Professional Documents
Culture Documents
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]
Marks
1. You are the Financial Controller of RACO Ltd, a holding company listed on Bangladesh stock
exchanges. Together with the Finance Director, you have held conversations with external
consultants about accounting policy implementation issues. You have discussed a number of areas
where the Finance Director believes the application of the requirements of a IFRS would not give a
'true and fair view' for users. The Finance Director has sent you the following extract from a note
prepared by the consultants.
'Accounting policies
It is essential that the accounting policies selected when implementing IFRS result in financial
statements that give a fair presentation. The application of the principle of substance over form is
integral in achieving this.
The choice of accounting policies is a matter of judgement and careful consideration is required
particularly where you wish to override the requirements of an accounting standard.'
The Finance Director wishes to discuss the above extract with you. He has a strong personality and he is
adamant that non-compliance with IFRS may be justified where it does not give a true and fair view.
Requirements:
(a) Prepare notes for your meeting with the Finance Director:
(i) Explaining the concept of 'fair presentation' and comparing it with ‘true and fair view'. 3
(ii) Explaining the concept of 'substance over form' and its relationship to ‘fair presentation'. 3
(iii) Explaining the circumstances in which non-compliance with the detailed provisions of a
IFRS is justified. 3
(b) Identify the ethical issues and actions, from the above scenario, that you should consider arising
from the adoption of IFRS and your professional relationship with the Finance Director. 3
2. RESL Ltd. manufactures emergency power equipment. Its most popular generator is a model called the
PraMac, which has a retail price of Tk. 1,500 and costs RESL Tk. 740 to manufacture. It sells the
PraMac on a standalone basis directly to businesses, as well as provides installation services. RESL also
distributes the PraMac through a consignment agreement with GME LLC. Income statement data for
RESL's first quarter of 2018 from operations other than the PraMac generator are as follows:
Revenues Tk. 6,500,000
Expenses 4,350,000
RESL has the following information related to four PraMac revenue arrangements during the first
quarter of 2018.
(1) RESL entered into an arrangement with the Super Stores Ltd. (SSL) to deliver PraMacs for the
meat lockers in the super-stores. RESL provides a 5% volume discount for PraMacs purchased
by SSL if at least Tk. 450,000 of PraMacs are purchased during 2018. By March 31, 2018,
RESL has made sales of Tk. 360,000 (Tk. 1,500 × 240 generators) to SSL. Based on prior
experience with this promotion in two neighboring cities, the discount threshold is met for the
year if more than one-half of the target had been met by mid-year.
(2) On January 1, 2018, RESL sells 20 PraMacs to Grameen Store Ltd (GSL). GSL signs a 6-
month note due in 6 months at an annual interest rate of 12%. RESL allows GSL to return any
PraMacs that it cannot use within 120 days and receive a full refund. Based on prior experience,
RESL estimates that three units will be returned (using the most likely outcome approach).
RESL's costs to recover the products will be immaterial, and the returned generators are
expected to be resold at a profit. No PraMacs have been returned as of March 31, 2018, and
RESL still estimates that three units will be returned in the future.
(3) RESL sells 30 PraMacs to First S. Bank, to provide uninterrupted power for bank branches with
ATMs, for a total contract price of Tk. 50,000. In addition to the PraMacs, RESL also provides
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installation at a standalone selling price of Tk. 200 per PraMac; the cost to RESL to install is
Tk. 150 per PraMac. The PraMacs are delivered and installed on March 1, 2018, and full
payment is made to RESL.
(4) RESL ships 300 PraMacs to GME LLC. on consignment. By March 31, 2018, GME has sold
three-fourths of the consigned merchandise at the listed price of Tk. 1,500 per unit. GME
notifies RESL of the sales, retains an 8% commission, and remits the cash due to RESL.
Requirements:
(a) Determine net income for RESL Ltd. for the first quarter of 2018. (Ignore taxes.) 10
(b) In reviewing the credit history of Grameen Store Ltd, RESL has some concerns about the
collectability of the full amount due on the note. Briefly discuss how collectability of the note
affects revenue recognition and income measurement for RESL. 3
3. You have been appointed as a Finance Controller of Prosperous & Co, a highly promising public
company. The company is considering listing with DSE by issuing 10% of ordinary shares through IPO.
You are a Fellow Member of ICAB and Management has a high expectation that you will guide
them properly to make the IPO journey a success. Before you were appointed, Mr. Chowdhury,
FCA was heading your team. Your first assignment is to prepare a financial statement as of and for
the year ended 30 June 2018. The CFO of your company, who once had strongly recommended
your appointment has a gut feeling that the earlier Finance Controller was too conservative in his
assumptions. He has a high expectation that financial performance will look even better, if you
apply IFRS properly.
The financial period ended June 2018 has just been closed, and your Head of Reporting has come to
you with below trial balance-
Particulars BDT BDT
Sales 50,000,000
Other income 1,640,000
Purchases 20,000,000
Administrative expenses 10,000,000
Other operating expenses 8,000,000
Intangibles – brands 6,500,000
Plant and machinery- Cost 5,400,000
Accumulated depreciation- plant and machinery 3,200,000
Land and buildings- Cost (including land BDT10,000) 7,350,000
Accumulated depreciation- land and building 350,000
Retained earnings 2,400,000
Ordinary share capital (BDT 1 per share) 5,200,000
Share premium account 2,075,000
Revaluation surplus 910,000
Cash at bank 10,300,000
Inventories 4,625,000
Trade and other receivables 7,100,000
Trade and other payables 13,500,000
79,275,000 79,275,000
There are a number of outstanding issues which you were asked to help your team to resolve
before the financial statements can be presented to the board.
a) The company had received a Grant of BDT 100,000 from Ministry of Science and
Technology in 2015. The amount was fully utilized to purchase a piece of land. The grant
amount was netted off from the cost of the land (total cost being BDT 110,000), as per policy.
b) This year the company completed constructing a building on the land acquired in 2015. The
company had to remove debris of an old building in the land before it could start
construction at a cost of BDT 40,000. The amount was charged off as other operating
expense. The construction completed in June 2018.
c) GSM Foundation made a commitment to pay $40,000 as grant if the company can complete the
building project within 2018. 50% of the grant was received on 30 June 2018 and recorded as
other income. (USD to BDT conversion rate 82.00.) The company has just applied for the rest
50% of the grant. USD to BDT Conversion rate on 31 December was 85.00.
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d) Prosperous had appointed Mr. F.R Khan for the building project at a monthly Gross salary
of BDT 100,000 per month. Apart from his salary, he is entitled to full time car
maintenance (rented @ 35,000/month) and an apartment rented at a cost of BDT
25,000/month. Mr. Kahn left his job after September 2018 after handing over the building
to Admin department. At the time of his separation, he was also paid an amount of
BDT200,000 as a special bonus for completion of the project in time. The company has a
policy of reporting all employee related expenses as Administrative expenses. Car and
apartment rents are however reported under Other Operating Expense.
e) The plumber had missed the deadline of his delivery and had to pay a liquidated damage of
BDT100,000. The bank reconciliation reflects that the cheque is still unrecorded.
f) Plant and machinery has an estimated remaining useful life of 5 years, with no salvage value,
while the new building has a useful life of 20 years. Depreciation was not calculated for 2018.
g) Land and building in the trial balance includes the value of a fully depreciated building.
Residual value of the old building was nil. Prosperous contracted with General Motors to
deliver industrial Generator in exchange of the remains of the old building. Although
General Motors delivered the generator on 30 June 2018, it has yet to find a suitable
contractor to demolish the old building. The generator hasn’t yet been booked. A new
generator would cost BDT 100,000 while the Old building is expected to earn BDT 90,000
(for the remains). Generator is classified as plant and machinery.
h) The company has heavily invested on research and development and branding over the last
couple of years. In the process, the company bought “Promiso” from one of its competitors
at a cost of BDT1,500,000. The amount has been charged off as other operating expense.
i) The company also appointed an independent valuation expert to evaluate increase in brand
value due to significant investment in market promotions. In the experts view, overall brand
value of the company may have increased by at least BDT910,000. The increase is recorded as
intangible asset with corresponding impact on revaluation surplus. Estimated recoverable value
of the other brands, based on the same expert report had declined to BDT4,000,000.
j) All the brands have indefinite useful lives.
k) The company also has built a software with the help of IT Manager. Market value of
similar software is BDT100,000. The IT manager was given a Dhaka-Bangkok- Dhaka air-
ticket (BDT50,000) as a recognition of his delivery. Travel expenses are recorded as other
operating expense. The software is expected to serve for 2 years. The software was put into
use on 1 July 2018.
Requirement:
Prepare the statement of profit or loss for Prosperous for the year ended 31 December 2018 and a
statement of financial position as at that date, in a form suitable for inclusion in the prospectus. 25
4. Head of Reporting of your company, A Limited has prepared the following statement of financial
position and profit or loss account for the year ended 30 June 2018.
A Limited
Statement of financial position
As of 30 June 2018
BDT
Assets
Property, plant and equipment 767,571,771
Intangible assets 463,632,762
Non-current assets 1,231,204,533
Current assets 26,654,579,186
Total assets 27,885,783,719
Equity
Ordinary shares 42,797,062
Share premium 2,133,618,396
Retained earnings 903,366,797
Total equity 3,079,782,255
Liabilities
Deferred tax liabilities 135,986,265
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Other non-current liabilities 47,920,033
Total non-current liabilities 183,906,298
A Limited
Statement of profit or loss and
other comprehensive income
For the year ended 30 June 2018
BDT
Revenue 14,258,343,560
Cost of services (11,299,194,131)
Gross profit 2,959,149,429
Other income, net 1,441,818,627
Operating and administrative expenses (2,478,901,509)
Marketing and promotional expenses (1,091,747,210)
Profit before contribution to WPPF 830,319,337
Contribution to WPPF (39,539,016)
Profit before tax 790,780,321
Income tax expenses (302,962,605)
Profit after tax 487,817,716
Other comprehensive income/(expense) - net of tax -
Total comprehensive income 487,817,716
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