The document is a 4 page exam for a Financial Accounting course. It includes 4 questions assessing understanding of concepts like provisions, contingencies, property plant and equipment, consolidated financial statements, and cash flow statements. Question 1 has multiple parts asking about inventory write downs, provisions, and contingencies. Question 2 covers measurement bases, property exchanges, and consolidated financial statements. Question 3 requires preparation of a cash flow statement and reconciliation. Question 4 requires preparation of a consolidated balance sheet from provided company balance sheets.

1. Page 1 of 4
FINANCIAL ACCOUNTING
Time Allowed – 2½ hours
Maximum Marks – 100
[N.B - Questions must be answered in English. Figures in the margin indicate full marks. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1 (a) The market value of Lake Shore Corporation’s inventory has declined below its cost. Nigar
Sultana, the controller, wants to use the allowance method to write down inventory because it
more clearly discloses the decline in market value and does not distort the cost of goods sold.
Her supervisor, Executive Director (ED) - Finance, prefers the direct method to write down
inventory because it does not call attention to the decline in market value.
Required:
i) What, if any, is the ethical issue involved?
ii) Is any stakeholder harmed, if ED’s preference is used?
iii) What should Nigar Sultana do?
9
(b) (i) In the context of accounting for provisions and contingencies, define ‘Liability’ as per BFRS
Framework for the preparation and presentation of financial statements.
(ii) Transcom Ltd. is organized into several divisions. The following events relate to the year
ended 31 December 2012.
 The computer division supplied a computer to a customer during the year that exploded,
causing a fire. Transcom Ltd. is being sued for damages. Lawyers have advised that there is a
30% chance of successfully defending the claim. Otherwise, the damages are expected to cost
Tk.I0 million (present value Tk. 9.5 million). The lawyers have investigated the cause of the
problem with a team of accident consultants. They have concluded that parts supplied to the
computer division by Moor Ltd contributed to the fire. Lawyers have estimated that Moor
Ltd's contributory negligence amounted to 40% of the total damages. Negotiations have
started with Moor Ltd and the lawyers believe that a claim is likely to succeed.
 On 15 December 2012, the directors of Transcom Ltd minuted their decision to close the operations
oftheloss makingspacetechnologydivision.The decisionandan outlineofaplan wereimmediately
announced to employees and a press release was issued. The closure, which began on 4 January
2013, has an estimated date for completion, including the sale of the non- current assets of the
division,of30June2013.Thecostsassociatedwiththeclosureincludethefollowing.
Employee redundancy costs Tk. 12,000, 000
Lease termination costs Tk. 4,000,000
Relocating continuing staff to other divisions Tk. 2,000,000
Impairment losses Tk. 21,000,000
 Transcom Ltd's retail division provides two-year warranties to its customers. Experience has
shown that, on average, 10% of sales from this division result in a warranty claim. Revenue from
this division in 2012 was Tk.8 million. At 1 January 2012 Transcom Ltd had a warranty provision
in place of Tk. 1 million. During the year, claims of Tk. 600,000 were settled by the company.
Requirement:
Prepare the provisions and contingencies notes for the financial statements of Transcom Ltd for
the year ended on 31 December 2012
4
12
2 (a) State the four different measurement bases referred to BFRS Framework for the preparation and
presentation of Financial Statements. Explain briefly, how the assets and liabilities are recorded
/ carried under each of the four different measurement bases.
6
(b) RS Corporation is evaluating two recent transactions involving exchanges of equipment. In one
case, similar assets were exchanged. In the second situation, dissimilar assets were exchanged.
Explain with example to RS Corporation the differences in accounting for these two
transactions in line with BAS 16: Property Plant & Equipment.
4

2. Page 2 of 4
3 As at 31 May 2011 and 31 May 2012 ABC Ltd had the following summarised balance sheets.
2012 2011
TK. TK. TK. Tk.
ASSETS
Non-current assets
Property, Plant and equipment
Cost or valuation 5,164,000 4,347,000
Accumulated depreciation (2,198,000) (2,001,000)
2,966,000 2,346,000
Intangibles
Cost 9,360,000 8,645,000
Accumulated amortisation (3,690,000) (2,715,000)
5,670,000 5,930,000
Investments 2,145,000 127,000
10,781,000 8,403,000
Current assets
Inventories 1,112,000 1,086,000
Trade and other receivables 948,000 840,000
Prepayments 95,000 108,000
Cash and cash equivalents 489,000 322,000
2,644,000 2,356,000
TOTAL ASSETS 13,425,000 10,759,000
(c) What is ‘backlog depreciation’? Explain with example and state situation where it applies? 3
(d) The following balances of property, plant and equipment are extracted from ABC Limited as on
31 December 2011:
Land Tk. 300,000
Land improvements Tk. 140,000
Buildings Tk. 1,100,000
Machinery & equipment Tk. 960,000
During the year 2012 the following transactions occurred:
i) A tract of land was acquired for Tk. 150,000 as a potential future building site.
ii) A plant facility consisting of land and building was acquired from SEL Ltd. in exchange
for 20,000 shares of ABC Limited shares. On the acquisition date, ABC Limited’s shares
had a closing market price of Tk. 37 per share on a national stock exchange. The plant
facility was carried on SEL’s book at Tk. 110,000 for land and Tk. 320,000 for the building
at the exchange date. Current appraised values for the land and building, respectively, are
Tk. 230,000 and Tk.690,000.
iii) Items of machinery and equipment were purchased at a total cost of Tk. 400,000.
Additional costs were incurred as follows:
Freight and unloading Tk. 13,000
Value added tax (VAT) Tk. 20,000
Installation Tk. 26,000
iv) Expenditures totalling Tk. 95,000 were made for new parking lots, streets and sidewalks at
the company’s various plant locations. These expenditures had an estimated useful life of
15 years.
v) A machine costing Tk. 80,000 on January 01, 2004, was scrapped on June 30, June 2012.
Double declining balance depreciation has been recorded on the basis of a 10 years life.
vi) A machine was sold for Tk. 20,000 on July 1, 2012. Original cost of the machine was Tk.
44,000 on January 01, 2009 and it was depreciated on the straight line basis over an
estimated useful life of 7 years and a salvage value of Tk. 2,000.
Required: Prepare extract of income statement for the year ended on 31 December 2012 and
fixed assets schedule as at 31-12-2012. 12

3. Page 3 of 4
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 1,800,000 1,000,000
Share premium account 1,543,000 1,421,000
Revaluation reserve 1,880,000 1,256,000
Retained earnings 2,739,000 746,000
7,962,000 4,423,000
Non-current liabilities
15% debenture loan 3,000,000 4,500,000
Current liabilities
Trade and other payables 1,417,000 896,000
Interest payable 225,000 337,000
Taxation 641,000 503,000
Dividends Payable 180,000 100,000
2,463,000 1,836,000
Total equity and liabilities 13,425,000 10,759,000
ABC’s income statement for the year ended 31 May 2012 was as follows:
Tk.
Revenue 8,646,000
Cost of sales (3,705,000)
Gross profit 4,941,000
Distribution costs (465,000)
Administrative expenses (571,000)
Profit from operations 3,905,000
Finance cost (563,000)
Investment income 78,000
Profit before tax 3,420,000
Income tax expense (684,000)
Profit for the period 2,736,000
The following additional information is relevant:
(1) On 31 May 2012 property which was originally purchased for Tk.734,000 (and which had
not previously been revalued) was revalued to Tk.1,000,000. There were no other
movements on the revaluation reserve during the year.
(2) During the year plant and equipment with an original cost of Tk.1,201,000 and a carrying
amount at the date of disposal of Tk.496,000 was sold at a loss of Tk.189,000. As at 31 May
2012 Tk.165,000 of the sale proceeds was yet to be received and is included within trade and
other receivables. As at 31 May 2011 the corresponding figure in respect of disposals made
during the year then ended was Tk.79,000, which was received in full in June 2011.
(3) As in the previous year, all acquisitions of property, plant and equipment acquired during
the year were paid for in cash at the date of acquisition. However, included within trade
and other payables as at 31 May 2012 is Tk.376,000 (2011 – Tk.nil) relating to the
acquisition of intangible assets.
(4) There were no disposals of intangible assets or investments during the year. Trade and
other receivables as at 31 May 2012 include Tk.10,000 (2012 – Tk.8,000) in respect of
interest receivable on investments.
(5) As at 31 May 2011 the ordinary share capital of ABC Ltd consisted of 100,000 shares,
each with a Tk.10 nominal value. The following day the company made a 1 for 2 bonus
issue of 50,000 shares (utilising available profits).
(6) The dividend payable at both balance sheet dates represents a Tk.1 per share dividend on
the company’s ordinary shares. Dividends of Tk.243,000 were charged to retained
earnings in the year ended 31 May 2012.
(7) ABC Ltd has not yet prepared its statement of changes in equity for the year ended 31
May 2012.

4. Page 4 of 4
Requirement
Prepare a cash flow statement and a note reconciling profit before tax to cash generated from operations
in accordance with BAS 7 Cash Flow Statement for ABC Ltd for the year ended 31 May 2012, using
the indirect method. 25
4. The draft balance sheets of three companies as at 30 September 2012 are as follows.
X Ltd
Tk.
Y Ltd
Tk.
Z Ltd
Tk.
Non-current assets
Property, Plant and equipment 697,210 648,010 349,400
Investments
160,000 shares in Y Ltd 562,000 − −
80,000 shares in Z Ltd 184,000 − −
1,443,210 648,010 349,400
Current assets
Inventories 495,165 388,619 286,925
Trade receivables 415,717 320,540 251,065
Cash 101,274 95,010 80,331
Total assets 2,455,366 1,452,179 967,721
Capital and reserves
Ordinary share capital 600,000 200,000 200,000
Retained earnings 1,015,000 820,000 463,000
Equity 1,615,000 1,020,000 663,000
Non-current liabilities 400,000 150,000 100,000
Current liabilities
Trade payables 440,366 282,179 204,721
Total equity and liabilities 2,455,366 1,452,179 967,721
You are given the following additional information:
(1) X Ltd purchased the shares in Y Ltd on I October 2007 when the retained earnings of Y Ltd were
Tk. 500,000
(2) The shares in Z Ltd were acquired on I October 2009 when the retained earnings were Tk. 242,000
(3) Included in the inventory figure for X Ltd is inventory valued at Tk. 20,000 which had been
purchased from Y Ltd at cost plus 25%.
(4) Included in the trade payables figure of X Ltd is Tk. 18,000 payable to Z Ltd, the amount receivable
being recorded in the trade receivables figure of Z Ltd
(5) Impairment reviews to date have revealed a total of Tk. 1,000 to be written off in respect of goodwill
of Y Ltd and Tk. 2,000 to be written off in respect of X Ltd’s investment in Z Ltd.
Requirements
(a) Prepare the consolidated balance sheet for X Ltd as at 30 September 2012. 15
(b) Identify the required accounting treatment for different levels of investment in undertakings for
consolidated accounts purposes, explaining why these are appropriate. 5
(c) Set out a brief explanation in note form, as to how the subsidiaries and associates are accounted
for in the consolidated balance sheet. 5