ADVANCED ACCOUNTING & FINANCIAL REPORTING

Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

A.1 (a) As the remaining goods and services to be provided using the modified contract are
not distinct from the goods and services transferred on or before the date of contract
modification; that is, the contract remains a single performance obligation.

Consequently, HL should account for the contract modification as if it were part of the
original contract. HL should update its measure of progress on the basis of revised
expected cost of completion. HL should also revise transaction price under the
contract by including the additional consideration and deducting the amount of
penalty as HL expects that work would not be completed by 31 March 2020.

At 31 December 2019, HL should make a cumulative catch-up adjustment as follows.

Original Updated
Completion %age 75% 51.9%
(67.5/90×100) (67.5/130×100)
-------- Rs. in million --------
Revenue 112.5 106.9
(51.9% × 206)
Cost 67.5 67.5
Profit 45 39.4

HL should decrease revenues and profit by Rs. 5.6 million (112.5 – 106.9)

(b) Statement of financial position:

Assets of the segment would be presented separately from other assets as “Assets of
disposal group held for sale” at lower of carrying amount and fair value less cost to
sell i.e. at Rs. 250 million (160+90) while the liabilities of the segment would be
presented separately from other liabilities as “liabilities associated with the disposal
group” at Rs. 90 million. The comparative figures for the assets and liabilities of the
segment would not be reclassified.

Statement of profit or loss

The statement would be divided into Continued and Discontinued operations.
Revenues and expenses of the segment would be presented under discontinued
operations. Comparative figures of the segment would be reclassified into the
discontinued operations. An impairment loss of Rs. 23 million (195+28+50–90–160)
should be recognized.

The subsequent sale of the segment in January 2020 at Rs. 145 million indicates that
the impairment loss for the segment might need to be adjusted if the amount
represents fair value less cost to sell of the segment as at 31 December 2019.

(c) HL should discontinue the use of the equity method from the date when its
investment ceases to be an associate. HL should measure the retained interest at fair
value as a financial asset which shall be regarded as its fair value on initial
recognition as a financial asset in accordance with IFRS 9. HL subsequently measure
the investment as either at fair value through profit or loss or fair value through other
comprehensive income.

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

HL shall recognize in profit or loss as follows:

Rs. in million
Fair value of any retained interest (180 90
×10÷20)
Proceeds from disposing 180
270
Carrying amount of the investment (240)
Gain on disposal 30

So HL should increase the investment and gain by Rs. 10 million.

HL should reclassify a gain or loss previously recognized in other comprehensive
income by PL be reclassified to profit or loss as would have been required if PL had
directly disposed of the related assets or liabilities.

(d) Scheme announced by HL is an “other long term employee benefits” under IAS 19.
Though the first payment might be made in 2021, HL needs to record the expense in
2019 and estimate the defined benefit obligation in respect of the scheme similar to
defined benefit post retirement employee benefits.
HL shall attribute benefit to the periods of service under the plan’s benefit formula i.e.
5 year and record expenses in 2019 for benefits attributable to current and prior
years. For other long-term employee benefits, an entity shall recognise the net total of
the following amounts in profit or loss:
(i) service cost;
(ii) interest on the defined benefit liability; and
(iii) remeasurements of the net defined benefit liability

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

A.2 Tabeeb Limited

General Journal
Debit Credit
Date Description
--- Rs. in million---
01-01-16 Debenture - FV OCI 186.00
Cash/Bank 2×92 184.00
Gain on initial recognition (P&L) 2.00

Debenture - FV OCI 3.00

Cash/Bank 3.00

01-01-16 Impairment loss (P&L) 1.00

Fair value reserve (OCI) 1.00

31-12-16 Debenture - FV OCI 189×8.9% 16.82

Interest income (P&L) 16.82
31-12-16 Debenture - FV OCI 211.0– (189+16.82) 5.18
Fair value reserve (OCI) 5.18
31-12-17 Cash/Bank 200×6% 12.00
Debenture - FV OCI (Bal. fig.) 6.32
Interest income (P&L) (189.00+16.82)×8.9% 18.32
31-12-17 Impairment loss (P&L) 12.1–1.0 11.10
Fair value reserve (OCI) 11.10

31-12-17 Fair value reserve (OCI) 190–(211.00+6.32) 27.32

Debenture - FV OCI 27.32

31-12-18 Debenture - FV OCI (189.00+16.82+6.32)×8.9 % 18.88

Interest income (P&L) 18.88
31-12-18 Impairment loss (P&L) 25.3–12.1 13.2
Fair value reserve (OCI) 13.2

171.2–
31-12-18
Fair value reserve (OCI) (190+18.88) 37.68
Debenture - FV OCI 37.68
02-01-19 Cash/Bank 84×2–1 167.00
Loss on disposal (P&L) (Bal. fig.) 4.20
Debenture - FV OCI 171.20

02-01-19 Profit or loss (25.3+5.18–27.32–37.68) 34.52

Fair value reserve (OCI) 34.52

W-1: Amortised cost:

Year Opening Interest Receipt Closing
2016 189.00 16.82 - 205.82
2017 205.82 18.32 (12.00) 212.14
2018 212.14 18.88 - 231.02

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

W-2: Fair value re-measurement:

Year Opening Interest Receipt FV adj. FV
2016 189.00 16.82 - 5.18 211.00
2017 211.00 18.32 (12.0) (27.32) 190.00
2018 190.00 18.88 - (37.68) 171.20

A.3 Health Pharma Limited

Extracts from statement of financial position as on 31 December 2019
Rs. in million
Non-current assets:
Right of use asset
Machine 201.87 (151.87 + 50) – 40.37 (PL) 161.50
Warehouse 696.04 (W-1) –34.8 (PL) 661.24

Non-current liabilities:
Lease liability
Machine 151.87 (50 ×3.0373) –31.78 120.09
Warehouse 1,060.06 (180 ×5.889) –63.39 996.67

Current Liabilities:
Current portion of lease liability
Machine 31.78(W-2)+18.22 (PL) 50.00
Warehouse 63.39(W-3)+58.3 (PL) 121.69
Usage fee - Machine (40–30)×0.3 3.00
Fuel cost - Truck 4.00×30% 1.20
Rent payable - Truck 10×3/6 5.00

Extracts from statement of profit or loss for the year ended 31 December 2019
Rs. in million
Gain on rights [(1,500–900)÷1,500]×[1,500– (1,060.06 + 100)] 135.98
transferred
Depreciation
Machine 201.86÷5 (40.37)
Warehouse - Before sale 900÷18×6/12 (25.00)
- Right of use assets 696÷10×6÷12 (34.80)
Interest expense 58.3(1060×11%×6÷12) + 18.22 (151.86×12%) (76.52)
Usage fee - Machine (40–30)×0.3 (3.00)
Vehicle rent - truck 10×9÷6 (15.00)
Fuel cost - truck (1.20)

W-1: Right of use - Warehouse

(C.V÷ F.V) × (P.V + Prepaid)=(900÷1,500)×[1,060.06+100(1,500–1,400)] 696.04

W-2: Lease schedule – Machine

Date Instalment Interest @ 12% Principal Balance
1-Jan-19 151.87
1-Jan-20 50.00 18.22 31.78 120.09

W-3: Lease schedule – Warehouse

Date Instalment Interest @ 11% Principal Balance
1-Jul-19 1060.06
30-Jun-20 180.00 116.61 63.39 996.67

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

A.4 Shifa Group of Companies

Consolidated statement of financial position as on 31 December 2019

Rs. in million
Assets
Property, plant and equipment (W-1) 16,756.0
Intangible assets other than goodwill (40+(W-4)14)×24 1,296.0
Goodwill (W-2) 1,218.0
Investment property 10×24 240.0
Current assets 11,550+(90×24) – (2×2) 13,706.0
33,216.0
Equity and liabilities
Share capital 6,000.0
Group reserves (W-3) 7,408.1
Non-controlling interest (W-5) 2992.4
Liabilities (W-6) 16,815.5
33,216.0

W-1: Property, plant and equipment Rs. in million

As given in question 14,200.0
Unrealised gain on printers sold by LC to LB 70÷1.4×0.4×4.5÷5 (18.0)
Investment property rented to LB 180–(180÷15×6÷12) 174.0
FD’s 100×24 2,400.0
16,756.0

W-2: Goodwill Rs. in million

As given 350.0
Contingent liability of LB 40×0.6 24.0
Deferred consideration for LC 100 (121×1.10–2) – 60 40.0
Goodwill of FD 100–[(60+20+15)×0.7]=33.5×24 804.0
1,218.0

W-3: Group reserves Rs. in million

As given 6,745.0
Fair value gain on SL’s investment property 200–180 (20.0)
Depreciation on SL’s warehouse 180÷15×6÷12 (6.0)
Reversal of bargain purchase of LC (60.0)
Finance cost on deferred consideration 100×0.1×9÷12 (7.5)
Unrealised gain on printers sold by LC 18 (W-1)×0.9 (16.2)
FD - post acquisition profit (W-4) 483×0.7 338.1
Equity adjustment on 20% purchase of LA (700×0.2)–120 20.0
Exchange reserve (W-4) (535–401×0.3) 414.7
7,408.1

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

W-4: Exchange gain on translation of FD

Exchange rate
CNY in million Rs. in million
Rs.
Net assets as on 31-12-2019 60+42 102.00
15–
FV adjustment (15÷10)×(8÷12) 14.00
116.00 24.00 2,784.0
Net assets on acq. date 60+20+15 95.00 20.00 1,900.0
Post-acq. profit (Balancing) 21.00 23.00 483.0
116.00 2,383.0
On translation of FD 401.0
On goodwill of FD 33.5×(24–20) 134.0
535.0

W-5: Non-controlling interest Rs. in million

As given 2,315.0
Increase in contingent liability of LB 40×0.4 (16.0)
Unrealised gain on printers sold by LC to LB 18 (W-1)×0.1 (1.8)
Acquisition of additional 20% interest in LA 700×0.2 (140.0)
Non-controlling interest - FD: 2,784 (W-4)×0.3 835.2
2,992.4

W-6: Liabilities Rs. in million

As given 13,360.0
Increase in contingent liability of LB 40.0
Deferred consideration 100[121×(1.1)–2]+(W-3)7.5 107.5
Elimination of intra-group balances 2×2 (4.0)
FD current liabilities 138×24 3,312.0
16,815.5

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2020

A.5 Long Life Equity Fund

Statement of movement in Unit Holders’ Fund
For the year ended 30 June 2020
Undistributed
Capital value Total
income
--------------- Rs. in million ---------------
Net assets at beginning of the year 9,433 257 9,690

Issuance of 660 million units:

Capital value 12,606 - 12,606
Element of income 120 - 120
Total proceeds on issuance of units 12,726 - 12,726
Redemption of 750 million units:
Capital value (14,250) (14,250)
Element of loss (59) (85) (144)
Total payment of redemption of units (14,309) (85) (14,394)
Total comprehensive income for the year 364 364
Distribution for year ended 30 June 2019 (255) (255)
Net assets at the end of the year 7,850 281 8,131
Undistributed income brought forward
Realized income 269
Unrealized loss (12)
257
Accounting income available for distribution
Relating to capital gain 279
Excluding capital gain -
279
Final distribution during the year at 5% (255)
Undistributed income carried forward 281
Undistributed income carried forward
Realized income 274
Unrealized income 7
281

(The End)

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