Institute of Certified Management Accountants of Sri Lanka Operational Level November 2015 Examination

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Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level November 2015 Examination Examination Date : 14 th November 2015 Number of Pages : 10

1 Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level November 2015 Examination Examination Date : 14 th November 2015 Number of Pages : 10 Examination Time: 9.30 a:m p:m. Number of Questions: 07 Instructions to Candidates 1. Time allowed is three (3) hours. 2. Total: 100 Marks 3. Answer all questions in Part I and four (4) questions from Part II selecting two (2) questions from each of the Sections A and B. 4. The answers should be in English Language. Subject Subject Code Financial Accounting and Reporting (FAR / OL 2 202) PART I Question No. 01 (20 Marks) Answer all parts of Question No.1. Select the most suitable answer to each part of the question. Write the number of the part of the question and the selected answer by stating the relevant English letter, in your answer booklet. E.g. (1) (relevant English letter), (2) (relevant English letter) etc (1) Which ONE of the following is stated as an underline assumption according to the Conceptual Framework for Financial Reporting? (a) Neutrality (b) Accruals (c) Relevance (d) Going Concern (2) Which of the followings are examples of transactions which could be used to create off-balance sheet finance? (i) Sale and Repurchase arrangements (ii) Factoring of debts (iii) Warranty Provisions (iv) Consignment Inventories (a) (b) (c) (d) (i), (ii) & (iii) only (i), (ii) & (iv) only (i), (iii) & (iv) only (ii), (iii) & (iv) only Institute of Certified Management Accountants of Sri Lanka 1

2 (3) PQR decided to change its reporting date which will result in a 15-month reporting period. Which two of the following items must be disclosed in accordance with LKAS 1 - Presentation of Financial Statements? (i) The reason for the period being longer than 12 Months. (ii) A statement that similar entities have also changed their according period. (iii) A statement that comparative amounts used in the financial statements are not entirely comparable. (iv) Whether the change is just for the current period or for the foreseeable future. (a) (b) (c) (d) (i) & (ii) only (i) & (iii) only (ii) & (iv) only (iii) & (iv) only (4) According to LKAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, which ONE of the following is a change in accounting policy that requires retrospective application? (a) The depreciation method of vehicle was changes from straight line depreciation to reducing balance (b) Provision for warranty claims was changed from 10% of sales to 5 %. (c) The depreciation of the Production facility has been reclassified from administration expenses to cost of sales in the current and future years. (d) Based on information that became available in the current period a provision was made for an injury compensation claim relating to an incident in a previous year. (5) LKAS 18 - Revenue sets out criteria for the recognition of revenue from the sale of goods. Which ONE of the following is NOT a criteria specified by the LKAS 18 for recognizing revenue from the sale of goods? (a) The seller no longer retains any influence or control over the goods (b) The buyer has paid for the goods (c) The cost to the seller can be measured reliably (d) The significant risk and reward of ownership have been transferred to the buyer. (6) The Inventory value for the financial statements of ABC for the year ended 31 st December 2013 was based on an inventory count carried on 10 th January 2014, which gave a total inventory value of Rs.352,400/-. During the period from 31 st December 2013 to 10 th January 2014, the following transactions took placed: Rs. Purchase of goods 12,400 Sale of goods (profit Margin 30% on sales) 18,000 Goods returned to KZ Supplier 1,500 What adjusted figure should be included in the financial statements for inventories at 31 st December 2013? (a) Rs.328,900 (b) Rs.350,700 (c) Rs.354,100 (d) Rs.375,900 Institute of Certified Management Accountants of Sri Lanka 2

3 (7) Under what circumstances is it appropriate to immediately recognize a loss on a construction contract? (a) After work has commenced on the contract (b) After 50% stage of completion of contract activity (c) When it is probable that total contract costs will exceed total revenues (d) All of the above (8) Which of the following is an example of an asset that would never qualify for capitalization of borrowing costs under LKAS 23 - Borrowing Costs? (a) Intangible assets (b) Financial assets (c) Manufacturing plants (d) Power Generation facilities (9) Which of the following may be included in a company s statement of financial position as an intangible asset under LKAS 38 - Intangible Assets? (a) Payment on account of patents (b) Expenditure on completed research (c) Start-up-costs (d) Internally-generated goodwill (10) LKAS 17 - Lease requires a lessee to capitalise a finance lease at which of the following amounts? (a) Fair value of the leased assets. (b) Present value of the minimum lease payments. (c) Lower of fair value of the leased assets and present value of the minimum lease payments. (d) Lower of minimum lease payments and fair value of the leased assets. (10 2 Marks = Total 20 Marks) End of Part I Institute of Certified Management Accountants of Sri Lanka 3

4 PART II Section A Answer any two (2) questions Question No. 02 (20 Marks) Trial Balance of" Author PLC" as at 31 st March 2015 is given below: Dr. (Rs.000) Land and Building (Cost of Building Rs.25,000,000) 35,000 Motor Vehicles 17,500 Office Equipment 11,750 Furniture and Fixtures 6,500 Accumulated Depreciation as at 01/04/2014 Cr. (Rs.000) Building 9,500 Motor Vehicles 6,250 Office Equipment 4,500 Furniture and Fixtures 1,500 Trade Receivables 9,900 Other Receivables 750 Trade Payables 8,850 Other Payables 450 Cash and Bank 3,288 Bank Overdraft 1,426 Stated Capital- Ordinary Share Capital 42,000 Revaluation Reserve 2,500 Retained Earnings 01/04/2014 4,297 General Reserve 1,500 Sales 142,950 Motor Vehicles Disposal 2,650 Purchases 110,800 Inventory as at 01/04/2014 8,650 Administration Expenses 10,560 Distribution Expenses 9,800 Other Operating Expenses 1,330 Finance Charges 125 Income Tax Provisions as at 01/04/2014 1,200 Income tax paid 1,460 Dividend Paid 2, , ,573 Institute of Certified Management Accountants of Sri Lanka 4

5 Following additional information is also available: (1) Inventory as at 31 st March 2015 was Rs.10,500,000/-. (2) 31 st March 2015, Goods to the value of Rs.4,850,000/- were invoiced & dispatched on Credit Terms. However this transaction has not yet been recorded in the books. (3) Cash & Bank includes Fixed Deposits to the value of Rs.3,000,000/-, which was invested in 1st October 2014 at 8% per annum. (4) On 31 st March 2015, Building were revalued and the revaluation surplus amounted to Rs.2,150,000/-. However this has not yet been recorded in the books. (5) During the year Motor vehicle purchased for Rs.4,000,000/- on 1 st October 2012 was sold for Rs.2,650,000/- and the Sales proceeds have been credited Motor vehicle disposal Account. (6) 1 st October 2014, an Office Equipment was purchased for Rs.2,250,000/- and the cost is debited to Office Equipment Account. (7) Proposed ordinary dividend for 2013/2014 amounts to Rs.2,150,000/-. (8) Income tax amounting to Rs.1,460,000/- has been paid to settle fully the Income tax for the year 2013/2014. Further estimated Income tax for the year 2014/2015 is Rs.2,021,000/-. (9) Property Plant & Equipment s are depreciated on the Straight Line method at the following rates per annum: Building 5% Motor vehicles 20% Office Equipment s 25% Furniture & Fittings 20% It is company policy to charge full years' depreciation in the year of purchase and no depreciation in the year of sale. You are required to prepare the following for Author PLC for publication purposes: (a) Statement of Comprehensive Income for the year ended 31 st March (06 Marks) (b) Statement of Financial Position as at 31 st March (05 Marks) (c) Statement of Changes in Equity For the year ended 31 st March (04 Marks) (d) A statement showing movement of Property, Plant and Equipment for the year ended 31 st March (05 Marks) (Total 20 Marks) Institute of Certified Management Accountants of Sri Lanka 5

Question No. 03 (20 Marks) (a) As per LKAS - 23: Accounting for borrowing costs; what costs may consider as borrowing costs? (03 Marks) (b) As per LKAS -23: Give five examples of Qualifying Assets.

6 Question No. 03 (20 Marks) (a) As per LKAS - 23: Accounting for borrowing costs; what costs may consider as borrowing costs? (03 Marks) (b) As per LKAS -23: Give five examples of Qualifying Assets. (03 Marks) (c) (d) (e) (f) As per LKAS - 23: Accounting for borrowing costs; when should capitalization of borrowing costs should suspended? (02 Marks) As per LKAS - 23: Accounting for borrowing costs; when should capitalization of borrowing costs cease? (02 Marks) As per LKAS - 23: Accounting for borrowing costs; what information an entity should be disclosed? (02 Marks) On 1 st April 2014 Samson Co borrowed Rs.4.5 Million to finance the production of two assets, both of which were expected to take a year to build. The loan facility was drawn down and incurred on 1 st April 2014, and was utilized as follows, with the remaining funds invested temporarily. You are required to: (i) Calculate the borrowing costs which may be capitalize for each of the assets and (ii) Consequently the cost of each asset as at 31 st March (04 Marks) (g) Charley & Co had the following loans in place at the beginning and end of The 8.9% Debentures was issued to fund the construction of a qualifying assets and the construction was began on 1 July On 1 January 2014, Charley & Co began construction of a qualifying assets (Piece of Machinery for a Plant), using existing borrowings. Expenditure drawn down for the construction was Rs.50 Million on 1 st January 2014 and Rs.20 Million on 1 st October You are required to: (i) Calculate the Capitalization Rate (ii) Calculate the borrowing costs that can be capitalized for the Plant Machine. (4 Marks) (Total 20 Marks) Institute of Certified Management Accountants of Sri Lanka 6

7 Question No. 04 (20 Marks) The following draft financial statements of Bernard PLC for the year ended 31 st March 2014 is given below together with additional information. Bernard PLC Statement of Profit and Loss Account for the period Ended 31 st March 2014 Bernard PLC Statement of Financial Position as at 31 st March /03/2014 (Rs.'000) 31/03/2013 (Rs.'000) Leasehold Premises (Net) 6,600 5,700 Plant, Machinery & Equipment (Net) 5,040 3,780 Investments at cost 2,608 2,208 Inventories 2,880 1,986 Receivables 2,586 1,992 Bank Balances ,714 16,242 Share Capital 2,300 1,800 Share Premium 2,200 1,800 Retained Earnings 9,232 6,714 Deferred Taxation Non-current Loan (10%) 1,240 1,800 Provisions for Deferred Repairs 1,200 1,016 Payables 1, Overdraft Income Tax 1,730 2,038 19,714 16,242 Institute of Certified Management Accountants of Sri Lanka 7

8 The following additional information available: (1) The 10% non-current loan was redeemed at par. (2) Plant & Equipment s with written down value of Rs.276,000/- was sold for Rs.168,000/- New Plant was purchased for Rs.2,200,000/-. (3) Leasehold Premises costing Rs.1,200,000/- were acquired during the year. You are required to prepare Cash Flow Statement (using Indirect Method) in accordance with LKAS 7 - Statement of Cash Flow for Bernard PLC as at 31 st March (Total 20 Marks) End of Section A Section B Answer any two (2) questions Question No. 05 (20 Marks) (a) The following are the statement of financial position of Alpha and is subsidiary Beta as at 31 st March Alpha Beta 31 st March st March 2014 Rs. Rs. Rs. Rs. Assets Non-Current Assets Tangible Assets 160,000 85,000 Investments 70,000 - Current Assets Inventory 75,000 38,000 Trade Receivables 82,100 48,000 Current Account Beta 15,800 - Cash at Bank & Hand 10,000 26, , ,000 Total Assets 412, ,000 Equity & Liabilities Capital & Reserves Ordinary Share Capital 250,000 50,000 General Reserves - 6, ,000 56,250 Revaluation Surplus - 15,000 Retained Earnings 35,900 42, , ,000 Non- Current Liabilities 6% Debentures - 20, , ,000 Current Liabilities Trade Payables 127,000 55,000 Current Account Alpha - 8, ,000 63,000 Total Equity & Liabilities 412, ,000 Institute of Certified Management Accountants of Sri Lanka 8

9 Additional Information is as follows: (1) Alpha acquired 80% ordinary share capital of Beta on 1 st April 2013 for a cost of Rs.58,000/- when the balances on Beta s reserves were: Rs. General Reserves 6,250 Revaluation surplus - Retained earnings 10,000 Alpha also acquired Rs.12,000/- of Beta s debentures at par on the same date. (2) Non-controlling interest is valued at fair value, which was Rs.14,250/- on acquisition. Half of the goodwill on acquisition has been impaired by 31 st March (3) The current account difference is due to cash in transit. You are required to prepare the Consolidated Statement of Financial Position as at 31 st March 2014 of Alpha. (15 Marks) (b) State the conditions which must be met if development expenditure is to be recognized as an intangible asset. (5 Marks) (Total 20 Marks) Question No. 06 (20 Marks) (a) (b) Define the following accounting concepts and explain for each their implication for the preparation of financial statements: (i) The entity concept (ii) Going concern (iii) Materiality (iv) Fair presentation (4 4 Marks = 16 Marks) Comparability is an enhancing qualitative characteristic which adds to the usefulness of financial statements. You are required to explain what is meant by the term comparability in financial statements, referring to TWO types of comparison that users of financial statements may make. (4 Marks) (Total 20 Marks) Institute of Certified Management Accountants of Sri Lanka 9

10 Question No. 07 (20 Marks) (a) Define the following terms as per LKAS 12 Income Taxes (i) Taxable profit/(tax loss) (ii) Deferred tax liabilities (iii) Deferred tax assets (iv) Temporary differences (v) Tax Base (5 2 Marks = 10 Marks) (b) Lanka Tours buys a coach on 1 st January 2011 for Rs.3,000,000/-. The Coach has a useful life of three years and will be scraped at the end of its life. For tax purposes, two years is allowed to claim capital allowances. The company has a profit before tax of Rs.1,000,000/- in each of the three years 2011, 2012 and Corporate Tax rate is 25%. You are required to prepare extracts from the financial statements of Lanka Tours to show how the company would account for deferred tax on the temporary differences from year 2011, 2012 and 2013: (i) Extracts from the statement of financial position. (3 Marks) (ii) Extracts from the statement of profit & loss account. (7 Marks) (Total 20 Marks) End of Section B End of Part II End of Question Paper Institute of Certified Management Accountants of Sri Lanka 10

Institute of Certified Management Accountants of Sri Lanka Operational Level October 2017 Examination

Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level October 2017 Examination Examination Date : 28 th October 2017 Number of Pages : 08 Examination