NOTE: (i) Attempt FIVE questions in all. Including question No. 5 & 6 which are compulsory. Qs 5 carries 40 marks. All other questions carry EQUAL marks i.e. 20 marks each.
(ii) Give workings to solution of questions, wherever relevant.


1. Explain various concepts of Budgeting as practiced globally. State budgeting system being followed in Pakistan. Identify five limitations of the above system and suggest directions of change for improvement,

2. Explain various legal provisions governing principles of accounting and provisions relating to preparation of financial statements relating to banks in Pakistan.

3. Peshawar Manufacturing Company was established in June, 1999 to manufacture a single product using a machine costing Rs. 1,000,000. The machine is expected to last for four years and then have a scrap value of Rs. 130,000. The machine will produce a similar number of goods each year and annual profit before depreciation is expected to be in the region of Rs. 500,000. The Finance Manager has suggested that the machine should be depreciated using either the “Straight – Line Method” or the “Reducing Balance Method”. If the latter method is used, it is estimated that depreciation rate of 40% would be appropriate.

Required:
(1) Calculate annual depreciation charge and net book value of the machine at the end of 2000, 2001 and 2002 using:
(a) Straight – Line Method
(b) Reducing Balance Method

(2) Offer your comments on the use and implication of these two methods for the years 2000 to 2002.

(3) Advise management as to which method should be more appropriate.

4. The Directors of Master Public Limited Company requires Rs. 500 million to invest in a new project. Extracts from the financial statements are as under:

Profit and Loss Account for the year ended December 31:

PARTICULARS ………2001 (MILLION Rs.) …………2002 (MILLION Rs.)
Sales……………………………………….…..6,175………………………….. 6,329
Operating profit…………………………..… 350 ……………………….…… 320
Less: Interest payable……..…………... 30………………………..…….. 30
Net Profit before Income Tax………. 320 ……………….……….…… 290
Net Profit after tax………………………. 128……………………….….... 116
---------------------------------192……………………….…….. 174

Summarized Balance Sheet as at December 31:

PARTICULARS …….…2001 (MILLION Rs.) …………2002 (MILLION Rs.)
Assets:
Fixed assets (Net) ……………….…….901..…………..………………..….1,664
Stocks……………………..………………….447..…………..………………..…….426
Debtors……………………..………....…..308..…………..………….…...….. ..321
Balance at Bank…………………….…..…52..…………..……………….…..……11
TOTAL ..…………..….....……..1,708 ..…………..……...….1,822

Capitals & Liabilities:
Paid up Capital..………….………....….500.…………..……………….….....500
Reserves and surpluses ……….…….525.…………..………………….......649
Loan – 10% debentures …………….300.…………..…………….……......300
Creditors…………..……………….….……205.…………..………………...….... 207
Taxation payable……………………..…128.…………..………………...…....116
Dividends………………………………….....50.…………..……………….….….... 50
TOTAL…………………….…….1,708.…………..…………....1,822

Required: Undertake financial analysis by using pertinent ratios and present your candid view on the performance of the Company.

5. The following balances were extracted form the ledger of Mr. Irshad as on June 30, 2003.

PARTICULARS ………….………….……….………..Rs.
Property – at cost………….………….………….……….. 90,000
Equipment – at cost………….………….…………………..57,000
Stock………….………….………….………….………….………27,000
Purchase………….………….………….………….……….….259,000
Sales………….………….………….………….……………….. 405,000
Discount allowed………….………….………….……...……..3,370
Provision for depreciation – Property………….…….12,500
Provision for depreciation – Equipment……….…… 32,500
Discount received………….………….………….………..….4,420
Salaries and wages………….………….………….………..52,360
Bad debts………….………….………….………….……….….. 1,720
Loan interest ………………………………….….………..…… 1,560
Carriage outward………….……….……………………….…. 5,310
Other operating expenses………….………….…………. 38,800
Trade debtors………….………….………….…………….…..46,200
Trade creditors………….………….………….………...…. 33,600
Provision for doubtful debts………….………….….…..... 280
Cash in hand………….………….………….…………………..... 151
Bank overdraft………….………….………….……..……... 14,500
Drawings………….………….………….………….………..... 28,630
Loan @ 15%………….………….………….………….…..…. 12,000
Capital July 1, 2002………….………….………….….….. 98,101

The following additional information as at June 30, 2003 is available:

1. Stock at the close of business was valued at Rs. 25,900.

2. Depreciation for the year ended on June 30, 2003 has yet to be provided as follows:

(a) Property: 1% using straight line method
(b) Equipment: 15% using straight line method

3. Salaries and wages are accrued Rs. 1400

4. Other operating expenses include certain expenses prepaid by Rs. 1500. Other expenses include this heading are accrued by Rs. 2000.

5. The provision for doubtful debts is to be adjusted so that it is 0.5% of trade debtors as at June 30, 2003.

6. “Purchases” include goods valued at Rs. 1040 which were withdrawn by Mr. Irshad for his personal use.

Required:

1. Prepare Trading and Profit and Loss Account for the year ended on June 30, 2003 and Balance Sheet as on the above date.
2. Present Adjusting and Closing entries.

6. Deliver the correct answer in the answer book.

(1) Acid Test Ratio is calculated as under:
(a) Current Assets/Current Liabilities
(b) Fixed Assets/Current Liabilities
(c) Liquid Assets/Current Liabilities
(d) None of these

(2) Deferred cost is a:
(a) Liability
(b)Asset
(c) None of these

(3) Work Sheet is:
(a) Balance Sheet
(b) Fund Flows Statement
(c) A combination of Profit and Loss Account and Balance Sheet items
(d) None of these

(4) Banks, for the preparation of financial statements, are governed under:
(a) Banking Companies Ordinance, 1962
(b) State Bank of Pakistan Act
(c) None of these

(5) Return on investment is computed:
(a) Investment/Profit x 100
(b) Profit x 100/Investment
(c) None of these