Corporate Reporting Past Question Papers (ICAB)

FINANCIAL & CORPORATE REPORTING
Time allowed – 3 hours

Total marks – 100
[N.B. - The figures in the margin indicate full marks. Question must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if any, of
the same question must be answered in one place in order of sequence]
Marks
1. (a) Extract from draft financial statements of Apple Foods Limited is given below.
Statements of Profit or Loss and Other Comprehensive Income for the years ended 30 June:
2017 2016
BDT ’000 BDT ’000
Revenue 800 725
Cost of Sales (550) (500)
Gross Profit 250 225
Expenses (70) (60)
Profit for year 180 165
Statements of Changes in Equity (Retained Earnings only) for the years ended 30 June:
2017 2016
BDT ’000 BDT ’000
Balance 1 July 258 236
Profit for the year 180 165
Dividends declared (90) (85)
Balance 30 June 348 316
Statements of Financial Position as at 30 June:
2017 2016
BDT ’000 BDT ’000
Non-current Assets 450 420
Net Current Assets 198 196
648 616
Share Capital 300 300
Retained Earnings 348 316
648 616
Before signing the accounts, following events are identified by auditor:
- The head of collection had been misappropriating monies paid to the company by its
customers. The effect of the fraud was that amounts shown in the financial statements as
receivables need to be written off as they were in fact paid. There is no prospect of
recovering the money as the employee is traceless. The amounts were BDT 50,000, BDT
60,000 and BDT 70,000 in the year of 2015, 2016 and 2017 respectively.
- It is discovered that a special asset is being depreciated by less amount than the actual
amount since 2015 due to computation error. As a result, non-current asset is being
overstated. Such overstatement is BDT 25,000 in each year since 2015.
Requirement:
As an Audit Manager, suggest the Company as to how to restate the financial statements of
Apple Foods Limited for the year ended June 30, 2017 as per BAS 8. Prepare the extracts from
financials including comparatives, incorporating the adjustments you deem necessary as a result
of the above mentioned events. 12
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(b) Brick Limited has a foreign currency liability payable in 1 year time and it wishes to hedge the
amount payable on settlement against foreign currency fluctuations. To that end, it takes out a
forward contract to buy the foreign currency in 1 year time. The conditions for hedge
accounting were met.
Requirement:
Should the hedge be treated as a fair value hedge of the foreign currency liability or as a cash
flow hedge of the amount to be settled in the future? How should gains and losses on the
liability and the forward contract be accounted for? 5
(c) Oil Boss (OB) is a manufacturer and retailer of Rice Barn Oil. On 31 October 2016, the cost of
OB’s inventories of finished goods was BDT 125 million with 1,250 Metric Ton (MT) of Oil.
At that date their sales value was BDT 156.25 million.
OB's management wished to reduce their business risk of fluctuations in future cash inflow
from sale of the oil by hedging the value of the oil. Therefore, it sold futures contracts for
1,250 MT at BDT 115,000 per MT at 31 October 2016. The contracts mature on 30 October
2017.
On 30 September 2017 the fair value of the oil was BDT 145 million and the forward price of
oil per MT for delivery on 30 October 2017 was BDT 105,000 MT.
Requirement:
Explain how the above transactions would be treated in OB's financial statements for the year
ended 30 September 2017. 7
2. Concord Ltd is a private company that manufactures and sells specialized items of plant and
machinery. The company prepares financial statements in accordance with IFRS. You have recently
been appointed as Financial Controller. The previous Financial Controller resigned suddenly due to
illness.
The Board of Directors is ambitious and has plans to expand the company. In order to do this,
further finance will be needed. The Managing Director plans to approach the bank for a substantial
long term loan as soon as the financial statements are finalized. He also hopes to persuade several
private individuals and firms to invest in the company. For this reason, he is particularly concerned
about the level of profit as he needs to be able to demonstrate that the company will be capable of
providing a reasonable return on an equity investment.
You have been asked to finalize the financial statements for the year ended 30 June, 2017. The draft
income statement and balance sheet are shown below:
Draft Income statement for the year ended 30 June 2017
TK'000
Revenue 4,088
Cost of sales (2,520)
Gross profit 1,568
Operating expenses (542)
Profit from operations 1,026
Finance costs (154)
Profit before tax 872
Tax (140)
Profit for the period 732
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Balance sheet at 30 June 2017
Non-current assets
Property plant and equipment 6,375
Intangible assets: development cost 525
6,900
Current assets 2,042
Total assets 8,942
Capital and reserves

Issued capital 1,000
Retained earnings 4,012
Non-current liabilities 2,500
Current liabilities 1,430
Total equity and liabilities 8,942
During the year ended 30 June 2017 Concord Ltd entered into a number of unusual
transactions. The following information about them has been provided:
(i) On 1 July 2016 the company leased an item of plant to a customer. The item cost Tk.
240,000 to produce and its normal sales price would have been Tk.320,000. Under the
terms of the lease, the customer pays four annual rentals of Tk.85,000 in advance and legal
title to the goods will be transferred at the end of the lease term. The estimated useful life of
the plant is four years and its residual value at the end of the lease term is expected to be
nil. The market rate of interest for this type of lease agreement is 12%. Revenue of Tk.
340,000 has been recognized in respect of this transaction and the outstanding installments
have been treated as a trade receivable. The cost of producing the plant has been included
in cost of sales. The customer has been informed that the arrangement is interest free.
(ii) During the year ended 30 June 2017, Concord Ltd has been developing a new type of
compressing plant. The work has been successful and has already generated a significant
amount of interest in the industry sector. Since the year end there have been several orders
and production of the new compressors began shortly after the year-end. Development
expenditure of Tk.525,000 has been recognized on the balance sheet at 30 June 2017. The
amount is made up as follows:
TK'000
Initial research into techniques 75
Design of prototype plant 90
Purcahse and construction of new plant and machinery 108
Labour costs 93
Construction and testing 78
Training of production staff 57
Advertising within the trade press 24
525
The plant and machinery was purchased and constructed specifically for use in developing
and producing the new compressors and has an estimated useful life of six years. It became
operational on 1 September 2016.
(iii) On 1 November 2016 the company sold a machine that had been produced specially for a
customer. The sales price of Tk.750,000 included servicing and technical support for five
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years from 1 November 2016. The normal cost of providing similar levels of technical
support is estimated at Tk.50,000 per annum and the company normally sets its prices so
that it achieves a markup of 50% on cost. The sale proceeds were received on 15 December
2016 and recognized as revenue.
Requirements:
Draft a memorandum to the Board of Directors of Concord Ltd that includes:
(a) An explanation of the required IFRS accounting treatment of these issues, preparing relevant
calculations where appropriate. 8
(b) A revised draft of the income statement for the year ended 30 June 2017 and the balance sheet
at that date. 10
(c) A calculation of the following financial ratios before and after the accounting adjustments and
an explanation of the changes: 10
i. Net profit margin
ii. Return on capital employed (ROCE)
iii. Gearing
3. Shabib Ltd. is a small publicly listed company. On 1 April 20x6 it acquired 90% of the equity shares in
Sohel Ltd., a private limited company. On the same day Shabib accepted a 10% loan note from Sohel for
Tk.200,000 which was repayable at Tk.40,000 per annum (on 31 March each year) over the next five
years. Sohel’s retained profits at the date of acquisition were Tk.2,200,000.
Balance Sheet as at 31 March 20x7

Shabib Ltd. Sohel Ltd.
Tk'000 Tk'000
Non-current assets
Property, plant and equipment 2,120 1,990
Intangible-Software - 1,800
Investments - equity in Sohel Ltd. 4,110 -
- 10% loan note Sohel Ltd. 200 -
- others 65 210
6,495 4,000
Current assets
Inventories 719 560
Trade receivables 524 328
Sohel current account 75 -
Cash 20 1,338 - 888
Total assets 7,833 4,888
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Equity and liabilities
Equity shares of Tk 1 each 2,000 1,500
Share premium 2,000 500
Retained earnings 2,900 6,900 1,955 3,955
Non-current liabilities
10% Loan note from Shabib Ltd. - 160
Government grant 230 230 40 200
Current liabilities
Trade payables 475 472
Shabib current account - 60
Income tax payable 228 174
Operating overdraft - 703 27 733
Total equity and liabilities 7,833 4,888
The following information is relevant:

(i) Included in Sohel’s property at the date of acquisition was a leasehold property recorded at
its depreciated historic cost of Tk.400,000. The leasehold had been sublet for its remaining
life of only four years at an annual rental of Tk. 80,000 payable in advance on 1 April each
year. The directors of Shabib Ltd are of the opinion that the fair value of this leasehold is
best reflected by the present value of its future cash flows. An appropriate cost of capital
for the group is 10% per annum.
The present value of Tk.1 annuity received at the of each year where interest rates are 10%
can be taken as 3 years annuity Tk.2.50 and 4 years annuity Tk.4.20.
(ii) The software of Sohel represents the depreciated cost of the development of an integrated
business accounting package. It was completed at a capitalized cost of Tk.2,400,000 and went
on sale on 1 April 20x5. Sohel’s directors are depreciating the software on a straight line basis
over an eight year life. However, the directors of Shabib are of the opinion that a five year life
would be more appropriate as sales of business software rarely exceed this period.
(iii) The inventory of Shabib on 31 March 20x7 contains goods at a transfer price of Tk. 25,000
that were supplied by Sohel who had marked them up with a profit of 25% on cost.
Unrealized profits are adjusted for against the profit of the company that made them.
(iv) On 31 March 20x7 Sohel remitted to Shabib a cash payment of Tk.55,000. This was not
received by Shabib until early April. It was made up of an annual repayment of the 10%
loan note of Tk.40,000 (the interest had already been paid) and Tk.15,000 off the current
account balance.
(v) Goodwill has fallen in value by Tk.120,000 since the acquisition occurred.
Requirement:
Prepare the consolidated balance sheet of Shabib Ltd. as at 31 March 2x17. 18
4. (a) On 1 April 20x6, R Ltd. acquired A Ltd. for a cash payment of Tk.300mn. The fair value of
identifiable net assets as on that day was Tk.260mn which included Tk.10mn towards
acquisition of customer relationships (derived from sale of customer data bases in the past).
On 31 March 20x7 R Ltd. carried out a review of the goodwill for evidence of impairment. As
part of the review the value in use of all its non-current assets was calculated at Tk.280mn.
Two cash generating units X and Y were identified and their value in use was estimated at Tk.
140mn and Tk.130mn respectively. The carrying values of the individual units were as follows:
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Unit X Tkmn Unit Y Tk mn
Trademark and patents 0 8
Property, plant and equipment 120 90
Net current assets 30 25
Total 150 123
One machine (having a carrying value of Tk.5mn) of cash generating unit X was destroyed by
fire. Goodwill on consolidation could not be allocated meaningfully to any of its individual
cash generating units.
Requirements:
(i) Show how the impairment loss (if any) will affect the carrying value of the net assets in
the consolidated financial statements of R Ltd. 10
(ii) Explain the effect of the impairment review on the carrying value of the goodwill on
consolidation as at 31 March 20x7. 8
(b) Red Tomato purchased 90% of the 100,000,000 BDT 10per ordinary share capital of Green
Chilly on 1 January 2017, giving rise to goodwill of BDT 80,000,000. At this date Green
Chilly's retained earnings were BDT 130,000,000. There were no other reserves.
On 30 September 2017, when the net assets of Green Chilly were BDT 330,000,000, Red
Tomato disposed of the majority of its holding in Green Chilly, retaining just 10% of share
capital, with a fair value of BDT 40,000,000. Red Tomato received BDT 315,000,000
consideration for the sale.
- Goodwill in Green Chilly has been impaired by BDT 15,000,000
- In April 2017, Green Chilly revalued a plot of land from BDT 50,000,000 to BDT
75,000,000. This land was held with the intention of building a new head office on it.
- Since acquisition, Green Chilly as recognised a net amount of BDT 20,000,000 gains on
AFS investments in other comprehensive income
- The non-controlling interest is valued using the proportion of net assets method.
Requirement:
What is the impact of the disposal on the Red Tomato Group Statement of profit or loss and
other comprehensive income? 7
(c) The following transactions took place for PLQ Ltd. for the year ended 31 March, 2017.
(i) PLQ Ltd has traditionally repainted its premises every five years. The next painting is due
in a year’s time. The entity proposes to accrue as a provision the expected cost of repainting
the premises. 2
(ii) PLQ Ltd has guaranteed the debts of its associate company up to a maximum amount of
BDT 3 million. The associate is in excellent financial health and the directors are of the
opinion that it is unlikely the guarantee will ever be called in. 3
Requirement:
Discuss briefly how each of the above transactions and events should be recorded by PLQ Ltd
in compliance with the requirements of BAS 37 Provisions, Contingent Liabilities and
Contingent Assets.
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Total marks – 100
N.B. – The figures in the margin indicate full marks. Questions must be answered in English. All workings are to be
submitted. Examiner will take account of the quality of language and of the manner in which the answers are
presented. Different parts, if any, of the same questions must be answered in one place in order of sequence.
Marks
1. (a) As per BFRS framework, explain the concept of `substance over from’ and its relationship to fair
presentation. 3
(b) In the light of BFRS 1, discuss the circumstances when non-compliance with the provisions of an
accounting standard is justified. 3
(c) You have got extracts from the financial statements of two companies as follows:
A B
Tk. Million Tk. million
EBIT 100 200
Depreciation 20 50
Equity 300 500
Liabilities – interest bearing 200 700
Change in Working Capital 5 60
Requirement:
Measure and comment on the (i) profitability, (ii) gearing and (iii) operating cash inflow performance
of A and B companies. 4
(d) An entity with a 31 December year-end purchased an office building with a useful life of 50 years for
Tk 5.5mn on 1 January 20x1. The amount attributable to the land was negligible. The entity used the
building as its head office for five years until 31 December 20x5 when the entity moved its head
office to larger premises. The building was reclassified as an investment property and leased out under
a five year lease.
Owing to a change in circumstances the entity took possession of the building five years later on 31
December 20Y0, to use it as its head office once more. At that date the remaining useful life of the
building was confirmed as 40 years. The fair value of the head office was at 31 December 20X5 Tk
6mn and at 31 December 20Y0 Tk 7.5mn
Requirements:
How should the changes of use be reflected in the financial statements on the assumption that: 10
(i) The entity uses the cost model for investment properties
(ii) The entity uses the fair value for investment properties.
2. (a) The Rigent Company operates a franchise system whereby, at the commencement of a franchise, a
franchisee signs two contracts each with a separate fee. The financial terms of the two contracts are as
follows:
(i) The Tk 36,000 fee receivable at the time the first contract is signed covers Rigent’s initial set-up
costs and the provision to the franchisee of certain equipment with a fair value of Tk 19,000. 40%
of the equipment is delivered to the franchisee when the contract is signed, the remainder 8
months later and title passes on delivery.
(ii) The Tk 9,000 fee receivable at the time the second contract is signed is the first annual fee and covers
the provision of continuing support services. This fee is set at the cost of these services to Rigent. The
fair value of the services is Tk 12,000 which reflects a reasonable profit.
Requirement:
According to IAS 18 Revenue, what revenues should Rigent recognize in its financial statements for
the year ended 31 December 20X7 in respect of the Tk 45,000 receivable for a franchise commencing
on 1 September 20X7. 10
(b) MIDLAND, a public limited company, grants 5,000 share options each to its 20 executives on June 1,
20X5 on these vesting conditions:
Page 1 of 4
 The executives must remain in the company’s employment during the vesting period.
 The share price must reach Tk 10 a share before the share options vest.
 The company’s earnings must increase cumulatively by more than 5% in the first year, 10% in
second year and 16% in the third year after the grant date for the options to vest in that year.
The company has calculated that the fair value of each option at the grant date is Tk 5. The exercise
price of the option is Tk 3 and the exercise date is August 1, 20X8. The shares will vest as soon as all
of the above conditions are met.
The company’s earnings increased by 4% in the year to May 31, 20X6. At that date, it expects that the
earnings will increase by 7% in 20X7 and 6% in 20X8. Additionally, it is anticipated that one director
will leave every year.
At May 31, 20X6, no directors had left, but it is anticipated that two directors will leave in the next year
(they did) and two in the year to May 31, 20X8. The cumulative increase in earnings by the end of May 31,
20X7 is 10%. The performance target will be met in 20X8 and only one director will leave in that year.
The shares of the entity are ordinary shares of Tk 1, and the tax rate applicable in the jurisdiction is
30%. Tax allowances are based on the intrinsic value of the share. The share price of MIDLAND was:
Tk per share
June 1, 20X5 5
May 31, 20X6 7
May 31, 20X7 10
May 31, 20X8 13
May 31, 20X8 14
Requirement:
Show the accounting entries, including deferred taxation, for the above share-based payment
transactions. 15
3. Himadri Ltd., a listed company, owns two subsidiaries acquired as follows:

1 July 2009 80% of Aftab Ltd for Tk. 5 million when the book value of the net assets of
Aftab Ltd was Tk. 4 million.
30 November 2015 65% of Bay Ltd for Tk. 2 million when the book value of the net assets of
Bay Ltd was Tk. 1.35 million.
The companies’ profit and loss accounts for the year ended 31 March 2016 were:
Himadri Aftab Bay
Tk. ‘000 Tk. ‘000 Tk. ‘000
Revenue 10,000 3,000 2,910
Cost of sales (6,000) (2,300) (2,820)
Gross profit 4,000 700 90
Administrative expenses (2,000) (500) (150)
Other income 460 - -
Finance costs - (50) (210)
Profit/(loss) before tax 2,460 150 (270)
Income tax expenses (600) (50) -
Profit/(loss) after tax 1,860 100 (270)
Other comprehensive income, net of tax 260 40 120
Total comprehensive income 2,120 140 (150)
Dividend paid during the year 400 50 -
Additional information:
(1) On 1 April 2015, Bay Ltd issued Tk. 2100,000 10% loan stock to Himadri. Interest is payable
twice yearly on 1 October and 1 April. Himadri has accounted for the interest received on 1
October 2015 only.
(2) On 1 July 2015, Aftab Ltd sold a freehold property to Himadri for Tk. 800,000 (land element
– Tk. 300,000). The property originally cost Tk. 900,000 (land element – Tk. 100,000) on 1
July 1987. The property’s total useful economic life was 50 years on 1 July 2005 and there
has been no change in the useful economic life since. Aftab Ltd has credited the profit on
disposal to ‘Net operating expenses’.
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(3) The fixed assets of Bay Ltd on 30 November 2015 were valued at Tk. 500,000 (book value Tk.
350,000) and were acquired in April 2015. The fixed assets have a total useful economic life of ten
years. Bay Ltd has not adjusted its accounting records to reflect fair values.
(4) All companies use the straight-line method of depreciation and charge a full year’s
depreciation in the year of acquisition and none in the year of disposal.
(5) Himadri charges Aftab Ltd an annual fee of Tk. 85,000 for management services and this has
been included in ‘Other income’.
(6) Himadri has accounted for its dividend receivable from Aftab Ltd in ‘Other income’.
(7) It is group policy to amortise goodwill arising on acquisition over ten years.
Requirement:
Prepare the consolidated statement of profit or loss and other comprehensive income for Himadri
Group for the year ended 31 March 2016. 20
4. (a) Star is a diversified holding company that is looking to acquire a suitable engineering company. Two
private limited engineering companies, C and D, are available for sale. The summarized financial
statements for the year to 31 March 2017 of both companies are as follows:
Income Statements: C D
Tk ‘000 Tk’000 Tk’000 Tk’000
Sales revenues (note i) 3,000 4,400
Opening inventory 450 720
Purchases (note ii) 2,030 3080
2,480 3800
Closing inventory (540) (1,940) (850) (2,950)
Gross profit 1,060 1,450
Operating expenses 480 964
Debenture interest 80 Nil
Overdraft interest (note v) Nil (560) 10 (974)
Net profit 500 476
Balance Sheets: C D
Non Current Assets Tk '000 Tk '000 Tk '000 Tk'000
Property (note iii) 1,140 1,900
Plant (note iv) 1,200 1,200
2,340 3,100
Current Assets
Inventory 540 850
Accounts Receivable 522 750
Bank 20 1,082 nil 1,600
3,422 4,700
Equity and liabilities:
Equity share of Tk 1 each 1,000 500
Reserves:
Revaluation reserve Nil 700
Accumulated profits 1 Apr 2016 684 1,912
Profit for the year to 31 Mar 2017 500 1,184 476 2,388
2,184 3,588
Non Current liabilities
10% Debenture 800 nil
Current Liabilities
Accounts payable 438 562
Overdraft nil 438 550 1,112
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Star bases its preliminary assessment of target companies on certain key ratios. These are listed below
together with the relevant figures for C and D calculated from the above financial statements:
C D
Return on Capital employed*
(500 +80)/ (2,184+800) x100 19.4% (476/3,588) x100 13.3%
Asset turnover** (3,000/2,984) 1.01 Times (4,400/3,588) 1.23 times
Gross profit margin 35.3% 33%
Net profit margin 16.7% 10.8%
Accounts receivable collection period 64 days 62 days
Accounts payable payment period 79 days 67 days
The following additional information have been obtained:
(i) C is a part of the MGH Group. On 1 March 2017 it was permitted by its holding company to sell
goods at a price of Tk 500,000 to BFS, a fellow subsidiary. C’s normal selling price for these
goods would have been Tk 375,000. In addition BFS was instructed to pay for the goods
immediately. C normally allows a three month payment period to customers.
(ii) On 1 January 2017 C purchased Tk 275,000 (cost price to C) of its materials from Advent, another
member of the MGH group. Advent was also instructed to depart from its normal trading terms that
would have resulted in a charge of Tk 300,000 to C for these goods. The Group’s Finance director also
authorized a four month payment period on this sale. Normal payment terms in this industry would be
to receive two months credit from suppliers. C had sold all of these goods at the year end.
(iii) Details relating to the two companies non-current assets at 31 March 2017 are:
Cost Depreciation Book value
Tk’000 Tk’000 Tk’000
C - Property 3,000 1,860 1,140
- Plant 6,000 4,800 1,200
2,340
D - Property 2,000 100 1,900

- Plant 3,000 1,800 1,200
3,100
Both companies own very similar properties. D’s property was revalued to Tk 2,000,000 at the
beginning of the current year (i.e. 1 April 2016). On this date C’s property, which is carried at
cost less deprecation, had a book value of Tk 1,200,000. Its current value (on the same basis as
D’s property) was also Tk 2,000,000. On this date (1 April 2016) both properties had the same
remaining life of 20 years.
(iii) D purchased new plant costing Tk 600,000 in February 2017. In line with company policy a full
year’s depreciation at 20% per annum has been charged on all plant owned at the year end. The
plant is still being tested and will not come on-stream until next year. The purchase of the plant
was largely financed by an overdraft facility that resulted in the interest cost shown in the income
statement. Both companies depreciate plant over a five year life.
(iv) The bank overdraft that would have been required but for the favorable treatment towards C in
respect of the items in (i) and (ii) above, would have attracted interest of Tk 15,000 in the year to
31 March 2017.
Requirements:
(i) Restate the financial statements of C and D for the year to 31 March 2017 in order that they may be
considered comparable for decision making purposes. State any assumptions you make. 12
(ii) Recalculate the key ratios used by Star and, together with any other relevant points, comment on
how the revised ratios may affect the relative assessment of the two companies. 12
(b) Differences in accounting policies and estimates can affect the comparison of financial statements of
two or more entities. Discuss three examples of where such differences could affect comparability
between entities. 5
(c) It has been suggested that profit on construction contracts should not be recognised until the contract
is completed. Briefly explain whether you believe that this suggestion would improve the quality of
financial reporting for long-term contracts. 6
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Total marks – 100
N.B. – Questions must be answered in English. Figures in the margin indicate full marks. All workings are to
be submitted. Examiner will take account of the quality of language and of the manner in which the
answers are presented. Different parts, if any of the same questions must be answered in one place in
order of sequence.
Marks
1. (a) Discuss whether an agreed international framework for financial reporting is needed in order to
resolve practical accounting issues. 6
(b) Turag is a company that complies with the minimum requirements of BAS 24. The following
transactions took place during the year 2015:
(1) Turag sells goods on credit to Jomuna Ltd. which is owned by the son of Mr. Babor, a
director of Turag. At the year end there was a trade receivable of Tk.500,000 owing from
Babor to Turag. It was decided to write off Tk.150,000 of this receivable, and make full
provision of the remainder. Debt collection costs incurred by Turag were Tk.20,000.
(2) Turag purchased goods from Meghna for Tk.3,000,000, which was deemed to be an arm‟s
length price. Turag owns 40% of the ordinary share capital of Meghna.
(3) An amount of Tk.450,000 is due to one of Turag‟s distributor companies, Padma.
(4) A house owned by Turag with a carrying value of Tk.2,000,000 and a market value of Tk.
4,500,000, was sold to one of its directors, Mr. Humaiyun for Tk.4,250,000. Turag
guaranteed the loan taken out by Mrs. Humaiyun to purchase the property.
Requirement:
Explain what disclosure, if any, would be required by BAS 24 in the financial statements of
Turag in respect of each of the above transactions. 6
(c) XYZ Ltd. accounts for deferred tax by recognizing deferred tax assets and liabilities on all
temporary differences. The carrying amounts of assets and liabilities and their corresponding
tax bases as at 31 December 2014 together with the recognized deferred tax assets and
liabilities are as follows:
Carrying amount Tax base Temporary difference
Tk.‟000 Tk.‟000 Tk.‟000
Plant, machinery and equipment 40,000 25,000 15,000
Trade debtors, net of general provision
for bad debts of 4,00,000 24,000 28,000 ( 4,000)
Provisions for retirement benefits ( 8,000) 0 ( 8,000)
3,000
Deferred tax liability 15,000x40% 6,000
Deferred tax assets 12,000x40% ( 4,800)
Net deferred tax liability 1,200
During the year ended 31 December 2015, some plant with a net book value of Tk.15,000,000
are revalued upward to Tk.25,000,0000. At the date of the revaluation, the remaining useful life
of the revalued asset is five years.
As at 31 December 2015, the carrying amounts of assets and liabilities in the statement of
financial position and their corresponding tax bases are as follows:
Carrying amount Tax base
Tk.‟000 Tk.‟000
Plant, machinery and equipment 45,000 22,000
Trade debtors, net of general provision of Tk.5,000,000 26,000 31,000
Provision for retirement benefits ( 9,000) 0
Income tax rate for the year ended is reduced to 35%.
Requirement:
Compute the amount of deferred tax asset deferred tax liability that should be recognized by
XYZ Ltd. as at 31 December 2015. Also, show the movement and the components of the
deferred tax account. 8
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2. Eden Ltd is the parent company of a group which operates a chain of department stores. You work
for a firm of Chartered Accountants and have been seconded to the company as a temporary
replacement for the Finance Director, who retired on 30 June 2016. Your firm does not provide
assurance services to the group.
The Finance Director continues to hold a small number of shares in Eden Ltd. As part of his
retirement benefits package, he will receive a bonus which is linked to the amount by which
reported earnings per share for the year ended 30 June 2016 exceeds 60p.
The Board of Directors has asked you to finalize the consolidated financial statements for the year
ended 30 June 2016 and to document your findings in a memorandum addressed to them. They are
particularly concerned about the gearing of the group. They have provided you with the following
summary of the draft consolidated statement of comprehensive income and consolidated statement
of financial position.
Draft Consolidated Statement of Comprehensive Income

for the year ended 30 June 2016 (extract)
Amount in
BDT'000
Profit before tax 6,373
Tax (668)
Profit for the period 5,705
Attributable to:
Equity holders of parent 5,289
Minority interest 416
5,705
Draft Consolidated Statement of Financial Position 30 June 2016
Non- current assets

Property plant and equipment 26,100
Goodwill - Haider Ltd 9,000
Other intangible assets 4,000
Investment 700
39,800
Current assets 3,715
Total assets 43,515

Issued capital 3,000
Revaluation reserve 6,525
Minority Interest 2,590
Equity 23,685
Long-term borrowing 12,400
Provisions 5,000
Current liabilities 2,430
You have also been provided with information about three issues:
(a) On 1 January 2016 Eden Ltd acquired 80% of Hider Ltd which also operates department stores.
The rationale behind the acquisition was that Hider Ltd‟s stores are in locations where Eden Ltd
Page2 of 6
is not represented. The purchase price for Hider Ltd was Tk 35 mn plus a further cash payment
of Tk 10 mn on 1 July 2017. There are no conditions attached to this further payment. The
amount of goodwill in respect of the acquisition of Hider Ltd included in the draft financial
statements has been calculated as follows:
Tk‟000
Cost of investment 45,000
Less group share of net fair value of the identified assets & liabilities as acquired (36,000)
(80%x Tk 45mn) 9,000
At 1 January 2016, the identifiable assets and liabilities of Hider Ltd included the following items:
(i) The brand name of Hider Ltd‟s line of „own brand‟ clothing. This was provisionally valued at TK
4 mn for the purpose of the sale agreement. An independent valuations specialist has since advised
that the fair value of the brand was TK 6 mn at the acquisition date. However, Eden Ltd‟s
directors have decided to phase out Hider Ltd‟s „own brand‟ clothing over the next three years and
therefore, they propose that the brand name should not be recognized as a separate intangible
assets. Because the benefits that Eden Ltd will receive from the acquisition will mainly result from
synergies, the directors believe that the vaue of the brand should be subsumed within goodwill.
The brand has not been recognized in the separate financial statements of Hider Ltd. In the
consolidated financial statements, the brand is carried at Tk 4 mn.
(ii) A provision for reorganization costs of Tk 5 mn. The reason for this was that Hider Ltd would
have had to carry out a restructuring in order to continue to trade, had it not been acquired by Eden
Ltd. It has since been confirmed that the directors of Hider Ltd did fully intend to restructure the
company had the acquisition not gone ahead. However, no detailed plan had been drawn up and
no announcement had been made to employees or customers by 1 January 2016. This provision is
still recognized in both the separate financial statements of Hider Ltd and the group financial
statements for the year ended 30 June 2016.
The rate of interest applicable to the long term borrowings of the group is 10%. The
directors are of the opinion that goodwill arising on the acquisition had not suffered any
impairment at 30 June 2016.
(b) Eden Ltd‟s long term investments include debentures in Kader Ltd which it purchased for TK
500,000 at 1 July 2014. No interest is receivable in respect of the bonds, but they are redeemable at
a premium on 30 June 2017. The effective rate of interest on the bonds is 8% and the current market
rate for similar bond is 6%. On 15 July 2016, the directors of Eden Ltd heard that Kader Ltd was in
financial difficulties and would undergo a financial reorganization. On the basis of discussions with
their investment advisors, the directors believe that they are unlikely to receive more than Tk
250,000 on 30 June 2017. The debenture have been classified as loans and receivables and are
included in the consolidated balance sheet at a carrying amount of Tk 583,200.
(c) Eden Ltd is currently renovating one of its stores. On 1 April 2016 the store buildings are on
the freehold land on which they stand were sold to Delwar Ltd for Tk 6 mn. At that date the
land and buildings had a carrying amount of TK 3.5mn (of which TK 1.5mn related to freehold
land) and an estimated remaining useful life of twenty years. The open market value of the land
and buildings was Tk 10mn. Under the terms of the sale agreement Eden Ltd retains the right to
continue to occupy and renovate the site. Eden Ltd has an option to repurchase the land and
buildings for Tk 8mn on 1 April 2018. The store is expected to re–open in Autumn 2018. Eden
Ltd has removed the store from its statement of financial position and has recognized a profit
on sale of Tk 2.5mn. Work to redevelop the site had not yet started at 3o June 2016.
The issued share capital on 1 July 2015 was 2,400,000 ordinary shares. On 1 April 2016. Eden Ltd
made a 1 for 4 right issue at Tk 5 per share. The market value of one ordinary share immediately
prior to the rights issue was Tk 6 per share. This share transaction has been correctly reflected in the
draft financial statements.
Requirements:
Draft a memorandum to the Board of Directors of Eden Ltd that include:
(i) An explanation of the required IFRS accounting treatment of these in the individual financial
statements of Hider Ltd and in the consolidated financial statements of the Eden Group,
preparing relevant calculations where applicable. 12
Page3 of 6
(ii) A revised draft of the consolidated statement of comprehensive income for the year ended 30
June 2016 and a revised draft of the consolidated financial statement at that date. 8
(iii) A calculation of the following financial ratios before and after the accounting adjustments: 3
a. Basic EPS
b. Theoretical ex-right price.
(iv) A discussion of the ethical issues arising from the adjustments to the financial statements. 4
3. (a) The directors of North-bengal, a public limited company, have seen many different ways of
dealing with the measurement and disclosure of the fair value of assets, liabilities and equity
instruments. They feel that this reduces comparability among different entities‟ financial
statements. They would like advice on several transactions where they currently use fair value
measurement as they have heard that the introduction of IFRS 13 Fair Value Measurement,
while not interfering with the scope of fair value measurement, will reduce the extent of any
diversity and inconsistency.
(i) North-bengal owns several farms and also owns a division which sells agricultural vehicles.
It is considering selling this agricultural retail division and wishes to measure the fair value
of the inventory of vehicles for the purpose of the sale. Three markets currently exist for
the vehicles. North-bengal has transacted regularly in all three markets. At 30 April 2015,
North-bengal wishes to find the fair value of 150 new vehicles, which are identical. The
current volume and prices in the three markets are as follows:
Market Sales vehicle sold Total Transaction Transport
price/unit by Young vehicles sold costs/unit cost/unit
Tk. Unit Unit Tk. Tk.
Barisal 40,000 600 15,000 500 400
Rajshai 38,000 250 75,000 400 700
Sylhet 34,000 150 10,000 300 600
North-bengal wishes to value the vehicles at Tk. 39,100 per unit as these are the highest net
proceeds per unit, and Barisal is the largest market for North-bengal‟s product.
Requirement:
Advise as to whether this valuation would be acceptable under IFRS 13 Fair Value
Measurement. 8
(ii) The company uses quarterly reporting for its farms as they grow short-lived crops such as
wheat. North-bengal planted the wheat fields during the quarter to 31 October 2014 at an
operating cost of Tk. 10 million. The fields originally cost Tk. 20 million. There is no
active market for partly grown fields of wheat and therefore North-bengal proposes to use a
discounted cash flow method to value the wheat fields. As at 31 October 2014, the
following were the cash flow projections relating to the wheat fields:
3 months to 31 3 months to 30 Total
January 2015 April 2015
Tk. million Tk. million Tk. million
Cash inflows 80 80
Cash outflows (8) (19) (27)
Notional rental charge for land usage (1) (1) (2)
Net cash flows (9) 60 51
In the three months to 31 January 2015, the actual operating costs amounted to Tk. 8 million
and at that date North-bengal revised its future projections for the cash inflows to Tk. 76
million for the three months to April 2015. At the point of harvest at 31 March 2015, the wheat
was worth Tk. 82 million and it was sold for Tk. 84 million (net of costs to sell) on 15 April
2015. In the measurement of fair value of the wheat, North-bengal includes a notional cash
flow expense for the „rent‟ of the land where it is self-owned.
Page4 of 6
Requirement:
The directors of North-bengal wish to know how they should have accounted for the above
biological asset at 31 October 2014, 31 January 2015, 31 March 2015 and when the produce
was sold. Assume a discount rate of 2% per quarter as follows: 8
Factor Period 1 0·980
Period 2 0·961
(b) On January 1, 2015, UBL sold equipment with a carrying amount of BDT 100m, and a
remaining useful life of ten years, to Maco Ltd. for BDT 150 m. UBL immediately leased the
equipment back under a ten year finance lease with a present value of BDT 150 m. UBL
follows the straight line method of depreciation. UBL made the first annual lease payment of
BDT 24.412 m in December 2015.
Requirement:
Calculate the unearned gain on equipment sale that should be recognized for presentation in
UBL‟s December 31, 2015 statement of financial position. 5
(c) On September 1, 2014, UBL sold merchandise to Hindustan Liver for IRS 250 m. Terms of the
sale require payment in IRS on February 1, 2015. On September 1, 2014, the spot exchange rate
was BDT 2 per IRS. At December 31, 2014, UBL‟s year-end, the spot rate was BDT 1.9, but
the rate increased to BDT 2.2 by February 1, 2015, when payment was received.
Requirement:
How much should UBL report as foreign exchange transaction gain or loss as part of 2015
income? 5
(d) On 1 January 2015, UBL issued a BDT 100 m 4% convertible debenture for BDT 100 m. The
fair market interest rate was 6% pa and a straight debenture with a face value of BDT 100 m
and coupon rate of 4% could be sold for BDT 90 m. UBL applies the “split accounting”
provisions of IAS 32.
Requirement:
How will the issuance of convertible debenture be split between the liability and equity
components and how much interest expense will be charged in 2015? Pass the required journal
entries. 5
4. (a) ABC Ltd‟s forecasted 2017 financial statements follow, along with industry average ratios.
Forecasted Statement of Financial Position as at December 31, 2017
Tk.‟000
Cash 72,000
Accounts receivable 439,000
Inventories 894,000
Total current assets 1,405,000
Land and building 238,000
Machinery 132,000
Other fixed assets 61,000
Total assets 1,836,000
Accounts and notes payable 432,000

Accruals 170,000
Total current assets 602,000
Long-term debt 404,200
Ordinary share capital 575,290
1,836,000
Page5 of 6
Forecasted Statement of Comprehensive Income for 2017
Tk.‟000
Sales 4,290,000
Cost of goods sold (3,580,000)
Gross operating profit 710,000
General administrative and selling expenses ( 236,320)
Depreciation ( 159,000)
Miscellaneous ( 134,000)
Earnings before taxes (EBT) 180,680
Taxes (40%) ( 72,272)
Net income 108,408
Number of shares outstanding 23,000,000
Per-Share Data
EPS Tk. 4.71
Cash dividends per share Tk. 0.95
P/E ratio 5.0 x
Market price (average) Tk. 23.57
Industry Financial Ratios (2017)a

Quick ratio 1.0x
Current ratio 2.7x
Inventory turnoverb 5.8x
Days sales outstanding 32.0 days
Fixed assets turnoverb 13.0x
Total assets turnoverb 2.6x
Return on assets 9.1%
Return on equity 18.2%
Debt ratio 50.0%
Profit margin on sales 3.5%
P/E ratio 6.0x
a
Industry average ratios have been constant for the past four years.
b
Based on year-end financial position figures.
Requirements:
(i) Calculate ABC Ltd‟s 2017 forecasted ratios, compare them with the industry average data,
and comment briefly on ABC‟s projected strengths and weaknesses. 12
(ii) What do you think would happen to ABC‟s ratios if the company initiated cost-cutting
measures that allowed it to hold lower levels of inventory and substantially decrease the
cost of goods sold? No calculations are necessary. Think about which ratios would be
affected by changes in these two accounts. 6
(b) Is the indirect method for preparing a statement of cash flows more useful to users than the
direct method? Why? 4
Page6 of 6

Total marks – 100
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) All accounting professionals are responsible for acting in the public interest, and for promoting
professional ethics. The directors of Angel feel that when managing the affairs of a company
the profit motive could conflict with the public interest and accounting ethics. In their view, the
profit motive is more important than ethical behaviour and codes of ethics are irrelevant and
unimportant.
Required:
Discuss the above views of the directors that codes of ethics are irrelevant and unimportant. 6
(b) ABC Ltd. presented its statements of financial position (balance sheets) in its 2014 annual
report as follows:
31 December 31 December
2014 2013
Tk.’000 Tk.’000
Land 5,000 5,000
Building 5,000 5,000
Net current assets 3,000 1,000
Shareholders’ equity 13,000 11,000
In 2015, ABC Ltd. discovered that the building, which was acquired in January 2007, has not
been depreciated. ABC Ltd.’s accounting policy is to depreciate the cost of the building over 50
years on a straight line basis. The correction of error is to be recorded retrospectively in
accordance with BAS 8.
Required:
Present the 2015 statement of financial position of ABC Ltd. in accordance with BAS 8. 6
(c) Biogenics is a listed pharmaceutical company. During the year to 31 December 2015 the
following transactions took place:
(i) Tk. 6m was spent on developing a new obesity drug which received clinical approval on 1
July 2015 and is proving commercially successful. The directors expect the project to be in
profit within 12 months of the approval date. The patent was registered on 1 July 2015. It
cost Tk. 1.5m and remains in force for three years.
(ii) A research project was set up on 1 October 2015 which is expected to result in a new cancer
drug. Tk. 200,000 was spent on computer equipment and Tk. 400,000 on staff salaries. The
equipment has an expected life of four years.
(iii) On 1 September 2015 Biogenics acquired an up-to-date list of GPs at a cost of Tk.500,000
and has been visiting them to explain the new obesity drug. The list is expected to generate
sales throughout the life-cycle of the drug.
Required:
Present the extracts from the statement of financial position of Biogenics at 31 December 2015
relating to the above items and summarise the costs to be included in the statement of profit or
loss for that year. 7
(d) The retirement defined benefit plan of XYZ Ltd. provides for a lump sum benefit payable on
termination of service which is equal to 1% of the final-year salary for each year of service. An
employee (Mr. A) commences work on 1 July 2011 and is expected to retire on 1 July 2016.
His final-year salary is expected to be Tk.100,000 p.a. The discount rate is 10% p.a.
Page 1 of 5
Required:
Compute the retirement benefit cost/obligation of XYZ Ltd. on account of Mr. A for the years
2011-12 to 2015-16. 6
2. (a) A statement showing the retained profit of Eastern for the year to March 31, 2015 is set out
below:
Tk. Tk.
Profit before tax 2,530,000
Less: Income tax 1,127,000
1,403,000
Transfer to reserve 230,000
Dividends:
Interim dividend- preference 138,000
Interim dividend- ordinary 414,000
Final dividend- preference 138,000 690,000
920,000
Retained 483,000
On April 1, 2014 the issued share capital of Eastern was 460,000 6% preference shares of Tk.
10 each and 412,000 ordinary shares of Tk. 10 each.
Required:
Calculate the earnings per share in respect of the year ended March 31, 2015 for each of the
following mutually exclusive circumstances. 10
(i) There was no change in the issued share capital of the company during the year.
(ii) The company made a rights issue of Tk. 10 ordinary shares on January 1, 2015 in the
proportion of 1 for every 5 shares held, at a price of Tk.12. The market price for the shares
at close of trade on the last day of quotation cum rights was Tk.17.8 per share.
(iii) During the year ended on March 31, 2015, the company made no new issue except the
issue of Tk.1,500,000 10% convertible bonds 2018-2021. This bond of Tk.1000 nominal
value will be convertible into ordinary Tk.10 shares as follows:
2018 90 shares 2019 85 shares
2020 80 shares 2021 75 shares
(b) In August 2013, Ace Construction Ltd. (the Company) entered into a contract to build a
condominium. The project is scheduled to be completed in June 2016. The contract price is
Tk.150m.
As at 31 December 2013, the actual cost incurred on the project totaled Tk.10m, and the
company expected to incur an additional Tk.90m to complete the contract.
As at 31 December 2014, the actual cost incurred on the project totaled Tk.20m, and the
company expected to incur an additional Tk.80m to complete the contract.
As 31 December 2015, the actual cumulative cost incurred on the project totaled Tk.60m, and
the company expected to incur an additional Tk.60m to complete the contract.
BAS 11 Construction Contracts mandates the use of the percentage of completion method and
disallows the use of the completed contract method in accounting for construction contracts.
Unaware of the requirement of the accounting standard, the company had erroneously adopted,
for the year ended 31 December 2014, the completed contract method under which no profit
was recognized on construction contracts until they were completed. This error was
subsequently discovered and the Company decided to account for the correction of error in its
financial statements for the year ended 31 December 2015.
The company adopted the retrospective method under BAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors to account for correction of error. The company also provided
for deferred tax in compliance with the requirement of BAS 12 Income Taxes.
Page 2 of 5
The relevant tax rules impose tax (assume a rate of 20%) on profits on construction contracts
which are recognized when the constructions are substantially completed.
In early February 2016, the assistant accountant of the company, who was not aware of the
correction, drafted the 2015 financial statements of the company as shown below (with 2014
published data as comparative figures).
Statements of profit or loss
2015 2014
Tk.’mil Tk.’mil
Revenue - -
Less expenses - -
Profit before tax - -
Less tax - -
Profit after tax - -
Retained earnings (in statement of changes in equity)
Tk.’mil
Balance as at 1 January 2014 30
Profit for the year 2014 -
Balance as at 31 December 2014 30
Profit for the year 2015 -
Balance as at 31 December 2015 30
Balance sheets
2015 2014
Tk.’mil Tk.’mil
Fixed assets 100 100
Construction in progress 60 20
Other net current asset 20 40
180 160
Share capital 100 100
Retained earnings 30 30
Bank loans 45 25
Deferred tax liability 5 5
180 160
The 2015 financial statements of the Company were expected to be issued on 30 June 2016.
Required:
(i) Compute the cumulative effect of the correction of error up to 1 January 2015. 3
(ii) Pass the journal entry required to record the correction of error in 2015. 2
(iii) Present the extracts of 2015 statement of profit or loss, 2015 statement of changes in equity
(retained earnings) and 2015 balance sheet alongwith disclosure note on correction of error. 10
3. Bay and River are two listed entities. Bay acquired 25% of River on 1 January 2013 for Tk.
4,040,000 allowing Bay significant influence over the financial and operating policy decisions of
River. The fair value of River’s identifiable assets and liabilities at that date was Tk.14,400,000 and
reserves were at Tk.11,600,000. At 31 December 2013, the fair value of Bay’s 25% stake in River
was Tk.4,880,000.
At 30 September 2015, a further 35% stake in River was acquired at Tk. Tk.28.75 per share giving
Bay control over River when the fair value of River’s identifiable assets and liabilities was Tk.
18,800,000, and reserves stood at Tk.15,600,000.
For consistency with the measurement of other shares, Bay holds its investments in subsidiaries and
associates at fair value through other comprehensive income in its own financial statements as
permitted by BFRS 10 Consolidated financial statements.
At 31 December 2015, the fair value of Bay’s 60% holding in River was Tk.14,040,000 and total
gains recognised in other comprehensive income in Bay’s own financial statements amounted to
Tk.1,950,000.
Page 3 of 5
The financial statements of two companies at 31 December 2015 are as under:
Bay River
Tk.`000 Tk.`000
Non-current assets:
Property, plant and equipment 77,300 15,200
Investment in equity (River) 14,040 -
91,340 15,200
Current assets 25,400 4,400
116,740 19,600
Equity:
Share capital (Tk. 2 shares) 20,400 1,600
Reserves 81,440 15,800
101,840 17,400
Liabilities 14,900 2,200
116,740 19,600
Summarised Statement of profit or loss and other comprehensive income

For the year to 31 December 2015
Bay River
Tk.`000 Tk.`000
Profit before interest and tax 2,560 840
Finance costs (160) (40)
Profit before tax 2,400 800
Income tax expense (720) (160)
Profit after tax 1,680 640
Other comprehensive income:
Gain on property valuation, net of tax 480 160
Investment in equity instrument (River) 1,110 ____
Other comprehensive income for the year 1,590 160
Total comprehensive income 3,270 800
 The difference between the fair value of the identifiable assets and liabilities of River and
their book value relates to the value of a plot of land which is still held by the company.
 Neither company paid dividends during the year.
 Bay decided to measure non-controlling interests at the date of acquisition at fair value. No
impairment losses on recognised goodwill have been necessary to date.
 Income and expenses can be assumed to have arisen evenly throughout the year.
Required:
(a) Prepare the consolidated statement of profit or loss and other comprehensive income and 20
statement of financial position of the Bay Group as at 31 December 2015.
(b) Recast the consolidated statement of profit or loss and other comprehensive income
assuming that there would be no influence over the financial and operating policy
decisions in the management of River. 5
4. (a) On 30 December 2013, DEF Ltd. sells goods invoiced at Tk.100,000 to LMN Ltd. It is agreed
that the amount will be payable only after two years on 30 December 2015 with no interest.
Assume LMN Ltd.’s incremental cost of borrowing is 6% p.a. Assume also that there is no
collectivity problem.
Required:
Pass journal entries to record the transactions in 2013, 2014 and 2015. 4
(b) On 1 January 2013, P Ltd. is required by the bank to stand as a guarantor for a loan extended to
its subsidiary, S Ltd. The loan is a three-year term loan with the principal amount of
Page 4 of 5
Tk.10,000,000 repayable on 31 December 2015. The interest is 5% p.a., payable on 31
December each year.
The bank has indicated that, without the parent company’s guarantee, the interest rate on the
loan extended to S Ltd. would be 8% p.a.
Assume that P Ltd. has assessed that payment under the guarantee as not probable throughout
the loan period.
Required:
(i) Pass journal entries in the books of P Ltd. and S Ltd. in the years 2013, 2014 and 2015. 8
(ii) State how the above transactions will be reflected in the consolidated financial statements. 3
(c) The following information are extracted from the 2014 Annual Report of a scheduled bank in
Bangladesh:
(BDT in million unless stated otherwise)
2014 2013 2012
Interest income 17,234.14 17,220.88 16,718.79
Investment income 5,987.81 4,899.69 2,034.60
Non-interest income 2,407.41 2,297.42 2,024.97
Total income 25,629.36 24,418.00 20,778.36
Interest expenses 12,200.11 11,821.24 9,267.83
Non-interest expenses 6,347.86 5,036.96 5,374.74
Total expenses 18,547.97 16,858.20 14,642.57
Net Interest margin (NIM) 5,034.03 5,399.64 7,450.96
Net non-interest margin 2,047.36 2,160.15 ( 1,315.17)
Operating profit 7,081.39 7,559.80 6,135.79
Earning before provision, depreciation and tax 7,327.09 7,805.50 6,331.48
Profit before provision & tax 7,081.39 7,559.80 6,135.79
Profit before tax 6,143.50 5,386.79 4,317.08
Net profit after tax 3,070.13 2,305.54 1,761.98
Capital adequacy ratio (CAR) 11.74% 11.73% 12.20%
Earnings per share (EPS) (in BDT) 3.49 2.62 2.10
Net asset value per share (NAVPS) (in BDT) 25.97 24.22 22.43
Required:
Comment on the performance of the bank over the 3-year period from 2012 to 2014. 10
Page 5 of 5
Time allowed - 3 hours
Total marks - 100
{N.B: The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.}
Marks
1. (a) You are the Chief Financial Officer of Royal Bengal Tiger Ltd. Royal Bengal Tiger Ltd. has
subsidiaries located in a number of different countries. Royal Bengal Tiger Ltd. has a strategy
of growth by acquisition and regularly evaluates potential acquisition targets from different
countries and financial reporting regimes. Royal Bengal Tiger Ltd regularly seeks to raise
capital on a number of different markets to fund new acquisitions. All subsidiaries currently
prepare financial statements using applicable local accounting standards. The consolidated
financial statements have been prepared using local accounting standards that apply in Royal
Bengal Tiger Ltd’s jurisdiction up to and including the year ended 31 December 2014. Local
regulations allow financial statements to be prepared either using local accounting standards or
International Financial Reporting Standards (IFRS). The directors are giving serious
consideration to using IFRS from the year ending 31 December 2015 onwards. One of the
directors is unsure of the wisdom of this proposal and has identified a number of issues about
which he is uncertain.
Issue (i)
Changing from using local standards to using international standards is bound to have short-
term cost implications. Ineed to be convinced that the benefits of a change justify these costs.
Please describe three ways we would benefit from a move to IFRS.
Issue (ii)
I’m unclear about the practicalities of adopting IFRS in the year ending 31December 2015. I’ve
heard that we need to start with the opening IFRS statement of financial position. I’m unclear
what this means and for what date it is prepared. Please explain the process for me, including
any additional disclosures we need to make in the first set of financial statements prepared
under IFRS.
Required:
Prepare a response to the two issues raised by the director. 12
(b) XYZ Ltd. is a manufacturer and trader of consumer products. Its accounting year ends 30 June
each year.
The auditors of XYZ Ltd. are finalizing their audits of the 2014-2015 accounts and hope to
meet the proposed deadline of 30 September 2015 when the financial statements are expected
to be authorized for issue.
The following list was prepared by the audit senior on the job for the attention of the audit
manager. Assume you are the audit manager.
Required:
Discuss whether the following post balance sheet events should be classified as `adjusting’ or
`non-adjusting’ events and suggest appropriate accounting treatments. (Note: Assuming all the
above matters are material in relation to the company’s accounts, and ignore tax effects.)
(i) On 10 July 2015, the company’s factory was destroyed by fire caused by sabotage. The
factory was not insured sufficiently and the loss suffered from the fire was estimated to be
Tk.500,000; 2
(ii) The company acquired 1,000,000 shares of DEF Ltd. at a cost of Tk.2,500,000 in 2013-
2014. (DEF Ltd.’s share capital consists of 10,000,000 ordinary shares of Tk.1 each). On
30 June 2015, a provision for diminution in investment of Tk.500,000 was made in respect
of these shares. The provision took into account the impairment in value of the investment.
These shares were sold on 20 August 2015, resulting in a loss of Tk.100,000. The loss of
Tk.100,000 reflects further deterioration in share prices after 30 June 2015; 2
Page 1 of 5
(iii) During the first week of September 2015, the company held a `sales’ to clear the old stocks
of 2015 Summer goods and 2015 Eid-ul-Fitre goods, where all the goods were sold at 40%
of cost. In early June 2015, the company purchased Tk.1,000,000 of Summer goods and
Tk.1,000,000 of Eid-ul-Fitre goods (for the Eid-ul-Fitre in August 2015), and as at 30 June
2015 Tk.100,000 of Summer goods and all the Tk.1,000,000 of Eid-ul-Fitre goods were in
the store. These goods were carried at cost and no provision has been made as at 30 June
2015; and 4
(iv) In mid-September 2015, manufacturing defects were discovered in product X100 and
product Y200. Product X100 was manufactured and sold since January 2014 and product
Y200 was one of its new products manufactured and sold in the third quarter of 2015. (As
both the products are made to order, the amount of stock is immaterial). The company was
advised by its lawyers that it was highly probable that the company will have to pay
damages of Tk.500,000 for product X100 and Tk.100,000 for product Y200. 4
2. (a) Meghna acquired 600,000 of the 1,000,000 shares in Padma, the only subsidiary on July 01,
2014. The statement of profit or loss and other comprehensive income of both companies at
December 31, 2014 are as follows:
Income Statement
For the year ended December 31, 2014
Meghna Padma
Tk.`000 Tk.`000
Revenue 86,000 52,000
Cost of goods sold (56,000) (36,000)
Other income - dividend from Padma 4,000 -
Distribution expenses (4,000) (1,600)
Administrative expenses (8,000) (4,400)
Interest expense (1,000) (600)
Profit before tax 21,000 9,400
Income tax expense (2,800) (1,800)
Profit after tax 18,200 7,600
Other comprehensive income:
Gain on property revaluation [Note (1)] - 4,000
Investment in equity instrument 400 -
Total comprehensive income 18,600 11,600
(1) At the date of acquisition the fair values of Padma’s assets were equal to their carrying
amounts with the exception of a building which had a fair value Tk. 2 million in excess of
its carrying amount and remaining useful life of 20 years. Building depreciation is charged
to administrative expenses. The building was revalued again at December 31, 2014 and its
fair value had increased by an additional amount of Tk. 2 million.
(2) Sales from Meghna to Padma were Tk. 12 million during the post-acquisition period.
Meghna marks up all sales by 20% on cost.
(3) Despite the property revaluation, Meghna has concluded that goodwill in Padma has been
impaired by Tk. 1 million
(4) It is Meghna’s policy to value the non-controlling interest at full fair value.
(5) Income and expenses can be assumed to have arisen evenly throughout the year.
Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for the year 15
ended at December 2014.
Page 2 of 5
(b) Jamuna limited operates many of its activities overseas. The directors have asked for advice on
the correct accounting treatment of the following aspect of Jamuna’s overseas operation.
Jamuna’s functional currency is the US dollar.
On 1 May 2014, Jamuna purchased 70% of a multi-national group whose functional currency was
the dinar. The purchase consideration was US$200 million. At acquisition, the net assets at cost
were 1,000 million dinars. The fair values of the net assets were 1,100 million dinars and the fair
value of the non-controlling interest was 250 million dinars. Jamuna uses the full goodwill
method.
Jamuna wishes to know how to deal with goodwill arising on the above acquisition in the group
financial statements for the year ended 30 April 2015. 5
3. (a) Calculate the carrying amounts of the assets in (i) and (ii) below at 31 March 2015
after applying any impairment losses as per requirement of BAS 36 Impairment
of Assets.
(i) Chin Hung Pharma Ltd. acquired an item of plant at a cost of TK. 800,000 on 1 April 2013
that is used to produce and package pharmaceutical pills. The plant had an estimated residual
value of TK. 50,000 and an estimated life of five years, neither of which has changed. Chin
Hung Pharma Ltd. uses straight-line depreciation. On 31 March 2015, Chin Hung Pharma Ltd.
was informed by a major customer (who buys products produced by the plant) that it would no
longer be placing orders with Chin Hung Pharma Ltd. Even before this information was known,
Chin Hung Pharma Ltd. had been having difficulty finding work for this plant. It now estimates
that net cash inflows earned from the plant for the next three years will be:
TK. ’000
year ended: 31 March 2016 220
31 March 2017 180
31 March 2018 170
On 31 March 2018, the plant is still expected to be sold for its estimated realisable value.
Chin Hung Pharma Ltd. has confirmed that there is no market in which to sell the plant at 31
March 2015. Chin Hung Pharma Ltd’s cost of capital is 10% and the following values should
be used:
value of TK. 1 at: Tk.
end of year 1 0·91
end of year 2 0·83
end of year 3 0·75 5
(ii) Chin Hung Pharma Ltd. owned a 100% subsidiary, RIFF, that is treated as a cash generating
unit. On 31 March 2015, there was an industrial accident (a gas explosion) that caused damage
to some of RIFF’s plant. The assets of RIFF immediately before the accident were:
Tk.’000
Goodwill 1,800
Patent 1,200
Factory building 4,000
Plant 3,500
Receivables and cash 1,500
Total 12,000
As a result of the accident, the recoverable amount of RIFF is TK.6·7 million. The explosion
destroyed (to the point of no further use) an item of plant that had a carrying amount of TK.
500,000. RIFF has an open offer from a competitor of TK.1 million for its patent. The
receivables and cash are already stated at their fair values less costs to sell (net realisable
values). 8
(b) (i) ABC Ltd. was incorporated in 2011 with a paid-up capital of 5,000,000 ordinary shares of
Tk.1.00 each. Its accounting year-end is 31 December each year.
Page 3 of 5
On 1 October 2013, ABC Ltd. issued Tk.1,000,000 convertible loan stocks (CLS). The
CLS carry a gross interest rate of 10% and are convertible into ordinary shares at a rate of 1
ordinary share for Tk.1 of loan stock, commencing 1 January 2015.
ABC Ltd.’s after-tax profits were Tk.1,000,000 for each of the years ended 31 December
2013 and 2014. Assume a statutory tax rate of 30%.
Required:
Calculate the EPS figures that need to be presented in the financial statements for the year
2014 as per the relevant BAS. 7
(ii) Navana Ltd. sold goods, which had a cost of Tk.90,000, to a wholesaler for Tk.105,000 on
July 01, 2014. Navana has an option to repurchase the goods from the Wholesaler at any
time within the next two years. The repurchase will be Tk.105,000 plus interest at 12% per
annum from the date of sale to the date of repurchase. It is expected that Navana will
repurchase the goods.
Required:
Describe how Navana should treat above the events in its financial statements in the year to
March 31, 2015. 4
st
(iii) An intangible assets with an estimated life of nine years was acquired by P Ltd. on 1
January 2013 for Tk.11,250. It was revalued to Tk.13,600 on 31st December 2013 and a
revaluation surplus of Tk.3,600 was correctly recognized on that date. At 31 st December
2014 the asset was revalued at Tk.8,000.
Required:
State the accounting treatments required in 2014 financial statements. 4
(iv) ABC Ltd. is a computer manufacturer. It adopted a 30 June accounting year-end.
On 1 July 2013, the company uses its excess cash to buy a factory for investment purposes.
The factory is rented out to another manufacturer. The factory costs Tk.50,000,000, and is
expected to have a useful life of 50 years with no salvage value. The market value of the
building is Tk.55,000,000 as at 30 June 2014 and Tk.48,000,000 as at 30 June, 2015. The
company has a policy of applying the straight line method of depreciation in the case of
fixed assets, as may be applicable.
Required:
Pass journal entries to show how the factory should be recognized and measured under the
relevant BAS? 6
4. Heavy Goods Ltd. carries on business as a manufacturer of tractors. In 2014 the company was
looking for acquisitions and carrying out investigations into a number of possible targets. One of
these was a competitor, Modern Tractors Ltd.
The company’s acquisition strategy was to acquire companies that were vulnerable to a takeover
and in which there was an opportunity to improve asset management and profitability.
The CFO of Heavy Goods Ltd. has instructed his assistant to calculate ratios from the financial
statements of Modern Tractors Ltd. for the past three years and to prepare a report based on these
ratios and the industry average ratios that have been provided by the trade association. The ratios
prepared by the assistant accountant and the industry averages for 2014 are set out below:
Industry
average
2012 2013 2014 2014
Sales growth % 30.00 40.00 9.52 8.25
Sales/total assets 1.83 20.5 1.60 2.43
Sales/net fixed assets 2.94 3.59 2.74 16.85
Sales/working capital (21.43) (140.00) 38.33 10.81
Sales/debtors 37.50 70.00 92.00 16.00
Page 4 of 5
Industry
average
2012 2013 2014 2014
Gross profits/sales % 18.67 22.62 19.57 23.92
Profit before tax/sales % 8.00 17.62 11.74 4.06
Profit before interest/interest 6.45 26.57 14.50 4.95
Profit after tax/total assets % 9.76 27.80 13.24 8.97

Profit after tax/equity % 57.14 75.00 39.58 28.90
Net fixed assets/total assets % 62.20 57.07 58.54 19.12
Net fixed assets/equity 3.64 1.54 1.75 0.58
Equity/total assets % 18.29 37.07 33.45 32.96

Total liabilities/total assets % 81.71 62.93 66.55 69.00
Total liabilities/equity 4.47 1.70 1.99 2.40
Long-term debt/total assets % 36.59 18.54 29.27 19.00
Current liabilities/total assets % 45.12 44.39 37.28 50.00

Current assets/current liabilities 0.84 0.97 1.11 1.63
(Current assets-stock)/current liabilities 0.43 0.54 0.72 0.58
Stock/total assets % 17.07 18.54 14.63 41.90

Cost of sales/stock 8.71 8.55 8.81 4.29
Cost of sales/creditors 6.10 6.25 6.17 12.87
Debtors/total assets % 4.88 2.93 1.70 18.40

Cash/total assets % 15.85 21.46 25.08 9.60
Total assets = Fixed assets at net book value + current assets
Net fixed assets = Fixed assets at net book value.
Required:
(a) Assuming the role of the CFO, draft a brief report to be submitted to the managing director based on
the ratios of Modern Tractors Ltd. for 2012-14 and the industry averages for 2014. 14
(b) Draft a brief memo to management explaining:
(i) in general terms why the comparison of the 2014 ratios with the ratios of previous years
and other companies might be misleading; and 3
(ii) how specific ratios might be affected and the possible implications for the evaluation of the
report. 5
Page 5 of 5
Time Allowed – 3 hours
Total marks – 100
[N.B. – Questions must be answered in English. Figures in the margin indicate full marks. Examiner will take account of
the quality of language and of the manner in which the answers are presented. Different parts, if any, of the same
question must be answered in one place in order of sequence]
Marks
1. (a) Delta, a public limited company, operates in the fashion sector and had undertaken a group re-
organisation during the current financial year to March 31, 2015. As a result the following two events
occurred:
Event 1:Delta identified two manufacturing units, X and Y, which it had decided to dispose of in a single
transaction. These units comprised non-current assets only. One of the units X, had been impaired prior
to the financial year end on February28, 2015 and it had been written down to its recoverable amount of
Tk. 35 million.
The criteria in BFRS 5, ‘Non-current Assets Held for Sale and Discontinued Operations’, for
classification as held for sale, had been met for X and Y at February28, 2015. The following information
related to the assets of the cash generating units at February28, 2015:
Depreciated Fair value less costs to Carrying value

historical sell and recoverable under BFRS
cost amount
Tk. (m) Tk. (m) Tk. (m)
X 50 35 35
Y 70 90 70
120 125 105
The fair value less costs to sell had risen at the year end to Tk. 40 million for X and Tk. 95 million for Y.
The increase in the fair value less costs to sell had not been taken into account by Delta.
Event 2:The manufacturing property of the group, other than the head office, was held on an operating
lease over 8 years. On re-organisation on March 31, 2015, the lease has been renegotiated and is held for
12 years at a rent of Tk.5 million per annum paid in arrears. The fair value of the property is Tk. 35
million and its remaining economic life is 13 years. The lease relates to the buildings and not the land.
The factor to be used for an annuity at 10% for 12 years is 6·8137.
The directors are worried about the impact that the above changes will have on the value of its non-
current assets and the key performance indicator which is ‘Return on Capital Employed’ (ROCE). ROCE
is calculated as operating profit before interest and tax divided by the total of equity and net debt, which
is Tk.30 million divided by Tk.220 million, i.e. 13·6% before any adjustments required by the above
changes.
Required:
(i) Discuss the accounting treatment of the above transactions and the impact that the resulting
adjustments to the financial statements for the year ended 31 March 2015 would have on ROCE in
the case of each of the above two events. Your answer should include a discussion of the accounting
principles involved. 14
(ii) What will be the overall impact on ROCE due to above adjustments? 3
(b) ABC Ltd. is a company incorporated in Bangladesh. Its accounting year is January to December, and its
functional currency is Bangladeshi Taka (BDT). ABC Ltd. had the following foreign currency
transactions on 10 November 2014:
(i) Purchased goods invoiced at S$ 900,000 from S Ltd. (a Singapore incorporated company), with
three months credit terms.
(ii) Purchased bond issued by a Singapore company at its par value of S$ 500,000, which it will hold
until the maturity date. It classifies the investment in bond as `held-to-maturity’ (HTM) security and
applies the amortised cost method under BAS 39.
(iii) Purchased shares listed in Singapore Exchange for speculation purposes. It accounts for the
investment as `held-for-trading’ (HFT) under BAS 39. The cost of the share investment was S$
100,000, and its quoted price was S$ 120,000 on 31 December 2014.
Page 1 of 4
(iv) Purchased shares listed in Singapore Exchange for long term investment. It accounts for the
investment as `available-for-sale’ (AFS) under BAS 39. The cost of the investment was S$ 200,000,
and its quoted priced was S$ 240,000 on 31 December 2014.
The exchange rates on 10 November 2014 and 31 December 2014 were S$ 1.00 = BDT 66 and S$ 1.00 =
BDT 63 respectively.
Required:
(i) At what value each of the above transactions will be recognized in the books of ABC Ltd. on 10
November 2014? 3
(ii) At what value each of the above items will be presented in the balance sheet of ABC Ltd. as at 31
December 2014? 4
(iii) What amount of gain or loss will be recognized under BAS 39 and BAS 21 respectively in the
statement of comprehensive income for the year ended 31 December 2014 in each of the above
cases? How will the gain/loss be presented in the statement? 6
2. (a) On 1 October 2013 Great Bengal entered into a construction contract that was expected to take 27
months and therefore be completed on 31 December 2015. Details of the contract are:
TK. in Million
Agreed contract price 12.5
Estimated total cost of contract (excluding plant) 5.5
Plant for use on the contract was purchased on 1 January 2014 (three months into the contract as it was
not required at the start) at a cost of TK. 8 million. The plant has a four-year life and after two years,
when the contract is complete, it will be transferred to another contract at its carrying amount. Annual
depreciation is calculated using the straight-line method (assuming a nil residual value) and charged to
the contract on a monthly basis at 1/12 of the annual charge. The correctly reported income statement
results for the contract for the year ended 31 March 2014 were:
TK. in Million
Revenue recognized 3.5
Contract expenses recognized (2.660)
Profit recognized 0.840
Details of the progress of the contract at 31 March 2015 are:

TK. in Million
Contract costs incurred to date (excluding depreciation) 4.800
Agreed value of work completed and billed to date 8.125
Total cash received to date (payments on account) 7.725
The percentage of completion is calculated as the agreed value of work completed as a percentage of the
agreed contract price.
Required:
Calculate the amounts which would appear in the income statement and statement of financial position of
Great Bengal, including the disclosure note of amounts due to/from customers, for the year ended/as at
31 March 2015 in respect of the above contract. 10
(b) You are given details of the following transactions affecting the financial statements of Great Wall:
On 1 June 2014 Great Wall signed a contract to construct a machine for one of its customers and to
subsequently provide servicing facilities relating to the machine. Great Wall commenced construction on
1 July 2014 and the construction took two months to complete. Great Wall incurred the following costs
of construction:
– Materials TK. 1 million.
– Other direct costs TK. 2 million.
– Allocated fixed production overheads TK. 1 million. This allocation was made using Great Wall’s
normal overhead allocation model.
On 1 October 2014 the machine was delivered to the customer. The customer paid the full contract price
of TK.7·5 million on 30 November 2014. The servicing and warranty facilities are for a three-year period
from 1 October 2014. This is not considered to be an onerous contract at 31 March 2015. In the six-
month period from 1 October 2014 to 31 March 2015 Great Wall incurred costs of TK. 200,000 relating
to the servicing and this rate of expenditure is estimated to continue over the remainder of the three-year
period. Great Wall would normally expect to earn a profit margin of 20% on the provision of servicing
facilities of this nature.
Page 2 of 4
Required:
Produce extracts, with supporting explanations, from the statement of financial position
at 31 March 2015 and from the statement of comprehensive income for the year ended
31 March 2015 that show how the transactions will be reflected in the financial statements
of Great Bengal. 10
3. The financial statements of B Ltd. and C Ltd. for the year 2014 are as follows:
(a) Profit and Loss Accounts for the year ended 31 December 2014:
B Ltd. C Ltd.
Tk.’000 Tk.’000
Sales 800 500
Less: Cost of Sales 500 300
Gross Profit 300 200
Add: Investment Income 1 -
Less: Distribution expenses ( 66) ( 59)
Administrative expenses ( 35) ( 20)
Interest expenses - ( 1)
Net Profit before income tax 200 120
Less: Income Tax 60 40
Net Profit after income tax 140 80
Other comprehensive income - - .
Total comprehensive income 140 80
(b) Balance Sheets as at 31 December 2014:
B Ltd. C Ltd.
Tk.’000 Tk.’000
Land 200 200
Investment in C Ltd. 160 -
Stock 200 100
Trade debtors 140 70
Bills receivable 6 -
Cash at bank 44 30
750 400
Share capital 500 100
Retained profit 160 230
Trade creditors 90 60
Bills payable - 10
750 400
(c) Statements of Changes in Equity (Partial) for the year ended 31 December 2014
B Ltd. C Ltd.
Tk.’000 Tk.’000
Beginning retained profit 20 150
Net Profit for the year 140 80
Ending retained profit 160 230
B Ltd. acquired 80% of C Ltd.’s issued share capital on 31 December 2011. At that date C Ltd.’s retained
profit was Tk.100,000.
During the year 2014, B Ltd. sold merchandise of Tk.100,000 to C Ltd. All these goods were sold by C
Ltd. to third parties during the year. As at 31 December 2014, C Ltd. paid Tk.80,000 for the goods
purchased from B Ltd., but B Ltd. received only Tk.70,000 thereof. Besides the Tk.20,000 unpaid on
account, C Ltd. gave several negotiable instruments (bills payable) to B Ltd. promising to pay a total of
Tk.10,000 in June 2015. B Ltd. discounted some of the bills with a total of Tk.4,000 with the banks in
December 2014. The interest expenses of C Ltd. represent the interest on the bills paid to B Ltd.
Required:
Prepare the consolidated statement of comprehensive income, the consolidated balance sheet, and the
consolidated statement of changes in equity for B Ltd. and its subsidiary for the year 2014. 25
4. Tiger Ltd. is an old established trading organization whose business has expanded rapidly over the past three
years. This expansion has brought the company increased profit figures in those years but it has also required
a growing investment in working capital together with investment in fixed assets to cope with the increasing
volume of business. Up until now this has been facilitated by a rather liberal policy on the part of the
company’s bankers. However, the bank has now become impatient with Tiger Ltd. because, despite
assurances to the contrary, the overdraft position has steadily worsened.
Page 3 of 4
Tiger Ltd. now requires more cash to finance further purchases of equipment. The bank has, however, refused
to consider this until Tiger Ltd. has cleared the existing overdraft or, alternatively, presented detailed reports
on its liquidity position and projections for the coming years.
Tiger Ltd. has retained you as financial adviser in the matter and as a first step you have requested copies of
the company’s accounts for the last three years. These are as follows:
Summary of profit and loss accounts: year ended 31 December
2012 2013 2014
Particulars
Tk. Tk. Tk.
Sales 120,000 210,000 270,000
Cost of sales 90,000 165,000 216,000
Gross margins 30,000 45,000 54,000
Cash expenses (22,000) (32,000) (38,000)
Depreciation (3,400) (3,400) (5,800)
Net profit before tax 4,600 9,600 10,200
Taxation @ 50% 2,300 4,800 5,100
Net profit after tax 2,300 4,800 5,100
Balance sheets as on 31 December
Elements 2012 2013 2014
Tk. Tk. Tk.
Employment of capital:
Premises 10,000 10,000 20,000
Equipment 8,000 6,600 8,800
Motor vehicles 6,000 4,000 8,000
24,000 20,600 36,800
Current Assets:
Stocks 15,000 27,500 36,000
Debtors 10,000 21,000 22,500
25,000 48,500 58,500
Less Current Liabilities:
Bank overdraft 5,850 7,600 10,900
Current taxation 2,000 2,300 4,800
Creditors 11,250 22,000 27,000
19,100 31,900 42,700
Net current assets 5,900 16,600 15,800
29,000 37,200 52,600
Capital employed:
Ordinary shares fully paid 15,000 15,000 15,000
Capital reserves ---- ---- 10,000
Profit and loss account 12,600 17,400 22,500
27,600 32,400 47,500
Deferred taxation 2,300 4,800 5,100
29,900 37,200 52,600
The following information are also available:
(i) The capital reserve of Tk.10,000 was created on the revaluation of the premises of the company.
(ii) The original cost of equipment and motor vehicles on hand on 31 December 2012 was Tk.14,000 and Tk.
8,000 respectively.
(iii) Equipment and motor vehicles are both depreciated by the straight-line method at rates of 10% and 25%
respectively.
(iv) During 2015 the company will need to purchase additional equipment costing Tk.8,000.
(v) Forecast sales for 2015 are Tk.3,00,000 with expected profits before depreciation and taxation of Tk.
18,000. Results to date are on target and it is confidently expected that these figures will be achieved.
Before submitting to Bankers of the company, as financial adviser, you are required to prepare a report for the
prior consideration of the managing director of Tiger Ltd, setting out clearly:
(a) the reasons for the increasing overdraft over the past three years. 10
(b) an appraisal of the record of the company with regard to the management of its working capital; and 8
(c) the present liquidity position of the company together with projections for the coming year. 7
Please submit whatever schedules you feel are necessary.
– The End –
Page 4 of 4
Time Allowed – 3 hours
Maximum Marks – 100
[N.B - Figures in the margin indicate full marks. Examiner will take account of the quality of language and of the
manner in which the answers are presented. Different parts, if any, of the same question must be answered in
one place in order of sequence.]
Marks
1. (a) You are the Financial Controller of SMC Limited. The Managing Director of the company has asked
you to draft a memorandum, briefly explaining the following:
(i) Why it is important to remove unrealised profits arising from transactions between group
companies in a group accounts?
4
(ii) Whether it is possible for a business to make losses year after year but still increase its bank
balance? 3
(b) Wasim Ltd. entered into the following transactions during the year ended 31 March 2014:
In March 2014, Wasim Ltd. factored some of its trade receivables to IDLC. Based on selected account
balances, IDLC paid Wasim 80% of its book value. The agreement was that IDLC would administer the
collection of the receivables and remit a residual amount to Wasim depending upon how quickly
individual customers paid. Any balance not collected by IDLC after six months will be refunded to
IDLC by Wasim.
On 1 April 2013, Wasim Ltd.’s freehold building had a carrying amount of Tk. 15 million and an
estimated remaining useful life of 20 years. On this date, Wasim sold the building to IPDC for a price
of Tk.24million and entered into an agreement with IPDC to lease back the building for an annual
rental of Tk. 2.6 million for a period of five years. The auditors of Wasim have commented that in their
opinion the building had a market value of Tk. 20 million at the date of its sale and to rent an equivalent
building under similar terms to the agreement between Wasim and IPDC would cost Tk.1,600,000 per
annum. Assume finance cost of 10% per annum.
You are required to:
(i) Briefly explain the major accounting issues involved in the above transactions using the principles
of substance over form. 5
(ii) State the relevant accounting treatments of the various elements identified. 5
(c) FuWang Ltd. is a conglomerate whose equity shares are quoted on the Dhaka Stock Exchange. The
group manufactures, distributes and retails food products. It also operates a hotel chain for
diversification of revenues. The financial controller presents the following data to you. He wishes to
know if IFRS 8 applies to the entity, and if so what segments should be reported on. He informs you
that the operating results of each of the divisions below are internally reported separately to the chief
operating officer.
Revenue Revenue
(External) (Internal) Profit (loss) Assets
Business Tk. million Tk. million Tk. million Tk.million
Manufacturing 460 250 32 1450
Distribution 5 42 3 250
Retailing 750 15 75 375
Hotel chain 150 3 -14 100
Required:
Explain with reasons which of the above businesses of FuWang Ltd. are reportable segments under
BFRS 8 to the above financial data. 8
2. (a) FS Ltd. owns several properties which are revalued each year. Four of its properties are rented out
under annual contracts. Details of these properties and their valuations are:
Property type useful life Cost 30 June 30 June
A freehold 50years 150 240 200
B freehold 50 years 120 180 145
C leasehold 15 years 120 140 150
D freehold 25 years 200 225 250
Page 1 of 4
All four properties were acquired on 1 July 2011. The valuations of the properties are based on their
fair values at the date of valuation. FS Ltd.'s accounting policy is to carry all non-investment properties
at cost and has adopted the fair value model of accounting for investment properties. Annual
amortisation, where appropriate, is based on the carrying value of assets at the beginning of the relevant
period.
Property A is let to a wholly owned subsidiary of FS Ltd. on normal commercial terms. Property C are
let on normal commercial terms to companies not related to FS Ltd. Property D is used by FS Ltd. as a
head office for the FS Group.
Required:
Prepare extracts of the consolidated financial statements of FS Ltd. for the year to 30 June 2013 in respect of 10
the above four properties as required by BAS16 and BAS 40.
(b) Clock Ltd. prepares its financial statements to 30 June each year. On 1 July 2013, Clock Ltd. purchased
75% of the issued share capital of Mouse Ltd by issuing two shares in Clock Ltd. for every four shares
in Mouse Ltd. The market value of Clock Ltd.’s shares at 1 July 2013 was Tk.4 per share. At the date of
acquisition, Mouse Ltd had 10 million Tk.1 ordinary shares and retained earnings of Tk.9 million.
On 1 January 2014, Clock Ltd. acquired 30% of the shares of Tick Ltd for Tk.3 each. Tick Ltd’s issued
share capital at 1 January 2014 was 4 million Tk.1 ordinary shares. The draft Statements of
Comprehensive Income for the three companies for the year ended 30 June 2014 are as follows:
Clock Ltd. Mouse Ltd Tick Ltd
Tk.’000s Tk.’000s Tk.’000s
Revenue 32,600 18,200 6,000
Cost of sales (18,400) (11,400) (2,800)
Gross profit 14,200 6,800 3,200
Other income 3,100 1,800 200
Operating expenses (6,400) (2,100) (1,400)
Operating profit 10,900 6,500 2,000
Interest payable and similar
charges (1,800) (1,400) (600)
Profit on ordinary activities 9,100 5,100 1,400
Taxation (2,100) (1,800) (300)
Profit on ordinary activities 7,000 3,300 1,100
after taxation
1. The fair value of the net assets of Mouse Ltd at the date of acquisition was equal to their
carrying value with the exception of land. The land had a fair value of Tk.1m below its
carrying value and this has not changed since the date of acquisition.
2. At 30 June 2014, the fair value of Mouse Ltd’s specialist plant and equipment was Tk.600,000
in excess of its carrying value. The remaining useful life of these assets is four years and
Mouse Ltd has not reflected this fair value in its financial statements.
3. Sales by Clock Ltd. to Mouse Ltd, in the year to 30 June 2014, amounted to Tk.3.2 million.
Clock Ltd. made a profit of cost plus a third on all sales. Mouse Ltd’s year-end inventory
includes Tk.1.2 million in relation to purchases from Clock Ltd..
4. Included in Mouse Ltd’s operating expenses is an amount of Tk.500,000 in respect of
management charges invoiced and included in revenue by Clock Ltd.
5. Clock Ltd.’s policy is to value the non-controlling interest at fair value at the date of
acquisition. At the date of acquisition, the goodwill attributable to the non-controlling interest
was Tk.200,000.
6. All profits and losses are deemed to accrue evenly throughout the year.
Required:
Prepare a consolidated Statement of Comprehensive Income for the Clock group for the year ended 30
June 2014. 15
Page 2 of 4
3. EPS is one of the key performance measures of an entity and its main purpose is to allow users of the
financial statements to compare one entity with another in confidence that both are using the same
reporting guidelines. In such a context, you are given some relevant information extracted from Group
financial statements of ISU Ltd. listed with Stock Exchanges, year ended 30 th April 2014.
Tk. in Million
Profit from continuing operations 35,000
Loss on discontinued operations (tax relief Tk.500 million) (1,500)
Income tax (7,500)
Minority interest (loss on discontinued activities Tk.500 million) (1,500)
Preference share appropriation - dividend (2 years) (30
- other (5)
Share capital at April 30, 2014

Ordinary shares of Tk.1 1,000
5% Convertible preference shares 300
Other Information
(i) On January 1, 2014, 48 million ordinary shares were issued on the acquisition of TAHU Ltd. at a
valuation of Tk. 190 million. If TAHU earns cumulative profits in excess of Tk. 8,000 million up
to April 30, 2015, an additional 10 million shares are issuable to the vendors. If the profits do not
reach that amount, then only 2 million shares are issuable on April 30, 2015.
(ii) The profits for the three months to April 30, 2014, are Tk. 1,200 million.
(iii) On May 11, 2014, there was a bonus issue of one for four ordinary shares. The financial statements
are made up to April 30, 2014, and had not yet been published.
(iv) The company has a share option scheme. The directors exercised options relating to 18 million
shares on February 28, 2014, at a price of Tk. 3 per share. In addition, options were granted during
the year on March 1, 2014, to subscribe for 10 million shares at Tk. 2 each. The fair value of the
shares on March 1, 2014, was Tk. 4, and the average fair value for the year was Tk. 5.
(v) The preference shares are convertible into ordinary shares on May 1, 2015, on the basis of one
ordinary share for every two preference shares or on May 1, 2016, on the basis of one ordinary
share for every four preference shares.
(vi) There is a profit share scheme in operation whereby employees receive a bonus of 5% of profits
from continuing operations after tax and preference dividends.
(vii) NIVO Ltd., a 100% owned subsidiary of ISU, has in issue 9% convertible bonds of Tk. 200
million that can be converted into one ordinary share of ISU for every Tk. 10 worth of bonds.
Income tax is levied at 33%.
Required
Calculate basic and diluted earnings per share. 20 17
4. The following information has been extracted from the draft financial statements of Tiger Ltd. (‘Tiger’),
which is a manufacturing company. IFRS balance sheet format is used below. The company transitioned to
IFRS as of its 31 March 2013 year-end.
(Taka in ‘000)
Income Statement for the year ended 31 March 2014 2013

Revenue 135,000 90,000
Operating profit 8,440 4,500
Finance costs 2,230 -
Taxation expense 2,070 1,540
Profit after tax 4,140 2,960
Page 3 of 4
Statement of Financial Position at 31 March 2014 2013
Assets
Property, plant and equipment at cost 60,000 40,000
Accumulated depreciation 22,000 16,000
38,000 24,000
Current Assets
Inventories 8,800 6,000
Trade receivables 23,260 12,000
Cash and cash equivalents - 700
32,060 18,700
Total Assets 70,060 42,700
Share capital 20,000 20,000
Retained earnings 19,590 16,760
Total equity 39,590 36,760
Long-term borrowings 16,000 -
Current liabilities
Trade payables 6,540 4,400
Bank overdraft 5,860 -
Taxes payable 2,070 1,540
Total current liabilities 14,470 5,940
Total liabilities 30,470 5,940
The following further information is provided relating to the year to 31 March 2014:
 Plant was purchased on 1 April 2013 at a cost of Tk. 20,000,000. The new plant immediately became fully
operational.
 Sales increased by 50% from 1 April 2013 as the result of a major advertising campaign undertaken in the spring of
2013.
 The loan was raised at 9% interest on 1 April 2013 and is repayable in four equal annual installments commencing 1
April 2014.
 A dividend of Tk. 1,310,000 was paid on 30 June 2013.
The company’s bankers have advised the directors of Tiger that the bank overdraft needs to be repaid by 31 March 2015.
The following forecasts have been made:
 Operating profit in the year to 31 March 2015 will remain at the same level as in the year to 31 March 2014 and the
amount of depreciation charged will also be the same.
 The levels of inventories, trade receivables and trade payables at 31 March 2015 will be the same as at 31 March
2014.
 The company will need to replace fully depreciated plant at a cost of Tk. 2,400,000 in June 2014.
Required
(a) Prepare a cash flow statement for the year to 31 March 2014. 10
(b) As company Chief Financial Officer, write a succinct report for the board of Tiger which:
(i) Examines the financial progress and position of the company based on the cash flow statement prepared
under (a), above, and not more than five relevant ratios focusing on asset utilization and short-term
liquidity. 8
(ii) Assess whether the company is likely to be able to repay the overdraft by 31 March 2015. You should
support your assessment with an estimated cash flow statement for the year to 31 March 2015. 12
The End
Page 4 of 4
Time Allowed ‐3 Hours
Total Marks 100
{N.B: The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of
the quality of language and of the way in which the answers are presented. Different parts, if any, of the same question
must be answered in one place in order of sequence.}
Marks
1. (a) A deferred tax liability or asset should be recognized for all taxable and deductible temporary differences.
Give at least two examples of exceptions to above statements while recognizing the deferred tax assets or
liabilities. 6
(b) Sharp Ltd has the following share option scheme at 31 May 20X7

Director's name Grant date Option granted Fair value of Exercise Vesting date
options at price Tk
grant date Tk
Emdad Hossain 1 June 20X5 40,000 3.0 4.0 6/20x7
Safwan Ahmed 1 June 20X6 120,000 2.5 5.0 6/20x9

The price of the company’s shares at 31 May 20x7 is Tk8 per share and at 31 May 20x6 was Tk. 8.50 per share. The
directors must be working for Sharp Ltd on the vesting date in order for the options to vest.

No directors have left the company since the issue of the share options and none are expected to leave before June
20x9. The shares can be exercised on the first day of the month in which they vest.

In accordance with IFRS 2 an expense of Tk. 60,000 has been charged to profits in the year ended 31 May 20x6 in
respect of the share option scheme. The cumulative expense for the two years ended 31 May 20x7 is Tk 220,000.

Tax allowances arise when the options are exercised and the tax allowance is based on the option’s intrinsic value at
the exercise date.
Assume a tax rate of 30%.

Required:

What are the deferred tax implications of the share option scheme? 12

c. Z trades in motor vehicles, which are supplied by their manufacturer, X. Trading between the two entities is
subject to a contractual agreement, the principal terms of which are as follows:
Z is entitled to hold on its premises at any one time up to 60 vehicles supplied by X.X retains legal title to the
vehicles until such time as they are sold to a third party by Z.
Z is required to insure the vehicles on its property, against loss or damage.
The price at which vehicles are supplied is determined at the time of delivery.
When Z sells a vehicle to a third party, it is required to inform X within three working days. X submits an invoice to
Z at the originally agreed price; the invoice is payable by Z within 30 days.
Z has the right to return any vehicle to X at any time without incurring a penalty.
Z is entitled to use any of the vehicles supplied to it for demonstration purposes and road testing. However, if
more than a specified number of kilometers is driven in a vehicle, Z is required to pay X a rental charge.
Requirements:
(i) Discuss the economic substance of the contractual arrangement between the two entities, in order to
identify which entity should recognize the vehicles in inventory once they have been delivered to Z. 8
(ii) Identify the point at which X should recognize the sale of its vehicles. 4

2. On 1 October 2012 Haris acquired 80% of the equity share capital of Shirin by way of a share exchange. Haris
issued five of its own shares for every two shares it acquired in Shirin. The market value of Haris’s shares on 1
1 [Please turn over]
October 2012 was Tk 3 each. The share issue has not yet been recorded in Haris’s books. The summarized
financial statements of both companies are:

Income Statement: Year to 31 March 2013
Haris Shirin
Tk'000 Tk'000 Tk'000 Tk'000
Sales revenues 1,200 1,000
Cost of sales (650) (660)
Gross profit 550 340
Operating expenses (120) (88)

Debenture interest ‐ (12)
Operating profit 430 240
Income tax expense (100) (40)
Profit after tax 330 200
Dividends ‐ Interim (40) ‐
‐ Final (40) (80) (60)
Retained profit for the year 250 200
Balance Sheet: as at 31 March 2013
Non‐current Assets
Property, plant and equipment 620 660
Investments 20 10
640 670
Current Assets
Inventory 240 280
Accounts receivable 170 210
Bank 20 430 40 530
Total assets 1,070 1,200
Equity and Liabilities
Equity shares of Tk 1 each 400 150
Accumulated profits 410 700
810 850
Non‐current liabilities
8% Debentures ‐ 150
Current liabilities
Trade accounts payable 170 155
Taxation 50 45
Dividends 40 260 ‐ 200
Total Equity and liabilities 1,070 1,200

(i) The fair values of Shirin’s assets were equal to their book values with the exception of its land, which had fair
value of Tk 125,000 in excess of its book value at the date of acquisition.
(ii) In the past acquisition period Haris sold goods to Shirin at a price of Tk 100,000 this was calculated to give a
mark‐up on cost of 25% to Haris. Shirin had half of these goods in inventory at the year end.
(iii) Consolidated goodwill is to be written off as an operating expense over a five year life. Time apportionment
should be used in the year of acquisition.
(iv) The current accounts of the two companies disagreed due to cash remittance of Tk 20,000 to Haris on 26
March 2013 not being received until after the year end. Before adjusting for this, Shirin’s debt balance in
Haris’s books was Tk 56,000.
(v) Haris uses the allowed alternative treatment in IAS 22 Business Combinations to record the fair value of
assets and minority interest.
Required:
Prepare a consolidated comprehensive income statement and statement of financial position for Haris for the
year to 31 March 2013. 20

3. (a) World Fashion established jewellery business in Bangladesh since long. World Fashion sells jewellery through
stores in retail shopping centres throughout the country. Over the last few years it has experienced declining
profitability and is wondering if this is related to the sector as whole. It is also observed that nowadays
Bangladeshi women no longer opt for pieces of jewelry made of gold since the price of gold has gone up
considerably. Now they just settle for metal‐made or clay‐made body adornments. Industry sources are
saying that due to an unprecedented price hike, the demand for gold jewelry in Bangladesh has declined and
some gold merchants have been forced to close shop. In this regard, it has recently subscribed to a Business
Intelligent Agency that produces average ratios across many businesses. Below are the ratios that have been
provided by the Business Intelligent agency for World Fashion’s business sector based on a year end of 30
June 2013.

Return on year‐end capital employed (ROCE) 16∙8%
Net asset (total assets less current liabilities) turnover 1∙4 times
Gross profit margin 35%
Operating profit margin 12%
Current ratio 1∙25:1
Average inventory turnover 3 times
Trade payables’ payment period 64 days
Debt to equity 38%

The financial statements of World Fashion for the year ended 30 September 2013 are:

Income statement
TK.’000 TK.’000
Revenue 56,000
Opening inventory 8,300
Purchases 43,900
Total 52,200
Closing inventory (10,200) (42,000)

Gross profit 14,000
Operating costs (9,800)
Finance costs (800)

Profit before tax 3,400
Income tax expense (1,000)

Profit for the year 2,400

Statement of financial position
TK.’000 TK.’000
Assets
Non‐current assets
Property and shop fittings 25,600
Deferred development expenditure 5,000

30,600
Current assets
Inventory 10,200
Bank 1,000 11,200

Total assets 41,800

Equity
Equity shares of TK.1 each 15,000
Property revaluation reserve 3,000

26,600
Non‐current liabilities
10% loan notes 8,000
Current liabilities
Trade payables 5,400
Current tax payable 1,800 7,200


Note: The deferred development expenditure relates to an investment in a process to manufacture artificial precious
gems for future sale by World Fashion in the retail jewellery market.

Required:
(i) Assess the financial and operating performance of World Fashion in comparison to its sector averages. 16
(ii) Explain four possible limitations of the usefulness of the above comparison. 7

(b) A shipping company lost an entire shipload of cargo valued at TK. 50 million on a voyage to Australia. It is,
however, covered by an insurance policy. According to the report of the surveyor the amount is collectible,
subject to the deductible clause (i.e., 10% of the claim) in the insurance policy. Before year‐end, the shipping
company received a letter from the insurance company that a cheque was in the mail for 90% of the claim. The
international freight forwarding company that entrusted the shipping company with the delivery of the cargo
overseas has filed a lawsuit for TK. 50 million, claiming the value of the cargo that was lost on high seas, and also
consequential damages of TK. 20 million resulting from the delay. According to the legal counsel of the shipping
company, it is probable that the shipping company would have to pay the TK. 50 million, but it is a remote
possibility that it would have to pay the additional TK. 20 million claimed by the international freight forwarding
company, since this loss was specifically excluded in the freight forwarding contract.

Required
What provision or disclosure would the shipping company need to make at year‐end as per BAS 37 Provisions,
Contingent Liabilities and Contingent Assets? 7

4. A public limited company, Golden Dairy, produces milk on its farms. It produces 30% of the country’s milk that is
consumed. Golden Dairy owns 450 farms and has a stock of 210,000 cows and 105,000 heifers. The farms
produce 8 million kilograms of milk a year, and the average inventory held is 150,000 kilograms of milk. However,
the company is currently holding stocks of 500,000 kilograms of milk in powder form. At December 31, 2013, the
herds are

210,000 cows (3 years old), all purchased on or before January 1, 2013
75,000 heifers, average age 1.5 years, purchased on June 1, 2013
30,000 heifers, average age 2 years, purchased on January 1, 2013

No animals were born or sold in the year.
The unit values less estimated point‐of‐sale costs were

1‐year‐old animal at December 31, 2013 : TK.32,000
1.5‐year‐old animal at December 31, 2013 : TK.36,000
1‐year‐old animal at January 1, 2013 and July 1, 2013 : TK.30,000
2‐year‐old animal at January 1, 2013 : TK.40,000

The company has had problems during the year: Contaminated milk was sold to customers. As a result, milk
consumption has gone down. The government has decided to compensate farmers for potential loss in revenue from
the sale of milk. This fact was published in the national press on September 1, 2013. Golden Dairy received an official
letter on October 10, 2013, stating thatTK.5 billion would be paid to it on January 2, 2014. The company’s business is
spread over different parts of the country. The only region affected by the contamination was Chittagong Hill Tracts,
where the government curtailed milk production in the region. The cattle were unaffected by the contamination and
were healthy. The company estimates that the future discounted cash flow income from the cattle in the Chittagong
Hill Tracts region amounted toTK.4 billion, after taking into account the government restriction order. The company
feels that it cannot measure the fair value of the cows in the region because of the problems created by the
contamination. There are 60,000 cows and 20,000 heifers in the region. All these animals had been purchased on
January 1, 2013. A rival company had offered Golden Dairy TK.3 billion for these animals after point‐of‐sale costs and
further offered TK.6 billion for the farms themselves in that region. Golden Dairy has no intention of selling the farms
at present. The company has been applying BAS 41 since January 1, 2013.

Required

Advise the directors on how the biological assets and produce of Golden Dairy should be accounted for under BAS 41,
discussing the implications for the financial statements. 20

The End
5

Total marks – 100
[N.B. – Figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) The principle of recording the substance or economic reality of transactions rather than their
legal form lies at the heart of the Framework for Preparation and Presentation of Financial
Statements’ and several International Financial Reporting Standards. The development of this
principle was partly in reaction to a minority of public interest companies entering into certain
complex transactions. These transactions sometimes led to accusations that company directors
were involved in “creative accounting”. Explain with relevant examples, what is meant by the
term creative accounting. 6
(b) You are an accountant at Brothers Ltd., a newly formed company with plans to develop a
national distribution network through investment in and agreement with local courier
companies. Brothers is in its first year of trading and its majority investors have requested that it
prepares its financial statements in accordance with BFRS.

During the year ended 31 December 2012 it formed its first two strategic partnerships that it
intends to develop over a long‐term period. Brothers has previously not owned any share
investments. To show its commitment to these companies it invested in them as follows:

On 1 February 2012 Brothers subscribed for 10,000 Tk.10 ordinary shares in Millat Ltd. for
Tk.12.00 each. Professional fees of Tk.30,000 were incurred on the transaction. Millat has
100,000 ordinary shares in issue. No dividends have been paid during the year. Millat is a start‐
up company which has yet to prepare any financial statements. It has not been possible to
obtain a reliable fair value for the investment yet. It is anticipated that a reliable estimate of fair
value will be available within one year.

On 1 January 2012 Brothers acquired 30,000 6% Tk.10 preference shares at par (their fair value)
in Sohana Ltd. that are redeemable on 31 December 2015 at a premium of 4%. The preference
dividend is paid annually on 31 December. Transaction costs were immaterial. The effective
interest rate on the preference shares is 7%. The fair value of one preference share on 31
December 2012 is estimated as Tk.105.

The Managing Director of Brothers has called you and asked you to meet him to discuss the
formulation of financial reporting treatments for these investments. He said,

‘I’m concerned about how we account for these investments. We don’t currently intend to sell
them, we don’t trade investments, and I think the directors want to hold them for the long‐
term. With this in mind I need to know whether any different financial reporting treatments are
available to us. I’ve read the financial press and I’m aware about the increasing use of fair values
with BAS 39. I’d prefer to use cost to simplify our financial statements.

Required:

Prepare notes for your meeting with the Managing Director which should
(i) Explain, using extracts from financial statements, the possible financial reporting treatments
for the two investments identified above for the year ended 31 December 2012. 10
(ii) Discuss the financial reporting, ethical and other matters that you need to consider in
formulating Brothers accounting policies for these investments. 4

[Please turn over]
– 2 –

2. You are financial advisor to Falgun Ltd. The directors of the company have asked you to identifying
related party transactions for the year ended 31 December 2012.

Details of Falgun Ltd. and certain other companies are given blow:

Falgun Ltd.

A building construction company formed by Mr. Sohel Rahman and his brother Shafiq Rahman.
Falgun has issued share capital of 500 ordinary shares of Tk. 10 shares, owned as below:

Name No. of shares held % of holding Position

Sohel Rahman 210 shares 42% Founder and director
Shafiq Rahman 110 shares 22% Founder and director
Selima Rahman (Shafiq’s wife) 100 shares 20% Company Secretary
Ms. Helen 20 shares 4%
Fazal Khan 60 shares 12%. Director

Fazal khan is a local businessman and a close friend of both Sohel and Shafiq. He gave the brothers advice
when they set up the company and remains involved through his position on the board of directors. His
own company, Fazal Design Ltd. supplies Falgun Ltd. with stationery and publicity materials.

Ms. Helen is Sohel Rahman’s ex‐wife. She was given her shares as part of the divorce settlement and
has no active involvement in the management of the company. Alexander’s friend, Ms. Jerin, is the
company’s solicitor. She is responsible for drawing up and reviewing all key building and other
contracts and frequently attends board meetings so that she can explain the terms of a particular
contract to the directors. Her personal involvement with Sohel Rahman started in December 2011
and, since that time, she has spent increasing amount of time at the company’s premises.

Women’s World Ltd.
It is a beauty parlour of which 50% of the issued shares are owned by Ms. Helen and 50% by Mili
Rahman, who is the daughter of Sohel and Helen. Women’s World Ltd. operate from premises
owned by Falgun, for which it pays rent at the normal market rate.

Sheetal Construction Ltd.
A construction company owned 60% by Falgun and 40% by R. Amin the Managing Director. Sheetal
carries out regular work for Falgun Ltd. and also does other construction and repairing work for local
customers. Sohel Rahman is director of Sheetal and Selima Rahman is the Company Secretary. All
legal work is done by Ms. Jerin.

Required:
(i) Based on information given above write a memorandum to the Board identifying the potential
related party relationships and any disclosable related party transactions for Falgun Ltd. for the
year ending 31 December, 2012. Summarise, giving your reasons, what disclosure, if any, will be
required in the full statutory accounts. 15
(ii) Comment, with examples, on the importance of related party transactions disclosures to the
users of published accounts. 5

3. (a) The following are extracts from Brothers International’s Balance Sheet as at 28 February 2013.
Non‐Current Assets Tk Note
Land 240,000 (i)
Plant & equipment 185,000 (ii)
Buildings 225,000 (iii)
Current Assets
Financial instruments 30,000 (iv)
Trade receivables 90,000 (v)
Interest receivables 5,000 (vi)
Current Liabilities
Entertaining payable 4,000 (vii)
Interest payable 2,000 (vi)
[Please turn over]
– 3 –
Notes:
(i) The land has been revalued during the year in accordance with IAS 16 Property, plant and
equipment. It originally cost Tk 200,000. Land is not subject to depreciation under IAS nor
under local tax rules. Revaluations are not allowed for tax purposes.
(ii) The plant and machinery had an original cost of Tk 240,000 and is stated after deducting
accounting depreciation of Tk 55,000. The tax authorities have allowed tax depreciation of
Tk 90,000 to date.
(iii) The buildings were acquired 5 years ago at a cost of Tk 250,000 and are being depreciated
for accounting purposes over 50 years and for tax purposes over 25 years.
(iv) All of the financial instruments were acquired during the current year. They were acquired
at a cost of Tk 24,000 and are stated at their fair value. Brother’s Ltd has classified these
financial statements as available for sale financial assets in accordance with IAS 39. The tax
authorities only allow a deduction equal to the original cost of the financial instruments.
(v) The trade receivables balance in the accounts is made up of the following amounts.
Gross trade receivables Tk 105,000
Less specific bad debt provision (5,000)
Less general bad debt provision (10,000)
90,000
The tax authorities only allow a deduction of bad debts when a court order has been received to
write the debt off.
(vi) Interest is taxed on a cash basis.
(vii) The entertaining accrual relates to the staff party to celebrate the company’s 5th
anniversary. Staff entertaining costs are not allowed under the tax regime.
(viii) The applicable tax rate is 25%. The opening deferred tax liability was Tk 14,000.
Required:
(a) Describe the recognition criteria under IAS 12 Income taxes for a deferred tax liability and a
deferred tax asset. 7
(b) Calculate the tax base and temporary differences for each of the balance sheet assets and
liabilities in the above table. 7
(c) Calculate the deferred tax asset and liability at the balance sheet date and the amount that
would be charged to the income statement for the year. 6

(b) Operating expenses in the draft accounts for Apex include Tk 405,000 relating to the company’s
defined benefit pension scheme. This figure represents the contributions paid into the scheme
in the year. No other entries have been made relating to this scheme. The figures included on
the draft statement of financial position represent opening balances as at 1 October 20X5:
Pension scheme assets Tk 2,160,000
Pension scheme liabilities (2,530,000)
(370,000)
Deferred tax asset 759,000
389,000
After the year end, a report was obtained from an independent actuary. This gave valuations as
at 30 September 20X6 of
Pension scheme assets Tk 2,090,000
Pension scheme liabilities (2,625,000)
Other information in the report included:
Expected rate of return on assets 12%
Discount rate for liabilities 10%
Current service cost Tk 374,000
Payment out of scheme relating to employees transferring out Tk 400,000
Reduction in liabilities relating to transfers Tk 350,000
Pensions paid Tk 220,000

[Please turn over]
– 4 –
All receipts and payments into and out of the scheme can be assumed to have occurred on 30
September 20X6.

Apex’s accounting policy is to recognize any actuarial gains and losses on defined benefit
pension plans directly in other comprehensive income. This is consistent with the group policy.
In the tax regime in which Apex operates, tax deduction is allowed on payment of pension
benefits. No tax deduction is allowed for contributions made to the scheme. Gains and losses on
pension scheme assets are tax exempt.
Assume that the rate of tax applicable to 20X5, 20X6 and announced for 20X7 is 30%.

Required:
(i) Explain how each of the above transactions should be treated in the financial
statements for the year ended 30 September 20X6. 8
(ii) Prepare an extract from the statement of comprehensive income showing other
comprehensive income for the year ended 30 September 20X6. 8

4. Novotel Ltd acquired, from the licensing authority, a ten year license to operate a unique, ten
channel satellite television network at a cost of Tk. 3.7 million on January 2012. The license
commence on that date. The license purchase was funded by the issue of five million Tk. 1 ordinary
shares at a premium of 20p. Professional fees of Tk. 500,000 were incurred of which Tk. 300,000
related to the issue of the ordinary shares. The remainder related to the legal negotiations for the
network operating license. All of the professional fees are deductible for tax. The current tax rate is
30%. Sateast Ltd. subscribed for 10% of the shares issued. It also paid Tk 500,000 for five million
warrants. Each warrant entitles Sateast Ltd to subscribe for one new ordinary share in Novotel Ltd
from 1 April 2014 for Tk. 2 per share. The market value of one Novotel warrant at 31 December
2012 has been estimated at 11p. Novotel Ltd has signed a four year agreement with Stars Ltd. to
utilize its satellite network for the delivery of its television channel. That agreement commenced on
1 April 2012. Novotel Ltd. Paid Stars Ltd Tk. 1 million on 1 April 2012. Three further annual payments
of Tk. 600,000 are payable commencing on 1 April 2013. Novotel utilizes approximately 10% of the
operating capacity of Star Ltd’s network, which has an estimated useful life of eight years. Star has
agreed a minimum level of service that will be provided.

Novotel operates a simple business model involving only one customer package. Each customer
pays Novotel Tk. 45 per month for television services and commits to an initial 12 month contract.
After that initial period the customer may cancel the contract. Once the initial contract is signed
each customer receives free receiver equipment and free equipment installation. These have a retail
value of Tk. 90 and Tk. 30 if purchased without the contracts. Stars Ltd. offers customers a similar
television package without receive equipment and installation for Tk. 40 per month. Novotel signed
up 20,000 customers during 2012. The average unexpired term of a customer contract is eight
month. Novotel business plan includes ambitious growth targets. The customer take up has been
disappointing. The business plan target number of customers who were needed to have subscribed
to the service by 31 December 2012 in order to achieve eventual break even has been calculated at
75,000. Sateast ltd. Who wishes to break into this market, has made an indicative offer of Tk. 3.2
million for Novotel Ltd.’s operating license. The net selling price of the other intangible and tangible
assets is believed to approximate to their carrying amount.

Required:
Discuss the financial reporting treatment in the 31 December 2012 financial statements of Novotel
Ltd. for the issues arising from the establishment of the satellite television network business,
particularly relating to: 24
a. Intangible assets; b. Equity issues; c. Agreement with Star Ltd.; d. Revenue recognition;
e. Impairment; and f. Going concern.

Your answer should effect on the 31 December 2012 financial statements.

– The End –
Total time – 3 hours
Total marks – 100
account of the quality of language and the manner in which the answers are presented. Different
parts, if any of the same questions must be answers in one place in order of sequence].
Marks
1. a. “A professional accountant should recognize and assess the potential professional threats”.
What are the threats and how a professional accountant should safeguard and eliminate or
reduce the threats in the light of IFAC Code of Ethics, which has been adopted by ICAB. 6
b. As per BAS 18 what are the criteria for recognising revenue for the following cases: 4
(i) Sale of goods
(ii) Rendering of services
c. Under the following circumstances how the revenue should be recognized and treated in the
accounts? 9
(i) A producer manufactures capital machinery after receiving advance in full. It received 10
orders valuing Tk. 20 million during the year. It delivered 7 orders valuing Tk. 14 million by
the year end 31 Dec 2012.
(ii) An equipment seller sells equipment by requiring a 20% deposit followed by no further
payments until the full amount is due after two years. The price of the equipment is
calculated using a 10% per annum finance charge. A customer took delivery of an
equipment costing Tk. 200,000 on I January 2012.
(iii) A car dealer sell a new car, together with one year’s insurance and one year’s servicing for
Tk. 1,700,000. The fair value of the components are: car Tk.1,800,000; insurance Tk.
120,000 and servicing Tk. 80,000.
d. An entity entered into a contract for the provision of services over a two year period. The total
contract price was Tk. 150,000 and the entity initially expected to earn a profit of Tk. 20,000 on the
contract. In the first year costs of Tk. 60,000 were incurred and 50% of the work was completed.
The contract did not progress as expected and management was not sure of the ultimate outcome
but believe that the costs incurred to date would be recovered from the customer.
What revenue should be recognized for the first year? Give explanation to your answer. 4
2. a. Discuss the indications of impairment of assets from the viewpoint of external and internal
sources as stated in BAS 36. 4
b. ABC Ltd., closes its accounts on 30 April. After the catastrophic destruction of Rana Plaza in
Savar, inspection of its freehold building was carried out by specialist professionals after two
weeks of its year end on 30 April 2013. The specialist professionals reported that there were
major problems with the foundations and cracks in the walls. In their view these problems must
have arisen several years ago, even though the visible evidence had only now come to light.
Required: Explain how this event should be dealt with in the financial statements of ABC Ltd.,
for the year ended 30 April 2013. 4
c. Vintage Ltd. is a large industrial manufacturer. It operates from a single freehold factory. Its
accounting policy is that non-current assets, other than land and buildings, are measured
subsequent to initial recognition using the cost model in BAS 16 Property Plant and
Equipment. Land and Buildings are re-measured using the revaluation model of BAS 16, with
transfers being made from revaluation surplus to retained earning when permitted.
Vintage Ltd. Is considering the accounting treatment of two separate assets for the year ended
on 31 December, 2012.
[Please turn over]
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(1) A piece of manufacturing equipment was acquired on 1 January 2011 for Tk. 250,000. The
useful life was assessed as five years. On 31 Dec 2012 the government published proposed
changes in the regulations that mean that the company will have to withdraw certain product
lines manufactured on that equipment from sale by 31 December 2014. The net sales
proceeds of the equipment are estimated at Tk. 200,000 and the net cash inflows over the
equipment’s remaining three year life are estimated at Tk. 33,000, 22,000, and 7,000
respectively. Vintage Ltd. can borrow at 12% pa but estimates that this particular equipment
could only be funded at 15% pa.
(2) The company’s freehold factory was acquired ten years ago for Tk. 2.2 million (of which Tk.
200,000 was attributable to the land). Its useful life was estimated at 25 years and the residual
value was estimated at Tk. Nil. Five years ago the factory was revalued to Tk. 2.4 million (land
Tk. 200,000) and the overall useful life and residual value remained unchanged. The
revaluation surplus was recognized in other comprehensive income and held in revaluation
surplus. On 31 December 2012 the management of Vintage Ltd. noted that the market value
of the similar property has declined significantly and the fair value of the factory was now Tk.
1.2 million (land Tk. 200,000).
(i) Explain when a company is required to carry out a review for impairment? 4
(ii) Explain, with supporting numerical calculations, the required accounting treatment for
Vintage Ltd’s manufacturing equipment and freehold factory in 2012. 8
d. (i) “All investment properties should be measured at fair value”. What is fair value of an
investment property and how it is measured? 4
(ii) Discuss the following treatment under the changed circumstances: 3
a. An office premises was purchased for official use in the commercial centre but now
decision has changed, and decided to sale the property to exploit capital gain potentials.
b. Occupation of an investment property by the entity itself for training purposes.
c. A building that occupied by the entity is vacated so that it can let to third parties.
3. You are the Group Accountant at Rahim Electronics Ltd. (REL), a listed company which operates in
the electronics sector. It prepares financial statements in accordance with BFRS. A first draft of the
consolidated financial statements has been prepared. However, three issues remain outstanding
which you need to resolve before preparing the final income statement together with a
computation of the basic earnings per share (EPS).
The following are extracts form the draft consolidated financial statements of Rahim Electronics
for the year ended 30 June 2012.
Consolidated statement of comprehensive income for the year ended June 2012
Tk.’000
Revenue 8,750
Cost of sales (5,130)
Gross profit 3.620
Operating expenses (790)
Profit from operations 2,830
Dividend from Karim Ltd. (see (1)) (2,150)
Profit before tax 720
Tax (210)
Profit after tax and total comprehensive income for the year 510
Attributable to:
Owners of Rahim Electronics 430
Non-controlling interest 80
510
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The following information on the outstanding issues has been provided:
(1) On 1 January 2012 Rahim Electronics subscribed for 400,000 ordinary shares of Karim Ltd on
incorporation at par. The other issued shares were subscribed for in equal proportions by Hasib
Ltd. and Rakib Ltd. The issued ordinary share capital of Karim is one million ordinary shares. Rahim
Electronics, Hasib and Rakib have entered into an agreement so that strategic operating and
financial decisions require the unanimous consent of all three parties. Rahim Electronics has no
similar existing contractual arrangements and wishes to apply an accounting policy to this type of
arrangement that best reflects the substance and economic reality of its interest.
The following is an extract of the financial statements of Karim for the six months ended 30
June 2012:
Tk. ’000 Tk. ’000
Revenue 1,200 Operating costs (300)
Cost of sales (700) Taxation (50)
Net profit 150
The current draft of Rahim Electronics’s income statement includes the dividends received
from Karim during the year. No other amounts have been recognized in respect of Karim. A
dividend of Tk. 100,000 was paid by Karim on 27 June 2012.
(2) On 1 July 2011 Rahim Electronics acquired some freehold land. On 1 October 2011 work on
obtaining planning permission for the construction of a new factory began and physical
construction subsequently started on 1 January 2012. Work on the factory was completed on
31 March 2012. Rahim Electronics borrowed Tk.10 million of funds at an interest rate of 10%
per annum on 1 July 2011 to fund the project.
Payments were made in stages as the project progressed and any surplus funds were invested
to earn interest income. The interest income per quarter can be summarized as:
Quarter ended Tk.’000 Tk.’000
30 September 2011 100 31 March 2012 20
31 December 2011 80 30 June 2012 Nil
Total 200
All interest expense and interest income amounts have been included in profit in the draft
statement of comprehensive income. The factory was available to use on 1 April 2012 and is
being depreciated over 20 years. Other construction costs have been treated correctly.
(3) On 1 August 2011 Jamil Ltd. an 80% owned subsidiary of Rahim Electronics, sold an
investment for Tk. 340,000. The investment had been acquired in 2006 at a cost of Tk.110,000
and was immediately classified as an available for sale financial asset. The carrying amount of
the investment in the consolidated statement of financial position at 30 June 2011 was Tk.
260,000. A gain on disposal of Tk.80,000 has been included in net finance expenses for the
year ended 30 June 2012.
Rahim Electronics had 350,000 Tk. 1 ordinary shares in issue on 1 July 2011. On 1 October
2011 Rahim Electronics issued 100,000 new Tk.1 ordinary shares at market price. A 1 for 5
bonus issue was completed on 1 January 2012. A further 50,000 Tk.1 ordinary shares were
issued at market value on 1 April 2012. These share transactions have been correctly reflected
in the draft financial statements.
The financial statements for the year ended 30 June 2011 disclosed an EPS of Tk.0.90.
Requirements
Draft a file note suitable for inclusion in the company’s financial records that includes:
(a) An explanation of the required BAS/BFRS accounting treatment of these three issues,
preparing relevant calculations where appropriate. 12
[Please turn over]
–4–
(b) A revised consolidated statement of comprehensive income for the year ended 30 June 2012. 8
(c) A calculation of the basic EPS figure, including the comparative amount. 5
Note: Ignore taxation.
4. a. “The classification of a lease depends on the substance of the transaction rather than form of
the contract. Lease can either be a finance lease or an operating lease, as determined by
applying the principles of substance over form”, how you would categorise the two types of
lease transaction and treat in the accounts? 5
b. You are the Chief accountant at BEL, a listed company that operates in the engineering sector
and is also listed in DSE. BEL has recently invested heavily in new plant and the levels of debt
(and gearing) have increased substantially. To improve cash flow the directors entered into a
major sale and leaseback transaction over an item of plant on 1 July 2011.
You have been trying to finalise the financial reporting of the sale and leaseback transaction in
the financial statements of BEL for the year ended 30 June 2012 which are prepared in
accordance with BFRS. However, the documentation for the transaction is incomplete and you
have been unable to concluded as to whether this is a sale and finance leaseback or a sale and
operating leaseback transaction. The details you are aware of are as follows:
 The plant had a carrying amount of Tk.9 million on 1 July 2011.
 The remaining life of the plant on that date has provisionally been estimated as eight
years by one of your colleagues.
 Proceeds from the lease company of Tk.12 million were received on 1 July 2011. You
believe that this represents the market value of the plant at that date.
 BEL has leased the plant back over a six year period. The first of six equal annual payments
of Tk.2.5 million was made on 30 June 2012.
 BEL has the option to purchase the machinery for its market value at the end of the six
year lease term. It is not clear whether this will happen.
 The rate of interest implicit in the lease (if it were a finance lease) has been calculated as
6.8% per annum.
The Managing Director of BEL telephoned you and asked you to meet him to discuss the
formulation of a financial reporting treatment for the sale and leaseback transaction. He said:
‘I’m concerned about how we account for this sale and leaseback transaction. There are two
possible treatments, either as a sale and operating leaseback or as a sale and finance
leaseback. I have not discussed it with the auditors yet. I want to maximize profit and
minimize debt at all costs. I suggest that if one way is better than the other then we create the
necessary documentation and reasoning to achieve what we want. For example, with my
position in the industry, we’ll be able to justify any remaining useful life to anyone. Also our
investors tell me that their accounting rules are different even though I thought that
accounting practice was the same worldwide.
Requirements
Prepare notes for your meeting with the Managing Director which should:
(i) Explain and prepare extracts from financial statements for the two possible financial
reporting treatments of the sale and leaseback transaction identified above for the year
ended 30 June 2012. 12
(ii) Asses the potential impact on the financial statements and key financial ratios in the
current and future years of the two different possible financial reporting treatments. 8
– The End –
Time allowed – 3 Hours
Maximum marks – 100
N.B. – Figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of
the quality of language and of the manner in which the answers are presented. All workings are to be
submitted. Different parts, if any of the same questions must be answered in one place in order of sequence.
Marks
1. The overriding requirement of a company’s financial statements is that they should represent faithfully
the underlying transactions and other events that have occurred. To achieve this transactions have to be
accounted for in terms of their “substance” or economic reality rather than their legal form. This principle
is included in the “Framework” for the preparation and presentation of financial statements, and is also
used in many standards adopted by ICAB , in particular BAS 17 “Leases” and BAS 18 “Revenue”.
Required:
(a) Describe why it is important that substance rather than legal form is used to account for transactions, and
describe how financial statements can be adversely affected if the substance of transactions is not recorded. 4
(b) Describe, using an example, how the following features may indicate that the substance of a
transaction is different from its legal form: 6
(i) Separation of ownership from beneficial use;
(ii) The linking of transactions including the use of option clauses;
(iii) When an asset is sold at a price that differs to its fair value.
(c) On 1 April 2008 Safwan Ltd had an inventory of cut seasoning timber which had cost Tk 12 million two
years ago. Due to shortages of this quality of timber its value at 1 April 2008 had risen to Tk 20 million. It
will be a further three years before this timber is sold to a manufacturer of high-class furniture. On 1 April
2008 Safwan Ltd entered into an agreement to sell Commercial bank the timber for Tk 15 million. Safwan
Ltd has an option to buy back the timber at any time within the next three years at a cost Tk 15 million plus
accumulated interest at 2% p.a. above the base rate. This will be charged from the date of the original sale.
The base rate for the period of the transactions is expected to be 8%. Safwan Ltd intends to buy back the
timber on 31 March 2011 and sell it the same day for an expected price of Tk 25 million.
Required: 6
Assuming the above transactions take place as expected, prepare extracts to reflect the
transactions in the income statements for the years to 31 March 2009, 2010 and 2011 and the
Balance Sheet (ignore cash) at those year ends:
(i) If Safwan Ltd treated the transactions in their legal form; and
(ii) If the substance of the transactions is recorded.
(d) Impress Ltd, a public listed company, is preparing its accounts for the year ended 30 September 2012.
In May 2012 it bought the rights to a film called “Wind of Change”. It paid a fixed fee and will not incur
any further significant costs or commissions. It has entered into the following contracts with:
(i) Star Cineplex
This is a large company with a chain of cinemas throughout the world. Cineplex has negotiated the
right to screen the film during the period from 1 July 2012 to 31 December 2012 in as many of its
cinemas and as frequently as it chooses. Impress Ltd will be paid 15% of gross box office receipts.
(ii) Big Screen
This is a small company operating a single cinema. Under the terms of the contract it may screen the
film twice a day for the same period as the above contract. It has paid a fixed fee of Tk 10,000.
(iii) Global Satellite
This is a satellite television company that broadcasts to all over Bangladesh. It paid Tk 4 million in
August 2012 for the right to screen the film 10 times at intervals of not less than one month apart
during the period from 1 January 2013 to 31 December 2013.
Required:
Applying the recommendations in the Framework and BAS 18 “Revenue” describes how Impress Ltd should
treat the income from each of the above contracts in the accounting year ended 30 September 2012. 9
[Please turn over]

–2–
2. Rose, a listed company, has invested in two other companies, Pet and Cute.
(i) On 1 January 2010 Rose acquired 80,000 shares in Pet by way of a share exchange of one share in
Rose for every two shares in Pet plus a cash payment of Tk 1.25 per Pet share. The market price of
Rose’s shares on 1 January 2010 was Tk 5.50 each.
(ii) On 1 May 2011 Rose acquired 50% of the shares in Cute for an immediate cash payment of Tk 140,000. The
other 50% of the shares in Cute are held by Delta Ltd. Rose and Delta has agreed to jointly control Cute.
Rose is to use proportional consolidation when consolidating the results of Cute. Cute made a loss of Tk
30,000 in the current financial year that is to be assumed to have accrued evenly over the year.
The summarized Statement of Financial Position of the three entities at 31 December 2011 was as
follows:
Rose Pet Cute
Tk'000 Tk'000 Tk'000 Tk'000 Tk'000 Tk'000
ASSETS
Non-current assets
Tangible assets 679 406 218
Investments 500 13 0
Current Assets
Inventories 45 30 12
Trade & other receivables 61 46 8
Cash 2 13 4
108 89 24
Total Assets 1287 508 242
EQUITY & LIABILITIES

Equity Capital (Tk 1 nominal value) 340 100 60
Share Premium 160 40 0
Retained earnings 502 315 120
1002 455 180
Non-Current Liabilities
7% Loan note 200 0 50
Loan from Rose 0 20 0
Current Liabilities
Trade and other payables 37 17 9
Overdraft 12 0 0
Current taxes payables 36 16 3
1287 508 242
The following information relating to the group is also available:
(a) On the acquisition of Pet the following assets fair values were found to be different to their
book values:
The fair value of an item of equipment was Tk 20,000 higher than its book value.
The equipment had five years useful life remaining.
The fair value of inventory was 10% higher than its book value of Tk 60,000.
The fair value of Cute’s net assets was not significantly different to book value.
(b) During 2010 Rose sold an item of inventory to Pet for Tk 25,000, a markup of 25% was earned
on the sale. Pet is treating the item as a non-current asset and depreciating it on a straight line
basis over five years. Pet charges a full year’s depreciation on assets in the year of acquisition.
(c) On 1 December 2011 Pet sold goods to Rose for Tk 32,000. A margin of 25% was made on the
sale. Rose has sold 50% of the goods at 31 December 2011.
(d) On 30 December Pet repaid half of the loan from Rose. Rose had not received the money by
the year end. Rose has included the loan to Pet within the investment figure.
(e) Goodwill in respect to the acquisitions in Pet and Cute has fallen by 10% and 25% of its original
value respectively.
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(f) Tk 10,000 included in Rose’s payables relates to goods purchased from a foreign supplier. The
value of the goods has been translated into Taka at US$=Tk75, the exchange rate prevailing when
the goods were purchased. At 31 December 2011 the exchange rate had fallen to Tk 80=US$1.
Required:
(i) Prepare the consolidated Statement of Financial Position for the Rose group as at 31
December 2011. 20
(ii) Some accountants believe that the use of proportional consolidation that is allowed by
BAS 31 Interest in Joint Ventures is in conflict with the Framework for the Preparation and
presentation of Financial statements. Discuss why some accountants believe that there is
a conflict between the two publications and state the alternative method for accounting
for a jointly controlled entity under BAS 31. 5
3. (a) Mat Ltd manufactures toys for boys. The following information relates to fixed property owned by the
company:
Tk' 000 000
30-06-2012
Land - plot 181 Gazipur 800
Building thereon (acquired July 1, 2010) 2,100
Improvements - building to extend rented floor capacity (30 June 2012) 400
Repairs and maintenance to investment property for the year
Rentals received for the year 160
Useful life of building
Approximately 6% of the property's floor space used as administrative head office of the company. The
property can be sold only a complete unit. The remainder of the building is leased out under operating
leases on 1 July 2011. The company provides lessees with security services.
The company values investment property using fair value model. On 30 June 2012, the statement of
financial position date, Mr Resalat (independent valuer) valued the property at BDT 3,600 million.
Required:
(i) Calculate the carrying value of investment property and loss/gain for the year ended 30 June 2012. 5
(ii) Show how the above asset will be presented in the Statement of financial position for 2012 and
2011 (explain the reasons in support of your answer) 5
(iii) Give a disclosure note to the financial statements for the year ended 30 June 2012. 5
(b) Bulk Investment Ltd acquired the following companies on 1 January 2012:
Mim Limited (Tk '000) Zeem Ltd (Tk '000)
(a) Acquisition status Full acquisition 75% acquisition
(b) Assets, equity and liabilities Cost Market value Cost Market value
(i) Property, plant and equipment 35,000 40,000 4,500 4,200
(ii) Inventories 1,000 890 670
(iii) Trade debtors 2,500 2,400 750 700
(iv) Cash and cash equivalents 1,200 500
(v) Current liabilities 1,390 870
(vi) Provision for gratuity 2,500 2,890 900 955
(vii) Deferred tax liability 450 75
(viii) Share capital (Tk 100 par value) 25,000 1,900
(ix) Retained earnings 10,360 2,675
(c) Cost of acquisition:
(i) Cash payment 25,000 3,000
(ii) Issuance of shares 16,000 2,000
Required:
(i) Calculate the goodwill on the investment in Mim Limited as at 1 January 2012 in compliance with BFRS 3. 5
(ii) Calculate the goodwill on the investment in Zeem Ltd as at 1 January 2012 in compliance with BAS 27. 5
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4. One of your valued client, Lima Manufacturing Limited, a public listed entity, is seeking your support for
computation of tax (deferred and current tax) from the following information:
(i) Information relevant for current tax: Tk' 000
30-06-2012 30-06-2011
Turnover 5,392 6,798

Accounting profit 692 1,042
Excess perquisites 4 10
Withholding tax not deducted for expenses 7 5
Gratuity expense 130 270
Gratuity paid 200 300
Dividend income from other company (included in other income) - 230
Capital gain on sales of Grameenphone shares (included in other income) 100 -
Accounting depreciation 251 231
Royalty expense 113 110
Accounting profit/(loss) on sales of fixed assets (40) 100
Tax depreciation allowance 265 318
Royalty paid - 250
Tax profit/(loss) on disposal of fixed assets (10) 230
Applicable tax rate:
On business income- gross 27.50% 27.50%
On dividend income 20.00% 20.00%
On capital gain (Grameenphone shares) 5.00% 5.00%
Tax credit on business income -Note (i) 10% of assessed tax
(ii) Information relevant for deferred tax computation: Tk' 000
(a) Accounting records: 30-06-2012 30-06-2011 30-06-2010
Property, plant and equipment 2,018 2,269 2,500
Investment in Grmeenphone shares - Note (iii) 2,100 3,250 3,000
Provision for gratuity 400 470 500
Royalty payable 203 90 230
(a) Tax records:
Property, plant and equipment 1,367 1,632 1,950
Provision for gratuity N/A N/A N/A
Royalty payable N/A N/A N/A
Unused tax loss 2004 425 425 425
Unused tax loss 2005 1,225 1,225 1,225
Unused tax loss 2006 36 36 36
Unused tax loss 2007 239
Other information:
(i) The company is a publicly traded entity. It is the Management policy to pay dividend at a minimum
@ 25% in every year. As a result, it is entitled for a tax credit @ 10% on assessed tax of its business
income in the financial years 2012 and 2011.
(ii) Any unused tax loss can be adjusted with taxable business profit in 6 successive years.
(iii) Investment in Grameenphone shares were valued at quoted market price of Dhaka Stock Exchange
Ltd. Cost of the said investment was Tk 2 500 000.
(iv) The company is liable for payment of minimum tax under section 16CCC of The ITO 1984 @ 0.50%
on turnover.
Required:
(a) Calculate current tax expense and payable for the years ended 30 June 2011 and 2012. 10
(b) Calculate deferred tax payable for the years ended 30 June 2010, 2011 and 2012 and deferred tax
expense for 2011 and 2012. 10
(c) Prepare extract income statement (from profit before tax to profit for the year) 5
– The End –

Total marks – 100
account of the quality of language and of the way in which the answer are presented. Different parts
if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) As per BAS/BFRS, when a parent company does not need to present consolidated financial
statements? 5
(b) Park Ltd. (a public limited company listed with Dhaka Stock Exchange) acquired 75% control of
Sift Ltd. as a result of the following three purchases:
Value of total equity Date of No. of shares Purchased

Share capital R/earnings purchase acquired price/share
Taka Taka Taka
500,000 60,000 30-Jun-09 5,000 10
500,000 200,000 31-Mar-10 15,000 12
500,000 250,000 01-Jan-11 17,500 25
The face value per share of Smith Ltd. was Tk.10. The balance of equity of Smith Ltd. at each
reporting dates were as follows:
Reporting date Share capital Retained earning Market price per share
(i) 31-Dec-09 500,000 75,000 10.50
(ii) 31-Dec-10 500,000 190,000 11.00
(iii) 31-Dec-11 500,000 300,000 16.00
Show how the above amounts to be presented in the statement of financial position at each
reporting dates (give necessary adjustment for impairment as you think necessary). Quote
relevant provisions of BFRS in support of your answer. 15
2. Perfect Ltd. is a fast moving consumer goods (FMCG) company listed in the stock exchange. The
auditor, at the time of verification of inventory at the close of business on 31 March 2012,
identified that some customers payment, are invoiced at the time of fund received but the goods
were not delivered until the reporting date as these were in the production work-in-progress. The
relevant information for the said error was as follows:
Figures in 000 BDT
Unaudited Audited
2012 2011
Received from customers 7,250 6,905
Invoiced to customers:
Olitalia oil 5 (2500 units x 1120), (2000 units x 1015) 2,800 2,030
Sunflower oil (5,000 units x 890), (6,500 units x 750) 4,450 4,875
7,250 6,905
Cost of products of above volume:
Olitalia oil 5(2500 units x 1050), (2000 units x 950) 2,625 1,900
Sunflower oil (5,000 units x 800), (6,500 units x 600) 4,000 3,900
6,625 5,800
The supply chain manager confirmed that all goods that invoiced on 15 March 2011 for BDT
6,905,000 were delivered on 20 May 2011 whereas invoiced on 27 March 2012 for BDT 7,250,000,
were delivered on 31 May 2012.
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–2–
Extract figures of financial statements are as follows:

Comprehensive income statements for the year ended 31 March:
Figures in 000 BDT
Revenue 87,000 82,860
Cost of sales (79,500) (69,600)
Operating expense (1,200) (1,200)
Profit for year 4,567 7,537
Income tax rate 27.5% 37.5%
Earnings per share 22.84 37.69

Requirement:
(i) Identify the line items of the financial statements those are to be corrected with reasons 5
(ii) Pass rectified journal entries in the books of Perfect Ltd. 5
(iii) Re-draft the figures of the extract financial statements as at 31 March 2012 and 2011 5
(iv) Give a disclosure with note highlighting the impact in the profitability and equity as per BAS 8. 10
3. The summarized financial statements of Alltex Ltd. were as follows:

(i) Statement of financial position
31 Dec 2011 31 Dec 2010
Taka Taka
ASSETS
Non-current assets
Property, plant and equipment 1,750,000 1,550,000
Total non non-current assets 1,750,000 1,550,000
Current assets:
Inventories 1,431,000 1,197,000
Trade and other receivables 2,567,000 2,825,000
Cash and cash equivalents 1,675,000 700,000
5,673,000 4,722,000
Total assets: Taka 7,423,000 6,272,000
EQUITY AND LIABILITIES
Capital and reserve:
Ordinary share capital (Tk.1/share) 5,000,000 5,000,000
Revaluation reserve 500,000 -
Retained earnings 112,000 292,000
5,612,000 5,292,000
Provision for gratuity 425,000 210,000
425,000 210,000
Current liabilities:
Trade and other payables 686,000 540,000
Current tax payable 700,000 230,000
Total current liabilities 1,386,000 770,000
Total liabilities 1,811,000 980,000
Total equity and liabilities: Taka 7,423,000 6,722,000
(ii) Income statement for the year ended 31 Dec2011 Taka Taka
Revenue 3,390,000 3,355,000
Cost of sales (2,445,000) (2,235,000)
Gross profit 945,000 1,120,000
Other income 20,000 11,300
Administrative expenses (220,000) (321,000)
Other expenses (45,000) (135,000)
Finance costs (180,000) (175,000)
Profit/(loss) for the year (180,000) 270,000
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–3–
The Managing Director is surprised looking a net loss of Tk.180,000 although sufficient measures
are taken to reduce costs. The Company’s newly appointed CFO said that this was happened
mainly due to lump-sum provision was made for income tax and deferred tax was not accounted
for since the beginning of the company. He also suggested to re-calculate deferred tax expenses
and liability since 1 January 2010. The Accountant has obtained the following information as
relevant for deferred tax calculation:
Taka Taka
Excess perquisites 23,500 20,000
Accounting entertainment expenses 350,000 750,000
Gratuity expense 845,000 525,000
Accounting depreciation 437,000 232,000
Accounting profit on sale of assets 3,290 -
Gratuity paid 40,000 105,000
Tax depreciation allowance 225,000 750,000
Tax income on sale of assets 107,500 -
Tax allowable entertainment allowance 60,635 95,300
Income tax rate 27.5% 37.5%
(iii) Accounting balances: 31 Dec 2011 31 Dec 2011 31 Dec 2009

Property, plant and equipment 1,750,000 1,550,000 1,050,000
Provision for gratuity (425,000) (210,000) -
(iv) Tax related information:
(a) Tax written down value of fixed assets 656,000 375,000 523,000
(b) Tax rate 27.5% 37.5% 37.5%
Requirement:
(a) Re-calculated current tax expense and payable as at 31 December 2011 and 2010. 7
(b) Re-calculated deferred tax asset or liability as at 31 December 2011 and 2010. 8
(c) Re-draft the financial statements as at and for the year ended 31 December 2011 and 2010. 10
4. (a) Jamuna Media Ltd. is a listed company operates in the media sector. You are the Chief Finance
Officer at Jamuna Media Ltd. It prepares financial statements in accordance with BFRS. There has
been rapid consolidation in the sector and Jamuna Media Ltd. has recently acquired two `keyhole’
investments in competitors. Its strategy is to hold the investments for their long-term potential.
Jamuna Media Ltd. has never held equity or non-equity share investments previously.
The following details of the two `keyhole’ investments are available:
(1) Jamuna Media Ltd. acquired 10,000 Tk.10 ordinary shares in Rashid Ltd., representing 6%
of the issued ordinary share capital on 1 April 2011 for a consideration of Tk.300 per share
payable in cash. At 31 December 2011 the market value of each share was calculated as
Tk.345 (ex. div). A dividend of Tk.20 per share was declared by Rashid Ltd. on 20
December 2011 which is payable on 4 February 2012. The managing director has stated
that the intention is acquire further ordinary shares in the future if Rashid Ltd.’s strategy is
successful and capital market opportunities are available.
(2) Jamuna Media Ltd. acquired 20,000 8% Tk.10 preference shares in Good Lunck Ltd. on 1
January 2011 for a consideration of Tk.12 per share. The share are redeemable in 2013 at
par and the fair value of each share at 31 December 2011 has been calculated as Tk.13.
The annual 8% preference dividend was received on 31 December 2011. The effective
interest rate has been calculated as 6%. The managing director has stated that the
intention is to hold these securities for the long-term.
The managing director has asked you to prepare him a report which discusses the financial
reporting and other issues associated with the different potential treatments of these
transactions.
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–4–
Requirements:
Prepare a report for the Managing Director which should:
(i) Explain, using extracts from financial statements, the possible financial reporting
treatments for the `keyhole’ investments identified above for the year ended 31
December 2011. 8
(ii) Assess the potential impacts on the financial statements in the current and future years
where different possible financial reporting treatments exist. 6
(iii) Discuss the financial reporting, ethical and other matters that you need to consider in
formulating the accounting policies for these investments. 6
(b) Identify and explain two areas in which the application of BFRS 8 requires significant amount
of judgments to be exercised by management and explain how a chartered accountant should
review these judgments? 4
(c) Identify the presentation requirements of the following transactions in the financial
statements of Aftab Ltd. for the year ended 31 December 2011: 6
Aftab Ltd. has multinational operation and operating in several business sectors. On 30 June
2011 Aftab Ltd. announced the sale of its electronics division. The sale was completed on 30
September, 2011. On 15 December 2011 the company decided to close down and terminate
the operations of the machinery division and was confident of completion within 12 months.
Each division has been disclosed as a separately reportable operating segment n previous
financial statements.
– The End –

Corporate Reporting Past Question Papers (ICAB)

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FINANCIAL & CORPORATE REPORTING

Time allowed – 3 hours

Capital and reserves

Balance Sheet as at 31 March 20x7

Total equity and liabilities 7,833 4,888

The following information is relevant:

Time allowed – 3 hours

3. Himadri Ltd., a listed company, owns two subsidiaries acquired as follows:

D - Property 2,000 100 1,900

Draft Consolidated Statement of Comprehensive Income

Draft Consolidated Statement of Financial Position 30 June 2016

Non- current assets

Capital and reserves

Accounts and notes payable 432,000

Industry Financial Ratios (2017)a

Time allowed – 3 hours

Summarised Statement of profit or loss and other comprehensive income

Sales/debtors 37.50 70.00 92.00 16.00

Profit after tax/total assets % 9.76 27.80 13.24 8.97

Equity/total assets % 18.29 37.07 33.45 32.96

Current liabilities/total assets % 45.12 44.39 37.28 50.00

Stock/total assets % 17.07 18.54 14.63 41.90

Debtors/total assets % 4.88 2.93 1.70 18.40

Depreciated Fair value less costs to Carrying value

Details of the progress of the contract at 31 March 2015 are:

The following information is relevant:

Share capital at April 30, 2014

Income Statement for the year ended 31 March 2014 2013

Operating expenses (120) (88)

Time allowed – 3 hours

Name No. of shares held % of holding Position

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EQUITY & LIABILITIES

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Turnover 5,392 6,798

Time allowed – 3 hours

Value of total equity Date of No. of shares Purchased

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Extract figures of financial statements are as follows:

Income tax rate 27.5% 37.5%

Earnings per share 22.84 37.69

3. The summarized financial statements of Alltex Ltd. were as follows:

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(iii) Accounting balances: 31 Dec 2011 31 Dec 2011 31 Dec 2009

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