Accounting

1. FINANCIAL ACCOUNTING
Time Allowed - 2½
Total Marks – 100
[N.B - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]
Marks
1. a) What are the bases of accounting? Compare their advantages and disadvantages. 4
b) Discuss inherent limitations of financial statements 2
c) What is meant by true and fair view? 2
d) What are not for-profit entities? List 6 (six) such entities. 4
e) Explain the concept of “substance over form” with examples. 3
f) When different items of the financial statements are recognized? Discus their recognition principles. 3
g) What are the purposes of setting accounting standards? 2
2. The following information are quoted from different clients of Key and Kiam, a Chartered Accountants firm.
You are appointed as 'Audit and Assurance Manager'. The senior partner advised you to prepare the accounting
treatment for the clients in line with the IFRS/IAS standards.
i) On 1-4-2009 Green House Lld. had sold some of its office equipment for Tk. 100 lakhs, Their written down
value was Tk. 250 lakhs. These assets were revalued earlier. As on 1-4-2009 the revaluation reserve
corresponding to these assets stood at Tk. 200 lakhs. The profit on sale of property was Tk. 20 million. 6
ii) A company has reported Land and building of Tk. 2,500.000 and accumulated depreciation of Tk 80,000.
The Company sold a piece of land for Tk. 10 lakhs at the beginning of the year (The only land and
buildings owned are the company's office and the surrounding land). All the company's land was purchased
20 years ago at a cost of Tk. 5 lakhs. The land sold represented 10% of the land owned by the company.
Capital gain on sale of land is included in other income. Company charges depreciation on building @ 2%
on written down value. No depreciation is charged for the year ended on 30 September 2010. 6
iii) X Ltd. reported in the current year a sum of Tk. 100 lakhs representing royalty receivable for supply of
know how to a company in Sri Lanka. As per agreement the amount is to be received in US Dollars.
However, exchange permission was denied to the company in Sri Lanka for remitting the same. 6
iv) Green House Ltd. purchased some machinery costing Tk. 1,825 lakhs on 1-4-2009 and the same was fully
financed by foreign currency loan (i.e.US Dollars) repayable In five equal installments annually (Exchange
rate at the time of purchase was US $ 1= Tk. 64.50). As on 31-3-2010 the first installments was paid when
US $ I fetched Tk. 69.50. The entire loss on exchange was included in operating expenses. Green House
Ltd. normally provides depreciation on machinery at 20% on WDV basis. 6
3. You are an articled student of KK Choudhury & Co. Chartered Accountants. The firm has been appointed by
PQS & Associates to prepare its financial statements. You have been asked to prepare financial statements of
the company for the year ended on 31 December 2009. PQS & Associates does not have proper books of
accounts except the following records:
The Company keeps copies of all invoices in respect of credit sales and mark each copy with the date of
payment. The Accountant of the company informs you that all taking both cash and credit are paid into the bank
except that the directors occasionally withholds certain sums, both for personal use and petty cash expenses
which he notes in a note book.
Analysis of the passbook reveal the following total amount pain into the bank Tk. 478,000
The following expenditure were made during the year under review:
Drawings by the directors Tk. 30,000
Purchases for the year Tk. 364,000
Salaries Tk. 25,000
Rent Tk. 20,000
Electricity bills Tk. 5,000
Printing and Stationeries Tk. 2,500
Advertising Tk. 7,500
Please turn over

2. - 2 -
The cash at bank as 31 December 2009 Tk. 4,000.
The drawings be the directors of PQS & Associates are 20,000 and the company made petty cash expenses of
Tk. 3,000. Security of the copy of invoices shows that Tk. 22,500 was paid into the bank during the year 2009 in
respect of sales during 2008 and Tk. 46,750 in outstanding in respect of 2009 sales. Four invoices totaling Tk.
4,250 have been marked “Irrecoverable”.
31 Dec. 2008 31 Dec. 2009
Purchases Tk. 24,000 Tk. 35,000
Rent Tk. 1,000 Tk. 1,000
Electric Light Tk. 200 Tk. 150
Advertising -- Tk. 2,500
The closing stock was Tk. 35,000 (at cost) but the company has no record of stock as on 1-10-2009. The
accountant informs you, however, that they invariably sells the goods at cost plus 25%. 16
4. Porsche Ltd has the following non-current assets at January 20X7.
Cost Accumulate Depreciation Carrying amount
Taka Taka Taka
‘000 ‘000 ‘000
Freehold Factory 1,440 144 1,295
Plant and equipment 1,968 257 1,711
Motor Vehicles 449 194 255
Office equipment and fixtures 888 583 305
4,745 1,178 3,567
You are given following information for the year ended 31 December 20X7.
(1) The factory was acquired on 1 January 20X2 and being depreciated over 50 years.
(2) Depreciation is provided on cost on a straight-line basis. The rates is 20% for office equipment and
fixtures, 25% for cars and 10% for Plant & equipment.
(3) On January 20X7 the factory was revalued to an open market value of Tk.2.2 million and an extension
costing Tk. 500,000 became available for use.
(4) The director decided to change the method of depreciating motor vehicles to 30% reducing balance to give
more relevant presentation of the results and of the financial position.
(5) The two cars costing Tk.17,500 each were bought on 1 January 20X7. Plant and fixtures for the factory
extension cost Tk.75,000 and Tk. 22,000 respectively.
(6) When reviewing the expected lives of its non current assets, the directors felt that it was necessary to
reduce the remaining life of a two year old grinding machine to four years when it is expected to be sold
for Tk.8,000 as scrap. The machine originally cost Tk.298,000 and at 1 January 20X7had related
accumulated depreciation of Tk. 58,000.
Requirement:
Prepare the disclosure notes for property, plant and equipment for the year ended 31 December 20X7 required
by BFRSs. 20
5. The balance sheet and income statements for Crawford Ltd and Dietrich Ltd are given below:
Balance sheet as at 30 June 2010
Crawford Ltd Dietrich Ltd
Taka Taka
ASSETS
Non-current assets
Property, plant and equipment 27,000 12,500
Investments (2,000 Tk. 1 Shares in Dietrich Ltd at Cost) 2,000 -
29,000 12,500
Current Assets 25,000 12,000
Total Assets 54,000 24,500
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EQUITY AND LIABILITIES
Capital and reserves
Ordinary Share Capital 20,000 3,000
Share premium account 6,000 --
Retained earnings 9,000 14,000
Equity 35,000 17,000
Non-current liabilities 12,000 --
Current liabilities 7,000 7,500
Total equity and liabilities 54,000 24,500
Crawford Ltd acquired share in Dietrich Ltd five years ago when Dietrich earnings were nil. At the start of the
current year retained earnings were Tk. 2,000 and Tk. 4,000 respectively.
Income Statement for the year ended 30 June 2010
Crawford Ltd Dietrich Ltd
Taka Taka
Revenue 24,000 30,000
Cost of Sales (9,000) (11,000)
Gross profit 15,000 19,000
Distribution costs (2,300) (1,300)
Administrative Expenses (1,500) (2,700)
Profit from operations 11,200 15,000
Finance costs (1,200) --
Profit before tax 10,000 15,000
Tax (3,000) (5,000)
Profit for the period 7,000 10,000
Requirements
a) Briefly explain the objectives of producing group accounts. 3
b) Prepare for Crawford Ltd, the consolidated income statement and the statement of changes in equity (in so
far as it relates to retained earnings and the minority interest) for the year ended 30 June 2010 and the
consolidated balance sheet at that date. 17
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