INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN Summer (May) 2011 Examinations Wednesday, the 1st June 2011

FINANCIAL REPORTING- (S-501) STAGE 5 Extra Reading Time: Writing Time: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) 15 Minutes 02 Hours 45 Minutes Maximum Marks: 70 Roll No.:

Attempt all questions. Answers must be neat, relevant and brief. 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. Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. Use of non-programmable scientific calculators of any model is allowed. DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script. Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper. Question Paper must be returned to invigilator after finishing/ writing the exam.
(9:30 a.m or 2:30 p.m [PST] as the case may be).

Answer Script will be provided after lapse of 15 minutes Extra Reading Time

Marks Q.2 Following are the draft group financial statements relating to Alamgir and Co listed in KSE: Alamgir Group Consolidated Statement of Financial Position as at December 31 2010 2009 (Rs. 000) (Rs. 000) ASSETS Non-Current Assets Property, plant and equipment Investment property Goodwill Other intangible assets Investment in associate Available-for-sale financial assets Current Assets Inventory Trade receivables Cash and cash equivalents Total Assets LIABILITIES AND EQUITY Share capital Retained earnings Other components of equity Non-controlling interest

32,700 8,000 6,000 8,500 5,400 11,000 71,600 10,500 17,560 2,320 30,380 101,980

27,500 6,000 6,800 7,200 9,000 56,500 12,800 11,300 1,430 25,530 82,030

29,000 19,920 4,000 52,920 5,500 58,420

27,500 14,760 2,000 44,260 3,600 47,860 PTO

1 of 4

Marks 2010 (Rs. 000) Non-Current Liabilities Long-term borrowings Deferred tax 13,500 3,500 17,000 2009 (Rs. 000) 9,300 4,100 13,400

Current Liabilities Trade payables Current tax payable Total Liabilities and Equity

23,260 3,300 26,560 101,980

17,770 3,000 20,770 82,030

Alamgir Group Consolidated Statement of Comprehensive Income for the year ended December 31, 2010 (Rs. 000) Revenue 43,200 Cost of sales (13,170) Gross profit 30,030 Revaluation gain on investment property 2,000 Distribution costs (5,200) Administrative expenses (including dep. of Rs.1 million) (4,500) Finance costs paid (6,820) Gains on sale of property 1,050 Goodwill impairment (800) Amortization of intangible assets (500) Share of profit of associate 2,000 Profit before tax 17,260 Income tax expense (3,100) Profit for the year 14,160 Other comprehensive income after tax: Gain on available for sale financial assets (AFS) 2,000 Total comprehensive income for the year 16,160 Profit attributable to: Owners of the parent 11,160 Non-controlling interest 3,000 14,160 The following additional information relates to the financial statements of Alamgir Group: (a) (b) Required: Prepare a Consolidated Statement of Cash Flows for the Alamgir Group using the indirect method under IAS-7 Statement of Cash Flows. 20 A property having cost of Rs.5 million and WDV of Rs.3 million was sold. During the year the company made investment in associate of Rs.4 million.

2 of 4

Marks Q.3 (a) P Company bought 80% of the equity share capital of S Company for Rs.350 million on December 31, 2005. At that date S Companys retained earnings balance was Rs.200 million. The balance sheets of the two companies as at December 31, 2010 are given below: P Co S Co
Rs. in million Rs. in million

Non-current assets Investment in S Co Net current assets

375 350 380 1105 600 505 1105

295 315 610 190 420 610

Ordinary shares or Rs.10 each Retained earnings

No impairment of goodwill took place since acquisition. Required: Prepare the consolidated balance sheet as at December 31, 2010 provided that P Company sold its entire holding in S Company for Rs.750 million on December 31, 2010. 07

(b) (i) Moon Ltd., sold its plant to Sun Ltd., for Rs.25 million during the year ended December 31, 2010. The fair value and carrying value of the plant at the time of sale were Rs.16 million and Rs.10 million respectively. The asset was immediately leased back by Moon Ltd., under 12-year operating lease. Annual lease rentals of Rs. 3 million each were above market rate to compensate for the loss to the buyer / lessor.

(ii) Lessee Ltd., sold a non-current asset having carrying value of Rs.6 million for Rs.11
million on January 01, 2010. The asset was immediately leased back by the Lessee Ltd. The fair value of the asset at that time was Rs.11 million. The asset was leased back under 4-year finance lease with annual payments of Rs.3,853,000 each paid in arrears. Remaining useful life of the asset was four years and the implicit rate of interest is 15%. The plant is depreciated on a straight-line basis. Required: How the transactions (i) and (ii) above will be dealt with in the financial statements as per IAS-17 in the books of seller / lessee for the year ended December 31, 2010? (c) On January 01, 2011 A Company issued 5% loan notes with a nominal value of Rs.1,000,000. Loan notes were issued at a discount of 22.5% and are payable after three years at par on December 31, 2013. Effective rate of interest is 16.16%. Issue costs were Rs.25,000. (i) What amount will be recorded in the Statement of Financial Position as financial liability at the time of issue of the notes? 02 03 03 10

Required:

(ii) Calculate finance costs to be charged to income statement for the year ended December 31, 2011 to 2013. (iii) What would be the amounts of financial liability, which will be shown in the Statement of Financial Position as at December 31, 2011 to 2013?

PTO

3 of 4

Marks Q.4 (a) ABC Limited has a defined benefit plan for their employees. The present value of the defined benefit obligation and the fair value of the plan assets on January 01, 2010 were Rs.1,000,000 each. Following information is relevant: (Rs. 000) 2010 2011 12.0 % 11.0 % Discount rate at start of year 14.0 % 13.0 % Expected rate of return on plan assets at start of year 140 235 Current service cost (Rs.) 155 190 Benefits paid (Rs.) 95 105 Contributions received (Rs.) 1,250 1,275 Present value of obligation at 31 December (Rs.) 1,125 1,210 Fair value of plan assets at 31 December (Rs.) All actuarial gains and losses are recognised immediately in profit or loss for the year. All transactions are assumed to occur at the year-end. 10 02 05

Required: (i) Determine the amounts of the actuarial gains or losses for the period. (ii) Calculate the amounts of liability to be shown in the statement of financial position as at December 31, 2010-11. (iii) Calculate the amounts of expenses to be charged to the income statement for the years ended December 31, 2010-11

(b) Following is the extract from the trial balance of the Pak Limited as at December 31, 2010: Rs. in million Debit Credit 125 75 9 21 6

Sales Operating costs Finance costs Deferred tax Corporation tax (under-provision from prior year)

Taxable temporary differences have increased by Rs.20 million during the year. Current income tax at 35% is estimated at Rs.18 million. Required:

(i) Prepare extract from Income Statement. (ii) Prepare extract from Statement of Financial Position.
THE END

04 04

4 of 4

INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN Spring (Summer) 2010 Examinations
Monday, the 24th May 2010
FINANCIAL REPORTING- ( S-501) STAGE 5

Time Allowed 2 Hours 45 Minutes

(i) (ii) (iii) (iv) (v) (vi) (vii) Attempt ALL questions. Answers must be neat, relevant and brief.

Maximum Marks 65

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. Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. Use of non-programmable scientific calculators of any model is allowed. DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script. Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper.

Marks Q.2 The consolidated income statement and consolidated statement of changes in equity of Perfect Ideal Group for the year ended December 31, 2009 and the consolidated statement of financial position of the group at the beginning and end of the year 2009, are given below: (i) Consolidated Income statement - for the year ended December 31, 2009: Rs. 000 Operating profit 20,000 Interest expense (1,400) Exceptional Item (note i) 700 Profit before tax 19,300 Net income tax expense (6,500) Profit after tax 12,800 Non-controlling interest (1,000) Group Profit for the year 11,800 (ii) Consolidated Statement of Changes in Equity - for the year ended December 31, 2009: Balance as of January 1, 2009 49,500 Profit for the period 11,800 Dividends paid (3,000) Balance as of December 31, 2009 58,300 Consolidated Statement of Financial Position as of December 31
Non-current assets: Property, plant and equipment Current assets: Inventories Trade receivables Cash and bank Total assets Equity and liabilities: Share capital (Rs.10 each) Retained earnings Non-controlling Interest 2009 Rs.000 51,350 2008 Rs.000 50,000

25,000 21,000 6,000

52,000 103,350 20,000 38,300 58,300 5,050

23,000 19,000 2,000

44,000 94,000 20,000 29,500 49,500 5,750

PTO 1 of 4

2009 Rs.000 Non-current liabilities: Long-term loans Current liabilities: Trade payables Provision for taxation Bank overdraft Total equity and liabilities 9,500 18,500 6,000 6,000

2008 Rs.000 12,500 16,250 5,000 5,000

Marks

30,500 103,350

26,250 94,000

Additional information: (i) On June 30, 2009 Perfect Ideal Group disposed of its investment in Fine Ltd., a subsidiary in which it had a shareholding of 80%. The proceeds of the disposal were Rs.5.5 million. Details of the disposal were as follows: Rs.000 4,000 2,000 2,500 (1,500) (300) (200) (500) 6,000 (ii) Perfect Ideal Group acquired this investment on June 30, 2004 for Rs.1.9 million when the net assets of Fine Ltd., were Rs.2 million. Goodwill was found to be impaired several years ago and was fully written off before the start of the current financial year. (iii) Depreciation charged during the period in the consolidated income statement amounted to Rs.10.1 million. There were no disposals of property, plant and equipment by the group other than those effectively made upon the disposal of investment in Fine Ltd.
Required:

Net assets at the date of disposal: Property, plant and equipment Inventories Receivables Trade payables Tax Bank overdraft Long-term loans

Prepare a Consolidated Statement of Cash Flows using the indirect method for Perfect Ideal Group in accordance with IAS 7 Statement of Cash Flows for the year ended December 31, 2009. Q. 3 Cactus Limited is a public company incorporated in Pakistan, which is involved in the manufacturing and sales of pesticides. The accountant is trying to prepare the financial statements for the year ended December 31, 2009. He has requested your help in this regard. He has provided you the following list of account balances for the year ended December 31, 2009:
Rs. 000 Sales Cost of sales Distribution costs Administrative expenses Minimum lease payments Dividend paid Property at cost Plant and equipment at cost Capital work-in-progress Provision for depreciation - Plant and equipment (1.1.2009) Profit on disposal of non-current assets Trade debts Inventory - year end Cash and bank Deferred income Trade payables Provision for taxation Issued share capital (Rs. 10 each) Long-term loans (see note f) Retained earnings (1.1.2009) 175,450 32,500 45,000 25,000 12,000 200,000 184,300 72,000 34,800 16,000 55,000 28,240 25,660 20,000 29,400 2,200 180,000 115,000 79,550 855,150 Rs. 000 378,200

20

855,150

2 of 4

Marks The following notes were relevant: (a) The minimum lease payment of Rs.25 million was paid on January 1, 2009. It is the first of five annual installments in advance for the lease of a liquid filling machine required in the packaging section, which is estimated to have a cash purchase price of Rs.100 million. As per advice sought from the statutory auditors of the company, this is a finance lease and with the implicit interest rate in the lease of 10% per annum. The asset is to be depreciated over the lease term. (b) On January 1, 2009, Cactus acquired a new warehouse in Multan to cater to the requirements of main cotton growing areas, at a cost of Rs.200 million. For the purpose of calculating depreciation only, the warehouse has been separated into the following elements: Separate asset Land Cooling System (HVAC) Building Cost Rs.000 80,000 20,000 100,000 Life Years freehold 10 50

The depreciation is to be calculated on a straight-line basis. The purchased warehouse had replaced a smaller one that was sold on the same date for Rs.88 million. It had cost of Rs.75 million and a carrying value of Rs.72 million at the date of sale. The plant and machinery is depreciated at 10% on straight-line basis. (c) Sales figure includes sales of Rs.13 million worth of insecticides made to a large farmer in Sindh on 'sale or return' basis. The product is very innovative and the company expects that if it can attract large farmers' segment, it will be easier to market it across the country. The expiry date for the return of these goods is February 28, 2010. Cactus Ltd., has earned a margin of 25% on these sales. (d) The company received a grant from the Government of Pakistan on January 1, 2007 by virtue of introduction of an advanced equipment for filling small sachets. The grant received was equal to 50% of the cost of the machinery purchased which is included in plant and machinery. The machinery whose useful life is 10 years, was purchased at a price of Rs.50 million on January 1, 2007 after obtaining necessary Government approvals. The company is following the requirements of International Accounting Standards in respect of accounting for Government grant. (e) A provision of income tax for the year ended December 31, 2009 of Rs.15 million is required. The opening provision comprises the excess amount provided for the prior year. (f) The company has following loans in place at the beginning and end of the year: Rs. in million 1.1.2009 31.12.2009 80 80 10% loan from Allied Bank of Pakistan repayable in 2011 35 35 9.5% loan from National Bank of Pakistan repayable in 2012 The above loans were utilized by the company to fund the expansion of its formulation plant in Karachi, which is currently under progress. The expenditure on plant were drawn on January 1, 2009 (Rs.30 million) and on October 1, 2009 (Rs.20 million). The financial charges on above loans have not been recorded for 2009. Required: Prepare the Income Statement for the year ended December 31, 2009 and the Statement of Financial Position of Cactus Limited as of December 31, 2009 in accordance with International Financial Reporting Standards.

25
PTO

3 of 4

Marks Q. 4 (a) As per IAS 19, how should the net cumulative unrecognised actuarial gains and losses at the end of the previous period be treated? Suppose you are the management accountant of U & S Publishing (Pvt.) Ltd. The company has granted 200 options on its Rs.10 ordinary shares to each of its 250 employees on July 1, 2006. The options are conditional upon the employees being employed by the company until June 30, 2009. Following information is relevant: You estimate that the fair value of each option was Rs.40 on July 1, 2006. In 2006-07, 25 employees left and another 25 employees were expected to leave in 2007-08 and 2008-09. In 2007-08, 18 employees left and another 12 employees were expected to leave in 2008-09. In 2008-09, 15 employees left. Required: How will the scheme be accounted for in the financial statements for the years ended June 30, 2007, 2008 and 2009? (c) Rich Limited made a 12% loan of Rs.500,000 to Poor Limited on January 1, 2005. Loan is payable after six years. The coupon and effective rate of interest are the same and interest is received at the end of each year. On January 1, 2010, Rich Limited discovered that Poor Limited was facing financial problems. It was estimated that Poor Limited would be able to pay only Rs.336,000 instead of Rs.560,000 at the end of 2010. (i) How above situation will be accounted for in the financial statements of Rich Limited on January 1, 2010. (ii) What amount will be recognised as interest income for the year ended December 31, 2010. (d) Millat Company purchased a non-current asset, costing Rs.500,000, on January 1, 2008. It has a useful life of 5 years with no residual value. On December 31, 2009, the tax base of the asset was Rs.250,000 and it was re-valued to Rs.400,000. Tax rate is 35%. Company uses straight-line method of charging depreciation. What are the deferred tax implications of the above facts as per IAS 12? THE END 04 06 05

(b)

Required:

05

Required:

4 of 4

INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN Fall (Winter) 2010 Examinations
Thursday, the 2nd December 2010
FINANCIAL REPORTING- (S-501) STAGE 5

Time Allowed 2 Hours 45 Minutes

(i) (ii) (iii) (iv) (v) (vi) (vii) Attempt ALL questions. Answers must be neat, relevant and brief.

Maximum Marks 70

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. Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. Use of non-programmable scientific calculators of any model is allowed. DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script. Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper. Marks

Q.2 The Statements of Financial Position of M/s A Limited, B Limited and C Limited as on June 30, 2010 are as follows: (Amount in Rs. 000) A B C Limited Limited Limited Non-Current Assets Property, plant and equipment Intangible assets Investments Investment in B Limited Investment in C Limited Current Assets Inventory Other current assets Total Assets Equity Share capital (Rs.10 each) Retained earnings Non-Current Liability Long-term loan Current liabilities Total Liabilities and Equity 35,450 5,350 6,600 47,400 2,600 1,000 3,600 51,000 20,000 22,000 42,000 7,500 1,500 51,000 3,700 11,600 1,600 2,400 4,000 15,600 5,000 5,000 10,000 5,000 600 15,600 8,000 2,000 1,500 3,500 11,500 3,000 4,000 7,000 4,000 500 11,500 4,250 3,650 6,050 1,950

A group carries on business of distribution of FMCG. A Limited is a listed company and incorporated under the Companies Ordinance, 1984. Recently A Limited has expanded its operation by focusing on diversification strategy and acquired shares in B Limited and C Limited, which are listed in stock exchange and carry on similar activities.

PTO 1 of 4

Marks

The following information is available relating to A group: A Limited acquired 90% shares in B Limited on July 1, 2007 when retained earnings of B Limited were Rs.1,500,000. B Limited acquired 240,000 shares in C Limited on July 1, 2008 when retained earnings of C Limited were Rs.1,200,000. During the year C Limited made inter-company sales to B Limited of Rs.240,000 making a profit of 20% on cost and 25% of these goods are still in stock at June 30, 2010. On January 1, 2010, A Limited purchased a non-current asset for Rs.160,000 and sold to B Limited for Rs.200,000. A Limited and B Limited charge depreciation @ 25% using straight-line method. Goodwill has been tested for impairment and no impairment loss occurred. Required: Prepare Consolidated Statement of Financial Position as on June 30, 2010 in accordance with the relevant International Financial Reporting Standard(s). 25

Q.3 Following is the Statement of Financial Position of M/s ACA and Co as at December 31, 2009: M/s ACA & Co Statement of Financial Position As at December 31, 2009 Dec 31 Dec 31 2009 2008 (Rs. 000) Non-Current Assets Property, plant and equipment Less accumulated depreciation Current Assets Accounts receivable Investments Inventory Cash and bank Total Assets Shareholders' Equity Share capital Retained earnings Reserves and surpluses Long-term Liabilities Bonds payable Liabilities against assets subject to finance leases Deferred taxation Current Liabilities Accounts payable Liabilities against assets subject to finance leases Provision for taxation Interest payable Proposed dividend Total Liabilities and Equity 2 of 4 5,485 (1,250) 4,235 875 100 858 275 2,108 6,343 4,000 300 350 4,650 208 200 235 643 250 50 290 260 200 1,050 6,343 5,050 (850) 4,200 635 75 1,025 175 1,910 6,110 4,000 250 225 4,475 200 150 175 525 205 30 265 310 300 1,110 6,110

Marks

Additional Data: Interest expense for the year, Rs.75,000. Tax payment for the year, Rs.95,000. During the year, assets costing Rs.375,000 were sold for Rs.275,000. Book values of the assets were Rs.250,000. Investments are recorded as fair-value-through profit and loss. During the year, the company entered into finance lease agreement and acquired a vehicle against lease. The vehicle would cost Rs.350,000 to the company if it were purchased for cash. Bonds payable amounting to Rs.60,000 were issued during the year. Required: Prepare Statement of Cash Flows as per IAS-7 using indirect method. 20

Q.4 (a) Pak Limited entered into a seven-year finance lease agreement to lease a non-current asset from Lessor limited. Lease commenced on January 1, 2009 and included seven annual lease payments of Rs.100,000 each starting from January 1, 2009. Had Pak Limited purchased the asset from the market on January 1, 2009, it would have cost them Rs.511,160. Implicit interest rate is 12%. The asset has a useful life of seven years and is to be depreciated using straight-line method with no residual value. Required: Prepare the following extracts in the books of Pak Limited: (i) Income Statement for the year ended December 31, 2009. (ii) Statement of Financial Position as at December 31, 2009. (b) For the last many years, M/s. ABC Limited has been facing the problem of turnover of staff. In order to overcome this situation, management of the company has introduced many plans to win the loyalty of the staff. On January 01, 2010, the company granted 200 cash share appreciation rights (SAR) to each of its 500 employees provided that they would remain with the company until December 31, 2012. Following is the relevant data as regards this scheme: Assume that: During 2010, 30 employees leave. The entity estimates that a further 50 employees would leave during 2011 and 2012. During 2011, 15 employees leave. The entity estimates that a further 45 employees would leave during 2012. During 2012, 50 employees leave. The fair value of one SAR for each year are shown below: Year 2010 2011 2012 Fair value (Rs.) 10.00 12.00 15.00 04 04

PTO 3 of 4

Marks

Required: Calculate the amount to be recognized as an expense in the Income Statement for each of the three years ended to December 31, 2012 and the liability to be recognized in the Statement of Financial Position at December 31, for each of the three years. (c) Mr. Investor has a portfolio of diversified investments. In 2008, he made investments in two financial assets: (i) Rs.550,000 were invested in fair-value-through profit and loss investment that also incurred a transaction cost of Rs.5,000. At the end of 2008, value of the investment increased to Rs.600,000. In 2009, he sold the investment for Rs.625,000. (ii) Second investment was bought for Rs.775,000 and was classified as available-forsale. Transaction cost was Rs.6,000. Its value increased to Rs.790,000 at the end of 2008. It was also sold for Rs.915,000 in 2009. Required: How above financial assets would have been accounted for in the financial statements of 2008 and 2009. THE END 11

06

4 of 4

INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN Fall (Winter) 2009 Examinations
Wednesday, the 25th November 2009
FINANCIAL REPORTING- ( S-501) STAGE 5

Time Allowed 2 Hours 45 Minutes

(i) (ii) (iii) (iv) (v) (vi) (vii) Attempt ALL questions. Answers must be neat, relevant and brief.

Maximum Marks 65

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. Read the instructions printed on the top cover of answer script CAREFULLY before attempting the paper. Use of non-programmable scientific calculators of any model is allowed. DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script. Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper.

Marks Q.2 Following are the financial statements of Umar Steel Products Limited: Statement of Financial Position as at June 30, 2009
Share capital and reserves Authorized capital: 20,000,000 ordinary shares of Rs. 10 each Issued, subscribed and paid up capital Share premium Revenue reserves Non-current liabilities Redeemable capital Liabilities against assets subject to finance leases Deferred taxation Current Liabilities Trade and other payables Interest and mark-up accrued Bank overdraft Current portion of redeemable capital
Current portion of liabilities against assets subject to finance leases

2009 (Rs. 000) 200,000 171,200 2,295 60,070 233,565 125,222 66,422 175,980 14,150 121,000 25,000 5,544 341,674 766,883 430,650 4,830 14,500 32,690 106,080 98,920 1,500 18,750 6,150 9,224 16,285 27,304 316,903 766,883

2008 (Rs. 000) 200,000 164,000 855 74,580 239,435 150,222 7,970 32,900 282,030 18,340 0 25,000 6,319 331,689 762,216 458,120 3,105 38,540 28,630 80,408 69,490 2,500 33,200 8,200 5,262 10,200 24,561 262,451 762,216

Total Liabilities and Equity Non-current assets Property, plant and equipment Intangible assets Long term investments Current Assets Stores and spares Inventory Trade receivables Current portion of long term investments Investments Accrued income on long term investments Prepayments and other receivables Taxation - net Cash and bank balances Total Assets

PTO 1 of 4

Marks Income Statement for the year ended June 30, 2009 Sales Cost of sales Gross profit Investment income Distribution and selling expenses Administrative expenses Other operating expenses Operating profit Other income Operating profit before finance costs Finance costs Net profit before tax Taxation Loss after tax (Rs. 000) 835,460 (409,913) 425,547 108,110 533,657 (48,160) (102,894) (15,500) 367,103 1,555 368,658 (245,469) 123,189 (137,699) (14,510)

Additional Information: Depreciation charged to income for the year was Rs.39.35 million. During the year, assets having book value of Rs.10.662 million were sold for Rs.9.4 million. Intangible assets include ERP software purchased by the company four years ago. Amortization of Rs.1.1 million is included in administrative expenses. Trade and other payables include the following: Rs. 000 2009 2008 Due to associated undertakings 18,200 23,200 Unclaimed dividend 35,200 39,280 Other income comprises insurance claim received during the year. Short term investments meet the criteria of cash equivalents as per IAS-7. Required: Prepare statement of cash flows (indirect method) for the year ended June 30, 2009 as per the requirements of IAS-7 Statement of Cash Flows. Q. 3 The draft statements of financial position of A Company Limited, B Company Limited and C Company Limited as at June 30, 2009 are as follows: A LTD. B LTD. C LTD. (Rs. 000) (Rs. 000) (Rs. 000) ASSETS Non-current assets: Property, plant & equipment 90,000 60,000 60,000 Long-term deposits 7,000 2,000 3,000 Investment in B Ltd. 150,000 Investment in C Ltd. 65,000 70,000 312,000 132,000 63,000 Current assets: Trade receivables 40,000 50,000 40,000 Inventory 5,000 3,000 2,000 Advance & other receivables 15,000 2,000 3,000 Short-term investments 5,000 3,000 5,000 Cash & cash equivalents 3,000 10,000 2,000 68,000 68,000 52,000 Total Assets 380,000 200,000 115,000 2 of 4 25

Marks LIABILITIES AND EQUITY

EQUITY (Rs. 000) (Rs. 000) (Rs. 000)

Ordinary shares of Rs.10 each Share premium Retained earnings

LIABILITIES

200,000 50,000 45,000 295,000 25,000

50,000 12,000 68,000 130,000 10,000

50,000 5,000 25,000 80,000 -

Non-current liabilities: Long-term loans Current liabilities: Accounts payable, accrued & other liabilities Short-term loans Total liabilities and equity

50,000 10,000 60,000 380,000

55,000 5,000 60,000 200,000

32,000 3,000 35,000 115,000

Additional Data: (a) A Limited acquired 70% of the shares in B Limited on July 1, 2007. (b) A Limited acquired 30% shares of C Limited on July 1, 2008. (c) B Limited acquired 60% shares of C Limited on July 1, 2008. (d) Revenue reserve of B Limited on July 1, 2007 was Rs.12 million and there was no share premium account. (e) Revenue reserve of C Limited on July 1, 2008 was Rs.22 million and share premium was Rs.5 million. (f) Advance & other receivables of A Limited include receivable of Rs.2 million from B Limited included in accounts payable of B Limited. (g) Advance & other receivables of C Limited include receivable of Rs.1.5 million from A Limited included in accounts payable of A Limited. (h) On June 28, 2009, A Limited dispatched goods to B Limited at invoice price of Rs.2 million including 20% profit on selling price for A Limited. A Limited recorded the transaction on June 28, 2009 and recorded B Limited as accounts receivable by Rs.2 million and made corresponding entries in sales and inventory. However, the goods were received by B Limited on July 02, 2009 and B Limited recorded the transaction then. (i) During the year C Limited sold goods to A Limited amounting to Rs.4 million including 10% profits on selling price to C Limited. On June 30, 2009, goods at invoice price of Rs.1.5 million were still lying in the inventory of A Limited. (j) During the year the directors of A Limited introduced a defined benefit pension scheme for the employees of A Limited and contributed cash of Rs.5 million. The following details relate to the scheme as at June 30, 2009: Present value of obligation Fair value of plan assets Current service cost Interest cost-scheme liabilities Expected return on pension scheme assets Rs.000 6,500 6,000 5,500 1,000 500

The only entry in the financial statements made to date is in respect of the cash contribution which has been included in A Limiteds accounts receivable. Required: Prepare consolidated statement of financial position as at June 30, 2009. 3 of 4 20 PTO

Marks Q. 4 (a) The details of investment extracted from the books of Finance Limited for the year ended June 30, 2009 show the following: Date of Purchase Shares in Alpha Limited 1-Oct-2008 Shares in Beta Limited 1-Nov-2008 14% Debentures in Gamma Ltd 1-Jul-2008
(face value - Rs.5,000) 16% Debentures in Theta Ltd (face value - Rs.5,000)

Qty 18,000 24,500 1,800 650

Cost (Rs.000) 441 1,960 9,090 3,185

Market Price (Rs.000) 576 1,911 9,360 N/A

Date of Maturity N/A N/A 30-Jun-2011 31-Dec-2011

1-Jan-2009

The company is aware of the fact that it needs to apply International Accounting Standard 39 on the above investments. However, due to inadequate knowledge of the requirements of the Standard, the accountant has approached you for an advice. He informs you that the investment made in the shares of Alpha Limited was with the intention of making short-term gain in expectation of upward momentum in stock market activity, whereas the shares in Beta Limited are high dividend-yielding and the company intends to hold it for the long-term. The debentures in Gamma Limited were also acquired with the intention of short-term profit making. However, the company later changed its intention and now wishes to hold it till maturity. The debentures in Theta Limited are acquired with a firm intention to hold these till maturity. Both these debentures are to be redeemed at their face values. The coupon payments are made on yearly basis on June 30 and December 31. The original effective rate of interest on debentures of Gamma Limited is 13.58% while on debentures of Theta Limited is 16.91%. Required: (i) Advise the accountant about the classification of above investments in the books of the company in accordance with the IAS-39 along with reasons. (ii) State the amount at which each of the above investments will be carried in the statement of financial position as at June 30, 2009 (definitions of various categories of financial assets as per IAS-39 are not required). Also calculate the impact to be reflected in the 'statement of comprehensive income' or 'statement of changes in equity' for the year ended June 30, 2009. (b) Sabih Textile Limited owns a number of properties. An independent surveyor has assessed their market values given here under:
Property A B C Cost July 1, 2007 Rs. 57,000 99,000 136,500 292,500 Valuation June 30, 2008 Rs. 72,000 107,000 119,000 298,000 Valuation June 30, 2009 Rs. 101,000 86,000 153,500 340,500

04

06

All the properties had an estimated life of 50 years when they were acquired. They are all let on short leases under commercial terms, however property C is let to a group company of Sabih Textile Limited. The group policy (applied by all members of the group) is to adopt the fair value model given in IAS-40 for investment properties and to treat owner-occupied properties according to cost model mentioned in IAS-16. Required: Prepare extracts of the group income statement and statement of financial position of Sabih Textile Limited in respect of the above mentioned properties for the years to June 30, 2008 and 2009. THE END 4 of 4

10

INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN Spring (Summer) 2009 Examinations Wednesday, the 27th May 2009

FINANCIAL REPORTING (S-501) Stage- 5 / Professional III

Time Allowed 2 Hours 45 Minutes (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 on 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. (viii) There is a case study presentation of 25 marks, which forms part of this question paper.
Marks Q. 2 (a) Define the following terms as per IAS 19 Employee Benefits: (i) Defined contribution plan (ii) Actuarial gains and losses (b) Burq (Private) Limited has an asset which cost Rs.100,000. In 2009, the carrying value was Rs.80,000 and the asset was re-valued to Rs.150,000. No equivalent adjustment was made for tax purposes. Cumulative depreciation for tax purposes is Rs.30,000 and the tax rate is 30%. If the asset is sold for more than cost, the sales proceeds in excess of cost are not taxable. 02 02

Maximum Marks 65

Required: State the deferred tax consequences of the above scenario, provided: (i) the asset is expected to be used by the entity throughout the life of the asset. (ii) the entity is expected to sell the asset at the re-valued amount. (c) Falah Limited operates a pension fund, which covers all of its employees. The present value of the obligation and the fair value of plan assets at January 1, 2008 were Rs.15 million and Rs.16.7 million respectively. The actuarial assumptions used by the actuary are as follows: Discount rate Expected return on plan assets 1 of 4 15% PTO 12% 03 04

Marks During the year ended December 31, 2008 the company made contribution in the fund amounting to Rs.13.75 million and paid benefits to outgoing employees amounting to Rs.11.25 million. Current service cost for the year ended December 31, 2008 is Rs.9.55 million. During the year, plan was amended to provide additional benefits with effect from January 1, 2007. The present value as at December 31, 2007 of additional benefits for employee service rendered before January 1, 2008 was Rs.4.05 million for vested benefits. Net cumulative unrecognized actuarial gain at January 1, 2008 was Rs.3.95 million. The expected average remaining working life of employees is 15 years. The present value of the obligation and the fair value of plan assets at December 31, 2008 were Rs.21.70 million and Rs.24.50 million respectively. Required: Calculate: (i) Actuarial gain/ loss to be recognized as at December 31, 2008. (ii) Net cumulative unrecognized actuarial gain at December 31, 2008. (iii) Actual return on plan assets for the year ended December 31, 2008. (d) Sana Textile Limited paid Technology University a large sum of money to design a new machine which will help the company conserve electricity and maximise the process speed. The machine has been successfully tested and is expected to be put to use by Sana Textile Limited in two months time. The company also paid a large sum of money to the Scientific Institute to develop cheaper raw material. However, there has been no considerable success on the project. The director of the Scientific Institute is of the view that the raw material developed was although cheaper but there were quality issues observed, and that further research is necessary to improve the quality of the material. Required: Explain how this matter will be dealt with in the financial statements of the company for the year ended December 31, 2008 in accordance with the IAS 38 Intangible Assets. Q. 3 (a) Umair company is in the import and export business. The accounting year ends on June 30. The transactions for the year ended June 30, 2008 were as follows: Noble AG, supplied certain goods and sent an invoice of .15,250 stating that the amount should be settled in two equal instalments on March 31, and May 31. A foreign currency loan was obtained from Exim Bank of Japan for .1,200,000 @ 1.5% per annum, repayable in 8 equal quarterly instalments starting June 30, 2008. The interest for each quarter was payable along with the quarterly instalment. First instalment was paid to Noble AG. Goods exported to Chittagong Limited of Bangladesh worth $.130,000 and Tamil Associates in Sri Lanka worth $.88,000. The due date of payment mentioned on invoice was June 15, 2008 and July 10, 2008 respectively. Second instalment was paid to Nobel AG. 02 04 02

06

01-Feb-08

31-Mar-08

31-Mar-08 18-May-08

31-May-08

2 of 4

Marks 15-Jun-08 15-Jul-08 The company purchased .25,500 and deposited into its foreign currency account for trading purposes. The bank informed that the proceeds from goods exported to Chittagong Limited and Tamil Associates have been credited into the companys bank account at their respective due dates. Various exchange rates as published in the newspapers were as follows:
01-Feb-08 31-Mar-08 18-May-08 31-May-08 15-Jun-08 30-Jun-08 10-Jul-08 15-Jul-08 $ 79.25 79.60 79.72 79.88 80.05 80.10 80.00 79.95 98.15 98.22 98.60 99.05 98.96 99.02 99.14 99.22 0.7032 0.7124 0.7241 0.7245 0.7238 0.7240 0.7252 0.7255

Required: Compute the exchange gain/ loss to be included in the financial statements for the year ended June 30, 2008. (b) Cotton & Cotton Limited has the following statement of financial position as at December 31, 2008: COTTON & COTTON LIMITED Statement of Financial Position as at December 31, 2008
(Rs. 000) ASSETS Non-current assets Property, plant and equipment Investment Current assets Inventory Trade receivables Cash and bank balance Total current assets Total assets LIABILITIES AND EQUITY Share Capital ordinary shares of Rs.10 each Revenue reserves Retained earnings Term Finance Certificates Current Liabilities Trade payables Accrued expenses Total current liabilities Total equity and liabilities 42,700 10,800 12,900 6,700 4,300 23,900 77,400 18,000 9,120 6,080 33,200 13,500 18,400 12,300 30,700 77,400

10

The non-current assets were independently valued at Rs.77 million. Profit after taxation during five years up to December 31, 2008, were as follows: (Rs.000) 2004 9,288 2005 10,403 2006 11,547 2007 10,392 2008 8,314 3 of 4 PTO

Marks Dividends of 30%, on ordinary shares, have been paid in all the years including the current year. The average yield on investment in the industry is 15%, whereas the competitors are paying out dividends to ensure a dividend yield of 9%. The company is considering to issue rights shares at a premium to finance a strategic project. The directors would like to assess the value of shares of the company in order to make a decision about the premium. Due to current global financial crisis, the market value of companys shares are quite depressed and were quoted as of the year end at Rs.28 per share. The directors feel that the current market value does not truly represent the market value of the net assets of the company. Required: Compute the value per share of the company on the basis of the following methods: (i) Assets valuation method (net assets) (ii) Earnings yield method (iii) Dividend yield method Q. 4 (a) Usman Limited sold/ wrote off the following non-current assets during the year ended December 31, 2008: Furniture costing Rs.35,000 was sold to Shamim Mirza, a resident of Karachi. After negotiation, the price was fixed at Rs.7,500. The carrying value of furniture was Rs.4,500. Tenders were invited for sale of machinery and it was sold at one-third of cost incurring loss of Rs.50,000. The buyer, Farman Chemical Company Limited of Karachi paid by cheque amounting to Rs.200,000 and the balance of Rs.100,000 was adjusted against their account owed by Usman Limietd. A Toyota Corolla car, which was depreciated up to 50% of cost, was sold through auction for Rs.155,000 to Cargo Carrier Limited of Islamabad. The transaction realized profit on sale of the car of Rs.5,000. A Suzuki van costing Rs.600,000 was taken away by armed robbers at gun point during the year. The van had a carrying value of Rs.360,000 and the Pakistan Insurance Company accepted a claim of Rs.280,000. Mr. Ahmadullah Khan, a resident of Nazimabad, bought a generator from Usman Limited having a book value of Rs.3,000 for a negotiated price of Rs.4,200. The generator was purchased by Usman Limited for Rs.30,000. The company sold its Mercedes car to ex-Managing Director, Mr. Bernd Stefer, who has just retired, as per the company policy. The car was purchased at a cost of Rs.6,500,000 and had a carrying value of Rs.1,700,000. As per the policy, the ex-Managing Director purchased the car at 30% of the cost. Mr. Yousuf Vazir, a resident of F. B. Area has purchased old computers from the company, which had an aggregate carrying value of Rs.45,000, at a price of Rs.30,000. The computers had a total cost of Rs.112,000. Required: Keeping in view the requirements of the Companies Ordinance, 1984 prepare a note (schedule) on disposal of the non-current assets at the end of the year 2008, which will form the part of the financial statements of Usman Limited. (b) Draft a suitable policy in respect of non-current assets to be included in the financial statements of Usman Limited for the year ended December 31, 2008.

05 05 05

10 05

THE END
4 of 4