Copyright Reserved No.

of pages: 14

Prepared by: Sandeepa Jayasekara and

Chandima Prabhath @ JMC

Corporate Level
Financial Reporting & Governance

Instructions to candidates

C
(1) Time allowed: Reading and planning – 15 minutes
Writing – 3 hours
(2) Total: 100 marks
(3) Section 1: Question 01: 10 multiple choice questions (MCQs) – all questions are
compulsory.
Section 2: 4 questions – compulsory

L
Section 3: 2 questions – compulsory
(4) Answers to all the questions should be in the answer booklet/s given to you.
Answers to Question 01 (the most appropriate answer (A, B, C or D)) should be
entered in the answer booklet against the relevant question number.
(5) Begin each answer in Section 2 and Section 3 on a separate page in the answer

2
booklet. The examination will be conducted as an open book examination and only
the following publications of CA Sri Lanka will be permitted to be used at the
examination hall.
• Sri Lanka Accounting Standards 2024
• Open Book Referential ‒ Student Version (Sri Lanka Statement of Recommended
Practice, IFRICs and SICs)
• Code of Best Practice on Corporate Governance 2023
• A Guide to Corporate Governance in Small and Medium Enterprises 2019
• Code of Ethics 2023
• Sri Lanka Accounting Standard for SMEs 2015
• Sri Lanka Accounting Standard for Smaller Entities 2015
(6) Candidates are allowed to bring or use the above permitted publications subject to
the following.
• Highlighting, sidelining and underlining relevant sections in the publications are
Mock
allowed. Short notes in the permitted publications are allowed, only if they are
handwritten and are relevant to a particular paragraph or section in the
Paper
publication which explains that paragraph or section. Any other notes written on
the publications are not allowed.
• Attaching, pasting or inserting any other documents to the permitted publications DECEMBER
are not allowed.
• Page tabs to refer the pages are allowed. 2024
(7) Notes, textbooks (other than permitted publications) or any other materials will not
be allowed. Photocopies/extracts of the above publications will not be allowed.
(8) Answers should be in the English Language, in the answer booklet/s given to you.
(9) Answers written on the answer booklets, graph papers and any other stationery
distributed at the examination hall, only, are considered in marking of the answer
scripts. Any other attached documents are not taken into account at the time of
marking the answer scripts.
 SECTION 1
All questions are compulsory.
Total marks for Section 1 is 20 marks.
Recommended time for the section is 36 minutes

Question 01
1. CA Sri Lanka conducts Chief Financial Officers’ (CFOs’) round table discussion to
identify the impacts of the proposed standards, which is equivalent to the
…………………………… of the due process for the development of IFRSs. Which of the
following is the correct answer to fill the above blank?

A. Agenda consultation
B. Research programme
C. Standard-setting programme
D. Maintenance programme
(02 Marks)

2. What is not a key topic in SLFRS S1 – General Requirements for Disclosure of

Sustainability related Financial Information?

A. Governance
B. Risk Management
C. Metrics and Targets
D. Performance
(02 Marks)

3. Which of the following consists of duties and responsibilities of the Audit Committee
per the Code of Best Practice on Corporate Governance 2017?

A. Reviewing the company’s internal controls, reviewing the effectiveness of the

internal audit function, and appraisal of the performance of the Board
B. Approving remuneration of the external auditor, reviewing annual audited financial
statements with management and auditors, and ensuring that there is a succession
plan for all key management personnel
C. Approving remuneration of the external auditor, reviewing annual audited financial
statements with management and auditors, and reviewing the company’s internal
controls
D. Reviewing the company’s internal controls, assessing the performance of the CEO,
and ensuring a proper risk management policy is in place
(02 Marks)

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4. Which of the following items qualify as a cost of an internally generated intangible asset
under LKAS 38 Intangible Assets?

A. The allocated portion of the general administrative cost

B. Cost incurred on staff capacity building
C. Legal fees paid to register a patent right
D. Operating losses during the initial phase of a project
(02 Marks)

5. What should Board of Directors ensure before authorising a distribution to the

shareholders according to the Companies Act No. 7 of 2007?

A. Whether the distribution has been approved by the shareholders of the company.
B. Whether the timing of the distribution has been planned towards the financial year-
end.
C. Whether the Board is satisfied that the company will, immediately after the
distribution is made, satisfy the solvency test.
D. Whether all the directors have voted in favour of the distribution.
(02 Marks)

6. The Conceptual Framework identifies four enhancing qualitative characteristics of

financial information. Which ONE of the following is NOT an enhancing qualitative
characteristic?

A. Verifiability
B. Timeliness
C. Consistency
D. Understandability
(02 Marks)

7. At 31 March 2023, a valuations expert informed the directors of Schrute that the
property owned and used by Shrute for farming had significantly increased in value.
This had been decided by looking at the price per square metre at similar properties in
the area and concluded that this could be used to value Schrute’s farm with no
adjustments necessary. Which of the following inputs within SLFRS 13 Fair Value
Measurement describes the method used to value the farm?

A. Level 1 inputs
B. Level 2 inputs
C. Level 3 inputs
D. Level 4 inputs
(02 Marks)

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8. Hill Agriculture acquired 3,000 dairy cattle on 1 August 2023 at a cost of Rs. 54,000
each. The cattle are expected to produce milk for an average of 5 years. The fair value
of the cattle at 31 December 2023 was Rs. 56,500. Livestock auction commission rates
are 3% throughout 2023. At what amount are the cattle recognised in Hill Agriculture’s
statement of financial position at 31 December 2023?

A. Rs. 148.5 million

B. Rs. 162 million
C. Rs. 164.415 million
D. Rs. 169.5 million
(02 Marks)

9. Repro Co, a company which sells photocopying equipment, has prepared its draft
financial statements for the year ended 30 September 2024. It has included the
following transactions in revenue at the stated amounts below. Which of these has been
correctly included in revenue according to SLFRS 15 Revenue from Contracts with
Customers ?

A. Agency sales of Rs. 2,500,000 on which Repro Co is entitled to a commission.

B. B Sale proceeds of Rs. 200,000 for motor vehicles which were no longer required by
Repro Co.
C. C Sales of Rs. 1,500,000 on 30 September 2024. The amount invoiced to and
received from the customer was Rs. 1,800,000, which included Rs. 1,500,000 for the
provision of a photocopier and Rs. 300,000 for ongoing servicing work to be done
by Repro Co over the next two years.
D. D Sales of Rs. 200,000 on 1 October 2023 to an established customer which, (with
the agreement of Repro Co), will be paid in full on 30 September 2025. Repro Co has
a cost of capital of 10%
(02 Marks)

10. Wetherby Co purchased a machine on 1 July 2023 for Rs. 500 million. It is being
depreciated on a straight-line basis over its useful life of ten years. Residual value is
estimated at Rs. 20 million. On 1 January 2024, following a change in legislation,
Wetherby Co fitted a safety guard to the machine. The safety guard cost Rs. 25 million
and has a useful life of five years with no residual value. What amount will be charged
to profit or loss for the year ended 31 March 2024 in respect of depreciation on this
machine?

A. Rs. 36 million
B. Rs. 37.25 million
C. Rs. 39.75 million (02 Marks)
D. Rs. 48 million
(Total 20 Marks)

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 SECTION 2
All questions are compulsory.
Total marks for Section 2 is 40 marks.
Recommended time for the section is 72 minutes

Question 02
HPL (Pvt) Ltd (HPL) applies SLFRS for SMEs when preparing its financial statements. Its
current financial year ended on 30 November 2024. The finance team has identified the
following matters to be resolved before finalising the financial statements.
I. HPL purchased 90% of Close, a SME, on 1 December 2023. The purchase
consideration was Rs. 57 million and the value of Close's identifiable assets was
Rs. 60 million. The value of the non-controlling interest at 1 December 2023 was
measured at Rs. 7 million. HPL has used the full goodwill method (measuring non-
controlling interest at fair value) to account for business combinations and the life
of goodwill cannot be estimated with any accuracy. HPL wishes to know how to
account for goodwill under the SLFRS for SMEs.

II. HPL has incurred Rs. 10 million of research expenditure to develop a new product
in the year to 30 November 2024. Additionally, it incurred Rs. 5 million of
development expenditure to bring another product to a stage where it is ready to
be marketed and sold.

III. HPL received Rs. 10 million as a government grant to carry out work related to
Phase 1 of a special project. Based on the terms attached to the said grant, HPL is
required to complete Phase 1 on or before 30 November 2024. If HPL fails to meet
the said requirement, the government will impose a fine, which will be deducted
from the amount to be given for Phase 2. As at 30 November 2024, HPL was able
to complete only 80% of the project work. HPL recognised Rs. 8 million (80% of
Rs. 10 million) as revenue for the year and reflected the balance Rs. 2 million as a
liability.

IV. In assessing the year end retirement benefits obligation, HPL in a need to know
whether half a month’s salary multiplied by each year of completed service is
correct to use.

V. Finally, the directors want to know whether operating segment information is

required to present with the financial statements.

Required:
A) Explain the appropriate SLFRS for SMEs requirements to help the finance team
resolve the above matters. (10 Marks)

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Question 03
(A) Shanghai PLC (SPL) issued a Rs. 100 million 3% convertible loan note at par on 1 April
2023 with interest payable annually in arrears. Three years later, on 31 March 2026,
the loan note is convertible into equity shares on the basis of Rs. 1,000 of loan note for
25 equity shares or it may be redeemed at par in cash at the option of the loan note
holder.

One of the company's financial assistants observed that the use of a convertible loan
note was preferable to a non-convertible loan note as the latter would have required an
interest rate of 8% in order to make it attractive to investors. The assistant has also
commented that the use of a convertible loan note will improve the profit as a result of
lower interest costs and, as it is likely that the loan note holders will choose the equity
option, the loan note can be classified as equity which will improve the company's high
gearing position.

The present value of Rs. 1 receivable at the end of the year, based on discount rates of
3% and 8% can be taken as:
3% (Rs.) 8% (Rs.)
End of year 1 0.97 0.93
End of year 2 0.94 0.86
End of year 3 0.92 0.79

Required:
Explain with supporting calculations, how the convertible loan note should be
accounted for in SPL's statement of profit or loss for the year ended 31 March 2024
and statement of financial position as at that date.
(04 Marks)

(B) Stafford Cricket PLC (SCP) has an administration building which it no longer needs
following a reorganization. On 1 July 2024 Plethora entered into an agreement to let
the building out to another company. The building cost Rs. 600 million on 1 January
2015 and is being depreciated over 50 years. Plethora applies the fair value model
under LKAS 40 and the fair value of the building was determined to be Rs. 800 million
on 1 July 2024. This valuation had not changed at 31 December 2024. Another building
has been let out for a number of years. It had a fair value of Rs. 550 million at 31
December 2023 and Rs. 740 million at 31 December 2024.

Required:
Demonstrate how these two buildings should be accounted for in the financial
statements of SCP for the year to 31 December 2024, and calculate the amounts
involved.
(03 Marks)

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(C) Further, Stafford Cricket PLC (SCP) owns a retail business which has suffered badly
during the recession. Plethora treats this business as a separate cash generating unit.
On 31 December 2024 the carrying amounts of the assets comprising the retail business
are:
(Rs. Mn)
Building 900
Plant and equipment 300
Inventory 70
Other current assets 130
Goodwill 40

An impairment review has been carried out as at 31 December 2024 and the
recoverable amount of the cash generating unit, calculated to include all assets listed
above, is estimated at Rs. 1,300 million.

Required:
Calculate the carrying amounts of the assets of the retail business after accounting for
the result of the impairment review.
(03 Marks)

Question 04

DPL plc is a listed company with a year-end of 31 March 2024. All directors are members
of a company share option scheme. The company also has a significant bank funding with
gearing-related covenants attached. Shortly, before the year end, the CEO has shared
following thoughts with Finance Director:

• It has been noted that a major new lease agreement has been entered into. During
a discussion with the financial controller yesterday, it was mentioned that an asset
and a corresponding lease liability are planned to be recorded in the statement of
financial position. Concern has been expressed about the potential impact on the
gearing ratio. It is suggested to record lease payments in profit or loss. It should be
communicated that the retention of bank funding by the company is critical to
ensuring job security of finance controller!
• Mentioned that retirement of the CEO is being planned within the next year, and
an intention was expressed to maximize the company’s share price by any means
possible to ensure a comfortable retirement. Finance director was invited to do
anything to boost the company’s financial numbers to help increase the share
price. It was also shared that plans for retirement include purchasing a beach villa,
and an offer was extended for its use by finance director and their families!
Required:
Discuss the ethical issues arising from the above scenarios Finance Director from the
CEO mentioning the impacting fundamental principles and threats.
(10 Marks)
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Question 05
Ryan Air Company is an international airline which flies to destinations all over the world.
Ryan Air Company experienced strong initial growth but in recent periods the company
has been criticized for under-investing in its non-current assets. Extracts from Ryan Air
Co’s financial statements are provided below.

Statement of Financial Position - Rs. 000’

31/3/2024 31/3/2023
Non-Current Assets
Property, Plant and Equipment 317,000 174,000
Intangible Assets 20,000 16,000
337,000 190,000
Current Assets
Inventory 580 490
Trade and Other Receivables 6,100 6,300
Cash and Cash Equivalents 9,300 22,100
15,980 28,890
Total Assets 352,980 218,890
Equity and Liabilities
Stated Capital 3,000 3,000
Retained Earnings 44,100 41,800
Revaluation Reserve 145,000 Nil
192,100 44,800
Non-Current Liabilities
Bank Loan 130,960 150,400
130,960 150,400
Current Liabilities
Trade and Other Payables 10,480 4,250
Bank Loan 19,440 19,440
29,920 23,690
Total Equity and Liabilities 352,980 218,890

Statement of Profit or Loss and Other Comprehensive Income Extracts - Rs. 000’

2023/24 2022/23
Revenue 154,000 159,000
Operating Profit 12,300 18,600
Finance Expenses (9,200) (10,200)

The following information is also relevant:

1. Ryan Air Company had exactly the same flight schedule in 2023/24 as in 2022/23,
with the overall number of flights and destinations being the same in both years.
2. In April 2023, Ryan Air Company had to renegotiate its licences with five major
airports, which led to an increase in the prices paid to the airports by Ryan Air
Company.

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 3. Ryan Air is planning to obtain a new loan facility in the upcoming year to purchase
more air-planes to the company.

Required:
1) Calculate the following ratios for the years 2023/24 and 2022/23:
(i) Operating profit margin;
(ii) Return on capital employed;
(iii) Current ratio;
(iv) Interest cover;
(v) Gearing (Debt/Equity)
(05 Marks)

2) Comment on the performance and position of Ryan Air Company for the year ended
24/3/31 compared with the previous year.
(05 Marks)

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 SECTION 3
Both questions are compulsory.
Total marks for Section 3 is 40 marks.
Recommended time for the section is 72 minutes

Question 06
Big PLC has invested in two entities, Medium PLC and Small PLC. The statement of financial
position of the three companies as at 31 March 2024 was as follows.

Big PLC Medium PLC Small PLC

Rs.’000 Rs.’000 Rs.’000
Assets
Non-Current Assets
Property, Plant & Equipment 200,000 180,000 130,000
Intangible Assets 50,000 15,000 -
Investments 245,000 - -
495,000 195,000 130,000
Current Assets
Inventories 85,000 42,000 30,000
Trade and Other Receivables 38,000 28,000 25,000
Cash & Cash Equivalents 22,000 10,000 8,000
145,000 80,000 63,000
640,000 275,000 193,000
Equity & Liabilities
Equity
Stated Capital 200,000 100,000 80,000
Retained Earnings 170,000 48,000 8,000
370,000 148,000 88,000
Non-Current Liabilities
Long Term Borrowings 150,000 70,000 55,000
Deferred Liability 30,000 5,000 -
180,000 75,000 55,000
Current Liabilities
Trade & Other Payables 41,000 30,000 24,000
Short Term Borrowings 49,000 22,000 26,000
90,000 52,000 50,000
640,000 275,000 193,000

The following additional information is also available to you.

1. On 1 April 2023, Big PLC acquired 80% stake of Medium PLC (8 million shares out of
the 10 million shares of Medium PLC) for a cash payment of Rs.150 million. It was

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 further agreed that a further payment of Rs. 5 per share will be made to the previous
shareholders of Medium PLC on 1 April 2026 provided the profits of Medium PLC
exceed Rs. 20 million per annum over a period of three years starting from year ended
31 March 2024. On the date of acquisition, the probability of achieving the target was
assessed as 50%. Discounting factor applicable is 10%. The contingent consideration
has not been accounted.

It is the policy of Big PLC to value the non-controlling interest in subsidiaries at the date
of acquisition at fair value. The fair value of an equity share in Medium PLC as at 1 April
2023 was Rs. 25. The financial statements of Medium PLC showed a retained earnings
balance of Rs. 23 million as at 1 April 2023.

2. The directors of Big PLC carried out a fair value exercise to measure the identifiable
assets and liabilities of Medium PLC as at 1 April 2023. The following were noted in this
exercise.
i. A property having a carrying value of Rs. 80 million as at 1 April 2014 includes a
depreciable amount of Rs. 50 million. This property had a fair value of Rs. 100
million as at 01st April 2023, of which Rs. 60 million was depreciable. The
remaining estimated future economic life of the depreciable amount of the property
as at 1 April 2023 was 10 years. This property was still held by Medium PLC as at
31 March 2024.

ii. Part of the inventories held by Medium PLC having a carrying value of Rs.15 million
had a market value of Rs. 17 million. Medium PLC sold this inventory during the
financial year 2023/24.

3. Big PLC acquired 40% stake of Small PLC (3.2 million shares out of 8 million shares) on
1 January 2024, for a cash payment of Rs. 40 million. The acquisition was a strategic
decision made by the Board of Directors of Big PLC. The Board of Directors of Small PLC
consists of five directors out of whom two directors have been appointed by Big PLC.
The fair value of the net assets of Small PLC as at 1 January 2024 was equal to their
carrying amounts. The net profit earned by Small PLC for the year ended 31 March 2024
was Rs. 4.8 million, and you may assume that this profit has accrued evenly throughout
the year. Small PLC did not pay any dividend during the year.

4. Small PLC sold goods to Medium PLC during the year and Medium had Rs. 8 million
worth of goods purchased from Small in inventories at 31 March 2024. Small had kept
20% profit margin.

5. Medium PLC sold goods to Big PLC during the year and Big had Rs. 5 million worth of
goods purchased from Medium in inventories at 31 March 2024. Medium had marked
these goods up by 25% on cost.

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6. Big’s books of accounts reflected a payable balance of Rs. 2 million to Medium. This did
not agree with Medium’s equivalent receivable, as a payment of Rs. 2 million and Goods
returned worth of Rs.1 million made by Big was not received by Medium until 4 April
2024.

7. On 1 January 2024 Big sold a machine to Medium at Rs. 15 million. The carrying value
of this machine on the date of the transfer was Rs. 10 million. The remaining useful life
of the machine on the date of disposal was 5 years.

8. Goodwill on acquisition of Medium has to be impaired by 20%.

9. The tax rate applicable is 30%.

Required:
Prepare the consolidated statement of financial position of Big Group as at 31 March
2024.
(20 Marks)

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Question 07
JMC PLC (JMC) is an entity listed on the Colombo Stock Exchange. Its financial year begins
on 1 April and ends on 31 March of the subsequent calendar year. The following
information is available in relation to JMC.

I. On 1 April 2022, JMC acquired a warehouse on rent for a period of 5 years at an

annual lease rental of Rs. 5 million, payable in arrears each year. Legal fees and
stamp duty paid on the lease was 5% of the total lease rental value over the lease
period. Per the agreement, the landlord paid 50% of the said preliminary
expenses.

However, on 1 April 2023 the agreement was amended by increasing the annual
rental to Rs. 6 million for 2023/24 and 2024/25. Furthermore, an annual rental of
Rs. 7 million will be charged for 2025/26 and 2026/27. The incremental
borrowing rate of the lessee as at 1 April 2022 and 1 April 2023 was 12% and 10%,
respectively. Under tax laws, all lease-related payments are allowed in the year of
payment. The applicable income tax rate for JMC is 30%. The company does not
apply initial recognition exception in recognizing deferred tax on leases.

II. JMC issued a Rs. 10 million unsecured loan with a coupon (nominal) interest rate
of 6% on 1 April 2023. The loan is redeemable at a premium which means the loan
has an effective finance cost of 7.5% per annum. The loan was specifically issued
to finance the building of the new store which meets the definition of a qualifying
asset in LKAS 23. Construction of the store commenced on 1 May 2023 and it was
completed and ready for use on 29 February 2024, but did not open for trading
until 1 April 2024. During the year trading at JMC's other stores was below
expectations so JMC suspended the construction of the new store for a two-month
period during July and August 2023. The proceeds of the loan were temporarily
invested for the month of April 2023 and earned interest of Rs. 40,000.

III. JMC acquired a land in Ja-ela. This land has been developed for industrial use as a
site for a factory. In the recent past, land in this area has been redeveloped for
residential use as sites for housing schemes. On that basis, JMC believes that this
land could be developed for residential purposes. The following information is
available.
• The fair value of the land as currently developed for industrial purposes is
Rs. 150 million.
• The fair value of the land as a vacant site for residential use is Rs. 160
million.
• Cost of demolishing the factory and other costs to convert the land to a
vacant site: Rs. 30 million.

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IV. In the current financial year JMC was in research to apply SLFRS S1 and S2 from
the subsequent financial year. The board of directors require from you an
explanation on what are the key areas need to be disclosed as per SLFRS S1.

Required:
A) Discuss how to recognise the lease referred to in point (I) in the financial
statements of JMC for the year ended 31 March 2024 per SLFRS 16 Leases.
(07 Marks)

B) Calculate the deferred tax liability/ (asset) resulting from the lease referred to in
point (I) on the financial statements of JMC as at 31 March 2024 per LKAS 12
Income Taxes.
(03 Marks)

C) Apply LKAS 23 Borrowing costs for the situation referred to in (II) above by
providing guidance when capitalisation should commence and the amount that
should be capitalised as borrowing costs for the year ended 31 March 2023.
(05 Marks)

D) Calculate the fair value of the land in Ekala referred to in (III) above by applying
the highest and best use concept per SLFRS 13 Fair Value Measurement.
(03 Marks)

E) List what are the main disclosure requirements in SLFRS S1 General Requirements
for Disclosure of Sustainability related Financial Information.
(02 Marks)

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