FAR 2 - KnS Hassaan Khanani Book

CAF-5: FINANCIAL ACCOUNTING AND REPORTING-II
Competency
Apply selected international standards, laws and regulations on financial reporting.
Syllabus Grid Teaching Weightage

Ref. hours
A Preparation of Financial Statements 35-40 25-35
B Accounting for Non-current Assets 35-40 25-35
C Ethics and Other Areas of IFRS 40-50 35-45
Total 110-130 100
Key Examinable Technical Competencies
Syllabus Proficiency Testing

Learning Outcomes
Ref. levels levels
A Preparation of Financial Statements
Apply the principles, laws and concepts with respect to
preparation and presentation of the following:
 Statement of financial position
1 P2 T2
 Statement of comprehensive income
 Statement of changes in equity
 Notes to the financial statements
Calculate goodwill and consideration transferred in case of
2 P2 T2
business combinations.
Calculate the value of Investment in associates as per
3 P2 T1
equity method of accounting.
4 Prepare and present consolidated statements of financial

position and consolidated statement of comprehensive P2 T2
income involving a single subsidiary and associate.
B Accounting for Non-current Assets
Apply the principles and concepts with respect to
recognition, classification and measurement of financial
instruments including preparation of journal entries
1 P2 T1
(excluding impairment, reclassification, derivatives,
embedded derivatives, hedge accounting, de-recognition
and modification).
Apply the principles and concepts for recognition,
measurement, presentation and disclosure of Leases
2 P2 T2
(Excluding modification, sale and lease back and
reassessment).
Syllabus Proficiency Testing
Learning Outcomes
Ref. levels levels
Apply the principles and concepts for recognition and
measurement of intangible assets and expense; and
3 P2 T2
measurement after recognition and disclosure of
intangible assets (including website costs).
measurement at and after recognition and disclosure of
4 P2 T1
biological assets, agriculture produce and government
grants related to a biological asset.
C Ethics and Other Areas of IFRS
a Ethics
Describe with simple examples the fundamental principles
1 P2 T1
of professional ethics.
Apply the conceptual framework to identify, evaluate and
2 address threats to compliance with fundamental P2 T1
principles.
Explain using simple examples the ethical responsibilities
3 of a Chartered Accountant in the preparation and reporting P2 T1
of financial information.
b Other Areas of IFRS
Apply the principles and concepts with respect to
1 disclosure and measurement of operating and reportable P2 T1
segments.
2 measurement and disclosure of adjusting and non- P2 T2
adjusting events after the reporting period.
3 measurement and disclosure of Provisions, Contingent P2 T2
liabilities and Contingent assets.
Apply the principles and concepts of recognition,
4 measurement, presentation and disclosure of Revenue P2 T2
from contracts.
5 measurement and disclosure of current tax and deferred P2 T2
tax asset and liability (excluding Business Combinations)
Apply principles and concepts in respect of effect of
6 changes in foreign exchange rates on foreign currency P2 T1
transactions.
Key Examinable Professional Skills
Evaluate data and information from a variety of sources and perspective through
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research, integration and analysis.
Apply critical thinking skills to solve problems, inform judgements, make decisions and
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reach well-reasoned conclusions
Communicate clearly and concisely when presenting, discussing and reporting in
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formal and informal situations
Respond effectively to changing circumstances or new information to solve problems,
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inform judgements, make decisions, and reach well-reasoned conclusions.
Key Examinable Professional Values, Ethics and Attitude
1 Apply an inquiring mind when collecting and assessing data and information
Apply critical thinking when identifying and evaluating alternatives to determine an
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appropriate course of action.
Apply the relevant ethical requirements to professional behavior in compliance with
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standards.
4 Explain the nature of ethics.
5 Identify threats to compliance with the fundamental principles of ethics.
Evaluate the significance of threats to compliance with the fundamental principles of
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ethics and respond appropriately.
Apply ethical principles of ethics when collecting, generating, storing, accessing, using
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and sharing data and information.
Specific Examinable Knowledge Reference
1 IAS 1: Presentation of Financial Statements

2 IAS 10: Events after the reporting period
3 IAS 12: Income Taxes
4 IAS 21: The effect of changes in foreign exchange rates
5 IAS 28: Investments in associates and joint ventures
6 IAS 37 and IFRIC 1: Change in Existing Decommissioning, Restoration and Similar
Liabilities.
7 IAS 38 and SIC 32: Intangible assets – Website costs
8 IAS 41: Agriculture
9 IFRS 3: Business Combinations
10 IFRS 8: Operating Segments
11 IFRS 9: Financial Instruments
12 IFRS 10: Consolidated Financial Statements
13 IFRS 15: Revenue from Contracts with Customers
14 IFRS 16: Leases
15 Companies Act, 2017 Third, Fourth schedule and Fifth schedules
16 Code of Ethics, (Revised) 2019 (sections 100-120, 220)
Chapter Topic Page
No.
1 IFRS-08: Operating Segments 02
2 IAS-21: Foreign Currency 20
3 IAS-41: Agriculture 44
4 IAS-38+SIC-32: Intangibles and Website Cost 63
5 IFRS-09: Financial Instruments 99
6 IFRS-16: Leases 119
7 IAS-10 & 37 and IFRIC-01 Provisions, Contingent Liabilities and Events After Reporting Date 154
and Changes in Existing Decommissioning, Restoration and Similar Liabilities
8 IAS-12: Income Taxes 195
9 Consolidation 230
10 IFRS-15: Revenue from contracts with customers 325
11 IAS-01: Final Accounts 362
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IFRS 8 – Operating Segments
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IFRS 8 Operating Segments
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CORE PRINCIPLE SCOPE
An entity is required to disclose information to enable users of its financial statements to evaluate the nature and financial IFRS 8 applies to the annual and interim financial statements of an entity. It applies to the separate
effects of the business activities in which it engages and the economic environments in which it operates. or individual financial statements of an entity and to the consolidated financial statements of a group
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with a parent:
• Whose debt or equity instruments are traded in a public market; or
• That files, or is in the process of filing, its financial statements with a securities commission or
QUANTITATIVE THRESHOLDS other regulatory organization for the purpose of issuing any class of instruments in a public
OPERATING SEGMENTS market.
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• Information is required to be disclosed separately about an An operating segment is a component of an entity:
operating segment that meets any of the following quantitative • That engages in business activities from which it
thresholds: may earn revenues and incur expenses DISCLOSURE
− Its reported revenue, including both sales to external • Whose operating results are regularly reviewed
customers and intersegment sales or transfers, is 10 per by the entity’s chief operating decision maker Major disclosures include:
cent or more of the combined revenue, internal and (CODM) to make decisions about resources to be • An entity shall report a measure of profit or loss and total assets for each reportable segment –
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external, of all operating segments allocated to the segment and assess its only if this information is regularly provided to the CODM
− The absolute amount of its reported profit or loss is 10 per performance • Other disclosures are required regarding each reportable segment if specific amounts are reported
cent or more of the greater, in absolute amount, of: • For which discrete financial information is to the CODM
o The combined reported profit of all operating available. • Judgements made by management for the purposes of aggregation of operating segments
segments that did not report a loss; and - Description of the operating segments that have been aggregated
o The combined reported loss of all operating segments - Economic indicators considered in determining that segments share similar economic
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that reported a loss. characteristics.
− Its assets are 10 per cent or more of the combined assets of REPORTABLE SEGMENTS • Operating segment information disclosed is not necessarily IFRS compliant information, as it is
all operating segments. based on amounts reported internally
• If the total external revenue reported by operating segments Information is required to be disclosed separately
about each identified operating segment and • Operating segment information disclosed must be reconciled back to IFRS amounts disclosed in
constitutes less than 75% of the total revenue, additional the financial statements
operating segments shall be identified as reportable segments aggregated operating segments that exceed the
quantitative thresholds. (Refer Q-1-7,9-12) • An entity reports the following geographical information if available:
until at least 75% of the entity’s revenue is included in
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reportable segments.(Refer Q-8)

- Revenues from external customers, both attributed to the entity’s country of domicile and
attributed to all foreign countries
- Non-current assets (except financial instruments, deferred tax assets, post-employment
benefit assets and rights arising under insurance contracts) located both in the entity’s
AGGREGATION CRITERIA DEFINITION OF THE CODM country of domicile and in foreign countries
- The amounts reported are based on the financial information that is used to produce the
Two or more operating segments may be aggregated if the The CODM is the individual or group of individuals entity’s financial statements.
segments are similar in each of the following respects: who is/are responsible for strategic decision making • An entity provides information about the extent of its reliance on its major customers. If revenues
• The nature of the products and services regarding the entity. That is, the CODM allocates from transactions with a single external customer amount to 10% or more of an entity’s revenues,
• The nature of the production processes
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resources and assess the performance of the the entity discloses that fact.
• The type or class of customer for their products and services operating segments.
• The methods used to distribute their products or provide their
services
• The nature of the regulatory environment.
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Note: If parent company prepares both consolidated f/s and standalone f/s then IFRS-8(Operating Segment) disclosures are required
in consolidated f/s ONLY
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Concept Builders Questions

Question 1
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Question 7 (ACCA)
XYZ, a public limited company, is a pharmaceutical company and is seeking advice on several financial
reporting issues.
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(a) XYZ produces and sells its range of drugs through three separate divisions. In addition, there are two
laboratories which carry out research and development activities.
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In the first of these laboratories, the research and development activity is funded internally and centrally
foreach of the three sales divisions. It does not carry out research and development activities for other
entities.
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Each of the three divisions is given a budget allocation which it uses to purchase research and
development activities from the laboratory. The laboratory is directly accountable to the division heads
for this expenditure.
The second laboratory performs contract investigation activities for other laboratories and pharmaceutical
companies. This laboratory earns 75% of its revenues from external customers and these external
revenues represent 18% of the organization’s total revenues.
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The performance of the second laboratory’s activities and of the three separate divisions is regularly
reviewed by the chief operating decision maker (CODM). In addition to the heads of divisions, there is a
head of the second laboratory. The head of the second laboratory is directly accountable to the CODM
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and they discuss the operating activities, allocation of resources and financial results of the laboratory.
XYZ is uncertain as to whether the research and development laboratories should be reported as two
s separate segments under IFRS 8 Operating segments and would like advice on this issue. (8 marks)
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Question 8 (ICAEW)
XYZ Brothers, a public limited company, has three business segments which are currently reported in its
financial statements. XYZ Brothers is an international hotel group which reports to management on the
basis of region. It does not currently report segmental information under IFRS 8 Operating segments. The
results of the regional segments for the year ended 31 May 20X8 are as follows.
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Required
Discuss the principles in IFRS 8 Operating segments for the determination of a company's reportable
operating segments and how these principles would be applied for XYZ Brothers plc using the information
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given
above. (11 marks)
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Question 9 (Home Work)

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Question 10 (ICAP QB)
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Learning Outcome: Extra disclosure when 75% rule is applied.
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Question 11 (Self Made) (LAST DAY REVISION QUESTION)

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Question 12 (Study Text)
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MCQ’s
01. The following information has been extracted from the records of Simple Limited (SL):
1. SL operates a chemical plant which has polluted the surrounding countryside. The Board of
Directors has decided to clean up the environmental damage. This decision has been published in
the local press on 15 June 2018. However, SL is not legally required to clean up the environmental
damage.
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02. SL has decided to close down one of its operating segments. However, the decision was made public
after 30 June 2018.
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In the financial statements for the year ended 30 June 2018, SL should recognize a provision for the
best estimate of costs in respect of:
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(a) (1) only
(b) (2) only
(c) Neither (1) nor (2)
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(d) Both (1) and (2)
03. Which of the following events arising after the year end is an adjusting event?
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(a) The discovery of fraud or error which shows that financial statements are incorrect.
(b) Announcement of a plan to discontinue an operation.
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(c) Destruction of a major production plant by fire.

(d) Restructuring of a major loan
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04. Operating segment information should:

(i) increase the number of reported segments and provide more information
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(ii) enable users to see an undertaking through the eyes of management

(iii) enable an undertaking to provide timely segment information for external interim reporting with
relatively low incremental cost
(iv) enhance consistency with the management discussion and analysis or other annual report
disclosures
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(v) provide various measures of segment performance

(vi) provide information about reduced staff
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(a) (i) to (iii) only

(b) (i) to (vi) all
(c) (i) to (iv) only
(d) (i) to (v) only
05. An operating segment is a component of an undertaking

(i) that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the same
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undertaking)
(ii) whose operating results are regularly reviewed by the undertaking’s chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance
(iii) for which discrete financial information is available
(iv) which is taxed separately from other components
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(a) (i) to (ii) only
(b) (i) to (iii) only
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(c) (i) to (iv) all
(d) (i), (ii) and (iv)
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06. A component of an undertaking that sells primarily or exclusively to other operating segments of the
undertaking.
(a) It must be classed as an operating segment
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(b) It must be excluded from being an operating segment
(c) It is included as an operating segment if the undertaking is managed that way
(d) It is included as an operating segment if the management so desires
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07. IFRS 8 shall apply to
(i) listed companies
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(ii) any company reporting under IFRS that wishes to provide the information
(iii) all other companies reporting under IFRS
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(a) (i) to (ii) only

(b) (i) to (iii) all
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(c) (i) only

(d) (ii) only
08. An operating segment may engage in business activities for which it has yet to earn revenues, for
example, start-up operations and it:
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(a) will be reportable segment before earning revenues

(b) may be reportable segment before earning revenues
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(c) will not be reportable segment before earning revenues

(d) None of above
09. Head office expenses:
(a) can be allocated to segments on a reasonable basis

(b) must not be allocated to segments
(c) must be allocated to segments based on their turnover
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(d) must be allocated to segments based on their profit before tax
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10. Two or more operating segments may be aggregated into a single operating segment if aggregation is
consistent with the core principle of IFRS 8, the segments have similar economic characteristics, and
the segments are similar in each of the following respects:
(i) the nature of the products and services
(ii) the nature of the production processes
(iii) the type or class of client for their products and services
(iv) the methods used to distribute their products or provide their services
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(v) if applicable, the nature of the regulatory environment, for example, banking, insurance or public
utilities
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(vi) staff numbers
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(a) (i) to (vi) all
(b) (i) to (iii) only
(c) (i) to (iv) only
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(d) (i) to (v) only
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11. Which TWO of the following events which occur after the reporting date of an entity but before the
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financial statements are authorised for issue are classified as adjusting events in accordance with IAS
10 Events after the Reporting Period?
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(a) A change in tax rate announced after the reporting date, but affecting the current tax liability
(b) The discovery of a fraud which had occurred during the year
(c) The determination of the sale proceeds of an item of plant sold before the year end
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(d) The destruction of a factory by fire
12. In a review of its provisions for the year ended 31 March 2015, entity’s assistant accountant has
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suggested the following accounting treatments:

(i) Based on past experience, a Rs. 200,000 provision for unforeseen liabilities arising after the year
end.
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(ii) The partial reversal (as a credit to the statement of profit or loss) of the accumulated depreciation
provision on an item of plant because the estimate of its remaining useful life has been increased
by three years.
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Question 14 (LAST DAY REVISION) an
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Question16
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Learning Outcome: Impairment should be checked on segment basis and not on total basis.
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Question25
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Question 14
Endeavour, a public limited company,trades in six business areas which are reported separately in its internal
accounts provided to the chief operating decision maker. The results of these segments for the year ended 31
December 2005 are as follows. Operating segment information as at 31 December 2005
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REQUIREMENT: Which of the operating segments of Endeavour constitute a 'reportable' operating segment under IFRS
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8 Operating Segments for the year ending 31 December 2005 , Chemical segments have similar economic characteristics
including regulatory environments.
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Question 15 (Quiz) (LAST DAY REVISION QUESTION)
Hassaan Khanani Limited a Large Business Group owns several Businesses Following are relevant Details
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for the year ended December 31, 2019 in Million
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Additional Information
1. Lux uses expensive raw material than other two Soaps and Buksh production process is
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short as compare to Lux & Kukh

2. Sunsilk is for Women , Moonsilk is for Men and Funsilk is for Kids
3. Engines are sold to Suzuki , Honda and Indus , where as small sheet metal parts are
sold to Open Market
4. Foods is new Business and its figures are of only four months
5. Scrap sales is of all businesses combine but sold as scrap
6. Operating Expenses , Asset & Liabilities from Different departments amounts to 50 ,
700 & 900 million which are not allocated to any segment
Required: Disclosure in the books of Hassaan Khanani Limited as per IFRS 8

Hassaan Khanani ACA
Learning Outcome: Testing of aggregation criteria.
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Past Papers
Autumn-2019
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March-2020
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IAS 21 – The Effect of Foreign Exchange
Rates
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IAS 21 The Effects of Changes in Foreign Exchange Rates
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FUNCTIONAL CURRENCY
FOREIGN CURRENCY TRANSACTIONS
An entity’s functional currency is the currency
of the primary economic environment in
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which it operates.
Determine functional currency of each entity Non-monetary items

within a group - currency of primary economic Initial recognition • Rate at transaction date (if item at historical cost)
environment in which entity operates. (Refer Q- • Rate at revaluation date (if item carried at revalued amount).
1) Spot rate at transaction
(Refer Q-2-4) Impairment test
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Measure non-monetary assets at the lower of either:
• Carrying amount x historical rate
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• Net realisable value/recoverable amount x closing rate at the end of the
period.
Primary factors
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Translation gains or losses on asset/liability recognised in profit or loss. (Refer Q-8-9)
When determining the Subsequent Measurement
appropriate functional currency,
management should give priority
to the following factors:
• Currency influencing sales GENERAL PRINCIPLE
prices for goods and services
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Foreign exchange gain or loss to profit or loss
• Currency of country whose
competitive forces and EXCEPTION
regulations determine sale Monetary items Where a gain or loss on a non-monetary item is recognised in equity,
prices Units of currency held and assets/liabilities to be received/paid the foreign exchange gain or loss is also recognised in equity.
• Currency mainly influencing (RevaluationSurplus)
input costs. In a fixed or determined amount of money.
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Secondary factors
• Translated at closing rate at reporting date.
The primary indicators may be • Gain or loss is recognized in profit and loss.
determinative. However, the
following two indicators serve as
supporting evidence. (Refer Q-5-7)
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Currency in which funds/receipts:

• from financing activities are
generated
• from operating activities are
retained. (Refer A-1, M-5,6)
KEY PRINCIPLES
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• No need to present financial statements in functional currency. A

presentation currency can be selected
• Accounting records must be kept in functional currency
• A group does not have a functional currency. Functional currency is
assessed separately for each entity in the group.
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Baby Steps Example for Concepts Building
Question 1: Presentation and functional currencies
P is a UK-registered mining company whose shares are traded on the London Stock Exchange. Itsoperating
activities take place in the gold and diamond mines of South Africa.
(a) What is the presentation currency of P?

(b) What is its functional currency?
(c) P bought specialized mining equipment from the US, invoiced in US dollars. What type of
currency is the US dollar, using the IAS 21 definitions?
Question 2 – Initial & Subsequent Recognition
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31 December 20X6 Rs 80/A$131
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March 20X6 Rs 81/A$1
Required : Entries on Transaction , Reporting & Settlement Date.

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31 December 20X6 Rs 72/A$131
March 20X6 Rs 76/A$1
Required : Entries on Transaction , Reporting & Settlement Date.

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1 December 20X6 Rs 70/A$1 31
December 20X6 Rs 72/A$1
31 March 20X6 Rs 68/A$1
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Required : Entries on Transaction , Reporting & Settlement Date. Khanani ACA
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Question 5 – Frequent Movements in Account – Monetary Items
A Pakistani company whose functional currency is the rupee paid $90,000 into a dollar accounton 30
June.
The company paid an additional $10,000 into the account on 30 September.There
were no other movements on this account.
Exchange rates over the period were as follows:
30 June: Rs.100/$.
30 September Rs.99/$
31 December (year-end): Rs.95/$.
Required:Entries in the books of company
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A Pakistani company whose functional currency is the rupee paid $90,000 into a dollar accounton 30
June.
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The company paid an additional $10,000 into the account on 30 September. There
were no other movements on this account.
Exchange rates over the period were as follows:
30 June: Rs.100/$.
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30 September Rs.99/$
31 December (year-end): Rs.102/$.
Required: Entries in the books of company
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Note: There is no rule in IAS 21 as to what rate should be used for the accrual of interest. The accrualcould be
deemed to arise over the period in which case the average rate would be used or it
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could be treated as a year-end transaction in which case the closing rate would be used. Theprofit for
the period is not affected by the choice of rate as there would be a compensating adjustment in the
amount of the exchange difference.
Learning Outcome: Treatment of interest in IAS-21.
Question 8 – Non-Monetary Item Measured at Fair Value
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A Pakistani company (with the rupee as its functional currency) has a financial year ending on 31December.
It bought a building in Bahrain on 1 December 20X6 for 100,000 Bahraini dinar (BD). The
building was revalued to BD 120,000 on 31 December 20X6 as permitted by IAS 16.Exchange
rates:
1 December 20X6 Rs.275/BD1 31
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December 20X6 Rs.290/BD1

Required: Entries in the books of Company
Question 9 – Non-Monetary Item Measured at Fair Value
A Pakistani company (with the rupee as its functional currency) has a financial year ending on 31
December.
It bought a Land in Bahrain on 1 December 20X6 for 100,000 Bahraini dinar (BD). The
Land was revalued to BD 60,000 on 31 December 20X6 as permitted by IAS 16.
Exchange rates:
1 December 20X6 Rs.275/BD1 31
December 20X6 Rs.290/BD1 Hassaan Khanani ACA
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Exam Standard – Level 1 Questions
Question 10
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Question 11
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Question 12
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Question 13
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Question 14
An entity, which has a functional and presentation currency of the dollar ($),
accounts for land using the revaluation model in IAS 16. On 1 July 20X5, entity
purchased a plot of land in another country for 1.2 million dinars. At 30 June
20X6, the fair value of the plot of land was
1.5 million dinars.
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Required: Entries in Books
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Question 15
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Question 16
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An entity, Waiter, has a reporting date of 31 December and the Dollar

($) as its functional currency. Waiter borrows in the foreignCurrency of
the kram (K). The loan of K120, 000 was taken out on 1 January 20X7.
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A repayment of K40, 000 was made on 1 March

20X7.
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Required:
Describe how the above should be accounted for in the financialStatements of Waiter
for the year ended 31 December 20X7.
Question 17
An entity, has a reporting date of 31 December and has The dollar ($) as its
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functional currency. Entity purchased a plot ofLand overseas on 1 March
20X0. The entity paid for the land in the Currency of the Rylands (R). The
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purchase cost of the land at 1 March 20X0 was R60, 000. The value of the
land at the reporting Date was R80, 000.
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Required
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Describe how the above transaction should be accounted for in the financial statements for
the year ended 31 December 20X0 if the land is measured at:
• Cost
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• Fair Value
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Question 18
Mr. Khanani Hassaan is an entity whose functional currency is the dollar ($) and has an
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annual reporting date of 31 December.
On 1 July 20X3, Mr. Khanani Hassaan purchased an item of plant and equipmentOn
credit for Dn400, 000. On 1 November 20X3, Mr. Khanani Hassaan made a payment of
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Dn180, 000 to the supplier. The balance of the invoice

remains outstanding.
Mr. Khanani Hassaan has a policy of applying historical cost accounting and
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depreciating plant and equipment at the rate of 20% per annum. The
item of plant and equipment is not expected to have any residualvalue at the
end of its useful life.
Relevant exchange rates to $1 are as follows:
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1 July 20X3 10.0
1 November 20X3 7.2
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31 December 20X3 8.0
Required:
Prepare relevant extracts from Mr. Khanani Hassaan's financial statements for the year
ended 31 December 20X3 to illustrate theimpact of the above transactions.
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Question 19
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During 20X3, Mr. Khanani Hassaan entered into a number of transactions with Eraser, an
overseas customer.
On 1 November 20X3, Mr. Khanani Hassaan made credit sales to Eraser on 3 months
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credit for Dn360, 000. On 1 December 20X3, Mr. Khanani Hassaan madefurther credit
sales to Eraser on 3 months credit for Dn540, 000.
By 31 December 20X3, Mr. Khanani Hassaan had received no payment from Eraser. As the
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receivables were still within their credit period, they
were not regarded as being impaired.
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Relevant exchange rates to $1 are as follows:
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1 July 20X3 10.0

1 November 20X3 7.2
1 December 20X3 9.0
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31 December 20X3 8.0

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Required:
Prepare relevant extracts from Mr. Khanani Hassaan's financial statements for the year
ended 31 December 20X3 to illustrate theimpact of the above transactions.
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Question 20
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Zardari Ltd. purchased a property in Newyork for $10M on 1Jan2019 for administrative propose, life of
property was 10 years, property was revalued on 1Jan2020 at $12M. Relevant exchange rate:
1Jan19 1$= 100PKR
31Dec19 1$= 105PKR
1Jan20 1$= 101PKR
Requirement: Entries for 2019 and 2020.
Learning Outcome: Depreciable revalued asset

Hassaanwith IAS-21.
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Question 21
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Learning Outcome: IAS-21 with IAS-40 including rental income
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Question 22
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Question 23
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Question 24
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PAST PAPER
Q.1 Copper Limited (CL) entered into following transactions during the year ended 30 June 2019:
(i) On 1 October 2018, CL imported a machine from China for USD 250,000 against 60% advance
payment which was made on 1 July 2018. The remaining payment was madeon 1 April 2019.
(ii) On 1 January 2019, CL sold goods to a Dubai based company for USD 40,000 on credit. CL
received 25% amount on 1 April 2019, however, the remaining amount is still outstanding.
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Following exchange rates are available:
Date 1 Jul 2018 1 Oct 2018 1 Jan 2019 1 Apr 2019 30 Jun 2019 Average
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Rs. 121 Rs. 124 Rs. 137 Rs. 140 Rs. 163 Rs. 135
Required:
Prepare journal entries in CL’s books to record the above transactions for the year ended
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30 June 2019. (08)
Learning Outcomes: Advance and partial payment together in IAS-
21.
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MCQ’s
01. On 19 December 2019 Star Limited bought goods from Morgan plc for 80,000 British Pounds. At the
date of the transactions, the exchange rates were: £1 = PKR 186
On 31 December 2019, Star Limited’s financial year end, the equivalent rates were: £1 = PKR 182The
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average rate for the year ended 31 December 2019 was £1 = PKR 185
Star Limited paid this creditor on 3 February 2020 when the exchange rates were: £1 = PKR 188Star
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Limited should recognise purchases on 19 December 2019 at:
(a) Rs. 14,880,000
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(b) Rs. 14,560,000
(c) Rs. 14,800,000
(d) Rs. 15,040,000
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Star Limited paid this creditor on 3 February 2020 when the exchange rates were: £1 = PKR 188The
carrying amount of trade payables in respect of above on 31 December 2019 shall be:
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(a) Rs. 14,880,000
(b) Rs. 14,560,000

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(c) Rs. 14,800,000
(d) Rs. 15,040,000
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On 31 December 2019, Star Limited’s financial year end, the equivalent rates were: £1 = PKR 182 The
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Star Limited paid this creditor on 3 February 2020 when the exchange rates were: £1 = PKR 188The
amount of exchange gain or loss for the year ended 31 December 2019 shall be:
(a) Rs. 320,000 gain
(b) Rs. 320,000 loss
(c) Rs. 480,000 gain
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(d) Rs. 480,000 loss
Star Limited paid this creditor on 3 February 2020 when the exchange rates were: £1 = PKR 188 The
amount of exchange gain or loss to be recognised on 03 February 2020 shall be:
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(a) Rs. 320,000 gain
(b) Rs. 320,000 loss
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(c) Rs. 480,000 gain
(d) Rs. 480,000 loss
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05. Which of the following statements are correct?
(i) An entity can have only one presentation currency
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(ii) Functional currency is the currency of primary economic environment in which an entity
operates
(iii)
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Any currency other than functional currency of the entity is foreign currency.
(a) (i) and (ii)
(b) (i) and (iii)

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(c) (ii) and (iii)
(d) (i), (ii) and (iii)

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06. Which of the following is NOT a primary indicator for determining functional currency of an entity?
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(a) The currency that mainly influences sales prices for goods and services
(b) The currency of the country whose competitive forces and regulations mainly determine the
sales prices of its goods and services
(c) The currency in which funds from financing activities (raising loans and issuing equity) are
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generated
(d) The currency that mainly influences labour, material and other costs
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07. Which of the following is NOT a monetary item?
(a) Cash at bank (Fixed deposit in Pakistani Rupees)
(b) Investment equity instruments of other companies
(c) Trade receivables
(d) Loan payable
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08. On 19 December 2019 Star Limited sold goods to Clinton Inc for US$ 20,000. At the date of the
transactions, the exchange rates were $1 = PKR 148
On 31 December 2019, Star Limited’s financial year end, the equivalent rates were $1 = PKR 149
Star Limited received the amount due on 3 February 2020 when the exchange rates were $1 = PKR146
Star Limited should record revenue on 19 December 2019 at:
(a) Rs. 2,960,000
(b) Rs. 2,980,000
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(c) Rs. 2,920,000
(d) None of above
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The receivables on 31 December 2019 shall be presented at:
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(a) Rs. 2,960,000
(b) Rs. 2,980,000

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(c) Rs. 2,920,000
(d) None of above

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The amount of exchange gain or loss for the year ended 31 December 2019 in respect of abovetransaction is:
(a) Rs. 20,000 gain
(b) Rs. 20,000 loss

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(c) Rs. 40,000 gain
(d) Rs. 60,000 gain

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The amount of exchange gain or loss on receipt of cash on 03 February 2020 is:
(a) Rs. Nil
(b) Rs. 60,000 gain

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(c) Rs. 40,000 loss
(d) Rs. 60,000 loss
12. Moon Limited functional currency is Pak Rupees. It bought a property in New York for $5 million on 2
July 2019. The 25% amount was paid immediately and remaining is to be paid on 31 October 2019.
Moon Limited financial year ends on 30 September each year.
Relevant exchange rates are:
02 July 2019 $1 = PKR 164
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30 September 2019 $1 = PKR 158
31 October 2019 $1 = PKR 156
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The fair value of property is $5.1 million on 30 September 2019.
The property is being used for administrative purposes and has a useful life of 50 years. Moon
Limited uses revaluation model.
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At which amount the above property shall be presented in statement of financial position on 30September
2019?
(a) Rs. 820.0 million
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(b) Rs. 815.9 million
(c) Rs. 805.8 million

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(d) Rs. 790.0 million
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02 July 2019 $1 = PKR 164

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31 October 2019 $1 = PKR 166
The property is being used for administrative purposes and has a useful life of 50 years. Moon
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Limited uses revaluation model.

What is the total charge/credit (net) in profit or loss in respect of the above for the year ended 30September
2019?
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(a) Rs, 4.1 million expense
(b) Rs. 19.1 million expense
(c) Rs, 15 million expense
(d) Rs. 5 million credit
14. Earth Limited has overseas freehold land which it bought for $2 million on 1 March 2019. It uses
revaluation model under IAS 16 for this property. The fair value of land is $2.5 million on 31 December
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2019 (year-end).
01 March 2019 $1 = PKR 144

31 December 2019 $1 = PKR 165
Which of the following is correct for its financial statements for the year ended 31 December 2019?
(a) PPE Rs.412.5 million, Revaluation surplus Rs. 82 million, Profit or loss Rs. 42.5 million
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(b) PPE Rs. 288 million, Revaluation surplus Rs. 82 million, Profit or loss Rs. 42.5 million
(c) PPE Rs. 412.5 million, Revaluation surplus Rs. 124.5 million, Profit or loss Rs. Nil
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(d) PPE Rs.288 million, Revaluation surplus Rs. 124.5 million, Profit or loss Rs. Nil
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15. Which TWO of the following are secondary indicator for determining functional currency of an entity?
(a) The currency in which funds from financing activities (raising loans and issuing equity) are
generated
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(b) The currency of the country in which the entity is registered
(c) The currency in which receipts from operating activities are usually retained
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(d) The currency that mainly influences labour, material and other costs
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Moon Limited financial year ends on 30 September each year.Relevant
exchange rates are:
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02 July 2019 $1 = PKR 164

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31 October 2019 $1 = PKR 156

The property is being used for administrative purposes and has a useful life of 50 years. MoonLimited
uses cost model.
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2019?
Rs. million
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02 July 2019 $1 = PKR 164

31 October 2019 $1 = PKR 156
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uses cost model.
At which amount the payables for property shall be presented in statement of financial position on 30
September 2019?
Rs. million
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02 July 2019 $1 = PKR 164
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31 October 2019 $1 = PKR 156
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uses cost model.
What is the total charge/credit (net) in statement of profit or loss in respect of the above for the year
ended 30 September 2019?
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Rs. million
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02 July 2019 $1 = PKR 164

31 October 2019 $1 = PKR 156

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The property being vacant is held for capital appreciation and has a useful life of 50 years. Moon
Limited uses fair value, where permitted under relevant IFRSs.
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2019?
Rs. million
Moon Limited financial year ends on 30 September each year.Relevant
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exchange rates are:
02 July 2019 $1 = PKR 164

31 October 2019 $1 = PKR 156
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The property being vacant is held for capital appreciation and has a useful life of 50 years. Moon
Limited uses fair value, where permitted under relevant IFRSs.
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What is the total charge/credit (net) in statement of profit or loss in respect of the above for the year ended 30
September 2019?
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Rs. million
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Assignment
Question 1 ( Determine Functional Currency)
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Question 2 ( Determine Functional Currency)

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Question 3
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Question 4
Question 5
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Question 6
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Question 7
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Question 8
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Question 9
A UK-based entity with a sterling functional currency has a property located in Spain which was
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acquired at a cost of €6 million when the exchange rate was £1 = €1.50. At the reporting date the
property was revalued to €8 million. The exchange rate on the reporting date was £1 = €1.60
Required: Ignoring Depreciation , Determine amount to be recognized in OCI
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Question 10
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Question 11
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IAS 41 – Agriculture
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IAS 41 Agriculture
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DEFINITIONS SCOPE
Within scope: Excluded from scope:
Active market - Exists when; the items traded are · Biological assets · Land related to agricultural activity – covered by IAS 16 Property, Plant and Equipment and IAS 40 Investment
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homogenous, willing buyers and sellers can normally be · Agricultural produce at the point of harvest Property
found at any time and prices are available to the public. · Government grants related to biological assets. · Intangible assets related to agricultural activity – covered by IAS 38 Intangible Assets.
(Refer M-7)
Amendments to IAS 41 (Effective 1 January 2016)
Agricultural activity - The management of the
(Refer M-1 to6) · Bearer plants related to agricultural activity
transformation of a biological asset for sale into · Government grants related to bearer plants. (Refer Q-8)
agricultural produce or another biological asset.
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RECOGNITION MEASUREMENT
Biological asset - A living animal or plant.
Agricultural produce - The harvested produce of the

entity’s biological assets.
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· Biological assets or agricultural Biological asset Agricultural produce
Biological transformation - The process of growth, produce are recognised when: · Initially: · Produce harvested from biological assets is measured at fair
degeneration, production, and procreation that cause an - Entity controls the asset as a - At fair value less estimated point-of-sale costs (except value less costs to sell at the point of harvest
increase in the value or quantity of the biological asset. result of a past event where fair value cannot be estimated reliably) · Such measurement is the cost at the date when applying
- Probable that future economic - If no reliable measurement of fair value, biological assets IAS 2 Inventory or another applicable IFRS.
Harvest - The process of detaching produce from a benefit will flow to the entity; and
are stated at cost.(Refer Q-1-4)
- Fair value or cost of the asset can be
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biological asset or cessation of its life. · Subsequently:
measurement reliably. (Refer M-8)
Effective for periods beginning on or after 1
- At fair value less estimated point-of-sale costs (except
where fair value cannot be estimated reliably)
January 2016
- If no reliable measurement of fair value, biological assets
Bearer plant – is a living plant that: are stated at cost less accumulated depreciation and
· Is used in the production or supply of agricultural accumulated impairment losses.
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produce
· Is expected to bear produce for more than one period
· Has a remote likelihood of being sold (except scrap FAIR VALUE GAINS AND LOSSES
sales).
GOVERNMENT GRANTS
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Biological asset Agricultural produce

· An unconditional government grant related to a · The gain or loss on initial recognition is included in profit · The gain or loss on initial recognition is included in included in
biological asset measured at fair value less estimated or loss in the period in which it arises (Refer Q-5) profit or loss in the period in which it arises.
point-of-sale costs is recognised as income when, and · Subsequent change in fair value is included in profit or loss in
only when, the government grant becomes available the period it arises.
· A conditional government grant, including where a
government grant requires an entity not to engage in
specified agricultural activity, is recognised as income
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when and only when, the conditions of the grant are INABILITY TO MEASURE FAIR VALUE
met. (Refer M12,13)
· Once the fair value of the biological asset becomes reliably
measureable, the fair value must be used to measure the
biological asset
· Once a non-current biological asset meets the criteria to be
defined as held for sale (or as part of a disposal group classified
as held for sale) then it is presumed fair
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value can be measured reliably.
SPRING-2021 Question refers to whole summary
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Important Study Text Pages
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LAST DAY REVISION

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Question 1
a herd of five 4 year old animals was held on 1 January 20X3. On 1 July 20X3 a 4.5 year old animal
was purchased for $212. The fair values less estimated point of sale costs were:
• 4 year old animal at 1 January 20X3 $200

• 4.5 year old animal at 1 July 20X3 $212
• 5 year old animal at 31 December 20X3 $230
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Required:
Calculate the amount that will be taken to the statement of profit or loss for the year
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ended 31 December 20X3.
Question 2
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a herd of seven 5 year old animals was held on 1 January 20X3. On 1 July 20X3 a 5.5 year old
animal was purchased for $212. The fair values less estimated point of sale costs were:
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• 5 year old animal at 1 January 20X3 $400
• 5.5 year old animal at 1 July 20X3 $380
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• 6 year old animal at 31 December 20X3 $360
Required:
Calculate the amount that will be taken to the statement of profit or loss for the year
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ended 31 December 20X3.
Question 3 (ICAEW 5 marks)

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An entity operates a dairy farm. At 1 January 20X1, he owns 100 cows worth
$1,000 each on the local market. At 31 December 20X1, he owns
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105 cows worth $1,100 each. During 20X1 he sold 40,000 gallons of milk at
an average price of $5 a gallon. When cows are sold at the local market, the
auctioneer charges a commission of 4%.
Show extracts from the financial statements for 20X1 for these activities, assuming
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that no cows were purchased or sold during the year.

Learning Outcome: Extracts in case of biologinal asset(animal).
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Question 4
An entity operates a dairy farm. At 1 January 20X1, he owns 500 cows worth
$3,000 each on the local market. At 31 December 20X1, he owns
505 cows worth $3,300 each. During 20X1 he sold 55,000 gallons of milk at
an average price of $1 a gallon. When cows are sold at the local market, the
auctioneer charges a commission of 3.5%.
Show extracts from the financial statements for 20X1 for these activities, assuming
Hassaan Khanani ACA
that no cows were purchased or sold during
Teacher the year.
who Students Have Secured MA
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Question 5 (ACCA 2 marks)
An entity owned a one year old herd of cattle on 1 January, recognised in the
financial statements at $140,000. At 31 December, the fair
value of a two year old herd of cattle is $170,000. Costs to sell are still
estimated to be $5,000.
What is the correct accounting treatment for the cattle at 31
December according to IAS 41 Agriculture?
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Question 6 (ACCA 2 marks)
Identify which of the following items would be accounted for under the
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provisions of IAS 41 Agriculture.
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Question 7
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Required: Discuss treatment of above

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Question 8 (Model Paper)
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Question 9 The Dairy Company
(i) Briefly explain the term “biological asset” and state when a biological asset is recognised in the
financial statements under the International Financial Reporting Standards.
(ii) The Dairy Company (TDC) owns three farms and has a stock of 3,200 cows. During the year ended 30
June 2015, 300 animals were born, all of which survived and were still owned by TDC at year-end. Of
those, 225 are infants whereas 75 are nine month old having market values of Rs. 26,000 and Rs.
53,000 per animal respectively. The incidental costs are 2% of the transaction price.
Required:
In accordance with the requirements of the International Financial Reporting Standards, discuss how the gain in
respect of the new born cows should be recognized in TDC’s financial statements for the year ended 30
June 2015. (Show all necessary computations)
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Learning Outcome: Entry for newly born Biological asset.
Question 10 Fatima Limited
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Fatima Limited on adoption of IAS 41 has reclassified certain assets as biological assets. The total
value of the group’s forest assets is Rs.3,400 million comprising:
Rs. in million
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Freestanding trees 2,500
Land under trees 500
Roads in forests 400
Required: K 3,400
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Show how the forests would be classified in the financial statements.
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Question 11 Zoha
Limited
Zoha Limited has these balances in its financial records:
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Value of biological asset at cost 31/12/2018 600

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Fair valuation surplus on initial recognition at fair value 31/12/2018 700

Change in fair value to 12/31/2019 due to growth and price fluctuations 100
Decrease in fair value due to harvest 90
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Required:
Show how these values would be incorporated into the statement of financial position and statement of
comprehensive income at December 31, 2019.
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Question 12 Mishall Limited

Mishall Limited a public limited company, Dairy, produces milk on its farms. It produces 30% of the
country’s milk that is consumed. 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
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150,000 kilograms of milk. However, the company is currently holding stocks of 500,000 kilograms of milk
in powder form. At December 31, 2018, the herds are:
210,000 cows (3 years old), all purchased on or before January 1, 2018
75,000 heifers, average age 1.5 years, purchased on June 1, 2018
30,000 heifers, average age 2 years, purchased on January 1, 2018
No animals were born or sold in the year.
The unit values less estimated point-of-sale costs were Rs.

1-year-old animal at December 31, 2018: 32
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1.5-year-old animal at December 31, 2018: 36
1-year-old animal at January 1, 2018 and June 1, 2018: 30
2-year-old animal at January 1, 2018: 40
Required: Prepare Disclosure
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Learning Outcome: Computation of price & physical growth change element separately.
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Question 2
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A entity Received Government grant on 1 January 2019 of Rs 5 million for Managing farm from 2014-
2018 . There are no conditions attached to the grant .
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Required : Treatment on 1 January.
Question 3
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A entity Received Government grant on 1 January 2019 of Rs 5 million for Managing farm from 2019-
2024 .
Required : Treatment on 1 January and 31 Dec 2019
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a) Grant is repayable in full if conditions are not fulfilled ( failed to Manage from 2019 – 2024)
b) Grant is repayable proportionately if conditions are not fulfilled ( failed to Manage from
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2019 – 2024) ,Repayment based on number of Years.
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PAST PAPERS
March-2021
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Spring-2020
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MCQ’s
01. To which of the following items does IAS 41 Agriculture apply?
(i) A change in fair value of a herd of animals relating to the unit price of the animals.
(ii) Logs held in a wood yard.
(iii) Farm land which is used for growing vegetables.
(iv) The cost of developing a new type of crop seed which is resistant to tropical diseases.
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(a) All four
(b) (i) only
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(c) (i) and (ii) only
(d) (ii) and (iii) only
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02. IAS 41 should be applied to account for the following when they relate to agricultural activity:
(i) Biological assets.
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(ii) Agricultural produce at the point of harvest.
(iii) Certain government grants.
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(iv) Land related to agricultural activity.
(v) Intangible assets related to agricultural activity.
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(a) (i)
(b) (i) & (ii)
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(c) (i), (ii) & (iii)

(d) (i), (ii) , (iii) & (iv)
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03. IAS 41 is applied to agricultural produce:

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(a) Before the harvest

(b) Only at the point of harvest
(c) After the harvest
(d) Before, during and after the harvest
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04. Agricultural activity is the management of biological transformation of biological assets:

(i) for sale
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(ii) into agricultural produce.

(iii) into additional biological assets.
(a) (i)
(b) (i) & (ii)
(c) (i), (ii) & (iii)
(d) (ii) & (iii)
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05. Identify whether the following items would be accounted for under IAS 41 Agriculture or not.
Dairy cattle
Milk
Cheese
(a) All three

(b) Dairy cattle and Milk only
(c) Milk and Cheese only
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(d) Dairy cattle and Cheese only
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06. Agricultural activity covers a diverse range of activities; for example:
(i) Raising livestock
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(ii) Forestry
(iii) Annual or perennial cropping
(iv) Cultivating orchards and plantations
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(v) Food processing
(a) (i)
(i), (ii) & (v)
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(b)
(c) (i), (ii), (iii) & (v)
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(d) (i), (ii), (iii) & (iv)
07. An active market is a market where all the following conditions exist:
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(i) The items traded within the market are homogeneous

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(ii) Willing buyers, and sellers, can normally be found at any time
(iii) Prices are available to the public
(iv) The market trades every day
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(a) (i)
(b) (i), (ii)
(c) (i), (ii), & (iii)
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(d) (i), (ii), (iii) & (iv)
08. An undertaking should record a biological asset, or agricultural produce, only when:
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(i) The undertaking controls the asset, as a result of past events.

(ii) Future benefits, associated with the asset, will flow to the undertaking.
(iii) The fair value, or cost, of the asset can be measured reliably.
(a) (i)
(b) (i), (ii)
(c) (i), (ii), & (iii)
(d) None of the above
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09. Point-of-sale costs include:
(i) Commissions to brokers and dealers.
(ii) Levies by regulatory agencies.
(iii) Levies by commodity exchanges.
(iv) Transfer taxes and duties.
(v) Transport, and other costs, necessary to transport assets to a market.
(a) (i)
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(b) (i), (ii) & (v)
(c) (i), (ii), (iii) & (v)
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(d) (i), (ii), (iii) & (iv)
10. Pluto Limited owned a one-year old herd of cattle on 1 January, recognized in the financial statements at Rs. 140
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million. At 31 December, the fair value of a two-year-old herd of cattle is Rs. 170 million. Costs to sell are still
estimated to be Rs. 5 million for the whole herd.
What is the correct accounting treatment for the cattle at 31 December according to IAS 41 Agriculture?
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(a) Revalue to Rs. 165 million, taking gain of Rs. 25 million to other comprehensive income.
(b) Revalue to Rs. 165 million, taking gain of Rs. 25 million to the statement of profit or loss
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(c) Revalue to Rs. 170 million, taking gain of Rs. 30 million to other comprehensive income.
(d) Revalue to Rs. 170 million, taking gain of Rs. 30 million to the statement of profit or loss.
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11. The information sources may suggest different conclusions as to the fair value of a biological asset, or
agricultural produce. Use:
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(a) The most reliable estimate

as
(b) The lowest figure

(c) The average figure
(d) None of above
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12. A grant related to a biological asset measured at cost because ‘fair value less estimated point-of-sale
costs’ could not be measured reliably, should be recorded as income:
(a) In accordance with IAS 41
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(b) In accordance with IAS 20

(c) When the grant becomes receivable
(d) When the conditions of grant are met
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13. A conditional grant related to a biological asset measured at its ‘fair value less estimated point-of-sale
costs’ should be recorded as income:
(a) Only when cash is received
(b) Only when the grant becomes receivable
(c) Only when the conditions are met
(d) Only when it is expected that grant may be received.
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14. A gain (or loss) may arise on initial recognition of a biological asset:
(i) Because estimated point-of-sale costs are deducted in determining ‘fair value less estimated
point-of-sale costs’ of a biological asset
(ii) When a calf is born
(iii) As a result of harvesting
(a) (i)
(b) (i) & (ii)
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(c) (i), (ii) & (iii)
(d) None of these
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15. An unconditional grant related to a biological asset measured at its ‘fair value less estimated point-of-
sale costs’ should be recorded as income:
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(a) Only when cash is received
(b) Only when the grant becomes receivable
(c) Only when the goods are sold
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(d) Only when it is expected that grant may be received. n
16. Wool Limited (WL) started its business on 1 April 2015.
On 1 April 2015, WL purchased a flock of sheep for Rs. 100 million. At 31 March 2016, the flock was valued at
aa
Rs. 120 million. Every time animals are sold there is a 5% commission fee payable to the district municipal
corporation.
No further sheep was purchased or sold during the year.
During the year, the wool sheared by WL had “fair value less point of sale costs” of Rs. 8 million.
s
At which amount the flock of sheep should be presented in financial statement of WL as at 31 March
as
2016?
Rs.
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17. Wool Limited (WL) started its business on 1 April 2015.

On 1 April 2015, WL purchased a flock of sheep for Rs. 100 million. At 31 March 2016, the flock was valued
at Rs. 120 million. Every time animals are sold there is a 5% commission fee payable to the district municipal
corporation.
nS
No further sheep was purchased or sold during the year.

During the year, the wool sheared by WL had “fair value less point of sale costs” of Rs. 8 million.
Calculate the total income of WL in respect of its agriculture activity for the year ended 31 March
K
2016.
Rs.
18. Maria Limited (ML) bought oil palm garden for Rs. 150 million (includes Rs. 120 million for land) on 1
January 2019. The garden is expected to give agriculture produce for next three years before re- plantation
process.
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On 31 December 2019, the year end, the fair value of garden is Rs. 22 million (excluding land). Estimated
point-of-sale costs are Rs. 2 million.
Land has fair value of Rs. 130 million on 31 December 2019.
ML uses cost model for items under scope of IAS 16 and ‘fair value less point of sale cost for items under
scope of IAS 41
What is the total amount of non-current assets to be presented in statement of financial position of ML
as at 31 December 2019?
ni
Rs.
na
19. Cow Limited (CL) owned cattle recorded in the financial statements at Rs. 10.5 million on 1 January
2014.
At 31 December 2014 the cattle have a fair value of Rs. 13 million. If CL sold the cattle, commission of
ha
2% would be payable.
What is the gain to be recognized in profit or loss for the period ended at 31 December 2014 according
to IAS 41 Agriculture?
Rs.
K
n
20. A herd of fifty 3-year old animals was held on 1 January 2013. On 1 July 2013 ten 3.5-year-old animal were
aa
purchased for Rs. 40,000.
The fair values less estimated point of sale costs were:
3-year-old animal at 1 January 2013 Rs. 32,000
s
3.5-year-old animal at 1 July 2013 Rs. 40,000

as
4-year-old animal at 31 December 2013 Rs. 43,000

Calculate the amount that will be taken to the statement of profit or loss for the year ended 31
December 2013.
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Rs.
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IAS 38 – Intangibles
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IAS 38 Intangible Assets
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Also refer: Effective Date
SIC-32 Intangible Assets – Web Site Costs Periods beginning on or after 31 March 2004
RECOGNITION AND MEASUREMENT
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SEPARATE ACQUIRED IN BUSINESS INTERNALLY GENERATED EXCHANGE OF INTERNALLY GOVERNMENT GRANT
ACQUISITION COMBINATION ASSETS GENERATED GOODWILL
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1. Probable – 2. Probable – always met if fair Research phase – expense costs as incurred. · Measure acquired asset Internally generated goodwill is Initially recognised at either:
expected future value (FV) can be determined; at its fair value never recognised as it is not an · Fair value
economic FV reflects expectation of Development phase – Capitalise if all criteria · If not possible, at book identifiable resource that can · Nominal value plus direct
benefits will flow future economic benefits. are met: value of asset given up. be measured reliably. expenses to prepare for use.
to the entity; and · Technical feasibility of completion of
intangible asset Examples include: Examples include:
2. Cost can be 3. Cost – FV at acquisition date. · Internally generated brands
· Intention to complete · License to operate national
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Specific
reliably · Acquirer
quantitative disclosure requirements:
recognises it · Customer lists.
measured. separately from goodwill
· Ability to use or sell the intangible asset lottery
· Irrespective of whether the · Adequate technical, financial and other · Radio station.
Recognition at cost. resources to complete
acquiree had recognised it
before acquisition. · Probable future economic benefits
· Expenditure measured reliably.
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DEFINITION SUBSEQUENT ACCOUNTING
Intangible assets - identifiable, non-monetary assets, without
physical substance.
Assets - resources, controlled from past events and with future

economic benefits expected.
Cost model
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Finite useful life – Choose either amortised cost or revaluation model:
· Determine useful life

Revaluation model
· Fair value at revaluation date
Indefinite useful lives
· No foreseeable limit to future expected economic benefits
· Not amortised
· Test for impairment annually or when an indication exists
as
Identifiable if either:
· Capable of being separated and sold, licensed, transferred, · Residual value – assumed zero unless · Fair value determined by referring to · Review annually if events and circumstances still support
exchanged or rented separately active market exists or a active market indefinite useful life
· Arise from contractual or other legal rights.
commitment by third party to · If no active market, use cost model · If no longer indefinite change to finite useful life.
purchase the intangible asset exists · Revaluation done regularly
· Determine amortisation method · The net carrying amount of the asset is
· Review above annually
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adjusted to the revalued amount and OTHER

· Amortisation begins when available - The gross carrying amount is
SCOPE for use. adjusted in a manner consistent Past expenses cannot be capitalised in a later period.
with the net carrying amount.
Scope exclusions: financial and intangible assets covered by other Amendments to IAS 38 (Effective Accumulated amortisation is
IFRSs (IAS 2, IAS 12, IAS 17, IAS 19, IAS 32, IFRS 4, IFRS 5). 1 January 2016) adjusted to equal the difference
· Rebuttable presumption that between the gross and net carrying
revenue based amortisation is amount; or
inappropriate - Accumulated amortisation is
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· Amortisation method reflects the eliminated against the gross

pattern in which future economic carrying amount.
benefits are expected to be · Credit to revaluation surplus net of
consumed. Deferred Tax
Hassaan Khanani·ACA
Transfer to retained earnings on
Teacher who Students Have Secured
realisation.MA
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Example and Important Points from IAS
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Intangible that should be recognized in business combination
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Illustrations
Illustration 01: Recognition of a fishing license
A company has acquired a fishing license. The directors insist that it is a physical asset since it is written on a piece
of paper. State and briefly explain whether or not you would recognize a fishing license as an intangible asset.
ni
Illustration 02: Recognition of Software
State and briefly explain whether or not you would recognize software as an intangible asset if it is incorporated
into a machine that is dependent on the software for its operation.
na
Illustration 03: in-process research and development acquired
A company bought an incomplete research and development project from another company for
Rs 400 000 on 1 January 20X1. The purchase price has been analyzed as follows:
Research 100 000
ha
Development 300 000
Subsequent expenditure has been incurred on this project as follows:
Research: Further research into possible 200 000
markets was considered necessary
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Development: Incurred evenly throughout the 480 000
year. All recognition criteria for
capitalization as a development asset were met
on 1 June 20X1.
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Required:
Show all journals related to the in-process research and development for 20X1.
Illustration 04: Development Cost

sa
Company Q has undertaken the development of a new product. Total costs to date have been Rs.
800,000. All of the conditions for recognizing the development costs as an intangible asset have
now been met.
However, Rs. 200,000 of the Rs. 800,000 was spent before it became clear that the project was
as
technically feasible, could be resourced and the developed product would be saleable and
profitable.
Required:
How much amount should be recognized as an intangible asset?
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Illustration 05: Renewable rights

Ace Ltd purchased a 5-year fishing license for Rs 100 000. The company expects to renew the license at the
end of the 5-year period for a further 5 years. The government has indicated that they will re-grant the
nS
license to Ace Ltd.

Required:
Discuss the number of years over which the license should be amortized, assuming that the costs associated
with the renewal is:
(i) 100; or
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(ii) 99 000.
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✁✂✄☎✆✝✞✟✠
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✈✇①②③④⑤⑥ ⑦⑧⑨⑩❶
☛☞✌✍✎✏✑✒✓✔
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nS
✭ ✮ ✯ ✰ ✱ ✲ ✳ ✴ ✵✶ ✷✸✹✺✻✼✽✾✿❀❁❂ ❃❄❅❆❇❈ ❉❊❋ ●❍■❏❑▲▼◆
✁✂ ✁ ❖P◗❘❙❚❯ ✂✄☎✆ ❱❲❳ ❨❩❬❭❪❫❴ ❵❛❜❝❞❡❢❣ ❤ ✐ ❥ ❦ ❧ ♠ ♥ ♦♣qrst✉ ✈✇ ① ②③④⑤ ⑥⑦ ⑧⑨⑩ ✧★✩✪✫✬✭✮ ❶❷❸ ❹❺❻❼❽❾❿ ➀➁➂ ➃
➄✌➅✕✹ ✆✟❬❀ ✒ ♠ ➆ ÿ✌✎✔❵ ✞✟❜◆ ✍✒ ✏✌☛✟✬✖✎☎ ❏✎☎✖✌❍ ÷◆✌ ✹✟✲✌✍✓✁ ❄✏✕✍✪☛ ➇✮✍✌✁✔ ➈ ✟ ➉ ✟ ❜ ✌ ➔ ❜◆✌ ✔✟✡◆✪ ❜✒ ➊ ✓ ➋ Ò ✔ ❙✖✍✕ ✟❃
✝ ✚ ❄ ❱✕✏ ✟ ✎❜✌➔ ✕✏✌✎ ❢✷ ❜❐❞ ➌✕➍ ✟ ◆✑ ➎➏➐ ➑➒➓➔→➣ ↔↕ ✒✪❐✁✔ ➙ ✓ ◆ ✟ ❃ ➃ ☞✒⑤✯✕✍➛ ✻✕❭ ➜☛◆ Ò ✔ ✪➝✍✎ ✟✍ ❜ ♦ ❂✓ ✕✏✌✎
➞➟➠➡➢➤ ➥➦➧ ➨➩➫➭ ➯➲ ➳➵➸ ➺ ➻ ➼ ➽ ➾ ➚ ➪ ➶

K
✕✖ ➹➘➴➷➬➮➱ ❐✐❏✁ ➄ ❞✌✠ ❱✕✬✌ ✟ ✠ ❜♦✌ r ✟ ✟ ❢✖✍❜✟✍❄ ✔✌☞➠✔➔☛ ✔✁☎✎❜✟✍❄ ❿ ✒ ❜◆✌ ✃ ✓ ◆ ✧ ✠ ✡ ☎✟☞✁✍☛✁ ✬ ✖ ✔ ✟ ✍ ❐ ❜♦✁ ☞✖✏✏✌✍✪
❒❮❰ÏÐ
✜✢✣✤✥✦✧★✩
Hassaan Khanani ACA
ÑÒÓÔ ✧ ❵Õ ÕÖ× ØÙÚÛÜÝÞßàáâ ãäåæçèéêëìí ✕✍➔ ✬✟✓☞✤ ➠ ☛✮✏✌ ✒✌ ✪♦✁ ❮ ☛ ◆ ✟ ✍ ✡ ☎ ✑ ☞ ✌ ✠ ☛ ✌ ✑✍ ▼◆✁ î ❃ ✎ ✍ ï ✕ ✹ ☛❙✕❜✌❱✌❃✪✓ ✒❬
ð ñ ò ó ô õ ö÷øùúûü ýþ ✯ ✰ ÿ✁✂✄☎✆✝✞ ✱✲✳✴✵ ✟✠ ✡☛☞✌✍ ✎✏ ✑✒✓✔✕✖✗✘✙✚✛✜✢ ✣ ✤ ✥ ✦ ✧ ★ ✩ ✪ ✫
consecutive Gold Medals in FAR 2 ✬✭✮✯✰✱✲✳ ✴✵✶✷✸✹✺✻✼✽
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✁✂✄☎✆✝✞✟✠
✁✂✄☎✆✝✂✞ ✟✂✠✡ ☛☞ ✌✍✎✏✑✒✓✔ ✒✕✖✗✘✙ ✂✚ ✛✜✢✏✣✑✤✥ ✦✧★✩ ✪✫✬✭✙ ✮✬✯✰✱✲ ✳✂✴✛✵ ✶✮ ✡✒✓✷✸✤✮ ✷✹✡ ✑✳ ✺✸✻ ✁✂✄☎
✼✽✾ ✕✘✷ ✿✝✿✏❀✠✒✕✮❁ ✕✳ ✕✤❂✒✸✠✷✑✤✥ ❃❁ ✱❄✱❅ ✛❆✙❇❈❉ ❊✴✩❋ ●❍✱■ ❏❑✑✞ ▲✙▼ ◆❖P ◗✑❘✂✤ ❙❚ ✠❯✎❱✑✳✑✮✑✝✤ ✁
❲❳✔❨✍✲✑✝❩ ❬✑❭❍✘✳ ❪✕✲✗✂✭✲ ✠✽■ ✮✑◗❫ ❴❵✯❛ ❜✲ ❝✒✓✷✱✤✲❞ ◗✠✤✠✖✓❡✓✤✲ ❢✓✰✕✸❄✓✷ ✲✗✠✲ ✲❣✸ ❏✒✂✔✏✍✮ ✗❤ ✆
✐ ❥ ❦ ❧ ♠ ♥ ♦ ♣ q rst✉✈ ✇①②③
✁✂✄☎✆✝✞✟✠
④✘✠✲✓ ✠❂✍✂✭❩✲✕✽⑤ ⑥❬✓✠✲❵✸✤✲ ✂✪ ✲✗✓ ✌⑦✝⑧✸ ✓⑨⑩✓✤✔✑✮✭✒✓ ✑✽✍❀✭✔✑✤✖ ✑✲✷ ✠◗✂❶✕✳✠✲✕✂✽ ✡✂✰✑✍❷▼
n
✁✂✄☎✆✝✞✟✠✡
❸❩♣❹ ❺✂❻❼✌✽☎ ❲❽❄❾✔✸✔ ✲❍✓ ❿➀✄✂✆❧➁✖ ✕✤➂✒◗➃✲✑✂➄ ✂✤ ✑✤✘✠✤✖✕❢❀✓ ✠➅✷✓✲✷➆
na
➇➈ ➉ ❼➇✘✓✽✲ ➊❤ ➋✭✒✍❍✠✷✓✞ ➌✂◗ ✲❍✓ ➍✂✭ ❺✂◗❏➎■ ➏❚ ✁✂ ➐❖❖❞P➑❖ ✂✽ ❸✽❨✠➒ ➓ ❞ ➔P❖→✵ ➣➎✸✷ ✸✳✘✑◗✠↔
✲☛✓ ✒✓❵✠✑✽✕✽✖ ✏✷✓↕❀ ✰✕✪➙ ➛✪ ✲✗✓ ➜✌➝✱➞➟ ➟➠ ✁ ➡ ➢ ➤ ➥ ➦ ➧ ➨ ➩
⑦➫ ➭➯♣❂✲✕❄✓ ➲➇✤❨✠➳ ➵ ➸ ➔ P ➺ ➺ ➻ ➼✠✳✸✔ ✂✤ ✽❫➊ ✸✦✸✤✲✷ ✲✗✠✲ ❍✠✦✸ ✂❯➽✭✒✒✓✔➾ ➚✠✽✓✷ ✸✷✲✑◗➃✮✓✷ ✲✗❑✮ ✲✗✸ ❚✓◗✠✑✤✑➪
➶ ➹ ➘ ✝➴ ✲❍✸ ✿✠✲✓❩✲ ✿✭✒✍✗☞✓✔ ➌➛❵ ➍✝➷ ✕➬ ✂✤➮➱ ✃✦✱ ❐❒✒✱ ✩✧❑★➬❮
❰Ï ÐÑÒÓÔÕ Ö P ➺ × Ø ✠ ✪Ù✤✍✗✑✷✸ ✆✠✷ ✡✏❬✍☛✠✷✓✞ Ú✂◗ ✲❍✓ Û✑ÜÝ Þ✂❐✛✌✽■ ß✒ à✷▼ áâ➑ãâââ❮ ●ä✓ ✣❒✤➟å❑✣➟æ❑➮ ☛✝☞✌
ha
✝✪ ✘ç✓ Ú✠❩❂❍✕✳✓ ✕✳ è ■✸é✙✵
✁✂✄☎✆✝✞✟✠
ê❬✓✿➃❬✓ ✘❍✸ ✓✽✲❬✕✓✷ ✽✓✍✸✳✳✌➒ ✑✤ ➔ë❖→ ✲✝ ➔ â ì í ✮✬ ✒✧î✱ïð ñä✱ ❑ò✦✧ ✕❈ß★◗✴➟✑✬✽❋
K
✍✎✄☎✆✏✞✑✒✓
ó ❰✝ô❲✌✤õ ✓✽✘✓✒✓✔ ✕✽✮➛ ✠ ✒✸✷✓ö❯ä ✠✽✔ ✔✸❄✸❀✂✡◗✸✤✮ ❏❳÷✓✍✮ø ✲✗✓ ✍✂✳✲✷ ✂✚ ✆✗✕✍✗ ✌❚✸ ❤ ➂ù➛✆✙ ú✠û ✍✂✳✮✷
✌✒✓ Ó❩❯✏❬❬✸✔ ❫❄✓❩✈■ ✂✦✓✒ ✲❍✧ ✩✱❑★üý
þÿ×✁
n ✁✂
í➔❖ø ✔
aa
➔P ✂ ✄ ✁ í❖❖ø✕
☎ ✽ ✆ ④✓❼✘✸ ✝ ➼✓✒ ✞P✟ ✠ ✡ ✲✗✓ ✒✓✍✂☛✤✑✮Ó✂❩ ❯✒✕✘✓✒✑✠ ➂❚ ✍✠❏✑✲➃☞✌✠✮✯✂✤ ✂✪ ✔✸✦✸❀✂✡❵✓✤✮ ✍✂✳✲✷ ✠✒✸ ◗❫❛
✍ ☛❫ ❬❫✍✝❄✸✒✠➼✎❫ ✌❵✂✏✽✲✷ ✌✒✓ ✌✳ ➂✄✂❪✷ ✁ ✄☎
✏ ✑ ✒ ❫❂✓❵❢✓❬ ➔Pÿ ➺ ✖❖ø✗

s
✏ ✓ ✒ ✸✍✓❵❢✸❬ ➔❖✂➔ ìíPø✔
✡☛☞✌✍✎✏✑✒
as
✟❍✝❪ ✘ ✄ ✙ ✝❨ ✚ ✠✰✳ ❬✓✰✠✲✓✔ ✲✂ ✲✗✸ ✍✂✳✮➬ ✕✽ï➷✒✒✸✞ ß✒ ✓✠✍✗ ✝➴ ✲✗✓ ■✓✠✒✷ ✓✤✞✓✔ ✏ ➺ ✛ ✓❯✓✜➼✓✢✒ ➔❖ ✂ í ➎✞ Ö❖✣Ö✤
✡☛☞✌✆✍✎✟✏✑
➉ ✍✝❵✡✠✽➱ ✥ ✂✏✖❍✲ ✠✤ ✕✽✍✂◗✛❀✸✲✓ ✒✓✳✱✦✍✗ ❑✤✾ ✔✓❄✓✰✂✛◗✓✤✮ ✡❬✂✧✓✍✘ Ú✝◗ ★ ✂✲❍✓✒ ✍✂❵✡✌✤✩ ✪ ❚ Û✳✤
-H
✫ PP ✡✬ P ✬ ✭ ✍✮✽✳Ó✔✓❬✓✔ ✲✂ ✂ ✠ ➴✯❬ ❄✠✰❨✓ ✰ ✬✤ ➺ ➲✠✽✏✱ ➔❖ ✟ ✲ ✗✓ ✿✏✒✍❍✌✷✓ ✿❬✕❯✓ ✗☞ ➼✸✓✽

✍ ✽✠➮✩✳✸✞ ☞
✳
✴ ✄✝❪✳ ✁ ✆✝
✵ ✓✳❫✌❬✍☛ ✶ ❖❖❞✷❖
Ð✓❄❫✰✝ ✸ ✹ ✓Ô✘ ✺ ❖❖✻✔
✼✽✾✿❀❁❂❃❄ ❅❆❇❈❉❊❋●❍■ ❏❑ ▲▼◆❖ P◗❘❙❚❯❱ ❲❳ ❨❩❬❭ ❪❫❴❵❛❜ ❝❞ ❡❢❣❤✐❥❦
✵ ✓✳✓✌❬✍❍➆ ❧ ✏❶✗✓❚ ✒✓✳✧✠❚✍ä ✑✤✘✂ ✬➬➬✯♠❀✧ ◗✠✒Ý✓♥ ➊✠✷ ✍✂✤✷✑✞✓✒✓✔ ✤✓❂✓✷✷✠ ➔❖❖ø✷
nS
Ð❫⑧❫✰✝✡❵✓✽ ♦ ✶ ✽❂✏ ❚ ❫ ♣ ✓✦✓✤❀■ ✲q➠✭✖❍✂➷ñ ✲✗✧ ■✓✠✒▼ r ✄ ✒✓✍✬✖✤✑✮✑➛✤ ✍✒✑✲✓✒✕✠ ➂✒ ✍➃❏✑✲✠s✷➃✮✕➛✤ ✈✇ ❖ø✷
✠✳ ✠ ✔✓✦✓❀✂ ◗✸✽✲ t✷✓✘ ➊✓❚✓ ❡✓✮ ✂✤ ➓ ✉❱✤✸ ➔P✟ ✁
✡☛☞✌✍✎✏✑✒
✟❍✂① ✠② ✙ ✝❨ ✚ ➃✰✳ ✒✓❀✠✮✓✞ ✲✝ ✲❍✓ ✑✤③❏❳❯✓✳✳ ❚✓✷✓ö✍✗ ➃✤✔ ✔✓✦✓❀✂④◗✸✽✲ ➂✒ ➔❖ÿ ✆ ▼

K
✔✕✖✗✘✙✚✛✜✢
Ð✭❬Ó❩✖ ✘❍✓ ⑤ ✑✤✌✤❯✕✠❀ ✩✓➃✒ ➔➑â⑥ã ⑦ ❵✌✽ ❈✣

⑧ ✢❫⑨✔✓✔ ✮✂ ✓⑨✛✠✤✔ ✑✮✷ ✠✍✲✕✦✑✲✕✓✳ ✕✤ ✮✗✓ ✪⑩ ✯✽✞✭✷✲❶✵ ➵✮
❼✭✒❂❍✠✳❫✔ ✠ ✆❷✄③❸✂✆✽ ➌✠✤❯ä❹✷✸ ➂✒ ▲✳▼ ✞ ❞❺❖❖❞❖❻ ✂✤ ✺ P ➣✭✤✓ ➔❖❖❼✤ ●❍✓ ➌➃✤✍✗✑✷✓ ✯✳ ✒✸❯✂❽✤✑❾✞
✲☛✒✝❨❽❍✂✏✲ ❿➀➁ ✡✸ ✌✤✞ ⑦ ◗✌❩ ✶

Hassaan
✤❯ ✂❃✲✌✕✤✧✔ ✲✗✓ Khanani ACA
➂ ✖❍✘ ✮➛ ✭✳✸ ✲✗✸ Ú➃➄✍ä✑✷✸ ➂✒ ✠ ➃ ✒✑⑩ ✂✪ Ö❖ ✓➃✒ ✕✤
➄ ➅➆ ✽✍✓▼
✕✳ ⑩✒✝➼✠❢✰➇➈ ✲➉➊✘ ✪✏✘✭✒✓ ✓✍✂❈✝◗➋ ❢✓❩✱➌➟➬ ➊➍

Teacher who Students Have Secured
✂➊ Ú✂◗ ✲✗✸
MA
✍✗✕✷✸ ➊❍✕✍❍ ✝➴ ✲ä✓ û✂➊✑✤✖ ✳✮✠✮✸❡✓✤✲✌
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✁✂ ➎ ➏➐ ✪
consecutive Gold Medals in FAR 2

✌❬✓ ✍✝➑✓❂➒
0332 - 2468189
✁
✁✂ ✄☎✆ ✝✞✟✠☎✡☛✆ ✡☛ ✟☞✌ ✞✍ ✎✍✌✞✍✏✑✒✓✔ ✕✖☛✗✌ ✞✟✘ ✠☞☛✌ ☞✙ ✚✖✛ ✜✢✣✤✥✦✤✤✥ ✧★✩✪✫✬ ✭✮ ✯✰✱✲✳✯✴ ✵✶✷✸✹✺✻✼✽✾✿ ✺❀
❁❂❃❄❅ ❆❇❈ ❉❊❋● ✁✂✄☎ ✆
✜❍ ✄■✗ ❏✞✟✠☎✡☛✆ ❑▲▼ ◆❖P◗❘❙❚❯❱ ❲ ❳ ❨ ❩
❬❭ ❪☎✆ ❏✞✟✠❫✡❴❵ ✡☛ ✕✟ ✡❛❜✞✟❝✡✒❲✆ ❞☛✗❡ ✞❢ ✡❜ ✡☛ ✡✘❱✍✌✎❘✞❣❤❱ ✞✟✘ ☎✐ ✍✩ ❥☎❦❧✡✠▲❲ ❧♠♥❧❅♦♣qr
st ✉✈✇ ①②③④⑤⑥⑦⑧ ⑨⑩❶❷ ❸❹❺ ❻❼ ❽❾❿➀➁➂➃➄ ➅➆ ➇➈➉ ➊➋➌➍➎➏➐➑➒ ➓➔→ ➣↔ ↕➙ ➛➜➝➞➟➠➡➢ ➤➥➦ ➧➨➩➫ ➭➯➲ ➳➵➸➺ ➻➼➽➾➚➪➶➹
➘✆➴✆➷➁✗ ✝➝❽ ✡✌☛ ➬✖✆ ❜★✆❂✗➮➘✔➱ ✎✌ ✎☛ ✕✟ ▲✃❧✗❐
❒❮ ❰ÏÐÑ ÒÓÔÕÖ×ØÙ ÚÛÜ ÝÞßàáâãä åæçèéêë ìíî ïðñòó ôõö÷ø ùú ûüý þÿ✁ ✂✄☎✆✝✞✟✠ ✡☛☞✌ ✍✎✏ ✑✒✓✔✕✖ ✗✘ ✙✚ ✛✜✢✣✤
n
✁✂✄☎✆✝✞✟✠✡
✥ ✆✟➝ï ✦ ✧☞❂★➝✩✌✡☞✟ ➝✪✍❢ ✞ ❥✞✌✆✟❜ ✌☎✕❜ ☎✫ ✬ ⑨✞✭✮✯❖ñ ✞✰➝➬✍❜ ☞✱ ✁✂ ✝✞✟✠✡☛☞✌ ✲✳✴✵✶✷ q✸❁q♣✹❧ ✺❅♠❂q ➽q✹
na
✻✼✽✾ ✿❀❁❂ ❃❄❅ ❆❇❈❉ ❊❋●❍■❏ ❑▲ ▼◆❖P◗ ❘❙❚ ❯ ❱ ❲ ❳ ❨ ❩ ❬ ❭❪❫ ❴❵❛ ❜❝❞❡❢ ❣❤ ✐❥❦ ❧♠♥♦♣q rs t✉✈ ✇①②③④⑤⑥⑦ ⑧⑨⑩❶❷❸❹
❺❻❼❽❾❿➀ ➁➂➃➄➅➆ ➇➈➉➊➋➌ ➍➎ ➏➐➑➒➓➔→➣↔ ↕➙ ➛➜➝➞➟➠ ➡➢➤ ➥➦➧➨ ➩➫ ➭➯➲➳➵➸➺➻➼ ➽➾ ➚ ➪ ➶➹➘➴➷➬➮➱✃ ❐ ❒ ❮ ❰ Ï
☛☞✌✍✎✏✑✒✓✔
ha
❪æ❱ ➮ Ð ☞ Ñ ✡❺ñ ÒÓ ÔÕÖ ×ØÙÚÛÜÝÞß ➝✙ ✞ ï❵✠➹✍✃❱ ☞✒❜✬✎✟✆✘ ✒à á ❤ ❧ æ✞ â ❽✡✌✆✘ ➮❂ ✰✞ã✡✍ñ ✞✟✘ ☛q ä ✎✍ñ ▲ åæ
❢✬➴✎✟✏ çç➁ñè
éê ④✆✟ ✟ ✗ ✠☞✖❡ ëì ❬➍➍❳➐➍➐
í ➨☞ î ✡☛▲✌✡☞✟ ïðñò ó ô õö÷øùúûü ý➍➐þ ❬③➪✇✜✢❒➍➍
K
ÿ✁✂✄☎ ✆✝✞✟✠✡☛ ☞✱ ❜☎✔ ☞✌✗✍❢❱ ë ✍✆✞❂☛
✎✏✑✒✓✔✕✖✗✘✙ ✚✛ ✜ ✢ ✣✤✥✦✧★ ✩✪✫✬✭ ✮✯✰✱✲✳✴✵✶✷ ✸✹ ✺✻✼✽✾✿❀❁❂ ❃ ❄❅❆❇❈❉❊❋●❍ ■❏❑▲ ▼◆❖P◗❘❙❚❯❱ ❲❳❨❩ ❬❭❪❫ ❴❵❛
☞✙ ❧❜✘✝✠❝ ❞☛ ✕ ✠☞✟✖✆❡➬✗✟➝✗ ☞✱ ❜☎✡✖ ❳ ❡æ❱ ❥❢✘❣✠❜ ❤✐ ❤✎ ✐ ✗➄ ❥☞➨ ❜æ✆ ❽✕❂❦❱✌ ✕❛✘ ✠➝➨❧✞✍✍ ➄✆✠✎ ç ✆✘ ✌➝ ☛✌☞♠
✌☎✆ ✖✞❲✗ ☞✙ ✌æ✡☛ ã✎✍✘ ➝✙ ✘♥ñ✛
✁✂✄☎✆✝✞✟✠
♦♣qrst✉ ✈✇ ①② ③④⑤⑥⑦⑧⑨ ⑩❶ ❷❸❹❺❻ ❼❽❾ ❿➀➁➂ ➃➄➅➆➇➈➉ ➊➋ ➌➍➎ ➏➐➑➒ ➓➔ →➣↔↕➙➛➜ ➝➞ ➟➠➡➢➤➥➦➧➨➩ ➫➭➯➲➳
n
aa
✕✂✄✖✆✝✞✗✠ ✁ ✂
➵✗❂☛æ✪✎✟ ➸➝➺✩✌✑☞✟ ☞✒❜✞❵✍✆✘ ✞ ✝✞✟➝■✎❢❱ ❏☞➨ ➻☞✍✎✠ ➼❱➽✗æ☞➾ ➚✍✠è ➪❂ ✕ ✠✫æ ★✬à➶✆✍❜ ➝✱ ➹❢✛ ✇ ✜➐ ➘ ➐➍➐
➝✟ ❞❧ ç✎❲ ➴ ✢ ✜ ➐ ❱ ➐ ✛ ❪☎✗ ❏✞✍♣☎✎✖✗ ➷❷➬✌☛ ➵❱➮æ❤❵❖ ✌á❱ ➱öæ✌ ❜☞ ❢✗✃ ➝❱❐✎✟ ❧❢✘➁✠✌➀ ❒➄ ❢❱❂❙✡✠✆☛ ✑❂ ✞ ❮ ✗❂✑ ❰
s
➝✱ ë ✍❱Ï☛✛ ⑧❂✗❥✞❂✗ ➵✗❂❢æ❤✡❖Ð✖ ❞❧➘✡ Ñ Ò Ó☞➬Ô✕❤ ❱✍✌➣ ✬✍➄ Õ❱➝✗➨Ö➘ ❬ ① ✞➄Ó➁❢✌✎×ö ❱Ø❖Ù✛
as
✘✙✚✛✜✢✣✤✥✦✧
ÚÛ ÜÝÞßàáâãä å æ çèéêë ìíîïðñ òóôõö÷øùúûü ýþÿ✁✂✄☎✆ ✝✞✟✠✡☛ ☞✌✍✎✏✑✒✓✔✕✖ ✗✘ ✙ ✚✛✜✢ ✣✤✥✦✧★✩ ✪✫ ✬✭✮
✯➍➍❳➐➍➐è í❜ ✌☎✆ ❡✎✰✆ ☞✱ ❥➬ç➝☎✞❢✆✢ ✌☎✆ ✱❵❂ ➴✞❲➬❱ ☞✱ ✟❱✌ ✫✖❱❜❢ ✎✖ ✲✳✴ ✵✶✷✸✹✺✻✼ ✽✾✿❀❁❂❃ ❜æ✗ ✬❽➝➁✟✌ ➝✱
ñ☞☞✘✪✡ä ✕⑨ ❡ ➁ ê ❂✆✘ ✒❦ ❄ ✡✍▲✍❢✛

-H
★✩✪✫✬✭✮✯✰✱✲
❅✞ç➣ ❆✮❂✘✢ ❇✟➝è ✖❧❱✟✌ ➹❢✛ ✵ë↔➍✤➍ ✫ ç✆ñ✎❢❜❂✞❜✎☞✍ ❈✗☛ ❤ ☎ ✡ ó ✗ ✘✗❙❱✶☞❧ú➷ñ ❡❫❱ ❜❂▲➄✗ ✟✕❽✗ ☞✙ ✎❜☛ ✟❱❉ ❧❢✘➁✠❜✢
✌☎✆ ❊✔✞✟ ❋✆✞✟✛ ●➘✆❧✞➘❱ ✌☎✗ ❍ ☞➁ ■ ✕ ❏ ❱❛❜❂✎✆❢ ❜☞ ❂❱⑨☞❂✘ ❜æ❱ ✚➀✛ ❑▲➏❩▼ ✗◆★❱✟✘✡❡❖✆ ✞✍ç ✌☎✗ ❘P❜ ➋❱✞❂Ð☛
✕➨☞ ◗ ✡ ❘✬ ✌✡➝➷ ❳ ➁☛✡✟✏ ✞✍ ë❙✍✆✞❂ ❚ ❯ ❱ ❲

nS
✳✴✵✶✷✸✹✺✻✼
❳➽ ❨➫❅➵✹❩ ❬ ✳ ❈q ❭ q➺✩ ❪ ✡✍ ❫ ✢ ✟➹❤ ❁ ❢ ❈➁✠✌✡☞✍ ❧❂❴✗❢☛è Õ➬➘✡❖✏ ✜ ❵ ❒➏ ❛❜❝❞❡❢❣❤✐❥❦ ❧♠♥♦♣qrs t✉ ➹☛✛ ❱✈ ➐ ➐ ➍ ✇ ➝✱
✪ ★ ① ♣ ② ③❧❩ ④✤✤ ➳✕✃ ✑✍➝➬⑤❱➄ ⑥❱➮ç✆ ➴ Õ✗➝❱✰❣❱❂ ✜❵⑦ ✬✍➄ ✄✂ ⑧ ➍➍ ✪✐ ✎✟✠⑨✆✘ ⑩❶❱❱❛ ✁ Õ✆✠✆❽❷✔❂
✙✥✥❸ ❷➽✬ ❹ ❺ ❻➹♣➹❼♥q✓ ý➍➍❽è ❪æ✆ ✆✟✌✎❜❦ ✎✖ ▲✒❤❾ ❜❿ ➄➤➨☞✍❢✌➘✞❜❱ ❜æ✬✌✇ ✞✌ ➴ Õ❱✠✆➀❣✆➘ ✜➍➍❒✇ ❡æ✔ ➁❜✘➁✠✌✎☞✍
K
➂➃♣➹❧❧ ❼➄✹ ➶★q ♣✓❬❅q➘➵✢ ➮❂ ➘✗✠☞ö✟✎❡➅☞❛ ✬☛ ✬✍ ✎✍❜❒✏✎❣❤❱ ✐☛✆➆
➇➈➉ ✵✲ ➊ ➋➌➌➍➎ ✮✰❪✮➫✹❬✹✪✓q ❬➽➏♠➐q✬ ✡➀ ➇✖✛ ❐➋➐➍➍➑ í✌ ❜á❱ ✆✍✘ ☞✱ ✜➐➍❑➒ ❜æ✆ ❂➤➓☞❙❱✩❣✶✆ ✞❽➝➬✍✌ Ó➔ ✌æ✆ →☞✪➣
↔↕➙ ✽➛➜➝➞✵✽✹ ✵ ➟ ➠↔✮ ➡➢➤➥➦✳ ➧ ➽ ➨ ✪❈ ê ➫ ➩ ➫♠✹➬✓✗ ✠✞✖æ ➝➬❜➭☞➯✖ ✌☞ ✠☞✰❧❤✗✌✆ ❯☎✔ ➲❂➳✆❢☛ ✒❱➮➵✆ ✡❜ ✎❢ ✕➴Ð✡ó✞✒❲✆
➸➺ ➻➼➽➾ ➚➪ ➶➹➘➴➷➬➮➱✃ ❐❒ ❮ ❰ÏÐ ÑÒÓÔÕÖ

Hassaan Khanani ACA
✡☛☞✌✍✎✏✑✒
❻ ✡❧♣✪✖☛ ✌☎✗ ✞✠➝➝➁✟❜✡✟ñ ✌❂✗✞❡➨✆✍❝ consecutive Gold Medals in FAR 2 Page 70 of 390
0332 - 2468189
✁✂✄☎✆✝✞✟✠✡☛
✁✂✄ ✁✂ ☎✆✝✂✞✟✠✡☛ ✁ ✄ ☞✌✍✎ ✏✠✑✒✓✔ ☎ ✕✖✡✗✖✡ ✘✝ ✙✚✛ ✆ ✝✞✟✞✞✞✠ ✜✞✄ ✂✢✣✤✟✥✦ ✄✧★✡✂✩✪ ✫✬ ✝✌✥✌✭ ✮✑✄ ✯✰✖✌✥✱✌ ✍✮
✲✳✴ ✵✶✷ ✁✂ ✸✹✺ ✁ ✻✼✽✾ ✿❀❁❂❃❄ ❅❆ ❇ ❈❉❊❋● ✂ ❍■❏❑▲▼ ◆❖P ◗❘❙❚❯❱❲❳❨❩ ❬❭❪ ❫❴❵❛❜❝❞❡❢ ❣❤✐❥ ❦❧♠♥ ♦ ♣ q r st✉✈✇①②③ ④⑤⑥
⑦✕✖✡✓✂⑧ ⑨⑩ ❶❷⑧ ❸❹❺ ❻ ❼
✁✂✄☎✆✝✞✟✠
❽✒✪✖❾✪✠ ✲✞✄ ✗✆❿➀✡✝ ✢➁ ➂✡✍✎➃ ⑩➄✄✝ ➅✞➆✖➇ ➈➉➊ ➋✒❷➊➌➍⑧ ➃✞➎➏r➐ ➑⑧ ✟✣➒➓✲➆✠✌☛➔ ✍✪✠→❿✒✓➣ ✩❬✍✩ ✩✑✌ ✖✢✪✩✪
↔✪✪✢✖↕✟✮✄☛ ➅♣✩✞ ✮✑✄ ✎✌✓✄✭✟r ✕ ✠ ➙
➛ ✛ ➜➃✛ ✡ ☛ ☞ ✌ ➝➞
n
✁✂ ➟➠➡ ✍✎✏✑✒✓✔
na
☞✌✍✎✏✑✒✓✔✕✖
➢➒➤✢ ✞➥✪➦ ➧✝ ❿✟✗♥ ♥✡✍✝✪➨ ➩✍✥✆➫✖✮✆✎✌☛ ✍ ➭⑩➯✞✆➲ ☛✝✒✓➳ ➍✍➵✌➸ ➺➻✢➼✉➽✢✔➾➚ ✜❬➪✪ ➀✎➶➹☛ ②✟✣✡ ➅✟✪
✢✝✒✈✕✓✟➘♥ ↔✂➴→➆✝✡☛ ➷✢✣ ✟ ✖✢❿✤✌⑨✕⑨⑩➬ ✜✑➊ ❷⑩✚✮ ➮➁ ➱❷✃➏✕❐✰➈✰⑩✓ ✭➶➃ ❒✠➚ ✕✞✞✖✞✞✞✗ ❮✞✒✖✞ ✭✟✠ ➸→❰➂
ÏÐÑÒÓÔÕÖ×ØÙÚ ÛÜ ÝÞßàáâãäåæç èéê ëìíî ïðñòóôõ ö÷øùú ûüý þÿ✁✂✄ ☎✆✝ ✞✟✠✡☛☞ ✁✂ ✌✍✎✏✑ ✒✓✔ ✕✖ ✗✘✙ ✚✛✜✢ ✣✤
ha
✥✦✧★✩✪✫✬✭✮✯✰✱✲✳ ✴✵ ✶✷✸✹ ✺✻✼✽✾ ✿❀❁❂❃ ❄❅❆ ❇❈ ❉❊❋●❍■❏❑▲▼ ◆❖P◗ ❘❙❚❯❱❲ ❳❨ ❩❬❭❪ ❫ ❴ ❵ ❛ ❜ ❝ ❞ ❡ ❢ ❣❤✐❥❦❧♠♥♦
✁ ✂
♣ q r s t ✉✈ ✇①②③④⑤⑥ ⑦⑧⑨⑩❶ ❷❸ ❹❺❻❼❽❾ ❿➀➁➂➃➄ ➅➆➇➈ ➉➊➋➌➍➎ ➏➐➑ ➒➓➔→➣↔↕➙➛ ➜➝➞➟➠➡➢➤➥➦ ➧➨➩➫ ➭➯➲➳ ➵➸➺➻➼➽➾➚
×✆➪➪✄×✮✌☛ ✮➶↔✮ ✮✞✄ ➹rr ✕✓ ✪✟❰✌✪ ➅✟✠ ☛✆✡ ✩✢ ✢✆✲☛✍✩➊➸ ➅➘✓➸ ✥✍❿✄➚ ✜✑✌ ✪❾➼✔✌✪✮✒✢✥ ✭✟✪ ✽✖✂✌➴✩✡➸ ✟✥☛ ✮✞✌
☛ ✝ ♣ ✗ ➷ ➅↔✪ ✎✄✉✯➶→✥✖✑✡☛ ➬➮ ➱ ✃ ❐ ❒ ❮ ❰ Ï Ð Ñ Ò Ó Ô Õ Ö× ✖✢✚✩ ➮Ø ✝➊✉✯➱Ù✥✖✞✕✓ó ✮✑⑧ ☛ ✝ á ✓ ❜ ✖✟✣✌ ✮Ú ➜✚Û ✘✙✚✖✞✝✝ ✍✓➸ ✭✽✠
K
ÜÝÞßàáâãäåæ çè é ê ë ì í î ï ð ñ ò ó ôõö÷ø ùúûü ýþÿ✁✂ ✄☎ ✆✝✞ ✟✠✡☛☞✌✍✎ ✏✑✒✓ ✔✕✖✗✘ ✙✚✛✜✢ ✣✤✥ ✦✧★✩✪✫✬✭
✜✞✵ ✮✝✄❙↕➒✆✪ ➀➘✥Ù ✯✰✱✲✳ ✴✵✶✷✸✹✺✻✼✽ ✾✿❀ ✟ ✖✽✎✝❍✒✥ó ñ✣➎❁✥➈ ⑩➁ ✙✚➚ ✛✞✞✖✝✝✝✖ ❮✍✠ ✄❂✤✌✓✪✌☛ ✒✥ ➁✆❃ ✒② ✮❬✡
an
❄❅❆❇❈❉❊ ❋●❍■ ❏❑▲▼◆ ✁ ✂ ❖P◗❘❙❚❯❱ ✜✢✣✤
✡☛☞✌✍✎✏✑✒
❲ ❳ ❨ ❩ ❬ ❭ ❪ ❫ ❴ ❵ ❛❜❝❞❡❢❣ ❤✐❥ ❦❧♠♥♦ ♣qrst✉ ✈ ✇ ① ② ③ ④ ⑤ ⑥ ⑦ ⑧⑨⑩❶❷❸❹ ❺❻❼❽ ❾❿➀➁➂➃➄➅➆ ➇➈ ➉➊➋➌➍➎➏ ➐➑ ➒➓➔→➣↔↕➙➛ ➜➝➞ ➟➠➡➢➤➥➦➧➨➩
sa
➫✢✆✝ ✟☛♥✕✖✄ ➅✒✮✑ ✝✡➭✝ú✥✂✄ ✮✢ ➯✥✩✌➲✟✮✒✢✓✽➋ ➳✕✓✟➈❷✕➵➸ ➺✌➻⑩➲✰✥➼ ➼✩✟✓➸✍✝Ù✪✛
✗✘✙✚✛✜✢✣✤✥✦
➽➾➚➪➶➹➘➴ ➷➬➮➱✃❐❒❮❰ ÏÐÑÒÓÔÕÖ ×✥❙✢✯➄Ø➃ ➈✑✡ ➀⑩ÙÚÛ➯ ✟②➸ ❹✒✪✩✝✒➀→✮➪✢② ✢✈ ➥ Ü✕☛✄ ❙✟✝✒✌✮♥ ➒➁ ✖✟✝➀✢✥✽✩✌➸ ✪✢Ý
as
Ù ✝✒ ✓ ➳✠ ✛ Þßàá âãäåæç èéê ë✌❙✡rì➞➊Ù ÷➌í⑧îïð❍ñ ✭➉✒✯✪◆ ⑩✮✑✡✝ ➀ò✥☛✠ ✟✝✄ ✤→✎✂❬❭✠✌☛➚ ✜✑✌ ❅❃✢✭➪✥✈
óôõö÷øùúûü ýþ ÿ✁✂✄☎✆✝✞ ✟✠ ✡☛☞ ✌✍✎✏✑✒✓✔ ✕✖ ✗✘ ✙✚✛✜ ✢✣✤✥✦ ✥✦ ✧★✩ ✧★✩✪
✁✂✄☎✆✝
-H
✪ ✫✬ ✁ ✭ ✮ ✯ ✰ ✱ ✫✬✭✮✯ ✲✳✴✵✶✷✸✹ ✺✻✼✽✾✿❀❁ ✁✂ ❂❃❄❅ ❆❇❈❉❊ ❋●❍■❏❑ ▲▼◆❖P ✄☎✆ ◗❘❙ ✰✱✲✳✴✵✶✷✸✹
✪ ❚✓ ✟☛Ù✕✩❂➒✓ ✲✢ ✩✞✕✪➔ ➟✪➚ ✺ ✻ ✙ ✖ ✝ ✝ ✞ ➅✟✪ ✪➻✌✥✩ ✢✓ ✯✡❯✍r ❱✌✪ ✩Ú ✪✄✂➠✝✌ ✩✑✌ ➓↕❲✞✮ ✩✢ ❳❨❩ ❬❭❪❫ ❴❵❛❜❝❞
❡ ❢❣❤ ✐❥ ❦❧♠ ♥♦♣ qrst ✉✈✇①②③④⑤⑥⑦ ⑧⑨⑩❶❷ ❸❹❺ ❻❼❽❾❿ ➀➁➂➃➄➅➆➇➈➉ ➊➋➌➍ ➎➏➐➑➒➓➔ →➣ ↔↕➙➛➜➝ ➞➟➠➡➢➤➥➦➧ ➨➩➫➭➯➲➳➵
✮✢✢❜ ✤⑦✍✂❾ ☛ ✆ ➓ ✕ ✓ ✔ ✭➸✝✒✯ ✜✞★✄✪ ✜✑✡ ✮✢✩✟✯ ✂⑩✪✩ ✢✈ ✩✝↔✒✥✒②② ✰ ✠ ✙✠➚ ✼✽✾✿❀❁❂❃
➺ ➻➼➽➾➚ ➪➶ ➹➘➴➷➬ ➮➱✃❐❒❮ ❰ÏÐÑÒÓÔÕÖ ×Ø ✝ ✞ ÙÚÛ ❄❅❆❇❈
Ü ÝÞß àáâãä åæçèé êëì íî ïðñòóôõö÷ øùúûü ý þ ÿ ✁✂ ❉ ❊ ✄☎✆✝✞

nS
✧★✩✪✫✬✭✮
✟✠ ✡ ☛☞ ✌ ✍ ✎✏ ✑ ✒✓✔✕✖✗✘✙✚✛✜✢✣ ✤✥✦✧ ★✩ ✪✫✬ ✭✮✯✰✱ ✲✳✴ ✵✶✷✸ ✹✺✻✼✽✾✿❀❁ ❂❃❄❅❆❇❈❉❊❋ ●❍ ■❏❑▲▼◆❖P◗ ❘❙❚ ❯❱❲ ❳❨❩ ❬ ❭❪❫
❴❵❛❜❝❞❡❢ ❣❤✐ ❥❦❧♠♥ ♦♣qrst ✉✈✇ ①② ③④ ⑤⑥⑦⑧⑨⑩ ❶❷❸❹ ❺❻❼❽❾❿➀ ➁➂ ➃➄➅➆➇➈➉ ➊➋ ➌➍➎ ➏➐➑➒➓➔→➣↔ ↕➙ ➛➜➝➞➟➠➡ ❋●❍■ ➢➤➥
K
✕☛✄✟ ➧➓ ✮✞✕➦ ❿✌➧ ✤✝Ú➸✆✂✮ ➅✟✠ r✟✆✓✖✑✄☛➨ ✟✥☛ ✟ ✯✢✍✓ ✢➁ ➜✪➚ ➩ ❿ ✰ ❃ ✰ ✢ ✓ ✭✍✪ ➒➀✲➶✕✓✌➸ ✮✢ ✏✓✍✓✂❾ ✮✑✒✪ ✮➫➭❾✖➯
➲⑦➳➵ ➸➺➻➼➽➾➚➪➶ ☎ ✖✢✪✮✪ ✁✢✝ ✮ ✄ ✌ ➤✌✟✝ ➹➘ ✄ ➴ ✄ ☎ ✆ ✝ ✽➫ ✜✞✭✙ ✽✝✡ ✍✪ ✁✢ ✂ ✢✭✪➙
✞✟✠☎ ✡☛☞✌✍✆ ✎✏ ✑✒☞✓✔✕☞✖ ✗✘✙✚✛✜✢✣✤✥✦
✧✍✎❒✌✩ ✠❾✝➷✌✌✪ ✮Ú ✌✪✩✍➀r➬✪❖

Hassaan ❮❬✌✩✑✌✎
Khanani ACA ✢✝ ✥✢✩ ✖✢✓✠✆❿✌✝✠ ❮✢→✯➸
❏❑▲▼◆❖P◗❘❙ ❚ ❯ ❱ ❲ ❳ ❨ ❩ ❬ ❭ ❪ ❫ ➜✪◗ ✘✞❴❵❵✞
Teacher
➅✽✥✩ ✪✆✖✞ ✽ ✂✟✥ who Students Have Secured MA
✝ ✁ ▲✞❛▲✜✝★❫ ❜ ✂ ✄▲✞❝▲✜✞✭✘ ➮➱✃❐❒❮❰ÏÐÑ
consecutive Gold Medals in FAR 2
ÒÓ Ô ÕÖ×ØÙÚ ÛÜ ÝÞßàáâãäåæç èéêëìíî
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ïðñ ❞❡❢❣❤✐
0332 - 2468189
✘✙✚✛✜✢ ✛✚ ✣✤✥✦✧★ ✩✪✫ ✧✪✬✛✪✧✙✭✦ ✮✭✯✘✰✣✙ ✱ ✲✳✱★ ✴✵✶✷
✁✂✄☎✆✝✞✟✠✡
✸ ✹ ✫ ✛ ✣ ✺ ✻ ✧ ✦ ✼✽✺✾ ✛✿ ✛✦ ✼ ✧ ❀ ✤ ✪ ✛ ✣ ✱ ❁ ❂ ❃❄❅✣❆ ✣✱✪❇
✁✂✄☎✂✆✝✞✟✠✡☛☞☎☛✂✌✞✍ ❈✧❉✛❊★ ✺ ✢ ❄ ✣✥✢✦✻❋✣●✛❍✪ ✥■✺ ❏✛❑✥✻ ▲✺★▼◆✣✿❅❖P✢✬ ◗❑✺✪✻
n
☛☞✌✍✎✏✑✒✓✔ ✕ ✎✏✑✒✓✔✕✖✗ ❘❙✪✼
na
❚✵✧ ▲✱✭❯✧✻ ✦▼✭❱✙❲✦ ❉❅❳✬✧✦✻✙✘ ✻✤✺✻ ✼✤✧❖✧ ✛✚ ✱ ▲✺✭❨✧✻ ❩✭ ✻✤✧ ✣ ✺ ✢ ❬
❭❪✙★❀✵✙✭ ✤✱✦ ❫ ❏ ❴ ❵ ✛ ✙ ✘ ✻✥ ❖✙❊✶❉✻✙❖ ✼✤✧ ❛ ❑ ✛ ❏ ✼ ✥ ❜ ❀❫✪ ✱❉ ✱ ✮✱✻✙✪❝
✁✂✄☎✆✝✞✟✠
ha
❞❡ ❢❣❤ ✐❥❦ ✁✂✄☎✆✝✞✟✠✡ ☛☞✌✍✎✏✑ ❧♠♥♦♣q rs ✒✓✔✕✖✗✘✙✚✛ ✜✢✣✤✥ t✉ ✈✇① ②③④⑤⑥⑦⑧⑨⑩❶❷❸ ❹❺❻❼❽❾❿➀➁➂➃ ➄➅➆➇➈ ➉➊➋➌➍➎➏
➐✵❲➑➒❀✱❵ ✚▼➓✦✿✱★✣✙➔→ ➣
↔↕➙➛➜➝➞➟ ➠➡➢➤ ➥➦➧➨➩➫➭➯ ➲➳➵ ➸➺➻➼ ➽➾➚➪➶➹➘➴➷ ➬➮ ➱✃❐ ❒❮❰ ✦✧★✩✪✫✬✭✮✯ ✰✱✲✳✴✵✶
✁✂ ✴✤❆ÏÐÑÒ Ó✵Ñ ÔÕÖ❆Ñ ×Ø✪❄ ✣✺✪ ➓✧ ❖✧✣✥❳✪✛Ù✧❄ ❫✦ ✺★ ✛ ✪ ✼ ✺ ✪ ✬ ✶ ➓ ❷ ✧ ✺❉❉✧✼
K
➡ÚÛ Ü✤Ñ ÝÞ❖✭Ñ✷Ï ❙✷✷Þß✪✻✶✪à ●❖á✺✻▲✧✢✼ â✭ ✱✳❘ ãäå✧✧ ✣✥✦✻❉ ✛★ æ❅✧✪✣✤✧✭ç✦ ♥★✱è✣↕✱✳ ❉✿✱✻✧é✙★✻❉ êë
✿✤✧ ì❆❫✭ ✧★✘✧❄ ✡ í îïð ñòóôõ
✁✂ ✄☎✆ ✝ ✞ ✟ ✷✸✹✺✻✼✽✾✿❀ ❁❂❃❄❅❆❇ ö÷øùúûü ✡☛☞✌✍✎✏✑ ýþÿ ✒✓✔✕✖✗✘✙✚✛✜ ✁✂ ✄ ☎ ✆ ✝ ✞ ✟ ✠
✢✣✤✥✦✧★✩✪ ✡☛ ☞✌✍✎✏✑✒✓ ✔✕✖ ✗✘✙✚✛✜✢ ✣✤✥✦✧★✩✪✫✬✭✮✯ ✰✱✲✳✴✵✶✷✸ ✹✺✻✼ ✁✂ ✽✾✿❀❁❂❃❄ ❅❆ ❇ ❈ ❉ ❊ ❋ ● ❍ ■❏❑
an
✚✣✶Ñ★✻➒♥❀ ✥❖ ✻✧✣✵★ ▲ ✣✺❵ ❯★✥➸❘✧✘❊á ▼ ✪✘ ◆❖P◗❘❙❚❯❱❲❳❨❩
✫✬✭✮✯✰✱✲✳✤✴✵ ✡❬ ÏÐÑ ✙✗✗ ❷ ➡ ✷ ✙ Ï ✛ Þ ✪ ❭❪ ✭✧ ❬ ✧✺✭✣✤ ❫✪✘✛✪✬✦ ✥✭ ✥✼✤✧✭ ✶ ★❍ ❴ ❷♠✘ ❵❛ ✼✥ ❞ ❜ ❵r★ ❍✭ ✘♠❉➡ ❝ ✪ ✄✭ ✻✤✙
❞❡❢❣❤✐❥❦❧♠ ♥♦ ♣qr st ✉ ✈ ✇ ①② ③ ④ ⑤⑥ ⑦ ⑧ ⑨⑩ ❶❷❸❹❺❻❼❽ ❾❿➀➁➂➃➄➅➆➇ ➈➉➊➋➌➍➎➏ ➐➑➒➓➔→➣↔↕ ➙➛➜➝➞➟➠ ➡➢ ➤➥➦➧➨➩➫➭ ➯➲➳➵➸
Ï✵✧ ✚✼✱➺ ➻■ ✣✥❽➟✧✭❀✛✱✳ ✲➼✘▼➌✻✛✥✢ ➽➾ ➚ ➪ ➶ ➹ ➘

sa
➴✡① Ý ß ❬ ✚ ➯ ➸ÚÜÐ ÒÑ ➷ ✭❆✪✷ ➬ ÓÞ ➱➮➱ ✃ ❐ ❒ ❈❉❊❋●❍■❏❑▲ ▼◆❖P◗❘❙ ✿✤✧ ✣❍❖✭✧✣✼ ✱ ✣ ➌ ✥ ❅ ✢ ✼ ✛ ✪ ❮ ✻✭✙❞✻▲✙✪✼ ❩✭ ❫❰ Ï✵✙ ✣✯➑✿✦
✡ ✪Ýß t ÒÑ ✖ ✡✕ Ò ❆ ✳ ✒ ➻ ✛ Þ ✪ ✿Þ ✼✤✙ ❛ ❘ ❶ ✲ ✼ ✥ ✲ ✣✺✪ Ð❖ ✻✤✙ ð✙✩✭ ✙✪✘✧✘ ✡ ☛ Ñ✱ð Ò ☎ ó ✗ ❬

as
✖✗✘✙✚✛✜✢✣✤✥
ÙÚ Û Ü ä Ý Þ ✠ Ü Û ✒ß ❆ßÏ✡Ïà ✚Ó áâ ❆ ✖ ✭❆✚Ñ✺✭ ➌ ✽ Þ✪ ✩ ✲➼ã✧➌✿ ✼❍ ➓▼✛❵✘ ✺ ✄ ✭ ▲ ❪ ❘ ✺ õ ä✢ Ô ☛ ✠ ☎ ☛ ä ✄ Ø ✘♠ ❻ ♠❘✯ ❜ ❽✙★✻ ❜✵❞➅✙
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Hassaan Khanani ACA
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➏➐ ➑➒➓➔→➣↔ ↕➙➛➜➝➞➟ ➠➡➢➤➥ ➦➧➨➩➫➭➯➲ ➳➵ ➸➺ ➻➼➽➾ ➚➪➶➹➘ ➴➷➬➮➱✃❐❒ ❮ ❰ Ï Ð Ñ Ò Ó Ô Õ Ö × Ø Ù ÚÛÜ Ý Þ ß à á

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ICAP Past Papers
Spring 2012
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Autumn 2013
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Spring 2013 an
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Hassaan Khanani ACA

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Last day revision
Autumn 16 L.O: Study text format of IAS 38
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Autumn 15 LO: Tangible asset depreciation can be capitalized in intangible asset cost
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Spring 18 L.O: 1. IAS 8 with IAS 38
2. Any cost directly attributable even those not incremental
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Hassaan Khanani ACA

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Past Papers
Autumn 2018
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Hassaan Khanani ACA

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Autumn 2019 L.O: 1. IAS38 with impairment and IAS23 2. 2 Software can be used in parallel
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Hassaan Khanani ACA

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Autumn 2020
Q.6 Qabil Limited (QL) is in process of finalizing its financial statements for the year ended
31 December 2019. Following information pertains to QL’s intangible assets:
(i) Intangible assets as at 31 December 2018 were as follows:
Product ERP
design software
---- Rs. in million ----
Cost 750 200
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Accumulated amortization / impairment 75 80
------- Years -------
Useful life 10 8
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(ii) Cost incurred on development of product design was capitalised in 2018. The
competition for the product is increasing. QL has estimated the following net cash
inflows from the product:
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Year 2020 2021 2022 2023 2024 2025 & onwards
Net cash inflows
190 170 140 100 80 Nil
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(Rs. in million)
Pre-tax and post-tax discount rates are 12% and 10% respectively.
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(iii) On 1 January 2019, QL entered into an agreement to replace existing ERP software
with a new ERP software at a cost of Rs. 360 million. According to the agreement, 40%
payment was made on signing of the contract while the remaining amount was paid
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evenly over customization and installation period which completed on

31 October 2019.
The entire cost of project was financed through a running finance from Honehaar Bank
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at mark- up of 15% per annum. The software became operational on 1 November 2019.
QL expects to use it for a period of 9 years.
The existing ERP software will be continued till 31 December 2020.
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(iv) On 1 January 2019, QL acquired a licence for Rs. 600 million for a period of 5 years.
QL made an initial payment of Rs. 100 million and the remaining amount will be paid
in two equal instalments on 1 January 2020 and 2021. Cash price equivalent of the
license is Rs. 520 million.
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On expiry of 5 years, the license is renewable for further five years at an insignificant
cost of Rs. 15 million. QL intends to renew the license and sell it at the end of 8th year.
In the absence of any active market, QL has estimated that residual value of the license
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would be Rs. 80 million and Rs. 60 million at the end of 8th year and 10th year
respectively.
Required:
Prepare a note on ‘Intangible assets’ for inclusion in QL’s financial statements for the
year ended 31 December 2019 in accordance with the requirements of IFRSs. (15)
Hassaan Khanani ACA

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Spring 2020
Q.7 The following balances have been extracted from the trial balance of Mint Lemonade Limited
(MLL) as at 31 December 2019:
Rs. in million
Trade receivables 1,200
Capital work in progress 910
Allowance for bad debts as on 1 January 2019 44
Sales 2,500
Cost of goods sold 1,320
Research and development 180
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Dividend receivable 10
Administrative expenses 302
Selling and distribution expenses 200
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Finance cost 48
Dividend income 30
Capital gain 50
Other income 36
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While finalizing the financial statements of MLL, the following issues have been noted:
(i) Trade receivables include a balance of Rs. 40 million which needs to be written off. MLL
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maintains a provision for doubtful debts at 5% of trade receivables.
As per tax laws, only write offs are allowed as deduction.
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(ii) Capital work in progress includes interest cost of Rs. 84 million on specifically acquired
bank loan during the year. However, interest of Rs. 16 million earned by investing
surplus funds available from the bank loan has been included in other income.
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As per tax laws, borrowing costs are allowed when incurred.

(iii) Research and development represents cost incurred for a new product started on
1 February 2019. The recognition criteria for capitalization of internally generated
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intangible asset was met on 1 May 2019. The product was launched on 31 October 2019.
It is estimated that the useful life of this new product will be 5 years. It may be assumed
that all costs accrued evenly over the period.
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Research and development cost is allowed as tax deduction over 10 years.

(iv) Tax depreciation for the year ended 31 December 2019 exceeded accounting
depreciation already recorded in books, by Rs. 200 million.
(v) Office building of ML had net book value of Rs. 900 million on 31 December 2018 with
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remaining useful life of 12 years. During 2019, MLL decided to opt revaluation model
for its building. Consequently, fair value of building at start of 2019 was determined at
Rs. 1,200 million. Such revaluation has not yet been accounted for. Depreciation on
office building under cost model has already been recorded in the books.
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Revaluation does not affect taxable profit.

(vi) Capital gain is exempt from tax. Dividend was taxable on receipt basis at 15% in 2019.
However, with effect from 1 January 2020, dividend received would be taxable at 20%.
(vii) Applicable tax rate is 32% except stated otherwise.
Required:
(a) Prepare MLL’s statement of profit or loss and other comprehensive income for the year
ended 31 December 2019. (08)
(b) Prepare note on taxation for inclusion in MLL’s financial statements for the year ended
31 December 2019 including a reconciliation to explain the relationship between tax
Hassaan Khanani ACA
expense and accounting profit.
Teacher who Students Have Secured MA (12)
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Spring 2021
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Autumn 2021
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Q.l Ajwa Limited. (AL) is engaged in the business of manufacturing and. traci;ng of consumet"
good.s. On 1 July 202-1, .4.1. launched. its own website for ontine sale of its prod.ucts. The
website v.-as developed internally which met the criteria for recognition as an intangible asset
on 1 May 2021. Directly attributable costs incurred for the website are as follows:
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''lncuned i:a 2021 Rs. Ul mil.lion
Defining hard.ware and software specifications January to March 0.5
Salaries and general ove."Ueads Januarv to June 6.0
Development of the content Mayro June 7.0
RePistei.n,P u"l!'bsite with search e--=...es June 1.0
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Am:i.ual fees for website hosci.ne: June 0.6
Emolovees tra.inin.e costs June toJulv 1.5
Discount offers for loc,e:...e on the website Julv to Au-•st 2.0
*All costs 'Wt'U ,.ncurred nvnly throughottl thr mntb'o,ud p,nod.
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Required:
Compute the cost of the webs�te forHassaan
initial mea.su!ement.
Khanani ACAAlso d!Scuss the reason(s) for not
inclusion of any of the above costs io
Teacher whotheStudents
computation.
Have Secured MA (Oi)
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[ICAP Summer 2019 Q.2 (i)]
Q.12. Fiji Limited (FL) is involved in the manufacturing and trading of consumer goods. The following
transactions/events have occurred during 2018.
On 1 October 2018, FL launched its own website for online sale of its products. The website’s content is also used
to advertise and promote FL’s products. The website was developed internally and met the criteria for recognition
as an intangible asset. Directly attributable costs incurred for the website are as follows:
Rs. in million
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Planning of the website 2.5
Web servers 10.5
Operating system of web servers 5.5
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Developing code for the website application and its installation on web servers 6.0
Designing the appearance of web pages 3.5
Content development 12.5
Post launch operating cost 2.8
Currently, all the above costs are included in ‘intangible assets under development’.
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(08)
Required:
Discuss how the above transactions/events should be dealt with in FL’s books for the year ended 31 December
2018. (Show all calculations wherever possible. Also mention any additional information needed to account for the
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Question Bank
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L.O: Amortization/depreciation can be based on saving or benefit consumption
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SIC-32 Intangible Assets: Website Costs
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ISSUE
· When accounting for internal expenditure on the development and operation of an entity’s own web site for internal or external access, the issues are:
- Whether the web site is an internally generated intangible asset that is subject to the requirements of IAS 38 Intangible Assets
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- The appropriate accounting treatment of such expenditure.
· SIC-32 does not apply to expenditure on purchasing, developing and operating hardware of a website.
CONSENSUS
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· An entity’s own web site that arises from development and is for internal or external access is an internally generated intangible asset that is subject to the requirements of IAS 38
· Any internal expenditure on the development and operation of an entity’s own web site is accounted for in accordance with IAS 38. The nature of each activity for which expenditure is incurred (e.g. training employees and
maintaining the web site) and the web site’s stage of development or post-development is evaluated to determine the appropriate accounting treatment (additional guidance is provided in the Appendix to SIC-32)
· Cost incurred are only capitalised if the criteria in IAS 38.57 are all met
· The best estimate of a website’s useful life should be short.
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Specific quantitative disclosure requirements:
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SIC 32: Intangible assets – Web site costs
Issue
An entity may incur expenditure on the development and operation of its own web site for internal
or external access.
The issues are:
 whether the web site is an internally generated intangible asset that is subject to the
requirements of IAS 38; and

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The appropriate accounting treatment of such expenditure.
SIC 32 does not apply to expenditure on:
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 Purchasing, developing, and operating hardware (e.g. web servers, staging servers,
production servers and internet connections). IAS 16 applies.
 An internet service provider hosting the entity’s web site. (This expenditure is recognised as
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an expense as and when the services are received).
 the development or operation of a web site for sale to another entity in the ordinary course
of business (e.g. IAS 2 and IFRS 15)

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the lease that is accounted for in accordance with IFRS 16
The operating stage begins once development of a web site has been completed. During this stage,
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an entity maintains and enhances the applications, infrastructure, graphical design and content of
the web site.
Consensus
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An entity’s own web site is an internally generated intangible asset that is subject to the
requirements of IAS 38. It should be recognised as an intangible asset if it satisfies the IAS 38
recognition criteria.
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If a web site is developed solely (or primarily) for promoting and advertising its own products and
services then an entity will not be able to demonstrate how it will generate probable future economic
benefits. All expenditure on developing such a web site should be recognised as an expense when
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incurred.
The nature of each activity for which expenditure is incurred (e.g. training employees and
maintaining the web site) and the web site’s stage of development or post development should be
evaluated to determine the appropriate accounting treatment
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The best estimate of a web site’s useful life should be short.

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Hassaan Khanani ACA

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LDR SIC 32 identifies several stages in the development of a web site and provides guidance on the
accounting treatment that is appropriate for each stage.
Stage Activities Accounting treatment

Planning Feasibility studies Expense when incurred
(This stage is similar Defining hardware and software
in nature to the specifications
research phase)
Evaluating alternative products and suppliers
Selecting preferences
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Application and Obtaining a domain name Expense when incurred,
infrastructure Developing operating software (e.g. unless the expenditure
development* (This operating system and server software) meets the IAS 38.57
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stage is similar in recognition criteria.
Developing code for the application
nature to the
development phase) Installing developed applications on the web
server
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Stress testing
Graphical design Designing the appearance of web pages See above
development*
Content
development*
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Creating, purchasing, preparing and
uploading information on the web site before
the completion of the web site’s
See above
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development.
Operating Updating graphics and revising content Expense when incurred,
unless it meets the IAS
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Adding new functions, features and content

38 criteria for the
Registering the web site with search engines
capitalisation of
Backing up data subsequent expenditure
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Reviewing security access (this will only occur in

Analysing usage of the web site rare circumstances).
Other Selling, administrative and other general Expense when incurred

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overhead expenditure unless it can be

directly attributed to preparing the web site
for use
Inefficiencies and initial operating losses
incurred
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Training employees to operate the web site
* These will be expensed when the purpose of creating a web site is solely promotion of the
business (marketing purpose).
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Hassaan Khanani ACA

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Question 1 (CA Final)
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Question 2
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Cost of old website and Accumulated depreciation on 1 January 2013 was 150,000 and 90,000
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respectively
Required: Website carrying amount on 31 December 2013.

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Hassaan Khanani ACA

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Learning Outcome: By default always assume that operating
system and web server will be PPE(IAS-16).
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Hassaan Khanani ACA

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MCQ's
01. Power Limited has spent Rs. 200,000 researching new cleaning chemicals in the year ended 31
December 2020. They have also spent Rs. 400,000 developing a new cleaning product which
will not go into commercial production until next year. The development project meets the criteria
laid down in IAS 38 Intangible Assets.
How should these costs be treated in the financial statements of Power Limited for the year
ended 31 December 2020?
(a) Rs. 600,000 should be capitalised as an intangible asset on the statement of financial
position.
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(b) Rs. 400,000 should be capitalised as an intangible asset and should be amortised;
Rs.200,000 should be written off to the statement of profit or loss.
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(c) Rs. 400,000 should be capitalised as an intangible asset and should not be amortised;
Rs. 200,000 should be written off to the statement of profit or loss.
(d) Rs. 600,000 should be written off to the statement of profit or loss
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02. Which TWO of the following items below could potentially be classified as intangible assets?
(a) purchased brand name
(b)
(c)
training of staff
internally generated brand
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(d) licences and quotas
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03. Star Limited has provided the following information as at 31 December 2016:
(i) Project A – Rs. 500,000 has been spent on the research phase of this project during the
year.
(ii) Project B – Rs. 800,000 had been spent on this project in the previous year and Rs.
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200,000 this year. The project was capitalised in the previous year however, it has been
decided to abandon this project at the end of the year.
(iii) Project C – Rs. 1,000,000 was spent on this project this year. The project meets the
criteria of IAS 38 and is to be capitalised.
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Which of the following adjustments will be made in the financial statements as at 31 December
2016?
(a) Reduce profit by Rs. 700,000 and increase non-current assets by Rs. 1,000,000
(b) Reduce profit by Rs. 1,500,000 and increase non-current assets by Rs. 1,000,000
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(c) Reduce profit by Rs. 1,300,000 and increase non-current assets by Rs. 1,800,000
(d) Reduce profit by Rs. 1,300,000 and increase non-current assets by Rs. 1,000,000
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04. Which of the following statements concerning the accounting treatment of research and
development expenditure are true, according to IAS 38 Intangible Assets?
(i) Research is original and planned investigation undertaken with the prospect of gaining
new knowledge and understanding.
(ii) Development is the application of research findings.
(iii) Depreciation of plant used specifically on developing a new product can be capitalised
as part of development costs.
(iv) Expenditure once treated as an expense cannot be reinstated as an asset.
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(a) (i), (ii) and (iii)
(b) (i), (ii) and (iv)
(c) (ii), (iii) and (iv)
(d) All of the above
05. Which of the following should be included in a company’s statement of financial position as an
intangible asset under IAS 38 Intangible Assets?
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(a) Internally developed brands
(b) Internally generated goodwill
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(c) Expenditure on completed research
(d) Payments made on the successful registration of a patent.
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06. Which TWO of the following criteria must be met before development expenditure is capitalised
according to IAS 38 Intangible Assets?
(a) the technical feasibility of completing the intangible asset
(b)
(c)
future revenue is expected
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the intention to complete and use or sell the intangible asset
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(d) there is no need for reliable measurement of expenditure
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07. Which of the following shall be capitalised as intangible asset in financial statements?
(a) Rs. 400,000 developing a new process which will bring in no revenue but is expected
to bring significant cost savings
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(b) Rs. 400,000 developing a new product. During development a competitor launched a
rival product and now the entity is hesitant to commit further funds to the process
(c) Rs. 400,000 spent on marketing a new product which has led to increased sales of Rs.
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800,000
(d) Rs. 400,000 spent on designing a new corporate logo for the business
08. Which of the following CANNOT be recognised as an intangible non-current asset in Ghalib
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Limited (GL)’s consolidated statement of financial position at 30 September 2021?

(a) GL spent Rs. 132 million developing a new type of product. In June 2021 management
worried that it would be too expensive to fund. The finances to complete the project
came from a cash injection from a benefactor received in November 2021.
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(b) GL purchased a subsidiary during the year. During the fair value exercise, it was found
that the subsidiary had a brand name with an estimated value of Rs. 50 million but had
not been recognised by the subsidiary as it was internally generated.
(c) GL purchased a brand name from a competitor on 1 November 2020, for Rs. 65 million.
(d) GL spent Rs. 21 million during the year on the development of a new product, after
management concluded it would be viable in November 2020. The product is being
launched on the market on 1 December 2021 and is expected to be profitable.
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09. Which of the following could be classified as development expenditure in Mars Limited’s
statement of financial position as at 31 March 2020 according to IAS 38 Intangible Assets?
(a) Rs. 120,000 spent on developing a prototype and testing a new type of propulsion
system. The project needs further work on it as the system is currently not viable.
(b) A payment of Rs. 50,000 to a local university’s engineering faculty to research new
environmentally friendly building techniques.
(c) Rs. 35,000 developing an electric bicycle. This is near completion and the product will
be launched soon. As this project is first of its kind it is expected to make a loss.
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(d) Rs. 65,000 developing a special type of new packaging for a new energy-efficient light
bulb. The packaging is expected to reduce Mars Limited distribution costs by Rs. 35,000
a year.
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10. Which TWO of the following factors are reasons why key staff cannot be capitalised as an
intangible asset by an entity?
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(a) They do not provide expected future economic benefits
(b) They cannot be controlled by an entity
(c) Their value cannot be measured reliably
(d)
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They are not separable from the business as a whole
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11. Which of the following items should be recognised as intangible assets?
(i) Patent for new drug
(ii) Licence for new vaccine
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(iii) Specialist training courses

(a) (i) and (ii)
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(b) (ii) and(iii)

(c) (i) and (iii)
(d) (i) only
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12. Home Limited (HL) has acquired a subsidiary Stairs Limited (SL) in the current year. SL has a
brand which has been reliably valued by HL at Rs. 500,000, and a customer list which HL has
been unable to value.
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Which of these describes how HL should treat these intangible assets of SL in their consolidated
Financial Statements?
(a) They should be included in goodwill.
(b) The brand should be capitalised as a separate intangible asset, whereas the customer
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list should be included within goodwill.

(c) Both the brand and the customer list should be capitalised as separate intangible
assets.
(d) The customer list should be capitalised as a separate intangible asset, whereas the
brand should be included within goodwill.
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13. IAS 38 gives examples of activities that would be regarded as research and therefore not eligible
for recognition as an intangible asset.
Which one of the following would be an example of research costs?
(a) The design and construction of chosen alternative products or processes
(b) The design of pre-production prototypes and models
(c) The design of possible new or improved product or process alternatives
(d) The design, construction and operation of a pilot plant
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14. Which of the following statements relating to intangible assets is true?
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(a) All intangible assets must be carried at amortised cost or at an impaired amount, they
cannot be revalued upwards.
(b) The development of a new process which is not expected to increase sales revenues
may still be recognised as an intangible asset.
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(c) Expenditure on the prototype of a new engine cannot be classified as an intangible
asset because the prototype has physical substance.
(d) Impairment losses for a cash generating unit are first applied to goodwill and then to
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other intangible assets before being applied to tangible assets.
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15. Hali Limited is developing a new product and expects to be able to capitalise the costs. Which
one of the following would preclude capitalisation of the costs?
(a) Development of the product is not yet complete.
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(b) No patent has yet been registered in respect of the product.

(c) No sales contracts have yet been signed in relation to the product.
(d) It has not been possible to reliably allocate costs to development of the product.
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16. During the year to 31 December 2018 Faiz Limited (FL) incurred Rs. 200,000 of development
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costs for a new product. In addition, FL spent Rs. 60,000 on 1 January 2018 on machinery
specifically used to help develop the new product and Rs. 40,000 on building the brand identity.
Commercial production is expected to start during 2019.
The machinery is expected to last 4 years with no residual value.
What value should be included within Intangible Assets in respect of the above in FL’s Statement
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of Financial Position as at 31 December 2018?
Rs. ___________
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17. A company had Rs. 20 million of capitalised development expenditure at cost brought forward
at 1 October 2017 in respect of products currently in production and a new project began on the
same date.
The research stage of the new project lasted until 31 December 2017 and incurred Rs. 1.4 million
of costs. From that date the project incurred development costs of Rs. 800,000 per month.
On 1 April 2018 the directors became confident that the project would be successful and yield a
profit well in excess of costs. The project was still in development at 30 September 2018.
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Capitalised development expenditure is amortised at 20% per annum using the straight-line
method.
What amount will be charged to profit or loss for the year ended 30 September 2018 in respect
of research and development costs?
Rs. ___________
18. At 30 September 2019 Shakir Limited (SL)'s trial balance showed a brand at cost of Rs. 30
million, less accumulated amortisation brought forward at 1 October 2018 of Rs. 9 million.
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Amortisation is based on a ten-year useful life.
An impairment review on 1 April 2019 concluded that the brand had a value in use of Rs. 12
million and a remaining useful life of three years. However, on the same date SL received an
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offer to purchase the brand for Rs. 15 million.
What should be the carrying amount of the brand in the statement of financial position of SL as
at 30 September 2019?
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Rs. ___________
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19. Down Limited (DL) owns a pharmaceutical business with a year-end of 30 September 2014. DL
commenced the development stage of a new drug on 1 January 2014.
Rs. 40,000 per month was incurred until the project was completed on 30 June 2014, when the
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drug went into immediate production. The directors became confident of the project’s success
on 1 March 2014. The drug has an estimated life span of five years and time apportionment is
used by DL where applicable.
What amount will DL charge to profit or loss for development costs, including any amortisation,
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for the year ended 30 September 2014?
Rs. ___________
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20. Apollo Limited (AL) carries out research and development. In the year ended 30 June 2015 AL
incurred total costs in relation to project M of Rs. 750,000, spending the same amount each
month up to 30 April 2015, when the project was completed. The product produced by the project
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went on sale from 31 May 2015.

The project had been confirmed as feasible on 1 January 2015, and the product produced by
the project was expected to have a useful life of five years.
What is the carrying amount of the development expenditure asset as at 30 June 2015?
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Rs. ___________
21. An entity purchased patent for its product A in 2014 for 20 years. In 2019, the entity purchased
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patent of a competing product for 20 years to eliminate competition for product A. However, the
entity does not intend to manufacture the competing product. The cost of purchasing second
patent for competing product should be:
(a) expensed out in 2019
(b) capitalized and amortized over 20 years
(c) capitalized and amortized over 15 years
(d) capitalized and only assessed for impairment at year end
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22. Computer hardware and related operating system, which is an integral part of the computer
hardware, are treated under:
(a) IAS 16 as a combined asset
(b) IAS 38 as a combined asset
(c) IAS 16 for computer hardware and IAS 38 for operating system
(d) IAS 16 or IAS 38 at the option of the entity
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Question 1 –Definition Testing
Question 2 –Logic Testing
Question 3 –Amortized Cost (No effective rate)
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PTI Government has purchased 10% bonds having face value of Rs 100,000, Bonds are to be redeemed
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after 3 years. PTI follow amortized cost.
Required: SOFP and SOCI Extract for 3 years
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Question 4 –Amortized Cost (Financial Asset)
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Question 5 –FVTPL & FVTOCI
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Learning Outcome: Dividend income will be recognized in P/L in both cases

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Question 6 –Equity Instrument Measured at FV

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Learning Outcome: On disposal first revalue as per OCI model,

Question 7 (Financial Liability)
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Question 8
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Question 9
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Question 10
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MCQ’s
01. For a debt investment to be held under amortized cost, it must pass two tests. One of these is the
contractual cash flow characteristics test.
What is the other test which must be passed?
(a) The purchase agreement test
(b) The amortized cost test
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(c) The business model test
(d) The fair value test
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02. What is the default classification for an equity investment?
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(a) Fair value through profit or loss
(b) Fair value through other comprehensive income
(c) Amortized cost
(d) Net proceeds
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03. Diamond Limited purchased 10,000 shares on 1 September 2014, making the election to use the
alternative treatment under IFRS 9. The shares cost Rs. 35 each. Transaction costs associated with
the purchase were Rs. 5,000.
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On 31 December 2014, the shares are trading at Rs. 45 each.

What is the gain to be recognized on these shares for the year ended 31 December 2014?
(a) Rs. 100,000

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(b) Rs. 450,000
(c) Rs. 95,000

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(d) Rs. 350,000
04. Copper Limited has purchased an investment of 15,000 shares on 1 August 2016 at a cost of Rs.
65 each. Copper Limited intend to sell these shares in the short term and are holding them for
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trading purposes. Transaction costs on the purchase amounted to Rs. 15,000.

As at the year-end 30 September 2016, these shares are now worth Rs. 77.5 each.
What is the gain on this investment during the year ended 30 September 2016, and where in the
Financial Statements will it be recognized?
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(a) Rs. 187,500 in Other Comprehensive Income
(b) Rs. 187,500 in Profit or Loss
(c) Rs. 172,500 in Other Comprehensive Income
(d) Rs. 172,500 in Profit or Loss
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05. For which category of financial instruments are transaction costs excluded from the initial value, and
instead expensed to profit or loss?
(a) Financial Liabilities at amortized cost
(b) Financial Assets at fair value through profit or loss
(c) Financial Assets at fair value through other comprehensive income
(d) Financial Assets at amortized cost
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06. If a company had incurred transaction costs in issuing debentures, how should these have been
accounted for?
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(a) Added to the proceeds of the debentures
(b) Deducted from the proceeds of the debentures
(c) Amortized over the life of the debentures
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(d) Charged to finance costs
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07. Sodium Limited (SL) purchased a debt instrument which will mature in five years' time. SL intends
to hold the debt instrument to maturity to collect interest payments. How should this debt instrument
be measured in the financial statements of SL?
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(a) As a financial liability at fair value through profit or loss
(b) As a financial liability at amortized cost

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(c) As a financial asset at fair value through profit or loss
(d) As a financial asset at amortized cost

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08. A 5% debenture was issued on 1 April 2010 at total face value of Rs. 20 million. Direct costs of the
issue were Rs. 500,000. The debenture will be redeemed on 31 March 2013 at a substantial
premium. The effective interest rate applicable is 10% per annum.
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At what amount will the debenture appear in the statement of financial position as at 31 March
2012?
(a) Rs. 21,000,000

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(b) Rs. 20,450,000
(c) Rs. 22,100,000
(d) Rs. 21,495,000

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Learning Outcome: By default, we assume that financial liability is at amortized cost model.
09. How does IFRS 9 Financial Instruments require investments in equity instruments to be measured
and accounted for (in the absence of any election at initial recognition)?
(a) Fair value with changes going through profit or loss
(b) Fair value with changes going through other comprehensive income
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(c) Amortized cost with changes going through profit or loss
(d) Amortized cost with changes going through other comprehensive income
10. On 1 January 2011 Oxygen Limited purchased a debt instrument for its fair value of Rs. 500,000. It
had a principal amount of Rs. 550,000 and was due to mature in five years. The debt instrument
carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%. It is
held at amortized cost. At what amount will the debt instrument be shown in the statement of
financial position of Oxygen Limited as at31 December 2012?
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(a) Rs. 514,560
(b) Rs. 566,000
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(c) Rs. 564,560
(d) Rs. 520,800
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11. Which of the following are not classified as financial instruments under IAS 32?
(a) Share options
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(b) Intangible assets
(c) Trade receivables

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(d) Redeemable preference shares
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12. In order to hold a debt instrument at amortized cost, which TWO of the following tests must be
applied?
(a) Fair value test

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(b) Contractual cash flow characteristics test
(c) Investment appraisal test
(d) Business model test

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13. Nickel Limited is uncertain of how to treat professional fees. For which of the following investments
should professional fees NOT be capitalized as part of initial value of the asset?
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(a) Acquisition of a patent
(b) Acquisition of investment property
(c) Acquisition of fair value through other comprehensive income investments

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(d) Acquisition of fair value through profit or loss investments
14. Iron Limited has 5% Rs. 30 million redeemable preference shares in issue which will be redeemed
in 5 years’, time.
How should the preference share capital and preference dividend be presented in the financial
statements of Iron Limited?
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(a) Preference share capital as equity and preference dividend in the statement of changes in
equity
(b) Preference share capital as equity and preference dividend in the statement of profit or
loss
(c) Preference share capital as a liability and preference dividend in the statement of changes
in equity
(d) Preference share capital as a liability and preference dividend in the statement of profit or
loss
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15. Mercury Limited purchased 1 million shares in Jupiter Limited, a listed company, for Rs. 40 million
on 1 January 2017. By the year end, 31 December 2017, the fair value of a Jupiter Limited’s share
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had moved to Rs. 48. If Mercury Limited were to dispose of the shares, broker fees of Rs. 500,000
would be incurred.
What is the correct treatment for shares at year end?
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(a) Hold shares in investments at Rs.47.5 million, with Rs. 7.5 million gain being taken to the
statement of profit or loss
(b) Hold shares in investments at Rs. 48 million, with Rs. 8 million gain being taken to the
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statement of profit or loss
(c) Hold shares in investments at Rs. 48 million, with Rs. 8 million gain shown in the statement
of changes in equity
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(d) Hold shares in investments at Rs. 48 million, with Rs. 7.5 million gain shown in the
statement of changes in equity
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16. Gold Limited’s draft statement of financial position as at 31 March 2018 shows financial assets at
fair value through profit or loss with a carrying amount of Rs. 12.5 million as at 1 April 2017.These
financial assets are held in a fund whose value changes directly in proportion to a specified market
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index. At 1 April 2017 the relevant index was 1,200 and at 31 March 2018 it was 1,296. What amount
of gain or loss should be recognized at 31 March 2018 in respect of these assets?
Rs. ___________
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17. On 1 January 2018 Silver Limited purchased 40,000 Rs. 10 listed equity shares at a price of Rs. 30
per share. An irrevocable election was made to recognize the shares at fair value through other
comprehensive income.
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Transaction costs were Rs. 30,000. At the year end of 31 December 2018, the shares were trading
at Rs. 60 per share.
What amount in respect of these shares will be shown under 'investments in equity instruments' in
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the statement of financial position as at 31 December 2018?
Rs. ___________
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18. An entity acquires a 6% Rs. 1,000 Term Finance Certificate (TFC), a financial asset, for Rs. 970 at
the beginning of Year 1. Interest is receivable annually in arrears.
The TFC is redeemable at the end of Year 3 at a premium of 3%. The financial asset is measured
at amortized cost. The effective interest rate of the financial instrument has been calculated at 8.1%.
Calculate the closing statement of financial position figure at the end of Year 2. Work to the nearest
Rupee.
Rs. ___________
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19. Wasim Limited issued Rs. 10 million 5% debentures on 1 January 2019, incurring issue costs of
Rs.400,000. The debentures are redeemable at a premium, giving them an effective interest rate of
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8%.
What expense should be recorded in relation to the debentures for the year ended 31 December
2019?
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Rs. ___________
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20. Platinum Limited issues Rs.100 million 5% debentures on 1 January 2014, incurring issue costs of
Rs.3 million.
These debentures are redeemable at a premium, meaning that the effective rate of interest is 8%
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per annum.
What is the finance cost to be shown in the statement of profit or loss for the year ended 31
December 2015?
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Rs. ___________ million (rounded to two decimal points)

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Past Papers
Autumn-2020
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Study Text Example
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TOPIC : IFRS 16 LEASES
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IFRS 16 Leases
Effective Date
Page 1 of 3 Periods beginning on or after 1 January 2019
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Not yet endorsed by the EU
BACKGROUND (PROJECT TO REPLACE IAS 17 AND RELATED INTERPRETATIONS)
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The development of a new leases standard was originally a joint project between the IASB and FASB, and though For lessors, the recognition and measurement principles of IAS 17 have been brought forward mostly unchanged.
they will not issue converged standards, both will bring leases on balance sheet for lessees. IFRS 16 removes the However, lessors will be subject to significantly increased disclosure requirements relating to assets under
distinction between operating (“off balance sheet”) and finance (“on balance sheet”) leases for lessees. This will operating leases and residual value risks.
result in significant changes for lessees’ financial statements, including:
· All leases being recorded on balance sheet (except, as an option, for low value and short-term leases)
· Increased disclosure about the entity’s leasing activities including tables for the types of assets leased
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DEFINITIONS
Lease – a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.
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Lease term – the non-cancellable period for which a lessee has the right to use an underlying asset, together with both (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
(b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
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SCOPE
All arrangements that meet the definition of a lease except for:
(a) Leases to explore for minerals, oil, natural gas and similar non-regenerative resources (b) Leases of biological assets within the scope of IAS 41 Agriculture held by a lessee
(c) Service concession arrangements within the scope of IFRIC 12 (d) Licenses of intellectual property granted by a lessor within the scope of IFRS 15 Revenue from Contracts with Customers
(e) Rights held by a lessee under a licensing agreement within the scope of IAS 38 Intangible Assets (eg. Rights to motion pictures, video recordings, plays, patents and copyrights, etc.)
A lessee is also permitted, but not required, to apply IFRS 16 to leases of intangible assets other than those described in (e) above.
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INITIAL RECOGNITION AND MEASUREMENT
The following measurement requirements apply to all leases, unless a lessee makes use of optional exemptions for short-term leases (those having a term of 12 months or less, including the effect of extension options) and leases for
which the underlying asset is of low value (eg telephones, laptop computers, and office furniture). The election for short term leases is by class of asset, and for low value leases can be made on a lease-by-lease basis
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LEASE LIABILITY RIGHT-OF-USE ASSET
At the commencement date of the lease, a lessee recognises a lease liability for the unpaid portion of payments, At the commencement date of the lease, a lessee recognises a right-of-use asset at cost, comprising:
discounted at the rate implicit in the lease or, if this is not readily determinable, the incremental rate of
borrowing, comprising: (a) The amount of the lease liability recognised;
(b) Any lease payments made at or before the commencement date, less any lease incentives;
(a) Fixed payments (including in-substance fixed payments), less any lease incentives receivable; (c) Any initial direct costs incurred; and
(b) Variable lease payments dependant on an index or rate; (d) An estimate of costs to be incurred to dismantle and remove an asset and restore the site based on the terms
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(c) Residual value guarantees; and conditions of the lease.

(d) The exercise price of a reasonably certain purchase options; and
(e) Lease termination penalties, if a lessee termination option was considered in setting the lease term.
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Effective Date
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SUBSEQUENT MEASUREMENT
LEASE LIABILITY RIGHT-OF-USE ASSET (THREE OPTIONS)
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After the commencement date, a lessee remeasures the lease liability by: COST MODEL (IAS 16) REVALUATION MODEL (IAS INVESTMENT PROPERTY
· Apply IAS 16 Property, Plant and Equipment to 16) (IAS 40)
(a) Increasing the carrying amount to reflect interest on the lease liability; record depreciation. · If lessee applies the · If a lessee applies the
(b) Reducing the carrying amount to reflect the lease payments made; and · Depreciation period is the useful life of the asset if revaluation model to a fair value model to
(c) Remeasuring the carrying amount to reflect any reassessment, lease modifications or revised in-substance the lease transfers ownership of the underlying class of asset, it may its investment
fixed lease payments. asset; otherwise earlier of the asset’s useful life elect to apply that property, the lessee
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and lease term. model to the same is required to apply
The lease term is updated if there is a change in the non-cancellable period of the lease when the lessee: · Adjust carrying value based on any remeasurements class of right-of-use that model to right-
as required from reassessment of the lease liability. assets. of-use assets that
(a) Exercises an existing option not previously included in the determination of the lease term; · Apply IAS 36 Impairment of Assets to measure meet the definition
(b) Does not exercise an option that was previously included in the determination of the lease term; impairment. of investment
(c) An event occurs that obliges the lessee to exercise an option not previously included in the determination of property in IAS 40.
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the lease term; or
(d) An event occurs that contractually prohibits the lessee from exercising an option previously included in the
previous determination of the lease term. SALE AND LEASEBACK TRANSACTIONS
Variable lease payments that have not been included in the initial measurement of the lease liability are
recognised in the period in which the event or condition that triggers the payments occurs.
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Lease modifications: a lessee accounts for a lease modification as a separate lease if (a) the modification
increases the scope of the lease by adding the right to use one or more additional underlying assets; and (b) the
consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in
scope (including any appropriate adjustments to reflect the circumstances of that contract).
Statement of Financial Position
Right-of-use assets:
PRESENTATION sa DISCLOSURE
Extensive disclosure requirements including qualitative information on the lessee’s leasing activities and
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(a) Present right-of-use assets separately from other assets; or the rights and obligations arising from its major lease contracts, as well as significant quantitative
(b) Include right-of-use assets within the same line item as the underlying asset disclosure on lease commitments, variable lease payments, extension and termination options, residual
value guarantees, and whether the option to exclude short-term and low-value leases has been used.
The requirement in a) does not apply to right-of-use-assets that meet the definition of investment property,
which shall be presented in the statement of financial position as investment property.
DISCLOSURE TRANSITION
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Lease liabilities: present separately from other liabilities or disclose the line item in which they are included.
Effective for periods beginning on or after January 1, 2019. Early adoption is permitted, but if done, an
Statement of Profit or Loss and Other Comprehensive Income entity must also early adopt IFRS 15. A lessee applies IFRS 16 either:
Interest expense on the lease liability is presented separately from depreciation of the right-of-use asset, as a (a) Retrospectively to each prior reporting period in accordance with IAS 8; or
component of finance costs. (b) Retrospectively with the cumulative effect of applying the standard recognised at the date of initial
application by way of an adjustment to retained earnings or other component of equity as appropriate.
Statement of Cash Flows - classification
· Principal payments on the lease liability as financing activities. IFRS 16 contains optional transitional exemptions including simplification for the initial measurement of
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· Payments of interest in accordance with guidance for interest paid in IAS 7 Statement of Cash Flow. existing leases, not requiring leases ending within 12 months of the effective date to be recognised and a
· Short-term and low-value asset leases and variable lease payments that are not included in the measurement number of other practical expedients.
of lease liabilities are classified within operating activities.
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Effective Date
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LESSORS
DEFINITIONS
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Finance Lease - a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.
Operating lease – lease other than a finance lease.
CLASSIFICATION
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Indicators that would normally lead to a lease being classified as a finance lease are:
(a) The lease transfers ownership of the underlying asset to the lessee by the end of the lease term; (b) The lessee has a bargain purchase option;
(c) The lease term is for a major part of the economic life of the asset; (d) The present value of the lease payments amounts to at least substantially all of the asset’s fair value;
(e) The underlying asset is of such a specialized nature that only the lessee can use it without modification;
Other indicators that could also lead to a lease being classified as a finance lease are:
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(f) If the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee; (g) Gains or losses from the fluctuation in the fair value of the residual accrue to the lessee; or
(h) The lessee has the ability to continue the lease for a secondary period at a rent substantially lower than market.
ACCOUNTING TREATMENT – OPERATING LEASE ACCOUNTING TREATMENT – FINANCE LEASE
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· Lease contracts accounted for on an executory basis · The leased asset is derecognised and a gain or loss is recognised
· Lessor retains leased asset on its statement of financial position · Lessor recognises a receivable equal to the net investment in the lease
· Lease income is normally recognised on a straight line basis over the lease term · Finance income is recognised based on a pattern reflecting a constant periodic rate of return on the net
investment in the lease.
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IFRS 16 requires significantly enhanced disclosure compared to IAS 17. A lessor must disclose qualitative and
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quantitative information about its leasing activities including the nature of the lessor’s leasing activities, how
the lessor manages risks associated with any retained rights in assets, a maturity analysis of lease payments
receivable and a reconciliation of the discounted lease payments receivable to the net investment in the lease.
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TRANSITION
Except for intermediate lessors, lessors are not required to record transitional adjustments on adoption of IFRS
16, as the lessor guidance is substantially unchanged from IAS 17. However, an intermediate lessor:
(a) Reassesses subleases that were classified as operating leases under IAS 17 and are ongoing at the date of
initial application of IFRS 16, to determine whether each sublease should be classified as operating or finance
under IFRS 16. The intermediate lessor makes this assessment at the time of transition based on the remaining
contractual terms and conditions of the head lease and sublease.
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(b) For any lease reclassified as a finance lease, account for the sublease as a new finance lease entered into at
the date of initial application of IFRS 16.
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Important Definitions IFRS 16
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IFRS 16 Concept Builders
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Example Lessor Accounting - Basic

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Manufacturer Dealer Complete Example
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Disclosures IFRS 16
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ILLUSTRATIONS
Illustration 01: Sher Khan Limited (Lease Term)

Question: Consider the following independent scenarios:
Sher Khan Limited (lessee) enters in to lease over a plant
Scenario 1.
The lease is non-cancellable for a period of 3 years from commencement date after which Sher
Khan Limited then has the option to extend the lease for a further 2 years. Sher Khan Limited is
reasonably certain that it will exercise the renewal option.
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Scenario 2.
The lease is non-cancellable for a period of 3 years from commencement date after which Sher
Khan Limited then has the option to extend the lease for a further 2 years. Sher Khan Limited is
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reasonably certain that it will not exercise the renewal option.
Scenario 3.
The lease is for a 10-year period during which the first 7 years is non-cancellable. At the end of
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the 7-year period, Sher Khan Limited has the option to terminate the lease. Sher Khan Limited is
reasonably certain that it will exercise the termination option.
Scenario 4.
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the 7-year period, Sher Khan Limited has the option to terminate the lease. Sher Khan Limited is
reasonably certain that it will not exercise the termination option.
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Scenario 5.
the 7-year period, both Sher Khan Limited and the lessor have the option to terminate the
lease. Sher Khan Limited is reasonably certain that it will not exercise the termination option.
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Required: Determine lease term for each of the scenarios above along with explanation
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Illustration 02: Interest rate implicit in the lease

A finance company has purchased an asset for Rs.50,000 and will lease it out in a series of
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leases as follows:
The first lease is to Company A for a period of 5 years at an annual rental of Rs.10,000.
After the end of the lease to Company A the asset will be leased to Company B for 1 year at a
rental of Rs.10,000. Company B is a party related to Company A.
After the end of the lease to Company B the asset will be leased to Company C for 1 year at a
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rental of Rs.10,000. Company C is not related to Companies A and B.

At the end of this lease the asset is expected to have an unguaranteed residual value of
Rs.2,573.
The interest rate implicit in the lease is 10%
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Required: Calculate Present value of lease
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Illustration 03: PV of future lease payments
A finance company has purchased an asset to lease out to a manufacturing company.
The asset cost for Rs.500,000 and has an economic life of 10 years.
The lease is for 9 years at an annual rental (in arrears) of Rs.87,000 per annum.
The interest rate implicit in the lease is 10%.
Required: Present value of future lease payments
Illustration 04: Type of lease and PV of future lease
Jhang Construction has leased a cement lorry. The cash price of the lorry would be Rs.3,000,000.
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The lease is for 6 years at an annual rental (in arrears) of Rs.600,000. The asset is believed to
have an economic life of 7 years. The interest rate implicit in the lease is 7%.
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Jhang Construction is responsible for maintaining and insuring the asset.
Required: Which type of lease it is? Calculate PV of future lease payment
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Illustration 05: Short term lease (Less than 1 year)
Lessee acquired a car for 9 months on a lease at a monthly rental of Rs. 10,000. There is
no purchase option.
Required: Pass the journal entry.

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Illustration 06: Low value assets
Lessee acquired a laptop on lease for 3 years on 1st Jan 2012.
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Rent payment to be made on 31st Dec each year as follow:
2012 10000
2013 12000
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2014 15000
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Required: Pass the journal entry

Illustration 07: Applying the short-term lease exemption
Lessee ABC enters into a 8-year lease of a machine to be used in manufacturing parts for a
plane that it expects to remain popular with consumers until it completes development and
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testing of an improved model. The cost to install the machine in DEF manufacturing facility is
not significant. ABC and DEF each have the right to terminate the lease without a penalty on
each anniversary of the lease commencement date.
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Required: Explain whether ABC and DEF have termination rights and lease fall under short
term lease exemption
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Practice Questions
Example-1
1. The FMV of the equipment is Rs. 135,000.

2. Three payments are due to the lessor in the amount of Rs. 50,000 per year beginning
12/31/05. An additional sum of Rs. 1,000 is to be paid annually by the lessee for insurance.
3. Lessee guarantees a Rs. 10,000 residual value on 12/31/07 to the lessor.
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4. Irrespective of the Rs. 10,000 residual value guarantee, the leased asset is expected
to have only a Rs.1,000 salvage value on 12/31/07.
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5. The lessee’s incremental borrowing rate is 10% (lessor’s implicit rate is unknown).
Required
1. Annuity Factor and Present Value of Minimum Lease Payments
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2. Repayment Schedule
3. Prepare accounts for
 Lease Liability
 Leased Asset
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
Accumulated Depreciation
Interest K
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Example-2
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1. A 3-year lease is initiated on 1/1/05 for equipment with an expected useful life of
5 years.
2. Three annual lease payments of Rs. 52,000 are required beginning on 1/1/05 (note
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that the payment at the beginning of the year changes the PV computation). The
lessee pays Rs. 2,000 per year for insurance on the equipment.
3. The lessee can exercise a bargain purchase option on 12/31/07 for Rs. 10,000. The
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expected residual value at 12/31/08 is Rs. 1,000.

4. The lessee’s incremental borrowing rate is 10% (lessor’s implicit rate is unknown).
5. The fair market value of the property leased is Rs. 140,000.
Required:
1. Present Value of Minimum Lease Payments
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2. Interest Rate (by Trial and Error Method)

3. Repayment Schedule
4. Prepare Accounts for :
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Interest
Leased Liability
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Example-3
XYZ Inc. is a manufacturer of specialized equipment. Many of its customers do not have
the necessary funds or financing available for outright purchase. Because of this XYZ
offers a leasing alternative. The data relative to a typical lease are as follows:
1. The non-cancelable fixed portion of the lease term is 5 years. The lessee has the
option to renew the lease for an additional 3 years at the same rental. The
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estimated useful life of the asset is 10 years. Lessee guarantees a residual value of
Rs. 40,000 at the end of 5 years, but the guarantee lapses if the full 3 renewal periods are
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exercised.
2. The lessor is to receive equal annual payments over the term of the lease. The leased
property reverts back to the lessor on termination of the lease.
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3. The lease is initiated on 1/1/05. Payments are due on 12/31 for the duration of the lease
term.
4. The cost of the equipment to XYZ. Inc. is Rs. 100,000. The lessor incurs cost associated
with the inception of the lease in the amount of Rs. 2,500.
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5. The selling price of the equipment for an outright purchase is Rs. 150,000.
6. The equipment is expected to have a residual value of Rs. 15,000 at the end of 5 years and
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Rs. 10,000 at the end of 8 years.
7. The lessor desires a return of 12% (the implicit rate).
Required:
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a) MLPs.
b) Identify the kind of lease.
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c) Gross Investment
d) Cost of Goods Sold
e) Adjusted Selling Price
f) Unearned Finance Income
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g) Entries to record the Lease in the lessor’s books at it’s inception and the
end of the first year of lease.
Example-4
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Emirates Refining needs new equipment to expand its manufacturing operation;

however, it does not have sufficient capital to purchase the asset at this time. Because of this,
Emirates Refining has employed Consolidated Leasing to purchase the asset. In turn, Emirates
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will lease the asset from Consolidated. The following information applies to the terms of the
lease:
1. A 3-year lease is initiated 1/1/05 for equipment costing Rs. 131,858, with an expected
useful life of 5 years. FMV at 1/1/05 of equipment is Rs. 131,858.
2. Three annual payments are due to the lessor beginning 12/31/05. The property reverts
back to the lessor on termination of the lease.
3. The un-guaranteed residual value at the end of year 3 is estimated to be Rs.
10,000. Hassaan Khanani ACA
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4. The annual payment are calculated to give the lessor a 10% return (the implicit rate).
5. The lease payments and un-guaranteed residual value have a PV equal to Rs.
131,858 (FMV of asset) at the stipulated discount rate.
6. The initial direct cost of the lessor is Rs. 7,500.
Required:
a) The annual payment
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b) Unearned Finance Income and Net Investment in the Lease c) Amortization Schedule
d) The entry made initially to record the Lease
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e) Using the amortization schedule made above, the entries that would be made in each of
the indicated years
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MCQ's
01. During the year ended 30 September 2014 an entity entered into two lease transactions.
On 1 October 2013, the entity made a payment of Rs. 900,000 being the first of five equal annual
payments under a lease for an item of plant. The lease has an implicit interest rate of 10% and
the present value of the total lease payments on 1 October 2013 was Rs. 3,752,879.
On 1 January 2014, the entity made a payment of Rs. 180,000 for a one-year lease of an item
of equipment.
What amount in total would be charged to entity’s statement of profit or loss for the year ended
30 September 2014 in respect of the above transactions?
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(a) Rs. 1,080,000
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(b) Rs. 1,110,864
(c) Rs. 1,170,864
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(d) Rs. 1,155,000
02. Zeta Limited entered into a five-year lease agreement on 1 November 2012, paying Rs. 109,750
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per annum, commencing on 31 October 2013. The present value of the lease payments was
Rs. 450,000 and the interest rate implicit in the lease was 7%.
What is the amount to be shown within non-current liabilities at 31 October 2013?
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(a) Rs. 262,072
(b) Rs. 288,023

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(c) Rs. 371,750
(d) Rs. 364,070

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03. IFRS 16 Leases permits certain assets to be exempt from the recognition treatment for right-of-
use assets. W hich of the following assets leased to an entity would be permitted to be exempt?
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(a) A used motor vehicle with an original cost of Rs. 1,500,000 and a current fair value of
Rs. 70,000, leased for 24 months
(b) A new motor vehicle with a cost of Rs. 1,500,000, leased for 24 months
(c) A new motor vehicle with a cost of Rs. 1,500,000, leased for 24 months, to be rented
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to customers on a daily rental basis
(d) A new motor vehicle with a cost of Rs. 1,500,000, leased for 12 months
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04. On 1 January 2013 Rita Limited acquires a new machine with an estimated useful life of 6 years
under the following agreement:
An initial payment of Rs. 1,376,000 will be payable immediately and 5 further annual payments
of Rs. 2,000,000 will be due, commencing 1 January 2013. The interest rate implicit in the lease
is 8%.
The present value of the lease payments, excluding the initial payment, is Rs. 8,624,000
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What will be recorded in financial statements at 31 December 2014 in respect of the lease
liability?
(a) Finance cost Rs. 412,314

Non-current liability Rs. 3,566,234
Current liability (including interest payable) Rs. 2,000,000
(b) Finance cost Rs. 529,900

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(c) Finance cost Rs. 531,200
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(d) Finance cost Rs. 585,100
Current liability (including interest payable) Rs.1,528,100
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On 1 April 2017 Pink Limited (PL) entered into a five-year lease agreement for a machine with
an estimated life of 7 years. Which of the following conditions would require the machine to be
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depreciated over 7 years?
(a) PL has the option to extend the lease for two years at a market-rate rental
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(b) PL has the option to purchase the asset at market value at the end of the lease
(c) Ownership of the asset passes to PL at the end of the lease period
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(d) PL’s policy for purchased assets is to depreciate over 7 years
06. On 1 January 2014 Beta Limited (BL) entered into a lease agreement to lease an item of
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machinery for 4 years with rentals of Rs. 210,000 payable annually in arrears. The asset has a
useful life of 5 years and at the end of the lease term legal ownership will pass to BL. The present
value of the lease payments at the inception of the lease was Rs. 635,000 and the interest rate
implicit in the lease is 12.2%.
For the year ended 31 December 2014 BL accounted for this lease by recording the payment
of Rs. 210,000 as an operating expense. This treatment was discovered during 2015, after the
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financial statements for 2014 had been finalised.

In the statement of changes in equity for the year ended 31 December 2015 what adjustment
will be necessary to retained earnings brought forward?
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(a) Rs. 5,530 credit
(b) Rs. 132,530 credit
(c) Rs. 210,000 debit
(d) Rs. Nil
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07. On 1 October 2013, Multan Limited acquired an item of plant under a five-year lease agreement.
The agreement had an implicit interest rate of 10% and required annual rentals of Rs. 6 million
to be paid on 30 September each year for five years.
The present value of the annual rental payments was Rs. 23 million.
What would be the current liability for the leased plant in Multan Limited’s statement of financial
position as at 30 September 2014?
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(a) Rs. 19,300,000
(b) Rs. 4,070,000
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(c) Rs. 5,000,000
(d) Rs. 3,850,000
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08. Which of the following would not be included within the initial cost of a right-of-use asset?
(a) Installation cost of the asset
(b)
(c)
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Estimated cost of dismantling the asset at the end of the lease period
Payments made to the lessor before commencement of the lease

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(d) Total lease rentals payable under the lease agreement
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09. IFRS 16 Leases permits certain assets to be exempt from the recognition treatment for right-of-
use assets. W hich of the following leases of assets leased to an entity would NOT be permitted
to be exempt?
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(a) Vehicle with cost of Rs. 900,000 leased for 9 months
(b) Telephone system with cost of Rs. 45,000 leased for 24 months
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(c) Vehicle with original cost of Rs. 900,000, current market value of Rs. 45,000 leased for
24 months
(d) An item of furniture of Rs. 30,000 leased for 24 months

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10. Noor Limited leases a car for office use. The present value of lease payments is Rs. 2,735,500
and the rate implicit in lease is 10%. The terms of the lease require three annual instalments of
Rs. 1,000,000 each at the start of each year.
At the end of first year of lease what amount will be shown for the lease liability in the company’s
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statement of financial position under the heading of non-current liabilities?
(a) Rs. 1,000,000
(b) Rs. 1,090,000
(c) Rs. 903,060
(d) Rs. 909,050
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11. Which TWO of the following are disclosure requirements relating to a lessor?
(a) Selling profit or loss

(b) Income from subleasing right of use assets
(c) A reconciliation of undiscounted lease payments to the net investment in the lease
(d) The charge related to short term leases
12. Jalal Leasing Limited (JLL) gave a plant under finance lease on 1 January 2011 to a customer.
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The lease term is 4 years. The fair value of the asset is Rs. 11,000 and JL incurred initial direct
costs of Rs. 420. The interest rate implicit in lease is 15%. Rentals of Rs. 4,000 are receivable
on 31 December (also financial year end) each year.
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What is amount of net investment in lease to be presented under current assets as at 31
December 2012?
(a) Rs. 9,133
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(b) Rs. 2,630
(c) Rs. 3,025
(d) Rs. 6,503
13. K
A company leases a computer server with legal title of the asset passing after four years. The
company usually depreciate computers over six years.
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The company also leases a machine for fourteen years, but legal title does not pass to the
lessee at the end of the agreement. The company usually depreciate machinery over twenty
years.
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Over what period of time should the computer and machine be depreciated?
(a) Computer (4 years) and Machine (14 years)

(b) Computer (4 years) and Machine (20 years)
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(c) Computer (6 years) and Machine (14 years)

(d) Computer (6 years) and Machine (20 years)
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14. Faheem Limited (FL) leased out its building on 1 January 2011 under an operating lease. The
carrying value of building is Rs. 239,000 and its remaining useful life is 25 years with no residual
value.
FL also incurred Rs. 11,000 as initial direct costs. According to agreement, Rs. 16,000 was paid
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by lessee as initial deposit and further rental of Rs. 10,000 per annum. shall be paid at the end
of next two years and then Rs. 32,000 per annum. shall be paid for following two years.
The lease term is 4 years.
What amount of lease income should be recognised in profit or loss for the year ended 31
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December 2011?
(a) Rs. 10,000
(b) Rs. 26,000
(c) Rs. 25,000
(d) Rs. 16,000
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15. Galaxy Leasing Limited (GLL) has leased certain equipment to Dairy Products Limited on 1 July
2013. In this respect, the following information is available:
Rs. in million
Cost of equipment 28.69
Amount received on 1 July 2013 3.00
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Four annual instalments payable in arrears (on 30 June, each
year) 7.80
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Guaranteed residual value on expiry of the lease 5.00
Useful life of the equipment is estimated at 5 years. Rate of interest implicit in the lease is 14%.
What amount will be presented in non-current assets for net investment in lease as at 30 June
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2014?
(b)
(c)
Rs. 24.48 million
Rs. 18.60 million K

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16. Alpha Limited leases an asset with an estimated useful life of 6 years for an initial period of 5
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years, and an optional secondary period of 2 years during which a nominal rental will be payable.
The present value of the initial period lease payments is Rs. 870,000.
What will be the carrying amount of the asset in Alpha Limited's statement of financial position
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at the end of the second year of the lease?
Rs.
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17. Kamil Limited (KL) is engaged in manufacturing of plants. The following data relates to an asset
leased out by the company on January 01, 2011.
Cost Rs. 200,000

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Sales price (quoted) Rs. 240,000

Instalment at the end of each year Rs. 40,000
Lease term 7 years
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Unguaranteed residual value Rs. 2,000

Initial direct costs Rs. 1,000
Rate of interest (quoted) 4%
(the low rate is quoted to attract customers)
Market rate of interest 7%
What is the amount of net investment in lease as at January 01, 2011?
Rs.
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18. Kamil Limited (KL) is engaged in manufacturing of plants. The following data relates to an asset
leased out by the company on January 01, 2011.
Cost Rs. 200,000
Sales price (quoted) Rs. 240,000
Instalment at the end of each year Rs. 40,000
Lease term 7 years
Initial direct costs Rs. 1,000
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Rate of interest (quoted) 4%
(the low rate is quoted to attract customers)
Market rate of interest 7%
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What is the amount to be charged in cost of sales in respect of above transaction on January
01, 2011?
Rs.
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19. DJ Products deals in large office machines. It also offers such machines on lease. One such
machine was leased to a customer on July 1, 2004. Its particulars are as follows:
Purchase cost of DJ Products
Useful life
Lease period
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8 years
6 years
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Annual rental payable at beginning of each year Rs. 36,500
The customer's incremental borrowing rate is 10% whereas the discounting rate implicit in the
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lease is 8%.
What is amount of net investment in lease that should be recognised on 1 st July 2004?
Rs.
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20. Guava Leasing Limited (GLL), had leased a machinery to Honeyberry Limited (HL) on 1 July
2017 on the following terms:
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(i) The non-cancellable lease period is 3.5 years. Each semi-annual lease instalment of
Rs. 48 million is receivable in arrears.
(ii) The lease contains an option to extend the lease term by 1.5 years. Each semi-annual
lease instalment in the extended period will be of Rs. 15 million, receivable in arrears.
It is reasonably certain that HL will exercise this option.
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(iii) The rate implicit in the lease is 10% per annum.

(iv) The useful life of machinery is 6 years.
(v) The unguaranteed residual value at the end of lease term is estimated at Rs. 20 million.
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GLL incurred a direct cost of Rs. 10 million and general overheads of Rs. 0.5 million to
complete the transaction.
(vi) The net investment in lease at inception of lease has been calculated i.e. Rs. 319.06
million
What is the amount of interest income to be recognised in profit or loss for the year ended 30
June 2018?
Rs. million
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21. Which of the following should NOT be included in the initial cost of a right of use asset?
(a) Amount of initial measurement of the lease liability

(b) Present value of estimated cost of dismantling the asset at the end of lease period
(c) Payments made to the lessor before commencement of the lease
(d) Gross lease rentals payable under the lease agreement
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22. Wood Leasing Limited has leased certain equipment on 1 July 2018. In this respect,
following information is available:
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Rs. in million
Fair value of equipment 67.00
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Amount received on 1 July 2018 5.50
Four annual instalments payable in arrears 20.00
Guaranteed residual value on expiry of the lease

K 10.00
Useful life of the equipment is estimated at 5 years. Implicit rate in the lease is 16%.
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What amount of net investment in lease will be presented in non-current assets as at 30 June
2019?

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23. Zameer Ansari is a car dealer. Cars are sold both on cash and finance lease basis. He has been
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selling a car at the following terms:
Fair value Rs. 5,000,000
Annual lease rental in arrears Rs. 1,646,199

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Market rate 12% per annum
Lease term 4 years
What would be the effect on sales revenue and finance income if annual lease rental is
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increased to Rs. 1.8 million and all other terms remain the same?
(a) Increase in sales revenue and increase in finance income

(b) Decrease in sales revenue and increase in finance income
(c) No change in sales revenue and increase in finance income
(d) Increase in sales revenue and no change in finance income
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24. An entity acquires property on lease for a non-cancellable period of 3 years. The lease payments
are payable semi-annually in arrears beginning from first year. W hat would be the impact of this
transaction on lessee’s current and gearing ratios upon commencement of lease?
(a) Decrease in current ratio as well as gearing ratio
(b) Decrease in current ratio and increase in gearing ratio
(c) Increase in current ratio and decrease in gearing ratio
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(d) Increase in current ratio as well as gearing ratio
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25. Which of the following is one of the conditions set out in IFRS 16 for an arrangement to be
classified as a finance lease?
(a) The lessee has the right to obtain substantially all of the economic benefits from use of
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the asset
(b) The lease term covers substantially all of the economic life of the asset
(c) The lessor has a substantive right of substitution

(d)
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The lessor has the right to direct the use of the asset
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Question 1 X LTD Benchmark question for lessee arrear case
X Ltd is considering acquiring a machine. It has two options; cash purchase at a cost of
Rs.11,420,000 or a lease.
The terms of the lease are as follows:
(i) The lease period is for four years from 1 January 2016 with an annual rental of Rs.4,000,000
payable on 31 December each year.
(ii) The lessee is required to pay all repairs, maintenance and other incidental costs.
(iii) The interest rate implicit in the lease is 15% p.a.
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Note:
Estimated useful economic life span of the machine is four years.
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Required
(a) Prepare a schedule of the allocation of the finance charges in the books of X Limited for the
entire lease period.
(b) Prepare an extract of the Statement of Financial Position of X Limited as on 31 December
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2016.
Question 2 PROGRESS LTD
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Progress Ltd. acquired a machine from Fine Rentals Ltd. on January 3, 2016 under a lease
agreement extending over three years.
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The agreement required them to make an initial deposit of Rs.1,280,000 to be followed by three
annual payments of Rs.800,000 on 31 December each year starting from 2016.
The cash price of the machinery was Rs.3,200,000 and Fine Rentals Ltd. added 12% interest which
was duly communicated to Progress Ltd.
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The annuity method is used to allocate interest.
Required
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(a) Compute the interest element and the capital portion of the annual repayments; and
(b) Show the journal entries that will record the transaction resulting from the lease agreement.
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Question 3 MIRACLE TEXTILE LIMITED Benchmark question for lesee advance case
On 1 July 2014, Miracle Textile Limited (MTL) acquired a machine on lease, from a bank.
Details of the lease are as follows:
(i) Cost of machine is Rs.20 million.
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(ii) The lease term and useful life is 4 years and 10 years respectively.
(iii) Instalment of Rs.5.80 million is to be paid annually in advance on 1 July.
(iv) The interest rate implicit in the lease is 15.725879%.
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(v) At the end of lease term, MTL has an option to purchase the machine on payment of
Rs.2 million. The fair value of the machine at the end of lease term is expected to be
Rs.3 million.
MTL depreciates the machine on the straight line method to a nil residual value.
Required
Prepare relevant extracts of the statement of financial position and related notes to the financial
statements for the year ended 30 June 2016 along with comparative figures. Ignore taxation
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6.0 IFRS-16 Leases
CAF-05 FAR-II
Question 4 ACACIA LTD

On 1 April 2015 Acacia Ltd entered into the following lease agreements. The terms of each lease
are as follows:
(1) Plant with a fair value of Rs.275,000 was leased under an agreement which requires Acacia
Ltd to make annual payments of Rs.78,250 on 1 April each year, commencing on 1 April
2015, for four years. After the four years Acacia Ltd has the option to continue to lease the
plant at a nominal rent for a further three years and is likely to do so as the asset has an
estimated useful life of six years. The present value of the lease payments is Rs.272,850.
Acacia Ltd is responsible for insuring and maintaining the plant during the period of the lease.
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(2) Office equipment with a fair value of Rs.24,000 was leased under a non-cancellable
agreement which requires Acacia Ltd to make annual payments of Rs.6,000 on 1 April each
year, commencing on 1 April 2015, for three years. The lessor remains responsible for
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insuring and maintaining the equipment during the period of the lease. The equipment has an
estimated useful life of ten years. The present value of the lease payments is Rs.16,415.
Acacia Ltd allocates finance charges on an actuarial basis. The interest rate implicit in both of the
leases is 10%.
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Required
Prepare all relevant extracts from Acacia Ltd's financial statements for the year ended 31 March
2016 in respect of the above leases. The only notes to the financial statements required are those in
respect of lease liabilities or commitments.
Question 5 SHOAIB LEASING LIMITED K

Benchmark question for lessor finance lease arrear case
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Shoaib Leasing Limited (the lessor) has entered into a three year agreement with Sarfaraz Limited
(the lessee) to lease a machine with an expected useful life of 4 years. The cost of machine is
Rs.2,100,000.
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The following information relating to lease transaction is available:

(i) Date of commencement of lease is July 1, 2016.
(ii) The lease contains a purchase bargain option at Rs.100,000. At the end of the lease term, the
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value of the machine will be Rs.300,000.

(iii) Lease instalments of Rs.860,000 are payable annually, in arrears, on June 30.
(iv) The implicit interest rate is 12.9972%.
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Required
(a) Prepare the journal entries for the years ending June 30, 2017, 2018 and 2019 in the
books of lessor. Ignore tax.
(b) Produce extracts from the statement of financial position including relevant notes as at
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June 30, 2017 to show how the transactions carried out in 2017 would be reflected in the
financial statements of the lessor.
(Disclosure of accounting policy is not required.)

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Question 6 AKBAR LTD.

Akbar Ltd. (AL) prepares financial statements on 31 March each year. On 1 April Year 4, AL sold a
machine to another company, Shahwez Ltd. (SL), for Rs.850,000 and then leased it back under a
ten year arrangement. AL had purchased the machine exactly ten years previously for Rs.500,000
and had charged total depreciation of Rs.60,000 on the machine up to the date of disposal. Assume
that the transfer of machine by the seller-lessee satisfies the requirements of IFRS 15.
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Details of the sale and leaseback arrangement are as follows:
 Consideration received from SL Rs.850,000
 Fair value at date of disposal Rs.550,000
 Lease rentals (payable at the end of each year) is Rs.100,000 and interest rate implicit in the
lease is 10% p.a
Required
How AL should reflect in its books of accounts:
a) Right-of-use retained by AL
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b) Gain / loss on rights transferred
Question 7 ALI LIMITED
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Ali Limited entered into a sale and leaseback arrangement with a bank on
1 April 2015. The arrangement involved the sale at fair value of plant and machinery to the bank
for Rs.1,440,000.
This amount has been credited to Ali Limited‘s operating income. The carrying amount of the
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plant and machinery was Rs.840,000 and its remaining useful life was five years at 1 April 2015.
No depreciation has been charged in respect of this plant and machinery for the year ended 31
March 2016.
Under the terms of the lease, Ali Limited is to pay five annual payments at
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31 March each year, of Rs.360,000 (in arrears). The first payment has been made and has been
debited to operating costs. The interest rate implicit in the lease is 8%. The transfer of asset does
not satisfy the requirements of IFRS 15.
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Required
Explain how the above transaction should be accounted for, with all relevant calculations, in the
financial statements for the year ended 31 March 2016.
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Question 8 MOAZZAM TEXTILE MILLS LIMITED

Moazzam Textile Mills Limited (MTML) is facing severe financial difficulties. To improve the cash
flows, the management has decided to sell and lease back three power generators of the
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company under three different sale and lease back arrangements which were signed on August
15, 2016. At the same time, MTML enters into a contract with the buyer-lessor for the right to use
the generators for 5 years, with annual payments of Rs.1,000,000 each for Generator A and
Generator B and Rs.1,500,000 for Generator C, payable at the end of each year. The interest
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rate implicit in the lease is 4.5%, The related information as on

August 15, 2016 is given below:
Carrying Amount of
Cost Fair Value Value in Use
Value Financing
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Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Generator A 10,000 7,500 6,000 6,500 6,000

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Generator B 12,000 6,000 5,000 5,000 6,000
Generator C 10,000 7,000 10,000 12,000 10,000
Required
Prepare the accounting entries that should be recorded by the company on August 15, 2016 in
respect of the above transactions.
Note: Cost of making sale is negligible. Ignore tax and deferred tax implications, if any.
Hassaan Khanani ACA

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Benchmark question for dealer and manufacturer
Question 9 SHALIMAR INDUSTRIES LIMITED
lessor arrear case
Shalimar Industries (SI) is engaged in the manufacturing of tractors. The tractors are sold both on
cash and finance lease basis. The cash selling price and cost of each tractor is Rs. 2.0 million
and Rs. 1.6 million respectively.
On 1 January 2015, SI sold ten tractors to Caravan Transport (CT) on lease. The terms of the
lease and related information are as follows:
(i) The lease period is 4 years, whereas useful life of each tractor is 5 years.
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(ii) The total unguaranteed residual value at the end of lease term is Rs. 1 million.
(iii) Lease rentals amounting to Rs. 6,375,454 per annum are payable in arrears.
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The rate implicit in the lease is 12%.
Required
In accordance with the requirements of International Financial Reporting Standards, prepare:
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(a) Journal entries in the books of SI to record the transactions for the year ended 31
December 2015.
(b) A note for inclusion in SI‘s financial statements, for the year ended 31 December 2015.
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L.O: 1. Computation of lessee rental with the
LAST DAY REVISION help of lessor
Question 12 Lasani Limited 2. Treatment of dismantling cost in lessee book
Question: Lasani Limited leased an asset from khan Limited following are the terms of
lease agreement:
Particulars
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Amount
Cost: 500,000
Markup: 25%
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Initial direct cost paid by khan limited: 100,000
Dismantling cost at the end of lease term: 100,000
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Further information
1. Lasani Ltd Limited reimbursed 60% of the IDC to lessor
2. Fair value is the sum of Cost + Markup.
3. Lasani Limited expects the residual value of the asset to be nil, although it has
expects the residual value of asset to be Rs. 50,000.

4. Incremental borrowing rate of Lasani limited was 10%. K
guaranteed Rs. 20,000 to Khan Limited for residual value. However, Khan Limited
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5. khan limited desired/required rate of return was 15% (which is presumed to be known
by Lasani Limited)
6. Cost of capital of Lasani Limited was 12%.
7. Lease term 5 years
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Required:
Journal entry at the date of lease in the books of Lasani Limited and Relevant
extracts of Financial Statements at the end of year 1.
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Autumn 2018 Q.6 (a)
Guava Leasing Limited (GLL), had leased a machinery to Honeyberry Limited (HL) on 1 July 2017
on the following terms:
(i) The non-cancellable lease period is 3.5 years. Each semi-annual lease instalment of Rs. 48 million
is receivable in arrears.
(ii) The lease contains an option to extend the lease term by 1.5 years. Each semiannual lease instalment
in the extended period will be of Rs. 15 million, receivable in arrears. It is reasonably certain that HL
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will exercise this option.
(iii) The rate implicit in the lease is 10% per annum.
(iv) The useful life of machinery is 6 years.
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(v) The unguaranteed residual value at the end of lease term is estimated at Rs. 20 million.
GLL incurred a direct cost of Rs. 10 million and general overheads of Rs. 0.5 million to complete the
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transaction.
Required:
Prepare note(s) for inclusion in GLL’s financial statements, for the year ended
30 June 2018.
L.O: 1. General OH are not considered as initial direct cost for

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lessor hence they are expense out in lessor book and will not be
considered for computing net investment
2. Semi annual rental
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Spring 2019
(b) Square Limited (SL) is a dealer of electronic items. SL acquires refrigerators of a
particular model from a manufacturer at a discount of 15% on the retail price of
Rs. 300,000 per unit.
On 1 January 2018, SL sold 12 refrigerators to Cube Hotel at retail price on lease. The
rate of interest implicit in the lease was 10% per annum. The payment is to be made in
three equal annual instalments payable in advance. Residual value at the end of
3 years is nil.
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The market rate of interest is 14% per annum.
Required:
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Prepare journal entries in the books of SL in respect of above transaction for the year
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Hassaan Khanani ACA

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Autumn 2019
Q.5 Coal Limited (CL) is preparing its financial statements for the year ended 30 June 2019.
Following information is available:
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(i) On 1 January 2019, CL acquired a machine on lease from a bank. Fair value of
machine on acquisition was Rs. 70 million. CL incurred initial direct cost of
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Rs. 5 million and received lease incentives of Rs. 2 million.
The terms agreed with the bank are as follows:
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The lease term and useful life are 4 years and 10 years respectively.
Instalment of Rs. 17 million is to be paid annually in advance on 1 January.
The rate implicit in the lease is 15.096% per annum.
At the end of the lease term, CL has an option to purchase the machine at its
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estimated fair value of Rs. 25 million. It is not reasonably certain that CL will
exercise this option. (07)
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(ii) During the year, it was discovered that due to some calculation error in excel sheet, fair
value of CL’s office building was taken incorrectly as Rs. 460 million instead of
Rs. 360 million. Resultantly, the building was recorded based on incorrect revaluation
amount in CL’s financial statements for the year ended 30 June 2017.
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This building was acquired on 1 July 2015 for Rs. 500 million and then revalued for the
first time on 30 June 2017.
as CL follows revaluation model for subsequent measurement of its building classified as

property, plant and equipment and charges depreciation over its useful life of 10 years
using straight line method. CL accounts for revaluation on net replacement value
method and transfers the maximum possible amount from the revaluation surplus to
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retained earnings on an annual basis.
As on 30 June 2019, the revalued amount of building has been determined at

Rs. 320 million. (09)
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Required:
Prepare extracts from CL’s statement of financial position and related notes to the financial
statements for the year ended 30 June 2019 alongwith comparative figures for the above.
(Note on Property, plant and equipment is not required)
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Hassaan Khanani ACA

L.O: Treatment of incentive received by lessee
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Q.5 Spring 2020
On 1 January 2019, French Vanilla Leasing Limited (FVLL) purchased a machine costing
Rs. 200 million having useful life of 8 years. Residual value of the machine at end of its useful
life is estimated at Rs. 16 million.
On 1 February 2019, FVLL entered into a lease agreement for this machine with Cotton Candy
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Limited (CCL) for a non-cancellable period of 2.5 years with effect from 1 March 2019. Under
the agreement, eight instalments of Rs. 12 million are to be paid quarterly in arrears
commencing from the end of 3rd quarter i.e. 30 November 2019. FVLL has incorporated an
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implicit rate of 15% per annum which is not known to CCL.
Incremental borrowing rate of CCL is 16% per annum.
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On 1 April 2019, CCL completed installation of the machine at a cost of Rs. 4 million and put
it into use.
Both companies follow straight line method for charging depreciation.
Required:
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Prepare journal entries for the year ended 31 December 2019 in the books of FVLL and CCL
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to record the above transactions. (15)
L.O: Depreciation of write off use of lease term and when not asset available for use
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Spring 2021
Q.4 Capri Ice, a notable ice cream parlour, enters into a contract with Yardley Limited (YL) to
use a space in a shopping mall owned by YL for a period of five years. The contract specifies
the dimensions of space and location. However, YL has discretion to relocate the space to
any other floor to accommodate other customers who would be conducting promotional
events and activities in the mall.
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Required:
Discuss whether the contract between Capri Ice and Yardley Limited constitute lease or not.
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(03)
Q.5 (a)
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On 1 January 2020, Dettol Limited (DL) acquired a machine on lease from Lifebuoy Leasing
Limited (LLL) for 3 years. The first annual instalment amounting to Rs. 35 million was paid on 1
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January 2020 and all subsequent annual instalments are payable on 1 January subject to
increase of 10% each year.
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DL incurred initial direct cost of Rs. 5 million. As an incentive to DL for entering into the lease,
LLL reimbursed Rs. 2 million.
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LLL has incorporated an implicit rate of 11% per annum which is not known to DL.
The residual value of the machine at the end of 3 years is estimated at Rs. 30 million, out of
which DL has guaranteed Rs. 20 million.
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DL is also obliged to incur decommissioning cost of Rs. 4 million at the end of the lease term.
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Discount rate of 12% may be assumed wherever required but not given.
Required:
Prepare relevant extracts from DL’s statement of profit or loss for the year ended 31
December 2020 and statement of financial position as on that date. (09)
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(b) Using the information given in part (a) above, prepare note(s) for inclusion in the financial
statements of Lifebuoy Leasing Limited (LLL) for the year ended 31 December 2020. (08)
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Autumn 2021
Q.6 Sagahi Autos Limited (SAL) is a dealer of specialized vehicles. SAL acquires each unit of
vehicle ‘Alpha’ from manufacturer at a cost of Rs. 26 million and sells it for Rs. 30 million.
The estimated economic life of Alpha is five years.
Few prospective customers did not have adequate funds to purchase Alpha on cash.
Therefore, SAL entered into the following arrangements during the year ended
31 December 2020:
(i) On 1 January 2020, SAL leased Alpha to Haris for a non-cancellable period of four
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years. The rate of interest implicit in the lease is 10% per annum. The payment is to be
made in four equal annual instalments payable on 31 December each year. The residual
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value at the end of four years is estimated at Rs. 5 million which is guaranteed by a
third party related to SAL.
(ii) On 1 April 2020, SAL leased Alpha to Yasir for a non-cancellable period of three years.
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The rate of interest implicit in the lease is 18% per annum. Annual instalment of
Rs. 10 million is to be paid in advance. At the end of the lease term, Yasir has an option
to purchase Alpha at Rs. 7.14 million. It is reasonably certain that Yasir will exercise
this option.
(iii)
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On 1 August 2020, SAL leased Alpha to Faisal for a non-cancellable period of one and
a half years. Quarterly instalment of Rs. 3 million is to be paid in arrears. SAL will
dispose this unit of Alpha at the end of two years at an estimated residual value of
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Rs. 11 million.
Direct cost of Rs. 1 million was incurred by SAL for each of the above arrangements. Market
rate of interest is 15% per annum.
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Required:
Prepare journal entries for each of above lease transactions in the books of SAL for the
as
year ended 31 December 2020. (16)

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Hassaan Khanani ACA

0332 - 2468189
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IAS 10 & 37
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Hassaan Khanani ACA

0332 - 2468189
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
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Also refer:
IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities Effective Date
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IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds Periods beginning on or after 1 July 1999
SCOPE DEFINITIONS
Excludes provisions, contingent liabilities and contingent assets arising from:  Provision – a liability of uncertain timing or amount.
 Non-onerous executory contracts  Contingent liability
 Those covered by other IFRSs:
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- A possible obligation that arises from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more
- IAS 11 Construction Contracts uncertain future events not wholly in the control of the entity; or
- IAS 12 Income Taxes - A present obligation that arises from past events that is not recognised because it is not probable that an outflow of resources embodying
- IAS 17 Leases economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured reliably.
- IAS 19 Employee Benefits  Contingent asset – possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of
- IFRS 4 Insurance Contracts. one or more uncertain future events not wholly within the control of the entity.
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RECOGNITION
Specific quantitative disclosure requirements:
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PROVISIONS CONTINGENT LIABILITIES CONTINGENT ASSETS
Provisions are recognised when: Contingent liabilities are not recognised. Contingent assets are not recognised.
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 The entity has a present legal or constructive obligation as a result of a past event
 It is probable that an outflow or economic benefits will be required to settle the obligation; and
 A reliable estimate can be made of the amount of the obligation.
ONEROUS CONTRACTS
 Onerous contract – one where the unavoidable costs of meeting the obligations under the contract exceed
MEASUREMENT
s the economic benefits expected to be received under it

 For onerous contract, the provision is recognised and measured at the lower of:
- The cost of fulfilling the contract
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 Provisions are measured at the best estimate of the expenditure required to settle the present obligation at - The costs/penalties incurred in cancelling the contract.
reporting date  Before a separate provision for an onerous contract is recognised, an entity recognises any impairment
 In determining the best estimate, the related risks and uncertainties are taken into account loss (IAS 36 Impairment of Assets) that has occurred on assets dedicated to that contract.
 Where the effect of the time value of money is material, the amount of the provision is the present value of the
expenditures expected to be required to settle the obligation. The discount rate used is a pre-tax rate that
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reflects current market assessments of the time value of money and the risks specific to the liability
- The discount rate does not reflect risks for which future cash flow estimates have been adjusted. RESTRUCTURING
 Future events that may affect the amount required to settle the obligation are reflected in the amount of the
provision where there is sufficient objective evidence that they will occur Restructuring provisions are only permitted to be recognised when an entity has:
 Gains from the expected disposal of assets are not taken into account in measuring the provision  A detailed formal plan for the restructuring identifying:
 Reimbursements from third parties for some or all expenditure required to settle a provision are recognised only - The business or part of business concerned; principal locations affected; location, function,
when it is virtually certain that the reimbursement will be received. The reimbursement is treated as a separate approximate number of employees to be compensated for termination of services; expenditures that
asset, which cannot exceed the amount of the provision will be undertaken and when the plan will be implemented.
 Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate  Has raised a valid expectation in those affected that it will carry out the restructuring by starting to
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 If it is no longer probable that an outflow of economic benefits will be required to settle the obligation, the implement that plan or announcing (e.g. by a public announcement) its main features to those affected
provision is released before the end of the reporting period
 Provisions are not recognised for future operating losses.  Restructuring provisions only include the direct expenditures arising from the restructuring – i.e. those
that are both necessarily entailed by the restructuring and not associated with the entity’s on-going
activities.
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As at 1 January 2016
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IAS 10 Events after the Reporting Period
Effective Date
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Periods beginning on or after 1 January 2005
DEFINITION
Favourable or unfavourable event, that occurs between the reporting date and the date that the financial statements are authorised for issue.
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ADJUSTING EVENTS NON-ADJUSTING EVENTS
An event after the reporting date that provides further evidence of conditions that existed at the An event after the reporting date that is indicative of a condition that arose after the reporting date.
reporting date.
Examples:
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Examples: · Major business combinations or disposal of a subsidiary
· Events that indicate that the going concern assumption in relation to the whole or part of the · Major purchase or disposal of assets, classification of assets as held for sale or expropriation of
entity is not appropriate major assets by government
Specific quantitative
· Settlement disclosure
after reporting requirements:
date of court cases that confirm the entity had a present obligation · Destruction of a major production plant by fire after reporting date
at reporting date · Announcing a plan to discontinue operations
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· Bankruptcy of a customer that occurs after reporting date that confirms a loss existed at · Announcing a major restructuring after reporting date
reporting date on trade receivables · Major ordinary share transactions
· Sales of
Specific inventories after
quantitative reporting date
disclosure that give evidence about their net realisable value at
requirements: · Abnormal large changes after the reporting period in assets prices or foreign exchange rates
reporting date · Changes in tax rates or tax law
· Determination after reporting date of cost of assets purchased or proceeds from assets sold, · Entering into major commitments such as guarantees
before reporting date
· Commencing major litigation arising solely out of events that occurred after the reporting period.
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· Discovery of fraud or errors that show the financial statements are incorrect.
Financial statements are adjusted for conditions that existed at reporting date. Financial statements are not adjusted for condition that arose after the reporting date.
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GOING CONCERN DIVIDENDS
An entity shall not prepare its financial statements on a going concern basis if management Dividends that are declared after reporting date are non-adjusting events.
determines after the reporting date either that it intends to liquidate the entity or to cease
trading, or that it has no realistic alternative but to do so.
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DISCLOSURE
Disclose for each material category of non-adjusting events:
· The nature of the event
· An estimate of its financial effect or the statement that such estimate cannot be made.
DISCLOSURES FOR ADJUSTING AND NON-ADJUSTING EVENTS

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· Date of authorisation of issue of financial statements and by whom

· If the entity’s owners or others have the power to amend the financial statements after issue, the entity is required to disclose that fact
· For any information received about conditions that existed at reporting date, disclosure that relate to those conditions should be updated with the new information.
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How To Answer Exam Question
(IAS 37)
Provision Contingent Liability Contingent Asset
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-Prove how all 3 conditions of Provision -Why provision is not made, which -Why Asset is not recognized, why
are met. condition of provision is not met? contingent Asset, discus possibility
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-Discuss Financial Impact -Discuss Disclosure
-Discuss disclosure.
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Restructuring Onerous Contracts
-Discuss how two conditions of restructuring -Why Onerous contract, Discuss how cost
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are met exceeds revenue
- Discuss which expenses is part of - Amount of provision
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restructuring and which are not and why?
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If Questions contain more than one cases which usually is the case then first mention three
conditions of provision.
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How To Answer Exam Question

(IAS 10)
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Adjusting Event Non -Adjusting Event

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-Why it is adjusting event? Refer to the -Why it is Non adjusting event? Refer to the
condition / Event which existed at condition / Event which do not existed at
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Reporting date. Reporting date.

- Discuss Financial Impact - Statement that
“If Event is considered to be material Then
Disclosure will be made.”
In Case of more cases fist define Adjusting and non-
adjusting events
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Important Points from IAS
IAS 10 Events after the Balance Sheet Date, if the restructuring is material and non-
disclosure could influence the economic decisions of users taken on the basis of
the financial statements.
Restructuring provisions should include only direct expenditures caused by the
restructuring, not costs that associated with the ongoing activities of the enterprise
such as: -
a) retraining or relocating continuing staff;
b) marketing; or
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c) investment in new systems and distribution networks
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Examples of Provisions
Circumstance Accrue a Provision?

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Restructuring by sale of an Accrue a provision only after a binding sale

operation agreement
Restructuring by closure or re- Accrue a provision only after a detailed formal

organization plan is adopted and announced publicly. A
Board decision is not enough
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IAS 10 Examples
Example 01: Adjusting or non-adjusting event

Statement of financial position date is 30-6-2014. As on reporting date there is stock costing Rs
75,000. On July 5th, 2014 stock is damaged due to rains because of which it is sold for Rs 5,000
on 10th July 2014.
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Required: Explain whether it is an adjusting or non-adjusting event?
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Statement of financial position date is 30-6-2014. Suppose stock costing Rs 100,000 was
damaged on June 25th, 2014. It is sold on 8th July 2014 for Rs 20,000.
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On 20th June 2014 factory of a debtor is destroyed by fire. On 20th July 2014, court declared
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the customer insolvent and he is not able to pay anything against his debts. As on reporting
date, Rs 5 million was receivable.
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Example 04: Events after the Reporting Date
A debtor that owed Newyear Limited Rs. 100,000 at 31st December 20x2.
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1. Had his factory destroyed in a fire and as a result, filed for insolvency:
2. A letter from the debtor’s lawyers to state that they will probably pay 30% of the balance
was received in February 20x3
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3. The financial statements are not yet authorized for issues

4. The fire occurred during December 20x2
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Required:
Explain whether the above event should be adjusted for or not in the financial statements of
Newyear limited as at 31st December 20x2. If the event is adjusting provide the journal
entries.
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Example: Event after the Reporting Period

A debtor that owed Newyear Limited Rs. 100,000 31st December 20x2 (year-end) had their
factory destroyed in a fire.
1. As a result, this debtor filed for insolvency and will probably pay 30% of the balance
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owing. A letter from the debtor’s lawyers to this effect was received by Newyear Limited
in February 20x3
2. The financial statements are not yet authorized for issue.
3. The fired occurred during January 20x3
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Required:
Explain whether the above event should be adjusted for or not in the financial statements of
Newyear Limited as at 31st December 20x2. If the event is adjusting provide the journal
entries.
IAS 37 Examples
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Example 01:
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Zee Ltd owned a road tanker that overturned in December 20X3 during a bad rain storm. The
tanker spilled its contents thus contaminating a local river. Zee ltd has never before
contaminated a river. Zee Ltd has no legal obligation to clean the river, has no published
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policies as to its views on the rehabilitation of the environment and has not made any public
statement that it will clean the river. It intends to clean-up the river and has been able to
calculate a reliable estimate of the cost thereof.
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Required
Explain whether Zee Ltd should recognize a provision in its statement of financial position as
at 31st December 20X3
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Example 02:
Sahiwal Manufacturing has sold 10,000 units in the year. Sales accrued evenly over the year.
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It estimates that for every 100 items sold, 20 will require small repairs at a cost of Rs. 100, 10
will require substantial repairs at a cost of Rs. 400 each and 5 will require major repairs or
replacement at a cost of Rs. 800 each.
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On average the need for a repair becomes apparent 6 months after a sale.
Required: What is the closing provision?
Example 03: Future events

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A company owns a number of nuclear plants. The company is presently obliged to dismantle
one of these nuclear plants in 3 years time.
The last nuclear plant dismantled by the company cost Rs. 1,000,000 to dismantle, but the
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company expects to dismantle this nuclear plant, if using the same technology, at a slightly
reduced cost of Rs. 800,000 due to the increased experienced. There is, however, a chance that
completely new technology may be available at the time of dismantling which could lead to a
further Rs. 200,000 cost saving.
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Required: Discuss the measurement of the provision.
Example 04: Provision for Decommissioning
Gujrat Prefabricators Limited (GPL) has won a contract to provide temporary accommodation
for workers involved in building a new airport. The contract involves the erection of
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accommodation blocks on a public park and two years later the removal of the blocks and the
reinstatement of the site.
The blocks have been built and it is now 31 December 2017 (GPL’s year-end).
GPL estimates that in two years it will have to pay Rs. 2,000,000 to remove the blocks and
reinstate the site.
The pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the liability is 10%.
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Required: What provision should be recognized at 31 December 2017?
Example 05: Provision for Decommissioning
na
A factory plant bought on 1sl January 20X1 for Rs. 450,000 cash including costs of installation.
The entity is obliged to decommission the plant after a period of 3 years.
Future decommissioning costs are expected to be Rs. 399,300.
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The company uses a discount rate of 10%.
Required: Journalize all related entries.
K
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sa
as
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Onerous Contract
Examples
Question-1 (Services Contract)
1. You made a contract with Rise principal that I will provide “cleaning services” in college.
2. Price / revenue agreed is Rs.100,000 p.a.
ni
3. When you came home you estimated your “costs” for fulfilling contract Rs.160,000.
4. There was a clause in agreement, that you can cancel contract by paying Rs.23,000.
na
5. Assume that we are standing on 31 December 2020 and no work is done yet.
Required: Calculate amount of provision, if any to be made on 31 December 2020?
ha
Question- 2 (Lease Contract)
On 29 December 2018 we entered into a 3 year Non-cancelable lease which will start from 1
January 2019. On 31 December 2018 we realized that this asset is of no use. Annual rental is
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Rs.300,000. Effect of discounting is immaterial.
Required: Calculate amount of provision.
an
Question- 3 (Supply of goods contract)
1. Dawlance made a contract with Honda to supply 5 AC per month for Rs. 33,000 per unit for 3
years, starting from October 2016.
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2. All deliveries till December 2016 were made on timely basis and Dawlance made a handsome
profit on it.
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3. On 31 December 2016 due to increase in prices of material in local market Dawlance

manufacturing cost will increase in future.
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4. From 2017 the manufacturing cost per unit is estimated at Rs. 45,000 per unit.
5. There was a clause in contract whereby contract can be cancelled by paying Rs.700,000.
Required: Pass journal entry for provision on 31 December 2016 in books of Dawlance?
nS
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Question-1 BADAR
The following information relates to the financial statements of Badar for the year to 31 March 2015.
The mining division of Badar has a 3 year operating licence from an overseas government. This
allows it to mine and extract copper from a particular site. When the licence began on 1 April 2014,
Badar started to build on the site. The cost of the construction was Rs. 500,000.
The overseas country has no particular environmental decommissioning laws. In its past financial
statements Badar has given information about the company‘s environmental policy and has provided
examples to demonstrate that it is a responsible company that believes in restoring mining sites at
the end of the extraction period. The cost of removing the construction at the end of the three years
is estimated to be Rs. 100,000.
ni
The cost of the site currently shown in the trial balance is Rs. 500,000. The company has a cost of
borrowing of 10%.
na
Required
Explain the correct accounting treatment for the above (with calculations if appropriate).
ha
Question-2 GEORGINA
Georgina Company is preparing its financial statements for the year ended 30 September 2015. The
following matters are all outstanding at the year end.
(1)
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Georgina is facing litigation for damages from a customer for the supply of faulty goods on 1
September 2015. The claim, which is for Rs. 500,000, was received on 15 October 2015.
Georgina‘s legal advisors consider that Georgina is liable and that it is likely that this claim will
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succeed. On 25 October 2015 Georgina sent a counter-claim to its suppliers for Rs. 400,000.
Georgina‘s legal advisors are unsure whether or not this claim will succeed.
(2) Georgina‘s sales director, who was dismissed on 15 September, has lodged a claim for Rs.
100,000 for unfair dismissal. Georgina‘s legal advisors believe that there is no case to answer
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and therefore think it is unlikely that this claim will succeed.

(3) Although Georgina has no legal obligation to do so, it has habitually operated a policy of
allowing customers to return goods within 28 days, even where those goods are not faulty.
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Georgina estimates that such returns usually amount to 1% of sales. Sales in September
2015 were Rs. 400,000. By the end of October 2015, prior to the drafting of the financial
statements, goods sold in September for Rs. 3,500 had been returned.
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(4) On 15 September 2015 Georgina announced in the press that it is to close one of its divisions
in January 2016. A detailed closure plan is in place and the costs of closure are reliably
estimated at Rs. 300,000, including Rs. 50,000 for staff relocation.
Required
State, with reasons, how the above should be treated in Georgina‘s financial statements for the year
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ended 30 September 2015.
Question-3 EARLEY INC

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Earley Inc is finalising its accounts for the year ended 31 December 2014. The following events have
arisen since the year end and the financial director has asked you to comment on the final accounts.
(a) At 31 December 2014 trade receivables included a figure of Rs. 250,000 in respect of
Nedengy Inc. On 8 March 2015, when the current debt was Rs. 200,000, Nedengy Inc went
into receivership. Recent correspondence with the receiver indicates that no dividend will be
paid to unsecured creditors.
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(b) On 15 March 2015 Earley Inc sold its former head office building, Whitley Wood, for Rs. 2.7
million. At the year end the building was unoccupied and carried at a value of Rs. 3.1 million.
(c) Inventories at the year-end included Rs. 650,000 of a new electric tricycle, the Opasney. In
January 2015 the European Union declared the tricycle to be unsafe and prohibited it from
sale. An alternative market, in Bongolia, is being investigated, although the current price is
expected to be cost less 30%.
(d) Stingy Inc, a subsidiary in Outer Sonning, was nationalised in February 2015. The Outer
Sonning authorities have refused to pay any compensation. The net assets of Stingy Inc have
been valued at Rs. 200,000 at the year end.
(e) Freak floods caused Rs. 150,000 damage to the Southcote branch of Earley Inc in January
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2015. The branch was fully insured.
(f) On 1 April 2015 Earley Inc announced a 1 for 1 rights issue aiming to raise Rs. 15 million.
na
Required
Explain how you would respond to the matters listed above.
ha
Question-4 ACCOUNTING TREATMENT
You have been asked to advise on the appropriate accounting treatment for the following situations
arising in the books of various companies. The year end in each case can be taken as 31 December
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2015 and you should assume that the amounts involved are material in each case.
(a) At the year end there was a debit balance in the books of a company for Rs. 15,000,
representing an estimate of the amount receivable from an insurance company for an
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accident claim. In February 2016, before the directors had agreed the final draft of the
published accounts, correspondence with lawyers indicated that Rs. 18,600 might be payable
on certain conditions.
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(b) A company has an item of equipment which cost Rs. 400,000 in 2012 and was expected to
last for ten years. At the beginning of the 2015 financial year the book value was Rs. 280,000.
It is now thought that the company will soon cease to make the product for which the
equipment was specifically purchased. Its recoverable amount is only Rs. 80,000 at 31
December 2015.
as
(c) On 30 November a company entered into a legal action defending a claim for supplying faulty
machinery. The company‘s solicitors advise that there is a 20% probability that the claim will
succeed. The amount of the claim is Rs. 500,000.
-H
(d) An item has been produced at a manufacturing cost of Rs. 1,800 against a customer‘s order
at an agreed price of Rs. 2,300. The item was in inventory at the year-end awaiting delivery
instructions. In January 2016 the customer was declared bankrupt and the most reasonable
course of action seems to be to make a modification to the unit, costing approximately Rs.
300, which is expected to make it marketable with other customers at a price of about Rs.
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1,900.
(e) At 31 December a company has a total potential liability of Rs. 1,000,400 for warranty work on
contracts. Past experience shows that 10% of these costs are likely to be incurred, that 30%
may be incurred but that the remaining 60% is highly unlikely to be incurred.
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Required
For each of the above situations outline the accounting treatment you would recommend and give
the reasoning of principles involved. The accounting treatment should refer to entries in the books
and/or the year-end financial statements as appropriate.
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Question-5 J-MART LIMITED
(a) Explain the terms ―adjusting events‖ and ―non-adjusting events‖ and give three examples of
each.
(b) J-Mart Limited, a chain of departmental stores has distributed its operations into four
Divisions i.e. Food, Furniture, Clothing and Household Appliances. The following information
has been extracted from the records:
(i) The company allows the dissatisfied customers to return the goods within 30 days. It is
estimated that 5% of the sales made in June 2015 will be refunded in July 2015.
(ii) On June 2, 2015, three employees were seriously injured as a result of a fire at the
ni
company‘s warehouse. They have lodged claims seeking damages of Rs. 2.0 million
from the company. The company‘s lawyers have advised that it is probable that the
court may award compensation of Rs. 400,000.
na
(iii) Under a new legislation, the company is required to fit smoke detectors at all the stores
by December 31, 2015. The company has not yet installed the smoke detectors.
(iv) On June 20, 2015, the board of directors decided to close down the Household
Appliances Division. However, the decision was made public after June 30, 2015.
ha
(v) The company has a large warehouse in Lahore which was acquired under a three-
year rent agreement signed on April 1, 2014. The agreement is non- cancellable
and the company cannot sub-let the warehouse. However, due to operational
difficulties, the company shifted the warehouse to a new location.
(vi)
Required K
A 15% cash dividend was declared on July 5, 2015.
an
Describe how each of the above issue should be dealt with in the financial statements for the year
ended June 30, 2010. Support your point of view in the light of relevant International
Accounting Standards.
sa
Question-6 AKBER CHEMICALS LIMITED

Akber Chemicals Limited is engaged in the business of manufacture and sale of different type
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of chemicals. The following transactions have not yet been incorporated in the financial statements
for the year ended June 30, 2015:
(a) On June 15, 2015, one of its tankers carrying chemicals fell into a canal, thus polluting the
water. The company has never faced such a situation before. The company has neither any
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legal obligation to clean the canal nor does it have any published environmental policy. In a
meeting held on July 26, 2015 the Board of Directors decided to clean the canal, which is
estimated to cost Rs. 5.5 million.
(b) During the second week of July 2015, a significant decline in the demand for company‘s
products was observed which also led to a decrease in net realizable value of finished goods.
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It was estimated that goods costing Rs. 25 million as at June 30, 2015 would only fetch
Rs. 23 million.
(c) On June 21, 2015, a customer lodged a claim of Rs. 2 million with the company as a
consignment dispatched on June 1, 2015 was not according to the agreed specifications. The
company‘s inspection team found that this defect arose because of inferior quality of raw
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materials supplied by the vendor. On June 28, 2015, the company lodged a claim for
damages of Rs. 5.0 million, with its vendor, which include reimbursement of the cost of raw
materials. The company anticipates that it will have to pay compensation to its customer and
would be able to recover 50% of the amount claimed from the vendor.
Required
Discuss how Akber Chemicals (Pvt.) Limited would deal with the above situations in its financial
statements for the year ended June 30, 2015. Explain your point of view with reference to the
guidance contained in the International Financial Reporting Standards.
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Question-7 QALLAT INDUSTRIES LIMITED
The following information pertains to Qallat Industries Limited (QIL) for its financial year ended
June 30, 2015:
(i) QIL sells all its products on one-year warranty which covers all types of defects. Previous
history indicates that 2% of the products contain major defects whereas 10% have minor
defects. It is estimated that if major defects were detected in all the products sold, repair
cost of Rs. 150 million would result. If minor defects were detected in all products sold,
repair cost of Rs. 70 million would result. Total sales for the year are amounted to Rs. 830
million.
(ii) QIL has two large warehouses, A and B. These were acquired under non-cancellable
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lease agreements. Details are as follows:
Warehouse A Warehouse B
na
Effective date of agreement July 1, 2010 January 1, 2013
Lease period 10 years 8 years
(a) Rental amount per (b) Rs. 450,000 (c) Rs. 300,000
month
ha
On account of serious operating difficulties, QIL vacated both the warehouses on January 1,
2015 and moved to a warehouse situated close to its factory. On the same day QIL sub-
let Warehouse A at Rs. 250,000 per month for the remaining lease period. Warehouse B
was sub-let on March 1, 2015 for Rs. 350,000 per month for the remaining lease period.
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(iii) On July 18, 2015, QIL was sued by an employee claiming damages for Rs. 6 million on
account of an injury caused to him due to alleged violation of safety regulations on the part of
the company, while he was working on the machine on June 15, 2015. Before filing the suit,
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he contacted the management on June 29, 2015 and asked for compensation of Rs. 4 million
which was turned down by the management. The lawyer of the company anticipates that the
court may award compensation ranging between Rs. 1.5 million to Rs. 3 million. However, in
his view the most probable amount is Rs. 2 million.
sa
(iv) On November 1, 2014 a new law was introduced requiring all factories to install specialised
safety equipment within four months. The Equipment costing Rs. 5.0 million was ordered on
December 15, 2014 against 100% advance payment but the supplier delayed installation to
July 31, 2015. On August 5, 2015 the company received a notice from the authorities levying
as
a penalty of Rs. 0.4 million i.e. Rs. 0.1 million for each month during which the violation
continued. QIL has lodged a claim for recovery of the penalty from the supplier of the
equipment.
Required
-H
Describe how each of the above issues should be dealt with in the financial statements for the year
ended June 30, 2015. Support your answer in the light of relevant International Accounting
Standards and quantify the effect where possible.
Question-8 SKYLINE LIMITED Important

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The following information pertains to Skyline Limited (SL) for the financial year ended December 31,
2015:
(i) A customer who owed Rs. 1 million was declared bankrupt after his warehouse was destroyed
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by fire on February 10, 2016. It is expected that the customer would be able to recover 50% of
the loss from the insurance company.
(ii) An employee of SL forged the signatures of directors and made cash withdrawals of Rs. 7.5
million from the bank. Of these, Rs. 1.5 million were withdrawn before December 31, 2015.
Investigations revealed that an employee of the bank was also involved and therefore, under
a settlement arrangement, the bank paid 60% of the amount to SL on January 27, 2016.
(iii) SL has filed a claim against one of its vendors for supplying defective goods. SL‘s legal
consultant is confident that damages of Rs. 1 million would be paid to SL. The supplier has
already reimbursed the actual cost of the defective goods.
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(iv) A suit for infringement of patents, seeking damages of Rs. 2 million, was filed by a third party.
SL‘s legal consultant is of the opinion that an unfavourable outcome is most likely. On the
basis of past experience he has advised that there is 60% probability that the amount of
damages would be Rs. 1 million and 40% likelihood that the amount would be Rs. 1.5 million.
Required
Advise SL about the amount of provision that should be incorporated and the disclosures that are
required to be made in the financial statements for the year ended December 31, 2015.
Question-9 WALNUT LIMITED
ni
Walnut Limited (WL) is engaged in the business of import and distribution of electronic appliances.
The following events took place subsequent to the reporting period i.e. 31 December 2015:
(i) On 15 January 2016, one of WL‘s competitors announced launching of an upgraded version
na
of DVD players. WL‘s inventories include a large stock of existing version of DVD players
which are valued at Rs. 15 million. Because of the introduction of the upgraded version, the
net realizable value of the existing version in WL‘s inventory at 31 December 2015 has
reduced to Rs. 12.5 million.
ha
(ii) On 20 December 2015, the board of directors decided to close down the division which
imports and sells mobile sets. This decision was made public on 29 December 2015.
However, the business was actually closed on 29 February 2016.
Net costs incurred in connection with the closure of this division were as follows:
Redundancy costs
K Rs. m
1.50
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Staff training 0.15
Operating loss from 1 July 2015 to closure of division 0.80
Less: Profit on sale of remaining mobile sets (0.50)
1.95
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(iii) On 16 January 2016, LED TV sets valuing Rs. 3 million were stolen from a warehouse.
These sets were included in WL‘s inventory as at 31 December 2015.
(iv) WL owns 9,000 shares of a listed company whose price as on 31 December 2015 was Rs. 22
as
per share. During February 2016, the share price declined significantly after the government
announced a new legislation which would adversely affect the company‘s operations. No
provision in this regard has been made in the draft financial statements.
(v) On 31 January 2016, a customer announced voluntary liquidation. On 31 December 2015, this
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customer owed Rs. 1.5 million.

(vi) On 15 February 2016, WL announced final dividend for the year ended 31 December 2015
comprising 20% cash dividend and 10% bonus shares, for its ordinary shareholders.
Required
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Describe how each of the above transactions should be accounted for in the financial statements
of Walnut Limited for the year ended 31 December 2015. Support your answer in the light of
relevant International Financial Reporting Standards.
K
Question-10 ATTOCK TECHNOLOGIES LIMITED

Attock Technologies Limited (ATL) manufactures five hi-tech products, each on a different plant. It is
in the process of preparing its financial statements for the year ended June 30, 2015. As the CFO of
the company, the following matters are under your consideration:
(i) Inventory carried at Rs. 25 million on June 30, 2015 was sold for Rs. 15 million after it had
been damaged in a flood, in July 2015.
(ii) On July 5, 2015 one of ATL‘s corporate customers declared bankruptcy. The liquidator
announced on August 25, 2015 that 20% of the debt would be paid on liquidation.
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(iii) A new product introduced by a competitor on August 1, 2015 had caused a significant
decline in the market demand of one of ATL‘s major products. As a result, ATL is considering
a reduction in price and a cut in production.
(iv) On August 18, 2015 the government announced a retrospective increase in the tax rate
applicable to the company.
(v) The directors of ATL declared a dividend of Rs. 3 per share on August 28, 2015.
Required
State how the above events should be treated in ATL‘s financial statements for the year ended
June 30, 2015. You may assume that all the above events are material to the company.
ni
Question-11 NABA POWER LIMITED
Naba Power Limited (NPL) is preparing its financial statements for the year ended 30 June 2017.
na
Following issues are under consideration.
(a) NPL entered into a contract on 1 August 2016 to supply customised batteries to a new
customer. As per the terms of the agreement, NPL is required to deliver 50,000 batteries at the
end of each month from December 2016 to September 2017 at a consideration of Rs. 15 million
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per month. Penalty for each late delivery or cancellation of the contract would be Rs. 5 million
and Rs. 20 million respectively.
On 1 August 2016 NPL had estimated that cost of production would be Rs. 10 million per month.
However, cost of production increased subsequently. Despite the increase in the cost of
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production, NPL made timely deliveries till May 2017 at a total cost of Rs. 99 million. Supply for
June 2017 was made on 15 July 2017 at a total cost of Rs. 18 million of which Rs. 14 million
had been incurred till 30 June 2017. It is estimated that Rs. 55 million would need to be spent to
make the last 3 deliveries within time.
an
(b) On 15 May 2017 an explosion occurred at one of NPL‘s factories. Several claims were filed by
affected employees against NPL. The details are as under:
i. Seven injured employees made claims before 30 June 2017 and further three
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injured employees lodged claims in July 2017. According to NPL‘s legal advisor, the
probability that NPL would be determined to be negligent is 80%. If NPL is found
negligent, the estimated average cost of each payout will be Rs. 1 million.
ii. Additional four employees made claims before 30 June 2017, seeking
as
compensation for the stress, rather than any injury, caused to them. If these claims
succeed, the legal advisor is of the view that the estimated average cost of each
payout will be Rs. 0.7 million. However, according to the legal advisor, the chance
that these employees will succeed is 30%.
-H
iii. 80% of all such payouts are recoverable according to the terms of the insurance
policy.
(c) On 1 November 2016 a new law was introduced requiring all factories to install specialized
safety equipment within five months. The equipment costing Rs. 15 million was ordered in
February 2017 to be installed by 30 April 2017. However, the supplier delayed installation till 31
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July 2017. On 5 August 2017 the company received a notice from the authorities levying a
penalty of Rs. 1.6 million i.e. Rs. 0.4 million for each month during which the violation continued.
It is probable that this penalty will be recovered from the supplier.
Required:
K
Discuss how each of the above issues should be dealt with in NPL‘s financial statements for the
year ended 30 June 2017. (Quantify effects where practicable)
Question-12 NEPTUNE LIMITED

The following information pertains to Neptune Limited (NL) which is engaged in the manufacturing of
batteries and chemicals:
(a) In July 2015, NL was sued by a customer who claimed damages of Rs. 2 million on account of
supply of 2000 defective batteries in January 2015. The legal advisor at that time anticipated
that it is probable that the case would be decided in favour of the customer.
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In March 2016, an independent team submitted a report to the Court showing that 80% of the
batteries were not faulty and there were minor defects in the remaining batteries. As a result, the
company's lawyer formed the view that it was highly unlikely that the Court would award
compensation to the customer.
On 5 July 2016, the Court decided the suit and ordered NL to replace all (20%) the faulty
batteries supplied to the customer.
(b) In July 2014, NL entered into a two year contract with a supplier of raw material. With effect from
1 November 2014, the supplier stopped the supply of raw material and demanded price increase
of 30%. Due to stoppage of supply, NL was unable to meet its sales orders. NL filed a suit
claiming damages of Rs. 40 million from the supplier on 15 June 2015. On 30 June 2015, NL‘s
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lawyer anticipated that NL would be awarded damages up to 60% of its claim.
On 15 August 2016 the Court decided the case in favour of NL and awarded damages of Rs. 30
million to the company.
na
(c) On 30 April 2015, NL‘s Board of Directors decided to dispose of the chemical division which was
incurring heavy losses. The decision was made public on 10 December 2015. NL commenced
negotiations with Venus Limited in March 2016. The sale was finally executed on 31 July 2016.
ha
Costs incurred during the months of July and August 2016 in connection with the closure of the
division were as follows:
Rs. in million
Redundancy cost 10.5
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Staff training for relocation to battery segment 3.5
Operating loss from 1 July 2016 till closure of business 2.0
Required
an
Discuss giving reasons how each of the above issues should be dealt with in the financial
statements of NL for the years ended 30 June 2015 and 2016 in accordance with the requirements
of International Financial Reporting Standards. (Assume that NL‘s financial statements are
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authorized for issue three months after the year-end)
Question-13 TL LIMITED
Draft financial statements of TL Limited for the year ended 31 December 2017 show the following
as
amounts:
Rs. in million
Total assets 2,700
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Total liabilities 1,620

Net profit for the year 398
While reviewing the draft financial statements, following matters have been noted:
i. After preparation of draft financial statements, a claim of Rs. 20 million was lodged by a
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customer for supplying defective units of a product in 2017. According to TL's lawyers, the
chance that claim would succeed is 80%.
At year-end, 800 units of this product were included in TL‘s inventory at a cost of Rs. 150,000 per
unit. All these units have the same defects. Normal selling price of each unit is Rs. 200,000. TL has
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already committed to sell 300 units to Jamal Enterprises at a price of Rs. 220,000 per unit.
TL has estimated that Rs. 80,000 per unit would be incurred to remove the above defect. Further,
each defective unit can be sold for Rs. 130,000 in current condition.
Required
Determine the revised amounts of total assets, total liabilities and net profit, after incorporating the
impact of above adjustment(s), if any.
Hassaan Khanani ACA

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Question-14
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Question-15
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Question-16
Waste Management Limited LAST DAY REVISION

Waste Management Limited (WML) had installed a plant in 2005 for generation of electricity
from garbage collected by the civic agencies. WML had signed an agreement with the
government for allotment of a plot of land, free of cost, for 10 years. However, WML has
agreed to restore the site, at the end of the agreement.
Other relevant information is as under:
1. Initial cost of the plant was Rs. 80 million. It is estimated that the site restoration cost would
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amount to Rs. 10 million.
2. It is the policy of the company to measure its plant and machinery using the revaluation
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model.
3. When the plant commenced its operations i.e. on April 1, 2005 the prevailing market-based
discount rate was 10%.
4. On March 31, 2007 the plant was revalued at Rs. 70 million including site restoration cost.
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5. On March 31, 2009 prevailing market-based discount rate had increased to 12%.
6. On March 31, 2011 estimate of site restoration cost was revised to Rs. 14 million.
7. Useful life of the plant is 10 years and WML follows straight line method of depreciation.
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8. Appropriate adjustments have been recorded in the prior years i.e. up to March 31, 2010.
Required:
an
Prepare accounting entries for the year ended March 31, 2011 based on the above
information, in accordance with International Financial Reporting Standards. (Ignore
taxation.)
L.O: 1. Normal revaluation with change in dismantling
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liability
2. change in dismantling liability due to both rate and
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amount
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Hassaan Khanani ACA

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0332 - 2468189
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Hassaan Khanani ACA

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Autumn 2019
Q.7 Turquoise Limited (TL) is in the process of finalizing its financial statements for the
year ended 30 June 2019. Following matters are under consideration:
(i) On 10 July 2019, the owner of the adjacent building filed a case against TL claiming
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Rs. 50 million. The claim is made in respect of severe damage to his building during a
fire incident in TL’s head office in June 2019. He is of the view that TL was negligent
in maintaining fire safety systems in its head office. According to TL’s lawyers, there is
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70% probability that TL would be found negligent and would need to pay 40% of the
amount claimed. (04)
(ii) In May 2019, TL’s board of directors decided to relocate its regional office from
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Multan to Lahore. In this respect, a detailed plan was approved by the management
and a formal public announcement was made in June. TL has planned to complete the
relocation by December 2019. The related costs have been estimated as under:
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Rs. in million
Redundancy payments 20
Costs of moving office equipment to Lahore 3
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Compensation to employees agreeing to relocate 10

Salary of existing operation manager (responsible to
supervise the relocation) 2 (04)
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(iii) TL had 6,000 unsold units of product A as on 30 June 2019 acquired at

Rs. 500 per unit. In June 2019, the selling price of product A has fallen to
Rs. 350 per unit.
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TL acquires product A under the contract in which TL has to buy 10,000 units of
product A per month for Rs. 500 per unit. The contract is valid till 31 August 2019 and
if TL decides to cancel the contract, then it must pay a cancellation penalty of
Rs. 4 million. TL is of view that the market may not improve in near future. (04)
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(iv) TL sells product B with a warranty of 12 months, though the manufacturer i.e. Sulphur
Limited (SL) provides a warranty of 8 months only. Warranty services are provided by
SL. However, TL is responsible if SL fails to honour its obligation for this warranty. If
warranty claim arises within 8 months, SL does not charge any cost. However, SL
charges Rs. 500, Rs. 1,000 and Rs. 2,500 for a minor, moderate and major defect
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respectively in each unit if the defect arises in the extended warranty period of
4 months offered by TL. The probability that a warranty claim in respect of a unit sold
may arise, is as under:
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Nature of defect First 8 months Last 4 months

Minor 12% 6%
Moderate 7% 10%
Major 4% 5%
During the year ended 30 June 2019, a total of 12,000 units of product B has been sold
by TL and warranty cost of Rs. 1.2 million has been paid to SL in respect of these units. (05)
Hassaan Khanani ACA
0332 - 2468189
Required:
Discuss how the above issues should be dealt with in the financial statements of TL for the
year ended 30 June 2019. Support your answers in the context of relevant IFRSs.
Autumn 2020
On 16 June 2020, an aircraft of Sukoon Airlines Limited (SAL) made an emergency landing
near a factory building. Though all persons on board were safe, the nearby factory was
damaged. As a result, two factory workers lost their lives and five workers were injured.
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After one week of this accident, SAL’s CEO informed in a press conference that SAL will pay
Rs. 1.5 million for each loss of life and Rs. 1 million for each injured worker.
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On 8 July 2020, the factory owner filed a claim of Rs. 25 million for factory damages. The
case is still pending; however, SAL’s legal advisor is of the view that there is 70% probability
that the amount of damages would be Rs. 20 million and 30% probability that the amount
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would be Rs. 15 million.
Due to this accident, the aircraft was damaged beyond repairs and consequently SAL cannot
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use this aircraft anymore. The aircraft was acquired on lease on monthly rental of USD 0.5
million for 10 months expiring on 31 October 2020. As per lease agreement, if aircraft faces
any accident, SAL is required to pay monthly rentals to the lessor till settlement of insurance
claim. The insurance claim was settled on 31 August 2020.
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Required:
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In the context of relevant IFRSs, discuss how the above issues should be dealt with in the
financial statements of SAL for the year ended 30 June 2020. 07
s
as
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Hassaan Khanani ACA

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Spring 2020
Q.8 For the purpose of this question, assume that the date today is 1 February 2020.
You are the Finance Manager of Wonderland Limited (WL). Your assistant is preparing
financial statements of WL for the year ended 31 December 2019. He has brought following
matters for your consideration:
(i) In mid of 2019, WL launched new model of laptops with the name of Champ which
became popular among customers.
In November 2019, WL started receiving complaints about incidents of electric shock

and excessive heating. Some of these incidents resulted in serious injuries to customers.
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Several customers filed claims for damages with WL for injuries. The matter was highly
publicized in media as well.
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On 1 December 2019, WL suspended sales of Champ. WL conducted an inquiry which
led to the conclusion that these incidents were happening because of defective chargers.
On 25 December 2019, WL announced that all customers can collect the replacement
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charger from 15 January 2020 and onwards from WL's service center without any
additional cost. The sales of Champ will also resume on the same date at a reduced
price. Further, it has been internally decided that a free USB shall be given to customers
coming for collecting replacement chargers as a good gesture.
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The matter was raised with the supplier of chargers i.e. Battery Limited (BL). On
20 January 2020, BL admitted the fault and agreed to only adjust the cost of the defective
chargers against the future purchases.
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In respect of this matter, your assistant has proposed a provision of Rs. 105.3 million in
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financial statements for the year ended 31 December 2019 having the following breakup:
Rs. in million
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1. Cost of replacement chargers to be acquired for:

▪ customers 6.8
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▪ wholesaler and retailers 2.3

▪ closing stock of Champ with WL 4.9
2. Recovery from BL (11.5)
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3. Cost of USBs to be given 5.8

4. Expected litigation cost and settlements in respect of claims for
damages for injuries to customers including Rs. 5.4 million for
claims made in January 2020 and Rs. 10 million for claims
expected to be received in future. 25.9
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5. Decrease in WL share price in December 2019 38.4

6. Marketing cost to be incurred in 2020 to counter the negative
publicity by the incidents 15.5
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7. Decrease in gross profit for 2020 due to reduction in selling price 17.2
105.3 (10)
(ii) In November 2019, WL introduced a promotion scheme in which a scratch card was
included in each pack of one of its products. These cards carry cash prizes ranging from
Rs. 100 to Rs. 50,000 and are valid for claims till 29 February 2020.
All scratch cards were printed by system and packed directly into the product without
any human interaction. As per the scheme, WL had decided to include total prizes of
Rs. 25 million.
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As at year-end, WL had already received claims for prizes worth Rs. 32 million. An
inquiry has led to the conclusion that the software for printing scratch card has certain
programming errors which has led to printing of unknown amount of total prizes as
compared to the original plan of WL.
Further, claim of Rs. 12 million had been received till 31 January 2020. Considering the
reputation, WL would honour all the claims. (04)
Required:
Discuss how the above issues should be dealt with in the financial statements of WL for the
year ended 31 December 2019. Support you answer in the context of relevant IFRSs.
ni
Spring 2021
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ha
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Hassaan Khanani ACA

0332 - 2468189
Autumn 2021
Q.8 For the purpose of this question, assume that the date today is 1 August 2021.
On 1 January 2021, Holwah Automobiles Limited (HAL) launched vehicle with the brand
name of ‘Deluxe’. In March 2021, reports were circulated in social media that carbon
emissions from Deluxe exceed the regulatory limits. In May 2021, HAL announced to halt
the sales of Deluxe upon receiving an inquiry from regulatory authority.
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On 1 June 2021, HAL announced that:
 high emissions were confirmed in those batches of Deluxe which were produced from
March 2021 and onwards due to defect in assembling of emission kit.
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 customers can get the defect fixed from the authorized dealers free of cost from
1 July 2021.
 sales of Deluxe will also resume from 1 July 2021.
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The senior management has summarized the following financial implications of the above
matter:
(i) On 10 June 2021, a penalty of Rs. 20 million was imposed by the regulatory authority.
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On 25 July 2021, an additional penalty of Rs. 2 million was imposed due to
non-payment of penalty within 40 days. HAL has decided to challenge the additional
penalty on the relevant forum.
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(ii) Defect in the existing inventory of Deluxe will be fixed by HAL at its factory in the
month of August 2021. The rework cost will be Rs. 15 million and loss of profit due to
temporary suspension of production will be Rs. 30 million.
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(iii) Defect in all vehicles sold during March to May 2021 will be fixed by the authorized
dealers in July and August 2021. The cost will be re-imbursed to dealers at the end of
each month on the basis of actual number of vehicles fixed. Though HAL is legally
bound to fix the defect in all vehicles which will cost approximately Rs. 50 million,
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management estimates that only 85% of customers will get their vehicle fixed.
(iv) Market value of internally generated brand of Deluxe would reduce by Rs. 150 million.
(v) Value in use of the production line of Deluxe would reduce by Rs. 80 million.
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(vi) In June 2021, the regulatory authority has introduced new emission protocol to ensure
that the emissions are within the limits and needs to be complied by 30 September 2021.
The new protocol will require modification in the existing production line at a cost of
Rs. 100 million.
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Required:
In the context of relevant IFRSs, discuss how the above financial implications should be dealt
with in the financial statements of HAL for the year ended 30 June 2021. (15)
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Hassaan Khanani ACA

0332 - 2468189
ACCA QUESTIONS
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na
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an
sa
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Hassaan Khanani ACA

0332 - 2468189
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Hassaan Khanani ACA

0332 - 2468189
PRACTICE QUESTIONS
QUESTION NO.1
M/S Rana Enterprises sold goods to customers but retain the title of the goods till the
receipt of money. The goods are normally sold on three months credit and title of the
goods also passed to the buyers after receipt of money. M/S Rana Enterprises also give
warranty for three months for un-satisfactory performance. At the balance sheet date
goods for which title has not been transferred and eligible for warranty are Rs. 1,250,000.
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The markup on these goods is 25%. Past experience tells that 80% goods have no claim,
10% returned but can be sold at the original value and remaining 10% have no value at
all.
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Calculate the amount of provision M/S Rana Enterprises should be created in the
financial statements? (8)
QUESTION NO. 2
Sara Limited is finalizing its accounts for the year ended December 31, 2007 before the
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finalization of account the following events came to the knowledge of the finance
director.
1. The company owns a subsidiary in a foreign country. The government of that has
communicated to the company on December 28, 2007 that it will expropriate
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assets of the subsidiary. The book value of the investment in the subsidiary at the
year end was Rs. 50 million and fair market value Rs. 75 million. The foreign
government has indicated that they will compensate the company only to the
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extent of 25% of the fair value of the investment in the subsidiary.
2. A damages claim of Rs. 2 million has been filled against the company for the
breach of contract. The company’s lawyer is of the viewpoint that it is probable
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that the damages will be awarded to the plaintiff. It is not possible to reasonably
estimate the amount of damages, at the year end. However, before the
authorization of financial statements the court confirmed the claim at Rs. 500,000.
3. There was a fire at one of the warehouse of the company in January 5, 2008
as
stocks worth Rs 12 million were completely destroyed. The company stocks were
under insurance to the extent of 25% of value.
4. The company has discontinued one of his business locations on November 30,
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2007 and has been planning to shift affected employees to other business
locations. The relocation cost estimated at the year end is Rs. 1.5 million.
5. One of the customers of the company has burnt himself during use of a product
manufactured by Sara Limited just after the year end. The company has decided
to resolve the matter out of court by paying damages of Rs. 1 million. The
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company has never created any provision regarding such damages as this event
has never occurred in the past.
REQUIRED: Show how each of the above events will be dealt in the financial statement of
the company for the year ended December 31, 2007. (15)
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QUESTION NO. 3
An oil exploration and production entity has an obligation, at the date of installation, to
decommission an oilrig at the end of its twenty-year life in accordance with the local
legislative requirements.The decommissioning costs for the rig are estimated to be Rs.
140,000,000 the company uses 10% discount rate for all its present value calculations.
Required: Discuss the accounting treatment of above obligation? (5)
QUESTION NO. 4
Hassaan Khanani ACA

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M/S Junaid Ltd is a chain of retail outlets. The company has been in this trade for last
many years and has developed a good reputation for its quality products and submissive
attitude towards its customers. To improve the customer relationship the company has
decided to launch full refund policy for customers who return the goods in original
packaging within one month of the sale if goods are faulty and full cover of repair and
maintenance for one year from the date sale of goods.
The accounting year end of Junaid Ltd is December 31, 2008. The loss on faulty goods is
100% under-written by the suppliers of Junaid Ltd. Junaid Ltd charges 25% margin on all
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goods it sells. The goods sold in the last month of the year are Rs. 500,000.
The management estimates that Rs. 200,000 is the expected cost of repair and
maintenance relating to goods sold during the year. There exists no history of such
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provisions as the policy is announced first time in the current year.
Required: - Calculate the amount of provision to be recognized at the end of the year
2008? (6)
QUESTION NO. 5
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The accountant of ALI Limited has come across the following accounting issues while
finalizing the financial statements for the year ended December 31, 2009 and sought
your opinion being the company IFRS consultant.
(1) ALI Limited issued a 1 year warranty for defects on a single item of equipment that
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it delivered to its customer. At the company's year end, the company is being
sued by the customer for refusing to replace or repair the item of equipment
within the warranty period, as ALI Limited believes the defect is not covered by
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the warranty, but instead has arisen because of the customer not following the
instructions provided in the working manual of the equipment. Khan and Khan the
company's lawyer has advised ALI Limited that it is more likely than not that they
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will be held liable. This would result in the company being forced to replace or
repair the equipment plus pay court costs and a fine amounting to approximately
Rs. 100,000. Based on past experience with similar items of equipment, the
company estimates that there is a 70% chance that the equipment would need
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to be replaced which would cost Rs. 400,000 and a 30% chance that the repair
would only cost about Rs. 15,000. (5)
(2) The company also manufactures small items of equipment which it sells through a
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retail network. The company sold 12,000 items of this type this year, which also
have a 1 year warranty if the equipment fails to perform properly. Based on past
experience, 5% of items sold are returned for repair or replacement. In each case,
one third of the items returned are able to be repaired at a cost of Rs. 1,000 each,
while the remaining two thirds are scrapped and replaced. The manufacturing
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cost of a replacement item is Rs. 10,000. (5)

(3) ALI Limited has a contract to buy 1,000 Kilograms of copper from a China Co
each month for Rs. 3,000 per Kilograms. From each Kilogram of copper ALI Limited
make one role of cable. The company also incurs labor and other direct variable
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costs of Rs. 1,000 per role. Usually company can sell each role of cable for Rs.
4,500 but in late July 2009 the market price falls to Rs. 3,500 per role. The company
is considering ceasing production since it thinks that the market may not improve.
If the company decides to cancel the copper purchase contract without 2
months' notice it must pay a cancellation penalty of Rs 150,000 for each of the
next two months. (5)
Required:-Discuss the accounting treatment of the above situations?
Hassaan Khanani ACA

0332 - 2468189
QUESTION NO. 6
QUTAB Limited is a listed company, whose shares are trading on all the three stock
exchanges of the country. The financial year end of the company is June 30, 2010. The
financial statements of the company have been approved on September 05, 2010. The
chief accountant of the company has come across the following events occurring after
the reporting date.
a) During a board meeting held on July 15, 2010 the board decided to dispose off a
location which is identified cash generating unit located in KHYBER PAKHTUNKHA
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badly affected by the recent flood. The carrying value of the cash generating unit
is Rs. 15.5 million but the recoverable is now significantly lower than the carrying
value. The flood came in first week of June 2010.
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b) During the month of August a local distributor of Chinese Company launched a
new product at very low price, which forced the company to reduce its selling
price even below cost to dispose of the entire stock. In the monthly meeting of
board of directors, they decided to discontinue the production of said product.
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The discontinuation of production will result in redundancy payments of Rs. 2
million to employees currently involved in the production of said product.
c) During the year 2010, the company was sued by a large multinational company
dealing in software development for using pirated soft ware on its Information
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Technology equipments. The case was pending with the Court and the legal
advisor of the company has advised for a provision of Rs. 5 million at the reporting
date. The decision of the court came on August 20, 2010 and penalty of Rs. 10
an
million was confirmed by the court. On August 25, 2010 the company filed appeal
against the court verdict in Higher Court. The legal advisor is still of the opinion the
penalty should not exceed Rs. 5 million.
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d) During audit for the year ended June 30, 2010, the auditors detected that some
tangible assets of Rs. 500,000 are not traceable physically. The enquiry was
initiated which concluded on August 31, 2010 that these assets were stolen by
someone and are not recoverable. The company was however, insured against
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theft and claim was lodged with the insurance company. The insurance company
has not confirmed the amount of claim; however, there is a possible chance that
50% of the claim will be accepted by the insurance company.
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Required: - Discuss the accounting treatment of above events in the financial statements
of QUTAB Limited? (12)
QUESTION NO. 7
BWM Limited is a listed company on all three stock exchanges in Pakistan. After the year
end but before the authorization of financial statements the chief accountant has come
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across the following events occurring after the year end.
a) BWM has been sued by a competitor for Rs. 10 million for infringement of a trade
mark. The case was pending with the Honorable Court at the year end. The legal
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advisors of BWM Limited proposed a provision of Rs. 5 million to be recognized at

the year end. The court has given the verdict and confirmed a penalty of Rs. 8
million.
b) BWM Limited carries its inventory at lower of cost and net realizable value (NRV).
At the yearend BWM Limited carried its inventory at cost of Rs. 10 million. Due to
severe negative trends and worst economic conditions inventory could not be
Hassaan Khanani ACA

0332 - 2468189
sold month after the year end. After one month BWM Limited decided to sell the
inventory to a competitor for Rs. 5.5 million.
c) Due to heavy floods in the country after the reporting date the Government
decided to increase the tax rate by 5% on all corporate entities. BWM Limited has
recognized a provision for taxation in its financial statements at the rate
applicable at the reporting date.
d) After the year end the Board of Directors proposed a final dividend of Rs. 10 per
share. During the year the company has also declared two interim dividends on
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the end of first and third quarter.
Required: - discuss the implication of above events on the financial statements of BWM
Limited? (12)
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QUESTION NO.8
IAS 37 Provisions, contingent Liability and contingent asset deals with the areas when and
at what amount of provision to be recognized, provide definitions and discuss the
accounting treatment by giving at least one example for the following: -
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a) Provision
b) Contingent liability
c) Onerous contract
d) Restructuring
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e) Contingent asset
(20)
QUESTION NO.9
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ANE Limited is listed company engaged in providing brokerage services in Karachi,
Lahore and Islamabad stock exchanges and you being audit trainee have come across
the following issues during the audit.
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a) A litigation has been started against the company during the year by one of its
clients being aggrieved that one of the company worker has not acted
according to the directions which resulted in a loss of Rs. 2 million. The phone call
recorded by the company provides evidence that the company worker has not
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acted according to the directions. The company has started negotiations for out
of court settlement and the said client is insisting for full claim. The company has
not provided for the expenses at the year end.
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b) Due to severe losses and low volumes on stock markets the board of directors of
the company has decided to close down the office at Islamabad Stock
Exchange and to redundant all the employees at said office. The plan has
however, not been announce by the year end. The estimated cost of redundancy
is Rs. 4 million.
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c) The company has taken loan from a local bank of Rs. 40 million against creating
charge on its investment in shares. Due to heavy losses the company has made a
default in payment of interest and principal repayment. According to the
agreement the bank has transferred the shares in its name and have filed suit for
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recovery of the balance amount. The default was made before the yearend
however, the bank took the shares in its name and also filed suit for recovery of
the balance amount after the year end. The company has not derecognized the
investments and loan stands at the original value of Rs. 40 million.
d) The company has investments in many listed company shares but recorded at
their cost of purchase Rs. 20 million during the year. The market value of
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0332 - 2468189
investment has fallen to Rs. 15.5 million by the year end and has further fallen to Rs.
10.5 million after the year end but before the authorization of financial statements.
e) Due to heavy losses the company has not made contribution to Employees Old
Age Benefit Institution (EOBI) of Rs. 0.5 million. The amount not contributed is
recognized however, the amount of penalty for not making timely contribution of
Rs. 15,500 has not been provided for.
Required: discuss the appropriate accounting treatment of the above in the ANE
Limited? (20)
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QUESTION NO.10
An entity is finalizing its financial statements for the year ended December 31, 2013 and
came across the following events after the reporting date. You being the Manager
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Reporting required discussing the implication of the following events on the financial
statements.
a) The Government has changed the applicable corporate tax rate for the
subsequent years from 35% to 30%. The current tax calculated at then applicable
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rate was Rs. 215,000 and deferred tax liability was Rs. 515,000. The announcement
was made after the year end by the Prime Minister to attract foreign investment.
(04)
b) A suit has been filed against the company by one of the customers of the
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company who got seriously injured by explosion of its electric equipment. The
event happened after the year end however, goods were sold before the year
end. This event can happen but chances of occurrence have been remote. The
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legal advisor of the company has advised for out of court settlement and the
expected compensation is Rs. 1 million. (04)
c) During the last month of the year the company sold Rs. 1.5 million goods under
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warranty of six months. The provision has been recognized for the expected claims
at Rs. 0.2 million, but the claims have soared to Rs. 0.3 million in the first three
months. The management has decided to revise the amount of provision to Rs. 0.5
million. (04)
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d) The entity has recognized the provision against dismantling and site restoration for
Rs. 0.25 million. After the year end a new technology has been introduced, which
has resulted in revision in expected cash outflows relating to dismantling and site
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restoration, which ultimately changed the present value of provision to be

recognized.
(03)
QUESTION NO.11
M/S Quality Products Limited (QPL) is in the process of finalizing the financial statements
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for the year ended December 31, 2013 and came across the following problems. The
profit before the following adjustments is Rs. 1,250,250. The authorization date for the
financial statements is March 31, 2014.
a) The tax rate applicable to the company has been changed from 35% to 34% on
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January 15, 2014.

b) Major fire broke out in the factory on February 15, 2014 and destroyed the stock
valuing Rs. 50,000, the sale value of which is now nil.
c) A debtor from whom Rs. 30,000 were due went bankrupt because of a severe fire
broke out in his factory on March 19, 2014.
d) Mr. Jamil an old customer lodged a claim for Rs. 20,000 against the company for
loss of his health because of a medicine marketed by the company on January
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0332 - 2468189
15, 2014. The legal advisor is of the opinion that there is no chance of acceptance
of claim.
e) The auditors of the company detected a fraud on March 15, 2014, the financial
impact of which is Rs. 15,000 by the accountant of the company. The accountant
resigned in February 2014. The amount defraud prior to year end is Rs. 5,000.
Required: - Calculate the revised profit for the year after adjusting the impact of above
events after the reporting date? (13)
QUESTION NO.12
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Discuss the accounting treatment of the following: - (12)
a) The entity is an importer and whole seller of cell phones and normally maintains an
inventory of fifteen to thirty days. A new competitor has entered into market after
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the year end which forced the entity to reduce the sale price even below cost.
The information of new entrant was in existence at the reporting date.
b) The entity is calculating its deferred tax for financial year 2014, the Government
has issued finance act 2014 in June 2014 in which it has changed the tax rate from
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34% to 33% for companies in the tax year 2015. The current year current tax will
however, be calculated at 34%.
c) The entity was reviewing the useful life of its property, plant and equipment at the
year end and changed from 10 years to 8 years. The directors argue that the
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change in life will affect the calculation of depreciation for the next year and not
the current year.
d) The entity also took certain Government construction projects in the previous year
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which are continuing in the current year as well. The entity was using survey
method for calculating stage of completion but in the current year the project
manager said the cost to cost basis will be more relevant. The directors argue that
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the prior year financial statements must also be changed retrospectively.

QUESTION NO.13
At the end of the year of an entity the following points are required to be resolved.
a) During the year entity sold goods Rs. 100,000 on credit to a customer but the party
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did not pay even after the year end and entity decided to initiate legal
proceedings against the customer. The court confirmed the claim up to 70% of
the amount due. The entity has created a provision of 100% of the amount due on
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the reporting date.

b) The fair value of investments held at the reporting date was Rs. 1.2 million, after the
reporting date but before the authorization of financial statements the fair value
has changed to Rs. 1.5 million.
c) The tax rate applicable for the entity for the tax year 2014 was 34% but after the
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year end the Government imposed additional 5% food surcharge for the year
ended June 30, 2014.
d) The entity sells readymade garments, one of its customer filed legal claim for
recovery of Rs. 1 million because his cloths were not properly stitched and people
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made fun of him in a family get together. The entity’s lawyer at the reporting date
was of the view that there was a remote chance of acceptance of claim by the
court. However after the year end but before the reporting date the court
confirmed damages of Rs. 100,000.
Required: - discuss the impact of above events on the financial statements for the year
ended June 30, 2014? (10)
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QUESTION NO. 14
The following events have been identified by the auditors after the year end of the
company.
a) One of the cases filed against the company by the income tax department
before the Honorable Appellate Tribunal has been decided against the
company, which has resulted in recognition of additional income tax amounting
to Rs. 2 million, but no provision has been made by the company.
b) During the year company was sued by one of its old employees from terminating
the job. The company has created no provision against that case but company’s
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legal advisor is of the opinion that the case may be decided in the favor of
employee and company will be required to pay compensation amounting to Rs.
1.5 million.
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c) The income tax rate has been changed through finance act passed before the
yearend but the deferred tax provision is calculated on the old income tax rate.
The difference in rate will result in recognition of extra deferred tax expense of Rs.
1.75 million.
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d) The company has issued bonus shares after the year end but the basic and
dilution earning per share is based on the old number of shares.
e) One of the operations of the company has been decided by the board of
directors to be discontinued being loss making. The decision was taken before the
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yearend but communicated publically after the yearend. The operation is still
presented as part of continuing operations in financial statements.
Required: Discuss the effect of above events on current year financial statements? (15)
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QUESTION NO.15
You have been recently appointed the chief accountant of a listed company and have
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been asked to assist the auditors in the annual audit of the company. The audit trainee
has given you the following list of outstanding points.
a) There has been sale of inventory after the year end at below cost price and
inventory is appearing at cost in the statement of financial position. When you
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enquired from the relevant staff then you came to know that a new competitor
entered in the market after the year end because of which the inventory was sold
at below the cost price.
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b) The company has not created a provision for a case pending before the
honorable High Court, Karachi. You approached the legal advisor, who
responded that an old employee of the company has filed this case being
aggrieved because he was terminated in the last year. The legal advisor was of
the opinion that there is remote chance that the claim will be awarded to him.
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c) The company has offered right shares to its shareholders after the year but the
share capital has not been changed accordingly.
d) The company has not written off a debtor from its books even the said party has
been declared bankrupt by the Honorable Court. When you enquired, you came
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to know that said debtor was considered good at the reporting date but after the
year end a major fire broke out at his factory and destroyed everything.
e) Mr. Jamil is the major supplier of the raw material of your company but has not
been disclosed as related party in the financial statements.
Discuss the accounting treatment of above in the audited financial statements of
the company (15)
Hassaan Khanani ACA

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QUESTION NO. 16
Define the following and discuss the accounting treatment with relevant examples?
(10)
a) Events after the reporting date
b) Going concern
c) Authorization date
d) Dividends
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As at 1 January 2016
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IFRIC 1 Changes in Existing Decommissioning,
Restoration and Similar Liabilities
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Effective Date
Periods beginning on or after 1 September 2004
BACKGROUND AND ISSUE
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Many entities have obligations to dismantle, remove and restore items of property, plant and equipment and in this Interpretation such obligations are referred to as ‘decommissioning, restoration and similar liabilities’. Under IAS 16
Property, Plant and Equipment, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which
an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. IAS 37 Provisions, Contingent Liabilities and
Contingent Assets contains requirements on how to measure decommissioning, restoration and similar liabilities. This Interpretation provides guidance on how to account for the effect of subsequent changes in the measurement of
existing decommissioning, restoration and similar liabilities.
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SCOPE
IFRIC 1 applies to changes in the measurement of any existing decommissioning, restoration or similar liability that is both:
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• Recognised as part of the cost of an item of property, plant and equipment in accordance with IAS 16
• Recognised as a liability in accordance with IAS 37.
For example, a decommissioning, restoration or similar liability may exist for decommissioning a plant or rehabilitating environmental damage, in extractive industries, or the removal of equipment.
CONSENSUS
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Changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the
obligation, or a change in the discount rate, are accounted for as detailed below.
ASSET MEASURED USING COST MODEL RELATED ASSET MEASURED USING REVALUATION MODEL
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• Changes in the liability are added to, or deducted from, the cost of the • Changes in the liability alter the revaluation surplus or deficit previously recognised on that asset, so that:
related asset in the current period − A decrease in the liability is recognised in other comprehensive income and increases the revaluation surplus within equity, except that it is
• The amount deducted from the cost of the asset cannot exceed its recognised in profit or loss to the extent that it reverses a revaluation deficit on the asset that was previously recognised in profit or loss
carrying amount. If a decrease in the liability exceeds the carrying − An increase in the liability is recognised in profit or loss, except that it is recognised in other comprehensive income and reduces the revaluation
amount of the asset, the excess is recognised immediately in profit or surplus within equity to the extent of any credit balance existing in the revaluation surplus in respect of that asset
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loss − In the event that a decrease in the liability exceeds the carrying amount that would have been recognised had the asset been carried under the
• If the adjustment results in an addition to the cost of an asset, the cost model, the excess is recognised immediately in profit or loss
entity considers whether this is an indication that the new carrying − A change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying amount does not differ
amount of the asset may not be fully recoverable. If there is such an materially from that which would be determined using fair value at the end of the reporting period
indication, the entity tests the asset for impairment by estimating its − The change in the revaluation surplus arising from a change in the liability is separately identified and disclosed as such.
recoverable amount, and accounts for any impairment loss, in
accordance with IAS 36 Impairment of Assets.
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DISCOUNT DEPRECIATION
• The periodic unwinding of discount is recognised in profit or loss as a The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life,
finance cost as it occurs all subsequent changes in the liability are recognised in profit or loss as they occur. This applies under both the cost model and the revaluation model.
• Capitalisation under IAS 23 Borrowing Costs is not permitted.
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Question 1
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Learning Outcome:
Question 2 (LAST DAY REVISION)
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Learning Outcome: Change in Dismantling cost mid of the

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year.
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Question 3
GLADIATOR Limited (LAST DAY REVISION)
Faraz Is a chartered accountant and employed as Finance Manager of Gladiator Limited (GL). He
has recently returned after a long medical leave and has been provided with draft financial
statements of GL for the year ended 30 June 2017. Following figures are reflected In the draft
financial statements:
Rs. In million
Profit before tax
Total assets 1,420
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Total Liabilities 9g5
While reviewing the financial statements, ha noted the following Issues:
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As at 30 June 2017, dismantling cost relating to a plant has Increased from Initial estimate of Rs. 3d
million to Rs. 40 million. Further, fair value of the plant on that date was assessed at Rs. 112 million
(net Dm dismantling cast). No accounting entries have been made in respect of Increase In
dismantling liability and revaluation of the plant. Dismantling rate is 8%.
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The plant had B useful life of 5 years when It was purchased on 1 July 2011. The carrying value of
plant and related revaluation surplus Included In the financial statements are Rs. 133.4 million (after
depreciation for the year ended 30 June 2017) and Rs. 3.15 ml1Iion (after transferring incremental
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depreciation for the year ended 30 June 2017) respectively.
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Determine the revised amounts of profit before tax, total assets and total 1IabIIRIes after Incorporating
the Impact of above adjustments, If any.
Learning Outcome: IAS-8 with IFRIC-1.

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Question 4
BROHI LIMITED
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Mamas Is a chartered accountant and employed as Finance Manager of Brohi limited (BL). Pte has
recently returned after a long medical leave and has been provided with draft financial
statements of GL lor the year ended 30 June 2017. Following figures are reflected In the draft
financial statements:
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Profit before tax 2fl0
Total assets 1,020

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Total liabilities
While reviewing the financial statements, he noted the following Issues:
As at 30 June 2017, dismantling cost relating to a plant has increased from Initial estimate of Rs. 15
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million to Rs. SS million. Further. fair value of the plant on that date was assessed at Rs. 150 million
(Including Impact of revised Dismantling cost). No accounting enti1es have been made In respect of
increase In dismantling liability and revaluation of the plant. Dismantling rate is 8%.
The plant Glad a useful JIC of 10 years when It was purchased on 1 July 2010. The carrying value of
plant and related revaluation surplus Included In the financial statements are Rs. 11fi million (after
depreciation for tea year ended 3O June ZO17} and Rs. 1 million (after transferring Incremental
depreciation for the year ended DO June Z017} respectively.
Determine the revised amounts of profit before tax. fatal assets aru4 total liabilities after incorporating
the Impact of above adjustments, If any.
Hassaan Khanani ACA
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Question 5
Muhammad H Khan Durranl Limited (LAST DAY REVISION)
NIHKDL had Installed a plant In 2005 for generation of electric y from garbage collected by the
civic agencies. MI-JKOL had signed an agreement with the government for allotment of a plot of
land, free of cost, for 20 years. However. MHKDL has agreed to restore the site, at the end of
the agreement.
Other relevant information Is as under•
I. Initial cost of the plant was Rs. 100 million. It Is estimated that the site restoration cost
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would amount to Rs. 20 million.
ii. It Is the policy of the company to measure is plant and machinery using the revaluation
model.
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iii. When the plant commenced its operations i.e. on October 1, 2005 the prevailing market
based discount rate was 9•A.
lv. On March 31, 2007 the plant was revalued at Rs. 90 million including site restoration cost.
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v. On March 31, 2009 prevailing market based discount rate had Increased to 7•4.
vl. On March 31, 2011 estimate of site restoration cast was revised to Rs. 15 million.
vll. Useful life of the plant Is 30 years and WML follows straight line method of depreciation.
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vlll. Appropriate adjustments have been recorded In the prior years I.e. up to March 31, 2010.
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Prepare accounting entries for the year ended March 31, 2011 based on the above information,
in accordance with International Financial Reporting Standards. (Ignore taxation.)
Learning Outcome: IAS-16 with IFRIC-1.

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Question 6
Khanani Ltd Purchased a Plant for Rupees 1000 m on 1 January 2019 , plant had a Dismantling cost of
Rupees 300 m after 6 years of Useful life . Khanani is depreciating a plant on straight line basis and on
the beginning of Year 6 Estimate of Dismantling cost has changed to Rs 20 m only due to advancement
of technology . Discount Rate is 10%
Required : Entries in the books of Khanani for the year ended 31 December 2023 & 2024.
Question 7
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Hassaan Ltd Purchased a Plant for Rupees 1000 m on 1 January 2019 , plant had a Dismantling cost of
Rupees 400 m after 5 years of Useful life . Khanani is depreciating a plant on straight line basis and on
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the beginning of Year 5 Estimate of Dismantling cost has changed to Rs 2.5 m only due to advancement
of technology . Discount Rate is 10%
Required : Entries in the books of Hassaan for the year ended 31 December 2022 & 2023.
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Question 8
Hassaan Khanani Ltd Purchased a Plant for Rupees 1000 m on 1 January 2019 , plant had a Dismantling
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cost of Rupees 200 m after 5 years of Useful life . Hassaan Khanani is depreciating a plant on straight line
basis and on the beginning of Year 4 Estimate of Dismantling cost has changed to Rs 300 m only due to
advancement of technology . Recoverable amount of plant at that date was 500 m Discount Rate is 10%
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Required : Entries in the books of Hassaan Khanani for the year ended 31 December 2022 & 2023.
Question 9
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Khanani Hassaan Ltd Purchased a Plant for Rupees 1000 m on 1 January 2019 , plant had a Dismantling
cost of Rupees 100 m after 6 years of Useful life . Khanani Hassaan is depreciating a plant on straight line
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basis and on the beginning of Year 4 Estimate of Dismantling cost has changed to Rs 320 m only due to
advancement of technology . Recoverable amount of plant at that date was 500 m Discount Rate is 10%
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Required : Entries in the books of Khanani Hassaan for the year ended 31 December 2023 & 2024.
Question 10
Khanani Brothers Ltd Acquired a Plant for Rs 500 m on 1 Jan year 1 , estimated dismantling cost at the
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start of year 1 was Rs 50 m and Discount Rate was 10% . at the end of Year 2 Asset was revalued to
Rs 350m and Estimate of Dismantling Cost was changed to Rs 55 m , at the end of Year 3 Asset was
revalued to Rs 450 m and there was no change in estimate of DM cost. Useful Life is 5 years .
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Required : Entries in books of Khanani Brothers .
Question 11
Khanani Brothers Ltd Acquired a Plant for Rs 500 m on 1 Jan year 1 , estimated dismantling cost at the
start of year 1 was Rs 50 m and Discount Rate was 10% . at the end of Year 2 Asset was revalued to
Rs 450 m and Estimate of Dismantling Cost was changed to Rs 35 m , at the end of Year 3 Asset was
revalued to Rs 350 m and there was no change in estimate of DM cost. Useful Life is 5 years .
Required : Entries in books of Khanani Brothers

Hassaan Khanani ACA
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IAS 12 INCOME TAXES
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Hassaan Khanani ACA

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IAS 12
Q1.
Accounting Profit Rs. 5,000,000

Fixed Assets 2,500,000
Depreciation Rate (Accounting Purposes) 5%
Depreciation Rate (Tax Purposes) 10%
Allowance For Bad Debts 10%
Accounts Receivable 1,000,000
Donations 500,000
Fines And Penalties 30,000
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Tax Rate is 30% and Donation to Masi is 20% of total Donation
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Required:
1. Taxable profit
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2. Tax payable
Q2.
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Accounting Profit Rs. 10,000,000
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Accounts Receivable 2,000,000
Donations 500,000
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Fines And Penalties 30,000

Tax rate 30%
Included in expense accrued, expense of Rs. 500,000 , which are allowed on payment
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Included in income divided, income of Rs. 200,000 which is Taxed on 20%
Required:
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1. Taxable profit
2. Tax payable
Q3.
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Accounting Profit Rs. 50,000

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Accounts Receivable 200,000
Donations 5,000
Included In Expense Accrued, Expense 2,000
Required:
1. Taxable profit & Tac liability if Tax rate is 30%
Hassaan Khanani ACA

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Deferred Tax
1. Profit Before Tax & Depreciation = Rs 100 million each year from year 1 till 4
Asset cost = 60 million , Tax life = 3 years , Accounting life = 4 years , Tax rate = 30%
Compute Current & Def tax for year 1 till yr 4 (Taxable Temporary Difference)
Compute Current & Def tax for year 1 till yr 4 (Taxable Temporary Difference)
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Compute Current & Def tax for year 1 till yr 4 (Deductible Temporary Difference)
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Compute Current & Def tax for year 1 till yr 4 (Deductible Temporary Difference)
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Write Rules Here
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Hassaan Khanani ACA

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ILLUSTRATIONS
Illustration 01: Taxation computation (basic)
Kashif traders had an accounting profit before of tax of Rs. 1,000,000. Total inadmissible deductions and
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admissible deductions under Income Tax Ordinance 2001 is Rs. 100,000 and Rs. 150,000 respectively.
Corporate tax rate on Kashif traders is 30%.
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Required: Calculate current tax payable
Illustration 02: Taxation computation (basic)
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Kashif traders had an accounting profit before of tax of Rs. 1,000,000. Below is a list of admissible and
inadmissible deductions under Income Tax Ordinance 2001:
Inadmissible Deductions:
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- Accounting Depreciation Rs. 100,000
- Provision for Doubtful Debt Rs. 15,000
Admissible Deductions:
- Tax Depreciation Rs. 150,000
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- Write off of Trade Receivables Rs. 5,000
Corporate tax rate on Kashif traders is 30%

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Required: Calculate current tax payable
Illustration 03:
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Fresh Company has a financial year ending on 31 December.

At 31 December 2016 it had a liability for income tax of Rs. 77,000.
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The tax on profits for the year to 31 December 2017 was Rs. 114,000.
The tax charge for the year to 31 December 2016 was over-estimated by Rs. 6,000.
During the year to 31 December 2017, the company made payments of Rs. 123,000 in income tax.
Required: Calculate tax charge for the year and tax payable for the year
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Illustration 03: Taxation computation
Jhelum Traders had an accounting profit of Rs. 789,000 for the year ended 31 December 2017.
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The accounting profit was after depreciation of Rs. 70,000 and included a profit on disposal (capital gain)
of Rs. 97,000.
The company had incurred borrowing costs of Rs. 70,000 in the year of which Rs. 10,000 had been
capitalised in accordance with IAS 23. The Company had paid fines of Rs. 125,000 due to non-
compliances with the requirements of the Companies Act, 2017.
The company holds some assets under leases. During the year it had recognised finance charge in
respect of the leases was Rs. 15,000 and rentals paid were Rs. 80,000.
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At 1 January 2017 the tax written down value of machinery was Rs. 120,000 and for buildings was Rs.
600,000.
Tax depreciation is claimable at 10% per annum for buildings and 15% per annum for machinery applied
to tax written down value at the start of the year.
Tax is paid at 30%
Required: Calculate current tax payable.
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Illustration 04: Deferred Tax Calculation
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X Ltd. has non-current assets with a carrying value of Rs. 200,000 and a tax base of Rs. 140,000.
It has recognised a receivable of Rs. 10,000. This relates to income which is taxed on cash basis.
It has also accrued for an expense in the amount of Rs. 20,000. Tax relief is only given on this expense
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when it is paid.
At the start of the year X Ltd. had a deferred tax liability of Rs. 12,000.
Required: The movement on the deferred tax account and the journal to record this movement
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(assume the tax rate is 30)
Required: Calculate current tax payable.

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Illustration 04: Deferred tax calculation
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A machine is purchased for Rs. 100,000 on 1 January 2011.

฀ Depreciation is provided on the machine at 25% per annum straight -line to a nil residual value.
฀ Machines are revalued to fair value using the net replacement value method. The fair values were:
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1 January 2012: Rs. 120,000

1 January 2013: Rs. 60,000
฀ The revaluation surplus is transferred to retained earnings over the life of the asset.
฀ The tax authorities allow the cost to be deducted at 20% per annum and levy tax at 30%.
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Required: Calculate the deferred tax adjustments and balances, provide all journal entries from the
year ended 31-12-2011 to 31-12-2015.
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Question 1 FRANCESCA
On 30 June 2014 Francesca Company had a credit balance on its deferred tax account of Rs.
1,340,600 all in respect of the difference between depreciation and capital allowances.
During the year ended 30 June 2015 the following transactions took place.
(1) Rs. 45 million was charged against profit in respect of depreciation. The tax computation
showed capital allowances of Rs. 50 million.
(2) Interest receivable of Rs. 50,000 was reflected in profit for the period. However, only Rs.
45,000 of interest was actually received during the year. Interest is not taxed until it is
received.
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(3) Interest payable of Rs. 32,000 was treated as an expense for the period. However, only Rs.
28,000 of interest was actually paid during the year. Interest is not an allowable expense for
tax purposes until it is paid.
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(4) During the year Francesca incurred development costs of Rs. 500,600, which it has
capitalised. Development costs are an allowable expense for tax purposes in the period in
which they are paid.
(5) Land and buildings with a net book value of Rs. 4,900,500 were revalued to Rs. 6 million.
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The tax rate is 30%. Francesca has a right of offset between its deferred tax liabilities and its
deferred tax assets.
Required
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Calculate the deferred tax liability on 30 June 2015. Show where the increase or decrease in the
liability in the year would be charged or credited.
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Question 2 SHEP (I)
Shep was incorporated on 1 January 2015. In the year ended 31 December 2015 the company
made a profit before taxation of Rs. 121,000
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During the period Shep made the following capital additions.

Rs.
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Plant 48,000
Motor vehicles 12,000
During the period:
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Accounting depreciation 11,000

Tax depreciation 15,000
Tax is chargeable at a rate of 30%.
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Required
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(a) Calculate the corporate income tax liability for the year ended 31 December 2015.
(b) Calculate the deferred tax balance that is required in the statement of financial position as at
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31 December 2015.
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(c) Prepare a note showing the movement on the deferred tax account and thus calculate the
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deferred tax charge for the year ended 31 December 2015
(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense
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for the year ended 31 December 2015.
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Question 3 SHEP (II)
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Continuing from the previous year. The following information is relevant for the year ended 31
December 2016.
(a) Capital transactions
Rs.
Depreciation charged 14,000
Tax allowances 16,000
(b) Interest payable
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On 1 April 2016 the company issued Rs. 25,000 of 8% convertible loan stock. Interest is paid
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in arrears on 30 September and 30 March. Assume that tax relief on interest expense is
only given when the interest is paid.
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(c) Interest receivable
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On 1 April Shep purchased debentures having a nominal value of Rs. 4,000. Interest at 15%
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pa is receivable on 30 September and 30 March. Assume that interest income is not taxed
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until the cash is actually received.
(d) Provision for warranty
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In preparing the financial statements for the year to 31 December 2016, Shep has
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recognised a provision for warranty payments in the amount of Rs. 1,200. This has been
correctly recognised in accordance with IAS 37 and the amount has been expensed. Assume
that tax relief on the warranty cost is only given when the expense is paid.
(e) Fine
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During the period Shep has paid a fine of Rs. 6,000. The fine is not tax deductible.
(f) Further information
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The accounting profit before tax for the year was Rs. 125,000.
Required
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31 December 2016.
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(e) Prepare a note to reconcile the product of the accounting profit and the tax rate to the tax
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expense for year ended 31 December 2016.
Question 4 SHEP (III)

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Continuing from the previous year. The following information is relevant for the year ended 31
December 2017.
(a) Interest payable/Interest receivable
Shep still has Rs. 25,000 of 8% convertible loan stack in issue and still retains its holding in
the debentures purchased in 2004.
(b) Provision for warranty
During the year Shep had paid out Rs. 500 in warranty claims and provided for a further Rs.
2,000.
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(d) Development costs
During 2017 Shep has capitalised development expenditure of Rs. 17,800 in accordance with
the provisions of IAS 38. Assume that tax relief on this expenditure is taken in full in the period
in which it is incurred.
(e) Further information
Rs.
Profit before taxation 175,000

Depreciation charged 18,500
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Tax allowable depreciation 24,700
(f) Entertainment
Shep paid for a large office party during 2017 to celebrate a successful first two years of the
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business. This cost Rs. 20,000. Assume that this expenditure is not tax deductible.
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Required
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31 December 2017.
(c)
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Prepare a note showing the movement on the deferred tax account and thus calculate the
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Question 5 SHEP (IV)

Using the information provided in ―Shep III‖ and assume that Shep is subject to a higher tax rate of
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34% in 2017.
Required
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31 December 2017.
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Question 6 WAQAR LIMITED L.O: Affect of rate change
Waqar Limited has provided you the following information for determining its tax and deferred tax
expense for the year 2014 and 2015:
(i) During the year ended December 31, 2015, the company‘s accounting profit before tax
amounted to Rs. 40 million (2014: Rs. 30 million). The profit includes capital gains amounting
to Rs. 10 million (2014: Rs. 8 million) which are exempt from tax.
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(ii) The accounting written down values of the fixed assets, as at December 31, 2013 were as
follows:
Accumulated Written
Cost
Depreciation down value
Rs. m Rs. m Rs. m
Machinery 200 25 175
Furniture and fittings 50 10 40
No additions or disposals of fixed assets were made in the years 2014 and 2015.
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(iii) Machinery was acquired on January 1, 2013 and is being depreciated on straight- line
basis over its estimated useful life of 8 years. The tax base of machinery as at December 31,
2013 was Rs. 90 million.
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(iv) Furniture and fittings are also depreciated on the straight line basis at the rate of 10% per
annum. The tax base of furniture and fittings as at December 31, 2013 was Rs. 40.5 million.
(v) Normal rate of tax depreciation on both types of assets is 10% on written down value.
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(vi) The tax rates for 2013, 2014 and 2015 were 35%, 35% and 30% respectively.
Required
For each year:
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(a) Calculate the corporate income tax liability for the year.
the year end.
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deferred tax charge for the year.
(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense.
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expense.
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Question 7 SHAKIR INDUSTRIES

Given below is the statement of profit or loss of Shakir Industries for the year ended December
31, 2015:
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2015
Rs. m
Sales 143.00
Cost of goods sold (96.60)
Gross profit 46.40
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Operating expenses (28.70)

Operating profit Other income 17.70
Profit before interest and tax 3.40
Financial charges 21.10
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Profit before tax (5.30)

15.80
Following information is available:
(i) Operating expenses include an amount of Rs. 0.7 million paid as penalty to SECP on non-
compliance of certain requirements of the Companies Act, 2017.
(ii) During the year, the company made a provision of Rs. 2.4 million for gratuity. The actual
payment on account of gratuity to outgoing members was Rs. 1.6 million.
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(iii) Lease payments made during the year amounted to Rs. 0.65 million which include
financial charges of Rs. 0.15 million. As at December 31, 2015, obligations against assets
subject to finance lease stood at Rs. 1.2 million. The movement in assets held under
finance lease is as follows:
Rs. m
Opening balance – 01/01/2015 2.50
Depreciation for the year (0.7)
Closing balance – 31/12/2015 1.80
(iv) The details of owned fixed assets are as follows:
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Accounting Tax
Rs. m Rs. m
Opening balance – 01/01/2015
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12.50 10.20
Purchased during the year 5.3 5.3
Depreciation for the year (1.1) (1.65)
Closing balance – 31/12/2015
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16.70 13.85
(v) Capital work-in-progress as on December 31, 2015 include financial charges of Rs. 2.3
million which have been capitalised in accordance with IAS-23 ―Borrowing Costs‖. However,
the entire financial charges are admissible, under the Income Tax Ordinance, 2001.
(vi)
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Deferred tax liability and provision for gratuity as at January 1, 2015 was Rs. 0.55 million
and Rs. 0.7 million respectively.
(vii) Applicable income tax rate is 35%.
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Required
Based on the available information, compute the current and deferred tax expenses for the year
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ended December 31, 2015.
Question 8 MARS LIMITED

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Mars Limited (ML) is engaged in the manufacturing of chemicals. On July 1, 2014 it obtained a
motor vehicle on lease from a bank. Details of the lease agreement are as follows:
(i) Cost of motor vehicle is Rs. 1,600,000.
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(ii) Instalments of Rs. 480,000 are to be paid annually in advance.

(iii) The lease term and useful life is 4 years and 5 years respectively.
(iv) The interest rate implicit in the lease is 13.701%.
ML follows a policy of depreciating the motor vehicles over their useful life, on the straight-line
method. However, the tax department allows only the lease payments as a deduction from taxable
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profits.
The tax rate applicable to the company is 30%. ML‘s accounting profit before tax for the year
ended June 30, 2015 is Rs. 4,900,000.
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There are no temporary differences other than those evident from the information provided
above.
Required
(a) Prepare journal entries in the books of Mars Limited for the year ended June 30, 2015 to
record the above transactions including tax and deferred tax.
(b) Prepare a note to the financial statements related to disclosure of finance lease liability, in
accordance with the requirements of IFRS.
(Ignore comparative figures.)
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L.O: PnL approach should be used only when no carrying amount or Acc dep
Question 9 BILAL ENGINEERING LIMITED data is given of PPE and no opening b/d of def tax given in question when
company is incorporated in previous year not covered by question.
Bilal Engineering Limited earned profit before tax amounting to Rs. 50 million during the year
ended December 31, 2015. The accountant of the company has submitted draft accounts to the
Finance Manager along with the following information which he believes could be useful in
determining the amount of taxation:
(i) Accounting deprecation for the year is Rs. 10 million which includes Rs. 1 million charged
on the difference between cost and revalued amount.
(ii) A motor vehicle costing Rs. 1 million was taken on lease in 2014. Related clauses of the
lease agreement are as under:
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 Annual instalment of Rs. 0.3 million is payable annually in advance.
 The lease term and useful life is 4 years and 5 years respectively.
 The interest rate implicit in the lease is 13.701% per annum.
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 Accounting depreciation on the leased vehicle is included in the depreciation
referred to in para (i) above.
(iii) Tax depreciation on the assets owned by the company is Rs. 7 million.
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(iv) Research and development expenses of Rs. 15 million were incurred in 2013 and are being
amortised over a period of 15 years. For tax purposes research and development expenses
are allowed to be written off in 10 years. However, 10% of these expenses were not verifiable
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and have not been claimed.
(v) Expenses amounting to Rs. 0.25 million were disallowed in 2012. Out of these Rs. 0.15
million were allowed in appeal, during the current year. The company had initially expected
that the full amount would be allowed but has decided not to file a further appeal.
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(vi) The applicable tax rate is 35%.
Required
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(a) Prepare journal entries in respect of taxation, for the year ended December 31, 2015.
(b) Prepare a reconciliation to explain the relationship between tax expense and accounting profit
as is required to be disclosed under IAS 12 Income Taxes.
as
L.O: 1. Treatment of tax loss

Question 10 GALAXY INTERNATIONAL 2. Computation of def tax through b/s approach in the absence of C.A & T.B
The following information relates to Galaxy International (GI), a listed company, which was
incorporated on January 1, 2014.
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(i) The (loss) / profit before taxation for the years ended December 31, 2014 and 2015 amounted
to (Rs. 1.75 million) and Rs. 23.5 million respectively.
(ii) The details of accounting and tax depreciation on fixed assets is as follows:
2015 2014
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Rs. m Rs. m
Accounting depreciation 15 15
Tax depreciation 6 45
(iii) In 2014, GI accrued certain expenses amounting to Rs. 2 million which were disallowed by
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the tax authorities. However, these expenses are expected to be allowed on the basis of
payment in 2015.
(iv) GI earned interest on Special Investment Bonds amounting to Rs. 1.0 million and Rs. 1.25
million in the years 2014 and 2015 respectively. This income is exempt from tax.
(v) GI operates an unfunded gratuity scheme. The provision during the years 2014 and 2015
amounted to Rs. 1.7 million and Rs. 2.2 million respectively. No payment has so far been
made on account of gratuity.
(vi) The applicable tax rate is 35%.
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Required
Prepare a note on taxation for inclusion in the company‘s financial statements for the year ended
December 31, 2015 giving appropriate disclosures relating to current and deferred tax expenses
including a reconciliation to explain the relationship between tax expense and accounting profit.
L.O: 1. Disposal of asset in Deferred tax question

Question 11 APRICOT LIMITED 2. liability in previous year and asset in current tax or defereed tax year
The following information relates to Apricot Limited (AL), a listed company, for the financial year
ended 31 December 2015:
(i) The profit before tax for the year amounted to Rs. 60 million (2014: Rs. 45 million).
ni
(ii) The accounting and tax written down value of fixed assets as on 31 December 2014 was Rs.
95 million and Rs. 90 million respectively. Accounting depreciation for the year is Rs. 10
million (2014: Rs. 9 million) whereas tax depreciation for the year is Rs. 8 million (2014: Rs. 7
na
million).
(iii) During the year, AL sold a machine for Rs. 3 million and recognised a profit of Rs. 0.5 million.
The tax written down value of the machine as on 31 December 2014 was Rs. 2 million.
There were no other additions/disposals of fixed assets in 2014 and 2015.
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(iv) AL earned capital gain of Rs. 6 million (2014:Nil) on sale of shares of a listed company. This
income is exempt from tax.
(v) Bad debt expenses recognised during the year was Rs. 5 million (2014: Rs. 7 million).
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(vi) Bad debts written off during the year amounted to Rs. 3 million (2014: Rs. 4 million).
(vii) Deferred tax liability and provision for bad debts as on 31 December 2011 was Rs.
18.90 million and Rs. 9 million respectively.
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(viii) The company‘s assessed brought forward losses up to 31 December 2011 amounted to
Rs. 19.25 million.
(ix) Applicable tax rate is 35%.
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Required
Prepare a note on taxation for inclusion in AL‘s financial statements for the year ended 31
December 2015 giving appropriate disclosures relating to current and deferred tax expenses
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including comparative figures for 2014 and a reconciliation to explain the relationship between 2015
tax expense and 2015 accounting profit.
L.0: 1. IAS16 & IFRS 16 in IAS12.
Question 12 ROSE LIMITED 2. Deferred tax is always with respect to future e.g taxable in current year and
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exempt in future.
Rose Limited (RL) is finalizing its financial statements for the year ended 31 December 2017. In this
respect, the following information has been gathered:
(i) Applicable tax rate is 30% except stated otherwise.
(ii) During the year RL incurred advertising cost of Rs. 15 million.
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This cost is to be allowed as tax deduction over 5 years from 2017 to 2021.
(iii) Trade and other payables amounted to Rs. 40 million as on 31 December 2017 which
include unearned commission of Rs. 10 million.
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Commission is taxable when it is earned by the company. Tax base of remaining trade and
other payables is Rs. 25 million.
(iv) Other receivables amounted to Rs. 17 million as on 31 December 2017 which include
dividend receivable of Rs. 8 million.
Dividend income was taxable on receipt basis at 20% in 2017. However, with effect from 1
January 2018, dividend received is exempt from tax. Tax base of remaining other
receivables is Rs. 6 million.
(v) On 1 April 2017, RL invested Rs. 40 million in a fixed deposit account for one year at 10%
per annum. Interest will be received on maturity.
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Interest was taxable on receipt basis at 10% in 2017. However, with effect from 1 January
2018, interest received is taxable at 15%.
(vi) On 1 January 2016, a machine was acquired on lease for a period of 4 years at annual
lease rental of Rs. 28 million, payable in advance. Interest rate implicit in the lease is 10%.
Under the tax laws, all lease related payments are allowed in the year of payment.
(vii) Details of fixed assets are as follows:
 On 1 January 2017 RL acquired a plant at a cost of Rs. 250 million. It has been
depreciated on straight line basis over a useful life of six years. RL is also obliged to
incur decommissioning cost of Rs. 50 million at the end of useful life of the plant.
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Applicable discount rate is 8%.
 On 1 July 2017 RL sold one of its four buildings for Rs. 60 million. These buildings were
acquired on 1 January 2013 at a cost of Rs. 100 million each having useful life of 30
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years.
The dismantling costs will be allowed for tax purposes when paid. Tax depreciation rate for all
owned fixed assets is 10% on reducing balance method. Further, full year‘s tax depreciation is
allowed in year of purchase while no depreciation is allowed in year of disposal.
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Required:
Compute the deferred tax liability/asset to be recognised in RL‘s statement of financial position as on
31 December 2017.
Question 13 FLOOR AND TILES LIMITED

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Following are the relevant extracts from the financial statements of Floor & Tiles Limited (FTL) for
the year ended 31 December 2015:
Rs. in million
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Profit before tax 80

Provision for gratuity for the year 12
Bad debts expense for the year 10
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Capital gain (exempt from tax) 5
The following information is also available:

(i) Opening balances of deferred tax liability, provision for bad debts and provision for gratuity
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were Rs. 5.28 million, Rs. 2 million and Rs. 13 million respectively.
(ii) The cost and other details related to buildings (owned) included in property, plant and
equipment are as follows:
Rs. in million
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Opening balance (purchased on 1 January 2013) 350

Cost of a building sold on 30 April 2015 (for Rs. 35 million) 30
Purchased on 1 July 2015 40
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(iii) Accounting depreciation on buildings is calculated @ 5% per annum on straight line basis
whereas tax depreciation is calculated @ 10% on reducing balance method. Accounting
depreciation of all other owned assets included in property, plant and equipment is same as
tax depreciation.
(iv) On 1 January 2015, a machine costing Rs. 120 million was acquired on finance lease.
Some of the relevant information is as follows:
 The lease term as well as the useful life is 5 years.
 Annual lease rentals amounting to Rs. 30 million are payable in advance.
Hassaan Khanani ACA

0332 - 2468189
 The interest rate implicit in the lease is 12.59%.
 This machine would be depreciated over its useful life on straight line method.
(v) On 1 June 2015, an amount of Rs. 1 million was paid as penalty to the provincial
government due to non-compliance of environmental laws.
(vi) The amount of gratuity paid to outgoing members was Rs. 10 million.
(vii) During the year, entertainment expenses and repair expenses amounting to Rs. 6 million
and Rs. 8 million respectively, pertaining to year ended 31 December 2013 were
disallowed. FTL has decided to file appeal only against the decision regarding repair
expenses.
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(viii) Applicable tax rate is 32%.
Required:
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Prepare a note on taxation (expense) for inclusion in FTL‘s financial statements for the year ended
31 December 2015 giving appropriate disclosures relating to current and deferred tax expenses
including a reconciliation to explain the relationship between tax expense and accounting profit.
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Hassaan Khanani ACA

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LAST DAY REVISION
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Hassaan Khanani ACA

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L.0: 1. IAS16 & IFRS 16 in IAS12.
2. Deferred tax is always with respect to future e.g taxable in current year and
Spring 2018 exempt in future.
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Hassaan Khanani ACA

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LAST DAY REVISION
Autumn 2018 L.O: 1. Reduced rate income and its impact on reconcilation and deferred tax
2. Computation of taxable temporary difference or deductible temporary
difference through opening deferred tax liability and deferred tax asset.
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Hassaan Khanani ACA
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L.O: 1. Increase in rate in subsequent year.
Spring 2019 2. Deferred tax adjustment of borrowing cost
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Hassaan Khanani ACA

0332 - 2468189
Spring 2020
Q.7 The following balances have been extracted from the trial balance of Mint Lemonade Limited
(MLL) as at 31 December 2019:
Rs. in million
Trade receivables 1,200
Capital work in progress 910
Allowance for bad debts as on 1 January 2019 44
Sales 2,500
Cost of goods sold 1,320
Research and development 180
Dividend receivable 10
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Administrative expenses 302
Selling and distribution expenses 200
Finance cost 48
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Dividend income 30
Capital gain 50
Other income 36
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While finalizing the financial statements of MLL, the following issues have been noted:
(i) Trade receivables include a balance of Rs. 40 million which needs to be written off. MLL
maintains a provision for doubtful debts at 5% of trade receivables.
(ii) K
As per tax laws, only write offs are allowed as deduction.
Capital work in progress includes interest cost of Rs. 84 million on specifically acquired
an
bank loan during the year. However, interest of Rs. 16 million earned by investing
surplus funds available from the bank loan has been included in other income.
As per tax laws, borrowing costs are allowed when incurred.
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(iii) Research and development represents cost incurred for a new product started on
1 February 2019. The recognition criteria for capitalization of internally generated
intangible asset was met on 1 May 2019. The product was launched on 31 October 2019.
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It is estimated that the useful life of this new product will be 5 years. It may be assumed
that all costs accrued evenly over the period.
Research and development cost is allowed as tax deduction over 10 years.
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(iv) Tax depreciation for the year ended 31 December 2019 exceeded accounting
depreciation already recorded in books, by Rs. 200 million.
(v) Office building of ML had net book value of Rs. 900 million on 31 December 2018 with
remaining useful life of 12 years. During 2019, MLL decided to opt revaluation model
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for its building. Consequently, fair value of building at start of 2019 was determined at
Rs. 1,200 million. Such revaluation has not yet been accounted for. Depreciation on
office building under cost model has already been recorded in the books.
Revaluation does not affect taxable profit.
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(vi) Capital gain is exempt from tax. Dividend was taxable on receipt basis at 15% in 2019.
However, with effect from 1 January 2020, dividend received would be taxable at 20%.
(vii) Applicable tax rate is 32% except stated otherwise.
Required:
(a) Prepare MLL’s statement of profit or loss and other comprehensive income for the year
(b) Prepare note on taxation for inclusion in MLL’s financial statements for the year ended
31 December 2019 including a reconciliation to explain the relationship between tax
expense and accounting profit. (12)
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Autumn 2020 L.O: 1. IFRS 9 in IAS 12
2. Rate of dividend is different
Q.8 Dua Limited (DL) is in the process of finalizing its financial statements for the year ended
31 December 2019. The following information have been gathered for preparing the
disclosures relating to taxation:
(i) Accounting loss before tax for the year amounted to Rs. 140 million. It includes:
 an amount of Rs. 2 million recovered from a customer whose debt had been
written off in 2018. As per tax laws, receivable written offs are allowed as
deduction.
 dividend of Rs. 16 million earned against equity investment in a UK based
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company. As per tax laws, this dividend income is exempt from tax in Pakistan as
20% tax was paid in UK.
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(ii) The movement of owned property, plant and equipment for 2019 is as follows:
Accounting WDV Tax base

------ Rs. in million -------
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Opening balance 1,700 1,116
Additions 460 480
Impairment (72) -*
Depreciation (470) (284)
Disposals
Closing balance 1,474
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(144)
* impairment is not allowed for tax purposes.

(92)
1,220
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Difference of Rs. 20 million in ‘Additions’ represents foreign exchange loss on
acquisition which was considered as part of the cost of the asset as per tax laws.
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(iii) As per tax laws, research expense for the year is allowable in the next year. Research
expense for the year amounted to Rs. 25 million (2018: Rs. 64 million).
(iv) Rent expense is allowed for tax purposes on payment basis. Rent prepaid as at
as
31 December 2019 amounted to Rs. 6 million (2018: Rs. 1 million).

(v) As on 31 December 2018, DL had carried forward tax losses of Rs. 90 million against
which DL had always expected that it is probable that future taxable profit will be
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available.
(vi) Tax rate is 35%.
Required:
(a) Prepare a note on taxation for inclusion in DL's financial statements for the year ended
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31 December 2019 and a reconciliation to explain the relationship between tax expense
and accounting profit. (11)
(b) Compute deferred tax liability/asset in respect of each temporary difference as at
31 December 2019 and 2018. (05)
K
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Autumn 2021
Q.7 Following information has been gathered for preparing the disclosures related to taxation of
Mabroom Limited (ML) for the year ended 31 December 2020:
(i) Accounting profit before tax for the year amounted to Rs. 50 million.
(ii) Accounting amortization exceeded tax amortization by Rs. 20 million (2019: Rs. 12 million).
As at 31 December 2020, carrying values of intangible assets exceeded their tax base by Rs.
145 million.
(iii) During the year, ML incurred advertising cost of Rs. 12 million. This cost is to be allowed as tax
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deduction over 3 years from 2020 to 2022.
(iv) During the year, entertainment expenses amounting to Rs. 10 million pertaining to year ended
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31 December 2018 were disallowed. Similar entertainment expenses for the current year were
amounted to Rs. 7 million.
(v) Provision for warranty as at 31 December 2020 was Rs. 23 million (2019: Rs. 18 million).
Under tax laws, warranty expense is allowed on payment basis.
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(vi) During the year, ML recorded dividend income of Rs. 6 million out of which Rs. 2 million was
not received till 31 December 2020. Under tax laws, dividend is taxable on receipt basis at the
rate of 15%.
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(vii) On 1 April 2020, a manufacturing plant was acquired on lease for a period of 4 years at an
annual lease rental of Rs. 40 million, payable in arrears. Interest rate implicit in the lease is 10%
per annum. Under tax laws, all lease rentals are allowed on payment basis.
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(viii) Applicable tax rate (other than dividend income) is 35% for 2020 and prior years. However, this
rate has been reduced by 5% for 2021 and future years through Finance Act enacted on 20
December 2020
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Required:
(a) Prepare a note on taxation for inclusion in ML's financial statements for the year ended 31
December 2020 and a reconciliation to explain the relationship between the tax expense
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and accounting profit. (11)
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31

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December 2020 and 2019. (07)

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Hassaan Khanani ACA

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Extra Questions
Question 01:
Mercury Water Limited (MWL) is a listed company and is engaged in the business of purifying and
marketing of bottled water.
MWL purchased a bottling plant on 1 July 2006 at a cost of Rs. 90 million. The plant has a useful life of
ten years with no residual value. Depreciation is provided on straight-line method over the plant’s useful
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life. MWL revalues its plant at the end of every two years.
The revalued amounts determined by Jet Valuers, an independent firm of valuers, are as follows:
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(i) On 30 June 2008: Rs. 64 million
(ii) On 30 June 2010: Rs 60 million
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However, there was no change in the expected useful life and residual value of the plant.
Profit before tax for the years ended 30 June 2011 and 2010 was Rs. 80 million and Rs. 60 million
respectively. The tax authorities allow tax depreciation at 20% on reducing balance method. There are
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no temporary or permanent differences other than those apparent from the above information. The tax
rate applicable on MWL is 40%.
Required:
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a) Prepare journal entries from the year ended 30-6-2007 to 30-6-2011. (14 marks)
b) Prepare a note on taxation for the year ended 30 June 2011 in accordance with International
Financial Reporting Standards. (07 marks)
(Comparative figures are required. Accounting policies are not required)
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Question 02:
Avi Limited operates in the food industry. It commenced operations on 1 January 2016. The following
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information is available for its year ended 31 December 2018:

 Profit before tax for the year ended 31 December 2018 is Rs. 650,000. This is arrived at after
correctly taking into account all the information below.
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 The tax assessment for 2017 arrived during 2018 and indicated taxable profits of Rs. 650,000.
Current normal tax of Rs. 195,000 was processed in 2017.
 A building was sold for Rs. 100,000. It was purchased for Rs. 220,000. On the date of sale, 1 January
2018, the building had a carrying amount of Rs. 120,000 and a tax base of Rs. 130,000.

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Plant was revalued to a fair value of Rs. 60,000 on 1 January 2018. This is the first revaluation of any
item of property, plant and equipment to date. The plant originally cost Rs. 100,000 and had a
carrying amount on 1 January 2018 of Rs. 50,000.
 No transfers of the realized portion of the revaluation surplus to retained earnings are made.
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 No other items of property, plant and equipment were revalued.

 Depreciation is provided on the revalued property, plant and equipment. It had a remaining useful
life of 5 years on 1 January 2018 (consistent with previous estimates of useful life).
 The tax authorities allow a tax depreciation on the item of plant (revalued above) at 25% p.a. on
cost, but the item of plant already had a tax base of zero on 1 January 2018.
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 Accounting Depreciation and tax depreciation on all items of property, plant and equipment (other
than the revalued plant) were Rs. 50,000 and Rs. 35,000 respectively.
 Dividend income of Rs. 20,000 was earned in the current year.
 The following items appeared in the draft 31 December 2018 statement of financial position:
 Accrued income (taxed when earned) Rs. 10,000
 Expenses prepaid (deductible when paid) Rs. 30,000
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 The following items appeared on the 31 December 2017 statement of financial position:
 Accrued income (taxed when earned) Rs. 20,000
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 Expenses prepaid (deductible when paid) Rs. 0
 Property, plant and equipment (including plant and buildings) Rs. 700,000
 Property, plant and equipment (including plant and buildings) had a tax base of at 31 December
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2017 of Rs. 680,000.
 The current normal tax rate is 30% (2017: 29%) whereas dividend income is taxable at 10%.
Required:
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a) Calculate the deferred tax balance at 31 December 2018 using the balance sheet approach.
b) Calculate the current tax expense for the year ended 31 December 2018.
c) Prepare a note of tax expense for the year ended 31 December 2018.
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d) Prepare a reconciliation of accounting profit with tax expense for the year ended 31 December
2018.
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MCQ's
01. A piece of machinery cost Rs. 500,000. Tax depreciation to date has amounted to Rs. 220,000
and depreciation charged in the financial statements to date is Rs. 100,000. The rate of income
tax is 30%.
Which of the following statements is incorrect according to IAS 12 Income Taxes?
(a) The deferred tax liability in relation to the asset is Rs. 36,000
(b) The tax base of the asset is Rs. 280,000
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(c) There is a deductible difference of Rs. 120,000
(d) There is a taxable temporary difference of Rs. 120,000
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02. Tall Limited (TL)’s accounting records shown the following:
Rs. 000
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Income tax payable for the year 60,000
Over provision in relation to the previous year 4,500
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Opening deferred tax liability 2,600
Closing for deferred tax liability 3,200

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What is the income tax expense that will be shown in the statement of profit or loss for the year?
(a) Rs. 54,900,000

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(b) Rs. 67,700,000
(c) Rs. 65,100,000

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(d) Rs. 56,100,000
03. The following information has been extracted from the accounting records of Candle Limited:
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Rs. 000
Estimated income tax

for the year ended 30 September 2020 Rs. 75,000
Income tax paid

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Estimated income tax

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What figures will be shown in the statement of comprehensive income for the year ended 30
September 2021 in respect of income tax?
(a) Rs. 75,000,000
(b) Rs. 80,000,000
(c) Rs. 88,000,000
(d) Rs. 83,000,000
Hassaan Khanani ACA

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04. Home Limited (HL) has the following balances included on its trial balance at 30 June 2014.
Rs. 000
Taxation 4,000 Credit
Deferred taxation 12,000 Credit
The taxation balance relates to an over-provision from 30 June 2013.

At 30 June 2014, the directors estimate that the provision necessary for taxation on current year
profits is Rs. 15,000,000.
The carrying amount of HL’s non-current assets exceeds the tax written-down value by Rs.
ni
30,000,000. The rate of tax is 30%.
What is the charge for taxation that will appear in the statement of profit or loss for the year to 30
na
June 2014?
(a) Rs. 23,000,000
(b) Rs. 28,000,000
ha
(c) Rs. 8,000,000
(d) Rs. 12,000,000
05. Hall Limited has the following balances included on its trial balance at 30 June 2014:
Taxation
Rs. 000
7,000 Credit K
an
Deferred taxation 16,000 Credit
The taxation balance relates to an overprovision from 30 June 2013.

sa
At 30 June 2014, the directors estimate that the provision necessary for taxation on current year
profits is Rs. 12 million. The balance on the deferred tax account needs to be increased to Rs. 23
million, which includes the impact of the increase in property valuation below.
During the year Hall Limited revalued its property for the first time, resulting in a gain of Rs. 10
as
million. The rate of tax is 30%.

What is the charge for taxation that will appear in the statement of profit or loss for the year to 30
June 2014?
-H
(a) Rs. 9 million
(b) Rs. 12 million
(c) Rs. 23 million

nS
(d) Rs. 1 million
06. Vase Limited (VL)’s assistant accountant has discovered that there is a debit balance on the trial
balance of Rs. 3,000 relating to the over/under-provision of tax from the prior year.
K
What impact will this have on VL’s current year financial statements?
(a) Increase the tax liability by Rs. 3,000 in the statement of financial position
(b) Decrease the tax liability by Rs. 3,000 in the statement of financial position
(c) Increase the tax expense by Rs. 3,000 in the statement of profit or loss
(d) Decrease the tax expense by Rs. 3,000 in the statement of profit or loss
Hassaan Khanani ACA

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07. A company's trial balance shows a debit balance of Rs. 2.1 million brought forward on current tax
and a credit balance of Rs. 5.4 million on deferred tax. The tax charge for the current year is
estimated at Rs. 16.2 million and the carrying amounts of net assets are Rs. 13 million in excess
of their tax base. The income tax rate is 30%.
What amount will be shown as income tax in the statement of profit or loss for the year?
ni
na
08. A company's trial balance at 31 December 2013 shows a debit balance of Rs. 700,000 on current
tax and a credit balance of Rs. 8,400,000 on deferred tax. The directors have estimated the
provision for income tax for the year at Rs. 4.5 million and the required deferred tax provision is
Rs. 5.6 million, Rs. 1.2 million of which relates to a property revaluation.
ha
What is the profit or loss income tax charge for the year ended 31 December 2013?
(a) Rs. 1 million
K
(b) Rs. 2.4 million
(c) Rs. 1.2 million

an
(d) Rs. 3.6 million
09. The following information relates to an entity.

sa
(i) At 1 January 2018 the carrying amount of non-current assets exceeded their tax written
down value by Rs. 850,000.
(ii) For the year to 31 December 2018 the entity claimed depreciation for tax purposes of Rs.
as
500,000 and charged depreciation of Rs. 450,000 in the financial statements.

(iii) During the year ended 31 December 2018 the entity revalued a property. The revaluation
surplus was Rs. 250,000. There are no current plans to sell the property.
-H
(iv) The tax rate was 30%.

What is the deferred tax liability required by IAS 12 Income Taxes at 31 December 2018?
(a) Rs. 240,000
(b) Rs. 270,000

nS
(c) Rs. 315,000
(d) Rs. 345,000

K
10. The accountant of an entity is confused by the term 'tax base'. What is meant by 'tax base'?
(a) The amount of tax payable in a future period
(b) The tax regime under which an entity is assessed for tax
(c) The amount attributed to an asset or liability for tax purposes
(d) The amount of tax deductible in a future period
Hassaan Khanani ACA

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11. The carrying amount of Jewel Limited (JL)'s property, plant and equipment at 31 December 2013
was Rs. 310,000 and the tax written down value was Rs. 230,000.
The following data relates to the year ended 31 December 2014:
(i) At the end of the year the carrying amount of property, plant and equipment was Rs.
460,000 and the tax written down value was Rs. 270,000. During the year some items
were revalued by Rs. 90,000. No items had previously required revaluation. In the tax
jurisdiction in which JL operates revaluations of assets do not affect the tax base of an
asset or taxable profit. Gains due to revaluations are taxable on sale.
(ii) JL began development of a new product during the year and capitalised Rs. 60,000 in
accordance with IAS 38. The expenditure was deducted for tax purposes as it was
ni
incurred. None of the expenditure had been amortised by the year end.
What is the taxable temporary difference to be accounted for at 31 December 2014 in relation to
property, plant and equipment and development expenditure?
na
Property, plant and equipment Development
expenditure
ha
(a) Rs. 270,000 Rs. 60,000
(b) Rs. 270,000 Nil
(c) Rs. 190,000 Rs. 60,000
(d) Rs. 190,000
K
Nil
an
sa
At the end of the year, 31 December 2014, the carrying amount of property, plant and equipment
was Rs. 460,000 and the tax written down value was Rs. 270,000. During the year some items
were revalued by Rs. 90,000. No items had previously required revaluation. In the tax jurisdiction
in which JL operates revaluations of assets do not affect the tax base of an asset or taxable profit.
Gains due to revaluations are taxable on sale.
as
The corporate income tax rate is 30%. The current tax charge was calculated for the year as Rs.
45,000.
What amount should be charged to the revaluation surplus at 31 December 2014 in respect of
-H
deferred tax?
(a) Rs. 60,000
(b) Rs. 90,000

nS
(c) Rs. 18,000
(d) Rs. 27,000

K
At the end of the year, 31 December 2014, the carrying amount of property, plant and equipment
was Rs. 460,000 and the tax written down value was Rs. 270,000. During the year some items
were revalued by Rs. 90,000. No items had previously required revaluation. In the tax jurisdiction
in which JL operates revaluations of assets do not affect the tax base of an asset or taxable profit.
Gains due to revaluations are taxable on sale.
Hassaan Khanani ACA

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The corporate income tax rate is 30%. The current tax charge was calculated for the year as Rs.
45,000.
What amount will be shown as current tax payable in the statement of financial position of JL at
31 December 2014?
(a) Rs. 45,000
(b) Rs. 72,000
(c) Rs. 63,000
(d) Rs. 75,000
ni
na
14. Deferred tax assets and liabilities arise from taxable and deductible temporary differences. Which
one of the following is not a circumstance giving rise to a temporary difference?
(a) Depreciation accelerated for tax purposes
ha
(b) Development costs amortised in profit or loss but tax was deductible in full when incurred
(c) Accrued expenses which have already been deducted for tax purposes
K
(d) Revenue included in accounting profit when invoiced but only liable for tax when the cash
is received.
an
15. Which of the following statements regarding taxation of lease arrangement are true?
(i) Depreciation expense and interest expense should be added back in accounting profit to
calculate current tax
sa
(ii) Rental payments should be deducted from accounting profit for calculating current tax
(iii) Right of use asset has tax base of nil resulting in taxable temporary difference
(iv) Lease liabilities have tax base of nil resulting deductible temporary difference
as
(a) (i), (ii) and (iii)

-H
(b) (ii), (iii) and (iv)
(c) (i), (ii) and (iv)
(d) (i), (ii), (iii) and (iv) all

nS
16. Venice Limited (VL)’s assistant accountant estimated the tax expense for the year ended 31
December 2018 at Rs. 43,000. However, he had ignored deferred tax. At 1 January 2018 VL had
a deferred tax liability of Rs. 130,000. At 31 December 2018 VL had temporary taxable differences
K
of Rs. 360,000.
VL pays tax at 25%. All movements in deferred tax are taken to the statement of profit or loss.
What will be recorded as the tax expense in the statement of profit or loss for the year ended 31
December 2018?
Rs. ___________
Hassaan Khanani ACA

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17. The statements of financial position of Nitrogen Limited (NL) include the following extracts:
Statements of financial position 2012 2011

as at 30 September
Rs. m Rs. m
Non-current liabilities
Deferred tax 310 140
Current liabilities
ni
Taxation 130 160
The tax charge in the statement of profit or loss for the year ended 30 September 2012 is Rs. 270
na
million.
What amount of tax was paid during the year to 30 September 2012?
Rs. ___________
ha
18. The trial balance of Hall Limited (HL) at 31 March 2016 showed credit balances of Rs. 800,000 on
current tax and Rs. 2.6 million on deferred tax.
K
A property was revalued during the year giving rise to deferred tax of Rs. 3.75 million. This has
been included in the deferred tax provision of Rs. 6.75 million at 31 March 2016.
an
The income tax charge for the year ended 31 March 2016 is estimated at Rs. 19.4 million.
What will be shown as the income tax charge in the statement of profit or loss of HL at 31 March
2016?
sa
Rs. ___________
19. Orange Limited (OL) is in the process of finalizing its financial statements for the year ended 30
as
June 2018.
OL sells goods with a 1-year warranty and it is estimated that warranty expenses are 2% of annual
sales. Actual payments during the year related to warranty claims were Rs. 54 million. Of these,
-H
Rs. 38 million pertain to goods sold during the previous year. Opening balance of provision for
warranty was Rs. 49 million.
Sales for the year ended 30 June 2018 was Rs. 1,750 million. Under the tax laws, these expenses
are allowed on payment basis. Applicable tax rate is 30%.
What is the amount of deferred tax expense or income in respect of above for the year ended 30
nS
June 2018?
Rs. ___________
K
20. Orange Limited (OL) is in the process of finalizing its financial statements for the year ended 30
June 2018.
Profit before tax for the year ended 30 June 2018 was Rs. 508 million.
OL sells goods with a 1-year warranty and it is estimated that warranty expenses are 2% of annual
sales. Actual payments during the year related to warranty claims were Rs. 54 million. Of these,
Rs. 38 million pertain to goods sold during the previous year. Opening balance of provision for
warranty was Rs. 49 million.
Hassaan Khanani ACA

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Sales for the year ended 30 June 2018 was Rs. 1,750 million. Under the tax laws, these expenses
are allowed on payment basis. Applicable tax rate is 30%.
What is the amount of current tax after considering above information for the year ended 30 June
2018?
Rs. ___________
21. Which of the following does NOT give rise to deferred tax?
(a) Difference between accounting depreciation and tax depreciation
ni
(b) Expenses charged in the statement of profit or loss but not allowable in tax
(c) Revaluation of a non-current asset but not allowable in tax
na
(d) Unused tax losses
ha
22. Which TWO of the following are examples, where carrying amount is always equal to
tax base?
(a) Accrued expenses that have already been deducted in determining the current tax
(b)
K
Allowance for bad debts where tax relief is granted when the debt is written-off
an
(c) Accrued income that will never be taxable
(d) Capitalized development costs which are allowable in tax upon payment
sa
23. The following information relates to a building of Jet Limited (JL).

 At 1 January 2018, the carrying amount of the building exceeded its tax base by Rs.
1,275,000.
as
 In 2018, JL claimed tax depreciation of Rs. 750,000 and charged accounting depreciation of
Rs. 675,000.
 As at 31 December 2018, JL increased the carrying amount of the building by Rs. 375,000
on account of revaluation. Revaluation is not allowed in tax.
-H
 Applicable tax rate is 32%.

The deferred tax liability as at 31 December 2018 in respect of building is:
(a) Rs. 384,000

nS
(b) Rs. 432,000
(c) Rs. 504,000
(d) Rs. 552,000

K
Hassaan Khanani ACA

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ni
na
ha
CONSOLIDATION K
an
sa
as
-H
nS
K
Hassaan Khanani ACA

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Rules of SOFP
1. Add all assets and Liabilities of Parent and Subsidiary irrespective of date and % of holding
2. Do not add equity accounts of subsidiary
3. Investment in subsidiary books in Parent Financials will not become part of consolidated SOFP
ni
4. Goodwill to be shown with Intangible assets (After PPE)
5. Non-controlling interest Between Equities and Liabilities
na
6. Intra group Receivable and Payable to be eliminated
Rules for SOCI
ha
7. Add all P/L items of Parent and Subsidiary considering date of acquisition
8. Total Profit to be allocated between Parent and NCI
K
9. Exclude dividend received from subsidiary from Parent other Income
10. Unrealized profit on Inventory to be added to COGS
an
Common Adjustments in Consolidation
sa
 Unrealized profit on inventory

 Unrealized profit on PPE
 Intra Group all types of receivable and Payable
as
 Dividend transaction
 Fair value adjustment
 Management expenses treatment
-H
nS
K
Hassaan Khanani ACA

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Four Steps Consolidation Method
1 Statement of Net Assets
At Reporting Date At Acq date Diff

Share capital XXX XXX xx
Retained Earnings XXX XXX xx
Share Premium XXX XXX xx
Fv adj XXX XXX xx
XXXX XXXX xxx
ni
NCI Goodwill CRE
na
2 Good will (Proportionate Good will Method)
FV of Investment xxxxx
Less : FV of Net assets at Acquisition date XXXX
ha
(XXXX* Parent Holding %)
Good will xx
K
3 Consolidated Retained Earnings (CRE)
an
Parent Retained Earning From Sawal xxxx
Post acq profit of Subs xxx
(XXXX * Parent Holding %) XXXX
sa
4 Non Controlling Interest

as
Subs Net Assets at reporting date * % of NCI XXX

-H
Baby Step Examples of Goodwill
1 A Limited Acquired 100% of B Limited for 220 m when net assets of B limited were as follows
nS
SC 100 mn
RE 100 mn
K
Hassaan Khanani ACA

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A Limited Acquired 100% of B Limited for 180 m when net assets of B limited were as
2 follows
SC 100 mn
RE 100 mn
SC 100 mn SP 20mn
ni
RE 100 mn
na
SC 100 mn
RE 100 mn
SP 50 mn
ha
All the Assets have their book values equal to fair values except a piece of Land having FV
20 mn greater that book value
K
5 A Limited Acquired 100% of B Limited when net assets of B limited were as follows
an
SC 100 mn
RE 100 mn
SP 50 mn
sa
A limited paid Rs 200 cash and agreed to pay 80 mn after two years. Market rate of
interest is 15 %
as
6 A Limited Acquired 100% of B Limited when net assets of B limited were as follows
-H
SC 100 mn
RE 100 mn
SP 50 mn
A limited offered will issue 40 million its own shares as purchase consideration.
nS
Market value of A ltd share is Rs 5 where as its book value is Rs 2.5 and face value
is Rs 1 per share.
Why KnS for CAF 7?

K
 Hassaan Khanani is the only teacher in Karachi to teach CAF 7 100%

himself which is the need of subject due to linking of different topics
 No Late night & No Sunday Classes for Regular Batch
 Fixed Time Table
Hassaan Khanani ACA

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4.1 HALL
Statements of financial position at 31 December 2015
Hall Stand
Rs. 000 Rs. 000
Assets
Non-current assets
ni
Property, plant and equipment 35,000 20,000
Investment in Stand 12,000 –
na
Current assets 16,000 14,000
——— ———
63,000 34,000
——— ———
Equity and liabilities
ha
Capital and reserves
Share capital 10,000 4,000
Retained earnings 13,000 12,000
——— ———
K
23,000 16,000
8% Debenture loans 20,000 9,000
an
Current liabilities 20,000 9,000
——— ———
63,000 34,000
——— ———
sa
On 1 January 2013 Hall acquired 75% of Stand for Rs. 12,000,000. At that date the balance on
Stand‘s retained earnings was Rs. 8,000,000.
as
Required
Prepare the consolidated statement of financial position of Hall as at 31 December 2015.
-H
4.2 HASSLE
Hassle Strife
Rs. Rs.
Investment in Strife 60,000 –
nS
Sundry assets 247,500 226,600

———– —–——
307,500 226,600
———– ——–—
K

Liabilities 100,000 106,600
———– ——–—
307,500 226,600
———– ——–—
Hassle bought 80% of Strife when the balance on Strife‘s retained profit was Rs. 50,000.
Required
Prepare the consolidated statement of financial position at 31 December 2015.
L.O: Negative goodwill will be reflected in consolidated retained earning
Hassaan Khanani ACA

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4.3 HYMN
The following are the summarised statements of financial position of a group of companies as at 31
December 2015.
Hymn Psalm
Rs. Rs.
Assets
Non-current assets
ni
Investment 85,000
na
———– ———–
410,000 120,000
———– ———–
ha
Equity
K
———– ———–
255,000 99,000
an
———– ———–
410,000 120,000
sa
———– ———–
Hymn purchased 80% of Psalm‘s shares on 1 January 2015 when there was a credit balance on
that company‘s retained earnings of Rs. 20,000.
as
Required
Prepare the Hymn group consolidated statement of financial position as at 31 December 2015.
-H
4.4 HANG
On 31 December 2012, Hang acquired 60% of Swing for Rs. 140,000. At that date Swing had a
retained earnings balance of Rs. 50,000 and a share premium account balance of Rs. 49,000.
nS
The following statements of financial position have been prepared as at 31 December 2015.
Hang Swing
Rs. Rs.
K
Assets
Non-current assets
Investment in Swing 140,000
———– ———–
630,000 376,000
———– ———–
Hassaan Khanani ACA

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Equity
Share premium 25,000 49,000
———– ———–
405,000 219,000
———– ———–
ni
630,000 376,000
———– ———–
Required
na
Prepare the consolidated statement of financial position of Hang and its subsidiary as at 31
December 2015.
ha
4.5 HASH
Hash Stash
Investment in Stash (80%)

K Rs. 000
100,000
Rs. 000
–
an
Sundry assets 207,500 226,600
———– —–——
307,500 226,600
sa
———– ——–—

as

Liabilities 100,000 106,600
———– ——–—
-H
307,500 226,600
———– ——–—
th
Hash purchased the shares in Stash on 30 September 2015.
Stash‘s retained profit for the year ended 31 December 2015 was Rs. 24,000,000.
st
nS
Required
Prepare the consolidated statement of financial position at 31 December 2015.
K
L.O: Acquisition of subsidiary mid of the year hence computation of Retained Earning
at acquisition date.
`
Hassaan Khanani ACA

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Basic Approach - MCQs
5 OBJECTIVE BASED QUESTIONS
01. On what basis may a subsidiary be excluded from consolidation?
(a) The activities of the subsidiary are dissimilar to the activities of the rest of the group
(b) The subsidiary was acquired with the intention of reselling it after a short period of time
(c) The subsidiary is based in a country with strict exchange controls which make it difficult for
it to transfer funds to the parent
(d) There above three statements are not valid reasons for excluding a subsidiary from
consolidation.
ni
02. When negative goodwill arises IFRS 3 Business combinations requires that the amounts involved
in computing goodwill should first be reassessed.
na
When the amount of the negative goodwill has been confirmed, how should it be accounted for?
(a) Charged as an expense in profit or loss
(b) Capitalised and presented under non-current assets
ha
(c) Credited to profit or loss
(d) Shown as a deduction from non-current assets
03.
K
Which TWO of the following statements are correct when preparing consolidated financial
statements?
an
(a) A subsidiary cannot be consolidated unless it prepares financial statements to the same
reporting date as the parent.
(b) A subsidiary with a different reporting date may prepare additional statements up to the
group reporting date for consolidation purposes.
sa
(c) A subsidiary's financial statements can be included in the consolidation if the gap between
the parent and subsidiary reporting dates is five months or less.
(d) Where a subsidiary's financial statements are drawn up to a different reporting date from
as
those of the parent, adjustments should be made for significant transactions or events
occurring between the two reporting dates.
-H
04. IFRS 10 Consolidated financial statements provides a definition of control and identifies three
separate elements of control.
Which one of the following is not one of these elements of control?
(a) Power over the investee
nS
(b) The power to participate in the financial and operating policies of the investee
(c) Exposure to, or rights to, variable returns from its involvement with the investee
(d) The ability to use its power over the investee to affect the amount of the investor's returns
K
05. Chemist Limited (CL) owns 100% of the share capital of the following companies. The directors
are unsure of whether the investments should be consolidated.
In which of the following circumstances would the investment NOT be consolidated?
(a) CL has decided to sell its investment in Alpha Limited as it is loss-making; the directors
believe its exclusion from consolidation would assist users in predicting the group's future
profits
(b) Beta Limited is a bank and its activity is so different from the engineering activities of the rest
of the group that it would be meaningless to consolidate it
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(c) Delta Limited is located in a country where local accounting standards are compulsory, and
these are not compatible with IFRS used by the rest of the group
(d) Gamma Limited is located in a country where a military coup has taken place and CL has
lost control of the investment for the foreseeable future
06. Ahmad Hassan Limited acquired 70% of the Rs. 100 million equity share capital of Asar Limited,
its only subsidiary, for Rs. 200 million on 1 January 2019 when the retained earnings of Asar
Limited were Rs. 156 million.
At 31 December 2019 retained earnings are as follows.
ni
Rs. million
Ahmad Hassan Limited 275
na
Asar Limited 177
Ahmad Hassan Limited considers that goodwill on acquisition is impaired by 50%. Non-controlling
ha
interest is measured at fair value, estimated at Rs. 82.8 million.
What are group retained earnings at 31 December 2019?
K
an
07. On 1 April 2010 Golden Limited acquired 75% of Silver Limited’s equity shares by means of a
share exchange and an additional amount payable on 1 April 2011 that was contingent upon the
sa
post-acquisition performance of Silver Limited. At the date of acquisition Golden Limited assessed
the fair value of this contingent consideration at Rs. 4.2 million but by 31 March 2011 it was clear
that the amount to be paid would be only Rs. 2.7 million. How should Golden Limited account for
this Rs. 1.5 million adjustments in its financial statements as at 31 March 2011?
as
(a) Debit current liabilities/Credit goodwill

(b) Debit retained earnings/Credit current liabilities
-H
(c) Debit goodwill/Credit current liabilities

(d) Debit current liabilities/Credit retained earnings
08. On 31 July 2018 Parveen Limited acquired 60% of the 18 million Rs. 10 ordinary shares of Sidra
Limited for a sum of Rs. 432 million. Sidra Limited had accumulated profits at 1 January 2018 of
nS
Rs. 360 million and during the year to 31 December 2018 made a profit of Rs. 108 million.
Fair value of non-controlling interest at the date of acquisition is Rs. 200 million
What is the goodwill that should appear in the consolidated statement of financial position at 31
December 2018?
K
(a) Rs. 108 million

(b) Rs. 29 million
(c) Rs. 171 million
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09. Tanveer Limited acquired Tabeer Traders, an unincorporated entity, for Rs. 2.8 million. A fair value
exercise performed on Tabeer Traders’ net assets at the date of purchase showed:
Rs. 000
Property, plant and equipment 3,000
Identifiable intangible asset 500
Inventory 300
Trade receivables less payables 200
4,000
ni
How would the purchase be reflected in the consolidated statement of financial position?
(a) Record the net assets at their above values and credit profit or loss with Rs. 1.2 million
na
(b) Record the net assets at their above values and credit goodwill with Rs. 1.2 million
(c) Ignore the intangible asset (Rs. 500,000), recording the remaining net assets at their values
shown above and crediting profit or loss with Rs. 700,000
ha
(d) Record the purchase as a financial asset investment at Rs. 2.8 million
10. Which of the following definitions is not included within the definition of control per IFRS 10
K
Consolidated Financial Statements?
(a) Having power over the investee
(b) Having exposure, or rights, to variable returns from its investment with the investee
an
(c) Having the majority of shares in the investee
(d) Having the ability to use its power over the investee to affect the amount of the investor’s
returns
sa
11. Sunshine Limited acquired 80% of the share capital of Sun Flower Limited on 1 January 2011.
Part of the purchase consideration was Rs. 200 million cash to be paid on 1 January 2014. The
as
applicable cost of capital is 10%.

What will the deferred consideration liability be at 31 December 2012?
-H

(c) Rs. 200 million
nS
12. Which TWO of the following situations are unlikely to represent control over an investee?
(a) Owning 55% and being able to elect 4 of the 7 directors
(b) Owning 51%, but the constitution requires that decisions need the unanimous consent of
shareholders
K
(c) Having currently exercisable options which would take the shareholding in the investee to
55%
(d) Owning 35% of the ordinary shares and 80% of the preference shares of the investee
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13. Which of the following is not a condition which must be met for the parent to be exempt from
producing consolidated financial statements?
(a) The activities of the subsidiary are significantly different to the rest of the group and to
consolidate them would prejudice the overall group position
(b) The ultimate parent produces consolidated financial statements that comply with IFRS
Standards and are publicly available
(c) The parent’s debt or equity instruments are not traded in a public market
(d) The parent itself is a wholly owned subsidiary or a partially owned subsidiary whose owners
do not object to the parent not producing consolidated financial statements
ni
14. Consolidated financial statements are presented on the basis that the companies within the group
are treated as if they are a single economic entity.
na
Which TWO of the following are requirements of preparing consolidated financial statements?
(a) All subsidiaries must adopt the accounting policies of the parent in their individual financial
statements
ha
(b) Subsidiaries with activities which are substantially different to the activities of other members
of the group should not be consolidated
(c) All assets and liabilities of subsidiaries should be included at fair value
K
(d) Unrealised profits within the group must be eliminated from the consolidated financial
statements
an
15. High Limited has a number of relationships with other companies. In which of the following
relationships is High Limited necessarily the parent?
(i) Fall Limited has 50,000 non-voting and 100,000 voting equity shares in issue with each
share receiving the same dividend. High Limited owns all of Fall Limited’s non-voting
sa
shares and 40,000 of its voting shares.

(ii) Low Limited has 1 million equity shares in issue of which High Limited owns 40%. High
Limited also owns Rs. 800,000 out of Rs. 1 million 8% convertible debentures issued by
Low Limited. These debentures may be converted on the basis of 40 equity shares for
as
each Rs. 100 of debentures, or they may be redeemed in cash at the option of the holder.
(iii) High Limited owns 49% of the equity shares in Middle Limited and 52% of its non-
redeemable preference shares. As a result of these investments, High Limited receives
variable returns from Middle Limited and has the ability to affect these returns through its
-H
power over Middle Limited.

(a) (i) only
(b) (i) and (ii) only
(c) (ii) and (iii) only
nS
(d) All three
16. On 1 March 2019, Qazi Limited acquired 70% of the share capital of Hijazi Limited at a cost of Rs.
387 million.
K
At that date the fair value of the net assets of Hijazi Limited were Rs. 450 million. Transaction costs
incurred in making the acquisition were Rs. 0.045 million. Qazi Limited has decided to account for
the business combination using the full goodwill or fair value method, by attributing some goodwill
to the non-controlling interests in Hijazi Limited. It is estimated that at 1 March 2019 the fair value
of the non-controlling interests in Hijazi Limited was Rs. 153 million.
What was the total amount of goodwill recognised on the acquisition of Hijazi Limited by Qazi
Limited?
Rs. ___________
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17. Sound Limited obtained a 60% holding in the 10 million Rs. 10 shares of Cloud Limited on 1
January 2018, when the retained earnings of Cloud Limited were Rs. 850 million.
Consideration comprised Rs. 250 million cash, Rs. 400 million payable on 1 January 2019 and
one share in Sound Limited for each two shares acquired. Sound Limited has a cost of capital of
8% and the market value of its shares on 1 January 2018 was Rs. 23.
Sound Limited measures non-controlling interest at fair value. The fair value of the non-controlling
interest at 1 January 2018 was estimated to be Rs. 400 million.
What was the goodwill arising on acquisition?
Rs. ___________
ni
18. On 1 August 2017 Magnesium Limited purchased 1.8 million of the 2.4 million Rs. 10 equity shares
na
of Copper Limited. The acquisition was through a share exchange of two shares in Magnesium
Limited for every three shares in Copper Limited. The market price of a share in Magnesium
Limited at 1 August 2017 was Rs. 57.5.
Magnesium Limited will also pay in cash on 31 July 2019 (two years after acquisition) Rs. 24.2 per
ha
acquired share of Copper Limited. Magnesium Limited's cost of capital is 10% per annum.
What is the amount of the consideration attributable to Magnesium Limited for the acquisition of
Copper Limited?
Rs. ___________
K
an
19. Big Limited acquired 70% of Small Limited's 10 million Rs. 10 ordinary shares for Rs. 800 million
when the retained earnings of Small Limited were Rs. 570 million and the balance in its revaluation
surplus was Rs. 150 million. The non-controlling interest in Small Limited was judged to have a
fair value of Rs. 220 million at the date of acquisition.
sa
What was the goodwill arising on acquisition?
Rs. ___________
as
20. Faiqa Limited acquired 75% of the 120,000 Rs. 10 ordinary shares in Saiqa Limited on 1 January
2014. At that date Saiqa Limited had accumulated profits of Rs. 700,000 and a share premium
account balance of Rs. 200,000. Faiqa Limited paid Rs. 1,680,000 for the shares in Saiqa Limited.
At 31 December 2017 Saiqa Limited had accumulated profits of Rs. 1,000,000 and Faiqa Limited
-H
had accumulated profits of Rs. 1,600,000.

What are the consolidated accumulated profits as at 31 December 2017?
Rs. ___________
nS
K
Hassaan Khanani ACA

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CONSOLIDATIONS:
GROUP: A Parent and its Subsidiaries.
PARENT: An entity that controls on or more entity.
SUBSIDIARY: An entity that is controlled by another entity.
ni
Subsidiary Conditions:-
na
a) > 50% Holding
b) Majority in BoD
ha
Goodwill
K
an
Positive Negative
sa
Parent will show it as Intangible Asset Parent will show it as Income in Profit
in SoFP & Loss A/c.
as
-H
RULES OF CONSOLIDATED SOFP:-

1. Add all Assets & Liabilities of Parent and Subsidiary irrespective of
nS
percentage (%) of holding and date of acquisition.

2. Do not add Equity Accounts of Subsidiary.
K
3. Goodwill to be shown after Tangible Fixed Asset.

4. Non-controlling Interest (NCI) between Equities and Liabilities.
5. Eliminate intragroup balances.
Hassaan Khanani ACA

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NOTE: In the absence of information we will always assume there is no change in the share
capital and share premium of subsidiary from acquisition till reporting date.
ADJUSTMENTS IN CONSOLIDATIONS:-
1. Unrealized Profit on Inventory
ni
2. Unrealized Profit on PPE
3. Intragroup Balances
na
4. Dividend Adjustments
5. Fair Value Adjustments
6. Intragroup Adjustments
ha
7. Management Expenses
Unrealized Profit on Inventory:
K
Example-1: URP on Inventory sales by Parent to subsidiary. Parent ltd. sold goods
to subs. ltd. costing Rs.50m at Rs.60m.
an
Parent’s Book Subsidiary’s Book Consolidated Books
sa
Bank 60m
Sales 60m Inventory 60m CRE 10m
COGS 50m Bank 60m Inventory 10m
as
Inventory 50m
-H
Example-2: URP on Inventory sales by subsidiary to parent. Subs. ltd. sold goods to
parent ltd. costing Rs.50m at Rs.60m. At year end goods remain unsold in parent
books.
nS
Parent’s Book Subsidiary’s Book Consolidated Books

Bank 60m SONA 10m
Sales 60m Inventory 10m
Inventory 60m
K
Bank 60m COGS 50m CRE (80%) 8m

Inventory 50m NCI (20%) 2m
Inventory 10m
Hassaan Khanani ACA

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Suppose Book Value of a Plant is at Rs.100,000 in Subs. books and according to Parent it
should be at Rs.110,000.
Consolidated Books Subsidiary Books Difference

At Acquisition Date 110,000 100,000 10,000
Depreciation 11,000 10,000 (1,000)
Net Amount 99,000 90,000 9,000
ni
na
Intra Group PPE sale Purchase
CA after Sale of Asset = xxx
ha
CA if Asset never sold = (xxx)
xxx
K
Positive Negative
an
Profit Loss
CRE/Sona xxx Asset xxx

sa
Asset xxx Sona/CRE xxx

as
FULL GOODWILL METHOD:- NCI at FV

-H
FV of Investment xxx
FV of NCI xxx
nS
Less: FV of Net Assets (Total) (xxx)

xxx
K
NCI in Full Goodwill:

NCI at Acquisition xxx
Add: Post Acq. share of subs. (xxx)
xxx
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FV of NCI:
1. Usually given, If not given then
2. Negative Goodwill is only to Parent irrespective which method is used.
Example: A ltd. acquired 80% of B ltd. at acq. Goodwill of Rs.10m is recognized, at

reporting date 20% of Goodwill impaired.
ni
Goodwill 10m
na
Impairment 2m
Goodwill – SOFP 8m
ha
Full Goodwill Proportionate Goodwill
K
CRE 1.6m CRE 2m
NCI 0.4m Goodwill 2m
Goodwill 2m
an
INTRAGROUP INTEREST TRANSACTION
sa
SONA Impact P/L Question

as
-H
Do Nothing Reverse for presentation only

nS
However, Eliminate Loan rec and pay Eliminate Loan rec and loan pay
Subs. Int. exp. 3.6m

K
Bank 3.6m
Long Term Borrowing 30m Par. Bank 3.6m
Long Term Loan 30m Int. income 3.6m
Cons Int. Income 3.6m
Int.exp 3.6m
Hassaan Khanani ACA

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DIVIDEND BY SUBSIDIARY
(INTERIM ONLY)
Recorded (Default Assumption) Not Recorded
ni
Do Nothing Subtract from SONA at R.D
na
However, eliminate any intra group Rec & Pay Add in CRE Parent Share.
ha
SONA xxx
K
Div. Pay xxx
CRE xxx
an
DIVIDEND BY PARENT
sa
Recorded Not Recorded

as
Do Nothing Subtract from CRE

-H
Add in Dividend pay.

nS
CRE xxx
Dividend Pay xxx
K
Hassaan Khanani ACA

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EXCHANGE OF PPE
CASE-1 CASE-2 CASE-3

FV of both A&B is given. FV of only B is given. FV of none of the
ni
asset is given.
na
Recognize A at its FV. Recognize A at FV of B Recognize A at Book
ha
plus Cash paid, minus value of B plus cost
cash rec. paid minus cash rec.
K
MANAGEMENT EXPENSE
an
sa
Balance Sheet Question P/L Questions

as
Do Nothing in SONA Reverse income & expense of

Paying & Receiving Entity.
-H
Rec & Pay should be eliminated
If rec. by Parent:
nS
CRE xxx
SONA xxx
K
If rec. by Subs:
SONA xxx
CRE xxx
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Naughtiness in Consolidated SOFP
SONA
RE at acq date needs to be computed when subs is acquired mid of the yr by

appropriating profit( Eg : Hash QB)
Dividend if paid after acq needs to be added for computing RE at acq Eg : Yasir Ltd
(ICAP PP)
ni
URP Naughtiness
na
Subs Profit is given in mark up and Parent in Margin and vice versa (Yasir ICAP PP)
URP amount given and not percentage (Possible Naughtiness)
ha
URP in stock in transit (Galaxy ICAP PP)
FV adjustment
K
FV adjustment amount not given and total fv and total book value given and bal fig is
fv adjustment (5.5 QB)
FV adjustment may have to compute using present value of future cash flows (hasan
an
ltd QB 5.6)
FV adjustment may have to compute if dep method is different (Intangible Hasan QB
5.6)
sa
FV adjustment recorded by subsidiary subsequently or asset having fv adjustment is

sold (Galaxy ICAP PP)
PPE Transaction
as
If Asset sold Last day of financial year no depreciation Impact while reversing urp
-H
(ICAP Aut 14)
Dividend
nS
If dividend not recorded record it and don’t forget to take div payable in Bal sheet (QB
5.1)
Dividend Recorded But not Paid (Jasmeen Ltd PP)
Others
K
Interest not accrued - Accrue it or record it with cash in transit (Yasir ltd ICAP pp)
Difference between current account is always cash in transit
Goodwill recoverable amount is carrying amount and is given to compute impairment
(Possible Naughtiness)
Hassaan Khanani ACA

0332 - 2468189
Consolidation SOFP - MCQs
01. A bargain purchase is a business combination in which the calculation of goodwill leads to a
negative figure.
When this happens, which of the following are reviewed:
The identifiable assets acquired, and liabilities assumed
The non-controlling interest in the acquiree
The consideration transferred.
(a)
ni
(i) and (ii) only
(b) (i) and (iii) only
na
(c) (ii) and (iii) only
(d) (i), (ii) and (iii) all
ha
02. How should the unrealised profit be posted?
(a) DR Cost of sales / CR Inventories
(b) DR Cost of sales / DR Non-controlling interest / CR Inventories
(c)
(d)
DR Inventories / CR Cost of sales
K
DR Inventories / CR Non-controlling interest / CR Cost of sales
an
03. Which of the following is not an intra group transaction?
(a) The sale of goods or rendering of services between the parent and subsidiary
sa
(b) Transfers of non-current assets between the parent and subsidiary
(c) The payment of dividend by subsidiary

as
(d) The payment of dividend by parent
04. What is accounting treatment of acquisition related costs when goodwill is being measured at
-H
acquisition?
(a) Added to cost of investment
(b) Deducted from cost of investment

nS
(c) Charged as expense of parent entity
(d) Charged as expense of subsidiary entity

K
05. Haris Limited acquired 80% of the equity shares of Faris Limited on 1 July 2014, paying Rs. 300
for each share acquired. This represented a premium of 20% over the market price of Faris
Limited shares at that date.
Faris Limited’s equity at 31 March 2015 comprised:
Rs. million Rs. million
Equity shares of Rs. 100 each 100
Retained earnings at 1 April 2014 80
Profit for the year ended 31 March 2015 40 120
220,000
Hassaan Khanani ACA

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The only fair value adjustment required to Faris Limited’s net assets on consolidation was a Rs.
20 million increase in the value of its land.
Haris Limited’s policy is to value non-controlling interests at fair value at the date of
acquisition.
For this purpose, the market price of Faris Limited’s shares at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.
What would be the carrying amount of the non-controlling interest of Faris Limited in the
consolidated statement of financial position of Haris Limited as at 31 March 2015?
(a) Rs. 54 million
ni
(b) Rs. 50 million
(c) Rs. 56 million
na
(d) Rs. 58 million
ha
06. IFRS Standards require extensive use of fair values when recording the acquisition of a
subsidiary.
Which TWO of the following comments, regarding the use of fair values on the acquisition of a
K
subsidiary, are correct?
(a) The use of fair value to record a subsidiary’s acquired assets does not comply with the
historical cost principle.
an
(b) The use of fair values to record the acquisition of plant always increases consolidated
post-acquisition depreciation charges compared to the corresponding charge in the
subsidiary’s own financial statements.
sa
(c) Cash consideration payable one year after the date of acquisition needs to be
discounted to reflect its fair value.
(d) When acquiring a subsidiary, the fair value of liabilities and contingent liabilities must
as
also be considered.
07. Wareesha Limited has an 80% subsidiary Irfan Limited. In the last month of the year, Wareesha
-H
Limited sold inventory to Irfan Limited for Rs. 21.6 million making a mark-up of 20% on cost.
The goods are still held by Irfan Limited at the year end.
If Wareesha Limited has an inventory balance of Rs. 162 million and Irfan Limited has Rs. 108
million, what will be the inventory figure in the consolidated statement of financial position?
(a) Rs. 270 million

nS

K
08. Aliyan Limited is a subsidiary of Shaiq Limited. At the year-end Aliyan Limited has a current
account debit balance of Rs. 75 million, but Shaiq Limited has a current account credit balance
of only Rs. 60 million.
Which of the following two reasons might explain the difference?
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1. Shaiq Limited had posted a cheque for Rs. 15 million to Aliyan Limited on the last day of the
year.
2. Aliyan Limited had despatched Rs. 15 million of inventory to Shaiq Limited on the last day of the
year.
(a) Both may be the reason
(b) None is the reason
(c) Only statement 1 may be the reason
(d) Only statement 2 may be the reason
ni
09. A holding company sold goods to its wholly owned subsidiary for Rs. 18 million representing
na
cost plus 20%. At the year-end two-thirds of the goods were still in stock.
The unrealised profit in inventory is?
(a) Rs. 2 million
ha
(b) Rs. 2.4 million
(c) Rs. 3 million
K
(d) Rs. 3.6 million
an
10. ABC Limited buys goods from its 75% owned subsidiary XYZ Limited. XYZ Limited earns a
markup of 25% on such transactions. At the group’s year end, 30 June 2011 ABC Limited had
not yet taken delivery of goods, at a sales value of Rs. 10 million, which were dispatched by
XYZ Limited on 29 June 2011.
sa
What would be the impact on inventory in the consolidated statement of financial position of the
ABC Limited group at 30 June 2011?
(a) Rs. 6 million

as
(b) Rs. 7.5 million
(c) Rs. 8 million

-H
(d) Rs. 10 million
11. Thal Limited owns 80% of the ordinary share capital of its subsidiary Cholistan Limited. At the
group’s year end, 28 February 2011, Thal Limited’s payables include Rs. 3.6 million in respect
nS
of inventories sold by Cholistan Limited. Cholistan Limited’s receivables include Rs. 6.7 million
in respect of inventories sold to Thal Limited. Two days before the year end Thal Limited sent a
payment of Rs. 3.1 million to Cholistan Limited that was not recorded by the latter until two days
after the year end.
K
What is the entry that should be made to remove the intragroup transaction from the group
accounts apart from cancelling intra group balances?
(a) Rs. 2.325 million to be added to cash
(b) Rs. 3.1 million to be added to payables
(c) Rs. 3.1 million to be added to inventories
(d) Rs. 3.1 million to be added to cash
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12. P Limited transferred an item of plant to S Limited on 1 January 2013 for Rs. 30 million. The
plant had originally cost P Limited Rs. 30 million at 1 January 2011 and had a useful economic
life of 10 years, which is unchanged.
What is the unrealised profit on the plant at 31 December 2013?
(b) Rs. 12 million
(c) Rs. 5.4 million
(d) Rs. 9 million
ni
na
13. Python Limited acquired 75% of the share capital of Snake Limited on 1 January 2011. On this
date, the net assets of Snake Limited were Rs. 80 million. The non-controlling interest was
calculated using fair value, which was calculated as Rs. 40 million at the date of acquisition. At
1 January 2013 the net assets of Snake Limited were Rs. 120 million and goodwill had been
impaired by Rs. 10 million.
ha
What was the value of the non-controlling interest at 1 January 2013?
(a) Rs. 50 million
K

an
14. King Limited acquired 60% of Queen Limited's Rs. 100 million share capital on 1 January 2013,
sa
when Queen Limited also had retained earnings of Rs. 120 million. King Limited paid Rs. 50
million cash, and also agreed to pay a further Rs. 90 million on 1 January 2015. King Limited
also gave the owners of Queen Limited 1 King Limited share for every 2 shares of Queen Limited
purchased.
as
The fair value of King Limited's shares were Rs. 40 on 1 January 2013, and Rs. 60 on 31
December 2013. At 31 December 2013 King Limited had retained earnings of Rs. 210 million
and Queen Limited had retained earnings of Rs. 110 million. King Limited has a cost of capital
-H
of 10%.
King Limited measures the non-controlling interest at fair value. The fair value of the non-
controlling interest at 1 January 2013 was Rs. 25 million.
The Par value per share is Rs. 10 each.
What is the total goodwill at 1 January 2013?
nS
(b) Rs. 24 million

K
(d) Rs. 65 million
15. King Limited acquired 60% of Queen Limited's Rs. 100 million share capital on 1 January 2013,
when Queen Limited also had retained earnings of Rs. 120 million. King Limited paid Rs. 50
million cash and agreed to pay a further Rs. 90 million on 1 January 2015. King Limited also
gave the owners of Queen Limited 1 King Limited share for every 2 shares of Queen Limited
purchased.
Hassaan Khanani ACA

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The fair value of King Limited's shares were Rs. 40 on 1 January 2013, and Rs. 60 on 31
December 2013. At 31 December 2013 King Limited had retained earnings of Rs. 210 million
and Queen Limited had retained earnings of Rs. 110 million. King Limited has a cost of capital
of 10%.
King Limited measures the non-controlling interest at fair value. The fair value of the non-
controlling interest at 1 January 2013 was Rs. 25 million.
What is the group retained earnings at 31 December 2013?
ni
na
16. On 1 June 2011 Arsalan Limited acquired 80% of the equity share capital of Habib Limited. At
ha
the date of acquisition, the fair values of Habib Limited's net assets were equal to their carrying
amounts with the exception of its property.
This had a fair value of Rs. 1.2 million below its carrying amount. The property had a remaining
useful life of eight years.
K
What effect will any adjustment required in respect of the property have on group retained
earnings at 30 September 2011?
an
Rs. ___________
sa
17. On 1 April 2017 Riyasat Limited acquired 116 million of Farasat Limited's 145 million ordinary
shares for an immediate cash payment of Rs. 210 million and issued at par one 10% Rs. 100
loan note for every 200 shares acquired.
as
At the date of acquisition Farasat Limited owned a recently built property that was carried at its
depreciated construction cost of Rs. 62 million. The fair value of this property at the date of
acquisition was Rs. 82 million and it had an estimated remaining life of 20 years.
Farasat Limited also had an internally-developed brand which was valued at the acquisition date
-H
at Rs. 25 million with a remaining life of 10 years.

The inventory of Farasat Limited at 31 March 2019 includes goods supplied by Riyasat Limited
for a sale price of Rs. 56 million. Riyasat Limited adds a mark-up of 40% on cost to all sales.
What is the total amount of the consideration transferred by Riyasat Limited to acquire the
investment in Farasat Limited?
nS
Rs. ___________
K
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0332 - 2468189
What will be the amount of the adjustment to group retained earnings at 31 March 2019 in
respect of the movement on the fair value adjustments?
Rs. ___________
ni
na
ha
K
What is the amount of the unrealised profit arising from intragroup trading?
an
Rs. ___________
sa
20. Samreen Limited has a 75% owned subsidiary Narmeen Limited. During the year Samreen
Limited sold inventory to Narmeen Limited for an invoiced price of Rs. 800,000. Narmeen
Limited have since sold 75% of that inventory on to third parties.
as
The sale was at a mark-up of 25% on cost to Samreen Limited. Narmeen Limited is the only
subsidiary of Samreen Limited.
What is the adjustment to inventory that would be included in the consolidated statement of
financial position of Samreen Limited at the year-end resulting from this sale?
-H
Rs. ___________
nS
K
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4.1 HAIL
The following are the draft statements of financial position of Hail and its subsidiary Snow as at
31 December 2015.
Hail Snow
Rs. 000 Rs. 000
Assets
ni
Non-current assets
Investments 68,000
na
Current assets
Cash 7,700 25,200
Trade receivables 92,500 45,800
Snow current account 15,000 -
ha
Inventory 56,200 36,200
———– ——–—
400,400 192,200
———– ——–—
Shareholders’ equity
Share capital K 100,000 50,000
an
Share premium - 5,000
Capital reserve - 20,000
sa
———– ——–—
285,400 116,200
Hail current account - 8,000
as
———– ——–—
400,400 192,200
———– ——–—
-H
Notes
(1) Snow has 50,000 shares in issues. Hail acquired 45,000 of these on 1 January 2012 for a
cost of Rs. 65,000,000 when the balances on Snow’s reserves were:
Rs. 000
Share premium account 5,000
nS
Capital reserve –
Retained earnings 10,000
(2) Hail declared a dividend of Rs. 3,000,000 before the year end and Snow declared one of Rs.
K
2,000,000. These transactions have not been accounted for.

(3) The current account difference is due to cash in transit.
Required
Prepare the consolidated statement of financial position as at 31 December 2015 of Hail.
L.O: 1. Investment in parents balance sheet mai include investment other than subsidiary
2. treatment of dividend not recorded by both parent and subsidiary
Hassaan Khanani ACA

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4.2 HAIRY
The summarised statements of financial position of Hairy and Spider as at 31 December 2015 were
as follows.
Hairy Spider
Rs. 000 Rs. 000
Assets
Non-current assets
Investments 55,000 –
ni
Current assets
Cash 11,000 4,000
–
na
Investments 3,000
Trade receivables 72,600 19,100
Current account – Hairy – 3,200
Inventory 17,000 11,000
ha
———– ———–
275,600 100,300
———– ———–
K
Share premium 20,000 –
Capital reserve 23,000 16,000
an
Trade payables 38,000 17,000
Current account – Spider 2,700 –
sa
———– ———–
275,600 100,300
———– ———–
The following information is relevant.
as
(1) On 31 December 2012, Hairy acquired 48,000 shares in Spider for Rs. 55,000,000 cash.
Spider has 60,000 shares in total.
(2) The inventory of Hairy includes Rs. 4,000,000 goods from Spider invoiced to Hairy at cost
-H
plus 25%.
(3) The difference on the current account balances is due to cash in transit.
(4) The balance on Spider’s retained earnings was Rs. 2,300,000 at the date of acquisition. There
has been no movement in the balance on Spider’s capital reserve since the date of
acquisition.
nS
Required
Prepare the consolidated statement of financial position of Hairy and its subsidiary Spider as at 31
December 2015.
K
L.O: 1. Treatment of unrealized profit on sale by subsidiary to parent

2. Treatment of cash in transit.
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4.3 HARD
On 31 December 2011, Hard acquired 60% of the ordinary share capital of Soft for Rs. 110 million.
At that date Soft had a retained earnings balance of Rs. 50 million and a share premium account
balance of Rs. 10 million.
Hard Soft
Rs. 000 Rs. 000
Assets
Non-current assets
ni
Investments in Soft 110,000
na
———– ———–
606,000 332,000
———– ———–
ha
K
Share premium 15,000 10,000
———– ———–
an
375,000 190,000
———– ———–
606,000 332,000
sa
———– ———–
During the year to 31 December 2015 Hard sold a tangible asset to Soft for Rs. 50 million. The asset
was originally purchased in the year to 31 December 2012 at a cost of Rs. 100 million and had a
useful economic life of five years.
as
Soft’s depreciation policy is 25% per annum based on cost. Both companies charge a full year’s
depreciation in the year of acquisition and none in the year of disposal.
-H
Required
Prepare the consolidated statement of financial position of Hard and its subsidiary as at 31
December 2015.
4.4 HALE L.O: F.V adjustment related to non depreciable asset

nS
On 1 July 2012 Hale acquired 128,000 of Sowen’s 160,000 shares. The following statements of
financial position have been prepared as at 31 December 2015.
Hale Sowen
Rs. 000 Rs. 000
K

Investment in Sowen 203,000 –
Inventory at cost 112,000 74,400
Receivables 104,000 84,000
Bank balance 41,000 8,000
———– ———–
612,000 296,000
═════ ═════
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Hale Sowen
Rs. 000 Rs. 000
Payables 52,000 24,000
———– ———–
612,000 296,000
═════ ═════
The following information is available.
ni
(1) At 1 July 2012 Sowen had a debit balance of Rs. 11 million on retained earnings.
(2) Property, plant and equipment of Sowen included land at a cost of Rs. 72 million. This land
had a fair value of Rs. 100,000 at the date of acquisition.
na
(3) The inventory of Sowen includes goods purchased from Hale for Rs. 16 million. Hale invoiced
those goods at cost plus 25%.
Required
ha
Prepare the consolidated statement of financial position of Hale as at 31 December 2015.
4.5 HELLO
K
On 1 January 2012, Hello acquired 60% of the ordinary share capital of Solong for Rs. 110,000. At
that date Solong had a retained earnings balance of Rs. 60,000.
an
Hello Solong
Rs. Rs.
Assets
Non-current assets
sa

Investments in Solong 110,000

as
———– ———–
606,000 332,000
———– ———–
-H

———– ———–
375,000 190,000
nS

———– ———–
606,000 332,000
———– ———–
K
The fair value of Solong’s net assets at the date of acquisition was determined to be Rs. 170,000.
The difference between the book value and the fair value of the new assets at the date of acquisition
was due to an item of plant which had a useful life of 10 years from the date of acquisition.
Required
Prepare the consolidated statement of financial position of Hello and its subsidiary as at 31
December 2015.
L.O: FV adjustment of depreciable asset
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L.O: 1. Computation of FV Adjustment through annuity
2. FV Adjustment due to difference of life
Last day revision 3. Impairment under proportionate goodwill
4.6 HASAN LIMITED method
On 1 April 2014, Hasan Limited acquired 90% of the equity shares in Shakeel Limited. On the same
day Hasan Limited accepted a 10% loan note from Shakeel Limited for Rs. 200,000 which was
repayable at Rs. 40,000 per annum (on 31 March each year) over the next five years. Shakeel
Limited’s retained earnings at the date of acquisition were Rs. 2,200,000.
Statements of financial position as at 31 March 2015
Hasan Shakeel
Limited Limited
Rs. 000 Rs. 000
ni
Non-current assets
na
Intangible – software – 1,800
Investments – equity in Shakeel Limited 4,110 –
Investments – 10% loan note Shakeel 200 –
Limited
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Investments – others 65 210
6,495 4,000
Current assets
Inventories
Trade receivables
K 719
524
560
328
an
Shakeel Limited current account 75 –
Cash 20
1,338 888
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Total assets 7,833 4,888
Equity and liabilities:

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Equity shares of Rs. 1 each 2,000 1,500
Share premium 2,000 500
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6,900 3,955
10% Loan note from Hasan Limited – 160
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Government grant 230 40

230 200
Current liabilities
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Trade payables 475 472

Hasan Limited current account – 60
Income taxes payable 228 174
Operating overdraft – 27
703 733
Total equity and liabilities 7,833 4,888
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The following information is relevant:
(i) Included in Shakeel Limited’s property at the date of acquisition was a leasehold property
recorded at its depreciated historical cost of Rs. 400,000. The leasehold had been sub-let for
its remaining life of only four years at an annual rental of Rs. 80,000 payable in advance on 1
April each year. The directors of Hasan Limited 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 a Rs. 1 annuity received at the end of each year where interest rates are
10% can be taken as:
3 year annuity Rs. 2.50
ni
4 year annuity Rs. 3.20
(ii) The software of Shakeel Limited represents the depreciated cost of the development of an
integrated business accounting package. It was completed at a capitalised cost of Rs.
2,400,000 and went on sale on 1 April 2013. Shakeel Limited’s directors are depreciating the
na
software on a straight-line basis over an eight-year life (i.e. Rs. 300,000 per annum).
However, the directors of Hasan Limited 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 Hasan Limited on 31 March 2015 contains goods at a transfer price of Rs.
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25,000 that were supplied by Shakeel Limited who had marked them up with a profit of 25%
on cost. Unrealised profits are adjusted for against the profit of the company that made them.
(iv) On 31 March 2015 Shakeel Limited remitted to Hasan Limited a cash payment of Rs. 55,000.
This was not received by Hasan Limited until early April. It was made up of an annual
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repayment of the 10% loan note of Rs. 40,000 (the interest had already been paid) and Rs.
15,000 of the current account balance.
(v) The accounting policy of Hasan Limited for non-controlling interests (NCI) in a subsidiary is to
an
value NCI at a proportionate share of the net assets.
(v) An impairment test at 31 March 2015 on the consolidated goodwill concluded that it should be
written down by Rs. 120,000. No other assets were impaired.
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Required
Prepare the consolidated statement of financial position of Hasan Limited as at 31 March 2015.
as
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nS
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Hassaan Khanani ACA

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BRADLEY LTD
Bradley Ltd’s purchased 960 million shares in Bliss Ltd a year ago when Bliss had a credit balance
of Rs. 190million in retained earnings. The fair value of the non-controlling interest at the date of
acquisition was Rs. 330million. At the date of acquisition, the freehold land of Bliss Ltd was valued
at Rs. 140million in excess of its carrying value. The revaluation has not been recorded in the
accounts of Bliss.
The statements of financial position of Bradley Ltd and Bliss Ltd as at 31 December 2016 are as
ni
follows:
na
Bradley Ltd Bliss Ltd
------------------- Rs. Million -------------------
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Non Current Assets
Land and building 630 556
Machinery and equipment
K 570 440
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Investment in Bliss Ltd. 1,320 -
2,520 996
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Current Assets
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Inventories 714 504

Trade receivables 1,050 252
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Cash/bank 316 2,080 60 816

4,600 1,812
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Bradley Ltd Bliss Ltd
------------------- Rs. Million -------------------
Ordinary Shares at Rs. 1 each 3,000 1,200
Retained Earnings 1,160 424
Shareholders fund 4,160 1,624
Current Liabilities
ni
Trade payables 440 188
4,600 1,812
na
Bliss Ltd owes Bradley Ltd Rs. 50million for goods purchased during the year. Inventory of Bliss Ltd
includes goods bought from Bradley Ltd at the price that includes a profit to Bradley Ltd of Rs.
24million.
The management of Bradley Ltd wants the financial statements to be consolidated and wishes to
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know whether there is goodwill on acquisition of Bliss Ltd and the amount involved.
Required
Prepare the consolidated statement of financial position as at 31 December 2016.
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an
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Assignment
Question 1
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Question 2
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Question 3
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P co and receivable of S Co. Req : Consolidated SOFP
Question 4 – Intra Group PPE transaction

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Question 5
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Quick Quiz
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Question 6
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na
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Req : Consolidated SOFP
Question 7
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Question 8
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Question 1
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Req: Consolidated SOFP ( Bal sheet will tie with 3,950,000)
Question 2
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Required : Consolidated SOFP ( bal sheet will tie with 3,940,000)
Question 3
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Req : Consolidated SOFP (amount of BS 196,600
Question 4
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Required : Consolidated SOFP (Bal sheet amount is Rs 311,000)
Hassaan Khanani ACA

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Question 4
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Consolidated SOFP (Bal sheet amount is Rs 145,315)
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Rules for SOCI
1. Add all P/L items of Parent and Subsidiary considering date of acquisition
2. Total Profit to be allocated between Parent and NCI
3. Subtract Intra group sales from Both sales and COGS .
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Common Adjustments in Consolidation
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& Impact on P/L
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 Unrealized profit on inventory ( Add URP in COGS and Deduct from Inventory )
 Unrealized profit on PPE (Subtract from Receiving party other Income)
 Intra Group all types of receivable and Payable (Same as SOFP , No impact on P/L)

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Dividend transaction (If recorded Eliminate from Parent Other Income dividend received from
Subsidiary)
 Fair value adjustment (Incremental/Reduced Depreciation Impact on COGS or Admin)
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 Management and Interest expenses treatment ( Eliminate for Presentation Purpose only)
How to compute Profit attributable to NCI

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Subsidiary Profit for the year as Per Question XXXX

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Adjustment if Subsidiary is acquired mid of Year (XXX)
Any income earned after acquisition XXX

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Adjustments Related to Subsidiary Profit (SONA Wali) XXX
Goodwill Impairment (Full Method) (XXX)
Subsidiary adjusted Profit A XXX

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Profit Attributable to NCI (A x NCI %) XXX

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Hassaan Khanani ACA

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RULES FOR CONSOLIDATED SOCI:-
1. Add all P/L items of parent and subsidiary considering date of acquisition.
2. *Add URP in unsold inventory in SOGS.
3. Incremental/Reduced depreciation impact in COGS or Admin.
4. **Subtract dividend received from subsidiary from parent’s other income
(O.I.).
5. Eliminate intragroup sales from both sales and COS in consolidated SOCI.
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*SONA/CRE xxx
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Inventory xxx
** Profit 100
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120
Dividend Retained Earning (20)
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100
20 80
Bank
O.I. O.I.
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NCI Share of Profit:
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Subs profit as per question xxx

Add/Less:
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All adjustments related to subs profit FTY (xxx)/xxx

Subs adjusted profit xxx
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NCI %
NCI (Subs Profit x NCI%) xxx
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5.1 HARRY
The following are the statements of profit or loss for the year ended 31 December 2015 of Harry and
its subsidiary Sally.
Harry Sally
Rs. 000 Rs. 000
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Revenue 1,120 390
Cost of sales (610) (220)
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Gross profit 510 170
Distribution costs (50) (40)
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Administration costs (55) (45)
Operating profit 405 85
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Investment income 20 4
Finance costs (18) (4)

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Profit before tax 407 85
Income tax expense (140) (25)

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Profit for the year 267 60
Rs. 000 Rs. 000

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Retained profit brought forward 100 45
Profit for year 267 60

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Dividends paid and proposed (50) (20)
Retained profit carried forward 317 85
The following information is relevant.

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(1) Harry acquired 75% of Sally six years ago when Sally’s retained earnings were Rs. 9,000.
(2) Harry made sales to Sally totalling Rs. 100,000 in the year. At the year end the statement of
financial position of Sally included inventory purchased from Harry. Harry had taken a profit of
Rs. 3,000 on this inventory.
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(3) Harry’s investment income includes Rs. 15,000 being its share of Sally’s dividends.
Required
Prepare a consolidated statement of profit or loss and a working showing the movement on
consolidated retained profit for the year ended 31 December 2015.
Hassaan Khanani ACA

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5.2 HORN
Statements of profit or loss for the year ended 31 December 2015.
Horn Smooth
Rs. 000 Rs. 000
Revenue 304,900 195,300
Cost of sales (144,200) (98,550)
Gross profit 160,700 96,750
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Operating costs (76,450) (52,100)
Operating profit 84,250 44,650
Investment income 10,500 2,600
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Profit before tax 94,750 47,250
Income tax expense(42,900) (16,500)
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Profit for the year 51,850 30,750
Statement of changes in equity (extracts) for the year ended 31 December 2015.
Horn Smooth
Retained earnings brought forward

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Rs. 000
80,200
Rs. 000
31,000
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Profit for the year 51,850 30,750
Proposed ordinary dividend (20,000) -
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112,050 61,750
The following information is also available.

(1) Horn acquired 75% of the share capital of Smooth on 31 August 2015.
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(2) Negative goodwill of Rs. 3.8 million arose on the acquisition.

(3) Profits of both companies are deemed to accrue evenly over the year except for the
investment income of Smooth all of which was received in November 2015.
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(4) Horn has bought goods from Smooth throughout the year at Rs. 2 million per month. At the
year-end Horny does not hold any inventory purchased from Smooth.
Required
Prepare the consolidated statement of profit or loss and a working showing the movement on
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consolidated retained profit for the year ended 31 December 2015.
5.3 HANKS
Statements of financial position as at 31 December 2015
K
Hanks Streep Scott

Rs. 000 Rs. 000 Rs. 000
Assets
Non-current assets
Property, plant and equipment 32,000 25,000 20,000
Investments 33,500 – –
———– ——— ———
65,500 25,000 20,000
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MCQ's
01. Abrish Limited acquired 80% of Shazim Limited on 1 July 2012. In the post-acquisition period Abrish
Limited sold goods to Shazim Limited at a price of Rs. 12 million. These goods had cost Abrish Limited
Rs. 9 million. During the year to 31 March 2013 Shazim Limited had sold Rs. 10 million (at cost to
Shazim Limited) of these goods for Rs. 15 million.
How will this affect group cost of sales in the consolidated statement of comprehensive income of
Abrish Limited for the year ended 31 March 2013?
(a) Increase by Rs. 11.5 million

(b) Increase by Rs. 9.6 million
ni
(c) Decrease by Rs. 11.5 million
(d) Decrease by Rs. 9.6 million
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02. On 1 July 2017, Hareem Limited acquired 60% of the equity share capital of Maneha Limited and on
that date made a Rs. 10 million loan to Maneha Limited at a rate of 8% per annum.
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What will be the effect on group retained earnings at the year-end date of 31 December 2017 when
this intragroup transaction is cancelled?
(a) Group retained earnings will increase by Rs. 400,000
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(b) Group retained earnings will be reduced by Rs. 240,000
(c) Group retained earnings will be reduced by Rs. 160,000
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(d) There will be no effect on group retained earnings
03. Maaz Limited acquired 80% of Hamza Limited on 1 January 2018. At the date of acquisition Hamza
Limited had a building which had a fair value Rs. 22 million and a carrying amount of Rs. 20 million.
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The remaining useful life was 20 years. At the year-end date of 30 June 2018, the fair value of the
building was Rs. 23 million. It is group policy to use revaluation model for its building.
Hamza Limited's profit for the year to 30 June 2018 was Rs. 1.6 million which accrued evenly
as
throughout the year.

Maaz Limited measures non-controlling interest at fair value. At 30 June 2018 it estimated that goodwill
in Hamza Limited was impaired by Rs. 500,000. It is group policy to use revolution model for its
buildings.
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What is the total comprehensive income attributable to the non-controlling interest at 30 June 2018?
(a) Rs. 250,000

(b) Rs. 260,000
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(c) Rs. 360,000

(d) Rs. 400,000
04. Asim Limited acquires 80% of the share capital of Arif Limited on 1 August 2016 and is preparing its
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group financial statements for the year ended 31 December 2016.

How will Arif Limited’s results be included in the group statement of comprehensive income?
(a) 80% of Arif Limited’s revenue and expenses for the year ended 31 December 2016
(b) 100% of Arif Limited’s revenue and expenses for the year ended 31 December 2016
(c) 80% of Arif Limited’s revenue and expenses for the period 1 August 2016 to 31 December
2016
(d) 100% of Arif Limited’s revenue and expenses for the period 1 August 2016 to 31 December
2016
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05. Which of the following would result in an unrealised profit within a group scenario?
(a) A parent sells a building originally costing Rs. 800,000 to its subsidiary for Rs. 900,000. The
subsidiary still holds this asset at the date of consolidation.
(b) A parent sells a building originally costing Rs. 800,000 to its subsidiary for Rs. 900,000. The
subsidiary has sold this asset before the date of consolidation.
(c) A parent sells goods which originally cost Rs. 14,000 to its subsidiary for Rs. 18,000. The
subsidiary has sold all of these goods at the date of consolidation.
(d) A parent sells goods which originally cost Rs. 14,000 to an associate for Rs. 18,000. The
associate has sold all of these goods at the date of consolidation.
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06. Jerry Limited acquired an 80% holding in Tom Limited on 1 April 2016. From 1 April 2016 to 31
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December 2016 Tom Limited sold goods to Jerry Limited for Rs. 4.3m at a mark-up of 10%. Jerry
Limited's inventory at 31 December 2016 included Rs. 2.2m of such inventory. The statements of
comprehensive income for each entity for the year to 31 December 2016 showed the following in
respect of cost of sales:
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Jerry Limited Rs. 14.7m
Tom Limited Rs. 11.6m
What is the cost of sales figure to be shown in the consolidated statement of comprehensive income
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for the year to 31 December 2016?
(a) Rs. 18,900,000

(b) Rs. 20,200,000
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(c) Rs. 19,100,000
(d) Rs. 19,300,000
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07. Sun Limited acquired a 60% holding in Moon Limited on 1 January 2016. At this date Moon Limited
owned a building with a fair value Rs. 200 million in excess of its carrying amount, and a remaining
life of 10 years.
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All depreciation is charged to operating expenses. Goodwill had been impaired by Rs. 55 million in
the year to 31 December 2016. The balances on operating expenses for the year to 31 December
2017 are shown below:
-H
Sun Limited Rs. 600 million

Moon Limited Rs. 350 million
What are consolidated operating expenses for the year to 31 December 2017?
(a) Rs. 930 million

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(b) Rs. 970 million

(c) Rs. 950 million
(d) None of the above
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08. A Limited acquired a 60% holding in B Limited on 1 July 2016. At this date, A Limited gave B Limited
a Rs. 500 million 8% loan. The interest on the loan has been accounted for correctly in the individual
financial statements.
The totals for finance costs for the year to 31 December 2016 in the individual financial statements
are shown below.
A Limited Rs. 200 million
B Limited Rs. 70 million
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What are consolidated finance costs for the year to 31 December 2016?
(a) Rs. 215 million

(b) Rs. 225 million
(c) Rs. 230 million
(d) Rs. 250 million
09. Abeeha Limited has owned 80% of Seema Limited for many years. In the current year ended 30 June
2013, Abeeha Limited has reported total revenues of Rs. 5.5 million, and Seema Limited of Rs. 2.1
ni
million. Abeeha Limited has sold goods to Seema Limited during the year with a total value of Rs. 1
million, earning a margin of 20%. Half of these goods remain in year-end inventories.
What is the consolidated revenue figure for the Abeeha group for the year ended 30 June 2013?
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(a) Rs. 7.6 million
(b) Rs. 6.6 million
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(c) Rs. 8.6 million
(d) Rs. 5.5 million
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10. On 1 January 2014, Venice Limited acquired 80% of the equity share capital of Greece Limited.
Extracts of their statements of comprehensive income for the year ended 30 September 2014 are:
Venice Greece
an
Limited Limited
Rs. 000 Rs. 000
Revenue 64,600 38,000
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Cost of sales (51,200) (26,000)
Sales from Venice Limited to Greece Limited throughout the year to 30 September 2014 had
consistently been Rs. 800,000 per month. Venice Limited made a mark-up on cost of 25% on these
as
sales.
Greece Limited had Rs. 1.5 million of these goods in inventory as at 30 September 2014.
What would be the cost of sales in Venice Limited’s consolidated statement of comprehensive income
-H
(a) Rs. 63,500,000

(b) Rs. 70,700,000
(c) Rs. 63,800,000
nS
(d) Rs. 77,900,000
11. Haris Limited has owned a 90% subsidiary Faris Limited for many years, but then purchased a 75%
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subsidiary Suria Limited half way through this year. The revenue of each company is as follows:
Haris Limited Rs. 150 million

Faris Limited Rs. 135 million
Suria Limited Rs. 120 million
During the year, Faris Limited sold goods to Haris Limited for Rs. 30 million. These items were then
sold outside of the group by Haris Limited just before the end of the year.
What is the consolidated revenue figure for the year?
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(a) Rs. 255 million
(b) Rs. 375 million
(c) Rs. 315 million
(d) Rs. 435 million
12. Halim Limited owns 55% of Namal Limited. In 2018 Namal Limited made a profit after tax of Rs. 72
million. During the year Halim Limited sold goods costing Rs. 36 million to Namal Limited at a mark-
up of 40%. Two thirds of these goods had been sold outside of the group by the year end.
ni
Calculate the non-controlling interest to be shown in the consolidated statement of comprehensive
income for 2018.
na
(b) Rs. 72 million
(c) Rs. Nil
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(d) Cannot be determined with this information
13. Two years ago, Burhan Limited purchased 60% of Hussain Limited and 10% of Meerab Limited.
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Burhan Limited is not able to exert significant influence over its investment in Meerab Limited. Revenue
for the three companies for the year to 30th June 2010 was:
Burhan Limited Hussain Limited Meerab Limited
an
Rs. million Rs. million Rs. million
Revenue 180 144 108
The group revenue in the consolidated statement of comprehensive income is:
sa

(c) Rs. 324 million
as
(d) Rs. 432 million

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14. Hareem Limited and its subsidiary Maneha Limited have the following results for the year 2014.
Hareem Limited Maneha Limited
Revenue 900 450
Cost of sales 450 234
nS
Gross profits 450 216

During the year, Hareem Limited sold goods to Maneha Limited for Rs. 90 million making a profit of
Rs. 18 million.
K
None of these goods remain in inventories at the year end.

What will be shown as revenue and gross profit in the 2014 consolidated Statement of comprehensive
income?
(a) Revenue Rs. 1,260 million, Gross profit Rs. 666 million
(b) Revenue Rs. 1,260 million, Gross profit Rs. 648 million
(c) Revenue Rs. 1,350 million, Gross profit Rs. 756 million
(d) Revenue Rs. 1,350 million, Gross profit Rs. 666 million
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15. Bilal Limited sells inventory costing Rs. 30 million to his subsidiary Sohail Limited for Rs. 45 million.
By the end of the year, Sohail Limited has just half of this inventory remaining.
If the sales of the two companies were: Rs. 150 million and Rs. 120 million respectively, and the cost
of sales were Rs. 75 million and Rs. 60 million calculate the consolidated revenue and gross profit for
the year.
(a) Revenue Rs. 225 million; Gross profit Rs. 127.5 million
(b) Revenue Rs. 270 million; Gross profit Rs. 127.5 million
(c) Revenue Rs. 225 million; Gross profit Rs. 120 million
ni
(d) Revenue Rs. 270 million; Gross profit Rs. 120 million
16. Abrar Limited acquired 60% of Haq Limited on 1 March 2019. In September 2019 Abrar Limited sold
na
Rs. 46 million worth of goods to Haq Limited. Abrar Limited applies a 30% mark-up to all its sales.
25% of these goods were still held in inventory by Haq Limited at the end of the year.
An extract from the draft statements of profit or loss of Abrar Limited and Haq Limited at 31 December
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2019 is:
Abrar Limited Haq Limited

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Revenue 955 421.5
Cost of sales (407.3) (214.6)
an
Gross profit 547.7 206.9
All revenue and costs arise evenly throughout the year.

What will be shown as gross profit in the consolidated statement of comprehensive income of Abrar
sa
Limited for the year ended 31 December 2019?
Rs. ___________
as
17. Shahzad Limited acquired 80% of Roy Limited on 1 June 2011. Sales from Roy Limited to Shahzad
Limited throughout the year ended 30 September 2011 were consistently Rs. 1 million per month. Roy
Limited made a mark-up on cost of 25% on these sales. At 30 September 2011 Shahzad Limited was
holding Rs. 2 million inventory that had been supplied by Roy Limited in the post-acquisition period.
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By how much will the unrealised profit decrease the profit attributable to the non-controlling interest
Rs. ___________
nS
18. Akbar Limited has owned 70% of Hamayuon Limited for many years. It also holds a Rs. 5 million 8%
loan note from Hamayuon Limited. One of Hamayuon Limited's non-current assets has suffered an
impairment of Rs. 50,000 during the year. There is a balance in the revaluation surplus of Hamayuon
Limited of Rs. 30,000 in respect of this asset. The impairment loss has not yet been recorded.
K
The entity financial statements of Hamayuon Limited show a profit for the year of Rs. 1.3 million.
What is the amount attributable to the non-controlling interests in the consolidated statement of profit
or loss?
Rs. ___________
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19. The following figures relate to Bushra Limited and its subsidiary Ansari Limited for the year ended 31
December 2015.
Rs. m
Bushra Limited 600
Ansari Limited 300
During the year Bushra Limited sold goods to Ansari Limited for Rs. 20 million making a profit of Rs.5
million. These goods were all sold by Ansari Limited before the year end.
What is the amount for total revenue in the consolidated statement of comprehensive income for
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Bushra Limited for the year ended 31 December 2015?
Rs. ___________
na
20. Fahad Limited Ltd acquired 80% of the ordinary shares of Mustufa Limited on 31 December 2014
when Mustufa Limited’s retained earnings were Rs. 20 million. At 31st December 2015, Mustufa
ha
Limited’s retained earnings stood at Rs. 25 million. Neither companies pay dividends or have made
any other reserve transfers.
Calculate the non-controlling interest in the consolidated statement of comprehensive income for the
year ended 31st December 2015.
Rs. ___________
K
an
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as
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L.O: 1. Intra group management expense adjusted from pay
Spring 2019 2. Dividend not recorded by subsidiary
3. loan to subsidiary executable
* ) & = % ( &$ $ % !
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Hassaan Khanani ACA
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Spring 2020
Q.6 Following are the summarized statements of financial position of Pistachio Limited (PL),
Mint Limited (ML) and Jalapeno Limited (JL) as on 31 December 2019:
PL ML JL
--------- Rs. in million ---------
Property, plant and equipment 850 750 500
Investment in ML at cost 900 - -
Investment in JL at cost 170 - -
Inventories 300 340 200
Trade receivables 240 200 150
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Cash and bank balances 60 170 50
2,520 1,460 900
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Share capital (Rs. 10 per share) 1,400 700 400
Share premium - 100 -
Retained earnings 780 480 340
Liabilities 340 180 160
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2,520 1,460 900
Additional information:
(i) Details of PL's investments are as follows:
Date of
investment
Holding %
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Investee
Retained earnings
of investee
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Rs. in million
1-Jan-19 25% JL 200
1-Apr-19 80% ML 360
The following considerations relating to acquisition of ML’s shares are still unrecorded:
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(ii)
 Transfer of PL's freehold land having carrying value and fair value of Rs. 88 million
 Cash of Rs. 115 million would be paid in February 2020 if ML's net profit for the
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year 2019 would increase by 20% as compared to last year. Fair value of this
consideration on acquisition date was estimated at Rs. 70 million. At year-end, the
said target has been achieved by ML.
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(iii) On the date of investment, the fair values of each share of ML and JL were Rs. 18 and
Rs. 16 respectively.
(iv) At the date of acquisition of ML, carrying values of ML’s net assets were equal to fair
value except for inventory which was carried at Rs. 130 million and had a fair value of
Rs. 180 million. 20% of this inventory is still included in ML's inventory as at
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31 December 2019.
(v) On 1 July 2019, ML sold a machine to PL for Rs. 55 million at a gain of Rs. 10 million.
The remaining useful life of the machine at the time of disposal was 5 years.
(vi) JL paid 10% dividend for the half year ended 30 June 2019. PL recorded this as other
income.
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(vii) During the year, PL made sales of Rs. 72 million to JL at 20% above cost. 60% of these
goods were sold by JL during the year.
(viii) As at 31 December 2019, PL has receivable of Rs. 8 million from JL.
(ix) An impairment test carried out at year-end has indicated that goodwill of ML has been
impaired by 10%.
(x) PL measures non-controlling interest at the acquisition date at its fair value.
(xi) PL’s discount rate is 14%.
Required:
(a) Prepare PL’s consolidated statement of financial position as at 31 December 2019 in
accordance with the requirements of IFRSs. (18)
(b) List down the additional information having no effect in your working in (a) above. (02)
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Autumn 2020
Q.5 The following amounts are extracted from the records of Manzil Limited (ML), Himmat
Limited (HL) and Koshish Limited (KL) for the year ended 31 December 2019:
ML HL KL
---------- Rs. in million ----------
Sales 800 315 132
Cost of sales (540) (180) (97)
Operating expenses (114) (60) (6)
Other income 41 - 8
Finance cost (20) (12) (5)
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Retained earnings as at 31 December 2019 3,600 322 200
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(i) Details of ML’s investments are as follows:
Share capital
Date of
Holding % Investee (Rs. 10 each) of
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investment
investee
1 Aug 2015 25% KL Rs. 400 million
1 May 2019 60% HL Rs. 600 million
(ii)

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Consideration for acquisition of HL’s shares comprises of:
transfer of ML’s building having carrying value and fair value of Rs. 150 million
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and Rs. 226 million respectively at acquisition date. The disposal of building has
been recorded at carrying value.
 issuance of 16 million ordinary shares of ML after one month of acquisition. The
market price of ML’s shares at the date of acquisition was Rs. 30 each. However,
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the market price increased to Rs. 32 when shares were issued.

(iii) At the date of acquisition of HL, carrying value of its net assets was equal to fair value
except the following:

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A manufacturing plant whose fair value exceeded its carrying value by

Rs. 60 million. The remaining useful life of the plant on the acquisition date was
8 years.
 A contingent asset of Rs. 50 million as disclosed in HL's financial statements
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which had an estimated fair value of Rs. 15 million. At year-end, this contingent
asset is disclosed in HL's financial statements at Rs. 46 million.
(iv) Impairment test carried out at year-end has indicated that goodwill of HL has been
impaired by 10%.
(v) On 15 August 2019, HL and KL paid 5% dividend for the half year ended 30 June 2019.
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ML recorded its share as other income.

(vi) On 30 June 2019, KL sold a machine having carrying value of Rs. 60 million to ML for
Rs. 68 million. The remaining useful life of the machine at the time of disposal was
5 years.
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(vii) On 15 November 2019, HL and KL purchased 600,000 and 400,000 ordinary shares of
Jazba Limited (JL) respectively at price of Rs. 150 each plus 2% transaction cost. HL
and KL classified the investment as financial asset at fair value through other
comprehensive income. These investments have not been re-measured at year-end.
Market price of JL’s share was Rs. 138 at year-end. Total share capital of JL consists of
20 million shares.
(viii) ML measures non-controlling interest at the proportionate share of acquiree’s
identifiable net assets.
Prepare ML’s consolidated statement
Hassaan Khanani ACA of profit or loss and other
comprehensive income for the yearin FAR

consecutive Gold Medals 2 Page 290 of 390
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Spring 2021
Q.7 Following are the summarized statements of financial position of Himaliya Limited (HL)
and Method Limited (ML) as on 31 December 2020:
HL ML
--- Rs. in million ---
Investments 4,320 -
Inventories 1,050 700
Trade receivables 840 525
Cash and bank balances 210 175
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8,820 3,150
Share capital (Rs. 10 per share) 4,700 1,400
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Share premium 720 -
Liabilities 1,190 560
8,820 3,150
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(i) On 1 April 2020, HL acquired 90% shareholdings in ML at Rs. 2,220 million which
was recorded as cost of investment by HL. It includes professional fee of
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Rs. 30 million for advice on acquisition of ML. At acquisition date, ML’s retained
earnings were Rs. 700 million.
(ii) On acquisition date, carrying value of ML’s net assets was equal to fair value except a
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brand which had not been recognized by ML. The fair value of the brand was assessed
at Rs. 160 million. HL estimated that benefit would be obtained from the brand for the
next 5 years.
(iii) Upon acquisition, HL had a plan to restructure ML at a cost of Rs. 80 million. Up to
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31 December 2020, ML has incurred and recorded cost of Rs. 70 million for
restructuring as per HL’s plan.
(iv) On 1 January 2020, HL acquired 35% shareholdings in Pears Limited (PL) by
investing Rs. 1,500 million. This investment is carried at cost on 31 December 2020.
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Details of PL’s net asset on 31 December 2020 are as follows:

Assets and liabilities Rs. in million
Property, plant and equipment 2,625
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Inventories 1,190
Trade receivables 700
Cash and bank balances 595
Liabilities (630)
Net assets 4,480
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(v) During the year ended 31 December 2020, PL earned a net profit of Rs. 910 million.
(vi) PL paid dividend of Rs. 490 million for the half year ended 30 June 2020. HL recorded
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its share as other income.

(vii) Subsequent to investments made by HL in ML and PL, inter-company sales of goods
are invoiced at a mark-up of 25%. The relevant details are as under:
Rs. in million
ML’s inventory on 31 December 2020 includes goods
purchased from HL 50
HL’s inventory on 31 December 2020 includes goods
purchased from PL 120
Receivable from ML on 31 December 2020 as per HL’s books 74
Payable to PL on 31 December 2020 as per HL’s books 98
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(viii) HL values non-controlling interest at the acquisition date at its fair value which was
Rs. 240 million.
Required:
(a) Prepare HL’s consolidated statement of financial position as at 31 December 2020 in (17)
accordance with the requirements of IFRSs.
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(b) List down the additional information having no effect in your working in (a) above. (02)
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Autumn 2021
Q.5 Following are the summarized statements of financial position of Safawi Limited (SL) and
Khudri Limited (KL) as at 30 June 2021:
SL KL
Intangible assets 525 135
Investment in Anbara Limited – at cost 540 -
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Inventories 1,200 600
Other current assets 1,485 445
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6,140 2,390
Share capital (Rs. 10 per share) 2,500 1,000

Share premium 1,040 -
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Liabilities 1,320 190
6,140 2,390
(i)
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On 1 October 2020, SL acquired 80% shareholdings in KL through share exchange of
one share in SL for every share in KL. At acquisition date, KL’s retained earnings were
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Rs. 1,000 million and the fair values of each share of SL and KL were Rs. 25 and
Rs. 23 respectively. Shares issued by SL have not been recorded in the books.
(ii) On acquisition date, carrying values of KL’s net assets were equal to their fair values
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 Inventories were carried at Rs. 240 million and had a fair value of Rs. 340 million.
60% of these were sold during the year ended 30 June 2021.

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Land was carried at nil value and had a fair value of Rs. 50 million. The land was
allotted unconditionally to KL by the government free of cost in 2018 when its fair
value was Rs. 40 million.
(iii) On 1 January 2021, SL disposed of a software license to KL for Rs. 120 million. Its
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carrying value and remaining useful life at that date was Rs. 90 million and 3 years
respectively.
(iv) Due to temporary adverse economic conditions, an impairment test carried out at
30 June 2021 indicated that goodwill has been impaired by Rs. 60 million.
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(v) On 1 July 2020, SL acquired 3 million shares of Anbara Limited (AL) representing 25%
shareholdings. On that date, AL’s retained earnings and fair value of each share were
Rs. 2,400 million and Rs. 172 respectively.
(vi) During the year ended 30 June 2021, AL reported net loss of Rs. 280 million and other
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comprehensive income of Rs. 60 million.

(vii) On 1 July 2020, SL disposed of machinery to AL for Rs. 200 million at a gain of 100%.
The remaining useful life of the machinery at the time of disposal was 5 years.
(viii) An impairment test carried out at year end has indicated that investment in AL has
been impaired by Rs. 130 million.
(ix) SL values non-controlling interest on the acquisition date at its fair value.
Required:
Prepare SL’s consolidated statement of financial position as at 30 June 2021 in accordance
with the requirements of IFRSs. (18)
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ACCA & ICAEW PAST PAPERS
Practice Question 1
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Question 2
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Question 3
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Question 4
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Question 5
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(vi) All items in the above statements of profit or loss and other comprehensive income are deemed to accrue
evenly over the year unless otherwise indicated.
Required
(a) Calculate the consolidated goodwill as at 1 OctobEr 20X3. (6 marks)
(b) Prepare the consolidated statement of profit or loss and other comprehensive income of Penketh for the
year ended 31 March 20X4. (19 marks)
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(c) A financial assistant has observed that the fair value exercise means that a subsidiary's net assets are
included at acquisition at their fair (current) values in the consolidated statement of financial position. The
assistant believes that it is inconsistent to aggregate the subsidiary's net assets with those of the parent
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because most of the parent's assets are carried at historical cost.
Comment on the assistant's observation and explain why the net assets of acquired subsidiaries are
consolidated at acquisition at their fair values. (5 marks)
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IAS 28: INVESTMENT IN
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ASSOCIATES
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2.1 Associates and joint ventures
Joint ventures have been defined in IFRS 11 Joint Arrangements. IFRS 11 is not part of the
syllabus at CAF level. Only associate is examinable at this level.
Significant influence
 IAS 28 states that if an entity holds, directly or indirectly (through subsidiaries), 20% or more
of the voting power (equity) of the investee, it is presumed that significant influence exists,
and the investment should be treated as an associate.
 If an entity owns less than 20% of the equity of another entity, the normal presumption is
that significant influence does not exist.
Holding 20% to 50% of the equity of another entity therefore means as a general rule that significant
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influence exists, but not control; therefore, the investment is treated as an associate, provided that
it is not a joint venture.
The ‘20% or more’ rule is a general guideline, however, and IAS 28 states more specifically how
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significant influence arises. The existence of significant influence is usually evidenced in one or
more of the following ways:
 Representation on the board of directors;

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Participation in policy-making processes, including participation in decisions about
distributions of profit to shareholders (dividends);
 Material transactions between the two entities;
 An interchange of management personnel; or
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 The provision of essential technical information.
Illustration 01: Recognition
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Entity A has following shareholders with their Shareholding percentages:
Entity Percentage of Shareholding
Entity B 1%
Entity C 99%
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Entity A is a group Company of Entity B & C and all Board of directors of Entity A are on the Board
of Directors of Entity B and C. Entity B and C have other directors as well.
How should Entity B accounts for Investment in Entity A?
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2.2 Accounting for associates

Accounting for Associate in Separate Financial Statements
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When an entity prepares separate financial statements it shall account for Investments in
subsidiaries, joint ventures and associates either:
a) At cost;
b) In accordance with IFRS 9; or
c) Using the equity method as described in this chapter.
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The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other
comprehensive income includes its share of the investee’s other comprehensive income.
When accounted for using cost method as mentioned in a) above, the entity recognizes the
investment at the consideration paid value. In statement of comprehensive income, it will account
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for any dividend received from associate as income.

If accounted for under b) using IFRS 9, guidelines of IFRS 9 to be followed which have been
discussed in later chapter.
Key difference between cost model and equity method
Dividend is recognized as Income in Cost model however, in Equity method, share of profit is
recorded and dividend received reduces the value of investment.
Statement of financial position: investment in the associate
In the statement of financial position of the reporting entity (the investor), an investment in an
associate is measured at:
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Equity method Rs.
Cost of investment X
Plus/(Minus): Parent’s share of profits (losses) of the associate since acquisition X
Plus/(Minus): Parent’s share of OCI of the associate since acquisition X
Minus any impairment of the investment recognised (X)
Minus any Dividend received during the year (X)
Investment at the end of the year X
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There is no goodwill-recognised for an investment in an associate.
The accumulated profits of the reporting entity (or the consolidated accumulated reserves when
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consolidated accounts are prepared) should include the investor’s share of the post-acquisition
retained profits of the associate, (minus any impairment in the value of the investment since
acquisition) and minus any dividend received by the Investor. This completes the other side of the
entry when the investment is remeasured.
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Similarly, any other reserve of the reporting entity (or any other consolidated reserves when
consolidated accounts are prepared) should include the investor’s share of the post-acquisition
movement in the reserve of the associate.
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Rationale for deduction of Dividend when calculation Investment in Associate under Equity Method
When share of Profit from associate is recorded, it includes total profit of the associate multiplied
by investee’s share. Under Companies Act 2017, companies can pay dividend only out of
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unappropriated profits, i.e. profit that has been earned by the company and then cumulate in
retained earnings. The investee has already accounted for its share in associate and associate
has distributed dividend out of that profit, therefore, to counter double recording of income, share
of profit is reduced to the extent of dividend received.
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Statement of profit or loss and other comprehensive income

In the statement of profit or loss and other comprehensive income, there should be separate lines
for:
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 ‘Share of profits of associate’ in the profit and loss section of the statement
 ‘Share of other comprehensive income of associate’ in the ‘other comprehensive income’
section of the statement.
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Illustration 02: Equity method

Entity P acquired 30% of the equity shares in Entity A during Year 1 at a cost of Rs. 147,000 when
the fair value of the net assets of Entity A was Rs. 350,000.
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Entity P is able to exercise significant influence over Entity A.

At 31 December Year 5, the net assets of Entity A were Rs. 600,000.
In the year to 31 December Year 5, the profits of Entity A after tax were Rs. 80,000 and other
Comprehensive income was Rs. 5,000.
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What amount should be account for the associate in the financial statements of
Entity P for the year to 31 December Year 5?
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Illustration 03
Entity P acquired 40% of the equity shares in Entity A during Year 1 at a cost of Rs. 128,000 when
the fair value of the net assets of Entity A was Rs. 250,000.
Since that time, the investment in the associate has been impaired by Rs. 8,000.
Since acquisition of the investment, there has been no change in the issued share capital of Entity
A, nor in its share premium reserve or revaluation reserve.
On 31 December Year 5, the net assets of Entity A were Rs. 400,000.
In the year to 31 December Year 5, the profits of Entity A after tax were Rs. 50,000.
What amount should be account for the associate in the financial statements of
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Entity P for the year to 31 December Year 5?
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Exemptions from applying the equity method
An entity is exempt from applying the equity method if the investment meets one of the following
conditions:
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The entity is a parent that is exempt from preparing consolidated financial statements under IFRS
10 Consolidated Financial Statements or if all of the following four conditions are met (in which
case the entity need not apply the equity method):
1) the entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and
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its other owners, including those not otherwise entitled to vote, have been informed about, and
do not object to, the investor not applying the equity method;
2) the investor or joint venturer's debt or equity instruments are not traded in a public market;
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3) the entity did not file, nor is it in the process of filing, its financial statements with a securities
commission or other regulatory organisation for the purpose of issuing any class of instruments
in a public market; and
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4) the ultimate or any intermediate parent of the entity produces financial statements available for
public use that comply with IFRSs, in which subsidiaries are consolidated or are measured at
fair value through profit or loss in accordance with IFRS 10.
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Question 01: Helium

Question: The draft statements of financial position as at 31 December 2016 of three companies
are set out below.
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HELIUM SULPHUR ARSENIC

RS.000 RS.000 RS.000
Assets
Non-Current Assets
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Property, Plant And Equipment 400 100 160
Investments:
- Shares In Sulphur (60%) 75 – –
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- Shares In Arsenic (30%) 30 – –

Current Assets 445 160 80
950 260 240
Equity And Liabilities
Share Capital 100 30 60
Retained Earnings 650 180 100
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Non-Current Loans 200 50 80
950 260 240
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The reserves of Sulphur and Arsenic when the investments were acquired were Rs. 70,000 and Rs.
30,000 respectively
Required:
Prepare the consolidated statement of financial position as at 31 December
2016.
2.3 Trading with an associate

There might be trading between a parent and an associate. If in addition to the associate the parent
holds investments in subsidiaries there might also be trading between other members of the group
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and the associate.
In such cases there might be:
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 Inter-company balances (amounts owed between the parent (or group) and the associate
in either direction); and
 Unrealised profit on inter-company transactions.
The accounting rules for dealing with these items for associate are different from the rules for
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subsidiaries.
Inter-company balances
Inter-company balances between the members of a group (parent and subsidiaries) are
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cancelled out on consolidation.
Inter-company balances between the members of a group (parent and subsidiaries) and
associates are not cancelled out on consolidation. An associate is not a member of the group
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but is rather an investment made by the group. This means that it is entirely appropriate that
consolidated financial statements show amounts owed by the external party as an asset and
amount owed to the external party as a liability.
This is also the case if a parent has an associate and no subsidiaries. The parent must account
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for the investment under equity method. Once again, it is entirely appropriate that consolidated
financial statements show amounts owed by the external party as an asset and amount owed to
the external party as a liability.
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Unrealised inter-group profit

Unrealised inter-company (intra-group) profit between a parent and a member of a group must be
eliminated in full on consolidation.
For unrealised profit arising on trade between a parent and associate only the parent’s share of
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the unrealised profit is eliminated.

IAS 28 does not specify the double entry to achieve this.
The following are often used in practice
Sale of Inventory
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Parent sells to associate:

 The unrealised profit is held in inventory of the associate. The investment in the associate
should be reduced by the parent’s share of the unrealised profit.
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 The other side of the entry increases cost of sales
Unrealised profit entry when parent sells to associate Debit Credit
Cost of sales X
Investment in associate X
Associate sells to parent:
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 The unrealised profit is held in inventory of the parent and this should be reduced in value
by the parent’s share of the unrealised profit.
 The other side of the entry reduces the parent’s share of the profit of the associate.
Unrealised profit entry when associate sells to parent Debit Credit
Share of profit of associate X
Inventory X
In both cases, there will also be a reduction in the post-acquisition profits of the associate, and
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the investor entity’s share of those profits (as reported in profit or loss). This will reduce the
accumulated profits in the statement of financial position.
Sale of Property, Plant & Equipment
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Parent sells to associate:
 The unrealised profit is held in Property, Plant & Equipment of the associate. The investment
in the associate should be reduced by the parent’s share of the unrealised profit.
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 The other side of the entry increased depreciation expense under cost of sales or
administrative expenses.
Unrealised profit entry when parent sells to associate Debit Credit
Cost of sales
K X
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Investment in associate X
Associate sells to parent:

 The unrealised profit is held in Property, Plant & Equipment of the parent and this should
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be reduced in value by the parent’s share of the unrealised profit.

 The other side of the entry reduces the parent’s share of the profit of the associate.
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Illustration 08: Unrealised profit entry when associate sells to parent Debit Credit
Share of profit of associate X

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Property, Plant & Equipment X
In both cases, there will also be a reduction in the post-acquisition profits of the associate, and the
investor entity’s share of those profits (as reported in profit or loss). This will reduce the
accumulated profits in the statement of financial position.
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Note: If the Company opts other than Equity Method, there will be no such adjustment with
regard to sale of inventory and/or Property, Plant & Equipment.
Illustration 09: Unrealised profit on Inventory

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Entity P acquired 40% of the equity shares of Entity A several years ago. The cost of the investment
was Rs. 205,000.
As at 31 December Year 6 Entity A had made profits of Rs. 275,000 since the date of acquisition.
In the year to 31 December Year 6, Entity P sold goods to Entity A at a sales price of Rs. 200,000 at
a mark-up of 100% on cost.
Goods which had cost Entity A Rs. 30,000 were still held as inventory by Entity A at the year-end.
Required:
Calculate unrealized profit on Inventory and show journal entries
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Illustration: Unrealised profit on Sale of Property, Plant & Equipment
Entity P acquired 40% of the equity shares of Entity A several years ago. The cost of the investment
was Rs. 205,000.
On 1 January Year 6, Entity P sold an item of Property, Plant & Equipment to Entity A at a price of Rs.
200,000 at a Profit of 100%.
Useful life of such asset is 4 years.
Required: Calculate unrealized profit on Inventory and show journal entries
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Illustration 11:
Entity P acquired 30% of the equity shares of Entity A several years ago at a cost of Rs. 275,000.
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In the year to 31 December Year 6, the reported profits after tax of Entity A were Rs. 100,000.
In the year to 31 December Year 6, Entity P sold goods to Entity A for Rs. 180,000 at a mark-up of
20% on cost.
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Goods which had cost Entity A Rs. 60,000 were still held as inventory by Entity A at the year-end.
a) Caclualate unrealized profit on inventory
b) Investment in associate that would be included in entity P’s statement of financial position as
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at 31 Dec year 6 ?
c) The amount that would appear as a share of profit of associate in Entity P’s statement of profit
or loss for the year endinh 31 december year 6
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Illustration 12:
Kashif Limited (KL) acquired 30% shares in Hasan Limited (HL) on January 01, 201x. Both
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company’s year-end is December 31.

Following are the details of events during the year:
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1) KL purchased 30% shares at a cost of Rs. 30 million.

2) HL Limited’s profit for the year 201x is Rs. 10 million.
3) HL Limited distributed Rs. 5 million of dividend to its shareholders.
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The extract of statement of profit & loss and statement of financial position using
a) Cost Model
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b) Equity Model
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Learning Outcome
1. IAS 40 investment property in consolidation
2. Investment in associate will be shown separately in
consolidated SOFP and investment in associate in Parent
book will be eliminated.
Example 02: HAMACHI LTD

Question: Hamachi Ltd acquired 90% of Saba Ltd.’s Rs. 1 ordinary shares on 1 April 2014 paying Rs.
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3.00 per share. The balance on Saba Ltd.’s retained earnings at this date was Rs. 800,000. On 1
October 2015, Hamachi Ltd acquired 30% of Anogo Ltd.’s Rs. 1 ordinary shares for Rs. 3.50 per
share. The statements of financial position of the three companies at 31 March 2016 are shown
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below:
Hamachi Ltd Saba Ltd Anogo Ltd
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
ha
Non-current assets
Investments 4,000 910 nil
12,050 4,510 1,650
Current assets
Inventory
Accounts receivable
830
520 K 340
290
250
350
an
Bank 240 nil 100
1,590 630 700
Total assets 13,640 5,140 2,350
sa

Equity:
Ordinary shares of Rs. 1 each 5,000 1,200 600
as
Reserves:
Retained earnings b/f 6,000 1,400 800
Profit year to 31 March 2016 1,500 900 600
-H
7,500 2,300 1,400

12,500 3,500 2,000
10% Loan notes 500 240 nil
nS
Current liabilities
Accounts payable 420 960 200
Taxation 220 250 150
Overdraft nil 190 nil
K
640 1,400 350

Total equity and liabilities 13,640 5,140 2,350
Hassaan Khanani ACA

0332 - 2468189
The following information is relevant
(i) Fair value adjustments
On 1 April 2014 Saba Ltd owned an investment property that had a fair value of Rs. 120,000
in excess of its carrying value (book value). The value of this property has not changed since
acquisition. This property is included within investments in the balance sheet.
Just prior to its acquisition, Saba Ltd was successful in applying for a six-year licence to dispose
of hazardous waste. The licence was granted by the government at no cost, however Hamachi
Ltd estimated that the licence was worth Rs. 180,000 at the date of acquisition.
ni
(ii) In January 2016 Hamachi Ltd sold goods to Anogo Ltd for Rs. 65,000. These were transferred
at a mark-up of 30% on cost. Two thirds of these goods were still in the inventory of Anogo Ltd
at 31 March 2016.
na
(iii) To facilitate the consolidation procedures the group insists that all intercompany current
account balances are settled prior to the year-end. However a cheque for Rs. 40,000 from
Saba Ltd to Hamachi Ltd was not received until early April 2016. Intercompany balances are
included in accounts receivable and payable as appropriate.
ha
(iv) Anogo Ltd is to be treated as an associated company of Hamachi Ltd.
(v) An impairment test at 31 March 2016 on the consolidated goodwill of Saba Ltd concluded
that it should be written down by Rs. 468,000. No other assets were impaired.
K
Required:
(a) Prepare the consolidated statement of financial position of Hamachi Ltd as at 31 March
2016.
an
(b) Discuss the matter to consider in determining whether an investment in another company
constitutes associated company status.
Example 03: HIDE

sa
Question: Hide holds 80% of the ordinary share capital of Seek (acquired on 1 February 2016)
and 30% of the ordinary share capital of Arrive (acquired on 1 July 2015).
Hide had no other investments.
as
The draft statements of profit or loss for the year ended 30 June 2016, are set out below.
Hide Seek Arrive

Rs.000 Rs.000 Rs.000
-H
Revenue 12,614 6,160 8,640

Operating Expenses (11,318) (5,524) (7,614)
Dividends Receivable 150 – –
1,446 636 1,026
nS
Income Tax (621) (275) (432)

Profit After Taxation 825 361 594
K
Included in the inventory of Seek at 30 June 2016 was Rs. 50,000 for goods purchased from Hide
in May 2016 which the latter company had invoiced at cost plus 25%. These were the only goods
sold by Hide to Seek but it did make sales of Rs. 180,000 to Arrive during the year. None of these
goods remained in Arrive’s inventory at the year end.
Required:
Prepare a consolidated statement of profit or loss for Hide for the year ended 30 June 2016.
Hassaan Khanani ACA

0332 - 2468189
Example 04: HARK, SPARK AND ARK
Question: Hark acquired the following non-current investments on 1 April 2015:
(1) 4 million equity shares in Spark, by means of an exchange of one share in Handel for every
one share in Spark, plus Rs. 6.05 million in cash. The professional fees associated with the
acquisition amounted to Rs. 1 million. The market price of shares in Hark at the date of the
acquisition was Rs. 9 per share. The market price of Spark shares just before the acquisition
was Rs. 7. The cash part of the consideration is deferred and will not be paid until two years
after the acquisition.
(2) 25% of the equity shares in Ark, at a cost of Rs. 6 per share. The money to make this payment
was obtained by issuing one million new shares in Hark at Rs. 9 per share.
ni
None of these transactions has yet been recorded in the summary statements of financial position
that are shown below.
na
The summarised draft statements of financial position of the three companies at 31 March 2016
are as follows.
Statement of financial position Hark Spark Ark
ha
Assets
Non-current assets
Property, plant and equipment 60.0 31.0 16.0
K
Other equity investments 0.8 nil nil
60.8 31.0 16.0
Current assets 18.2 8.0 9.0
an
Total assets 79.0 39.0 25.0

sa
Equity shares of Rs. 1 each 16.0 5.0 6.0

Share premium 2.0 4.0 4.0
Retained earnings: at 1 April 2015 36.0 16.0 8.0
as
- for year ended 31 March 2016 8.0 3.0 2.0

62.0 28.0 20.0
-H
Hark Spark Ark

nS
6% loan notes 10.0 - -

7% loan notes - 6.0 3.0
Current liabilities 7.0 5.0 2.0
K
Total equity and liabilities 79.0 39.0 25.0
Hassaan Khanani ACA

0332 - 2468189
The following information is relevant:
(1) Hark has chosen to value the non-controlling interest in Spark using the fair value method
permitted by IFRS 3 (revised). The fair value of the non-controlling interests at the acquisition
date is estimated to be the market value of the shares before the acquisition.
(2) At the date of acquisition of Spark, the fair values of its assets were equal to their carrying
amounts.
(3) The cost of capital of Hark is 10% per year.
(4) During the year ended 31 March 2016, Spark sold goods to Hark for Rs. 3.6 million, at a
mark-up of 50% on cost. Hark had 75% of these goods in its inventory at 31 March 2016.
ni
(5) There were no intra-group receivables and payables at 31 March 2016.
(6) On 1 April 2015, Hark sold a group of machines to Spark at their agreed fair value of Rs. 3
na
million. At the time of the sale, the carrying amount of the machines was Rs. 2 million. The
estimated remaining useful life of the plant at the date of the sale was four years. Plant and
machinery is depreciated to a residual value of nil using straight-line depreciation and at 1
April 2015 the machines had an estimated remaining life of five years.
ha
(7) “Other equity investments” are included in the summary statement of financial position of
Hark at their fair value on 1April 2015. Their fair value at 31 March 2016 is Rs.0.65 million.
(8) Impairment tests were carried out on 31 March 2016. These show that there is no
K
impairment of the value of the investment in Ark or in the consolidated goodwill.
(9) No dividends were paid during the year by any of the three companies.
an
Required:
Prepare the consolidated statement of financial position for Hark as at 31 March 2016.
sa
as
-H
nS
K
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Hassaan Khanani is the only teacher whose students have Secured back to back Gold Medals in FAR 2 Examination
0332 - 2468189
Example 05: P, S AND A
Question: The statements of financial position of three entities P, S and A are shown below, as at
31 December Year 5. However, the statement of financial position of P records its investment in
Entity A incorrectly.
P S A
Rs. Rs. Rs.
Non-current assets
ni
Investment in S at cost 320,000 - -
Investment in A at cost 140,000 - -
–––––-------–––– –––––-------–––– –––––-------––––
na
910,000 240,000 460,000
Current assets
Inventory 70,000 90,000 70,000
ha
Current account with P - 60,000 -
Current account with A 20,000 - -
Other current assets 110,000 130,000 40,000
Total assets
K –––––-------––––
1,110,000
–––––-------––––
520,000
–––––-------––––
570,000
an
–––––-------–––– –––––-------–––– –––––-------––––
Equity and reserves
Equity shares of Rs. 1 100,000 200,000 100,000
sa
Share premium 160,000 80,000 120,000

Accumulated profits 650,000 140,000 250,000
–––––-------–––– –––––-------–––– –––––-------––––
as
910,000 420,000 470,000

Long-term liabilities 40,000 20,000 30,000
Current liabilities
-H
Current account with P - - 20,000

Current account with S 60,000 - -
Other current liabilities 100,000 80,000 50,000
–––––-------–––– –––––-------–––– –––––-------––––
1,110,000 520,000 570,000
nS
Additional information
P bought 150,000 shares in S several years ago when the fair value of the net assets of S was Rs.
340,000.
K
P bought 30,000 shares in A several years ago when A’s accumulated profits were Rs. 150,000.
There has been no change in the issued share capital or share premium of either S or A since P
acquired its shares in them.
There has been impairment of Rs. 20,000 in the goodwill relating to the investment in S, but no
impairment in the value of the investment in A.
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0332 - 2468189
At 31 December Year 5, A holds inventory purchased during the year from P which is valued at Rs.
16,000 and P holds inventory purchased from S which is valued at Rs. 40,000. Sales from P to A
and from S to P are priced at a mark-up of one-third on cost.
None of the entities has paid a dividend during the year.
P uses the partial goodwill method to account for goodwill and no goodwill is attributed to the non-
controlling interests in S.
Required:
Prepare the consolidated statement of financial position of the P group as at 31 December Year
5.
Last Day Revision
ni
Example 06: BL, ML and ZL
Question: Bilal Limited (BL), acquired a subsidiary, Mishall Limited (ML), on July 01, 2014 and an
na
associate, Zoha Limited (ZL), on January 01, 2017. The details of the acquisition at the respective
dates are as follows:
Fair value Ordinary
Ordinary Reserves
ha
Share of net Cost of Share
Investment share Retained
Premium assets at investment capital
capital earnings
acquisition acquired
Re. 1 each ------------------------------Rs. in million---------------------------------
ML
ZL
400
220
160
269
140
83
K 800
652
765
203
320
55
an
The draft financial statements for the year ended June 30, 2018 are: -
Statement of financial position
as at June 30, 2018
sa
BL ML ZL
---------------Rs. in million---------------
Non-current assets
as
Property, plant and equipment 1,012 920 442

Intangible assets - 350 27
-H
Investment in ML 765 - -
Investment in ZL 203 - -
1,980 1,270 469
Current assets
nS
Inventories 620 1,460 214

Cash and cash equivalents 900 510 45
K
2,470 2,499 589

4,450 3,769 1,058
Hassaan Khanani ACA

0332 - 2468189
Statement of financial position
as at June 30, 2018
BL ML ZL
---------------Rs. in million---------------
Equity
Share capital 1,000 400 220
Share premium 200 140 83
ni
Retained earnings 1,370 929 361
2,570 1,469 664
Current liabilities
na
Trade and other payables 1,880 2,300 394
4,450 3,769 1,058
ha
Revenue 4,480 4,200 1,460
Cost of sales (2,690) (2,940) (1,020)
Gross profit
Distribution and administrative cost
K 1,790
(620)
1,260
(290)
440
(196)
an
Dividend income 260 - -
Profit before tax 1,380 890 220
sa
Income tax expense (330) (274) (72)

Profit for the year 1,050 616 148
as
Dividend paid for the year 250 300 80

Retained earnings brought forward 570 613 293
-H
a) The BL Group has the policy of measuring NCI at fair value at the date of acquisition and Fair
Value of NCI was Rs. 210 million at the date of acquisition.
b) Neither ML nor ZL had reserves other than retained earnings and share premium at the date
of acquisition. Neither issued new shares since acquisition.
nS
c) The fair value difference on the subsidiary relates to property, plant and equipment being
depreciated through cost of sales over the remaining useful life of 10 years from the
acquisition date. The fair value difference on the associate relates to a piece of land which has
not been sold since acquisition.
d) ML’s intangible assets include Rs. 87 million of training and marketing cost incurred during
K
the year ended June 30, 2018. The directors of ML believe that these should be capitalized as
they relate to the startup period of a new business, and intend to amortize the balance over
five years from July 01, 2018.
e) During the year ended June 30, 2018 ML sold goods to BL for Rs. 1,300 million. The company
makes a profit of 30% on the selling price. Rs. 140 million of these goods were held by BL on
June 30, 2018 (Rs. 60 million on June 30, 2017).
f) BL sold goods worth Rs. 1,000 to ZL during the year by charging 25% margin on sales, 10% of
the goods still remains unsold by ZL.
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0332 - 2468189
g) Annual impairment tests have indicated impairment losses of Rs. 100 million relating to the
recognized goodwill of ML including Rs. 25 million in the current year. No impairment losses
to date have been necessary for the investment in ZL.
Required:
Prepare the Consolidated statement of financial position and the statement of comprehensive
income for the year ended June 30, 2018 for the BL Group.
Learning outcome
1. Subsidiary in associate acquired in previous years in
consolidation question hence difference column of SONA
ni
and share of profit from investment in associate working
will not be considered for PnL.
na
2. FV Adjustment to reporting date only
ha
Example 07: Qudsia Limited, Manto Limited and Hali Limited
Question: Qudsia Limited (QL) has investments in two companies as detailed below:
Manto Limited (ML)

K
On 1 January 2010, QL acquired 40 million ordinary shares in ML, when its retained earnings
were Rs. 150 million.
an
Hali Limited (HL)
 On 30 November 2012, QL acquired 16 million ordinary shares in HL, when its retained
earnings stood at Rs. 224 million.
sa
 The purchase consideration was made up of:

 Rs. 190 million in cash, paid on acquisition; and
 4 million shares in QL. At the date of acquisition, QL’s shares were being traded at
Rs. 15 per share but the price had risen to Rs. 16 per share by the time the shares
as
were issued on 1 January 2013.

The draft summarised statements of financial position of the three companies on 31 December
2012 are shown below:
-H
QL ML HL
---------Rs. in million---------
Assets
nS
Property, plant and equipment 5,000 550 500
Investment in ML 630 - -
Investment in HL 190 - -
K
Current assets 5,480 400 350
11,300 950 850

Ordinary share capital (Rs.10 each) 6,000 500 400
Retained earnings 2,900 100 240
Current liabilities 2,400 350 210
11,300 950 850
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The following additional information is available:
i. QL considers ML as a cash-generating unit (CGU). As on 31 December 2012, the recoverable
amount of the CGU was estimated at Rs. 700 million.
ii. QL values the non-controlling interest at its proportionate share of the fair value of the
subsidiary’s net identifiable assets.
iii. On 1 October 2012, ML sold a machine to QL for Rs. 24 million. The machine had been
purchased on 1 October 2010 for Rs. 26 million. The machine was originally assessed as
having a useful life of ten years and that estimate has not changed.
iv. In December 2012, QL sold goods to HL at cost plus 30%. The amount invoiced was Rs. 52
million. These goods remained unsold at year end and the invoiced amount was also paid
subsequent to the year end.
Required:
ni
Prepare a consolidated statement of financial position for QL as on 31 December 2012 in
accordance with the requirements of International Financial Reporting Standards.
na
Example 08: Golden Limited
Question: The following balances are extracted from the records of Golden Limited (GL), Silver
ha
Limited (SL) and Bronze Limited (BL) for the year ended 30 June 2019:
GL SL BL
---------- Rs. in million ----------
Sales
Cost of sales
K 2,500
1,550
2,050
1,150
1,000
590
an
Operating expenses 810 520 288
Other income 350 180 50
Finance cost 90 60 35
sa
Surplus arising on revaluation of property, plant and

60 - 20
equipment during the year
as
Investment in SL - at cost 1,400 - -

Investment in BL - at cost 2,500 - -
Retained earnings as at 30 June 2019 8,000 3,500 2,200
-H
(i) Details of GL’s investments are as follows:
Share capital (Rs. 10 Retained earnings

nS
Date of Holding each) of investee of investee

Investee
investment %
---------- Rs. in million ----------
1 Jan 17 35% BL 5,000 1,800

K
1 Jul 18 70% SL 6,000 3,000
(ii) Cost of investment in SL includes professional fee of Rs. 20 million incurred on acquisition
of SL.
(iii) The following considerations relating to acquisition of SL's shares are still unrecorded:
 Issuance of 175 million ordinary shares of GL.
 Cash payment of Rs. 1,000 million after three years.
On the date of investment, the market price of shares of GL and SL were Rs. 20 and Rs. 17
respectively. Applicable discount rate is 12%.
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(iv) At the date of acquisition of SL, carrying values of its net assets were equal to fair value
 an internally developed software by SL which had a fair value of Rs. 150 million.
The cost of Rs. 120 million incurred by SL on development had been expensed out
by SL since the software did not meet the criteria for capitalization during
development. At acquisition date, the software had a remaining useful life of 5
years.
 a contingent liability of Rs. 90 million as disclosed in financial statements of SL
which had an estimated fair value of Rs. 60 million. Subsequent to acquisition, the
liability has been recognised by SL in its books at Rs. 40 million.
(v) Following inter-company sales at cost plus 15% were made during the year ended 30 June
2019:
ni
Included in buyer's closing
Sales
stock-in-trade
na
------------- Rs. in million -------------
SL to GL 506 138
ha
GL to BL 161 69
(vi) On 1 January 2019, GL granted loans of Rs. 150 million and Rs. 130 million to SL and BL
K
respectively, at interest rate of 12% per annum.
(vii) GL and BL follow revaluation model whereas SL follows cost model for subsequent
measurement of property, plant and equipment. If SL had adopted the revaluation model,
an
SL would have recorded revaluation surplus of Rs. 35 million for the year ended 30 June
2019.
(viii) GL measures non-controlling interest at the acquisition date at its fair value.
sa
Required:
(a) Prepare GL’s consolidated ‘statement of profit or loss and other comprehensive income’ for
the year ended 30 June 2019.
as
(b) Compute the amount of investment in associate as would appear in GL’s consolidated
statement of financial position as at 30 June 2019.
-H
nS
K
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Example 09: Pistachio Limited
Question: Following are the summarized statements of financial position of Pistachio Limited (PL),
Mint Limited (ML) and Jalapeno Limited (JL) as on 31 December 2019:
PL ML JL
--------- Rs. in million ---------
Property, plant and equipment 850 750 500
Investment in ML at cost 900 - -
Investment in JL at cost 170 - -
ni
Inventories 300 340 200
na
Cash and bank balances 60 170 50
2,520 1,460 900
ha
Share capital (Rs. 10 per share) 1,400 700 400
Share premium - 100 -
Retained earnings 780 480 340
K
Liabilities 340 180 160
2,520 1,460 900
an
(i) Details of PL's investments are as follows:
sa
Date of Retained earnings of investee

Holding % Investee
investment Rs. in million
1-Jan-19 25% JL 200

as
1-Apr-19 80% ML 360
(ii) The following considerations relating to acquisition of ML’s shares are still unrecorded:
-H
 Transfer of PL's freehold land having carrying value and fair value of Rs. 88 million
 Cash of Rs. 115 million would be paid in at start of 2020 if ML's net profit for the
year 2019 would increase by 20% as compared to last year. Fair value of this
nS
consideration on acquisition date was estimated at Rs. 70 million. At year-end, the

said target has been achieved by ML.
(iii) On the date of investment, the fair values of each share of ML and JL were Rs. 18 and Rs.
16 respectively.
K
(iv) At the date of acquisition of ML, carrying values of ML’s net assets were equal to fair value
except for inventory which was carried at Rs. 130 million and had a fair value of Rs. 180
million. 20% of this inventory is still included in ML's inventory as at 31 December 2019.
(v) On 1 July 2019, ML sold a machine to PL for Rs. 55 million at a gain of Rs. 10 million. The
remaining useful life of the machine at the time of disposal was 5 years.
(vi) JL paid 10% dividend for the half year ended 30 June 2019. PL recorded this as other
income.
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0332 - 2468189
(vii) During the year, PL made sales of Rs. 72 million to JL at 20% above cost. 60% of these
goods were sold by JL during the year.
(viii) As at 31 December 2019, PL has receivable of Rs. 8 million from JL.
(ix) An impairment test carried out at year-end has indicated that goodwill of ML has been
impaired by 10%.
(x) PL measures non-controlling interest at the acquisition date at its fair value.
(xi) PL’s discount rate is 14%.
Required:
ni
(a) Prepare PL’s consolidated statement of financial position as at 31 December 2019 in
accordance with the requirements of IFRSs.
(b) List down the additional information having no effect in your working in (a) above.
na
ha
K
an
sa
as
-H
nS
K
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Autumn 2020
Example 10: Manzil Limited

Question: The following amounts are extracted from the records of Manzil Limited (ML), Himmat
Limited (HL) and Koshish Limited (KL) for the year ended 31 December 2019:
ML HL KL
---------- Rs. in million ----------
Sales 800 315 132
Cost of sales (540) (180) (97)
Operating expenses (114) (60) (6)
Other income 41 - 8
ni
Retained earnings as at 31 December 2019 3,600 322 200
na
(i) Details of ML’s investments are as follows:
Date of Holding % Investee Share capital

investment
ha
(Rs. 10 each) of investee
1 Aug 2015 25% KL Rs. 400 million
1 May 2019 60% HL Rs. 600 million
Consideration for acquisition of HL’s shares comprises of:
K
(ii)
 transfer of ML’s building having carrying value and fair value of Rs. 150 million and Rs.
226 million respectively at acquisition date. The disposal of building has been recorded
an
at carrying value.
 issuance of 16 million ordinary shares of ML after one month of acquisition. The market
price of ML’s shares at the date of acquisition was Rs. 30 each. However, the market price
increased to Rs. 32 when shares were issued.
sa
(iii) At the date of acquisition of HL, carrying value of its net assets was equal to fair value except
the following:
 A manufacturing plant whose fair value exceeded its carrying value by Rs. 60 million. The
as
remaining useful life of the plant on the acquisition date was 8 years.
 A contingent asset of Rs. 50 million as disclosed in HL's financial statements which had
an estimated fair value of Rs. 15 million. At year-end, this contingent asset is disclosed in
HL's financial statements at Rs. 46 million.
-H
(iv) Impairment test carried out at year-end has indicated that goodwill of HL has been impaired
by 10%.
(v) On 15 August 2019, HL and KL paid 5% dividend for the half year ended 30 June 2019. ML
recorded its share as other income.
(vi) On 30 June 2019, KL sold a machine having carrying value of Rs. 60 million to ML for Rs. 68
nS
million. The remaining useful life of the machine at the time of disposal was 5 years.
(vii) On 15 November 2019, HL and KL purchased 600,000 and 400,000 ordinary shares of Jazba
Limited (JL) respectively at price of Rs. 150 each plus 2% transaction cost. HL and KL classified
the investment as financial asset at fair value through other comprehensive income. These
K
investments have not been re-measured at year-end. Market price of JL’s share was Rs. 138
at year-end. Total share capital of JL consists of 20 million shares.
(viii) ML measures non-controlling interest at the proportionate share of acquiree’s identifiable net
assets.
Required: Prepare ML’s consolidated statement of profit or loss and other comprehensive income
Learning outcome: FV of investment will be considered at acq date and not after that for
computing goodwill.
2. contigent asset in consolidation
3. sales of PPE by associate to parent.
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MCQ's
01. Which of the following is the criterion for treatment of an investment as an associate?
(a) Ownership of a majority of the equity shares
(b) Ability to exercise control
(c) Existence of significant influence
(d) Exposure to variable returns from involvement with the investee
ni
02. An associate is an entity in which an investor has significant influence over the investee.
Which TWO of the following indicate the presence of significant influence?
na
(a) The investor owns 330,000 of the 1,500,000 equity voting shares of the investee
(b) The investor has representation on the board of directors of the investee
ha
(c) The investor is able to insist that all of the sales of the investee are made to a
subsidiary of the investor
(d) The investor controls the votes of a majority of the board members.
03.
K
How should an associate be accounted for in the consolidated statement of comprehensive
income?
an
(a) The associate's income and expenses are added to those of the group on a line-by-
line basis
(b) The group share of the associate's income and expenses is added to the group
sa
figures on a line-byline basis

(c) The group share of the associate's profit after tax is recorded as a one-line entry
(d) Only dividends received from the associate are recorded in the group statement of
as
comprehensive income
-H
04. Ansar Limited has held a 90% subsidiary, Fine Limited, for many years, and 3 months before
the year end, acquired a 40% associate, Ishaq Limited.
Their turnover figures for the year were:
Rs. million
nS
Ansar Limited 360

Fine Limited 270
Ishaq Limited 180
K
Calculate the turnover figure to appear in the consolidated statement of comprehensive income
for the group.
(a) Rs. 630 million
(b) Rs. 603 million
(c) Rs. 810 million
(d) Rs. 675 million
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05. Which of the following methods is used when accounting for an associate
(a) Acquisition accounting
(b) Proportionate consolidation
(c) Equity accounting
(d) Pooling of interests
06. Naima Limited owns 70% of Faiza Limited and 30% of Farhan Limited. The tax charge for each
ni
company for the year is Naima Limited Rs. 80 million Faiza Limited Rs. 64 million and Farhan
Limited Rs. 48 million respectively.
What should be shown as the tax charge in the consolidated statement of comprehensive
na
income?
(b) Rs. 144 million
ha
(d) Rs. 192 million
07.
K
IAS 28 defines significant influence in relation to associates as:
(a) Power to participate in policy decisions
an
(b) Power to participate in financial and operating policy decisions but not control them
(c) Power to participate in policy decisions but not control them
sa
(d) Power to participate in financial and operating policy decisions
08. Best Limited has a 60% subsidiary Better Limited and a 40% associate Good Limited.
as
The three companies have profits after tax of Rs. 150 million each.
Calculate the profit after tax for the period that will be shown in the consolidated statement of
comprehensive income.
-H
(a) Rs. 360 million

(b) Rs. 450 million
(c) Rs. 300 million
nS
(d) Rs. 390 million
09. Idrees Limited has an 80% subsidiary, Sajjad Limited and a 40% associate, Sehrish Limited.
K
The three companies have revenue of Rs. 120 million each.

What should be shown as the revenue figure in the consolidated statement of comprehensive
income?
(a) Rs. 264 million
(b) Rs. 360 million
(c) Rs. 240 million
(d) Rs. 288 million
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10. Which of the following investments should be accounted for by Shah Zain Limited as
associates?
1. 18% of the equity capital of Company A. Shah Zain Limited is the largest shareholder in this
company, has a director on its board, and provides management expertise.
2. 23% of the equity share capital of Company B. Shah Zain Limited has no representative on the
board and takes no part in the management of Company B The majority shareholders in
Company B have historically used their combined voting rights to keep any nominee of Shah
Zain Limited off the board.
3. 50% of the equity share capital of Company C. The remaining 50% is held by an unrelated
company. Policy decisions relating to Company C must be agreed to by both of its shareholders.
ni
4. 46% of the equity share capital of Company D. The other shareholdings are split between
various small investors. Shah Zain Limited nominates eight of the ten directors on the board of
na
Company D, under a written agreement between the two companies.
(a) 1 only
(b) 1 and 2 only
ha
(c) 1, 2 and 3 only
(d) All four investments
11.
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Fahad Limited bought 30% of Mahad Limited on 1 July 2014. Mahad Limited’s statement of
comprehensive income for the year shows a profit of Rs. 400 million. Mahad Limited paid a
an
dividend to Fahad Limited of Rs. 50 million on 1 December 2014. At the year end, the investment
in Fahad Limited was judged to have been impaired by Rs. 10 million.
What will be the share of profit from associate shown in the consolidated statement of profit or
loss for the year ended 31 December 2014?
sa
(a) Rs. 57 million

(b) Rs. 50 million
as
(c) Rs. 60 million

(d) Rs. 110 million
-H
12. Bahadur Limited bought 30% of Shahzor Limited on 1 January 2018, when Shahzor Limited
had share capital of 10 million Rs. 10 shares. The consideration comprised one Bahadur Limited
share for every 3 shares bought in Shahzor Limited.
At the date of acquisition, Bahadur Limited’s shares had a market value of Rs. 40.50 and
nS
Shahzor Limited’s had a market value of Rs. 12. Shahzor Limited reported net loss of Rs. 40
million for the year 2018 and no dividend was paid or declared during 2018. However, Bahadur
Limited has determined that its value of investment in Shahzor Limited has not impaired.
What is the value of investment in associate shown in the consolidated statement of financial
K
position as at 31 December 2018?
(a) Rs. 3.5 million

(d) Rs. 123 million
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13. Falcon Limited acquired 30% of Eagle Limited on 1 July 2013 at a cost of Rs. 5.5 million. Falcon
Limited has classified Eagle Limited as an associate.
For the year ended 30 September 2013, Eagle Limited has reported a net profit of Rs. 625,000.
What is the value of the associate investment in the group statement of financial position as at
30 September 2013?
(a) Rs. 5,546,875

(b) Rs. 5,500,000
(c) Rs. 6,125,000
ni
(d) Rs. 5,968,750
na
14. Reliance Group acquired 24,000 of Alia Limited’s 80,000 equity shares for Rs. 60 per share on
1 April 2014. Alia Limited’s profit after tax for the year ended 30 September 2014 was Rs.
400,000.
ha
On the assumption that Alia Limited is an associate of Reliance Group, what would be the
carrying amount of the investment in Alia Limited in the consolidated statement of financial
position of Reliance Group as at 30 September 2014?
K
(a) Rs. 1,455,000
(b) Rs. 1,500,000
an
(c) Rs. 1,515,000
(d) Rs. 1,395,000
sa
15. ‘An associate is an entity over which the investor has significant influence’.
Which TWO of the following do not indicate the presence of significant influence?
as
(a) The investor owns 660,000 of the 3,000,000 equity voting shares of the investee
(b) The investor has representation on the board of directors of the investee
(c) The investor is able to insist that all of the sales of the investee are made to a
-H
subsidiary of the investor

(d) The investor controls the votes of a majority of the board members
nS
16. Yooshay Limited owns 30% of Hussain Limited, which it purchased on 1 May 2017 for Rs. 2.5
million. At that date Hussain Limited had retained earnings of Rs. 5.3 million. At the year-end
date of 31 October 2017 Hussain Limited had retained earnings of Rs. 6.4 million after paying
out a dividend of Rs. 1 million. On 30 September 2017 Yooshay Limited sold Rs. 700,000 of
goods to Hussain Limited, on which it made 30% profit.
K
Hussain Limited had resold none of these goods by 31 October.

At what amount will Yooshay Limited record its investment in Hussain Limited in its consolidated
statement of financial position at 31 October 2017?
Rs. ___________
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IFRS 15 – Revenue from Contract with
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Customers
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IFRS 15 – Revenue from Contract With Customers
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IFRS 15 – Examples
Naughtiness in step 1- identify the contract

1) Mr. Tamimi agreed on March 1, 2017 to sell 5 cutting machines to Hassaan Enterprises. Due to
some deficiency in drafting the agreement each party’s rights cannot be identified. On March
31, 2017 Mr. Tamimi delivered the goods and these were accepted by Hassaan Enterprises.
After 10 days of delivery i.e. April 10, 2017 Hassaan Enterprises made the full payment and the
payment is nonrefundable. When should Tamimi record the revenue?
ni
2) A Mughees agreed to deliver 30 smart phones to Kubra. As per the agreement A
mughees can cancel the contract any time before delivering w/out penalty is there a
na
contract?
Naughtiness in Step 2 - performance in obligation
ha
3) Moin & Co selling washing machine for Rs 10,000 & also provides following free gifts.
Free service & maintenance for 1 year
K
1 kg of washing powder Nirma
A discount voucher of 10% on next purchase.
an
How many obligations?
4) Software house has agreed with Hamza that it will deliver a software & will also provide
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support service & software updates? How many? (ICAP last attempt)
5) Mufta Ibrahim subscribe to a six month magazine subscription & rec a free fidget
as
spinner How many?
6) Mr. Ahmed promises Mr. Noman to build him a wall. He will also arrange bricks himself
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for building wall … Kitni?
Naughtiness in Step 3: Transaction Price

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7) Variables Consideration: Fatimay & Co enters in to a contract to build oil rig for 100,000.
If oil rig not completed on time there will be a penalty of 20,000, in past 90% time
Fatimay has completed on time. How much TP
K
8) Time value : Hansmukh sells good to Hania worth Rs 5M, payment will be made after
two years. Rate 10%
9) Non cash consideration: Entity Erum will build wall for entity Mahnoor against 1,000
shares of entity Mahnoor at the time of contract shares were Rs 50 each & at time of
completion of contract Rs 52 each ?
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10) Incentive to customer Mr. Qazi will teach FA1 in KnS for next 6 months for Rs 150,000.
Mr. Qazi will pay Rs 5000 to KnS back for Admin Expenses How much Mr. will record as
revenue
Naughtiness in Step 4: Allocation of Transaction Prices
11) Two Obligation one transaction price (No allotment Needed)
ni
Manish receives an order from customer for a computer as well as 12 months technical support
na
on 1 march 2017. He deliver computer same day & customer paid total Rs 42000. Computer
sells for 30,000 & technical support 12,000
Req: Manish treatment in Y/E Dec 2017
ha
12) Two Obligation one transaction price need allotment
Saad purchase I phone on a pay monthly 12 month basis, under the contract with KnS terms are
K
as follows
Saad receive I Phone on 1 Jan 2017
Saad pays monthly fees of RS 2000 which includes unlimited free minutes
an
Customer may purchase IPhone from knS @ Rs 5000 without payment plan. They may enter
into free minutes plan without I Phone for 1750/ Month. KnS Y/E is June 30 2017
sa
Other Naughtiness
13) A consultancy firm agrees to provide services to leading college. A nonrefundable advance
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was taken on 1 Jan 2017. College was shifted in March 2017 & contract was finished. How much
revenue should be recognized & when?
-H
14) Adil Ltd. enters into 2 separate agreements with customer X.

1. Agreement 1: Deliver 10,000 bricks for Rs. 100,000
2. Agreement 2: Build a boundary wall for Rs. 20,000
The two agreements should be combined and considered as a one agreement because contracts are
nS
negotiated with a single commercial objective of building a wall. The price of two agreements is
interdependent. Adil Ltd. is probably charging high price for bricks to compensate for the discounted
price for building the wall.
K
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IFRS 15 – Revenue from Contract with Customers
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Example : Incremental Costs that expense d out
Avinash has awarded his sales team an extra bonus of Rs 50000 for bringing sales contract on 1 Jan
2017. Products are to be delivered by March 2017 . What is the treatment of this Rs 50,000
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Autumn 16
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Autumn 17
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Autumn 18
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Autumn 19
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Spring 16
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Spring 17
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Spring 18
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Spring 19
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Spring 20
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Autumn 20
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MCQ's
01. Which of the following is not one of the 5 steps for recognizing revenue according to IFRS 15 Revenue
from contracts with customers?
(a) Identify the contract
(b) Assess the likelihood of economic benefits

(c) Determine the contract price
(d) Allocate the transaction price to the performance obligations in the contract.
ni
02. Whale Limited (WL) is an agent who works on behalf of Dolphin, a famous performer. WL has just
na
collected Rs. 100 million from a promoter in terms of ticket sales for a recent show done by Dolphin.
WL earns commission of 10% in relation to Dolphin's work.
What is the correct double entry for the receipt of the Rs? 100 million?
ha
(a) Dr Cash Rs. 100 million
Dr Trade Receivables Rs. 10 million
Cr Trade payables Rs. 100 million
K
Cr Revenue Rs. 10 million
(b) Dr Cash Rs. 100 million

n
Dr COS Rs. 90 million
aa
(c) Dr COS Rs. 90 million

s
Dr Cash Rs. 10 million

as
(d) Dr Cash Rs. 100 million

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03. Coin Limited (CL) sells a specialized piece of equipment to Orbit Limited on 1st September 2017 for
Rs. 4m. Due to the specialized nature of the equipment, CL has additionally agreed to provide a support
service for the next two years. The cost per annum to CL of providing this service will be Rs. 300,000.
nS
CL usually earns a gross margin of 20% on such contracts.

What revenue should be included in the statement of profit or loss of CL for the year ended 31 December
2017?
K
(a) Rs. 3,343,750
(b) Rs. 3,250,000
(c) Rs. 3,375,000
(d) Rs. 4,000,000
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04. River Limited (RL) has prepared its draft financial statements for the year ended 30 September 2014.
It has included the following transactions in revenue at the amounts stated below.
Which of these has been correctly included in revenue according to IFRS 15 Revenue from Contracts
with Customers?
(a) Agency sales of Rs. 2.5 million on which RL is entitled to a commission of 10%.
(b) Sale proceeds of Rs. 20 million for motor vehicles which were no longer required by RL
(c) Sales of Rs. 15 million on 30 September 2014. The amount invoiced to and received from the
customer was Rs. 18 million, which includes Rs. 3 million for ongoing servicing work to be done
by RL over the next two years.
ni
(d) Sales of Rs. 20 million on 1 October 2013 to an established customer who (with the agreement
of RL) will make full payment on 30 September 2015. RL has a cost of capital of 10%.
na
05. Cat Limited (CL) sold and installed an item of machinery for Rs. 800,000 on 1 November 2017. Included
within the price was 2 years servicing contract which has a value of Rs. 240,000 and a fee for installation
ha
of Rs. 50,000.
How much should be recorded in CL’s revenue in its statement of profit or loss for the year ended 31
December 2017 in relation to the machinery sale?
K
(a) Rs. 530,000
(b) Rs. 680,000

n
(c) Rs. 560,000
(d) Rs. 580,000

aa
06. Sales director of a company is close to selling a machine which it sells for Rs. 650,000, offering free
s
service, therefore selling the entire machine for Rs. 560,000 including installation. The company never
sells servicing separately.
as
How should this discount be applied in relation to the sale of the machinery?
(a) Machine only
-H
(b) Machine and Installation only
(c) Machine and Service only
(d) Machine, Installation and Service

nS
07. Cheetah Limited (CL) works as an agent for a number of smaller contractors, earning commission of
10%. CL’s revenue includes Rs. 6 million received from clients under these agreements with Rs. 5.4
million in cost of sales representing the amount paid to the contractors.
K
What adjustment needs to be made to revenue in respect of the commission sales?
(a) Reduce revenue by Rs. 6 million
(b) Reduce revenue by Rs. 5.4 million
(c) Increase revenue by Rs. 600,000
(d) No adjustment is required
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08. An entity regularly sells Products A, B and C individually, thereby establishing the following stand-alone
selling prices:
Product Stand-alone selling price Rs.
Product A 40
Product B 55
Product C 45
In addition, the entity regularly sells Products B and C together for Rs. 60.
ni
The entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100.
Allocate the transaction price of Rs. 100 to Product A, B and C in accordance with IFRS 15
na
(a) A Rs. 40 and B Rs. 55 and C Rs. 45
(b) A Rs. 29 and B Rs. 39 and C Rs. 32
(c) A Rs. 40 and B Rs. 33 and C Rs. 27
ha
(d) A Rs. 40 and B Rs. 27 and C Rs. 33
K
09. An entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100.
Product Stand-alone selling price

n
Product A 50
aa
Product B 25
Product C 75
Total 150
s
Allocate the transaction price of Rs. 100 to Product A, B and C in accordance with IFRS 15
as
(a) A Rs. 50 and B Rs. 25 and C Rs. 75
(b) A Rs. 33 and B Rs. 17 and C Rs. 50

-H
(c) A Rs. 33 and B Rs. 50 and C Rs. 17
(d) A Rs. 17 and B Rs. 33 and C Rs. 50

nS
10. Which of the following items has correctly been included in Hakeem Limited (HL)’s revenue for the year
to 31 December 2011?
(a) Rs. 2 million in relation to a fee negotiated for an advertising contract for one of HL’s clients. HL
acted as an agent during the deal and is entitled to 10% commission.
K
(b) Rs. 500,000 relating to a sale of specialized equipment on 31 December 2011. The full sales
value was Rs. 700,000 but Rs. 200,000 relates to servicing that HL will provide over the next 2
years, so HL has not included that in revenue this year.
(c) Rs. 800,000 relating to a sale of some surplus land owned by HL.
(d) Rs. 1 million in relation to a sale to a new customer on 31 December 2011. Control passed to the
customer on 31 December 2011. The Rs. 1 million is payable on 31 December 2013. Interest
rates are 10%.
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11. Hover Limited (HL) is a car retailer. On 1 April 2014, HL sold a car to a customer on the following terms:
The selling price of the car was Rs. 25.3 million. The customer paid Rs. 12.65 million (half of the cost)
on 1 April 2014 and will pay the remaining Rs. 12.65 million on 31 March 2016 (two years after the
sale). The customer can obtain finance at 10% per annum.
What is the total amount which HL should credit to profit or loss in respect of this transaction in the year
ended 31 March 2015?
ni
na
12. Determining the amount to be recognized in the first year of a long term contract with a customer is an
example of which step in the IFRS 15’s 5-step model?
ha
(a) Determining the transaction price
(b) Recognizing revenue when a performance obligation is satisfied
(c) Identifying the separate performance obligations
(d)
K
Allocating the transaction price to the performance obligations
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13. X Limited wins a competitive bid to provide consulting services to a new customer. X Limited incurred
the following costs to obtain the contract:
aa
Rs.
Commissions to sales employees for winning the contract 10,000
External legal fees for due diligence 15,000
s
Travel costs to deliver proposal 25,000

as
Total costs incurred 50,000

How to recognize the above costs?
(a) Capitalize Rs. Nil and expense Rs. 50,000
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(b) Capitalize Rs. 10,000 and expense Rs. 40,000
(c) Capitalize Rs. 25,000 and expense Rs. 25,000
(d) Capitalize Rs. 50,000 and expense Rs. Nil

nS
14. On 1 January 2019, an entity enters into a non-cancellable contract to transfer a product to a customer
on 31 March 2019. The contract requires the customer to pay consideration of Rs. 1,000 in advance on
31 January 2019 but the customer pays the consideration on 1 March 2019. The entity transfers the
K
product on 31 March 2019.

What journal entry is required to be passed on 31 January 2019?
(a) No entry is required

(b) Debit Cash Rs. 1,000 and Credit Contract liability Rs. 1,000
(c) Debit Receivables Rs. 1,000 and Credit Contract liability Rs. 1,000
(d) Debit Receivables Rs. 1,000 and Credit Revenue Rs. 1,000
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15. An entity enters into 100 contracts on 31 December 2017 with customers. Each contract includes the
sale of one product for Rs.100.
Cash is received when control of a product transfers. The entity’s customary business practice is to
allow a customer to return any unused product within 30 days and receive a full refund. The entity’s
cost of each product is Rs. 60.
Using the expected value method, the entity estimates that 97 products will not be returned. The entity
estimates that the costs of recovering the products will be immaterial and expects that the returned
products can be resold at a profit.
What should be recognized in respect of above?
ni
(a) Revenue Rs. Nil and Contract Liability Rs. 10,000
(b) Revenue Rs. 300 and Contract Liability Rs. 9,700
na
(c) Revenue Rs. 9,700 and Contract Liability Rs. 300
(d) Revenue Rs. 10,000 and Contract Liability Rs. Nil
ha
16. Mechanical Limited (ML) sells machines, and also offers installation and technical support services. The
individual selling prices of each product are shown below.
Sale price of goods Rs. 75,000
Installation
One-year service
Rs. 30,000
Rs. 45,000
K
n
ML sold a machine on 1 May 2011, charging a reduced price of Rs. 100,000 including installation and
one year’s service. ML only offers discounts when customers purchase a package of products together.
aa
According to IFRS 15 Revenue from Contracts with Customers, how much should ML record in revenue
for the year ended 31 December 2011?
Rs.
s
as
17. Car Limited (CL) sold a large number of vehicles spare parts to a new customer for Rs. 10 million on 1
July 2017. The customer paid Rs. 990,000 up front and agreed to pay the remaining balance on 1 July
2018. CL has a cost of capital of 6%.
-H
How much should initially be recorded in revenue in respect of the sale of vehicles spare parts in the
statement of profit or loss for the year ended 31 December 2017?
Rs.
nS
18. Golden Limited enters into a contract with a major chain of retail stores. The customer commits to buy
at least Rs.20m of products over the next 12 months. The terms of the contract require Golden Limited
to make a payment of Rs.1 m to compensate the customer for changes that it will need to make to its
retail stores to accommodate the products.
K
By the 31 December 2011, Golden Limited has transferred products with a sales value of Rs.4m to the
customer.
How much revenue should be recognized by Golden Limited in the year ended 31 December 2011?
Rs.
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19. Silver Limited sells a machine and one year’s free technical support for Rs. 100,000. It usually sells the
machine for Rs. 95,000 but does not sell technical support for this machine as a standalone product.
Other support services offered by Silver Limited attract a markup of 50%. It is expected that the technical
support will cost Silver Limited Rs. 20,000.
How much of the transaction price should be allocated to the technical support?
Rs.
20. Jupiter Limited (JL) entered into a two-year contract on 1 January 2017, with a customer for the
maintenance of computer network. JL has offered the following payment options:
ni
Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.
na
The applicable discount rate is 6.596%.
What amount of revenue should be recognized under option 2 on 31 December 2017?
ha
Rs.
21. Which two standards have been replaced by IFRS 15 Revenue from Contracts with Customers?
(a)
(b)
IAS 20 Government Grants and IAS 36 Impairment of Assets
K
IAS 36 Impairment of Assets and IAS 11 Construction Contracts
n
(c) IAS 18 Revenue and IAS 20 Government Grants
aa
(d) IAS 18 Revenue and IAS 11 Construction Contracts
22. The accounting principle applied by IFRS 15 when determining whether or not revenue should be
s
recognized in respect of a repurchase agreement is:

as
(a) Prudence
(b) Relevance
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(c) Substance over form

(d) Verifiability
23. With regard to the definition of revenue given by IFRS 15, which of the following statements is true?
nS
(a) Revenue includes cash received from share issues
(b) Revenue includes cash received from borrowings

K
(c) Revenue may arise from either ordinary activities or extraordinary activities
(d) Revenue arises from ordinary activities only
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24. Identifying contract with customer under IFRS 15, a contract with customer exist when all the following
criteria are met when;
(a) It is approved and enforceable, can identify each party rights, payment terms, and probable to
collect consideration
(b) It is approved, can identify each party rights, payment terms, has commercial substance and
probable to collect consideration
(c) It is approved and enforceable, can identify each party rights, has commercial substance and
probable to collect consideration
ni
(d) It is approved, can identify payment terms, has commercial substance and probable to collect
consideration
na
25. Step 1, “identifying the contract” of IFRS 15 states that certain conditions must be satisfied before an
entity can account for a contract with a customer. Which of the following is not one of these conditions?
(a) Each party's rights with regard to the goods or services concerned can be identified
ha
(b) The payment terms can be identified
(c) The entity and the customer have approved the contract and are committed to perform their
contractual obligations
(d)
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It is certain that the entity will collect the consideration to which it is entitled
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26. Step two requires the identification of the separate performance obligations in the contract. This is often
aa
referred to as unbundling and is done at beginning of a contract. What is the key factor in identifying a
separate performance obligation?
(a) The passing of the risks and rewards to the customer

s
(b) The distinctiveness of the good or service

as
(c) The identification of the payment terms
(d) The enforceability of the contract

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27. Step three requires the entity to determine the transaction price. This is the amount of consideration
that an entity expects to be entitled to in exchange for the promised goods or services. The transaction
price might include variable or contingent consideration. How does the entity estimate the amount of
the variable consideration?
nS
(a) The expected value or the most likely amount whichever best predicts the consideration
(b) The lower of the expected value or the most likely amount
(c) The choice of the expected value or the most likely amount
K
(d) The higher of the expected value or the most likely amount
28. Step 4 requires the allocation of the transaction price to separate performance obligations. The
allocation is based on the relative standalone selling prices of the goods or services promised and are
made at inception of the contract. It is not adjusted to reflect subsequent changes in the standalone
selling prices of those goods or services. What is the best evidence of standalone selling price?
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(a) An estimate that maximizes the use of observable inputs
(b) The observable price of a good or service when the entity sells that good or service separately
(c) Unadjusted market prices for similar goods or services

(d) Expected cost
29. Step 5 allows an entity to recognize revenue when (or as) each performance obligation is satisfied.
Revenue is recognized in line with the pattern of transfer. If an entity does not satisfy its performance
obligation over time, it satisfies it at a point in time and revenue will be recognized when control is
ni
passed at that point in time. Which of the following factors may not indicate the passing of control?
(a) The present right to payment for the asset
na
(b) The customer has legal title to the asset
(c) The entity has physical possession but has transferred a portion of the economic risks
ha
(d) The entity has transferred physical possession of the asset
30. Which of the following is true regarding discounts offered on a bundle of products/services?
(a)
(b) The discount should be recorded within cost of sales K

The discount should be applied across each performance obligation in the contract
n
(c) The discount should be applied to the largest component of the contract
aa
(d) The discount should be recorded as an administrative cost

s
31. An entity can only include variable consideration in the transaction price to the extent that it is highly
probable that a subsequent change in the estimated variable consideration will not result in a significant
as
revenue reversal. What action should the entity take if it is not appropriate to include all of the variable
consideration in the transaction price?
(a) The entity should not include any of the variable consideration
-H
(b) The entity can use its judgment in all matters such as this
(c) The entity should assess whether it should include part of the variable consideration subject to
the revenue reversal test
(d) The entity should assess whether it should include part of the variable consideration without the
nS
need to use the revenue reversal test
32. Which one of the following condition is not allow when performance condition to be satisfied over time?
K
(a) the customer simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs
(b) the entity’s performance creates or enhances an asset that the customer controls as the asset is
created or enhance
(c) they customer has paid the consideration in advance and goods / services are still to be received
(d) the entity’s performance does not create an asset with an alternative use to the entity
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33. In general, contract costs incurred in relation to a contract with a customer must be:
(a) Recognized as an expense when incurred
(b) Recognized as an asset if they relate to a performance obligation which has been satisfied
(c) Recognized as an asset if they are not expected to be recovered
(d) Recognized as an asset if they relate to a performance obligation which has not yet been satisfied
34. A company enters into a construction contract to build a warehouse for a customer. The agreed price
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is Rs.20 million and the specified completion date is 31 October 2020. However, the contract provides
that the company should receive an incentive payment of a further Rs.2.5 million if the warehouse is
completed before 30 June 2020. Similarly, the price will be reduced by Rs. 2 million if the warehouse is
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not completed until after 31 December 2020.
The company estimates that there is a 15% probability that the warehouse will be completed before 30
June 2020, an 80% probability that it will be completed by 31 October 2020 and a 5% probability that it
will not be completed until after 31 December 2020.
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What is the expected value of the transaction price for this contract?
(a) Rs. 20 million
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(c) Rs.20.5 million

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(d) Rs.20.75 million
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IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS
Wehshi Practice
Question 1. [5 Step model] [IFRS Kit – IFRS Box]
Telecom operator, ABC Corp. entered into a contract with Johnny on 1 July 20X1. In line with the
contract, Johnny subscribes for ABC's monthly plan for 12 months and in return, Johnny receives free
handset from ABC Corp. Johnny will pay a monthly fee of Rs. 100. Johnny gets the handset immediately
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after contract signature. ABC sells the same handsets for Rs. 300 and the same monthly plans for Rs.
80/month without handset.
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How should ABC recognize revenues from the contract with Johnny in 20X1 under IFRS 15?
Question 2. [Contracts that do not meet the criteria for contract under IFRS 15] [ICAP Study Text]
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Mr. Owais agreed on March 1, 2017 to sell 5 cutting machines to Axiom Enterprises. Due to some
deficiency in drafting the agreement each party’s rights cannot be identified. On March 31, 2017 Mr.
Owais delivered the goods and these were accepted by Axiom Enterprises. After 10 days of delivery i.e.
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April 10, 2017 Axiom Enterprises made the full payment and the payment is nonrefundable.
When should Owais record the revenue?
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Question 3. [Contract modification] [IFRS Kit – IFRS Box]
Ball PC, computer manufacturer, enters into contract with Forward University to deliver 300 computers
for total price of Rs. 600,000 (Rs. 2,000 per computer). Due to necessary preparation works, Forward
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University agrees to deliver computers in 3 separate deliveries during the forthcoming 3 months (100
computers in each delivery). Forward University takes control over the computers at delivery.
After the first delivery is made, Forward University and Ball PC amend the contract. Ball PC will supply
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200 additional computers (500 in total).

Scenario 1: The price for additional 200 computers was agreed at Rs. 388,000, being Rs. 1,940 per
computer. Ball PC provided a volume discount of 3% for additional delivery which reflects the normal
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discounts provided in similar contracts with other customers.

Scenario 2: The price for additional 200 computers was agreed at Rs. 268,000, being Rs. 1,340 per
computer. The price for additional computers was reduced significantly due to the following:
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- Ball PC provided a discount of 30% for additional delivery because it hopes for the future
cooperation with Forward University. As a result, initial price for additional products was set at Rs.
1,400 per computer.
- After initial delivery, Forward University discovered minor defects on 50 computers and as a result,
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Ball PC agreed to provide partial credit of Rs. 240 per computer. This credit is incorporated into the
new agreed price for additional 200 computers [Resulting price of (1,400*200-240*50)/200 =
1,340/computer].
Required: How shall Ball PC account for the contract modification under IFRS 15?
Note: Contract amendment was made after the first delivery. As of 31 December 20X1, Ball PC delivered
400 computers (300 as agreed initially and 100 under the contract amendment).
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Question 4. [Contract modification] [IFRS 15 Illustrative example 5]
On 1 January 2018, an entity promises to sell 120 products to a customer for Rs. 12,000 (Rs. 100 per
product). The products are transferred to the customer over a six-month period.
The entity transfers control of each product at a point in time. On 31 March 2018, after the entity has
transferred control of 60 products to the customer, the contract is modified to require the delivery of an
additional 30 products (a total of 150 identical products) to the customer. The additional 30 products
were not included in the initial contract.
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Case A - Additional products for a price that reflects the stand-alone selling price
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The price for additional 30 products is an additional Rs. 2,850 or Rs. 95 per product. The pricing for the
additional products reflects the stand-alone selling price of the products at the time of the contract
modification and the additional products are distinct from the original products.
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Case B—Additional products for a price that does not reflect the stand-alone selling price
The price for additional 30 products is an additional Rs. 2,400 or Rs. 80 per product. The pricing for the
additional products does not reflect the stand-alone selling price of the products at the time of the
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contract modification and the additional products are distinct from the original products.
However, the customer discovers that the initial 60 products transferred to the customer contained
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minor defects. The entity promises a partial credit of Rs. 15 per product to compensate the customer for
the poor quality of those products. The entity and the customer agree to incorporate the credit of Rs.
900 (Rs. 15 credit × 60 products) into the price that the entity charges for the additional 30 products.
Consequently, the contract modification specifies that the price of the additional 30 products is Rs.
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1,500 or CU50 per product. That price comprises the agreed-upon price for the additional 30 products of
Rs. 2,400, or Rs. 80 per product, less the credit of Rs. 900.
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Required: How shall the entity account for the contract modification under IFRS 15?
Question 5. [Distinct goods or services] [ICAP Study Text]

Pico Ltd. (PL) sells 10 washing machines for Rs. 20,000 each to a Retailer Co. (RC). PL also provides the
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following free of cost:

Free service and maintenance for 3 years
10 kg of washing powder every month for the next 18 months
A discount voucher for a 50% discount if next purchase is made in the next 6 months.
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Required: How many performance obligations are in the contract?
Question 6. [Distinct goods or services] [ICAP Study Text]

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A Builder Co. promises “to build Customer X a wall”. Builder Co will delivers the bricks to Customer X’s
premise and then will build the wall for Customer X
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Question 7. [Explicit v/s implicit performance obligation] [IFRS Kit – IFRS Box]
(Similar to IFRS 15 illustrative example 12)
ABC Corp., producer of cleaning machines, sells their cleaning machines to various companies.
Determine the performance obligations in the following contracts:
1) In contract with the client A, ABC promises to deliver 10 cleaning machines for total price of Rs.
200,000. The contract A contains a clause about free repair and maintenance service within 2 years
after purchase.
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2) In contract with the client B, ABC promises to deliver 5 cleaning machines for total price of Rs.
100,000. No warranty is promised in the contract, however, ABC Corp. is well-known for its perfect
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customer services and providing 1-year free repair services in the past.
3) In contract with the client C, ABC promises to deliver 50 cleaning machines for total price of Rs.
1,000 000. No warranty is promised in the contract, and ABC usually does not provide any free
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services in the country of client C.
However, after the contract is signed, ABC offers to provide free maintenance service to any party
that purchases the cleaning machine.
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Question 8. [Distinct goods or services] [IFRS 15 Illustrative example 11]
An entity, a software developer, enters into a contract with a customer to transfer a software licence,
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perform an installation service and provide unspecified software updates and technical support (online
and telephone) for a two-year period. The entity sells the licence, installation service and technical
support separately.
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Case A - Distinct goods or services

The installation service includes changing the web screen for each type of user (for example, marketing,
inventory management and information technology). The installation service is routinely performed by
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other entities and does not significantly modify the software. The software remains functional without
the updates and the technical support.
Case B—Significant customization
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The contract specifies that, as part of the installation service, the software is to be substantially
customised to add significant new functionality to enable the software to interface with other
customised software applications used by the customer. The customised installation service can be
provided by other entities.
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Question 9. [Non-cash consideration] [ICAP Study Text]

AX Ltd. (AXL) decides to take a contract to perform consulting service that would normally be valued at
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Rs. 50,000. AXL determines that the service is a single performance obligation. Customer (Company B)
agrees to pay AXL 1,000 shares of Company upon completion of services. Both accept the contract on 1
January 2017, when shares are valued at Rs. 50 a share. On 1 February 2017, AXL completes the
services, when shares are valued at Rs. 52 a share.
Required: How much revenue would be recognized.
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Question 10. [Non-cash consideration] [IFRS 15 Illustrative example 31]
An entity enters into a contract with a customer to provide consultancy service for one month. The
contract is signed on 1 January 2018 and work begins immediately.
In exchange for the service, the customer promises to pay 100 equity shares of per week of service (a
total of 400 shares for the contract). The terms in the contract require that the shares must be paid
upon the successful completion of each week of service.
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The fair value of 100 shares that are received upon completion of each weekly service are as follow:
Rs. per share
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Fair value at the end of 1 week of Jan 2018 50
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Fair value at the end of 3rd week of Jan 2018 57
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Required: Journalize the above.
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Question 11. [Consideration payable to a customer] [IFRS 15 Illustrative example 32]
An entity that manufactures consumer goods enters into a one-year contract to sell goods to a customer
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that is a large global chain of retail stores. The customer commits to buy at least Rs. 15 million of
products during the year. The contract also requires the entity to make a non-refundable payment of Rs.
1.5 million to the customer at the inception of the contract. The Rs. 1.5 million payment will compensate
the customer for the changes it needs to make to its shelving to accommodate the entity’s products.
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During the first month, the entity sold goods worth Rs. 2 million to the customer.
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Question 12. [Transaction price – Significant financing component] [IFRS Kit – IFRS Box]
Voyage ltd. intends to buy 30 trucks from Autocar, local car dealer. However, due to cash shortage,
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Voyage is not able to pay immediately after planned delivery, therefore Autocar agrees that Voyage
pays the price after 1 year.
Price per 1 truck is Rs. 32,000. However, Autocar agrees to receive payment in 1 year only if Voyage
accepts increased purchase price of Rs. 33,000 per truck. The Autocar’s cost of 1 truck is Rs. 28,000.
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Required: What should Autocar recognize in its financial statements and when?
Question 13. [Advance payment] [IFRS 15 Illustrative example 29]

An entity enters into a contract with a customer to sell an asset. Control of the asset will transfer to the
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customer in two years (ie the performance obligation will be satisfied at a point in time). The contract
includes two alternative payment options: payment of Rs. 5,000 in two years when the customer
obtains control of the asset or payment of Rs. 4,000 when the contract is signed. The customer elects to
pay Rs. 4,000 when the contract is signed.
Required: Journalize the above
Hassaan Khanani ACA

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Question 14. [Penalty gives rise to variable consideration] [IFRS 15 Illustrative example 20]
On 1 November 2018, an entity enters into a contract with a customer to build an asset for Rs. 1 million.
In addition, the terms of the contract include a penalty of Rs. 100,000 if the construction is not
completed within three months from the date of contract.
By the year ended 31 December 2018, the contract is 60% completed and the entity expects that the
construction will not be completed by 31 January 2019. However, the construction is completed on 28
January 2019.
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Question 15. [Variable consideration - Sale with a right of return] [BDO - IFRS in Practice]
On 1 January 2014, a vendor (a retailer) sells 100 identical goods to different customers, at a sales price
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of Rs. 100 (total Rs. 10,000). The cost of each good is Rs. 60. Customers have a right to return the good
for a period of 30 days from the original purchase, in return for a full refund.
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Based on substantial historic experience and on future expectations, the vendor estimates that three of
the goods will be returned. The amount and quality of evidence available means that the vendor is able
to conclude that it is highly probable that there will not be a significant reversal of revenue if it
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recognizes revenue attributable to the 97 goods that it does not expect to be returned.
Required: Journalize the above transaction.
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Question 16. [Variable consideration - Sale with a right of return]

[CFAP Past paper – Sum 2019, Q4(iv), 4 marks]
Fiji Limited (FL) is involved in the manufacturing and trading of consumer goods. The following
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transactions/events have occurred during 2018.

(iv) In December 2018, FL delivered 35,000 units of one of its products to Dutch Limited (DL) for Rs.
15 million. DL obtained the control upon delivery and immediately paid the full amount which
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was credited to revenue. However, DL has been allowed to return unused units within 90 days
and receive a full refund. Such rights have not been granted by FL to any customer in the past.
Required: Discuss how the above transactions/events should be dealt with in FL’s books for the year
ended 31 December 2018. (Show all calculations wherever possible. Also mention any additional
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information needed to account for the above transactions/events)
Question 17. [Volume discount incentive] [IFRS 15 Illustrative example 24]

An entity enters into a contract with a customer on 1 October 2018 to sell Product A for Rs. 100 per unit.
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If the customer purchases more than 1,000 units of Product A in next 12 months, the contract specifies
that the price per unit is retrospectively reduced to Rs. 90 per unit.
By the year ended 31 December 2018, the entity sells 75 units of Product A to the customer. The entity
estimates that the customer’s purchases will not exceed the 1,000-unit threshold required for the
volume discount.
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By the half year ended 30 June 2019, the entity’s customer acquires another company and the entity
sells an additional 500 units of Product A to the customer. In the light of the new fact, the entity
estimates that the customer’s purchases will exceed the 1,000-unit threshold.
Question 18. [Allocating a discount] [IFRS 15 Illustrative example 34]

An entity regularly sells Products A, B and C individually, thereby establishing the following stand-alone
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selling prices:
Product Price (Rs.)
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A 40
B 55
C 45
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Case A - Allocating a discount to all the performance obligations
The entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100. The
entity will satisfy the performance obligations for each of the products at different points in time.
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Case B - Allocating a discount to one or more performance obligations
The entity enters into a contract with a customer to sell Products A, B and C in exchange for Rs. 100. The
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entity will satisfy the performance obligations for each of the products at different points in time.
In addition, the entity regularly sells Products B and C together for CU60.
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Required: Allocate the transaction price to the identified performance obligations.
Question 19. [Contract costs] [ICAP Practice Kit - AAFR]

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DX Ltd owns and operates radio stations. The main revenue stream is advertising revenue. Contracts are
signed with various businesses for the sale of airtime. The account executives obtain these contracts and
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are compensated through a 5% commission on the total contract price for each new contract signed.
Executive B has obtained a new two-year advertising contract with Company. Total contract costs
related to this contract are as follows:
External legal fees for due diligence = Rs. 20,000
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Legal fees contract drafting = Rs. 10,000

Commission paid to the account executive = Rs. 7,500
Meals and entertainment incurred during the sales process Rs. 1,750
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Creative Director’s time salary allocation of Creative Director to develop on-air ad = Rs. 1,500
Actors amounts paid to external actors to record the on-air ad = Rs.750
Required: Discuss whether to capitalize or expense out each cost component?
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Question 20. [Costs that give rise to an asset] [IFRS 15 Illustrative example 37]
An entity enters into a service contract to manage a customer’s information technology data centre for
five years. The contract is renewable for subsequent one-year periods. The average customer term is
seven years. The entity pays an employee a Rs. 10,000 sales commission upon the customer signing the
contract.
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Before providing the services, the entity designs and builds a technology platform for the entity’s
internal use that interfaces with the customer’s systems. That platform is not transferred to the
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customer, but will be used to deliver services to the customer.
The initial costs incurred to set up the technology platform are as follows:
Amount in Rs.
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Design services 40,000
Hardware 120,000
Software 90,000
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Migration and testing of data centre 100,000
Total costs 350,000
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In addition to the initial costs to set up the technology platform, the entity also assigns two employees
who are primarily responsible for providing the service to the customer.
Required: How should the Company recognize above expenses in its financial statements?
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Question 21. [Contract liability and receivable] [IFRS 15 Illustrative example 38]
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Case A - Cancellable contract

On 1 January 2019, an entity enters into a cancellable contract to transfer a product to a customer on 31
March 2019. The contract requires the customer to pay consideration of Rs. 1,000 in advance on 31
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January 2019. The customer pays the consideration on 1 March 2019. The entity transfers the product
on 31 March 2019.
Case B – Non-cancellable contract
On 1 January 2019, an entity enters into a non-cancellable contract to transfer a product to a customer
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on 31 March 2019. The contract requires the customer to pay consideration of Rs. 1,000 in advance on
31 January 2019. The customer pays the consideration on 1 March 2019. The entity transfers the
product on 31 March 2019.
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Required: Journalize the above transaction
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Question 22. [Contract asset] [IFRS 15 Illustrative example 39]

(Similar to IFRS 15 Illustrative example 39)
X Limited enters into a contract to transfer Products A and B to Y Limited in exchange for Rs. 1,000.
Product A is to be delivered on 28 February.
Product B is to be delivered on 31 March.
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The promises to transfer Products A and B are identified as separate performance obligations. Rs.400 is
allocated to Product A and Rs.600 to Product B. Revenue is recognised when control of each product
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transfers to Y Limited.
Payment for the delivery of Product A is conditional on the delivery of Product B. (i.e. the consideration
of Rs. 1,000 is due only after X Limited has transferred both Products A and B to Y Limited). This means
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that X Limited does not have a right to consideration that is unconditional (a receivable) until both
Products A and B are transferred to Y Limited.
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Question 23. [Receivable recognized for the entity’s performance] [IFRS 15 Illustrative example 39]
An entity enters into a contract with a customer on 1 January 2019 to transfer products to the customer
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for Rs. 150 per product. If the customer purchases more than 1 million products in a calendar year, the
contract indicates that the price per unit is retrospectively reduced to Rs. 125 per product.
Consideration is due when control of the products transfer to the customer. Therefore, the entity has an
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unconditional right to consideration (i.e. a receivable) for Rs. 150 per product until the retrospective
price reduction applies (i.e. after 1 million products are shipped).
In determining the transaction price, the entity concludes at contract inception that the customer will
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meet the 1 million products threshold and therefore estimates that the transaction price is Rs. 125 per
product.
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Required: Journalize the first shipment to the customer of 100 products.

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Question 24. [Customer options for additional goods or services - Option that provides the customer
with a material right (discount voucher)] [IFRS Illustrative examples 49]
An entity enters into a contract for the sale of Product A for Rs. 100. As part of the contract, the entity
gives the customer a 40% discount voucher for any future purchases up to Rs. 100 in the next 30 days.
The entity intends to offer a 10% discount on all sales during the next 30 days as part of a seasonal
promotion. The 10% discount cannot be used in addition to the 40% discount voucher.
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Required: Explain how would you treat the above transaction? Journalize if the entity expects that the
customer will redeem the voucher and will make future purchase of goods worth Rs. 50.
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Question 25. [Customer loyalty program] [IFRS Illustrative examples 52]
An entity has a customer loyalty program that rewards a customer with one customer loyalty point for
every Rs. 10 of purchases. Each point is redeemable for a Rs. 1 discount on any future purchases of the
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entity’s products. During a reporting period, customers purchase products for Rs. 100,000 and earn
10,000 points that are redeemable for future purchases. The consideration is fixed and the stand-alone
selling price of the purchased products is Rs. 100,000. The entity expects 9,500 points to be redeemed.
The entity estimates a stand-alone selling price of Rs. 0.95 per point (totaling Rs. 9,500) on the basis of
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the likelihood of redemption.
The points provide a material right to customers that they would not receive without entering into a
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contract. Consequently, the entity concludes that the promise to provide points to the customer is a
performance obligation.
At the end of the first reporting period, 4,500 points have been redeemed and the entity continues to
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expect 9,500 points to be redeemed in total.
Required: Explain how would you treat the above transaction?

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Question 26. [Bill-and-hold arrangement] [IFRS Illustrative example 63]
An entity enters into a contract with a customer on 1 January 20X8 for the sale of a machine and spare
parts. The manufacturing lead time for the machine and spare parts is two years.
On 31 December 20X9, the customer pays for the machine and spare parts, but only takes physical
possession of the machine. Although the customer inspects and accepts the spare parts, the customer
requests that the spare parts be stored at the entity’s warehouse because of its close proximity to the
customer’s factory.
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The customer has legal title to the spare parts and the parts can be identified as belonging to the
customer. Furthermore, the entity stores the spare parts in a separate section of its warehouse and the
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parts are ready for immediate shipment at the customer’s request. The entity expects to hold the spare
parts for two to four years and the entity does not have the ability to use the spare parts or direct them
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to another customer.
Required: Explain how would you treat the above transaction?
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Question 27. [Repurchase agreement] [ICAP Practice Kit - AAFR]
On 5 March 2017 Parvez Limited sold goods to a bank for Rs. 18m cash and agreed to repurchase the
goods for Rs. 19m cash on 5 July 2017. The goods will be shifted to a storage facility under bank’s
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control and security.
Required: Discuss how the above transactions should be accounted for

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IAS 1 – Financial
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Statements
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Answer Figs
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Answer Banana
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Example 16: Figs Pakistan Limited
Figs Pakistan Limited is a listed company engaged in the business of manufacturing and marketing
of personal care and food products. Following is an extract from its trial balance for the year
Debit Credit
Rs. in million
Sales - Manufactured goods 56,528
Sales - Imported goods 1,078
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Scrap sales 16
Dividend income 12
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Return on savings account 2
Sales tax - Imported goods 53
Sales tax - Manufactured goods 10,201
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Sales discount 2,594
Raw material stock as on 1 January 2017 1,751
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Work in process as on 1 January 2017 73
Finished goods (manufactured) as on 1 January 2017 1,210
Finished goods (imported) as on 1 January 2017 44
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Purchases - Raw material 22,603
Purchases - Imported goods 658
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Stores and spares consumed 180

Salaries, wages and benefits 2,367
Utilities 734
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Depreciation and amortization 1,287

Stationery and office expenses 230
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Repairs and maintenance 315

Advertisement and sales promotion 4,040
Outward freight and handling 1,279
Legal and professional charges 71
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Auditor's remuneration 13
Donations 34
Workers Profit Participation Fund 257
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Worker Welfare Fund 98

Loss on disposal of property, plant and equipment 10
Financial charges on short term borrowings 133
Exchange loss 22
Financial charges on lease 11
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Additional information
(i) The position of inventories as at 31 December 2017 was as follows:
Rs. m
Raw material 2,125
Work in process 125
Finished goods (manufactured) 1,153
Finished goods (imported) 66
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(ii) The basis of allocation of various expenses among cost of sales, distribution costs and
administrative expenses are as follows:
Cost of Distribution Administrative
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sales costs expenses
% % %
Salaries, wages and benefits 55 30 15
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Depreciation and amortization 70 20 10
Stationery and office expenses 25 40 35
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Repairs and maintenance / Utilities 85 5 10
(iii) Salaries, wages and benefits include contributions to provident fund (defined contribution
plan) and gratuity fund (defined benefit plan) amounting to Rs. 54 million and Rs. 44 million
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respectively.
(iv) Auditor’s remuneration includes taxation services and out-of-pocket expenses amounting to
Rs. 4 million and Rs. 1 million respectively.
(v) Donations include Rs. 5 million given to Dates Cancer Foundation (DCF). One of the
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company’s directors, Mr. Peanut is a trustee of DCF.

(vi) The tax charge for the current year after making all related adjustments is estimated at Rs.
1,440 million. Taxable temporary differences of Rs. 3,120 originated in the year million, over
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the last year. The applicable income tax rate is 35%.

(vii) 274 million ordinary shares were outstanding as on 31 December 2017.
(viii) There is no other comprehensive income for the year.
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The statement of comprehensive income for the year ended 31 December 2017 along with the
relevant notes showing required disclosures as per the Companies Act, 2017 and International
Financial Reporting Standards are prepared below:
Figs Pakistan Limited

Statement of Comprehensive Income
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2017
For the year ended 31 December 2017 Note Rs. in million
Sales 1 44,758
Cost of sales 2 (26,203)
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Gross profit 18,555

Distribution costs 3 (6,431)
Administrative expenses 4 (752)
Other operating expenses 5 (399)
Other operating income 6 30
Profit from operations 11,003
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Statement of Financial Position
As at March 31, 2018
(Re-stated) (Re-stated)
April 01,
Note 2018 2017 2016
Rupees ’000
ASSETS
Non-current assets
Property, plant and equipment 6 3,096,033 2,823,965 2,187,347
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Intangible assets 7 13,335 17,733 20,374
Long-term investments 8 72 72 72
Long-term loans and advances 9 21,452 23,659 13,979
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Long-term deposits 7,770 6,921 6,541
Staff retirement benefit - prepayment 20 - 1,967 -
3,138,662 2,874,317 2,228,313
Current assets
Stores, spares and loose tools 10 20,718 23,335 19,555
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Stock-in-trade 11 4,914,595 3,259,661 2,769,839
Trade debts 12 714,935 249,536 503,964
Loans and advances 13 23,274 88,788 40,510
Trade deposits and prepayments 14 97,616 68,547 88,822
K
Refunds due from the government 15 295,743 253,229 66,866
Other receivables 16 438 1,273 3,726
Taxation - payments less provision 418,426 369,044 271,008
an
Accrued mark-up 6,248 2,935 7,016
Cash and bank balances 17 4,838,879 2,872,070 3,664,707
11,330,872 7,188,418 7,436,013
Total assets 14,469,534 10,062,735 9,664,326
sa
EQUITY AND LIABILITIES

Share capital and reserves
Share capital 18 124,006 124,006 124,006
as
Reserves 3,319,366 2,984,494 2,964,733

Revaluation surplus on land and building 1,848,727 1,659,138 1,199,558
5,292,099 4,767,638 4,288,297
-H
LIABILITIES
Deferred taxation 19 123,436 126,270 95,808
Staff retirement benefit - obligations 20 168,377 154,922 145,913
291,813 281,192 241,721
Current liabilities
nS
Trade and other payables 21 8,393,894 4,708,753 4,840,417

Unclaimed dividend 10,997 9,901 6,666
Unpaid dividend 22 178,214 - -
Provisions 23 302,517 295,251 287,225
K
8,885,622 5,013,905 5,134,308

Total liabilities 9,177,435 5,295,097 5,376,029
Contingency and commitments 24
Total equity and liabilities 14,469,534 10,062,735 9,664,326
The annexed notes 1 to 42 form an integral part of these financial statements.
Chief Financial Officer Director Managing Director &

Chief Executive Officer
66 Hinopak Motors Limited
Hassaan Khanani ACA

0332 - 2468189
Statement of Profit and Loss and Other Comprehensive Income
For the year ended March 31, 2018
(Re-stated)
Note 2018 2017
Rupees ’000
Sales 25 26,615,071 22,477,498
Cost of sales 26 (23,580,631) (20,011,397)
ni
Gross profit 3,034,440 2,466,101
na
Distribution cost 26 (440,146) (427,304)
Administrative expenses 26 (420,586) (385,651)
ha
Other income 27 300,789 254,505
Other expenses 28 (125,947) (130,717)
Profit from operations 2,348,550 1,776,934
Finance cost
K
29 (679,002) (80,224)
an
Profit before taxation 1,669,548 1,696,710
Taxation 30 (520,173) (576,809)

sa
Profit after taxation 1,149,375 1,119,901
Other comprehensive income

as
Items that will not be reclassified to profit or loss
Loss on remeasurements of post employment benefit obligations 20 (23,728) (27,239)

Impact of deferred tax 7,118 8,172
-H
(16,610) (19,067)
Items that may be subsequently reclassified to profit or loss
Gain on revaluation of land and buildings 247,674 532,160

Impact of deferred tax (16,088) (40,329)
231,586 491,831
nS
Other comprehensive income for the year 214,976 472,764
Total comprehensive income for the year 1,364,351 1,592,665

K
Earnings per share - basic 31 Rs. 92.69 Rs. 90.31

Annual Report 2018 67
Hassaan Khanani ACA

0332 - 2468189
Statement of Changes in Equity
For the year ended March 31, 2018
Revenue Reserves Capital Reserve
Share Unappro- Revalution
Capital General priated profit Surplus Total
Rupees ’000
Balance at April 1, 2016 124,006 291,000 2,673,733 - 3,088,739
Impact of re-statement - note 4 - - - 1,199,558 1,199,558
ni
Balance as at April 1, 2016 re-stated 124,006 291,000 2,673,733 1,199,558 4,288,297
Final dividend for the year ended
na
March 31, 2016 @ Rs. 89.78 per share - - (1,113,324) - (1,113,324)
Realisation of surplus on revaluation of

fixed assets on disposal - net of deferred tax - - 1,203 (1,203) -
ha
Transferred from surplus on revaluation of fixed assets on
account of incremental depreciation - net of deferred tax - - 31,048 (31,048) -
Total comprehensive income for the
K
year ended March 31, 2017
- Profit for the year ended March 31, 2017 - - 1,119,901 - 1,119,901
- Other comprehensive income for the year
an
ended March 31, 2017 - - (19,067) 491,831 472,764
- - 1,100,834 491,831 1,592,665
Balance at April 01, 2017 re-stated 124,006 291,000 2,693,494 1,659,138 4,767,638
sa
Final dividend for the year ended

March 31, 2017 @ Rs. 67.73 per share - - (839,890) - (839,890)
as
Transferred from surplus on revaluation of fixed assets on

account of incremental depreciation - net of deferred tax - - 41,997 (41,997) -
Total comprehensive income for the

-H
year ended March 31, 2018

- Profit for the year ended March 31, 2018 - - 1,149,375 - 1,149,375
- Other comprehensive income for the year
ended March 31, 2018 - - (16,610) 231,586 214,976
- - 1,132,765 231,586 1,364,351
nS
Balance at March 31, 2018 124,006 291,000 3,028,366 1,848,727 5,292,099

K

Annual Report 2018 69
Hassaan Khanani ACA

0332 - 2468189
Certificate in Accounting and Finance Stage Examination
The Institute of 7 March 2022

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Financial Accounting and Reporting-II

Instructions to examinees:
ni
(i) Answer all NINE questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.
na
Section A
Q.1 On 1 January 2020, Grateful Industries Limited (GIL) completed installation of a plant
ha
which will be required to be dismantled at the end of its ten years’ useful life. GIL paid
Rs. 2,000 million for the plant. On 1 January 2020, it was estimated that the cost of
dismantling would amount to Rs. 200 million. Applicable discount rate was 10% per annum
when initial estimate of dismantling costs was made.
K
The fair value of the plant as on 31 December 2020 was assessed at Rs. 1,845 million
(including dismantling cost).
an
Estimates of dismantling cost and applicable discount rate were reviewed as at
31 December 2021 and were revised to Rs. 150 million and 12% per annum respectively.
sa
GIL has a policy to subsequently measure plant using the revaluation model and
depreciation is provided on straight line basis.
as
Required:
Prepare accounting entries in the books of GIL, for the year ended 31 December 2021 in
accordance with IFRSs. (08)
-H
Q.2 On 1 November 2021, Excitement Limited (EL) entered into a contract with Pride Limited
(PL) to manufacture and sell 100 units of a specialized machine at a total consideration of
Rs. 300 million. The machines will be delivered in lots of 20 units at the end of each quarter.
PL has paid 10% non-refundable consideration in advance while the remaining
nS
consideration will be paid in five equal instalments, only after delivery of each lot and not
before.
The sales team of EL worked hard and spent 1600 hours costing Rs. 4 million for preparing
proposal for the contract. The team was also rewarded with a bonus of Rs. 6 million upon
K
obtaining the contract. Upto year ended 31 December 2021, EL had manufactured 15 units
of the machine to be delivered on 31 January 2022.
EL’s CFO, a chartered accountant, has suggested that revenue for 15 units should be
recognized in 2021 as the machines are of specialized nature and have no alternate use for
EL. Further, the sales team cost of Rs. 10 million should be taken to statement of profit or
loss in 2021 as this has been fully recovered through 10% advance received from PL.
Required:
(a) Analyse the treatments suggested by the CFO in respect of the above contract. (07)
(b) Briefly explain how CFO may be in breach of the fundamental principles of Code of
Ethics for Chartered Accountants and how he should respond. (02)
Hassaan Khanani ACA
0332 - 2468189
Q.3 Draft financial statements of Determined Limited (DL) for the year ended
31 December 2021 show the following amounts:
Rs. in '000
Total assets 43,500
Total liabilities 12,300
Net profit for the year 4,573
While reviewing the draft financial statements, following issues were identified:
(i) DL has classified investment in Jubilant Limited (JL) as an investment in associate
ni
and accounted for using equity method despite having no significant influence over
JL.
na
On 1 February 2021, DL purchased 40,000 shares of JL representing 15%
shareholdings at Rs. 80 per share. On 30 September 2021, JL announced interim cash
dividend of Rs. 5 per share. JL reported net profit of Rs. 2.4 million for the year ended
31 December 2021. The fair value of each share of JL was Rs. 70 as on
ha
31 December 2021.
(ii) Transaction cost incurred on bonds issued by DL was recorded as an asset and being
amortized over five years. Further, half of interest to be paid on 30 June 2022 has been
K
accrued.
On 1 July 2021, DL issued 6,000 bonds of Rs. 1,000 each at a discount of Rs. 50 each
with maturity in five years. The transaction cost associated with the issuance of these
an
bonds was Rs. 20 per bond. The coupon interest rate is 11% per annum payable
annually on 30 June. The approximate effective interest rate was 13% per annum.
Bonds are subsequently measured at amortized cost.
sa
Required:
Determine the revised amounts of total assets, total liabilities and net profit, after
incorporating the required corrections. (07)
as
Q.4 The following transactions pertain to Amused Limited (AL):
(i) In 2020, AL started development of a new product. The recognition criteria for
-H
capitalization of internally generated intangible asset was met on 1 January 2021. On

this date, AL started development of a plant which completed in 3 months. It is pilot
plant for testing the new product and is not of a scale economically feasible for
commercial production. AL incurred cost of Rs. 3 million and Rs. 7 million on design
and construction of plant respectively. AL expects to operate the plant for two years
nS
till end of development phase. During 2021, AL incurred Rs. 5 million in operating
the pilot plant.
(ii) On 1 March 2021, AL acquired a patent with indefinite life in exchange of its old
equipment and cash consideration of Rs. 25 million. The fair values of the patent and
K
equipment were assessed at Rs. 57 million and Rs. 35 million respectively. On the date
of exchange, the equipment had a carrying value of Rs. 30 million. AL believes that its
future cash flows will change as a result of this exchange. AL incurred cost of
Rs. 2 million for transferring the title of the patent to its name.
(iii) On 1 June 2021, the government granted a license to AL free of cost to import raw
material upto 10 tons from international market for its intended use. The license is
non-transferable. There are no further conditions attached by the government. The fair
value of the license is Rs. 50 million.
Required:
Explain how each of the above transactions should be accounted for in the financial
statements of AL for the year Hassaan
ended Khanani
31 December
ACA 2021, in accordance with the
requirements of IFRSs. Teacher who Students Have Secured MA (09)
0332 - 2468189
Q.5 Calm Limited (CL) is a listed company and engaged in manufacturing of textile products.
Following disclosures have been extracted from CL’s draft financial statements for the year
16 - Long term loans and advances – secured

2021 2020
----- Rs. in '000 -----
Loans and advances – considered good:
Directors 89,600 95,100
ni
Executives and other employees 81,900 87,600
171,500 182,700
Reconciliation
na
Balance at 1 January 88,500 92,300
Disbursements 18,700 22,400
Repayments (25,300) (27,100)
Balance at 31 December 81,900 87,600
ha
29 - Remuneration of Chief Executive, Directors and Executives
K
The aggregate amounts charged in these financial statements are given below:
Chief Directors &
Executive Executives
an
----- Rs. in '000 -----
Managerial remuneration including bonuses 28,320 70,150
House rent and other allowances 17,700 38,975
sa
Contribution to retirement benefit plans 1,888 3,680

47,908 112,805
Executives are also entitled for other benefits.

as
Required:
Prepare list of errors and omissions in the above disclosures. (07)
-H
(Redrafting of disclosures is not required)
Q.6 Select the most appropriate answer(s) from the options available for each of the following
Multiple Choice Questions.
nS
(i) Government grants related to ‘Bearer plants’ are accounted for under:
(a) IAS 41 (b) IAS 20
(c) IAS 16 (d) IAS 41 and IAS 20 (01)
K
(ii) With regards to accounting regulation in Pakistan, the Institute of Chartered

Accountants of Pakistan is responsible for:
(a) establishing accounting rules that must be followed by the companies in
Pakistan.
(b) recommending accounting standards to the Securities and Exchange
Commission of Pakistan for notification.
(c) issuing notification in the official gazette in respect of accounting standards to
be applicable in Pakistan.
(d) approving accounting standards applicable in Pakistan. (01)
Hassaan Khanani ACA

0332 - 2468189
(iii) Which of the following statements is/are correct?
(I) Ocean fishing is an agricultural activity.

(II) Biological assets are never depreciated.
(a) Only (I) is correct (b) Only (II) is correct
(c) Both are correct (d) None is correct (01)
(iv) As per IAS 21, non-monetary items carried at fair value are retranslated at the
exchange rate prevailing:
(a) at year-end
ni
(b) during the year i.e. average rate
(c) at the date when fair value was determined
(d) at acquisition date (01)
na
(v) Which TWO of the following are non-adjusting events?
(a) Directors approved the plan to close down the major segment before year-end
ha
but announcement to public was made after year-end.
(b) A company made an out of court settlement with a customer after year-end,
for defective products supplied before year-end.
(c) The discovery of fraud after year-end which shows that financial statements
K
are incorrect.
(d) A change in income tax rate announced after year-end. (02)
an
(vi) Which of the following statements is/are correct?
(I) An investment in equity instruments of another entity cannot be classified as

subsequently measured at amortized cost.
sa
(II) An investment in debt instruments of another entity cannot be classified as

subsequently measured at fair value through other comprehensive income.
(c) Both are correct (d) None is correct
as
(01)
(vii) Which of the following statements is/are correct under IAS 21?
(I) Exchange differences on retranslation of all items are taken to profit or loss.
-H
(II) Dividend received on foreign investments are recognized at average exchange

rate for the year.
nS
(viii) On 1 January 2022, a company entered into a non-cancellable contract with its client
to implement a software by 30 June 2022. As per contract, client was required to pay
10% advance on 31 January 2022. The client paid the advance on 15 February 2022.
How will company record transaction on 31 January 2022?
K
Debit Credit
(a) Accounts receivable Contract liability
(b) Contract asset Revenue
(c) Accounts receivable Revenue
(d) No entry (01)
(ix) An operating segment has just started operations but has not earned any revenues
yet. Which of the following statements is correct?
(a) It may be a reportable segment if quantitative threshold is met.
(b) It is a reportable segment even if quantitative threshold is not met.
(c) It is not a reportable segment even ifACA
Hassaan Khanani quantitative threshold is met.
(d) It will be a reportable segment
Teacher who only
Students after
Have earning
Secured MA revenues. (01)
0332 - 2468189
Section B
Surprise Limited (SL) for the year ended 31 December 2021:
(i) Accounting profit before tax for the year amounted to Rs. 130 million.
(ii) Tax depreciation exceeds accounting depreciation by Rs. 9 million and revaluation
loss recognized against revaluation surplus is Rs. 6 million. Under tax laws,
revaluation has no effect.
ni
(iii) Interest income exceeds interest receipt by Rs. 12 million while commission receipt
exceeds commission income by Rs. 15 million. Under tax laws, both are taxable on
na
receipt basis.
(iv) Out of total donations of Rs. 5 million, only 60% are allowable in tax.
(v) Development cost of Rs. 25 million incurred in 2021 has been expensed out. Under
ha
tax laws, development cost are amortized at the rate of 28% per annum on reducing
balance basis.
(vi) Capital work in progress as at 31 December 2021 includes borrowing cost of
K
Rs. 8 million incurred in 2021. Under tax laws, borrowing cost is allowed in the year
in which it is incurred.
(vii) On 1 January 2021, SL acquired shares in Funny Limited (FL) for Rs. 70 million. The
an
investment in FL was subsequently measured at fair value through profit or loss.
During the year, SL received Rs. 4 million as dividend from FL. At year-end, a gain of
Rs. 10 million was recognized as fair value adjustment. Under tax laws, capital gain is
taxable at 15% at the time of sale while dividend received is taxable at 10%. The
sa
intention of SL for holding investment in FL is to take benefit in the form of capital

gain.
(viii) Deferred tax liability/(asset) in respect of temporary differences for SL as at
as
31 December 2020 was as follows:
Rs. in million
Property, plant and equipment 18
-H
Interest receivable 3
Unearned commission (9)
12
(ix) Applicable tax rate is 30% except stated otherwise.

nS
(x) Unused assessed tax losses were Rs. 50 million till 31 December 2020. However,
deferred tax asset was recognized only to the extent of Rs. 12 million (i.e. on tax losses
of Rs. 40 million) due to limited availability of expected future taxable profits.
K
Required:
(a) Prepare a note on taxation for inclusion in SL’s financial statements for the year ended
31 December 2021 and a reconciliation to explain the relationship between the tax
31 December 2021. (07)
Hassaan Khanani ACA

0332 - 2468189
Q.8 Following balances are extracted from the records of Happiness Limited (HL), Satisfied
Limited (SL) and Furious Limited (FL) for the year ended 31 December 2021:
HL SL FL
-------- Rs. in million --------
Sales 4,100 2,250 2,100
Cost of sales 2,880 1,125 1,365
Operating expenses 800 550 303
Other income 414 216 95
Gain/(loss) on re-measurement of investment
195 (80) 20
ni
in listed securities
Finance cost - 50 35
Surplus arising on revaluation of property,
- - *100
na
plant and equipment for the year
*The revaluation was performed on 31 December 2021
ha
(i) Details of HL’s investments are as follows:
Share capital Retained
Date of (Rs. 10 each) earnings of
K
Holding % Investee
investment of investee investee
---- Rs. in million ----
1 July 20 75% SL 1,500 1,200
an
1 March 21 30% FL 1,000 950
(ii) Following was the consideration for acquisition of SL’s shares:
 Immediate payment of Rs. 1,700 million and another payment of
sa
Rs. 843 million after 3 years.

 An amount of Rs. 500 million payable on 1 May 2021 that was contingent
upon the post-acquisition performance of SL. Fair value of this consideration
was estimated at Rs. 290 million on acquisition date as well as on
as
31 December 2020. However, due to improvement in business conditions in

2021, the target was achieved and full amount was paid. HL has included the
full payment in cost of investment in SL.
-H
(iii) At the date of acquisition of SL, carrying values of its net assets were equal to fair
values except the following:
 An in-process development project for a software had a fair value of
Rs. 180 million. The cost of Rs. 140 million incurred before acquisition by SL
on development had been expensed out in SL’s books since the project did not
nS
meet the criteria for capitalization. After acquisition, SL incurred further Rs.
20 million which resulted in completion of project on 1 January 2021. The
software has a useful life of 4 years.
 Fair value of inventory was higher than its carrying value by Rs. 200 million.
50% and 10% of the inventory were included in the inventory of SL at
K
31 December 2020 and 2021 respectively.

(iv) HL has designated its investment in listed securities as subsequently measured at fair
value through profit or loss whereas SL and FL irrevocably elected their respective
investments at initial recognition on 1 June 2021 as subsequently measured at fair
value through other comprehensive income.
(v) SL paid cash dividend of 8% for the half year ended 30 June 2021. HL recorded its
share as other income.
(vi) On 25 August 2021, FL delivered goods having sale price of Rs. 150 million at a
markup of 20% to HL. 40% of these goods are included in the HL’s inventory as at
31 December 2021.
Hassaan Khanani ACA
0332 - 2468189
(vii) An impairment test has indicated that goodwill of SL was impaired by 15% on
31 December 2021. There was no impairment in the previous year.
(viii) The income and expenses of all companies had accrued evenly during the year
except stated otherwise.
(ix) HL measures non-controlling interest at the proportionate share of acquiree’s
identifiable net assets.
(x) Discount rate of 12% per annum may be used wherever required.
Required:
ni
Prepare HL’s consolidated statement of profit or loss and other comprehensive income for
the year ended 31 December 2021. (18)
na
Q.9 Optimism Limited (OL) entered into following arrangements:
(i) On 1 January 2020, OL leased a machine from Fascinated Bank Limited (FBL).
ha
Details are as follows:
 The lease period is agreed as six years. However, the lease contains an option for
OL to terminate the lease at the end of four years upon payment of Rs. 1 million.
K
OL is reasonably certain to exercise this option due to anticipated technological
changes.
 First annual instalment amounting to Rs. 12 million was paid on
1 January 2020 and all subsequent annual instalments are payable on 1 January
an
subject to decrease of Rs. 2 million in each year.
 Market rate for similar transaction is 12% per annum but as an incentive to OL
for entering into the lease, FBL has incorporated an implicit rate of 11% per
annum which is known to OL.
sa
 The fair value and useful life of the machine are Rs. 40 million and seven years
respectively.
 OL incurred initial direct cost of Rs. 3 million.
as
(ii) On 1 May 2021, OL entered into an arrangement with Energetic Limited (EL) for the
use of five photocopy machines for a non-cancellable period of three years.
Semi-annual instalment of Rs. 2 million is to be paid in advance. As per agreement,
-H
EL has a substantive substitution right to replace the machines.
Required:
(a) Prepare relevant extracts (including comparative figures) from OL’s statement of
financial position, statement of profit or loss and notes to the financial statements for
nS
the year ended 31 December 2021. (12)

(b) Compute the unguaranteed residual value estimated by FBL at the end of six years if
FBL had incurred Rs. 2 million of initial direct cost. (Assume that FBL is reasonably
certain that OL will not exercise termination option) (03)
K
(THE END)
Hassaan Khanani ACA

0332 - 2468189
Certificate in Accounting and Finance Stage Examination
The Institute of 5 September 2022

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Financial Accounting and Reporting-II

Instructions to examinees:
(i) Answer all NINE questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.
Section A
Q.1 On 1 July 2021, Nonagon Leasing (NL) leased a machine to Decagon Limited (DL). Details
are as follows:
(i) The non-cancellable lease term is five years during which annual instalment of
Rs. 6 million is payable by DL in arrears.
(ii) DL has an option to extend the lease term by one year by paying Rs. 4 million at start
of sixth year. It is reasonably certain that DL will exercise this option.
(iii) NL estimates the residual value of the machine at the end of lease term to be
Rs. 10 million out of which DL has guaranteed Rs. 8 million. DL expects that the
machine will have market value of Rs. 5 million at the end of lease term.
(iv) NL incurred initial direct cost of Rs. 1 million.
(v) The rate of interest implicit in the lease is 11% per annum.
(vi) The useful life of the machine is eight years.
Required:
Prepare note(s) for inclusion in the financial statements of NL for the year ended
30 June 2022. (09)
Q.2 The following transactions pertain to Sphere Limited (SL) for the year ended 30 June 2022:
(i) On 1 July 2021, SL acquired a license against cash consideration of Rs. 50 million. SL
incurred cost of Rs. 3 million which includes refundable taxes of Rs. 1 million for
transferring the title to its name.
The license is valid for five years but is renewable every five years at a significant cost
of Rs. 40 million. SL intends to renew the license only once and then sell the license at
the end of ten years.
SL estimates that residual value of the license would be Rs. 12 million and Rs. 9 million
at the end of five years and ten years respectively.
(ii) On 1 July 2021, SL decided to develop a website for advertising and promotion of its
products. SL believes that website would enhance the brand value of the products and
would also be used for providing general information about SL to the public.
On 1 September 2021, SL internally initiated development of the website which was

completed on 31 January 2022. Directly attributable costs incurred by SL for
developing website were as follows:
 Rs. 2 million for planning the website in September 2021.
 Rs. 7 million for acquisition of the web servers in October 2021.
 Rs. 3 million for content development equally in November and December 2021.
 Rs. 1 million for annual website hosting fees (valid till 31 January 2023) paid in
January 2022.
Financial Accounting and Reporting-II Page 2 of 7
Required:
Discuss how the above transactions should be dealt with in the SL’s books for the year ended
30 June 2022, in accordance with the IFRSs. (08)
Q.3 Arrow Limited (AL) was incorporated on 1 January 2018 with an authorised capital of
90 million ordinary shares of Rs. 10 each. Details of ordinary shares issued on different dates
are as follows:
Shares Issue price

Issued in Consideration
(in million) (Rs. per share)
January 2018 20 10 Cash
April 2019 15 12 Plant & machinery
October 2019 7 - Bonus issue
March 2020 5 18 Cash
February 2021 10 - Bonus issue
June 2021 8 25 Plant & machinery
November 2021 6 27 Cash
Required:
Prepare note(s) on ‘Share capital’ for inclusion in the financial statements of AL for the year
ended 31 December 2021. (Show comparative figures) (07)
Q.4 For the purpose of this question, assume that the date today is 31 August 2022.
Financial statements of Cone Motors Limited (CML) for the year ended 31 July 2022 are
under preparation. Following matters are under consideration:
(i) CML is concerned with the impact of rupee devaluation as its significant cost of
production is incurred in USD. Between 15 June 2022 to 31 July 2022, rupee devalued
from Rs. 200 to Rs. 240 per USD. At year-end, CML has following foreign currency
balances appearing in its books:
 Trade payables to foreign suppliers amounting to Rs. 638 million (representing
USD 3.1 million) which would be settled within next two months.
 Advances to other foreign suppliers amounting to Rs. 654 million (representing
USD 3 million) against which the raw materials would be delivered within next
three months.
CML’s management is of the view that above balances do not need retranslation at
year-end as loss of one will net off with gain of other. Further, rupee has started
appreciating since 15 August 2022 and is trading at Rs. 208 per USD on
31 August 2022.
(ii) At year-end, certain orders against which the customers have paid full amount in
advance are still undelivered. These orders were booked at old prices but production
cost of these vehicles have increased enormously due to fluctuation in exchange rates
and inflation in local market.
CML can cancel these orders by refunding the full amount alongwith additional
penalty of Rs. 85 million but would result in loss of reputation and goodwill in the
market. Therefore, CML is considering to fulfil these orders on their delivery dates in
October 2022 which would result in loss of Rs. 150 million.
CML’s management is of the view that loss on these orders is a future loss and does
not need to be accounted for at year-end.
Required:
Comment on the CML’s management view about the impact of above matters in the
financial statements for the year ended 31 July 2022, in accordance with the IFRSs. (08)
Q.5 While reviewing the draft financial statements of Hexagon Industries (HI) for the year ended
30 June 2022, following mistakes were identified:
(i) Investment in bonds of Oval Limited (OL) was accounted for as a financial asset
subsequently measured at fair value through profit or loss instead of measuring the
investment at amortised cost.
On 1 July 2021, HI purchased 1 million bonds of OL of Rs. 100 each at a discount of

Rs. 5 each with maturity in three years. Transaction cost of Rs. 2 million was also
incurred on purchase of these bonds. The coupon interest rate is 12% per annum
payable annually on 30 June while the approximate effective interest rate was
13.28% per annum. The fair value of each bond of OL was Rs. 99 on 30 June 2022.
(ii) HI has accounted for investment in shares of Kite Limited (KL) as a financial asset
subsequently measured at fair value through other comprehensive income instead of
applying its policy of equity method for investment in associates.
On 1 September 2021, HI purchased 500,000 shares (par value at Rs. 10 each) of KL

representing 20% shareholdings at Rs. 60 per share. On 30 April 2022, KL paid interim
cash dividend of Rs. 3 per share. KL reported net profit of Rs. 15 million for the year
ended 30 June 2022. The fair value of each share of KL was Rs. 67 on 30 June 2022.
Required:
Prepare correcting entries in the books of HI for the year ended 30 June 2022. (08)
Q.6 Select the most appropriate answer(s) from the options available for each of the following
Multiple Choice Questions.
(i) Which of the following accounting framework and schedule of the

Companies Act, 2017 applies to a non-listed public sector company?
(a) IFRS and Fifth schedule

(b) IFRS and Fourth schedule
(c) Revised AFRS for SSEs and Fifth schedule
(d) Revised AFRS for SSEs and Fourth schedule (01)
(ii) Which TWO of the following situations might create a self-interest threat?
(a) Profit/incentive based compensation

(b) Reviewing self-prepared reports
(c) Fear of losing job
(d) Accepting gift of significant value (01)
(iii) Which of the following statements are correct?
(I) Self-interest threat arise if a chartered accountant promotes a client’s position

to the point that the accountant’s objectivity is compromised.
(II) Professional behaviour means members should not allow bias, conflicts of
interest or undue influence of others to override their professional or business
judgements.

(iv) Nasir is working as a director of Rectangle Limited (RL). He is aware of the profit in
RL’s draft financial statements which would increase share price of RL upon public
announcement. He has suggested his friend to purchase shares of RL.
Which of the following fundamental principles of ICAP’s code of ethics has been
breached by Nasir?
(a) Integrity
(b) Confidentiality
(c) Objectivity
(d) Professional competence and due care (01)
(v) Which of the following statements are correct in the context of IFRS 8?
(I) Two or more operating segments may be aggregated into a single operating
segment.
(II) An operating segment not fulfilling 10% quantitative threshold may still be a
reportable segment.

(vi) As per IFRS 8, which TWO of the following disclosures apply to all entities including
those entities that have a single reportable segment?
(a) Extent of reliance on major customers

(b) Extent of reliance on major suppliers where quantitative threshold is met
(c) All liabilities payable in Pakistan and in all foreign countries
(d) Non-current assets located in Pakistan and in all foreign countries (01)
(vii) Which of the following is NOT required to be measured at fair value less costs to sell
even if fair value is measurable?
(a) Biological assets at initial recognition

(b) Biological assets at the end of each reporting period
(c) Agricultural produce at the point of harvest
(d) Agricultural produce at the end of each reporting period (01)
(viii) Which of the following statements are correct in the context of IFRS 16?
(I) When the supplier has a substantive right of substitution, then the contract does
not constitute a lease.
(II) When consideration for use of an asset is paid in terms of goods and services
(other than cash), then the contract does not constitute a lease.

(ix) On 1 January 2021, a herd of 20 animals of 1-year old was recorded at Rs. 800,000.
On 1 July 2021, 10 animals of 1.5 years old were purchased for Rs. 50,000 each. On
31 December 2021, the fair value less costs to sell of 1-year and 2-year animals were
Rs. 60,000 and Rs. 70,000 respectively. Calculate the amount that will be taken to
profit or loss for the year ended 31 December 2021.
(a) Rs. 500,000 (b) Rs. 1,000,000 (c) Rs. 1,300,000 (d) Rs. 800,000 (02)
Section B
Q.7 Following are the summarized statements of financial position of Heptagon Limited (HL)
and Ellipse Limited (EL) as at 30 June 2022:
HL EL
Property, plant and equipment 1,820 840
Investment property 650 -
Investment in Octagon Limited – at cost 100 -
Inventories 490 330
Other current assets 360 260
3,420 1,430
Share capital (Rs. 10 per share) 1,400 650

Share premium 750 200
Retained earnings 820 340
Liabilities 450 240
3,420 1,430
(i) On 1 January 2022, HL acquired 60% shareholdings in EL at the following
consideration which has not been recorded in HL’s books:
 One share in HL was given for every three shares in EL. At acquisition date, the
fair values of each share of HL and EL were Rs. 54 and Rs. 17 respectively.
 Cash payment of Rs. 5 per share shall also be paid two years later provided that
profits of EL exceed a certain benchmark. The fair value of this conditional
payment at acquisition date was estimated at Rs. 143 million which has increased
to Rs. 150 million on 30 June 2022.
(ii) At acquisition date, EL’s retained earnings were Rs. 300 million and carrying values
of EL’s net assets were equal to their fair values except land which was carried at
Rs. 50 million. The land had a fair value and value in use estimated at Rs. 80 million
and Rs. 70 million respectively. The group follows cost model for subsequent
measurement of all property, plant and equipment.
(iii) On 1 January 2022, HL purchased an investment property with useful life of thirty
years for Rs. 600 million and rented out to EL on same date for Rs. 4 million per
month till 31 December 2022. The property was carried in HL’s books at fair value of
Rs. 650 million on 30 June 2022. Rent for the month of June 2022 was unpaid at
30 June 2022.
(iv) An impairment test carried out at 30 June 2022 indicated that goodwill of EL has been
impaired by Rs. 15 million. The management believes that the impairment arose due
to temporary adverse economic conditions.
(v) On 1 July 2021, HL acquired 6 million shares representing 30% shareholdings in
Octagon Limited (OL). On that date, fair value of each share of OL was Rs. 16.
(vi) During the year ended 30 June 2022, OL reported net profit of Rs. 60 million and paid
total dividend of Rs. 20 million. HL recorded its share of OL’s dividend as other
income.
(vii) During the year, OL made sales of Rs. 50 million to HL at 20% above cost. 60% of
these goods were sold by HL during the year. As at 30 June 2022, OL has receivable
with HL of Rs. 25 million.
(viii) HL values non-controlling interest at the acquisition date at its fair value.
Required:
Prepare HL’s consolidated statement of financial position as at 30 June 2022 in accordance
with the IFRSs. (18)
Q.8 Rhombus Limited (RL), a supplier of high quality office equipment, has entered into
following two contracts during the year ended 31 August 2022:
(i) On 1 July 2022, RL entered into a contract with Trapezoid Limited (TL) to sell
50 laptops at a total consideration of Rs. 10 million. 50% laptops would be delivered
on 20 July 2022 and balance on 15 August 2022. RL was unconditionally entitled to
receive full payment upon delivery of first lot of 25 laptops, however, TL paid full
amount on 31 July 2022.
On 7 August 2022, the contract was modified as TL ordered additional 30 laptops of

Rs. 190,000 each for delivery on 25 August 2022. These 30 laptops are distinct but do
not reflect the stand-alone selling price. It was agreed that TL would pay for 29 laptops
only instead of 30 laptops. This discount has been given in compensation of minor
defects identified in 25 laptops, delivered on 20 July 2022. TL settled the balance in
September 2022 as per the terms of the contract.
All laptops were delivered as agreed. (07)
(ii) On 1 January 2022, RL entered into a contract with Crescent Limited (CL) for sale of
10 units of its state of the art 3D printers. The cost and stand-alone price of
goods/services included in each unit of printer are as follows:
Unit cost Unit price

---- Rs. in '000 ----
Hardware 1,800
3,600
Printing software 720
Software upgrade to next version 350 500
Maintenance support for 1 year 210 N/A
RL sells 3D printer hardware along with the software as hardware cannot be used
without the printing software. The 3D printer remains functional without the software
upgrade and the maintenance support. RL sells software upgrade upon release to all of
its customers. However, RL does not provide maintenance support but went against
its policy to provide it to CL.
Each unit of printer was sold to CL at an overall discounted price of Rs. 4 million. As
per payment terms, CL paid 30% on 1 January 2022 while 50% was paid at the time
of delivery of printers (hardware plus printing software) on 1 March 2022 and
remaining 20% will be paid in February 2023.
At year-end, 80% work has been completed on the new version of the printing software
which is expected to be released in October 2022. (09)
Required:
Prepare necessary accounting entries for the year ended 31 August 2022 in accordance with
the IFRSs. (No marks will be awarded on entries without dates)
Prism Limited (PL) for the year ended 31 December 2021:
(i) Accounting profit before tax for the year after making all necessary adjustments was
Rs. 105 million.
(ii) On 1 July 2020, PL acquired an investment property for Rs. 50 million. The fair values
of property as on 31 December 2020 and 2021 were Rs. 55 million and Rs. 65 million
respectively. PL follows fair value model for accounting purposes.
Under tax laws, depreciation is allowed at 10% per annum on cost. Further, full year’s
tax depreciation is allowed in the year of purchase.
(iii) On 1 January 2021, PL purchased a license having indefinite life from a foreign
company at a cost of Rs. 116 million. Upon payment, PL recorded foreign exchange
gain of Rs. 16 million.
Under tax laws, foreign exchange differences arising on payment are added
to/deducted from the cost of asset while amortisation is allowed at 10% per annum.
(iv) PL commissioned a new plant at a cost of Rs. 210 million which became operational
on 1 January 2021. PL is also obliged to incur decommissioning cost of Rs. 40 million
at the end of useful life of eight years. Applicable discount rate is 12% per annum.
Under tax laws, decommissioning cost is allowable deduction at the time of payment
while depreciation on plant is allowed at 10% per annum.
(v) On 1 May 2021, PL acquired 5% equity investment for Rs. 75 million. In

October 2021, dividend of Rs. 8 million was received on this investment. As at
31 December 2021, PL recorded Rs. 15 million as gain for change in fair value which
was taken to other comprehensive income.
Under tax laws, gain on investment is taxable at the time of sale while dividend income
is exempt from tax.
(vi) As on 31 December 2021, taxable temporary differences on other items amounted to

Rs. 30 million (2020: Rs. 39 million). These differences have arisen due to items taken
to profit or loss.
(vii) The tax rate for the year is 35% (2020: 32%).
Required:
(a) Prepare a note on taxation for inclusion in PL’s financial statements for the year ended
31 December 2021 and a reconciliation to explain the relationship between the tax
31 December 2021 and 2020. (08)
(THE END)

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CAF-5: FINANCIAL ACCOUNTING AND REPORTING-II

Syllabus Grid Teaching Weightage

Key Examinable Technical Competencies

Syllabus Proficiency Testing

4 Prepare and present consolidated statements of financial

Key Examinable Professional Values, Ethics and Attitude

Specific Examinable Knowledge Reference

1 IAS 1: Presentation of Financial Statements

1 IFRS-08: Operating Segments 02

2 IAS-21: Foreign Currency 20

4 IAS-38+SIC-32: Intangibles and Website Cost 63

5 IFRS-09: Financial Instruments 99

6 IFRS-16: Leases 119

8 IAS-12: Income Taxes 195

10 IFRS-15: Revenue from contracts with customers 325

11 IAS-01: Final Accounts 362

Hassaan Khanani ACA

Hassaan Khanani ACA

reportable segments.(Refer Q-8)

Hassaan Khanani ACA

Concept Builders Questions

Hassaan Khanani ACA

Hassaan Khanani ACA

Hassaan Khanani ACA

Question 9 (Home Work)

Hassaan Khanani ACA

Question 11 (Self Made) (LAST DAY REVISION QUESTION)

Hassaan Khanani ACA

Hassaan Khanani ACA

(c) Destruction of a major production plant by fire.

04. Operating segment information should:

(ii) enable users to see an undertaking through the eyes of management

(v) provide various measures of segment performance

(a) (i) to (iii) only

05. An operating segment is a component of an undertaking

(a) (i) to (ii) only

(c) (i) only

(a) will be reportable segment before earning revenues

(c) will not be reportable segment before earning revenues

09. Head office expenses:

(a) can be allocated to segments on a reasonable basis

(d) The destruction of a factory by fire

suggested the following accounting treatments:

Hassaan Khanani ACA

Hassaan Khanani ACA

Hassaan Khanani ACA

Hassaan Khanani ACA

Hassaan Khanani ACA

short as compare to Lux & Kukh

Required: Disclosure in the books of Hassaan Khanani Limited as per IFRS 8

Hassaan Khanani ACA

Hassaan Khanani ACA

Determine functional currency of each entity Non-monetary items

Currency in which funds/receipts:

• No need to present financial statements in functional currency. A

Hassaan Khanani ACA

Hassaan Khanani ACA

(a) What is the presentation currency of P?

Question 2 – Initial & Subsequent Recognition

Required : Entries on Transaction , Reporting & Settlement Date.