FAR-1 Complete PP With Solutions

Certificate in Accounting and Finance Stage Examination
The Institute of 7 March 2018

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Financial Accounting and Reporting-I

Q.1 Kidz Party & Co. (KPC) manufactures and sells toys. Following information is available
regarding four of its inventory items as on 31 December 2017:
Normal
Cost per unit
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Items Units selling price
(Rs.)
per unit (Rs.)
Toy cars 10,000 1,250 1,200
Doll houses 5,000 1,800 2,700
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Stuffed toys 1,850 1,200 1,900
Minion costumes 870 1,500 2,500
Following information is also available:

(i) A sales order for 3,000 toy cars @ Rs. 1,100 per unit is in hand. The remaining units
Sh
can be sold at normal selling price after incurring selling cost of Rs. 150 per unit.
(ii) Doll houses include 1,000 defective units with no scrap value. 20% of the remaining
doll houses are damaged and can be sold at 50% of cost.
(iii) Stuffed toys costing Rs. 420,000 were accidentally damaged and are beyond repair.
KPC plans to sell these toys as scrap. Proceeds from such sale are estimated at
Rs. 175,000 and the sale would require transportation cost of Rs. 6,300.
(iv) All minion costumes have manufacturing faults and can be sold in present condition at
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Rs. 1,350 per unit. However, 60% of the units can be rectified at a cost of
Rs. 200 per unit after which they can be sold at Rs. 1,600 per unit.
Required:
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Calculate the amount at which above inventory items should be carried as on

31 December 2017 in accordance with IAS 2 ‘Inventories’. (08)
Q.2 (a) Define ‘performance obligation’. List any six examples of promised goods and
services as per IFRS 15 ‘Revenue from Contracts with Customers’. (05)
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(b) On 1 October 2017, Galaxy Telecommunications (GT) entered into a contract with a
bank for supplying 20 smart phones to the bank staff with unlimited use of mobile
network for one year. The contract price per smart phone is Rs. 34,650 and the price is
payable in full within 10 days from the date of contract. At the end of the contract, the
phones will not be returned to GT.
The entire amount received as per contract was credited by GT to advance from
customers account. The smart phones were delivered on 1 November 2017.
If sold separately, GT charges Rs. 18,000 for a smart phone and a monthly fee of
Rs. 1,800 for unlimited use of mobile network.
Required:
Prepare adjusting entry for the year ended 31 December 2017 in accordance with
IFRS 15 ‘Revenue from Contracts with Customers’. (04)
Compiled By: Sir Dawood Shahid CA(f), CPA, Mphil., MBA, OCE Page 1
Financial Accounting and Reporting-I Page 2 of 5
Q.3 Following information pertains to Nadir Limited:
Extract from statement of profit or loss for the year ended 31 December 2017
Rs. in ‘000
Profit before taxation 8,955
Taxation (2,945)
Profit after taxation 6,010
Extract from statement of financial position as on 31 December 2017

2017 2016 2017 2016
Equity and liabilities Assets
---- Rs. in ‘000 ---- ---- Rs. in ‘000 ----
Share capital 12,400 10,000 Property plant &
Share premium 1,400 - equipment – net 21,400 15,800
Retained earnings 13,450 12,440 Current assets:
id
Surplus on revaluation 4,000 - Stock-in-trade 5,600 5,750
Non-current liabilities: Trade receivables – net 6,840 4,446
Long-term loans 4,100 5,000 Other receivables 2,385 800
ah
Current liabilities: Cash & bank 2,355 3,204
Trade payables 1,900 1,400
Accruals & other payables 680 660
Tax liability 650 500
38,580 30,000 38,580 30,000
Other information:
Sh
(i) Shares issued during the year were as follows:
10% bonus shares in March 2017.
Right shares in July 2017.
(ii) During the year, a plant costing Rs. 9,500,000 and having a book value of
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Rs. 5,200,000 was disposed of for Rs. 4,800,000 of which Rs. 1,800,000 are still
outstanding.
(iii) Depreciation for the year amounted to Rs. 7,350,000.
(iv) Financial charges for the year amounted to Rs. 1,100,000. Accrued financial charges
as on 31 December 2017 amounted to Rs. 112,000 (2016: Rs. 48,000).
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(v) Provision for doubtful trade receivables is maintained at 5%.
Required:
Prepare statement of cash flows for the year ended 31 December 2017, in accordance with
IAS 7 ‘Statement of Cash Flows’ using indirect method. (15)
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Q.4 Following information pertains to Dhaka Enterprises (DE).
Jul-2017 Aug-2017 Sep-2017 Oct-2017 Nov-2017 Dec-2017

Production costs
------------------------------------ Rs. in '000 -----------------------------------
Direct material 1,375 1,500 1,750 1,250 1,125 1,000
Direct labour 990 1,080 1,260 900 810 720
Overheads 3,240 3,400 3,800 3,200 2,700 2,600
5,605 5,980 6,810 5,350 4,635 4,320
----------------------------------- No. of units -----------------------------------

Production 550 600 700 500 450 400
DE is preparing its budget for the next year, therefore, it would like to determine the
relationship between production units and cost.
Required:
(a) Using regression analysis, determine the line of best fit for production units and
overheads. (Show all necessary workings) (06)
(b) Compute total prime cost and overheads for production of 650 units. (02)
Q.5 A and B were partners sharing profits and losses in the ratio of 3:2. The balance sheet as on
31 December 2017 is given below:
Equity and liabilities Rupees Assets Rupees

Capital – A 35,810 Goodwill 2,000
Capital – B 26,540 Fixed assets – net 42,000
Profit and loss account 10,000 Investments 8,000
Trade creditors 32,650 Trade debtors 27,000
Provision for doubtful debts (2,000)
Stock-in-trade 20,000
Cash and bank balances 8,000
105,000 105,000
On 1 January 2018, they agreed to admit C for 1/4th share in the partnership. On admission
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of C, it has been agreed that:
value of goodwill of the firm is Rs. 32,000. Goodwill is to be written-off from the books.
assets would be revalued as follows:
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Revalued amount
Assets
(Rs.)
Fixed assets 60,000
Investments Sh 9,000
Stock-in-trade 18,000
provision for doubtful debts is to be made equal to 5% of the debtors.
C has contributed Rs. 38,000 in cash. Capital accounts of the old partners in the new
partnership would be adjusted in their new profit sharing ratio on the basis of C’s capital.
Any excess or deficiency would be adjusted through cash.
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Required:
Prepare partners’ capital accounts on admission of C. (12)
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Q.6 (a) Following information pertains to a building acquired by SK Limited (SKL) on

1 July 2012 for Rs. 360 million:
(i) The building is being depreciated on straight-line basis over 10 years.

(ii) SKL uses revaluation model for subsequent measurement of buildings. It
accounts for revaluation on net replacement value method. The details of
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revaluations as carried out by independent valuer are as follows:
Fair value
Revaluation date
(Rs. in million)
31 December 2013 323
(iii) There is no change in useful life of the building.

(iv) SKL transfers the maximum possible amount from the revaluation surplus to
retained earnings on an annual basis.
(v) SKL’s financial year ends on 31 December.
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation
date. (Entries to record depreciation expense, incremental depreciation and elimination of
accumulated depreciation are not required) (11)
(b) Following information pertains to three exchange transactions relating to fixed assets:
(i) (ii) (iii)
--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1) -
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1
Additional information:
In case of transaction (i), fair values of both assets are reliably measurable.
In case of transaction (ii), fair value of the asset received is clearly more evident.
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In case of transaction (iii), fair value of neither asset is reliably measurable.
Required:
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Compute gain or loss on disposal of fixed assets in each of the above transactions. (06)
Q.7 Boom Limited (BL) is a manufacturer of sports goods. Following financial statements for
the year ended 31 December 2017 have been submitted to the Chief Executive Officer
Sh
(CEO).
Statement of profit or loss
Rs. in ‘000
Revenues 21,000
Cost of sales (17,500)
Gross profit 3,500
Operating expenses (1,900)
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Finance cost (450)

Profit before tax 1,150
Taxation (345)
Profit after tax 805
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Statement of financial position

Rs. in ‘000
Property, plant and equipment 7,500
Current assets 1,500
9,000
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Share capital 4,000

Reserves 1,000
Non-current liabilities 3,000
Current liabilities 1,000
9,000
Although performance of BL has improved from the last year, CEO wants to compare the
results with other companies operating in sports manufacturing industry. In this respect,
following industry data has been gathered:
Gross profit margin 23.5%
Net profit margin 7.7%
Current ratio 2.75
Gearing ratio 50:50
Return on non-current asset 32.9%
Return on capital employed 27.4%
Return on equity 31.3%
Required:
(a) Compute BL’s ratios for comparison with the industry. (04)
(b) For each ratio, give one possible reason for variation from the industry. (07)
Q.8 Following information pertains to Alpha Traders (AT) for the year ended
31 December 2017:
(i) 60% goods are sold for cash to walk-in customers at list price. Remaining goods are
sold to corporate customers on credit at a trade discount of 2% on list price. They only
pay through cheques.
(ii) Balances extracted from AT’s records:
31-Dec-2017 31-Dec-2016
--------- Rs. in ‘000 ---------
Furniture and fittings – net ? 10,175
Stock-in-trade 14,500 12,300
Trade debtors – gross 5,900 4,400
Prepaid rent 180 145
Cash in hand 430 750
Trade creditors 9,700 8,500
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Accrued salaries 310 460
(iii) All furniture and fittings were purchased on 1 July 2015 and are depreciated using
straight-line method at 5% per annum.
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(iv) Provision for doubtful debts is maintained at 4%. During the year, balances totalling
Rs. 260,000 were written-off.
(v) Summarised bank statement:
Deposits Rs. in ‘000 Withdrawals Rs. in ‘000
Opening balance
Corporate customers
Sh 9,800
34,240
Utilities
Rent, rates and taxes
1,400
2,100
Cash 56,380 Repairs & maintenance 2,800
Insurance claim 5,500 Cash 6,320
Return outward 2,170 Creditors 87,200
Delivery charges recovered 330 Delivery truck (second hand) 2,300
Miscellaneous expenses 1,300
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Closing balance 5,000

108,420 108,420
(vi) Cash payments for the year:

Rs. in ‘000
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Salaries 6,500
Repairs & maintenance 500
Drawings ?
(vii) Insurance claim represents cost of goods lost in transit during the year.
(viii) A cheque of Rs. 300,000 issued on 15 December 2017 against rent, has not yet been
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presented whereas cheque from a debtor, deposited on 31 December 2017 amounting

to Rs. 3,200,000 is not appearing in the bank statement.
(ix) Creditors are paid through cheques only. Payments made to creditors include:
Rs. 48,000,000 after availing discount of 4%.
A cheque of Rs. 1,900,000 issued to a supplier in December 2016. No discount
was allowed by the supplier on this payment.
(x) The delivery truck was purchased on 1 March 2017. Prior to use, the truck was
repaired at a cost of Rs. 260,000. The repair work was completed on 31 March 2017.
The amount is included in payment for repairs and maintenance above. Depreciation
on delivery truck is charged on a straight-line basis at 12.5% per annum.
Required:
Prepare the following:
(a) Statement of profit or loss for the year ended 31 December 2017. (12)
(b) Statement of financial position as on 31 December 2017. (08)
(THE END)
Certificate in Accounting and Finance Stage Examination
The Institute of 8 September 2017

Q.1 A, B and C had been in partnership for many years sharing profits and losses in the ratio of
their fixed capital i.e. 3:2:1. The assets and liabilities appearing in the firm’s statement of
financial position as at 31 December 2016 were as follows.
Particulars Rupees
id
Non-current assets 500,000
Stocks 250,000
Debtors 200,000
Cash 300,000
ah
Current liabilities 150,000
On 31 December 2016, it was decided to dissolve the partnership. On the said date, the
current account balances of the partners were as follows:
Sh
A B C
Rs. 50,000 Rs. 30,000 Rs. (15,000)
Assets and liabilities were realized/settled as under:

(i) Debtors were taken by B at agreed value of Rs. 190,000.
(ii) A non-current asset having book value of Rs. 70,000 was taken by B at an agreed
value of Rs. 60,000.
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(iii) Certain assets which had not been recorded in the books were taken by C for
Rs. 80,000.
(iv) Remaining non-current assets and stocks were sold for cash amounting to Rs. 550,000
and Rs. 225,000 respectively.
(v) Current liabilities were settled at Rs. 155,000.
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(vi) Dissolution expenses of Rs. 30,000 were paid by A.
Required:
Prepare the following accounts to show the effect of dissolution:
(a) Realization (05)
(b) Partners’ capital (05)
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(c) Cash (02)
Q.2 The following information pertains to Sherdil Limited (SL):

(i) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and
Rs. 50 million respectively.
(ii) The relevant information relating to both assets is summarised below:
Depreciation Subsequent
Assets Life/rate
method measurement
Buildings Straight line 20 years Annual revaluation
Equipment Reducing balance 10% Cost
SL transfers the maximum possible amount from revaluation surplus to retained
earnings on an annual basis.
(iii) The revalued amount of buildings as determined by Accurate Valuers (Private)
Limited, an independent valuation company, on 1 January 2015 and 2016 was
Rs. 456 million and Rs. 378 million respectively.
(iv) Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the
equipment purchased on 1 January 2014 was disposed off on 30 June 2016.
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property
plant & equipment’ (including comparative figures) for inclusion in SL’s financial statements
for the year ended 31 December 2016. (18)
Q.3 Following is the trial balance of Younus Limited (YL) as on 30 June 2017:
Debit Credit
Particular Particular
Rs. in ‘000 Rs. in ‘000
Property, plant and equipment 200,000 Share capital (Rs. 10 each) 35,000
Receivables and advances 13,000 Un-appropriated profit 66,820
Office rent 1,120 5% Bank loan 52,000
Opening stock 54,000 Trade payables 10,000
id
Taxation 6,000 Accumulated dep. – 30 June 2017 120,000
Cash and bank 40,000 Sales 240,000
Purchases 170,000
Selling expenses 20,000
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Administrative expenses 17,000
Financial charges 2,700
523,820 523,820
The following additional information is available:

(i)
Sh
On 1 July 2016 engine of a delivery truck seized and was replaced at a cost of
Rs. 2 million on the next day. Rs. 1.2 million was paid in cash whereas the remaining
amount was adjusted against the trade in value of the seized engine. The payment was
charged to selling expenses.
The delivery truck was purchased on 1 July 2010. The cost of the delivery truck is
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Rs. 5 million of which approximately Rs. 1 million is attributable to the seized engine.
Delivery trucks are depreciated over their useful life of 10 years.
(ii) Certain goods despatched on 28 June 2017 reached YL’s warehouse on 2 July 2017.
Break-up of the amount paid against these goods is as follows:
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Rs. in ‘000
20% advance to supplier 500
Insurance in transit 50
Delivery charges 100
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The above amounts are appearing under the head ‘Receivables and advances’.
(iii) Cost of stock in hand as on 30 June 2017 is Rs. 50 million.

(iv) During the year, YL gave free samples to certain customers. The selling price and
gross profit on these goods was Rs. 5.4 million and 20% of cost respectively. No
adjustment has been made in the books in this regard.
(v) Office rent pertains to the period from July 2016 to December 2017 and is inclusive of
an upward revision of 10% with effect from 1 January 2017.
(vi) Bank loan was obtained on 1 July 2015. The principal is repayable in 20 equal
quarterly instalments. The principal along with interest is paid on the first day of the
next quarter.
(vii) Tax expense for the year is Rs. 7.7 million.
Required:
Prepare statement of financial position as at 30 June 2017 and statement of profit or loss for
the year ended 30 June 2017 in accordance with International Financial Reporting
Standards. (20)
Q.4 The following cost data pertains to Al-Khair Limited (AKL):
Production (Units) Cost (Rs.)

90000 712,500
70000 590,000
40000 440,000
20000 300,000
AKL has identified that total fixed costs increase by 20% when production exceeds
35000 units and the average variable costs for all units increase by 5% if production exceeds
75000 units.
Required:
(a) Construct total cost functions for different production ranges using high/low method.
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(b) Determine the most feasible option if AKL can sell 25000, 55000 and 80000 units at
Rs. 20, Rs. 17 and Rs. 13 respectively. (09)
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Q.5 Progressive Steel Limited (PSL) commenced business in 2015. The following comparative
data pertains to the year ended 30 June 2017:
PSL Industry
Description
Gross profit margin
Sh 2017
13%
2016
13%
2017
16%
Net profit margin 8% 7% 10%
Return on shareholders’ equity 22% 18% 25%
Current ratio 1.2 1.6 1.5
Debt to equity ratio 40:60 30:70 50:50
Cash operating cycle in days 119 135 118
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Required:
For each ratio/data give possible reasons for variation from comparative and industry data. (12)
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Q.6 (a) Jupiter Limited (JL) entered into a two year contract on 1 January 2017, with a
customer for the maintenance of computer network. JL has offered the following
payment options:
Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.
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The applicable discount rate is 6.596%.
Required:
Prepare journal entries to be recorded in the books of JL under each option over the (05)
period of contract.
(b) Pluto Limited (PL) sells industrial chemicals at following standalone prices:
Rupees
Products
(per carton)
C-1 100,000
C-2 90,000
C-3 110,000
PL regularly sells a carton each of C-2 and C-3 together for Rs. 170,000.
Required:
Calculate the selling price to be allocated to each product, in case PL offers to sell one
carton of each product for a total price of Rs. 260,000. (05)
(c) An entity shall recognise revenue when (or as) the entity satisfies a performance
obligation by transferring a promised good or service to a customer. An asset is
transferred when (or as) the customer obtains control of that asset.
Required:
List the different indicators of transfer of control. (04)
Q.7 Saleem is the owner of S-Mart, a grocery store. His accountant resigned and left on
1 January 2017. Saleem suspects that the previous accountant was involved in some sort of
misappropriation. The information available with him is as follows:
(i) Summary of bank statement:
id
Receipts Rupees Payments Rupees
Balance as at 1 Jan 2016 250,000 Suppliers 1,807,500
Cheques from debtors 824,000 Salaries 48,000
Cash sales 1,450,000 Rent 72,000
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Sale of old vehicle on 1 Jan 2016 15,000 Utilities 36,000
Other expenses 24,750
New vehicle on 1 Mar 2016 230,000
Balance as at 31 Dec 2016 320,750
2,539,000 2,539,000
(ii)
Sh
Other balances extracted from the records maintained by the previous accountant:
31-Dec-2016 31-Dec-2015
Particulars
---------- Rupees ----------
Furniture and fixtures – WDV 555,000 550,000
Equipment – WDV 64,000 80,000
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Vehicle – WDV 210,000 18,500

Inventory 215,000 250,000
Debtors 340,000 260,000
Advance rent - 3,000
Cash in hand 31,510 45,000
Creditors 354,500 100,000
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Salaries payable 22,000 18,000
(iii) Before depositing the receipts from cash sales in the bank, Saleem took Rs. 12,000 per
month for personal use. All other payments were made through bank and the debtors
settled their accounts through cheques.
(iv) The creditors have confirmed the balances due from them. However review of the
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statement provided by one of the creditors indicates that goods returned for cash
amounting to Rs. 24,000 were not recorded in the books.
(v) Unpaid invoice for furniture purchased during the year for Rs. 45,000 is included in
creditors.
(vi) The margin on cash sales and credit sales is 20% and 25% respectively. From 1 July
2016, prices to cash customers were further reduced by 6% due to which quantity sold
against cash in the 2nd half of the year increased by 25% as compared to the first half of
the year.
(vii) All the debtors confirmed their balances except an amount of Rs. 50,000. On
investigation it was found that the related goods had been issued against fake invoices.
Required:
(a) Determine the amount of suspected fraud. (04)
(b) Prepare statement of profit or loss for the year ended 31 December 2016. (11)
(THE END)
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
Ans.1 (a) Realization

Rupees Rupees
Non-current assets 500,000 Current liabilities 150,000
Stock 250,000 Non-current assets (Cash) 550,000
Debtors 200,000 Stock (Cash) 225,000
Current liabilities (Cash) 155,000 Debtors Capital B 190,000
Dissolution exp. (by A) 30,000 Capital B 60,000
Capital C 80,000
Gain on realization
A 60,000
B 40,000
id
C 20,000
1,255,000 1,255,000
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(b) Partnership capital account A B C Total
------------------------ Rupees ------------------------
Opening balance – in P&L ratio
(W-1) 517,500 345,000 172,500 1,035,000
Dissolution expenses 30,000 - - 30,000
Sh
Non-current assets taken over by B - (60,000) - (60,000)
Assets taken on by C - - (80,000) (80,000)
Debtors - (190,000) - (190,000)
Gain on realization 60,000 40,000 20,000 120,000
Current Account balances 50,000 30,000 (15,000) 65,000
Final settlement (Cash) (657,500) (165,000) (97,500) (920,000)
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- - - -
W-1: Partners’ capital Rupees

Non-current assets 500,000
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Stock 250,000
Debtors 200,000
Cash 300,000
1,250,000
Current liabilities (150,000)
Net assets 1,100,000
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Less: Current account balances (65,000)

Partners’ capital 1,035,000
(c) Cash
Rupees Rupees
Opening balance 300,000 Settlement of liabilities 155,000
Realization of assets 775,000 Final settlement A 657,500
B 165,000
C 97,500
1,075,000 1,075,000
Page 1 of 7
Suggested Answers
Ans.2 Property, plant and equipment 2016

Building Equipment
----------- Rs. in million -----------
Cost / Revalued amount
Opening 456.00 85.00
Cancellation (24.00)
Revaluation Surplus [28.5 – (28.5÷19)] (27.00)
Revaluation loss (27.00)
Disposal (25.00)
Closing 378.00 60.00
Accumulated depreciation
Opening 24.00 10.96
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Disposal [2.5 + 2.25+ 1.01] (5.76)
Depreciation
(378÷18) 21.00
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[(74.04-20.25)×10% + (20.25×10%×6÷12)] 6.39
Closing 21.00 11.59
Opening net book value Sh 432.00 74.04
Closing net book value 357.00 48.41
Property, plant and equipment 2015

Building Equipment
----------- Rs. in million -----------
Cost / Revalued amount
Opening 450.00 50.00
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Revaluation 28.50
Addition 35.00
Closing Cost 456.00 85.00
Accumulated depreciation
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Opening 22.50 5.00

Disposal
Depreciation
(456 ÷19) 24.00
[(45×10%)+(35×10%×5÷12)] 5.96
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Closing 24.00 10.96
Opening net book value 427.50 45.00
Closing net book value 432.00 74.04
Measurement base Revaluation model Cost model

Useful life 20 years 10 years
Depreciation method Straight line Reducing balance
The last revaluation was performed on 1 July 2016 by Accurate Valuers (Private) Limited, an independent
firm of valuers. Revaluations are performed annually.
Carrying value had the cost model been used instead 382.50 405.00
(450×0.80) (450×0.90)
Page 2 of 7
Suggested Answers
Ans.3 Younus Limited

As at 30 June 2017
2017
Rs. in ‘000
Non-current assets
Property, plant and equipment (W-1) 81,200
Current assets
Stock in trade [50,000+ (500÷0.2) + 50+ 100] 52,650
Receivables and advances [13,000–(500+50+100)] 12,350
Short term prepayments (1120 ÷ 1.6 × 0.55 ) 385
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Cash & Bank 40,000
105,385
Total assets 186,585
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Equity
Issued subscribed and paid up capital 35,000
Unappropriated profit (66,820+18,415) 85,235
120,235
Non-current liabilities
Long term loan (52000 – 16,000)
Sh 36,000
Current liabilities
Trade and other payables (10,000+(2,500–500) 12,000
Accrued markup (52,000 × 5% × 3 ÷12 ) 650
Current portion of long term financing (52,000 × 4 ÷ 13) 16,000
Taxation-net (7,700–6,000) 1,700
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30,350
Total equity and liabilities 186,585
Younus Limited
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Statement of profit or loss

For the year ended 30 June 2017
2017
Rs. in ‘000
Sales 240,000
Cost of sales (54,000+170,000–50,000 -4,500) (169,500)
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Gross profit 70,500

Selling and distribution expenses (20,000 –1,200+500–100+ 4,500) (23,700)
Administrative expenses (17,000+ 735) (17,735)
Operating profit 29,065
Financial charges ( 2,700+ 650) (3,350)
Other operating income ( 800– 400) 400
Profit before taxation 26,115
Taxation (7,700)
Profit for the year 18,415
W-1: Property, plant and equipment Cost Accumulated Book value

Rs. in ‘000
Given 200,000 120,000 80,000
Reversal of old engine depreciation (1,000×10%) (100) 100
Disposal of old engine (1,000) (600) (400)
Cost of new engines 2,000 2,000
Depreciation of new engine (2,000÷4×25%) 500 (500)
201,000 119,800 81,200
Page 3 of 7
Suggested Answers
Ans.4 (a) Units Cost (Rs.)

High 70,000 590,000
Low 40,000 440,000
30,000 150,000
Workings: Rupees
Variable cost 150,000/30,000 5.00
Total cost for 20,000 units 300,000

Variable cost at 20,000 units (5×20,000) 100,000
Fixed cost if production is upto 35,000 units 200,000
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Fixed cost if production exceeds 35,000 units (200,000×1.2) 240,000
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Increase in variable cost if production exceeds 75,000 units (5×1.05) 5.25
Cost function
Up to 35,000 units: 200,000+5x
35,001–75,000 units:
More than 75,000 units:
Sh
240,000+5x
240,000+5.25x
(b) Quantity Sales (Rs.) Cost (Rs.) Profit (Rs.) Remarks

25,000 500,000 325,000 175,000
55,000 935,000 515,000 420,000 Feasible option
80,000 1,040,000 660,000 380,000
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Ans.5 Reasons for fluctuation with

Ratios Reason for fluctuation with Industry
previous year
Gross profit In line with previous year. No variation. Lower than industry
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margin  The company is in initial phase and may

have kept the selling prices lower than the
industry to gain the market share.
 The company may not have been able to
purchase raw material at prices which is
available to its competitors.
 The company may not have been able to
Da
obtain economies of scale in its

production which may have been obtained
by its competitors.
 Possibility of higher production costs.
Net profit Higher than previous year: Lower than industry however, the difference
margin  Tight control over operating costs. is mainly attributed to lower gross profit
 Increase in other income. margin.
 Decrease in fixed cost per unit due to
increase in sale.
Return on Higher than previous year: Lower than industry

shareholder's  Reduction in tax rates.  Lower gross profit and net profit margins.
equity  Reduction in interest rates.  Lower leverage.
 Decrease in equity might be due to  Higher net assets resulting in higher
buyback of shares. equity.
 Distribution of profits from previous year
which resulted in decrease in equity.
Page 4 of 7
Suggested Answers
Current ratio Lower than previous year: Lower than industry

 The company might have obtained  Since the debt equity ratio is lower than
running finance facility to fund it's the industry, company might have
operations in the current year. obtained running finance or might have
 Long term loan payments might have availed extended credit terms from
become due in the next 12 month, which suppliers.
decreases the current ratio.
 Decrease in current assets due to better
inventory management/ reduction in
credit period of debtors.
Debt to equity Higher than previous year Lower than industry
ratio  Decrease in reserves due to dividend pay-  Being a new entrant the company may be
out. in the phase of expansion thereby raising
id
 Further debt obtained during the period. debt accordingly.
 Decrease in equity might be due to
buyback of shares.
Cash operating Lower than previous year In line with industry.
ah
cycle  Increase in current liabilities might be due
to increase in credit period.
 Decrease in current assets which might be
due to greater stock turnover or better
inventory management. Sh
 By giving lower credit days to debtors.
od
wo
Da
Page 5 of 7
Suggested Answers
Ans.6 (a) Option 1: Lump sum payment

Debit Credit
Date Description
---------- Rupees ----------
01-01-17 Cash 200,000
Contract liability 200,000
31-12-17 Interest expense 13,193
Contract liability (200,000×6.596%) 13,193
31-12-17 Contract liability 110,000
Revenue 110,000
31-12-18 Interest expense 6,807
Contract liability 6,807
id
(200,000+13,192–110,000)×6.596%
31-12-18 Contract liability 110,000
Revenue 110,000
ah
Option 2: Normal payment terms
Debit Credit
Date Description
---------- Rupees ----------
31-12-17 Cash 110,000
31-12-18
Revenue
Cash
Sh 110,000
110,000
Revenue 110,000
(b) DISCOUNT ALLOCATION
Stand alone 1st discount Price after 2nd discount Price after
Chemical price allocation 1st discount allocation 2nd discount
------------------------------------------- Rupees -------------------------------------------
od
C-1 100,000 - 100,000 3,704 96,296

(100,000×10,000/270,000)
C-2 90,000 13,500 76,500 2,833 73,667
(90,000×30,000/200,000) (76,500×10,000/270,000)
C-3 110,000 16,500 93,500 3,463 90,037
(110,000×30,000/200,000) (93,500×10,000/270,000)
wo
300,000 30,000 270,000 10,000 260,000
(c) Indicators of transfer of control include the following:

 The entity has a present right to payment for the asset
 The customer has legal title
 The customer has physical possession (except in case of bill and hold, consignment
Da
sales and repos)

 The customer has significant risks and rewards of ownership of the asset
 The customer has accepted the asset
Ans.7 (a) Loss due to defalcation Rupees

Cash embezzled through purchase returns 24,000
Stock embezzled through fake debtors (500,000×0.75) 37,500
Cash defalcated from cash sales (W-1) 50,740
112,240
W-1: Cash account Rupees
Opening balance 45,000
Add: Cash sales 1,631,250
Less: Drawings (144,000)
Payment into bank (1,450,000)
Closing balance of cash (31,510)
Cash defalcated 50,740
Page 6 of 7
Suggested Answers
(b) Statement of profit or loss ------------ Rupees ------------

Total cash sales (1,687,500 -56,250) (W-2) 1,631,250
Total credit sales (W-4) 854,000
2,485,250
Less: Cost of goods sold
Opening inventory 250,000
Purchases (W-3) 2,017,000
Less: Return outward (Alternatives are available) (24,000)
Stock misappropriated (37,500)
Less: Closing stock (215,000) (1,990,500)
Gross profit 494,750
id
Less: Operating expenses
Rent expenses (72,000+3,000) 75,000
Utilities 36,000
Other expenses 24,750
ah
Loss on sale of vehicle (15,000–18,500) 3,500
Salaries expense (48,000–18,000+22,000) 52,000
Loss due to defalcation 112,240
Depreciation: Furniture (550,000+45,000–555,000) 40,000
Equipment (80,000–64,000) 16,000
Sh
Vehicle (230,000–210,000) 20,000 (379,490)
Net profit 115,260
W-2: Total cash sales

Cost Gross sales Discount (6%)
Period Ratio
----------------- Rupees -----------------
od
First six month 1 600,000 750,000 -

Second six months 1.25 750,000 937,500 56,250
Total (W-5)1,350,000 1,687,500 56,250
wo
W-3: Creditors Rupees

Closing balance (354,500–45,000) 309,500
Add: Payment during the year 1,807,500
2,117,000
Less: Opening balance (100,000)
Purchases during the year 2,017,000
Da
W-4: Debtors Rupees

Closing balance (340,000–50,000) 290,000
Add: Receipts during the year 824,000
1,114,000
Less: Opening balance (260,000)
Credit sales 854,000
Cost of goods sold credit sales (854,000×75%) 640,500
W-5: Cost of goods sold Rupees

Total Cost of goods sold (P&L) 1,990,500
Less: Cost of credit sales (W-3) (640,500)
Cost of cash sales 1,350,000
(THE END)
Page 7 of 7
Certificate in Accounting and Finance Stage Examinations

Q.1 The accountant of Leisure Club was terminated on account of charges of fraud on
31 December 2016 and Mr. Emad has been appointed in his place. Emad has gathered the
following information in respect of the year ended 31 December 2016:
(i) The club has 3,300 members and the membership fee is Rs. 10,000 per annum. The
id
fee payable by each member becomes due on the first day of the quarter in which he
became a member. The fee received in each quarter was as follows:
ah
Quarter First Second Third Fourth
Subscription received (Rs.) 9,900,000 8,250,000 5,500,000 9,350,000
Last year the fee was Rs. 9,000 per annum. However, the number of members was the
same. Sh
(ii) A summary of the bank account for the year is shown below:
Deposits Rupees Withdrawals Rupees
Balance as at 1 Jan. 2016 3,700,500 Insurance 175,000
Cash deposited into bank 37,848,500 Rent and rates 4,200,000
Written off amount recovered 1,860,000 Utilities 4,365,000
Disposal of fixed assets 750,000 Freehold land purchased 17,000,000
od
Members subscription received Cash withdrawals from bank 6,120,000

directly in bank account 19,800,000 Payment to creditors 18,155,000
Repairs and maintenance 700,000
Exercise equipment 7,350,000
Balance as at 31 Dec. 2016 5,894,000
wo
63,959,000 63,959,000
(iii) Amounts paid from petty cash were as follows:

Rupees
Salaries 2,300,000
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Sundry expenses 640,000
(iv) The club has a tuck shop which earns a profit margin of 20% of sales. All sales of tuck
shop are made on cash. During the year, stock costing Rs. 500,000 was destroyed by
fire.
(v) The opening WDV of fixed assets was Rs. 28,000,000. Exercise equipment was
purchased on 1 October 2016. Fixed assets having opening WDV of Rs. 800,000 were
disposed off on 31 March 2016. Fixed assets are depreciated @ 20% under the
reducing balance method.
(vi) The opening and closing balances of cash in hand were Rs. 300,000 and Rs. 25,000
respectively.
(vii) The following balances have been extracted through a scrutiny of the available
records:
2016 2015
------- Rupees -------
Creditors 3,330,000 2,500,000
Prepaid rent 175,000 168,000
Stock- tuck shop 2,500,000 2,300,000
Required:
(a) Determine the amount of loss incurred by the club due to fraud committed by the
previous accountant. (09)
(b) An income and expenditure account for the year ended 31 December 2016. (05)
(c) Statement of financial position as at 31 December 2016. (06)
Q.2 (a) Define the term ‘performance obligation’ and state the criteria which should be met if
goods or services promised to a customer are to be considered as distinct. (04)
(b) (i) ECL has entered into a contract with Kashif Builders for construction of a
residential project, including supply of construction material, architectural
services, engineering and site clearance. ECL and its competitors provide such
services separately also. (03)
id
(ii) eSolutions Limited, a software developer, entered into a two year contract with a
customer to provide software license including future software updates and post
implementation support services. The software license would remain functional
ah
even if the updates and post implementation support services are discontinued. (03)
Required:
In view of the requirements of IFRS 15 ‘Revenue from Contracts with Customers’,
discuss whether goods and services provided in each of the above contracts represent a
single performance obligation.
Sh
(c) State the disclosure requirements for assets carried at revalued amounts, as referred to
in IAS – 16 ‘Property, Plant and Equipment’. (04)
Q.3 Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is
produced using raw material A1. Production is carried out after receiving confirmed sales
od
order. Following information is available for the month of January 2017:

(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.
(ii) Details of purchases made during the month ended 31 January 2017 are as follows:
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Date Quantity (kg) Price per kg (Rs.)

1-Jan-17 250 2,800
15-Jan-17 250 2,900
50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16
January 2017 due to inferior quality of material supplied.
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(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.
(v) Labour cost per liter of B2 was Rs. 700.
(vi) Overheads are estimated at 120% of labour cost. The actual overheads for the month
were Rs. 275,000.
(vii) There is no opening and closing work in progress.
(viii) Sales of B2 during the month of January were as follows:
Quantity Sales price per
Sale order date Delivery date
(liters) liter (Rs.)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250
(ix) NML uses weighted average method for valuation of inventory.
Required:
Prepare cost of goods sold statement for the month of January 2017 under each of the
following methods:
(a) Perpetual inventory method (10)
(b) Periodic inventory method (05)
Q.4 Complex Industries (CI) is engaged in the manufacturing of a specialized product.

Maximum production capacity of CI is 480,000 units per month.
The number of units produced and total production cost, during the past six months were as
follows:
Production cost
Months Units in ‘000’
Rs. in ‘000’
January 280 6,056
February 232 5,080
March 305 6,552
April 320 6,840
May 230 5,064
June 200 4,800
id
The management is considering to increase the capacity utilization to 85%, 90% or 95%. It
is estimated that if capacity utilization is increased to 90% or more, the fixed costs would
increase by Rs. 100,000 per month.
ah
Required:
Determine the expected cost at each of the three desired levels, using regression analysis and
identify the most beneficial option. (12)
Q.5
Sh
A & B are partners in a firm sharing profits and losses in the ratio of their capital i.e. 3:2.
The statement of financial position of the firm as at 31 December 2016 was as under:

Equity and liabilities Rupees Assets Rupees
Capital – A 1,440,000 Fixed assets 1,300,000
Capital – B 960,000 Debtors - net of 5% provision 1,500,000
od
General reserve 800,000 Other current assets 1,800,000

Loan from C 600,000
Creditors 800,000
4,600,000 4,600,000
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Profits of the firm for the last three years were as follows:
2016 2015 2014

---------------- Rupees ----------------
1,250,000 800,000 950,000
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On 1 January 2017, C who is the son of A, was admitted as a partner under the following
terms and conditions:
(i) Goodwill is to be valued at two years purchase of average profit of the last three years.
However, it was agreed that following adjustments would have to be incorporated
before the computation of goodwill.
− A sale return of Rs. 200,000 on 1 January 2014 was debited to fixed assets. The
firm charges depreciation @ 20% on written down value of fixed assets.
− A debtor balance of Rs. 300,000 was settled against the amount due to the same
customer, in the year 2016. This adjustment was not recorded in the books.
(ii) C’s share of profit would be 20% of which 5% share would be ceded to him by A. The
remaining share would be purchased by C from B.
(iii) Loan from C would be treated as his capital injection.
(iv) The total capital of the new firm will be Rs. 3,500,000. Any excess or shortage will be
settled through cash.
Required:
Prepare partner’s capital account. (12)
Q.6 The statement of financial position of Liaquat Industries as at 31 December 2016 is as

follows:
2016 2015 2016 2015
-------- Rupees -------- -------- Rupees --------
Owner’s capital 13,938,060 13,665,280 Freehold land 4,778,400 6,600,000
Long-term loan 1,000,000 1,000,000 Building – WDV 5,057,600 4,171,200
Short term loan 1,331,200 1,531,200 Vehicle – WDV 600,000 800,000
Accounts payable 417,120 694,320 Equipment – WDV 1,643,100 2,112,000
Accrued interest 105,600 63,360 Capital work in progress 1,478,400 1,821,600
Long-term deposits 580,800 448,800
Inventory 685,608 320,628
Accounts receivable 1,273,272 595,452
Cash 694,800 84,480
16,791,980 16,954,160 16,791,980 16,954,160
id
The following information has been extracted from income statement:
Rupees
Depreciation expenses 932,500
ah
Finance cost 141,872
Gain on sale of fixed assets (net) 98,960
Net profit before tax 1,525,948
(i)
Sh
Details of gain on sale of fixed assets are as follows:
Rupees
Gain on sale of freehold land 168,960
Loss on disposal of equipment due to fire (70,000)
98,960
od
The loss on disposal of equipment represents the WDV of the equipment. The
amount of insurance claim received, amounting to Rs. 30,000 was erroneously
credited to accumulated depreciation.
(ii) Repairs to building amounting to Rs. 50,000 were erroneously debited to building
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account on 31 December 2016.

(iii) Transfers from capital work in progress to building amounted to Rs. 1,200,000.
(iv) The owner withdrew Rs. 150,000 per month.
Required:
Prepare statement of cash flows for the year ended 31 December 2016, in accordance with
Da
IAS – 7 using indirect method. (12)
Q.7 (a) The following information has been gathered by an analyst, in respect of Dairy Foods
Limited (DFL) which specializes in various dairy products.
Industry
Ratio 2016 2015 2014
average
Profit margin % 11% 10% 8% 10.45%
Quick ratio 1.38 1.40 1.42 1.52
Current ratio 1.84 1.67 1.59 1.73
Days purchases in payables 80 91 89 82
In the latest annual report to the shareholders, Directors of DFL have claimed that
liquidity position of the Company has improved significantly.
Required:
Critically analyze and discuss whether you agree with the claim. (03)
(b) Extracts from latest financial statements of two companies are as follows:
Extracts from statements of financial position

A B A B
Rs. in million Rs. in million
Equity and reserves 51,690 72,114 Fixed assets 34,460 48,076
Long term loan - 36,057 Stock in trade 21,700 20,000
Trade creditors 35,790 45,135 Trade debtors 24,470 44,030
Other payables 12,000 8,500 Cash and bank 18,850 49,700
99,480 161,806 99,480 161,806
Extracts from statements of comprehensive income

A B
------ Rs. in million ------
id
Revenue 161,600 220,150
Cost of sales (135,160) (180,520)
Gross profit 26,440 39,630
ah
Operating expenses (9,840) (13,870)
Interest expense (720) (2,313)
Profit before tax 15,880 23,447
Income tax (333) (409)
Profit after tax 15,547 23,038
Sh
Required:
Analyze the profitability, liquidity and working capital ratios of both the companies. (12)
(THE END)
od
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Da
Suggested Answer
Certificate in Accounting and Finance – Spring 2017
A.1 (a) Determination of amount of loss incurred due to fraud Rupees

Opening cash balance 300,000
Cash receipts
Collection from members [(3,300×10,000) – 19,800,000] 13,200,000
Bank withdrawals 6,120,000
Tuck shop sales (W-2) 22,856,250
42,176,250
Cash payments
Salaries (2,300,000)
Sundry expenses (640,000)
id
Cash deposited into bank (37,848,500)
(40,788,500)
Closing cash should have been 1,687,750
ah
Closing cash-actual (25,000)
Loss due to fraud 1,662,750
(b) Income and expenditure account

Income Rupees
Subscription income (W-1)
Sh
Income from tuck shop (22,856,250(W-2) – 18,285,000 (W-2))
31,817,500
4,571,250
Other income – Bad debts recovered 1,860,000
38,248,750
Expenditures
Salaries 2,300,000
Insurance 175,000
od
Rent expense (168,000 + 4,200,000 – 175,000) 4,193,000

Utilities 4,365,000
Repair and maintenance 700,000
Depreciation (W-3.1) 5,847,500
Sundry expenses 640,000
wo
Loss on disposal [750,000 – (800,000 – 40,000)] 10,000

Loss of inventory due to fire 500,000
Loss due to fraud 1,662,750
20,393,250
Excess of income over expenditures 17,855,500
Da
(c) Statement of Financial Position

2016 2016
Fund and Liabilities Assets
Rupees Rupees
Accumulated fund (Balancing) 39,181,500 Fixed asset - WDV (W-3) 45,742,500
Creditors 3,330,000 Stock 2,500,000
Unearned subscription (W-1) 11,825,000 Prepaid rent 175,000
Cash and bank (5,894,000+25,000 ) 5,919,000
Total fund and liabilities 54,336,500 Total assets 54,336,500
W-1: Determination of subscription income 2015

Rupees
Opening unearned subscription income (11,825,000(W-1.1)×9/10) 10,642,500
Add: Receipts for the year (3,300×10,000) 33,000,000
Less: Closing unearned subscription income (W-1.1) (11,825,000)
Subscription income for the year 31,817,500
W-1.1: Closing unearned subscription income
Page 1 of 8
Suggested Answer
Quarter – 1 -
Quarter – 2 (8,250,000×3/12) 2,062,500
Quarter – 3 (5,500,000×6/12) 2,750,000
Quarter – 4 (9,350,000×9/12) 7,012,500
11,825,000
W-2: Tuck shop sales & cost of sales

Opening stock 2,300,000
Add: Purchases of stock (W-2.1) 18,985,000
Less: Loss due to fire, charged to expenditures (500,000)
Less: Closing stock (2,500,000)
id
Cost of goods sold 18,285,000
Sales (18,285,000/0.80) 22,856,250
ah
W-2.1: Purchases of tuck shop
Closing creditors 3,330,000
Add: Payments to creditors 18,155,000
Less: Opening creditors (2,500,000)
Purchases
Sh 18,985,000
W-3: Fixed assets and depreciation

Opening WDV before disposal 28,000,000
Add: Addition (7,350,000 + 17,000,000) 24,350,000
Less: WDV of assets disposed off (800,000 – 40,000) (760,000)
od
Less: Depreciation for the year (W-3.1) (5,847,500)

Closing WDV 45,742,500
W-3.1: Depreciation
Depreciation on opening WDV [(28,000,000–800,000)×20%] 5,440,000
wo
Depreciation on disposed asset (800,000×20%×3/12) 40,000

Depreciation on addition (7,350,000×20%×3/12) 367,500
Depreciation for the year 5,847,500
Da
A.2 (a) Performance obligation

Performance obligation is a promise in a contract with a customer to transfer to the
customer either:
 a good or service (or a bundle of goods or services) that is distinct; or
 a series of distinct goods or services that are substantially the same and that
have the same pattern of transfer to the customer.
A good or service is distinct if both of the following criteria are met:

 the customer can benefit from the good or service either on its own or together
with other resources that are readily available to the customer; and
 the entity’s promise to transfer the good or service is separately identifiable
from other promises in the contract.
(b) (i) The different services being performed under the contract are separately
identifiable but the customer cannot benefit from a services separately from the
other.
Based on this, ECL should account for services in the contract as a single
performance obligation.
Page 2 of 8
Suggested Answer
(ii) Transfer of software license, software updates and support services are distinct.
However, the software license is delivered before the other services and
remains functional without updates and technical support. Further, the
customer can benefit from each of the services either on their own or together
with other services that are readily available. Thus, the entity’s promise to
transfer the good or service is separately identifiable from other promises in the
contract.
Based on the above, the contract should not be accounted for as a single
performance obligation.
id
(c) When items of property, plant and equipment are stated at revalued amounts the
following must be disclosed:
 The effective date of the revaluation;
ah
 Whether an independent valuer was involved;
 For each revalued class of property, plant and equipment, the carrying amount
that would have been recognised had the assets been carried under the cost
model; and
 The revaluation surplus, indicating the change for the period and any
Sh
restrictions on the distribution of the balance to shareholders.
A.3 (a) Perpetual Inventory

Material A1
Quantity Per unit
Date Description Amount
(kg) cost
od
------------- Rupees -------------

31-Dec-16 Opening stock 200 3,000.00 600,000
1-Jan-17 Purchase 250 2,800.00 700,000
Balance 450 2,888.89 1,300,000
2-Jan-17 Issuance (100×5/4) (125) 2,888.89 (361,111)
Balance 325 2,888.89 938,889
wo
15-Jan-17 Purchase 250 2,900.00 725,000

Balance 575 2,893.72 1,663,889
16-Jan-17 Purchase return (50) 2,900.00 (145,000)
Balance 525 2,893.12 1,518,889
18-Jan-17 Abnormal loss (100) 2,893.12 (289,312)
Balance 425 2,893.12 1,229,577
Da
26-Jan-17 Issuance (160×5/4) (200) 2,893.12 (578,624)

Balance 225 2,893.12 650,952
Cost of goods sold

Labour @ Rs. FOH @ 120% Cost of goods
Date Description
Material 700 per litre of labour sold
------------------------------- Rupees -------------------------------
4-Jan-17 Sale (100 litres) 361,111 70,000 84,000 515,111
28-Jan-17 Sale (160 litres) 578,264 112,000 134,400 824,664
939,375 182,000 218,400 1,339,775
Under-absorption of overheads (275,000–218,400) 56,600

Total cost of goods sold 1,396,375
Page 3 of 8
Suggested Answer
(b) Periodic Inventory Quantity Rate Rupees

Opening inventory 200 3,000.00 600,000
Purchases 250 2,800.00 700,000
Purchases 250 2,900.00 725,000
Purchase return (50) 2,900.00 (145,000)
Balance 650 2,892.31 1,880,000
Cost of goods sold statement Rupees

Cost of raw material (325×2,892.31) 940,001
Labour (700×260) 182,000
Overheads – Actual 275,000
id
A.4 Production units Production costs
ah
(units in ‘000) (Rs. in ‘000) (x2) (xy)
(x) (y)
280 6,056 78,400 1,695,680
232 5,080 53,824 1,178,560
305 6,552 93,025 1,998,360
320
Sh
6,840 102,400 2,188,800
230 5,064 52,900 1,164,720
200 4,800 40,000 960,000
1,567 34,392 420,549 9,186,120
𝑛(∑ 𝑥𝑦) − (∑ 𝑥)(∑ 𝑦) 6(9,186,120) − (1,567)(34,392)

𝑏(𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒) = = = 18.06
od
𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 6(420,549) − (1,567)2

(∑ 𝑦) − 𝑏(∑ 𝑥) (34,392) − (18.06)(1,567)
𝑎(𝐹𝑖𝑥𝑒𝑑) = = = 1,015.33
𝑛 6
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Total Incremental
Units
Capacity production cost of Total cost Cost per unit
produced in
utilization cost y=a+bx repairs (Rs.)
‘000
---------------- Rs. in ‘000 ----------------
85% 408 8,383.81 - 8,383.81 20.55
90% 432 8,817.25 100 8,917.25 20.64
Da
95% 456 9,250.69 100 9,350.69 20.51
The most beneficial option is the production at 95% capacity level where per unit cost is at
minimum.
Page 4 of 8
Suggested Answer
A.5 PARTNERS' CAPITAL ACCOUNT

A B C A B C
-------------- Rupees -------------- -------------- Rupees --------------
Error rectification (W-1) 52,440 34,960 - Opening capital 1,440,000 960,000 -
*2
Goodwill-new ratio 1,067,954 485,434 388,347 General reserve 480,000 320,000 -
Share gifted to C (W-4) 252,717 *1
Goodwill-old ratio 1,165,040 776,694 -
15% share sold to C(W-4) 758,150 Share gifted by A(W-4) 252,717
Balance c/f 1,711,930 778,150 622,520 15% share purchased(W-4) 758,150
3,085,040 2,056,694 1,010,867 3,085,040 2,056,694 1,010,867
Balance b/f 1,711,930 778,150 622,520

Loan - - 600,000
*3
Closing balance 1,925,000 875,000 700,000 Bank (balancing) 213,070 96,850 (522,520)
1,925,000 875,000 700,000 1,925,000 875,000 700,000
id
*1
A: 1,941,734(W-2)×3/5, B: 1,941,734(W-2)×2/5
*2
A: 1,941,734(W-2)×55%(W-3), B: 1,941,734(W-2)×25%(W-3), C: 1,941,734(W-2)×20%(W-3)
*3
A:3,500,000×55%(W-3), B: 3,500,000×25%(W-3), C: 3,500,000×20%(W-3)
ah
W-1: Rectification of errors Rupees
Decrease in sales (200,000)
Decrease in depreciation expense
2014 (200,000×20%) 40,000
2015 [(200,000–40,000)×20%]
2016 [(200,000–40,000–32,000)×20%]
Sh 32,000
25,600
97,600
Reversal of provision (300,000×5%) 15,000
(87,400)
W-2: Goodwill of the firm

od
Average profit of the last three years [(1,250,000+800,000+950,000–87,400)/3] 970,867

Goodwill (970,867×2) 1,941,734
W-3: Computation of revised profit’s sharing ratio of partners

wo
A (60% – 5%) = 55%; B [40% – (20% – 5%)]=25%; C= 20%
W-4: Share purchase/transfer Rupees

Partner’s capital (1,440,000+960,000) 2,400,000
General reserve 800,000
Error rectification (87,400)
Da
Goodwill 1,941,734
Total capital of old firm 5,054,334
Share gifted by A (5,054,334×5%) 252,717

Share purchased from B (5,054,334×15%) 758,150
Page 5 of 8
Suggested Answer
A.6 Cash flows from operating activities Rupees

Net profit before tax (1,525,948 – 50,000+ 30,000) 1,505,948
Adjustments for:
Depreciation expenses 932,500
Gain on disposal (70,000 – 30,000 – 168,960) (128,960)
Finance cost 141,872
Adjusted profit before working capital changes 2,451,360
Working capital changes:
Accounts receivable (595,452 – 1,273,272) (677,820)
Inventory (320,628 – 685,608) (364,980)
id
Accounts payable (417,120 – 694,320) (277,200)
Net cash from operating activities 1,131,360
Cash flows from investing activities
ah
Proceed from sale of fixed assets (W-2) 2,020,560
Capital expenditure (1,821,600 – 1,200,000 – 1,478,400) (856,800)
Long term deposits (448,800 – 580,800) (132,000)
Net cash from investing activitiesSh 1,031,760
Cash flow from financing activities
Interest paid (105,600 – 63,360 – 141,872) (99,632)
Drawing made by the owner (150,000×12) (1,800,000)
Amount injected by the owner (W-1) 546,832
Repayment of short term loan (1,331,200 – 1,531,200) (200,000)
Net cash used in financing activities (1,552,500)
od
Net increase in cash and cash equivalents 610,320

Cash at the beginning of year 84,480
Cash at the end of year 694,800
W-1: Movement in capital account
wo
Opening capital 13,665,280

Less: Drawings (150,000×12) (1,800,000)
Add: Profit (1,525,948–50,000+30,000) 1,505,948
13,371,228
Less: Closing capital (13,938,060+30,000–50,000) 13,918,060
Capital injected 546,832
Da
W-2: Disposal proceeds from sale of fixed assets

Freehold land – Opening 6,600,000
Lees: Freehold land – Closing (4,778,400)
Disposal cost 1,821,600
Add: Gain on disposal of freehold land 168,960
Sale proceeds from disposal of freehold land 1,990,560
Insurance claim received against fixed assets 30,000
2,020,560
Page 6 of 8
Suggested Answer
A.7 (a) While analyzing liquidity positions of DFL, it is noted that current ratio has steadily
increased over the years and is better than industry average. However, the quick ratio
has steadily declined and is even lower then industry average. This is a clear evidence
that the increase in liquidity is caused by an increase in inventory.
Further, by considering the nature of highly perishable inventories kept by a dairy

food company, it is a possibility that DFL may bear high inventory losses due to
short expiry.
Based on the above, I do not agree with the claim of DFL’s directors.
(b) Profitability ratios A B
id
Gross profit ratio (GP ÷ sales) 16.36% 18.00%
Profit to sales (Profit after tax ÷ sales) 9.62% 10.46%
Return on capital employed (Profit before interest and tax ÷ capital
ah
employed) 32.11% 23.81%
Return on asset employed (Profit before interest and tax ÷ assets) 16.69% 15.92%
Company B's gross profit and net profit ratio is slightly higher as compared to
Sh
Company A. The difference is not significant and may be on account of higher level
of sales resulting in lesser fixed costs per unit.
Company A’s return on capital employed ratio and return on asset employed ratio
are better than Company B, because Company B has accumulated large balances of
cash despite of availing long term loan. Had Company B had used its cash balances
to pay off the long term loan, it would have both of these ratio better than Company
od
A.
Liquidity Ratios A B
Current ratio (current assets ÷ current liabilities) 1.36 2.12
Quick ratio (current asset-inventory ÷ liabilities) 0.91 1.75
wo
Company B has better current and quick ratio. However, it appears that these ratios
are better than Company A due to substantially high amount of trade debts in term
of percentage of sales as sales days. It also represents a risk that these trade debts may
prove irrecoverable. Moreover, they may be indicative of inefficient in debt collection
as well.
Da
Working capital turnover ratios A B

Stock turnover days (Stock ÷ Cost of goods sold × 365) [A] 58.60 40.44
Debtor turnover days (Debtor ÷ Revenue × 365) [B] 55.27 73.00
Creditor turnover days (Creditor ÷ Cost of goods sold × 365) [C] 96.65 91.26
Cash operating cycle [A+B–C] (days) 17.22 22.18
Stock turnover of Company B is better than that of Company A. Company B is

turning over its stock 9 times whereas company A is doing it 6 times a year.
Company A is more effectively collecting it’s debtors than Company B. This could
also be due to the fact that Company B is following a lenient credit policy to attract
more revenue. This fact is also supported from higher stock turnover ratio of
Company B.
Company A have availed better credit facility from its creditors but it may have
forgone some settlement discounts which might have resulted in lower gross profit
ratio than that of Company B.
Page 7 of 8
Suggested Answer
Overall cash operating cycle of Company A is better than Company B. Furthermore

Company B has accumulated large balances of cash despite the fact that it has also
availed long term loan. Excess cash balance should have been used to pay off the
long term loan to reduce the finance cost.
(THE END)
id
ah
Sh
od
wo
Da
Page 8 of 8

Q.1 Rahil runs a retail business. He appointed a cashier at a monthly salary of Rs. 13,000 on
1 April 2016. The cashier did not report for work on 1 July 2016 and it was found that he
had left, taking with him the balance in the till.
id
It had been Rahil's practice to deposit on each weekend the available balance in the till
after retaining a float of Rs. 5,000. He maintains record of sales on credit and a file of
unpaid invoices in respect of goods purchased by him.
ah
The following information has been ascertained from the available records:
(i) Balance Sheet as on 31 March 2016 was as follows:
Rahil’s capital
Sh Rupees
233,000 Fixtures and fittings – WDV
Rupees
161,000
Creditors for goods 159,000 Inventory 111,000
Creditors for expenses 16,000 Debtors 55,000
Cash at bank 76,000
Cash in hand 5,000
408,000 408,000
od
(ii) Following is a summary of the bank statement from 1 April to 30 June 2016:
Rupees Rupees
Balance on 1 April 2016 76,000 Payment to suppliers for goods 604,000
Cheques received from customers 29,000 Rent & other expenses 37,000
wo
Cash deposited 627,000 Balance on 30 June 2016 91,000

732,000 732,000
(iii) The following amounts were paid from the till:

Rs. per month
Da
Salary to cashier 13,000

Rahil’s drawings 26,000
Petty expenses 5,000
(iv) Fixtures and fittings are depreciated at 10% per annum using reducing balance
method.
(v) Inventory on 1 July 2016 was Rs. 58,000.
(vi) Credit sales during the quarter ended 30 June 2016 amounted to Rs. 64,000 whereas
the debtors balances as on 30 June 2016 amounted to Rs. 66,000. However, direct
confirmations from debtors showed that receivables in fact totalled Rs. 54,000.
(vii) Creditors for goods and expenses had always been paid by cheque. Unpaid invoices
for goods on 30 June 2016 totalled Rs. 181,000 and creditors for expenses
amounted to Rs. 13,000. Detailed scrutiny of records revealed that a cash receipt of
Rs. 8,000 which had been received against goods returned to a supplier had not
been recorded.
(viii) Rahil sells goods at a gross profit margin of 20% on sales.
Required:
(a) Prepare a statement showing calculation of the amount of defalcation. (11)
(b) Prepare a balance sheet as on 30 June 2016. (09)
Q.2 Khan Limited opened a new branch at Lahore on 1 January 2016. Goods are invoiced to
branch at 25% above cost and branch sells the goods on the invoice price. Expenses of
branch are met from branch cash and the balance amount is remitted to head office (HO).
Following information is available for the year ended 30 June 2016:
Rupees
Cost of goods sent to branch 460,400
Goods received by branch till 30 June 2016 (at invoice price) 454,000
Debtors on 30 June 2016 35,000
Cash remitted to HO 315,000
Cash at branch on 30 June 2016 14,000
Expenses by branch 40,000
id
Required:
Prepare following ledger accounts:
(a) Branch Cash Account (04)
(b) Branch Stock Account (04)
ah
(c) Branch Stock Adjustment Account (04)
Q.3 The output and production costs of a garment factory for the last 10 months are given
below:
Months
Sh Output
(units in million)
Production costs
(Rs. in billion)
1 1 2.05
2 2 2.82
3 4 4.33
4 8 7.31
5 6 5.80
od
6 5 5.08
7 8 7.29
8 9 8.10
9 7 6.52
10 6 5.82
wo
Required:
Determine the regression line for output and production costs. Also estimate production
costs for next month if required output is 3 million units. (08)
Da
Q.4 Salman Limited (SL) closes its books on 30th June each year. Due to an administrative
problem, SL carried out the stock-taking on 10 July 2016. The cost of stock as verified on
10 July 2016 was Rs. 812,500.
Details of transactions from 1 July to 10 July are given below:
(i) Total sales amounted to Rs. 326,000. The goods were sold in the normal course of
business at cost plus 25% except the following:
a sale of Rs. 25,000 was made at 40% of normal selling price.
a sale of Rs. 60,000 was made at normal selling price but the goods were
slightly damaged and an expenditure of Rs. 15,000 was incurred on these
goods to bring them to saleable condition.
(ii) Purchases amounted to Rs. 246,000. All such purchases were included in stock as
on 10 July 2016.
(iii) Sales returns and purchase returns amounted to Rs. 11,000 and Rs. 6,000
respectively.
(iv) Goods with customers on sale or return basis were Rs. 50,000 (at invoice value).
The goods had been sent to the customers on 15 June 2016. The customers have the
right to return the goods within four weeks. One of the customers informed SL on
29 June 2016 that goods worth Rs. 20,000 had been destroyed in fire.
Required:
Calculate the value of stock as at 30 June 2016. (11)
Q.5 Following is the trial balance of Mateen as at 30 June 2016 :
Debit Credit
-------- Rupees --------
Sales 6,892,000
Purchases 4,124,000
Administrative expenses 1,855,000
Distribution costs 549,000
Property, plant and equipment
Cost 1,750,000
id
Accumulated depreciation at 30 June 2015 350,000
Inventories at 30 June 2015 344,000
Unappropriated profit at 30 June 2015 330,000
ah
Mateen’s capital 2,000,000
Cash in hand 22,000
Cash at bank 14,000
Bank loan 500,000
Trade receivables 2,255,000
Trade and other payables
Sh 826,000
Provision for bad debts at 30 June 2015 15,000
10,913,000 10,913,000
The following additional information is available:

(i) Sales include an amount of Rs. 70,000, made to a customer on sale or return basis.
od
The goods had a cost of Rs. 47,000. The customer paid the amount on 5 July 2016.
(ii) Cost of inventories at 30 June 2016 amounted to Rs. 365,000. The net realizable
value of the inventories was Rs. 350,000.
(iii) Administrative expenses include rent of office building amounting to Rs. 700,000.
70% of the rental amount should be allocated to cost of sales and 30% to
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administrative expenses.
(iv) Prepaid administrative expenses and accrued distribution costs at 30 June 2016
amounted to Rs. 131,000 and Rs. 176,000 respectively.
(v) Property, plant and equipment are depreciated at 10% per annum using reducing
balance method. Depreciation on addition is provided from the month in which the
asset is acquired while no depreciation is charged in the month in which the asset is
Da
disposed of. Depreciation should be allocated between cost of sales and

administrative expenses in the ratio of 80:20 respectively.
On 10 January 2016, a generator which was purchased on 1 July 2012 for

Rs. 100,000 was traded-in for a new generator. The disposal was not recorded and
the generator was capitalized at Rs. 500,000 being the net amount paid to supplier
after adjusting trade-in allowance of Rs. 35,000. The cost of installation of the
generator amounting to Rs. 30,000 was debited to administrative expenses.
(vi) Bank loan was taken on 1 October 2015 and carries interest at 8% per annum. The
loan is repayable on 30 September 2016.
(vii) Trade receivables amounting to Rs. 5,000 are required to be written off. Bad debts
are estimated at 4% of the trade receivables.
(viii) Income tax liability for the year ended 30 June 2016 is estimated at Rs. 40,000.
Required:
Prepare the following:
(a) Statement of comprehensive income for the year ended 30 June 2016; and (10)
(b) Statement of financial position as at 30 June 2016. (10)
Q.6 (a) Car World sells new cars on deferred payment basis whereby 40% deposit is
received on sale and the balance payment is received at the end of two years. The
appropriate discount rate is 10%.
On 1 July 2014 a car was sold to a customer for Rs. 2,000,000.
Required:
Prepare necessary journal entries to record the above transaction in the books of
Car World for the years ended 30 June 2015 and 2016. (07)
(b) Saleem Engineering (SE) is a supplier of various types of industrial machines. It

also provides services for the maintenance of these machines. Following
transactions were carried out by SE during the year ended 30 June 2016:
id
(i) Five machines were sold on a lay away basis to one of its frequent customers.
Three out of a total of five instalments had been received till the year end. (03)
ah
(ii) A service contract for maintenance of a machine for a period of one year was
signed and SE received a non-refundable annual fee amounting to Rs. 45,000
as advance on 15 April 2016. (02)
Required:
Sh
Discuss when it will be appropriate for SE to recognise revenue in each of the above
situations.
Q.7 Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on
written-down value. Depreciation is charged from the month the asset is available for use
in operations up to the month prior to its disposal. Cost of its plant & machines and the
od
accumulated depreciation as on 1 July 2015 were Rs. 75 million and Rs. 17 million
respectively.
The following information is available in respect of its plant & machines, for the year
ended 30 June 2016:
wo
(i) On 1 October 2015, a second-hand machine was acquired from a Chinese company
for Rs. 15 million. The machine was renovated and overhauled at a cost of
Rs. 3 million. 25% of this expenditure was in respect of purchase of consumables.
(ii) On 1 November 2015, KE transferred a machine having a list price of
Da
Rs. 10 million from its stock-in-trade to its Engineering Department. KE sells such
machines at cost plus 25%.
(iii) On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of
Rs. 4 million. The replaced parts neither enhanced the useful life of the plant nor its
operating efficiency. The old parts were sold for Rs. 0.75 million. The plant was
purchased for Rs. 25 million on 1 January 2015.
On 1 May 2016, the plant was damaged and remained in-operative for one month.
KE spent an amount of Rs. 3 million on repairs to restore the plant in working
condition.
(iv) On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12 million
was completely damaged and was sold for Rs. 1.2 million.
Required:
Prepare accounting entries to record the above transactions in KE’s books for the year
ended 30 June 2016. (17)
(THE END)
Suggested Answers
A.1 (a) Statement of amount of defalcation

Rupees
Cash in hand 30/3/16 5,000
Cash sales [838,750 (W-1)  64,000] 774,750
Receipts from customers as per debtor’s account (W-3) 24,000
Less: Cash utilized
Bank lodgments (627,000)
Assistant's salary (13,000×3) (39,000)
Petty expenses (5,000×3) (15,000)
Drawings (26,000×3) (78,000)
(759,000)
Defalcation against cash sales 44,750
id
Difference in debtors balance 12,000
Defalcation from amount received from supplier against purchase return 8,000
Total defalcation amount 64,750
ah
Working Notes:
W-1: Sales Rupees

Stock on 1 April 2016 111,000
Add: Purchases for 3 months (626,000 – 8000) (W-2) 618,000
Sh 729,000
Less: Stock on 30 June 2016 (58,000)
671,000
Add: Gross profit 20% on sales (671,000 × 20÷80) 167,750
Total sales 838,750
W-2: Purchases Rupees

od
Cash paid to creditors against goods supplied 604,000

Add: Creditors on 30 June 2016 181,000
785,000
Less: Creditors on 31 March 2016 (159,000)
Cash received for returns (8,000)
wo
Total purchases 618,000
W-3: Cash received from credit customers Rupees

Balance on 1 April 2016 55,000
Add: Credit sales for 3 months 64,000
119,000
Da
Less: Balances outstanding on 30 June 2016 as per books (66,000)

53,000
Less: Receipts (cheques) shown in cash book (29,000)
Amount presumably received in cash 24,000
(b) Balance Sheet of Rahil

As on 30 June 2016
Liabilities Rs. Assets Rs.
Sundry creditors 181,000 Fixtures and fittings (net) 156,975
Expenses owing 13,000 Stock in trade 58,000
Capital: Sundry debtors 54,000
Balance on 1 April 2016 233,000 Balance at bank 91,000
Add: Net profit (W-1) 10,975
Less: Drawings (78,000)
165,975
359,975 359,975
Page 1 of 6
Suggested Answers
W-1: Net profit for 3 months Rupees

Gross profit - 20% on sales (671,000 × 20÷80) 167,750
Less:
Depreciation (161,000×10%×3÷12) 4,025
Assistant's salary and petty cash expenses 54,000
Rent & other expenses 37,000
Decrease in creditors for expenses (16,000  13,000) (3,000)
Loss due to defalcation 64,750
(156,775)
10,975
id
A.2 In the books of Khan Limited
Dr. Branch Cash Account Cr.

Date Particulars Rs. Date Particulars Rs.
ah
Branch debtors a/c - cash received 293,000 31-12-16 Branch expenses a/c 40,000
Branch stock a/c - cash sales (bal. fig.) 76,000 Remittance to H.O. 315,000
Balance c/d 14,000
Sh 369,000 369,000
Dr. Branch Stock Account Cr.

31-12-16 Goods sent to branch a/c 575,500 31-12-16 Cash sales 76,000
(460,400×125%/100) Branch debtors A/c – Credit
sales 328,000
Stock-in-transit (575,500454,000) 121,500
od
Balance c/d 50,000

575,500 575,500
Dr. Branch Stock Adjustment Account Cr.

Stock-in-transit A/c – Loading 31-12-16 Goods sent to branch A/c –
wo
(121,500×25/125) 24,300 Loading (460,400×25%) 115,100

Balance c/d – Loading on closing
stock (50,000×25/125) 10,000
31-12-16 Branch P & L A/c – G.P. transferred
(bal. fig) 80,800
115,100 115,100
Da
A.3 (a) Output Production costs

(Rs. in million) (Rs. in billion) (xy) (x2)
(x) (y)
1 2.05 2.05 1.00
2 2.82 5.64 4.00
4 4.33 17.32 16.00
8 7.31 58.48 64.00
6 5.80 34.80 36.00
5 5.08 25.40 25.00
8 7.29 58.32 64.00
9 8.10 72.90 81.00
7 6.52 45.64 49.00
6 5.82 34.92 36.00
56 55.12 355.47 376
Page 2 of 6
Suggested Answers
∑ ∑ ∑
∑
∑
∑ ∑
Estimated regression equation is
(b) The estimated production costs for next month if required output is 3 million units will be:
id
ah
A.4 ------ Rupees ------
Cost of stock on 10 July 2016 812,500
Less:
Purchases from 01 July to 10 July 2016 (246,000)
Sales returns, at cost (Rs. 11,000 × 100/125) (8,800)
Add:
Sh 557,700
Cost of stock sold for Rs. (326,000  25,000)/1.25 240,800

Cost of good sold at 40% of invoice price (25,000/0.4)×100/125 50,000
Goods on sale or return basis (50,000*20,000)× 100/125 24,000
Purchase returns 6,000
320,800
od
Cost of stock on 30 June 2016 (A) 878,500
Less: NRV Adjustments

Stock on which repair is done (60,00015,000) 45,000
Cost (60,000/1.25) 48,000 (3,000)
wo
Stock sold at 40% of selling price

Normal cost (25,000/0.4/1.25) 50,000
Selling price 25,000 (25,000)
NRV of stock (B) 850,500

Da
Value of stock as on 30 June 2016 [lower of cost (A) and NRV(B)] 850,500
*Goods destroyed in fire (Rs. 20,000) taken as sold
A.5 Income statement for the year ended 30 June 2016

Rupees
Revenue (6,892,000 – 70,000) 6,822,000
Cost of sales (W-1) (4,652,684)
Gross profit 2,169,316
Administrative expenses (W-1) (1,338,376)
Distribution costs (W-1) (725,000)
Profit from operations 105,940
Finance cost (500,000×8%×9÷12) (30,000)
Income tax expense (40,000)
Profit for the period 35,940
Page 3 of 6
Suggested Answers

As at 30 June 2016
Rupees Rupees

Capital 2,000,000 Non-current assets
Retained earnings (330,000+35,940) 365,940 Property plant and equipment (W-2) 1,281,140
2,365,940
id
Current liabilities Current assets
Bank loan 500,000 Inventories (W-1) 397,000
Trade and other payables Trade receivables
(826,000+176,000) 1,002,000 (2,250,000 – 70,000) – 87,200
ah
Taxation 40,000 2,092,800
Prepaid admin expenses 131,000
Bank interest payable 30,000 Cash and bank (22,000+14,000) 36,000
Sh
3,937,940 3,937,940
Workings:
W-1: Allocation of expenses Administrative Distribution
Cost of sales
expenses costs
--------------- Rupees ---------------
Balances as per trial balance 1,855,000 549,000
Opening inventories as per trial balance 344,000
od
Purchases as per trial balance 4,124,000

Adjustments:
Closing stock (350,000 + 47,000) [(ii) & (i)] (397,000)
Transfer of 70% rent to cost of sales (iii) 490,000 (490,000)
Prepaid and accrued expenses (iv) (131,000) 176,000
wo
Installation charges incorrectly expensed out (v) (30,000)

Depreciation expenses (W-2) (vi) 91,684 22,921
Loss on disposal (W-2) (vi) 34,255
Bad debts expenses
[(4% × (2,250,000 70,000))  15,000+5,000] 77,200
4,652,684 1,338,376 725,000
Da
W-2: Depreciation and loss on disposal Rupees Dep. for the year
Property, plant & equipment as per trial balance 1,750,000
Less: Cost of generator disposed of (A) (100,000)
Less: Cost of generator purchased during the year (500,000)
Cost of PPE used throughout the year 1,150,000
Less: Opening balance of Acc. Dep. (350,000)
Add: Opening balance of Acc. Dep. relating to disposed of generator
[100,000 – (100,000 × 0.9 × 0.9 × 0.9)] (B) 27,100
WDV of PPE used throughout the year 827,100
Depreciation for the year (827,100×10%) (82,710) 82,710
Addition:
New generator 500,000
Old generator – trade-in-allowance 35,000
Installation charges 30,000
565,000
Depreciation on additions (565,000 ×10% × 6/12) (28,250) 28,250
536,750
Depreciation on disposed of generator
[(100,000 – 27,100) × 10% × 6/12] (C) - 3,645
1,281,140 114,605
Page 4 of 6
Suggested Answers
Loss on disposal [(A– B– C) – 35,000] 34,255
A.6 (a) Debit (Rs.) Credit (Rs.)

Date Particulars
--------- Rupees ---------
1/7/2014 Cash (40%×2,000,000) 800,000
Receivables (2,000,000  800,000) 1,200,000
Car sales [800,000 + 991,736(W-1)] 1,791,736
Deferred income 208,264
id
30/6/15 Deferred income (10% × 991,736) 99,174
Finance income 99,174
30/6/16 Cash 1,200,000
ah
Deferred income (208,264  99,174) 109,090
Finance income 109,090
Receivables 1,200,000
W-1: Present value of future payments Rupees

Amount receivable
Sh 1,200,000
991,736
(b) (i) Revenue from lay away sales is recognized when the goods are delivered against full payment.
However, based on experience, such revenue may be recognized earlier e.g. when a significant
deposit is received provided the goods are on hand, identified and ready for delivery to the buyer.
od
Hence the sale may be recognized in this case provided the machines are ready for delivery because
the sale is to a frequent customer and a significant portion of the sale proceeds has been received.
(ii) Although the fee is non-refundable, it will be recognized as income on the basis of matching
principle i.e. 1/12th of the annual fee will be taken to income each month.
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A.7 Debit Credit

Date Description
------- Rupees -------
1-10-2015 Machine B (15+3×75%) 17,250,000
Cost of sales/Repair and maintenance / Profit & loss a/c 750,000
Da
Bank 18,000,000
1-11-2015 Machine a/c (10,000,000×100/125) 8,000,000

Stock-in-trade 8,000,000
1-1-2016 Plant and Machine 4,000,000

Bank 4,000,000
1-1-2016 Bank 750,000

Cost of sales/Other income 750,000
1-5-2016 Cost of sales/Repair and maintenance / Profit & loss a/c 3,000,000
Bank/payable 3,000,000
1-4-2016 Bank 1,200,000

Accumulated depreciation – Machine [12-(12×0.9×0.9×0.9×0.925)] 3,908,100
Loss on sale of machine (balancing) 6,891,900
Machine 12,000,000
30-1-2016 Depreciation expense (W-1) 7,608,383

Accumulated depreciation – Plant and machine 7,608,383
Page 5 of 6
Suggested Answers
W-1:
Written down Depreciation for the
value year
-------------Rupees-------------
Opening balance (75,000,000-17,000,000 58,000,000
Less: Disposal [12,000,000×(0.9)3] (8,748,000)
49,252,000 4,925,200
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Addition
Addition on 01 October 2015 (17,250,000×10%×9/12) 17,250,000 1,293,750
Addition on 01 November 2015 (8,000,000×10%×8/12) 8,000,000 533,333
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On 1 January 2015 4,000,000 200,000
Disposal
Depreciation on machine sold during the year (8,748,000×0.1×9/12) 656,100
Total depreciation Sh 7,608,383
(THE END)
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Page 6 of 6

Q.1 Seaview Club started its operations on 1 February 2015. Sponsor of the club contributed
Rs. 50 million towards general fund for the start of operations and placed the amount in the
bank. Following is the receipts and payments summary for the period from 1 February 2015
to 31 December 2015:
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Receipts Rs. in ‘000 Payments Rs. in ‘000
Sponsor's contribution 50,000 Furniture & fixtures 1,200
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Joining fees 20,800 Van 1,500
Subscription from members 29,952 Salaries 1,000
Sale of beverages 1,500 Rent 3,600
Utilities 570
Insurance 120
Sh Repairs and maintenance 275
Purchase of beverages 1,367
Advance for plot of land 65,000
Balance 27,620
102,252 102,252
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(i) The joining fee for award of membership is Rs. 50,000. Annual subscription is
Rs. 24,000. All new members pay three years’ subscription in advance. The
memberships were awarded as follows:
Month March June September December
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No. of members 112 98 101 105

(ii) The club sells beverages at a gross profit margin of 20%. All sales are billed in the first
week of the next month and the payment is received in the same month. Sale of
beverages during December 2015 amounted to Rs. 150,000.
(iii) 25% of total purchases of beverages made during the year remained unsold at
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year-end.
(iv) Salaries are paid on the first day of next month. The amount of salaries includes an
advance amounting to Rs. 10,000 paid to an employee on 1 December 2015. The
advance is repayable on 1 February 2016.
(v) Rent for three years was paid in advance on 1 February 2015.
(vi) Presently the club is operating on rental premises. However, a plot of land has been
purchased on which construction would commence shortly. Title of land would be
transferred after completion of legal formalities.
(vii) Payments for utilities include security deposit paid to utility companies amounting to
Rs. 20,000. Utility bills are paid on the 7th day of the next month.
(viii) Insurance premium was paid on 1 February 2015 covering a period of 12 months.
(ix) Repairs and maintenance include an advance of Rs. 100,000 paid to a contractor for
construction of a parking shed. Repair bills amounting to Rs. 7,000 were outstanding
at year-end.
(x) Furniture & fixtures and van were purchased on 1 February 2015. Depreciation on
these assets is to be charged at 10% and 20% respectively.
Required:
Prepare statement of financial position as at 31 December 2015 and income & expenditure
account of Seaview Club for the period ended 31 December 2015. (20)
Q.2 AK Limited follows a perpetual inventory system. Following information is available from
the accounting records for the month of January 2016:
Quantity Amount (Rs.)

Inventory as at 31 December 2015 3,500 35,000
Purchase on 7 January 2016 3,700 44,400
Sale on 12 January 2016 3,000 60,000
Sale on 25 January 2016 5,500 115,500
(i) 100 units out of 4,200 units purchased on 13 January 2016 were found defective and
returned to supplier on 28 January 2016.
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(ii) Inventory count conducted on 31 January 2016 revealed that 4,820 units were
physically available.
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Required:
(a) Prepare inventory ledger cards for the month of January 2016 under the perpetual
system showing quantity, unit cost and value under each of the following basis of
inventory valuation:
FIFO (07)
Weighted average
Sh (06)
(b) Under weighted average method, prepare journal entries to record the defective items
returned to supplier and surplus/shortfall in the inventory due to physical count. (02)
Q.3 (a) In respect of sale of goods, give any two examples of each of the following situations:
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(i) Legal title passes but the risks and rewards are retained.
(ii) Legal title does not pass but the risks and rewards are passed on to the customer. (03)
(b) State how revenue should be recognised in the following cases:

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(i) Karim Industries Limited (KIL) has sold a machine on credit to Yawar
Engineering (YE). The machine would be used by YE if it is able to secure a
contract for providing services to AMZ & Company. KIL has agreed that the
machine may be returned at 90% of the price, if YE fails to secure the contract. (02)
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(ii) Asif Electronics (AE) is about to sell a new type of food factory. Since customer
demand is high, AE is taking advance against orders. The selling price has been
fixed at Rs. 7,000 per unit and so far 175 customers have paid the initial 25%
deposit which is non-refundable. (02)
(iii) Nazir Engineering Limited (NEL) entered into a contract for the provision of
services over a period of two years. The total contract price was Rs. 25 million
and NEL had initially expected to earn a profit of Rs. 5 million on the contract.
However, the contract had not progressed as expected. In the first year, costs of
Rs. 12 million were incurred. Management is not sure of the ultimate outcome
but believes that at least the costs on the contract would be recovered from the
customer. (02)
(c) Abid Textile Mills Limited (ATML) sold a property to a financial institution for
Rs. 90 million when the fair value and carrying value of the property was
Rs. 100 million and Rs. 95 million respectively. However, there is an agreement
between the parties whereby ATML could repurchase the property after one year for
Rs. 99 million.
State how the above transaction should be recorded in ATML’s records. (03)
Q.4 (a) What conditions must be satisfied if an item has to be recognised as property, plant
and equipment? Also state at what amount such item shall be carried after the initial
recognition if the entity is following the revaluation model. (03)
(b) On 1 January 2013 Delta acquired a specialized machine for its production
department. The available information is as follows:
Rupees
List price of machine 9,200,000
Freight charges 263,000
Electrical installation cost 245,000
Staff training for use of machine 351,000
Pre-production testing 193,000
Purchase of a three-year maintenance contract 528,000
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Estimated residual value 175,000
Trade discount on list price 5%

Early settlement discount taken 3%
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Estimated life (in machine hours) 12,000
Machine hours used during the years ended 31 December 2013, 2014 and 2015 were
2000, 3200 and 1400 respectively.
Sh
On 1 January 2015 Delta decided to upgrade the machine by adding new components
at a cost of Rs. 1,753,000. This upgrade led to a reduction in the production time per
unit of goods being manufactured by the machine. The upgrade also increased the
estimated remaining life of the machine at 1 January 2015 to 8,000 machine hours and
its estimated residual value to Rs. 350,000.
Required:
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For the years ended 31 December 2013, 2014 and 2015, compute the relevant
amounts to be included (under each head) in the income statement and statement of
financial position. Notes to the financial statements are not required. (10)
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Q.5 Maqsood Enterprises has its head office in Karachi and ten branches all over Pakistan.
Following are the details of balances related to the Peshawar branch in the books of head
office:
31-Dec-15 31-Dec-14
------ Rupees ------
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Non-current assets 750,000 700,000

Inventory 250,000 200,000
Receivables 120,000 90,000
Cash 35,000 25,000
Goods returned by the branch 29,700 -
Other relevant information is as under:
(i) Goods invoiced to Peshawar branch during the year amounted to Rs. 330,000. Goods
are sent to Peshawar branch at cost plus 10%. Branch sells these goods at a further
mark-up of 15%.
(ii) During the year, Peshawar branch sent goods which were appearing in its books at
Rs. 27,500 to Lahore branch.
(iii) During the year, certain goods were sold by the branch on 30 days credit and invoiced
at Rs. 35,420 to a customer. However, the goods were returned by the customer before
the due date of payment directly to the head office. No entry has been made in respect
of return of goods.
(iv) Branch expenses amounted to Rs. 50,000 which were paid in cash.
(v) Non-current assets are net of depreciation. During the year, head office purchased
non-current assets on behalf of Peshawar branch amounting to Rs. 62,000.
Required:
Prepare Peshawar branch account in the books of head office for the year ended
31 December 2015 showing profit/(loss) made by the branch. (12)
Q.6 Following are the extracts from income statement of Quality Enterprises (QE) for the year
ended 31 December 2015 and its statement of financial position as at that date, together with
some additional information:
Income statement for the year ended 31 December 2015

Rs. in ‘000
Profit from operations 6,402
Other income 1,357
Interest expense (100)
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Statement of financial position as at 31 December 2015
2015 2014 2015 2014
--- Rs. in ‘000 --- --- Rs. in ‘000 ---
Non-current assets
Owner’s capital
Unappropriated profit
14,219
10,652
Sh
10,703
6,697
Property, plant and equipment
Investments
19,628
7,645
11,845
6,498
27,273 18,343
Revaluation surplus 2,676 1,911
10% bank loan 6,000 -
Current liabilities Current assets
Trade and other payables 3,337 4,953 Inventories 4,642 3,073
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Income tax payable 1,300 994 Trade and other receivables 2,273 3,865
Bank overdraft - 27 Cash and bank 3,996 4
4,637 5,974 10,911 6,942
38,184 25,285 38,184 25,285
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(i) During the year, movements in property, plant and equipment include:
Depreciation amounting to Rs. 5,280,000.
Machinery having a carrying amount of Rs. 2,481,000 was sold for Rs. 3,440,000.
Factory building was revalued from a carrying amount of Rs. 5,963,000 to
Rs. 8,000,000.
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An office building which had previously been revalued, was sold at its carrying
amount of Rs. 2,599,000.
(ii) The owner of QE withdrew Rs. 300,000 per month. The amounts were debited to
unappropriated profit.
(iii) Trade debts written off during the year amounted to Rs. 200,000. The provision for
bad debts as at 31 December 2015 was Rs. 400,000 (2014: Rs. 550,000)
(iv) The interest on bank loan is payable on 30th June every year. The bank loan was
received on 1 November 2015. Interest for two months has been accrued and included
in trade and other payables.
(v) Other income includes investment income of Rs. 398,000. As at 31 December 2015,
trade and other receivables included investment income receivable amounting to
Rs. 96,000 (2014: Rs. 80,000).
Required:
Prepare a statement of cash flows for Quality Enterprises for the year ended
31 December 2015, using the indirect method. (18)
Q.7 The following particulars/projections pertain to a well-maintained medium-sized car:

Rupees
Cost of car 1,200,000
Salvage value after 100,000 kilometres (km) 300,000
Maintenance cost:
– Service after every 5,000 km 6,000
– Replacement of spares/parts (per 2,000 km) 4,000
Vehicle tax per annum (20% adjustable against
income tax payable by the owner) 7,500
Insurance per annum 36,000
Cost of petrol per litre 75
Cost of tyres replacement after 25,000 km 20,000
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On an average, the car consumes one litre for every 15 km.
Required:
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For three different levels of use i.e. 10,000, 20,000 and 30,000 km per annum, prepare a
schedule showing:
Variable, fixed and total costs
Variable, fixed and total costs per km
Sh
In respect of each type of cost, give appropriate justification for treating it as a variable or a
fixed cost. (10)
(THE END)
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Suggested Answers
A.1 Seaview Club

Income & Expenditure Account
For the period ended 31 December 2015
Expenditure Rs. in ‘000 Income Rs. in ‘000

Salaries and wages (1000–10+99) 1,089 Joining fees 20,800
Rent (3600/3×11/12) 1,100 Subscription income (W-1) 4,630
Utilities (570–20+55) 605 Profit on sale of beverages (W-2) 330
Insurance (120/12×11) 110
Repairs and maintenance (275–100+7) 182
Depreciation expense
(1,200×10%×11/12+1,500×20%×11/12) 385
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Excess of income over expenditure 22,289
25,760 25,760
Seaview club
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Statement of Financial Position
As at 31 December 2015
General Fund & Liabilities Rs. in ‘000 Assets Rs. in ‘000

General fund 50,000 Non-Current Assets
Excess of income over expenditure
Sh 22,289 Land/Capital advance 65,000
72,289 Furniture & fixtures (1,200110) 1,090
Van (1,500275) 1,225
Deferred income/long term advance Advance for parking shed 100
(W-1) 15,338 Long term deposits 20
Long term prepayment 1,300
Current Liabilities 68,735
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Creditors (1,760 – 1,367) 393 Current Assets

Accrued expenses (7+55+99) 161 Stock (W-2) 440
Advance subscription (W-1) 9,984 Debtors for beverages (credit sale) 150
10,538 Advance & prepayments (W-3) 1,220
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Bank 27,620
29,430
Total General Fund & Liabilities 98,165 Total Assets 98,165
W-1: Subscription income

Subscription for 3 years is Rs. 72,000 so subscription for 1 year is Rs. 24,000 or Rs. 2,000 per month
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No. of No. of Subscription income for Deferred subscription

members months the year income
Month A×B×2,000 A×(36B)×2,000
A B
--------------- Rupees ---------------
March 112 10 2,240,000 5,824,000
June 98 7 1,372,000 5,684,000
September 101 4 808,000 6,464,000
December 105 1 210,000 7,350,000
4,630,000 25,322,000
Less: Short term [(112+98+101+105)×24,000] (9,984,000)
Long term 15,338,000
Page 1 of 6
Suggested Answers
W-2: Beverage sale results Rs. in ‘000

Sales (1,500 + 150) 1,650
Less: Cost of sales 1,760
Purchases (1,320/0.75) (440) 1,320
Closing stock (1,760×25%) 330
W-3: Advance & prepayments Rs. in ‘000

Rent [(3,600–1,100)–1,300(long term)] 1,200
Insurance (120 – 110) 10
Advance salary 10
1,220
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A.2 (a) Ledger card - FIFO Method
Transaction Balance
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Dates Description Unit Unit
Quantity Rupees Quantity Rupees
cost cost
1/1/2015 Opening inventory 3,500 10 35,000
7/1/2015 Purchase 3,700 12 44,400 3,500 10 35,000
3,700 12 44,400
12/1/2015 Sale (3,000) 10 30,000 500 10 5,000
Sh 3,700 12 44,400
13/1/2015 Purchase 4,200 14 58,800 500 10 5,000
3,700 12 44,400
4,200 14 58,800
25/1/2015 Sale (500) 10 5,000
(3,700) 12 44,400
(1,300) 14 18,200 2,900 14 40,600
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28/1/2015 Purchase return (100) 14 1,400 2,800 14 39,200

31/1/2015 Purchase 2,000 13 26,000 2,800 14 39,200
2,000 13 26,000
31/1/2015 Surplus inventory 20 14 280 2,820 14 39,480
2,000 13 26,000
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Ledger card -Weighted average method

Transaction Balance
Dates Description Unit Unit
Quantity Rupees Quantity Rupees
cost cost
1/1/2015 Opening inventory 3,500 10.00 35,000
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7/1/2015 Purchase 3,700 12.00 44,400 7,200 11.03 79,400

12/1/2015 Sale (3,000) 11.03 (33,083) 4,200 11.03 46,317
13/1/2015 Purchase 4,200 14.00 58,800 8,400 12.51 105,117
25/1/2015 Sale (5,500) 12.51 (68,826) 2,900 12.51 36,290
28/1/2015 Purchase return (100) 14.00 (1,400) 2,800 12.46 34,890
31/1/2015 Purchase 2,000 13.00 26,000 4,800 12.69 60,890
31/1/2015 Surplus/closing inventory 20 12.69 254 4,820 12.69 61,144
(b) Journal entries

Debit Credit
Date Description
---------- Rupees ----------
28/1/2015 Payables (58,800/4,200×100) 1,400
Purchase returns/stock/purchases 1,400
31/1/2015 Inventory (4,820-4,800)×12.69 254

Miscellaneous income 254
Page 2 of 6
Suggested Answers
A.3 (a) Examples of the situations where legal title passes but risk and rewards are retained
 An entity may retain obligations for unsatisfactory performance not covered by normal warranty
provisions;
 The receipt of revenue may be contingent on derivation of revenue by the buyer for its sale of
goods.
Examples of the situations where legal title does not pass but the risks and rewards are transferred
 A seller may retain the legal title to the goods to protect the collectability of the amount due but
transfer the significant risks and rewards of ownership.
 In retail sale, a seller may offer a refund if the customer is not satisfied.
(b) (i) The completion of the sale transaction is uncertain because it is contingent upon purchaser
securing the contract with another company. Therefore, KIL should only recognize the revenue
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when it is certain that YE will secure the contract. 10% revenue may be recognized if and when it
is confirmed that YE would not be able to secure the contract.
(ii) Revenue should be recognized when the food factory is delivered to the customer. Until then no
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revenue should be recognized and the deposit should be carried forward as deferred income. 25%
advance may be transferred to other income if the parties do not claim the asset.
(iii) If the outcome of a service transaction cannot be estimated reliably, revenue should only be
recognized to the extent that expenses incurred are recoverable from the customer. Thus revenue
Sh
to the extent of Rs. 12 million may be recognised.
(c) Since the sale and repurchase prices are lower than the fair values, the substance of the arrangement
appears to be that the financial institution has granted ATML a one year loan secured on the property,
charging interest of Rs. 9 million.
The transaction should be accounted for in ATML’s books as follows:

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 continue to recognise the property as an asset at the carrying amount.

 credit the Rs. 90 million received to a liability account.
 recognise finance cost of Rs. 9 million over a period of one year.
 debit the liability when Rs. 99 million cash is paid out.
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A.4 (a) The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:
(i) It is probable that future economic benefits associated with the item will flow to the entity; and
(ii) The cost of the item can be measured reliably.
After recognition as an asset, an item of property, plant and equipment whose fair value can be
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measured reliably shall be carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment
losses.
(b) Year ended 31-Dec-13 31-Dec-14 31-Dec-15

Income statement: --------------- Amount in Rs. ---------------
Cost of sales
Cost of sales (W-3) 1,720,333 2,646,934 1,371,028
Other income (Discount received i.e.
(8,740,000×3%)) (262,200) - -
Administration expenses
(Staff training) 351,000 - -
As at 31-Dec-13 31-Dec-14 31-Dec-15

Statement of financial position: --------------- Amount in Rs. ---------------
Property, plant and equipment (W-4) 7,896,667 5,425,733 5,983,705
Long term deposit 176,000
Short term deposit 176,000 176,000
Page 3 of 6
Suggested Answers
Workings
W-1: Cost price of machine Rupees
List price 9,200,000
Less: Trade discount (9,200,000×5%) (460,000)
8,740,000
Add: Freight charges 263,000
Electrical installation cost 245,000
Pre-production testing 193,000
9,441,000
W-2: Valuation after upgrade Rupees

Original cost (W-1) 9,441,000
id
Depreciation upto 31 December 2014 [1,544,333(W-3)+2,470,934(W-3)] (4,015,267)
Carrying amount on 1 January 2015 5,425,733
Capitalization of Upgrade 1,753,000
Value after capitalization 7,178,733
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W-3: Costs of sales 2013 2014 2015
------------------ Rupees ------------------
Depreciation
[9,441,000(W-1)175,000]×2,000/12,000 1,544,333
Sh
[9,441,000(W-1)175,000]×3,200/12,000 2,470,934
[7,178,733(W-2)350,000]×1,400/8,000 1,195,028
Maintenance cost (528,000/3) 176,000 176,000 176,000
1,720,333 2,646,934 1,371,028
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W-4: Property, plant and equipment:

Cost (W-1) 9,441,000 9,441,000 *11,194,000
Accumulated depreciation (1,544,333) (4,015,267) (5,210,295)
7,896,667 5,425,733 5,983,705
* [9,441,000+1,753,000]
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A.5 Peshawar Branch Account

Balance b/d Rs. Balance b/d Rs.
Non-current assets 700,000 Inventory reserve (1/11 of 200,000) 18,182
Inventory 200,000 Mark-up on goods sent to br. 30,000
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Receivable 90,000 Goods returned to HO by customers 29,700

Cash 25,000 Goods returned to HO directly
Goods sent to br. 330,000 (35,420/1.15) 30,800
Mark up on goods returned by br. 2,700 Goods transferred to Lahore br. 27,500
Mark up on transfer to Lahore br. 2,500 Cash sent to HO (W-1) 166,220
Mark up on goods returned directly to Balance c/d
HO 2,800 Non-current assets 750,000
Non-current assets purchased by HO 62,000 Inventory 250,000
Balance c/d Receivable (W-1) 84,580
Inventory reserve 22,727 Cash 35,000
Branch loss 15,745
1,437,727 1,437,727
Page 4 of 6
Suggested Answers
W-1: Cash Remitted to Head Office by Peshawar branch Rupees

Opening cash 25,000
Opening debtors 90,000
Add: Total sales at branch price (192,000 (W-1.1) ×1.15) 220,800
Less: Closing debtors (120,00035,420) (84,580)
Expenses incurred (50,000)
Closing cash (35,000)
Cash remitted to head office 166,220
W-1.1: Peshawar branch cost of sales Rupees

Opening stock 200,000
Goods received from head office 330,000
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Goods returned to head office (29,700)
Goods transferred to Lahore (27,500)
Goods returned by customers (30,800)
Closing stock (250,000)
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Total branch sales at HO price 192,000
A.6 Quality Enterprises

Statement of cash flows
For the year ended 31 December 2015
Sh
Rupees
Cash flow from operating activities
Profit before tax 7,659,000
Non-cash adjustments
Investment income (398,000)
Interest expense 100,000
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Depreciation charge 5,280,000

Bad debt expense [(200,000 +(400,000 – 550,000)] 50,000
Profit on disposal of property, plant and equipment (3,440,000–2,481,000) (959,000)
Changes in working capital

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Increase in inventories (3,073,000–4,642,000) (1,569,000)

Decrease in trade and other receivables 1,558,000
[(3,865,000–80,000–2,273,000+96,000+(550,000– 400,000– 200,000))]
Decrease in trade and other payables [(4,953,000–(3,337,000–100,000))] (1,716,000)
Net changes in working capital (cash generated from operations) 10,005,000
Income tax paid (W-2) (1,070,000)
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Net cash from operating activities 8,935,000
Cash flow from investing activities

Purchase of property, plant and equipment (W-3) (16,106,000)
Proceeds from sale of property, plant and equipment (3,440,000+2,599,000) 6,039,000
Investment income received (W-1) 382,000
Purchase of investments (7,645,000 – 6,498,000) (1,147,000)
Net cash used in investing activities (10,832,000)

Obtain bank loan 6,000,000
Additional capital (14,219,000 – 10,703,000) 3,516,000
Drawings (3,600,000)
Net cash from financing activities 5,916,000
Net increase in cash and cash equivalents 4,019,000
Cash and cash equivalents at beginning of period (4,000–27,000) (23,000)
Cash and cash equivalents at end of period 3,996,000
Page 5 of 6
Suggested Answers
W-1: Investment income received Amount in Rs.

Balance b/d 80,000 Cash (balancing) 382,000
Income Statement 398,000 Balance c/d 96,000
478,000 478,000
W-2: Tax paid Amount in Rs.

Taxes paid (balancing) 1,070,000 Balance b/d 994,000
Balance c/d 1,300,000 Income Statement 1,376,000
2,370,000 2,370,000
W-3: Property, plant and Equipment Amount in Rs.

Balance b/d 11,845,000 Disposals (2,481,000+2,599,000) 5,080,000
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Revaluation surplus
(8,000,0005,963,000) 2,037,000 Depreciation 5,280,000
Additions (balancing) 16,106,000 Balance c/d 19,628,000
29,988,000 29,988,000
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A.7 (a) -------------- Kilometers --------------
Sh A 10,000 20,000 30,000
Variable costs: -------------- Amount in Rs. --------------
Maintenance - service after every 5000 km 12,000 24,000 36,000
Spares 20,000 40,000 60,000
Petrol 50,000 100,000 150,000
Provision for replacement of tyres
(20,000÷25,000×A) 8,000 16,000 24,000
Depreciation
[(1,200,000300,000)/100,000×A] 90,000 180,000 270,000
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B 180,000 360,000 540,000

Fixed costs:
Vehicle tax 6,000 6,000 6,000
Insurance 36,000 36,000 36,000
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C 42,000 42,000 42,000

Total cost 222,000 402,000 582,000
Variable cost per km (B÷A) 18.00 18.00 18.00

Fixed cost per km (C÷A) 4.20 2.10 1.40
Total cost per km 22.20 20.10 19.40
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(b) (i) Spares and petrol:

Spares and petrol are variable costs being dependent on the usage of car.
(ii) Depreciation:
The depreciation in this case is variable because it is being charged on the basis of actual
running/usage and not on the basis of time.
(iii) Maintenance:
Service is to be done after each 5,000 kms and is therefore a variable cost.
(iv) Vehicle tax:
Vehicle tax is payable per year irrespective of actual running and is therefore a fixed cost.
(v) Insurance:
Insurance is payable per year irrespective of usage and is therefore a fixed cost.
(vi) Tyres:
If the cost of tyres is accrued on the basis of usage, it would be a variable cost.
(THE END)
Page 6 of 6

Q.1 Mr. Razi, a sole proprietor, runs a small business. On 30 June 2015, he realized that his cash
and bank balances have reduced considerably. He suspected that one of his employees is
involved in misappropriation. He has provided you the following information:
id
Opening balances on 1 July 2014 Rs. in ‘000’
Cash and bank 389
Debtors 1,560
ah
Stock 856
Land 450
Equipment – WDV (purchased on 1 April 2014 at a cost of Rs. 600,000) 585
Creditors 1,348
Accrued expenses: Marketing 30
Utilities
Sh 25
Salaries 48
Other miscellaneous 15
Receipts and payments for the period from 1 July 2014 to 30 June 2015 Rs. in ‘000’
Receipts from cash sales 1,728
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Receipts from debtors 4,475

Payments made to creditors 4,774
Payments for marketing expenses 205
Payments for utility expenses 240
Payments for salaries 600
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Payments for other miscellaneous expenses 107

Equipment (purchased on 1 October 2014) 250
Withdrew by Razi for his personal expenditures 125
Other information:
(i) Razi makes 35% margin on gross sales price. However, during the year, he offered 5%
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discount on credit sales and 10% discount on cash sales. 70% of his total sales were on
credit.
(ii) Actual bills for the year were as follows:
Rs. in ‘000’
Marketing expenses 200
Utility expenses 250
Other misc. expenses 100
(iii) Salary of the staff was Rs. 52,000 per month.

(iv) Balances of debtors and creditors as on 30 June 2015 were Rs. 1,091,000 and
Rs. 1,195,000 respectively.
(v) Closing stock at 30 June 2015 was Rs. 1,167,000. It included 150 units costing
Rs. 1,500 each which were damaged and Razi incurred Rs. 900 per unit in July 2015
to bring them into saleable condition.
(vi) Razi depreciates equipment on straight line basis at the rate of 10% per annum.
Required:
Prepare income statement for the year ended 30 June 2015 and balance sheet as at
30 June 2015. Also compute the amount of cash shortage, if any. (19)
Q.2 Following is the summarised trial balance of Eagles Limited (EL) as at 30 June 2015:
Debit Rs. in ‘000’ Credit Rs. in ‘000’
Plant 2,500 Accumulated depreciation at 1 July 2014
Equipment 700 – Plant 1,000
Stock as on 1 July 2014 1,500 – Equipment 270
Trade debtors 1,300 Provision for obsolete stock at 1 July 2014 45
Cash and bank 1,759 Provision for bad debts at 1 July 2014 48
Purchases 6,987 Capital 2,500
Salaries & wages 843 Accumulated profits 960
Warehouse rent 740 Trade creditors 1,545
Repair and maintenance 500 Revenue 10,706
Utilities expenses 400 Other income 425
Insurance expenses 300 Accruals at 1 July 2014
Bad debt written off 30 – Repairs & maintenance 45
id
Obsolete inventory written off 40 – Utilities expenses 55
17,599 17,599
Additional Information:
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(i) The sales include goods supplied on 27 June 2015 to a customer at a price of
Rs. 390,000 on a sale or return basis. The goods were returnable by 15 July 2015. EL
sells such goods at a mark-up of 30% on cost.
(ii) Other income includes proceed from sale of an equipment amounting to Rs. 100,000
received on 31 December 2014. The cost and written down value of the equipment at
Sh
1 July 2014 were Rs. 200,000 and Rs. 70,000 respectively.
(iii) Plant and equipment are depreciated at the rate of 10% and 15% respectively on
straight line basis.
(iv) Cost of stock on 30 June 2015 was Rs. 1,400,000, having net realizable value of
Rs. 1,450,000.
(v) The management estimates that:
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5% of trade debts would not be recovered.

3% of the stock is obsolete.
(vi) Current warehouse rent is Rs. 600,000 per annum which was paid in advance on
1 October 2014.
(vii) Following bills for expenses were received but not entered in books:
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Rs. in ‘000’
Repair and maintenance 56
Utilities expenses 67
(viii) The company revalued its non-current assets on 31 December 2014. Valuer has
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suggested following fair values:
Rs. in ‘000’
Plant 1,650
Equipment 175
(ix) The tax charge for the current year after making all related adjustments is estimated at
Rs. 200,000.
(x) No entry has been made in respect of disposal, revaluation and depreciation of fixed
assets.
Required:
Prepare statement of financial position as at 30 June 2015 and statement of comprehensive
income for the year ended 30 June 2015. (Deferred tax implication is to be ignored) (19)
Q.3 (a) When a company follows revaluation model for subsequent measurement of its
Property, Plant and Equipment, it is required to provide certain additional disclosures
(as compared to cost model). Specify such disclosures as have been mentioned in
IAS 16 ‘Property, Plant and Equipment’. (03)
(b) PQR Enterprises was incorporated on 1 July 2012. The company depreciates its
property, plant and equipment on straight line basis over their useful life. It uses
revaluation model for subsequent measurement of the property, plant and equipment
and has a policy of revaluing these after every two years.
Following information pertains to its property, plant and equipment:
Value as determined Useful life in years

Cost as on WDV as on
by professional valuer Original at Remaining as
Assets 01-07-2013 01-07-2013
on 30-06-2014 acquisition determined by
---------------- Rs. in million ---------------- valuer
Office building 6,000 5,500 5,750 12 8
Factory building 4,400 3,960 3,320 10 9
Warehouse 4,500 4,050 3,350 10 8
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During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation
surplus to retained earnings on an annual basis.
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Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)
Q.4
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Diamond Limited has its head office in Karachi and two branches in Lahore and Quetta.
Balances of its head office and branch operations for the year ended 30 June 2015 are as
under:
Head office Lahore Quetta

Karachi branch branch
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-------------- Rs. in million --------------

Inventory as at 1 July 2014 400 30 48
Sales 4,800 1,550 1,198
Purchases 3,800 230 200
Expenses 500 276 202
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Head office – current account (Cr.) - 200 178

Lahore branch – current account (Dr.) 230 - -
Quetta branch – current account (Dr.) 235 - -
Goods sent to branches 1,760 - -
Goods received from head office - 1,070 618
Provision for unrealized profit - 1 July 2014 13 - -
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(i) Head office transfers goods to branches at cost plus 20%.
(ii) Inventory as at 30 June 2015:
Rs. in million
Head office 375
Lahore branch 28
Quetta branch 150
(iii) Goods worth Rs. 20 million and Rs. 52 million sent to Lahore branch and Quetta
branch respectively were in transit at year-end.
(iv) Cash transfers to head office by Lahore branch and Quetta branch amounting to Rs. 10
million and Rs. 5 million respectively were in transit at year-end.
Required:
(a) Prepare statement of comprehensive income for the year ended 30 June 2015 showing
the total profit/loss as well as profit/loss earned by the head office and two branches. (10)
(b) Reconcile the balances between the head office and the two branches. (02)
Q.5 (a) Describe the term ‘revenue’ and state when and how revenue shall be recognised in the
case of royalties and dividend. (03)
(b) Adnan Limited (AL) is a supplier of machinery and spare parts. The machines supplied
are installed by AL. Following transactions took place in the last week of the
accounting year i.e. 30 June 2015:
(i) A machine was delivered to a customer. The invoiced amount was Rs. 500,000.
In accordance with the Operating Manual, the customer had to arrange a voltage
stabiliser before connecting the machine to the power supply. Machine became
operational on 1 July 2015. (02)
(ii) A specialised machine was sold to Sun Technologies (ST) for Rs. 800,000. ST
agrees to make the payment on 7 July 2015. However, ST informed AL that it
would accept the delivery in the month of August 2015. (03)
Required:
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Applying the principles of IAS 18, explain when revenue from the sale of above
machines may be recorded.
(c) (i) On 31 March 2015 a machine was sold under a package deal. The package
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includes a machine with free after sale service for 2 years at a total price of
Rs. 50,000. Selling price of standalone unit is Rs. 40,000. Cost of providing after
sales service is estimated at Rs. 4,000 per year. (03)
(ii) A machine was delivered to the customer on 1 July 2014. However, the invoice
Sh
was raised on 30 September 2014. According to the invoice, the total price of
Rs. 300,000 is to be paid in 2 half yearly installments of Rs. 150,000 each,
commencing from 1 January 2015. Appropriate discount rate is 10% per annum.
The present value of these two half yearly installments is to be taken as
Rs. 278,912. (03)
Required:
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Prepare necessary journal entries to record the above transactions in the books of
Adnan Limited for the year ended 30 June 2015.
Q.6 A company deals in Solar Panels which are imported from China. The company follows a
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perpetual inventory system and values its inventory on weighted average basis. Details of
sales and purchases during the year ended 30 June 2015 are as follows:
(i) Opening inventory on 1 July 2014 amounted to Rs. 49,000,000 and consisted of 2,450
solar panels.
(ii) Purchases during the year were as follows:
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Date Quantity (Units) Price (Rs. in ‘000’)

30-Sep-2014 4,200 78,120
31-Mar-2015 4,350 87,000
Costs related to imports were 29% of purchase cost, of which 17% is refundable.
(iii) Sales during the year were as follows:
Date Quantity (Units) Price (Rs. in ‘000’)
31-Jul-2014 2,100 52,500
31-Oct-2014 2,050 48,750
28-Feb-2015 2,300 55,200
15-May-2015 2,260 53,110
(iv) Sale on 31 October 2014 includes 100 solar panels which were damaged during the
year and sold at Rs. 12,000 per unit.
(v) On 31 May 2015, 50 solar panels were totally damaged and were written off.
(vi) On 30 June 2015 there was a significant decline in the prices of solar panels as a new
type of solar panel was introduced in the market. Selling prices are now Rs. 18,500 per
unit. However, the company has made some modification in its product which will
enable it to sell it at Rs. 22,000 per unit. Cost of modification is Rs. 2,500 per unit.
Required:
Prepare disclosure of inventories in the financial position as at 30 June 2015 in accordance
with the requirements of IAS-2 ‘Inventories’. (Note: Accounting policy note and comparative
figures are not required) (13)
Q.7 A manager is interested in knowing the relationship between machine hours and production
expenses. Data collected for January 2015 to August 2015 is as follows:
Production expenses
Months Machine hours
(Rs. in million)
January 264 50
February 390 90
March 280 70
id
April 355 85
May 375 100
June 330 75
July 300 70
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August 290 60
Required:
Develop relationship between production expenses and machine hours and predict
production expenses if machine works for 365 hours. (08)
Sh
(THE END)
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Suggested Answers
A.1 Mr. Razi

Income Statement
Rupees
Net sales (W-1) 5,984,000
Purchases (balancing) 4,471,000
Closing stock (1,167,000)
Cost of goods sold [6,400,000(W-1)65%] 4,160,000
Adjustment for NRV on damaged stock (W-2) 13,800
4,173,800
id
Marketing expenses (W-6) (200,000)
Utility expenses (W-6) (250,000)
Salaries (W-6) (624,000)
ah
Other misc. expenses [100,000(W-6)+150,000(W-5)+250,000(W-3)] (500,000)
Depreciation expense (600,00010%+250,00010%9÷12) (78,750)
Net profit 157,450
Sh Mr. Razi
Balance Sheet
As at 30 June 2015
Rupees
Non-Current Assets
Land 450,000
Office equipment
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Cost (600,000+250,000) 850,000

Accumulated depreciation (15,000+78,750) (93,750)
756,250
1,206,250
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Current Assets
Stock [1,167,000-13,800(W-2)] 1,153,200
Debtors (W-3) 1,091,000
Bank (W-4) 291,000
2,535,200
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Total Assets 3,741,450
Equity
Razi's capital opening 2,374,000
Drawings (125,000)
2,406,450
Current Liabilities
Creditors (W-5) 1,195,000
Accrued expenses (W-6) 140,000
Total Equity and Liabilities 3,741,450
Rupees
Cash misappropriated in debtors (W-3) 250,000
Cash misappropriated in creditors (W-5) 150,000
Cash shortage 400,000
Page 1 of 8
Suggested Answers
Workings:
W-1: Determination of gross sales revenue and discount allowed

Net sales Discount allowed Gross sales
Cash sales 1,728,000 192,000 1,920,000
(Given) (1,728,0000.1/0.9 (1,728,000+192,000)
Credit sales 4,256,000 224,000 4,480,000
(4,480,000-224,000) (4,480,0005%) (1,920,00070÷30)
Total 5,984,000 416,000 6,400,000
W-2: Adjustment for NRV on damaged stock Rupees

Selling price of damaged stock (1,500 ÷ 0.65) 2,308
id
Net realizable value (2,308 – 900) 1,408
NRV expense per unit (1,500 – 1408) 92
ah
Total NRV expense (92  150) 13,800
W-3: Debtors
Rupees Rupees
Opening balance 1,560,000 Sales discount (W-1) 224,000
Gross sales (W-1)
Sh
4,480,000 Receipts 4,475,000
Cash misappropriated 250,000
Closing balance 1,091,000
6,040,000 6,040,000
W-4: Bank
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Rupees Rupees
Opening balance 389,000 Payments made to creditors 4,774,000
Receipts from cash sales 1,728,000 Payment for marketing exp. 205,000
Receipts from debtors 4,475,000 Payment for utility expenses 240,000
Payment for salaries 600,000
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Payment for other misc. exp. 107,000

Drawing 125,000
Office equipment 250,000
Closing balance 291,000
6,592,000 6,592,000
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W-5: Creditors
Rupees Rupees
Payments 4,774,000 Opening balance 1,348,000
Closing balance 1,195,000 Purchases (income statement) 4,471,000
Cash misappropriated 150,000
5,969,000 5,969,000
W-6: Accrued expenses

A B C A+B-C
Expense for Accruals Payment during Accruals
the year 01-07-2014 the year 30-06-2015
--------------------------- Rupees ---------------------------
Marketing expenses 200,000 30,000 205,000 25,000
Utility expenses 250,000 25,000 240,000 35,000
Salaries (52,000  12) 624,000 48,000 600,000 72,000
Other misc. expenses 100,000 15,000 107,000 8,000
118,000 140,000
Page 2 of 8
Suggested Answers
A.2 Eagles Limited

Statement of Comprehensive Income
For the year 30 June 2015
Rupees
Revenue (10,706,000 – 390,000) 10,316,000
Cost of goods sold
Opening stock 1,500,000
Purchases 6,987,000
Closing stock (1,400,000 + 300,000) (1,700,000)
id
Salaries & wages (843,000)
Repair and maintenance (500,000 + 56,000 – 45,000) (511,000)
Utilities expenses (400,000 + 67,000 – 55000) (412,000)
ah
Insurance expenses (300,000)
Provision for stocks (40,000 + 51,000 – 45,000) (46,000)
Warehouse rent (740,000 – 150,000) (590,000)
Bad debt expense (30,000 + 910,000*5% – 48,000) (27,500)
Depreciation expense (W-1) (273,125)
Impairment loss - equipment (W-2)
Sh (147,500)
(3,153,125)
375,875
Other income (425–100+ 30+15) or (425-100)+(100-55) 370,000
Net profit before tax 745,875
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Profit after tax 548,875
Eagles Limited
Statement of Financial Position
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As at 30 June 2015
Rupees
Non-current assets
Plant (1,650 – 825) 1,567,500
Office equipment (175 – 13.125) 161,875
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Current assets
Stock (1,400,000 + 300,0000 – 51,000) 1,649,000
Debtors (1,300,000 – 390,000 – 45,500) 864,500
Prepaid rent 150,000
Cash & Bank 1,759,000
Total assets 6,151,875
Equity
Capital 2,500,000
Accumulated profits (960,000 + 548,875) 1,508,875
Revaluation surplus (W-2) 275,000
Current liabilities
Creditors 1,545,000
Provision for income tax 200,000
Accrued expenses (56 + 67) 123,000
Total equities and liabilities 6,151,875
Page 3 of 8
Suggested Answers
W-1: Depreciation
Before revaluation After revaluation
Total
(6 months) (6 months)
Depreciation
Rate Cost less Depreciation Revalued Depreciation
(A+B)
disposal (A) amount (B)
--------------------------------- Rupees in ‘000’ ---------------------------------
Plant 10% 2,500 125.0 1,650 82.500 207.500
Equipment 15% 500 52.5 175 13.125 65.625
273.125
W-2: Revaluation surplus/impairment loss ------- Rs. in ‘000’-------

Revalued amount 1,650 175
Less: WDV at revaluation date
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[2,500-1,000-125(W-1)]; [(700-200)-{270-(130+15)}-52.5] (1,375) (322.5)
Revaluation / (impairment) 275 (147.5)
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A.3 (a) When items of property, plant and equipment are stated at revalued amounts, the following
additional disclosure should be made:
 the effective date of the revaluation;
 whether an independent valuer was involved;

Sh
for each revalued class of property, plant and equipment, the carrying amount that
would have been recognised had the assets been carried under the cost model; and
 the revaluation surplus, indicating the change for the period and any restrictions on the
distribution of the balance to shareholders.
(b) Journal entries

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Date Particulars Debit Credit

Rs. in million
30-Jun-14 Depreciation for the year (W-1) 1,390
Accumulated depreciation – Office building 500
Accumulated depreciation – Factory building 440
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Accumulated depreciation – Warehouse 450

30-Jun-14 Accumulated depreciation – Office building (W-1) 1,000
Accumulated depreciation – Factory building (W-1) 880
Accumulated depreciation – Warehouse (W-1) 900
Office building 1,000
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Factory building 880

Warehouse 900
30-Jun-14 Office building (W-1) 750
Loss on impairment – buildings and warehouse 450
Surplus on revaluation 750
Factory building (W-1) 200
Warehouse (W-1) 250
30-Jun-15 Depreciation expense (W-1) 1,507
Accumulated depreciation – Office building 719
Accumulated depreciation – Factory buildings 369
Accumulated depreciation – Warehouse 419
30-Jun-15 Surplus on revaluation (750÷8) 94

Retained earnings (incremental depreciation) 94
Page 4 of 8
Suggested Answers
W-1:
Dep. for Revaluation
Revalued
Cost WDV the year Acc. Dep. surplus/ Dep. for the
amount
Assets (A) (B) 2014 D=A-B+C (impairment) year 2015
(E)
(C) F=E-(A-D)
---------------------------------- Rupees in million ----------------------------------
Office building 6,000 5,500 500 1,000 5,750 750 719
Factory building 4,400 3,960 440 880 3,320 (200) 369
Warehouse 4,500 4,050 450 900 3,350 (250) 419
1,390 1,507
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A.4 (a) Diamond Limited
Statement of comprehensive Income
ah
Head Lahore Quetta
Adjustment Combined
office branch branch
----------------------Rs. in '000'----------------------
Sales 4,800 1,550 1,198 - - 7,548
Goods sent to branches 1,760 - - (1,760) - -
Sh
6,560 1,550 1,198 (1,760) - 7,548
Cost of sales
Inventories as at 1-Jul-2014 400 30 48 - (13) 465
Purchases 3,800 230 200 - - 4,230
Goods received from HO - 1,070 618 1,688 - -
4,200 1,330 866 1,688 (13) 4,695
Closing inventory (375) (28) (150) 72 42 583
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3,825 1,302 716 1,760 29 4,112

Gross profit 2,735 248 482 - (29) 3,436
Expenses (500) (276) (202) - - (978)
Profit for the year 2,235 (28) 280 - (29) 2,458
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Unrealized profit (29) - - - 29 -

2,206 (28) 280 - - 2,458
(b) Reconciliation of Head Office and Branch Balances

Head office books Lahore branch Quetta branch
Lahore branch Quetta branch
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Head office current account

current account current account
----------------------Rs. in '000'----------------------
Opening balance 230 235 200 178
Less: Goods in transit - - 20 52
Less: Cash in transit (10) (5) - -
Branch Profit / loss (28) 280 (28) 280
192 510 192 510
Page 5 of 8
Suggested Answers
A.5 (a) IAS 18 defines revenue as the gross inflow of economic benefits in a period arising in the
course of the ordinary activities of an entity when those inflows result in an increase in equity,
other than increases relating to contributions from equity participants.
In case of royalties, revenue shall be recognised on an accrual basis in accordance with the
substance of the relevant agreement.
In case of dividends, revenue shall be recognised when the shareholder’s right to receive
payment is established.
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(b) (i) Where goods are subject to installation and inspection, revenue is normally recognized
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only when installation and inspection are complete. However, where the installation
process is simple in nature, revenue is recognised immediately upon the buyer
accepting the goods.
This means that revenue of Rs. 500,000 from sale of machine can be recognized in the
year ended 30 June 2015.
Sh
(ii) AL should recognizes the revenue in the year ended 30 June 2015 as:
 ST takes the title;
 It is probable that delivery will be made in August 2015;
 The item is on hand, identified and ready for delivery to ST at the time the sale is
recognized;
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 ST specifically acknowledges the deferred delivery instructions; and

 The usual payment terms apply and ST agrees to make the payment on 7 July
2015.
(i)
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(c) Date Particulars Debit (Rs.) Credit (Rs.)

31 March 2015 Bank/Receivable 50,000
Sale 40,000
Deferred revenue 10,000
30 June 2015 Deferred Revenue (10,000÷2) × 3 ÷ 12 1,250
Service fee income 1,250
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30 June 2015 Cost of sales – service (4,000  1÷ 4) 1,000

Bank/Payable 1,000
(ii) Date Particulars Debit (Rs.) Credit (Rs.)

1 July 2014 Receivable (W-1) 278,912
Sales 278,912
1 January 2015 Bank 150,000
Receivable (W-1) 136,054
Interest income 13,946
30 June 2015 Accrued income 7,142
Interest income 7,142
W-1: Determination of interest amount

Present Interest for 6
Installment Due on Payment Balance
Value months at 5%
1st Installment 1 January 2015 278,912 13,946 150,000 142,858
2nd Installment 30 June 2015 142,858 7,142 150,000 -
Page 6 of 8
Suggested Answers
A.6 2015
Rs. in ‘000’
20 – Closing inventory
Finished goods (W-1) 43,680
20.1 Closing inventory includes items costing Rs. 50,015,000 valued at net realisable value of
Rs. 43,680,000.
20.2 The inventory expenses (cost of sales) for the year is Rs. 190,254,000(W-4)
20.3 Damaged inventory of Rs. 1,116,000(W-1) has been written off.
id
W-1: Determination of value of closing inventory under perpetual inventory system
Value
Date Description QTY Price/unit
ah
(Rs. in '000')
1-Jul-14 Opening 2,450 20,000 49,000
31-Jul-14 Issue 2,100 20,000 42,000
Balance 350 20,000 7,000
30-Sep-14 Purchase 4,200 20,832 (W-2) 87,494
Balance
Sh 4,550 20,768 94,494
31-Oct-14 Issue 2,050 20,768 42,574
28-Feb-15 Issue 2,300 20,768 47,766
Balance 200 20,768 4,154
31-Mar-15 Purchase 4,350 22,400 (W-2) 97,440
Balance 4,550 22,328 101,594
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15-May-15 Issue 2,260 22,328 50,462

Balance 2,290 22,328 51,132
30-Jun-15 Units w/off 50 22,328 1,116
2,240 22,328 50,015
30-Jun-15 NRV adjustment (W-3) - - 6,335
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30-Jun-15 2,240 19,500 43,680
W-2: Purchase cost per unit September March

Purchase price/unit 18,600 20,000
Non-refundable import costs - 12% (29 – 17) 2,232 2,400
20,832 22,400
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W-3: NRV of SP Rs. in ‘000’

Cost 22,328
Selling price 22,000
Less: Cost of modification (2,500)
NRV per unit 19500
Decline in value (22,328 – 19,500) 2,828
Expense (2,240  2,828) 6,335
W-4: Cost of sales Rs. in ‘000’

Purchases 184,934
233,934
Less closing stock (43,680)
190,254
Page 7 of 8
Suggested Answers
A.7 Machine Rs. in

hours million (xy) (x2)
(x) (y)
264 50 13,200 69,696

390 90 35,100 152,100
280 70 19,600 78,400
355 85 30,175 126,025
375 100 37,500 140,625
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330 75 24,750 108,900
300 70 21,000 90,000
290 60 17,400 84,100
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2584 600 198,725 849,846
∑ ∑ ∑
∑
∑
Sh
∑ ∑
Estimated regression equation is

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If machine works 365 hours, then production expense would approximate:

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(THE END)
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Page 8 of 8

Q.1 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:
id
(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
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respectively. However, in view of Razi’s 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
Sh
bank statement revealed the following details:
Receipts Rupees
Amount deposited by Babar on 1 January 2014 from his personal account 2,000,000
Day to day collections banked at day end 3,800,000
Payments
od
Second instalment to Mr. Razi on 31 January 2014 480,000

Purchases 3,150,000
Lease rent 120,000
Electricity 22,000
Furniture purchased on 1 July 2014 25,000
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(iii) 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:
Rupees
Da
Salaries and EOBI payments 184,300

Purchases 49,500
Sundry shop expenses 35,600
Drawings 192,500
(iv) 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.
(v) 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.
(vi) 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 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
Goods received from head office 21,732,000
Sales made during the year, of which 40% on credit 15,846,250
Realized from credit customers 4,753,875
Trade discount allowed to customers 36,220
Sales return by customers 108,660
Bad debts 9,055
Petty expenses incurred 70,629
Closing stock 6,385,000
Goods in transit from head office at year-end 250,000
Purchase of fixed assets, bills discharged by head office 1,448,800
id
Expenses incurred and reimbursed by head office:
Rent and utilities 537,100
Sales promotion 144,880
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Payroll 724,400
Other information:
(i) Head Office invoices goods to branch at cost plus 25 percent.
(ii) The branch maintains an imprest of Rs. 100,000 and a balance of Rs. 500,000 in its
Sh
bank account. All other takings are transferred to head office.
(iii) Depreciation on fixed assets is to be charged at 15% per annum.
Required:
Prepare Lahore Branch Account in the books of Trade Link Enterprises for the year ended
31 December 2014 showing the profit made by the branch. (12)
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Q.3 (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
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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? (02)
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(b) 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. (02)
(c) A company sold equipment to a customer on 1 September 2014 for Rs. 15 million. As
per market norms the company has agreed to provide free support services for the next
two years. The cost of providing the support services is estimated at Rs. 250,000 per
annum. On such services, the company usually earns a profit of 20% of cost.
Required:
Prepare journal entries relating to this transaction for the year ended
31 December 2014. (04)
(d) In the sale of goods how should the revenue be recognised when goods are shipped
subject to installation and inspection? (04)
Q.4 (a) List the elements of financial statements. (02)
(b) Following is the draft balance sheet of XYZ Limited as at 31 December 2014 which
was prepared by its accountant:
Rs. in Rs. in
Assets Equities and liabilities
million million
Leasehold land – cost 250 Capital 1,000
Leasehold land – accumulated amortisation (200) Accumulated profit 1,816
Building – cost 1,000 Long term bank loan 200
Building – accumulated depreciation (500) Trade payables 228
Machinery – cost 1,750 Income tax payable 85
Machinery – accumulated depreciation (1,150) Accrued interest 13
Long term deposit 70
Stocks 910
id
Account receivables – net of provision 361
Cash and bank 851
3,342 3,342
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(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:
Sh Rs. in million
Stock 703
Account receivables – net of provision 418
Cash and bank 243
Trade payables 150
Income tax payable 80
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Long term deposit 70
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
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annum.
(iv) XYZ uses straight line method for depreciation. Rates of depreciation are as
under:
Leasehold land 2%
Building 5%
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Machinery 10%
Full month’s depreciation is provided in the month of acquisition but no

depreciation is charged in the month of disposal. Depreciation for the year 2014
has already been provided.
On review the CFO has discovered the following:

A machine with list price of Rs. 50 million was purchased on
1 January 2014. An amount of Rs. 30 million had been paid in cash
whereas Rs. 20 million were adjusted against trade-in of a machine costing
Rs. 40 million and having a book value of Rs. 25 million. The transaction
was recorded by debiting the plant and machinery account by Rs. 30
million i.e. the net amount paid to the supplier.
One of the company's customers became bankrupt during the year. Rs. 5
million out of total debt of Rs. 25 million were recovered from him.
Balance has to be written off.
Required:
Prepare a statement of cash flow as at 31 December 2014. (20)
Q.5 (a) List the particulars that are required to be disclosed in the financial statements in
respect of inventories, according to IAS 2. (03)
(b) 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: Rs. in ‘000’
Raw material purchased (including 17% sales tax which
is refundable) 60,500
Packing material purchased 2,050
Settlement discount received on raw material purchases 400
Transportation cost relating to raw material (70%) and
packing material (30%) 300
Details of overheads:
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Rent 2,700
Salaries and wages 2,500
Other variable overheads 5,000
Other fixed overheads 1,500
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Other information:
(i) The break-up of rent is as follows:
Sh Rs. in ‘000’
Factory 2,000
Warehouse (50% for raw material, 10% for
packing material and 40% for finished goods) 500
Shelf spacing in super markets 200
(ii) Break-up of salaries and wages, other variable and fixed overheads is as follows:
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Allocation between
Manufacturing Administration
Salaries and wages *60% 40%
Other variable overheads 80% 20%
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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.
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(iv) Opening and closing inventories are as follows:
1-Jan-2014 31-Dec-2014
--------- Rs. in ‘000’---------
Packing material 700 285
Raw material 5,000 7,780
Finished goods 2,962 4,162
Work in process 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 You have recently been appointed as chief financial officer of Al-Hafeez Limited (AHL).
While finalizing the company’s 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
id
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.
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The fabricated machine was transferred and available for use on 1 March 2014 and
was brought into commercial production on 1 May 2014. (07)
(b)
Sh
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
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1 September 2014 at a cost of Rs. 1.8 million and this amount was capitalized in the
carrying amount of buses. (04)
(c) On 31 December 2014, AHL acquired a used specialized machine which has no
active market, by exchange of Machine X. The newly acquired machine was booked
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at the carrying value of Machine X which was Rs. 9.5 million. However, the fair value
of Machine X on the date of sale was Rs. 8 million but no adjustment was made on
the premise that the acquisition of this specialised machine would increase efficiency
and consequently save approximately Rs. 1.5 million over its useful life. (03)
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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)
Suggested Answers
Ans.1 TRADING ACCOUNT

Rupees Rupees
Stock received from Razi 600,000 Sales (3800000+461900+34500) 4,296,400
Purchases (3,150,000 – 50,000) 3,100,000 Closing stock 450,000
Creditors for Purchases 82,500
Cash Purchases 49,500
Gross profit c/d 914,400
4,746,400 4,746,400
PROFIT & LOSS ACCOUNT
id
Rupees Rupees
Salaries 184,300 Gross profit b/d 914,400
ah
Sundry shop expenses 35,600
Lease rentals 120,000
Loss on burglary 30,000
Electricity(22000+5200) 27,200
Depreciation (5% × 25,000) 1,250
Sh
914,400
BALANCE SHEET
As at 31 December 2014
914,400
Rupees Rupees
Owner's equity Fixed assets
Babar’s capital (2,000,000+480,000) Goodwill
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2,480,000 (960,000–600,000–120,000) 240,000
Profit for the year 516,050 Furniture (25000 – 1250) 23,750
Drawings (192,500)
2,803,550 263,750
Liabilities Current assets
Creditors 82,500 Stock 450,000
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Accrued expenses (Electricity) 5,200 Other assets* 120,000

Cash at bank (W-1) 2,023,000
Cash in hand 34,500
2,891,250 2,891,250
WORKING:
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W-1 : Cash at Bank

Rupees Rupees
Capital introduced 2,000,000 Payment of 2nd installment to 480,000
Razi
Cash deposited 3,800,000 Payment for purchases 3,150,000
Cash received from insurance 20,000 Lease payment 120,000
Electricity 22,000
Furniture & Fixtures 25,000
Balance at bank 2,023,000
5,820,000 5,820,000
Page 1 of 6
Suggested Answers
Ans. 2 Lahore branch account in the head office books

Particulars Rs. Particulars Rs.
Goods received from head office 21,732,000 Cash sales less imprest and 8,907,750
*Goods in transit 250,000 amount retained by bank (W-1)
Fixed assets 1,448,800 Credit sales realized 4,753,875
Petty expenses disbursements 70,629 *Goods in transit 250,000
Rent & Utilities 537,100 Goods sent to branch – loading 4,346,400
Sales promotion 144,880 (21,732,000×25/125)
Salaries 724,400 Branch stock a/c 6,385,000
Stock reserve - (6,385,000×25/125) 1,277,000 Branch debtors (W-1) 1,430,690
Profit transferred to P & L A/c 1,720,386 Balance of fixed assets – net 1,231,480
id
Balance at bank 500,000
Petty cash imprest 100,000
27,905,195 27,905,195
ah
W-1: Branch Debtors
Sales 6,338,500 Bank 4,753,875
Sales discount 36,220
Sales return 108,660
Bad debts 9,055
W-1: Sales made during the year

Sales during the year
Sh
6,338,500
Balance c/d (Balancing fig.) 1,430,690
6,338,500
Rs.
15,846,250
Sales to credit customers 6,338,500
Cash sales 9,507,750
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Less: Petty cash imprest 100,000
Bank balance 500,000
Cash sales deposited into bank 8,907,750
If the outcome of a services transaction cannot be estimated reliably, revenue should only be
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Ans.3 (a)
recognized to the extent that expenses incurred are recoverable from the customer.
Therefore, HCL may recognize revenue to the extent of Rs. 320,000 only.
(b) Date Description Debit Credit

---------- Rupees ----------
31-Dec-2014 Dividend receivable 20,000
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Dividend income 20,000
15-Jan-2015 Bank 20,000

Dividend receivable 20,000
(c) Date Description Debit Credit

---------- Rupees ----------
31-Dec-2014 Bank/Receivable 15,000,000
Sales 14,400,000
Deferred support service revenue (500,000+20%) 600,000
31-Dec-2014 Deferred support service revenue 100,000
Cost of support services 83,333
Sales support service - (600,000×50%×4/12) 100,000
Bank/payables 83,333
Revenue and cost of services for 4 months
Page 2 of 6
Suggested Answers
(d) Revenue is normally recognised when the buyer accepts delivery, and installation
and inspection are complete. However, revenue is recognised immediately upon the
buyer’s acceptance of delivery when:
(i) the installation process is simple in nature, for example the installation of a
factory tested television receiver which only requires unpacking and
connection of power and antennae; or
(ii) the inspection is performed only for purposes of final determination of
contract prices, for example, shipments of iron ore, sugar or soya beans.
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Ans.4 (a) The element of financial statement are as under:
(i) The elements directly related to the measurement of financial position in the
statement of financial position are assets, liabilities and equity.
(ii) The elements directly related to the measurement of performance in the
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statement of comprehensive income are income and expenses.
(b) XYZ Limited

Statement of Cash flow
Sh
Cash flow from operating activities
Profit before taxation as revised (W-1)
Rs in million
253
Adjustments for non-cash items and other changes:
Depreciation (W-3) 228
Loss on disposal of machine (W-2) 5
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Interest expense (200×9%) 18
(Increase) / decrease in stock (703–910) (207)
(Increase) / decrease in account receivables (418–342)(W-4) 76
Increase / (decrease) in trade payables (228–150) 78
198
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Finance cost paid (18–13) (5)

Income tax paid (80+13–85) (8)
(13)
Net cash flow from operating activities 438
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Cash flow from investing activities

Capital expenditure- machine purchased amount paid (30)

Loan 200
Net increase/decrease in cash & cash equivalents 608
Cash & cash equivalents at beginning of the year 243
Cash & cash equivalents at end of the year 851
WORKINGS:
W-1: Profit before tax Rs. in million
Profit before tax (as given) 275
Depreciation on addition of machine (2)
Reversal of depreciation excess provided 4
Loss on disposal (W-2) (5)
Additional provision for bad debts (19)
Profit before tax 253
Page 3 of 6
Suggested Answers
W-2: Gain/loss on disposal of fixed assets

Cost 40 Trade-in allowance 20
Accumulated depreciation 15
Loss on disposal - Bal fig 5
40 40
W-3: Depreciation expense

Depreciation on:
Land 5 Disposal (Rs. 40 million×10%) 4
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Building 50 Transfer to P & L account 228
Plant & Machinery 175
Addition (20m ×10%) 2
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232 232
W-4: Account receivable 2014 2013
----- Rs. in million -----
Closing balance 361 418
Add: Allowance for bad debts [2014: 361×5/95; 2013: 418×5/95] 19 22
Less: write off

Closing balance - Gross
Less: Provision for bad debts (5%)
Sh 380
(20)
360
(18)
-
440
440
(22)
Closing balance – Net of provision 342 418
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W-5: Provision for bad debts
Write off during the year 20 Opening balance 22
Other adjustment 3 Provision for the year 19
Closing balance (W-4) 18
41 41
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Ans.5 (a) Disclosure requirements for inventory

IAS 2 requires the following disclosures in notes to the financial statements:
 The accounting policy adopted for measuring inventories, including the cost
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measurement method used.

 The total carrying amount of inventories, classified appropriately. (For a
manufacturer, appropriate classifications will be raw materials, work-in-
progress and finished goods)
 The amount of inventories carried at net realizable value or NRV.
 The amount of inventories written down in value, and so recognized as an
expense during the period.
 Details of any circumstances that have led to the write-down of inventories to
NRV. OR Reasons for write down of inventories.
 The amount of any reversal of any write-down that is recognized as a
reduction in the amount of inventories recognized as expense in the period.
 The circumstances or events that led to the reversal of a write-down of
inventories. OR Reasons for reversal of write down of inventories.
 The carrying amount of inventories pledged as security for liabilities.
Page 4 of 6
Suggested Answers
(b) Cost of Goods Sold: Rs. in ‘000

Opening stock of raw material and packing material (5,000 + 700) 5,700
Add: Purchases [(60,500×100/117+2,050) OR (60,500–8,791+2,050)] 53,759
Transportation cost 300
Available for consumption 59,759
Less: Closing stock (285 + 7780) (8,065)
Raw and packing materials consumed 51,694
Salaries and wages (2,500×60%×70%) 1,050
Manufacturing overheads (W-1) 7,650
Prime cost 60,394
id
Work in process- opening 1,950
Less: Closing work in progress (3,000)
Cost of goods manufactured 59,344
ah
Opening stock of finished goods (2962-300) 2,662
Cost of goods available for sale 62,006
Less: Closing stock [4162-200-(75×40%)] (3,932)
58,074
Rent factory
Rent warehouse (500×60%)
Sh
W-1: Manufacturing overheads
Variable overheads (5,000×80%) 4,000
2,000
300
Salaries (2,500×60%×30%) 450
Other fixed overheads (1,500×60%) 900
7,650
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Following items were to be ignored:

Warehouse rent for finished goods
Rent for shelf spacing
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Settlement discount on raw material purchases
Ans.6 (a) The capitalisation of the raw materials, labour and depreciation of plant &
machinery is correct as these costs were necessarily incurred in bringing the asset to
a location and condition enabling it to be used. However, the following costs
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should not be capitalized:

 The materials destroyed – all unnecessary wastage is expressly not allowed to
be capitalised per IAS 16.
 Administration overheads of Rs. 140,000 – unless it can be proved that these
costs were directly linked to the manufacture of the machine.
 IAS 16 doesn’t allow to capitalize internal profit
Property, plant and equipment must be depreciated from the date on which it first
becomes available for use. AHL provided depreciation expense for eight months
i.e. from the date of commercial production, which is not in accordance with the
requirement of IAS-16. This machine should be depreciated for 10 months i.e. from
1 March 2014.
Page 5 of 6
Suggested Answers
Journal entry:
Date Description Debit Credit
31-Dec-2014 Loss due to fire 40,000
Administration expense 140,000
Other income/retained earning 164,000
Accumulated depreciation 12,267
Machine 344,000
Depreciation 12,267
(b) AHL’s decision to capitalize the cost of inspection into buses account is correct.
However, buses are depreciated over the useful life whereas major inspection
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carried out by AHL should be depreciated over three years (next inspection date).
Therefore, AHL should amortize the inspection cost for 4 months of this year.
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01-Sep-2014 Buses – major inspection 1,800,000
Bank 1,800,000
31-Dec-2014 Depreciation expense (7/5)+(6/3) 1,600,000
(c)
Sh
Accumulated depreciation 1,600,000
A newly acquired asset should be brought into the accounting records at the fair
value. Where this fair value is not available, the fair value of the exchanged asset
should be used instead (in this case, Rs. 8.0 million).
Further, IFRS doesn’t allow future savings to be recognized as an asset.

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Consequently, the carrying amount of Machine X should first be reduced to Rs. 8

million, being its true fair value and record the impairment loss of Rs. 1.5 million.

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31-Dec-2014 Impairment expense 1,500,000

New machine 1,500,000
(THE END)
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Page 6 of 6

Q.1 Following is the summarised trial balance of ABC Limited as at 30 June 2014:
Rs. in million
Sales 737
id
Stock at 1 July 2013 75
Purchases 301
Manufacturing expenses 240
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Selling and marketing expenses 28
Administrative expenses 51
Factory building – cost at 1 July 2013 200
Machines – cost at 1 July 2013 280
Factory building – accumulated depreciation at 1 July 2013 50
Advance income tax

Sh
Machines – accumulated depreciation at 1 July 2013
4
87
Debtors 117
Cash and bank 51
Creditors 83
Share capital 300
Unappropriated profit at 1 July 2013 90
od
1,347 1,347
(i) Depreciation on factory building and machines are provided on reducing balance
method @ 10% and 15% per annum respectively. 60% depreciation on factory
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building and 100% depreciation on machines are charged to cost of sales. The balance
depreciation is charged to administrative expenses.
(ii) On 31 May 2014, a fully depreciated machine was sold for Rs. 3 million. The sale
proceeds were received on 5 July 2014. No entries have been made in respect of these
transactions.
(iii) Debtors include an amount of Rs. 28 million owed by a customer who experienced
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cash flow problems prior to the year-end. The company has agreed to accept
Rs. 18 million in full and final settlement of the debt. Four other debtors aggregating
Rs. 5 million are required to be written off.
(iv) Income tax liability for the year ended 30 June 2014 is estimated at Rs. 25 million.
(v) On 20 June 2014 an advance of Rs. 12 million was received under a contract for
supply of goods in August 2014. The advance was credited to sales.
(vi) Closing stock at 30 June 2014 amounted to Rs. 114 million. It included stock costing
Rs. 20 million whereas the related invoice was booked on 4 July 2014.
(vii) In June 2014, a competitor developed a new product which has affected ABC’s ability
to sell one of its products at its normal price of Rs. 160. It is estimated that to sell the
product, the company needs to offer a discount of 25%. 150,000 units of that product
were in hand as on 30 June 2014 at a cost of Rs. 120 per unit. Its selling costs are
estimated at Rs. 20 per unit.
Required:
Prepare the statement of comprehensive income for the year ended 30 June 2014 and the
statement of financial position as at that date in accordance with International Financial
Reporting Standards. (20)
Q.2 Zeeshan Enterprise invoice goods to its Islamabad branch at cost plus 20 percent. The
expenses of the branch are paid by the head office. The branch has supplied the following
information for the year ended 30 June 2014:
Rupees
Opening stock - at invoice price 240,000
Closing stock - at invoice price 180,000
Cash sales 175,000
Collection from debtors 378,000
Debtors as on 30 June 2014 91,600
Goods received from head office - at invoice price 300,000
Goods returned to head office 30,000
id
Goods in transit from head office as on 30 June 2014 - at invoice price 36,000
Branch expenses paid by the head office 104,000
Required:
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Show the Branch Account as it would appear in the books of head office for the year ended
30 June 2014 showing the profit made by the branch. (10)
Q.3 (a) List the conditions which are necessary to be fulfilled for recognizing revenue from sale
of goods under IAS 18 ‘Revenue’.
Sh (04)
(b) Attire Limited (AL) is a manufacturer of kids’ garments which are supplied to large
departmental stores. Following are some of the transactions which were carried out in
August 2014:
(i) AL delivered 2,000 garment pieces to Elegant Mart (EM). According to the terms
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of sale, at the expiry of three months from the date of delivery, EM would have
the right to return the unsold garments to AL. All garments sold during this
period or retained by EM would be invoiced after three months of delivery and
would thereafter be paid within seven days.
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EM has agreed to display AL’s garments at a prominent place at all its stores and
in return AL has agreed to allow a discount of 2%. (03)
(ii) AL sold 10,000 pieces of garments to Salam Garments on lay away basis. The
payment is to be made in 12 monthly instalments of Rs. 1,000,000 each. (03)
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Required:
Describe how the above transactions would be accounted for in AL’s books of account.
Q.4 Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July
2010. The plant has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and
equipment and accounts for revaluations on net replacement value method. The details of
revaluations performed by an independent firm of valuers are as follows:
Revaluation date Fair value

1 July 2011 Rs. 575 million
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the
plant to the year ended 30 June 2014. (Ignore tax implications) (15)
Q.5 Hammad Limited (HL) imports and supplies three products, Alpha, Gamma and Beta. The
opening balances and transactions for the month of June 2014 are as follows:
Units purchased Units Sold during the

Opening balance
during the month month
Items
Invoice
Qty. Value (Rs.) Qty. Qty. Value (Rs.)
value (Rs.)
Alpha 20 60,000 360 920,000 350 1,820,000
Gamma 100 4,800,000 50 2,375,000 70 4,060,000
Beta 30 120,000 490 1,820,000 400 1,640,000
The following information is also available:
(i) HL’s bank charges a commission of 0.5% of invoice value for opening the letter of
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credit.
(ii) Import taxes and duties were 23% of the invoice value out of which 40% are
refundable/adjustable.
(iii) The transportation charges are Rs. 1,500 per trip. 20 units of Alpha, 2 units of Gamma
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or 15 units of Beta can be transported in each trip.
(iv) All goods are repacked after import. The cost of packing per unit was Rs. 300,
Rs. 1,500 and 700 respectively.
(v) HL values its stock on first-in, first-out basis.
(vi) Average selling costs per unit are Rs. 700, Rs. 1,500 and Rs. 400 respectively.
Sh
Required:
Compute the value of stock of each product as at 30 June 2014 in accordance with IAS-2
‘Inventories’. (15)
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Q.6 Following information has been extracted from the financial statements of Full Speed
Enterprises (FSE) for the year ended 30 June 2013:
Rupees
Vehicles – cost 65,201,300
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Less: Accumulated depreciation (24,450,500)

WDV of vehicles 40,750,800
FSE provides depreciation on vehicles @ 15% per annum on written down values.
Depreciation on addition/deletion is provided in proportion to the period of use.
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Other related information is as follows:
(i) On 1 August 2013, a vehicle which was acquired at a cost of Rs. 850,000 on
1 July 2011 was exchanged for a new vehicle. The balance was settled with a cheque
for Rs. 350,000. The list price of the new vehicle was Rs. 900,000.
(ii) Three new vehicles were purchased on 1 December 2013 for Rs. 1,250,000 each.
(iii) On 1 February 2014, a vehicle having written down value of Rs. 550,000 was repaired
at a cost of Rs. 250,000. It is expected that the repairs would improve the efficiency of
the vehicle significantly.
(iv) On 30 June 2014, a vehicle purchased on 1 January 2012 at a cost of Rs. 1,500,000 was
sold for Rs. 1,350,000.
Required:
Prepare the following ledger accounts for the year ended 30 June 2014:
(a) Vehicles account
(b) Accumulated depreciation on vehicles
(c) Loss/gain on sale of vehicles (10)
Q.7 Following is the balance sheet of Ashfaq as at 30 June 2013:

Owner's equity / Liabilities Rupees Assets Rupees
Ashfaq’s capital 4,396,600 Motor car 2,000,000
Creditors 1,102,000 Furniture 1,000,000
Accrued rent 20,000 Stock-in-trade 1,805,000
Loan taken from a friend 27,900 Debtors 350,000
Prepaid insurance 15,000
Balance at bank 360,600
Cash in hand 15,900
5,546,500 5,546,500
Ashfaq needs to submit his Trading and Profit and Loss Account for the year ended 30 June
2014 and Balance Sheet as of that date to his bankers in order to obtain an overdraft facility.
He has not maintained proper books of account of the business but has provided you the
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following information:
(i) He purchased goods from a single supplier who allows a discount of 3% on goods
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purchased in excess of Rs. 3,000,000 in a year. The discount for the year ended
30 June 2014 amounts to Rs. 265,800 and would be received in August 2014.
(ii) All goods are sold at cost plus 60%.
(iii) All cash received against sale of goods has been banked with the exception of the
following weekly average cash expenses/drawings:
Sh Rupees
Drawings 30,000
Carriage outward 5,000
Petrol 3,000
Misc. expenses 2,500
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(iv) Cash in hand on 30 June 2014 amounted to Rs. 26,700.

(v) An analysis of Ashfaq’s bank statement revealed the following information:
Receipts Rupees Payments Rupees

Collection from debtors 464,400 Purchase of goods 9,850,700
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Cash deposited into bank 13,717,800 Car expenses (for business) 73,000
Rent 42,000
Repayment of loan to friend 27,900
Salaries 1,600,000
Purchase of freehold land 2,500,000
Travelling expenses 40,000
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Printing & stationery 46,000

Advertisement 125,000
Insurance 50,000
Truck hire charges 657,000
Misc. expenses 362,300
14,182,200 15,373,900
(vi) Depreciation on motor car and furniture is to be provided @ 30% and 15%
respectively under the reducing balance method.
(vii) Stock-in-trade on 30 June 2014 amounted to Rs. 702,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2014 and Balance
Sheet as on 30 June 2014. (20)
(THE END)
Suggested Answers
Ans.1 (a) ABC Limited

Statement of comprehensive income for the year ended 30 June 2014
Rs. in million
Sales (737 - 12) 725
Cost of sales (W-1) (563)
Gross profit 162
Selling and marketing expense (28)
Administrative expenses [(51+6(W-3)]+(28-18)+5 (72)
Other income 3
Profit before tax 65
Income tax expense (25)
Profit for the year 40
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(b) Statement of financial position as at 30 June 2014
ASSETS
Non-current assets
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Property, plant and equipment (343 - 44) 299
Current assets
Stock 111
Debtors [117-(28-18)-5] 102
Other receivable 3
Cash and bank
Total assets
Sh 51
267
566
EQUITY AND LIABILITIES

Owner's equity
Share capital 300
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Unappropriated profit (90+40) 130
Total equity 430
Current liabilities
Creditors (83+20) 103
Income tax payable (25-4) 21
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Advance from customer 12

136
Total equity and liabilities 566
Workings
W-1: Cost of Sales
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Opening stock 75
Purchases (301+20) 321
Manufacturing expenses 240
Depreciation (W-3) 38
Closing stock (114-3) (W-2) (111)
563
W-2: Inventory adjustment
Cost of product (150,000 x Rs. 120) 18
NRV of product (150,000 x [((Rs. 160×75%) - Rs. 20)] (15)
3
W-3: Depreciation:
Chargeable to
Depreciation
Cost of sales Administration
Factory building [(200-50]*10%) (60:40) 15 9 6
Machinery [((280-87)*15%)] 29 29 -
44 38 6
Page 1 of 8
Suggested Answers
Ans.2 Branch Account

Rupees Rupees
Opening stock 240,000 Opening stock reserve (240,000*20/120) 40,000
Opening debtors (W) 59,600 Cash sales 175,000
Goods sent to branch (300,000+36,000) 336,000 Collection from debtors 378,000
Branch expenses 104,000 Goods returned to HO 30,000
Goods in transit 36,000
Goods sent to branch a/c (loading on
net goods sent to branch) [(336,000-
Closing stock reserve (180,000*20/120) 30,000 36,000-30,000) × 20/120] 45,000
Profit and loss a/c (Branch profit Closing stock 180,000
transferred) (balancing) 206,000
Closing debtors 91,600
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975,600 975,600
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Working:
Debtors as on 30 June 2013
91,600 + 378,000 – 410,000 = 59,600
Ans.3 (a)
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Revenue recognition from sale of goods
IAS 18 says that an entity may recognise revenue from the sale of goods only when
all of the following conditions have been met:
 The entity has transferred to the buyer the ‘significant risks and rewards of
ownership of the goods’. This normally occurs when legal title to the goods or
possession of the goods passes to the buyer.
 The entity does not retain effective control over the goods sold, nor retains a
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continuing management involvement to the degree usually associated with
ownership.
 The amount of revenue can be measured reliably.
 It is probable that economic benefits associated with the transaction will flow
to the entity.
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 The costs incurred (or to be incurred) for the transaction can be measured
reliably.
(b) (i) The garments remain the property of AL and EM bears none of the risks of
ownership. When EM sells the garments or decides to keep them at the end of
three months, it records the purchases at that point from AL. This is therefore
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the point at which the risks and rewards pass to EM. Up to that point there is
no sale and the garments should appear in inventory of AL.
The 2% display charge should be accounted for as marketing expense.
(ii) A lay away sale does not involve financing and the revenue from the lay away
sale may be recognized in AL’s financial statements when the goods are
delivered. However, if experience indicates that most such sales are
consummated, revenue may be recognized when a significant deposit is
received provided the goods are on hand, identified and ready for delivery to
the buyer.
Page 2 of 8
Suggested Answers
Ans.4 Debit Credit

Date Particulars
(Rs. in million) (Rs. in million)
1-Jul-10 Plant 500.00
Bank 500.00
(Record purchase of plant)
30-Jun-11 Depreciation 50.00

Accumulated depreciation - Plant 50.00
(Record depreciation for the year 2010-11)
Working: Rs. 500m ÷ 10 = Rs. 50m
1-Jul-11 Accumulated depreciation - Plant 50.00

Plant 50.00
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(Reversal of prior years depreciation)
1-Jul-11 Plant 125.00

Surplus on revaluation of fixed assets 125.00
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(Increase in value through revaluation)
Working: Rs. 575m - Rs. 450m = Rs. 125m

30-Jun-12
Retained earnings
Sh
Working: Rs. 575m ÷ 9 = Rs. 63.89m
Surplus on revaluation of fixed assets
(Reversal for excess depreciation)

13.89
13.89
Working: Rs. 125m ÷ 9 = Rs. 13.89m

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Plant 63.89
(Reversal of prior year depreciation)
1-Jul-12 Surplus on revaluation of fixed assets 111.11

Revaluation expense (balancing) 10.00
Plant 121.11
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(Decrease in value through revaluation)

Working:
Surplus on rev. = Rs. 125m - Rs. 13.89m = Rs. 111.11
Building: [Rs. 575m - Rs. 63.89m] - Rs. 390m =Rs. 121.11

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Working: Rs. 390m ÷ 8 = Rs. 48.75m

Plant 48.75
1-Jul-13 Plant 38.75

Revaluation income 8.75
Surplus on revaluation of fixed assets (balancing) 30.00
Working:
Revaluation income = Rs. 10m-[Rs. 50m - Rs. 48.75m] = Rs.
8.75m
Plant: Rs. 380m - [Rs. 390m - Rs. 48.75m] = Rs. 38.75m
Page 3 of 8
Suggested Answers

Working: Rs. Rs. 380m ÷ 7 = Rs. 54.29m
30-Jun-14 Surplus on revaluation of fixed assets 4.29

Retained earnings 4.29
(Reversal for excess depreciation)
Working: Rs. 30m ÷ 7 = Rs. 4.29m
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Page 4 of 8
Suggested Answers
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Ans.5
Alpha Gamma Beta
Total
Cost Cost Cost
Units Cost (Rs.) Units Cost (Rs.) Units Cost (Rs.) Cost
P/U P/U P/U
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Opening stock 20 3,000 60,000 100 48,000 4,800,000 30 4,000 120,000
Purchased during the month

Invoice value 920,000 2,375,000 1,820,000
LC opening charges
(0.5% of invoice value) 4,600 11,875 9,100
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Import duties to be added
(23%×60%=13.8%) × Invoice value 126,960 327,750 251,160
Transportation cost (360/20)×1,500 27,000 (50/2)×1,500 37,500 (490/15)×1,500 49,000
Wrapping cost (360 × 300) 108,000 (50 ×1,500) 75,000 (490 ×700) 343,000
360 *3,296 1,186,560 50 *56,543 2,827,125 490 *5,045 2,472,260
Closing stock 30 80 120
(20+360-350) (100+50-70) (30+490-400)
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Value of closing stock on FIFO basis
From opening stock - - - 30 48,000 1,440,000 - - -
From purchases 30 3,296 98,880 50 56,543 2,827,125 120 5,045 605,451
98,880 4,267,125 605,451
NRV of closing stock
Selling price 5,200 58,000 4,100
Less: Selling cost per unit (700) (1,500) (400)
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30 4,500 135,000 80 56,500 4,520,000 120 3,700 444,000
Closing stock at lower of cost and NRV 98,880 4,267,125 444,000 4,810,005
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Page 5 of 8
Suggested Answers
Ans.6 Vehicle
Rupees Rupees
1/7/2013 Opening balance 65,201,300 1/8/2013 Cost of vehicle exchanged 850,000
New vehicle in exchange
1/8/2013 for old car 900,000 6/30/2014 Vehicle sold 1,500,000
1/12/2013 3 car @ 1,250,000 each 3,750,000 30/6/2014 Closing balance 67,751,300
1/2/2014 Repair to a vehicle 250,000
70,101,300 70,101,300
Accumulated Depreciation - Vehicle

Rupees Rupees
1/8/2013 Acc dep for vehicle 1/7/2013 Opening balance 24,450,500
exchanged
(127,500+108,375+7,677) 243,552
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6/30/2014 Acc dep for vehicle sold 30/6/2014 Depreciation for the year 6,496,733
(112,500+208,125+176,906) 497,531 (W-1)
30/6/2014 Closing balance 30,206,150
30,947,233 30,947,233
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Loss / gain on sale of vehicles
Rupees Rupees
1/8/2013 Loss on exchange of 6/30/2014 Gain on sale of vehicle 347,531
vehicle [1,350,000 - (1,500,000-
350,000 +(850,000- 497,531)]
6/30/2014
243,552-900,000)
Transfer to P&L
Net gain on disposal
of assets
Sh 56,448
291,083
347,531 347,531
W-1: Depreciation for the year

Depreciation on opening written down value (65,201,300 - 24,450,500) ×15% 6,112,620
Less: Depreciation on exchanged assets from 1/8/13 to 30/6/14 (850,000-243,552) × 15%
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× 11/12 (83,387)
Add: Depreciation on addition - Exchanged asset (900,000 × 15% × 11/12) 123,750
Add: Depreciation on addition (3,750,000 × 15% × 7/12) 328,125
Add: Depreciation on major repair (250,000 × 5/12 × 15% ) 15,625
6,496,733
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Page 6 of 8
Suggested Answers
Ans.7 TRADING ACCOUNT

Rupees Rupees
Opening stock 1,805,000 Sales – Cash (W-2) 15,834,600
Purchases (W-1) 11,860,000 - Credit (W-3) 4,480,920
Purchase discount 265,800
Gross profit c/d 7,618,320 Closing stock 702,000
21,283,320 21,283,320
PROFIT & LOSS ACCOUNT

Rupees Rupees
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Carriage outward 260,000 Gross profit b/d 7,618,320
Petrol 156,000
Car expenses 73,000
Rent (42,000-20,000) 22,000
Salaries 1,600,000
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Traveling expenses 40,000
Printing & stationary 46,000
Advertisement 125,000
Insurance (50,000 + 15,000) 65,000
Depreciation (600,000+150,000) 750,000
Truck hire charges 657,000
Misc. expense (362,300+130,000)
Profit for the year Sh 492,300
3,332,020
7,618,320
Balance Sheet
7,618,320
As at 30 June 2014
Rupees Rupees
Owner's equity Fixed assets
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Ashfaq's capital Freehold land 2,500,000
(4,396,600+3,332,020-1,560,000) 6,168,620 Motor car (2,000,000-600,000) 1,400,000
Furniture (1,000,000 - 150,000) 850,000
Liabilities Current assets

Creditors (W-1) 2,845,500 Stock 702,000
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Bank overdraft (W-5) 831,100 Debtors (W-4) 4,366,520

Cash in hand 26,700
9,845,220 9,845,220
WORKINGS
W-1 : Creditors
Rupees Rupees
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Bank 9,850,700 Balance b/d 1,102,000

Purchase discount 265,800 Purchases (W-1.1) 11,860,000
Balance c/d 2,845,500
12,962,000 12,962,000
W-1.1: Rs. 3,000,000 + (Rs.265,800/0.03) = Rs. 11,860,000

W-2 : Cash
Rupees Rupees
Balance b/d 15,900 Bank 13,717,800
Cash sales (bal) 15,834,600 Drawings (30,000 × 52) 1,560,000
Carriage outward (5,000 × 52) 260,000
Petrol (3,000 × 52) 156,000
Misc. expense (2,500 × 52) 130,000
Balance c/d 26,700
15,850,500 15,850,500
Op. Stock + Net purchases – Closing Stock

W-3: Total sales = (Rs. 1,805,000 + 11,594,200 – 702,000)× 1.6 = Rs. 20,315,520
Credit sales = 20,315,520 - 15,834,600 = Rs. 4,480,920
Page 7 of 8
Suggested Answers
W-4 : Debtors
Rupees Rupees
Balance b/d 350,000 Bank 464,400
Credit sales (W-3) 4,480,920 Balance c/d (balancing) 4,366,520
4,830,920 4,830,920
W-5: (360,600+14,182,200-15,373,900=831,100 (Bank over draft)
(THE END)
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Certificate in Accounting and Finance Stage Examination

The Institute of 7 March 2018

Financial Accounting and Reporting-I

Following information is also available:

Calculate the amount at which above inventory items should be carried as on

Q.3 Following information pertains to Nadir Limited:

Extract from statement of financial position as on 31 December 2017

(v) Provision for doubtful trade receivables is maintained at 5%.

Q.4 Following information pertains to Dhaka Enterprises (DE).

Jul-2017 Aug-2017 Sep-2017 Oct-2017 Nov-2017 Dec-2017

----------------------------------- No. of units -----------------------------------

Equity and liabilities Rupees Assets Rupees

provision for doubtful debts is to be made equal to 5% of the debtors.

Q.6 (a) Following information pertains to a building acquired by SK Limited (SKL) on

(i) The building is being depreciated on straight-line basis over 10 years.

revaluations as carried out by independent valuer are as follows:

(iii) There is no change in useful life of the building.

Finance cost (450)

Statement of financial position

Share capital 4,000

Closing balance 5,000

(vi) Cash payments for the year:

presented whereas cheque from a debtor, deposited on 31 December 2017 amounting

Financial Accounting and Reporting-I

Assets and liabilities were realized/settled as under:

(vi) Dissolution expenses of Rs. 30,000 were paid by A.

(c) Cash (02)

Q.2 The following information pertains to Sherdil Limited (SL):

The following additional information is available:

(iii) Cost of stock in hand as on 30 June 2017 is Rs. 50 million.

Q.4 The following cost data pertains to Al-Khair Limited (AKL):

Production (Units) Cost (Rs.)

The applicable discount rate is 6.596%.

(i) Summary of bank statement:

Vehicle – WDV 210,000 18,500

Salaries payable 22,000 18,000

Ans.1 (a) Realization

W-1: Partners’ capital Rupees

Less: Current account balances (65,000)

Ans.2 Property, plant and equipment 2016

Opening net book value Sh 432.00 74.04

Closing net book value 357.00 48.41

Property, plant and equipment 2015

Opening 22.50 5.00

Closing 24.00 10.96

Opening net book value 427.50 45.00

Closing net book value 432.00 74.04

Measurement base Revaluation model Cost model

Ans.3 Younus Limited

Statement of profit or loss

Gross profit 70,500

W-1: Property, plant and equipment Cost Accumulated Book value

Ans.4 (a) Units Cost (Rs.)

Total cost for 20,000 units 300,000

(b) Quantity Sales (Rs.) Cost (Rs.) Profit (Rs.) Remarks

Ans.5 Reasons for fluctuation with

margin  The company is in initial phase and may

obtain economies of scale in its

Return on Higher than previous year: Lower than industry

Current ratio Lower than previous year: Lower than industry

Ans.6 (a) Option 1: Lump sum payment

C-1 100,000 - 100,000 3,704 96,296

300,000 30,000 270,000 10,000 260,000