The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Certificate in Accounting and Finance Stage Mock Examinations
August 20, 2022
3 hours – 100 marks
Additional reading time - 15 minutes

Financial Accounting & Reporting II

Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.

Section A
Q.1 Vitara Limited (VL) is a listed company has different product lines, which are listed as under along with other
information.
Product line Revenue Profit /(loss) Assets
Internal External
Rs. (m) Rs. (m) Rs. (m) Rs. (m)
P 330 360 66 4,500
Q 195 390 (45) 2,250
R -- 210 126 1,275
S -- 1,290 48 7,500
T -- 165 (21) 1,890
U -- 255 39 4,200
Total 525 2,670 213 21,615

Required:
Determine the reportable segments as per the requirements of IFRS-08? (07)

Q.2 Oshaan Limited (OL) has following balances as on June 30th 2022 as per statement of financial position

Rs.
Investment in Bonds 69,000
Fair Value Reserve (2,265.59)
OL made such investment on 1st July 2021 for Rs 71,000 at fair value and transaction cost of Rs. 837 was also
paid on purchase of bonds. Investment in bonds is subsequently measured at fair value through other
comprehensive income by OL
Effective rate of interest is 7 % per annum while coupon rate of interest is more than effective rate of interest
and par value per bond is Rs.10
Interest shall be received at end of each year on June 30th and interest for the year 2022 has been received. At
the time of purchase of bonds its face value was different from its fair value
On July 1st , 2022 OL sold all the Bonds for Rs. 69,400. ignore taxation
Required:
Prepare accounting entries for all of above transactions for the year ended 30 th June 2022 and 2023 in the
books of OL (Narrations are not required). (07)
Q.3(a) Peugeot Limited (PL) is Pakistani company and is preparing its financial statements for the year ended 31
December 2021. PL purchased a property in Singapore for SGD 1.3 million and 25% advance payment was
made on 1 March 2021 and 60% payment was made on 1 April 2021 on transfer of title and possession The
remaining amount was paid on 1 August 2021.
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On 1st April 2021,PL rented out this property at annual rent of SGD 0.25 million and received full amount in
advance on the same date. PL uses fair value model for its investment property. On 31 December 2021, an
independent valuer determined that fair value of the property was SGD 1.32 million.
Following spot exchange rates are available:
Date 1-March-2021 1-April-2021 1-Aug-2021 1-October-2021 31-Dec-2021 2021
Average
Rs per Rs. 140 Rs. 142 Rs. 130 Rs. 128 Rs. 145 Rs.138
SGD

Required:
Prepare Accounting entries in the books of PL for the year ended December 31, 2021. (Narrations are not
required). (07)

(b) Saga Limited (SL) is finalizing its accounts for the year ended 31 December 2021. The following events have
arisen since the year end and the Finance Manager has asked you to comment on the final accounts.
(i) Floods caused Rs.250,000 damage to the South Punjab branch of SL in January 2022. The branch was
fully insured.
(ii) On 1 April 2022 SL announced a 1 for 1 rights issue aiming to raise Rs. 16 million.
(iii) On 15 March 2022 SL sold its former head office building, located in Lahore, for Rs. 3.9 million. At
the year end the building was unoccupied and carried at a value of Rs. 4.1 million.
(iv) At 31 December 2021 trade receivables included a figure of Rs. 350,000 in respect of Alsvin Limited
(AL). On 8 March 2022, when the current debt was Rs. 300,000, AL went into receivership. Recent
correspondence with the receiver indicates that no dividend will be paid to unsecured creditors.
(v) E-tron Limited (EL), a subsidiary in sindh, was nationalised in February 2022. The relevant
authorities have refused to pay any compensation. The net assets of EL have been valued at Rs.
150,000 at the year end.
(vi) The directors of SL declared a dividend of Rs. 2 per share on March 28, 2022
Required:
Explain how you would respond to the matters listed above. (07)
Q.4(a) On 1st June 2022, Cherry Limited (CL) has made a contract to deliver 600 units to a customer at Rs.100 per
unit. Units will be transferred to customer over three months period. CL transfers control of each unit at point
in time. Until June 30th, 2022 CL has transferred control of 300 units to the customer.
The contract is modified on June 30th, 2022 with the following changes
 Delivery of an additional 150 units to the customer over the remaining period.
 The prices for additional units are Rs. 80 per unit.
 Market price per unit on June 30th, 2022 is same Rs.100 Per unit
 Further due to minor defect in the initial units transferred , CL promised a partial credit of Rs.15 per unit
to compensate . Consequently, the contract modification specifies that the price of the additional 150
products is Rs.7,500 or Rs. 50 per product.
Required:
Discuss the accounting treatment in the books of CL for the year ended June 30th2022 as per the relevant
international financial reporting standard. (06)
(b) Yaris Limited (YL) is listed on Pakistan Stock Exchange and has registered office in Lahore. YL engages in
manufacturing of Sugar. It operates a manufacturing plant at Rahim Yar khan. The following information is
relevant to Financial statements of YL for the year ended June 30th 2022.
(i) Authorised share capital is 800 million shares of Rs. 10 each and issued share capital is 650 million
shares of Rs.10 each
(ii) 70 million shares were issued as bonus shares in the previous years whereas 30 million shares were
issued as a consideration for purchase of building at market price of Rs. 13 per share. Remaining
shares were allotted for consideration paid in cash.
(iii) During the year, YL produced 5 million tonnes of Sugar operating at 80% production capacity. The
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shortfall was due to lower demand of product in the market.

(iv) Financial statements for the year ended 30 June 2022 were approved by the board of directors in their
meeting held on 15 August 2022:
Required:
Prepare relevant notes showing possible disclosures as required under the IFRSs and the Companies Act, 2017
relevant to Financial statements of YL for the year ended 30th June 2022. (06)

Q.5 Select the most appropriate answer(s) from the options available for each of the following Multiple Choice
Questions.
(i) IAS 41 is applied to agricultural produce
(a) before the harvest (c) after the harvest
(b) at the point of harvest (d) before, during and after the harvest
(01)
(ii) Transaction cost incurred on issuance of Bond(measured under amortized cost method) is accounted for ;
(a) Added to the proceeds of the Bond
(b) Charged to finance cost immediately
(c) Deducted from the proceeds of the Bond
(d) Charged to finance cost on straight line basis over the life of Bond. (01)
(iii) In Fourth and Fifth Schedule, an executive has been defined as an employee, other than the chief
executive and directors, whose basic salary exceeds a certain amount in a financial year. What is that
amount.
(a) Rs. 600,000 (c) Rs. 2,000,000
(b) Rs. 1,200,000 (d) Rs.3,000,00 (02)
(iv) A public unlisted company has paid up capital of Rs. 80 million, turnover of Rs. 1,200 million and 225
employees. How it shall be classified according to Companies Act, 2017?
(a) Pubic Interest Company
(b) Large Sized Company
(c) Medium Sized Company
(d) Small Sized Company (01)

(v) A foreign company has paid up capital equivalent of Rs. 250 million, turnover of Rs. 900 million and 725
employees. How it shall be classified according to Companies Act, 2017?
(a) Pubic Interest Company (c) Medium Sized Company
(b) Large Sized Company (d) Small Sized Company (02)
(vi) Which of the following are not classified as financial instruments
(a) Share options
(b) Intangible assets
(c) Trade receivables
(d) Redeemable preference shares (01)

Section B
Q.6 (a) Sportage Limited (SL), had leased an equipment to Tucson Limited (TL) on 1st July 2021 on the following
terms:
(i) The useful life of equipment is six years and The rate implicit in the lease is 11% per annum.
(ii) SL incurred a direct cost of Rs. 6 million to complete this transaction.
(iii) The non-cancellable lease period is 4 years. Each semi-annual lease installment of Rs. 25 million is
receivable in arrears (31st December & 30th June) and lease contains an option to extend the lease term
by 1 year.
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(iv) Each semi-annual lease installment in the extended period will be of Rs. 14 million, receivable in
arrears. (31st December & 30th June)
(v) The total and guaranteed residual value at the end of lease term is estimated at Rs. 16 million.
(vi) SL does not trade/manufacture such equipment.

Required:
Prepare notes to financial statements for the year ended 30th June 2022 in the books of SL (assuming that TL
will exercise option to extend lease). (09)
(b) Proton Limited (PL) is a dealer of Construction machinery. PL acquires Construction machinery of from a
manufacturer at a cost of Rs. 120,000 and outright sale price of Construction machinery is Rs. 150,000 per
unit. On 1 January 2021, PL sold 5 Construction machineries to Glory limited on lease. The rate of interest
implicit in the lease was 12% per annum. The payment is to be made in three equal annual instalments
payable in advance. Residual value at the end of 3 years is nil and market rate of interest is 13 % per annum.
Required:
Prepare journal entries in the books of PL in respect of above transaction for the year ended 31
December2021. (Narrations are not required). (07)

Q.7 Sorrento Limited (SL) has prepared draft financial statements for the year ended 30th June 2022. The
following information has been gathered for preparing the disclosures relating to taxation:
(i) Profit before tax for the year was Rs. 350 million.
(ii) Accounting depreciation for the year exceeds tax depreciation by Rs. 50 million. During the year, SL
sold a machine whose accounting WDV exceeded tax WDV by Rs. 6 million.
(iii) On 30th June 2022 buildings were revalued for the first time resulting in a surplus of Rs. 70 million.
Revaluation does not affect taxable profits.
(iv) Liabilities of SL as at 30th June 2022 include an amount of Rs. 5 million which is older than 3 years.
As per tax laws, liabilities outstanding for more than 3 years are added to income and are subsequently
allowed as expense on payment basis.
(v) Interest receivable as at 30th June 2022 is Rs 6 million and interest received during the year was Rs. 3
million. As per tax Interest is taxed on receipt basis.
(vi) Expenses include:
 donations of Rs. 7 million not allowable for tax purposes.
 accruals of Rs. 10 million which will be allowed in tax on payment basis.
(vii) SL recorded an expense Rs.4 million to bring an inventory to its net realizable value. This expense is
allowable as per tax when actual loss is incurred.
(viii) Net deferred tax liability as on 1st July 2021 was Rs.2.90 million and arose on account of:
Rs. ‘million’
Property, plant & equipment(Rs.100 million x 35%) 35
Unused tax losses (Rs.90 million x 35%) (31.50)
Liabilities older than 3 years (2 million x 35%) (0.70)
Interest receivables (1 million x 10%) 0.10
(ix) The tax rate for 2022 & onward year is 28% while it was 35% in 2021 and prior periods except
stated otherwise.

Required:
Prepare notes on taxation expense and deferred tax liability/asset for inclusion in SL’s financial statements for
the year ended 30 June 2022, in accordance with the IFRSs. (17)
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Q.8 Elantra Limited (EL) has investments in two companies Suzuki Limited (SL) and Vigo Limited (VL) :
The draft summarised statements of financial position of the three companies on 30 th June
2022 are given below:
EL SL VL
---------Rs. in million------
Assets
Property, plant and equipment 31,500 7,400 4,100
Investments 6,000 - -
Current assets 34,500 2,600 1,900
72,000 10,000 6,000
Equity and liabilities
Ordinary share capital (Rs.10 each) 55,000 6,000 4,000

Retained earnings 13,000 1,400 1,200

Current liabilities 4,000 2,600 800
72,000 10,000 6,000
Other information
(i) On 1 July 2021, EL acquired 420 million ordinary shares in SL, when its retained earnings were Rs.
1,000 million.
(ii) The purchase consideration for investment in SL was made up of Rs. 4,800 million in cash and Rs 500
million shall be paid after 3 years on 30th June 2024. Discount rate is 10% per annum. Only cash paid
is recorded by EL in its financial statements.
(iii) The fair value of SL’s net assets on the acquisition date was equal to their carrying amounts except
following
 an equipment whose fair value exceed carrying value by Rs.100 million and remaining life
at the acquisition date was four years. NBV of such equipment at acquisition date was Rs 510
million and recoverable amount of such equipment was Rs.395 million on June 30th, 2022.
 Inventories were carried at Rs. 300 million and had a fair value of Rs. 350 million. 80% of
these were sold during the year ended 30 June 2022.
st
(iv) On 1 May 2022, EL acquired 120 million ordinary shares in VL, when its retained earnings stood at
Rs. 1,100 million. The purchase consideration for investment in VL was made up of Rs. 1,200 million
in cash on investment date and 10 million shares in EL and the shares were issued on June 30,
2022.Fair value per share of EL on 1st May 2022 and 30th June 2022 was Rs.15 and 16 respectively.
(v) On 1st April 2022, SL sold a plant to EL for Rs. 100 million. The plant had been purchased on 1st
April 2020 for Rs. 104 million. The plant was assessed as having a useful life of eight years when
bought.
(vi) On 1st June 2022 VL sold goods to EL for Rs. 100 million. The company makes a profit of 20% on the
selling price. Rs. 30 million of these goods were held by EL on 30 June 2022 .
(vii) SL declared interim cash dividend of 2% in June 2022 which was paid on July 2022. The dividend has
correctly been recorded by both companies. No dividend was declared/paid by VL during the year
ended 30th June 2022.
(viii) As on June 30, 2022,goodwill related to acquisition of SL was impaired by 15%
(ix) EL values the non-controlling interest at its proportionate share of the subsidiary’s net identifiable
assets.
(x) Investment in VL was impaired by Rs. 4 million as on 30th June 2022.
Required:
Prepare a consolidated statement of financial position for Elantra Limited Group as on 30 th June 2022 in
accordance with the requirements of International Financial Reporting Standards. (19)

(THE END)