ADVANCED ACCOUNITNG & FINANCIAL REPORTING

Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

A.1 Elephant Limited

Notes to the financial statement
For the year ended 31 December 2017

Taxation Rs. in million

Current tax (W-1) 22.12
Deferred tax 8.45
30.57

Reconciliation between tax expense and accounting

Rs. in million Alternate
profit
Accounting profit 103
Tax at applicable rate / applicable tax rate 30.90 30.00%
Donations not allowable (12 × 30%) 3.60 3.50%
Exempt grant (10 × 30%) (3.00) (2.91%)
Low rate on dividend (4 × 20%) (0.80) (0.78%)
Share scheme expense not allowed
[4.5 – 3.25{(150-20)×5,000×10}÷2] × 30% 0.37 0.36%
Effect of decrease in tax rate on opening deferred tax
liability [(3.5/0.35) × (0.35 – 0.3)] (0.50) (0.49%)
Tax expense / Average effective tax rate 30.57 29.68%

Movement in deferred tax liability/asset

Recognised in
Opening Closing
Equity OCI P&L (Bal.)
----------------------------------- Rs. in million -----------------------------------
Arising in respect of:
PPE 33.25 18.00 (10.75) 40.50
(60×30%) (95–20+60)×30%
Unused tax losses (29.75) 29.75 -
Unpaid expense - (9.00) (9.00)
(30×30%)
Share scheme - (0.98) (0.98)
[(150–20)×5,000×10]/ 2×30%
TFCs 2.73 (0.57) 2.16
[9.11(150–140.89)×30%] [150- (140.89+1.91)]×30%
OR (9.11-1.91)×30%
3.50 2.73 18.00 8.45 32.68

W-1: Computation of current tax Rs. in million

Accounting profit 103.00
Donations not allowable 12.00
Unpaid expenses allowable upon payment 30.00
Exempt government grant (10.00)
Dividend income taxable at lower rate (4.00)
Excess accounting depreciation 20.00
Shares scheme allowable on exercise (180 × 5,000 × 10) / 2 4.50
Finance cost on TFC (140.89 (W-2) × 12%) 16.91
Interest payment (150×10%) (15.00)
Taxable income 157.41
Unused tax losses (85.00)
72.41
Tax @ 30% 21.72
Tax @ 10% on dividend 0.40
Current tax 22.12

W-2: Computation of liability component Rs. in million

PV of interest amount (15 × 3.0373) 45.56
PV of principal (150 × 0.6355) 95.33
Liability component 140.89

Page 1 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

A.2 Ant Limited

Consolidated Statement of Financial Position
As on 31 December 2017

Assets: Rs. in million

Property, plant and equipment [3,510+2,835+ 2,200– (20 – 6(W-1))] 8,531.00
Goodwill [175 (W-2) + 108 (W-4)] 283.00
Investment property (130 + 45 + 5(W-1)+ 8(W-1)) 188.00
Current assets (2,120 + 1,420 + 2,800) 6,340.00
Total Assets 15,342.00

Equity and liabilities

Share capital 5,500.00
Group reserves (W-5) 2,476.75
NCI (W-7) 2,631.25
Gratuity [25 + 8 (W-9)] 33.00
Current liabilities (1,775 + 1,386+ 1,500+ 40(W-3)) 4,701.00
Total equity and liabilities 15,342.00

W-1: Net Assets – BL Acquisition Reporting

1-Apr-17
date date
-------------- Rs. in million --------------
Share capital 4,000.00 4,000.00 4,000.00
Retained earnings 520.00 815.00 1,314.00
Decrease in FV of machine (20.00) (20.00) (20.00)
Depreciation expense (20×10%×2.25), (20×10%×3) - 4.50 6.00
Adjustment for uniform accounting policy [58-45] - - 13.00
4,500.00 4,799.50 5,313.00

Post acquisition profit 299.50 513.50

W-2: Goodwill – BL Rs. in million

Cost 3,100
Net assets (4,500 (W-1) × 65%) (2,925)
175

W-3: Net Assets – FL Acquisition date Reporting date

---------- Rs. in million ----------
Share capital 2,500 2,500
Retained earnings 1,150 1,000
Contingent liability (50) (40)
3,600 3,460
Post-acquisition loss (140)

W-4: Goodwill – FL Rs. in million

Cost (2,400×75%) 1,800
Net assets [3,600 × 45%(60%×75%)] (1,620)
On acquisition 180
Impairment (W-8) (72)
On reporting date 108

Page 2 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

W-5: Group reserves Rs. in million

AL 2,000.00
Post acquisition - BL (Up to Mar 2017) - [(299.5 (W-1) × 65%) 194.68
(Apr to Dec 2017) (513.5 (W-1) × 75%)] 385.12
Post acquisition - FL (140 (W-3) × 45%) (63.00)
Equity adjustment on further holding of 10% (W-6) 39.95
Gratuity expense (W-9) (8.00)
Impairment of goodwill of FL (W-8) (72.00)
2,476.75

W-6: Equity adjustment on further holding of 10% Rs. in million

Net assets acquired (4,799.5 (W-1) × 10%) 479.95
Cost (440.00)
Increase in equity 39.95

W-7: NCI Rs. in million

Acquisition - BL (4,500 × 35%) 1,575.00
Post acquisition (Up to Mar 2017) - BL [(299.5 (W-1) × 35%) 104.82
(Apr to Dec 2017) (513.5 (W-1) × 25%)] 128.38
10% further acquisition (4,799.5 (W-1) × 10%) (479.95)
Acquisition - FL (3,600 × 55%) 1,980.00
Post acquisition - FL (140 (W-3) × 55%) (77.00)
Indirect holding (2,400 × 25%) (600.00)
2,631.25

W-8: Impairment of Goodwill - FL Rs. in million

Grossing up of goodwill (180/0.45) 400
Net assets on 31 December 2017 (W-3) 3,460
3,860
Recoverable amount (3,700)
Notional write off 160
Impairment to be recorded (160 × 45%) 72

W-9: Gratuity scheme Rs. in million

Charge for the year (P&L and OCI)
Current service cost 85
Interest cost (25×12%) 3
Re-measurement gain (10)
78
Already charged to P&L
Contribution paid (70)
Net increase 8

Page 3 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

A.3 Kangaroo Limited

Statement of Financial Position
As on 31 December 2017

Assets Rs. in million

Investment property (W-1) 290.00
Investments (105 + 130) (W-2) 235.00

Liabilities
Unearned rent (0.24 × 8 ÷12 × 110) 17.60

Statement of comprehensive income

For the year ended 31 December 2017

Profit and Loss account Rs. in million

Exchange loss on 20% payment (2.6 × 20% × (105 – 108) (1.56)
Increase in fair value of investment property (W-1) 18.30
Rent income (0.24 × 4÷12 × 110) 8.80
Transaction cost – Investment-A (2.00)
Dividend income (12 + 9) 21.00
Realised gain on investment-A [(23 × 0.98 – (100 × 20%)] 2.54
Unrealised Gain – Investment-A (W-2) 25.00

Other comprehensive income

Unrealized gain- Investment-B (W-2) 22.90
Realised gain on investment-B [(50 × 0.98 – (153 × 0.3)] 3.10

W-1: Investment property Rs. in million

Advance payment (2.6 × 10% × 100) 26.00
Initial recognition (2.6 × 70% × 105) 191.10
(2.6 × 20% × 105) 54.60
Total cost 271.70
Fair value (2.5 × 116) 290.00
Gain (P & L) 18.30

W-2: Investments Investment A Investment B

--------- Rs. in million ---------
Purchase price 100.00 150.00
Transaction cost 3.00
Total cost 100.00 153.00
Cost of shares held at 31 Dec 2017 (100×80%) 80.00 (153×70%)107.10
Fair value - 31 Dec 2017 105.00 130.00
Gain 25.00 22.90

Page 4 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

A.4 Total
Total
Total assets comprehensive
liabilities
income
--------------- Rs. in million ---------------
Given 2,500.00 1,610.00 659.00

(i) Revenue
Revenue to be booked (W-1) 9.00 (40.00) 49.00
Contract cost (W-2.1) 14.77 14.77
23.77 (40.00) 63.77
(ii) Investment in associate
Share of profit during 2017 (W-3) 45.00 45.00
Disposal (W-3) (302.60) (302.60)
(257.60) (257.60)
Revised amounts 2,266.17 1,570.00 465.17

W-1: Revenue to be recognized

Bonus for higher Total revenue to
Revenue to be booked
rating be booked
----------------------- Rs. in million -----------------------
Advertisement (at point of time) [3×6.01(W-2)] 18.03 4.00 22.03
Broadcasting (over the time) [(2.7×9.99(W-2)] 26.97 26.97
49.00

W-2: Allocation of transaction price

Standalone price Contract price Revenue per unit
Proportion
(Rs. in million) (Rs. in million) (Rs. in million)
Advertisement (5×1.3×5)32.5 37.57% 30.06 OR 6.01
Broadcasting (9×1.2×5)54.0 62.43% 49.94 9.99
86.5 100% 80.00

W-2.1: Contract cost

Advertisement Broadcasting Total
------------------------------ Rs. in million ------------------------------
Total 18.20 35.60 53.80
Charged to P & L (15.10) (23.93) (39.03)
(8.5+9.2)+(8.9×0.7)
3.1 11.67 14.77
[9+(8.9×0.3)]

W-3: Disposal of associate Rs. in million

Disposal proceeds 290.00
FV of investment retained (0.8 × 128) 102.40
392.40
Carrying amount as at 31 December 2017 (W-4) (405.00)
Loss on disposal of associates 12.60
Gain already recorded to be reversed 290.00
302.60

W-4: Carrying amount of associate Rs. in million

Cost (3 × 200) 600.00
Share of loss till 31 December 2016 [(1200 – 1700 ) × 30%] (150.00)
Impairment (90.00)
Carrying amount as at 31 December 2016 360.00
Share of profit for 2017 [(1350 – 1200) × 30%] 45.00
Carrying amount as at 31 December 2017 405.00

Page 5 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

A.5 Leopard Income Fund

Statement of movement in Unit Holders’ Fund
For the year ended 30 June 20X8
Capital Undistributed
Total
value income
----------------- Rs. in million -----------------
Net assets at beginning of the year 9,648 104 9,752
Issuance of 388 million units:
Capital value 7,372 - 7,372
Element of income 70 - 70
Total proceeds on issuance of units 7,442 - 7,442

Redemption of 441 million units:

Capital value (8,382) (8,382)
Element of loss (14) (50) (64)
Total payment of redemption of units (8,396) (50) (8,446)

Total comprehensive income for the year - 214 214

Distribution during the year - (150) (150)
Net assets at end of the year 8,694 118 8,812

Undistributed income brought forward

Realized income 97
Unrealized income 7
104
Accounting income available for distribution
Relating to capital gain 3
Excluding capital gain 161
164
Distribution during the year (150)
Undistributed income carried forward 118

Undistributed income carried forward

Realized income 122
Unrealized loss (4)
118

A.6 (i) Since ZL has granted the supplier the right to choose whether the share-based
transaction is settled in cash or by issuing equity instruments, the entity has granted a
compound financial instrument.

Since the fair value of land is available so the Land will be recorded at
Rs. 230 million and corresponding effect will be taken to liability to the extent of Rs.
210 million (fair value of the debt component on 1 October 2017 i.e. 7,000 shares ×
3,000 per share) and remaining Rs. 20 million to the equity.

On 31 December 2017 the liability will be remeasured in accordance with the

prevailing fair value of HL’s share to Rs. 203 million (i.e. 7,000 × 2,900) and the
resulting decrease of Rs. 7 million will be credited to Profit and loss account.

(ii) Since a part of the payment for the license has been deferred beyond normal credit
terms so the license will be initially recognised at cash price equivalent of Rs. 80
million i.e. Rs. 50 million plus Rs. 30 million (i.e. present value of Rs. 36.3 million
discounted at 10% for 2 years.)
Page 6 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

The advertisement cost of Rs. 10 million incurred on launching of the channel cannot
be included in the cost of the license and will be charged to Profit and loss account.

Since the renewal cost is significant so the useful life of the license will be restricted to
the original 5 years only.

The residual value of the license will be assumed to be zero since there is no active
market for the license and there is no commitment by 3rd party to purchase the license
at the end of useful life.

The amortization for the year will be Rs. 12 million [(80 – 0) × 1/5 ×9/12] calculated
from 1 April 2017 when the license was available for use:

Unwinding of interest expense of Rs. 2.25 million (30 × 10% × 9/12) shall be recorded
with increasing the liability of payable for license with same amount.

A.7 (a) Tiger Limited

EPS for quarter ended 31 December 2017

Numerator Denominator EPS Effect

Rs. in million Shares in million Rs. / share
Basic EPS 140.00 24.80 (W-1) 5.65
Warrant - - No effect
140.00 24.80 5.65
Bonds 8.05 1.60 5.03
(W-3) 0.8(2.4 ×1/3)+0.8(1.2×2/3)
OR 1.2+0.4(1.2÷3)
148.05 26.4 5.61 Dilutive

Rs. per share

Basic EPS 5.65
Diluted EPS 5.61

(b) EPS for half year ended 31 December 2017

Numerator Denominator EPS Effect
Rs. in million Shares in million Rs. / share
Basic EPS 239.00 23.73 (W-2) 10.07
Warrant - 0.333
[6 (340÷360×6)]
239.00 24.06 9.93 Dilutive
Bonds 20.02 2.00 10.01
(W-3) 1.6(2.4 ×4/6)+0.4(1.2×2/6)
OR 1.2+0.8(1.2×4÷6)
259.02 26.067 9.94 Anti-dilutive

Rs. per share

Basic EPS 10.07
Diluted EPS 9.93

W-1: Weighted average shares for quarter ended 31 December 2017

Date Shares Period Total Alternate
1-Oct (20+4) 24.0 1÷3 8.00 24
1-Nov (0.8×3×50%) 1.20 0.8
25.2 2÷3 16.80 (1.2×2÷3)
24.80 24.80

Page 7 of 8
 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2018

W-2: Weighted average shares for half year ended 31 December 2017
Date Shares Period Total Alternate
1-Jul 20 1÷6 3.33 20.00
1-Aug 4 3.33
24 3÷6 12.00 (4×5÷6)
1-Nov 1.20 0.4
25.20 2÷6 8.40 (1.2×2÷6)
23.73 23.73

W-3: Interest on Bonds for half year (net of tax):

First quarter Rs. in million
July to Sep [(760×(9%×3/12×70%) ] 11.97
Second quarter
Oct [(760×(9%×1/12×70%)] 3.99
Nov to Dec [386.20(W-4)×(9%×2/12×70%) 4.06
8.05
20.02

W-4: Carrying value of bonds after conversion Rs. in million

Initial recognition 760.00
Interest for the year (760×9%) 68.40
Interest paid (800×7%) (56.00)
772.40
Conversion (772.40×50%) (386.20)
386.20

(The End)

Page 8 of 8