ADVANCE ACCOUNTS

Course: CA Intermediate
Marks: 100
Time Allowed: 3 Hours
PART A (30 Marks)
MCQ (Each MCQ carry different Marks)
1) Which of the following is the correct journal entry for the ‘Amount due on buyback of shares?

Marks 1

2) The following information pertains to Expert Ltd.

Particulars 31.12.2013 31.12.2014

Creditors 86,600 98,400

Outstanding expenses 85,000 1,15,000

Provision for tax 1,50,000 1,60,000

Debtors 2,68,000 2,54,000

Stock 1,40,000 1,75,000

Net profit before working capital changes is Rs. 5,56,000. The cash flow from operating activities will be.
(A) 4,26,800
(B) 5,76,800
(C) 5,35,200
(D) 4,16,800 Marks 2
Q3) Which of the following is true?
A) Minority shareholder’s share of pre-acquisition losses should be added to the amount of Minority Interest.
B) Holding company’s share of pre-acquisition losses must be debited to Profit & Loss A/c
C) Dividend received out of pre-acquisition profits of the subsidiary should be credited to Investment A/c.
D) Dividend received out of post-acquisition profits of the subsidiary should be debited to Investment A/c.
Marks 1

Q4) ABC Ltd. manufactures control units for air conditioning systems.
Each control unit requires the following:
1 component X at a cost of Rs 1,205 each
1 component Y at a cost of Rs 800 each
Sundry raw materials at a cost of Rs 150 each
The company faces the following monthly expenses:
Factory rent Rs 16,500
Energy cost Rs 7,500
Selling and administrative costs Rs 10,000
Each unit takes two hours to assemble. Production workers are paid Rs 300 per hour.
Production overheads are absorbed into units of production using an hourly rate. The normal level of production
per month is 1,000 hours.
Determine the cost of inventory.
A) 2803
B) 2823
C) 2800
D) 2811 Marks 2

Q5) The fair value of plan assets at the beginning and end of the year were Rs.4,000 and Rs.5,000 respectively.
The employer’s contribution to the plan during the year as Rs.500. Benefit payments to retiree were Rs.400.
Calculate the actual return on plan assets.
A) 1000
B) 900
C) 400
D) 600 Marks 2

Q6) Smallest identifiable group of assets that generate cash inflows that are largely independent of the cash
flows from other assets and group of assets is known as ……..?
A) Cash Generating Unit
B) Branch
C) Department
D) Operating Segment Marks 1

Q7) The person who undertake an agreement, conveys to another person the right to use in return for rent, an
asset for an agreed period of time
A) Lessor
B) Lessee
C) Both
D) None of the above Marks 1
Q8) The capitalisation rate is ?
A) The weighted average of the borrowing costs applicable to all the general borrowings of the entity that are
outstanding during the period
B) The weighted average of the borrowing costs applicable to all the general and specific borrowings of the entity
that are outstanding during the period
C) The weighted average of the borrowing costs applicable to all the specific borrowings of the entity that are
outstanding during the period
D) The weighted average of the borrowing costs applicable to those general borrowings of the entity only that
are used during the period for construction of that particular qualifying asset Marks 1

Q9) Income tax expense should be accrued using the best estimate of the weighted average annual income tax
rate expected for the ……?
A) Interim period
B) Year to date period
C) Full financial year
D) Current period and comparative period Marks 1

Q10) The maximum permissible buy-back under the Companies Act, 2013 is
(A) 10% of paid-up capital with Board resolution.
(B) 25% of paid-up capital with Board resolution.
(C) 25% of the aggregate of paid-up capital and free reserves of the company with a special resolution of
shareholders.
(D) 25% of the aggregate of paid-up capital and free reserves of the company with an ordinary resolution of
shareholders. Marks 1

Q11) Event after the reporting period are those events that occur between the end of the reporting period and
the date………
A) When the financial statements are approved by the Board of Directors
B) Of Annual General Meeting
C) Of signing of the financial statements by the auditors
D) Of finalization of the financial statements by the management after final discussion with auditors
Marks 1

Q12) What does Accounting Standard 5 primarily focus on?

A) Revenue recognition
B) Net profit or loss calculation
C) Inventory valuation
D) Asset depreciation Marks 1

Q13) Induga Ltd., a venturer, purchased an asset of Rs. 20 lakhs from to jointly controlled entity, written down
value of asset in joint venture books was Rs. 24 lakhs. Under proportionate consolidation method, what
adjustment Induga Ltd., should do while preparing financial statements, Induga Ltd. has 50% interest in venture.
A) Induga Ltd. (Venturer) should not recognize its share of loss arising to joint venture from the purchase of asset
from the jointly controlled entity until the asset is sold to third party provided recoverable amount of asset is not
less than 24 lakhs.
B) Induga Ltd. (Venturer) should recognize its share of loss arising to joint venture from the purchase of asset
from the jointly controlled entity until the asset is sold to third party provided recoverable amount of asset is not
less than 24 lakhs.
C) Induga Ltd. (Venturer) should recognize its share of loss arising to joint venture from the purchase of asset
from the jointly controlled entity to the extent of its share i.e 50% until the asset is sold to third party provided
recoverable amount of asset is not less than 24 lakhs.
D) No accounting entry is required. Marks 2

Q14) How should investments in associates be accounted for in consolidated financial statements under AS 23?
A) Using the equity method
B) Using the cost method
C) Using the fair value method
D) Using the consolidation method Marks 1

Q15) Which statement is true regarding the equity method of accounting for associates under AS 23?
A) It recognizes the associate's assets and liabilities at fair value.
B) It records the associate's results in a separate income statement.
C) It recognizes the investor's share of the associate's profit or loss and changes in equity.
D) It fully consolidates the associate's financial statements Marks 1

Q16) Which of the following disclosures is NOT required for government grants?
A) The accounting policy adopted for government grants
B) The nature and extent of government grants recognized in the financial statements
C) The amount of government grants received in the period
D) The method and presentation of grant in financial statements Marks 1

Q17) Which of the following statements are incorrect with regard to the preparation of a consolidated statement
of financial position?
(A) Gain on fair valuation of a subsidiary’s asset is a pre-acquisition profit.
(B) Non-controlling interest does not deserve any portion of fair valuation gain.
(C) If an asset is not reported in the subsidiary’s ledger it need not be fair valued.
(D) Gain on fair valuation of subsidiary’s asset inflates the cost of goodwill.
Select the correct answer from the options given below.
(A) (B), (C) & (D)
(B) (C) & (D)
(C) (A), (C) & (D)
(D) (A), (B) & (C) Marks 1

Q18) Following are the balances of S Ltd. on 31.3.2019:

General Reserve 71,75,000
Profit & Loss Account 73,50,000
H Ltd. acquired 6096 shares on 30th June 2018. Balances of general reserve and profit and loss account on
1.4.2018 of S Ltd. were Rs. 25,000 and Rs. 1,25,000 respectively. Share of H Ltd. in post-acquisition profit will be –
(A) Rs. 1,68,750
(B) Rs. 1,46,250
(C) Rs. 1,12,500
(D) Rs. 2,81,250 Marks 2

Q19) Which exchange rate will be considered for the conversion of the share capital of the subsidiary company?
(A) Closing rate
(B) Opening Rate
(C) Actual rate on the date of share acquisition
(D) Average Rate Marks 1

Q20) Installment of principal amount of long-term loan payable within next 12 months is shown under Balance
Sheet of a company under the heading.
A) Non-current Assets
B) Non-current Liabilities
C) Current Assets
D) Current Liabilities Marks 1

Q21) In the case of a financial enterprise, interest received on debentures held as an investment is:
A) Financing activity
B) Investing activity
C) Operating activity
D) Either A or B Marks 1

Q22) Which statement contains opening as well as closing balances of cash and cash equivalents and prepared on
an accrual basis.
A) Cash flow statement
B) Fund flow statement
C) Both (A) and (B) above
D) Statement of income & expenditure Marks 1

Q23) Which of the following is NOT an employee benefit?

A) Wages and salaries
B) Social security contributions
C) Paid time off
D) Loans to employees Marks 1

Q24) Which of the following is NOT a minimum component of an interim financial report?
A) Condensed balance sheet
B) Condensed statement of profit and loss
C) Condensed cash flow statement
D) Detailed statement of changes in equity Marks 1

Q25) When is a provision recognized in accordance with AS 29 (Revised)?

A) When it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation.
B) When the amount of the obligation can be reliably estimated.
C) Both (a) and (b)
D) Neither (a) nor (b) Marks 1

PART B
All Questions are compulsory

Q1)Answer the following:

a) Win Ltd. has entered into a three year lease arrangement with Tanya sports club in respect of Fitness
Equipments costing Rs. 16,99,999.50. The annual lease payments to be made at the end of each year are
structured in such a way that the sum of the Present Values of the lease payments and that of the residual
value together equal the cost of the equipments leased out. The unguaranteed residual value of the
equipment at the expiry of the lease is estimated to be Rs. 1,33,500. The assets would revert to the lessor at
the end of the lease. Given that the implicit rate of interest is 10%.
You are required to calculate the amount of the annual lease payment and the unearned finance income.
Discounting Factor at 10% for years 1, 2 and 3 are 0.909, 0.826 and 0.751 respectively.
Marks 4

b) The borrowings profile of Santra Pharmaceuticals Ltd. set up for the manufacture of antibiotics at Navi
Mumbai is as under:

Date Nature of Amount Purpose of borrowings Incidental

borrowings borrowed expenses
( Rs. )
1st January, 2016 15% demand loan 60 lakhs Acquisition of fixed 8.33%
assets
1st July, 2016 14.5% Term loan 40 lakhs Acquisition of plant and 5%
machinery
1st October, 2016 14% bonds 50 lakhs Acquisition of fixed 8%
assets
The incidental expenses consist of commission and service charges for arranging the loans and are paid after
rounding off to the nearest lakh.
Fixed assets considered as qualifying assets are as under:

( Rs. )
Sterile Manufacturing shed 10,00,000
Plant and machinery (total) 90,00,000
Other fixed assets 10,00,000
The Project is completed on 1st January, 2017 and is ready for commercial production. Show the
capitalization of the borrowing costs. Marks 5

c) A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is required. The company
provides you following information for the year ended 31st March, 2017.

Rs. Per unit

Raw Material X
 Cost price 380
Unloading Charges 20
Freight Inward 40
Replacement cost 300
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80
Additional Information:
(i) Total fixed overhead for the year was Rs. 4,00,000 on normal capacity of 20,000 units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was Rs. 2,400 units.
You are required to calculate the total value of closing stock of Raw Material X and Chemical Y according to
AS 2, when
(i) Net realizable value of Chemical Y is Rs. 800 per unit
(ii) Net realizable value of Chemical Y is Rs. 600 per unit Marks 5

Q2) Answer the following:

a) Following is the summarized Balance Sheet of Complicated Ltd. as on 31st March, 2016:

Liabilities Amount
(Rs.)
Equity shares of Rs. 10 each, fully paid up 12,50,000
Bonus shares of Rs. 10 each, fully paid up 1,00,000
Share option outstanding Account 4,00,000
Revenue Reserve 15,00,000
Securities Premium 2,50,000
Profit & Loss Account 1,25,000
Capital Reserve 2,00,000
Unpaid dividends 1,00,000
12% Debentures (Secured) 18,75,000
Advance from related parties (Unsecured) 10,00,000
Current maturities of long term borrowings 16,50,000
Application money received for allotment due for refund 2,00,000
86,50,000
Fixed Assets 46,50,000
Current Assets 40,00,000
86,50,000
The Company wants to buy back 25,000 equity shares of Rs. 10 each, on 1st April, 2016 at Rs. 20 per share. Buy back of
shares is duly authorized by its Articles and necessary resolution has been passed by the Company towards this. The buy-
back of shares by the Company is also within the provisions of the Companies Act, 2013.
The payment for buy back of shares will be made by the Company out of sufficient bank balance available shown
as part of Current Assets.
You are required to prepare the necessary journal entries towards buy back of shares and prepare the Balance Sheet
after buy back of shares. Marks 10

b) Z Ltd. purchased a fixed asset for Rs. 50 lakhs, which has the estimated useful life of 5 years with the salvage
value of Rs. 5,00,000. On purchase of the assets government granted it a grant for Rs. 10 lakhs. Pass the necessary
journal entries in the books of the company for first two years if the grant is treated as deferred income.
Marks 4
Q3) Answer the following:
a) Given below are the Profit & Loss Accounts of Hello Ltd. and its subsidiary Sun Ltd. for the year ended 31st March,
2017:
Hello Ltd. Sun Ltd.
(Rs. in lacs) (Rs. in lacs)
Incomes:
Sales and other income 10,000 2,000
Increase in Inventory 2,000 400
12,000 2,400
Expenses:
Raw material consumed 1,600 400
Wages and Salaries 1,600 300
Production expenses 400 200
Administrative Expenses 400 200
Selling and Distribution Expenses 400 100
Interest 200 100
Depreciation 200 100
4,800 1,400
Profit before tax 7,200 1,000
Provision for tax 2,400 400
Profit after tax 4,800 600
Dividend paid 2,400 300
Balance of Profit 2,400 300
Other Information:
Hello Ltd. sold goods to Sun Ltd. of Rs. 240 lacs at cost plus 20%. Inventory of Sun Ltd. includes such goods valuing
Rs. 48 lacs. Administrative expenses of Sun Ltd. include Rs. 10 lacs paid to Hello Ltd. as consultancyfees. Selling
and distribution expenses of Hello Ltd. include Rs. 20 lacs paid to Sun Ltd. as commission.
Hello Ltd. holds 80% of equity share capital of Rs. 2,000 lacs in Sun Ltd. prior to 2015-2016. Hello Ltd. took credit to
its Profit and Loss Account, the proportionate amount of dividend declared and paid by Sun Ltd. for the year 2015-
2016.
You are required to prepare a consolidated profit and loss account of Hello Ltd. and its subsidiary Sun Ltd. for the
year ended 31st March, 2017. Marks 8

b) Neel Ltd. and Gagan Ltd. amalgamated to form a new company on 1.04.20X1. Following is the Draft Balance Sheet of
Neel Ltd. and Gagan Ltd. as at 31.3.20X1:

Liabilities Neel Gagan Assets Neel Gagan

Rs. Rs. Rs. Rs.
Capital 7,75,000 8,55,000 Plant & 4,85,000 6,14,000
Machinery
Current 6,23,500 5,57,600 Building 7,50,000 6,40,000
liabilities
Current assets 1,63,500 1,58,600
13,98,500 14,12,600 13,98,500 14,12,600
Following are the additional information:
(i) The authorised capital of the new company will be Rs. 25,00,000 divided into 1,00,000 equity shares of Rs. 25
each.
(ii) Liabilities of Neel Ltd. includes Rs. 50,000 due to Gagan Ltd. for the purchases made. Gagan Ltd. made a profit of
20% on sale to Neel Ltd.
(iii) Neel Ltd. had purchased goods costing Rs. 10,000 from Gagan Ltd. All these goods are included in the current
asset of Neel Ltd. as at 31st March, 20X1.
(iv) The assets of Neel Ltd. and Gagan Ltd. are to be revalued as under:
Neel Gagan
Rs. Rs.
Plant and machinery 5,25,000 6,75,000
Building 7,75,000 6,48,000
(v) The purchase consideration is to be discharged as under:
(a) Issue 24,000 equity shares of Rs. 25 each fully paid up in the proportion of their profitability in
thepreceding 2 years.
(b) Profits for the preceding 2 years are given below:
Neel Gagan
Rs. Rs.

1st year 2,62,800 2,75,125

IInd year 2,12,200 2,49,875

Total 4,75,000 5,25,000
(c) Issue 12% preference shares of Rs. 10 each fully paid up at par to provide income equivalent to 8%
return on net assets in the business as on 31.3.20X1 after revaluation of assets of Neel Ltd. and Gagan Ltd.
respectively.
You are required to compute the
(i) equity and preference shares issued to Neel Ltd. and Gagan Ltd.,
(ii) Purchase consideration. Marks 6

Q4) Answer the following:

a) From the following information, prepare a Cash Flow Statement for the year ended 31st March, 2019.
Balance Sheets
Particulars Note 31.03.2019 31.03.2018
(Rs.) (Rs.)
I EQUITY AND LIABILITES
(1) Shareholder’s Funds
(a) Share Capital 1 3,50,000 3,00,000
(b) Reserves and Surplus 2 82,000 38,000
(2) Non-Current Liabilities
(3) Current Liabilities
(a) Trade Payables 65,000 44,000
(b) Other Current Liabilities 3 37,000 27,000
(c) Short term Provisions 32,000 28,000
(provision for tax)
Total 5,66,000 4,37,000
I ASSETS
I (1) Non-current Assets
(a) Tangible Assets 4 2,66,000 1,90,000
(b) Intangible Assets (Goodwill) 47,000 60,000
Non-Current Investments 35,000 10,000
(2) Current Assets
(a) Inventories 78,000 85,000
(b) Trade Receivables 1,08,000 75,000
(c) Cash & Cash Equivalents 32,000 17,000
Total 5,66,000 4,37,000
Note 1: Share Capital
 Particulars 31.03.2019 31.03.2018 (Rs.)
(Rs.)
Equity Share Capital 2,50,000 1,50,000
8% Preference Share Capital 1,00,000 1,50,000
Total 3,50,000 3,00,000
Note 2: Reserves and Surplus
Particulars 31.03.2019 31.03.2018
(Rs.) (Rs.)
General Reserve 30,000 20,000
Profit and Loss A/c 27,000 18,000
Capital Reserve 25,000
Total 82,000 38,000
Note 3: Current Liabilities

Particulars 31.03.2019(Rs.) 31.03.2018

(Rs.)
Dividend declared 37,000 27,000
Note 4: Tangible Assets

Particulars 31.03.2019 31.03.2018

(Rs.) (Rs.)
Land & Building 75,000 1,00,000
Machinery 1,91,000 90,000
Total 2,66,000 1,90,000
Additional Information:
(i) Rs. 18,000 depreciation for the year has been written off on plant and machinery and no
depreciation has been charged on Land and Building.
(ii) A piece of land has been sold out for Rs. 50,000 and the balance has been revalued, profit on such
sale and revaluation being transferred to capital reserve. There is no other entry in Capital
Reserve Account.
(iii) A plant was sold for Rs. 12,000 WDV being Rs. 15,000 on the date of sale (after charging
depreciation).
(iv) Dividend received amounted to Rs. 2,100 which included pre-acquisition dividend ofRs. 600.
(v) An interim dividend of Rs. 10,000 including Dividend Distribution Tax has been paid.
(vi) Non-current investments given in the balance sheet represents investment in shares of other
companies.
(vii) Amount of provision for tax existing on 31 3.2018 was paid during the year 2018 -19. Marks 14
Q5) Answer the following:
a)

Marks 14

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