The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Certified Finance and Accounting Professional Stage Mock Examinations

23rd May 2022
3 hours – 100 marks
Additional reading time - 15 minutes

Advanced Accounting & Financial Reporting

Q.1 (a) On 1st June 2019 Mazda Limited (ML) ,granted to each of its senior management team either 130,000
shares in ML or a cash equivalent equal to the market price of 120,000 shares. The right is conditional on
the managers remaining in employment at ML until 31st May 2021.
ML reserves the right to choose whether to settle the scheme in cash or shares. However, in the past, ML
has always opted to settle similar schemes in cash. If the shares are issued, they must be held for 2 years
from 31st May 2021 before being sold.
ML share price was Rs. 1,700 on the 1st June 2019 and Rs. 1,800 on 31st May 2020. It rose to Rs. 1,850
on 20th June 2020, the date the financial statements were authorised for issue. The fair value of the shares
alternative was calculated at Rs. 1,620 Rs. 1,720 and Rs. 1,770 at the same dates respectively.
At 1st June 2019, there were 60 members of the senior management team and at grant date no member of
the team was expected to leave during the vesting period. However 4 managers left in May 2020 and as at
31 May 2020, a further 6 managers were expected to leave within a few months of the year end.
Required:
Explain the appropriate accounting treatment of the above transaction for the year ended 31 st May 2020 in
the books of ML. (08)
(b) On 1st October 2018 Suzuki Limited (SL) granted share options to 200 senior executives. The options will
vest on 30th September 2021 subject to the following conditions:
(i) Each executive will be entitled to 1,000 options if the cumulative profit in the three year period from
1st October 2018 to 30th September 2021 exceeds Rs.30 million. If the cumulative profit for this
period is between Rs.35 million and Rs. 40 million, then 1,500 options will vest. If the cumulative
profit for the period exceeds Rs. 40 million, then 2,000 options will vest.
(ii) If an executive leaves during the three year vesting period, then that executive would forfeit any
rights to share options.
(iii) Notwithstanding the above, no options will vest unless the share price at 30 th September 2021
exceeds Rs. 5.
Details of the fair values of the shares and share options at relevant dates are as follows:
Date Fair Value Per
Share Option
Rs. Rs.
st
1 October 2018 4.0 0.50
30th September 2019 4.40 0.60
30th September 2020 4.60 0.75
The estimate of the cumulative profit for the three-year period ending 30 September 2021 was revised
each year as follows:
Date Expected profit for the three-year period
Rs in million
1st October 2018 32
th
30 September 2019 39
30th September 2020 45
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On 1st October 2018, none of the relevant executives were expected to leave in the three year period from
1st October 2018 to 30th September 2021 and none left in the year ended 30th September 2019. However,
10 executives left unexpectedly on 30th June 2020. None of the other executives are expected to leave
before 30th September 2021.
SL correctly reflected this arrangement in its financial statements for the year ended 30th September 2019.
Required:
Discuss how the arrangement with senior executives must be accounted for in the books of SL and
Prepare Extracts of Statement of financial position as at 30th September 2020. (08)

Q.2 (a) Cherry Builders Limited (CBL) is a public unlisted company and engaged in development of housing
schemes. They are planning to launch a huge housing scheme in Gawadar. This scheme requires heavy
investments. Since CBL is unlisted, it is planning to finance the proposed project by bank financing. A
consortium of banks has shown interest in financing the project. Ahmed, a chartered accountant, who is
director finance of CBL is the lead negotiator with banks. Khubaib, an ACA, has recently joined CBL as
Manager planning and budgeting.
CBL is not making high profits for some time and Ahmed has been manipulating accounts to hide bad
performance as much as possible. Future survival of CBL is highly dependent on bank financing for new
project. For this purpose, Ahmed has told Khubaib to prepare a feasibility of project showing fabricated
handsome profits and cash flow position as he believes that only a highly profitable and cash rich project
would attract bankers. Ahmed also informed Khubaib that success of project financing would be a key
performance indicator for his job stability.
Required:
Briefly explain how Ahmed may be in breach of the fundamental principles of ICAP’s code of ethics.
Also state the potential threats that Khubaib may face under the circumstances, along with available
safeguards (if any). (07)
(b) Relevant balances of Volvo General Insurance Limited for the year ended 30 June 2021 are given below.
Opening Closing
‘Rupees in ‘000’
Outstanding claims 43,200 46,800
Prepaid reinsurance premium 31,500 32,400
Unearned premium reserve 66,600 64,800
Following information is available for Volvo General Insurance Limited for the year ended 30 June 2021.
Rs. in ‘000
Claims paid 54,900
Finance cost 4,050
Income tax expense 6,750
Investment income 17,100
Management expenses 23,400
Net commission and other acquisition expenses 11,700
Other expenses 5,400
Other income 810
Reinsurance premium ceded 27,000
Reinsurance and other recoveries revenue 36,000
Rental income 8,550
Share of profit from associate 1,890
Gain on investments -OCI 5,220
Written gross premium 117,000
Required:
Prepare statement of comprehensive income of Volvo General Insurance Limited for the year ended 30
June 2021 alongwith relevant notes. (09)
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Q.3 (a) On 1 November 2021, Elantra Limited (EL) entered into a contract with Peugeot Limited (PL) to
manufacture and sell 100 units of a specialized machine at a total consideration of Rs. 300 million. The
machines will be delivered in lots of 20 units at the end of each quarter. PL has paid 10% non-refundable
consideration in advance while the remaining consideration will be paid in five equal instalments, only
after delivery of each lot and not before.
The sales team of EL worked hard and spent 1600 hours costing Rs. 4 million for preparing proposal for
the contract. The team was also rewarded with a bonus of Rs. 6 million upon obtaining the contract.
Upto year ended 31 December 2021, EL had manufactured 15 units of the machine to be delivered on 31
January 2022.
EL’s CFO, a chartered accountant, has suggested that revenue for 15 units should be recognized in 2021
as the machines are of specialized nature and have no alternate use for EL. Further, the sales team cost
of Rs. 10 million should be taken to statement of profit or loss in 2021 as this has been fully recovered
through 10% advance received from PL.
Required:
Analyse the treatments suggested by the CFO in respect of the above contract. (06)
(b) Zotye Limited (ZL) , a hotel based in Pakistan had the following transactions during the year:
(i) On 31st March 2021, ZL signed a contract to supply 50,000 units of food packs at an agreed price of
Rs. 100 per unit. On the same day, 30,000 units were delivered, with the remainder delivered on 1st
June 2021. It was agreed that the customer would have extended credit terms of 12 months from the
date of delivery. ZL’s cost of capital is 10%.
(ii) During the year ended 31st March 2021, ZL received payment in advance for the supply of 2,000
hotel room-nights to customers at Rs. 1,000 per room per night. Only 400 of these had been
occupied by 31st March 2021. Customers are entitled to occupying the remaining 1000 room-nights
within the next six months. The amounts paid by the customers are non-refundable unless the
company fails to provide the agreed accommodation.
Required:
In each of the scenarios above, calculate the amount of revenue to be by ZL for year ended 31st March
2021, and explain the appropriate accounting treatment in accordance with IFRS 15. (06)
(c) On 1 January 2020, Haval Limited (“HL”) purchased 30,000 four year debentures issued by Oshaan
Limited (OL) at a premium of Rs. 0.5 per debenture with the intention to hold them till maturity i.e. 31
December 2023. The debentures will be redeemed at their par value of Rs. 10 per debenture. The
transaction costs associated with the purchase of the debentures were Rs. 0.1 per debenture. The coupon
interest rate is 12% per annum while the effective interest rate at the time of purchase was 10.1030%.
Interest for the year 2020 & 2021 was actually received. On 31st December 2021 due to certain financial
and liquidity issues and after due consultation with debentures holders OL restructured the payment plan
and terms of debentures was extended by one year. Further, annual three equal installments of Rs.128,000
(principal +interest) will be received at the end of each year by HL.
Required:
Accounting entries for the year ended December 31, 2021 in the books of HL. (06)
Q.4 The following information is presented in draft financial statements of Glory (GL) for the year ended
December 31st, 2021.
Rs. (in million)
Total Assets 90,000
Total Liabilities 34,000
Share Capital 30,000
Retained Earnings 23,500
Other Reserves 2,500
Profit Before Tax 9,450
While reviewing the financial statements, the following issues were noted by Director Finance of GL:
(i) GL has classified investment in Neutral Limited (NL) as an investment in associate and accounted
 Advanced Accounting & Financial Reporting |Page 4 of 5
for using equity method despite having no significant influence over NL.
On 1 February 2021, GL purchased 40,000 shares of NL representing 15% shareholdings at Rs. 80
per share. On 30 September 2021, NL announced interim cash dividend of Rs. 5 per share. NL
reported net profit of Rs. 2.4 million for the year ended.
31 December 2021. The fair value of each share of NL was Rs. 70 as on 31 December 2021.
(ii) Transaction cost incurred on bonds issued by GL was recorded as an asset and being amortized over
five years. Further, half of interest to be paid on 30 June 2022 has been accrued.
On 1 July 2021, GL issued 6,000 bonds of Rs. 1,000 each at a discount of Rs. 50 each with maturity
in five years. The transaction cost associated with the issuance of these bonds was Rs. 20 per bond.
The coupon interest rate is 11% per annum payable annually on 30 June. The approximate effective
interest rate was 13% per annum. Bonds are subsequently measured at amortized cost.
(iii) On 1 January 2021, GL loaned Rs.3 million to another entity. Interest of Rs.0.15 million is payable
annually in arrears. An additional final payment of Rs.3.829 million is due on 31 December 2023.
GL incurred direct costs of Rs.250, 000 in arranging this loan. The annual rate of interest implicit in
this arrangement is approximately 10%. GL has no intention of assigning this loan to a third party at
any time. This transaction is not recorded in the books at all.
(iv) In December 2021 GL sold some of its trade receivables to a debt factor. GL sold Rs. 40 million
receivables to a factor with the factor advancing 80% of the funds in full and final settlement. The
factoring is non-recourse except that GL has guaranteed that it will pay the factor a further 8% of
each receivable which is not recovered within six months. GL believes that its customers represent a
low credit risk and so the probability of default is very low. The fair value of the guarantee is
estimated to be Rs.50,000.This transaction has not yet been accounted for in the books of GL.
(v) GL issued a four year 12% convertible bond on 1 January 2021 for Rs.700, 000 and recorded the full
amount as loan liability. GL incurred issued costs of Rs 30,000 and debited in loan liability. The
convertible bond will be redeemed at its par value at the end of a four year period. The effective
interest of a similar bond without conversion rights was 14% p.a. The effect of the issue costs was to
increase effective interest rate to 15.879%. P.a.
Interest for the year to 31 December 2021 was paid at year end and recorded as an expense and it was
calculated at original par value of loan.
Required:
Determine the revised amounts of profit before tax, total assets, total liabilities & total equity (All equity
components separately) for the year ended December 31st, 2021 after incorporating the impact of above
adjustments. (20)
Q.5 The draft statements of financial position as at 31 December 2020 for Maybach Limited (ML) and its
investees Nissan Limited (NL) and Oppo Limited (OL) are as follows:
Statement of Financial Position as at 31 December 2020.
ML NL OL
Assets Rs.’m Rs.’m Rs’m
Non current
Property Plant and Equipment 500 225 210
Investment in:
NL 205
OL 165
870 225 210
Current assets 232 125 95
Total assets 1,102 350 305
Equity and Liabilities
Equity
Share Capital 50 25 25
 Advanced Accounting & Financial Reporting |Page 5 of 5
Retained Earnings 563 160 175
Other Reserves 189 55 50
802 240 250
Non current liabilities 175 63 30
Current liabilities 125 47 25
Total equity and liabilities 1,102 350 305
Further information:
1. ML had originally acquired 35% of NL’s equity on 1 January 2015 at a cost of Rs. 50 million when
NL’s retained earnings and other reserves amounted to Rs. 80 million and Rs. 10 million
respectively. The fair value of NL’s identifiable net assets on 1 January 2015 was equal to their
book values.
ML acquired a further 45% of NL’s equity on 1 January 2017 at a cost of Rs. 87 million when NL’s
retained earnings and other reserves amounted to Rs.105 million and Rs.15 million respectively.
The fair value of NL’s identifiable net assets on 1 January 2017 amounted to Rs.150 million. The
difference between the fair value and carrying amounts of NL’s net assets at that date was
attributable to plant and equipment which had a remaining useful economic life on 1 January 2017
was 10 years. The fair value of a 35% holding in NL’s equity on 1 January 2017 was Rs.68 million.
ML has adopted the ‘full goodwill’ policy in respect of the acquisition of NL and 20% holding in
NL’s equity had a fair value of Rs. 39 million on 1 January 2017.
2. ML acquired 60% of OL’s equity on 1 January 2019 at a cost of Rs.130 million when OL’s
retained earnings and other reserves amounted to Rs.140 million and Rs.22 million respectively.
The fair value of OL’s identifiable net assets on 1 January 2019 was Rs.200 million. The difference
between the fair value and carrying amounts of OL’s net assets at that date was attributable to plant
and equipment which had a remaining useful economic life on 1 January 2019 of 5 years.
ML has adopted the ‘proportionate goodwill’ policy in respect of the acquisition of OL and 40%
holding in OL’s equity had a fair value of Rs.87 million on 1 January 2019.
3. On 1 October 2020, ML disposed of a 5% holding in OL for cash proceeds amounting to Rs.15
million. Any gain or loss on disposal has been correctly accounted for in the separate financial
statements of ML. The carrying amount of ML’s investment in OL in the statement of financial
position above relates to the fair value of the remaining 55% holding at 31 December 2020. OL’s
profit and other comprehensive income for the year ended 31 December 2020 amounted to Rs.18
million and Rs.12 million respectively.
4. Both investment in NL and OL have been correctly classified as Fair Value Through Profit or Loss
(FVTPL) items in the separate financial statements of ML above in accordance with IFRS 9.
5. A review of investments in NL and OL as Cash Generating Units at 31 December 2020 shows that
their recoverable amounts at that date are Rs.265 million and Rs.255 million respectively.
6. OL’s inventory as 31 December 2020 includes goods bought from NL at a cost of Rs.20 million.
NL had invoiced these goods at a markup of 25%.
7. On 1 January 2020, ML sold a building which had a carrying amount on that date of Rs.50 million
to an unrelated third party for cash disposal proceeds amounting to Rs. 60 million when the fair
value of the building was Rs. 65 million. ML immediately leased back the building for a term of 10
years which was also the building’s remaining useful economic life at 1 January 2020. In above
draft statement of financial position, ML has derecognized the building and reported a gain on
disposal amounting to Rs. 10 million in its statement of profit or loss.
Under the lease back, ML pays an annual rent of Rs. 9.8 million in arrears (On 31 December each year).
The rent paid on 31 December 2020 has been charged as an expense in profit or loss and the interest rate
applicable on ML’s borrowings is 10% p.a.
Required:
Prepare the ML Group Consolidated Statement of Financial Position as at 31 December 2020. (30)
(The End)
 Advanced Accounting & Financial Reporting
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Certified Finance and Accounting Professional Stage – Mock Summer 2022

Answer: 1 (a)
This is a share-based payment transaction where the entity (ML) has a choice of settlement. IFRS 2 Share-
based Payment requires the transaction to be treated as cash-settled if there is a present obligation to settle
in cash. If there is no obligation, the transaction should be treated as equity settled.
Here, ML’s past practice of always settling in cash has created a valid expectation in employees that they
will receive cash. Therefore, there is a constructive present obligation for ML to settle in cash and ML
should account for the scheme as a cash settled transaction.
Cash-settled share-based payments are accounted for as follows:
 An expense should be recognised over the vesting period (2 years)
 A corresponding liability should be recorded in the statement of financial position
 The liability should be measured at fair value and this fair value updated each year end to give the
best estimate of amount to be paid
 Any expected leavers over the vesting period should be removed from the number of employees as
they will not receive the share-based payment (the best estimate at each year end should be used).
Calculation
The fair value of the liability at the year end is valued using the year end share price as this represents the cash
value at that date.
The liability as at 31 May 2020 and the corresponding expense to be recognised in profit or loss for the year
ended 31 May 2020 is calculated as follows:
[(60 managers – 10 leavers) x 120,000 shares x Rs1, 800 year end fair value x ½ vested] = Rs. 5, 400, 000,
000.
(b)
Amount included in statement of financial position at 30 September 2020.
Number/Amount
Explanation
Number of executives 190 Use expected number based on latest
estimates as a non-market vesting condition

Options vesting for each executive 2,000 Use expected number based on latest
estimates as a non-market vesting condition

Impact of expected share price None This is a market-based vesting condition

and is ignored for this purpose

Fair value of option Rs. 0·50 Use fair value on grant date per IFRS 2
Proportion vesting 2/3Two years through a three-year vesting period

Included in equity Rs. 126,667 (190 x 2,000 x Rs0.50 x 2/3)

Amount included in statement of profit or loss and other comprehensive income for the year ended 30
September 2020
Cumulative amount recognised in equity
at 30 September 2020 (see above) Rs.126,667
Amount recognised in previous year Rs (50,000) 200 x 1,500 x Rs.0·50 x 1/3
––––––––
So included in current year’s profit or loss Rs 76,667
 Advanced Accounting & Financial Reporting
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Certified Finance and Accounting Professional Stage – Mock Summer 2022
Answer: 2 (a)
Principles not followed by Ahmed:
Ahmed is not following objectivity and integrity (1.5 mark) as he has been manipulating accounts. He is
not preparing financial statements fairly and truthfully for which he was principally responsible. Moreover,
commanding another professional to present false financial information, Ahmed is not depicting
Professional behavior. (1 mark)
Threats faced by Khubaib:
Khubaib is facing Intimidation threat (1.5 mark) as Ahmed has made success of this proposal a condition
for his job stability.
Safegaurds: (3 marks)
Identified threat is significant as Khubaib is being instructed from the highest level of management. In
order to reduce the threat to an acceptable level, the following safeguards should be applied.
 Consult with superiors such as audit committee or those charged with governance or with a relevant
professional body.
 Where it is not possible to reduce the threat to an acceptable level, Khubaib shall refuse to remain
associated with the financial information.
 He may consider to obtain legal advice or may consider resigning from the post.
(b)
Volvo General Insurance Limited
Statement of Comprehensive Income
for the year ended 30 June 2021
Notes 2021
Rs. In '000'
Net insurance premium 1 92,700 (M-2)
Net insurance claims expense 2 (22,500) (M-2)
Net commission and other acquisition costs (11,700) (M-0.5)
Management expenses (23,400) (M-0.5)
Underwriting results 35,100
Rental income 8,550 (M-0.5)
Investment income 17,100 (M-0.5)
Other income 810 (M-0.5)
Other expenses (5,400) (M-0.5)
Operating Profit 56,160
Finance cost (4,050) (M-0.5)
Share of profit from associates 1,890 (M-0.5)
Profit before tax 54,000
tax expenses (6,750) (M-0.5)
Profit after tax 47,250
Other Comprehensive income
gain on AFS investments - net 5,220 (M-0.5)
Total comprehensive income for the year 52,470
Notes to the financial statements for the year ended 30 June 2021
1. Net Insurance Premium Rs. In '000'
Written gross premium 117,000
Unearned premium – opening 66,600
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Unearned premium – closing (64,800)
Premium earned 118,800
Reinsurance premium ceded 27,000
Prepaid reinsurance premium-opening 31,500
Prepaid reinsurance premium-closing (32,400)
Reinsurance expense 26,100
92,700

2. Net Insurance claim expense

Claims paid 54,900
Outstanding claims - closing 46,800
Outstanding claims - opening (43,200)
Claims expense 58,500
Reinsurance & other recoveries revenue (36,000)
22,500

Answer: 3 (a)
As per IFRS 15, in cases where entity’s performance does not create an asset with alternative use, the entity
can recognize revenue over time if the entity also has an enforceable right to payment for performance
completed to date. As per agreement, EL is entitled for remaining consideration only after delivery of each
lot so revenue should not be recognized over time as suggested by CFO. Proportionate revenue should be
recognized upon transferring control i.e. delivery of each lot consisting of 20 machines to PL. Goods
manufactured till year-end should be included in EL’s closing inventory and the advance received from PL
should be shown as contract liability.
Contract cost
The cost of Rs. 4 million for 1600 hours spent is correctly expensed out as such cost would have been
incurred whether contract was obtained or not. However, Rs. 6 million paid for bonus should be capitalized
as contract cost being an incremental cost of obtaining a contract and should be amortized over contract
period on a systematic basis. This contract costs should not be amortized in year 2021 as no related revenue
has been recognized in 2021.
(b)
(i) The contract to supply is not sufficient to recognise revenue. It is necessary that control of the goods
have actually transferred to the customer. This is the case for 30,000 units.
The deferred payment does not prevent revenue from being recognised, but the consideration needs to
be measured at the fair value, on the transaction date, of the amount receivable. The fair value needs
to reflect a discount allowing for the time value of money, as a result of the extended credit period.
The discount rate will be 10%, ZLs cost of capital. Hence revenue will be recognised as follows:
30,000 units x Rs. 100 x 0.909 = Rs. 2, 727, 000.
The discount will be recognised as finance income as time passes, on a time apportioned basis. As the
sale took place on 31 March 2021, no time has yet passed to trigger the recognition of finance
income.
Journal: Rs. Rs.
Dr trade receivables 2, 727, 000
Cr Revenue 2, 727, 000
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(recognition of revenue and trade receivables at fair value of consideration receivable)
(ii) Again, the same principles apply. Revenue is recognised when control of the goods or services are
transferred to the customer. Here, cash was received in advance. Nevertheless, revenue is only recognised
when the service is delivered to the customer. Any excess cash retained is recognised as deferred income, a
liability. If the cash is non-refundable, this does not change the timing of recognition of revenue. However,
if the customer’s right to the service expires, and the customer has no right to a refund, the revenue should
then be recognised.
Total cash received in year ended 31 March 2021: 2000 x Rs 1, 000 =
Rs.2, 000,000 Total room nights provided 400
Revenue recognised = 400 X Rs.1, 000 = Rs. 400, 000 Deferred revenue = 2,000,000 – 400,000 =
1,600,000
Journal: Rs. 000 Rs 000
Dr Cash 2,000
Cr Revenue 400
Cr Deferred revenue
1,600
(recognition of revenue, deferred revenue and cash received)
(c)
Debit Credit
31-Dec-21 Bank 36,000
Interest income 31,736
Investment in debentures 4,264
(M-2)
31-Dec-21 Investment in debentures 30,026
P&L 30,026
Amortisation Schedule(Without modification)
Year Opening Interest income(OER) receipts Closing
2,020 318,000 32,128 (36,000) 314,128
2,021 314,128 31,736 (36,000) 309,864
PV of modified terms uing OER
Present Value as on 31st December 2021 of amended terms using OER
Year Inflows/(outflow) PVF PV
2,022 128,000 0.908 116,255
2,023 128,000 0.897 114,847
2,024 128,000 0.850 108,787
339,889
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Answer: 4

PBT Total Total Total

Assets Liabilities Equity
Retained Other Share Capital
Earnings Reserves
Rupees in million
As Given 9,450.00 90,000.00 34,000.00 23,500.00 2,500.00 30,000.00
(i) Dividend(40,000x5) 0.20 0.20 0.20 - - (M-1)
Reversal of share of (0.33) (0.33) - (0.33) - - (M-2)
profit
(2400/12x11x15%)
Loss on Fv adjustment (0.40) (0.40) - (0.40) - - (M-1)
of shares(40,000x(80-
70)

(ii) Transaction cost 0.012 (0.108) (0.120) 0.012 - - (M-2)

(120/5x6/12)
Additional Finance cost (0.033) 0.033 (0.033) - - (M-2)

(iii) Financial Asset(3+0.25) 3.25 - - - - (M-0.5)

Financial Asset - (3.25) - - - (M-0.5)
Interest 0.33 0.33 0.33 (M-2)
Income(3.25*10%)
Receipt 0.15 (M-0.5)
Receipt (0.15) (M-0.5)

(iv) Proceed 32.00 - - - - (M-1)

Receivables - (40.00) - - (M-1)
Loss (8.00) - - (8.00) (M-1)
Separate FA & Liability - 0.50 0.50 - (M-1)

(v) Initial adjsutment (0.03) 0.03

Interest adjustment (0.02) 0.02 (0.02)
9,441.76 89,992.19 34,000.40 23,491.76 2,500.03 30,000.00
Working Rs in million
(w-1)
700,000 (30,000.00) 670,000

Year Cash flow PVF @15.879% PV

1 (84,000.00) 0.862969132 (72,489.41)
2 (84,000.00) 0.744715722 (62,556.12)
3 (784,000.00) 0.64266668 (503,850.68)
(638,896.20)
 Advanced Accounting & Financial Reporting
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Equity Reserve initial 31,103.80
Debt Initial Value 638,896.20

Exising value of debt 670,000.00

Adj.
Increase in Equity reserve by 31,103.80
decrease in decrease in debt by 31,103.80

Interest paid 84,000.00

Interest expense 101,450.33

Adj.
Increase in expense by 17,450.33
Increase in debt by 17,450.33

Answer: 5
ML Group CSOFP as at 31.12.2020

Assets Rs.’m
Non current
Property Plant and Equipment (W1) 988.1
(W2) 26
1,014.1
Current (232+125+95- (20 X 25/125) 448
Total assets 1,462.1

Equity and Liabilities

Equity
Share Capital 50
Retained Earnings (W6) 479.7
Other Reserves (W8) 241.9
Equity attributable to owners of parent 771.6
Non controlling Interests (W10) 169.3
Total Equity 940.9
Non current liabilities (W4) 320
Current liabilities (W5) 201.2
Total equity and liabilities 1,462.1

Workings
W1. PPE Rs.’m
Given amounts:
ML 500
NL 225
OL 210
935
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Adjustments:
Fair value gains on acquisition of:
NL (150-[25+105+15]) 5
OL (200-[25+140+22]) 13
Accumdeprec on FV gains:
NL (5/10) X 4 (2)
OL (13/5) X 2 (5.2)
Reinstatement of ML’s plant in sale and lease back
Transaction (note* below) 50X9/10 45
OL impairment loss attributable to PPE (W3) (2.8)
988
Note* The sale and lease back transaction did not meet the IFRS 15 conditions for a sale. This is because
ML retained substantially all economic benefits relating to the asset (has right to use the asset over the entire
remaining conomic life). Therefore the substance of the transaction is that of a loan.

W2. Goodwill on acquisition of:

i) NL

Cost of acquisition (68+87) 155

NCI at acquisition 39
Less FV of identifiable NA
Goodwill at acquisition 44
Less impairment loss (W4) (18)
Carrying amt at 31.12.2020 26

ii) OL
130
Cost of acquisition
NCI at acquisition 40%X200 80
Less FV of identifiable NA at acquisition
Goodwill at acquisition 10
Impairment loss (4) (10)
Carrying amount at 31.12.2020 -

W3. Review of NL and OL as CGUs for impairment:

i) NL

Carrying amounts at 31.12.2020:

Identifiable:
Given (Equity) 240
Net FV gain (5-2) 3
Unrealised profit in inventory 25X20/125 (4)
239
Goodwill 44
Total 283
 Advanced Accounting & Financial Reporting
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Recoverable amount (given in question) 265
Total loss (283-265) 18
Allocated to Goodwill (18)

ii) OL
Carrying amounts at 31.12.2020:
Identifiable:
Given (Equity) 250
Net FV gain (13-5.2) 7.8
257.8
Grossed up Goodwill 10 X 100/60 16.7
Total 274.5
Recoverable amount (given) 255
Total loss (274.5-255) 19.5
Allocated to gross goodwill (maximum) (16.7)
Balance to PPE (there are no other intangible assets) 2.8
Loss allocated to goodwill to be recognised 16.7X 60% 10

W4. Non current liabilities

Given amounts:
ML 175
NL 63
OL 30
Adjustments:
Non current portion of sale and lease back loan:
Liability at 31.12.20 (60X1.1-9.8)=56.2
Liability at 31.12.21 (56.2X1.1-9.8) 52.0
320

W5.Current liabilities
Given amounts:
ML 125
NL 47
OL 25
Adjustments:
Current portion of sale and lease back loan (56.2-52) 4.2
201.2
W6 Group Retained Earnings
ML RE 563
Share of post acquisition RE of
NL (35%[105-80]+80%[160-105]) 52.8
OL (60%[170.5(W7)-140]+55%[175-170.5]) 20.8
Adjustments:
Reversal of gains on remeasurement/disposal of FVTPL assets
- NL (205-87-50) (68)
- OL (165-15-130) (50)
Gain on derecognition of NL as associate:
Fair Value at date of derecognition 68
 Advanced Accounting & Financial Reporting
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Carrying amt of associate (equity value):
Cost 50
Share of post acquisition
RE 35%(105-80) 8.8
Other reserves35%(15-10) 1.8
(60.6) 7.4
Accum FV depreciation:
- NL 80%X2 (1.6)
- OL(60%X13X1.75/5+55%X13X0.25/5) (3.1)
Unrealised profit in closing inventory 4X80% (3.2)
Reversal of gain on sale and lease back of plant (10)
Finance cost on sale and lease back loan 10%X60 (6)
Depreciation of sale and lease back plant50/10 (5)
Reverse of lease rentals 9.8
Impairment losses (W3):
- Goodwill in NL 80%X18 (14.4)
- Goodwill in OL (10)
- PPE in OL (2.8)
479.7

W7. OL Reserves at 1.10.2020

Other Other
Reserves reserves
Rs.’m Rs.’m
Balances at 31.12.2020 175 50
Less profit for the year 18X3/12 (4.5)
Less OCI for the year 12X3/12 (3)
Balances at 1.10.2020 170.5 47

W8. Other Reserves

Rs.’m
ML OR 189
Share of post acquisition OR of
NL (35%[15-10]+80%[55-15]) 33.8
OL (60%[47(W7)-22]+55%[50-47]) 16.7
Adjustments on reducing holding in OL:
 Advanced Accounting & Financial Reporting
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Disposal proceeds 15
Identifiable NA transferred to NCI (W9) (12.6) 2.4
241.9
Net assets transferred to NCI on ML reducing holding in OL
W9. OL identifiable NA on 1.10.2020: Rs’m
Share capital 25
Retained Earnings (W7) 170.5
Other reserves (W7) 47
Net FV gain (13-13X1.75/5) 8.5
251
Amount transferred to NCI 5%X251 12.6
W10. NCI in
i) NL
At acquisition 39
Post acquisition changes:
RE 20%(160-105) 11
FV depreciation 20%X2 (0.4)
Unrealised profits 20%X4 (0.8)
Goodwill loss 20%X18 (3.6)
Other Reserves 20%(55-15) 8
53.2

ii) OL
At acquisition 80
Post acquisition changes:
RE [40%(170.5-140)+45%(175-170.5)] 14.2
FV depreciation [40%X13X1.75/5+45%X13X0.25/5] (2.1)
Net assets from owners of parent 12.6
Other Reserves [40%(47-22)+45%(50-47)] 11.4
116.1
Total NCI (53.2+116.1) 169.3

(The End)