nov dec 2010

FINANCIAL ACCOUNTING
Time Allowed - 2½
Total Marks – 100

[N.B - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]
Marks
1. a) What are the bases of accounting? Compare their advantages and disadvantages. 4
b) Discuss inherent limitations of financial statements 2
c) What is meant by true and fair view? 2
d) What are not for-profit entities? List 6 (six) such entities. 4
e) Explain the concept of “substance over form” with examples. 3
f) When different items of the financial statements are recognized? Discus their recognition principles. 3
g) What are the purposes of setting accounting standards? 2
2. The following information are quoted from different clients of Key and Kiam, a Chartered Accountants firm.
You are appointed as 'Audit and Assurance Manager'. The senior partner advised you to prepare the accounting
treatment for the clients in line with the IFRS/IAS standards.
i) On 1-4-2009 Green House Lld. had sold some of its office equipment for Tk. 100 lakhs, Their written down
value was Tk. 250 lakhs. These assets were revalued earlier. As on 1-4-2009 the revaluation reserve
corresponding to these assets stood at Tk. 200 lakhs. The profit on sale of property was Tk. 20 million. 6
ii) A company has reported Land and building of Tk. 2,500.000 and accumulated depreciation of Tk 80,000.
The Company sold a piece of land for Tk. 10 lakhs at the beginning of the year (The only land and
buildings owned are the company's office and the surrounding land). All the company's land was purchased
20 years ago at a cost of Tk. 5 lakhs. The land sold represented 10% of the land owned by the company.
Capital gain on sale of land is included in other income. Company charges depreciation on building @ 2%
on written down value. No depreciation is charged for the year ended on 30 September 2010. 6
iii) X Ltd. reported in the current year a sum of Tk. 100 lakhs representing royalty receivable for supply of
know how to a company in Sri Lanka. As per agreement the amount is to be received in US Dollars.
However, exchange permission was denied to the company in Sri Lanka for remitting the same. 6
iv) Green House Ltd. purchased some machinery costing Tk. 1,825 lakhs on 1-4-2009 and the same was fully
financed by foreign currency loan (i.e.US Dollars) repayable In five equal installments annually (Exchange
rate at the time of purchase was US $ 1= Tk. 64.50). As on 31-3-2010 the first installments was paid when
US $ I fetched Tk. 69.50. The entire loss on exchange was included in operating expenses. Green House
Ltd. normally provides depreciation on machinery at 20% on WDV basis. 6
3. You are an articled student of KK Choudhury & Co. Chartered Accountants. The firm has been appointed by
PQS & Associates to prepare its financial statements. You have been asked to prepare financial statements of
the company for the year ended on 31 December 2009. PQS & Associates does not have proper books of
accounts except the following records:
The Company keeps copies of all invoices in respect of credit sales and mark each copy with the date of
payment. The Accountant of the company informs you that all taking both cash and credit are paid into the bank
except that the directors occasionally withholds certain sums, both for personal use and petty cash expenses
which he notes in a note book.
Analysis of the passbook reveal the following total amount pain into the bank Tk. 478,000
The following expenditure were made during the year under review:
Drawings by the directors Tk. 30,000
Purchases for the year Tk. 364,000
Salaries Tk. 25,000
Rent Tk. 20,000
Electricity bills Tk. 5,000
Printing and Stationeries Tk. 2,500
Advertising Tk. 7,500

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The cash at bank as 31 December 2009 Tk. 4,000.

The drawings be the directors of PQS & Associates are 20,000 and the company made petty cash expenses of
Tk. 3,000. Security of the copy of invoices shows that Tk. 22,500 was paid into the bank during the year 2009 in
respect of sales during 2008 and Tk. 46,750 in outstanding in respect of 2009 sales. Four invoices totaling Tk.
4,250 have been marked “Irrecoverable”.
31 Dec. 2008 31 Dec. 2009
Purchases Tk. 24,000 Tk. 35,000
Rent Tk. 1,000 Tk. 1,000
Electric Light Tk. 200 Tk. 150
Advertising -- Tk. 2,500
The closing stock was Tk. 35,000 (at cost) but the company has no record of stock as on 1-10-2009. The
accountant informs you, however, that they invariably sells the goods at cost plus 25%. 16
4. Porsche Ltd has the following non-current assets at January 20X7.
Cost Accumulate Depreciation Carrying amount
Taka Taka Taka
‘000 ‘000 ‘000
Freehold Factory 1,440 144 1,295
Plant and equipment 1,968 257 1,711
Motor Vehicles 449 194 255
Office equipment and fixtures 888 583 305
4,745 1,178 3,567
You are given following information for the year ended 31 December 20X7.
(1) The factory was acquired on 1 January 20X2 and being depreciated over 50 years.
(2) Depreciation is provided on cost on a straight-line basis. The rates is 20% for office equipment and
fixtures, 25% for cars and 10% for Plant & equipment.
(3) On January 20X7 the factory was revalued to an open market value of Tk.2.2 million and an extension
costing Tk. 500,000 became available for use.
(4) The director decided to change the method of depreciating motor vehicles to 30% reducing balance to give
more relevant presentation of the results and of the financial position.
(5) The two cars costing Tk.17,500 each were bought on 1 January 20X7. Plant and fixtures for the factory
extension cost Tk.75,000 and Tk. 22,000 respectively.
(6) When reviewing the expected lives of its non current assets, the directors felt that it was necessary to
reduce the remaining life of a two year old grinding machine to four years when it is expected to be sold
for Tk.8,000 as scrap. The machine originally cost Tk.298,000 and at 1 January 20X7had related
accumulated depreciation of Tk. 58,000.
Requirement:
Prepare the disclosure notes for property, plant and equipment for the year ended 31 December 20X7 required
by BFRSs. 20
5. The balance sheet and income statements for Crawford Ltd and Dietrich Ltd are given below:
Balance sheet as at 30 June 2010
Crawford Ltd Dietrich Ltd
Taka Taka
ASSETS
Non-current assets
Property, plant and equipment 27,000 12,500
Investments (2,000 Tk. 1 Shares in Dietrich Ltd at Cost) 2,000 -
29,000 12,500
Current Assets 25,000 12,000
Total Assets 54,000 24,500

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EQUITY AND LIABILITIES

Capital and reserves
Ordinary Share Capital 20,000 3,000
Share premium account 6,000 --
Retained earnings 9,000 14,000
Equity 35,000 17,000
Non-current liabilities 12,000 --
Current liabilities 7,000 7,500
Total equity and liabilities 54,000 24,500

Crawford Ltd acquired share in Dietrich Ltd five years ago when Dietrich earnings were nil. At the start of the
current year retained earnings were Tk. 2,000 and Tk. 4,000 respectively.
Income Statement for the year ended 30 June 2010
Crawford Ltd Dietrich Ltd
Taka Taka
Revenue 24,000 30,000
Cost of Sales (9,000) (11,000)
Gross profit 15,000 19,000
Distribution costs (2,300) (1,300)
Administrative Expenses (1,500) (2,700)
Profit from operations 11,200 15,000
Finance costs (1,200) --
Profit before tax 10,000 15,000
Tax (3,000) (5,000)
Profit for the period 7,000 10,000
Requirements
a) Briefly explain the objectives of producing group accounts. 3
b) Prepare for Crawford Ltd, the consolidated income statement and the statement of changes in equity (in so
far as it relates to retained earnings and the minority interest) for the year ended 30 June 2010 and the
consolidated balance sheet at that date. 17

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 nov dec 2010

FINANCIAL MANAGEMENT

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order o sequence.]
Marks
1. (a) What is systematic risk? How systematic risk can be measured? 5
(b) What is hedging? What are the purposes of hedging? 5
(c) U plc has borrowed Tk.10 million with interest payable yearly at a floating rate of interest of
LIBOR + 1.2%. The company is concerned about recent fluctuations in interest rates and so has
decided to hedge the interest rate for the next interest period. The company has agreed to take a
LIBOR cap at 8% per year for a premium of 1% per year. In addition, it has arranged to sell a
LIBOR floor at 5% interest per year for a premium of 0.8% per year.
Assuming the LIBOR rate is 4.5% for the next interest period, what will be the effective interest
rate paid by the company? 8

2. (a) G Ltd. is a private company that has ordinary shares in issue with a par value of Tk.0.50 each.
The company has recently paid a dividend of Tk.0.15 per share. T Ltd. is listed on the Stock
Exchange and operates in the same industry as G Ltd. T Ltd. has ordinary shares in issue with a
par value of Tk.1.00 and a current market value of Tk.3.00. The company has recently paid a
dividend of Tk.0.27 per share. The rate of income tax on dividends is 10%.
What is the value of each ordinary share in G Ltd. on a dividend yield basis? 10
(b) N plc purchases a borrower’s option for six-month LIBOR on a notional principal sum of Tk.10
million. The strike rate is 5.4% and the LIBOR rate is 6.5% at the expiry date of the option. The
notional six-month interest period is 183 days.
Assuming the option is exercised, what is the cash flow relating to the option (to the nearest Tk.)? 10

3. (a) What are the factors that determine the dividend policy of a company? 4
(b) X and Yare two fast growing companies in the engineering industry. They are close competitors
and their asset composition, capital structure, and profitability records have been very similar for
several years. The primary difference between the companies from a financial management
perspective is their dividend policy. The company X tries to maintain a non-decreasing dividend
per share, while the company Y maintains a constant dividend payment ratio. Their recent
earnings per share (EPS), dividend per share (DPS), and share price (P) history are as follows:
Company X (in Tk) Company Y (in Tk)
Year EPS DPS P(range) EPS DPS P(range)
1 9.30 2.00 75-90 9.50 1.90 60-80
2 7.40 2.00 55-80 7.00 1.40 25-65
3 10.50 2.00 70-110 10.50 2.10 35-80
4 12.75 2.25 85-135 12.25 2.45 80-120
5 20.00 2.50 135-200 20.25 4.05 110-225
6 16.00 2.50 150-190 17.00 3.40 140-180
7 19.00 2.50 155-210 20.00 4.00 130-190
In all calculations below that require a share price, use the average of the two prices given in the
share price range.
(i) Determine the dividend payment ratio (DIP) and price to earnings ratio (PIE) for both
companies for all the years. 8
(ii) Determine the average DIP and PIE for both the companies over the period 1 through 7. 4
(iii) The management of Company Y is puzzled as to why their share prices are lower than those of
company X, in spite of the fact that profitability record of the company Y is slightly better (particularly
of past three years). As a financial consultant, how would you explain the situation? 6
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4. (a) What do you understand by operating gearing and financial gearing? 2

(b) T Ltd. pays its major credit supplier 40 days after receiving the goods and receives no settlement
discount. The supplier has recently offered the company revised credit terms of 3/10, net 40. (i.e. 3%
discount allowed if payment is made within 10 days, otherwise payment in full within 40 days).
If T Ltd refuses the settlement discount and pays in full after 40 days, what is the approximate
implied interest cost that is incurred by the company per year? 10
(c) Q Plc pays an annual dividend of Tk.0.30 per share to shareholders, which is expected to continue
in perpetuity. The average rate of return for the market is 9% and the company has a beta
coefficient of 1.5. The risk-free rate of return is 4%.
What is the expected rate of return for the shareholders of the company and the predicted value of
the shares in the company? 10

5. B Electronics Ltd. is a research-led business that specialises in the development of surveillance

equipment. The company has recently developed a new form of camera with a powerful fibre-optic
lens and is currently considering whether or not to produce the camera. The Board of Directors will
soon meet to make a final decision and has the following information available to help it decide:
(i) The cost of developing the camera has been Tkl,400,000 to date and the company is committed
to spending a further Tk350,000 within the next two months,
(ii) The company has spare production capacity and can produce the camera using machinery that
will cost Tk4,700,000 and which will be purchased immediately. It is expected to be sold at the
end of four years for Tk800,000.
(iii) Total fixed costs identified with the production of the camera are Tk.975,000 per year. This includes
a depreciation charge in respect of the machinery of 0075,000 per year and a charge allocated to
represent a fair share of the fixed costs of the business as a whole of Tk250,000 per year.
(iv) The cameras are expected to sell for Tkl0,000 each and the marketing department believes that
the business can sell 800 cameras per year over the next four years.
(v) The variable costs of production are Tk7,000 per camera.
(vi) If the business decides not to produce the camera it can sell the patents immediately for
Tkl,300,000.
The company has a cost of capital of 12%.
Ignore taxation.
Required:
(a) Calculate the net present value of producing and selling the new camera versus the alternative of
selling the patent. 6
(b) Carry out a separate sensitivity analysis to show by how much the following factors would have
to change before the proposal to produce and sell the new camera has an NPV of zero:
(i) The initial outlay on the machinery;
(ii) The discount rate;
(iii) The residual value of the machinery;
(iv) The annual net operating cash flows. 8
(c) Briefly evaluate your findings in (a) and (b) above. 4

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 nov dec 2010

IT APPLICATION

Time Allowed - 2½
Total Marks – 100

[N.B - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]

Marks
1. (a) Describe the IT strategy development process of an organization considering the overall strategy of the
organization. 6
(b) Suppose you will have to develop an IT strategy. Describe the areas of risks those you should consider for
the purpose. 5
2. (a) What is ‘Service Level Management’? What are the components of service level management? 5
(b) What should be included in a service level agreement (SLA)? 5
(c) Explain the steps that should be followed to develop a disaster recovery plan. 5
3. (a) Explain the following terms:
i) Data encryption, ii) Firewall 7
(b) Differentiate between Management Information System (MIS) and Office Automation System (OAS). 5
(c) What types of information are required at the first, middle and top level management of an organization? 5
(d) What are the tasks at the operational management level of a system? 5
4. Suppose the authority of your organization shows interest to commence a new IT enabled accounting system in
the organization. They have assigned you to prepare a feasibility report.
(a) Which components will you include in the feasibility report? 5
(b) Which parameters will you investigate to prepare the report? 5
5. (a) After observing a feasibility report, if the authority decides to develop the accounting information system
software for an organization, what will be your role as an accountant of the organization? 6
(b) In preparing the system requirement for an accounting information system, what knowledge should an
accountant have? 6
(c) What us CAAT? 4
6. (a) Explain when and in which situations an organization adopts the following remote access techniques for
remote access: 8
i) Secure Socket Layer (SSL), ii) Virtual Private Network (VPN)
(b) What is Spam? How can you protect your system from spam attack? 4
7. (a) Which costs are likely due to attack of computer viruses. How can the risks of computer viruses be
minimized? 6
(b) What are the common activities of a computer hacker? 5
(c) How can you protect your system from the computer hackers? 4

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 nov dec 2010

AUDIT & ASSURANCE

Time Allowed - 2½
Total Marks – 100
[N.B - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) Explain the difference between Audit and Assurance Engagement. 4
(b) How does the expanded role of professional accountants affect the accounting profession? 4
(c) Which statutory provisions are aimed at reinforcing auditor's independence? Discuss. 6
(d) What are the limitations, if any, of a financial statement audit? 4
(e) What is internal control? Why is it important? 6
2. Spacemaster Ltd. is a listed public company that manufactures highly sophisticated furniture for local and
export market. Export constitutes 90% of total sales and one foreign customer alone buys 80% of total sales.
The company has a 30 September 2010 year- end and the statutory accounts are due to be signed one week after
the board of directors meeting on 15 January 2011. During the course of the audit, you became aware that the
overseas customer who buys 80% of total production has gone liquidation.
The company has been experiencing cash flow difficulties and has recently applied for a significant increase to
a borrowing facility that is already fully drawn. Management is adamant that the company will continue to be
viable. If necessary, it claims, it can resort to cutbacks in its future capital expenditure program, seek additional
off-balance-sheet financing and/or reschedule existing debit arrangements.
Required:
(a) Explain the concept of going concern. Discuss the reporting options open to an auditor when going-
concern issues arise. 10
(b) Discuss the potential audit report options in relation to Spacemaster Ltd. 10
3. Shahana Parvin has been working at Shahana Jesmin & Co., a firm of Chartered Accountants for 3 years.
Shahana and her partner Jesmin are both interested in environmental issue and have participated in community
work concerning the environment. During a pharmaceutical company's annual audit for the financial year ended
30 June 2010, Shahana notices the company has recently changed its contractor for waste management to
Safedumping Ltd. Shahana is happy to know, through her community activists, that Safedumping is being
investigated by the local council for the level of toxic waste at one of its sites.
The waste management contract between Safedumping and the pharmaceutical company does not specify
damages and has not been signed by Safedumping. The contract is for a substantial amount and is valid for 3
years, and Shahana is concerned about the implications. The local council carries out strict inspections and
imposes heavy fines for toxic dumping.
Shahana raises the issue with Jesmin, the partner in charge of the audit. 'This is reality, Shahana' Jesmin says. 'As far
as I am concerned, we are responsible for the correctness of its financial report, and nothing else. Besides, you do not
have the qualification to judge if a company is good corporate citizen or not. We are not concerned with the business
management.' Jesmin asks Shahana not to take this issue too seriously and told not to raise any fuss in this matter.
Required:
(a) Explain the ethical issues involved here. 8
(b) Recommend a course of action for Shahana. 10
4. Your firm has been the auditor of Oceania Supplies Ltd, a listed company, for a number of years. The
engagement partner has asked you to describe the matters you would consider when planning the audit for the
year ending 31 March 2010.
During a recent visit to the company you have obtained the following information;
(i) The management accounts for the 10 months to 30 November 2009 show sales of Tk. 1,300 million and profit
before tax Tk. 40 million. Assume that sales and profits accrue evenly throughout the year. In the year ended 31
March 2009, Oceania Supplies had sales of Tk. l, 1 00 million and profit before tax of Tk. 80 million.
(ii) The company installed a new computerized inventory control system which has operated from 1 June
2009. Given that the inventory control system records inventory movements and current inventory
quantities, the company is proposing:
• to use the inventory quantities on the computer to value the inventory at year-end
• not to carry out an inventory count at year-end.

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(iii) You are aware there have been reliability problems with the company's products, which have resulted in
customers making legal claims against the company and refusing to pay for products.
(iv) The sales increase in the 10 months to 30 November 2009 was achieved by attracting new credit
arrangements allowing customers 3 months credit before their debt become overdue, rather than the 1 -
month credit period previously allowed. As a result of this change, the receivable age has increased from
1.6 months to 4.1 months.
(v) The chief financial officer and the purchasing manager were dismissed on 15 August, 2009. A replacement
purchasing manager has been appointed, but a new chief financial officer is not expected to be appointed
before the year-end of 31 March 2010. The chief accountant will be responsible for preparing the financial
statements for audit.
Required:
(a) Describe why it is important that auditors should plan their audit work. 10
(b) Describe the matters you will consider in planning the audit and the further action you will take
concerning each of the five matters listed above. 10
5. You are a partner with a firm of Chartered Accountant, ABC & Co., that has been invited, by the Board of
Directors, to accept nomination as external auditors of Green Limited. Green Limited operates a number CNG
Stations and CNG Conversion Centres and has grown rapidly over the past two years through an aggressive
take-over strategy.
You are aware that the company was being audited by a small firm and qualified report was issued last year.
During a meeting with a member of your firm's partners, the company's Chief Financial Officer mentioned that
their existing auditors could not cope with the audit of a company of their size and, in particular, were not
equipped to audit the recently installed sophisticated computer accounting system. He also suggests that they
need a firm of your reputation in order to reassure the market as they intend to seek a public listing within three
years.
The existing auditors, in response to your inquiry, advise against accepting the audit on the following grounds:
- Insufficient consideration has been devoted by management for developing the accounting system in line
with the expanding business. In particular there is a lack of concern as to control. They detected a number
of petty employee frauds as a result of control weaknesses. No action was taken against the employees
identified as engaged in fraud. The attitude seems to be to encourage risk taking employees who, if they
make money on the side whilst securing good deals for the company, that is seen as a legitimate bonus.
- The newly installed computer accounting system is unreasonably complicated. Green Ltd. claims this is
necessary because of the need to maintain records to justify the company's claim for volume rebates, and
bonuses under the complex incentive schemes by which the company reward consumers.
- They have no evidence of deliberate misrepresentation by the directors but audit staffs were hindered in
their work by a less than helpful attitude by senior management who adopted an aggressive stance
whenever a query was raised. The Chief Financial Officer was constantly on the phone to the partner
claiming the audit staffs were incompetent and accusing them of wasting his time asking unnecessary
questions.
At a partners' meeting a majority of partners accepted the story that existing auditors were out of their depth and
that their complaints were merely an attempt to cover up their own shortcomings. Your firm accepted
nomination and was duly appointed as auditor.
Required:
(a) State factors the partners should have considered for and against accepting nomination. 6
(b) Detail the matters to which you would pay particular attention in obtaining the required knowledge of the
business and in developing your audit plan. 6
(c) During the first audit, your firm discovers that the reason for the complexity of the computer system is to
falsify records in order to reduce the amount of tax payable to the Government.
Describe the action you would take on discovery of the fraud. 6

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 nov dec 2010
BUSINESS STRATEGY
Time allowed – 2½ hours
Total marks – 100
[N.B – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and of the way in which the answers are presented. Different parts, if any, of the same question must be
answered in one place in order of sequence.]
Marks

1. Dhaka Amusement Machines was a company which manufactured gaming and video-amusement machines. The
company sold its products to an operating company which distributed them to game parks, restaurants and kids
centres. Both companies were started by Bob Greenwood, an engineer who was fascinated by the design of the
early mechanical gaming machines. Largely through innovative design, the company had grown to be one of the
four largest in the market with a 30 per cent market share.
Four years ago Bob Greenwood sold out to a large industrial group, but he was retained as chief executive of the
manufacturing company. The new owners were happy to let Bob indulge his talent for design, especially since the
company had entered the video-amusement market. Video-amusement machines did not payout cash prizes like
gaming machines, but allowed the player time on the machine to play a game, usually with a theme drawn from the
'Wild West' or 'Interplanetary Space Warfare'. The company manufactured all parts for the gaming machines and
assembled them in its factory. However, many of the components for the video-amusement machines were
imported and only assembled into the outer casings in the factories.
Recently, the owners became dissatisfied with the company's performance. The market for its goods was still
growing, but the company's profitability had failed to match expectations. The owners decided to install a new
chief executive and to fire Bob, who was predictably upset at being replaced:
'It's always been the combination of high technology and fashion that's fascinated me about this industry. You have
to be first in the field with every advance in. technology, especially now video amusements are a big part of our
business, but you also have to keep an eye out for the fashionable trends. On average, we've brought out a new
product every four months, for the last five years. You can't run a company like this by putting an accountant as its
boss - you need an innovator.'
In fact the owners had installed an accountant to be the head of the company. On his first day, the new boss made
a tour of the plant, after which he called the manufacturing manager into his office and began to criticize what he
had seen of the production set-up:
'It seems to me that the whole plant is totally disorganized. There's part finished goods everywhere, and no one
seems to know exactly what they're going to do next. I found some parts of the plant clearly overworked, and other
parts with nothing to do. I am sure, with a bit of tighter management, you could get your unit production costs
down dramatically.'
The production manager was defensive.
'Of course I'd like to get my unit costs down, and of course I could rearrange the whole plant to make it more
efficient. The trouble is, the design department are getting me to change products every few months, so I never
really have time to let the production system settle down. At the same time, marketing are wanting me to give them
instant delivery on new products, almost as soon as I have the drawings from the design office, and they insist on
quality being of the highest standard at all times.'
The new boss called in the marketing manager to explain these demands placed on the production system. The
marketing manager was equally forthright.
'I couldn't care less about his unit costs. It's not low cost which sells these machines. Look at it this way: in a heavy game
club one of these machines can pay for itself in less than three months. Under those circumstances, nobody in this industry
is competing on price. It's not totally unimportant, but plus or minus 10 per cent isn't going to make much difference to our
sales. What sells machines is a new product on the books every few months or so and almost instant delivery - many of the
club owners buy on impulse - and an unimpeachable reputation for the highest product reliability.'
After listening to the testimony of his managers, the new boss was a lot less certain on how he should proceed to
reshape the business.

Questions
1. What do you think were Bob Greenwood's objectives when he ran the company? 7
2. List what you think might now be the priority objectives of:
a) the production manager 7
b) the marketing manager 7
c) the new boss. 7
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2. Although customers and competitors are the main drivers of market pressures, other factors can affect even a 'mature'
product. The legislative environment, for example, may create new pressures and opportunities. Bangladesh's tough
environmental laws, for example, limit disposal of waste in landfill sites. The final disposal of end-of-life products is
severely constrained, encouraging disassembly into component materials which can then be re-used.
UPVC windows have been used in Bangladesh for several decades, and many are now being replaced. At one time
some 100 000 windows were deposited in landfill sites in Bangladesh, but legislation curtailed this. Beka, the
world's largest producer of UPVC windows, recognized the potential impact of this legislation on the entire
business and set about the development and design of a recycling process for discarded windows. The new BOT
300 million plant, constructed in Chittagong, shreds complete windows into fragments which are then sorted into
the re-usable component materials of glass, metals, rubber and UPVC. The latter is used by Beka itself in new
products, completing the cycle of materials; less than 3 per cent of the materials go to waste.
Veka's environmentally friendly operations strategy has not only been a logical response to a changing legislative
environment, but has also created a new competitive advantage. Purchasers of new windows could not fail to be
impressed with the product and processes which allow valuable materials to be recycled. In addition, Beka has also
gained a sustained source of cheap materials, insulating itself from the fluctuating price of new plastic.

Questions
1. What have been the major pressures on Beka which caused it to change its operations strategy? 10
2. What opportunities for the operation do you think were created by the move to recycling? 10

3. Britania Plc (referred as "Britania") is the world's largest fast food chain. The company has 30,000 restaurants in
over 120 countries and has been committed to opening over 700 new restaurants each year in recent times. The
company has benefited from consumers wanting quick and filling foodstuffs, and has met this need with its style of
products for both adults and children. The company has also has many tie-inarrangements with sports and films, to
encourage consumers to buy its product range. the range is very limited, focusing mainly on burgers, fries and soft
drinks. There are occasional variations in some countries. this approach has proved popular with consumers who
have conservative tastes and are happy to know that the food will be of consistent quality wherever it is sold.
The company operates mainly via a combination of owned and franchised restaurants. Franchisees sign a 15-year
deal in which the right to use Britania trademarks, restaurant decoration designs, formulas and specifications for
menu items, use of Britania's inventory control systems, bookkeeping, accounting, marketing, and the right to
occupy the restaurant premises.
In return the franchisee agrees to operate the business in accordance with Britania's standards of quality, service,
cleanliness and value. The company is anxious to avoid any negative publicity, so it employs secret shoppers who
randomly visit and assess restaurants on the above criteria. The company pays relatively low wages and has high staff
turnover; this has prevented Britania's being able to recruit high caliber staff, as the image of the jobs offered is poor.
Recent event:
The company has had stagnant profits and sales growth in the last two years. The main reasons for this are
increased health in its major geographical markets. The company's products are high in both fat and carbohydrate
content, and stories in the media about preventable obesity, health disease, diabetes and cancer have caused
turnover to falter. Furthermore, new style diets, whilst promoting meat consumption, have discouraged many
consumers from eating bread of fries due their high carbohydrate content. Initially Britania claimed that its
products were nutritious and healthy, but this policy was deemed to be failure as it did not reverse the stagnation of
sales. Some high profile legal claims against the company from consumers claiming that Britania products caused
health problems have also has a negative on the company's image.
The company has decided at board level to respond to this deterioration in its financial performance by introducing
and promoting a healthier menu, with options that include burgers but no longer buns, chicken and fish based
products, grilled rather than fried meats, salads, fruit and healthier drinks, as well as phasing out extra large
portions of food on its menu. The directors want to give more autonomy to individual restaurant managers to offer
a wider range of products that will vary between different locations.

In addition, the board intend to change the company name to "Eatright" to move away from the association with
burgers and fries. The cost of changing all the company's logos, livery, advertising campaigns and cooking
equipment is expected to be massive. Staff will also have to be trained to use the new equipment and promote
healthy eating to customers. The company is uncertain how the public and franchisees will respond to these
,changes in the business. Moreover Britania is under pressure to deliver improved financial performance as its
share price has underperformed that of the overall stock market by 20% in the last 18 months.

Please turn over

 nov dec 2010
–3–

Requirements:
(a) Identify the type of change that Britania is considering 10
(b) Outline the potential barriers to the proposed changes from: 12
(i) Franchisees
(ii) Restaurant staff
(iii) Customers
(c) Prepare a draft blueprint for submission to the board of directors of Britania that details how the company will
deal the changes of menus and name. 6

4. MMA Appliance Plc (MMA) is a company listed on an international stock exchange. It manufactures electrical
kitchen appliances and sells in the low to medium price sector of the market.
Company profile
MMA manufactures three different types of electrical appliances: cookers, washing machines and fridges.
The company currently has four manufacturing sites located Malaysia, Russia, England and the United States.
Each of the factories currently manufactures all three products and in general, sells them in the region of the world
in which that factory located.
While sales are internationally diversified, market research has shown that different geographical regions require
different designs and features. As a result, each factory has developed each of the products separately with
different features and capabilities which are appropriate to the market in its own geographical location.
Cost comparativeness and cost reduction
Each of the factories is a separate profit center. Profitability has declined in all four of the factories in recent years
and thus profitability for the company as a whole has fallen steeply.
The central board has attempted to improve matters by reviewing costs, engaging in internal benchmarking
exercise and applying a series of cost reduction programs. Each of these cost reduction programs tended to
focus on one factory at a time and extended over periods of up to a year. At a board meeting to discuss the
results of the latest cost review exercise the finance director summarized the results.
It is clear that some of our factories can produce at a lower cost than the others, but the results are not consistent.
Take, for example the Malaysian factory. It produces fridges and cookeries cheaper than any of our other factories,
but it is the highest cost producer of washing machines. What is more, when there is a major change in the
exchange rate, the whole cost comparison exercise changes.
Another concern is that we have repeatedly engaged in cost reduction programs by selective redundancies, shifting
production, changing reporting structures, reducing capacity and outsourcing functions, to name but a few.
Despite all this, there has been no permanent cost reduction of any significance.
Also there has recently been an unexpected major new entrant into the industry from South East Asia, which has
low costs and low prices. If we are to compete we will have to reduce costs much more significantly than we have
able to do in the past.
Global production
In response to the concerns of the finance director a proposal was put on forward to globalize production. The key
features of the proposal are as follows:
Each of the three products would be made in only one basic design, and all of the world production of each product
would be made at a single factory.
Each factory would be a cost center and marketing would be centralize functionally worldwide. It would therefore
be outside the responsibility of the factory managers in future.
The change would be pushed through urgently with the aim of completion of the change program within six months.
It is intended that larger scale specialist production would significantly reduce production costs, but the situation
would be reviewed in two years time given the uncertainties involved in such a major change.
Requirements:
(a) Compare the type of change program engaged by MMA in the previous cost reduction exercises which the
current proposal to globalize production. 10
(b) Examine how the globalization change program is likely to impact upon the stakeholders. Assess the
implications for MMA in communicating the nature of the changes in each case. 10
(c) Give examples of barriers to change that may arise and which may cause resistance to the implementation of
the globalization change program in MMA. 4

– The End –
 nov dec 2010

CORPORATE LAWS & PRACTICES

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]

Marks

1. a) Explain the ‘legal personality’ of a company. 4

b) What do you understand by principle of majority rule? Who can seek remedy against this
principle? 6
c) Point out the basic differences between a company and a partnership firm. 5
d) Describe when, how and why a Statutory Meeting of a company is held? What are the
consequences of failure to hold such meeting? 6

2. a) Define dividend and explain different types of dividends. 5

b) Discuss the rules relating to amend the object clause of the Memorandum of a company. 4
c) Distinguish between a floating charge and a fixed charge. When does a floating charge
crystalise? 5
d) Discuss the procedures of issuing shares at a premium. How does the Companies Act
provide for application of ‘Receipt’ from premium? 5

3. a) What are the modes of winding up of a company? What are the circumstances in which
company may be wound up by the court? 5
b) When does the office of a director stand vacated? 5

4. a) Narrate the salient features of the listing rule of DSE. 6

b) Describe the main functions of SEC. 5
c) Enumerate the powers and functions of Securities and Exchange Commission as per the
provisions of the Securities and Exchange Commission Act 1993. 6
d) Draft a plan of operation and the financial conditions to be incorporated in the Prospectus
by a public limited company according to Public Issue Rules, 1998. 6

5. a) Narrate the circumstances under which the Bangladesh Bank can dissolve the Board of
Directors of a banking company. 6
b) What are the restrictions on payment of loans and advances as provided in the Bank
Companies Act, 1991. 6
c) State the duties of an Auditor under the Bank Companies Act, 1991. 6

6. Explain the term ‘financial institution’ as defined in the Financial Institution Act, 1993. Narrate
the circumstances under which the licence of a financial institution may be cancelled. 9

– The End –
 may june 2011
FINANCIAL ACCOUNTING 
 
Time allowed‐2½ hours 
Full Marks‐100 
 
[N.B.‐ Questions must be answered in English. Figures in the margin indicate full marks. All workings are to be 
submitted.  Examiner  will  take  account  of  the  quality  of  language  and  of  the  manner  in  which  the 
answers are presented. Different parts, if any, of the same question must be answered in one place in 
order of sequence] 
  Marks 
1.  Answer to the following questions:         
  a.  “Financial  statements  based  on  historical  cost  basis  are  meaningless  and  highly  distorted”‐ 
discuss  the  limitations  of  financial  statements  highlighting  the  conflicting  principles  in  the 
Conceptual Framework of Accounting.  5 
b.  Describe  the  following  categories  of  financial  instruments:  (a)  financial  assets  and  financial 
liabilities at fair value through profit or loss, (b) held to maturity investments, (c) loans and    6 
     receivables, and (d) available for sale financial assets. 
c.  State the circumstances in which an entity may change in accounting policy and explain how a 
change in policy should be accounted for in accordance with IAS‐8.  5 
 
2.   You have been asked to advise on the appropriate accounting treatment for the following situations 
arising in the books of your company. The year end of the company is 31 December 2010 and you 
should assume that the amounts involved are material in each case.  4x5=  20 
(i)  At the year end there was a debit balance in the books for Tk. 15,000, representing an estimate 
of the amount receivable from an insurance company for an accident claim. In February 2011, 
before the directors had agreed the final draft of the published accounts, correspondence with 
lawyers indicated that Tk. 18,600 might be payable on certain conditions. 
(ii)  The company has an item of equipment which cost Tk. 400,000 in 2007 and was expected to last 
for ten years. At the beginning of the financial year 2010 the book value was Tk. 280,000. It is 
now thought that the company will soon cease to make the product for which the equipment 
was specially purchased. Its recoverable amount is only Tk. 80,000 at 31 December 2010. 
(iii)  On 30 November the company entered into a legal action defending a claim for supplying faulty 
machinery.  The  company’s  solicitors  advise  that  there  is  a  20%  probability  that  the  claim  will 
succeed. The amount of the claim is Tk. 500,000. 
(iv)  An item has been produced at a manufacturing cost of Tk.1,800 against a customer’s order at an 
agreed  price  of  Tk.  2,300.  The  item  was  in  inventory  at  the  yearend  awaiting  delivery 
instructions.  In  January  2011  the  customer  was  declared  bankrupt  and  the  most  reasonable 
course of action seems to be to make a modification to the unit, costing approximately Tk. 300, 
which is expected to make it marketable with other customers at a price of about Tk.1,900. 
(v)  At  31  December  a  company  has  total  potential  liability  of  Tk.1,000,400  for  warranty  work  on 
contracts. Past experience shows that 10% of these costs is likely to be incurred, that 30% may 
be incurred but that the remaining 60% is highly unlikely to be incurred. 
 
  Required: 
    For each of the above situations outline the accounting treatment you would recommend and give 
the reasoning of principles involved. The accounting treatment should refer to entries in the books 
and/ or the yearend financial statements as appropriate.  
 
3.  (a)  BARCLAYS purchased a motor car on 1.1.2008 from IDLC Ltd. for Tk.1,000,000 with Interest rate 
of 10% p.a. for 5 years. It pays yearly instalment of Tk. 300,000 in advance to the lessor. The fair 
value of the car was Tk. 1,500,000. BARCLAYS charges lease rental to the comprehensive income 
statement  under  operating  lease  as  per  practice.  The  management  of  the  company  has  now 
decided to comply with BAS‐17‐ Leases to treat it as finance lease. Company depreciates motor 
car  on  straight  line  method  @20%.  What  are  the  steps  to  be  followed  for  conversion  of 
operating  lease  into  finance  lease?  Show  the  calculations  for  the  effect  of  policy  change  and 
 
extract balance sheet as on 31.12.2010.  10 
[Please turn over] 
 may june 2011
– 2 – 
 
  (b)  Ahmeds  foods  Ltd.  purchased  machinery  costing  Tk.100  million  on  1‐1‐2010.  May  Bank, 
Hongkong  sanctioned  a  foreign  currency  loan  in  USD  repayable  in  five  equal  instalements 
annually  (official  exchange  rate  as  on  1.1.2010  was  US  $  1=Tk.70).  As  on  31‐12‐2010  the  first 
instalment  was  paid  when  US  $  1  fetched  Tk.72.50.  The  company  charges  depreciation  on 
 
machinery at 20% on WDV basis.  10 
What will be the accounting treatment of exchange loss arising out of the foreign currency loan 
represented by the recent acquisition of fixed assets. Your answer should be in line with BSA 21‐
The  Effects  of  Change  in  Foreign  Exchange  Rates.  Did  you  find  any  different  accounting 
treatment in terms of companies Act 1994? How can you align this treatment with BAS 21‐The 
Effects of Change in Foreign Exchange Rates? 
 
4.  On 1 January 2010 the fixed asset balance of Unique, a quoted company, was made up as follows: 
Original Cost  Depreciation  NBV 
Tk.  Tk.  Tk. 
Land and buildings  710,000  43,000  667,000 
Plant and equipment  948,500  571,400  377,100 
Motor vehicles    77,000   44,100    32,900 
The Company charges depreciation on the straight line basis at the following rates. 
    Pa 
  Buildings  2% 
  Plant and equipment 10% 
  Motor vehicles  20% 
A full charge is made in the year of purchase and none in the year of sale. 
You are given the following additional information. 
(i) An item of plant which was was purchased in 2000 for Tk. 200,000 is now recognized to have a 
useful life of another 16 years. 
(ii) The buildings owned by Unique cost Tk.430,000, 5 years ago. 
(iii) During  2004  a  lada  which  cost  Tk.  10,000  in  2002  was  traded  at  a  value  of  Tk.  4,300  in  part 
exchange for a skoda costing Tk. 15,400 
(iv) On  1  July  Unique  acquired  the  use  of  a  new  machine  under  a  finance  lease.  The  contract 
specified  that  Unique  must  pay  a  non  returnable  deposit  of  Tk.  15,000  immediately  and  then 
annual  instalments  of  Tk.10,000  for  4  years  starting  on  1  January  2005.  The  cash  price  of  the 
machine was Tk. 45,000 
(v) Included  within  the  equipment  is  an  item  which  originally  cost  Tk.173,000  and  is  already  fully 
depreciated. It is not expected to last very much longer. 
 

  Required: 
(a) Define depreciation and identify two situations whereby the depreciation charged on an asset is not 
shown as an expense in the income statement but is instead capitalized in the balance sheet.  7 
(b) Prepare a long term assets note, suitable for inclusion in Unique’s financial statements for the 
year ended 31 December 2004.    7 
(c) The Finance Director suggests that to make a change in the annual depreciation  for item (i) is 
against the accounting conventions of prudence and consistency.   5 
Set out your response. 
 

5.  HS acquired six million of MK’s ordinary shares on 1 April 2010 for an agreed consideration of Tk. 25 
million. The consideration was settled by a share exchange of five new shares in HS for every three 
shares  acquired  in  MK,  and  a  cash  payment  of  Tk.  5  million.  The  cash  transaction  have  been 
recorded, but the share exchange has not. 
 

The draft balance sheets of the two companies at 30 September 2010 are: 
HS    MK 
‘000 Tk  ‘000Tk.  ‘000 Tk.  ‘000 Tk 
Assets  
Non‐current assets 
Property, plant & equipment      78,540    27,180 
Investment in Mk        5,000    Nil   
83,540                               27,180 
 
[Please turn over] 
 may june 2011
– 3 – 
Current assets 
Inventory   7,450    4,310 
Accounts Receivable  12960    4,330 
Cash at bank  nil       520   
      20,410      9,160 
Total assets    103,950     36,340 
Equity and Liabilities 
Capital and Reserves  
Ordinary shares of Tk 1 each  20,000  8,000 
Reserves 
Share Premium  10,000  2,000 
Accumulated Profits: 
At 1 October 2009  51,260  6,000 
For the year to 30 Sep ’10  12,000  8,000 
      73,260    16,000 
          93,260    24,000 
Non‐current liabilities 
8% loan notes 2014     nil    6,000 
 
Current liabilities 
Accounts payable &  
Accruals  5,920  4,160 
Bank overdraft   1,700    nil 
Provision of taxation  1,870  1,380 
Proposed final dividend  1,200     800 
Total equity and liabilities    10,690      6,340 
       103,950    36,340   
The following information is relevant: 
(i)  The fair value of MK’s land at the date of acquisition was Tk. 4 million is excess of its carrying 
value. MK’s financial statements contain a note of a contingent asset for an insurance claim of 
Tk.  800,000  relating  to  some  inventory  that  was  damaged  by  a  flood  on  5  March  2010.  The 
insurance company is disputing that claim. He has taken legal advice on the claim and believes 
that it is highly likely that the insurance company will settle it in full in the near future. 
  The fair value of MK’s other net assets approximated to their carrying values. 
(ii) At the date of acquisition HS sold an item of plant that had cost of Tk. 2 million to MK for Tk.2.4 
million. MK has charged depreciation of Tk.240,000 on this plant since it was acquired. 
(iii) HS’s current account debit balance of Tk. 820,000 with MK does not agree with the corresponding 
balance in MK’s books. Investigations revealed that on 26 September 2010 HS billed MK Tk. 200,000 
for  its  share  of  central  administration  costs.  MK  has  not  yet  recorded  this  invoice.  Intercompany 
current accounts are included in accounts receivable or payable as appropriate. 
(iv) MK  paid  an  interim  dividend  of  Tk.400,000  on  1  March  2010.  The  profit  and  total  dividends 
(interim plus final) of MK are deemed to accrue evenly throughout the year. MK’s retained profit 
of  Tk.  8  million  for  the  year  to  30  September  2010  as  shown  in  its  balance  sheet  is  after  the 
deduction of both its interim and final dividends. HS ‘s policy is to credit to income only those 
dividends  received  or  receivable  from  post  acquisition  profits.  He  has  not  yet  received  or 
accounted  for  any  dividends  from  MK.  All  proposed  dividends  were  declared  by  the  directors 
before the relevant year ends. 
(v) At 30 September 2010 the value of goodwill in respect of the acquisition of MK has fallen by 10%. 
 
Required: 
(a) Prepare the consolidated balance sheet of HS at 30 September 2010.  20 
(b) Suggest reasons why a parent company may not wish to consolidate a subsidiary company, and 
describe  the  circumstances  in  which  non‐consolidation  of  subsidiaries  is  permitted  by 
International Accounting Standards.  5 
 
 
– The End – 
 may june 2011

FINANCIAL MANAGEMENT

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order to sequence.]

Marks
1. (a) It has been argued that directors use the objective of ‘maximising shareholder wealth’ as a cover to
do what they want. Before the Collapse of Enron, shareholders were not concerned as rising share
price kept them happy whilst directors profited from high remunerations and share option schemes.
Enron’s founder and former Chairman earned $252m including stock options. After the collapse of
the company, it has been revealed that criminal behavior had been used by Enron Board to maintain
a profitable face to the outside world and to achieve higher share prices. Shareholders have now
begun to flex their muscles and take a much more active interest in what companies and directors
are doing. In this context specify the area in which conflicts of interest might occur between
directors and shareholders, and explain why directors might pursue an agenda which is at odds with
the objective of ‘maximization of shareholders wealth’ in case of the following: 4
i. Takeovers
ii. Time horizon
iii. Risks, and
iv. Debt
(b) Identify the stakeholders and some of the financial management issues involved in the following
situations:
i. Bengal Fisheries Ltd. was a Private Company. The Directors want to convert it into a public
company and get it listed in the Stock Exchange in Bangladesh. 3
ii. Brussel Textile is a highly geared company and listed in DSE. It has restructured its capital by
converting the debt into equity. 3
(c) D plc wishes to take over S plc. The following information relates to the two companies:
Number of ordinary Market price per
Shares in issue ordinary share
D plc 20 million Tk.10.00
S plc 6 million Tk.3.00
The market price of each company’s shares is regarded as an accurate reflection of their intrinsic
value.
The takeover is expected to lead to research and development savings after taxation that have a
present value of Tk.12 million. The bid offer consists of one share in D plc for every three shares
held in S plc, plus Tk.1.00 in cash for every three shares held in S plc.
By how much would the wealth of a shareholder who owns 3,000 shares in S plc increase if the
takeover was successful? 6
(d) M Ltd. is financed entirely by equity and has a cost of capital of 10%. P Ltd. has the same
operating and risk characteristics as Mentha plc but is financed by 30% loan capital and 70%
equity. The cost of the loan capital, which is risk free, is 4%. The rate of corporation tax is 20%.
Using MM theory (including taxation), what is the cost of equity capital of P Ltd.? 4
2. G Ltd. operates a chain of cellular telephone stores. An abbreviated profit and loss account and
balance sheet of the business for the year that has just ended is as follows:
Tk.000
Sales 6,450
Operating profit for the year 800
Debenture interest payable 160
[Please turn over]
 may june 2011

–2–
Net profit before taxation 640
Corporation tax (20%) 128

Net profit after taxation 512

Dividends proposed 256
Retained profit for the year 256

Abbreviated balance sheet as at 31 May 2010

Tk.000 Tk.000
Fixed assets at written down values 3,500
Current assets 1,800
Less Creditors: amounts falling due within one year 1,100 700
4,200
Less Creditors: amounts falling due after more than one year 2,000
2,200
Capital and reserves
Tk.0.50 Ordinary shares 600
Retained profit 1,600
2,200
The company is expecting a surge in sales following advances in cellular telephone technology that
should translate into additional operating profits of Tk.180,000 per year for the foreseeable future.
However, the company will need to invest Tk.1,200,000 immediately in expanding the asset base of
the business if it is to achieve these additional profits.
The business has approached a large supplier that already has an equity investment in the business
to see whether it would be prepared to provide further funds for the business. The supplier has
indicated it would be willing to provide the necessary funds by either:
(i) an issue of Tk.0.50 ordinary shares at a premium of Tk.1.50 per share, or
(ii) an issue of Tk.1,200,000 10% debentures at par.
The Board of Directors of G Ltd. has already announced that it will maintain the same dividend
payout ratio in future years as in the past and that this policy will be unaffected by the form of
finance raised.
Required:
(a) For each of the financing options:
(i) prepare a forecast profit and loss account for the forthcoming year; 3
(ii) calculate the forecast earnings per share for the forthcoming year; 2
(iii) calculate the projected level of gearing at the end of the forthcoming year. 3
(b) Calculate the level of operating profit at which the earnings per share will be the same under
each financing option. 6
(c) Briefly evaluate each of the financing options from the viewpoint of an existing shareholder. 6

3. A textile company belongs to a risk- class for which the appropriate P/E ratio is 10. It currently has 50,000
outstanding shares selling at Tk.100 each. The firm is contemplating the declaration of the Tk.8 dividend
at the end of the current fiscal year which has just started. Answer the following questions.
(i) What will the price of the share be at the end of the year: (a) if dividend is not declared, and (b)
if it is declared? 8
(ii) Assuming that the firm pays the dividend, has a net income of Tk.5,00,000 and makes new
investments of Tk.10,00,000 during the period, how many new shares must be issued? 6
(iii) What will the value of the firm be: (a) if dividend is declared, and (b) if dividend is not declared?
Ignore Taxation. 6

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 may june 2011

–3–

4. Critically comment on each of the following five statements:

(a) `In view of the fact that the market is efficient in the semi-strong form, financial information
released by companies is of no value to investors, because the information is already included in
share prices before it is released’. 4
(b) `If an investor holds shares in about 20 different companies all of the risk is eliminated and the
portfolio will give a return equal to the risk-free rate’. 5
(c) `A graph of the daily price of a share looks similar to that which would be obtained by plotting a
series of cumulative random numbers. This shows clearly that share prices move randomly at
the whim of investors, indicating that the market is not price efficient’. 3
(d) The spot rate of exchange is £1 = $1.4400. Annual interest rates are 4% in the UK and 10% in the
USA. What should be the three month forward rate of exchange. 3
(e) T Ltd. takes out a borrower’s option on a loan for Tk.10 million that has a notional interest
period of 92 days. The business can borrow over this period at LIBOR plus 0.2%. The option has a
strike rate of 5.5% and a premium of Tk.10,000.
What is the total borrowing cost for the business if LIBOR is 5.0% at the expiry date of the
option? 5

5. (a) Why the interests of loanholder may conflict with those of shareholders of a company. 2
(b) Aditya Company has currently an ordinary share capital of Tk.25 lacs, consisting of 25,000 shares
of Tk.100 each. The management is planning to raise another Tk.20 lacs to finance a major
program of expansion through one of four possible financing plans. The options are:
(i) Entirely through ordinary shares.
(ii) Tk.10 lacs through ordinary shares and Tk.10 lacs through long-term borrowings at 8%
interest per annum.
(iii) Tk.15 lacs through ordinary shares and Tk.15 lacs through long-term borrowings at 9%
interest per annum.
(iv) Tk.10 lacs through ordinary shares and Tk.10 lacs through preference shares with 5%
dividend.
The company’s expected “EBIT” will be Tk.8 lacs. Assuming a corporate tax rate of 50%,
determine the EPS in each alternative, and comment on the implications of financial leverage. 12
(c) What is difference between
(i) a management `buy-in’ and a management `buy-out’. 3
(ii) a `sell-off’ and a `spin-off’. 3

– The End –
 may june 2011

IT APPLICATION 
Time allowed: 2½ hours 
Full Marks: 100 
 
[N.B.‐ Questions must be answered in English. Figures in the margin indicate full marks. All workings are 
to be submitted. Examiner will take account of the quality of language and of the manner in which 
the answers are presented. Different parts, if any of the same questions must be answered in one 
place in order of sequence] 
                                      Marks 
1.  Describe the state and value of Information Technology in Bangladesh.  8 

2.  What are the critical success factors which should be considered in developing IT strategy of        
an Organization?  7 

3.  Explain how government IT policy influences the use of information technology in enterprises 
of Bangladesh. What changes are needed in government IT policy in your opinion?   7 

4.  Identify risks associated with the use of an electronic business information system.  7 

5.  What is business Model Design? Explain how IT contributes to support of business models.  7 

6.  What is the difference between information system and information technology?  7 

7.  Explain the policy and procedures for controlling the information access in an organization.  7 

8.  Make a chart on the importance of the management, planning and control in a system 
development project.  7 

9. How can the security requirements be implemented in developing a new accounting 
information system?  7 

10. What is testing? Why is testing needed? Describe various types of testing.  7 

  11. What do you understand by System Conversion? Briefly describe any method of system 
conversion.  7 

12. What is System Documentation? Why do you need system documentation? What factors or 
points should be included in the documentation of a system?  7 

13. Write short notes on the following items:  7 
  i) Spoofing and Sniffing 
  ii) Denial of Service Attack 
 
14. Write short notes on “Information Input Accuracy, Completeness, Validity, and Authenticity”.  8 

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐THE END‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 
 may june 2011
TAXATION‐II 
 
Time allowed –2½ hours 
Total marks – 100 
 
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take account of the quality of language and of the way in which the answers are presented. Different 
parts, if any, of the same question must be answered in one place in order to sequence.] 
  Marks 
1.  Write short notes on the following:  10 
  (a)  Royalty 
  (b)  Speculative Business 
  (c)  Transfer 
  (d)  Amalgamation 
  (e)  Market value. 
 
2.  The books of ABC Ltd. revealed the following information:  10 
 

  Assessment year  Income / (Loss) from  Income / (Loss) from  Income / (Loss) from 

          Garment Business      Textile Business       Jute Business 
  2007 – 2008  500,000       200,000  (1,000,000) 
  2008 – 2009  800,000       600,000       200,000 
  2009 – 2010  900,000  (1,200,000)         50,000 
  2010 – 2011  700,000       200,000       100,000 
   

  Find  out  the  year  wise  Business  (Loss)  /income/  total  income  and  discuss  how  those  would  be 
carried forward and set off.  
 

3.  ABC  Ltd.  is  a  publicly  traded  company  carrying  on  the  business  of  manufacture  and  sale  of  jute 
products. Accounts are maintained on mercantile basis. The audited profit and loss account for the 
year ended December 31, 2009 disclosed a net profit of Tk.2,510,000. Examination of the books of 
accounts revealed the following facts:  15 
 

a) A preliminary expenses Tk.50,000 was written off to the profit and loss account. 
b) One vehicle was purchased during the year for Tk.2,500,000. Depreciation @20% was charged 
on the cost of the vehicle. 
c) Depreciation  claimed  at  Tk.1,200,000  including  depreciation  on  a  leasehold  asset  of 
Tk.1,000,000.  The  company  claimed  depreciation  on  leasehold  assets  Tk.200,000.  The  lease 
rental for the year was Tk.150,000 in respect of the leasehold assets. 
d) Depreciation in respect of all other assets has been claimed as per Income Tax Law. 
e) Interest on loan aggregating to Tk.400,000 has been waived by IFIC Bank during the year which 
has been credited to the profit and loss account. 
f) Over provision for certain expenses as well as under provision for certain expenses in respect of 
previous  year  amounting  to  Tk.500,000  and  Tk.300,000  respectively  have  been  adjusted  with 
the retained earnings brought forward from previous year. 
g) Net  profit  includes  Tk.800,000  representing  income  from  sale  of  imported  products.  The 
company  suffered AIT  aggregating to Tk.200,000  at  import stage  at  the time  of import of  jute 
products. 
h) Entertainment expenses of Tk.120,000 debited to the profit and loss account. 
i) Technical knowhow fee of Tk.300,000 paid to foreign collaborators charged in the accounts. 
j) 50% of sale of manufactured goods is exports. 
 

  You  are  required  to  compute  total  income  and  tax  payable  by  the  company  for  the  income  year 
ended December 31, 2009. 
 

4.  Mr. Azim is a Chartered Accountant in practice. He has the following income for the year ended June 
30, 2010: 
         Taka 
a) Share of income from C.A. Firm      471,518 
b) Interest Income (Gross): 
i) From Leasing Company  1,247,502 
 

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 may june 2011
– 2 – 
 

ii) On Fixed Deposit (Bank)      138,214 

iii) On Saving Account (Bank)        53,790 
c) Dividend Income (Gross)        11,350 
d) Shop Rent        13,200 
e) Directors Fee        65,000 
f) Income from ICAB as Examiner Fee      174,325 
g) Income from Sundry Business        55,440 
h) Capital Gain: 
i)  Profit on Sale of shares of Private Ltd. Co.  6,050,000 
ii)  Sale of Shop (deed value Tk.192,500, original cost Tk.27,750, Tax deducted 
  at source at the time of registration Tk.3,850 to be assessed u/s 82C)   
iv) Profit on Sale of Shares on publicly listed company  3,430,501 
 

  He has investment of Tk.328,000 on purchase of BSP and life Insurance premium. 
  He has paid an amount of Tk.150,000 as advance tax. 
  His last slab of Tax is @25% during the assessment 2009‐2010. 
 

  Compute the total income and Tax payable by Mr. Azim.    10 
 
5.  a)  Calculate  the  total  income  of  Mr.  Azad  from  the  following  if  he  is  i)  a  Resident  and  ii)  a  non‐
Resident for income year 2008‐2009.    5 
 

    Bangladeshi Income: 
    Salary income  Tk.    89,000 
    Interest on 10% less tax commercial securities   Tk.1,20,000 
    Income from partnership Firm  Tk.    20,000 
    Agricultural income   Tk.    50,000 
 

    Foreign Income: 
    Income from business in Singapore   Tk.    50,000 
    Income from Partnership Firm in Pakistan  Tk.    60,000 
 
  b)  Discuss in the form of a Chart showing Income Tax Authorities under the category  2 
    i)  Administrative 
    ii)  Judicial 
 

  c)  Explain the aspects relevant to formation, qualification of members and functioning of Appellate 
Tribunal.    3 
 
6.  On 30th June 2008 Mr. Alam has the following investments:    10 
  i)  Tk.80,000, 10% Company Debenture 
  ii)  Tk.50,000, 8% Treasury Bond, tax free 
  iii)  Tk.25,000, 12% Port Trust Debenture 
  iv)  Tk.40,000 12% Commercial Securities 
  v)  Income from Government Securities Tk.30,000 @8% interest. 
 

  On 1st January 2008 Mr. Alam sold Tk.40,000, 10% Company Debenture with which he purchased 
12% Commercial Securities. He also took a loan of Tk.20,000 from a Bank to purchase commercial 
securities at the rate of 10% interest. The bank commission for the purchase and sale of securities 
amounted to Tk.100. He also paid Tk.200 as bank charge for collecting interest. 
 

  Calculate income from securities of Mr. Alam. 
 
7.  a)  What are the different types of Depreciation allowances allowed under Income Tax Ordinance 
1984?    2 
 

  b)  Explain “Unabsorbed Depreciation”.    5 
 
 
 [Please turn over] 
 
 
 may june 2011
– 3 – 
 
  c)  A  factory  building  was  constructed  in  the  year  2005  having  a  total  cost  of  Tk.2,00,000.  It  was 
insured for Tk.2,10,000. In the month of January 2006 it was destroyed by fire. The scrap was 
sold  at  Tk.10,000.  Till  the  year  2008‐2009  assessment  year,  depreciation  of  the  building  was 
charged at Tk.60,000. Under the following conditions find out balancing depreciation:  8 
 

    i)  if 100% insured amount could be recovered from insurance company. 
    ii)  if 75% of insured amount could be recovered from insurance company. 
    iii)  if 50% of insured amount could be recovered from insurance company. 
 
8.  a)  Give some argument for and against Value Added Tax (VAT).  2 
 

  b)  What are the duties and responsibilities of VAT assessee?  2 
 

  c)  What books of accounts are required to be maintained under VAT Act and Rules?  2 
 

  d)  What are procedures of VAT Registration?  2 
 

  e)  What are the goods and services subject to VAT in Bangladesh?  2 
 
9.  A  manufacturer  sold  goods  worth  Tk.10  lakh  to  the  wholesaler  by  including  to  it  VAT@15%.  The 
wholesaler added 10% as mark up and sold the goods to the retailer by adding VAT who in turn sold 
the goods to the consumer by adding mark up @15%. 
 

  Compute VAT at each stage and indicate the total VAT paid by the consumer.  10 
 
 
– The End – 
 
 may june 2011
AUDIT & ASSURANCE 
 
Time allowed –2½ hours 
Total marks – 100 
 
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take account of the quality of language and of the way in which the answers are presented. Different 
parts, if any, of the same question must be answered in one place in order to sequence.] 
 
  Marks 
1.  Your firm XYZ, Chartered Accountants was appointed as the statutory audit of ABC Company Limited 
a construction company, for the year ending 31st December, 2010. Upon completion of audit, your 
firm have issued the following audit report: 
 

  Auditor’s report to the shareholders of ABC Company Limited 
  We have audited the accompanying balance sheet of the ABC Company Limited as of December 31, 
2010 and the related profit and loss account and statement of cash flows for the year then ended. 
These financial statements are the responsibility of the company’s management. Our responsibility 
is to express an opinion on these financial statements based on our audit. 
 
  Scope: 
  We  conducted  our  audit  in  accordance  with  Bangladesh  Standards  on  Auditing  (BSA).  Those 
standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable  assurance  about 
whether the financial statements are free of material misstatement. An audit includes examining, on 
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit 
also  includes  assessing  the  accounting  principles  used  and  significant  estimates  made  by 
management, as well as evaluating the overall financial statement presentation. We believe that our 
audit provides a reasonable basis for our opinion. 
 
  Opinion: 
  In our opinion, the financial statements prepared in accordance with Bangladesh Financial Reporting 
Standards (BFRS), give a true and fair view of the state of the company’s affairs as of December 31, 
2010 and of the results of its operations and its cash flows for the year then ended and comply with 
the  applicable  sections  of  the  Companies  Act  1994,  the  Securities  and  Exchange  Rules  1987  and 
other applicable laws and regulations. 
 
  We also report that: 
(a) we have obtained all the information and explanations which to the best of our knowledge and 
belief were necessary for the purposes of our audit and made due verification thereof. 
(b) In our opinion, proper books of account as required by law have been kept by the company so 
far as it appeared from our examination of those books and (where applicable) proper returns 
adequate for the purposes of our audit have been received from branches not visited by us. 
(c) The  company’s  balance  sheet  and  profit  and  loss  account  dealt  with  by  the  report  are  in 
agreement with the books of account and returns. 
(d) The expenditure incurred was for the purposes of the company’s business. 
 
  XYZ 
  Chartered Accountants 
 
  Requirements: 
 
  In the context of the above report, you are to answer the following: 
(a) In your report, your firm have affirmed that the audit have been conducted in accordance with 
Bangladesh Standards on Auditing. Describe the procedures you have adopted in support of the 
above affirmation.  8 
(b) Explain the phrases: `material’ and `reasonable’ and their implication in Audit and Assurance.  5 
(c) In your report, your firm have also stated that the financial statements have been prepared in accordance 
with Bangladesh Financial Reporting Standards. What are the procedures that you have carried out to 
affirm your statement and which of the standards are relevant for your client company.  8 
 
[Please turn over] 
 may june 2011
– 2 – 
 
(d) In the opinion paragraph, your firm have asserted that the financial statements give a `true and 
fair’  view  of  the  state  of  affairs  of  the  company.  Explain  what  you  have  meant  by  the  phrase 
`true and fair’. Also explain when and under what circumstances, the financial statements give a 
true and fair view of the state of affairs of the company.  7 
 
2.  Consider the following independent situations, which all relate to the year ended 30 June 2010: 
 
(i) Karim is the sole proprietor of Karim’s Gift Shop (KGS). KGS leases premises in a large shopping 
complex  in  Dhaka.  Karim  received  a  preliminary  notice  in  May  2010  that  the  complex  owners 
were  planning  a  major  redevelopment  commencing  later  in  the  year.  Karim’s  lease  would  be 
terminated around October 2010 and at this stage it appears that no alternative premises will 
be offered. All necessary approvals have been obtained for the redevelopment project. 
(ii) Ms Sulekha runs a beauty parlour in a shopping arcade in the suburbs of Dhaka. The lease runs 
out on 31 December 2010. Ms Sulekha informed you at the planning stage of the audit that she 
does not intend to renew her lease. She will simply close the shop, sell what equipment she can, 
pay her outstanding accounts and retire. 
(iii) ZX Limited is a subsidiary of an overseas electronic giant, ZY Limited. ZX has always made a loss 
and has always been financially supported by ZY. Each year, ZY signs a letter of support stating 
they will provide financial support for ZX in the next twelve months. You have such a letter on 
file  this  year.  However,  recent  articles  in  the  financial  press  suggest  that  ZY  is  in  financial 
difficulties and may be subject to a hostile takeover bid. 
 

  Requirements: 
 

(a) Discuss whether there is a potential going‐concern issue in each situation.  6 
 

(b) Describe the additional procedures that you would perform (if any) in each situation.  6 
 
3.  You  have  completed  your  audit  of  Bangla  Limited,  a  listed  company  for  the  year  ended  30  June 
2010.  As  at  this  date,  Bangla  reported  net  assets  of  Tk.35  crore  and  sales  revenue  of  Tk.42  crore. 
Materiality for the audit was set at Tk.3 crore. 
 

  During the audit you made note of the following potential management letter points: 
(i) Invoice  number  697,  issued  on  1  May  2010,  contained  incorrect  prices.  This  resulted  in  the 
invoice being understated by Tk.1,75,000. 
(ii) Inventory held at a third‐party warehouse was found to be damaged and unsaleable; however, it was 
not written off. It is currently shown in the accounting records at its original cost of Tk.17,50,000. 
(iii) High  turnover  in  the  head  office  accounts  department  resulted  in  the  bank  account  remaining 
unreconciled for three months. The problem was only resolved several weeks after the year end. 
(iv) A fraud was perpetrated by warehouse staff, who acted in collusion with the stock controller 
to steal approximately Tk.700,000 of stock during a six‐month period. All employees involved 
in  the  fraud  have  since  left  the  company.  Additional  controls  have  been  put  in  place  to 
prevent recurrence of the problem. 
(v) Unrecorded  liabilities  amounting  to  Tk.392,000  were  discovered  during  the  examination  of 
cash payments made post balance date. 
(vi) Two laser printers purchased by the marketing department were mistakenly posted to repairs 
and  maintenance  expense  rather  than  fixed  assets.  The  printers  cost  Tk.5,60,000  and 
depreciation of Tk.1,40,000 should have been charged in the year ending 30 June 2010. 
(vii) During  testing  of  controls  performed  on  payroll,  it  was  noted  that  staff  at  one  branch  were 
verbally advising management of their annual leave requirements rather than completing the 
appropriate form. 
(viii) During  the  review  of  prepayments,  it  was  noted  that  Bangla’s  lease  for  its  office  premises 
expired in March 2010 and has not yet been renewed. 
  At the end of the audit the chairman of the board approached you and said: `And another thing, don’t 
waste the board’s time by including all those trivial issues in the management letter. We only want to 
know about important things that may have a real impact on our operations, not irrelevant matters.’ 
 
 
[Please turn over] 
 may june 2011
– 3 – 
  Requirements: 
 

(a) Explain the risks of complying with chairman’s request. Describe how you could accommodate the 
chairman’s request while minimizing the risks for your firm of not reporting issues to the board.  6 
(b) Assume each of the above items warrants disclosure in your management letter to Bangla. Draft 
the management letter to the board.  8 
   
4.  Your firm has recently been appointed external audit of Hatil Ltd (Hatil) for the year ending 30 June 
2010. The previous auditor did not seek reappointment. Your firm has also been invited to provide 
tax planning and compliance work for the company. 
 

  All of the shares in Hatil are owned by the Patwari brothers, Martin and Maruf. They are the only 
directors  and  spend  on  average  three  days  a  week  managing  Hatil  as  they  have  other  business 
interests.  The  company  employs  a  full‐time  qualified  accountant  but  does  not  have  a  finance 
director. Matin and Maruf have plans to grow the business  and wish to recruit a finance director. 
They have asked your firm to assist with the recruitment of a suitable candidate and advise on the 
remuneration package. 
 

  Hatil’s principal activity is the manufacture and sale of high quality leather sofas, chairs and other forms 
of seating which are sold to the public, clubs, hotels and restaurants. Items are produced by hand in the 
company’s workshop which is located in the North of Dhaka. Customers place their orders by telephone 
or over the internet and pay by cheque or credit or debit card. All sales are transacted in BDT. 
 

  The company’s terms of trade require a 50% deposit with the order. Once the order is completed, 
the balance must be paid five days prior to delivery. Typical production time is three to four weeks. 
Customers are required to check the items on delivery and have seven working days to return the 
items  if  not  completely  satisfied.  All  items  are  sold  with  a  one‐year  guarantee.  At  peak  times  the 
company uses sub‐contractors to assist with the manufacture of the seating. These sub‐contractors 
are required to invoice Hatil at the end of each month. 
 

  The  company  does  not  supply  goods  from  inventory  as  all  items  are  made  to  customer  order. 
Finished goods in the workshop relate to items awaiting dispatch to customers. The company does 
not  have  continuous  records  for  raw  materials  inventory  and  undertakes  a  full  count  of  raw 
materials  at  each  month  end  including  at  the  year  end.  The  quantities  are  recorded  on  inventory 
sheets and are subsequently costed by the company accountant. Matin Patwary estimates the value 
of work in progress and finished goods awaiting dispatch. 
 

  Raw materials are sourced from number of suppliers based in Bangladesh and overseas. All of the 
timber used in the frames for the seating is purchased from Timber Ltd. which is owned by Matin 
and Maruf’s mother, Selina Patwary. 
 

  There has been steady growth in sales in recent years and, in May 2010, Hatil acquired the premises 
adjacent  to  its  existing  workshop  to  allow  expansion  of  its  manufacturing  capacity.  The  new 
premises  are  not  yet  in  use  as  they  are  currently  undergoing  extensive  refurbishment  in  order  to 
make them fit for purpose. 
 

  The acquisition was funded by a bank loan repayable in quarterly installments over ten years. The 
existing workshop, which is owned by the company and included in the financial statements at cost 
less accumulated depreciation, was revalued by an external valuer in April 2010. The directors wish 
to incorporate the revalued amount in the financial statements for the year ending 30 June 2010. 
 
  Requirements: 
 
(a) Outline  the  procedures  your  firm  should  have  undertaken,  prior  to  accepting  appointment,  in 
order to assess the integrity of Matin and Maruf Patwary. For each procedure describe how it 
would have assisted with your firm’s assessment of the integrity of Matin and Maruf.  6 
 

(b)  Explain what is meant by a self‐review threat in the context of the provision of taxation services 
to Hatil and state the safeguards available to your firm in order to reduce this threat.  4 
 

(c)  In respect of the recruitment and remuneration package, explain the threats to independence 
which may arise from the provision of each of these services and discuss how your firm might 
respond to these threats.    6 
[Please turn over] 
 may june 2011
– 4 – 
 
(d)  Identify,  from  the  information  provided  in  the  scenario,  the  principal  areas  of  audit  risk  in 
respect of the financial statements of Hatil for the year ending 30 June 2010. For each risk: 
  (i)  list the factors which have led you to identify that risk; and 
  (ii)  outline the procedures that should be included in the audit plan in order to address the risk. 
 
  You  should  present  your  answer  in  a  two‐columnar    format  using  the  headings  (i)  audit  risk  and 
factors; and (ii) procedures to address the risk  20 
 
5.  Described  below  are  situations  which  have  arisen  at  two  unrelated  external  audit  clients  of  your 
firm. The year‐end in each case is 30 June 2010 
 

  Dhaka Ltd. (Dhaka) 
  The management of Dhaka has refused to provide written representations that: 
• it  has  fulfilled  its  responsibility  for  the  preparation  of  the  financial  statements  in  accordance 
with the applicable financial reporting framework; 
• it  has  provided the  auditor with  all relevant  information  and access as agreed  in the terms  of 
engagement; and 
• all transactions have been recorded and are reflected in the financial statements. 
 
  Eastern Ltd. (Eastern) 
  Eastern maintains continuous inventory records and consequently the company does not perform a 
physical count at the year end. On 5 May 2010, a fire in the office at Eastern’s warehouse destroyed 
the  company’s  inventory  records  and  dispatch  records.  The  physical  inventory  was  not  damaged. 
There  were  no  satisfactory  alternative  audit  procedures  which  could  be  performed.  The  company 
has included an estimated closing inventory figure of Tk.7,00,00,000 in the financial statements. This 
estimate represents 5% of Eastern’s total assets and 20% of profit before tax. 
 
  In each of the two situations outlined above, state whether you would modify the audit report. Give 
reasons for your conclusions and outline the modifications, if any, to each audit report.  10 
 
– The End – 
 
 may june 2011
BUSINESS STRATEGY 
 
Time allowed –2½ hours 
Total marks – 100 
 
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take account of the quality of language and of the way in which the answers are presented. Different 
parts, if any, of the same question must be answered in one place in order to sequence.] 
 
  Marks 
1.  (a)  Outline  the  implications  of  poor  ethical  standards  and  damaged  reputation  on  relationship 
between the affected stakeholders in any business organization.  5 
 

  (b)  What are the main issues concerned with corporate social responsibility?  5 
 

  (c)  At the Beijing Auto Show (in November 2010) China’s car makers felt confident enough to show 
off  not  just  their  newest  low  cost  runabouts,  also  luxury  and  sports  models,  `concept  cars’ 
showing future possible designs and even a few hybrid electric vehicles. Local car markets in the 
world’s third largest and fastest growing car market would appear to have come of age. 
 

    Until  recently  many  Chinese  car  makers  built  thinly‐disguised  copies  of  vehicles  made  by 
Volkswagen, GM and Toyota. In the past few years things have changed. In preparation for push 
overseas  local  firms  such  as  Chery,  Great  Wall  and  Geely  have  proved  they  can  develop  their 
own  vehicle  too.  Buying  designs  from  international  specialists  and  installing  fancy  robotic 
production lines means more than 100 new models will be introduced in China this year. Their 
car makers  have captured  27% of  the  market in  China  and will  export  75,000 vehicles to over 
100 countries this year. Foreign car makers are worried by the Chinese firm’s ultra low prices. 
The  latest  Shanghai  Maple,  for  example,  with  leather  seats,  anti‐lock  brakes,  air  conditioning 
and a 2 year warranty costs a mere Taka 455,000. Foreign firms grumble that they cannot even 
buy the steel needed to make the car for that choice. 
 

    How  much  of  this  miracle  is  the  result  of  good  business  sense‐rather  than  special  treatment 
granted  to  local  firms  is  not  entirely  clear.  A  lot  of  early  technology  was  borrowed.  The 
government also offered support to fledging firms via direct investments and guaranteed loans. 
Universities  also  provided  technical  help,  especially  in  the  development  of  expensive  engines. 
The authorities even considered a law that would mandates a 50% share for local firms by 2012. 
Future  legislation  is  likely  to  force  foreign  firms  to  do  more  research  and  development  in 
conjunction with Chinese partners to ensure continued access to cutting edge engineering skills. 
 

    In market where buyers  are unashamedly, brands have little value so far, except in the  luxury 

segment. For most buyers cost is more important. With average retail price falling by Tk.87,500 
a year producers are racing to cut costs, not improve quality. The number of faults per 100 cars 
made rose from 246 in 2008 to 338 in 2009. Reliability is likely to deteriorate further. Chinese 
cars exported today mostly go to Africa, South East Asia and Middle East where expectations are 
lower and prices matters more. 
 
    Requirements: 
 
a) Identify,  using  Porter’s  diamond,  the  sources  and  nature  of  any  competitive  advantage 
enjoyed by Chinese car manufacturer.  10 
b) Recommend a strategy for Chinese car makers based on this analysis.  10 
 
2.  (a)  “The most fundamental ethical issue facing marketing is the potential accusation that marketing 
wastes  the  world’s  resources  by  making  things  that  people  don’t  really  need  and  then  using 
promotion to convince people that they are not satisfied without them.” 
 

(i) State the arguments, with examples, for this view.  2 
(ii) State the arguments, with examples, against this view.  2 
 

  (b)  Explain the concept and importance of branding to a company.  4 
 

  (c)  Explain the way in which relationship marketing can be used by a company to attract and retain 
its customers.    5 
 

 [Please turn over] 
 may june 2011
– 2 – 
 

  (d)  Identify  the  ethical  and  social  responsibilities  issues  that  face  contemporary  marketers  in  a 
manufacturing industry.  4 
 

  (e)  Explain the role and importance of pricing to the marketing effort.  4 
 

  (f)  Explain the differences in both competitor based pricing and demand or market‐based pricing of 
any product.  6 
 

  (g)  Explain what the terms product positioning and market targeting mean?  4 
 

  (h)  Define the terms `Cash Cow’ and `Dog’ as used in Boston Consulting Group Matrix.  4 
 
3.  GPL employs a total quality management program and manufactures 12 different types of pie from 
chicken leek to vegetarian. The directors of GPL are proud of their products and attempt to maintain 
high quality of input at a reasonable price. The inputs are sourced as follows: 
• The  aluminium  is  obtained  from  a  single  supplier  of  metal  related  products.  There  are  few 
suppliers in the industry resulting from fall in demand for aluminium related products following 
increased use of plastics. 
• The  flour  for  the  pastry  shell  is  sourced  from  flour  millers  in  four  different  countries  –  one 
source of supply is not feasible because harvests occur at different times and GPL cannot store 
sufficient flour from one harvest for a year’s production. 
• Obtaining meat and vegetables is difficult due to the large number of suppliers located in many 
different countries. Recently, GPL obtained significant cost savings by delegating sourcing of this 
items to a specialist third party. 
• Plastic  wrapping  is  obtaining  either  directly  from  the  manufacturer  or  via  an  internet  site 
specializing in selling surplus wrapping from government and other sources. 
 
  Requirements: 
 
(a) Explain the main characteristics of a Total Quality Management (TQM) programme.  6 
(b) Identify  the  sourcing  strategies  adopted  by  GPL  and  evaluate  the  effectiveness  of  those 
strategies for maintaining a constant and high quality supply of inputs. Your answer should also 
include recommendations for changes you consider necessary.  9 
 
4.  Your corporate client Wal‐Mart Ltd. has purchased the following data which provides sources of the 
political  risk  for  a  number  of  countries  in  which  the  country  is  considering  investing  in  a  new 
subsidiary. 
   

  Total  Economic  Default  Credit  Government  Remittance  Access 

performance Debt in  ratings  stability  restrictions  capital
Weighting  100  25  10  10  25  15  15 
Gmala  37  13  4  5  5  10  0 
Forland  52  5 10 9 16 8  4
Amapore  36  12  2  3  9  5  5 
Covia  30  9  3  2  15  1  0 
Settia  39  15 4 3 11 4  2
 
  Countries have been rated on a scale from 0 up to the maximum weighting for each factor (e.g. 0‐15 
for remittance restrictions). A high score for each factor, as well as overall, reflects no political risk. A 
proposal has been put before the company’s board of directors that investment should take place in 
Forland. 
 
  Requirements: 
 

  Prepare  a  brief  report  for  the  company’s  board  of  directors  discussing  whether  or  not  the  above 
data should form the basis for: 
a) The measurement of political risk, and      10 
b) The decision about which country to invest in.      10 
 
– The End – 
 
 may june 2011

CORPORATE LAWS & PRACTICES 
 
Time allowed –2½ hours 
Total marks – 100 
 
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take account of the quality of language and of the way in which the answers are presented. Different 
parts, if any, of the same question must be answered in one place in order to sequence.] 
 
  Marks 
1.  (a)  What  do  you  understand  by  certificate  of  incorporation  of  a  company?  Discuss  the 
conclusiveness of certificate of incorporation.  5 
  (b)  Discuss  the  provisions  of  section  150  of  the  Companies  Act,  1994  about  the  restrictions  on 
commencement of business.  4 
  (c)  What  are  the  restrictions  imposed  by  the  Companies  Act  upon  the  borrowing  powers  of  a 
company?  If  a company resorts  to  ultra vires borrowing, what remedies  are  open  to  a person 
who lent money to the company?  6 
 
2.  (a)  What is an Extraordinary General Meeting? Who can call such a meeting?  4 
  (b)  Draft a notice calling Extraordinary General Meeting of a Public Company limited by shares.  5 
  (c)  Distinguish between members’ voluntary winding up and creditors’ voluntary winding up.  4 
 
3.  (a)  “Securities  and  Exchange  Commission  is  empowered  to  protect  the  rights  of  the  Investors”, 
discuss some of those protection measures under SEC Act 1993.  5 
  (b)  What  are  the  provisions relating  to  Qualification  of  Members to the meeting  of  the Securities 
and Exchange Commission?  5 
  (c)  There are some restrictions on gratuity payment, loan and advance of a bank. What are those 
restrictions?  6 
 
4.  Write short notes on‐ 
  (a)  IPO process of a listed company.  5 
  (b)  Fixed Price Method.  5 
  (c)  Book Building Method.  5 
 
5.  (a)  State the restrictions as to payment of dividend by a banking company other than a new bank or 
a specialized bank.  6 
  (b)  Discuss the powers of the Bangladesh Bank to control advances by Banking Companies.  6 
  (c)  Make  a  checklist  identifying  special  points  in  presentation  financial  statements  of  banking 
company in line with BRPD circular and in compliance to International Accounting Standards.  7 
 
6.  (a)  Mention the conditions to be fulfilled by an insurer for maintenance of `Solvency Margin’.  6 
  (b)  Discuss the provisions of the Insurance Act, 2010 relating to (i) determination of premium rate 
for non‐life insurance business and (ii) collection of premium.  6 
  (c)  Discuss some grounds under which Loan of Insurance Company are prohibited.  5 
 
7.  Enumerate  the  mortgage  and  charges  which  require  registration  and  state  consequences  of  their 
non‐registration.  5 
 
 
 
– The End – 
 
 nov dec 2011
BUSINESS STRATEGY

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. You have been appointed as the Financial Manager of a medium sized business house for running
a restaurant. The Managing Director of the company advised you to prepare a business plan to get
loan of Tk.10,000,000 from a bank for further expansion of its activity and the opening of another
new branch in the city.
(i) Explain the benefits of preparing a business plan. 4
(ii) Provide a brief overview of what to Bank is likely to expect to see in the business plan and why
such content would be important to the bank. 8
(iii) Identify and explain the key weaknesses and threats that are likely to be of concern to the
Bank, setting out any factors that could mitigate these. 8

2. (a) Explain the concept of market segmentation and benefits that it can bring to a business. Identify
and illustrate, with examples that can be used to segment the global automotive market. 10
(b) The management of a state-funded hospital, is considering outsourcing the cleaning of its
premises. This will mean private firms taking over as employers of existing cleaning staff and
assuming responsibility for the cleaning of the area around beds, corridors and communal spaces.
Increases in incidences of infections during hospital stays by patients, some resulting in death, has
been widely attributed by the media to poor hospital hygiene. Several legal cases for compensation
have been decided against hospital on the grounds of negligence by management.
What factors should management consider in evaluating the proposal to outsource its
cleaning services. 10

3. Note: Assume that the current period is 30 June 2011:

The SST Agro Company Ltd. (hereafter SSAC) is a large private Company which manufactures
snooker tables.
Industry background
Snooker is traditional game, which enjoyed a major revival in the late 1970s when it was first
televised on a widespread basis. Since that time, snooker’s popularity has varied but it maintains
enthusiastic support.
SST’s tables vary in price, with new slate tables selling from about Tk.2,000 to over Tk.20,000.
There is also an active second hand snooker table market, which competes with the new market.
Increasingly, both new and used snooker tables are sold by individuals and by companies over the
Internet. Few tables are exported, or imported, as the transportation costs would be high given their
weight and the risk of damage.
Many low cost wooden and toy snooker tables exist, but these are of a significantly poorer quality
than slate tables making them unsuitable for serious players. In general, wooden tables are
regarded as a separate market from slate tables.
The Company background
SSAC was established in 1879. It has specialized in making snooker tables and unlike many
competitors, it does not sell any other products. Indeed, it makes only one type of table. `The
Standard’, which sells for Tk.3,000.
SSAC has two types of customers: snooker clubs and private homes. Tables are supplied to the customers
premises and assembled on site by SSAC employees. The company takes pride in its reputation of providing
customers with a good service and it has a good reputation for quality in the industry.
[Please turn over]
 nov dec 2011
–2–
SSAC is organized functionally with production, marketing and administration being the three
sections. SSAC’s main factory and showroom is at Tongi, Gazipur, but it also has showroom at
Dhaka Stadium and London.
Estimated financial information for the year to 30 June 2011:
Sales Tk.000 Tk.000
Private homes 9,000
Clubs 6,000 15,000
Variable costs (2,500)
Fixed costs:
Director labor (fitters) (500)
Other fixed costs (13,000) (16,000)
Loss (1,000)
At a board meeting a number of strategic proposals were put forward to improve the poor results.
The board meeting
Proposal 1
The Marketing Director suggested: “Our basic problem is that we are a quality company but we
are not charging enough for our product. A great opportunity has arisen for us to sponsor the
national snooker championship in July 2011 as the original sponsor has withdrawn. They will use
our tables, which will be seen on national television. The sponsorship cost would be Tk.2 million
but the exposure would mean that we will be able to increases our prices immediately, or
alternatively sell a lot more tables”.
Proposal 2
The Finance Director disagreed: “The problem is that we only sell one product. We should sell a
range of tables and accessories, but more immediately an opportunity has arisen for us to acquire
the entire share capital of National Snooker Clubs Ltd. (NSC). This company runs a chain of about
100 snooker clubs around the country and at the moment, they are not one of our customers.
They have only been breaking even so we should not need to pay any more than the value of the
assets to acquire the company. NSC could then be run as a separate division from the existing
SSAC business, with each division having its own divisional manager”.
I estimate that the SSAC division would provide the NSC division with 500 tables a year. This alone
would be enough to turn existing SSAC business into profit and it would mean lower cost tables
for NSC. It could also provide 100 new sales outlets it we expanded into snooker accessories.
Proposal 3
The Human Resources Director saw the problem from a different perspective: “Our fitters who
install the table on site are paid a fixed weekly wage and a two man team is expected to install
one table per day. The problem is that our direct labour is in effect a fixed cost. When there is no
work they still get paid. I also understand that they sometimes finish the day around mid-
afternoon and go home. They are capable of doing more, but they do not have the incentives. If
we start paying overtime they will just stretch the job out to earn more money. Also, when there
has been a big snooker tournament on television the demand is high, but they cannot cope with
the volume of work. What we need is more flexibility by turning direct labour into a variable cost
by introducing payment by results, rather than by time worked. We also need to measure the
performance of our fitters in order to improve efficiency and maintain quality”.
Requirements
(a) Using the Marketing Director’s information under proposal 1 calculate: 6
i) The amount by which selling price, and
ii) The amount by which the volume sales
would need to increase in order to achieve break-even profit for the year ending 30 June 2012.
Assume that, other than any changes arising from the Marketing Director’s suggestion,
variable costs per unit and fixed costs remain as they were in the year ending 30 June 2011.
Ignore Proposal 2 and 3 consider (a) (i) and (a) (ii) separately.
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(b) Appraise the Marketing Director’s suggestion under the following headings: 9
(i) The scale of the changes required to break-even
(ii) Strategic and operating risks
(iii) Competitive position.
(c) Evaluate the merits and demerits of the Finance Director’s suggestions in proposal 2. 9
(d) Adopting the Human Resources Director’s suggestion, calculate the impact on the break-even
output if all direct labor costs (i.e. the cost of the fitters) became variable costs. Ignore
proposals 1 and 2. Assume, for the purpose of these calculations that there is no change in the
fitting time per table. 4

4. Henford commenced trading in 1955 as a manufacturer of traditional toys and games (e.g. board
games, models, wooden toys and soft toys). The Hendord brand is well respected and sells at a
premium price, but operating cash flows are modest. Sales volumes have been falling for some
years as the company has struggled for market share. There is severe competition from other toy
companies, and particularly from companies which manufacture technology-based toys.
In 2001, Henford appointed a new chief executive, Imran Ahmed, who attempted to diversify while
retaining the original toy business. His diversification policy was to make acquisitions, irrespective of
the type of company or the industry in which the opportunity arose, using two criteria:
(i) the target company could be acquired at a price which represented good value; and
(ii) Henford management could add value.
Since 2001 Henford has acquired two other companies: Premium Paper Products Ltd. (PPP) in 2006
and Medicarex Ltd. (Mdicarex) in 2009.
PPP was established in 2001 and manufactures paper for all types of computer printer and copier.
The paper is high quality and high price. The paper has been designed using significant research and
development and has been shown to be one of the most efficient in the market in reducing
blockages and solving other quality problems when printing. PPP has a very small market share
compared to the market leader, but it has experienced rapid growth. Due to rapid expansion and
new investment it has moderate profits, but a large negative cash flow.
Medicarex is a manufacturer of specialist containers for pharmaceuticals. In this niche sector
Medicarex is a market leader, but growth rates for the company and the industry are low. Profit
margins are reasonably high and, as the production technology is stable and long established,
limited new investment is needed, so significant cash flows are being generated.
Each manufacturing site for toys, paper and pharmaceuticals is located in a different divisions of
Bangladesh. Henford’s head office is located at the same site as toy production. Data is provided
below for each product:
Annual market Sales Largest
Growth rate competitor sales
Taka mn Taka mn
Toys zero 25 50
Paper 20% 5 50
Pharmaceuticals 3% 110 100
Until 2001, Henford was managed by the Hendord family with a fairly rigid, functional structure and
a bureaucratic management style. Since 2001, despite the two acquisitions expanding the size of
Henford, the organizational structure had not been changed. However, Imran Ahmed decided to
modify the organizational structure with effect from 1 January 2011. As a consequence, the old and
new structures were as follows.
Director Old Structure (Pre 2011) New Structure (2011 onwards)
Imran Ahmed Chief Executive Chief Executive
Haroon Ahmed Finance Director Finance Director
Simon Rahman Procurement Director Toys Division Director
Lila Rahman Production Director Paper Division Director
Ali Akbar Marketing Director Pharmaceuticals Division Director
Saleha Akbar Human Resources Director Human Resources Director
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All directors report to the chief executive under the old and new systems.
Under the old system each director had a small group of senior managers reporting to him or her.
Within the new structure, each of the three products forms a separate operating division under the
leadership of a director who, as divisional head, is responsible for that division’s profit. Each division
carries out its own procurement, production and marketing, but finance and human resources
remain as group-wide functions, each headed by a director as under the old structure.
The various senior managers in the old procurement, production and marketing functions have been
allocated to the new divisions and each reports to the relevant divisional head.

Reaction to the change

Imran Ahmed believes that the senior marketing managers have been very reluctant to accept the
changes. He summarized the situation as he saw it at a board meeting:
“I made a decision to make changes in our organizational structure and I expect staff to implement
that decision fully. It is clear that the senior marketing managers have been against these changes
from the beginning, with a series of excuses as to why we should not carry out any proposed change
every time we ask for consultation. Sales performance has fallen and this is not acceptable.”
Ali, the Marketing Director under the old structure, was much more sympathetic than Imran Ahmed:
“The senior marketing managers and other marketing staff all used to be based at head office, but
they are now spread across all three locations. We are all still in communication with each other, as
we feel strongly that marketing should have remained as a centralized functional activity, like
finance and human resources. Procurement and production staff were already spread across the
three locations so they have not been affected much by the changes. Moreover, it has been
reported to me that the other two new divisional heads do not understand the complexities of
marketing and so can neither appreciate, nor control, the marketing staff’s work. This is causing
demotivation and a reluctance to perform to the best of their ability”.

Requirements
(a) Using the data in the exhibit and the other information provided, for each of Henford’s three
products (i.e. toys, paper, pharmaceuticals): 12
(i) Explain and justify its positioning with the Boston Consulting Group (BCG) matrix; and
(ii) Based on your BCG analysis, explain where it is located within its product life cycle.
(b) In respect of Henford’s organizational structure: 12
(i) draw organizational charts for both Henford’s old structure (i.e. prior to 2011) and its new
structure; and
(ii) evaluate whether the change from the old functional structure to the new structure is likely
to be beneficial for Henford.
(c) As far as the information permits, explain the barriers to change that the senior Marketing
Managers could potentially create. 8

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 nov dec 2011

CORPORATE LAWS & PRACTICES

Time Allowed-2½ hours
Total Marks-100

[N.B- Question must be answered in English. Figures in the margin indicate full marks. Examiner
will take account of the quality of language and of the manner in which the answers are
presented. Different parts, if any, of the same question must be answered in one place in
order of sequence] Marks

1. (a) ABC Ltd. incorporated in Bangladesh as a public. Limited company with the Register of
Joint Stock Companies (RJSC) and obtained certificate of incorporation on 14 July 2011.
The company obtained certificate of commencement on 12 September 2011. The main
objective of the company is import of food & food gains from abroad to supply in the
local market. The company opened a letter of credit on 10 August 2011 to import 50
metric ton sugar from Brazil to keep sugar price within reach of the people during
Ramadan. What will be consequence of the company in line with the Company Act
1994? 4
(b) Tazrain & Associates Ltd. incorporated in Bangladesh as a public limited company under
company Act 1994 with authorized capital of Tk.100 million; 10,000,000 shares of Tk. 10
per share. The Chairman of the company had submitted necessary documents with the
application for registration of the company before RJSC on 25 January 2011. During
scrutiny of the documents on 10 March 2011, RJSC explored some irregularities and lack
of information in the registration application. In the mean time, registration officer of
RJSC issued certificate of incorporation on 10 March 2011. The Board of Directors of the
company celebrated the occasion on 15 March 2011. Can RJSC challenge the legal
existence of Tazrain & associates Ltd. as a company? State the legal position of issuance
of certificate of incorporation as per Company Act 1994? 4
(c) Distinguish between a floating charge and a fixed charge. When does a floating charge
crystallize? 4
(d) What do you mean by the ‘ultra vires’ doctrine in company law? What are the remedies
available to a lender in case of ultra vires borrowing by a Company? 4

2. (a) A listed company in its Board meeting for approval of accounts took the following
decisions:
• Interim Dividend 20% already paid, proposed final dividend 20% in addition to
interim;
• Auditors- existing auditors have consented to their re-appointment;
• Acquiring 40% stock in an existing company;
• Appointment and remuneration of Chief Financial Officer approved;
• Bonus issues utilizing all available reserves; and
• Increase in paid up capital through issue of shares to existing shareholders.
Draft a notice for the forthcoming Annual General Meeting of the company and agenda
containing items that are normally included in an Annual General Meeting for members’
approval. Point out which of the above items would be included in the Directors’ Report. 8
 nov dec 2011

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(b) You are appointed as a Finance Director of Success Unlimited Group of Companies. All
the subsidiaries of the group are registered with RJSC as a public limited company. You
are asked to provide expert opinion to the Chairman of the group of the following: 12
(a) One of the Directors of the Board submitted his resignation to the Chairman.
(b) The Managing Director’s office is going to be vacant on December 31, 2011.
(c ) The Company wants to pay Interim Dividend from its past profits.
(d) Mr. Smith, Director of a listed company of the group wants to visit UK for six
months and the Board of Directors want to appoint an Alternate Director in his
place.
3. (a) What documents, registers and books are to be maintained in a company’s registered
office? 4
(b) Who can inspect those documents and books and take copies thereof? What do you
know about time limit, if any, in this regard? 4
(c ) Seven businessmen have agreed to float a new company and suppose you have been
selected by them to work as Company Secretary for their proposed company. Discuss in
this regard, the various duties that you need to be performed as Secretary in connection
with the promotion and incorporation of this new company. 6

4. (a) As envisaged in the Public Issues Rules, 1998, as amended up to date, mention the
various risk factors to be described in the prospectus by an IPO aspiring public limited
company and use of proceeds of the IPO funds. 6
(b) Who are insiders? What are insider information’s? What do you mean by insider
trading? Suggest your company some steps to be taken for preventing trading. 8
(c ) Discuss about the requirements as to Cash Flow Statements annexed to SEC Rules 1987
as amended in 1997. 6
5. (a) What is meant by Assignment and Nomination of Life insurance Policies? Mention the
various rules regarding assignment of life policies. 6
(b) Discuss the power of the Insurance Development and Regulatory Authority (IDRA) to
inspect and ask for information etc. under Section 49 of the Insurance Act, 2010. 6
(c ) Under what grounds loans by insurance companies are prohibited? 3
6. (a) Discuss the various bars imposed by Section 23 of the Bank Companies Act, 1991 on
common director. 5
(b) Discuss the powers of the Bangladesh Bank for giving directions to other Banking
Companies as provided in section 45 of the Bank Companies Act, 1991. 5
(c ) RBA Bank Limited re-valued its properties on 31 December 2010 by a professional
valuation company. Land and buildings of the bank has been re-valued to Tk. 100 million
from Tk. 10 million, historical cost of the land & building. The bank accounted for the
revaluation surplus in ‘Other Reserve Account’. The bank now wanted to issue bonus
share against the other reserve. Board of Directors of the company approved the
financial statements and approved 25% bonus share to be issued for 2010. State the
legal provisions for declaring dividend of a banking company with reference to the
Company Act 1994 and Bank Companies Act 1991. 5

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 nov dec 2011
FINANCIAL ACCOUNTING

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) What are the objectives of Financial Statement in the context of the Framework for the
preparation and presentation of financial statements? What are the components to be
included in a complete set of financial statements as per BAS 1? 6
(b) What is the difference between Accounting Depreciation and Tax Depreciation. 4
(c) What is functional currency? What factors are used to determine a reporting entity’s
functional currency? 4
(d) Describe the four principal qualitative characteristics that determine the usefulness of
information in the financial statement. 4
(e) Explain the two concepts of capital maintenance. What is the principal difference between the
two concepts? 4

2. Mr. Kamal, the proprietor of Kamal Traders. He didn’t appoint qualified accountant in his
company. He keeps the records of his assets and liabilities as on 31.12.2009 as follows:
Tk. Tk.
Kamal’ capital 31,500 Premises 15,600
Creditors 7,210 Plant and Machinery 4,200
Stock 8,760
Debtors 9,820
. Cash 330
38,710 38,710
The following is a summary of his receipts and payments for the year ended on 31.12.2010:

Receipts Tk. Payment Tk.

Cash on account of credit sales 42,760 Creditors 39,540
Cash sales 18630 Wages 7,430
General Expenses 6,270
Capital 2,000 Machinery (1-7-08) 1,600
. . Drawings 5,360
63,390 60,200
On 31.12.2010, the amount due to creditors was Tk.8,710 and the debtors and stock amounted to
Tk.9,200 and Tk.8,540 respectively.
You are required to prepare a comprehensive income statement for the year ended on 31.12.2010
and Balance Sheet as on that date, after making adjustments in respect of the followings: 18
1. Depreciation @10% for plant and machinery.
2. Tk.500 to be provided for bad debts.
3. General expenses include Tk.1,400 paid as life insurance premium.
4. Wages include Tk.150 paid for erection of new machinery.
5. A sum of Tk.350 for goods supplied to the proprietor was included in the debtors balance at
31.12.2010.
6. The amount of Tk.8,170 due to creditors on 31.12.2010 includes admission of an old claim by a
creditor of Tk.600 relating to purchases before 01.01.2010, but the claim was not shown in the
balance sheet as on 31.12.2009.

3. You are the financial controller for Brownhoods Limited a company listed on the Dhaka Stock
Exchange. The Chairman has asked you to explain a number of matters relating to the substance
of transactions and the reporting of lease transactions in financial statement. He has approached
you as you have recently attended a number of training courses on BFRS and are in the process of
preparing the draft financial statements for the year ended 31 May 2011 in accordance with BFRS.

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Brownhoods Ltd. recently entered in to a lease contract for a new piece of machinery. The new
machine could have been purchased for a cash price of Tk.150,000. The terms of the lease are:
(i) The lease is for four years.
(ii) An initial deposit of Tk.30,000 was payable on 1 June 2010 followed by eight half-yearly
payments thereafter of Tk.20,000 payable on the 1 December and 1 June each year,
commencing on 1 December 2010.
The estimated useful life of the equipment is four years. Brownhoods Limited uses the sum of the
digits method to allocate finance charges on finance leases.
Brownhoods Limited’s factory premise is held on a 25 year lease. The period of the lease is
expected to be similar to the life of the factory building and at the end of the 25 years the land
reverts back to the lessor.
Requirements
Prepare financial statement extracts and supporting disclosure notes that show how the
machinery lease transaction should be presented in the financial statements of Brownhoods
Limited for the year ended 31 May 2011. 10

4. Mallik Enterprise Ltd. Wholesales and distributes toys and models and provides distribution
services to other organizations. The following balances have been extracting from its books of
account of at 31 December 2010.
Tk.’000
Ordinary shares 800
5% redeemable preference shares 200
Share premium account 350
Revaluation reserve 400
Retained earnings at January 2010 2000
Revenue 11899
Purchases 8935
Inventories at January 2010 974
Staff costs – distribution 270
Staff costs – administration 352
Depreciation charge for the year
Freehold land and buildings 30
Distribution equipment 116
Other plant and equipment 160
General expenses 432
Interest receivable 41
Interest payable 35
Taxation – charge for the year 336
Paid dividends
Ordinary shares – final regarding 2009 60
Ordinary shares – interim regarding 2010 30
5% redeemable preference shares – for 2010 10
Patent rights 200
Freehold land and buildings 1500
Distribution equipment – cost 800
Other plant and equipment – cost 1400
Accumulated depreciation at 31 December 210
Freehold land and buildings 30
Distribution equipment – cost 320
Other plant and equipment – costs 250
Trade receivables 1600
Trade payables 850
Cash and cash equivalents 300
Tax liability 400

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Additional information
(i) Included in revenue are invoices totaling Tk.120,000 in relation to distributions services
rendered under a contract to a customer who is very unhappy with the quality of the
services provided. The overall outcome of the contract is uncertain and management
believes that of the Tk.90,000 costs incurred to date under the contract, probably only
Tk.65,000 will be reimbursed by this customer.
(ii) The patent was acquired during the year. Amortization of Tk.20,000 should be charged to
administrative expenses.
(iii) Inventories at 31 December 2010 were valued at Tk.1,304,000.
(iv) Costs not specifically attributable to one of the income statement expenses headings should
be split 50:50 between distribution costs and administrative expenses.
(v) The freehold land and buildings were revalued on 1 January 2010 and the surplus of
Tk.400,000 over its previous carrying amount of Tk.1,100,000 (cost Tk.1200,000 and
accumulated depreciation Tk.100,000) has been recognized in the revaluation reserve. The
depreciation charge for the year increased by Tk.8,000 as a result of the revaluation.
(vi) General expenses include a material bad debt write off of Tk.100,000.
(vii) A final ordinary share dividend for 2010 of Tk.50,000 was proposed in May 2011 payable on
28 June 2011.
(viii) Tk.450,000 cash was received during the year as a result of a right issue of ordinary shares.
The nominal value of the shares issued was Tk.100,000.
(ix) On 1 June 2010 the company made the decision to sell its loss-making soft toy division as a
result of servere competition in the market. The company is confident that the closure will
be completed by 30 April 2011. The division’s operations represent in 2010 10% of revenue
(after all adjustments). 15% of cost of sales, 10% of distribution costs and 20% of
administrative expenses. No balance sheet disclosures are necessary.

Requirements
Prepare Mallik Enterprises Ltd’s income statement and statement of changes in equity for the year
to 31 December 2010, a balance sheet at that date and movements schedules and noted in
accordance with the requirements of BFRS, to the extent the information is available. 25

5. (a) Identify the required accounting treatment for different levels of investment in undertakings
for consolidated accounts purposes. Explaining why these are appropriate. 5
(b) The following are the summarized Balance Sheets of A Ltd. and B Ltd. as on 31 December,
2009:
Figure in Taka Figure in Taka
Liabilities A Ltd. B Ltd. Properties A Ltd. B Ltd.
Authorised, issued & paid
up capital:
Equity share of Tk.100 each 800,000 400,000 Fixed assets 1,015,000 809,000
12% preference shares of - 200,000 Equity shares in B Ltd. 450,000 -
Tk.10 each
General reserve 360,000 200,000 12% pref. shares in B 180,000 -
Ltd.
P/L A/c Balance 240,000 140,000 10% debentures in B 25,000 -
Ltd.
10% debentures of Tk.100 - 50,000 Current assets 260,000 480,000
each
Proposed Dividends:
On equity shares 120,000 60,000
On preference shares - 24,000
Debenture interest accrued - 5,000
Trade creditors 410,000 210,000
1,930,000 1,289,000 1,930,000 1,289,000

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Other information
(i) A Ltd. acquired its interest in B Ltd. on 1st January 2010 when the balance in the General Reserve
Account of B Ltd. was Tk.180,000.
(ii) The balance of the Profit & Loss Account of B Ltd. as on 31st December 2010 was arrived at as
under:
Balance on 1.1.10 Tk.40,000
Current profit (including dividends) 204,000
244,000

Less: Transfer to General Reserve 20,000

Proposed dividend 84,000
104,000
Balance as on 31.12.10 140,000

(iii) Balance in the Profit & Loss A/c of B Ltd. as on 1.1.10 was after providing for dividends on
preference shares and 10% dividends on equity shares for the ended 31st December 2009. These
dividends were paid in cash by B Ltd. in May 2010.
(iv) No entries have been made in the books of A Ltd. for debenture interest due or for proposed
dividends of B Ltd. for the year ended 31.12.10.
(v) Mutual indebtedness of Tk.24,000 is reflected in the balances shown in the Balance Sheets.
(vi) On 1 October, 2010 B Ltd. issue fully paid up bonus shares in the ratio of one share for every
four shares held by utilizing it’s General Reserve. This was not recorded in the books of both the
companies.
From the above information, you are required to prepare the Consolidated Balance Sheet of A Ltd.
and is Subsidiary B Ltd. as on 31 December 2010. 20

– The End –
 nov dec 2011
TAXATION-II
Time allowed-2½ hours
Total Marks-100
[N.B.- Figures in the margin indicate full marks. Question must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence] Marks

1. Write short notes on the following in relation to I.T.O 1984: 10

(a) Assessment on the basis of report of a Chartered Accountant: u/s 83 AAA
(b) Carry forward of loss under the head “Capital Gains”: u/s 40.
(c) Revisional power of the commissioner of Taxes: u/s 121A.
(d) Interest payable by the government on delayed refund: u/s 151.
(e) Rent free accommodation Rule:338
2. Discuss in details regarding the insertion of new section 82C in place of existing section
82C termed as final discharge of tax liability by the Finance Act 2011. 10
3. RFL Co. Ltd. owns and maintains 10 tea estates in Chittagong. It sells the tea after processing in its
manufacturing plans within the estates. For the financial year ending December 31, 2010 it has
produced the following information: 25
Taka
Opening stock of tea (Valued at the net sales prices) 80,00,000
Closing stock of tea (Valued at the net sales prices) 90,00,000
Sales (30% domestic,70% export) 12,40,00,000
Sales of bamboos and other bushes 20,00,000
Sales of old shade and other trees 90,00,000
Common expenditure apportioned between agriculture and business on the basis of workers
employed are:
Agriculture Business
Taka Taka
Manufacturing expenses 7,50,00,000 1,60,00,000
Administrative expenses 50,00,000 80,00,000
Besides, selling expenses of Tk.18,60,000 have been incurred during the year. Depreciation on
plant and machinery, furniture, factory and office buildings including banglows have been
included in above manufacturing expenses of Tk.80,00,000 and Tk.20,00,000 relate to agriculture
and business respectively. The company spent Tk.30,00,000 during the year to bring new areas
under its cultivation while nothing has been spent on replacement of bushes. It is company policy
to capitalize those expenditure. There are no other inadmissible expenses. Tax WDV of fixed
assets are as follows:
Agriculture Business
Taka Taka
Banglows and other structure 2,30,00,000 1,50,00,000
Plant and machinery 3,50,00,000 6,90,00,000
Furniture, Equipment etc. 30,00,000 60,00,000
Vehicles and Tanks 1,05,00,000 60,00,000
Tubewell 23,00,000 -----
Pacca Irrigation works 8,00,000 ----
Pucca pumping machine 30,00,000 -----

Calculate the taxable income of RFL Co. Ltd. for the relevant assessment year assuming that it has
no brought forward agriculture or business losses but has unabsorbed depreciation of
Tk.2,44,00,000 under the head agriculture.

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4. Mr. X an employee of a limited company, received the following salaries and allowances
during the income year ended 30 June, 2009. 10

Taka
1. Basic Salary 4,20,000
2. House Rent allowances 2,00,000
3. Festival Bonus equal to two months basic salary 70,000
4. Leave encashment Salary 35,000
5. Conveyance allowance 24,000
6. Contribution to Recognized Provident fund @ 8% 33,600
7. Servant Wages 24,000
8. Children education allowance 60,000
9. Leave fare assistance 50,000
10. Banglow utilities 25,000
Compute excess perquisite u/s 30 (e) for the assessment year 2009-2010.
5. (a) A refund of tax becomes due to an assessee on reduction of total income in appeal filed by
him, but the Deputy Commissioner of Taxes does not take any action to make the refund.
What are the remedies open to the assessee? 4
(b) Discuss on modes of recovery by the Tax recovery Officer. 6
(c) A Private Limited Company is wound up but tax assessed on the company remains unpaid.
Discuss the personal liabilities of the Directors of the Company in respect of the unpaid tax of
the company. 5
6. State the provision of law for tax clearance certificate required for persons leaving Bangladesh. 5
7. What penalties can be imposed for: 6
(a) Failure to the file return u/s 75:
(b) Failure to pay Taxes u/s 74:
(c) For furnishing inaccurate particulars of income
8. (a) Define Input Tax. What are the conditions to be met for claiming input tax? 6
(b) Discuss the Special Treatment of Specified “Input tax” and the penalty for false declaration
for Input Tax. 5
9. Bata Shoe Co. Ltd. incurred the following transactions in September 2010: 8
Raw materials aggregating to Tk.5,00,000 were purchased on September 5, 2010, VAT on the
same paid and the VAT chalan along with the goods were received on September 10, 2010.
Shoes delivered to customers in the month at approved price as follows:
September 08, 2010 Tk.3,00,000
September 09, 2010 Tk. 2,00,000
September 10, 2010 Tk.5,00,000
September 15, 2010 Tk.6,00,000
The following deposits were made to the Govt. Exchequer through treasury chalan:
September 07,2010 Tk. 20,000
September 12,2010 Tk.30,000
September 15,2010 Tk.70,000
Balance of deposit at September 01,2010 in VAT- 18 was Tk.50,000.
You are required to:
Enter the above transactions in VAT – 18 of the company;

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 nov dec 2011
AUDIT & ASSURANCE

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) What do you understand by professional and ethical issues that may arise during an assurance
engagement? 4
(b) Explain the purpose of laws, standards and other requirements relating to assurance work. 4
(c) Jot down four benefits those could be achieved through financial statements being audited. 4
(d) Briefly write on The International Auditing and Assurance Standards Board (IAASB) and The
International Federation of Accountants (IFAC). 4
(e) What is money laundering? What is your responsibilities and duty to report, as auditor when
you suspect or find any issue of money laundering? 4

2. (a) Farzana Huq is employed as an audit manager in a firm of chartered accountants. As part of
the planning of the external audit of Rahman Foods Ltd., for the year ending 30 June 2011,
Farzana met with the Finance Director. At the end of the meeting, the Finance Director
informed Farzana that he is retiring in October 2011 and the directors of Rahman Foods Ltd.
would like to offer her the post of Finance Director. Farzana is very much interested and has
agreed to meet the board of directors to discuss the offer in more detail.
State, with reasons, how Farzana and her firm should respond to this offer, including any
actions to be taken by the firm if Farzana accepts the offer. 10
(b) During the statutory audit of Dhaka Metal Ltd., an official of the company informed the audit
manager that the managing director of Dhaka Metal had instructed the official not to record a
transaction in the accounting records as it had nothing to do with Dhaka Metal’s business. The
transaction involved a cash deposit which was paid into the company’s bank account and a
week later the same amount was directly transferred, into a bank account in the name of
Salman Chowdhury, a friend of the managing director. The amount is not material in the
context of any of the key figures in the financial statements.
State, with reasons, how the audit manager should deal with this matter. 10

3. ABC & Co., a firm of Chartered Accountants has been approached by the directors of Amari
Coppers Ltd. to quote for the statutory audit of Amari Coppers Ltd. for the year ending 31
December 2011. Amari Coppers Ltd. is required to have an statutory audit under the Companies
Act 1994 but Amari Coppers Ltd’s previous statutory auditor is not seeking reappointment.
Amari Coppers Ltd. is a successful company selling cleaning equipment to hospitals all over
Bangladesh. An increased focus on cleanliness in hospitals has led to Amari Coppers Ltd’s
Bangladesh sales rising significantly.
Amari Coppers Ltd. was incorporated three years ago by Masum Khan, the managing director and
Nasir Ahmed, the finance director. Masum and Nasir previously worked for a competitor company
as sales managers and finance manager respectively. Masum and Nasir invested their own money in
Amari Coppers Ltd. and all of the ordinary shares in the company are held equally between them.
The following is a transcript of a telephone call made by Masum to ABC & Co. on 1 November 2011:
“We are inviting a large number of firms to quote as we want enough competition among the firms to
keep the statutory audit fee low. I don’t really see that there is any value in Amari Coppers Ltd. having an
statutory audit – Nasir and I are the only shareholders and we know the business very well.”
“Whoever wins the statutory audit contract will have to keep work to a minimum; we are too busy running
the business to answer lots of questions. I have been told that testing internal controls is an efficient way to
conduct an audit so we would want the successful firm to agree to this audit methodology.”
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“Our expansion means we need some business advice on our strategy and we would be very keen
that the statutory auditors help with this and assist us in obtaining some finance for further
expansion. We really need the auditor to be part of the team here at Amari Coppers Ltd. The
nature of this work would be much more valuable to us and we therefore expect to pay a higher
fee in respect of this assignment.”
“We also need some help with implementing a new accounting information technology system that
can handle the growth in our business. The current system was bought when we set up Amari Coppers
Ltd. and it is no longer sophisticated enough for our business at present. We would like the successful
firm to advise us as to whether we should purchase an `off-the-shelf accounting package’ or whether
we should have a system designed for us. We would also seek the firm’s services to implement the
new system, including advice on design of a System if this proves necessary.”
“We think that the business advisory and information technology services that we wish to
purchase will mean that it is worthwhile quoting a lower fee for the statutory audit work.”
Requirements
(a) Outline the case for and against an owner managed business such as Amari Coppers Ltd.,
being required to undergo an statutory audit. 6
(b) Explain any threats to objectivity and independence, and outline any appropriate safeguards,
that ABC & Co. should consider with respect to: 10
(i) appointment as statutory auditors of Amari Coppers Ltd.;
(ii) provision of the business advisory services on strategy and financing; and
(iii) provision of advice on the new accounting information technology system.
(c) Identify additional factors that ABC & Co. should take into consideration before deciding to
quote for the statutory audit of Amari Coppers Ltd. Your answer should include any
preliminary audit risks identified from the information provided. 7

4. The directors of Clean & Clear Ltd. (Clean & Clear) are planning to reorganize the business as a
result of recent significant growth in revenue. The reorganization will involve relocation of the
business premises, the acquisition of additional delivery vehicles and an upgrade of the IT
infrastructure for which quotes have been obtained from suppliers. The directors are negotiating
with the company’s bank to fund the reorganization with a loan and have prepared cash flow
forecasts for the three years ending 31 March 2014 in support of the request for funding. The
company’s bank requires the cash flow forecasts to be examined and reported on by independent
accountants and the board of directors has requested that your firm undertakes this work.
The company’s principal activity is the sale and distribution of cleaning materials to customers in
the retail, industrial and service sectors. All sales are on a credit basis and Clean & Clear’s terms of
trading require payment within 30 days of invoice date. However, some of the company’s smaller
customers tend to take longer than this to pay. Clean & Clear offers an early payment discount but
only a few customers take advantage of this facility.
The goods are purchased from a number of suppliers based in Bangladesh and overseas. Two of the
company’s main suppliers operate a rebate scheme under which Clean & Clear receives a rebate,
which is paid quarterly in arrears, when it purchases a specified volume of products. The significant
growth experienced in the current year is due to Clean & Clear being awarded two three-year
contracts to supply two government bodies with all their cleaning materials. This has resulted in
Clean & Clear having to expand its range of products and increase the level of inventory held at any
point in time. As a result, the company has outgrown its own warehouse facilities and is temporarily
renting additional premises in Tejgaon to supplement its existing facilities. Clean & Clear is required
to give three months’ notice of its intention to vacate the temporary premises. The directors plan to
sell the warehouse, which the company owns, and move all of Clean & Clear’s operations to a larger
purpose-built warehousing facility. This is a leasehold property and rent is payable quarterly in
advance. The directors will use the proceeds of the sale of the existing warehouse to pay off the
outstanding loan on that warehouse and reduce the company’s overdraft.

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Requirements
(a) (i) Describe the matters to be included in your firm’s engagement letter for the examination of
the cash flow forecasts in respect of 6
9 management's responsibilities;
9 the purpose and scope of your firm’s work;
9 limiting your firm’s liability; and
(ii) Explain why these matters should be included. 5
(b) From the information provided in the scenario, identify the key receipts and payments that you
would expect to be included in the cash flow forecasts prepared by the directors of Clean &
Clear. For each receipt and payment, identify the specific matters you would consider when
reviewing the reasonableness of the assumptions underlying that receipt or payment. 12

5. (a) Your firm has just been appointed auditors of X Ltd. after the previous auditors were removed
following a dispute with the Directors. This dispute related to certain cost capitalized by the
directors, which the auditors believed should have been written off (the audit report was
qualified).
State the procedure, you would carry out regarding the opening balances. 7

(b) While planning the audit of Reach Ltd. for the year ending 31st December, 2010 the Finance
Director informed you that the company had introduced an incentive scheme under which the
Directors are entitled to a bonus on achieving a certain level of profit. The bonus will be paid 30
days after audited accounts are available.

Identify the audit risks in respect of the above matter, and state how you would address these
risks. 7

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 may june 2012

IT APPLICATION

Time allowed – 2½ hours

Total Marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]

Marks

1. (a) What are the technology risks of e-commerce? 5

(b) Describe system functionality and information requirement for a typical e-commerce system. 5

2. Describe the three components of feasibility of a proposed solution. 10

3. Define the testing phase of a new accounting information system development process? Define
the four types of activities related to testing (unit, system, integration and acceptance). 10

4. What do you mean by system conversion? Explain at least four system conversion strategies used
in AIS. 10

5. Explain the importance of Planning for a development project. 10

6. Describe the Post Implementation Review goals. 10

7. (a) What do you understand by project management in accounting information system? 5

(b) Explain system justification and selection in initial system design. 5

8. What are the controls applied to personnel systems to ensure processing integrity, security and
safeguarding of IT resources? 10

9. What do you mean by security control? Describe different types of security control of information
systems. 10

10. “An IS security policy is divided into five sections”. What are the sections? Explain briefly. 10

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 may june 2012

TAXATION- II

Time allowed – 2½ hours

Total Marks – 100

[N.B- The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts,
if any, of the same question must be answered in one place in order of sequence.]
Marks
1. What are the factors to be considered by a professional Accountant while initiating a formal
conflict resolution process? 10

2. Write short notes on the following: 10

a) Capital Assets.
b) Fair Market Value
c) Fees for Technical Service
d) Agricultural Income
e) Perquisites

3. What are the income that are excluded as per the 6th schedule, part A of ITO 1984 in computing
total income of the following assessees: 6
a) NGO registered under NGO Bureau
b) Trust
c) Religious or Charitable institution

4. Discuss the provisions of section 93 of ITO 1984 for assessment in case of income escaping
assessment. 9

5. Mr. Aminullah is a service holder. Following are the particulars of his income, investment and
expenditure for the year 2010-11. Compute his taxable income and tax payable under the
following situations: 20
i) The provident fund is recognized
ii) The provident fund is unrecognized
The information available are as follows:
a) Basic salary Tk.9,000 per month
b) Dearness Allowance @ 20% on Basic salary
c) Bonus- two Bonuses @ one month Basic salary
d) Rent Free Accommodation (Annual value Tk.30,000)
e) Conveyance Allowance Tk. 1,200 per month
f) Medical Allowance Tk.300 per month (Actual expenses Tk. 2,500)
He contributes 10% of his basic pay to the provident fund. Interest on provident fund balance for
the year is Tk.2,500 @ 15% interest. He paid life insurance premium Tk. 5,000 for the year and
purchased share of a company for Tk.4,000.

6. XYZ Bank Ltd. has shown a net profit before tax amounting to Tk.390 million for the year ended
December 31,2010. You are required to compute the tax liability of the bank for the assessment
year 2011-2012 considering the following facts: 20
i) Accounting depreciation charged in the accounts was Tk.14 million whereas tax depreciation
has been calculated as Tk.25 million.
ii) Inadmissible expenses have been found to be as follows:
Particulars Tk. In Million
Perquisites 4.00
Subscriptions and Donations 0.25
Printing, Advertisement etc. 1.00
Sundry Expenses 0.45
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iii) Extracted from the Balance Sheet

Particulars Tk. In Million
Paid up capital 408
Statutory Reserve 130
Retained profit-Opening 42
Retained profit- Closing 148
Exchange Equalization fund 1
v) Classification of loans and Advances including Bills discounted and purchased.
Particulars Tk. In Million
Unclassified 8,065
Sub-Standard 25
Doubtful 15
Bad 5
v) Unclassified Loans and Advances include staff loan of Tk.45 million. Other expenses include
entertainment expenses of Tk.4 million.
vi) Provision for bad and doubtful debts shown in the profit and loss account includes.
Particulars Tk. In Million
Specific Provision 1
General Provision 10
vii) Other income includes dividend of Tk. 5 million received from a publicly listed company.

7. The following particulars of income of Mr. Ali Ahmed are available for the assessment year 2011-2012. 5
Income from House Property 100,000
Business Income (after allowing for current
Year’s depreciation of the Tk.20,000) 70,000
The following sums have been brought forward from the preceding year
Unabsorbed Depreciation 80,000
Business loss 50,000
Deputy Commissioner of Taxes is proposing to assess him on a total income of Tk.100,000 by
setting off only of the business loss of Tk.50,000 and part of the unabsorbed depreciation of
Tk.20,000 against the business income of Tk.70,000. Is he right in his action?

8. Discuss the salient features of changes in VAT Act.1991 brought by Finance Act.2011 10

9. How are the value of goods and services determined for imposition of VAT? 5

10. ABC Industries Ltd. a vehicle assembly plant has imported CKD parts and components for trucks
amounting to TK.2,500,000 in the month of July 2010. ABC Industries Ltd. has assembled and
manufactured 4 trucks from the above imported parts and components and then sold those 4
trucks to their dealer M/s Khaleque and Co. @Tk.1,000,000 each. M/S Khaleque and Co. then sold
3 (three) trucks to M/s Zakaria Transport and Co. @ Tk. 1,100,000 each.
Calculate VAT @ 15% payable at import stage and each stage of sale. 5

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 may june 2012
AUDIT & ASSURANCE
Time allowed – 2½ hours
Total Marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) What are the elements of an assurance engagement and what benefits can be derived from
an assurance service?
(b) How do you differentiate Audit and Assurance Engagement?
(c) Generally a firm is engaged for an audit but may also be engaged by management to provide
additional non-statutory and non-assurance services. Write down at least four non-assurance
jobs, outside audit and assurance, generally performed by our firms in Bangladesh.
(d) What are the responsibilities of an auditor regarding fraud under BSA 240? 4x4=16

2. (a) During the external audit of Purbachal Ltd. you discovered that the directors have accounted
for research & development costs inappropriately resulting in a material misstatement in
Purbachal’s financial statements.
Your firm plans to issue a modified audit opinion if the misstatement is not corrected as per your
firm’s request. During a conversation with your firm’s audit partner, Purbachal’s Managing
Director, Reaz Ahmed, indicated that it is the directors’ intention to seek the removal of your firm
as external auditors if your firm issues a modified audit opinion in respect of this matter.
What appropriate actions your firm should consider under the above circumstances? 10
(b) Mr. Ibrahim, the managing director of your client Bashundhara Ltd., a real estate development
company, has written to you saying that during the last 5 years there has been a sharp growth in
the company’s operating activities. He has been considering setting up of an internal audit
department to overview the operational activities with greater focus on internal control. But he
heard from his brother, who is also a director of the company, that the company would be better
off abandoning this idea and getting the external auditor to do some assurance work instead.
Advise Mr. Ibrahim explaining the objectives, characteristics and responsibilities of internal
audit, external audit and assurance. 15

3. Described below are three situations which have arisen in three audits. The year end in each case
is 31st March 2011:
i) Asha Ltd. uses leased motor vehicles which have been accounted for as operating leases. However,
you believe that these leases are finance leases and should have been capitalized at Tk.5,100,000.
The current treatment does not comply with accounting standards which required finance leases,
where the user takes on the risks and rewards of ownership, to be included as non-current assets
and capitalized. Profit for the year would then have been reduced by Tk.400,000.
The pre-tax profits of Asha Ltd. for the year ended 31st March 2011 were Tk.60,000,000 and
total assets at 31st March 2011 were Tk.540,000,000.
ii) A fire in the warehouse of Alo Ltd. in April 2011 destroyed the inventory sheets, which were
the only records of the company’s inventory at the year end. The company has included an
estimated inventory figure of Tk.780,000.
The pre-tax profits of Alo Ltd. for the year ended 31st March 2011 were Tk.1.1 million and
total assets at 31st March 2011 were Tk.6.5 million.
iii) Diya Ltd. has included a note in the financial statements explaining that 90% of its revenue is
derived from a national retailer with whom it has a three-year renewable contract. This
contract is due for renewal in September 2011. However, the directors require the audit
report on the financial statements to be signed on 31st May 2011.

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Requirements:
(a) Discuss briefly each of the situations outlined above, referring to materiality considerations.
For each situation describe the effect on the audit report. 12
(b) Describe what is meant by the concept of materiality and true and fair view. 5

4. Your firm has recently been appointed external auditor of Eastern Waste Management Ltd.
(Eastern) for the year ended 31 December 2011. The previous auditors, from whom your firm has
obtained professional clearance, were not re-appointed because the Managing Director of
Eastern, Arif Chowdhury, who is also the majority shareholder of the company, believes that your
firm has the appropriate expertise to assist with his plan to expand the business.
The expansion plan involves the acquisition of small companies in the same industry sector and
Arif Chowdhury would like your firm to undertake Due Diligence investigations over the next five
years on the target companies. The Due Diligence work will include, among other procedures, a
review of the financial statements of the target companies. Your firm has a number of other
clients operating in the same industry sector. Eastern’s principal activity is the provision of waste
management services which include the collection, transfer, recycling and disposal of waste
materials. The company’s activities are overseen by a regulatory body which issues licenses to
companies operating waste management services. The regulatory body has the power to modify,
suspend or revoke the licenses which are granted for periods up to ten years. The licenses set out
the operational criteria and the working practices to be adopted to meet those criteria. Eastern’s
customers include industrial and retail companies and government bodies. The majority of work is
undertaken under renewable contracts covering periods up to ten years. Payment terms vary from
contract to contract, with some customers paying for services in advance whilst others pay after
Eastern has provided the services. Eastern’s largest contract expires in July 2012. This contract
currently represents 35% of Eastern’s revenue. Eastern, along with other companies, has been
invited to tender for the new contract. Eastern is entitled to claim a subsidy from the government
based on the volume of waste recycled. The company is required to submit quarterly returns
detailing the volume of waste recycled and the subsidy is paid 30 days following the end of the
period covered by the return. Eastern’s procedures and records are subject to periodic inspections
by a government auditor to ensure that the claims for the subsidy are valid.
The company has experienced rapid growth due to an increase in demand for its services. During
the year ended 31 December 2011, the company commissioned a number of capital projects
including state-of-art sorting lines at all of its recycling centres and digestion plant. The digestion
plant is to be used in Eastern’s new venture which will involve the conversion of waste material
into biofuel. The sorting lines were assembled from specialist components sourced from an
overseas supplier using a combination of own and sub-contract labour. Those were completed in
December 2010 and came into operation in February 2011. The digestion plant, which is sited on
land purchased from a land development company, Ashulia Lands Ltd. owned by Arif Chowdhury
and his wife, was still in the course of construction. The digestion plant is being built by a
construction company under a fixed-price contract which requires stage payments based on the
value of work certified by a surveyor. The capital projects are funded by a loan repayable in
quarterly installments over ten years. In addition to the loan, the company has negotiated an
increase in its overdraft facility in order to meet its working capital requirements which have
increased due to the expansion of the business.
The accounting function is centralized at head office. However, the processing of payroll is
outsourced to an HR Consulting firm, ZN Consultants, which provides Eastern with monthly payroll
information. Eastern uses this information to pay the wages and salaries directly into its
employees’ bank accounts and the relevant payroll taxes to NBR.
Requirements:
(a) Explain the self-interest and self-review threats arising from the provision of due diligence
services to Eastern and describe how your firm should deal with them. 6
(b) Identify, from the information provided in the scenario, the principal areas of audit risk in respect
of the financial statements of Eastern for the year ended 31 December 2012. For each risk:
(i) List the factors which have led you to identify that risk; and
(ii) Outline the procedures that should be included in the audit plan in order to address the risk. 16

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5. (a) You have recently come across the following professional issues:
i) During the audit of a listed company on which you were involved, you overheard the
finance director on the telephone to a family friend requesting him to buy shares on his
behalf, prior to an announcement about a new product which you know is likely to
increase the share price significantly. The finance director is a chartered accountant.
ii) One of the audit clients you recently worked on was impressed with your courtesy
towards his staff members that he wanted to make you a gift of tickets to the World Cup
football final, along with an overnight stay in a hotel and dinner.
Requirement:
Set out the problems in each of the above situations and the action that you should take. 10

(b) While planning the audit of Raven Ltd. for the year ending 31st March 2012 the finance
director informed you that the company had introduced an incentive scheme under which the
directors are entitled to a bonus on achieving a certain level of profit. The bonus will be paid
30 days after the audited accounts are available.
Identify the audit risks in respect of the above matter, and state how you would address these
risks. 10

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 may june 2012

BUSINESS STRATEGY

Time allowed – 2½ hours

Total Marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take in to account of the quality of language and of the way in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence]

Marks
1. As a consultant specializing in risk management, you have been appointed by the Director of
Corporate Development to undertake a comprehensive review of the risk, facing the Bangladesh
based Sky Ways Airlines (SWA), as a precursor to the latest strategic planning process.
You are told that the extended supply chain of SWA makes it reliant on suppliers of fuel, aircraft parts,
air traffic control etc. SWA has increased its borrowings this year and its liquidity ratio has fallen below
one and it has negligible retained earnings. It has also experienced increased dissatisfaction from
employees as a result of voluntary redundancies arising from moving to a new more efficient terminal
and, apparently, the loss of control over them by the decline in influence of the Trade Unions.
The Engineering Director has advised that the International Civil Aviation Organization has shown
a preference for the International Risk Standard developed by the Institute of Risk Management.
Requirement:
Prepare a report, identifying the range of externally driven risks to which SWA is subject to and
any internally driven risks. Suggest appropriate improvement to control the risks you identify. 20

2. Y Ltd manufactures car seats for children. Y’s home country, Z land, has extensive legislation on
car safety for many years and child seats are compulsory. The company was formed 10 years ago
by an entrepreneur who had previously worked as a technical consultant for an industrial foam
company. Despite strong competition, Y Ltd has succeeded largely by careful marketing.
The car seats come in a range of sizes and there are a variety of options from fully integrated seats for
very young babies to booster seats for older children. The company’s main customer is an accessory
manufacturer with a major presence in Y Ltd’s home market. It buys the car seats from Y Ltd and sells
them under its own brand as ‘safety approved’. It advertises the car seats in accessory brochures and
on its website. The company’s second major customer is a large superstore in the home country which
specializes in children’s clothing and accessories such as prams and pushchairs. The remaining sales are
to a varied mix of large and small mainly independent car accessory retailers.
The car seats have historically all been produced on a single site in the north of the home country.
The Managing Director uses his connections to source the padding from several suppliers with a
commitment to achieving the lowest price but complying with all safety standards.
The company is considering possible methods of expansion and is currently considering exports to
neighboring countries.

Requirements:
(a) Explain how condition in Z land could give Y Ltd a competitive advantage when it starts its
export operations. 10
(b) The Managing Director of Y Ltd is constantly trying to improve the productivity and quality of
his manufacturing operations and is considering a program of benchmarking. Explain why a
benchmarking program would help Y Ltd and suggest how it might be carried out. 10

3. (i) Describe how each of the following information system can perform, and the level they serve
in the organizational activity:
a) Transaction Processing Systems (TPS)
b) Office Automation System (OAS)

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c) Knowledge Work Systems (KWS)

d) Management Information Systems (MIS)
e) Decision Support Systems (DSS) 15

(ii) The airline industry as a whole is loss making. Even successful airlines struggle to get an
operating margin above 10%.
Using the following models identify contributory factors to the low rates of profit in airlines.
(i) Industry life cycle 3
(ii) Porter’s Five Forces. 7
Indentify potential strategies to restore profitability in the light of your analysis. 5

4. Company history
Foodfair was established thirty years ago by three friends, Alam, Dulal and Fahim who remain the
company’s only shareholders. The firm is in the catering business and currently has an output of
about 26,000 meals per week. Fahim retired from full- time employment with the company five
years ago and was appointed Chairman. He was regarded as the most talented manager and
astute businessman amongst the founders. Alam and Dulal are still full time working directors but
will probably retire within the next year or so.
Products and markets
The company produces ready- to- eat meals for factories, schools, airlines and social events. Sales
are of two main types-to other catering organizations which have sub-contracted to Foodfair
(these customers are referred to by Foodfair as ‘bulkbuyers’) and to ‘final consumers;
A breakdown of revenue and gross profit (GP) are as follows:
Bulk buyer Final consumers
% of revenue GP% % of revenue GP%
2011 (current year) 50 8 50 15
2010 55 10 45 14
2009 45 11 55 13
2008 40 12 60 13
2007 35 12 65 12

The products which Foodfair sells to the two types of customer are different. Meals sold to other
caterers tend to be bulk sales allowing long production runs of one menu.
The catering customers of bulk sales specify very closely the portion sizes, contents, nutritional
value and cost of the meals; the menus are often standardized. Meals being produced for final
consumers, however, have much more variety and are less standardized. Final consumers take
Foodfair’s advice, and the company employs chef and a nutrition expert to design and oversee the
production of these meals.

Foodfair has long-established links with many food suppliers who are adept at supplying
ingredients of the proper quality. A considerable range of quality is used, depending on how the
food is to be cooked and on the cost limits imposed by buyers. Bulk buyers are particularly precise
when stipulating meal contents. Recently a batch of meals was rejected because the carrots had
been chopped into circles rather than into little sticks. The final consumers are not fussy.

Until recently Foodfair followed pricing policy of full cost plus about 14% on all its contracts.
However, the bulk buyers have become very well informed about the raw material and processing
costs, and are thus able to make a good assessment of Foodfair’s costs. Contracts have become
very competitive. The most recent bulk contract attracted eight bids; the buyer took the three
best bids and divided the order amongst them at the price given by lowest quotation.

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Production
Liton (the General Manager) and Waliullah (the Executive Engineer) saw increased efficiency as
the key to the firm’s survival, and the firm recently spent Tk.500,000 on efficiency improvements
(work study, machine modification, new machines and incentive schemes). Some of these changes
were in anticipation of stringent EU hygiene legislation. Waliullah subsequently left, taking with
him enormous practical expertise. Liton estimates that maximum meal production at the present
factory is 30,000 per week. Recently, it produced 28,000 meals. Pre- occupation with the
machinery and efficiency improvements has meant that Liton has shelved plans to look for a large
building which would have given scope for even greater production.
Management and personnel
Since Waliullah’s departure the only managers left below board level with any significant experience
are Liton and the sales manager. Liton sees his major role as that of coordinator. Training is not given
a high priority and no managers have been given anything beyond technical subjects. Turnover
amongst staff is low and there is a friendly atmosphere; wages are regarded as fairly good. However,
Liton is himself thinking of leaving as he can see no prospect of improving his position at Foodfair
unless he were to obtain a seat on the board. Recently a friend of him set up a catering business and
has had a very profitable first year. Liton provided Tk.5,000 of the start-up capital.
Foodfair’s recent performance
Despite the problems noted above, recent sales have been strong. The company has a good
reputation and a lot of business comes through recommendations from satisfied customers.
Foodfair does not advertise exclusive, although recently it did send out a mailshot to local
businesses offering catering facilities for meetings, presentations and general entertainment
functions, there was a negligible response that could be traced to this.
The future
Minutes and reports of recent meetings have raised the following points:
(1) Amongst several large contracts coming up for tender is one for a local large engineering
works (1,200 employees). Despite its size this would not be regarded as a bulk buy contract.
(2) Changes in the food manufacturing business mean that there is an increasing trend among
end users to sub-contract the running of their canteens to caterers which act as catering
facility managers.
Fewer companies are willing to employ their own catering staff. The country has imposed new
hygiene laws and businesses are wary of having themselves to administer and run canteens.
(3) One major catering company is currently building its own food production facility.
(4) Decisions on the firm’s future are likely to be made solely by Alam and Dulal, with little
attention being paid to the views of senior managers. Dulal has recently overruled Liton on a
number of production decisions and this caused a loss of efficiency and the scrapping of a
significant number of meals. In addition, a sales representative was appointed by Alam
without reference to the sales manager.
Requirements:
(a) For each of the five years for which information is supplied, calculate the company’s overall
weighted average gross profit percentages. Comment on these figures and on the figures
supplied to you. 10
(b) Write a memorandum to the Chairman which covers the following areas:
(i) An analysis of competitive pressure within the two customer group.
(ii) Appropriate generic strategies.
(iii) The implications of chosen strategies for organizational structure.
(iv) Options for production capacity.
Your memorandum should make recommendations for what you consider to be key issues facing. 20

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 may june 2012
CORPORATE LAWS & PRACTICES

Time allowed – 2½ hours

Total Marks – 100

[N.B- The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts,
if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) What are the statutory rules on the appointment of a Company Secretary? 5
(b) What are the pre-conditions of reduction of share capital of a Company? 5
(c) A public limited company has only seven shareholders. All the shares are fully paid up. The shares of
one of the shareholders were sold in a court auction and were purchased by another shareholder of
the company to the knowledge of all the other shareholders. The company continued to carry on the
business thereafter. What are the legal consequences of this transactions. 6

2. (a) The Securities and Exchange Commission (SEC) as per its Notification of 20 February 2006 articulated
a framework for corporate governance for the listed companies mainly with regard to Board of
Directors, Chief Financial Officer (CFO), Head of Internal Audit and the Company Secretary, Audit
Committee, External/Statutory Auditors and reporting the compliance in the directors’ report of the
listed company. Recently, the SEC has issued a draft guideline on the same framework encompassing
few more areas. State the new areas, with your professional opinion, that are covered in the draft
guidelines. 10
(b) Discuss the procedures of issuing shares at a premium. How does the Companies act provide
for application of `Receipts’ from premium? 5

3. (a) Draft a plan of operation and the financial conditions to be incorporated in the Prospectus by
a public limited company according to Public Issue Rules, 1998. 6
(b) What are the reasons for which a listed company can be de-listed or suspended by the Dhaka
Stock Exchange as per its Listing regulations in force? 5
(c) Explain the Schedule 1 related provisions on the retirement of directors. 5

4. (a) What additional information are to be incorporated in the auditors report of a banking
company under section 39 of the Bank Companies Act, 1991 in addition to the requirements
of the Companies Act, 1994? 6
(b) You have been appointed as Company Secretary to a Public Ltd. Company which has a new and
relatively experienced Board of Directors. The Directors require your advise on several matters
relating to company meetings. You are required to advise the board on the following issues:
(i) Can a company director be removed from the office at a general meeting by a resolution
put by members at that meeting without prior notice? 2
(ii) When is a company compelled to call an extraordinary general meeting? 3

5. (a) What do you mean by the `Surrender value’ of life insurance policies? 4
(b) Suppose that Mr. X takes out an endowment policy for 15 years for Tk.15,000 and the premium
payable is Tk.1,200 per annum. He pays premium for three years and then stops. The premium
paid is Tk.1,200 x 3 = Tk.3,600. The premium payable is Tk.1,200 x 15 = Tk.18,000.
Calculate the surrender value of the above policy. 5
(c) What is `Solvency Margin’? Mention the conditions to be fulfilled by an insurer for
maintenance of solvency margin. 8

6. Explain the requirement of maintaining reserve fund under the Bank Company Act 1991.
State the provisions of the Bank Company Act, 1991 regarding holding of liquid assets by a Bank
Company and also what are the restrictions on payment of loans and advances. 10

7. State the requirement of maintaining reserve fund under the Financial Institution Act 1993.What
restrictions are there in payment of dividend and mention the provisions relating to the holding of
liquid assets under the said Act? 15

– The End –
 may june 2012
FINANCIAL ACCOUNTING

Time allowed – 2½ hours

Total Marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) Why is the lower of cost and net realizable value (NRV) rule used in the accounting standard?
Is it permissible to revalue inventory upwards? If so, when? Is there any limitation? Give an
example in support of your answer. 6
(b) “Financial Accounting usually emphasises on the economic substance of events even though
the legal form may differ and suggest different treatments. “Do you agree? If so, state the
circumstances and give example in each case. 6
(c) The following figures are extracted from the financial statements of Seam Ltd. as at 31 March 2012:
(i) Investment in Bibu Ltd.
Figure in ‘000 Taka
2012 2011 2010
(a) Acquired 35% shares on 31 Mar 2010 120 120 120
(b) Acquired 25% shares on 31 Mar 2011 150 150 ---
(c) Sale of 25% shares on 15 Mar 2012 (at cost) (86) --- ---
(shares acquired on 31 Mar 2010) .
Total cost of investment 184 270 120
Sales proceeds of 25% share sold on 15 March 2012 100
Extract figures of net assets from the financial statements of Bibu Ltd:
Equity:
Share Capital 100 100 100
Revaluation surplus --- 20 20
Retained earnings 250 300 130
Requirement:
(i) Calculate the investment in Bibu Ltd applying equity method as per BAS 28 for the year ended
31 March 2012. 7
(ii) Calculate the carrying value of goodwill at 31 March 2011 7
2. Tazrian and Associates manufactures and sells international quality toys across the country. It also
provides franchise right to manufacture globally where it controls the quality and price of the toys.
The company charges agreed royalty fees for these services. The following draft financial
statements were prepared by the Finance Manager for the year ended 31 December 2011 and
placed before you for advise:
Tazrian and Associates
Comprehensive Income Statement
For the year ended 31 December 2011
Amount in Lakh Taka
Sales 3,500
Less: Cost of goods sold ( 1,780)
Gross profit 1,720
Other income 350
Total income 2,070
Less: Operating expenses including depreciation ( 870)
Operating profit 1200
Profit on sale of property 200
1400
Less: Interest expenses ( 300)
Profit before tax 1100
Less: taxation @35% ( 385)
Net profit for the year 715
Opening balance of profit 350
Profit carried to Balance sheet 1065
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 may june 2012
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Tazrian and Associates
Balance Sheet
As at 31 December 2011
(Taka in lakh)
Liabilities & Equity Taka Assets Taka
Capital 3,000 Office equipment 4,000
General reserve 550 Work in progress 1,400
Profit and loss a/c 1,065 Stock 1,000
Long-term loan 2,000 Debtors 1,460
Accumulated depreciation 1,000 Royalty receivables 100
Current liabilities Advance tax 200
Creditors 240 Cash in hand 20
Provision for tax 385 Cash at bank 60
8,240 8,240
The following financial information need to be considered:
(i) Royalty fees receivable from a customer in Abidjan equivalent of Tk.100 lakh. It was accounted
for being allowing license for manufacturing toys under the same brand name. The amount is
receivable in USD from the customer. However, exchange permission was denied to the
company in Abidjan for remitting the same.
(ii) The company sold some of its office equipment on 1 April 2011 for Tk.100 lakhs (written down
value Tk.250 lakhs). These assets were re-valued earlier. As on 1 April 2011, the revaluation
reserve corresponding to these assets stood at Tk.200 lakhs. The profit on sale of property as
shown in the comprehensive Income Statement represented the transfer of this amount. Loss
on sale of the asset was included in the operating expenses.
(iii) The company board has decided to change the method of depreciation from straight line method
to reducing balance method. The rate of depreciation will remain unchanged at 20% per annum.
(iv) A new product has been developed during the year. The expenditure totals Tk.12 lakh, of
which Tk.7.50 lakh was incurred prior to 31 December 2011, the date on which it became clear
the product was technically feasible. The new product will be launched in the next three
months and its recoverable amount is estimated at Tk.6 lakh.
(v) The company started construction of its own office building at Dhaka on 1 January 2010. The
company obtained term loan facilities from HBFC. Company management has decided to
capitalize borrowing cost in accordance with BAS 23 – Borrowing cost.
(vi) The company has entered into a lease agreement for 5 years for its office building on 1st
January 2010. The monthly rent is Tk.50,000 for first 2 years and then Tk.80,000 per month for
next 3 years. Finance Manager charged Tk.50,000 per month for the year 2011 and included in
operating expenses. Finance Manager didn’t comply with BAS 17 – Leases.
Requirement:
Re-draft the financial statements for the year ended on 31 December 2011 in accordance with the
relevant provisions of Bangladesh Accounting Standards (BAS) and BFRS. State the notes and
disclosure to the financial statements clearly. 25

3. You are an articled student of MM Ahmed, Chartered Accountants and responsible for finalizing
audit assignments of various clients of the firm. The following issues have been raised for your
suggestion on how to disclose/ account for the items in the financial statements:
(a) May Flower Ltd. has entered into a contract for the provision of services over a two-year
period. The total contract price is Tk.150,000. In the first year costs of Tk.60,000 have been
incurred and 50% of the work has been completed. The contract has not progressed as
expected and May Flower Ltd. is not sure of the ultimate outcome, but believes that the costs
incurred to date will be recovered from the customer. May Flower Ltd. initially expected to
earn a profit of Tk.20,000 on the contract. Company is struggling with the amount of revenue
to be recognized as per BAS 18 – Revenue in the first year of contract. Accounting year of the
company ends on 31 December. 6
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 may june 2012
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(b) As at 01 January 2011, MK Ltd. re-valued its Dhaka office building. It’s net book value as at
31.12.2010 was Tk.15,00,000 and it was re-valued at Tk.1,12,00,000. The valuation was
conducted by a professional company. Two years earlier, the company had reduced the useful
economic life of its Dhaka office building from 20 years to 5 years as the local City Corporation
had indicated they would condemn it as unsafe when a new inner city motor way was built.
This had caused the company to charge an unusual depreciation write-off to that year’s
accounts. The plan to build the inner-city motor way was scrapped during the year. Company
Accountants didn’t comply with BAS 16 – Property, Plant & Equipment to recognize
revaluation in Comprehensive Income Statement for the year ended on 31 December 2011. 6
(c) Arnold Ltd. bought an asset on 01 October 2005 for Tk.200,000. It was being depreciated over 20
years on the straight line basis. On 01 October 2007, the asset was re-valued to Tk.270,000.
Subsequently, on 30 September 2011, the asset was classified as held for sale. Its fair value was
estimated at Tk.190,000 with costs to sell of Tk.5,000. In accordance with BFRS 5 – Non-Current
Assets Held for Sale and Discontinued Operations, what loss should be recognized in the income
statement for the year ended 30 September 2011 on classification as held for sale? 6
(e) Proxima Ltd. holds 3000 of the 10,000 Tk.1.00 ordinary shares in CMS Limited. These were
recently acquired, as the directors of Proxima Ltd. believe that CMS Ltd. has excellent growth
potential in the future. However, the market in which CMS Limited operates is very specialized
and Proxima Ltd. decided to take no part in the running of CMS Ltd. Proxima Ltd. intends to
hold its shares for several years, but not to influence the board in any way. 6
4. H Ltd. prepares its consolidated financial statements in accordance with BFRS. H Ltd. has
investment in two companies, W Ltd. and S Ltd. The draft summarized balance sheets of the three
companies at 30 June 2011 are shown below:

H Ltd. W Ltd. S Ltd.

Taka Taka Taka
Assets:
Non-current assets
Property, Plant & Equipment 1,280,000 1,800,000 5,995,000
Investments 10,950,000 - -
Total non-current assets 12,230,000 1,800,000 5,995,000
Current assets:
Inventories 785,000 290,000 90,000
Trade and other receivables 240,000 440,000 394,000
Cash and cash equivalents 57,600 - 300,000
Total current assets 1,082,600 730,000 784,000
Total Assets 13,312,600 2,530,000 6,779,000

H Ltd. W Ltd. S Ltd.

Taka Taka Taka
Equity and Liabilities:
Capital and reserves
Issued capital – Tk.1.00 ordinary shares 9,000,000 2,000,000 4,000,000
Retained earnings 2,734,600 (367,000) 2,396,000
Total Equity 11,734,600 1,633,000 6,396,000
Non-current liabilities
Provisions 300,000 - 187,000
Loans 620,000 550,000 -
Total non-current liabilities 920,000 550,000 187,000
Current liabilities
Trade and other payables 378,000 255,000 72,000
Bank overdrafts - 47,000 -
Taxation 280,000 45,000 124,000
Total current liabilities 658,000 347,000 196,000
Total equity and liabilities 13,312,600 2,530,000 6,779,000

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Additional information:
(i) On 01 July 2007, H Ltd. acquired 1.7 million Tk.1.00 ordinary shares in W Ltd. for Tk.1.50 cash
per share. The retained earnings of W Ltd. at that date were Tk.0.25 million.
(ii) H Ltd. acquired 2.8 million Tk.1.00 ordinary shares in S Ltd. on 31 March 2011 for Tk.3 cash per
share. The retained earnings of S Ltd. at 31 March 2011 were Tk.2.0 million. The fair value of the
land held by S Ltd. at the date of acquisition was Tk.2.50 million in excess of its carrying amount.
(iii) At the date of acquisition, S Ltd. has disclosed in the notes to its financial statements a
contingent liability in relation to a customer claim for Tk.100,000. H Ltd. legal advisers
estimated the fair value of the claim at Tk.150,000. The claim was settled on 10 June 2011 for
a final figure of Tk.160,000 and is payable on 10 September 2011. S Ltd. recognized a provision
for the final claim in its draft balance sheet at 30 June 2011.
(iv) W Ltd. has been developing a new product based on revolutionary technology. No other
similar products currently exist in the market. At 1 September 2010 W Ltd. determined that
the product development was at a stage where the criteria for capitalization in accordance
with BAS 38 Intangible Assets had been met. During the year W Ltd. incurred Tk.720,000 of
development costs, accrued evenly through the year. These costs have been included in the
income statement as operating expenses. The product is still under development at 30 June
2011. An independent valuer has examined the recoverable amount of the technology at Tk1
million at 30 June 2011.
(v) W Ltd. sold goods to H Ltd. for Tk.170,000 during the year. At the year-end half of these goods
remained in inventory. W Ltd. sold the goods based on a transfer price of cost plus 25%. W Ltd.’s
receivables included an amount for the goods at the year end, however, H Ltd. sent a cash
payment for Tk.170,000 to W Ltd. on 26 June 2011. W Ltd. received the payment on 2 July 2011.
(vi) H Ltd. has undertaken annual impairment reviews of goodwill. At 30 June 2011 an impairment
loss of Tk.300,000 in respect of W Ltd. needs to be recognized.

Requirement:
Prepare a consolidated balance sheet of H Ltd. as at 30 June 2011. 25

– The End –
 may june 2012
FINANCIAL MANAGEMENT

Time allowed – 2½ hours

Total Marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]

Marks
1. (a) What is capital rationing situation? What are the methods used to select capital investment
projects under capital rationing situation? State the steps to be followed to select a project? 5
(b) Raihan has been working as a Financial Analyst in Trans Group. Finance Director of the
company advised him to evaluate following capital investments, project X and Y. Each project
has initial cost of Tk.1,000,000. The cost of capital for each project is 15 percent. The projects’
expected net cash flows will be as follows: 20
Year Project X Project Y
Taka Taka
0 (1,000,000) (1,000,000)
1 650,000 350,000
2 300,000 350,000
3 300,000 350,000
4 100,000 350,000
Cash flows of project `X’ are expressed in real terms while those of project `Y’ are expressed in
nominal terms. The appropriate inflation rate is 4%.
Required:
i) Calculate each project’s payback period, Net Present Value (NPV) and Internal Rate of
Return (IRR).
ii) Which project or projects should be accepted if they are independent?
iii) Which project or projects should be accepted if they are mutually exclusive?
iv) How might a change in the cost of capital (`K’) produce a conflict between the NPV and
IRR ranking of these two projects? Would this conflict exist if `K’ were 5%?

2. (a) “Financing overseas subsidiaries depends on four key factors” – State those factors briefly.
What are the considerations while choosing a country for investment? What are the measures
to take to prevent the exploitation of the country by Multi National Corporation (MNC)? 5
(b) You are considering buying the stocks of two companies while operate in the same industry; they
have very similar characteristics except for their dividend payout policies. Both companies are
expected to earn Tk.6 per share this year. However company D (for dividend) is expected to pay
out all of its earnings as dividends, while company G (for growth) is expected to payout only one-
third of its earnings, or Tk.2 per share. D’s share price is Tk.40. G and D are equally risky.
Required:
Do you agree with following statements? Why or why not? 6
i) An investor in share D will get his or her money back faster because D pays out more of its
earnings as dividends. Thus, in a sense, D is like a short-term bond and G is like a long-
term bond. Therefore, if economic shifts cause returns (on bonds & shares) to increase,
and if the expected streams of dividends from D & G remain constant, shares D and G will
both decline, but D’s price should decline further.
ii) D’s expected and required rate of return is 15. G’s expected return will be higher because
of its higher expected growth rate.
iii) On the basis of the available information, the best estimate of G’s growth rate is 10 per cent.
(c) The following information is provided relating to the acquiring company Efficient Ltd. and the
target company Health Ltd: Dec 31, 2010:

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Efficient Ltd. Health Ltd.

No. of shares (F.V. Tk.10 each) 10,000 lakhs 7.5 lakhs
Market Capitalization 500.00 lakhs 750.00 lakhs
P/E ratio (times) 10.00 5.00
Reserves and Surplus 300.00 lakhs 165.00 lakhs
Promoter’s Holding (No. of shares) 4.75 lakhs 5.00 lakhs
Board of Directors of both the companies have decided to give a fair deal to the shareholders
and accordingly for swap ratio the weights are decided as 40%, 25% and 35% respectively for
Earning, Book Value and Market Price of share of each company.
Required:
i) Calculate the swap ratio and also calculate Promoter’s holding % after acquisition. 4
ii) What is the EPS of Efficient Ltd. after acquisition of Health Ltd.? 3
iii) What is the expected market price per share and market capitalization of Efficient Ltd.
after acquisition, assuming P/E ratio of firm Efficient Ltd. remains unchanged. 4
iv) Calculate free float market capitalization of the merged firm. 3

3. (a) A Company belongs to a risk class for which the appropriate capitalization rate is 10%. It currently has
25,000 outstanding shares selling at Tk.100 each. The firm has been contemplating the declaration of
a dividend of Tk.5 per share at the end of the current financial year. The company expected to have
net income of Tk.2,50,000 and has a proposal for making new investment of Tk.5,03,000.
Required:
Prove the assumption that payment of dividend does not affect the value of the firm? 5

(b) Following is the earnings per share (EPS) record of the ABC company Ltd. over the past 10
years:
Year EPS (Tk.) Year EPS (Tk.)
10 20.00 5 12.00
9 19.00 4 6.00
8 16.00 3 9.00
7 15.00 2 -2.00
6 16.00 1 1.00

Required:
(1) Determine the annual dividend paid each year in the following cases:
a) If the firm’s dividend policy is based on a constant dividend pay-out ratio of 50% for all years. 4
b) Pay dividend Tk.8 per share and increase to Tk.10 when earnings exceed Tk.14 per
share for two consecutive years. 4
c) Pay dividend Tk.7 per share each year except when EPS exceeds Tk.14 per share, when
an extra dividend equal to 80% of earnings beyond Tk.14.00 would be paid. 4
(2) Which type of dividend policy will you recommend to the company and why? 3

4. Lip Ltd. is a listed company which operates in the pharmaceutical sector, manufacturing a broad
range of drugs under licence in a number of countries. Around 75% of the book value of Lip’s non-
current assets comprises factories situated outside Bangladesh. In recent years the company has
grown organically but a proposal has now been put forward by the company’s investment bank
that the company might consider the acquisition of a smaller firm. Bengal Ltd. (Bengal), as a route
to both further expansion and diversification of the company’s activities.
Bengal is involved in a different area of the pharmaceutical sector from Lip as it is primarily a
research-driven company involved in the development of new drugs arising from the latest
academic research, often working with research departments of universities and teaching
hospitals to turn the research into commercial reality.

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The majority of Bengal’s shares are owned by members of the three founding families, many of
whom still work for the company. They are now considering selling Bengal if a suitable price can
be agreed.
The following financial information has been obtained for Lip, along with comparative information
for Bengal:
Lip Bengal
Forecast earnings in next financial year (Taka million) 7.50 2.00
Shares in issue (million) 12.50 0.75
Current earnings per share (Taka) 0.5625 0.7650
Current dividend per share (Taka) 0.2530 0.50
Share price (Taka) 618.50 n/a
Book value of equity (Taka million) 175.00 22.50
Gearing ratio (debt as a % of market value) 25.00 0
Forecast dividend growth rate pa 3% 6%
Cost of equity 7% n/a
Bengal does not calculate a cost of equity, but the average for listed companies operating in the
same sector is 8%. At this stage, the directors of Lip have identified either a right issue or a floating
rate term loan as the most likely method by which they might finance the purchase of Bengal.
Required:
(a) In your role as a corporate finance manager of Lip, prepare a report for Lip’s directors
providing valuations of Bengal using:
(i) net assets;
(ii) dividends;
(iii) current and forecast earnings (using Lip’s current price-earnings ratio),
and, for each valuation calculated, identify and specific reservations or other issues that you
might wish to bring to the attention of Lip’s directors. 16
(b) Evaluate (without undertaking any calculations) the two potential methods of financing the
purchase of Bengal. 8
(c) Discuss the relative advantages of organic growth and growth by acquisition. 6

– The End –
 nov dec 2012
FINANCIAL ACCOUNTING

Time Allowed – 2½ hours

Maximum Marks – 100

[N.B - Questions must be answered in English. Figures in the margin indicate full marks. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]

Marks
1. (a) The IASB’s Framework for the Preparation and Presentation of Financial Statements requires
financial statements to be prepared on the basis that they comply with certain accounting
concepts, underlying assumptions and qualitative characteristics. Four of these are:

i. Matching/accruals ii. Prudence iii. Comparability iv. Materiality

Required:
(a) Briefly explain the meaning of each of the above concepts/assumptions. 6
(b) Illustrate with examples how each of the concepts/assumptions in (a) may be applied to
accounting for inventory. 8
(b) There are issues about the presentation of financial instruments in the balance sheet of an
entity in relation to their classification as liabilities and equity and to the related interest,
dividends, losses and gains.
The objective of BAS 32 Financial instruments: Presentation is to address this problem by
establishing principles for presenting financial instruments as liabilities or equity and for
offsetting financial assets and financial liabilities.
On 01 January 2011, ABC Company had only ordinary shares in issue. During the year ended
31 December 2011 ABC Company entered into the following financing transactions:
i. On 01 January 2011, ABC Company issued 20 million 8% Tk. 1 preference shares at par. The
preference shares are redeemable at par on 30 June 2016. The appropriate dividend in
respect of these shares was paid on 31 December 2011.
ii. On 30 June 2011, ABC Company issued 10 million 12% Tk. 1 irredeemable preference shares
at par. The appropriate dividend in respect of these shares was paid on 31 December 2011.
On 31 December 2011, ABC Company decided to change its accounting policy in respect of the
capitalization of interest. Previously, ABC Company had capitalized interest within property,
plant and equipment and amortized those costs. It has now decided to write off such costs to
cost of sales as incurred. The net book value of such interest included in the draft balance
sheet was as follows:
Tk.m
At 1 January 2011 4.5
Costs incurred 2.0
Amortization charge (0.5)
At 31 December 2011 6.0
As per the draft accounts, profit for 2011 before adjusting for capitalized interest, was Tk. 15
million. Retained earnings at 1 January 2011 were Tk.75 million
Required:
(i) Describe the concept of 'substance over form' and its application to the presentation of
financials under BAS 32 Financial instruments: Presentation. 3
(ii) Prepare extracts from the financial statements of ABC Company for the year ended 31
December 2011 to the extent the information is available showing how the above would be
reflected in those financial statements. Ignore taxation. 12

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2. MTC company, a public limited company, operates in the fashion sector and had undertaken a
group re-organization during the current financial year to 31 October 2011. As a result, the
following events occurred:
(a) MTC Company identified two manufacturing units, Cee and Gee, which it had decided to
dispose off in a single transaction. These units comprised non-current assets only. One of the
units, Cee, had been impaired prior to the financial year end on 30 September 2011 and it had
been written down to its recoverable amount of Tk.35 million. The criteria in IFRS 5, ‘Non-
current Assets Held for Sale and Discontinued Operations’, for classification as held for sale,
had been met for Cee and Gee at 30 September 2011. The following information related to
the assets of the cash generating units at 30 September 2011:
Depreciated Fair value less costs to Carrying value
historical cost sell and recoverable under BFRS
Tk. m amount Tk.m Tk. m
Cee 50 35 35
Gee 70 90 70
120 125 105
The fair value less costs to sell had risen at the year end to Tk.40 million for Cee and Tk.95
million for Gee. The increase in the fair value less costs to sell had not been taken into account
by MTC Company.
(b) A subsidiary company had purchased computerized equipment for Tk.4 million on 31 October
2010 to improve the manufacturing process. Whilst re-organizing the group, MTC company
had discovered that the manufacturer of the computerized equipment was now selling the
same system for Tk.2·5 million. The projected cash flows from the equipment are:

Year ended 31 October Cash flows (Tk.m)

2012 1·3
2013 2·2
2014 2·3
The residual value of the equipment is assumed to be zero. The company uses a discount rate
of 10%. The directors think that the fair value less costs to sell of the equipment is Tk.2 million.
The directors of MTC company propose to write down the non-current asset to the new selling
price of Tk.2·5 million. The company’s policy is to depreciate its computer equipment by 25%
per annum on the straight line basis.
(c) The manufacturing property of the group, other than the head office, was held on an
operating lease over 8 years. On re-organization on 31 October 2011, the lease has been
renegotiated and is held for 12 years at a rent of Tk.5 million per annum paid in arrears. The
fair value of the property is Tk.35 million and its remaining economic life is 13 years. The lease
relates to the buildings and not the land. The factor to be used for an annuity at 10% for 12
years is 6·8137.
The directors are worried about the impact that the above changes will have on the value of
its non-current assets and its key performance indicator which is ‘Return on Capital Employed’
(ROCE). ROCE is defined as operating profit before interest and tax divided by share capital,
other reserves and retained earnings. The directors have calculated ROCE as Tk.30 million
divided by Tk.220 million, i.e. 13·6% before any adjustments required by the above.
Required:
Discuss the accounting treatment of the above transactions and the impact that the resulting
adjustments to the financial statements would have on ROCE. 21

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3 Genetic Limited, a public limited company, is a developer of online computer games. Discuss the
validity of the following accounting treatments proposed by Genetic Limited in its financial statements
for the year ended 30 November 2011.
(a) At 30 November 2011, 65% of Genetic Limited’s total assets were mainly represented by 7
internally developed intangible assets comprising the capitalised costs of the development and
production of online computer games.
These games generate all of Genetic Limited’s revenue. The costs incurred in relation to
maintaining the games at the same standard of performance are expensed to the statement of
comprehensive income. The accounting policy note states that intangible assets are valued at
historical cost. Genetic Limited considers the games to have an indefinite useful life, which is
reconsidered annually when the intangible assets are tested for impairment. Genetic Limited
determines value in use using the estimated future cash flows which include maintenance
expenses, capital expenses incurred in developing different versions of the games and the
expected increase in revenue resulting from the above mentioned cash outflows. Genetic
Limited does not conduct an analysis or investigation of differences between expected and
actual cash flows. Tax effects were also taken into account.

(b) Genetic Limited has two cash generating units (CGU) which hold 90% of the internally 7
developed intangible assets.
Genetic Limited reported a consolidated net loss for the period and an impairment charge in
respect of the two CGUs representing 63% of the consolidated profit before tax and 29% of the
total costs in the period. The recoverable amount of the CGUs is defined, in this case, as value
in use. Specific discount rates are not directly available from the market, and Genetic Limited
estimates the discount rates, using its weighted average cost of capital. In calculating the cost of
debt as an input to the determination of the discount rate, Genetic Limited used the risk-free rate
adjusted by the company specific average credit spread of its outstanding debt, which had been
raised two years previously. As Genetic Limited did not have any need for additional financing
and did not need to repay any of the existing loans before 2014, Genetic Limited did not see any
reason for using a different discount rate. Genetic Limited did not disclose either the events and
circumstances that led to the recognition of the impairment loss or the amount of the loss
recognised in respect of each cash-generating unit. Genetic Limited felt that the events and
circumstances that led to the recognition of a loss in respect of the first CGU were common
knowledge in the market and the events and the circumstances that led to the recognition loss
of the second CGU were not needed to be disclosed.
(c) Genetic Limited wished to diversify its operations and purchased a professional football club, 6
Abahani Club. In Abahani Club’s financial statements for the year ended 30 November 2011, it
was proposed to include significant intangible assets which related to acquired players’
registration rights comprising registration and agents’ fees. The agents’ fees were paid by the
club to players’ agents either when a player is transferred to the club or when the contract of a
player is extended. Genetic Limited believes that the registration rights of the players are
intangible assets but that the agents fees do not meet the criteria to be recognised as intangible
assets as they are not directly attributable to the costs of players’ contracts. Additionally,
Abahani Club has purchased the rights to 25% of the revenue from ticket sales generated by
another football club, Santash, in a different league. Abahani does not sell these tickets nor has
any discretion over the pricing of the tickets. Abahani wishes to show these rights as intangible
assets in its financial statements.

4. The following draft statements of financial position relate to Roby, Hai and Zinc, all public limited
companies, as at 31 May 2012:
Roby Hai Zinc
Tk.m Tk.m Tk.m
Assets
Non-current assets:
Property, plant and equipment 112 60 26
Investment in Hai 55
Investment in Zinc 19
Financial assets 9 6 14
Jointly controlled operation 6
Current assets 5 7 12
Total assets 206 73 52

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 nov dec 2012
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Equity and Liabilities

Ordinary shares 25 20 10
Other components of equity 11 – –
Retained earnings 70 27 19
Total equity 106 47 29
Non-current liabilities 53 20 21
Current liabilities 47 6 2
Total equity and liabilities 206 73 52

The following information needs to be taken into account in the preparation of the group financial
statements of Roby:
i. On 1 June 2010, Roby acquired 80% of the equity interests of Hai. The purchase
consideration comprised cash of Tk.50 million. Roby has treated the investment in Hai at fair
value through other comprehensive income (OCI).
A dividend received from Hai on 1 January 2012 of Tk.2 million has similarly been
credited to OCI. It is Roby’s policy to measure the non-controlling interest at fair value
and this was Tk.15 million on 1 June 2010.
On 1 June 2010, the fair value of the identifiable net assets of Hai was Tk.60 million and the
retained earnings of Hai were Tk.16 million. The excess of the fair value of the net assets is
due to an increase in the value of non-depreciable land.
ii. On 1 June 2009, Roby acquired 5% of the ordinary shares of Zinc. Roby had treated this
investment at fair value through profit or loss in the financial statements to 31 May 2011.
On 1 December 2011, Roby acquired a further 55% of the ordinary shares of Zinc and
gained control of the company.
The consideration for the acquisitions was as follows:
Shareholding Consideration
Tk.m
1 June 2009 5% 2
1 December 2011 55% 16
–––– –––
60% 18
–––– –––
At 1 December 2011, the fair value of the equity interest in Zinc held by Roby before the
business combination was Tk.5 million.
It is Roby’s policy to measure the non-controlling interest at fair value and this was Tk.9
million on 1 December 2011.
The fair value of the identifiable net assets at 1 December 2011 of Zinc was Tk.26 million,
and the retained earnings were Tk.15 million. The excess of the fair value of the net assets
is due to an increase in the value of property, plant and equipment (PPE), which was
provisional pending receipt of the final valuations. These valuations were received on 1
March 2012 and resulted in an additional increase of Tk.3 million in the fair value of PPE at
the date of acquisition. This increase does not affect the fair value of the non-controlling
interest at acquisition. PPE is to be depreciated on the straight-line basis over a remaining
period of five years.
iii. Roby has 40% share of a joint operation, a natural gas station. Assets, liabilities, revenue
and costs are apportioned on the basis of shareholding.
The following information relates to the joint arrangement activities:
• The natural gas station costs Tk.15 million to construct and was completed on 1 June 2011
and is to be dismantled at the end of its life of 10 years. The present value of this
dismantling cost to the joint arrangement at 1 June 2011, using a discount rate of 5%, was
Tk.2 million.
• During the year, gas with a direct cost of Tk.16 million was sold for Tk.20 million.
Additionally, the joint arrangement incurred operating costs of Tk.0·5 million during the year.
Roby has only contributed and accounted for its share of the construction cost, paying Tk.6
million. The revenue and costs are receivable and payable by the other joint operator who
settles amounts outstanding with Roby after the year end.
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iv. Roby purchased PPE for Tk.10 million on 1 June 2009. It has an expected useful life of 20
years and is depreciated on the straight-line method. On 31 May 2011, the PPE was
revalued to Tk.11 million. At 31 May 2012, impairment indicators triggered an impairment
review of the PPE. The recoverable amount of the PPE was Tk.7·8 million. The only
accounting entry posted for the year to 31 May 2012 was to account for the depreciation
based on the re-valued amount as at 31 May 2011. Roby’s accounting policy is to make a
transfer of the excess depreciation arising on the revaluation of PPE.
v. Roby held a portfolio of trade receivables with a carrying amount of Tk.4 million at 31 May
2012. At that date, the entity entered into a factoring agreement with a bank, whereby it
transfers the receivables in exchange for Tk.3·6 million in cash. Roby has agreed to
reimburse the factor for any shortfall between the amount collected and Tk.3·6 million. Once
the receivables have been collected, any amounts above Tk.3·6 million, less interest on this
amount, will be repaid to Roby. Roby has derecognised the receivables and charged Tk.0·4
million as a loss to profit or loss.
vi. Immediately prior to the year end, Roby sold land to a third party at a price of Tk.16 million
with an option to purchase the land back on 1 July 2012 for Tk.16 million plus a premium of
3%. The market value of the land is Tk.25 million on 31 May 2012 and the carrying amount
was Tk.12 million. Roby accounted for the sale, consequently eliminating the bank overdraft
at 31 May 2012.
Required:
Prepare a consolidated statement of financial position of the Roby Group at 31 May 2012 in
accordance with Bangladesh Financial Reporting Standards. 30

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 nov dec 2012
FINANCIAL MANAGEMENT

Time Allowed – 2½ hours

Maximum Marks – 100

[N.B - Questions must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]

Marks
1 (a) What is modified internal rate of return (MIRR)? State the advantages and disadvantages of 4
MIRR in capital budgeting decision.
(b) What is ‘playing the float’ in cash management and how it impacts on working capital 3
management?
(c) Beta Ltd. is a profitable company which is financed by equity with a market value of Tk.180 18
million and by debt with a market value of Tk.45 million. The company is considering two
investment projects, as follows:
Project A
This project is an expansion of existing business costing Tk.3·5 million, payable at the start of
the project, which will increase annual sales by 750,000 units. Information on unit selling price
and costs is as follows:
Selling price : Tk.2·00 per unit (current price terms)
Selling costs : Tk.0·04 per unit (current price terms)
Variable costs : Tk.0·80 per unit (current price terms)
Selling price inflation and selling cost inflation are expected to be 5% per year and variable cost
inflation is expected to be 4% per year. Additional initial investment in working capital of
Tk.250,000 will also be needed and this is expected to increase in line with general inflation.
Project B
This project is a diversification into a new business area that will cost Tk.4 million. A company
that already operates in the new business area, Gazi Ltd. has an equity beta of 1·5. Gazi Ltd. is
financed 75% by equity with a market value of Tk.90 million and 25% by debt with a market
value of Tk.30 million.
Other information
Beta Ltd. has a nominal weighted average after-tax cost of capital of 10% and pays profit tax one
year in arrear at an annual rate of 30%. The company can claim capital allowances (tax-allowable
depreciation) on a 25% reducing balance basis on the initial investment in both projects.
Risk-free rate of return : 4%
Equity risk premium : 6%
General rate of inflation : 4·5% per year
Directors’ views on investment appraisal:
The directors of Beta Ltd. require that all investment projects should be evaluated using either
payback period or return on capital employed (accounting rate of return). The target payback
period of the company is two years and the target return on capital employed is 20%, which is
the current return on capital employed of Beta Ltd. A project is accepted if it satisfies either of
these investment criteria.
The directors also require all investment projects to be evaluated over a four-year planning
period, ignoring any scrap value or working capital recovery, with a balancing allowance (if
any) being claimed at the end of the fourth year of operation.

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Required:
a) Calculate the net present value of Project A and advise on its acceptability if the project
was to be Appraised using this method.
b) Critically discuss the directors’ views on investment appraisal.
c) Calculate a project-specific cost of equity for Project B and explain the stages of your calculation.

2 (a) Explain the term with specific example in each case (a) Real Option (b) Option to delay 8
(c) Option to expand (d) Option to abandon (e) Option to redeploy.
(b) Daily News Paper ‘The Financial Express’ reported in September 2012 that banks were limiting credit 7
facilities, raising interest rates and pressuring businesses to switch from unsecured overdrafts to
secured loans. State ten points process for managing working capital during the current credit crunch.
(c) Extracts from the recent financial statements of Bold Limited are given below:
Tk.’000
Turnover 21,300
Cost of sales 16,400
Gross profit 4,900
Tk.’000 Tk.‘000
Non-current assets 3,000
Current assets
Inventory 4,500
Trade receivables 3,500
8,000
Total assets 11,000
Current liabilities
Trade payables 3,000
Overdraft 3,000
6,000
Equity
Ordinary shares 1,000
Reserves 1,000
2,000
Non-current liabilities
Bonds 3,000
11,000
A factoring company has offered to manage the trade receivables of Bold Limited in a servicing
and factor-financing agreement. The factoring company expects to reduce the average trade
receivables period of Bold Limited from its current level to 35 days; to reduce bad debts from
0·9% of turnover to 0·6% of turnover; and to save Bold Limited Tk.40,000 per year in
administration costs.
The factoring company would also make an advance to Bold Limited of 80% of the revised book
value of trade receivables. The interest rate on the advance would be 2% higher than the 7% that
Bold Limited currently pays on its overdraft. The factoring company would charge a fee of 0·75% of
turnover on a with-recourse basis, or a fee of 1·25% of turnover on a non-recourse basis.
Assume that there are 365 working days in each year and that all sales and supplies are on credit.
Required:
(i) Explain the meaning of the term ‘cash operating cycle’ and discuss the relationship between
the cash operating cycle and the level of investment in working capital. Your answer should 8
include a discussion of relevant working capital policy and the nature of business operations.
(ii) Calculate the cash operating cycle of Bold Co. 7

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3 The following financial position statement as at 30 June 2012 refers to NFS Ltd. a stock
exchange-listed company, which wishes to raise Tk. 200m in cash in order to acquire a
competitor.
Tk. m Tk. m Tk. m
Assets
Non-current assets 300
Current assets 211
Total assets 511
Equity and liabilities
Share capital 100
Retained earnings 121
Total equity 221
Non-current liabilities
Long-term borrowings 100
Current liabilities
Trade payables 30
Short-term borrowings 160
Total current liabilities 190
Total liabilities 290
Total equity and liabilities 511
The recent performance of NFS Ltd. in profitability terms is as follows:
Year ending 30 June 2009 2010 2011 2012
Tk. m Tk. m Tk. m Tk. m
Revenue 122·6 127·3 156·6 189·3
Operating profit 41·7 43·3 50·1 56·7
Finance charges (interest) 6·0 6·2 12·5 18·8
Profit before tax 35·7 37·1 37·6 37·9
Profit after tax 25·0 26·0 26·3 26·5
Notes:
1. The long-term borrowings are 6% bonds that are repayable in 2014
2. The short-term borrowings consist of an overdraft at an annual interest rate of 8%
3. The current assets do not include any cash deposits
4. NFS Ltd. has not paid any dividend in the last four years
5. The number of ordinary shares issued by the company has not changed in recent years
6. The target company has no debt finance and its forecast profit before interest and tax for
2013 is Tk. 28 million
Required:
(a) Evaluate suitable methods of raising Tk.200 million required by NFS Ltd. supporting your
evaluation with both analysis and critical discussion 9
(b) Briefly explain the factors that will influence the rate of interest charged on a new issue of bonds. 5
(c) Identify and describe the three forms of efficiency that may be found in a capital market. 6

4 (a) “Swaps are essentially zero-sum transactions”. What does it really mean? Show that a currency swap 5
is equivalent to a series of forward contract. Substantiate your answer with necessary examples.
(b) Current EPS of Dhaka Lamps Ltd. is Tk. 20, the assets beta is 0.90, the retention rate is 0.50, the 5
tax rate is 0.35, the annual growth rate is 8.085%, the debt-equity ratio is 0.12, the risk free
rate is 5 per cent and the equity market risk premium is 6 per cent. What is the impact on the
price of the share if the debt-equity ratio increases to 0.30.
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(c) The following financial information refers to NN Ltd.: 15

Current statement of financial position
Tk.m Tk.m Tk.m
Assets
Non-current assets 101
Current assets
Inventory 11
Trade receivables 21
Cash 10
42
Total assets 143
Equity and liabilities
Ordinary share capital 50
Preference share capital 25
Retained earnings 19
Total equity 94
Non-current liabilities:
Long-term borrowings 20
Current liabilities
Trade payables 22
Other payables 7
Total current liabilities 29
Total liabilities 49
Total equity and liabilities 143
NN Ltd. has just paid a dividend of 66 paisa per share and has a cost of equity of 12%. The
dividends of the company have grown in recent years by an average rate of 3% per year. The
ordinary shares of the company have a par value of 50 paisa per share and an ex dividend
market value of Tk. 8·30 per share.
The long-term borrowings of NN Ltd. consist of 7% bonds that are redeemable in six years time
at their par value of Tk.100 per bond. The current ex interest market price of the bonds is
Tk.103·50.
The preference shares of NN Ltd. have a nominal value of 50 paisa per share and pay an annual
dividend of 8%. The ex div market value of the preference shares is 67 paisa per share.
NN Ltd. pays profit tax at an annual rate of 25% per year.
Required:
(a) Calculate the equity value of NN Ltd. using the following business valuation methods: 6
(i) the dividend growth model;
(ii) net asset value.
(b) Calculate the after-tax cost of debt of NN Ltd. 3
(c) Calculate the weighted average after-tax cost of capital of NN Ltd. 3
(d) Discuss the factors to be considered in formulating the dividend policy of a stock-exchange
listed company. 3

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 nov dec 2012

IT APPLICATION

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English.
Examiner will take account of the quality of language and of the manner in which the
answers are presented. Different parts, if any, of the question must be answered in one place
in order of sequence]

Marks
1. Explain the typical structure of an IT strategy. 10

2. (a) Draw a chart showing advantages of e-commerce applications. 5

(b) Why a Business needs Business Continuity Plans? 5

3. (a) Explain the terms “Risk Avoidance” and “Risk Transfer”. 5

(b) Write down the components of service level management. 5

4. (a) What is first level management? Explain. 5

(b) Explain the three different types of decisions for management in an organization. 5

5. Explain the terms: (i) Authentication and Authorization (ii) Prevention and Resistance. 10

6. Explain the three types of system conversion strategies. 10

7. Explain the physical security control and logical security controls. 10

8. Write short notes on: (i) NIS and (ii) DSS. 10

9. (a) What are the steps needed for developing a new accounting information system? 5
(b) What do you mean by Information System Security Standards? 5

10. How the security requirements can be implemented in developing a new accounting
system? 10

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 nov dec 2012

TAXATION-II

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence]
Marks
01. Discuss the conditions relevant to charging tax on house property. What deductions are allowed for 10
determining taxable amount for charging income tax ?

02. Write short notes on the following in relation to Income Tax Ordinance 1984 10
a) Double taxation avoidance agreement
b) Best Judgment assessment
c) Refund of tax
d) Capital gain

03. Discuss the provisions of ITO 1984 regarding penalties for the following defaults : 05
a) Failure to file return of income under section 75
b) Failure to pay advance tax under section 64
c) Failure to deduct tax at source
d) Failure to comply with notices for production of accounts under section 79
e) Failure to pay tax on the basis of the return of income under section 74
04. Wahab & Co. Limited, a listed public limited company with its registered office in Dhaka, has shown 15
net profit of Tk. 837,413 in the audited accounts for the income year ended June 30, 2011.
You are required to compute total income and tax payable on correct return u/s 82 of the ITO 1984
indicating the assessment year and after considering the following facts :
a) Excess perquisites calculated u/s 30(e) Tk. 145,000
b) Salaries and allowances of Tk. 176,000 paid without complying with the provisions of section 30(a)
c) Registration expenses and fees include Tk. 215,701 found to be personal entertainment in nature.
d) Advertisement and publicity expenses include Tk. 125,000 as donation to a local sports club.
e) Gratuity provision during the year is Tk. 677,937 but actual payment is 276,434.
f) Rent, rates and taxes claimed at Tk. 368,212 out of which Tk. 21,640 paid as rent complied
with the provision of section 53A of the ITO 1984.
g) Accounting depreciation as per audited accounts is Tk. 2,979,211 and tax depreciation as
calculated with reference to previous year assessment is Tk. 3,727,422.
h) Technical fee of Tk. 210,000 paid to foreign collaborators charged in the accounts.
i) Export turnover was 10% of the total sales of the company.
j) The company declared 60% dividend for the year.
05. Given below is the Profit & Loss A/C of NYZ Textiles Ltd., for the year ended June 30,2011 25
Particulars Taka Particulars Taka
Cotton 11,417,950 Sale of Yarn 10,811,956
Stores 1,835,648 Sale of Textile Products 10,926,425
Mills Salaries & Wages 3,831,984 Export Subsidy / Incentive received in Cash 407,687
General Expenses 29,010 Sale of Waste 121,508
Replacement of Plant & Machinery 2,039,000 Rent of Bungalows 57,902
Stamp Duty, Registration, Legal Fees etc. 250,000 Dividend 17,400
Motor Car Overhauling Expenses 15,000 Interest on PSP 15,000
Purchase of two Paintings for MD’s Office 30,000
X-Mas Gift given to the Foreign Contractor 10,000
Refreshment, Food, Drinks etc., at one of 25,400
its Business Meetings
Expenditure incurred on Catering and 50,600
refreshments for shareholders and guests
at general body meeting
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Particulars Taka Particulars Taka
Donation 10,000
Rates & Insurance 40,376
Office Expenses 240,694
Directors’ Fees 9,000
Auditors Fees 30,000
Interest 211,850
Repairs to Building & Machinery 124,556
Trade Penalties, Legal Expenses & 120,000
Professional Charges
Entertainment 249,700
Workmen’s Welfare Expenditure 55,184
Contribution to Staff Provident Fund 75,500
Provision for Gratuity 150,000
Reserve for Meeting Contingent Liability 30,000
Loss for Discarding Ageing Machinery 205,397
Selling Agent’s Commission 201,690
Net Profit (Subject to Depreciation) 1,069,339
22,357,878 22,357,878
From the foregoing, compute the company’s taxable income from business, the total income
(computation should include necessary reasons), and tax liability for the assessment year, 2011 – 2012
taking into account;
i) Sale of textile products includes Tk. 89,249 from export.
ii) Payment of Mills Salaries includes Tk. 75,000 for payment of tax for a foreign technician engaged
by the company;
iii) Expenses for stamp duty, registration, legal fees, etc. amounting 250,000 have been incurred in
raising loans;
iv) Rates Tk. 1,800, insurance Tk. 2,500 and repairs to building Tk.7,544 in respect of bungalows;
v) The break-up of trade penalties, legal expenses and professional charges for Tk. 120,000 is as follows:
a) Trade penalties and law expenses constitute Tk. 20,000.
b) Assessee company has spent Tk. 50,000 for successfully defending the allegation of black
marketing.
c) Professional charges include Tk. 20,000 paid to an Income tax practitioner to represent the
cases to the Deputy Commissioner of Taxes and Tk. 30,000 to represent an Income tax Appeal
before Appellate Tribunal.
vi) Donation includes Tk. 5,000 contribution to Zakat Fund;
vii) The Staff Provident Fund is a recognized one;
viii) It is found that the amount of gratuity actually paid during the year was Tk. 100,000;
ix) Dividend income has been subject to dividend distribution tax;
x) The amount of depreciation allowable for assets used for the company’s business is worked out at
Tk. 551,710;
xi) It is revealed that outstanding trading liabilities amount to Tk. 1,100,000. The date of origin of the
trading liabilities are as follows:
a) Assessment year 2007 – 2008 350,000
b) Assessment year 2008 – 2009 300,000
c) Assessment year 2009 – 2010 150,000
d) Assessment year 2010 – 2011 300,000
1,100,000

06 Define money laundering. Is it a tax related offence? Discuss. 08

07 ABC Limited, a Bank in Bangladesh has submitted an income statement showing profit of Tk. 10
2,58,000 for the year ended 31st December 2010. You are required to find out the amount of-
(a) 1% of unclassified loan
(b) Admissible entertainment allowance
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(c) Calculation of excess profits under section 16(C)

(d) Revised Income
On the basis of the additional information as given under:
(i) Loans and Advances
- Unclassified advances Tk. 21,00,000
- Sub-standard advances Tk. 8,50,000
- Bad and Loss Tk. 1,02,50,000
- Doubtful Debts Tk. 11,45,000
(ii) Capital Structure
- Paid-up Capital Tk. 20,00,000
- Statutory Reserve Tk. 7,50,000
- Retained Earnings Tk. 2,50,000
- Dividend Equalization Fund Tk. 2,00,000
(iii) Depreciation
- Accounting depreciation Tk. 50,000
- Tax depreciation Tk. 80,000
(iv) Perquisites and Allowances
- Excess perquisite Tk. 50,000
-Printing and Advertisement Expenses Tk. 40,000
(Capitalized)
- Entertainment Allowances Tk. 65,000
- Other Expenses on which TDS are not applied Tk. 10,000
Compute the Taxable income and tax liability of the above bank for the assessment year 2011-2012.

08. What are the conditions to be fulfilled in order to claim delivery of goods as deemed export under 05
Rule 31 of the VAT Rule 1991?

09. How do you maintain a VAT current register (VAT – 18) as per VAT Act and Rules 1991? 05

10. Abul & Co. Ltd. incurred the following transactions in September 2010 10
Raw materials aggregating to Tk. 500,000 were purchased on 5 September 2010, VAT on the same
paid and the VAT challan along with the goods were received on 10 September 2010

8 September 2010 Tk. 300,000

9 September 2010 Tk. 200,000
10 September 2010 Tk. 500,000
15 September 2010 Tk. 600,000
The following deposits were made to the Govt. Exchequer through treasury challan :
7 September 2010 Tk. 20,000
12 September 2010 Tk. 30,000
15 September 2010 Tk. 70,000

Balance of deposit at 1 September 2010 in VAT – 18 was Tk. 50,000

You are required to:
Enter the above transactions in VAT – 18 of the company;
Write a letter to the management on the irregularities noted by you in completing the VAT current
register (VAT – 18) and implications of the same on the company.

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 nov dec 2012
AUDIT & ASSURANCE

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence]

Marks
1. (a) Your firm has been approached by Snipe Ltd. to accept appointment as external auditor for
the year ending 30 June 2012. In the auditor’s report on the financial statements for the year
ended 30 June 2011, the previous auditor issued a qualified opinion due to disagreement
over the accounting policy for inventory valuation. This matter was cited by the previous
auditor in response to your firm’s letter requesting information that might influence your
firm’s decision as to whether to accept the engagement. In addition, the previous auditor
stated that the audit fees due for the year ended 30 June 2011 remain unpaid.
Identify and explain the ethical issues arising from the above and identify any actions
your firm should take in respect of this matter before deciding whether it should accept
the appointment as external auditor. 4
(b) Airship plc (Airship) provides transport and warehousing services to the grocery industry.
Your firm is the external auditor of Airship for the year ended 31 December 2011. During the
course of the audit work the audit senior discovered that, in order to meet delivery schedules,
the transport manager has authorised false overtime payments for the lorry drivers.
Explain why this matter should be considered by the external auditor and state the
actions that your firm should take. 4
(c) Your firm is the external auditor of GR Ltd. (GR) for the year ending 31 March 2012. On
15 March 2012 the directors of GR engaged a firm of expert property valuers to provide
an independent valuation of the company’s freehold land and buildings. The directors
intend to recognize freehold land and buildings at this valuation in the financial
statements for the year ended 31 March 2012.
State the audit procedures that your firm should plan to undertake in order to place
reliance on the valuation provided by the firm of expert property valuers. 3
(d) BSA 265 – Communicating deficiencies in internal control to those charged with governance
and management requires external auditors to communicate significant deficiencies in
internal controls identified during the audit to those charged with governance.
Identify and explain the attributes that are required to make such communications effective. 4
(e) You are the audit senior on the external audit of Dug Ltd. (Dug) for the year ended 31
January 2012. In January 2012 Dug sold some office equipment to the wife of Dug’s
Managing Director. The audit junior has noted that the sale has not been disclosed in the
note to the financial statements detailing related party transactions and has suggested the
inclusion of an emphasis of matter paragraph in the audit report to highlight this issue.
Comment on the suitability or otherwise of the audit junior’s suggestion. 4
(f) During the external audit of Tuna Ltd. for the year ended 31 March 2012, the following
matters were discovered:
(i) cash receipts from customers, listed as outstanding lodgements in the bank
reconciliation at the year end, were cleared through the bank on 21 April 2012; and
(ii) a sales credit note, relating to a pre-year-end delivery of inventory, was issued to a
major customer on 20 April 2012.
Explain why these matters should be investigated further. 6
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2. Your firm has recently been appointed external auditor of Ecowaste Ltd. (Ecowaste) for the
year ended 31 March 2012. The previous auditors, from whom your firm has obtained
professional clearance, were not re-appointed because the managing director of Ecowaste,
John Green, who is also the majority shareholder, believes that your firm has the
appropriate expertise to assist with his plans to expand the business. The expansion plans
involve the acquisition of small companies in the same industry sector and John Green
would like your firm to undertake due diligence investigations over the next five years on
the target companies. The due diligence work will include, among other procedures, a
review of the financial statements of the target companies. Your firm has a number of other
clients operating in the same industry sector.
Ecowaste’s principal activity is the provision of waste management services which include
the collection, transfer, recycling and disposal of waste materials. The company’s activities
are overseen by a regulatory body which issues licences to companies operating waste
management services. The regulatory body has the power to modify, suspend or revoke the
licences which are granted for periods up to ten years. The licences set out the operational
criteria and the working practices to be adopted to meet those criteria.
Ecowaste’s customers include industrial and retail companies and government bodies. The
majority of work undertaken under renewable contracts covering periods up to ten years.
Payment terms vary from contract to contract, with some customers paying for services in
advance whilst others pay after Ecowaste has provided the service. Ecowaste’s largest
contract expires in July 2013. This contract currently represents 35% of Ecowaste’s revenue
and Ecowaste, along with other companies, has been invited to tender for the new contract.
Ecowaste is entitled to claim a subsidy from the government based on the volume of waste
recycled. The company is required to submit quarterly returns detailing the volume of waste
recycled and the subsidy is paid 30 days following the end of the period covered by the
return. Ecowaste’s procedures and records are subject to periodic inspections by a
government auditor to ensure that the claims for the subsidy are valid.
The company has experienced rapid growth due to an increase in demand for its services.
During the year ended 31 March 2012, the company commissioned a number of capital
projects including state-of-the-art sorting lines at all of its recycling centres and a digestion
plant. The digestion plant is to be used in Ecowaste’s new venture which will involve the
conversion of waste material into biofuel.
The sorting lines were assembled from specialist components sourced from an overseas
supplier using a combination of own and sub-contract labour. They were completed in
December 2011 and came into operation in February 2012. The digestion plant, which is
sited on land purchased from a property company owned by John Green and his wife, was
still in the course of construction at 31 March 2012. The digestion plant is being built by a
construction company under a fixed-price contract which requires stage payments based on
the value of work certified by a surveyor.
The capital projects are funded by a loan repayable in quarterly instalments over ten years.
In addition to the loan, the company has negotiated an increase in its overdraft facitlity in
order to meet its working capital requirements which have increased due to the expansion
of the business.
The accounting function is centralized at head office. However, the processing of payroll is
outsourced to a service organization which provides Ecowaste with monthly payroll
information. Ecowaste uses this information to pay the wages and salaries directly into its
employees’ bank accounts and the relevant payroll taxes to the Government Treasury.

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Requirements:
(a) Explain the self-interest and self-review threats arising from the provision of due
diligence services to Ecowaste and describe how your firm should deal with them. 5
(b) Identify, from the information provided in the scenario, the principal areas of audit risk
in respect of the financial statements of Ecowaste for the year ended 31 March 2012. For
each risk:
(i) list the factors which have led you to identify that risk; and
(ii) outline the procedures that should be included in the audit plan in order to address
the risk.
You should present your answer in two-columnar format using the headings (i) audit
risk and factors; and (ii) procedures to address the risk. 20
(c) Describe the benefits to:
(i) clients from having non-audit services provided by their external auditors; and
(ii) firms from providing non-audit services to audit clients and companies who are not
audit clients. 5

3. Khelna Toys Co (Khelna) is a manufacturer of children’s building block toys; they have been
trading for over 35 years and they sell to a wide variety of customers including large and
small toy retailers across the country. The company’s year end is 31 May 2011. The company
has a large manufacturing plant, four large warehouses and a head office. Upon
manufacture, the toys are stored in one of the warehouses until they are despatched to
customers. The company does not have an internal audit department.
Sales ordering, goods despatched and invoicing system.
Each customer has a unique customer account number and this is used to enter sales orders when
they are received in writing from customers. The orders are entered by an order clerk and the
system automatically checks that the goods are available and that the order will not take the
customer over their credit limit. For new customers, a sales manager completes a credit application;
this is checked through a credit agency and a credit limit entered into the system by the credit
controller. The company has a price list, which is updated twice a year. Larger customers are entitled
to a discount; this is agreed by the sales director and set up within the customer master file.
Once the order is entered an acceptance is automatically sent to the customer by mail/email
confirming the goods ordered and a likely despatch date. The order is then sorted by
address of customer. The warehouse closest to the customer receives the order electronically
and a despatch list and sequentially numbered goods despatch notes (GDNs) are
automatically generated. The warehouse team pack the goods from the despatch list and,
before they are sent out, a second member of the team double checks the despatch list to the
GDN, which accompanies the goods.
Once despatched, a copy of the GDN is sent to the accounts team at head office and a
sequentially numbered sales invoice is raised and checked to the GDN. Periodically a
computer sequence check is performed for any missing sales invoice numbers.
Fraud
During the year a material fraud was uncovered. It involved cash/cheque receipts from
customers being diverted into employees’ personal accounts. In order to cover up the fraud,
receipts from subsequent unrelated customers would then be recorded against the earlier
outstanding receivable balances and this cycle of fraud would continue.
The fraud occurred because two members of staff ‘who were related’ colluded. One
processed cash receipts and prepared the weekly bank reconciliation; the other employee
recorded customer receipts in the sales ledger. An unrelated sales ledger clerk was
supposed to send out monthly customer statements but this was not performed. The bank
reconciliations had a small unreconciled amount but no-one reviewed the reconciliations
after they were prepared. The fraud was only uncovered when the two employees went on
holiday at the same time and it was discovered that cash receipts from different customers
were being applied to older receivable balances to hide the earlier sums stolen.

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Required:
(a) Recommend SIX tests of controls the auditor would normally carry out on the sales
system of Khelna, and explain the objective for each test. 9
(b) Describe substantive procedures the auditor should perform to confirm Khelna’s (i) year-
end receivables balance, and (ii) Revenue. 10
(c) Identify and explain controls Khelna should implement to reduce the risk of fraud
occurring again and, for each control, describe how it would mitigate the risk. 6

4. Your firm is the external auditor of Dunlec Ltd. (Dunlec) for the year ended 31 October 2012.
The company is owned by members of the Dunlop family, none of whom is involved in
running the business. Dunlec’s principal activity is the installation of electrical systems for
customers in the retail, construction and industrial sectors in Bangladesh. The company
operates from premises in Dhaka and six freehold divisional depots throughout Bangladesh.
All contracts are fixed-price. Customers pay 95% of the contract price on completion of the work
and withhold 5% of the contract price for up to six months from the date of completion in case
remedial work is required. The materials and components used by the Dunlec are bought from
Bangladesh suppliers who require payment within 30 days of the invoice date.
Dunlec made an operating loss during the year ended 31 October 2012. This was mainly due
to a substantial bad debt in respect of a company which went into liquidation in July 2012,
with insufficient funds to pay unsecured creditors. As a result, Dunlec experienced severe
cash flow problems. In August 2012, to ease its cash flow problems, Dunlec sold its Dhaka
freehold premises and leased new premises. Dunlec used the proceeds to:
• Pay a loan instalment on the due date in September 2012 (final instalment due in
September 2013);
• Pay its overdue tax and related penalties; and
• Reduce the company’s overdraft.
During the year ended 31 October 2012, Dunlec suffered a fall in demand for its services in
the construction sector. The directors have undertaken a strategic review of operations and
have decided to reduce the company’s cost base by:
• Closing two of the divisional depots and putting both premises up for sale. Contracts in
those regions will be serviced by the nearest existing depot; and
• Making 25% of the company’s employees redundant.
The closures and redundancies were announced on 12 November 2012 and the premises
were immediately put up for sale.
As part of their assessment of the company’s ability to continue as a going concern, the
directors have prepared cash flow forecasts. These show that the company can operate
within its current overdraft facility for the two years ending 31 October 2014.

Requirements:
(a) From the information provided in the scenario, identify the specific matters you would
consider when reviewing the assumptions underlying the receipts and payments
included in the cash flow forecasts for the two years ending on 31 October 2014. 8
(b) Discuss the implications for your firm’s audit report in each of the following two
circumstances: 8
(i) Dunlec is not a going concern;
(ii) there is a significant uncertainty about the going concern status of Dunlec.
(c) Identify the parties to whom your firm may be liable for damages if an inappropriate
opinion is provided on the financial statements of Dunlec for the year ended 31 October
2012 and state the circumstances under which those parties may be successful in
claiming such damages against your firm. 4

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 nov dec 2012

BUSINESS STRATEGY
Time allowed – 2½ hours
Total Marks – 100
[N.B. - The figure in the margin indicate full marks. Questions must be answered in English.Examiner will take account of
the quality of language and of the way in which the answeres are presented.Different parts,if any,of the same
question must be answered in one place in order of sequence)
Marks

1. (a) What is a SWOT analysis and how does it lead to an understanding of realistic market opportunities? 7
(b) You are a Senior Manager in the internal audit department of Ferry Ltd.
In July 20X0, Ferry Ltd. purchased exclusive rights to operate a car and passenger ferry route until December
20X9. This offers an alternative to driving an additional 150 KM via the nearest bridge crossing.There have
been several ambitious plans to build another crossing but they have failed due to lack of public support and
government funds.
Ferry Ltd. refurbished two 20 years old ‘roll on, roll off’ boats to service the route.The boats do not yet meet
the emission standards of Enviormental Protection regulation which come into force in two years time in 20X6.
Each boat makes three return crossings every day of the year, subject to weather conditions, and has the
capacity to carry approximately 250 passengers and 40 vehicles. The ferry service carried 70,000 vehicles in
the year to 31December 20X3.
Hot and cold refreshment and travel booking facilities are offered on the one hour crossing. These services are
provided by independent business on a franchise basis.
Ferry Ltd. currently receives a subsidy from the local transport authority as an incentive to increase market
awareness of the ferry service and its efficient and timely operation.The subsidy increases as the number of
vehicles carried increases and is based on quarterly returns submitted to the authority. Ferry Ltd. employs 20
full time crew members who are trained in daily operations and customer service, as well as pessanger safety in
the event of personal accident, collision or breakdown.
The management of Ferry Ltd. is planning to apply for a recognised Safety Management Certificate (SMC).
This will require a ship audit including the review of safety documents and evidence that activities are
performed in accordance with documented procedures. A SMC valid for five years will be issued if no major
non conformities have been found.
Requirerments:
i) Identify and explain the business risks facing Ferry Ltd. which should be assessed. 8
ii) Describe the process by which the risks identified in (a) could be managed and maintained at an acceptable
level by Ferry. 8

2. (a) Discuss how the management of information might differ from the management of knowledge. 5
(b) After a difficult few years trading, a new Chief Executive, Brain Parsons has been appointed by the board of
Timebermate Ltd. a large divisionalised company,it specialises in the production of wood based products, from
plywood and chip board,to kitchen and conservatory windows.
Parsons in his initial press interview made it clear that the costs incurred by the business were far too high and that
efficiency and productivity were unacceptably low. He has made clear his intention to turn the business
around.However, there have already been rumblings from the union to which most of the workers belong . They are
not prepared to negotiate over wages or working condition.
Timbermate is a major importer of wood.Russian and Scandinavian joinery redwood, together with spruce from
North America, make up a high percentage of imports. They also import from the Baltic States. Although sterling is
strong against the dollar it has been struggling lately against the other currencies. There have been signs that some of
Timbermate’s overseas supplies are considering expanding into Bangladesh directly. There also have been an
increase in the popularity of UPVC alternatives in a number of Timbermate’s core business areas.
A number of operational issues need addressing. Recently, complaints about quality and product specification
have become more common. Additionally the delivery fleet has become less reliable and several key customers
have been let down. However many of the senior managers do not seem unduly concerned. They often talk of
the Timber crisis of 1992 and how these problems are just part of the nature of the industry. They rarely stay at
their desks after 5 pm. There is little in the way of knowledge sharing and it is unusal for staff in any one
division to even know the names of staff in the others.
One key pillar of Parson’s plan is to introduce a fully integrated information system, covering stock control and e-
procurement, computer aided design and manufacture, resource planning and management accounting. The system
is to operate across all the divisions and allow potential cross-selling and better customer management.
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Requirements:
a) Analyse the forces for and against change at Timbermate Ltd. 6
b) Recommend to Brian Parsons how he might best manage the change process. 6
c) Suggest how the implementation of the information system could best be managed by the project team at
Timbermate Ltd. 5

3. (a) Explain the importance of marketing planning for a new customer product to be launched in your country.
Using examples, identify the main steps involved in the marketing planning process. 10
(b) Five years ago Elliott Davis established a firm to provide accounting services to small business. It has grown
rapidly and today has over 100 clients, mainly coming to Elliott by personal recommendations. Many of them
employ ten or fewer people, and as small business were receiving less than satisfactory service from their
current accountants or spending time trying to do their own accounts and getting into defiiculties. Elliott has
deliberately kept the costs of his business down. He is responsible for dealing with all the clients, he employs
three accountants part time to do work for clients and his wife runs the office.
Elliott has recently met Saima Ahmed who runs her own similar sized accounting firm. A business partnership has been
proposed, Davis & Ahmed Associates.They need funding to launch the business.
They have been asked by their bank to provide it with a business plan setting out how the partnership intends
to grow and develop.

Requirerment:
Write a short report for Davis & Ahmed Associates giving the key features that you consider to be important
and that you would expect to see in the business plan for the business. 15

4. RTF is an architectural practice firm owned by 3 partners and employing 20 other staff. Its vision has been stated
as: ‘Your future designed by RTF: Today!’ Its business is focused on designing housing schemes for local
governments and also individual houses for wealthy clients. The emphasis in the housing schemes has been to
produce high-quality homes to standard designs and ensuring that the schemes were completed on time and within
budget. RTF has established a library of designs which it has successfully used and which can be reused. The
relationships which RTF has established with local government employees have been important for the successful
completion of its contracts. RTF has a corporate contacts database where every local government employee it has
dealt with, is recorded. This has proved invaluable to RTF.
RTF’s other main income stream comes from the design of individual, ‘one-off’, houses for wealthy clients. The partners
have always enjoyed this work as it gives them the opportunity to express their professional talents. However, the
recently appointed Management Accountant has concerns about this business as she believes the partners spend a
disproportionate amount of their time on this work. One fundamental control system within a professional practice is the
system for recording time which forms the basis for costing work. Unlike most of its industry which uses proprietary
software, RTF relies upon a manual system for recording time spent on each project and the results are often inaccurate.
The partners have always believed that a staff development policy is important for success. They have invested in
improving the educational and technical background of their staff. RTF has a strong relationship with its local
university. One result of this relationship is a computerized design package, ‘2020 Design’, which RTF and the
university jointly developed and own. The package speeds up the design process and offers the possibility of
significant cost savings. If this package is applied within RTF it could result in either a greater throughput of work
from the existing staff, staff reductions or some combination of both of these.
RTF has carried out market research regarding the potential demand for 2020Design. This research indicates that
2020Design will be a viable commercial product. In what will be a significant strategic and cultural change for RTF
it intends to market 2020Design and has employed a Marketing Manager. The Marketing Manager intends to
license agents to sell 2020Design in RTF’s home country and abroad. RTF does not have any systematic way of
relating its operations to its vision or of measuring performance. However, one of the partners has heard of the
Balanced Scorecard and has suggested that this might be an appropriate model for RTF to use.

Requirements:
(a) Explain the four different perspectives of the Balanced Scorecard model. 5
(b) For each of the four perspectives, discuss and recommend two appropriate measures which would assist RTF. 10
(c) Recommend how RTF could introduce and use the Balanced Scorecard to help it achieve the required changes
in strategy and culture. 15

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 nov dec 2012
CORPORATE LAWS & PRACTICES

Time Allowed – 2½ hours

Total Marks – 100

[N.B – Question must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. One of your prospective clients from USA is contemplating to start their business in Bangladesh. The
client requests your opinion over the legal position of opening their business in the form of Liaison
Office, Branch Office and forming a subsidiary in terms of:
(i) Legal documents for registration;
(ii) Taxation and VAT;
(iii) Remittances;
(iv) Employment; and
(v) Registration Procedure. 15 = (5x3)

2. (a) Mention eight exemptions and privileges that Companies Act, 1994 provide to private
companies. 4
(b) Can a public company be converted into a private company? How? 4
(c) Discuss the procedures of reduction of share capital and how the same is confirmed? 5
(d) Statutory Meeting is a must within a specified time for a new company. State the specified time
and the matters can be transacted in such meeting. 5

3. (a) Under what circumstances a company limited by shares can (i) pay interest out of capital ; (ii)
write off preliminary expenses? 5
(b) Enumerate the mortgage and charges which require registration and state the consequences of
their non-registration. 5
(c) When does the office of a director stand vacated? 5
(d) Discuss the circumstances on which the court orders for winding up of a company on “just and
equitable” ground. 5

4. (a) Give eight examples of company’s affairs or market conditions typically requiring disclosure. 6
(b) Discuss about the additional requirements to directors report apart from those of Companies
Act, 1994 (i) under the listing rules of stock exchange of Bangladesh ; (ii) Notifications of SEC 6
(c) Under what circumstances SEC can impose penalty under SEC Ordinance, 1969? What is the
amount of such penalty? 6

5. (a) Explain the provision of Bank Companies Act regarding restrictions on different types of
appointment. 5
(b) Explain the provision of Bank Companies Act regarding paid up capital and reserve. 5
(c) Explain the requirement of maintaining reserve fund under the Bank Companies Act 1991. 5

6. (a) Mr. X insured his ship against total loss with Y insurance company. The ship sank in the deep
sea. Y pays the value to X in full. Subsequently the ship was salvaged and sold for some money.
Explain who is entitled to the sale proceeds of the ship, Mr. X or Y insurance company. 4
(b) What action the IDRA can take against an insurer when return furnished by the insurer under
the provisions of the Insurance Act, 2010 is found to be inaccurate or incorrect in any respect? 5
(c) Who can survey the Insurance claims? What are the exemption limits in respect of survey under
the provisions of Insurance Act? In case of disagreement with surveyor’s statement, what steps
can the aggrieved party take? 5

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 may june 2013

FINANCIAL MANAGEMENT
Time allowed – 2½ hours
Total marks – 100

[N.B. – Questions must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]

Marks
1. (a) Methods of exports financing include: (i) Bills of Exchange (ii) Export factoring (iii)
Documentary Credits and Export Credit insurance. Explain how these methods help the
exporters reducing the risks of bad debts in foreign trade. 6
(b) Explain why the forward exchange rates are different from spot rates. 6
(c) T Ltd. has bought goods from US supplier and must pay US $ in three months’ time. The
company’s Finance Director wishes to hedge against the foreign exchange risks, and the three
methods which the T Ltd. considers are : (i) forward exchange contacts (ii) money market
borrowing or lending, and (iii) making lead payments.
The following annual interest rates & exchange rates are currently available:
US Dollar Bangladesh Taka
Period Deposit rate Borrowing rate Deposit rate Borrowing rate
1 month 7% 10.25% 10.75% 14.00%
3 months 7% 10.75% 11.00% 14.25%
Which is cheaper method for T Ltd.? 18
2. (a) “Businesses have an ongoing capital requirement if they are to continue to meet the
shareholders expectation.” Explain how capital market helps the business in this regard? 4
(b) What is meant by “going public”? Discuss its advantages and disadvantages. 4
(c) Pran Ltd. is a successful food retail company. Over the last five years it has increased its share
of the Bangladesh food retail market by 30%. It makes no use of debt and has financed its
operations entirely from retained earnings. Pran has a current price/earning ratio of 28
compared with the food retailing sector average of 19. Other financial data relating to the
company are shown below:
Figures in Taka
2008 2009 2010 2011 2012
Earning per share 16.10 19.30 24.70 30.50 35.80
Net dividend per share 4.86 5.86 7.50 9.00 11.00
Book value of equity per share 103.00 124.00 142.00 165.00 190.00
Requirements:
Estimate the cost of equity capital for Pran Ltd. using the following models: 6x2=12
(i) Dividend growth model
(ii) Earning retention model
3. (a) Why cash flow is preferred rather than profit in investment appraisal? 3
(b) How taxation affect the investment decision? Discuss with two examples. 3
(c) ABC Ltd. is considering an investment in new technology that will reduce operating costs
through increasing energy efficiency and decreasing pollution. The new technology will cost Tk.1
million and have a four-year life, at the end of which it will have a scrap value ofTk.100,000.
A licence fee of Tk.104,000 is payable at the end of the first year. This licence fee will increase by
4% per year in each subsequent year.
The new technology is expected to reduce operating costs byTk.5·80 per unit in current price terms.
This reduction in operating costs is before taking account of expected inflation of 5% per year.

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Forecast production volumes over the life of the new technology are expected to be as follows:
Year 1 2 3 4
Production
(units per year) 60,000 75,000 95,000 80,000
If ABC Ltd. bought the new technology, it would finance the purchase through a four-year loan
paying interest at an annual before-tax rate of 8·6% per year.
Alternatively, ABC Ltd. could lease the new technology. The company would pay four annual
lease rentals of Tk.380,000 per year, payable in advance at the start of each year. The annual
lease rentals include the cost of the license fee.
If ABC Ltd. buys the new technology it can claim capital allowances on the investment on a
25% reducing balance basis. The company pays taxation one year in arrears at an annual rate
of 30%. ABC Ltd. has an after-tax weighted average cost of capital of 11% per year.
Required:
(a) Comment on whether ABC Ltd. should lease or buy the new technology. 9
(b) Calculate the net present value (NPV) of buying the new technology and advise
whether ABC Ltd. should undertake the proposed investment. 15
(c) Discuss how an optimal investment schedule can be formulated when capital is
rationed and investment projects are either: (i) divisible; or (ii) non-divisible. 5

4 B Ltd. wishes to calculate its weighted average cost of capital and the following information
relates to the company at the current time:
Number of ordinary shares 20 million
Book value of 7% convertible debt Tk.29 million
Book value of 8% bank loan Tk.2 million
Market price of ordinary shares Tk.5·50 per share
Market value of convertible debt Tk.107·11 per Tk.100 bond
Equity beta of B Ltd. 1·2
Risk-free rate of return 4·7%
Equity risk premium 6·5%
Rate of taxation 30%
B Ltd. expects share prices to rise in the future at an average rate of 6% per year. The convertible
debt can be redeemed at par in eight years’ time, or converted in six years’ time into 15 shares of
B Ltd. per Tk.100 bond.

Required:
(a) Calculate the market value weighted average cost of capital of B Ltd. State clearly any
10
assumptions that you make.
(b) Discuss the circumstances under which the weighted average cost of capital can be used in
investment appraisal. 5

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 may june 2013

IT APPLICATION
Time allowed – 2½ hours
Total marks – 100

[N.B.– The figures in the margin indicate full marks. Questions must be answered in English.
Examiner will take account of the quality of language and the manner in which the answers
are presented. Different parts, if any, of the same question must be answered in one place in
order of sequence.]
Marks
1. Briefly explain the John Cato’s Model of Interaction Design and AIDA Model. 10

2. Define the five investment opportunities to future business strategy. 10

3. Describe the nature of Information Technology (IT) infrastructure in Bangladesh. 10

4. What is Information Security? What are the properties of Information Security? Explain. 10

5. (a) What is data encryption? Explain the information encryption procedure. 5

(b) What are the levels of management decision making? 5

6. (a) What is CAAT? How planning of accounting information system is related with
CAAT? 5
(b) “The feasibility of a proposed solution is evaluated in terms of its components.” What
are the components? Describe briefly. 5

7. (a) Elucidate testing phase of a new accounting information system development process. 5
(b) How user IDs and passwords are used in logical security controls? 5

8. What is software testing ? Briefly explain at least four types of testing activities. 10

9. Short Notes:
(a) Dedicated leased lines,
(b) Automatic dial-back,
(c) Multifactor authentication, and
(d) Virtual private network. 10

10. Explain the contingency and business resumption programs. 10

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 may june 2013

TAXATION-II
Time allowed – 2½ hours
Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. Write shorts notes on the following: 10
a. Company.
b. Dividend.
c. Income.
d. Market Value.
e. Principal Officer.

2. (i) Mr. Rahman owner of smart fabric which has three out let in Dhaka. He has recently opened a
new out let at UK and Mr. Rahman has decided to transfer the goods from Bangladesh but he
does not know the system of computation of transfer price and keeping of information,
documents and records as per income tax Ordinance 1984. What are the methods to compute
the transfer price and what records, information and documents are to be kept as per income
tax Ordinance 1984? 8
(ii) What is the provision with regard to penalty for failure to keep, maintain or furnish
information, documents or records to DCT in relation to transfer price? 2

3. (a) Discuss the provision of assessment on the basis of report of a Chartered Accountant under
section 83AAA of Income Tax Ordinance 1984. 5
(b) What are the consequences of failure to deduct TDS as per income tax Ordinance 1984? 5

4. The following are the income of Mr. Rahman for the year ended June 30, 2012. Compute his total 20
income and tax liability.
(a) Salary Income;
Basic Salary - Tk. 25,000 p.m
Bonus – 2 months basic salary
House rent allowance – 40% of basic salary
Medical allowance – Tk. 1,500 p.m
Conveyance allowance – Tk. 2,000 p.m
Concessional passage within Bangladesh – Tk. 1,50,000

Subscription to RPF – 10% (Employer’s contribution is the same). Interest accrued Tk. 96,000
on P.F balance calculated at 16% p.a.

(b) Interest income (Gross) :

i. From Leasing Company Tk. 12,47,502

ii. On Bank Fixed Deposit Tk. 1,38,214
iii. On Bank Savings Account Tk. 53,790

(c) Income from House Property :

Mr. Rahman has one residential house-one half of which is let out at a monthly rent of Tk.
2,000 and the other half-self occupied

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 may june 2013

Following expenditures were incurred by Mr. Rahman :

Taka
Municipal tax 20,000
Repairs and maintenance 60,000
Insurance premium 12,000
Salary of caretaker 30,000
(d) Income from Land :
Sale of paddy from land given on “Adhi” system – Tk. 1,25,000. Sale proceeds from trees of
spontaneous growth in Mr. Rahman’s land Tk. 20,000
(e) Income from Business :
Share of profit from a partnership firm Tk. 75,000
(f) Capital Gains :
i. Profit on sale of shares of ABC Ltd (A Private Ltd. Co.) Tk. 60,50,000
ii. Sale of Shop (Deed Value Tk. 1,92,500), Original cost Tk. 27,750 and tax deducted at source
at the time of registration Tk. 3,850 to be assessed u/s. 82C.
iii. Profit on sale of Shares of XYZ Ltd. Tk. 34,30,501 (A Publicly listed Co.)
(g) Income from other Source :
i. Dividend (gross) Tk.11,350
ii. Income from shop rent Tk. 13,200
During the year Mr. Rahman made the following investments –
i) Life insurance premium (Policy Value Tk. 500,000) Tk. 60,000
ii) Investment in shares of a listed company Tk. 100,000
iii) Donation to charitable institutions as approved by NBR Tk. 30,000
5. XYZ Limited, a Private Limited Company, is engaged in Deep Sea fishing business for last few years. For
the Income year ended on 30th June 2012 the company has submitted to you a statement of accounts
consisting of Trading and Profit and Loss Account for filing income tax return, As a Manager finance, of
the company you have examined the accounts which are as follows :
XYZ Limited
Trading Account
For the year ended June 30, 2012
Particulars Taka Particulars Taka

Cost of Diesel 59,416,425 Sales :

Export 94,465,822
Crew, Captain Salary 20,928,739 Local 59,817,456
and allowances 154,283,278

Catch Incentive & Festival Bonus 4,677,749

Carrying and Forwarding 99,254
Packing & Processing 4,204,789
Fishing Gear 2,947,474
Vessel Operational Expenses 5,601,743
Loading & Unloading Expenses 373,350
Export Expenses 7,656,229
Fee & Taxes 319,400
Insurance 7,724,583
Repairs & Maintenance Expenses 6,810,438
Gross Profit 33,523,105
154,283,278 154,283,278

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XYZ Limited
Profit and Loss Account
For the year ended June 30, 2012

Particulars Taka Particulars Taka

Directors Remuneration 300,000 Gross Profit 33,523,105

Staff Salary 9,344,035 Income from Dividend 646,646
Staff Bonus 1,530,965 Add : AIT 114,114
Staff Overtime 121,974 760,760
Contribution to recognized P.F 286,547
License & Renewal 672,787
Traveling Expenses 427,548
Conveyance 125,321
Entertainment 125,321
Advertisement 54,875
Telephone Expenses 494,637
Car Maintenance 311,458
Electricity Expenses 401,578
Printing & Stationery 161,587
Canteen Subsidy 115,487
Canteen Gas Expenses 45,154
Office Decoration 1,377,903
Office Rent 1,026,647
Postage & Photocopies 135,487
Paper & Periodicals 102,154
Telex & Telegram 120,248
Security Bills 71,125
Agency Commission 2,52,000
WASA 60,548
Deferred Revenue Written off 1,01,879
Bank Interest 8,65,128
Staff Welfare Expenses 4,58,796
Miscellaneous Expenses 1,48,845

Depreciation 4,681,665
Net Profit 10,362,924
34,283,865 34,283,865

(1) The company has paid VAT of Tk. 80,02241 against the payment of cost of diesel which has been
refunded for Export earning of Tk. 9,44,65,822.
(2) There was eleven taxable employees. The company has disbursed total Tk. 35,40,000 out of Tk.
93,44,035 without complying with the provision of section 30 (a).
(3) The Company has imported packing materials and fishing gear from Korea. The custom authority
has collected income tax of Tk. 2,40,500 from this consignment at the time of delivery of goods.
(4) Wasa bill includes Tk. 30,000 for director’s personal residence.
(5) Excess perquisites of Tk. 360,300 paid to technical staff of the company.
(6) Crew, Captain salary and allowance include Tk. 360,300 as Income Tax of 5 Engineers engaged on
contract basis paid on behalf of the Company to Government Account.
(7) Insurance expenses charges in Trading Account include Tk. 2,18,500 found to be director’s
personal yearly premium.
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(8) Miscellaneous expenses include Tk. 25,000 as donation to Local Orphanage Center approved
by NBR.
(9) Office Rent Claimed at Tk. 10,26,647 out of which rent @ Tk. 60,000 per month paid without
complying with the provision of section 53A of Income Tax Ordinance 1984.
(10) Tk. 1,50,000 paid as picnic expenses of sister concern of the Company out of Tk. 4,58,796
debited to staff welfare expenses.
(11) Export turnover tax rebate will be allowed for the company.
(12) Tax depreciation as calculated with reference to previous year final assessment is Tk.
33,90,000.
You are required to compute total Income, final tax liability allowing credit of tax paid at custom
stage and tax paid on dividend income after considering the above fact supplied by the
Management. 30

6. What is Input Tax ? Discuss the conditions to be met for claiming input tax. 5

7. Discuss the determination of cost for calculation of VAT. 10

8. Define the following term of VAT. 5

a. Input.
b. Commercial documents.
c. Zero.
d. Truncated Value.
e. Trade Service.

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 may june 2013

AUDIT & ASSURANCE

Time Allowed – 2½ hours
Total Marks – 100

[N.B - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. a) Your firm has been invited to submit proposal for the audit of Comfort Ltd. which is engaged in
trading of certain brand of medical equipment in Bangladesh. Your firm is the current auditors
of Easy Ltd., a company doing the same business of supply of similar brand of medical
equipment in Bangladesh.
Identify and explain the principal ethical issue that you may need to consider when deciding
whether or not to propose for the audit of Comfort Ltd., and state the procedures you may
need to implement in the event that your proposal was successful. 4
b) Your firm has issued unqualified opinion on completion of audit of a private limited company.
Managing Director of the company asked the reason for using the words “true and fair” rather
than “correct” given that the audit team spent one month in examining all the accounting
records of the company.
Explain the situation. 4
c) Your firm has been appointed as the external auditor of ABC Ltd. for the year ended 31
December 2012.Its principal activity is to manufacture and sell of textile chemicals. BD Textile
Mills Ltd. was the major customer of ABC Ltd. Sales to BD Textile Mills Ltd. during the previous
year 2011 amounted to Tk.90,000,000 which was around 60% of the total sales of ABC Ltd.
during the previous year. BD Textile Mills Ltd. lost its major overseas customers in 2012. Sales
of BD Textile Mills Ltd. dropped significantly during the year 2012.
The company made a loss for the year ended 31 December 2012, but the profit forecast
indicates a return to profitability for the year ended 31 December 2013. The loss in 2012 was
due to redundancy and sudden loss of its major customer, BD Textile Mills Ltd. The company is
now focusing on cost reduction through using alternative raw materials and obtaining other
potential customers. There are plans to develop product, market and to expand the customer
base, and contracts have recently been agreed with several new customers. The company has
also negotiated a new contract with major supplier, which has resulted in reduced prices in
return for committed monthly purchases.
During the year ended 31 December 2012 the company suffered severe negative cash flow
but managed to stay within the overdraft facility by delaying payments to trade payables and
VAT Authority. The company has a bank loan which is due for repayment in April 2013 and is
negotiating with its bankers for a replacement loan required to repay the present loan.

Required:
(i) Explain what is meant by the `going concern’ concept and why the auditor should consider
whether a company is a going concern in the light of BSA 570. Describe the procedures that an
auditor would undertake to satisfy himself on the statement of going concern. 7
(ii) Identify the matters to be considered when reviewing the profit and cash flow forecasts
prepared by the company including other considerations, in order to assess whether the
company is a going concern. 8
(iii) Discuss the implications for the audit report of ABC Ltd. in respect of the financial
statement for the year ended 31 December 2012, if the negotiations for the replacement loan
are not completed by the time the audit report is signed. 5

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2. a) Explain the term ‘audit risk’ and the three elements of risk that contribute to total audit risk. 4
b) The Jiboner Alo (Charity) was established in 1972. The Charity’s aim is to provide education
and financial support to children from disadvantaged backgrounds.
Charity has a detailed constitution which explains how the Charity’s income can be spent. The
constitution also notes that administration expenditure cannot exceed 10% of income in any
year.
The Charity’s income is derived wholly from voluntary donations. Sources of donations
include:
 Cash collected by volunteers asking the public for donations.
 Donations received from past beneficiaries of the Charity.
 Donations from generous individuals. Some of these donations have specific clauses
attached to them indicating that the initial amount donated (capital) cannot be spent and
that the income (interest) from the donation must be spent on specific activities, for
example, provision of study materials.
The rules regarding the taxation of charities are complicated in certain situations.
Required:
(i) Identify areas of inherent risks in the Charity and explain the effect of each of these risks
on the audit approach. 12
(ii) Explain why the control environment may be weak at the Charity. 4
c) “A public sector audit covers not only the audit of financial statements and internal control
systems, but also covers the issues of ‘regularity’, ‘propriety’ and ‘value for money.’ Explain
the statement defining the terminology (i) regularity, (ii) propriety, (iii) value for money. 7

3. a) List and explain four factors that will influence the auditor’s judgment regarding the
sufficiency of the evidence obtained. 4
b) ISA 580 Written Representations provides guidance on the use of written representations as
audit evidence. List six items that could be included in a representation letter. 3
c) After performing tests of controls, the auditor is of the opinion that audit evidence is not
sufficient to support the audit opinion; in other words many control errors were found.
Explain three actions that the auditor may now take in response to this problem. 3
d) (i) What is materiality? Explain why there can be difficulties for auditors regarding
materiality. 6
(ii) You are the audit manager of an audit engagement. During the year under audit you have
noted that in the comprehensive income statement of your client legal expenses
amounting to Tk.15,000 was charged. Your audit team leader has not performed any audit
procedure on the same as the amount is insignificant. As the audit manager do you agree
with the view of your audit junior? If not explain the reason for disagreement and advise
the courses of actions to be taken in the situation. 4

4. Your firm, Sikder & Co. has been appointed as the auditor of Bengal Electronics Ltd. The Company
sells televisions, DVD players and other musical instruments to electrical retailers.
You are planning the audit for the year ended 30 December 2012. The audit for the year ended 31
December 2011 was carried out by another firm of auditors.
During a recent visit to the company you obtained the following information:
a) The management accounts for the 10 months to 31 October 2012 show a revenue of Tk. 1,300
million and profit before tax of Tk. 40 million. Assume sales and profits accrue evenly
throughout the year. In the year ended 31 December 2011 the company had sales of Tk. 1,100
million and profit before tax of Tk. 80 million.

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b) The company installed a new computerized inventory control system which has operated from
1 July 2012. As the inventory control system records inventory movements and current
inventory quantities, the company is proposing:
(i) To use the inventory quantities on the computer to value the inventory at the year-end.
(ii) Not to carry out an inventory count at the year-end.
c) You are aware that there have been reliability problems with the company’s products, which
have resulted in legal claims being brought against the company by customers, and customers
refusing to pay for the products.
d) The sales increase in the 10 months to 31 October 2012 over the previous year has been
achieved by attracting new customers and by offering extended credit. The new credit
arrangements allow customers three months credit before their debt becomes overdue,
rather than the one month credit period allowed previously. As a result of this change, trade
receivables age has increased from 1.6 to 4.1 months.
e) The finance director and purchasing manager were dismissed on 15 July. A replacement
purchasing manager has been appointed but it is not expected that a new finance director will
be appointed before the year end of 31 December 2012. The chief accountant will be
responsible for preparing the financial statements for the audit.
Outsourcing of payroll
For the first time this year the company has outsourced its payroll function to a firm of
Accountants called Karim & Co. Payroll costs form a substantial cost in the statement of
comprehensive income. Karim & Co. prepares the payroll, records and updates it for starters
and leavers based on information provided by the company.

A series of payroll reports are securely e-mailed to the company each month and reviewed by
the appropriate management. Payments are made to employees on the basis of a net pay
report provided and journals are put through to reflect the wages costs and related liabilities.

Required:
(a) Describe Sikder & Co’s responsibilities in relation to the company’s opening balances in
accordance with BSA 510 and BSA 710. 5
(b) Explain why it is important for auditors to plan their audit work. 5
(c) Describe the matters you will consider in planning the further action you will take concerning
the information you obtained during your recent visit to the company. 10
(d) Describe Sikder & Co’s responsibilities in relation to obtaining understanding of the services
provided by Karim & Co. when planning the audit. 5

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 may june 2013

BUSINESS STRATEGY
Time allowed – 2½ hours
Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) Explain four different methods whereby a firm can reduce the threat of new entrants to an
industry. 8
(b) Explain the reasons why firms often continue to operate in an industry which is generating
below normal returns in the short-run. 4
(c) Machinco Ltd. has been in business for 25 years, during which time profit have risen by an
average of 3% per annum, although there have been peaks and troughs in profitability due to
the ups and downs of trade in the customers’ industry. The increase in profit until five years
ago was the result of increasing sales in a buoyant market, but more recently, the total market
has become somewhat smaller and Machinco Ltd. has only increased sales and profits as a
result of improving its market share.
The company produces components for manufacturers in the engineering industry.
In recent years, the company has developed many new products and currently has 40 items in
its range compared to 24 only five years ago. Over the same five years period, the number of
customers has fallen from 20 to 9, two of whom together account for 60% of the company’s
sales.
Give your appraisal of the company’s future, and use a SWOT analysis to identify the weak
areas and suggest remedies. 12

2. (a) Explain what is meant by benchmarking and suggest why organizations might use it? 3
(b) What is ‘cash cow’ in the Boston Consulting Group (BCG) matrix? Suggest two examples. 2
(c) AL Limited is a company which supplies industrial cleaning services. After it was founded 15 years
ago, AL Limited (as it was then) achieved rapid growth and high levels of turnover. The Board of
Directors at that time believed that its traditional scientific management style, based on Taylorian
principles, was the main reason for the company’s success. As the company grew, the directors
found that the company had insufficient capital resource to meet the increasing levels of demand
for its services. As a result, AL Ltd. was floated in the stock exchange and increased capital
resources flowed into the business, allowing it to maintain its rate of expansion. This seemed to be
further evidence of the success of the traditional management style employed.
In each of the last 3 years, AL Ltd. has found that its turnover and profit have fallen below the
industry average and that its market share has reduced. There is increasing concern among
the shareholders about the long term decline in turnover and profitability. The finance
director of AL Ltd. (to whom you report) has quoted the performance of CC Ltd a similar sized
company in the contract catering industry. While CC Ltd is not a competitor, it is often viewed
as a benchmark against which AL Ltd. can measure its own performance even though it
employs a different management style which requires the consent and commitment of
employees. CC Ltd has managed to increase its market share, turnover and profitability
consistently over the last 5 years and the finance director has turned to you to analyse why AL
Ltd. seems to be producing continuously unsatisfactory results.
Requirements:
i) Explain to the directors of AL Ltd. how value can be added by carrying out a programme of
benchmarking. 8
ii) Explain how you would implement a benchmarking exercise comparing the performance
of AL Ltd. with CC Ltd. Discuss the possible implications for the style of management
which should be employed by the company after carrying out such an exercise. 10

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3. C Ltd, a quoted chemical manufacturing company, has until recently achieved a steady increase in
profitability over a number of years. It faces stern competition and the directors are concerned
about disquiet expressed by major shareholders regarding the performance over the last two
years. During this period it has consistently increased dividends, but its share price has not grown
at the same rate as it did previously.
K Ltd, a direct competitor, is similarly experiencing a reduction in profitability. Its shareholders are
diverse, with the majority being financial institutions. K Ltd has been criticized for under-investment
and has achieved no product development over the last 2 years. Following a concerned media
campaign, K Ltd is facing prosecution for discharging untreated pollutants into a river.
C Ltd is seriously considering making a bid to acquire K Ltd. The directors of C Ltd, however, are
divided as to whether K Ltd should be closed down or permitted to continue post-acquisition
production if a bid is made. In either situation significant staff redundancies would follow.

Requirements:

a. State the strategic factors which C Ltd need to consider before making a bid to acquire K Ltd. 8
b. (i) Discuss the social and ethical implications for the managers and staff of both C Ltd and K Ltd
if the acquisition goes ahead. 8
(ii) Discuss the environment issues which the directors of C Ltd. might face if it proceeds with
the acquisition of K Ltd. 7

4. (a) Identify four general strategies for risk management. 2

(b) Identify six controls recommended by ISO 17799 for assuring IT security. 3
(c) Your corporate client has purchased the following data which provides scores of political risks
for a number of countries in which the company is considering investing in a new subsidiary:

Total Economic Debt in Credit Govt. Remittance Access

perfor- Default Rating stability restriction Capital
mance
Weighting 100 25 10 10 25 15 15
Gamala 37 13 4 5 5 10 0
Forland 52 5 10 9 16 8 4
Amapore 36 12 2 3 9 5 5
Covia 30 9 3 2 15 1 0
Selfia 39 15 4 3 11 4 2

Countries have been rated on a scale from 0 to the maximum weighting for each factor (e.g. 0
– 15 for remittance restrictions). A high for each factor, as well as overall, reflects low political
risk. A proposal has been put before the board of directors that investment should take place
in Forland.

Requirements:
Prepare a brief report for the company’s Board of Directors discussing whether or not the
above data should form the basis for:
(i) The measurement of political risk, and 15
(ii) The decision about which country to invest. 10

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 may june 2013

CORPORATE LAWS & PRACTICES

Time allowed – 2½ hours
Maximum Marks – 100

[N.B – Questions must be answered in English. Figures in the margin indicate full marks. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence]

Marks
1. The AGM of XYZ Company Limited was called at the factory premises situated at about 350 km
away from its registered office. On the day of the meeting the conveners i.e. the Chairman, the
Directors & the Company Secretary could not be present in the meeting place due to reasons not
within their control. The shareholders who assembled at the factory premises found that the
conveners of the meeting were absent & the meeting place was under lock & key. The
shareholders present convened the meeting in a nearby building. They ascertained that quorum
was present, appointed one of them as the Chairman for that meeting since the Chairman and the
Directors were not present within the waiting time as per articles of association and conducted the
meeting as per agenda. Everything was done according to articles to ensure a valid meeting. They
took all resolutions as per agenda of the meeting except that they approved a higher rate of
dividend than the rate recommended by the Board. Please answer the followings with reference to
the relevant provisions of Companies Act 1994.
a) Is the AGM conducted by the shareholders valid? 4
b) Are the resolutions taken in the AGM binding on the Company? 4
c) If the Chairman claims that he has postponed the meeting on the basis of a Board decision
made on way to the meeting place where they were bound to halt, what will be legal status of
his claim, if he wants to hold the AGM on another date? 6
d) What else the company should do if it does not want to give cognizance to the said general
meeting? 6

2. (a) Mention the persons who are liable for ‘untrue statements’ in a prospectus. Discuss the
nature of such liability. 6
(b) What is a debenture? What are the remedies available to a debentureholder when his
debenture is in “jeopardy”? 5
(c) Discuss the restrictions regarding loan to directors of a company according to section 103 of
the Companies Act, 1994. 5

3. (a) Discuss the provisions of section 233 of the Companies Act, 1994 regarding protection of
interest of minority shareholders. 6
(b) Can a ‘contributory’ present a petition for winding up of a company? If so, when? 4
(c) The XYZ Company Limited receives a letter from Mr. B - a member of the company that he has
lost one share certificate No. 1001 for 100 shares. The distinctive number being 5001 to 5100.
As the Secretary of the company what steps would you take for issuance of a duplicate share
certificate as required by Mr. B? 6

4. (a) What are the restrictions on dealing in securities? 4

(b) What are the provisions for appeal by a person aggrieved by an order of a member or an
officer of the Securities Exchange Commission? 5
(c) Discuss the provisions for submission of annual reports under the SEC Rules 1987. 5
(d) What are the requirements of presenting financial statements by an IPO aspiring public
limited company? 4

5. a) Please describe the procedures for appointment of Statutory Auditors of a Non-Banking Financial
Institution. 8
b) What are the consequences if a Non-Banking Financial Institution fails to appoint the statutory
auditor? 2
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6. a) Describe the circumstances when the position of a director of Bank become vacant in line with 4
the provisions of the Banking Companies Act, 1991

b) Describe the consequences or legal provisions of the following cases: 6

i) Mr. ‘X’ is a director of ABC Bank Limited as well as MNO Bank Limited. Both are incorporated
in Bangladesh;
ii) Mr. ‘Y’ is a director of a bank. His bank borrowed money from another bank. He resigned
from the board of directors of the bank about which the lending bank was not informed;
iii) ABC Bank Limited was incorporated in Bangladesh. It relocated one of its branches without
informing the Bangladesh Bank.

7. a) Describe the provisions relating to insurance in abroad. 5

b) Describe the conditions to be fulfilled for solvency margin in accordance with The Insurance Act,
2010. 5
 may june 2013

FINANCIAL ACCOUNTING
Time Allowed – 2½ hours
Maximum Marks – 100
[N.B - Questions must be answered in English. Figures in the margin indicate full marks. Examiner will
take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any, of the same question must be answered in one place in order of sequence.]

Marks
1 (a) The market value of Lake Shore Corporation’s inventory has declined below its cost. Nigar 9
Sultana, the controller, wants to use the allowance method to write down inventory because it
more clearly discloses the decline in market value and does not distort the cost of goods sold.
Her supervisor, Executive Director (ED) - Finance, prefers the direct method to write down
inventory because it does not call attention to the decline in market value.
Required:
i) What, if any, is the ethical issue involved?
ii) Is any stakeholder harmed, if ED’s preference is used?
iii) What should Nigar Sultana do?
(b) (i) In the context of accounting for provisions and contingencies, define ‘Liability’ as per BFRS
Framework for the preparation and presentation of financial statements. 4
(ii) Transcom Ltd. is organized into several divisions. The following events relate to the year
ended 31 December 2012.
 The computer division supplied a computer to a customer during the year that exploded,
causing a fire. Transcom Ltd. is being sued for damages. Lawyers have advised that there is a
30% chance of successfully defending the claim. Otherwise, the damages are expected to cost
Tk.I0 million (present value Tk. 9.5 million). The lawyers have investigated the cause of the
problem with a team of accident consultants. They have concluded that parts supplied to the
computer division by Moor Ltd contributed to the fire. Lawyers have estimated that Moor
Ltd's contributory negligence amounted to 40% of the total damages. Negotiations have
started with Moor Ltd and the lawyers believe that a claim is likely to succeed.
 On 15 December 2012, the directors of Transcom Ltd minuted their decision to close the operations
of the loss making space technology division. The decision and an outline of a plan were immediately
announced to employees and a press release was issued. The closure, which began on 4 January
2013, has an estimated date for completion, including the sale of the non- current assets of the
division, of 30 June 2013. The costs associated with the closure include the following.
Employee redundancy costs Tk. 12,000, 000
Lease termination costs Tk. 4,000,000
Relocating continuing staff to other divisions Tk. 2,000,000
Impairment losses Tk. 21,000,000
 Transcom Ltd's retail division provides two-year warranties to its customers. Experience has
shown that, on average, 10% of sales from this division result in a warranty claim. Revenue from
this division in 2012 was Tk.8 million. At 1 January 2012 Transcom Ltd had a warranty provision
in place of Tk. 1 million. During the year, claims of Tk. 600,000 were settled by the company.
Requirement:
Prepare the provisions and contingencies notes for the financial statements of Transcom Ltd for
the year ended on 31 December 2012 12

2 (a) State the four different measurement bases referred to BFRS Framework for the preparation and 6
presentation of Financial Statements. Explain briefly, how the assets and liabilities are recorded
/ carried under each of the four different measurement bases.
(b) RS Corporation is evaluating two recent transactions involving exchanges of equipment. In one 4
case, similar assets were exchanged. In the second situation, dissimilar assets were exchanged.
Explain with example to RS Corporation the differences in accounting for these two
transactions in line with BAS 16: Property Plant & Equipment.

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 may june 2013

(c) What is ‘backlog depreciation’? Explain with example and state situation where it applies? 3
(d) The following balances of property, plant and equipment are extracted from ABC Limited as on
31 December 2011:
Land Tk. 300,000
Land improvements Tk. 140,000
Buildings Tk. 1,100,000
Machinery & equipment Tk. 960,000
During the year 2012 the following transactions occurred:
i) A tract of land was acquired for Tk. 150,000 as a potential future building site.
ii) A plant facility consisting of land and building was acquired from SEL Ltd. in exchange
for 20,000 shares of ABC Limited shares. On the acquisition date, ABC Limited’s shares
had a closing market price of Tk. 37 per share on a national stock exchange. The plant
facility was carried on SEL’s book at Tk. 110,000 for land and Tk. 320,000 for the building
at the exchange date. Current appraised values for the land and building, respectively, are
Tk. 230,000 and Tk.690,000.
iii) Items of machinery and equipment were purchased at a total cost of Tk. 400,000.
Additional costs were incurred as follows:
Freight and unloading Tk. 13,000
Value added tax (VAT) Tk. 20,000
Installation Tk. 26,000
iv) Expenditures totalling Tk. 95,000 were made for new parking lots, streets and sidewalks at
the company’s various plant locations. These expenditures had an estimated useful life of
15 years.
v) A machine costing Tk. 80,000 on January 01, 2004, was scrapped on June 30, June 2012.
Double declining balance depreciation has been recorded on the basis of a 10 years life.
vi) A machine was sold for Tk. 20,000 on July 1, 2012. Original cost of the machine was Tk.
44,000 on January 01, 2009 and it was depreciated on the straight line basis over an
estimated useful life of 7 years and a salvage value of Tk. 2,000.

Required: Prepare extract of income statement for the year ended on 31 December 2012 and
fixed assets schedule as at 31-12-2012. 12

3 As at 31 May 2011 and 31 May 2012 ABC Ltd had the following summarised balance sheets.
2012 2011
TK. TK. TK. Tk.
ASSETS
Non-current assets
Property, Plant and equipment
Cost or valuation 5,164,000 4,347,000
Accumulated depreciation (2,198,000) (2,001,000)
2,966,000 2,346,000
Intangibles
Cost 9,360,000 8,645,000
Accumulated amortisation (3,690,000) (2,715,000)
5,670,000 5,930,000
Investments 2,145,000 127,000
10,781,000 8,403,000
Current assets
Inventories 1,112,000 1,086,000
Trade and other receivables 948,000 840,000
Prepayments 95,000 108,000
Cash and cash equivalents 489,000 322,000
2,644,000 2,356,000
TOTAL ASSETS 13,425,000 10,759,000

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 may june 2013

EQUITY AND LIABILITIES

Capital and reserves
Ordinary share capital 1,800,000 1,000,000
Share premium account 1,543,000 1,421,000
Revaluation reserve 1,880,000 1,256,000
Retained earnings 2,739,000 746,000
7,962,000 4,423,000
Non-current liabilities
15% debenture loan 3,000,000 4,500,000
Current liabilities
Trade and other payables 1,417,000 896,000
Interest payable 225,000 337,000
Taxation 641,000 503,000
Dividends Payable 180,000 100,000
2,463,000 1,836,000
Total equity and liabilities 13,425,000 10,759,000

ABC’s income statement for the year ended 31 May 2012 was as follows:
Tk.
Revenue 8,646,000
Cost of sales (3,705,000)
Gross profit 4,941,000
Distribution costs (465,000)
Administrative expenses (571,000)
Profit from operations 3,905,000
Finance cost (563,000)
Investment income 78,000
Profit before tax 3,420,000
Income tax expense (684,000)
Profit for the period 2,736,000

The following additional information is relevant:

(1) On 31 May 2012 property which was originally purchased for Tk.734,000 (and which had
not previously been revalued) was revalued to Tk.1,000,000. There were no other
movements on the revaluation reserve during the year.
(2) During the year plant and equipment with an original cost of Tk.1,201,000 and a carrying
amount at the date of disposal of Tk.496,000 was sold at a loss of Tk.189,000. As at 31 May
2012 Tk.165,000 of the sale proceeds was yet to be received and is included within trade and
other receivables. As at 31 May 2011 the corresponding figure in respect of disposals made
during the year then ended was Tk.79,000, which was received in full in June 2011.
(3) As in the previous year, all acquisitions of property, plant and equipment acquired during
the year were paid for in cash at the date of acquisition. However, included within trade
and other payables as at 31 May 2012 is Tk.376,000 (2011 – Tk.nil) relating to the
acquisition of intangible assets.
(4) There were no disposals of intangible assets or investments during the year. Trade and
other receivables as at 31 May 2012 include Tk.10,000 (2012 – Tk.8,000) in respect of
interest receivable on investments.
(5) As at 31 May 2011 the ordinary share capital of ABC Ltd consisted of 100,000 shares,
each with a Tk.10 nominal value. The following day the company made a 1 for 2 bonus
issue of 50,000 shares (utilising available profits).
(6) The dividend payable at both balance sheet dates represents a Tk.1 per share dividend on
the company’s ordinary shares. Dividends of Tk.243,000 were charged to retained
earnings in the year ended 31 May 2012.
(7) ABC Ltd has not yet prepared its statement of changes in equity for the year ended 31
May 2012.

Page 3 of 4
 may june 2013

Requirement
Prepare a cash flow statement and a note reconciling profit before tax to cash generated from operations
in accordance with BAS 7 Cash Flow Statement for ABC Ltd for the year ended 31 May 2012, using
the indirect method. 25

4. The draft balance sheets of three companies as at 30 September 2012 are as follows.
X Ltd Y Ltd Z Ltd
Tk. Tk. Tk.
Non-current assets
Property, Plant and equipment 697,210 648,010 349,400
Investments
160,000 shares in Y Ltd 562,000 − −
80,000 shares in Z Ltd 184,000 − −
1,443,210 648,010 349,400
Current assets
Inventories 495,165 388,619 286,925
Trade receivables 415,717 320,540 251,065
Cash 101,274 95,010 80,331
Total assets 2,455,366 1,452,179 967,721

Capital and reserves

Ordinary share capital 600,000 200,000 200,000
Retained earnings 1,015,000 820,000 463,000
Equity 1,615,000 1,020,000 663,000
Non-current liabilities 400,000 150,000 100,000
Current liabilities
Trade payables 440,366 282,179 204,721
Total equity and liabilities 2,455,366 1,452,179 967,721

You are given the following additional information:

(1) X Ltd purchased the shares in Y Ltd on I October 2007 when the retained earnings of Y Ltd were
Tk. 500,000
(2) The shares in Z Ltd were acquired on I October 2009 when the retained earnings were Tk. 242,000
(3) Included in the inventory figure for X Ltd is inventory valued at Tk. 20,000 which had been
purchased from Y Ltd at cost plus 25%.
(4) Included in the trade payables figure of X Ltd is Tk. 18,000 payable to Z Ltd, the amount receivable
being recorded in the trade receivables figure of Z Ltd
(5) Impairment reviews to date have revealed a total of Tk. 1,000 to be written off in respect of goodwill
of Y Ltd and Tk. 2,000 to be written off in respect of X Ltd’s investment in Z Ltd.

Requirements

(a) Prepare the consolidated balance sheet for X Ltd as at 30 September 2012. 15
(b) Identify the required accounting treatment for different levels of investment in undertakings for
consolidated accounts purposes, explaining why these are appropriate. 5
(c) Set out a brief explanation in note form, as to how the subsidiaries and associates are accounted
for in the consolidated balance sheet. 5

Page 4 of 4
 nov dec 2013
CORPORATE LAWS & PRACTICES

Time allowed – 2½ hours

Maximum marks – 100

[N. B. – Question must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. XYZ Company Limited is a Private Limited Company having five shareholders. The Board of directors of
the company is constituted of two directors. XYZ Company Limited wants to increase its paid up capital to
Tk. 200.00 million from existing paid up capital of Tk. 100.00 million. The Board of Directors of the
Company recommended issuance of right shares for the purpose of raising the paid up share capital.
a) Describe the procedures to be followed for converting XYZ Company Limited into a Public
Limited Company. 8
b) What regulatory procedures should be followed for the purpose of raising the capital? 7
c) One of the directors of XYZ Company Limited is in ill health. He cannot attend the board
meetings of the company regularly. Moreover, he needs to stay outside the country for the
purpose of his treatment for about 2-3 months in a year. Therefore,he wants to appoint an
Alternate Director to represent him in his absence. Describe the legal procedures in this regard. 5

2. ‘A’ is a friend of B, C & D who are directors of XYZ Company Limited. B, C & D decided to take ‘A’
as a shareholder as well as a director with the object to utilize his expertise. B, C & D in their board
meeting allotted shares to ‘A’ and co-opted him as director, issued share certificates, filed Return of
Allotment, Particulars of Directors & Consent Form. Accordingly, name of ‘A’ was also shown in the
annual list of members. After some years B, C & D decided to get rid of ‘A’ because ‘A’ has now
become a burden for the company & he (‘A’) has been acting contrary to the decisions of B, C and D.
Please answer the followings in line with provisions of Companies Act, 1994:
a) Can `A` be removed from the directorship by B, C and D? 6
b) Can `A` be removed from the membership who in fact did not pay any money against the shares
issued to him? 6
c) Is there any other remedy in company law to get rid of ‘A’ as desired by B, C & D? 3

3. (a) What is Price Sensitive Information? Mention the events or transactions which will be considered
as price sensitive information. 5
(b) Discuss the procedures of issuing shares at a premium. How does the Companies Act provide for
application of `Receipts’ from premium? 5
(c) Describe the provisions of Companies Act 1994 regarding vacation of office of a director. 5

4. (a) As envisaged in the Public Issues Rules, 1998, mention the various risk factors to be disclosed in the
prospectus for IPO by a public limited company. How the proceeds of the IPO fund can be used? 6
(b) Discuss the provisions of Appeals as provided in the Securities and Exchange Commission Act, 1993? 4
(c) What is insider trading? What steps can companies take to prevent insider trading? 5
(d) State the regulations as to holding of Annual General Meeting by a listed company of Dhaka
Stock Exchange in addition to provisions of the Companies Act, 1994. 5

5. (a) Describe the circumstances under which Bangladesh Bank may apply for winding up of a bank. 6
(b) Narrate the circumstances under which the Bangladesh Bank can dissolve the Board of Directors
of a banking company. 5

6. (a) State the restrictions on payment of dividend by a banking company other than a new bank or
specialized bank. 5
(b) Discuss the procedure to be followed by the Bangladesh Bank to disqualify an auditor. 4

7. (a) Enumerate the provisions of The Insurance Act, 2010 relating to : (i) determination of premium
and (ii) collection of premium. 5
(b) Discuss the power of the Insurance Development and Regulatory Authority (IDRA) to inspect
and ask for information etc. under section 49 of the Insurance Act, 2010. 5

– The End –
 nov dec 2013
FINANCIAL ACCOUNTING

Time Allowed – 21/2 hours

Total Marks – 100

[N.B- Questions must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
part, if any, of the same question must be answered in one place in order of sequence.]
Marks

1. (a) Rupali Ltd is a company operating in media and communications. It owns a number of
newspapers and monthly magazine, which were acquired by acquisition of the assets of
Newsmedia. The consideration totalled Tk. 130 million, of which Tk. 100 million was attributed
to identifiable net assets (Tk. 60 million specifically for the newspaper and magazine titles). The
acquisition occurred on 1 January 2013. The newspaper and magazine titles are assumed to have
indefinite lives. Goodwill arising on the acquisition is estimated to have an useful life of 20 years.
However, an impairment review at 31 December 2013 showed that goodwill had fallen in value
by Tk. 1 million during 2013.
The newspapers and magazines have all shown increasing circulation since the acquisition.
Accordingly, in considering the financial statements to 31 December 2013 the directors wish to
revalue the titles to Tk. 133 million which represents the sum of amounts it is estimated could be
realized if each title and its associated rights were sold separately in the market at 31 December
2013. The directors estimate that this approximates closely to current cost.
On 1 January 2013, the company decided to expand its printing capacity by investing in new high
tech machinery costing Tk. 20 million. This machinery had been developed by a French company
and Rupali Ltd had to pay Tk. 20 million to acquire the patent allowing it sole use of the
technology for ten years. In addition, Rupali Ltd has also developed a range of greeting cards to
be sold alongside, and advertised in, the monthly magazines. These cards will all be sold under a
newly developed brand name for which Rupali Ltd has spent Tk. 6 million.

Required
(a) Assuming that BAS 38 Intangible Assets and BFRS 3 Business Combinations are complied
with, prepare the table of movements and accounting policy notes for intangible assets for
inclusion in the financial statements of Rupali Ltd for the year ended 31 December 2013. 7
(b) Comment on your treatment of Rupali Ltd’s intangible assets in (a) above in the light of
BFRS Framework. 4
(b) FS Ltd. purchased a warehouse in a downtown district where land values are rapidly increasing.
Ahmed Saif, Financial Controller, and Wahiduzzaman Babor, Financial Vice President, are trying
to allocate the cost of the purchase between the land and the building. Noting that depreciation can
be taken only on the building, Saif favours placing a very high proportion of the cost on the
warehouse itself, thus reducing taxable income and income taxes. Babor, his supervisor, argues that
the allocation should recognize the increasing value of the land, regardless of the depreciation
potential of the warehouse. Besides, he says, net income is negatively impacted by additional
depreciation and will cause the company’s stock price to go down.
Required:
i) Discuss the issue of stakeholders’ interests in the above scenario.
9
ii) What ethical issues does Saif face?
iii) How should these costs be allocated?

2. You are an articled student of MM Ahmed, Chartered Accountants. The following issues have been
raised for your suggestion on following circumstances:
(a) FS Ltd. sells and fits prefabricated replacement windows for houses. The standard sale
includes a 15-year warranty. FS Ltd. will repair the window during the warranty period if there
is a defect in the product or the installation. The warranty does not cover damage caused by
other causes, for example if there was a fire in the property. FS Ltd. does not sell the
windows without the warranty and does not sell warranties for other manufacturers’ products.
Page 1 of 5 
 
 nov dec 2013
Each window sells for Tk. 1,000 and FS Ltd. typically repairs 2% of windows under the
warranty. The average cost of a warranty repair is Tk. 350.
Required: How should management recognise the sales revenue and the warranty cost? 4
(b) An undertaking sells canned food and has 100 customers. The delivery of the goods is made
on the last day of each month. Standard payment terms require settlement within 45 days of
delivery. The undertaking’s policy is to grant a settlement discount of 2% to customers that
pay within 15 days of delivery. Past experience shows that 45% of the customers normally
pay within 15 days, while the remaining 55% pay after the early settlement period. The
undertaking will deliver the next batch of canned foods to its customers on 31 January 2013.
The total invoiced selling price for all deliveries amounted to Tk.1,000.

Required: How should management treat settlement discounts at the date of sale? 6

(c) Undertaking A manufactures clothing and has one major dealer, undertaking B. Undertaking A
provides undertaking B with an extended credit line whereby A supplies merchandise to B that
can be sold on to third parties. B stores the merchandise in its warehouse. Transfer of the
legal title of ownership passes to B when it receives the clothes. Undertaking B does not have
to pay for the merchandise until it receives the payment from the third party. After three
months, undertaking B can either return the clothes to A if they are not sold, or pay
undertaking A for the merchandise and keep it.

Required: When should the revenue be recognised? 4

(d) On February 1, 2013, one of the huge storage tanks of JMI Chemical Ltd. exploded. Windows
in houses and other buildings within a one mile radius of the explosion were severely
damaged, and a number of people were injured. As of February 15, 2013 (when the
December 31, 2012, financial statements were completed and sent to the publisher for
printing and public distribution), no suits had been filed or claims asserted against the
company as a consequence of the explosion. The company fully anticipates that suits will be
filed and claims asserted for injuries and damages. Because the casualty was uninsured and
the company considered at fault, JMI Chemical will have to cover the damagers from its own
resources.
Required: Advise accounting treatment & disclosure, highlighting the impact of above
6
mentioned event, in the financial statements dated December 31, 2012.
(e) J&J, is the largest and most diversified health care organization in Bangladesh. Information related to
its property, plant and equipment in its 2012 annual report is shown in the notes to the financial
statements as follows:

Note: 3: Property, Plant and Equipment

At the end of 2012 and 2011, property, plant and equipment at costs and accumulated depreciation
were:
Figure in million Taka 2012 2011
Land and improvements 459 427
Building and building equipment 3,911 3,659
Machinery and equipment 6,805 6,312
Construction in progress 1,283 1,468
12,458 11,866
Accumulated depreciation 4,739 4,457
7,719 7,409
The company capitalizes interest expenses as part of the cost of construction of facilities and
equipment. Interest expenses capitalized in the year 2012, 2011 and 2000 was Tk. 95 million, Tk. 97
million and Tk. 84 million respectively.
Upon retirement or disposal of fixed assets, the costs and related amount of accumulated depreciation
or amortization are eliminated from the assets and accumulated depreciation accounts respectively.
The difference, if any between the net asset value and the proceeds is adjusted to earnings. In J&J’s
cash flow statement for the year 2012 is given below:

Page 2 of 5 
 
 nov dec 2013
Consolidated Financial Statements (excerpts)

Net cash flows from operating activities 8,864

Cash flow from investing activities
Additions to property, plant and equipment (1,731)
Proceeds from disposal of assets 163
Acquisition of businesses, net of cash acquired (225)
Purchases of investments (8,188)
Sales of investments 5,967
Other (79)
Net cash used by investing activities (4,093)
Cash flows from financing activities
Dividends to shareholders (2,047)
Repurchase of shares (2,570)
Proceeds from short term debt 338
Retirement of short term debt (1,109)
Proceeds from long term debt 14
Retirement from long term debt (391)
Proceeds from the exercise of share options 514
Net cash used by financing activities (5,251)
Effect of exchange rate changes on cash and cash equivalents (40)
(Decrease)/Increase in cash and cash equivalents (520)
Cash and cash equivalents at the beginning of the year 4,278
Cash and cash equivalents at the end of the year 3,758
Supplemental cash flow data:
Cash paid during the year for interest Tk. 185 million and income taxes Tk. 2,090 million.

Required:
(i) What was the actual interest expense incurred by the company in 2012? 4
(ii) What is J&J’s free cash flow? From the information provided, comment on J&J’s
financial flexibility. 6

3. ABC Ltd is a company which publishes a single textbook and provides tuition courses relating to the
text. An extract from ABC Ltd’s nominal ledger at 31 March 2013 is as follows:
Tk.
Manufacturing costs 4,450,000
Administrative salaries 410,500
Selling and distribution costs 375,000
Inventories at 1 April 2012 113,400
Freehold land and buildings
Cost (land Tk. 1,750,000) 2,550,000
Accumulated depreciation at 1 April 2012 480,000
Plant and machinery
Cost 620,000
Accumulated depreciation at 1 April 2012 337,000
Borrowings 200,000
Trade and other receivables 37,500
Trade and other payables 25,400
Retained earnings at 1 April 2012 212,500
Ordinary share capital – Tk. 5 nominal value 500,000
Preference share capital – 5% irredeemable Tk. 10 shares 200,000
Cash and cash equivalents 63,500
Revenue 6,700,000
Finance costs 35,000
The following additional information are relevant.
(1) The borrowings are repayable in ten installments, commencing on 1 April 2013.
(2) Revenue is made up of the following:
Tk.
Tuition fees 1,500,000
Book sales 5,100,000
Advances 100,000
6,700,000

Page 3 of 5 
 
 nov dec 2013
The tuition fees all relate to courses held during the year except for fees of Tk. 300,000 which relate
to a ten-week course. Five weeks of this course had already been held by the year end. The
remainder is to be held in June 2013.The advances relate to a new publication which ABC Ltd. has
commissioned and advertised heavily but which is not yet in production.
(3) There were no movements of non-current assets during the year. However, on 28 February 2013, ABC
Ltd decided to sell a major item of plant for which it no longer has any use. This plant cost Tk. 120,000
on 1 April 2008 and was advertised for sale on 1 March 2013 at a price of Tk. 5,000. In April 2013 a
buyer was identified at the advertised price. The sale is expected to be completed in May 2013.
Plant is depreciated on a 10% straight line basis, taking into account the month of sale or purchase.
Freehold buildings are depreciated over their useful life of 40 years. Depreciation on plant is charged to
cost of sales. Depreciation on freehold land and buildings is charged to administrative expenses.
(4) At the year end the company was in the process of a legal action by one of its competitors which
claims that ABC’s textbook has breached copyright. The case is not due to be decided until June
2013 but ABC Ltd’s legal advisors think that the company has a 60% chance of losing the case and
estimates that this would cost ABC Ltd Tk. 100,000.
(5) One of ABC Ltd’s customers who owed Tk. 10,000 at the year-end was declared bankrupt on 1
May 2013
(6) Closing inventories at cost amounted to Tk. 120,000. Within this valuation is an amount of Tk.
50,000 relating to fixed overheads, being a share of total fixed overheads of Tk. 1 million. ABC Ltd
had expected to produce one million books during the year but, due to production difficulties only
800,000 were produced. Overheads have been allocated on the basis of Tk. 1.25 per book.
(7) The following should be provided for at the year end.
Income tax of Tk. 350,000
An ordinary dividend of Tk. 2.00 per share
The preference dividend
Requirements
(a) Prepare the income statement for ABC Ltd for the year ended 31 March 2013 and a balance sheet
as at that date in a form suitable for publication. You should classify expenses by function. 18
(b) Explain the considerations underlying the accounting requirements for not-for-profit entities,
including the possible relevance of BFRSs and IPSASs. 7

4. A Ltd has investments in two companies, B Ltd and C Ltd. The draft summarised balance sheets of the
three companies at 31 December 2012 are shown below:
ASSETS A Ltd B Ltd C Ltd
Tk. (‘000) Tk. (‘000) Tk. (‘000)
Non-current assets
Property, Plant and equipment 20,200 15,100 8,600
Investments in B Ltd 20,000 − −
Investments in C Ltd 4,000 −

Current assets
Inventories 3,500 2,700 1,400
Trade receivables 2,300 1,600 900
Cash and cash equivalents 200 300 100
Total assets 50,200 19,700 11,000

EQUITY & LIABILITIES

Capital and reserves
Issued Tk. 10 ordinary shares 35,000 15,000 8,000
Retained earnings 6,000 2,300 1,900

Non-current liabilities
Debentures 6,000 1,000 500

Current liabilities
Trade payables 3,200 1,200 600
Dividends – 200 –
Total equity and liabilities 50,200 19,700 11,000

Page 4 of 5 
 
 nov dec 2013

Additional information:
(1) A Ltd acquired 75% of the shares in B Ltd on 1 October 2010. At that date the balance on B Ltd’s
retained earnings was Tk. 1,800,000.
(2) On 1 October 2012 A Ltd acquired 30% of the shares in C Ltd. The profit for C Ltd for the
year ended 31 December 2012 was Tk. 600,000 , and this profit accumulated evenly over the year.
C Ltd paid no dividends in the year ended 31 December 2012. C Ltd should be accounted for as an
associated company of A Ltd.
(3) A Ltd has calculated that the costs incurred in acquiring C Ltd were Tk. 200,000 and this sum
has been charged to the income statement of A Ltd. This comprises Tk. 120,000 allocated
overheads from the acquisitions department and Tk. 80,000 of directly attributable costs.
(4) The fair value of the land in B Ltd was Tk. 1 million in excess of carrying amount at the date
of acquisition.
(5) A Ltd has not recognized the dividend receivable from B Ltd in its draft balance sheet at 31
December 2012.
(6) At 1 October 2010 B Ltd had a contingent liability relating to a legal claim against the
company of Tk. 400,000, for which the fair value was estimated at Tk. 300,000. An out of court
settlement was agreed on 30 June 2012 and Tk. 300,000 was paid to settle the case.
(7) A Ltd has carried out annual impairment reviews on goodwill. On 31 December 2011 an
impairment loss of Tk. 100,000 was recognized on the goodwill relating to B Ltd but, there have
been no further impairment losses identified.
(8) B Ltd sold goods to A Ltd valued at Tk. 800,000 during the year ended 31 December 2012 and
a quarter of these goods have been re-sold by A Ltd. B Ltd calculated the transfer price of the
goods at cost plus a mark-up of 25%.
(9) A Ltd’s draft financial statements at 31 December 2012 included a note explaining a
contingent asset of Tk. 200,000. This sum was received on 31 January 2013. This should now
be accounted for as an adjusting event after the balance sheet date.

Required:
(a) Prepare the consolidated balance sheet for A Ltd at 31 December 2012, showing detailed
workings (Work to the nearest Tk. ‘000). 17
(b) Explain in what circumstances, if any, C Ltd could have been considered to be an
associated company of A Ltd if the shareholding had been 15%, rather than 30%. 8

Page 5 of 5 
 
 nov dec 2013

FINANCIAL MANAGEMENT
Time allowed – 2½ hours
Total marks – 100

[N.B.– Questions must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]

1. (a) “Relevant cash flow differs from the normal cash flow” explain the difference. 2
(b) As a financial expert, you are reviewing an ongoing research project. The following cost and
revenue information is provided to you.
The project to date has cost of Tk. 15,00,000.
If proceeded with the project it will be completed within one year, when the results are to be sold
to a government agency for Tk. 30,00,000.
The following additional expenses are required to complete the project:
Materials: A toxic material has just been purchased at a cost of Tk. 600,000. If this material is not
used in this project, it must be disposed off at a cost of Tk. 50,000.
Labour: Skilled labour is not easily available. The workers concerned were transferred to the
project from a production department, and at a recent meeting the production manager claimed
that if these people were returned to him they could generate sales of Tk. 15,00,000 in the next
year. The prime cost of these sales would be Tk. 10,00,000, including Tk. 4,00,000 for the labour
cost itself. The overhead absorbed into this production would amount to Tk. 2,00,000.
Research staff: It has already been decided that, when work on this project ceases, the research
department will be closed. Research wages for the year are Tk.600,000, and the redundancy and
severance pay has been estimated at Tk.150,000 now, or Tk. 350,000 in one year’s time.
Equipment: The project utilitizes a special microscope which cost of Tk. 180,000 three years ago. It
has a residual value of Tk. 30,000 in another two years and a current disposal value of Tk. 80,000. If
used in the project it is estimated that the disposal value in one year‘s time will be Tk. 60,000.
Building services: The project is charged with Tk. 350,000 per annum to cover general building
expenses. Immediately the project is discontinued, the space occupied could be sub-let for an
annual rental of Tk. 70,000.
Requirement:
You are to work out the relevant cost and revenue and advise the management whether to proceed
with the project. 8

(c) Gemini Foods Ltd. is considering investing in an ice cream plant to operate for the next four years.
After that time the plant will be worn out, and Gemini, the owner of the company, wishes to retire
in any case. The plant will cost Tk. 5,000,000 and is expected to have no realizable value after four
years. If worthwhile the plant will be purchased at the end of an accounting period. Tax
depreciation at the rate of 25% per annum will be available in respect of the expenditure.
Revenue from the plant will be Tk. 7,000,000 per annum for the first two years and Tk. 5,000,000
per annum thereafter. Incremental costs will be Tk. 4,000,000 per annum throughout. You may
assume that all cash flows occur at the end of the financial year to which they relate. Assume
Gemini Foods Ltd. pays corporate tax at 40% and has a cost of capital of 10%.
Required:
5
(a) Advise Gemini Foods Ltd., whether or not to proceed with this investment in the ice cream plant.
(b) Show what difference it would make if the plant were to be purchased and sold at the 5
beginning of the accounting period. Comment on the wisdom of disposing of an asset on
the first day of an accounting period.

[Please turn over]

–2–
 nov dec 2013

2 (a) What is interest rate swap? How do swaps work? What are the risks of swap? 5
(b) Company A wishes to raise USD 10 m and to pay interest at a floating rate, as it would like to
be able to take advantage of any fall in interest rates. It can borrow for one year at a fixed rate
of 10 percent or at a floating rate of 1 percent above LIBOR.
Company B also wishes to raise USD 10 m. They would prefer to issue fixed rate debt because
they want certainty about their future interest payments, but can only borrow for one year at 13
percent fixed or LIBOR plus 2 percent floating, as it has a lower credit rating than company A.
Requirement: Calculate the effective swap rate for each company –assuming savings are split
equally. 5

(c) Marzan Ltd has recently been incorporated. Directors of Marzan Ltd. are considering five
different possible capital structures for the new company. An analysis of comparable
companies with equivalent business risk has been undertaken. The analysis shows that if
the before tax cost of debt is a constant 10% irrespective of the capital structure, then the
cost of equity capital after corporation tax will be as follows:

Gearing ratio Cost of equity capital

(debt capital/total capital)
% %
0 20.0
20 21.625
40 24.333
50 26.500
60 29.750
The above predictions for the equity cost of capital also assume that the earning of
Marzan will be taxed at a rate of 30% and that the debt interest is an allowable expense
for tax purposes.
The sponsors expect that the company will generate a constant annual earnings stream
before the payment of debt interest for the foreseeable future.
Requirements:
(i) Calculate the effective after tax weighted average cost of capital for each of the five
possible capital structure, assuming that the before tax annual cost of debt will be a
constant 10% (irrespective of the capital structure chosen). 6
(ii) Interpret the results of your calculation in above and explain their significance in light
of the M&M hypothesis. 4
(iii) Discuss the possible consequences to a company of having a capital structure
containing a high gearing ratio. 4
(d) Kohinoor Ltd. has issued 100,000 Tk. 1 equity shares which are at present selling for
Tk.3 per share. The company has plans to issue rights to purchase one new equity share at
a price of Tk. 2 per share for every four shares.
(i) Calculate the theoretical ex-rights price of equity shares. 3
(ii) Calculate the theoretical value of a right before the shares sell ex-rights. 3

3. (a) The terms relevance and irrelevance have been used to describe theories regarding the
way dividend policy affects a firm’s value. Explain what these terms mean and discuss
the relevance of dividend policy. 6

[Please turn over]

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 nov dec 2013

(b) Unique Corporation Ltd. (UCL) has an all-common equity capital structure. It has 200,000
shares of Tk. 2 par value common stock outstanding. One of the most important and
contributing founding director of the company become sick and take sudden retirement in
late 2012. That caused problem and affected the company with lower growth expectation and
loss of business. Unfortunately there was no immediate replacement. Previously, the
company found it necessary to plough back most of its earnings to finance growth, which
averaged 12 percent per year. Future growth at a 5 percent rate is considered realistic, but that
level would call for an increase in the dividend pay out. Further, it now appears that new
investment projects with at least the 14 percent rate of return required by UCL’s stockholders
would amount to only Tk. 800,000 for 2013 in comparison with a projected Tk. 2,000,000 of
net income. If the existing 20 percent dividend payout were continued, retained earnings
would be Tk.1.6 million in 2013, but as noted, investments that yield the 14 percent cost of
capital would amount to only Tk. 800,000.
The one encouraging factor is that the high earnings from existing assets are expected to
continue, and net income of Tk. 2 million is still expected for 2013. Given the
dramatically changed circumstances, UCL’s management is reviewing the firm’s
dividend policy.
(i) Assuming that the acceptable 2013 investment projects would be financed entirely by
earnings retained during the year, calculate DPS (dividend per share) in 2013 if UCL
follows the residual dividend policy. 5
(ii) What is the payout ratio for 2013? 3
(iii)If a 60 percent payout ratio is maintained for the foreseeable future, what is your
estimate of the current market price of the common stock? How does this compare
with the market price that should have prevailed under the assumptions existing just
before the news of the founding director’s retirement? If the values of Po (present
value at year zero) are different comment on why. 6
(iv) What would happen to the price of the stock if the old 20 percent payout were
continued? Assume that if this payout is maintained, the average rate of return on the
retained earnings will fall to 7.5 percent and the new growth rate will be 6 percent. 5

4. (a) “A company faces three types of exchange rate risk exposure in its foreign operation”
discuss how these risks can be managed? 4
(b) What is a forward exchange contract? How it is being executed? 4
(c) Friends International Ltd. has recently finalised a contract with a US company Fortuna
Inc. for the supply of a machine. The selling price is Tk. 100,000. As this is the first
export sale made by Friends Int. Ltd. the currency settlement details were not discussed at
the meeting when the sale of the machine was agreed. The management of Friends Int.
believes that Fortuna will agree to whatever currency settlement is suggested since
Fortuna is very anxious that the machine contract be completed quickly. Delivery of the
machine will take place in three months time when the account will be settled
immediately by Fortuna.
The management of Friends Int. is considering three possible methods of invoicing
Fortuna for the machine:
(i) Prepare the invoice in Taka (for Tk. 100,000) and request payment in Taka on the
settlement date;
a. Convert the Taka price at the current Taka/Dollar spot rate and invoice Fortuna in
dollars. Buy Taka at the spot rate in three months’ time when the Dollar
settlement is made by Fortuna.

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 nov dec 2013

b. Invoice Fortuna in Dollars converting the Taka price at the spot rate. Friends Int.
will then immediately cover the position in the forward exchange market by
selling the dollars receivables forward at the three month forward exchange rate.
The current spot rate between Taka and Dollars in London is Tk. 1=$ 1.11. The premium
for the Dollar for three month forward exchange contract is quoted as 1.20 -1.15 cents
(the buying/selling range). The management of storage believes that the Taka/Dollar spot
rate will be somewhere in the range Tk. 1=$1.20 to Tk. 1=$ 1.09 in three months’ time.
Ignore taxation.
Requirements:
(i) Calculate the amount of Taka to be received by Friends Int. under each of the three
methods. 6
(ii) Prepare a report to the management of Friends Int. which sets out the advantages and
disadvantages of each method, and which contains your recommendation as to choice of
method. 8
(iii)What are the implications for financial management of undertaking a major export sales
drive? 3

– The End –
 nov dec 2013

IT APPLICATION 
 
Time allowed – 2½ hours 
Total marks – 100 
 
 
[N. B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take  account  of  the  quality  of  language  and  the  manner  in  which  the  answers  are  presented.  
Different parts, if any, of the same question must be answered in one place in order of sequence.] 
 
  Marks 
 
 1.  What  is  Strategic  Information  System  (SIS)?  Write  down  the  benefits  and  characteristics  of 
strategic information system  10 
 
 2.  (a)  Explain the importance of information system planning.  7 
  (b)  What are the steps of information system planning?  3 
 
 3.  (a)  Write down the non‐technical limitations of e‐commerce.  5 
  (b)  List the typical threats in Electronic Business Information System.  5 
 
 4.  (a)  Explain the key components of disaster recovery plan.  5 
  (b)  What are the steps required to achieve disaster recovery plan?  5 
 
 5.  (a)  What is Service Level Agreement? Why organizations implement Service Level Agreement?  5 
  (b)  What is Business Model Design? Explain how it contributes to support the business models?  5 
 
 6.  What is Executive Support System (ESS)? Explain in brief. Write down the components of ESS with 
brief explanation.  10 
 
 7.  What is project management? Write down the activities of project management and components 
of a project.  10 
 
 8.  (a)  How to protect Malicious Code for Information Integrity?  5 
  (b)  Describe  the  Backup  and  Recovery  procedure  of  logical  security  controls  showing  its 
significance in information system.  5 
 
 9.  Make a list of minimum IS security standards which are applicable within the organizations.  10 
 
10.  In a computer audit environment how will you examine the system and activities to determine the 
System Security and the Security Breaches.  10 
 
 
 
 
– The End – 
 nov dec 2013
TAXATION-II

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and the manner in which the answers are presented. Different parts, if any, of the same
question must be answered in one place in order of sequence.]
Marks
01. Discuss the changes made by Finance Act 2013 with its effect on the following items. 10
a. Charge of Minimum Tax U/S. 16 CCC.
b. Change of Investment Rebate U/S. 44.
C. Deduction at source from salaries : newly added sub-section (2A) of section – 50.
d. Additional powers to enquire and production of documents by the assessee sec.-116(1).
e. Requirements of certificate or acknowledgement receipts of return of income in certain cases – Sec. 184A.

02. a. Who is liable to pay advance tax? 02

b. How advance tax is computed and payable? 04

c. B Ltd. computed its advance tax payable for income year 2012-2013 based on latest assessed 04
income of Tk. 500,000 for the income year 2009-2010. Assessment for the income year 2010-2011
was completed on 15 April 2013 at a loss of Tk. 600,000.
Calculate the amount of advance tax to be paid by B Ltd. in each quarter for the assessment year
2013-2014.

03. The following particulars of income of Mr. Ali Ahmed are available for the assessment year 2013- 5
2014 :

Income from house property Taka 100,000

Business income (after allowing for current year’s
depreciation of Tk. 20,000) Taka 70,000

The following sums have been brought forward from the preceding year :

Unabsorbed depreciation Taka 80,000

Business loss Taka 50,000

Deputy Commissioner of Taxes is proposing to assess him on a total income of Tk. 100,000 by setting off only the
business loss of Tk. 50,000 and part of the unabsorbed depreciation of Tk. 20,000 against the business income of Tk.
70,000. Is he right in his action? Explain.

04. The following are the income of Mr. Azad for the year ended June 30, 2013. Compute his total income
and tax liability. 20

a. Salary Income
Basic Salary 4,20,864
Festival Bonus 70,144
House Rent Allowance 3,75,735
Entertainment Allowance 4,173
Conveyance Allowance 35,072
Other Allowance 16,262
Employees’ Contribution to Provident Fund 42,086
Tax Deducted from Salary 12,000

b. House Property Income

House Rent 2,97,600
City Corporation Tax 9,000
Salary of Security Guard 48,000
Salary of Sweeper 12,000
c. Income from Business 3,78,975
d. Income from partnership (A Real estate business) 5,96,400
(Tax deducted at source Tk. 65,280)
e. Income from land sale (Capital gain) 1,60,000
(TDS Tk. 40,000)
f. Income from share business U/S. 32(7) 89,74,071

g. Dividend Income (Gross) 12,04,374

Page 1 of 3 
 
 nov dec 2013

h. Interest from SB A/C (Gross) 966

i. Income from Fisheries Business 4,03,000
j. Income from poultry firm 2,05,000
(investment in Govt. Bond)
Notes :
1. Purchase of 5 years Bangladesh Sanchaya Patra 2,00,000
2. Investment in DPS 1,20,000
3. Advance tax for car registration 15,000
4. The assessee has a flat in Bashundhara R/A but was vacant
due to non-connection of Electricity and GAS.
5. Assessee’s total wealth 12,50,90,210

5. ABC Telecom Ltd. is a listed telecom company Enjoying Tax holiday since 1st September 2010 declared dividend 10% for the
year and no dividend was paid last year. Statement of Financial position of the company as at June 30, 2013 is given below:
Particulars 2012-2013 2011-2012
Non Current assets
Property, Plant and Equipment (net of accumulated depreciation) 1,469,055,265 1,745,945,621
License fees 433,333,333 466,666,667
Investment 45,000,000 -
1,947,388,598 2,212,612,288
Current Assets
Receivables 56,734,179 54,512,957
Advances, Deposits ad Prepayments 12,364,972 12,543,768
69,099,151 67,056,725
Total assets
2,016,487,749 2,279,669,013
Equity and Capital
Paid up Capital 500,000,000 500,000,000
Tax Holiday Reserve 424,409,174 137,061,174
Retained Earnings 636,613,761 205,591,761
Total Equity and Capital 1,561,022,935 842,652,935
Non Current liability
Loan (net of current maturity) 102,632,982 442,632,982
Current liability
Loan current portion 340,000,000 978,390,964
Payables, accruals and provisions
12,831,832 15,992,132
Total Current liability
352,831,832 994,383,096
Total Liability
2,016,487,749 2,279,669,013

Month wise income before tax is given below:

Figures in million
Month International Access Network Dividend income
Gate way (IGW) Services (ANS)
July '12 30,250,000 11,340,000
August '12 44,190,000 14,510,000
September '12 34,820,000 15,930,000 3,950,000
October '12 47,000,000 18,100,000
November '12 48,250,000 19,360,000
December '12 44,090,000 14,100,000 3,870,000
January '13 41,020,000 12,130,000
February '13 44,890,000 14,900,000
March '13 45,670,000 15,780,000 3,800,000
April '13 49,440,000 19,550,000
May '13 41,110,000 17,230,000
June '13 40,210,000 19,320,000 3,560,000
Total 510,940,000 192,250,000 15,180,000

Page 2 of 3 
 
 nov dec 2013

Other information:
1. tax deducted at source Tk. 81,236,721 which includes Tk. 1,518,000 deducted from Dividend income and the
balance from IGW bill;
2. excess perquisite given by the company Tk. 3,782,925;
3. entertainment expenses Tk. 24,572,890;
4. depreciation charged Tk. 231,890,356 but as per third schedule depreciation is BDT 312,098,563;
5. amortization of license fees Tk. 33,333,333;
6. provision for gratuity Tk. 1,000,000;
7. provision for bad debts Tk. 5,000,000;
8. business promotion expenses Tk. 1,345,308; and
9. advertisement Tk. 650,000
10. Directors’ Remuneration Tk. 25,000,000.

The company has deducted tax and VAT except on Business promotion expenses of Tk. 1,345,308, advertisement Tk.
150,000 and Directors’ remuneration of Tk. 25,000,000. The company paid withhold tax and VAT with penalty against
directors’ remuneration before submission of return.

Requirements 25
1. Compute total taxable income and net tax payable.

6. Write your arguments against the following grounds of appeal.

a. Sale proceeds of a land Tk. 79,000,000 deposited in the bank account of a company. The land was in the 04
name of the Chairman of the company but the land was not shown in the wealth statement of the Chairman’s
personal tax file. The company claimed the amount as loan from chairman but the DCT added as income of
the company and upheld by CT(A).

b. The DCT estimates Gross profit 36% of last year instead of shown GP 25% because the company failed to 03
produce all the vouchers of raw materials, factory overhead and added Tk. 40,500,000 with total income.

c. The DCT computed tax liability TK. 230,000,000 and advance tax deposited by the company Tk. 7,800,000 03
against income tax provision of Tk. 10,000,000. The DCT charged interest because Tk. 7,800,000 is less
than 75% of the claimed tax.

07. State the provision of section 17 of Value Added Tax, 1991 regarding self registration. What are the 5
procedures of registration under Rule 9?

08. What are the offences and penalties under section 37 (i) and Rule 35 of VAT Rules, 1991? 4

09. Mention the rate of VAT based on value additions fixed by NBR applicable to the following service 5
providers :
i) Carrying contractor.
ii) Advertising firm.
iii) Printing press.
iv) Information Technology Enabled Services.
v) Sponsorship Services.
Vi) Human Resource Suppliers.
Vii) Building floor Cleaning and maintenance firm.
viii) Event management firm.
ix) Chartered Plane or Helicopter.
x) Other Miscellaneous Services.

10. Writes short notes on following item relating to VAT : 6

i) Current Account.
ii) Penalty for False declaration of input tax.
iii) Retail trade service.

Page 3 of 3 
 
 nov dec 2013

AUDIT & ASSURANCE

Time Allowed - 2½ hours

Total Marks - 100

[N.B.‐  The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take  into  account  of  the  quality  of  language  and  of  the  way  in  which  the  answers  are  presented. 
Different parts, if any, of the same question must be answered in one place in order of sequence.] 
 
1. (a) What are professional and ethical issues that may arise during an assurance engagement work? 4
(b) How do you differentiate Audit and Assurance Engagement? Explain the implications of laws,
standards and other requirements relating to assurance work. 4
(c) You are the audit senior with responsibility for directing, supervising and reviewing the work of
your team members during the external audit of Golden Co. Ltd. Explain how you would
discharge these responsibilities before and during the audit assignment. 4
(d) What is money laundering? What is your responsibilities and duty to report, as auditor when you
suspect or find any issue of money laundering? 4
(e) Why the level of assurance provided by a report on profit and cashflow forecasts differs from the
level of assurance provided by an audit report on financial statement? 4

2. (a) You are the Senior-in-Charge of the audit of Coral Garments Limited for the year ended
31December 2012. During the year under review the management of the company had been
changed. You also observe that the bin cards in the Raw Material Stores were not updated during
the last nine months. Further, Finished Goods were piled up in the factory as well as in the
Finished Goods Stores. New Management had informed you that due to the work load at the time
of management change the staff could not carry out their normal day to day work. Further, due to
these reasons a physical verification of stocks was not carried out at the end of the year.
(i) List the possible risks that can be identified in the above circumstances 6
(ii) List the audit procedures you need to carry out to mitigate one of the above identified risks. 6
(b) You are the Team Leader of the Audit Team of Butterfly (Pvt.) Limited. When performing audit
procedures you found that there are several unidentified balances in the bank reconciliations provided
by the Accountant. You also found that the debtors schedule has not been agreed to the ledger and
the client has not reconciled these amounts as of the year end. The debtor confirmations received
during the year did not agree with the ledger balances, and the Accountant claims it is the debtors’
records that are in error. The audit partner is being pressurized by Finance Manager to finalize the
audit procedures within a very short period compared to last year, due to the budgeting process that is
scheduled to commence in a couple of weeks.
(i) Identify the factors that indicate possible frauds in the above scenario. 6
(ii) The audit manager has identified debtors as an area prone to fraud in the entity. List the
procedures you may perform to address the fraud risk relating to debtors. 6
(iii) “An audit may act as a deterrent to fraud but does not certify that one has not occurred”.
Explain. 3

3. Habib Brothers Ltd. has been in the business of manufacturing Electrical Appliances for last 25 years.
The company has grown rapidly over the past eight years and this is due partly to the warranties that
the company gives to its customers. It guarantees its products for five years and if problems arise in
this period it undertakes to repair them, or replace the product.
You are the manager responsible for the audit of Habib and you are performing the final review stage
of the audit and have come across the following two issues:
Receivable balance Khan & Sons.
Habib has material receivable balance owing from its customer, Khan. During the year-end audit,
your team reviewed the ageing of this balance and found that no payments had been received from
Khan over six months, and Habib would not allow this balance to be circularized. Instead
management has assured your team that they will provide a written representation confirming that the
balance is recoverable.

[Please turn over]

 nov dec 2013

-2-

Warranty provision
The warranty provision included within the statement of financial position is material. The audit team
has performed testing over the calculations and assumptions which are consistent with prior years.
The team has requested a written representation from management confirming the basis and amount
of the provision are reasonable. Management has yet to confirm acceptance of this representation.

Required
(a) Describe the audit procedures required in respect of accounting estimates. 5
(b) For each of the two issues above:
(i) Discuss the appropriateness of written representations as a form of audit evidence; and 5
(ii) Describe additional procedures the auditor should now perform in order to reach a conclusion
on the balance to be included in the financial statements. 5

(c) The directors of Habib have decided not to provide the audit firm with the written representation
for the warranty provision as they feel it is unnecessary. Explain the steps the auditor should now
take and the impact on the audit report in relation to the refusal to provide written representation. 5

4. (a) While planning the audit of Rolex Limited, you realized that part of the work you plan to carry out
has already been performed by the internal audit division of the company. Identify three factors
that may affect the external auditor’s determination of whether the work of internal auditors is
likely to be adequate for the purpose of the audit. 3
(b) Explain the meaning of the following terms with reference to BAS-505, External Confirmations. 4
(i) Positive confirmation request.
(ii) Negative confirmation request.
(c) When management has used a management’s expertise in preparing the financial statements, the
auditor needs to decide whether to use an auditor’s expertise to assist in obtaining sufficient
appropriate audit evidence. State the factors that may affect auditor’s decision to use an auditor’s
expertise to obtain sufficient appropriate audit evidence on items shown in the financial
statements. 3
(d) Rolex Limited operates a chain of small retail counters in large shopping complexes in Dhaka and
Chittagong for direct selling of their products to customers. This is done in addition to its normal
wholesale distribution network that covers the entire country. Each retail counter is operated by
one employee. These employees are provided with a limited stock. Sales are on cash basis. A
cash collector visits these counters to collect the cash for banking once a day. State three
controls that should be in place at Rolex Limited for the auditor to rely on the system that all retail
sales are properly recorded and all cash collected is promptly banked. 3

5. (a) You are required to draft an Audit Report with qualified opinion arising from disagreement over
accounting treatment (revenue recognition of the company) with reasons for such qualified
opinion. Please use hypothetical name and address. 10
(b) Outline why you being the auditor of parent company, would wish to review the work of the other
auditors of subsidiaries not audited by your firm and state briefly the work you would carryout in
that review as per BSA 600. 10

– The End –
 nov dec 2013

TEAL 
 
Time allowed – 2½ hours 
Total marks – 100 
 
[N. B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will 
take  account  of  the  quality  of  language  and  of  way  in  which  the  answers  are  presented.  Different 
parts, if any, of the same question must be answered in one place in order of sequence.] 
 
  Marks 
1.  (a)  How can downsizing be used to sustain competitive advantage?  4 
  (b)  What is the diversification strategy? Explain its implication.  3 
  (c)  Chittagong  Software  Ltd.  (CSL)  was  formed  by  three  friends  who  had  left  a  major  software 
company  to  work  on  the  development  of  accounting  software  for  businesses.  CSL  currently 
employs 18 staff at the company’s head office in Chittagong.   
 
    Company Structure 
    The three directors of CSL are Masud (Managing), Labib (Marketing) and Dastagir (Development). 
They each have a small team reporting directly to them and they meet on a daily basis if they are in 
the office, to discuss the business and to brainstorm a little over coffee. All three directors come 
from  a  background  of  software  sales  to  small  and  medium  sized  organizations.  Dastagir  is 
responsible for six product development staff and two administrators. His staff work full time on 
developing and upgrading the CSL product, and meet regularly with the sales staff to get feedback 
from customers and users. In addition to eight sales people, Labib has two sales administrators and 
a  secretary  working  for  him.  The  sales  staff  meet  at  head  office  on  a  weekly  basis  and  the 
administrator  work  closely  with  the  financial  accountant.  Masud  takes  responsibility  for  the 
remaining staff who perform general administration, reception and clerical tasks.  His only specialist 
staff  member  is  Zulfiqar  who,  with  his  assistant,  maintains  a  high  level  of  control  over  the 
company’s financial reporting and accounts. 
 

    Planning and Control 
    Once a year the directors, under the guidance of Masud and with assistance from Zulfiqar, agree a full 
budget for the next twelve months. The budget is always based on the previous year’s performance, 
with adjustments for known changes such as inflation, costs and forecasts of demand from sales staff 
feedback. During the discussion on the budget, Zulfiqar calculates various ratios to illustrate trends in 
the company’s profitability and liquidity, and the budget is normally adjusted to ensure that trends 
are as desired. When the budget is agreed, a copy is sent to the bank for its records. 
 

    Each  month  throughout  the  year  Zulfiqar  produces  a  management  report  which  shows 
performance against budget for every cost and revenue heading. This report, together with a 
commentary written by Masud, is sent to each director and they pass copies to their key staff 
after  removing  any  sensitive  information.  Four  times  each  year  the  remaining  periods  are 
forecasted  and  the  adjusted  end‐of‐year  position  (or  out‐turn)  is  also  compared  with  the 
budgeted position.  Masud writes an  additional commentary in these months which  identifies 
key actions to bring performance back to budget. 
 

    The Current Position 
    The directors are presently involved in preparing the budget for the next year and are concerned that 
the process of budgeting is becoming increasingly meaningless. The results for the current year shows 
a significant shortfall in both turnover and profitability against both the budget and third quarter out‐
turn for the year, yet Masud is still insisting that the next years’ budget should be the current year’s 
budget uplifted for inflation and known changes. During the next year’s audit, Zulfiqar mentioned the 
directors’ concerns to the audit manager who suggested that you, as a recently qualified member of 
the audit team with an interest in strategic planning, might be able to advise the company on how to 
proceed. The directors have agreed that this would be useful, and have arranged a meeting at which 
you can meet them and discuss the role of planning with Chittagong Software Ltd. (CSL). 
 

[Please turn over] 
 nov dec 2013

– 2 – 
    Requirements 
    Prepare briefing notes to present at a meeting with the directors of CSL at which you will be 
expected to discuss the following: 
 

    (i)  The current planning process.  4 
    (ii)  Weaknesses of the current planning process.  6 
    (iii)  Recommendations for improvement of the planning process. Recommendations should be 
clearly justified.  7 
 
2.  (a)  According  to  Michael  Porter,  Strategy  is  the  same  thing  as  operational  effectiveness.  Do  you 
agree? Explain.  4 
  (b)  What are the five forces of ‘the Porter’s five Forces approach to competitive environment’?  3 
  (c)  Pran  is  a  Bangladesh‐based  juice‐making  company  whose  origins  are  in  farming.  It  has  well 
established  brand  names  and  farming  remains  at  the  core  of  its  business.  Over  the  years  the 
company  has  expanded  its  operations  in  products  closely  associated  with  fruit  juice  and  its  by‐
product pectin. The company has also expanded abroad by acquisition. 
 

  Structure 
  The  company  is  structured  along  divisional  lines  of  responsibility  split  into  three  key  operating 
sections: 
 

  (i)  The  Bangladesh  drinks  division,  responsible  for  the  production  and  sale  of  fruit  juice  in 
Bangladesh, and the wholesale distribution of other drinks in Bangladesh. 
  (ii)  The  Overseas  drinks  division,  responsible  for  fruit  juice  operations  in  Asia,  Australia  and  the 
USA, and fruit juiced and associated exports from Bangladesh. 
  (iii)  The Pectin division, responsible for the citrus and pineapple pectin production and their sales in 
Bangladesh and overseas, and also responsible for pectin operations in Brazil and the Bahamas. 
 

  Each  division  of  the  company  has  a  divisional  board  with  its  own  managing  director,  financial 
director  and  other  functional  directors.  The  three  divisions  report  to  the  main  board  of  the 
company based in Jamalpur. 
 

  The  company  is  an  independent  drinks  company  with  more  than  half  the  equity  controlled  by  the 
Pran family. Pran Ltd is a firm advocate of industrial participation and has a central corporate aim `the 
satisfaction of the needs of the shareholders, customers and employees’. The stated strategic aim of 
the group is to achieve sustained growth through the progressive developement of the business and 
its brands, and to maintain leadership in all of its key activities. A further aim is to say independent 
from  the  large  drinks  groups  that  dominate  the  market.  Pran  believes  that  success  can  only  be 
achieved  if  every  employee  understands  and  supports  the  objectives  that  the  company  strives  to 
achieve, and through consultation with its employees it hopes to build co‐operative team spirit. 
 

  The Bangladesh drinks division 
  In order to halt a recent decline in the sales of fruit juice, the company has launched a number of new 
brands, including “Special Quality” for the premium end of the market catering for home consumption, 
and Woodbow 1080, a premium brand to be distributed through the restaurant trade. Both of these 
have extensively supported by promotion and advertising. The restaurant trade in fruit juice is believed 
to have reached its optimum level. Pran still believes in the fruit juice market and has plans to expand its 
extraction capacity in Jamalpur using more locally‐grown fruit. 
 
  Soft drinks 
  Pran  has  developed  a  range  of  soft  drinks  to  cater  for  the  Bangladesh  market.  Most  of  the  Pran 
brands are in the premium sector and are based around pineapple juice. More recently Pran has been 
developing  other  juices  to  increase  its  range,  orange  and  lemon  being  the  two  most  important. 
Carbonated and still juice markets are growing and Pran has an agency in Bangladesh for the French 
`Perrier’ range of mineral waters and these brands play an important role in the Pran business. 
 
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 nov dec 2013

– 3 – 
 
 
  Wines, spirits and other drinks 
  The  wines  and  spirits  business  made  progress  in  20X5/X6  after  a  slow  start.  The  market  is 
competitive  and  in  some  cases  showing  little  sign  of  growth.  Pran  is  represented  by  agency 
businesses  in  whisky,  French  brandy,  French  champagne  and  other  liqueurs.  Pran  is  also  the 
marketing company for Domecq sherry. The sherry market showed a decline of 2 percent last year 
and  margins  are  under  severe  pressure.  Pran  imports  a  Carbibbean  beer  under  the  brand  Red 
Stripe. This brand is slowly making progress, using Dhaka as the first are to be covered. 
 
  Requirement 
  As an outside management consultant, write a report to the managing director examining  separately the 
competitive nature of the fruit juice and `other drinks’ industries as faced by Pran Ltd.  20   
   
3.  (a)  “Advertising is used to build brand loyalty and sale promotion is used to break brand loyalty”. 
Discuss.  3 
  (b)  Explain  why  a  direct  relationship  between  the  cost  of  production  and  selling  price  may  be 
inappropriate as a pricing strategy.  3 
  (c)  Flectrail Ltd. was created to bid for the franchise to operate passenger trains on the main line 
between London and Norington, a major U.K. provincial city (the route). The bid was successful 
and  the  franchise  became  effective  from  1  April,  1997  to  last  for  seven  years.  The  route 
represents the only practical rail link between London and Norington and immediate stations 
along the route. 
 
    Under  the  terms  of  the  franchise  contract  UK  government  paid  Flectrail  Ltd.  a  subsidy  of  CU 
200  million  for  the  year  ended  31  March  1998.  Subsidies  in  subsequent  years  will  reduce  in 
annual equal‐sized steps, such that by the year ending 31 March, 2004 Flectrail Ltd. will receive 
a  subsidy  of  only  CU35  million.  The  franchise  contract  specialized  that  Flectrail  Ltd  is  not 
allowed  to  reduce  services  or  increase  prices  in  real  terms,  relative  to  the  pre‐1  April  1977 
levels, without incurring significant financial penalties. 
 
    Flectrail Ltd. has to pay Raidtrack Ltd. the company which owns the railway lines and stations 
on  the  route,  a  rental  based  on  the  usage  of  those  lines.  This  rental  is  a  matter  of  periodic 
negotiation between Flectrail Ltd. and Raidtract Ltd. but the government appointed regulator 
will intervene and set the price where agreement is not reached. 
 
    Under the terms of the franchise the rolling stock used on the route are to be leased from one 
of  the  three  competing  leasing  companies.  The  leasing  companies  lease  rolling  stock  out  to 
train operators,  including  Flectrail  Ltd.  These companies  will  also  acquire  new rolling  stock in 
due course, according to the needs of their customers. In the year 31 March 1977, the last year 
under  British  Rail  management,  ticket  sales  totaled  CU90  million  and  the  route  attracted  a 
subsidy of CU 250 million. During Flectrail Ltd’s first year operating costs were roughly met by 
the  total  of  ticket  sales  and  the  CU200  million  subsidy.  The  route  currently  employees  4000 
staff, nearly all of whom were inherited by Flectrail Ltd. 
 
    Requirements 
    (i)  As  far  as  the  information  given  in  the  question,  undertake  an  analysis  of  the  strengths, 
weaknesses,  opportunities  and  threats  (SWOT  analysis)  of  Flectrail  Ltd.  Each  point  raised 
must be explained and justified as to why it is seen as a strength, weakness, opportunity or 
threat.  You  should  provide  some  indication  of  the  importance  of  each  point  which  you 
make.  8 
 
 
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 nov dec 2013

– 4 – 
 
    (ii)  Indicate  what  additional  information  you  would  need  to  obtain,  and  why  you  need  it,  to 
enable you to complete your SWOT analysis of Frectrail Ltd.  7 
    (iii)  Having carried out the SWOT analysis, how would the management of Flectrail Ltd. use it or 
proceed to the formulation of a suitable strategy.  6 
 
4.  (a)  The  management  of  a  government‐owned  hospital  in  Bangladesh  is  considering  outsourcing 
the  cleaning  of  its  premises.  This  will  mean  private  firms  taking  over  as  the  employers  of 
existing  cleaning  staff  and  assuming  responsibility  for  the  cleaning  of  the  areas  around  beds, 
corridors and communal spaces. 
 

    Increases  in  the  incidents  of  infections  during  hospital  stays  by  patients,  some  resulting  in 
death, has been widely attributed by the media to poor hospital hygiene. Several legal cases for 
compensation  have  been  decided  against  hospitals  on  the  grounds  of  negligence  by  the 
management. 
   

    What  factors  should  management  consider  in  evaluating  the  proposal  to  outsource  its 
cleaning?   10 
 
  (b)  Explain the meaning of “the world is flat” in the context of globalization. Why is it necessary to 
have a strong home base even for a globalized company?  5 
  (c)  Discuss the risk monitoring systems to be established by the management of a global fast‐food 
restaurant chain.  7 
 
 
 
– The End – 
 
 
 
 may june 2014

AUDIT & ASSURANCE

Time allowed – 2½ hours

Maximum marks – 100

[N.B. – Questions must be answered in English. Figures in the margin indicate full marks. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]

Marks
1. (a) What are the possible professional threats to the statutory auditors and how can these be
minimised? 4
(b) You are an audit Manager of a firm of Chartered Accountants. A meeting has been organised
with the audit client where the engagement partner will be present to settle the following issues:
(i) Your client inadvertently filed an incorrect tax return for last year showing a material
understatement of its corporate tax liability for that year and therefore the payment of tax
has been significantly less than what it should have been. Your firm is not a tax advisor.
The directors are refusing to inform the tax authority of the under payment as they say that
it relates to the past period.
(ii) In verification of the non-current assets, it was observed that one non-current assets, a
Volvo luxury air condition coach, was not available in the garage. There is no travel record
for that coach for the last six months. Traffic manager informed that the coach has been
remaining out of order for the last six months at Cox’s Bazar coach station. They offered
that they will arrange the air ticket and other expenses for Cox’s Bazar trip if the audit firm
wishes to physically verify the non-current asset.
(iii)Subsequent to the accounting period, the client’s sales ledger has been corrupted by
computer virus. The financial statements were prepared prior to this occurrence. The audit
team was unable to access the sales ledger and to verify the revenue and the year end
receivables. All other accounting records are unaffected and there are no backup of sales
ledger. The company’s revenue was Tk. 15 million, receivables Tk.4.5 million and profit
before tax Tk. 3 million.
Write a note for the engagement partner explaining how each of these issues should be resolved
with the audit client. 9
(c) Will the auditor be responsible for any breaches by their client of any laws and regulations,
such as employment legislation, tax laws and other local laws? 3
(d) “There is a general expectation by the users that auditors are responsible for preparation of
accounts, to report all frauds and to certify the financial statements as correct”
Is this expectation correct? If yes, how can this expectation gap be narrowed down? 5

2. (a) Why is it important to understand the client’s business? 3

(b) You are an audit senior of A. Karim & Co., Chartered Accountants. M/S Bengal Scientific
Services Ltd. (BSSL) is an audit client of your firm. BSSL provides testing and forensic
analysis services to different agencies/clients including law enforcing agencies.
During the audit you observed that BSSL is having financial difficulties. Income has fallen due
to the adverse effect of two high profile court cases, where BSSL services to assist the
prosecution were found to be in error. Not only did this provide adverse publicity for BSSL, but
a number of clients withdrew their contract. A senior employee then left BSSL stating that the
lack of investment in new testing machines was increasing the risk of incorrect report being
provided by the company.

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 may june 2014

A cash flow forecast prepared internally shows BSSL requires significant additional cash
within the next 12 months to maintain even the current level of services. BSSL has asked its
auditors (A. Karim) to provide a negative assurance report on this forecast.

Requirements:
(i) State the audit procedures that may be carried out to try to determine whether or not BSSL is
a going concern. 4
(ii) In the context of cash flow forecast, define the term ‘negative assurance’ and explain how
this differs from the assurance provided by a statutory audit report on financial statements. 4

(c) If a subsidiary has a going concern issue and is reliant upon the parent for support, will a letter
of support from the parent, on its own, constitute sufficient appropriate audit evidence on going
concern? Can a component auditor request the parent auditor to carry out any necessary audit
work required? Discuss. 7

3. (a) You have been appointed as auditor of Rahman Ltd. When you asked for a formal signed
engagement letter, the Managing Director was reluctant to do that.
Write a brief note to the managing director explaining the need for a letter of engagement. 3
(b) What are the legal and ethical issues to be considered before accepting an audit engagement? 3
(c) You are a partner of a Chartered Accountant firm consisting 4 partners. Recently you have been
offered by Platinum Ltd. to act as an auditor of the company and also to provide assistance with
the preparation of financial statements and corporate tax computation.
The principal activity of the Platinum Ltd is the production of different paper based products
used in the fast food shop. It was incorporated on 01 October, 2012 and the financial statements
will cover the 15 month- period to 31 December, 2013.
Mr. Tanvir started the business using a combination of money inherited from his grandfather
and a bank loan. The loan agreement includes a covenant specifying that the debt equity should
not exceed 1:1. The company’s bankers require the annual accounts to be subjected to audit
before renewal of the loan facility.
The accounting records are computerized and the company uses software which was developed
by IT Systems, an organization of Mr. Tanvir’s brother. The software has been customized to
integrate inventory control with receivables and payables. IT Systems also provides support for
the computer systems. The accounting records are maintained by Mr. Rahim, assisted by Mr.
Karim who works one day a week and is responsible for payroll processing.
Requirements:
(i) State, with reasons, the matters to be considered and procedures to be performed prior to
your firm accepting and commencing the audit of Platinum Ltd. 4
(ii) Identify from the information provided above, the factors which should be taken into account
when assessing the risk of misstatement in the financial statements of Platinum Ltd. and explain
why such factors should be taken into account when conducting the audit. 4

4. (a) Auditors of small entities need to understand the design and implementation of internal controls
even when they take a fully substantive approach to risk assessment. Why is work on internal
control necessary when auditors take a substantive approach? Which controls do auditors need
to understand? 9
(b) BSA 500 Audit Evidence requires auditors to obtain sufficient and appropriate audit evidence.
Appropriateness is a measure of the quality of audit evidence, that is, its relevance and its
reliability. Identify and explain THREE factors which influence the reliability of audit
evidence. 3

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 may june 2014

(c) Auditors are required to perform an overall review of the financial statements before they
provide their audit opinion. Explain THREE procedures an auditor should perform in
conducting their overall review of the financial statements. 5
(d) BSA 530 Audit Sampling provides guidance on methods for selecting a sample of items for
testing. Identify and explain THREE methods of selecting a sample 3
(e) Write a memorandum to the audit–in-charge describing the risk of “auditing around the
computer.” 4

5. (a) An auditor conducting an audit in accordance with BSAs in Bangladesh is responsible for
obtaining reasonable assurance that the financial statements taken as a whole are free from
material misstatement, caused by fraud or error. Discuss about the audit work that needs to be
done in this respect. 9
(b) BSA 260 Communication of Audit matters to those charged with Governance: which says the
auditors should communicate audit matters of governance interest arising from the audit of
financial statements with those charged with governance of an entity.
Identify the relevant persons and the relevant matters to be reported for the governance report. 4
(c) You are the audit senior of a Chartered Accountant firm. Your audit is almost complete but
report is not yet signed. Revenue for the year is Tk. 50 million and profit before taxation is Tk.
8 million. Following issues were detected:
(i) The year end is 30 June 2013. On July 5, it was detected that a batch of product produced in
June was defective. The cost of the batch is Tk.1.5 million. In its current condition it can be
sold at Tk. 0.5 million. The cost of correcting the defect is TK. 1.5 million.
(ii) An explosion occurred on 20 July in one of stores which caused damage to inventory,
property and equipment. The management has investigated the cause and believes that there
is little possibility to receive insurance claim. The management estimated the loss amount
to Tk. 2 million.
(iii) The client has advanced Tk. 5.00 crore for purchasing a land at Gulshan, Dhaka in 2010
and executed a bainanama with Mr. Zahedur Raman. Since then the amount is shown as
advance for land purchase. Subsequently it was found that the land is owned by 7 persons.
Other owners are not interested to sell the land. Litigation is going on with the parties and
the outcome is still uncertain. There is little chance of recovery of the amount. Management
of the client is not in agreement to report the matter in the financial statements.
(1) Explain how these issues will be treated in accounts/financial statements. 6
(2) If the directors do not wish to make any amendment or disclosure to the financial
statements, what should you do? 4

END
 may june 2014

BUSINESS STRATEGY 
 
Time allowed – 2½ hours 
Total marks – 100 
 
[N.B. – Figures in the margin indicate full marks. Questions must be answered in English. Examiner will take 
account of the quality of language and of the manner in which the answers are presented. Different 
parts, if any, of the same question must be answered in one place in order of sequence.] 
  Marks 
1.  (a)  What are the potential areas of conflict between ethics and business strategy?  6 
  (b)  What  are  the  main  issues  concerned  with  corporate  social  responsibility  and  why  might  a 
company choose to act, or at least claim to act, in a society responsible way.  9 
  (c)  Boom Ltd. (Boom) is a large, profitable mining company. It is engaged in extracting coal from 
underground at various sites around the world. 
 
    Coal – Fired Power Generation 
    Coal –Fired Power generation is the technique of generating electricity through combustion of 
coal.  This  is  one  of  the  oldest  techniques  of  generating  electricity.  The  large  untapped  coal 
reserve is one of the major factor boosting the growth of global coal‐fired power generation 
market. Increasing demand for electricity from various end users has pushed the production 
of coal for the generation of electricity to meet the demand – supply gap.   
    Project NB 
    Boom  has  recently  discovered  a  new  site  in  a  remote  but  populated  area  of  Northern 
Bangladesh (Project NB). Bangladesh government is willing to grant Boom a lease to proceed 
with the mining of coal and the government anticipates that there will be significant economic 
benefits from the production of coal, in terms of job creation, gross domestic product and tax 
revenues.  Also,  an  abundant  domestic  supply  of  natural  coal  could  be  used  to  produce, 
cheaper electricity and fuel for the region. 
 
    However,  there  is  opposition  from  environmental  groups  which  claim  that  the  local 
population  has  not  been  sufficiently  informed  about  the  long‐term  environmental  issues 
associated with the coal mining. They claim that the development would place large demands 
on already restricted water resources and that Boom would compete with local farmers and 
residents for water. They also claim that fracking risks contaminating drinking water supplies. 
Industry  experts  disagree,  pointing  out  that  it  is  possible  to  make  some  use  of  saline  (non‐
drinking) water and recycle the waste water from the fracking process. 
 
    Boom’s mission 
    Boom’s  mission  statement  is  `to  maximize  the  return  on  investment  for  our  shareholders 
whilst striving to recognize our corporate responsibility to wider society’. 
 
    At  a  recent  board  meeting  to  discuss  Project  NB,  Boom’s  finance  director  commented:  `Our 
responsibility as directors is to look after our shareholders. If we have to spend money keeping 
these environmentalists happy, at best we will reduce profits and at worst some of our projects 
will not be viable. I think the two parts of our mission statement contradict each other.’ 
 
[Please turn over] 
 
 
 
 
 may june 2014

2 
 
    One  non‐executive  director  (NED)  took  a  different  view  `I  recently  attended  a  conference 
looking  at  the  NED’s  role.  They  said  that,  as  directors,  we  have  a  legal  duty  to  promote the 
success of the company for the benefit of its members as a whole. This means having regard 
to the long‐term consequences of any decision  and the impact of the company’s operations 
on  the  community  and  the  environment  as  well  as  its  employees,  suppliers  and  customers. 
This  leads  to  a  sustainable  business.  Surely,  therefore,  we  need  to  consider  these 
environmentalists, even if only from a risk management point of view.’ 
 
    Requirements 
    (i)  Discuss the views of the two directors in relation to Boom’s mission statement. In doing 
so,  you  should  explain  the  directors’  duties  in  respect  of  corporate  governance  and 
corporate responsibility.  8 
    (ii)  Discuss the commercial and ethical issues for Boom which are involved in the decision to 
extract coal in Northern Bangladesh.  7 
 
2.  (a)  Define Critical Success Factors (CSFS). What are its characteristics?  5 
  (b)  Automobile  Accessories  Ltd.  (henceforth  to  be  called  as  AA  Ltd.)  produces  care  seats  for 
children. AA Ltd. operates in a rapidly developing country which had extensive legislation on 
car safety for many years and child seats are compulsory. The company was formed 10 years 
ago by an entrepreneur who had previously worked as a technical consultant for an industrial 
form  company.  Despite  strong  competition,  AA  Ltd.has  succeeded  largely  by  careful 
marketing. 
 
    The car seats come in range of sizes and there are a variety of options from fully integrated 
seats  for  every  young  babies  to  booster  seats  for  older  children.  The  company’s  main 
customer  is  an  accessory  manufacturer  with  a  major  presence  in  AA  Ltd’s  country  of 
operation. It buys the car seats from AA Ltd.  and sells them under its own brand as `safety 
approved’.  It  advertises  the  car  seats  in  accessory  brochures  and  on  its  website.  The 
company’s second major customer is a large superstore in the home country which specializes 
in children’s clothing and accessories such as prams and pushchairs. The remaining sales are 
to a varied mix of large and small mainly independent car accessory retailers. 
 
    The  car  seats  have  historically  all  been  produced  on  a  single  site  in  the  north  of  the  home 
country. The Managing Director uses his connections to source the foam padding from several 
suppliers  with  a  commitment  to  achieving  the  lowest  price  but  complying  with  safety 
standards and expectations.  
    The country of operation of AA Ltd. has sophisticated economy with efficient capital markets. 
Just  In  Time  (JIT)  Logistics  are  common  in  all  forms  of  manufacturing.  The  company  is 
considering  possible  methods  of  expansion  and  is  currently  considering  exports  to 
neighbouring countries. 
 
    Requirements 
    (i)  Explain  how  conditions  in  country  of  manufacture  could  give  AA  Ltd.  a  competitive 
advantage when it starts its exports operations.  8 
    (ii)  The  Managing  Director  of  AA  Ltd.  is  constantly  trying  to  improve  the  productivity  and 
quality of his manufacturing operations and is considering a programme of benchmarking. 
Explain why a benchmarking programme would help AA Ltd. and suggest how it might be 
carried out.  7 
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 may june 2014

3 
 
  (c)  Briefly describe the value chain concept.  5 
 
3.  (a)  What is targeting? Describe the different targeting strategies.  6 
  (b)  Pragati Ltd. is a Bangladesh‐based nationalized car manufacturer that is going to be privatized 
in the next five years. This has resulted in a poor public image. Details of current models are 
given below: 
 
    Off‐road division 
    Range Pragati. A market leader with a strong image as being the off‐road vehicle to be seen in 
around town. It enjoys a high profit margin but is starting to face increasing competition in the 
growing market. 
    Land Pragati. A leader in the market of `working’ off‐road vehicles. Has a huge market share 
and faces few competitors in a fairly static market. 
 
    Family division 
    Mindless.  A  revolutionary  design  –  30  years  ago.  This  is  the  original  small  car.  It  is  now 
competing  against  many  larger  model  including  Pragati’s  Matchless  in  the  small  family 
hatchback market. The mindless is not a hatchback and, as a result of nil investment over the 
last  20  years,  is  regarded  as  being  an  anachronism,  bought  only  by  enthusiasts.  It  is  totally 
unprofitable. 
 
    Matchless 
     An  economical  and  fun to drive  small  family  hatchback.  The  car  is well  designed but  poorly 
built. It has the potential to become market leader but is held back by its poor reputation. This 
is a growing but highly competitive market. 
 
    Hopeless  and  Hapless.  Two  models  in  the  medium‐size  family  market.  They  are  both  poorly 
designed, poorly built, and have astonishingly bad reputations. Neither car has a market share 
of  any  significance.  The  market  is  not  growing.  It  is  ,  however,  thought  vital  to  have  a  car 
aimed at this market sector. 
 
    Executive division 
    The  Pragati.  What  was  once  a  car  synonymous  with  quality  has  had  its  reputation  somewhat 
tarnished lately due to its unreliability. Its existing customer  base is loyal but increasingly being 
persuaded to buy more reliable imported cars. This is a growing and highly profitable market. 
 
    Requirements: 
    As  a  management  consultant  you  have  been  asked  to  comment  on  the  company’s  existing 
products  and  to  provide  some  advice  about  future  strategy.  Write  briefing  notes  for  the 
directors of Pragati Ltd. Your notes should include: 
  (i)  An analysis of the existing product portfolio of Pragati Ltd. showing its market share and 
market growth characteristics – explain fully any technical jargon used in this analysis and 
suggest how this analysis may help develop future strategy.  10 
  (ii)  An explanation of what the terms `product positioning’and  `market targeting’ mean and 
how these might be applied in developing Pragati’s strategy.  9 
 
 
 
Please turn over] 
 may june 2014

4 
 
4.  Dream Limited has a chain of twenty supermarkets. When stock items reach their re‐order level in 
a supermarket the in‐store computerized inventory system inform the stock clerk. The clerk then 
raises a request daily to Dream’s central warehouse for replenishment of stocks via fax or e‐mail. 
If  the  local  warehouse  has  available  stock  is  forwarded  to  the  supermarket  within  24  hours  of 
receiving the request. If the local warehouse cannot replenish the stock from its inventory holding 
then  it  raises  a  purchase  order  to  one  of  its  suppliers.  The  supplier  delivers  the  stock  to  the 
supermarket  within  the  area.  The  Dream  Area  Warehouse  Staff  conducts  all  business 
communication with suppliers. 
 
  To enable an established traditional company like Dream to develop a Virtual Supply Chain it may 
be necessary to employ a Business Process Re‐engineering (BPR) approach. 
 
  Requirements: 
  (a)  With  reference  to  the  above  scenario,  describe  what  is  meant  by  Business  Process  Re‐
engineering approach.  8 
  (b)  Discuss the notion of supply chain, identifying the major activities and supporting information 
systems that are required to develop a virtual supply chain.  12 
   
 may june 2014

CORPORATE LAWS & PRACTICES 
 
Time allowed – 2½ hours 
Maximum marks – 100 
 
[N.B. – Questions must be answered in English. Figures in the margin indicate full marks. 
Examiner will take account of the quality of language and of the manner in which 
the  answers  are  presented.  Different  parts,  if  any,  of  the  same  question  must  be 
answered in one place in order of sequence] 
 
1.  Please give your opinion on the following cases with reference to the provisions of Companies Act, 
1994: 
 
  a)  In XYZ Private Company Limited, it was found that there are 54 members. On an enquiry, it 
was  ascertained  that  6  of  such  members  are  employees  of  the  company  and  they  have   
acquired the shares while they were employees of the company. Is it necessary to convert   
the company into a public limited company?   5
 
  b)  The  articles  of  association  of  a  company  (formed  to  improve  and  encourage  breeding  of 
poultry)  contained  a  provision  that  no  remuneration  shall  be  paid  to  the  members  of  the   
Board of the company. But the company owing to increase in the business passed a special   
resolution providing for  equitable  remuneration  to  the Board  members for the servicesto   
be rendered by them. Can this alteration of the articles of association be confirmed? If so,   
state how and by whom?   5 
  c)  Board of Directors of a company proposed cash dividend @ Tk. 5.00 per ordinary share of 
Tk.  10.00  each.  In  the  Annual  General  Meeting  some  shareholders  suggested  that  cash   
dividend should be declared @ Tk. 6.00 per ordinary share while some other shareholders   
suggested  that  the  cash  dividend  recommended  by  the  Board  @  Tk.  5.00  per  share  be   
converted into stock dividend. Explain how the Chairman of the meeting should deal with  5
these suggestions.   
 
2.  a)  Enumerate  the  mortgages  and  charges  which  have  to  be  registered  under  the  Companies 
Act, 1994. Discuss the effect of their non‐registration.  6
  b)  What books of account and registers are to be maintained in a company’s registered office? 4
  c)  Discuss the procedures for reduction of share capital and how the same is confirmed. 6
 
3.  The annual general meeting of a publicly traded company was called at a local hotel. The time 
fixed  for  the  meeting  was  10:00  a.m.  The  meeting  was  called  as  per  provisions  of  the   
Companies Act, 1994. At the scheduled time of the AGM the Chairman entered into the meeting   
room and found 75 shareholders sitting there. As per record date data the company had 5,590   
shareholders.  The  Chairman  asked  the  Company  Secretary  whether  the  quorum  was  present.   
The Company Secretary confirmed that the quorum was present (as per articles of association   
of  the  company  presence  of  50  shareholders  fulfills  the  quorum).  The  Chairman  started  the   
meeting  and  proceeded  as  per  agenda.  The  meeting  was  over  within  15  minutes.  When  the   
Chairman  and  other  shareholders  were  leaving  the  meeting  place,  about  250  shareholders   
entered  into  the  meeting  room.  They  collectively  held  a  significant  portion  of  shares  of  the   
company and claimed that the Chairman should have wait for 30 minutes to start the meeting.   
Was the meeting valid without them? Give proper justification in favor of your answer.   10
 
4  a)  Draft a plan of operation and the financial conditions to be incorporated in the Prospectus 
by a public limited company according to Public Issue Rules, 1998  6 
  b)  What  are  the  reasons  for  which  a  listed  company  can  be  de‐listed  or  suspended  by  the 

Page 1 of 2 
 
 may june 2014

Dhaka Stock Exchange as per its listing regulations in force? 5
  c)  Discuss about the requirements as to Cash Flow Statements annexed to SEC Rules 1987 as 
amended in 1997.  5 
  d)  Under  what  circumstances  BSEC can impose penalty under  SEC  Ordinance  1969?  What  is 
the amount of such penalty?  4 
 
5.  XYZ Company Limited (a publicly listed company) has appointed you to certify the compliance 
status  of  Notification  dated  July  3,  2012  of  Bangladesh  Securities  and  Exchange  Commission. 
You are required to give appropriate recommendations, if required, from the following facts: 
 
  a)  The  Board  of  XYZ  Company  Limited  consists of  nine  directors  out  of  whom  one  is 
independent director. The independent director holds 1.00% shares of the Company.   
  3
  b)  The  Audit  Committee  of  XYZ  Company  Limited  is  consisted  of  three  directors.  The 
Chairman of the Audit Committee holds 5% shares of the Company;   3
 
  c)  The  Statutory  Auditors  of  XYZ  Company  Limited  have  been  assigned  to  look  after  the 
internal audit issues and financial information systems design and implementation of the fully   
owned subsidiary of the Company;  3
 
  d)  XYZ Company Limited has one fully owned subsidiary namely ABC Company Limited. The 
Board  of  the  subsidiary  is  comprised  of  two  directors  who  are  also  directors  of  XYZ   
Company Limited.     3
 
6.  a)  What  is  meant  by  Assignment  and  Nomination  of  Life  Insurance  Policies?  Mention  the 
various rules regarding assignment of life policies.  6
  b)  Discuss the various payments required by section 58 of the Insurance Act 2010 procuring
business.  6 
 
7.  Describe the consequences or legal provisions with regard to the followings: 
 
 

i) Mr. ‘X’ is a director of ABC Bank Limited, MNO Company Limited, a non‐banking financial 
 
institution and other two insurance companies. All are incorporated in Bangladesh; 
  5
ii) XYZ  Company  Limited,  a  Non‐Banking  Financial  Institution  failed  to  maintain  the  liquid   
assets as required by Financial Institution Act, 1993;    
5
 

iii) XYZ  Company  Limited,  a  Non‐Banking  Financial  Institution  amended  its  Articles  of 
 
Association without informing Bangladesh Bank.  
 
 
5
 

– The End – 

Page 2 of 2 
 
 may june 2014
 
FINANCIAL ACCOUNTING
ଵ
Time Allowed – 2 hours
ଶ
Total Marks – 100

[N.B- The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and of the manner in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence.]
Marks
1. (a) “Standard of professional ethics of a professional accountant working in a large listed company should be
higher than that of a professional accountant working in a small size private company”. Would you agree
with the above statement? Comment. 5
(b) Briefly explain what you understand by triple bottom line accounting. 4
(c) You are the financial controller for Purbachal Ltd. a company listed on the Dhaka Stock Exchange.
The Chairman has asked you to explain a number of matters relating to the substance of transactions and
the reporting of lease transaction in financial statements. He has approached you as you have recently
attended a number of training courses on BFRS and are in the process of preparing the daft financial
statements for the year ended 31 May 2014 in accordance with BFRS.
Purbachal Ltd. recently entered into a lease contract for a new piece of machinery. The new machine
could have been purchased for a cash price of Tk. 150,000. The terms of the lease are:
i. the lease is for four years.
ii. an initial deposit of Tk. 30,000 was payable on 1 June 2013 followed by eight half-yearly payment
thereafter of Tk. 20,000 payable on the 1 December and 1 June each year, commencing on 1
December 2013.
The estimated useful life of the equipment is four years. Purbachal Ltd. uses the sum of the digits method
to allocate finance lease.
Purbachal Ltd’s factory premise is held on a 25 year lease. The period of the lease is expected to be
similar to the life of the factory building and at the end of the 25 years the land reverts back to the lessor.
Required
Prepare financial statement extracts and supporting disclosure notes that show how the machinery lease
transaction should be presented in the financial statements of Purbachal Ltd for the year ended 31 May
2014. 10
(d) ABC Ltd is organised into several divisions. The following events relate to the year ended 31 December 2013.
i) The computer division supplied a computer to a customer during the year that exploded, causing a
fire. ABC Ltd is being sued for damages. Lawyers have advised that there is a 30% chance of
successfully defending the claim. Otherwise the damages are expected to cost Tk. 10 million
(present value Tk. 9.5 million). The lawyers have investigated the cause of the problem with a team
of accident consultants. They have concluded that parts supplied to the computer division by Sonali
Ltd.contributed to the fire. Lawyers have estimated that Sonali Ltd.’s contributory negligence
amounted to 40% of the total damages. Negotiations have started with Sonali Ltd. and the lawyers
believe that a claim in likely to succeed.
ii) On 15 December 2013, the directors of ABC Ltd.minuted their decision to close the operations of
the loss making space technology division. The decision and an outline of a plan were immediately
announced to employees and a press release was issued. The closure, which began on 4 January
2014, has an estimated date for completion, including the sale of the non-current assets of the
division, of 30 June 2014. The costs associated with the closure include the following:

Tk.’000
Employee redundancy costs ………………………………………………….. 12,000
Lease termination costs ………………………………………………………. 4,000
Reallocating continuing staff to other divisions ………………………………. 3,000
Impairment losses ……………………………………………………………... 2,000
Tk. 21,000
iii) ABC Ltd.’s retail division provides two-year warranties to its customers. Experience has shown that,
on average, 10% of sales from this division result in warranty claim. Revenue from this division in
2013 was Tk. 8 million. At 1 January 2013 ABC Ltd has a warranty provision in place of Tk. 1
million. During the year claims of Tk. 600,000 were settled by the company.

[Please turn over]

1 
 
 may june 2014
 
Required
Prepare the provision and contingencies notes for the financial statements of ABC Ltd for the year ended
31 December 2013. 10

2. (a) The Finance Manager (FM) of Padma Bank Ltd. is in the process of preparing its financial statements for
the year ended 31 December 2013. The FM has made the following suggestions. You are required to
evaluate the appropriateness of the accounting treatments suggested by the FM.
(i) The Bank has invested Tk.1 billion in treasury bonds with 5 years maturity period. The head of
treasury of the Bank has confirmed based on the Bank’s future strategies, the Bank may not be able
to hold the instrument till their maturity. Therefore, FM is of the view that the instrument can be
classified as loans and receivables. 4
(ii) The Bank has invested Tk.750 million in quoted ordinary shares of BATBC Ltd. These shares were
classified as available for sale at the beginning of the year. According to the Bank’s future business
strategy, the head of treasury has suggested that it expects to trade these shares frequently.
Therefore, the FM is of the view that these shares can be classified as fair value through profit or
loss as at 31 December 2013. 4
(iii) The Bank has invested Tk.50 million in 15% unquoted corporate debentures with 3 year maturity
period. According to the Bank’s business strategy these investments are managed and their
performance is evaluated on a fair value basis as per the Bank’s documented risk management
procedures. The FM is of the view that these instruments can be designated as fair value through
profit or loss instruments.
(iv) The Bank has invested in 6-year corporate bonds of Bengal Ltd. that earn interest at 14% and it
contains an early redemption option that allows Bengal Ltd. to redeem it any time after the third year
of issue date if the volume-weighted average price of equity shares of Bengal Ltd. is not less than
30% of its share price at the date of issue of bond. The FM is of the view that this instrument can be
classified as loans and receivables. 4
(b) The following information is provided with regard to Genetic Ltd. employee benefits plan:
Balance as at 31.12.2013 as follows: Taka
Present value of obligation 15,000,000
Present value of asset 25,000,000
Unrecognized actuarial losses 3,000,000
Unrecognized past service cost 1,000,000
Computed net asset 14,000,000
The actuary has confirmed that the present value of the available reduction in future contribution as a
result of the plan, surplus is Tk.5,000,000. The Company does not have unconditional right to refund.
Required: Calculate the ceiling on the asset that may be recognized. 4

3. Eastern Enterprises Ltd. wholesales and distributes toys and models and provides distribution services to other
orgnizations. The following balances have been extracted from its books of accounts as at 31 December 2013.
Heading Tk.(in 000)
Ordinary shares 800
5% redeemable preference shares 200
Share premium account 350
Revaluation reserve 400
Retained earnings at 1 January 2013 2,000
Revenue 11,899
Purchases 8,935
Inventories at 1 January 2013 974
Staff costs – distribution 270
Staff costs – administration 352
Depreciation charge for the year:
Freehold land and buildings 30
Distribution equipment 116
Other plant and equipment 160
General expense 432
Interest receivable 41
Interest payable 35
Taxation – charge for the year 336
Paid dividends:
Ordinary shares – final for 2012 60
2 
 
 may june 2014
 
Ordinary shares – interim for 2013 30
5% redeemable preference shares – for 2013 10
Patent rights 200
Freehold land and buildings 1,500
Distribution equipment – cost 800
Other plant and equipment – cost 1,400
Accumulated depreciation at 31 December 2013:
Freehold land and buildings 30
Distribution equipment 320
Other plant and equipment 250
Trade receivables 1,600
Trade payables 850
Cash and cash equivalents 300
Tax liability 400
Additional Information
1) Included in revenue are invoices totaling Tk. 120,000 in relation to distribution services rendered
under a contract to a customer who is very unhappy with the quality of the services provided. The
overall outcome of the contract is uncertain and management believes that of the Tk. 90,000 costs
incurred to date under the contract, probably only Tk. 65,000 will be reimbursed by this customer.
2) The patent was acquired during the year. Amortisation of Tk. 20,000 should be charged to
administrative expenses.
3) Inventories at 31 December 2013 were valued at Tk. 1,304,000.
4) Costs not specifically attributable to one of the income statement expense headings should be split
50:50 between distribution costs and administrative expenses.
5) The freehold land and buildings were revalued on 1 January 2013 and the surplus of Tk. 400,000
over its previous carrying amount of Tk. 1,100,000 (cost Tk. 1,200,000 and accumulated
depreciation Tk. 100,000) has been recognized in the revaluation reserve. The depreciation charge
for the year increased by Tk. 8,000 as a result of the revaluation.
6) General expenses include a material bad debt write off of Tk. 100,000.
7) A final ordinary share dividend for 2013 Tk. 50,000 was proposed in May 2014, payable on 28 June 2014.
8) Tk. 450,000 cash was received during the year as a result of a rights issue of ordinary shares. The
nominal value of the shares issue was Tk. 100,000.
9) On 1 June 2013 the company made the decision to sell its loss-making soft toy division as a result of
severe competition from the Far East. The company is confident that the closure will be completed
by 30 April 2014. The division’s operations in 2013 represent 10% of revenue (after all
adjustments), 15% of cost of sales, 10% of distribution costs and 20% of administrative expenses.
No balance sheet disclosures are necessary.
Required:
Prepare Eastern Enterprises Ltd.’s Statement of Comprehensive Income and Statement of Changes in
Equity for the year to 31 December 2013, a Statement of Financial Position at that date and movements
schedules and notes in accordance with the requirements of BASs, to the extent the information is
available. 25
4. On 1 July 2013, Dragan Ltd. acquired 80% of the equity share capital of Sowdagar Ltd. The consideration
consisted of two elements. i.e. a share exchange of three shares in Dragan Ltd. for every five acquired shares
in Sowdagar Ltd. and the issue of a Tk.100 loan note at 6% for every 500 shares acquired in Sowdagar Ltd.
The share issue has not yet been recorded by Dragan Ltd., but the issue of the loan notes has been recorded.
At the date of acquisition, shares in Dragan Ltd. had a market value of Tk.5 each and the shares of Sowdagar
Ltd. had a stock market price of Tk.3.50 each. Below are the summarized draft financial statements of both
the companies.
Statement of comprehensive income for the year ended 31 December 2013
Dragan Ltd. Sowdagar Ltd.
Tk.’000 Tk.’000
Revenue 92,500 45,000
Cost of Sales (70,500) (36,000)
Gross Profit 22,000 9,000
Distribution cost (2,500) (1,200)
Administrative expenses (5,500) (2,400)
Finance Cost (100) -
Profit before tax 13,900 5,400
Income tax (3,400) (1,500)
Profit after tax 10,500 3,900
Please turn over]
3 
 
 may june 2014
 

Statement of Financial Position as at 31 December 2013

Dragan Ltd. Sowdagar Ltd.
Tk.’000 Tk.’000
Assets:
Non Current Assets
Property, Plant and Equipment 25,500 13,900
Investment 1,800 -
Current Assets 12,500 2,400
Total Assets 39,800 16,300
Equity and Liability:
Equity
Stated Capital (equity share of Tk.1 each) 12,000 5,000
Other equity reserves 2,500 -
Retained earnings 12,300 4,500
Non-current Liabilities
Loan notes 3,000 4,000
Current Liabilities 10,000 2,800
Total Equity & Liabilities 39,800 16,300

The following information is relevant:

1) At the date of acquisition, the fair values of Sowdagar Ltd.’s assets were equal to their carrying amounts
with the exception of its freehold property. The freehold property had a fair value of Tk.1.0 million
above its carrying value. Freehold property would lead to an increase in the depreciation charge (in cost
of sales) of Tk.50,000 in the post-acquisition period. Sowdagar Ltd. has not incorporated this value
change into its separate financial statements.
2) The Sowdagar Ltd. has developed its brand name internally over the past years. The fair value of the
brand name as of the date of acquisition was Tk.1.2 million. The management is confident that the brand
name is capable of providing competitive advantage at least for next 5 years.
3) Dragan Ltd. has incurred legal charges of Tk.1.5 million in arranging the acquisition of Sowdagar Ltd.,
This cost is not recorded in Dragan Ltd.’s financial statements.
4) Sowdagar Ltd. has announced right issue of 1 share for every 5 shares held and the right was exercisable
at Tk.3 per share. Minority shareholders fully subscribed for the right issue and it was closed on 31
December 2013. Dragan Ltd. did not participate in right issue and it was closed on 31 December 2013.
Right issue has not been recorded in the Sowdagar Ltd. Financial Statements.
5) Dragan Ltd.’s group policy is to revalue all properties to current value at each year end. On 31 December
2013, the value of Sowdagar Ltd.’s property was unchanged from its value at acquisition, but the
building element of Dragan Ltd.’s property had increased in value by Tk.500,000. This has not been
incorporated in the Dragan Ltd.’s financial statements.
6) Dragan Ltd.’s investments include some available-for-sale investments that have increased in value by
Tk.300,000 during the year. The other equity reserve relates to these investments and is based on their
value as at 31 December 2012. There were no acquisitions or disposals of any of these investments
during the year ended 31 December 2013.
7) Current liabilities of Sowdagar Ltd. include Tk.1 million five year bank loan which is required to be
settled in a lump sum on 30 June 2013. In March 2014, just before the financial statements are authorized
for issue, Sowdagar Ltd. negotiated with the bank and new agreement was signed extending loan period
for another five years.
8) There has been no impairment of consolidated goodwill.
9) The Sowdagar Ltd.’s profits are evenly distributed and there are no exceptional material transaction in
the pre-acquisition period.
10) The tax rate is 30%.
Required:
(a) Prepare the Consolidated Statement of Comprehensive Income for Dragan Ltd. for the year ended 31
December 2013; and 15
(b) Prepare the Consolidated Statement of Financial Position for Dragan Ltd. as at 31 December 2013. 15
Detailed workings are to be shown separately.
– The End –

4 
 
 may june 2014

FINANCIAL MANAGEMENT 
 Time Allowed – 2½ hours 
 

[N.B. – The figures in the margin indicate full marks. Question must be answered in English. Examiner will take account of the 
quality of language and the manner in which the answers are presented. Different parts, if any, of the same question 
must be answered in one place in order of sequence.] 
Marks 
1.  (a) What is the relationship between risk and return as per CAPM?             4 
(b) The risk free rate of return is 8 percent. The expected rate of return on the market portfolio Km is 12 percent. The 
expected rate of growth for the dividend of firm A is Tk. 2.00. The beta of firm A’s equity stock is 1.2. 
(i)  What is the equilibrium price of the equity stock of firm A?            3 
(ii) How would the equilibrium price change when (a) the inflation premium increases by 2 percent, and  
(b) the beta of A’s equity rises to 1.3.                            3 
 

(c) X’s  equity  stock  is  currently  selling  for  Tk.  30 per  share.  The  dividend  expected next  year  is  Tk.  2.00.  The  investors 
required rate of return on this stock is 15%. If the constant growth model applies to X limited, what is the expected 
 
growth rate?                                   5 
(d) Y Limited’s earnings and dividends have been growing at a rate of 18 percent per annum. This growth rate is expected 
to continue for 4 years. After that the growth rate will fall to 12 percent for the next 4 years. There after the growth 
rate is expected to be 6 percent forever. If the last dividend per share was Tk. 2.00 and the investors required rate of 
 
return on Y’s equity is 15 percent, what is the intrinsic value per share?                        10  
2 (a) What determines the optimal mix of debt and equity for a growth company? Based on the Modigliani & Miller 
theorem, briefly explain the market value of a levered company in terms of the market value of an unlevered 
company.                                                                                                                                                                      5          
(b) There are two paint manufacturing companies listed on the Dhaka Stock Exchange Ltd., whose earnings and capital 
structures are given below.  
 

  Zheelmill Paints Asian Paint
No. of shares issued  10 million 8 million
Current share price (Tk.)  75 100 
Corporate debentures (Tk. millions ) 3,000 ‐ 
Debenture interest rate  12% ‐ 
Corporate tax rate  35% 35% 
Estimated net earnings after tax for the year  600 150 
2013 (Tk. millions) 
It is believed that the current market price of Asian Paint is in equilibrium and the Zheelmill Paints debt is also at its 
equilibrium level.  However analysts are of the opinion that Zheelmill Paints share price may not be at its 
equilibrium level.  
Required:  Determine whether Zheelmill Paints shares are over/under valued on the market.                                      7 
 

(c) The CEO of Zheelmill Paints has sold the company's controlling stake (51%) to a high net worth businessman at Tk. 
75 per share. He continues to hold 15% of the equity and enters into a contract to be its CEO for the next 3 years.  
 

In an attempt to improve financial performance, recently the company made a successful rights issue of 4 : 5 at Tk. 
50  per  share  to  infuse  funds,  and  the  entire  proceeds  had  been  used  to  retire  the  debt.  The  company  offered  a 
redundancy package to some of its workforce and 1,000 workers accepted the compensation package of 6 months’ 
salary (average worker salary is Tk. 35,000 per month). The company reduces its working capital by going for a sub‐
contractor  model;  thereby  the  company  would  increase  its  operating  profit  to  Tk.  1.5  billion  (before  the 
compensation costs).  
 

Post rights shares are trading at Tk. 65 per share and Zheelmill Paints declares a 60% dividend.  
Required:  
(i) Determine the new capital structure of Zheelmill Paints immediately after the rights issue.                           4  
(ii) What would be the dividend yield of the high net worth investor?                                                                   4  
(iii) Assuming the dividend growth is 5% and the cost of equity is 20%, calculate the share price of Zheelmill Paints 
using Gordon's dividend growth model.                                                                                    5  
 

1
 may june 2014

3. (a)  Toyota Motor Corp., like most major multinational corporations, enjoys easy access to world financial markets.  
Explain why the NPV approach is the most appropriate tool for Toyota’s investment project selection process.            3 
 
   (b)  The directors of ABC Ltd are considering the selection of one of a set of three mutually exclusive projects. The cash 
flows expected to be associated with each project are as follows: 
Cash flows (TK ‘000) 
Project  Immediately  After 1 year After 2 years After 3 years 
A  ‐9,200  +4,000 +4,000 +4,000 
B  ‐9,500  +6,000 +3,000 +3,000 
C  ‐10,000  +1,000 +1,000 +13,000 
      The directors of ABC Ltd estimate the company’s cost of capital at 10% per annum. They do not expect capital or any   
other resource to be in short supply during the next three years. 
 You are required to: 
(i) Calculate the present value and estimate the internal rate of return of each of the three projects                                9                        
(ii) Advise the directors of ABC Ltd which project to accept, explaining fully the reasons for your advice.                         6                        
(iii) Prepare a statement showing how the net present value and internal rate of return methods may be adjusted so 
that they lead to consistent recommendations.                                                                                                                 5                     
 

   c.  An efficient firm employs inputs in such proportions that the marginal product/price ratios for all inputs are equal. In 
terms of capital budgeting, this implies that the marginal cost of debt should equal the marginal cost of equity in the 
optimal  capital  structure.  In  practice,  firms  often  issue  debt  at  interest  rates  substantially  below  the  yield  that 
investors require on the firm’s equity shares. Does this mean that many firms are not operating with optimal capital 
structures? Explain.                                                                  3      
                
   4. (a) What is a derivative and how it helps in minimizing financial risk?                                                                      3 
       (b) F Limited needs to borrow Tk 150 million in three months time for a period of six months. Present rate of interest if 
borrowed  from  a  financial  institute  is  13%.  There  is  a  chance  of  interest  rate  fluctuation  in  future  and  the  Finance 
Controller is exploring the following possibilities: 
(i) Forward rate agreements 
(ii) Interest rate futures 
(iii) Interest rate guarantees  
 
Explain how these alternatives might be useful to F Ltd.              6 
(c)  What are the trading risks in overseas business?  How can the risk of bad debt be reduced?      3 
 

(d)  MJ  Garments  Ltd.  has  completed  a  contract  and  exported  goods  worth  €  5  million  to  Europe.  They  will  receive  the 
payment  in  three  months  time.  Its  Finance  Director  is  worried  that  the  Euro  will  be  weaker  than  Taka  and  hence 
affect the cash flow. Four alternative options are available to deal with the foreign currency exposure: 
 

(i) Do nothing now and convert € 5 million at the spot rate prevailing in three months time; 
 

(ii) Use the forward market to sell € 5 million for Taka at today’s three‐month forward rate; 
   

        (iii) Buy today a three‐month €5 million put option at a strike price equal to the three month forward rate. The option 
will cost Tk. 125,000, which will be paid from that company’s surplus cash currently in a bank deposit account. 
(iv) Use the money market to cover the position. 
 

The following relevant information are available: 
The spot rate is Tk. 1/€1.5575‐1.5625 
The three month forward premium is € 0.0047‐ 0.0015 
The current bank interest rates per annum are: 
 

                         Euro zone             Bangladesh 
Prime lending rate           3.2%                        4% 
Three month deposit rate          2.8%         3.6% 
 

Calculate the effects of each of the four approaches, assuming that the spot rate prevailing in three months time is 
Tk. 1/€ 1.50 and Tk. 1/€1.70.                                              12
                     
The End 

2
 may june 2014

IT APPLICATION 
Time allowed – 2½ hours 
Total marks – 100 
 
 
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take 
account  of  the  quality  of  language  and  the  manner  in  which  the  answers  are  presented.  Different 
parts, if any, of the same question must be answered in one place in order of sequence.] 
 
  Marks 
1.(a (i).What are the typical sections which should be considered to develop IT Strategy of an 
organization.  5 
  (ii)  Identify the IT opportunities in developing IT strategy o f an organization.  5 
 
(b) How to develop Disaster Recovery Plan (DRP)? Explain. Write down the advantages of 
Disaster Recovery Plan.  10 
 
2.(a)(i)  What is fault tolerant system?  4 
  (ii)  Explain the relationship between decision making and information structure.  6 
   
  (b) What is Accounting Information System (AIS)? Write down the basic categories of AIS 
technology and explain the steps of an AIS system development.  10 
 
3.  (a)  Why  do  projects  fail?  Explain  in  brief.  What  is  Information  System  Security  Policy? 
Explain in details.  10 
  (b)  Short  Notes:  Flaw  Remediation,  Malicious  Code  Protection,  Security  Alerts  and 
Advisories, Security Functionality Verification. 
 
4.  (a)  What do you know about computer operations audit?  4 
  (b)  Which policies are maintained by an organization for auditable events?  6 
 
5.  In  this  era  of  globalization  a  developing  country  like  Bangladesh  is  in  great  need  to 
develop  its  IT  sector.  The  government  has  also  declared  IT  as  a  thrust  sector  in 
Bangladesh.  Explain  a  satisfactory  IT  infrastructure  can  be  developed  in  Bangladesh  and 
how it can benefit the economy  10 
 
6.  Describe  the  relationship  between  Management  decision  making  and  information 
structure.  10 
 
7.  Hackers and viruses remain a major problem in a well established IT infrastructure. 
        (i) Explain the risks associated with above mentioned problem.  5   
  (ii)  How can the risk be minimized?  5  
 
 
 
– The End – 
 
 may june 2014

TAXATION-II
Time allowed- - 2 1/2 hours
Total marks-100
[N-B- The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and the way in which the answers are presented. Different parts, if any, of the same question must be
answered in one place in order of sequence].
Marks
1 (a) Explain the following :- 6
(i) Undistributed Profit of a listed company under Section 16B of the Income Tax Ordinance 1984
(ii)Excess Profit Tax of a banking company under Section 16C of the Income Tax Ordinance 1984
(iii) Charge of minimum tax on a firm under Section 16CCC of the Income Tax Ordinance 1984
(b) Name the five different methods to determine the arm’s length price in relation to an international transaction 5
mentioned in Section 107C of the Income Tax Ordinance 1984. Is there any statutory requirement to furnish a
report from a Chartered Accountant in the case of international transactions? When?
(c) Mention the allowable limits for the following expenses under the Income Tax Ordinance, 1984:
5
(i) Perquisites under Section 30 (e) of the Income Tax Ordinance 1984:
(ii) H. O. Expenses in the case of a foreign company not incorporated in Bangladesh.
(iii) Royalty, Technical Services fees, and technical know how fee.
(iv) Entertainment expenses incurred by a company
(v) Overseas Travelling Expenses by a director of a company.

2. Your firm has assigned you the responsibility of tax planning for its clients, and has recently referred the
following cases to you for your advice:
(a) ABC Ltd. is a parent company of a group of private limited companies comprising three companies. The
other two companies are DEF Ltd. and GHI Ltd. Mr. X, FCA holds 1% shares in DEF Ltd., and is also a
director of the company. He does not hold any share in ABC Ltd. and GHI Ltd.
It has been decided that Mr. X will be employed by the Group as the group CFO with effect from 1 July
2014 at a gross monthly salary of Tk. 1,80,000/= per month plus 2 festival bonuses, each bonus being one
month’s full basic salary. He will not get any other benefit. He will work for all the three companies.
Currently Mr. X lives in an apartment at Gulshan at a rental of Tk. 50,000/= per month. He also pays
common service charges of Tk. 5,000/= per month. He will continue to live in the same apartment. Mr. X
confirms that he spends on an average Tk. 2,000/= per month on medical expenses for himself and his
dependent family members. He is 55 years old.
You are required to advise as to how the gross monthly salary should be broken down into basic
salary and allowances so that the tax expenses are minimized to an optimum level, considering the 7
interests of both the employee and employer(s). Your advice should be based on the current
provisions of Income Tax Ordinance 1984 and its Rules.
(b) Mrs. A is 66 years old and her total income for tax purposes for the income year 2013-2014 is
estimated to be TK. 40,00,000/=. Currently she has idle fund of Tk. 18,00,000 /= lying in her bank
account (current account). She reckons that on 30 June 2014 she will have the same amount of
idle fund in hand, and that she will have more idle fund in hand during the next five income
years.
Now she is considering making investments as follows:-
(i) 5 -year FDRs at an interest rate of 13% p.a.; or/ and
(ii) 5- year savings certificates (Bangladesh Sanchaya Patra) with an average interest rate of 12% p.a.
Since FDR interest rate is higher, Mrs. A wants to invest the entire amount of TK. 18,00,000/- in
5-year FDRs. In any case she is not agreeable to invest in any other type of asset except for the
above two. She has not made any investments in the income year 2013-2014.
Where should Mrs. A invest? How will Mrs. A be benefitted if she follows your advice? Your
advice should be based on the current provisions of Income Tax Ordinance 1984 and its Rules and 5
the earnings potential. The compounding of interest is done on yearly rest in both the cases. Ignore
time value of money.
[Please turn over]

1
 may june 2014

(c) ABC Ltd is a private limited company, expecting to generate a net profit before tax of TK. 2 crore
in the accounting year ending 30 June 2014. The company needs to purchase a motor vehicle and
a general purpose machine, costing Tk. 30 lac each, within a period of maximum another forty
days. As on 12 June 2014, ABC Ltd. has a surplus fund of Tk.30 Lac which it can now either
invest in FDR at 10% p.a. interest for one month or use in purchasing any of the above two fixed
assets. The motor vehicle can be put in use within 5 days from the date of purchase. But the
machine cannot be put in use before the third week of July 2014. The company is expected to
generate at least an additional surplus fund of Tk. 30 lac in the second week of July 2014. The
company’s paid – up share capital is Tk. 5 crore.
What should the company do with Tk. 30 lac additional fund currently in hand, giving due 4
consideration to the opportunities of tax savings and additional income? Your advice should be
based on the current provisions of Income Tax Ordinance 1984 and its Rules. Make necessary
assumptions, if required.

3 Mr. A is 60 years old and employed by a private limited company. He has joined the company on 1
July, 2012. He has received the following income and benefits during the year ended 30 June, 2013:
(a) Basic Salary Tk. 100,000/- per month sent to his bank directly. He had outstanding salary for
the month of June-2013 which was paid on 2 July 2013. He had also received arrear salary of
Tk. 50,000/- during the year from previous employment.
(b) The present employer allowed house accommodation at a concessional rate. Mr. A. paid Tk.
60,000/- only as rent during the income year 2012-2013.
(c) Additional Conveyance allowance of Tk. 50,000/- was paid to Mr. A in addition to the
conveyance allowed under Rule 33D.
(d) Entertainment allowance @ 5% of basic salary was paid to Mr. A.
(e) Free and concessional passage of Tk. 2,00,000/= for Travel in Bangladesh by Mr. A was
allowed by the employer against actual claim of expenditure of Tk. 300,000/-.
(f) Employer spent Tk. 500/- p.m. for free Tea, Coffee, and Beverage for the office of Mr. A
during working hours.
(g) Company spent Tk. 200,000/- for Mr. A. during the year against reimbursement of utility
bills of his residence..
(h) Received share of Net Profit of Tk. 200,000/- from partnership. He is entitled to tax rebate as
per tax law.
(i) Derived Net income from production of corn, maize and sugar beet for Tk. 5,000/-.
(j) Purchased wage earners bonds on 30 June, 2012 and received interest of Tk. 50,000/- in the
following year on the said investment of Tk. 5,00,000/-.
(k) Taken advance of Tk. 200,000/- from a company against accumulated profit where he was an
alternate director and a shareholder.
(l) Mr. A is also a Manufacturer and Exporter of garments products. He sold export quota at Tk.
25,000/- against export value of Tk. 500,000/-.
(m) Mr. A incurred a capital loss of Tk. 500,000/- on account of sale of shares, but made a capital
gain of Tk. 600,000/- from the sale of government securities.
(n) Rental income of Tk. 600,000/- received from a five storied building consists of 10 flats
constructed during the period from 1 July, 2012 to 30 June, 2013 in an area of Muladi, Barisal.

During the year Mr. A. has claimed the following expenditure as his investments.
(1) Purchased Sanchya Patra for Tk. 50,000/-
(2) Contributed 10% of his basic salary towards Super Annuation Fund.
(3) Deposited Tk. 75,000/- under Deposit Pension Scheme with a Financial Institution.
(4) Contributed Tk. 20,000/-to Benevolent Fund.
(5) Contributed 10% of basic salary to a recognized Provident Fund. A similar contribution was made
by the employer wherefrom he received interest of Tk. 1,800/- from the said fund @ 18%.
(6) Paid insurance premium of Tk. 20,000/- for his spouse and minor child. The policy value is
Tk. 100,000/-.
[Please turn over]

2
 may june 2014

(7) Purchased one computer for Tk. 50,000/= and one laptop for Tk. 60,000/=

You are required to calculate the total income and tax liability of Mr. A for the assessment year 20
2013-2014. Make necessary assumptions, if required.

4. What sort of punishments and prosecutions are provided in the Income Tax Ordinance, 1984 for 8
different offences and non-compliances of obligations by a person mentioned under Sections 164, 165
and 165A of Income Tax Ordinance 1984?

5. X Ltd. is engaged in civil construction business. The profit and loss account of the company for the
year ended 30 June, 2013 is given below:
Profit and Loss Account
For the year ended 30 June 2013
(Figures in Tk.)
Revenues and gains
Receipt from Civil Construction 47,60,000
Rent of godown 80,000
Claim against loss of plant & machinery by fire from Insurance Company (1)
Interest on company deposit 2,00,000
Dividend from Companies(Net) (2) 25,000
50,000

------------
51,15,000
=======
Costs and expenses
Opening Stock of building materials 40,000
Less Closing Stock of building materials (25,000)
Salary to Employees (3) 9,90,000
Incentive Bonus 3,00,000
Excess Perquisites 80,000
Purchase of building materials (4) 24,00,000
Donation (5) 90,000
Interest on Loan 3,20,000
Other administrative Expenses 2,47,000
Technical Service fees 13,000
Travelling Expenses (6) 1,40,000
Municipal Tax on godown (7) 12,000
Insurance Premium of Godown 8,000
Directors Remuneration (8) 2,53,000
Depreciation on Plant and Machinery (9) 65,000
Provision for Tax (10) 1,43,000
Total 50,76,000
Net Profit for the year 39,000
------------
51,15,000
=======

The following additional information are also available:-

(1) Claim was received against fire insurance taken for the plant and machinery at book value of
Tk. 4,20,000/-. The written down value was Tk. 1,85,000/-. The plant and machinery destroyed
in the fire was scrapped and disposed of at no consideration.
(2) Dividend received Tk. 50,000/- net of Tax.
[Please turn over]
3
 may june 2014

(3) Salary includes Tk. 20,000/= gratuity paid to employees during the year on cessation of their
employment. The company does not have any separate gratuity fund.
(4) The entire building materials were purchased from a firm in which Managing Director of the
company was a partner. The fair market value of the materials purchased was Tk. 20,00,000/-.
(5) Donation includes Tk. 50,000/= paid to Bangladesh Cricket Control Board, Tk. 20,000/= to
Zakat Fund and Tk. 20,000/= to ICAB
(6) Travelling expenses include costs incurred for Tk. 1,40,000/- against overseas travelling by a
director.
(7) Municipal Tax on godown includes other tax of Tk. 3,000/- not paid.
(8) Directors remuneration includes board meeting attendance fee of Tk. 50,000/= on which no
VAT has been deducted and deposited to the government treasury.
(9) The rate of depreciation on plant and machinery is 15% under the Third Schedule of Income Tax
Ordinance, 1984. The tax written down value of the plant and machinery (still in use) brought
forward on 1 July 2012 was Tk. 1,60,000/=. In addition a new plant and machinery was
purchased for Tk. 23,333/= during the year.
(10) Tax provision is to be made as per law, based on the Profit and Loss Account and the
additional information provided here.
(11) The company issued 1,00,000 shares of Tk. 10/ each, at a premium of Tk. 3 each during the
year.
Compute the total income of X Ltd. for the assessment year 2013-2014 and Tax liability. You
answer should include explanation of your treatment of various items. 20

6. (a) Under what circumstances may a company cancel its VAT registration? What will they do to cancel the 3
VAT registration?
(b) If any VAT withholding entity makes any purchase from a person who is not registered under the Value 4
Added Tax Act, what will be the consequences?
(c) X Ltd. pays Tk. 60,000/= per month as office rent and Tk. 10,000/= per month as other charges (lift and
security charges) to the landlord. The landlord wants that X Ltd. should pay 12% VAT along with the
above rent and charges to him, which will then be deposited by the landlord to the government treasury?
On the other hand X Ltd. wants to deduct 9% VAT from rent and 2.25% VAT from other charges, make
the payment (net of VAT) to the landlord and deposit such deducted amounts to the government treasury.
Both of them have now come for your advice.
5
Advise on the basis of the current provisions of VAT Act and its Rules.

7. The following information has been taken from the accounting records of XYZ Ltd for the year 2013:
Raw Materials inventory, January 1 Tk. 90,000
Raw Materials inventory, December 31 Tk. 60,000
Work in process inventory, January 1 Tk. 1,80,000
Work in process inventory, December 31 Tk. 1,00,000
Finished goods inventory, January 1 Tk. 2,60,000
Finished Goods inventory, December 31 Tk. 2,10,000
Purchase of Raw Materials Tk. 7,50,000
Direct labour Tk. 1,50,000
Manufacturing Overhead Tk. 6,40,000
Selling expenses Tk. 1,40,000
Administrative expenses Tk, 2,70,000
The company sells its products by adding 15% profit on cost.
Determine the amount of VAT if the rate is 15%. 8

The End

4
 nov dec 2014

AUDIT & ASSURANCE

Time allowed – 3 hours
Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and of the manner in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence.]
Marks

1. (a) Define the `three Es’ of a value for money audit. 3

(b) BSA 230 Audit Documentation requires auditors to prepare audit documentation for an audit of
financial statements on a timely basis.
What are the benefits of documentation of audit work? 2
(c) Define audit planning as per BSA 300. Discuss the importance of preparing an audit plan and audit
strategy before commencing the audit assignment. 5
(d) You are currently undertaking an assurance engagement for M & R Ltd., a large Advertising firm in
Dhaka.
During the course of the work you have found a number of issues on which you need to report.
These can be summarized as below:
i. You have found a total Tk. 1,800,000 unauthorized expenditure on IT. Any IT expenditure in
excess of Tk. 15,000 has to be authorized by a Director.
ii. The IT expenditure for the year is 65% in excess of budget. There seems to be little reason for the
rise.
iii. Large sums for travelling expenses are not being authorizedon account of payments made in
excessof limit set for Night Allowance. Four executives spent a total of Tk. 2,500,000 in excess of
their limit of Night Allowance throughout the year.
iv. While examining work in progress, it became clear that there were sums which have been
there for more than six months without being billed. These total Tk. 56,00,000. There appears
to have no explanation to these.
v. While overtime forms are submitted, any amounts of more than three hours per month need
to be authorized. This is rarely done. The company paid out Tk. 18,000,000 as unauthorized
overtime.
vi. There are no controls over non-chargeable time. The proportion of non-chargeable time for
individual executives varies from 5% to 34%.
Requirements:
Identify:
(i)The control weakness arising from the above. 4
(ii) The risks to which each identified weakness expose the company. 3
(iii) Actions that the company may take to mitigate those risks. 3

2. (a) Jereen, a Chartered Accountant, was hired as an audit senior by H&B Chartered Accountants in
January 2014. After attending the firm’s normal induction course, she was assigned to the audit of
Moon and Sun Ltd., a supplier of agricultural feedstuffs and fertilizers. Her first work assignment
was to complete the extensive recalculation of the inventory compilation using the audit test
counts and audited unit prices for several hundred inventory items. Her time budget for the work
was five hours. She started at 3:00 pm.
Knowing that she would be busy the next day, she took all the necessary documentation home.
She resumed work at 9:00 pm and did not finish until 1:00 pm. The next morning she returned to
her office at her customary starting time of 9:00 am, put the completed documentation on file,
and recorded 5 hours in the time budget/actual schedule. Her supervisor was pleased, especially
with her diligence in taking the work at home.

Requirement:

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Evaluate the ethical implications of Jereen’s `diligence’ and the understatement of the time she
took to finish the work. 5
(b) Khaled is a Chartered Accountant operating as a sole practitioner. One of his three staff members
has recently left and instead of replacing him, he started to outsource various tasks using an
internet service called E Lance. Basically, this service allows contractors to post jobs for which
contractees then bid (Contractors and contractees can be located anywhere in the world). The
contractor then chooses from amongst the bids and lodges the agreed fee with E-Lance which
takes a pre-determined commission and holds the fee in `escrow’ (effectively a type of suspense
account) until the contractor confirms satisfactory completion. Both parties to the transaction
agree in advance to abide by a comprehensive list of regulations to avoid abuse of the service and
this is reasonably well policed by the service provider. Khaled is delighted with the service and says
he is particularly happy to be able to off-load “the boring bits” and not to have to either do them
himself or listen to his employees complaining about having to do them. Khaled does not make his
clients aware of this arrangement.
Amongst the tasks he has outsourced to date are:
1. The preparation of financial statements for sole traders, partnerships, and in some cases,
limited companies for which Khaledthen completes the audit.
2. The preparation of VAT returns.
3. Inventory valuation calculations for audit clients with rudimentary inventory control systems.
4. The preparation of cash flow forecasts and prospective financial statements for partnership
and audit clients.
5. The receivables’ confirmation process, including choosing the appropriate balances to
circularize, posting the circularization letters, receiving the replies, reconciling differences,
following up on non-replies or apparently irreconcilable differences, and presenting a
summary report of the results.
6. Presenting analytical review reports on clients’ financial statements when they are close to
being finalized.

Requirement:
Evaluate the ethical implications of outsourcing work in the manner which Khaled is doing. 5

(c) Described below are situations which have arisen at two unrelated external audit clients of your
firm. The year end in each case is 31 March 2014.
Gable Ltd. (Gable)
Gable is an international company operating in the construction sector. The financial statements
for the year ended 31 March 2014 include cranes disposed of during the year with a carrying
amount Tk.2,200,000. Gable has accounted for the proceeds of the disposal in other income in the
statement of profit or loss but has not removed the carrying amount of the disposed cranes from
the statement of financial position. The directors refuse to amend the financial statements in
respect of this matter because the buyer of the cranes has not yet collected the cranes which are
still on Gable’s premises.
Gable uses sub-contractors who are paid a variable daily rate depending on the location and
complexity of the construction project. The system used to process the payments to sub-
contractors developed a fault during the year and many sub-contractors were paid at incorrect
daily rates. The directors estimate that Tk.3,400,000 was overpaid and they have recorded a
receivable for this amount at 31 March 2014. At the time of completion of the audit, Tk.250,000
had been received in respect of this balance. Your firm’s enquiries during the audit revealed that
Gable has not had any success in contacting any of the sub-contractors that are still to reimburse
the company as they no longer undertake work for Gable. The directors refuse to include an
allowance for doubtful debts in respect of the outstanding amount.
Gable’s total assets at 31 March 2014 are Tk.420.3 million and profit before tax for the year then
ended is Tk.70.6 million.

Hye Ltd. (Hye)

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The managing director of Hye refused permission for your firm to contact Din Ltd. (Din), a
customer, to confirm the balance of Tk.1,850,000 which was outstanding at 31 March 2014. He
claimed that the relation between the two companies was particularly sensitive and that he did
not want to upset that relationship. At the time of completion of the audit, Tk.150,000 had been
received in respect of the outstanding balance and the managing director is confident that Din will
pay all outstanding amounts. No alternative audit procedures were available to establish the
existence of the debt.
Hye’s total assets at 31 March 2014 are Tk.50.2 million and profit before tax for the year then
ended is Tk.10.5 million.
Requirement:
For each of the situations outlined above, state whether or not you would modify the audit opinion.
Give reasons for your conclusions and describe the modifications, if any, to each audit report. 10

3. (a) ABC Co., Chartered Accountants, was due to start the field work for an audit four months ago
but the finance department was not ready. The financial controller has recently resigned and
been replaced. The filing deadline is now four weeks away and the CFO still expects the
accounts to be filed on time and ABC’s audit is going to have to be squeezed into a very short
period. The CEO thinks that ABC is obliged to finish its audit on time. Discuss. 5
(b) Bengal Paints Ltd (BPL) is a listed company which manufactures and retails paints and other
decorating products. You are the senior in charge of the audit of the Bengal Paints for the year
ending 30 June 2014, which is currently in progress.
Relevant information:
The company owns a large factory for manufacturing paints. These paints are sold retail
through Bengal Paints' six superstores and they are also sold wholesale to other retailers. In
addition, the six superstores sell a range of other products from different suppliers. The
superstores are each separate division, but there are no subsidiaries.
On 23 July 2014 a bid was announced by Roxy Paints Ltd (RPL) to acquire the entire ordinary
share capital of Bengal Paints. The directors of Bengal Paints are contesting the bid and are
anxious to publish the financial statements to indicate that the company is more profitable
than indicated by the RPL offer.
As a result of the bid your audit partner has sent you the following memorandum.
Internal memorandum
To A. Rahman (audit senior)
From ArmanHabib (partner)
Date 24 July 2014
Subject Bengal Paint audit
As you will be aware, RPL made a bid for Bengal Paints yesterday and this
Increases the significance of the financial statements that we are currently auditing.
I am having a preliminary meeting with the finance director on August I to discuss the conduct of the audit. I
would like you to prepare notes for me of any audit and financial reporting issues that have arisen in your
work to date that may indicate potential problems. Also include any general audit concerns you may have
arising from the takeover bid.
Let me know what you intend to do about these matters and specify any questions that you would like me to
raise with the finance director.
Further information
The following issues have been reported to you by junior audit staff during the audit to date.
(1) There appears to be a significant increase in trade receivables, due to the fact that many
wholesale customers are refusing to pay a total of Tk50.00 million for recent deliveries of a
new paint that appears to decay after only a few months of use. Some of the wholesale
customers are being sued by their own customers for both the cost of the paint and the
related labor costs. No recognition of these events has been made in the draft financial
statements.

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(2) A special retail offer of “3-for-2” on wallpaper purchased from an outside supplier during the
year has been incorrectly recorded, as the offer was not programmed into the company’s IT
system. The sales assistants were therefore instructed by store managers to read the bar
codes of only two of the three items, and ignore the third ‘free’ item. The wallpaper sells for
Tk60 per roll and cost Tk. 50 per roll from the supplier. A total of 20,000 of these rolls were
processed through the IT system by sales assistants during the year.
The reason for the special offer was that a bonus payment of Tk. 0.90 million will be due to
Bengal Paints from the supplier if 40,000 of these rolls of wallpaper are sold by 31 December
2014. Bengal Paints has taken 50% of this amount (i.e. Tk.0.45 million) into its draft statement
of comprehensive income as revenue for the year to 30 June 2014.
(3) One of the six superstores was opened on 30 May 2014. The land had been purchased at a
cost of Tk. 40.00 million on 1 August 2013, but it was only on 1 September 2013 that the
company began to prepare an application for planning permission. This was granted and
construction commenced immediately thereafter, being paid for in two progress payments of
TK. 10.00 million each on 1 December 2013 and on 1 June 2014. Construction was completed,
and the store opened, on 30 May 2014. All the costs were financed by borrowing at 8% per
annum and all the interest incurred up to 30 June 2014 has been capitalized as part of the cost
of the non-current asset in the draft financial statements. There was no interest earned on
surplus funds from this loan.
Requirement:
Draft the notes required by ArmanHabib’s memorandum. 12

4. (a) The most difficult type of fraud for auditors to deal with is fraud perpetrated or instigated by
management.
Requirement:
Discuss the above statement. 5
(b) Listed below are four independent events:
1. Outgrow Pharmacy Ltd. counted its inventory on 31 December which is the date of its financial
year-end. The auditor observed the count at 20 of the 86 pharmacies where inventory was
maintained. The company falsified the inventory at 22 locations not observed by the auditor
by including fictitious goods in the count. The total overstatement was Tk.1,416,222, a
material amount in the context of the financial statements.
2. One of the cashiers of Good Food Ltd. left the premises with Tk.20,413 in cash and cheques
being the day’s takings for 31 December (the last day of the financial year). It was part of his
duties to deposit this in a night safe at a local bank branch. However, he disappeared without
trace and at the date the audit report is due to be signed, neither he nor any of the money has
been located. The amount is not material in the context of the financial statements.
3. In the audit of Go About Ltd. it has been discovered that a total of Tk.414,516 has been over-
claimed as expenses by five sales staff. This has mainly come about due to unauthorized use of
company credit cards for personal expenses. The amount is material in the context of the
financial statements.
4. The management of Ifty Ltd. has recorded the purchase of inventory in the sum Tk.515,876 as
an addition to property, plant, and equipment. This was possible because the company
business is the provision of office furniture, fittings, equipment and the like and the
management merely ordered that certain invoices be coded to the property, plant, and
equipment account and not to cost of sales. The amount is material in the context of the
financial statements.

Requirement:
For each of the above independent events, critically evaluate:
(i) The effect of the error or fraud on the financial statements; 5
(ii) The auditing or internal control procedures that could have prevented or detected the error or
fraud. 8

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5. (a) Your audit client imports stock that is held at an independent secure warehouse by a third party.
Your client does not carry out a stock take but is happy to rely on the third party, receiving stock
reports from them instead. Stock is material, but the third party will make good any losses should
they arise.
Dou you need to physically verify the stock at the premises of the third party? 5

(b) How should a practicing member of the Institute of Chartered Accountants of Bangladesh respond
to a request to provide a “second opinion” on a professional matter. Justify your answer. 5
(c) Evaluate the role `support letters’ (also called ‘comfort letters’) as evidence in the audit of financial
statements, especially in the context of consolidated financial statements. 5
(d) Extrasport Ltd. recently expanded its overseas operations by entering into an agreement on 1 May
2013 with the government of Ruritania. The intention was to gain market share for its goods in
that part of the world. A new company called Lankasport was set up with a share capital of Tk.50
million owned equally by Extrasport Ltd., and the Ruritanian government. The agreement
stipulated that Extrasport Ltd. would provide finance, equipment (sold at cost to Lankasport), and
expertise; the government would provide premises, materials, and labour, and would help to
create a market for the goods.
The company has been incorporated for an initial five-year period and will operate under a special
government scheme to help regenerate a part of the country which suffered badly in a civil war
that ended a few years ago. After the five-year period, the agreement states that either party can
insist that the business be wound up or its terms can be renegotiated. In the event of a wind-up
after five years or, if the business is not viable, the government has a priority in the repayment of
its share of the original capital. In that event, Extrasport Ltd. will receive no more than a refund of
its original capital investment.
The board of Lankasport consists of equal numbers of directors from Extrasport and from the
Ruritanian government. The Chair, who has a casting vote, is rotated annually between the two
sides. In the first year Extrasport will nominate one of its directors to act as Chair. On that basis,
the Financial Controller of Extrasport has decided to treat Lankasport as a subsidiary of Extrasport
in the consolidated financial statements.
You are the audit partner reviewing the audit file. You find the following note from the audit senior
on the report to partner file:
Treatment of Lankasport as a subsidiary
The financial controller’s treatment appears reasonable given the facts, so an unqualified opinion
is appropriate. However, given the nature and complexity of this investment, I suggest that we add
the following “emphasis of matter” paragraph to our audit report.
Emphasis of matter – investment in Lankasport
In forming our opinion, which is not qualified, we have considered the treatment of the investment
in Lankasport, details of which can be found in Note 22 to the financial statements. We concur
with the financial controller’s view that as Extrasport Ltd. has a casting vote on the board of
Lankasport, it has control of the entity and it is justifiable to treat the entity as a subsidiary.
Opinion
In our opinion, the financial statements give a true and fair view….
Requirement:
Critically analyse the audit senior’s proposed audit report, including an assessment of both the
opinion itself and the format of the report. 10

- The End -

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BUSINESS STRATEGY
Time allowed – 3 Hours
Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and the manner in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence.]

Marks
1. Dr. Selim Hossain inherited his father’s Popular Lab in Dhaka in 1995. Till 2002, he owned 4 labs in four
divisional cities. His ambition was to turn it into a National chain. The number increased to 7 in 2003
across the country, including the acquisition of Happy lab in Chittagong. The number is likely to go to
50 within 2-3 years from 21 at present. Infusion of Tk 28 crores for a 26% stake by Pharma Capital will
help in funding its growth.
The lab with a revenue of Tk75 crores is among top three Pathological labs in the country with Atlantic
(Tk 77 crores) and Pacific (Tk 55 crores). Yet its market share is only 2% of Tk 3,500 crores market. The
top 3 firms command only 6% as against 40-45% by their counterparts in the USA. There are about
20,000 to 1,00,000standalone labs engaged in routine pathological business in Bangladesh, with no
system of mandatory licensing and registration. That is why Dr. Selim has not gone for acquisition or
joint ventures. He does not find many existing laboratories meeting quality standards. His six labs have
been accredited nationally whereon many large hospitals have not thought of accreditation. The
College of American pathologist’s accreditation of popular lab would help it to reach clients outside
Bangladesh. In popular Lab, the bio-chemistry and blood testing equipment are sanitized every day.
The bar coding and automated registration of patients do not allow any identity mix-ups. Even routine
tests are conducted with highly sophisticated systems. Technical expertise enables them to carry out
1650 variety of tests. Same day reports are available for samples reaching by 3 p.m. and by 7 a.m. next
day for samples from 500 collection centers located across the country. Their technicians work round
the clock, unlike competitors. Home services for collection and reporting are also available.
There is a huge unutilized capacity. Now it is trying to tap other segments. 20% of its total business
comes through its main laboratory which acts as a reference lab for many leading hospitals. New mega
labs are being built to encash preclinical and multi-center clinical trials within Bangladesh and provide
postgraduate training to the pathologists.

Requirements:
(i) What do you understand by the term Vision? What is the difference between “Vision” and “Mission”?
What vision Dr. Selim had at the time of inheritance of Popular Lab? Has it been achieved? 8
(ii) For growth what business strategy has been adopted by Dr. Selim? 4
(iii) What is the marketing strategy of Dr. Selim to overtake its competitors? 4
(iv) In your opinion what could be the biggest weakness in Dr. Selim’s business strategy? 4

2. (a) May Bank, a subsidiary of an International Bank has experienced a serious decline in its business
performance. Explain how May Bank can use Porter’s Five Forces Model in evaluating why there
has been a decline in performance. 12
(b) GEM Meters Limited is a company engaged in the designing, manufacturing and marketing of
instruments like speed meters, oil pressure gauges and so on that are fitted into two and four
wheelers. Their current investment in assets is around Taka 50m and their last year turnover was
Taka 150m just adequate enough to breakeven. The company is witnessing in last couple of years a
fall in the market share prices since many of the customers are switching over to a new range of
electronic instruments from the range of mechanical instruments that have been the mainstay of
GEM Meters Limited. The company has received a firm offer of cooperation from a competitor
who is similarly placed in respect of product range. The offer implies the following:
1. Transfer the manufacturing line from competitor to GEM.
2. Manufacturer of mechanical instruments by GEM for the competitor to the latter’s
specifications and brand name.
3. Marketing by the competitor.
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The benefit that will accrue to GEM will be the better utilization of installed capacity and
appropriate financial compensation for the manufacturing effort.The production manager of GEM
has welcomed the proposal and points out that it will enable the company to make profits. The
sales manager is doubtful about the same since the demand for mechanical instrument is
shrinking. The CEO is studying the offer.
Requirements:
(i) What is divestment strategy? Do you see it being practiced in the given case? Explain. 4
(ii) What is stability strategy? Should GEM Meters Limited adopt it? 4
(iii) What is expansion strategy? What are the implications for GEM Meters in case it is adopted? 4
(iv) What is your suggestion to CEO? 4

3. Whirlpool Corporation is a leader of the BDT 8,000 billion global home appliance industry. Ranked Sixth
in the electronics industry list of FORTUNE magazine‘s World‘s Most Admired Companies, Whirlpool
Corporation is a Fortune 500 company and the world's leading manufacturer and Marketer of major
home appliances. Annual sales are approximately BDT 1,520 billion, and there are 70,000 employees,
with 69 manufacturing and technology research centers around the world. Founded in 1911, the
company markets Whirlpool, Maytag, Kitchen Aid, Jenn‐Air, Amana, Brastemp, Consul, Bauknecht and
other major brand names to consumers in most countries around the world. Whirlpool manufactures
appliances across all major categories, including fabric care, cooking, refrigeration, dishwashers,
countertop appliances, garage organization and water filtration. Whirlpool is committed to a brand
value‐creation strategy—focusing on innovation, cost,productivity, product quality and consumer
value. The company continues to improve its global operating platform to ensure it is the best‐cost and
best‐quality appliance manufacturer Worldwide. Its supply chain has been transformed to better
deliver products to trade customers and consumers. The benefits of actions are evident through a
stronger network, increased efficiencies and timely deliveries. Whirlpool Corporation is committed to
building products which consumers around the world can depend upon to meet their daily needs. This
commitment to quality begins in the concept stages and continues throughout the lifetime of the
appliance. The result of these efforts is a sustainable and competitive advantage for the company.
Globally, Whirlpool Corporation manufactures products using principles of lean manufacturing and
operational excellence to ensure continuous improvement of processes and to produce products which
meet the company's high‐quality standards. At Whirlpool, there is a constant focus on seeking out new
and unique ways to improve the function, performance and sustainability of products. After acquiring
the Maytag Corporation on March 31, 2006, Whirlpool Corporation became the largest home
appliance maker in the world. A merger with Maytag added another layer of complexity to Whirlpool's
efforts to manage sales, orders, and cash flow. Hasan Mahmud, VP Supply Chain, talks about how this
was achieved. Until recently, Whirlpool's strategic focus was on its products and brands. In recognition
of environmental changes (customer needs in particular) attention was shifted to their supply chain
and how best to manage it. The need to focus on the supply chain was also instigated by major internal
and organizational changes (the merger with Maytag). Furthermore it was recognized that two issues
required attention: 1) the desire for trade partners to hold lots of inventory (which impacted upon cash
flows) 2) balancing number one with customers needing their products quickly. One of the goals
constraining the redesign of their supply chain was to ensure that a customer order could be fulfilled
and delivered to the customer within 48hrs. The company set about its operations/supply chain
strategy with the aim of improving cash flow, reducing costs and providing the right service to
customers. The first aspect of their strategy was the order process. Process, technology and inventory
changes were made. Systems required replacement and integration with Maytag systems. Overall,
there was a need to improve visibility within the supply chain. Secondly, the company rationalized
facilities, reducing the number of buildings from 184; they eliminated 100 buildings and consolidated
major warehouses into 10 regional distribution centers. This resulted in cost savings of over BDT 4,800
Million. Thirdly, they optimized supply and demand, with changes to demand planning models and
Software and integration with upstream suppliers.

Requirements:
(i) Describe objectives of Supply Chain Management. 6
(ii) Importance of Supply Chain Management. 4
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(iii) Describe the challenges faced by the company. What were the drivers for change to the supply chain? 6
(iv) What are the benefits of change to the supply chain? 4
(v) Describe the Whirlpool strategy. 4

4. MPT Ltd is a private limited company. It was formed in 1983 by three former electricians because they
liked working together and they thought that they could make a living by making good-quality,
inexpensive, electrical appliances. Each of the founders invested Tk 100,000 as the share capital of
their company in 1983 and the share capital has remained unchanged since then.MPT Ltd
manufactures small electrical appliances, such as kettles, hair dryers and irons. These are sold to
wholesalers and eventually retail for around Tk 250 each.MPT Ltd currently employs 35 people and has
a turnover of Tk 30 million. The business normally makes a post-tax profit of between Tk 1,500,000 and
TK 2,000,000 and distributes half of this to the founders.
MPT Ltd had the following assets in its last year end: Tk.
Freehold property (market value at 30 June 1993) 5,000,000
Plant and equipment 2,500,000
Car 500,000
Stocks and debtors 2,500,000
MPT Ltd had no long-term debt at the year end. It did have an overdraft of TK 100,000. MPT Ltd had no
creditors at the year end. This was due to its policy of paying every bill as soon as it was received. The
founders were reluctant to employ debt in their financing as they felt it was likely to compromise with
their independence.Product research and development was managed until 1990 by Mr. M, one of the
founders. In that year he retired from full-time work with MPT Ltd, but continues to work part-time for
two days a week. Mr. M is still a shareholder with an equal amount of shares as the other two
founders.Mr. M’s replacement was a graduate electronics engineer who had previously worked for the
company during vacations. Since the appointment, she had devoted most of the time of her
department on developing a new product. She has now finished this and the product has performed
well in its initial trials. She is not a shareholder.
Product
The product has been given the name of the ‘Integrator’. It is a remote-control device that can operate
any remotely-controlled electrical appliance, for example, television, video, alarm system, microwave
and camera. The Integrator was made in the development department and the variable cost of its
manufacture was Tk 100 per unit. The component which is unique to the Integrator is a computer chip
designed by the engineer. The chip has been patented and ownership of the patent is vested in MPT
Ltd.
Market prospects
MPT Ltd does not have a marketing department and so it commissioned a leading firm of consultants
to study the market prospects for the Integrator in the country. The results are very encouraging. The
consultants believe that the Integrator would sell at least a million units in the first year in Bangladesh.
They believe it would retail for Tk 500. Sales would remain at this level for five years and then fall to
2,500,000 units a year for the foreseeable future. The consultants also suggest that MPT Ltd should
seek worldwide patent protection for the Integrator as it will be attractive in many other countries. The
consultants charged Tk 500,000 for their report which is double the amount MPT Ltd would normally
spend on marketing in a year. The consultants have offered to study the world market for the product
for TK 1,000,000 or they would study individual countries at Tk 100,000 each.
Future options
Following the country marketing study, MPT Ltd felt it needed to make some plans for the future. It felt
it appropriate to gain further guidance from the consultants who had the experience that MPT Ltd
lacked. This further study cost Tk 800,000 and MPT had to arrange a bank overdraft to finance it.

In the opinion of the consultants, MPT Ltd has the following choices:

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 Manufacture the Integrator. In order to do this, MPT Ltd would have to invest TK 200 million in its
manufacturing processes, working capital and launch costs to enable it to meet the country
demand. To meet future world demand, the investment would need to be more substantial but
the consultants cannot forecast this until they do the further marketing study.
 Sell the patents. The consultants are sure that the patent would fetch a substantial sum of money
but until they seek offers they are not sure how much.
 Franchise the rights to manufacture and market the Integrator. The consultants believe that such a
franchise would be eagerly sought by many companies.
Requirements:
(i) Carryout a SWOT analysis for MPT Ltd. 10
(ii) To evaluate the three strategies suggested by the consultants, indicating particularly the finance,
production, marketing and personnel implications of each of the strategies; where necessary, to
recommend and justify alternative strategies for MPT Ltd. 10
(iii) Discuss whether or not the original objective of the founders – that of working together – is still
applicable after the invention of the Integrator. 8

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CORPORATE LAWS & PRACTICES

Time allowed – 3 hours
Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and the manner in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]

Marks
1. Please give your opinion on the following cases with reference to the provisions of the Companies Act, 1994:
(a) XYZ Company Limited was incorporated on September 15, 2014. No auditor was appointed by the
Company till November 15, 2014. Please advise the Company regarding appointment of the
auditor(s). 5
(b) 75 shareholders (holding 15% shares of the Company) out of 650 shareholders of XYZ Company
Limited submitted a requisition for holding of an Extra-ordinary General Meeting in order to remove
the Managing Director on some valid grounds. On failure of the Company to call the General
Meeting, the requisitionists themselves called the meeting at the registered office of the Company.
On the date of the meeting they found that the registered office was kept under lock and key,
although it was a working day. The shareholders held the meeting in a nearby place and adopted a
resolution removing the Managing Director. The meetingwas held after three months from the date
of deposit of the requisition.Is the resolution valid? Give arguments in support of your answer. 5
(c) Mr. X and his wife are the only two shareholders of a private limited company. They died in an
accident. Does the company come to an end? 3

2. (a) HCH Ltd., a private limited company, passed a Board resolution to allot 50,000 shares of Tk.100 each
to 25 (out of the total existing 30) shareholders in the Board meeting held on 17 October 2014. As
per the resolution, the allotment is to be given effect on 26 December 2014. The share money
against the above allotment was received in full from the above 25 shareholders before 10 October
2014, the last date for paying the call money as per the decision of the Board meeting held on 2
September 2014. 5(out of thetotal existing 30)shareholders refused to subscribe their portion of
shares against the above call. To day is the 18th December 2014.
What should the company do now with regard to submission of the return of allotment? 4
Is the above decision with regard to allotment of 50,000 shares valid in the eye of law? 4
(b) Mr. & Mrs. Karim jointly hold 10,000 shares of Tk.10 each of a listed company. They have only3
sons, no daughter. Mrs. Karim died on 10 December 2014. What will happen to the ownership of
the above 10,000 shares? Advise. 3
(c) XYZ Ltd. held the last AGM on 20 October 2013. The auditor for the year 2013-14 submitted a draft
qualified audit report on 8 December 2014. The management does not agree with the qualification
points of the auditor, but failed to convince the auditor to withdraw the qualifications. Since the
Board was pressing for a Board meeting so that they can hold the AGM by 31 December 2014, a
Board meeting was convened on 15 December 2014 where the auditor was also invited. The Board
agreed with the management, that the auditor’s qualifications were not justified. But neither the
Board nor the auditor could agree with each other. Under the circumstances the Board is thinking
of informing the matter to ICAB for resolving the matter. The CFO (who is also a fellow member of
ICAB)of the company says that this will take at least 2 months to resolve.
The Board has sought for your advice with regard to what the company should do now about the
audited financial statements and the holding of AGM. Advise. 8

3. The shares of a private limited company are held by the shareholders as follows:
Mr. A 45%
Mr. B 35%
Mr. C 20%
[Please turn over]
–2–
 nov dec 2014

The Company offered Right Shares at 1:1. Mr. C did not exercise the right offer. Mr. B wants to
subscribe the shares not taken by Mr. C. Can the Board comprising of A, B, and C allot the unsubscribed
shares to Mr. B, if Mr. A opposes the same? 6

4. In a publicly listed non-banking financial institution operating in Bangladesh the following situations
have arisen:
(a) One of the Directors of the Company has died and the Board of Directors wants to fill up the
vacancy.
(b) One of the Directors of the Company namely Mr. X wants to visit USA for around three months and
he proposed to appoint his brother namely Mr. Y as Alternative Director in his place.
You are required to advise the Company regarding the appointments as mentioned above. 3+4=7

5. (a) Describe the conditions that are required to be fulfilled prior to making rights issue of a listed
company. 8
(b) What is insider trading? Suggest the steps that your listed company should take for preventing
insider trading. 4

6. (a) What is meant by “net capital” according to the Securities and Exchange Rules 1987? 2
(b) What is the minimum amount of net capital balance in the capital account that a member of DSE is
required to maintain at all times? How much is the amount in the case of CSE? 2
(c) What are the regulatory requirements that a member of DSE must comply with regard to deposit
of money received from and for, and payment of money to and for, the customers? State in
accordance with the Securities and Exchange Rules 1987. 3

7. (a) ABC & Co., Chartered Accountants, has been appointed by XYZ Bank Ltd. in its AGM held on 31-3-
2014 as one of the joint auditors of the bank for the year 2014.On 20-4-2014 Bangladesh Bank
declared ABC & Co. unfit to audit any banking company for 2 years. Can Bangladesh Bank declare
an auditor, holding valid practicing license issued by ICAB, to be unfit to audit any banking
company? If so, on what grounds can Bangladesh Bank do so and what procedures are they
required to follow? What will XYZ Bank Ltd. do now? 8
(b) Mr. X is a director of a state owned bank. Bangladesh Bank is satisfied that it is necessary to
remove him in order to secure, in the public interest, the proper management of the bank. Does
Bangladesh Bank have power to remove Mr. X from the directorship? Will the situation be
different if the above bank is not a state owned bank? Discuss in accordance with the relevant
provisions, if any, of the relevant statute. 6

8. (a) Mention the conditions for which Bangladesh Bank may cancel the license granted to a financial
institution. 7
(b) Describe the rules regarding renewal of registration certificate of an insurance company. 5

9. ABC, Chartered Accountants, has been appointed by XYZ Insurance Company Limited as a joint auditor
of the company for the year 2014. Subsequent to the above appointment made by AGM on 6 June
2014, the Insurance Controlling Authority has appointed ABC to conduct a special audit of the company
for the year 2013.
ABC is interested to undertake both the assignments.
(a) Can ABC undertake both the assignments in accordance with the Insurance Act 2010? 3
(b) What are the differences in the scope of above two audit? 7

– The End –
 nov dec 2014

FINANCIAL ACCOUNTING
Time allowed – 3 Hours
Total marks – 100
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and of the manner in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence.]
Marks
1. (a) Nirman Ltd had the following transactions in financial instruments in the year ended 31 December 2013:
(i) Purchased 4% debentures in MC Ltd on 1 January 2013 (their issue date) for Tk 100,000 as an
investment. Nirman decided to hold them until their redemption after six years at a premium of 17%.
Transaction costs of Tk 2,000 were incurred on purchase. The internal rate of return of the bond is 6%.
(ii) Entered into a speculative interest rate option costing Tk 7,000 on 1 September 2013 to
borrow Tk 5,000,000 from GF Bank commencing 31 March 2014 for six months at 5.5%. Value
of the option at 31 December 2013 was Tk 13,750.
(iii) Purchased 25,000 shares in EG Ltd in 2012 for Tk 2.00 each as an available-for-sale financial
asset. Transaction costs on purchase or sale are 1% of the purchase/sale price. The share price
on 31 December 2012 was quoted at Tk 2.25-Tk 2.28. Nirman sold the shares on 20 December
2013 for Tk 2.62 each.
(iv) Sold some shares in BM Ltd ‘short’ (i.e. sold shares that were not yet owned) on 22 December
2013 for TK 24,000 (the market price of the shares on that date) to be delivered on 10 January
2014. The market price of the shares at 31 December 2013 was Tk 28,000.
Requirement:
Show the accounting treatment of these transactions and relevant extracts from the financial
statements for the year ended 31 December 2013. 16
(b) On 25 September 2013, further to a decision made earlier in the year by the Board of directors,
Hometex Ltd announced publicly a decision to reduce the level of harmful emissions from its
manufacturing plants.
The directors had reached their decision to proceed with the project after appraising the investment
using discounted cash flow techniques and an annual discount rate of 8%.The directors estimated that
the future cash payments required to meet their stated objective would be:
 Tk 20 million on 30 September 2014
 Tk 25 million on 30 September 2015
 Tk 30 million on 30 September 2016
No contracts were entered into until after the start of the new accounting year on 1 October 2013,
however the entity has a reputation of fulfilling its financial commitments after it has publicly
announced them. Hometex Ltd included a provision for the expected costs of its proposal in its
financial statements for the year ended 30 September 2013. The actual expenditure in September
2014 was Tk 20 million as expected.
The average remaining useful lives of the factories on 30 September 2013 (the reporting date) was
30 years and depreciation is computed on a straight line basis and charged to cost of sales.
Requirements:
(i) Compute the appropriate provision in the statements of financial position in respect of the
proposed expenditure at 30 September 2013 AND 30 September 2014 and explain why the
directors decided to recognize the provision. 5
(ii) Compute the two components of the charge to profit in respect of the proposal for the year
ended 30 September 2014. You should explain how each component arises and identify where
in the statement of comprehensive income each component is reported. 5
2. (a) The management of a company completed draft financial statements for the year-ended 31
December 2013 on 15 January 2014. On the 19 January 2014, the board of directors reviewed and
approved the financial statements for recommending the same for adoption in the AGM. The
board had no issues with the financial statements and directed the management of the company
to allow the financial statements to be issued to relevant and interested parties. The company
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 nov dec 2014

announced its results on 20 January 2014. The financial statements were made available to
shareholders and others on 1 February 2014. The shareholders approved the financial statements
at the company’s annual general meeting on 15 February 2014. The approved financial statements
were then filed with the RJSC on 1 March 2014.
Requirement:
Outline and explain which date the financial statements are authorized for issue. 2
(b) In relation to the information provided in part (a), Board of the company decided to propose a
dividend on 19 January 2014.
Requirement:
Should the company record the dividend in the financial statements for the yearended 31
December 2013? Justify your answer. 3
(c) The following issues have arisen in Ding Dong Limited, a pharmaceutical company, whose financial
year-end is 31 December:
(i) On 20 December 2013, Ding Dong Limited was involved in a court case with a customer who
sued the company for delivering products where there was a dispute over the exact
ingredients included in the products manufactured by Ding Dong. These products were
delivered to the customer in October 2013. The details of the case were heard by 22
December but the judge decided to reserve his judgment until 8 January 2014. On 8 January
2014, the judge ruled in favour of the customer, awarding it damages of Tk.100,000. 3
(ii) Ding Dong Limited has an investment worth Tk.1,000,000 in its financial statements at 31
December 2013. Due to the continuing recession, the investment reduced in value to
Tk.900,000 by 15 January 2014. 3
(iii) On 8 January 2014, one of the accountants left the company suddenly. On further
investigation, Ding Dong Limited realized that this employee had been paying himself money
from the bank account in relation to false rental invoices. The amount of the overpayment was
found to be Tk.86,000. With the help of the police, the accountant was tracked down, and he
repaid all the money on 18 January 2014. 3
(iv) On 10 January 2014, Ding Dong Limited sold some inventory for Tk.80,000. This inventory had
been included in the year-end inventory count at cost of Tk.100,000. 3
Requirement:
Prepare a briefing note for management, in which you outline the proper accounting treatment of
each of the above issues (i) to (iv), so as to ensure that the financial statements are prepared in
accordance with IFRS.
3. The following trial balance relates to Fresco at 31 March 2014:
Tk’000 Tk’000
Equity shares of 50 paisa each (note (i)) 45,000
Share premium (note (i)) 5,000
Retained earnings at 1 April 2013 5,100
Leased property (12 years) – at cost (note (ii)) 48,000
Plant and equipment – at cost (note (ii)) 47,500
Accumulated amortization of leased property at 1 April 2013 16,000
Accumulated depreciation of plant and equipment at 1 April 2013 33,500
Inventory at 31 March 2014 25,200
Trade receivables (note (iii)) 28,500
Bank 1,400
Deferred tax (note (iv)) 3,200
Trade payables 27,300
Revenue 350,000
Cost of sales 298,700
Lease payments (note (ii)) 8,000
Distribution costs 16,100
Administration expenses 26,900
Bank interest 300
Current tax (note (iv)) 800
Suspense account (note (i)) 13,500
500,000 500,000

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 nov dec 2014

The following notes are relevant:

(i) The suspense account represents the corresponding credit for cash received for a fully subscribed
rights issue of equity shares made on 1 January 2014. The terms of the share issue were one new
share for every five held at a price of 75 paisa each. The price of the company’s equity shares
immediately before the issue was Tk1·20 each.
(ii) Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its leased property on 1
April 2013.The Directors accepted the report of an independent surveyor who valued the leased
property at Tk36 million on that date. Fresco has not yet recorded the revaluation. The remaining
life of the leased property is eight years at the date of the revaluation. Fresco makes an annual
transfer to retained profits to reflect the realization of the revaluation reserve. In Fresco’s tax
jurisdiction the revaluation does not give rise to a deferred tax liability.
On 1 April 2013, Fresco acquired an item of plant under a finance lease agreement that had an
implicit finance cost of 10% per annum. The lease payments in the trial balance represent an initial
deposit of Tk2 million paid on 1 April 2013 and the first annual rental of Tk6 million paid on 31
March 2014. The lease agreement requires further annual payments of Tk6 million on 31 March
each year for the next four years. Had the plant not been leased it would have cost Tk25 million to
purchase for cash.
Plant and equipment (other than the leased plant) is depreciated at 20% per annum using the
reducing balance method.
No depreciation/amortization has yet been charged on any non-current asset for the year ended
31 March 2014. Depreciation and amortization are charged to cost of sales.
(iii) In March 2014, Fresco’s internal audit department discovered a fraud committed by the
company’s credit controller who did not return from a foreign business trip. The outcome of the
fraud is that Tk4 million of the company’s trade receivables have been stolen by the credit
controller and are not recoverable. Of this amount, Tk1 million relates to the year ended 31 March
2013 and the remainder to the current year. Fresco is not insured against this fraud.
(iv) Fresco’s income tax calculation for the year ended 31 March 2014 shows a tax refund of Tk2·4
million. The balance on current tax in the trial balance represents the under/over provision of the
tax liability for the year ended 31 March 2013. At 31 March 2014, Fresco had taxable temporary
differences of Tk12 million (requiring a deferred tax liability). The income tax rate of Fresco is 25%.

Requirements:
(a) (i) Prepare the statement of comprehensive income for Fresco for the year ended 31 March 2014. 7
(ii) Prepare the statement of changes in equity for Fresco for the year ended 31 March 2014. 7
(iii) Prepare the statement of financial position of Fresco as at 31 March 2014. 7
(b) Calculate the basic earnings per share for Fresco for the year ended 31 March 2014. 6

4. The directors of ACB have agreed as part of their strategic plan to list the entity’s equity shares on the
local stock exchange.
At a recent Board meeting, the directors discussed, in overview, the additional compliance that would be
required upon listing. This included compliance with the requirements of IFRS 8 Operating Segments. The
managing director commented that adherence to the requirements of IFRS 8 would be time consuming and
costly due to the additional financial information that the entity would have to prepare.

Requirements:
(i) Discuss whether the managing director’s comment is accurate in respect of the operating segment
analysis that is required in accordance with IFRS 8. 5
(ii) Explain why the information that is presented for operating segments is likely to be highly relevant
to investors. 5
(iii) Discuss the potential limitations of operating segment analysis as a tool for comparing different
entities. 5

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 nov dec 2014

5. ABC Ltd., a listed company, entered into an expansion programme on 1st October 2013. On that date
the company purchased from PQR Ltd. its investments in two private limited companies. The purchase
was of:
(a) the entire share capital of Cold Ltd., and
(b) 50% of the share capital of Hot Ltd.
Both the investments were previously owned by PQR Ltd. After acquisition by ABC Ltd., Hot Ltd. was to
be run by ABC Ltd. and PQR Ltd. as a jointly controlled entity.
ABC Ltd. makes its financial statements upto 30th September each year. The terms of acquisition were:
Cold Ltd.
The total consideration was based on price earnings ratio (P/E) of 12 applied to the reported profit of
Tk.20 lakhs of Cold Ltd. for the year ended 30 September 2013. The consideration was settled by ABC
Ltd. issuing 8% debentures for Tk.140 lakhs (at par) and the balance by a new issue of Tk.1 equity
shares, based on its market value of Tk.2.50 each.
Hot Ltd.
The market value of Hot Ltd. on 1st October 2013 was mutually agreed as Tk.375 lakhs. ABC Ltd. settled its
share of 50% of this amount by issuing 75 lakhs Tk.1 equity shares (market value Tk.2.50 each) to PQR Ltd.
ABC Ltd. has not recorded in its books the acquisition of the above investments or the discharge of the
consideration.
The summarized statements of financial position of the three entities at 30th September 2014 are:
ABC Ltd. Cold Ltd. Hot Ltd.
Assets:
Tangible assets 34,260 27,000 21,060
Inventories 9,640 7,200 18,640
Debentures 11,200 5,060 4,620
Cash - 3,410 40
55,100 42,670 44,360
Liabilities:
Equity capital:
Tk.1 each 10,000 20,000 25,000
Retained Earnings 20,800 15,000 4,500
Trade and other payables 17,120 5,270 14,100
Overdraft 1,540 - -
Provision for taxes 5,640 2,400 760
55,100 42,670 44,360
The following information are relevant:
(a) The book values of the net assets of Cold Ltd. and Hot Ltd. on the date of acquisition were
considered to be a reasonable approximation of their fair values.
(b) The current profits of Cold Ltd. and Hot Ltd. for the year ended 30th September 2014 were Tk.80 lakhs
and Tk.20 lakhs respectively. No dividends were paid by any of the companies during the year.
(c) Hot Ltd., the jointly controlled entity, is to be accounted for using proportionate consolidation, in
accordance with relevant BFRS.
(d) Goodwill in respect of the acquisition of Hot Ltd. has been impaired by Tk.10 lakhs at 30th
September 2014.
Gain on acquisition, if any, will be accounted for separately.
Prepare the consolidated Balance Sheet of ABC Ltd. and its subsidiaries as at 30th September 2014. 15

Page 4 of 4
 nov dec 2014

FINANCIAL MANAGEMENT
Time Allowed – 3 hours
Total Marks – 100

[N.B –The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account
of the quality of language and of the manner in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence.]
Marks

1 (a) Mainland Ltd. has just made earnings of Tk. 2,250,000. Its directors are trying to decide on a dividend
policy. If they retain 20% of earnings, they believe they can achieve an annual growth rate of 5% in
earnings and dividend. If they retain only 10% of earnings, the growth rate would be 2% and
shareholders would expect a return of 14%.
You are required to determine which retention policy would maximise the value of the company’s
shares. 10

(b) NBL Limited is a private company established about a decade ago in the Northern part of Bangladesh
to produce plastic bottles. The first six years of the company witnessed tremendous growth, generally
facilitated by successful business operations and reduced competition.
As a result of the global economic melt-down and losses sustained in recent years, the directors and
the entire management of the company became worried and were contemplating closing down the
company for six months in the first instance. The concomitant effect of the proposed closure would be
further loss of sales and profits. For how long will this continue? This was the question being asked by
the Chairman and Chief Executive of the company.
In an attempt to avert the problem, the management held an emergency meeting where various
suggestions were put forward but none of them seemed to offer solutions to the problem. The
Chairman and Chief Executive thought of outright sale of the company to a willing competitor, Ababil
Limited, but this idea was not acceptable to the Board of Directors as this could lead to the extinction
of the company
Following deliberations and resolutions as to ways of taking the company out of the current
predicament, negotiations between the two Boards of Directors began. The most recent information
relating to each of the two businesses is set out below:
NBL Ltd Ababil Ltd
Current earnings 20,000,000 9,000,000
Number of shares in issue 4,000,000 3,000,000
Earnings per share Tk. 5 Tk. 3
Price per share Tk. 80 Tk. 30
Price earnings ratio 16 10
If negotiations are successful, Ababil Limited would be willing to accept an offer of Tk. 40.00 per
share in exchange for a share of NBL Limited.
Required:
(i) From the Strategic Financial Management perspective, what options are available toNBL Limited 8
to explore in order to prevent a shut-down or outright discontinuation of business?
(ii) If merger option is adopted, what are the likely financial effects on the shareholders of the two 7
companies?

2. (a) Bianibazar Gas Limited is a fast growing profitable company. The company is based in Sylhet and has
just won a contract to supply gas to the Power Development Board (PDB). In this regard, the company
planned to commission a 35-kilometre pipeline at a cost of Tk.260m to enable it execute the contract.
The pipeline, when installed, will carry the gas to an agreed location under the control of PDB.
With all these arrangements in place, it is expected that the sales of the company will increase from
the present Tk. 360m to about Tk. 1,100m. The anticipated revenue from sales to the PDB is expected
to be Tk.120m per annum.
Apart from this contract, the pipeline could also be used to transport Liquified Natural Gas (LNG) to
other willing customers in the suburb. The sales from this source are put at Tk. 80m per annum.

The management of Bianibazar Gas Limited considers the useful life of the pipeline to be 20 years. The

Page 1 of 4
 nov dec 2014

financial manager estimates a profit to sales ratio of 20% per annum for the first 12 years and 17% per
annum for the remaining life of the project. The project is not likely to have any salvage value.

Bianibazar Gas Limited is located in a remote area and hence would enjoy exemption from tax. The
company’s cost of capital is 15%.
Required: 4
(i) What is the project’s payback period? 4
(ii) Advise Bianibazar Gas Limited giving reasons as to the acceptability of the project based on the 7
payback criterion.
(iii) Compute the project’s NPV and IRR and advise the company based on calculations.

(b) Laraba Ltd. is considering an investment which it intends to finance by the issue of new ordinary
shares and debentures in a mix which will hold its gearing ratio approximately constant.
The company has an issued share capital of 1 million ordinary shares of Tk. 1 each and also issued Tk.
700,000 8% debentures. The market price of the ordinary shares is Tk. 3.76 per share and the
debentures are priced at Tk. 75. Dividends and interest are payable annually. An ordinary dividend has
just been paid, while the next installment of interest is payable in the near future. Debentures are
redeemable at par in twenty years time.
A summary of the company’s balance sheet as at 31 December 2013 is as follows:
Tk. Tk.
’000 ’000
Fixed Assets 1,276
Current Assets 4,066
Less: Current liabilities 1,925
Net Current assets 2,141
Total assets 3,417
Financed by:
Ordinary share capital 1,000
Reserves 1,553
Deferred taxation 164
Debentures 700
3,417
Dividends and Earnings have been as follows:

Year Dividends Earnings Earnings

(before tax) (after tax)
Tk.’000 Tk. ’000 Tk. ’000
2009 200 575 350
2010 230 723 452
2011 230 682 410
2012 260 853 536
2013 300 906 606

The new investment, which has the same risk characteristics as the existing projects, would require an
immediate outlay of Tk. 1,500,000 and would generate an annual net cash inflow of Tk. 500,000
indefinitely.

You are required to:

(i) Calculate the Weighted Average Cost of Capital (WACC) of the company. 3
(ii) Discuss briefly any difficulties and uncertainties in your estimation. 3
(iii) Prepare calculations showing whether or not the acceptance of the new project is worthwhile. 5
(iv) Appraise the dividend policy of the company. 4

Page 2 of 4
 nov dec 2014

3. (a) BengalLtd., an ungeared company has, in issue, 12 million ordinary shares of Tk.1 each. Its net
operating income is Tk.1.2 million and cost of capital is 10%. It has a similar capital structure to that
of SohanLtd., a geared company with 8.4million ordinary shares of Tk.1 each and Tk.3.6 million 6%
debenture stock and a net operating income of Tk.1.2 million.
Aurpa owns 10% of the shares in Sohan Ltd. She is wondering whether she could increase her wealth
without incurring additional risk by selling her shares in SohanLtd. and buying some of the ordinary
shares of Bengal Ltd.
You are required to:
Advise Aurpa on how she may improve her position if
5
(i) she invests only in the levered company.
5
(ii) she undertakes a policy of switching her interest to the ungeared company.

(b) Jimmy Limited has been established since 1973. The company sells sheet metal to building contractors
and fabrication workshops. All sales are on credit with standard settlement terms of 30 days. However,
recently Jimmy Limited has been encountering difficulty getting paid on time. It has also experienced
bad debts of 1% in the most recent year. The combination of these issues is placing a strain on the
company’s overall finances.
In a bid to improve cash flow, Jimmy Limited’s management is considering employing a credit control
team with the emphasis on credit vetting (before allowing credit terms) coupled with vigorous chasing
of late payers. If the credit control team is employed, it is expected that 80% of all debtors would pay
exactly in accordance with standard settlement terms, with the remainder settling on 45 days. It is also
expected that bad debts would be reduced to zero. Jimmy Limited has agreed an overdraft limit of Tk.
400,000 and pays overdraft interest at 10% per annum. Extracts from Jimmy Limited’s most recent
audited accounts are as follows:
Jimmy Limited,
Summary Income Statement for yearended 31 December 2013
Tk. ’000
Revenue 7,500
Less: Cost of Sales 5,900 5,900
Gross Profit 1,600
Less: Expenses 1,400
Profit Before Tax 200
Tax @ 30% 60
Net Profit after Tax 140

Jimmy Limited
Balance Sheet As at 31 December 2013
ASSETS Tk. in ’000 EQUITY AND LIABILITIES Tk. in ’000
Non-Current Assets
Property and Plant (net) 4,200 Capital and reserves
Other Assets 425 2,000,000 Ordinary shares @ Tk. 1 each 2,000
Total Non Current Assets 4,625 8% Cumulative Preference Shares 800
@ Tk. 2 each
Current Assets Other Reserves (Retained Revenue 590
Reserves)
Inventories 650 Total Equity 3,390
Trade Receivables 875 Non-Current Liabilities
Cash and Cash Equivalents - 4% Redeemable Debentures 2,000
Total Current Assets 1,525 Current Liabilities
Trade Payables 250
Short Term Borrowings 390
Current Portion of long term borrowings 120
Total Current Liabilities 760

Total Assets 6,150 Total Liabilities 6,150

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 nov dec 2014

Required:
Prepare a briefing note for the management of Jimmy Limited. The note should:
(i) Calculate the working capital cycle for Jimmy Limited for the year ended 31December 2013. 5
(ii) Comment on Jimmy Limited’s financial position as at 31December 2013. 5
(iii) Determine the maximum amount that should be spent on the credit control team for the year
ended 31st Dec.2014 if the proposal is intended to be cost neutral. (Assume that Jimmy’s sales
for the year ended 31/12/2014 will be same as it was for the year ended 31/12/2013. 5

4. (a) What are the four factors that affect firm’s target capital structure? 4
(b) In what sense does the capital structure policy involve a trade-off between risk and return? 2
(c) Maximus Ltd. is a listed all-equity finance company which makes electric home appliances. It is a
relatively small operator in a rapidly changing market with high fixed costs. The company pays out all
available profits as dividend.
Maximus has a share capital of 15 million Tk. 1 Ordinary Shares. On 30 September 2014 it expects to
pay an annual dividend of Tk.2 per share. In the absence of any further investment the company expects
the next three annual dividend payments also be Tk.2, but thereafter a 2% per annum growth rate is
expected in perpetuity. The company’s cost of equity is currently 15% per annum.
The marketing director is proposing a new investment in plant and equipment to manufacture parts for
televisions. This would require an initial outlay of Tk. 50 million on 30 September 2014. If this
investment were financed by a 1 for 3 rights issue it would enable the annual dividend per share to be
increased to Tk.2.1 on 30 September 2015 and all future dividends would be increased by 4% per annum.
The new investment is, however, more risky than the average of existing investments, as a result of
which the company’s overall cost of equity would increase to 16% per annum, were the company to
remain all equity financed.
The finance director argues, however, to the contrary. It is non-sense to continue to be all equity
financed. I believe that we could finance the new investment by an issue on 30 September 2014 of 8%
irredeemable debenture. Debt would be far cheaper than equity and the interest is available for tax relief.
The company’s accountant has reservations. New debt finance would add financial risk on top of the
existing high operating risk, which is a particular concern due to uncertainty of future sales. I believe that
we should continue to use equity finance, particularly with the additional risk of new investment. A right
issue will be the best source of additional capital.
The managing director was unsure. I seem to recall that it should not really matter whether we use debt
or equity finance. Moreover, most of our shares are owned by large, well-diversified investors and they
do not view risk from the perspective of an individual company, as we do. I am sure that this must have
implications for the way in which we assess this investment and decide on its financing.
Assume a corporate tax rate of 30%.
Requirements:
a) Assuming that Maximus Ltd. remains all–equity financed, and using the dividend valuation model,
calculate the expected ex-dividend price per share at 30 September 2014 on each of the following
alternatives: 8
(i) The new investment does not take place
(ii) The new investment takes place

Based on the above computations, determine whether the new investment should be undertaken.
b) As an external consultant to the company, write a report to the directors which, so far as the
information permits, advises them on the implications of the new investment and the most
appropriate method of financing.
Your report should include your views on the concerns of the directors and the company accountant. 6

Page 4 of 4
 nov dec 2014

IT APPLICATION
Time allowed – 3 hours
Total marks – 100

[N.B.– The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and the manner in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]

Marks

1. (a) Explain the relationship between organizations and information systems. 6

(b) Describe the Information Technology (IT) risks in the case of developing IT strategy of an
organization. 9

2. (a) “The success of strategy alignment depends on some issues:”-what are those issues? 5
(b) What is Service Level Agreement (SLA)? Why do we need to implement an SLA? 5

3. (a) What are the basic components of an Information System? Explain. 5

(b) What are the levels of management decision making? 5

4. (a) What is business continuity plan? Why does a business need business continuity plan? Explain. 5
(b) What are the key components of a disaster recovery plan? Explain. 5

5. Organizations can deploy numerous technologies to prevent information security breaches. When
determining which types of technologies to invest in, one needs to understand the three primary
information security areas. Explain those three primary information security areas. 10

6. (a) Give the definition of CAAT? How planning of accounting information system are related with
CAAT? 8
(b) "The feasibility of a proposed solution is evaluated in terms of its components." What are the
components? Describe briefly. 7

7. Testing an information system can be broken down into four types of activities.What are those four
types of activities? Explain. 10

8. (a) Which policies are maintained by an organization for auditable events? 5

(b) How user IDs and passwords are used for protecting information system from unauthorized
access? 5

9. Short Notes: 10
(a) Cyber security, (b) Denial of service attack, and (c) Spoofing and Sniffing.

–The End –
 nov dec 2014

TAXATION-II
Time allowed - 3 hours
Total Marks - 100

[N.B. - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and the manner in which the answers are presented. Different parts, if any, of the same question
must be answered in one place in order of sequence.]

Marks
1. (a) Section 30 has been amended to restrict the claim of deduction against income from business or
profession in the following cases: 4
(i) Perquisites
(ii) H. O. Expenses
(iii) Royalty, Technical know-how fees etc.
(iv) Incentive Bonus
State, with examples, how the above will be determined in computation of Total Income when net
profit is arrived at after charging such expenses.
(b) State with reasons whether the following expenses are fully or partly admissible as deduction while
computing income from business or profession: 5
(i) Stock-in trade was lost in fire, amounting to Tk. 12,000 and was debited to P/L Account.
(ii) Interest paid to bank Tk. 15,000 in connection with overdraft obtained for paying dividend.
(iii) Overseas travelling expenses Tk. 50,000. The amount of disclosed turnover and disclosed net
profit is Tk. 40,00,000 and Tk. 20,00,000 respectively.
(iv) Royalty paid Tk. 2,00,000. The amount of disclosed turnover and disclosed net profit is
Tk.40,00,000 and Tk. 20,00,000 respectively.
(v) Penalty paid for violating income tax law Tk. 25,000.
(c) Explain the following:
i) Penalty for concealment of income u/s 128 of ITO 1984. 3
ii) Penalty for incorrect or false audit report by a chartered accountant u/s 129A of ITO 1984. 3
(d) Explain when a Chartered Accountant acts as a `Principal’ and when as an `Agent’ to his tax client.
Which position is riskier? 4

2. (a) You are a Tax Advisor of ABC Ltd. Mr. Kabir, the Chief Financial Officer (CFO), of the company has
sought your advice for an effective and efficient business tax planning and techniques to provide the
assessee with maximum tax advantage. It has got 5(five) directors and 10(ten) salaried employees who
are individual assessees.
In response to the request of the CFO you are required to explain some effective business tax
planning techniques conducive to ABC Ltd.
(i) As an individual tax payer for its directors & employees. 5
(ii) As a business organization 5
(b) Comment on the following two scenarios: 8
Scenario-1:
A company wants to raise capital of Tk.20,00,000 for a project where earning before tax shall be 30%
of the capital employed. The company can raise debt fund @12%. Suggest which of the following 3
alternatives should it opt for.
(a) Tk.20,00,000 to be raised by equity capital.
(b) Tk.16,00,000 by equity and Tk.4,00,000 by loan.
(c) Tk.4,00,000 by equity capital and Tk.16,00,000 by loan.
Assume the company shall distribute the entire amount of profit as dividend while income is subject to
tax rate of 30%. Tax on dividend is 15% plus 3% additional tax on tax amount and 10% surcharge on tax.

Scenario-2:

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 nov dec 2014

What will be the option, if the earning before tax is 10% of capital employed.
(c) XYZ Ltd., a company registered in Honk Kong, is engaged in procuring garments from different parts of
the world and exporting to different retailers in Europe and USA. They want to set up an establishment
in Bangladesh in order to ensure timely shipments and quality of garments exported by different
factories of Bangladesh against letters of credit issued by the company’s bank in Hong Kong.
The company undertakes that the establishment can be set up in any form as follows:
(a) Liaison Office; or
(b) Branch Office; or
(c) Subsidiary Company
They need your advice on the income tax implications in the above three cases, so that they can take a
proper decision and plan accordingly. They also need your advice on the income tax implications for the
expatriate employees as may be appointed to work for their establishments in Bangladesh. Advise. 8

3. (a) Mr. X has constructed a 3-storied building with a loan of Tk.60 lakhs from Sonali Bank Ltd. The
construction was completed in November 2014. His loan account was debited by the bank with loan
interest as follows:
July 2012 to June 2013 Tk.6 lakhs
July 2013 to June 2014 Tk.10 lakhs
July 2014 to November 2014 Tk.6 lakhs
You are required to advise whether Mr. X will be entitled to any deductions for the above loan
interest amounts to arrive at his total income for the purpose of income tax. While giving your
advice, consider the rental income as in (b) below, if relevant. 3
(b) Mr. X is now negotiating with Mr. Y and Mr. Z for renting out the 1st and 2nd floors with effect from 1
January 2015 for a period of 4 years. He is also negotiating with ABC Ltd. to rent out two rooms with a
kitchen and a wash room for 3 years. The rent amounts have been agreed as follows:
(i) Ground floor (as above): Tk.20,000 p.m. with an advance of 6 months to be adjusted over a period
of the last 12 months of the rental period in equal amounts.
(ii) 1st floor: Tk.30,000 p.m. with an advance of 3 months to be adjusted over the last 3 months of the
rental period in equal amounts.
(iii) 2nd floor: Tk.25,000 p.m. with no advance, but with a security money of Tk.50,000 to be refunded
at the time of vacating the premises on the expiry of the rental period.
Mr. X wants all the rental payments, advances and security money to be paid in cash. Mr. Y, Mr. Z and
ABC Ltd. agree, provided it does not contradict with the provisions of the Income Tax Ordinance 1984
and the Income Tax Rules 1984 and does not deprive them of any income tax benefit which they would
have otherwise got.
You are required to give necessary advice with regard to above in the light of the Income Tax
Ordinance 1984 and Income Tax Rules 1984. 7

4. Calculate Mr. Adib Ahsan’s taxable Income and tax liability for the assessment year 2014-2015
considering the following, as may be relevant: 12
Income from Salary:
Basic salary Tk. 22,000 per month, Dearness allowance 10% of basic salary, Medical allowance Tk.
2,000p.m, Two festival bonuses each equal to one month’s basic salary and Annual performance bonus
equal to four months’ basic salary. Mr. Ahsan received free accommodation from his office which has
annual rental value of Tk. 120,000 and a full time car. Leave encashment during the year was Tk. 6,600. He
and his employer both contribute 10% of basic salary to a recognized provident fund.
Income from House Property:
Mr. Adib is the owner of a three storied house at Dhanmondi, Dhaka. He let out each floor at a monthly
rent of Tk. 10,000. Annual municipal value of the house is Tk. 300,000. Beside all the repair and
maintenance expenses, he paid municipal tax of Tk. 8,000, Insurance premium Tk. 20,000 and interest on
mortgage loan Tk. 3,000 for the house. The ground floor remained vacant for 2 months during the year.

Income from Business or Profession:

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 nov dec 2014

Profit from sole proprietorship business Tk. 155,000. In the previous year he incurred a loss of Tk. 40,000 in
the same business and carried forward Tk. 5,000 to set off this year. During the year he also earned profit
from partnership firm Tk. 120,000.
Income from other sources:
Dividend received Tk. 54,000 from a private limited company, Income from talk show Tk. 10,000 and
Interest received from bank savings account Tk. 2,700.
Income from FDRs in the name of his daughter and wife:
He has a daughter studying in a private university in Dhaka. She is dependent on her father. She has an FDR
amounting to Tk.10 lakhs, which is made up of her savings of pocket money, gifts she has received in her
birth days from the relatives and friends over the years and the accumulated interest on FDR. The FDR
account was opened in 2008, and the balance of Tk.10 lakhs as on 30/6/2014 includes interest of Tk.3 lakhs
(net of income tax) earned during the period from 2008 to 30 June 2013 and Tk.90,000 (net of 15% income
tax) interest earned during the income year 2013-2014.
Mrs. Ahsan has an FDR of Tk.20 lakhs. This is made up of her savings from the funds allocated for
household expenditure and interest earned upto 30 June 2014. Tk.1,80,000 was credited as interest
income (net of 15% income tax) during the income year 2013-2014.
Neither Mrs. Habib nor their daughter has any other income and has any Tax Identification Number (TIN).
Payments made during the year:
He paid Tk. 40,000 and Tk. 35,000 as insurance premium for his own and his spouse. He purchased share
from secondary market amounting to Tk. 7,200. He also purchased medical books for Tk. 15,000 during the
year. He donated Tk. 30,000 to Prime Minister’s Relief Fund, Tk. 20,000 to his relative and Tk. 35,000 to Aga
Khan Development Foundation.

5. TWS Ltd. has been in the business of manufacturing office furniture since 2002. For the year ended
December 31, 2013, its profit and loss account is as follows:
Notes Tk. ‘000 Tk. ‘000
Sales 4,800
Less: Cost of sales 1 2,600
Gross profit 2,200
Less: Operating expenditure:
Payroll costs 2 1,500
Directors’ remuneration 3 300
Freight and insurance 4 150
Finance charges 5 100
Donations 6 50
Utilities 7 75
Professional fees and subscriptions 8 85
Training and research 9 60
Entertainment 10 120
Foreign exchange loss 11 40
Provision for doubtful debts (trade) 12 30
2,510
( 310)
Add: Other income 13 400
Profit before taxation 90

Notes:
1. Cost of Sales Tk. ‘000
Included under cost of sales are
Depreciation of fixed assets 300
Provision for stock obsolescence 74
Damaged stocks written off 26

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 nov dec 2014

2. Payroll Costs
Included under payroll costs are:
Provision for retirement benefits 80
Medical expenses of staff and family 46
Contribution to an overseas provident fund (unapproved) for an expatriate employee 16
3. Directors’ Remuneration
The directors’ remuneration comprises:
Directors’ salaries and fees 255
Leave passages 20
Entertainment allowances (utilized to entertain customers and dealers) 25
300
4. Freight and Insurance
Included under the above is an amount of Tk.3,000 paid to Safe Insurance
Ltd., a company incorporated in Bangladesh, for insuring imported goods.
5. Finance Charges
Included under the above is an interest subsidy of Tk.16,000 paid by
the company in relation to loans taken by the employees from a bank.
6. Donations
The above comprise:
Cash donations to approved institutions 30
Donations of 5 television sets to approved institutions 15
Advertisement in souvenirs 5
50
7. Utilities
Included in the above are deposits of Tk.3,000 for water and electricity in
connection with the expatriate employee’s house.
8. Professional Fees and Subscriptions
The above comprise:
Audit and tax fees 35
Registration of trade marks 20
Legal fees in obtaining a term loan 17
Legal fees on recovery of trade debts 13
85
9. Training and Research
Included under the above expenses are:
Routine product testing and quality control expenses 16
Payments to an approved research and development
company for the use of its services. 33
10. Entertainment
The above comprises:
Dinners and lunches provided to suppliers 54
Meals and refreshments provided to employees during promotional campaigns 6
Salesman entertainment allowances (utilized to entertain customers and dealers) 60
120
11. Foreign Exchange Loss
The above comprises:
Foreign exchange loss on settlement of trade debts 27
Foreign exchange loss on purchase of machinery 13
40
12. Provision for Doubtful Debts (trade)
The above provision comprises:
Specific provision for doubtful debts 8
General provision for doubtful debts 15
Bad debts written off 7
30

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 nov dec 2014

13. Other Income

This comprises income derived from Bangladesh as follows:
Tax exempt dividend 154
Interest income 86
Dividend income (gross) 160
400
14. Additional Information
(i) The balances of the following provision accounts are as shown below:
December 31
2013 2012
Tk. ‘000 Tk. ‘000
Provision for stock obsolescence 180 120
Provision for retirement benefits 302 254
Provision for doubtful debts (trade)
- Specific 32 25
- General 72 60
(ii) TWS Ltd. has unabsorbed tax losses and unabsorbed depreciation allowances brought forward
from the assessment year 2013-2014 of Tk.162,000 and Tk.103,000 respectively. The depreciation
allowances claim for the assessment year 2014-2015 is Tk.124,000.
Required:
Compute the total income and tax liability of TWS Ltd. for the assessment year 2014-2015. 18

6. (a) ABC Ltd. is a manufacturer of cosmetic items. It sells through a number of distributors across
Bangladesh. Currently it sells to distributors at Tk.80 per unit and fixes the MRP at Tk.100 per unit. The
declared price of distributors (i.e. selling price of distributors to retailers) is Tk.90 per unit. ABC Ltd.
withholds income tax @3% from distributors under section 53E(2) of the Income Tax Ordinance 1984.
It also collects VAT @ 15%. Similarly the distributors also collect VAT @ 15% from retailers.
Is there any scope for ABC Ltd. to minimize collection of income tax from distributors under the
income tax law by changing the price structure, without changing the current MRP and reducing the
government revenue collection from VAT? If yes, revise the price for distributors to a reasonable
level, and make comparison of withholding tax and VAT collection and deposit at each stage under
the existing and revised scenarios. ABC Ltd. has an incentive scheme under which its products may
be given free of cost down the distribution channel to compensate (up to a reasonable level)
financial loss, if any, due to change in price. No one should incur any loss due to price revision. 4
(b) MN Ltd. imports 15 IT equipment as a commercial importer. You are aware that the import of IT
equipment is exempted from VAT at import stage. The C&F agent of MN Ltd. says that import of IT
equipment is subject to collection of ATV at the time of import. MN Ltd. is subject to 4% trade VAT. If
the customs authority collects ATV @4% at the import stage, can MN Ltd. take credit of ATV as input
VAT paid and adjust against the total VAT credit in the VAT Current Account and VAT Return? The CFO
of MN Ltd. is confused, and sought your advice.
Give your opinion and advice. 4

7. (a) (i) When is zero tax imposed under VAT Act? (ii) What are the procedures to be adopted for disposal of
damaged or destroyed goods in accident under VAT Act? 4
(b) Sumon purchases 100 wall clocks (WC) @Tk.70 per unit and he sold all these WC to Nikhil at Tk.9,300
where he earns profit of Tk.2,000. After adding value of Tk.30 per unit Nikhil sells these WC in the
market. If VAT is same on all these clocks, calculate how much VAT Sumon has to pay and at what
price Nikhil sells these WC in the market. 3

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