CMA JANUARY-2023 EXAMINATION

BUSINESS LEVEL
SUBJECT: GE 01. FUNDAMENTALS OF FINANCIAL ACCOUNTING

Time Allocated: Three hours Total Marks: 100

Instructions to Candidates

You are required to answer ALL questions.

Answers should be properly structured, relevant and computations need to be shown.

You are strongly advised to carefully read ALL the question requirements before
attempting the question concerned (that is all parts and/or sub-questions).

ALL answers must be written in the answer book. Answers written on the question paper
will not be submitted for marking.
Start answering each question from a fresh sheet. Your answers should be clearly
numbered with the sub-question number then ruled off, so that the markers know which
sub-question you are answering.
No of questions No of sub-questions Marks allocation

Question 1- 6 = 10 marks each

TURN OVER

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You are advised to spend 18 minutes on Question 1- 6 (10 marks per each) and 36 minutes
on Question 7- 8 (20 marks per each).

QUESTION 1
(a) What are the two key organizations in the development of international accounting
standards? Explain their role.
(b) Distinguish between:
(i) Financial and Management Accounting
(ii) Capital and Revenue Expenditures
(iii) Tangible and Intangible Assets
(c) On January 1, 2017, Robust Inc. purchased heavy-duty equipment for Tk. 400,000. On
the date of installation, it was estimated that the machine has a useful life of 10 years
and a residual value of Tk. 40,000. Accordingly the annual depreciation worked out to
Tk. 36,000 = [(Tk. 400,000 – Tk. 40,000) / 10].
On January 1, 2021, after four years of using the equipment, the company decided to
review the useful life of the equipment and its residual value. Technical experts were
consulted. According to them, the remaining useful life of the equipment at January 1,
2021, was seven years and its residual value was Tk. 46,000.
Required:
Compute the revised annual depreciation for the year 2021 and future years.
[Marks: (3+4+3) = 10]
QUESTION 2
(a) On June 3, 2022, Kalatia Company sold to Taranagar Company merchandise having a
sales price of Tk. 300,000 with terms of 2/10, n/30, f.o.b. destination. On June 8, 2022,
the appropriate party made payment of the freight cost totaling Tk. 9,000. On June 12,
2022, Taranagar returned some goods having a value of Tk. 20,000 to Kalatia. On
June 13, 2022, Kalatia received a check for the balance due from Taranagar.
Instructions:
(i) Prepare journal entries on the Kalatia Company books to record all the events
noted above using net method.
(ii) Prepare the journal entry, assuming that Taranagar Company did not remit
payment until June 29, 2022.
(b) On 1 January 2021, Dhaka Foods Limited had a debit balance of Tk. 250,000 in
Accounts Receivable and a credit balance of Tk. 25,000 in Allowance for Doubtful
Debts. During the year, net credit sales were Tk. 500,000 and collection from accounts
receivable was Tk. 330,000. Bad debts written off for the year amounted to Tk. 20,000.
Recovery of bad debts previously written off amounted to Tk. 3,000.
Instructions:
Calculate the bad debt expense and the ending balance in allowance for doubtful debts
assuming a 8% allowance on ending accounts receivable is kept.
[Marks: (6+4) = 10]
QUESTION 3
(a) “Depreciation is a process of cost allocation, not valuation.” Explain.
(b) The cost of equipment purchased by Dhaka Company on June1, 2020 is Tk.
6,700,000. It is estimated that the machine will have a Tk. 400,000 salvage value at the
end of its service life. Its service life is estimated at 7 years; its total working hours are
estimated at 42,000 and its total production is estimated at 525,000 units. During 2020,
the machine was operated 6,000 hours and produced 55,000 units. During 2021, the
machine was operated 5,500 hours and produced 48,000 units.
Instructions:
Compute depreciation expense on the machine for the year ending December 31,
2020 and the year ending December 31, 2021, using the following methods:
(i) Straight-line
(ii) Units-of-output
(iii) Sum-of-the-years’-digits
(iv) Declining balance (twice the straight-line rate)
[Marks: (2+8) = 10]

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QUESTION 4
(a) What are the four steps involved in finding differences between the balance per books
and balance per bank?
(b) Rodriguez Company maintains a checking account at the Imura Bank. At July 31,
selected data from the ledger balance and the bank statement are shown below.

Cash in Bank
Per Books Per bank
Balance, July 1 17,600 15,800
July receipts 81,400
July credits 83,470
July disbursements 77,150
July debits 74,756
Balance, July 31 21,850 24,514

Analysis of the bank data reveals that the credits consist of Tk. 79,000 of July deposits
and a credit memorandum of Tk. 4,470 for the collection of a Tk. 4,400 note plus
interest revenue of Tk. 70. The July debits per bank consist of checks cleared Tk.
74,700 and a debit memorandum of Tk. 56 for printing additional company checks.
You also discover the following errors involving July checks.
(1) A check for Tk. 230 to a creditor on account that cleared the bank in July was
journalized and posted as Tk. 320.
(2) A salary check to an employee for Tk. 255 was recorded by the bank for Tk. 155.
The June 30 bank reconciliation contained only two reconciling items: deposits in
transit Tk. 8,000 and outstanding checks of Tk. 6,200.
Required
(i) Prepare a bank reconciliation at July 31, 2022.
(ii) Journalize the adjusting entries to be made by Rodriguez Company. Assume that
interest on the note has not been accrued.
[Marks: (2+6+2) = 10]
QUESTION 5
(a) Under what circumstances is it appropriate to record goodwill in the accounts? How
should goodwill, properly recorded on the books, be written off in order to conform with
IFRS?
(b) Tanzeem Price Company from time to time embarks on a research program when a
special project seems to offer possibilities. In 2020, the company expends Tk. 325,000
on a research project, but by the end of 2020 it is impossible to determine whether any
benefit will be derived from it.
Instructions:
(i) What account should be charged for the Tk. 325,000, and how should it be
shown in the financial statements?
(ii) The project is completed in 2021, and a successful patent is obtained. The R&D
costs to complete the project are Tk. 110,000. The administrative and legal
expenses incurred in obtaining patent number 472-1001-84 in 2021 total Tk.
16,000. The patent has an expected useful life of 5 years. Record these costs in
journal entry form. Also, record patent amortization (full year) in 2021.
(iii) In 2022, the company successfully defends the patent in extended litigation at a
cost of Tk. 47,200, thereby extending the patent life to December 31, 2029. What
is the proper way to account for this cost? Also, record patent amortization (full
year) in 2022.
(iv) Additional engineering and consulting costs incurred in 2022 required to advance
the design of a product to the manufacturing stage total Tk. 60,000. These costs
enhance the design of the product considerably. Discuss the proper accounting
treatment for this cost.
[Marks: (3+7) = 10]

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QUESTION 6
(a) Fraud experts often say that there are three primary factors that contribute to employee
fraud. Identify the three factors and explain what is meant by each.
(b) Identify and describe the five components of a good internal control system.
(c) Write down the major differences between internal and external audit.
[Marks: (2+3+5) = 10]
QUESTION 7
(a) The summarised accounts of PQR Ltd. for the year ended 31 March 2022 are:
STATEMENTS OF FINANCIAL POSITION AT 31 MARCH
Amount in million
2022 2021
Non-current assets
Property, plant and equipment 4,200 3,700
Current assets
Inventories 1,500 1,600
Trade receivables 2,200 1,800
3,700 3,400
7,900 7,100
Equity
Share Capital 1,200 1,200
Retained earnings 2,200 1,900
3,400 3,100
Non-current liabilities
Deferred tax 1,070 850
Finance lease liabilities 1,300 1,200
2,370 2,050
Current liabilities
Trade payables 1,250 1,090
Current tax 225 205
Finance lease liabilities 500 450
Bank overdraft 155 205
2,130 1,950
7,900 7,100
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 MARCH 2022
Amount in million
Revenues 4,300
Cost of Sales (2,000)
Gross profit 2,300
Operating expenses 1,000
Finance costs (250)
Profit before tax 1,050
Income tax expense (450)
PROFIT FOR THE YEAR 600
Dividends paid in the year 300
Notes:
(1) Depreciation charged for the year totaled Tk. 970 million. There were no disposals of
property, plant and equipment in the period.
(2) There was no accrual of interest at the beginning or at the end of the year
(3) PQR Ltd. finances a number (but not all) of its property, plant and equipment
purchases using finance leases. In the period, property, plant and equipment which
would have cost Tk. 600 million to purchase outright was acquired under finance
leases.
Required:
Prepare the statement of cash flows for PQR Ltd. for the year ended 31 March 2022 as
per IAS 7 using the indirect method.

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(b) Villandry's inventory includes three items for which the following details are available.

Supplier's List Price Net realisable value

The company receives a 2.5% trade discount from its suppliers and it also takes
advantage of a 2% discount for prompt payment.
Required
(i) Calculate the total value of products A, B and C which should be shown in
inventory in the statement of financial position.
(ii) Explain the difference that changing from a weighted average to FIFO method of
inventory valuation is likely to have on profit or loss.
[Marks: (15+5) = 20]
QUESTION 8
The following are the comparative balance sheets and the income statement of Rahmatganj Ltd.:
Rahmatganj Ltd.
Comparative Balance Sheets
As at 31 December 2022 and 2021
Particulars 2022 2021
Cash Tk. 38,500 Tk. 13,000
Accounts receivable 12,250 10,000
Inventory 12,000 9,000
Investments 0 3,000
Buildings 0 29,750
Equipment 40,000 20,000
Patents 5,000 6,250
Total debits Tk. 107,750 Tk. 91,000
Allowance for doubtful accounts Tk. 3,000 Tk. 4,500
Accumulated depreciation – equipment 2,000 4,500
Accumulated depreciation – buildings 0 6,000
Accounts payable 5,000 3,000
Dividends payable 0 5,000
Notes payable – short-term 3,000 4,000
Long-term notes payable 31,000 25,000
Common stock 43,000 33,000
Retained earnings 20,750 6,000
Total credits Tk. 107,750 Tk. 91,000
Additional data related to 2022 are as follows:
(1) Equipment that had cost Tk.11,000 and was 30% depreciated at time of disposal was
sold for Tk.2,500.
(2) Tk.10,000 of the long-term note payable was paid by issuing common stock.
(3) Cash dividends paid were Tk.5,000.
(4) On January 1, 2014, the building was completely destroyed by a flood. Insurance
proceeds on the building were Tk.33,000 (net of Tk.4,000 taxes).
(5) Investments (available-for-sale) were sold at Tk.1,500 above their cost. The company
has made similar sales and investments in the past.
(6) Cash was paid for the acquisition of equipment.
(7) A long-term note for Tk.16,000 was issued for the acquisition of equipment.
(8) Interest of Tk.2,000 and income taxes of Tk.5,000 were paid in cash.
Instructions:
Prepare a statement of cash flows for the year ended 31 December 2022 using indirect
method of Rahmatgonj Ltd.
[Marks: 20]
*END OF QUESTION PAPER*

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