Graded Assignment 1

Question 1

Moon Enterprises acquired a plant on January 1, 2008 for Rs. 1,050,000, with an estimated life of 7
years. On December 31, 2010 there were indications of impairment.

Estimate of cash flows are:

Year Cash Flows

2011 150,000

2012 120,000

2013 114,000

2014 70,000

Decommissioning cost is estimated at Rs. 30,000. Current selling price is Rs. 300,000. Applicable
discount rate is 12%

Requirement

Compute impairment loss.

Question 2

An entity acquired a piece of equipment on January 1, 2011 for Rs. 192,000. Estimated life of the asset
was 4 years.

Recoverable amount at 31-12-2011 was Rs. 180,000

Recoverable amount at 31-12-2012 was Rs. 56,000

Recoverable amount at 31-12-2013 was Rs. 156,000

Requirement

Prepare journal entries for impairment and reversal of impairment for 2011, 2012 and 2013

Question 3

An equipment was acquired on January 1, 2011 for Rs. 285,000.

Rs. 30,000 were incurred for freight and custom duty. Estimated useful life was 7 years.

Fair Values:

01-01-2012 Rs. 450,000

01-01-2013 Rs. 192,000

01-01-2014 Rs. 216,000

01-01-2015 Rs. 351,000

Requirement:

(Tip: Historical Cost Method) Prepare journal entries to record acquisition of equipment and changes in
fair value. Also, prepare relevant ledger accounts and extracts from statement of financial position at
the end of each year to December 31, 2015.

Question 4

Date of acquisition 01-01-2008

Cost Rs. 180,000

Life 5 years

Recoverable amount

31-12-2008 220,000

31-12-2009 72,000

31-12-2010 90,000

31-12-2011 28,000

31-12-2012 0

Requirement

Prepare a comparison between recorded carrying value and depreciated historical cost.
Question 5

A company’s financial statements show profit before tax of Rs. 600,000 in each of years 2019, 2020, and
2021. This profit is stated after charging depreciation of Rs. 120,000 per annum related to the purchase
of an asset costing Rs. 360,000 in year 2019 which is being depreciated over its 3-year useful life on
straight line basis.

The tax depreciation allowed on the asset are:

2019 Rs. 144,000

2020 Rs. 126,000

2021 Rs. 90,000

Income tax is calculated as 30% of taxable profits.

Apart from the above accounting depreciation and tax depreciation, there are no other differences
between the accounting and taxable profits.

Requirement

 Compute current and deferred tax expense for each year, deferred tax liability at the end of each
year, and journal entries for each year using
1. Income statement approach
2. Balance sheet approach

Question 6

The balance sheet of ABC Limited for the year ended June 30, 1999 was as follows:

Issued subscribe and paid up capital 800,000

Retained profits 150,000
Staff Gratuity 50,000
Current Liabilities 100,000
Total Equity and Liabilities 1,100,000

Fixed Assets 900,000

Less Accumulated Depreciation (350000)
550000
Current Assets
Stocks 250000
Trade Debts 350000
Less Provision for doubtful debts (100000)
Cash and Bank 50,000
Total Assets 1100000

Additional Information
Written down value of fixed assets as per ta was Rs. 150000
Current rate of tax applicable to the company was 30%
The company did not record deferred tax at June 30, 1998

Requirement: Calculate deferred ta as at June 30, 1999 clearly indicating whether it is a deferred tax
asset or liability.

Question 7

Following data pertains to the financial statements of Cayson Limited for the year ended December 31,
2011.

1. Expenditure incurred during 2011 to develop a software amounted to Rs. 360,,000. Expected further
expenditure to be incurred in next three years are amounting to Rs. 1,752,000.

2. Unearned income at December 31, 2011 amounts to Rs. 2000,000

3. Provision for staff gratuity at December 31, 2011 amounts to Rs. 440,000

4. Accrued management bonus at December 31, 2011 amounts to Rs. 60,000

5. Interest earned during 2011 amounted to Rs. 50,000. Of this Rs. 40,000 was outstanding at
December 31, 2011.

6. Carrying value of equipment at December 31, 2010 amounted to Rs. 620,000. Tax written down
value was Rs. 460,000.

7. Carrying value of equipment at December 31, 2011 amounted to Rs. 920,000. Tax written down
value was Rs. 540,000.

8. There were no temporary difference at January 1, 2011, apart from equipment value.

9. Tax rate is 30%

Requirement

1. Deferred Tax Liability at December 31, 2011

2. Deferred Tax expenses for 2011.
Question 8

An entity purchased an equipment on January 1, 2007 for Rs. 1,500,000. The life was estimated to be
four years. Tax rate is 40%

2007 2008 2009 2010

Net profit (loss) after dep. Before tax (450,000) (150,000) (100,000) 1,500,000
Accounting depreciation 375,000 375,000 375,000 375,000
Tax Depreciation 750,000 450,000 300,000 0

Requirement

1. Computation of current tax

2. Computation of deferred tax liability
3. Deferred tax ledger account
4. Extracts of income statement for four years.

Question 9

Statement of financial position at December 31, 2019 of Pearls Limited is given below.

Pearls Limited Systems Limited

Rs. Rs.

Non-Current Assets
Plant 164,100 122400
Investment in S 90,000
Total 254,100 122,400

Equity`
Share Capital Rs. 1 each 75,000 30,000
Retained Earnings 92,100 78,000
Total Equity 167,100 108,000
Current Liabilities 87,000 14,400

Total Equity and Liabilities 254,100 122,400

Other Information

1. Pearls Limited acquired 80% shares in Systems Limited on January 1, 2019.

2. At the date of acquisition, the company had an intangible asset. The value was Rs. 18,000 and the
useful life was 6 years. The intangible asset was not recorded in the books of Systems Limited.
3. Retained earnings of Systems Limited at the date of acquisition amounted to Rs. 54,000.

Requirement:
Consolidated statement of financial position at December 31, 2019.

Question 10

Statement of Financial Position and Income statement for the year ended December 31, 2018 of P
Limited and S Limited are as follows;

Income Statement
P Limited S Limited
Rs. Rs.
Sales 2,040,000 1,080,000
Cost of Sales (1,560,000) (720,000)
Gross Profit 480,000 360,000
Operating Expenses (228,000) (156,000)
Profit for the year 252,000 204,000

Statement of Financial Position

Non-Current Assets
Non-Current Assets Tangible 1,080,000 288,000
Investment in S 312,000
Total 1,392,000 288,000
Current Assets 408,000 216,000
Total Assets 1,800.000 504,000

Equity`
Share Capital Rs. 1 each 720,000 120,000
Retained Earnings 804,000 180,000
Total Equity 1524,000 300,000
Current Liabilities 276,000 204,000

Total Equity and Liabilities 1,800,000 504,000

Other Information
1. On July1, 2018, P Limited acquired 80% shares in S Limited.
2. At the date of acquisition, fair value of S Limited equipment (included in Non-Current Assets)
was Rs. 36,000 in excess of carrying value. S Limited has not adjusted its accounts for this
increase in the fair value. Remaining life of equipment at the date of acquisition was 5 years.
3. During post acquisition period, S Limited sold goods to P Limited. The details are;
Selling Price Rs. 204,000
Unrealized profit in inventory at the end of year Rs. 24,000
Requirement

Prepare consolidated statement of financial position of P Limited for the year ended December 31, 2018

Question 11

On July 1, 2012, Star Group acquired 80% interest in Green Industries Ltd., which is engaged in
producing ladies garments. Draft consolidated financial statements of Star Group are as follows:

Draft Consolidated Statement of Profit and Loss

For the year ended June 30, 2013
Rs. 000
Operating profit 10,020
Dividend income from investment 860
Share profit from associates 1,600
Interest expense - 750
Profit before taxation 11,730
Taxation Current tax 2,300
Deferred tax 570
2,870
Profit after tax 8,860
Profits attributable to:
Falak Ltd 8,200
NCI 660
8,860
Draft Consolidated Statement of Financial Position
As at June 30, 2013
Rs. 000
2013 2012
Assets :
Non-current assets
Property, plant and equipment 25,500 17,380
Goodwill 474 -
Investment in associates 9,600 9,000
Long-term investments 2,000 2,000
- -
Inventories 9,800 4,000
Trade receivables 10,800 7,400
Cash 17,642 6,980
Total assets 75,816 46,760

Equity and liabilities

Equity
Share capital (Rs. 10 each) 23,000 11,600
Share premium 16,800 12,200
Retained earnings 23,630 17,280
Non-controlling interest 674 -
64,104 41,080
Non - current liabilities
Obligation under finance lease 4,200 1,000
Deferred tax 202 100
4,402 1,100
Current liabilities
Trade payables 2,800 1,800
Current portion of obligation under finance lease 1,500 1,300
Tax payable 2,750 1,280
Accrued finance charges 260 200
7,310 4,580
Total Equity and liabilities 75,816 46,760

Additional Information

1. Depreciation for the year on ‘plant and machinery” and ‘buildings’ were Rs. 1,200,000 Rs. 800,000
respectively.
2. “Plant and machinery” costing Rs. 1,000,000 having book value of Rs. 400,000 were sold for Rs.
1,000,000
3. New ‘plant and machinery’ were acquired during the year including the additions of Rs. 5,000,000
acquired under finance lease.
4. Star Ltd, uses equity method to record investments in associates.
5. At the time of acquisition, the assets and liabilities of Green Industries Ltd, were as follows:
 Rs. 000
Plant and machinery 920
Inventories 262
Trade receivables 180
Cash. 660
‘Trade payables -400
‘Tax payable -110
1512
Non-controlling interest -302
1210
Goodwill 474
Purchase Consideration 1684

Star Ltd. Paid the consideration as follows:

66,000 shares of Rs. 10/- each having.
market value of Rs. 12/- per share 1584
In cash 100
1684

Requirement: Prepare consolidated statement of cash flows of Star Group for the year ended June 30,
2013 as required by IAS -7 using the indirect method.

Question 12

Statement of financial position of P Limited and its subsidiary S Limited and associate A Limited on
December 31, 2019 are given below;

P S A
Rs. Rs. Rs.
Non-Current Assets
Equipment 6,000 5,100 2,100
Investment in S 5,700
Investment in A 1,800
Total 13,500 5,100 2,100
Current Assets
Inventory 1,800 1,200 900
Receivables 1,200 900 1,200
Cash 240 600 300
Total 3,240 2,700 2,400

Total Assets 16,740 7,800 4,500

Equity and Liabilities

Equity`
Share Capital 7,500 3,600 2,400
Retained Earnings 4,800 2,700 1,200
Total Equity 12,300 6,300 3,600
Current Liabilities 4,440 1,500 900
Total Equity and Liabilities 16,740 7,800 4,500

Other Information
S A

1. Date of acquisition 01-01-2018 01-01-2016

Percentage acquired 80% 40%
Retained earnings at acquisition 900 600

2. At the date of acquisition, the fair value of land and buildings was determined to be Rs. 1,500
greater than its value at financial statement of S Limited. Depreciation adjustment in this context is
Rs. 120

3. Inventories of P Limited and A Limited comprised of the following values received from S Limited at
cost plus 25%
P 600
A 300
Requirement
Prepare Consolidated statement of financial position of P Limited at December 31, 2019