SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 1 of 6

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
Question No. 2
(a)
Flower Limited
Statement of Profit or Loss
for the year ended December 31, 2018
Rs. ‘000’
Sales Revenue (Rs. 18,000 – Rs. 15) 17,985 0.5+0.5
Cost of sales (W-2) (9,120) 0.5
Gross profit 8,865
Administrative expenses (W-3) (3,630) 0.5
Distribution costs (1,350) 0.5
Operating profit 3,885
Finance cost (Rs. 3,000 x 8% x 11/12) (220) 0.5+0.5
Profit before tax 3,665
Income tax expense (180) 0.5
Profit after taxation 3,485

(b)
Flower Limited
Statement of Financial Position
as at December 31, 2018
Rs. ‘000’
Non-current assets
Property, plant and equipment (3,600 – 450 – 630) (W-2) 2,520 0.5+0.5
Current assets
Stock-in-trade 900 0.5
Trade receivables (W-1) 2,040 0.5
Cash and bank balances 3,900 0.5
6840
Total assets 9360

Equity and Liabilities

Equity
Ordinary share capital 150 0.5
Retained earnings [1,305 + 3,485 ] 4,790 01
4940
Non-current liabilities
8% Loan 3,000 0.5
Current liabilities
Trade and other payables [870 + 220 (a)] 1,090 0.5+0.5
Tax payable 180 0.5
Provision 150 0.5
Total equity and liabilities 1420
9360

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 2 of 6

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
W-1: Trade receivable: Rs. ‘000’
As per trial balance 2,145 0.5
Allowance as per trial balance (60) 0.5
Irrecoverable debt (30) 0.5
Sales return (15) 0.5
2,040 0.5
W-2: Cost of sales: Rs. ‘000’
Opening stock-in-trade 690 0.5
Purchases 8,700 0.5
Depreciation [(3600 – 450) x 20%] 630 0.5 + 0.5
Closing stock-in-trade (900) 0.5
9,120 0.5
W-3: Administrative expense: Rs. ‘000’
As per trial balance 3,450 0.5
Irrecoverable debt 30 0.5
Provision 150 0.5
3,630 0.5

Question No. 3
Modern Garments Limited
Statement of Cash Flows
for the year ended June 30, 2018
Rs. '000'
Cash flows from operating activities
Profit before tax 18,000 0.5
Adjustments for:
Depreciation charge (W-1) 12,500 0.5
Profit on sale of plant and equipment (2000-1500) (500) 1.0
Interest expense 2,400 0.5
Decrease in inventories (38,500 – 33,250) 5,250 01
Decrease in trade receivable (47,500 – 41,750) 5,750 01
Decrease in trade payable 0.5+1.0
(39000-500+625-35625) (3,500)
Cash generated from operations 39,900
Interest paid (W-5) (2,275) 0.5
Income taxes paid (W-2) (4,000) 0.5
33,625
Cash flows from investing activities
Purchase of property, plant and equipment (16,000) 0.5
Disposal proceeds of plant and equipment 2,000 0.5
(14,000)
Cash flows from financing activities
Proceeds of loan raised (25,000 – 20,000) 5,000 0.5+0.5
Proceeds of share issue (W-3) 3,000 0.5
Dividend paid (W-4) (20,125) 0.5
(12,125)
Net increase in cash and cash equivalents 7,500
Cash and cash equivalents b/ fwd (4,500)
Cash and cash equivalents c/ fwd 3,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 3 of 6

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
Workings:
Rs. ‘000’
W-1 ‘Property, plant and equipment’ addition
PPE book value(BV) balance b/fwd 80,000 0.5
Less: BV of disposals (1,500) 0.5
Revaluation in the year 3,000 0.5
Less : depreciation charge (12,500) balancing figure 0.5
Share capital 5,000 0.5
Cash paid for PPE additions 16,000 0.5
PPE BV balance c/fwd 90,000 0.5

W-2 Income tax paid

Income tax liability b/fwd 4,000 0.5
Income tax charge for the year 3,500 0.5
Cash paid in the year (4,000) balancing figure 0.5
Income tax liability c/fwd 3,500 0.5

W-3 Issue of shares

Balance b/fwd 32,000 0.5
PPE 5,000 0.5
Cash 3,000 0.5
Balance c/fwd 40,000 0.5

W-4 Dividend paid

Retained earnings b/fwd 66,500 0.5
Profit after tax for the year (18,000 –3,500) 14,500 0.5+0.5
Dividend paid in the year (20,125) balancing figure 0.5
Retained earnings balance c/fwd 60,875 0.5

W-5 Interest Paid

Interest payable b/fwd 500 0.5
Interest expense for the year 2,400 0.5
Interest paid in the year (2,275) balancing figure 0.5
interest payable c/fwd 625 0.5

Question No. 4
(a) Any five (05) of the following @ 1 mark each 5.0
1. To assist the board in the development of future IFRS and in its review of existing IFRS.
2. To assist the board in promoting harmonization of regulations, accounting standards &
procedures relating to the presentation of financial statement.
3. To assist national standard setting bodies in developing national standards
4. To assist preparers of financial statement in applying IFRS
5. To assist auditors in forming opinion as to whether financial statement comply with IFRS.
6. To assist users of financial statement in interpreting the information prepared in
compliance with IFRS.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 4 of 6

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
(b) Weighted-average cost of borrowing:
= 100 x 12% 100 x 10%
+ 0.5+0.5
100 + 60 100 + 60

= 12 6
+
160 160
1.0
= 18
160

= 0.1125

= 11.25% 1.0

Borrowing cost to be capitalised:

= 8 4
15 x 11.25% x + 10 x 11.25% x 0.5+0.5
12 12

= 1.125 + 0.375 0.5

= 1.50 million 0.5

(c) (i) Taxable Temporary Differences: 02

These are temporary differences that will result in taxable amounts in determining taxable
profit (tax loss) of future periods when the carrying amount of the asset or liability is
recovered or settled.

(ii) Deductible Temporary Differences: 02

These are temporary differences that will result in amounts that are deductible in
determining taxable profit (tax loss) of future periods when the carrying amount of the asset
or liability is recovered or settled.

(d)
Rupees
(i) Tax due on 2018 profits (Rs. 540,000 x 30%) 162,000 0.5
Underpayment/ overpayment for 2017 - 0.5
Tax charge and liability 162,000 01

Rupees
(ii) Tax due on 2018 profits (Rs. 540,000 x 30%) 162,000 0.5
Underpayment for 2017 22,500 0.5
Tax charge and liability 184,500 01

Rupees
(iii) Tax due on 2018 profits (Rs. 540,000 x 30%) 162,000 0.5
Overpayment for 2017 (22,500) 0.5
Tax charge and liability 139,500 01
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 5 of 6

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
Question No. 5
(a) Any six (6) of the following criteria @ 1 mark each 06
 The asset must be available for immediate sale in its present condition
 Its sale must be highly probable
For the sale to be highly probable, the following must apply:
 Management must be committed to a plan to sell the asset.
 There must be an active program to locate a buyer.
 The asset must be marketed for sale at a price that is reasonable in relation to its current
fair value.
 The sale should be expected to take place within one year from the date of classification
 It is unlikely that significant changes to the plan will be made or the plan will be
withdrawn.

(b) The building should be classified as “held for sale” at June 30, 2018. It should be included in the
statement of financial position on its own separate line under non-current assets at the lower of
its carrying amount and fair value less cost to sell.

Rs. in million
Cost of Building 500 0.5
Accumulated Dep (500 x 10/50) (100) 1.0
Book value 400 0.5
Market value of building 380 0.5
Cost to sale (380 x 5%) 19 01
Fair value – Less cost to sell 361 0.5
The building will be shown in SFP at lower of carrying value and fair value less costs to sell
(Lower of Rs. 400 and Rs. 361) i.e. Rs. 361 01

(c)

Carrying amount
Impairment: Carrying Impairment loss
post-impairment
Building 45,000 (10,385) 34,615 0.5+0.5
Plant 20,000 (4,615) 15,385 0.5+0.5
Goodwill 15,000 (15,000) - 0.5+0.5
Current assets 30,000 - 30,000 0.5+0.5
110,000 (30,000) 80,000

Impairment (80,000 - 110,000) (30,000)

Total non-current assets 65,000
Impairment building 10,385 0.5
15000 x 45000/65000
Impairment Plant 4,615 0.5
15000 x 20000/65000

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 6 of 6

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
Question No. 6
(a) (i) Contingent Assets: 01
IAS 37 defines a contingent asset as:
A possible asset that arises from past events and whose existence will be confirmed by the
occurrence/non-occurrence of one or more uncertain future events not wholly within the
entity's control.

(ii) Contingent Liability: 03

IAS 37 defines a contingent liability as:
A possible obligation that arises from past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within
the entity's control, or
A present obligation that arises from past events but is not recognised because:
 It is not probable that a transfer of economic benefits will be required to settle the
obligation, or
 The amount of the obligation cannot be measured with sufficient reliability.

(b) (i) A contingent liability is disclosed 01

(ii) A contingent liability is disclosed 01
(iii) A contingent liability is recognised 01

(c) (i) Adjusting events after the reporting period: 02

Those that provide evidence of conditions that existed at the end of the reporting period
(adjusting events after the reporting period).
(ii) Non-adjusting events after the reporting period: 02
Those that are indicative of conditions that arose after the reporting period (non-adjusting
events after the reporting period).

(d) (i) Non-adjusting events 01

(ii) Non-adjusting events 01
(iii) Adjusting events 01

THE END

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.