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ICMA

Pakistan

ADVANCED FINANCIAL ACCOUNTING AND

CORPORATE REPORTING (AF-501)SEMESTER-5

SPRING (AUGUST) 2014 EXAMINATIONS

Saturday, the 23rd August 2014

Extra Reading Time: 15 MinutesWriting Time: 03 Hours

Maximum Marks: 100 Roll No.:

(i) Attempt all questions.

(ii) Answers must be neat, relevant and brief.(iii) Use of non-programmable scientific calculators of any model is allowed.(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.(v) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,

effective presentation, language and use of clear diagram/ chart, where appropriate.(vi) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.(vii) Question Paper must be returned to invigilator before leaving the examination hall.

Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:15 a.m. or 2:15 p.m. [PST] as the case may be).

MarksQ. 1 (a) Following are the statements of profit or loss of Gold Ltd., and its subsidiaries for the year

ended June 30, 2013:

Rs. 000

Gold Ltd. Silver Ltd. Copper Ltd.Revenue 10,500 7,000 6,500

Cost of sales (5,550) (3,660) (3,480)

Gross profit 4,950 3,340 3,020

General and administrative expenses (1,310) (650) (685)

Marketing and distribution expenses (1,295) (750) (625)

Other income 225 - -

Financial costs (910) (260) (230)

Profit before tax 1,660 1,680 1,480

Income tax expense (581) (420) (370)

Profit for the year 1,079 1,260 1,110

Additional Information:

1. On January 1, 2013 Gold Ltd., acquired 225,000 shares out of total paid up shares of300,000 (Rs.10 each) of Silver Ltd., for Rs. 3,375,000. The reserves of Silver Ltd., atthe acquisition date were Rs.900,000.

2. Since its acquisition, Silver Ltd., has sold goods to Gold Ltd., for Rs. 1,000,000, beingthe selling price. 30% of the items remained in Gold Limiteds inventories at the yearend. Silver Ltd., applies 20% gross margin on the sales to Gold Ltd.

3. At the year end, the goodwill of Silver Ltd., was impaired by Rs.50,000. Gold Ltd.,follows the policy to charge impairment losses to general and administrative expenses.

4. Gold Ltd., values the non-controlling interest at the proportionate share of the fair value

of the net assets at the date of acquisition.

5. At the date of acquisition, the property, plant and equipment of Silver Ltd., wasrevalued by a professional valuer, which was higher by Rs. 250,000 than the bookvalue. The increase in value was related to a plant with remaining useful life of 5 years.The group policy is to charge depreciation on the plant to general and administrativeexpenses on monthly basis from the date of acquisition.

6. On July 1, 2008, Gold Ltd., had acquired 140,000 ordinary shares of Copper Ltd.,whose paid up capital was Rs. 2,000,000 (Rs. 10 each) for Rs.2,170,000. At the dateof acquisition the reserves of Copper Ltd., stood at Rs.550,000.

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Marks7. Gold Ltd., disposed of 80,000 shares of Copper Ltd., on April 1, 2013 for

Rs. 2,800,000. The fair value of the retained shares as at April 1, 2013 wasRs. 2,040,000. The reserves of Copper Ltd., as at July 1, 2012 were Rs. 2,350,000.There was no impairment of goodwill as at June 30, 2013.

8. Silver Ltd., paid dividend of 300,000 on October 1, 2013 and Gold Ltd., has recordedits share of dividend in other income.

9. Gold Ltd., is holding an available for sale investment. The accountant has calculatedthe gain on subsequent measurement of Rs. 126,000 for the year but has not recorded

the same as he needs to know its treatment in the financial statements. Assume thatall income and expenses for all the three entities accrued evenly throughout the year.

Required:

Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income forthe Gold group for the year ended June 30, 2013. 30

(b) Dutech Private Limited, a newly established company, has started the business ofmanufacturing abrasives, to be exported to China. The CEO of the company has attended aseminar on environmental reporting which explained the issues of pollution caused duringthe production process and the publication of environmental reports along with financialstatements.

Required:

You, being the management accountant and head of finance, were asked to brief the staffregarding the importance of environmental reporting specially covering the following:

(i) What is Environmental Reporting? 02

(ii) Possible media through which the Environmental Report is presented. 02

(iii) Whether it is mandatory or not for companies to issue Environmental Report? 01

(iv) The issues (contents) to be included in the Environmental Report. 05

Q. 2 Salik Ltd., was established in 1994 and is engaged in manufacturing of plastic moulded parts. Inyear 2000, it acquired 75% interest in Safi Ltd., engaged in importing of plastic raw material. Inthe year 2009, it acquired 35% interest in Giant Ltd., which was customer of Salik Ltd. On

January 1, 2013, it also acquired 60% interest in Millat Packaging Ltd.The draft consolidated financial statements of Salik Group for the year endedDecember 31, 2013 are as follows:

Consolidated Statement of Profit or Loss

Rs. 000

Revenue 30,545

Cost of sales (19,243)

Gross profit 11,302

Operating expenses (7,762)

Operating profit 3,540

Share of profit from associate company 1,200Income from investment 510

Finance charges (405)

Profit before tax 4,845

Tax on profit (1,454)

Profit after tax 3,391

Profit attributable to:

Owners of the parent 3,116

Non-controlling interest 275

3,391

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MarksConsolidated Statement of Financial Position Rs. 000

Non-Current Assets 2013 2012

Property, plant and equipment 15,780 10,850

Accumulated depreciation (4,050) 11,730 (3,500) 7,350

Goodwill 175

Investment in associate 3,450 2,980

Long-term investments 1,250 1,250

16,605 11,580Current Assets

Inventories 6,200 3,450

Accounts receivable 5,275 3,375

Cash 11,195 22,670 6,635 13,460

39,275 25,040

Equity

Share capital (Rs. 10 each) 10,710 6,500

Share premium 8,424 5,935

Retained earnings 10,245 7,770

29,379 20,205

Non-controlling interest 310 29,689 - 20,205Non-Current Liabilities

Obligation under finance lease 2,015 620

Long-term loan 3,830 2,050

Deferred tax 120 5,965 50 2,720

Current-Liabilities

Accounts payable 1,350 910

Obligation under finance lease 835 490

Income tax payable 1,311 620

Finance charges payable 125 3,621 95 2,115

39,275 25,040

Additional Information:(i) A plant costing Rs.1.5 million and having book value of Rs. 1.2 million was sold for

Rs. 1.5 million. New plant and equipment were acquired in year 2013 includingadditions of Rs. 2.2 million acquired under finance lease.

(ii) Data relating to the acquisition of Millat Packaging Ltd., is as follows:

Rs. 000

Property, plant and equipment 700

Inventories 84

Accounts receivable 76

Cash 254

Accounts payable (222)

Income tax payable (74)

818

Goodwill 175

993

Less: Non-controlling interest (175)

Value of net assets acquired 818

The consideration was paid by issuing 66,000 ordinary shares of Rs. 11.50 each. Thebalance amount of Rs. 59,000 was paid in cash.

(iii) The tax for the year included deferred tax liability of Rs. 291,000.

Required:

Prepare Consolidated Statement of Cash flows for the year ended December 31, 2013 asper requirement of the IAS 7 using indirect method. 25

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MarksQ. 3 (a) According to IFRS 8, what amounts must be disclosed by an entity, if these amounts are

specifically included in segment profit or loss? 08

(b) Saaim Limited's statement of financial position as of June 30, 2012 is showing its paid upordinary share capital of Rs. 75 million (Rs. 10 per share).

During the year ended June 30, 2013, the company has issued options of 1.5 millionshares. The company has reported the net profit of Rs. 1,350,000 for the year.

The exercise price for the shares under option is Rs. 12 per share and the average market

value of one ordinary share is Rs.16 per share.Required:

Calculate Basic EPS and Diluted EPS for the year ended June 30, 2013. 07

Q. 4 (a) Infinity Ltd., has introduced a post employment defined benefit compensation scheme for itsemployees on July 1, 2008. Following information is related to the scheme for the yearended June 30, 2013:

Rs. 000

Opening Closing

Balance Balance

Present value of plan liabilities 1,900 2,060Fair value of plan assets 1,722 1,970

Activities during the year:

Current service cost 200

Benefits paid out 155

Contributions paid by the company 145

Discount rate 14%

Required:

(i) Calculate gain or loss on re-measurement of plan assets and liabilities as atJune 30,2013. 04

(ii) Prepare extracts of the Statement of Financial Position and the Statement of Profit or

Loss and Other Comprehensive Income for the year ended June 30, 2013. 04

(b) Shahcar Automobiles, a car dealer, has an arrangement with Greencars, an automobilemanufacturer, to obtain automobiles on consignment basis. The purchase price includes anelement of finance. Shahcar settles the price of automobiles after 10 days of their sales tocustomers.

The agreement further provides that if the automobiles remain unsold after six months, thenShahcar Automobiles is obliged to purchase the automobiles. There is no right of return.Shahcar Automobiles is also responsible for insurance and maintenance from the date ofdelivery.

Required:

Applying the principle of substance over form, describe as to whether the asset, upon

delivery, will be recognized by Shahcar Automobiles or it will remain in the inventory ofGreencars. Give reasons to support your answer. 04

(c) Galaxy Co., purchased 15,000 shares of Star Ltd., from open market on July 1, 2012 forRs. 35 per share. The market price on June 30, 2013 was Rs. 38 per share.

On October 1, 2013 Galaxy Ltd., sold its entire shares of Star Ltd., for Rs. 40 per share.Galaxy Ltd., paid the transaction cost of 1% of the purchase/ sale price.

Required:

Prepare the extracts of Statement of Profit or Loss and Other Comprehensive Income andStatement of Financial Position for the year ended June 30, 2013 and 2014 showing theabove transactions. 08

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