Financial Accounting and Reporting-I

Suggested Answer
Certificate in Accounting and Finance – Spring 2024

A.1 Gemini Club

Statement of income and expenditure for the year ended 31 December 2023

Incomes Rs. in '000

Members’ subscription 790+270–158+25–20 907
Tuck shop rent 248+41–37 252
Scrap sale/other income 15
1,174
Expenditures
Salaries 560+52–41+15–18 568
Utilities 214+25–18 221
Annual sports event - net (180+10)–(49+86) 55
Depreciation 1,300+92+110–1,403 99
Repairs and maintenance 40
Miscellaneous supplies expense 10+132–13 129
(1,112)
Excess of income over expenditure 62

A.2 Gross Profit Net Profit

---------- Rs. in '000 ----------
Profits as per draft financial statements 1,360 590

a) Reversal of sales returns 2 2

Recording of purchase returns 20 20
22 22

b) Reversal of sales (39) (39)

Reversal of purchases / cost of goods sold 30 30
Recording of advertising expense - (30)
(9) (39)

c) Reversal of sales (382) (382)

Recording of gain on disposal - 62
(382) (320)

d) Recording of transportation – out - (240)

Reversal of transportation - in 240 240
Decreasing closing stock (36) (36)
204 (36)

e) Reversal of impairment loss - 200

Corrected profits 1,195 417

Page 1 of 6
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2024

A.3 (a) A Trade receivables 365 365

= = ⇒ 52.1 days
collection period Receivable turnover 7

B Inventory holding Average inventory 28(49 − 21)

= ×365 = × 365 ⇒ 127.8 days
period Cost of sales 80(100×100÷125)

C Trade payables 365 365

= = ⇒ 40.6 days
payment period Payable turnover 9

Working capital =A+B−C = 52.1 + 127.8 ‒ 40.6 ⇒ 139.3 days

cycle

(b) Trade receivable collection period:

(i) Give incentives to the customers to pay on time e.g. early payment discounts.
(ii) Do not transact with customers who have a history of defaulting/late payments.
(iii) Automate the monitoring of accounts receivable.
(iv) Resolve disputes with customer as early as possible.

Inventory holding period:

(i) Establish relationships with reliable suppliers for timely replenishment so that
stock level could be reduced.
(ii) Identify and address obsolete or slow moving inventory.

Trade payable payment period:

(i) DL should fully utilize credit period given by supplier.
(ii) Find suppliers, who are offering higher credit period.
(iii) Negotiate extended terms with existing suppliers.
(Only 01 action is required for each component)

A.4 (i) The point raised by CEO is not correct. It is not necessary that all items of property,
plant and equipment (PPE) are revalued, if an item of PPE is revalued, the entire class
of PPE to which that asset belongs shall be revalued. So, selected classes of assets can
be revalued but selected assets within a class cannot be revalued.

(ii) The point raised by CEO is not correct. Adoption of revaluation model for property,
plant and equipment is a change in accounting policy. As per IAS 8, the initial
application of a policy to revalued assets in accordance with IAS 16 is not accounted
for retrospectively.

(iii) The point raised by CEO is not correct. The transfer of incremental depreciation each
year is not compulsory. The entity can choose to transfer the whole revaluation surplus
to retained earnings upon disposal of assets or as incremental depreciation over the
useful life of the assets.

(iv) The point raised by CEO is not correct. As per IAS 40, only land or a building can be
investment property. So, vehicles whether used in business or given for rentals, should
be classified as property, plant and equipment.

Page 2 of 6
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2024

A.5 Borrowing costs to be capitalized

Rs. in million
Interest on specific loan 1: 250 × 17% × 10/12 35.42
Interest on specific loan 2: 340 × 19% × 4/12 21.53
56.95
Less: Investment income:
50 (W-1) × 10% × 2/12 (0.83)
340 (W-1) × 10% × 1/12 (2.83)
160 (W-1) × 10% × 3/12 (4.00)
(7.66)
49.29

W-1: Schedule of receipts/payments

Equity Loans
Date Descriptions
---- Rs. in million ----
1 January 2023 Long term loan received 250
1 February 2023 1st payment (200)
50
1 March 2023 Right issue 300
300 50
1 April 2023 2nd payment (300) (50)
- -
1 August 2023 Short term loan received 340
1 September 2023 3rd payment (180)
- 160

A.6 (i) (a) If impairment indicators are present, the entity shall estimate the recoverable
amount of the asset.
(d) An impairment loss only arises if the fair value less costs of disposal as well as
the value in use are lower than the carrying amount.
(ii) (c) It should not be presented in the statement of cash flows but it will be presented
in the notes to the financial statements
(iii) (c) Rs. 2,900
(iv) (b) Structure and content of financial statements
(v) (a) Rs. 31 million
(vi) (c) Both are correct
(vii) (b) Rs. 460,000
(viii) (d) None is correct
(ix) (b) Rs. 16 million

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 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2024

A.7 Bard Limited

Statement of changes in equity
For the year ended 31 December 2023
Share Share Retained Revaluat-
capital premium earnings ion surplus
--------------- Rs. in million ---------------
Balance as at 31 December 2021 2,400 563 1,345 -
Effect of correction of error - - (W-1)(450) -
(–525+75)
Balance as at 31 December 2021 - Restated 2,400 563 895 -
Final cash dividend @ 15% for 2021 - - (360) -
(2,400×15%)
Final bonus dividend @ 10% for 2021 240 (240) - -
(2,400×10%)
Profit for the year – 2022 - Restated - - 552 -
[477+75(W-1)]
Balance as at 31 December 2022 - Restated 2,640 323 1,087 -
Interim bonus dividend @ 25% for 2023 660 - (660) -
(2,640×25%)
Issue of right shares 400 317 - -
(40×10) (40×8)–3
Total comprehensive income for the year:
- Profit for the year – 2023 (W-3) - - 140 -
- Other comprehensive income 700
[250+450(W-2)]
Transfer of incremental depreciation (W-3) - - 50 (50)
Realization of revaluation surplus on disposal - - 100 (100)
[250×40%(W-2)]
Balance as at 31 December 2023 3,700 640 717 550

W-1: Correction of government grant 2023 2022 2021 2020

-------------- Rs. in million --------------
Reversal of grant income in 2020 (600)
Transfer of grant to profit or loss 600 ÷ 8 75 75 75 75
75 75 75 (525)

Profit 2023 Profit 2022 Retained earnings

W-2: Revaluation Land Office building Factory building

-------------- Rs. in million --------------
Revalued amount 1,250 1,200 550
Carrying amount (1,000) (750) (1,000)
Revaluation surplus/(loss) 250 450 (450)

W-3: Profit for 2023 Rs. in million

Profit as per draft financial statements 575
Transfer of government grant (W-1) 75
Revaluation loss (W-2) (450)
Increase in depreciation expense of office building 450÷9 (50)
Decrease in depreciation expense of factory building 450÷5 90
Correction of gain on disposal of land 250(W-2)×40% (100)
140

Page 4 of 6
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2024

A.8 (a) Synthesia Limited

Notes to the financial statements
For the year ended 31 December 2023
1: Investment Properties
Property A Property B Property C
---------- Rs. in million ----------
Balance at 1 January 2023 720.0 - -
Addition - - 418.0
(430–12)
Transfer from owner occupied property - (W-1)465.3 -
Transfer to owner occupied property (740.0) - -
Fair value gain / (loss) 20.0 14.7 (23.0)
(740 – 720) (480 - 465.3) (395 – 418)
Balance at 31 December 2023 - 480.0 395.0

1.1 Fair value model is used for the subsequent measurement of all investment
properties.
1.2 The valuation of investment properties was performed by Alpha Brothers, an
independent firm of valuers.
1.3 The rental income from investment properties during the year amounted to
Rs. 51 million (i.e. Rs. 45 million received + Rs. 6 million accrued).
1.4 Direct operating expenses (repairs and maintenance) of Rs. 25 million were
incurred during the year to generate rental income.

W-1: Fair value / Carrying amount of property B on transfer Rs. in million

Cost 500.0
Accumulated depreciation:
Depreciation for 2021 200(500 × 40%) × 10%×6÷12 10.0
Depreciation for 2022 (200–10)×10% 19.0
Depreciation for 2023 (200–10–19)×10%×4÷12 5.7
(34.7)
Carrying amount 465.3

(b) Date Particulars P/R Debit Credit

30-04-2023 Property, plant and equipment (Bal.) 684.9
Accumulated depreciation 65.1
Investment property 750.0

W-3: Accumulated depreciation for Property A Rs. in million

Accumulated depreciation:
Depreciation for 2021 300(750×40%) ×10% 30.0
Depreciation for 2022 (300–30)×10% 27.0
Depreciation for 2023 (300–30–27)×10%×4÷12 8.1
65.1

Page 5 of 6
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2024

A.9 (a) EPS for 2022 (Originally reported)

Basic EPS ⇒ 308

= Rs. 12.32/share
25

Diluted EPS ⇒ 308+18.9{(2×100×18%×70%)×(9÷12)} 326.9 Rs. 12/share

= =
25+2.25{(2×3÷2)×(9÷12)} 27.25 Dilutive

(b) EPS for 2023:

⇒ 280–48(6×50×16%) 232
Basic EPS = = Rs. 5.98/share
38.79(W-1) 38.79
Diluted EPS 232+48(W-3) 280
⇒ Rs. 5.51/share
(after including 38.79+12(W-3) = 50.79 =
Dilutive
preference shares)
Diluted EPS 280+25.2(W-3) 305.2
⇒ Rs. 5.67/share
(after including 50.79+3(W-3) = 53.79 =
Anti-Dilutive
convertible bonds)

So, Diluted EPS for 2023 is Rs. 5.51/share

W-1: Weighted average number of shares for 2023

Adjustments
Description Date Shares Time Weighted
Right Bonus
Balance 1 Jan 25 5/12 80/70 1.2 14.29
Right issue @ 40% 1 Jun 35 3/12 1.2 10.50
(25×1.4)
Bonus issue @ 20% 1 Sep 42 4/12 14.00
(35×1.2)
38.79

W-2: Ex-theoretical price

40 × 45 = 1,800
100 × 80 = 8,000
140 9,800 ⇒ 9,800 ÷ 140 = 70

W-3: Ranking Incremental Incremental Incremental

Ranking
earnings shares EPS
Irredeemable preference share 48 12 4 1
(6×50×16%) (6×2÷1)
Convertible bonds 25.2 3 8.4 2
(2×100×18%×70%) (2×3÷2)

EPS for 2022 (Reported in 2023)

Basic EPS ⇒ 308 308

= = Rs. 8.98/share (Restated)
25×(8÷7)×1.2 34.29

Diluted EPS ⇒ 308+18.9 326.9

= = Rs. 8.95/share (Restated)
34.29+2.25 36.54

(THE END)

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