TABANI’S SCHOOL OF ACCOUNTANCY

MOCK-2 CAF-1
FINANCIAL ACCOUNTING AND REPORTING-I Friday: 04 February 2022
Time Allowed: 2.30 Hours (additional reading time 15 minutes) Maximum Marks: 75
Marks

Q.1. Feast Ltd has prepared the following accounts for the year ended 31 December 2014. (18)

Rs. in ‘000 Rs. in ‘000

31 December 31 December
2014 2013 2014 2013
Share capital 3,480 2,800 Land & Building 8,200 7,600
Share premium 2,112 1,800 Plant, machinery and equipment 5,100 3,500
Retained earning 9,606 7,972 Investments – short term 2,650 2,218
Surplus on Revaluation 702 438 Inventories 2,680 1,990
Long-term loan (10%) 1,240 1,800 Debtors 2,580 1,992
Creditors 1,202 1,016 Bank - 1,200
Accrued expenses 526 402
Overdraft 222 -
Provision for Taxation 1,730 2,038
Payable dividends 390 234
21,210 18,500 21,210 18,500

Rs.000
Statement of comprehensive income 2014
Sales revenue 14,640
Cost of goods sold 8,579
Gross profit 6,061
Distribution costs (402)
Administration expenses (882)
Financial charges (152)
(1,436)
Operating profit before tax 4,625
Taxation (1,531)
Profit after tax 3,094

The following data is relevant:

(1) Plant and equipment with a written down value of Rs.276,000 was sold for Rs.168,000. New
plant was purchased for Rs.2,500,000.

(2) Land & Building costing Rs.1,300,000 were acquired during the year.

(3) The 10% long-term loan were repaid / redeemed at par on 1st December 2014.

(4) Bad debts written off during Rs.50,000. Bad debts provision is made @5% each year.

(5) Incremental depreciation charged to retained earning Rs.65,000 and revaluation is relating to
plant & machinery only.

Required:
Prepare the cash flow statement and supporting notes in accordance with IAS-7 using Direct
Method.

From the desk of Sir Sharif Tabani/Sir Majid Masood / Sir Abeel Ahmed Page 1 of 5
FINANCIAL ACCOUNTING AND REPORTING-I – MOCK-2
SCHOOL OF
Q.2. Mr. & Mrs. Sameer purchased a wholesaler shoe business on 1 st July 2020. They formed a limited
company and both Mr.Sameer and his wife paid Rs.20,000 into a bank account as share capital and
borrowed Rs.30,000 from an uncle at a mark-up of 12%. The result of the first year’s trading are
summarized as follows:

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30TH JUNE 2021
Rs. Rs.
Sales 150,000
Stock acquired, 1st July 2020 18,000
Purchases 111,000
129,000
Less: Closing stock 24,000 105,000
45,000
Rent, rates, heat & light 1,500
Advertising 1,000
Van expenses 1,400
Interest paid 3,600
Depreciation 2,000
Director’s Salaries (Mr. & Mrs. Sameer) 13,000 22,500
Net Profit 22,500

BALANCE SHEET AS AT 30TH JUNE 2021

Rs. Rs. Rs.
Ordinary shares of Rs.1 each 40,000 Warehouse at Cost 50,000
Retained profit 22,500 Less: Depreciation 600
62,500
49,400
Loan from Uncle 30,000 Equipment cost 4,000
Creditors 6,000 Less depreciation 200 3,800
Van at cost 6,000
Less depreciation 1,200 4,800
58,000
Stocks 23,000
Debtors 15,000
Bank 2,500 40,500
98,500 98,500

Mr. & Mrs. Sameer seek your opinion on the above results. You ascertain that the salaries paid to Mr. &
Mrs.Sameer are reasonable in relation to the duties performed and that the average results of similar
business in the same trade are as follows:
Gross profit to sale 35%
Stock turnover rate 7 times
Net profit to Sales 18%
Current Ratio 4:1
Quick Ratio 2:1
Debtors Ratio 12 times
Creditors Ratio 24 times
Long term debt to total assets 35%
Return on net assets 40%

Required:
(a) Calculate for Mr. & Mrs. Sameer’s business the ratio’s given above, showing the basis of year (08)
calculation.
(b) Comment on the results of your investigation into the first year’s figure of the business. (07)
From the desk of Sir Sharif Tabani/Sir Majid Masood / Sir Abeel Ahmed Page 2 of 5
FINANCIAL ACCOUNTING AND REPORTING-I – MOCK-2
SCHOOL OF
Q.3. Select the most appropriate answers(s) from the options available for each of the following Multiple Choice
Questions (MCQs).
(1) Fine Limited (FL) received a Rs.10 million loan at 7.5% on 1 April 2017. The loan was specifically
issued to finance the building of a new store.
Construction of the store commenced on 1 May 2017 and it was completed and ready for use on 28
February 2018 but did not open for trading until 1 April 2018.
How much interest should be capitalised as part of property, plant and equipment as at 31 March
2018?
(a) Rs. 250,000
(b) Rs. 750,000
(c) Rs. 125,000
(d) Rs. 625,000 (01)
(2) Shine Limited (SL) had the following bank loans outstanding during the whole of 2018:
Rs. m
9% loan repayable 2019 15
11% loan repayable 2022 24
SL began construction of a qualifying asset on 1 April 2018 and withdrew funds of Rs. 6 million on
that date to fund construction. On 1 August 2018 an additional Rs. 2 million was withdrawn for the
same purpose.
Calculate the borrowing costs which can be capitalised in respect of this project for the year ended
31 December 2018
(a) Rs. 545,600
(b) Rs. 472,350
(c) Rs. 750,600
(d) Rs. 350,350 (01)

(3) Which of the following is not the operating activities?

(a) Interest paid
(b) Cash payments of income taxes
(c) Collections from customers
(d) Payment of dividends (01)

(4) An asset is expected to generate cash inflows of Rs.20,000 per annum for each of the next three years
and then to be scrapped. These cash inflows will occur at the end of each year. The asset will generate
no cash outflows. Using a discounting rate of 10% per annum, what is the asset’s value in use?

(a) Rs.60,000 (b) Rs.54,000

(c) Rs.49,720 (d) Rs.4,540 (01)

(5) A fire at the factory on 1 October 2016 damaged the machine, leaving it with a lower operating
capacity. The accountant considers that entity will need to recognise an impairment loss in relation to
this damage. The accountant has ascertained the following information at 1 October 2016:

 The carrying amount of the machine is Rs.60,750.

 An equivalent new machine would cost Rs.90,000.
 The machine could be sold in its current condition for a gross amount of Rs.45,000.
Dismantling costs would amount to Rs.2,000.
 In its current condition, the machine could operate for three more years which gives it a
value in use figure of Rs.38,685.
What is the total impairment loss associated with the above machine at 1 October 2016?
(a) Rs.nil (b) Rs.17,750
(c) Rs.22,065 (d) Rs.15,750 (01)
From the desk of Sir Sharif Tabani/Sir Majid Masood / Sir Abeel Ahmed Page 3 of 5
FINANCIAL ACCOUNTING AND REPORTING-I – MOCK-2
SCHOOL OF
(6) The following trial balance extract relates to a property which is owned by Maira Limited as at 1
April 2014.
Dr Cr
Rs. 000 Rs. 000

Property at cost (20 year original life) 12,000

Accumulated depreciation as at 1 April 2014 3,600

On 1 October 2014, following a sustained increase in property prices, Maira Limited

revalued its property to Rs. 10.8 million.
What will be the depreciation charge in Maira Limited’s statement of comprehensive
income for the year ended 31 March 2015?
(a) Rs. 540,000 (b) Rs. 570,000
(c) Rs. 700,000 (d) Rs. 800,000 (01)

Q.4. Stanburt Tools acquired a machine on 1 October 1998. Details of one of IT machines at 30 September (10)
2006 are given below:

Component Original cost ($m) Depreciation basis

Engine 170 Useful life of 40,000 hours
Outer casings 510 25 years straight-line
Other components of machine 255 12 years straight-line
765

During the year to 30 September 2007, the following events took place:

$’000
1. Engine, which had run for 30,000 hours till date developed serious snags It was 238.0
replaced by a better engine with estimated life of 50,000 hours and a cost of the
engine was used for 5,000 hours during the year. The engine was used for 5,000
hours during the year
2. Polishing and painting was done to the outer casing, costing 1.3
3. Other components were upgraded with a cost of 102.0

Remaining life of other components is 5 years.

For the purpose of depreciation calculations, assume that all the work mentioned above was completed at 1
October 2006.

Required:
Calculate the carrying amount of Stanburt’s machine at 30 September 2007 and its related expenditure in
the statement of comprehensive income for the year ended 30 September 2007. Explain the treatment of
each item.

Q.5. On 1 January 2014 ABC to borrowed Rs.3m to finance the production of two assets, both of which were (07p)
expected to take a year to build. Work started during 2014. The loan facility was drawn down and incurred
on 1 January 2014, and was utilized as follows, with the remaining funds invested temporarily.

Asset A Asset B
Rs’000 Rs’000
1 January 2014 500 1,000
1 July 2014 500 1,000

The loan rate was 9% and ABC Co can invest surplus funds at 7%.
From the desk of Sir Sharif Tabani/Sir Majid Masood / Sir Abeel Ahmed Page 4 of 5
FINANCIAL ACCOUNTING AND REPORTING-I – MOCK-2
SCHOOL OF

Required:
Calculate the borrowing costs which may be capitalized for each of the assets and consequently the cost of
each asset as at 31 December 2014.

Q.6. Awesome Limited (AL) purchased a machine for Rs.300,000 on 1 January, 2015. The machine has an (07)
estimated useful life of 8 years. On 31 December, 2017, the machine is now become obsolete and therefore
the value in use and fair value less cost to sell are Rs.50,000 and Rs.70,000 respectively.

Required:
Prepare journal entries to record thee above transactions from the date of acquisition of the plant to the
year ended 31 December 2017.

Q.7. The statement of profit or loss for the year ended 31 December 2016 relates to Shaheen Ltd. (12)

Rs. Rs.
Profit Before Tax 121,900
Less: Taxation 52,900
69,000
Less: Transfer to general reserve 5,750

Dividends:
Preference shares 1,380
Ordinary shares 2,070 (92,00)
Retained profit 59,800

1 January 2016, the issued share capital of Shaheen Ltd was 23,000 6% preference shares of Rs. 1 each
and 20,700 ordinary shares of Rs. 1 each.

Required
Calculate the basic and diluted earnings per share for the year ended 31 December, 2016 under the
following circumstances
(i) No change in the issued share capital.
(ii) The company made a bonus issue of one ordinary share for every four shares in issue at 30
September, 2016.
(iii) The company made a rights issue of shares on 1 October 2016 in the proportion of 1 for every 5
shares held at a price of Rs. 1.20. The middle market price for the shares on the last day of
quotation cum rights was Rs. 1.80 per share.

From the desk of Sir Sharif Tabani/Sir Majid Masood / Sir Abeel Ahmed Page 5 of 5