Question-1

(a). The following are the summarized statements of financial position of a group of companies as at 31 December 2015.

Assets

Non-current assets

Property, plant and equipment Investment

Current assets

Equity and liabilities

Equity

Share capital Retained earnings

Current liabilities

Haxa Co. Rs.

105,000 85,000

220,000

410,000

100,000 155,000 255,000

155,000

Daxa Co. Rs.

65,000

55,000 120,000

50,000 49,000

99,000

21,000

120,000

410,000 Haxa Company purchased 80% of Daxa Company shares on 1 January

on that companys retained earnings of Rs. 20,000.

Required

2015 when there was a credit balance

Prepare the group consolidated statement of financial position as at 31 December 2015. (Marks 7)

Page 1 of 3

(b). Statements of profit or loss for the year ended 31 December 2015 for Habib Company and its subsidiary Smith Company is given below;

Revenue

Cost of sales

Gross profit

Operating costs

Operating profit

Investment income

Profit before tax

Income tax expense

Profit for the year

Statement of changes in equity (extracts) for the year ended 31 December 2015.

Rs. 000 Rs. 000

Retained earnings brought forward Profit for the year

Proposed ordinary dividend

Habib-G Co.

80,200 51,850 (20,000)

112,050

The following information is also available.

(1) Habib-G Co. acquired 75% of the share capital of Smooth Co. on 31 August 2015.

(2) Negative goodwill of Rs. 3.8 million arose on the acquisition.

(3) Profits of both companies are deemed to accrue evenly over the year except for the investment income of Smooth all of which was received in November 2015.

(4) Habib-G Co. has bought goods from Smooth Co throughout the year at Rs. 2 million per month. At the year-end Horny does not hold any inventory purchased from Smooth.

Required

Prepare the consolidated statement of profit or loss for the year ended 31 December 2015. (Marks 7)

Question-2

On 1 April 2011, a company issued Rs.1,250,000 8% convertible unsecured bonds for cash at par. Each Rs.100 nominal of loan stock will be convertible in 2016 or 2017 into the number of ordinary shares set out below:

On 31 December 2016 124 shares

On 31 December 2017 120 shares

Issued share capital:

Rs.500,000 in 10% cumulative irredeemable preference shares of Rs.1

Rs.1,000,000 in ordinary share of 25 cents each = 4,000,000 shares

Income tax rate are 30%

Trading results for the years ended 31 December were as follows:

Habib Co. Rs. 000 304,900

Smith Co. Rs. 000

195,300 (98,550) 96,750

(52,100) 44,650 2,600

47,250 (16,500) 30,750

Smooth Co.

31,000 30,750

- 61,750

(144,200) 160,700 (76,450)

84,250 10,500 94,750

(42,900) 51,850

Operating profit Interest on 8% bonds Profit before tax Income tax

Profit after tax

2012 Rs. 1,100,000

(100,000) 1,000,000 (300,000) 700,000

2011 Rs. 991,818

(75,000) 916,818

(275,045) 641,773

Page 2 of 3

Required

Calculate the basic and diluted EPS. (Marks 6)

Question-3

Five Star Leasing Company signs an agreement on January 1, 2012, to lease equipment to Red Company. The following information relates to this agreement.

1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years.

2. The cost of the asset to the lessor is $343,000. The fair value of the asset at January 1, 2012, is $343,000. 3. The asset will revert to the lessor at the end of the lease term at which time the asset is expected to have a residual value of $61,071, none of which is guaranteed.

4. Red Company assumes direct responsibility for all executory costs.

5. The agreement requires equal annual rental payments, beginning on January 1, 2012.

6. Collectability of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.

Instructions

(a) Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required.

(b) Prepare an amortization schedule that would be suitable for the lessor for the lease term. (Marks 5)

Question-4

Sigma manufacturing company purchased plant asset three years ago, at the beginning of Year 1, for Rs. 100,000. Its expected useful life was six years, and its expected residual value was Rs. 10,000. It has now been re-valued to Rs. 120,000. Its remaining useful life is now estimated to be three years and its estimated residual value is now Rs. 15,000.

The straight-line method of depreciation is used.

Required

(a) What is the transfer to the revaluation surplus at the end of Year 3? (b) What is the annual depreciation charge in Year 4?

(c) What is the carrying amount of the asset at the end of Year 4?

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