Certified Finance and Accounting Professional Stage Examination
The Institute of 6 June 2022
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Advanced Accounting and Financial Reporting
Instructions to examinees:
(i) Answer all FIVE questions.
(ii) Answer in black pen only.
Q.1 (a) During the preparation of financial statements of Quail Limited (QL) for the year ended
31 December 2021, it was noted that there is a significant decline in budgeted
net cash flows of one of QL’s Cash Generating Units (CGU). Value in use and fair
value less cost of disposal of the CGU as on 31 December 2021 were estimated at
Rs. 555 million and Rs. 568 million respectively.
Details regarding the individual assets of the CGU before impairment are as follows:
Carrying Fair value less
Value in use
value cost of disposal
--------------- Rs. in million ---------------
Building (revaluation model)* 144 140 132
Equipment (cost model) 96 68 Not measurable
Machinery (cost model) 230 199 207
License (cost model) 70 Not measurable
Goodwill 66 Not measurable
Inventory 96 106 Not relevant
*Balance of surplus on revaluation of building as on 31 December 2021 amounted to Rs. 12 million.
QL has no plans to sell this CGU in the near future.
Required:
Compute the amount of impairment loss to be taken to the statement of profit or loss
for the year ended 31 December 2021 and carrying value of each individual asset of the
CGU after impairment. (07)
(b) On 1 January 2021, Chicken Limited (CL) acquired 30% shareholding in a US based
company, Sparrow Limited (SL), for USD 5 million and obtained significant influence
over SL.
SL earned profit of USD 1.5 million for the year ended 31 December 2021. On
31 October 2021, SL paid dividend of USD 0.1 million to CL. On the same date, CL
also sold goods for USD 0.2 million to SL at 30% profit margin. 25% of these goods
remained unsold with SL on 31 December 2021. SL paid for the goods in 2022.
Following exchange rates are available:
1 Jan 2021 31 Oct 2021 31 Dec 2021 Average for 2021
1 USD to Rs. 170 174 185 180
Required:
Discuss how the investment in SL should be dealt with in CL’s consolidated financial
statements for the year ended 31 December 2021. (Show all necessary workings) (06)
, Advanced Accounting and Financial Reporting Page 2 of 6
(c) Azam is your friend and has asked for your help in making a presentation regarding
classification of equity investments and debt investments under IFRS 9. He has a clear
understanding of classification of equity investments and prepared the following
diagram:
EQUITY INVESTMENTS
Is the investment HELD Yes
FOR TRADING?
No
FVTPL
Is the FVTOCI option No
elected by management?
Yes
FVTOCI (No Recycling)
However, he is confused in classification of debt investments. He believes that
management can classify any debt investment into any measurement category
i.e. amortised cost, fair value through other comprehensive income (FVTOCI) and fair
value through profit or loss (FVTPL).
Required:
Keeping in mind the above diagram prepared by Azam for equity investments, prepare
a similar diagram for classification of debt investments under IFRS 9. (05)
Q.2 Woodpecker Limited (WL) is engaged in the business of manufacturing and supplying
industrial machinery. Naeem, ACA is WL’s financial controller and reports to Mubeen, FCA,
who is the chief financial officer. Financial statements for the year ended 31 December 2021
were prepared by Mubeen in the absence of Naeem who was on annual leaves. On returning
from annual leaves, Mubeen asked Naeem to present the financial statements to the senior
management as Mubeen would not be available for few days.
WL’s statement of financial position as on 31 December 2021 prepared by Mubeen is as follows:
Rs. in million Rs. in million
Non-current assets Equity
Property, plant and Share capital (Rs. 10 each) 2,000
equipment – owned 5,600 Convertible bonds 1,250
Right of use assets 1,240 Retained earnings 3,150
6,840 6,400
Current assets
Inventory 1,140 Liabilities 2,910
Receivables 960
Other current assets 370
2,470
9,310 9,310
Naeem identified that all budgeted targets (including profit) given by the senior management
have been achieved as per these financial statements which was quite surprising for Naeem.
He also identified that budgeted targets were not met in the first draft of the financial
statements. However, some adjustments by Mubeen resulted in meeting the targets. These
adjustments were made in respect of the following:
The Institute of 6 June 2022
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Advanced Accounting and Financial Reporting
Instructions to examinees:
(i) Answer all FIVE questions.
(ii) Answer in black pen only.
Q.1 (a) During the preparation of financial statements of Quail Limited (QL) for the year ended
31 December 2021, it was noted that there is a significant decline in budgeted
net cash flows of one of QL’s Cash Generating Units (CGU). Value in use and fair
value less cost of disposal of the CGU as on 31 December 2021 were estimated at
Rs. 555 million and Rs. 568 million respectively.
Details regarding the individual assets of the CGU before impairment are as follows:
Carrying Fair value less
Value in use
value cost of disposal
--------------- Rs. in million ---------------
Building (revaluation model)* 144 140 132
Equipment (cost model) 96 68 Not measurable
Machinery (cost model) 230 199 207
License (cost model) 70 Not measurable
Goodwill 66 Not measurable
Inventory 96 106 Not relevant
*Balance of surplus on revaluation of building as on 31 December 2021 amounted to Rs. 12 million.
QL has no plans to sell this CGU in the near future.
Required:
Compute the amount of impairment loss to be taken to the statement of profit or loss
for the year ended 31 December 2021 and carrying value of each individual asset of the
CGU after impairment. (07)
(b) On 1 January 2021, Chicken Limited (CL) acquired 30% shareholding in a US based
company, Sparrow Limited (SL), for USD 5 million and obtained significant influence
over SL.
SL earned profit of USD 1.5 million for the year ended 31 December 2021. On
31 October 2021, SL paid dividend of USD 0.1 million to CL. On the same date, CL
also sold goods for USD 0.2 million to SL at 30% profit margin. 25% of these goods
remained unsold with SL on 31 December 2021. SL paid for the goods in 2022.
Following exchange rates are available:
1 Jan 2021 31 Oct 2021 31 Dec 2021 Average for 2021
1 USD to Rs. 170 174 185 180
Required:
Discuss how the investment in SL should be dealt with in CL’s consolidated financial
statements for the year ended 31 December 2021. (Show all necessary workings) (06)
, Advanced Accounting and Financial Reporting Page 2 of 6
(c) Azam is your friend and has asked for your help in making a presentation regarding
classification of equity investments and debt investments under IFRS 9. He has a clear
understanding of classification of equity investments and prepared the following
diagram:
EQUITY INVESTMENTS
Is the investment HELD Yes
FOR TRADING?
No
FVTPL
Is the FVTOCI option No
elected by management?
Yes
FVTOCI (No Recycling)
However, he is confused in classification of debt investments. He believes that
management can classify any debt investment into any measurement category
i.e. amortised cost, fair value through other comprehensive income (FVTOCI) and fair
value through profit or loss (FVTPL).
Required:
Keeping in mind the above diagram prepared by Azam for equity investments, prepare
a similar diagram for classification of debt investments under IFRS 9. (05)
Q.2 Woodpecker Limited (WL) is engaged in the business of manufacturing and supplying
industrial machinery. Naeem, ACA is WL’s financial controller and reports to Mubeen, FCA,
who is the chief financial officer. Financial statements for the year ended 31 December 2021
were prepared by Mubeen in the absence of Naeem who was on annual leaves. On returning
from annual leaves, Mubeen asked Naeem to present the financial statements to the senior
management as Mubeen would not be available for few days.
WL’s statement of financial position as on 31 December 2021 prepared by Mubeen is as follows:
Rs. in million Rs. in million
Non-current assets Equity
Property, plant and Share capital (Rs. 10 each) 2,000
equipment – owned 5,600 Convertible bonds 1,250
Right of use assets 1,240 Retained earnings 3,150
6,840 6,400
Current assets
Inventory 1,140 Liabilities 2,910
Receivables 960
Other current assets 370
2,470
9,310 9,310
Naeem identified that all budgeted targets (including profit) given by the senior management
have been achieved as per these financial statements which was quite surprising for Naeem.
He also identified that budgeted targets were not met in the first draft of the financial
statements. However, some adjustments by Mubeen resulted in meeting the targets. These
adjustments were made in respect of the following:
