ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD (Department of Commerce

ADVANCED !INANCIAL ACCOUNTIN" (#$$%

C&EC'LIST

SEMESTER AUTUMN, ()*%

This packet comprises the following material: 1. 2. 3. #. %. Text Book (One) Course Outline ssignment !o. 1"2 ssignment $orms ( 2 sets ) &che'ule for assignment su(mitting an' tutorial meetings.

)n this packet" if *ou fin' an*thing missing out of the a(o+e mentione' material" please contact at the a''ress gi+en (elow:

Ma+,+n- Off+cer A,,ama I./a, Open Un+0er1+t2 &3#, I1,ama/a4 M56amma4 M5n+r A6ma4 (Course Coor'inator) 1

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD (Department of Commerce 7ARNIN"

*8 (8 PLA"IARISM OR &IRIN" O! "&OST 7RITER(S !OR SOLVIN" T&E ASSI"NMENT(S 7ILL DEBAR T&E STUDENT !ROM A7ARD O! DE"REE9CERTI!ICATE, I! !OUND AT ANY STA"E8 SUBMITTIN" ASSI"NMENT(S BORRO7ED OR STOLEN !ROM OT&ER(S AS ONE:S O7N 7ILL BE PENALI;ED AS DE!INED IN <AIOU PLA"IARISM POLICY=8 Seme1ter> A5t5mn, ()*% Tota, Mar?1> *)) Pa11 Mar?1> $)

Co5r1e> A40ance4 !+nanc+a, Acco5nt+n- (#$$% Le0e,> M8 Com

ASSI"NMENT No8 *
(Un+t1> *@A Note: You are required to solve all questions if you are unable to understand any question of assignment, do seek help from your concerned tutor. But keep in mind mat tutors are not supposed to solve the assignment questions for you. ,. 1 a) -hat is meant (* .recognition/ in financial statements0 n' 'iscuss the recognition criteria. lso appl* the recognition criteria to: (() i) ssets an' 1ia(ilities ii) )ncome an' 2xpenses 2xplain the following measures of financial statements with suita(le examples: i) 3istorical cost ii) 4eplacement cost iii) $air +alue i+) !et reali5a(le +alue +) 2conomic +alue 4ingo compan* ha' 4s. 677"777 of sales in each of three consecuti+e *ears 277#82779" an' it purchase' merchan'ise costing 4s. %77"777 in each of those *ears. )t also maintaine' a 4s. 277"777 in+entor* from the (eginning to the en' of the three8*ear perio'. )n accounting for in+entor*" it ma'e an error at the en' of *ear 277# that cause' its *ear8en' 277# in+entor* to appear on its statements as 4s. 1:7"777 rather than the correct 4s. 277"777. (() i) ;etermine the correct amount of the compan*/s gross profit in each of the *ears 277#82779.

()

,. 2 a)

ii) ()

<repare comparati+e income statement to show the effect of this error on the compan*/s cost of goo's sol' an' gross profit for each of the *ear 277#82779. $orex Co. purchases in+estments in tra'ing securities at a cost of 4s. %9"777 on ;ecem(er 2=" 277% (This is its first an' onl* purchases of such securities) t ;ecem(er 31" 277%" these securities ha' a market +alue of 4s. 99"777. i) <repare the ;ecem(er 31" 277%" *ear8en' a'>usting entr* for the tra'ing securities/ portfolio. ii) 2xplain how each account in the entr* of <art 1 is reporte' in financial statements iii) <repare the ?anuar* 3" 2779" entr* when $orex sells one8half of these securities for 4s. 37"777.

,. 3 <oach ac@uire' 97A of the share capital of &teal on its incorporation. The (alance sheets of the two companies as at 31 ;ecem(er 2711 are as follows: (()
Poac6 4s.B777 Non3C5rrent A11et1 <ropert*" plant an' e@uipment )n+estment in &teal C5rrent A11et1 )n+entories 4ecei+a(les 8 from <oach 8 other Cash 22 8 69 # 122 %(# 1: 3: 21 1% 62 *B( Tra'e pa*a(les8to &teal 27 8 other 91 :1 %(# 8 %6 %6 *B( 277 9 279 Stea, 4s.B777 %7 %7 C5rrent L+a/+,+t+e1 E.5+t2 &hare capital 4etaine' earnings Poac6 4s.B777 177 1#= 2#= Stea, 4s.B77 7 17 =3 :3

Notes: i. There was cash in transit of 4s. 9"777 from <oach to &teal at the *ear en'. ii. Coo's 'ispatche' (* &teal to <oach (efore the *ear en' with the relate' in+oices to the +alue of 4s. 12"777 has not (een recei+e' (* <oach until # ?anuar* 2712. &teal sol' to <oach at a profit margin of 2%A on selling price. ll other goo's recei+e' from &teal 'uring the *ear ha' (een sol' on (* <oach to thir' parties (* the *ear en'. Re.5+re4> <repare a consoli'ate' (alance sheet as at 31st ;ecem(er" 2711.

,. # ?awa' Corporation signe' a lease agreement with Damran Corporation for leasing a Eotor Car on 1st ?anuar*" 2717 for 9 *ears. nnual rentals are pa*a(le at the en' of each *ear mounting 4s. 39"772 (* the Damran Corporation. Fseful life of Eotor Car is 9 *ears an' interest rate implicit in the lease is 1#A. $air +alue of the 1ease' ssets is 4s. 1#7"777. (() Re.5+re4> In the books of Ja ad !orporation, you are required to: i. )'entif* the t*pe of lease. ii. ;etermine the Cross )n+estment in the lease an' Fnearne' $inance )ncome iii. <repare amorti5ation sche'ule. i+. <repare >ournal entries for the first two *ears. +. <resent the Balance &heet 2xtracts as at ;ecem(er 31" 2717 an' 2711. ,. % Gor( Corporation (egan *ear 2711 with the following (alances in its stockhol'ers/ e@uit* accounts. (*) Common &tock 8 4s. 17 par" %77"777 shares authori5e'" 277"777 shares issue' an' outstan'ing . . . . . . . . . . . . . . 4s.2"777"777 <ai'8in capital in excess of par" common stock . . . . . . . . 1"777"777 4etaine' earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %"777"777 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4s.:"777"777 ll outstan'ing common stock was issue' for 4s. 1% per share when the compan* was create'. <repare >ournal entries to account for the following transactions 'uring *ear 2711. ?an. 17 The (oar' 'eclare' a 4s. 7.17 cash 'i+i'en' per share to sharehol'ers of recor' ?an. 2:. $e(. 1% <ai' the cash 'i+i'en' 'eclare' on ?anuar* 17. Ear. 31 ;eclare' a 27A stock 'i+i'en'. The market +alue of the stock is 4s. 27 per share. Ea*. 71 ;istri(ute' the stock 'i+i'en' 'eclare' on Earch 31 ?ul*. 71 <urchase' 37"777 shares of treasur* stock at 4s. 27 per share. &ep. 71 &ol' 27"777 treasur* shares at 4s. 2: cash per share. ;ec. 71 &ol' the remaining 17"777 shares of treasur* stock at 4s. 9 cash per share. ,. 9 $rom the following (alances extracte' from the (ooks of T. 1ife )nsurance compan*" *ou are re@uire' to prepare the profit an' loss account for the *ear en'e' on ;ecem(er 31" 2712" an' also calculate the 2<& of the *ear" all figures are reporte' in 4upees B777B" except the num(er of shares. (*)

(1oss)ICain on &ale of )n+estments <ro+ision for )mpairment in the Jalue of in+estment on Co+ernment &ecurities........................................................................................... 2xpenses !ot ttri(uta(le to &tatutor* $un's.................................. &urplus appropriate' to sharehol'ers fun'........................................ Tax 2xpense..................................................................................... weighte' +erage !um(er of Or'inar* &hares................................ Cain on &ale of $ixe' sset.............................................................. Others 4e+enue................................................................................. 4eturn on Co+ernment &ecurities..................................................... 4eturn on Other $ixe' )ncome &ecurities an' ;eposits.................... morti5ation of ;iscountI<remium 4elati+e to <ar......................... ;i+i'en' )ncome.............................................................................. <ro+ision for )mpairment in the Jalue of in+estment on 1iste' 2@uities............................................................................................. )n+estment relate' expenses.............................................................

Current Hear Balances 1:"=%7 2:"12% ==:"677 13"2%7"777 %"16#"7=% 1"%9=":77 12:":=% 67"#=% 1"971"3%7 21="%=% 12% 3:3"32% 3=:"22% 2"%=%

"UIDELINES !OR ASSI"NMENT C * The stu'ent shoul' look upon the assignments as a test of knowle'ge" management skills" an' communication skills. -hen *ou write an assignment answer" *ou are in'icating *our knowle'ge to the teacher: Hour le+el of un'erstan'ing of the su(>ectK 3ow clearl* *ou thinkK 3ow well *ou can reflect on *our knowle'ge L experienceK 3ow well *ou can use *our knowle'ge in sol+ing pro(lems" explaining situations" an' 'escri(ing organi5ations an' managementK 3ow professional *ou are" an' how much care an' attention *ou gi+e to what *ou 'o. To answer a @uestion effecti+el*" a''ress the @uestion 'irectl*" (ring important relate' issues into the 'iscussion" refer to sources" an' in'icate how principles from the course materials appl*. The stu'ent must also (e a(le to i'entif* important pro(lems an' implications arising from the answer. $or citing references" writing (i(liographies" an' formatting the assignment" shoul' (e followe'. < format

ASSI"NMENT No8 (
(Un+t1> *@A Tota, Mar?1> *)) This assignment is a research8oriente' acti+it*. Hou are re@uire' to o(tain information from a (usinessIcommercial organi5ation an' prepare a report of a(out 1777 wor's on the issue allotte' to *ou to (e su(mitte' to *our teacher for e+aluation. Hou are re@uire' to select one of the following issues accor'ing to the last 'igit of *our roll num(er. $or example" if *our roll num(er is <83#2=1:2 then *ou will select issue M 2 (the last 'igit): 8 ISSUES> 78 4ule Base' ccounting Js <rinciples Base' ccounting 18 n )ntro'uction to )nternational $inancial 4eporting &tan'ar's ()$4&) 28 comprehensi+e stu'* on )nternational ccounting &tan'ar' 1= () & 1=) 38 The 4egulator* $rame -ork of ccounting #8 ccounting for Eerchan'i5ing Business %8 comprehensi+e stu'* on )nternational ccounting &tan'ar' 2 () & 2) 98 <resentation of nnual ccounts of Banking Companies with reference to Banking Companies Or'inance 1692. =8 ccounts of )nsurance Companies :8 comprehensi+e stu'* on )nternational ccounting &tan'ar' 2= () & 2=) 68 n ccounting )nformation &*stem of an entit* The report shoul' follow the following format: i) Title page ii) cknowle'gements iii) n a(stract (one page summar* of the paper) i+) Ta(le of contents +) )ntro'uction to the issue ((rief histor* L significance of issue assigne') +i) <ractical stu'* of the organi5ation (with respect to the issue) +ii) ;ata collection metho's +iii) &-OT anal*sis (strengths" weaknesses" opportunities L threats) rele+ant to the issue assigne' ix) Conclusion (one page (rief co+ering important aspects of *our report) x) 4ecommen'ations (specific recommen'ations rele+ant to issue assigne') xi) 4eferences (as per < format) xii) nnexes (if an*) "UIDELINES !OR ASSI"NMENT C (> 1.% line spacing Fse hea'ers an' su(hea's throughout all sections Organi5ation of i'eas -riting skills (spelling" grammar" punctuation) <rofessionalism (rea'a(ilit* an' general appearance) ;o more than repeat the text 2xpress a point of +iew an' 'efen' it.

7OR'S&OPS The workshop presentations pro+i'e stu'ents opportunit* to express their communication skills" knowle'ge L un'erstan'ing of concepts learne' 'uring practical stu'* assigne' in assignment M 2. Hou shoul' use transparencies an' an* other material for effecti+e presentation. The transparencies are not the presentation" (ut onl* a toolK the presentation is the com(ination of the transparencies an' *our speech. -orkshop presentation transparencies shoul' onl* (e in t*pe' format. The transparencies shoul' follow the following format: 1) Title page 2) n a(stract (one page summar* of the paper) 3) )ntro'uction to the issue ((rief histor* L significance of issue assigne') #) <ractical stu'* of the organi5ation (with respect to the issue) %) ;ata collection metho's 9) &-OT anal*sis (strengths" weaknesses" opportunities L threats) rele+ant to the issue assigne' =) Conclusion (one page (rief co+ering important aspects of *our report) :) 4ecommen'ations (specific recommen'ations rele+ant to issue assigne') "UIDELINES !OR 7OR'S&OP PRESENTATION> Eake e*e contact an' react to the au'ience. ;onBt rea' from the transparencies or from report" an' 'onBt look too much at the transparencies (occasional glances are accepta(le to help in recalling the topic to co+er). 1%8minute presentation can (e practice' se+eral times in a'+ance" so 'o that until *ou are confi'ent enough. &ome people also use a mirror when rehearsing as a su(stitute for an au'ience. 7EI"&TA"E O! T&EORY D PRACTICAL ASPECTS IN ASSI"NMENT C ( D 7OR'S&OP PRESENTATIONS ssignment M 2 L workshop presentations are e+aluate' on the (asis of theor* L its applica(ilit*. The weightage of each aspect woul' (e: Theor*: 97A pplica(ilit* (practical stu'* of the organi5ation): #7A

Note> ssignments an' <resentation carr* 377 Earks: ssignment 71 177 Earks ssignment 72 (&u(mission) 177 Earks ssignment 72 (<resentation) 177 Earks

ADVANCED !INANCIAL ACCOUNTIN" (#$$%

UNIT@* INTRODUCTION TO RE"ULATORY !RAME7OR' AND CONCEPTUAL !RAME7OR' O! ACCOUNTIN"8 1.1 )ntro'uction to )nternational $inancial 4eporting &tan'ar's ()$4&) $oun'ation. 1.1.1 The ) &B ()nternational ccounting &tan'ar's Boar') 1.1.2 The )$4& )nterpretations Committee 1.1.3 )nternational $inancial 4eporting &tan'ar's ()$4&) 1.2 The 4egulator* framework of ccounting 1.2.1 The 4egulator* &*stem 1.2.2 4egulator* Bo'ies 1.2.3 &tan'ar'8 &etting <rocess 1.3 The Conceptual $ramework Of ccounting 1.3.1 ,ualitati+e Characteristics of financial information 1.3.2 2lements of the financial statements 1.3.3 4ecognition of assets" lia(ilities" income an' expenses 1.# ccounting policies 1.% Eeasurement in financial statements ACCOUNTIN" IN!ORMATION SYSTEM 2.1 ccounting )nformation &*stems an' Business Organi5ations 2.1.1 )nformation an' ;ecisions 2.1.2 )nformation &*stems 2.2 Transaction <rocessing C*cle 2.2.1 )nternal Control <rocess 2.2.2 2lements of )nternal Control <rocess 2.2.3 &egregation of ccounting $unctions 2.3 ccounting an' )nformation Technolog* 2.# The ccountant an' &*stems ;e+elopment 2.% Fsing )& to a'' Jalue to Business ACCOUNTIN" !OR TRADIN" OR"ANI;ATIONS 3.1 ;ifference (etween manufacturing an' merchan'ising organi5ations 3.2 Eerchan'i5ing acti+ities 3.3 ccounting for purchases 3.# ccounting for sales an' in+entor* () & 2) 3.#.1 <h*sical )n+entor* 3.#.2 <erpetual )n+entor* 3.% 4eturns" llowances" an' ;iscounts

UNIT@(

UNIT@%

3.9 3.= 3.: 3.6 UNIT@B

Eerchan'ise 4eporting -ork sheet for merchan'ising concern '>usting entries Closing entries

7OR'IN" CAPITAL ACCOUNTIN" #.1 Cash control #.1.1 Cash management #.1.2 )nternal control o+er cash #.1.3 Cash receipts an' 'is(ursements #.1.# 4econciling the (ank statements #.1.% The impress pett* cash s*stem #.1.9 The statement of cash flows #.2 ccounts recei+a(le #.2.1 Fncollecti(le accounts #.2.1 -rite8off metho's #.2.2 2stimation of cre'it losses #.2.3 Eanagement of accounts recei+a(le #.2.# Techni@ues to minimi5e cre'it losses #.2.% 2+aluating the @ualit* of accounts recei+a(le #.2.9 !otes recei+a(le an' interest charges #.2.= Cre'it car' sales #.2.: Cre'it risk #.3 &hort term in+estments #.3.1 <urchases of marketa(le securities #.3.2 4ecognition of in+estment re+enue #.3.3 '>usting marketa(le securities to market +alue #.3.# 4eporting in+estment transaction () & 21"2:"32) AMAL"AMATION, ABSORPTION AND RECONSTRUCTION %.1 ;istinguishing malgamation" a(sorption an' reconstruction %.2 ;efinition of hol'ing" su(si'iar* an' associate' un'ertaking" consoli'ate' financial statements () & 2=) %.3 ;etermination of <urchase consi'eration %.3.1 1ump sum metho' %.3.2 !et worth metho' %.3.3 !et pa*ment metho' %.3.# On the (asis of +alue of shares %.# ccounting for amalgamation %.% ccounting for a(sorption %.%.1 )ntercompan* Owings

UNIT@$

%.9 %.= %.: %.6 UNIT@E

%.%.2 )ntercompan* stocks %.%.3 )ntercompan* hol'ings ccounting for reconstruction 4econstruction of share capital Capital re'uction an' its legal pro+isions 4eorgani5ation

ACCOUNTS !OR FOINT STOC' COMPANIES 9.1 Corporation" a'+antages an' 'isa'+antages 9.2 &tockhol'ers/ e@uit* an' 'i+i'en's. 9.3 4ights of common stockhol'ers an' preferre' stockhol'ers 9.# )ssuance" face +alue" (ook +alue an' market +alue of stocks 9.% ;onate' capital 9.9 Continue' an' 'iscontinue' operations 9.= Changes in accounting policies 9.: 2arnings per share (2<&) 9.6 &tock split an' repurchase 9.17 &tatement of stockhol'ers e@uit* 9.11 &tatement of retaine' earnings 9.12 <reparation of compan* accounts an' consoli'ate' financial statements as per )nternational 9.13 ccounting &tan'ar' () &82=) an' re@uirements of Companies Or'inance 16:# ACCOUNTS O! BAN'IN" COMPANIES =.1 Banking (usiness =.2 1egal re@uirements relating to final accounts of (anking companies =.3 ccounts an' Balance &heet (&ection 3#) =.# $orm . / &econ' &che'ule of Banking Companies Or'inance 1692 =.% '+antages an' 'isa'+antages of slip s*stem =.9 Bank a'+ances =.= &che'ule of <articulars 4egar'ing '+ances =.: Books of accounts =.6 )nternal control an' check =.17 <reparation of final accounts as per an' Banking Companies Or'inance 1692 =.11 )nternational ccounting &tan'ar' () &8 37) ACCOUNTS O! INSURANCE COMPANIES :.1 )ntro'uction an' 'efinition :.2 )nsurance in <akistan

UNIT@G

UNIT #

17

:.3 :.# :.%

:.9

Din's of insurance companies ccounts an' u'its of )nsurance Business ccounting of 1ife )nsurance companies :.%.1 &tatement of )n+estment income :.%.2 &tatement of expenses :.%.3 &tatement of claims :.%.# &tatement of <remium :.%.% <rofit an' 1oss account :.%.9 Balance sheet ccounting of !on81ife )nsurance companies :.9.1 &tatement of )n+estment income :.9.2 &tatement of expenses :.9.3 &tatement of claims :.9.# &tatement of <remium :.9.% <rofit an' 1oss account :.9.9 Balance sheet

UNIT A

ACCOUNTIN" !OR LEASES 6.1 )ntro'uction an' ;efinition of leases 6.2 )mportant terms of lease 6.3 Classification of lease 6.# Criteria for i'entification of lease 6.% ccounting for leases (* lessee 6.9 ccounting for leases (* lessor 6.= Operating 1ease 6.: &ales an' 1ease Back

"ecommended Books: 1. 2. 3. #. %. ccounting: The (asis for (usiness 'ecision" (* Eeigs L Eeigs (1atest 2'ition) '+ance' ccounting (* E. Chani $un'amental ccounting <rinciples (* D.;. 1arson (1atest 2'ition) '+ance' ccountanc* (* 4. 1. Cupta" <u(lisher" &ultan Chan' L &ons 23" ;ar*agan>" !ew ;elhi.Companies Or'inance 16:# )nternational $inancial 4eporting &tan'ar'sI) &s

11