A.

(a)

FINANCIAL ACCOUNTING Suggested Answers Intermediate Examinations Spring 2011

Earth, Jupiter and Mars Realization Account 90.00 17.00 15.00 62.00 70.00 48.00 10.00

Machine and equipment Vehicles Furniture Stocks in trade Trade Debtors Short term investments Earth (Other liabilities) Profit transferred to: Earth (5/12) Jupiter (4/12) Mars (3/12)

Trade creditors Other payable Jupiter (Machines) Bank overdraft UL - Purchase consideration (W-1)

Rs. in million
45.00 12.00 23.00 6.00 267.00

(b)

Partners capital accounts

17.08 13.67 10.25 353.00

Balance as on January 1, 2011 Other liabilities paid Machine acquired Realization gain in P&L sharing ratio (5:4:3)

Earth

Debentures issued Share distribution in the final capital balance proportion Balance settled in cash (Balancing) Shareholder Equity Share capital (160+20) 12% debentures 11% preference shares

Universe Limited Statement of Financial Position as on January 1, 2011 180 220 40 60 45 33 78

(103.04) (24.04)

Jupiter Rs. in million 100.00 79.00 10.00 (23.00) 17.08 13.67 127.08 69.67 (60.00) (9.67)

Mars

353.00 60.00 10.25 70.25

(56.96) (13.29)

Current Liabilities Trade creditors Bank overdraft (6-20+47)

Non Current Assets Freehold premises Machine and equipment (9025) Vehicles Furniture Current Assets Stocks in trade Trade debtors Short term investments Goodwill

Rs. in million
17 15 137 50 40 65

358

60 63 48 171 358

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FINANCIAL ACCOUNTING Suggested Answers Intermediate Examinations Spring 2011

W-1: Purchase consideration Assets and liabilities taken over Goodwill Equipment (90-25) Vehicles Furniture Stocks in trade Trade debtors Short term investments Bank overdraft Trade creditors Rs. in million 50 65 17 15 60 63 48 (6) (45) 267 Rs. in million 758 702 354 1,814 5,286 1,750 70 876 2,696 240 3,472

A.2

(a)

Moonlight Pakistan Limited Statement of Financial Position As at December 31, 2010 Current Assets Stocks in trade Trade receivables Cash and bank

ASSETS Non-Current Assets Property, plant and equipment (W-2)

EQUITY Issued, subscribed and paid-up capital (W-3) Share premium (420 x 2/12) Retained earnings (W-3) Surplus on revaluation of fixed assets LIABILITIES Non-current liabilities Long term loan Deferred tax (22 + 80 x 35%) Provision for gratuity

Current liabilities Creditor and other liabilities (544 + 96) Income tax payable

1,600 50 23 1,673

640 37 677 5,286

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(b)

Moonlight Pakistan Limited Income Statement For the year ended December 31, 2010 Sales Cost of sales (W-1) Gross profit

FINANCIAL ACCOUNTING Suggested Answers Intermediate Examinations Spring 2011

Selling expenses (W-1) Administrative expenses (W-1)

Rs. in million 3,608 (2,149) 1,459 252 270 522 937 306 631 65 566

W1: Cost of sales/selling expenses/admin expenses As per trial balance Depreciation building (60% : 25% : 15%) (W-2) Depreciation plant Provision for gratuity (23-8) x 60%:20%:20% W2: Property, plant and equipment Cost as at January 1, 2010 Accumulated depreciation Revaluation (1,840 - (2,000 - 400 )) Current year depreciation As per trial balance Bonus issue (1200 6) Right issue (420 x 10/12) Profit for the year Land

Financial charges (210 + 1,600 x 12% x 6/12) Profit before taxation Taxation (37 + 80 x 35%) Profit after taxation

Cost of sales

W-3: Share Capital/Retained Earnings

Building Plant Total ------------------- Rs. in million ----------------600 2,000 2,104 4,704 (400) (670) (1,070) 240 240 (115) (287) (402) 600

1,784 69 287 9 2,149

Selling expenses Rs. in million 220 29 3 252

Admin. expenses 250 17 3 270

(1,840 16)
1,725

Share Capital 1,200 200 350 1,750

1,147

Retained Earnings 510 (200) 566 876

3,472

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A.3

FINANCIAL ACCOUNTING Suggested Answers Intermediate Examinations Spring 2011

28 : TAXATION Current - for the year (W 1) Deferred (W 2)

2010

28.1 : Relationship between tax expense and accounting profit Profit/(Loss) before taxation Tax at the applicable rate of 35% Tax effect of exempt income (1.25 x 35%) W-1 : Computation of Current Tax (Loss) / profit before tax as per books Accounting depreciation Provision for gratuity Accrued expenses

Add: Allowable income / Disallowed expenses

8.23 (0.44) 7.79 15.00 2.20 23.50

23.50

2009 Rs. in million 0.84 6.95 (0.96) 7.79 (0.96) (0.61) (0.35) (0.96) (1.75) 15.00 1.70 2.00 (1.75)

Tax depreciation Interest income from SIBs (Exempt) Accrued expenses Taxable income / (loss) Tax liability (@ 35% Tax loss to be brought forward (29.05 x 35%) Tax payable

Less: Disallowed income / Allowable expenses

W -2: Computation of Deferred Tax Timing differences (cumulative) on account of: Depreciation (2010: 30-51, 2009: 15-45) Accrued expenses Provision for gratuity Tax losses Deferred tax @ 35% Add: Opening deferred tax (dr.) Charge/(Reversal) for the year Date

(6.00) (1.25) (2.00) 31.45 11.01 (10.17) 0.84 21.00 (3.90) 17.10

(29.05) 30.00 (2.00) (1.70 ) (29.05) (2.75) (0.96) (0.96)

(45.00) (1.00)

A.4

(a) (b)

Cash / bank / Receivable Franchise fee receivable Deferred financial income on installment plan (W-1) Revenue from Franchise Fees (W-1) Unearned Franchise Fees discount in setup (W-1) Unearned franchise fees advertising (W-1) Cash / bank / Receivable Revenue from Franchise Fees

Particulars

Rupees 1,800,000 7,200,000 1,800,000

5.99 0.96 6.95 Dr.

1,499,820 6,720,180 240,000 540,000 1,800,000

Cr.

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FINANCIAL ACCOUNTING Suggested Answers Intermediate Examinations Spring 2011

W-1: Total franchise fees Deferred financial income on installment plan Less: (9,000,000 - 7,500,180) Discount on setup (Rs. 1,200,000 x 20%) Advertising (9,000 60) Star-Bright Pharmaceutical Limited Statement of financial position As at December 31, 2010 Shareholders equity Retained earnings
(W-5 and 6)

A.5

Revenue to be recognized

(1,499,820) (240,000) (540,000) (2,279,820) 6,720,180

9,000,000

2010

Star-Bright Pharmaceutical Limited Statement of Financial Position As at December 31, 2010 8- Intangible assets Brand

2,071

Rs. in million

Restated

2009

1,879

Non-current assets Intangible asset brand [Note 8]

2010

2009 Restated Rs. in million 274

285

Cost

At beginning of the year (2010: 382+24+54+38, 2009: 382+ 24+54) Capitalized during the year

Rs. in million 2009 2010 (Restated) 498 43 541

Amortization

A.6

(i)

W-1 : 382 x 50% + 24 x 30% + 54 x 20% + 38 x 10% = 213 W-2 : 382 x 40% + 24 x 20% + 54 x 10% = 163 W-3 : 541 x 10% = 54 W-4 : 498 x 10% = 50 W-5 : 1,950 + 24 + 54 + 38 + 43 [267 (382 x 60%)] = 2,071 W-6 : 1,785 + 24 + 54 + 38 [213 (382 x 50%)] = 1,879

At beginning of the year (W-1 and 2) During the year (W-3 and 4)

*3

(213) (54) (267) 274

*4

(163) (50) (213) 285

460 38 498

Although the debt owing by the customer existed at reporting date, the inability of the customer to pay did not exist at reporting date. This condition only arose in January 2011 after the fire. Thus, this is a non adjusting event. However, if it is material for the financial statements, the following disclosure should be made. Nature of the event An estimate of its financial effect

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FINANCIAL ACCOUNTING Suggested Answers Intermediate Examinations Spring 2011

(ii) Amount withdrawn before year end i.e. Rs. 1.5 million is an adjusting event as it existed at year end but discovered after year end. However, since 60% has been recovered subsequently, Rs. 0.6 million would be provided. Further withdrawal of Rs. 6.0 million is a non-adjusting event as it occurred after year end. However, if considered material following disclosures should be made: Nature of the event The gross amount of contingency The amount recovered subsequently

(iii) SL should not recognize the contingent gain until it is realized. However, if recovery of damages is probable and material to the financial statements, SL should disclose the following facts in the financial statements: (iv) SL should make a provision of the expected amount i.e. Rs. 1.2 million (Rs. 1.0 million x 60% + Rs. 1.5 million x 40%) because it is a present obligation as a result of past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations; and a reliable estimate can be made of the amount. Brief nature of the contingent liability The amount of contingency An indication of the uncertainties relating to the amount or timing of any outflow. Brief description of the nature of the contingent asset An estimate of the financial effect.

In addition, SL should disclose the following in the notes to the financial statements:

(THE END)

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