Volume 03 - 2016

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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.
Valuation of Inventory at Selling Price
(Department of Accountancy, University of Kelaniya, 2016) Priyanganie, K.A.I.; Wijesinghe, K.D.G.N.
PQR limited is limited liability Company which is engaging a retail business as a super market with more than 300 Outlets Island wide. It imports and locally purchases groceries, provisions, liquor, house hold items and fruits & vegetables, and distribute to the outlets using 5 warehouses. Normally they conduct a physical stock verification at the end of every financial year of assessment. On that time of stock count, the company value the stock at selling price.
Revenue Recognition of a Related Party Company According to “Transfer Pricing”
(Department of Accountancy, University of Kelaniya, 2016) Thishanthi, G.T.; Kawshalya, M.P.D.
XYZ Developers Group is a group which consists with three BOI registered companies. The businesses of the companies are purchasing lands, constructing apartment buildings and sell them to customers. As the companies are registered under BOI they are in a tax exempted period.
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.
Recognition of Interest Income in Small Financial Institutions
(Department of Accountancy, University of Kelaniya, 2016) Dharmadasa, P.G.K.H.; Gunasekara, U.L.T.P.
LMD Ltd is a company which provides micro credit in remote areas; however the company does not take deposits. The loan portfolio includes variety of loan categories such as business development, consumption, dairy, etc.
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.
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.
Recognition of the Power Plant as a Non-Current Assets Held for Sale
(Department of Accountancy, University of Kelaniya, 2016) Handunge, T.D.; Abeywardhana, D.K.Y.
XYZ (Pvt) Ltd is Sri Lanka’s first privately owned fabric intensive free trade zone. It is the leader in industrial multi facility connectivity empowering the apparel and fabric manufacturing industry, the best supply chain solution in sustainable industrial eco system. This company provides different types of shared services to other apparel companies as well inside the park and we can categorize these shared services according to five types such as power, water, biological chemical effluent treatment, accommodation and supply chain. This factory was operated earlier by Kaloon Lanka (Pvt) Ltd which was a Korean based company. However in 2006 XYZ (Pvt) Ltd acquired this premises and continue the operations under a 99 years lease agreement with the Board of Investment (BOI). Once they acquired the company, there were different types of assets which were recognized in their new SOFP. These assets are related to the non-current assets, capital working progress and current assets. However if a company does have any intention to sell an asset a set of criteria should be fulfilled according to SLFRS 5-Assets held for sale [Paragraph 2] standard, there after we have to classify that asset as Assets held for sale.
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.
LKAS 16 and Componentization
(Department of Accountancy, University of Kelaniya, 2016) Gunasekara, T.M.T.D.; Abeywardhana, D.K.Y.
Mega PLC established on the 1st November 1969. It is empowered to generate electrical energy, transmit the same and distribute it to reach all categories of consumers and to collect the revenue. It is the duty of the Mega PLC to make the optimal use of the resources through the application of pragmatic and timetested managerial methods in the power and energy sector of Sri Lanka.
Is it a Revenue or Liability?
(Department of Accountancy, University of Kelaniya, 2016) Ariyarathna, K.G.K.S.; Aruppala, W.D.N.
ABC finance PLC is a leading Islamic finance provider in Sri Lanka. It provides lease, Hire purchase and loan facilities to customers. Company is using different jargons to introduce products In the Islamic unit loan lease products are called as Murabha and Ijahra respectively. Islamic finance is been conducting accordance with the principles of sharia law. Sharia law prohibits acceptance of specific interest penal interest and fees for loans. Company recognizes interest under profit share. Though company is charging and collecting penal interest for due rentals, it is not recognized to the period profit. This practice has been created an issue with accounting standers and financial reporting frame work.
Tightening the Internal Controls
(Department of Accountancy, University of Kelaniya, 2016) Mirihagalla, M.K.D.L.; Silva, N.K.L.
XYZ Ltd is a company engages in distribution of pharmaceutical products to pharmacies, groceries, hospitals and doctors. The distribution channel directly operates with credit and cash sales through sales agents and cash collectors. Sales system are mainly operated as credit and cash sales through agents and cash collectors. Collectors are responsible of collecting the cash.
Reinstatement of Fully Depreciated Assets
(Department of Accountancy, University of Kelaniya, 2016) Thilakarathna, P.G.C.M.; Kaushalya, M.P.D.
XYZ Bank is firmly established as a Sri Lanka’s premier financial services organization. Today the Bank’s portfolio of products and services is diverse and comprehensive, to facilitate commercial banking, personal banking, development financing etc. The XYZ Bank now leads in the local banking industry as the biggest in terms of profit, assets, deposits, advances and foreign currency remittance. Most of entities face many issues and questions during the process of accounting for items of property plant and equipment, including determining an asset’s useful life and which depreciation method to employ. With this context, an attempt is made here to examine the accounting treatment with reference to the fully depreciated assets which are still in use in XYZ Bank.
Recognition of Deferred Tax. Case Studies in Accounting “Bridging the Gap"
(Department of Accountancy, University of Kelaniya, 2016) Ifthikar, S.M.; Thilakarathne, C.R.
PQR (Lanka) Limited is a company whose preliminary engagement is to manufacture and sell Paints. It leverages its worldwide experience to deliver products of International quality & assortment to the consumers with complete range of decorative, wood finishes and industrial coatings. When considering about the supply chain of the company, distributors play a vital role which ultimately decide the reachability of products all around the country without any exertion. The rapid change of customer behaviors and innovative technologies led the company to think differently and be wise in the situation where opportunities can explore and execute. Therefore with considering those facts company has been decided to go one step ahead from the manufacturing process on conventional paints. So they introduced “Luxury Paints” as a new product range for the company. Hence dealers need to be attracted to sell new product. Company introduces “Gold Coin Awards” for distributors who achieved more sales on “luxury paints” as a “promotional campaign”. This will be conducted in subsequent financial year based on the performance of current financial year for selected distributors. Since “this is a present obligation and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation”, company has been provided a monthly provision for this gold coin awards.
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.
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.
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.
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.
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.
Non- Recognition of Capital and Revenue Expenditure
(Department of Accountancy, University of Kelaniya, 2016) Rathnasekara, R.T.A.K.L.; Perera, P.R.M.R.
The NOP Lanka Ltd is a manufacturing organization and their prime activity is recycling of lead acid battery scrap and smelting of lead concentrate to produce lead ingots and polypropylene chips. For the production Battery scrap is collected from all over the country. NOP Lanka has 600 ton production capacity of led ingot per month. In NOP Lanka, They use major plant to recycling, lead heating, smelting the lead and after certain time company replaced the major components of the plant during the period. In this case study it has been discussed whether these expenses come under capital nature or recurring expenses.