Certificate in Accounting and Finance Stage Examinations

(Test 1) March 26, 2024

30 minutes – 15 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 Following information pertains to plant and machinery of Ahmad Enterprises (AE):
(i) As at 1 January 2018, balances of cost and accumulated depreciation amounted to
Rs.12,700,000 and Rs.6,240,000 respectively.
(ii) On 1 April 2018, an old machine having fair value of Rs.340,000 was exchanged for a
new machine. The balance of the purchase price was paid through a cheque of
Rs.680,000. The list price of the new machine was Rs.1,130,000. The old machine had
been acquired for Rs.870,000 on 1 September 2015.
(iii) On 1 February 2018, a plant having a list price of Rs.10,000,000 was acquired. A trade
discount of 5% was allowed on the list price. The plant was ready for use on 1 August
2018 after incurring the following costs:
Rs. in ‘000
Freight charges 660
Consultant fees 540
Installation and testing 600
Administration and other general overheads 160
Staff training 120
Opening ceremony 100
2,180
(iv) On 31 October 2018, another machine was sold for Rs.334,000. It was acquired on
1 January 2015 and had a net book value of Rs.512,000 on 1 January 2018. A cost of
Rs.25,000 was incurred on its disposal.
(v) AE depreciates plant and machinery at 20% per annum using the reducing balance
method.
Required:
Prepare following ledger accounts pertaining to the plant and machinery for the year ended 31
December 2018:
(a) Cost (05)
(b) Accumulated depreciation (05)
(c) Assets disposal (04)

Q.2 An entity acquires a plant in exchange of old machinery which has carrying amount of
Rs. 760,000 and fair value of Rs. 750,000 at the date of exchange. The list price of plant acquired
is 850,000. The entity is also required to pay cash of Rs. 55,000 in this exchange transaction.
At which amount the acquired plant should be initially recognised?
(a) Rs. 850,000 (b) Rs. 760,000
(c) Rs. 815,000 (d) Rs. 805,000 (01)

(Good Luck)

1 (FAR-I Test-1: 26 March 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 2) April 2, 2024
27 minutes – 15 marks
Additional reading time – 3 minutes

Financial Accounting and Reporting 1

Q.1 Paristan Enterprises was incorporated on 1 July 2012. The company depreciates its property,
plant and equipment on straight line basis over their useful life. It uses revaluation model for
subsequent measurement of the property, plant and equipment and has a policy of revaluing
these after every two years.
Following information pertains to its property, plant and equipment:
Useful life in years
Value as
Remaining as
Cost as on WDV as on determined by Original at
Assets determined
01-07-2013 01-07-2013 professional valuer acquisition
by valuer
on 30-06-2014
-------Rs. in million-------
Office building 6,000 5,500 5,750 12 8
Factory building 4,400 3,960 3,320 10 9
During the year there were no addition or deletion in the above assets.
As per policy, Paristan transfers the maximum possible amount from the revaluation surplus
to retained earnings on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)

Q.2 Select the most suitable options:

(i) A company revalued its property on 1 April 2009 to Rs.20 million (Rs.8 million for the
land). The property originally cost Rs.10 million (Rs.2 million for the land) 10 years
ago. The original useful economic life of 40 years is unchanged. The company’s policy
is to make a transfer to realized profits in respect of excess depreciation.
What is amount of balance in revaluation surplus account as at 31 March 2010?
(a) Rs.12 million (b) Rs.10 million
(c) Rs.9.8 million (d) Rs.11.8 million (02)
(ii) A building is revalued upwards by Rs.2 million. It was acquired five years ago for Rs.10
million. Its useful life remains same as 20 years.
What is the incremental depreciation charge for the year?
(a) Rs.100,000 (b) Rs.133,333
(c) Rs.166,667 (d) Rs.200,000 (01)

(Good Luck)

1 (FAR-I Test-2: 2 April 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 3) April 16, 2024
35 minutes – 17 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 The following information pertains to property, plant and equipment of Omega Limited (OL),
a listed company:
Subsequent
Date of Cost (Rs. Original Depreciation
Description measurement
purchase in million) useful life method
model
Plant 1-Jan-15 475 25 years Straight line Cost
Buildings 1-Jan-15 600 30 years Straight line Revaluation
Plant
On 31 December 2016 the recoverable amount of the plant was assessed at Rs.360 million
with no change in useful life.
During 2017, OL has decided to change the depreciation method for plant from straight line
to reducing balance. The new depreciation rate would be 10%.
Buildings
The revalued amount of buildings as determined by Najeeb Consultants, an independent
valuer, on 31 December 2015 and 2017 was Rs.700 million and Rs.463 million respectively.
On 30 June 2017, a building having original cost of Rs.66 million was sold to Bahadur Limited
for Rs.85 million. It was last revalued at Rs.87 million. OL incurred a cost of Rs.2 million on
disposal.
OL transfers the maximum possible amount from revaluation surplus to retained earnings on
an annual basis.

Required:
Prepare note of property, plant and equipment (along with comparative figures) to be
presented in the financial statements of OL for the year ended 31 December 2017 in
accordance with the requirements of relevant IFRSs. (17)

(Good Luck)

1 (FAR-I Test-3: 16 April 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 4) April 24, 2024
20 minutes – 11 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 Property, plant and equipment as disclosed in the draft financial statements of Avocado Pakistan
Limited (APL) for the year ended 30 June 2018 include a plant having a carrying value of Rs. 610
million. The performance of the plant has been deteriorating since last year which is affecting
APL’s sales.

An offer has been received to buy the plant immediately for Rs. 570 million but APL has to incur
the following costs.
Rs. in million
Cost of delivery to the customer 45
Legal cost 10
Costs to re-organize the production process after disposal of plant 50

Following information/estimates relate to the plant for the year ending 30 June 2019:
Rs. in million
Inflows from sale of product under existing condition of the plant 250
Operational cost other than depreciation 25
Depreciation 170
Expenses to be paid in respect of 30 June 2018 accruals 8
Cost of increasing the plant’s capacity 60
Additional inflows (net) expected from the upgrade 40
Interest on finance lease 30
Maintenance cost 15
Tax payment on profits 18
Cash flows from the plant are expected to decrease by 15% each year from 2020 and onward. The
plant’s residual value after its remaining useful life of 3 years is estimated at Rs. 100 million.

Application discount rate is 9%.

Required: Calculate the amount of impairment loss (if any) on plant, for the year ended 30 June
2018. Also calculate the depreciation expense for the year ended 30 June 2019. (09)

Q.2 (a) Which TWO of the following could be an indication that an asset may be impaired according
to IAS 36 Impairment of Assets?
(a) Decrease in market interest rates.
(b) Increase in market values for the asset.
(c) Damage caused to the asset.
(d) Management intention to reorganise the business. (01)
(b) Which of the following is NOT an indicator of impairment?
(a) Advances in the technological environment in which an asset is employed have an
adverse impact on its future use.
(b) An increase in interest rates which increases the discount rate an entity uses.
(c) The carrying amount of an entity’s net assets is higher than the entity’s number of
shares in issue multiplied by its share price.
(d) The estimated net realisable value of inventory has been reduced due to fire
damage although this value is greater than its carrying amount. (01)

(Good Luck)
1 (FAR-I Test 4: 24 April 2024)
 Certificate in Accounting and Finance Stage Examinations
(Test 5) May 14, 2024
35 minutes – 20 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 Following information pertain to property, plant and equipment of Hayat Industries Limited
(HIL) for the year ended 30 June 2020:
(i) Balance as on 30 June 2019
Cost/revalued Accumulated Revaluation Depreciation Useful
Assets
amount depreciation surplus method life / rate
---------- Rs. in ‘000’ ----------
Land* 100,000 - - - Infinite
Buildings 70,000 14,000 16,000 Straight line 20 years
Plant 180,000 60,000 - Straight line 15 years
Vehicles 8,800 4,000 - Reducing balance 20%
*An amount of Rs. 12 million had been charged to profit or loss upon previous revaluation
(ii) On 30 June 2020, the revalued amounts of the land and buildings were assessed by
Samajhdar Consultant at Rs. 120 million and Rs. 35 million respectively.
(iii) Setting up of a new plant was commenced on 1 July 2019 and substantially completed on
29 February 2020. The plant was available for use on 1 April 2020 and immediately put
into use. Useful life of the plant was estimated at 10 years. Details of the cost incurred are
as under:
Description Payment date Rs. in '000’
1st payment 1 August 2019 12,000
2nd payment 1 October 2019 48,000
3rd payment 29 February 2020 48,000
4th payment 31 July 2020 12,000
120,000
The cost of the plant was financed through an existing running finance facility with a
limit of Rs. 200 million carrying mark-up of 12% per annum. A government grant of Rs.
20 million related to the plant was received on 1 January 2020. The grant amount was
used for repayment of the running facility.
(iv) One of the vehicles had an engine failure on 1 January 2020 and its engine had to be sold
as scrap for Rs. 0.1 million. The vehicle had been acquired on 1 January 2018 at a cost of
Rs. 2.5 million. 40% of the cost is attributable to its engine. Though the engine of similar
capacity was available at a cost of Rs. 1.2 million, the old engine was replaced on 1
January 2020 with a higher capacity engine at a cost of Rs. 1.8 million.
(v) HIL uses cost model for subsequent measurement of property, plant and equipment
except for land and buildings.
(vi) HIL accounts for revaluation on net replacement value method and transfers the
maximum possible amount from revaluation surplus to retained earnings on an annual
basis.
(vii) HIL deducts government grant in arriving at the carrying amount of the asset.
Required:
In accordance with IFRSs, prepare a note on ‘Property, plant and equipment’ for inclusion in
HIL’s financial statements for the year ended 30 June 2020. (20)
(Comparatives figures and column for Total are not required)

(Good Luck)
1 (FAR-I Test 5: 14 May 2024)
 Certificate in Accounting and Finance Stage Examinations
(Test 5) May 14, 2024
30 minutes – 16 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 Following information pertains to non-current assets of Duffer Limited (DL):

(i) DL setup a manufacturing plant in a remote area at a cost of Rs.280 million. The plant
had a useful life of 8 years. The plant was purchased on 1 January 2018 and was available
for use on 1 April 2018. The commercial production started on 1 June 2018.
On 1 July 2018, DL received a government grant of Rs.120 million towards the cost of
the plant. The sanction letter states that if DL ceases to use the plant in the remote area
before 31 December 2021, DL would be required to repay the grant in full.
(ii) DL purchased specialised vehicles for Rs.370 million on 1 July 2017. The vehicles have
an estimated useful life of 10 years with residual value of Rs.30 million.
The revalued amounts of the vehicle as at 31 December 2018 and 2019 were determined
at Rs.302 million and Rs.290 million respectively. There was no change in useful life or
residual value.
(iii) A warehouse was given on rent on 1 January 2018. Previously, the warehouse was in use
of DL.
On 1 January 2018, carrying value and remaining useful life of the warehouse was Rs.80
million and 16 years respectively. Fair value of the warehouse on various dates are as
follows:
Rs. in million
01 January 2018 104
31 December 2018 96
31 December 2019 115
Other information:
▪ Government grant is recorded as deferred income and a part of it is transferred to income
each year.
▪ DL uses cost model for subsequent measurement of property, plant and equipment except
for specialised vehicles for which revaluation model is used.
▪ DL transfers the maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
▪ Investment property is carried at fair value model.
Required:
Prepare relevant extracts from DL’s statement of profit or loss for the year ended 31 December
2019 and statement of financial position as on that date. (Show comparative figures) (16)

(Good Luck)

1 (FAR-I Test 5: 14 May 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 7) May 28, 2024
35 minutes – 20 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 The following balances pertaining to fixed assets have been extracted from the trial balance of
Sarsabz Traders for the year ended 31 December 2016:
Rupees
Fixed assets – cost 25,000,000
Accumulated depreciation 6,250,000
Depreciation on fixed assets is charged from the month of addition to the month prior to disposal
using the reducing balance method at 20% per annum.
Depreciation expense for the current year has been correctly calculated and recorded except for
the following:
(i) Physical verification of fixed assets was carried out on 31 December 2016, which revealed
the following matters for which no adjustment was made in the books:
 Two laptops purchased on 1 July 2015 at a cost of Rs. 245,000 were withdrawn by the
proprietor on 1 May 2016 for his personal use.
 Equipment costing Rs. 800,000 purchased on 1 January 2014 was damaged in rain in
December 2016 and was scrapped.
 A machine costing Rs. 75,000 is not in the list of fixed assets, but has been in the use of
sales department since 1 March 2016. On investigation it was found that the machine
was transferred from stock-in-trade but no adjustment was made in the books.
(ii) Installation of an assembly plant was completed on 1 December 2016. Installation charges
amounting to Rs. 240,000 have not yet been paid and recorded in the books due to non-
receipt of the invoice.
(iii) An invoice of Rs. 683,000 for a machine purchased on 1 October 2016 was mistakenly
accounted for as Rs. 863,000.
(iv) On 1 April 2016, an old machine having fair value of 340,000 was exchanged for a new
machine. The balance of the purchase price was paid through a cheque of Rs. 680,000 and
was debited to fixed assets. The list price of the new machine was 1,130,000. The old
machine had been acquired for Rs. 870,000 on 1 September 2013.
Required:
a) Prepare necessary adjusting entries for the year ended 31 December 2016. (13)
b) Prepare adjusted fixed assets and accumulated depreciation accounts for the year ended 31
December 2016. (05)

Q.2 One way of finding some errors in accounting records is to extract a trial balance from the
general ledger. If total of the debit balances does not equal the total of credit balances on the
general ledger accounts, then an error or several errors have been made. Briefly explain any two
of such errors that will cause a trial balance not to balance, along with an example of each. (02)

(Good Luck)

1 (FAR-I Test 7: 28 May 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 8) June 4, 2024
18 minutes – 10 marks
Additional reading time – 2 minutes

Financial Accounting and Reporting 1

Q.1 Lucky Company Limited (LCL), a company listed on the Karachi and Lahore Stock Exchanges,
is in process of finalization of its accounts for the year ended 31 December 2012. The following
information is available:
(i) Shareholders’ equity as at 31 December 2011 and 2010 consisted of:
2011 2010
Rs. in million
Share capital (Rs. 10 each) 10,340 7,833
Unappropriated profit 6,945 4,508
(ii) The total comprehensive income for the years ended 31 December 2010, 2011 and 2012
(unaudited) was Rs. 4,240 million, Rs. 4,944 million and Rs. 5,090 million respectively.
(iii) Cash dividends and bonuses declared/paid during the last three years are as follows:

Cash dividend Bonus

*Interim Final *Interim Final
For the year ended 31 December 2010 10% - - 20%
For the year ended 31 December 2011 - 15% 10% 10%
For the year ended 31 December 2012 - 10% 5% 5%
*Interim dividend/bonus was declared at the time of announcement of half-yearly financial
results.
(iv) Right shares were issued on 30 November 2012 in the ratio of 4 right shares for every 5
shares held by the shareholders of the company. The right issue was made at Rs. 18 per
share.
Required:
Prepare the Statement of Changes in Equity for the year ended 31 December 2012 in accordance
with the requirements of the Companies Ordinance, 1984 and International Financial Reporting
Standards. (07)

Q.2 Select the most suitable options:

i. A suspense account was opened when a trial balance failed to agree. The following errors were
discovered afterwards:
(i) A payment of Rs. 5,000 to a supplier was credited to his account
(ii) A return outward of Rs. 400 was wrongly debited to return inwards account
(iii) Payment for establishment of petty cash fund by Rs. 1,000 was only credited to bank account
At what amount the suspense account would have been created before correction of these errors?
(a) Rs. 5,400 Credit (b) Rs. 10,200 Debit
(c) Rs. 5,400 Debit (d) Rs. 10,200 Credit (02)
ii. Correct accounts, correct amounts but incorrect sides’, which of the following type of error is
indicated by preceding phrase?
(a) Error of commission (b) Error of principle
(c) Error of original entry (d) Complete reversal of entries (01)

Good Luck
1 (FAR-I Test-8: 04 June 2024)
 Certificate in Accounting and Finance Stage Examinations
(Test 9) June 25, 2024
18 minutes – 10 marks
Additional reading time – 2 minutes

Financial Accounting and Reporting 1

Q.1 The following information pertains to Delta Limited (DL) for the year ended 31 December 2023:
Sales during the year (25% mark up on cost) Rs.100 million
Average current assets Rs.49 million
Average quick assets Rs.21 million
Receivables turnover 7 times
Payables turnover 9 times
Credit period usually allowed to customers 30 days
Credit period usually allowed by suppliers 60 days
Required:
(a) Compute operating cycle days of DL for 2023. (Assume 365 days a year) (04
(b) Suggest one potential action for each component of the operating cycle to assist DL in
decreasing its operating cycle days. (03)

Q.2 Select the most suitable options:

i. Salik has net current liabilities in its statement of financial position. He has decided to pay off its
accounts payables using surplus cash.
What will be the effect of the above transaction on the current ratio?
(a) Decrease
(b) Increase
(c) No effect
(d) The ratio could either increase or decrease (01)
ii. The opening inventory for a business was Rs. 108,000. The closing inventory was Rs.144,000.
Inventory turnover for the year was 10 times. The gross margin was 30%.
What were the sales for the year?
(a) Rs. 1,200,000 (b) Rs. 1,260,000
(c) Rs. 1,800,000 (d) Rs. 1,860,000 (02)

Good Luck

1 (FAR-I Test-9: 25 June 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 10) July 2, 2024
27 minutes – 15 marks
Additional reading time – 3 minutes

Financial Accounting and Reporting 1

Q.1 Paramount Spinning Limited (PSL) started business in 2015. The following comparative data
pertains to the year ended 30 June 2017:
PSL Industry
Description
2017 2016 2017
Gross profit margin 13% 13% 16%
Net profit margin 8% 7% 10%
Cash operating cycle in days 119 135 118
Current ratio 1.2 1.6 1.5
Return on shareholders’ equity 22% 18% 25%
Debt to equity ratio 40:60 30:70 50:50
Required:
For each ratio give one possible reason for variation from industry and comparative data. (12)

Q.2 Select the most suitable options:

i. After the preparation of the draft financial statements, it was discovered that inventory items lost
in a fire incident were ignored altogether. If the entity follows periodic inventory system, what
would be the effect of the correction?
Gross profit Net profit
(a) Increase No impact
(b) Decrease Decrease
(c) No impact No impact
(d) Increase Decrease
(01)
ii. Quick and current ratios of a business as on 31 December were 1:1 and 1.25:1. If inventories at
that date amounted to Rs. 45 million, then current liabilities were:
(a) Rs. 144 million (b) Rs. 225 million
(c) Rs. 180 million (d) Rs. 135 million (02)

Good Luck

1 (FAR-I Test-10: 2 July 2024)

 Certificate in Accounting and Finance Stage Examinations
(Test 11) July 09, 2024
36 minutes – 20marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

Q.1 Following information relating to ChatGPT Limited (CL) has been gathered for the purpose
of calculating earnings per share:
(i) Profit after tax for the years ended 31 December 2022 and 2023 amounted to Rs. 308
million and Rs. 280 million respectively.
(ii) 25 million ordinary shares, each with a par value of Rs. 10, were outstanding as at 1
January 2022.
(iii) On 1 April 2022, 2 million convertible bonds with a par value of Rs. 100 each were issued.
The bonds carry interest at a rate of 18% per annum, payable on 31 March each year.
Every 2 bonds are convertible into 3 ordinary shares after 5 years.
(iv) On 1 January 2023, 6 million 16% cumulative irredeemable preference shares, each with
a par value of Rs. 50, were issued. Every preference share is convertible into 2 ordinary
shares after four years.
(v) On 1 May 2023, CL announced 40% right issue to its ordinary shareholders at Rs. 45 per
share. The entitlement date for the right issue was 1 June 2023. The market price per
share immediately before the announcement date and entitlement date was Rs. 65 and
Rs. 80 respectively
(vi) On 1 September 2023, CL issued 20% bonus shares to its ordinary shareholders.
(vii) The applicable tax rate is 30%.

Required:
Compute CL’s basic and diluted earnings per share to be disclosed in CL’s financial statements
for the year ended:
(a) 31 December 2022 (04)
(b) 31 December 2023 along with comparative figures (13)

Q.2 Select the most appropriate answer(s) from the options available for each of the following
Multiple Choice Questions.
(i) Aliha Limited's (AL) financial statements show a profit for the year of Rs. 20 million. On 1
January 20X5, AL had 4 million shares in issue.
There were no new issues of shares in the year, but there were 1 million outstanding options to
buy shares for Rs. 30 each. For the year to 31 December 20X5, the average market value of
AL's shares was Rs. 50.What is AL's Diluted EPS for the year ended 31 December 20X5?
(a) Rs. 3.00 (b) Rs. 4.35

(c) Rs. 4.55 (d) Rs. 4.00 (2)

(ii) An entity reported a positive earnings per share in previous year. Which of the following would
result in increase in earnings per share of previous year due to restatement?
(a) Right issue (b) Bonus issue
(c) Share split (d) Share consolidation
Good Luck
1 (FAR-I Test-11: 09 July 2024)
 Certificate in Accounting and Finance Stage Examinations
(Term Test 1) June 11, 2024
1 hour 35 minutes – 53 marks
Additional reading time – 10 minutes

Financial Accounting and Reporting 1

Instructions to examinees:
(i) Answer all FIVE questions.
(ii) Answer in black pen only.
(iii) Multiple choice questions must be answered in answer script only.
SECTION A
Q.1 Bundu Khan Corporation (BKC) decided to construct a tunnel that will link two sides of the
village that were separated by a natural disaster years ago. Realizing its role as a good corporate
citizen, the BKC has been in this village for a couple of years exploring oil and gas in the nearby
offshore area. The tunnel would take two years to build. It began construction on January 1,
2016. The following payments were made during 2016:
Dates Rs.
January 31 200,000
March 31 450,000
June 30 100,000
October 31 200,000
November 30 250,000
The first payment on January 31 was funded from the entity's pool of debt. However, the entity
succeeded in raising a medium-term loan for an amount of Rs. 800,000 on March 31, 2016, with
simple interest of 9% per year calculated and payable quarterly in arrears. These funds were
specifically used for this construction. Excess funds were temporarily invested at 6 percent per
year. The construction project was temporarily halted for six weeks in May, June, when
substantial technical and administrative work was carried out which was necessary stoppage for
the completion of construction work. The following amounts of debt were outstanding at the
year-end December 31, 2016:
Rs.
Medium-term loan (see description above) 800,000
Bank overdraft (The weighted average amount outstanding during the year was
1,200,000
Rs. 750,000, and interest charged thereon by the bank amounted to Rs. 33,800.)
A 10%, 7-year general loan taken on October 1, 2009, repayable in full in
9,000,000
December, 2017
Required:
Calculate the amount of borrowing cost to be capitalized to the cost price of the Tunnel in for
the year ended 31st December, 2016? (08)

Q.2 Select the most suitable options:

(i) Which of the following is not permitted as a cost to sell under IAS 36?
(a) Cost to dismantle machine (b) Auctioneers fees
(c) Standard wages for employees (d) Transport costs for machine (01)

(ii) The forgivable loan from government is accounted for as _____________ if there is no
reasonable assurance that the entity will meet the terms for forgiveness of loan.
(a) a liability (b) an income
(c) a government assistance (d) a government grant (01)

(FAR-I Term Test: 11 June 2024)

 Page |2

(iii) On 1 January 2021, Delta Limited (DL) acquired a manufacturing plant at a cost of Rs.200
million and received a government grant of Rs.40 million related to the plant. DL recorded the
grant as deferred income. The plant is being depreciated on a straight- line basis over five years.
The accounting period ends on 31 December each year. On 1 January 2023, the grant was repaid
in full on failing to meet the attached conditions. Profit or loss will be debited on the repayment
of the grant by:
(a) NIL (b) Rs. 16 million
(c) Rs. 24 million (d) Rs. 40 million (02)

(iv) Which of the following statements about IAS-20 ‘Accounting for Government Grants and
Disclosure of Government Assistance’ are true?
(a) A government grant related to the purchase of an asset must be deducted from
the carrying amount of the asset in the statement of financial position
(b) A government grant related to the purchase of an asset should be recognized in
profit or loss over the life of the asset
(c) Free marketing advises provided by a government department is excluded from
the definition of government grants
(d) Any required repayment of a government grant received in an earlier reporting
period is reported as prior period adjustment (01)

(v) On 30 September 2014, Razor’s closing inventory was counted and its cost of Rs. 1 million.
Some items of inventory which had cost Rs. 210,000 had been damaged in flood (on 15
September 2014) and are not expected to recover their normal selling price which is
calculated to achieve a gross profit margin of 30%. The sale of these goods will be handled
by an agent who sells them at 80% of their normal selling price and charges Razor a
commission of 25%.
At what value will the closing inventory of Razor be reported in its statement of financial
position as at 30 September 2014?
(a) Rs. 1,000,000 (b) Rs. 790,000
(c) Rs. 180,000 (d) Rs. 970,000 (02)

Q.3 You have recently joined as the finance manager of Commited Limited (CL) and have been
asked by the CFO to prepare a power point presentation on CL’s financial statements for the
year ended 31 December 2020 for the board of directors’ meeting. These financial statements
were finalised by the CFO. While preparing the presentation, you have noted the following
issues:
(i) CL uses fair value model for subsequent measurement of all investment properties. A five-
storey building purchased in July 2020 by CL was entirely classified as an investment
property. CL uses the ground and first floors for its administrative purposes while
remaining three floors were rented out to different tenants and will be sold in future.
Further, on 31 December 2020, the fair value increase of Rs. 150 million for the entire
building has been taken to the statement of profit or loss which has ensured that the
required interest cover as per bank loan covenants has been met.
The CFO is of the view that IFRSs allow such application as CL only uses less than 50%
of the building for its own use. He further explained that non-compliance of loan
covenants should be avoided at any cost as the bank loan would become immediately
payable upon non-compliance. This would create significant financial difficulties for CL
which may even result in closure of business. (03)

(FAR-I Term Test 1: 11 June 2024)

 Page |3

(ii) CL is constructing a power generation plant for its factory. The project started on 1
February 2020 and would complete on 30 November 2021. The work remained
suspended for 3 months. The project is financed through a long term loan, acquired
specifically on 1 January 2020. The unutilised amount of loan is kept in a separate saving
account. Full year’s interest on loan was capitalized in the cost of power generation plant
as the CFO is of the view that the loan is taken specifically for the purpose of constructing
the plant.
The income of separate saving account has been recorded as other income in the statement
of profit or loss. (03)

(iii) Incorporation of the new revaluation report of CL’s buildings was deferred to the next
year as the resulting increase in valuation is substantial and would result in increase in the
depreciation for the year. The revaluation was initiated during the year since the fair
values of the buildings had increased materially. CFO is of the view that the buildings
were revalued last year and there is no need of such frequent revaluations. (02)

(iv) The adoption of the revaluation model has been accounted for as a ‘Change in
estimate’ (i.e. prospectively) though it is a ‘Change in accounting policy’. (02)
Required:
Discuss how the above issues should be dealt in the financial statements of CL for the year
ended 31 December 2020 in accordance with the requirements of IFRSs.
Q.4 The accountant of Momin Enterprises (ME) prepared the draft statement of profit or loss for
the year ended 31 December 2023, which showed gross profit and net profit of Rs.1,360,000
and Rs.590,000 respectively. The following errors were found on a detailed review of the draft
financial statements:
(i) Purchase returns of Rs.20,000 were recorded as sales returns of Rs.2,000.
(ii) Free samples of goods costing Rs.30,000 were distributed to potential customers, but
were mistakenly recorded as credit sales at a mark-up of 30% on cost.
(iii) Proceeds from the disposal of office equipment on 31 December 2023, amounting to
Rs.382,000, were credited to sales. The equipment had cost and carrying amount on 31
December 2023 of Rs.500,000 and Rs.320,000 respectively. ME depreciates office
equipment at 20%.
(iv) Transportation outward, amounting to Rs.240,000, was recorded as transportation
inward. This also resulted in overstatement of closing inventory by Rs.36,000.
(v) While recording impairment for an item of property, plant and equipment, its value in
use of Rs.1.200.000 was ignored. The item had a carrying value (before impairment) of
Rs.1,800,000 and fair value less costs of disposal of Rs.1,000,000.
ME uses periodic inventory system for recording its inventory.
Required:
Compute the corrected gross profit and profit of ME for the year 2023. (08)

(FAR-I Term Test 1: 11 June 2024)

 Page |4

SECTION B
Q.5 Financial statements of Bard Limited (BL) for the year ended 31 December 2023 are under
preparation. During the review of the draft financial statements of BL, the following matters
have been identified:

(i) Statement of changes in equity was not prepared in the draft financial statements. In this
respect, the following details have been gathered:
▪ Share capital and reserves as at 1 January
2022 2021
—— Rs. in million ——
Ordinary share capital (Rs. 10 each) 2,400 2,400
Share premium 563 563
Retained earnings 1,345 1,153
▪ BL’s profit for the year 2023 (draft), 2022 and 2021 were Rs.575 million, Rs.477
million and Rs.321 million respectively.
▪ Final dividend for the year ended 31 December 2021 comprised of 15% cash dividend
and 10% bonus shares. The bonus issue was made from share premium, and the shares
were issued in April 2022 after payment of cash dividend.
▪ A bonus issue of 25% was made in July 2023 as interim dividend.
▪ 40 million right shares were issued in October 2023 at Rs.18 per share. Transaction
costs of Rs.3 million were also incurred.

(ii) On 1 January 2020, BL had received a government grant of Rs.600 million to acquire a
manufacturing plant. However, the grant was treated as income on receipt.
The manufacturing plant was acquired at a total cost of Rs.1,000 rmnion on 1 January
2020. It was estimated to have a useful life of 8 years and residual value of Rs.100 million.

(iii) BL had decided to adopt the revaluation model from 1 January 2023 for subsequent
measurement of land and buildings included in property, plant and equipmen However,
this change has not been accounted for in the draft financial statements.
The following information pertains to BL’s property, plant and equipment:
Revalued Remaining
WDV as on
amounts as on useful life as on
Assets 1 January 2023
1 January 2023 1 January 2023
Rs. in million Years
Land 1,000 1,250 -
Office building' 750 1,200 (9)
Factory building 1,000 550 (5)
On 1 November 2023, BL sold 40% of its land.
Depreciation on buildings has been recorded using straight line method. BL transfers the
maximum possible revaluation surplus to retained earnings.

Required:
Prepare BL’s statement of changes in equity along with comparative figures for the year ended
31 December 2023. (The column of total is not required) (20)

(Good Luck)

(FAR-I Term Test 1: 11 June 2024)

 Certificate in Accounting and Finance Stage Examinations
(Assessment) May 7, 2024
65 minutes – 35 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting – I

Instructions to examinees:
(i) Answer all FIVE questions
(ii) Answer in black pen only
(iii) Multiple choice questions must be answered in answer script only.

SECTION A
Q.1 Telepath acquired an item of plant at a cost of Rs. 800,000 on 1 April 2020 that is used to produce
and package pharmaceutical pills. The plant had an estimated residual value of Rs. 50,000 and an
estimated life of five years, neither of which has changed. Telepath uses straight-line depreciation.
On 31 March 2022, Telepath was informed by a major customer (who buys products produced by
the plant) that it would no longer be placing orders with Telepath. Even before this information
was known, Telepath had been having difficulty finding work for this plant. It now estimates that
net cash inflows earned from the plant for the next three years will be:
Year ended: Rs.000
31 March 2023 220
31 March 2024 180
31 March 2025 170
On 31 March 2025, the plant is still expected to be sold for its estimated realisable value. Telepath
has confirmed that there is no market in which to sell the plant at 31 March 2022. Telepath’s pre-
tax and post-tax cost of capital is 10% and 8.6% respectively.
Required:
Calculate carrying amount of plant at 31 March 2022. (04)

Q.2 Select the most appropriate answer from the options available for each of the following Multiple
Choice Questions (MCQs).
(i) XYZ Limited has purchased a plant of Rs. 400,000 having a useful life of 8 years.
Management is using Revaluation model for accounting purposes. At the end of year 1
revalued amount of plant is Rs.448,000.
At the end of year 2 due to adverse economic condition in country there are major indicators
of impairment and management has recorded a impairment loss of Rs. 60,000.
However, at the end of Y-3 economical condition has been improved and management need
to reverse the impairment loss. Now at the end of year 3 the recoverable amount is
Rs.330,000.
As per IAS-36, which of the following is the correct amount to be recorded in the Financial
Statements of XYZ Limited w.r.t reversal for impairment at end of year 3?
(a) Rs. 50,000 (b) Rs. 70,000
(c) Rs.120,000 (d) Rs. 130,000 (02)
(ii) Which TWO of the following are correct in accordance with IAS 36?
(a) If impairment indicators are present, the entity shall estimate the recoverable amount
of the asset.
(b) While computing impairment loss, the asset’s carrying value is compared with the
lower of its fair value less costs of disposal and its value in use.
(c) If the recoverable amount is lower than the carrying value, an impairment loss is always
charged to the statement of profit or loss.
(d) An impairment loss only arises if the fair value less costs of disposal as well as the value
in use are lower than the carrying amount. (01)

Umair Sheraz Utra, ACA.

 Financial Accounting and Reporting-I | Page 2 of 3

(iii) On 1 January 2022, Gamma Limited (GL) purchased a manufacturing plant at a cost Rs.
240 million with a useful life of 5 years. GL uses straight-line method of depreciation. At
31 December 2023, GL determines that there are indications for impairment. The plant’s
value in use and fair value less costs of disposal are estimated to be Rs.113 million and
Rs.108 million respectively.
Which of the following should be reported as impairment loss in GL's statement of profit
or loss for 2023?
(a) Rs.31 million (b) Rs.36 million
(c) Rs.79 million (d) Rs.79 million (01)

Q.3 You are the finance manager of Proton Limited (PL). The financial statements of PL for the year
ended 31 December 2023 are under preparation. In the beginning of 2023, PL adopted the
revaluation model for the subsequent measurement of property, plant and equipment. A new CEO
has recently joined PL. He has pointed out the following non-compliances of IFRSs after reviewing
the draft financial statements of PL:
(i) IAS 16 does not allow selective revaluation, so all classes of property, plant and equipment
should have been revalued.
(ii) IAS 16 requires that incremental depreciation must be transferred from revaluation surplus
to retained earnings but the transfer has not been made in the draft financial statements.
(iii) Some vehicles have been given on rent by PL; these should have been included in investment
property, but instead, they are included in property, plant and equipment.
Required:
Briefly respond to the non-compliances pointed out by the CEO. (06)

Q.4 On 1 January 2023, Titanium Limited (TL) commenced construction of its factory building. Below
is the breakdown of the payments made to the contractor:
Date of payments Rs. in million
1 February 2023 200
1 April 2023 350
1 September 2023 180
1 February 2024 160
890

These payments were financed through the following sources:

Date Descriptions Rs. in million
1 January 2023 17% long term loan 250
1 March 2023 Right shares (Expected annual dividend is 24%) 300
1 August 2023 19% short term loan (Payable in June 2024) 340
890

Additional information:
(i) Surplus funds available from both the loans and right shares were invested in a savings
account earning interest at a rate of 10% per annum.
(ii) The construction work was suspended from1 July to 31 July 2023; however, substantial
technical and administrative work was carried during July 2023.
(iii) The construction of the factory building was completed on 30 November 2023, but due to
minor modifications, it was not available for use until 31 December 2023.

Required:
Calculate the borrowing costs to be capitalized in the cost of factory building. (08)

Umair Sheraz Utra, ACA

 Financial Accounting and Reporting-I | Page 3 of 3

SECTION B

Q.5 Following information pertains to properties of Sulphur Limited (SL):

(i) SL obtained possession of property A from tenants on 30 April 2023 when SL shifted its head
office from property B to property A. Property B was rented out immediately. On 30 April
2023, the fair value of property A was Rs.740 million, while the fair value of property B was
determined as equal to its carrying amount.
The details of properties A and B are as follows:
Fair value
Date of Cost as on 31 December
Property
purchase 2023 2022
Rs. in million
A 1 January 2021 750 750 720
B 1 July 2021 500 480 440
60% of costs and fair values of both properties refer to the Land element
(ii) On 1 February 2023, SL started construction of property C with a view to earn rentals in the
future. The construction was completed on 30 September 2023 at a total cost of Rs.430
million. This included Rs.7 million and Rs.12 million for professional fees for legal services
and abnormal wastage of material during construction respectively.
Operating losses of Rs.10 million were also incurred before the property was rented out on
1 December 2023.
Fair value of property C was determined as Rs.380 million, Rs.390 million and Rs.395 million
as at 30 September'2023, 1 December 2023 and 31 December 2023 respectively.
Other information:
(i) Fair value model is used for subsequent measurement of all investment properties.
(ii) Cost model is used for subsequent measurement of all property, plant and equipment.
(iii)Depreciation is charged using the reducing balance method at a rate of 10%.
(iv) Rental revenue received during 2023 and accrued at 31 December 2023 are Rs.45 million and
Rs.6 million respectively.
(v) Repair and maintenance expenses related to investment property amounted to Rs.25 million.
(vi) All fair values are determined by Alpha Brothers, an independent firm of valuers.
Required:
(a) Prepare the note on ‘Investment property’ to be included in SL’s financial statements for the
year ended 31 December 2023. (11)
▪ Show each property in a separate column.
▪ Columns for total and comparative are not required.
(b) Assuming that SL follows cost model for investment properties, prepare journal entry to
record transfer of property A on 30 April 2023. (02)

(Good Luck)

Umair Sheraz Utra, ACA

 Certificate in Accounting and Finance Stage Examinations
(Term Test 2) July 20, 2024
1 hour and 15 minutes – 40 marks
Additional reading time – 5 minutes

Financial Accounting and Reporting 1

SECTION A
Q.1 BANNU PEACE Club was formed on 1 April 2015 and has the following receipts and payments
account for the six months ended 30 September 2015:
Receipts Rs. Payments Rs.
Subscriptions 12,600 Purchase of equipment 4,080
Tournament fees 465 Groundsman’s wages 4,520
Bank interest 43 Rent and business rates 636
Sale of club ties 373 Heating and lighting 674
Life membership fees 4,200 Postage and stationery 41
Court maintenance 1,000
Tournament prizes 132
Purchase of club ties 450
Balance c/d 6,148
17,681 17,681
Additional information:
1) The annual subscription fee is Rs.300. On 30 September there were five members who had not
paid their subscriptions, but this money was received on 4 October 2015.
2) The equipment is expected to be used by the club for five years, after which time it will need
to be replaced. Its estimated scrap value at that time is Rs.50.
3) During the six months, the club purchased 100 ties printed with its own design. Forty of these
ties remained unsold at 30 September 2015.
4) The club has paid business rates in advance on 30 September 2015 of Rs.68.
5) The club treasurer estimates that the following amounts should be accrued for expenses:
Rs.
Groundsman’s wages 40
Postage and stationery 12
Heating and lighting 53
6) The life membership fees received relate to payments made by four families. The scheme
allows families to pay Rs.1,050 which entitles them to membership for life without further
payment. It has been agreed that such receipts would be credited to life membership liability
account and will be amortized (taken to income and expenditure account) over 10 years.

Required:
(a) Prepare the club’s income and expenditure account for the six months ended
30 September 2015. (07)
(b) Prepare the club’s statement of financial position at 30 September 2015. (06)

Q.2 Select the most appropriate answer(s) from the options available for each of the following Multiple-
Choice Questions.
(i) An entity reported a positive earnings per share in previous year. Which of the following
would result in increase in earnings per share of previous year due to restatement?
(a) Right issue
(b) Bonus issue
(c) Share split
(d) Share consolidation (01)
(FAR-I Term Test 2: 20 July 2024)
 Page |2

(ii) Alpha company issued 4 million ordinary shares of Rs. 10 par value for purchasing land
having a fair value of Rs. 50 million. How should this transaction be reported by Alpha in its
statement of cash flows?
(a) It should be reported as financing cash flows.
(b) It should be reported as investing cash flows.
(c) It should not be presented in the statement of cash flows but it will be presented in the
notes to the financial statements.
(d) It should be reported as investing cash flows as well as financing cash flows. (01)

(iii) Beta Limited reported a net loss of Rs. 70,000 after charging depreciation expense of Rs.
81,000. If the working capital (other than cash) has increased by Rs. 8,100, then what is the
amount of net cash provided (used) by operating activities?
(a) (Rs. 159,100) (b) (Rs. 142,900)
(c) Rs. 2,900 (d) Rs. 19,100 (01)

(iv) Which of the following statements is/are correct?

(I) Interest paid may be classified as an operating cash flow or as an investing cash flow.
(II) Cash flows from operating activities calculated using ‘Indirect method’ are greater than
cash flows from operating activities calculated using ‘Direct method’.
(a) Only (I) is correct (b) Only (II) is correct
(c) Both are correct (d) None is correct (01)

(v) Which of the following statements is/are correct?

(I) Earnings per share amounts should not be presented if they are negative i.e. losses per share.
(II) If basic and diluted earnings per share are equal, dual presentation can be accomplished
in one line in statement of comprehensive income.
(a) Both are correct (b) Only (I) is correct
(c) Only (II) is correct (d) None is correct (01)

(vi) When there is no balance in share premium account, transaction costs relating to issue of
shares are debited to:
(a) profit or loss (b) share capital
(c) revaluation surplus (d) retained earnings (01)

(vii) Shaheen Limited is a company listed on Pakistan Stock exchange. Its financial statements
for the year ended 31 December 2017 showed EPS of Rs. 8.5 per share.
On 1 July 2018 Shaheen Limited made a 1 for 3 bonus issue.
What figure for the 2017 earnings per share will be shown as comparative information in the
financial statements for the year ended 31 December 2018?
(a) Rs. 2.13 (b) Rs. 2.55
(c) Rs. 6.38 (d) Rs. 2.83 (02)

(viii) Which of the following are specific reserves created out of retained earnings to ensure that
dividends remain stable irrespective of changes in earnings?
(a) General reserve (b) Dividend equalization reserve
(c) revenue reserve (d) Capital reserve (01)

(FAR-I Term Test 2: 20 July 2024)

 Page |3

SECTION B
Q.3 Jalib Industries Limited (JIL) is a listed company. The relevant information contained in the financial
statements for the year ended December 31, 2015 is as follows:
Statement of Financial Position
2015 2014
Rupees in million
Non-current assets
Property, plant and equipment 129.40 100.60
Capital work in progress 22.50 37.00
151.90 137.60
Current assets
Stock in trade 531.80 451.00
Trade debts 28.50 24.70
Prepayments and other receivables 35.20 42.00
Cash and bank 12.00 3.00
607.50 520.70
759.40 658.30
Equity
Share capital 396.00 300.00
Share premium 45.00 12.00
Unappropriated profit 142.60 163.00
583.60 475.00
Non-current liabilities
Gratuity payable 38.60 27.50
Long-term loans 80.00 100.00
118.60 127.50
Current liabilities
Current portion of long-term loans 18.00 20.00
Trade Creditors 20.00 18.00
Accruals and other payables 16.20 16.40
Dividend payable 3.00 1.40
57.20 55.80
759.40 658.30
Statement of profit or loss 2015 Rs. in million
Sales 2,535.00
Cost of goods sold (1,774.50)
Gross profit 760.50
Operating expenses (554.00)
Financial charges (10.50)
Loss on sale of fixed assets (4.60)
(569.10)
Profit before tax 191.40
Tax expense (106.80)
Profit after tax 84.60
The following supporting information is available:
a) During the year, an amount of Rs.42 million was transferred from capital work in progress to
property, plant and equipment.
b) The company sold property, plant and equipment having book value of Rs.15 million for Rs.10.4
million.
c) Depreciation for the year amounted to Rs.27.7 million. 60% of the depreciation is charged to cost
of sales.

(FAR-I Term Test 2: 20 July 2024)

 Page |4

d) Trade debts written off during the year amounted to Rs.1 million. It is the policy of the company to
maintain the provision for doubtful debts at 5% of trade debts.
e) Prepayments and other receivables include advance tax of Rs.1.4 million (2014: Rs.2.2 million).
f) Provision for gratuity made during the year (i.e., gratuity expense) amounted to Rs.15.5 million.
g) Accruals and other payables include accrued financial charges amounting to Rs.5 million (2014:
Rs.6 million).
h) On January 15, 2016, the company declared final dividend for the year ended December 31, 2015
comprising 7.5% (2014: 35%) cash dividend and 12.5% (2014:0%) bonus shares, for its ordinary
shareholders.
Required:
Prepare a statement of cash flow for the year ended December 31, 2015, in accordance with the
requirements of International Accounting Standards using direct method. (18)

(Good Luck)

(FAR-I Term Test 2: 20 July 2024)