The document is a 4 page exam for a financial accounting course. It includes 5 questions testing various accounting concepts. Question 1 involves accounting for various financial instruments and investments. Question 2 covers accounting for dividends, authorization of financial statements, and accounting issues that arose after year-end. Question 3 provides a trial balance and asks students to prepare key financial statements. Question 4 discusses segment reporting required for listed companies. Question 5 is a consolidation question involving the acquisition of subsidiaries.

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FINANCIAL ACCOUNTING
Time allowed – 3 Hours
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 manner in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence.]
Marks
1. (a) Nirman Ltd had the following transactions in financial instruments in the year ended 31 December 2013:
(i) Purchased 4% debentures in MC Ltd on 1 January 2013 (their issue date) for Tk 100,000 as an
investment. Nirman decided to hold them until their redemption after six years at a premium of 17%.
TransactioncostsofTk2,000wereincurredonpurchase.Theinternalrate of return ofthebondis6%.
(ii) Entered into a speculative interest rate option costing Tk 7,000 on 1 September 2013 to
borrow Tk 5,000,000 from GF Bank commencing 31 March 2014 for six months at 5.5%. Value
of the option at 31 December 2013 was Tk 13,750.
(iii) Purchased 25,000 shares in EG Ltd in 2012 for Tk 2.00 each as an available-for-sale financial
asset. Transaction costs on purchase or sale are 1% of the purchase/sale price. The share price
on 31 December 2012 was quoted at Tk 2.25-Tk 2.28. Nirman sold the shares on 20 December
2013 for Tk 2.62 each.
(iv) Sold some shares in BM Ltd ‘short’ (i.e. sold shares that were not yet owned) on 22 December
2013 for TK 24,000 (the market price of the shares on that date) to be delivered on 10 January
2014. The market price of the shares at 31 December 2013 was Tk 28,000.
Requirement:
Show the accounting treatment of these transactions and relevant extracts from the financial
statements for the year ended 31 December 2013. 16
(b) On 25 September 2013, further to a decision made earlier in the year by the Board of directors,
Hometex Ltd announced publicly a decision to reduce the level of harmful emissions from its
manufacturing plants.
The directors had reached their decision to proceed with the project after appraising the investment
using discounted cash flow techniques and an annual discount rate of 8%.The directors estimated that
the future cash payments required to meet their stated objective would be:
 Tk 20 million on 30 September 2014
 Tk 25 million on 30 September 2015
 Tk 30 million on 30 September 2016
No contracts were entered into until after the start of the new accounting year on 1 October 2013,
however the entity has a reputation of fulfilling its financial commitments after it has publicly
announced them. Hometex Ltd included a provision for the expected costs of its proposal in its
financial statements for the year ended 30 September 2013. The actual expenditure in September
2014 was Tk 20 million as expected.
The average remaining useful lives of the factories on 30 September 2013 (the reporting date) was
30 years and depreciation is computed on a straight line basis and charged to cost of sales.
Requirements:
(i) Compute the appropriate provision in the statements of financial position in respect of the
proposed expenditure at 30 September 2013 AND 30 September 2014 and explain why the
directors decided to recognize the provision. 5
(ii) Compute the two components of the charge to profit in respect of the proposal for the year
ended 30 September 2014. You should explain how each component arises and identify where
in the statement of comprehensive income each component is reported. 5
2. (a) The management of a company completed draft financial statements for the year-ended 31
December 2013 on 15 January 2014. On the 19 January 2014, the board of directors reviewed and
approved the financial statements for recommending the same for adoption in the AGM. The
board had no issues with the financial statements and directed the management of the company
to allow the financial statements to be issued to relevant and interested parties. The company

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announced its results on 20 January 2014. The financial statements were made available to
shareholders and others on 1 February 2014. The shareholders approved the financial statements
at the company’s annual general meeting on 15 February 2014. The approved financial statements
were then filed with the RJSC on 1 March 2014.
Requirement:
Outline and explain which date the financial statements are authorized for issue. 2
(b) In relation to the information provided in part (a), Board of the company decided to propose a
dividend on 19 January 2014.
Requirement:
Should the company record the dividend in the financial statements for the yearended 31
December 2013? Justify your answer. 3
(c) The following issues have arisen in Ding Dong Limited, a pharmaceutical company, whose financial
year-end is 31 December:
(i) On 20 December 2013, Ding Dong Limited was involved in a court case with a customer who
sued the company for delivering products where there was a dispute over the exact
ingredients included in the products manufactured by Ding Dong. These products were
delivered to the customer in October 2013. The details of the case were heard by 22
December but the judge decided to reserve his judgment until 8 January 2014. On 8 January
2014, the judge ruled in favour of the customer, awarding it damages of Tk.100,000. 3
(ii) Ding Dong Limited has an investment worth Tk.1,000,000 in its financial statements at 31
December 2013. Due to the continuing recession, the investment reduced in value to
Tk.900,000 by 15 January 2014. 3
(iii) On 8 January 2014, one of the accountants left the company suddenly. On further
investigation, Ding Dong Limited realized that this employee had been paying himself money
from the bank account in relation to false rental invoices. The amount of the overpayment was
found to be Tk.86,000. With the help of the police, the accountant was tracked down, and he
repaid all the money on 18 January 2014. 3
(iv) On 10 January 2014, Ding Dong Limited sold some inventory for Tk.80,000. This inventory had
been included in the year-end inventory count at cost of Tk.100,000. 3
Requirement:
Prepare a briefing note for management, in which you outline the proper accounting treatment of
each of the above issues (i) to (iv), so as to ensure that the financial statements are prepared in
accordance with IFRS.
3. The following trial balance relates to Fresco at 31 March 2014:
Tk’000 Tk’000
Equity shares of 50 paisa each (note (i)) 45,000
Share premium (note (i)) 5,000
Retained earnings at 1 April 2013 5,100
Leased property (12 years) – at cost (note (ii)) 48,000
Plant and equipment – at cost (note (ii)) 47,500
Accumulated amortization of leased property at 1 April 2013 16,000
Accumulated depreciation of plant and equipment at 1 April 2013 33,500
Inventory at 31 March 2014 25,200
Trade receivables (note (iii)) 28,500
Bank 1,400
Deferred tax (note (iv)) 3,200
Trade payables 27,300
Revenue 350,000
Cost of sales 298,700
Lease payments (note (ii)) 8,000
Distribution costs 16,100
Administration expenses 26,900
Bank interest 300
Current tax (note (iv)) 800
Suspense account (note (i)) 13,500
500,000 500,000

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The following notes are relevant:
(i) The suspense account represents the corresponding credit for cash received for a fully subscribed
rights issue of equity shares made on 1 January 2014. The terms of the share issue were one new
share for every five held at a price of 75 paisa each. The price of the company’s equity shares
immediately before the issue was Tk1·20 each.
(ii) Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its leased property on 1
April 2013.The Directors accepted the report of an independent surveyor who valued the leased
property at Tk36 million on that date. Fresco has not yet recorded the revaluation. The remaining
life of the leased property is eight years at the date of the revaluation. Fresco makes an annual
transfer to retained profits to reflect the realization of the revaluation reserve. In Fresco’s tax
jurisdiction the revaluation does not give rise to a deferred tax liability.
On 1 April 2013, Fresco acquired an item of plant under a finance lease agreement that had an
implicit finance cost of 10% per annum. The lease payments in the trial balance represent an initial
deposit of Tk2 million paid on 1 April 2013 and the first annual rental of Tk6 million paid on 31
March 2014. The lease agreement requires further annual payments of Tk6 million on 31 March
each year for the next four years. Had the plant not been leased it would have cost Tk25 million to
purchase for cash.
Plant and equipment (other than the leased plant) is depreciated at 20% per annum using the
reducing balance method.
No depreciation/amortization has yet been charged on any non-current asset for the year ended
31 March 2014. Depreciation and amortization are charged to cost of sales.
(iii) In March 2014, Fresco’s internal audit department discovered a fraud committed by the
company’s credit controller who did not return from a foreign business trip. The outcome of the
fraud is that Tk4 million of the company’s trade receivables have been stolen by the credit
controller and are not recoverable. Of this amount, Tk1 million relates to the year ended 31 March
2013 and the remainder to the current year. Fresco is not insured against this fraud.
(iv) Fresco’s income tax calculation for the year ended 31 March 2014 shows a tax refund of Tk2·4
million. The balance on current tax in the trial balance represents the under/over provision of the
tax liability for the year ended 31 March 2013. At 31 March 2014, Fresco had taxable temporary
differences of Tk12 million (requiring a deferred tax liability). The income tax rate of Fresco is 25%.
Requirements:
(a) (i) Prepare the statement of comprehensive income for Fresco for the year ended 31 March 2014. 7
(ii) Prepare the statement of changes in equity for Fresco for the year ended 31 March 2014. 7
(iii) Prepare the statement of financial position of Fresco as at 31 March 2014. 7
(b) Calculate the basic earnings per share for Fresco for the year ended 31 March 2014. 6
4. The directors of ACB have agreed as part of their strategic plan to list the entity’s equity shares on the
local stock exchange.
At a recent Board meeting, the directors discussed, in overview, the additional compliance that would be
required upon listing. This included compliance with the requirements of IFRS 8 Operating Segments. The
managing director commented that adherence to the requirements of IFRS 8 would be time consuming and
costly due to the additional financial information that the entity would have to prepare.
Requirements:
(i) Discuss whether the managing director’s comment is accurate in respect of the operating segment
analysis that is required in accordance with IFRS 8. 5
(ii) Explain why the information that is presented for operating segments is likely to be highly relevant
to investors. 5
(iii) Discuss the potential limitations of operating segment analysis as a tool for comparing different
entities. 5

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5. ABC Ltd., a listed company, entered into an expansion programme on 1st October 2013. On that date
the company purchased from PQR Ltd. its investments in two private limited companies. The purchase
was of:
(a) the entire share capital of Cold Ltd., and
(b) 50% of the share capital of Hot Ltd.
Both the investments were previously owned by PQR Ltd. After acquisition by ABC Ltd., Hot Ltd. was to
be run by ABC Ltd. and PQR Ltd. as a jointly controlled entity.
ABC Ltd. makes its financial statements upto 30th September each year. The terms of acquisition were:
Cold Ltd.
The total consideration was based on price earnings ratio (P/E) of 12 applied to the reported profit of
Tk.20 lakhs of Cold Ltd. for the year ended 30 September 2013. The consideration was settled by ABC
Ltd. issuing 8% debentures for Tk.140 lakhs (at par) and the balance by a new issue of Tk.1 equity
shares, based on its market value of Tk.2.50 each.
Hot Ltd.
The market value of Hot Ltd. on 1st October 2013 was mutually agreed as Tk.375 lakhs. ABC Ltd. settled its
share of 50% of this amount by issuing 75 lakhs Tk.1 equity shares (market value Tk.2.50 each) to PQR Ltd.
ABC Ltd. has not recorded in its books the acquisition of the above investments or the discharge of the
consideration.
The summarized statements of financial position of the three entities at 30th September 2014 are:
ABC Ltd. Cold Ltd. Hot Ltd.
Assets:
Tangible assets 34,260 27,000 21,060
Inventories 9,640 7,200 18,640
Debentures 11,200 5,060 4,620
Cash - 3,410 40
55,100 42,670 44,360
Liabilities:
Equity capital:
Tk.1 each 10,000 20,000 25,000
Retained Earnings 20,800 15,000 4,500
Trade and other payables 17,120 5,270 14,100
Overdraft 1,540 - -
Provision for taxes 5,640 2,400 760
55,100 42,670 44,360
The following information are relevant:
(a) The book values of the net assets of Cold Ltd. and Hot Ltd. on the date of acquisition were
considered to be a reasonable approximation of their fair values.
(b) The current profits of Cold Ltd. and Hot Ltd. for the year ended 30th September 2014 were Tk.80 lakhs
and Tk.20 lakhs respectively. No dividends were paid by any of the companies during the year.
(c) Hot Ltd., the jointly controlled entity, is to be accounted for using proportionate consolidation, in
accordance with relevant BFRS.
(d) Goodwill in respect of the acquisition of Hot Ltd. has been impaired by Tk.10 lakhs at 30th
September 2014.
Gain on acquisition, if any, will be accounted for separately.
Prepare the consolidated Balance Sheet of ABC Ltd. and its subsidiaries as at 30th September 2014. 15