A.

Parent Limited Consolidated Statement of Financial Position As at December 31, 2009 Assets Non-current assets Property, plant and equipment Goodwill Current assets Stock in trade Trade and other receivables (25+5+8/2) Cash and bank (3+1+2/2)

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010

Rs. in million W1 W2 199.0 11.0 210.0 43.2 34.0 5.0 82.2 292.2 50.0 94.2 144.2 7.0 87.0 54.0 292.2

W5

Equity and Liabilities Ordinary share capital Retained earnings {(78-49)+(28-18)/2)+60.2} Non-controlling interest (30*20%)+1) Long term loans (75+12) Trade and other payables (25+18+22/2) Parent Limited Consolidated Statement of Comprehensive Income For the year ended December 31, 2009 Sales {(1,267+276+(654/2)-10-20/2} Cost of sales Gross Profit Selling Expenses (174+68+100/2) Administrative expenses (88+30+57/2)+1 Other income Financial charges (12+4) Net Profit before tax Taxation (26+5+10/2) SL Non Controlling Interest Net Profit after NCI W1: Non-current assets Property, plant and equipment (120+40+74/2) Fair value adj. equipment (15-12) Depreciation on increased value (3/3)

W4

W3

1,850.0 (1,307.3) 542.7 (292.0) (147.5) 10.0 (16.0) 97.2 (36.0) 61.2 (1.0) 60.2 197.0 3.0 (1.0) 199.0

W2: Goodwill SL Capital Pre-acquisition profit (18-8) Pre-acquisition equity Fair value adjustment of equipment (15-12) Fair value adjustment of Inventory (12-10) Adjusted equity PLs share (30*80%) PLs investment in SL at cost Goodwill

15.0 10.0 25.0 3.0 2.0 30.0 24.0 (35.0) 11.0

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010 W3: Non-controlling interest in SLs profit Profit for the year Additional deprecation on increased value of equipment Reversal of profit on pre-acquisition inventory accounted for at pre-acquisition Adjusted profit for the year Non-controlling interest (5*0.2) W4: Cost of sales Cost of sales {928+161+469/2} Inter-company purchase / sale eliminated (10+20/2) Unearned profit on inter-company sale stock in hand (2+4/2)/1.25*0.25 Reversal of profit on pre-acquisition inventory accounted for at pre-acquisition Decrease in closing inventory due to change from Weighted average to FIFO (16-14)/2 8.0 (1.0) (2.0) 5.0 1.0

1,323.5 (20.0) 0.8 2.0 1.0 1,307.3

W5: Stock in trade Stock in trade (20+17+16/2) Unearned profit on inter-company sale stock in hand (2+4/2)/1.25*0.25 Decrease in closing inventory due to change from Weighted average to FIFO (16-14)/2

45.0 (0.8) (1.0) 43.2

A.2

ABC Limited Notes to Consolidated Financial Statements For the year ended March 31, 2010 2010 Rs. in '000 Earnings per share basic Profit after tax and minority interest (15,000-2,000) Dividend paid during the year to ordinary shareholders (Rs. 4,000) 10% Cumulative preference dividend for 2009 (Rs. 2,000) 10% Cumulative preference dividend for 2010 Dividend declared on 12% non cumulative preference shares for 2010 Profit available for distribution to ordinary share holders Weighted average number of ordinary shares Earnings per share - Basic and diluted W1 Rs. 13,000 (2,000) (2,400) 8,600 No. in '000 13,146 0.65

Diluted earnings per share Profit available for distribution to ordinary share holders Effect of dividend declared on 12% non cumulative preference shares convertible into ordinary shares on or before December 31, 2011 Weighted average number of ordinary shares 12% Non cumulative preference shares convertible to ordinary shares on or before December 31, 2011 Weighted average number of ordinary shares - diluted Antidiluted earning per share W1 W2 Rs.

Rs. in '000 8,600 2,400 11,000 13,146 1,771 14,917 0.74

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010 W1: Weighted average ordinary shares outstanding for "Basic EPS" No. of shares in 000 Time lines
01-04-09 to 30-06-09 01-07-09 to 30-09-09 Outstanding on April 1, 2009 Outstanding on July 1, 2009 Opening Conversion of 500,000 12% Cumulative preference shares into ordinary shares at a premium of Rs. 2 per share (500/12*10) Outstanding on Oct.1, 2009 Opening 1,200,000 shares of Rs. 10 each were issued at Rs. 11.5 per share against the market price of 12.5 Actual shares
10,000

Bonus Adjustment factor (W3)

1.008333X1.2

2010 Period (Weighted Adjustment shares)

3/12 3,025

10,000

417

10,417

1.008333X1.2

3/12

3,151

01-10-09 to 31-03-10

10,417

1,200 11,617 1.2 6/12 6,970 13,146

W2: Weighted average ordinary shares resulting from conversion for "Diluted EPS"
Time lines Actual shares
Outstanding on April 01, 2009

2010 Period (Weighted Adjustment shares)

3,025

01-04-09 to 30-06-09

Share converted on July 1, 2009 Shares to be converted (2,400/12%/10)*10/12

417

1667 2084 3/12 9/12 521 1250 1771

01-07-09 to 31-03-10

Outstanding on July 1, 2009

1667

W3: Calculation of bonus adjustment factor No. of shares Bonus element with right issue Outstanding shares before the exercise of rights at fair value Rights issued at a premium of Rs. 1.5 Theoretical ex-right value per share (144,013/11,617) Adjusting factor (Fair value 12.5 / Theoretical ex-right value 12.3967) Bonus issued on January 01, 2010 (20%) Adjusting factor 10,417 1,200 11,617 @ Rs. 12.50 11.50 Rs. Rs. in '000 130,213 13,800 144,013 12.3967 1.00833

1.2

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010 A.3 Auto Construction Limited Notes to the Financial Statements For the year ended December 31, 2009 1. Liabilities against assets subject to finance lease Present value of minimum lease payment W1 Less: Current portion shown under current liabilities W1 Rs. in '000 37,001 (6,572) 30,429

Minimum lease payments Not later than one year W2 Later than one year and not later than five years W2

Future finance cost

PV of lease liability 2009 10,048 26,953 37,001

------ Rs. in '000 -----11,000 952 38,500 49,500 11,547 12,499

The minimum lease payments have been discounted at interest rate of 12.506% per annum to arrive at the present value. 2. Operating lease rental receivable Not later than one year Future minimum lease payment W3 Later than one year and not later than five years ------ Rs. in '000 -----10,250 16,276 Total

26,526

For the construction machinery the company has entered into an operating lease agreement on July 1, 2009 for 3 years at a half yearly rent of Rs. 5 million, payable in advance with 5% annual increase. W1: Finance lease interest and payment schedule Instalment payment date July 1, 2009 (Total lease amount) 31-Dec-2009 (Paid) 30-Jun-2010 31-Dec-2010 Instalment amount 5,500 5,500 5,500 11,000 Finance expense @ 12.506% 2,501 2,314 2,114 4,428 Principal recovery 2,999 3,186 3,386 6,572 Closing balance 40,000 37,001 33,815 30,429

30-Jun-2011 31-Dec-2011 30-Jun-2012 31-Dec-2012 30-Jun-2013 31-Dec-2013 30-Jun-2014 Payable later than one year and not later than five years

5,500 5,500 5,500 5,500 5,500 5,500 5,500 38,500 55,000

1,903 1,678 1,439 1,185 915 627 324 8,071 15,000

3,597 3,822 4,061 4,315 4,585 4,873 5,176 30,429 40,000

26,832 23,010 18,949 14,634 10,049 5,176 0

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010 W2: Present value Due date 30-Jun-2010 31-Dec-2010 Not later than 1 year 31-Dec-2010 30-Jun-2011 31-Dec-2011 30-Jun-2012 31-Dec-2012 30-Jun-2013 31-Dec-2013 Present value at 12.506% 0.9411 0.8858 0.8336 0.7846 0.7384 0.6949 0.6541 0.6156 0.5793 Instalment amount 5,500 5,500 11,000 5,500 5,500 5,500 5,500 5,500 5,500 5,500 38,500 49,500 W3: Operating lease payments Not later than 1 year Later than one year and not later than five years Present value 5,176 4,872 10,048 4,585 4,315 4,061 3,822 3,598 3,386 3,186 26,953 37,001 Financial charges 324 628 952 915 1,185 1,439 1,678 1,902 2,114 2,314 11,547 12,499

Later than 1 year and not later than 5 years

01-Jan-10 01-Jul-10 01-Jan-11 01-Jul-11 01-Jan-12

5,000 5,250 5,250 5,513 5,513

10,250

16,276 26,526

A.4 Secured Bank Limited Notes to the financial statements For the year ended December 31, 2009 2009 2008 Rs. in million 9. INVESTMENTS BY SEGMENTS Federal Government Securities Market treasury bills Pakistan investment bonds Government of Pakistan bonds (USD/Euro) Investments in associated undertakings Fully paid ordinary shares Listed companies Unlisted companies
Bonds, Participation Term Certificates & Term Finance Certificates

366 69 26 9 6 2 19 260 60 32 19 868 9.1 (45) 823

309 61 30 8 5 3 30 210 52 28 29 765 (39) 726

Listed securities Unlisted securities Other Investments Overseas government securities Investments of mutual funds Others

Less: Provisions for Diminution in value of investments Net investments

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010 9.1 Particulars of Provision for Diminution in value of investments Opening balance Charge for the year Impairment / (Reversals) Amounts written off Closing balance A.5 Sun Enterprises Limited Profit and Loss Account For the year ended December 31, 2009 Net sales {133,300-(8,000-8,000*(1/1.12) } Cost of sales Gross profit Operating expenses Financial charges 1,000+193 {5,000*(1/1.10)-10*10%=193} Investment income on present value of note receivable {8,000*(1/1.12)-3*12%} Profit before taxation Taxation: Current Prior Deferred Profit after taxation Basic / Diluted earnings per share (17,864/5,000) W1: Cost of sales Cost of sales prior to adjustments Depreciation on environmental cost capitalised at present value Opening Inventory adjustment (FIFO 9,000 - WA 8,200) Adjusted cost of sales W2: Environmental cost PV of environmental cost capitalised{5,000*(1/1.1)-10} PV of environmental cost depreciated over useful life of the mines (1,928/10) W3: Taxation Profit before tax as per Profit and Loss Account Add backs: Deduction from current years sale of difference of actual and present values of note receivable (133,300-130,994) Interest on present value accounted for in the books (683+193) Increase in cost of sales due to change of inventory valuation method (9,000-8,200) Financial charges on present value of environmental cost allowable on incurrence Accounting depreciation on present value of environmental cost capitalized W2 Current years taxable income exceeds the accounting income as given Deduction of provision for environmental cost from Rs. 3,000 as the provision reversed in the books Taxable income Tax for the year @ 35%
-3

2009 2008 Rs. in million 39 28 17 12 (6) 2 (5) (3) 6 11 45 39

W1

W3 W3

Rs. in '000 130,994 (85,993) 45,001 (16,000) (1,193) 683 28,491 (11,830) (200) 1,403 (10,627) 17,864 Rupees 3.57

W2

85,000 193 800 85,993

1,928 193

28,491

2,306 (683) 800 193 193 3,000 (500) 2,500 33,800 11,830

Payment of last year tax in excess of provision Deferred tax charge/(reversal) Temporary timing differences (2,500 500) Accounting depreciation on environmental cost capitalized allowable in the year of incurrence of cost. Financial charges on present value of environmental cost allowable on incurrence Deferred interest income excluded for tax (2,306-683) Deferred tax credit for the year (4,009*0.35) Total tax for the year (28,491+500+800)*0.35+200

ADVANCED ACCOUNTING & FINANCIAL REPORTING Suggested Answers Final Examinations Summer 2010

200
(Note1)

(2,000) (193) (193) (1,623) (4,009) (1,403) 10,627

Note: it has been assumed that timing differences of Rs. 2.5 million as referred to in the question included provision for environmental cost of Rs. 0.5 million.

A.6 (a) In accordance with the IAS transactions related to the trademark as given in the question should be accounted for as explained below: (i) As the costs and benefits of the trade mark cannot be measured reliably, and it was not even decided at that time to buy the trademark, the cost of Rs. 1 million incurred in 2001 to carry out market survey should have been expensed out in the year 2001. (ii) In 2002, the rights to use the trademark for the companys products have been obtained and costs and benefits of the trademark were measured reliably. Therefore, initially the trademark should have been accounted for as an intangible asset at a cost of Rs. 5 million. At that time the trademark was estimated to have indefinite useful life as there was an expectation that it will contribute to net cash inflows indefinitely. Therefore, the trademark should not have been amortised. However, the trademark should have been tested for impairment and the cost should have been reduced, if required. Trademark fee payable at 1% of annual sales should have been treated as a periodical cost and charged to expense in the year of sales. (b) Comfort Shoes Limited Notes to the Financial Statements For the year ended December 31, 2008 1 Intangible Assets Trademark 2009 2008 Rupees in 000 4,500 5,000 (500) 4,500 4,500 2,250 2,250 2,250 4,500 50% / 2 years -

Cost

Amortization Net book value % / useful life

January 1 For the year - impairment December 31 January 1 For the year December 31 December 31

1.1 The amortisation expense for the year has been allocated to cost of sales. (THE END)