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14 views

Test 6

tesr 6 of mfa

Uploaded by

setrosolutions9
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Certi�icate in Accounting and Finance Stage Examinations

(Post Batch Test 6) July 9, 2024


32 minutes – 18 marks
Instructor: H M Umer
Additional reading
time – 3 Minutes
Syllabus: (Correction of Errors)

Financial Accounting and Reporting 1


Question-1
During the review of accounting records and financial statements for the year ended 31 December 2023 of
Chand Traders, following errors were highlighted:
(i) Government grant of Rs. 600,000 has received in 1-Jan-2020 related to p
lant. On 5-Jan-2023, due to non-fulfilment of condition grant was repayable in full. Management has
treated grant as a reduction in the cost of the plant.
Accountant has made debited entry in the other expense account. However, cost of Plant and useful life
of asset is Rs. 1,400,000 and 6 years respectively. Further due to repayment, accountant is also not aware
how the impact of depreciation has been incorporated in the books,so no entry has passed in the books
(3Marks)
(ii) Specific loan of Rs. 2 million has been obtained for the project. During the capitalization period, the
interest cost and temporary investment income is amounting to Rs. 340,000 and Rs. 135000respectively.
Accountant has recorded the amount as in finance cost & in the other income. (2 Marks)
(iii) On 1 January 2023, Chand Trader completed construction of the warehouse at a cost of Rs. 58 million for
subsequent sale to customer. However, warehouse was given on rent atan annual rent of Rs. 15 million
on 1 April 2022. The fair value of the warehouse on various dates are as follows:
Rs. in million
1 January 2023 62
1 April 2023 70
31 December 2023 75

Accountant has debited the Investment property (Warehouse) `account and credited theinventory
account by Rs.62 million. No other accounting entry has been made in (5 Marks)

Question-2
The Accountant of Midjourney Enterprises (ME) prepared the draft statement of pro�it or loss for the year ended 31 December 2023,
which showed gross pro�it and net pro�it of Rs. 1,360,000 and Rs. 590,000 respectively. The following errors were found on a detailed
review of the draft �inancial statements:
(i) Purchase returns of Rs. 20,000 were recorded as sales returns of Rs. 2,000.
(ii) Free samples of goods costing Rs. 30,000 were distributed to potential customers, but were mistakenly recorded as
credit sales at a mark-up of 30% on cost.
(iii) Proceeds from the disposal of office equipment on 31 December 2023, amoun�ng to Rs. 382,000, were credited to sales.
The equipment had cost and carrying amount on 31 December 2023 of Rs. 500,000 and Rs. 320,000 respec�vely. ME
depreciates office equipment at 20%.
(iv) Transporta�on outward, amoun�ng to Rs. 240,000, was recorded as transporta�on inward. This also resulted in
overstatement of closing inventory by Rs. 36,000.
(v) While recording impairment for an item of property, plant and equipment, its value in use of Rs. 1,200,000 was ignored.
The item had a carrying value (before impairment) of Rs. 1,800,000 and fair value less costs of disposal of Rs. 1,000,000.
ME uses periodic inventory system for recording its inventory.
Required:
Compute the corrected gross pro�it and net pro�it of ME for the year 2023. (08)

1 (FAR-I Test 6:9 July, 2024)

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