INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
SPRING (SUMMER) 2008 EXAMINATIONS
Saturday, the 24th May, 2008
ADVANCED FINANCIAL ACCOUNTING & ANALYSIS /
ADVANCED FINANCIAL ACCOUNTING
Stage- 4 / Professional-II
Time Allowed – 2 Hours 45 Minutes
Maximum Marks – 90
(i) Attempt ALL questions.
(ii) Answers must be neat, relevant and brief.
(iii) In marking the question paper, the examiners take into account clarity of exposition, logic of
arguments, effective presentation, language and use of clear diagram / chart, where
appropriate.
(iv) Read the instructions printed on the top cover of answer script CAREFULLY before
attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this
question paper.
Marks
Q. 2
The following profit and loss accounts exhibit the profit and loss accounts of
M/s. Chew Co., for the years 2007 and 2006:
CHEW COMPANY
Profit and Loss Accounts
For The years ended 31st December 2007 and 2006
Sales
Less: Sales discount
Net sales
2007
Rupees
44,160,000
320,000
43,840,000
2006
Rupees
38,400,000
128,000
38,272,000
Cost of goods sold
Gross profit
21,862,400
21,977,600
17,920,000
20,352,000
Selling expenses
Administrative expenses
Total operating expenses
Net operating income
Other income
Profit before taxation
Taxation
Net profit
9,408,000
5,200,000
14,608,000
7,369,600
160,000
7,529,600
2,048,000
5,481,600
6,720,000
4,160,000
10,880,000
9,472,000
128,000
9,600,000
2,560,000
7,040,000
Required:
Prepare a comparative income statement with horizontal analysis. Round to two
digits after decimal place.
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Marks
Q. 3
st
Z Ltd., was placed in voluntary liquidation on 31 December 2007 when its balance sheet
was as follows:
Z Ltd.
Rupees
Freehold factory
Plant and machinery
Motor vehicles
214,600,000
106,930,000
21,275,000
Stocks
Debtors
Profit and loss account
68,820,000
27,380,000
79,180,000
518,185,000
Ordinary share capital:
17,575,000 ordinary shares of Rs.10/- each
Preference share capital:
2,220,000 5% cumulative preference shares of Rs.100/- each fully paid up
Share premium account
5% Debentures
175,750,000
222,000,000
18,500,000
37,000,000
Interest on debentures
Bank overdraft
Creditors
925,000
21,460,000
42,550,000
518,185,000
The preference dividends are in arrears from 2004 onwards.
The company’s Articles provide that on liquidation, out of surplus assets remaining
after payment of liquidation costs and outside liabilities, firstly all arrears of
preference dividends shall be paid, secondly the amount paid up on preference
share together with a premium thereon of Rs.10 per share, and thirdly the balance
shall be paid to the ordinary shareholders.
The bank overdraft was guaranteed by the directors who were called upon by the
bank to discharge their liability under the guarantee. The directors paid the amount
to the Bank.
The liquidator realized the assets as follows:Freehold factory
Rupees
259,000,000
Plant and machinery
88,800,000
Motor vehicles
21,830,000
Stocks
55,500,000
Debtors
22,200,000
Creditors were paid less discount of 5 paisa in a Rupee. The debenture and accrued
interest were repaid on 31st March 2008. Liquidation costs were Rs.1,413,400/- and
the liquidators remuneration was 2 percent on the amount realized.
Required:
Prepare the liquidator’s statement of account.
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Marks
Q. 4
Sultana carried out the following transactions in connection with his investments
during the year ended 31st March 2008:
2007
15-April
Purchased Rs.400,000 12% convertible debentures in Somani Ltd.,
at Rs.125.50. Interest is payable on 15th September and 15th
March. The debentures are convertible into equity shares of Rs.10
each at the rate of Rs.20 per equity share.
1-June
Purchased Rs.1,000,000 12% debentures in Sim Sim Ltd., for
Rs.1,100,000. Interest is due for payment on 1st October and 1st April.
15-June
Converted the debentures in Somani Ltd., into equity shares. On
this date, the market price of the shares was Rs.20. The accrued
interest to date was paid.
25-August
Received 20% dividend on the equity shares in Somani Ltd.
15-December Somani Ltd., made a rights issue of one equity share for every 20
shares held at Rs.16 per share. The market value of a share was
Rs.20.
2008
10-January
Sultana sold the right for Rs.3 per share.
15-March
Sold 4,000 equity shares in Somani Ltd., at Rs.25 per share.
Required:
Record the above transactions in the Ledger of Sultana. Maintain separate
account for each category of investment. Ignore tax and brokerage charges.
Sultana’ accounting year ends on 31st March.
Q. 5
20
You are the financial analyst of a Multinational Bank Limited and your bank
manager has provided you with the following information along with the industry
average of Alpha and Beta Limited who have requested for a long term secured
loan:
Industry
Average
38%
22%
22%
50%
Alpha
Beta
Gross profit margin
Net profit margin (before tax)
Return on capital employed
Debt equity ratio
35%
17%
24%
40%
39%
20%
26%
45%
Inventory turnover (times)
Receivables’ turnover (days)
Payables’ turnover (days)
8
30
16
7
19
28
10
28
19
0.95
0.5
1.25
0.85
1.1
0.9
Current ratio
Acid test ratio
Required:
Write a memo to your bank manager comparing the financial position of the two
companies and specifically highlighting any area that requires further investigation.
You are also requested to list down what additional information will be necessary in
order to take a meaningful decision.
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Marks
Q. 6
The balance sheets of M/s. Big and its subsidiary entity M/s. Little at 31st
December 2007 were as follows:
Big
Rs.000
Little
Rs.000
Property, plant and equipment
Investment in Little
Inventory
Receivables
Bank
228
150
35
22
8
443
177
0
15
25
5
222
Ordinary share capital (Rs.10 each)
Reserves
200
163
363
80
443
75
120
195
27
222
Current liabilities
Additional Information:
1. Big purchased 6,000 shares in Little on 1st January 2004, when the reserves of
Little showed a balance of Rs.40,000.
2. Big sold goods to Little during the year for Rs.20,000, half of which were sold by
the year end. Big made a gross margin of 20% on selling price.
3. On the date of acquisition, the carrying values and fair values of net assets of
Little were the same except for some machinery whose fair value was
estimated to be higher than carrying value by Rs.50,000. The subject
machinery had a remaining useful economic life of five years from 1st January
2004. The machinery is still in use of Little.
4. Since acquisition, there has been no impairment of goodwill on consolidation.
Required:
Prepare the consolidated balance sheet for the group as at 31st December 2007.
THE END
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