CMA MAY-2023 EXAMINATION

ADVANCED LEVEL I
ADVANCED FINANCIAL REPORTING

Course Code : FR342 Total Marks : 100

Reading Time : 15 minutes Writing Time : 180 minutes

Instructions to Candidates
 You MUST NOT write anything during the reading time.
 There are 5 (five) questions.
 You should attempt ALL questions.
 Answers should be properly structured and relevant.
 Show all relevant computation.
 Carefully read ALL the requirements and sub-questions before attempting a specific
question.
 ALL answers must be written in the answer book.
 AVOID WRITING/MARKING on the question paper at any time which may cause disciplinary
action.
 Start answering each question from a fresh sheet.
 Answers should be clearly numbered with the sub-question number.

Allowable Materials
 Writing Stationaries
 Non-programmable Calculator

Assessment Structure

Sub- Expected Time

Marks
question Required
Question 1 Essay/Computational/Case 3 20 35 minutes
Question 2 Essay/Computational/Case 2 20 35 minutes
Question 3 Essay/Computational/Case - 20 35 minutes
Question 4 Essay/Computational/Case 2 20 35 minutes
Question 5 Essay/Computational/Case 4 20 35 minutes
Revision 5 minutes
Total 100 180 minutes

RESTRICTED USE
This paper MUST NOT BE REMOVED from the examination venue

Do not turn the page until instructed

QUESTION 1 [Marks: (5+10+5) = 20]
(a) How does integrated reporting’s concept of financial capital relate to that found in traditional
financial reporting?
(b) You are the Ethics Partner at Stewart Brice, a firm of chartered accountants. The following
situations exist.
Teresa is the audit manager assigned to the audit of Recreate, a large quoted company. The audit
has been ongoing for one week. Yesterday, Teresa's husband inherited 1,000 shares in Recreate.
Teresa's husband wants to hold on to the shares as an investment. The Stewart Brice pension
scheme, which is administered by Friends Benevolent, an unconnected company, owns shares in
Tadpole Group, a listed company with a number of subsidiaries. Stewart Brice has recently been
invited to tender for the audit of one of the subsidiary companies, Kermit Co. Stewart Brice has
been the auditor of Kripps Bros, a limited liability company, for a number of years. It is a
requirement of Kripps Bros' constitution that the auditor owns a token £1 share in the company.
Required:
Comment on the ethical and other professional issues raised by the above matters. Identify
the ethical and professional issues Stewart Brice would need to consider.
(c) The Bill Group disposed of its 60% interest in Ben Ltd after owning it for five years. Original
cost was CU120,000 and goodwill acquired in the business combination was CU50,000.
Sales proceeds were CU250,000, and this has been posted to a suspense account in Bill
Ltd's individual accounts. Ben Ltd had net assets of CU100,000 on disposal and 50% of the
original amount of the goodwill had been written off as impaired. What is the profit on
disposal which will be included as part of the profit for the period from discontinued
operations figure within the consolidated income statement of the Bill Group?
QUESTION 2 [Marks: (5+10+5) = 20]
(a) Zaim operates a defined benefit scheme for its employees. At June 2023, the net pension
liability recognised in the statement of financial position was $18 million, excluding an
unrecognised actuarial gain of $15 million which Zaim wishes to spread over the remaining
working lives of the employees. The scheme was revised on 1 June 2023. This resulted in
the benefits being enhanced for some members of the plan and because benefits do not vest
for these members for five years, Zaim wishes to spread the increased cost over that period.
However, part of the scheme was to be closed, without any redundancy of employees.
Required:
Zaim requires advice on how to account for the above scheme under IAS 19 Employee Benefits
including the presentation and measurement of the pension expense. Discuss, with suitable
computations, the advice that should be given to Zaim in accounting for the above event.
(b) Avery Deninson PLC (AD) purchases a bond for its fair value of Tk. 10,000 as on 1st January
2019. The bond is due to mature on 31st December, 2022 and AD has the intention to hold the
bond until that date in order to collect contractual cash flows. The bond has a principal amount of
Tk. 12,500 and carries fixed interest at 5% that is paid annually (The effective interest rate is 8%).
The fair value of the bond is 2019: Tk.11,000; 2020: Tk. 11,500; 2021: Tk. 12,000
Required:
(i) How AD PLC account for in financial statement as on 31st December, 2019?
(ii) How AD PLC account for bond on derecognition after maturity?
(c) On 31 March 2022, Delta was owed TK10m by entity Z. The amount was due for
payment by 30 April 2022. Entity Z has been a customer for many years and has an
excellent payment record. At 31 March 2022, there was no reason to suppose that
entity Z would fail to pay the TK 10m owed to Delta by 30 April 2022. By 20 April
2022, entity Z’s going concern status was in considerable doubt.
Required:
Explain and state (where possible by quantifying amounts) how this event would be
reported in the financial statements of Delta for the year ended 31 March 2022.

CMA May-2023 Examination, FR342 [Page 2 of 5]

QUESTION 3 [Marks: 20]
B acquired 60% of M's ordinary share capital on 30 June 20X2 at a price TK1.06 per share. The balance
on M's retained earnings at that date was TK 104m and the general reserve stood at Tk. 11m.
Their respective statements of financial position as at 30 September 20X6 are as follows:

B M
Tk. (m) Tk. (m)
Non-current assets:
Property, plant & equipment 2,848 354
Patents 45 –
Investment in M 159 –
3,052 354
Current assets:
Inventories 895 225
Trade and other receivables 1,348 251
Cash and cash equivalents 212 34
2,455 510
Total Assets 5,507 864
Equity:
Share capital (20c ordinary shares) 920 50
General reserve 775 46
Retained earnings 2,086 394
3,781 490
Non-current liabilities:
Long-term borrowings 558 168
Current liabilities:
Trade and other payables 1,168 183
Current portion of long-term borrowings – 23
1,168 206
5,507 864
Annual impairment tests have revealed cumulative impairment losses relating to recognized
goodwill of Tk. 17m to date.
Required:
Produce the consolidated statement of financial position for the B Group as at 30th September
20X6. It is the group policy to value the non-controlling interest at its proportionate share of the fair
value of the subsidiary's identifiable net assets.
QUESTION 4 [Marks: (10+10) = 20]
(a) Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its
employees since 1989. Prior to 2015, cumulative net pension expense recognized equaled
cumulative contributions to the plan. Other relevant information about the pension plan on
January 1, 2015, is as follows.
1. The company has 200 employees. All these employees are expected to receive
benefits under the plan.
2. The defined benefit obligation amounted to $5,000,000 and the fair value of pension
plan assets was $3,000,000. The market-related asset value was also $3,000,000.
On December 31, 2015, the defined benefit obligation and the vested benefit obligation were
$4,850,000 and $4,025,000, respectively. The fair value of the pension plan assets
amounted to $4,100,000 at the end of the year. A 10% discount rate was used in the
actuarial present value computations in the pension plan. The present value of benefits
attributed by the pension benefit formula to employee service in 2015 amounted to $200,000.
The employer’s contribution to the plan assets amounted to $775,000 in 2015. This problem
assumes no payment of pension benefits.

CMA May-2023 Examination, FR342 [Page 3 of 5]

 Required: (Round all amounts to the nearest dollar.)
(i) Compute pension expense for the year 2015.
(ii) Prepare the journal entries required to report the accounting for the company’s pension
plan for 2015.
(iii) Compute the amount of the 2015 increase/decrease in net gains or losses in 2015.

(b) Followings are the financial statements of P Limited as of December 31, 2021:

P LIMITED
Statement of Comprehensive Income
For the year ended December 31, 2021
(Tk.’000)
Sales revenue 19,500
Less: Cost of goods sold (11,550)
Gross profit 7,950
Operating expenses:
Selling & distribution expenses (1,600)
Administrative expenses (1,500) (3,100)
Operating income 4,850
Less: Financial charges:
Interest paid on bank loan (110)
Interest paid to debenture holders (585) (695)
Profit before tax 4,155
Tax provision (1,180)
Profit after tax 2,975

2020 2021
(Tk.’000) (Tk.’ 000)
Share Capital and Reserves:
Ordinary share capital (800,000 shares of 8,000 8,000
TK.10each)
General reserve 2,000 1,500
Retained earnings 7,425 5,900
17,425 15,400
Non-Current Liabilities:
10% debentures (2014) 5,850 5,850
Current Liabilities:
Bank loan 1,200 2,100
Accounts payable 375 365
Tax payable 600 1,250
Dividend payable 950 1,745
3,125 5,460
Total Liabilities and Equity 26,400 26,710
Non-Current Assets:
Land and buildings 12,500 12,400
Plant and machinery 10,500 9,050
23,000 21,450
Current Assets:
Inventory 1,810 2,850
Accounts receivable 1,530 2,360
Cash and bank balances 60 50
3,400 5,260
Total Assets 26,400 26,710

CMA May-2023 Examination, FR342 [Page 4 of 5]

 Additional information:
• The company declared and paid dividend of Tk. 950,000 during the year.
• The shares of P Limited were trading in the market at Tk. 12.5 per share on December
31, 2021.
• All sales are on credit basis and payable within 30 days.

Required:
(i) Calculate the following financial ratios as of December 31, 2021:
• Accounts Receivable Collection Period
• Dividend Yield
• Gearing Ratio
• Interest Coverage ratio

(ii) Prepare Common-Size Analysis (Vertical Analysis) from the income statement for the
year ended December 31, 2021.

QUESTION 5 [Marks: (3+3+4+10) = 20]

(a) When operating segments become reportable segments?
(b) What does it mean if diluted EPS is negative?
(c) What are the most common forms of financial instruments?
(d) The information below pertains to Barkley Company for 2022.

Net income for the year Tk. 1,200,000

8% convertible bonds issued at par (Taka 1,000 per bond); each bond 2,000,000
is convertible into 30 shares of ordinary shares; the liability component
of the bonds is Taka 1,800,000 based on a market rate of 9%
6% convertible, cumulative preference shares, Taka 100 par value; 4,000,000
each share is convertible into 3 shares of ordinary shares
Ordinary shares, Taka10 par value 6,000,000
Tax rate for 2022 40%

Average market price of ordinary shares Taka 25 per share

There were no changes during 2022 in the number of ordinary shares, preference shares, or
convertible bonds outstanding. There are no treasury shares. The company also has
ordinary share options (granted in a prior year) to purchase 75,000 ordinary shares at Taka
20 per share.
Required:
(i) Compute basic earnings per share for 2022.
(ii) Compute diluted earnings per share for 2022.

END OF QUESTION

CMA May-2023 Examination, FR342 [Page 5 of 5]