7 Baf 301 Fa - Sa PDF

SUGGESTED ANSWERS MODEL PAPER
1 of 9
FINANCIAL ACCOUNTING SEMESTER-3
Marks
Q.2 (a)
Paramount Company
0.75
Statement of Profit or Loss

For the year ended December 31, 2011
Rs. in million
799.000
(614.400)
Revenue (w-3)
Less: cost of sales (w-4)
Gross profit
Less: Distribution costs
Administrative expenses
184.600
15
21
(36.000)
148.600
(1.000)
147.600
(48.484)
99.116
Profit from operations

Less: Loss on disposal (w-7)
Less: Finance costs (W-2)
Profit before tax
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.5
Less tax charge:

Provision for tax
30
0.25
Over provision previous year
(1)
0.25
4.2
0.25
Deferred tax liability

(12 x 35%)
Profit for the year
(33.200)
0.25
65.916
0.5
(b)
Paramount Company
Statement of Financial Position
as at December 31, 2011
ASSETS
Non-current assets
Property, plant, and equipment
Investment property
Current assets
Inventory
Accounts receivable
Cash
Total Assets
DISCLAIMER:
{from Part (c)}
0.75
Rs. in million
757.600
65.000
822.600
0.25
0.25
0.25
84.000
60.000
253.000
397.000
1,219.600
0.25
0.25
0.25
0.5
0.5
The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute for
professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers.
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2 of 9
Marks
EQUITY AND LIABILITIES
Equity
Share capital
Equity under option (w-6)
Revaluation Surplus (w-1)
Retained earnings (w-5)
Rs. in million
Non-current Liabilities
10% Loan notes
8% Bonds payable (w-6)
Deferred tax liability (25+4.2)
Current Liabilities
Accounts payable (20 0.250)
Accrued interest on notes (w-2)
Advance rent
Accrued interest on 8% bonds (w-6)
Income tax
Total Equity and Liabilities
465.000
15.163
15.000
126.916
622.079
0.25
0.25
0.25
0.25
0.5
300.000
187.321
29.200
516.521
0.25
0.25
0.5
0.5
19.750
15.000
0.250
16.000
30.000
81.000
1,219.600
0.5
0.25
0.25
0.25
0.25
0.5
0.5
(c)
Schedule of Non-current Assets (Rs. in million)
Property
Cost
Depreciation b/d
600.00
(90.00)
510.00
Disposal: Cost
Depreciation
Current depreciation
Investment property
Marks
510.00
(12.00)
498.00
(50)
448
Plant and
Total
Equipment
450.00 1,050.000
(104.00) (194.000)
346.00
856.000
(3.00)
(3.000)
1.00
1.000
344.00
854.000
(34.40)
(46.400)
309.60
807.600
(50.000)
309.60
757.600
1.5 +
1.75
0.75
= 4.0
WORKING NOTES:
W-1
Book value of office
FV of office
Revaluation Surplus
DISCLAIMER:
50.000
65.000
15.000
0.5
3 of 9
Marks
W-2:
Finance cost:
Interest on notes paid
Accrued interest (300 x 10% x )
Interest on 8% Bonds payable
Finance cost
Rs. in million
15.000
15.000
18.484
48.484
W-3
Revenue
Less: Sale of equipment wrongly treated as sales of
goods
W-4
Cost of sale
Add: dep. Expenses {from Part (c)}
(given)
W-5
Retained earnings
Balance b/f
Add: profit for the year
Less: dividend paid
Retained earnings as on December31, 2011
W-6 8% Bonds
At January 1, 2011:
Present value of principal @ 10: (200 x 0.62092)
1.5
800.000
(1.000)
799.000
0.5
568.000
46.400
614.400
0.5
62.000
65.916
(1.000)
126.916
1.0
Rs. million
124.184
PV of interest : (200 x 0.08) x 3.79079

Liability (at 1.1.2011)
Equity (bal/ fig) (at 1.1.2011)
Total
60.653
184.837
15.163
200.000
At December 31, 2011:

Carrying value of debt
At January 1, 2011 Liability
Interest on liability @ 10% (184.837 x 10%)
Interest @ 8% on Rs.200 million
Carrying value of debt
184.837
18.484
(16.000)
187.321
1.0
3.000
(1.000)
2.000
1.000
1.000
1.0
W-7
Loss or gain on disposal:
Cost of equipment
Less: Accumulated Depreciation
WDV
Less sold for cash
Loss on disposal
DISCLAIMER:
1.5
4 of 9
Marks
Q.3
Progressive Limited
Statement of cash flows
For the ended December 31, 2012
Cash flows from operating activities:
1.0
Rs. in million
Net loss
(9)
0.25
Adjustments for:
Depreciation on:
Machinery and equipment
(W-2)
30
0.25
Lease hold
(W-8)
0.25
Gain on disposal
(W-3)
(25)
0.25
(2)
0.5
0.5
0.25
Gain on sale of investment (12 10 )

Amortization of franchise (8 5)
Interest expense
13
4
Increase in inventories (15 12)
Decrease in account receivable (18 16)
Decrease in service income receivable (7 5)

Decrease in account payable (10 8)
Decrease in advance service received (8 4)
(3)
0.5
0.5
0.5
(2)
0.5
(4)
0.5
(5)
Tax paid
(W-9)
(2)
0.25
Interest paid
(W-10)
(5)
0.25
(7)
Cash flows from operating activities
(8)
0.25
Cash flows from investing activities:

Acquisition of plant
Sale of machinery
(W-1)
(given)
Sale of investment
Sale of marketable securities (1 - 4)
Lease payments
Cash flows from investing activities
DISCLAIMER:
(W-7)
(95)
0.25
25
0.25
12
0.25
0.5
(5)
0.25
(60)
0.25
5 of 9
Marks
b/f
(68)
Cash flows from financing activities:

Issue of share for cash
(W-4)
Share premium
(W-5)
Retirement of 10% bond payable (40 60)

Dividend paid
(W-6)
0.25
75
20
0.25
( 20 )
0.5
(2)
0.25
Cash flows from financing activities

Cash in flows
73
0.25
0.25
Add: opening balance
(6)
Closing balance overdraft
(1)
Notes:
(a)
opening cash in hand
( b ) closing cash
Opening bank over draft
(12)
opening over draft
(10)
Opening
(6)
closing balance
(1)
1.0
WORKING NOTES (Rs. in million):

W- 1
Machinery Account
b/f
300
Acquired bal. fig
95
sold
Share capital
25
c/f
420
20
0.5 + 0.5
400
0.5 + 0.0
420
Accumulated depreciation machinery
W-2
Disposal
20
b/f
40
0.5+0.0
c/f
50
dep exp
30
0.0+0.5
70
W-3
Loss or gain on sale of machine
Cost
Less: Accumulated depreciation
WDV
Less: sold for cash
Gain on sale
DISCLAIMER:
70
20
(20)
nil
25
25
0.25
0.25
0.5
6 of 9
Marks
W-4
Share Capital
c/f
200
200
b/f
Cash bal. fig
Machine
100
75
25
200
0.5
0.0+0.5
W-5
Share Premium
b/f
Cash bal. fig
c/f
50
50
30
20
0.5
50
W-6
Retained Earnings
Dividend
Loss
c/f
2 b/f
9
82
93
W-7
93
0.5+0.0
0.5+0.0
93
Finance lease obligation
Cash paid bal. fig

c/f more than 1 year
c/f less than 1 year
5
5
5
15
b/f more than 1 year

b/f less than 1 year
10
5
1.0
15
W-8
Accumulated Depreciation - leased asset
c/f
6
6
b/f
dep exp (Current)
3
3
6
0.0+0.5
0.5+0.0
W-9
Tax Payable
Paid bal. fig
c/f
2
4
6
b/f
W-10
Interest Payable
Paid bal. fig
c/f
DISCLAIMER:
5 b/f
2 Exp.
7
3
4
7
0.5+0.0
0.0+0.5
7 of 9
Marks
Q. 4 (a)
(i)
Temporary Differences:
Temporary differences are differences between the carrying amount of an asset
or liability in the statement of financial position and its tax base.
01
(ii) Taxable Temporary Differences:

Taxable temporary differences are temporary differences that will result in taxable
amounts in determining taxable profit (tax loss) of future periods when the
carrying amount of the asset or liability is recovered or settled.
02
(iii) Deductible Temporary Differences:

Deductible temporary differences are temporary differences that will result in
amounts that are deductible in determining taxable profit (tax loss) of future
periods when the carrying amount of the asset or liability is recovered or settled.
(b)
(i)
02
Difference Between Research and Development:

Research is original and planned investigation undertaken with the prospect of
gaining new scientific or technical knowledge and understanding.
Development is the application of research findings or other knowledge to a plan
or design for the production of new or substantially improved materials, devices,
products, processes, systems or services before the start of commercial
production or use.
01
01
(ii) Requirements for Recognition of Intangible Assets:

An intangible asset arising from development (or from the development phase of
an internal project) shall be recognized if, and only if, an entity can demonstrate
all of the following:
(a) The technical feasibility of completing the intangible asset so that it will be
available for use or sale.
01
(b) Its intention to complete the intangible asset and use or sell it.
01
(c) Its ability to use or sell the intangible asset.
01
(d) How the intangible asset will generate probable future economic benefits.
Among other things, the entity can demonstrate the existence of a market for
the output of the intangible asset or the intangible asset itself or, if it is to be
used internally, the usefulness of the intangible asset.
01
(e) The availability of adequate technical, financial and other resources to

complete the development and to use or sell the intangible asset.
01
(f)
Its ability to measure reliably the expenditure attributable to the intangible

asset during its development.
01
(c) (i)
Computation of cost incurred to date and total cost:
Material cost consumed
Labour cost used
Depreciation of specialized construction machinery
Cost incurred to date
Cost to complete the project (given)
Total Cost
Percentage of completion:
% of completion = (10,440 18,000) x 100 = 58%
DISCLAIMER:
Rs. in million
5,110
3,500
1,830
10,440
7,560
18,000
0.5
0.5
0.5
0.5
0.5
0.5
1.0
8 of 9
Marks
(ii)
To Date
2012
Revenue
Costs
Profits
(58% of 25,000)
(58% of 18,000)
14,500
10,440
4,060
Recognised
in the Prior
Year
6,250
4,500
1,750
Recognised
in the
Current
Year
8,250
5,940
2,310
1.0
1.0
1.0
Q.5 (a)
(b)
(i) Financial capital maintenance: Under this concept a profit is earned only if the
financial (or money) amount of the net assets at the end of the period exceeds the
financial (or money) amount of net assets at the beginning of the period, after
excluding any distributions to, and contributions from, owners during the period.
Financial capital maintenance can be measured in either nominal monetary units
or units of constant purchasing power.
02
(ii) Physical capital maintenance: Under this concept a profit is earned only if the
physical productive capacity (or operating capability) of the entity (or the
resources or funds needed to achieve that capacity) at the end of the period
exceeds the physical productive capacity at the beginning of the period, after
excluding any distributions to, and contributions from, owners during the period.
02
(i)
It falls in the category of investment in property as per IAS-40 because it is not

being used in production.
1.0
(ii)
It also falls in the category of investment in property as per IAS-40 because it is

not being used in production.
1.0
(iii)
Since property is an inventory of Islamabad Real Estate so it would be dealt in

IAS-2.
1.0
(iv)
Since, factory premise is being used in production purpose so it would be dealt

as per IAS-16 that is property plant and equipment.
1.0
(v)
Since the property is being has for construction for third parties it will be dealt
according to IAS 11 Construction Contracts.
1.0
DISCLAIMER:
9 of 9
Marks
(c)
(i) Borrowing Cost to be Capitalized:
Borrowing Cost IAS-23:

January December 13, 2012
800,000 x 10%
1,200,000 x 10%
Less: Investment income:
(800,000 200,000) 6% x 3/12
(1,200,000 300,000) 6% x 3/12
(800,000 300,000) 6% x 3/12
(1,200,000 500,000) 6% x 3/12
Total borrowing cost
Plant-1
Rupees
Plant-2
80,000
0.5
0.5
120,000
(9,000)
63,500
(10,500)
96,000
0.5
0.5
0.5
0.5
0.5+0.5
Plant-1
800,000
63,500
863,500
Rupees
Plant-2
1,200,000
96,000
1,296,000
1.0+1.0
(13,500)
(7,500)
(ii) Cost of each Plant Asset:
Construction cost
Add: Borrowing cost
Total cost
THE END
DISCLAIMER:

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SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

Statement of Profit or Loss

Profit from operations

Less tax charge:

Over provision previous year

Deferred tax liability

{from Part (c)}

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

PV of interest : (200 x 0.08) x 3.79079

At December 31, 2011:

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

Gain on sale of investment (12 10 )

Increase in inventories (15 12)

Decrease in account receivable (18 16)

Decrease in service income receivable (7 5)

Decrease in advance service received (8 4)

Cash flows from operating activities

Cash flows from investing activities:

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

Cash flows from financing activities:

Retirement of 10% bond payable (40 60)

Cash flows from financing activities

Add: opening balance

Closing balance overdraft

opening cash in hand

Opening bank over draft

opening over draft

WORKING NOTES (Rs. in million):

Acquired bal. fig

Accumulated depreciation machinery

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

Finance lease obligation

Cash paid bal. fig

b/f more than 1 year

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

(ii) Taxable Temporary Differences:

(iii) Deductible Temporary Differences:

Difference Between Research and Development:

(ii) Requirements for Recognition of Intangible Assets:

(c) Its ability to use or sell the intangible asset.

(e) The availability of adequate technical, financial and other resources to

Its ability to measure reliably the expenditure attributable to the intangible

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

It falls in the category of investment in property as per IAS-40 because it is not

It also falls in the category of investment in property as per IAS-40 because it is

Since property is an inventory of Islamabad Real Estate so it would be dealt in

Since, factory premise is being used in production purpose so it would be dealt

SUGGESTED ANSWERS MODEL PAPER

FINANCIAL ACCOUNTING SEMESTER-3

Borrowing Cost IAS-23:

(ii) Cost of each Plant Asset:

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