A.

2 (a) Correction of error note

It was identified in current year that an investment property was erroneously reported as property,
plant and equipment since acquisition i.e., 1 January 2018. The error has been corrected by
retrospective restatement of prior year amount which has been summarized as follows:

Effect on the statement of profit or los 2019 2018

Rs. in million Rs. in million
Reversal of depreciation 10 10
Increase in fair value gain on investment property 22 20
Increase in profit 32 30

Effect on the statement of financial position 2019 2018

-------- Rs. in million --------
Increase in investment property 242 220
Decrease in property, plant and equipment (180) (190)
Increase in retained earnings (466-404) ;(381-351) 62 30

(b) Extract of retained earnings Rs. in million

Balance as at 31 December 2018 as reported 351
Effect of correction of prior year error 30
(10+20)
Balance as at 31 December 2018 – restated 381
Final cash dividend for the year 2018 (15)
Total comprehensive income
for the year 2019 - restated (68+10+22) 100
Balance as at 31 December 2019 – restated 466
Total comprehensive income for the year 2020 (82+10+24) 116

Balance as at 31 December 2020 582

Workings
Date Accounting head Debit Credit
1.01.2018 Investment Property 200
PPE 200

31.12.2018 Accumulated Depreciation 10

Depreciation (200/20) 10
31.12.2018 Investment Property 20
Gain (P/L) (W-1) 20
31.12.2019 Accumulated Depreciation 10
Depreciation 10
31.12.2019 Investment Property 22
Gain (P/L) (W-2) 22
31.12.2020 Accumulated Depreciation 10
Depreciation 10
31.12.2020 Investment Property 24
Gain (P/L) (W-3) 24

W.1)
31.12.2018
WDV = 200
Fair Value = 220 (200×1.1)
Gain = 20
W.2)
31.12.2019
WDV = 220
Fair Value = 242 (220 × 1.1)
Gain = 22

W.3)
31.12.2020
WDV = 242
Fair Value = 266 (242 × 1.1)
Gain = 24

Answer 3:
The borrowing cost to be capitalized & cost of assets are as under:
Cost of asset Rs.
AExpenditure 5,000,000
Borrowing costs incurred 5m (2.5+2.5)x 9% x 12/12 450,000
Less: Temporary investment income 2.5m x 7% x 6/12 (87,500)
362,500
5,362,000

Cost of asset Rs.

BExpenditure 10,000,000
Borrowing costs incurred 10m (5+5) x 9% x 12/12 900,000
Less: Temporary investment income 5m x 7% x 6/12 (175,000)
725,000
10,725,000

A.4
(i) (b) Rs. 35 million
(ii) (a) Any restrictions on the distribution of the revaluation surplus to shareholders
(iii) (a) Physical capital maintenance
(iv) (d) Property transfer taxes
(v) (b) Gain of Rs. 8 million Loss of Rs. 2 million
(vi) (c) Profit for the year
(vii) (a) Over-statement of closing inventories
(c) Inclusion of disposal proceeds of non-current assets in sales
Answer No. 5

….Rupees…
Cash Flow Operating Activities
Profit before tax [1,525,948 + 30,000 – 50,000] 1,505,948
Adjustments for:
Depreciation [363,600 + 200,000 + 368,900] 932,500
Gain on disposal (168,960)
Loss on disposal [70,000 – 30,000] 40,000
Interest expense 141,872
Profit before working capital changes 2,451,360
Working Capital Changes:
Accounts payable (417,120 – 694,320) (277,200)
Inventory (320,628 – 685,608) (364,980)
Accounts receivable (595,452 – 1,273,272) (677,820)
Cash generated from operations 1,131,360
Interest paid (99,632)
Net cash from Operating Activities 1,031,728
Cash Flow from Investing Activities
Receipt from disposal [1,990,560 + 30,000] 2,020,560
Payment for capital work in progress (856,800)
Payment for long term deposits (132,000)
Net cash from Investing Activities 1,031,760
Cash Flow from Financing Activities:
Capital introduced by owner 546,832
Drawings (150,000 x 12) (1,800,000)
Short term loan paid (200,000)
Net cash from Financing Activities (1,453,168)
Net Cash Flow 610,320
Opening balance of cash and cash equivalents 84,480
Closing balance of cash and cash equivalents 694,800
Workings:

Cash & Cash Equivalents

2016 2015
Cash 694,800 84,480

Capital Account
Drawings 1,800,000 b/d 13,665,280

Profit 1,525,948
Cash (bal) 546,832
c/d 13,938,060
Unadjusted bal 13,938,060
Building 50,000 Equipment 30,000
c/d (adjusted) 13,918,060

Short term Loan

Bank (bal) 200,000 b/d 1,531,200
c/d 1,331,200
 Accrued Interest
Cash (bal) 99,632 b/d 63,360
Interest 141,872
c/d 105,600

Land
b/d 6,600,000 Disposal (bal) 1,821,600
c/d 4,778,400

Building
b/d 4,171,200 Depreciation (bal) 363,600
Capital work in progress 1,200,000
Cash 50,000 c/d 5,057,600
Unadjusted bal 5,057,600 Capital 50,000
c/d (adjusted) 5,007,600

Vehicle
b/d 800,000 Depreciation (bal) 200,000
c/d 600,000

Equipment
b/d 2,112,000 Disposal 70,000
Cash 30,000
Depreciation (bal) 368,900
c/d 1,643,100
Unadjusted bal 1,643,100
Capital 30,000 c/d (adjusted) 1,673,100

Capital work in progress

b/d 1,821,600 Building 1,200,000
Cash (bal) 856,800
c/d 1,478,400

Long Term Deposits

b/d 448,800
Cash (bal) 132,000
c/d 580,800

Disposal-Land
Land 1,821,600 Cash (bal) 1,990,560
Gain 168,960

Disposal-Equipment
Land 70,000 Cash 30,000
Loss 40,000
[70,000 – 30,000]
 Long term loan
b/d 2,112,000
468,900
c/d 1,643,100

Accounts payable
b/d 694,320
277,200
c/d 417,120

Inventory
b/d 320,628
364,980
c/d 685,608

Accounts receivable
b/d 595,452
677,820
c/d 1,273,272

A.6

Ajmal limited

Statement of changes in equity

For the year ended December 31,2014

(a) ………. Rs in 000……….

Share Share Retained Revaluation Total

capital premium earning surplus
Balance as at January 1,2013 50,000 7,500 63,450 2,500 123,450
Adjustment for policy change (W-1) - - (1,200) (1,200)
Adjustment for prior year error (W-2) - - 2,250 2,250
Balance as at January 1,2013 -restated 50,000 7,500 64,500 124,500
Final cash dividends -2012 [50×5%] - - (2,500) (2,500)
Final bonus dividends -2012[50×5%] 2,500 (2,500) - -
Interim bonus dividends 2,625 2,625) - -
2012[52.5×5%]
Right issue [55,125/10 = 5,512×1/5] 11,025 4,410 - 15,435
Profit (W-3)-restated - - 30,500 30,500
Incremental depreciation 800 (800) -
Balance as at December 31,2013 - 66,150 6,785 93,300 1,700 167,935
restated
Final cash dividends -2013[66,15×10%] - - (6,615) (6,615)
Final bonus dividends- 6,615 (6,615) - -
2013[66,15×10%]
Interim cash dividends - - (14,553) (14,553)
2014[72,765×20%]
Profit (W-3) - - 29,840 29,840
Incremental depreciation - - 900 (900) -
Balance as at December 31,2014 72,765 170 102,782 800 176,607
(W-1) Effect on profit

2014 2013 2012

Opening (400) 1,200 -
Closing (800) 400 (1,200)
Net Effect on Profit (1,200) 1,600 (1,200)

(W-2)

Date Description Debit Credit

01-07-2012 Plant 2,500
Repair 2,500
31-12-2012 Depreciation 250
Accumulated Depreciation 250
(2,500 x 20%) x 6/12
31-12-2013 Depreciation 450
Accumulated depreciation 450
(2,500-250) x 20%
31-12-2014 Depreciation 360
Accumulated depreciation 360
(2,500-250-450) x 20%

(W-3)
2014 2013
Unadjusted profit after tax 31,400 29,350
Depreciation(W-2) (360-108) , (450-135) (360) (450)
Effect of Stock (w-1) (1,200) 1,600
29,840 30,500

(b)
E.P.S for 31-12-2014.
Restated
2014 2013
………. Rs in 000……….
Profit After tax 29,840 30,500
Weighted Avg No. of shares (W-1) 7,276.5 6,296.95
Earnings per Share 4.10 4.84

(W-1) Shares in ……….000………..

Actual Current (Weighted) Prior period (Adjusted)

1-1-2014 6,615 6,615 5724.5 (W-1.1)
(66,150/10)
Final bonus dividend 661.5 661.5 572.45
(2013) (6,615 x 10%) (661.5/6,615 x5,7274.5)
7,276.5 7,276.5 6,296.95
(W-1.1) Original EPS of 2013 Would have been Calculated as follows:
𝑃𝐴𝑇 29,350
EPS = = = 5.13 per Share
𝑆ℎ𝑎𝑟𝑒𝑠 (𝑊−1) 5,724.5

Weighted Avg number of shares:

Actual Current (Weighted)

1-1-2013 5,000 5,000
(50,000/10)
Final bonus dividend 250 250
2012 [5,250 x 5%] [No Value] (250/5,000 x 5,000)
5,250 5,250
Interim bonus dividend 262.5 262.5
2013 [5,250 x 5%] [No Value] (262.5/5,250 x 5,250)
5,512 5,512.5
31-12-2013 Right issue*(W)[For value] 857.5 0 (857.5 x 0/12)
6,370 5,512.5
[For No Value] 245 212
(245/6,370 x 5,512.5)
31-12-2013 6,615 5,724.5

*(W) Right Shares on 31-12-2013

5,512.5 x 1/5 = 1,102.5 x 14 = 15,435

For Value [15,435/18] = 857.5

For no value [1,102.5 – 857.5] = 245

A.7
Mangora limited

Notes to Financial Statements

For the year ended 31-12-2019

Property, Plant and Equipment: Rs In millions

Plant Vehicles

Gross Carrying Amount:

Opening balance (W 1) 360 170
Elimination (60) -
Revaluation (10) -
Closing balance 290 170
Accumulated depreciation and
impairment:
Opening balance - 45
Depreciation (W.1)/(W.2) 60 21
Elimination (60) -
Impairment loss 7 -
Closing balance 7 66
Carrying Amount 283 104
Disclosures:

Plant Vehicles
Measurement Basis Revaluation Cost Model
Model
Useful life/Rate 7 years 16.84% (W 2.2)
Method of Depreciation Straight Line Reducing
Balance

The last revaluation was performed by Muhammad Ahmad Malik & Co. on 31-12-2019, an independent firm of valuer.
Had the land and building been at cost model, carrying amount would have been:

2019 2018
Cost 434 434
Accumulated depreciation (124) (62)
[434/7 x 2]; [434/7 x 1]
310 372
Impairment loss [310-283 (W.3)] 27 -
Carrying amount 283 372

W.1 Revaluation of plant

Date
1.1.2018 Cost (375+59) 434
31.12.2018 Depreciation (434/7) (62)
31.12.2018 Carrying amount 372
31.12.2018 Revaluation Loss (bal.) (12)
31.12.2018 Fair value 360
31.12.2019 Depreciation (360/6) (60)
31.12.2019 Carrying amount 300
31.12.2019 Revaluation Loss (bal.) (10)
31.12.2019 Fair value 290

W. 2 Depreciation of Vehicles:
For 2018: [170-10] / 16 (W 2.1) = 10

For 2019: 125 x 16.84% (W 2.1) = 21

(W 2.1) useful life of vehicle:

[170-10] / life x 3.5 = 35

Life = 16 years
(W 2.2) vehicle depreciation rate when estimate is changed in 2019:

WDV 170-35-10 = 125

Remaining life = 16 - 3.5 - 1 = 11.5

Method is now reducing balance so rate is required

11.5 15
𝑟 =1−( √ 𝑥 100)
125

𝑟 = 16.84 %
W. 3 impairment loss:

Carrying amount of machine = 290

Recoverable Amount:

Higher of:

FV less CTS
280
(290 – 10)
Value in Use (W) 283

283

Working: Value in use

88 x (1 + 0.1) -1 = 80

82.28 x (1 + 0.1) -2 = 68

73.21 x (1 + 0.1) -3 = 55

65.81 x (1 + 0.1) -4 = 45
56.37 x (1 + 0.1) -5 = 35

Total = 283

Movement in Capital Work in process – investment property

2019 2018
Balance as on 01.01 90 40
Expenditures 30 50
Borrowing cost capitalized (W) 4
Transferred to investment property (60)
Balance as on 31.12 64 90
(W) Borrowing cost capitalized

100 x 12 % x 7/12 = 7
Less: [100-30] x 7.35% x 7/12 = (3)
4
A.8:

Liquidity Ratios:

Current Assets
Current ratio =
Current Liabilities

PL = 19,000 = 1.8 times

10,500

EL = 250
150
= 1.7 times

Current Assets - Inventory

Quick Ratio =
Current Liabilities

19,000 – 5,000 14,000

PL = =
10,500 10,500

= 1.33 times
150
EL = = 250 – (250 X 40%)
150
150

= 1 time

Working Capital Turnover Period:

Inventory turnover period = Average Inventory X 360

Cost of Goods Sold
PL = 5,000 X 360
22,500
= 80 days
100
EL = 500 X 360

= 72 days

Debtor turnover period = Avg trade debtors X 360

Net credit sales

PL = 4,000 X 360
30,000

= 48 days
 EL = 50 X 360
800

= 23 days

Creditor turnover period = Avg Creditors X 360

Net credit purchase

PL = 4,000 X 360
23,500

= 61 days

Inventory
b/d 4,000
COS 22,500
Purchases 23,500
c/d 5,000

EL = 90 X 360
500

= 65 days

* COS= Net Credit Purchase

Working Capital Cycle = Inventory days + debtor days - creditor days

PL = 80 + 48 – 61 = 67 days

EL = 72 + 23 – 68 = 30 days

Profitability ratios:

Gross Profit Ratios = X Gross Profit 100

Net Sales

PL = 7,500 X 100
30,000

= 25%
EL = 300 X 100
800

= 38%

Net Profit Ratios = Net Profit X 100

Net Sales

PL = 6,900 X 100
30,000

= 23%

EL = 180 X 100
800

= 23%

Return on asset = Operating Profit X 100

Avg Total assets

PL = (6,900 + 450) X 100

31,500

= 23%

EL = (180 + 40) X 360

750

= 29.3%

Return on Capital Employed = Operating Profit X 100

Capital Employed

* Capital Employed = Equity + Long Term Loan

6,900 + 450 7,350
PL = = X 100
15,000 + 6,000 21,000

= 35%
EL = 180 + 40 = 220 X 100
350 + 250 600

= 36.7%

Comments:

Liquidity positions:

i) Current ratio of PL is higher than as compared to EL it means PL has ability to pay its current obligation
out of current asset more than EL
ii) Higher quick ratio of PL represents that PL settle its obligation immediately to meet the current liabilities
than EL
Working capital turnover period:

iii) Increase in days suggest more time required for conversion of stock into sales which is unfavorable
iv) Increase in debtor days may suggests insufficient collection of amounts due from debtors
v) Increase in creditor days may suggest lack of proper credit control policies
vi) Increased days means delay in payment of cash to creditors and receipt of cash from debtors
Profitability position:

vii) Gross profit of EL is higher as compared to PL. The difference is significant and are on account of higher
level of sales
viii) Return on asset of PL is lower than EL which may be due to lower profit margin or may be because of
effect of revaluation
ix) Return on capital employed of PL is slightly lower than EL may be due to lower profit margin or may be
higher shareholders’ equity.