FINANCIAL & CORPORATE REPORTING

Time allowed – 3 hours Total marks – 100

[N.B. – Figures in the margin indicate full marks. Questions must be answered in English. Examiner will take

account of the quality of language and of the way in which the answer are presented. Different parts if any, of the same question must be answered in one place in order of sequence.]

Marks

1. (a) As per BAS/BFRS, when a parent company does not need to present consolidated financial statements? 5

(b) Park Ltd. (a public limited company listed with Dhaka Stock Exchange) acquired 75% control of Sift Ltd. as a result of the following three purchases:

Value of total equity Date of purchase

No. of shares acquired

Purchased price/share Share capital R/earnings

Taka Taka Taka 500,000 60,000 30-Jun-09 5,000 10 500,000 200,000 31-Mar-10 15,000 12 500,000 250,000 01-Jan-11 17,500 25

The face value per share of Smith Ltd. was Tk.10. The balance of equity of Smith Ltd. at each reporting dates were as follows:

Reporting date Share capital Retained earning Market price per share (i) 31-Dec-09 500,000 75,000 10.50 (ii) 31-Dec-10 500,000 190,000 11.00 (iii) 31-Dec-11 500,000 300,000 16.00

Show how the above amounts to be presented in the statement of financial position at each reporting dates (give necessary adjustment for impairment as you think necessary). Quote relevant provisions of BFRS in support of your answer. 15

2. Perfect Ltd. is a fast moving consumer goods (FMCG) company listed in the stock exchange. The

auditor, at the time of verification of inventory at the close of business on 31 March 2012, identified that some customers payment, are invoiced at the time of fund received but the goods were not delivered until the reporting date as these were in the production work-in-progress. The relevant information for the said error was as follows:

Figures in 000 BDT Unaudited Audited 2012 2011 Received from customers 7,250 6,905

Invoiced to customers: Olitalia oil 5 (2500 units x 1120), (2000 units x 1015) 2,800 2,030 Sunflower oil (5,000 units x 890), (6,500 units x 750) 4,450 4,875 7,250 6,905 Cost of products of above volume: Olitalia oil 5(2500 units x 1050), (2000 units x 950) 2,625 1,900 Sunflower oil (5,000 units x 800), (6,500 units x 600) 4,000 3,900 6,625 5,800 The supply chain manager confirmed that all goods that invoiced on 15 March 2011 for BDT 6,905,000 were delivered on 20 May 2011 whereas invoiced on 27 March 2012 for BDT 7,250,000, were delivered on 31 May 2012.

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– 2 –

Extract figures of financial statements are as follows: Comprehensive income statements for the year ended 31 March: Figures in 000 BDT Revenue 87,000 82,860 Cost of sales (79,500) (69,600)

Gross profit 7,500 13,260 Operating expense (1,200) (1,200) Profit before tax 6,300 12,060 Income tax expense (1,733) (4,523) Profit for year 4,567 7,537

Income tax rate 27.5% 37.5%

Earnings per share 22.84 37.69

Requirement: (i) Identify the line items of the financial statements those are to be corrected with reasons 5 (ii) Pass rectified journal entries in the books of Perfect Ltd. 5 (iii) Re-draft the figures of the extract financial statements as at 31 March 2012 and 2011 5 (iv) Give a disclosure with note highlighting the impact in the profitability and equity as per BAS 8. 10 3. The summarized financial statements of Alltex Ltd. were as follows:

(i) Statement of financial position 31 Dec 2011 31 Dec 2010 Taka Taka ASSETS Non-current assets Property, plant and equipment 1,750,000 1,550,000

Total non non-current assets 1,750,000 1,550,000 Current assets: Inventories 1,431,000 1,197,000 Trade and other receivables 2,567,000 2,825,000 Cash and cash equivalents 1,675,000 700,000 5,673,000 4,722,000 Total assets: Taka 7,423,000 6,272,000

EQUITY AND LIABILITIES Capital and reserve: Ordinary share capital (Tk.1/share) 5,000,000 5,000,000 Revaluation reserve 500,000 - Retained earnings 112,000 292,000 5,612,000 5,292,000 Non-current liabilities Provision for gratuity 425,000 210,000 425,000 210,000 Current liabilities: Trade and other payables 686,000 540,000 Current tax payable 700,000 230,000 Total current liabilities 1,386,000 770,000 Total liabilities 1,811,000 980,000 Total equity and liabilities: Taka 7,423,000 6,722,000

(ii) Income statement for the year ended 31 Dec2011 Taka Taka

Revenue 3,390,000 3,355,000 Cost of sales (2,445,000) (2,235,000) Gross profit 945,000 1,120,000 Other income 20,000 11,300 Administrative expenses (220,000) (321,000) Other expenses (45,000) (135,000) Finance costs (180,000) (175,000) Profit before tax 520,000 500,000 Income tax expense (700,000) (230,000) Profit/(loss) for the year (180,000) 270,000

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– 3 – The Managing Director is surprised looking a net loss of Tk.180,000 although sufficient measures

are taken to reduce costs. The Company’s newly appointed CFO said that this was happened mainly due to lump-sum provision was made for income tax and deferred tax was not accounted for since the beginning of the company. He also suggested to re-calculate deferred tax expenses and liability since 1 January 2010. The Accountant has obtained the following information as relevant for deferred tax calculation:

Taka Taka Excess perquisites 23,500 20,000 Accounting entertainment expenses 350,000 750,000 Gratuity expense 845,000 525,000 Accounting depreciation 437,000 232,000 Accounting profit on sale of assets 3,290 - Gratuity paid 40,000 105,000 Tax depreciation allowance 225,000 750,000 Tax income on sale of assets 107,500 - Tax allowable entertainment allowance 60,635 95,300

Income tax rate 27.5% 37.5% (iii) Accounting balances: 31 Dec 2011 31 Dec 2011 31 Dec 2009 Property, plant and equipment 1,750,000 1,550,000 1,050,000 Provision for gratuity (425,000) (210,000) -

(iv) Tax related information: (a) Tax written down value of fixed assets 656,000 375,000 523,000 (b) Tax rate 27.5% 37.5% 37.5% Requirement: (a) Re-calculated current tax expense and payable as at 31 December 2011 and 2010. 7 (b) Re-calculated deferred tax asset or liability as at 31 December 2011 and 2010. 8 (c) Re-draft the financial statements as at and for the year ended 31 December 2011 and 2010. 10 4. (a) Jamuna Media Ltd. is a listed company operates in the media sector. You are the Chief Finance

Officer at Jamuna Media Ltd. It prepares financial statements in accordance with BFRS. There has been rapid consolidation in the sector and Jamuna Media Ltd. has recently acquired two `keyhole’ investments in competitors. Its strategy is to hold the investments for their long-term potential. Jamuna Media Ltd. has never held equity or non-equity share investments previously.

The following details of the two `keyhole’ investments are available:

(1) Jamuna Media Ltd. acquired 10,000 Tk.10 ordinary shares in Rashid Ltd., representing 6% of the issued ordinary share capital on 1 April 2011 for a consideration of Tk.300 per share payable in cash. At 31 December 2011 the market value of each share was calculated as Tk.345 (ex. div). A dividend of Tk.20 per share was declared by Rashid Ltd. on 20 December 2011 which is payable on 4 February 2012. The managing director has stated that the intention is acquire further ordinary shares in the future if Rashid Ltd.’s strategy is successful and capital market opportunities are available.

(2) Jamuna Media Ltd. acquired 20,000 8% Tk.10 preference shares in Good Lunck Ltd. on 1 January 2011 for a consideration of Tk.12 per share. The share are redeemable in 2013 at par and the fair value of each share at 31 December 2011 has been calculated as Tk.13. The annual 8% preference dividend was received on 31 December 2011. The effective interest rate has been calculated as 6%. The managing director has stated that the intention is to hold these securities for the long-term.

The managing director has asked you to prepare him a report which discusses the financial reporting and other issues associated with the different potential treatments of these transactions.

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– 4 – Requirements:

Prepare a report for the Managing Director which should: (i) Explain, using extracts from financial statements, the possible financial reporting

treatments for the `keyhole’ investments identified above for the year ended 31 December 2011. 8

(ii) Assess the potential impacts on the financial statements in the current and future years where different possible financial reporting treatments exist. 6

(iii) Discuss the financial reporting, ethical and other matters that you need to consider in formulating the accounting policies for these investments. 6

(b) Identify and explain two areas in which the application of BFRS 8 requires significant amount of judgments to be exercised by management and explain how a chartered accountant should review these judgments? 4

(c) Identify the presentation requirements of the following transactions in the financial statements of Aftab Ltd. for the year ended 31 December 2011: 6

Aftab Ltd. has multinational operation and operating in several business sectors. On 30 June 2011 Aftab Ltd. announced the sale of its electronics division. The sale was completed on 30 September, 2011. On 15 December 2011 the company decided to close down and terminate the operations of the machinery division and was confident of completion within 12 months. Each division has been disclosed as a separately reportable operating segment n previous financial statements.

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