MCB Bank 3. The lease contains an option to extend the lease term by 1.5 years with semi annual
rental of Rs. 2,000 only. It is certain that lessee will extend lease.
4. Interest rate implicit in the lease is 10.9%.
5. The residual value of the machine at the end of 5.5 years is estimated at Rs. 6,000 out
of which lessee has guaranteed Rs.2,200.
6. Fee paid to lawyer is Rs. 1,500.
Machine C 1. Lease commenced on 1 January 2022

from NBP 2. Fair value of asset is Rs. 900,000
3. The lease term is 15 years with annual rental paid in arrears of Rs.138,526.
4. Initial direct cost paid by lessor is 10,000 and lessee has reimbursed 20%.
5. Interest rate implicit in the lease is 13%.
6. GRV at end of lease is Rs. 30,000 and expected market value is estimated at
Rs. 50,000 at tend of lease.
Required:
Prepare journal entries for the year ended 31 December 2022 in the books of X Co. (10)
Question-2
On 1 July 2021, Monkey Leasing (ML) leased a machine to Decagon Limited (DL). Details are as
follows:
(i) The non-cancellable lease term is five years during which annual instalment of Rs. 6 million is
payable by DL in arrears.
(ii) DL has an option to extend the lease term by one year by paying Rs. 4 million at start of sixth
year. It is reasonably certain that DL will exercise this option.
(iii) ML estimates the residual value of the machine at the end of lease term to be Rs. 10 million out
of which DL has guaranteed Rs. 8 million. DL expects that the machine will have market value of
Rs. 5 million at the end of lease term.
(iv) The rate of interest implicit in the lease is 11% per annum.
(v) The useful life of the machine is eight years.
Required:
Prepare note(s) for inclusion in the financial statements of ML for the year ended 30 June 2022. (09)
Question-3
Zeta Limited entered into a five-year lease agreement on 1 November 2012, paying Rs.
109,750 per annum, commencing on 31 October 2013. The present value of the lease
payments was Rs. 450,000 and the interest rate implicit in the lease was 7%.
What is the amount to be shown within non-current liabilities at 31 October 2013? (2)
CAF-5 Test-4 Solution
Answer-1
Entries in the books of Lessee –Machine A
1/10/22 R.O.U 320,896
Lease liability(W-2) 320,896 0.75
(Asset acquired under lease)
1/10/22 R.O.U 1,500
Cash 1,500 0.75
(IDC paid)
31/12/22 Finance charges(17,489(W-3) x 3/6) 8,745
Finance charges payable 8,745 0.75
(Recording of finance charges)
31/12/22 Depreciation expense (322,396 /5.5 x 3/12) 14,654
Accumulated depreciation 14,654 0.75
(Recording of depreciation expense)
(W-1) Lease Payments

= [(50,000x8) + (2,000 x3)]
= 406,000
(W-2) Present value of Lease Payments 2
= [Rentals x [1 – (1+i)-n]
i
= [50,000x [1 – (1+5.45%*)-8] + [2,000x [1 – (1+5.45%)-3]
5.45% 5.45%
= 317,363 + 5,401 (1+5.45%)-8
= 317,363 + 3,533
= 320,896
*10.9%/2 = 5.45%
(W-3) Lease amortization schedule: 0.5
Date Installment Principal Interest@ Balance
5.45%
01/10/22 320,896
31/3/23 50,000 32,511 17,489 288,385
Page 1
Machine C
Entries in the books of Lessee –Machine C
1/01/22 Right of use 895,207
Lease liability(W-2) 895,207 0.75
(Asset acquired under lease)
1/01/22 Right of use 2,000
Cash (I.D.C) (10,000 x 20%) 2,000 0.75
(IDC)
31/12/22 Lease Liability 22,149
Finance charges 116,377
Bank 138,526 0.75
(Payment of lease liability and finance charges)
31/12/22 Depreciation expense (897,207 /15) 59,814
Accumulated depreciation 59,814 0.75
(W-1) 1.5
Present value of Lease Payments
= [Rentals x [1 – (1+i)-n]
i
= [138,526x [1 – (1+13%)-15]
13%
=895,207
(W-2) Lease amortization schedule: 0.5
Date Installment Principal Interest@ Balance
13%
01/01/22 895,207
31/12/22 138,526 22,149 116,377 873,058
Page 2
Answer-2
Monkey Leasing Company(ML)
Notes to the Financial Statement (Extracts only)
For the year ended 30th June , 2022 1
8.Finance Lease .5
8.1
The lease payments are discounted at implicit rate of 11%. Rentals are paid in arears.
8.2 Maturity Analysis- Contractual undiscounted cash flows 1.5
Total lease payments receivables are as follows:
Rs.in
‘Million’.
Less than one Year 6
one to two years 6
two to three years 6
three to four years 6
four to five years (4 + 8) 12
Total Undiscounted lease receivable 36
8.3 Reconciliation 2
Rs.in‘Million’
Total lease receivable 36
Add: Un-guaranteed residual value 2
Gross investment in lease 38
Less: Unearned finance income (2.99 + 2.66 + 2.29 + 1.88 + 0.99) (10.81)
Net investment in lease 27.19
(W-1)
Calculation of Net Investment 2
= PV of LP + PV of URV
= 6 x 1-(1+11%)-5 + 4 (1+11%)-5 + 8 (1+11%)-6 + *2 (1+11%)-6
11%
= 29.90
UGRV = 10 – 8 = 2*
(W-2)Lease amortization schedule Rs.’Million’ 2
01/07/21 29.90
30/06/22 6 2.71 3.29 27.19
30/06/23 6 3.01 2.99 24.18
30/06/24 6 3.34 2.66 20.84
30/06/25 6 3.71 2.29 17.13
30/06/26 6 4.12 1.88 13.01
1/7/26 4 4 - 9.01
(8 + 2) 30/06/27 10 9.01 0.99 -
Page 3
Answer-3 2
Rs. Amortization schedule:

288,023
1/11/12 450,000
31/10/13 109,750 78,250 31,500 371,750
31/10/14 109,750 83,727 26,023 288,023
Non-current liability at 31st October 2013 is Rs. 288,023
Page 4
October 31 ,2023

Test-5

Question-1
Bahbood Limited (BL) is a Pakistani company that sells bed sheets and fine quality linen dresses. BL incurred
the following transactions in foreign currency:
a) Sold a batch of bed sheets to a British company for GBP 50,000. The order from the British company
was received on 25 April 2015, the sheets were dispatched on 15 August 2015
The bed sheets cost the Pakistani company PKR 40,000.
The British company paid Bahbood Limited as follows:
 GBP 25 000 on 31 October 2015
 GBP 25 000 on 31 January 2016
b) On 1 July 2015, Bahbood Limited granted a loan of MYR 20,000 to a foreign company based in
Malaysia, Tinghu Limited.
 The loan is repayable in 10 instalments of MYR 2,500 each (including both principal and
interest), payable annually in arrears.
 Effective Interest rate is 4.28% p.a.
The spot and average exchange rates on the respective dates were as follows:
Date Spot Rate Spot Rate
PKR : GB POUND MYR : PKR
25 April 2015 2.00:1 1.00:1.5
1 July 2015 2.10:1 1.00:1.2
15 August 2015 2.20:1 1.00:1.4
25 August 2015 2.50:1 1.00:1.45
31 October 2015 2.65:1 1.00:1.4
31 December 2015 2.40:1 1.00:1.3
31 January 2016 2.90:1 1.00:1.25
30 June 2016 - 1.00:1.5
31 December 2016 2.80:1 1.00:1.75
Average rates
01 July 2015 to 31 December 2015 - 1.00:1.4
01 January 2016 to 30 June 2016 - 1.00:1.6
01 July 2016 to 31 December 2016 - 1.00:1.7
Required:
Show all related journal entries in the books of Bahbood Limited for its years ended 31 December 2015 and
2016. (10)
Question-2
Solve the MCQ’s:
1. A gain or loss arising on the re-translating of a monetary item should be:
A. Recognised in profit or loss in the period that it arises
B. Not necessary to be recognized
C. Recognised in profit and loss in the next year
2. IAS21 make a distinction between:
A) Monetary items, such as trade payables and trade receivables, and non-monetary items,
such as non current assets and inventory
B) Tangible items, such as trade payables and trade receivables, and non-monetary items,
C) Intangible items, such as trade payables and trade receivables, and non-monetary items,
3. Monetary item definition is:

A. Units of inventory held, or assets and liabilities to be received or paid (in cash), in a fixed
number of currency units
B. Units of payable held, or assets and liabilities to be received or paid (in cash), in a fixed
C. Units of currency held, or assets and liabilities to be received or paid (in cash), in a fixed
(3)
Answer-1 Bahbood Ltd.

Journal Entries
For the year ended 31 December,2015
Date Particular Dr. Cr. 1
2015 ---------Rupees-------
--
15/08/15 Foreign Debtor 110,000
Sales (50,000 x 2.2) 110,000
(Sales to British Company) 0.25
15/08/15 Cost of Sale 40,000
Inventory 40,000
(Recording in inventory account) 0.25
31/10/15 Bank (25,000 x 2.65) 66,250
Exchange gain (bal.) 11,250
Foreign Debtor (25,000 x 2.2) 55,000
(Recording of receipt) 1
31/12/15 Foreign Debtor 5,000
Exchange gain 5,000
[(25,000 x 2.2) = 55,000 VS 60,000 (25,000 x 1
2.4)]
(Recording retranslation at year end)
2016
31/01/16 Bank (25,000 x 2.9) 72,500
Exchange gain (bal.) 12,500
Foreign Debtor (25,000 x 2.4) 60,000
(Recording of receipt) 1
b)
Date Particular Dr. Cr.
2015 ---------Rupees-------
--
01/07/15 Loan receivable 24,000
Bank 24,000 0.5
31/12/15 Loan receivable 599
Interest Income 599 0.5
Exchange gain 1,957 0.5
2016
30/06/16 Bank 3,750
Loan receivable 3,750 0.5
Exchange gain 8,652 0.5
(W-1) Amortisation Schedule in MYR
01/07/15 20,000
30/06/16 2,500 1,644 856 18,356
30/06/17 2,500 1,714 786 16,642
1
(W-2) Exchange Gain/Loss on translation in Rupees

Dr. Loan receivable
Cr.
01/07/15 Bank (20,000 x 1.2) 24,000
31/12/15 Interest income (*428 x 599
1.4)
31/12/15 Exchange gain (bal.) 1,957 31/12/15 c/d (20,428 x 1.3) 26,556
01/01/16 b/d 26,556
30/06/16 Interest income (428 x 685 30/06/16 Bank (2,500 x 1.5) 3,750
1.6)
31/12/16 Interest income 668
(**393 x 1.7)
31/12/16 Exchange gain (bal.) 8,652
- 31/12/16 c/d (18,749 x 1.75) 32,811
1
*856/2 = 428
**786/2 = 393
Answer-2
1. A
2. A
3. C
(1 Mark each)
November 6 ,2023
Financial Accounting and reporting –II

Assessment-1

Section-A
Question-1
Identify whether the asset in following cases is identified or not and if it is identified whether it is a lease
or is not a lease.
i) A company leases a laptop computer for their financial controller over a three year period.
ii) A company leases a photocopier. The copier will remain on the client site, and will only be
returned to the lessor in the event of a major repair.
iii) A company leases cars for their team of sales representatives for a three-year period. The cars
are required to be estate models, but from time to time, the car may be changed by the lessor.
(06)
Question-2
A company acquires three architects drawing desks which are paid for over 10 months. The company
already has four of these desks (to be paid over same period), and no elections have been made in this
regard.
Required:
Comment on the accounting treatment of three architects drawing desks acquired on lease during the year.
(2)
Question-3
Customer L enters into a five-year contract with Freight Carrier M for the use of rail cars from M to transport
a specified quantity of goods. M uses rail cars of a particular specification, and has a large pool of similar
rail cars that can be used to fulfil the requirements of the contract. The rail cars and engines are stored at
M’s premises when they are not being used to transport goods. The costs associated with substituting the
rail cars are minimal for M.
Relevant experience demonstrates that M benefits economically from being able to deploy alternative assets
as necessary to fulfil its contracts with customers.
Required:
Comment whether it is a lease or is not a lease?
(3)
Question-4
Financial statements of Square Limited (SL) for the year ended 31 July 2023 are under preparation.
An overseas property (PPE) of Rs. 810 million (representing USD 4.5 million). The property was acquired on
1 August 2022. SL paid the amount in full on 15 June 2023. Of the initial carrying amount, 60% of the value
of the property was attributed to the buildings element. On the date of purchase the useful life of the
buildings element was estimated to be 40 years. At 31 July 2023, SL estimated that the fair value of the
property was USD 5 million.
Required:
Comment on the accounting treatment of above transaction
(5)
Financial Accounting and Reporting-II Page 2 of 2
Question-5
Select the most appropriate answer(s) from the options available for each of the following Multiple
Choice Questions.
(iii) Which of the following statements is/are correct under IAS 21?
(I) An entity can have only one presentation currency.
(II) Any currency other than functional currency of the entity is foreign currency.
(a) Only (I) is correct (b) Only (II) is correct
(c) Both are correct (d) None is correct (01)
(iv) Government grant related to a biological asset measured at its cost less any accumulated
depreciation is accounted for under:
(a) IAS 20 (b) IAS 16
(c) IAS 41 (d) IAS 41 and IAS 20 (01)
Section-B
Question-1
On 1 July 2019, Panto Ltd leased the equipment from Mime Ltd. Information in relation to the lease
contract is as follows:
1. The lease is for 4 years and is non-cancellable.
2. Non-refundable down payment agreed is Rs. 30,000.
3. Annual lease payments are to be made in arrears with the first payment of Rs. 320,000 to be
made on 30 June 2020. Lease payments for the remaining period are to be made on 30 June
each year with an annual increment of 20%, commencing on 30 June 2021.
4. Market rate is 8% however implicit interest rate charged by lessor in the lease is 7%.
Incremental borrowing rate of lessee is 10%.
5. Lessor has provided lessee a lease incentive of Rs. 5,000.
6. Mime Ltd incurred initial direct costs of Rs. 21,000 in relation to this lease. Panto Ltd also
incurred initial direct costs of Rs. 12,000.
7. Panto Ltd is not expected to purchase the equipment at the end of the lease term. The lessee
has guaranteed Rs. 30,000 residual value. The equipment is expected to realize more than the
guaranteed amount at the end of the lease term.
8. There is a termination option that allows the lessee (Panto Ltd) to terminate the lease provided,
1 year notice is given on 1 July 2021 and a penalty of Rs. 40,000 is to be paid (with the next
lease payment). Panto Ltd is not expected to terminate the lease early as the equipment is
expected to be required for Panto Ltd's operations for 4 years.
9. The fair value of asset at the start of lease is Rs. 1,900,000.
10. The equipment has an estimated economic life of 10 years, with a residual value of Rs. 15,000.
Panto Ltd applies straight-line depreciation to this type of equipment.
Required:
Prepare relevant extracts from Panto Ltd.’s statement of profit or loss for the year ended 31 March
2020 and statement of financial position
(15)
CAF-05 Assessment -1
Solution
Answer-1
1) The asset is explicitly identified so this will be classified as a lease. (1 mark)
2) The arrangement involves an identified asset which the customer has the right to control so it is a lease.
Substitution rights are not substantive. The reason that it can be returned if major repair is required does
not mean that lessor has substitution right. (2.5 marks)
3) Substitution rights are substantive because lessor can practically substitute the asset and will take
economic benefit from it. So it is not a lease. (2.5 marks)
Answer-2
It is a short-term lease, however, IFRS 16 requires the election (simplified approach) to be made for the whole
class of assets, and this has not been done for four of the desks already there. So the full standard should be
applied on these 3 desks by recording right of use and lease liability. (2 marks)
Answer-3
In this case, because the rail cars are stored at M’s premises, it has a large pool of similar rail cars and
substitution costs are minimal, M has the practical ability to substitute the assets. In addition, the substitution is
economically beneficial to M throughout the period of use. (2.5 marks)
Therefore, M’s substitution rights are substantive and the arrangement does not contain a lease. (1 marks)
Answer-4
Land:
Under revaluation model, increase in the fair value of the land should be reported in other comprehensive
income. At 31 December 2019, the land should be revalued to Rs. 200,000 and any gain should be reported in
other comprehensive income. (1 marks)
Mango trees:
The mango trees are bearer plants and are therefore also accounted for under IAS 16. Under cost model,
depreciation of Rs. 15,000 (300,000/20) will be charged to profit or loss and mango trees will have a value of Rs.
285,000 (300,000 - 15,000) at 31 December 2019. (1 marks)
Mangoes:
Mangoes are agricultural produce and should initially be recognized at fair value less cost to sell. Any gain or
loss on initial recognition is included in profit or loss. The harvested mangoes should be initially recognized at
Rs. 70,000 with a gain of Rs. 70,000 in profit or loss. After initial recognition, agricultural produce is treated as
inventories under IAS 2. Thus Rs. 70,000 will be the cost of inventory. (2 marks)
Answer-5
The property will be initially measured at its cost that is Rs. 810,000,000. The building element and land element
will be recognized separately. The building element will be Rs 486,000,000 (810,000,000 x 60%) and the land
element will be Rs. 324,000,000 (810,000,000 x 40%) (2 marks)
The payable is initially measured at Rs. 810,000,000 and the payable will be settled on 15th June, 2023 and
gain/loss on the time of settlement will be taken to profit and loss on 15th June, 2023. (1 mark)
The building will be depreciated over a period of 40 years and the depreciation charge of Rs 12,150,000
(486,000,000/40) will be charged to SOCI and at the yearend if the entity is using cost model the land and
building will appear at its cost less accumulated depreciation. However, if the entity is using revaluation model
under IAS-16 then the property will be revalued at Rs 5,000,000 and the exchange gain/loss will be taken to
same place where the revaluation gain/loss is recorded. (2 marks)
Answer-6 1 mark each

(iii) (b)
(iv) (a)
Page 1
CAF-05 Assessment -1
Solution
Answer-7
(a)
Panto Limited
Statement of Financial Position (Extracts only) 01
As at 31 March 2020 All figures in Rs.

Assets Marks
Non-current assets
Right of use asset [1,469,466 (W-1.1) – 275,525] 1,193,941 02
Liabilities
Non- current liabilities
Obligation under lease 1,212,739 01
Current liabilities
Current portion of obligation under lease (W-2) 219,727 01
Interest payable (100,273 (W-2) x 9/12) 75,205 01
Panto Limited
Statement of Comprehensive income (Extracts only)
For the year ended 31 March 2020 All figures in Rs.
Depreciation Expense (W-1.1) (1,469,466/4 x 9/12) 275,525 02

Interest Expense 100,273 (W-2) x 9/12 75,205 01
(W-1) Calculation of PV of LP
= 25,000*+ [320,000 x (1+7%)-1 + 384,000 x (1+7%)-2 + 460,800 x (1+7%)-3 + 552,960 x (1+7%)-4+0
= 1,457,466 02
*30,000 ( D.P ) – 5,000 (Lease Incentive) = 25,000
(W-1.1)
Cost of Right of use
P.V of L.P 1,457,466
I.D.C 12,000
1,469,466 0.5
(W-2) Lease Amortisation Schedule

@ 7% 2.5
1/07/19 1,457,466
1/07/19 25,000 25,000 - 1,432,466
30/06/20 320,000 219,727 100,273 1,212,739
30/06/21 384,000 299,108 84,892 913,631
30/06/22 460,800 396,846 63,954 516,785
30/06/23 552,960 516,785 36,175 -
Page 2
November 13 ,2023

Test-6

Question-1
Following information has been gathered for preparing the disclosures related to taxation of Mabroom
Limited (ML) for the year ended 31 December 2020:
(i) Accounting profit before tax for the year amounted to Rs. 50 million.
(ii) Accounting amortization exceeded tax amortization by Rs. 20 million (2019: Rs. 12 million). As
at 31 Dec. 2020, carrying values of intangible assets exceeded their tax base by Rs. 145 million.
(iii) Entertainment expenses for the current year were amounted to Rs. 7 million which is not allowed.
(iv) Provision for gratuity as at 31 December 2020 was Rs. 23 million (2019: Rs. 18 million). Under
tax laws, gratuity expense is allowed on payment basis.
(v) During the year, ML received dividend income of Rs. 6 million. Under tax laws, dividend is taxable
at the rate of 15%.
(vi) On 1 April 2020, a manufacturing plant was acquired on lease for a period of 4 years at an annual
lease rental of Rs. 40 million, payable in arrears. Interest rate implicit in the lease is 10% per annum.
Under tax laws, all lease rentals are allowed on payment basis.
(vii) During the year 2020 rental income exceeded the rent received by Rs. 10 million. Rent is taxed on
receipt base.
(viii) Applicable tax rate (other than dividend income) is 35%.
Required:
(a) Prepare a note on taxation for inclusion in ML’s financial statements for the year ended
31 December 2020 and a reconciliation to explain the relationship between the tax expense and
accounting profit. (8)
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31 December
2020 and 2019. (7)
Question-2 (01 mark each)

Choice Questions.
01. A piece of machinery cost Rs. 500,000. Tax depreciation to date has amounted to Rs. 220,000
and depreciation charged in the financial statements to date is Rs. 100,000. The rate of income
tax is 30%. Which of the following statements is incorrect according to IAS 12 Income Taxes?
(a) The deferred tax liability in relation to the asset is Rs. 36,000
(b) The tax base of the asset is Rs. 280,000
(c) There is a deductible difference of Rs. 120,000
(d) There is a taxable temporary difference of Rs. 120,000
02. Which of the following statements regarding taxation of lease arrangement are true?
(i) Depreciation expense and interest expense should be added back in accounting profit
to calculate current tax
(ii) Rental payments should be deducted from accounting profit for calculating current tax
(iii) Right of use asset has tax base of nil resulting in taxable temporary difference
(iv) Lease liabilities have tax base of nil resulting deductible temporary difference
Answer-1
Mabroom Limited
Notes to the Financial Statements (Extracts only)
For the year ended 31 December, 2020 (1)
1 - Taxation
Rs.in
million
Tax
Current tax (W-1) 35.9 0.25
Deferred tax (W-7) (17.1) 0.25
(18.8)
1.1 - Reconciliation between accounting Profit before tax with tax expense
Profit before tax 50.00 0.25
Tax rate 35% 0.25
Tax on above (50 x 35%) 17.5 0.25
Add: Tax effect of disallowed entertainment expense (7x 35%) 2.5 0.5
Less: Tax effect of dividend income (separate rate) (6 x 20%) (1.2) 0.5
(18.8)
(b) Calculation of deferred tax as on 31.12.2019

Carrying Difference Tax
amount Tax T.T.D/D.T.D D.T.L/D.T.A
Base
Intangible assets (W-2) 165 0 165 T.T.D 57.8 D.T.L 0.25
Provision for gratuity (W-4) 18 - 18 D.T.D 6.3 D.T.A 0.25
147 T.T.D
Deferred tax asset (147 x 35%) 51.5 D.T.L 0.25
Calculation of deferred tax as on 31.12.2020
Carrying Tax Difference Tax
amount Base T.T.D/D.T.D D.T.L/D.T.A
Intangible assets (W-2) 145 0 145 T.T.D 0.5
Provision for gratuity (W-4) 23 - 23 D.T.D 0.5
R.O.U(127-24) (W-6) 103 - 103 T.T.D 0.5
Lease liability (27+100) (W-6) 127 - 127 D.T.D 0.5
Interest payable (13x9/12) 9.8 - 9.8 D.T.D 0.5
Rent Receivable 10 0 10 T.T.D
98.2 T.T.D
Deferred tax liability (98.2 x 35%) 34.4 D.T.L 0.25
Page 1
(W-1) Calculation of current tax

Rs.in
million
Profit before tax 50 0.25
Add: Accounting amortization 20 0.5
Entertainment expense disallowed 7 0.5
Gratuity expense(W-4) 5 0.5
Interest expense-Lease (13 x 9/12)- (W-6) 10 0.5
Depreciation on plant-ROU (127/4 x 9/12) 24 0.5
66
Less: Dividend income 6 0.5
Lease Rental -
Rental income 10
(16)
Taxable profit for current year 100 0.5
Current tax (100 x 35%) 35 0.5
Tax on dividend income (6 x 15%) 0.9
35.9
(W-2)
Intangibles a/c – at WDV (Accounting rules)
01/01/20 b/d (Bal.) 165 Amortization expense 20 0.75
31/12/20 c/d 145
(W-3)
Intangibles a/c – at WDV (Tax base))
01/01/20 b/d(Bal.) 0 Amortization expense 0
31/12/20 c/d 0
(W-4)
Provision for Gratuity
b/d 18 0.25
c/d 23 Gratuity expense (Bal.) 5
(W-5) Calculation of PV of LP
= Rental x {1- (1+i)-n}
i
= 40x {1- (1+10%)-4} 1
10%
= 127 million
(W-6) Lease Amortization Schedule

Date Installment Principal Interest Balance 0.5
1/4/20 127
31/3/21 40 27 13 100
Page 2
(W-7) Deferred tax liability a/c

D.T.E (Bal.) 17.1 b/d (Part-b) 51.5 1.5
c/d (Part-b) 34.4
(W-8)
Dr. Rental Income Cr. .5

P/L 10
31/12/20 c/d (bal.) 10
Answer 2 (1 Mark Each)

1. C
2. A,B,C&D
Page 3
November 20 ,2023
CAF 5 – Financial Accounting and Reporting II

Test-7
Instructions to examinees:
(i) Answer All Question.
(ii) Answer in Black pen only.
Question-1
XYZ is a listed company engaged in the business of manufacturing of leather goods. The applicable rate
for the Co. is 40% in year 1994, 1995 and 1996.
The relevant information for calculation of deferred tax is as under:-
1. Charitable donations are recognized as expenses when they incurred and are not deductible for
tax purposes. (1995: Rs. 500, 1996: Rs. 350)
2. In 1995, the entity was notified by the relevant tax authorities that they intend to pursue action
against the entity with respect to sulphur emissions. Although as at December, 1996 the action had
not yet come to court the entity recognized a liability of Rs. 700 in 1995 being its best estimate of
the fine arising from the action. Fines and penalties are not deductible for tax purposes. (1996:Also
Rs. 700)
3. In 1992, the entity incurred Rs. 1,250 of costs in relation to the development of new product. These
costs were deducted for tax purposes in 1992. For accounting purposes, the entity capitalized this
expenditure and amortized it on the straight-line basis over five years. At 31st December 1994, the
balance of these product development costs was Rs. 500.
4. In 1995, the entity entered into an agreement with its existing employees to provide health care
benefits to retirees. The entity recognizes as an expense the cost of this plan as employees provide
service (1995: Rs. 2,000, 1996: Rs. 1,000). No payments to retirees were made for such benefits in
1995 and 1996. Healthcare costs are deductible for tax purposes when payments are made.
5. Buildings are depreciated at 10% a year on a straight-line basis for tax purposes. Motor vehicles are
depreciated at 25% a year on a straight-line basis for tax purposes. A full year’s depreciation is
charged purposes in the year that an asset is acquired.
6. There was an addition to Buildings of Rs. 6,000 during the year 1995 and in vehicles of Rs. 15,000
during the year 1996.
7. The cost of buildings is Rs. 50,000 and vehicles Rs. 10,000 at the end of 1994. The tax allowance
on the assets already taken is Building Rs. 40,000 and vehicles Rs. 5,000.
8. The accounting profit for 1995 is Rs. 8,775 and for 1996 is Rs. 8,740.
The extracts of balance sheets for 1994, 1995 and 1996 are as under:-
1994 1995 1996
Assets
Product development costs 500 250 -
Property, plant & equipment 36,000 37,200 44,400
Equity and liabilities
Fine payable - 700 1,400
Liability for healthcare benefits - 2,000 3,000
Required:
a) Calculate opening balance of D.T.L/D.T.A as on January 1, 1995.
b) Calculate current tax expense for the year ended 31 December, 1995 and 1996.
c) Calculate deferred tax expense for the year ended 31 December, 1995 and 1996. (20)
(THE END)
CAF-05 Solution Test-7
Answer-1
a)
Opening balance of deferred tax liability as on 1st January 1995 (W-1) Rs. 8,600. 0.5
b)
Calculation of current tax
1996 1995
Profit before tax 8,740 8,775
Add: Accounting depreciation (W-3) 7,800 4,800 0.5
Fines and penalties 700 700 0.5
Charitable donations 350 500 0.5
Healthcare benefits expense 1,000 2,000 0.5
Amortisation on development expenditures (1,250/5 years) 250 250 0.5
10,100 8,250
Less: Tax depreciation (W-4) 11,850 8,100 0.5
(11,850) (8,100)
Taxable profit 6,990 8,925
Current tax @ 40% 2,796 3,570 0.5
c) 1996 1995
Deferred tax expense 1,120 420 0.5
(W-1) Calculation of deferred tax - as on December 31, 1994

Carrying T.T.D/ D.T.L/
amount Tax Base (D.T.D) (D.T.A)
P,P&E (-):(W-4) 36,000 15,000 21,000 0.5
Development costs 500 - 500 0.5
21,500
Deferred tax liability (21,500 x 40%) 8,600 0.5
Calculation of deferred tax - as on December 31, 1995

P,P&E (-):(W-4) 37,200 12,900 24,300 0.5
Fine payable (W-8) 700 700 - 0.5
Development costs 250 - 250 0.5
Liability for healthcare benefits 2,000 - (2,000) 0.5
22,550
Adnan Rauf, FCA Page 1

Calculation of deferred tax - as on December 31, 1996

P,P&E (-):(W-4) 44,400 16,050 28,350 0.5
Fine payable (W-8) 1,400 1,400 - 0.5
Development costs - - -
Liability for healthcare benefits 3,000 - (3,000) 0.5
25,350
(W-2)
Dr. Deferred tax liability /asset Cr.
b/d (1/1/95) (W-1) 8,600
c/d (31/12/95) (W-1) 9,020 Deferred tax expense (bal.) 420 2
b/d (1/1/96) 9,020
c/d (31/12/96) (W-1) 10,140 Deferred tax expense (bal.) 1,120 2
(W-3)
Dr. Property, Plant & Equipment-BV (accounting rules) Cr.
b/d (1/1/95) 36,000 Dep. (bal.) 4,800
Additions 6,000 c/d (31/12/95) 37,200 1
b/d (1/1/96) 37,200 Dep. (bal.) 7,800
Additions 15,000 c/d (31/12/96) 44,400 1
(W-4)
Dr. Property, Plant & Equipment(as per tax) Cr.
b/d (1/1/95) 15,000 Dep. (W-5)(W-6) (5,600+2,500) 8,100
(50,000-40,000)+(10,000-5,000)
Additions 6,000 c/d (31/12/95) (bal.) 12,900 0.75
b/d (1/1/96) 12,900 Dep. (W-5)(W-6) (5,600+6,250) 11,850
Additions 15,000 c/d (31/12/96) (bal.) 16,050 0.75
(W-5) Calculation of tax depreciation on building

1995
On opening (50,000 x 10%) 5,000
On additions (6,000 x 10%) 600
5,600 0.5
1996
On openings (56,000 x 10%) 5,600 0.25
(W-6) Calculation of tax depreciation on vehicles

1995
On opening (10,000 x 25%) 2,500 0.25
1996
On openings (10,000 x 25%) 2,500
On additions (15,000 x 25%) 3,750
6,250 0.5

(W-7)
Dr. Provision (Liability for health care benefits) Cr.
b/d (1/1/95) 0
c/d (31/12/95) 2,000 Expense 2,000
b/d (1/1/96) 2,000
c/d (31/12/96) 3,000 Expense 1,000
(W-8)
Dr. Fine expense Cr.
b/d (1/1/95) 0
c/d (31/12/95) 700 Expense 700
b/d (1/1/96) 700
c/d (31/12/96) 1,400 Expense 700

November 27,2023

Test-8
(i) Answer All Two Questions
Question-1
The following balances have been extracted from the statement of financial position of Uchhali Limited (UL) as
on 31 December 2022:
2022 2021
— Rs. in million —
Investment property 420 -
Inventories 840 780
Interest receivable 65 80
Accumulated losses 460 390
Accrued expenses 232 250
Additional information:
(i) UL has only one investment property, which was purchased during 2022 at a cost of
Rs. 450 million. The fair value of the property as on 31 December 2022 amounted to
Rs. 610 million. UL follows cost model for accounting purposes.
Under tax laws, capital gain on investment property is taxable at the time of sale, while depreciation is
not allowed.
(ii) Inventories imported during the year 2022 amounted to Rs. 660 million, of which 40% remained unsold
as on 31 December 2022. Payment of imported inventories resulted in a foreign exchange loss of Rs. 100
million.
Under tax laws, the foreign exchange loss is considered as the part of cost of inventories.
(iii) Interest income for the year 2022 amounted to Rs. 120 million, of which Rs. 65 million was receivable as
on 31 December 2022.
Under tax laws, interest income was taxable on an accrual basis in 2021. However, with effect from
1 January 2022, interest is taxable on a receipt basis.
(iv) Accrued expenses include payables for penalties of Rs. 42 million (2021: Rs. 6 million). During the year,
UL also paid penalties of Rs. 56 million.
Under tax laws, penalties are not deductible; however, other expenses are allowed on payment basis.
(v) UL has unused tax losses amounting to Rs. 550 million as on 31 December 2022.
(vi) It is expected that, after three years, sufficient taxable profits will be earned to utilise the benefit of
unused losses and deductible temporary differences.
(vii) The applicable tax rates are as follows:
*2023 and 2022 and
onwards before
Interest income 20% 15%
All other incomes 30% 25%
*Enacted before 31 December 2022
Required:
Compute the deferred tax liability or asset that should be recognized in UL‘s statement of financial position as on
31 December 2022. (10)
Financial Accounting and Reporting-II page 2 of 2
Question-2
The first year’s financial statements of Titanium Limited (TL) for the year ended 31 December 2022 are under
preparation. The following matters have been identified which may have implications of deferred tax:
(i) TL purchased factory building for Rs. 1,200 million in 2022 which was depreciated by Rs. 80 million. On
31 December 2022, the factory building was revalued at Rs. 1,260 million. Under the tax laws,
depreciation at the rate of 10% per annum is allowed as a tax expense while revaluation does not affect
taxable profit.
(ii) Development cost of Rs. 20 million incurred in 2022 has been expensed out. Under the tax laws,
development cost is amortized over ten years.
(iii) TL received government grant of Rs 12 million related to an equipment. The grant is recognised as
income over three years. Under the tax laws, the government grant is exempt from tax.
(iv) TL incurred a tax loss of Rs. 260 million for the year ended 31 December 2022. Under the tax laws, all
unused tax losses are adjustable from future profits within next six years.
Applicable tax rate is 35%.
Required:
Discuss how the deferred tax related to each of the above matters should be dealt with in TL’s financial
statements for the year ended 31 December 2022. (12)
Answer-1
Uchhali Limited
Deferred tax liability/asset
As on 31 December 2022
Rs. in million
Carrying Tax Base Difference Tax Tax
amount T.T.D/D.T.D rate D.T.L/D.T.A
Investment Property 420 450 30 DTD 30% 9 D.T.A 1
Inventory (Imported) 264(W-1) 304(W-2) 40 DTD 30% 12 D.T.A 1
Inventory (Others) 576(bal.) 576 - 30% - 1
Total Inventory 840 880(bal.)
Interest receivable 65 0 65 TTD 20% 13 D.T.L 1.5
Penalty 42 42 - 30% - 1
Other accrued expenses 190(bal.) - 190 DTD 30% 57 D.T.A 1
Total accrued expenses 232 42
Unused losses 165 D.T.A 1
(550 x 30%)
230 D.T.A
(W-1) Accounting rules (Inventory)
Unsold Inventory 660 x 40% 264 1
(W-2) Tax rules (Inventory)

Unsold Inventory (264 + 100 x 40%) 304 1.5
Answer-2
(i) The carrying value of the factory building is Rs. 1,260 million while its tax base is
Rs. 1,080 million [1,200 – 10% of 1,200] as at 31 December 2022.
As the carrying amount of asset exceeds the tax base so there will be a taxable temporary
difference of Rs. 180 million (1260 – 1,080) on which deferred tax liability of Rs. 63 million (180
x 35%) shall be recognized.
The effect arising due to the difference in depreciation i.e. Rs. 14 million would be taken to profit
or loss. While the remaining effect of liability arising due to revaluation adjustment i.e. Rs. 49
million would be taken to other comprehensive income. (4)
(W-1) Calculation of revaluation surplus and depreciation on Plant

Plant Rev. SOCI Tax on Net
Surplus (P/L) Surplus Surplus
Date Description (35%) (65%)
-----------Rs. in million-----------
Cost 1,200
Depreciation (80)
1,120
Revaluation (Bal.) 140 140 - 49 91
Revalued amount 1,260 140 - 49 91

Calculation of deferred tax

Carrying Tax Difference Tax
amount base
Building 1,260 1,080 180 T.T.D 63 D.T.L
(1,200 – 10% of 1,200)
(W-2)
Dr. Deferred tax liability Cr.
b/d 0
Deferred tax expense (bal.) 14
c/d 63 Asset 49
(ii) The carrying value of development cost is Nil (because it is expensed out) while its tax base is
Rs. 18 million [20 – 10% of 20] as at 31 December 2022.
As the carrying amount of asset is less than the tax base of asset so there will be a deductible
temporary difference of Rs. 18 million on which deferred tax asset / income of Rs. 6.3 million
[18x35%] shall be recognised.
Since the development cost is taken to profit or loss, the corresponding effect should also be
credited to profit or loss. (3)
(iii) At 31 December 2022, the carrying value of the government grant is Rs. 8 million
[12 - 4(12/3)] while its tax base is the same as carrying value as it is exempt. Therefore, no
deferred tax shall arise. (2)
(iv) The tax loss of Rs. 260 million for the year 2022 shall result in deferred tax asset of
Rs. 91 million [260 x 35%]. The deferred tax asset shall be recognised to the extent that TL is
probable that taxable profit will be available against which unused tax losses can be utilized. If
TL will earn sufficient profits within next six years then deferred tax asset should be recognized
and corresponding effect should be credited to statement of profit or loss. However, if TL is not
expected to earn sufficient profit in future than deferred tax asset would not be recognized and
will be reassessed for recognition at each year end. (3)

December 4,2023
2 hours – (64 marks)
Additional Reading Time – (10 minutes)
Financial Accounting and Reporting II

Term Test-1
(iii) Attempt each Question(part) on new page
Section A
Question-1
Fashion X Corporation has three subsidiaries: Dress, Shirt and Promo. The business is conducted as follows:
1. FashionX provides management and admin services. It is located in the Pakistan.
2. Dress manufactures dresses, Shirt manufactures Shirts. Both of them are located in China.
3. Promo, located in the Pakistan, is responsible for advertising and distribution of Dress's and Shirt's products.
Its revenues are fully generated from the sale of the goods from Dress and Shirt. 60% of these goods is sold
to the customers in the USA and 40% to the customers in the Pakistan.
4. 30% of Dress's revenue and 20% of Shirt's revenue is from sales to local external customers. The rest is from
sales to Promo, at 30% markup.
5. 15% of sales of Promo are to Mr. Joe Biden in USA and 12% of sales of Promo are to Sheikh Rasheed in
Rawalpindi.
6. Chief Operating Officer reviews monthly reports related to each subsidiary.
7. The extracts of year ended 31 December 20X2 are stated below.
All amounts are in Rs.

Information relating to assets and liabilities:
FashionX Dress Shirt Promo
Property, plant and equipment 120,000 850,000 700,000 150,000
Inventories 550,000 400,000
Other assets 600,000 300,000 250,000
Total assets 720,000 1,700,000 1,350,000 150,000
Other liabilities 400,000 900,000 750,000 220,000
Total liabilities 400,000 900,000 750,000 220,000
Information relating to incomes and expenses:

FashionX Dress Shirt Promo
Total Revenue 2,500,000 1,800,000 4,200,000
Profit before tax -320,000 850,000 670,000 305,000
Depreciation (already deducted while

12,000 80,000 68,000 15,000
arriving at PBT)
Required: Prepare disclosures related to segment reporting at 31 December 20X2. (10)

Question- 2
On 1 January 2012, Javed Ltd purchased land and buildings abroad for MYR 1,500 million (including MYR 400
million for the land element) when exchange rate was Rs.1: MYR 18. The payment is to be made in 5 equal
installments after every 2 years. The first payment was made on 31 December 2013. The buildings are being
depreciated over 20 years to a MYR 100 million residual value. Javed Ltd’s policy is to revalue land and buildings
and a professional valuation has been obtained of MYR 1,760 million (including MYR 420 million for the land) as
at 31 December 2017.
No previous revaluations had been necessary.
Date 31 December 2016 31 December 2017 Average for 2017

Exchange rate Rs.1: MYR 20 Rs. 1: MYR 21 Rs. 1: MYR 20.4
Required: Pass the journal entries for the year ended December 31, 2017. (8)
Question-3
Select the most appropriate answer(s) from the options available for each of the following Multiple Choice Questions.
(i) As per IFRS 8, an operating segment is identified as newly reportable segment in the current year that was
not required to be reported separately in prior years. Which of the following is the correct way of reporting
this newly reportable segment?
(a) It shall be reported separately in current year and comparative information shall be restated
(b) It shall be reported separately in current year and comparative information shall not be restated
(c) It shall not be reported separately in current year to ensure consistency with comparative information
(d) It shall be reported only when the criteria is met for two consecutive years
(01)
(ii) A company exchanged an intangible asset having fair value and carrying value of Rs. 15 million and Rs. 13.6
million respectively with a new intangible asset having a fair value of Rs. 18 million. An amount of Rs. 3.2
million was also paid in cash. If this transaction lacks commercial substance, the cost of intangible asset
acquired would be measured at:
(a) Rs. 15.0 million (b) Rs. 16.8 million
(c) Rs. 18.0 million (d) Rs. 18.2 million (01)
(iii) Which of the following statements is/are correct under IAS 21?
(I) An entity can have only one presentation currency.
(II) Any currency other than functional currency of the entity is foreign currency.
(a) Only (I) is correct (b) Only (II) is correct
(c) Both are correct (d) None is correct (01)
(iv) Government grant related to a biological asset measured at its cost less any accumulated depreciation is
accounted for under:
(a) IAS 20 (b) IAS 16
(c) IAS 41 (d) IAS 41 and IAS 20 (01)
(v) Which TWO of the following costs related to development of a website may be capitalized?
(a) Defining hardware and software specifications
(b) Stress testing
(c) Evaluating alternative products and suppliers
(d) Graphical design development (01)
Section B
Question-4
a)
The accountant at Window Ltd has prepared draft financial statements for year ended 31 Mar 2015.
During the year ended 31 March 2015 Window Ltd incurred Rs. 275,000 of research and development expenditure
on a new product, the Mendel. All of this expenditure was capitalised as an intangible asset. The following costs
have been incurred: Rs.
Background investigation work (1 April – 31 May 2014) 25,000
Initial development work (1 June – 15 July 2014) 42,800
Second phase development work (16 July – 30 November 2014) 160,000
Product launch costs (December 2014) 31,600
Staff training (February 2015) 15,600
275,000
The Mendel was assessed as being commercially viable on 1 September 2014 and product development was
completed by the end of November 2014. The product was launched in December 2014, although the first products
were not delivered until April 2015. 2,000 advance orders were taken during the product launch events, with
customers paying deposits of Rs. 50 per Mendel. The advance received is recorded as revenue.
Required: Compute the change in net profit, assets and liabilities in the financial statements for the year ended 31
March 2015. (05)
b)
The Mirror Co. bought a flock of 500 sheep on 1 December 20X7 in Canada to be kept in a farm house there
for wool sheering. The cost of each sheep was ￡95, which represented fair value at that date. At 30 June 20X8
all of the sheep are still held and fair value has increased to ￡107 per sheep. Mirror has a contract to sell the
sheep on 31 July 20X8 for ￡119 each.
45 sheep were born on 1 February 20X8 and fair value of each of the sheep was ￡20 and their value has
increased by ￡12 at year end.
Auctioneers’ fees on sale are 5% of fair value, and the cost of transporting each sheep to market is ￡3.00. An
agricultural levy of ￡2.00 is payable on each sheep sold.
Further the entity has some mangoe trees in Multan having book value of Rs. 5,000,000 on 30 June 20X8. The
mangoes hanging with trees have a fair value less cost to sell of Rs. 480,000 and fruit juice lying in stock is of
Rs. 70,000.
Date l-Dec-X7 1-Feb-X8 30-Jun-X8 Average Dec-Jun
1￡ Rs. 324 Rs. 330 Rs. 341 Rs. 327
Required: Prepare statement of financial position as on 30 June 20X8. (5)
c)
Almira Ltd has investments in three companies, Fauji Ltd, Pink Ltd and Taco Ltd. A draft consolidated statement
of financial position as at 31 March 2014 has been prepared by an interim manager, a Chartered Accountant, who
has little recent experience of consolidation. Goodwill was not calculated for any acquisitions and ‘Investments’
consists of the purchase consideration for all three acquisitions. Figures for Taco Ltd were not available at the date
the manager prepared the financial statements, therefore Taco Ltd was excluded from the draft consolidation (Fauji
Ltd’s figures were included). The only figure included for Pink Ltd in the draft consolidation is the acquisition cost.
Mr. Zeeshan, the financial controller, who is also a Chartered Accountant, is concerned that impairments in relation
to all three investments have been identified. Zeeshan was involved in the investment decisions and is reluctant to
show the impact of impairment in financial statements.
Required: Briefly explain how interim manager and Zeeshan may be in breach of the fundamental principles of
ICAP’s code of ethics. (4)
Question-5
On 1 January 2020, Bolan leasing Company (BLC) leased a machine to Datsun Motors Limited (DML) to
manufacture components of a new model of vehicle, on the following terms:
(i) Non-cancellable lease period is 7 years,
(ii) The agreement contains an option for DML to extend the lease for further 3 years in which case lease
rentals for further 3 years shall be 10% less than actual rentals; and
(iii) Lease installments are payable annually in advance.
Other relevant information includes:
a) On 1 January 2020, fair value of machine was Rs. 423 million.
b) DML incurred initial direct cost of Rs.15 million for the lease. 60% of initial direct cost was reimbursed to
DML by BLC.
c) At inception of lease, BLC’s cost of capital was 12% however; its desired rate of return from this lease
agreement is 10%.
d) DML’s incremental borrowing rate on 1 January 2020 was 8% per annum.
e) Useful life of the machine is 12 years.
f) At commencement of lease, DML was reasonably certain that the option to extend the term will be
exercised.
g) Guaranteed and un-guaranteed residual value at end of seven years is Rs. 2 million & Rs. 3 million
respectively while at end of 10 years it is Rs. 1 million and 1.5 million respectively.
Required:
Prepare journal entries in the books of BLC Limited for the year ended 30 September 2020. (12)
Question-6
Following are the statement of financial position extracts of HB Limited.
31 Dec 2013 31 Dec 2012
(Rs.) (Rs.)
Non-current assets
Property, plant and equipment 61,413 72,250
Intangibles 13,964 16,000
Current assets
Stock 6,000 4,500
Debtors 3,800 3,325
Non-current liabilities
Provision for gratuity 6,600 6,000
Current liabilities
Accrued expenses 2,500 2,200
(i) All Property, plant and equipment were purchased in January 2011. All assets are being depreciated over 15%
reducing balance method. Tax rules allow 35% depreciation on reducing balance method.
(ii) A software costing Rs. 15,000 was developed by company in 2011. Company started its amortization in 2012
at 10% by using straight line method. Tax authorities allowed all development expenditure in the year in which
they were incurred. Other intangibles were purchased at 1st January, 2011. HB Limited amortized other
intangibles at 15% on straight line basis but tax authorities allow deduction at 10% on straight line method.
(iii) Stock figure in statement of financial position is after NRV loss of Rs. 200 and Rs. 300 in 2012 and 2013
respectively. Tax authorities do not allow NRV loss.
(iv) Debtors are after 5% provision for bad debts and tax rules allow only actual bad debts as deduction.
(v) Tax rules allow gratuity expenses on payment basis.
(vi) Tax authorities allow deduction on accrual basis on accrued expenses.
(vii) Tax rates changed from 35% to 36% during the year ended 31st December, 2013.
Required:
a) Calculate deferred tax liability/asset at year ended 31st December, 2012 and 31st Dec 2013.
b) Calculate deferred tax expense/income charged to profit or loss account for the year ended 31st Dec, 2013.
(15)
CAF-05 Term Test-1 Solution
Answer-1
Fashion X
Notes to the financial statements
For the year ended 31 December 20X2 0.5 Mark
(N-37) Segment Information

Types of Segment Nature of business 0.5 Mark
Dress Manufactures dress
Shirt Manufactures shirts
Promo Responsible for advertising and distribution of
dress’s and shirt’s products
Dress Shirt Promo Total Marks

------- Rs. in 000’s ---------
Revenue from external sale 750 360 4,200 5,310 0.25
Inter segment revenue 1,750 1,440 - 3,190 0.25
Total revenue 2,500 1,800 4,200 8,500
Segment profit before tax 850 670 305 1,825 0.25

Segment assets 1,700 1,350 150 3,200 0.25
Segment Liabilities 900 750 220 1,870 0.25
Depreciation 80 68 15 163 0.25
(N-37.1) Reconciliation
A B C D
Reportable Elimination of Other Fashion X
Particulars segment inter segment adjustments Total
total transactions (From
question
given)
------- Rs. in 000’s ---------
8,500 (3,190) - 5,130 0.25
Total revenue (from above)
Segment profit 1,825 (736) (320) 769 1.25
(3,190/130x30)
Segment asset 3,200 - 720 3,920 0.25
Segment liabilities 1,870 - 400 2,270 0.25
Page 1
(N-37.2) Entity-wide disclosures
(N-37.2.1) Information about geographical areas
Geographical Revenue Non-current assets Marks

Information / Location (External only)
-------Rs. in 000’s -------

USA 2,520 - 0.5
(60% x 4,200)
Pakistan 1,680 270 1
(40% x 4,200) (120 + 150)
China 1,110 1,550 1
(750 + 360) (850 + 700)
Total 5,310 1,820
(N-37.2.2) Information about major customers

Included in external revenue is revenue from one customer of Promo segment which represents approximately
Rs. 630,000 (W-4) of FashionX’s external sale.
0.25
(W-1) Basic Data
The information can be analysed as follows:
Dress Shirt Promo Total Marks

---------------Rs. in 000’s -----------------
External Sales 750 360 4,200 5,310 0.25
[30% x 2,500] : [20% x 1,800]
Intersegment (Bal.) 1,750 1,440 - 3,190 0.25
Total Sales 2,500 1,800 4,200 8,500
Profit before Tax 850 670 305 1,825 0.25
Assets 1,700 1,350 150 3,200 0.25
(W-2) 10% Test

Criteria for reporting segment identification Reporting segment identified
10% of sales i.e. Rs. 850 (8,500 x 10%) Dress, Shirt, Promo 0.25
10% of profit i.e. Rs. 182.5 (1,825 x 10%) Dress, Shirt, Promo 0.25
10% of assets i.e. Rs. 320 (3,200 x 10%) Dress, Shirt 0.25
Determination of reportable segments:

Conclusion: 0.25
Following are the reportable segments
1. Dress
2. Shirt
3. Promo
Page 2
(W-3) 75% sale test
Since the external revenue reported by the operating segments identified (Dress, Shirt and Promo) constitute the
entire revenue of the entity, the 75% test is not required.
(W-4) 0.75
Identifying major customer
Sale to a single customer that exceeds 10% of External Revenue
10% x 5,310 = Rs. 531
[Joe Biden – 15% x 4,200 = Rs. 630]

[Sheikh Rasheed – 12% x 4,200 = Rs. 504]
Since the sales revenue from Joe Biden exceeds 10% of External Revenue, hence he is identified as a major
customer.
Page 3
Answer-2
Date Particular Dr. Cr. Marks
Accounts payable – 2017 ------Rs. in million-
31/12/2017 Payables (300 / 20) 15
Exchange gain (Bal.) 0.7
Bank (300 / 21) 14.3 1.5
(Third installment)
31/12/17 Payables 1.4
Exchange gain 1.4
[(600 / 21) = 28.6 vs 30 (600/20)] 1
(translation of payables)
Land and Building – 2017 Marks

31/12/17 P/L 2.2
Land 2.2 0.5
(Recording of loss)
31/12/17 Depreciation expense 2.78
Accumulated Depreciation 2.78 0.5
31/12/17 Accumulated Depreciation 16.67
Building (13.89 + 2.78) 16.67 1
(Transfer of balance)
31/12/17 Building 19.37
Revaluation Surplus – OCI 19.37 1
(Recording of revaluation gain in OCI)
(W-1) Accounts payable balance as at 01/01/2017 (MYR)
MYR
01/01/12 Land and building acquired 1,500
31/12/13 First payment (300)
31/12/15 Second payment (300)
31/12/16 Closing balance (b/d) *900
* 300 of this will be repaid on 31-12-17 and 600 will remain payable.
(W-2) Calculation of revaluation surplus/loss and depreciation on building
Date Description Building R. Surplus SOCI(P/L) 1.5
-----------Rs. in million-----------
01/01/12 Cost (MYR1,100 / Rs.18) 61.11
Acc. Depreciation (61.11 - * 5.56) / 20 x 5 (13.89)
31/12/16 WDV 47.22
31/12/17 Depreciation (61.11 - * 5.56) / 20 (2.78)
31/12/17 WDV 44.44
31/12/17 Revaluation surplus (bal.) 19.37 19.37
31/12/17 Revalued amount (MYR1,340/Rs.21) 63.81 19.37 -
(MYR100 / Rs.18) = * 5.56
Page 4
(W-3) Calculation of revaluation surplus/loss on land
Date Description Land R. Surplus SOCI(P/L) 1
-----------Rs. in million-----------
01/01/12 Cost (MYR400 / Rs.18) 22.2
31/12/17 Revaluation loss (bal.) (2.2) (2.2)
31/12/17 Revalued amount(MYR420 / Rs.21) 20 - (2.2)
Answer-3 1 mark each

(i) (a)
(ii) (b) As transaction lacks commercial substance so book value plus cash paid
will be taken as cost (13.6 + 3.2 = 16.8)
(iii) (b)
(iv) (a)
(v) (b), (d)
Answer-4
a)
Assets Liabilities Profit
Reversal of intangible (W-1) 275 vs 106.67 (168.33) - - 0.5
Recording of expense (W-1) - - (168.33) 0.5
Advance from customers (W-2) - 100 (100) 1
Net change (decrease)/Increase (168.33) 100 (268.33)
Dr. Cr.
(W-1) Original Entries 2
(Recording of Original Entry)
Intangible (160 x 3/4.5) 106.67
Expense(Balancing) 168.33
Cash 275
Wrong entry
Intangible 275
Cash 275
(W-2) Recording of Advance from customers 1

(Recording of Original Entry)
Cash (2,000 x 50) 100
Advance from customers 100
Wrong entry
Cash 100
Revenue 100
Page 5
b)
Mirror Co. 0.5
Statement of financial position
As at 30 June, 20X8
Rs. in 000
Assets
Non-current assets
Biological Assets
- Sheep: Mature (W-1) 16,991
- Sheep: Immature (W-2) 435 17,426 0.5
Property, plant and equipment (Bearer plant)-Mango tress 5,000 0.5
22,426
Current assets
Biological asset- mangoes 480 0.5
Inventories – fruit juice 70 0.5
(W-1) Fair value less cost to sell of 500 animals

Fair value (500 x ￡107 x Rs. 341) 18,244 0.5
Less: Cost to sell
Auctioneer fee (18,244 x 5%) (912) 0.5
Government levy (500 x ￡2 x Rs. 341) (341) 0.5
Closing (FV – CTS) 16,991
(W-2) Fair value less cost to sell of 45 animals

Fair value (45 x ￡32 x Rs. 341) 491 0.5
Less: Cost to sell
Auctioneer fee (491 x 5%) (25) 0.5
Government levy (45 x ￡2 x Rs. 341) (31) 0.5
Closing (FV – CTS) 435
Page 6
c)
Interim manager
In the given situation, interim manager may be in breach of:
Principle of professional competence and due care:
This principle imposes an obligation on all chartered accountants to maintain their professional knowledge and
skill at a level that employer receives a competent service. Interim manager has failed to prepare consolidated
financial statements in accordance with applicable accounting standards due to lack of technical knowledge. As a
result he has breached this principle. [1.5 marks]
Zeeshan
In the given situation, Zeeshan may be in breach of:
Integrity:
Members should be straightforward and honest in all professional and business relationships.
A chartered accountant should not associate himself with reports, returns, communications where the
information contains a materially false or misleading statement.
He may be in breach of integrity if he does not record the impact of impairment in financials. [1.5 marks]
Objectivity:
Chartered Accountant should not compromise his professional or business judgment because of bias, conflict of
interest or the undue influence of others. In this circumstance, he has compromised his professional and business
judgment because he is reluctant to pass entry for impairment as he was involved in the decision of buying.
[1.5 marks]
Answer-5
Bolan Leasing Company
Entries in the books of lessor
Rs in million
1/1/20 Lease receivable (Net Investment) (W-2) 432 1.5
Asset 423
Bank (15 x 60%) 9
(Transfer of asset on account of Finance Lease)
1/1/20 Bank 65.11 1
Lease receivable 65.11
(Receipt of 1st installment)
30/9/20 Interest receivable 27.53 1.5
Finance income (36.7 (W-2) x 9/12) 27.53
(Recording of finance income)
(W-1) Calculation of lease rentals

FV + IDC of lessor = PV of LP + PV of URV
423 + 15 x 60% = R+ R [1- (1+0.1)-(7-1)] + R x 90% [1- (1+0.1)-3] x(1+0.1) -6 + 1(1+0.1)-10 + 1.5(1+0.1)-10
0.1 0.1
423 + 9 = R+ 4.36 R + 1.26 R + 0.39 + 0.58
432 = 6.62 R + 0.39 + 0.58
Rentals = (432 – 0.39 – 0.58) / 6.62
= 65.11
Rentals for first seven years = 65.11 per annum
Rentals for extended period = 65.11 x 90% = 58.60 per annum
2
Page 7
(W-2) Calculation of Net Investment

= 65.11+ 65.11 [1- (1+0.1)-(7-1)] + 58.60 [1- (1+0.1)-3] x (1+0.1) -6 + 1(1+0.1)-10 + 1.5(1+0.1)-10
0.1 0.1
= 432
2
(W-3) Lease Amortisation Schedule
Year Installment Principal Interest Balance
1/1/20 432
1/1/20 65.11 65.11 - 366.89
31/12/20 65.11 28.41 36.7 338.48 1
Answer-6
a)
Note for students: In this question data of cost was not available for PPE and intangibles so both
need to be calculated through reverse working
a) Calculation of deferred tax liability as on 31.12.2013

Carrying
amount Tax Base Diff Tax
PPE (W-2) 61,413 27,462 33,951 2
Software (13,500 - 1,500) 12,000 - 12,000 0.5
Other intangibles (W-3) : (W-4) 1,964 2,500 (536) 1.5
Stock (6,000+300) 6,000 6,300 (300) 1
Provision for doubtful debts (W-5) 200 - (200) 1
Provision for gratuity 6,600 - (6,600) 0.5
Accrued expenses 2,500 2,500 - 0.5
38,315 0.5
Deferred tax liability as at December 2013 (38,315 x 36%) 13,793
Calculation of deferred tax liability as on 31.12.12

Carrying
amount Tax Base Diff Tax
PPE (W-2) 72,250 42,250 30,000 1.5
Software (W-6) 13,500 - 13,500 0.75
Other intangibles (W-3) : (W-4) 2,500 2,857 (357) 2
Stock (4,500+200) 4,500 4,700 (200) 1
Provision for doubtful debts (W-5) 175 - (175) 0.75
Provision for gratuity 6,000 - (6,000) 0.5
Accrued expenses 2,200 2,200 - 0.5
36,768 0.5
Deferred tax liability as at December, 2012 (36,768 x 35%) 12,869
Page 8
b) Calculation of deferred tax expense- 2013
Deferred tax expense for the year ended 31.12.13 (368 + 556) 924 0.25
Deferred tax liability
b/d 12,869 0.25
Rate change (12,869/35 x 1) 368 0.25
Deferred tax exp. (bal.) 556 0.25
c/d 13,793
(W-1) Cost of property plant and equipment purchased on 1.1.2011

Assume Cost of owned PPE on 1.1.11 (Date of purchase) 100
Depreciation -2011 ( 100 x 15%) (15)
NBV-31.12.11 85
Depreciation -2012 (85 x 15%) (12.75)
NBV 72.25
Cost of owned PPE [72,250/72.25 x 100] 100,000

(W-2) Tax Base of owned assets as on 31.12.12 and 31.12.13
Cost (as per W-1) 100,000
Depreciation-2011 (100,000 x 35%) (35,000)
Tax base as on 31.12.11 65,000
Depreciation-2012 (65,000 x 35%) (22,750)
Tax base as on 31.12.12 42,250
Depreciation-2013 ( 42,250 x 35%) (14,788)
Tax base as on 31.12.13 27,462
(W-3) Cost of Other intangibles/ NBV of other intangibles

NBV on 31.12.12 assuming cost is 100 (100 - 15 x 2) 70
Cost of other intangible [{16,000-13,500(W-6)}/70 x 100] 3,571
NBV as on 31.12.12 (3,571/100 x 70) 2,500
NBV as on 31.12.13 ( 3,571/100 x 55) 1,964
(W-4) Tax base of other intangibles

Tax base as on 31.12.12 ( 3,571/100 x 80) 2,857
Tax base as on 31.12.13 (3,571/100 x 70) 2,500
(W-5) Provision for doubtful debts

Provision as on 31.12.12 (3,325/95 x 5) 175
Provision as on 31.12.13 (3,800/95 x 5) 200
Page 9
(W-6) WDV of software
Cost 15,000
Amortisation 2012 (15,000 x 10%) (1,500)
WDV 31.12.12 13,500
Page 10
December 11 ,2023
CAF-5 Financial Accounting and Reporting-II

Test-9
(i) Answer All Three Questions
Question-1
On 1 Jan 14 Cuba Ltd acquired a zero coupon Rs.1,000,000 bond for Rs. 950,000. Broker’s fees of Rs. 25,000 on
purchase was recognized in profit or loss. The bond is redeemable on 31 December 2015 at a premium of 10% of
its nominal value. The intention is to hold the bond and sell it if a good opportunity arises. The effective interest
rate on the bond is 6.22%. On purchase of the bond, investments were debited at redemption value, cash credited
with Rs. 950,000 and income credited with Rs. 150,000. Fair value on 31 st Dec 14 is Rs. 1,200,000. No
subsequent accounting entries in respect of this bond have been made.
Required: Pass the rectifying journal entries for year ended December 31, 2014. (4)
Question-2
On 1 January 2015 Pisa Ltd issued 500,000 6% redeemable Rs. 10 preference shares at par. These shares are
redeemable on 31 December 2018 at a premium. The preference dividend is paid annually in arrears on 31
December. It debited the dividend paid on 31 December 2015 to administrative expenses. The effective interest
rate of the shares is 6.3% pa.
Required: Pass the rectifying entries for year ended 31 December, 2015. (3)
Question-3
150,000 4% Rs.1 redeemable preference shares were issued at par on 1 July 2014. The cash received in respect of
these shares was credited to retained earnings. The shares are redeemable on 30 June 2018 at a premium. The
effective interest rate is 4.75% pa.
The preference dividend is payable on 30 June each year.
Required: Pass the rectifying entry for year ended 30 September, 2014 assuming no other entry is passed during
the year. (3)
Question-4
While reviewing the draft financial statements of Square Industries (SI) for the year ended 30 June 2023,
following mistake was identified:
Investment in bonds of Oval Limited (OL) was accounted for as a financial asset subsequently measured at fair
value through profit or loss instead of measuring the investment at amortised cost.
On 1 July 2022, SI purchased 1 million bonds of OL of Rs. 50 each at a discount of Rs. 5 each with maturity in
three years. Transaction cost of Rs. 2 million was also incurred on purchase of these bonds. The coupon interest
rate is 12% per annum payable annually on 30 June while the approximate effective interest rate was 13.28% per
annum. The fair value of each bond of OL was Rs. 49 on 30 June 2023.
Required:
Prepare correcting entries in the books of HI for the year ended 30 June 2023. (04)
Answer-1
a)
Rs in “000”
Correcting Entries Dr. Cr.
P/L 125
Investment in bond 125 1
(Recording of investment )
Investment in bond 61
Interest income 61 1
(Recording of interest income)
Fair value reserve - OCI 164 1
(Fair value gain of Investment on Reporting date)
(W-1) Entries
Dr. Cr.
Original Entries
Cash 975
(Recording of investment )
Interest income 61
(Recording of interest income)
Fair value reserve – OCI 164
(Fair value gain of Investment on Reporting date)
Wrong entry
Investment in bond (1,000 x 110%) 1,100
P/L 25
P/L 150
Cash (950 + 25) 975
(Recording of Wrong entry)
(W-2) Amortization schedule:

Date Effective Cash Balance Fair Fair Change 1
Interest flows value value in fair
income coupon reserve value
@ 6.22% received reserve
@ 0%
01/01/14 * 975
31/12/14 61 - 1,036 1,200 164 164
*(950 + 25)
Page 1
Answer-2
Pisa Limited
Journal entries
Rectifying Entries Rs. in 000
Date Particular Dr. Cr. 1.5
Interest Expense (Finance cost) 315
Admin Expense 300
Redeemable Preference Shares(Balancing) 15
Wrong Entries Rs. in 000

01/01/15 Cash 5,000
Redeemable Preference Shares(500*10) 5,000
(Shares issued)
31/12/15 Admin Expense 300
Bank/Cash 300
(Recording of Dividend wrongly in Admin cost)
Original Entries Rs. in 000

01/01/15 Cash 5,000
Redeemable Preference Shares(500*10) 5,000
(Shares issued)
01/01/15 Interest Expense 315
Redeemable Preference Shares 315
(Recording of Dividend )
31/12/15 Redeemable Preference Shares 300
Bank/Cash 300
(Recording of Dividend Paid)
(W-1):Amortization Schedule: Rs. in’000’

Date Effective Interest Cash flows Balance 1
Expense @ 6.3% Coupon Paid @
6% of 5,000
01/01/15 5,000**
31/12/15 315 (300) 5,015
**Face Value = 500,000 x 10 = Rs. 5,000,000

Issue price = Rs. 5,000,000
Page 2
Answer-3
Journal entries
Rectifying Entries Rs. in 000
30/09/14 Retained Earnings 150 0.5
(Correctly recording of Redeemable Preference
Shares)
30/09/14 Interest Expense 1.781 1
Redeemable Preference Shares 1.781
(Recording of Interest Expense payable)
Wrong Entries Rs. in 000

01/02/14 Cash 150 0.25
Retained Earnings 150
(Recording of Redeemable Preference Shares
wrongly in Retained Earnings)
Original Entries Rs. In 000

01/07/2014 Cash/Bank 150
(Recording issuance of |Redeemable Preference
Shares)
30/09/14 Interest Expense 1.781
Redeemable Preference Shares 1.781
(7.125*3/12)
(Recording of Interest Payable)
(W-1):Amortization Schedule: Rs. in’000’

Date Effective Interest Cash flows Balance 1
Expense @ 4.75% Coupon Paid @
4%
01/07/14 150**
30/06/15 7.125 (6.0) 150.125
** Face Value = 150,000 x Rs.1 = Rs. 150,000

Issue price = Rs. 150,000
Page 3
Answer-4
Rectifying Dr. Cr.
Rs in “000”
Investment in bonds 2,000
Transaction cost - (P/L) 2,000
* Investment in bonds (6,242 – 6,000) vs 0 242
Interest Income - (P/L) 6,242 vs 6,000 242
Fair value gain - (P/L) 4,000
* 2nd and 3rd Original Entry is compared with 3rd wrong entry.
(W)
Date Original Dr. Cr.

Rs in “000”
Bank 47,000
Interest income - (P/L) 6,242
Bank 6,000
Amortization schedule
Date Effective Interest Cash flows coupon Balance
Expense @ 13.28% Paid @ 12%
[(1,000,000 x 45) + 01/07/22 47,000
2,000,000]
30/06/23 6,242 *(6,000)
*[(1,000,000 x 50) x 12%]
Date Wrong Dr. Cr.

Rs in “000”
Bank 45,000
Transaction cost - (P/L) 2,000
Bank 2,000
Bank [(1,000,000 x 50 ) x 12%] 6,000
Interest income - (P/L) 6,000
Fair value gain - (P/L) 4,000
Dr. Investment in bonds Cr.

01/07/22 Bank (1,000,000 x 45) 45,000
Fair value gain - P/L (bal.) 4,000 30/06/23 c/d (1,000,000 x 49) 49,000
Page 4
December 18 ,2023

Test-10
(iii) Attempt each Question on new page
Question-1
Following information has been extracted from the financial statements of Yasir Limited (YL) and Bilal Limited
(BL) for the year ended 30 June 2016.
Assets YL BL Equity & Liabilities YL BL
Rs. in million Rs. in million
Fixed assets 250 540 Share capital (Rs. 10 each) 750 500
Accumulated depreciation (70) (70) Retained earnings 340 258
180 470 1,090 758
Investment in BL – at cost 675 - Loan from YL - 12
Loan to BL 16 - Creditors & other liabilities 75 51
Stock in trade 160 150
Other current assets 71 50
Cash and bank 63 151
1,165 821 1,165 821
(i) On 1 July 2014, YL acquired 75% shares of BL at Rs. 18 per share. On the acquisition date, fair value of
BL’s net assets was equal to its book value except for an office building whose fair value exceeded its
carrying value by Rs. 12 million. Both companies provide depreciation on building at 5% on straight line
basis.
(ii) Year-wise net profit of both companies are given below:
2016 2015
-- Rs. in million --
YL 219 105
BL 11 168
(iii) The following inter-company sales were made during the year ended 30 June 2016:
Sales Included in buyer’s Profit %
closing stock in trade
------------ Rs. in million ------------
YL to BL 120 20 30% on cost
BL to YL 80 32 15% on sale
(iv) BL declared interim dividend of 12% in the year 2015 and final dividend of 20% for the year 2016.
(v) The loan was granted by YL to BL on 1 July 2014 and carries interest rate of 12% payable annually. The
principal is repayable in five equal annual instalments of Rs. 4 million each. On 30 June 2016, BL issued
a cheque of Rs. 5.92 million which was received by YL on 2 July 2016. No interest has been accrued by
YL.
(vi) YL values non-controlling interest on the date of acquisition at its fair value. BL’s share price was Rs. 15
on acquisition date.
(vii) An impairment test has indicated that goodwill of BL was impaired by 10% on 30 June 2016. There was
no impairment during the previous year.
Required
Prepare a consolidated statement of financial position as at 30 June 2016 in accordance with the requirements of
International Financial Reporting Standards. (15)
Answer-5
Yasir Limited
Consolidated Statement of Financial Position
As on June 30, 2016
Rs. in million
Assets
Non-current assets
Property, plant and equipment (180 + 470 + 12 - 1.2) 660.8
Good will (211.5 (W-1) - 21.15(W-2)) 190.35
Loan receivable (16 – 16) -
851.15
Current assets
Cash and Bank (63 + 151) 214
Other current assets (71 + 50) 121
Stock in trade (160 + 150 - 4.62 - 4.8) 300.58
Cash in transit (W-6) 5.92
641.5
1,492.65
Equity
Share capital 750
Consolidated retained earnings (W-3) 406.19
1,156.19
Non-controlling interest (W-4) 210.46
1,366.65
Loan Payable (12 – 12) -
Current liabilities
Creditors and others (75 + 51) 126
1,492.65
Page 1
(W-1)
Dr. Cost of Investment (For calculating Goodwill) Cr.
Investment 675 Share Capital 500
(50 mill. shares x 75% x Rs.18/share)
NCI (at F.V) 187.5 Pre-Acquisition R.E. (W-5) 139
(50 million x 25% x Rs.15/share)
Revaluation Surplus (Plant) 12
651
Goodwill (bal.) 211.5
(W-2)
Dr. Subsidiary retained earnings a/c Cr.
Pre-Acquisition R.E. 139 b/d (Balance sheet closing) 258
PPE (Dep. on revaluation surplus) 1.2
(12 x 5% x 2 year)
Stock - URP (32/100 x 15) 4.8
Goodwill (Imp.) (211.5 x10%) 21.15
CRE (91.85 x 75%) 68.89

NCI (91.85 x 25%) 22.96
(W-3)
Dr. Consolidated retained earnings a/c Cr.
Stock - URP (20/130x 30) 4.62 Parent own R.E 340
Interest Receivable (Record income) 1.92
(16 x 12%)
c/d (bal.) 406.19 Subsidiary retained earnings a/c 68.89
(W-4)
Dr. Non-controlling interest a/c Cr.
Cost of Investment a/c 187.5
c/d (bal.) 210.46 Subsidiary retained earnings a/c 22.96
(W-5) Calculation of retained earnings of BL on date of acquisition

BL
01-07-14 Opening Retained earning (bal.) 139
30-06-15 Profit after tax 168
Dividend (500 x 12%) (60)
30-06-15 Closing Retained earnings (bal.) 247
30-6-16 Profit after tax 11
30-06-16 Closing Retained earnings (Given) 258
Page 2
(W-6)
Combined Entry for posting adjustment (v) Dr. Cr.
Loan Payable 16
CIT ( 4 + 1.92) 5.92
CRE (Int. Income) 1.92
Loan Receivable 12
Journal entries to understand adjustment (v) Dr. Cr.

Loan Payable 16
CIT (bal.) 4
Loan Receivable 12
Interest receivable 1.92
Interest Income (16 x 12%) 1.92
Interest Payable 0
CIT (bal.) 1.92
Interest Receivable 1.92
Page 3
December 25 ,2023

Test-11
Question-1
The following summarized statement of financial position pertains to Arusha Limited (AL) and its subsidiary Java
Limited (JL) as at 30 June, 2019.
AL JL
ASSETS Rs.
Non-current assets
Property, plant and equipment 780,000 539,300
Investment 165,000 -
Current assets 872,800 268,400
Total assets 1,817,800 807,700
EQUITY AND LIABILITIES
Equity
Ordinary share capital (Rs. 1 shares) 500,000 300,000
Retained earnings 850,700 224,900
Current liabilities 467,100 282,800
Total equity and liabilities 1,817,800 807,700
Following relevant information is available:
(i) AL acquired 240,000 equity shares in JL on 01 July 2018, by means of:
 200,000 shares of AL and
 cash payment of Rs. 150,000.
 Contingent consideration (Adjustment ii below)
The market price of shares in AL at the date of the acquisition was Rs. 1.2 per share. The market price of
JL shares just before the acquisition was Rs. 0.95 per share.
Share exchange transaction has yet not been recorded. However, consultancy charges of Rs. 10,000 and
legal expenses of Rs. 5,000 have been recognized as non-current investment.
(ii) AL will pay a further amount to old owners of JL in cash on 30 September 2019 if JL earns good profits.
The fair value of this contingent consideration at the date of acquisition was estimated to be Rs. 10,000,
but at 30 June 2019, its value was estimated at only Rs. 2,000. The contingent consideration has not been
recorded by AL.
(iii) Retained earnings of JL on date of acquisition, were Rs. 108,000.
(iv) The following table sets out those items whose fair value on the acquisition date was different from then
book value. These values have not been incorporated in JL’s books of account.
Book value Fair value
Building 250,000 170,000
Remaining useful life at date of acquisition was 5 years.
(v) AL values non-controlling interest at proportionate share of net assets.
CAF-5 Financial Accounting and Reporting-II Page 2 of 2
(vi) The following inter-company sales were made during the year ended 30 June 2019:
Sales Included in buyer’s Profit %
closing stock in trade
----------------------------- Rs. ----------------------
AL to JL 120,000 20,000 30% on sale
JL to AL 80,000 32,000 15% on cost
(vii) An impairment test, conducted on 30 June 2019, has indicated that goodwill of JL has been impaired by
10%.
(viii) AL had a trade receivable balance owing from JL of Rs. 15,000 as at 30 June 2019. This
differed to the equivalent trade payable of JL due to a payment by JL of Rs. 7,000 made in June
2019 which did not clear AL bank account until 5 July 2019.
(ix) On 1 June 2019, AL sold a machine to JL for Rs. 24,000. The machine had been purchased on 1 June
2017 for Rs. 26,000. On the date of acquisition, the machine was assessed as having a useful life of ten
years and that estimate has not changed.
(x) JL declared a dividend before year end @ 20%. AL has correctly recorded the dividend. However, JL has
yet not accounted for the dividend.
Required:
Prepare a consolidated statement of financial position as at 30 June 2019 in accordance with the requirements of
International Financial Reporting Standards. (21)
Question-2
1. MNO has a 75% owned subsidiary PQR. During the year MNO sold inventory to PQR for an invoiced price
of Rs. 800,000. PQR have since sold 75% of that inventory on to third parties. The sale was at a mark-up of
25% on cost to MNO. During the year PQR also sold inventory to MNO for Rs. 700,000 at same markup
percentage. MNO has sold all of this.
What is the adjustment to inventory that would be included in the consolidated statement of financial position
of MNO at the year-end resulting from this sale?
(a) Rs.120,000 (b) Rs.40,000
(c) Rs.160,000 (d) Rs.50,000
(2)
2. My Limited acquired 60% of Explore Limited's Rs. 100 million share capital of Rs. 10 per share on 1 January
2013, when Explore Limited also had retained earnings of Rs. 120 million. My Limited paid Rs. 50 million cash,
and also gave the owners of Explore Limited 4 My Limited share for every 5 shares of Explore Limited purchased.
The fair value of My Limited shares were Rs. 43 on 1 January 2013 and at the year end i.e. 31 December 2013 is
Rs. 45. My Limited measures the non-controlling interest at proportionate base.
What is the total goodwill at 1 January 2013?
(a) Rs. 124.4 million (b) Rs. 24 million
(c) Rs. 109.38 million (d) Rs. 65 million
(2)
CAF-5 Test-11 (SOLUTION)
Answer-1
AL Group
Consolidated Statement of Financial Position
as at June 30, 2019
0.5
Assets Rs.
Non-current assets
Property, plant & equipment (780,000+539,300 - 80,000 + 16,000 - 3,167) 1,252,133 2
Goodwill (137,600-13,760) 123,840 1
1,375,973
Current Assets (872,800+268,400-6,000-4,174-15,000-48,000) 1,068,026 2.5

Cash in transit 7,000 0.5
2,450,999
Equity & liabilities
Equity
Ordinary share capital (500,000 + 200,000  Rs. 1) 700,000 0.75
Share premium (200,000 Rs. 0.2) 40,000 0.75
Consolidated Retained Earnings (W-3) 875,754 0.5
Non-Controlling Interest (W-4) 79,345 0.5
1,695,099
Contingent consideration (10,000 – 8,000) 2,000 0.5
Current liabilities (467,100+282,800-8,000+60,000 (dividend 753,900 2
declared by S) - 48,000 (inter Co. elim.)
2,450,999
(W-1)
0.25 Investment (W-1.1) 400,000 Share Capital 300,000 0.25
0.25 NCI (at proportionate share) 65,600 Pre-Acquisition R.E 108,000 0.25
(328,000 x 20%) Revaluation loss (80,000) 0.5
(Building)
(250,000 - 170,000)
328,000
Goodwill 137,600 0.5

(W-1.1)
Investment Rs.
As per question 165,000
Less: To be taken to expenses (10,000 + 5,000) (15,000) 0.5
150,000
Shares given (200,000 shares  Rs. 1.2) 240,000 0.5
Contingent consideration 10,000 0.25
400,000
Page 1
(W-2)
Dr. Subsidiary Retained Earning a/c Cr.
0.25 Pre-Acquisition R.E 108,000 Closing R/E (Balance sheet 224,900 0.25
closing)
0.25 URP - Stock (W-6) 4,174 Building (Dep. reversal) 16,000 0.5
(80,000/5yrs  1yrs)
0.5 Dividend (300,000 x 20%) 60,000
CRE (68,72680%) 54,981

NCI (68,72620%) 13,745
Percentage in JL of AL is 80% (240,000/300,000 x 100) and NCI is 20% (60,000/300,000 x 100).
(W-3)
Dr. Consolidated Retained Earning a/c Cr.
0.5 Acquisition cost (W-1.1) 15,000 Parent own R.E 850,700 0.25
0.25 URP - Stock (W-5) 6,000 Subsidiary Retained 54,981 0.25
Earnings (W-2)
0.5 Machine (Net gain reversal) 3,167
0.5 Impairment loss (137,600 x 10%) 13,760 Decrease in contingent 8,000 0.25
consideration
c/d 875,754
(W-4)
Dr. Non-Controlling Interest Account a/c Cr.
Cost of Investment 65,600 0.25
Subsidiary retained earnings a/c (W-2) 13,745 0.25
C/d 79,345
(W-5)
Sale of Stock by P to S
Sold 120,000
Unsold stock 20,000
Unsold profit (20,000/100  30) 6,000 0.25
(W-6)
Sale of Stock by S to P
Sold 80,000
Unsold stock 32,000
Unsold profit (32,000/115 x 15) 4,174 0.25
(W-7)
Dr. Disposal (Machine) in Books of AL Cr.
Cost 26,000 Acc. Depreciation (26,000/10 x 2) 5,200
P/L (Bal.) 3,200 Cash 24,000 0.5
Gain net of depreciation

Gain (as above) 3,200
Less: Accumulated Depreciation (3,200/8 x 1/12) (33)
3,167 0.5
Remaining life = 10 - 2 = 8 years
Page 2
Entries for understanding of students only. These are not a part of solution.
Transaction costs rectification (Adj. i)
Expense (At FV of land) 15,000
Investment 15,000
Share issue (Adj. i)

Investment (200,000 x Rs 1.2) 240,000
S/C (200,000 x Rs 1) 200,000
S/P (200,000 x Rs 0.2) 40,000
Contingent Liability which was unrecorded (Adj. ii)

Investment 10,000
Contingent consideration payable 10,000
For Year-end adjustment (Adj. ii)

Contingent consideration payable 8,000
CRE (P/L) (10,000 – 8,000) 8,000
Debtor/creditor balance (Adj. viii)

Creditor (bal.) 8,000
CIT 7,000
Debtor 15,000
Answer-2 (2 marks for each MCQ)
Page 3
Sr. Solution Explanation/Working

1. b) Rs. 40,000 (W-1)
(W-1) Stock sold by P to S
Sold Stock 800,000
Unsold Stock (800,000 x 25%) 200,000
Unsold Profit (200,000 /125 x 40,000
25 )
2. a) Rs. 124.4 million (W-1)
(W-1)
Investment (W-1.1) 256.4 Share Capital 100
NCI (at proportionate 88 Pre-Acquisition R.E 120
share)
(220 x 40%) 220
Goodwill 124.4
(W-1.1)
Investment Rs. in
million
Cash given 50
Shares given (10 million shares x 60% = 6 mill. shares x 4/5 x 206.4
Rs.43)
256.4
Page 4
January 1,2024
CAF 5 -Financial Accounting and Reporting II

Test-12
(i) Answer All Question
(iii) Attempt each Question from new page.
Question-1
Following are Extracts from the draft financial statements of three companies Tiger Ltd (TL), Panther Ltd (PL)
and Leopard Ltd (LL) for the year ended 30 June 2020:
STATEMENT OF COMPREHENSIVE INCOME
TL PL LL
---------------------- Rs. in million ----------------------
Revenue 5,000 3,000 1,000
Cost of sales (2,900) (2,000) (820)
Gross profit 2,100 1,000 180
Operating expenses (500) (550) (113)
Other income 200 - 50
Finance cost - (50) -
Profit before taxation 1,800 400 117
Income tax expense (540) (120) (37)
Profit for the year 1,260 280 80
STATEMENT OF CHANGES IN EQUITY

Share Capital of Rs. 10 each Retained Earnings
TL PL LL TL PL LL
---------------------- Rs. in million ----------------------
As on 1 July 2019 5,000 1,000 500 890 595 175
Dividend - - (300) (200)
Profit for the year – 2020 - - - 1,260 280 80
As on 30 June 2020 5,000 1,000 500 1,850 675 255
STATEMENT OF FINACIAL POSITION (EXTRACTS)

TL PL LL
---------------------- Rs. in million ----------------------
Current assets 4,000 2,500 1,500
Current liabilities 2,000 1,500 850
1) On 1 July 2019, TL acquired 60% shares in PL for an immediate cash payment and will issue its 30 million
shares after two years of acquisition. Total cash paid is Rs. 870 million out of which Rs. 20 million relates to
professional fee which is included in cost of investment. No accounting has been done for shares issuance.
The market share price of TL and PL on 1 July 2019 were Rs. 16.50 and Rs. 11.50 respectively which
subsequently increased to Rs. 18 and Rs. 12 per share at 1 January 2020.
2) PL received a Rs. 50 million 8% long term loan from TL at the date of its acquisition. Interest is payable per
annum at start of next year.
3) At acquisition date, there was no difference in carrying value and fair value of PL’s net assets except:
a) Fair value of PL’s inventory exceeded carrying value by Rs. 25 million. It was sold before year end.
b) PL financial statements disclosed a contingent liability of Rs. 10 million however its fair value at
acquisition date was Rs. 4 million. Subsequently at year end, PL’s lawyers estimated that there is 80%
chance of losing the case thus PL recorded the provision of Rs. 1 million in its books.
4) On 1 January 2020, TL acquired 15 million shares in LL by share exchange of 1 share of TL for every 2
shares of LL. This transaction has not yet been recorded in TL’s financial statements.
5) During the year, PL sold goods costing Rs. 350 million to TL for Rs 500 million. Rs.160 million of these
goods were held by TL on 30 June 2020. Payment for the full invoice value is outstanding at the year end.
6) TL supplies a component to LL at cost plus a mark-up of 20%. At 30 June 2020, the inventories of LL
included Rs. 1.5 million in respect of this component. Balance outstanding in respect of these goods at year
end is Rs. 0.7 million.
7) TL started providing a management service to PL from 1 February 2020 at an annual fee of Rs. 24 million
payable annually in arrears. No accrual has been booked by PL. TL has credited the income in sales.
8) TL declared final dividends for the year ended June 30, 2019 on 30 September 2019. PL declared an interim
dividend on 28 June 2020 which is yet not paid at year end but was properly recorded by TL and PL.
9) Due to seasonal nature of business, LL earns 40% of its profits in first quarter of the financial year.
10) Group policy is to measure non-controlling interests at acquisition date fair value.
Required:
a) Prepare a Consolidated Statement of Comprehensive Income (SOCI) for the year ended 30 June 2020.
b) Prepare relevant extracts from Statement of financial position as on 30 June 2020 showing consolidated
retained earnings, Non-controlling interest, Investment in associate, Goodwill, Current assets, Current
liabilities and Purchased consideration payable.
(20)
Answer-1
a)
Tiger Limited
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020 0.25
Rs. in million
Sales (5,000 + 3,000 - 500 - 10(MF)) 7,490 0.75
Less: Cost of sales (2,900 + 2,000 + 25 - 500 + 48(W-7) + 0.075 (4,473.075) 1.25
(W-8))
Gross profit 3,016.925
Operating expenses (500 + 550 + 20 - 1 (Contingent Liability) +10 (1,069) 1.5
(MF) – 10 (MF))
Finance cost (0 + 50 - 4 (interest on loan)) (46) 0.25
Other income (200 + 0 - 4 (Interest on loan) +10 (MF) – 10 (MF) 76 1
- 120 (200 x 60%) (S dividend))
Share of profit form Associate (W-5.1) 9.6 0.25
Profit before taxation 1,987.525 0.25
Less: Taxation (540 + 120) (660) 0.25
Profit after taxation 1,327.525
Attributable to:
Share of parent owners (bal.) 1,248.325 0.25
Non-controlling interest (W-5) 79.2
1,327.525
b)
Tiger Limited
Consolidated Statement of Financial Position (Extracts)
As on 30 June 2020 0.25
Assets Rs. in million
Goodwill (W-1) 189 0.25

Investment in Associate (W-6) 144.525 0.25
Current assets (4,000 + 2,500 - 4 (interest cancel) + 25 - 25 - 5,818 2

500 - 48(W-7) - 10 (MF) - 120
(200 x 60%))

Purchased Consideration payable (W-1.1) 495 0.25
Consolidated retained earnings (W-3) 1,838.325 0.25
Non-controlling interest (W-4) 459.2 0.25
Current liabilities (2,000 + 1,500 - 4 (interest payable cancel) +4 2,879 2

(Contingent liability) - 1 (reversal of liability) -
500 + 10 (24 x 5/12) (Recording of MF) - 10
(intercompany MF) - 120 (200 x 60%))
MF = Management fee
Page 1
(W-1)
Investment (W-1.1) 1,345 Share Capital 1,000 Marks:
NCI (at F.V) 460 Pre-Acquisition R.E 595 0.25 for
(100 mill. Shares x 40% x 11.5) Inventory surplus 25 each item
Contingent liability (4) with Max.
1,616 of 1.75.
Goodwill (bal.) 189
(W-1.1) Investment
Cash paid 870
Less: Professional fee (20) 0.25
30 million Share to be issued (30 million shares x Rs.16.5) 495 0.25
1,345
Journal Entry for 30 million shares issue after 2 years:

Dr. Cr.
Investment 495
Purchase consideration payable (30 million shares x Rs.16.5) 495
(W-2)
Pre-Acquisition R.E. 595 b/d (Balance sheet closing) 675 Marks:
Inventory gain reversed 25 Liability reversal (adj. 3 (b)) 1 0.25 for
Stock-URP (S to P) (W-7) 48 each item
Mang. Fee (recording) (24/12 x 5) 10 with Max.
of 1.5.
CRE (2 x 60%) 1.2
NCI (2 x 40%) 0.8
(W-3)
Subsidiary retained earnings 1.2 Parent own R.E 1,850 Marks:
Professional fee 20 0.25 for
Stock-URP (P to A) (W-8) 0.075 each item
c/d (bal.) 1,838.325 Share of profit from Associate (W-6) 9.6 Max 1.
Max 0.5.
(W-4)
Dr. Non-controlling interest a/c Cr.
Subsidiary retained earnings a/c 0.8 Cost of Investment a/c 460 Marks:
c/d (bal.) 459.2 0.25 for
each item
(W-5) Calculation of NCI figure in CSOCI: Max 0.5.
Dr. S profit for the year Cr.
Inventory Surplus 25 Profit for the year 280 Marks:
Stock-URP (S to P) (W-7) 48 Liability reversal (adj. 3 (b)) 1 0.25 for
Mang. Fee (recording) (24/12 x 5) 10 each item
with Max.
CRE (198 x 60%) - of 1.25.
NCI (198 x 40%) 79.2
Page 2
(W-5.1) Calculation of share of profit from associate
Dr. A profit for the year 0.25

Cr.
Profit for the year 9.6
[(80 x 60%) x 6/9 x 30%]
c/d 9.6
(W-6) (Note for students: In class we use W-7 for this)

Dr. Investment in Associates a/c Cr.
Investment at Cost 135 Stock-URP (P to A) (W-7) 0.075 0.5 mark
(15 mill. Shares x 1/2 x 18) each for
Consolidated retained earnings a/c 9.6 Dr. items;
[(80 x 60%) x 6/9 x 30%] c/d (bal.) 144.525 0.25 for
Cr. Items
Max 1.25
(W-7) Stock sold by S to P
Sold stock 500
Unsold stock 160
Profit on unsold stock (160/100 x 30) 48
0.25
Margin percentage (150/500 x 100) = 30%
(W-8) Stock sold by P to A

Sold stock Xx
Unsold stock 1.5
Profit on unsold stock (1.5/120 x 20) 0.25
0.25
P’s Share (0.25 x 30%) 0.075
Page 3
January 8,2023
02 Hours – 68 marks

Term Test-2
(iii) Attempt each Question on new page
Section-A
Question-1
On 1 January 2015, French Limited (FL) entered into following transactions:
Quantity Face value Purchase Transaction Coupon Effective Market
In per /Issue cost in Rs. Rate rate rate of
thousand debenture/ price (including (Interest similar
share in Rs. 20% internal in security
admin cost) arrears)
Purchased 12 1,000 At 103,200 12% 13.67% 13%
debentures in discount
company A of 40%
Purchased 15 100 At 108,000 N/A N/A N/A
equity premium
investments in of 20%
company B
Issued 8 500 At 144,000 10% 14.56% 9%
debentures to premium
Company M of 30%
- Investments in Debentures of company A is held to collect contractual cash flows and to sell it if a better
opportunity arises. At initial recognition it is not designated at FVTPL.
- Investments in shares of company B is held for long term purposes to earn dividend. (An irrevocable election
is made at initial recognition to use alternative treatment)
- Debentures issued by us are to be kept at amortised cost.
- Fair values are as follows:
Fair value per debenture/share in Rs. 31 December 2015 31 December 2016
Company A debentures 1,200 800
Company B shares 105 97
Debentures issued by us 600 632
Required: Pass journal entries for the year ended 31 December 2016. (10)
Question-2
Yousaf Lazeez Limited (YLL) leased a Falooda Mixing machine from Lasani Leasing Limited (LLL) on 1 st January
2019. Incremental cost of entering in the lease agreement was Rs. 100,000 which would not have been incurred had
Lessor not made the agreement.
At date of inception of lease, Fair value of Falooda Mixing Machine was Rs. 625,000.
(PTO)
Financial Accounting and Reporting-II Page 2of 6
Following are the terms of lease agreement:

Particulars
- Lease installments of Rs. 190,964 are paid annually in arrears.
- Incremental cost of entering the lease will be borne by YLL and LLL in ratio 60:40
- Installation cost of Falooda Mixing Machine amounting to Rs. 100,000 will be paid by YLL at
date of inception of lease.
- Lease term is 5 years with an option to extend the lease term by 2 years. Lease installment in the
extended period will be equal to fair market rent. It is reasonably certain that YLL will not
exercise this option.
Further information:
1. Guaranteed and un-guaranteed residual value at end of 5th year will be Rs. 20,000 & Rs. 30,000 respectively.
2. Incremental borrowing rate of Yousaf Lazeez Limited limited was 10%.
Required:
Prepare journal entry at the date of lease in the books of Yousaf Lazeez Limited and Relevant extracts of Financial
Statements including notes to the financial statements for the year ended June 30, 2019. (Note relating to ROU is not
required) (10)
Question-3
Drigh Limited (DL), a listed company, has seven components. The following information is available about the
components:
Revenues
Profit/(loss) Total assets
Components External Inter-segment Total
------------------------------ Rs. in million --------------------------------
A 2,600 200 2,800 (300) 700
B - 600 600 (45) 135
C 1,600 - 1,600 (580) 150
D 1,550 113 1,663 475 613
E 575 - 575 58 162
F 500 75 575 60 300
G 125 - 125 13 150
6,950 988 7,938 (319) 2,210
(i) Operating results of all the above components are reviewed by DL’s CEO. He is of the view that all
components need to be presented separately in the DL’s financial statements as per IFRS 8.
(ii) Components A and G exhibit similar long-term financial performance because they have similar economic
characteristics while other components do not have similar economic characteristics.
(iii) Component F earns revenues that are only incidental to the activities of DL and supports components C and D
Required:
Keeping in view the CEO’s point of view, discuss how the above components should be presented in the note of
‘Operating Segments’ in accordance with IFRS 8.
(Preparation of note is not required) (08)
Question-4
Choice Questions.
1. How does IFRS 9 Financial Instruments require investments in debentures to be measured and accounted
for which only satisfy the business model test but do not pass Cash flow characteristics test?
(a) Fair value with changes going through profit or loss
(b) Fair value with changes going through other comprehensive income
(c) Amortised cost with changes going through profit or loss
(d) Amortised cost with changes going through other comprehensive income
(01)
2. Which of the following event(s) before issuance of financial statements are adjusting event(s) in
accordance with the requirements of International Financial Reporting Standards assuming year end is 31
December 2019?
(a) The proceeds of sale of office building sold before year end was determined subsequently in January
2020.
(b) Sahiwal floods caused Rs. 150,000 damage to the inventory of Early Bread Karachi branch in
January 2020. The inventory was fully insured.
(c) On 1 April 2020 Early Bread announced a 1 for 1 rights issue to raise Rs. 15 million.
(d) At 31 December 2019 trade receivables of Early Bread (EB) included a figure of Rs. 2,500,000 in
respect of Nadir Mart. On 8 March 2020, when the current debt was Rs. 2,000,000, Nadir Mart went
into liquidation. Recent correspondence with the liquidator indicates that no amount will be paid to
unsecured creditors. (01)
3. On 1 July 2019, TL acquired an investment property for Rs. 100 million. The fair value of property as
on 31 December 2019 was Rs. 115 million. TL follows fair value model for accounting purposes. Tax
authorities allow depreciation at 10% per annum. Further, full year’s tax depreciation is allowed in the
year of purchase. What amounts will be added or deducted in current tax working? (01)
4. The directors of Hudson wish to recognise a material deferred tax asset in relation to Rs. 250 million of
unused trading losses which have occurred in 20X2. Hudson has budgeted profits for Rs. 80 million for
the year ended 31 December 20X3. The directors have forecast that profits will grow by 20% each year.
For which amount of loss can deferred tax be created at 31 Dec. 20X2. (01)
Section-B
Question-5
Triangulum Limited (TL) is finalizing its financial statements for the year ended 31 December 2021. Following
information has been gathered for preparing the disclosures relating to taxation:
(i) Profit before tax for the year was Rs. 350 million.
(ii) Accounting depreciation exceeds tax depreciation by Rs. 150 million (2020: Rs. 125 million). As on 1 January
2020, carrying value of property, plant and equipment exceeded their tax base by Rs. 600 million.
(iii) Expenses include restructuring of Rs. 50 million (2020: Rs. 35 million). As per tax rules, 150% of the said
expense is allowable as deduction.
(iv) On 1 July 2020, TL acquired an investment property for Rs. 100 million. The fair value of property as on 31
December 2020 and 2021 was Rs. 115 million and Rs. 125 million respectively. TL follows fair value model
for accounting purposes. Tax authorities allow depreciation at 10% per annum on reducing balance method.
Further, full year’s tax depreciation is allowed in the year of purchase.
(v) On 1 July 2020, TL obtained a loan of USD 2 million which was entirely used to acquire a license from a
multinational company on the same date. The loan was repaid on 31 December 2020. TL estimates the useful
life of license to be indefinite. The exchange rate per USD on various dates are as follows:
1 Jul 2020 31 Dec 2020 30 Jun 2021
Rs. 145 Rs. 150 Rs. 160
Under the tax laws, exchange differences arising on foreign currency loans are added to / deducted from the
cost of asset. Amortisation on license is allowed at 10% per annum on written down value. Further, full year’s
tax amortisation is allowed in the year of purchase.
(vi) TL acquired 3% equity in Orange Limited for Rs. 400 million on 1 August 2021. The investment was classified
at fair value through other comprehensive income. As at 31 December 2021, the fair value of the investment
was Rs. 320 million. However, this has not yet been accounted for. As per tax laws, gain or loss on investment
is taxable at the time of sale.
(vii) Unused tax losses as at 31 December 2020 were Rs. 80 million.
(viii) Other receivable include dividend income of Rs. 10 million which is taxable on receipt basis at 12% .
(ix) Applicable tax rate is 30% except stated otherwise. However it is announced on 29 December 2021 that tax
rate will be 32% in year 2022 and onwards.
Required:
(a) Prepare a note on taxation for inclusion in TL’s financial statements for the year ended 31 December 2021
and a reconciliation to explain the relationship between tax expense and accounting profit.
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31 December 2021 and
2020. (16)
Question-6
Following are Extracts from the draft financial statements of three companies Tiger Ltd (TL), Panther Ltd (PL) and
Leopard Ltd (LL) for the year ended 30 June 2020:
STATEMENT OF COMPREHENSIVE INCOME
TL PL LL
---------------------- Rs. in million ----------------------
Revenue 5,000 3,000 1,000
Cost of sales (2,900) (2,000) (820)
Gross profit 2,100 1,000 180
Operating expenses (500) (550) (113)
Other income 200 - 50
Finance cost - (50) -
Profit before taxation 1,800 400 117
Income tax expense (540) (120) (37)
Profit for the year 1,260 280 80
STATEMENT OF CHANGES IN EQUITY

Share Capital of Rs. 10 each Retained Earnings
TL PL LL TL PL LL
---------------------- Rs. in million ----------------------
As on 1 July 2019 5,000 1,000 500 890 595 175
Dividend - - (300) (200)
Profit for the year – 2020 - - - 1,260 280 80
As on 30 June 2020 5,000 1,000 500 1,850 675 255
STATEMENT OF FINACIAL POSITION (EXTRACTS)

TL PL LL
---------------------- Rs. in million ----------------------
Current assets 4,000 2,500 1,500
Current liabilities 2,000 1,500 850
1) On 1 July 2019, TL acquired 60% shares in PL for an immediate cash payment and will issue its 30 million
shares after two years of acquisition. Total cash paid is Rs. 870 million out of which Rs. 20 million relates to
professional fee which is included in cost of investment. No accounting has been done for shares issuance.
The market share price of TL and PL on 1 July 2019 were Rs. 16.50 and Rs. 11.50 respectively which
subsequently increased to Rs. 18 and Rs. 12 per share at 1 January 2020.
2) PL received a Rs. 50 million 8% long term loan from TL at the date of its acquisition. Interest is payable per
annum at start of next year.
3) At acquisition date, there was no difference in carrying value and fair value of PL’s net assets except:
a) Fair value of PL’s inventory exceeded carrying value by Rs. 25 million. It was sold before year end.
b) PL financial statements disclosed a contingent liability of Rs. 10 million however its fair value at
acquisition date was Rs. 4 million. Subsequently at year end, PL’s lawyers estimated that there is 80%
chance of losing the case thus PL recorded the provision of Rs. 1 million in its books.
4) On 1 January 2020, TL acquired 15 million shares in LL by share exchange of 1 share of TL for every 2 shares
of LL. This transaction has not yet been recorded in TL’s financial statements.
5) During the year, PL sold goods costing Rs. 350 million to TL for Rs 500 million. Rs.160 million of these goods
were held by TL on 30 June 2020. Payment for the full invoice value is outstanding at the year end.
6) TL supplies a component to LL at cost plus a mark-up of 20%. At 30 June 2020, the inventories of LL included
Rs. 1.5 million in respect of this component. Balance outstanding in respect of these goods at year end is Rs. 0.7
million.
7) TL started providing a management service to PL from 1 February 2020 at an annual fee of Rs. 24 million
payable annually in arrears. No accrual has been booked by PL. TL has credited the income in sales.
8) TL declared final dividends for the year ended June 30, 2019 on 30 September 2019. PL declared an interim
dividend on 28 June 2020 which is yet not paid at year end but was properly recorded by TL and PL.
9) Due to seasonal nature of business, LL earns 40% of its profits in first quarter of the financial year.
10) Group policy is to measure non-controlling interests at acquisition date fair value.
Required:
a) Prepare a Consolidated Statement of Comprehensive Income (SOCI) for the year ended 30 June 2020.
b) Prepare relevant extracts from Statement of financial position as on 30 June 2020 showing consolidated retained
earnings, Non-controlling interest, Investment in associate, Goodwill, Current assets, Current liabilities and
Purchased consideration payable. (20)
(The End)
Term Test 2: Suggested Solution CAF-05
Answer-1
Journal entries for Investment in Debentures of Company A:
31/12/16 Investment in debenture –Company A (W-1) 934,766
Interest income 934,766 0.75
31/12/16 Cash 1,440,000

Investment in debenture -Company A (W-1) 1,440,000 0.75
31/12/16 Fair value reserve-OCI (loss) (W-1) 4,294,766

Investment in debenture -Company A 4,294,766 0.75
(W-1)
Amortization schedule:
Date Effective Cash flows Balance Fair value Fair Change in
Interest coupon value fair value
Income Received reserve reserve
@ @ 12% (A) (B) (C=B-A)
13.67%
01/01/15 7,282,560* 0.5
31/12/15 995,526 (1,440,000) 6,838,086 14,400,000 7,561,914 7,561,914 1
(1200 x
12,000)
31/12/16 934,766 (1,440,000) 6,332,852 9,600,000 3,267,148 (4,294,766) 1
(800 x
12,000)
Face value= 12,000 x 1,000 =12,000,000
Purchase Price = 12,000,000 – 40% of 12,000,000 = 7,200,000
* (7,200,000 + 103,200 x 80%)
Equity investment Company B
Journal entries
31/12/16 Fair value reserve - OCI (bal.)(loss) 120,000
Investment –Company B (W-1) 120,000 0.75
(W-1)
Dr. Investment in shares A/c Cr.
1/01/15 Cash 1,886,400
[(15,000 x 100 = 1,500,000 x Fair value reserve - OCI 311,400
120%) + 108,000 x 80% (bal.)(loss)
31/12/15 c/d (15,000 x 105) 1,575,000
01/01/16 b/d 1,575,000
Fair value reserve - OCI 120,000 1
(bal.)(loss)
31/12/16 c/d (15,000 x 97) 1,455,000
Page 1
Debentures issued :
Journal entries
31/12/16 Interest expense 789,901
Financial Liability 789,901 0.75
31/12/16 Financial Liability 400,000

Cash 400,000 0.75
(W-1)
Amortization schedule:
Date Effective Interest Cash flows Balance
Expense @ 14.56% coupon Received
@ 10%
(A)
01/01/15 5,084,800* 1
31/12/15 740,347 (400,000) 5,425,147 0.5
31/12/16 789,901 (400,000) 5,815,048 0.5
Face value = 8,000 x 500 = 4,000,000

Issue price = 8,000 x 500 = 4,000,000 x 130% = 5,200,000
*Issue price less transaction cost = 5,200,000 – 144,000 x 80% = 5,084,800
Answer-2
Yousaf Lazeez Limited
Entries in the books of lessee 0.25
1/1/19 Right of use Asset (Bal.) 736,322 0.5
Lease Liability (PV of LP) (W-2) 736,322
Cash (IDC incurred by lessee) (100,000 x 60% ) 60,000
Cash (Installation cost) 100,000
Cost of right of use = 736,322 + 60,000 + 100,000 = 896,322
Page 2

Statement of Financial Position (Extracts only)
As on 30th June 2019 0.25
Assets Rs.
Non-current assets
Right of use asset (896,322 - 89,632) 806,690 1
Equity & Liabilities
Non- current liabilities
Obligation under lease (W-3) 618,990 0.5
Current liabilities
Current portion of obligation under lease (W-3) 117,332 0.5
Finance Charges Payable (73,632 x 6/12) 36,816 0.5

Statement of Profit and Loss (Extracts only)
For the year ended 30th June 2019 0.25
Rs.
Interest Expense on leased Asset (W-4) 36,816 0.5

Depreciation – R.O.U (896,322/5 x 6/12) 89,632 0.75
Notes to the financial statements
For the year ended 30th June 2019 0.25
4- Lease
4.1 Company has entered into a lease agreement with Lasani Leasing Limited in respect of an asset. Interest
rate is 10% per annum. Installment of Rs. 190,964 is to be paid annually in arrears at 31st Dec.
4.2 Maturity Analysis-Contractual undiscounted lease payments 0.5
Lease payments payable are as follows:
Rs.
Less than one Year 190,964 0.25
One to two Years 190,964 0.25
Two to three Years 190,964 0.25
Three to four Years 190,964 0.25
Four to five Years (190,964 + 20,000) 210,964 0.5
Total Undiscounted lease payments 974,820
<
(W-2) Calculation of PV of LP for Lessee

= 190,964 x {1- (1 + i )-n } + PV of GRV
i
= 190,964 x {1 - (1+0.10)-5 } + {20,000 x (1+0.10)-5}
0.10
= 736,322 1
(W-3) Lease Amortisation Schedule 0.5

Year Installment Principal Interest Balance
1/1/19 736,322
31/12/19 190,964 117,332 73,632 618,990
31/12/20 190,964 129,065 61,899 489,925
Page 3
31/12/21 190,964 141,971 48,993 347,954

31/12/22 190,964 156,169 34,795 191,785
( 190,964 + 20,000 ) 31/12/23 210,964 191,785 19,179 0
(W-4) Interest Expense to be taken to P/L

Date 0.25 Rs.
30/06/19 (73,632 x 6/12) 36,816
Answer-3
Contrary to the CEO’s point of view, DL’s components should be presented in the note of ‘operating
segments’ in the following manner:
• A & G may be presented as an aggregated segment because they have similar economic
characteristics and, when combined, meet all the quantitative thresholds. (2)
• C will be presented as a separate segment because its loss of Rs. 580 million is greater than Rs.
91.2 million. Further, its revenue of Rs. 1,600 million is also greater than Rs. 736.3 million. (1)
• D will be presented as a separate segment because it meets all the quantitative thresholds. (1)
• Components B, E, and F will be presented as a combined category of ‘All other segments’ for the
following reasons:
– More than 75% i.e. 91% (W-3) of the revenue is reported by operating segments so additional
reportable segments need not be identified.
– Segment B is an operating segment but fails to meet any quantitative threshold.
– Segment E is an operating segment but fails to meet any quantitative threshold.
– Segment F, despite having assets of Rs. 300 million which are greater than Rs. 191 million, fails
to meet the definition of operating segment. This is because its revenues are merely incidental
to the activities of the entity, and as a result, it does not meet the definition of an operating
segment (2)
(W-1) Basic Data 0.75

The information can be analyzed as follows:
Particulars A and G B C D E Total
External Sales 2,725* - 1,600 1,550 575 6,450

Inter-segment Sales 200 600 - 113 - 913
Total Sales 2,925 600 1,600 1,663 575 7,363
Profit (287)** (45) (580) 475 58
Assets 850*** 135 150 613 162 1,910
*(2,600+125) = 2,725
**(-300+13) = -287
***(700+150) = 850
Page 4
(W-2) 10% Test 1

Criteria for reporting segment identification Reporting segment if identified segment
10% of sales i.e Rs. 736.3 million (7,363 x 10%) A and G,C,D
10% of loss i.e Rs. 91.2 million (912 x 10%) A and G,C,D
10% of assets i.e Rs. 191 million (1,910 x 10%) A and G,D
Since loss figure is higher, we will take 10% of that amount.

Total of Profits (475+58) 533
Total of losses (287 + 45 +580) 912
Greater is 912
(W-3) 75% sale test

Reporting segment as Calculation External sales (%)
identified above identifying
A and G, C, and D (2,725+1,600+1,550) 91% 0.25

/6,450
Note: The external revenue of reportable segments is 91% of total external revenue. The 75% test is met
and no other segments need to be reported.
Answer-4
1. (a) 1
2. (a) &(d) 1
3. Rs. 15 million and Rs.10 1. Fair value gain is Rs. 15 million (115 – 100) as per 1
million will be deducted accounting rules
2. As per tax rules tax depreciation is Rs. 10 million (100 x
10%).
4. Rs. 250 million As profits are expected in future 1
Page 5
Answer-5
a)
Triangulum Limited (TL) “All figures in Rs. in million”
Notes to the Financial Statements (Extracts only) 0.5
For the year ended 31 December, 2021
1 - Taxation
2021 Marks
Tax
Current tax (W-1) (101.70) 0.25
Deferred tax (W-9) (6.02 - 6.72) (0.7) 0.25
(102.4)
1.1 - Reconciliation between accounting Profit before tax with tax expense
Tax rate 30% 0.25
Tax on above 105 0.25
Tax effect of dividend income (10 x 18%) (1.80) 0.5
Tax effect of rate change (W-9) 6.72 0.25
Tax effect of re-structuring expense (25 x 30%) (7.50) 0.5
102.4
b)
Triangulum Limited (TL)
Computation of deferred tax liability / asset
Rs. in million
Description C.A T.B Diff. Rate DTL/ DTA
%
PPE 325 - 325 32% 104 0.5
Investment property 125 81 44 32% 14.1 0.5
Financial Asset-Equity invest. 320 400 (80) 32% (25.6) 0.5
License 290 243 47 32% 15 0.5
Dividend receivable 10 - 10 12% 1.2 0.5
Deferred tax Liability- Net 108.7
Page 6
Triangulum Limited (TL)

Computation of deferred tax liability / asset
Rs. in million
Description C.A T.B Diff. Rate DTL/ DTA
%
PPE 475 - 475 30% 142.5 0.5
Investment property 115 90 25 30% 7.5 0.5
License 290 270 20 30% 6 0.5
Unused tax losses (80 x 30%) 30% (24) 0.5
Deferred tax Liability- Net 132
(W-1) Calculation of current tax

2021
Add:
Accounting depreciation over excess of tax depreciation 150 0.25
150
Less:
Re-structuring Expense (50 * 50%) 25 0.5
Fair value gain on investment property (W-4) 10 0.25
Tax depreciation on investment property 9 0.25
Dividend income 10 0.25
Amortisation on license (W-8) 27 0.25
(81)
419 0.25
Less: Unused tax losses brought forward (80) 0.25
Taxable profit for current year 339 0.25
Current tax @ 30% 101.70
(W-2)
Dr. P.P.E – Accounting Rules Cr. 0.25
01.01.20 b/d 600 Depreciation 125
31.12.20 c/d (bal.) 475
31.12.21 c/d (bal.) 325
(W-3)
Dr. P.P.E – Tax Rules Cr. 0.25
01.01.20 b/d - Depreciation -
31.12.20 c/d (bal.) -
01.01.21 b/d - Depreciation -
31.12.21 c/d (bal.) -
(W-4)
Dr. Investment Property – Accounting Rules Cr. 0.25
01.01.20 b/d - -
01.07.20 Addition 100
31.12.20 Fair value gain 15 31.12.20 c/d (bal.) 115
01.01.21 b/d 115
31.12.21 Fair value gain 10
31.12.21 c/d (bal.) 125
Page 7
(W-5)
Dr. Investment Property – Tax Rules Cr. 0.25
01.01.20 b/d -
01.07.20 Addition 100 Depreciation 10
31.12.20 c/d (bal.) 90
31.12.21 c/d (bal.) 81
(W-6)
Dr. Investment in equity – Accounting Rules Cr. 0.25
01.01.21 b/d - Fair value loss 80
01.08.21 Addition 400
31.12.21 c/d (bal.) 320
Journal Entry
Revaluation Surplus in OCI (80*70%) 56
DTL/A (80*30%) 24
Investment in equity 80
(Recording of revaluation loss and deferred tax thereon)
(W-7)
Dr. Intangible – Acc rules Cr. 1
01.01.20 b/d - -
01.07.20 Addition 31.12.20 c/d (bal.)
(2,000,000 x Rs.145) 290 290
01.01.21 b/d 290 -
31.12.21 c/d (bal.) 290
(W-8)
Dr. Intangible – Tax rules Cr. 1
01.01.20 b/d -
01.07.20 Addition 290 Amortisation (300 x 10%) 30
31.12.20 Exchange loss
[2,000,000 x (150 - 145)] 10 31.12.20 c/d (bal.) 270
01.01.21 b/d 270 Amortization (270 x 10%) 27
31.12.21 c/d (bal.) 243
(W-9)
Dr. Deferred tax Cr. 2.5
D.T.E (bal.) 6.02 01/01/20 b/d (part b) 132
Investments (W-6) 24 Rate change effect 6.72
31.12.20 c/d (bal.) (part b) 108.7 ((108.7-1.2)/32 x 2
Page 8
Answer-6
a)
Tiger Limited
0Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020 0.25
Rs. in million
Sales (5,000 + 3,000 - 500 - 10(MF)) 7,490 0.75
Less: Cost of sales (2,900 + 2,000 + 25 - 500 + 48(W-7) + 0.075 (4,473.075) 1
(W-8))
Gross profit 3,016.925
Operating expenses (500 + 550 + 20 - 1 (Contingent Liability) +10 (1,069) 1.25
(MF) – 10 (MF))
Finance cost (0 + 50 - 4 (interest on loan)) (46) 0.25
Other income (200 + 0 - 4 (Interest on loan) +10 (MF) – 10 76 1
(MF) - 120 (200 x 60%) (S dividend))
Share of profit form Associate (W-5.1) 9.6 0.25
Profit before taxation 1,987.525 0.25
Less: Taxation (540 + 120) (660) 0.5
Profit after taxation 1,327.525
Attributable to:
Share of parent owners (bal.) 1,248.325
1,327.525
b)
Tiger Limited
Consolidated Statement of Financial Position (Extracts)
As on 30 June 2020 0.25
Assets Rs. in million
Goodwill (W-1) 189 0.25

Investment in Associate (W-6) 144.525 0.25
Current assets (4,000 + 2,500 - 4 (interest cancel) + 25 - 25 - 5,818 2

500 - 48(W-7) - 10 (MF) - 120
(200 x 60%))

Purchased Consideration payable (W-1.1) 495 0.25
Consolidated retained earnings (W-3) 1,838.325 0.25
Current liabilities (2,000 + 1,500 - 4 (interest payable cancel) + 2,879 2

+4 (Contingent liability) - 1 (reversal of
liability) - 500 + 10 (24 x 5/12) (Recording of
MF) - 10 (intercompany MF) - 120 (200 x
60%))
MF = Management fee
Page 9
(W-1)
Investment (W-1.1) 1,345 Share Capital 1,000 Marks:
NCI (at F.V) 460 Pre-Acquisition R.E 595 0.25 for
(100 mill. Shares x 40% x 11.5) Inventory surplus 25 each item
Contingent liability (4) with Max.
1,616 of 1.5.
Goodwill (bal.) 189
(W-1.1) Investment
Cash paid 870
Less: Professional fee (20) 0.25
30 million Share to be issued (30 million shares x Rs.16.5) 495 0.5
1,345
Journal Entry for 30 million shares issue after 2 years:

Dr. Cr.
Investment 495
Purchase consideration payable (30 million shares x Rs.16.5) 495
(W-2)
Pre-Acquisition R.E. 595 b/d (Balance sheet closing) 675 Marks:
Inventory gain reversed 25 Liability reversal (adj. 3 (b)) 1 0.25 for
Stock-URP (S to P) (W-7) 48 each item
Mang. Fee (recording) (24/12 x 5) 10 with Max.
of 1.5.
CRE (2 x 60%) 1.2
NCI (2 x 40%) 0.8
(W-3)
Subsidiary retained earnings 1.2 Parent own R.E 1,850 Marks:
Professional fee 20 0.25 for
Stock-URP (P to A) (W-8) 0.075 each
c/d (bal.) 1,838.325 Share of profit from Associate (W-6) 9.6 item.
with Max
(W-4) of 1
Dr. Non-controlling interest a/c Cr. Marks:
Subsidiary retained earnings a/c 0.8 Cost of Investment a/c 460 0.25 for
c/d (bal.) 459.2 each
item.
(W-5) Calculation of NCI figure in CSOCI: with max
Dr. S profit for the year Cr. of 0.5
Inventory Surplus 25 Profit for the year 280 Marks:
Stock-URP (S to P) (W-7) 48 Liability reversal (adj. 3 (b)) 1 0.25 for
Mang. Fee (recording) (24/12 x 5) 10 each item
with Max.
CRE (198 x 60%) - of 1.25
NCI (198 x 40%) 79.2
Page 10
(W-5.1) Calculation of share of profit from associate
Dr. A profit for the year Cr.

Profit for the year 9.6 0.5
[(80 x 60%) x 6/9 x 30%]
c/d 9.6
(W-6) (Note for students: In class we use W-7 for this)

Dr. Investment in Associates a/c
Cr. 0.5 mark
Investment at Cost 135 Stock-URP (P to A) (W-7) 0.075 each for
(15 mill. Shares x 1/2 x 18) Dr. items;
Consolidated retained earnings a/c 9.6 0.25 for
[(80 x 60%) x 6/9 x 30%] c/d (bal.) 144.525 Cr. items
(W-7) Stock sold by S to P

Sold stock 500
Unsold stock 160
Profit on unsold stock (160/100 x 30) 48 0.25
Margin percentage (150/500 x 100) = 30% 0.25
(W-8) Stock sold by P to A

Sold stock Xx
Unsold stock 1.5
Profit on unsold stock (1.5/120 x 20) 0.25 0.25
P’s Share (0.25 x 30%) 0.075 0.25
Page 11
January15, 2024

Test-13
(i) Answer Question
Question-1
Kempster plc operates in the oil extraction and machinery manufacturing business and is preparing its draft
financial statements for the year ended 31 December 2010. The following information has been collected:
(1) A new site was acquired on 1 January 2010 and is being used as the site for a new oil refinery. Initial
preparation work was undertaken at the site at the start of 2010 and the oil refinery was completed and
was used for one month on 31 December 2010. The new refinery was expected to have a useful life of 25
years. Kempster plc has a well-publicized policy that it will reinstate any environmental damage caused
by its activities. The cost of this will be in two parts: a fixed amount of Rs. 20 million on Kempster plc
installation and a variable amount of Rs. 2,000 per barrel extracted. In current year it extracted 150
barrels of oil.
(2) A transformer unit supplied to Rahim Yar Khan District Hospital exploded during the year. The
hospital has initiated legal proceedings for damages of Rs. 10 million against Kempster plc. Kempster
plc legal advisors said that value of this claim has been estimated at Rs. 9 million. The explosion was
due to faulty components supplied to Kempster plc for inclusion in the transformer. Legal proceedings
have been started against the supplier. Kempster plc legal advisors say that Kempster plc have a very
good chance of winning the case and should receive 40% of the amount that they have to pay to the
hospital.
(3) An explosion at one of Kempster plc’s oil extraction plants on 1 July 2010 has led to a number of
personal injury claims being made by employees who were injured during the explosion. To date five
claims have been made. If these claims are successful, it is likely that a further three employees who
were also injured will make a claim. Kempster plc’s lawyers estimate that it is probable that the claims
will succeed and that the estimated average cost of each pay-out will be Rs. 50,000. The claim by each
employee’s family member however is Rs. 70,000.
An additional two claims have been made by employees for the stress, rather than injury, that the
explosion has caused them. If these claims were to succeed the lawyers have estimated that the likely
pay-out would be around Rs. 10,000 per employee. However, the lawyers have stated that they believe it
is not probable that these employees will win such a case.
To maintain the goodwill of company, the company’s directors are of opinion to give Rs. 10,000 per
employee to 100 employees who were there in factory at time of explosion so that they do not afraid
while coming again in factory.
Kempster plc made an insurance claim to try to recover the personal injury costs that it is probable that
it will incur. The claim is now in its advanced stages and the insurance company has agreed to meet the
cost of 60% claims. The insurance company will refund Kempster plc once the claims have been settled.
Regarding remaining 40% claim we have filed case against insurance company and lawyer suggests that
there is a good chance of winning the case.
(4) On 20 December 2010, Kempster plc was involved in a court case with a customer who sued the
company for delivering products where there was a dispute over the exact ingredients included in the
products manufactured by Kempster plc. These products were delivered to the customer in October
2010. Case was heard by judge on 22 December but the judge decided to reserve his judgment until 8
January 2010.On 8 January 2011, the judge ruled in favour of the customer, awarding it damages of
Rs.100,000.
(5) Kempster plc is the plaintiff in a Rs. 4 million lawsuit. The suit is in final appeal and legal advisor is
confident that Kempster plc will win the case and be awarded Rs 2.5 million.
Required: Explain accounting treatment in respect of the above matters in Kempster plc financial
statements for the year ended 31 December 2010. (18)
Answer -1
(1) A provision would be recorded in 2010 amounting to Rs. 20,300,000 (20,000,000 + 150 x 2,000) for
cost of reinstatement of environmental damages due to the constructive obligation[2 marks] arising out of
the well-publicized policy issued by Kempster before year end. Further, there is a present obligation as
a result of past event (installation and extraction). [1 mark]
(2) As on 31 December 2010, lawyer estimate that an outflow of economic resources is probable, so a
provision for most likely outcome i.e. Rs.9 million shall be made. [1 mark] In respect of remaining
amount of the claim, a contingent liability of Rs.1 million shall be disclosed giving brief nature of
event and estimate of financial effect. [1 mark] Further, reimbursement from supplier against the claim
to the extent of Rs.3.6 million (Rs.9 million x 40%) is probable so a contingent asset should be
disclosed giving brief nature of event and estimate of financial effect. [1 mark]
(3) As on 31 December 2010, lawyer estimate that an outflow of economic resources is probable, so a
provision for Rs. 400,000 (50,000 x 8 employees) shall be made. In respect of remaining amount of
the claim, a contingent liability of Rs. 160,000 shall be disclosed giving brief nature of event and
estimate of financial effect.[2 mark] Further, for claims made by employees for stress, the lawyers have
stated that they believe it is not probable that these employees will win such a case. If outflow is possible
than a contingent liability should be disclosed, however in case of remote chance of payment, it will not be
accounted for or disclosed. [2 mark]
In respect of payment to maintain goodwill of company, neither provisions nor disclosure should be
made as Kempster has not not made its decision public thus not raising any constructive or legal
obligation as on 31 Dec 2010. [1 mark]
Reimbursements
Insurance claim to the extent of 60% is accepted in principle by the insurance company; therefore, it
will be taken as ‘virtually certain to be received’. Kempster should recognize a separate asset
(receivable) for insurance claim, however, receivable shall be restricted to amount of provision
recorded. [1.5 mark] Recovery of the insurance claim to the extent of 40% is probable; therefore, a
contingent asset would be disclosed for this amount giving brief description of event and an estimate
of financial effect. [1.5 mark]
(4) As on 31 December 2010 Kempster should recognize a provision for claim of Rs. 100,000 because
there is present obligation in respect of past event (products delivered to customer before year end).
The court decision after SOFP date relate to circumstances that existed at balance sheet date so it
would be considered as an adjusting event. [2 marks]
(5) Recovery of Rs. 2,500,000 from the legal suit is probable but not virtually certain; therefore, a
contingent asset would be disclosed for this amount giving brief description of event and an estimate
of financial effect. [2 marks]

January 22,2023

Test-14
(i) Answer Question
Question-1
The following information has been extracted from trial balance of Bahadur Limited, a listed company, as
at June 30, 2020:
Dr. Cr.
Rupees
Accounts receivable 8,140 -
Provision for doubtful debt 1,140
Long term loans and advances 5,000 -
Long term deposits - 2,500
Turnover - 7,500
Admin expenses 2,000 -
Additional Information:
a) 30% of the accounts receivable were secured and considered good. 20% of the unsecured
accounts receivable were considered doubtful. Accounts receivable includes a secured balance of
Rs. 300 due from I.M Enterprise Limited an associated undertaking.
b) Break of long term loans and advances is as follows:
- Employees Rs. 1,500
- Others Rs. 3,500
Amount due within twelve months from employees(included in above balances) Rs. 800
Subsidized loans and advances are granted to employees as per the company’s policy and are
repayable within one to five years. Loans and advances to others include a balance of Rs. 2,000
due from Orange Limited a subsidiary (our ownership is 60%) and maximum amount due from
Orange Limited at the end of any month during the year was Rs. 2,500.
c) During the year, company has entered in dealership agreements with large retail outlets to
increase the sale and visibility of its products on retail shelves. In accordance with the terms of
agreements, Bahadur Limited has received Rs. 2,500 interest free security deposits from retailers
shown under Long term deposits. These deposits have been kept in a separate bank account as per
the requirements of Companies Act 2017.
d) Breakup of turnover is as follows:
Bahadur Chips – local (excluding sales tax and discounts) Rs. 5,000
Bahadur Chips – Export Rs. 2,500
Sales tax on local sale Rs. 1,500
Discount as per agreement with customers on local sale Rs. 500
e) Admin expenses include Rs. 800 paid to external auditors. Breakup of this amount is as follows:
Audit fee Rs. 500
Out of pocket expenses Rs. 100
Review of compliance with Code of Corporate Governance regulations Rs. 200
Other information available from company records is as follows:

i. During the year, Bahadur Limited has made an investment in I.M Enterprise Limited resulting in
acquisition of its 25% Ordinary Share Capital.
ii. Two of the directors of Bahadur Limited hold directorship in a company PEL Ltd.
iii. During the year, Bahadur Limited has made an investment in Cot Ltd a company incorporated in
England resulting in acquisition of its 30% Ordinary Share Capital. Its registered address is 34 T
Street X Bristol England.
iv. Total no. of employees at the end of year and average no. of employee for the year are 264 and
271 respectively.
v. Company has an installed capacity of producing 1,500 kg of Bahadur chips based on 2,000 labor
hours. Actual production during the year was 1,100 kg. Under-utilization of capacity was due to a
maintenance activity which continued for one month.
Required:
Prepare the extracts of statement of financial position and statement of comprehensive income as at June
30, 2020 along with the relevant notes showing all possible disclosures as required under the International
Accounting Standards and the Companies Act, 2017.
(Notes to the financial statements should include statement of compliance and measurement basis and
notes on accounting policies for taxation (both current and deferred), trade debts and other receivables
and cash and cash equivalents. You may take necessary assumptions in this regard.) (25)
fa
FAR-II solution Test-14
Answer-1
Bahadur Limited
Statement of Financial Position (Extracts)
As at 30th June, 2020
0.5
Note 2020
Assets Rs.
Non-Current Assets
Loans & advances N-4 4,200 0.5
Current Assets
Current portion of long term loans & advances N-4 800
Accounts receivable N-5 7,000 0.5

Non-Current Liabilities
Long term deposits N-6 2,500 0.5
Bahadur Limited
Statement of Comprehensive Income (Extracts)
For the year ended 30th June, 2020
0.5
Note 2020
Rs.
Turnover N-7 7,500 0.5
Administration expenses N-8 (2,000) 0.5
Page 1
Bahadur Limited
Notes to the Financial Statements
For the Year Ended 30th June, 2020
0.5
(N-1) Statement of Compliance
These financial statements have been prepared in accordance with the accounting and
reporting standards as applicable in Pakistan. The accounting and reporting standards
as applicable in Pakistan comprise of:
- International Financial Reporting Standards (IFRS Standards), issued by the
International Accounting Standards Board (IASB) as notified under the
Companies Act, 2017; and
- Provisions of and directives issued under the Companies Act, 2017.
Where the provisions of and directives issued under the Companies Act, 2017 differ
from IFRS Standards, the provisions of and directives issued under the Companies Act,
2017 have been followed.
2
(N-2) Basis of measurement/Accounting convention
These financial statements have been prepared under the historical cost convention. 0.5
(N-3) Significant Accounting Policies

The significant accounting policies adopted in the preparation of these financial 0.5
statements are set out below.
(N-3.1) Taxation
Income tax on the profit or loss for the year comprises current and deferred tax. 0.25
(N-3.1.1) Current
Provision of current tax is based on the taxable income for the year determined in 0.5
accordance with the prevailing law for taxation.
(N-3.1.2) Deferred
Deferred tax is provided using the balance sheet method in respect of all temporary
differences arising from differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax bases used in the 1
computation of the taxable profit. Deferred tax liabilities are generally recognized for
all taxable temporary differences and deferred tax assets are recognized to the extent
that it is probable that taxable profits will be available.
(N-3.2) Trade debts and other receivable
Trade debts and other receivables are carried at original invoice amount less an estimate 0.5
made for doubtful debts based on a review of all outstanding amounts at the year end.
Bad debts are written off when they become irrecoverable.
(N-3.3) Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at cost. 0.5
Page 2
(N-4) Loans and advances

2020
Loans granted to: Rs.
- Employees (N-4.1) 1,500 0.25
- Due from subsidiary – Orange Limited (N-4.2) 2,000 0.5
- Others (3,500 – 2,000) 1,500 0.5
5,000
Less: Amount due within twelve months – employees (800) 0.5
4,200
(N-4.1) These subsidized and interest free loans and advances are granted to employees as per 0.5
the Company’s policy and are repayable within one to five years.
(N-4.2) The maximum amount of loans and advances due from subsidiary Orange Limited at 0.5
the end of any month during the year was Rs. 2,500.
(N-5) Accounts Receivable 2020

Rs.
Considered good
Secured
• Due from customers (8,140 x 30%) – 300 2,142 1
• Due from associated undertaking – IM Enterprise Ltd. 300 0.5
Un-secured [(8,140 x 70%) – 1,140] 4,558 1
7,000
Considered doubtful
Due from customers (8,140 x 70% x 20%) 1,140 0.5
8,140
Less: Provision for doubtful debt (1,140) 0.5
7,000
(N-6) Long Term Deposits
Long term deposits from dealers 2,500 0.5
These represent security deposits received from dealers which, by virtue of 0.5
agreement, are interest free. These are repayable on cancellation of dealership
contract with dealers. These have been kept in separate bank account in accordance
with the requirements of the section 217 of the Companies Act, 2017.
(N-7) Turnover
Bahadur Chips – local (5,000 + 1,500 + 500) 7,000 0.5

Bahadur Chips – Export 2,500 0.5
9,500
Less: Sales tax (1,500) 0.5
Less: Trade discount (500) 0.5
(2,000)
7,500
Page 3
(N-8) Administrative expenses 2020

Rs.
Others (bal.) 1,200 0.25
Auditor remuneration (N-8.1) 800 0.25
2,000
(N-8.1) Auditors’ remuneration
Audit fee 500 0.25
Fee for Review of Compliance with code of corporate governance 200 0.25
Out of pocket expenses 100 0.25
800
(N-9) Associated companies and undertakings

The names of related parties with whom the Company has entered into transactions 0.5
or had agreements / arrangements in place during the year are as follows:
Name Basis of relationship Percentage of Shareholding
(%)
I.M Enterprise Limited Associated company 25% 0.5
Orange Limited Subsidiary company 60% 0.5
PEL Limited Common directorship - 0.25
(N-10) Following particulars relate to associated companies incorporated outside 0.5

Pakistan with whom the company had entered into transactions during the year:
Name of undertaking Cot Limited 0.25
Country of incorporation England 0.25
Basis of association Associated company 0.25
Aggregate %age of shareholding 30% 0.25
(N-11) Number of employees 2020
Total number of employees at the end of the year 264 0.25

Average number of employees for the year 271 0.25
(N-12) Capacity and Production 2020

Kg
Installed capacity (based on 2,000 labour hours) 1,500 0.25

Actual production 1,100 0.25
Under-utilization of capacity was due to a maintenance activity which continued 0.5

for one month
Page 4

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FAr-02 All Tests combined by Sir Adnan Rauf

Test Number Syllabus

Test 02 IAS 38 & IAS 41

Test 03 IFRS-16 till Lecture 19

Assessment 01 IAS-41, IAS-21 & IFRS-16

Test 06 IAS-12 till Lecture 42

Term Test 01 Lecture 01-58 till IFRS-08

Test 10 IAS 3 & 10

Term test 02 IFRS-09, IFRS-16, IFRS-08, IAS-21 & IAS-10

Test 14 Final Accounts

Financial Accounting and reporting –II

(i) Answer All Questions

1. Which of the statements are correct?

Useful life N/A 10 years N/A 0.5

(W-2) Calculation of Impairment loss

Only for Student understanding

Financial Accounting and Reporting-II

(i) Answer All 4 Questions

Information relating to fair value is given below:

Information relating to costs to buy and cost to sell is given below:

Required: Prepare the journal entries for current year. (4)

Date Particulars Dr. Cr. Marks

(W-1) Fair value less cost to sell of cows bought (1-Oct-20X4)

Fair value 2,100 x 20 cows 42,000 0.5

(W-2) Cash Paid on 1-Oct-20X4

(W-3) Gain on measurement at year end

100 – 6.5 – 3 = 90.5% *

Financial Accounting and Reporting-II

(W-1) 2 monthly rentals 1.0

(W-2) 2 monthly interest rate 0.5

(W-4) Lease amortization schedule 2

(W-5) Right of Use Asset 1.5

(a) Lease Amortization Schedule

Semi-annual rate (10%/2) 5%

Financial Accounting and Reporting-II

(i) Answer All 4 Questions

Machine C 1. Lease commenced on 1 January 2022

(W-1) Lease Payments

Rs. Amortization schedule:

31/10/13 109,750 78,250 31,500 371,750

31/10/14 109,750 83,727 26,023 288,023

Non-current liability at 31st October 2013 is Rs. 288,023

Financial Accounting and Reporting-II

(i) Answer All Questions

2. IAS21 make a distinction between:

3. Monetary item definition is:

Answer-1 Bahbood Ltd.

(W-2) Exchange Gain/Loss on translation in Rupees

Financial Accounting and reporting –II

(i) Answer All Questions

Answer-6 1 mark each

As at 31 March 2020 All figures in Rs.

Depreciation Expense (W-1.1) (1,469,466/4 x 9/12) 275,525 02

*30,000 ( D.P ) – 5,000 (Lease Incentive) = 25,000

(W-2) Lease Amortisation Schedule

Financial Accounting and Reporting-II

(i) Answer All 2 Questions

Question-2 (01 mark each)

(b) Calculation of deferred tax as on 31.12.2019

(W-1) Calculation of current tax

(W-6) Lease Amortization Schedule

(W-7) Deferred tax liability a/c

Dr. Rental Income Cr. .5

Answer 2 (1 Mark Each)