ADVANCED ACCOUNITNG & FINANCIAL REPORTING

Suggested Answers
Final Examination

A.1 Bee Limited

Consolidated Statement of Financial Position
As at 31 December 2011

Work- Rs. in
ASSETS
ings millions
Non-current assets
Property, plant and equipment (75,600 + 2,800) 78,400.00
Investment in associates (650 + 10 (W-3)) 660.00
Goodwill 1 964.80

Current assets
Stocks in trade (24,100+1,700) - 2.56) 25,797.44
Trade debts [(16,400 + 2,900) - 12)] 19,288.00
Cash and bank (800+700) 1,500.00
126,610.24
EQUITY AND LIABILITIES
Equity attributable to parent
Ordinary share capital (Rs.10 each) 44,300.00
Retained earnings 3 16,822.50
61,122.50
Non-controlling interest [(2,800+1,200)*10%] – 10% of 2.56) 399.74
61,522.24

Long term loan 36,400.00

Current liabilities
Trade and other payables [(24,600 + 4,100) - 12] 28,688.00
Total equity and liabilities 126,610.24

WORKINGS
Working 1 : Goodwill Cee Tee
---------Rs. in million--------
Consideration transferred
Cash (Tee: Rs. 300 ÷ 0.25) 3,900.00 1,200.00
Contingent liability (at fair value) 7.00
3,907.00 1,200.00
Less: Net assets acquired
Cee (90% x (2800 + 350) (2,835.00)
Tee (80% x (1,000 + 100) (880.00)
Goodwill at acquisition 1,072.00 320.00
Less: Impairment in the value of goodwill / Adjusted on
disposal of 75% investment in Tee (W-2) (107.20) (320.00)
964.80 -

Working 2: Group share on disposal of shares of Tee

Consideration received 2,000.00
Fair value of 25% investment retained 650.00
Less: Share of carrying value when control lost
Net assets (80% x (1,900 - (Rs. 200 x 3/12)) (1,480.00)
Goodwill written off (W-1) (320.00)
850.00

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination

Working 3: Consolidated Retained earnings Rs. in million

Bee 15,800.00
Reversal of Gain on sale of investment in Tee
(recorded in parent's book) (2,000 – [1,200x75%]) (1,100.00)
Group profit on disposal (W-2) 850.00
Cee ([1,200-350] x 90%) 765.00
Tee ([900-100] x 80%) 640.00
Less: Profit after control lost (200 x 3/12 x 80%)) (40.00)
OR (900 - 100 - (200 x 25%)) x 80% 600.00
Add: Profit from associates (Rs. 200 x 3/12 x 20%) 10.00
Add: Payment of contingent liability 7.00
Less: Goodwill impairment (W-1) (107.20)
Less: Unrealized profit in stock (32 x 40% x 25/125) X 90% (2.30)
16,822.50

A.2 Dee General Insurance Limited

Consolidated Statement of Expenses
For the year ended 31 December 2011
Deferred

Underwriting
Commissions

underwriting
management

Commission
commission

commissions

reinsurers
expense
expense

expense
Other
Class

from
Net

Net
Opening

Closing

Direct and
-------------------------------(Rs. in million)------------------------
Facultative
Fire and
321.41 148.79 160.43 309.77 165.28 475.07 270.44 204.61
property damage
Marine, aviation
126.87 11.31 5.68 132.50 139.96 272.46 5.70 266.76
and transport
Motor 215.00 128.50 114.23 229.27 499.93 729.20 12.72 716.48
Miscellaneous 90.94 38.59 35.17 94.36 172.70 267.06 82.40 184.66
754.22 327.19 315.51 765.90 977.87 1,743.77 371.26 1,372.51
Treaty
Proportional 0.30 - - 0.30 0.13 0. 43 - 0.43
Grand total 754.52 327.19 315.51 766.20 978.00 1,744.20 371.26 1,372.94

A.3 Que Limited

Extract from the Statement of Comprehensive Income
For the year ended 31 December 2011
2011
Earnings per share
Basic
Continued operations [(124,250,000 + 40,000,000) ÷ 85,224,000)] 1.93
Discontinued operations [(40,000,000) ÷ 85,224,000] (0.47)
1.46
Diluted
Continued operations [(131,400,000 + 40,000,000) ÷ 91,724,000)] 1.87
Discontinued operations [(40,000,000) ÷ 91,724,000] (0.44)
1.43

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination

Que Industries Limited

Extract from notes to the Financial Statements
For the year ended 31 December 2012

17- Earnings per share 2011

Basic Diluted
Total comprehensive income attributable to ordinary
shareholders (Rs. in million) Note 17.1, 17.2 124.25 131.40
Weighted average number of ordinary shares outstanding
during the year Note 17.3 85,224,000 91,724,000

17.1 Reconciliation of profit for the year to Basic earnings 2011

Rs. in million
Profit for the year 130.00
Less: Preference dividend (5.75)
Basic earnings 124.25

17.2 Reconciliation of basic earnings to diluted earnings

Basic earnings 124.25
Add: Interest on convertible debentures 7.15
Diluted earnings 131.40

17.3 Reconciliation of basic number of shares to diluted number of shares

Basic number of shares 85,224,000
Options 500,000
Convertible debentures 6,000,000
Preference shares (Not adjusted being anti-dilutive) -
Diluted number of shares 91,724,000

WORKINGS

W-1 : Weighted average number of shares

Date of Actual no. Bonus
Description Time W/Avg. shares
issue of shares factor
Balance 1-Jan-11 80,000,000 3/4 1.0204 61,224,000
Right issue 30-Sep-11 16,000,000 - - -
96,000,000 1/4 1.0000 24,000,000
85,224,000
W-1.1 : Calculation of theoretical ex-right price

Shares Market
Value
Quantity Rate
Outstanding shares before the exercise of
rights at fair value 80,000,000 12.50 1,000,000,000
Exercise of right issued 16,000,000 11.00 176,000,000
96,000,000 1,176,000,000

Theoretical ex-right price per share (Rs. 1,176,000,000 ÷ 96,000,000) 12.25

Bonus adjustment factor (12.50 ÷ 12.25) 1.0204

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination

W-2 : Ranking of dilutive instruments

Earnings per
Increase in Increase in no. of
Description incremental Rank
earnings ordinary shares
share
Convertible
1.19 2
debentures 7,150,000 6,000,000
(11,000,000 x 65%)
Options– bonus
- 500,000 - 1
element
(25,0000x120x2/12)
Preference shares 5,750,000 4,000,000 1.44 3
W-3 : Testing for dilutive effect

Profit
attributable Ordinary
EPS Effect
to ordinary shares
shareholders
Basic earnings per share 124,250,000 85,224,000 1.4579
Options - 500,000
124,250,000 85,724,000 1.4494 Dilutive
Convertible debentures 7,150,000 6,000,000
131,400,000 91,724,000 1.4326 Dilutive
Preference shares 5,750,000 4,000,000
137,150,000 95,724,000 1.4328 Anti dilutive

A.4 Date Description Debit Credit

(a) 27-Dec-11 Cash 10,150,000

Financial liability under Repo (Borrowing) 10,150,000
(Record the financial liability at its fair value)

31-Dec-11 Interest expense (Rs. 10,183,337 - Rs. 10,150,000) x 5 ÷ 10)

16,669
Financial liability under Repo (Borrowing) 16,669
(Record the accrual of interest on financial liability)

31-Dec-11 Investment in TFCs 22,332

Profit & Loss A/c (Rs. 10,166,669 - Rs. 10,144,337) 22,332
(Record the increase in TFC value)

6-Jan-12 Interest expense

(Rs. 10,183,337 - Rs. 10,150,000) x 5 ÷ 10) 16,668
Financial liability under Repo (Borrowing) 16,668
(Record interest till maturity on financial liability)

6-Jan-12 Financial liability under Repo (Borrowing) 10,183,337

Cash 10,183,337
(Record payment of financial liability under repo)

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination

(b) 01-Jan-11 Profit and loss account 746,056

Long term loan (W-1) 746,056
(Record the revised loan at its fair value)

31-Dec-11 Interest expense (W-1) 6,074,606

Long term loan 225,394
Cash 6,300,000
(Record the interest expense for the year 2011)

(c) 1-Jul-11 Impairment loss (Rs. 80m - Rs. 60m) 20,000,000

Plant and machinery 20,000,000
(Record the impairment in the value of plant and
machinery)

1-Jul-11 Bank 90,000,000

Plant and machinery 60,000,000
Deferred profit (Rs. 90m - Rs. 60m) 30,000,000
(Record the sale of plant and machinery under sale and
leaseback arrangement)

Lease rental expense / Profit and loss account

31-Dec-11 9,660,000
Bank . 9,660,000
(Record the payment of lease rental)

31-Dec-11 Deferred profit (Rs. 30m ÷ 5) ÷2 3,000,000

Profit and loss account 3,000,000
(Record transfer of deferred profit to P & L)

W-1: Determination of Interest Expense and Fair Value of Loan

Discounted cash
Year Cash flow (Rs.) Disc. factor @10%
flow (Rs.)
31-Dec-11 (6,300,000) 0.9091 (5,727,273)
31-Dec-12 (6,300,000) 0.8264 (5,206,612)
31-Dec-13 (66,300,000) 0.7513 (49,812,171)
(60,746,056)
Less: Existing principal outstanding 60,000,000
Amount to be provided in Profit and Loss (746,056)

Amortized cost
Amortized cost
at start of the Interest Cash flow
Year at year-end
year
Rs. Rs. Rs. Rs.
31-Dec-11 60,746,056 6,074,605.56 6,300,000 60,520,661.16
31-Dec-12 60,520,661 6,052,066.12 6,300,000 60,272,727.27
31-Dec-13 60,272,727 6,027,272.73 66,300,000 -

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination

A.5 (a)  An operating segment is a component of an entity:

o That engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other
components of the same entity);
o Whose operating results are regularly reviewed by the entity’s chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess the performance; and
o For which discrete financial information is available.

 A business activity which has yet to earn revenues, such as a start up, is an
operating segment if it is separately reported on to the chief operating decision
maker.
(b) As Jay Limited has both profit and loss making segments, the result of those in
profit and those in loss must be totaled to see which is the greater:

Profits (194+81+10) 285

Losses (22+63) (85)
200

So the 10% of profit or loss test must be applied by reference to Rs. 285 million.

Reportable
Segment Explanation
(Yes / No)
A Yes Because it generates more than 10% of revenue.
B No Because it fails to meet any of the criteria specified in
IFRS-8
C Yes Because it generates more than 10% of revenue.
D Yes Because it has more than 10% of assets.
E Yes Because its losses are more than 10% of absolute profit.

Check the 75% test is satisfied: (705+300+90)/1,177 = 93%

A.6 (a)
2011
Property

Carried at Carried at Total

cost fair value
------------Rupees------------
D,C Cost/ fair value as on 1 January 2011 10.00 120.00 130.00
Accumulated depreciation *1 (2.25) - (2.25)
Balance as on 1 January 2011 7.75 120.00 127.75
E Additions during the year *2 30.00 30.00
A Transferred from Inventory 120.00 120.00
D Depreciation *3 (0.90) (0.90)
Fair value adjustment (W-1) 14.00 14.00
Cost/fair value as on 31 December 2011 10.00 284.00 294.00
Accumulated depreciation (3.15) - (3.15)
Balance as on 31 December 2011 6.85 284.00 290.85

*1 : (Rs. 10m - Rs. 1m)/10 x 2.5 *2 : (48 - 3) x 2/3

*3 : (Rs. 10m - Rs. 1m)/10

6.1: Property B
Since property B was transferred to property plant and equipment on 30 June 2010,
it will not be considered as investment property.

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination

6.2: Property D
This property rented out to tenants is situated outside the main city and therefore fair
value is not determinable. The building is being depreciated over a period of 10 years
on straight line method.

W-1: Fair Value Adjustment Rs. in million

Property A (120 - 100) (20.00)
Property C (150 - 120) 30.00
Property E (51 x 2/3) - 30 4.00
14.00

(b) Since the Property C is owned by GICL group and rented out to a subsidiary within
the group, it is classified as Property, Plant and Equipment in consolidated financial
statements, instead of Investment Property.

The value of Property C to be shown in Property, Plant and Equipment while

preparing the consolidated financial statements, is Rs. 125 million (160 - {(160-20) x
10% x 2.5}.

(THE END)

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