CMA APRIL 2019 SPECIAL EXAMINATION
PROFESSIONAL LEVEL- II
SUBJECT: 201 ADVANCED FINANCIAL ACCOUNTING-I
Model Solution
Solution to the question No. 1 (b)
Required (i)
AXY Company (Lessee)
Lease Amortization Schedule
Date Annual Lease Interest (10%) on Reduction of Lease Liability
Payment Liability lease liability
1/1/15 Tk.85,653.55
1/1/15 Tk.20,541.11 Tk.20,541.11 65,112.44
1/1/16 20,541.11 Tk.6,511.24 14,029.87 51,082.57
1/1/17 20,541.11 5,108.26 15,432.85 35,649.72
1/1/18 20,541.11 3,564.97 16,976.14 18,673.58
1/1/19 20,541.11 1,867.53 18,673.58 0
Working: Calculation of PV of Minimum Lease Payment:
Pvn = R (PVAF n-1 i + 1 )
Pvn = Tk, 20,541.11 ( Table IV 4 10% +1 )
Pvn = 20,541.11 (3.16986+1)
Pvn = Tk, 85,653.55
Required (ii)
1/1/15 Leased Equipment under Capital Lease……………………Tk.85,653.55
Lease Liability/ Obligation Under Capital Lease…………..................Tk.85,653.55
1/1/15 Lease Liability/ Obligation Under Capital Lease ..…………Tk.20,541.11
Cash……………….………………………………………………………Tk.20,541.11
During 2015 ( at the time of payment of executory cost)
Insurance Expense……………………………………….…. Tk.900.00
Cash…………………………………..…………………………….…….Tk.900.00
Property Tax Expense………………………………..……. Tk.1,600.00
Cash……………….……………………………………………….….….Tk.1,600.00
12/31/15 Interest Expense………………………. ………………….. Tk.6,511.24
Interest Payable …………………...……………………… Tk.6,511.24
Depreciation Expense………….………………………….. Tk.17,130.71
Accumulated Depreciation- Leased Equipment…………….. Tk.17,130.71
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1/1/16 Interest Payable ………………….……………………. Tk.6,511.24
Interest Expense……………….. ……. Tk.6,511.24
1/1/16 Interest Expense……………… ………………………… Tk.6,511.24
Lease Liability/ Obligation Under Capital Lease …….. Tk.14,029.87
Cash………………… ……….……… Tk.20,541.11
During 2016 ( at the time of payment of executory cost)
Insurance Expense……………………. Tk.900.00
Cash………………………….…….. Tk.900.00
Property Tax Expense………………. Tk.1,600.00
Cash………………………….…….. Tk.1,600.00
12/31/16 Interest Expense……………………………… Tk.5,108.26
Interest Payable ……………….…….. Tk.5,108.26
Depreciation Expense………………………...................... Tk.17,130.71
Accumulated Depreciation- Leased Equipment…………………….. Tk.17,130.71
Solution to the question No. 2
(1) Accumulated Depreciation – Machinery …………………. $25,500
Depreciation Expense………………………………………………… $8,500
Retained Earnings …………………………………..………………… $17,000
Working:
2013-2014 2015
Depreciation taken $170,000* $85,000
Depreciation (Correct) $153,000 $76,500
$17,000 $8,500
*($510,000 x 1/6 x 2)
(2) Retained Earnings…………………………………………… $45,000
Sales Salaries Expense…………………………………………………. $45,000
(3) No entry necessary
(4) Amortization Expense – copyright………………………… $2250*
Retained Earnings…………………………………………… $4500**
Copyright……………………………………………………………….. $6750
*($45000 / 20 = $2250)
**($2250 X 2 = $4500)
(5) Inventory …………………………………………………….. $71000
Retained Earnings…………………………………..………………….. $71000
(6) Loss on write down of inventories…………………………. $87000
Retained Earnings……………………………………………………… $87000
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Solution to the question No. 3 (c)
Required (i)
The net Income to be reported in 2015, using the retrospective approach, would be computed as
follows:
Income before Income Tax Tk.900,000
Income Tax (40%xTk.900,000) 360,000
Net Income Tk.540,000
Required (ii)
Construction in Process…………………. Tk,250,000
Deferred Tax Liability (40%xTk.250,000)………………………… Tk,100,000
Retained Earnings……………………………………… Tk,150,000*
*(Tk.250,000 x 60%= Tk.150,000)
Solution to the question No. 4
Contract profit recognized for the year ending December 31, 2010, is as follows:
Particulars Option 1 Option2
Contract revenue (Calculation d) Tk.3,107,000 Tk.3,285,000
Contract costs to date (Calculation a) ( 2,530,000) ( 2530,000)
Profit Tk.577,000 Tk.755,000
Calculations Taka Taka
a. Contract costs to date
Materials Tk.1,400,000
Labor 800,000
Operating overhead 150,000
Subcontractors 180,000
Totals Tk.2,530,000
b. Contract costs (revised estimated total costs)
Original estimates Tk.9,500,000
Materials 180,000
Labor 300,000
Operating overhead (30,000)
Variation 750,000
Totals Tk.10,700,000
C. Contract revenue (revised estimate)
Original amount Tk.12,000,000
Labor (wage increases added to contract price) 240,000
Variation 900,000
Tk.13,140,000
d. Stage of completion Option 1 Option 2
Based on contract costs in proportion to estimated total
contract costs:
2,530,000/10,700,000x13,140,000 (rounded off) Tk.3,107,000
Based on work certified: 25%x1,31,40,000 Tk. 3,285,000
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Solution to the question No. 5
Required (i)
X (.40) = $360000 Taxes due for 2013
X= $360000 / .40
X = $ 900000 Taxable Income for 2013
Required (ii)
Taxable Income [from part (i)] $900,000
Excess depreciation 100,000
Municipal Interest 10,000
Unearned rent (40,000)
________
Pre-Tax financial Income for 2013 $970,000
Required (iii)
2013
Income Tax expense…………………………….……….............. $381,000*
Deferred Tax asset ($40,000 X .35)………………………............. $14,000
Income Tax Payable ($900,000 X .40)…………………………………… $360,000
Deferred Tax liability ($100,000 X .35)…………………………………… $35,000
*Calculation of Income Tax Expenses
Current Tax Expenses ($900,000 x 40%) = $360,000
Deferred Tax Expenses ($100,000x35%-$40,000x35%) = $ 21,000
$ 381,000
2014
Income Tax Expense……………………………………………. $ 341,250**
Deferred Tax Liability [($100,000 / 4) X .35]…………………… $ 8,750
Income Tax Payable ($980,000 X .35)………………………………… $ 343,000
Deferred Tax Asset [($40,000 / 2) X .35]……….………………………… $ 7,000
**Calculation of Income Tax Expenses
Current Tax Expenses ($980,000 x 35%) = $343,000
Deferred Tax Expenses ($40,000/2x35% -$100,000/4x35%) = ($ 1,750)
$ 341,250
Required (iv)
Income Before Income Taxes $ 970,000
Less: Income Tax Expenses
Current ($900,000 x 40%) $ 360,000
Deferred ($35000 - $14000) $ 21,000
$ 381,000
Net Income $ 589,000
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