Volume 03 - 2016

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Application of LKAS 16 & LKAS 39
(Department of Accountancy, University of Kelaniya, 2016) Jayasinghe, B.G.W.A.C.W.; Rajapakse, R.M.D.A.P.
PQR Lanka is a non-profit organization in Sri Lanka. The organization was registered in 1995 with the mission and vision to provide assistance and help to those who are living under the poverty line and to help people who were affected by the war in Sri Lanka. This case is relating to an issue of identification criteria of Property, Plant & Equipment.
Can it classify as Inventory or PPE?
(Department of Accountancy, University of Kelaniya, 2016) Vimukthirathne, T.H.N.; Aruppala, W.D.N.
ABC shipping (private) Limited is a limited liability company incorporated in Sri Lankan and registered under the companies Act no 7 of 2007.It is a transportation Company. Company owns a ship which is called as “Meritine”. The principle activity of this Company is transporting gas & fuel by using this ship. Generally there are two cylinders in every ship in order to balance the ship. Most of the ships have filled these cylinders by using oil but here, this ship has used gas to fill these cylinders. Normally this ship is repaired once per every four years. When repairing ship, the gas filled in the cylinders will release to the air which would be a lost to the company.
Can We Place Entire Web site Development Cost in One Bucket?
(Department of Accountancy, University of Kelaniya, 2016) Dayananda, K.H.N.K.; Thilakrathne, P.M.C.
NK Logistics (Pvt) Ltd is a limited liability company incorporated in and domiciled in Sri Lanka. The company has invested in a fully owned subsidiary called “TT Destinations (Pvt) Ltd” in the audited financial year, i.e.; 2014/2015. Its’ principal business activity is to provide transportation service. Normally company organizes tourist trips for both local & foreign tourists. In addition they provide vehicle hiring service, air ticket booking and hotel accommodation service. Usually businesses tend to charges all the expenses with regards to web development, especially relatively small businesses like “TT Destinations (Pvt) Ltd”. They always feel that it is justifiable & easy to charge them to P/L. However firms should consider nature of those expenses before record as an expense.
Classification Issue of Non-Current Assets
(Department of Accountancy, University of Kelaniya, 2016) Chandrarathna, A.G.K.; Thilakarathna, P.M.C.
ABC Ltd is a company incorporated and domiciled in Sri Lanka. Company has a building which owns to them and it has two floors. They have marketing department, information technology department and Accounts department in the second floor. But the first floor is rented out to a foreign customer.
Classification of Non-Current Asset as Held for Sale
(Department of Accountancy, University of Kelaniya, 2016) Perera, E.A.S.M.; Rathnairi, U.A.H.A.
XYZ (Pvt) Ltd is a subsidiary of ABC (Pvt) Ltd which is the main agent of A&B PLC. The company has been acted as an agent for selling Easy Cash, Reloads and Dongles of A&B PLC. The head office is located in Colombo 03 and there are 44 outlets in Sri Lanka. The company has a building which was occupied as the main outlet and store which is located in Colombo 04. Later it was unoccupied and management has decided to sell that unoccupied land and building. But the company has recognized in the statement of financial position as a Non- Current Asset. The asset had been depreciated and depreciation has been charged to Income Statement as well.
Detection of Occupational Fraud on Leasing Companies
(Department of Accountancy, University of Kelaniya, 2016) Peiris, M.M.; Rathnasiri, U.A.H.A.
MM PLC is one of a leading finance company in Sri Lanka. The principle business activities of the company are leasing, hire purchase financing, vehicle hire, deposit mobilization and vehicle trading. It was found a fraud committed by one of the marketing officer during the branch internal audit.
Disclosure of Director’s Loan. Case Studies in Accounting “Bridging the Gap”
(Department of Accountancy, University of Kelaniya, 2016) Priyanganie, K.A.I.; Priyanganie, K.A.I.
XYZ (Pvt) Ltd is a limited liability company which is engaged producing, importing and hiring films all over the country. They are distributing films using their own circuit of film halls and other circuits, and providing space in their film halls to distribute films of other film circuits. During the financial reporting period of 2013/2014 company has provided a loan for a Managing Director of the company for the purpose of producing, printing and promoting a particular film. The loan has been provided legally with film loan agreement within the parties of Film producer and Film Distributor.
Does it Worth Capitalizing?
(Department of Accountancy, University of Kelaniya, 2016) Chathuri, I.P.D.; Thilakarathne, P.M.C.
ABC Active (Pvt) LTD is a separate legal entity under Active cluster of ABC (Pvt) LTD. ABC (Pvt) LTD is a $1.2 bn conglomerate and is positioned as one of the world’s most recognized Design–to-Delivery Solution Providers in the realm of Apparel and Textile Manufacturing. Being one of the largest production plants in Sri Lanka, ABC Active (Pvt) LTD owns 03 plants of production comprised with Knitting, Dyeing & Sewing production floors. ABC Active involves high technical knitting machines for their vibrant production process. Discrepancy identified here is that management recognizes total expense in the quotation as cost of a knitting machine although the payment of the asset is based on a deferred scheme.
Full impairment of a Property Plant and Equipment Purchased in the Current Financial Year
(Department of Accountancy, University of Kelaniya, 2016) Rajapaksha, S.R.; Silva, N.L.C.
‘LSI Rubbers (PVT) LTD’ is operating as a group of companies, which produces and sells Rubber, Tea, Coconut and Cinnamon. Major portion of its income is recorded to be received from rubber production. A machine has been purchased by the company which causes for about major portion of surgical gloves produced to be recognized as defects.
How to Treat in Transfer Pricing Requirement?
(Department of Accountancy, University of Kelaniya, 2016) Keerthirathne, D.G.I.C.; Bandara, R.M.S.
XYZ (Pvt) Ltd is a fully owned subsidiary of the PQR Holdings PLC. Its main business operation is providing telecommunication services and solution. XYZ (Pvt) Ltd has faced to a credit shortage issue as it provide services on credit basis. XYZ (Pvt) Ltd had two alternatives to funding cash requirement to its telecommunication projects, alternatives are by taking Bank loan with average market rate or funding through its parent company with reduced or no interest. XYZ (Pvt) Ltd with influence of PQR Holdings PLC will accepting second alterative which obtain tax saving in group perspective. In this scenario XYZ (Pvt) Ltd will be able to continue its business operations and subsequent settlement of loan will be taken place with zero or reduced interest.
Identifying the Issue by Using Audit Trail Report
(Department of Accountancy, University of Kelaniya, 2016) Arachchi, K.A.H.S.K.K.; Madurapperuma, M.W.
PQR (PVT) Ltd is one of the leading companies in Construction & Engineering sector which is importing and selling raw material for building constructions. The company uses Quick Book Accounting Software to record daily transactions.
Improper Recognition of Commission Income from Importing Vehicles to the Permit Holders as Sales Income
(Department of Accountancy, University of Kelaniya, 2016) Meepegama, U.E.; Sujeewa, G.M.M.
ABC (Pvt) Ltd as the Sole agent for X kind of vehicles in Sri Lanka is dedicated to servicing the needs of their customer by providing them with a range of vehicles and attending to their requirements with impeccable after sales services. ABC (Pvt) Ltd merged with DEF PLC in the beginning of the last financial year (2013/14). Therefore, they had an objective to show a good performance in this financial year (2014/15). The principal activity of the Company is importing and distribution of brand X kind of vehicles and spare parts and operating workshops for vehicle repairs. Furthermore, sales can be classified in to four main categories, they are,  Permit sale of vehicles (Acting as intermediary when importing the vehicles by permit holder)  Vehicle sales (Locally purchased and sale )  Sales income earned from repairs  Sale of spare parts According to the nature of the sales, company earns high profit margins from the permit sales when compared to the vehicle sales, because the permit sale transactions contain large amount as local handling charges (Referring to the annex – Rs. 2 Mn) which is normally known as “the commission charge”. On the other hand, local vehicle sales of the company earns a slight profit margin since it has vehicle purchase cost in respect to the sale.
Improper Recognition of Foreign Funding for the Stated Capital
(Department of Accountancy, University of Kelaniya, 2016) Maheshika, U.P.W.; Sujeewa, G.M.M.
Royal (Pvt) ltd is a limited liability company, which was incorporated on the 28thof October 2014. This company is a joint venture company, jointly controlled by Royal international company in India and Royal Ltd in Sri Lanka who has 50% ownership equally. The client’s trading is mainly focused on printing of labels and tags. This case is relating to the foreign funding for the share capital and mainly discusses about the implication of the stamp duty act No 43 of 1982, Inland Revenue act No 10 of 2006 and company act No 07 of 2007.
Inaccurate Goodwill Computation
(Department of Accountancy, University of Kelaniya, 2016) Kalubovila, K.D.W.S.; Bandara, R.M.S.
XYZ is a quoted public company registered under the companies act no. 07 of 2007 in Sri Lanka. The company operates its business activities through 92 branches covering all eight provinces. The principal business activities of the company are lease financing, hire purchasing, real estate projects, granting term loans, vehicle hiring & deposit mobilization.  Central Bank of Sri Lanka introduced a new financial sector consolidation programme in 2014. Several finance companies needed to be merged under this programme.  XYZ PLC had also acquired a medium size finance company called ABC co. Ltd to comply with the provisions given by CBSL. The main business activities of ABC is hire purchase financing, granting of term loans and real estate development Acquisition of all the shares of ABC was taken placed under two different days. a) XYZ PLC acquired 90.1% of issued ordinary share capital of ABC co. Ltd (ABC) on 12/11/2014 at a purchase consideration of Rs. 301.415 Million. b) On 24th June 2015, the company completed the acquisition of 100% of the issued ordinary shares of ABC at a total purchase consideration of Rs.334.507 Million and ABC became a fully owned subsidiary of the Company. The issue was aroused regarding the goodwill computation as at the date of acquisition. ABC had recognized its investment property on cost basis in its individual financial statements. However, the group policy is to measure investment properties on fair value basis. This had not been considered in calculating the goodwill on business combination. Also According to the purchase agreement, Rs.3,000,000.00 needs to be paid as the contingent consideration if the profits for next 3 years exceed over 1,250 Million. This had not been incorporated in goodwill calculation. With reference to the accounting standards the recommendations were given to the management to adjust the goodwill computation by including these changes.
Inappropriate Recognition of PPE
(Department of Accountancy, University of Kelaniya, 2016) Dissanayake, D.M.N.P.; Karunarathne, W.V.A.D.
LMN Company is a leading company which operates in the manufacturing industry. The company manufactures and sells aluminum extrusions. Sales of the company are carrying out by sales outlets and dealers, and also the company export the extrusions as well. The company manufactures extrusions in their own manufacturing plants, therefore the company possesses significant amount of non-current assets which are categorized in to various classes of assets. The company require huge amount of power to operate their machines. They can’t satisfy with the electricity supply which received from general electricity line. Therefore LMN Company has established a transformer in their factory premises after entering the agreement with Ceylon Electricity Board (CEB).
Intended Manipulation of Share Prices
(Department of Accountancy, University of Kelaniya, 2016) Nanayakakra, D.D.; Sujeewa, G.M.M.
XYZ Limited is a Limited Liability Company incorporated & domiciled in Sri Lanka under the companies Act no.07 of 2007. XYZ Limited is a fully owned subsidiary of PQR Limited. ABC Ltd is a subsidiary of the XYZ Ltd which located in same business place & governed by same directors. The principal activity of the company is providing intermediary and advisory services on financial, investments and other corporate activities and Asset Management services. The company had an investment of Rs. 62 Million in KLM PLC shares (one of their related company incorporated in Maldives). This investment was valued at active market price of 10 Maldives Rufiyaa each. In further inquiries it was noted that the active market has been manipulated by parties within the group with the intention of recording a gain from those shares and to make the company visible as a profit making body to the interested parties of its financials.
Interest from Inter-Company Loans
(Department of Accountancy, University of Kelaniya, 2016) Gomas, P.H.; Abewardane, D.K.Y.
“B” a recognized conglomerate in Sri Lanka is composed of companies successfully operating in several industry sectors managing businesses in varied markets. Expanding overseas into the international market, B has spread its products and services globally. The group continues to grow through innovative technology, introducing new products that successfully carve themselves a place in the world of consumer demand. B Company spread their business under several sector. Such as manufacturing, healthcare, Leisure and transportation. Their main target is to provide superior most innovative products to their local as well as foreign customers. Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.
Is Impairment a Compliance Based or a Judgment Based?
(Department of Accountancy, University of Kelaniya, 2016) Yamunani, W.A.R.; Bandara, R.M.S.
X Holdings Limited is one of the investing company which is majorly focusing on investing in subsidiaries, investing in Associates (Quoted and non-quoted investments), investing in joint ventures and other investments (Quoted and non-quoted).
Is it a Liability or Other Income?
(Department of Accountancy, University of Kelaniya, 2016) Wedage, C.M.; Aruppala, W.D.N.
ABC (PVT) LTD is a family owned limited liability company. The principal activity of the company is rent & lease out of a modern office complex with high quality facilities. During the period the company has written back a Rs.3.1 Mn retention Payable balance as sundry income.
Is it a Plan Asset or a Separate Investment?
(Department of Accountancy, University of Kelaniya, 2016) Chandrasoma, S.D.H.P.; Thilakarathna, P.M.C.
PQR Company Ltd is a manufacturing company of toy kits for small babies. The products are a result of higher labour effort. The workforce of the company comprised of about two hundred and sixty employees. PQR Company does not trade any debt or equity instruments in the public market. Hence, the company was identified as a small and medium sized entity. They were having a policy of gratuity payment for the employees as follows.