Suggested Answers-Certificate Level (May-June 2017)

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Suggested Answers
Knowledge Level
May-June 2017
The Institute of Chartered
Accountants of Bangladesh

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SUGGESTED ANSWER
CA Professional Stage
Knowledge Level
The Institute of Chartered Accountants of Bangladesh
The learning materials have been prepared by the Institute of Chartered Accountants of Bangladesh
First edition October 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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Knowledge Level
May-June 2017
Contents
Pages
1. Assurance ……………………………………………....................……………… 5
2. Accounting ………………………………………………………...................….. 14
3. Business & Finance ………………………………………………….................... 23
4. Management Information ………………………………………...................…… 32
5. Taxation-I ………………………………………………………...................…… 41
6. Business & Commercial Law ………………………………………..................... 50
7. IT Knowledge ………………………………………………………..................... 58

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ASSURANCE
May- June 2017
Question No. 1
The term assurance has started gaining popularity in the auditing profession in our country. Not having
enough clarity on the context, many people use this term in misleading ways.
a) How many types of assurance engagements are identified in the International Framework for
Assurance Engagements? 3
b) You, being a professional accountant in practice, have been approached by Rahin who wants to
invest in Bengal Foods Ltd. He has asked you for assurance whether the recent financial statements
of the company are reliable basis for him to make his investment decision.
As you have accepted the engagement, identify the key elements of an assurance engagement in this
scenario. 6
c) In an assurance engagements there are several subsidiary benefits available to other parties, although
the assurance report is not addressed to such parties. Briefly describe these subsidiary benefits. 6
d) Before accepting an engagement an auditor must carry out minimum procedures to make sure that he
would be able to accomplish the whole assignment in a very high quality professional standard.
What are those procedures an auditor must carry out? 5
Answer Q. No. 1 (a)
The International Framework for Assurance Engagements has identified two types of assurance
engagements as follows:
 Reasonable assurance engagement: Under this type of engagements sufficient and appropriate
evidences are collected and the opinion is given in positive form.
 Limited assurance engagement: Similarly, under this type sufficient and appropriate evidences are
collected too but relatively at lower level and the opinion is given in negative form.
Answer Q. No. 1 (b)
The key elements involved in an assurance engagement are as follows:
i) Three party involved:
 Rahin, the intended user of the service
 The respective professional accountant in practice
 The directors of Bengal Foods Ltd. as they produce the financial statements. The noteworthy
point is that the directors are the responsible party to prepare financial statements.
ii) Subject matter
The most recent financial statements of Bengal Foods Ltd. are the subject matter.
iii) Relevant criteria
It is most likely in this instance that the criteria would be accounting standards, so that Rahin was
assured that the financial statements were properly prepared and comparable with other companies’
financial statements.

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iv) Evidence
It is necessary to agree the extent of procedures in relation to this assignment with Rahin, so that he
knew the level of evidence I was intending to seek. This would depend on various factors, including
the degree of secrecy in the proposed transaction and whether the directors of Bengal Foods Ltd.
allowed me to inspect the books and documents.
v) Report
The nature of the report needs to be agreed with Rahin, however it would be written report containing
my opinion on the financial statements.
Answer Q. No. 1 (c)
In addition to principal benefits, assurance may have subsidiary benefits.
Although an assurance report may only be addressed to one set of people, it may give additional
confidence to other parties in a way that benefits the business. For example, audit report 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 credibility of the information.
The existence of an independent check might help prevent errors or frauds being made and reduce the risk
of management bias. In other words, the facts that an assurance service will be carried out might make
people involved in preparing the subject matter more careful in its preparation and reduce the chance of
errors arising. Therefore it can be seen that an assurance service may act as a deterrent.
In addition, 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 exits, leading to effective markets that investors have faith in and trust. It adds to the
reputation of organizations and even countries, so that investors are happy to invest in country X because
there is a strong culture of assurance provision there.
Answer Q. No. 1 (d)
Prior to finally accepting an engagement an auditor must carry out following procedures.
To ensure professional qualified to act: Consider whether disqualified on legal or ethical grounds, for
example if there would be a conflict of interest with another client. The respective auditor should also
look into other ethical matters that may potentially influence him to work in contrary to the quality
accomplishment.
To ensure existing resources adequate: Consider available time, required staff and related technical
expertise.
To obtain references: Make independent enquiries if directors are not personally known.
To 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.

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Question No. 2:
a. Define “Internal Control”. What are the objectives of internal control system? 4
b) Define and brief about: (i) Control Environment; (ii) Audit Committee; (iii) Entity’s risk assessment
process. 6
(c) What are usual activities an internal audit function accomplishes? Briefly explain the difference
between internal and external audit. 7
Answer Q. No. 2 (a)
Internal control: ‘Internal control is the process designed and effected by those charged with
governance, management, and other personnel to provide reasonable assurance about the achievement of
the entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of
operations and compliance with applicable laws and regulations.
A company has various objectives to set up internal control system:
 To minimize the company’s business risks
 To ensure it reports its financial position correctly to shareholders
 To ensure that it operates effectively and efficiently
 To ensure that it complies with relevant laws and regulations
Answer Q. No. 2 (b)
(i) Control Environment: The control environment includes the governance and management
functions and attitudes, awareness and actions of those charged with governance and management
concerning the entity’s internal control and its importance in the entity.
(ii) Audit Committee: A sub-section (committee) of the board of directors which has a particular
interest in the finance and accounting activities of the company. The audit committee is comprised of
non-executive directors. It is a requirement in Bangladesh for the listed companies under the rules of
the Combined Code. The code requires the committee to have written terms of reference as regards
its duties and functions.
(iii) Entity’s risk assessment process: The process by which management in a business identifies
business risks relevant to financial reporting objectives and decides what actions to take to address
those risks. The effectiveness of the internal control in an entity is highly dependent upon the
presence of entity’s risk assessment process. It can be seen that, if the risk assessment is weak, then
the resulting internal control may not be effective.
Answer Q. No. 2 (c)
Internal audit function usually accomplishes following activities:
 Monitoring effectiveness of internal controls;
 Examining financial and operating information;
 Review of the economy, efficiency, and effectiveness of operations;
 Review of compliance with laws, regulations and other external requirements;
 Special investigations, for example, into suspected fraud.

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Difference between internal and external audit:
Internal audit External audit
Reason Internal audit is an activity designed to add
value and improve an organisation’s
operations.
An exercise to enable auditors to
express an opinion on the financial
statements.
Reporting to Internal audit report to the board of
directors, or the audit committee, which is
a subcommittee of the board of directors
concerned with financial and audit matters.
The external auditors report to the
shareholders of a company on the
truth and fairness of the financial
statements.
Relating to As demonstrated in the reason for their
existence, an internal audit’s work relates
to the operations of the organisation.
External audit’s work relates to the
financial statements. They are
concerned with the financial records
that underlie these.
Relationship
with the
company
Internal auditors are very often employees
of the organisation, although sometimes
the internal audit function is outsourced.
External auditors are independent of
the company and its management.
They are appointed by the
shareholders.
Question No. 3
a. What are the procedures outlined in BSA 500 to obtained evidence? Explain 8
b. Describe substantive procedures you should perform in an assurance engagement at the year end to
confirm each of the following for plant and equipment: 6
i) Additions; and
ii) Disposals.
c) You are an Engagement Manager of an audit engagement.
Prior to deploying your team to the proposed engagement, explain to the team the types of control
activities; they should test in order to build their confidence upon the overall control environment. 5
d) What do you mean by audit documentation? What purpose does audit documentation serve? 6
Answer Q. No. 3 (a)
Assurance providers obtain evidence by one or more of the following procedures outlined in BSA 500.
1. Inspection:
i) Inspection of Documentation: Inspection of documents involves examining records or documents,
for example, looking at a sales contract or a share certificate.
ii) Inspection of tangible Assets: Inspection (physical examination) of tangible assets that are
recorded in the accounting records confirms existence, but does not confirm rights and
obligations or valuation. For example, machinery recorded in asset register can be inspected by
assurance providers.
2. Observation: This consists of looking at a process or procedure being performed by others, for
example, the auditor’s observation of inventory counting by the entity’s personnel.

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3. Inquiries: This involves seeking information from client management or staff or external sources and
evaluating responses.
4. External Confirmation: This involves seeking confirmation from a third party in paper form, or by
electronic or other medium. For example: confirmation from bank of bank balances.
5. Recalculation: Checking mathematical accuracy of client's records, for example, adding up ledger
accounts.
6. Re-performance: Independently executing procedures or controls, either manually or through the use
of computer assisted audit techniques.
7. Analytical Procedures: Evaluating and comparing financial and/or non-financial data for plausible
relationships and investigating unexpected fluctuations
Answer Q. No. 3 (b)
Substantive procedures to be performed at the year end to confirm the Additions and disposals of plant
and equipment:
Additions:
 Obtain a breakdown of additions, cast the list and agree to the non-current asset register to
confirm completeness of plant & equipment (P&E).
 Select a sample of additions and agree cost to supplier invoice to confirm valuation.
 Verify rights and obligations by agreeing the addition of plant and equipment to a supplier
invoice in the name of audited company.
 Review the list of additions and confirm that they relate to capital expenditure items rather than
repairs and maintenance.
 Review board minutes to ensure that significant capital expenditure purchases have been
authorized by the board.
 For a sample of additions recorded in P&E physically verify them on the factory floor to confirm
existence.
Disposals:
 Obtain a breakdown of disposals, cast the list and agree all assets removed from the non-current
asset register to confirm existence.
 Select a sample of disposals and agree sale proceeds to supporting documentation such as sundry
sales invoices.
 Recalculate the profit/loss on disposal and agree to the income statement
Answer Q. No. 3 (c)
There are various types control activities identified in a sound control environment. Those activities
include authorization, performance reviews, information processing, physical controls, segregation of
duties etc. Brief description of these activities is given in the table below:

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Type of Control activity Examples Explanations
Authorisation Approval and control of
documents
Transactions must be approved by an
appropriate person.
Performance review Reconciliations Differences between the two figures should
only be reconciling items
Comparing internal data
with external sources of
information
For example, comparing records of goods
dispatched to customers with customers
acknowledgement
Information processing Checking the
arithmetical accuracy of
records
For example, checking to see if individual
invoices have been added up correctly
Physical control Comparing the results of
cash counts with
accounting records
For example, a physical count of petty cash
Segregation of duties Departmentalization of
functions
For example, receivable collectors are not
allowed to post collections into the books.
Answer Q. No. 3 (d)
Audit Documentation (work papers) is the record of procedures performed, relevant evidence obtained
and conclusion reached.
Audit documentation or work papers should provide:
 A sufficient and appropriate record of the basis for the assurance provider’s opinion on the subject
matter; and
 Evidence that the engagement was performed in accordance with standards and applicable legal and
regulatory requirement.
Audit documentation serves a number of additional purposes, including the following:
 Assisting the engagement team to plan and perform the audit;
 Assisting relevant members to direct and supervise the audit work;
 Enabling the audit team to be accountable for its work;
 Retaining a record of continuing significance for future audits;
 Enabling the conduct of quality control reviews and inspections;
 Enabling the experienced auditor to conduct external inspections in accordance with applicable legal,
regulatory or other requirements.
Question No. 4
(a) The Audit Engagement Letter is a very vital document underlying an audit engagement. As you are
required to have sufficient knowledge about the engagement letter, state:
i) What are the objectives of Audit Engagement Letter? 5
ii) Write in brief the basic contents of an Audit Engagement Letter. 7
(b) Despite having substantial uncertainty on Going Concern issue, Shahid Securities Ltd. prepared its
financial statements on Going Concern basis. What effects will this situation have on your audit
report in the event of uncertainty over Going Concern under following circumstances:
i) The matter fully disclosed in the financial statements. 3
ii) The matter not disclosed in the financial statements. 3

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Answer Q. No. 4 (a.i)
The objectives of the engagement letter are to:
 Define clearly the extent of the firm’s/auditor’s responsibilities and so minimize the possibility of any
misunderstanding between the client and the auditor.
 Provide written confirmation of the firm’s/auditor’s acceptance of the appointment, the scope of the
engagement and the form of their report.
If an engagement letter is not issued to clients, both new and existing, there is scope for argument about
the precise extent of the respective obligations of the client and its directors and the auditors. The
elements of an engagement letter should be discussed and agreed with management before it is sent.
Answer Q. No. 4 (a.ii)
The engagement letter would generally include reference to the following:
 The objective of the audit of financial statements.
 Management’s responsibility with respect to accuracy of the financial statements and ensuring
internal controls.
 The scope of the audit, including reference to applicable legislation, regulations, or pronouncements
of professional bodies to which the auditors adhere.
 The form of any report or other communication of results to the management.
 The fact that because of the test nature and other inherent limitations of an audit, together with the
inherent limitations of any accounting and internal control system, there is an unavoidable risk that
even some material misstatement may remain undiscovered.
 Unrestricted access to whatever records, documentation and other information is requested in
connection with the audit.
 Expectation of receiving from the management written confirmation of representations made in
connection with the audit.
Answer Q. No. 4 (b.i)
Effects on audit report will be as follows:
Unqualified Opinion with Emphasis of matter paragraph on going concern uncertainty highlighting the
existence of material uncertainty relating to the events or condition that may cast significant doubt about
the entity’s ability to continue as a going concern and draw attention to the notes to the financial
statements that disclose the matters where management’s plans to deal with the events are explained.
Answer Q. No. 4 (b.ii)
 Qualified opinion with ‘except for’ phrasing if considered material without being pervasive;
 Adverse opinion if considered material and pervasive;
 Disagreement over non-disclosure resulting in issuance of qualified opinion or disclaimer of opinion
depending on the significance of the potential impact on the financial statements due to disagreement.
Question No. 5
Ethics in the business is considered as the most expected core vale which individuals should follow and
demonstrate in their respective field of activities. International Ethics Standards Board for Accountants
(IESBA) has issued a set of Code of Ethics which ICAB being a member of IFAC has adopted word for
word for its members to follow in their respective field of work.

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a) Why independence and objectivity matter do so much to the professional accountants and what can
the auditors do to maintain objectivity? 5
b) What do you understand by independence of mind, independence in fact and independence in
appearance? 5
c) A financial interest in a client constitutes a substantial self-interest threat. What are available
safeguards to avoid such threat? 5
d) Accountants in business may face more pressure to behave unethically. Cite two such examples
which accountants usually face in their duties. 5
Answer Q. No. 5 (a)
The principle of objectivity imposes the obligation on all professional accountants to be fair, intellectually
honest and free of conflict of interest. Close relationship with the client’s top management may impair the
objectivity of the auditors and acceptance of entertainment and gift may also affect the objectivity of the
auditors. On the other hand the shareholders need an objective and honest assessment and evaluation of
the accounting information presented to them by the management. Company management is unlikely to
have this degree of objectivity which they expect it from the auditors.
Independence is one the basic ethical principles governing the auditor's professional responsibilities. it is
generally accepted that the auditor should not only be independent but be seen to be independent. The
auditor’s independence could be impaired in several ways, such as financial interest in the client, close
relationship with the client etc.
Therefore independence and objectivity matter so much to the professional accountants.
The auditor should avoid such relationship with the client that may impair the objectivity, should not take
any gift or entertainment from the client and avoid financial interest with the client, and remain free from
all conflicts of interest with the client to maintain objectivity and independence. The auditor is to
withdraw from the engagement where there is slightest threat to objectivity.
Answer Q. No. 5 (b)
Independence of Mind: The state of mind that permits the expression of a conclusion without being
affected by influences that compromise professional judgment, allowing an individual to act with
integrity, and exercise objectivity and professional skepticism.
Independence in fact: Independence in fact exists when the auditor is actually able to maintain an
unbiased attitude throughout the audit.
Independence in appearance: Independence in appearance is the result of others’ interpretations of this
independence. The avoidance of facts and circumstances that are so significant that a reasonable and
informed third party, having knowledge of all relevant information, including safeguards applied, would
reasonably conclude a firm’s or a members of the assurance team’s integrity, objectivity or professional
skepticism had been compromised.
Answer Q. No. 5 (c)
Following are the safeguards available to avoid self-interest threat (financial interest):
 Disposing of the interest;
 Removing the individual from the team, if required;
 Keeping the client’s audit committee informed of the situation;
 Using an independent partner to review work carried out, if necessary.

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Assurance firm should have quality control procedures requiring staff to disclose relevant financial
interests for themselves and immediate family members. They should also foster a culture of voluntary
disclosure of an ongoing basis so that any potential problems are identified on a timely basis.
Answer Q. No. 5 (d)
It is important to remember that accountants in business are subject to the same fundamental principles as
accountants in practice are. However, an accountant in business may find himself in a position that faces
more pressure from the management to act unethically or to act to the interest of a small community
which goes contrary to the respect of the profession. Unlike professional accountants in practice those are
in business appear to be more vulnerable in terms of independent behavior. Apart from established
policies and procedures, often there appear situations when such accountants are guided by the call of the
management.
Often accountants in business find themselves in dilemma when they are guided by the management as to
the treatments of certain accounting transactions or presentation of financial statements in the interest of a
group of people or to the contrary of the national exchequer.
Examples of such unethical acts may include:
 Lie to or mislead auditors or regulators;
 Issue or be associated with published reports (for example, financial statements, statement of tax
computations) that materially represent the facts.

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ACCOUNTING
May-June 2017
Question No. 1
1. (a) What is a Statement of Financial Position? How does information of Statement of Financial
Position help the users to make economic decisions? 4
(b) What is a cash book? How discount is treated in the cash book? 4
(c) How would you account for material amount of inventory destroyed by fire or stolen which was
subject to insurance claim? 4
(d) When an existing accounting policy may be changed? State the accounting treatment required. 3
Answer to the Q. No. 1
a) Balance Sheet:
A list of all the assets controlled and all the liabilities owed by a business at a particular date: it is a
snapshot of the financial position of the business at a particular moment. Monetary amounts are
attributed to assets and liabilities. It also quantifies the amount of the shareholders’ interest in the
company (equity); the amount invested in the business by the owners.
Balance sheet provides information about three features namely economic resources, financial
structure and liquidity/ solvency. The IASB Framework for the Preparation and Presentation of
Financial Statements sets out how information about these three features can be used by the users.
Factor Information on this helps users
Economic
resources
To predict the entity’s ability to generate cash in the future
Financial structure To predict future borrowing needs
To predict how future profits and cash flows will be distributed among owners
and lenders
To predict how successfully it will be able to raise future finance
Liquidity/Solvency To predict its ability to meet financial commitments as they fall due.
b) Cash book:
The book of original entry for receipts and payments in the business’s bank account.
Discount in the cash book:
Discount may be offered in respect of credit transactions.
 A discount allowed arises when a business records one amount as being due from a customer,
but then allows the customer to pay slightly less in full settlement (usually in return for the
customer paying early).
 A discount received arises when a business records one amount as being due to a supplier, but
then receives notice from the supplier that slightly less can be paid in full settlement (usually in
return for paying early).
When a receipt is for less than the total amount owed by the customer, the amount of the discount (the
difference between the amount owed and the receipt) is recorded in a special ‘memorandum’ column
of the cash book.
c) Where a material amount of inventory has been stolen or destroyed by fire, including their cost in
gross profit will give a much distorted idea of the business’s basic profitability.

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 Purchases will include the cost of goods that could not be sold, so the accrual principle is broken,
yet they are not closing inventory either, so it will look as if the business’s gross margin has been
fallen catastrophically.
 There may be an amount of income as a result of an insurance claim, which cannot be included in
the cost of sales under “no offsetting” principle.
 These problems are overcome by taking cost of goods stolen or destroyed out of purchases, and
including it under expenses. The insurance claim is treated as other income in calculating net
profit; if it has not yet been received in the form of cash it is disclosed as ‘other receivables’ in
the balance sheet.
d) An existing accounting policy may only be changed:
 When a new BAS requires it or
 If the result will be reliable information which is more relevant than under the previous policy (a
voluntary change of policy).
The following are not changes in accounting policy according to BAS 8:
 Applying new policy to transactions that have not previously occurred or were previously
immaterial.
 Applying an accounting policy to transactions that differ in substance from those previously
occurring.
A new BAS may specify how the transaction to a new accounting policy is to be treated; in that case
BAS 8 does not apply. In all other cases, BAS 8 requires Retrospective accounting treatment.
Retrospective accounting treatment: Applying a new policy as if it had always been in use by
adjustments in both the current accounting period and the previous one. The reasons for and effects of
the changes must also be disclosed.
Question No. 2.
Sakib Enterprise discovered the following irregularities in the accounting records for the month ended 31
March 2017.
1) Purchase of office equipment for Tk. 23,000 has been debited to raw materials inventory account.
2) Salary payment of Tk. 2,400 has been debited to salary expense. Tk. 400 of which are paid for the
accruals made in February 2017.
3) Payment to supplier for previous due of Tk. 4,500 is credited to cash for Tk. 5,400.
4) Pre-paid insurance expired for Tk. 6,500 which is credited to pre-paid rent for Tk. 5,600.
5) Sales of Tk. 8,900 on account have not been recorded.
6) A raw materials purchase of Tk. 350 had been recorded in the purchase account as Tk. 850, but the
accounts payable account was correctly written up.
7) The purchase day book included a credit note for Tk. 230 as an invoice in the total column. The
correct entry was made in the purchase account.
Required:
(i) Prepare the correcting entries assuming that the enterprise prepares monthly financial statements. 7
(ii) Show the adjustment of the correcting entries on profit or loss. Assume profit before correcting the
errors was Tk. 49,000. 3

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(a) (i.) Skaib Enterprise, Correcting Entries
Serial Particulars Ref Dr. Taka Cr. Taka
i. Office Equipment Dr. 23,000
Purchase Cr. 23,000
ii Salaries Payable Dr. 400
Salaries Expense Cr. 400
iii. Cash (5,400 – 4,500) Dr. 900
Suspense Account Cr. 900
iv. Prepaid Rent Dr. 5,600
Suspense Account (6,500 – 5,600) Dr. 900
Prepaid Insurance Cr. 6,500
v. Accounts Receivable Dr. 8,900
Sales Revenue Cr. 8,900
vi. Suspense Account Dr. 500
Purchase (850 – 350) Cr. 500
vii. Accounts Payables (230 × 2) Dr. 460
Suspense Account Cr. 460
ii. Sakib Enterprise, Adjustment to Profit
Particulars Taka Taka
Profit before correction 49,000
Add: Decrease in purchase (23,000+500)** 23,500
Add: Decrease in salaries expense 400
Add: Increase in sales revenue 8,900
Total increase in net profit due to correction 32,800
Corrected net profit 81,800
**Decrease in purchase indicates decrease in cost of goods sold resulting in increase of gross profit.
** Suspense account should be analysed and closed as soon as possible.
Question No. 3
3. (a) Adjusted trial balance of Hussein and Co. for the year ended 31 December 2016 is enumerated
below:
Account Name Debit Taka Account Name Credit Taka
Cash 7,000 Accumulated Depreciation 33,750
Accounts Receivable 22,000 Accounts Payable 5,000
Supplies (closing inventory) 5,500 Interest Payable 150
Pre-paid insurance 2,500 Notes Payable 5,000
Equipment 58,000 Unearned Service Revenue 5,600
Owner’s draw 2,000 Salaries Payable 1,500
Salaries expense 11,500 Owner’s Equity 14,500
Insurance expense 750 Service Revenue 63,000
Interest expense 500
Depreciation expense 6,750
Supplies expense 8,000
Rent expense 4,000
128,500 128,500

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Required:
(i) Prepare the closing entries. 6
(ii) Prepare the post-closing trial balance. 6
(b) Keya’s Cash November Book 2016 at showed 30 an over drawn position of Tk. 3,630 although
her bank statement showed only Tk. 2,118 overdrawn. Detailed examination of the two records
revealed the following:
1) The debit side of the cash book had been under cast by Tk. 300.
2) A cheque for Tk. 1,560 in favor of Rabeya Suppliers Ltd. had been omitted by the bank from
its statement, the cheque having been debited to a not
3) A cheque for Tk.182 drawn for payment of the telephone bill had been entered in the cash
book as Tk 128 but was shown correctly on the bank statement.
4) A cheque for Tk. 210 from Wasi having been paid into the bank was dishonored and shown
as such on the bank statement although no entry relating to the dishonor had been made in the
cash book.
5) The bank had debited a cheque for Tk. 126 to Keya’s account in error; i bank to Kemmy’s
account.
6) A dividend of Tk. 90 on Keya’s holding of Ordinary Shares has been paid direct to her bank
account and no entry made in the cash book.
7) Cheques totaling Tk. 1,260 drawn on 29 November had not been presented for payment
8) A lodgment of Tk. 1,080 on 30 November had not been credited by the bank.
9) Interest amounting to Tk. 228 had been debited by the bank but not entered in the cash book.
Required:
(i) Make any necessary entries in the cash book to prepare the corrected cash book. 7
(ii)
Prepare a bank reconciliation statement based on the corrected cash book as at 30 November
2016. 7
a)
(i) Hussein and Co, Closing Entries For the year 2016
Date/
Serial Particulars Ref Dr. Taka Cr. Taka
i. Service Revenue Dr. 63,000
Income Summary Cr. 63,000
ii Income Summary Dr. 31,500
Salaries Expense Cr. 11,500
Insurance Expense Cr. 750
Interest Expense Cr. 500
Depreciation expense Cr. 6,750
Supplies Expense Cr. 8,000
Rent Expense Cr. 4,000
iii. Owner's Equity Dr. 2,000
Owner's Drawings Cr. 2,000
iv. Income Summary Dr. 31,500
Owner's Equity (63,000 – 31,500) Cr. 31,500

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(ii) Hussein and Co, the post-closing trial balance, as at 31 December 2016
Serial No. Account Name Dr. Taka Cr. Taka
1 Cash 7,000 -
2 Accounts receivables 22,000 -
3 Supplies 5,500 -
4 Pre-paid insurance 2,500 -
5 Equipment 58,000 -
6 Accumulated depreciation - 33,750
7 Accounts payable - 5,000
8 Interest payable - 150
9 Notes payable - 5,000
10 Unearned service revenue - 5,600
11 Salaries payable - 1,500
12 Owner’s equity (14,500 + 31,500 – 2,000) - 44,000
Total 95,000 95,000
b)
(i) Entries in the cash book / corrected cash book
Cash Book
2016 Taka 2016 Taka
Suspense – undercast (1) 300 Balance b/d 3,630
Dividend received (6) 90 Telephone (182 – 128) (3) 54
Balance c/d 3,732 Wasi – dishonoured cheque (4) 210
Interest (9) 228
4,122 4,122
(ii) Bank Reconciliation Statement as at 30 September 2016
Taka Taka
Balance as per bank statement (2,118)
Add: Error by the bank (5) 126
Uncredited deposit (8) 1,080 1,206
(912)
Add: Cheque omitted - Rabeya Suppliers (2) 1,560
Unpresented Cheque (7) 1,260 2,820
Balance per adjusted / corrected cash book (3,732)
Question No. 4
4. (a) During the month of June 2016, RACO Resources Ltd. completed the following transactions:
1) Performed services for a customer of Tk. 10,000 and received cash of Tk. 7,500.
2) Purchased supplies on account, Tk. 7,000.
3) Paid Tk. 5,000 on accounts payable.
4) Collected cash Tk.1,500 from a customer and paid tuition fees of Tk.500 for son of owner.
5) Paid office rent Tk. 900 and advertising expenses Tk. 300.

Page | 19
Required:
Analyse the effects of the preceding transactions on the accounting equation of RACO Resources Ltd.5
(b) The following account is extracted from the income statement of Mr. Smith for the year ending 31
December 2016:
Taka
Sales 2,71,400
Less Cost of goods sold:
Opening inventory 34,000
Add: Purchase 2,37,000
2,71,000
Less: Closing inventory (41,000)
(2,30,000)
Gross Profit 41,400
Mr. Smith says that normally he adds 20% to the cost of goods to fix the sales
price. However, this year there was some arithmetical errors in these calculations.
Required:
(i) Calculate what his sales would have been if he had not made any error. 3
(ii) Given that his expenses remain constant at 9% of his sales, calculate his net profit for the
year 2016. 4
(iii) He thinks that next year he can increase his mark up to 25%, selling goods which will
cost him Tk.2,60,000. If he does not make any more error in calculating selling prices, you
are to calculate the expected gross and net profits for 2016. 5
(a) RACO Resources Inc.
[Marks: 5]
Transaction analysis with the help of accounting equation, for the month of June 2016
Serial
no.
Cash +
Accounts
receivable
+Supplies =
Accounts
payable +
Revenue ( Expenses) (Drawings)
1. 7,500 2,500 = 10,000
2. 7,000 = 7,000
3. (5,000) = (5,000)
4. 1,000 (1,500) = (500)
5. (1,200) = (1,200)
Total 2,300 1,000 7,000 = 2,000 10,000 (1,200) (500)
10,300 = 10,300
(b) (i) Sales = 2,30,000+(20% of 2,30,000)= 2,76,000
(ii) Net profit = 41,400- (9%x 2,71,400) = 16,974
(iii) Gross profit = 25%x2,60,000 = 65,000
Sales = 2,60,000+65,000= 3,25,000
Expenses = 9%x 3,25,000 = 29,250
Net profit = 65,000- 29,250= 35,750

Page | 20
Question No. 5
The following trial balance related to Shaad Limited as at 31 March 2017:
Debit Credit
Taka ('000) Taka ('000)
Revenue - 427,600
Administrative expense 17,000 -
Selling and distribution expense 17,400 -
Cost of sales 287,600 -
Closing inventories at 31 March 2017 21,000 -
Long term borrowings 10,000
Income from investment property - 4,800
Finance costs 10,000 -
Gratuity payable (long term) 1,200
Cash and cash equivalents 3,600
Land and Building at valuation 126,000 -
Plant and equipment at cost 72,000 -
Accumulated depreciation on plant and equipment at 1 April 2016 - 33,600
Investment property at valuation on 1 April 2016 32,000 -
Plant held for sale 16,000 -
Accounts and other receivable 27,000 -
Short term borrowings - 1,800
Accounts and other payable - 23,600
Ordinary shares of Tk. 20 each - 40,000
Irredeemable preference shares of Tk. 10 each - 10,000
Revaluation reserve - 42,000
Retained earnings at 1 April 2016 - 35,000
629,600 629,600
The following notes are relevant:
i. An inventory count at 31 March 2017 listed some damaged goods that had cost Tk. 1.6 million. These
items could be sold for an estimated Tk. 1 million.
ii. Finance costs include an ordinary dividend of Tk. 2 per share that was paid in September 2016.
iii. Land and Building were revalued at Tk. 30 million and Tk. 96 million respectively on 1 April 2016
creating Tk.42 million revaluation reserve. At this date the remaining life of the building was 15
years. Building is depreciated on straight line basis. The Company does not make a transfer to realize
profits in respect to excess depreciation.
iv. Plant and equipment is depreciated at 12.50% on the reducing balance basis. Depreciation on both the
building and the plant & equipment should be charged to cost of sales.
v. On 31 March 2017 a qualified surveyor valued the investment property at Tk. 27 million. The
Company uses the fair value model in BAS 40 Investment Property to value investment property.
vi. The rate of corporate income tax is 35%.
Required:
(i) Prepare the statement of comprehensive income for the year ended 31 March 2017; and 16
(ii) Prepare the statement of financial position as at 31 March 2017. 16

Page | 21
(i) Shaad Limited, Statement of Comprehensive Income for the year ended 31 March 2017
Taka ('000)
Revenue 427,600
Less: Cost of sales (W1) (299,400)
Gross profit 128,200
Less: Operating expenses
Administrative expense (17,000)
Selling and distribution expense (17,400)
Operating profit 93,800
Investment income 4,800
Less: Loss on investment property (32,000 – 27,000) (5,000)
Less: Finance cost [10,000 – (40,000/20 × 2)] (6,000)
Profit before tax 87,600
Less: Provision for income tax @35% 30,660
Profit for the year 56,940
(ii) Statement of financial position as at 31 March 2017
Assets Taka ('000)
Non-current assets
Property, plant and equipment (W2) 153,200
Investment property (note v) 27,000
180,200
Current asset
Inventories [21,000-600 (W1)] 20,400
Cash and cash equivalents 3,600
Plant held for sale 16,000
Accounts and other receivables 27,000
67,000
Total assets 247,200
Equity and liabilities Taka ('000)
Ordinary share capital of Tk 20 each 40,000
Irredeemable preference share of Taka 10 each 10,000
Revaluation reserve 42,000
Retained earnings [35,000 + 56,940 - (40,000/20 × 2)] 87,940
Equity 179,940
Non-current liabilities
Gratuity payable 1,200
Long term borrowings 10,000
11,200
Current liabilities
Short term borrowings 1,800
Accounts and other payables 23,600
Income tax payable 30,660
56,060
Total equity and liabilities 247,200

Page | 22
Workings:
(W1) Cost of sales Taka ('000)
Per question 287,600
Inventory write down (1,600-1,000) 600
Depreciation on Building (96,000/15) 6,400
Depreciation on Plant (W2) 4,800
299,400
(W2) Property, plant and equipment (PPE) Taka ('000)
Plant and equipment at cost 72,000
Less: Accumulated depreciation 33,600
Carrying amount 38,400
Less: Depreciation for the year @ 12.5% 4,800
WDV of plant 33,600
Land and building at revaluation 126,000
Less: Depreciation on building (96,000/15) 6,400
WDV of land and building 119,600
Carrying amount of PPE 153,200

Page | 23
BUSINESS & FINANCE
June 2017
Question No. 1
a) Describe in brief the consistency principle in accounting? 4
b) The following data relate to a shop. The owner has made the following sales forecasts for the first
5 months of the coming year: 8
January Tk. 40,000 April Tk. 60,000
February 45,000 May 50,000
March 55,000
Answer to Question No. 1 (a)
Unless there are good reasons for the contrary, items in financial statements should be presented and
classified in the same way from one period to the next and this is known as consistency principle in
accounting.
Answer to Question No. 1 (b)
Cash Budget
Particulars Month
January February March
(A) Cash inflows:
Cash sales (40% of total sales) Tk. 16,000 Tk. 18,000 Tk. 22,000
Collection from debtors (one month after sales) 30,000 24,000 27,000
Total 46,000 42,000 49,000
(B) Cash outflows:
Paid to trade creditors for purchases (See working note) 14,000 33,000 36,000
Sales commission (5% of prior month’s sales) 3,500 2,000 2,250
Fixed costs (Tk. 5,000 – Tk. 2000 depreciation) 3,000 3,000 3,000
Total 20,500 38,000 41,250
(C)Surplus/(deficiency) 25,500 4,000 7750
Beginning balance 7,500 33,000 37,000
Ending balance (indicated) 33,000 37,000 44,750
Working on purchase
January February March
Desired ending inventory (at cost price) Tk. 60,000 Tk. 69,000 Tk.
66,000
Plus current cost of goods sold (current month) 24,000 27,000 33,000
Total requirements 84,000 96,000 99,000
Less: Beginning balance 51,000 60,000 69,000
Purchases 33,000 36,000 30,000
Question No. 2
a) Why do business and managers need financial information? 6
b) Classify the various types of information needed by managers for decision making. 4

Page | 24
Businesses and managers require financial information for:
- Planning
- Controlling
- Recording transactions
- Performance measurements
- Decision Making
Planning: Planning requires a knowledge of, among other things, available requires, possible time scales
for information and the likely outcomes under alternative scenarios.
Controlling: Once a plan is implemented, its information is required to assess whether implementation is
proceeding as planned or whether there is some unexpected deviation from plan that may require
corrective action.
Recording transaction: Information about each transaction or event is required for a number of reasons,
say
- documentation of transactions can be used as evidence in case of a dispute;
- there may be a legal requirement to record transactions;
- detailed information on production costs can be built up, allowing for a better assessment of
profitability.
Performance measurement: Just as individual operations need to be controlled so overall performance
must be measured in order to enable comparison of the actual outcome with the plan. This may, involve
collecting information on costs, revenues, volumes time scale and profitability.
Decision making: Information is required as a basis on which to make informed decision.
Information can be classified as follows:
- Planning information helps people involved in the planning process
- Operational information helps people carry out their day to day activities
- Technical information helps people deal with short term issues and opportunities e.g. monthly variance
reports for the factory
- Strategic information supports major long term decision making e.g. can resources be made available to
expand production
Question No. 3
a) What is the definition of risk? How does it differ from uncertainty? 4
b) Discuss the different classifications of risk. 5
Risk is defined as the possible variation in an outcome from what is expected to happen. Uncertainly, on
the other hand, is defined as the inability to predict the outcome from an activity due to lack of
information.

Page | 25
The various classifications of risks are as under:
- Business risk
- Non-business risk
A. Business risk:
Business risk arises from the nature of the business, its operations and the conditions it operates. It
includes:
- Strategy risk: the risk of choosing in wrong corporate business or financial strategy.
- Enterprise risk: the success or failure of a business operation and whether it should have been
undertaken in the first place.
- Product risk: the chance that customers will not buy the company’s products or services in the
expected quantities.
- Economic risk: the effect of unexpected changing economic conditions.
- Technology risk: the risk that the market or industry is effected by some change in production or
delivery technology.
- Property risk: the risk of loss of property or losses arising from accidents.
B. Non-business risk:
Non-business risk is any other type of risk, usually classified as financial risk or operation risk.
B.1 Financial risk: Financial risk is divided into credit risk and market risk.
 Credit risk: It arises from the economic loss suffered due to the default of a borrower, customer
or supporter.
 Market risk is the exposure to potential loss that would result from changes in market prices or
rates which might include share prices, commodity prices, interest rates and foreign exchange
rates.
B.2 Operational risk: Operational risk is possibly best regarded as all non-business risk faced by a
business that is not financial risk.
Question No. 4
a) Write short notes on IFAC and CAPA. 6
b) The Fortune Company sells two products, A and B, with contribution margin ratios of 40 and 30
percent and selling prices of Tk.5 and Tk.2.50 a unit respectively. Fixed costs amount to Tk.72,000 a
month. Monthly sales average 30,000 units of product A and 40,000 units of product B. 10
Required:
i. Assuming that three units of product A are sold for every four units of product B, calculate the taka
sales volume necessary to break even.
ii. As part of its cost accounting practices, Fortune Company assigns Tk.36,000 in fixed costs to each
product each month. Calculate the break-even taka sales volume for each product.
iii. Fortune Company is considering spending an additional Tk.9,700 a month on advertising, giving
more emphasis to product A and less emphasis to product B. If its analysis is correct, sales of
product A will increase to 40,000 units a month, but sales of product B will fall to 32,000 units a
month. Recalculate the break-even sales volume, in taka, at this new product mix. Should the
proposal to spend the additional Tk. 9,700 a month be accepted?

Page | 26
CAPA
The Confederation of Asian and Pacific Accountants (CAPA), established 1976, represents national
accountancy organisations in the Asia-Pacific region. CAPA has a membership of 34 accountancy
organisations. CAPA is by far the largest regional accountancy organization and its geographical area
spans half the globe. It has six members. ICAB and ICMAB both are members of CAPA.
IFAC
IFAC is the global organization for the accountancy profession. It has 163 members organization,
including the ICAB. IFAC members represent 2.5 million accountants worldwide, employed in public
practice, industry and commerce, government, and education.
The aim of IFAC is to protect the public interest by encouraging high quality practices by the world’s
accountants. This includes best practice guidance for professional accountants employed in business, plus
a membership compliance programme.
IFAC emphasizes the importance of:
 Strong international economies
 Adherence to high-quality professional standards in the areas of audit, education, ethics and
public sector financial reporting
 Convergence of professional standards
 Speaking out on public interest and public policy issues where the profession’s expertise is
most relevant.
Through the Code of Ethics IFAC encourages accountants worldwide to adhere to the core professional
principles of:
 Integrity
 Transparency
 Expertise
i. CM = (3 x Tk. 2) + (4 x Tk. .75) = Tk. 9
SP = (3 x Tk. 5) = (4 xTk. 2.50) = Tk. 25
BE = Tk. 72,000 = Tk. 400,000
Tk. 9/Tk. 25
ii. A = Tk. 36,000 = Tk. 90,000 B = Tk. 36,000 = Tk. 120,000
.4 .3
iii. CM = (5 x Tk. 2) + (4 x Tk. .75) = Tk. 13
SP = (5 x Tk. 5) + (4 x Tk. 2.50) = Tk. 35
BE = Tk. 72,000 + Tk. 9,700 = Tk. 219,962
Tk. 13/35

Page | 27
OLD NEW
CM A = 30,000 x Tk. 2 = Tk. 60,000 CM A = 40,000 x Tk. 2= Tk. 80,000
B = 40,000 x Tk. .75 = 30,000 B = 32,000 x Tk. .75 24,000
Tk. 90,000 Tk. 104,000
- FC (72,000) - FC (81,700)
OI Tk. 18,000 OI Tk. 22,300
At current sales levels increase advertising.
Question No. 5
A company has a capacity of producing 1,00,000 units of a certain product in a month. The sales
department reports that the following schedule of sales prices is possible: 12
Volume of production Selling price per unit
% Paisa
60 90
70 80
80 75
90 67
100 61
The variable cost of manufacture between these levels is 15 paisa per unit and fixed cost Tk.40,000.
Required:
a) Prepare a statement showing incremental revenue and differential cost at each stage.
b) If there is a bulk offer at 50 paisa per unit for the balance capacity over the maximum profit-volume
for export and price quoted will not affect the internal sale, will you advise accepting this bid and
why?
Capacity % Variable
Cost
Fixed Cost Total Cost Selling price Differential
Cost
Incremental
revenue
60 9,000 40,000 49,000 54,000 - -
70 10,500 40,000 50,000 56,000 1,500 2,000
80 12,000 40,000 52,000 60,000 1,500 4,000
90 13,500 40,000 53,500 60,300 1,500 300
100 15,000 40,000 55,000 61,000 1,500 700
It is obvious from the above table that at 80% capacity profit will be maximum.
It is advisable to accept the bulk offer as the balance capacity representing 20,000 units at a price of 50
paisa per unit will and Tk.10,000 to the revenue from which if the variable cost (@ 15 paisa per unit) of
Tk.3,000 is deducted, the net addition to profit would be Tk.7,000.

Page | 28
Question No. 6
a) Does a project that generates a positive internal rate of return also have a positive net present value?
Explain. 3
b) Rupam Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-
operated lathe. Information on the existing lathe and the computer-operated lathe are as follows: 10
Existing lathe Computer-operated lathe
Cost Tk. 100,000 Tk. 300,000
Accumulated depreciation 60,000 0
Salvage value now 20,000 -
Salvage value in 4 years 0 60,000
Annual depreciation 10,000 75,000
Annual cash operating costs 200,000 50,000
Remaining useful life 4 years 4 years
i. What is the payback period for the computer-operated lathe?
ii. If the company uses 10 percent as its discount rate, what is the net present value of the proposed new
lathe purchase?
No. A positive IRR does not necessarily mean that a project will also have a positive NPV. Only if the
IRR is greater than the discount rate that is used in the NPV calculation will the NPV be positive.
i. Payback Period = [(New Lathe Cost - Old Lathe Salvage)/Cost Savings from New Lathe]
Payback Period = [(300,000 - 20,000)/150,000] = 1.87 years
ii. Amount PV Table Constant Present Value
Annual Cost Savings Tk. 150,000 3.1699 Tk. 475,485
Salvage Value 60,000 0.6830 40,980
Initial Investment (280,000) 1.0000 (280,000)
Net Present Value Tk. 236,465
Question No. 7
a) What attribute a board should have to ensure ethical leadership to the company? 3
b) Why is a corporate governance system needed? 3
c) What is agency problem? Why this problem is created? How a firm’s corporate governance
structure can help avoid agency problems. 4
Openness Be open minded and willing to learn, and encourage others to learn.
Courage Be determined and direct; actively stamp out poor be haviour.
Ability to listen Be aware of what is going on and know that doing the right thing is the right thing to do.
Honesty Be considerate and cautious in managing expectations.
Fair mindedness Be independent and willing to challenge the status quo.

Page | 29
Corporate governance has always existed in some form or another, but it was not generally explicit,
systematic or established in companies until very recently. The huge emphasis that is now placed on the
need for corporate governance follows well-publicised financial scandals in Europe, India and the US,
such as Satyam Computer Services, Enron, WorldCom and Parmalat. These scandals had certain things in
common, including:
Deliberate and systematic fraud by the company's most senior executives
 Weakened boards of directors, and as a result
 Shareholders and employees losing a great deal of money
Losses extended beyond shareholders to employees and therefore government, as well as lenders. This
highlighted that the 'world at large' has a legitimate stake in making sure that companies are properly
directed and controlled.
Answer to Question No. 7 (c)
Agency problems arise when managers deviate from the goal of maximization of shareholder wealth by
placing their personal goals ahead of the goals of shareholders. These problems in turn give rise to agency
costs. Agency costs are costs borne by shareholders due to the presence or avoidance of agency problems,
and in either case represent a loss of shareholder wealth.
A firm’s corporate governance structure is intended to help ensure that managers act in the best interests
of the firm’s shareholders, and other stakeholders, and it is usually influenced by both internal a
(Incentive plans, stock options, performance plans, Performance shares, cash bonuses ) and external
factors (The threat of takeover by another firm).
Question No.8
a) What is strategic management? 5
b) What is corporate appraisal? How is it related to SWOT analysis? 5
Answer to Question No.8 (a)
The formal approach to strategic management, on which we shall largely be concentrating in this chapter
states that all organisations need to plan if they are not to drift. Strategic management involves:
 Taking decisions about the scope of a business's activities
 The long-term direction of the business, and
 The allocation of resources
It involves an entire cycle of planning and control at a strategic level, that is strategic planning.
A formal or rational approach to strategic planning involves four key stages:
 Strategic analysis
 Strategic choice
 Implementation of chosen strategies
 Review and control

Page | 30
Answer to Question No.8 (b)
Corporate appraisal brings together the results of the external and internal analyses so that the business
can assess its strengths, weaknesses, opportunities and threats (SWOT analysis). Corporate appraisal
brings together the analyses to date.
From the internal analysis  Internal appraisal of the business's STRENGTHS WEAKNESSES
From the external analysis  External appraisal of the OPPORTUNITIES THREATS facing the business
The business's unique strengths, weaknesses, opportunities and threats are analysed using SWOT analysis.
Corporate appraisal : A 'critical assessment of the strengths and weaknesses, opportunities and threats
(SWOT analysis) in relation to the internal and environmental factors affecting an entity in order to
establish its condition prior to the preparation of the long-term plan'.
Key areas for SWOT analysis are marketing, products/brands, distribution/logistics, research and
development of new products, finance, production capacity, inventory, management, staff and
organisational structure.
Strengths and weaknesses
The internal appraisal seeks to identify:
 Shortcomings in the business's present skills and resources
 Strengths in its skills and resources which it should seek to exploit
Opportunities and threats
The external appraisal should identify:
 Profit-making opportunities which can be exploited by the business's strengths
 Environmental threats (a declining economy, competitors' actions, government legislation, industrial
unrest etc) against which the business must protect itself
For opportunities, it is necessary to decide:
 What opportunities exist in the business environment?
 What is the capability profile of competitors? Are they better placed to exploit these opportunities?
 What is the company's comparative performance potential in this field of opportunity?
For threats, it is necessary to decide:
 What threats might arise, to the business or its environment?
How will competitors be affected?
Question No. 9
The price of a commodity is Tk.1.30 per unit and annual demand is 90,000 units. Market research
indicates that an increase in price of 10 paisa per unit will result in a fall in annual demand of 80,000
units. Calculate the elasticity of demand when the price is Tk.1.30 per unit. 8

Page | 31
Answer to Question No. 9
At a price of Tk.1.30, annual demand is 90,000 units. For a price rise:
80,000
% change in quantity -------- x 100 = 88.9% (falls)
90,000
10 paisa
% change in price ---------- x 100 = 7.69% (rise)
Tk.1.30
Price elasticity of demand at price Tk.1.20 = 7.69 / 88.9 = 11.6

Page | 32
MANAGEMENT INFORMATION
May-June 2017
Question no. 1
(a) “Over time or over a specific range of activity, some costs tend to be unaffected by the level of output,
whereas others will change as output changes” – Briefly explain with the support of example, each of the
following three cost classifications: 3x3=9
i. Variable cost
ii. Fixed cost
iii. Mixed cost (semi variable/semi fixed cost)
(b) ABC Limited has provided following information to you:
8th March Purchase 500 Units Valued at BDT 5,000
17th March Sales 400 Units Valued at BDT 8,000
27th March Sales 250 Units Valued at BDT 5,000
There was an opening stock of 250 Units valued at BDT 2,000 on 1st March.
Calculate the gross profit for the month of March using each of the following methods of inventory
valuation: 4x3=12
i. FIFO
ii. LIFO
iii. Weighted average
iv. Which inventory valuation is most relevant for the decision making purpose. Explain your answer.
Answer to Question No. 1 (a):
(i) Variable cost – is a cost that varies as the level of activity changes. An example of a variable cost is
the cost of materials. As production is increased the materials requirement will increase and therefore
the cost of materials will increase.
(ii) Fixed cost – is a cost that remains the same irrespective of the level of activity. The cost of renting a
building is classified as fixed cost. The rent would be paid periodically and would not vary with the
level of activity.
(iii)Mixed cost – is a cost that is partly fixed and partly variable. An example of a mixed cost is the
remuneration package of a sales representative. The basic salary of the sales representative is fixed
element and the sales commission / incentives paid is the variable element. The commission /
incentive payable would depend on the volume of sales achieved.
Answer to Question No. 1 (b):
Gross Profit Calculation (i, ii, iii):
FIFO LIFO Weighted Average
Sales Revenue 13,000 13,000 13,000
Cost of sales:
Opening stock 2,000 2,000 2,000

Page | 33
Purchase 9,570 9,570 9,570
Closing stock (5,570) (4,575) (5,165)
Cost of sales 6,000 6,995 6,405
Gross Profit 7,000 6,005 6,595
Value of closing stock:
Under FIFO Method:
Date Quantity Value (BDT) Value (BDT)
Opening stock - 1st
March 250 2,000 at BDT 8.00 2,000
Purchase - 8th
March 500 5,000 at BDT 10.00 5,000
Purchase - 12th
March 100 1,120 at BDT 11.20 1,120
Sales (cost of sales)
17th
March
(250) 2,000 at BDT 8.00 (2,000)
(150) 1,500 at BDT 10.00 (1,500)
Purchase - 25th
March 300 3,450 at BDT 11.50 3,450
Sales (cost of sales) 27th
March (250) 2,500 at BDT 10.00 (2,500)
Closing stock – 31st
March 500 5,570
Under LIFO Method:
Opening stock - 1st
March 250 2,000 at BDT 8.00 2,000
Purchase - 8th
March 500 5,000 at BDT 10.00 5,000
Purchase - 12th
March 100 1,120 at BDT 11.20 1,120
Sales (cost of sales)
17th
March
(100) 1,120 at BDT 11.20 (1,120)
(300) 3,000 at BDT 10.00 (3,000)
Purchase - 25th
March 300 3,450 at BDT 11.50 3,450
March (250) 2,875 at BDT 11.50 (2,875)
March 500 4,575
Under Weighted Average Method:
Opening stock - 1st
March 250 2,000 at BDT 8.00 2,000
Purchase - 8th
March 500 5,000 at BDT 10.00 5,000
750 7,000 at BDT 9.33 7,000
Purchase - 12th
March 100 1,120 at BDT 11.20 1,120
850 8,120 at BDT 9.55 8,120
Sales (cost of sales) – 17th
March (400) 3,820 at BDT 9.55 (3,820)
450 4,300 at BDT 9.55 4,300
Purchase - 25th
March 300 3,450 at BDT 11.50 3,450
750 7,750 at BDT 10.33 7,750
March (250) 2,585 at BDT 10.33 (2,585)
March 500 5,165
(iv) Decision-makings based on relevant costs, which are affected by the alternatives being considered.
The relevant cost of materials and inventory valuation will be based on the conditions prevailing and
the cash flows that will arise.
The most useful valuation for decision-making is likely to be LIFO as it is the most current. If the
materials must be purchased then the relevant cost is the latest purchase price – LIFO. If the
materials are held in stock but must be replaced then the relevant cost is the replacement cost, which
is most likely to be the latest purchase price – LIFO.

Page | 34
FIFO is not particularly useful for decision making, particularly in the short term as it is based on
historical cost. Weighted average can be useful in that it smooth’s cost fluctuations over a period,
giving a balanced inventory valuation and stock calculation.
Question No. 2
(a) XYZ Limited is a manufacturing company which is currently reviewing the costing arrangement for
its product A. During the first quarter of the year, they sold 50,000 units of product A at BDT 30 per
unit. They produced 45,000 units of product A during the quarter and the following information has
been provided for the quarter:
Product A Per unit cost (BDT) Total cost (BDT)
Direct materials 7.00 315,000
Direct labour 16.00 720,000
Production overhead 5.00 225,000
At the beginning of January, there was a stock of 10,000 units valued as follows:
Direct materials 6.50 65,000
Direct labour 16.25 162,500
Production overhead 5.00 50,000
Sales and administrative overheads for the period were as follows:
Variable BDT 55,000
Fixed BDT 50,000
It is estimated that 40% of production overheads are variable, while the remainder are fixed.
What would be the profit using absorption costing and marginal costing? 6
(c) (i) Define the term `margin of safety.’ 3
(ii) SLB Ltd. produces and sells a product which has a variable cost of Tk.40 per unit and which sells
for Tk.50. Expected fixed costs are Tk.80,000 and expected sales are 10,000 units. Calculate the
margin of safety of SLB Ltd. 5
Profit using Absorption costing:
Value (BDT) Value (BDT)
Sales (50,000 x 30) 1,500,000
Cost of goods sold:
Opening stock (65,000 + 162,500 + 50,000) 277,5000
Direct Materials 315,000
Direct labour 720,000
Variable production overhead (40% of 225,000) 90,000
Fixed production overhead (225,000 – 90,000) 135,000
Closing stock {5,000 units x 28.00 (7+16+5)} (140,000)
Cost of goods sold (1,397,500)
Gross Profit 102,500
Sales & administrative overheads (55,000 + 50,000) (105,000)
Net Profit / (Loss) (2,500)

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Profit using Marginal costing:
Value (BDT) Value (BDT)
Sales (50,000 X 30) 1,500,000
Cost of goods sold:
Opening stock (65,000 + 162,500 + 50,000*40%) 247,500
Direct Materials 315,000
Direct labour 720,000
Variable production overhead (40% of 225,000) 90,000
Closing stock {5,000 units x 25 (7+16+5*40%)} (125,000)
Cost of goods sold (1,247,500)
Variable sales & administrative overheads (55,000)
Contribution 197,500
Fixed production overheads (135,000
Fixed sales & administrative overheads (50,000)
Net Profit 12,500
(i) The term margin of safety is the difference in units or as a percentage of the budgeted sales volume
between the budgeted or expected sales volume and the break-even sales volume.
(ii) Break-even point =
Total fixed costs
Contribution per unit
=
Tk.80,000
Tk.(50−40)
=
Tk.80,000
Tk.10
= 8000 units
Margin of safety = (10,000 – 8,000) units
= 2000 units
which may be expressed as
2000 units
10,000
x 100
= 20% of budget.
Question No.3
3. (a) Do activity-based costing systems always provide more accurate product costs than conventional
cost systems? Why or why not? 3
(b) Zakaria Company manufactures only one product that is available in both a Deluxe model and a
Regular model. The company has manufactured the Regular model for years and the Deluxe model
was recently introduced. The company is concerned about the accuracy of its costing system because
profits are declining since the Deluxe model was introduced.
Indirect production costs are assigned to the products using direct labor hours. For the current year,
the company estimates BDT 2,000,000 of indirect production costs and 40,000 direct labor hours.
They expect to produce 5,000 units of the Deluxe model and 40,000 units of the Regular model. The
Deluxe model requires 1.6 hours of direct labor time per unit and the Regular model requires 0.8
hours. Other costs are as follows:
Costs Deluxe Model Regular Model
Direct materials BDT 150 BDT 112
Direct labor BDT 16 BDT 8
Assume the company's indirect production costs can be traced to four activities with the following
cost drivers:

Page | 36
Activity (Cost Driver) Costs
Purchase orders (number of purchase orders) BDT 84,000
Rework orders (number of rework orders) BDT 216,000
Product testing (number of tests) BDT 450,000
Machining (number of machine hours) BDT 1,250,000
Cost Drivers Deluxe Model Regular Model
Number of purchase orders 400 600
Number of rework orders 200 600
Number of tests 4,000 6,000
Number of machine hours 20,000 30,000
Required:
i. Assume direct labor hours are the only cost-allocation base. What is the cost to manufacture one unit
of each model? 3
ii. Assume the activity-based costing method is used. What is the cost to manufacture one unit of each
model? 4
iii. Based on the results obtained from the activity-based costing method, what are the implications for
pricing policy for the two models? 3
No. Traditional systems contain smaller and fewer cost distortions when the traditional systems' unit-level
assignments and the alternative activity-cost drivers are relatively similar in proportion to each other.
Still, the use of unit-level measures to assign indirect costs is more likely to under cost low-volume
products and more complex products. Both traditional product-costing systems and ABC product-costing
systems seek to assign all manufacturing costs to products. Cost distortions occur when a mismatch
(incorrect association) occurs between the way support costs are incurred and the basis for their
assignment to individual products.
i)
Direct materials BDT 150 BDT 112
Direct labor BDT 16 BDT 8
Indirect production costs BDT 80 BDT 40
Total costs BDT 246 BDT 160
ii)
Direct materials BDT 150.00 BDT 112.00
Direct labor BDT 16.00 BDT 8.00
Indirect production costs BDT 153.52 BDT 30.81
Total cost BDT 319.52 BDT 150.81
Activity (Cost Driver) Costs Deluxe Model Regular Model
Purchase orders (number of orders) BDT 84,000 BDT 33,600 BDT 50,400
Rework orders (number of orders) BDT 216,000 BDT 54,000 BDT 162,000
Product testing (number of tests) BDT 450,000 BDT 180,000 BDT 270,000
Machining (number of machine hours) BDT 1,250,000 BDT 500,000 BDT 750,000
Total cost BDT 767,600 BDT 1,232,400
Cost per unit (BDT 767,600/ 5,000; BDT 1,232,400/40,000) BDT 153.52 BDT 30.81

Page | 37
iii) Under activity-based costing, the Deluxe model is more costly to produce than under the traditional
costing method. As a result, the selling price of the Deluxe model should be increased to cover the
production costs. This will increase profitability of the company.
Question No. 4
When the operating budget is used as a control device it can lead to behavior that is actually detrimental
to the organization.
The major problem with the budget performance report is not the report itself, but rather the way it is
used. In general, managers are rewarded for favorable variances, and disciplined for unfavorable
variances. This encourages managers to set lax standards for both sales and costs so favorable variances
result. It can also lead to "budget games."
Another drawback is that once the budget is established, if there is any variance between budget and
actual, it is assumed to be because of actual. However, as we know, the budget will never be totally
accurate due to the uncertainties of predicting the future.
i.
Rashed Company
Budgeted Income Statement
For the Month of June 2011
Sales BDT 1,600,000
Cost of goods sold:
Materials used BDT 400,000
Wages 280,000
Depreciation 48,000
Insurance 8,000
Maintenance 56,000
Utilities 32,000 824,000
Gross profit 776,000
Operating expenses:
Selling expenses BDT 120,000
Office salaries 160,000 280,000
Net income BDT 496,000
ii.
Rashed Company
Budgeted Balance Sheet
June 30, 2011
Assets: Liabilities and Owners' Equity:
Cash BDT 112,000 Accounts payable BDT 80,000
Accounts receivable 200,000 Bonds payable 320,000
Inventories 360,000 Capital stock 800,000
Equipment, net 480,000 Retained earnings* 752,000
Buildings, net 800,000
Total BDT 1,952,000 Total BDT 1,952,000
*BDT 1,952,000 - (BDT 80,000 + BDT 320,000 + BDT 800,000) = BDT 752,000

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Question No. 5
(a) Standard costing can be used for control and performance measurement. Briefly describe the types of
control? 7
(b) You have been provided with the following standard cost and production information for analysis:
Direct materials 6 Kgs / BDT 10.00
Direct labour 2 hours / BDT 12.50
Total projected overheads BDT 840,000
Fixed 50%
Variable 50%
Projected level of activity is 60,000 units, which will be spread evenly throughout the year. The actual
data for the month of March is as follows:
Production: 4,800 Units
Materials: 28,000 kg (BDT 273,000)
Labor: 10,000 hrs (BDT 126,000)
Overhead: Variable BDT 34,500
Fixed BDT 36,000
Calculate the following variances: 6X3=18
i. Material price
ii. Material usage
iii. Labour rate
iv. Labour efficiency
v. Variable overhead expenditures
vi. Fixed overhead expenditures
Control is an essential features of any organization which can be supported by management accounting
techniques and information. In the context of Standard costing, variance analyses is used to highlight
differences between actual and standard costs to prompt corrective or reactive action. Standard costing
can also be used as a performance management tool as it provides benchmarks and targets to assist the
organization in determining if it is meeting its objectives.
There are three distinctive types of control:
1. Action or behavioral control: This involves observing or supervising actions of individuals involved
in production to ensure that quantity and quality targets are met.
2. Personnel and cultural control: This involves establishing expected values, behaviors and norms
which are used to support achievement of targets.
3. Results or Output control: This involves collecting and reporting information on outputs. This type of
control is focused on quantitative information and can be most closely related to management
accounting information produced. Such information may include variance analysis and other key
targets statistics.

Page | 39
(i) Material Price variance:
(Actual quantity x actual price) – (Actual quantity x standard price)
=(28,000 x 9.75) – (28,000 x 10.00)
=BDT 7,000 Fav
(ii) Material Usage variance:
(Actual quantity x Standard price) – (Standard quantity requires for actual output x standard price)
=(28,000 x 10.00) – (4,800 x 6 x 10.00)
=BDT 8,000 Fav
(iii) Labor rate variance:
(Actual hours x Actual rate) – (Actual hours x standard rate)
=(10,000 x 12.60) – (10,000 x 12.50)
=BDT 1,000 Adv
(iv) Labor efficiency variance:
(Actual hours x Standard rate) – (Standard hours required for actual output x standard rate)
=(10,000 x 12.50) – (4,800 x 2 x 12.50)
=BDT 5,000 Adv
(v) Variable overhead expenditure variance:
(Actual variable overhead) – (Actual productivity x variable overhead recovery rate)
=34,500 – (4,800 x 7.00)
=BDT 900 Adv
(vi) Fixed overhead expenditure variance:
(Actual fixed overhead) – (Budgeted fixed overhead)
=36,000 – (420,000 / 12)
=BDT 1,000 Adv
Question No. 6
(a) What are the differences between Net present value (NPV) and Internal Rate of Return (IRR)? 4
(b) A Company is considering an investment in new machinery. The annual incremental profit / (loss)
relating to the investment are estimated to be:
(BDT’000
Year 1 (11)
Year 2 3
Year 3 34
Year 4 47
Year 5 8
Investment at the start of the project would be BDT 175,000. Assuming nil disposal value after five years,
the investment would be written off using the straight line method. The profit/loss estimated above is
assumed to be after charging depreciation.

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Required:
i. Calculate the net present value (NPV) of the investment at a discount rate of 10% per annum.
(Discount factors at 10% are - Year 1: 0.909, Year 2: 0.826, Year 3: 0.751, Year 4: 0.683, Year 5:
0.621) 7
ii. Explain whether the investment is worthwhile or not based on your calculations. 3
a) The NPV formula solves for the present value of a stream of cash flows, given a discount rate. The
IRR on the other hand, solves for a rate of return when setting the NPV equal to zero (0).I n other
words, the IRR answers the question “what rate of return will I achieve, given the following stream of
cash flows?”, while the NPV answers the question “what is the following stream of cash flows worth
at a particular discount rate, in today’s dollars?
(ii) Discounted at a rate of 10% per annum, the present value of the expected cash inflows from the
investment at BDT 187,700, exceeds the BDT 175,000 original investment. The net cash flows of
BDT 12,700 is significantly less than the undiscounted net cash flow of BDT 81,000 due to the time
value of money.
The investment in new machinery is nevertheless worthwhile, given that 10% is the company’s
required rate of annual return, because the NPV is positive when the incremental cash flows are
discounted at this rate.
(i)
Year
Cash Flow
(BDT’000)
Discount Factor
NPV
(BDT’000)
NPV
(BDT’000)
0 (175) 1.000 (175)
1 24 (-11+35) 0.909 21.8
2 38 ( 3+35) 0.826 31.4
3 69 (34+35) 0.751 51.8
4 82 (47+35) 0.683 56.0
5 43 (8+35) 0.621 26.7 187.7
Total 81 12.7

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TAXATION-I
May-June 2017
Question No.1
(a) Explain Government’s taxation objectives and its importance in the context of economic, social and
environmental issues. 5
(b) Describe the sources of national tax laws and practices and their relative importance. 5
(c) What are the differences between avoidance of double taxation and double taxation relief as
provided in Sections 144 and 145 respectively of the Income Tax Ordinance 1984? 5
(d) Mr. Nazim, a Bangladeshi resident, received interest income of Tk. 450,000 from Indonesia after
deduction of 10% of tax at source during the year ended on 30 June 2016. His other income in
Bangladesh amounts to Tk. 300,000 for the same year. Compute the net tax liability of Mr. Nazim.
5
Answer to Question No.1 (a)
Taxation is one of the major sources of revenue to Government to meet a country’s revenue and
development expenditures with a view to accomplishing some economic and social objectives, such as
redistribution of income, price stabilization and discouraging consumption of harmful and socially
undesirable goods. Some major objectives and importance of income tax are as follows:
(i) Revenue Collection: Income tax is a major source of revenue for the government. In Bangladesh,
income tax revenue accounts for nearly 37% of total tax revenue. Therefore, the first and foremost
aim of income tax is to raise public revenue to meet the ever increasing public expenditure.
(ii) Re-distribution of Income: An effective, efficient and fair taxation system can reduce inequalities in
income and wealth. This is possible by taxing rich people heavily and to confer benefit to the poorer
section through progressive income tax.
(iii)Increase in Savings: An effective and efficient tax system encourages people to save through
providing tax credit facilities on investment allowance.
(iv) Increase in Capital Investment: An effective and efficient tax system encourages local and foreign
investors to invest in the country through providing various facilities like tax credit facilities on
investment allowance, tax holiday scheme, depreciation allowance, tax incentives etc.
(v) Economic Development: The income tax revenue can be used by the government to ensure the
economic development of the country. It can be used to build the infrastructure, to invest in social
security programs, in various poverty elevation programs.
So, from the above discussion it is clear that income tax plays a significant role in the economic
development of a country.
(i) Legislation
The basic rules of Bangladesh taxation (including VAT)system are based on the Income Tax
Ordinance 1984 and the Income Tax Rules 1984, The Value Added Tax Act 1991 and the Value
Added Tax Rules 1991. The tax legislation is amended each year by the Finance Act and is based
on proposals in the Budget each year. The Finance Act generally relates to the Income Year and
Assessment Year starting in July of that year. -

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(ii) Case Law
Over the years, many of tax cases have been brought before the courts where the interpretation of
statute law is unclear.
Decisions made by judges to resolve these cases form case law. Many judgments are precedent for
future cases which means that they must be followed unless superseded by legislation or the
decision of a higher court.
(iii) NBR Publication
The National Board of Revenue (NBR) is a statutory body having the highest executive authority
and 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. NBR makes available some
forms, notifications, brochures, and guidelines of income tax, VAT and customs through its
websites and other forms of communication for public at large.
There are many SROs, office orders, clarification and circulars on income tax and VAT published
by NBR providing guideline for tax purpose.
Double tax relief means granting of relief in respect of any income accrued or arisen in any income year
outside Bangladesh on which income tax has been paid by deduction or otherwise, in any country with
whom there is no reciprocal agreement for relief or avoidance of double taxation. This relief only can be
enjoyed if DCT has satisfied with the proves.
Double taxation avoidance means avoidance of double taxation on income under the tax laws of the two
countries. One important distinction between the two is that in the case of avoidance of double taxation
the assessee does not have to pay the tax first to claim refund later but he would be obliged to do so in the
case of relief against double taxation. The other distinction is that no benefit is given unless otherwise
stipulated in the Double Taxation Avoidance Agreement(DTAA)but relief can be awarded unilaterally
against double tax even when there exists no DTAA. Section 145 of Bangladesh Income Tax Ordinance
1984 empowers the DCT to grant such relief, subject to such rules as the NBR may make in this behalf.
Firstly, as per Section 144 of Income Tax Ordinance 1984, where Bangladesh Govt. has entered into any
DTAA, the provisions of that agreement would normally apply to the case of an assessee covered by such
agreement. However, if the relevant provisions in the Bangladesh Income Tax Ordinance are more
favourable, then to that extent he can seek applications of the provisions of the Ordinance as against those
of the agreement.
Double tax avoidance and tax relief as presented in Sections 144 and 145 respectively in IT Ordinance
1984 have conceptual difference which is presented in the table below:
Reference Income Heading of the
Section
Tax Advantages
Section 144 and
Schedule 7
Arises from those
countries with
whom there is
DTAA
Avoidance of
Double Taxation
Tax calculated as per rate in the
agreement, but it will not be more
than the tax amount calculated on the
basis of the average tax rate
applicable in Bangladesh (considering
foreign income in total income) on the
foreign income.

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Section 145 Arises from those
countries with
whom there is no
DTAA
Relief Tax calculated on such doubly taxed
income at the average rate of tax of
Bangladesh or the average rate of tax
of the said country, whichever is
lower subject to such rule as the NBR
may make in this behalf.
Answer to Question No. 1 (d)
Mr. Nazim
Assessment Year 2016 - 2017
Heads of Income Amount in Taka
Income from Bangladesh Sources 300,000
Foreign Income (Tk. 450,000/1-0.1) 500,000
Total Income 800,000
Computation of Tax Liability:
Tier of Income Rate Amount in Taka
On first Tk. 250,000 Nil Nil
On next Tk. 400,000 10% 40,000
On balance Tk. 150,000 15% 22,500
Total Tk. 800,000 62,500
Thus, the average tax rate in Bangladesh is 07.81% (Tk. 62,500/800,000 X 100). So, the maximum limit
of tax credit will be Tk. 39,050 (Tk. 500,000 X 07.81%) though he already paid Tk. 50,000 tax in
Indonesia. Mr. Nazim will have to pay Tk. 23,450 (Tk. 62,500 - Tk. 39,050) as remaining tax in
Bangladesh.
Question No. 2
(a) What is the difference between Tax Evasion and Tax Avoidance? 3
(b)
How does a professional accountant maintain confidentiality in a social
environment?
7
Tax Avoidance
Tax avoidance is the legal utilization of the tax regime to one’s own advantage, to reduce the amount of
tax that is payable by means that are within the law. In natural rule of law, it is the legal right of an
individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted. Example include: country of residence, double taxation,
ambiguity in law etc. where tax avoidance can be exercised.

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Tax Evasion
By contrast, tax evasion is the general term for efforts by individuals, firms, trusts and other entities to
evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or
concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in
particular, dishonest tax reporting (such as declaring less income, profits or gains than actually earned; or
overstating deductions).
Tax evasion is an activity commonly associated with the underground economy and considered as the
amount of unreported income, namely the difference between the amount of income that should legally be
reported to the tax authorities and the actual amount reported.
A professional accountant should maintain confidentiality even in a social environment. The professional
accountant should be alert to the possibility of inadvertent disclosure, particularly in circumstances
involving long association with a business associate or a close or immediate family member.
Question No. 3
(a) Discuss Universal Self-Assessment and Best Judgment Assessment.
7
(b) What is the due date of Submission of Return of Income? 4
(c) What is the provision in Section 78 in respect of filing of a Revised Return? 3
Universal Self-Assessment
Where an assessee furnishes a correct and complete return of income, the Deputy Commissioner of Taxes
in accordance with Section 82BB receive such return himself or cause to be received by any other official
authorized by him and issue a receipt of such return and the said receipt shall be deemed to be an order of
assessment for the assessment year for which the return is filed.
No return (as filed u/s 82BB) shall be selected for audit if,
a) Such return shows at least 15% higher total income than the total income assessed in the
immediately preceeding assessment year;
b) Such return
i. is accompanied by corroborative evidence in support of income exempted from tax;
ii. is accompanied by a copy of bank statements or account statement, as the case may be, in
support of any sum or aggregate of sums of loan exceeding Tk. 500,000 taken other than
from of bank or financial institution;
iii. does not show the receipt of gift during the year;
iv. does not show any income which is subject to tax exemption or reduced tax rate; or
v. does not show or result any refund.
Best Judgment Assessment
Where any person fails:
(i) to file return required by a Notice under Section 77 and has not filed a return or revised return under
Section 78; or
(ii) to comply with the requirements of a Notice under Section 79 or 80; or
(iii)to comply with the requirements of a Notice under Section 83 (1);

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The Deputy Commissioner of Taxes under Section 84 of Income Tax Ordinance shall, by an order in
writing, assess the total income of the assessee to the best of his judgment and determine the sum payable
by the assessee on the basis of his assessment.
(i) The return of income shall be filed on or before the “Tax Day” which is:
(a) in the case of a company, the fifteenth day of the seventh month following the end of the income
year or the fifteenth day of September following the end of the income year where the said fifteen
day falls before the fifteenth day of September
(b) in all other cases, the thirtieth day of November following the end of the income year.
(ii) The last date for the submission of return as specified in Section 75 (5) may be extended by the
Deputy Commissioner of Taxes upto two months from the date so specified and he may further
extend the date upto two months with the approval of the Inspecting Joint Commissioner of Taxes.
Any person who has not filed a return as required by Section 75 or 77 or who having filed return,
discovers any omission or incorrect statements therein, may, without prejudice to any liability which he
may have incurred on this account, file a return or a revised return, as the case may be, at any time before
the assessment is made.
Question No. 4
The Trading and Profit and Loss Account of Basic Enterprise for the year ended 30 June 2017 is :
Debit Taka Credit Taka
Opening Stock 120,000 Sales 1,480,000
Purchase 490,000 Closing Stock 51,000
Depreciation on Plant and Machinery 14,000
Electricity and Fuel 17,000
Gross Profit c/d 890,000
1,531,000 1,531,000
Salaries and wages 124,000 Gross Profit b/d 890,000
Repairs and Maintenance 19,000 Bad Debt Recovered 25,000
Travelling and Conveyance 17,000 Interest Received 28,000
Professional Expenses 18,000 Interest on Commercial Securities 38,000
Commission and Brokerage 42,000
Dividend on Shares of a listed
Company 63,000
Bad Debts 26,000
Legal Fees 20,000
Depreciation on Building 38,000
Donation 23,000
Retirement benefits to Employees 96,000
Advance Income Tax 37,000
Loss on Sale of old Computer 6,000
Miscellaneous Expenses 85,000
Net Profit 493,000
1,044,000 1,044,000

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Important Information:
1. Salary and wages include Tk. 26,000 as salaries paid to the owner.
2. Recovered amount of bad debt was previously allowed as bad debt expenses.
3. Miscellaneous expenses includes Tk.15,000 as fines and penalties which were due to avoidance of
tax payment at an earlier period and Tk.30,000 that was incurred for purchasing one computer for
the business.
4. Tax depreciation was calculated as Depreciation on Plant and Machinery Tk.28,000 and
Deprecation on Building Tk.30,000.
Mr. Zaman is the Proprietor of Basic Enterprise. Compute the Income from Business or Profession
and Total Income of Mr. Zaman for the year ended 30 June 2017. 20
Assessee : Basic Enterprise (Proprietor : Mr. Zaman)
Computation of Total Income for the year ended 30 June 2017
Assessment Year 2017 - 2018
Amount in Taka
Income from Business and Profession 493,000
Net Profit as per Profit and Loss Account
Less : Non-business Income (For consideration at appropriate head)
1. Interest on commercial securities 38,000
2. Dividend on M share of Ltd. company 63,000
(101,000)
Add : Inadmissible Expenses
1. Salaries and wages (as it is withdraw from proprietorship business not
exp)
26,000
2. Advance income tax (as tax is not expenses) 37,000
3. Fines and penalties (for violation of law) 15,000
4. Depreciation (for consideration as per 3rd schedule)
On Plant and Machinery 14,000
On Building 38,000
5. Miscellaneous expenses (within this capital expenditure is Tk. 30,000) 30,000
6. Donation (assumed that it is not Govt. approved fund) 23,000
183,000
Less : Tax depreciation (as per 3rd schedule)
On Plant and Machinery 28,000
On Building 30,000
(58,000)
517,000
Income from Interest on Securities
Interest on commercial securities 38,000
Income from Other Sources
Dividend (assuming cash dividend from listed company) 63,000
Less :Exemption Tax free as per 6th schedule (Part - A) (Para - 11A) 25,000
38,000
593,000

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Note –1 :
As interest and discount income of Tk. 28,000 is mixed-up, and break-up of the nature of income is not
given, I consider it as a part of business income. As it is properly shown in Profit and Loss Account, no
adjustment is required.
Note – 2 :
Bad debt recovered is income. As it is properly reflected in Profit and Loss Account, no adjustment U/S
19(15(a) is required.
Note –3 :
Gratuity to employees is allowable expenditure if it is approved by the NBR. I assume that it is approved
gratuity.
Question No. 5
Mr. Kamal has a two storied building at Motijheel C/A. He had started construction of the house on
1st July, 2014 and completed the construction on 30th June, 2016. After the construction, he let out
the full building to a branch of ABC Bank at a monthly rent of Tk.2,50,000 effective from 1st July,
2016. He has also taken Tk.2,500,000 as advance from ABC Bank. The municipal value of the house
is Tk.3,200,000.
Expenses incurred in the income year 2016-2017 for that house were:
(a) Repair expense Tk.600,000
(b) City Corporation tax Tk.60,000
(c) Fire insurance premium Tk.26,000
(d) Installation of Generator Tk.100,000
Mr. Kamal borrowed Tk.1,800,000 from ABC Bank Motijheel Branch @7.5% interest on 1st July,
2014. Per year installment of the loan is Tk.350,000.
Total interest expense during the construction period of 2 years Tk.270,000 (assuming simple
interest).
Calculate income of Mr. Kamal under section 24 of the income tax Ordinance 1984. 12
Mr. Kamal
Income year: 2016 – 2017
Assessment year: 2017- 2018
Calculation of Total Income
Tk. Tk.
Income from House Property (Section -24):
Actual rental value:
Rental value (250,000 x 12) 3,000,000
Municipal value 3,200,000
Annual value (higher one) 3,200,000
Receipt of Advance [2,500,000 ÷ 5] 500,000
Unspent repair exp. u/s 19(3) [960,000 – 600,000] 360,000
4,060,000

Page | 48
Less: Admissible expenses: 32
Repair & Maintenance (3,200,000 x 30%) 960,000
City Corporation tax 60,000
Fire insurance premium 26,000
Int. on loan for construction period (270,000 ÷ 3) 90,000
Interest on loan for current income year 135,000
1,271,000
Total 2,789,000
Notes:
(1) Since the house is let out for commercial purpose, repair and maintenance expense is considered
as 30% of the annual value. Here actual spending for such a purpose is not considerable.
(2) 5% TDS is applicable as the building is let out to a commercial bank.
(3) Interest on loan during the construction period, is admissible in three equal proportionate
installments for subsequent first three years as per section 25(1)(gg).
(4) Advance amount may be shown fully in the income year or may be allocated among 5 years at
the option of the assessee.
(5) Installation of Generator is a capital expenditure, so this is not admissible.
(6) As the building is not self-occupied or partially occupied, any amount of interest expense is
admissible.
(7) Since, actual spending for repair expenses and collection expenses is less than the allowable
limit, the difference has been considered as income as per Section 19(3).
Question No. 6
As per tax law how does a Deputy Commissioner of Taxes may obtain assistance during the course
of his proceedings? 4
In the course of any proceedings under the Ordinance, the Deputy Commissioner of Taxes may be
assisted, guided or instructed by any income tax authority to whom he is subordinate or any other person
authorized in this behalf by the Board.
Question No. 7
Write the name of persons who are responsible to deduct VAT at source
The following persons shall be responsible for deduction of VAT at source:
(a) Government;
(b) Semi-Autonomous Bodies;
(c) Autonomous Bodies;
(d) NGOs;
(e) Banks; Insurance Companies; and
(f) Limited Companies.
Question No. 8
The following information has been taken from the accounting records of MNO Limited for the year
2016:

Page | 49
Raw materials inventory, January 1
Tk.75,000 Raw materials inventory,
December 31 Tk.45,000 Work in process
inventory, January 1 Tk.160,000
Work in process inventory, December 31,
Tk.80,000 Finished goods inventory, January 1,
Tk.210,000 Finished goods inventory,
December 31, Tk.160,000
Purchase of raw materials Tk.700,000; Wages Tk.120,000; Production overhead Tk.560,000;
Marketing expenses Tk.120,000; and Administrative and other expenses Tk.240,000. The company
sells its product by adding 16% profit on cost. Determine the amount of VAT if the rate is 15%. 14
MNO Limited
Schedule of VAT calculation
For the year ended on December 31, 2016
Taka Taka
Raw materials, January 1 75,000
Add: Purchase of raw materials 700,000
Raw materials available for use 775,000
Less: Raw materials, December 31 45,000
Raw materials used in the production 730,000
Wages 120,000
Production overhead 560,000
Total production cost 1,410,000
Add: Work in process, January 1 160,000
1,570,000
Less: Work in process, December 1 80,000
Cost of goods produced 1,490,000
Add: Finished goods inventory, January 1 210,000
Goods available for sale 1,700,000
Less: Finished goods inventory, December 31 160,000
Cost of goods sold 1,540,000
Add: Profit [1,540,000 x 16%] 246,400
Selling price 1,786,000
Value Added Tax:
VAT on output [1,786,400 x 15%] = 267,960
Less: VAT on input i.e. Raw materials used [730,000 x 15] = 109,500
VAT payable = 158,460

Page | 50
BUSINESS & COMMERCIAL LAW
May-June 2017
Question No. 1.
Marks
(a) How long does an offer last? 3
(b) “All Agreements are not contract” -Explain 4
(c) What do you understand by Quantum Meruit in case of Law of Contract? 4
(d) What are the rules regarding the Doctrine of Quantum Meruit. 7
(e) Zaara lived in a City Corporation house in Dhaka and received a brochure from the corporation
seeking to determine whether corporation tenants would be interested in buying their corporation
houses. Interested parties were advised to return the form attached to the brochure, which Zaara did.
As a result, the corporation sent her a letter saying that the corporation may be prepared to sell her the
house for Taka 10,000,000. The letter enclosed an application form to purchase the house which
Zaara filled out and returned.
After Zaara had sent her application, the corporation changed hands and the new corporation reversed
the policy on selling City Corporation houses. Only in cases where there had been an exchange of
contracts were treated as completed sales. Zaara sued the corporation, claiming that the letter she had
been sent by the former corporation was an offer which she had accepted at the time when she made
her formal application. 7
An Offer may cease to exist under any of the following circumstances-
The communication of a proposal is complete when it comes to the knowledge of the person to whom it is
made.
Revocation/Lapse of Proposal:
A proposal comes to an end, and no longer open to acceptance under the following circumstances:
i). By notice
ii). By lapse of time
iii). After expiry of reasonable time
iv). By failure of reasonable time
v). By failure of a condition precedent
vi). By death of insanity
vii). Counter offer
viii).By refusal
Revocation of Acceptance
An acceptance can be revoked any time before the acceptance comes to the knowledge of the proposer
but not afterwards.
Agreement is a much wider concept than a contract. Agreements in which the intention to create legal
obligation is absent are not contracts. Therefore, agreements relating to social matters are not contracts.
For example, an agreement between two persons to go together for a walk, or a cinema show does not
create any legal obligation on their part to abide by it.

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