Pac All CAF Midterms

The Professionals’ Academy of Commerce
CAF Mid-Term Examination (Autumn-2020)
Introduction to Accounting (CAF-01)

Total Marks: 50 Time Allowed: 120 Minutes
(Note: Reading Time: 10 Minutes, Paper Attempting Time: 90 Minutes & Answer Script
Uploading Time: 20 Minutes)
Question # 1:
Choose the correct answer and write it on your answer scripts: (Marks: 04)
1- Purchase & sale of goods with altering its shape and size is.
a. Trading Business
b. Manufacturing Business
c. Services
d. None of the above
2- Which of the following is not a business transaction?
a. Sales of goods or services
b. Purchase of goods or services
c. Cash withdraw for payment of salaries to employees
d. Owner purchased a car for his personal use, from his own bank account
3- A business is separate from its owner. What is this concept called?
a. Owner-Business entity concept
b. Business concept
c. Business entity concept
d. Capital concept
4- Which of the following business organizations can raise a large amount of capital easily:
a. Sole Proprietor
b. Partnership
c. Company
d. All of the above
Question # 2:
Mr. Awais Farman has started business many years ago. He has strong accounting department
which is headed by Mr. Yawar Khan He has master degree in Commerce. Mr. Yawar Khan is
unaware of accounting treatment of Fixed Assets & Depreciation. He has provided the following
information to Mr. Junaid Zahid who is a Chartered Accountant . The balances as on 1 st January
2019; Rs.
Equipment – At cost 18,900,130

Accumulated Depreciation- Equipment 4,210,600
The following information is relevant to the Equipment;
(i) All Equipments are depreciated using reducing balance method with 4 years of
useful life and 30 % residual value on cost
(ii) Equipment BL-101 was Purchased on 1st May 2019 for Rs.3,000,000. Further,
Installation cost on BL-101 is 15 % on cost that was paid on the date of
acquisition of BL-101.
(iii) Equipment JA-222 which was purchased on 1st July 2017 for Rs.3,100,000 and
was sold on 10th November 2019 for Rs.1,520,000 in cash.
(iv) Full depreciation is charged in the month of purchase and no depreciation is
charged in month of disposal.
Required:
a) Prepare Equipment-At cost and accumulated depreciation account for the year
ended 31st December 2019. (Marks: 12)
b) What are depreciable Assets? (Marks: 04)
Question # 3:
The following information and transaction pertain to the business of IK Traders. It has the following
balances as on 1st January 2019:
Rs.
Trade Debtors ?
Provision for bad 430,000
debts
During the year 2019, the following transactions took place:
Rs.
Sales 19,875,570
sales returns- 80% were credit 850,000
bad debts 280,000
Discount allowed 685,000
collection from credit customers 10,850,430
Further Information:
(i) IK traders follows a policy of making a general provision of 4% against trade debtors.
(ii) Credit sales were 75% of total sales.
(iii) Details of specific provision on 1st January 2019 and recoveries there against during
the year end 31st December 2019 are as follows:
Rs. Rs.
Customers Name Provided Recoveries
Waqas Traders (40% of amount due) 50,000 125,000
Yawar Traders(50% of amount due) 87,500 100,000
Hassam Associates( 56.25% of amount due) 112,500 100,000
Remaining debts of Yawar traders needs to be written off.
(iv) A debtor Osama who had a debit balance of Rs. 526,000 had also supplied goods to
IK traders of Rs. 786,000.
(v) Collection from credit customers includes recovery against debts written off during
the year ended 31 December 2018 amounted to Rs. 305,000.
(vi) Further bad debts to be written off Rs. 450,000.
(vii) Specific provision is also required to be made of the following receivables:
Customer Name Amount Due Provided
Ahmad Associates 75,000 75,000
Hussain Traders 145,000 109,000
Moaeed Traders 96,000 48,000
(viii) As per the historical trend it is expected that full amount shall be recovered, in
normal credit period, from Mr. Waqas who owed Rs. 750,000 as on December 31,
2019.
Required:
Prepare debtors control account, provision for doubtful debt account and bad debts expense
account for the year ended December 31, 2019. (Marks: 18)
Question # 4:
Following are the transactions of Indus Traders a retail outlet for the month of April, 2019.
1/1 Owner invested his personal furniture of Rs. 100,000, Motor Vehicle of Rs. 500,000, cash of
Rs. 200,000
1/1 Business entered into rent agreement with landlord and paid Rs.100,000 as refundable
security deposit of the premises and Rs.10,000/- rent for the month of January. Both
payments are made through cheque.
2/1 Bought Office equipment of Rs. 100,000 by paying Rs. 20,000 in cash and 50,000 by
cheque and balance is payable in two months.
3/1 Bought Furniture of Rs. 80,000 on installments from Sigma furniture by paying Rs. 10,000
in cash and balance is payable in 7 equal installments.
5/1 Bought goods on credit from Pak Enterprises having list price of Rs. 50,000, after bargain
he was able to receive bargain discount of 5% of list price.
6/1 Cash of Rs. 30,000 deposited into the business bank account.
7/1 Owner withdraw cash of Rs. 10,000 from business for personal use.
7/1 Loan of Rs. 200,000 received from Micro Finance Bank in cheque.
8/1 Owner withdraws goods worth Rs 10,000 from business for personal use.
9/1 Received rent Rs 15,000 in cash from tenant by letting out part of the premises.
12/1 Sold goods on credit to Bahria Traders for Rs. 150,000 on 30 days credit and offered him
2% discount if payment is made in 10 days.
17/1 Owner invested further Rs.50,000 into the bank account of the business.
31/1 1st Installment of Rs. 10,000 for furniture bought from Sigma furniture paid by cheque.
31/1 Cash of Rs. 20,000 donated to PM Corona Relief Fund.
31/1 Goods for the value of Rs. 50,000 donated in Corona affectless.
Required:
Prepare journal entries to record the above transactions in general journal and prepare ONLY
cash account in general ledger. (Narration in General journal is not required.) (Marks: 12)
(THE END)
Mid-Term Solution
Introduction to Accounting
ANSWERS (Q1,2,3)
Question – 1:
1. B
2. D
3. C
4. C
Question – 2:
a)
Equipment-Cost
b/f 18,900,130 Disposal 3,100,000 2
bank 3,450,000 2
c/f 19,250,130
Acc. Depreciation
disposal 1,536,176 b/f 4,210,600
dep. 4,329,112
c/f 7,003,540
working 1
4 0.3
RB%= 1− √
1
2
0.2599
working 2 depreciation expense
on b/f
(14,689,530 - 1,996,164) * 0.2599 3,299,006 1.5
on addition
3,450,000*0.2599* 8/12 597,770 1.5
on disposal
1,996,164*0.2599* 10/12 432,336 1.5
4,329,112
working 3 WDV of disposal
3,100,000*[(1-0.2599* 6/12) * (1-

WDV @ start of 2017
0.2599)]
1,996,164 1.5
WDV till date of

1,996,164 - 432,336
disposal
1,563,828
Acc. Dep 1,536,172
b)
a. Are held by an enterprise for use in the production or supply of goods or services for rental to
others or for administrative purposes.
b. Are expected to be used during more than one period and
c. Have limited useful life example, machines and vehicles etc
Question – 3:
Particulars Amount particulars amount marks
b/f (w-3) 5,000,000 sales returns 680,000 1+.5
sales 14,906,670 bad debts 280,000 .5+.5
discount allowed 685,000 .5+.5
bad debts 305,000 cash/bank 10,850,430 .5+.5
bad debts 75,000 0.5
contra/t.p.c 526,000 0.5
bad debts 450,000 0.5
c/f 6,665,240 0.5

20,211,670 20,211,670
Provision for doubtful debts a/c
particulars amount particulars amount

b/f 430,000 0.5
bad debts 78,220
1
c/f 508220
508,220 508,220 0.5
Bad debts expense a/c
Particulars amount particulars amount

debtors 280,000 debtors 305,000 .5+.5
debtors 75,000
0.5
debtors 450,000 SOCI 578,220
provision for doubtful debts 78,220 1+.5
883,220 883,220 0.5
Working-1 calculation of G.P

Rs.
C/F 6,665,240 2
specific provision (w-2.1.a) -416,000
other adjustments -750,000
5,499,240
G.P (5,499,240*.04) 219,970
Working -2 Rs.
G.P 219,970
S.P 288,250 1
T.P 508,220
Working 2.1
customer name amount due provision required
(A) (B) 2
Hassam Associates 100,000 56,250
Ahmad Associates 75,000 75,000
Hussain Traders 145,000 109,000
Moaeed Traders 96,000 48,000
Total 416,000 288,250
Working-3 Opening balance 1
Total debtors = General debtors + specific debtors total debtors = 180,000/.04 + 500,000
balance = 5,000,000
Answer # 4 Journal Entries
Indus Traders Marking

Scheme
Journal
Debit Credit
Date Description
Rs. Rs.
2019
April
1 Furniture 100,000
Motor Vehicle 500,000

1.00
Cash 200,000
Capital 800,000
1 Security Deposit 100,000
Rent 10,000 0.50
Bank 110,000
2 Equipment 100,000
Cash 20,000
0.50
Bank 50,000
Equipment Payable 30,000
3 Furniture 80,000
Cash 10,000 0.50
Sigma Interior Payable 70,000
5 Purchases (500,000 - (500,000 x 5%) 475,000
Pak Enterprises Payable 475,000 0.50
6 Bank 30,000
Cash 30,000 0.50
7 Drawings 10,000
Cash 10,000 0.50
7 Bank 200,000
Bank Loan 200,000 0.50
8 Drawings 10,000
Purchases 10,000 0.50
9 Cash 15,000
Rental Income 15,000 0.25

12 Bahria Traders Receivables 150,000
Sales 150,000 0.50
0.50
17 Bank 50,000
Capital 50,000 0.25
31 Sigma furniture Payable 10,000
Bank 10,000 0.50
31 Donation 20,000
Cash 20,000 0.50
31 Donation 50,000
8.00
Marking
General Ledger Scheme
Cash a/c
Date Description Rs. Date Description Rs.
2019 2019
April April
1 Capital - 2 Equipment - 0.5 mark
9 Rental income - 3 Furniture - for each
6 Bank - correct
7 Drawings - figure.
15 Motor expenses 10,000 Max. upto
31 Donation - 4 marks
31 Balance c/d (10,000)

- -
Introduction to Accounting (CAF-01)

Question # 1:
Choose the correct answer and write it on your answer scripts: (Marks: 08)
1- Purchase & sale of goods with altering its shape and size is.
a. Trading Business
b. Manufacturing Business
c. Services
d. None of the above
2- Which of the following is not a business transaction?
a. Sales of goods or services
b. Purchase of goods or services
c. Cash withdraw for payment of salaries to employees
d. Owner purchased a car for his personal use, from his own bank account
3- A business is separate from its owner. What is this concept called?
a. Owner-Business entity concept
b. Business concept
c. Business entity concept
d. Capital concept
4- Which of the following business organizations can raise a large amount of capital easily:
a. Sole Proprietor
b. Partnership
c. Company
d. All of the above
5- Find out the amount of unpresented cheques from the following information.
Rs.
Balance as per cash book 6,000
Balance as per bank statement 5,500
Uncredited cheques 800
a. Rs. 300 b. Rs. 1,300
c. Rs. 12,300 d. Rs. 10,700

6- Which of the following will be adjusted in adjusted/corrected cash book:
a. Bank forgets to record a transaction.
b. Cheque issued to supplier but he did not deposit the cheque for collection.
Cheque issued in previous period but bank debited business' account in the
c. current period.
d. Cheque received from a customer but dishonored subsequently.
7- Unfavorable balance is:
(i) Debit balance in cashbook
(ii) Credit balance in cashbook
(iii) Debit balance in bank statement
(iv) Credit balance in bank statement
a. (i) and (iii) b. (i) and (iv)
c. (ii) and (iii) d. (iii) only
8- Balance as per cash book is Rs. 25,000 and balance as per bank statement is Rs. 23,500.
Which of the following statement will reconcile the difference in full:
a. Unpresented cheques of Rs. 4,000 and uncredited cheques of Rs. 2,500.
b. Unpresented cheques of Rs. 700 and uncredited cheques of Rs. 800.
c. Unpresented cheques of Rs. 3,000 and uncredited cheques of Rs. 4,500.
d. Bank mistakenly debited with 500 and unpresented cheques of Rs. 1,000.
Question # 2:
a. Differentiate between Limited and Unlimited Liability with reference to different business
organizations. (Marks: 03)
b. List down any four users of financial statements? (Marks: 02)
Question # 3:
The accountant of Online Traders reconciled his cash book with the Bank statement every month.
His bank reconciliation statement for the month of April 2020 was as follows:
Rs.
Balance as per bank statement (Overdraft) (13,500,000)
Less: Un - Presented cheques:
Jimmy Brothers (162,000)
Sohail (330,000)
Usman (78,000)
Adjusted balance as per cash book (Overdraft) (14,070,000)
The following is the extract of the Bank column in the cash book for the month of May,
2020,and a copy of the Bank statement for the same period.
Cashbook (Bank Column)

Date Particulars Rs. Date Particulars Rs.
May-01 Muneer & Sons 12,540,000 May-01 Balance b/d 14,070,000
4 L & T Co. 2,250,000 5 GWK 138,000
5 CMC Computers 10,260,000 8 Haris& Sons 87,000
19 Ali Printers 663,000 16 PK Finance 330,000
23 MMC 1,350,000 23 HB & Co 747,000
29 K & Co 1,197,000 29 Quality Printers 225,000
31 Balance c/d 12,663,000
28,260,000 28,260,000
Bank Statement
Date Particulars Rs.(Debit) Date Particulars Rs. (Credit)
May-01 Balance b/d 13,500,000 May-02 Muneer & Sons 12,540,000
1 Jimmy Brothers 162,000 4 L & T Co 2,250,000
4 Sohail 330,000 5 CMC Computers 10,260,000
5 General Insurance 195,000 22 Ali Printers 636,000
8 GKW 138,000 23 C Ltd. Credit transfer 1,095,000
19 PK Finance 330,000 29 MMC 1,620,000
19 Bank Charges 198,000
29 Bank Commission 135,000
29 Standing Order ABC & Sons 12,540,000
31 Balance c/d 873,000
28,401,000 28,401,000
Required:
a) Adjusted balance as per cash book on May, 31, 2020. (Assume that all figures shown in
the cash book are correct.) (Marks: 06)
b) A bank reconciliation statement as at May 31, 2020 (Marks: 04)
Question # 4:
Star enterprises commenced its business on 1 May 2020. The following information is available for
the first month of operations:
i. Set up the entity with capital in Bank: Rs. 7,000,000.

ii. Bought goods on credit from the following suppliers: Salman Brothers Rs.900,000,
Kamal Enterprises Rs.1,400,000, Rafiq and Sons Rs.700,000. Kamal Enterprises
allowed a 10% trade discount and 5% cash discount on list price if payment is made
within 30 days. All above figures of purchases were net of trade discount.
iii. Sold goods on credit to Salamat & Co. Rs 900,000, Jamal traders Rs. 1,000,000 and
Rahim Store Rs.1,600,000.
iv. Purchased goods of Rs. 200,000 from Mr. Rehan by paying through cheque. Out of
these, goods amounting to Rs. 60,000 were withdrawn by owner.
v. Salamat & Co. directly transferred Rs. 430,000 in business bank account and Jamal
traders returned 50% of goods sold to them.
vi. Goods costing Rs. 200,000 were returned to Kamal Enterprises and remaining amount
was paid through cheque.
vii. Advertising costs of Rs.200,000 were paid in the business bank account of local
newspaper publisher.
viii. Stock in trade as at 31 May 2019 was Rs. 90,000.
Required:
a) Record the above entries in the relevant books of prime entry in a proper format.
(Marks: 10)
b) Prepare trial balance for the month ended 31 May 2020 (Preparation of ledger accounts is
not necessary). (Marks: 05)
Question # 5:
Following are the transactions of Indus Traders a retail outlet for the month of April, 2019.
1/1 Owner invested his personal furniture of Rs. 100,000, Motor Vehicle of Rs. 500,000, cash of
Rs. 200,000
1/1 Business entered into rent agreement with landlord and paid Rs.100,000 as refundable
security deposit of the premises and Rs.10,000/- rent for the month of January. Both
payments are made through cheque.
2/1 Bought Office equipment of Rs. 100,000 by paying Rs. 20,000 in cash and 50,000 by
cheque and balance is payable in two months.

3/1 Bought Furniture of Rs. 80,000 on installments from Sigma furniture by paying Rs. 10,000
in cash and balance is payable in 7 equal installments.
5/1 Bought goods on credit from Pak Enterprises having list price of Rs. 50,000, after bargain
he was able to receive bargain discount of 5% of list price.
6/1 Cash of Rs. 30,000 deposited into the business bank account.
7/1 Owner withdraw cash of Rs. 10,000 from business for personal use.
7/1 Loan of Rs. 200,000 received from Micro Finance Bank in cheque.
8/1 Owner withdraws goods worth Rs 10,000 from business for personal use.
9/1 Received rent Rs 15,000 in cash from tenant by letting out part of the premises.
12/1 Sold goods on credit to Bahria Traders for Rs. 150,000 on 30 days credit and offered him
2% discount if payment is made in 10 days.
17/1 Owner invested further Rs.50,000 into the bank account of the business.
31/1 1st Installment of Rs. 10,000 for furniture bought from Sigma furniture paid by cheque.
31/1 Cash of Rs. 20,000 donated to PM Corona Relief Fund.
31/1 Goods for the value of Rs. 50,000 donated in Corona affectless.
Required:
Prepare journal entries to record the above transactions in general journal and prepare ONLY
cash account in general ledger. (Narration in General journal is not required.) (Marks: 12)
(THE END)
Mid-Term Solution
Introduction to Accounting
ANSWERS (Q1,2,3)
Question – 1:
1. B
2. D
3. C
4. C
5. A
6. D
7. C
8. A
Question – 2 part-a:
Limited Liabilities Unlimited Liabilities

Limited liability means the business Unlimited liability means the business
owners’ liability for debts is restricted to owner is personally responsible for any
the amount they put into the business loss the business makes.
Companies have limited liability Sole Proprietor and partnership has
unlimited liability
A company is liable for its own debts. If a The sole proprietor or partner is(are)
company does not have the money to wholly liable for the debts of the business,
make the payment, the company alone is borrowing money in his/her own name,
liable for the debt. The owners and has to pay the amount back to the
(shareholders) are not personally liable to lenders even if he has to sell his/her own
make the payment. The liability of personal belongings.
shareholders is limited to the amount of
capital they have invested or agreed to
invest in the company.
Question – 2 part-b:
The following are the users of Financial Statements:

(0.5 marks each)
1. Investors
2. Lenders
3. Suppliers
4. Government
5. General public
6. Employees
7. Customers
8. Managers
Question – 3
Online Traders Marking

Scheme
Adjusted Cash Book
Date Description Rs.000 Date Description Rs.000 Dr Side Cr Side
31-May Balance b/d 12,663 Insurance premium 195 0.5 1.0
C Ltd. 1,095 Bank charges 198 0.5 1.0
Bank Commission 135 1.0
Muneer & Sons 12,540 1.0
Balance c/d 690 1.0
13,758 13,758
Sub Total 1.0 5.0
1.0
Answer - 1 (b) 6.0
Bank Reconciliation Statement

0.5
2.0
0.5
Rs.000 0.5
0.5
Balance as per Bank Statement 873
4.0
Less: Un Presented Cheques (87+747+225+78) (1,137)
Add: Un Credited Cheques 1197
Add: Amount wrongly recorded in Bank Statement 27
Less: Amount wrongly recorded in Bank Statement (270)

Adjusted Balance as per Cash Book 690
10.00
Answer: 4
Star ent. books of prime entry Rs. in (000)

Star ent. trial balance
Marks Debit Credit
Marks Purchase day book 0.50 Sales 3,500
Description Rs. (000) 0.50 Sales return 500
0.50 Salman 900 0.50 Receivables (3500-430-500) 2,570
0.50 Kamal ent 1,400 0.50 Drawings 60
0.50 Rafiq and sons 700 0.50 Purchases (3000+200-60) 3,140
0.50 3,000 0.50 Trade payables (3000-200-1200) 1,600
0.50 Purchase return 200
0.50 Capital 7,000
Sales day book 0.50 Advertisement expense 200
Description Rs. (000) 0.50 Bank 5,830
0.50 Salamat 900
0.50 Jamal traders 1,000
0.50 Rahim store 1,600
0.50 3,500
12,300 12,300
Sales return day book
Description Rs. (000) Purchase return day book
0.50 Jamal traders 500 Description Rs. (000)
500 0.50 Kamal Ent. 200
General journal
Rs. in (000)
Description Debit Credit
0.50 Drawings 60
0.50 Purchases 60
0.50 Discount Allowed 20
0.50 Receivables 20
Cash Book (Rs. in '000')
Cash Bank Cash Bank
0.50 Capital 7,000
Purchases 200 0.50
0.50 Salamat 430
Advertisement exp 200 0.50
Payables 1,200 0.50
Balance c/d 5,830 0.50
- 7,430 - 7,430
Answer # 5 Journal Entries
Indus Traders Marking

Scheme
Journal
Debit Credit
Date Description
Rs. Rs.
2019
April
1 Furniture 100,000
Motor Vehicle 500,000

1.00
Cash 200,000
Capital 800,000
1 Security Deposit 100,000
Rent 10,000 0.50
Bank 110,000
2 Equipment 100,000
Cash 20,000
0.50
Bank 50,000
Equipment Payable 30,000
3 Furniture 80,000
Cash 10,000 0.50
Sigma Interior Payable 70,000
5 Purchases (500,000 - (500,000 x 5%) 475,000
Pak Enterprises Payable 475,000 0.50
6 Bank 30,000
Cash 30,000 0.50
7 Drawings 10,000
Cash 10,000 0.50
7 Bank 200,000
Bank Loan 200,000 0.50
8 Drawings 10,000
9 Cash 15,000
Rental Income 15,000 0.25

12 Bahria Traders Receivables 150,000
Sales 150,000 0.50
0.50
17 Bank 50,000
Capital 50,000 0.25
31 Sigma furniture Payable 10,000
Bank 10,000 0.50
31 Donation 20,000
Cash 20,000 0.50
31 Donation 50,000
8.00
Marking
General Ledger Scheme
Cash a/c
Date Description Rs. Date Description Rs.
2019 2019
April April
1 Capital - 2 Equipment - 0.5 mark
9 Rental income - 3 Furniture - for each
6 Bank - correct
7 Drawings - figure.
15 Motor expenses 10,000 Max. upto
31 Donation - 4 marks
31 Balance c/d (10,000)

- -
BMBS (CAF-04)
Question # 1:
For each of the following scenarios, identify which role is being practiced by the manager
according to Henri Mintzberg Model and give justification of your choice.
a) Sales manager of company XYZ is sensing competitive market. He is trying to find

out the different prices of products being offered by other competitors in the market
so that he can recommend a pricing strategy to his top management.
b) Marketing manager in Waleed steel mill is finalizing a deal with a customer. He is trying
hard to close the deal in the best interest of the company.
c) Production manager of Izaz Fibers participates to represent his organization in the
annual conference of APTMA (All Pakistan Textiles Mills Associations).
d) Production manager in company ZRK develops close relationships with his workers.
He constantly guides them, motivates them and helps them in completing their tasks.
e) Mr. Amir is working in a renowned NGO and his job is to build contacts with
different businessmen so that he can encourage them to donate generously for social
cause. (10)
Question # 2:
For each of the following, identify the key activity of value chain that is adding value in overall
firm`s product/services give justification of your choice.
a) PAC has a very strong management and information structure that directly
supports its outstanding academic services.
b) Pepsi has one of the widest networks of distribution that directly helps Pepsi to have a
strong foothold in the market
c) Daewoo Batteries Ltd always source cheaper but quality raw material to keep their
production cost as low as possible.
d) Ali and co. is a firm of accountants who always focus on hiring qualified personnel. They
have a sound training and development department that trains different employees
according to the skill set they need in order to perform their jobs.
e) Bugatti automobiles focus on design and development of their new car models so that
customers can enjoy a premium drive with luxury.
f) KFC has established customer complaint center where customers can easily log their
complaints regarding food quality, staff behavior, overall environment or any other issue
customer faces during their dine in experience. (12)
Question # 3:
Historically the directors of Zed Bank have resisted change, seeking to offer a traditional
approach to its customers. However, recent problems within the banking industry and an
increasingly competitive market have forced the Board to consider a number of important
initiatives, including:
Enhancing its current services to customers by providing them with on•line
internet and telephone banking services; and
Reducing costs by closing many of its rural and smaller branches (outlets).
In an attempt to pacify the employee representatives (the Banking Trade Union) and to reduce
expected protests by the communities affected by branch closure, a senior Bank spokesperson
has announced that the changes will be ‘incremental’ in nature. In particular, she has stressed
that:
the change will be implemented over a lengthy time period
there will be no compulsory redundancies
Banking staff ready to take on new roles and opportunities in the online
operations will be retrained and offered generous relocation expenses.
For customers, the Bank has promised that automatic cash dispensing machines will be
available in all the localities where branches (outlets) close. Customers will also be provided
with the software needed for Internet banking and other assistance necessary to give them
quick and easy access to banking services.
The leader of the Banking Trade Union is ‘appalled’ at the initiatives announced. He has
argued that the so-called ‘incremental’ change is in fact the start of a ‘transformational’
change that will have serious repercussions, not only for the Union's members but also for
many of the Bank's customers.
Required:
Distinguish incremental change from transformational change. Explain why the Bank
spokesperson and the trade union leader disagree over their description of the change. (06)
Question # 4:
a) Edgar Schein explained three levels of culture in an organization i.e., Outer

skin/artifacts, espoused values/inner layer and basic underlying
assumption/paradigm. For each of the following, identify which layer of culture is
being referred to:
i. The owner of Sohail Group has always focused on principles of work ethics in
his organizational tries to reflect these principles through various activities in
the organization.
ii. The goals in XYZ are stated and documented for reference purposes.
iii. Engro corporations have given company maintained cars to their employees.
iv. The corporate color of Bank Alfalah has changed from blue to red, depicting
more energy and vitality in their operations.
v. The mission statement is displayed bold and clear on the main building of Farman
Son`s Ltd. (05)
b) Identify which stage of implementing change given by Gemini consultants, is
presented by following:
i. The stage in which the focus is on finding new products and markets that fit well with
the entity.
ii. The stage in which entity decides that where the resources should be used.
iii. The stage in which the entity give training to their employees.
iv. The stage in which the entity creates a system for measurement of performance.(04)
Question # 5:
Which of the Hoftstede’s dimension best fits in each of the following scenario?
a) Pearson specter a UK company have Tightly-knit framework where people have stronger
bonds to their group and group membership forms a person’s self-identity.
b) Zane limited is an automobile company which is famous for its organizational
culture in which people define themselves as individual and form loose ties with their
groups.
c) Management of MMS limited use pragmatic approach, they encourage thrift and efforts in
modern education as a way to prepare for the future.
d) Uruguay limited has a culture in which employees prefer predictable situation and
have low tolerance for ambiguity.
e) Employees of Arhum limited are good in maintaining relationships, caring for the weak,
and quality of life.
f) Paris limited has a culture in which people value achievement and
competitiveness, as well as acquisition of money and other material objects.
g) Management of Coriell limited focuses on maintaining hierarchical order in which
everybody has a place and which need no further justification.
h) The employees of Zeta limited are more comfortable in performing their work
when they are provided with specific instructions regarding the performance of their
work but their performance deteriorates when they are provided with a principle based
code of conduct. (08)
Question # 6:
ABC Limited has shown poor performance during the preceding five years in spite of
the fact that the company owns substantial physical assets, including modern machinery for
manufacturing of a wide range of products. All the assets of the company are in good
working condition and marketing prospects for the products are also promising.
However, the company’s organizational structure has been designed inappropriately
and therefore has serious shortcomings and weaknesses which create impediments in its
operations and are responsible for the company’s unsatisfactory performance.
Required:
Identify and explain briefly the traits which would be apparent in the working of ABC Limited
because of its inappropriately designed organizational structure. (05)
(The End)
Mid Term Suggested Solution
Ans.1 (2 marks for each point)
1) Monitor: Because he is sensing competitive market. He is trying to find out the different
prices of products being offered by other competitors in the market so that he can
recommend a pricing strategy to his top management.
2) Negotiator: Because he is Committing organizational resources in “real-time” with the

broad information available from their informational roles.
3) Figure head: Because he is performs ceremonial duties. Examples: greeting visiting

dignitaries, attending an employee’s wedding, taking an important customer to lunch.
4) Leader: Because he is responsible for the work of subordinates, motivating and encouraging
employees, exercising formal authority.
5) External liaison: Because he is making contacts outside the vertical chain of command
including peers in other companies or departments, and government and trade organization
representatives.
Ans.2 (2 marks for each point)
1) Corporate infrastructure: This relates to the organization structure and its management
systems, including planning and finance management, quality management and
information systems management.
2) Outbound logistics: These are activities concerned with the storage of finished goods
before sale, and the distribution and delivery of goods (or services) to the customers. For
services, outbound logistics relate to the delivery of a service at the customer’s own
premises.
3) Purchasing: These are activities concerned with buying the resources for the entity –
materials, plant, equipment and other assets. Successful buying often means lower
purchase costs, or achieving a secure source of supply for key materials or components.
4) Human resources management: These are the activities concerned with recruiting,
training, developing and rewarding people in the organization.
5) Technology development: These are activities related to any development in the
technological systems of the entity, such as product design (research and development)
and IT systems.
6) Services: These are all the activities that occur after the point of sale, such as installation,
warranties, repairs and maintenance, and providing training to the employees of
customers
Ans.3
Incremental change means step by step changes over time, in small steps. When incremental
change occurs within an organization, it is possible for the organization to adapt to the change
without having to alter its culture or structures significantly. Employees are able to adapt to
the gradual changes, and are not unsettled by them.
In contrast, transformational change is a sweeping change that has immediate and widespread
effects. The effect of transformational change is usually to alter the structure and culture of the
organization, often with major staff redundancies and the recruitment of new staff with new
skills.
The spokesperson for the bank has argued that the change will be incremental. Since the
change will take place over a long period of time, staff will have time to adapt to the new
structure. There will be no compulsory redundancies and staff will be retrained in new skills.
Although some branches will close others will remain open, and customers will be offered
additional facilities through online banking.
The trade union leader believes that the change will be much more dramatic. He might believe
that many employees will leave the bank because they are unable to adapt to the new service,
or because they are unwilling to relocate from the branches that are closed down. The bank
might push through the branch closure programme more quickly than it has currently
proposed, and staff redundancies could be made compulsory if there are not enough
individuals willing to take voluntary redundancy.
Essentially, the two individuals take differing viewpoints because they are looking at change
differently. The spokesperson for the bank wants to persuade employees to accept the change,
and even welcome it. The trade union representative wants to warn employees about the
potential consequences, and has therefore stressed the risks.
Ans.4
(a) (1 marks for each point)

1) Paradigm/Assumption
2) Espoused values/Inner layer
3) Outer skin/Artifacts
4) Outer skin/Artifacts
5) Inner skin/Espoused values
(b) (1 mark for each point)

1) Revitalize
2) Restructure
3) Renew
4) Reframe
Ans.5 (1 mark for each point)
1) Collectivism
2) Individualism
3) Long-term orientation
4) High uncertainty avoidance
5) Femininity
6) Masculinity
7) High power distance
8) Low-uncertainty avoidance
Ans.6
1. Conflicts and lack of coordination: Lack of clarity of goals and individuals
working at cross-purposes give rise to conflicts and a non-conducive team
environment resulting in poor coordination between the planning and actual
operational levels.
2. Delays and inappropriate decisions: Lack of proper and timely communication
of information to the relevant individuals on account of insufficient delegation of
authorities and inappropriate reporting channels resulting in delays and
inappropriate decisions.
3. Low motivation and morale: Low level of motivation and poor morale amongst
the employees due to lack of clarity of job descriptions and inappropriate or
complex reporting lines.
4. Rising costs: Tall hierarchal structures at management positions and excessive red-
tape at the expense of genuine productive work resulting in high operating costs.
5. Inability to seize business opportunities: Lack of coordination and
communication among the various operating and planning and research
departments resulting in failure to identify and seize new business opportunities as
they emerge from time to time.
6. Inability to adapt to external changes in business environment: Lack of
coordination among the key management and the various departments which
prevents the company from foreseeing the changes in business environment and
utilize its physical assets at optimum levels.
Page 1 of 4

Cost and Management Accounting (CAF-08)
(Note: Reading Time: 10 Minutes, Paper Attempting Time: 90 Minutes & Answer Script Uploading
Time: 20 Minutes)
Question No.01
Adnan Limited (AL) is a retailer and sells product Zafran (Z) at a price of Rs. 3,400 per unit. The product is
purchased from a supplier in Islamabad at a cost of Rs. 2,400 per unit plus transportation charges amounting
to Rs. 6,000 for each delivery.
The records over a 5-year period show that monthly sales ranged between 900 units to 1,200 units, as shown
below:
Units Probability
900 0.30
1000 0.45
1100 0.20
1200 0.05
The following further information is available:

(i) The supplier requires 30 days to fulfil an order.
(ii) The costs of the ordering department are as follows:
 Variable costs - Rs. 3,000 per order
 Fixed costs – Rs. 480,000 per annum
Purchases of Z constitute 5% of the total purchases of AL.
(iii) The holding costs associated with Z are as follows:
 Warehouse rent Rs. 360,000 per annum. 2% of the warehouse space is required to store 1,000
units of Z.
 Cost of Insurance @ 1.0% of the cost of goods stored in the warehouse, per annum.
(iv) AL places its surplus funds in an account which earns interest @ 8% per annum on a daily basis.
Required:
Determine the level of inventory at which it would be most profitable for AL to reorder the product Z.
(10 marks)
Page 2 of 4
Question No.02
Shahbaz Chemicals (SC) produces a chemical that is manufacture in two different processes. Following
information pertains to process B for the month of January 2020;
Liter Rs. in ‘000’

Opening work in process ( 90% to conversion ) 10,000 4,000
Cost for the month:
Received from Process-A 45,000 27,000
Material added in Process-B 25,000 20,000
Conversion Cost incurred in Process-B - 25,000
Finished goods transferred out 70,000 -
Closing work in process ( 60% to conversion ) 8,000
In Process B, material is added at the start of the process and conversion costs are incurred evenly throughout
the process. Process losses are determined on inspection which is carried out on 70% completion of the
process. Process loss is estimated at 5% of the inspected units and is sold for Rs.140 per liter.
SC uses FIFO method for inventory valuation.
Required:
(a) Prepare a statement of equivalent units (4 marks)
(b) Prepare a statement of cost per unit (4 marks)
(c) Prepare a statement of Evaluation (4 marks)
Question No.03
Sigma Garments (SG) is engaged in selling ready-made garments. These garments are processed through three
production departments. SG's production facility also has two service departments. Following information
relates to budgeted production overheads for the year ending December 31, 2019
Rs.
million
Depreciation (building) 40.00
Depreciation (P&M) 18.00
Indirect labor 54.00
Insurance (building) 22.00
Power 96.00
General lighting 14.00
Repairs (P&M) 36.00
Other relevant budgeted information for 2019:

Page 3 of 4
Cutting Stitching Finishing Maintenance Canteen

Direct material [Rs.
million] 94.00 102.00 50.00 - -
Direct labor [Rs. million] [Rs. 800 per
hour] 45.00 32.00 24.00 - -
Indirect labor [Rs. million] 11.00 12.00 13.00 10.00 8.00
Area covered (sq. yards) 1500 1200 800 500 400
Cost of P&M [Rs. million] 240 360 120 - -
KWH consumption 10000 25000 10000 - -
Machine hours 24000 36000 12000 - -
Light points (no.) 20 20 15 5 10
Machine Labor
Basis of OAR - -
Labor hours hours hours
Service departments provide support as follows:

Cutting Stitching Finishing Maintenance Canteen
Maintenance 25% 45% 30% - -
Canteen 30% 30% 35% 5% -
Required:
Calculate OAR for year 2019 for each production department.
(10marks)
Question No.04
The trial balance of the Ettehad Company shows the following balances as on October 01, 2019:
Rs Rs.
Cash 51,600
Accounts receivable 95,480
Allowance for doubtful debt 5,650
Finished goods 157,400
Work in process 170,800
Materials 89,760
Building 240,000
Accumulated depreciation - building 96,000
Equipment 474,480
Accumulated depreciation - equipment 230,420
Accounts payable 108,540
Accrued payroll 13,200
Share capital 160,000
Retained earnings 665,710
Page 4 of 4
1,279,520 1,279,520
During the month of October, following transactions took place:

Rs.
(a) Materials purchased on account 80,000
(b) Direct materials issued 130,000
(c) Total payroll (direct labour) 160,000
(d) Wages paid 150,000
(e) Accounts payable paid 270,000
(f) Depreciation to be provided for October at the rate of 2% per annum on
Building; 10% per annum on equipment ?
(g) Factory overhead applied to production at 60% of direct labour cost ?
(h) Work in process, October 31 150,000
(i) Cost of goods sold 410,000
(j) Sales on account 570,000
Required:
Prepare journal entries for the above transactions. (Marks 10)
Question No.05
The following information relates to week's performance of three employees
A B C
units produced 160.00 276.00 68.00
Hours per unit 0.50 0.25 0.75
Basic hourly rate 80.00 100.00 70.00
Hours worked as direct
worker 48.00 54.00 30.00
Hours worked as indirect
worker - - 12.00
Other information
(i) The normal working hours of week are 42.
(ii) for the first 6 hours overtime is paid @ 50% above normal rate .Any
further overtime is paid @ double the normal rate
Bonus Is paid @ 3/5 of normal rate of time saved
(iii)
Required :
Determine Total wages earned by each employee in week (8 marks)
Page |1

Cost and Management Accounting (CAF-08)
Question No.1 Adnan Limited (AL)
(a) Determining the optimum re-order level:
Reorder level Incremental

stock Stock out Loss of Sales Loss of Carrying Total cost
Probability Costs (Rs.)
(Units) (Units) (Units) (Units) Contribution
(C) E+F
(A) (B) D = (B)x(C) E = (*1000 x D) F= (**216 x A)
900 - 100 0.45 45 45,000 - 45,000
- 200 0.20 40 40,000 - 40,000
- 300 0.05 15 15,000 - 15,000
100,000
1,000 - 100 0.20 20 20,000 - 20,000

- 200 0.05 10 10,000 - 10,000
- - 30,000
1,100 100 100 0.05 5 5,000 21,600 26,600

- 26,600
-
1,200 200 - - - - 43,200 43,200
(Marks 2.5 each ROL working)
*Contribution = Rs. 3,400 – Rs. 2,400 = Rs. 1,000
**CC= 2400*9% = Rs. 216
Conclusion:
Profit would be maximized at re-order level of 1,100 units. Therefore, the company should reorder when
the stock reaches 1100 units.
Page |2
Question No.2 Shahbaz Chemicals (SC)
(a) Statement of Equivalent Units ( Total4 marks)

Equivalent Units Quantity
Schedule
Material Conversion
------------------Liter----------------
Opening WIP (90% to conversion) (M-0.5) (10,000) (9,000) 10,000
Material received from Process-A(M-0.5) 45,000
Material added in Process-B(M-0.5) 25,000
80,000
Transferred to finished goods(M-0.5) 70,000 70,000 70,000
Units started and completed during the month (A) 60,000 61,000
Closing WIP (60% to conversion) (M-1)
4800 8,000
(B) 8,000
Normal Loss at 5% [(80,000-10,000-8,000) x 5%](M-1) 3,100
Abnormal gain (70% to conversion) balancing (C) (1,100) (770) (1,100)
(D) 66,900 65,030 80,000
(b) Statement of Cost Per Unit ( Total4 marks)

Cost Material Conversion Total
-------Rs. in ‘000’------
Opening WIP(M-0.5) - - 4,000
Cost for the month: Department-A(M-1.5) 27,000 27,000
Department-B (M-1) 20,000 25,000 45,000
Normal loss scrap value (3100 x 140) (M-1) (434) - (434)
Net Cost (E) 46,566 25,000 75,566
----------- Rupees ----------

Cost per Unit [F = (E ÷ D)] 696.05 384.44 -
(c) Statement of Evaluation ( Total4 marks)

Cost of finish goods: ------------Rs. in ‘000’-----------
Opening WIP(M-0.5) 4,000
Cost for the month ( A x F) (M-1) 41,763 23,451 65,214
69,214
Cost of Closing Stock (B x F) (M-1.5) 5,568 1,845 7413
Cost of abnormal gain (CxF) (M-1) 766 296 1,062

Question no.3:
Allocation / Apportionment
Items Basis Total Cutting Stitching Finishing Maintenance Canteen Marks
----------------------------- Rs. million ---------------------------
Dep (build.) Area 40.00 13.64 10.91 7.27 4.55 3.64 1
Machine
Dep (P&M) 18.00 6.00 9.00 3.00 - -
hours 1
Indirect labor Given 54.00 11.00 12.00 13.00 10.00 8.00 0.5
Insurance (build.) Area 22.00 7.50 6.00 4.00 2.50 2.00 1
Power KWH 96.00 21.33 53.33 21.33 - - 1
Gen. light Light points 14.00 4.00 4.00 3.00 1.00 2.00 1
Machine
Repairs (P&M) 36.00 12.00 18.00 6.00 - -
hours 1
75.47 113.24 57.61 18.05 15.64
Secondary apportionment:
Canteen 4.69 4.69 5.47 0.78 (15.64) 1
Maintenance 4.71 8.47 5.65 (18.83) - 1
Total OH 84.87 126.41 68.73 - -
Basis 56,250 36,000 30,000 1

Labor hours Machine hours Labor hours
OAR per hour (Rs.) 1,508.75 3,511.27 2,290.90 0.5

Question no.4
a. Material 80,000
0.75
Account payable 80,000
b. WIP 130,000
0.75
Material 130,000
c. WIP 160,000
0.75
Payroll 160,000
d. Accrued Payable 150,000

0.75
Cash 150,000
e. Account Payable 270,000

0.75
Cash 270,000
f. FOH control A/C 4354
Acc. Dep- Building 400 1.5

Acc. Dep- Equipment 3,954
g. WIP 96,000
0.75
FOH control A/C 96,000
h. Finished goods 406,800 0.75

WIP 406,800
i. Cost of Sale 410,000

1
Finish goods 410,000
j. Account receivables 570,000

0.5
Sales 570,000
WIP
Opening balance 170,800 Finish goods 406,800
FOH 96,000
Material 130,000
Labor 160,000
Closing balance 150,000
Question no. 5
A B C
BasicWages
(M-2) 3,360.00 4,200.00 2,940.00
(42x80) (42x100) (42x70)
Overtime
(M-2) 720.00 2,100.00 -
(6x80x1.5) (6x100x1.5)
(6x100x2)
Bonus(w-1) 1,536.00 900.00 882.00

(M-4)
Total
Wages 5,616.00 7,200.00 3,822.00
W-1
A B C
Std time for actual output(actual prod/std prod per hour) 80.00 69.00 51.00
('160/2) ('276/4) ('68/(1.33333))
Actual time for actual output 48.00 54.00 30.00
Time Saved 32.00 15.00 21.00
Hourly rate 80.00 100.00 70.00
Bonus 1,536.00 900.00 882.00

INTRODUCTION TO ECONOMICS AND FINANCE (CAF-02)
Question # 1:
(a) Describe demerit goods and club goods with at least two examples each. (M.04)
(b) Opportunity cost is important for active agents of an economy. Elaborate with examples.
(M.06)
Question # 2:
Demonstrate the production possibility curve on an economy for consumer goods and military
equipment’s. Use appropriate diagram to support your answer. Explain the effect of economic
growth on a country’s production possibility frontier. (M.10)
Question # 3:
(a) Mr. Zain ul Abideen is dealing in room coolers for last few years. Over the years his
accounts book have shown a record growth in its sale. Surprisingly he has experienced a
sharp scaling back in sale this year. On investigation he was found that one of the major
reasons is availability of a new substitute in the market. Zain was selling his product at the
rate Rs. 25000 per unit. In the absence of an alternative, it’s total sale was recorded 2000
units during a course of time. Since it was observed that Zain’s sales gone down in a
result when an alternative is avail with a price cut from Rs. 28000 to Rs. 22000 per unit.
Calculate the cross elasticity of demand and state its degree. (M.08)
(b) State why the income elasticity of demand is negative for inferior goods? (M.02)
Question # 4:
(a) Support price is a system to protect the week agents of an economy from exploitation
especially in agriculture. Explain how minimum price system works in this regards.
Elucidate your thought by means of a suitable diagram. (M.06)
(b) Apart from the price of a product, there are many other factors which affect the
quantum of supply into a market. Explain those factors which responsible for a fall in
supply of product. (No need of diagram) (M.04)
Question # 5:
(a) Differentiate between cardinal and ordinal school of thoughts of utility. (M.02)
(b) In economic theory it is affirmed that the real income of consumers increases as price
of product under consideration falls. Explain that price effect, comes from the income
and substitution effects in this case. (Support your answer with help of diagram). (M.08)
THE END
IEF Mid-Term Suggested Solution By Sir Ijaz Butt
Question # 1:
(a) Describe demerit goods and club goods with at least two examples each? (M.04)
Answer:
Demerit Goods:
A good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to
the perceived negative effects on the consumers themselves".
Examples, alcoholic beverages, and recreational drugs.
Club Goods:
Are a type of good in economics, sometimes classified as a subtype of public goods that are excludable but non-
rivalrous, at least until reaching a point where congestion occurs. These goods are often provided by a natural
monopoly.
Examples, Cinemas, and Cable Television
(b) Opportunity cost is important for active agents of an economy. Elaborate with examples? (M.06)
Opportunity Cost:
The forgone benefits by using a factor of production in its next best alternative.
The opportunity cost is the cost of losing an opportunity to get next benefit.
The application of the concept of opportunity cost can be observed in all sectors / agents of the of an economy such
as:
i. Consumer: Consumer considers the opportunity forgone while spending his income among various goods to
satisfy his wants.
ii. Government: Government also considers the opportunity cost by using resources to provide various
development and non-development projects to the society.
iii. Firms: The forgone benefit by using a factor of production during a production process is the core aim of a firm
to maximize its profits.
Question # 2:
Demonstrate the production possibility curve on an economy for consumer goods and military equipment’s. Use
appropriate diagram to support your answer. Explain the effect of economic growth on a country’s production
possibility frontier? (M.10)
Answer
Production Possibility Curve:
A production Possibility Frontier/Curve (PPC or PPF) shows different combination of two goods that an economy
can produce when all the resources are fully and efficiently applied.
Assumption of PPF:
PPF (curve) is based on the following assumption:

1. Only two goods ‘X’ (Consumer goods) ‘Y’ (Capital goods) are produced in different proportion in the economy.
2. There is full employment of resources.
3. The supply of factors are fixed. But these can be re-allocated for production of two goods within limits.
4. The production techniques are given and constant.
5. The time period is short
6. The firm has given quantities of an input with which it produces the two goods.
7. It produces more of one good and less of the other.
Diagram and Explanation:
Attainable Consumer Capital We can illustrate this concept by using following diagram:
Combinations Good Good
A 0 15 Diagram:
B 1 14
Cur
C
u
e
v
r
ve
P
o
b
s
s
y
t
i
i
l
i
A
PossibilityCurve
B
CapitalGood
C 2 12
Possi
K1
bility
P
o
d
u
o
n
c
r
t
i
K2 C
duct o
ion d
u
o
n
c
Pro r
t
i
B
D 3 9 .N
.M
E 4 5 C
C1 2Consumed Good
F 5 0
The movement from X point to Y point illustrate a very important aspect of the economic problem, the principle of
opportunity cost. The opportunity cost of any choice is measured in terms of the alternative that have to give up.
Hence the opportunity cost of increasing the production of consumer goods from C1-C2 is the fall in production of
capital goods from K1 to K2. This trend is showing the opportunity cost. In above diagram this point M indicates a
combination of capital goods and consumer goods where all resources are not employed fully. Whereas the point N
is not technically possible in given present resources and technology. Hence the opportunity cost of any decision or
choice can be defined as the next best alternative sacrificed or forgone.
ECONOMIC GROWTH AND SHIFT IN PPF:

Economic growth can be defined as an outward shifting of the economy’s production possibility frontier, or an
increase in its production potential.
When the PPF shifts outwards, we can imply that there has been growth in an economy. Alternatively, when the
PPF shifts inwards it indicates that the economy is shrinking due to a failure in its allocation of resources and
optimal production capability. A shrinking economy could be a result of a decrease in supplies or a deficiency in
technology. An economy can only be producing on the PPF curve in theory; in reality, economies constantly
struggle to reach an optimal production capacity. And because scarcity forces an economy to forgo some choice in
favor of others, the slope of the PPF will always be negative; if production of product A increases then production of
product B will have to decrease accordingly.
TWO MAIN CHARACTERISTICS / PROPERTIES OF PPC / PPF:
Downward Sloping: The reason for being downward sloping in the transformation ofresources from one
commodity to another commodity. The increase in production of one commodity will result in decrease in other
commodity.
Concave to origin: The reason for being concave to origin is because some of the economy’s resources are better
at producing consumer goods and some are better for capital goods. So, due to transferring resources from efficient
use to inefficient use. The opportunity cost increases and PPF becomes concave to origin.
Question # 3:
(a) Mr. Zain ul Abideen is dealing in room coolers for last few years. Over the years his accounts book has
showna record growth in its sale. Surprisingly he has experienced a sharp scaling back in sale this year. On
investigation he was found that one of the major reasons is availability of a new substitute in the market. Zain was
selling his product at the rate Rs. 25000 per unit. In the absence of an alternative, it’s total sale was recorded 2000
units during a course of time. Since it was observed that Zain’s sales gone down in a result when an alternative is
avail with a price cut from Rs. 28000 to Rs. 22000 per unit. Calculate the cross elasticity of demand and state its
degree. (M.08)
Solution:
Price of Q.D (for

substitutes Zain)
28000 2000
22000 X
It is supposed that new demand X=1500 units (students will assume any will to calculate the elasticity)
22000−28000 1500−2000
e.d = ÷
(22000+28000)/2 (1500+2000)/2
e=
(b) State why the income elasticity of demand is negative for inferior goods? (M.02)
Answer:
An inferior good will always have a negative income elasticity of demand, because as income increases,
the demand for the product will decrease, as consumer switch to other alternative.
Question # 4:
(a)Support price is a system to protect the week agents of an economy from exploitation especially in agriculture.
Explain how minimum price system works in this regards. Elucidate your thought by means of a suitable diagram?
(M.06)
 In the above diagram supply shifts outwards from S1 to S2 meaning (with no intervention) the price
will fall to Pe.
 However, because the government guarantees the price at Pmin it buys the surplus stock: Q2 – Q3
 The fact that farmers receive this price, naturally means that the price is stable, thus achieving the
policy goal
Should there be a commodity shortage in a future period, these stock levels could be used to release onto
the market and reduce the upward pressure on price
(b) Apart from the price of a product, there are many other factors which affect the quantum of supply into a
market. Explain those factors which responsible for a fall in supply of product. (No need of diagram) (M.04)
Answer:
Whenever there is a change in conditions other than price it may cause outward and inward shift simultaneously.
The following factors will shift the supply curve:
(i) Change in cost of production.
(ii) Change in the technology or method of production.
(iii) Change in efficiency of factors of production.
(iv) Discoveries and innovations.
(v) Change in indirect taxation.
(vi) Change in price of competitive supply.
(vii) Entry and exist of firms into industry.
Question # 5:
(a)Differentiate between cardinal and ordinal school of thoughts of utility? (M.02)
Answer:
Cardinal Thought of utility:
Cardinal thought of utility means utility can be measured quantitatively (like any other physical commodity) by
assigning a numeric value to it e.g. 10,20.
Ordinal Thought of utility:
Ordinal measurement means utility cannot be measured using numeric value. Consumer can only give
ranking/preference to different commodities on the basis of satisfaction received from each commodity
e.g. 1st,2nd,3rd.
(b)In economic theory it is affirmed that the real income of consumers increases as price of product under
consideration falls. Explain that price effect, comes from the income and substitution effects in this case.
(Support your answer with help of diagram). (M.08)
Price effect:
Price effect is the change in consumer equilibrium (i.e. change in quantity purchased of good) due to change in
price of a good.
Income effect:
Income effect is the change in consumer equilibrium (i.e. change in quantity purchased of good) due to change
in income of the consumer.
Effect of price on quantity demanded can be bifurcated into real income effect and substitution effect i.e.
Price Effect = Income effect (I.E) + Substitution effect (S.E).
Diagram and Explanation:
Here we see the same price movement as before: a fall in the price of Good X.
Keeping utility constant, were we dealing with the new relative prices, then A’ of Good X would be consumed.
The income effect is then brought into place, effectively moving from A’ to B. This causes the quantity of B
consumed to decrease.
Here the substitution and income effects are working in opposite directions; however, the substitution effect
dominates the income effect.
We see that the price of Good X falling still leads to an increase in the quantity consumed nevertheless.
BUSINESS LAW (CAF-03)

MERCANTILE LAW
Question # 1:
Choose the correct option from the given choices in each of the following: (Marks: 08)
i) Which of the following Statement regarding Criminal Law is correct?

a) The object of Criminal Law is compensation.
b) An accused is sentenced on the balance of probabilities
c) A crime is a public wrong
d) Criminal proceedings are usually initiated by an individual
ii) A bill is finally assented when passed by:

a) National Assembly & Senate
b) Senate only
c) Cabinet & President
d) None of the above
iii) Where agreement is enforceable by law at the option of one party and not at the option
of the other,
i. The agreement is said to be void
ii. The agreement is said to be voidable
iii. The agreement is illegal
iv. The agreement is unenforceable
iv) A teaches his parrot to recite an offer to B and sends the parrot to B. When parrot flew
to B and recited the offer to B,
a) This becomes a valid communication of an offer.
b) This does not amount to a valid communication of an offer.
c) The parrot becomes an agent of A to make the offer.
d) The offer does not become valid unless someone takes the parrot to B to recite the
offer.
v) On attaining the age of majority can a minor ratify the agreement made by him when he
was minor?
a) No because agreement with minor is void
b) No because ratification has retrospective effect
c) No because minor is not competent to contract
d) No because minor even in the age of majority has to act through his guardian
vi) Karim borrowed Rs. 500,000 from Bashir in 2002. The debt became time-barred under
the law of limitation. However, Karim met Bashir in 2009 and verbally acknowledged his
liability to the extent of Rs. 300,000. Can Bashir hold Karim liable?
a) Yes, because acknowledgement revives the time-barred debt
b) No, because acknowledgement must be in writing
c) Yes, because it is an exception to the rule that agreement without consideration is
void.
d) None of the above is correct
vii) An agreement made under mistake is void:

a) If it is induced by a party to the agreement as to the substance of the thing, which is
the subject of the agreement.
b) If it is made by both the parties to an agreement, as to matter of fact essential to the
agreement.
c) If it is an opinion of both the parties to an agreement about the value of things which
form the subject-matter of the agreement
d) If it is made about any law in force in Pakistan.
viii) The exception to the rule that agreement in restraint of trade is void is:
a) The agreements made to preserve the goodwill of a business
b) The agreements made to create monopoly in businesses of indigenous things
c) The agreements to control employees in their jobs
d) All of the above
Question # 2:
a) Aslam and Zahid jointly found some goods belonging to another and agreed to divide these
between them, but Zahid who was in possession of these goods, later on refused to do so.
Aslam is intending to file a suit against Zahid for the purpose to obtain his share in the
goods. Can he succeed in it and why? (Marks: 02)
b) State whether the following are contingent contract or otherwise, giving brief reasons.
i. A agrees to pay B Rs. 50,000 if he proves that two straight lines can enclose a space.
ii. A agrees to construct a building for B for Rs. 100,000 on the condition that the payment
will be made on the completion of the building
iii. A agrees to sell his house to B for 100,000 if his father does not return within two years
from the United States of America. (Marks: 03)
c) Ahmad in desperate need of money agreed to sell his car worth Rs.100,000/- to Akram for
just Rs.10,000. But before the car was delivered, Ahmad received another offer of Rs.
70,000/- and he refused to deliver car to Akram on the ground of inadequacy of
consideration. Is Ahmad justified for his action? (Marks: 02)
d) X of Peshawar sends a letter by post to Y of Karachi offering to sell his car for Rs.100,000,
this letter is posted on 1st January and reaches Y on 7th January. Y sends his acceptance
by post on 10th January. But X receives acceptance letter on 15th January. Answer each of
the below questions.
i. When is the communication of acceptance complete as against the acceptor?
ii. If X sends a telegram on 8th January revoking his offer and this telegram reaches Y
before the letter of acceptance is posted. Is revocation of offer valid? (Marks: 04)
e) A, who is trying to sell an unsound horse, forges a veterinary surgeon’s certificate, stating
that the horse is sound and pins it on the stable door. B comes to examine the horse but
the certificate goes unnoticed by him. He buys the horse and finds later on the horse to be
unsound. He wants to avoid the agreement under the plea that he has been defrauded. Will
he succeed? (Marks: 03)
f) X buys from Y a painting which both believe to be the work of an old master and for which X
pays a high price. The painting turns out to be only a modern copy. Discuss the
consequences of this subsequent discovery on the agreement. (Marks: 03)
COMPANY LAW
Question # 3:
Choose the correct option from the given choices in each of the following: (Marks: 05)
i) A company or body corporate which exercises or controls more than one-half of the voting
securities of any other company or controls the composition of the board of such other
company is known as:
a) Subsidiary company
b) Co-operative company
c) Holding company
d) Listed company
ii) A person may make an application in specified form and manner with a specified fee to the
registrar for reservation of any name. If the application is refused by registrar, aggrieved
person may prefer an appeal to the Commission within:
a) 60 days
b) 30 days
c) 15 days
d) 90 days
iii) If a company changes its name, then former name is required to be mentioned along with
the new name for a period of:
a) 90 days from the date of issue of the new certificate of incorporation.
b) 120 days from the date of issue of the new certificate of incorporation.
c) One year from the date of issue of the new certificate of incorporation.
iv) Any member or members of the affected class representing at least 10 percent
shareholding of that class may apply for an order against the resolution varying their rights.
They will apply to:
a) The registrar
b) The commission
c) The board of directors
d) The board of directors
e) The Court
v) A supplement to the prospectus invites the general public for subscription of earlier offered
securities. The supplement to the prospectus contains:
a) New prospectus
b) Self-prospectus
c) Updated disclosures
Question # 4:
a) Organizations working for useful objects of the society often need protection of limited
liability for such work.’ However, there are certain conditions subject to the fulfilment of
which an exemption may be granted to an entity from using the word ‘Limited’ to its name.
Describe those conditions and also specify the authority who may grant such exemption
under the Companies Act, 2017. (Marks: 03)
b) Enlist any five points of Articles of association as per table A. (Marks: 02)
Question # 5:
Sony Limited, holding 56% voting securities of Marvel Limited and 14% voting securities of Disney
Limited, owns and controls 22% voting securities of Warner Limited. Composition of board of
directors of Sony Limited is controlled by Fox Limited. Further Marvel Limited holds 59% and
Disney Limited holds 19% voting securities of Warner Limited.
Identify the relation between companies under provisions of Companies Act 2017. (Marks: 03)
Question # 6:
As per the Securities Act 2015, no person shall make a public offer of securities unless the issuer
has submitted a prospectus for approval of Commission and Commission has approved the same.
State if in each of the below independent scenarios prospectus is required to be filed for approval
along with reasons, according to the requirements of Securities Act 2015:
a) Iron Man Limited is planning to issue shares to its existing members as bonus shares.
(Marks: 01)
b) Strange Limited has allocated shares for issuance to its employees and their family
members. (Marks: 01)
Question # 7:
a) Justice Limited intends to include a statement, in the prospectus, purporting to be made by

Mr. Bruce Wayne, who’s being hired as securities advisor. Give the conditions, under
provisions of Securities Act 2015, to be fulfilled, for including Mr. Bruce’s statement in
prospectus for its publishing, issuance and circulation. (Marks: 02)
b) Andy Limited has filed its Memorandum and Articles of Association with the registrar and
obtained certificate of incorporation of company. It is now intending to obtain certificate of
commencement of business. Give the conditions which Andy Limited needs to comply with
under provisions of Companies Act 2017 to satisfy registrar for the said purpose.
(Marks: 03)
c) Leonard (PVT.)LTD. has published a pamphlet to market their smartphone in the market. It
has mentioned its authorized share capital on the advertisement. Leonard (Pvt.) Ltd.
received a notice from the registrar stating that information regarding authorized share
capital on advertisement is not legally correct. Enlighten the company secretary as to the
requirements in the pamphlet which registrar might have indicated. (Marks: 02)
d) Dare Devil Limited (DDL), a manufacturer of markers, intends to alter the authorized share
capital clause, of its memorandum, allowed by its articles. Under provisions of Companies
Act 2017:
i Give the procedure, DDL has to follow for the said purpose.
ii State the purposes for which a company has to alter the capital clause of its
memorandum. (Marks: 03)
THE END
Solution C.LAW
Q#1 The Securities and Exchange Commission of Pakistan, on such conditions and subject to
such regulations as it thinks fit allow an association which has been formed or is capable of
being formed as a limited liability company to register as a limited company without the
addition of word ‘Limited’ or (Guarantee) Limited etc. to its name, subject to the following:
(i) Such association has been set up for promoting:
• commerce Art science
• Religion Health social welfare
Education Protection of Environment
Research
Sports
• charity any other useful object
(ii) Such association applies or intends to apply its profits, if any, or other income in
promoting its objects, and
(iii) Such association prohibits the payment of any dividend to its members.
Q#2 As per definition of subsidiary company under the provisions of Companies Act 2017:
• Sony Limited is a subsidiary company of Fox Limited as composition of its board of
directors is being controlled by Fox Limited.
• Marvel Limited is a subsidiary company of Sony Limited as Sony Limited holds more than
50% i.e. 56% of its voting securities
• Warner Limited is a subsidiary company of Marvel Limited as Marvel Limited holds more
than 50% i.e. 59% of its voting securities Warner Limited is a subsidiary company of Sony
Limited as Sony Limited holds more than 50% i.e. 57.7% (22% + 33.04% + 2.66%) of its
voting securities, of which:
➢ 22% voting securities are owned directly; and
➢ 33.04% (56% X 59) and 2.66% (14% X 19) voting securities are owned together with
Marvel Limited and Disney Limited respectively.
➢ Further, Marvel Limited is subsidiary of Sony due to more than 50% of its voting
securities which also makes Warner Limited the subsidiary of Sony Limited.
Q#3 Being holding company of Sony Limited, Fox Limited is also the holding company of
Marvel Limited and Warner Limited.
a) As per the Securities Act 2015, prior approval for issuance of prospectus is not necessary
where the securities are shares and are offered as bonus shares to any or all of the members
of the issuer. Hence approval is not required by Iron Man Limited for issuance of shares to its
members as bonus shares.
b) As per the Securities Act 2015, prior approval for issuance of prospectus is not necessary
where the securities are offered by the issuer to its employees or families of such employees.
Henceapproval is not required by Strange Limited for issuance of shares in the given
situation.
Q#4 As per provisions of Securities Act 2015, a prospectus containing a statement purporting
to be made by an expert i.e. Mr. Bruce Wayne or to be based on a statement made by him shall
not be issued, circulated or published unless:
1. The expert has given his written consent to the issue of the prospectus with the statement in
the form and context in which it is included; and
2. There appears in the prospectus a statement that the expert has given and has not withdrawn
his consent.
Q#5 For obtaining the certificate of commencement of business, Andy Limited has to meet
certain requirements, under provisions of Companies Act 2017, which are as follows:
1. The company should have allotted shares against cash for an amount which is at least equal
to the amount of minimum subscription.
2. The directors of the company should have paid, to the company, full amount on each of the
shares taken or contracted to be taken by them and for which they are liable to pay in cash.
3. No money is or may become liable to be repaid to applicants for any shares which have been
offered for public subscription.
4. There should be filed with the registrar a duly verified declaration by the chief executive or
one of the directors and the secretary that the aforesaid conditions have been complied with.
5. In the case of a company which has not issued a prospectus inviting the public to subscribe
for its shares, there has been filed with the registrar a statement in lieu of prospectus.
Q#6 Whenever a company mentions its authorized capital in any advertisement or notice or in
any statement, it shall mention the amount of its subscribed and paid up capital as well in equally
conspicuous letters and in equally prominent position.
Therefore, the company secretary should also have the issued, subscribed and paid up capital
amount published in the pamphlet prominently so that the legal defect can be removed.
Q#7 a) To alter the capital clause of its memorandum, under provisions of Companies act 2017,
Dare Devil Limited Limited is required to:
1. pass a special resolution
2. file the resolution and the related documents i-e altered copy of the memorandum of
association with the registrar within 15 days of passing the resolution, failing which, the
resolution shall not be effective and shall ultimately lapse .
b) A company has to alter the capital clause of its memorandum, under provisions of
Companies Act 2017, so as to:
1. Increase the authorized capital whenever it requires; Cancel that part of its authorized
capital which has not been paid up till the date of cancellation and such cancellation shall
not affect the rights of paid up shareholders;
2. Consolidate the share capital into shares of a larger amount; or
3. Divide and subdivide the share capital into shares of an amount smaller than the one
fixed by the memorandum of association initially.
M.C.Q (1)
(C)
M.C.Q (2)
(B)
M.C.Q(3)
(A)
M.C.Q(4)
(D)
M.C.Q(5)
(C)
Solution M.Law
Midterm (autumn 2020)
1) Choose from the options
i) Which of the following Statement regarding Criminal Law is CORRECT?

a) The object of Criminal Law is compensation.
b) An accused is sentenced on the balance of probabilities
c) A crime is a public wrong
d) Criminal proceedings are usually initiated by an individual
ii) A bill is finally assented when passed by

a) National Assembly & Senate
b) Senate only
c) Cabinet & President
iii) Where agreement is enforceable by law at the option of one party and not at the option of the other.
a) The agreement is said to be void
b) The agreement is said to be voidable
c) The agreement is illegal
d) The agreement is unenforceable
iv) A teaches his parrot to recite an offer to B and sends the parrot to B. When parrot flew to B and recited
the offer to B.
a) This becomes a valid communication of an offer.
b) This does not amount to a valid communication of an offer.
c) The parrot becomes an agent of A to make the offer.
d) The offer does not become valid unless someone takes the parrot to B to recite the offer.
v) On attaining the age of majority can a minor ratify the agreement made by him when he was minor
a) No because agreement with minor is void
b) No because ratification has retrospective effect
c) No because minor is not competent to contract
d) No because minor even in the age of majority has to act through his guardian
vi) Karim borrowed Rs. 500,000 from Bashir in 2002. The debt became time-barred under the law of
limitation. However, Karim met Bashir in 2009 and verbally acknowledged his liability to the extent of
Rs. 300,000. Can Bashir hold Karim liable?
a) Yes, because acknowledgement revives the time-barred debt
b) No, because acknowledgement must be in writing
c) Yes, because it is an exception to the rule that agreement without consideration is void.
vii) An agreement made under mistake is void

a) If it is induced by a party to the agreement as to the substance of the thing, which is the subject of
the agreement.
b) If it is made by both the parties to an agreement, as to matter of fact essential to the agreement.
c) If it is an opinion of both the parties to an agreement about the value of things which form the
subject-matter of the agreement
d) If it is made about any law in force in Pakistan.
viii) The exception to the rule that agreement in restraint of trade is void
a) The agreements made to preserve the goodwill of a business
b) The agreements made to create monopoly in businesses of indigenous things
c) The agreements to control employees after they leave their jobs
d) All of the above
2) Answer the following
i. Finder of the lost goods is subject to the responsibilities of a bailee and is bound to take
reasonable care of the goods until returned to the original owner. Aslam and Zahid were
bound to return the goods and they cannot divide these between them. Thus Aslam cannot
file the suit to obtain his share in the goods.
ii.
a) This is not a contingent contract because it is impossible to prove that two straight lines
can enclose a space and agreement to do impossible act is void.
b) This is not a contingent contract because it is a simple transaction of reciprocal promises
not an agreement based on uncertain event.
c) This is a valid contingent contract based on uncertain future event, i.e. return of father
within two years from USA.
iii. consideration doesn’t need to be adequate; it must have some value.so the contract on
account of consideration amounting to Rs.10000 is valid if Ahmad refused to carry out the
contract, he is liable to pay damages to Akram.
iv.
a. The communication of acceptance is complete as against the acceptor on 15 th January
because the letter of acceptance is received by offeror on 15th January.
b. X’s revocation is valid because X can revoke his offer at any time before the letter of
acceptance is posted by the offeree.
V) B will not succeed because he bought the horse after examination and not on the basis of
the Certificate. B has not therefore been deceived by the Certificate actually and a deceit
which does not deceive is not a fraud.
vi) The contract is absolutely void as there is a mutual mistake of both the parties as to the
substance or quality of the subject-matter going to the very root of the contract. In case of
bilateral mistake of essential fact, the agreement is void-ab- initio. In furtherance of the
consequences thereof the advantage both parties exchanged will be returned.
ThePr
ofessi
onal
s’AcademyofCommer
ce
CAFMi
d-Ter
m Exami
nat
ion(
Aut
umn-
2020)
BUSI
NESSLAW (
CAF-
03)
Tot
alMar
ks:50 Ti
meAl
lowed:120Mi
nut
es
(Not
e:Readi
ngTime:10Mi
nut
es,
PaperAt
tempt
ingTi
me:90Mi
nut
es&AnswerScr
iptUpl
oadi
ng
Time:20Minut
es)
MERCANTI
LELAW
Questi
on#1:
Choosethecor
rectopt
ionf
rom t
hegi
venchoi
cesi
neachoft
hef
oll
owi
ng: (
Mar
ks:05)
1)Whi
chi
nst
rumenti
simmedi
atel
ypay
abl
eondemand?
a)Cheque
b)Pr
omi
ssor
yNot
e
c)Bi
l
lofexchange
d)Al
loft
hese
2)Anagencyr
elat
ionshi
pmaybecreatedretr
ospecti
vel
y.Thi
smayhappenwhenaperson
whodoesnotactual
lyhav
eact
ualauthori
tyasanagentnegot
iat
eswit
hathi
rdpar
ty,
cl
aimi
ngtobeanagentofanamedpr inci
pal.Thi
sis
a) Agencybyexpr
essappoi
ntment
b)Agencybyr
ati
fi
cat
ion
c)Agencybyest
oppel
d)Agencybynecessi
ty
3)Mr.X&Mr.Ygointoashop.Mr.Xsaystotheshopkeeper
,“LetMr
.Yhav
ethegoods.Iwi
l
l
seeyouar
epai
d.”Stat
ethenat
ureofcontr
actbetweenMr.X&Mr .Y.
a)Thecont
ractbet
weent
heMr
.X&Mr
.Yi
sav
oidabl
econt
ract
.
b)Thecont
ractbet
weent
heMr
.X&Mr
.Yi
sabai
l
mentcont
ract
.
c)Thecont
ractbet
weent
heMr
.X&Mr
.Yi
sani
ndemni
tycont
ract
.
d)Thecont
ractbet
weent
heMr
.X&Mr
.Yi
saguar
ant
eecont
ract
4)Amoneybil
lshal
lori
ginat
eint
heNati
onalAssembl
yaf
teri
thasbeenpassedbyt
he
Nat
ional
Assembly,
itshal
lbepr
esent
edtothe
a)Pr
esi
dentofPaki
stan
b)Pr
imeMi
nist
erofPaki
stan
c)Chai
rmanSenat
e
d)Speakeroft
heNat
ional
Assembl
y
5)XYZBankgr antedaloanofRs.10Mi l
li
ont
oABClimi
tedagainstthepl
edgeofshar esofa
l
istedcompany .ABCli
miteddefaul
tedont
her
epaymentoftheloan.Themar ketvalueof
thesharesatthetimeofdefaul
twasRs.9Mil
l
ion.Whati
sther emedyavai
labletoXYZ
Bank?
a)XYZBankcanonl
yfi
l
easui
tfort
her
ecov
eryoft
hedef
aul
tedamount
b)XYZBankcanonl
yfi
l
easui
tfort
her
ecov
eryoft
her
emai
ningamount
c)XYZBankcannotf
il
easui
tfort
her
ecov
eryoft
hedef
aul
tedamount
d)XYZBankcanf
il
easui
tfort
her
ecov
eryoft
hedef
aul
tedandr
emai
ningamount
Quest
ion#2:
a)Hassan,AbubakarandZai nar epartnersinafi

rmi nther at
ioof2:3:5.Zaintransf er
redhis
shareofint
eresttohisbrother,Zahidwiththemut ualconsentofal lthepartners.Zahid
aft
ergetti
ngZain’ssharediscussedwi ththepartnersthattheyshoul dinvestinABCst udio,
anewlyformedst ar
tupwi t
ht hepotentialtogr
ow.Par tnersbeli
ev ethatiti
sbet tertowait
ontheinvest
mentast hefi
rm mi ghtfacecashflowpr oblemsint henearf uture.Zahidis
sti
ll
eagertoinvestinABCst udio.ExplainwhetherZahidcani nvestinABCSt udiowi t
hout
theconsentoftheotherpar t
ners?
(Marks:03)
b)HamzaandNauman, partnersinBroAssociates,decidedtoincludeRaf eyinthepar tner

ship
whohasagoodcr editrati
ngi nthemarket.Farhanont herepresentati
onmadebyHamz a
andNaumant hatRaf eyisapar tnerint
hefirm now,suppl i
edthef i
rm withfurnit
ureand
fi
xtur
esworthRs.100, 000.Thef ir
m defaul
tedandFar hanfi
ledasui tagainstallofthem for
recover
yoftheamount .Rafeyclaimsthatheisnotliabletopayt hemoneysi ncehehadno
i
deaaboutsuchr epresentation.Undertheprovisi
onsoft hePar t
nershipAct1932, comment
whetherRaf
eyisexemptf rom pay i
ngtheamountt oFar han?
(
Mar
ks:04)
c)Mubarikboughtsomegoodsoncr edi
tfrom hisneighborAslam.Beforetheduedat eofthe
payment,Mubarikrecei
vedabearerchequef rom hisfr
iendHiraasabi r
thdaypresent.
Mubariki
ndorsedthechequetoAsl am onaccountofpay mentofthegoodsbought .
Unbeknownsttobot hofthem,Hi
ra’sti
tl
et othechequewasdef ect
ive.Undert
hepr ovi
sions
ofNegoti
ableInstr
ument sAct
,1881,explainwhetherAslam wouldbeabl etorecoverthe
amountofthecheque? (Marks:02)
d)Undert
heprovi
sionsofNegot
iabl
eInst
rument
sAct1881,
cal
cul
atet
hemat
uri
tyoft
he
fol
l
owingi
nstr
ument s
i
. Abi
l
lofex ed31stDecember
changedat ,2018i
smadepay
abl
eatt
womont
hsaf
terdat
e.
i
i. Apr
omi
ssor
ynot ed1stJanuar
edat y,2019i
smadepay
abl
e20day
saf
terdat
e.
i
ii
. Abi
ll
ofexchangedated30August,2018i
smadepayabl
ethr
eemont
hsaf
terdat
e.Assume
t
hedateonwhichtheinst
rumenti
satmaturi
tyi
sSunday
. (
Marks:03)
e)Iti
st hepri
marydut
yoftheparl
i
amenttol
egi
slat
e.Doespar
li
amentl
egisl
atetomaker ules
forcourseout
li
neandexaminat
ionofI
CAPstudent
s?Howiscont
rolexer
cisedundersuch
system? (
Mar ks:04)
f
) ShahAlam pledgedsomeofthegoodsent
rust
edtohim byhi
sfri
endAlam tosel
linDubai
ataprofit
abl
er at
e.Expl
aint
hecondi
ti
onst
hatAzam needstoful
fi
ll
inordertocr
eatea
val
idpledge?
(Marks:04)
COMPANYLAW
Quest
ion#3:
Chooset
hecor
rectopt
ionf
rom t
hegi
venchoi
cesi
neachoft
hef
oll
owi
ng: (
Mar
ks:05)
i
) Acompanyorbodycorporat
ewhichexerci
sesorcont
rol
smorethanone-
hal
fofthevot
ing
secur
it
iesofanyot
hercompanyorcontr
olsthecomposi
ti
onoft
heboardofsuchother
companyisknownas:
a)Subsi
diar
ycompany
b)Co-
oper
ati
vecompany
c)Hol
dingcompany
d)Li
stedcompany
i
i)Aper sonmaymakeanappl i
cati
oni
nspecifi
edform andmannerwi
thaspecif
iedf
eetot
he
regi
strarf
orr
eservat
ionofanyname.I
ftheappli
cati
onisref
usedbyregi
str
ar,
aggr
iev
ed
personmaypreferanappealt
otheCommi ssi
onwithin:
a)60day
s
b)30day
s
c)15day
s
d)90day
s
i
ii
)Ifacompanychangesi
tsname,
thenf
ormernamei
srequi
redt
obement
ionedal
ongwi
th
t
henewnamef oraper
iodof
:
a)90day
sfr
om t
hedat
eofi
ssueoft
henewcer
ti
fi
cat
eofi
ncor
por
ati
on.
b)120day
sfr
om t
hedat
eofi
ssueoft
henewcer
ti
fi
cat
eofi
ncor
por
ati
on.
c)Oney
earf
rom t
hedat
eofi
ssueoft
henewcer
ti
fi
cat
eofi
ncor
por
ati
on.
d)Noneoft
heabov
eiscor
rect
i
v)Anymemberormember soft
heaf
fect
edclassrepr
esent
ingatl
east10per
cent
shar
ehol
dingoft
hatcl
assmayappl
yforanorderagai
nstther
esol
uti
onvar
yingt
hei
rri
ght
s.
Theywi
l
lappl
yto:
a)Ther
egi
str
ar
b)Thecommi
ssi
on
c)Theboar
dofdi
rect
ors
d)Theboar
dofdi
rect
ors
e)TheCour
t
v
)Asuppl ementtotheprospectusinv
itesthegeneralpubl
i
cforsubscr
ipt
ionofear
li
erof
fer
ed
secur
it
ies.Thesuppl
ementt otheprospectuscontai
ns:
a)Newpr
ospect
us
b)Sel
f-
prospect
us
c)Updat
eddi
scl
osur
es
d)Noneoft
heabov
e
Quest
ion#4:
a)Organizati
onswor kingforusefulobject
softhesociet
yof t
enneedprotect
ionofli
mit
ed
l
iabil
i
tyf orsuchwor k.
’Howev er,ther
earecert
aincondit
ionssubj
ecttotheful
fi
lmentof
whichanexempt ionmaybegr antedtoanenti
tyfr
om usingtheword‘Limit
ed’t
oitsname.
Descri
bet hosecondi t
ionsandal sospecif
ytheauthor
it
ywhomaygr antsuchexempti
on
undertheCompani esAct,2017. (Mar
ks:03)
b)Enl
i
stanyf
ivepoi
ntsofAr
ti
clesofassoci
ati
onaspert
abl
eA. (
Mar
ks:02)
Quest
ion#5:
SonyLimit
ed,hol
ding56%v ot
ingsecur
it
iesofMarvel
Limit
edand14%v ot
ingsecuri
ti
esofDi
sney
Li
mi t
ed,ownsandcontrol
s22%v oti
ngsecuri
ti
esofWarnerLimi
ted.Compositi
onofboardof
di
rector
sofSonyLimitedi
scontrol
ledbyFoxLimi
ted.Fur
therMarvelLi
mitedholds59%and
DisneyLi
mitedhol
ds19%v oti
ngsecuri
ti
esofWarnerLimit
ed.
I
dent
if
yther
elat
ionbet
weencompani
esunderpr
ovi
sionsofCompani
esAct2017. (
Mar
ks:03)
Quest
ion#6:
AspertheSecuri
ti
esAct2015, noper sonshall
makeapubl i
coff
erofsecuri
ti
esunlessthei
ssuer
hassubmit
tedapr ospectusforapprovalofCommi ssi
onandCommi ssi
onhasapprovedthesame.
Stat
eifi
neachoft hebelowindependentscenariosprospectusi
srequir
edtobefi
ledforapprov
al
al
ongwithreasons,accordi
ngtot herequir
ementsofSecurit
iesAct2015:
a)I
ronManLi
mit
edi
spl
anni
ngt
oissueshar
est
oit
sexi
sti
ngmember
sasbonusshar
es.
(
Mar
ks:01)
b)St
rangeLi
mit
edhasal
l
ocat
edshar
esf
ori
ssuancet
oit
sempl
oyeesandt
hei
rfami
l
y
members. (Mar
ks:01)
Quest
ion#7:
a)Just
iceLi
mit
edi
ntendst
oincl
udeast
atement
,int
hepr
ospect
us,
pur
por
ti
ngt
obemadeby
Mr .BruceWay ne,who’
sbeinghir
edassecuri
ti
esadv i
sor
.Giv
ethecondit
ions,under
provisionsofSecuri
ti
esAct2015,tobeful
fi
ll
ed,f
orincl
udi
ngMr.Bruce’
sstatementin
prospect usf
oritspubl
ishi
ng,i
ssuanceandci
rcul
ati
on.
(Mar ks:02)
b)AndyLimit
edhasf i
ledi
tsMemor andum andArticl
esofAssociati
onwi t
hther egi
str
arand
obtai
nedcert
if
icat
eofincorporat
ionofcompany .I
tisnowintendingtoobtaincert
if
icat
eof
commencementofbusi ness.Giv
ethecondit
ionswhi chAndyLimitedneedst ocomplywit
h
underpr
ovisi
onsofCompani esAct2017tosatisfyregi
str
arforthesaidpurpose.
(
Mar
ks:03)
c)Leonard(PVT.
)LTD.haspubl ishedapamphl ettomarketthei
rsmartphoneint hemar ket
.It
hasmentioneditsauthori
zedshar ecapitalontheadv er
ti
sement.Leonard(Pvt.)Lt
d.
recei
vedanoticefrom theregist
rarstat
ingt hati
nformati
onregardi
ngauthorizedshar e
capit
alonadvert
isementi snotlegal
lycor r
ect.Enl
ightenthecompanysecretaryastot he
requi
rementsi
nt hepamphl etwhichregistrarmighthaveindi
cated. (Marks:02)
d)DareDevi
lLimit
ed(DDL)
,amanufacturerofmar
ker
s,intendstoalt
ertheaut
hor
izedshare
capi
talcl
ause,
ofit
smemorandum, al
lowedbyit
sart
icles.Underprov
isi
onsofCompanies
Act2017:
i Gi
vetheprocedure,
DDLhastofol
l
owf ort
hesai
dpurpose.
i St
i atethepurposesforwhi
chacompanyhastoal
tert
hecapit
alcl
auseofi
ts
memor
andum. (
Mar
ks:03)
THEEND
Sol
uti
onC.
LAW
Q#1 TheSe curit
iesandExchangeCommi ssionofPakistan,onsuchcondi t
ionsand
subjectt
osuchr egulat
ionsasitt
hinksfitall
owanassoci ati
onwhi chhasbeenf ormed
oriscapabl
eofbeing formedasal imit
edl iabi
l
itycompanyt oregi
sterasalimit
ed
companywithouttheadditi
onofwor d ‘ Limi t
ed’or(Guarantee)Limit
edetc.toit
s
name,subjecttot hefol
lowing:
(
i) Suchassoci
ati
onhasbeensetupf
orpr
omot
ing:
• commer
ce Ar
t sci
ence
• Rel
i
gion Heal
th soci
alwel
far
e
Educat
ion Pr
otect
ionofEnv
ironment
Resear
ch
Spor
ts
• char
it
y anyot
herusef
ulobj
ect
(i
i
) Suchassoci ati
onappl
i
esori
ntendst
oappl
yit
spr
ofi
ts,
ifany
,orot
heri
ncomei
n
promot
ingi
tsobj
ects,and
(
ii
i) Suchassoci
ati
onpr
ohi
bit
sthepay
mentofanydi
vi
dendt
oit
smember
s.
Q#2 Asperdef
ini
ti
onofsubsi
diar
ycompanyundert
hepr
ovi
sionsofCompani
esAct
2017:
 SonyLimi
tedi
sasubsi
diarycompanyofFoxLi
mit
edascomposi
ti
onofi
tsboar
dof
di
rect
orsi
sbei
ngcontr
oll
edbyFoxLimit
ed.
 Mar
velLi
mi t
edisasubsi
diar
ycompanyofSonyLi
mit
edasSonyLi
mit
edhol
dsmor
e
t
han50%i.e.56%ofi
tsvoti
ngsecur
it
ies
 WarnerLi
mitedisasubsidiar
ycompanyofMar velLi
mitedasMarv
elLimit
edholds
morethan50% i .
e.59% ofi tsvoti
ngsecuri
t i
esWar nerLi
mit
edi sasubsidi
ary
companyofSonyLi mit
edasSonyLi mitedholdsmor ethan50%i.
e.57.7%(22%+
33.
04%+2. 66%)ofit
sv ot
ingsecur
it
ies,
ofwhich:
 22%v
oti
ngsecur
it
iesar
eowneddi
rect
ly;
and
 33.
04%(
56%X59)and2.66%( 14%X19)v ot
ingsecur
it
iesar
eownedt
oget
her
wit
hMar
vel
Limi
tedandDi
sneyLimi
tedr
espect
ivel
y.
 Furt
her,Mar
velLi
mitedi
ssubsi
diar
yofSonyduetomor ethan50%ofi
tsvot
ing
securi
ti
eswhi
chalsomakesWarnerLi
mit
edthesubsi
diar
yofSonyLi
mit
ed.
Q#3 Bei
nghol
dingcompanyofSonyLi
mit
ed,FoxLi
mit
edi
sal
sot
hehol
ding
companyofMar
vel
Limi
tedandWar
nerLi
mit
ed.
a)Aspert heSecuri
ti
esAct2015,pri
orapprovalf orissuanceofprospectusisnot
necessarywherethesecur
it
iesar
esharesandar eofferedasbonussharestoanyor
allofthemember soft
heissuer
.Henceapprovalisnotr equi
redbyI
ronManLimited
forissuanceofshar
estoit
smember sasbonusshar es.
b)Aspert heSecuri
tiesAct2015,pri
orapprov
alfori ssuanceofpr ospectusisnot
necessarywher
ethesecuri
ti
esareoffer
edbytheissuertoi t
semployeesorf amili
es
ofsuchempl oy
ees.Henceappr
ovali
snotrequir
edbySt rangeLi
mitedf orissuance
ofsharesint
hegivensi
tuat
ion.
Q#4 Asperpr ovi

sionsofSecuri
ti
esAct2015,apr ospect
uscont
aini
ngast
atement
pur
por
ti
ngtobemadebyanexper ti.
e.Mr.BruceWayneortobebasedonast
atement
madebyhi
m shall
notbeissued,ci
rcul
atedorpubl
i
shedunless:
1.Theexperthasgivenhiswri
tt
enconsentt
ot heissueofthepr
ospect
uswi
tht
he
st
atementinthef
orm andcont
exti
nwhichi
tisincl
uded;
and
2.Thereappear
sintheprospect
usast
atementt
hatt
heexper
thasgi
venandhasnot
wit
hdrawnhisconsent
.
Q#5Forobtai
ningthecer
ti
fi
cat
eofcommencementofbusi
ness,AndyLi
mit
edhast
o
meetcer
tai
nr equi
rement
s,underpr
ovi
sionsofCompani
esAct2017,whichar
eas
fol
l
ows:
1.Thecompanyshoul
dhaveal
lott
edsharesagai
nstcashf
oranamountwhi
chi
sat
l
eastequal
tot
heamountofmini
mum subscr
ipt
ion.
2.Thedir
ectorsofthecompanyshoul
dhav
epaid,t
ot hecompany,f
ullamountoneach
ofthesharestakenorcont
ract
edtobetakenbythem andforwhichtheyarel
iabl
e
topayi
ncash.
3.Nomoneyisormaybecomeli
abletoberepai
dtoappl
i
cant
sforanyshar
eswhi
ch
hav
ebeenoff
eredf
orpubl
i
csubscr
ipt
ion.
4.Thereshoul
dbef il
edwi t
ht heregi
str
aradulyv er
if
ieddecl
arat
ionbythechi
ef
execut
iveoroneoft hedir
ector
sandt hesecr
etar
ythattheafor
esai
dcondi
ti
ons
havebeencompl
iedwi t
h.
5.Inthecaseofacompanywhi chhasnoti
ssuedaprospect
usinv
iti
ngt
hepubli
cto
subscri
befori
tsshar
es,
ther
ehasbeenfil
edwit
htheregi
str
arastat
ementi
nli
euof
prospect
us.
Q#6Wheneveracompanyment i
onsit
saut
hor
izedcapi
tal
inanyadver
ti
sementor
not
iceori
nanyst
atement
,itshal
lmenti
ont
heamountofit
ssubscri
bedandpai
dup
capi
tal
aswel
li
nequal
l
yconspi
cuousl
ett
ersandi
nequal
l
ypr
omi
nentposi
ti
on.
Ther
efore,
thecompanysecr
etar
yshoul
dalsohavet
heissued,
subscri
bedandpaidup
capi
talamountpubl
i
shedint
hepamphletpromi
nent
lysothatt
helegaldef
ectcanbe
removed.
Q#7 a)Toal
tert
hecapi
talcl
auseofi
tsmemorandum,underpr
ovi
sionsofCompani
es
act2017,
Dar
eDevil
Limi
tedLi
mitedi
srequi
redt
o:
1.passaspeci
alr
esol
uti
on
2.f
il
et he resol
uti
on and t he relat
ed documentsi-e al
ter
ed copy of t
he
memorandum ofassociati
onwi t
ht heregi
str
arwit
hin15day sofpassi
ngthe
r
esol
uti
on,fai
li
ngwhich,theresoluti
onshal
lnotbeef
fect
iveandshal
lul
ti
matel
y
l
apse.
b)Acompanyhastoalt
ert
hecapi
tal
clauseofi
tsmemor
andum,
underpr
ovi
sionsof
Compani
esAct2017,soasto:
1.Incr
easet heauthor
izedcapitalwheneveri
trequi
res;Cancelthatpartofi
ts
author
izedcapit
alwhichhasnotbeenpai duptil
lthedateofcancell
ati
onand
suchcancell
ati
onshallnotaf
fectt
heright
sofpai
dupshareholder
s;
2.Consol
i
dat
etheshar
ecapi
tal
int
oshar
esofal
argeramount
;or
3.Div
ideandsubdi
vi
det
hesharecapi t
alintosharesofanamountsmal
l
ert
hant
he
onefi
xedbythememorandum ofassociati
oninit
ial
l
y.
M.
C.Q(
1)
(
C)
M.
C.Q(
2)
(
B)
M.C.
Q(3)
(
A)
M.C.
Q(4)
(
D)
M.
C.Q(
5)
(
C)
Sol
uti
onM.
Law
Mi
dter
m(aut
umn2020)
AnswerNo.2
a)Accordi
ngt oprov
isionsofthePart
nershi
pAct1932,anypersonwit
hwhom apar
tnershar
es
hispr
ofitderi
vedfrom thef
irm,i
sonlyadmit
tedtotheshareofprof
it
sonl
ynoti
nconductof
thefi
rm
I
nthegivenscenar
io,Consentoft
heotherpar
tner
sisir
rel
evant
.Zahi
disnotenti
tl
edto
i
nvesti
nABCSt udi
oorany whereel
sebecausehecannoti
nterf
erei
ntheconductoft
hefi
rm.
Heonlyshar
esprofitoft
hefir
m.
b)Accordi
ngtoprov
isi
onsofthePar
tnershi
pAct1932,whenapersonholdshimsel
foutasa
part
neroral
lowsothert
odoit,
heisthenstoppedf
rom denyi
ngthecharact
erhehas
assumedandupont hef
ait
hofwhichcredi
torsmaybepresumedtohav eact
ed.
Inthegi venscenar
ioFarhansuppl
i
edgoodstoBroAssociat
esont hebasisof
representati
onmadebyHamzaandNauman.I fRafeyknowi
nglypermitt
edhimsel
ftobe
representedasapar t
ner,t
henheisli
abl
etopaytheamountregardlessofhav
ingno
knowl edgeofsuchrepresent
ati
ons
However,
ifhehaddeni
edanysuchrepr
esent
ati
onshol
dinghi
msel
fasapar
tneri
npubl
i
c,
hewouldnotbeli
abl
etopayanyt
hing.
AnswerNo.c
Accordingtoprovisi
onsofNegotiabl
eInstrumentsAct1881,inordert
obeahol deri
ndue
course,theti
tl
eofpr evi
oushol
dermustnotbedef ect
ive.I
fapersonisawareofthe
defecti
vetit
leoftheholderf
rom whom heder i
vedhisownt it
le,
thenhewouldnotbe
consideredasholderinduecourse.Butifapersonhasnoknowl edgeofthedef
ectsint
it
le
ofthepr ev
iousholders,
hewouldber egardedasholderinduecourse.
I
nthegi
venscenari
o,Hi
rahadadefect
ivet
it
lebutAsl
am whil
ereceiv
ingthechequehadno
i
dea aboutthi
s.Hetookt
heinstr
umentingoodfai
thandtherefor
eisenti
tl
edto
r
ecei
vet
heamount
d)
i
)Thebi
llofexchangeisatmaturi
tyont
hir
ddayaf
termat
uri
tyont
het
hir
ddayaf
ter28th
Febr
uar
y, 2018i .e.3rdMar
ch,2018
i
i
)Thepr
omi
ssor
ynot
ewi
l
lbeatmat
uri
tyon24thAugust
,2019
i
i
i)Thebi
l
lofexchangei
satmat
uri
tyon2December
,2018
AnswerNo.e
Indel
egatedlegisl
ati
onpowerisgiventoanexecuti
ve(aminist
erorpubl i
cbodyt omake
subor
dinateordelegatedl
egisl
ati
on)forspeci
fi
edpurposeonly.Forexampl e,
localaut
hor
it
ies
aregi
venstatutorypowerstomakeby e-l
awswhichapplywit
hinaspeci f
iclocali
ty.
Cont
rol
overdel
egat
edl
egi
slat
ioni
sexer
cisedi
nfol
l
owi
ngway
s:
(
i) Parl
i
amentexer
cisescont
rol
overdel
egat
edl
egi
slat
ionbyr
est
ri
cti
ngordef
ini
ng
powert
omaker ules
(
ii
) Rulesmadeunderdel
egat
edpowertomovel
egi
slat
ionmaybechal
l
engedi
nthe
court
sonthegr
oundsofbeingul
tr
avi
res.
AnswerNo.f
I
nt hegivenscenar
io,
Azam isamercanti
l
eagentofShahAlam.Accor
dingtot
he
provi
sionsofContr
actAct,
thepawneeofgoodsfrom amercant
il
eagent,
whohasno
author
ityfr
om thepri
nci
paltopl
edge,get
sagoodt i
tl
etot
hegoodsif:
 Theagentisinpossessi
onoft
hegoodsordocument
soft
it
let
othegoodswi
tht
he
consentoftheowner
 Theagentpl
edgest
hegoodswhi
l
eact
ingi
ntheor
dinar
ycour
seofbusi
nessofa
mercant
il
eagent
 Thepawneeact
singoodf
ait
hand
 Thepawneehasnotatt
het
imeoft
hepl
edge,
not
icet
hatt
heagenthasno
aut
hori
tyt
opledge.
AnswerNo.1
1)A
2)B
3)C
4)A
5)D
Page |1

Financial Accounting and Reporting ‖ (CAF-07)
(Note: Reading Time: 10 Minutes, Paper Attempting Time: 90 Minutes & Answer Script Uploading Time:
20 Minutes)
Question – 1
Pasha & Company is a manufacturing company with the following operating segments:
Operating External Internal Net Profit/(loss) Liabilities

Segments Revenue Revenue Assets For the year
----------------------------------------------------Rs in Million-------------------------------------------
A 70 45 50 100 75
B 300 300 1000 3150 2000
C 453 12 900 2200 400
D 50 90 1700 1350 235
Required:
As per IFRS-8, identify and explain whether the above operating segments are reportable or not? (06)
Question – 2
Shaykh & Co. is a dealer in machines. Machines are sold both on cash and on lease basis. The machines
are purchased by Shaykh & Co at a cost of Rs. 743,350 each and are sold at mark up of 25 %.
Recently Shaykh & Co entered into a lease agreement with Shahid Limited. The related information and
terms of the lease are as follows:
 Date of Commencement of lease is 01 July 2017
 Initial direct cost incurred by Shaykh & Co is Rs. 10,000.
 Lease term is 4 years
 Useful life of Machine is 6 years.
 Lease rentals are amounting to Rs. 268,400 payable in advance.
 Residual value of machine is Rs. 105,000.
 Residual value guaranteed by Shahid Limited is Rs. 30,000
 Implicit rate is 16%
Required:
Prepare journal entries for the year ended 30 June, 2018 and also show related disclosures as required
by IFRS-16 in the books of Shaykh & Co… (14)
Page |2
Question – 3
The accountant of ABC Ltd is preparing the financial statements for the year ended 30 September 2018.
ABC Ltd deals in the manufacturing of IT gadgets. The financial statements are expected to be approved
in annual general meeting which is to be held on 29 December, 2018. Today’s date is 22 November 2018.
You are aware of the following matters:
i. On 20 September 2018, a customer initiated legal proceedings against the company in relation to a
breach of contract. On 29 September 2018, the company legal advisers informed the directors that
it was unlikely that the company would be found liable, therefore no provision has been made in
the financial statements but the disclosure as a contingent liability has been made. On 29 October
2018, the court found the company liable on technical grounds and now the company is required
to pay damages amounting to Rs. 500,000. (3)
ii. On 19 November 2018 a customer ceased trading due to financial difficulties owing Rs 750,000. As
the financial statements are needed for board meeting on 22 November 2018, no adjustment was
made due to shortage of time. (2)
th
iii. ABC has invested shares worth Rs. 786,000 in NIL. On 30 November 2018, the fair value of these
shares was Rs. 900,000. (1)
iv. On 30th September 2018, 100 units of a Product X were in stock having a cost of Rs. 5000 per unit
and NRV of Rs. 7500 per unit. A new and improved model of Product X was launched on 10th October
2018 having twice the computing ability of its predecessor. It is estimated that the old model can
now be sold for Rs. 4500.
Required:
For each event above, you are required to discuss whether the financial statements required any
amendment. Also show journal entries in case of any adjustment to be made in the financial statements
of 30 September, 2018?
Question – 4
Alpha Limited (AL) purchased a transferable licence on July 1, 2015 for Rs.250 million. The licence will
be expired after 20 years. The management of AL decided to follow revaluation model for the licence. It
also decided to transfer necessary amount from revaluation surplus to retained earnings every year.
Financial statements are prepared every year to June 30th. Fair of licence was determined with reference
to active market and licence was revalued as follows:
Date of valuation Fair value (Rs. In million)
June 30, 2017 234
June 30, 2019 176
Required:
Prepare journal entries to record above revaluations (journal entries for amortization expense and transfer
to surplus are not required).
(08)
Page |3
Question – 5
On January 1, 2018, Beta Limited (BL) bought 5,000 TFCs for Rs.110 each. Transaction taxes paid on
this transaction were Rs.4 each TFC. Interest at 10% of face value (i.e. Rs.100 each) is received at end of
every year. Instrument has life of four years and shall be redeemed at premium of Rs.8 per TFC on
December 31, 2021. The fair values of TFCs were 555,000 and 600,000 on December 31, 2018 and
December 31, 2019 respectively. On January 1, 2020 BL sold the TFCs for Rs. 605,000. The effective rate
of interest is 7.5969%.
Required:
Journalize all above transactions over all relevant years if:
1. BL's business model is to hold TFCs till the redemption date.
2. BL's business model is to hold TFCs until redemption but also to sell them if investments with higher
returns become available.
3. BL's business model is to trade TFCs in the short term. (14)
Question No 01 Marking
Pasha & Co. Scheme
As Per Revenue:
Total Revenue (Internal + External) = 70+45+300+300+453+12+50+90 1320 0.5
Segment Revenue Percentage Reportable

A 115 115/1320*100 = 8.71% r
B 600 600/1320*100 = 45.4% a
C 465 465/1320*100 = 35.22% a
D 140 140/1320*100 = 10.61% a 2
As Per Profit:
Total Profit = 100+3150+2200+1350 6800 0.5
A's percentage of Profit = 100/6800*100 1.47% 0.5
As per Assets
Total Assets = 50+75+1000+2000+900+400+1700+235 6360 0.5
A's percentage as per Total Assets = 50/6360*100 0.79% 0.5
Conclusion:
B, C and D are reportable segments
75% Threshold: 0.5

Total External Revenue 873
Reportable Operating
External Revenue
Segments
B 300
C 453
D 50
Total 803 0.5
Percentage = 803/873*100 91.98% 0.5
As external revenue is greater then 75%, hence there is no need to add additional operating segments.
6
Question No 02 Marking
Shaykh & Co. Scheme
Journal Entries
Date Journal Entry Debit Credit
01-07-2017 Lease Receivable (W-1) 929,187 1

Cost of Sales 701,928 0.5
(743,350-41,422)
Sales 887,765 0.5

(929,187-41,422)
Inventory 743,350 0.5
(Recording of Sales)
01-07-2017 Selling expense 10,000

Bank 10,000 0.5
(Incurred Initial Direct cost)
01-07-2017 Bank 268,400

Lease Receivable 268,400 0.5
(First rental/down payment received)
30-06-2018 Finance Income Receivable 105,726 1

Finance Income (W-2) 105,726
(Accrued Finance Income)
Working Notes
W-1 Calculation of Lease Receivable Amount
NIL = P.V of Gross Investment Lease=Fair value
= 268,400+268,400*[1-(1+16%)-4+1/16%]+30,000*(1+16%)-4+75,000 x (1+16%)-4
= 929,187 2
W-2 Lease Amortization Schedule
Date Opening Balance Rentals Interest Principal Closing Balance
01-07-2017 929,187 268,400 - 268,400 660,787

01-07-2018 660,787 268,400 105,726 162,674 498,113
01-07-2019 498,113 268,400 79,698 188,702 309,411
01-07-2020 309,411 268,400 49,506 218,894 90,517
01-07-2020 90,517 105,000 14,483 90,517 - 3
1 Disclosures
1.1 Net Investment in Lease
Company sold a machine on lease to D&M for lease term of 4 years. 0.5
Implicit rate is 16% 0.5
Rentals of Rs. 268,400 is to be paid annually in advance, GRV is Rs. 30,000 whereas UGRV is Rs. 75,000 0.5
1.2 Maturity Analysis
Total Lease payments are receivable as follows.

(Rupees)
Year 1 268,400 0.5

Year 2 268,400 0.5
Year 3 298,400 0.5
835,200
1.3 Reconciliation
(Rupees)
Total Lease payments 835,200 0.5
Add Unguaranteed Residual Value 75,000 0.5
Gross Investment in Lease 910,200
Less Unearned Finance Income 143,687 0.5
Net Investment in Lease 766,513 14

Answer# 3:
I. Legal proceedings
• At the year end the company had made disclosure of a contingent liability. (0.5)
• The legal proceedings were started on 20 September 2018 (10 days before the year-end). (0.5)
• However subsequent to the year end (29 October 2018) the court found the company liable for
breach of contract. (0.5)
• This is therefore evidence of conditions that existed at the year end, hence this is an adjusting
event. (0.5)
• IAS 10 requires the result of a court case after the reporting date to be taken into consideration to
determine whether a provision should be recognized in accordance with IAS 37 Provisions
Contingent Liabilities and Contingent assets at the year end. (0.5)
• In this case the following adjustments are to be made:
Claim expense 500,000
Provision for claim 500,000 (0.5)
II. Loss of customer
• A customer ceasing to trade so soon after the reporting period indicates non-recoverability of a
receivable at the reporting date (0.5)
• Therefore representing as an adjusting event under IAS 10 as the bankruptcy of a customer that
occurs after the reporting period usually confirms that a loss existed at the end of the reporting period
on a trade receivable. (1)
• Assuming that nothing will be recovered, the following provision will be made in the statement
financial position as the amount was material.
Bad debt expense 750,000
Provision for bad debt 750,000 (0.5)
III. Fair Value of Investment
• Change in share value after reporting date is not an adjusting event as per IAS - 10 hence only a
disclosure is required to be made. (1)
IV. NRV adjustment
• Assuming the new model was launched suddenly, no conditions existed at the year-end hence this is
not an adjusting event. (1)
• No adjustment is required to be made in this regard. (0.5)
• Only a disclosure is required to be made (0.5)
OR
• Assuming it was normal launch of a new model, the new model was expected at the year end, it
means that the conditions existed at the year end, hence this is an adjusting event. (1)
• As the old model can now be sold at a price of Rs. 4500 per unit, the value of inventory needs to be
written down. The following adjustment is to be made:
Cost of Goods Sold 5,000

Inventory 5,000 (1)
Question # 4:
Date Particulars Dr. Cr.

------ Rs. million -----
30-06- Accumulated depreciation 25.00 [0.1 mark]
17
Building 25.00
[Elimination of accumulated depreciation]
30-06- Building 9.00 [0.1 mark]

17
Revaluation surplus 9.00
[Revaluation of building]
30-06- Accumulated depreciation 26.00 [0.1 mark]

19
Building 26.00
[Elimination of accumulated depreciation]
30-06-13 Revaluation loss [P&L] 24.00 [1.5 mark]

Revaluation surplus 8.00
Building 32.00
[Revaluation of building]
Working [0.5 marks for each step] Asset [NBV] Surplus P&
L
01-07-15 Cost 250.00
30-06-16 Dep. [250/20] (12.50)
237.50
30-06-17 Dep. (12.50)
225.00
30-06-17 Revaluation 9.00 9.00
234.00 9.00 -
30-06-18 Dep. [234/18] (13.00) (0.50)
221.00 8.50 -
30-06-19 Dep. (13.00) (0.50)
208.00 8.00 -
30-06-19 Revaluation (32.00) (8.00) (24.00)
176.00 - (24.00)
Question # 5:
(1) Asset shall be measured at amortized cost

Dr. Cr.
-------- Rs. -------
01-01-18 Investment 570,000
Cash 0.5-M 570,000
[Initial recognition]
31-12-18 Investment 43,302

Investment income
(W-1) 0.5-M 43,302
[Investment income for 2018]
31-12-18 Cash [400,000 x 12%] 50,000

Investment 0.5-M 50,000
[Interest received for 2018]
31-12-19 Investment 42,794

Investment income
(W-1) 1-M 42,794
31-12-19 Cash 50,000

01-01-20 Cash 605,000

Profit on disposal 48,904
Investment (W-1) 1-M 556,096
[Sale of investment]
(2) Asset shall be measured at fair value through OCI

Dr. Cr.
-------- Rs. -------
01-01-18 Investment 570,000
Cash 0.5-M 570,000
31-12-18 Investment 43,302

Investment income
(W-1) 0.5-M 43,302
31-12-18 Cash 50,000

Page 1 of 3
Fair value reserve
31-12-18 [OCI] 8,302
Investment (W-1) 1-M 8,302
[Fair value loss 2018]
31-12-19 Investment 42,794

Investment income
(W-1) 0.5-M 42,794
31-12-19 Cash 50,000

2 Investment 0.5-M 50,000
31-12-18 Investment (W-1) 52,206

Fair value reserve [OCI] 1-M 52,206
[Fair value gain 2019]
01-01-20 Cash 605,000

Investment 600,000
Profit on disposal 1-M 5000

Fair value reserve

01-01-20 [OCI] 43,904
P & L. (W-1) 0.5-M 43,904
[Cumulative gain reclassified to P&L]
(3) Asset shall be measured at fair value through P&L

Dr. Cr.
-------- Rs. -------
01-01-18 Investment 550,000
P&L(transaction costs) 20,000
Cash 1-M 570,000
31-12-18 Investment [555,000-550,000] 5,000

P&L 0.5-M 5,000
[Fair value gain for 2018]
31-12-18 Cash 50,000

Investment income 0.5-M 50,000
31-12-19 Investment [600,000-555,000] 45,000

P&L 0.5-M 45,000
Page 2 of 3
[Fair value gain for 2019]
31-12-19 Cash 50,000

Investment income 0.5-M 50,000
01-01-20 Cash 605,000

Investment 1-M 600,000
Profit on disposal 5000
W-1
Opening Closing Fair value
Date Interest Payment Fair value OCI
balance balance reserve
31-12-18 570,000 43,302 50,000 563,302 555,000 (8,302) (8,302)

31-12-19 492,000 42,794 50,000 556,096 600,000 43,904 52,206
Page 3 of 3
AUDIT & ASSURANCE (CAF-09)

Question # 1:
You are the engagement manager in Hamza and Company, Chartered Accountants. One of your
clients is Brimstone Limited (BL) which engaged in the business of manufacturing chemicals and
beauty products. BL is the listed company and 70% of shares are owned by same family. CEO,
CFO and Director Operations also belong to the family. Relating to audit for the year ended June
30, 2019, audit team has gathered following information.
a) CFO informed that BL has implemented a new enterprise resource planning system (ERP).
He stated that BL has successfully revamped the entire accounting system through this
new ERP.
b) Considering the decline in demand of the products, BL has taken the following decisions
during the year:
i. (B1) Close Plant related to chemical manufacturing with effect from 31 August 2019.
The public announcement of this decision was made on 15 April 2019.
ii. (B2) Introduce a new incentive package for distributors in January 2019 to boost the
sales of industrial chemicals. The sales commission rate is dependent on achieving
the various annual target levels set by the BL’s management.
iii. (B3) Launch a customer loyalty program in February 2019 in which customers are
awarded loyalty points on each purchase of cosmetic and skin care products from
selected retail outlets and online stores. The management believes that this initiative
would increase the demand of cosmetic and skin care products.
c) Last year, BIL was selected for tax audit in which the income tax department had
disallowed certain business expenditures. BIL filed an application against the order issued
by the income tax department. However, it lost the first appeal and has recently filed a
second appeal to the relevant income tax authority.
d) Staff at production and marketing departments is hired at low salaries but they are given
high annual bonuses on achieving their targets. The internal audit department comprises of
five staff members including Chief Internal Auditor, who is a Chartered Accountant. The
Chairman of the audit committee is an independent director.
e) The internal audit department has carried out number of assignments. The reports of the
internal auditor include many good suggestions for improving the efficiency of the
operations; however, they do not contain any serious deficiencies/adverse comments in any
area.
Required:
a) Discuss the audit risk that exists in above scenario. (Marks: 10)
b) Mike Tyson Chartered Accountants (MTCA) is deciding to issue some promotional material
so as to promote its services. Advise MTCA as to what regulations it should consider when
making a reference to fees in its promotional material. (Marks: 05)
Question # 2:
Comment on the following independent situations with respect to appointment of Auditors in

accordance with Companies Act 2017.
a) Shakoor & Co. Chartered Accountants are proposed to be appointed as statutory auditors
of Khajoor Limited. Spouse of a partner is nominee director in Ghafoor Ltd, in which
Khajoor Limited holds 21% shares, and she also holds shares in that company. (Marks: 03)
b) Khyber Limited is considering appointment of Khan & Co. Chartered Accountants as its
statutory Auditor. A partner of firm is indebted to Gilgit Limited in other than ordinary course
of business, in which Khyber Limited holds 51% shares. (Marks: 03)
c) UVW Limited holds 21% shares in WXY Limited whereas WXY Limited has 58% shares in
DEF Limited. JKL Limited holds 51% shares in WXY Limited and 60% shares in GHI
Limited. ALM & Co. Chartered Accountants is proposed to be auditor of GHI Limited
whereas a partner of firm holds some shares of UVW Limited. (Marks: 03)
Question # 3:
You are being hired to advise Goku ltd on their internal controls. Describe three General IT
Controls each relating to the following:
a) Documentation and testing of program changes. (Marks: 03)

b) Prevention of unauthorized amendments to data files (Marks: 03)
Question # 4:
Discuss the categories of threats that may be involved in each of the following independent
situations and advise the partners of the concerned firm with regard to the possible course of
action that may be followed in each situation:
a) Your firm provided bookkeeping services to one of client Ringlet Limited for the year 2019.
The bookkeeping services involved preparation of basic accounting records, recording of
transaction as per framework and preparation of financial reports. During the audit for the
same period, while working on property, plant and equipment, one of team member
discovered a significant error in the form of capitalization of amount in contravention of IAS
16. (Marks: 05)
b) Hamid is working as assurance manager in Saim and Co. Chartered Accountants (SMC)
form past four years. He has been assigned to one of new client Monarch Limited (ML), a
company manufacturing designer cloths. During progress meeting of audit, CFO revealed
to Mr. Saim, partner of SMC, about his close personal relationship with Hamid. (Marks: 05)
Question # 5:
Hollywood Limited (Hollywood) manufactures and sells luxury toiletries; they have been trading for
over 20 years and the company’s year end is 30 September. Hollywood sells products to trade
customers via its own website; this represents 60% of revenue. Remaining revenue is generated
by contracts to supply toiletries to hotels. Below is a description of the sales system.
Hotel revenue:
The hotel revenue is made up of four key customers. Hollywood has one sales clerk, Jennifer, who
maintains all aspects of this revenue stream; Jennifer receives customer orders, raises sales
invoices and processes payments. In raising invoices, the sales system automatically inserts the
online trade customer prices for products. However, each hotel customer has contracted prices
which are lower than the online prices and hence Jennifer manually edits the invoices prior to
despatch.
Online revenue:
New trade customers are set up in the sales ledger master file upon passing suitable credit
checks, and a credit limit is set at this stage by the finance director. Customers place online orders
up to their pre-set credit limit; they receive an email confirmation and the sales order interfaces
into the despatch system. The order number is linked to the customer account number. Goods are
despatched daily with a goods despatched note which is referenced to the sales order number but
are not sequentially numbered. Hollywood used to despatch goods via a reliable national courier
company. However, to reduce costs they have changed to a cheaper local courier and some
orders have been delivered to customers late.
Trade customers’ sales invoices are automatically generated by the system on the day the online
order is placed. The prices are inserted in accordance with the website rates. Occasionally
Hollywood makes special offers or discounts sales; when this occurs the master file data has to be
amended to ensure that the correct prices are used on invoices. This task is usually performed by
a senior sales ledger clerk.
Revenue and receivables records

On a monthly basis statements are sent to the hotel customers; a number of trade customers have
been requesting monthly statements and Hollywood is considering this request. The company only
reconciles the sales ledger control account at the end of September in order to verify the year-end
balance.
Required:
As the external auditor of Hollywood Co, write a report to management in respect of the sales
system described above which:
(i) Identifies and explains FIVE deficiencies in the sales system; (Marks: 05)
And
(ii) Provide a recommendation to address each of these deficiencies. (Marks: 05)
A covering letter is not required.
THE END
Midterm exam questions
Solution
Answer-1:(a)
Risk of improper implementation of ERP:

Improper implementation of new ERP system creates the risk of generating incorrect financial information and records.
There is a risk of improper capitalization of the cost of new ERP or the useful live for calculating the amortization may not be appropriate.
Restructuring cost and liabilities:
Since BL has decided to close one of the chemical production plant and public announcement has been made in this regard, there exists a risk that
restructuring provision might not be appropriately recorded and disclosed. There is also a risk that the criteria for recognition of restructuring
provision is not met resulting in in-appropriate accounting and disclosures.
Sales commissions:
Since the commission paid to distributors depends on achievement of annual targets, judgement would be required in assessing
whether they would be able to meet their targets and accruing the sales commission accordingly.
Loyalty programs:
There is significant judgement involved in determining whether customers would make future purchases and redeem their loyalty points.
Therefore, there is a risk of material misstatement in recoding revenues and associated liabilities resulting from such transactions.
Impairment of plant and machinery:
Decline in demand of BIL’s products is an indicator of impairment of the plant and machinery. Therefore, there is a risk
that the plant and machinery may have been impaired.
Inventory:
There is a risk that that due to decline in the demand of BIL’s product, there may be
obsolete inventory which require to be written down to net realizable value.
Tax liabilities:
There is a risk of material misstatement due to the high level of judgment required to assess the outcome of tax litigations.
Risk of manipulation of operating results
Significant compensation of staff working in production and marketing department is linked with their
performance that may create risk of showing overstated figures.
Risk of fraud due to Management override of controls:
As it is a closely held entity with majority shareholding owned by a single family and with key positions
occupied by family members, there is always a risk of fraud due to management override of controls. It is further evident from reports of internal audit.
(b) Fees
Where reference is made in promotional material to fees:
This must not be misleading with regard to the precise range of services and the time commitment covered;
Comparison may be made to the fees of others, provided that this is not misleading and that it follows local regulations or legislation; and
Discounts on existing fees may be offered, or a free consultation at which the level of fees will be discussed.
Answer no 2
a)
“a person or his spouse or minor children, or in case of a firm, all partners of such firm who
hold any shares of an audit client or any of its associated companies:
Provided that if such a person holds shares prior to his appointment as auditor, whether as an
individual or a partner in a firm, the fact shall be disclosed on his appointment as auditor and
such person shall disinvest such shares within ninety days of such appointment”
spouse of the partner in this case have to disinvest shares within ninety days of such appointment.
The directorship of spouse will not effect the qualification as Ghafoor Limited is associate company of Kajoor Limited.
b)
a person who is indebted to the company other than in the ordinary course of business of such entities. The following persons will not be deemed to be indebted to the
company:
• a person who owes a sum of money not exceeding one million rupees to a credit card issuer; or
• a person who owes a sum to a utility company in the form of unpaid dues for a period not exceeding ninety days shall not be deemed to be indebted to the company.
As Partner of the firm is indebted to the subsidiary of Khyber Limited , so Khan & Co. Chartered Accountants is Disqualified for the appointment as auditor of Khyber Limited.
c)
“a person or his spouse or minor children, or in case of a firm, all partners of such firm who
hold any shares of an audit client or any of its associated companies:
A person will not be qualified for appointment as auditor of a company if he is due to the above
mentioned disqualifications is disqualified for appointment as auditor of any other company
which is that company’s subsidiary or holding company or a subsidiary of that holding company.”
So in this case UVW Limited is associated company of GLI limited, So ALM & Co. Chartered Accountants are disqualified for appointment as auditor of GLI Limited
Answer 3
a.
i. Documentation and testing of program changes.
1. There should be controls to ensure that formal testing procedures on new program versions before they are used for ‘live’ operations
2. All new versions of programs must be authorized at an appropriate level of management.
3. Staff should be given training, where appropriate, in the use of a new program version before they use it for ‘live’ operations.
ii. Prevention of unauthorized amendments to data files
1) Physical access to computer terminals may be restricted to authorized employees.
2) Access to programs and data files may be restricted using passwords. There should be rigorous checks by management to ensure that a password system is being used effectively by
employees
3) Firewalls (software and hardware) can be used to prevent unauthorized external access via the internet.
b. The following problems may arise when control systems rely excessively on the involvement of senior management.
1. There may be a lack of evidence as to how systems are supposed to operate. The auditor will need to rely more on enquiry than on review of documentation.
2. There may be lack of evidence of controls.
3. Management may override other controls that are in place.
4. Management may lack the expertise necessary to control the entity effectively.
5. There is unlikely to be any independent person within the management team as there would be within “those charged with governance” in a large entity
Answer.4
(a)
i.Threat
A self-interest in created when a chartered accountant discover significant error when evaluating the result of previous professional service performed by
member of chartered accountant firm.
Course of Action:
• Disclose to client nature and causes of such significant error
• Use different team members for audit
• Involve an additional chartered accountant to review the work
• Review firm system of quality control
• Evaluate controls relating to hiring of competent staff.
(b) Threat:
Due to close personal relationship between Hamid and CFO, self-interest, familiarity and intimidation threats may be created.
The threats are significant due to close personal relationship and managerial positions of Hamid and CFO. The gravity of situation further intensified due to
non-disclosure of personal relationship by Hamid before his deputation of ML.
Course of Action:
• Reviewing firms system of quality control specifically relating to disclosures of relationship with clients
• Reviewing work performed by Hamid by senior member of the firm
• Having the relevant assurance work reviewed by other chartered accountant
• Removing Hamid from assurance team.
• structuring Hamid’s responsibilities to reduce any potential influence over the assurance engagement
Solution # 5. (Any five of below table)
Jennifer the sales clerk receives customer orders, raises Another sales ledger clerk should be involved in the
sales invoices and processes payments for hotel processing of hotel customer transactions so that no one
customers. This is a lack of segregation of duties and individual undertakes all elements of the sales cycle. The
could lead to a risk of fraudulent transactions or errors, as work could be split so that one clerk raises orders and
no one checks the work undertaken by this clerk invoices but a second clerk processes the payments.
Hotel customers have contracted sales prices; however, Hotel customers have contracted sales prices; however,
as online trade prices are automatically loaded into the as online trade prices are automatically loaded into the
sales invoices, Jennifer has to manually amend the sales invoices, Jennifer has to manually amend the
invoices. This significantly increases the risk of error, as if invoices. This significantly increases the risk of error, as if
Jennifer incorrectly increases the sales prices, then this Jennifer incorrectly increases the sales prices, then this
can lead to a loss of customer goodwill and if they are too can lead to a loss of customer goodwill and if they are too
low, this results in a loss of revenue for Hollywood. low, this results in a loss of revenue for Hollywood.
Credit limits are determined by the finance director when Customer credit limits should be regularly reviewed by the
a new trade customer is set up in the system. However, finance director and updated based on the level of sales
these limits could be out of date, resulting in limits being transactions and credit risk
too high and sales being made to poor credit risks or too
low and Hollywood losing potential revenue.
Customer orders and goods despatched notes (GDN) are Sales orders and goods despatched notes should be
given a number based on the customer account number sequentially numbered. On a regular basis, a sequence
and order number. These numbers are not sequential. check of orders should be undertaken to identify any
Without sequential numbers, it is difficult for Hollywood to missing orders. Upon despatch, the GDN should be
identify missing orders and to monitor if all orders are matched to the order; a regular review of unmatched
being despatched in a timely manner, leading to a loss of orders should be undertaken to identify any unfulfilled
customer goodwill. orders.
Hollywood has changed from a reliable national courier The courier company should be set targets with regards
company to a cheaper local courier; as a result some to timeliness of despatches. A review should be
orders have been delivered late. There is a risk that undertaken of target dispatch times and actual times
orders may be lost resulting in a loss of revenue for taken by the new courier company. If late delays
Hollywood or orders arriving later than normal which continue, then consideration should be given to changing
would lead to a loss of customer goodwill. back to the original courier company.
Trade customers’ sales invoices are automatically The system should be amended so that it links into the
generated by the system at the same time that the online despatch system. Sales invoices should not be raised
order is placed. However, if goods are not despatched until after goods have been despatched
straight away, then customers could be invoiced in
advance of receipt of their goods. This is likely to lead to
a loss of customer goodwill and the early recognition of
revenue in the
accounting records.
If Hollywood makes special offers or discounts sales, the When special offers or discounted sales occur, the
master file data for sales prices is amended by a senior changes to master file data should be made by a
sales ledger clerk. There is a risk that these amendments supervisor and each change checked by a responsible
could be made incorrectly resulting in a loss of sales official to reduce the risk of errors occurring.
revenue or overcharging of customers.
In addition, the sales ledger clerk, although senior, is not Amendments to master file data should be restricted so
senior enough to be given access to changing master file that only supervisors and above can make changes
data as this could increase the risk of fraud
Monthly statements are not sent to trade customers. If Hollywood should produce monthly customer statements
statements are not sent regularly, this increases the for both hotel and trade customers and send them out
likelihood of errors and any disputed invoices not being promptly.
quickly identified and resolved by Hollywood.
The sales ledger control account is only reconciled at the The sales ledger control account should be reconciled on
end of September in order to verify the year-end balance. a monthly basis to identify any errors. The reconciliations
If the sales ledger is only reconciled annually, there is a should be reviewed by a responsible official and they
risk that errors will not be spotted promptly. should evidence their review
AUDIT & ASSURANCE (CAF-09)

Question # 1:
You are being hired to advise Asfar Ltd on their internal controls;
a. Describe three General IT Controls each relating to the

i. Documentation and testing of program changes. (3)
ii. Prevention of unauthorized amendments to data files (3)
b. You are working in IT department of a firm of Arslan and Co. Chartered Accountants. The
partners are concerned about the confidentiality of client data which is electronically
transmitted by firm’s staff from the clients’ offices.
Required:
In order to ensure the confidentiality of data transmissions suggest suitable controls over such
transmission of data. (4)
Question # 2:
a. Ajwa Ltd is considering appointing AVCO Chartered Accountants as its auditors. Advise AVCO
Chartered Accountants as to what safeguards it should apply before accepting the
engagement.
(4)
b. Azhar Mehmood Chartered Accountants (AMCA) is deciding to issue some promotional
material so as to promote its services. Advise AMCA as to what regulations it should consider
when making a reference to fees in its promotional material.
(3)
c. Ibaad and Co. chartered accountants is a newly established firm of chartered accountants, they
are about to accept their first audit engagement with Descon Limited. According to ISA 210,
explain to them the preconditions for an audit. (3)
Question # 3:
Discuss the categories of threats that may be involved in each of the following independent
situations and advise the partners of the concerned firm with regard to the possible course of
action that may be followed in each situation:
a) Your firm provided bookkeeping services to one of client Ringlet Limited for the year 2019.
The bookkeeping services involved preparation of basic accounting records, recording of
transaction as per framework and preparation of financial reports. During the audit for the
same period, while working on property, plant and equipment, one of team member
discovered a significant error in the form of capitalization of amount in contravention of IAS
16.
(3)
b) Hamid is working as assurance manager in Saim and Co. Chartered Accountants (SMC)
form past four years. He has been assigned to one of new client Monarch Limited (ML), a
company manufacturing designer cloths. During progress meeting of audit, CFO revealed
to Mr. Saim, partner of SMC, about his close personal relationship with Hamid.
(3)
Question # 4:
Dashing Co manufactures women’s clothing and its year end was 31 July 20X7. You are an audit
supervisor of Jaunty & Co and the year-end audit for Dashing Co is due to commence shortly. The
draft financial statements recognize profit before tax of Rs 200·6m and total assets of Rs1800 m.
You have been given responsibility for auditing receivables, which is a material balance, and as
part of the audit approach, a positive Receivables circularization is to be undertaken.
Required:
a) Describe the steps the auditor should perform in undertaking a positive receivables
circularization for Dashing Co. (3)
b) Describe substantive procedures, other than a receivables circularization, the auditor
should perform to verify EACH of the following assertions in relation to Dashing Co.’s
receivables:
i. Accuracy, valuation and allocation &
ii. Completeness. (4)
Question # 5:
Comment on each of the following situations with reference to the appointment of external
auditors in accordance with the requirements of the Companies Act 2017.
a. Asher & Co. Chartered Accountants received an offer for the appointment as external auditor of
Charlotte Limited (CL) that is engaged in rehabilitation of forests in Punjab. One of its
associated companies, Darwin Limited (DL) is also working in this sector. Mr. Haris is the
nominated director in Darwin Limited (DL) from Punjab Government. He is spouse of Asher, the
managing partner of the firm.
(3)
b. Fox Hill Limited (FHL) deals in housing finance for individual on lenient terms as compared to
market. It offers appointment to Rizwan & Company as their external auditors. Mr. Rizwan, who
is managing partner in Rizwan & Co., has been convicted for fraud related to tax evasions eight
years ago. (3)
c. Arish & Co Chartered Accountants (AC) received an offer for the appointment as external
auditors of Smart Solutions (SS). Before this offer, Mr. Arish (partner in AC) was an employee
of one of the director of SS (Mr. Taha) in his consultancy business. Later, that employment
changed to partnership between Mr. Arish and Mr. Taha due to successful running of
consultancy business. Four years ago, the partnership was dissolved and Mr. Arish employed
in SS. He left his employment two years ago and started his practice through AC.
(3)
d. Dawood & Co. Chartered Accountants are proposed to be appointed as statutory auditors of
Descon Limited. Spouse of a partner is nominee director in Azhar Ltd, in which Descon Limited
holds 21% shares, and she also holds shares in that company. (3)
Question # 6:
Briefly explain the general principles for considering the reliability of the information to be used as
audit evidence? (5)
Answer # 1:
a.
i. Documentation and testing of program changes.
1. There should be controls to ensure that formal testing procedures on new program versions before
they are used for ‘live’ operations (1)
2. All new versions of programs must be authorised at an appropriate level of management. (1)
3. Staff should be given training, where appropriate, in the use of a new program version before they
use it for ‘live’ operations. (1)
ii. Prevention of unauthorized amendments to data files
1) Physical access to computer terminals may be restricted to authorized employees. (1)
2) Access to programs and data files may be restricted using passwords. There should be rigorous checks
by management to ensure that a password system is being used effectively by employees (1)
3) Firewalls (software and hardware) can be used to prevent unauthorized external access via the
internet. (1)
b. Controls over data transmission include: ANY FOUR
 Programme controls that ensure data is transmitted in the correct format
 Firewalls to prevent intrusion into the programs that send and receive data
 Restricting access to source data that is transmitted
 Only using secured Wi-Fi with password protection
 Using check sums and check digits to ensure that data received is intact
 Data encryption (4)
Answer # 2:
a. Safeguards may include:
 Acquiring an appropriate understanding of the nature of the client’s business, the complexity of
its operations, the specific requirements of the engagement and the purpose, nature and scope
of the work to be performed.
 Acquiring knowledge of relevant industries or subject matters.
 Possessing or obtaining experience with relevant regulatory or reporting requirements.
 Assigning sufficient staff with the necessary competencies.
 Using experts where necessary.
 Agreeing on a realistic time frame for the performance of the engagement.
 Complying with quality control policies and procedures designed to provide reasonable
assurance that specific engagements are accepted only when they can be performed
competently. (4)
Note: (Any Four points will score full marks)
b. Where reference is made in promotional material to fees:
i. This must not be misleading with regard to the precise range of services and the time commitment
covered;
ii. Comparison may be made to the fees of others, provided that this is not misleading and that it
follows local regulations or legislation; and
Discounts on existing fees may be offered, or a free consultation at which the level of fees will be
discussed. (3)
c. To establish if the preconditions for an audit are present ISA 210 requires the auditor to:
i. establish if the financial reporting framework to be used in the preparation of the financial
statements is acceptable, for example IFRS or IPSAS; and
ii. obtain the agreement of management that it acknowledges and understands its responsibility
(the ‘premise’):
 for the preparation of the financial statements;
 for internal controls to ensure that the financial statements are not materially misstated; and
 to provide the auditor with all relevant and requested information and unrestricted access to all
personnel.
(3)
Answer.3
(a)
i. Threat
A self-interest in created when a chartered accountant discover significant error when
evaluating the result of previous professional service performed by member of chartered
accountant firm.
Course of Action:
 Disclose to client nature and causes of such significant error
 Use different team members for audit
 Involve an additional chartered accountant to review the work
 Review firm system of quality control
 Evaluate controls relating to hiring of competent staff.
(b) Threat:
Due to close personal relationship between Hamid and CFO, self-interest, familiarity and
intimidation threats may be created.
The threats are significant due to close personal relationship and managerial positions of
Hamid and CFO. The gravity of situation further intensified due to non-disclosure of
personal relationship by Hamid before his deputation of ML.
Course of Action:
 Reviewing firms system of quality control specifically relating to disclosures of

relationship with clients
 Reviewing work performed by Hamid by senior member of the firm
 Having the relevant assurance work reviewed by other chartered accountant
 Removing Hamid from assurance team.
 structuring Hamid’s responsibilities to reduce any potential influence over the
assurance engagement
Answer 4
a. Steps in undertaking a positive receivables circularization for Dashing Co
The following steps should be undertaken in carrying out a positive receivables

circularization:
 Obtain consent from the finance director of Dashing Co in advance of

undertaking the circularization.
 Obtain a list of trade receivables at the year end, cast this and agree it to the
sales ledger control account total.
 Select a sample from the receivables list ensuring that a number of nil, old,
credit and large balances are selected.
 Circularization letters should be prepared on Dashing Co.’s letterhead
paper, requesting a confirmation of the year-end receivables balance, and
for replies to be sent directly to the audit team using a pre-paid envelope.
 The finance director of Dashing Co should be requested to sign all the
letters prior to them being sent out by a member of the audit team.
 Where no response is received, follow this up with another letter or a
phone call and where necessary alternative procedures should be
performed
 When replies are received, they should be reconciled to Dashing Co.’s
receivables records, any differences such as cash or goods in transit should
be investigated further.
b. Receivables substantive procedures
Accuracy, valuation and allocation
– Review the after date cash receipts and follow through to pre year-end
receivable balances.
– Inspect the aged receivables report to identify any slow moving balances,
discuss these with the credit control manager to assess whether an allowance
or write down is necessary.
– For any slow moving/aged balances review customer correspondence to

assess whether there are any invoices in dispute.
– Review board minutes of Dashing Co to assess whether there are any

material disputed receivables.
Completeness
– Select a sample of goods dispatched notes from before the year end, agree to
sales invoices and to inclusion in the sales ledger and year-end receivables
ledger.
– Agree the total of individual sales ledger accounts to the aged receivables
listing and to the trial balance.
– Obtain the prior year aged receivables listing and for significant balances
compare to the current year receivables listing for inclusion and amount due.
Discuss with management any missing receivables or significantly lower
balances.
– Review the sales ledger for any credit balances and discuss with management
whether these should be reclassified as payables.
Rights and obligations
– Review bank confirmations and loan agreements for any evidence that
receivables have been assigned as security for amounts owed by Dashing Co.
– Review board minutes for evidence that legal title to receivables has been
sold onto a third party such as a factor.
– For a sample of receivables, agree the balance recorded on the sales ledger to
the original name of the customer on a sales order or a contract.
Answer # 5:
a. Asher & Co. qualifies for the appointment of Charlotte Limited because the nominated
directorship of Mr. Tehseen in one of the associated company has no significance with respect to
qualification or disqualification of his spouse. (3)
b. A person who has been convicted by a court of an offence involving fraud and a period of ten
years has not elapsed from the date of such conviction. So Mr. Rizwan cannot be appointed as
auditor of FHL. (3)
c. Arish & Co. cannot be appointed as auditor of SS because of employment of Mr. Arish in SS
during preceding three year. However, employment & partnership with director was before this
appointment and only current employment & partnership is not allowed. (3)
d. Both Descon Ltd and Azhar Ltd are associated companies as Descon Ltd owns 21% shares in Azhar Ltd. A
person shall also be disqualified for appointment as auditor of a company if he is, disqualified for
appointment as auditor of any other company which is associated that company’s subsidiary or holding
company or a subsidiary of that holding company. Hence Dawood & Co. will not be disqualified on
account of the directorship of the spouse of the partner in Azhar Ltd as both companies are Associated
Companies. (3)
Answer 6
Reliable
There are a number of general principles set out in ISA 500 to assist the auditor in assessing the
reliability of audit evidence. These can be summarised as follows:
Audit evidence is more reliable when it is obtained from independent sources
outside the entity under audit. As specified above, ISA 500 requires that the auditor
should be satisfied as to the accuracy and reliability of any internal evidence used in
reaching a conclusion.
Internally generated audit evidence is more reliable when the related controls are
effective.
Audit evidence obtained directly by the auditor is more reliable than audit evidence
obtained indirectly or by inference. For example, observation of the operation of a
control by the auditor is more reliable than inquiry about the operation of that control.
Audit evidence is more reliable when it exists in documentary form. This could be
paper, electronic or other medium. For example, a written record of a meeting made at the
time is more reliable than a subsequent oral representation of the matters discussed.
Audit evidence provided by original documents is more reliable than audit evidence
provided by photocopies, or documents that have been filmed, or otherwise transformed
into electronic form. This is because the reliability of those other forms may depend on the
controls over their preparation and maintenance.
(5)
FAR-1 (CAF-05)
(Note: Reading Time: 10 Minutes, Paper Attempting Time: 90 Minutes & Answer Script Uploading
Time: 20 Minutes)
Question # 1:
The financial controller of Corona Global Limited has supplied an extract from the company’s draft
statement of comprehensive income for the year ended 30 June 2019 and its draft statement of
financial position as at that date, along with some additional information, in readiness for the
preparation of the company’s statement of cash flows.
Draft income statement for the year ended 30 June 2019 (extract)
Rs.
Profit from operations 104,700
Investment income 1,200
Finance costs (11,500)
Profit before tax 94,400
Income tax expense (25,600)
Profit for the year 68,800
Draft statement of financial position as at 30 June
2019 2018
Rs. Rs.
ASSETS
Non-current assets
Property, plant and equipment 567,250 528,460
Investments 35,000 35,000
602,250 563,460
Current assets
Inventories 20,890 31,760
Trade and other receivables 41,800 61,600
Cash and cash equivalents 6,060 4,980
68,750 98,340
Total assets 671,000 661,800
EQUITY AND LIABILITIES

Equity
Ordinary share capital (Re. 1 shares) 250,000 175,000
Share premium account 193,750 137,500
4% Irredeemable preference shares 50,000 50,000
Retained earnings 61,045 67,245
554,795 429,745
Non-current liabilities
6% Debentures 50,000 170,000
Current liabilities
Trade payables 17,915 9,385
Other payables 23,390 24,780
Income tax payable 24,900 27,890
66,205 62,055
Total equity and liabilities 671,000 661,800

Additional information:
(1) During the year Corona Global Limited acquired new property, plant and
equipment for cash. Depreciation of Rs. 82,600 was correctly calculated and
charged for the year. Several items of property, plant and equipment were sold for
cash of Rs. 57,000, making a profit of Rs. 3,700 and a machine with a carrying
amount of Rs. 1,010 was scrapped on 30 June 2019.
(2) Trade and other receivables include interest receivable of Rs. 4,700 (2018: Rs. 5,650).
(3) Trade and other payables include interest payable of Rs. 4,100 (2018: Rs. 5,900).
(4) The correct amount due on the 4% irredeemable preference shares was paid at the
year end, although the amount was incorrectly recognized as finance costs. In addition,
Corona Global Limited paid an ordinary dividend during the year.
(5) New ordinary shares were issued on 1 November 2018. Some of these shares were
issued to the holders of the 6% Debentures to redeem part of the debt at par (there
were no other movements on the 6% Debentures during the year). The remaining
shares were issued for cash.
Required:
Prepare a statement of cash flows for Corona Global Limited for the year ended 30 June
2019 using the indirect method.
(10)
Question # 2:
Tiger Limited’s financial statements for the year ended 31 December 2019 included the
following balances.
Rs.
Ordinary share capital 500,000
Share premium 125,000
3% Debentures 200,000
Retained earnings 389,700
Property – cost 3,370,000
Property – accumulated depreciation 770,000
All shares have a nominal value of Re.1 per share.
Tiger Limited made a profit for the year ended 31 December 2019 of Rs.237,800,
before accounting for the matters set out below.
1) An error was discovered showing that inventory at 01 January 2019 had been overstated by Rs.
100,000.
2) On 1 February 2019 Tiger Limited issued a further 100,000 ordinary shares at a price of Rs. 1.50
per share. An ordinary dividend of Rs. 0.20 per share was paid on 15 March 2019.
3) Interest on debentures was not paid during the year and Tiger Limited has not yet accrued for the
amount payable.
4) Tiger Limited has previously measured all of its property under the cost model. However, on 1
January 2019 the directors made the decision to move to the revaluation model and the property
was valued at Rs.3 million. The directors wish to make annual transfers between retained
earnings and the revaluation surplus. No depreciation on property has yet been recognized for
2019. The remaining useful life of the property was reassessed on 1 January 2019 as 20 years.
5) All plant and equipment has previously been depreciated on a reducing balance basis using a
rate of 25% and the depreciation charge for 2019 has been recognized on this basis. However,
when reviewing the depreciation methods, the directors decided that for one specialized item of
plant a straight-line basis over a total estimated life of six years would more fairly represent
usage. This specialized plant was purchased on 1 January 2016 and had a carrying amount of
Rs.30,000 on 1 January 2019.
Required:
Prepare Tiger Limited’s statement of changes in equity for the year ended 31 December
2019. A total column and comparative figures are not required. (06)
Question # 3:
Blackwell Ltd is engaged in the manufacturing of wooden furniture. On 1st March, 2018, it was found
that one plant used in the manufacturing process was damaged due to usage of substandard fuel by the
workers. Even before this incident, the performance of the plant had been declining over the years.
Directors have decided to carry out an impairment test to record the impairment losses if any. In this
respect, the accountant has gathered the following information about the plant:
i) WDV of the plant is Rs. 2,000,000. Remaining useful life of the plant has been estimated as 4
years
ii) The head of budgeting and planning department estimates the following information for the next
four years:
• Maintenance cost will be borne by the company amounting to 125,000 in Year 1, 85,000 in
Year 2 and 75,000 in Year 3.
• Cash flows from sale of products produced by the plant and the costs incurred by it are
estimated to be;
Inflow Outflow
Year 1 1,245,000 (747,000)
Year 2 1,095,600 (682,360)
Year 3 1,033,000 (648,000)
Year 4 857,000 (483,000)
• Interest on long term loan will be Rs. 50,000 in Year 1 and Year 2 and 45,000 in Year 3
and 4
• At the end of Year 4, the plant can be sold for Rs. 32,000. Disposal costs will be Rs. 8,000
iii) Plant can be sold for Rs. 950,000 in the market now but an employee offered the company to buy
it for Rs. 800,000. Transportation cost of Rs. 30,000 will have to be incurred if plant is sold in the
market.
iv) Company uses 12% reducing balance method to charge depreciation. Cost of capital is 15%
Required:
Calculate impairment loss (if any) (08)
Question # 4:
On 1 January 2013 ABC Limited acquired a specialized machine for its production department. The
available information is as follows:
List price of machine: 5,000,000

Freight charges: 450,000
Insurance in transit: 300,000
Air conditioner for the machine room (to be replaced after 5 years): 6,00,000
Staff training for use of machine: 320,000
Test run cost: 150,000
Purchase of a four-year maintenance contract: 800,000
Estimated salvage value: 325,000
Trade discount on list price : 5%
Settlement discount availed: 2%
Total useful life was estimated at 8 years at the time of purchase. The company depreciates its
Machines on reducing balance method. It uses revaluation model for subsequent measurement and has
a policy of revaluing its machines after every two years.
On 30 June 2014, ABC upgraded the machine by adding new components at a cost of Rs. 660,000.
The upgrade lead to an increase in the remaining useful life to 9 years, and its salvage value to Rs.
500,000. On 30 June 2015, fair value of the machine was valued at Rs. 4,000,000.
Required:
For the years ended 30 June 2013, 2014 and 2015, pass journal entries to record the relevant
transactions in the books of ABC Limited. (round off depreciation rate to the nearest percentage)
(14)
Question # 5:
Red Eagle (Private) Limited owns the following two properties:
Property – Main Boulevard Gulberg

An office building owned by REL was purchased on January 01, 2015 for Rs. 150 million. This building
was mainly used for administrative activities of REL. Total estimated useful life of the building was 20
years. This building was revalued at Rs. 144 million on 1st July, 2017. After internal reorganization on 1st
July 2018 , the property was let to a third party and reclassified as an investment property applying
REL’s policy of the fair value model. An independent valuer assessed the property to have a fair value
of Rs. 120 million at 30th June, 2018, which had risen to Rs. 125 million at June, 30 2019.
Property – DHA phase – 5

Another Building having fair value of Rs. 140 million as on 30 th June, 2017 has been rented out to a
tenant. At 30 June 2018, it had fair value of Rs. 150 million which had risen to Rs. 160 million at 1 st
January, 2019 when it was decided to use the property as head office upon vacation by tenant and
classified as property, plant & equipment applying REL’s policy of cost model. Useful life of the building
as on 1st January, 2019 was determined at 15 years. Fair value of 160 million at the date of
reclassification was shared between land and building in the ratio of 60:40 respectively. Residual value
of building was estimated at Rs. 10 million at the end of useful life.
Required:
Prepare journal entries for the year ended 30th June, 2018 & 2019 and extracts of statement of
comprehensive income for the year ended 30th June, 2019 & Statement of Financial position as on that
date. (08)
Question # 6:
Choose the correct option in each of the following:

1. On 1 January 2021 Alpha Limited (AL) received Rs. 5 million from the local government on the
condition that they employ at least 100 persons each year for the next 4 years. Due to an
economic downturn and reduced consumer demand on 1 January 2022, AL no longer needed to
employ any more staff and the conditions of the grant required full repayment. What should be
recorded in the financial statements on 1 January 2022?
a) Reduce .deferred income balance by Rs. 3,750,000
b) Reduce deferred income by Rs. 3,750,000 and recognize a loss of Rs. 1,250,000
c) Reduce=ferred income by Rs. 5,000,000
d) Reduce deferred income by Rs. 5,000,000 and recognize a gain of Rs. 1,250,000 (2)
2. Which TWO of the following statements about IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance are true?
a) A government grant related to the purchase of an asset must be deducted from the carrying
amount of the asset in the statement of financial position.
b) A government grant related to the purchase of an asset should be recognized in profit or loss
over the life of the asset.
c) Free marketing advice provided by a government department is excluded from the definition
of government grants.
d) Any required repayment of a government grant received in an earlier reporting period is
treated as prior period adjustment. (1)
3. Which of the following may be regarded as government grant in accordance with IAS – 20?
a) Sale of furniture worth Rs. 2 million to government department at market price

b) Loan of Rs. 5 million was obtained at market interest rate payable in full after 5 years.
c) Free consultancy received from Government to increase export in middle – east.
d) Land of Rs. 50 million received for construction of building to be used for business purpose for
next 20 years. (1)
THE END
Solution
Question 1:
CORONA GLOBAL LIMITED

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2019
Rs.
Profit before tax (94,400 + (4% x 50,000)) 96,400
Finance costs (11,500 – (4% x 50,000)) 9,500
Interest received (1,200)
Depreciation charge 82,600
Profit on disposal of property, plant and equipment (3,700)
Impairment of PPE (scrapped machine) 1,010
Decrease in inventories (31,760 – 20,890) 10,870
Decrease in trade and other receivables ((41,800 – 4,700) – (61,600 – 5,650)) 18,850
Decrease in other payables (24,780 – 23,390) (1,390)
Increase in trade payables ((17,915 – 4,100) – (9,385 – 5,900)) 10,330
Cash generated from operations 223,270
Rs. Rs.
Cash flows from operating activities

Cash generated from operations (Note) 223,270
Interest paid (W1) (11,300)
Income tax paid (W2) (28,590)
Net cash from operating activities 183,380
Cash flows from investing activities
Purchase of property, plant and equipment (175,700)
Proceeds from sales of property, plant and equipment 57,000
Interest received (W4) 2,150
Net cash used in investing activities (116,550)
Cash flows from financing activities
Proceeds from issue of ordinary share capital (W5) 11,250
Preference dividend paid (W6) (2,000)
Ordinary dividends paid (W6) (75,000)
Net cash from financing activities (65,750)
Net decrease in cash and cash equivalents 1,080
Cash and cash equivalents at beginning of period 4,980
Cash and cash equivalents at end of period 6,060
Workings
(1) Interest paid

Rs. Rs.
Cash (β) 11,300 B/d 5,900
C/d 4,100 SOCI (11,500 – (4% x 50,000)) 9,500
15,400 15,400
(2) Tax paid
Rs. Rs.
Cash (β) 28,590 B/d 27,890
C/d 24,900 SOCI 25,600
53,490 53,490
(3) PPE
Rs. Rs.
B/d 528,460 Disposals (57,000 – 3,700) 53,300
Additions (β) 175,700 Depreciation 82,600
Scrapped asset (w/off) 1,010
C/d 567,250
704,160 704,160
(4) Interest received
Rs. Rs.
B/d 5,650 Cash (β) 2,150
SOCI 1,200 C/d 4,700
6,850 6,850
(5) Ordinary share capital and premium
Rs. Rs.
B/d (175,000 + 137,500) 312,500
Redemption of debt (170,000 – 50,000)
120,000
C/d (250,000 + 193,750) 443,750 Cash (β) 11,250
443,750 443,750
(6) Retained earnings
Rs. Rs.
Preference dividend paid 2,000 B/d 67,245
SOCI (68,800 + 2,000) 70,800
Ordinary dividend paid (β) 75,000
C/d 61,045
138,045 138,045
Question 2:
TIGER LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Ordinary Share premium Retained earnings Revaluation

share surplus
capital
Rs. Rs. Rs. Rs.

At 1 January 2019 500,000 125,000 389,700 –
Issue of ordinary shares 100,000 50,000 – –

Profit for the year (W 1)
Dividend on ordinary shares – – (120,000) –
(600,000 x 0.20)
Transfer to retained earnings – – 20,000 (20,000)
(W2)
At 31 December 201 600,000 175,000 369,000 380,000
Workings
(1) Revised profit for the year

Rs.
Draft profit 237,800
Less: Dividend on redeemable preference shares (200,000 x 3%) (6,000)
Depreciation on property (3,000,000 ÷ 20) (150,000)
Correction of error (100,000)
Adj to depreciation re special plant (W3) (2,500)
Add: Error re opening inventory 100,000
79,300
(2) Revaluation and depreciation transfer

Rs.
Valuation on 1 January 2012 3,000,000
Carrying amount of property on 1 January 2012 (3,370,000 – 770,000) 2,600,000
400,000
Annual transfer ÷ 20 20,000
(3) Depreciation adjustment re special plant

Rs.
Depreciation charged in 2012 (30,000 x 25%) 7,500
Depreciation on new basis (30,000 ÷ 3) 10,000
Additional charge needed 2,500
Suggested Solution # 3:
Fair value as given 950,000 m-0.5

Less: incremental selling cost (30,000) m-0.25
Fair Value less incremental selling
920,000 m-0.25
cost [A]
Value in use (W-1) [B] 1,003,932
1,003,932
Recoverable value [higher of A & B] m-0.5
Written down value 1,226,650 (w-1)
Impairment loss 222,717

m-0.5
Particulars Year 1 Year 2 Year 3
Sale proceeds of products 1,245,000 1,095,600 1,033,000

Outflows (747,000) (682,360) (648,000)
Maintenance Cost of plant (125,000) (85,000) (75,000)
Residual Value
Disposal costs
Net Cash Flows 373,000 328,240 310,000

Discount Factor 0.870 0.756 0.658
324,348 248,197 203,830
Value in use = 1,003,932
Working-W1
WDV 2,000,000
Year 1 200,000
NBV 1,800,000
Year 2 216,000
NBV 1,584,000
Year 3 190,080
NBV 1,393,920
Year 4 167,270
NBV 1,226,650 m-1.5
Year 4
857,000 m-1 (.25 each)

(483,000) m-1 (.25 each)
- m-1 (.25 each)
32,000 m-0.25
(8,000) m-0.25
398,000
0.572
227,558 m-1 (.25 each)
Question-4:
1-Jan-13 Machinery 5,650,000 W1
Bank/Payable 5,650,000
30-Jun-13 Dep exp 847,500 w3

Acc dep/ Machinery 847,500
30-Jun-14 Dep exp 1,440,750 w4

Acc dep/ Machinery 1,440,750
30-Jun-14 Machinery 660,000

Bank/Payable 660,000
30-Jun-15 Dep exp 832,502 w5

Acc dep/ Machinery 832,502
30-Jun-15 Acc dep 3,120,752

Machinery 3,120,752
(847,500+1,152,322+892,207)
30-Jun-15 Machinery 810,752

Revaluation Surplus 810,752
w1:
Cost of machinery:
List price of machine 5,000,000

Less: trade discount (5%) - 250,000
Freight charges 450,000
Insurance in transit 300,000
Test run cost 150,000
5,650,000
w2:
Dep rate = 1 - 8√325,000/5,650,000

=30%
w3:
Dep exp for 30 June 2013 = 5,650,000*30%*6/12= 847,500
w4:
Dep exp for 30 June 2014 = (5,650,000-847,500)*30%= 1,440,750
w5:
NBV on 30 June 2014 = 5,650,000-847,500-1,440,750 = 3,361,750
Revised dep rate = 1 - 9√500,000/(3,361,750+660,000) = 20.7 = 21%

Revised cost = 3,361,750 + 660,000 = 4,021,750
Dep exp for 30 June 2015 = (4,021,750)*20.7% = 832,502
w6:
NBV @ 30 June 2015 = 3,189,248
Fair value = 4,000,000
Revaluation gain (4,000,000-3,417,972) = 810,752

0.50
0.50
0.50
0.50
0.50
1.00
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
1.00
1.00
1.00
1.50
1.00
1.00
5102313
Suggested Soluion - 5
Marking
Journal Entries Scheme
Main Boulevard Building
Date Description Debit Credit
Rs. in million
30/6/18 Depreciation 8.23
Accmuluated Depreciation 8.23 1.00
30/6/18 Revaluation Surplus 0.73

Retained Earnigs 0.73 0.50
30/6/18 Accmulated Depreciation 8.23

Building 8.23 0.50
30/6/18 Revaluation Surplus 12.02

Loss on Revaluation 3.75
Building 15.77 1.00
1/7/18 Investment property 120.00

Building 120.00 0.25
30/6/19 Investment property 5.00

Fair value gain 5.00 0.25
DHA Building
30/6/18 Investment property 10

Fair value gain 10 0.50
(150 - 140)
1/7/19 Investment property 10

Fair value gain 10 0.50
(160 - 150)
1/7/19 Land 96
Building 64
Investment property 160 1.00
(160 - 150)
30/6/19 Depreciation 1.80
Accumulated Dep. 1.80 0.50
(64 - 10)/15 x 6/12
6.00
Red Eagle (Private) Limited
Statement of Comprehensive income (Extract)
Marking
For the year ended 30th June, 2019
Scheme
Rs. (m)
Other Income
Fair value gain - Main Boulevard property
(5 + 10) 15.0 0.5
Operating Expenses
Depreciation 1.8 0.5
Red Eagle (Private) Limited

Statement of financial position (Extract)
As at 30th June, 2019
Assets
Non - Current Assets
Property, plant & equipment 160.0
Less: Accmulated Depreciation (1.8) 158.2 0.5
Investment property 125.0 0.5
2
W-1
Cost/FMV
NBV Rev. Surplus Gain \Loss
Rs. in million
1/1/15 Cost 150.00
30/6/17 Acc. Dep. 150 x 2.5/20 (18.75)
131.25
1/7/17 Rev. Surplus 12.75 12.75
1/7/17 FMV 144.00
Dep. (8.23) (0.73)
30/6/18 NBV 135.77 12.02
Loss on Rev. (15.77) (12.02) (3.75)
1/7/18 FMV 120.00 0.00
FV Gain 5.00
30/6/19 FMV 125.00
Suggested Solution - 6
1 (b)
2 (b) & (c)
3 (d)
Principles of Taxation (CAF-06)

Question # 1:
Briefly explain the income tax implications in respect of each of the following independent
situations for tax year 2020:
(i) On 17 January 2020 Mr. Salman sold antique coins for Rs. 500,000 to his elder brother. He
had purchased these coins from abroad on 20 June 2019 for Rs. 220,000 and paid custom
duties and other indirect taxes of Rs. 30,000. The coins could have fetched a price of Rs.
550,000 in the nearby open market for antiques. Salman adjusted this gain against loss of
Rs. 100,000 suffered in the money market on forward contract for the purchase and sale of
US dollars. All the contracts were settled other than by actual delivery of US dollars.
(ii) On 30 June 2020 Farhan sold his license to import LPG gas for Rs. 2,000,000. He had
purchased the license on 10 November 2018 for Rs.1000,000 and paid Rs. 200,000 as
annual renewal fee on 01 January 2019.
(iii) On 15 May 2020 Farhan Limited sold 200,000 Pakistan Wapda sukuk bonds for Rs.
5,000,000. The company had purchased these bonds for Rs. 3,000,000 on 01 March 2013.
20,000 call options (right to purchase shares) in a public listed company at Rs. 2.5 per call
option were also sold on the same day. The company had purchased these call options 5
days ago at Rs. 1.9 per call option.
(iv) In tax year 2020, Mr. Azhar earned a gain of Rs. 850,000 on account of a forward contract
for the purchase and sale of gold in the Pakistan Mercantile Exchange and settled the
contract otherwise than by the actual delivery or transfer of gold.
(v) On 01 July 2019, Mr. Abdullah sold machinery for Rs.550,000 used exclusively for
manufacturing goods exported to KSA in the year ended 30 June 2019. He had originally
purchased this machinery on 30 June 2018 for Rs.500,000. Income from export business is
taxable under the final tax regime (FTR). (Marks: 10)
Question # 2:
a) Describe tax treatment of ‘Un-adjustable Security Deposit’ briefly? (Marks: 03)
b) Mr. Nawaz has rented out two properties (A& B) on July 1, 2019 and following information
is relevant in this regard:
Rs.
Total Rent received for property A (monthly rent is Rs 50,000) 1,200,000

Total Rent received for property B (monthly rent is Rs 30,000) 150,000
Un-adjustable Security Deposit received for Property A 200,000
Administrative & Collection Charges (Annual) 120,000

Repair Expenses (Annual) 105,000
Required:
Calculate taxable income and tax liability of Mr. Nawaz for tax year 2020. Please provide reasons
for exclusion of any of the above items from your computation. (Marks: 05)
Question # 3:
a) Determine the residential status under the provisions of income tax Ordinance 2001.
i. Mr. Ahmed went to UK on15th November 2019 and did not came back in Pakistan in
Tax year 2020. This is not his only travelling to UK and went to UK for 240 days in 2019,
235 days in 2018 and 195 days in 2017. For the rest period he was in Pakistan.
ii. Hydelberg Pvt. Limited wholly owned subsidiary of Hydelberg LLC USA was
incorporated in Pakistan in February 2020. The whole management of the company
remained in USA since incorporation and running business of company from USA.
iii. Mr. Ahmed employee of Engro corporation Limited was sent to Germany on 15th August
2019 on official visit to perform company functions and he remained in Germany since
departure. (Marks: 03)
b) Define Public Company under the provisions of Income tax Ordinance 2001. (Marks: 02)
Question # 4:
Brief Explain the tax treatment of the following situations:
(a) Ms Soroushi won a 1800 cc from game show “Jeeto Pakistan” on 28 June 2020, however,
the prize was delivered to her on 5th July 2020. What would be tax treatment, assuming the
FMV of the car is Rs 4 Million
(b) Mr. Shahmeer is a non-professional writer. During the tax year 2020, he received a lump-
sum amount of Rs. 600,000 on account of royalty of a book. He claims that he spent 33
months in completing the book.
(c) Mr Aryaan is a director in a company, named as SSA private Limited company. He
obtained a loan on 5th December 2019 from the company. How this amount would be
booked.
(d) Ms Anoosheh received a Car as a gift from her mother in law on his 1st wedding
anniversary. How this amount would be booked.
(e) Profit after tax remitted by branch of a Chinese company to its head office located in in
Wuhan, involved in extraction of petroleum products in Makraan, Pakistan. (Marks: 10)
Question # 5:
a) Describe briefly the following concepts and their taxability:
i) Self-Hiring of Property
ii) Forfeited Deposit (Marks: 04)
b) Mr. Hashim has obtained a piece of land on rent from Mr. Salman at a monthly rent of Rs
45,000 on July 1, 2018. No construction was made on this land during tax year 2019.
However, he constructed a building on this land and the same was rented out starting
from July 1, 2019 at a monthly rent of Rs 250,000. This amount is inclusive of Rs 50,000
received for provision of amenities in the building. Please comment on the taxability of
amounts received by Mr. Hashim and Mr. Salman specifying the heads of income under
which these amounts are taxable for tax years 2019 & 2020. (Marks: 04)
c) Briefly explain the treatment of rent received by co-owners in case of joint ownership of
property. (Marks: 02)
Question # 6:
Mr. Fahad (F), a citizen of Pakistan, has approached you to compute his taxable income and tax
payable for his tax year ended 30 June 2020 and the following information is provided to you.
a) Until 31 October 2019, F was an employee of Sukoon Mahol Limited (SML), an
associated company of Mithay Chaowl Limited (MCL). On 31 October 2019, F opted for
early retirement under the voluntary retirement scheme of SML. F had been in the
employment of SML since 1 January 1995. On retirement, F, in addition to his monthly
remuneration, received:
i. Rs. 7,000,000 from SML as a golden handshake payment under the SML voluntary
retirement scheme.
ii. Rs. 9,000,000 from the SML Employees Provident Fund. Rs. 9,000,000 represents the
accumulated amount in F’s account of the fund. The fund has been recognized by the
Commissioner.
b) F’s terms of employment with SML provided for the following:

i. A basic salary of Rs. 500,000 per month
ii. A pension of Rs. 50,000 a month payable on the first working day of each month.
c) The monthly salary of all employees of SML is deposited into each employee’s bank
account on the first working day of the following month.
d) On 1 April 2020, F left for Saudi Arabia and commenced employment on the same day
with the branch office of MCL (Mithay Chaowl ltd). F agreed to work as the branch
manager for a period of two years at a consolidated salary of US$ 20,000 (Rs. 1,600,000)
per month. No tax has been paid or deducted at source in Saudi Arabia on the salary
income of F. For the tax year 2020, F is resident for Pakistan tax since his stay in Pakistan
before leaving for Saudi Arabia was more than 183 days. Following his departure, F
returned to Pakistan for the first time on 5 July 2020 for a short stay of one week.
e) On retirement from SML on 31 October 2019, F was due Rs. 6,000,000 as a gratuity
under the gratuity scheme of SML. The scheme was not approved by the Federal Board
of Revenue. Due to cash constraints, the gratuity though due to F on 31 October 2019
was not paid to F. On 30 April 2020, at the request of SML, MCL transferred the
equivalent of Rs. 6,000,000 in US dollars into F’s US dollar account in Saudi Arabia in lieu
of the gratuity due from SML.
Other information:
I. On 1 July 2020 (after the end of the tax year 2020), by a notice in writing to the
Commissioner, F elected to be taxed on the amount of the golden handshake
payment received from SML at the average rate of tax on his taxable income for the
preceding three years. This average tax rate worked out at 12%.
II. During employment, he elected to participate in stock option scheme of MCL and had
been granted a right to purchase 500 shares of MCL at the exercise price of $10 per
share. No payment was to be made for the said right. Mr. Fahad exercised his option
during the year to acquire 300 shares at the exercise price of $10. The right for remaining
200 shares was disposed off for Rs. 48,000 on the same day. Market value of one share
of MCL on the date of issue of the right was $12 and, on the date, when shares were
issued to Mr. Z it was $15. (1$= Rs. 108).
Required:
a) Compute taxable income and tax liability of Mr. Fahad for the tax year 2020.Give
explanatory notes of calculations where required.
b) Also give explanations of income which is totally exempt in this case. (Marks: 07)
(THE END)
Tax Rates – Non-Salaried Individual (Division I of Part I of First Schedule):
1. Up to Rs. 200,000 0%
2.Exceeds Rs. 200,000 but does

not exceed Rs. 600,000 5% amount exceeding 200,000
3. Exceeds Rs. 600,000 but does 20,000 + 10% amount exceeding Rs 600,000
not exceed Rs. 1,000,000
4.Exceeds Rs. 1,000,000 but does Rs. 60,000 + 15% of the amount exceeding 1,000,000
5. Exceeds Rs. 2,000,000 but 210,000 +20% of the amount exceeding 2,000,000
does not Rs. 4,000,000
6. Exceeds Rs. 4,000,000 but does Rs. 610,000 + 25% of the amount exceeding 4,000,000
7. Exceeds Rs. 6,000,000 but does Rs. 1,100,000 + 30% of the amount exceeding 6,000,000
8. Exceeds Rs. 8,000,000 1,710,000 + 35% of the amount exceeding 8,000,000

Answer to Question No. 2 Marks
Part (a)
- Where the owner of a building receives an amount as 'Unadjustable

Security Deposit', this amount will be taxed in the year of receipt and 1.5
the nine years following it in equal proportion.
Where the tenant leaves a building during a year and the building is
rented out to a new tenant, no amount will be added for previous
security deposit in this year. Instead, the amount already taxed for 1.5
previous security deposit will be deducted from the new security
deposit and balance amount will be taxed in ten years.
Part (b)
Mr. Nawaz
Rs Marks
Income from Property
Annual Rent Note -1 960,000 2
Un-adjustable security deposit (200,000/10) 20,000 1
Gross Income from Property 980,000
Less:
Repair Expenses (Annual) - 0.5

Note -2
Administrative & Collection charges - 0.5
Net Income from Property 980,000

Tax Liability [20,000 + 10% of amount
58,000 1
exceeding Rs 600,000]
Rs
Note - 1
Annual rent of Property A (50,000*12) - Rent

received in advance will not be taxed in current 600,000
year.
Annual rent of Property B (30,000*12) - Total

360,000
rent for the year will be taxed in current year,
actual rent received is not relevant.
Rent taxable in income from property 960,000
Note- 2
No expenses are allowable against income from property for individuals

and AOP's unless the rent chargeable to tax exceeds Rs 4,000,000 and
the person opts for taxation under normal tax regime.
Answer to Question No. 5 Marks
Part (a)
(i) Self-Hiring of Property
- Where employee or his spouse owns a property which is rented out to the employer and
employer provides this property to employee against his entitlement of rent free
accommodation, it is described as 'Self-hiring' of Property. 1
- In the above situation, FMV of rent is included in taxable salary of the employee whereas 1
actual rent received by the employee or his spouse is taxable as income from property of the
employee or his spouse.
(ii) Forfeited Deposit
- Where a person enters into a contract for sale of a building and receives an amounts as deposit
and subsequently this amount is forfeited by the seller due to failure on part of other party to
honor the contract of sale, the amount so forfeited is described as 'forfeited deposit'. 1
1
- Forfeited amount is taxable as 'Income from Property' in the year of forfeiture.
Part (b)
Tax Year 2019
- Annual Rent of land received by Mr. Salman amounting to Rs 540,000 (45,000*12) will be
taxable under the head 'Income from Property'.
1
- Mr. Hashim did not receive any amount in tax year 2019 and therefore no amount is taxable in
his hands in this scenario. 0.5
Tax Year 2020
- Annual Rent of land received by Mr. Salman amounting to Rs 540,000 (45,000*12) will be
taxable under the head 'Income from Other Sources'. This is because where a superstructure is
built on a land and is rented out, rent of land will be taxed as 'Ground Rent' under the head 1.5
'Income from other Sources'.
0.5
- Rent of building received by Mr. Hashim amounting to Rs 2,400,000 (200,000*12) other than
the amount received for amenities is taxable under the head 'Income from Property'.
Amount received for amenities by Mr. Hashim amounting to Rs 600,000 (50,000*12) is taxable 0.5
under the head 'Income from Other Sources'.
Part (c)
- In case of joint ownership of property, total income is not treated as income derived by an
AOP. 1
- Instead, share of each co-owner is allocated to the owner and is included in individual incomes
of the co-owners. 1
Question – 1: (2 marks each)
(i) Antique
An antique is a capital asset. Since antique coins were sold to his brother an associate at a price
less than their fair market value, the sale proceeds shall be taken as their fair market value on the
date of disposal and capital gain of Rs. 300,000 (Rs. 550,000-250,000) will be chargeable to tax.
Loss on sale and purchase of US dollars will be speculation loss as contract was settled otherwise
than by delivery. Speculation loss can only be adjusted against speculation business. Therefore, its
adjustment against capital gain is wrong.
(ii) LPG Licence

Rs. 1,000,000 (Rs.2,000,000-1,000,000) will be chargeable to tax under the head capital gain.
Further only 75% gain will be taxable as holding period is over one year.
The renewal fee is not included in cost of licence as it neither alters nor improves the asset nor was
it incurred in acquiring or disposing of the asset (S.76(2).)
(iii) Wapda Sukuk Bonds & Call options

Wapda Sukuk bonds are debt securities and will fall within the definition of securities. However any
gain on securities acquired before 01 July 2013 is not taxable. Hence no tax will be charged on gain
of Rs. 2,000,000.
Definition of security includes derivative products, e.g., call options. Capital gain of Rs. 12,000
(20000 x 0.6) will be taxable as separate block @ 15%.
(iv) Gain on PMEX
Derivative products fall within the definition of security. Gain will be chargeable to tax as separate
block @ 5%.
Derivative products include future commodity contracts entered into by the members of Pakistan
Mercantile Exchange whether or not settled by physical delivery.
(v) Sale of machinery
The machinery was used for manufacturing goods covered under final tax regime, hence no
depreciation was allowed on the machinery. The machinery in such situations is a capital asset and
any gain will be taxable as capital gain. As holding period was greater than 1 year, therefore taxable
gain of Rs.50,000 will be reduced by 75% to Rs.37,500.
Question – 3:
a-
1 Point each for correct answer
1. Mr. Ahmed stay in Pakistan is (31+31+30+31+15) 138 days in Tax year 2020. His stay in Pakistan is less than
183 days but more than 120 days so we have to see his stay in Pakistan in Last four tax years. His stay in
Pakistan in 2019 is 125 days, in 2018 is 130 days, in 2017 is 175 days and in 2016 is 365 days and total is
more than 365 in last year so he will considered as resident.
2. Hydelberg Pvt. Limited in incorporated in Pakistan so will remain always resident.
3. Mr. Ahmed is not Govt employee so we have see his number of days stay in Pakistan during tax year. As he
stayed less than 183 days and even less than 120 days in Pakistan so he will non resident in Pakistan in Tax
year 2020.
(b)
Half Mark Each point
(a) a company in which not less than 50% of the shares are held by the Federal Government or Provincial
Government;
(b) a company in which not less than 50% of the shares are held by a foreign Government, or a foreign company
owned by a foreign Government;
(c) a company whose shares were traded on a registered stock exchange in Pakistan at any time in the tax year and
which remained listed on that exchange at the end of that year; or
(d) a unit trust whose units are widely available to the public and any other trust as defined in the Trusts Act, 1882 (II
of 1882);
Question – 4:
(a) Prize won on game show shall be considered as Income from Other sources and shall be
classified under Final Tax Regime. Since, the prize has FMV of Rs 4.0 Million, hence, tax shall
be charged on Rs 4.0 Million and shall be considered as full and final discharge of tax liability.
(b) Any work of art of work of author, which takes more than 24 months to complete, has an option
to either tax entire amount in a single year or divide the amount in 3 equal amounts and charge
one portion in current year and balance in last 2 preceding years.
In this case, Rs 200,000 shall be charged each in tax year 2018, 2019 and 2020.
(c) Loan taken by director of a private company shall be considered as Dividend and shall be
covered under Final Tax Regime. So, this loan obtained by director of the private company shall
be taxed @ 15% and it shall be withheld on amount of loan (30% in case of non-filer).
However, if such amount would be adjusted against any future dividend, then that dividend
shall not be treated as dividend.
(d) Gift received from people other than relatives (parents, spouse) shall be considered as Income
from Other Sources from Tax Year 2020. So the FMV of the car received as gift shall be
considered as Income from other sources.
(e) After tax profit remitted outside Pakistan by a branch of foreign company shall be considered as
dividend, however, if such branch in involved in extraction and production of petroleum
products, then it shall be outside the purview of dividend. In this case, the operation of branch
is directly related to extraction of petroleum products in Pakistan, hence no taxation of dividend
shall be applied on such payment made to branch’s head office, located in China.
Question-6:
Mr. Fahad
Tax Year
2020
Calculation of Taxable Income and Tax Liability
Total Exempt Taxable Notes

Income from salary
From SML
Basic salary for five months 2,500,000 2,500,000 N-1
Pension for eight months 400,000 400,000 N-2

Golden handshake payment N-3
Gratuity 6,000,000 6,000,000 N-4
Employee share scheme 210,000 210,000 N-5
Total Taxable Income 9,110,000 - 9,110,000
Tax Liability Rs.

A- Liability
11,065,000 = 1,345,000 + (9,110,000-8000,000) *25% 1,622,500
B- Tax on golden handshake payment = 7,000,000@12% = 840,000
Hence, total tax liability for Mr. Fahad for tax year 2020 is 2,462,500
Explanatory Notes
Note (1) As the salary of each month is transferred to each employee’s bank account
on the first working day of the following month, the monthly remuneration for June
2019 had been received by Fahad (F) in July 2019 and is therefore chargeable to tax
in the tax year 2020.
Therefore, the basic salary has been calculated for five months (June 2019 to
October 2019).
Rupee
s Medical allowance received for five months (Rs. 75,000 x 5)
375,00
0 Exempt from tax – 10% of basic salary for five months
(250,0
00)
––––––––
Chargeable to tax 125,000
Note (2) A citizen of Pakistan receiving a pension from a former employer is exempt
from tax unless the individual continues to work for the same employer or an
associate
of the employer. As F, after retiring from SML, took up employment
with MCL, an associate of SML, the pension of Rs. 50,000 per month
for the months of November 2019 to June 2020 is chargeable to tax as
the salary income of F.
Note (3) The Rs. 7,000,000 received as a golden handshake payment

under the SML voluntary retirement scheme is treated as a profit in lieu of
or in addition to salary and is chargeable to tax as salary income. F
elected to have the Rs. 7,000,000 taxed at the average rate of tax for the
preceding three tax years. As the notice of election was furnished by F to
the Commissioner before 30 September 2020 (the due date for furnishing
his return of income for the tax year 2020), the tax on the Rs. 7,000,000 is
calculated separately at 12%, being the average rate of tax of F for the
preceding three years.
Note (4) The Rs. 6,000,000 due to F for the gratuity from SML, even
though paid to him by MCL, an associate of SML, is F’s income from
employment. As SML’s gratuity scheme was not approved by the Federal
Board of Revenue, the amount of the gratuity exempt from tax should
have been 50% of the amount received or Rs. 75,000 whichever is the
least.
However, since the payment of the gratuity was received by F outside
Pakistan, the above exemption is not available. The entire amount of
Rs. 6,000,000 is therefore chargeable to tax.
Note (5)
Tax Amounts totally exempt:

On sale of right 48000
On acquisition of shares ($15-$10) * 300 * 108 162,000
210,000
Amounts totally exempt:

Note (1) If a citizen of Pakistan leaves Pakistan during a tax year and
remains abroad during that tax year, any salary income earned by the
individual outside Pakistan is exempt from tax. As F is a resident in the tax
year 2020, the salary of Rs. 4,800,000 (Rs. 1,600,000 per month for three
months) earned by him in Saudi Arabia as an employee of MCL would
normally be chargeable to tax in the tax year 2020. However, since F left
Pakistan for Saudi Arabia on 1 April 2020 (tax year 2020) and remained
abroad till the end of the tax year 2020, the Rs. 4,800,000 is exempt from
tax.
Note (2) As the SML Employees Provident Fund is recognized by the Commissioner,
the accumulated amount of Rs. 9,000,000 received by F is exempt from tax.

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The Professionals’ Academy of Commerce

CAF Mid-Term Examination (Autumn-2020)

Introduction to Accounting (CAF-01)

Equipment – At cost 18,900,130

payments are made through cheque.

cheque and balance is payable in two months.

in cash and balance is payable in 7 equal installments.

he was able to receive bargain discount of 5% of list price.

2% discount if payment is made in 10 days.

31/1 Cash of Rs. 20,000 donated to PM Corona Relief Fund.

working 2 depreciation expense

3,100,000*[(1-0.2599* 6/12) * (1-

WDV till date of

Acc. Dep 1,536,172

c/f 6,665,240 0.5

Provision for doubtful debts a/c

particulars amount particulars amount

Bad debts expense a/c

Particulars amount particulars amount

883,220 883,220 0.5

Working-1 calculation of G.P

Working-3 Opening balance 1

Indus Traders Marking

Motor Vehicle 500,000

1 Security Deposit 100,000

Rent 10,000 0.50

Equipment Payable 30,000

Cash 10,000 0.50

Sigma Interior Payable 70,000

5 Purchases (500,000 - (500,000 x 5%) 475,000

Pak Enterprises Payable 475,000 0.50

Cash 30,000 0.50

Cash 10,000 0.50

Bank Loan 200,000 0.50

Purchases 10,000 0.50

Rental Income 15,000 0.25

Sales 150,000 0.50

Capital 50,000 0.25

31 Sigma furniture Payable 10,000

Bank 10,000 0.50

Cash 20,000 0.50

Purchases 50,000 0.50

31 Balance c/d (10,000)

Introduction to Accounting (CAF-01)

Balance as per cash book 6,000

Balance as per bank statement 5,500

Uncredited cheques 800

a. Rs. 300 b. Rs. 1,300

c. Rs. 12,300 d. Rs. 10,700

a. Bank forgets to record a transaction.

d. Cheque received from a customer but dishonored subsequently.

7- Unfavorable balance is:

(i) Debit balance in cashbook

(ii) Credit balance in cashbook

(iii) Debit balance in bank statement

(iv) Credit balance in bank statement

a. (i) and (iii) b. (i) and (iv)

c. (ii) and (iii) d. (iii) only

a. Unpresented cheques of Rs. 4,000 and uncredited cheques of Rs. 2,500.

b. Unpresented cheques of Rs. 700 and uncredited cheques of Rs. 800.

3,100,000[(1-0.2599 6/12) * (1-