2 March 2015
3 hours 100 marks
Additional reading time 15 minutes
The Institute of
Chartered Accountants
of Pakistan
Babar had purchased a running business from Razi on 1 January 2014 at a total agreed price
of Rs. 960,000. Babar died on 16 June 2014 and his son Sami took over the business. Sami
wants to assess the profitability of the business and for that purpose he has collected the
following information from the records maintained by him and his father:
(i)
Correspondence between Babar and Razi has revealed that they had agreed to value
the inventory and other assets of the business at Rs. 600,000 and Rs. 120,000
respectively. However, in view of Razis standing in the market, the deal had been
finalised at a lump sum price of Rs. 960,000 payable in two equal instalments. The
first instalment was paid by Babar from his personal account.
(ii)
Babar had opened a bank account in the name of the business. An analysis of the
bank statement revealed the following details:
(iii)
Receipts
Amount deposited by Babar on 1 January 2014 from his personal account
Day to day collections banked at day end
Rupees
2,000,000
3,800,000
Payments
Second instalment to Mr. Razi on 31 January 2014
Purchases
Lease rent
Electricity
Furniture purchased on 1 July 2014
480,000
3,150,000
120,000
22,000
25,000
Babar and Sami kept a notebook which shows that the following payments were
made out of daily sale proceeds before depositing them in the bank:
(iv)
(v)
(vi)
Rupees
184,300
49,500
35,600
192,500
On 31 August 2014, there was a burglary at the warehouse and inventory costing
Rs. 50,000 was stolen. Due to defect in the insurance policy, the insurance company
acknowledged the claim of Rs. 20,000 only, which was received on 5 November 2014.
On 31 December 2014, stock on hand costed Rs. 450,000. Cash in hand, trade
creditors and accrued expenses (electricity) amounted to Rs. 34,500, Rs. 82,500 and
Rs. 5,200 respectively.
Depreciation on fixtures and fittings is to be provided at the rate of 10% per annum.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31 December 2014 and
Balance Sheet as on 31 December 2014.
(20)
Q.2
Page 2 of 5
Trade Link Enterprises opened a branch at Lahore on 1 January 2014. The branch has
provided the following summary of transactions carried out by it during the year 2014 :
Rupees
21,732,000
15,846,250
4,753,875
36,220
108,660
9,055
70,629
6,385,000
250,000
1,448,800
537,100
144,880
724,400
Other information:
(i)
(ii)
(a)
HCL had agreed to provide services to NPL. The total contract price was Rs. 800,000
and HCL had initially expected to earn 25% profit on the contract. 50% of the work
had been completed at year end at the cost of Rs. 320,000. Soon thereafter, a dispute
arose on the quality of work and further work has been stopped pending settlement of
the dispute. HCL is however very confident of recovering the cost incurred on the
contract plus a margin of 10% above cost.
Required:
Discuss how much revenue should be recognised at the year end?
(b)
(12)
(02)
Saleem owns 10,000 shares in a listed company on 3 December 2014. On the same
date, the company declared a dividend of Rs. 2 per share on the basis of shares held
on 31 December 2014.
The dividend was paid by the company on 15 January 2015.
Required:
Prepare necessary journal entries relating to the dividend in the books of Saleem.
(c)
(d)
(02)
relating
to
this
transaction
for
the
year
ended
In the sale of goods how should the revenue be recognised when goods are shipped
subject to installation and inspection?
(04)
(04)
Q.4
Page 3 of 5
(a)
(b)
Following is the draft balance sheet of XYZ Limited as at 31 December 2014 which
was prepared by its accountant:
Rs. in
million
Leasehold land cost
250
Leasehold land accumulated amortisation
(200)
Building cost
1,000
Building accumulated depreciation
(500)
Machinery cost
1,750
Machinery accumulated depreciation
(1,150)
Long term deposit
70
Stocks
910
Account receivables net of provision
361
Cash and bank
851
3,342
Assets
(02)
Rs. in
million
1,000
1,816
200
228
85
13
3,342
Additional information:
(i)
Profit before tax and income tax expenses for the year amounted to Rs. 275
million and Rs. 13 million respectively.
(ii) Balances as at 31 December 2013 were as under:
Rs. in million
703
418
243
150
80
70
Stock
Account receivables net of provision
Cash and bank
Trade payables
Income tax payable
Long term deposit
The company follows a policy of maintaining provision for bad debts equal to
5% of account receivables.
(iii) The bank loan was obtained on 1 January 2014 and carries interest @ 9% per
annum.
(iv) XYZ uses straight line method for depreciation. Rates of depreciation are as
under:
Leasehold land
Building
Machinery
2%
5%
10%
Required:
Prepare a statement of cash flow as at 31 December 2014.
(20)
Q.5
(a)
(b)
Page 4 of 5
List the particulars that are required to be disclosed in the financial statements in
respect of inventories, according to IAS 2.
(03)
Soya Fry Limited manufactures Cooking Oil. Following information is available with
respect to purchases and overheads for the year ended 31 December 2014.
Details of purchases:
Raw material purchased (including 17% sales tax which
is refundable)
Packing material purchased
Settlement discount received on raw material purchases
Transportation cost relating to raw material (70%) and
packing material (30%)
Details of overheads:
Rent
Salaries and wages
Other variable overheads
Other fixed overheads
Rs. in 000
60,500
2,050
400
300
2,700
2,500
5,000
1,500
Other information:
(i)
(ii)
Rs. in 000
2,000
500
200
Break-up of salaries and wages, other variable and fixed overheads is as follows:
Allocation between
Manufacturing Administration
Salaries and wages
*60%
40%
Other variable overheads
80%
20%
Other fixed overheads
60%
40%
*Manufacturing salaries includes 70% direct wages to labourers
working in the factory which vary with the level of production.
(iii) Normal production level is 45,000 units per annum. Actual production during
the year was 40,000 units.
(iv) Opening and closing inventories are as follows:
Packing material
Raw material
Finished goods
Work in process
1-Jan-2014
31-Dec-2014
--------- Rs. in 000--------700
285
5,000
7,780
2,962
4,162
1,950
3,000
Goods costing Rs. 200,000 (2013: Rs. 300,000) are considered as obsolete and
have been fully provided. Further, closing stock of finished goods include goods
costing Rs. 75,000 which were damaged due to flood and can only be sold at
60% of its cost.
Required:
Disclose the above information in the note on Cost of goods sold as would appear in
the profit and loss account for the year ended 31 December 2014.
(17)
Q.6
Page 5 of 5
You have recently been appointed as chief financial officer of Al-Hafeez Limited (AHL).
While finalizing the companys financial statements for the year ended 31 December 2014,
you have observed the following issues:
(a)
Plant and equipment includes Machine A-31 at a carrying amount of Rs. 918,400
which was fabricated in-house by AHL in February 2014 by using existing plant and
machinery. The details are as follows:
Rupees
Direct material and labour
656,000
Depreciation existing plant and machinery
24,000
Administration costs
140,000
20% profit (normally charged to its customers)
164,000
984,000
Less: Depreciation for the year (10% of the cost for 8 months)
(65,600)
Carrying value of the machine at year-end
918,400
Direct material includes material lost due to fire amounting to Rs. 40,000.
The fabricated machine was transferred and available for use on 1 March 2014 and
was brought into commercial production on 1 May 2014.
(b)
(c)
(07)
AHL provides transportation services to its factory workers through its fleet of six
buses. The buses are depreciated on straight line basis. At the end of last year, the
buses had carrying value of Rs. 7 million and remaining useful life of 5 years.
On 1 July 2014, the local government promulgated a new legislation whereby all
public transport buses were required to undergo regular major inspection after a
period of three years. An inspection exercise of the fleet of buses was undertaken on
1 September 2014 at a cost of Rs. 1.8 million and this amount was capitalized in the
carrying amount of buses.
(04)
(03)
Required:
Explain the correct accounting treatment of the transactions by AHL and substantiate your
point of view with references to International Accounting Standards 16 Property, Plant
and Equipment. Also prepare the necessary journal entries.
(THE END)