CMA JANUARY 2023 EXAMINATION

FOUNDATION LEVEL
FUNDAMENTALS OF FINANCIAL ACCOUNTING

Course Code : FR111 Total Marks : 100

Reading Time : 15 minutes Writing Time : 180 minutes

Instructions to Candidates
 You MUST NOT write anything during the reading time.
 You should attempt ALL questions.
 Answers should be properly structured and relevant.
 Carefully read ALL the requirements and sub-questions before attempting a specific
question.
 ALL answers must be written in the answer book.
 AVOID WRITING/MARKING on the question paper at any time which may cause disciplinary
action.
 Start answering each question from a fresh sheet.
 Answers should be clearly numbered with the sub-question number.

Allowable Materials
 Writing Stationaries
 Non-programmable Calculator

Assessment Structure
Sub- Expected Time
Marks
question Required
Question 1 Multiple Choice Questions 15 15 25 minutes
Section Question 2 Modified True/False 5 5 10 minutes
A Question 3 Matching 5 5 10 minutes
Question 4 Short Answer Questions 3 15 20 minutes
Question 5 Essay/Computational/Case 3 20 35 minutes
Section
Question 6 Essay/Computational/Case 2 20 35 minutes
B
Question 7 Essay/Computational/Case 3 20 35 minutes
Revision 10 minutes
Total 100 180 minutes

RESTRICTED USE
This paper MUST NOT BE REMOVED from the examination venue

Do not turn the page until instructed

 SECTION A [40 MARKS]
THERE ARE 4 (FOUR) QUESTIONS IN THIS PART. ANSWER ALL THE QUESTIONS IN THE
ANSWER SCRIPT FOLLOWING THE EXAMPLE PROVIDED FOR THE SPECIFIC QUESTION.
QUESTION 1 [15 × 1 = 15 MARKS]
There are fifteen (15) multiple-choice questions with five options. Pick the option that best explains
the given question. Write your answer on the answer script [DO NOT PUT ANY MARK ON THE
QUESTION PAPER]. Follow the example given below in providing your answer.
Example:
(i) ICMAB stands for the –
(a) Institute of Cost Management Accounting of Bangladesh
(b) Institute of Cost and Management Accountants of Bangladesh
(c) Institute for Cost Managers and Accounting of Bangladesh
(d) Institute of Cost Management Accountants of Bangladesh
(e) Industrial Cost Management Accountants of Bangladesh
Answer: (i) (b)

(i) Which one of the following accounting concepts requires an entity to measure inventories at
the lower of the cost and net realizable value?
(a) Going Concern Concept
(b) Prudence Concept
(c) Matching Concept
(d) Historical Cost Concept
(e) Conservatism
(ii) AB Ltd operates a petty cash imprest system. Petty cashier is being given an imprest of
BDT100,000 and it is reimbursed on the last day of every month. During the month of
January 2022 petty cashier has spent BDT 89,500 from the imprest. What was the amount
given by main cashier to the petty cashier to reimburse the imprest on 31 January 2022?
(a)10,500
(b)100,000
(c) 89,500
(d)189,500
(e) 87,000
(iii) On 31 December 2021, an entity sold goods which cost BDT 30,000 on credit by allowing a 10%
trade discount on the selling price of BDT 50,000. The buyer settled the payment after two weeks.
Upon settlement of the payment, the buyer was given a further cash discount of BDT 2,000. What
is the effect of the above events on the equity of the entity as at 31 December 2021?
(a) Equity will increase by 13,000
(b) Equity will increase by 15,000
(c) Equity will increase by 20,000
(d) Equity will decrease by 30,000
(e) No change in equity
(iv) A business prepares its accounts to 31 December 2021. The trial balance includes BDT
9,000 for electricity used from 1January to 30 September 2021. How much needs to be
accrued at the year end?
(a) 9,000
(b) 3,000
(c) 6,000
(d) 2,000
(e) 1,000
(v) A business has opening inventory BDT 30,000, achieves a mark up of 25% on sales, sales
totaled BDT 1,000,000,purchases were BDT 840,000. What is the value of closing inventory?
(a) 30,000
(b) 40,000
(c) 120,000
(d) 70,000
(e) 80,000

CMA January 2023 Examination, FR111 [Page 2 of 9]

(vi) If sales were BDT 51,000, and cost of sales was BDT 42,500, what was the gross profit
percentage?
(a) 16.67%
(b) 20%
(c) 83.33%
(d) 120%
(e) 25%
(vii) Which one of the following is not shown in the statement of changes in equity?
(a) Capital transactions with owners.
(b) The effects of changes in accounting policies.
(c) Dividend payment
(d) Profit /(loss) for the period.
(e) The effects of changes in accounting estimates.
(viii) Which of the following ratios is the best indicator of a company’s ability to survive over the
long term?
(a) Price-earnings ratio
(b) Current ratio
(c) Debt to total assets
(d) Earnings per share
(e) Net book value
(ix) Posting:
(a) normally occurs before journalizing.
(b) transfers general ledger transaction data to the general journal.
(c) is an optional step in the accounting cycle.
(d) is not part of operating cycle.
(e) transfers general journal entries to general ledger accounts.
(x) Which of these statements about journalizing is true?
(a) Journal entries must be prepared after the trial balance is prepared.
(b) Journal entries must be prepared after transactions have been analyzed to determine
their effect on the accounts.
(c) Journal entries don’t involve amounts, the just note in narrative form the details of a
transaction.
(d) If a journal entry affects more than two accounts, it is known as a simple journal entry.
(e) Journal entries must be prepared after the balance sheet is prepared.
(xi) The Retained Earnings balance in an unadjusted trial balance is Tk. 10,000. Profit for the
period is Tk. 2,500 and dividends are Tk. 500. The Retained Earnings account balance in the
adjusted trial balance will be:
(a) Tk. 9,500
(b) Tk. 10,000
(c) Tk. 12,000
(d) Tk. 12,500
(e) Tk. 15,000
(xii) Kant Enterprises Ltd. purchased a truck for Tk 32,000 on July 1, 2021. The truck has an
estimated residual value of Tk. 2,000, an estimated useful life of five years, and an estimated
total mileage of 300,000 km. If 50,000 km are driven in 2021, what amount of depreciation
expense would Kant record at December 31, 2021, assuming it uses the units-of-production
method?
(a) Tk. 2,500
(b) Tk. 3,000
(c) Tk. 5,000
(d) Tk. 5,333
(e) Tk. 5,500

CMA January 2023 Examination, FR111 [Page 3 of 9]

(xiii) On June 15, Kersee Corporation sells merchandise on account to Soo Eng Limited for Tk. 1,000,
terms 2/10, n/30. On June 20, Soo Eng returns merchandise worth Tk. 300. On June 24, payment
is received from Soo Eng for the balance due. What amount will be credited to the Accounts
Receivable account when the collection of this account is recorded on June 24?
(a) Tk. 686
(b) Tk. 680
(c) Tk. 700
(d) Tk. 1,000
(e) Tk. 1,200
(xiv) Accounts and notes receivable are reported in the assets section of the statement of
financial position at their:
(a) net realizable value.
(b) invoice cost.
(c) lower of cost and net realizable value.
(d) carrying amount.
(e) fair value
(xv) In periods of declining prices, the average cost method will result in:
(a) a gross profit that is higher than that of FIFO.
(b) a gross profit that is lower than that of FIFO.
(c) the same gross profit as that of FIFO.
(d) a negative gross profit.
(e) same profit as that of FIFO.

QUESTION 2 [5 × 1 = 5 MARKS]
There are five (5) statements given under the question. Identify the statements as True or False. If
the statement is false, rewrite the statement on the answer script to make it ‘True’. Reasoning is
NOT required. Follow the example given below in providing your answer.

Example:
(a) ICMAB stands for the Industrial Cost Management and Accounting of Bangladesh.
Answer:
(a) False. ICMAB stands for the Institute of Cost and Management Accountants of
Bangladesh.
Note:
 You will not get any mark if you simply rewrite as ICMAB does not stand for the
Industrial Cost Management Accountants of Bangladesh.
 If the statement is true, you need NOT to rewrite the statement rather only mention that
the statement is True.
(a) Verifiability means that different knowledgeable and independent observers could reach
consensus, although not necessarily complete agreement, that a particular depiction is a
faithful representation.
(b) Net realizable value is the selling price less all costs to completion and less selling costs.
(c) Statements of cash flows concentrate on the sources and uses of cash and are a useful
indicator of a company's liquidity and solvency.
(d) Operating cycle is an average period of time it takes for a business to pay cash to obtain
products or services and then receive cash from customers for these products or services.
(e) Chart of accounts is a list of a company’s accounts and account numbers that identify where
the accounts are in the general ledger.

CMA January 2023 Examination, FR111 [Page 4 of 9]

QUESTION 3 [5 × 1 = 5 MARKS]
Match the items of column A with the most suitable items of column B. Match only one item of
column A with one item of column B. Write your answer on the answer script. Follow the example
given below in providing your answer.

Example:

Column A Column B
1. ICMAB (a) Professional accountancy body
(b) University
Answer: 1 (a)

(1) Comparability (a) Is a present obligation of the entity to transfer an

(2) Going concern assumption
(3) Liability
(4) Current value
(5) Financial capital maintenance
economic resource as a result of past events.
(b) Profit is earned only if the physical productive capacity
(or operating capability) of the entity (or the resources or
funds needed to achieve that capacity) at the end of the
period exceeds the physical productive capacity at the
beginning of the period, after excluding any distributions
to, and contributions from, owners during the period.
(c) Provide monetary information about assets, liabilities
and related income and expenses, using information
derived, at least in part, from the price of the transaction or
other event that gave rise to them.
(d) Present value of the cash flows, or other economic
benefits, that an entity expects to derive from the use of an
asset and from its ultimate disposal.
(e) Qualitative characteristic that enables users to identify
and understand similarities in, and differences among,
items.
(f) Provides monetary information about assets, liabilities
and related income and expenses, using information
updated to reflect conditions at the measurement date.
(g) Means classifying, characterizing and presenting
information clearly and concisely makes it understandable.
(h) Helps to assure users that information faithfully
represents the economic phenomena it purports to
represent.
(i) Profit is earned only if the financial (or money) amount
of the net assets at the end of the period exceeds the
financial (or money) amount of net assets at the beginning
of the period, after excluding any distributions to, and
contributions from, owners during the period.
(j) Assumes that the entity has neither the intention nor the
need to enter liquidation or to cease trading.

CMA January 2023 Examination, FR111 [Page 5 of 9]

QUESTION 4 [5 × 3 = 15 MARKS]
(a) Describe the conceptual framework and explain how it helps financial reporting. Is the
conceptual framework applicable to publicly traded companies reporting using IFRS, or to
private companies, or to both?
(b) Two students are discussing the use of a trial balance. They wonder whether the following
errors, each considered separately, would prevent the trial balance from balancing. What
would you tell the students?
(i) The bookkeeper debited Supplies for Tk. 7500 and debited Accounts Payable for Tk.
7500 for the purchase of supplies on account.
(ii) Cash collected on account was debited to Cash for Tk. 1,000 and credited to Service
Revenue for Tk. 1,000.
(ii) A journal entry recording the payment of dividends was posted to the general ledger as
a debit to the Dividends account of Tk. 650 and a credit to the Cash account of Tk. 560.
(c) AB Limited operates hotels in Dhaka and its financial year ends on 31 December. The
accountant of AB Limited is a part-qualified Cost and Management Accountant and he is in
the final stages of completing the draft financial statements for the year ended 31 December
2021. The following issues are yet to be resolved.
During the year the company carried out major repair work on its hotel building. The work
carried out and costs incurred are described below.
(i) Removal of the roof to add an additional floor was BDT 3 million and the cost to build
the additional floor together with the roof was BDT 45 million.
(ii) Repair of the car park to restore it to the original condition: BDT 5 million
(iii) Improvements to hotel rooms: BDT 120 million (these improvements will result in
charging a higher room rate from guests).
(iv) Painting of existing walls: BDT 6 million
(v) Costs to promote the hotel after the repair work: BDT 2 million
Required:
Recommend the accounting treatment for each of the repair work mentioned above.

END OF SECTION A

SECTION B [60 MARKS]

THERE ARE 3 (THREE) QUESTIONS IN THIS PART. ANSWER ALL THE QUESTIONS IN THE
ANSWER SCRIPT. SHOW ALL RELEVANT COMPUTATION.
QUESTION 5 [3+8+9 = 20 MARKS]
(a) A company makes an accrued revenue adjusting entry for Tk. 780 and an accrued expense
adjusting entry for Tk. 510. How much was profit overstated or understated prior to these
adjusting entries? Explain.
(b) Under Armour, Inc. (“the Company”) specializes in the development, marketing, and
distribution of athletic apparel designed to keep athletes cool and dry in any and every
athletic activity. Unlike lululemon, which sells primarily through its own stores, Under Armour
generates most of its net revenue from product sales through national, regional,
independent, and specialty retailers. It is one of lululemon athletica’s key competitors in
India, although it offers a broader range of athletic clothing than lululemon.
Selected financial information for Under Armour, Inc. (in Tk thousands) for three recent fiscal
years follows:
2012 2011 2010
Cost of goods sold Tk. 955,624 Tk. 759,848 Tk. 533,420
Merchandise inventory 319,286 324,409 215,355
Current assets 903,598 689,663 555,850
Current liabilities 252,228 183,607 149,147

CMA January 2023 Examination, FR111 [Page 6 of 9]

 Selected industry ratios:
2012 2011
Inventory turnover 4.6 times 4.0 times
Days in inventory 79 days 91 days
Current ratio 2.0:1 2.1:1
Required:
(i) Under Armour uses FIFO. Assume prices have risen over the last two years. If Under
Armour used the average cost method instead of FIFO, would its cost of goods sold,
and its inventory values be higher or lower than currently reported?
(ii) Calculate the inventory turnover and days in inventory for 2012 and 2011; and evaluate
Under Armour, Inc.’s inventory management and overall liquidity over the most recent
two years and in comparison with its industry.
(c) GG Corporation, a private corporation, was formed on July 1, 2015. On July 31, Guy
Gelinas, the company’s president, prepared the following statement of financial position:
GG CORPORATION
Statement of Financial Position
July 31, 2015

Assets Amount
Cash Tk. 20,000
Accounts receivable 50,000
Merchandise inventory 36,000
Boat 24,000
Total assets: Tk. 130,000

Liabilities and Shareholders’ Equity

Accounts payable Tk. 34,000
Boat loan payable 40,000
Common shares 50,000
Retained earnings 6,000
Total liabilities and shareholders’ equity Tk.130,000

Guy admits that his knowledge of accounting is somewhat limited and is concerned that his
statement of financial position might not be correct. He gives you the following additional
information:
1. The boat actually belongs to Guy Gelinas, not to GG Corporation. However, because Guy
thinks he might take customers out on the boat occasionally, he decided to list it as an asset
of the company. To be consistent, he also included as a liability of the company the personal
bank loan that he took out to buy the boat.
2. Included in the accounts receivable balance is Tk 10,000 that Guy personally loaned to his
brother five years ago. Guy included this in the receivables of GG Corporation so that he
wouldn’t forget that his brother owes him money.
3. Guy’s statements didn’t balance. To make them balance, he adjusted the Common Share
account until assets equalled liabilities and shareholders’ equity.
Required:
(i) Identify any corrections that should be made to the statement of financial position and
explain why.
(ii) Prepare a corrected statement of financial position. (Hint: To get the balance sheet to
balance, adjust Common Shares).

CMA January 2023 Examination, FR111 [Page 7 of 9]

QUESTION 6 [(5+15) = 20 MARKS]
(a) How should Interest and Dividend paid and received should be disclosed in cash flow
statement as per IAS 7?
(b) The latest financial information of Mozart Traders Ltd are given below

Statement of financial position

As at 31 March
2021 2020
BDT BDT
Assets
Non-current assets
Property, plant and equipment 645,967 185,000
Investments 75,000 100,000
720,967 285,000
Current assets
Inventory 565,000 350,000
Trade receivables 120,000 125,000
Cash and cash equivalents 104,000 35,000
789,000 510,000
Total assets 1,509,967 795,000

Equity and liabilities

Equity 200,000 150,000
Stated capital 1,083,467 470,000
Retained earnings 1,283,467 620,000

Non-current liabilities
12% interest bearing loans and borrowings 112,500 -
112,500 -
Current liabilities
Trade payables 75,000 175,000
12% interest bearing loans and borrowings 39,000 -
114,000 175,000
Total equity and liabilities 1,509,967 795,000

Extracted information of the statement of comprehensive income for the year ended 31 March
2021:
BDT
Other income: Profit on sale of investment 31,000
Depreciation 30,833
Finance cost 4,500
Profit before tax 648,667
Income tax expenses 35,200
Profit after tax 613,467
Additional information:
(i) During the year the company acquired BDT 491,800 worth of office equipment.
(ii) The company has disposed part of its investments for BDT 56,000 and the carrying value of
the same as at the date of disposal was BDT 25,000.
(iii) A bank loan of BDT 150,000 at an annual interest rate of 12% was obtained on 31 December
2020 under the following terms.
 Capital portion of the loan capital is payable in 4 equal annual installments commencing
from 31 December 2021.
 The monthly interest of the loan is paid one month in arrears.

CMA January 2023 Examination, FR111 [Page 8 of 9]

 Interest charge of the loan from January to March 2021 is included in the finance cost and
the accrued interest for the month of March 2021 is included under the current portion of
interest-bearing loans and borrowings.
(iv) During the year the company raised a further BDT 50,000 by issuing ordinary shares.
(v) The company has fully paid the total tax expense by 31 March 2021
Required:
Prepare the statement of cash flows of Mozart Traders Ltd under the indirect method for the
year ended 31 March 2021.

QUESTION 7 [MARKS: 4+8+8 = 20]

(a) What is a contra asset account? Give an example. Why do we use a contra asset account to
record accumulated depreciation instead of directly reducing the depreciable asset account?
(b) Gemini Ltd. has accounts receivable of Tk. 370,000 and an unadjusted credit balance in its
allowance for doubtful accounts of Tk. 8,800 at March 31. The company’s accounts
receivable and percentage estimates of its uncollectible accounts are as follows:
Number of Days Accounts Estimated Percentage
Outstanding Receivable Uncollectible
0–30 $260,000 2%
31–60 50,400 10%
61–90 34,000 30%
Over 90 25,600 50%
Total $370,000
Required:
(i) Prepare an aging schedule to determine the total estimated uncollectible at March 31.
(ii) Prepare the adjusting entry at March 31 to record bad debts expense.
(ii) What is the net realizable value of the receivables at March 31?
(c) Dulcimer Ltd. purchased a piece of equipment at a cost of Tk. 35,000 on June 1, 2015. The
equipment was expected to have a residual value of Tk. 3,000 at the end of its four-year
useful life. Dulcimer has a December 31 year end and prepares adjusting entries annually.
During its useful life, the equipment was expected to be used 10,000 hours. Anticipated
annual hourly use was as follows: 1,300 hours in 2015, 2,800 hours in 2016, 3,300 hours in
2017, 1,900 hours in 2018, and 700 hours in 2019.
Required:
(i) Prepare depreciation schedules showing the expected depreciation expense for 2015
to2019 using the following methods: (1) straight-line, and (2) diminishing balance using
double the straight-line rate.
(ii) Prepare the journal entry to record the retirement of the equipment on June 1, 2019,
assuming that the straight-line depreciation method was used, and the equipment was
retired at the end of its useful life for no proceeds.

END OF SECTION B

CMA January 2023 Examination, FR111 [Page 9 of 9]