MSA 2 Mock WITH SOLUTION by Sir Furqan & Sir Saud ST Academy June 24

Mock Exams June 24 (With Solution) Sir Furqan Ahmed &
MSA 2 - Management Professional Competence

Sir Saud Tariq
Multi Subject Assessment Stage
Saturday, May 18, 2024
4 Hour 15 Minutes – 100 marks
Prepared By: Sir Furqan Ahmed ACA &
Sir Saud Tariq ACA
Management Professional Competence (MSA 2)
CRN
Name
INSTRUCTIONS
Please carefully read the following instructions:
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(a) Solve your answer in the ICAP Exam Software
(b) Take Snapshot of Solution and Paste your answer in MS Word document.
(c) Crop relevant area only
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2. The overall duration of the exam is 4 hours and 15 minutes, which includes the reading time and an
extra 30 minutes of time that has been allocated due to the introduction of computer-based examinations.
3. All questions are compulsory.
4. Questions can be attempted in any sequence.
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you navigate between questions or click on the > (NEXT) or < (BACK) symbols.
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Additionally, below the RTF editor, a spreadsheet is provided to facilitate examinees in doing rough
calculations or other workings. However, please note that any work performed in the spreadsheet
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Sir Saud Tariq
will not be considered for marking. To ensure your work is considered, you must copy and paste it
from the spreadsheet to the RTF editor.
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another question.
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done on the last two pages of the question paper that are specifically allocated for this purpose.
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11. In accordance with the open book policy of this paper, you are allowed to have a maximum of FIVE
original books duly bound. Please ensure that the books or notes you bring are permissible under the
open book policy. Keeping a book or notes that are not permissible will be considered a violation of the
use of unfair means policy.
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by ICAP.
13. During the exam, access to any website other than Assessment Master is strictly prohibited. Engaging
in such activities will be considered a violation of the use of unfair means policy, leading to disciplinary
action

Sir Saud Tariq
QUESTION 1
Established in 2005, Thatta Cycles (private) Limited (TCL) began as a bicycle rental company in response
to successful global bicycle-sharing schemes. Starting with three docks in Pak Land's Capital City, it
quickly expanded to 32 docks in the capital and 14 other cities nationwide. TCL was quoted on the Pak
Land’s Stock Exchange in 2010.
In 2012, PCL's board conducted a strategic review of Pak Land's micro mobility market due to declining
demand for traditional bicycles. This decline was attributed to commuters' reluctance to rely on pedal
power for short distances, despite Pak Land's flat terrain, as windiness made cycling tiring.
As an experiment, TCL adapted some Capital City docks for both electric and conventional bicycles,
allowing users to select between them for a slightly higher fee. These docks were strategically placed
for electric bicycle use on common routes. In addition, all Western City docks and bicycles were
replaced with electric ones. However, the introduction of electric bicycles had a limited impact on
demand.
In 2014, Pak Land mandated helmet use for cyclists, leading to decreased demand for both pedal and
electric bicycles. TCL responded by offering discounted helmets to its members as part of various
schemes.
The helmet legislation coincided with the emergence of two competing bicycle-sharing schemes in Pak
Land, initially targeting Capital City and later expanding into other areas. These competitors
experienced steady growth.
In 2016, TCL replaced bicycles with hoverboards in Western City, installing hoverboard-compatible
docks. This change was an instant success, as hoverboards required even less effort to ride than electric
bicycles. Hoverboards gained popularity among commuters, tourists, and shoppers, leading TCL to
replace bicycles with hoverboards throughout Pak Land.
TCL swiftly introduced its hoverboard-sharing program in Capital City and the 14 other cities where it
previously operated bicycle-sharing services. While other bicycle-sharing companies still offer pedal and
electric bicycles, they haven't shown interest in adopting hoverboards or other micro mobility options.
City authorities intend to monitor the impact of hoverboards on pedestrian flow, traffic, and safety. All
15 cities where TCL operates, including Capital City, have declared exclusivity for TCL in hoverboard-
sharing, with a focus on promoting bicycle sharing alongside it.
In Pak Land, road and pedestrian safety falls under the jurisdiction of town and city councils, the local
government bodies responsible for various services, including transportation. Any company aiming to
provide public transport, including micro mobility services, must obtain licenses from the relevant
council.
TCL, with 15,000 employees, including 2,000 at its Head Office, leverages its micro mobility expertise to
advise town and city councils on transportation and pedestrian flow.

Sir Saud Tariq
TCL has 30,270,000 registered users who sign up through the website and app. Users provide credit card
information for payments. They locate and unlock hoverboards via the app and return them to
designated docks.
Hoverboards have a maximum speed of 6 mph for safety. Users must be 18 years old with a valid
driver's license, although it's not legally required. TCL has insurance covering injuries, damages to
property, and public liability.
All hoverboards are from Minnerring Robotics, known for their durability. TCL operates a fleet,
relocating hoverboards during peak times. The average revenue per journey is PKR 5.80, with an average
cost of PKR 2.19.
You have been asked by Mr. Sohaib Butt (Director - Special Initiatives) to prepare a draft report for the
PCL’s board which respond to potential strategic issues and opportunities that will be discussed in
upcoming board meeting (the extract of related issues and expansion opportunities are defined in
appendices).
REQUIREMENTS:
a) Identify and explain the interest of key stakeholders associated with recent events of accidents
involving PCL’s Hoverboards (7)
b) Evaluate the CEO's proposal that the four executive directors should collectively own and manage
the risk of users modifying our hoverboards (5)
c) Identify and explain two major strategic challenges that we will face in meeting Greentown's needs
and recommend solutions. (6)
d) Evaluate the strategic implications for TCL of agreeing not to serve Kundan or any of the other
towns within 30 miles of StarTown. (5)
e) The TCL is planning to takeover Target Micro Mobility (private) Limited (TMB)
i. Explain how the estimates of post-merger values have been derived by the PCL’s Finance
Director and the company’s professional advisers (3)
ii. Further, indicate how the merger might contribute to the achievement of PCL’s stated financial
objectives (3.5)
iii. Comment briefly on the likely impact on share price and market capitalisation for each of PCL
and STL if a merger is agreed on the terms proposed by the TCL board (3)
iv. Moreover, calculate the maximum total amount and price per stock unit that TCL might agree
to offer to acquire the stock of STL, without reducing the wealth of PCL’s current shareholders
(1.5)
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f) TCL has been pursuing an expansion strategy which has led to situation(s) specified in exhibits
below. The company has a published Code of Ethics, in which it commits itself to being “a company
that will trade fairly and sustainably”. Advise whether the situations conflict with ICAP’s Code of
Ethics. (9)
g) As the Head of Taxation, you are required to advise on the following matters: (7)
i. The income and sales tax implication on the transfer of net assets of bicycle division from SL to
ABC limited
ii. The corporate income tax implications on the income of ABC limited (ignore operational and
audits matters)
EXHIBIT-1 HOVERBOARDS HACKED – AN EXTRACT FROM A NEWS ARTICLE

Capital City Street Safety (CCSS), the local government department responsible for the safety of road
users and pedestrians across Capital City, has issued a warning concerning a significant number of
accidents involving TCL' s rented hoverboards that had been modified by their users to operate at more
than twice their intended maximum speed. During the past month, emergency services have been called
to more than 40 incidents involving serious injury or significant property damage. Most of those
incidents involved collisions between hoverboard users and pedestrians, but there have also been cases
of hoverboard users injuring themselves through falling or riding into obstacles.
Most of these accidents have been blamed on users deactivating the safety settings on the hoverboard’s
onboard computer. Rented hoverboards have their speed restricted to 6 miles per hour, but a software
hack can be purchased online and downloaded from the internet that cancels that setting and permits
hoverboards to operate at their maximum speed of 15 miles per hour.
Hoverboards have USB ports that are used by TCL' s qualified engineers to access sensor readings and
run diagnostic routines. The software hack can be loaded onto a memory stick, which then overrides all
speed restrictions when the memory stick is plugged into the USB port. The hoverboard then reverts to
its restricted speed of 6 miles per hour when the memory stick is removed.
A CCSS spokesperson commented that hoverboards can be dangerous even at 6 miles per hour.
Increasing the maximum speed to more than twice that was reckless. The spokesperson refused to
comment on the possibility that CCSS might withdraw TCL' s licence to operate shared-hoverboard
services in Capital City.

Sir Saud Tariq
EXHIBIT-2 AN OPPORTUNITY EMAIL (Star CITY TOWN COUNCIL – TOURISM AND
RECREATION)
Mr. Sohaib Butt,
Director Special Initiatives,
TCL, Capital City.
Dear Mr. Qureshi
COLLABORATION WITH TCL

I am writing to confirm our understanding of the discussions from our recent meeting.
• StarTown is a city of 1.2 million people, located in the North of Gaeland. This region has
gone through a major economic redevelopment over the past 15 years, after the heavy
industries that had previously sustained the regional economy relocated overseas.
StarTown is close to completing a major redevelopment that will create many new jobs
in tourism, retail and financial services.
• Within the next year we will open a huge new city-centre shopping and commercial district. This will
comprise shopping malls, several large office complexes and other attractions including theatres,
concert halls and tourist attractions.
• We wish our new city centre to be an attractive place to work and visit. With that in mind, we will
create the largest pedestrianised area in Pak Land by banning motor vehicles (other than Police, Fire
and Ambulance services) from 6.00 am until 11.00 pm. Public transport will terminate at a major rail
and bus station on the edge of the city centre. There will be three large car parks, each located two
miles from the city oentre, from which motorists can continue their journeys to the city centre by
rail, bus or on foot
• We wish TCL to create a significant network of shared-hoverboard docks to serve the workers,
shoppers and tourists who will populate our new city centre. We envisage docks located at car
parking as well as the rail and bus station and also alongside shops, offices and other attractions. In
addition, we wish you to consider offering a shared bicycle service alongside hoverboards.
• We will appoint TCL as the sole provider of micro mobility services. In return, TCL will agree not to
provide any form of service to Kundan, our nearby rival, or any of the other towns or cities within 30
miles of StarTown.
Yours sincerely
Rohail Khan
CEO

Sir Saud Tariq
EXHIBIT-3 FINANCIAL OBJECTIVES AND A MERGER OPPORTUNITY
The board has agreed the following financial objectives for the next five-year business plan:
• To grow earnings per share by at least 5% annually

• To keep the financial gearing level, measured as the market value of long-term debt to the market
value of equity, below 30%
• To maintain a price/earnings ratio for its shares at no less than the industry average
In this respect following option for growth has been identified:
PROPOSED MERGER (Achieving Financial Objectives)
TCL is currently in detailed negotiations about a merger with a US company, Smart Technologies LLC
(STL). STL is listed and is similar in size to TCL – although somewhat smaller in terms of annual revenues
and net assets. Its main line of business is hoverboard, which explains the attraction of a merger for the
board of TCL.
The recent financial performance of STL has not been as good as that of TCL and as a result the market
capitalisation of TCL is much higher than that of STL. So, although the management of TCL talk about
‘merger’ in discussions with the management of STL, a combination of the two companies would
effectively be a takeover of STL by TCL.
STL holds some patents that it has not exploited as fully commercially as the TCL management think
should have been possible, but the CEO of TCL thinks that in the event of a takeover/merger, they
could be sold for about £125 million. The group would have no commercial use themselves for the
patents, so there would appear to be no reason for holding on to them.
Both companies think that a combination of their businesses would benefit both sides, both
commercially and financially. The board of TCL think however that their company has a stronger
bargaining hand and that they can negotiate the more favourable terms. They also think that they can
convince investors that in the event of a merger/takeover, TCL will be able to apply its recent growth
rate to the future earnings of STL and the merged company should be able to maintain PCL’s current
price/earnings ratio for its shares.
EXTRACTS FROM THE STATEMENTS OF CONSOLIDATED INCOME (31 DECEMBER 20X5)
Description TCL (pounds - million) STL (USD - million)

Revenue 1,960 2,300
Operating profit 686 690
Earnings for ordinary 346 276
shareholders
Total net assets 2,000 2,100
Total equity 850 1,550
Total long-term debt 1,150 550
(bonds)

Sir Saud Tariq
Ordinary shares of 0.1 450m shares
pound
Common stock of 1 400 units
USD
Current share price 7 5.06
Share price high/low 7.9 / 5.75 5.7 / 3.15
over past 12 months
Industry average P / E 9.2
Current market value 102.5 101.8
of debt
FIVE-YEAR REVENUE AND EARNINGS RECORD
Year Revenue (million Earnings Revenue Earnings (million

pound) - TCL (million pound) - (million pound) USD) – STL
TCL – TCL
20X1 1,330 285 1,750 232
20X2 1,410 293 1,890 243
20X3 1,560 310 2,031 254
20X4 1,750 327 2,165 265
20X5 1,950 346 2,300 276
ECONOMIC DATA
PCL’s economists have provided forecast rates of interest and inflation in the two main areas of
operations for the next 12 months as follows:
Description Annual interest rate – Annual inflation rate –

Forecast % Forecast %
UK / Euorope 4.5 2.0
US 2.5 1.5
TERMS OF THE MERGER

TCL intends to persuade the board of STL to accept terms for combining their businesses on the basis of
a merger through share exchange, with TCL issuing one new share to acquire two stock units in STL.
The Finance Director of TCL assisted by the company’s professional advisors, have made the following
forecasts for the combined entity after the merger/acquisition.
• The market value of the combined entity is predicted to reach £5,300 million.
• The expected earnings per share in the first-year post-merger will be 81.5p.
They believe this is a ‘conservative’ estimate as it excludes the estimated value of the software licenses
owned by STL.
Sir Saud Tariq
A cash offer as an alternative to a share exchange is unlikely, although the board of TCL have not ruled
out this possibility should the bid turn hostile. However, a hostile bid would require substantial new
borrowing by TCL.
Except for the potential profit on the sale of the licenses, no savings or synergies from the merger have
yet been identified.
EXHIBIT-4 ETHICAL ISSUES

SITUATION 1
At a recent presentation to investment analysts and financial journalists, PCL’s Chief Executive Officer
(CEO) presented a very optimistic forecast for the company’s future, suggesting that revenue would
double over the next three years and profits and dividends would increase by 50%.
However, the CEO had prepared his forecast in a hurry and had not had it confirmed by anybody else
within TCL. He did not mention that the Greenland’s Government was considering taking legal action
against the company for underpayment of excise duties and had made a claim for large damages. If this
claim was successful, it would materially affect PCL’s profit in the next year.
SITUATION 2
In connection with the legal case in Situation 1, Greenland’s Government had obtained a court order
that all documents relating to PCL’s export trade should be made available to the Government’s lawyers.
However, many of the documents covered by the court order were the subject of confidentiality
agreements between TCL and various entrepreneurs. These documents included details of patents and
processes with a high commercial value and if knowledge of these became public it would destroy some
of PCL’s competitive advantage.
EXHIBIT 5 – SUBSIDIARY’S TAX MATTER (DE-MERGED FROM TCL)

ABC limited is the subsidiary company of TCL and it is engaged in the manufacturing of bicycles. ABC was
established through PCL’s strategy to convert its’s ‘Bicycle Division’ into separate legal entity. The
restructuring was finalized last year, and it is the first year of XYX. The turnover of the company stood at
Rs. 85 million.
You are the Head of Taxation and tax function of TCL is centralized.

Sir Saud Tariq
QUESTION 2
You have recently started a new job with Benefit Funds Limited (BFL), a company that manages a fund
specialising in investments in restructuring arrangements for companies in financial difficulty.
The Operations Director of BFL, Saleem Suleman, has called a meeting to discuss a possible investment
in Megnificent Construction Limited (MCL), a specialist construction company, as a potential
acquisition target. It has approached you as its strategic adviser to ask for assistance in financial and
operational value of the company. The Saleem Suleman suggested that:
“If we invest in MCL we will want to ensure that the management of its operations improves. The SCL’s
board of directors has given us a list of the major risk areas for their business. They have also given us
their views about why MCL is in difficulties and not performing as well as competitors”
You have obtained the following financial information about MCL:
Statement of changes in equity for the years ended 31 December
Description 2015 2016 2017

Rs. ‘000’ Rs. ‘000’ Rs. ‘000’
Profit after tax 280 260 410

Dividends (150) (160) (185)
Retained profit 130 100 225
Statement of financial position as of 31 December

Description 2015 2016 2017
Rs. ‘000’ Rs. ‘000’ Rs. ‘000’
Non-current assets 1,365 1,405 1,560
Working capital 810 870 940
2,175 2,275 2,500
Share Capital 100 100 100
Retained Earnings 875 975 1,200
10% Debentures 1200 1,200 1,200
2,175 2,275 2,500
The non-current assets include an unused property which has a market value of Rs. 100,000. The
debentures pay a semi-annual coupon and are redeemable at the end of 20Y2. The gross redemption
yield on 20Y2 government bonds paying a similar level of coupon is 11%.
The P/E ratio for the quoted company sector in which SCL’s activities fall is around 15 times and the
sector’s gross dividend yield is around 11%. The beta of the sector is around 0.8 and the return on the
market is around 21%.
REQUIREMENT:
Sir Saud Tariq
a) BFL wants to evaluate the suitable valuation of MCL. Therefore, following are required
to be reported: (12)
i) Estimate the value of MCL, using dividend-based model (two models) and assets-
based model.
ii) Explain the rationale behind each valuation, when it would be useful and why
each method gives a different value.
iii) Discuss the limitations of your analysis and what further information you
would require gaining greater assurance on the valuations.
b) Suggest the strategy for building up strong brand (5)
c) Suggest the turnaround strategy for MCL so as improve its operational performance (8)
EXHIBIT 1 – MCL: MAIN RISKS AND REASONS FOR FINANCIAL DIFFICULTY

Sir Saud Tariq
The directors of MCL state in their annual report that there are seven major risks in the
company’s business:
• General economic conditions.

• Land acquisition: the risk of being unable to acquire a sufficient land bank for development.
• Development cycle: the risk of delays between acquiring land and obtaining permission for building
construction.
• Build programmes. The risk of delays in start times and completion times for building projects, and
the cost of over-running budgeted construction costs.
• Risks of accidents during construction work (health and safety risks).
• Risks of poor sales performance by the sales division.
• Reputational risks linked to the quality of homes built and customer satisfaction.
The directors of MCL have told MFL’s executives that in their opinion, the financial difficulties of
the company are attributable to various factors, which include:
• Delays in the property development cycles, especially in starting times and completion times for
building projects, but also longer average times for obtaining planning permission on purchased
land.
• Falling property prices in the last two years.
• High interest charges on the bank loans.
• Overstaffing, and high health and safety costs.
EXHIBIT 2 – MCL: BRAND STRATEGY
The directors of MCL are optimistic about the longer-term future. They are aware that barriers to entry
into the market for building retirement homes may not be high for established building construction
companies, but they have a strategic objective of establishing MCL as a powerful brand within its sector
of the market. The directors believe that by creating a strong brand, the company will be able to win and
maintain a good share of its market niche.
The MCL is required to build strong brand identity in order to create a successful business over long
term via successfully competing in the market.
QUESTION 3
Sir Saud Tariq
High Q Furnitures Limited (CFL) is a listed company which manufactures high quality furniture. Shujaat
Khan (the Finance Director) has been concerned for some time about a decline in HFL’s sales which he
attributes to the market becoming more competitive. Although hoping for an upturn in market
conditions, this has not materialised and operating cash flows have worsened, resulting in poor liquidity.
Shujaat Khan commenced the meeting by summarising the current position: “The company is facing a
major financing crisis. CFL has suffered poor operating results in the economic downturn.
Despite drastically cutting back on new investment in plant and machinery, our overdraft has increased
substantially and while the board has a plan for recovery from 20X3, this will not be implemented unless
we can restructure our financing and thereby survive the short term.
“When we prepared our management accounts for the nine months ended 30 September 20X2, we
were in breach of loan covenants on our overdraft and our loan, both of which are with Source bank
Limited (W. Bank). A new manager, Zulfiqar Khan, from the bank’s recoveries department, has been
assigned by W. Bank to deal with our account. He explained that, as a result of the breach in the
covenants, all borrowings are immediately repayable and that the bank is unwilling to continue with
either the overdraft or the loan on the current terms. Therefore, CFL may need to enter into
administration if we cannot agree suitable new terms with W. Bank or refinance all our borrowing with
an alternative lender. Winding up the company would be a tragedy for all our stakeholders.
Requirement:
a) With respect to liquidity issues, following is required to be assessed:
i) Assess the current and future liquidity and solvency of CFL, assuming that refinancing would not
be available (8)
ii) Evaluate the impact of refinancing, as offered by W. Bank, on liquidity, solvency and cost of
financing (4)
b) Assess the impact on corporate governance arising from the improvements suggested by Zulfiqar
Khan (7)
c) The company need to get itself protected from fluctuation in interest rates. In this regard, explain
the following:
i) Usefulness of each of the alternatives given in Exhibit 4 (3)
ii) Briefly discuss the problems of using futures contracts to hedge exchange rate risks (3)
EXHIBIT 1 – EXTRACT OF LETTER FROM ZULFIQAR KHAN: W. BANK TO BOARD OF CFL

W. Bank has reclassified its financing arrangements with CFL to high risk following the breach

Sir Saud Tariq
of the covenant in our loan agreement, based on the company’s management accounts for the
nine months ended 30 September 20X2.
It is the bank’s view that responsibility for this situation rests with the CFL board.
Notwithstanding these concerns, W. Bank is willing to consider a new loan to CFL on the
following minimum key terms.
i) A new loan arrangement for a term of six years from 1 January 20X3 at a fixed annual
rate of interest of 10%.
ii) The maximum amount of the loan would be the lower of:
a) Rs. 20 million; and
b) 200% of net assets as recognized and measured in SL’s statement of financial
position as of 31 December 20X2 (including the existing loan and overdraft).
iii) The new loan must be used in full by CFL to repay the existing loan and overdraft
with W. Bank.
iv) The SL board must take responsibility for the company’s liquidity problem. Go- ing
forward, W. Bank therefore requires that a review of corporate governance should
take place with sufficient changes to assure the bank that SL has sufficient capability
to deliver a strategy for recovery. My suggestions are:
a) remove the employee representative from board committees
b) appoint two additional independent non-executive directors
c) separate the chairman and chief executive roles
The above terms should not be interpreted as an offer of a loan, but as minimum
conditions for consideration by W. Bank of a potential loan application by CFL.
EXHIBIT 2 – SUMMARY OF HFL’S CURRENT CORPORATE GOVERNANCE ARRANGEMENT

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Investor or Director Role Shareholding
(000’s of Rs. 1
ordinary shares)
Ibrahim Khan Chief executive and chair- 1,750
man
Shujaat Khan Finance director 150
Saleem Ahmed Production director 100
Bandhani Venture Capital - 2,000
(BVC)
Bilal khan Non-executive director (rep- -
resenting BVC)
Employees - 1000
Kamran Jadoon Non-executive director (rep- -
Non-executive director (representing
resenting employees)
employees)
Total 5,000
CFL has always maintained a small board of five directors to be able to reach quick agreement and
engage in rapid decision making.
All directors sit on the audit committee and risk committee except the employee representative.
All directors sit on the remuneration and nominations committee.
EXHIBIT 3 – CFL COMPANY BACKGROUND AND SUPPORTING FINANCIAL INFORMATION –

PREPARED BY SHUJAAT KHAN

Sir Saud Tariq
CFL is a listed company which manufactures high quality furniture for use in private house-
holds. CFL has a 31 December accounting year end.
CFL was established over 40 years ago by Essa Khan, who is the father of Ibrahim Khan, the
current chief executive. Essa had established a good reputation as a builder of quality furni-
ture, and the business expanded greatly in the last 10 years since his son Ibrahim took over.
Forecast summary statement of financial position as of 31 December 20X2
TOTAL ASSETS
Notes Rs. 000
Non-current assets
Property, plant and equipment 1 20,000
Current assets
Inventories 3,000
Trade receivables 3,000
Cash 1,000
Total assets 27,000
RESERVES AND LIABILITIES

Capital and Reserves
Share capital (Ordinary £1 shares) 5,000
Reserves 1,000
Equity 6,000
Non-current Liabilities
5% Bank Loan 10,000
Current Liabilities
Overdraft 10,000
Other current liabilities 1,000
Total Equity and Liabilities 27,000
Forecast summary statements of profit or loss – 20X3 to 20X6

The company does not expect to experience any growth over the period 1 January 20X3 to 31
December 20X6 and therefore the annual statements of profit or loss for each of the years
20X3 to 20X6 are forecast to be identical as follows:

Sir Saud Tariq
Notes Rs. 000
Revenue 11,000
Operating cost 1 (7,750)
Operating profit 3,250
Finance costs 2 (1,000)
Profit before tax 2,250
Tax 3 -
Profit for year 2,250
Note
1. Depreciation amounts to Rs.1 million per annum and is included within
operating costs. The cost model was used in 20X1 and previous years. The fair
value of property, plant and equipment is Rs. 30 million. The company expects
to purchase Rs.1.25 million of new plant and equipment each year in order to
maintain operations at their current level.
2. The forecast does not take account of any refinancing of the loan and is
therefore based on the existing annual interest rate of 5% on the bank loan
and overdraft.
3. For tax purposes the company has substantial brought forward trading
losses and capital losses. It does not therefore expect any tax liability over
the period 20X3– 20X6.
EXHIBIT 4 – FINANCING FOR A PARTICULAR PROJECT

CFL needs to borrow PKR 6 million in three months’ time for a period of six months. For the
type of loan finance which CFL would use, the rate of interest is currently 6% per year and the
corporate treasurer is unwilling to pay a higher rate.
The treasurer is concerned about possible future fluctuations in interest rates, and is
considering the following possibilities:
• FRAs
• Interest rate futures

Sir Saud Tariq
SUGGESTED SOLUTION MSA 2 MOCK JUNE 2024 BY ST ACADEMY
Prepared By: Sir Furqan Ahmed ACA ST Academy
QUESTION 1 (a)
CCSS and its counterparts have both high interest and high power.
The high interest arises because they have a responsibility to manage and protect street safety.
Preventable accidents reflect badly on them. The high power arises from the fact that the local
governments in each city can restrict the use of hoverboards or even ban them completely. The
Street Safety Departments will have little direct interest in the free and rapid flow of people on
the pavements and so they will have little direct concern if hoverboards are banned in the
interests of public safety. TCL should work to reassure these Departments that it will modify or
adapt its hoverboards to prevent any recurrence of these modifications or, indeed, any other
modifications that might be carried out. In the short term, it may be advisable for TCL to
suspend services for a month until the ability to modify hoverboards has been eliminated.
The emergency services, particularly ambulance and police, have a high interest in these
accidents because they consume resources when attending and investigating incidents. They
have little direct power; the ambulance service is required to assist injured pedestrians
regardless of the cause of their injuries and the police can only act if the law has been broken.
Both services can, however, push national or local lawmakers for changes. Public sympathy
would tend to support any such request. TCL should liaise with the emergency services, briefing
them on the action that will be taken and asking whether there is anything further that might
be done. It may be preferable to ensure that the emergency services are satisfied, even if that
would make hoverboards less attractive to users.
The insurance company has both high interest and high power. The high interest comes from
the fact that it must settle any insured losses and so there is potentially a significant financial
loss if accident rates increase. The high power comes from the fact that the insurer might
dispute liability because these accidents appear to have been the result of unauthorised
modifications. Even if the question of liability is unclear, the insurer may deny liability in the
first instance in order to force TCL to negotiate and possibly accept a reduced sum rather than
risk the cost and uncertainty associated with taking court action. The insurer will also be in a
position to increase the premium paid by TCL. It would be impossible to trade in this business
without insurance, so TCL would be forced to pay. It would be preferable for TCL to take a
proactive approach to working with the insurance company to resolve matters, seeking to
compromise over the wording and interpretation of the cover being provided.
PCL’s users will probably be the most difficult stakeholder to deal with because there will be
several groups, each with its own interest and power. Those users who modified the boards,

Sir Saud Tariq
either to speed up their daily commute or simply for the excitement of travelling at full speed,
will be disappointed if the boards are modified to prevent this from happening. The other users
will probably be indifferent because they do not wish to travel at excessive speed. The power of
users varies according to the extent to which they are willing and able to use alternatives to
hoverboards. Some users would effectively have little choice but to tolerate whatever
modifications are made to PCL’s hoverboards, while others may decide to switch to, say,
shared-bicycle services instead. Arguably, TCL can do little to negotiate with users who might
switch because the other stakeholders will undoubtedly demand that the hoverboards be
modified so that restrictions on speed cannot be cancelled.
QUESTION 1 (b)
It could be argued that the Board has a collective responsibility for all risks that affect TCL and
so the suggestion that four directors should share this risk may be realistic. The fact that the
company was faced with an unexpected software challenge in this instance does not mean that
future modifications will take the same form, so it may be desirable for staff from all
backgrounds to be aware of the threat and to act accordingly. There may be a greater chance of
uncovering problems before they become too serious if managers from all backgrounds are
expected to share this responsibility and are actively looking for problems with hoverboards.
There is a danger that the assumption underlying this argument will prove to be unduly
optimistic. Managers may not be alert to the threat of modification because they believe that
colleagues from other functions will be better placed to look for it instead. There could be a risk
of warning signs being overlooked or even ignored altogether and then managers wasting time
in blaming colleagues for this failure.
The whole point of risk ownership is to ensure that there is a designated person or department
that is responsible for dealing with a particular risk. Imposing a responsibility on a reluctant
management team will still create a duty to monitor the threat, even if managers are
concerned that they may be unable to do so effectively. Imposing this duty will force managers
to take time out from other responsibilities to ensure that they are satisfied that unauthorised
modifications are not a serious matter.
The response of the directors is disappointing, and their attitude should not be encouraged. If
the directors are unwilling to accept responsibility at an executive level, then the managers who
report to them may take the same view, which could lead to an inadequate response to the
risk. If senior managers demonstrate a lack of commitment to the management of this risk,
then it is unlikely that their subordinates will.

Sir Saud Tariq
QUESTION 1 (c)
TCL will find it difficult to plan the scale of investment that is required to meet Greentown’s
needs because this will be the first time that TCL has been the sole provider of transportation.
PCL’s reputation will be at risk if it provides insufficient capacity because the new city centre is
likely to attract a great deal of publicity and any failure to meet the needs of residents and
visitors will undermine PCL’s credibility. Excess capacity will involve a cost that will result in a
poor return on capital, which will eventually find its way into the group’s financial statements
and so the share price may decline.
One response to this challenge would be to focus on the provision of adequate docks in areas
that are likely to create significant demand. Locations such as the rail and bus station are likely
to create the greatest demand, which suggests that TCL should ensure that there is plenty of
dock space. TCL could then reach an agreement with the hoverboard supplier to make a
significant delivery of hoverboards in time for the launch, with flexibility in placing further
orders in the following months. If TCL finds that it has too many hoverboards at StarTown, then
it could relocate them to other cities where they can be used as routine replacements to deal
with wear and tear.
The second major challenge arises from the fact that StarTown intends to have a completely
pedestrianized city centre. PCL’s business strategy requires it to ensure that users can rely on
there being sufficient hoverboards at their point of origin and docking space at their final
destination. Users tend to drift from the rail and bus station and from the car parks during the
morning rush hour and in the opposite direction in the evening, which means that TCL must
operate vans to relocate hoverboards from docks that are nearly full to others that are almost
empty. If TCL cannot relocate hoverboards throughout busy periods, then it may find itself
running out of capacity at busy points of origin and some users may be unable to return their
boards to a convenient dock close to their destination.
The most obvious response would be to request an exemption to the use of vehicles that would
permit PCL’s vans to operate within the pedestrianized zone during peak periods. It may be
possible to reach a compromise with the City Council, perhaps by agreeing to restrict the vans
to low speeds or to follow clearly designated routes. TCL may also be able to negotiate an
extension by offering to use electric vehicles on these routes, which would be viewed as more
environmentally friendly and less intrusive than petrol- or diesel-powered vehicles.

Sir Saud Tariq
QUESTION 1 (d)
This agreement will cost TCL the opportunity to earn significant revenues in these other cities if
Micro Mobility proves successful in StarTown. TCL will be left with the downside risk that the
project could fail to generate significant profits in StarTown, without the upside opportunity to
expand into adjacent cities if the project succeeds. The fact that TCL has no intention of
operating in Kundan at present is irrelevant because the possibility had not been considered
before Greentown’s approach and so it would be foolish to agree to those terms. TCL will be
under much greater pressure to generate profits in StarTown because it cannot treat this as an
opportunity to develop expertise in this type of city environment. That could lead to
suboptimal decisions concerning matters such as pricing.
If Kundan cannot employ TCL, then it will employ one of PCL’s competitors instead. That could
enable another Micro Mobility firm to establish itself in the market for modern city centres and
so capture this market from TCL, beyond the 30-mile radius demanded by StarTown. The
biggest concern would be that competitors would start to offer their own shared-hoverboard
service, which would rob TCL of its dominance in that market. At present, TCL dominates this
market because it is the only company that has a licence to operate this service anywhere in
Pak Land. Creating scope for a competitor to move in would be a risky and potentially costly
step.
StarTown City Centre is a public place and so there will be nothing to prevent competitors from
observing PCL’s operations there. That means that it will be a simple matter to study the
development of the infrastructure and to estimate the extent to which hoverboards are being
rented. It would potentially require little more than a team of observers with clipboards. PCL’s
competitors would then be able to study the manner in which it had approached the
adaptation of its traditional approach to this new environment. Not only would that offer
valuable intelligence that could be used in bidding for future city contracts, the competition
would be able to learn from PCL’s mistakes and might be able to persuade other city
authorities that they could improve on the service being provided in StarTown.
StarTown City Council would have relatively little incentive to support TCL if it had an exclusive
contract, which could lead to PCL’s investment failing. If the hoverboard scheme is a success
then StarTown will have an advantage over its neighbours, which its neighbours will be unable
to emulate fully because they will not be able to seek the support of TCL in developing their
own rival hoverboard service. If the scheme fails then TCL will bear the cost and so it will cost
StarTown very little, if anything. Furthermore, the contract will prevent TCL from attempting to
develop a more successful scheme in another city. StarTown could, therefore, afford to redirect
funds that might otherwise have been used to ensure the success of the hoverboard venture
into some other development and permit TCL to struggle to become properly established.

Sir Saud Tariq
This agreement will set a dangerous precedent for TCL because StarTown will have no
incentive to keep the facts confidential. This could undermine shareholder confidence in TCL
because it is unlikely that many cities would be prepared to lose the opportunity to use TCL,
which has a great deal of experience and is the only Micro Mobility provider with any direct
experience in hoverboard services. TCL should undoubtedly be able to negotiate this clause
out of any agreement and so any failure to do so will create the impression of incompetence.
Arguably, TCL should be prepared to forego the opportunity to work in StarTown if it cannot be
free to work elsewhere and it should promote itself to Kundan as a matter of priority in order
to put StarTown under some pressure.
QUESTION 1 (e) (i)

The post-merger value of the company is estimated as £5,300 million (market capitalisation)
and the predicted EPS is 81.5p. The Appendix to this memo shows that these estimates assume
of total earnings equal to the combined 20X5 earnings of the two companies and a P/E ratio of
10, which is higher than the current P/E ratio for TCL shares.
The estimated market capitalisation of the merged entity may ignore the market value of the
patents and may assume that total earnings would be the sum of the earnings of the two
separate companies in 20X5, and an increased P/E ratio of 10 would apply. Alternatively, the
estimated market capitalisation includes an element for earnings growth in 20X6, or possibly
includes the estimated £125 million sale value of the STL patents.
This may appear consistent with the view that PCL’s growth rating can be applied to the
earnings of STL, but there is no evidence to support the estimate of a higher P/E ratio, which
may therefore be optimistic.

Sir Saud Tariq
QUESTION 1 (e) (ii)
The current financial objectives are:
• to increase EPS by 5% per annum
• to keep the gearing ratio below 30%
• to maintain a P/E ratio above the industry average of 9.2

EARNING PER SHARE
Earnings over the past four years, since 20X1, have increased by about 5% a year for TCL and by
just 4.4% per year for STL.
If these rates of earnings growth were to continue after the merger, the objective would be
achieved in the first year (Appendix 3).
However, earnings as a percentage of revenue have been falling in recent years for both
companies, so sustained rates of earnings growth in the future may be difficult to achieve,
unless the market is increasing in size. In addition, sustaining the growth rate beyond 20X6 so
that it remains above 5% may be difficult.
GEARING
The estimated financial gearing for the merged entity is less than the objective level of 30%.
The forecast increase in the market value of TCL shares would reduce the gearing ratio of TCL
from 27.2%, which is currently below the maximum target, to an even lower level of 22.7%.
However, the gearing level would increase if TCL made a hostile bid for STL and offers a cash
price for the stock, financed by debt capital. TCL could not make a cash offer for STL stock
without scrapping its financial objective for gearing.
P/E RATIO
PCL’s P/E ratio is currently 9.1 (£7 × 450m/£346m). The industry average is 9.2. TCL is therefore
currently failing to achieve its financial objective for P/E ratio.
The ability of a merged company to achieve a P/E ratio in excess of the industry average will
depend on investors’ assessment of the merger and its prospects for earnings growth. The
current estimate appears to be that the merged company’s P/E ratio will be re-rated to 10.

Sir Saud Tariq
QUESTION 1 (e) (iii)
If we assume that the forecast market capitalisation of £5,300 million will apply post-merger,
the value of the shares of the existing TCL shareholders would be £8.15 per share or (£8.15 ×
450m) £3,667.5 million in total. This is higher than the current market price of £7.00 per share.
STL stockholders will each receive one share (estimated value £8.15) for every two stock units
they hold. The current market value of two stock units is 2 × $5.06 = $10.12 or £6.75 in
equivalent sterling value. On the basis of the forecast figures, STL stockholders would therefore
benefit financially from the merger.
The equity holders of both companies will therefore benefit from this proposed merger, but
only if a P/E ratio of 10 can be applied to the group after the acquisition. A lower P/E ratio may
apply and still provide benefit to both sets of equity holders.
For example, if the current P/E ratio of TCL (9.1) applies to the merged entity, the estimated
postmerger market capitalisation would be (9.1 × £530m) £4,823 million. The share of the ‘old’
TCL shareholders would be (69%) £3,328 million or £7.40 per share. This is still higher than the
current share price of £7.00.
On this lower P/E ratio, STL stockholders would also benefit.
Both sets of equity investors benefit because a higher P/E ratio has been applied to the
earnings of both companies, but particularly to the earnings of STL. The higher P/E ratio rather
than higher earnings appears to explain the increase in total market capitalisation.
Much will therefore depend on the market’s views of the merger and whether it believes that
strong earnings growth will result from it.

Sir Saud Tariq
QUESTION 1 (e) (iv)
The forecast market capitalization of £5,300 million and the sale of the patents for £125 million
would produce a total maximum value for the merged entity of £5,425 million.
If shareholders in TCL gain nothing from the merger in terms of market capitalization for their
shares, the value of STL stock would be:
£5,425m – £3,150m (the current value of TCL shares) = £2,275 million.
This gives a value of £5.69 or $8.54 for each stock unit.
This equates to approximately four TCL shares for every five STL stock units, as opposed to the
current offer which proposes that one share in TCL be given for every two held in STL.
QUESTION 1 (f)
SITUATION 1
Integrity – This situation could conflict with the fundamental principle of integrity.
ICAEW’s Code of Ethics highlights that the principle of integrity requires accountants to be
“honest, straightforward and truthful” in all business relationships. The principle of integrity
also implies that accountants should not be associated with any information which they believe
contains a materially false or misleading statement, or which is misleading by omissions.
Contains a materially false or misleading statement – The CEO has presented a very optimistic
forecast for PCL’s profits, but this could be misleading if the Government’s claim for damages
against the company is successful.
Omits information where such omission would be misleading – Although the Government’s
claim for damages would ‘materially affect’ PCL’s profit for the next year if it was successful, the
CEO did not mention the claim in his presentation to the analysts and journalists. This omission
is misleading, because it prevents the audience from being aware that PCL’s profit for the next
year might be materially lower than the figure given in the forecast.
Disassociation – The principle of integrity also requires professional accountants to disassociate
themselves from statements or information which have been ‘provided recklessly’.
Contains statements or information provided recklessly – The CEO prepared his forecast in a
hurry and did not check the figures with anyone else in TCL. Given that TCL is an international
company, the CEO could be seen as reckless for presenting a forecast without asking anybody
else in the company to confirm it. Such actions suggest the CEO has perfect knowledge of the
company and its prospects, but that seems very unlikely. This could also be seen to be falling
short of the professional competence and due care that would be appropriate in this instance.

Sir Saud Tariq
Advice
The CEO’s forecast and presentation demonstrate the characteristics of communications which
conflict with the principles of integrity and professional competence and due care. The CEO has
not been honest in his dealings with the analysts and the journalists, and therefore Situation 1
represents a conflict with the principle of integrity.
SITUATION 2
Confidentiality – The principle which could be jeopardized here is confidentiality. The Code
requires professional accountants and firms to refrain from disclosing, outside a firm,
confidential information which has been acquired as a result of business relationships with that
firm.
Many of the documents which the Government’s lawyers have requested contain confidential
information, which suggests there could be a conflict with the principle of confidentiality if they
are handed over.
Exception: Legal proceedings – However, the Code makes an exception to the principle of
confidentiality in the context of legal proceedings. In other words, the principle of
confidentiality is not breached if confidential information is disclosed when it is required during
legal proceedings.
This is the case in Situation 2. TCL has been required to produce the documents as a result of
the court order obtained by the Government.
Advice
Although the documents contain confidential information, Situation 2 does not represent a
conflict with the Code of Ethics.

Sir Saud Tariq
QUESTION 1 (g) (i)
Tax implication on transfer of net assets in hands of TCL
Income Tax Implications:
The transfer of assets is generally construed as disposal of assets and capital gain (if any) on
disposal of individual assets is taxable as per the nature of each individual assets. The gain on
depreciable assets is taxable as business income under Income Tax Ordinance, 2001 (ITO) at
corporate rate of tax at 29%. However, the nature of other assets, falls within the ambit of
definition of capital assets provided in section 37 of ITO excluding the following:
• Depreciable assets (taxable as business income)
• Any stock-in trade (taxable as business income)
• Any moveable property held for personal use (taxable in the hands of person).
The gain (if any) on transfer of individual assets would be taxable as follows:
• The gain on depreciable assets and stock-in-trade would be taxable as business income
under section 21 of ITO at corporate rate of 29%; and
• The gain on other assets would be taxable as capital gain under section 37 of ITO at
corporate rate of 29%.
It is notable that the transfer of asset can only be categorized as sale of asset if transaction is
executed between two individual parties. However, in this case, the transfer of assets
between TCL and XYX is in substance do not even qualify for transfer since XYX is wholly
owned subsidiary of TCL and there exist same shareholders behind the transfer. Therefore,
even taxability of gain on such transfer is debatable.
Sales Tax Implications (section 49):
Assuming that ABC is registered under Sales Tax Act, 1990, sale or transfer of ownership of a
manufacturing activity of bicycle (taxable activity) to another registered person as an ongoing
concern, is transferred through a zero-rated invoice and the sales tax chargeable thereon shall
be accounted for and paid by the registered person to whom such taxable activity or part
thereof is transferred which means that sales tax is not chargeable at the time of transfer.
However, as discussed above, the characterization of transfer as sale is questionable.

Sir Saud Tariq
QUESTION 1 (g) (ii)
Taxation of ABC
ABC is ‘Small and Medium Enterprises’ in compliance with the definition
(section :2(59A)) provided in ITO due to the following factors:
• ABC is the manufacturer; and
• The business turnover does not exceed Rs. 80 million which is below Rs. 250 million
The tax payable by XYX, being small and medium enterprises, shall be computed as per rules
made under the Fourteenth Schedule in compliance with section 100E of ITO.
The fourteenth schedule provides that there shall be following two categories of small and
medium enterprises and tax on their taxable income shall be computed at the tax rates given in
the table below, namely:
S.No Category Turnover Rates
1. Category -1 Where the annual business turnover does not 7.5% of taxable
exceed Rupees 100 million income
2. Category -2 Where annual turnover exceeds Rupees 100 15% of taxable

million but does not exceed Rupees 250 million income
Moreover, the small and medium enterprises may opt for taxation under final tax regime at the
rates given in the table below:
S.No Category Turnover Rates
1. Category -1 Where the annual business turnover does not 0.25% of gross
exceed Rupees 100 million turnover
2. Category -2 Where annual turnover exceeds Rupees 100 0.5% of gross

million but does not exceed Rupees 250 million turnover
The aforesaid option shall be exercised at the time of filing of return and option one exercised
shall be irrevocable for three tax years.

Sir Saud Tariq
QUESTION 2 (a) (i)
DIVIDEND‐BASED VALUATION – DIVIDEND VALUATION MODEL
In order to use the dividend valuation model, the cost of equity of the company must first be
estimated. This can be done with the capital asset pricing model: Ke = r + βe (rm – rf)
Where: Ke = the company’s cost of equity
rf = the risk‐free rate (estimated as the yield on government bonds)
rm = the return on the market
Ke = 11 + 0.8(21‐11) = 19%
The market value (MV) of the company is given by the formula MV = D1 / (ke – g) where D1 is
the prospective dividend (estimated as Do × {1 + g}), ke is the cost of equity and g is the
expected growth rate in dividends. The value of g can be estimated from extrapolating the
dividend growth of MCL over the last few years and is 11% (√{185/150} – 1).
MV = 185 × 1.11/ (0.19 – 0.11) = Rs. 2,567,000
Since this valuation relies on the beta of quoted companies and would give the value of a
quoted company’s dividend stream, this value should be discounted.
Rs. 2,567,000 × 60% = Rs. 1,540,000
Adjusting for the value of the unused property, the value of the business would be around Rs.
1,640,000.
LIMITATIONS OF THE CALCULATION

As with the earnings estimate, use of the sector beta implies that MCL has comparable gearing
and business risk to the sector average.
The assumption that past dividend growth of 11% will continue in the future may not be valid.
It has been assumed the company will dispose of the unused property even if BFL only obtains
a minority holding.
WHEN THE CALCULATION WOULD BE USEFUL

A minority investor who only receives dividends from the company will find this most useful
and therefore, it may be relevant if BFL only intends to take a minority stake.

Sir Saud Tariq
DIVIDEND‐BASED VALUATION – DIVIDEND YIELD
Discount for lack of marketability:
1,682 × 60% = 1,009,000
Including the proceeds from the assumed sale of the unused property, the valuation of MCL
would be Rs. 1,109,000.

As with the above methods, it assumes that MCL is similar to the sector in terms of gearing and
business risk.
It has been assumed that the company will dispose of the unused property, even if BFL does
not acquire a controlling shareholding.

As with the dividend valuation model, it is most useful for a minority investor who will only
receive a dividend flow from the company
ASSET‐BASED VALUATION ‐ NET REALISABLE VALUE OF ASSETS

The net book value of the company’s assets is Rs. 2,500,000. To establish the value available to
equity investors, the market value of the loan stock must be deducted. This will be the PV of the
loan stock’s future cash flows, discounted at the investors’ required rate of return. The best
indication of required returns is given by the details on gilts for the same maturity with the
same coupon in the question. A risk premium must be added on to the yield to compensate for
the additional risk of MCL, say 3%. The resultant annual yield (11% + 3% = 14%) needs to be
altered to a semi‐annual rate of return of 6.8% (√1.14 – 1) since the coupon is semi‐annual.
NOTE: The precise calculation here using the square root is probably over the top and gives a
spurious level of accuracy. A six‐monthly factor of 7% would be just as good.
The total value of the company’s equity is therefore Rs. 2,500,000 – Rs. 1,047,000 = Rs.
1,453,000.
Time Cashflow Discount Factor Present value

Rs.000 Rs.000 Rs.000
1-10 600,000 7.09 454,000
10 1,200,000 1/1.068^10 621,539
1,046,939

Sir Saud Tariq
The only data available is net book value, which may not represent realizable value due to
potential revaluations, obsolescent inventories, costs of disposal, and so on. The contents of
each category of asset and liability are not known. For example, non‐current assets may include
intangibles which could not easily be sold at book value.
The value of intangibles such as brands and goodwill may not be included in the above
valuation. The required yield on the loan stock has been estimated and the 14% may not be
appropriate.

Net realizable value assumes the company’s assets can be sold off. This will only be appropriate
if BFL acquires a 75% interest and can force a compulsory liquidation. Alternatively, the
company must obtain at the very least 50% to be able to force the disposal of any surplus
assets.
Replacement cost of assets may be appropriate to use for a purchaser who is considering
starting up an equivalent business from scratch. The problem will be in identifying the cost of
replacing intangible assets such as goodwill and brands.
Question 2 (a) (ii)

Reasons for differences between the valuations
The earnings‐based valuation is based on an earnings figure that has grown dramatically in the
final year. The very high earnings of Rs. 410,000 may not be representative and in subsequent
years the earnings may fall back to a level like earlier years. Alternatively, if the earnings are
going to grow from the current base, then the earnings‐based valuation is likely to be the most
appropriate of all the above.
The dividends of MCL, by contrast, have grown at a reasonably constant rate over the three‐
year period regardless of earnings performance. Since the dividends have grown at a much
slower rate than earnings, this explains the much lower valuations using dividend‐based
methods.
The dividend policy may give a clue as to the directors’ expectations for future profitability and
sustainable dividend growth. If this is the case, then the dividend‐based methods are likely to
give the most appropriate valuations.
The asset‐based valuation is the lowest of the four figures. This is probably because the
company derives its value not from its assets base but from its earnings stream and cash flows.

Sir Saud Tariq
Question 2 (a) (iii)
Additional information required
• Market value of assets

• Existence and value of intangibles
• Analysis of profits between ordinary recurring items and exceptional one‐off items, which
may have distorted the profits in individual years
• Details of costs or income that may be avoided or lost if the company is acquired, such as
very high directors’ remuneration
• Details on growth prospects
• More specific details on the company’s business, its business risk and gearing risk and
similar information for closely comparable quoted companies
• The shareholding percentage that BFL intends to buy
• The possibilities for synergies
• Cash flow details, to obtain a more fundamental cash‐based valuation
• Details of any comparable deals executed in the recent past
Question 2 (b)
The board of MCL have a strategic objective of creating a strong brand for the company’s
name. Without the benefit of detailed research, my view is that the company is not sufficiently
well‐established, having been in existence for only five years, to have a strong brand image
among potential customers. A brand can only be developed over time.
In the market for retirement homes, the strength of a brand is likely to depend largely on
product quality and a reputation for good customer service and ethical business practices
(Including concerns for health and safety). High product quality should also help to improve the
resale value of retirement homes, adding further to the company’s reputation. The company’s
board has identified key risks in the business. These include reputational risks linked to the
quality of homes that are built and customer satisfaction, and health and safety risks (Which
would have a consequence on the company’s reputation in the event of a serious accident in a
property under construction or in a completed home).
Brand image also depends on successful marketing, including advertising.
In my view, given the fact that MCL is a fairly new company and a relatively market, brand
strategy is an issue for the longer term, and is not necessarily something company should be
concerned about at the moment. The quality of built homes and health and safety issues are
all important, but at the moment they are important a successful business rather than a strong
brand image.

Sir Saud Tariq
Question 2 (c)
The turnaround for MCL ’s business will depend largely on a recovery in property prices and in
demand for retirement properties. Property prices are dependent on the market, and so are
largely outside the company’s control. Sales demand may also be influenced largely by market
conditions; however, there may well be scope for improvements in sales performance.
An important factor in constructing and selling residential properties is the length of the cycle
between acquiring land for development and completing the sale of constructed properties. A
long cycle means fewer sales than if the cycle is shorter. For example, if the cycle for building
and selling homes is one year, sales potential will be twice what it would be if the length of the
cycle were two years.
The board of MCL has identified a problem with the building cycle, with delayed starting times
for new building and late completion of construction projects. The problems with delays should
be investigated, and an attempt should be made to remove or reduce delays in the
construction process. Provided that there is sufficient demand for completed homes, any
reduction in the building cycle time will result in higher sales volumes.
There may also be weaknesses in the performance of the sales department. Clearly there is
some delay in selling completed homes. At the end of 20X4, inventory of finished housing was
Rs. 63.4 million, representing a turnover period of over 9 months (63.4/81.4 × 12). If there is
sufficient demand for retirement homes, it is surprising that it takes over nine months on
average to sell a completed home. Improving the building cycle time will not result in higher
sales if the outcome is simply to add to inventories of unsold finished apartments.
Even though there may be weak demand in the market, it would be surprising if measures
could not be taken to reduce the overall length of the cycle between acquiring land for
development and selling completed properties. MCL appears to have an arrangement
for the sale of some properties where it retains the right to some of the proceeds from
reselling. I would recommend further investigation into this selling arrangement, to establish,
on the one hand, whether it might offer opportunities for more sales but, on the other, the
impact this could have on cash flow and working capital cycles. As a more general
recommendation, the performance of the sales department should be monitored, and if the
company does not yet have one, an incentive scheme to reward successful sales and marketing
personnel might be considered.
There are probably also opportunities for cost savings. The increase in administrative and other
operating costs in 20X4, in spite of a fall in sales volume, would suggest that expenditures may
be out of control. Even a 1% reduction in total costs (cost of sales, administrative costs and
other operating costs) would improve operating profit by about Rs. 1 million. One aspect of
spending to consider is the local responsibility of project managers for purchasing and hiring
labour. Although it may be necessary to hire labour locally for building projects, there may well
be opportunities for cost savings if purchasing is organised centrally for building materials and

Sir Saud Tariq
equipment hires.
The comments have so far focused mainly on profitability. It is important to recognise also that
MCL needs adequate funding for its operations. A shorter cycle between land purchase and
selling completed homes should reduce working capital and improve cash flows. However, the
company needs sufficient finance for its working capital, including land sales and costs of
constructing new buildings. It is critically important that the company should continue to
acquire land for its land bank, and that it should be successful in obtaining planning
permissions to build. In view of the small amount of cash held by MCL at the end of 20X4, my
view is that new funding is required. Without further investigation, I cannot estimate how
much would be sufficient.

Sir Saud Tariq
Question 3
Question 3 (a)(i)
Samnabad Limited (SL) Future cash flow projects
Over the current planning horizon of four years (from 1 January 20X3 to 31 December 20X6)
for which data is available the operating and investment cash flows are as follows (assuming
finance continues to be available at 5%)
Rs. In thousand
Notes
(1) There may be other adjustments to profit in addition to depreciation to obtain operating
cash flows (eg, working capital adjustments). More information would be needed.
(2) The increase in the cash balance may be used to reduce the overdraft and therefore reduce
overdraft interest each year. If this assumption were to be made, then cash flows would be as
follows:

Sir Saud Tariq
WORKING
Finance costs
Finance costs relate to the loan plus overdraft
20X4 (5% × Rs. 10,000) + (5% × 7,000) = Rs. 850

20X5 (5% ×Rs. 10,000) + (5% ×4,850) = Rs. 742
20X6 (5% × Rs. 10,000) + (5% × 2,592) = Rs. 630
These calculations prudently assume year end cash flows.
In terms of liquidity, on the basis of operating and investment cash flows SL is generating
surplus cash which is sufficient to cover interest payments and increase net cash balance by Rs.
2 million in 20X3 and more than Rs. 2 million in each subsequent year due to the reduction of
the overdraft and therefore the reduced overdraft interest.

Sir Saud Tariq
By 20X6 the overdraft will therefore be almost completely repaid from operating cash flows net
of investment cash flows (CAPEX).
The key issue in terms of solvency is however financing cash flows. While sufficient cash is being
generated to meet interest payment obligations and new investment requirements (CAPEX),
the breach of the covenant has generated the possibility of the need for an immediate capital
repayment of Rs. 20 million (Rs. 10 million overdraft and Rs. 10 million bank loan).
Operating cash flows are not sufficient to make these capital repayments immediately hence
the solvency of the business is in question unless the debt can be refinanced.
The issue of solvency concerns the probability of being able to refinance the Rs. 20 million of
loan and overdraft given the bank’s declaration that it is unwilling to continue under the
present arrangements. Indeed, BB may be unwilling to refinance at all, given that the suggested
terms “should not be interpreted as an offer of a loan, but as minimum conditions for
consideration by BB of a loan application by SL.
Therefore, failure to arrange refinancing quickly seems likely to place the company in
an insolvent position. However, given the alternative forms of finance being negotiated there
seem reasonable prospects that a refinancing package can be obtained.
Even if refinancing is acquired, then it seems unlikely that it will be on such favorable terms as
the current 5% under any of the suggested arrangements (the specific liquidity and solvency
implications of the separate new financing packages are considered below). The implications of
servicing a higher interest rate have consequences for current liquidity and future solvency as
lower annual cash flows will be generated, and the overdraft will take longer to repay. There is
limited capacity however to service capital repayments. If for instance the interest rate on the
new loan doubles this would increase interest payments and reduce profit by Rs. 1 million per
year. Therefore, cash available to repay the Rs. 20 million of capital would reduce from Rs. 2
million per year to Rs. 1 million.
However, the transformation of the short‐term overdraft into a longer‐term loan under all the
financing options provides greater medium‐term solvency as it precludes immediate demands
for repayment by the finance provider (unless there is another covenant breach).
CONCLUSION
SL’s continuing solvency is dependent on the ability to refinance the current Rs. 20 million of
overdraft and loan with Jiddat Bank. Insolvency seems almost inevitable if refinancing cannot
be achieved.
With a high interest rate, interest on the new loans can be covered but, unless the directors’
plan for recovery engenders growth, greater profitability and cash inflows, it is difficult to see
how significant capital repayments can be serviced beyond the medium term.
Question 3 (a)(ii)

Sir Saud Tariq
Assuming that the new Jiddat Bank loan arrangement goes ahead with the full Rs. 20 million
being available, then the above cash flow calculation can be revised as follows:
Note:
Note: The above table does not consider the reduction in overdraft interest payments arising
from the declining overdraft. This is because the short‐term overdraft is being refinanced into
longer term debt which is entirely repayable in 20X8. However, surplus cash flows could be
reinvested to generate some investment income or prepay part of the loan, if this is permissible
under the contract.
Nevertheless, extrapolating the trend in the above table shows that the cash flow generated
after CAPEX is only Rs. 1 million per year. SL would therefore not be able to repay the Rs. 20
million new Jiddat Bank loan on 31 December 20X8, from current cash inflows and would need
to refinance again at this date. The directors’ plan for recovery may improve cash flows but any
additional cash investment required by the new plan would need to be recoverable within the
six-year term of the loan if it is to make a favourable difference.
Therefore, while a new loan of Rs. 20 million with Jiddat Bank would address the immediate
liquidity and solvency issue it would really only defer it to 20X8 when the new loan becomes
repayable. A key reason for this, is the higher rate of interest which, at 10%, is significant
additional cash outflow each year.
The key risk is therefore insolvency risk when the new loans become repayable in six years.

Sir Saud Tariq
Also, if operating cash flows decline in future, the interest payments may not be serviced and
insolvency may arise before 20X8 (i‐e, the higher interest payments under the new loan mean
that there is less headroom between operating cash flows and interest payments). New
covenants such as interest cover may also mean that a decline in operating cash flows would
cause a breach.
This leaves the issue of whether Jiddat Bank would be willing to extend the full Rs. 20
refinancing loan.
According to Mr. Pasha, the maximum amount of the loan would be the lower of:
• Rs. 20 million; and
• 200% of net assets as recognized and measured in accordance with IFRS, in SL’s statement
of financial position on 31 December 20X2 including existing loans.
Using the draft statement of financial position net assets at the expected carrying amount are
valued under the cost model at Rs. 6 million giving a maximum loan of Rs. 12 million. This would
not be enough to refinance the existing loan and overdraft in the absence of alternative or
additional financing. Additional debt finance may be difficult to obtain or expensive as Jiddat
Bank is likely to require a first charge over assets.
Assuming a revaluation would be acceptable to Jiddat Bank, this would mean that if all PPE
were to be revalued to Rs. 30 million then net assets would increase to Rs. 16 million and
therefore, under the Jiddat Bank formula, all Rs. 20 million would be available (i‐e, Rs. 20m <
200% × Rs. 16m = Rs. 32m).
COST OF FINANCE
This is a straight vanilla loan, so the nominal cost is the same as the effective rate at 10% per
annum. Any transaction charges may increase the rate, but these are likely to be small on this
type of loan.
Question 3 (b)
The current corporate governance structure regarding shareholdings is as follows:
Investor or Director Shares (000’s) % Shareholding

Ibrahim Khan 1,750 35%
Shujaat Khan 150 3%
Saleem Ahmed 100 2%
Bandhani Venture Capital 2,000 40%
(BVC)
Bilal Khan 1,000 20%
Total 5,000 100%
Regarding the board of directors there are only three executive directors and two
nonexecutives who represent the interests of BVC and employees.

Sir Saud Tariq
Corporate governance includes the set of processes, customs, policies, laws and institutions
affecting the way in which an entity is directed, administered or controlled. Corporate
governance serves the needs of shareholders, and other stakeholders, by directing and
controlling management activities towards good business practices, objectivity and integrity in
order to satisfy the objectives of the entity.
The role of the board in corporate governance requires a service/strategy role and a control
role. The service/strategy role requires a level of expertise and experience by individual
directors that enable appropriate strategies and operations to be pursued. The control role
requires non‐executive directors to have an appropriate degree of independence from the
executive directors and managers in order to monitor performance and risk on behalf of
shareholders and other stakeholders.
The suggestions by Mr. Pasha are representative of the interests of a particular stakeholder
group, Jiddat Bank. They may not therefore be appropriate to the interests of all stakeholder
groups. However, it may be necessary or desirable to take new loan finance from Jiddat Bank
since no alternative source of finance is available.
COCG IMPLICATIONS FOR BANK’S REQUIREMENTS

REMOVAL OF THE EMPLOYEE REPRESENTATIVE FROM THE REMUNERATION COMMITTEE AND
NOMINATIONS COMMITTEE
Employees are a legitimate stakeholder group on which the company’s operations depend.
Moreover 20% of the shareholding of SL is held by employees. The employee director, Kamran
Jadoon therefore represents employees in their role as staff and also in the role as
shareholders. While Kamran Jadoon could be removed from the remuneration committee and
nominations committee, this may disenfranchise the employee stakeholder group and fail to
represent legitimate interests of the employees.
APPOINTMENT OF TWO ADDITIONAL NON‐EXECUTIVE DIRECTORS (NEDS)

At the moment, the executive directors outnumber the NEDs. Best practice, according to the
Corporate Governance Code, is that the number of NEDs should be at least equal to the
number of executive directors. Two new appointments would redress this balance in favour of
the NEDs in terms of simple numbers. However, it is questionable whether the existing NEDs
can be regarded as independent since they each represent one stakeholder group.
Moreover, the audit committee, according to the Corporate Governance Code, must include at
least three members, as independent non‐executive directors. At the moment, SL has only one
non‐executive director (as the employee director does not sit on the audit committee and risk
committee) and, as noted above, it may be questioned whether the BVC NED is independent.
It should be noted that, as an listed company, SL needs to comply with a recognised corporate
governance code (like the Corporate Governance Code) and, if there are any areas where it
does not comply with the code, to explain the reasons for this. The current structure of SL’s
audit committee does not comply with the requirements of the Corporate Governance Code.

Sir Saud Tariq
SEPARATE CHAIRMAN AND CHIEF EXECUTIVE ROLES
Where one individual has the dual roles of chairman and chief executive it may give that person
a disproportionate amount of authority to run the company and dominate the board. The
Corporate Governance Code regards the separation of these roles as best practice, so again SL
will need to explain why the roles are combined if it does not comply with the principles of the
Code. In this case the situation is worsened by the fact that Shujaat also has a 35% shareholding
which makes him influential, if not dominant, in shareholder meetings as well as board
meetings.
This demand by Jiddat Bank therefore seems reasonable in asking for a separate chairman to
act as a counterweight to Shujaat. It is not however specified as to who might take this role (eg,
an existing director or a NED). The effectiveness of separation would therefore depend on the
independence and skills of the new chairman.
Question 3 (ci)
EFFECTIVENESS OF FRAs AND INETEREST RATE FUTURES
FORWARD RATE AGREEMENTS (FRAs)

Entering into an FRA with a bank will allow the treasurer of CFL to effectively lock in an interest
rate for the six months of the loan. This agreement is independent of the loan itself, on which
the prevailing rate will be paid. If the FRA were negotiated to be at a rate of 6%, and the actual
interest rate paid on the loan were higher than this, the bank would pay the difference
between the rate paid and 6% to CFL. Conversely, if the interest paid by CFL turned out to be
lower than 6%, it would have to pay the difference to the bank. Thus, the cost to CFL will be 6%
regardless of movements in actual interest rates.
INTEREST RATE FUTURES

Interest rate futures have the same effect as FRAs, in effectively locking in an interest rate, but
they are standardised in terms of size, duration and terms. They can be traded on an exchange,
and they will generally be closed out before the maturity date, yielding a profit or loss that is
offset against the loss or profit on the money transaction that is being hedged. So, for example,
as CFL is concerned about rises in interest rates, the treasurer can sell future contracts now. If
that rate does rise, their value will fall, and they can then be bought at a lower price, yielding a
profit which will compensate for the increase in Octavo’s loan interest cost. If interest rates fall,
the lower interest cost of the loan will be offset by a loss on their futures contracts.
Question 3 (cii)
PROBLEMS ASSOCIATED WITH FUTURE CONTRACTS

Sir Saud Tariq
Tailoring of contracts
The contracts cannot be tailored to the user’s exact requirements. Futures are dealt with on
currency exchanges using standard contract sizes and the amount to be hedged may not be an
amount that can be hedged using a whole number of contracts. In addition, futures are only
available for standard delivery dates that may not correspond to when the company is receiving
or paying currency. This means that the company will have to eliminate its commitments under
the futures contracts by closing out; undertaking a second futures transaction that reverses the
effect of the first one.
Hedge inefficiencies
Having to deal in a whole number of contracts means that there may be an amount that is not
hedged by futures, or the futures hedge a larger amount than required. The company can leave
the difference unhedged and exposed to currency risk or use a forward contract to hedge the
difference at a different rate. Hedge inefficiencies are also caused by basis risk, the risk that the
futures contract price will move by a different amount from the price of the underlying
currency.
Limited availability
Only a limited number of currencies are the subject of futures contracts (although the number
of currencies is growing).
Conversion between two currencies

The procedure for converting between two currencies, neither of which is the US dollar, is
complex, as contracts are priced in dollars. The company has to sell contracts of one type and
buy contracts of the other type.
Potential losses
Volatile trading conditions on the futures markets mean that the potential loss can be high.

Sir Saud Tariq
MARKING PLAN MSA 2 MOCK JUNE 24 BY ST ACADEMY
QUESTION 1
a) INTEREST OF KEY STAKEHOLDERS ASSOCIATED WITH ACCIDENT EVENT (MENDELOW’S
STAKEHOLDERS MATRIX)
S.No Description Marks
1. Interest and power of Capital City Street Safety 2.5
2. Interest and power of Customers or User of Hoverboard 2.0
3. Interest and power of Emergency and Police 1.5
4. Interest and power of Insurance Company 1.0
b) RISK MANAGEMENT AND RISK OWNERSHIP

1. Comment on positive side of argument that board has 1.0
collective responsibility
2. Comment on negative side of argument that board has 1.0
collective responsibility
3. Comment on concept of risk ownership 1.0
4. Comment on response of directors 2.0
c) STRTAEGIC EVELUATION OF INFRASTRUCTURE DEVELOPMENT OPPORTUNITY

1. Challenge 1: Lack of experience and its negative impact of 1.5
investment planning
2. Response to Challenge 1 1.5
3. Challenge 2: Capacity management for making city 1.5
completely pedestrianized
d) RESTRICTIVE CLAUSE ON ENGAGEMENT WITH AUTHORITIES OR CUSTOMERS OF

OTHER CITIES
1. Discussion on opportunity cost of not operating in 1.5
other cities (‘has no intention of operation of Kundan’)
2. Discussion of possibility that Kundan employ 1.5
competitors
3. Challenge 2: Capacity management for making city 1.0
completely pedestrianized

Sir Saud Tariq
e) i) EXPLANATION OF ESTIMATED POST-MERGER VALUES
1. Comment on how the market value has been arrived 1.5
2. Comment on factors such as earning growth, P/E ratios 1.5
etc. along with conclusion
ii) COMMENTS ON ACHIEVEMENT OF FINANCIAL OBJECTIVES

1. Comment on earning per share 1.25
2. Comments on gearing 1.25
3. Comment on P/E ratio 1.0
iii) IMPACT ON TCL AND STL OF MERGER (CAPITALIZATION AND SHARE PRICE)
1. Current market price of STL compared with offered price 1.25
2. Current market price of TCL compared with offered price 1.25
3. Conclusion of market behavior for merger 0.5
iv) IMPACT ON TCL AND STL OF MERGER (CAPITALIZATION AND SHARE PRICE)
1. Calculation 0.5
2. Comments on factors of calculation 1.0
f) ETHICAL IMPLICATIONS OF EXPANSION STRATEGIES (ICAP CODE OF ETHICS)

1. Discussion of integrity issue (situation 1) 1.0
2. Misleading statement (situation 1) 1.0
3. Omission of information (situation 1) 1.0
4. Reckless provision of information by CEO (situation 1) 1.0
5. Advice for conflict with code of ethics (situation 1) 1.5
6. Discussion of confidentiality issue (situation 2) 1
7. Exception to legal proceedings (situation 2) 1
8. Advice for conflict with code of ethics (situation 2) 1.5
g) TAX IMPLICATIONS ON TRANSFER OF ASSETS AND TAXATION OF SUBSIDIARY POST-

ACQUISITION
1. Income tax implications of transfer of assets (discussion on depreciable 3.0
assets, stock-in-trade, moveable property and conclusion but discussion on
debatable nature of sales is optional and carry 2 additional marks) (point ‘i’)
2. Sales tax implications of transfer of assets (discussion on debatable nature 1.0
of sales is optional and carry 0.5 additional marks) (point ‘i)
3. Taxation of ABC (Fourteenth Schedule both NTR and FTR option) (point ‘ii’) 3.0

Sir Saud Tariq
QUESTION 2
a) ISSUES ASSOCIATED WITH VALUATION AND METHODS OF EVALUATION
1. Dividend valuation model computation (discussion is not 1.0
necessary) (point ‘i’)
2. Limitation of dividend valuation model (point ‘i’) 1.0
3. Usefulness of dividend valuation model (point ‘i’) 1.0
4. Dividend yield model computation (discussion is not 1.0
5. Limitation of dividend yield model (point ‘i’) 0.5
6. Usefulness of dividend yield model (point ‘i’) 1.0
7. Dividend yield model computation (discussion is not 1.0
8. Limitation of dividend yield model (point ‘i’) 0.5
9. Usefulness of dividend yield model (point ‘i’) 1.0
10. Discussion on reliability of valuation based on earnings 1.0
(point ‘ii’)
11. Discussion on reliability of valuation based on dividend 1.0
(point ‘ii’)
12. Discussion on reliability of valuation based on assets 0.5
(point ‘ii’)
13. Only identification of additional information required 1.5
(point ‘iii’)
b) BUILDING UP STRONG BRAND IMAGE

1. Brand image linked with company’s period of existence 1.0
2. Factors to affect the brand in market for retirement 2.0
homes
3. Conclusion on development of branding strategies 2.0
c) TURNAROUND STRATEGY TO IMPROVE OPERATIONAL EFFICIENCIES

1. Discussion of factors for turnaround strategies in this 1.0
specific industry of retirement properties
2. Discussion of problems identified by board and the role of 2.0
departments in such problems
3. Discussion on the role of sales department 1.5
4. Discussion on reduction of costs 1.5
5. Discussion on importance of liquidity and available funds 2.0
for operations

Sir Saud Tariq
QUESTION 3 (a) (i) & (ii)
DISCUSSION ON SOLVENCY AND LIQUIDITY ISSUES
1. Computation of remaining overdraft as at year end 1.5
interest payments (point ‘i’)
2. Discussion on net cashflows and sufficiency of operating 1.0
cashflows to repay overdraft and comply with covenant
(point ‘i’)
3. Comment on solvency without financing and how 1.5
refinancing is necessary (point ‘i’)
4. Comment on future liquidity and expected terms of 1.5
refinancing and effectiveness of refinancing to resolve the
solvency issue (point ‘i’)
5. Conversion of short-term overdraft to long-term loan 1.0
(point ‘i’)
6. Conclusion on overall solvency status (point ‘i’) 1.5
7. Impact on liquidity (point ‘ii’) 1.75
8. Impact on solvency (point ‘ii’) 1.75
9. Impact on cost of financing (point ‘ii’) 0.5
QUESTION 3 (b)
EVALUATION OF CHANGES RECOMMENDED BY BANKERS
1. Role of COCG in existing situation and evaluation of existing board 2.0
structure
2. Removal of employees from remuneration and nomination committee 1.5
3. Appointment of two additional NEDs 2.0
4. Separation of chairman and chief executive roles 1.5
QUESTION 3 (c) (i)

INTEREST RATE FUTURES AND FRAs
1. Effectiveness of FRAs (point ‘i’) 1.5
2. Effectiveness of Interest rate futures (point ‘i’) 1.5
QUESTION 3 (c) (ii)

1. Tailoring of future contracts (point ‘ii’) 1.0
2. Tailoring of hedge inefficiencies (point ‘ii’) 1.0
3. Limited availability, conversion and potential losses (point 1.0
‘ii’)


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MSA 2 Mock WITH SOLUTION by Sir Furqan &amp; Sir Saud ST Academy June 24

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Mock Exams June 24 (With Solution) Sir Furqan Ahmed &

MSA 2 - Management Professional Competence

3. All questions are compulsory.

4. Questions can be attempted in any sequence.

5. There is no specific time allocated for individual questions.

sta.saudtariq.com Page 1 of 46 ST Academy

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EXHIBIT-1 HOVERBOARDS HACKED – AN EXTRACT FROM A NEWS ARTICLE

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Dear Mr. Qureshi

COLLABORATION WITH TCL

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• To grow earnings per share by at least 5% annually

Description TCL (pounds - million) STL (USD - million)

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FIVE-YEAR REVENUE AND EARNINGS RECORD

Year Revenue (million Earnings Revenue Earnings (million

Description Annual interest rate – Annual inflation rate –

TERMS OF THE MERGER

EXHIBIT-4 ETHICAL ISSUES

EXHIBIT 5 – SUBSIDIARY’S TAX MATTER (DE-MERGED FROM TCL)

sta.saudtariq.com Page 9 of 46 ST Academy

Description 2015 2016 2017

Profit after tax 280 260 410

Statement of financial position as of 31 December

b) Suggest the strategy for building up strong brand (5)

EXHIBIT 1 – MCL: MAIN RISKS AND REASONS FOR FINANCIAL DIFFICULTY

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• General economic conditions.

EXHIBIT 1 – EXTRACT OF LETTER FROM ZULFIQAR KHAN: W. BANK TO BOARD OF CFL

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EXHIBIT 2 – SUMMARY OF HFL’S CURRENT CORPORATE GOVERNANCE ARRANGEMENT

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EXHIBIT 3 – CFL COMPANY BACKGROUND AND SUPPORTING FINANCIAL INFORMATION –

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Forecast summary statement of financial position as of 31 December 20X2

RESERVES AND LIABILITIES

Total Equity and Liabilities 27,000

Forecast summary statements of profit or loss – 20X3 to 20X6

sta.saudtariq.com Page 16 of 46 ST Academy

EXHIBIT 4 – FINANCING FOR A PARTICULAR PROJECT

• Interest rate futures

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QUESTION 1 (e) (i)

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• to increase EPS by 5% per annum

• to keep the gearing ratio below 30%

• to maintain a P/E ratio above the industry average of 9.2

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• Depreciable assets (taxable as business income)

• Any stock-in trade (taxable as business income)

sta.saudtariq.com Page 27 of 46 ST Academy

• ABC is the manufacturer; and

S.No Category Turnover Rates

2. Category -2 Where annual turnover exceeds Rupees 100 15% of taxable

S.No Category Turnover Rates

MSA 2 Mock WITH SOLUTION by Sir Furqan & Sir Saud ST Academy June 24

MSA 2 Mock WITH SOLUTION by Sir Furqan & Sir Saud ST Academy June 24