Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.1
Zinc Limited
General Journal
(i)
Date
Description
1-Jan-22
Investment / Financial asset
Bank
1.5×(100+5)
1-Jan-22
Investment / Financial asset
Bank
1.5×2
Debit
Credit
----- Rs. in million ----157.50
157.50
3.00
3.00
31-Dec-22 Investment / Financial asset
Interest income (P&L)
17.82
17.82
160.5(157.5+3)×11.1%
31-Dec-22 Bank
150×13%
19.50
Investment / Financial asset
31-Dec-22 Fair value reserve (OCI)
19.50
154.5(1.5×103) –
158.82(157.5+3+17.82–19.5)
4.32
Investment / Financial asset
(ii)
S. No.
1-Jul-22
4.32
Description
Bank
2×(100–10)
Financial liability / Redeemable pref. shares
1-Jul-22
Transaction cost (P&L)
Bank
31-Dec-22 Interest expense (P&L)
Financial liability
Debit
Credit
---- Rs. in million ---180.00
180.00
3.00
3.00
200×10%×6/12
190(180+10)–160(80×2)
31-Dec-22 Financial liability
30×70%
Fair value reserve (OCI)
Gain on fair value adj. (P&L)
bal.
10.00
10.00
30.00
21.00
9.00
Page 1 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.2
In the given situation, CFO might be in breach of the following fundamental principles of the
Code of Ethics for Chartered Accountants:
(i)
Professional competence and due care:
A chartered accountant (CA) should act diligently and in accordance with the
applicable technical and professional standards. Applying incorrect application of
standard raises questions on his professional competence and due care. Under IAS 40,
each portion that can be sold separately should be accounted for separately. Therefore,
ground and first floors should be recorded as ‘Property, plant and equipment’ and
remaining floors should be recorded as ‘Investment property’.
(ii)
Objectivity:
CA should not compromise professional or business judgements because of bias,
conflict of interest or undue influence of others. Incorrect application of IFRSs by CFO
to avoid the non-compliance of loan covenant is affecting the objectivity of CFO.
(iii)
Professional behavior:
CA should comply with the relevant laws and regulations and avoid any conduct that
might discredit the profession. Pressurizing or threatening subordinates with an
intention to influence them is the non-compliance of ICAP’s code of ethics and is
reflective of non-professional behavior of CFO.
In the given situation, following threats to compliance with the fundamental principles arises
for me:
(i)
Intimidation threat:
CA will be deterred from acting objectively because of pressures or exercise of undue
influence over him. I may feel intimidation threat due to perceived pressure exerted by
the CFO on raising objection over his finalized financial statements.
(ii)
Self-interest threat:
CA’s judgement or behavior may be inappropriately influenced by financial or other
interest. I may feel self-interest threat due to fear of losing job in case of financial
difficulties of ML.
In order to reduce the threat to an acceptable level, one or more of the following safeguards
should be applied:
(i)
(ii)
(iii)
(iv)
(v)
Discuss and persuade CFO to follow the correct application of standard and adjust the
financial statements.
If CFO refuses to adjust the financial statements, consider informing appropriate
authorities such as CEO or the audit committee.
Consult the policies or procedures (i.e. ethics or whistleblowing policies) of ML.
Refuse to present or disassociate with the presentation of misleading financial
statements.
Resign from the job.
Page 2 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.3
Fluorine Limited
General Journal
S.No.
Date
(i)
1 Jan 22
Description
Cash
Contract liability - AL
400×90%
31 Dec 22 Interest expense
Contract liability - AL
360×15%
1 Apr 22
150.0
150.0
Cash
Contract / Refund liability - BL
50×3
150.0
150.0
1 May 22 Contract / Refund liability - BL
Revenue
48×3
1 Nov 22
50×2
48×2
100.0
6(150–144)+4
10.0
1 Nov 22
144.0
144.0
Receivable - BL
Revenue
Contract / Refund liability - BL
31 Dec 22 Contract / Refund liability - BL
Revenue
(iii)
54.0
54.0
Inventory
Cash
(ii)
Debit
Credit
----- Rs. in million ----360.0
360.0
96.0
4.0
10.0
Cash
Contract / Refund liability - GL
Revenue
100.0
(W-1)
(W-1)
3.8
96.2
W-1: Price allocation
Luxury yacht
Standalone price
Price
------- Rs. in million ------100.0
96.2
(100×100÷104)
Discount
4.0
(5×80%)
104.0
3.8
(4×100÷104)
100.0
Page 3 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.4
Uranium Limited
Statement of financial position as at 31 December 2022
2022
2021
--- Rs. in million --Non-current assets
Property, plant and equipment
Non-current liabilities
Provision for dismantling
(3,000+233.3)×6/8
1,900.0
2,425.0
(205.4+30.8) ; (475×1.15–6)
236.2
205.4
-
76.9
Equity
Revaluation surplus
Statement of profit or loss and other comprehensive income for the year ended
31 December 2022
Profit or loss:
Depreciation expense
Unwinding of interest on dismantling
Revaluation loss
Other comprehensive income:
Revaluation surplus / (loss)
(3,000+233.3)/8
(205.4×15%) ; (W-1)
43.9[120.8(W-2) – 76.9]
76.9[282.3(W-1)–205.4(475×1.15–6)]
W-1: Dismantling cost before revision
01/01/20 PV of dismantling cost
31/12/20 Unwinding of interest @10%
31/12/21 Unwinding of interest @10%
31/12/21
W-2: Revaluation loss on 31 December 2022
Carrying value of plant
Revalued amount
Revaluation loss
2022
2021
--- Rs. in million --(404.2)
(404.2)
(30.8)
(25.7)
(43.9)
-
(76.9)
76.9
Rs. in million
233.3
23.3
256.6
256.6×10%
25.7
–6
OR 500×1.10
282.3
500×1.10–8
233.3×10%
(3,000+233.3)×5/8
2,020.8
(1,900.0)
120.8
Page 4 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.5
Following are the disclosure requirements related to ‘Fixed Assets’ as provided in the fourth
schedule of Companies Act, 2017.
1.
2.
3.
4.
5.
6.
7.
A.6
Where any property is acquired by RL which is not held in the name of RL or is not in
the possession or control of RL, following shall be disclosed:
 such fact along with the reason for property not being held in the name of RL,
 description and value of such property, and
 the person in whose name and possession or control such property is held.
Land and building shall be distinguished between free-hold and leasehold.
Forced sale value shall be disclosed separately in case of revaluation of property, plant
and equipment.
In case of sale of fixed assets, if the aggregate book value of assets exceeds Rs. 5 million,
following particulars of each asset, which has book value of Rs. 500,000 or more shall be
disclosed:
 cost or revalued amount,
 the book value,
 the sale price and the mode of disposal (e.g. by tender or negotiation),
 the particulars of the purchaser,
 gain or loss, and
 relationship, if any of purchaser with RL or any of its directors.
Geographical location and address of all business units including mills/plant.
Particulars of company’s immovable fixed assets, including location and area of land.
The capacity of an industrial unit, actual production and the reasons of the shortfall.
(i)
(a) It shall be reported separately in current year and comparative information shall be
restated
(ii) (c) function of expenses with additional information on nature
(iii) (b) Only (II) is correct
(iv) (c) The goods are regularly sold separately and the customers generally can benefit
from the goods on its own
(v)
(b) Rs. 16.8 million
(vi) (b) Only (II) is correct
(vii) (a) IAS 20
(viii) (a) Power to participate in the financial and operating policies of the investee
(d) Holding the majority of shares in investee’s share capital
(ix) (b) Stress testing
(d) Graphical design development
(x) (a) A company made an out of court settlement with a customer after reporting date,
for a case that was lodged before the reporting date
(c) A company made a provision for damages in respect of a pending suit, which was
decided by the court after the reporting date with the same amount of damages.
Page 5 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.7
(a)
Gold Limited
General Journal
Date
1 Jan 22
1 Jan 22
1 Jan 22
1 Jan 22
31 Dec 22
Debit
Credit
----- Rs. in million -----
Description
Net investment in finance lease /
Lease receivable
Sales
65.81
65.81
(W-1)
Cost of sales
Inventory
58.00
58.00
Selling expenses / Direct cost (P&L)
Bank
1.50
Bank
Net investment in finance lease /
Lease receivables
16.00
1.50
16.00
Net investment in finance lease /
Lease receivables
Finance income
(65.81–16)×15%
W-1: Revenue
Fair value
PV of lease rentals @ 15%
2022
2023
2024
2025
Guaranteed residual value
7.47
7.47
Rs. in million
71.00
18×1.15–1
20×1.15–2
22×1.15–3
8(5+3)×1.15–4
Lower of the two
16.00
15.65
15.12
14.47
4.57
65.81
65.81
(b) Lead Limited
Statement of financial position as at 30 September 2022
Non-current assets
Right of use - Engine
Non-current liabilities
Lease liability
Provision for decommissioning
Current liabilities
Current portion of lease liability
(W-1)
Rs. in million
61.50
55.33(67.47–16.0+3.86)–16.71
5.72+0.52
38.62
6.24
18.0–1.29[(67.47–16.0)×10%×3/12]
16.71
Statement of profit or loss for the year ended 30 September 2022
Depreciation expense
Interest on lease liability
Unwinding of interest on decommissioning cost
(W-1)75.69/4×9/12
(67.47–16)×10%×9/12
5.72×12%×9/12
Rs. in million
14.19
3.86
0.52
Page 6 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
W-1: Right of use asset
Present value of lease payments @ 10%:
2022
2023
2024
2025
Guaranteed residual value
Initial direct cost
Reimbursement by lessor
Decommissioning cost
Depreciation for the year
Rs. in million
18×1.10–1
20×1.10–2
22×1.10–3
3×1.10–4
9×1.12–4
16.00
16.36
16.53
16.53
2.05
67.47
4.00
(1.50)
5.72
75.69
(14.19)
61.50
Page 7 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.8
Aluminium Limited
Consolidated statement of financial position as on 31 December 2022
Non-current assets:
Property, plant and equipment
Investment property
Investments
Investment in associate
Inventories
Other current assets
1,160+960–45
440+290+160–20(160/8)
1,000–540–304–91–22
(W-4)
365+190–10(150×40%/120×20)
295+270
Equity & liabilities:
Share capital (Rs. 10 each)
Share premium
Consolidated retained earnings
Non-controlling interest
Liabilities
550–40(20×2)
(W-3)
(W-5)
692+315–104(304–200(W-1))+30
W-1: Computation of Bargain purchase
Consideration - shares
- present value of deferred consideration
Proportionate value of NCI
Fair value of SL’s net assets
Bargain purchase
W-2: Net assets of SL
Share capital
Revaluation surplus
Adjustment for uniform policies
Retained earnings
Fair value adjustment for investment property
Unrealised profit in inventory
W-3: Consolidated retained earnings
AL
Interest on deferred consideration
Bargain purchase - SL
Share of net profit for associate - PL
Dividend reversed
Unrealised gain on machinery - AL
Post-acquisition loss of SL
Loss on other investments
20×25
304×1.15–3
1,580(W-2)×30%
(W-2)
Rs. in million
2,075
870
43
88
545
565
4,186
1,400
510
899
444
933
4,186
Rs. in million
500
200
474
1,174
(1,580)
(406)
Acquisition date Reporting date
--------- Rs. in million --------800
800
105
150
(45)
105
105
515
445
160–20
160
140
(10)
675
575
1,580
1,480
200×15%
(W-1)
(W-4)
(W-4)
(W-4)
100(575–675)×70%
Rs. in million
618
(30)
406
13
(5)
(11)
(3)
(70)
(22)
899
Page 8 of 9
Financial Accounting and Reporting-II
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
W-4: Investment in associate –PL
Cost
Share of net profit
Dividend received
Unrealised gain on machinery - AL
52×25%
{48(108–60)–4(48/4×4/12)}×25%
W-5: Non-controlling interest
At acquisition
Post-acquisition loss of SL
A.9
(i)
(W-1)
(W-3)100×30%
1,480×30%
Rs. in million
91
13
(5)
(11)
88
Rs. in million
474
(30)
444
The carrying value of the investment is Rs. 105 million [85+20] while its tax base is
Rs. 85 million as at 31 December 2022 i.e. the amount that will be deductible for tax
purpose upon sale. This should result in taxable temporary difference of Rs. 20 million
on which deferred tax liability/expense of Rs. 7 million [20×35%] shall be recognised.
Since the fair value gain is reported in profit or loss, the related deferred tax expense is
also recognised in profit or loss.
(ii) The carrying value of the factory building is Rs. 1,260 million while its tax base is
Rs. 1,080 million [1,200×90%] as at 31 December 2022 i.e. the amount that will be
deductible for tax purpose in future years. This should result in taxable temporary
difference of Rs. 180 million on which deferred tax liability/expense of Rs. 63 million
[180×35%] shall be recognised. The effect arising due to the difference in depreciation
i.e. Rs. 14 million [40(120–80)×35%], would be taken to profit or loss. While the remaining
effect of liability arising due to revaluation adjustment i.e. Rs. 49 million
[140(180–40)×35%], would be taken to other comprehensive income.
(iii) The carrying value of development cost is Nil (being expensed out) while its tax base is
Rs. 18 million [20×90%] as at 31 December 2022 i.e. the amount that will be deductible
for tax purpose in future years. This should result in deductible temporary difference of
Rs. 18 million on which deferred tax asset / income of Rs. 6.3 million [18×35%] shall be
recognised. Since the development cost is taken to profit or loss, the corresponding effect
should also be credited to profit or loss.
(iv) At 31 December 2022, the carrying value of the government grant is Rs. 8 million
[12–4(12÷3)] while its tax base is the same as carrying value as benefit of government
grant is not taxable. Therefore, no deferred tax shall arise.
(v) The tax loss of Rs. 260 million for the year 2022 shall result in deferred tax asset of
Rs. 91 million [260×35%]. The deferred tax asset shall be recognised to the extent that
TL is probable that taxable profit will be available against which unused tax losses can
be utilized. If TL will earn sufficient profits within next six years then deferred tax asset
should be recognized and corresponding effect should be credited to statement of profit
or loss. However, if TL is not expected to earn sufficient profit in future than deferred
tax asset would not be recognized and will be reassessed for recognition at each year end.
(The End)
Page 9 of 9