Suggested Answers- Certificate Level (Nov-Dec 2017)

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Suggested Answers
Knowledge Level
November-December 2017
The Institute of Chartered
Accountants of Bangladesh

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SUGGESTED ANSWER
CA Professional Stage
Knowledge Level
The Institute of Chartered Accountants of Bangladesh
The learning materials have been prepared by the Institute of Chartered Accountants of Bangladesh
First edition February 2018
All rights reserved. No part of this publication may be reproduced in any form or by any means or stored
in any retrieval system, or transmitted in, any form or by any means, electronic, mechanical,
photocopying, recording or otherwise without prior permission of the publisher.

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Knowledge Level
November-December 2017
Contents
Pages
1. Assurance ……………………………………………....................……………… 5
2. Accounting ………………………………………………………...................….. 15
3. Business & Finance ………………………………………………….................... 24
4. Management Information ………………………………………...................…… 35
5. Taxation-I ………………………………………………………...................…… 42
6. Business & Commercial Law ………………………………………..................... 51
7. IT Knowledge ………………………………………………………..................... 58

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ASSURANCE
Suggested Answer
Nov-Dec 2017
Question No. 1.
a) What is the meaning of auditor’s normal expression of ‘true and fair view’ in any audit report which
denotes a reasonable assurance? 5
b) ‘Certificate of absolute assurance or correctness’ cannot be provided due to some limitations. What
are those? 5
c) Define assurance engagement in an audit function. 3
d) In an audit engagement, the engagement team does so many things following the defined
methodology the Engagement Partner approves. All these are done and finally a suitable report is
issued as per prescription of International Standards on Auditing. You are hereby asked to draft an
unqualified audit report as per ISA 700 applicable for a company. 10
Answer to the Question No. 1(a):
The auditor will normally express his audit opinion by reference to the ‘true and fair view’, which is an
expression of reasonable assurance. Whilst this term is at the heart of the audit, ‘true and fair view’ are
not defined in law or audit guidance. However, for practical purposes the following definitions are
generally accepted:
True: Information is factual and conforms with reality, not false. In addition, the information conforms
with required standard and law. The accounts have been correctly extracted from the books and records.
Fair: Information is free from discrimination and bias in compliance with expected standards and rules.
The accounts should reflect the commercial reality and substance of company’s underlying transactions.
Answer to the Q No. 1(b):
Assurance can never be absolute. Assurance providers will never give a certification of absolute
correctness due to the limitations of the nature of the service.
The limitations of assurance services include:
• The fact that testing is used-the auditors do not oversee the process of building the financial
statements from start to finish.
• The fact that the accounting systems on which assurance providers may place a degree of reliance
also have inherent limitations.
• The fact that most audit evidence is persuasive rather than conclusive.
• The fact that the client’s staff members may collude in fraud that can then be deliberately hidden from
the auditor or misrepresent matters are the same purpose.
• The fact that assurance provision can be subjective and professional judgements is an essential part
while concluding an opinion.
• The fact that assurance providers rely on the responsible party and staff to provide correct
information, which in some cases may be impossible to verify by other means.
• The fact that some items in the subject matter may be based on estimates and are therefore uncertain.
It is impossible to conclude absolutely that judgmental estimates are correct.

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• The fact that the nature of the assurance report might itself be limiting, as every judgment and
conclusion the assurance provider drawn cannot be included in it.
Answer to the Question No. 1(c):
An assurance engagement is one in which a practitioner expresses a conclusion, designed to enhance the
degree of confidence of the intended users, other than the responsible party, about the outcome of the
evaluation or measurement of a subject matter against criteria. There are various examples of assurance
services, the key example in Bangladesh is the audit. Assurance engagements can give either a reasonable level
of assurance or a limited level of assurance. In any audit function, auditor gives reasonable level of assurance.
Answer to the Question No. 1(d):
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of ABC Company
We have audited the accompanying financial statements of ABC Company, which comprise the statement
of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of
changes in equity and statement of cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management of ABC Company is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards (IFRS), the Companies Act
1994 and other applicable laws and regulations and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Bangladesh Standards on Auditing (BSA). Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of ABC
Company as at December 31, 20X1, and its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards.
Dhaka, XYZ

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28 February 20X2 Chartered Accountants
Question No. 2:
a) Define control activities. Explain the types of control activities with examples. 10
b) What will be the tests of Controls in recording wages and salaries and any deductions thereof? 9
c) Define CAAT. What are the main types of CAAT/tools which are being used while conducting an
audit? 6
Answer to the Question No. 2 (a) (b) (c):

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Question No. 3:
The auditor should obtain written representations from management on matters relating to the financial
statements when other appropriate audit evidences collected may not be felt to be sufficient.
a) How does Letter of Representation support as audit evidence? 5
b) What actions should the auditor take when no other evidence is available and only onternal
confirmations form significant basis for opinion? 5
c) What actions should the auditor take when management is reluctant to provide
representations/internal confirmations? 5
d) What should auditors do when they receive management representations? 5
Management representations provide evidence of management’s acceptance of responsibility and
accountability for the appropriate preparation of the financial statements and design and implementation
of internal controls. For these representations to provide suitable evidence, however, they must be
appropriate and reliable. In the context of management representations, reliability generally depends on
following three ethical factors:

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• Competence of the management
• Honesty and integrity of the management
• Sense of diligence and due care of the management.
Answer to the Question No. 3(b):
Assuming that uncorroborated internal confirmations are permitted in specifically identified
circumstances such as: management’s intent; management’s judgement; and facts or knowledge confined
to management, an auditor may conclude that no other evidence is available for an assertion that forms a
significant basis of the opinion. In those exceptional cases, the matter may be of such significance the
auditors refer to the representations in their report as being relevant to a proper understanding of the basis
of their opinion. There are instances where management intention and when the matter is judgmental or
an opinion, for an example the trading position of a particular customer.
When no other evidence is available for an assertion not specifically identified above and the auditor
should appropriately modify the report.
ISA 580 states that when management refuses to provide necessary representations, the auditor should
qualify or disclaim his or her opinion. If the principle is that internal confirmation demonstrates the
acceptance by the management of responsibility and accountability for the assertion is valid, the refusal to
provide written confirmations implies management’s unwillingness to accept responsibility and
accountability for specific assertions. In such circumstances, the auditor’s confidence in management
trustworthiness may be undermined to such an extent that a qualified opinion may not be a defensible
alternative, the disclaimer or withdrawal from the engagement should be the options when management
refuse to provide internal confirmations. However, there may be circumstances when the auditor
determines that the nature of the confirmations not obtained does not undermine his or her conclusions, or
identifies circumstances that justify the management’s refusal to provide internal confirmations.
Consequently, the auditor may conclude that a qualified opinion is appropriate.
When auditors receive management representations they should:
• Seek corroborative audit evidence from sources inside or outside the entity;
• Evaluate whether the representations made by management appear reasonable and are consistent with
other audit evidence obtained, including other representations;
• Consider whether the individuals making the representations can be expected to be well informed on
the particulars matters, There may be occasions when the representations received do not agree with
other audit evidence obtained, in which case the auditors should:
• Investigate the circumstances of the disagreement by making further inquiries, to ascertain whether
the inquiry has simply been misunderstood.
• If further inquiries produce insufficient answers or none at all, carry out alternative audit procedures
to try to confirm the real position.
• Consider whether the disagreement casts doubt on other representations made by management (i.e.
they are false).
Question No. 4:
a) Explain materiality in the context of an audit, from the point of view of an auditor. 5
b) How does materiality assessment and fixation help to control an audit? 5
c) What does the term ‘Subsequent Events’ mean? 3

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Answer to the Question No. 4 (a):
The auditor’s determination of materiality is a matter of professional judgement, and is affected by the
auditor’s perception of the financial information needs of users of the financial statements. The concept of
materiality is applied by the auditor both in planning and performing the audit, and in evaluating the
effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial
statements and in forming the opinion in the auditor’s report.
BSA 320 states that the materiality should be considered by the auditor when:
• Determining the nature, timing and extent of procedures; and
• Evaluating the effect of misstatements.
Through the audit procedure, auditor must keep in mind that a matter is material if its omission or
misstatement would reasonably influence the economic decisions of the users taken on the basis of the
financial statements. Materiality depends on the size of the error in the context of its omission or
misstatements.
Answer to the Q. No.4 (b):
Materiality considerations and fixation during audit planning are extremely important. The assessment of
materiality at this stage should be based on the recent and reliable financial information and will help to
determine an effective and efficient audit approach. Materiality assessment and fixation will help the
auditors to decide:
• How many and what items to examine.
• Whether to use sampling techniques.
• What level of error is likely to lead to an auditor to say the financial statements do not give true and
fair view.
The resulting combination of audit procedures should help to reduce audit risk to an appropriately low
level. This is how risk and materiality are closely connected. The value of discovered errors should be
aggregated at the end of the audit to ensure the total is below tolerable error. To set the materiality level
the auditors need to decide the level of error which would distort the view given by the accounts. Because
many users of accounts are primarily interested in the profitability of the company, the level is often
expressed as a proportion of its profits.
Answer to the Question No. 4 (c):
Subsequent Events are those events occurring between the date of the financial statements and the date of
the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report.
A review of events after the balance sheet date is both a sensible thing to do and according to BSA 560,
compulsory. BSA 560 recognizes the two different types of subsequent event according to BAS 10:
• Adjusting events and
• Non-Adjusting events.
Question No. 5:
Like all other professionals, accountants are also expected to work under certain ethical codes. In the light
of such expectation, please write your understanding on the followings:
a) ABC& Co. Chartered Accountants has accepted the appointment as auditor of Petro Chemical Ltd.
(PCL), a listed company whose shares are traded through both Stock Exchanges. The PCL being a
good company, the related shares enjoy very high demand in the market. The younger brother of
ABC’s Engagement Manager on this engagement is a regular trader of shares in the secondary
market. 5
Please write about the firm’s expected standpoint in such an engagement.

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b) Give an account of the available threats as identified in the IESBA Code of Ethics that accountants
should bear in their minds while at work. 7
c) Write briefly about the fundamental principles as per IESBA Code of Ethics. 7
Answer to the Q. No.5 (a):
Under the given circumstance, it appears from the citation that the Engagement Manager being brother of
a regular trader of shares in the capital market, may encounter a conflict of interest. Being engagement
manager of the proposed audit team, it is natural that all financial information that are price sensitive will
come into his possession and he may likely to be induced to share such information with his brother to
help him ensuring an unusual gain. Moreover, this situation may pose a substantial threat to integrity and
objectivity with respect to self-interest threat.
Although potential conflict and several threats are available in the given citation, it may not be easy
identifying the threats. With a view to avoiding potential threats to fundamental principles, it is
imperative that firms have their built-in process of conflict check and independence check prior to
deploying a team to a particular engagement.
Answer to the Q. No.5 (b):
There are five several threats identified in the IESBA code of ethics, those are:
Self-interest threat: the threat that a financial or other interest will inappropriately influence the
professional accountant’s judgment or behavior.
Self-review threat: the threat that a professional accountant will not appropriately evaluate the results of
a previous judgment made or service performed by the professional accountant or by another individual
within the firm or employing organization, on which the accountant will rely when forming a judgment as
part of providing a current service.
Advocacy threat: the threat that a professional accountant will promote client’s or employer’s position to
the point that the professional accountant’s objectivity is compromised.
Familiarity threat: the threat that due to a long or close relationship with a client or employer, a
professional accountant will be too sympathetic to their interests or too accepting of their work.
Intimidation threat: the threat that a professional accountant will be deterred from acting objectively
because of actual or perceived pressures, including attempts to exercise undue influence over the
professional accountant.
Answer to the Q. No.5 (c):
The fundamental principles as mentioned in the IESBA Code of Ethics are briefly narrated below:
Integrity: to be straightforward and honest in all professional and business relationships.
Objectivity: to not allow bias, conflict of interest or undue influence of others to override professional or
business judgments.
Professional Competence and Due Care: to maintain professional knowledge and skill at the level
required to ensure that a client or employer receives competent professional services based on current
developments in practice, legislation and techniques and act diligently and in accordance with applicable
technical and professional standards.
Confidentiality: to respect the confidentiality of information acquired as a result of professional and
business relationships and therefore, not disclose any such information to third parties without proper and
specific authority, unless there is a legal or professional right or duty to disclose, nor use the information
for the personal advantage of the professional accountants or third parties.
Professional Behavior: to comply with relevant laws and regulations and avoid any action that discredits
the profession.

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ACCOUNTING
Nov-Dec 2017
Question No. 1:
a) How would you adjust profit for errors, if required? 3
b) What are the major factors considered in determining what depreciation method to use? 3
c) Define ‘Unearned Revenue’ with an example. What are the mandatory conditions to transfer
unearned revenue to earned income? 4
d) Define Accrual Basis of Accounting. How it impacts in preparing financial statements at any given
point in time. 4
e) What is Deferred Expenditure? How does an accountant misuse this concept? 3
Answer to the Question No. 1:
a) Correcting entries can affect the balance sheet, the income statement or both. For example, an error
of omission corrected by debiting sales and crediting suspense with Tk. 90 means that sales is
decreased, so gross profit will be decreased by Tk. 90 as a result of the error being corrected.
If there are still errors to be corrected after the trial balance, and initial income statement and balance
sheet have been prepared, then corrections will alter those financial statements.
It is required to demonstrate how draft financial statements are affected by error corrections by
calculating:
• How much gross or net profit is increased or reduced as a result of error correction.
• The final gross or net profit after the error correction.
b) From a conceptual point of view, the method which best matches revenue and expenses should be
used, in other words, the answer depends on the wear & tear or the service potential of the assets
used. If the service potential is declining faster in the earlier years, an accelerated method might be
more desirable.
On the other hand, If the service potential is more uniform, perhaps a straight line approach should
be used.
Many companies adopt depreciation methods for more pragmatic reasons.
Some companies use accelerated methods for tax purposes but straight line for book purposes
because a higher net income figure is shown in earlier years, but a lower tax is paid to the
Government. Others attempt to use the same method for tax and accounting purposes because it
eliminates some record keeping costs. Tax policy or fiscal incentives sometimes also plays a role to
determine the depreciation method.
c) Unearned Revenue:
Cash received in advance prior to rendering services or delivering goods to the buyers is called
Unearned Revenue.
Example: Selling of Pre-paid card by Mobile Operator, selling Airlines ticket. The sale of ticket is
treated as unearned revenue until the flight service is provided.
Unearned revenue should be transferred to the revenue income, if:
 The goods have been delivered or services have been rendered
 The risk and rewards have been shifted to the buyer.

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d) Accrual Basis of Accounting:
The accrual concept requires matching income with the expenses incurred in earning that income.
Goods can remain unsold and be held in inventory at year end. The purchase cost of goods held in
inventory should not be included in the cost of sales of the period.
Example: Wags Tk. 5,000 have been incurred in December 2014 but not paid in cash or recorded
during December 2014.Under accrual basis accounting, such wages will be recorded and reflected in
the books of accounts for December.
This principle helps accountant to record expenses which are incurred and accrue revenue which
products or services have been delivered or rendered respectively without considering cash flow.
e) Deferred Expenditure:
An expenditure for which payment has been made or a liability incurred but which is carried forward
on the presumption that it will be of benefit over a subsequent period or periods. This is also referred
to as deferred revenue expenditure. Example: Bill board advertisement, bulk advertisement made in
the TV which impact the company sale two years later.
Accountant may misinterpret this principal to avoid provisioning to show higher profitability for
better performances.
Question No. 2:
Mr. Islam is a sole trader who has provided his accountant with the following accounts balances of M/S.
Islam Enterprise as at 31 December 2016:
Heads of account Taka Heads of account Taka
Sales 2,500 Mr. Hussein (supplier) 950
Bank 3,750 Discount allowed 70
Purchases 1,700 Discount received 90
Mr. Hassan (customer) 790 VAT owing to NBR 1,340
The following transactions took place during January 2017. VAT is levied at 15%.
January 2 Sales to Mr. Hassan on credit Tk.600 plus VAT.
January 3 Purchases from Mr. Hussein Tk.400 plus VAT.
January 8 A credit note was sent to Mr. Hassan for goods returned of Tk.150 inclusive VAT.
January 9 A credit note was received from Mr. Hussein for Tk.100 inclusive of VAT.
January 14 Mr. Hassan pays Mr. Islam Tk.1,250 by cheque in full settlement of his
account; the remainder being treated as a discount.
January 19 Mr. Islam pays Mr. Hussein by cheque Tk.1,300 in full settlement of his
account with anything remaining to be treated as a discount.
January 26 Mr. Islam takes Tk.200 out of the bank account for his own personal use.
January 31 Mr. Islam pays NBR (Revenue and Customs) for the amount owing as at 31
January 2013.
Required:
a) Record all the transactions for January 2017. 10
b) Open the ledger balances as at 1 January with the opening balances and record the above
transactions in the bank, customer, supplier and VAT ledger accounts for the month of January 2017.10

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Islam Enterprise, Journal entries
Date Particulars Ref Debit Taka Credit Taka Marks
2-Jan Mr. Hassan (Customer) Dr. 690
Sales Cr. 600 1
VAT Account (600 × 15%) Cr. 90
3-Jan Purchase Dr. 400
VAT Account (400 × 15%) Dr. 60 1
Mr. Hussein (Supplier) Cr. 460
8-Jan Sales return [(150/115) × 100] Dr. 130
VAT Account [(150/115) × 15] Dr. 20 1.5
Mr. Hassan (Customer) Cr. 150
9-Jan Mr. Hussein (Supplier) Dr. 100
Purchase return [(100/115) × 100] Cr. 87 1.5
VAT Account [(100/115) × 15] Cr. 13
14-Jan Bank Dr. 1,250
Discount allowed (1,330 – 1,250) Dr. 80 1.5
Mr. Hassan (Customer) (790 + 690 – 150) Cr. 1,330
19-Jan Mr. Hussein (Supplier) (950 + 460 – 100) Dr. 1,310
Bank Cr. 1,300 1.5
Discount received (1,310 – 1,300) Cr. 10
26-Jan Drawings Dr. 200 1
Bank Cr. 200
31-Jan VAT Account Dr. 1,363 1
Bank (1,340 + 90 – 60 – 20 + 13) Cr. 1,363
(b) Ledger Accounts
i) Account: Bank
Date Details Dr. Taka Cr. Taka Balance
1-Jan-17 Balance b/f 3,750
14-Jan-17 Mr. Hassan (Customer) 1,250 5,000
19-Jan-17 Mr. Hussein (Supplier) 1,300 3,700
20-Jan-17 Drawings 200 3,500
31-Jan-17 VAT Accounts 1,363 2,137
ii) Account: Mr. Hassan (Customer)
1-Jan-17 Balance b/f 790
2-Jan-17 Sales 690 1,480
8-Jan-17 Sales returns 150 1,330
14-Jan-17 Bank 1,250 80
14-Jan-17 Discount allowed 80 -
iii) Account: Mr. Hussein (Supplier)
1-Jan-17 Balance b/f 950
3-Jan-17 Purchases 460 1,410
9-Jan-17 Purchase returns 100 1,310
19-Jan-17 Bank 1,300 10
19-Jan-17 Discount received 10 -

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iv) Account: VAT
1-Jan-17 Balance b/f 1,340
2-Jan-17 Mr. Hassan (Customer) 90 1,430
3-Jan-17 Mr. Hussein (Supplier) 60 1,370
8-Jan-17 Mr. Hassan (Customer) 20 1,350
9-Jan-17 Mr. Hussein (Supplier) 13 1,363
31-Jan-17 Bank 1,363 -
Question No. 3:
Jahan enterprise started working with a one-year accounting period that ends on 31 December
2016. Jahan’s extract of trial balance as on 31 December 2016 was as follows:
Account Name Taka Account Name Taka
Supplies 2,500 Salaries expense 4,000
Pre-paid insurance 4,800 Accounts payable 42,900
Equipment 40,000 Unearned revenue 8,400
Note receivable 15,000 Service revenue 15,000
1) On 31 December 2016 employees took a physical count of the supplies in stock. That physical count
reveals a closing stock of supplies amounting to Tk.1,200.
2) On 31 August 2016, Tk.4,800 was paid for a two‐year insurance policy.
3) On 1 April 2016, the company acquired equipment of Tk.40,000 for cash. Management expects to
use the equipment for 8 years on straight line basis with no salvage value.
4) On 25 July 2016, Jahan signed a service contract with a client and the client pays Tk.8,400 cash. The
contract states thatJahan will provide monthly services for 12 months, beginning on 1 August 2016.
5) On 31 December 2016, the accountant questions the managers and discovers that revenue of
Tk.12,500 has been earned (the services have been provided) but the clients have not yet been billed.
6) On 1 October 2016, the company provides services of Tk.15,000 to a client. The client will not be
able to pay for the services until 1 April 2017. Thus, the client signs a promissory note for 6 months.
The note bears 6% annual interest.
Required:
a) Analyze the effects of the preceding transactions on the accounting equation of Jahan Enterprise and
prove the equality of the equation. 8
b) Prepare necessary adjustment entries. 6
c) Complete an adjusted trial balance from the data provided. 6
(a) Jahan Enterprise, Transaction analysis with the help of accounting equation
Serial
no.
Assets = Liabilities Equity Marks
Receivable Supplies
Prepaid
insurance
=
Unearned
revenue
Accumulated
depreciation
Revenue (Expenses)
1 (1,300) = (1,300) 1
2 (800) = (800) 1.5
3 = 3,750 (3,750) 1.5
4 = (3,500) 3,500 1.5
5 12,500 = 12,500 1
6 225 225 1.5
Total 12,725 (1,300) (800) = (3,500) 3,750 16,225 (5,850)
10,625 = 10,625

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Transaction analysis with the help of accounting equation:
1) Assets – Supplies is decreased. Stockholders’ Equity – Supplies Expense is increased.
2) Assets – Prepaid Insurance is decreased. Stockholders’ Equity – Insurance Expense is increased.
3) The contra asset‐ Accumulated Depreciation – Equipment is increased and the Stockholders’ Equity
account – Depreciation Expense is increased
4) Liabilities – Unearned Revenue is decreased. Stockholders’ Equity – Legal Fees Earned is increased.
5) Accounts affected – Assets – Fees Receivable is increased and Stockholders’ Equity – Service
Revenue is increased.
6) Assets – Interest Receivable is decreased. Stockholders’ Equity – Interest Revenue is increased.
(b) Jahan Enterprise, Adjusting entries
Serial Particulars Ref Dr. Taka Cr. Taka
i. Supplies expense Dr. 1,300
Supplies (2,500 – 1,200) Cr. 1,300
ii Insurance expense [(4,800/2) × 4/12] Dr. 800
Pre-paid insurance Cr. 800
iii. Depreciation expense [(40,000/8)×(9/12)] Dr. 3,750
Accumulated depreciation- equipment Cr. 3,750
iv. Unearned revenue Dr. 3,500
Service revenue [8,400 × (5/12)] Cr. 3,500
v. Accounts receivable Dr. 12,500
Service revenue Cr. 12,500
vi. Interest receivable Dr. 225
Interest income [15,000 × 6% × (9/12)] Cr. 225
(c) Jahan Enterprise, Adjusted Trail Balance
Account Name
Trial Balance Adjustment Adjusted Trial Balance
Dr. Taka Cr. Taka Dr. Taka Cr. Taka Dr. Taka Cr. Taka
Supplies 2,500 - - 1,300 1,200 -
Pre-paid insurance 4,800 - - 800 4,000 -
Equipment 40,000 - - - 40,000 -
Note receivable 15,000 - - - 15,000 -
Salaries expense 4,000 - - - 4,000 -
Accounts payable - 42,900 - - - 42,900
Unearned revenue - 8,400 3,500 - - 4,900
Service revenue (3,500+12,500) - 15,000 - 16,000 - 31,000
Supplies expenses - - 1,300 - 1,300 -
Insurance expenses - - 800 - 800 -
Depreciation expenses - - 3,750 - 3,750 -
Accumulated depreciation - - - 3,750 - 3,750
Receivable (12,500+225) - - 12,725 - 12,725 -
Interest income - - - 225 - 225
66,300 66,300 22,075 22,075 82,775 82,775

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Question No. 4:
The Bank Column of Cash Book of Tom &Co shows a debit balance of Tk.1,050 as on 30 June
2017. However, according to Bank Statement the balance was overdrawn. On investigation you
find the following:
• The receipt column of Cash Book has been overstated by Tk.1,100
• Cheque drawn and entered in the Cash Book in June 2017 amounting to Tk.1,670 was not
presented until July, 2017.
• Discount received from a supplier of Tk.100 had been included with the cheque entered in the
Bank column of the Cash Book in April 2017.
• An amount of Tk.750 paid directly into Tom’s account by a customer not entered in the Cash
Book.
• A cheque payment of Tk.1,230 in April 2017 had been entered in the Cash Book as Tk.1,320.
• The Bank had charged the business account with a cheque for Tk.2,200 in February 2017,
which should have been passed through owners private account.
• Bank Charges of Tk.80 at 31 December 2016 and Tk.100 at 30 June 2017 had not yet been
entered in The Cash Book.
• Cheque to the value of Tk.3,780 received from the customers were recorded in the Cash Book
on 28 June 2017 but not entered by the bank until 2 July 2017.
Required:
Prepare the adjusted Cash Book and Bank reconciliation statement. 15
In the Books of Tom & Co
Cash Book (Bank Column)
As on 30 June 2014
Date Particulars Amount Date Particulars Amount
30.06.14 Bal B/f 1,050 30.06.14 Error (overtrading) 1,100
D/Received 100 Bank Charges 180
Direct deposit 750
Error 90 Bal c/d 710
(1320-1230)
______
1,990 1,990
======= ======
Bank Reconciliation Statement as on 30 June 2014
Bank Balance as per amended cash Book 710
Add: Cheque not yet presented 1,670
2,380
Less: Bank charges wrongly posted 2,200
Cheque received but not recorded 3,780
5,980
Bank Overdraft 3,600
=====

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Question No. 5
The following ledger balances relates to M/S. Ibrahim Limited as at 30 June 2017:
Ledger balances Taka Ledger balances Taka
Inventory at 1 July 2016 4,875,000 Accounts payables 4,665,000
Cash and bank balances 250,000 Sales 23,250,000
Accounts receivable 4,550,000 Other income 1,062,500
Purchases 12,700,000 10% Borrowings (bank loan) 2,000,000
Office and administrative expenses 1,625,000 Revaluation reserve 1,750,000
Salary and allowances (office) 687,500 Retained earnings 2,825,000
Selling and distribution expenses 1,540,000 Acc. depreciation - plant and equipment 2,250,000
Wages and allowances 625,000 Provision for bad debts 250,000
Other direct expenses 1,165,625 General reserve 706,250
Investment in fixed deposit 750,000 Bank overdraft 575,000
Land at valuation 7,125,000 Gratuity payable 109,375
Plant and equipment at cost 4,500,000 Share capital of Tk. 10 each 2,000,000
Intangible assets 1,050,000
The following additional information should also be considered:
1) Inventory at the end of year is Tk.3,020,000.
2) The company depreciates plant and equipment @ 10% straight line basis. Land is revalued every
two years. A valuation has just been carried out, showing that it has increased in value by
Tk.450,000. An impairment review of intangibles has shown that Tk.105,000 should be written off.
3) The receivable of Tk.180,000 from a customer should be written off as irrecoverable, and the
provision for bad and doubtful debts should be increased to Tk.300,000.
4) Borrowings are payable in 8 yearly installments. First installment will be due and paid on 1 July 2017.
5) A 10% dividend was declared and approved during the year but not yet paid. Corporate tax rate is 35%.
Required:
a) Prepare the Statement of Comprehensive Income for the year ended 30 June 2017. 13
b) Prepare the Statement of Financial Position as at 30 June 2017. 15
M/S. Ibrahim Limited, statement of comprehensive income for the year ended 30 June 2017
Particulars Taka
Sales 23,250,000
Cost of sales (W1) (16,821,625)
Gross profit 6,428,375
Operating expenses (W2) (4,187,500)
Profit from operations 2,240,875
Other income 1,062,500
Finance cost: (interest expense) (2,000,000 × 10%) (200,000)
Profit before tax 3,103,375
Income tax @ 35% (1,086,181)
Profit for the period 2,017,194

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M/S. Ibrahim Limited, statement of financial position at 30 June 2017
ASSETS Taka
Non-current assets
Property, plant and equipment (W3) 9,375,000
Intangible assets (1,050,000 – 105,000) 945,000
10,320,000
Current asset
Inventories (W1) 3,020,000
Accounts receivables (4,550,000 – 300,000 – 180,000) 4,070,000
Investment in FDR 750,000
Cash and cash equivalents 250,000
8,090,000
TOTAL ASSETS 18,410,000
EQUITY AND LIABILITIES Taka
Equity
Share capital of Tk. 10 each 2,000,000
Retained earnings 4,642,194
Revaluation reserve 2,200,000
General reserve 706,250
9,548,444
Non-current liabilities
Borrowings (bank loan) [(2,000,000 × (7/8)] 1,750,000
Gratuity payable 109,375
1,859,375
Current liabilities
Current portion of borrowings (bank loan) [2,000,000 ×(1/8)] 250,000
Bank overdraft 575,000
Accounts payables 4,665,000
Others payable (salary, interest and dividend) (W4) 426,000
Income tax payable 1,086,181
7,002,181
TOTAL EQUITY AND LIABILITIES 18,410,000
Workings:
W1: Cost of sales Taka
Inventories at 1 July 2016 4,875,000
Purchase 12,700,000
Wages and allowances [625,000+(520×10×5)] 651,000
Other direct expenses 1,165,625
Depreciation on plant and equipment (4,500,000 × 10%) 450,000
Cost of production 19,841,625
Less: closing inventories (3,020,000)
16,821,625
W2: Operating expenses Taka Taka
Office and administrative expense:
Salary and allowances 687,500
Office and administrative expenses 1,625,000

Page | 23
Bad debt expenses 180,000
Impairment of intangibles 105,000
Provision for bad debts (300,000 – 250,000) 50,000 2,647,500
Selling and distribution expenses 1,540,000
4,187,500
W3: Property, plant and equipment (PPE) Land
Plant &
equipment Total
Taka Taka Taka
Cost/revaluation
Opening balance as at 1 July 2017 7,125,000 4,500,000 11,625,000
Add: addition during the year 450,000 - 450,000
Closing balance as at 30 June 2017 7,575,000 4,500,000 12,075,000
Accumulated Depreciation:
Opening balance as at 1 July 2017 2,250,000 2,250,000
Charge for the year @10% 450,000 450,000
Closing balance as at 30 June 2017 - 2,700,000 2,700,000
Carrying amount of PPE 7,575,000 1,800,000 9,375,000
W4: Others payable Taka
Salaries payable (520 × 10 × 5) 26,000
Interest payable (2,000,000 × 10%) 200,000
Dividend payable (2,000,000 × 10%) 200,000
426,000

Page | 24
BUSINESS & FINANCE
Suggested Answer
Nov-Dec 2017
Question No. 1:
Discuss Theory X and Theory Y developed by McGregor in relation to human behavior. 5
Theory X of theory Y
McGregor developed two theories X of Y.
Each one represents a different set of assumptions about people are.
Theory X
 Individuals dislike work and arid it where possible.
 Individuals lack ambitious, dislike responsibility and prefer to be led.
 A system of coercion and punishment is needed to achieve business objectives.
 Above all, individuals desire security.
Theory Y
 Physical and mental effect in work is as natural as risk and play.
 Commitment of objectives is driven by rewards- self actualization is the most important reward.
 External control and threats are not be only way to achieve objectives- self control and direction are
very important.
 People learn to like responsibility.
 The intellectual potential of the average human is only partially utilized- it needs to develop further.
Question No. 2:
Philips Corporation has decided to introduce a new product. The product can be manufactured using
either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality
or sales of the product. The estimated manufacturing costs of the two methods are as follows:
Capital Intensive Labor Intensive
Variable manufacturing cost per unit Tk. 14.00 Tk. 17.60
Fixed manufacturing cost per year Tk. 2,440,000 Tk. 1,320,000
The company's market research department has recommended an introductory selling price of Tk.30 per
unit for the new product. The annual fixed selling and administrative expenses of the new product are
Tk.500,000. The variable selling and administrative expenses are Tk.2 per unit regardless of how the new
product is manufactured.
Required:
i. Calculate the break-even point in units if Philips Corporation uses the: 6
1. capital-intensive manufacturing method.
2. labor-intensive manufacturing method.
ii. Determine the unit sales volume at which the net operating income is the same for the two
manufacturing methods. 5

Page | 25
Answer to the Question No. 2(i):
1. Capital-intensive:
Break-even in units = Fixed expenses ÷ Unit contribution margin
= (Tk. 2,440,000 + Tk. 500,000) ÷ (Tk. 30 - Tk. 14 – Tk. 2)
= Tk. 2,940,000 ÷ Tk. 14 per unit
= 210,000 units
2. Labor-intensive:
Break-even in units = Fixed expenses ÷ Unit contribution margin
= (Tk. 1,320,000 + Tk. 500,000) ÷ (Tk. 30 – Tk. 17.60 – Tk. 2)
= Tk. 1,820,000 ÷ Tk. 10.40 per unit
= 175,000 units
Answer to the Question No. 2(ii):
ii. Profit = Sales - Variable expenses - Fixed expenses
Capital-intensive:
Profit = Tk. 30Q – Tk. 16Q – Tk. 2,940,000
= Tk. 14Q – Tk. 2,940,000
Labor-intensive:
Profit = Tk. 30Q – Tk. 19.60Q – Tk. 1,820,000
= Tk. 10.40Q – Tk. 1,820,000
The profits are equal when:
Tk. 14Q – Tk. 2,940,000 = Tk. 10.40Q – Tk. 1,820,000
Tk. 3.60Q = Tk. 1,120,000
Q = Tk. 1,120,000 ÷ Tk. 3.60
Q = 311,111
Question No. 3:
a) What are likely to be the viewpoints of each of the following managers about the levels of the
various types of inventory: finance, marketing, manufacturing, and purchasing? 3
b) What are the three primary goals of the just-in-time (JIT) philosophy? 3
c) AK Sports Mart, a chain of sporting goods stores, sells 720,000 baseballs per year. (Assume that
sales are uniform throughout the year). The baseballs cost AK Sports Mart Tk.15 per dozen (Tk.1.25
each). Annual inventory carrying costs are 20 percent of inventory value. The costs of placing and
receiving an order are Tk.144. Assume that inventory replenishment occurs virtually
instantaneously. 6
Required: Determine the following:
i. Economic order quantity,
ii. Total annual inventory costs of this policy and
iii. Optimal ordering frequency
Differing viewpoints about appropriate inventory levels commonly exist among a firm’s finance,
marketing, manufacturing, and purchasing managers. Each views inventory levels in light of his or her
own objectives. The financial manager’s general disposition toward inventory levels is to keep them low,
to ensure that the firm’s money is not being unwisely invested in excess resources. The marketing
manager, on the other hand, would like to have large inventories of the firm’s finished products. This
would ensure that all orders could be filled quickly, eliminating the need for backorders due to stock outs.

Page | 26
The manufacturing manager’s major responsibility is to implement the production plan so that it results in
the desired amount of finished goods of acceptable quality available on time at a low cost. In fulfilling
this role, the manufacturing manager would keep raw materials inventories high to avoid production
delays. He or she also would favor large production runs for the sake of lower unit production costs,
which would result in high finished goods inventories.
The purchasing manager is concerned solely with the raw materials inventories. He or she must have on
hand, in the correct quantities at the desired times and at a favorable price, whatever raw materials are
required by production. Without proper control, in an effort to get quantity discounts or in anticipation of
rising prices or a shortage of certain materials, the purchasing manager may purchase larger quantities of
resources than are actually needed at the time.
1. Elimination of any production process or operation that does not add value to the product or service.
2. Continuous improvement in production/performance efficiency.
3. Reduction in the total cost of production/performance while increasing quality.
i. S = Tk. 72; D = 360,000 baseballs;
C = 0.20 × Tk. 1:25 = Tk. 0.25/baseball
= 14,400 baseballs
ii.
iii.
Question No. 4:
You are to study the following financial statements for two furniture stores and then answer the
questions, which follow:
Financial Statements
X Y
Tk. Tk. Tk. Tk.
Profit and loss accounts
Sales 555,000 750,000
Less: Cost of goods sold
Opening stock 100,000 80,000
Add Purchases 200,000 320,000
300,000 400,000
Less: Closing stock ( 60,000) (240,000) ( 70,000) (330,000)
Gross profit 315,000 420,000
Less: Depreciation 5,000 15,000
Wages, salaries and commission 165,000 220,000
Other expenses 45,000 (215,000) 35,000 (270,000)
Net profit 100,000 150,000

Page | 27
Balance sheets
Fixed assets
Equipment at cost 50,000 100,000
Less: Depreciation to date ( 40,000) 10,000 ( 30,000) 70,000
Current assets
Stock 60,000 70,000
Debtors 125,000 100,000
Bank 25,000 12,500
210,000 182,500
Less: Current liabilities
Creditors (104,000) 106,000 (100,500) 82,000
116,000 152,000
Financed by:
Capital
Balance at start of year 76,000 72,000
Add: Net profit 100,000 150,000
176,000 222,000
Less: Drawings ( 60,000) ( 70,000)
116,000 152,000
Required:
a) Calculate the following ratios for each business:
i) gross profit as percentage of sales;(ii) net profit as percentage of sales; (iii) expenses as
percentage of sales;(iv) stock turnover;(v) rate of return of net profit on capital employed (use
the average of the capital account for this purpose);(vi) current ratio;(vii) acid test ratio;(viii)
debtor/sales ratio;(ix) creditor/purchases ratio. 9
b) Which business seems to be the most efficient? Give possible reasons. 6
Sl Ratios X Y
(i) Gross profit as % of
sales
(ii) Net profit as % of
sales
(iii) Expenses as % of
sales
(iv) Inventory turnover
(v) Rate of return
(vi) Current ratio
(vii) Acid test ratio
(viii) Accounts
receivable/sales ratio
(ix) Accounts
payable/purchases
ratio

Page | 28
Business Y is the most profitable, both in terms of actual net profit, £150,000 compared to £100,000, but
also in terms of capital employed; Y has managed to achieve a return of £133.90 for every £100 invested
compared with £104.20 for X. Reasons – possibly only – as not until you know more about the business
could you give a definite answer:
i) Possibly managed to sell far more merchandise because of lower prices, but the margins are so
similar (56.8%-v-56%) that this is unlikely.
ii) Maybe more efficient use of mechanized means in the business. Note that Y has more equipment
and, perhaps as a consequence, kept other expenses down to £35,000 as compared with X’s £45,000.
iii) Did not have as much stock lying idle. Turned over stock 4.4 times in the year as compared with 3
for A.
iv) X’s current ratio of 20.2 is not much higher than Y’s (1.82) so it is unlikely that this has contributed
significantly to the difference in profitability through money sitting around doing nothing to increase
profits.
v) Following on from (iv) the Acid Test ratio for X may be higher than necessary.
vi) Part of the reason for (v) is that X waited (on average) 2.7 months to be paid by customers. Y
managed to collect them on average in 1.2 months’. Money represented by debts is money lying idle.
vii) Another reason for (v) is that X took almost twice as long to pay its creditors (6.24 months v 3.77).
However, this may be a ‘good’ sign for X as long as suppliers do not object and start refusing to sell
to X. Put all these factors together, and it appears that Y may be being run more efficiently, and is
more profitable as a consequence.
Question No. 5:
a) What is the purpose of accounting standards? 3
b) What are the different types of accounting standards that affect the professional accountants in
Bangladesh? 3
c) What are the roles of the professional accountants? 4
To demonstrate technical competence, the professional accountant needs to be aware of and apply
accounting standards as well as accounting principles. The basic purpose of accounting standards is to
identify proper accounting practice for the benefit of preparers, auditors and users of financial
statements. Accounting standards create a common understanding between users and preparers of
financial statements on how particular items should be treated, so financial statements are expected to
comply with applicable accounting standards other than in rare, exceptional cases.
What are the different types of accounting standards that affect the professional accountants in
Bangladesh?
There are two types of accounting standard that affect the professional accountant in Bangladesh:
 International standards, namely International Accounting Standards (IASs) and International
 Financial Reporting Standards (IFRSs), produced by the International Accounting Standards Board
(IASB).
 Bangladesh standards, namely Bangladesh Financial Reporting Standards (BFRSs) and Bangladesh
Accounting Standards (BASs), produced by the Institute of Chartered Accountants of Bangladesh
(ICAB). ICAB usually adopts IASB standards and rarely is there any difference between the ICAB’s
and the IASB’s standards.

Page | 29
 Recently ICAB has adopted a number of IASs and IFRSs to make the local accounting standards even
more converged to IASB standards.
What are the roles of the professional accountants?
A professional accountant who is technically competent and professionally responsible can perform a
wide variety of roles.
Traditionally professional accountants have tended to:
 Work in public practice with an accountancy firm, or
 Be employed by a private or public sector organisation to help in its management
In recent times there have been more opportunities to specialise within these two general fields.
The professional in public practice
A professional accountant in public practice is in a firm providing professional services that require
accountancy or related skills, including:
 Accounting
 Auditing and assurance (reserved area)
 Taxation
 Management consulting
 Investment business
 Insolvency
 Financial management
 Corporate finance
 Information and communications technology
 Forensic accounting
Firms vary in size from the sole practitioner to one of the 'Big Four' multinational accountancy firms:
 Price water house Coopers
 Deloitte (Deloitte Touche Tohmatsu)
 Ernst & Young
 KPMG
These firms are associations of the partnerships in each country rather than having the classical structure
of holding company and subsidiaries, but each has an international 'umbrella' organization for co-
ordination. As we saw above, there is one reserved area in public practice: statutory audit. There is more
regulation involved in working in this area.
The professional accountant in business
A professional accountant in business is one who is employed or engaged, in an executive or non-
executive capacity, in such areas as:
 Commerce
 Industry
 Service
 The public sector
 Education
 The not-for-profit sector
 Regulatory or professional bodies

Page | 30
Question No. 6:
What are the economic advantage of international free trade? Discuss the barriers to free international
trade in perspective of Bangladesh. 5+5
Advantage of international free trade
International free trade has the following advantages:
 Countries specialize in items they produce comparatively most efficiently so resources are allocated
efficiently.
 Some countries have a surplus of raw materials to their needs and others have a deficit. A country
with a surplus can take advantage of its resources to export them. A country with a deficit of a raw
material need either import it or accept restrictions on its economic prosperity and standard living.
 Competition is increased among the suppliers in the world's markets.
 Larger markets are created for a business's output and so some business can benefit from economies
of scale day engaging in export activities.
 The development of trading links provides a foundation for closer political links.
Barriers to free international trade:
Many barriers to free trade exist because governments try to protect home.
 Industries against foreign competitors. "protectionism" can be practiced by a government in several
ways:
 Tariffs or custom duties
 Import quotas
 Embargoes (Tax on certain imports or exports)
 Hidden subsidies for exporters and domestic products.
 Import restrictions
 Government advise to devalue the nation's currency (reduce its foreign exchange value)
Question No. 7:
Why do businesses and managers need financial information? What are the qualities of good
information? 5+5
Businesses and managers require financial information for :
 Planning
 Controlling
 Recording transaction
 Performance measurement
 Decision making
Planning
Once a decision has been make say on what competitive strategy to follow it is necessary to plan how to
implement the steps necessary to make it effective.
Planning requires a knowledge of among other things available resources possible time scales for
implementation and the likely outcome under alternative scenarios.

Page | 31
Controlling
Once a plan is implemented its actual performance must be controlled. Information is required of assess
whether implementation is proceeding as planned or whether there is some unexpected deviation from
Plan. It may consequently be necessary to take some form of corrective action.
Recording transaction
Information about each transaction or event is required for a number of reasons:
 Documentation of transactions can be used as evidence in case of dispute.
 There may be legal requirement to record transactions for example accounting and audit purpose.
 Detailed information on production costs can be built up allowing a better assessment of profitability.
 The efficiency of lobar utilized in providing a particular service can be measured.
Performance measurement
Just as individual operation need to be controlled so overall performance must be measured in order to
enable comparisons of the actual outcome with the plan. This may involve collecting information on for
example costs, revenues, volumes, time-scale and profitability.
Decision making
Information is required as a basis on which to make informed decisions. This completes the full circle of
the business management process.
Qualities of good information
Information is deemed to be of good quality if it has 8 (eight) key characteristics stated below :
 Accurate :
o figures should add up,
o the degree of rounding should be appropriate,
o should be free from typographical errors,
o terms should be allocated to the correct category etc.
 Complete : Information should include everything that it needs to include such as comparative
information.
 Cost beneficial : It should not cost move to obtain the information than the benefit derived from having it.
 User targeted : The need of the user of the information should always be borne in mind.
 Relevant : Information that is not needed for a decision should be excluded.
 Authoritative : The source of information must be reliable.
 Timely : the information should be available when it is needed.
 Easy to use : Information should be presented clearly and most assist in making decision timely and
accurately.
Question No. 8:
What is a crisis in business? What are the various types of crises usually faced by a business? How are
crises managed? 3+4+4
Crisis in Business
An unexpected event that threatens the well being of a business or a significant disruption in business and
its normal operations which impacts on the customers, employees, investors and other stakeholders.
Crisis cab be fairly predictable and quantifiable or totally unexpected.

Page | 32
Type of Crises
There are 3 (three) main types of crises in term of the effects on the business :
 Financial crisis:
Short term liquidity or cash flow problems and long term insolvency problems.
 Public relation Crisis :
Negative publicity that could adversely affect the source of the business.
 Strategic crisis :
Changes of the business environment that call the viability of the business into question such as new
technology making old products or processes obsolete.
There are many types of crisis in terms of their causes:
 Natural event :
Physical especially environmental destruction due to natural causes such of earthquake.
 Industrial accident :
Building collapse fire, release of toxic flames, sinking of ship.
 Product failure :
Product recall of faulty or dangerous goods, communication systems or machine failure causing massive
reduction in capacity, health scare related to product or industry.
 Public relations disaster :
Pressure group or unwelcome media attended adverse publicity in the media etc.
 Business Crisis :
Sudden strike by workforce sudden collapse of the key supplier, withdrawal of support by big customer,
sudden shot fall in demand.
 Management Crisis :
Hostile takeover bid, death of key management, manager poached by main competitor board room
battle etc.
 Legal / Regulatory Crisis:
Product liability new regulation increase costs or remove competitive edge, employee or other fraud.
 Managing Crisis:
The business should seek to prevent crisis and to have contingency plans should a crisis happen.
The follow up measures are usually taken:
 Crisis prevention :
Adeque measure should be taken to prevent a crisis. The likely outcomes must be projected carefully.
 Contingency Planning:
The business should make a contingency plan for the worst. This must be kept up-to-date and Staff
should be framed to handle crisis in the event it occurs.
 Effective action in the event of a crisis :
o Assess objectively the causes of the crisis.
o Determine whether the cause will have a long- term or short-term effect.
o Project the likely course of event.
o Focus recourses on activities that mitigate or element the crisis.
o Look for opportunities.

Page | 33
 In the event of a public relation crises :
Act immediately to prevent or counter the spread of negative information thus may require intense
media activities.
Use media to provide counter argument or question the credibility of the original negative publicity.
Question No. 9:
a) Write down the various costs associated with holding inventory. 4
b) C Ltd. has present annual sales level of Tk.10,000 units at Tk.300 per unit. The variable cost is
Tk.200 per unit and fixed costs amount to Tk.3,00,000 per year.
The company is considering a proposal to increase the credit from 1 month period to 2 months and 3
months and has made the following estimates:
Existing Proposed
Credit period (month) 1 2 3
Increase in sales (percent) - 15 30
Bad debts (percent) 1 3 5
There will be an increase in fixed cost by Tk.50,000 on account of increase in sales beyond 25
percent level. The investment in receivables will cost the company 20 percent.
Required: Calculate the most paying credit policy. 12
Inventory holding costs :
The following are the costs associated with holding inventory :
 Purchase price i,e the cost of the inventory itself.
 Holding cost : opportunely cost of capital tied up.
: cost of insurance
: Risk of deterioration, obsolescence and pilferage
: cost of warehousing function.
: cost of stores administrant
 Re-order costs : Transport costs
: clerical & admin expenses
: prntch set up cost
 Shortage Cost : Production stoppages caused by tack of raw materials
: stock out cost of finished goods
: Emergency re order costs.
Extending credit period to 2 months or three months
1 month 2 months 3 months
Sales (units) 10,000 11,500 13,000
Sales Revenue 30,00,000 34,50,000 39,00,000
(Taka)
Lees Variable 20,00,000 23,00,000 26,00,000
Costs
Contribution 10,00,000 11,50,000 13,00,000

Page | 34
Lees other costs
Fixed costs 3,00,000 3,00,000 3,50,000
Bad debts 30,000 103,500 1,95,000
Investment cost 38,333 86,667 1,47,500
Profit 6,31,667 6,59,833 6,07,500
Decision : The firm should adopt policy of extending credit of 2 months as yield maximum profit.
Note - 1
Expending 2 mon 3mon
Investment in 23,00,000 26,00,000 29,50,000
Debtors 12 6 4
(VC + FC / debtors turnover) = 1,91,667 =4,33,333 = 737,500
Cost of investment
(Investment in debtors x 0.20) 38,333 86,667 147,500

Page | 35
MANAGEMENT INFORMATION
Suggested Answer
Nov-Dec 2017
Question No. 1:
a) A selling price in excess of the full cost per unit will always result in an overall profit for the
organization – Do you agree? Please explain. 5
b) Explain throughput costing? What advantages is it purported to have over variable and absorption
costing? 5
c) Shikol Steel Products Co. is a manufacturer of gardening equipment. The income statement for last
year is given below developed under the Marginal costing system:
Tk.
Sales 754,000
Less: Variable manufacturing cost (102,000)
Variable marketing and general expenses (54,000)
Contribution margin 598,000
Less: Fixed manufacturing cost (78,000)
Fixed marketing and general expenses (46,000)
Operating income 474,000
The variable and fixed costs in inventories for last year were:
Beginning Inventory Ending Inventory
Work in process:
Variable cost Tk.7,000 Tk.8,000
Fixed cost 6,000 11,000
Total Tk.13,000 Tk.19,000
Finished goods:
Variable cost Tk.28,000 Tk.20,000
Fixed cost 16,000 9,000
Total Tk.44,000 Tk.29,000
There were no cost variances.
Required: Prepare an absorption costing income statement for last year, including inventory detail and
explain the profit difference between the systems. 9
The statement is incorrect.
This is because full cost includes fixed cost per unit which have been derived based on estimated or
budgeted sales volumes. If the budgeted volumes are not achieved then the actual fixed cost per unit will
be higher than estimated and the selling price might be lower than the actual cost per unit.
Answer to the Question No. 1 (b):
Through put costing is an inventory method which treats all costs except direct materials as costs of the
period in which they are incurred. Through put costing results in a lower amount of manufacturing cost
put into inventory than either variable or absorption costing. Supporters of throughput costing claim that
it provides less incentive to produce for inventory than absorption costing or even variable costing.

Page | 36
Sales $754,000
Cost of goods sold:
Current manufacturing cost $180,000
Add work in process—beginning inventory $13,000
$193,000
Less work in process—ending inventory $19,000
Cost of goods manufactured $174,000
Add finished goods—beginning inventory $44,000
$218,000
Less finished goods—ending inventory $29,000
Cost of goods sold $189,000
Gross profit $565,000
Marketing and general expenses 100,000
Operating income $465,000
Question No. 2:
A business manufactures high quality bags. The following information relates to four different
products of the business:
Amount in Tk. Deluxe Grande Lite Midi
Sales price 180 270 360 324
Direct labor cost 54 36 126 90
Direct material cost 84 65 90 100
Labor hours required per unit 9 6 21 15
Materials required per unit 18 Kg 45 Kg 30 Kg 36 Kg
Maximum sales demand (unit) 15,000 15,000 15,000 15,000
Due to the specialist nature of the work, only 150,000 skilled labor hours are available in the next
quarter.
Required:
a) Explain, using two examples, what is meant by a limiting factor? 5
b) How may a company overcome a limiting factor? 5
c) Advise the business on the mix of products that it should produce during the quarter in order to
maximize profit if labor hours are limited to 150,000 hours. 10
A limiting factor is a resource that is in short supply. An example is materials or labor.
To overcome a limiting factor, a company may:
 Subcontract some of the works which cannot be carried out in-house due to the constraints
 Some lower level workers could be re-trained and they could then work on these products
 A recruitment campaign could be launched and new workers could be sourced
 Productivity and efficiency could be improved to reduce the time required per unit.

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Step 1: Contribution per unit
Amount in BDT Deluxe Grande Lite Midi
Sales price (A) 180 270 360 324
Direct labor (B) 54 36 126 90
Direct materials (c) 84 65 90 100
Contribution per unit (D=A-B-C) 42 169 144 134
Step 2: Contribution per unit of limiting factor
Amount in BDT Deluxe Grande Lite Midi
Contribution per unit (A) 42 169 144 134
Labor hours per unit (B) 9 6 21 15
Contribution per labor hour (C=A÷B) 4.67 28.16 6.85 8.93
Step 3: Rank the product
Deluxe Grande Lite Midi
Rank 4 1 3 2
Step 4: Prepare the optimal production plan
Production Hours Contribution
Grande 15,000 units 15,000 x 6 hours per unit 90,000 2,535,000
Midi 15,000 units 4,000 x 15 hours per unit 60,000 536,000
150,000 3,071,000
Question No. 3
a) Briefly explain why a favorable spending variance on variable overhead may not always be
desirable. 4
b) The following information pertains to June 2017of Apex Chemical Company:
Direct Material Direct Labor
Standard price per unit of input Tk. 19 per pound Tk. 18 per hour
Actual price per unit of input Tk. 21 per pound Tk. 17 per hour
Standard inputs allowed per unit of
output
9 pound 6 hours
Actual units of input 5000 pound 3050 hours
Actual units of output 1200 units
Required: Compute the price and quantity variances for direct materials and direct labor. 8
The variable overhead spending variance is the difference between the actual variable overhead cost per
unit of the cost-allocation base and the budgeted variable overhead cost per unit of the cost-allocation
base, multiplied by the actual quantity of the variable overhead cost-allocation base used for the actual
output. If a favorable variable overhead spending variance had been obtained by the managers of the
company purchasing low-priced, poor-quality indirect materials, hired less talented supervisors, or
performed less machine maintenance there could be negative future consequences. The long-run
prospects for the business may suffer as the company ends up putting out a lower quality product, or it
may end up having very large equipment repairs as a result of cutting corners in the short term.

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Direct material:
Price variance: ($10,000) Unfavorable
Quantity variance: $110,200 Favorable
Direct labor:
Price variance: 3050Favorable
Quantity variance: $74,700 Favorable
Question No. 4:
a) What factors may influence the level of markups? 4
b) An investment centre with capital employed of TK.570,000 is budgeted to earn a profit of
Tk.119,700 next year. A proposed non-current asset investment of Tk.50,000, not included in the
budget at present, will earn a profit next year of Tk.8,500 after depreciation. The Company’s cost of
capital is 15%.
Calculate the budgeted Return on Investment and Residual Income for next year, both with and
without the investment. 8
c) Joynal Products is a furniture producing company and is using cost-based pricing to determine the
selling price for its new product based on the following information.
Production for the year 50,000 units
Fixed cost Tk.1,400,000 per year
Variable cost Tk.400 per unit
Investment in plant Tk.6,000,000
Working Capital Tk.2,000,000
Effective tax rate 37%
Required: What is the target price that Joynal Products needs to set for the new product to achieve a
20% after-tax Return on Investment (ROI)? 8
Answer to the Question No. 4: (a)
Factors affecting the level of markups include the strength of demand, the elasticity of demand, and the
intensity of competition. In addition, strategic reasons also may influence the level of markups. For
instance, a firm may either choose a low markup to penetrate the market and win market share from
established products of its competitors, or employ a high markup if it employs a skimming strategy for a
market segment in which some customers are willing to pay higher prices for the privilege of owning the
product.
Calculation of Return on Investment (ROI):
i) Without investment : BDT 119,700 / BDT 570,000
: 21.0%
ii) With investment of BDT 50,000:
Total profit : BDT (119,700 + 8,500)
: BDT 128,200

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Total investment : BDT (570,000 + 50,000)
: BDT 620,000
ROI : BDT 128,200 / BDT 620,000
: 20.7%
Calculation of Residual Income (RI):
i) Without investment
Imputed interest charges : BDT 570,000 X 15%
: BDT 85,500
RI : BDT 119,700 – BDT 85,500
: BDT 34,200
i) With investment of BDT 50,000:
Imputed interest charges : BDT 620,000 X 15%
: BDT 93,000
RI : BDT 128,200 – BDT 93,000
: BDT 35,200
Answer to the Question No. 4: (c):
The target price (p) is computed by using the following formula:
(Total sales − Total variable costs − Total fixed costs)(1 − tax rate) = (Target ROI)(investment)
Total sales = (volume)(target price) = (50,000)(p)
Total variable costs = (volume)(variable cost per unit) = (50,000)($400) = $20,000,000
Total fixed costs = $1400,000
Investment includes both plant and working capital = $6,000,000 + $6,000,000 = $8,000,000
(50,000p − $20,000,000 − $1,400,000)(1 − 0.37) = (0.20)($8,000,000)
p = $479.
Question No. 5:
a) Suppose a company decided to automate a production line. Explain what effects this would have on
a company's cost structure using CVP terminology. Could these changes have any possible negative
effect on the firm? 6
b) Alfath & Co. is an industrial components manufacturer. One of their products that is used as a sub-
component in coffeemaker manufacturing is CFM392.
This component has the following financial structure per unit:
Tk.
Selling price 300
Direct Materials 40
Direct Labor 30
Variable Manufacturing overhead 24
Fixed Manufacturing overhead 60
Shipping and handling 6
Fixed Selling and Administrative overhead 20
Total cost 180

Page | 40
During the next year, CFM392 sales are expected to be 10,000 units. All of the costs will remain the
same except for material which will increase by 10% and labor by 15%.The selling price per unit for
next year will be Tk.320.
Required: Based on the above data, what will be the contribution margin from CFM392 for next
year? 6
An automated production line would increase fixed costs through extra depreciation on the new
machinery and also decrease variable costs due to the elimination of direct labor as a result of automation.
This would increase the breakeven point. This could possibly have a negative effect on the firm if demand
for the product produced by this production line is expected to decline in the future. With high fixed costs
and low demand, a decline in profits might be more severe due to the presence of unchanging fixed costs
as volume drops.
Contribution margin is defined as sales revenue less variable costs. The total contribution margin for a
product is calculated by taking the unit contribution margin and multiplying it by the number of units
sold.
In this scenario, the selling price per unit is $160.
The unit variable costs consist of direct materials, direct labour, variable overhead, and shipping and
handling costs. Unit variable costs are calculated as follows:
Unit variable costs = direct materials + direct labour + variable overhead + shipping and handling costs
Unit variable cost = ($40 × 1.1) + ($30 x 1.15) + ($24) + ($6)
= $44 +$34.5 +$24 +$6
Unit variable cost = $108.5
Unit contribution margin = Sales price − unit variable cost
Unit contribution margin = $320-$108.5 = $211.5
Total product contribution margin = (Unit contribution margin)(number of units sold)
Total product contribution margin = ($211.5 per unit)(10,000 units) = $2415000
Question No.6:
Why Net Present Value is the Best Measure for Investment Appraisal? 5
Net present value method calculates the present value of the cash flows based on the opportunity cost of
capital and derives the value which will be added to the wealth of the shareholders if that project is
undertaken.
There are many methods for investment appraisal such as accounting rate of return, payback period
(PBP), internal rate of return (IRR), and Profitability Index (PI).
Let us discuss each of these methods in comparison with net present value (NPV) to reach the conclusion:
 Net Present Value (NPV) vs. Payback Period (PBP)

Page | 41
Payback period calculates a period within which the initial investment of the project is recovered.
The criterion for acceptance or rejection is just a benchmark decided by the company. Therefore, it does
not consider the cash flows after the pay-back period and ignores time value of money.
Net present value considers the time value of money and also takes care of all the cash flows till the end
of life of the project.
 Net Present Value (NPV) vs. Internal Rate of Return (IRR)
Internal rate of return (IRR) calculates a rate of return which is offered by the project irrespective of the
required rate of return and any other thing. It also has certain disadvantages like, it does not understand
economies of scale and cannot differentiate between two projects with same IRR
On the other hand, NPV talks in absolute terms and therefore this point is not missed.
 Net Present Value (NPV) vs. Profitability Index (PI)
Profitability index is a ratio between the discounted cash inflow to the initial cash outflow. It presents a
value which says how many times of the investment is the returns in the form of discounted cash flows.
The disadvantage associated with this method again is its relativity. A project can have same profitability
index with different investments and the vast difference in absolute dollar return. NPV has an upper hand
in this case.
Question No. 7:
Zakaria Company, sold 12,000 cases of Product Q for Tk.120,000 during the second quarter of the
year. Facts related to its beginning inventory and purchases are as follows:
April 1 Beginning inventory 5,000 cases @ Tk.4.00
10 Purchases 3,000 cases @ Tk.5.00
May 13 Purchases 8,000 cases @ Tk.4.50
June 5 Purchases 2,000 cases @ Tk.5.00
For the quarter ended June 30, compute the ending inventory, cost of goods sold and gross margin under
two methods: (a) average-cost, and (b) FIFO. 12
Ending Inventory Cost of Goods Sold Gross Margin
a. Average-cost $27,0001
$54,0002
$66,0003
b. FIFO method $28,0004
$53,0005
$67,0006
Goods available for sale:
5,000 + 3,000 + 8,000 + 2,000 = 18,000 units
Cost of goods available for sale:
[(5,000  $4) + (3,000 $5) + (8,000 $4.50) + (2,000 $5)] = $81,000
Ending inventory:
18,000 – 12,000 = 6,000 units
1 $81,000 ÷ 18,000 = $4.50  6,000
2 $81,000 – $27,000
3 $120,000 – $54,000
4 [(2,000  $5) + (4,000 $4.50)]
5 $81,000 – $28,000
6 $120,000 – $53,000

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TAXATION-I
Suggested Answer
Nov-Dec 2017
Question No. 1:
a) Briefly explain the tax principle “Equity”. 5
b) Section 16 (1) of The Income Tax Ordinance, 1984 laid down the basic framework for levying
income tax upon a person. Based on this referred provision, list out the basic principles of charging
income tax upon every person. 5
c) Distinguish between the phrases “Source of Income” and “Head of Income”. 5
d) How can Double Taxation Avoidance Agreement benefit Bangladesh? 5
The equity principle underlies the concept of fairness. The tax system should be designed in such a manner
that can ensure fairness in charging tax on the people of a country. It implies that a good tax system takes
care the re-distribution of resources between high and low income people as well as similar tax burden for
taxpayers with similar situation. Taxation equity has two dimensions- vertical and horizontal equity.
Vertical equity refers to taxation on the basis of ability to pay as income is worth more to those who earn
less, and that those with higher incomes should bear more of the tax burden. Progressive tax rate is the
outcome of vertical equity.
On the other hand, horizontal equity looks for "equal treatment of equals." That is, individuals who have
the same wealth, or are in the same income bracket, should come across the same tax effect. In fact,
horizontal equity in taxation underlies the basic principle of equality so that we give the same treatment to
people in an identical situation. Therefore, horizontal equity makes sure we don’t have discrimination on
the grounds such as race/gender/different types of work.
The basic framework of charging income tax as laid down in section 16(1) is summarized below:
1. Income tax is charged on taxable income for an income year of any person;
2. Tax shall be charged at the rate or rates prescribed by the Finance Act in every year
3. Tax is chargeable on the income of an income year; not on the income of an assessment year.
4. Tax is chargeable on the total income of a person computed under the purview of the Income Tax
Ordinance 1984
The term source of income refers to a place from which the income is originated or obtained. The source
of income indicates the point from which income gets generated or arises. Each and every income of any
person has an origination point and this point is the source of that particular income.
On the other hand, in order to compute the total income of a person, the income of all sources are clubbed
or grouped under certain heads as per the income tax law. Any income to be taxed must come under any
of the heads specified in the law. Therefore, head of income indicates the class under which an income is
considered to be taxed. Each head of income has its own unique features and requires specific treatment
for correct computation of taxable income and tax liability. Under each head of income, there could be
several sources of income. Say, Mr. X works in two companies namely X Limited and Y Limited and he
gets compensation from both the companies. In this case, he has two sources of income but they fall under
one head of income which is stated as “Income from Salaries”.

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In the recent years, the connectivity of Bangladesh to the world has increased overwhelmingly and thus
we are now more open and dependable to the world economy. The economic growth of this country has
also got tremendous pace over the years. To sustain this growth momentum, Bangladesh needs to attract
huge capital inflow and propel trade relations with the other counties. As the decision of any economic
unit across the world is tax sensitive, Double Taxation Avoidance Agreement (DTAA) has become vital
for such transactions and relations. DTAA promotes mutual economic relations, trade and investment. It
encourages cross-boarders transactions and investments, as it ensures certainty on levy of tax disregarding
changes of the tax laws in other countries. In fact, DTAA creates a favourable climate for the inflow of
Foreign Direct Investment (FDI) and foster long term, mutually beneficial economic relationship with
other countries. It also helps to prevent tax evasion by exchanging information. Therefore, in many
aspects, Bangladesh can be benefited from DTAA.
Question No. 2:
a) Professional Accountants have role to assist government to collect tax. In this regard the professional
Accountants should maintain integrity. As regards to information what criteria should be followed to
maintain integrity by a Professional Accountant. 4
b) The Tax practitioners should be competent and should act lawfully for the best interest of the clients.
Explain the statement in light of the Code of Ethics applicable for the professional accountants. 6
A professional accountant should not be associated with any information where he believes that the
information:
 Contains a materially false or misleading statement;
 Contains statements or information furnished recklessly;
 Omits or obscures information required to be included where such omission or obscurity would be
misleading.
If we observe the statement deeply, we will see that it has two elements; one is competent to work and the
other is lawfully act for the best interest of the clients The tax practitioners must be competent to ensure
to provide best delivery to their clients and the services they provided is provided competently. For that,
the practitioners must maintain knowledge and skills relevant to the services. They should take
reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which
they are providing service to the clients. They must be always updated about the changes in the laws.
The tax practitioners must act for the best interest of their clients by complying the relevant laws and
regulations applicable to the extent. Acting in the best interests of clients is not an excuse for a tax
practitioner to breach or ignore the law. To ensure best service to the clients, they must provide quality
delivery within the framework of the law. They can advise clients to take all kinds of benefits like
exemptions, deductions and credits available in the law. But they cannot assist or guide the clients to
evade tax by producing wrong evidences or explanations. If the practitioners do not act lawfully, it will
invite troubles for themselves and will damage the reputation of their professions. Thus, in no cases, the
tax practitioners favour their clients beyond the boundary of the laws and regulations.

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Question No. 3:
a) When may the Deputy Commissioner of Taxes serve the notice under section 79? 4
b) Briefly describe- what would be the assessment procedure in case of discontinued business? Do you
find any exception in this assessment procedure? If yes, justify your answer. 6+2=8
c) Write the provisions regarding instructions from National Board of Revenue as to performing the
function by the officers. 3
The Deputy Commissioner of Taxes (DCT) may issue a notice under section 79 to produce or cause to be
produced such accounts, statements, documents, data or electronic records as he may consider necessary
for the purpose of audit or assessment under this ordinance. This notice can only be served to that
assessee who has already filed a return or to whom a notice has been served to file a return.
When any business is discontinued in any financial year, at the discretion of the DCT, the assessment of
that discontinued business may be completed in the following manner:
-The income of the current incomplete income year (from 1st day of the current income year to the date of
discontinuance); plus
- Income of previous completed income year, assessment of which is pending;
shall be assessed together in the year of discontinuation. That is, incomes of the broken period and the
incomes of the previously completed income years whose assessment are still undone shall be progressed
together in the discontinued year.
Any discontinuation of a business is to be informed to DCT within 15 days of such discontinuation and
the return of total income shall be submittedfor that period.
For example, ABC Limited discontinued its business on 31 December 2016 and its income of the income
2015-16 corresponding to the assessment year 2016-17 is still pending. In this situation, the assessment of
the income year 2015-16 and the assessment for the income of the broken period starting from 1 July
2016 to 31 December 2016 shall be made together in the Financial year 2016-17.
Yes, there is an exception. The exception is that income year and assessment year for the income of the
broken period is same. As per section 16(1), income of the income year shall be assessed in the
assessment year. That is, once income year ends, assessment year starts. But in this case, income is
assessed in the income year, not in the assessment year
As per Income Tax Ordinance all officers and other persons engaged in the performance of any functions
under this Ordinance shall, in the matter of discharging those functions observe and follow such orders,
directions or instructions as the Board may issue from time to time:
Provided that no order, direction or instruction shall be given so as to interfere with the discretion of the
Appellate Joint Commissioner [or the Commissioners (Appeals)] in the exercise of their appellate
functions.
Question No. 4:
The Statement of Comprehensive Income of PQR Ltd. for the year ended 30th June, 2016 was as
follows:

Page | 45
Particulars Tk. Tk.
Sales 2,50,00,000
Less: Cost of Goods Sold 67,00,000
Gross Profit 1,83,00,000
Less: Administrative and Selling Expenses
Office Maintenance 16,00,000
Salary and allowances 23,00,000
Travelling and conveyance 7,50,000
Printing and Stationery 4,00,000
Audit Fee 6,00,000
Legal Expenses 3,50,000
Repairs for residential houses of Employees 4,30,000
Cash shortage 2,60,000
Provision for bad debts 6,00,000
Commission 3,60,000
Renewal of Trade Mark 4,00,000
Bonus to Staff – Bonus Share 11,00,000
Managing Agent’s Commission 12,00,000
1,03,50,000
79,50,000
Add: Profit on Sale of old Machine 5,00,000
Share Premium 3,50,000
Interest on Govt. Securities 4,00,000
Other Income 11,40,000
23,90,000
Net Profit 1,03,40,000
Necessary Information:
i) Required tax has not been deducted from printing and stationery bills.
ii) Salaryand allowances included Tk.5,00,000 paid for house rent where a retired Manager of the
company lived.
iii) Bad Debt Tk.75,000 and Tk.65,000 provision for the last year were written off.
iv) Commission represents Commission paid to a Staff.
v) The sold machine was purchased six years ago and its book value was Tk.1,00,000 but its book
value as per Income Tax Rule was zero. The cost price of the machine was Tk.10,00,000.
Determine the Taxable Income and calculate the tax to be paid by the Company. 20
Assessee: PQR Ltd.
Assessment year: 2016 – 2017; Income year: 2015 – 2016
Particulars Tk. Tk.
Net Profit as per Statement of Comprehensive Income 10,340,000
Add: Inadmissible expenses:
Printing and Stationery Expenses 400,000
Bad Debt Provision (6,00,000 + 65,000) 665,000
Retired Manager House rent 500,000
Shortage of Cash 260,000
1,825,000
12,165,000

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Less: Non-business income:
Profit on Sale of machine 500,000
Interest on Govt. Security 400,000
Other income 1,140,000
Share Premium 350,000
2,390,000
9,775,000
Less: Admissible expenses:
Bad Debt Written off 75,000
9,700,000
Add: Business Income on sale of Machinery 600,000
Income from Business 10,300,000
Total Income:
Income from Business 10,300,000
Interest on Govt. Security 400,000
Other income (1,140,000+350,000) 1,490,000
Total Income 12,190,000
Tax Liability
Particulars Gross Income Tax Rate Amount of Tax
Tax on Total Income Tk.12,190,000 35% Tk.4,266,500
Notes: (1) Tax has not been deducted at source and therefore it is considered as inadmissible. (2)
House Rent paid to the Retired Manager is not a business expense; hence it is disallowed. (3)
Commission paid to a staff is considered as business expense and as such it is admissible. (4) All
other expenses charged as administrative and selling expenses have been assumed as business
expenses. (5) Cash shortage has been assumed as stolen by the stranger during the office period and
as such it is inadmissible. (6) Profit on Sale of Machineries has been considered as business profit. (7)
Capital Gain on Sale of Machine:
Sale Value (1,00,000 + 5,00,000) 600,000
Original Cost 10,00,000
Capital Gain Nil
Revenue Gain / Business Income from Sale of Machine:
Sale Value (500,000+100,000) 600,000
Book Value Nil
Total gain 600,000
Capital Gain Nil
Business Income or Revenue Gain 600,000
Question No. 5
Ms. Marium has earned following incomes during the financial year 2016-17.
Salaries income:
Basic Salary Tk.3,00,000, Entertainment allowance Tk.60,000, Servant allowance Tk.36,000,
Travelling allowance for performing office duty Tk. 20,000, Conveyance allowance Tk.48,000 and
Furniture allowance Tk.30,000.
House property income:
House-X-total rent Tk.80,000
House -Y -total rent Tk.60,000

Page | 47
Interest income:
Interest on FDR (gross) –Tk.80,000 (applicable withholding tax rate-10%). She borrowed
Tk.10,00,000 from bank for investment in FDR and during the year, she paid interest Tk.1,20,000
against the borrowed money.
Interest on Savings Certificate (net)- Tk.95,000 (applicable withholding tax rate -5%)
Agriculture income:
Ms. Marium grows paddy in her land. This year she earned Tk.1,20,000 by selling paddy. She does
not maintain any books for agricultural activities.
Other information:
Short term capital gain Tk.20,000
Dividend income Tk.50,000(gross).
Donation to Rohingyas’ Welfare Fund-Tk.10,000
Investment in land- Tk.2,00,000 and Investment in Shares – Tk.1,00,000
Investment in Mutual Fund – Tk.60,000
Based on the above information, calculate total income, investment tax credit, tax liability and net tax
payable with return for the assessment year 2017-18. Please make assumptions where necessary
information is not available. 15
Name of the Assessee: Ms. Marium
Calculation of total income and tax liability
For the income year 2016-17 and Assessment year 2017-18
A] Computation of total income
Taka Taka Taka
a) Salaries income- Under Section 21
Basic salary- fully taxable 3,00,000
Entertainment allowance- fully taxable 60,000
Servant allowance- fully taxable 36,000
Travelling allowance for performing office duty-
Less: Exempted upto actual expenses (assume that actual spent is
Taka 20,000)
20,000
(20,000) -
Conveyance allowance
Less: Exempted
48,000
(30,000) 18,000
Furniture allowance- fully taxable 30,000
Income from salary 4,44,000
b) Income from house property
House-X- total rent 80,000
House-Y- total rent 60,000
Annual value ( assume that municipal value is equal to actual rental
income)
1,40,000
Less: Repair and maintenance ( 25% of annual value)- (assume that
the houses are used for residence purpose) (35,000)
1,05,000

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d) Agriculture income
Proceeds from sale of crops 1,20,000
Less: Cost of production (60% of sale proceeds as he did not
maintain any books of accounts) (72,000)
48,000
e) Capital gain
Short term capital gain 20,000
f) Income from other sources
Interest on Savings Certificate (Taka 95,000/95X100)
(This income falls under final settlement of tax liability as per
Section-82(C))
Interest on FDR
80,000 100,000
Less: Interest paid on borrowed money (120,000)
(40,000)
Dividend income
Less: Exemption(assume that dividend has been received
from a listed Company)
50,000
(25,000) 25,000
85,000
Total income 7,02,000
Classification of total income:
i)Total income other than income assessable U/S- 82(C ) 6,02,000
ii) Income assessable U/S 82C 1,00,000
B] Investment allowance for tax credit:
Investment in shares 100,000
Investment in mutual fund 60,000
Actual investment 160,000
25% of total income other than income assessable U/S 82C 1,50,500
Therefore, allowable investment allowance
(Lower of actual investment, 25% of total income and Taka
15 million)
1,50,500
C] Tax liability
Tax on total income other than income assessable U/S-
82C
On initial Taka 3,00,000 @ 0% 0
On next Taka 3,02,000 @ 10% 30,200
Gross tax liability 30,200
Less: Investment tax credit ( 150,500 X 10%) (15,050)
15,150
Add: Tax on income assessable U/S 82C 5,000
Total Tax liability 20,150
Less: Tax already paid ( 5,000+8,000+5,000) (18,000)
Net tax liability 2,150

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Note:
i. Ms. Marium is a woman and thus her initial exemption limit will be Taka 3,00,000.
ii. Loss under the head other income can be set off against the income of other heads of income.
Question No. 6:
a) Mention five deficiencies of current VAT system of Bangladesh. 4
b) Define the terms “Goods” and “Services”. What is the difference between First and Second
Schedules of VAT Act 1991? 4+4=8
The current VAT system of Bangladesh has many deficiencies and limitations. Five of them are described
below:
 The standard rate of VAT is 15%. Despite that there are multiple tax rates prevail in the current VAT
system due to introduction of “truncated base” for services. This creates limitation on tax neutrality
and equality.
 The beauty of the VAT system is enjoying input tax credit. But input tax credit cannot be taken in
many occasions. As a result, tax on tax happens significantly.
 In addition to the regular books of accounts, separate books of accounts are to be maintained by the
VAT registered persons. This invites duplication of works and increase higher compliance cost.
 In the current system, the current account balance must be positive to issue VAT invoice. This
implies that VAT is to pay in advance. This is unusual in the context of good VAT system.
 The laws and regulations relating to VAT are very unorganized and scattered. There are many
conflicts and contradictions among different provisions of the law.
As per VAT law, “Goods” means all kinds of movable property excluding shares, stock, coin, security and
recoverable claim. In general term, goods are the items which are tangible and can be delivered to
customers. For example- rice, car, sugar etc. On the other hand, services are intangible but identifiable
activities performed for others to provide solution on specific matters. For example, audit service, tax
service, transport facility etc.
Difference between First and Second Schedules:
The First Schedule of VAT Act-1991 is a list of goods those are excluded from VAT net. That is, goods
which are included in the First Schedule are VAT exempted items. Such as – living animals, seeds for
cultivation, vegetable etc. On the other hand, the Second Schedule of VAT Act-1991 is a list of services
those are excluded from VAT net. That is, services which are included in the Second Schedule are VAT
exempted items. Such as – Social welfare related services like service of education institutions, research
institutions etc.
Question No. 7:
On January, 2016, ABC Ltd. imported raw materials of school bags for Tk.100,000 and sold it to MNO
Ltd. for Tk.120,000. Using these materials, MNO Ltd. made 150 pieces of school bags and sold it to
Rahman & Brothers, a wholesaler, for Tk.170,000. Rahman & Brothers sold the bags to a retail seller
Sattar International for Tk.200,000. Sattar International sold all the bags to various customers for
Tk.250,000. In each case and each stage 15% VAT is to be considered.
Compute VAT in each case. 8

Page | 50
Answer to the Question No. 7
Stage Particulars Purchase price/
Input value (Tk.)
Value
Addition
(Tk.)
VAT @
15% (Tk.)
1 Import of raw materials by ABC Ltd. 100,000 100,000 15,000
2 Sale of raw materials to MNO Ltd. 120,000 20,000 3,000
3 Sale of school bags to Rahim &Brothers, a
wholesaler 170,000 50,000 7,500
4 Sale of school bags to Sattar International, a
retailer 200,000 30,000 4,500
5 Sale of school bags to customers 250,000 50,000 7,500
Total 250,000 37,500
iii. So, the total VAT amount is Tk.37,500 which is ultimately borne by the final consumer.

Page | 51
BUSINESS & COMMERCIAL LAW
Suggested Answer
Nov-Dec 2017
Question No. 1:
a) What are the advantages of Partnership over Company? List them down. 8
b) A & B agree to share profits of the business carried out by them but do not state anything in the
Deed about sharing of losses. Is it a valid partnership? 3
Advantage of Partnership over a Company:
1. For the creation of partnership just an agreement between various persons is all what you require. In
case of a company a lot of procedural formalities which have to be gone through before a company
is created.
2. The partners are their own masters for regulating their affair. A company is subject to a lot of
statutory control.
3. For dissolution of partnership, a mere agreement between the partner is enough But that is not the
case of a company which can be wound up by only after certain set of procedure is followed.
4. Since all the profits are to be pocketed by the partners in a partnership firm, there is a great incentive
for the partners to make business successful But that is not in case of a company.
5. In a Partnership the persons who have entered into are individually called partners and collectively a
firm. A partnership firm does not have a separate legal personality. A company is a legal entity
different from its members.
6. A partnership firm means all the partners put together, if all the partners cease to be partners, e.g., all
of them die or become insolvent, the partnership firm gets dissolved. A company being a person
different from the members, the members may come and go but the company’s life is not affected
thereby.
7. The shareholder of a company can transfer his share to anybody he likes but a partner cannot
substitute another person in his place unless all the other partners agree to the same. Similarly, on the
death of a member of a company his legal representatives will step into his shoes for the purpose of
the rights in the company, but on the death of a partner his legal representatives do not get
substituted in his place of partnership.
8. The minimum number of members in partnership in two and maximum in case of partnership
carrying on banking business is 10 and in case of any other business is 20.In the case of a private
company the minimum number is 2 and the maximum is 50 whereas in the case of a public company
the minimum number should be 7 but there is no limit to the maximum number and therefore, any
number of persons can hold shares in a public company.
9. The liability of the members of a company is limited but the liability of the partners is unlimited.
Sharing of losses is a consequence of partnership rather than a test of partnership. Losses are not
mentioned in the definition of Partnership Act. But in determining whether a partnership exits or not, the
court must take into account how losses are shared. Partners may agree that one or more of them shall not
be liable for losses. But such an agreement will be binding only among themselves. All the partners will
be liable to third parties for debts of the firm.

Suggested Answers- Certificate Level (Nov-Dec 2017)

Suggested Answers- Certificate Level (Nov-Dec 2017)

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