Certificate in Accounting and Finance Stage Examination
The Institute of 3 March 2021
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Financial Accounting and Reporting-I
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.
Section A
Q.1 Following information pertains to Astrazenca Limited (AL):
(i) Shareholders' equity as on 1 January 2020:
Rs. in million
Share capital (Rs. 100 each) 250
Share premium 138
Retained earnings 142
Revaluation surplus: Land 25
Buildings 20
(ii) Profit and transfer of incremental depreciation as per the draft financial statements for
the year ended 31 December 2020 amounted to Rs. 45 million and Rs. 5 million
respectively.
(iii) Dividends for the last two years:
For the year ended *Interim cash dividend Final bonus dividend
31 December 2019 10% 20%
31 December 2020 12% 15%
*Declared with half yearly accounts
(iv) AL uses revaluation model for subsequent measurement of its land and buildings
only. The revalued amounts of land and buildings have been assessed at
31 December 2020 but not incorporated in draft financial statements. The relevant
details are as under:
Land Buildings
--- Rs. in million ---
Balances as on 31 December 2020 before revaluation:
Cost 75 240
Accumulated depreciation - 60
Revalued amounts assessed at 31 December 2020 65 158
Required:
Prepare AL’s statement of changes in equity for the year ended 31 December 2020. (08)
(Column for total and comparative figures are not required)
Financial Accounting and Reporting-I Page 2 of 6
Q.2 Describe the behavior of each of the following costs graphically by denoting ‘Per unit cost’
on vertical axis and ‘Level of activity’ on horizontal axis:
(i) Depreciation expense – Depreciation on plant is computed using units of production
method.
(ii) Depreciation expense – Depreciation on plant is computed using straight line method.
(iii) Direct material cost – Bulk discount is available on additional purchases once the total
purchases exceed a certain level.
(iv) Generator rent – A generator has been acquired on rent at an hourly rate; however,
minimum rent for certain hours is payable irrespective of actual usage.
(v) Machine rent – Machines are acquired on a fixed monthly rent. One machine is
required for every 1 million units.
(vi) Direct labour cost – Factory workers are paid at fixed rate per unit. In case production
exceeds target in any month, then workers are paid with double rate for additional
units. (08)
Q.3 On 1 January 2021, Covaxin Telecom (CT) announced a new annual promotional package
for its customers. The package comprises of a mobile phone, full year unlimited on-net calls
and 1,000 minutes per month on other networks. Package price is Rs. 11,550 per quarter
payable in advance on the first day of each quarter. At the end of the contract, the phone
would not be returned to CT.
On the first day of the promotional announcement, CT sold 1,000 packages. Based on the
data available with CT, it is expected that each customer would utilize 10,000 minutes of
other networks with quarterly break-up as under:
Quarter ending Minutes
31 March 2021 2,700
30 June 2021 2,000
30 September 2021 2,900
31 December 2021 2,400
The mobile phone has a retail value of Rs. 34,000, if sold separately. A monthly subscription
for unlimited on-net calls is Rs. 500 while every call on other networks is charged at
Rs. 1.5 per minute, if billed separately.
Required:
Compute the quarterly revenue to be recognised for the quarters ending 31 March 2021 and
30 June 2021. (08)
Q.4 Select the most appropriate answer from the options available for each of the following
Multiple Choice Questions (MCQs).
(i) Which of the following future cash flows should NOT be included in the calculation
of value in use of an asset?
(a) Cash flows on maintaining the asset’s performance
(b) Cash flows on enhancing the asset’s performance
(c) Cash flows from continuing use of the asset
(d) Cash flows from disposal of the asset (01)
(ii) When an impairment review is carried out, an impaired asset is measured at:
(a) fair value less cost to sell (b) value in use
(c) cost (d) recoverable amount (01)
Financial Accounting and Reporting-I Page 3 of 6
(iii) Which of the following would be an external indicator that an asset of an entity may
be impaired?
(a) Increase in central bank discount rates
(b) Decline in economic performance of an asset
(c) Physical obsolescence of an asset
(d) Future restructuring plan of an asset (01)
(iv) Which of the following is NOT a measurement base for assets as referred in the
Conceptual Framework?
(a) Value in use (b) Fulfilment value
(c) Current cost (d) Fair value (01)
(v) The accounting principle applied by IFRS 15 when determining whether or not
revenue should be recognized in respect of a repurchase agreement is:
(a) prudence (b) matching
(c) verifiability (d) faithful representation (01)
(vi) An entity recognises revenue over time if:
(a) entity’s performance does not create an asset with an alternative use
(b) entity’s performance creates an asset whose control will be transferred at the end
of contract
(c) customer simultaneously receives and consumes the benefit provided by the
entity’s performance
(d) entity has an enforceable right to payment for performance completed to-date (01)
(vii) An entity made a profit of Rs. 550,000 for the year 2020 based on historical cost
accounting principles. It had opening capital of Rs. 1,500,000. During 2020, specific
prices indices increased by 15% while general price indices increased by 10%. How
much profit should be recorded for 2020 under physical capital maintenance concept?
(a) Rs. 325,000 (b) Rs. 400,000
(c) Rs. 467,500 (d) Rs. 495,000 (01)
(viii) In order to survive in the long run, a business must generate positive net cash flow
from:
(a) investing activities
(b) operating activities
(c) financing activities
(d) both (a) and (b) (01)
Financial Accounting and Reporting-I Page 4 of 6
Section B
Q.5 A fire broke out in the office of Moderna Sports Club (MSC) and burnt all the accounting
records. The accountant was able to retrieve a burnt copy of financial statements of MSC for
the year ended 31 December 2020. However, few information (as indicated by capital
alphabets) were unreadable. The retrieved copy is as follows:
Balance sheet as on 31 December 2020
Rs. in '000 Rs. in '000
Funds and liabilities Assets
2020 2019 2020 2019
General fund: Fixed assets - net 1,403 1,300
Opening balance A 1,586 Members’ subscription 270 158
Excess of income over expenditure B 180 C Misc. supplies 13 10
Tuck-shop rent 33 E 37
Tennis court fund 260 200 Advance salaries 18 15
Bank F 530
Liabilities:
Members’ subscription 20 25
Salaries 52 41
Utilities 25 18 D
Annual sports event 10 -
2050 2050
Income and expenditure account for the year ended 31 December 2020
Expenditure Rs. in '000 Income Rs. in '000
Salaries 568 G Members’ subscriptions 919
Utilities 221 Tuck-shop rent 252
Misc. supplies 129 H Donation - sports equipment 70
Members’ subscription written off 12 L M
Annual sports event 190 I
J Depreciation 161 K
Disposal of fixed assets 8
Repair and maintenance 40
Excess of income over expenditure B
Receipts and payments account for the year ended 31 December 2020
Receipts Rs. in '000 Payments Rs. in '000
Opening balance 530 Salaries 560
N O Fixed assets 92
Tennis court fund P Annual sports event 180
Contribution for annual sports event 49 Misc. supplies 132
Entrance fee - annual sports event 86 Utilities 214
Sale of fixed assets 21 Repair and maintenance 40 Q
Tuck-shop rent 248 Construction of tennis court 131
Scrap sale 15 Closing balance F
Required:
Determine the missing information as indicated by capital alphabets.
(Redrafting of above financial statements is not required) (18)
Financial Accounting and Reporting-I Page 5 of 6
Q.6 Epivac Limited is considering to take some of the following measures during the last week
of the year ending 31 March 2021 in order to show better financial performance;
(i) Pay balance of a major supplier from bank overdraft facility and avail 5% discount.
(ii) Sell slow moving stock items at a price equal to cost.
(iii) Recover debtors’ balances by offering cash discounts of 10%.
(iv) Offer extended credit terms of 90 days which would increase sales at existing margins.
(v) Dispose-off some non-current assets at gain.
Required:
State the effect (increase, decrease, no effect) of each of the above measure on the financial
ratios as per following format:
Ratios (i) (ii) (iii) (iv) (v)
(a) Gross profit margin
(b) Net profit margin
(c) Current ratio
(d) Stock turnover (times)
(e) Return on non-current assets
(f) Quick ratio (17)
Q.7 You have recently joined as the finance manager of Corv Limited (CL). While reviewing the
draft financial statements for the year ended 31 December 2020 prepared by the junior
accountant, you have noted the following:
(i) In January 2020, Government allotted an industrial plot to CL at a prime location
subject to the condition that CL will establish a factory. CL constructed the factory
building which was available for use on 1 October 2020. Due to delay in recruitment
of key factory employees, the production activities will commence on 15 March 2021.
The accountant has not recorded the land as it was given free of cost. While the
factory building is still appearing in capital work in progress as production activities
will commence on 15 March 2021. (06)
(ii) CL acquired a three story building on 1 March 2020. CL uses the ground floor for its
marketing department while remaining two floors were in excess of CL’s need and
therefore were rented out. The first floor was rented out on 1 June 2020 and the
second floor was rented out on 1 December 2020.
The accountant has recorded the building as property, plant and equipment. The
depreciation on ground, first and second floors has been computed from
1 March 2020, 1 June 2020 and 1 December 2020 respectively. (05)
(iii) CL is constructing a power generation plant for its factory. The project started on
1 February 2020 and would complete on 30 November 2021. The work remained
suspended for 3 months. The project is financed through long term loan, acquired
specifically on 1 January 2020. The unutilised amount of loan is kept in a separate
saving account.
The accountant has deducted income of separate saving account from full year’s
interest on loan and presented the net amount as finance cost in the statement of
profit or loss. (05)
The accounting policy of CL is to carry land and building at fair value (wherever permitted
by IFRS).
Required:
Discuss how the above issues should be dealt in the financial statements of CL for the year
ended 31 December 2020 in accordance with the requirements of IFRSs.
Financial Accounting and Reporting-I Page 6 of 6
Q.8 Sputnik Sea Limited (SSL) runs a cruise business across oceans. Following information in
respect of one of SSL’s cruise ship is available:
(i) SSL bought a cruise ship on 1 March 2018. After completing all the required
formalities, the ship was ready to sail on 1 April 2018.
(ii) Details regarding components of the ship are as under:
Estimated
Cost
Component Useful life residual value
(Rs. in million)
(Rs. in million)
Engine 840 50,000 hours 40
Body 535 25 years 35
Dry-docking (overhaul) 60 5 years -
(iii) On 1 May 2019, the ship suffered an accident which damaged its body. Repair work
took 2 months and costed Rs. 26 million. The repair work did not change useful life
and residual values of the components.
(iv) The average monthly sailing of the ship during the last three years are as under:
Year Hours
2018 360
2019 480
2020 600
(v) SSL uses revaluation model for subsequent measurement. SSL accounts for
revaluation on net replacement value method and transfers the maximum possible
amount from the revaluation surplus to retained earnings on an annual basis.
(vi) The revalued amounts of the ship as at 31 December 2019 and 2020 were determined
as Rs. 1,400 million and Rs. 1,000 million respectively. Revalued amounts are
apportioned between the components on the basis of their book values before the
revaluation.
Required:
Prepare necessary journal entries to record the above transaction from the date of acquisition
of the ship to the year ended 31 December 2020. (17)
(THE END)
