ALL answers must be written in the answer book

(1)

CMA MAY-2022 EXAMINATION ADVANCED LEVEL I

ADVANCED FINANCIAL REPORTING

Course Code : FR342 Total Marks : 100

Reading Time : 15 minutes Writing Time : 180 minutes

Instructions to Candidates

 You MUST NOT write anything during the reading time.

 There are 5 (five) questions.

 You should attempt ALL questions.

 Answers should be properly structured and relevant.

 Show all relevant computation.

 Carefully read ALL the requirements and sub-questions before attempting a specific question.

 ALL answers must be written in the answer book.

 AVOID WRITING/MARKING on the question paper at any time which may cause disciplinary action.

 Start answering each question from a fresh sheet.

 Answers should be clearly numbered with the sub-question number.

Allowable Materials

 Writing Stationeries

 Non-programmable Calculator

Assessment Structure

RESTRICTED USE

This paper MUST NOT BE REMOVED from the examination venue Do not turn the page until instructed

Sub-

question Marks

Expected Time Required

Question 1 Essay/Computational/Case 3 20 35 minutes

Question 3 Essay/Computational/Case - 20 35 minutes

Revision 5 minutes

Total 100 180 minutes

(2)

QUESTION 1 [MARKS: (4+6+10) = 20]

(a) At the completion of Bloom NV's audit, the president, Judy Bloom, asks about the meaning of the phrase “in conformity with IFRS” that appears in your audit report on the management's financial statements. Judy observes that the meaning of the phrase must include something more and different than what she thinks of as “standards.” Judy is curious about the pronouncements that are encompassed in IFRS and wonders, if there are different types of pronouncements, which are more authoritative than others?

Required:

(i) Describe the pronouncements that comprise IFRS.

(ii) Explain to Judy how a company determines which type of pronouncement takes precedence when deciding the recognition, valuation, and disclosure related to a particular transaction

(b) The chairman of the IASB at one time noted that “the flow of standards can only be slowed if (i) producers focus less on quarterly earnings per share and tax benefits and more on quality products, and (ii) accountants and lawyers rely less on rules and law and more on professional judgment and conduct.” Explain his comment.

(c) Consider the following independent situations:

(i) On March 1, 2019, HAG issued at 103 plus accrued interest Tk.3,000,000, 9%

bonds. The bonds are dated January 1, 2019 and pay interest semiannually on July 1 and January 1. In addition HAG incurred Tk.27,000 of bond issuance costs. Compute the net amount of cash received by HAG as a result of the issuance of these bonds.

(ii) On January 1, 2019, RSA issued 9% bonds with a face value of Tk.500,000 for Tk.469,280 to yield 10%. The bonds are dated January 1, 2019, and pay interest annually. What is the amount of discount on the issue date? Prepare the journal entry to record interest expense on December 31, 2019.

(iii) CBC has a number of long-term bonds outstanding at December 31, 2019. These long-term bonds have the following sinking fund requirements and maturities for the next 6 years.

Year Sinking Fund Maturities

2020 Tk.300,000 Tk.100,000

2021 Tk.100,000 Tk.250,000

2022 Tk.100,000 Tk.100,000

2023 Tk.200,000 ---

2024 Tk.200,000 Tk.150,000

2025 Tk.200,000 Tk.100,000

Indicate how this information should be reported in the financial statements at December 31, 2019.

QUESTION 2 [Marks: (5+15) = 20]

(a) Muaj said to Musab, “As per the International accounting standards, a group company should always prepare the Consolidated Financial Statements.” Do you agree? Under what circumstances a group may not require to prepare the Consolidated Financial Statements.

(3)

(b) A.N.M. Badsha group consists of a number of subsidiaries which are owned apart from MHM Ltd. On 30/06/2021, Badsha Ltd. disposed of 50%, of the equity shares of MHM Ltd. for BDT 300,000. Badsha Ltd. had originally acquired 80% of the equity shares of MHM on 1/3/2019 for BDT 250,000 when the book values of MHM’s net assets were BDT 180,000. The book value was considered to equal fair value. The fair value of the Non- Controlling Interest (NCI) in MHM Ltd. at acquisition was BDT 70,000 and it was group policy to measure NCI at fair value at acquisition. The remaining 30% investment had a fair value of BDT 160,000 on 30/6/2021. Goodwill in MHM had not been impaired. The statements of changes in equity for the year ended on 31/12/2021 for the Badsha group excluding MHM and for MHM were as follows (all the dividends were paid on 31/3/2021):

Statements of changes in equity For the year ended 31.12.2021

Particulars Badsha Group

BDT in “000” MHM BDT in “000”

Equity 01.07.2020 400 250

Comprehensive Income 145 80

Dividends (50) (30)

Equity 30.06.2021 495 300

Required:

Prepare the consolidated statement of changes in equity of the Badsha Group for the year ended on 31/12/2021.

QUESTION 3 [MARKS: 20]

The draft statements of financial position of King Co and Queen Co on 30 June 2020 were as follows.

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020

KING CO (Tk.) QUEEN CO (Tk.) Assets

Non-current assets

Property, plant and equipment 50,000 40,000

20,000 ordinary shares in Queen Co at cost 30,000 –

Current assets

Inventory 3,000 8,000

Owed by King Co 10,000

Receivables 16,000 7,000

Cash 2,000 –

Total assets 101,000 65,000

Equity and liabilities Equity

Ordinary shares of Tk.1 each 45,000 25,000

Revaluation surplus 12,000 5,000

Retained earnings 26,000 28,000

Current liabilities

Owed to Queen Co 8,000 –

Trade payables 10,000 7,000

Total equity and liabilities 101,000 65,000

(4)

King Co acquired its investment in Queen Co on 1 July 2019 when the retained earnings of Queen Co stood at Tk.6,000. The agreed consideration was Tk.30,000 cash and a further Tk.10,000 on 1 July 2019. King Co's cost of capital is 7%. Queen Co has an internally- developed brand name – 'Kongo' – which was valued at Tk.5,000 at the date of acquisition.

There have been no changes in the share capital or revaluation surplus of Queen Co since that date. At 30 June 2020 Queen Co had invoiced King Co for goods to the value of Tk.2,000 and King Co had sent payment in full but this had not been received by Queen Co.

There is no impairment of goodwill. It is group policy to value non-controlling interest at full fair value. At the acquisition date the non-controlling interest was valued at Tk.9,000.

Required:

Prepare the consolidated statement of financial position of King Co as at 30 June 2020.

QUESTION 4 [MARKS: (5+3+4+8) = 20]

(a) Differentiate between traditional and derivative financial instruments.

(b) When can information about two operating segments be aggregated?

(c) What are the accounting problems related to the presentation of interim data?

(d) On 1 September 2020 TRX Co acquired 6 million Tk.1 shares in KFK Co at Tk.2.00 per share. At that date KFK Co produced the following interim financial statements.

Tk. in Million Tk. in Million

Property, Plant and Equipment (Note 1) Inventories (Note 2) Receivables

Cash in hand

16 4 2.9 1.2

Trade Payables Taxation

Bank Overdraft Long term loans

Share Capital (Tk.1 Share) Retained Earnings

3.2 0.6 3.9 4.0 8.0 4.4

24.1 24.1

Notes

(i) The following information relates to the property, plant and equipment of KFK Co at 1 September 2020.

Tk. in million

Gross replacement cost 28.4

Net replacement cost (gross replacement cost less depreciation) 16.6

Economic value 18.0

Net realizable value 8.0

(ii) The inventories of KFK Co which were shown in the interim financial statements are raw materials at cost to KFK Co of Tk.4 million. They would have cost Tk.4.2 million to replace at 1 September 2020.

(iii) On 1 September 2020 TRX Co took a decision to rationalize the group so as to integrate KFK Co. The costs of the rationalization were estimated to total Tk.3.0 million and the process was due to start on 1 March 2021. No provision for these costs has been made in the financial statements given above.

(iv) It is group policy to recognize non-controlling interest at full (fair) value.

Required:

Compute the goodwill on consolidation of KFK Co that will be included in the consolidated financial statements of the TRX Co group for the year ended 31 December 2020, explaining your treatment of the items mentioned above. You should refer to the provisions of relevant accounting standards.

(5)

QUESTION 5 [MARKS: (7+8+5) = 20]

(a) Briefly discuss the core concepts of integrated reporting. Why Bangladeshi firms are increasingly adopting integrated reporting?

(a) Z Ltd. purchased a retail store and commenced business on April 1. From the following information, you are required to prepare in as much details as possible, a trading and profit and loss account for the current year ended March 31 and a balance sheet as at the date.

Capital introduced on April 1 Tk. 47,000

Drawings during the year 5,000

Working capital (current assets less current liabilities) at March 31 23,000 Depreciation of fixed assets during the year, based on a rate of 20

percent per annum on cost

3,000 Ratio of annual sales to year-end values of fixed assets plus working

capital

2:1 Ratio of current assets to current liabilities at the year-end 2:1 Ratio of liquid assts (cash plus debtors) to current liabilities on March 31 5:4 Debtors at the year-end as per cent of annual sales 12 General expenses (excluding depreciation) as percent of annual sales 20 The current assets consist of stocks (which are unchanged throughout the year), debtors and cash. Stocks are turned over four times during the year. The current liabilities consist only of creditors.

(c) The current ratio and acid-test ratio of ABC Company is given below:

Cash Tk. 20 lakh

Debtors 20

Inventory 120

Total current assets 160

Total current liabilities 80

(i) Current ratio 2: 1

(ii) Acid-test ratio 0.5: 1

You are required to define and interpret the ratios considering the above situation of ABC Company.

END OF QUESTION