Certificate in Accounting and Finance Stage Examination
The Institute of 5 September 2018
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Financial Accounting and Reporting-I
Q.1 On 1 July 2017, Nezam took over a running business namely FC Traders (FCT). Proper
books of account are not maintained for FCT. Following information has been gathered for
preparation of statement of profit or loss for the year ended 30 June 2018:
(i) Balances of certain assets and liabilities:
30-Jun-2018 1-Jul-2017
Assets and liabilities
------ Rs. in '000 ------
Equipment 4,000 4,000
Furniture and fixtures 2,500 2,500
Trade debtors 1,600 -
Inventory 2,400 2,800
Unused miscellaneous supplies 400 300
Unpaid suppliers’ bills 2,800 1,850
Shop rent payable 400 200
(ii) Summary of bank payments for the year ended 30 June 2018:
Rs. in '000
Suppliers 13,600
Repair and maintenance 950
Shop rent 2,000
Miscellaneous supplies 800
Utilities 1,200
(iii) Payments made out of cash sales before being deposited into the bank:
Rs. in '000
Salaries and wages 1,800
Purchase of inventory 3,000
Part payment of sales commission to riders 90
(iv) Unpaid suppliers’ bills as at 30 June 2018 include a bill of Rs. 320,000 which was
mistakenly taken at Rs. 230,000.
(v) During the year, goods costing Rs. 540,000 were withdrawn by Nezam for personal
use.
(vi) Inventory as at 30 June 2018 includes goods costing Rs. 250,000 which were badly
damaged in an accident and have no sales value.
(vii) Mark-up on goods sold are as follows:
Mark-up on cost
50% of goods – sold on cash counter 35%
20% of goods – sold for cash through riders 40%
30% of goods – sold for credit 45%
(viii) The riders are entitled to 3% commission.
(ix) Fixed asset at 30 June 2018 are to be depreciated at 10% per annum.
(x) Salaries and wages for June 2018 amounting to Rs. 165,000 were paid on 5 July 2018.
Required:
Prepare a statement of profit or loss for the year ended 30 June 2018. (13)
Financial Accounting and Reporting-I Page 2 of 5
Q.2 Digital World (DW) closes its accounts on 30 June each year. This year physical stock
taking was delayed and carried out on 10 July 2018. The cost of physical stock on that date
was determined at Rs. 1,126,000. Following further information is available:
(i) Purchase invoices received from suppliers during 1 July to 10 July 2018 amounted to
Rs. 366,000. These include invoices amounting to:
Rs. 28,000 for goods dispatched by a supplier but not received by DW till
10 July 2018.
Rs. 20,000 for goods received on 28 June 2018.
(ii) Goods costing Rs. 44,000 were received on 8 July 2018 but the corresponding invoice
was not received till 10 July 2018.
(iii) Details of credit notes from suppliers are as follows:
Credit notes date Goods returned date Rupees
4 July 2018 27 June 2018 23,000
9 July 2018 7 July 2018 9,000
13 July 2018 9 July 2018 14,000
(iv) Selling price of goods dispatched to customers from 1 July 2018 to 10 July 2018
amounted to Rs. 375,000. This included:
Rs. 62,500 relating to goods invoiced but not received by customers till
10 July 2018.
Rs. 34,000 relating to goods not invoiced till 10 July 2018.
(v) DW’s stocks-in-transit from suppliers as on 30 June 2018 were amounted to
Rs. 36,000. Of these, goods costing Rs. 13,100 were received on 9 July 2018 and
remaining goods have not yet been received.
(vi) Goods costing Rs. 150,000 were found to be damaged and are expected to realize
Rs. 110,000 after repairing at a cost of Rs. 26,000. It was ascertained that 40% of the
goods were damaged in July 2018.
(vii) It was discovered that goods included in the stock valuation at Rs. 16,600 were
mistakenly valued at their selling price.
(viii) DW sells goods at a mark-up of 25% on cost.
Required:
Compute the value of stock as at 30 June 2018. (10)
Q.3 (a) List the five steps involved in recognizing revenue under IFRS 15 ‘Revenue from
Contracts with Customers’. (03)
(b) On 1 June 2018 Ravi Limited (RL) delivered 500 units of one of its products to Bravo
Limited (BL) at Rs. 200 per unit. BL immediately paid the amount and obtained
control upon delivery. BL is allowed to return unused units within 30 days and receive
a full refund. RL’s cost of the product is Rs. 150 per unit and it uses perpetual system
for recording inventory transactions.
On 30 June 2018, BL returned 20 units.
Required:
Prepare necessary journal entries in the books of RL on 1 June 2018 and 30 June 2018
under each of the following independent situations:
(i) Based upon historical data, RL estimates that 5% units will be returned on
expiry of 30 days. (05)
(ii) The product is new and RL has no relevant historical evidence of product
returns or other available market evidence. (04)
Financial Accounting and Reporting-I Page 3 of 5
Q.4 Royal Fashions (RF) and Imperial Garments (IG) are two partnership businesses. Partners
of both firms were sharing profits in their capital ratios. It has now been decided to merge
the two businesses with effect from 1 July 2018 under the name of Quality Apparels (QA).
The respective statements of financial position as at 30 June 2018 were as under:
RF IG RF IG
Capital and liabilities Assets
Rs. in million Rs. in million
Capital accounts: Land 14 18
A 24 - Buildings 8 13
Z 16 - Machines 17 20
B - 27 Inventory 9 12
G - 33 Trade debtors - net of 2%
Trade payables 18 14 provision 12 15
Accruals and other payables 5 6 Cash 3 2
63 80 63 80
Following terms and conditions have been agreed for the merger:
(i) Total capital of QA will be Rs. 100 million. Capital as well as profits will be shared
equally by all the partners in the new firm. Any excess or deficiency in partners’
capital accounts will be adjusted through cash.
(ii) Agreed values of some of the assets will be as under:
RF IG
--- Rs. in million ---
Land 16.0 17.0
Machines 15.0 15.0
Inventory 10.0 12.6
(iii) Provision for doubtful debts will be increased from 2% to 5%.
(iv) Accruals and other payables of IG will be increased by Rs. 2 million.
(v) Remaining assets (including cash) and liabilities will be taken over by QA at their
book values.
(vi) Goodwill will be determined at 20% and 25% of the agreed values of the net assets
(excluding cash) of RF and IG respectively. No goodwill will be maintained in the
books of QA.
Required:
Prepare capital accounts in the old and new firms. (12)
Q.5 The following information is available in respect of machines of Akmal Brothers:
(i) The balances of cost and accumulated depreciation of machines as on 1 January 2017
were Rs. 800,000 and Rs. 333,000 respectively.
(ii) A machine acquired on 1 January 2014 having net book value of Rs. 31,935 on
1 January 2017 was sold for Rs. 34,000 on 30 April 2017. Cost of disposal incurred
was Rs. 5,000.
(iii) On 1 July 2017, a machine having fair value of Rs. 40,000 on that date was exchanged
for a new machine. The balance of the purchase price was paid through a cheque of
Rs. 80,000. The list price of the new machine was Rs. 130,000. The old machine had
been acquired at a cost of Rs. 65,000 on 1 October 2015.
(iv) Machines are depreciated at 15% per annum using the reducing balance method.
Required:
Prepare the following ledger accounts pertaining to the machines for the year ended
31 December 2017:
(a) Cost (03)
(b) Accumulated depreciation (05)
(c) Gain/loss on disposal (04)
Financial Accounting and Reporting-I Page 4 of 5
Q.6 Following is a summarised trial balance of Omega Limited (OL) for the year ended
30 June 2018:
Rs. in million
Particulars Debit Particulars Credit
Land at revalued amount 30 Share capital 40
Buildings at revalued amount 60 Retained earnings 18
Equipment and other assets - at cost 47 Revaluation surplus 43
Trade receivables 21 Trade payables 29
Opening stock-in-trade 16 Accruals and other payables 9
Advances and other receivables 6 Accumulated depreciation:
Cash and bank balances 3 - Buildings 9
Purchases 180 - Equipment and other assets 18
Freight-in 4 Provision for doubtful receivables 4
Selling & administrative expenses Sales 235
(including depreciation expense) 39 Suspense account 1
406 406
Additional information:
(i) Cost of closing stock-in-trade was Rs. 19 million. However, following matters were
noted during physical inventory count:
Stock held under ‘Bill-and-hold arrangement’ was accepted and paid by the
customer on 25 June 2018. Proceeds amounting to Rs. 2.7 million were credited to
other payables. These goods were included in OL’s stock. Such stock items are
sold at cost plus 35%.
Stock items costing Rs. 3 million were damaged badly and could not be sold. A
claim was lodged with the insurance company which accepted the claim on
30 June 2018 to the extent of 80%.
Stock items costing Rs. 4.5 million lying with a third party were not included in
stock-in-trade.
(ii) OL’s policy for provision for doubtful trade receivables is as under:
Full provision is made for balances due for more than one year.
Provision at 5% is made on all other balances.
As on 30 June 2018, balances due for more than one year aggregated Rs. 3.4 million.
This includes a balance of Rs. 2 million which is no more recoverable and is required
to be written-off.
Suspense account represents an amount recovered from a customer whose balance
was written-off in 2016.
(iii) On 30 June 2018, a portion of land and building was sold for Rs. 30 million which had
been revalued once only on 30 June 2015. Relevant details are as follows:
As on 30 June 2015
Written down
Fair value Remaining
value
useful life
------ Rs. in million ------
Land 3 10 Indefinite
Building 13 18 20 years
Proceeds from the disposal are due to be received in September 2018. The disposal has
not yet been accounted for.
OL transfers maximum possible amount from revaluation surplus to retained earnings
on an annual basis.
(iv) Unrecorded freight-in invoices amounting to Rs. 0.5 million are pending with cashier
for payment.
(v) A cheque for Rs. 1.8 million received as advance from a customer has not been
recorded.
(vi) Income tax liability is estimated at 30% of profit before tax.
Financial Accounting and Reporting-I Page 5 of 5
Required:
Prepare a statement of financial position as on 30 June 2018 and a statement of profit or loss
for the year ended 30 June 2018 in accordance with IFRSs. (21)
Q.7 SK Limited (SKL) deals in a single product. Following are the summarized financial
statements of SKL for the year ended 31 December 2017:
Statement of financial position Statement of profit or loss
2017 2016 2017 2016
Rs. in million Units sold in million 39 30
Fixed assets 410 240
Current assets 90 200 Rs. in million
500 440 Sales 371 300
Cost of goods sold (273) (210)
Capital 280 260 Gross profit 98 90
Long-term loan 170 100 Selling and administrative (55) (60)
Current liabilities 50 80 Finance cost (13) (8)
500 440 Net profit 30 22
Additional information:
(i) With effect from 1 January 2017, selling price was decreased by 5% to boost sales
volume.
(ii) During the year 2017, suppliers demanded price increase of 4%. SKL resisted the price
increase. However, both parties agreed to reduce the credit period.
(iii) SKL had been running its business in a rented building whose annual rent was
Rs. 15 million. During the year, SKL purchased this building for Rs. 200 million.
Funds were arranged partially through a long-term loan. Useful life of the building is
estimated at 40 years.
(iv) 75% of the selling and administration cost incurred in 2016 was fixed cost.
Required:
(a) Compute the following ratios for 2016 and 2017:
Gross profit margin Net profit margin
Return on assets Return on capital employed
Debt equity ratio Current ratio (08)
(b) Keeping in view the above information, comment on profitability and liquidity
position of SKL for 2017. (04)
Q.8 (a) Describe any four differences between financial accounting system and cost
accounting system. (04)
(b) Describe behaviour of each of the following costs graphically by denoting total cost on
vertical axis and level of activity on horizontal axis:
(i) Factory building rent - Fixed amount per month
(ii) Direct labour cost - Fixed per unit
(iii) Supervision cost - One supervisor is required for every 20 direct workers
(iv) Machine rental cost - Fixed monthly rent and an additional cost of
Rs. 100 per unit for the production exceeding certain limit (04)
(THE END)
