CMA JUNE-2019 EXAMINATION

PROFESSIONAL LEVEL –II

SUBJECT: 201. ADVANCED FINANCIAL ACCOUNTING

Model Solution

Solution to the question No. 1

(a)
Income before Income Taxes Tk.195,000
Income Tax expense
Current Tk.48,000
Deferred Tk.30,000 Tk.78,000
Net Income Tk.117,000
(b)
Year Future Taxable amount Tax Rate Deferred Tax
liability
2015 Tk.42,000 34% Tk.14,280
2016 Tk.244,000 34% Tk.82,960
2017 Tk.284,000 40% Tk.113,600
Tk.210,840

(c)

Required (i)
Schedule of PreTax Financial Income
and Taxable Income for 2015

Pre-Tax Financial Income ............................................................... Tk.750,000

Permanent differences
Bond interest revenue ................................................................... (4,000)
Pollution fines ................................................................................. 4,200
750,200
Temporary differences
Depreciation expense .............................................................. (30,000)*
Installment sales (Tk.100,000 – Tk.75,000) ................................ (25,000)
Warranty expense (Tk.50,000 – Tk.10,000) ...................................40,000
Taxable Income .......................................................................... Tk.735,200

* Depreciation for books (Tk.300,000/5) = Tk.60,000

Depreciation Tax return (Tk.300,000 X 30%) = 90,000
Difference Tk.30,000

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Required (ii)
Journal entry to record Income Taxes payable, Income Tax expense and deferred Income Taxes is
as follows:

Income Tax Expense ..................................................................... 225,060*

Deferred Tax Asset ....................................................................... 12,000
Deferred Tax Liability (Tk.9,000 + Tk.7,500)........................... 16,500
Income Taxes Payable ........................................................... 220,560**

Working:

*Calculation of Income Tax Expenses

Current Tax Expenses (Tk,735,000 x 30%) = Tk,220,560

Deferred Tax Expenses = Tk, 4,500***
Tk,225,060

**Calculation of Income Taxes payable for 2015 :

Taxable Income ............................................................................. Tk.735,200
Tax rate ................................................................................... X 30%
Income Taxes payable ................................................................... Tk.220,560

***Computation of Deferred Taxe Expenses for 2015 is as follows:

Temporary Differences:
Depreciation expense Tk.(30,000) X 30% = Tk.(9,000) DTL
Installment sales (Tk.100,000 – Tk.75,000) (25,000) X 30% = (7,500) DTL
Warranty expense (Tk.50,000 – Tk.10,000) 40,000X 30% = 12,000 DTA
Net deferred Tax expense for 2015............................................. = Tk, 4,500

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Solution to the question No. 2

(b) Lease Receivable (Tk.40,800x 5)…………………… Tk. 204,000

Sales Revenue (Tk.40,800x 4.0373)…………………………. Tk.164,724
Unearned Interest Revenue …………………………………… Tk. 39,276

Cost of Goods Sold…………………………………………….Tk.110,000

Inventory…………………………………………… Tk.110,000

Cash …………………………………………………. Tk.40,800

Lease Receivable ………………… Tk.40,800

Working: Calculation of PV of Minimum Lease Received:

Pvn = R (PVAF n-1 i + 1 )

Pvn = Tk, 40,800 ( Table IV 4 12% +1 )

Pvn = 40,800 (3.16986+1)

Pvn = Tk, 164,724

Buzz Lightyear Corporation (Lessor)

Lease Amortization Schedule (Calculation of Interest Income)
Date Annual Lease Interest Income Reduction of PV of Minimum
Receivable (12%) Minimum lease Lease Received
Receivable
1/1/15 Tk, 164,724.00
1/1/15 Tk. 40,800 Tk. 40,800.00 123,924.00
1/1/16 40,800 14,870.88 25,929.12 97,994.88
1/1/17 40,800 11,759.39 29,040.61 68,954.27
1/1/18 40,800 8,274.51 32,525.49 36,428.78
1/1/19 40,800 4,371.45 36,428.78 0
Total Tk, 204,000 Tk,39,276.23 Tk, 164,724

(c) Cash ……………………………………….. Tk.15,000

Rent Revenue…………………….. Tk.15,000

Depreciation Expense……………………. Tk.10,000

Accumulated Depreciation – Equipment…. Tk.10,000
[Tk.80,000/8]

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Solution to the question No. 3
Sadharan Bima Corporation
Fire Department
Revenue Account (Form D)
For the Year Ended on December 31, 2015
Amount Amount
Claims under policies, less Reinsurance: Balance of Account at the beginning
Paid during the year 56,000 of the year:
Total estimated liability in respect of Reserve for unexpired risks, being percent
outstanding claims at the end of the year of premium Income of the year 1,22,000
whether due or intimated 300 Additional Reserve, if any 71,400 1,93,400
Less: Outstanding at the end of Premiums less reinsurances 1,65,300
previous year 1,900 54,400
Commission & Organizers' Remuneration 54,800
Expenses of Management 36,600
Reserve for Unexpired Risks-
10% of net premium received 16,530
Profit and Loss Account Transfer 1,96,370
3,58,700 3,58,700

Marine Department
Revenue Account (Form D)
For the Year Ended on December 31, 2015
Amount Amount
Claims under policies, less Reinsurance: Balance of Account at the beginning
Paid during the year 53,700 of the year:
Total estimated liability in respect of Reserve for unexpired risks, being percent
outstanding claims at the end of the year of premium Income of the year 65,100
whether due or intimated 6,700 Additional Reserve, if any 7,500 72,600
Less: Outstanding at the end of Premiums less reinsurances 1,11,800
previous year 100 60300
Commission & Organizers' Remuneration 44,700
Expenses of Management 14,200
Reserve for Unexpired Risks-
10% of net premium received 11,180
Profit and Loss Account Transfer 54,020
1,84,400 1,84,400

Sadharan Bima Corporation

Profit and Loss Account (Form B)
For the Year Ended on December 31, 2015
Amount Amount
Income Tax on Investments 1,900 Interest on Investment 19,700
Directors' Sitting Fees & Travelling Expenses 5,800 Miscellaneous Receipts 100
Depreciation on Furniture 400 Profit transferred -
Contribution to Staff Provident Fund 1,500 Fire Department 1,96,370
Provision for Taxation 10,000 Marine Department 54,020
Balance Carried to Profit and Loss
Appropriation Account 2,50,590
2,70,190 2,70,190
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 Sadharan Bima Corporation
Balance Sheet (Form A)
As at December 31, 2015
Liabilities Amount Assets Amount
Shareholder’s capital Loans:
Authorized: Municipal Loans 52,000
…shares of [Taka]…each [Taka]
Subscribed: Investments:
Deposits with Bangladesh Bank in
…shares of [Taka]…each[Taka] Treasury Bills 2,59,100
Co-operative Land Mortgage Bank
Called up: Debentures 2,93,500
35000 shares of [Taka] 10 each 3,50,000 National Savings Certificates 1,00,000
Reserve or Contingency
Accounts: Shares in Companies 30,000
Contingency Reserve 28,000 Sundry Debtors 7,300
General Reserve 1,27,800 Interest Accrued 3,600
Investment Fluctuation Reserve 6,000 Outstanding Premiums 1,30,000

Balances of Funds and

Accounts:
Fire Insurance Fund 16,530 Cash & other assets:
Marine Insurance Fund 11,180 Fixed Deposit (Staff Security) 6,500
Fixed Deposit (Employees PF
Staff Providend Fund 6,800 Investment) 6,800
Staff Security Deposit 6,500 In hand 65,400
Provision for Taxation 10,000 Furniture less Depreciation 3,200
Sundry Creditors 1,38,000 Library Books 1,000
Claims less reinsurances
outstanding 7,000
Profit and Loss Appropriation
Account Balance 250,590
Total Liabilities 9,58,400 Total Assets 9,58,400

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Solution to the question No. 4 (b)

Required (i)

Calculation of Abnormal Loss:

Cost of 5,000 Kg @ 40 per Kg = Tk,2,00,000

(+) Expenses prior to the loss (3000 + 2000) = Tk, 5,000
Total Value of 5,000 Kg = Tk, 205,000

Value of Abnormal Loss: 500 Kg = (205,000 / 5,000*500) = Tk, 20,500/-

Calculation of Closing Stock on Consignment:

Total Value of 5000 kg = Tk, 2,05,000

(-) Abnormal loss of 500 kg = Tk, 20,500
Value of the goods received by the consignee = Tk,1,84,500
(+) Non recurring expense of the consignee (cartage) = Tk,1,000
Total value of the goods sent to the consignee = Tk, 1,85,500

Closing Stock Quantity:

Goods Sent on Consignment = 5,000 Kg

Less: Abnormal loss = 500 Kg
Less : Normal loss = 25 Kg
The consignee received Goods = 4,475 Kg
Goods Sold on Consignment = 3,000 Kg
Closing Stock in hand = 1,475 Kg

Value of Closing Stock: 1,475 Kg = (185500 / 4475* 1475) = Tk, 61,142/-

Required (ii)
In the Books of A
Consignment to B Account
Dr. Cr
Date Particulars Taka Date Particulars Taka
Goods sent on consignment 2,00,000 Abnormal loss A/c (Note 1) 20,500
Bank A/c- expenses B A/c (sale proceeds) 192,000
Freight 3,000 (300*64)
Insurance 2,000 5,000
B A/c (expenses) Stock on consignment A/c 61,142
Cartage 1,000
Selling 500
Godown Rent 500 2,000
B A/c – Commission (5% on 9,600
192,000)
Profit and Loss on 57,042
Consignment A/c
2,73,642 2,73,642

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 B Account
Dr. Cr
Date Particulars Taka Date Particulars Taka
Consignment to B A/c 192,000 Consignment to B A/c- 2,000
expenses
Consignment to B A/c- 9,600
Commission
Balance c/d (amount due) 180,400
192,000 192,000

Abnormal Loss Account

Dr. Cr
Date Particulars Taka Date Particulars Taka
Consignment to B A/c 20,500 Insurance company (claim 15,000
admitted)
Profit and Loss a/c 5,500
20,500 20,500

Goods sent on Consignment Account

Dr. Cr
Date Particulars Taka Date Particulars Taka
Trading A/c- Transfer 2,00,000 Consignment to B A/c 2,00,000

In the Books of B
A Account
Dr. Cr
Date Particulars Taka Date Particulars Taka
Bank A/c- expenses Bank A/c (sale proceeds) 192,000
Cartage 1,000 (300*64)
Selling 500
Godown Rent 5,00
Commission a/c 9,600
Balance c/d (Balance due) 1,80,400
192,000 192,000

Required (ii)
When the abnormal loss of 500 kg takes place in the consignee’s Godown (other things
remaining the same) the value of abnormal loss and stock on consignment will be different which
are calculated as under:

Ascertainment of Abnormal Loss and Closing Stock:

Value of the goods received by the consignee Tk, 205,000

(+) Proportionate expenses of the consignee (Cartage) 1,000
Tk, 206,000
Goods Received on Consignment (5000 Kg -25 Kg Normal Loss) 4975 Kg
Therefore, Value of Abnormal Loss = (206,000/4975*500) = Tk, 20,704

Value of Closing Stock = 206000/4975*1475 = Tk, 61,075

Profit on Consignment will be Tk, 57, 179

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Solution to the question No. 5

(a) The IASB believes that the retrospective approach provides financial statement users the most
useful information. Under this approach, the prior statements are changed on a basis consistent
with the newly adopted standard; any cumulative effect of the change for prior periods is
recorded as an adjustment to the beginning balance of retained earnings of the earliest period
reported.
(b)
1. The change to a three-year remaining life for the purpose of computing depreciation on
production equipment is a change in estimate due to a change in conditions.
2. Both FIFO, and average cost are generally accepted accounting policies; thus, this item is a
change in accounting policy.
3. This oversight is a mistake that should be corrected. Such a correction is considered a
change due to error.
4. Both the cost-recovery method and the percentage-of-completion method are generally
accepted policies; thus, such a change is a change in accounting policy.
(c)

i.
Journal Entry
Depreciation Expense .............................................................. Tk,14,500
Accumulated Depreciation—Equipment ……………………….. Tk,14,500

Working:

Cost of Equipment ....................................................................... Tk.85,000

Less: Residual value .................................................................... 5,000
Depreciable cost .......................................................................... Tk.80,000

Depreciation up to 2015
2012 (Tk.80,000/10) ........................................................... Tk. 8,000
2013 (Tk.80,000/10) ........................................................... 8,000
2014 (Tk.80,000/10) ........................................................... 8,000
Tk.24,000
Depreciation in 2015
Cost of Equipment.............................................................. Tk.85,000
Less: Depreciation up to 2015 ........................................... 24,000
Book value (January 1, 2015) ............................................ 61,000
Less: Residual value ......................................................... 3,000
Depreciable cost ................................................................ Tk.58,000

Depreciation for the Year 2015 = Tk.58,000/4 = Tk.14,500

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ii.
Journal Entry
Depreciation Expense (Tk.120,000 – Tk.16,000) ÷ 8 ...................... 13,000

Accumulated Depreciation Machine .................................................. 13,000

Accumulated Depreciation—Machine ............................................... 3,000

Retained Earnings ............................................................................ 3,000

Working:

Depreciation recorded in 2013 ........................................ =(Tk.120,000 ÷ 8) X

1 = Tk.7,500
2
Depreciation that should be recorded in 2013:=([Tk.120,000 – Tk.16,000] ÷ 8) X
1 = Tk, 6,500
2
Depreciation recorded in 2014 =(Tk.120,000 ÷ 8) = Tk.15,000
Depreciation that should be recorded in 2014=(Tk.120,000 – Tk.16,000) ÷ 8 = Tk.13,000

Depreciation Taken Depreciation should be Taken Differences

2013 Tk. 7,500 Tk. 6,500 Tk.1,000
2014 15,000 13,000 2,000
Tk.22,500 Tk.19,500 Tk.3,000

iii.

Journal Entry
Depreciation Expense……………………………………………………….. 20,250
Accumulated Depreciation- Building ............................................ 20,250
Working:
Cost of Building .................................................................................... Tk.300,000
Less: Depreciation up to 2015
2013 .............................................................................. 60,000
2014 .............................................................................. 48,000
Book value (January 1, 2015) ............................................................... Tk.192,000
Less: Residual value ........................................................................... 30,000
Depreciable Cost.................................................................................. Tk.162,000

Depreciation for the Year 2015 = (Tk.162,000 / 8) = Tk.20,250

=THE END =

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