GROUP ASSIGNMENT

Gedu College of Business Studies

Royal University of Bhutan
ACT306: Corporate Reporting II
July–Dec 2023

Assignment No. 02

Topic:

Preparation of financial statements - Income statement and Statement of financial

position in line with IFRS requirements.

We declare that this academic work is our own and those derived from other sources have been
appropriately acknowledged. We understand that if found otherwise, our academic work will be
cancelled and no marks will be awarded beside the legal consequences.

Submitted by Group: Group 3

Date of submission: 25th October 2023

Sl. Members Std No. Programme Section Signature

No
1 Leki Yangden 03210174 BCom B
Accounting
2 Kinley Tshering 03210145 BCom B
Accounting
3 Pema Yangzom 03210233 BCom B
Accounting
4 Ngawang Zangmo 03200207 BCom B
Accounting

Module Tutor:
Tutor’s comments:

Signature of the Module Tutor

Statement of Financial Position of Druk Ltd. as at 30th June 2022

Particulars Amount
Assets
Current Assets
Bank 2,250,269
Accounts Receivables 1,500,000
Inventory 820,000
Total current assets 4,570,269
Fixed Assets
Property, Plant and Equipment (PPE) 5,262,667
Investment Property (IP) 4,500,000
Intangible Assets 475,000
Total fixed assets 10,237,667
Total assets 14,807,936
Liabilities
Current Liabilities
Tax Liability 505,672
Employee Benefit Obligation 1,382,400
Trade Payables 800,000
Long Term Liabilities 2,688,072
Financial Liability 989,964
Total Liabilities 3,678,036
Equity
Share Capital 9,950,000
Retained earning 1,179,900
Total Liabilities and equity 14,807,936
 Income Statement of Druk Ltd. as on 30th June 2022
Particulars Amount
Income
Sales 4,500,000
Rental Income 600,000
Other Income
Gain on Exchange 20,000
Expenditure
Administration and general expenses 50,000
Finance cost 95,028
Depreciation 532,000
Amortization 25,000
Sales tax 1,350,000
Employee benefit expenses 1,382,400
Profit before tax 1,685,572
Tax 505,672
Profit after tax 1,179,900

1) The Druk Ltd. issued 10,000 equity shares of Nu.1,000 each in July 2021 incurring the share
issue cost of Nu.50,000. The company’s board of directors declared the dividend of Nu.100,000
on 30th June 2022 requiring shareholders’ approval at the next AGM. (3 marks)
Solution
Note no. 1
IFRS 9 Financial Instrument
Working note 1
Issued share at 10,000
Issued share Price 1,000 each
Issued share cost Nu. 50,000
Equity share capital before issued cost
Total Equity share capital =Equity share issued * issued share Price
=10,000*1,000
=10,000,000
Equity share capital after issued cost
Total equity shares after issued cost = equity share capital – issued share cost
=10,000,000-50,000
=9,950,000
Journal Entry 1
July 2021
Cash/Bank A/c Dr. (10,000*1,000) 10,000,000
Equity Share Capital A/c 10,000,000
(Issued of 10,000 equity share of Nu. 1,000 each)
Equity share capital A/C Dr. 50,000
Cash/Bank A/C 50,000
(Share Issued Cost Nu. 50,000)

Cash/ Bank A/C Dr. (10,000,000-50,000) 9,950,000

Equity Share Capital A/C 9,950,000
(Decreasing the issued cost of Nu. 50,000)
30th June 2022
There is no entry. However, a contingent liability of Nu.100,000 would be listed in the
notes of the financial statements form the financial year 2022. This dividend is not yet
authorized by AGM.
2) A company purchased a land during the year that is to be used for the construction of a
building for the company office. There is an old building on the land that will need to be
demolished. The following costs were incurred related to the purchase of the land.
1 Purchase price Nu. 1,000,000
2 Legal fees - processing 15,000
3 Transfer prices 10,000
4 Costs of demolition of old building 8,000
5 Costs of clearing, grading and filling 20,000
Administration and other general
6 50,000
overhead costs
solution:
Note no. 2 Standard: Accounting for Property, Plant and Equipment (IAS 16)
Working note 2
Particulars Amount (Nu)
Purchase Price 1,000,000
Legal fees- processing 15,000
Transfer Price 10,000
Cost of demolition of old building 8,000
 Cost of Clearing, grading & filling 20,000
Total 1,053,000

BAS16 states that administrative costs and other general overhead costs are not regarded as
cost items of PPE because they are not related to the purchase of land. In order to avoid
discrepancies in the PPE calculation, the total amount of Nu.50000 in administrative and other
general overhead expenses is excluded.
Journal Entry
Particulars Debit (Nu) Credit
(Nu)
PPE- Land 1,053,000
Dr 1,053,000
Bank
Cr
(Purchase of land along with various cost items)
General overhead expenses 50,000
Dr 50,000
Bank Cr
(General overhead expenses paid on purchase of
land)
3) On November 1, 2021, Druk Ltd. purchased a group asset – building, land and furniture for
Nu.1,200,000. The assets were used by the company immediately after the purchase. The
accountant established the assets’ fair market value of similar assets on November 1 as follows:
Land Nu. 600,000
Building 800,000
Furniture 100,000
Total 1,500,000
The life of the building and furniture are estimated to be 20 and 5 years respectively. The
management decided to follow SLM to depreciate it. (6marks)
Solution
Note no.3 BAS/IFRS 16 Plant, property and equipment
Working note 3
Original Cost = (Fair Value ÷ Total Fair Value) x Total Original Cost
600,000
Land = x 1,200,000 = 480,000
1,500,000
800,000
Building = x 1,200,000 = 640,000
1,500,000
100,000
Furniture = x 1,200,000 = 80,000
1,500,000
Calculation of depreciation
Depreciation = Original cost ÷ Useful life
640,000 8
Building = x = Nu.21,333.33
20 12
80,000 8
Furniture = x = Nu.10,666.67
5 12
Calculation of Carrying Amount
Carrying Amount = Original Cost – Depreciation
Building = 640,000 – 21,333.33 = Nu.618,666.67
Furniture = 80,000 – 10,666.67 = Nu.69,333.33
Journal entry 3
Property, plant and equipment A/c (Land) Dr. 480,000
Property, plant and equipment A/c (Building) Dr. 640,000
Property, plant and equipment A/c(Furniture) Dr. 80,000
To Bank A/c Cr. 480,000
(Acquisition of multiple assets)

30th June, 2022

Depreciation Expense Dr. 21,333.33
To Property, plant and equipment A/c (Building) Cr. 21,333.33
(Being depreciation charge on building)

Depreciation Expenses Dr. 10,666.67

To Property, plant and equipment A/c (Furniture) Cr. 10,666.67
(Being depreciation charged on furniture)

Position of Building at 30th June,2022

Building Nu.640,000
Less: Depreciation Nu. (21,333)
CA of PPE (SoFP) Nu.618,666.67

Property, plant and equipment A/c PPE- Building Dr. 618,666.67

To Bank Cr. 618,666.67

Position of Furniture at 30th June,2022

Furniture Nu.80,000
Less: Depreciation Nu. (10,666.67)
CA of PPE (SoFP) Nu.69,333.33
Property, plant and equipment A/c (Furniture)Dr. 69,333.33
To Bank Cr. 69,333.33

4) On 1st September 2021, Druk Ltd processed a 5-year bank loan Nu.1,000,000 at the annual
interest rate of 9% p.a. to finance a construction of a warehouse. This warehouse was important
to store the products of the company during the off season. The construction was started on 1
Jan 2022. The company temporarily invested Nu. 5,00,000 of the borrowed money from the day
loan was processed till the start of the construction at the rate of 2% p.a (6 marks)
Solution:
Note no. 4 Standard: IAS/BAS23- Borrowing Cost
:IAS/BAS16- Property, Plant and Equipment (PPE)
Working note 4
10
Total borrowing cost=1,000,000 ×9 % ×
12
¿ Nu .75,000
6
Interest expense ¿ be capatalized=1,000,000 × 9 % ×
12
¿ Nu . 45,000
4
Less : Investment Income=500,000 ×2 % ×
12
¿ Nu ,3,333
Total borrowing cost ¿ be capitalized ( 2022 )=45,000−3,333
¿ Nu . 41,667
Interest ¿ be expensed=75,000−41,667
¿ Nu.33,333
Loan amount = Nu. 1,000,000
5 years loan
Interest = 9% p.a.
Journal Entry
Credit
Date Particulars Debit (Nu)
(Nu)
Bank 1,000,000
1st Dr 1,000,000
September,202 Financial Liability
1 Cr
(Loan processed from the bank)
Interest expenses 33,333
Dr 33,333
30th June, 2022 Bank
Cr
(Interest expensed for 4 months)
 PPE – Ware house 41,667
Dr 41,667
30th June, 2022
Bank Cr
(Borrowing cost capitalized)
5) A company has rented a building in Thimphu with the yearly rental income of Nu. 600,000
from the tenants. The property was constructed at a cost of Nu. 5,000,000. The company
charged 10% depreciation on SLM. (3 marks)

Solution:
Note no. 5
Standard: IAS/BAS 40- Accounting for Investment Property (IP)
Working Note 5
Depreciation of the Building
10
Depreciation ( 1 year )=5,000,000 ×
100
¿ Nu .500,000
Value of building ( 30 th June 2022 ) =Nu . 450,000
Yearly rental income=Nu . 600,000

Journal Entry
Date Particulars Debit (Nu) Credit (Nu)
Investment property (Building) Dr 5,000,000
1st July, 2021 Bank Cr 5,000,000
(Paid for construction of building through bank)
600,000
Bank Dr 600,000
Rental income Cr
(Annual rent of Nu. 600,000 collected from
tenant)
30th June, 500,000
2022 Depreciation expense Dr 500,000
Accumulated Depreciation
Cr (Depreciation charged for the building @ 10%
 p.a)

Position of Investment Property (Building) at 30th June 2022

Investments property (building) Nu. 5000,000
Less: Accumulated Depreciation Nu. 500,000
Carrying Amount (SoFP) Nu. 4500,000

6) One year ago, the company purchased 1 acre of land in the outskirt of Thimphu held for
indeterminate future use with an estimated market value of Nu. 3,000,000. During the year, the
management decided to use the land for the construction of office building. The fair value of the
land was assumed to be same as market value for reporting purposes. (3 marks)
Solution:
Note no. 6
Standard: IAS/BAS 40 - Investment Property (IP)
: IAS/BAS 16 – Property Plant & Equipment (PPE)
: IFRS/BFRS 13 – Fair Value Measurement
Working note 6
Carrying amount of Land=Nu. 3,000,000
Fair value of land =Nu. 3,000,000
Gain/ ( loss ) =carrying amount −Fair value
¿ 3,000,000−3,000,000
¿0
There is no gain or no loss in the subsequent measurement of the land.
Journal Entry
Debit Credit
Date Particulars
(Nu) (Nu)
1st July, 2020 Investment Property-Land 3,000,000
Dr 3,000,000
Bank
Cr
(Purchase of Investment Property-land at
 the cost of Nu. 3,000,000)

PPE-Land 3,000,000
Dr 3,000,000
Investment Property
30th June,
Cr
2022
(Recognition of PPE and de-recognition of
IP)

8) Druk Ltd. has defined contribution (DC) plan where the company would contribute 16% on
employee monthly salary to the pension fund. Every year, the company has the practice to
settle DC plan of all employees in the 1st month of the next accounting year. The company has
20 regular employees
with the following details:
(i) 4 employees with basic pay of Nu. 20,000
(ii) 5 employees with basic pay of Nu. 30,000
(iii) 6 employees with basic pay of Nu. 40,000
(iv) 5 employees with basic pay of Nu. 50,000 (2 marks)

Note 7
Accounting standard in this case is IFRS/BFRE 9 Financial Instruments. The
company is receiving cash that is obliged to repay, so this financial instrument is
financial liability.
Initial measurement of Liability
Cash Received= Nominal value- issue cost
=1,000,000-25064
=974936

Amortization schedule
Opening Interest Closing
Year balance E.I.R expense balance
2021 974936 65028 50000 989964
2022 989964 66031 50000 1005995
2023 1005995 67100 70000 1003095
2024 1003095 66906 70000 1000000

Date Transaction Dr. Cr. (amt)

(amt)
1/7/2021 Bank 974936
Financial liability (loan) 974936
(Borrowed Nu.1,000,000 from
India Ltd)
30/6/2022 Finance cost 65028
Financial liability 65028

30/6/2022 Financial liability 50000

Bank 50000

30/6/2023 Finance cost 66031

Financial liability 66031

30/6/2023 Financial liability 50000

Bank 50000

30/6/2024 Finance cost 67100

Financial liability 67100
 30/6/2024 Financial liability 70000
Bank 70000

30/6/2025 Finance cost 66906

Financial liability 66906

30/6/2025 Financial liability 70000

Bank 70000

Solution
Note no. 8
BAS/IAS 19 Employment Benefits
Working note 8

No. of Rate (%) Basic Pay Months Total Amount

Employee
4 16% 20,000 12 153,600
5 16% 30,000 12 288,000
6 16% 40,000 12 460,800
5 16% 50,000 12 480,000
Total 140,000 1,382,400

Journal Entry
Employee Benefits expenses (salary) 1,382,400
Dr. 1,382,400
Bank A/C
(Employees Benefit Expense incurred)

Note 9
On Purchase of Intangible asset
Intangible assets-Software a/c Dr. Nu. 500,000
To Bank a/c Cr. Nu. 500,000
 (Intangible asset being purchased)

Amortization= Cost of asset/ useful life

= Nu.500,000 / 10
= Nu. 50,000

For 2021-2022
Amortization= Nu. 50,000 × 6/12
= Nu. 25,000
(10) The revenue from business operations is as follows: Cash sales 3,000,000; Credit sales:
1,500,000. Tax rate is 30%. (3 marks)
Solution:
Note no. 10
Standard Accounting for revenue recognition (BAS 18/ IAS 18)
Working note 10
Particular Amount (Nu)

Cash sale 3,000,000

Credit sale 1,500,000

Total sales 4,500,000

Less: tax (30%*4,500,000) (1,350,000)

Revenue 3,150,000

Journal entry
Particular Debit Credit (Nu)
(Nu)
Bank 3,000,000
Trade receivable 1,500,000
Sale 4,500,000
(Amount received from sales)
Tax Expenses 1,350,000
Bank 1,350,000
 (Tax amount paid)

(11) A company purchased an inventory from a supplier in the US invoiced $ 10,000 on 1st May
2022 on 3 months credit terms. The exchange rate on the date of initial measurement and
remeasurement was Nu. 82 and Nu. 80 respectively. (2 marks)
(a) Income Statement (2 marks)
(b) Statement of Financial Position (4 marks)
Solution:
Note no 11
Standard: Accounting for Foreign Currency (BAS21 / IAS 21)
Working note 11
Given: Purchased (inventory) = $ 10,000 on 1st May 2022 on 3 months credit terms.
The exchange rate
Initial measurement = Nu. 82
Re-measurement = Nu. 80

Initial measurement (1st may 2022) = $ 10,000 * Nu.82

= Nu. 820,000
Re-measurement (1st August 2022) = $ 10,000 * Nu.80
= Nu. 800,000
Gain on Exchange = Nu. 820,000 - Nu. 800,000
= Nu. 20,000
Journal Entry:
i. Foreign Currency Transaction – 1st May 2022

Particulars Amount (Nu.)

Dr Inventory 820,000
Cr Trade Payable 820,000

ii. settles on 1st August 2022-(Nu. 82)

Particulars Amount (Nu.)

Dr Trade payables 820,000
Cr Bank 800,000
Cr Exchange Gain 20,000
Dr Exchange Gain 20,000
Cr SoCI 20,000

Note 12
Entry on Tax
Tax Expenses a/c Dr. Nu. 505,672
To Current Tax Liability a/c Cr. Nu. 505,672
(Tax expenses being recognized)