ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
A.1 Qudsia Limited
Consolidated statement of financial position
As on 31 December 2012
Rs. in million
ASSETS
Non-current assets
Property, plant and equipment W.1 5,546.90
Goodwill W.2 [110 – (37.5 × 80%)] 80.00
Investment in associates W.3 251.47
5,878.37
Current assets (5,480 + 400) 5,880.00
11,758.37
EQUITY AND LIABILITIES
Equity attributable to owners of QL
Ordinary shares capital 6,000.00
Shares to be issued (purchase consideration payable) (4 × 15) 60.00
Retained earnings W.4 2,828.99
8,888.99
Non-controlling interest [(500 + 100 – 3.1) × 20%] 119.38
9,008.37
Current liabilities (2,400 + 350) 2,750.00
11,758.37
W.1 Property, plant and equipment
QL and ML (5,000 + 550) 5,550.00
Unrealised gain on purchase of the machine from ML
- Unrealised gain as on 01-10-2012 [24 – (26÷10×8)] (3.2)
- Realised gain for 1-10-2012 to 31-12-2012 [3.2 × 0.25÷8)] 0.1
Unrealsied gain on 31-12-2012 (3.10)
5,546.90
W.2 Goodwill in ML and its impairment
Goodwill at the date of acquisition [630 – (80% × (500 + 150)] 110.00
Goodwill impairment:
Carrying value of ML's net assets on 31-12-2012 (950-350) 600.00
Gross-up of goodwill in ML (CGU) (110 ÷ 80%) 137.50
737.50
Estimated recoverable amount of ML on 31-12-2012 (700.00)
Total impairment 37.50
W.3 Investment in associates (HL)
Cost of investment [190 + (4 × 15)] 250.00
HL’s post acquisition profits [(240 – 224) × 40%] 6.40
Additional depreciation on fair value of HL’s
building exceeding its carrying amount [(28 ÷ 7 ÷ 12) × 40% ] (0.13)
Unrealized profit on inventories sold to HL [(52×30 ÷ 130) × 40%] (4.80)
251.47
Page 1 of 7
ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
W.4 Retained earnings QL
QL balance of retained earnings 2,900.00
Subsidiary ML:
ML post acquisition loss [(100 – 150) × 0.8] (40.00)
ML goodwill impairment W.2 (37.5 × 80%) (30.00)
Unrealized gain on purchase of the machine from ML W.1 (3.1 × 80%) (2.48)
Associate HL:
HL post acquisition profit W.3 6.40
QL’s share of additional depreciation on fair value
of HL’s building exceeding its carrying amount W.3 (0.13)
Unrealized profit on inventories sold to HL W.3 (4.80)
2,828.99
A.2 Healthcare Limited
Accounting treatment and disclosure requirements
For the year ended 31 March 2013
Recognition of provisions:
(i) Provision for fine and the cost of disposal of contaminated material:
According to IAS 37, a provision shall be recognised when all of the following
conditions are met:
There is a present obligation (legal or constructive) as a result of a past event.
It is probable that outflow of resources will be required to settle the obligation.
A reliable estimate can be made of the amount of the obligation.
Since all the above conditions are met, a provision shall be made for the year ended 31
March 2013 as under:
Penalty under the law for Rs. 9 million.
Cost of disposal of contaminated inventory for Rs. 0.5 million.
(ii) Compensation for non-supply of food supplement to CCC:
According to IAS 37, if an entity has a contract that is onerous, the present obligation
under the contract shall be recognized and measured as a provision.
Hence HCL should make a provision for the compensation payable under the contract
i.e. Rs. 18 million. Although, the liability is payable after 31 March 2013, provision
shall be made for the year ended 31 March 2013 as the obligation event occurred before
the year-end.
An entity shall disclose the following for each class of provision:
A brief description of the nature of the obligation and the expected timing of any
resulting outflows of economic benefits.
An indication of the uncertainties about the amount or timing of those outflows.
Where necessary to provide adequate information, an entity shall disclose the major
assumptions made concerning future events, and
The amount of any expected reimbursement, stating the amount of any asset that
has been recognized for that expected reimbursement.
Inventory of contaminated product and raw material returned to the supplier:
Trade receivables and sales revenue related to contaminated inventory recalled from the
customers shall be reduced by Rs. 165 million (132×1.25). Contaminated inventory costing
Rs. 202 million (70+132) shall be written off.
Page 2 of 7
ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
Claim lodged with the supplier:
As per IAS 37:
A claim should only be recognized when the realization of income is virtually certain
Where an inflow of economic benefits is not certain but is probable, an entity shall give
an appropriate disclosure.
In view of the non-availability of any response from FCE, recovery of contamination claim
of Rs. 211.5 million is neither certain nor probable. Therefore, the claim shall not be
recognized nor a contingent asset be disclosed..
Contingent liability for a possible damages claims:
As per IAS 37, where the possibility of any outflow in settlement is remote, an entity shall
disclose for each class of contingent liability at the end of the reporting period a brief
description of the nature of the contingent liability and where practicable:
An estimate of its financial effect.
An indication of the uncertainties relating to the amount or timing of any outflow; and
The possibility of any reimbursement.
As per the investigation report, the contamination is not health hazardous. However, there
is a remote probability that damages may be claimed by a user of the contaminated product.
As the amount of the obligation cannot be measured with sufficient reliability, HCL shall
disclose a contingent liability giving a brief description thereof.
A.3 Krishna Limited
Notes to the Financial Statements
For the year ended 31 December 2012
1. EARNINGS PER SHARE 2012
From From
continuing discontinued Total
operations operations
--------Rupees in ‘000--------
1.1 Basic earnings per share
Profit after taxation for the year 200,000 10,000
Dividend on convertible preference shares for the
year ended 31 December 2012
(500×100×20%×12%) (1,200) -
Profit attributable to ordinary shareholders 198,800 10,000
---No. of shares in ‘000---
Weighted avg. no. of ordinary shares in issue W.1 11,278 11,278
Rs. 17.63 0.89 18.52
1.2 Diluted earnings per share --------Rupees in ‘000--------
Profit after taxation for the year 200,000 10,000
---No. of shares in ‘000---
Weighted avg. no. of ordinary shares in issue W.1 11,278 11,278
Adjustment for:
- Conversion of preference shares W.3 467 467
- Employee options (20-2-6) ×2,500 30 30
11,775 11,775
Diluted earnings per share Rs. 16.99 0.85 17.84
Page 3 of 7
ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
W.1: Weighted average no. of ordinary shares
No. of Fraction Adjust. Weighted
shares of factor average
Description Date
outstanding period (W-2) shares
--------------No. of shares in '000--------------
Balance 01-01-12 8,000
20% bonus issue (8,000×20%) 31-03-12 1,600
9,600 4/12 1.0213 3,268
Preference shares converted
into ordinary shares
(500×80%×2) 30-04-12 800
10,400 2/12 1.0213 1,770
20% Right issue (10,400×20%) 01-07-12 2,080
12,480 6/12 6,240
11,278
W-2: Adjustment factor for Right issue
Value per No. of
Rs. '000
share shares
Shares prior to right issue at FV prevailing on the
exercise date 80.00 10,400 832,000
20% right shares issued at exercise price 70.00 2,080 145,600
Theoretical ex-right value 977,600÷12,480 78.33 12,480 977,600
Adjustment factor 80÷78.33 1.0213
W.3: Assumed conversion of preference shares
No. of Weighted
Fraction of
Description Date shares average
period
outstanding shares
Preference shares converted into
ordinary shares (500×80%×2) 30-04-12 800.00 4/12 267
Remaining convertible preference
shares (500×20%×2) 200.00 1 200
467
Page 4 of 7
ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
A.4 Ashfaq General Insurance Limited
Statement of Investment Income
For the year ended 31 December 2012
Rs. in million
Income from trading investments
Loss on sale of investments (12,000)
Dividend income 6,000
Profit / interest earned on investments 28,000 + 13,000 - 11,400 29,600
23,600
Income from non-trading investments
Held to maturity
Profit received on bank and term deposits 4,000 + 1,500 - 2,000 3,500
Profit / interest earned on investments 9,000 + 1,800 - 600 10,200
Available for sale
Profit / interest earned on investments 16000 + 3000 - 2700 16,300
Dividend income 5,000
Amortisation of premium on investments (3,000)
32,000
Gain/(Loss) on sale of non-trading investments
Available for sale 15,000
Gain/(Loss) on revaluation of investments
Held for trading (1,000)
Provision for impairment in value of investments
Available for sale (2,000)
Investment related expenses (7,000)
Net investment income 60,600
A.5 Qasmi Investment Limited
Journal entries for 31 December 2011 and 2012
Debit Credit
Date Description
Rs. in million
31-Dec-2011 Accrued Interest written off (P&L) 12.00
Accrued Interest - 2010 12.00
(Accrued interest on 12%TFCs for 2010 is no more
receivable, now written off.)
Financial assets (12% TFCs) W.3 (16.89–12.00) 4.89
Interest income (P&L) 4.89
(Interest income on 12% TFCs at 4.426% for 2011)
Impairment loss (P&L) W.1 19.16
Financial assets (12% TFCs) 19.16
(Impairment of financial assets (12% TFCs) as
interest for 2010 to 2013 is no more receivable)
31-Dec-2012 Financial assets(12% TFCs) W.1 (88.53×16.426%) 14.54
Interest income (P&L) 14.54
(Interest income for 2012)
Financial assets (12% TFCs) W.2 10.31
Impairment reversal (P&L) 10.31
(Reversal of impairment of financial assets on
rescheduling of payments for TFCs)
Page 5 of 7
ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
W.1 Impairment
Carrying value of 12% TFCs on 31-12-2011 W.3 107.69
PV of future cash flows on 31-12-2011 120×[(1.16426)–2 ] 88.53
Impairment loss 19.16
W.2 Impairment Reversal
Revised carrying amount on rescheduling at lower of (A) and (B) below 113.38
(A) PV of the future cash flow as per the agreed revised schedule 115.00
(B) Amortised cost on impairment reversal date of 31-12-2012
would have been had the impairment not been recognised. W.3 113.38
Existing carrying amount at 31-12-2012 88.53×1.16426 (103.07)
Impairment reversal 10.31
W.3 Original amortisation schedule
Effective interest @ Cash flow
Cash flow dates Amortised cost
16.426% (Interest @ 12%)
--------------------------------Rs. in million--------------------------------
01-Jan-2009 (100×95%) 95.00
31-Dec-2009 15.60 (12.00) 98.60
31-Dec-2010 16.20 (12.00) 102.80
31-Dec-2011 16.89 (12.00) 107.69
31-Dec-2012 17.69 (12.00) 113.38
A.6 Chugtai Limited
Extracts from the consolidated statement of comprehensive income
For the year ended 31 December 2012
Rs. in million
Profit after taxation W.1 1,017.50
Other comprehensive income for the year
- Exchange gain on translation of goodwill W.2 (30 × 0.75) 22.50
- Exchange gain on translation of foreign operations-JL W.3 166.67
189.17
Total comprehensive income 1,206.67
Profit attributable to:
- Owners of the Holding company W.1 [609.5 + (408 × 75%)] 915.50
- Non-controlling interest W.1 (408 × 25%) 102.00
1,017.50
Total comprehensive income attributable to:
- Owners of the Holding company 915.5 + 22.5 + (166.67 × 75%) 1,063.00
- Non-controlling interest (Balancing) 102 + (166.67 × 0.25) 143.67
1,206.67
W.1: Consolidated profit after tax
Profit for the year – CL 700.00
Exclusion of dividend received from JL (41.00)
Goodwill impairment W.2 (66 × 75%) (49.50)
Adjusted profit for the year - CL 609.50
Profit for the year - JL (40 × 10.2) 408.00
1,017.50
Page 6 of 7
ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examination ‐ Summer 2013
W.2: Goodwill RAMs in Conversion
Rs. in million
million rate
Opening balance 30.00 10.00 300.00
Goodwill impairment on 31-12-2012 (6.00) 11.00 (66.00)
24.00 234.00
Closing balance (at year end exchange
rate) 24.00 11.00 264.00
Exchange gain 30.00
W.3: Exchange gain on conversion of foreign operations - JL
Opening net assets 50 + 85 135.00 10.00 1,350.00
JL's profit for the year 40.00 10.20 408.00
Dividend paid by JL (5.00) 41/0.75 (54.67)
Closing net assets 170.00 1,703.33
Closing net assets (at year end exchange rate) 11.00 1,870.00
Exchange gain 166.67
A.7 Niazi Company Limited
Notes to the financial statements
For the year ended 31 December 2012
Deferred Tax Liability / (Assets) - net
Charge / Recognised
Balance Balance
(Reversal) in surplus
1 Jan 2012 31 Dec 2012
Description in PL on
revaluation
Rupees in million
Deductible temporary differences
Provision for retirement benefits and
doubtful debts (17.50) (0.35) - (17.85)
01 Jan 2012 [50 × 35%]
31 Dec 2012 [(50 – 5 + 6) × 35%]
Liabilities outstanding for more than 3
years added back to income - (1.05) - (1.05)
31 Dec 2012 [(8 – 2 – 3) × 35%]
Taxable temporary differences
Property, plant and equipments (W-1) 134.75 (49.00) 14.00 99.75
117.25 (50.40) 14.00 80.85
W-1: Property, plant and equipment:
01 Jan 2012 31 Dec 2012
Accounting WDV 2,000 2,700
Revaluation surplus on freehold land not subject to depreciation (15) (15)
Tax WDV (1,600) (2,400)
Excess of accounting WDV over tax WDV 385 285
Deferred tax liability at 35% 134.75 99.75
Deferred tax liability on revaluation of PPE on 31-12-2012 to be adjusted
against its revaluation surplus. [145 – (150 ÷ 10 × 7)] = 40 × 35% 14.00
(The End)
Page 7 of 7