Suggested Answer ICAB Knowledge Level Nov-Dec 2016

1. Suggested Answers
Knowledge Level
November-December 20 1 6
The lnstitute of Chartered
Accountants of Bangladesh
THE INSTITUTE OF
CHARTERED
ACCOUNTANTS
OF BANGITDESH

2. SUGGESTED ANSWER
CA Professional Stage
Knowledge Level
The Institute of CharteredAccountants of Bangladesh
The learning materials have been prepared by the Institute of Chartered Accountants of
Bangladesh
First edition March 2017
All rights reserved. No part of this publication may be reproduced in any form or by any means or
stored in any retrieval system, or transmitted in, any form or by any means, electronic, mechanical,
photocopying, recording or otherwise without prior permission of the publisher.
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3. Knowledge Level
November-December 20 1 6
Contents
Pages
2. Accounting
1. Assurance
5. Taxation-I
05
3. Business & Finance
l1
30
52
67
74
4. Management Information
6. Business & Company Law
7. Information Technology
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5. ASSURANCE
Nov-Dec 2016
Queslioryl
a. Define 'expectations gap and give three examples of misunderstandings which
contribute to the expectations gap. 3
Answer:
The 'expectations gap' is defined as the difference between the apparent public perceptions about
responsibilities of auditors and the legal and professional in reality.
Three examples of misunderstandings which contribute to the expectations gap are:
1. The responsibility of preparation of financial statements
2. The type and extent of work undertaken by auditors
3. The level of assurance given by auditors
b. The key benefit of assurance is the independent professional verification being given to
the users. In addition, assurance gives some subsidiary benefits. What are those
subsidiary benefits? 5
Answer:
Key benefit of assurance is the independent, professional verification being given to the users.
In addition, assurance may have subsidiary benefits. Those are:
i. Although an assurance report may only be addressed to one set of people, it may give
additional conlidence to other parties in a way that benefits the business.
For example, audit reports are addressed to shareholders, but the existence of an
unqualified audit report might give the bank more confidence to lend money to that
business, in other words, it enhances the credibillty of the information.
* The existence of an independent check might help prevent errors or frauds being made
and reduce the risk of management.
* Where problems exist within information, the existence of an assurance report draws
attention to the deficiencies in that information, so that users know what those
deficiencies are.
* Assurance is also important in more general terms. It helps to ensure that high quality,
reliable information exists, leading to effective markets that investors have faith in and
trust.
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6. c. The content of the audit report is regulated by BSA 700 and also by relevant
Bangladeshi law. In this context, what are the basic elements should be included in an
audit report? Write sequentially 6
Answer:
According to BSA 700, the audit report should include the following basic elements, usually in
the following layout.
statements
A measure of uniformity in the form and content of the audit report is desirable because it helps
to promote the reader's understanding and to identify unusual circumstances when they occur.
d. ICAB and IFAC Code of ethics sets out the rules under which auditors should accept
new appointment.
What procedures should the new auditors follow to comply with the above set of rules? 6
Answer:
ICAB Code of Ethics as well as IFAC Code of Ethics sets out the rules under which auditors
should accept new appointments. Before a new audit client is accepted, the auditors must ensure
that there is no independence or other ethical issues likely to cause significant problems with
the ethical. Furthermore, new auditors should ensure that they have been appointed in a proper
and legal manner.
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7. The new auditors must carrv out the following procedures:
.f. Ensure professionallv qualified to act:
Consider whether disqualified on legal or ethical grounds, for example if there would be
a conflict of interest with another client.
* Ensure adequateness ofexisting resources:
The audit firm must have the resources to perform the work properly also have to ensure
availability of specialist knowledge or skills, if required. The impact on existing
engagements must be estimated, in terms of staff time and the timing of the audit.
* Obtain references:
Make independent enquiries from third parties if directors not personally known.
..'. Communicate with present auditors:
Enquire whether there are reasons/circumstances behind the change which the new
auditors ought to know, also as a matter of courtesy.
Ouestion:2
Internal control is the collection of policies and procedures that are followed by the organizations
while performing the activities required to attain their goals. It facllitates the organizations to
stay in the right path and to mitigate the risks they face day to day basis. A good internal control
system enhances the efficiency and effectiveness of organizations as well. It provides signals
about the deviations of operations and thus organizations can take appropriate measures to
overcome those situations.
a. What is the difference between policies and procedures? 4
b. Define the term control activities. Briefly discuss the types of control activities that are
introduced by the organizations in designing a good internal control system. 2+6
c. ABC Limited is a newly established private limited company where you work as a
financial advisor. The company is in the process of allocating duties and responsibilities
among their staff in such a manner that will help them to mitigate the risks of fraud and
error. As a financial advisor develop a list of activities that should be assigned to different
employees for the sake of adequate separation of duties. 4
d. Suppose proper segregation of duties is not possible due to the limited number of staff. In
this case, what should management do to enhance control? 3
e. Briefly explain three methods of documenting the understanding of internal control by
external auditors. 6
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8. Answer to the question no-2(a):
Policies refer to the principles that guide the actions and decisions in an organization. In other
word we can say "Policy is the list rules or the framework for the task. Policies do not tell
"how" to do something, but spell out what is acceptable and what is not. Indeed, policies are
rules established to reduce risk.
Procedures refer to the established or prescribed methods to be followed to do something. They
describe "how" something should be done. Indeed, procedures outline a series of steps taken to
ensure that an intemal control is followed. Example: the procedure is the list of exact instructions
for every turn the driver needs to ta
Answer to the question no-2(b):
Control activities are the policies and procedures which help to ensure that necessary actions are
taken to reduce risks in the achievement of the entity's objectives. They are the most tangible
controls that help to prevent and detect frauds and errors. Control activities may be manual or
system based where processes are computerized.
There are many control activities that are introduced by the organizations in designing a good
internal control system. Without instituting adequate control activities, orgatizations are exposed
to huge risks. Indeed, Control activities mitigate or eliminate certain risks or threats. Whatever
the control activities organization follow they generally fall under the following types of specific
control activities:
Authorization: The essence of this controls is that all transactions and activities must be
properly authorized to make the system satisfactory. This is very much fundamental to
prevent unwanted and unauthorized transactions. Authorization may be either general or
specific based on the nature of transactions.
Segregation of duties: This implies that a number of people should be engaged to perform
the different parts of a process. Involvement of several people, makes fraudulent
transactions difficult. It also reduces effors as more people implies more checking.
Physical control over assets and liabilities: To ensure robust internal control, physical or
logical security needs to be established and maintained over assets and records. Physical
control is very much essential to protect assets and documents.
Performance review: Performance review includes reconciliation between two sets of data,
comparing internal data with external information, variance analysis, trend analysis etc.
Through performance review organization can create visibility of its activities and pay
attention to those areas where it requires.
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9. Independent check: It implies the careful and continuous review of the above four types of
control activities. This helps to verify and review the execution of all other control
activities by raising flags.
Answer to the question no-2(c):
Segregation of duties is a very fundamental control activity for each and every organrzation that
is keen to establish and maintain a well balanced internal control system. In the environment of
separation of duties, nobody is involved to execute majority part of a process alone and therefore
lots of unwanted situations can be prevented. As a financial advisor, I would suggest the
following activities that should be allocated over different staff of the organization:
Recoding: The process of creating and maintaining records of transactions
Authorization: Authonzation of transactions and activities should be assigned to separate
staff.
Asset custody: The access to or control over physical assets like cash, inventories, furniture
etc. should have in the hand of separate individual.
Reconciliations: Separate person should be assigned to carry out reconciliation between two
sets of information to ensure to verify that all transactions are valid, authorised and properly
recorded.
Answer to the queqtial lar2(dL
Small orgatizations may not be able to obtain the ideal system of separate employees each
performing one of the four different duties. In this case, mitigating controls can be used to
decrease risk. That is, additional control procedures can be placed in a system to help to reduce
the risks associated with lack of segregation of duties. Additional controls may include frequent
job rotation, frequent reporting of transactions, establish independent check etc.
Answer to the question no-2(e):
Auditors must record the internal control that they determine during audit of financial statements.
Internal control documentation can take various forms based on the circumstances. The
following three methods are commonly used for documenting the understanding of internal
control of an organization:
Narrative descriptions: Narrative is a written description of a client's internal controls
i.enarrative describes process flows in written form, without graphical representations. The
narratives must include the origin, processing and disposition of documents and records and
the relevant control points.However, narrative descriptions do not serve as an effective tool
for process description and they can be lengthy and difficult to review, and typically are not
considered user-friendly.
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10. Flow chart: An internal control flow chart is a symbolic, diagrammatic representation of the
client's documents and records in the sequence in which they are processed. A flowchart is a
process map and a graphical representation of events performed by a set of people. Process
maps can help auditors understand business processes better, identify risks, controls,
deficiencies, and inefficiencies; and develop recommendations for improvements.
Internal Control Questionnaire: An Internal control questionnaire (ICQ) is a list of answers to
the series of questions related with controls of each area in order to identify and evaluate the
effectiveness of internal control. Effective ICQ comprises a carefully structured, logically
sequenced series of questions that helps to highlight control gaps, strengths, and weaknesses
within a system.
Ouestion: 3
L. BSA 530 o'Audit Sampling" states that 'when designing audit procedures, the auditor
should determine appropriate means for selecting items for testing so as to gather
suflicient appropriate audit evidence to meet the objectives of the audit procedures'.
In this context what do you understand by 66Audit Sampling"? Some testing procedures
do not involve sampling. Explain 3+4
Answer:
Answer to the question no- 3(a)
Audit sampling involves the application of audit procedures to less than 100% of the items
within an account balance or class of transactions such that all sampling units have a chance of
selection. This will enable the auditor to obtain and evaluate audit evidence about some
characteristic of the items selected in order to form or assist in forming a conclusion concerning
the population from which the sample is drawn.
Some testing procedures do not involve sampling. such as:
* Testing l00o/o of items in a population is obvious.
* Certain characteristic, as selection is not representative:
Assurance providers are unlikely to test 100% of items when carrying out tests of control,
but 100% testing may be appropriate for certain substantive procedures. For example, if
the population is made up of a small number of high value items and there is a high risk
of material misstatement then 100% examination may be appropriate.
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T

11. b. What are the general matters that BSA 580 requires auditors to confirm in writing?
What are the auditors' duties if management does not provide one or more of the
requested written representations? 4+4
Answer:
Written representation - A written statement by management provided to the auditor to
confirm certain matters or to support other audit evidence. Written representations in this context
do not include financial statements, the assertions therein, or supporting books and records.
There are a numbef of elements that BSA 580 requires auditors to confirm in writing,
namelv that management:
.i. Acknowledges its responsibility for the preparation and fair presentation of the f,rnancial
statements in accordance with the applicable financial reporting framework and has
approved the financial statements
.1. Acknowledges its responsibility for the design and implementation of internal control
* Believes that the effects of uncorrected misstatements aggregated by the auditors during
the audit are immaterial. A summary of these items should be attached to the written
representations
The confirmation with regard to responsibility and approval of the financial statements is
normally done when the auditors receive a signed copy of the financial statements, which
incorporate a relevant statement of responsibilities. Alternatively, the auditors may obtain such
evidence from minutes of directors' meetings, or by including them in the written representation
letter.
If management does not pfAllide que qt morg of the requested written representations, the
auditor shall:
i. Discuss the matter with management;
ii. Reevaluate the integrity of management and evaluate the effect that this may have on
the reliability of representations (oral or written) and audit evidence in general; and
iii. Take appropriate actions, including determining the possible effect on the opinion in
the auditor's report.
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12. c. Small Companies may have particular problem regarding "Human Element" in
implementing effective internal control system. Explain
Answer.'
Small companies may have particular problems in implementing effective intemal control
systems because of the human element. Small companies generally have fewer employees than
larger companies, meaning that there are fewer people to involve in the internal control system.
Involving a large number of people in internal control systems helps to limit the risk of the
human element in internal control systems because if a lot of people are involved, there is a
greater chance that people's errors or, worse, frauds, will be uncovered by the next person in the
control chain. The control of using a number of people in a single system is called segregation
of duties.
In a small company, if its staff capacity is not such to ensure that lots of people are involved in
the internal control system, then the control system will be weaker.
Ouestion:4
As part of the analyical procedures of XYZ Limited, you performed calculations of the
following ratios:
Ratios 2015 2014
Gross profit ratio 25% 29%
EBIT to sales ratio Il% 10.8%
Current ratio 1.55 1.85
Days to collect receivable 108 85
Days to sell Inventory 96 95
Interest coverage ratio 4.2 5.5
Earnings per share Taka 8.5 Taka 8.6
a. Based on the above ratios, which two aspects of the company, do you believe, should
receive special attention in the audit? 4
b. State five possible reasons behind decreasing gross profit ratio to 25%o in 2015 from29o/o
of20l4- 4
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13. Answer to the question no-4(a):
Based on the ratios, as given in the question, I think following aspects should get special
attention:
. Profitability in terms gtoss profit to revenue.
. Liquidity condition of the company.
. Average Accounts Receivable collection period
In case of gross profit ratio, it came down to 25oh in 2015 from29%o of last year. This is a huge
fluctuation and therefore the reasons behind such movement should be investigated to gather
suffi cient and appropriate evidence.
On the other hand, in 2015 compared to 2014, the liquidity position of the company has
deteriorated in several considerations which include lower current ratio, higher days sales
outstanding and higher bank borrowing as reflected through lower interest coverage ratio over
the last year. All ratios relating to tightening liquidity condition need to be examined in detail to
understand associated root causes and related risks.
Considering Accounts Receivable Turnover ratio, it is found that Days to collect Receivable has
been increased compared to last year which has negative impact in cash flow from operating
activities. Moreover, funds remained block in receivable for more days compared to year 2014-
The reason for increased Day to collect Receivable has to be checked to ensure the actual reason
as well as the impact in working capital management.
Answer to the question no-4(b):
Gross profit ratio is derived by dividing gross profit by the amount of revenue where gtoss profit
is equal to revenue minus cost of goods sold. If we look into the functions of the gross profit
ratio, the following factors might have contributed to decrease the same:
. The selling price of the products may have been reduced as part of business strategy. If it is
so, the amount of revenue has reduced in terms of value. This has played role to reduce gross
profit ratio compared to last year.
. The product mix may have been changed this year. That is, the company has sold more low
margin products in 2015 than last year.
. The company might have offered higher rate of trade discount compared to last year.
. Raw material price of the products may have increased which led to increase cost of
production.
. The overhead cost of the products may have increased due to several reasons like labour pay
rise, energy cost, maintenance cost etc.
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14. Ouestion:6
a. Why is independence so important to the external auditor? Why does lack of independence in
appearancejeopardise auditor's independence in fact? 3+3
b. Explain the terms "Threats" and "safeguards" with reference to maintaining professional
Objectivity and Independence. What is acceptable threat? 4+2
c. Under each of the following circumstances what kind of threat auditor may encounter and
what should be the safeguards to maintain professional objectivity and independence? 2x4
Mr. Zaman, an audit staff of Zara & Co, Chartered Accountants, is working in a client as
audit supervisor. On the occasion of Eidul- Fitr, the client sent him a gift box of their
products valuing Taka 10,000.
Farah & Co, Chartered Accountants, is the auditor of KYC Limited. The company has
decided to go for IPO next year to raise money from public to finance their future
expansions. Recently they asked Farah & Co to prepare their financial statements
alongside to continue to act in the capacity of external auditor.
Sara & Co, Chartered Accountants has received an offer from MM Limited to conduct
their audit on the fees which is l2Yo of profit before tax.
Answer to the question no-6(a):
Independence is the freedom from conditions that threaten the ability of the auditor to carry out
his responsibilities in an unbiased manner. Independence is one of the worthiest characteristics of
external auditor and it is very much fundamental to the principles of integrity and objectivity. It
allows auditor to be freedom from any biasness. Extemal auditor is considered as independent
party and is engaged to provide assurance as to the reliability of the information incorporated in
the financial statements which are the medium of discharging the accountability of management.
As stakeholders from different corners put their trust and confidence on auditor, the audit
procedures and the conclusion of the audit shall not be motivated by personal interest. A lack of
independence may lead to a failure to fulfill professional requirements to obtain enough evidence
to form the basis of an audit opinion and therefore it can undermine the purpose of independent
audit. Eventually stakeholders will give no value to the assurance provided by the auditor.
Therefore, auditor has no alternative but to be independent to ensure acceptability of his or her
delivery.
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ii. Lara & Co, Chartered Accountants, is the external auditor of PK Limited. Mrs. Kelly, a
senior audit staff of Lara & Co, is a daughter of Marketing Director of PK Limited. The
engagement partner of the audit firm is planning to depute Mrs. Kelly to PK Limited to
lead the field work of the audit.

15. Auditor must be independent in fact as well as in appearance. That is, real independence and
perceived independence are equally important to the auditor. It is essential for auditor to
maintain independent attitude in fulfilling his responsibilities, side by side, it is also important
that the users of financial statements have confidence in that independence. lndependent in fact
exists when auditor actually maintains an unbiased attitude throughout the audit; on the other
side, independent in appearance is the outcome of others' perception that there is no threat to the
auditor's objectivity. If auditor is really independent in his actions but users believe him as not to
be independent, most of the value of the audit function will be lost. So, it is obvious that a lack of
independence in appearance takes away the credit of independence in fact.
Answer to the question no16(b}
While conducting the required procedures for audit and other assurance services, an assurance
provider may encounter certain circumstances that could prevent him from complying with
Fundamental Principles associated with professional ethics. Such circumstances are called
threats. The quality of service may be impaired if these threats prevail.
When an assurance provider faces any threat he needs to assess it and then must apply certain
procedures either to eliminate the threat or reduce it to an acceptable level. Such procedures are
called safeguards. If the threat is insignificant, the assurance provider can ignore it otherwise he
has to take actions for safeguard.
A threat is acceptable when a reasonable and informed third party would probably not conclude
that the assurance provider's compliance with the Fundamental Principles was compromised.
When any threat appears to the assurance provider, it is his responsibility to eliminate it or
reduce it to an acceptable level; otherwise he will be professionally liable for non-compliance of
prescribed ethics.
Answer to the question no-6(c):
Offering gift to Mr. Zaman a staff of the audit firm, falls under self-interest threat. Since
the amount of gift is significant it can influence Mr. Zaman not to be independent in
performing his professional duties. This may cause a less quality audit. In this case, the
best safeguard before Mr. Zaman is not to accept the gift. Maybe, he could accept the gift
for the sake of the courtesy if it was insignificant in terms of value.
ll. If Mrs. Kelly, daughter of Marketing Director of PK Limited and a senior audit staff of
Lara & Co, is delegated the responsibility to lead the audit team that will be engaged to
perform the audit of PK Limited, the familiarity threat may arise. Mrs. Kelly may not be
able to apply professional skepticism in her actions to the fullest level. Therefore, the best
safeguard to reduce the threat of this instance would be not to engage her to carry out the
audit work of PK Limited.
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16. lll
IV
If auditor undertakes the service of preparation of financial statements in addition to his
current role to act in the capacity of external auditor, there is huge possibility to create
self-review threat. Self-review threat arises when assurance firm provides multiple
services to an assurance client. Here, auditor needs to take steps to eliminate or reduce
the risk to the acceptable level. Since the client is not listed till now, audit firm may
continue both services but following measures should be taken to reduce the threat:
. Using separate staff members for audit and financial statements preparation.
Implementing policies and procedures to prohibit the individual providing such
services from making any managerial decisions on behalf of the assurance client.
Originating of source data and providing accounting entries should be done by client.
The underlying assumptions and estimations required for preparation of financial
statements should be done and approved by client.
Engagement fee based on the amount of profit before tax falls under the category of self-
interest threat. This fee is contingent in nature. A firm should not enter into any fee
arrangement for audit under which the amount of fee is contingent on the result of the
assurance work or on items that are the subject matter of the assurance engagement.
Rather, Sara & Co should ask the client to fix up the fees based on the work volume of
the audit or the fees at the prescribed rate of ICAB.
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I
I

17. ACCOUNTING
Nov. - Dec. 2016
Question No. L.
a) Briefly explain the purposes of Financial Statements.
With reference to the BAS-1: Presentation of Financial Statements, outline all the
components of a set of Financial Statements. 4
b) Identify any four users of financial statements and explain their needs for accounting
information. How does the user get accounting information? 4
c) The conceptual framework of accounting recognizes qualitative characteristics of financial
information that is useful for decision making. Explain. 4
Answer of O. no. I (a)
1. (a) The purpose of financial statements is to provide information about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of users
in making economic decision. Financial Statements also show the results of the stewardship of
management, or the accountability of management for the resources entrusted to it.
The components of a set of Financial Statements are:
(i) Statement of Financial Statement
(iD Statement of Comprehensive income
(iii) Statement of changes in equity
(iv) Statement of cash flows
(v) Notes to the financial statements
Answet pfQ-qo.l (b)
Users of financial statements and their needs for accounting information have been explained
below:
(D Investors are those who provide risk capital i.e. mainly shareholders. They are concerned
with the risk inherent in and the retum provided by the business. They need information to
help them determine whether they should buy, hold or sell their holdings. They also need
information to assess the ability of the business to pay dividends.
(iD Employees of the business and their representative groups are interested in information
about the stability and profitability of their employer. They need to assess the likelihood of
future employment and increase or decrease in remuneration packages. They will also be
interested in retirement benefits and employment opportunities/advancement.
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18. (iiD Lenders.
These consist of debenture holders, banks, lessors, other financial institutions, other
businesses etc. They are interested in information that enables them to determine whether
their loans, and the interest attached to them, will be paid when due.
(iv) Suppliers and other trade payables.
These are people the business owes money to. They are interested in information that
enables them to determine whether amounts owing to them will be paid when due. Many
suppliers will also be interested in the long term survival of the business if the business is
their major customer.
v) Customers or trade receivables.
Customers have an interest in information about the continuance of the business especially
if they have bought goods with guarantees etc. if the business is a major supplier of goods
to them they will wish to know that that supply will continue into the future.
0 Governments and their agencies.
Governments are interested in the allocation of resources within a country and of course
the collection of revenues such as taxes from individual businesses. They will require
information on the activities of the business to regulate them, determine taxation policies
and assess the basis for national income and similar statistics.
g) The general public.
The most interested 'public' are generally those that live in close proximity to the
business. They will wish to know if the business makes a contribution to the local
economy and what effect it has on the local environment, for example in terms of
pollution. They will wish to know the number of people the business employs from the
locality, their patronage of local suppliers and the possible effect on the locality if the
business ceases to operate.
1. (c) The IASB states that there are four principal characteristics - understandability,
relevance, reliability/faithful representation and comparability.
(a) Understandability:
Information provided to users must not be so complex that a user with a reasonable knowledge of
business and economic activities and accounting, and a willingness to study the information with
reasonable diligence, would not be able to understand it. There is a fine balancing act needed
here by those preparing financial statements to ensure that all information relevant to users is
given to them even though it may be complex.
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19. (b) Relevance:
To be useful, information must be relevant to the decision-making needs of users. Relevance is
closely related to its predictive role- that is the extent to which the information helps users to
predict the organisation's future and so make decisions about it. For example, the attempt by a
potential investor to predict future profitability and dividend levels will be at least partly based
on the financial statements. A sub characteristic to relevance is materiality- information is
material and therefore relevant if its omission or misstatement could influence the economic
decisions of users. Materiality depends of the size of the item or error judged in the particular
circumstances.
(c) Reliabitity/Taithful representation:
Information has the quality of reliability when it is free from material error and bias and can be
depended upon by users to represent faithfully that which it either purports to represent or could
reasonably be expected to represent. There is quite often a conflict between relevant and reliable
information. Information may be relevant, but so unreliable in nature or representation that its
recognition may be potentially misleading. For example, if the validity and amount of a claim for
damages under a legal action are disputed, it may be inappropriate for the business to recognise
the full amount of the claim in the statement of financial position as this would provide
unreliable information. However, to ensure relevance, it would be appropriate to disclose the
amount and circumstances of the claim in a note to the accounts.
(d) Comparability:
Users need to be able to compare financial statements of a business through time in order to
identify trends in its financial position and performance. Users also need to be able to compare
one business with another and, therefore, the measurement and display of the financial effect of
transactions and other events must be carried out in a consistent way for different entities. Thus,
we have the need for accounting standards from this characteristic.
Question No.2.
(a) Identify the accounting concept involved in transactions recording and explain the correct
accounting treatment for each of the following: 6
(i) Only 10 months' salaries Tk.100, 000 are shown in the Trial Balance of Rahman
Enterprise for the year ended 3l December 2015. An equal amount is paid for salaries
for each month of the year.
(iD Tk.4,600 had been charged to general expenses for the owner's private holiday.
(iii) A customer, owing Tk. 5,040 has been declared bankrupt. This amount is to be written
off.
(b) Write down two transactions which have the following effect in the accounting equation:
Assets : Liabilities * Owners' Equity. Increase assets, increase owner's equity and decrease
assets. 2
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20. (c) The following relate to the business of Kafi Enterprise for the year ended December 31,
20t5.
Sales Tk. 688,560
Sales return Tk. 7,600
Opening Inventory at cost Tk.27,560
Closing Inventory at cost Tk. 36,280
Gross profit for the year is 33% of cost of goods sold.
You are required to calculate the:
(i) Turnover.
(ii) Cost of goods sold.
(iii) Amount of purchases. 8
Auqwer 2(a)
Item (i): Accruals/lVlatching concept: The matching of receipts and payments within an
accounting period. Adjustments have to be made regarding early and late transactions both at the
start and at the end of the accounting period .Tk. 20,000 of unpaid salaries has to be accrued in
order to get the correct value ofsalaries expenses for the financial year.
(ii): Business Entity concept. Only the transactions of the business should be recorded in the
accounts of the business. The owner's private holiday is not a business expense and must be
shown as drawings which reduce the amount of capital the owner has invested in the business.
Item (iii): The Prudence concept requires a business not to overstate revenue and not to
understate expense. Writing off an irrecoverable debt is an example of this, as this will increase
expenses and thus reduce net profit. This action will also reduce the value receivables and hence
current assets in the statement of financial position.
2 (b) The following two transactions are considered to show impact on accounting equation,
Assets: Liabilities f Owners' Equity:
1. Liza put into taka 2,500 in her start-up business and borrowed taka 500 from his
uncle.
Cash 3,000 : Loan 500 + Capital 2,500
Liza bought an equipment costing taka 300 and she settled taka 200 in cash and rest
of the amount is still due.
Cash 2,800 + Equipment 300:Creditors 100 & Loan 500 + Capital 2,500
ll
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21. (i)
2 (c)
(ii)
(iii)
Date
April I
,t ,7
,,
13
,,
16
,r
2r7
Calculation of Turnover:
Sales
Less Returns
Cost of Goods sold: : ('/ox 680,960) :510,720
Purchases
Cost of Goods sold
Opening stock
Add purchases (balancing figure)
Goods available
Less closing stock
Cost of sales (% x 680,960)
TK.
688,560
7,600
680,960
27,560
519,440
547,600
36,280
510,720
Question No.3.
(a) "An error is an irregularity in the accounting records that makes the f,rnancial Statements
invalid". With this view (i) List five accounting errors that do not affect the agreement of the trial
balance and (ii) List five accounting errors that affect the agreement of the trial balance. 6
(b) The following are extracts from the cash and bank statements of IPM Ltd for the month of
April,2016.
Cash Book
DR
Taka
60,000
14,000
4,900
9,780
3,800
Date CR
Taka
Rahman 2,200
Ehasan 5,120
Oishee Hossen 7,600
Mohaimin 1,840
Balance c/d 75.720
92.480
Balance b/d
Mark Taylor
Yassir Hosain
Niaz Ahmed
Shaila Khan
April 2
,, 11
,,
17
"25
,r
30
Page l2l

22. Bank Statement Details
April I
tt a
J
,r7
,,
l3
,,
13
Balance b/d
Rahman
Mark Taylor
Ehasan
Yassir Hossain
Debit
Taka
2,200
5,120
Credit
Taka
14,000
4,900
Balance
Taka
60,000
57,800
71,800
66,680
71,580
" 19 Credit transfer to Nil - 900 72,480
" 22 Niaz Ahmed - 9,720 82,260
" 30 Bank charges 160 - 82,100
" 30 Insurance 1,250 - 80,850
" 30 Provident Fund 2,570 - 78,280
Requirement:
(i) Prepare the adjusted cash book as at 30th April, 2016. 8
(ii) Draw up a bank reconciliation statement as at 30th April, 2016. 1
(C) Carol Eaton's accountant has prepared her trial balance which did not balance. The trial
balance contained a suspense account balance of Tk.1,110 (credit balance). Realizing that this
did not balance, the following elrors were discovered by Mike, the internal auditor.
(i) A credit note for Tk.2,850 was entered on the customer account of P Scott but no entry was
made in the returns account.
(ii) The sales account was overcast by Tk.4,800.
(iii) Tk.2,970 of goods withdrawn for Carol's personal use was entered into the drawings account
but no other entries were made.
(iv) A discount allowed of Tk. 2,520 was credited in error to the discount received account.
(v) Cash sales of Tk.19,780 had not been entered into the sales account.
(vi) A bad debt of Tk. 6,300 had been entered in the customer's account but not the bad debt
account.
(vii) The purchases account had been under cast by Tk. 2,650.
Page 122

23. Requirement: Prepare a suspense account to correct the errors discovered showing clearly the
opening and closing balances. (Note: Joumal entries are not required.) l0
Answer 3(a)
3 (a) (i) Errors not affecting Trial Balance agreement are:
- Errors of Omission
- Errors of Commission
- Complete Reversal of Entries
- Compensating Errors
- Errors of Principle
- Error of Original Entry
- Error of Duplication
(ii) Enors that affect the agreement of the Trial Balance are:
- Incomplete Double Entry
- Casting Errors
- Transposition of Figures
- Omission of an Opening Balance in the Ledger Accounts
- Posting Errors
- Failure to extract one or more balances in the Trial Balance
- Placing items at the wrong side of the Trial Balance
- Single entry transactions
3 (b)
IBM LTD.
Adjusted Cash Book
Taka
75,720 April30
Bank charges
900 lnsurance
Provident fund
Balance c/d 72,640
Balance b/d
April 19
Credit transfer - Nill
Taka
160
1,250
2,50
_15,620
72,640
?6,610
Balance b/d
Page 123

24. IBM LTD
BANK RECONCILIATION STATEMENT AS AT 3OTH APRIL, 2016
Balance as per cash book
Add Unpresentedcheques :
OaisheeHossen
Mohaimin
Less uncreditedcheque:
Shaila Khan
Balance as per bank
statement
3 (c)
Purchases (3)
Sales (5)
Taka
2,970
19,780
Nil
Particulars
Balance b/d
Sales returns (1)
Sales (2)
Discount received (4)
(2520 x 2)
Bad debts (6)
Purchases (7)
72,640
9,440
82,080
3,800
Taka
1,1 10
2,850
4,800
5,040
6,300
2,650
______ 22J:9_
7,600
1.840
,8250
Suspense account
Alternative approach of preparing suspense account
Particulars
Item No. Details Debit Credit Balance
Trial balance 1,1 10 (1,110)
I Sales returns 2,950 (3,960)
Sales 4,800 (8,760)
Purchases 2,970 (5,790)
lv Discount received 2,520 (8,310)
lv Discount allowed 2,520 (10,830)
v Sales 19,780 8,950
vi Bad debts 6,300 2,650
vl1 Purchases 2,650 Nil
Balance c/d
____221:0
Page 124
ll
il1

25. Question No.4.
(a) Explain Depreciation and Useful Life of Fixed Assets.
(b) List the factors or causes that contribute to depreciation of a Fixed Asset.
(c) KababGhar does not keep a set of accounting records for its business operations. For the year
ended 31 December 2015, the following information was made available:
Opening inventory Tk.7,000, Cost of goods available for sale Tk.227,000, Net profit Tk.8,000,
Net current assets Tk.9,000, Short-term loan Tk.1,600, Cost of sales Tk.180,000, Gross profit
percentage on sales is 10% , Net book value of non-current assets Tk.163,000, Accounts payable
Tk.1,400 and Long-term loans Tk.80,000. Current assets are 4 times higher than current
liabilities.
2
J
Requirement: Calculate the following for KababGhar on 3lst December 2015:
(i) Sales.
(ii) Purchases.
(iii) Closing inventory.
(iv) Total operating expenses.
(v) Total value of current assets.
(vi) Capital. t2
Answer 4(a)
Depreciation is the allocation of the Depreciable amount of an asset over its estimated useful life.
This allocated amount is charged against the income statement/Profit and Loss Account.
The useful Life of an Asset is either the period over which a depreciable asset is expected to be
used. OR the number of production/similar unit expected to be obtained from the Asset by the
enterprise/company.
b) Four (4) factors are:
- Physical deterioration/Expected physical wear and tear.
- Obsolescence/Economic factors.
- Depletion (Natural resources such as mines)
- Legal limit/Time factor.
Page 125

26. (c)
(i)
(ii)
Sales: cost ofsales * gross profit: 180, 000 + 1/9 (180, 000;: 180, 000 + 20, 000:
TK.200,000
Purchases : cost of goods available for sales - opening stock : 227,000 - 7,000 :
TK.220,000
Closing stock : cost of goods available for sale - cost of goods sold : 227,000 -
180,000: TK.47,000
Total revenue expenses: gross profit - net profit:20,000 - 8,000: TK.12,000
Total value of current assets Current ratio : 4: I
Net current asset: 9,000
Current asset: x Current liabilities 1,600 + 1,400: x 3,000:3,000 x 4: TK.12,000
OR Current asset:4 Current liabilities
I Net current asset: 9,000
Current asset - current liabilities : 9,000
4 - l:9,000If 3 :9, 000
4:9,000 x 4
3 : TK.12,000
(iiD
(iv)
(v)
(vi) Capital : Net book value of non-current assets
Net current assets
: 163,000
: 9,000
172,000
Page 126

27. Question No.5.
Top Clean Services has the following unadjusted trial balance after a month of operation as on
30 September 2016:
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Notes Payable
Accounts Payable
Owner's Capital
Owner's Drawings
Service Revenue
Salaries & Wages Expenses
Utilities Expense
Advertising Expense
Trial Balance
Debit
Taka
5,400
2,800
1,300
2,400
60,000
Credit
Taka
40,000
2,400
30,000
1,000
4,900
71.300 77300
Other information are:
(i) Insurance expense is Tk.200 per month.
(ii) Tk.1,000 of supplies are in hand at September 30.
(iii) Monthly depreciation on the equipment is Tk.900.
(iv) Interest of Tk.500 on the notes payable has accrued during September.
Required to prepare:
(a) Adjusted Trial Balance. 5
(b) Income Statement for the month of September 2016 and Balance Sheet as on 30 September
2016. 15
(c) Closing Journal entries. 4
,200
800
400
J
Page 127

28. Answer 5
Trial
Balance
Sheet
Account Titles Dr. Cr.
Cash 5,400
Accounts Receivable 2,800
Supplies 1,300
Prepaid Insurance 2,400
Equipment 60,000
Notes Payable 40,000
Accounts Payable 2,400
Owner's Capital
Owner's Drawings 1,000
Service Revenue
Salaries and
Wages Expense 3,200
Utilities Expense 800
Advertising Expense 400
Totals 77.300 77 300_
Insurance Expense
Supplies Expense
Depreciation Expense
Accumulated Depreciation-
Equipment
Interest Expense
Interest Payable
Top Clean Services
Adjusted Trial Balancer lncome Statement and Balance Sheet
for the Month Ended September 30,2016
Adjusted Trial
Income Adjustments Balance
Dr. Cr Dr.
5,400
2,800
1,000
Cr. Dr. Cr
2,200
Balance
Statement
30,000
60,000
1,000
40,000
2,400
3,200
800
30,000
4,900
(b) 300
(a) 200
Dr. Cr
5,400
2,900
1,000
2,200
60,000
40,000
2,400
30,000
1,000
4,9004,900
(a) 200
(b) 300
(c) 900
(c) 900
(d) s00
(d) 500
a29q _1,99q ryqq zq,zgq
3,200
800
200
400
300
900
200
400
300
900
900
500 500
500 500
-q,199- 499-
-12,400
?3,800
1,400 1,400
6.300 6.300 zuga E,ggg_
900
Totals
Net Loss
Totals
Page | 28

29. (b) JOURNAL ENTRTES
Sep 30 4,900Service Revenue
Income Statement
(To close revenue account)
4,900
Dec 30 lncome Statement
Salaries and Wages Expense
Depreciation Expense
Utilities Expense
Interest Expense
Advertising Expense
Supplies Expense
lnsurance Exparse
(To close expense accounts)
6,300
3,200
900
800
500
400
300
200
Sept 30 Owner's Capital
Income Statement
(To close net loss to capital)
1,400
1,400
Sept 30 Owner's Capital
Owner's Drawings
(To close drawings to capital)
1,000
1,000
Page 129

30. BUSINESS & FINANCE
Nov.-Dec.2016
Question No. L
(a) What is the appropriate level of inventory from the viewpoints of a firm's frnance, marketing,
manufacturing and purchasing managers? 2
(b) Ocean Company uses 800 units of a product per year on a continuous basis. The product has
a fixed cost of Tk.50 per order, and its carrying cost is Tk.2 per unit per year. It takes 5 days to
receive a shipment after an order is placed, and the firm wishes to hold 10 days' usage in
inventory as a safety stock.
i. Calculate the EOQ.
ii. Determine the average level of inventory. (Note: Use a 365-day year to calculate daily usage.)
iii. Determine the reorder point.
iv. Indicate which of the following variables change if the firm does not hold the safety stock (1)
order cost, (2) carrying cost, (3) total inventory cost, (4) reorder point and (5) economic order
quantity. Explain. 12
Answer to Question No. 1 (a)
Differing viewpoints about appropriate inventory level commonly exist among a firm's frnance,
marketing, manufacturing and purchasing managers. Each of them views inventory levels in light
of his or her own objectives.
The finance manager 's general view toward inventory levels is to keep them low, to ensure that
the firm's money is not being unwisely invested in excess inventory.
The marketing manager, on the other hand, would like to have large inventories of the frrm's
finished products. This would ensure that all orders could be filled quickly, eliminating the need
for backorders due to stock-out.
As manufacturing manager is in charge of the production plan of a company, helshe would keep
raw materials inventories high to avoid production delays. He or she also would favor large
production runs for the sake of lower unit production costs, which would result in high finished
goods inventories.
The purchasing manager is concerned solely with the raw materials inventories. He or she likes
to ensure the availability of raw materials at a favorable price whenever raw materials are
required by production department. In an effort to get quantity discounts or in anticipation of
rising prices or a shortage of certain materials, the purchasing manager may purchase larger
quantities of resources than are actually needed at the time.
Page | 30

31. Answer to Question No. I @)
ll Average level of inventory
lll Reorder point
lv Change
(2) Carrying costs
(3) Total inventory cost
(4) Reorder point
:200 units
800 units x l0 days
+
2 365
121.92 or 122 units
(800 units x 10 days) , (800 units x 5 days)
365 days
1. EOQ
365 days
32.88 or 33 units
Do Not Change
(1) Ordering costs
(5) Economic order quantity
Question No.2
Paramount Company turns over its inventory six times each year; it has an average collection
period of 45 days and an average payment period of 30 days. The firm's annual sales is Tk.3
million. Assume there is no difference in the investment per taka of sales in inventory,
receivables, and payables; and assume a 365-day year.
a. Calculate the firm's cash conversion cycle, its daily cash operating expenditure, and the
amount of resources needed to support its cash conversion cycle.
b. Find the firm's cash conversion cycle and resource investment requirement if it makes the
following changes simultaneously:
(1) Shortens the average age ofinventory by 5 days.
(2) Speeds the collection ofaccounts receivable by an average of 10 days.
(3) Extends the average payment period by 10 days.
Page | 31
k2r s, o) _ [z "
soo, rf.so;
1/ c - 2
200 units

32. c. If the firm pays l3o/o for its resource investment, by how much, if anything, could it increase
its annual profit as a result of the changes in part b?
d. If the annual cost of achieving the profit in part c is Tk.35,000, what action would you
recommend to the firm? Why? 14
Answer to Question No. 2
a. Cash conversion cycle : Inventory turnover period * Receivables collection period -
Payables payment period
Inventory tumover period : (365 + 6) : 61 days
Cash conversion cycle : (61+45-30) days
76 days
Daily Financing required Tk. 3,000,000 + 365
: Tk.8,219
Resources needed : Daily financing required x CCC
: Tk. 8,219 x 76
: Tk.624,644
b. Cash conversion cycle (CCC) 56 days + 35 days - 40 days
5l days
Tk. 8,219 x 5l
Tk.419,169
Resources needed
c Additional profit (Daily expenditure or financing x reduction in
CCC) x financing rate
(Tk.8,219x25)x0.13
: Tk.26,712
d. As the cost of achieving the profit (Tk. 35,000) exceed the amount of increase in profit
(Tk.26,7I2), my recommendation to the firm is not to implement the proposed changes.
Question No.3
(a) How does change in volume affect the break-even point? What important information is
conveyed by the margin of safety calculation in Cost-Volume-Profit (CVP) analysis? 4
(b) Pragati Company produces and sells a single product. The company's income statement for
the most recent month is given below: g
Page 132

33. Sales (6,000 units at Tk. 40 per unit).............
Less manufacfuring costs : Direct materials.....
Direct labor (variable) ............
Variable factory overhead
Fixed factory overhead...
Gross margin
Less selling and other expenses:
Variable selling and other expenses .......
Fixed selling and other expenses...
Net operating income.
There are no beginning or ending inventories.
Tk.240,000
Tk.49,000
60,000
12,000
30.000
24,000
42.000
150"000
90,000
66.000
Tk.24.000
Required:
i. Compute the company's monthly break-even point in units of product.
ii. Determine the company's monthly net operating income if sales increased by 25% and there is
no change in total fixed expenses?
iii. The company has decided to automate a portion of its operations. The change will reduce
direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead.
Compute the new break-even point in units.
Answer to Question No.3 (a)
Within the relevant range, the break-even point does not change. This is due to the linearity
assumptions that apply to total revenues, fixed costs, and variable costs.
The break-even point in CVP analysis is critical because it divides profitable levels of operation
from unprofitable levels of operation. The margin of safety gives managers an idea of the extent
to which sales can fall before operations will become unprofitable.
Answer to Question No. 3 (b)
(i) The company's income statement in contribution format would be:
Sales
Less: Variable expenses
Direct materials
Direct labour
Variable factory overhead
Variable selling and other expenses
Contribution margin
Less: Fixed expenses
Fixed factory overhead
Fixed selling and other expense
Net operating income
Tk.48,000
60,000
12,000
24,000
Tk.30,000
42,000
Tk.240,000
144,000
96,000
72.000
Tk.24.000
Tk.40
Tk.24
Tk. 16
t00%
60%
40%
Page | 33

34. Break even point in units : Tk. 72,000/Tk. 16
: 4,500 units
ii. If sales increased by 25o/o, sales volume will be 6,000 x l25o/o: 7,500 units
Net operating income with increased sales volume is as follows:
Sales (7,500 units at Tk. 40)............
Less: Variable expenses (7,500 units at Tk.24)......
Contribution margin...
Less: Fixed expenses...
Net operating income.
Tk.300,000
180.000
120,000
72.000
Tk. 48.000
iii. Direct labor cost per unit before automation is (Tk. 60,000/6,000)
: Tk. 10
After 40 o/o
reduction, the direct labor cost will be Tk. (10 - 10x.40)
:Tk.6
Therefore, the company's new cost strucfure will be:
Selling price Tk.40
Less: Variable expenses (Tk.24 - Tk. 4) 20 50%
Contribution margin Tk.20 s0%
Break even point in units : Tk. (30,000x2 +42,000yTk. 20
: 5,100 units
Question No.4
(a) Briefly discuss the purpose of accounting standards. 3
(b) Write the challenges faced by the professional accountants in Bangladesh in implementing
accounting standards. 5
(c) What are the various professional services that are rendered by a professional accountant in
public practice in Bangladesh? 3
Answer to Question No.4
(a) The basic purpose of accounting standards is to identify proper accounting practice for the
benefit of preparers, auditors and users of financial statements. Accounting standards create a
cofirmon understanding between the users and preparers of financial statements on how
particulars items should be recognrzed, measured and disclosed. Financial statements are
expected to comply with applicable accounting standards other than some exceptional cases.
Page 134
rc0%

35. (b) The challenges faced by the professional accountants in Bangladesh in implementing
accounting standards are as follows:
Adoption of accounting standards means a complete set of different reporting standards has
to bring in. The awareness of these reporting standards is still low among the stakeholders i.e.
management, shareholders and regulators etc. To bring a full awareness of these standards
among these parties is a complex task.
Implementation of standards entails incremental costs to reporting entities in ensuring
compliance with accounting standards through the employment of appropriately eligible
personnel for the preparation of Financial Statements. Many companies are not willing to
bear these costs.
Standards are often inflexible which also pose a challenge in implementation of accounting
standards.
(c) A professional accountant in public practice in Bangladesh renders the following
professional services :
- Accounting
- Auditing and assurance
- Taxation
- Management consulting
- Investment business
- Corporate finance
- Forensic accounting
- Financial Management
- Company Secretarial services
- Information and Communication technology
Question No.5
Define delegation of power. Discuss the advantages of delegation and problems related to poor
delegation of power and Explain Likart's four leadership styles with comments on the best
leadership style. 3+3+5
Answer to Question No. 5
Delegation of power refers to giving a subordinate responsibility and authority to carry out a
given task while the manager retains the overall responsibility.
Advantages of delegation:
- Manager can be relieved of less important activities.
- It enables decisions to be taken nearer to the point of impact and without the delays caused by
reference upwards.
- It gives business a chance to meet changing conditions more flexibly.
Page | 35

36. - It makes subordinate's job more interesting.
- It allows for career development and succession planning.
- It brings together skills and ideas.
- It allows performance appraisal.
- It fosters team building.
Problems of poor delegation:
- Too much supervision can waste time and be demotivating for the subordinates.
- Too little supervision can lead to subordinates feeling abandoned and may result in an inferior
outcome if they are not completely happy with what they are doing.
- Manages tries to delegate full responsibility that is s/he uses delegation to 'pass the buck'.
- Manager delegates only boring work.
- Manager tries to delegate impossible tasks because s/he can not do it themselves.
- Managers may not delegate enough because they fear their status is being undermined and they
want to stay in control.
- Subordinates may lack skills and training required.
The 4(four) leadership style identified by Likert are as follows:
(i) Exploitative - authoritative
- Decisions are imposed by managers on subordinates and Subordinates are motivated
by threats
- Authority is centralized with minimal delegation
- There is little communication between superior and subordinate and there is no
teamwork
(ii) Benevolent - authoritative
- Leadership is by a condescending form of master - servant relationship and
subordinates are motivated by rewards
- There are some degree of delegation of responsibility
- Little communication between superior and subordinate and there is relatively little
teamwork
(iii) Consultative
- Superiors have substantial but not complete trust in their subordinates
- Motivation is by rewards and some involvement in objective setting
- There is an increasing degree of delegation
Page | 36

37. Some communication between superior and subordinate and there is moderate
amount of team work
(iv) Participative
Superiors have complete confidence in subordinates
Motivation is by rewards and participation in objective setting
There is high degree of delegation
Much communication between superior and subordinate and substantial amount of
team work.
Question No.6
What are the causes of market failure? Write the significance of price elasticity of demand and
list the factors influencing price elasticity of demand for a commodity. 2+5+5
Answer to Ouestion No. 6
Causes of market failure:
Market failure is a situation in which a free market mechanism fails to produce the most efficient
(the 'optimum') allocation of resources. Market failure is caused by a number of factors:
. Market imperfection with one, or a few, suppliers exerting market power
'Externalities
. The existence of public goods and benefits that are gained by third parties
. Economies of scale. Large-scale production leads to reductions in costs per unit, which are not
matched by price reductions. This leads to above-normal profits and enables large companies to
dominate smaller companies.
Significance of price elasticity of demand:
The price elasticity of demand is relevant to total spending on a good or service, which in turn is
a matter of interest to suppliers, to whom sales revenue accrues, and government, which may
receive a proportion of total expenditure in the form of taxation.
o When demand is elastic, an increase in price will result in a fall in the quantity demanded,
and total expenditure will fall.
o Demand inelasticity above zero means an increase in price will still result in a fall in
quantity demanded, but total expenditure will rise.
o With unit elasticity, expenditure will stay constant given a change in price.
Page | 37

38. Information on price elasticity of demand therefore indicates how consumers can be expected to
respond to different prices, so the effect of different prices on total revenue and profits can be
predicted.
Factors influencing price elasticity of demand:
1. Availability of substitutes
The more substitutes there are for a good, especially close substitutes, the more elastic will be the
price elasticity of demand for the good. For example, in a supermarket, a rise in the price of one
vegetable such as carrots or cucumbers is likely to result in a switch of customer demand to other
vegetables, many vegetables being fairly close substitutes for each other. This factor is probably
the most important influence on price elasticity of demand.
2. The time horizon
Over time, consumers' demand patterns are likely to change, and so if the price of a good is
increased, the initial response might be very little change in demand (inelastic demand) but then
as consumers adjust their buying habits in response to the price increase, demand might fall
substantially. The time horizon influences elasticity largely because the longer the period of time
which we consider, the greater the knowledge of substitution possibilities by consumers and the
greater provision of substitutes by suppliers.
3. Competitors' pricing
If the response of competitors to a price increase by one business is to keep their prices
unchanged, the supplier raising its prices is likely to face elastic demand for its goods at higher
prices. If the response of competitors to a reduction in price by one supplier is to match the price
reduction themselves, the supplier is likely to face inelastic demand at lower prices.
4. Luxuries and necessities
Necessities tend to have a more inelastic demand curve, whereas luxury goods and services tend
to be more elastic.
5. Percentage of income spent on a good
The smaller the percentage of an individual's income spent on purchasing the good, the more
inelastic demand will be.
6. Habit-forming goods
Goods such as cigarettes and alcohol tend to be inelastic in demand. Preferences are such that
habitual consumers of certain products become desensitised to price changes.
Question No.7
(a) Write about an audit committee and its constitution. 4
(b) What is internal control? What constitutes a sound system of internal control? 6
Page | 38

39. Answer to No.7 (a)
Audit committee:
An Audit Committee is a sub-committee of the Board of Directors. The Audit Committee assist
the Board of Directors in ensuring that the financial statements reflect true and fair view of the
state of affairs of the company and in ensuring a good monitoring system within the business.
The Audit Committee is generally responsible to the Board of Directors. The duties of the Audit
Committee are usually set forth in writing.
Constitution of Audit Committee:
(D The Audit Committee should be composed of at least 3 (three) members
(ii) The Board of Directors should appoint members of the Audit Committee who should
be directors of the company and should include at least one independent director.
(iii) When the term of service of the Committee members expires or there is any
circumstance causing any Committee member to be unable to hold office until
expiration of the term of service, thus making the number of the Committee members
to be lower than the prescribed number of 3 (three) persons, the Board of Directors
should appoint the new Committee member(s) to fill up the vacancy(ies) immediately
or not later than 1 (one) month from the date of vacancy(ies) in the Committee to
ensure continuity of the performance of work of the Audit Committee.
Answer to Question No. 7 (b)
Internal control: A process designed to provide reasonable (not absolute) assurance regarding
the achievement of objectives via:
. Effective and efficient operations
. Reliable financial reporting
. Compliance with applicable laws and regulations
In constituting a sound system of internal control for the company, the board's deliberations
should take a risk-based approach, including:
. The nature and extent of the risks facing the company
. The extent and categories of risk which it regards as acceptable
. The likelihood of the risks concerned materialising
. The company's ability to reduce the incidence and impact on the business of risks that do
materialise
The costs of operating particular controls relative to the benefit thereby obtained in
managing the related risks
Page | 39

40. Internal control system should be constituted in such a way so that it reduces the possibility
of
- Poor judgement in decision making
- Human error
- Deliberate circumvention of control processes by employees and others
- Management overriding controls
- Occurrence of unforeseen circumstances
Finally, the system of internal control should be embedded in the operations of the company and
should form part of its culture.
Question No. 8
The financial statements of XYZ Company for the year ended December 31,2015 are as follow:
XYZ Company - Income Statement
For the Year Ended December 31,2015
Taka
Sales revenue
Less: Cost of goods sold
Gross profit
Less: Operating expenses
Selling expense
General and administrative expenses
Lease expense
Depreciation expense
Total operating expense
Operating profit
Less: Interest expense
Net profit before tax
Less: Tax
Net profit after tax
160,000
106.000
54.000
16,000
10,000
1,000
10.000
37"000
17,000
6.100
10,900
4.360
6.540
Page | 40

41. XYZCompany - Balance Sheet December 31, 2015
Assets Tk.
Cash
Marketable securities
Accounts receivable
Inventories
Total current assets
Land
Buildings and equipment
Less: Accumulated depreciation
Net fixed assets
Total assets
s00
1,000
25,000
45,500
72 000
26,000
90,000
(38,000)
78,000
Eqpqq
Liabilities and Stockholders' Equity
Accounts payable
Notes payable
Total current liabilities
Long-term debt
Common stock
u
Retained earnings
Total liabilities and stockholders' equity
22,000
47,000
69,000
22,950
31,500
26,550
uq99q
The firm's 3,000 outstanding shares of common stock closed at a price of Tk.25 per share as at
3t-12-201,5
Required:
a. Use the preceding financial statements to complete the following table. Assume the industry
averages given in the table are applicable for both 2014 and20l5- 10
Ratio
Current ratio
Quick ratio
Inventory turnover
Average collection period
Debt ratio
Times interest earned ratio
Gross profit margin
Net profit margin
Return on total assets
Return on common equity
Market/book ratio
Industry average
1.80
0.70
2.50
37.5 days
65%
3.8
38%
3.5%
4.0%
9.5%
1.1
Actual20L4
1.84
0.78
2.59
36.5 days
67%
4.0
40%
3.6%
4.0%
8.0%
t.2
Actual2015
Page | 41

42. b. Analyze XYZ Company's financial condition as it is related to (1) liquidity, (2) activity, (3)
debt, (4) profitability, and (5) market. Summarize the company's overall financial condition. 5
Answer to Question No. 8
a.
Current ratio
Quick ratio
Inventory fumover
Average collection period
Debt ratio
Times interest eamed
Gross profit margin
Net profit margin
Return on total assets
Return on common equity
Market/book ratio
Ratio Analvsis
XYZ Comp"any
Industry
Average
1.80
.70
2.s0
37 days
6s%
3.8
38%
3.5%
4.0%
9.5%
1.1
Actual
20t4
Actual
20t5
1.84
.78
2.59
36 days
67%
4.0
40%
3.6%
4.0%
8.0%
r_2
t.04
.38
2.33
57 days
6t.3%
2.8
34%
4.1%
4.4%
tL.3%
1.3
b. (1) Liquidity: XYZ Company's liquidity position has deteriorated from 2014 to 2015 and is
inferior to the industry average. The firm may not be able to satisfy short-term
obligations as they come due.
(2) Activity: XYZ Company's ability to convert assets into cash has deteriorated from 2014
to 2015. Examination for the cause of the 2l-day increase in the average collection period
is warranted. Inventory tumover has also decreased for the period under review and is
fair compared to industry. The firm may be holding slightly excessive inventory.
(3) Debt: XYZ Company's long-term debt position has improved since 2014 and is below
average. XYZ Company's ability to service interest payments has deteriorated and is
below industry.
(4) Profitability: Although XYZ Company's gross profit margin is below its industry
average, indicating high cost of goods sold, the firm has a superior net profit margin in
comparison to average. The firm has lower than average operating expenses. The firm
has a superior return on investment and return on equity in comparison to the industry
and shows an upward trend.
(5) Market: XYZ Company's increase in their market price relative to their book value per
share indicates that the firm's performance has been interpreted as more positive in 2015
than in 2014 and it is a little higher than the industry.
overall, the firm maintains superior profitability at the risk of illiquidity
management of accounts receivable and inventory is warranted.
Page | 42
Investigation into the

43. MANAGEMENT INFORMATION
Nov-Dec 2016
Question No. 1
Tamim & Company gathered the following information for the year ended December 31,2015
Units produced 45,000
Units expected to be produced 45,000
Units sold 43,200
Direct labour Tk.137,200
Direct materials used Tk.126,400
Fixed selling and administrative expenses Tk. 51,000
Variable selling and administrative expenses Tk. 58,000
Fixed manufacturing overhead Tk. 83,250
Variable manufacturing overhead Tk. 73,900
Direct materials inventory, December 31,20T5 0
Direct materials inventory, December 3I,2014 0
Work-in-process inventory, December 31,2015 0
Work-in-process inventory, December 3I,2014 0
Finished goods inventory, December 31,2014 0
Required:
a) Under absorption costing, what is the cost of the finished goods inventory on December 31,
20t5? 3
b) Under variable costing, what is the cost of the finished goods inventory on December 31,
32015?
c) Why is absorption costing more widely used than variable costing? 4
Page | 43

44. Answer to Ouestion No. 1
a) (CtJ 126,400 + CU 137,200 + CU 73,900 + CU 83,250)145,000: CU 9.35
CU 9.35 x 1,800: CU 16,830
b) (cu t26,400 + cu 137,200 + cU 73,900)145,000: cu 7.50
CU 7.50 x 1,800: CU 13,500
c) Reasons:
l) Variable costing is not allowed for tax purposes, but absorption costing is allowed.
2) Yaiable costing is not allowed for external reports as it is not supported by
lnternational Accounting Standards, but absorption costing is allowed.
Question No. 2
(a) A wholesaler had an opening inventory of 750 units of item X valued at Tk. 80 each on I
March.
The following receipts and sales were recorded during March.
4 March Received 180 units at a cost of Tk. 85 per unit
18 March Received 90 units at a cost of Tk. 90 per unit
24March Sold 852 units at a price of Tk. I l0 per unit
Using the weighted average cost method of valuation, what was the cost of item X sold
on24 March? 5
(b) When opening inventories were 8,500 litres and closing inventories 6,750litres, a firm
had a profit of Tk. 62,100 using marginal costing.
Assuming that the fixed overhead absorption rate was Tk. 3 per litre, what would be the
profit, using absorption costing? 5
Answer to Ouestion No.2:
a) Weighted average cost per unit:
750 units X Tk. 80
180 units X Tk. 85
90 units X Tk. 90
60,000
15,300
8,100
1,020 units Tk.83,400
Weighted average cost per unit : Tk. 83,40011,020
: Tk. 81.76
: Tk. 81 .76X 852 units
: Tk. 69,660
Cost of units sold on24 March
Page | 44

45. b) Difference in profit:
: (8,500 - 6,750)X Tk. 3 : Tk. 5 250
Absorption costing profi t
: Tk. 62,100 - Tk. 5 250
: Tk. 56,850
Since inventory levels reduced, the absorption costing profit will be lower than the
marginal costing profit.
Question No.3
(a) "Unused capacity should be treated as a general cost to be shared across all product lines."
Do you agree? Explain. 4
(b) Dilon, Inc. manufactures Cell Phone Charger. Currently the company uses a plant-wide rate
for allocating manufacturing overhead costs. The plant manager believes it is time to refine the
method of cost allocation and has the accounting department to identify the primary production
activities and their cost drivers:
Activities cost driver Allocation Rate
Material handling Number of parts Tk. 4 per part
Assembly Labour hours Tk. 40 per hour
lnspection Minutes at inspection station Tk. 6 per minute
The current traditional cost method allocates overhead costs based on direct labour hours using a
rate ofTk. 400 per labour hour.
Required:
(1) What are the manufacturing overhead costs per Charger assuming the traditional cost method
is used and a batch of 500 Chargers are produced? The batch requires 1,000 parts, 10 direct
labour hours, and 15 minutes of inspection time. 4
(2) What are the manufacturing overhead costs per Charger assuming an activity-based costing
method is used and a batch of 50 Chargers are produced? The batch requires 100 parts, 6 direct
manufacturing labour hours and 2.5 minutes of inspection time. 4
Answer to Ouestion No.3 (a)
Do not Agree.
Explanation: In general, unused capacity is not assigned to product lines. However, if the
capacity was acquired to meet anticipated demands from a particular customer or a particular
market segment, the costs of unused capacity due to lower-than-expected demands can be
assigned to the person or organizational unit responsible for that customer or segment. Such an
assignment is done on a lump-sum basis to the organizational unit; it should not be driven down
to the products actually produced during the period in the unit.
Page | 45

46. Question No.4
(a) A firm incurred atotal adverse labour variance of Tk.750. The standard pay rate was Tk.7.50
per hour, while the actual pay rate was Tk. 8 per hour. The labour rate variance was Tk.2,250.
Calculate the budgeted hours for labour? 7
(b) The budgeted sales revenue of QC Ltd for August was Tk. 210,000 with an estimated selling
price of Tk. 84 and estimated variable cost per unit of Tk. 70. Actual sales in August were 2,650
units, amounting to Tk. 219,950 revenue with a total resultant profit of Tk. 35,775. Calculate the
sales volume variance? g
Answer to No.4:
(a) The flexed budgeted hours for labor are the standard hours allowed for the actual production.
(b) Labor rate variance : Actual hours worked X difference in labor rate
2,250 : Actual hours worked X (Tk.S.00 - Tk. 7.50)
Actual hours worked : 4,500
Since total labor variance :
So, Tk. 7s0 (A)
Efficiency variance
I,500 (F) :
Efficiency variance * rate variance
Efficiency variance + Tk.2,250 (A)
Tk. 1,500 (F)
Saving in labor hours compared with standard X standard
rate per hour
Tk. 1,500/Tk.7.50
200 hours
2,500 units
2,650 units
Saving in labor hours
Therefore, Standard hours for actual production:
: 4,500 hours worked + 200 hours saved
: 4,700 hours
(c) Budgeted sales volume (Tk. 210,000/Tk. 84)
Actual sales
Sales volume variance in units 150 units (F)
per unit (Tk. 84-i'Lk. 70) X Tk. 14
Sales volume variance
Standard
Page | 46
Tk. 2,100 (F)
Answer to Ouestion No.3 (b)
(1) CU 400 + 10LH: CU 8.00 per Charger
(2) [(100 parts XCU 4) + (6LH X CU 40) + (2.5 Inspection Hour XCU 6)] + 50Units : CU 13.10
per Charger

47. Question No. 5
(a) "Managers who use a historical-cost accounting system look backward at what something
cost yesterday, instead of forward to what it will cost tomorrow." Do you agree? Why? 1
(b) The following information pertains to Zafar Corporation:
Month
July
August
September
October
November
December
Sales (Tk.)
40,000
30,000
20,000
50,000
60,000
70,000
Purchases (Tk.)
20,000
15,000
10,000
25,000
30,000
35,000
20%
50%
28%
2%
Cash is collected from customers in the following manner
Month of sale
Month following the sale
Two months following sale
Amount uncollectible
' Thirty percent of purchases are paid for in cash in the month of purchase, and the balance is
paid the following month. A 2% discount is allowed on purchases paid for in the month of
purchase.
' Labour costs equal 20% of sales; other operating costs of Tk.5,000 per month including
Tk.2,000 of depreciation. Both are paid in the month incurred.
' The cash balance on October 1 is Tk.4,300. A minimum cash balance of Tk.4,000 is required
at the end of the month. Money is borrowed in multiples of Tk.1,000.
' The company will issue Tk.6,000 of common stock and pay Tk.10,000 as dividends in
October.
' There is no debt outstanding at October 1.
Required:
Prepare a projected cash flow statement in good form for the month ended October 31. 10
Page | 47

48. Answer to No.5 (a):
There is some truth to this statement. However, using a historical cost accounting system with
budgets is not backward looking. Budgets force managers to plan for the future, including
predicting future prices.
Answer to No.5 ft):
Cash Inflows:
Cash collections from customers:
August (0.28 x CU 30,000)
September (0.50 x CU 20,000)
October (0.20 x CU 50,000)
Total
Cash Outflows:
Cash outflows for operating:
Suppliers
Labor
Operating costs
Total
cu 8,400
10,000
10.000
eu28t00
** cu 14,350
10,000
3.000
cu 21.350
Net cash flows this month
Opening cash
Cash dividends paid
Cash from stock issue
Cash Available
Opening Loan
Borrowing Made
Borrowing Repaid
Ending Loan
Ending cash
cu 1,050
4,300
(10,000)
6"000
1,350
0
3,000
0
3.000
cu 4.350
*xCU 7,350 + CU 7,000: Oct (0.30 x CU 25,000 , .98) + Sept (0.20
" CU 10,000).
Page | 48

49. Question No.6
(a) Distinguish between tax avoidance and tax evasion.
(b) Mehedi is considering the purchase of a machine. Data are as follows:
Cost Tk. 160,000
Useful life 10 years
Expected annual savings in cash operation costs Tk. 33,000
Mehedi's cost of capital is lLoh and its tax rate is 40%o.
Annual straight-line depreciation
Required to compute:
a. the annual net cash flows for the investment. 3
b. the NPV of the project. 3
c. the IRR of the project. 3
(c) Rahim Enterprise can produce any of three products with its current production line. The heat
treating equipment has 400 hours available during any given month. Per unit production, sales
and cost statistics are as follows:
ABC
Sellingprice Tk. 15 Tk.20 Tk. 10
Variable cost Tk. 9 Tk.l2 Tk. 7
Required time in heat treat 1.5 hrs 2.5 hrs. 1.0 hrs
Maximum demand per month 100 100 100
Required:
i. How many of each product should Rahim Enterprise produce and sell? 4
ii. Suppose the selling price of C increases to Tk.12. How many of each product should Rahim
Enterprise produce and sell? 4
3
Pagel49

50. Answer to Ouestion No. 6 (a):
Tax avoidance is the achieving of a reduction in income tax payments through legal means; tax-
evasion achieves the same end through illegal means. Tax avoidance is considered moral; tax
evasion, immoral. Tax avoidance uses the rules of the system (tax laws) in an optimum way; tax
evasion disregards the rules.
Answer to Ouestion No. 6 (b):
a. Annual net cash flows: CU 26,200 [CU 33,000 pretax - 40% x (CU 33,000 - CU 16,000
depreciation)l
b. NPV: Negative CU 11,970 l(CU 26,200 x 5.650) - CU 160,0001
c. IRR: between lUYo and l2Yo [factor of 6.107 (160,000126,200) is between 6.145 and 5.650]
Answer to Ouestion No. 6 (c):
a. 100 A, 100 B, 0 C
A: (CU 15 - 9y1.5 : CU 4.00/hr
B: (CU 20 - 12)12.5: CU 3.20lbr
C: (CU l0 - 7)11.0 : CU 3.00/hr
b. 100 A, 60 B, 100 c
C: (CU 12 - 7)11.0 : CU 5.00/hr
A: (CU 15 - 9y1.5 : CU 4.00lhr
B: (CU 20 - 12)12.5: CU 3.20lht
Question No. 7
100 x 1.5 hrs: 150.0 hrs
100 x 2.5 hrs:250.0
0 (no hours remaining)
100 x 1.0 hrs: 100.0 hrs
100 x 1.5 hrs: 150.0
(400 - 100 - 150y2.5 hrs:60 units
(a) What are some non-financial measures that a company might use in order to motivate
achieving the objective of anticipating future customer needs? 4
(b) The following information relates to Department I of Zaman Company for the fourth quarter.
The total overhead variance is divided into three variances: spending, variable efficienCy, and
volume. Actual total overhead (fixed plus variable) Tk. 178,500
Budget formula Tk. 110,000+ Tk.50 per hour
Total overhead application rate Tk. 1.50 per hour
Actual hours worked 121,000
Standard hours allowed for production 130,000
Required:
Determine the variable efficiency variance in this department during the quarter? 6
Page | 50

51. (c) Huda Enterprise has the following budget and actual results for May:
Budeet Actual
Unit production 9,000 9,600
Direct labour hours 1I,250 I1,550
Materials used, feet 15,750 16,100
Standard labour rate is Tk.12 per hour; standard material price is Tk.4.50 per foot. Actual wages
were Tk.140,250; actual material purchases were 17,500 pounds forTk.l7,160.
Required:
For each of the following variances, determine the amount and the correct direction
(F: favorable, U: unfavorable): 10
i. Material price variance.
ii. Material use variance.
iii. Direct labour rate variance.
iv. Direct labour efficiency variance.
Answer to Ouestion No. 7 (a):
Non-financial measures that a company might use in order to motivate achieving the objective of
anticipating future customer needs include (1) time spent with key customers at targeted
accounts learning about their future opportunities and needs, (2) the number of new projects
launched based on customer input (3) Macro economic indicators and industry growth forecast
and (4) Planned market share growth
Answer to Ouestion No. 7 (b):
Budget allowance for actual hours
[(121,000 x CU .50) + CU 110,000] cu 170,500
Budget allowance for standard hours:
Variable (130,000 x CU.50)
Fixed
Variable efficiency variance
Answer to Ouestion No. 7 (c):
cu 65,000
110,000
cu (4,500)
CU 77,160 - (CU 4.50 x 17,500)
CU 4.50 x (16,100 - U.75 x 9,6001)
CU 140,250 - (CU 12x 11,550)
CU 12 x (1 1,550 - U.25 x 9,6001)
favorable
a. MPV:
b. MUV:
c. DLRV:
d. DLEV:
CU I,590 F
CU 3,150 F
CU 1,650 U
CU 5,400 F
Page | 51
175,000

52. TAXATION.I
Nov- Dec 2016
Question No. I
(a) A professional accountant needs to possess integrity. Explain in brief the term "integrity". 5
(b) Discuss the professional behavior of an accountant. 5
Answer to Ouestion No. I
(a) Integrity: Requires all professional accountants to be straightforward and honest in
professional and business relationships. A professional accountant should not be associated with
any information where he believes that the information:
. Contains a materially false or misleading statement
. Contains statements or information furnished recklessly
. Omits or obscured information required to be included where such omission or obscurity
would be misleading
(b) Professional behavior
Professional behavior: Imposes an obligation on a professional accountant to comply
with relevant laws and regulations and avoid any action that may bring discredit to the
profession.
This includes actions which a reasonable and informed third party, having knowledge of
all relevant information, would conclude negatively affects the good reputation of the
profession.
Professional accountants should be honest and truthful and should not:
Make exaggerated claims for the services they are able to offer, the qualifications they
possess, or experience they have gained
Make disparaging references or unsubstantiated comparisons to the work of others.
Quesfion No.2
What is NBR? Discuss the main functions of NBR.
Page | 52
l0

53. Answer to Ouestion No. 2
National Board of Revenue (NBR) is the highest executive authority. It is statutory body and its
members are appointed by the Government to manage, control and supervise the whole income
tax Department. The NBR is empowered to make necessary rules concerning income tax matters
and is authorized to give any interpretation of any provision in any section of the Ordinance. It
cannot act by issuing any instructions to be construed as interference to the authority of judicial
personnel like the Commissioner of Taxes (Appeals), Appellate Additional Commissioner of
Taxes, Appellate Joint Commissioner of Taxes and the Commissioner of Taxes when they
exercise their judicial powers.
Main functions of NBR
l. To declare any foreign unincorporated association as a company for the purposes of the
Ordinance.
2. To determine a period to be an income year of any person.
3. To delegate powers to the lnspecting Additional Commissioner of Taxes to exercise the
powers of a Commissioner and to the Appellate Additional Commissioner of Taxes to
exercise the powers of a Commissioner (Appeals).
4. To determine the functions of the Director General of Inspection, the Commissioner
(Appeals), the Appellate Joint Commissioner, the Commissioner (LTU), the Inspecting Joint
Commissioner and to determine the jurisdiction of Income Tax authorities.
5. To issue orders, directions or instructions to all officers and other persons engaged in the
performance of any functions under the Ordinance.
6. To determine place of assessment when jurisdiction of an assessee falls more than in one zone.
7. To direct to make payment of tax deducted at source within the time specified.
8. To recognize and authorize Chartered Accountant, Cost and Management accountant,
income tax practitioner and members of other accounting bodies for appearance in income
tax matters as authorized representative of the assessee.
9. To take disciplinary action against any authorized representative in case ofprofessional misconduct.
10. To allow tax holiday or tax exemption to approved undertakings.
11. To accord and withdraw recognition to Super Annuation Fund, Pension Fund and Gratuity
Fund.
l2.To reward employ of the tax department or any other person for fumishing information
leading to tax evasion.
Page | 53

54. Question No.3
(a) What is "Tax Day" as defined in Clause 62A of Section 2 of Income Tax Ordinance 1984
inserted by the Finance Act20I6? 6
(b) What is the "Tax Day" of a "Company" for the year ended on 31 December 2015 and 30
June 2016? 4
Answer to Ouestion No.3
(a) "Tax Day" means:
(i) in the case of an assessee other than a company, the thirtieth day of November
following the end of the income year;
(ii) in the case of a company, the fifteenth day of the seventh month following the end
of the income year;
(iii) the next working day following the Tax Day if the day mentioned in sub-clauses
(i) and (ii) is a public holiday.
(b) For the year ended 31 December 2015, the tax day of a company is 15 July 2016 and for
the year ended 30 June 2016, the tax day of a company is 15 January 2017.
Question No.4
(a) Discuss the Taxation Implications of Resident and Non-resident? 5
(b) Mr. Lee, a Taiwanese National first came to Bangladesh on 12 April 2013 and stayed for 7
months on a contract service. He left Bangladesh thereafter, but again came back on a consulting
assignment on 19 January 2014 and after completing the work he left Bangladesh on 10 October
2014.
Determine the "Residential Status" of Mr. Lee and the relevant "Assessment Years" for
assessment of his incomes 5
Answer to Ouestion No. 4
(a) Taxation Implications of Resident and Non-resident
Determination of residential status of an assessee has a significance bearing on the tax
liability as incidence of income tax varies according to the residential status of an
assessee. In this regard we can consider the following issues:
(i) To determine the amount of total income:
Determination of total income is different for residents and non-residents. A resident
considers global income as his total income but a non-resident does not consider income
from other countries in his total income.
Page | 54

55. (iD To determine minimum limit of taxable income:
A resident and non-resident Bangladeshi has to pay tax if his total taxable income is
more than Tk. 250,000 as per the Ordinance (in case of women, elderly citizens being
more than 65 years old, the limit is Tk. 300,000 and disable persons the limit is Tk.
375,000). But for a non-resident foreigner, such minimum limit is not applicable.
(iiD Tax rates:
For a resident and non-resident Bangladeshi, tax is calculated using the rates applicable
for various levels of income. Such as Uo/ofor the first Tk. 250,000, 10%for the next Tk.
300,000. But a non-resident foreigner has to pay tax at maximum rate of 30Yo.
(lv) fncome tax rebate:
A resident and non-resident Bangladeshi assessee gets income tax rebate on investment
allowance and on tax exempted income from gross tax liability. But, for a non-resident
foreigner, no tax rebate is applicable.
(v) Tax liability:
The average tax rate applicable for a resident and non-resident Bangladeshi is less than
that of a non-resident foreigner since tax is calculated using different lower tax rates
(such a l0%o, l5o ,20o/o,25% & 30%). But a non-resident foreigner has to pay tax at
maximum rate of 30%o.
Thus, determination of residential status of an assessee has a significant bearing on the
tax liability as total income, taxable income and tax rate are found to vary according to
the residential status ofan assessee.
(b) The stay of Mr. Lee in Bangladesh during different periods may be analyzed as under :
Income
Year
Period of staying in
Bangladesh
Assessment
year
Number of
days
Residential Status
2012 -2013
12 April 2013 to
30 June 2013 2013-2014
80
Non-resident
(Note - a)
20t3 -20t4
1 July 2013 to
l lNovember 2013
19 January 2014to
30 June 2014
2014-2015
134
164
Resident
(Note - a)
298
20t4- 2015
1 July 2014to
10 October 2014 20rs-20r6
t02
Resident
(Note - b)
Page | 55

56. Notes:
(a) According to the provisions of Section 2(55) (a), an individual would be resident in
Bangladesh in respect of any income year, if he has been in the country:
for a period of, or periods amounting in all to, one hundred and eighty two days or more in that
year; or
for a period of, or periods amounting in all to, ninety days or more in that year having previously
been in Bangladesh for a period of, or periods amounting in all to, three hundred sixty five days
or more during four years preceding that year.
(b) Analyzing the staying period of Mr. Lee in Bangladesh during the various financial years, it
is ascertained that during the income year relevant for the assessment year 2015 - 2016, Mr. Lee
stayed for 102 days which is more than the minimum requirement of 90 days. He was also in the
country for periods amounting in all to 378 days (80 + 298) during the four years preceding the
income year 2014 - 2015. Thus, Mr. Lee would be treated as a resident for the assessment year
20ts -2016.
Question No.5
d/s. John Morris Inc. is a Multinational Company doing Business in Bangladesh Branch. The
Company filed return of income for the assessment year 2016-2017 showing income of Tk.
3,000,000. Examination of the audited statement of accounts filed with the return of income
revealed the following:
(i) Salary includes Tk.330,000 paid to a Director working at the Head Office at California. He
has never visited Bangladesh and no tax, as such, has been deducted at the time of making the
payment.
(ii) Head Office Expenses charged Tk.1,100,000.
(iiD A fine of Tk.11,000 paid for violation of customs law charged to P & L Account.
(iv) One Nissan Car Purchased for Tk.4,500,000 during the year. Depreciation @20% charged
on the full cost of the vehicle.
(v) The Company sold a Motor Vehicle for Tk.465,000. Original Cost of the Vehicle was Tk.
525,000 and the Written Down Value was Tk.325,000. This has not been reflected in the
accounts.
(vi) Tk.15,000 donated to a non-recognized school.
(vii)Royalty paid Tk.300,000.
Required:
From the above information compute the total income of the Company for tax purpose. 10
Page | 56

57. Answer to Ouestion No. 5
I[/S. John Morris Inc.
Bangladesh Branch
Computation of total income
Assessment Year: 2016-2017
Sl. No. Particulars Taka
Total income (as per return filed) 3,000,000
(a) Accounting Depreciation (iv) (20o/o of 4,500,000)
Less : Tax Depreciation as per 3'd Schedule :
o Rate is 20%o (Para - 3)
o Maximum allowable cost of a vehicle is Tk. 25lac
(Para-Il)
o 20%oof25lac
900,000
(500,000)
400,000
(b) Head Office Expense (II)
Less : Allowable upto 10% of net profit disclosed
ISection-30(g)]
10% of Tk. 3,000,000
l,loo,ooo
€qqpqq)
900,000
(c) Royalty Paid (VII)
Less : Allowable upto 8% of net profit disclosed
ISection-30(h)]
8% of Tk. 3,000,000 (assuming net profit)
300,000
(240,000)
60,000
Salary Paid to a Director at Head Office (I)
[Not allowable as expense as no income tax was
deducted or paid as required u/s 30 (a)l
330 ,000
330,000
Fine for Violation of customs law (IIf
(No fine or penalty is allowable as business expense)
11,000
11,000
Donation to a non-recognized school (Vf
(Not allowable as expense as the school is not
recognized by the NBR for this purpose)
15,000
15,000
Profit on sale of a motor car (Not shown in A/C) :
Sales Price
Less : Wriffen down value
456,000
(325,000)
Adjusted total income
140,000
Page | 57
(d)
(e)
(f)
(e)
4.756.000

58. Question No.6
Mr. Siddiquee is the Finance Manager of Sunflower Company Ltd. Following is the statement of
his income and expenditure for the year ended on 30 June 2016:
(a) Salaries:
Basic Salary Tk.40,000 p.m. House Rent Allowance Tk.10,000 p. m. Entertainment Allowance
Tk. 3,000 p.m. and Medical Allowance Tk.500 p.m. As Festival Allowance, he gets an amount
equal to two months " basic salary. His Contribution to Recognised Provident Fund is 10% of his
Basic Salary. His employer also contributes the same amount.
(b) House Property
Mr. Siddiquee has House. Half of it is let out at Tk.20,000 p.m.He resides in the remaining half.
The expenses of the House are Municipal Tax Tk.15,000, Repair Tk.18,000, Collection Charge
Tk.2,000 and Insurance Tk.4,000.
(c) Agricultural Income
(i) Sale of agri-products Tk.40,000.
(ii) Cash rentals of agricultural land Tk.20,000.
(d) Business Income
Income from Sole Proprietorship Business of Tk.50,000 (Last year's Loss was Tk.10,000).
(e) Other Income
Interest on Saving Instruments Tk.40,000 (Gross), on which 5%o income tax was deducted at
source (TDS) u/s 52D of ITO 1984.
Interest on Bank Deposit Tk.23,400 [Net) of l0% TDS, Dividend Tk.75,000 from Mutual Fund
and Winning from lottery a TV valued Tk.50,000 for which 20%o tax was collected at source u/s
55.
Following are his expenditures and investments for the year:
Family expenses Tk.250,000, Premium for Life Policy Tk.15,000, Furchase of Shares Tk.
35,000, Purchase of Books Tk.2,000, Deposit to the Deposit Pension Scheme Tk.2,000 and
Donation to Zakat Fund Tk. 15,000.
Find out Total Income and Tax to be paid by Mr. Siddiquee mentioning the assessment year. l0
Page | 58

59. Answer to Ouestion No. 6
Mr. Siddiquee
Computation of total income
Assessment year 2016 -2017
Income year 2015 -2016
A. Computation of total income
I Income from Salaries
Basis Salary (12 x 40,000) 480,000
36,000
80,000
48,000
House Rent Allowance (12 x 10,000)
Less: Exempted
(50% of the basic i.e. Tk. 240,000 or Tk. 25,000 per
month i.e. Tk. 300,000, whichever is less is exempted)
120,000
120,000
Entertainment Allowance (12 x 3,000)
Less: Exempted
(Assumed that this is not included with the Value of
Free Tea, Coffee, Beverage or the like thereof provided
at the office premises during the course of work)
36,000
Medical Allowance
Less : Exempted
(10% of the basic i.e., Tk. 48,000 or Tk. 120,000
annually, whichever is less is exempted)
6,000
6,000
Festival Bonus (2 x 40,000)
Employers' Contribution to RPF (10% x 480,000)
Sub-Total 644,000
Heads Taka
b Income from House Property
Annual Value (% let out) (12 x 20,000) 240,000
Less : Repairs etc. (%of 240,000) (60,000)
lrss : Municipal Tax (% of Tk. 15,000) (Only for let out
pa.rt)
(7,500)
Less : Insurance (% of Tk. 4,000) (Only for let out
part)
(2,000)
170,500
Deemed income u/s 19(30) - (Tk. 60,000- Tk. 20,000) 40,000
Sub- total 210,500
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60. c Income from Agriculture
Sale of Agri Products
Less : Cost of Production 60%
(Assumed that no Books of Accounts were maintained)
40,000
(24,000)
16,000
20,000Rentals of Agri Land
Sub-Total 36,000
d Income from Business
Income from Sole Proprietorship
Less : Carry Forward of Last Year's Loss
50,000
(10,000) 40,000
Sub-Total 40,000
E Other Income
Interest on Saving Instruments (Gross) 40,000
50,000
26,000
50,000
Dividend Income From Mutual Fund
Less: Exemption
75,000
(25,000)
Interest on Bank Deposit (23,40019*10)
(Grossed up for 10% TDS)
Winning of TV from Lottery
Sub-Total 166,000
Total Income (a+ b+ c + d+ e) 1,096,500
B Actual Investment and Donations Taka
C Eligible Amount of Investment and Donations
The eligible amount of Investment and Donations for tax rebate would be the lesser of
following:
Premium for Life Policy (LIP) 15,000
Contribution to R. P. F (Self + Employer's) (2 x 48,000) 96,000
Purchase of Shares (Assuming listed with a Stock Exchange of Bangladesh 35,000
Deposit to Pension Scheme (within the limit of 60,000) 2,000
Donation to Zakat Fund 15,000
Total Amount of Actual Investment and Donations 163,000
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61. 50,000 and Interest from Saving instruments of Tk. 40,000).
(TDS on Income from Winning from Lottery u/s 55 and TDS on Interest on Saving
Instruments u/s 52D is the Minimum Tax u/s 82C, and therefore, as per the Section
aaQ)@)(11) as amended by the Finance Act 2016, the Income on which TDS is
minimum tax u/s 82C is not allowable for computation of Eligible Investment)
1,096,500 - 50,000 - 40,000 : Tk. 1,006,500
25Yo Xl,006,500 : Tk. 25,41,625
Therefore, Eligible Amount is actual amount of investment and donations of Tk.
163,000 being lower than Tk. 25,41,625 and Tk. 1.50 Crore.
D Tax Rebate
Tax Rebate as per Section 44 (2)(b) would be Tk. 24,450 being l5o/o of the eligible
amount of investment and donations of Tk. 163,000 as the said amount is within the
limit of first slab of eligible amount of Tk. 250,000.
E Computation of tax liabilities (As per the Finance Act 2016) on regular income
Regular income: (1,096,500 - 40,000) : Tk. 1,056,500
Particulars Tax Rate
Amount in
Taka
On first Tk. 250,000 0% Nil
40,000
60,975
On Next Tk. 400,000 10%
On the balance Tk. 406,500 t5%
Tax on regular income of Tk. 1,0561500 100,975
Tax on saving instrument income of Tk.40,000 5% 2.000
Total tax on total income of Tk. 1,0961500 r02.9ts
Less : Tax Rebate on eligible investment &donations (24,450)
Tax After Rebate 78,525
Less : Tax Deducted as Source on Saving instruments 5% of Tk.40,000 (2,000)
(2,600)
(10,000)
Less : Tax Deducted as Source on Bank Interest 10% of Tk. 26,000
Less : Tax Deducted at Source on Winning from
Lottery
20o/o of Tk 50,000
Net Tax Liability 63,925
Page | 61

62. Question No. 7
Write the withholding ratelrates of tax and withholding authority of following payment:
i. Payment on account of interest on securities.
ii. Payment to contractors and sub-contractors.
iii. Payment on indenting commission.
iv. Fees for Directors.
v. Fees for Professional and Technical services.
vi. Payrnent to clearing and forwarding agents.
vii. Payment against Transfer of property.
viii. Payment against Divideird.
ix. Payment to non-resident.
x. Payment against advertisement.
Answer to Ouestion No.7
Withholding ratelrates of tax and withholding authority are as follows:
l0
sl. Head of withholding Withholding
authority
Withholding ratelrates of
tax
I Interest on securities Any person responsible
for issuing any security
t0%
2 Payment to contractors
& sub-contractors
Any person responsible
for making such
payment
Upto Tk.200,000/- .. Nil
From 200,000 to Tk. 500,000
---- t%
From 500,001 to
Tk.1,000,0001- ...2%
Froml,000,00l
toTk.2,500,000/- .. .3%
From 2,500,001 to
Tk.10,000,000 ...4%
From 10,000,001 to
Tk.50,000,000 ...5%
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63. From 50,000,001 to
Tk.100,000,000 . ..6%
Where amount exceeds Tk.
100,000,000...... .. 7%
3 Payment on indenting
commission
Any person responsible
or shipping agency
commission.
Up to base amount of Tk. 25
lakh ------ 60/o
Where base amount exceeds
Tk.25lak*r . .......8%
4 Fees for Directors The principal officer of
a company of the chief
executive of anyNGO
or trust responsible for
making such payment
Up to base amount of Tk. 25
lakh ------ 10%
Where base amount exceeds
Tk.25lakh . ....... 12%
5 Fees for professional
oftechnical services
Up to base amount of Tk. 25
lakh ------ 10%
Where base amount exceeds
Tk. 25 laktr . ....... 12%
6 Clearing and
forwarding agents
Commissioner of
Customs
r0%
7 Transfer of property Any person responsible
for registering any
document of a person
5% of deed value up to 31"
August, 2009 and
2oh of deedvalue from l't
September,2009 in case of
property situated in any city
corporation, paurashave or
cantonment board.
l% of deed value from
l'tSeptember,2009 in case of
property situated in areas
other than any city
corporation, paurashave or
cantonment board.
Page | 63
Do

64. 8 Advertisement of
newspaper of
magazine or private
television channel
The Government or any
other authority,
corporation body or
any company or any
banking company or
any insurance company
or any cooperative
bank or any NGO or
any university or
medical college or
dental college or
engineering college
responsible for making
such payment.
4%
9 Dividends The principal officer of
a company
Resident/non-resident
Bangladesh company ....
20%
Resident/non-resident
Bangladesh person other
than company .. .. l0%
Non-resident (other than
Bangladeshi non-resident)
....25%
10 Income of non-
residents
Any person responsible
for making such
payment.
Withholding tax rates are
varies from 5.25o/o to 30oh
depending on the nature of
services.
Question No. 8
(a) How Advance Tax is computed U/S 65 and is payable U/S 66 of Income Tax Ordinance
1984? s
(b) Bengal (Pvt.) Ltd. (Applicable Tax Rate is 35%) computed its Advance Tax Payable for the
Income Year 2015 - 2016 based on the latest assesseed income of Tk.500,000 for the Income
Year 2013 - 2014. Assessment for the Income Year 20L4 - 2015 was completed on 15 April
2016 at a Loss of Tk. 600,000. Calculate the amount of advance tax to be paid by Bengal (Pvt.)
Ltd. in each quarter for the Assessment Year 2016 - 2017 . 5
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