Certificate in Accounting and Finance Stage Examination

February 14, 2025

3 hours – (100 marks)
Additional Reading Time – (15 minutes)

CAF 5 -Financial Accounting and Reporting II

Mock
Instructions to examinee
(i) Answer All 09 Questions
(ii) Answer in Black pen only
Section A
Question-1
On 1 January 2015, French Limited (FL) entered into following transactions:
Quantity Face value Purchase Transaction Coupon Effective Market
In per /Issue cost in Rs. Rate rate rate of
thousand debenture/ price (including (Interest similar
share in Rs. 20% internal in security
admin cost) arrears)
Purchased 12 1,000 At 103,200 12% 13.67% 13%
debentures in discount
company A of 40%
Purchased 15 100 At 108,000 N/A N/A N/A
equity premium
investments in of 20%
company B
Issued 8 500 At 144,000 10% 14.56% 9%
debentures to premium
Company M of 30%
- Investments in Debentures of company A is held to collect contractual cash flows and to sell
it if a better opportunity arises. At initial recognition it is not designated at FVTPL.
- Investments in shares of company B is held for long term purposes to earn dividend. (An
irrevocable election is made at initial recognition to use alternative treatment)
- Debentures issued by us are to be kept at amortised cost.
Fair value per debenture/share in Rs. 31 December 2015 31 December 2016
Company A debentures 1,200 800
Company B shares 105 97
Debentures issued by us 600 632
Required: Pass journal entries for the year ended 31 December 2016. (10)
Question-2
a)
On 1 Jan 2024, AgroGreen, receives 2 government grants for agricultural operations:
A government grant of Rs. 1,200,000 to support the purchase of advanced irrigation equipment. The
conditions attached to the grant are as follows:
 The grant is conditional on maintaining a minimum 30% reduction in water usage over the
next 3 years compared to historical usage levels. If AgroGreen fails to meet this target in any
year, 50% of the grant becomes repayable.
 The grant was received on 1 January 2024, with performance reviews annually.
On the same date, it also receives an unconditional grant of Rs. 500,000. The grant is meant to
support general agricultural activities.
As of 31 December 2024, AgroGreen reports a 28% reduction in water usage
The irrigation equipment was capitalized and has a useful life of 5 years.
Required: Pass journal entries related to Government Grant only. (5)
b) John, an accountant at a consulting firm, represents the company in a regulatory investigation. He
overstates financial justifications and downplays issues to protect the company’s reputation, risking
his professional objectivity. State the main threat involved in this case. (3)

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Question-3
Triangulum Limited (TL) is finalizing its financial statements for the year ended 31 December 2021.
Following information has been gathered for preparing the disclosures relating to taxation:
(i) Profit before tax for the year was Rs. 350 million.
(ii) Accounting depreciation exceeds tax depreciation by Rs. 150 million (2020: Rs. 125 million).
As on 1 January 2020, carrying value of property, plant and equipment exceeded their tax
base by Rs. 600 million.
(iii) Expenses include restructuring of Rs. 50 million (2020: Rs. 35 million). As per tax rules,
150% of the said expense is allowable as deduction.
(iv) On 1 July 2020, TL acquired an investment property for Rs. 100 million. The fair value of
property as on 31 December 2020 and 2021 was Rs. 115 million and Rs. 125 million
respectively. TL follows fair value model for accounting purposes. Tax authorities allow
depreciation at 10% per annum on reducing balance method. Further, full year’s tax
depreciation is allowed in the year of purchase.
(v) TL acquired 3% equity in Orange Limited for Rs. 400 million on 1 August 2021. The
investment was classified at fair value through other comprehensive income. As at 31
December 2021, the fair value of the investment was Rs. 320 million. However, this has not
yet been accounted for. As per tax laws, gain or loss on investment is taxable on sale.
(vi) On 1 July 2020, TL obtained a loan of USD 2 million which was entirely used to acquire a
license from a multinational company on the same date. The loan was repaid on 31
December 2020. TL estimates the useful life of license to be indefinite. The exchange rate per
USD on various dates are as follows:
1 Jul 2020 31 Dec 2020 30 Jun 2021
Rs. 145 Rs. 150 Rs. 160
Under the tax laws, exchange differences arising on foreign currency loans are added to /
deducted from the cost of asset. Amortisation on license is allowed at 10% per annum on
written down value. Further, full year’s tax amortisation is allowed in the year of purchase.
(vii) Other receivable include dividend income of Rs. 10 million which is taxable on receipt basis
at 12% .
(viii) Unused tax losses as at 31 December 2020 were Rs. 80 million.
(ix) Applicable tax rate is 30% except stated otherwise. However it is announced on 29 December
2021 that tax rate will be 32% in year 2022 and onwards.
Required:
(a) Prepare a note on taxation for inclusion in TL’s financial statements for the year ended
31 December 2021 and a reconciliation to explain the relationship between tax expense
and accounting profit.
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31
December 2021 and 2020. (13)

Question-4
1. Under IFRS 8, an entity must report on geographic information. Which of the following must
be disclosed in the geographic segment disclosure?
A) Revenue and assets based on the location of customers and operations
B) Revenue and profit based on the location of customers
C) Only revenue based on the location of operations
D) Only profit and assets based on the location of the company’s headquarters
(1)
2. Under IFRS 9, when is an investment in debentures required (mandatory) to be classified as
FVTPL?
A) When the debenture is held in a business model to collect contractual cash flows.
B) When the debenture fails the Solely Payments of Principal and Interest (SPPI) test.
C) When the debenture is a held-to-maturity investment.
D) When the entity elects the FVTPL option to reduce accounting mismatches.
(1)

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3. Which of the following items is NOT considered a monetary item under IAS 21?
A) Foreign currency bank balance
B) Foreign currency accounts payable
C) Foreign currency investment in equity shares
D) Foreign currency loan (1)

4. A US company has paid up capital equivalent of Rs. 500 million, turnover of Rs. 990 million
and 825 employees. How it shall be classified according to Companies Act, 2017?
(a) Pubic Interest Company
(b) Large Sized Company
(c) Medium Sized Company
(d) Small Sized Company (1)

5. A contract modification is always treated as a separate contract for the purposes of IFRS15.
(a) True
(b) False (1)
6. DML entered into a contract to supply bricks to a new, foreign customer on February 01,
2013. The order is for the supply of 10 million bricks per month from June 01, 2013 to
March 31, 2014, a total of 100 million bricks. A special order was placed for these bricks as
they are not standard bricks, but are to be used in the construction of a garden cottage for the
Prince of Mianwali. On February 01, 2013, DML estimated that the contract would cost Rs.
10 million. Penalty to cancel the contract amount to Rs. 2,000,000, payable immediately on
cancellation. Contract revenue is Rs. 1,500,000 per month.
Between February and December 2013, prices of supplies increased however DML honored
the contract till December 31, 2013. Now it estimated on 31 December 2013 that Rs.
8,000,000 would need to be spent to complete it till March 31, 2014.
The amount of provision to be recorded at 31 December 2013 is
Rs. _______? (3)
Question- 5
GoldenSprout Pakistan Limited (GSPL) is a publicly listed company on the Pakistan Stock
Exchange. The company operates in the food and beverage sector with diverse operations in in
manufacturing, processing, and distribution.
For the financial year ended December 31, 2024, the following details have been provided during the
audit planning phase:
1. The company’s head office is located at 80 Dawood Commercial, Karachi, while its
manufacturing facility is situated at Plot No. 101, Industrial Estate, Lahore, covering 150,000
square feet. It also owns 40 acres of land in the Industrial Estate, Lahore, and operates a
warehouse at 45 Tech Park, Islamabad having area of 3 kanal.
2. GSPL holds a 20% equity stake in ABC Foods (Pvt) Limited, a domestic related party with
common directorship.
3. Internationally, GSPL has an indirect control of 76.5% in GoldenSprout Middle East FZE
(UAE) through its ultimate parent, GoldenSprout S.A. The company has invested USD 1.5
million (PKR 240 million) in the Dubai-based subsidary, in GoldenSprout Middle East FZE
(UAE) as a long-term equity investment with no fixed return. In 2024, it received USD
100,000 (PKR 16 million) in dividends. No legal proceedings, defaults, or disposals were
reported regarding this investment.
Required:
(a) Prepare the necessary disclosures for GoldenSprout Pakistan Limited’s financial statements for the
year ended December 31, 2024.
(b) Explain how the disclosures above would differ if GSPL was not a listed company.
(Disclosures are not required) (8)

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Section B

Question-6
a)
On 1 January 2024, TechPro Ltd enters into a contract with a customer to deliver 500 customized
software-hardware units for Rs. 250,000 (Rs. 500 per unit). The contract requires First Delivery of
300 units on 15 January 2024 and Second Delivery of 200 units on 1 March 2024.
After delivery of first order, the customer identifies minor defects in 50 tablets (functionality
unaffected). The customer agrees to retain the defective tablets in exchange for a price reduction of
Rs. 40 per defective tablet.
Key Terms:
 On 1 February 2024, the contract is modified to include an additional 150 units at Rs. 450 per
unit (not reflecting the standalone selling price). These additional units are to be delivered on
1 April 2024.
 Payment for each delivery is due after customer inspection and acceptance (10 days post-
delivery).
 Cash for original contract is received on 15 March and for next on 15 April 2024.
Required:
1. Prepare journal entries for the contract when goods are distinct but the price does NOT
reflect the standalone selling price.
2. Prepare journal entries for the contract when goods are NOT distinct. (10)

b) Venture Group Limited is a multinational group engaged in various businesses across the
globe.
i) GymGo, a ‘pay as you go’ gym introduced a customer loyalty scheme whereby if a
customer pays for nine visits and has a loyalty card stamped, the tenth visit is provided
free of charge. During the year, customers visit the gym a total of 94,995 times, paying
Rs. 1,000 per visit, earning the right to a maximum of 10,555 (94,995/9) free visits, each
of which has an average stand-alone price of Rs. 1,000. The gym expects 7,400 of the
free visits to be claimed and by the year end, 4,350 have already been claimed.
ii) Leisure Inn has recently started issuing vouchers to customers when they stay in its
hotels. The vouchers entitle the customers to a Rs. 3,000 discount on a subsequent room
booking within three months of their stay. At the year-end there are vouchers worth Rs.
20 million which are eligible for discount. Historical experience has shown that only one
in five vouchers are redeemed by the customer. The income from room sales in current
year is Rs. 300 million.

Required: Prepare journal entries assuming year end is 31 December 2020. (6)

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Question-7
Following are the draft statement of financial position of Bread Limited (BL), its subsidiary, Makhan
Limited (ML) and its associate, Jam Limited (JL) as on 30 June 2020:
BL ML JL BL ML JL
-----Rs. in million----- -----Rs. in million----
Fixed assets 1,057 550 400 Share capital (Rs. 10) 500 250 240
Intangible assets 25 20 - Share premium 650 50 -
Investments 15 - - Retained earnings 140 100 75
Loan to ML 50 - - Revaluation surplus 10 - -
Current assets 353 250 100 Loan from BL - 50 -
Current liabilities 200 370 210
1,500 820 525 1,500 820 525
Additional information:
1. BL made the following non-current investments:
a. 20 million equity shares in ML on 01 October 2019. Cost of investment comprised of:
i. An exchange of two shares in BL for every five shares in ML, plus Rs. 250 million in
cash. The market price of shares in BL at the date of the acquisition was Rs. 25 per
share. The market price of ML shares just before the acquisition was Rs. 12. The cash
part of the consideration is deferred and will not be paid until 2 years after the
acquisition. BL has a cost of capital of 10%
ii. Further at date of acquisition, BL also agreed to pay an additional amount on 01
October 2022 that was contingent upon the post-acquisition performance of ML. At the
date of acquisition, BL assessed that an outflow of economic resources was not probable
and the fair value of this contingent consideration was only Rs. 20 million but by 30
June 2020 its fair value is Rs. 15 million.
b. 25% of the equity shares in Jam Ltd on 01 July 2019, at a cost of Rs. 15/share. The money
to make this payment was obtained by issuing 3.75 million new shares in BL in market at
Rs. 24 per share.
None of these transactions has yet been recorded. However, consultancy charges of Rs. 10 million
and legal expenses of Rs. 5 million on ML acquisition have been recorded as non-current investment.
2. At the date of acquisition, fair values of ML’s property had a fair value of Rs. 4 million above its
carrying amount. For consolidation purposes, this led to increase in depreciation of Rs. 100,000
in post-acquisition period to 30 June 2020. ML is using cost model in its financial statements.
The policy of the BL group is to revalue properties to fair value. On 30 June 2020, increase in
BL’s property has already been recorded; however, a further increase of Rs. 600,000 in the value
of ML’s property has not been recorded.
3. On 1 January 2020 ML sold a plant having carrying value of Rs. 30 million to BL against cash
consideration of Rs. 42 million. The plant had a remaining useful life of 6 years on the date of
disposal.
4. BL sells goods to ML at cost plus 30%. ML had Rs. 1.8 million of goods in its inventory at 30
June 2020 which had been supplied by BL. In addition, on 28 June 2020, BL processed the sale
of Rs. 1 million of goods to ML, which ML did not account for until their receipt on 2 July
2020. At 30 June 2020, BL had a trade receivable balance due from ML in respect of sale made
on 28 June 2020.
5. The loan was granted by BL to ML on 1 January 2020 and carries interest rate of 12% payable
annually. The principal is repayable in 5 equal annual installments of Rs. 4 million each. No
interest has been accrued by ML.
6. Net profit/(loss) of three companies for 2020 are given below:
BL ML JL
Profit/(loss) 50 24 (12)
Incomes and expenses of BL and JL accrued evenly during the year however, ML’s business is
seasonal and 60% of its annual profit was made in the period 1 July 2019 to 30 September 2019.
7. BL values non-controlling interest at the acquisition date at its fair value.
8. JL has provided management services to BL and balance of Rs. 7 million in books of both is
reconciled.
9. ML declared interim cash dividend of 5% in March 2020 which was paid on 2 July 2020. The
dividend has correctly been recorded.

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Required:
Prepare a consolidated statement of financial position as at 30 June 2020. (20)

Question-8
CLASSIC CARS LIMITED (CCL) has identified a need for a manufacturing plant and new
automotive spray paint guns. Consequently, Classic Cars Limited entered into the following lease
agreements:
Lease of manufacturing plant
CCL entered into a lease agreement with ABC Ltd. for a non-cancellable period of ten years. The
following information is applicable:
1. The commencement date of lease is 1 April 2022 when the fair value of the machine is Rs
14,500,000.
2. On 1 April 2022, ABC Ltd. paid an amount of Rs. 20,000 to Classic Cars Limited as an
incentive and CCL paid a deposit of Rs. 107,000 to ABC Limited to secure the lease
agreement.
3. The external legal advisors of CCL invoiced on 1 April 2022, an amount of Rs. 15,000 and
was paid by CCL on 30 April 2022.
4. CCL has to return the plant to ABC Limited at the end of the lease term in its original
condition. On 1 April 2022, Classic Cars Limited estimated that the costs related to the
restoration of the plant would amount to Rs. 931,755 at the end of the lease term.
5. Lease rentals are Rs. 1,293,408 fixed annual lease payment for first 5 years in advance and
Rs. 1,000,000 fixed annual lease payment for next 5 years in arrears; and
4. The plant has an estimated remaining useful life of 15 years on 1 April 2022.
5. CCL and ABC Limited agreed, at commencement date, on a residual value guarantee of Rs
10,000,000. CCL estimated at commencement date that fair value will be Rs. 9,200,000. ABC
Ltd estimated that it would be able to sell it at the end of the lease for Rs. 8,000,000
6. ABC Ltd paid initial direct costs to its lawyers of Rs. 27,000 on 1 April 2022.
7. The incremental borrowing rate of Classic Cars Limited is 10.5% per annum. Lessor implicit
rate is not known to lessee.

Lease of automotive spray paint guns

Classic Cars Limited entered into a non-cancellable lease agreement with Spray Away Limited on 1
September 2023 (commencement date) to lease five automotive spray paint guns (low value assets)
for a period of three years.
The following lease payments are payable annually in arrears:
Year 1 Rs. 4,000 per spray gun
Year 2 Rs. 3,500 per spray gun
Year 3 Rs. 1,200 per spray gun
There is an option to extend the lease for a further two years. For these two years, the annual lease
payment will amount to Rs. 1,000 per spray gun per annum. At the commencement of the lease, CCL
is reasonably expected to extend the lease for the additional two year period.
Classic Cars Limited elected to apply the recognition exemption in respect of low value assets, to this
lease contract.

Required:
Prepare journal entries for year ended 31 December 2022 and 31 December 2023 to record the above
transactions in the books of Classic Cars Ltd.
(17)

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