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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN

Fall (Winter) 2010 Examinations
Thursday, the 2nd December 2010
FINANCIAL ACCOUNTING (S-301)
STAGE - 3
Time Allowed 2 Hours 45 Minutes Maximum Marks 90

(i) Attempt all questions.
(ii) Answers must be neat, relevant and brief.
(iii) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper.

Marks
Q. 2 Humna, a Scientist, holds a patent for the manufacture of Micro-wave-oven. On July 1, 2006,
she issued license to Hadi Limited for the manufacture and sale of the oven for 5 years on the
following terms and conditions:

(i) Hadi Limited to pay a royalty of Rs.1,500 for every unit manufactured subject to a
minimum rent of Rs.750,000 per annum.

(ii) If, for any year, the royalties calculated on the oven manufactured amount to less than
minimum rent, Hadi Limited may recoup the short-workings against royalties payable in
excess of the minimum rent in the next year only, but not afterwards.

(iii) Both parties close their accounts on June 30 each year and all payments to be made on
June 30 by cheque.

The output for five years were as follows:
Year Output (units)
2006 250
2007 450
2008 570
2009 630
2010 100


Required:
Prepare:

(a) An analysis of Royalties payable.
(b) Royalties Account.
(c) Short-workings Account.
(d) Patentee accounts in the books of Hadi Limited.
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Q. 3

The following information relates to the ABC limited for the year ended on June 30, 2010
which has three departments; A, B and C:
Departments A B C
Particulars Rs. Rs. Rs.
Machinery at cost at June 30, 2010 1,200,000 550,000 800,000
Sales 5,700,000 3,450,000 4,350,000
Salaries 230,000 240,000 170,000
Stock at June 30, 2009 1,400,000 375,000 1,225,000
Stock at June 30, 2010 1,575,000 260,000 890,000
Purchases 1,965,000 1,610,000 1,625,000

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Marks

Additional Information:
(i) Rent and rates were Rs.375,000 and heat, light and power were Rs.300,000 for the
year.
(ii) General and administrative expenses were Rs.2,480,000, which are allocated to the
departments in the ratios of their turnover respectively.
(iii) Department A covers 40%, Department B covers 25% and Department C covers 35%
area of the Building.
(iv) Depreciation is to be charged as under:
(a) Machinery @ 15% (b) Building Rs.200,000.

Required:
Prepare Profit and Loss Statement for the year ended June 30, 2010 showing Department-
wise details.

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Q. 4

Pervez, Raja, and Moin are running a partnership firm. Owing to illness, Raja decided to
retire from the firm. At that time they were sharing profit and loss in the ratio of 3:2:1, Pervez
and Moin decided to share in the new ratio 5:3 in future. Balance sheet as on January 10,
2010 is as follows:

Assets Rs. Liabilities and Equities Rs.
Cash at Bank 50,000 Accounts payable 200,000
Marketable Securities 50,000 Bill payable 100,000
Accounts Receivable 200,000
Bill Receivable 50,000 Capital:
Inventory 150,000 Pervez 500,000
Land 500,000 Raja 300,000
Plant and Machinery 300,000 Moin 200,000
1,300,000 1,300,000


On Rajas retirement, all assets were revalued by an independent appraiser and it was
resolved as under:
(i) Goodwill of the firm was valued at two years purchase based on average of last three
years profit/ loss.
The profits/ losses for last three years were as under:

2007 profit Rs. 200,000
2008 loss Rs. 50,000
2009 profit Rs. 305,000

Goodwill raised will not be recorded in books but Rajas Goodwill share will be adjusted in
Pervez and Moin capitals.
(ii) A plant amounting Rs.50,000 was purchased in beginning of 2009 from HY Company
Limited on credit was omitted from books. Firm depreciates it @ 10% (Straight Line
method) and maintains at net book value.
(iii) Inventory and Land are appreciated by 10% and plant and machinery are depreciated by
20% (excluding unrecorded plant)
(iv) Independent appraiser is to be paid Rs.50, 000.
(v) Balance of Raja is to be recorded as loan.

Required:
(a) Pass journal entries of above adjustments. 06
(b) Prepare Profit and Loss Adjustment account. 02
(c) Prepare Partners Capital accounts. 06
(d) Prepare Balance Sheet immediately after the retirement. 06

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Marks
Q. 5

The following data pertains to Urooj Limited at the end of December 2009:

(In Rs.)
Average total liabilities 3,000,000
Sales (all on credit) 3,600,000
Cost of goods sold (FIFO) 2,160,000
Average Inventory (FIFO) 432,000
Average account receivables 400,000
Interest expense 50,000
Average total assets 6,205,000
Net income before tax 432,000
Income tax (40%) 288,000
Required:
(a) Determine the following ratios:
(i) Gross margin percentage.
(ii) Profit margin percentage
(iii) Inventory turnover in days (360 days in a year).
(iv) Receivable turnover in days (360 days in a year).
(v) Return on total assets
(vi) Return on total stockholders equity 06

(b) Now assume the company is considering switching to the weighted average method of
inventory valuation. The controller tells you that if the company had been on Weighted
average in 2009, average inventories would have been Rs.324,000 and cost of goods
sold for the year would have been Rs.2,400,000. You are required to re-compute the
above ratios. 06

(c) (i) What are the two types of events after the reporting period, explain briefly as per
IAS-10? Give one example for each type.

(ii) Identify following events as adjusting or non adjusting events.
(1) Merger and acquisition.
(2) The documentary evidence regarding rates of taxation.
(3) Winding up significant part of the trading activities if this was not anticipated at
the year end.

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Q.6 Following are the balances from the books of Farzana Limited as on June 30, 2010:
Rs. 000
Title of accounts Debit Title of accounts Credit
Buildings 1,000 Sales 12,050
Land 500 Income from investment 200
Equipment 1,500 Equity share capital 2,500
Accounts receivable 2,250 Long term borrowing 1,850
Opening stock of finished goods 1,700 Acc umul at ed depr eci at i on ( Jul y 1, 2009) :
Direct labour 1,200 Equipment 700
Long term investment 1,500 Buildings 450
Administrative salaries 1,700 General reserve 1,550
Cash and bank balances 1,500 Prof it and Loss A/ c: (Jul y 1, 2009) 400
Salesman salaries 1,050 Accounts payable 600
Opening stock of work-in-process 100
Publicity and advertising 450
Stores, spares and loose tools purchases 150
Audit fee 150
Opening stock of material 150
Indirect labour 550
Mark-up on loan 150
Miscellaneous distribution expenses 250
Material purchases 3,750
Openi ng I nventor y of st or es, spar es and l oose tool s 50
Miscellaneous factory overhead 350
Miscellaneous administrative expenses 100
Office rent 200
Total 20,300 Total 20,300

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Marks
Additional Information:
(i) The Board has approved following appropriations in their meeting:
(a) Transfer to General Reserve Rs. 125,000
(b) Cash dividend 5% and stock dividend 10%.
(ii) Following balances stood at July 1, 2009:
(a) Buildings Rs. 900,000
(b) Land Rs. 500,000
(c) Equipment Rs.1,200,000
(iii) The authorized capital comprises 400,000 shares of Rs.10 each.
(iv) Provision for taxation to be made for the current year Rs.1,050,000 and for gratuity to be
Rs.90,000 which is further chargeable to:
(a) Administrative expenses Rs. 25,000
(b) Distribution expenses Rs. 20,000
(c) Miscellaneous factory overhead Rs. 45,000
(v) Depreciation on building 10% and Equipment 20%, which is further allocated as:
(a) Administrative expenses 10%
(b) Manufacturing expenses 80%
(c) Distribution expenses 10%.
(vi) Closing Inventories on June 30, 2010 are:
(a) Stores, spares and loose tools Rs. 125,000
(b) Finished goods Rs.2,025,000
(c) Work-in-process Rs. 150,000
(d) Raw materials Rs. 175,000

Required:
Prepare the following financial statements in accordance with International Financial
Reporting Standard and IAS-1 (revised):

(a) Income Statement for the year ended June 30, 2010 (showing classification of
expenses by functions).

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(b) Statement of changes in Equity for the year ended June 30, 2010. 05
(c) Statement of Financial Position as at June 30, 2010. 10

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