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Test 3

The document is an examination paper for the Certificate in Accounting and Finance, specifically focusing on Financial Accounting and Reporting. It includes multiple questions requiring journal entries and financial statements based on various lease agreements and agricultural transactions. The exam is scheduled for April 14, 2025, with a total duration of 50 minutes and a maximum score of 26 marks.

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6 views

Test 3

The document is an examination paper for the Certificate in Accounting and Finance, specifically focusing on Financial Accounting and Reporting. It includes multiple questions requiring journal entries and financial statements based on various lease agreements and agricultural transactions. The exam is scheduled for April 14, 2025, with a total duration of 50 minutes and a maximum score of 26 marks.

Uploaded by

ayanahmad97531
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Certificate in Accounting and Finance Stage Examination

April 14 ,2025
50 minutes – 26 marks
Additional Reading Time – 5 minutes

Financial Accounting and Reporting-II


Test-3
Instructions to examinee
(i) Answer All Questions
(ii) Answer in Black pen only
(iii) Attempt each Question on new page.

Question-1
The financial statements of Lancome Limited (LL) for the year ended 31 December 2024 are under
preparation. While reviewing accounting treatment of a lease transaction entered during the year, it was
noted that the accountant of LL has simply recognized the right-of-use asset and corresponding lease
liability related to a plant at the present value of annual rentals of Rs. 48 million, discounted at the market
rate of 16% per annum. The subsequent entries for depreciation and interest have been made based on
these amounts, while the initial direct cost has been expensed out.
Details regarding the lease transaction are as follows:
(i) The plant was leased on 1 January 2024 for a non-cancellable period of four years at an annual
rental of Rs. 48 million, payable in advance on 1 January each year.
(ii) LL incurred initial direct cost of Rs. 8 million.
(iii) At the end of the lease term, LL has an option to purchase the plant at its estimated fair value of
Rs. 50 million. It is reasonably certain that LL will exercise the option. The useful life of the plant
is estimated at seven years.
(iv) The market interest rate for similar transactions is 16% per annum. However, as an incentive to
LL for entering into the lease, the lessor has incorporated an implicit rate of 11% per annum,
which is known to LL.
Required:
Prepare correcting journal entries in the books of LL for the year ended 31 December 2024. (9)

Question-2
Mardan Inc. was incorporated in 2010 to operate as a computer software service firm with an accounting
year ending September 30. Mardan Inc. has leased a large computer system from manufacturer. The lease
calls for a 2 monthly rental for 3 years of the lease term. Total lease payments are equal to Rs. 720,000.
The estimated useful life of the computer is 5 years. All rentals are payable on the last day of the 2nd
month. The lease period starts from April 1, 2012, the date the computer was installed and the lease
agreement was signed. Fair value of the Alpha-3 computer system is Rs. 650,000 at April 1, 2012. The
implicit rate for lease is 12%.
Required:
Prepare statement of financial position as on September 30, 2012 in the books of Mardan Inc. (10)

Question-3
Zeta Limited entered into a five-year lease agreement on 1 November 2012, paying Rs.
109,750 per annum, commencing on 31 October 2013. The present value of the lease
payments was Rs. 450,000 and the interest rate implicit in the lease was 7%.
What is the amount to be shown within non-current liabilities at 31 October 2013? (2)
P a g e | 2 of 2

Question-4
Gaultier Limited (GL) is engaged in agricultural activities, including cultivation of fruit orchards and the
growth of seasonal crops. GL follows IFRSs in preparing its financial statements. The following
transactions and events occurred during the year ended 31 December 2024:
(i) During 2024, GL planted wheat crops over 100 hectares of farmland. GL incurred Rs. 8 million
in planting and cultivation costs, including land preparation, seeds, fertilizers, irrigation and
labour. Harvesting was done in October 2024, yielding a total of 300,000 kg of wheat. At the
point of harvest, the fair value of wheat was Rs. 100 per kg.
By 31 December 2024, GL sold 72% of the wheat at an average price of Rs. 125 per kg. The fair
value of the remaining wheat as of 31 December 2024 was estimated at Rs. 120 per kg.
(ii) On 1 July 2024, GL received a government grant of Rs. 10 million to promote farming in a
particular location. The grant requires GL to repay the entire grant if GL farms at the location for
less than three years.
Required:
Pass the journal entries for the year ended 31 December 2024. (05)

(THE END)

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