ADVANCED ACCOUNITNG & FINANCIAL REPORTING

Suggested Answers
Final Examinations – Summer 2011

A.1 Oceana Global Limited

Consolidated Statement of Financial Position
As of March 31, 2011 2011
Rs. in million
Assets
Non-current assets
Property, plant and equipment {700+200+(35 –10)} 925.00
Goodwill W-1 21.00
946.00
Current assets (350+150 –1.25–15) 483.75
1,429.75
Equity and liabilities:
Capital and reserves
Share capital 300.00
Retained earnings W-2 564.31
864.31
Non-controlling interest W-3 78.44
942.75
Non-current liabilities (150+40) 190.00
Current liabilities (182+130 –15) 297.00
1,429.75
W-1 Goodwill
Fair value of 10% equity interest as of October 1, 2010 28.00
Purchase consideration for further acquisition of 45% equity 108.00
Fair value of non-controlling interest 70.00
Total purchase consideration 206.00
IGL identifiable net assets on acquisition date of Oct. 1, 2010 (100+60+35-10) (185.00)
21.00

W-2 Retained earnings – OGL

Balance as of 31-3-2011 550.00
Cost incurred during the year for acquisition of 45% equity in RGL (4.00)
Fair value reserve - transferred to PL on deemed disposal of 10% equity
in RGL 3.00
Increase in fair value of 10% equity as of October 1, 2010 (28-23) 5.00
Post acquisition profit share in RGL (80 – 60 – 1.25) × 55% 10.31
564.31

W-3 Non-controlling interest in RGL

Fair value of NCI as of October 1, 2010 70.00
NCI share in post acquisition profit (80 – 60 – 1.25 ) × 45% 8.44
78.44

W-4 Unrealized profit on inter company stock in hand (30 – 25) × 25% 1.25

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examinations – Summer 2011

A.2 Kahkashan Limited

Statement of Comprehensive Income
For the year ended March 31, 2011 2011
Rs. in million
Sales 800.000
Cost of sales (640.000)
Gross profit 160.000
Other operating income [13-9(ii)-1(iii)] 3.000
Selling and distribution expenses (32.000)
Administrative expenses [15+5(iv)+0.6(iv)] (20.600)
Financial charges [10+0.591(i)] (10.591)
Share of profit of associates - net of tax (iii) 2.500
Profit before taxation 102.309
Taxation (v) (35.183)
Profit for the year 67.126
Other comprehensive income, net of tax
Share of other comprehensive income of associates (iii) 0.500
Total comprehensive income for the year 67.626

(i) Additional finance cost on redeemable TFC

Cash out- PV at 14% Rs. in
Date flow discount million
31-Mar-2011 PV of 1st. Year payment of interest (50*12%) 6.00 0.877 5.262
31-Mar-2012 PV of 2nd. Year payment of interest 6.00 0.769 4.614
31-Mar-2013 PV of 3rd. Year payment of interest 6.00 0.675 4.050
31-Mar-2014 PV of 4th. Year payment of interest 6.00 0.592 3.552
31-Mar-2014 PV of redemption of TFC 50.00 0.592 29.600
Liability component 47.078
Interest cost for the year on liability component
(47.078*14%) 6.591
Interest cost paid (50.00*12%) 6.000
Additional finance cost to be booked 0.591

(ii) Profit on sale and lease back of plant

Profit accounted for on disposal of plant 53-43 10.000
Profit to be booked (10/5*0.5) 1.000
Profit to be deferred over the remaining period of lease 9.000

(iii) Income from associates

Dividend income from associate undertaking previously credited to other
operating income now credited to investments (1.000)
25% Share of for the year profit of associates, net of tax (10*25%) 2.500
25% Share of other comprehensive income of associates, net of tax (2*25%) 0.500
2.000

(iv) Impairment of plant

Carrying value as of October 1, 2010 (30/15*10.5) 21.000
Recoverable amount (Higher of NRV at Rs. 12 and value in use at Rs. 16) 16.000
Impairment loss 5.000
Depreciation to be booked Apr. 1, 2010 to Sept. 30, 2010 (30/15*0.5) 1.000
Depreciation to be booked Oct. 1, 2010 to Mar. 31, 2011 (16/5*0.5) 1.600
2.600
For the year deprecation ignoring valuer’s report (30/15) (2.000)
Additional depreciation to be booked 0.600

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examinations – Summer 2011

(v) Taxation
Taxable income
Profit before tax 102.309
Additional finance cost on TFCs (i) 0.591
Deferred profit on sale of the plant 9.000
25% Share of profit of associates excluded as taken net of tax (2.500)
Accounting depreciation on finance lease asset (53/5*0.5) 5.300
Finance charges included in lease installment {(53 – 7)*13.507/2} 3.127
Lease installment (7.000)
Impairment of the plant 5.000
Additional accounting depreciation due to damage to the plant 0.600
Total business income 116.427
Current year’s tax expense
Tax at 35% on business income 40.749
Tax at 10% on dividend income of Rs. 1.000 0.100
40.849
Prior year’s tax expense
Liabilities outstanding for more than three years added to income 6.000
Payment of liabilities outstanding for more than 3 years added to income in
prior years allowable during the year (1.800)
4.200 1.470
Deferred tax credit
Additional finance cost on TFCs 0.591
Profit on sale and leaseback of the plant deferred over the lease period 9.000
Assets / liabilities subject to finance lease (5.3 +3.127 – 7) 1.427
Impairment of the plant 5.000
Additional accounting depreciation on the plant 0.600
Balance of liabilities outstanding for more than three years added to income in
prior years (6 – 1.8) 4.200
Tax credit at 35% 20.818 (7.286)
Deferred tax expense
Tax on the difference between share of profit of associate and the dividend
received from the associate (2.500 –1.000)*10% 0.150

Net tax expense 35.183

A.3 A-6 Journal entry

Dr. Cr.
Date Particulars Ref.
Rs. in million
31-03-11 PL Account (Depreciation exp) 70,000/8 8.750
Accumulated depreciation 8.750
PL Account (Unwinding of discount) 1 0.681
Site restoration liability (Unwinding of discount) 1 0.681
Revaluation surplus (Incremental depreciation) 1 0.461
Retained earnings (Incremental depreciation) 1 0.461
PL account (Excess of increase in site restoration cost over
revaluation balance) 2.542-1.843 0.699
Revaluation surplus (Increase in site restoration cost) 2 1.843
Site restoration liability (Increase in site restoration cost) 2 2.542
12.434 12.434

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examinations – Summer 2011

WORKING Site
Revaluation
Ref. restoration
surplus
liability
01-04-05 PV of site restoration cost of Rs. 10 million at
10% discount rate 10/(1.1)10 3.855
31-03-06 Unwinding at 10% 0.386
31-03-07 Unwinding at 10% 0.424
31-03-07 Carrying value of the plant (80+3.855)*8/10 67.084
31-03-07 Revalued amount of the plant 70.000 2.916
31-03-08 Unwinding at 10% / Incremental dep. (2.916/8) 0.467 (0.365)
31-03-09 Unwinding at 10% / Incremental dep. 0.513 (0.365)
5.645 2.186
31-03-09 Increase / (decrease) in liability / revaluation 5.066-
surplus on revision of discount rate to 12% 5.645 (0.579) 0.579
31-03-09 PV of site restoration cost of Rs. 10 million at
12% discount rate 10/(1.12)6 5.066# 2.765
31-03-10 Unwinding at 12% / Incremental dep. (2.765/6) 0.608 (0.461)
31-03-11 Unwinding at 12% / Incremental dep. 1 0.681 (0.461)
6.355 1.843
31-03-11 Increase / (decrease) in liability relating to site
8.897-
restoration costs
6.355 2 2.542 (1.843)
31-03-11 PV of site restoration cost of Rs. 14 million at
-
12% discount rate 14/(1.12)4 8.897

A.4 Rahat Limited

Notes to and forming part of the financial statements
For the year ended March 31, 2011
2011 2010
1 Earnings per share: Rs. / Shares in '000

1.1 Basic earnings per share

Profit after taxation 150,000 110,000
Dividend on 15% convertible preference shares (19,000*15%) /
(20,000*15%) (2,850) (3,000)
Profit attributable to ordinary shareholders 147,150 107,000
Restated
Weighted average number of ordinary shares in issue W1 5,638.28 5,170.36
Basic earnings per share Rs. 26.10 20.69

1.2 Diluted earnings per share

Profit after taxation 150,000 110,000
Weighted average number of shares in issue W1 5,638.28 5,170.36
Conversion of 10,000 cumulative preference shares on July 1,
2010 (10*7)/12*3 17.50 -
Adjustment for potential ordinary shares on conversion of 15%
cumulative preference shares (190*7)/(200*7) 1,330.00 1,400.00
Restated
Weighted average number of shares for diluted earnings 6,985.78 6,570.36
Diluted earnings per share Rs. 21.47 16.74

1.3 During the year the company has issued 1 million right ordinary shares at Rs. 12 per share against
the prevailing market price of Rs. 15 per share. This has resulted in restatement of basic and diluted
earnings per share for the year ended March 31, 2010.

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examinations – Summer 2011

W-1 Weighted average ordinary shares outstanding for 'Basic EPS'

2011 2010 (Restated)

Actual Bonus Actual Bonus Weighted
Date of Weighted
Description No. of Time factor No. of factor average
issue average shares
shares (W-2) shares (W-2) shares
01-04-
Balance 10 5,000 3/12 1.034072 1,292.59 5,000 1.034072 5,170.36
Conversion of 10,000
cumulative preference 01-07-
shares 10 70
5,070 3/12 1.034072 1,310.69
01-10-
Right issue 10 1,000
6,070 6/12 - 3,035.00
Weighted average shares 5,638.28 5,170.36

W-2 Calculation of theoretical ex-right value per share and bonus adjustment factor:
Outstanding shares before the exercise of rights at fair value 5,070 15.0 76,050
Exercise of rights issued at Rs. 12 per share 1,000 12.0 12,000
6,070 88,050
Theoretical ex-right value per share 88,050/6,070 14.50576
Bonus adjustment factor 15/14.50576 1.034072

A.5 Galaxy Textiles Limited

Notes to the financial statements
For the year ended March 31, 2011 2011
Rs. in million
Gratuity Fund

1 The amounts recognized in the statement of financial position are as follows:

Present value of defined benefit obligation 1.1 166.00
Fair value of plan assets 1.2 (120.00)
Unrecognized actuarial losses W.1 46.00

1.1 Changes in the Present value of the defined benefit obligations are as follows:
Opening defined benefit obligation 133.00
Current service cost 15.00
Interest cost 16.00
Benefits paid to the employees (6.00)
Actuarial losses (balancing amount) 8.00
Closing defined benefit obligation 166.00

1.2 Changes in the fair value of plan assets are as follows:

Opening Fair value in plan assets 114.00
Expected return on plan assets 14.00
Contribution by employer 1.3 17.32
Benefits paid to the employees (6.00)
Actuarial losses (balancing amount) (19.32)
Closing fair value of plan assets 120.00

1.3 The amounts recognized in profit or loss are as follows

Current service cost 15.00
Interest on obligation 16.00
Net actuarial loss recognized in the year W-2 0.32
Expected return on plan assets (14.00)
17.32
W-1 Unrecognized actuarial losses
Opening net actuarial losses 19.00
For the year actuarial losses on plan obligation 1.1 8.00

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Final Examinations – Summer 2011

For the year actuarial losses on plan assets 1.2 19.32

Actuarial losses adjusted during the year W-2 (0.32)
Closing in net actuarial losses 46.00
W-2 Unrecognized loss adjusted during the year (Based on 10% corridor)
Cumulative actuarial loss as at April 1, 2010 19.00
10% of greater of:
 the present value of the defined benefit obligations of Rs. 133 million; and
 the fair value of plan assets of Rs. 114 million (13.30)
Actuarial losses exceeding 10% 5.70
Unrecognized loss adjusted during the year (5.70/18 years) 0.32

A.6 A-One Asset Management Fund Limited

Statement of Movement in Unit Holders' Fund
For the year ended March 31, 2011 2011
Rs. in million
Net assets at the beginning of the year 27,000
Issue of 100 million units 3,500
Redemption of 95 million units (3,277)
223
27,223
Element of income and capital gains included in prices of units issued / redeemed
transferred to income statement (173)
Net unrealized appreciation of re-measurement of investments classified as
available for sale (1,800-1,200-480) 120
Capital gains 400
Net unrealized appreciation on re-measurement of investments classified as
financial assets at fair value through profit or loss (2,500-2200) 300
Other net income for the year 3,000
Final distribution for the year ended March 31, 2010 at Rs. 4 per unit (900*4) (3,600)
100
Net assets at the end of the year 27,270

(The End)

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