CMA JANUARY 2023 EXAMINATION

Intermediate Level I
Subject: FR222. Intermediate Financial Accounting

Model Solution
Solution of the Question No. 1
(i) (a)
(ii) (a)
(iii) (c)
(iv) (c)
(v) (a)
(vi) (b)
(vii) (c)
(viii) (a)
(ix) (c)
(x) (b)
Solution of the Question No. 2
(a) False: Correct:
A non-current asset register is a detailed schedule of non-current assets, and is not another
name of non-current asset ledger accounts in the general ledger.
(b) True
(c) True
(d) False: Correct
Return on capital employed = Profit before interest and tax / Capital employed. An increase
in long-term loans would increase capital employed which, in turn, would reduce return on
capital employed.
(e) True.
Solution of the Question No. 3
1. (d) Accounting entity
2. (b) Historical cost
3. (k) Objectivity
4. (g) Money measurement
5. (i) Prudence
Solution of the Question No. 4(a)
(i) The purpose of this framework is to
 Assist the IASB in the development of future accounting standards and in its review of
existing accounting standards
 Assist the IASB by providing a basis for reducing the number of alternative
accounting treatments
 Assist national standard-setting bodies in developing national standards
 Assist accountants to apply relevant accounting standards in preparing financial statements
and in dealing with topics that do not form the subject of International accounting
standards;
 Assist auditors in forming an opinion as to whether financial statements conform with
relevant accounting standards;
 Assist users of financial statements in interpreting the information contained in
financial statements prepared in conformity with International Accounting Standards
(ii) The specific topics discussed under the framework are as follows:
 the objective of general purpose financial reporting
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  qualitative characteristics of useful financial information
 financial statements and the reporting entity
 the elements of financial statements
 recognition and derecognition
 measurement
 presentation and disclosure
 concepts of capital and capital maintenance

4(b)

a) Dividends Payable

50,000
X 240,000
60,000

50,000 + 240,000 – X = 60,000

X = 230,000 dividends paid in Financing section
b) Investing Inflow of Tk.130,000
Book Value: 245,000 – 95,000 = Tk.150,000
Loss of Tk.20,000 is reported in the Operating Activity Section and is added back to net income
c) Investing Inflow of Tk.20,000
Book Value: 39,000 – 23,000 = Tk.16,000
Gain of Tk.4,000 is reported in the Operating Activity Section and is deducted from net income
d) Financing Inflow of Tk.250,000
e) Separate Schedule
f) Tk.55,000 is reported in the Operating Activity section and is added back to
net income
g) Financing Outflow of Tk.60,000
4 (c)
Financial Statements
Statement of Profit or Loss for the year ended 31 March 20X8
Taka,000
Revenue 2,000
Cost of sales (960+150-160) (950)
Gross profit 1,060
Distribution cost (440)
Administrative expenses (246)
Profit from operations 374
Finance Cost (10)
Investment Income 75
Profit before tax 439
Income tax expenses (74)
Profit for the year 365

Share Retained Total

Capital Earnings Equity

Taka’000
Balance at 1 April 20X7 600 180 780
Dividends (100) (100)
Total comprehensive income for the year 365 365
Balance at 31 March 20X8 600 445 1,045

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Notes:
(a) The profit form operations is arrived at after charging
Taka’000
Depreciation (27+5) 32
Employee benefits (150+80+40) 270
(b) A final Dividend for 20X8 of Tk.60,000 (10p per share) is proposed

Statement of financial Position as at 31 March 20X8

Taka’000 Taka’000
Assets:
Non-current assets
Property, plant and equipment (200+550-220) 30
Investments 560
1090
Current assets
Inventories 160
Trade and other receivables 470 470
Total Assets 1720

Equity and Liabilities

Equity
Ordinary share capital 600
Retained earnings 445
Total Equity 1045
Non-Current Liabilities
Provision for warranty costs (205+16) 221
Current Liabilities
Trade and other payable (260+40) 300
Taxation 74
Borrowings 80 454
Total Equity and Liabilities 1720

Solution of the Question No. 5(a)

Estimated Percentage Estimated

Uncollectible Uncollectable
Current Accounts Tk.170,00 1% Tk.1,700
0
1–30 days past due 15,000 3% 450
31–60 days past due 12,000 6% 720
61–90 days past due 5,000 15% 750
Over 90 days past due 9,000 30% 2,700
Total Accounts Receivable Tk.211,00 Tk.6,320*
0
**(A/R amounts × est. uncoll. %)
(a) Bad Debt Expense ..................................................................................... 6,020
Allowance for Doubtful Accounts (Tk.6,320 – Tk.300) ........................6,020
(To adjust the allowance account to total estimated uncollectible)
(Est. uncoll. amount – end. ADA bal.)

(b) Bad Debt Expense ..................................................................................... 6,620

Allowance for Doubtful Accounts (Tk.6,320 + Tk.300) ........................6,620
(To adjust the allowance account to total estimated uncollectible)

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(b)
1. CBR acquisition

Tk.
BAQ’s projected earnings 4,200,000
CBR’s projected earnings – 6 months
Tk.625,000 x 110% x 6/12 343,750
Projected group earnings for year ending 31 March 20X8 4,543,750

Weighted average of shares in issue:

1.4.X7 30.0.X7 6/12 x 8,000,000 4,000,000
1.10.X7 31.3.X8 {[¾ x (200,000/50¢)] + 8,000,000} x 6/12 4,150,000
8,150,000
Projected group earnings per share if CBR acquisition takes place:

Tk.4,543,750
= 55.8¢
8,150,000

2. DCS acquisition
Working 1: theoretical ex-rights price

5 x Tk.5.36 26.80
1 x Tk.5.00 5.00
31.80
TERP = Tk.31.80/6 = Tk.5.30
Bonus fraction = Tk.5.36/5.30
Working 2: number of BAQ shares in issue after 1 October 20X7

(1/5 x 8,000,000) + 8,000,000 = 9,600,000

Tk.
BAQ’s projected earnings 4,200,000
DCS’s projected earnings – group share
for 6 months Tk.860,000 x 80% x 6/12 344,000
Projected group earnings for year ending 31 March 20X8 4,544,000

Weighted average of shares in issue:

Tk.
1.4.X7 30.9.X7 6/12 x 8,000,000 x 5.36/5.30 (W1) 4,045,283

1.10.X7 31.3.X8 6/12 x 9,600,000 (W2) 4,800,000

8,845,283
Projected group earnings per share if DCS acquisition takes place:
Tk.4,544,000 / 8,845,283
=51.4¢
(c)
1. LAND AND BUILDING = Tk. 150m
2. DEPRECIATION OF PLANT, MACHINERY AND EQUIPMENT
= 10 % × RM 500 ×2/12= Tk.8.53 m
3. INVESTMENT PROPERTIES AT FAIR VALUE = Tk.130m.
4. RECEIVABLES AND FINANCIAL ASSETS = Tk. 75m
5. PLANT,MACHINERY AND EQUIPMENT AT DEPRECIATED COST

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= Tk.500m – Tk. 8.53m
= Tk.491.67m
6. INVENTORIES
= Tk.120m- Tk.10m
= Tk.110m
NET CARRYING AMOUNT UPON CLASSIFICATION
Tk. ('m)
Goodwill allocated to plant 200
Land and building, at revalued amount 150
Plant, machinery and equipment, at depreciated cost 491.67
Investment property at fair value 130
Receivables and financial assets 75
Inventories 120
Loans and borrowings (300)
Net carrying amount 820

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Solution of the Question No. 6(a)
Kushiara Company
Statement of comprehensive Income
For the year ended December 31, 2021
Tk. Tk.
Sales Revenue:
Net sales 12,00,000
Less : Cost of goods sold 7,80,000
Gross Profit 4,20,000
Operating expenses
Selling expenses
Administrative expenses 65,000
Income from operations 48,000 1,13,000
Add : Non-operating revenues and gains: 3,07,000
Dividend revenue
Interest revenue 20,000
Less : Non-operating expenses and losses 7,000 27,000
Write-off of inventory due to obsolescence 3,34,000
Income before taxes and extraordinary item 80,000
Less : Income taxes 2,54,000
Income before extraordinary item 86,360
Less : Extraordinary item 1,67,640
Casualty loss 50,000
Less : Applicable tax reduction 17,000 33,000
Net income 1,34,640
Income per share of common stock:
Income per share before extraordinary item (1,67,640 60,000) = Tk. 2.794
Less: Extraordinary item (net of tax) 0.55
Net income per share 2.244
Kushiara Company
Retained Earnings Statement
For the year ended December 31, 2021
Tk.
Balance, Jan. 1, 2021 Tk. 9,80,000
Less : Depreciation error {40,000 - (40,000 x 34%)} 26,400
Balance, Jan. 1 as adjusted 9,53,600
Add : Net income 1,34,640
10,88,240
Less : Dividend declared Balance, 45,000
Dec. 31 Tk. 10,43,240

(b)
Req. (a)
Compilation of Securities Fair value Adjustments -Trading Securities Portfolio:
Statement Showing Debt Security Portfolio
December, 2021
1 2 3 4-2-3
Investment Fair value Cost (Tk.) Unrealized gain (Loss)
(Tk.) (Tk.)
IDLC 10% Bonds 50,200 44,840 5,360
ADIL 11% Bonds 1,83,000 1,90,200 (7,200)
Prime 8% Bonds 92,400 87,300 5,100
Total Portfolio 3,25,600 3,22,340 3,260
Previous Securities fair value Fair value Cost (Tk.) -0-
adjustment balance (Tk.)
Securities fair value adjustment =DR 3,260
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Reb. (b): At December, 31, 2021, an adjusting entry is made to a valuation allowance:
Date Account Titles & Explanations Ref. Debit Credit
Tk. Tk.
2021 Securities fair value adjustment (Trading) 3,260
Dec Unrealized holding gain or loss (income) 3,260
31 (To adjust unrealized gain against portfolio trading
securities)
(c)
(a)
Sky Touch Ltd.
Journal
Date Account Titles and Explanation Ref. Dr. (Tk.) Cr. (Tk.)
2012 Available for sale securities 8,10,000 8,10,000
April-1 Cash
(:.Purchased of 3,00,000 x 18% = 54,000 shares
at cost of Tk. 15per share)
June-30 Cash 21,600
Dividend revenue 21,600
( Received cash dividend from Nippan Co.
1,20,000 x 18%= Tk. 21,600)
Securities fair value adjustment (Available for 1,62,000
Dec. 31 sale) 1,62,000
Unrealized holding gain or loss-Equity
( Unrealized holding gain for increased of fair
value of share) Gain =54,000x(18-15)=
Tk._1,62,000

(b)
The Sky Touch Ltd.
Journal
Date Account Titles and Explanation Ref. Dr. (Tk.) Cr. (Tk.)
2012 Investment in Star Co. 1,75,000
Jan. 1 Cash 1,75,000
( Purchased 35% of shares of Star’Co. 50,000 x
35% = 17,500 x10 =Tk. 1,75,000)
June. 25 Cash 18,200
Investment in Star Co. 18,200
(received cash dividend from Star Co. = 52,000 x
35%)
Dec. 31 Investment in Star Co. Stock 35,000
Revenue from investment 35,000
(Unrealized gain from Star Co. 1,00,000 x 35% =
35,000)
Solution of the Question No. 7(b)
Part (a):
Indicators of the transfer of control, which include, but are not limited to, the following:
(i) The entity has a present right to payment for the asset.
(ii) The customer has legal title to the asset.
(iii) The entity has transferred physical possession of the asset (except bill and hold etc)
(iv) The customer has the significant risks and rewards of ownership of the asset.
(i) The customer has accepted the asset.

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Part (b)

C1 C2 C3
Total
Stand-alone prices 90,000 110,000
Transaction price allocated [90:110] x170,000 76,500 93,500
Stand-alone prices (Revised) 100,000 76,500 93,500
Transaction price allocated [100:76.5:93.5] x 260,000 96,296 73,667 90,037

(c)
R-(a)
Prime Ltd.
DETERMINATION OF TAX ASSETS AND LIABILITIES
as at 30 June 2007
Item Carrying Taxable Deductible Tax base Taxable Deductible
Amount Amount Amount temporary temporary
difference deference
Assets:
Cash 30,000 0 0 30,000
Inventory 35,000 (35,000) 35,000 35,000
Account 1,10,000 0 10,000 1,20,000 10,000
Receivable
Insurance 14,000 (14,000) 0 0 14,000
Plant 1,20,000 (1,20,000) 1,00,000 1,00,000 20,000
Liabilities:
Accounts 45,000 0 0 45,000
Payable
Unearned 5,000 (5,000) 0 0 5,000
Revenue
Prov. for annual 4,000 0 (4,000) 0 4,000
leave
Temporary 34,000 19,000
Differences
Deferred tax 10,200
Liability(30%)
Deferred tax 5,700
asset (30%)
Beginning 0 0
balances
Move to during 0 0
period
Adjustment 10,200 5700
Journal entries:
Income tax expense 36,000
Current tax liability 36,000
(recognition of tax liability - Tk.120,000 x 30%)
Income tax expense 10,200
Deferred tax liability 10,200
(movement in deferred tax liability)
Deferred tax asset 5,700
Income tax income 5,700
(movement in deferred tax asset)
OR
Income tax expense Dr. 40,500
Deferred tax asset Dr. 5,700
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 Deferred tax liability Cr. 10,200
Current tax liability Cr.36,000
(tax adjustments arising from temporary differences)
R-(b)
DETERMINATION OF TAX ASSETS AND LIABILITIES
as at 30 June 2007
Item Carrying Taxable Deductible Tax base Taxable Deductible
Amount Amount Amount temporary temporary
difference deference
Assets:
Cash 45,000 0 0 45,000
Inventory 65,000 (65,000) 65,000 65,000
Account 1,29,000 0 6,000 1,35,000 6,000
Receivable
Insurance 13,000 (13,000) 0 0 13,000
Plant 90,000 (90,000) 50,000 50,000 40,000

Liabilities:
Accounts Payable 99,000 0 0 66,000
Unearned 3,000 (3,000) 0 0 3,000
Revenue
Prov. for annual 6,000 0 (6,000) 0 6,000
leave
Temporary 53,000 15,000
Differences
Deferred tax 15,900
Liability(30%)
Deferred tax 4500
asset (30%)
Beginning 10,200 5,700
balances
Move to during 0 0
period
Adjustment 5,700 (1,200)

Journal entries:
Income tax expense 45,000
Current tax liability 45,000
(recognition of tax liability - Tk.150,000 x 30%)
Income tax expense 5,700
Deferred tax liability 5,700
(movement in deferred tax liability)
Income tax expense 1,200
Deferred tax asset 1,200
(movement in deferred tax asset)
OR
Income tax expense 51,900
Deferred tax asset 1,200
Deferred tax liability 5,700
Current tax liability 45,000
(tax adjustments arising from temporary differences)

= THE END =

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