Certificate in Accounting and Finance Stage Examinations

The Institute of 7 September 2016

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes

Financial Accounting and Reporting-I

Q.1 Rahil runs a retail business. He appointed a cashier at a monthly salary of Rs. 13,000 on
1 April 2016. The cashier did not report for work on 1 July 2016 and it was found that he
had left, taking with him the balance in the till.

It had been Rahil's practice to deposit on each weekend the available balance in the till
after retaining a float of Rs. 5,000. He maintains record of sales on credit and a file of
unpaid invoices in respect of goods purchased by him.

The following information has been ascertained from the available records:

(i) Balance Sheet as on 31 March 2016 was as follows:

Rupees Rupees
Rahil’s capital 233,000 Fixtures and fittings – WDV 161,000
Creditors for goods 159,000 Inventory 111,000
Creditors for expenses 16,000 Debtors 55,000
Cash at bank 76,000
Cash in hand 5,000
408,000 408,000

(ii) Following is a summary of the bank statement from 1 April to 30 June 2016:

Rupees Rupees
Balance on 1 April 2016 76,000 Payment to suppliers for goods 604,000
Cheques received from customers 29,000 Rent & other expenses 37,000
Cash deposited 627,000 Balance on 30 June 2016 91,000
732,000 732,000

(iii) The following amounts were paid from the till:

Rs. per month
Salary to cashier 13,000
Rahil’s drawings 26,000
Petty expenses 5,000

(iv) Fixtures and fittings are depreciated at 10% per annum using reducing balance
method.
(v) Inventory on 1 July 2016 was Rs. 58,000.
(vi) Credit sales during the quarter ended 30 June 2016 amounted to Rs. 64,000 whereas
the debtors balances as on 30 June 2016 amounted to Rs. 66,000. However, direct
confirmations from debtors showed that receivables in fact totalled Rs. 54,000.
(vii) Creditors for goods and expenses had always been paid by cheque. Unpaid invoices
for goods on 30 June 2016 totalled Rs. 181,000 and creditors for expenses
amounted to Rs. 13,000. Detailed scrutiny of records revealed that a cash receipt of
Rs. 8,000 which had been received against goods returned to a supplier had not
been recorded.
(viii) Rahil sells goods at a gross profit margin of 20% on sales.

Required:
(a) Prepare a statement showing calculation of the amount of defalcation. (11)
(b) Prepare a balance sheet as on 30 June 2016. (09)
 Financial Accounting and Reporting-I Page 2 of 4

Q.2 Khan Limited opened a new branch at Lahore on 1 January 2016. Goods are invoiced to
branch at 25% above cost and branch sells the goods on the invoice price. Expenses of
branch are met from branch cash and the balance amount is remitted to head office (HO).
Following information is available for the year ended 30 June 2016:
Rupees
Cost of goods sent to branch 460,400
Goods received by branch till 30 June 2016 (at invoice price) 454,000
Credit sales 328,000
Debtors on 30 June 2016 35,000
Cash remitted to HO 315,000
Cash at branch on 30 June 2016 14,000
Expenses by branch 40,000

Required:
Prepare following ledger accounts:
(a) Branch Cash Account (04)
(b) Branch Stock Account (04)
(c) Branch Stock Adjustment Account (04)

Q.3 The output and production costs of a garment factory for the last 10 months are given
below:
Output Production costs
Months
(units in million) (Rs. in billion)
1 1 2.05
2 2 2.82
3 4 4.33
4 8 7.31
5 6 5.80
6 5 5.08
7 8 7.29
8 9 8.10
9 7 6.52
10 6 5.82

Required:
Determine the regression line for output and production costs. Also estimate production
costs for next month if required output is 3 million units. (08)

Q.4 Salman Limited (SL) closes its books on 30th June each year. Due to an administrative
problem, SL carried out the stock-taking on 10 July 2016. The cost of stock as verified on
10 July 2016 was Rs. 812,500.
Details of transactions from 1 July to 10 July are given below:
(i) Total sales amounted to Rs. 326,000. The goods were sold in the normal course of
business at cost plus 25% except the following:

a sale of Rs. 25,000 was made at 40% of normal selling price.

a sale of Rs. 60,000 was made at normal selling price but the goods were
slightly damaged and an expenditure of Rs. 15,000 was incurred on these
goods to bring them to saleable condition.
(ii) Purchases amounted to Rs. 246,000. All such purchases were included in stock as
on 10 July 2016.
(iii) Sales returns and purchase returns amounted to Rs. 11,000 and Rs. 6,000
respectively.
(iv) Goods with customers on sale or return basis were Rs. 50,000 (at invoice value).
The goods had been sent to the customers on 15 June 2016. The customers have the
right to return the goods within four weeks. One of the customers informed SL on
29 June 2016 that goods worth Rs. 20,000 had been destroyed in fire.
 Financial Accounting and Reporting-I Page 3 of 4

Required:
Calculate the value of stock as at 30 June 2016. (11)

Q.5 Following is the trial balance of Mateen as at 30 June 2016 :

Debit Credit
-------- Rupees --------
Sales 6,892,000
Purchases 4,124,000
Administrative expenses 1,855,000
Distribution costs 549,000
Property, plant and equipment
Cost 1,750,000
Accumulated depreciation at 30 June 2015 350,000
Inventories at 30 June 2015 344,000
Unappropriated profit at 30 June 2015 330,000
Mateen’s capital 2,000,000
Cash in hand 22,000
Cash at bank 14,000
Bank loan 500,000
Trade receivables 2,255,000
Trade and other payables 826,000
Provision for bad debts at 30 June 2015 15,000
10,913,000 10,913,000

The following additional information is available:

(i) Sales include an amount of Rs. 70,000, made to a customer on sale or return basis.
The goods had a cost of Rs. 47,000. The customer paid the amount on 5 July 2016.
(ii) Cost of inventories at 30 June 2016 amounted to Rs. 365,000. The net realizable
value of the inventories was Rs. 350,000.
(iii) Administrative expenses include rent of office building amounting to Rs. 700,000.
70% of the rental amount should be allocated to cost of sales and 30% to
administrative expenses.
(iv) Prepaid administrative expenses and accrued distribution costs at 30 June 2016
amounted to Rs. 131,000 and Rs. 176,000 respectively.
(v) Property, plant and equipment are depreciated at 10% per annum using reducing
balance method. Depreciation on addition is provided from the month in which the
asset is acquired while no depreciation is charged in the month in which the asset is
disposed of. Depreciation should be allocated between cost of sales and
administrative expenses in the ratio of 80:20 respectively.

On 10 January 2016, a generator which was purchased on 1 July 2012 for

Rs. 100,000 was traded-in for a new generator. The disposal was not recorded and
the generator was capitalized at Rs. 500,000 being the net amount paid to supplier
after adjusting trade-in allowance of Rs. 35,000. The cost of installation of the
generator amounting to Rs. 30,000 was debited to administrative expenses.
(vi) Bank loan was taken on 1 October 2015 and carries interest at 8% per annum. The
loan is repayable on 30 September 2016.
(vii) Trade receivables amounting to Rs. 5,000 are required to be written off. Bad debts
are estimated at 4% of the trade receivables.
(viii) Income tax liability for the year ended 30 June 2016 is estimated at Rs. 40,000.

Required:
Prepare the following:
(a) Statement of comprehensive income for the year ended 30 June 2016; and (10)
(b) Statement of financial position as at 30 June 2016. (10)
 Financial Accounting and Reporting-I Page 4 of 4

Q.6 (a) Car World sells new cars on deferred payment basis whereby 40% deposit is
received on sale and the balance payment is received at the end of two years. The
appropriate discount rate is 10%.

On 1 July 2014 a car was sold to a customer for Rs. 2,000,000.

Required:
Prepare necessary journal entries to record the above transaction in the books of
Car World for the years ended 30 June 2015 and 2016. (07)

(b) Saleem Engineering (SE) is a supplier of various types of industrial machines. It

also provides services for the maintenance of these machines. Following
transactions were carried out by SE during the year ended 30 June 2016:

(i) Five machines were sold on a lay away basis to one of its frequent customers.
Three out of a total of five instalments had been received till the year end. (03)

(ii) A service contract for maintenance of a machine for a period of one year was
signed and SE received a non-refundable annual fee amounting to Rs. 45,000
as advance on 15 April 2016. (02)

Required:
Discuss when it will be appropriate for SE to recognise revenue in each of the above
situations.

Q.7 Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on
written-down value. Depreciation is charged from the month the asset is available for use
in operations up to the month prior to its disposal. Cost of its plant & machines and the
accumulated depreciation as on 1 July 2015 were Rs. 75 million and Rs. 17 million
respectively.

The following information is available in respect of its plant & machines, for the year
ended 30 June 2016:

(i) On 1 October 2015, a second-hand machine was acquired from a Chinese company
for Rs. 15 million. The machine was renovated and overhauled at a cost of
Rs. 3 million. 25% of this expenditure was in respect of purchase of consumables.
(ii) On 1 November 2015, KE transferred a machine having a list price of
Rs. 10 million from its stock-in-trade to its Engineering Department. KE sells such
machines at cost plus 25%.
(iii) On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of
Rs. 4 million. The replaced parts neither enhanced the useful life of the plant nor its
operating efficiency. The old parts were sold for Rs. 0.75 million. The plant was
purchased for Rs. 25 million on 1 January 2015.

On 1 May 2016, the plant was damaged and remained in-operative for one month.
KE spent an amount of Rs. 3 million on repairs to restore the plant in working
condition.

(iv) On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12 million
was completely damaged and was sold for Rs. 1.2 million.

Required:
Prepare accounting entries to record the above transactions in KE’s books for the year
ended 30 June 2016. (17)

(THE END)