The Professionals’ Academy Of Commerce

Pakistan’s Leading Accountancy Institute

Certificate in Accounting and Finance Stage Examinations

Mid-Term Examination Autumn-2022 June 08, 2022
Teacher: MAH & SS (Additional reading time - 15 minutes) 100 marks – 3 hours

Financial Accounting and Reporting-I

Section A
Q.1 The following information relates to Hamza & Co., a retailer of television sets for the month of December
2010:
Date Transaction Rs. 000
1 Started business with a capital:
(i) in cash 870
(ii) at bank 1,330
3 Bought television sets from Amin & Co., on credit. 2,200
3 Paid to Fast Motors for purchase of delivery van through cheque. 540
4 Televisions sold to Ahmed Brothers on credit. 1,880
8 Paid shop's rent in advance for six months to June 2011 to Mrs. Ali 680
through cheque.
11 Payment received from Ahmed Brothers and deposited in the bank. 1,340
12 Paid cheque to Amin & Co. 784
18 Paid carriage by cash on purchases. 38
Required:
Prepare journal entries of the above transactions. (08)

Q.2 Due to low demand during Covid – 19 pandemic operating capacity of plant of Indus Electronics Limited
(IEL) had considerably reduced. The accountant considers that company will need to recognize an
impairment loss. The accountant has ascertained the following information at 30th June 2022:

 Plant was acquired at a price of Rs. 5 million as on 1st January 2016. An installation and assembly cost
of Rs. 0.5 million was incurred and plant became operational on 1st April 2015.
 Plant was depreciated by using reducing balance method @ 15% pa
 An equivalent new plant would cost Rs. 7.5 million.
 The plant could be sold in its current condition for a gross amount of Rs. 1.8 million. Transportation
and disposal costs would amount to Rs. 250,000.
 In its current condition, the plant would operate for four more years which will generate following cash
flows:

Years Cash inflows Cash outflow

Rs. Rs.
Year 1 1,200,000 (500,000)
Year 2 750,000 (350,000)
Year 3 500,000 (200,000)
Year 4 500,000 (250,000)
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 At the end of year 4 plant could be sold at Rs. 800,000. Disposal cost would be Rs. 100,000.
 Post – tax and pre – tax discount rates are 10% and 12.5% per annum respectively.
 IEL’s net profit is subject to income tax of 25%.
Required:
Compute the amount of impairment loss (if any) associated with the above plant at 30th June, 2022. (08)

Q.3 a. On 1 January Year 2021 X Limited received a cash grant of Rs. 500,000 towards the cost of employing an
environmental impact analyst on a new project for a 5 year period.
The grant is repayable in full if the project is not completed.
The analyst was employed and the project commenced from the 1 January Year 2021.
On 1 January Year 2023 the project was abandoned and the grant became repayable in full.
Required:
Pass accounting entries for 2021,2022 and 2023. (04)
b. Discuss how the following should be dealt with in the financial statements of relevant entities according to
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance: (04)
(a) The government makes a grant to an entity which is planning to develop teaching software for children
with learning difficulties. The purpose of the grant is to help the entity to meet its general financing
requirement in the initial phase. There are no further conditions attached to the grant.
(b) A manufacturing entity sets up a plant in an area of high unemployment. A government grant of Rs. 4
million is received with a condition that the grant is repayable in full if the number of its employees fell
below 100 at any time during the next four years. It is highly probable that the entity will comply with
the condition attached to the grant.
(c) Free technical advice has been provided by the government’s export promotion department to help an
exporter to market his new technology in North America.

Q.4
1. Which two of the following properties fall under the definition of investment property and therefore
within the scope of IAS – 40? (01)
(a) Property occupied by an employee paying market rent
(b) A building owned by an entity and leased out under an operating lease.
(c) Property being constructed on behalf of third party
(d) Land held for long term appreciation.

2. An investment property with useful life of 20 years was purchased by ABC Limited on 1st January
2022 for Rs. 400,000. By 31st December, 2022 the fair value of the property had risen to Rs. 500,000.
ABC Limited measures its investment properties under fair value model. What values would go
through the statement of profit or loss in the year?
Gain Rs.________________ Depreciation Rs. _______________ (01)

3. Under IAS 40 ‘Investment property’, which of the following disclosures is NOT required to be made
under cost model? (01)
(a) Fair value of the property
(b) Depreciation method
(c) Reconciliation of carrying amounts at the beginning and end of a period
(d) Residual value of the property
4. What is the treatment of decrease in depreciation after revaluation loss:
(a) It may be transferred from revaluation surplus to income statement.
(b) It may be transferred from revaluation surplus to retained earnings.
(c) It may be transferred from retained earnings to revaluation surplus.
(d) None of the above. (01)
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5. Marhaba Textile was depreciating its plant of Rs. 10 million (with residual value of 5% of cost) by
15% reducing balance method. At the end of year 3 it changed its depreciation method to 10% straight
line method (residual value remained same). What will be the depreciation charge for year 3:
(a) Rs. 1,083,750
(b) Rs. 686,375
(c) Rs. 672,500
(d) Rs. 650,200 (01)
6. What is the impact of bonus dividend to shareholders on the statement of changes in equity?
(a) It increases the retained earnings balance
(b) It increases the share premium balance
(c) It decreases the retained earnings balance
(d) It decreases the share capital balance (01)

7. Which of the following element is not considered while computing value in use?
(a) Estimated future improvement cost
(b) Expectations about possible variations in the amount or timing of those future cash flows
(c) The time value of money, represented by the current market risk – free rate of interest
(d) The price for bearing the uncertainty inherent in the asset. (01)

8. A plant has a carrying amount of Rs. 1,500,000 as at 31 December 2019. Its fair value is Rs. 900,000
and costs of disposal are estimated at Rs. 50,000. A new plant would cost Rs. 2,500,000. Cash flows
from the plant for the next four years are estimated at Rs. 350,000 per annum. Applicable discount rate
is 10%.
What is the approximate impairment loss on the plant to be recognized in the financial statements as at
31 December 2019?
(a) Rs. 650,000
(b) Rs. 390,000
(c) Rs. 1,000,000
(d) Nil (01)

Section B
Q.5 The following information is relevant to Sino-Pharm Limited("SPL")
 Buildings are subsequent measured @ cost model and Plant & machinery are measured @ revaluation
model
 Buildings are depreciated @ 10 % reducing balance method and plant & machinery are depreciated @
straight line method with zero Residual value and life of 20 years
 SPL follow net replacement method to account for revaluation
 SPL transfers maximum possible amount to retained earnings from revaluation surplus on account of
incremental depreciation.
 Plant & machinery and Buildings were purchased on 1st January 2018 for Rs. 1,840 and 250
respectively.
 The revalued amount of Plant & machinery was determined by Ajmal Limited an independent valuer
on 1st January 2019 & 1st January 2020 for Rs. 1,835 and 1,522 respectively
 Building costing Rs.94 was bought on 1st November 2019
 80% of buildings bought on 1st January 2018 was sold on 31st August 2020 at Rs.75 through auction
sale to Mr.Saleem
Required
Prepare Notes to Financial Statements on Property ,Plant & equipment (including Comparative figures) for
the year ended Dec 31 2020. (20)
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Q.6 Alpha & Co. charges depreciation on its plant and machinery using reducing balance method @ 15 %
per annum. On 1st July 2021 , it has the following balances :
Rs.
Plant & Machinery – At Cost 7,318,400
Plant & Machinery – Accumulated Depreciation 2,985,900
The following transactions occurred during the years starting from 1st july 2021 to June 30 ,2022
 On 18th August 2021 , Plant & Machinery – T was purchased for Rs.394,000 in cash and non –
refundable taxes on Rs.86,000 were also paid in cash on the same date.
 On 18th January 2022, Plant & Machinery – A was purchased for Rs. 750,000 in cash and
installation cost of Rs.50,000 was also paid on the same date.
 Plant & Machinery- B having cost of Rs.120,000 as on 1st June 2022 was damaged due to fire. It
was bought on 1st April 2020. Rs.20,000 insurance claim was admitted by insurance company
 On 1st June 2022, P & M – Z was given as bonus to staff on outstanding performance .It was
purchased on 1st May 2020 for Rs.378,000 and import tax on Rs.22,000 was also paid at that
time
 On 30th June 2022 , Plant & Machinery – T was sold for Rs.300,000 in cash.
 Depreciation on fixed assets is charged from the month of addition to the month prior to disposal.
 Depreciation for the year 2022 has not yet been calculated.
Required:
Prepare the following ledgers for the year ended 30th June 2022
a) Plant & Machinery – At Cost
b) Accumulated Depreciation – Plant & Machinery
c) Disposal (20)

Q.7 a. List down any four internal and four external indicators showing existence of impairment of assets? (08)

b. A company receives a cash grant of Rs. 30,000 on 31 December 2020. The grant is towards the cost of
training young apprentices, and the training programme is expected to last for 18 months from 1 January Year
2021. Actual costs of the training were Rs. 50,000 in Year 2021 and Rs. 25,000 in Year 2022. The company’s
policy is to record grant as separate income.
Required:
a) Explain briefly how the grant would be accounted for. (04)
b) Prepare extracts of SOCI and SOFP for 2020, 2021, 2022. (04)

Q.8 Zawiyar Ltd (ZL) owns following 2 properties:

Property A
An office building used by ZL for selling department had a depreciated historical cost of Rs. 4.5 Million as
at 1 July, 2021. It had a remaining life of 20 years as at that date. On January 1, 2022 the property was let
to a 3rd party and reclassified as an investment property applying ZL’s policy of the fair value model. An
independent valuer assessed the property to have a fair value of Rs. 5 Million at January 1, 2022 which has
risen to Rs. 5.5 Million at June 30, 2022.
Property B
Property B was purchased 5 years ago for Rs. 9 million with the intention of renting it out. On 30 June
2022, the tenant vacated the building and it was decided to sell it in the ordinary course of the business. Its
fair values on 30 June 2021 and 30 June 2022 were Rs. 10 million and Rs. 9 million respectively.
Required:
Prepare the Journal entries for the year ended 30 June 2022 and relevant extracts from Statement of
Financial Position and Statement of Comprehensive Income for the year then ended. (12)
(The End)