SEPT 2024 .

PAPER – 1 : ADVANCED ACCOUNTING

PART - I
Case Scenario 1
Mr. Vikram took a loan of ` 6,00,000 carrying interest @ 10% p.a. on 1 st August,
2023 to purchase raw material. He purchased 4000 units of raw material @ 125
per unit. Replacement cost of raw material as on 31 March, 2024 is 100 per unit.
Labour charges and variable overheads incurred are ` 1,00,000 to produce 1000
units of finished goods.
1000 units of Finished goods are produced with raw material (for every unit of
finished goods produced, 2 units of raw material are required). Net realizable
value of finished good is ` 300 per unit. All the finished goods produced are lying
in stock as on 31 March, 2024.
There is no opening stock of raw material and finished goods.
Mr. Vikram used 1500 units of raw material to construct an Asset (Qualifying
Asset). Labour and other overhead charges incurred on construction of asset are
` 90,000. Mr. Vikram also paid `15,000 to install the asset at Factory premises.
Mr. Vikram used Balance of loan proceeds of ` 1,00,000 to invest in Equity Shares
of P. Ltd. He purchased 9,000 Equity shares (Face Value ` 10 each) for ` 1,00,000
on 25th March, 2024.
The P. Ltd declared and paid dividend @ 20% on 30th March for the year
2023-24.
Based on the information given in above Case Scenario, answer the following
Question No. 1-4:
1. What would be the value of closing stock of Raw Material X and Finished
Goods as on 31st March 2024?
(A) Closing Stock of Raw Material X ` 50,000 and closing stock of Finished
Goods ` 3,50,000
(B) Closing Stock of Raw Material X ` 50,000 and closing stock of Finished
Goods` 3,00,000
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(C) Closing Stock of Raw Material X ` 62,500 and closing stock of Finished
Goods ` 3,50,000
(D) Closing Stock of Raw Material X ` 62,500 and closing stock of Finished
Goods ` 3,00,000
2. Cost of Self Constructed Asset as per AS 10 will be ?
(A) ` 2,92,500
(B) ` 2,77,500
(C) ` 3,05,000
(D) ` 2,90,000
3. As per AS 16 what will be the amount of interest to be capitalized and
amount of interest to be charged to Profit & Loss A/c ?
(A) ` 12,500 interest to be capitalised and Profit & Loss A/c. ` 27,500
interest to be charged to Profit & Loss A/c
(B) ` 12,500 interest to be capitalised and ` 20,833 interest to be charged
to Profit & Loss A/c.
(C) ` 19,167 interest to be capitalised and ` 20,833 interest to be charged
to Profit & Loss A/c.
(D) Whole of `40,000 interest to be charged to Profit & Loss A/c.
4. What is the carrying amount of investment as on 31st March, 2024 as per
AS 13 and suggest the treatment of dividend received from P. Ltd.?
(A) Carrying amount of Investment as on 31st March, 2024 is ` 72,000
and the dividend is deducted from the nominal value of investment.
(B) Carrying amount of Investment as on 31 st March, 2024 is `90,000 and
the dividend is credited to Profit & Loss A/c.
(C) Carrying amount of Investment as on 31st March, 2024 is` 1,00,000
and the dividend is credited to Profit & Loss A/c.
(D) Carrying amount of Investment as on 31st March, 2024 is 82,000 and
the dividend is deducted from the cost of investment.

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ADVANCED ACCOUNTING

Case Scenario 2
Kay Ltd. sold goods of ` 22,00,000 to Mr. Ravi Kumar on 1st February, 2024 but
at the request of the buyer, these goods were delivered on 10th April 2024.
Kay Ltd. also sold ` 2,00,000 goods on approval basis on 1st January, 2024 to
Sheetal Enterprises. The period of approvals 3 months after which they were
considered sold. Buyer sent disapproval for 25% of goods and approval for 50%
of goods till 31 March, 2024.
Mr. Ravi Kumar has commenced legal action against Kay Ltd. for supply of faulty
goods to claim damages. The lawyers of Kay Ltd. have advised that it is not remote
yet that resources may be required to settle the claim. Legal cost to be incurred
irrespective of the outcome of the case is ` 45,000. Settlement amount if the claim
is required to be paid ` 5,00,000,
Sheetal Enterprises, a trade receivable of Kay Ltd. suffered a heavy loss due to an
earthquake that occurred on 30th March, 2024. The loss was not covered by any
insurance policy. In April, 2024, Sheetal Enterprises became bankrupt. The
Balance due from Sheetal Enterprises as on 31 March, 2024 is ` 75,000.
Kay Ltd. makes provision for doubtful debts @ 5%.
Based on the information given in above Case Scenario, answer the following
Question No. 5-7
5. What is the amount to be recognized as Revenue as per AS 9 in the books
of Kay Ltd. as on 31 March, 2024?
(A) ` 23,50,000
(B) ` 1,50,000
(C) ` 23,00,000
(D) ` 1,00,000
6. What will be the treatment of legal cost and claim for legal action
commenced by Mr. Ravi Kumar in the Books of Kay Ltd. as on 31 March,
2024 as per AS 29?
(A) Create a Provision for ` 5,45,000
(B) Create a Provision for ` 5,00,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(C) Create a Provision for` 45,000 and make a disclosure of contingent

liability of ` 5,00,000
(D) Make a disclosure of contingent liability of ` 5,45,000
7. What is the treatment of insolvency of Sheetal Enterprises in the Books of
Kay Ltd. as on 31st March, 2024 as per AS 4?
(A) An Adjusting Event, full provision of ` 75,000 should be made in the
Final Accounts for the year ended 31 March, 2024.
(B) An Adjusting Event, provision of ` 3,750 should be made in the Final
Accounts for the year ended 31 March, 2024.
(C) A Non-adjusting event, no provision is required to be made as Sheetal
Enterprises became bankrupt in April, 2024.
(D) A Non-adjusting event, only disclosure is required in the Final
Accounts for the year ended 31st March, 2024.
8. P Ltd. has 60% voting right in Q Ltd. Q Ltd. has 20% voting right in R Ltd.
Also, P Ltd. directly enjoys voting right of 14% in R Ltd. R Ltd. is a Listed
Company and regularly supplies goods to P Ltd. The Management of R Ltd.
has not disclosed its relationship with P Ltd. While preparing Financial
Statements of P Ltd., which entities would you disclose as related parties
with reference to AS-18?
(A) Q Ltd.
(B) R Ltd.
(C) Q Ltd. and R Ltd.
(D) Neither of Q Ltd. or R Ltd.
9. A Machinery was giver on 3 years lease by a dealer of the machinery for
equal annual lease rentals to yield 20% profit margin on cost of the
machinery, which is Rs.3,00,000. Economic life of the machinery is 5 years,
and estimated output from the machinery in 5 years is as follows:
Year I 50,000 units
Year II 60,000 units
Year III 40,000 units
Year IV 65,000 units

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Year V 85,000 units.

Compute Annual Lease Rent.
(A) ` 30,000
(B) ` 60,000
(C) ` 50,000
(D) ` 36,000
10. A Ltd. had 1,50,000 shares of common stock outstanding on 1 April, 2023.
Additional 50,000 shares were issued on 1 November, 2023 and 32,000
shares were bought back on 1 February, 2024. Calculate the weighted
average number of shares outstanding at the year ended on 31 March, 2024
is:
(A) 1,34,500 shares
(B) 1,65,500 shares
(C) 1,76,167 shares
(D) 1,23,833 shares
Case Scenario 3
Jay Ltd. submits the following data extracted from the Final Accounts as on 31
March, 2023:

Equity Share Capital 50,000

Equity shares of ` 10 each
Profit & Loss (Dr. balance) (50,000)
9% Debentures 2,00,000
Loan from Bank 3,00,000
Advance given to suppliers of goods 45,000
Provision for tax 14,000
Plant & Machinery 4,50,000
Furniture & Fixtures 85,000
Investment in Star Ltd. 1,25,000
10,000 equity shares of 10 each

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Sundry Debtors 70,000

Cash & Bank Balance 65,500

Additional information given by Jay Ltd.:

On 31 March, 2023 Jay Ltd. decided to reconstruct the company for which
necessary resolution was passed. Accordingly, it was decided that:
(a) 9% Debentures to be settled in full by issuing them 15,000 Equity shares of
10 each.
(b) Equity shareholders will give up 40% of their capital in exchange for
allotment of new 11% Debentures of ` 1,00,000.
(c) Balance of Profit & Loss to be written off.
(d) Equity shares issued for ` 1,00,000.
In addition to above, following information was also presented by Jay Ltd. on 1st
April, 2023:
(a) Interest is received on advances given to suppliers of goods` 3,000.
(b) Taxation liability is settled at ` 14,000.
(c) A debtor of ` 40,000 is insolvent, only 40% of his dues are recovered from
his estate.
(d) Dividend is received on Investment in Star Ltd. ` 1 per equity share invested.
(e) Part of Plant and Machinery is sold at a loss of` 3,000 (book value
` 15,000)
Based on the information given in above Case Scenario, answer the following
Question No. 11-14:
11. The amount of Cash Flow from operating activity is:
(A) ` 2,000
(B) ` 5,000
(C) ` 12,000
(D) ` 15,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

12 The amount of Cash Flow from investing Activity is

(A) ` 28,000
(B) ` 25,000
(C) ` 15,000
(D) ` 22,000
13. What is the amount of closing Cash and Cash equivalents as on 1 April,
2023 ?
(A) `1,92,500
(B) ` 92,500
(C) ` 1,27,000
(D) ` 1,98,500
14. The Balance of Equity Share Capital after internal reconstruction is :
(A) ` 6,50,000
(B) ` 4,50,000
(C) ` 5,50,000
(D) ` 7,50,000
15. "Fixed Asset held for sale" will be classified in the Balance Sheet as per
Schedule III of the Companies Act as:
(A) Deferred Tax Assets
(B) Current Asset
(C) Non-Current Asset
(D) Long term Investments
Answers Key

MCQ No. Answers

1. B
2. C
3. A

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

4. D
5. A
6. C
7. A
8. C
9. B
10. B
11. B
12. D
13. A
14. C
15. B

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 PAPER – 1 : ADVANCED ACCOUNTING
Part II
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) In the following cases, record Journal Entries for amortization in the books of
Huge Ltd. for the year ended 31st March, 2024 with reference to AS-26:
(i) The company had acquired Patent Rights for ` 340 lakhs on 01.04.2022.
The estimated product life is 4 years. Amortization was decided in the
ratio of estimated future cash flows which are as under:
1st Year ` 140 Lakhs
2nd Year ` 350 Lakhs
3rd Year ` 280 Lakhs
4th Year ` 420 Lakhs
(ii) The company had developed know-how by incurring expenditure of ` 80
lakhs. The know-how has been used by the company since 01.04.2018.
Its useful life is 8 years from the year of commencement of its use. The
company has not amortised the asset until 31.03.2024.
(b) Pendora Ltd. has given the following details in respect of employee benefit
pension plan:

Particulars Amount `
The fair value of plan assets as on 01-04-2023 5,00,000
The benefits paid out on 30-11-2023 63,000
Inward contributions received on 30-09-2023 1,42,000
The fair value of plan assets as on 31-03-2024 7,50,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

On 01.04.2023, the company made following estimates, based on its market

studies and prevailing prices :

Particulars %
Interest and dividend income (after tax) payable by fund 10.50
Realised gains on plan assets (after tax) 2.00
Fund administrative costs -2.00
Expected rate of annual return 10.50
(Interest is compounded annually)

You are required to find the expected and actual returns on plan assets as on
31.03.2024 as per AS 15.
(c) Delta Ltd. is working on different projects those are likely to be completed
within 3 years period. It recognizes revenue from these contracts on
Percentage of Completion Method for Financial Statements for the years
ending 2021, 2022 and 2023 for ` 34 Lakhs, ` 50 Lakhs and ` 65 Lakhs
respectively.
However, for Income Tax purpose, it has adopted the Completed Contract
Method under which it has recognized revenue of ` 30 Lakhs, ` 52 Lakhs and
` 67 Lakhs for the years ending 2021, 2022 and 2023 respectively.
Income Tax rate is 30%.
Compute the amount of Deferred Tax Asset / Liability and Total Tax Expenses
for the years ending 31st March 2021, 2022 and 2023. (4+5+5=14 Marks)
Answer
(a) (i) Journal Entry for the year ended on 31st March 2024
` `
in lakhs in lakhs
31.3.24 Amortization A/c (340 × 350/ 1,190) Dr. 100
To Patent Rights A/c 100
P&L A/c Dr. 100
To Amortization A/c 100

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ADVANCED ACCOUNTING

Working note
Huge Limited amortised ` 340 lakhs during next 4 years on the basis of net
cash flows arising of the product. The amortisation for second year will be
worked out as under:
` 340 x 350 /1,190 (140+350+280+420) = ` 100 lakhs
(ii)

Particulars ` in lakhs ` in lakhs

Prior period item Dr. 50
Amortization A/c Dr. 10
To Know-how A/c 60
[Being amortization of 6 years (out of
which amortization of 5 years charged as
prior period item i.e. 80 x 6 /8 = 60 lakhs)]
Profit and Loss A/c Dr. 60
To Amortization A/c 10
To Prior Period Item 50
(Being amount transferred to Profit and
Loss account)

(b) Computation of Expected and Actual Returns on Plan Assets

`
Return on ` 5,00,000 held for 12 months at 10.50% 52,500
Return on ` 1,42,000 for 6 months at 10.50% 7,455
Loss of interest on benefits paid for 4 months on ` 63,000 (2,205)
for 4 months @ 10.50%
Expected return on plan assets for 2023-2024 57,750
st
Fair value of plan assets as on 31 March 2024 7,50,000
Less: Fair value of plan assets as on 1 April,2023 5,00,000
Contributions received on 30.9.2023 1,42,000 (6,42,000)
1,08,000
th
Add: Benefits paid on 30 Nov 2023 63,000
Actual return on plan assets 1,71,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(c) Calculation of Deferred Tax Asset/Liability in Delta Limited

Year Accounting Taxable Timing Timing Deferred Deferred
Income Income Difference Difference Tax Tax
(balance) Liability
(balance)
2021 34,00,000 30,00,000 4,00,000 4,00,000 1,20,000 1,20,000
2022 50,00,000 52,00,000 (2,00,000) 2,00,000 (60,000) 60,000
2023 65,00,000 67,00,000 (2,00,000) NIL (60,000) NIL
1,49,00,000 1,49,00,000

Calculation of total tax

Year Deferred Tax Current tax expense Total tax

2021 1,20,000 9,00,000 10,20,000
(30,00,000 x 30%)
2022 (60,000) 15,60,000 15,00,000
(52,00,000 x 30%)
2023 (60,000) 20,10,000 19,50,000
(67,00,000 x 30%)
Note: It is assumed that the revenue and the taxable profit is the same.
Question 2
The following is the Trial Balance of Shivam Ltd as on 31st March, 2024 :

Particulars Dr. Particulars Cr.

(` 000) (` 000)
Land at Cost 148 Equity Share of ` 10 each 200
Plant & Machinery at Cost 520 10% Debenture of ` 100 each 135
Debtors 65 General Reserve 90
Closing Stock 58 Profit & Loss Ale 48
Bank 14 Security Premium 27
Adjusted Purchases 226 Sales 473
Factory Expenses 40 Creditors 35
Administration Expenses 22 Provision for Depreciation 116

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ADVANCED ACCOUNTING

Selling Expenses 20 Suspense A/c 3

Debenture Interest 14
Total 1,127 Total 1,127

Additional Information:
• On 31st March, the Company issued Bonus Shares to the Shareholders on
1 : 2 basis (one equity share issued as bonus for every 2 equity shares held).
No entry relating to this has yet been made.
• The Authorized Share Capital of the Company is 35,000 Equity Shares of
` 10 each.
• The Company, on the advice of an independent valuer, revalued the Land at
` 2,45,000.
• The Directors declared a Dividend of 10% on 5th April, 2024 and also
transferred profit @ 10% to General Reserve.
• Suspense Account of ` 3,000 represents cash received for the Sale of some
Machinery on the 1st day of the financial year 2023-24. Cost of this Machinery
was ` 10,000 and Accumulated Depreciation thereon being ` 8,000.
• Depreciation is to be provided on Plant & Machinery at 10% on Cost.
• Provision for Income tax is required@ 30%.
You are required to prepare Shivam Ltd.'s Profit and Loss A/c for the year ended
31st March, 2024 and Balance Sheet as at that date as per the provisions of the
Companies Act, 2013 after considering the above information. Ignore previous
year figures. (14 Marks)
Answer
Shivam Limited
Balance Sheet as at 31st March 2024

Particulars Note No. ` (in 000)

I. Equity and Liabilities
1. Shareholders' funds
(a) Share capital 1 300.00
(b) Reserves and Surplus 2 232.70

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

2. Non-Current liabilities
(a) Long term borrowings 3 135.00
3. Current liabilities
(a) Trade Payables 35.00
(b) Short-Term Provisions 30.30
Total 733.00
II. Assets
1. Non-current assets
(a) Property, Plant and Equipment and
Intangible assets
(i) Property, Plant and Equipment 4 596.00
2. Current assets
(a) Inventories 58.00
(b) Trade receivables 65.00
(c) Cash and cash equivalents 14.00
Total 733.00

Shivam Limited
Statement of Profit and Loss for the year ended 31st March 2024

Particulars Notes ` (in ‘000)

I. Revenue from operations 473.00
II. Other Income 5 1.00
III. Total Income 474.00
IV. Expenses:
Purchases 226.00
Finance costs 14.00
Depreciation and Amortisation expenses (10% 51.00
of 510 ∗)
Other expenses 6 82.00

∗
520 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Total Expenses 373.00

V. Profit before Tax (III-IV) 101.00
Tax Expense:
Current tax (30.30)
Profit for the period (after tax) 70.70
Notes to accounts

` (in 000)
1. Share Capital
Equity share capital
Authorised
35,000 shares of ` 10 each 350.00
Issued, subscribed & paid-up
20,000 shares of ` 10 each fully paid up 200.00
Add: 10,000 Bonus Shares issued during
the year 100.00 300.00
2. Reserves and Surplus
Securities Premium Account
Opening Balance 27.00
Less: Utilised for bonus issue 27.00 0.00
Revaluation reserve (2,45,000 – 1,48,000) 97.00
General Reserve 90
Less: Utilized for bonus issue (73) 17.00
Add: Transfer from Profit & loss @ 10% 7.07 24.07
Profit & loss Balance
Opening balance 48.00
Profit for the period 70.70
Appropriations
Transfer to General Reserve @ 10% (7.07) 111.63
232.70

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

3. Long term borrowing

10% Debentures 135.00
4 Property, Plant and Equipment
Land
Opening balance 148.00
Add: Revaluation adjustment 97.00
Closing balance 245.00
Plant and Machinery
Opening balance 520.00
Less: Disposed off (10.00)
510.00
Less: Depreciation (1,16,000-8,000+51,000) (159.00)
Closing balance 351.00
Total 596.00
5 Other Income
Profit on sale of machinery:
Sale value of machinery 3.00
Less: Book value of machinery (10,000-8,000) (2.00) 1.00
6 Other expenses:
Factory expenses 40.00
Selling expenses 20.00
Administrative expenses 22.00 82.00

The final dividend will not be recognized as a liability at the balance sheet
date (even if it is declared after reporting date but before approval of the
financial statements) as per Accounting Standards. Hence, it has not been
recognized in the financial statements for the year ended 31 March 2024.
Such dividends will be disclosed in notes only.

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ADVANCED ACCOUNTING

Working note:
Bonus Shares Issue:

• Bonus shares are issued in a 1:2 ratio, so for every 2 equity shares, 1 bonus
share is issued.
• Equity Share Capital = ` 2,00,000 / ` 10 = 20,000 shares.
• Bonus Shares = 20,000 / 2 = 10,000 shares × ` 10 = ` 1,00,000.
Alternatively, since, the amount of interest on 10% 1,35,000 Debentures comes to
Rs 13,500 while the Debenture Interest in the trial balance is listed as ` 14,000, the
difference of ` 500 (`13,500 - `14,000) may be treated as an advance payment.

Question 3
(a) On the basis of the following data, prepare Cash Flow Statement as per
AS-3 for the year ended 31st March, 2024:
• Total Sales for the year were ` 380 lakhs out of which Cash Sales
amounted to ` 262 Lakhs.
• Receipts from credit customers during the year, total ` 134 lakhs.
• Total Purchases for the year amounted to ` 220 lakhs, out of which 80%
were credit purchases.
• Opening balance in creditors ` 84 lakhs and Closing balance in creditors
` 92 lakhs.
• Suppliers of other consumables and services were paid ` 19 lakhs in cash.
• Employees of the enterprise were paid ` 20 lakhs in cash.
• Fully-paid preference shares of the face value of ` 32 lakhs were
redeemed.
• Issued equity shares of the face value of ` 20 lakhs at a premium of 20%.
• Debenture of ` 20 lakhs at premium of 10% were redeemed by issuing
equity shares in lieu of their claims.
• ` 26 lakhs were paid by way of Income Tax.
• A new machinery costing ` 20 lakhs was purchased in a part exchange
of an old machinery. The book value of the old machinery was ` 13 lakhs,

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

but the vendor agreed to take over the old machinery at a higher value
of ` 15 lakhs. The balance due to vendor was paid in cash.
• Dividend ` 15 lakhs (including dividend distribution tax) ∗ of ` 2.7 lakhs
was also paid on 30th March, 2024.
• Debenture interest ` 3 lakhs was paid.
• During the year ` 8 lakhs rent was received from property held as
investment.
• ` 0.50 lakh interest was earned on the advance payments to suppliers of
Goods.
• Cash and cash equivalents on 1st April 2023, ` 2 lakhs. (7 Marks)
(b) Aerodots Ltd. has the following capital structure as on 31.03.2024 :

Particulars Amount
(` in thousands)
Equity Share Capital (shares of ` 10 each) 600
Reserves:
General Reserve 540
Securities Premium 200
Profit & Loss 100
Revaluation Reserve 30
Investment Allowance Reserve (Statutory Reserve) 75
Infrastructure Development Reserve 25
Loan Funds 2000

On 1st April, 2024 the company wants to buy back 14,000 equity shares of
` 10 each at ` 30 per Equity share.
You are required to calculate maximum permissible number of equity shares
that can be bought back.
Buy Back of shares is duly authorized by its articles and necessary resolution
has been passed by the company. (7 + 7 = 14 Marks)

∗
PS: As per IT Act, 1961 DDT is no more applicable

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Answer
(a) Cash flow statement
for the year ended 31st March 2024

(` in lakhs) (` in lakhs)
Cash flow from operating activities
Cash sales 262.00
Cash collected from credit customers 134.00
Interest received on advance payment to 0.50
suppliers
Less: Cash purchases (44.00)
Less: Payment to Creditors (84 + 176 – 92) (168.00)
Less: Cash paid to suppliers for consumables & (19.00)
services
Less: Cash paid to employee (20.00)
Cash from operations 145.50
Less: Income tax paid (26.00)
Net cash generated from operating 119.50
activities
Cash flow from investing activities
Payment for purchase of Machine (20-15) (5.00)
Proceeds from rent received 8.00
Net cash used in investing activities 3.00
Cash flow from financing activities
Redemption of Preference shares (32.00)
Proceeds from issue of Equity shares 24.00
Debenture interest paid (3.00)
Dividend Paid (15.00)
Net cash used in financing activities (26.00)
Net increase in cash and cash equivalent 96.50
Add: Cash and cash equivalents as on 2.00
1.04.2023
Cash and cash equivalents as on 31.3.2024 98.50

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) Statement determining the maximum number of shares to be bought back

(in thousands)

Particulars Number of
shares
Shares Outstanding Test (W.N.1) 15
Resources Test (W.N.2) 12
Debt Equity Ratio Test (W.N.3) 11
Maximum number of shares that can be bought back 11
[least of the above]

Thus, the lowest being 11,000 shares, the company cannot buy back 14,000
shares.
Working Notes:
1. Shares Outstanding Test

Particulars (Shares in
thousands)
Number of shares outstanding 60
25% of the shares outstanding 15

2. Resources Test

Particulars ` (in thousands)

Paid up capital 600
Free reserves (540 + 200 +100) 840
Shareholders’ funds 1,440
25% of Shareholders fund 360
Buy-back price per share ` 30
Number of shares that can be bought back 12,000 shares

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ADVANCED ACCOUNTING

3. Debt Equity Ratio Test: Loans cannot be in excess of twice the

Equity Funds post Buy-Back

Particulars ` in thousands
(a) Loan funds 2,000
(b) Minimum equity to be maintained after 1,000
buy-back in the ratio of 2:1 (`) (a/2)
(c) Present equity shareholders fund (`) 1,440
(d) Future equity shareholders fund (`) (see 1,330
W.N.4) (1,440-110)
(e) Maximum permitted buy-back of Equity (`) 330
[(d) – (b)]
(f) Maximum number of shares that can be 11,000 shares
bought back @ ` 30 per share

4. Amount transferred to CRR and maximum equity to be bought back

will be calculated by simultaneous equation method.
Suppose amount transferred to CRR account is ‘x’ and maximum
permitted buy-back of equity is ‘y’ Then
Equation 1: (Present Equity- Transfer to CRR)- Minimum Equity to be
maintained = Maximum Permitted Buy-Back
= (1,440 – x) – 1,000 = y

= 440 – x = y (1)
Equation 2: Maximum Permitted Buy-Back X Nominal Value Per
Share/Offer Price Per Share
y/30 x 10 = x
or
3x = y (2)
by solving the above two equations we get
x = ` 110 thousands
y = ` 330 thousands

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Alternatively, Maximum number of shares from debt equity ratio test

may be worked out as follows:
Buy-back price + Face value of equity shares ` 30 + ` 10 = ` 40
Excess of equity fund over the minimum equity to be maintained
1440-1000 = 440 thousands
Number of Shares that can be bought back = 440/40 thousands
= 11 thousands.
Question 4
The following are the summarized Balance Sheets of Well Ltd. and Nice Ltd. as at
31st March, 2024 :

Particulars Notes Nice Ltd. Well Ltd.

(` in '000) (` in '000)
Equity and Liabilities
1. Shareholder's funds
a. Share capital 1 41,000 14,300
b. Reserves and Surplus 2 19,500 (7,350)
2. Non-current liabilities
a. Long-term borrowings 3 20,500 5,425
3. Current Liabilities
a. Trade Payables 15,740 4,850
b. Short-term Borrowings - 1,975
Total 96,740 19,200
Assets
1. Non-current Assets
a. Property, plant, and equipment 4 62,550 16,380
b. Non-current Investments 22,500 -
2. Current assets
a. Inventories 300 870
b. Trade Receivables 6,590 1,950

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

c. Cash and Cash equivalents 4,800 -

Total 96,740 19,200

Notes to Accounts

Nice Ltd. Well Ltd.

(` in '000) (` in '000)

1. Share Capital
Equity Share Capital
Issued, subscribed & paid up capital
Equity Shares of ` 100 each 31,500 12,500
Preference Share Capital
Issued, subscribed & paid up capital
9% Preference Shares of ` 100 each 9,500
10% Preference Shares of ` 100 each 1,800
Total 41,000 14,300
2. Reserves and Surplus
Balance of Profit and Loss A/c 19,500 (7,350)
3. Long-term borrowings
9% Debentures of ` 100 each 11,200
10% Debentures of ` 100 each 900
Loan from Banks 9,300 4,525
20,500 5,425

Details of Trade receivables and Trade payables are as under :

Nice Ltd. Well Ltd.

(` in '000) (` in '000)
1. Trade receivables
Debtors 6,200 1,800

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Bills Receivables 390 150

6,590 1,950
2. Trade payables
Creditors 14,750 4,400
Bills Payables 990 450
15,740 4,850

On 31.03.2024, Nice Ltd. absorbs the business of Well Ltd. on the following terms:
• For every five equity shares held by the equity shareholders of Well Ltd., they
receive three equity shares of Nice Ltd. issued at a premium of ` 20 per share.
• The 10% debenture-holders of Well Ltd. were to be allotted such 9%
debentures in Nice Ltd. as would bring the same amount of interest.
• 10% Preference Shareholders of Well Ltd. are to be paid at 10% discount by
issue of 9% Preference Shares at par in Nice Ltd.
• Banks agreed to waive off the loan of ` 270 thousand of Well Ltd.
• Expenses of Liquidation of Well Ltd. are to be reimbursed by Nice Ltd. ` 55
thousand.
• Inventory of Well Ltd. is taken over at 10% more than their book value by
Nice Ltd.
• Debtors of Nice Ltd. include ` 215 thousand receivables from Well Ltd.
• Property, Plant, and Equipment of Well Ltd. are revalued at 20% abo their
book value.
• The remaining Assets and Liabilities of Well Ltd. are taken over at book value
by Nice Ltd.
You are required to :
1. Record Journal Entries in the books of Nice Ltd.
2. Prepare Balance Sheet of Nice Ltd. after absorption as at 31 March, 2024.
(14 Marks)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Answer
Journal Entries in the Books of Nice Ltd.

Dr. Cr.
` in ‘000 ` in ‘000
Business Purchase Account Dr. 10,620
To Liquidator of Well Ltd. 10,620
(Consideration payable for the business taken over
from Well Ltd.)
Property, Plant and Equipment (120% of ` 16,380) Dr. 19,656
Inventory (110% of ` 870) Dr. 957
Trade receivables Dr. 1,950
Goodwill A/c (Balancing figure) Dr. 137
To Trade payables 4,850
To Debenture Holders Account 1,000
To Loan from bank (4,525-270) 4,255
To Short term borrowings 1,975
To Business Purchase Account 10,620
(Incorporation of various assets and liabilities taken
over from Well Ltd. at agreed values and difference of
net assets and purchase consideration debited to
Goodwill A/c))
Liquidator of Well Ltd. Dr. 10,620
To Equity Share Capital (75,000x 100) 7,500
To 9% Preference Share Capital 1,620
To Securities premium (7,5000x 20) 1,500
(Discharge of consideration for Well Ltd.’s business)
Debenture holders A/c Dr. 1,000
To 9% Debentures A/c 1,000
(Being 9% debentures issued to 10% debenture
holders)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Sundry Creditors of Well Ltd. Dr. 215

To Sundry Debtors of Nice Ltd. 215
(Cancellation of mutual owing)
Goodwill Dr. 55
To Bank 55
(Being liquidation expenses reimbursed to Well Ltd.)

Working Note:
The purchase consideration will be:

` Form
Preference shareholders: 16,200 × 100 16,20,000 9% Pref. shares
Equity shareholders: 1,25,000 × 3/5 × 120 90,00,000 Equity shares
1,06,20,000
10 % Preference shares 18,00,000
Less: 10% discount 1,80,000
16,20,000
Debenture calculation

Interest
10% Debenture 9,00,000 90,000
Therefore 9% debentures 90,000/9% = 10,00,000

Balance Sheet of Nice Ltd. (After absorption) as at 31st March 2024

Particulars Notes ` in ‘000

I Equity and Liabilities
1 Shareholders' funds
(a) Share capital 1 50,120
(b) Reserves and Surplus 2 21,000
2 Non-current liabilities
(a) Long-term borrowings 3 25,755
3 Current liabilities
(a) Trade payables 4 20,375

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(b) Short term borrowing 1,975

Total 1,19,225
II Assets
1 Non-current assets
(a) Property, Plant and Equipment and 5
Intangibles
(i) Property, plant and equipment 82,206
(ii) Intangible assets 192
(b) Non-current investments 22,500
2 Current assets
(a) Inventories 6 1,257
(b) Trade receivables 7 8,325
(c) Cash and Cash equivalents 8 4,745
Total 1,19,225
Notes to accounts

` in ‘000
1 Share Capital
Equity share capital
Issued, subscribed and paid up
3,90,000 Equity shares of ` 100 each
(out of above 75,000 shares are issued for 39,000
consideration other than cash)
Preference Shares
Issued, subscribed and paid up
1,11,200 9% Preference Shares of ` 100 each (9,500
+ 1,620)
11,120
(out of above 16,200 shares are issued for
consideration other than cash)
50,120

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

2 Reserves and Surplus

Securities premium 1,500
Reserves and surplus 19,500 21,000
3 Long-term borrowings
9 % Debentures (11,200+1,000) 12,200
Loan from bank (9,300+4255) 13,555 25,755

4 Trade Payable
Nice Limited 15,740
Well Limited 4,850
20,590
Less: Inter Company holdings (215) 20,375
5 Property, Plant and Equipment and Intangibles
Property, Plant and Equipment 62,550
Acquired during the year 19,656 82,206
Intangibles
Goodwill (137+55) 192

6 Inventories 300
Acquired during the year 957 1,257
7 Trade receivables 6,590
Acquired during the year (1,585+150) 1,735 8,325
8 Cash and Cash Equivalents
Nice Limited 4,800
Less: Expenses on liquidation (55) 4,745

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Question 5
On 1st February, 2024, Best Ltd. acquired 80% Equity shares of Cool Ltd. for
` 14,80,000.
On 31st March, 2024, Best Ltd. also acquired 25% Equity shares of Good Ltd. for
` 3,80,000.
The following are the balances extracted from the books of Best Ltd., Cool Ltd.,
and Good Ltd. as on 31st March, 2024 :

Particulars Best Ltd. Cool Ltd. Good Ltd.

Amount in ` Amount in ` Amount in `
Equity Shares of ` 100 each fully 30,00,000 20,00,000 10,00,000
paid
Securities Premium - 2,20,000 -
9% Debentures 6,30,000 - 2,40,000
General Reserve 2,69,000 84,000 1,20,000
Profit & Loss Account (Credit 3,26,000 2,70,000 50,000
Balance)
Investments 17,50,000 6,10,000 -
Property, Plant, and Equipment 18,90,000 18,14,000 12,10,000
Current Assets 9,65,000 5,60,000 2,25,000
Trade Payable (Including Bills 3,80,000 4,10,000 25,000
Payable)
Sales and other income 56,00,000 38,00,000 27,00,000
Raw material consumed 36,50,000 31,20,000 22,30,000
Wages and Salaries 5,07,000 4,01,000 2,69,000
Production expenses 1,35,000 1,06,000 98,000

Additional information :
• The Profit and Loss account of Cool Ltd. showed a credit balance of ` 30,000
on 1st April, 2023.
• The General Reserve balance is brought forward from the previous year.
• On 31st March, 2024, all the bills payable in Cool Ltd.'s balance sheet were

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

acceptances in favour of Best Ltd. However, on the date, Best Ltd. held only
` 3,00,000 of these acceptances in hand, the rest having been endorsed in
favour of its creditor.
• Best Ltd. purchased goods costing ` 5,00,000 from Cool Ltd. on 1 st June, 2023
at a price of ` 6,50,000. The entire goods remain unsold with Best Ltd. at the
end of the financial year.
• Best Ltd. is preparing Consolidated Financial Statements for the year ending
31.03.2024.
You are required to calculate :
(1) Trade Payable (Consolidated)
(2) Current Assets (Consolidated)
(3) Minority Interest
(4) Goodwill/Capital Reserve on the acquisition of Cool Ltd.'s shares
(5) Goodwill/Capital Reserve on the acquisition of Good Ltd.'s shares
(6) Profit & Loss Account (Consolidated)
(7) General Reserve (Consolidated)
(8) Revenue from Operations (Consolidated)
(9) Cost of material purchased/consumed (Consolidated) (14 Marks)
Answer
1. Trade payable (Consolidated)

Best limited 3,80,000

Add: Cool Ltd 4,10,000
Less: Elimination (3,00,000)
Total 4,90,000

2. Current assets (Consolidated)

Best limited 9,65,000

Add: Cool Ltd 5,60,000
Less: Elimination of inter company owing (3,00,000)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Less: Unrealized stock profit (1,50,000) (4,50,000)

Total 10,75,000

3. Minority interest Cool Ltd

Share Capital (20,00,000 x 20%) 4,00,000

Add: Securities premium (2,20,000 x 20%) 44,000
Add: General Reserve (84,000 x 20%) 16,800
Add: Profit and loss balance 2,70,000
Less: Adjustment of unrealised profit stock (1,50,000)
Balance 1,20,000
20% of above balance 24,000
Total 4,84,800

4. Goodwill/Capital Reserve on Acquisition of Cool Ltd.:

Purchase Consideration 14,80,000

Less: Share Capital (20,00,000 x 80%) 16,00,000
Less: Securities premium (2,20,000 x 80%) 1,76,000
Less: General Reserve (84,000 x 80%) 67,200
Less: Profit and loss balance opening (30,000 x 80%) 24,000
Less: Pre acquisition profits
(2,70,000-30,000) x 10/12 x 80% 1,60,000
Less: Unrealised profit stock (1,50,000 x 80%) 1,20,000 40,000
Capital Reserves 4,27,200

5. Goodwill/Capital Reserve on Acquisition of Good Ltd.

Purchase Consideration 3,80,000

Less: Share Capital (10,00,000 x 25%) 2,50,000
Less: General Reserve (1,20,000 x 25%) 30,000
Less: Profit and loss balance (50,000 x 25%) 12,500
Goodwill 87,500

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

6. Profit and Loss Account (Consolidated)

Best limited 3,26,000

Add: Post acquisition profit of Cool Ltd
{(2,70,000-30,000) x 2/12}80% 32,000
Total 3,58000

7. General Reserve (Consolidated)

Best limited 2,69,000
With reference to para no 15 of AS 21
If an enterprise makes two or more investments in another enterprise at
different dates and eventually obtains control of the other enterprise, the
consolidated financial statements are presented only from the date on which
holding-subsidiary relationship comes in existence. If two or more investments
are made over a period of time, the equity of the subsidiary at the date of
investment, for the purposes of paragraph 13 above, is generally determined
on a step-by-step basis; however, if small investments are made over a period
of time and then an investment is made that results in control, the date of the
latest investment, as a practicable measure, may be considered as the date of
investment.
And para no 22 of AS 21 The results of operations of a subsidiary are
included in the consolidated financial statements as from the date on which
parent-subsidiary relationship came in existence. The results of operations
of a subsidiary with which parent- subsidiary relationship ceases to exist
are included in the consolidated statement of profit and loss until the date
of cessation of the relationship. The difference between the proceeds from
the disposal of investment in a subsidiary and the carrying amount of its
assets less liabilities as of the date of disposal is recognised in the
consolidated statement of profit and loss as the profit or loss on the
disposal of the investment in the subsidiary. In order to ensure the
comparability of the financial statements from one accounting period to
the next, supplementary information is often provided about the effect of
the acquisition and disposal of subsidiaries on the financial position at the
reporting date and the results for the reporting period and on the
corresponding amounts for the preceding period.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

8. Revenue (Consolidated) as per para no 15 and 22 of AS 21

Revenue of Best Ltd 56,00,000

Add: Revenue of Cool Ltd. (38,00,000 × 2/ 12) 6,33,333
62,33,333
9. Cost of materials purchased/consumed (Consolidated) as per para no
15 and 22 of AS 21

Raw material of Best Ltd 36,50,000

Add: Raw material of Cool Ltd (31,20,000x 2/12) 5,20,000
41,70,000

Question 6
(a) On 01.04.2023, Mr. Day has 25,000 shares of Squares Ltd. at a book value of
` 25 per share (nominal value of ` 10 each). Further information is as under:
(i) On 31st July 2023, the Directors of Squares Ltd. issued one equity bonus
share for every five shares held by the shareholders.
(ii) On 30th September 2023, the Directors of Squares Ltd. announced a right
issue which entitled the ·holders to subscribe three shares for every two
shares at ` 20 per share. Shareholders can transfer their rights in full or
in part.
Mr. Day sold 1/4th of entitlement to Dhwani for a consideration of ` 5 per
share and subscribed the rest on 5th October, 2023.
You are required to prepare Investment A/c in the books of Mr. Day for the
year ending 31.03.2024.
OR
(a) "In determining the cost of inventories, it is appropriate to exclude certain
costs and recognise them as expenses in the period in which they are
incurred."
Provide examples of such costs as per AS 2 (Revised) 'Valuation of Inventories.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) The following scheme of reconstruction has been approved for Equity
shareholders and Debenture holders of TP Ltd.
(i) The Equity shareholders to receive in lieu of their present holding of
1,50,000 shares of ` 10 each, the following :
(1) For ` 50,000, equivalent cash
(2) For ` 9,00,000, 10% debentures issued at premium of 20% (Face
value of debenture is ` I00 each)
(3) For balance ` 5,50,000, Equity shareholders agreed to accept 50,000
equity shares of ` 10 each in full settlement.
(ii) 8% Debenture ` 5,00,000.

Debenture holders agreed to accept Freehold property (Book value

` 3,50,000) at a valuation of ` 4,45,000 in full settlement of their claim.
Pass necessary Journal Entries in the Books of TP Ltd. for the above
reconstruction. Narration for Journal entries is not required to be given.
(c) Following is the information of Kullu Branch of M/s Best Enterprises of Shimla
for the year ending 31st March 2023 :
(1) Goods are invoiced to the branch at cost plus 20%
(2) Branch sold goods at invoice price plus 25%.
(3) Other Information is as follows:
(i) Stock (at cost price) as on 1st April, 2022 is ` 2,25,000
(ii) Goods sent by Head office to branch during the year (at cost price)
are ` 14,85,000
(iii) Goods returned by Branch to Head office during the year (at Invoice
price) are ` 75,000
(iv) Sales by the branch during the year ` 19,50,000

(v) Expenses incurred at Branch ` 56,000.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

You are required to ascertain the following:

(a) Profit earned by the Branch by Preparing Trading and profit and loss
account for the year ended 31st March 2023
(b) Also find the stock reserve on Closing stock (4 + 6 + 6 = 14 Marks)
Answer
(a) In the books of Mr. Day
Investment Account
(Equity shares in Square Ltd.)
Date Particulars No. of Amount Date Particulars No. of Amount
shares (`) shares (`)
1.4.23 To Balance 25,000 6,25,000 31.3.24 By Balance 63,750 13,00,000
b/d c/d (Bal.
fig.)
31.7.23 To Bonus issue 5,000
(W.N.1) -
5.10.23 To Bank A/c 33,750 6,75,000
(right shares)
(W.N.4)
63,750 13,00,000 63,750 13,00,000

Working Notes:
25,000
(1) Bonus shares = = 5,000 shares
5
25,000 + 5,000
(2) Right shares = × 3 = 45,000 shares
2
1
(3) Sale of rights = 45,000 shares × 4
×`5
= 11,250 x 5 = 56,250
` 56,250 to be credited to statement of
profit and loss
3
(4) Rights subscribed = 45,000 shares × 4 × ` 20 = ` 6,75,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Or
In determining the cost of inventories, it is appropriate to exclude certain
costs and recognise them as expenses in the period in which they are
incurred. Examples of such costs are:
(a) Abnormal amounts of wasted materials, labour, or other production
costs;
(b) Storage costs, unless the production process requires such storage.
(c) Administrative overheads that do not contribute to bringing the
inventories to their present location and condition.
(d) Selling and distribution costs.
(b) Journal Entries
` `
Equity Share Capital (old) A/c Dr. 15,00,000
To Equity Share Capital (` 10) A/c 5,00,000
To Cash A/c 50,000
To 10% Debentures A/c 7,50,000
To Securities premium 1,50,000
To Capital Reduction/Reconstruction 50,000
A/c
(Being new equity shares, 8% Debentures
issued, cash of ` 50,000 and the balance
transferred to Reconstruction account as
per the Scheme)
8% Debentures A/c Dr. 5,00,000
To Freehold Property A/c 4,45,000
To Capital Reduction/Reconstruction 55,000
A/c
(Being the debenture holders claim
settled partly and foregone partly as per
reconstruction scheme)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Capital Reduction/Reconstruction A/c Dr. 1,05,000

To Capital Reserves A/c 1,05,000
(Being balance in capital reduction
account transferred to Capital Reserves
A/c)

(c) (i) In the books of Kullu Branch

Trading and Profit and Loss Account

Particulars Amount Particulars Amount

` `
To Opening stock 2,70,000 By Sales 19,50,000
To Goods received 17,82,000 By Goods returned by 75,000
by Head office Branch
To Expenses 56,000 By Closing stock (Refer 4,17,000
W.N.)
To Net profit (Bal fig) 3,34,000
24,42,000 24,42,000

(ii) Calculation of Closing Stock

Cost price 100
Invoice price 120 (100+20)
Sales price 150 (120+25% of 120)
Opening Stock 2,70,000
Goods received 17,82,000
Less: Goods Returned 75,000
19,77,000
Less: Cost of Goods Sold (Invoice price) 15,60,000
Closing Stock 4,17,000
Stock reserve in respect of unrealised profit
= 4,17,000 x (20/120) = ` 69,500

37
 MAY-2024

PAPER – 1 : ADVANCED ACCOUNTING

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) On 1st April, 2023, Green Limited started the construction of an Office
Building (qualified asset). The land under the building is regarded as a
separate asset and is not a part of qualifying asset.
For the purpose of construction of building, the company raised a specific
loan of ` 14 lakhs from a Bank at an interest rate of 12% per annum. An
interest income of ` 15,000 was earned on this loan while it was held in
anticipation of payments.
The company's other outstanding loans on 1 stApril, 2023 were as follows:

Amount of Loan Rate of Interest per annum

` 20,00,000 15%
` 30,00,000 8%

The construction of building started on 1 stApril, 2023 and was completed on

31st January, 2024 when it was ready for its intended use. Up to the date of
completion of the building, the following payments were made to the
contractor:

Payment date Amount in `

1st Apirl,2023 4,00,000
1st August,2023 10,00,000
1st December,2023 25,00,000
st
31 January,2024 5,00,000
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The life of building is estimated to be 20 years and depreciation is calculated

on straight line method.
You are required to:
(i) Calculate the amount of borrowing cost to be capitalized.
(ii) Pass initial journal entry to recognise the cost of building.
(iii) Depreciation on building for the year ending 31 st March, 2024.
(iv) Carrying value of building as on 31 st March, 2024.
(b) Well Wear Limited is a Textile Manufacturing Company and engaged in the
production of Polyester (P) and Nylon (N). While manufacturing the main
products, a by-product Fiber (F) is also produced. Details of the cost of
production are as under:
Purchase of Raw Material for manufacturing process of

30,000 units ` 3,50,000

Wages paid ` 1,60,000
Fixed overheads ` 1,20,000
Variable overheads ` 60,000
Output:
Polyester (P) 12,500 Units
Nylon (N) 10,000 Units
Fiber (F) 3,200 Units
Closing Inventory:
Polyester (P) 1,600 Units
Nylon(N) 400 Units

Average market price of Polyester and Nylon is ` 100 and ` 60 per unit
respectively, by-product Fiber is sold@ ` 40 per unit. There is a profit of
` 8,000 on sale of by-product after incurring separate processing expenses of
` 10,000 and packing charges of ` 9,000. ` 5,000 was realized from sale of
scrap.
On the basis of the above information, you are required to compute the value
of closing inventory of Polyester and Nylon. (7 + 7 = 14 Marks)

2
 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Answer
(a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses

Date of Amount Financed Calculation `

incurrence of spent through
expenditure
1st April 2023 4,00,000 Specific 4,00,000 x 40,000
borrowing 12% x 10/12
1st August 10,00,000 Specific 10,00,000 x 1,00,000
2023 borrowing 12% x 10/12
1st December 25,00,000 General 25,00,000 x
2023 borrowing 10.8% x 2/12 45,000
31st January 5,00,000 General 5,00,000 x Nil
2024 borrowing 10.8% x 0/12
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000

(ii) Journal Entry

Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account 44,00,000
To Interest payable 1,70,000
(borrowing cost)
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)

Note: In the above journal entry, it is assumed that interest amount

will be paid at the year end. Hence, entry for interest payable has
been passed on 31.1.2024.

3
SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Alternatively, following journal entry may be passed if interest is paid

on the date of capitalization:

Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account 45,70,000
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)

(iii) Depreciation on building for the year ending 31.3.2024

Cost of building 45,70,000
Life of building = 20 years
Depreciation = (45,70,000/20) x 2/12 = 38,083.33
(iv) Carrying Value of Building on 31st March 2024:
Carrying Value = Cost of Building - Accumulated Depreciation
= 45,70,000- 38,083.33
= 45,31,917
Working Notes:
1. Calculation of capitalization rate on borrowings other than
specific borrowings

Amount of loan (`) Rate of Amount of

interest interest (`)
20,00,000 15% = 3,00,000
30,00,000 8% = 2,40,000
50,00,000 5,40,000
Weighted average rate of = 10.8%*
5,40,000
interest ( × 100)
50,00,000

4
 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Total expenses to be capitalized for building

`
Cost of building ` (4,00,000 + 10,00,000 + 25,00,000 44,00,000
+ 5,00,000)
Add: Amount of interest to be capitalized 1,70,000
45,70,000

(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap or

waste materials by their nature, are immaterial. They are often measured at
net realizable value and this value is deducted from the cost of the main
product.
Determination of value of closing inventory of Polyester and Nylon

Polyester Nylon
Closing inventory in units 1,600 units 400 units
Cost per unit ` 31.14 ` 18.68
Value of closing inventory ` 49,824 ` 7,472

Working Notes
1. Calculation of net realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40 1,28,000
per unit)
Less: Separate processing
charges of by-product Fiber (10,000)
Packing charges (9,000)
Net realizable value of by-product 1,09,000
Fiber

2. Calculation of cost of conversion for allocation between joint

products Polyester and Nylon
` `
Raw material 3,50,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Wages 1,60,000
Fixed overhead 1,20,000
Variable overhead 60,000
6,90,000
Less: NRV of by-product Fiber (W.N. 1) (1,09,000)
Sale value of scrap (5,000) (1,14,000)
Joint cost to be allocated between 5,76,000
Polyester and Nylon

Determination of “basis for allocation” and allocation of joint cost

to Polyester and Nylon
Polyester Nylon
Output in units (a) 12,500 units 10,000 units
Sales price per unit (b) ` 100 ` 60
Sales value (a x b) ` 12,50,000 ` 6,00,000
Total value (12,50,000 + 6,00,000)
= 18,50,000
Joint cost of ` 5,76,000 allocated in the ` 3,89,189 ` 1,86,811
ratio of 12,50,000 : 6,00,000
Cost per unit [c/a] ` 31.14 ` 18.68

Question 2
Following is the summarized Balance Sheets of Z Limited as on 31 st March, 2024:

Particulars (`)
EQUITY AND LIABILITIES:
Share Capital
Equity shares of ` 100 each 60,00,000
8% Preference shares of ` 100 each 21,00,000
10% Debentures of ` 100 each 18,00,000
Trade Payables 16,80,000
Total 1,15,80,000
ASSETS:
Goodwill 81,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Property, Plant and Equipment 72,00,000

Trade Receivables 13,75,000
Inventories 9,80,000
Cash at Bank 1,33,000
Own Debentures (Nominal value of ` 6 lakhs) 5,76,000
Profit and Loss A/c 12,35,000
Total 1,15,80,000

On 1stApril, 2024, court approved the following reconstruction scheme for Z

Limited:
(i) Each equity share shall be sub-divided into 10 equity shares of ` 10 each fully
paid up. After sub-division, equity share capital will be reduced by 40%.
(ii) Preference share dividends are in arrear for last 4 years. Preference
shareholders agreed to waive 75% of their dividend claim and accept
payment for the balance.
(iii) Own debentures of ` 2,40,000 (nominal value) were sold at 98 cum interest
and remaining own debentures were cancelled.
(iv) Debenture holders of ` 6,00,000 agreed to accept one machinery of book
value of ` 9,00,000 in full settlement.
(v) Remaining Property, Plant and Equipment were valued at ` 60,00,000.
(vi) Trade Payables, Trade Receivables and Inventories were valued at
` 15,00,000, ` 13,00,000 and ` 9,44,000 respectively. Goodwill and Profit and
Loss Account (Debit balance) are to be written off.
(vii) Company paid ` 60,000 as penalty to avoid capital commitments of ` 12
lakhs.
(viii) Interest on 10% Debentures is paid every year on 31st March.
You are required to:
(1) Pass necessary journal entries in the books of Z Limited to implement the
above schemes.
(2) Prepare Capital Reduction Account.
(3) Prepare Bank Account (14 Marks)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Answer
1. Journal entries
In the Books of Z Ltd. as on 1st April 2024
Particulars Dr. Cr.
01.04.2024 Amount Amount
(`) (`)
1. Equity share capital A/c (` 100) Dr. 60,00,000
To Equity share capital A/c (` 10) 60,00,000
(Being sub-division of one share of
` 100 each into 10 shares of ` 10 each)
2. Equity share capital A/c (` 10) Dr. 24,00,000
To Capital reduction A/c 24,00,000
(Being reduction of Equity capital by 40%)
3. Capital reduction A/c Dr. 1,68,000
To Bank A/c 1,68,000
(Being payment in cash of 25% of arrear
of preference dividend) [21,00,000x8%] x
4 years
4. Bank A/c Dr. 2,35,200
To Own debentures A/c 2,30,400
(5,76,000/6,00,000) x 2,40,000
To Capital reduction A/c 4,800
(Being profit on sale of own debentures of
` 2,40,000 transferred to capital reduction
A/c)
5. 10% Debentures A/c Dr. 3,60,000
(6,00,000 -2,40,000)
To Own debentures A/c 3,45,600
To Capital reduction A/c 14,400
(Being profit on cancellation of own
debentures transferred to capital
reduction A/c)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

6. 10% Debentures A/c Dr. 6,00,000

Capital reduction A/c Dr. 3,00,000
To Machinery or PPE A/c 9,00,000
(Being machinery taken up by debenture
holders for ` 6,00,000)
7. Capital reduction A/c (balancing figure) Dr. 3,00,000
To PPE A/c 3,00,000
(72,00,000 - 9,00,000 - 60,00,000)
(Being PPE revalued)
8. Trade payables A/c Dr. 1,80,000
(16,80,000 -15,00,000)
To Trade receivables A/c 75,000
(13,75,000-13,00,000)
To Inventory A/c 36,000
(9,80,000-9,44,000)
To Capital Reduction A/c 69,000
(Being assets and liabilities revalued)
9. Capital reduction A/c Dr. 13,16,000
To Goodwill A/c 81,000
To Profit and Loss A/c 12,35,000
(Being the above assets written off)
10. Capital reduction A/c Dr. 60,000
To Bank A/c 60,000
(Being penalty paid for avoidance of
capital commitments)
11. Capital reduction A/c Dr. 3,44,200
To Capital reserve A/c 3,44,200
(Being the credit balance in Capital
Reduction A/c transferred to Capital
Reserve)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

2. Capital Reduction Account

(`) (`)
To Bank 1,68,000 By Equity Share Capital 24,00,000
To Property, Plant & 3,00,000 By Trade Payable 1,80,000
Equipment
To Property, Plant & 3,00,000 By Bank A/c (Profit on 4,800
Equipment Sale)
To Trade Receivables 75,000 By 10% debentures A/c 14,400
(Profit on cancellation)
To Inventory 36,000
To Goodwill 81,000
To Profit and Loss A/c 12,35,000
To Cash/Bank A/c 60,000
To Capital Reserve 3,44,200
25,99,200 25,99,200

3. Bank Account
` `
To To balance b/d 1,33,000 By Capital Reduction 1,68,000
To Own Debenture 2,35,200 By Capital Reduction A/c 60,000
(2,30,400 +4,800) By balance c/d 1,40,200
3,68,200 3,68,200

Question 3
(a) Constructions Limited is engaged in the business of constructing Flyovers and
Railway over bridges. It obtained a contract from Railway Authorities to
construct a railway over bridge for ` 400 crores. The construction of the
railway over bridge is expected to be completed in 4 years.
At the outset of the contract, it was estimated that the total costs to be
incurred will be ` 370 crores but by the end of year 1, this estimate stands
revised to ` 375 crores.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

During year 3, the Construction Limited has requested for a variation in the
contract which is approved by Railway Authorities and accordingly the total
contract value will increase by ` 10 crores and costs will increase by ` 7
crores.
The Constructions Limited decided to measure the stage of completion on the
basis of the proportion of contract costs incurred to the total estimated
contract costs. Contract costs incurred at the end of each year is:
Year 1 ` 98.8 crores
Year 2 ` 202.4 crores
Year 3 ` 310 crores (including unused material of 3 crores)
Year 4 ` 382 crores
You are required to:
(1) Calculate stage of completion of contract for each year
(2) Profit to be recognised for each year.
(b) The following information is provided for Aarambh Limited:

Particulars 31st March 2023 31st March 2024

( `) ( `)
Profit and Loss a/c 5,400 (Dr.) 37,800
Provision for Taxation 2,21,400 1,35,000
General Reserve 54,000 81,000
12% Debentures 1,18,000 2,91,600
Trade Payables 1,29,600 1,18,800
8% Current Investments 54,000 1,08,000
Property, plant and equipment (Gross) 3,99,600 3,99,600
Accumulated Depreciation 1,29,600 1,62,000
Trade Receivables (Gross) 81,000 2,61,360
Provision for Doubtful Debts 27,000 54,000
Inventories 1,35,000 81,000
Cash and Cash Equivalents 54,00 30,240

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Additional information:
(i) Income tax provided during the year ` 1,62,000.
(ii) New debentures have been issued at the end of current financial year.
(iii) New investments have been acquired at the end of the current financial
year.
You are required to calculate net Cash Flow from Operating Activities.
(7 Marks + 7 Marks = 14 Marks)
Answer
(a) (a) Stage of completion = Costs incurred to date / Total estimated
costs
Year 1: 98.8 crore / 375 crore = 26.35%
Year 2: 202.4 crore / 375 crore = 53.97%
Year 3: (310 crore – 3 crore) / (375+7) crore = 80.37%
Year 4: 382 crore / 382 crore = 100%
(b) Profit to be recognized each year has been calculated as follows:
Year 1 Year 2 Year 3 Year 4
Contract 105.40 110.48 crore 113.64 crore 80.48 crore
Revenue (1) crore
(400 crore (400 crore x (410 crore x (410 crore x
x 26.35%) 53.97% - 80.37% 100% -
105.40 crore) - 105.40 crore 105.40 crore -
-110.48 crore) 110.48 crore -
113.64 crore)
Contract 98.8 crore 103.60 crore 104.60 crore 75 crore
Cost (2)
202.40 - (307 crore - (382 crore -
98.80 crore) 98.8 crore- 98.8 crore-
103.60 crore) 103.6 crore –
104.6 crore)
Contract 6.60 crore 6.88 crore 9.04 crore 5.48 crore
Profit
(1) – (2)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(b) Cash Flow from Operating Activities

`
Difference between Profit and Loss Account ` (37,800 + 5,400) 43,200
Add: Transfer to General Reserve (81,000-54,000) 27,000
Add: Adjustment for Provision for taxation 1,62,000
Profit Before tax 2,32,200
Add: Adjustment for Depreciation (` 1,62,000 – ` 1,29,600) 32,400
Add: Adjustment for provision for doubtful debt (` 54,000 – 27,000
` 27,000)
Add: Debenture Interest Paid ` (1,18,800 × 12%) 14,256
Less: Income from Investments (54,000 × 8%) (4,320)
Operating Profit before Working Capital changes 3,01,536
Decrease in Inventories ` (1,35,000-81,000) 54,000
Increase in Trade receivables ` (2,61,360-81,000) (1,80,360)
Decrease in Trade payables ` (1,29,600-1,18,800) (10,800)
Cash generated from operations 1,64,376
Income tax paid (2,48,400)
Net Cash generated from Operating Activities (84,024)

Working Note:
Provision for taxation account
` `
To Cash (Paid) 2,48,400 By Balance b/d 2,21,400
(Balancing figure)
To Balance c/d 1,35,000 By Profit and Loss A/c 1,62,000

3,83,400 3,83,400

Question 4
Intelligent Limited and Diligent Limited are carrying their business independently
for last two years. Following financial information in respect of both the
companies as at 31 st March, 2024 has been given to you:

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Particulars Intelligent Limited Diligent Limited

(` ) (`)
Equity Shares Capital of ` 100 each 12,00,000 10,00,000
8% Preference shares of ` 100 each 3,00,000 2,00,000
Trade Payables 12,00,000 4,00,000
Retirement Gratuity Fund (Long Term) 3,00,000 2,00,000
Profit and Loss Account
Opening balance 4,50,000 2,50,000
Profit for the current year 2,50,000 1,50,000
Land and Buildings 10,00,000 8,00,000
Plant and Machinery 10,00,000 6,00,000
Inventories 7,00,000 4,00,000
Trade Receivables 6,00,000 3,00,000
Cash and Bank 4,00,000 1,00,000

On 1st April, 2024, both the companies agreed to amalgamate and form a new
company 'Genius Limited, with an authorized capital of ` 40,00,000 divided into
30,000 equity shares of ` 100 each and 10,000 8% preference shares of ` 100
each.
The amalgamation has to be carried out on the basis of following agreement:
(1) Assets of both the companies were to be revalued as follows:

Particulars Intelligent Limited (`) Diligent Limited (`)

Land and Buildings 11,00,000 8,50,000
Plant and Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000

(2) Trade payables of Intelligent Limited includes ` 1,00,000 due to Diligent Ltd.
and the Trade receivables of Diligent Limited shows ` 1,00,000 receivables
from Intelligent Limited.
(3) The purchase consideration is to be discharged in the following manner:
(i) Issue 22,000 Equity Shares of ` 100 each fully paid up in the proportion
of the sum of their profitability in the preceding two financial years.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(ii) Preference shareholders of both companies are issued equivalent

number of 8% Preference Shares of ` 100 each of Genius Limited at a
price of ` 125 per share.
(iii) 12% debentures of ` 100 each in Genius Limited at par to provide an
income equivalent to 10% return on the basis of net assets in their
respective business as on 1 st April, 2024 after revaluation of assets.
You are required to:
(a) Compute the amount of Shares & Debentures to be issued to Intelligent
Limited and Diligent Limited.
(b) Prepare a Balance Sheet of Genius Limited showing the position immediately
after amalgamation. (14 Marks)
Answer
Computation of shares and debentures to be issued

Intelligent Ltd. Diligent Ltd.

(i) Equity shares 22,000 x 7/11 = 14,000 14,00,000
(W.N.1)
22,000 x 4/11 =8,000 8,00,000
(W.N.1)
(ii)Preference 3,00,000 3,75,000
( × 125)
shares 100
2,00,000 2,50,000
( × 125)
100
(iii) Debentures Refer (W.N.3) 17,50,000 11,25,000
Total Purchase Consideration (i + ii + iii) 35,25,000 21,75,000

Balance Sheet of Genius Limited

as at 1st April, 2024 (after amalgamation)

Notes no. `
I. Equity and Liabilities
(1) Shareholder’s fund
(a) Share Capital 1 27,00,000
(b) Reserves & Surplus 2 1,25,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(2) Non-current Liabilities

(a) Long term borrowings 3 28,75,000
(b) Other non-current liabilities 4 5,00,000
(3) Current Liabilities
(a) Trade Payables 15,00,000
(12,00,000 + 4,00,000 – 1,00,000)
Total 77,00,000
II. Assets
(1) Non-current Assets
(a) Property, Plant & Equipment 5 32,50,000
(b) Intangible Assets 6 22,50,000
(2) Current Assets
(a) Inventories (6,00,000 + 3,00,000) 9,00,000
(b) Trade Receivables 8,00,000
(6,00,000 + 3,00,000 - 1,00,000)
(c) Cash & Cash Equivalents 5,00,000
Total 77,00,000

Notes to Accounts:

Sr. Particular `
No.
1. Share Capital
Authorized Share Capital
a) Equity Share Capital
30,000 Equity Shares of ` 100 each 30,00,000
b) Preference Share Capital
10% 10,000 Preference Shares ` 100 each 10,00,000
40,00,000
Issued, Subscribed & Paid-up Capital
a) Equity Share Capital

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

22,000 Equity Shares of `100 each 22,00,000

(out of the above all shares are issued for
consideration other than cash)
b) Preference Share Capital
10% 5,000 Preference Shares of `100 each 5,00,000
(out of the above all shares are issued for
consideration other than cash)
27,00,000
2. Reserves & Surplus
Securities Premium 1,25,000
3. Long term borrowings
12% Debentures of ` 100 each 28,75,000
4. Other Non-current Liabilities
Gratuity Fund 5,00,000
5. Property, Plant & Equipment
Land & Building (11,00,000 + 8,50,000) 19,50,000
Plant & Machinery (9, 00,000 + 4,00,000) 13,00,000
32,50,000
6. Intangible Assets
Goodwill 22,50,000

Working Notes:
1. Calculation of Ratio of Equity Shares

Intelligent Ltd. Diligent Ltd


Opening balance P&L 4,50,000 2,50,000
Profit for the current year 2,50,000 1,50,000
Total 7,00,000 4,00,000


As the company has been in existence for two years, the opening balance of profit and
loss account has been assumed to be the profit of the previous year.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The total profits- ` 7,00,000+ ` 4,00,000 = ` 11,00,000.

No. of shares to be issued = 22,000 equity shares in the proportion of the
preceding 2 years’ profits. i.e. in 7:4.
2. Calculation of Net assets as on 31.3.2024

Particulars Intelligent Ltd. Diligent Ltd

Assets (after revaluation)
Land and Buildings 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade Receivables 6,00,000 3,00,000
Cash & Cash Equivalents 4,00,000 1,00,000
Total (a) 36,00,000 19,50,000
Liabilities
Trade Payables 12,00,000 4,00,000
Gratuity Fund 3,00,000 2,00,000
Total (b) 15,00,000 6,00,000
Net Assets (a – b) 21,00,000 13,50,000

3. Calculation of 12% Debentures to be issued to Intelligent Ltd. and

Diligent Ltd.

Intelligent Ltd. Diligent Ltd

` `
Net assets (Refer working note) 21,00,000 13,50,000
10% return on Net assets 2,10,000 1,35,000
12% Debentures to be issued 17,500
100
[2,10,000× ] =17,50,000of ` 100 each
12
100 11,250
[1,35,000× ] =11,25,000 of ` 100 each
12

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

4. Calculation of Goodwill / Capital Reserve

S. Particulars Intelligent Diligent

No. Ltd. Ltd.
(i) Purchase Consideration Paid 35,25,000 21,75,000
(ii) Less: Net Assets 21,00,000 13,50,000
(iii) Goodwill 14,25,000 8,25,000 22,50,000

Alternatively:
4. Calculation of Goodwill / Capital Reserve
S. Particulars Intelligent Diligent
No. Ltd. Ltd
(i) Purchase Consideration Paid 35,25,000 21,75,000
(ii) Less: Net Assets* 22,00,000 12,50,000
(iii) Goodwill 13,25,000 9,25,000 22,50,000
* Calculation of Net assets taken over

Particulars Intelligent Ltd. Diligent Ltd

Assets (after revaluation)
Land and Buildings 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade Receivables 6,00,000 2,00,000*
Cash & Cash Equivalents 4,00,000 1,00,000
Total (a) 36,00,000 18,50,000
Liabilities
Trade Payables 11,00,000** 4,00,000
Gratuity Fund 3,00,000 2,00,000
Total (b) 14,00,000 6,00,000
Net Assets (a – b) 22,00,000 12,50,000

*` 3,00,000 - ` 1,00,000= ` 2,00,000

**` 12,00,000 - ` 1,00,000 = ` 11,00,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Question 5
The Balance Sheets of Art Limited and Craft Limited as on 31 March 2024 are as
below:

Particulars Note Art Limited Craft Limited

No (`) (`)
I. Equity and Liabilities
a. Shareholder’s Fund
i. Share Capital 1 6,50,000 4,00,000
ii. Reserve & Surplus 2 3,12,000 2,48,000
b. Current Liabilities
i. Trade Payables 1,45,000 92,000
ii. Short term borrowings 3 70,000 -
11,77,000 7,40,000
II. Assets
a. Non-current Assets
i. Property, Plant & 4 4,21,000 3,60,000
Equipment
ii. Non-current investment 5 4,32,000 -
b. Current Assets
i. Inventories 1,66,000 2,05,000
ii. Trade Receivables 6 1,33,500 1,68,300
iii. Cash & Cash equivalent 24,500 6,700
11,77,000 7,40,000

Notes to Accounts:

Art Limited Craft Limited

( `) (`)
1. Share capital
6,500 shares of ` 100 each fully paid up 6,50,000
4,000 shares of ` 100 each fully paid-up - 4,00,000
Total 6,50,000 4,00,000
2. Reserves and Surplus

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

General Reserve 1,20,000 40,000

Profit and Loss account 1,92,000 2,08,000
Total 3,12,000 2,48,000
3. Short term borrowings -
Bank Overdraft 70,000
4. Property Plant & Equipment
Land & Building 1,90,000 1,35,000
Plant & Machinery 2,31,000 2,25,000
Total 4,21,000 3,60,000
5. Non-current investments -
Investment in Craft Limited (Cost) 4,32,000
6. Cash & Cash equivalents
Cash 24,500 6,700

Additional information:
(i) Art Limited acquired 3,200 ordinary shares of Craft Limited on 1 st October,
2023. The Reserve & Surplus and Profit & Loss Account of Craft Limited
showed a credit balance of ` 40,000 and ` 58,700 respectively as on 1 st April,
2023.
(ii) The Plant & Machinery of Craft Limited which stood at ` 2,50,000 as on
1st April, 2023 was considered worth ` 2,20,000 on the date of acquisition.
The depreciation on Plant & Machinery is calculated @ 10% p.a. on the basis
of useful life. The revaluation of Plant & Machinery is to be considered at the
time of consolidation.
(iii) Craft Limited deducts 1% from Trade Receivables as a general provision
against doubtful debts. This policy is not followed by Art Limited.
(iv) On 31st March 2024, Craft Limited's inventory includes goods which it had
purchased from Art Limited for 1,03,500 which made a profit of 15% on cost
price.
You are required to prepare a consolidated Balance Sheet as on 31 st March 2024.
(14 Marks)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Answer
Consolidated Balance Sheet of Art and Craft Ltd
As on 31st March, 2024

Particulars Note no. `

I. Equity & Liabilities
(1) Shareholders’ fund
(a) Share Capital 1 6,50,000
(b) Reserves & Surplus 2 3,73,460
(2) Minority Interest 3 1,26,740
(3) Current Liabilities
(a) Short term borrowings 4 70,000
(b) Trade Payables (1,45,000 + 92,000) 2,37,000
Total 14,57,200
II. Assets
(1) Non-current Assets
(a) Property, Plant & Equipment 5 7,65,000
(2) Current Assets
(a) Inventories 6 3,57,500
(b) Trade Receivables 7 3,03,500
(c) Cash & Cash Equivalents 8 31,200
Total 14,57,200

Notes to Accounts

Sr. No. Particulars `

1. Share Capital
Issued, Subscribed & Paid-up Capital
a) Equity Share Capital
6,500 Equity Shares of ` 100 each 6,50,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Reserves & Surplus

Profit & Loss A/c (WN 5) 2,40,100
General Reserve (WN 5) 1,20,000
Capital Reserve (W.N. 3) 13,360
3,73,460
3. Minority interest in Craft Ltd. (W.N.4) 1,26,740
4. Short-term borrowings
Bank Overdraft 70,000
5. Property, Plant & Equipment
Land & Building
Art Ltd. 1,90,000
Craft Ltd. 1,35,000 3,25,000
Plant & Machinery
Art Ltd. 2,31,000
Craft Ltd. (2,25,000-17,500+1,500) 2,09,000 4,40,000
7,65,000
6. Inventories
Art Ltd. 1,66,000
Craft Ltd. 2,05,000
Less: unrealized profit (13,500) 3,57,500
7. Trade Receivables
Art Ltd. 1,33,500
Craft Ltd. 1,70,000 3,03,500
8. Cash & Cash Equivalents
Art Ltd. 24,500
Craft Ltd. 6,700 31,200

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Working Notes:
1. Shareholding Pattern

Total 4,000 shares

3,200 shares 800 shares
Art Ltd (80%) 20% Minority Interest

2. Analysis of Profit

General reserve Profit and loss account

Opening balance 40,000 58,700
Closing balance 40,000 2,08,000
Changes during the year 1,49,300

Analysis of Profit

Particulars Pre acquisition Post acquisition

profit (6 months) profit (6 months)
(`) (`)
Opening Balances 98,700
(40,000 + 58,700)
Profit for 6 months 74,650 74,650
(1,49,300 x 6/12)
Provision reversed 850 850
(1,700) (W.N. 8)
Revaluation Loss (W.N. 6) (17,500) -
Savings in depreciation (W.N. 6) - 1,500
Total 1,56,700 77,000
Holding (80%) 1,25,360 61,600
Minority Interest (20%) 31,340 15,400

3. Cost of Control

Particulars ` `
Cost of Investment (Given) 4,32,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Less: Share in Net Assets:

a) Share Capital (3,200 shares × `100) 3,20,000
b) Capital Profit (W.N. 2) 1,25,360 (4,45,360)
Capital Reserve 13,360

4. Minority Interest

Particulars `
Share Capital (800 shares × 100) 80,000
Capital Profit (W.N. 2) 31,340
Revenue Profit (W.N. 2) 15,400
Total 1,26,740

5. Consolidated Profit and General Reserve of Art Ltd

Particulars Profit and loss General

account ` reserve `
Balance as per Balance Sheet 1,92,000 1,20,000
Revenue Profit 61,600 -
Unrealized Profit (Downstream) (13,500)
Total 2,40,100 1,20,000

6. Calculation of Revaluation Profit /Loss

Particulars `
Balance as on 01.04.2023 (given) 2,50,000
Depreciation for 6 months (2,50,000 × 10% × 6/12) (12,500)
WDV as on date of acquisition 2,37,500
Revalued amount 2,20,000
Revaluation Loss 17,500

7. Savings in Depreciation
= Depreciation Provided for 6 months – Depreciation Should be
= 12,500 – (2,20,000 × 10% × 6/12)
= 1,500

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

8. Calculation of provision reversed

Trade Receivable (Given) =1,68,300 it is after provision i.e 99%
So, 100% will be 1,70,000 therefor provision will be 1,700
As per para 20 and 21 of AS 21, Consolidated financial statements:
Consolidated financial statements should be prepared using uniform
accounting policies for like transactions and other events in similar
circumstances. If it is not practicable to use uniform accounting policies in
preparing the consolidated financial statements, that fact should be
disclosed together with the proportions of the items in the consolidated
financial statements to which the different accounting policies have been
applied.
Question 6
(a) Colour Limited leased a Machine to Red Limited on 1 April, 2021 on the
following:

Cost of the machine ` 18,00,000

Lease term 3 Years
Fair market value of the machine ` 18,00,000
Unguaranteed residual value as on 31.3.2024 ` 2,00,000
Internal rate of return 12%

Other information:
The expected useful life of the machine is 5 years. The machine will revert to
Colour Limited on termination of the lease. The lease payment is to be made
at the end of each year in 3 equal parts.
The present value of ` 1 due at the end of 3 rd year at 12% rate of interest is
` 0.7118. The present value of annuity of at ` 1 due at the end of 3 rd year at
12% IRR is ` 2.4018.
You are required to analyze whether lease constitutes finance lease. Also
calculate unearned finance income, if any.

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ADVANCED ACCOUNTING

OR
(a) On 1 April 2023, ABC Limited has given the following information:
`
50,000 equity shares of ` 100 each ( ` 80 paid up by all 40,00,000
shareholders)
2,00,000 8% Preference shares of ` 10 each 20,00,000
10,000, 12% Debentures of ` 100 each 10,00,000
(Each debenture is convertible into 3 equity shares of ` 100
each)

On 1" July 2023, the remaining ` 20 was called up and paid by all the
shareholders except one shareholder holding 10,000 equity shares. During
the year 2023-24 the company had a profit after tax of ` 3,44,000.
Tax rate is 30%.
You are required to compute Basic and Diluted EPS. (4 Marks)
(b) Following information are available in respect of Z Limited as on 31 st March,
2024
1. Equity shares of ` 100 each ` 500 lakhs
2. General Reserve ` 100 lakhs
3. Loss for the year ending 31 st March, 2024 ` 5 lakhs
Due to absence of profits during the year 2023-24, the management
recommends to declare dividend of 10% on equity share capital out of
general reserve.
The rates of equity dividend for the last 5 years immediately preceding the
year 2023-24 are as follows:
2022-23 2021-22 2020-21 2019-20 2018-19
12% 14% 10% 10% 7%
As an accountant of the company, you are required to suggest whether the
recommendation of the management is justified? If, you do not agree, then
suggest the rate of dividend. (4 Marks)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(c) Smart Limited is an Indian Company and has its Branch at New York. The
following balances in respect of Smart Limited's USA Branch office are
provided:
(i) Debit Balances (in USD)
Expenditure (excluding Depreciation) : 1,03,095
Cash & bank balances : 2,175
Debtors : 7,365
Fixed Assets (Gross) : 34,200
(Rate of Depreciation on Fixed Assets: 20%)
Inventory-Stock 'P' : 5,520
Inventory- Stock 'Q' : 1,035
(ii) Credit Balances (in USD)
Incomes : 1,32,000
Creditors : 15,570
HO Control a/c : 5,820
The following additional information is provided:
(1) The average exchange rate during the above financial year was 1 USD
= ` 56.
(2) The fixed assets were purchased when the exchange rate was 1 USD
` 55.
(3) The closing exchange rate on reporting date is 1 USD = ` 58.
(4) Stock item 'P' is valued at cost of USD 5,520, purchased when the
exchange rate was ` 56.50. The present net realizable value of this item
is ` 2,85,000.
(5) Stock item 'Q' is carried at net realizable value of USD 1,035, but its cost
in USD is 1,065, It was purchased when exchange rate was 1 USD
= ` 53.
(6) Branch Control Account as per HO books was ` 2,66,265.

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You are required to show how it will be reflected in the books of Head Office
in the form of Trial Balance, if the USA Branch Office is classified as an
Integral Foreign Operation. (6 Marks)
Answer
(a) Computation of Annual Lease Payment

Particulars Amount
Cost of Equipment 18,00,000
Unguaranteed Residual Value 2,00,000
Present Value of unguaranteed residual value 1,42,360
(` 200,000 x 0.7118)
Present Value of Lease Payments
(` 18,00,000 – ` 1,42,360) 16,57,640
Present Value of Annuity for three years is 2.4018
Annual Lease Payment (16,57,640 / 2.4018) 6,90,165.71

Classification of Lease:
Parameter 1:
The present value of lease payment i.e. ` 16,57,649 which equals 92.09% of
the fair market value i.e., ` 18,00,000.
The present value of minimum lease payments is substantially covers the
fair value of the leased asset
Parameter 2:
The lease term (i.e. 3 years) covers the major part of the life of the asset (i.e.
5 years).
Therefore, it constitutes a finance lease.
Computation of unearned Finance Income:

Particulars Amount
Total Lease Payments (` 6,90,165 x 3) ` 20,70,495
Add: Unguaranteed residual value ` 2,00,000
` 22,70,495

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Less: Present value of lease payments and residual value

i.e. Net investment (1,42,360+16,57,640) ` 18,00,000
Unearned Finance Income ` 4,70,495

OR
(a) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year
1,84,000
= = ` 4 per share
46,000 Shares (as per working note)

Diluted earnings per share

Net profit for the current year ` 3,44,000

No. of equity shares outstanding 50,000
Basic earnings per share `4
No. of 12% convertible debentures of ` 100 10,000
each
Each debenture is convertible into 3 equity
shares
Interest expense for the current year ` 1,20,000
Tax relating to interest expense (30%) ` 36,000
Adjusted net profit for the current year ` (1,84,000 + 1,20,000 -
36,000) = ` 2,68,000
No. of equity shares resulting from 30,000
conversion of debentures
No. of equity shares used to compute diluted 46,000 + 30,000 = 76,000
earnings per share
Diluted earnings per share 2,68,000 / 76,000 = ` 3.53

Working Note:
1. Net profit attributable to equity share holders = Net profit less
preference dividends
Total earnings – preference shares dividend

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` 3,44,000 – ` (8% x 20,00,000)

` 3,44,000 - ` 1,60,000
= ` 1,84,000
2. Calculation of weighted average number of equity shares
As per AS 20 ‘Earnings Per Share’, partly paid equity shares are treated
as a fraction of equity share to the extent that they were entitled to
participate in dividend relative to a fully paid equity share during the
reporting period. Assuming that the partly paid shares are entitled to
participate in the dividend to the extent of amount paid, weighted
average number of shares will be calculated as follows:

Date No. of equity Amount paid Weighted average

shares per share no. of equity shares
` ` `
01.04.2023 50,000 80 50,000x 80/100x 3/12
= 10,000
01.07.2023 40,000 100 40,000 x 9/12
= 30,000
01.07.2023 10,000 80 10,000x 80/100x 9/12
= 6,000
Total weighted average equity shares 46,000

(b) In case of declaration of dividend out of free reserves, there are 3

conditions:
(1) Dividend Rate < Average Rate of last 3 years
10% < 12% [(12+14+10)/3]
Condition is Satisfied
(2) Dividend Distributed < 10% of PUSC + Reserve and Surplus
50,00,000 < 59,50,000 [(5,00,00,000 + 1,00,00,000 – 5,00,000) × 10%]
Condition is Satisfied
(3) Reserves after dividend > 15% of PUSC 45,00,000 not > 75,00,000
(5,00,00,000 × 15%)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Condition is Not Satisfied

(4) The closing balance of reserves after payment of dividend and set off
of loss = ` 75,00,000
Therefore, can be utilized = 20,00,000 (1,00,00,000 – 5,00,000 – 75,00,000)
Thus, rate of dividend = (20,00,000/5,00,00,000) = 4%
Alternatively
To judge the recommendation of management, the satisfaction of all three
conditions is to be checked:
(1) Condition I
The proposed dividend of 10% is less than the average rate of dividend
being 12%
(i.e.) (12+14+10) /5 =12 %.
Hence, this condition is satisfied.
(2) Condition II
Amount to be withdrawn.

10% dividend on Equity share capital 50,00,000

+ Loss of Current year 5,00,000
Amount to be drawn from General Reserve 55,00,000

Maximum amount that can be withdrawn should not exceed 10% of

paid-up share capital + free reserves.
= 10% of [` 500 lakhs + ` 100 lakhs] = ` 60,00,000
As the amount to be withdrawn is within the maximum limit, hence,
this condition is also satisfied.
(3) Condition III
Balance of reserves after withdrawal (100-55) ` 45,00,000
15% of paid-up capital ` 75,00,000
As the balance of reserves should not be less than 15% of its paid-up
share capital, but here the balance of reserves after withdrawal is less

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

than 15% of paid-up share capital, hence this condition is not satisfied,
hence, 10% dividend cannot be declared.
Maximum withdrawal of Reserve if condition II is satisfied.
Opening balance of Reserves in the beginning = ` 1,00,00,000
of the year
- Closing balance of reserves being 15% of =` 75,00,000
paid-up capital
Reserves available = ` 25,00,000
Maximum permissible Divisible Profits
Permissible withdrawal as above = ` 25,00,000
Less: Current Year's Loss =` 5,00,000
Maximum permissible Divisible profit = ` 20,00,000
Actual permissible rate of Dividend =
(` 20,00,000 / ` 5,00,00,000) x 100 = 4%
Therefore, the recommendation of management is not justified and a
dividend only up to a rate of 4% can be declared.
(c) Converted branch trail balance (in the books of head office)

Particular Dr. $ Cr. $ Rate ` Dr. ` Cr.

per $
Expenditure 1,03,095 56 57,73,320
Cash & bank 2,175 58 1,26,150
balance
Debtors 7,365 58 4,27,170
Fixed assets 27,360 55 15,04,800
Depreciation 20% 6,840 55 3,76,200
Inventory P 5,520 Direct 2,85,000
Inventory Q 1,065 53 56,445
Income 1,32,000 56 73,92,000
Creditors 15,570 58 9,03,060

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

HO control A/c 5,820 2,66,265

Exchange difference 12,240
85,61,325 85,61,325

Working Note:

Inventory P $ 5,520 Inventory Q $ 1,065

Purchased Cost rate 56.50 NRV $ 1,035
NRV ` 2,85,000 Closing rate 58
Cost ` 3,11,880 Purchased Cost 53
rate
Value at cost or NRV ` 2,85,000 Value at cost or $ 1,035 @ ` 58 or
whichever is less NRV whichever $1,065 @ ` 53
is less = 56,445 or 60,030

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 RIP -
> JAN2O2N

PAPER – 1:
ADVANCED ACCOUNTING

QUESTIONS

PART – I: Multiple Choice Questions based on Case Scenarios

1. Surya Ltd. Has a two fixed asset, FA1 is being carried in the balance
sheet for ` 600 lakhs and FA 2 is being carried at ` 300 lakhs
As at 31st March 2024, the value in use for FA 1 is ` 500 lakhs and the
net selling price is ` 550 lakhs. The Company did upward revaluation last
year for ` 20 lakhs for FA 1.
As at 31st March 2024, the value in use for FA 2 is ` 350 lakhs and the
net selling price is ` 320 lakhs.
(a) How much is the total Impairment loss for current year for FA 1:
(i) ` 100 Lakhs
(ii) ` 50 Lakhs
(iii) ` 30 lakhs
(iv) Nil
(b) How much impairment loss will be charged to profit and loss for
current year for FA1:
(i) ` 100 Lakhs
(ii) ` 50 Lakhs
(iii) ` 30 lakhs
(iv) Nil

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(c) How much is the total Impairment loss for current year for FA 2:
(i) ` 50 Lakhs
(ii) ` 30 Lakhs
(iii) ` 20 lakhs
(iv) Nil
(d) What will be the carrying value on 1st April 2024 for FA 1:
(i) ` 550 Lakhs
(ii) ` 530 Lakhs
(iii) ` 520 lakhs
(iv) ` 500 lakhs
General MCQs
2. The debit or credit balance of “Foreign Currency Monetary Item
Translation Difference Account”
(a) Is shown as “Miscellaneous Expenditure” in the Balance Sheet
(b) Is shown under “Reserves and Surplus” as a separate line item
(c) Is shown as “Other Non-current” in the Balance Sheet
(d) Is shown as “Current Assets” in the Balance Sheet
Part II - Descriptive Questions
Applicability of Accounting Standards
AS 1
3. ABC Ltd. was making provision for non-moving inventories based on no
issues for the last 12 months up to 31.3.2023.
The company wants to provide during the year ending 31.3.2024 based
on technical evaluation:

Total value of inventory ` 100 lakhs

Provision required based on 12 months issue ` 3.5 lakhs
Provision required based on technical evaluation ` 2.5 lakhs

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Does this amount to change in Accounting Policy? Can the company

change the method of provision?
AS 3
4. Classify the following activities as (1) Operating Activities, (2) Investing
Activities, (3) Financing Activities (4) Cash Equivalents.
a. Proceeds from long-term borrowings.
b. Proceeds from Trade receivables.
c. Trading Commission received.
d. Redemption of Preference Shares.
e. Proceeds from sale of investment
f. Interim Dividend paid on equity shares.
g. Interest received on debentures held as investment.
h. Dividend received on shares held as investments.
i. Rent received on property held as investment.
j. Dividend paid on Preference shares.
k. Marketable Securities
AS 5
5. During the course of the last three years, a company owning and
operating Helicopters lost four Helicopters. The company’s accountant
felt that after the crash, the maintenance provision created in respect of
the respective helicopters was no longer required, and proposed to write
it back to the Profit and Loss account as a prior period item.
Is the company’s proposed accounting treatment correct? Discuss.
AS 7
6. Rose Constructions undertake to construct a·bridge for the Government
of Uttar Pradesh. The construction commenced during the financial year
ending 31.03.2024 and is likely to be completed by the next financial
year. The contract is for a fixed price of ` 12 crore with an escalation
clause. You are given the following information for the year ended
31.03.2024:

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Cost incurred upto 31.03.2024 ` 4 crore

Cost estimated to complete the contract ` 6 crore

Escalation in cost was by 5%. Hence, the contract price is also

increased by 5%.
You are required to ascertain the stage of completion and compute the
amount of revenue and profit to be recognized for the year as per
AS 7.
AS 9
7. Mithya Ltd. entered into agreement with Satya Ltd. for sale of goods
costing ` 8 lakh at a profit of 20% on cost. The sale transaction took
place on 1st February, 2024. On the same day, Satya Ltd. entered into
another agreement with Mithya Ltd. to resell the same goods at ` 10.80
lakh on 1st August, 2024. State the treatment of this transaction in the
financial statements of Mithya Ltd. as on 31.03.2024. The pre-
determined re-selling price covers the holding cost of Satya Ltd. Give
the Journal Entries as on 31.03.2024 in the books of Mithya Ltd.
AS 10
8. MS Ltd. has acquired a heavy machinery at a cost of ` 1,00,00,000 (with
no breakdown of the component parts). The estimated useful life is 10
years. At the end of the sixth year, one of the major components, the
turbine requires replacement, as further maintenance is uneconomical.
The remainder of the machine is perfect and is expected to last for the
next four years. The cost of a new turbine is ` 45,00,000. The discount
rate assumed is 5%.
Can the cost of the new turbine be recognised as an asset, and, if so,
what treatment should be used?
AS 11
9. Bansal Company Ltd. imported raw material worth US Dollars 12,000 on
15th January, 2024 when the exchange rate was ` 68 per US Dollar. The
payment for the transaction was made on 5th May, 2024 when exchange
rate was ` 64 per US Dollar. At the year end, 31st March, 2024, the rate of
exchange was ` 65 per US Dollar. The accountant of the company

4 JANUARY 2025 EXAMINATION

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 REVISION TEST PAPER
ADVANCED ACCOUNTING

passed entry on 31st March, 2024 adjusting the cost of raw material
consumed for the difference between ` 64 and ` 68 per US Dollar.
Discuss whether this treatment is justified as per the provisions of AS-11
(Revised).
AS 14
10. Astha Ltd. is absorbed by Nistha Ltd.; the consideration being the
takeover of liabilities, the payment of cost of absorption not exceeding
` 10,000 (actual cost ` 9,000); the payment of the 9% debentures of
` 50,000 at a premium of 20% through 8% debentures issued at a
premium of 25% of face value and the payment of `15 per share in cash
and allotment of three 11% preference shares of ` 10 each and four
equity shares of `10 each at a premium of 20% fully paid for every five
shares in Astha Ltd.
The number of shares of the vendor company are 1,50,000 of ` 10 each
fully paid. Calculate purchase consideration as per AS 14.
AS 16
11 How will interest be capitalized when qualifying assets are funded by
borrowings in the nature of bonds that are issued at a discount?
X Ltd. issued in year 1, a 3 year 10% p.a. (interest paid annually) bond
with a face value of ` 1,00,000 at a price of ` 90,000 to finance a
qualifying asset which is ready for intended use at the end of year 2.
Compute the amount of borrowings costs to be capitalized if the
company uses for amortization of discount straight line basis
AS 17
12. A Company has an inter-segment transfer pricing policy of charging at cost
less 5%. The market prices are generally 20% above cost.
You are required to examine whether the policy adopted by the
company is correct or not?
AS 18
13. Will transactions with related parties, for services provided/received free
of cost, be required to be disclosed?

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A Limited has a corporate communications department, which

centralises the public relations function for the whole group of A Limited
and its subsidiaries. No charges are, however, levied by A Limited on its
subsidiaries and accordingly, these transactions are not given
accounting recognition. Would these constitute related party
transactions requiring disclosure under AS 18 in the standalone financial
statements of A Limited?
AS 19
14. Money Limited leased a machine to Hello Limited on the following
terms:

(` in lakh)
(i) Fair value of the machine 24.00
(ii) Lease term 5 years
(iii) Lease rental per annum 4.00
(iv) Guaranteed residual value 0.8
(v) Expected residual value 1.5
(vi) Internal rate of return 15%

Discounted rates for 1st year to 5th year are 0.8696, 0.7561, 0.6575,
0.5718, and 0.4972 respectively.
Ascertain Unearned Finance Income.
AS 20
15. XYZ Limited has a wholly owned subsidiary BC Limited. The Group
prepares consolidated Financial Statements for the year ended
31st March, 2024. XYZ Limited (in its separate financial statements) has
incurred a loss of ` 2 crore during the year, while the consolidated profit
for the group during the year is ` 40 lakh.
XYZ Limited has 5,00,000 shares outstanding as at 31st March, 2024.
Further, it has granted options to issue equity shares as at that date. In
respect of such options, 1,00,000 shares are considered to be the shares
issued for no consideration. There are no changes in income or

6 JANUARY 2025 EXAMINATION

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expenses that are expected from the issue of equity shares on exercise
of these options.
Calculate Basic and Diluted EPS for XYZ Limited for separate financial
statements and for the Group.
AS 22
16. ABC Ltd. prepares its accounts annually on 31st March. On 1st April,
2022, it purchases a machine at a cost of ` 1,50,000. The machine has a
useful life of three years and an expected scrap value of zero. Although
it is eligible for a 100% first year depreciation allowance for tax
purposes, the straight line method is considered appropriate for
accounting purposes. ABC Ltd. has profits before depreciation and taxes
of ` 2,00,000 each year and corporate tax rate is 40 percent each year.
The purchase of machine at a cost of ` 1,50,000 in 2022 gives rise to a
tax saving of ` 60,000. The corporate tax rate has been assumed to be
same in each of the three years. Calculate deferred tax and pass
necessary journal entries.
What will be the amount of deferred tax, if the substantively enacted tax
rates for 2022, 2023 and 2024 are 40%, 35% and 38% respectively.
AS 23
17. A Ltd. invested ` 1,00,000 to acquire 10% stake (Investment I) in B Ltd.
and later invested ` 3,00,000 to acquire additional 20% (Investment II).
The net asset value of the B ltd. at the respective investment dates was
` 7,50,000 and ` 12,50,000 respectively. Determine whether B Ltd. is an
associate of A Ltd. Also, calculate goodwill arising on the acquisition of
the associate.
AS 24
18. What are the disclosure and presentation requirements of AS 24 for
discontinuing operations?
Give four examples of activities that do not necessarily satisfy criterion
(a) of paragraph 3 of AS 24, but that might do so in combination with
other circumstances.

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AS 26
19. During 2023-2024, an enterprise incurred costs to develop and produce
a routine, low risk computer software product, as follows:

Amount
(`)
Completion of detailed programme and design (Phase 1) 25,000
Coding and Testing for establishing technical feasibility 20,000
(Phase 2)
Other coding costs (Phase 3) 42,000
Testing costs (Phase 4) 12,000
Product masters for training materials (Phase 5) 13,000
Duplication of computer software and training materials, 40,000
from product masters (2,000 units) (Phase 6)
Packing the product (1,000 units) (Phase 7) 11,000

After completion of phase 2, it was established that the computer

software is technically feasible for the market. What amount should be
capitalized as software costs in the books of the company, on the
Balance Sheet date?
AS 29
20. During the year, QA Ltd. delivered manufactured products to customer
K. The products were faulty and on 1st October, 2023 customer K
commenced legal action against the Company claiming damages in
respect of losses due to the supply of faulty product. Upon investigating
the matter, QA Ltd. discovered that the products were faulty due to
defective raw material procured from supplier F. Therefore, on 1st
December, 2023, the Company commenced legal action against F
claiming damages in respect of the supply of defective raw materials.
QA Ltd. has estimated that it's probability of success of both legal
actions, the action of K against QA Ltd. and action of QA Ltd. against F,
is very high.
On 1st October, 2023, QA Ltd. has estimated that the damages it would
have to pay K would be ` 5 crore. This estimate was revised to ` 5.2

8 JANUARY 2025 EXAMINATION

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crore as on 31st March, 2024 and ` 5.25 crore as at 15th May, 2024. This
case was eventually settled on 1st June, 2022, when the Company paid
damages of ` 5.3 crore to K.
On 1st December, 2023, QA Ltd. had estimated that it would receive
damages of ` 3.5 crore from F. This estimate was revised to ` 3.6 crore
as at 31st March, 2024 and ` 3.7 crore as on 15th May, 2024. This case
was eventually settled on 1st June, 2022 when F paid ` 3.75 crore to QA
Ltd. QA Ltd. had, in its financial statements for the year ended 31 st
March, 2024, provided ` 3.6 crore as the financial statements were
approved by the Board of Directors on 26th April, 2024.
(i) Whether the Company is required to make provision for the claim
from customer K as per applicable AS? If yes, please give the
rationale for the same.
(ii) If the answer to (a) above is yes, what is the entry to be passed in the
books of account as on 31st March, 2024?
(iii) What will the accounting treatment of the action of QA Ltd. against
supplier F as per applicable AS?

SUGGESTED ANSWERS/HINTS

Case Scenario and MCQ

Q. No. Hints
1. (a) (ii)
(b) (iii)
(c) (iv)
(d) (i)
2. (b)

Descriptive Question
3. The decision of making provision for non-moving inventories on the basis
of technical evaluation does not amount to change in accounting policy.
Accounting policy of a company may require that provision for non-moving
inventories should be made. The method of estimating the amount of

9 JANUARY 2025 EXAMINATION

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provision may be changed in case a more prudent estimate can be made.

In the given case, considering the total value of inventory, the change in the
amount of required provision of non-moving inventory from ` 3.5 lakhs to
` 2.5 lakhs is also not material. The disclosure can be made for such
change in the following lines by way of notes to the accounts in the annual
accounts of ABC Ltd. for the year 2023-24:
“The company has provided for non-moving inventories on the basis of
technical evaluation unlike preceding years. Had the same method been
followed as in the previous year, the profit for the year and the
corresponding effect on the year end net assets would have been lower
by ` 1 lakh.”
4. Operating Activities: b, c.
Investing Activities: e, g, h, i.
Financing Activities: a, d, f, j.
Cash Equivalents: k
5. The balance amount of maintenance provision written back to profit and
loss account, no longer required due to crash of the helicopters, is not a
prior period item because there was no error in the preparation of
previous periods’ financial statements. The term ‘prior period items’, as
defined in AS 5 (revised) “Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies”, refer only to income or
expenses which arise in the current period as a result of errors or
omissions in the preparation of the financial statements of one or more
prior periods. The balance amount left in the provision created earlier is
not as a result of error in the past. So it will not be considered as prior
period item. Such write back of provision is not an ordinary feature of
the business, it shall be considered as an extra-ordinary item.
As per paragraph 8 of AS 5, extraordinary items should be disclosed in
the Statement of Profit and Loss as a part of net profit or loss for the
period. The nature and the amount of each extraordinary item should
be separately disclosed in the Statement of Profit and Loss in a manner
that its impact on current profit or loss can be perceived. Hence, the
amount so written-back (if material) should be disclosed as an
extraordinary item as per AS 5 rather than as prior period items.

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6.

` in crore
Cost of construction of bridge incurred upto 31.3.2024 4.00
Add: Estimated future cost 6.00
Total estimated cost of construction 10.00
Contract Price (12 crore x 1.05) 12.60 crore

Stage of completion
Percentage of completion till date to total estimated cost of
construction
= (4/10)×100 = 40%
Revenue and Profit to be recognized for the year ended 31st March,
2024 as per AS 7:
Proportion of total contract value recognized as revenue
= Contract price x percentage of completion
= ` 12.60 crore x 40% = ` 5.04 crore
Profit for the year ended 31st March, 2024 = ` 5.04 crore – ` 4 crore
= 1.04 crore.
7. In the given case, Mithya Ltd. concurrently agreed to repurchase the
same goods from Satya Ltd. on 1st February, 2024. Also the re-selling
price is pre-determined and covers purchasing and holding costs of
Satya Ltd. Hence, the transaction between Mithya Ltd. and Satya Ltd. on
1st February, 2024 should be accounted for as financing rather than sale.
The resulting cash flow of ` 9.60 lakh received by Mithya Ltd., cannot be
considered as revenue as per AS 9 “Revenue Recognition”.
Journal Entries in the books of Mithya Ltd.

` in lakh
1.2.2024 Bank Account Dr. 9.60

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To Advance from Satya Ltd ∗. 9.60

(Being advance received from
Satya Ltd. amounting [` 8 lakh +
20% of ` 8 lakh = 9.60 lakh] under
sale and re-purchase agreement)
31.3.2024 Financing Charges Account Dr. 0.40
To Satya Ltd. 0.40
(Financing charges for 2 months
[(10.80 – 9.60) x 2/6]
31.3.2024 Profit and Loss Account Dr. 0.40
To Financing Charges Account 0.40
(Being amount of finance charges
transferred to P& L Account)

8. The new turbine will produce economic benefits to MS Ltd., and the cost
is measurable. Hence, the item should be recognised as an asset. The
original invoice for the machine did not specify the cost of the turbine;
however, the cost of the replacement ` 45,00,000 can be used as an
indication (usually by discounting) of the likely cost, six years previously.
Statement showing cost of new turbine and machine after 6th year

Cost of machines 1,00,00,000

recognized on
purchase
Less: Depreciation
charged for 6
years [(1,00,00,000/ 10) x 6] (60,00,000)
40,00,000

∗ The balance of Satya Ltd.’s account will be disclosed as an advance under the heading
liabilities in the balance sheet of Mithya Ltd. as on 31 st March, 2024.

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Less:Current cost of
turbine to be
derecognized:
Cost of Turbine [45,00,000 x 33,57,900
before 6 years {1 / (1.05)6}]
Less: Depreciation [(33,57,900 / 10) x 6] (20,14,740) (13,43,160)
for 6 years
Add:Cost of new
turbine to be 45,00,000
recognised
Revised carrying 71,56,840
amount of machine

9. As per AS 11, ‘The Effects of Changes in Foreign Exchange Rates’, initial

recognition of a foreign currency transaction is done in the reporting
currency by applying the exchange rate at the date of the transaction.
Accordingly, on 15th January, 2024, the raw material purchased and its
creditors will be recorded at US dollar 12,000 × ` 68 = ` 8,16,000.
Also, on balance sheet date such transaction is reported at closing rate
of exchange, hence it will be valued at the closing rate i.e. ` 65 per US
dollar (USD 12,000 x ` 65 = ` 7,80,000) at 31st March, 2024, irrespective
of the payment made for the same subsequently at lower rate in the
next financial year.
The difference of ` 3 (65 – 68) per US dollar i.e. ` 36,000 (USD 12,000 x
` 3) will be shown as an exchange gain in the profit and loss account for
the year ended 31st March, 2024 and will not be adjusted against the
cost of raw materials.
In the subsequent year on settlement date, the company would
recognize or provide in the Profit and Loss account an exchange gain of
` 1 per US dollar, i.e. the difference from balance sheet date to the date
of settlement between ` 65 and ` 64 per US dollar i.e. ` 12,000.
Hence, the accounting treatment adopted by the Accountant of the
company is incorrect i.e. it is not in accordance with the provisions of
AS 11.

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10. As per AS 14 ‘Accounting for Amalgamations’, the term ‘consideration’

has been defined as the aggregate of the shares and other securities
issued and the payment made in the form of cash or other assets by the
transferee company to the shareholders of the transferor company.
The payment made by transferee company to discharge the Debenture
holders and outside liabilities and cost of winding up of transferor
company shall not be considered as part of purchase consideration.
Computation of Purchase Consideration

`
Cash payment `15 x 1,50,000 22,50,000
11% Preference Shares of ` 10 each [(1,50,000 x 3/5) x 9,00,000
` 10]
Equity shares of ` 10 each @ 20% premium
[(1,50,000 x 4/5) x ` 12] 14,40,000
Total Purchase consideration 45,90,000

11. As per AS 16, “Borrowing costs are interest and other costs incurred by
an enterprise in connection with the borrowing of funds”. Further, as per
para 4 (b) of the standard, “amortization of discounts or premiums
relating to borrowings” as a component of borrowing costs. Thus, the
borrowing costs comprise the periodic interest payable on the bonds in
question and the amount of discount amortised during the period.
Paragraph 6 of the Statement, inter-alia, states that “Borrowing costs
that are directly attributable to the acquisition, construction or
production of a qualifying asset should be capitalized as part of the cost
of that asset”.
Further, paragraph 19 states that “Capitalisation of borrowing costs
should cease when substantially all the activities necessary to prepare
the qualifying asset for its intended use or sale are complete”. Thus, only
that portion of the amortised discount should be capitalised as part of
the cost of a qualifying asset which relates to the period during which
acquisition, construction or production of the asset takes place.

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Straight line basis

(Amount in `)

Years Interest Amortisation of discount Total borrowing

costs
Year 1 10,000 3,333 13,333
Year 2 10,000 3,333 13,333
Year 3 10,000 3,334 13,334

In the above case, the amount of borrowing costs capitalized would be

` 13,333 in Year 1 and Year 2. The borrowing costs of ` 13,334 incurred
in Year 3 would be expensed since the asset is ready for its intended use
at the end of Year 2.
12. AS 17 ‘Segment Reporting’ requires that inter-segment transfers should
be measured on the basis that the enterprise actually used to price these
transfers. The basis of pricing inter-segment transfers and any change
therein should be disclosed in the financial statements. Hence, the
enterprise can have its own policy for pricing inter-segment transfers
and hence, inter-segment transfers may be based on cost, below cost or
market price. However, whichever policy is followed, the same should be
disclosed and applied consistently. Therefore, in the given case inter-
segment transfer pricing policy adopted by the company is correct if
followed consistently.
13. These transactions would require disclosure under AS 18 in the
standalone financial statements of A Limited. As per paragraph 10 of AS
18, a related party transaction is “a transfer of resources or obligations
between related parties, regardless of whether or not a price is charged”.
In the given situation, there is a transfer of resources from A Limited to
its subsidiaries, though no price is charged for the same. Hence, it will
constitute as related party transaction and will require disclosure in the
financial statements of A Ltd.
14. As per AS 19 on Leases, unearned finance income is the difference
between (a) the gross investment in the lease and (b) the present value
of minimum lease payments under a finance lease from the standpoint

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of the lessor; and any unguaranteed residual value accruing to the

lessor, at the interest rate implicit in the lease.
Where:
(a) Gross investment in the lease is the aggregate of (i) minimum lease
payments from the stand point of the lessor and (ii) any
unguaranteed residual value accruing to the lessor.
Gross investment = Minimum lease payments + Unguaranteed
residual value
= [Total lease rent + Guaranteed residual value (GRV)] +
Unguaranteed residual value (URV)
= [(`s4,00,000 × 5 years) + ` 80,000] + ` 70,000
= ` 21,50,000 (a)
(b) Table showing present value of (i) Minimum lease payments (MLP)
and (ii) Unguaranteed residual value (URV).

Year MLP inclusive of URV Internal rate of Present

` return (Discount Value
factor @ 15%) `
1 4,00,000 0.8696 3,47,840
2 4,00,000 0.7561 3,02,440
3 4,00,000 0.6575 2,63,000
4 4,00,000 0.5718 2,28,720
5 4,00,000 0.4972 1,98,880
80,000 (GRV) 0.4972 39,776
20,80,000 13,80,656 (i)
70,000 (URV) 0.4972 34,804 (ii)
21,50,000 (i)+ (ii) 13,45,852(b)

Unearned Finance Income (a) - (b) = ` 21,50,000 – ` 13,45,852 =

` 8,04,148.

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15. Computation of earnings per share

Particulars Consolidated financial Standalone

statements financial statements
of XYZ Limited
Basic ` 8 [40,00,000/5,00,000] (` 40) [2,00,00,000/
earnings/(loss) per 5,00,000]
share
Diluted earnings/ ` 6.66 [40,00,000/ (` 40) [2,00,00,000/
(loss) per share 6,00,000] 5,00,000]

As per paragraph 39 of AS 20 “Potential equity shares should be treated

as dilutive when, and only when, their conversion to equity shares would
decrease net profit per share from continuing ordinary operations.
In the above case, if the exercise of options was considered for separate
financial statements of XYZ Limited, the diluted loss per share would
have reduced to ` 33.33 [2,00,00,000/6,00,000]. As this is antidilutive,
the options would not be treated as potentially dilutive equity shares.
Accordingly, in the separate financial statements of XYZ Limited, the
Diluted EPS would be same as Basic EPS.
16. If the cost of machine is spread over three years of its life for accounting
purposes, the amount of the tax saving should also be spread over the
same period as shown below:
Statement of Profit and Loss
(for the three years ending 31st March, 2022, 2023, 2024)

(` in thousand)
2022 2023 2024
Profit before depreciation and taxes 200 200 200
Less: Depreciation for accounting purposes 50 50 50
Profit before taxes 150 150 150
Less: Tax expense
Current tax:
0.40 x (200 -150) 20

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0.40 x 200 80 80
Deferred tax:
Tax effect of timing differences
originating during the year
leading to DTL
0.40 (150-50) 40
Tax effect of timing differences
reversing during the year
0.40 (0-50) - (20) (20)
Tax expense 60 60 60
Profit after tax 90 90 90
Net timing differences 100 50 0
Deferred tax liability balance 40 20 0

In 2022, the amount of depreciation allowed for tax purposes exceeds

the amount of depreciation charged for accounting purpose by
` 1,00,000 and, therefore, taxable income is lower than the accounting
income. This gives rise to a deferred tax liability of ` 40,000. In 2023
and 2024 accounting income is lower than taxable income because the
amount of depreciation charged for accounting purposes exceeds the
amount of depreciation allowed for tax purposes by ` 50,000 each year.
Accordingly, deferred tax liability is reduced by ` 20,000 each in both
the years. As may be seen, tax expense in based on the accounting
income of each period.
In 2022, the profit and loss account is debited and deferred tax liability
account is credited with the amount of tax on the originating timing
difference of ` 1,00,000 while in each of the following two years,
deferred tax liability account is debited and profit and loss account is
credited with the amount of tax on the reversing timing difference of
` 50,000.
The following Journal entries will be passed:

Year 2022
Profit and Loss A/c Dr. 20,000

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To Current tax A/c 20,000

(Being the amount of taxes payable for the
year 2022 provided for)
Profit and Loss A/c Dr. 40,000
To Deferred tax liability A/c 40,000
(Being the deferred tax liability created for
originating timing difference of ` 1,00,000)
Year 2023
Profit and Loss A/c Dr. 80,000
To Current tax A/c 80,000
(Being the amount of taxes payable for the
year 2023 provided for)
Deferred tax liability A/c Dr. 20,000
To Profit and Loss A/c 20,000
(Being the deferred tax liability adjusted
for reversing timing difference of ` 50,000)
Year 2024
Profit and Loss A/c Dr. 80,000
To Current tax A/c 80,000
(Being the amount of taxes payable for the
year 2024 provided for)
Deferred tax liability A/c Dr. 20,000
To Profit and Loss A/c 20,000
(Being the deferred tax liability adjusted
for reversing timing difference of ` 50,000)

Presentation:
In the year 2022, the balance of deferred tax account i.e. ` 40,000 would
be shown separately from the current tax payable for the year in terms
of paragraph 30 of AS 22. In the year 2023, the balance of deferred tax
liability account would be ` 20,000 and be shown separately from the
current tax payable for the year as in year 2022. In year 2024, the
balance of deferred tax liability account would be nil.

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If the rate of tax changes, it would be necessary for the enterprises to

adjust the amount of deferred tax liability carried forward by applying
the tax rate that has been enacted or substantively enacted by the
balance sheet date on accumulated timing differences at the end of the
accounting year
The amount of deferred tax liability would be computed as follows:
The deferred tax liability carried forward each year would appear in the
balance sheet as under:
31st March, 2022 = 0.40 (1,00,000) = ` 40,000
31st March, 2023 = 0.35 (50,000) = ` 17,500
31st March, 20224 = 0.38 (Zero) = ` Zero
Accordingly, the amount debited (credited) to the profit and loss
account (with corresponding credit or debit to deferred tax liability) for
each year would be as under:
31st March, 2022 Debit = ` 40,000
31st March, 2023 (Credit) = ` (22,500)
31st March, 2024 (Credit) = ` (17,500)
17. As per para 3 of AS 23 an associate is an enterprise in which the investor
has significant influence and which is neither a subsidiary nor a joint
venture of the investor. Significant influence may be gained by share
ownership, statute or agreement. As regards share ownership, if an
investor holds, directly or indirectly through subsidiary(ies), 20% or more
of the voting power of the investee, it is presumed that the investor has
significant influence, unless it can be clearly demonstrated that this is
not the case. In this case, A Ltd. has invested 30 % in B Ltd. so B Ltd. is to
be considered as an associate of A Ltd.
The goodwill arising on the acquisition of the associate will be
computed as follows:
`
Investment I 1,00,000
Share of net assets (10 percent of ` 7,50,000) (75,000)

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Goodwill (A) 25,000

Investment II 3,00,000
Share of net assets (20 percent of ` 12,50,000) (2,50,000)
Goodwill (B) 50,000
Total goodwill (A + B) 75,000

18. (i) An enterprise should include the following information relating to

a discontinuing operation in its financial statements beginning
with the financial statements for the period in which the initial
disclosure event (as defined in paragraph 15) occurs:
(a) a description of the discontinuing operation(s);
(b) the business or geographical segment(s) in which it is
reported as per AS 17, Segment Reporting;
(c) the date and nature of the initial disclosure event;
(d) the date or period in which the discontinuance is expected to
be completed if known or determinable;
(e) the carrying amounts, as of the balance sheet date, of the
total assets to be disposed of and the total liabilities to be
settled;
(f) the amounts of revenue and expenses in respect of the
ordinary activities attributable to the discontinuing operation
during the current financial reporting period;
(g) the amount of pre-tax profit or loss from ordinary activities
attributable to the discontinuing operation during the
current financial reporting period, and the income tax
expense related thereto; and
(h) the amounts of net cash flows attributable to the operating,
investing, and financing activities of the discontinuing
operation during the current financial reporting period.
(ii) Para 3 of AS 24 “Discontinuing Operations” explains the criteria
for determination of discontinuing operations. According to
Paragraph 9 of AS 24, examples of activities that do not necessarily

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satisfy criterion (a) of paragraph 3, but that might do so in

combination with other circumstances, include:
(i) Gradual or evolutionary phasing out of a product line or class
of service;
(ii) Discontinuing, even if relatively abruptly, several products
within an ongoing line of business;
(iii) Shifting of some production or marketing activities for a
particular line of business from one location to another; and
(iv) Closing of a facility to achieve productivity improvements or
other cost savings.
An example in relation to consolidated financial statements is selling a
subsidiary whose activities are similar to those of the parent or other
subsidiaries.
19. As per para 44 of AS 26, costs incurred in creating a computer software
product should be charged to research and development expense when
incurred until technological feasibility/asset recognition criteria has been
established for the product. Technological feasibility/asset recognition
criteria have been established upon completion of detailed programme
design or working model. In this case, ` 45,000 would be recorded as an
expense (` 25,000 for completion of detailed program design and
` 20,000 for coding and testing to establish technological
feasibility/asset recognition criteria). Cost incurred from the point of
technological feasibility/asset recognition criteria until the time when
products costs are incurred are capitalized as software cost (` 42,000 +
` 12,000 + ` 13,000) ` 67,000. Duplication of computer software and
training materials, from product masters and packing the products are
the cost incurred after development phase. Hence, the same shall be
expensed off during the year it is incurred.
20. (i) Yes, QA Ltd. is required to make provision for the claim from
customer K as per AS 29 since the claim is a present obligation as
a result of delivery of faulty goods manufactured. Also, it is
probable that an outflow of resources embodying economic
benefits will be required to settle the obligations. Further, a
reliable estimate of ` 5.2 crore can be made of the amount of the

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obligation while preparing the financial statements as on 31st

March, 2024.
(ii) Statement of Profit and Loss A/c Dr. ` 5.2 crore
To Current Liability A/c ` 5.2 crore
(iii) As per para 30 of AS 29, QA Ltd. shall not recognise a contingent
asset. Here the probability of success of legal action is very high
but there is no concrete evidence which makes the inflow virtually
certain. Hence, it will be considered as contingent asset only and
shall not be recognized.

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 RTP-SEPT 2024

PAPER – 1:
ADVANCED ACCOUNTING

QUESTIONS

PART – I: Multiple Choice Questions based on Case Scenarios

1. Suman Ltd. is in the business of manufacturing electronics equipment
and selling these at its various outlets. It provides installation services
for the equipment sold and also provide free 1 year warranty on all the
sold products.
Beach Resorts are leading resorts in the city. It purchased 5 air
conditioners (AC) from Suman Ltd. for its resort. Suman Ltd. sold 5 AC to
Beach resort for ` 45,000 each which includes installation fees of ` 1,000
for each AC. The Company also offers 1 year warranty for any repair etc.
The Company also offered ` 500 per AC as trade discount. Beach resort
placed order on March 15, 2024 and made payment on March 20, 2024.
The ACs were delivered on March 27, 2024 and the installation was
completed on April 5, 2024.
(a) How much revenue should be recognised by the Company as on
March 31, 2024:
(i) ` 2,25,000
(ii) ` 2,17,500
(iii) ` 2,00,000
(iv) ` 2,30,000
(b) How much revenue should be recognised by the Company in the
financial year 2024-25:
(i) ` 5000
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(ii) ` 2,20,000
(iii) ` 10,000
(iv) ` 2,40,000
(c) What will be the accounting for trade discount:
(i) The same will be recognised separately in the profit and loss.
(ii) The trade discounts are deducted in determining the
revenue.
(iii) Trade discount will be recognised after one year, when the
warranty will be over.
(iv) Trade discount will be recognised after installation is
complete.
(d) Is the Company required to do any accounting for 1 year warranty
provided by it:
(i) No accounting treatment is required till some warranty claim
is actually received by the Company.
(ii) As there exist a present obligation to provide warranty to
customers for 1 year, the Company should estimate the
amount that it may have to incur considering various factors
including past trends and create a provision as per AS 29.
(iii) Accounting for claims will be done on cash basis i.e. expense
will be recognised when expense is made.
(iv) As the Company is not charging separately for the warranty
provided, there is no need to create any provision.
General MCQs
2. As per AS 2, Inventories include materials awaiting use in production
process, what should be included in Inventories from the following:
(a) Secondary Packing material required for transporting and
forwarding the material.
(b) Spare parts, servicing equipment and standby equipment

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(c) Primary packing material which is essential to bring an item of

inventory to its saleable condition, for example, bottles, cans etc.,
in case of food and beverages industry.
(d) Publicity material
Part II - Descriptive Questions
Applicability of Accounting Standards
3. Kirti Ltd. is in the business of manufacturing computers. During the year
ended 31st March, 2024, the company manufactured 550 computers. It
has the policy of valuing finished stock of goods at a standard cost of
` 1.8 lakh per computer. The details of the costs are as under:

(` in lakh)
Raw material consumed 400
Direct Labour 250
Variable production overheads 150
Fixed production overheads (including interest of 290
` 100 lakh)

Compute the value cost per computer for the purpose of closing stock.
AS 3
4. Purse Ltd., a non financial company has the following entries in its Bank
Account. It has sought your advice on the treatment of the same for
preparing Cash Flow Statement.
(i) Loans and Advances given to the following and interest earned on
them:
(1) to suppliers
(2) to employees
(3) to its subsidiaries companies
(ii) Investment made in subsidiary Wallet Ltd. and dividend received
(iii) Dividend paid for the year

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(iv) Insurance claim received against loss of property, plant and

equipment by fire.
Discuss in the context of AS 3 ‘Cash Flow Statement’.
AS 4
5. For five companies whose financial year ended on 31st March, 2023, the
financial statements were approved by their approving authority on 15th
June, 2023.
During 2023-2024, the following material events took place:
a. A Ltd. sold a major property which was included in the balance
sheet at ` 1,00,000 and for which contracts had been exchanged
on 15th March, 2023. The sale was completed on 15th May, 2023 at
a price of ` 2,50,000.
b. On 30th April, 2023, a 100% subsidiary of B Ltd. declared a dividend
of ` 3,00,000 in respect of its own shares for the year ended on
31st March, 2023.
c. On 31st May, 2023, the mail order activities of C Ltd. (a retail
trading group) were shut down with closure costs amounting to `
2.5 million.
d. On 1st July, 2023 the discovery of sand under D Ltd.'s major civil
engineering contract site causes the cost of the contract to
increase by 25% for which there would be no corresponding
.

recovery from the customer.

e. A fire, on 2nd April, 2023, completely destroyed a manufacturing
plant of E Ltd. It was expected that the loss of ` 10 million would
be fully covered by the insurance company.
You are required to state with reasons, how each of the above
items numbered (a) to (e) should be dealt with in the financial
statement of the various companies for the year ended 31st
March, 2023.

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AS 5
6. Explain whether the following will constitute a change in accounting
policy or not as per AS 5:
(i) Introduction of a formal retirement gratuity scheme by an
employer in place of ad hoc ex-gratia payments to employees on
retirement.
(ii) Management decided to pay pension to those employees who
have retired after completing 5 years of service in the organistaion.
Such employees will get pension of ` 20,000 per month. Earlier
there was no such scheme of pension in the organization.
AS 7
7. Mehta ltd. has undertaken bridge construction contract wherein, bridge
will be constructed in 3 years. The details of the contracts are as follows:
(i) Initial contract revenue ` 900 crore
(ii) Initial contract cost ` 800 crore

Years
I II III
` in crore ` in crore ` in crore
Estimated contract cost 805
Increase in contract revenue - 20
Estimated additional increase cost - 15
Contract cost incurred upto 161 584 820

At the end of year II, cost incurred includes ` 10 crore, for material
stored at the sites to be used in year III to complete the project.
State the amount of revenue, expenses and profit to be recognized in
the Statement of Profit and Loss in these three years.
AS 9
8. When will the revenue be recognized in the case of inter divisional
transfers?

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AS 11
9. (a) Alfa Ltd. purchased an item of property, plant and equipment for US
$ 50 lakh on 01.04.2023 and the same was fully financed by the
foreign currency loan [i.e. US $] repayment in five equal instalments
annually. (Exchange rate at the time of purchase was 1 US $ = ` 60].
As on 31.03.2024 the first instalment was paid when 1 US $ fetched `
62.00. The entire loss on exchange was included in cost of goods
sold. Alfa Ltd. normally provides depreciation on an item of property,
plant and equipment at 20% on WDV basis and exercised the option
to adjust the cost of asset for exchange difference arising out of loan
restatement and payment. Calculate the amount of exchange loss
and its treatment and depreciation.
AS 12
10. Energy Ltd. has acquired a generator on 1.4.2023 for ` 100 lakh. On
2.4.2023, it applied to Indian Renewal Energy Development Authority
(IREDA) for a subsidy. The subsidy was granted in June, 2024 after the
accounts for 2023-2024 were finalized. The company has not accounted
for the subsidy for the year ended 31.3.2024.
State
(i) Is this a prior period item?
(ii) How should the subsidy be accounted in the accounting year
2024-2025?
AS 13
11. A company is engaged in the business of refining, transportation and
marketing of petroleum products. During the financial year ended
31st March, 2024, the company acquired controlling interest from
Government of India in another public sector undertaking @ ` 1,551 per
share as against the book value of ` 192.58 per share and market value
of ` 876 per share as on 18th February, 2024.
Thus, the strategic premium of ` 675 per share has been paid
considering various tangible and intangible factors.

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The above investment in the shares of the acquired company has been
considered as long term strategic investment and, therefore, has been
accounted for at cost, i.e. at ` 1,551 per share in the financial
statements. No provision for diminution in value has been made in the
books of account.
As per the requirement of Schedule III to the Companies Act, 2013, the
aggregate market value of the quoted shares has been properly
reflected in the financial statements.
On 28th March, 2024, the acquired shares were quoted at ` 880 per share
on BSE and the current market price as on 18th July was around ` 300.
Considering the tangible and intangible benefits the Management is of
the view that there is no permanent diminution in the value of the
strategic investment in the acquired company, as the same has been
considered as a long-term investment. Therefore, there is no need for
provision for diminution in the value of the shares of the acquired
company.
Required:
(i) Whether the accounting treatment 'at cost' under the head ‘Long
Term Investments’ without providing for any diminution in value is
correct and in accordance with the provisions of AS 13.
(ii) If any provision for diminution in the value is to be made, whether
such provision should be charged to the profit and loss account or
whether same can be considered as deferred expenditure and
amortised over a period of 5 years. Whether it is open for the
company to charge off such diminution in the value in the books
of account instead of creating provision.
(iii) Whether the premium paid for strategic benefits for investment
described in facts of the case, can be accounted for separately in
the books of account keeping in view that AS 13 specifies that
long term investments should be recorded at cost and there is no
specific provision in the standard in respect of accounting for
premium paid for strategic benefits.

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AS 16
12. Loyal Ltd. has undertaken a project for expansion of capacity as per the
following details:
Plan (`) Actual (`)
October, 2023 5,00,000 4,00,000
November, 2023 6,50,000 7,95,000
December, 2023 20,00,000 -
January, 2024 2,00,000 50,000
February, 2024 9,00,000 2,00,000
March, 2024 10,00,000 12,00,000
The company pays to its bank interest at a rate of 15% p.a., which is
debited on a monthly basis. During the half year, company had ` 20
lakh overdraft up to 31st December, surplus cash in January and again
overdraft of ` 14 lakh from 1.2.2024 and ` 30 lakh from 1.3.2024. The
company had a strike during December and hence could not continue
the work during said period. However, the substantial administrative
work related to the project was continued. Onsite work was again
commenced on 1st January and all the work were completed on 31st
March. Assume that expenditure was incurred on 1st day of each month.
Calculate interest to be capitalized giving reason wherever necessary.
Assume overdraft will be less, if there is no capital expenditure.
AS 17
13. Whether interest expense relating to overdrafts and other operating
liabilities identified to a particular segment should be included in the
segment expense or not?
AS 20
14. The following information is available in respect of High-end Ltd. for the
accounting year 2022-2023 and 2023-2024:
Net profit for `
Year 2022-2023 22,00,000
Year 2023-2024 30,00,000

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Number of shares outstanding prior to right issue 10,00,000 shares.

Right issue: One new share for each five shares outstanding i.e. 2,00,000
shares.
: Right issue price ` 25
: Last date to exercise right 31st July, 2023.
Fair value of one equity share immediately prior to exercise of rights on
31.07.2023 is ` 32.
You are required to compute, as per AS 20:
(i) Basic earnings per share for the year 2022-2023.
(ii) Restated basic earnings per share for the year 2022-20223 for right
issue.
(iii) Basic earnings per share for the year 2023-2024.
AS 23
15. Hill Ltd. has a share capital of 50,000 shares @ ` 100 per share. Sun Ltd.
acquired 15% shares in Hill Ltd. on 1.4.2024. It also acquired all the
5,000, 12% convertible debentures of ` 100 each of Hill Ltd. These
debentures will be converted at par into equity shares of Hill Ltd. after 3
years. State whether, as per AS 23, Hill Ltd. is an Associate of Sun Ltd.
or not with reasons?
AS 24
16. Arzoo Ltd. is in the business of manufacture of Passenger cars and
commercial vehicles. The company is working on a strategic plan to
shift from the Passenger car segment over the coming 5 years.
However, no specific plans have been drawn up for sale of neither the
division nor its assets. As part of its plan it will reduce the production of
passenger cars by 20% annually. It also plans to commence another new
factory for the manufacture of commercial vehicles plus transfer of
employees in a phased manner.
(i) You are required to comment if mere gradual phasing out in itself
can be considered as a ‘Discontinuing Operation' within the
meaning of AS 24.

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(ii) lf the company passes a resolution to sell some of the assets in the
passenger car division and also to transfer few other assets of the
passenger car division to the new factory, does this trigger the
application of AS 24?
(iii) Would your answer to the above be different if the company
resolves to sell the assets of the Passenger Car Division in a
phased but time bound manner?
AS 28
17. A publisher owns 150 magazine titles of which 70 were purchased and
80 were self-created. The price paid for a purchased magazine title is
recognised as an intangible asset. The costs of creating magazine titles
and maintaining the existing titles are recognised as an expense when
incurred. Cash inflows from direct sales and advertising are identifiable
for each magazine title. Titles are managed by customer segments. The
level of advertising income for a magazine title depends on the range of
titles in the customer segment to which the magazine title relates.
Management has a policy to abandon old titles before the end of their
economic lives and replace them immediately with new titles for the
same customer segment.
Whether it will be a cash-generating unit as per AS 28?
AS 29
18. A company incorporated under Section 8 of the Companies Act, 2013,
have main objective to promote the trade by organizing trade fairs /
exhibitions. When company was organizing the trade fair and
exhibitions it decided to charge 5% contingency charges for the
participants/outside agencies on the income received from them by the
company, while in the case of fairs organized by outside agencies, 5%
contingency charges are levied separately in the invoice, the
contingency charges in respect of fairs organized by the company itself
are inbuilt in the space rent charged from the participants. Both are
credited to Income and Expenditure Account of the company.
The intention of levying these charges is to meet any unforeseen
liability, which may arise in future. The instances of such unforeseen
liabilities could be on account of injury/loss of life to visitors/ exhibitors,

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etc., due to fire, terrorist attack, stampede, natural calamities and other
public and third party liability. The chances of occurrence of these
events are high because of large crowds visiting the fair. The decision to
levy 5% contingency charges was based on assessment only as actual
liability on this account cannot be estimated.
The following accounting treatment and disclosure was made by the
company in its financial statements:
1. 5% contingency charges are treated as income and matching
provision for the same is also being made in accounts.
2. A suitable disclosure to this effect is also made in the notes
forming part of accounts.
Required:
(i) Whether creation of provision for contingencies under the facts
and circumstances of the case is in conformity with AS 29.
(ii) If the answer of (i) is "No" then what should be the treatment of
the provision which is already created in the balance sheet.
Buy back of Securities
19. Purpose Ltd. resolves to buy back 4 lakhs of its fully paid equity shares
of ` 10 each at ` 22 per share. This buyback is in compliance with the
provisions of the Companies Act and does not exceed 25% of
Company’s paid up capital in the financial year. For the purpose, it issues
1 lakh 11 % preference shares of ` 10 each at par, the entire amount
being payable with applications. The company uses ` 16 lakhs of its
balance in Securities Premium Account apart from its adequate balance
in General Reserve to fulfill the legal requirements regarding buy-back.
Give necessary journal entries to record the above transactions.
Branch Accounting
20. From the following particulars relating to Pune branch for the year
ending December 31, 2024, prepare Branch Account in the books of
Head office.
`
Stock at Branch on January 1, 2024 10,000

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Branch Debtors on January 1, 2024 4,000

Branch Debtors on Dec. 31, 2024 4,900
Petty cash at branch on January 1, 2024 500
Furniture at branch on January 1, 2024 2,000
Prepaid fire insurance premium on January 1, 2024 150
Salaries outstanding at branch on January 1, 2024 100
Good sent to Branch during the year 80,000
Cash Sales during the year 1,30,000
Credit Sales during the year 40,000
Cash received from debtors 35,000
Cash paid by the branch debtors directly to the 2,000
Head Office
Discount allowed to debtors 100
Cash sent to branch for Expenses:
Rent 2,000
Salaries 2,400
Petty Cash 1,000
Annual Insurance up to March 31, 2025 600 6,000
Goods returned by the Branch 1,000
Goods returned by the debtors 2,000
Stock on December 31,2024 5000
Petty Cash spent by branch 850
Provide depreciation on furniture 10% p.a.

Goods costing ` 1,200 were destroyed due to fire and a sum of ` 1,000
was received from the Insurance Company.

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SUGGESTED ANSWERS/HINTS

Answer to Case Scenario and MCQ

Q. No. Hints
1. (a) (ii)
(b) (i)
(c) (ii)
(d) (ii)
2. (c)

Descriptive Answers
3. As per para 9 of AS 2 ‘Valuation of Inventories’, for inclusion in the cost
of inventory, allocation of fixed production overheads is based on the
normal capacity of the production facilities.
In this, case finished stock has been valued at a standard cost of ` 1.8
lakh per computer which incidentally synchronizes with the value
computed on the basis of absorption costing as under:
(` in lakh)
Materials 400
Direct Labour 250
Variable production overheads 150
Fixed production overheads 290
Less: Interest (100) 190
Total cost 990
Number of computers produced = 550 computers (Assumed to be
normal production)
Cost per computer ` 990 lakh / 550 computers = ` 1.80 lakh
4. Treatment as per AS 3 ‘Cash Flow Statement’
(i) Loans and advances given and interest earned
(1) to suppliers Cash flows from operating activities

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(2) to employees Cash flows from operating activities

(3) to its subsidiary companies Cash flows from investing activities
(ii) Investment made in subsidiary company and dividend received
Cash flows from investing activities
(iii) Dividend paid for the year Cash flows from financing activities
(iv) Insurance claim received against loss of property, plant and
equipment by fire.
5. Treatment as per AS 4 ‘Contingencies and Events Occurring After the
Balance Sheet Date’

(a) A Ltd. The sale of property should be treated as an

adjusting event since contracts had been exchanged
prior to the year-end. The effect of the sale would
be reflected in the financial statements ended on
31.3.2023 and the profit on sale of property `
1,50,000 would be treated as an extraordinary item.
(b) B Ltd. The declaration of dividend on 30th April, 2023 of
` 3,00,000 would be treated as a non-adjusting event
in the financial statements of 2022-2023. This is
because, the dividend has been declared after the
balance sheet date and no conditions existed on the
balance sheet date for such declaration of dividend.
Further as per AS 9, right to receive dividend is
established when it is declared and not before that.
(c) C Ltd. A closure not anticipated at the year-end would be
treated as a non-adjusting event. Memorandum
disclosure would be required for closure of mail
order activities since non disclosure would affect
user's understanding of the financial statements.
(d) D Ltd. The event took place after the financial statements
were approved by the approving authority and is
thus outside the purview of AS 4. However, in view
of its significance of the transaction, the directors
may consider publishing a separate financial

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statement/additional statement for the attention of

the members in general meeting.
(e) E Ltd. The event is a non-adjusting event since it occurred
after the year-end and does not relate to the
conditions existing at the year-end. However, it is
necessary to consider the validity of the going
concern assumption having regard to the extent of
insurance cover. Also, since it is said that the loss
would be fully recovered by the insurance company,
the fact should be disclosed by way of a note to the
financial statements.

6. As per para 31 of AS 5 ‘Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies’, the adoption of an
accounting policy for events or transactions that differ in substance from
previously occurring events or transactions, will not be considered as a
change in accounting policy.
(i) Accordingly, introduction of a formal retirement gratuity scheme
by an employer in place of ad hoc ex-gratia payments to
employees on retirement is not a change in an accounting policy.
(ii) Similarly, the adoption of a new accounting policy of paying
pension to retired employees is a policy for events or transactions
which did not occur previously. Hence, it will not be treated as a
change in an accounting policy.
7. Statement showing analysis of the contract details

(` in crore)
Year I Year II Year III
(a) Initial revenue agreed 900 900 900
(b) Increase in contract - 20 20
revenue
(c) Total Contract Value 900 920 920
(d) Contract cost incurred 161 574 820
upto the date of
reporting

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(excluding
` 10* crore of
material stored)
(e) Estimated cost to 644 246 -
complete
(f) Total estimated contract 805 820(805+15) 820
(g) Stage of Completion 20% 70% 100%
[(d/f) x 100)] (161/805 (574/820 (820/820
x 100) x 100) x 100)

* Note: 10 crore, for material stored at the sites to be used in its 1st
year. i.e. in IInd year it is already included so it will be deducted in II
year only.
Statement showing amount of revenue, expenses and profit to
be recognized in the Statement of Profit and Loss in three years
(` in crore)

Upto Recognised Recognized

reporting in the prior in the
date year current year
Year I
Revenue (900 x 20/100) 180 - 180
Expenses 161 - 161
Profit 19 - 19
Year II
Revenue (920 x 70/100) 644 180 464
Expenses (820 x 70/100) 574 161 413
Profit 70 19 51
Year llI
Revenue 920 644 276
Expenses 820 574 246
Profit 100 70 30

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8. The Accounting Standard Board of lCAl has come up with an

announcement in the earlier years wherein it clarified that the inter-
divisional transfers/sales are not revenue as per AS 9 "Revenue
Recognition”. According to it, in case of inter-divisional transfers, risks
and rewards remain within the enterprise and also there is no
consideration from the point of view of the enterprise as a whole.
Therefore, the recognition criteria for revenue recognition are also not
fulfilled in respect of inter-divisional transfers. Hence, no revenue is
recognized in the case of inter-divisional transfers.
9. Exchange differences arising on restatement or repayment of liabilities
incurred for the purpose of acquiring an item of property, plant and
equipment should be adjusted in the carrying amount of the respective
item of property, plant and equipment as Alfa Ltd. has exercised the
option and it is long term foreign currency monetary item.
Thus, the entire exchange loss due to variation of ` 20 lakh on
31.03.2023 on payment of US $ 10 lakh, should be added to the carrying
amount of an item of property, plant and equipment and not to the cost
of goods sold. Further, depreciation on the unamortized depreciable
amount should also be provided.
Calculation of Exchange loss:
Foreign currency loan (in `) = (50 lakh $ x ` 60) = ` 3,000 lakh
Exchange loss on outstanding loan on 31.03.2024 = ` 40 lakh US $ x
(62.00-60.00) = ` 80 lakh.
So, ` 80 lakh should also be added to cost of an item of property, plant
and equipment with corresponding credit to outstanding loan in
addition to ` 20 lakh on account of exchange loss on payment of
instalment. The total cost of an item of property, plant and equipment
to be increased by ` 100 lakh.
Total depreciation to be provided for the year 2023 - 2024 = 20% of
(` 3,000 Iakh + 100 lakh) = ` 620 lakh.
10. (i) Whether a subsidy applied is to be classified as prior period item as
per AS 5, depends upon whether the company has committed an
error in 2023-2024 by not recognising the subsidy?

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The answer is in para 13 of AS 12 “Accounting for Government

Grants” which permits recognition of grant only when there is
reasonable assurance that -
(i) the enterprise will comply with the conditions attached to
them and
(ii) the subsidy will be received.
Mere making of an application does not provide the reasonable
assurance that the subsidy will be received. Letter of sanction
from IREDA is required to provide this assurance. Since, the
subsidy was granted in June, 2024 after approval of accounts,
non-recognition of grant in 2023-2024 will not be considered as
an error. Hence, this is not a prior period item. Therefore, the
company was right in not recognizing the grant.
Further, AS 4 requires adjustment of events occurring after the
balance sheet date only upto the date of approval of accounts by
the Board of Directors. In view of this, the company is correct in
not adjusting the same in the accounts in the year 2023-2024.
(ii) The subsidy should be deducted from the cost of the generator.
The revised unamortised amount of generator should be written
off over the remaining useful life.
Alternatively, the same may be treated as ‘deferred income’ and
allocated over the remaining useful life in the proportion in which
depreciation is charged.
11. (i) The accounting treatment 'at cost' under the head 'Long Term
Investment’ in the separate financial statements of the company
without providing for any diminution in value is correct and is in
accordance with the provisions of AS 13 provided that there is no
decline, other than temporary, in the value of investment.
(ii) The provision for diminution in the value of investment should be
a charge to the profit and loss statement. As per the requirements
of AS 13, the diminution in the value of investment can neither be
accounted for as deferred revenue expenditure nor it can be
written off in the statement of profit and loss.

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(iii) The long-term investments should be carried at cost as per the

requirements of AS 13. The amount paid over and above the
market price should be treated as cost and cannot be accounted
for separately.
12. Loyal Ltd.
Month Actual Interest on Interest Outstanding Cumulativ
Expenditu outstanding capitalized amount e amount
re ( ` ) amount @ (`) (`)
15% p.a.
1 2 3
October, 4,00,000 4,00,000*15% 5,000 4,05,000 4,05,000
2023 *1/12
November, 7,95,000 (4,05,000 15,000 (4,05,000 + 12,15,000
2023 +7,95,000) 7,95,000 +
*15%*1/12 15,000)
December, - (12,15,000) 15,188 12,15,000 + 12,30,188
2023 *15%*1/12 15,188
January, 50,000 - 12,30,188 + 12,80,188
2024 50,000
February, 2,00,000 14,00,000 17,500 12,80,188 + 14,97,688
2024 *15%*1/12 2,00,000 +
17,500
March, 12,00,000 (14,97,688 + 33,721 14,97,688 + 27,31,409
2024 12,00,000)*15 12,00,000 +
%*1/12 33,721
26,45,000 86,409

Note:
1. As per para 18 of AS 16, ‘Borrowing Cost’, capitalisation of
borrowing costs is not normally suspended during a period when
substantial technical and administrative work is being carried out.
Therefore, the interest for that period i.e. for the month of
December has also been capitalized.
2. During January, the company did not incur any interest as there
was surplus cash in January. Therefore, no amount should be
capitalized during January as per para 14(b) of AS 16.

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3. During February, actual overdraft (borrowings) was ` 14 lakh only.

Hence, interest of ` 17,500 on ` 14,00,000 has been calculated
even though actual expenditure on project exceed ` 14 lakh.
13. The interest expense relating to overdrafts and other operating liabilities
identified to a particular segment should not be included as a part of
the segment expense unless the operations of the segment are primarily
of a financial nature or unless the interest is included as a part of the
cost of inventories.
14. Computation of basic earnings per share

2022-2023 2023-2024
(` ) (` )
EPS for the year 2022-2023 as originally
reported
= Net profit for the year attributable to
equity shareholders / weighted average
number of equity shares outstanding
during the year 2.20
= ` 22,00,000 / 10,00,000 shares
EPS for the year 2022-2023 restated for
the right issue = ` 22,00,000 / 2.12
(10,00,000 x 1.04)
EPS for the year 2023-2024 (including
effect of right issue)
= ` 30,00,000 / {(10,00,000 x 1.04 x 4/12) 2.62
+ (12,00,000 x 8/12)}

Working Notes:
1. Computation of theoretical ex-rights fair value per share = (fair
value of all outstanding shares immediately prior to exercise of
rights + Total value received from exercise of rights) / (number of
shares outstanding prior to exercise + number of shares issued on
the exercise)

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= (` 32 x 10,00,000 + ` 25 x 2,00,000) / (10,00,000 + 2,00,000)

= ` 30.83
2. Computation of adjustment factor
= Fair value per share prior to exercise of rights / Theoretical ex-
right value per share
= ` 32/` 30.83
= 1.04 (approx.)
15. As per para 3 of AS 23 ‘Accounting for Investments in Associates in
Consolidated Financial Statements’, an associate is an enterprise in
which the investor has significant influence and which is neither a
subsidiary nor a joint venture of the investor.
Standard further explains in para 4 that as regards share ownership, if an
investor holds, directly or indirectly through subsidiary (ies), 20% or
more of the voting power of the investee, it is presumed that the
investor has significant influence, unless it can be clearly demonstrated
that this is not the case. Conversely, if the investor holds, directly or
indirectly through subsidiary (ies), less than 20% of the voting power of
the investee, it is presumed that the investor does not have significant
influence, unless such influence can be clearly demonstrated.
Further as per an explanation to para 4 of the standard, for the
purpose of classification of associate, the potential equity shares of the
investee held by the investor will not be taken into account for
determining the voting power of the investor. In other words, the
voting power should be determined on the basis of the current
outstanding securities with voting rights.
As per the information given in the question, Sun Ltd. presently holds
indirectly 22.7% shares (with and without voting rights) (Refer W.N.) in
Hill Ltd. However, the current outstanding securities with voting rights
in Hill Ltd. is only 15% and the remaining holding is on account of
potential equity shares. Since potential equity shares do not have
voting rights they will not be taken into consideration while
determining the significant influence of Sun Ltd. on Hill Ltd. Hence,
Hill Ltd. is not an associate of Sun Ltd.

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Working Note:
Calculation of percentage of holding of shares after conversion
`
Current holding is 15% i.e. 7,500 shares of ` 100 each 7,50,000
Potential equity shares i.e. 5,000 shares of ` 100 each 5,00,000
12,50,000
Total share capital of Hill Ltd. after conversion of debentures into
equity shares will be = ` 50,00,000 + ` 5,00,000 = ` 55,00,000
Percentage of holding = ` (12,50,000/55,00,000) x 100 = 22.7% approx.
16. Mere gradual phasing out is not considered as discontinuing operation
as defined under para 3 of AS 24, ‘Discontinuing Operations’.
Examples of activities that do not necessarily satisfy criterion of the
definition, but that might do so in combination with other circum-
stances, include:
(1) Gradual or evolutionary phasing out of a product line or class of
service;
(2) Discontinuing, even if relatively abruptly, several products within
an ongoing line of business;
(3) Shifting of some production or marketing activities for a particular
line of business from one location to another; and
(4) Closing of a facility to achieve productivity improvements or other
cost savings.
In view of the above the answers are:
(i) No, the companies’ strategic plan has no final approval from the
board through a resolution and there is no specific time bound
activities like shifting of assets and employees. Above all, the new
segment i.e. commercial vehicle production line in a new factory
has not started.
(ii) No, the resolution is salient about stoppage of the Car segment in
definite time period. Though, sale of some assets and some

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transfer proposal were passed through a resolution to the new

factory, closure road map and new segment starting roadmap are
missing. Hence, AS 24 will not be applicable.
(iii) Yes, phased and time bound programme resolved in the board
clearly indicates the closure of the passenger car segment in a
definite time frame and will constitute a clear roadmap. Hence,
this action will attract compliance of AS 24.
17. It is likely that the recoverable amount of an individual magazine title
can be assessed. Even though the level of advertising income for a
title is influenced, to a certain extent, by the other titles in the
customer segment, cash inflows from direct sales and advertising are
identifiable for each title. In addition, although titles are managed by
customer segments, decisions to abandon titles are made on an
individual title basis.
Therefore, it is likely that individual magazine titles generate cash
inflows that are largely independent one from another and that each
magazine title is a separate cash-generating unit.
18 (i) Para 14 of AS 29 "Provisions, Contingent Liabilities and Contingent
Assets" states that a provision should be recognised when (a) An
enterprise has a present obligation as a result of a past event and (b)
It is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and (c) A reliable
estimate can be made of the amount of the obligation. If these
conditions are not met, no provision should be recognised.
From the above, it is clear that in the contingencies considered by
the company, neither a present obligation exists as a result of past
event, nor a reliable estimate can be made of the amount of the
obligation. Accordingly, a provision cannot be recognised for such
contingencies under the facts and circumstances of the case.
(ii) "Provision" is the amount retained by the way of providing for any
known liability. Since the contingencies stipulated by the company
are not known at the balance sheet date, the provision in this
regard cannot be created. Therefore, the provision so created by
the company shall be treated as a ‘Reserve’.

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19. Journal Entries in the books of Purpose Ltd.

` `
1. Bank A/c Dr. 10,00,000
To 11% Preference share
application & allotment A/c 10,00,000
(Being receipt of application money on
preference shares)
2. 11% Preference share application &
allotment A/c Dr. 10,00,000
To 11% Preference share capital 10,00,000
A/c
(Being allotment of 1 lakh preference
shares)
3. General reserve A/c Dr. 30,00,000
To Capital redemption reserve A/c 30,00,000
(Being creation of capital redemption
reserve for buy back of shares)
4. Equity share capital A/c Dr. 40,00,000
Premium payable on buyback A/c Dr. 48,00,000
To Equity shareholders/Equity
shares buy back A/c 88,00,000
(Amount payable to equity shareholder
on buy back)
5. Equity shareholders/ Equity shares buy Dr. 88,00,000
back A/c
To Bank A/c 88,00,000
(Being payment made for buy back of
shares)
6. Securities Premium A/c Dr. 16,00,000

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General reserve A/c 32,00,000

To Premium payable on buyback 48,00,000
A/c
(Being premium on buyback charged
from securities premium and general
reserve)

Working Notes:
1. Calculation of amount used from General Reserve Account
`
Amount paid for buy back of shares (4,00,000 shares x ` 22) 88,00,000
Less: Proceeds from issue of Preference Shares (10,00,000)
(1,00,000 shares x `10)
Less: Utilization of Securities Premium Account (16,00,000)
Balance used from General Reserve Account 62,00,000
* Used under Section 68 for buy back 32,00,000
Used under Section 69 for transfer to CRR (W.N 2) 30,00,000
62,00,000

2. Amount to be transferred to Capital Redemption Reserve

account
`
Nominal value of shares bought back 40,00,000
(4,00,000 shares x ` 10)
Less: Nominal value of Preference Shares issued for such
buy (10,00,000)
back (1,00,000 shares x ` 10)
Amount transferred to Capital Redemption Reserve 30,00,000
Account

20. Pune Branch Account

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Particulars ` Particulars ` `
To Opening Balance By Opening Balance:
Stock 10,000 Salaries outstanding 100
Debtors 4,000 By Remittances:
Petty Cash 500 Cash sales 1,30,000
Furniture 2,000 Cash received from 35,000
debtors
Prepaid 150 Cash paid by debtors 2,000
Insurance directly to H.O.
To Goods sent to 80,000 Received from 1,000 1,68,000
Branch Account Insurance Company
To Bank (expenses) By Goods sent to branch 1,000
(return of goods by
the branch to H.O.)
Rent 2,000 By Closing Balances:
Salaries 2,400 Stock 5,000
Petty Cash 1,000 Petty Cash 650
Insurance 600 6,000 Debtors 4,900
To Net Profit 78,950 Furniture (2,000 – 10% 1,800
depreciation)
Prepaid insurance 150
(1/4 x ` 600)
1,81,600 1,81,600

Working Note:

Calculation of petty cash balance at the end: `

Opening balance 500
Add: Cash received form the Head Office 1,000
Total Cash with branch 1,500
Less: Spent by the branch 850
Closing balance 650

26 SEPTEMBER 2024 EXAMINATION

 RTP-MAY -
2024

PAPER – 1:
ADVANCED ACCOUNTING

QUESTIONS

PART – I: Multiple Choice Questions based on Case Scenarios

1. RTS Ltd, (“RTS” or the “Company”), is engaged in the business of
manufacturing of equipment/components. The Company has a contract
with the Indian Railways for a brake component which is structured such
that:
• The Company’s obligation is to deliver the component to the
Railways’ stockyard, while the delivery terms are ex-works, the
Company is responsible for engaging a transporter for delivery.
• Railways sends an order for a defined quantity.
• The Company manufactures the required quantity and informs
Railways for carrying out the inspection.
• Railways representatives visit the Company’s factory and inspect
the components and mark each component with a quality check
sticker.
• Goods once inspected by Railways are marked with a hologram
sticker to earmark for delivery identification by the customer when
they are delivered to the customer’s location.
• The Company raises an invoice once it dispatches the goods.
The management of RTS is under discussion with the auditors of the
Company in respect of accounting of a critical matter as regards its
accounting with respect subsequent events i.e. events after the reporting
period. They have been checking as to which one of the following events

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after the reporting period provides evidence of conditions that existed

at the end of the reporting period?
i. Nationalisation or privatization by government
ii. Out of court settlement of a legal claim
iii. Rights issue of equity shares
iv. Strike by workforce
v. Announcing a plan to discontinue an operation
The Company has received a grant of ` 8 crores from the Government
for setting up a factory in a backward area. Out of this grant, the
Company distributed ` 2 crores as dividend. The Company also received
land, free of cost, from the State Government but it has not recorded
this at all in the books as no money has been spent.
RTS has a subsidiary, A Ltd, which is evaluating its production process
wherein normal waste is 5% of input. 5,000 MT of input were put in
process resulting in wastage of 300 MT. Cost per MT of input was
` 1,000. The entire quantity of waste was on stock at the end of the
financial year.
i. When should RTS Ltd recognize revenue as per the Accounting
Standards notified under the Companies (Accounting Standards)
Rules, 2006? Would your answer be different if inspection is
normally known to lead to no quality rejections?
(a) Revenue should be recognized on dispatch of components.
The assessment would not change even in case where
inspection is normally known to lead to no quality rejections.
(b) Revenue should be recognized on completion of inspection of
components. The assessment would not change even in case
where inspection is normally known to lead to no quality
rejections.
(c) Revenue should be recognized on dispatch of components.
The assessment would change where inspection is normally
known to lead to no quality rejections.

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(d) Revenue should be recognized on delivery of the component

to the Railways’ stockyard. The assessment would change
where inspection is normally known to lead to no quality
rejections.
ii. In respect of A Ltd, state with reference to Accounting Standards
notified under the Companies (Accounting Standards) Rules, 2006,
what would be value of the inventory to be recorded in the books
of accounts?
(a) ` 47,00,000.
(b) ` 50,00,000.
(c) ` 49,50,000.
(d) ` 49,47,368.
iii. Please guide regarding the accounting treatment of both the
grants mentioned above in line with the requirements of
Accounting Standard 12.
(a) Distribution of dividend out of grant is correct. In the second
case also not recording land in the books of accounts is
correct.
(b) Distribution of dividend out of grant is incorrect. In the second
case, not recording land in the books of accounts is correct.
(c) Distribution of dividend out of grant is correct. In the second
case, land should be recorded in the books of accounts at a
nominal value.
(d) Distribution of dividend out of grant is incorrect. In the second
case, land should be recorded in the books of accounts at a
nominal value.
General MCQs
2. Gyan Ltd. borrowed ` 10 crore for construction of a plant at the rate of
10% per annum (interest paid annually ` 1 crore). The construction was
being carried on and out of the borrowings, ` 4 crore was temporarily
placed in a fixed deposit at the rate of 6% per annum (interest earned

3 MAY 2024 EXAMINATION

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` 24 lakh). At the year end, how much cost of borrowing Gyan Limited will
capitalise?
(a) Interest paid on ` 10 crore i.e. ` 1 crore
(b) Interest paid on ` 6 crore as only this amount was utilized i.e.
` 60 Lakh.
(c) Interest paid less income on temporary investment i.e. ` 76 lakh
(d) Nothing will be capitalized
Part II - Descriptive Questions
Introduction to Accounting Standards
3. What do you mean by Carve outs/ins in Ind AS? Explain
Framework for Preparation and Presentation of Financial Statements
4. Shiva started a business on 1 st April 2022 with ` 15,00,000 represented by
80,000 units of ` 25 each. During the financial year ending on
31st March, 2023, he sold the entire stock for ` 35 each. In order to
maintain the capital intact, calculate the maximum amount, which can be
withdrawn by Shiva in the year 2022-23 if Financial Capital is maintained
at historical cost.
Applicability of Accounting Standards
5. Based upon criteria for rating of non-corporate entity, categorize the
following as Level I, Level II and Level IIl Level IV entities for the purpose
of compliance of Accounting Standards in India.
(a) Rama Textiles whose turnover (excluding other income) exceeds ten
crore but does not exceed rupees fifty crore in the immediately
preceding accounting year.
(b) Star Industries is having borrowings (including public deposits) in
excess of rupees two crore but not in excess of rupees ten crore at
any time during the immediately preceding accounting year.
(c) Newman Industries is having borrowings (including public deposits)
less than rupees fifty lakh at any time during the immediately
preceding accounting year.

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(d) SS Finance is a financial institution carrying its business in India since

last 10 years.
(e) DD Finance, holding company of SS Finance. (Entity mentioned at
Point (v) above)
(f) Reliable Co-op Bank, a co-operative bank, carrying banking
operations since last 15 years.
AS 3 “Cash Flow Statements”
6. From the following particulars calculate cash flows from Operating
activities:

Particulars `
Retained earning 17,000
Depreciation 4,000
Loss on Sale of Machinery 3,000
Provision for tax 7,000
Interim Dividend paid during the year 10,000
Dividend paid during the year 8,000
Premium payable on redeemable Preference Shares 2,000
Profit on sale of investment 10,000
Refund of tax 1,000

Additional Information:

31. 3. 22 31. 3. 23
` `
Trade Receivable 10,000 12,000
Trade Payable 7,000 15,000
Provision for Tax 4,000 7,000
Prepare Expenses 2,000 1,000
Outstanding Expenses 1,400 1,000

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AS 18 “Related Party Disclosures”

7. (i) A Ltd. enters into an agreement with Mr. Bhola for running a business
for a fixed amount payable to the later every year. The contract states
that the day-to-day management of the business will be handled by
Mr. Bhola, while all financial and operating policy decisions are taken
by the Board of Directors of the Company. Mr. Bhola does not have
any voting power in A Limited.
(ii) Shri Manoj a relative of key management personnel received
remuneration of ` 3,50,000 for his services in the company for the
period from 1 st April, 2022 to 30th June, 2022. On 1 st July, 2022, he
left the service.
You are required to suggest how the above transactions will be treated as
at the closing date i.e. on 31 st March, 2023 for the purposes of AS 18
‘Related Party Disclosures’.
AS 24 “Discontinuing Operations”
8. Arzoo Ltd. is in the business of manufacture of passenger cars and
commercial vehicles. The company is working on a strategic plan to shift
from the passenger car segment to the commercial vehicles segment over
the coming 5 years. However, no specific plans have been drawn up for
sale of neither the division nor its assets. As part of its plan, it has planned
that it will reduce the production of passenger cars by 20% annually. It
also plans to commence another new factory for the manufacture of
commercial vehicles plus transfer of employees in a phased manner.
These plans have not been approved from the Board of Directors and the
new factory for manufacture of commercial vehicles has not yet started.
You are required to comment if mere gradual phasing out in itself can be
considered as a ‘Discontinuing Operation' within the meaning of AS 24.
AS 13 “Accounting for Investments”
9. ABC Ltd. holds 2,000, 15% Debentures of ` 100 each in XYZ Ltd. as on
April 1, 2022 at a cost of ` 2,50,000.
Interest is payable on June, 30 and December, 31 each year.

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Following are the details of 15% Debentures purchased and sold during
the year 2022-23.

Particulars
On May 1, 2022, 1,000 debentures are purchased cum-interest at ` 1,05,000.

On November 1, 2022, 1200 debentures are sold ex-interest at ` 1,28,200.

On November 30, 2022, 500 debentures are purchased ex-interest at ` 54,500.

On December 31, 2022, 900 debentures are sold cum-interest for ` 1,18,000

You are required to prepare the investment Account showing value of

holdings on March 31, 2023 at cost, using FIFO Method.
AS 16 “Borrowing Costs”
10. H Ltd. began the construction of a new building on 1 st April 2022. It
obtained a special loan of ` 6,00,000 on 1 st April 2022 at an interest of
12% to finance the construction of the building.
The company's other outstanding two non-specific loans on 1 st April, 2022
were as follows:
Amount in ` Rate of Interest

30,00,000 14%
54,00,000 16%

The expenditure incurred on the building project was as per detail given
below:

Amount in `

1st May, 2022 12,00,000

1st July, 2022 15,00,000
1st October, 2022 27,00,000
1st March, 2023 7,20,000

The building was completed by 31 st March 2023.

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Following the provisions of Accounting Standard 16, you are required to

calculate the amount of interest to be capitalized and also give one
Journal Entry for capitalizing the cost and borrowing cost in respect of the
building.
AS 19 “Leases”
11. Sooraj Limited wishes to obtain a machine costing ` 30 lakhs by way of
lease. The effective life of the machine is 14 years, but the company
requires it only for the first 3 years. It enters into an agreement with Star
Ltd., for a lease rental for ` 3 lakhs p.a. payable in arrears and the implicit
rate of interest is 15%. The chief accountant of Sooraj Limited is not sure
about the treatment of these lease rentals and seeks your advice. (Use
annuity factor at @ 15% for 3 years as 2.28)
AS 14 “Accounting for Amalgamations”
12. Naresh Ltd. had the following transactions during the financial year
2022-2023:
(i) Naresh Ltd. acquired the running business of Sunil Ltd. for
` 10,80,000 on 15 th May, 2022. The fair value of Sunil Ltd.'s net
assets was ` 5,16,000. Naresh Ltd. is of the view that due to
popularity of Sunil Ltd.’s product in the market, its goodwill exists.
(ii) Naresh Ltd. had taken a franchise on July 2022 to operate a
restaurant from Sankalp Ltd. for ` 1,80,000 and at an annual fee of
10% of net revenues (after deducting expenditure). The franchise
expires after 6 years. Net revenues were ` 60,000 during the financial
year 2022-2023.
(iii) On 20th August, 2022, Naresh Ltd, incurred costs of ` 2,40,000 to
register the patent for its product. Naresh Ltd. expects the patent’s
economic life to be 8 years.
Naresh Ltd. follows an accounting policy to amortize all intangibles on
straight line basis over the maximum period permitted by accounting
standards taking a full year amortization in the year of acquisition.
Goodwill on acquisition of business to be amortized over 5 years (SLM) as
per AS 14.

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Prepare a schedule showing the intangible assets section in Naresh Ltd.

Balance Sheet at 31st March, 2023.
AS 15 “Employee Benefits”
13. Hello Limited belongs to the manufacturing industry. The company
received an actuarial valuation for the first time for its pension scheme
which revealed a surplus of ` 12 lakhs. It wants to spread the same over
the next 2 years by reducing the annual contribution to ` 4 lakhs instead
of ` 10 lakhs. The average remaining life of the employees is estimated to
be 6 years. You are required to advise the company on the following items
from the viewpoint of finalization of accounts, taking note of the
mandatory accounting standards.
AS 4 “Contingencies and Events occurring after the balance sheet date”
14. Surya Limited follows the financial year from April to March. It has
provided the following information.
(i) A suit against the Company's Advertisement was filed by a party on
5th April, 2023, claiming damages of ` 5 lakhs.
(ii) Company sends a proposal to sell an immovable property for
` 45 lakhs in March 2023. The book value of the property is
` 30 lakhs as on year end date. However, the Deed was registered
on 15th April, 2023.
Keeping in view the provisions of AS-4, you are required to state with
reasons whether the above events are to be treated as Contingencies,
Adjusting Events or Non-Adjusting Events occurring after Balance Sheet
date.
AS 7 “Construction Contracts”
15. The following data is provided for M/s. Raj Construction Co.
(i) Contract Price - ` 85 lakhs
(ii) Materials issued - ` 21 Lakhs out of which Materials costing
` 4 Lakhs is still lying unused.at the end of the period.
(iii) Labour Expenses for workers engaged at site - ` 16 Lakhs (out of
which ` 1 Lakh is still unpaid)

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(iv) Specific Contract Costs = ` 5 Lakhs

(v) Sub-Contract Costs for work executed - ` 7 Lakhs, Advances paid to
Sub-Contractors - ` 4 Lakhs
(vi) Further Cost estimated to be incurred to complete the contract -
` 35 Lakhs
You are required to compute the Percentage of Completion, the Contract
Revenue and Cost to be recognized as per AS-7.
AS 9 “Revenue Recognition”
16. Following information of BS Products Ltd. is given:
(i) Goods of ` 2,00,000 sold to Den Ltd. on 20-03-2023 but at the
request of the buyer these were delivered on 10-04-2023. ·
(ii) On 15-01-2023 goods of ` 3,00,000 were sent on consignment basis,
of which 20% of the goods unsold are lying with the consignee as
on 31-03-2023.
(iii) ` 4,00,000 worth of goods were sold on approval basis on
01-12-2022. The period of approval was 3 months after which they
were considered as sold. Buyer sent approval for 75% goods upto
31-01-2023 and no approval or disapproval received for the
remaining goods till 31-03-2023.
(iv) Apart from the above, BS Products Ltd. sells goods to dealers also.
One of the conditions of sale is that interest is payable @ 2% p.m.
for delayed payments by dealers. The percentage of interest
recovery is only 10% i.e. ` 50,000 on such overdue outstanding due
to various reasons. During the year 2022-23, the company wants to
recognize the entire interest receivable of ` 60,000.
You are required to advise the accountant of BS Products Ltd., with valid
reasons, the amount to be recognized as revenue in above cases in the
context of AS 9 and also determine the total revenue to be recognized for
the year ending 31-03-2023.

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AS 21 “Consolidated Financial Statements”

17. Zoom Ltd. acquired 70% shares of Star Ltd. @ ` 30 per share. Following is
the extract of Balance Sheet of Star Ltd.:

`
15,00,000 Equity Shares of ` 10 each 1,50,00,000

15% Debentures 15,00,000

Trade Payables 82,50,000

Property, Plant and Equipment 1,05,00,000

Investments 67,50,000

Current Assets 1,02,00,000

Loans and Advances 33,00,000

On the same day Star Ltd. declared dividend at 20% and as agreed
between both the companies Property, Plant and Equipment were to be
depreciated @ 10% and investment to be taken at market value of
` 90,00,000. Calculate the Goodwill or Capital Reserve to be recorded in
Consolidated Financial Statements.
Preparation of Financial Statements of Companies
18. Aqua Ltd. has authorized capital of ` 50 lakhs divided into 5,00,000 equity
shares of ` 10 each. Their books show the following ledger balances as on
31st March, 2023:
` `
Inventory 1.4.2022 6,65,000 Bank Current Account 20,000
(Dr. balance)
Discounts & Rebates 30,000 Cash in hand 11,000
allowed
Carriage Inwards 57,500
Purchases 12,32,500 Calls in Arrear @ ` 2 per
share 10,000

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Rate, Taxes and 55,000 Equity share capital 20,00,000

Insurance
Furniture & Fixtures 1,50,000 (2,00,000 shares of ` 10
each)
Business Expenses 56,000 Trade Payables 2,40,500
Wages 14,79,000 Sales 36,17,000
Freehold Land 7,30,000 Rent (Cr.) 30,000
Plant & Machinery 7,50,000 Transfer fees received 6,500
Engineering Tools 1,50,000 Profit & Loss A/c (Cr.) 67,000
Trade Receivables 4,00,500 Repairs to Building 56,500
Advertisement 15,000 Bad debts 25,500
Expenses
Commission & 67,500
Brokerage Expenses

The inventory (valued at cost or market value, which is lower) as on

31st March, 2023 was ` 7,05,000. Outstanding liabilities for wages
` 25,000 and business expenses ` 36,500.
Charge depreciation on written down values of Plant & Machinery
@ 5%, Engineering Tools @ 20% and Furniture & Fixtures @10%. Provide
` 25,000 as doubtful debts for trade receivables. Provide for income tax
@ 30%. It was decided to transfer ` 10,000 to reserves.
You are required to prepare a Statement of Profit & Loss for the year
ended 31st March, 2023 and Balance Sheet as at that date.
Buy back of Securities
19. Mukti Ltd. (a non-listed company) provide the following information as
on 31.3.2023:

(`)
Land and Building 21,50,000
Plant & Machinery 15,00,000

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Non-current Investment 2,00,000

Trade Receivables 5,50,000
Inventories 1,80,000
Cash and Cash Equivalents 40,000
Share capital:1,00,000 Equity Shares of ` 10 each fully paid up 10,00,000
Securities Premium 3,00,000
General Reserve 2,50,000
Profit & Loss Account (Surplus) 1,50,000
10% Debentures (Secured by floating charge on all assets) 20,00,000
Unsecured Loans 8,00,000
Tarde Payables 1,20,000

On 21st April, 2023 the Company announced the buy back of 15,000 of its
equity shares @ ` 15 per share. For this purpose, it sold all its investment
for ` 2.50 lakhs.

On 25th April, 2023, the company achieved the target of buy back. On
1st May, 2023 the company issued one fully paid up share of ` 10 each by
way of bonus for every eight equity shares held by the equity
shareholders.
You are required to pass necessary Journal Entries for the above
transactions.
Accounting for Reconstruction of companies

20. As a part of the reconstruction scheme of Getting better Ltd, the following
terms were agreed upon-

1. The shareholders to receive in lieu of their present holdings (viz.

10,000 shares of ` 50 each), the following-

(a) 15,000 Fully paid equity shares of ` 10 each;

(b) 12% fully paid preference shares to the extent of 2/5 of total
equity shares;

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(c) To pay them ` 50,000 and transfer the remaining to the

reconstruction account.

2. 8% Preference share capital - ` 3,00,000

To write down the value of preference shares to ` 50 (original face
value ` 100).

3. 14% debentures of the nominal value of ` 2,00,000 along with

accrued interest ` 56,000 was waived off for three fourths of the
total amount, and the remaining being paid in cash.

Show the necessary journal entries in the books of Getting better

company based on the above scheme.

SUGGESTED ANSWERS/HINTS

Answer to Case Scenario and MCQ

Q. No. Hints
1. i. (b)
ii. (d)
iii. (d)
2. (c)

Descriptive Answers
3. Certain changes have been made in Ind AS considering the economic
environment of the country, which is different as compared to the
economic environment presumed to be in existence by IFRS. These
differences are due to differences in economic conditions prevailing in
India. These differences which are in deviation to the accounting
principles and practices stated in IFRS, are commonly known as
‘Carve-outs’. Additional guidance given in Ind AS over and above what is
given in IFRS, is termed as ‘Carve in’.

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4.

Particulars Financial Capital Maintenance

at Historical Cost (`)
Closing equity 28,00,000 represented by cash
(` 35 x 80,000 units)
Opening equity 80,000 units x ` 25 = 20,00,000
Permissible drawings to keep Capital 8,00,000 (28,00,000 – 20,00,000)
intact

5. (a) Level III Entity – Rama textiles, whose turnover (excluding other
income) exceeds rupees ten crore but does not exceed rupees fifty
crore in the immediately preceding accounting year.
(b) Level III Entity – Star industries is having borrowings (including
public deposits) in excess of rupees two crore but not in excess of
rupees ten crore at any time during the immediately preceding
accounting year.
(c) Level IV Entity– Newman Industries is having borrowings (including
public deposits) of less than rupees fifty lakhs at any time during the
immediately preceding accounting year.
(d) Level I Entity – SS is a financial institution carrying its business in
India since last 10 years.
(e) Level I Entity – DD finance, holding company of SS finance (Entity
mentioned in point (d) above).
(f) Level I Entity – Reliable co-operative banks carrying on banking
business for the last 15 years.
6. Calculation of Cash Flow from Operating Activities

Particulars Amount `
Retained earnings 17,000
Add: Depreciation 4,000
Add: Loss on sale of Machinery 3,000

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Add: Premium Payable on redeemable Preference 2,000

Shares
Add: Dividend paid 8,000
Add: Interim dividend paid during the year 10,000
Add: provision for tax made during the current year 7,000
Less: Refund of tax (1,000)
Less: Profit on Sale of Investment (10,000)
Operating Profit before Working Capital Changes 40,000
Add: Decrease in Prepaid Expenses 1,000
Less: Increase in Trade receivable (2,000)
Add: Increase in Trade Payable 8,000
Less: Decrease in Outstanding Expenses (400)
Cash generated from (Net of refund) operation 46,600
Less: Income tax paid (4,000 – 1,000) (3,000)
Net Cash flow operating activities 43,600

7. (i) Mr. Bhola will not be considered as a related party of A Ltd. in view
of provisions of AS 18 “Related Party Disclosures” which states,
"individuals owning, directly or indirectly, an interest in the voting
power of the reporting enterprise that gives them control or
significant influence over the enterprise, and relatives of any such
individual are related parties".
In the given case, in the absence of share ownership, Mr. Bhola
would not be considered to exercise significant influence on A
Limited, even though there is an agreement giving him the power
to manage the company. Further, the fact that Mr Bhola does not
have the ability to direct or instruct the board of directors does not
qualify him as a key management personnel.

16 MAY 2024 EXAMINATION

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(ii) According to AS 18 on ‘Related Party Disclosures’, parties are

considered to be related if at any time during the reporting period
one party has the ability to control the other party or exercise
significant influence over the other party in making financial and/or
operating decisions.
Hence, Shri Manoj, a relative of key management personnel should
be identified as related party for disclosure in the financial
statements for the year ended 31.3.2023 as he received
remuneration for his services in the company for the period from
1st April, 2022 to 30th June, 2022.
8. Mere gradual phasing out is not considered as discontinuing operation as
defined under AS 24, ‘Discontinuing Operations’.
Examples of activities that do not necessarily satisfy criterion of the
definition, but that might do so in combination with other circumstances,
include:
(1) Gradual or evolutionary phasing out of a product line or class of
service;
(2) Discontinuing, even if relatively abruptly, several products within an
ongoing line of business;
(3) Shifting of some production or marketing activities for a particular
line of business from one location to another; and
(4) Closing of a facility to achieve productivity improvements or other
cost savings.
In view of the above, mere gradual phasing out in itself cannot be
considered as discontinuing operation. The companies’ strategic plan also
has no final approval from the board through a resolution and there is no
specific time bound activities like shifting of assets and employees.
Moreover, the new segment, i.e. the commercial vehicle production line in
a new factory has not started.

17 MAY 2024 EXAMINATION

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9. In the Books of ABC Ltd

15% Debentures (Investment) Account
Particulars Face Interest Principal Particulars Face Interest Principal
Value Value
` ` ` ` ` `
1.4.22 To Balance 30.6.22 By Bank
b/d 2,00,000 7,500 2,50,000 A/c 22,500
1.11.22 By Bank
A/c 1,20,000 6,000 1,28,200
1.5.22 To Bank 1.11.22 By P&L 21,800
A/c 1,00,000 5,000 1,00,000 A/c
31.12.22 By Bank 90,000 6,750 1,11,250
A/c
30.11.22 To Bank 31.12.22 By Bank 10,500
A/c 50,000 3,125 54,500 A/c
31.12.22 To P&L 1,250 31.3.23 By Balance
A/c c/d 1,40,000 5,250 1,44,500
31.3.23 To P&L 35,375
A/c
(Transfer) _____
3,50,000 51,000 4,05,750 3,50,000 51,000 4,05,750

1. Loss on sale of debentures on 1.11.22

Cost = 2,50,000/2,000X 1,200 = ` 1,50,000
Sale proceeds = ` 1,28,200
Loss = ` 1,50,000 less ` 1,28,200 = ` 21,800
2. Profit on sale of debentures on 31.12.22
Cost = 2,50,000/2,000X 800 + 1,00,000/1,000X 100 = ` 1,10,000
(1,00,000+10,000)
Sale proceeds = ` 1,11,250
Loss = ` 1,11,250 less ` 1,10,000 = ` 1,250

18 MAY 2024 EXAMINATION

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3.

Calculation of closing Units `

balance:
Debentures in hand remained
in hand at 1.4.23
Purchased on 1st May, 22 900 1,00,000 x 9/10 90,000
Purchased on 30th Nov. 22 500 54,500 54,500
1,400 1,44,500

10. Interest amount to be capitalized

`
Specific borrowings (` 6,00,000 x 12%) = 72,000
Non-specific borrowings
[` 30,35,000 (` 36,35,000 – ` 6,00,000) x 15.29%*] = 4,64,052
Amount of interest to be capitalized = 5,36,052
Journal Entry for capitalizing cost and borrowing cost
Date Particulars Dr. (`) Cr. (`)
31.3.2023 Building account Dr. 66,56,052
(Cost of building
` 61,20,000 + borrowing
cost ` 5,36,052)
To Bank account 66,56,052
(Being amount of cost of
building and borrowing cost
thereon capitalized)
Working notes:
(i) Computation of average accumulated expenses
`
` 12,00,000 x 11 / 12 = 11,00,000
` 15,00,000 x 9 / 12 = 11,25,000

19 MAY 2024 EXAMINATION

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` 27,00,000 x 6 / 12 = 13,50,000
` 7,20,000 x 1 / 12 = 60,000
61,20,000 36,35,000
(ii) Calculation of average interest rate other than for specific
borrowings
Amount of loan (`) Rate of Amount of
interest interest
(`)
30,00,000 14% = 4,20,000
54,00,000 16% = 8,64,000
84,00,000 12,84,000
Weighted average rate of = 15.29%*
12,84,000 (Rounded off)
interest ( × 100)
84,00,000

11. As per AS 19 ‘leases’, a lease will be classified as finance lease if at the

inception of the lease, the present value of minimum lease payment •
amounts to at least substantially all of the fair value of leased asset. In
the given case, the implicit rate of interest is given at 15%. The present
value of minimum lease payments at 15% using PV- Annuity Factor can
be computed as:

Annuity Factor (Year 1 to Year 3) 2.28

Present Value of minimum lease payments (` 3 lakhs each ` 6.84 lakhs
year)

Thus, the present value of minimum lease payments is ` 6.84 lakhs and
the fair value of the machine is ` 30 lakhs. In a finance lease, the lease
term should be for a major part of the economic life of the asset even if
title is not transferred. However, in the given case, the effective useful life
of the machine is 14 years while the lease is only for three years. Therefore,
a lease agreement is an operating lease. Lease payments under an
operating lease should be recognized as an expense in the statement of

•
In calculating the present value of the of minimum lease payments, the discount rate is
the interest rate implicit in the lease.

20 MAY 2024 EXAMINATION

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profit and loss on a straight-line basis over the lease term unless another
systematic basis is more representative of the time pattern of the user’s
benefit.
12. Naresh Ltd.
Balance Sheet (Extract relating to intangible asset) as on
31st March 2023
Note No. `
Assets
(1) Non-current assets
Intangible assets 1 8,11,200
Notes to Accounts (Extract)
` `
1. Intangible assets
Goodwill (Refer to note 1) 4,51,200
Franchise (Refer to Note 2) 1,50,000
Patents (Refer to Note 3) 2,10,000 8,11,200

Working Notes:
`
(1) Goodwill on acquisition of business
Cash paid for acquiring the business (purchase 10,80,000
consideration)
Less: Fair value of net assets acquired (5,16,000)
Goodwill 5,64,000
Less: Amortisation as per AS 14 ie. over 5 years (as per
SLM) (1,12,800)
Balance to be shown in the balance sheet 4,51,200
(2) Franchise 1,80,000
Less: Amortisation (over 6 years) (30,000)

21 MAY 2024 EXAMINATION

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INTERMEDIATE EXAMINATION

Balance to be shown in the balance sheet 1,50,000

(3) Patent 2,40,000
Less: Amortisation (over 8 years as per SLM) (30,000)
Balance to be shown in the balance sheet 2,10,000

13. According to AS 15 (Revised 2005) ‘Employee Benefits’, actuarial gains

and losses should be recognized immediately in the statement of profit
and loss as income or expense. Therefore, a surplus amount of ` 12 lakhs
is required to be credited to the profit and loss statement of the current
year.
14. Accordingly, the treatment as per AS 4 “Events Occurring After the
Balance Sheet Date” is:
(i) Suit filed against the company is a contingent liability, but it was not
existing as on date of balance sheet date as the suit was filed on
5th April after the balance sheet date. As per AS 4, 'Contingencies'
is restricted to conditions or situations at the balance sheet date,
the financial effect of which is to be determined by future events
which may or may not occur. However, it may be disclosed with the
nature of contingency, being a contingent liability.
This event does not pertain to conditions on the balance sheet date.
Hence, it will have no effect on the financial statement and will be a
non-adjusting event.
(ii) In this case, no adjustment to assets and liabilities is required as the
event does not affect the determination and the condition of the
amounts stated in the financial statements for the year ended
31st March, 2023. There was just a proposal before 31 st March, 2023
and hence sale cannot be shown in the financial statements for the
year ended 31st March, 2023.
Sale of immovable property is an event occurring after the balance
sheet date is a non-adjusting event.

22 MAY 2024 EXAMINATION

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15. Computation of contract cost

` Lakh ` Lakh
Material cost incurred on the contract (net of 21-4 17
closing stock)
Add: Labour cost incurred on the contract 16
(including outstanding amount)
Specified contract cost given 5
Sub-contract cost (advances should not be 7
considered)
Cost incurred (till date) 45
Add: further cost to be incurred 35
Total contract cost 80

Percentage of completion = Cost incurred till date/Estimated total cost

= ` 45,00,000/` 80,00,000
= 56.25%
Contract revenue and costs to be recognized
Contract revenue (` 85,00,000x56.25%) = ` 47,81,250
Contract costs = ` 45,00,000
16. (i) the seller of goods has transferred to the buyer the property in the
goods for a price or all significant risks and rewards of ownership have
been transferred to the buyer and the seller retains no effective control
of the goods transferred to a degree usually associated with
ownership; and
(ii) no significant uncertainty exists regarding the amount of the
consideration that will be derived from the sale of the goods.

23 MAY 2024 EXAMINATION

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Case (i)
The sale is complete, but delivery has been postponed at buyer’s request.
BS Products Ltd. should recognize the entire sale of ` 2,00,000 for the year
ended 31st March, 2023.
Case (ii)
20% goods lying unsold with consignee should be treated as closing
inventory and sales should be recognized for `2,40,000 (80% of `
3,00,000). In the case of consignment sale revenue should not be
recognized until the goods are sold to a third party.
Case (iii)
In case of goods sold on approval basis, revenue should not be
recognized until the goods have been formally accepted by the buyer or
the buyer has done an act adopting the transaction or the time period for
rejection has elapsed or where no time has been fixed, a reasonable time
has elapsed. Therefore, revenue should be recognized for the total sales
amounting to ` 4,00,000 as the time period for rejecting the goods had
expired.
Case (iv)
As per the standard, “where the ability to assess the ultimate collection
with reasonable certainty is lacking at the time of raising any claim, the
revenue recognition is postponed to the extent of uncertainty involved.
In such cases, the revenue is recognized only when it is reasonably certain
that the ultimate collection will be made”. In this case, interest should be
recognized only if the ultimate collection is certain and the company
expects to realize interest for the delayed payments for ` 50,000 only.
Hence, based on the past experience, the realization of interest for the
delayed payments by the agent is certain only to the extent of this amount
and not ` 60,000. Therefore, the interest income of ` 50,000 should be
recognized in the books for the year ended 31 st March, 2023.
Thus, total revenue amounting ` 8,90,000 (2,00,000 + 2,40,000 + 4,00,000
+ 50,000) will be recognized for the year ended 31 st March, 2023 in the
books of BS Products Ltd.

24 MAY 2024 EXAMINATION

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ADVANCED ACCOUNTING

17. As per para 13 of AS 21 any excess of the cost to the parent of its
investment in a subsidiary over the parent’s portion of equity of the
subsidiary, at the date on which investment in the subsidiary is made,
should be described as goodwill to be recognised as an asset in the
consolidated financial statements. When the cost to the parent of its
investment in a subsidiary is less than the parent’s portion of equity of the
subsidiary, at the date on which investment in the subsidiary is made, the
difference should be treated as a capital reserve in the consolidated
financial statements.
Since dividend is declared by Star Ltd. on the date of acquisition itself, it
would be out of the divisible profits of Star Ltd. existing on the date of
acquisition i.e., pre-acquisition profits from the perspective of Zoom Ltd.
Accordingly, as per para 12 of AS 13, such pre-acquisition dividend would
be reduced from the cost of investment, as seen below in the
determination of Goodwill on the date of acquisition.

Calculation of Goodwill or Capital

Reserve ` `
Cost of Investment in Star Ltd. (70%
stake):
15,00,000 Equity Shares x 70% x ` 30 per
share 3,15,00,000
Less: Pre-acquisition dividend:
10,50,000 shares x ` 2 (21,00,000) 2,94,00,000
Less: Share of Zoom Ltd. in Net Assets of
Star Ltd (W.N) (1,55,40,000)
Goodwill on Date of Acquisition 1,38,60,000
Working Note:

Calculation of net asset ` `

Assets
Property, Plant and Equipment 1,05,00,000

25 MAY 2024 EXAMINATION

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Less: Value written off (` 105 lakhs x

10%) (10,50,000)
94,50,000
Investments at Market Value 90,00,000
Current Assets 1,02,00,000
Loans and Advances 33,00,000 3,19,50,000
Less: Liabilities
Trade Payables 82,50,000
15% Debentures 15,00,000 (97,50,000)
Net Assets of Star Ltd. 2,22,00,000
Share of Zoom Ltd. in Net Assets of Star
Ltd.: 70% 1,55,40,000

Note: In the absence of information about the reserves, it is presumed that

the given extract of the Balance Sheet of Star Ltd. is after considering the
effects of the dividend declared on the date of acquisition.
18. Balance Sheet of Aqua Ltd. as at 31st March, 2023

Particulars Note (`)

No.
I Equity and Liabilities
(1) Shareholders' Funds
(a) Share Capital 1 19,90,000
(b) Reserves and Surplus 2 3,82,000
(2) Current Liabilities
(a) Trade Payables 2,40,500
(b) Other Current Liabilities 3 61,500
(c) Short-Term Provisions 4 1,35,000
Total 28,09,000

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II ASSETS
(1) Non-Current Assets
(a) Property, Plant and Equipment 5 16,97,500
(2) Current Assets
(a) Inventories 7,05,000
(b) Trade Receivables 6 3,75,500
(c) Cash and Cash Equivalents 7 31,000
Total 28,09,000

Statement of Profit and Loss of Aqua Ltd.

for the year ended 31st March, 2023

Particulars Note (`)

No.
I Revenue from Operations 36,17,000
II Other Income 8 36,500
III Total Revenue [I + II] 36,53,500
IV Expenses:
Cost of purchases 12,32,500
Changes in Inventories (40,000)
[6,65,000-7,05,000]
Employee Benefits Expenses 9 15,04,000
Depreciation and Amortization Expenses 82,500
Other Expenses 10 4,24,500
Total Expenses 32,03,500
V Profit before Tax (III-IV) 4,50,000
VI Tax Expenses @ 30% (1,35,000)
VII Profit for the period 3,15,000

27 MAY 2024 EXAMINATION

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INTERMEDIATE EXAMINATION

Notes to Accounts:
1. Share Capital

Authorized Capital
5,00,000 Equity Shares of ` 10 each 50,00,000
Issued Capital
2,00,000 Equity Shares of ` 10 each 20,00,000
Subscribed Capital and fully paid
1,95,000 Equity Shares of `10 each 19,50,000
Subscribed Capital but not fully paid
5,000 Equity Shares of `10 each ` 8 paid 40,000
(Call unpaid `10,000) 19,90,000

2. Reserves and Surplus

General Reserve 10,000

Surplus i.e. Balance in Statement of Profit
& Loss:
Opening Balance 67,000
Add: Profit for the period 3,15,000
Less: Transfer to Reserve (10,000) 3,72,000
3,82,000

3. Other Current Liabilities

Outstanding Expenses [25,000+36,500] 61,500

4. Short-term Provisions

Provision for Tax 1,35,000

5. Property, Plant and Equipment

Particulars Value Depreciation Depreciation Written down
given rate Charged value at the end
(`) (`) (`)
Land 7,30,000 - 7,30,000
Plant & 7,50,000 5% 37,500 7,12,500

28 MAY 2024 EXAMINATION

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ADVANCED ACCOUNTING

Machinery
Furniture & 1,50,000 10% 15,000 1,35,000
Fixtures
Engineering 1,50,000 20% 30,000 1,20,000
Tools
17,80,000 82,500 16,97,500

6. Trade Receivables

Trade receivables 4,00,500

Less: Provision for doubtful debts (25,000)
3,75,500

7. Cash & Cash Equivalent

Cash Balance 11,000

Bank Balance in current A/c 20,000
31,000

8. Other Income

Miscellaneous Income (Transfer fees) 6,500

Rental Income 30,000
36,500

9. Employee benefits expenses

Wages 14,79,000
Add: Outstanding wages 25,000
15,04,000

10. Other Expenses

Carriage Inwards 57,500

Discount & Rebates 30,000
Advertisement 15,000
Rate, Taxes and Insurance 55,000

29 MAY 2024 EXAMINATION

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INTERMEDIATE EXAMINATION

Repairs to Buildings 56,500

Commission & Brokerage 67,500
Miscellaneous Expenses [56,000+36,500] (Business 92,500
Expenses)
Bad Debts 25,500
Provision for Doubtful Debts 25,000
4,24,500

19. In the books of Mukti Ltd.

Journal Entries

Date Particulars Dr. Cr.

2023 ` `
April 21 Bank A/c Dr. 2,50,000
To Investment A/c 2,00,000
To Profit on sale of investment 50,000
(Being investment sold on profit)
April 25 Equity share capital A/c Dr. 1,50,000
Securities premium A/c Dr. 75,000
To Equity shares buy back A/c 2,25,000
(Being the amount due to equity
shareholders on buy back)
Equity shares buy back A/c Dr. 2,25,000
To Bank A/c 2,25,000
(Being the payment made on account of
buy back of 15,000 Equity Shares)
General Reserve A/c OR P&L A/c Dr. 1,50,000
To Capital redemption reserve A/c 1,50,000
(Being amount equal to nominal value of
buy back shares transferred from free

30 MAY 2024 EXAMINATION

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ADVANCED ACCOUNTING

reserves to capital redemption reserve

account as per the law)
May 1 Capital redemption reserve A/c Dr. 1,06,250
To Bonus to equity shareholder A/c 1,06,250
(W.N.1)
(Being the utilization of capital
redemption reserve to issue bonus
shares)
Bonus to equity shareholder A/c Dr. 1,06,250
To Equity share capital A/c 1,06,250
(Being issue of one bonus equity share
for every ten equity shares held)

Working Note:
1
Amount of bonus shares = [(1,00,000 - 15,000)× ] ×10
8

= ` 1,06,250
20. Journal entries in the books of Getting better Co.

Date Particulars Dr. Cr.

` `
Share capital A/c (`50) Dr. 5,00,000
To Share capital A/c (`10) 1,50,000
To 12% Preference share capital 2,00,000
A/c 50,000
To Bank A/c 1,00,000
To Reconstruction A/c
(Being 15,000 equity shares of ` 10
and 12% preference shares issued,
paid in cash and remaining forgone
as a part of Reconstruction Scheme
dated...)

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Preference Share capital A/c (` 100) Dr. 3,00,000

To Preference share capital A/c 1,50,000
(` 50) 1,50,000
To Reconstruction A/c
(Being the preference share capital
reduced and forfeited as per
reconstruction scheme)
14% Debenture A/c Dr. 2,00,000
Interest accrued on Debentures A/c Dr. 56,000
To Bank A/c 64,000
To Reconstruction A/c 1,92,000
(Being the debenture holders paid
their interest and amount foregone
as per reconstruction scheme)
Reconstruction A/c Dr. 4,42,000
To Capital Reserve A/c 4,42,000
(Being the balance in reconstruction
ac transferred to capital reserve as
per reconstruction scheme)

32 MAY 2024 EXAMINATION

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Mock Test Paper - Series I: November, 2024

Date of Paper: 18th November, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP - I

PAPER – 1 : ADVANCED ACCOUNTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks)
Part I is compulsory.
Case Scenario
1. Fly Ltd. made a sale of INR 7,00,000 to Wings International in May 2023 and
recognised Trade Receivables which was initially recorded at the prevailing
exchange rate on the date of sales, transaction recorded at US$ 1= ` 79.4. The
Company also took a loan from U.S Company for ` 10,00000 in December 2023
which was initially recorded at the prevailing exchange rate on the date of
transaction, transaction recorded at US$ 1= ` 81.1.
On 31st March 2024, exchange rate was US$ 1 = ` 83.3
a. What will be the closing balance of Trade Receivables on 31st March 2024:
(i) ` 700,000
(ii) ` 7,14,978 approx
(iii) ` 7,34,383 approx
(iv) ` 7,50,000 approx
b. How much is the reporting difference (gain or loss) in case of Trade
Receivable:
(i) Gain of ` 34,383 approx
(ii) Loss of ` 34,383 approx
(iii) Gain of ` 19,395 approx
(iv) Loss of ` 19,395 approx
c. What will be the closing balance of Loan as on 31st March 2024:
(i) ` 10,00,000
(ii) ` 10,27,127 approx
(iii) ` 9,79,002 approx
(iv) ` 10,79,002 approx
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d. How much is the reporting difference (gain or loss) in case of Loan:

(i) Gain of ` 48,087 approx
(ii) Loss of ` 48,087 approx
(iii) Gain of ` 27,127 approx
(iv) Loss of ` 27,127 approx
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
2. X Ltd. purchased 3,000 shares of Amazing Ltd. in December 2023 @ ` 100
each and paid brokerage @ 1%. In May 2024, Amazing Ltd. issued bonus shares
at one for every three shares held by shareholders.
X Ltd. sold 1000 shares in September 2024 at ` 110 each. After issue of bonus,
shares were quoted at ` 95. In December 2024, the shares were quoted at `
70.
a. What would be the carrying cost of investments in Amazing Ltd. after sale
of shares as per AS 13:
(i) ` 3,03,000
(ii) ` 2,27,250
(iii) ` 3,00,000
(iv) ` 3,30,000
d. What is the cost of bonus shares:
(i) ` 1,00,000
(ii) ` 1,10,000
(iii) Nil
(iv) ` 1,01,000
c. What is the profit on sale of Bonus Shares:
(i) ` 100,000
(ii) ` 75,750
(iii) ` 34,250
(iv) ` 1,01,000
d. What would be the carrying cost of investments in Amazing Ltd. in
quarter ending in December 2024 as per AS 13:
(i) ` 2,10,000
(ii) ` 2,27,250
(iii) ` 2,20,000
(iv) ` 3,00,000
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]

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3. Sun Limited has acquired 40% share in Moon Ltd. for ` 500,000 on 01.07.2023.
Moon Ltd. is holding 40% stake in Star Limited. Now, sun limited can exercise
significant influence on Moon Limited. Moon limited declared dividend of `
80,000 for the Financial Year 2022-23 on 15.09.2023. For the year 2023-24,
Moon Ltd. earned profit of ` 4,00,000 and declared dividend for ` 90,000 on
15.09.2024.
a. With respect to relationship between Companies, it can be said that:
(i) Star Ltd. is associate of Sun Ltd.
(ii) Moon Ltd. and Star Ltd. both are associates of Sun Ltd.
(iii) Moon Ltd. is an associate of Sun Ltd.
(iv) Sun Ltd. is Parent of both Moon Ltd. and Star Ltd.
b. What will be the carrying amount of investment in Separate Financial
Statements of Sun Limited as on 31.03.2024?
(i) ` 5,00,000
(ii) ` 5,80,000
(iii) ` 4,68,000
(iv) ` 5,32,000
c. What will be the carrying amount of investment in Consolidated Financial
Statements of Sun Limited as on 31.03.2024?
(i) ` 9,00,000
(ii) ` 5,88,000
(iii) ` 4,52,000
(iv) ` 6,20,000
d. As per AS 23, the existence of significant influence by an investor is
usually evidenced in one or more of the following ways:
(a) participation in policy making processes
(b) interchange of managerial personnel
(c) right to receive dividend
(d) provision of essential technical information
(i) All the statements are correct
(ii) Statements (a), (b) and (c) are correct
(iii) Statements (b), (c) and (d) are correct
(iv) Statements (a), (b) and (d) are correct

Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]

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4. Cost of current investment acquired was ` 1000 but the fair value was ` 800.
The Investment was recorded at ` 800. Now the fair value of Investment is Rs
1200. At what value should it be recorded and how much gain will be credited
to profit and loss account.
(i) No change is required and it will continue at ` 800
(ii) Current investment will be recorded at ` 1000 and gain of ` 200 will be
credited to profit and loss account.
(iii) Current investment will be recorded at ` 1200 and gain of ` 400 will be
credited to profit and loss account.
(iv) Current investment will be recorded at ` 1200 but no gain will be
credited to profit and loss account. (2 Marks)
5. As per AS 20 an enterprise should present/disclose the following:
(a) the amounts used as the numerators in calculating basic and diluted
earnings per share, and a reconciliation of those amounts to the net profit
or loss for the period.
(b) the weighted average number of equity shares used as the denominator
in calculating basic and diluted earnings per share, and a reconciliation
of these denominators to each other.
(c) basic and diluted earnings per share, even if the amounts disclosed are
negative (a loss per share).
(d) the nominal value of shares along with the earnings per share figures.
(i) All the statements are correct
(ii Statements (a), (b) and (c) are correct
(iii) Statements (b), (c and (d) are correct
(iv) Statements (a), (b and (c) are correct (2 Marks)
6. Accounting Standard 10, Property, Plant and Equipment is applicable to:
(i) Biological Assets (other than Bearer Plants) related to agricultural activity
(ii) Wasting Assets including Mineral rights, Expenditure on the exploration
for and extraction of minerals, oil, natural gas and similar non
regenerative resources
(iii) Inventories
(iv) Bearer Plant (except produce on Bearer Plants) (2 Marks)

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PART II – Descriptive Questions (70 Marks)

Question No.1 is compulsory
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates. Working Notes should form part of the answer.

1. (a) A Ltd. provides after sales warranty for two years to its customers. Based
on past experience, the company has the following policy for making
provision for warranties on the invoice amount, on the remaining balance
warranty period.
Less than 1 year: 2% provision
More than 1 year: 3% provision
The company has raised invoices as under :
Invoice Date Amount (`)
11th Feb, 2022 60,000
25th Dec, 2022 40,000
04th Oct, 2023 1,35,000
Calculate the provision to be made for warranty under AS-29 as at
31st March, 2023 and 31st March, 2024. Also compute amount to be
debited to P & L account for the year ended 31st March, 2024.
(b) As per provisions of AS-26, how would you deal to the following
situations:
(1) ` 23,00,000 paid by a manufacturing company to the legal advisor
for defending the patent of a product is treated as a capital
expenditure.
(2) During the year 2023-24, a company spent ` 7,00,000 for publicity
and research expenses on one of its new consumer products which
was marketed in the same accounting year but proved to be a
failure.
(3) A company spent ` 25,00,000 in the past three years to develop a
product, these expenses were charged to profit and loss account
since they did not meet AS-26 criteria for capitalization. In the
current year approval of the concerned authority has been received.
The company wishes to capitalize ` 25,00,000 by disclosing it as a
prior period item.
(4) A company with a turnover of ` 200 crores and an annual
advertising budget of ` 50,00,000 had taken up for the marketing
of a new product by a company. It was estimated that the company
would have a turnover of ` 20 crore from the new product. The
company had debited to its Profit & Loss Account the total

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expenditure of ` 50,00,000 incurred on extensive special initial

advertisement campaign for the new product.
(c) Indicate in each case whether revenue can be recognized and when it will
be recognized as per AS-9.
(1) Trade discount and volume rebate received.
(2) Where goods are sold to distributors or others for resale.
(3) Where seller concurrently agrees to repurchase the same goods at
a later date.
(4) Insurance agency commission for rendering services.
(5) On 11-03-2024 cloths worth ` 50,000 were sold to X mart, but due
to refurbishing of their showroom being underway, on their request,
clothes were delivered on 12-04-2024. (4 + 5 + 5 = 14 Marks)
2. The following is the Trial Balance of MN Limited as on 31.3.2024:
(Figures in ` ‘000)
Debit Credit
Land at cost 220 Equity Capital (Shares of ` 10 300
each)
Plant & Machinery at cost 770 10% Debentures 200
Trade Receivables 96 General Reserve 130
Inventories (31.3.24) 86 Profit & Loss A/c 72
Bank 20 Securities Premium 40
Adjusted Purchases 320 Sales 700
Factory Expenses 60 Trade Payables 52
Administration Expenses 30 Provision for Depreciation 172
Selling Expenses 30 Suspense Account 4
Debenture Interest 20
Interim Dividend Paid 18
1670 1670
Additional Information:
(i) The authorised share capital of the company is 40,000 shares of ` 10
each.
(ii) The company on the advice of independent valuer wish to revalue the
land at ` 3,60,000.
(iii) Declared final dividend @ 10% on 2nd April, 2024.
(iv) Suspense account of ` 4,000 represents cash received for the sale of some
of the machinery on 1.4.2024. The cost of the machinery was
` 10,000 and the accumulated depreciation thereon being ` 8,000.

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(v) Depreciation is to be provided on plant and machinery at 10% on cost.

You are required to prepare MN Limited’s Balance Sheet as on 31.3.2024 and
Statement of Profit and Loss with notes to accounts for the year ended
31.3.2024 as per Schedule III. Ignore previous years’ figures & taxation.
(14 marks)
3. (a) Following information is supplied by K Ltd.:
Number of shares outstanding prior to right issue - 2,50,000 shares.
Right issue - two new share for each 5 outstanding shares (i.e. 1,00,000
new shares)
Right issue price - ` 98
Last date of exercising rights - 30-06-2023.
Fair value of one equity share immediately prior to exercise of right on
30-06-2023 is ` 102.
Net Profit to equity shareholders:
2022-2023 - ` 50,00,000
2023-2024 -` 75,00,000
You are required to calculate the basic earnings per share as per AS-20
Earnings per Share. (4 Marks)

(b) Following is the summarized Balance Sheet of Fortunate Ltd. as on

31st March, 2024.
Particulars Amount (`)
Liabilities
Authorized and Issued Share Capital
(a) 15,000 8% Preference shares of ` 50 each 7,50,000
(b) 18,750 Equity shares of ` 50 each 9,37,500
Profit and Loss Account (5,63,750)
Loan 7,16,250
Trade Payables 2,58,750
Other Liabilities 43,750
Total 21,42,500
Assets
Building at cost less depreciation 5,00,000
Plant at cost less depreciation 3,35,000
Trademarks and goodwill at cost 3,97,500
Inventory 5,00,000
Trade Receivables 4,10,000

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Total 21,42,500
(Note: Preference shares dividend is in arrear for last five years).
The Company is running with the shortage of working capital and not
earnings profits. A scheme of reconstruction has been approved by both
the classes of shareholders. The summarized scheme of reconstruction is
as follows:
(i) The equity shareholders have agreed that their ` 50 shares should
be reduced to ` 5 by cancellation of ` 45.00 per share. They have
also agreed to subscribe for three new equity shares of ` 5.00 each
for each equity share held.
(ii) The preference shareholders have agreed to forego the arrears of
dividends and to accept for each ` 50 preference share, 4 new 6%
preference shares of ` 10 each, plus 3 new equity shares of ` 5.00
each, all credited as fully paid.
(iii) Lenders to the company for ` 1,87,500 have agreed to convert their
loan into shares and for this purpose they will be allotted 15,000
new preference shares of ` 10 each and 7,500 new equity shares of
` 5.00 each.
(iv) The directors have agreed to subscribe in cash for 25,000 new
equity shares of ` 5.00 each in addition to any shares to be
subscribed by them under (i) above.
(v) Of the cash received by the issue of new shares, ` 2,50,000 is to be
used to reduce the loan due by the company.
(vi) The equity share capital cancelled is to be applied:
(a) To write off the debit balance in the Profit and Loss A/c, and
(b) To write off ` 43,750 from the value of plant.
Any balance remaining is to be used to write down the value of
trademarks and goodwill. The nominal capital, as reduced, is to be
increased to ` 8,12,500 for preference share capital and ` 9,37,500 for
equity share capital.
You are required to pass journal entries to show the effect of above
scheme and prepare the Balance Sheet of the Company after
reconstruction. (10 Marks)

4. The financial details of X Ltd. and Y Ltd. as on 31st March, 2024 was as under:
X Ltd. (`) Y Ltd. (`)
Equity Shares of ` 10 each 30,00,000 9,00,000
9% Preference Shares of ` 100 each 3,00,000 -
10% Preference Shares of ` 100 each - 3,00,000
General Reserve 2,10,000 2,10,000
Retirement Gratuity Fund (long term) 1,50,000 60,000
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Trade Payables 3,90,000 2,40,000

Goodwill 1,50,000 75,000
Land & Buildings 9,00,000 3,00,000
Plant & Machinery 15,00,000 4,50,000
Inventories 7,50,000 5,25,000
Trade Receivables 6,00,000 3,00,000
Cash and Bank 1,50,000 60,000
X Ltd. absorbs Y Ltd. on the following terms:
(i) 10% Preference Shareholders are to be paid at 10% premium by issue of
9% Preference Shares of X Ltd.
(ii) Goodwill of Y Ltd. on absorption is to be computed based on two times
of average profits of preceding three financial years (2022-23 : ` 90,000;
2021-22 : ` 78,000 and 2020-21: ` 72,000). The profits of 2020 -21
included credit of an insurance claim of ` 25,000 (fire occurred in 2019-
20 and loss by fire ` 30,000 was booked in Profit and Loss Account of
that year). In the year 2021 -22, there was an embezzlement of cash by
an employee amounting to ` 10,000.
(iii) Land & Buildings are valued at ` 5,00,000 and the Plant & Machinery at
` 4,00,000.
(iv) Inventories are to be taken over at 10% less value and Provision for
Doubtful Debts is to be created @ 2.5%.
(v) There was an unrecorded current asset in the books of Y Ltd. whose fair
value amounted to ` 15,000 and such asset was also taken over by X Ltd.
(vi) The trade payables of Y Ltd. included ` 20,000 payable to X Ltd.
(vii) Equity Shareholders of Y Ltd. will be issued Equity Shares @ 5% premium.
You are required to
(i) Prepare Realisation A/c in the books of Y Ltd.
(ii) Prepare the Balance Sheet of X Ltd. after absorption as at
31st March,2024. (14 Marks)
5. Consider the following summarized Balance Sheets of subsidiary MNT Ltd.
Liabilities 2022-23 2023-24
Amount in ` Amount in `
Share Capital
Issued and subscribed 7500 Equity Shares of 7,50,000 7,50,000
` 100 each
Reserve and Surplus
Revenue Reserve 2,14,000 5,05,000
Securities Premium 72,000 2,07,000
Current Liabilities and Provisions
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Trade Payables 2,90,000 2,46,000

Bank Overdraft - 1,70,000
Provision for Taxation 2,62,000 4,30,000
15,88,000 23,08,000
Assets
Fixed Assets (Cost) 9,20,000 9,20,000
Less: Accumulated Depreciation (1,70,000) (2,82,500)
7,50,000 6,37,500
Investment at Cost - 5,30,000
Current Assets
Inventory 4,12,300 6,90,000
Trade Receivable 2,95,000 3,43,000
Prepaid expenses 78,000 65,000
Cash at Bank 52,700 42,500
15,88,000 23,08,000
Other Information:
(1) MNT Ltd. is a subsidiary of LTC Ltd.
(2) LTC Ltd. values inventory on FIFO basis, while MNT Ltd. used LIFO basis.
To bring MNT Ltd.'s inventories values in line with those of LTC Ltd., its
value of inventory is required to be reduced by ` 5,000 at the end of
2022-2023 and increased by ` 12,000 at the end of 2023-2024.
(Inventory of 2022-23 has been sold out during the year 2023-24)
(3) MNT Ltd. deducts 2% from Trade Receivables as a general provision
against doubtful debts.
(4) Prepaid expenses in MNT Ltd. include Sales Promotion expenditure
carried forward of ` 25,000 in 2022-23 and ` 12,500 in 2023-24 being
part of initial Sales Promotion expenditure of ` 37,500 in 2022-23, which
is being written off over three years. Similar nature of Sales Promotion
expenditure of LTC Ltd. has been fully written off in
2022-23.
Restate the balance sheet of MNT Ltd. as on 31st March, 2024 after considering
the above information for the purpose of consolidation. Such restatement is
necessary to make the accounting policies adopted by LTC Ltd. and MNT Ltd.
uniform. (14 Marks)
6. (a) Briefly explain the elements of financial statements.
Or
In the financial statements of the financial year 2023-2024, Alpha Ltd. has
mentioned in the notes to accounts that during financial year, 24,000
equity shares of ` 10 each were issued as fully paid bonus shares.
However, the source from which these bonus shares were issued has not
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been disclosed. Is such non-disclosure a violation of the Schedule III to

the Companies Act? Comment. (4 Marks)
(b) A Ltd. sold JCB having WDV of ` 20 lakhs to B Ltd. for ` 24 lakhs and
the same JCB was leased back by B Ltd. to A Ltd. The lease is operating
lease. In context of Accounting Standard 19 "Leases" explain the
accounting treatment of profit or loss in the books of A Ltd. if
(i) Sale price of ` 24 lakhs is equal to fair value.
(ii) Fair value is ` 20 lakhs and sale price is ` 24 lakhs.
(iii) Fair value is ` 22 lakhs and sale price is ` 25 lakhs.
(v) Fair value is ` 25 lakhs and sale price is ` 18 lakhs.
(v) Fair value is ` 18 lakhs and sale price is ` 19 lakhs. (4 Marks)

(c) Give Journal Entries in the books of Branch A to rectify or adjust the
following:
(i) Head Office expenses ` 3,500 allocated to the Branch, but not
recorded in the Branch Books.
(ii) Depreciation of branch assets, whose accounts are kept by the Head
Office not provided earlier for ` 1,500.
(iii) Branch paid ` 2,000 as salary to a H.O. Inspector, but the amount
paid has been debited by the Branch to Salaries account.
(iv) H.O. collected ` 10,000 directly from a customer on behalf of the
Branch, but no intimation to this effect has been received by the
Branch.
(v) A remittance of ` 15,000 sent by the Branch has not yet been
received by the Head Office.
(vi) Branch A incurred advertisement expenses of ` 3,000 on behalf of
Branch B.
(6 Marks)

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Mock Test Paper - Series II: November, 2024

Date of Paper: 18th November, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP – I

PAPER – 1 : ADVANCED ACCOUNTING
ANSWERS
1. (a) (iii)
(b) (i)
(c) (ii)
(d) (iii)
2. (a) (ii)
(b) (iii)
(c) (iii)
(d) (i)
3. (a) (iii)
(b) (iii)
(c) (ii)
(d) (iv)
4. (ii)
5. (i)
6. (iv)
PART II – Descriptive Questions (70 Marks)
1. (a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’
As at 31st March, 2023 = ` 60,000 x .02 + ` 40,000 x .03
= ` 1,200 + ` 1,200 = ` 2,400
As at 31st March, 2024 = ` 40,000 x .02 + ` 1,35,000 x .03
= ` 800 + ` 4,050 = ` 4,850
Amount debited to Profit and Loss Account for year ended
31st March, 2024
`
Balance of provision required as on 31.03.2024 4,850
Less: Opening Balance as on 1.4.2023 (2,400)
Amount debited to profit and loss account 2,450
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Note: No provision will be made on 31st March, 2024 in respect of sales

amounting ` 60,000 made on 11th February, 2022 as the warranty period
of 2 years has already expired.
(b) As per AS 26 “Intangible Assets”, subsequent expenditure on an
intangible asset after its purchase or its completion should be recognized
as an expense when it is incurred unless (a) it is probable that the
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standard of performance; and (b)
expenditure can be measured and attributed to the asset reliably. If these
conditions are met, the subsequent expenditure should be added to the
cost of the intangible asset.
(i) In the given case, the legal expenses to defend the patent of a
product amounting ` 23,00,000 should not be capitalized and be
charged to Profit and Loss Statement.
(ii) The company is required to expense the entire amount of
` 7,00,000 in the Profit and Loss account for the year ended
31st March, 2024 because no benefit will arise in the future.
(iii) As per AS 26, expenditure on an intangible item that was initially
recognized as an expense by a reporting enterprise in previous
annual financial statements should not be recognized as part of the
cost of an intangible asset at a later date. Thus, the company
cannot capitalize the amount of ` 25,00,000 and it should be
recognized as expense
(iv) Expenditure of ` 50,00,000 on advertising and promotional
activities should always be charged to Profit and Loss Statement.
Hence, the company has done the correct treatment by debiting the
sum of 50 lakhs to Profit and Loss Account.
(c) (1) Trade discounts and volume rebates received are not
encompassed within the definition of revenue, since they represent
a reduction of cost. Trade discounts and volume rebates given
should be deducted in determining revenue.
(2) When goods are sold to distributor or others, revenue from such
sales can generally be recognized if significant risks of ownership
have passed; however, in some situations the buyer may in
substance be an agent and in such cases the sale should be treated
as a consignment sale.
(3) For transactions, where seller concurrently agrees to repurchase
the same goods at a later date that are in substance a financing
agreement, the resulting cash inflow is not revenue as defined and
should not be recognized as revenue.
(4) Insurance agency commissions should be recognized on the
effective commencement or renewal dates of the related policies.

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(5) On 11.03.2024, if X mart takes title and accepts billing for the goods
then it is implied that the sale is complete and all risk and reward
on ownership has been transferred to the buyers.
Revenue should be recognized for year ended 31st March, 2024
notwithstanding that physical delivery has not been completed so long
as there is every expectation that delivery will be made and items were
ready for delivery to the buyer at the time.
2. MN Limited
Balance Sheet as at 31st March, 2024
Particulars Note No. (` in 000)
Equity and Liabilities
1. Shareholders' funds
A Share capital 1 300
B Reserves and Surplus 2 530
2. Non-Current liabilities
A Long term borrowings 3 200
3. Current liabilities
A Trade Payables 52
Total 1082
Assets
1. Non-current assets
A PPE (Property, Plant & Equipment) 4 880
2 Current assets
A Inventories 86
B Trade receivables 96
C Cash and bank balances 20
Total 1082

MN Limited
Statement of Profit and Loss for the year ended 31st March, 2024
Particulars Notes (` in 000)
I. Revenue from operations 700
II. Other Income 5 2
III Total Income 702
IV Expenses:
Purchases 320
Finance costs 6 20

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Depreciation (10% of 760 ∗) 76

Other expenses 7 120
Total Expenses 536
V. Profit (Loss) for the period (III – IV) 166
Notes to accounts
(` in 000)
1. Share Capital
Equity share capital
Authorised
40,000 shares of ` 10 each 400
Issued & subscribed & called up
30,000 shares of ` 10 each 300
2. Reserves and Surplus
Securities Premium Account 40
Revaluation reserve (360 – 220) 140
General reserve 130
Profit & loss Balance
Opening balance 72
Profit for the period 166 238
Less: Appropriations
Interim Dividend (18) 220
530
3. Long term borrowing
10% Debentures 200
4. PPE
Land
Opening balance 220
Add: Revaluation adjustment 140
Closing balance 360
Plant and Machinery
Opening balance 770
Less: Disposed off (10)
760
Less: Depreciation (172-8+76) (240)
Closing balance 520

∗
770 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold)
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Total 880
5. Other Income
Profit on sale of machinery:
Sale value of machinery 4
Less: Book value of machinery (10-8) (2) 2
6. Finance costs
Debenture interest 20
7. Other expenses:
Factory expenses 60
Selling expenses 30
Administrative expenses 30 120

Note: The final dividend will not be recognized as a liability at the balance
sheet date (even if it is declared after reporting date but before approval of
the financial statements) as per Accounting Standards. Hence, it has not been
recognized in the financial statements for the year ended 31 March, 2024.
Such dividends will be disclosed in notes only.
Fair value of shares immediately prior to exercise of rights + Total amount received from exercise
3. (a)
Number of shares outstanding prior to exercise + Number of shares issued in the exercise

102 x 2,50,000 Shares + ` 98 x 1,00,000 shares

3,50,000 shares
Theoretical ex-rights fair value per share = ` 100.86
Computation of adjustment factor:
Fair value per share prior to exercise of rights
= 102/100.86 = 1.01
Theoretical ex - rights value per share

Computation of earnings per share:

EPS for the year 2022-23 as originally reported: ` 50,00,000/2,50,000
shares = ` 20
EPS for the year 2022-23 restated for rights issue: = ` 50,00,000/
(2,50,000 shares x 1.01)
= ` 19.80
EPS for the year 2023-24 including effects of rights issue:
EPS = 75,00,000/3,25,625* = ` 23.03
* [(2,50,000 x 1.01 x 3/12) + (3,50,000 x 9/12)] =63,125 + 2,62,500
= 3,25,625 shares
Note: Financial year (ended 31st March) is considered as accounting
year while giving the above answer.

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(b) In the books of Fortunate Ltd.

Journal Entries
Particulars Debit Credit
(`) (`)
1. Equity share capital A/c (` 50) Dr. 9,37,500
To Equity share capital A/c (` 5) 93,750
To Capital reduction A/c* 8,43,750
(Being equity capital reduced to
nominal value of ` 5 each)
2. Bank A/c Dr. 2,81,250
To Equity share capital 2,81,250
(Being 3 right shares against each
share was issued and subscribed)
3. 8% Preference share capital A/c Dr. 7,50,000
(` 50)
Capital reduction A/c Dr. 75,000
To 6% Preference share capital 6,00,000
(` 10)
To equity share capital 2,25,000
(Being 8% preference shares of ` 50
each converted to 6% preference
shares of ` 10 each and also given
to them 3 equity shares for every
share held)
4. Loan A/c Dr. 1,87,500
To 6% Preference share capital 1,50,000
A/c
(15,000 x ` 10)
To Equity share capital A/c 37,500
(7,500 x ` 5)
(Being loan to the extent of
` 1,50,000 converted into share
capital)
5. Bank A/c (25,000 x ` 5) Dr. 1,25,000
To Equity share application A/c 1,25,000
(Being shares subscribed by the
directors)
6. Equity share application A/c Dr. 1,25,000
To Equity share capital A/c 1,25,000
(Being application money
transferred to capital A/c)
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7. Loan A/c Dr. 2,50,000

To Bank A/c 2,50,000
(Being loan repaid)
8. Capital reduction A/c Dr. 7,68,750
To Profit and loss A/c 5,63,750
To Plant A/c 43,750
To Trademarks and Goodwill A/c 1,61,250
(Bal. fig.)
(Being losses and assets written off
to the extent required)
Balance sheet of Fortunate Ltd. (and reduced)
as on 31.3.2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 15,12,500
2 Non-current liabilities
a Long-term borrowings 2,78,750
(7,16,250 – 1,87,500 – 2,50,000)
3 Current liabilities
a Trade Payables 2,58,750
b Other current liabilities 43,750
Total 20,93,750
Assets
1 Non-current assets
a Property, Plant and Equipment 2 7,91,250
b Intangible assets 3 2,36,250
2 Current assets
a Inventories 5,00,000
b Trade receivables 4,10,000
c Cash and cash equivalents 4 1,56,250
Total 20,93,750
Notes to accounts:
`
1 Share Capital
Authorized capital:
81,250 Preference shares of ` 10 each 8,12,500

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1,87,500 Equity shares of ` 5 each 9,37,500 17,50,000

Issued, subscribed and paid up:
1,52,500 equity shares of ` 5 each 7,62,500
(out of the above 52,500 shares
issued for consideration other than
cash)
75,000, 6% Preference shares of ` 10 7,50,000 15,12,500
each
2 Property, Plant and Equipment
Building at cost less depreciation 5,00,000
Plant at cost less depreciation 2,91,250 7,91,250
3. Intangible assets
Trademarks and goodwill 2,36,250
4 Cash and cash equivalents
Bank (2,81,250+1,25,000-2,50,000) 1,56,250
4 In the Books of Y Ltd. Realisation Account
` `
To Sundry Assets: By Retirement Gratuity 60,000
Fund
Goodwill 75,000 By Trade payables 2,40,000
Land & Building 3,00,000 By X Ltd. (Purchase 15,90,000
Plant & Machinery 4,50,000 Consideration)
Inventory 5,25,000
Trade receivables 3,00,000
Bank 60,000 17,10,000
To Preference 30,000
Shareholders
(Premium on
Redemption)
To Equity Shareholders
(Profit on
Realisation) 1,50,000 _______
18,90,000 18,90,000

Balance Sheet of X Ltd. (after absorption)

as at 31st March, 2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 48,30,000
B Reserves and Surplus 2 2,70,000
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2 Non-current liabilities
A Long-term provisions 3 2,10,000
3 Current liabilities
A Trade Payables 4 6,10,000
B Short term provision 5 7,500
Total 59,27,500
Assets
1 Non-current assets
A Fixed assets
Tangible assets 6 33,00,000
Intangible assets 7 3,00,000
2 Current assets
A Inventories 8 12,22,500
B Trade receivables 9 8,80,000
C Other current Assets 10 15,000
D Cash and cash equivalents 11 2,10,000
Total 59,27,500
Notes to accounts
`
1 Share Capital
Equity share capital
4,20,000 Equity Shares of ` 10 each fully paid (Out of 42,00,000
above 1,20,000 Equity Shares were issued in
consideration other than for cash)
Preference share capital
6,300 9% Preference Shares of ` 100 each (Out of 6,30,000
above 3,300 Preference Shares were issued in
consideration other than for cash)
Total 48,30,000
2 Reserves and Surplus
Securities Premium 60,000
General Reserve 2,10,000
Total 2,70,000
3 Long-term provisions
Retirement Gratuity fund 2,10,000
4 Trade payables
(3,90,000 + 2,40,000 - 20,000*)
* Mutual Owings eliminated. 6,10,000

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5 Short term Provisions

Provision for Doubtful Debts 7,500
6 Tangible assets
Land & Buildings 14,00,000
Plant & Machinery 19,00,000
Total 33,00,000
7 Intangible assets
Goodwill (1,50,000 +1,50,000) 3,00,000
8 Inventories (7,50,000 + 4,72,500) 12,22,500
9 Trade receivables (6,00,000 + 3,00,000 - 20,000) 8,80,000
10 Other current Assets 15,000
11 Cash and cash equivalents (1,50,000 +60,000) 2,10,000
Working Notes:
1. Computation of goodwill `
Profit of 2022-23 90,000
Profit of 2021-22 adjusted ` 78,000 + 10,000) 88,000
Profit of 2020-21 adjusted (` 72,000 – 25,000) 47,000
2,25,000
Average profit 75,000
Goodwill to be valued at 2 times of average profits = ` 75,000 x 2
= ` 1,50,000
2.
Purchase Consideration: `
Goodwill 1,50,000
Land & Building 5,00,000
Plant & Machinery 4,00,000
Inventory 4,72,500
Trade receivables 3,00,000
Unrecorded assets 15,000
Cash at Bank 60,000
18,97,500
Less: Liabilities:
Retirement Gratuity 60,000
Trade payables 2,40,000
Provision for doubtful debts 7,500 (3,07,500)
Net Assets/ Purchase Consideration 15,90,000
To be satisfied as under:
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10% Preference Shareholders of Y Ltd. 3,00,000

Add: 10% Premium 30,000
9% Preference Shares of X Ltd. 3,30,000
Equity Shareholders of Y Ltd. to be satisfied by issue of
1,20,000
equity Shares of X Ltd. at 5% Premium 12,60,000
Total 15,90,000
5 Restated Balance Sheet of MNT Ltd.
as at 31st December, 2024
Particulars Note (`)
No.
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 7,50,000
(b) Reserves and Surplus 1 7,18,500
(2) Current Liabilities
(a) Short term borrowings 2 1,70,000
(b) Trade Payables 2,46,000
(c) Short-term provision 3 4,30,000
Total 23,14,500
II. Assets
(1) Non-current assets
(a) Property, Plant & Equipment 4 6,37,500
(b) Non-current Investment 5,30,000
(2) Current assets
(a) Inventories (6,90,000 +12,000) 5 7,02,000
 3, 43,000  3,50,000
(b) Trade Receivables  x 100 
 98 
(c) Cash & Cash Equivalents 42,500
(d) Other current assets 6 52,500
Total 23,14,500
Notes to Accounts
`
1. Reserves and Surplus
Revenue Reserve (refer W.N.) 5,11,500
Securities Premium 2,07,000 7,18,500
2. Short term borrowings

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Bank overdraft 1,70,000

3. Short-term provision
Provision for taxation 4,30,000
4. Property, Plant and Equipment
Cost 9,20,000
Less: Depreciation to date (2,82,500) 6,37,500
5. Inventories 6,90,000
Increase in value as per FIFO 12,000 7,02,000
6. Other current assets
Prepaid expenses (After adjusting sales 52,500
promotion expenses to be written off each
year) (65,000 -12,500)
Working Note:
Adjusted revenue reserves of MNT Ltd.:
` `
Revenue reserves as given 5,05,000
Add: Provision for doubtful debts [3,43,000 X 2/98) 7,000
Add: Increase in value of inventory 12,000 19,000
5,24,000
Less: Sales Promotion expenditure to be written off (12,500)
Adjusted revenue reserve 5,11,500
6. (a) Elements of Financial Statements
Asset Resource controlled by the enterprise as a result of
past events from which future economic benefits are
expected to flow to the enterprise
Liability Present obligation of the enterprise arising from past
events, the settlement of which is expected to result
in an outflow of a resource embodying economic
benefits.
Equity Residual interest in the assets of an enterprise after
deducting all its liabilities
Income/gain Increase in economic benefits during the accounting
period in the form of inflows or enhancement of assets
or decreases in liabilities that result in increase in
equity other than those relating to contributions from
equity participants
Expense/loss Decrease in economic benefits during the accounting
period in the form of outflows or depletions of assets
or incurrence of liabilities that result in decrease in

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equity other than those relating to distributions to

equity participants
Or
Schedule III has come into force for the Balance Sheet and Profit and
Loss Account prepared for the financial year commencing on or after 1st
April, 2023. As per Part I of the Schedule III, a company should, inter
alia, disclose in notes to accounts for the period of 5 years immediately
preceding the balance sheet date (31st March, 2024 in the instant case)
the aggregate number and class of shares allotted as fully paid-up bonus
shares. Schedule III does not require a company to disclose the source
from which bonus shares have been issued. Therefore, non-disclosure
of source from which bonus shares have been issued does not violate
the Schedule III to the Companies Act.
(b) Following will be the treatment in the given cases:
(i) When sale price of ` 24 lakhs is equal to fair value, A Ltd. should
immediately recognise the profit of ` 4 lakhs (i.e. 24 – 20) in its
books.
(ii) When fair value is ` 20 lakhs & sale price is ` 24 lakhs then profit
of ` 4 lakhs is to be deferred and amortised over the lease period.
(iii) When fair value is ` 22 lakhs & sale price is ` 25 lakhs, profit of ` 2
lakhs (22 - 20) to be immediately recognised in its books and
balance profit of ` 3 lakhs (25-22) is to be amortised/deferred over
lease period.
(iv) When fair value of leased machinery is ` 25 lakhs & sale price is
` 18 lakhs, then loss of ` 2 lakhs (20 – 18) to be immediately
recognised by A Ltd. in its books provided loss is not compensated
by future lease payment.
(v) When fair value is ` 18 lakhs & sale price is ` 19 lakhs, then the
loss of ` 2 lakhs (20-18) to be immediately recognised by A Ltd. in
its books and profit of ` 1 lakhs (19-18) should be
amortised/deferred over lease period.
(c) Books of Branch A
Journal Entries
Particulars Dr. Cr.
Amount ` Amount `
(i) Expenses account Dr. 3,500
To Head office account 3,500
(Being the allocated expenditure
by the head office recorded in
branch books)
(ii) Depreciation account Dr. 1,500
To Head office account 1,500
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(Being the depreciation provided)

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(iii) Head office account Dr. 2,000

To Salaries account 2,000
(Being the rectification of salary
paid on behalf of H.O.)
(iv) Head office account Dr. 10,000
To Debtors account 10,000
(Being the adjustment of
collection from branch debtors)
(v) No entry in branch books
(vi) Head Office account Dr. 3,000
To Cash account 3,000
(Being the expenditure on account
of Branch B, recorded in books)
Note: Entry (vi) Inter branch transactions are routed through Head
Office.

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Mock Test Paper - Series II: December, 2024

Date of Paper: 9 th December, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP - I

PAPER – 1 : ADVANCED ACCOUNTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks)
Part I is compulsory.
Case Scenario
1. Excellence Ltd. is a Real Estate Company which constructs residential and
commercial projects for selling. The Company has commenced a new project
and the expenses incurred are as follows:
• The cost of land acquired for Project is ` 10 crore
• Cost of construction incurred is ` 25 crores.
• The Company also incurred cost of ` 10 lacs for various administrative
meetings in relation to planning of the building.
• The construction of building completed and at the end of the year 1, the
net realisable value of the building was ` 40 crore.
• At the beginning of the next year (year 2), the Company decided to use
the building as its corporate office.
• The Company further incurred ` 50 lacs for making necessary changes
in the structure for using it as corporate office in accordance with
government norms for commercial spaces. Without these changes the
office cannot be set up.
• Ignore the effect of depreciation, if any.
In view of above information, answer the following issues:
(i) At the end of Year 1, how the building should be classified:
(a) Inventory
(b) Investments
(c) Property, Plant and Equipment
(d) Intangible Asset

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(ii) At the end of Year 1, at value Project should be recognised:

(a) ` 40 Crore
(b) ` 35 Crore
(c) ` 35.10 Crore
(d) ` 25 Crore
(iii) At the end of Year 2, when the intention is to use the building as
corporate office, it should be classified as:
(a) Inventory
(b) Investments
(c) Property, Plant and Equipment
(d) Intangible Assets
(iv) At the end of Year 2, the Project should be valued at:
(a) ` 40 Crore
(b) ` 35.50 Crore
(c) ` 35.10 Crore
(d) ` 25 Crore
Multiple Choice Questions [4 MCQs of 2 Marks each:
Total 8 Marks]
2. Supercool ltd. is a manufacturing company, engaged in manufacturing eco -
friendly equipment. On April 1, 2023, the Company received a grant of ` 20
crore from the Government (which is 25% of the total capital of the Company)
for various purposes that the company deems fit and no repayment is required
to be made to Government.
The Company also borrowed ` 10 crore from financial Institutions and interest
paid on the same during the year is ` 1 lac.
The Company acquired plant and machinery from the funds for ` 10 crore and
` 1 crore was spent on its installation and assembly.
` 10 lacs were spent on professional fees necessary for installation and
operating of the machine. The Company also spent ` 50 lacs on revenue
expenditure.
The Plant and Machinery was ready for its intended use on September 30,
2023)
The depreciation on plant and machinery is charged @10%.
(i) The grant of ` 20 crores received by the Company should be presented
as:
(a) Grants related to Revenue
(b) Grants related to Specific Fixed Assets
(c) Capital Reserve
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(d) Other Income

(ii) At what value the plant and machinery acquired should be recognised
as at 31st March 2024:
(a) ` 11.10 Crore
(b) ` 11 Crore
(c) ` 10.54 Crore
(d) ` 11.60 Crore
(iii) The revenue expenditure of ` 50 lacs should be recognised as:
(a) Part of Plant and Machinery
(b) Part of Grant
(c) Revenue expenditure in the Profit and Loss
(d) Deducted from loan
(iv) Which of the following statement is true:
(a) Plant and Machinery has been acquired out of Government Grant
so the same should be disclosed at Nil value.
(b) Plant and Machinery belongs to Financial Institution
(c) Plant and Machinery belong to the Company and should be
recognised as its Property, Plant and Equipment
(d) Plant and Machinery should not be disclosed in the financial
statements of the Company at all
Multiple Choice Questions [4 MCQs of 2 Marks each:
Total 8 Marks]
3. Super Ltd., a manufacturing company, has the following summarized Balance
Sheet as of March 31, 2024:
Equity Shares of ` 10 each fully paid up: ` 17,00,000
Reserves & Surplus:
Revenue Reserve: ` 23,50,000
Securities Premium: ` 2,50,000
Profit & Loss Account: ` 2,00,000
Infrastructure Development Reserve: ` 1,50,000
Secured Loan:
9% Debentures: ` 38,00,000
Unsecured Loan: ` 8,50,000
Property, Plant & Equipment: ` 58,50,000
Current Assets: ` 34,50,000

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Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles,
and necessary resolutions have been passed. The payment for the buyback
will be made using the company's bank balance, which is part of its current
assets.
Answer the following questions based on the above information:
(i) As per The Companies Act, 2013 under Section 68 (2) the buy-back of
shares in any financial year must not exceed
(a) 20% of its total paid-up capital and free reserves
(b) 25% of its total paid-up capital and free reserves
(c) 25% of its total paid-up capital
(d) 20% of its total paid-up capital
(ii) How many shares can Super Ltd. buy back according to the Shares
Outstanding Test?
(a) 35,000 shares
(b) 42,500 shares
(c) 37,500 shares
(d) 54,375 shares
(iii) What is the maximum number of shares that can be bought back
according to the Resources Test?
(a) 35,000 shares
(b) 42,500 shares
(c) 37,500 shares
(d) 54,375 shares
(iv) According to the Debt Equity Ratio Test, what is the maximum number
of shares that can be bought back?
(a) 35,000 shares
(b) 42,500 shares
(c) 37,500 shares
(d) 54,375 shares
Multiple Choice Questions [4 MCQs of 2 Marks each:
Total 8 Marks]
4. Accounting Standard 19, Lease is applicable on following Leases:
(a) Lease agreements to explore for or use of natural resources, such as oil,
gas, timber metals and other mineral rights.
(b) Legal owner of an asset conveys to another party in return for a payment
or series of periodic payments, the right to use an asset for an agreed
period of time.
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(c) licensing agreements for items such as motion picture films, video
recordings, plays, manuscripts, patents and copyrights.
(d) lease agreements to use lands (2 Marks)
5. How should the dividend paid by the Company should be disclosed in the
Cash Flows Statement:
(a) Cash flows from Operating Activities
(b) Cash flows from Investing Activities
(c) Cash flows from Financing Activities
(d) No disclosure in Cash Flow Statement (2 Marks)
6. On 31st March 2024, Sri Radhey shyam Enterprise finds that the cost of a
partly finished unit on that date is ₹ 530. The unit can be finished in 20 24-25
by an additional expenditure of ₹ 310. The finished unit can be sold for ₹ 750
subject to payment of 8% brokerage on the selling price.
Sri Radhey shyam Enterprise seeks your advice regarding the amount at
which the unfinished unit should be valued as at 31st March, 2024 for
preparation of final accounts. the partly finished unit cannot be sold in semi -
finished form and its NRV is zero without processing it further.
(a) ` 470
(b) ` 380
(c) ` 500
(d) ` 440 (2 Marks)

PART II – Descriptive Questions (70 Marks)

Question No.1 is compulsory
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates. Working Notes should form part of the answer.
1. (a) State with reasons, how the following events would be dealt with in the
financial statements of Hari Ltd. for the year ended 31 st March, 2024
(accounts were approved on 25 th July, 2024):
(1) Negotiations with another company for acquisition of its business
was started on 21st January, 2024. Hari Ltd. invested ` 40 lakh on
22nd April, 2024.
(2) The company made a provision for bad debts @ 4% of its total
debtors (as per trend followed from the previous years). In the
second week of March 2024, a debtor for ` 2,50,000 had suffered
heavy loss due to an earthquake; the loss was not covered by any
insurance policy. In May, 2024 the debtor became bankrupt.

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(3) During the year 2023-24, Hari Ltd. was sued by a competitor for
` 13 lakhs for infringement of a trademark. Based on the advice of
the company's legal counsel, Hari Ltd. provided for a sum of ` 8
lakhs in its financial statements for the year ended 31 st March,
2024. On 26th May, 2024, the Court decided in favour of the party
alleging infringement of the trademark and ordered Hari Ltd. to pay
the aggrieved party a sum of ` 12 lakhs.
(4) Cashier of Hari Ltd. embezzled cash amounting to ` 3,00,000
during March, 2024. However the same comes to the notice of
Company management during August, 2024.
(5) Cheques dated 31 st March, 2024 collected in the month of April,
2024. All cheques are presented to the bank in the month of April,
2024 and are also realized in the same month in the normal course
after deposit in the bank.
(b) Honey Ltd. is in the process of developing a new production method.
During the financial year ended 31 st March, 2023, total expenditure
incurred on development of this production method was ` 98,00,000. On
1st Jan, 2023, the production method met the criteria as an intangible
asset and expenditure incurred till this date was ` 68,00,000. Further
expenditure incurred on the new method was ` 72,00,000 for the year
ended 31st March, 2024 and recoverable amount of the know how
embodied in the new method for this financial year is ` 52,00,000.
You are required to calculate:
(1) The carrying amount of the Intangible asset on 31 st March, 2023.
(2) The expenditure to be shown in Statement of Profit and Loss for
the year ended 31st March, 2024.
(3) The carrying amount of the Intangible asset on 31 st March, 2024.
(7 + 7 = 14 Marks)
2. (a) Exe Ltd. acquires 70% of equity shares of Zed Ltd. as on 31st March,
2024 at a cost of `70 lakhs. The following information is available from
the balance sheet of Zed Ltd. as on 31st March, 2024:
Particulars ` in lakhs
Property, plant and equipment 120
Investments 55
Current Assets 70
Loans & Advances 15
15% Debentures 90
Current Liabilities 50

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The following revaluations have been agreed upon (not included in the
above figures):
Property, plant and equipment Up by 20%
Investments Down by 10%
Zed Ltd. declared and paid dividend @ 20% on its equity shares as on
31st March, 2024 (Face value – `10 per share). Exe Ltd. purchased the
shares of Zed Ltd. @ ` 20 per share.
Calculate the amount of goodwill/capital reserve on acquisition of shares
of Zed Ltd.
(b) From the following data, determine Minority Interest on the date of
acquisition and on the date of consolidation in each case:
Case Subsidiary % of Cost Date of Acquisition Consolidation date
Company Share
Owned

01-01-2024 31-12-2024

Share Profit Share Profit

Capital and Capital and Loss
Loss A/c
A/c

` ` ` `

Case-i X 85% 1,85,000 1,35,000 60,000 1,35,000 70,000

Case-ii Y 70% 1,60,000 1,25,000 45,000 1,25,000 5,000

Case-iii Z 65% 83,000 25,000 5,000 25,000 5,000

Case-iv M 90% 60,000 45,000 20,000 45,000 40,000

Case-v N 100% 85,000 25,000 25,000 25,000 50,000

(7+7=14 Marks)
3. (a) Given the following information of Rainbow Ltd.
(i) On 15th November, goods worth ` 5,00,000 were sold on approval
basis. The period of approval was 4 months after which they were
considered sold. Buyer sent approval for 75% goods sold upto
31st January and no approval or disapproval received for the
remaining goods till 31 st March.
(ii) On 31st March, goods worth ` 2,40,000 were sold to Bright Ltd. but
due to refurnishing of their show-room being underway, on their
request, goods were delivered on 10th April.
(iii) Rainbow Ltd. supplied goods worth ` 6,00,000 to Shyam Ltd. and
concurrently agrees to re-purchase the same goods on 14 th April.

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(iv) Dew Ltd, used certain assets of Rainbow Ltd. Rainbow Ltd.
received ` 7.5 lakhs and ` 12 as interest and royalties respectively
from Dew Ltd. during the year 2023-24.
(v) On 25th December, goods of ` 4,00,000 were sent on consignment
basis of which 40% of the goods unsold are lying with the consignee
at the year-end on 31st March.
In each of the above cases, you are required to advise, with valid
reasons, the amount to be recognized as revenue under the provisions
of AS-9. (4 Marks)
(b) The following information of Rocky Ltd. as at March 31, 2024:
` in lacs
Fully paid equity shares of ` 10 each 500
Capital Reserve 6
12% Debentures 400
Debenture Interest Outstanding 48
Trade payables 165
Directors’ Remuneration Outstanding 10
Other Outstanding Expenses 11
Provisions 33
Assets
Goodwill 15
Land and Building 184
Plant and Machinery 286
Furniture and Fixtures 41
Inventory 142
Trade receivables 80
Cash at Bank 27
Discount on Issue of Debentures 8
Profits and Loss Account 390
The following scheme of internal reconstruction was framed, approved
by the Tribunal all the concerned parties and implemented:
(i) All the equity shares be converted into the same number of fully-
paid equity shares of ` 2.50 each.
(ii) Directors agree to forego their outstanding remuneration.
(iii) The debentureholders also agree to forego outstanding interest in
return of their 12% debentures being converted into 13%
debentures.
(iv) The existing shareholders agree to subscribe for cash, fully paid
equity shares of ` 2.50 each for ` 125 lacs.

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(v) Trade payables are given the option of either to accept fully-paid
equity shares of ` 2.50 each for the amount due to them or to accept
80% of the amount due in cash. Trade payables for ` 65 lacs accept
equity shares whereas those for ` 100 lacs accept ` 80 lacs in cash
in full settlement.
(vi) The Assets are revalued as under:
` in lacs
Land and building 230
Plant and Machinery 220
Inventory 120
Trade receivables 76
Pass Journal Entries for all the above mentioned transactions
immediately after the reconstruction. (10 Marks)
4. From the following particulars furnished by Hello Ltd., prepare the Balance
Sheet as on 31st March 2024 as required by Part I, Schedule III of the
Companies Act, 2013.
Particulars Debit ` Credit `
Equity Share Capital (Face value of 50,00,000
` 100 each)
Building 27,50,000
Plant & Machinery 26,25,000
Furniture 2,50,000
General Reserve 10,50,000
Loan from State Financial Corporation 7,50,000
Inventory:
Raw Materials 2,55,000
Finished Goods 10,00,000 12,55,000
Provision for Taxation 6,40,000
Trade receivables 10,00,000
Short term Advances 2,13,500
Profit & Loss Account 4,33,500
Cash in Hand 1,50,000
Cash at Bank 12,35,000
Unsecured Loan 6,05,000
Trade payables (for Goods and 10,00,000
Expenses)
The following additional information is also provided:
(i) 10,000 Equity shares were issued for consideration other than cash.
(ii) Trade receivables of ` 2,60,000 are due for more than 6 months.
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(iii) The cost of the Assets were:

Building ` 30,00,000, Plant & Machinery ` 35,00,000 and Furniture
` 3,12,500
(iv) The balance of ` 7,50,000 in the Loan Account with State Finance
Corporation is secured by hypothecation of Plant & Machinery.
(v) Balance at Bank includes ` 10,000 with Omega Bank Ltd., which is not
a Scheduled Bank.
(vi) Transfer ` 20,000 to general reserve as proposed by Board of directors.
(14 Marks)
5. A Limited and B Limited are carrying on business of same nature. On
31st March, 2024 the information given by both these companies is as follows:
A Ltd. (`) B Ltd. (`)
Share Capital
- Equity Shares 10 each (Fully Paid) 12,00,000 7,20,000
- 10% Preference Shares of ` 100 each 6,00,000 -
- 8% Preference Shares of ` 100 each - 5,00,000
General Reserve 3,00,000 2,50,000
Investment Allowance Reserve - 60,000
Security Premium 2,40,000 -
Export Profit Reserve 1,80,000 1,20,000
Profit & Loss Account 2,16,000 1,92,000
9% Debentures (` 10 each) 3,00,000 2,00,000
Secured Loan - 3,60,000
Sundry Creditors 3,12,000 2,04,000
Bills Payable 75,000 1,00,000
Other Current Liabilities 50,000 75,000
Land and Building 10,80,000 8,40,000
Plant and Machinery 6,00,000 5,60,000
Office Equipment 3,45,000 2,10,000
Investments 96,000 3,00,000
Inventory 6,30,000 4,20,000
Sundry Debtors 4,90,000 3,20,000
Bills Receivables 60,000 70,000
Cash at Bank 1,72,000 61,000
A Limited take over B Limited on the above date, both companies agreeing on
a scheme of Amalgamation on the following terms:
(a) A Limited will issue 80,000 Equity Shares of ` 10 each at par to the
Equity Shareholders of B Limited.
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(b) A Limited will issue 10% Preference Shares of ` 100 each to discharge
the Preference Shareholders of B Limited at 15% premium in such a way
that the existing dividend quantum of the preference shareholders of B
Limited will not get affected.
(c) The Debentures of B Limited will be converted into equivalent number of
Debentures of A Limited.
(d) All the Bills Receivable of A Limited were accepted by B Limited.
(e) A contingent liability of B Limited amounting to ` 72,000 to be treated as
actual liability in trade payables.
(f) Expenses of Amalgamation amounted to ` 12,000 were borne by A
Limited.
You are required to pass opening Journal Entries in the books of A Limited
and prepare the opening Balance Sheet of A Limited as on 1 st April, 2024 after
amalgamation, assuming that the amalgamation is in the nature of Merger.
(14 Marks)
6. (a) “One of the characteristics of financial statements is neutrality”- Do you
agree with this statement?
Or
What do you mean by Carve outs/ins in Ind AS? Explain. (4 Marks)
(b) “The company has not made provision for warrantee in respect of certain
goods considering that the company can claim the warranty cost from
the original supplier”.
You are required to comment in line with the provisions of AS 29.
(6 Marks)
(c) Why goods are marked on invoice price by the head office while sending
goods to the branch? (4 Marks)

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Mock Test Paper - Series II: December, 2024

Date of Paper: 9 th December, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP – I

PAPER – 1 : ADVANCED ACCOUNTING
ANSWERS
1. (i) (a)
(ii) (b)
(iii) (c)
(iv) (b)
2. (i) (c)
(ii) (c)
(iii) (c)
(iv) (c)
3. (a) (ii)
(b) (ii)
(c) (iii)
(d) (iv)
4. (ii)
5. (iii)
6. (b)

PART II – Descriptive Questions (70 Marks)

1. (a) (i) As per AS 4‘Contingencies and Events Occurring After the Balance
Sheet Date’, disclosure should be made in the report of the
approving authority of those events occurring after the balance
sheet date that represent material changes and commitments
affecting the financial position of the enterprise, the investment of
` 40 lakhs in April, 2024 in the acquisition of another company
should be disclosed in the report of the Board of Directors to enable
users of financial statements to make proper evaluations and
decisions.
(ii) As per AS 4, adjustment to assets and liabilities are required for
events occurring after the balance sheet date that provide
additional information materially affecting the determination of the
amounts relating to conditions existing at the Balance Sheet date.
A debtor for ` 2,50,000 suffered heavy loss due to earthquake in
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the second week of March, 2024 which was not covered by

insurance. This information with its implications was already known
to the company. The fact that he became bankrupt in May, 2024
(after the balance sheet date) is only an additional information
related to the existing condition on the balance sheet date.
Accordingly, full provision for bad debts amounting ` 2,50,000
should be made, to cover the loss arising due to the insolvency of
a debtor, in the final accounts for the year ended 31st March 2024.
(iii) As per AS 4, adjustments to assets and liabilities are required for
events occurring after the balance sheet date that provide
additional information materially affecting the determination of the
amounts relating to conditions existing at the balance sheet date.
In the given case, since Hari Ltd. was sued by a competitor for
infringement of a trademark during the year 2023-24 for which the
provision was also made by it, the decision of the Court on 26th
May, 2024, for payment of the penalty will constitute as an adjusting
event because it is an event occurred before approval of the
financial statements. Therefore, Hari Ltd. should adjust the
provision upward by ` 4 lakhs to reflect the award decreed by the
Court to be paid by them to its competitor.
(iv) As the embezzlement of cash comes to the notice of company
management only after approval of financial statements by board
of directors of the company, then the treatment will be done as per
the provisions of AS 5 “Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies” and the same will not
be adjusted in the financial statements for the year ended 31st
March, 2024. This being an extra-ordinary item should be disclosed
in the statement of profit and loss as a part of loss for the year
ending March, 2025, in a manner, that its impact on current profit
or loss can be perceived.
(v) Collection of cheques after balance sheet date is not an adjusting
event even if the cheques bear the date of 31st March. Recognition
of cheques in hand is therefore not consistent with requirements of
AS 4. Moreover, the collection of cheques after balance sheet date
does not represent any material change or commitments affecting
financial position of the enterprise and no disclosure of such
collections in the Directors’ Report is necessary.
(b) As per AS 26 ‘Intangible Assets’
(i) Carrying value of intangible asset as on 31.03.2023
At the end of financial year, on 31st March 2023, the production
process will be recognized (i.e. carrying amount) as an intangible
asset at a cost of ` 30 (98-68) lacs (expenditure incurred since the
date the recognition criteria were met, i.e., from 1st January, 2023).

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(ii) Expenditure to be charged to Profit and Loss account for the

year ended 31.03.2024
(` in lacs)
Carrying Amount as on 31.03.2023 30
Expenditure during 2023–2024 72
Book Value 102
Recoverable Amount (52)
Impairment loss 50
` 50 lakhs to be charged to Profit and loss account for the year
ending 31.03.2024.
(iii) Carrying value of intangible asset as on 31.03.2024
(` in lacs)
Book Value 102
Less: Impairment loss (50)
Carrying amount as on 31.03.2024 52
2. (a) Cost of Control
Sr. Particulars Computation `
No.
A] Cost of Investments Given 70,00,000
Less: Dividend out of (3.5 Lacs × `10 (FV) × (7,00,000)
Pre Acquisition 20%)
Dividend (No of Shares = 70
Lacs/20= 3.5 Lacs)
Subtotal A 63,00,000
B] Share in Net Assets (1,38,50,000 × 70%) 96,95,000
of Zed Ltd.
C] Goodwill / (Capital (A – B) 33,95,000
Reserve)
W.N. 1 : Calculation of Net Assets
Sr. Particulars `
No.
A] Assets
- Property, Plant & Equipment (120+20%) 1,44,00,000
- Investment (55 – 10%) 49,50,000
-
Current Assets 70,00,000
-
Loans & Advances 15,00,000
Subtotal A 2,78,50,000
B] Liabilities
- 15% Debentures 90,00,000
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- Current Liabilities 50,00,000

Subtotal B 1,40,00,000
C] Net Assets (A – B) 1,38,50,000
W.N. 2 : No of shares acquired
Cost of investment
=
Purchase price share
70,00,000
= = `3,50,000 shares
` 20 shares
Revalued net assets of Zed Ltd. as on 31.03.2024
Particulars ` in lakhs ` in lakhs
Property Plant & Equipment [120 × 120%] 144.0
Investments [55 × 90%] 49.5
Current Assets 70.0
Loans & Advances 15.0
Total Assets after revaluation 278.5
Less: 15% Debentures 90.0
Current Liabilities 50.0 (140.0)
Equity / Net Worth 138.50
Exe Ltd.’s share of net assets (70% of 96.95
138.50)
Exe Ltd.’s cost of acquisition of shares of 63.00
Zed Ltd.
(`70 lakhs – 7 lakhs*)
Capital Reserve 33.95
*Total Cost of 70% Equity of Zed Ltd. `70 lakhs
Purchase Price of each share `20
Number of shares purchases(70 lakhs/20) 3.50 lakhs
Dividend @ 20% i.e. `2/share `7 lakhs
Since, dividend received is for pre-acquisition period, it has been
reduced from the cost of investment in the subsidiary company.
(b) Minority Interest = Equity attributable to minorities
Equity is the residual interest in the assets of an enterprise after
deducting all its liabilities i.e. in this case, it should be equal to Share
Capital + Profit & Loss A/c
A = Share capital on 1.1.2024
B = Profit & loss account balance on 1.1.2024
C = Share capital on 31.12.2024
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D = Profit & loss account balance on 31.12.2024

Minority % Minority Minority
Shares interest as at interest as at
Owned the date of the date of
acquisition consolidation
[E] [E] x [A + B] ` [E] X [C + D] `
Case i [100-85] 15% 29,250 30,750
Case ii [100-70] 30% 51,000 39,000
Case iii [100-65] 35% 10,500 10,500
Case iv [100-90] 10% 6,500 8,500
Case v [100-100] NIL NIL NIL
3. (a) (i) As per AS 9 “Revenue Recognition”, in case of goods sold on
approval basis, revenue should not be recognized until the goods
have been formally accepted by the buyer or the buyer has done
an act adopting the transaction or the time period for rejection has
elapsed or where no time has been fixed, a reasonable time has
elapsed. Therefore, revenue should be recognized for the total
sales amounting ` 5,00,000 as the time period for rejecting the
goods had expired.
(ii) The sale is complete but delivery has been postponed at buyer’s
request. The entity should recognize the entire sale of ` 2,40,000
for the year ended 31st March.
(iii) Sale/repurchase agreements i.e. where seller concurrently agrees
to repurchase the same goods at a later date, such transactions
that are in substance a financing agreement, the resulting cash
inflow is not revenue as defined and should not be recognized as
revenue. Hence no revenue to be recognized in the given case.
(iv) Revenue arising from the use by others of enterprise resources
yielding interest and royalty should be recognized when no
significant uncertainty as to measurability or collectability exists.
The interest should be recognized on time proportion basis taking
into account the amount outstanding and rate applicable. The
royalty should be recognized on accrual basis in accordance with
the terms of relevant agreement.
(v) 40% goods lying unsold with consignee should be treated as
closing inventory and sales should be recognized for ` 2,40,000
(60% of ` 4,00,000). In case of consignment sale revenue should
not be recognized until the goods are sold to a third party.
(b) Journal Entries
` in
lacs
Dr. Cr.

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Equity Share Capital (` 10 each) A/c Dr. 500

To Equity Share Capital (` 2.50 each) A/c 125
To Reconstruction A/c 375
(Conversion of all the equity shares into the
same number of fully paid equity shares of
` 2.50 each as per scheme of reconstruction)
Director’s Remuneration Outstanding A/c Dr. 10
To Reconstruction A/c 10
(Outstanding remuneration foregone by the
directors as per scheme of reconstruction)
12% Debentures A/c Dr. 400
Debenture Interest Outstanding A/c Dr. 48
To 13% Debentures A/c 400
To Reconstruction A/c 48
(Conversion of 12% debentures into 13%
debentures, Debenture holders forgoing
outstanding debenture interest)
Bank A/c Dr. 125
To Equity Share Application A/c 125
(Application money received for fully paid
equity shares of ` 2.5 each from existing
shareholders)
Equity Share Application A/c Dr. 125
To Equity Share Capital (` 2.50 each) A/c 125
(Application money transferred to share
capital)
Trade payables A/c Dr. 165
To Equity Share Capital (` 2.50 each) A/c 65
To Bank A/c 80
To Reconstruction A/c 20
(Trade payables for ` 65 lakhs accepting
shares for full amount and those for ` 100
lakhs accepting cash equal to 80% of claim in
full settlement)
Capital Reserve A/c Dr. 6
To Reconstruction A/c 6
(Being the loss on reconstruction (balance in
the Reconstruction A/c) transferred to Capital
Reserve)
Land and Building A/c Dr. 46
To Reconstruction A/c 46
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(Appreciation made in the value of land and

building as per scheme of reconstruction)
Reconstruction A/c Dr. 505
To Goodwill A/c 15
To Plant and Machinery A/c 66
To Inventory A/c 22
To Trade receivables A/c 4
To Discount on issue of Debentures A/c 8
To Profit and Loss A/c 390
(Writing off losses and reduction in the values
of assets as per scheme of reconstruction—
W.N. 1)
Note: In a scheme of Reconstruction, Goodwill, Losses etc should be
written off against the Reconstruction Account whether or not it is
mentioned in the question.
4. (a) Hello Ltd.
Balance Sheet as at 31st March, 2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 50,00,000
b Reserves and Surplus 2 14,83,500
2 Non-current liabilities
Long-term borrowings 3 13,55,000
3 Current liabilities
a Trade Payables 10,00,000
b Short-term provisions 4 6,40,000
Total 94,78,500
Assets
1 Non-current assets
Property, Plant & equipment 5 56,25,000
2 Current assets
a Inventories 6 12,55,000
b Trade receivables 7 10,00,000
c Cash and Cash Equivalents 8 13,85,000
d Short-term loans and advances 2,13,500
Total 94,78,500

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Notes to accounts
`
1 Share Capital
Equity share capital
Issued & subscribed & called up
50,000 Equity Shares of ` 100 each 50,00,000
(of the above 10,000 shares have been
issued for consideration other than
cash)
2 Reserves and Surplus
General Reserve 10,50,000
Add: current year transfer 20,000 10,70,000
Profit & Loss balance
Profit for the year 4,33,500
Less: Appropriations:
Transfer to General reserve (20,000)
4,13,500
14,83,500
3 Long-term borrowings
Secured Term Loan
State Financial Corporation Loan
(Secured by hypothecation of Plant 7,50,000
and Machinery)
Unsecured Loan 6,05,000
Total 13,55,000
4 Short-term provisions
Provision for taxation 6,40,000
5 Property, plant and Equipment
Building 30,00,000
Less: Depreciation (2,50,000) 27,50,000
(b.f.)
Plant & Machinery 35,00,000
Less: Depreciation (8,75,000) 26,25,000
(b.f.)
Furniture & Fittings 3,12,500
Less: Depreciation (62,500) (b.f.) 2,50,000
Total 56,25,000

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6 Inventories
Raw Materials 2,55,000
Finished goods 10,00,000
Total 12,55,000
7 Trade receivables
Outstanding for a period exceeding six 2,60,000
months
Other Amounts 7,40,000
Total 10,00,000
8 Cash and Cash Equivalents
Cash at bank
with Scheduled Banks 12,25,000
with others (Omega Bank Ltd.) 10,000 12,35,000
Cash in hand 1,50,000
Other bank balances Nil
Total 13,85,000
5. Journal Entries in the books of A Ltd.
Particulars Debit Credit
` `
Business purchase A/c (W.N.1) Dr. 13,75,000
To Liquidator of B Ltd. 13,75,000
(Being business of B Ltd. taken over)
Land & Building A/c Dr. 8,40,000
Plant and machinery A/c Dr. 5,60,000
Office equipment A/c Dr. 2,10,000
Investments A/c Dr. 3,00,000
Inventory A/c Dr. 4,20,000
Debtors A/c Dr. 3,20,000
Bills receivables A/c Dr. 70,000
Bank A/c Dr. 61,000
To General reserve A/c (W.N.2) 95,000
(2,50,000-1,55,000)
To Export profit reserve A/c 1,20,000
To Investment allowance reserve 60,000
A/c
To Profit and loss A/c 1,20,000
To Liability for 9% Debentures A/c 2,00,000
(` 100 each)

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To Secured Loan 3,60,000

To Trade creditors A/c 2,76,000
To Bills payables A/c 1,00,000
To Other current liabilities A/c 75,000
To Business purchase A/c 13,75,000
(Being assets and liabilities taken over)
Liquidator of B Ltd. Dr. 13,75,000
To Equity share capital A/c 8,00,000
To 10% Preference share capital 4,00,000
A/c
To Securities premium A/c 1,75,000
(Being purchase consideration
discharged)
General Reserve* A/c Dr. 12,000
To Cash at bank 12,000
(Being expenses of amalgamation
paid)
Liability for 9% Debentures in B Ltd. A/c Dr. 2,00,000
To 9% Debentures A/c 2,00,000
(Being debentures in B ltd. discharged
by issuing own 9% debentures)
Bills payables A/c Dr. 60,000
To Bill receivables A/c 60,000
(Cancellation of mutual owing on
account of bills of exchange)
*Alternatively, profit & loss A/c may be debited in place of general reserve A/c.
Opening Balance Sheet of A Ltd. (after absorption)
as at 1st April, 2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 30,00,000
b Reserves and Surplus 2 14,94,000
2 Non-current liabilities
a Long-term borrowings 3 8,60,000
3 Current liabilities
a Trade Payables 4 7,03,000

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b Other current liabilities 5 1,25,000

Total 61,82,000
Assets
1 Non-current assets
a PPE 6 36,35,000
b Investments 7 3,96,000
2 Current assets
a Inventories 8 10,50,000
b Trade receivables 9 8,80,000
c Cash and cash equivalents 10 2,21,000
Total 61,82,000
Notes to accounts
`
1 Share Capital
Equity share capital
2,00,000 Equity shares of ` 10 each
(Out of above, 80,000 shares were 20,00,000
issued for consideration other than
cash)
Preference share capital
10,000 10% Preference shares of ` 100
each
10,00,000
(Out of above, 4,000 shares were issued
for consideration other than cash)
Total 30,00,000
2 Reserves and Surplus
General Reserve
Opening balance 3,00,000
Add: Adjustment under scheme of
95,000
amalgamation
Less: Amalgamation expense paid (12,000) 3,83,000
Securities premium
4,15,000
(2,40,000 + 1,75,000)
Export profit reserve
Opening balance 1,80,000
Add: Adjustment under scheme of
1,20,000 3,00,000
amalgamation
Investment allowance reserve 60,000
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Profit and loss account

Opening balance 2,16,000
Add: Adjustment under scheme of
1,20,000 3,36,000
amalgamation
Total 14,94,000
3 Long-term borrowings
Secured
9% Debentures 3,00,000
Add: Adjustment under scheme of
2,00,000
amalgamation
Secured loan 3,60,000 8,60,000
4 Trade payables
Creditors: Opening balance 3,12,000
Add: Adjustment under scheme of
2,76,000 5,88,000
amalgamation
Bills Payables: Opening balance 75,000
Add: Adjustment under scheme of
1,00,000
amalgamation
Less: Cancellation of mutual owning
(60,000) 1,15,000
upon amalgamation
7,03,000
5 Other current liabilities
Opening balance 50,000
Add: Adjustment under scheme of
75,000 1,25,000
amalgamation
6 PPE
Land & Building- Opening balance 10,80,000
Add: Adjustment under scheme of
8,40,000 19,20,000
amalgamation
Plant and machinery- Opening balance 6,00,000
Add: Adjustment under scheme of
5,60,000 11,60,000
amalgamation
Office equipment-Opening balance 3,45,000
Add: Adjustment under scheme of
2,10,000 5,55,000
amalgamation
Total 36,35,000
7 Investments
Opening balance 96,000
Add: Adjustment under scheme of
3,00,000 3,96,000
amalgamation
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8 Inventories
Opening balance 6,30,000
Add: Adjustment under scheme of
4,20,000 10,50,000
amalgamation
9 Trade receivables
Debtors: Opening balance 4,90,000
Add: Adjustment under scheme of
3,20,000 8,10,000
amalgamation
Bills Payables: Opening balance 60,000
Add: Adjustment under scheme of
70,000
amalgamation
Less: Cancellation of mutual owning
(60,000) 70,000
upon amalgamation
Total 8,80,000
10 Cash and cash equivalents
Opening balance 1,72,000
Add: Adjustment under scheme of
61,000
amalgamation
Less: Amalgamation expense paid (12,000) 2,21,000
Working Notes:
1. Calculation of purchase consideration
`
Equity shareholders of B Ltd. (80,000 x ` 8,00,000
10)
Preference shareholders of B Ltd. (5,00,000 5,75,000
x 115%)
Purchase consideration would be 13,75,000
2. Amount to be adjusted from general reserve
The difference between the amount recorded as share capital
issued and the amount of share capital of transferor company
should be adjusted in General Reserve.
Thus, General reserve will be adjusted as follows:
`
Purchase consideration 13,75,000
Less: Share capital issued (` 7,20,000 + (12,20,000)
` 5,00,000)
Amount to be adjusted from general reserve 1,55,000

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3. Calculation of balances of Profit & Loss and Sundry Creditors

of B Limited to be taken over by A Limited
P&L Creditors
(`) (`)
Balance as per Balance Sheet of B 1,92,000 2,04,000
Limited
Less / Add: Contingent Trade Payable (72,000) 72,000
treated as Actual Liability
Taken by A Limited 1,20,000 2,76,000
6. (a) Yes, one of the characteristics of financial statements is neutrality. To
be reliable, the information contained in financial statement must be
neutral, that is free from bias. Financial Statements are not neutral if by
the selection or presentation of information, the focus of analysis could
shift from one area of business to another thereby arriving at a totally
different conclusion on the business results.
Or
Certain changes have been made in Ind AS considering the economic
environment of the country, which is different as compared to the
economic environment presumed to be in existence by IFRS. These
differences are due to differences in economic conditions prevailing in
India. These differences which are in deviation to the accounting
principles and practices stated in IFRS, are commonly known as ‘Carve-
outs’. Additional guidance given in Ind AS over and above what is given
in IFRS, is termed as ‘Carve in’.
(b) As per provisions of AS 29 “Provisions, Contingent Liabilities and
Contingent Assets”, where some or all of the expenditure required to
settle a provision is expected to be reimbursed by another party, the
reimbursement should be recognized when, and only when, it is virtually
certain that reimbursement will be received if the enterprise settles the
obligation. The reimbursement should be treated as a separate asset.
The amount recognized for the reimbursement should not exceed the
amount of the provision.
It is apparent from the question that the company had not made provision
for warranty in respect of certain goods considering that the company
can claim the warranty cost from the original supplier. However, the
provision for warranty should have been made as per AS 29 and the
amount claimable as reimbursement should be treated as a separate
asset in the financial statements of the company rather than omitting the
disclosure of such liability. Accordingly, it can be said that the
accounting treatment adopted by the company with respect to warranty
is not correct.

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(c) Goods are marked on invoice price to achieve the following objectives:
(i) To keep secret from the branch manager, the cost price of the
goods and profit made, so that the branch manager may not start a
rival and competitive business with the concern; and
(ii) To have effective control on stock i.e. stock at any time must be
equal to opening stock plus goods received from head office minus
sales made at branch.
(iii) To dictate pricing policy to its branches, as well as save work at
branch because prices have already been decided.

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Mock Test Paper - Series I: July, 2024

Date of Paper: 29th July, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP - I

PAPER – 1 : ADVANCED ACCOUNTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks)
Part I is compulsory.
Case Scenario
1. Super Ltd., a manufacturing company, has the following summarized Balance
Sheet as of March 31, 2024:
Equity Shares of ` 10 each fully paid up: ` 17,00,000
Reserves & Surplus:
Revenue Reserve: ` 23,50,000
Securities Premium: ` 2,50,000
Profit & Loss Account: ` 2,00,000
Infrastructure Development Reserve: ` 1,50,000
Secured Loan:
9% Debentures: ` 38,00,000
Unsecured Loan: ` 8,50,000
Property, Plant & Equipment: ` 58,50,000
Current Assets: ` 34,50,000
Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles,
and necessary resolutions have been passed. The payment for the buyback
will be made using the company's bank balance, which is part of its current
assets.
Answer the following questions based on the above information:
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of
shares in any financial year must not exceed
i 20% of its total paid-up capital and free reserves
ii 25% of its total paid-up capital and free reserves
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iii 25% of its total paid-up capital

iv 20% of its total paid-up capital
(b) How many shares can Super Ltd. buy back according to the Shares
Outstanding Test?
(i) 35,000 shares
(ii) 42,500 shares
(iii) 37,500 shares
(iv) 54,375 shares
(c) What is the maximum number of shares that can be bought back
according to the Resources Test?
(i) 35,000 shares
(ii) 42,500 shares
(iii) 37,500 shares
(iv) 54,375 shares
(d) According to the Debt Equity Ratio Test, what is the maximum number
of shares that can be bought back?
(i) 35,000 shares
(ii) 42,500 shares
(iii) 37,500 shares
(iv) 54,375 shares
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
2. Venus Limited received a parcel of land at no cost from the government for
the purpose of developing a factory in an outlying area. The land is valued at
` 75 lakhs, while the nominal value is ` 10 lakhs. Additionally, the company
received a government grant of ` 30 lakhs, which represents 25% of the total
investment needed for the factory development. Furthermore, the company
received ` 15 lakhs with the stipulation that it be used to purchase machinery.
There is no expectation from the government for the repayment of these
grants.
Answer the following questions based on the above information:
(a) The land received from Government, free of cost should be presented
at:
(i) ` 75 Lakhs
(ii) ` 30 Lakhs
(iii) ` 10 Lakhs
(iv) ` 45 Lakhs
(b) As per AS 12, how the Government Grant of ` 30 Lakhs should be
presented:
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(i) It should be recognised in the profit and loss statement as per the
related cost.
(ii) It will be treated as capital reserve.
(iii) It will be treated as deferred income.
(iv) It will not be recognised in the financial statements.
(c) As per AS 12, how the Government Grant of ` 15 Lakhs with a condition
to purchase machinery may be presented as:
(i) Capital Reserve
(ii) Shareholders Fund
(iii) Deferred Income
(iv) Income in statement of profit and loss as received.
(d) Which of the above grants are required to be recognised in the statement
of profit and loss on a systematic and rational basis over the useful life
of the asset:
(i) Land received as Grant
(ii) Government Grant of ` 30 Lakhs
(iii) Government Grant of ` 15 Lakhs with a condition to purchase
machinery
(iv) Noe of the above
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
3. Axis limited is a manufacturing company. It purchased a machinery costing
` 10 Lakhs in April 2023. It paid ` 4 lakhs upfront and paid the remaining
` 6,00,000 as deferred payment by paying instalment of ` 1,05,000 for the
next 6 months. During the year, the Company sold a land which was classified
as its ‘property, plant and equipment’ for ` 25,00,000 and paid ` 1,00,000 as
income tax as long term capital gain on such sale. During the year, the
Company also received income tax refund along with interest.
(a) As per the requirements of AS 3, ‘Cash Flow Statements’, how the
amount for purchase of machinery should be presented:
(i) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000
will simply be booked in profit and loss with no presentation if Cash
Flow Statement.
(ii) ` 10.30 lakhs as ‘Cash flows from Investing Activities’ as entire
amount is spend on purchase of machinery.
(iii) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000 as
‘Cash flows from Financing Activities’.
(iv) ` 10.30 lakhs as ‘Cash flows from Financing Activities’ as the
machinery has been purchased on finance.

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(b) At what amount, the machinery should be recognised in the financial

statements:
(i) ` 400,000
(ii) ` 10,30,000
(iii) ` 600,000
(iv) ` 10,00,000
(c) How should the income tax paid on sale of land should be disclosed in
the Cash Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
(d) How should the interest on income tax refunds should be disclosed in
the Cash Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
Multiple Choice Questions [4 MCQs of 2 Marks each: Total8 Marks]
4. Gyan Ltd. borrowed ` 10 crore for construction of a plant at the rate of 10%
per annum (interest paid annually ` 1 crore). The construction was being
carried on and out of the borrowings, ` 4 crore was temporarily placed in a
fixed deposit at the rate of 6% per annum (interest earned ` 24 lakh). At the
year end, how much cost of borrowing Gyan Limited will capitalise?
(a) Interest paid on ` 10 crore i.e. ` 1 crore
(b) Interest paid on ` 6 crore as only this amount was utilized i.e. ` 60 Lakh.
(c) Interest paid less income on temporary investment i.e. ` 76 lakh
(d) Nothing will be capitalised. (2 Marks)
5. Cost of current investment acquired was ` 1,00,000 but the fair value was
` 80,000. The Investment was recorded at ` 80,000. Now the fair value of
Investment is Rs 1,20,000. At what value should it be recorded and how much
gain will be credited to profit and loss account.
(a) No change is required and it will continue at ` 80,000
(b) Current investment will be recorded at ` 1,00,000 and gain of ` 20,000
will be credited to profit and loss account.
(c) Current investment will be recorded at ` 1,20,000 and gain of ` 40,000
will be credited to profit and loss account.

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(d) Current investment will be recorded at ` 1,20,000 but no gain will be

credited to profit and loss account. (2 Marks)
6. In determining the cost of inventories, it is appropriate to exclude certain costs
and recognise them as expenses in the period in which they are incurred.
Which of the following is not an examples of such costs:
(a) Abnormal amounts of wasted materials, labour, or other production
costs;
(b) Storage costs, unless the production process requires such storage;
(c) Raw Material cost
(d) Selling and distribution costs. (2 Marks)

PART II – Descriptive Questions (70 Marks)

Question No.1 is compulsory
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer
by the candidates. Working Notes should form part of the answer.
1. (a) On 15th June, 2024, Y limited wants to re-classify its investments in
accordance with AS 13 (revised). Decide and state the amount of
transfer, based on the following information:
(1) A portion of long term investments purchased on 1st March, 2023
are to be re-classified as current investments. The original cost of
these investments was ` 14 lakhs but had been written down by
` 2 lakhs (to recognise 'other than temporary' decline in value). The
market value of these investments on 15th June, 2024 was ` 11
lakhs.
(2) Another portion of long term investments purchased on
15th January, 2023 are to be re-classified as current investments.
The original cost of these investments was ` 7 lakhs but had been
written down to ` 5 lakhs (to recognize 'other than temporary'
decline in value). The fair value of these investments on 15th June,
2024 was ` 4.5 lakhs.
(3) A portion of current investments purchased on 15th March, 2024 for
` 7 lakhs are to be re-classified as long term investments, as the
company has decided to retain them. The market value of these
investments on 31st March, 2024 was ` 6 lakhs and fair value on
15th June 2024 was ` 8.5 lakhs.
(4) Another portion of current investments purchased on 7th December,
2023 for ` 4 lakhs are to be re-classified as long term investments.
The market value of these investments was:
on 31st March, 2024 ` 3.5 lakhs
on 15th June, 2024 ` 3.8 lakhs (7 Marks)
5

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(b) The financial statements of PQ Ltd. for the year 2023-24 approved by
the Board of Directors on 15th July, 2024. The following information was
provided:
(i) A suit against the company's advertisement was filed by a party on
20th April, 2024, claiming damages of ` 25 lakhs.
(ii) The terms and conditions for acquisition of business of another
company have been decided by March, 2024. But the financial
resources were arranged in April, 2024 and amount invested was
` 50 lakhs.
(iii) Theft of cash of ` 5 lakhs by the cashier on 31st March, 2024 but
was detected on 16th July, 2024.
(iv) Company sent a proposal to sell an immovable property for ` 40
lakhs in March, 2024. The book value of the property was ` 30 lakhs
on 31st March, 2024. However, the deed was registered on
15th April, 2024.
(v) A, major fire has damaged the assets in a factory on 5th April, 2024.
However, the assets are fully insured.
With reference to AS-4 "Contingencies and events occurring after the
balance sheet date", state whether the above mentioned events will be
treated as contingencies, adjusting events or non-adjusting events
occurring after the balance sheet date. (7 Marks)
2. From the following particulars furnished by the Prashant Ltd., prepare the
Balance Sheet as at 31st March, 2024 as required by Schedule III of the
Companies Act, 2013:
Particulars Debit (`) Credit (`)
Equity share capital (face value of ` 10 each) 15,00,000
Calls-in-arrears 5,000
Land 5,50,000
Building 4,85,000
Plant & machinery 5,60,000
General reserve 2,70,000
Loan from State Financial Corporation 2,10,000
Inventories 3,15,000
Provision for taxation 72,000
Trade receivables 2,95,000
Short-term loans & advances 58,500
Profit & loss account 1,06,800
Cash in hand 37,300
Cash at bank 2,85,000
Unsecured loans 1,65,000

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Trade payables 2,67,000

Total 25,90,800 25,90,800
The following additional information is also provided:
(1) 10,000 equity shares were issued for consideration other than cash.
(2) Trade receivables of ` 55,000 are due for more than six months.
(3) The cost of building and plant & machinery is ` 5,50,000 and ` 6,25,000
respectively.
(4) The loan from State Financial Corporation is secured by hypothecation
of plant & machinery. The balance of ` 2,10,000 in this account is
inclusive of ` 10,000 for interest accrued but not due.
(5) Balance at Bank included ` 15,000 with Aakash Bank Ltd., which is not
a scheduled bank. (14 Marks)
3. (a) The following information was provided by PQR Ltd. for the year ended
31st March, 2024 :
(1) Gross Profit Ratio was 25% for the year, which amounts to
` 3,75,000.
(2) Company sold goods for cash only.
(3) Opening inventory was lesser than closing inventory by ` 25,000.
(4) Wages paid during the year ` 5,55,000.
(5) Office expenses paid during the year ` 35,000.
(6) Selling expenses paid during the year ` 15,000.
(7) Dividend paid during the year ` 40,000.
(8) Bank Loan repaid during the year ` 2,05,000 (included interest
` 5,000)
(9) Trade Payables on 31st March, 2023 were ` 50,000 and on
31st March, 2024 were ` 35,000.
(10) Amount paid to Trade payables during the year ` 6,10,000
(11) Income Tax paid during the year amounts to ` 55,000
(Provision for taxation as on 31st March, 2024 ` 30,000)·
(12) Investments of ` 8,20,000 sold during the year at a profit of
` 20,000.
(13) Depreciation on furniture amounts to ` 40,000.
(14) Depreciation on other PPE amounts to ` 20,000.
(15) Plant and Machinery purchased on 15th November, 2023 for
` 3,50,000.
(16) On 31st March, 2024 ` 2,00,000, 7% Debentures were issued at
face value in an exchange for a plant.

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(17) Cash and Cash equivalents on 31st March, 2023 ` 2,25,000.

(i) Prepare cash flow statement for the year ended 31st March, 2024,
using direct method.
(ii) Calculate cash flow from operating activities, using indirect method.
(10 Marks)
(b) Wow Ltd. agreed to takeover Wonder Ltd. on 1st April, 2024. The terms
and conditions of takeover were as follows:
(i) Wow Ltd. issued 56,000 equity shares of ` 100 each at a premium
of ` 15 per share to the equity shareholders of Wonder Ltd.
(ii) Cash payment of ` 39,000 was made to equity shareholders of
Wonder Ltd.
(iii) 24,000 fully paid preference shares of ` 50 each issued at par to
discharge the preference shareholders of Wonder Ltd.
(iv) The 8% Debentures of Wonder Ltd. (` 78,000) converted into
equivalent value of 9% debentures in Wow Ltd.
(v) The actual cost of liquidation of Wonder Ltd. was ` 23,000.
Liquidation cost is to be reimbursed by Wow Ltd. to the extent of
` 15,000.
You are required to:
(1) Calculate the amount of purchase consideration as per the
provisions of AS 14 and
(2) Pass Journal Entry relating to discharge of purchase consideration
in books of Wow Ltd. (4 Marks)
4. The following are the summarized Balance Sheet of VT Ltd. and MG Ltd. as
on 31st March, 2024:
Particulars VT Ltd. (`) MG Ltd. (`)
Equity and Liabilities
Equity Shares of ` 10 each 12,00,000 6,00,000
10% Preference Shares of ` 100 each 4,00,000 2,00,000
Reserve and Surplus 6,00,000 4,00,000
12% Debentures 4,00,000 3,00,000
Trade Payables 5,00,000 3,00,000
Total 31,00,000 18,00,000
Assets
PPE 14,00,000 5,00,000
Investment 1,60,000 1,60,000
Inventory 4,80,000 6,40,000
Trade Receivables 8,40,000 4,20,000
Cash at Bank 2,20,000 80,000
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Total 31,00,000 18,00,000

Details of Trade receivables and trade payables are as under:
VT Ltd. (`) MG Ltd. (`)
Trade Receivable
Debtors 7,20,000 3,80,000
Bills Receivable 1,20,000 40,000
8,40,000 4,20,000
Trade Payables
Sundry Creditors 4,40,000 2,50,000
Bills Payable 60,000 50,000
5,00,000 3,00,000
PPE of both the companies are to be revalued at 15% above book value.
Inventory in Trade and Debtors are taken over at 5% lesser than their book
value.
Both the companies are to pay 10% equity dividend, Preference dividend
having been already paid.
After the above transactions are given effect to, VT Ltd. will absorb MG Ltd.
on the following terms:
(i) VT Ltd. will issue 16 Equity Shares of ` 10 each at par against 12 Shares
of MG Ltd.
(ii) 10% Preference Shareholders of MG Ltd. will be paid at 10% discount
by issue of 10% Preference Shares of ` 100 each, at par, in VT. Ltd.
(iii) 12% Debenture holders of MG Ltd. are to be paid at 8% premium, by
12% Debentures in VT Ltd., issued at a discount of 10%.
(iv) ` 60,000 is to be paid by VT Ltd. to MG Ltd. for Liquidation expenses.
(v) Sundry Debtors of MG Ltd. includes ` 20,000 due from VT Ltd.
You are required to prepare :
(1) Journal entries in the books of VT Ltd.
(2) Statement of consideration payable by VT Ltd. (14 Marks)
5. From the following information of Kedar Ltd. and its subsidiary Vijay Ltd. at
31st March, 2024, prepare a consolidated balance sheet as at that date,
having regard to the following:
(i) Reserves and Profit and Loss Account of Vijay Ltd. stood at ` 62,500
and ` 37,500 respectively on the date of acquisition of its 80% shares by
Kedar Ltd. on 1st April, 2023.
(ii) Machinery (Book-value ` 2,50,000) and Furniture (Book value ` 50,000)
of Vijay Ltd. were revalued at ` 3,75,000 and ` 37,500 respectively on
1st April, 2023 for the purpose of fixing the price of its shares. [Rates of
9

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depreciation computed on the basis of useful lives: Machinery 10%,

Furniture 15%.]
Kedar Ltd. and VIJAY Ltd. give the following information as on
31st March, 2024
Kedar Ltd. VIJAY Ltd.
(`) (`)
Equity and Liabilities: Shareholders’ funds
Share Capital: Shares of ` 100 each 15,00,000 2,50,000
Reserves 5,00,000 1,87,500
Profit and Loss Account 2,50,000 62,500
Trade Payables 3,75,000 1,42,500
PPE
Machinery 7,50,000 2,25,000
Furniture 3,75,000 42,500
Other non-current assets 11,00,000 3,75,000
Non-current Investments
Shares in Vijay Ltd.:2,000 shares at `
4,00,000 —
200 each

(14 Marks)
6. (a) Distinguish between Amalgamation, Absorption and External
Reconstruction of Company. (4 Marks)
Or
Summarised Balance Sheet of Cloth Trader as on 31.03.2023 is given
below:
Liabilities Amount Assets Amount
(`) (`)
Proprietor's Capital 3,00,000 Fixed Assets 3,60,000
Profit & Loss Account 1,25,000 Closing Stock 1,50,000
10% Loan Account 2,10,000 Sundry Debtors 1,00,000
Sundry Creditors 50,000 Deferred Expenses 50,000
Cash & Bank 25,000
6,85,000 6,85,000

10

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Additional Information is as follows :

(1) The remaining life of fixed assets is 8 years. The pattern of use of
the asset is even. The net realisable value of fixed assets on
31.03.2024 was ` 3,25,000.
(2) Purchases and Sales in 2023-24 amounted to ` 22,50,000 and
` 27,50,000 respectively.
(3) The cost and net realizable value of stock on 31.03.2024 were
` 2,00,000 and ` 2,50,000 respectively.
(4) Expenses for the year amounted to ` 78,000.
(5) Deferred Expenses are amortized equally over 5 years.
(6) Sundry Debtors on 31.03.2024 are ` 1,50,000 of which ` 5,000 is
doubtful. Collection of another ` 25,000 depends on successful
re-installation of certain product supplied to the customer;
(7) Closing Sundry Creditors are ` 75,000, likely to be settled at 10%
discount.
(8) Cash balance as on 31.03.2024 is ` 4,22,000.
(9) There is an early repayment penalty for the loan of ` 25,000.
You are required to prepare Profit & Loss Account for the year 2023-24
(Not assuming going concern). (4 Marks)
(b) Synergy Ltd., is in engineering industry. The company received an
actuarial valuation for the first time for its pension scheme which
revealed a surplus of ` 6 lakhs. It wants to spread the same over the
next 2 years by reducing the annual contribution to ` 2 lakhs instead of
` 5 lakhs. The average remaining life of the employee is estimated to
be 6 years.
You are required to advise the company. (4 Marks)
(c) Karan Enterprises having its Head Office in Mangalore, Karnataka has a
branch in Greenville, USA. Following is the trial balance of Branch as at
31-3-2024:
Particulars Amount ($) Amount ($)
Dr. Cr.
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received from Head Office 2,800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
28,350 28,350
11

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(i) Fixed assets were purchased on 1st April, 2020.

(ii) Depreciation at 10% p.a. is to be charged on fixed assets on
straight line method. ·
(iii) Closing inventory at branch is $ 700 as on 31-3-2024.
(iv) Goods received from Head Office (HO) were recorded at ` 1,85,500
in HO books.
(v) Remittances to HO were recorded at ` 1,62,000 in HO books.
(vi) HO account is recorded in HO books at ` 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as :
1-4-2020 ` 63
1-4-2023 ` 65 and
31-3-2024 ` 67
Prepare the trial balance after been converted into Indian rupees in
accordance with AS-11. (6 Marks)

12

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Mock Test Paper - Series I: July, 2024

Date of Paper: 29th July, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP - I

PAPER – 1 : ADVANCED ACCOUNTING
ANSWERS
Case Scenario
1. (a) (ii)
(b) (ii)
(c) (iii)
d) (iv)
2. (a) (iii)
(b) (ii)
(c) (iii)
(d) (iii)
3. (a) (iii)
(b) (iv)
(c) (ii)
(d) (ii)
4. (c)
5. (b)
6. (c)

PART II – Descriptive Questions (70 Marks)

1. (a) As per AS 13 ‘Accounting for Investments’, where long-term investments

are reclassified as current investments, transfers are made at the lower
of cost and carrying amount at the date of transfer; and where
investments are reclassified from current to long term, transfers are
made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer
is less than the cost; hence this re-classified current investment
should be carried at ` 12 lakhs in the books.

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(ii) In this case also, carrying amount of investment on the date of

transfer is less than the cost; hence this re-classified current
investment should be carried at ` 5 lakhs in the books.
(iii) In this case, reclassification of current investment into long-term
investments will be made at ` 7 lakhs as cost is less than its fair
value of ` 8.5 lakhs on the date of transfer.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on
the date of transfer which is lower than the cost of ` 4 lakhs. The
reclassification of current investment into long-term investments
will be made at ` 3.8 lakhs.
(b) (i) Suit filed against the company is a contingent liability but it was not
existing as on balance sheet date as the suit was filed on 20th April
after the balance Sheet date. As per AS 4, 'Contingencies' used in
the Standard is restricted to conditions or situations at the balance
sheet date, the financial effect of which is to be determined by
future events which may or may not occur. Hence, it will have no
effect on financial statements and will be a non-adjusting event.
(ii) In the given case, terms and conditions for acquisition of business
were finalised and carried out before the closure of the books of
accounts but transaction for payment of financial resources was
effected in April, 2024. This is clearly an event occuring after the
balance sheet date. Hence, necessary adjustment to assets and
liabilities for acquisition of business is necessary in the financial
statements for the year ended 31st March 2024.
(iii) Only those significant events which occur between the balance
sheet date and the date on which the financial statements are
approved, may indicate the need for adjustment to assets and
liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16th
July, 2024 after approval of financial statements by the Board of
Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate
to conditions existing at the balance sheet date. In the given case,
sale of immovable property was under proposal stage (negotiations
also not started) on the balance sheet date. Therefore, no
adjustment to assets for sale of immovable property is required in
the financial statements for the year ended 31st March, 2024.
(v) The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding event of fire and loss
being completely insured may be given in the report of approving
authority.

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2. Prashant Ltd.
Balance Sheet as on 31st March, 2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 14,95,000
b Reserves and Surplus 2 3,76,800
2 Non-current liabilities
Long-term borrowings 3 3,65,000
3 Current liabilities
a Trade Payables 2,67,000
b Other current liabilities 4 10,000
c Short-term provisions 5 72,000
Total 25,85,800
Assets
1 Non-current assets
Property, Plant and Equipment 6 15,95,000
2 Current assets
a Inventories 3,15,000
b Trade receivables 7 2,95,000
c Cash and bank balances 8 3,22,300
d Short-term loans and advances 58,500
Total 25,85,800
Notes to accounts
`
1 Share Capital
Equity share capital
Issued & subscribed & fully paid up
1,50,000 Equity Shares of ` 10 each
(of the above 10,000 shares have been
issued for consideration other than cash) 15,00,000
Less: Calls in arrears (5,000) 14,95,000
2 Reserves and Surplus
General Reserve 2,70,000
Profit & Loss balance 1,06,800
Total 3,76,800

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3 Long-term borrowings
Secured
Loan from State Financial Corporation 2,00,000
(2,10,000-10,000)
(Secured by hypothecation of Plant and
Machinery)
Unsecured Loan 1,65,000
Total 3,65,000
4 Other current liabilities
Interest accrued but not due on loans (SFC) 10,000
5 Short-term provisions
Provision for taxation 72,000
6 Property, Plant & Equipment
Land 5,50,000
Building 5,50,000
Less: Depreciation(b.f.) (65,000) 4,85,000
Plant & Machinery 6,25,000
Less: Depreciation (b.f.) (65,000) 5,60,000
Total 15,95,000
7 Trade receivables
Outstanding for a period exceeding six 55,000
months
Other Amounts 2,40,000
Total 2,95,000
8 Cash and bank balances
Cash and cash equivalents
Cash at bank 2,85,000
Cash in hand 37,300
Other bank balances Nil
Total 3,22,300
3. (a) (i) PQR Ltd.
Cash Flow Statement for the year ended 31st March, 2024
(Using direct method)
Particulars ` `
Cash flows from Operating Activities
Cash sales (` 3,75,000/25%) 15,00,000
Less: Cash payments for trade payables (6,10,000)
Wages Paid (5,55,000)
4

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Office and selling expenses

` (35,000 + 15,000) (50,000) (12,15,000)
Cash generated from operations before
taxes 2,85,000
Income tax paid (55,000)
Net cash generated from operating activities
(A) 2,30,000
Cash flows from Investing activities
Sale of investments ` (8,20,000 + 20,000) 8,40,000
Payments for purchase of Plant &
machinery (3,50,000)
Net cash used in investing activities (B) 4,90,000
Cash flows from financing activities
Bank loan repayment (including interest) (2,05,000)
Dividend paid (40,000)
Net cash used in financing activities (C) (2,45,000)
Net increase in cash (A+B+C) 4,75,000
Cash and cash equivalents at beginning of
the period 2,25,000
Cash and cash equivalents at end of the
period 7,00,000
(ii) ‘Cash Flow from Operating Activities’ by indirect method
`
Net Profit for the year before tax and 2,80,000
extraordinary items
Add: Non-Cash and Non-Operating Expenses:
Depreciation 60,000
Interest Paid 5,000
Less: Non-Cash and Non-Operating Incomes:
Profit on Sale of Investments (20,000)
Net Profit after Adjustment for Non-Cash Items 3,25,000
Less: Decrease in trade payables 15,000
Increase in inventory 25,000 (40,000)
Cash generated from operations before taxes 2,85,000
Working Note:
Calculation of net profit earned during the year
` `
Gross profit 3,75,000
Less: Office expenses, selling expenses 50,000

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Depreciation 60,000
Interest paid 5,000 (1,15,000)
2,60,000
Add: Profit on sale of investments 20,000
Net profit before tax 2,80,000
(b) As per AS 14, ‘Accounting for Amalgamations’ consideration for the
amalgamation means the aggregate of shares and other securities
issued and payment made in form of cash or other assets by the
transferee company to the shareholders of the transferor company.
(i) Computation of Purchase Consideration
`
(a) Preference Shares: ` 50 per share
24,000 Preference shares 12,00,000
(b) Cash 39,000
(c) Equity shares: 56,000 equity shares in
Wow Ltd. @ ` 115 64,40,000
76,79,000
(ii) Journal entry
` `
Liquidator of Wonder Ltd. Dr. 76,79,000
To Cash 39,000
To Preference Share Capital A/c 12,00,000
To Equity Share Capital A/c 56,00,000
To Securities Premium A/c 8,40,000
[56,000 x ` 15 (115-100)]
4. (i) Journal Entries in the Books of VT Ltd.
Dr. Cr.
` `
PPE Dr. 2,10,000
To Revaluation Reserve 2,10,000
(Revaluation of PPE at 15% above book
value)
Reserve and Surplus Dr. 1,20,000
To Equity Dividend 1,20,000
(Equity dividend @ 10%)
Equity Dividend Dr. 1,20,000
To Bank Account 1,20,000

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(Payment of equity dividend)

Business Purchase Account Dr. 9,80,000
To Liquidator of MG Ltd. 9,80,000
(Consideration payable for the business
taken over from MG Ltd.)
PPE (115% of ` 5,00,000) Dr. 5,75,000
Inventory (95% of ` 6,40,000) Dr. 6,08,000
Debtors Dr. 3,80,000
Bills Receivable Dr. 40,000
Investment Dr. 1,60,000
Cash at Bank Dr. 20,000
(` 80,000 –` 60,000 dividend paid)
To Provision for Bad Debts (5% of
18,000
` 3,60,000)
To Sundry Creditors 2,50,000
To 12% Debentures in MG Ltd. 3,24,000
To Bills Payable 50,000
To Business Purchase Account 9,80,000
To Capital Reserve (Balancing
1,61,000
figure)
(Incorporation of various assets and
liabilities taken over from MG Ltd. at agreed
values and difference of net assets and
purchase consideration being credited to
capital reserve)
Liquidator of MG Ltd. Dr. 9,80,000
To Equity Share Capital 8,00,000
To 10% Preference Share Capital 1,80,000
(Discharge of consideration for MG Ltd.’s
business)
12% Debentures in MG Ltd. (` 3,00,000 ×
Dr. 3,24,000
108%)
Discount on Issue of Debentures
Dr. 36,000
(` 3,60,000 × 10%)
To 12% Debentures (` 3,24,000/90 ×
3,60,000
100)
(Allotment of 12% Debentures to debenture
holders of MG Ltd. at a discount of 10%)
Sundry Creditors Dr. 20,000
To Sundry Debtors 20,000

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(Cancellation of mutual owing)

Goodwill Dr. 60,000
To Bank 60,000
(Being liquidation expenses reimbursed to
MG Ltd.)
Capital Reserve/P&L A/c Dr. 60,000
To Goodwill 60,000
(Being goodwill set off)
(ii) Statement of Consideration payable by VT Ltd. for 60,000 shares
(payment method)
Shares to be allotted 60,000/12 × 16 = 80,000 shares of VT Ltd.
Issued 80,000 shares of ` 10 each i.e. ` 8,00,000 (i)
For 10% preference shares, to be paid at 10% discount
` 2,00,000x 90/100 ` 1,80,000 (ii)
Consideration amount [(i) + (ii)] ` 9,80,000
5. Consolidated Balance Sheet of Kedar Ltd. and its Subsidiary Vijay Ltd.
as at 31st March, 2024
Particulars Note (`)
No.
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 15,00,000
(b) Reserves and Surplus 1 8,61,500
(2) Minority Interest (W.N.5) 1,20,375
(3) Current Liabilities
(a) Trade Payables 2 5,17,500
Total 29,99,375
II. Assets
(1) Non-current assets
(i) Property, plant & Equipment 3 14,94,375
(ii) Intangible assets 4 30,000
(b) Other non- current assets 5 14,75,000
Total 29,99,375

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Notes to Accounts
`
1. Reserves and Surplus
Reserves 5,00,000
Add: 4/5th share of Vijay Ltd.’s 1,00,000 6,00,000
post-acquisition reserves
(W.N.3)
Profit and Loss Account 2,50,000
Add: 4/5th share of Vijay Ltd.’s 11,500 2,61,500
post-acquisition profits (W.N.4)
8,61,500
2. Trade Payables
Kedar Ltd. 3,75,000
Vijay Ltd. 1,42,500 5,17,500
3. Property, plant & Equipment
Machinery
Kedar Ltd. 7,50,000
Vijay Ltd. 2,50,000
Add: Appreciation 1,25,000
3,75,000
Less: Depreciation (37,500) 3,37,500
Furniture -
Kedar Ltd. - 3,75,000
Vijay Ltd. 50,000
Less: Decrease in value (12,500)
37,500
Less: Depreciation (5,625) 31,875 14,94,375
4. Intangible assets
Goodwill [WN 6] 30,000
5. Other non-current assets
Kedar Ltd. 11,00,000
Vijay Ltd. 3,75,000 14,75,000
Working Notes:
1. Pre-acquisition profits and reserves of Vijay Ltd. `
Reserves 62,500
Profit and Loss Account 37,500
1,00,000
Kedar Ltd.’s = 4/5 × 1,00,000 80,000
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Minority Interest = 1/5 × 1,00,000 20,000

2. Profit on revaluation of assets of Vijay Ltd. -
Profit on Machinery ` (3,75,000 – 2,50,000) 1,25,000
Less: Loss on Furniture `(50,000 – 37,500) 12,500
Net Profit on revaluation 1,12,500
Kedar Ltd.’s share 4/5 × 1,12,500 90,000
Minority Interest 1/5 × 1,12,500 22,500
3. Post-acquisition reserves of Vijay Ltd. -
Post-acquisition reserves (Total reserves less pre- 1,25,000
acquisition reserves = ` 1,87,500 – 62,500)
Kedar Ltd.’s share 4/5 × 1,25,000 1,00,000
Minority interest 1/5 × ,25,000 25,000
4. Post -acquisition profits of Vijay Ltd. -
Post-acquisition profits (Profit & loss account balance 25,000
less pre-acquisition profits = ` 62,500 – 37,500)
Add: Excess depreciation charged on furniture @ 15% -
on ` 12,500 i.e. (50,000 – 37,500) 1,875
26,875
Less: Under depreciation on machinery @ 10% -
on ` 1,25,000 i.e. (3,75,000 – 2,50,000) (12,500)
Adjusted post-acquisition profits 14,375
Kedar Ltd.’s share 4/5 × 14,375 11,500
Minority Interest 1/5 × 14,375 2,875
5. Minority Interest -
Paid-up value of (2,500 – 2,000) = 500 shares -
held by outsiders i.e. 500 × ` 100 50,000
Add: 1/5th share of pre-acquisition profits and reserves 20,000
1/5th share of profit on revaluation 22,500
1/5th share of post-acquisition reserves 25,000
1/5th share of post-acquisition profit 2,875
1,20,375
6. Cost of Control or Goodwill -
Paid-up value of 2,000 shares held by Kedar Ltd. i.e. 2,00,000
2,000 × ` 100
Add: 4/5th share of pre-acquisition profits and reserves 80,000
4/5th share of profit on the revaluation 90,000

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Intrinsic value of shares on the date of 3,70,000

acquisition
Price paid by Kedar Ltd. for 2,000 shares 4,00,000
Less: Intrinsic value of the shares (3,70,000)
Cost of control or Goodwill 30,000
6. (a) Difference between Amalgamation, Absorption and External
Reconstruction
Basis Amalgamation Absorption External
Reconstruction
Meaning Two or more In this case, an In this case, a
companies are existing newly formed
wound up and a company takes company takes
new company is over the over the business
formed to take business of one of an existing
over their or more existing company.
business. companies.
Minimum At least three At least two Only two
number of companies are companies are companies are
Companies involved. involved. involved.
involved
Number of Only one resultant No new resultant Only one
new resultant company is company is resultant
companies formed. Two formed. company is
companies are formed. Under
wound up to form a this case a newly
single resultant formed company
company. takes over the
business of an
existing company.
Objective Amalgamation is Absorption is External
done to cut done to cut reconstruction is
competition and competition and done to
reap the reap the reorganise the
economies in large economies in financial structure
scale. large scale. of the company.
Example A Ltd. and B Ltd. A Ltd. takes over B Ltd. is formed to
amalgamate to the business of take over the
form C Ltd. another existing business of an
company B Ltd. existing company
A Ltd.

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Or
(a) Profit and Loss Account for the year ended 2023-24 (not assuming
going concern)
Particulars Amount Particulars Amount
` `
To Opening Stock 1,50,000 By Sales 27,50,000
To Purchases 22,50,000 By Closing Stock 2,50,000
To Expenses* 78,000 By Trade payables 7,500
To Depreciation 35,000
To Provision for 30,000
doubtful debts
To Deferred cost 50,000
To Loan penalty 25,000
To Net Profit (b.f.) 3,89,500
30,07,500 30,07,500
(b) According to AS 15 (Revised) “Employee Benefits”, actuarial gains and
losses should be recognized immediately in the statement of profit and
loss as income or expense. Therefore, surplus of ` 6 lakhs in the
pension scheme on its actuarial valuation is required to be credited to
the profit and loss statement of the current year. Hence, Synergy Ltd.
cannot spread the actuarial gain of ` 6 lakhs over the next 2 years by
reducing the annual contributions to ` 2 lakhs instead of ` 5 lakhs. It has
to contribute ` 5 lakhs annually for its pension schemes.
(c) Trial Balance of Foreign Branch (converted into Indian Rupees) as on
March 31, 2024
Particulars $ (Dr.) $ (Cr.) Conversion Rate ` (Dr.) ` (Cr.)
Basis
Fixed Assets 8,000 Transaction 63 5,04,000
Date Rate
Opening 800 Opening Rate 65 52,000
Inventory
Goods 2,800 Actuals 1,85,500
Received
from HO
Sales 24,050 Average Rate 66 15,87,300
Purchases 11,800 Average Rate 66 7,78,800
Expenses 1,800 Average Rate 66 1,18,800
Cash 700 Closing Rate 67 46,900
Remittance 2,450 Actuals 1,62,000
to HO

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HO Account 4,300 Actuals 2,84,500

Exchange Balancing 23,800
Rate Figure
Difference
28,350 28,350 18,71,800 18,71,800
Closing Stock 700 Closing Rate 67 46,900
Depreciation 800 Fixed Asset 63 50,400
Rate

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Mock Test Paper - Series II: August, 2024

Date of Paper: 16th August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP - I

PAPER – 1 : ADVANCED ACCOUNTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.

PART I – Case Scenario based MCQs (30 Marks)

Part I is compulsory.
Case Scenario
1. Anshul manufacturers purchased 20,000 Kg. of raw material at ` 170 per Kg.
Direct transit cost incurred ` 5,00,000 and normal transit loss is 3%. Anshul
manufacturers actually received 19,000 kg of raw material. During the year it
consumed 17,600 kg of raw material.
Further information:
(i) The purchase price includes ` 15 per kg as GST in respect of which
full credit is allowed and will be availed by Anshul manufacturers.
(ii) Assume that there is no opening stock.
Answer the following questions based on above:
a. What will be the cost of material:
(i) ` 36,00,000
(ii) ` 34,00,000
(iii) ` 39,00,000
(iv) ` 31,00,000
b. what will be the value of the closing stock:
(i) ` 1,70,000
(ii) ` 1,85,500
(iii) ` 2,38,000
(iv) ` 2,59,700
c. What will be the cost per Kg of raw material:
(i) ` 180
(ii) ` 183.6

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(iii) ` 185.5
(iv) ` 189.4
d. How much amount as abnormal loss will be debited in P&L:
(i) ` 72,000 approx
(ii) ` 73,440 approx
(iii) ` 74,200 appox
(iv) ` 75,760 approx
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
2. Aazad Ltd. has the following particulars:
Particulars ` (lacs)
10% Preference Share Capital (` 10 each) 2,500
Equity Share Capital of ` 10 each 8,000
Capital Redemption Reserve 1,000
Securities Premium 800
General Reserve 6,000
Profit & Loss A/c 300
Cash 1,650
Investments (Market Value ` 1,500 lacs) 3,000
The company decides to redeem all it’s preference shares at a premium of
10% and buys back 25% of equity shares @ ` 15 per share. Investments
amounting to Market Value of ` 1,000 lakhs sold at ` 3,000 lakhs and raises
a bank loan of ` 2,000 lakhs.
Answer the following questions based on above:
(a) The amount of Profit/Loss on Sale of Investment is:
(i) ` 1,500 lakhs Profit
(ii) ` 1,000 lakhs Profit
(iii) ` 2,000 lakhs Loss
(iv) ` 1,000 lakhs Loss
(b) Securities Premium available for Buyback after redemption of
Preference Shares
(i) ` 550 lakhs
(ii) ` 800 lakhs
(iii) Can’t utilize securities premium for buyback
(iv) ` 350 lakhs

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(c) Total amount to be transferred to Capital Redemption Reserve:

(i) ` 2,000 lakhs
(ii) ` 4,500 lakhs
(iii) ` 2,500 lakhs
(iv) ` 1,750 lakhs
(d) Cash balance after buyback
(i) ` 1,150 lakhs
(ii) ` 2,200 lakhs
(iii) ` 3,250 lakhs
(iv) ` 900 lakhs
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
3. On April 1, 2022, Hello Limited approached a software company for
implementation of SAP ERP at its organisation. The cost of implementation of
SAP ERP is ` 25,00,000 and the time required is 15 months. The company
was also required to pay ` 100,000 annually after implementation for
maintenance and normal updation of ERP. The implementation work started
in June, 2022 and could not be finished in 15 months. The ERP was
implemented on May 2024. Due to delay in implementation the vendor
refunded ` 2,00,000. The Company recognised the intangible asset ‘SAP
ERP’ on September 2023 (15 months from June 2022). After two years, the
Company has got the SAP ERP more upgraded with latest version and
additional features and functions which also increased its speed and usage to
Hello Limited for ` 7,00,000.
(a) On which date the Intangible asset should be recognised:
(i) April 2022 (When it was decided that SAP ERP is to be
implemented)
(ii) June 2022 (When the implementation work started)
(iii) September 2023 (When the implementation work should have
completed as per agreed terms)
(iv) May 2024 (When the SAP actually got implemented)
(b) At what amount the SAP ERP should be initially recognised as ‘intangible
asset:
(i) ` 25,00,000
(ii) ` 26,00,000
(iii) ` 23,00,000
(iv) ` 32,00,000

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(c) How should the annual maintenance and updation expenses should be
accounted for:
(i) Should be capitalised with ‘Intangible Asset’
(ii) Should be recognised as a separate ‘Intangible Asset’
(iii) Should be recognised as expense in Profit and Loss annually.
(iv) No accounting is required
(d) During the implementation period, how the expenditure incurred will be
accounted for:
(i) It will be expensed in profit and loss as and when incurred
(ii) It will be recognised as an asset ‘Intangible asset under
development’
(iii) It will only be disclosed in notes to accounts and will be recognised
when complete
(iv) It will be recognised as an item of Property, Plant and Equipment
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
4. Vijay Ltd. borrowed ` 30 lakh at interest rate of 5% per annum and purchased
plant and machinery for ` 60 lakh (using borrowed funds) and started
production. It took 1 year time for Vijay Ltd. to create optimum market for the
goods manufactured and generate revenue. How much borrowing cost can be
capitalised with cost of plant and machinery:
(a) ` 1.5 lakh
(b) ` 3 Lakh
(c) Nil
(d) ` 5 Lakh (2 Marks)
5. The cost of inventories of items that are not ordinarily interchangeable and
goods or services produced and segregated for specific projects should be
assigned using following cost formula
(a) By specific identification of their individual costs
(b) First-in, First-out (FIFO) Method
(c) Weighted average cost formula
(d) The formula used should reflect the fairest possible approximation to the
cost incurred in bringing the items of inventory to their present location
and condition. (2 Marks)
6. Securities held as stock-in-trade held by an entity are:
(a) Investments
(b) Not Investments
(c) May or may not be Investments
(d) Not an asset for entity (2 Marks)
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PART II – Descriptive Questions (70 Marks)

Question No.1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer
by the candidates. Working Notes should form part of the answer.
1. (a) A Ltd. purchased on 1 st April, 2023 8% convertible debenture in C Ltd.
of face value of ` 2,00,000 @ ` 108. On 1st July, 2023 A Ltd. purchased
another ` 1,00,000 debentures @ ` 112 cum interest. On 1 st October,
2023 ` 80,000 debentures were sold @ ` 105. On 1st December, 2023,
C Ltd. give option for conversion of 8% convertible debentures into
equity share of ` 10 each. A Ltd. received 5,000 equity shares in C Ltd.
in conversion of 25% debentures held on that date. The market price of
debenture and equity share in C Ltd. on 31 st December, 2023 is ` 110
and ` 15 respectively. Interest on debenture is payable each year on
31st March, and 30th September. Prepare investment account in the
books of A Ltd. on average cost basis for the accounting year ended
31st December, 2023. (10 Marks)
(b) A company incorporated in June 2023, has setup a factory within a
period of 8 months with borrowed funds. The construction period of the
assets had reduced drastically due to usage of technical innovations by
the company and the company is able to justify the reasons for the same.
Whether interest on borrowings for the period prior to the date of setting
up the factory should be capitalized although it has taken less than 12
months for the assets to get ready for use. You are required to comment
on the necessary treatment with reference to AS 16. (4 Marks)
2. You are required to prepare a Balance Sheet as at 31 st March 2024, as per
Schedule III of the Companies Act, 2013, from the following information of
Vishnu Ltd.:
Particulars Amount Particulars Amount
(`) (`)
Term Loans (Secured) 40,00,000 Investments (Non-
current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000
Cash and Bank Balances 38,40,000 Trade receivables 49,00,000
Miscellaneous
Staff Advances 2,20,000
Expenses 2,32,000
Other advances (given by Loan from other
14,88,000
Co.) parties 8,00,000
Provision for
Provision for Taxation 10,20,000
Doubtful Debts 80,000
Securities Premium 19,00,000 Stores 16,00,000
Loose Tools 2,00,000 Finished Goods 30,00,000
General Reserve 62,00,000 Plant and 2,14,00,000
Machinery (WDV)
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Additional Information: -
1. Share Capital consists of-
(a) 1,20,000 Equity Shares of ` 100 each fully paid up.
(b) 40,000, 10% Redeemable Preference Shares of ` 100 each fully
paid up.
2. Write off the amount of Miscellaneous Expenses in full, amounting
` 2,32,000.
3. Staff Advances and Other Advances are Considered to be short term.
(14 Marks)
3. (a) You are required to give the necessary journal entry at the inception of
lease to record the asset taken on finance lease in books of lessee from
the following information:
Lease period = 5 years;
Annual lease rents = ` 50,000
at the end of each year.
Guaranteed residual value = ` 25,000
Fair Value at the inception (beginning) of lease = ` 2,00,000
Interest rate implicit on lease is = 12.6% (Discounted rates for year 1 to
5 are .890, .790, .700, .622 and .552 respectively). (7 Marks)
(b) Smile Ltd. purchased machinery for ` 80 lakhs (useful life 4 years and
residual value ` 8 lakhs). Government grant received was ` 32 lakhs.
The grant had to be refunded at the beginning of third year. Show the
Journal Entry to be passed at the time of refund of grant and the value
of the fixed assets in the third year and the amount of depreciation for
remaining two years, if the grant had been credited to Deferred Grant
A/c. (7 Marks)
4. A Ltd. and B Ltd. give the following information as at 31.03.2024:
A Ltd. B Ltd.
(` in lakhs) (` in lakhs)
Equity Share Capital (Fully paid shares of 22,500 9,000
` 10 each)
Securities Premium 4,500 -
Foreign Project Reserve - 465
General Reserve 14,550 4,800
Profit and Loss Account 4,305 1,162.5
12% Debentures - 1,500
Trade payables 1,800 694.5
Provisions 2,745 1,053
Land and Buildings 9,000 -

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Plant and Machinery 21,000 7,500

Furniture, Fixtures and Fittings 3,456 2,550
Inventory 11,793 6,061.5
Trade receivables 3,180 1,650
Cash at Bank 1,671 913.5
All the bills receivable held by B Ltd. were A Ltd.'s acceptances.
On 1st April 2024, A Ltd. took over B Ltd. in an amalgamation in the nature of
merger. It was agreed that in discharge of consideration for the business, A
Ltd. would allot three fully paid equity shares of ` 10 each at par for every two
shares held in B Ltd. It was also agreed that 12% debentures in B Ltd. would
be converted into 13% debentures in A Ltd. of the same amount and
denomination.
Details of trade receivables and trade payables are as under:
Particulars A Ltd. B Ltd.
(` in lakhs)
Trade Payables:
Creditors 1,620 694.5
Bills Payable 180 -
1,800 694.5
Trade receivables:
Debtors 3,180 1,530
Bills Receivables - 120
3,180 1,650
Expenses of amalgamation amounting to ` 1.5 lakhs were borne by
A Ltd.
You are required to:
Prepare A Ltd.'s Balance Sheet immediately after the merger. (14 Marks)
5. Star Ltd. and its subsidiary Moon Ltd. Give the following information as on
31st March, 2024:
Star Ltd. Moon
(`) Ltd. (`)
Share Capital
Equity Share Capital (fully paid up shares of ` 10 12,00,000
2,00,000
each)
Reserves and Surplus
General Reserve 4,35,000 1,55,000
Cr. Balance in Profit and Loss Account 2,80,000 65,000

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Current Liabilities
Trade Payables 3,22,000 1,23,000
Non-Current Assets
Property, Plant and Equipment
Machinery 6,40,000 1,80,000
Furniture 3,75,000 34,000
Non-Current Investments
Shares in Moon Ltd. - 16,000 shares @ ` 20 each 3,20,000 -
Current Assets
Inventories 2,68,000 62,000
Trade Receivables 4,70,000 2,35,000
Cash and Bank 1,64,000 32,000
Star Ltd. acquired the 80% shares of Moon Ltd. on 1st April, 2023. On the date
of acquisition, General Reserve and Profit Loss Account of Moon Ltd. stood
at ` 50,000 and ` 30,000 respectively.
Machinery (book value ` 2,00,000) and Furniture (book value ` 40,000) of
Moon Ltd. were revalued at ` 3,00,000 and ` 30,000 respectively on
1st April,2023 for the purpose of fixing the price of its shares (rates of
depreciation on W.D.V basis: Machinery 10% and Furniture 15%). Trade
Payables of Star Ltd. include ` 35,000 due to Moon Ltd. for goods supplied
since the acquisition of the shares. These goods are charged at 10% above
cost. The inventories of Star Ltd. includes goods costing ` 55,000 (cost to Star
Ltd.) purchased from Moon Ltd.
You are required to prepare the Consolidated Balance Sheet of Star Ltd. with
its subsidiary as at 31 st March, 2024. (14 Marks)
6. (a) "Accounting Standards standardize diverse accounting policies with a
view to eliminate the non-comparability of financial statements and
improve the reliability of financial statements." Discuss and explain the
benefits of Accounting Standards (4 Marks)
Or
XYZ Ltd. proposes to declare 10% dividend out of General Reserves due
to inadequacy of profits in the year ending 31-03-2024.
From the following particulars ascertain the amount that can be utilized
from general reserves, according to the Companies Rules, 2014: (`)
8,00,000 Equity Shares of ` 10 each fully paid up 80,00,000
General Reserves 25,00,000
Revaluation Reserves 6,50,000
Net profit for the year 1,42,500

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Average rate of dividend during the last five years has been 12%.
(4 Marks)
(b) Following is the cash flow abstract of Alpha Ltd. for the year ended
31st March, 2024:
Cash Flow (Abstract)
Inflows ` Outflows `
Opening cash and 80,000 Payment for Account 90,000
bank balance Payables
Share capital – 5,00,000 Salaries and wages 25,000
shares issued
Collection from Payment of 15,000
Trade overheads
Receivables 3,50,000 Machinery acquired 4,00,000
Debentures 50,000
redeemed
Sale of Machinery 70,000 Bank loan repaid 2,50,000
Tax paid 1,55,000
Closing cash and
bank balance 15,000
10,00,000 10,00,000
Prepare Cash Flow Statement for the year ended 31 st March, 2024 in
accordance with AS 3. (5 Marks)
(c) M/s Shrikant operates a number of retail outlets to which goods are
invoiced at wholesale price which is cost plus 25%. These outlets sell
the goods at the retail price which is wholesale price plus 20%.
Following is the information regarding one of the outlets for the year
ended 31.3.2024:
Stock at the outlet 1.4.2023 ` 45,000
Goods invoiced to the outlet during the year ` 4,86,000
Gross profit made by the outlet ` 90,000
Goods lost by fire ?
Expenses of the outlet for the year ` 30,000
Stock at the outlet 31.3.2024 ` 54,000
You are required to prepare the following accounts in the books of
M/s Shrikant for the year ended 31.3.2024: [a] Outlet Stock Account [b]
Outlet Profit & Loss Account (5 Marks)

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Mock Test Paper - Series II: August, 2024

Date of Paper: 16th August, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP - I

PAPER – 1 : ADVANCED ACCOUNTING
ANSWERS

1. (a) (i)
(b) (iv)
(c) (iii)
(d) (iii)
2. (a) (ii)
(b) (i)
(c) (iii)
(d) (iv)
3. (a) (iv)
(b) (iii)
(c) (iii)
(d) (ii)
4. (c)
5. (a)
6. (b)
PART II – Descriptive Questions (70 Marks)
1. (a) Investment Account for the year ending on 31 st December, 2023
Scrip : 8% Convertible Debentures in C Ltd.
[Interest Payable on 31 st March and 30 th September]
Date Particulars Nominal Interest Cost ` Date Particulars Nominal Interest Cost
value ` ` Value (`) (`)
(`)
1.4.23 To Bank 2,00,000 - 2,16,000 30.09.23 By Bank - 12,000 -
A/c A/c
1.7.23 To Bank 1,00,000 2,000 1,10,000 [`3,00,000
A/c (W.N.1) x 8% x
(6/12]
31.12.23 To P & L - 14,033 - 1.10.23 By Bank 80,000 84,000
A/c A/c
[Interest] 1.10.23 By P & L 2,933
A/c (loss)
(W.N.3)

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1.12.23 By Bank 733

A/c
(Accrued
interest)
(` 55,000 x
.08 x 2/12)
1.12.23 By Equity 55,000 59,767
shares in C
Ltd. (W.N.
3 and 4)
31.12.23 By Balance
c/d (W.N.5) 1,65,000 3,300 1,79,300
3,00,000 16,033 3,26,000 3,00,000 16,033 3,26,000

SCRIP: Equity Shares in C LTD.

Date Particulars Cost (`) Date Particulars Cost
(`)
1.12.23 To 8 % debentures 59,767 31.12.23 By balance c/d 59,767
Working Notes:
(i) Cost of Debenture purchased on 1 st July = ` 1,12,000 – ` 2,000
(Interest) = `1,10,000
(ii) Cost of Debentures sold on 1 st Oct.
= (` 2,16,000 + ` 1,10,000) x 80,000/3,00,000 = ` 86,933
(iii) Loss on sale of Debentures = ` 86,933– `84,000 = ` 2,933
Nominal value of debentures converted into equity shares
=` 55,000
[(` 3,00,000 – 80,000) x.25]
Interest received before the conversion of debentures
Interest on 25% of total debentures = 55,000 x 8% x 2/12 = 733
(iv) Cost of Debentures converted = (` 2,16,000 + `1,10,000) x
55,000/3,00,000 = ` 59,767
(v)
Cost of closing balance of = (` 2,16,000 + `1,10,000) x
Debentures 1,65,000 / 3,00,000
= ` 1,79,300
(vii) Closing balance of Debentures has been valued at cost.
(viii) 5,000 equity Shares in C Ltd. will be valued at cost of ` 59,767
being lower than the market value ` 75,000 (` 15 x5,000)
Note: It is assumed that interest on debentures, which are converted into
cash, has been received at the time of conversion.
(b) As per AS 16 ‘Borrowing Costs’, a qualifying asset is an asset that
necessarily takes a substantial period of time to get ready for its intended
use or sale. Further, the standard states that what constitutes a
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substantial period of time primarily depends on the facts and

circumstances of each case. However, ordinarily, a period of twelve
months is considered as substantial period of time unless a shorter or
longer period can be justified on the basis of facts and circumstances of
the case. In estimating the period, time which an asset takes,
technologically and commercially, to get it ready for its intended use or
sale is considered.
It may be implied that there is a rebuttable presumption that a 12 months
period constitutes substantial period of time.
Under present circumstances where construction period has reduced
drastically due to technical innovation, the 12 months period should at
best be looked at as a benchmark and not as a conclusive yardstick. It
may so happen that an asset under normal circumstances may take
more than 12 months to complete. However, an enterprise that
completes the asset in 8 months should not be penalized for its efficiency
by denying it interest capitalization and vice versa.
The substantial period criteria ensures that enterprises do not spend a
lot of time and effort capturing immaterial interest cost for purposes of
capitalization.
Therefore, if the factory is constructed in 8 months then it shall be
considered as a qualifying asset. The interest on borrowings for the
same shall be capitalised although it has taken less than 12 months for
the asset to get ready to use.
2. Balance Sheet of Vishnu Ltd. as at 31 st March, 2024
Note `
I EQUITY AND LIABILITIES:
(1) (a) Share Capital 1 1,60,00,000
(b) Reserves and Surplus 2 110,68,000
(2) Non-current Liabilities
Long term Borrowings- 40,00,000
Terms Loans (Secured)
(3) Current Liabilities
(a) Trade Payables 45,80,000
(b) Other current liabilities 3 8,00,000
(c) Short-term Provisions (Provision for
taxation) 10,20,000
Total 3,74,68,000
II ASSETS
(1) Non-current Assets
(a) Property, Plant and Equipment 4 214,00,000
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(b) Non-current Investments 9,00,000

(2) Current Assets:
(a) Inventories 5 48,00,000
(b) Trade Receivables 6 48,20,000
(c) Cash and Cash Equivalents 38,40,000
(d) Short-term Loans and Advances 7 17,08,000
Total 3,74,68,000
Notes to accounts
(` )
1. Share Capital
Authorized, issued, subscribed & called
up
1,20,000, Equity Shares of ` 100 each 1,20,00,000
40,000 10% Redeemable Preference 40,00,000 1,60,00,000
Shares of 100 each
2. Reserves and Surplus
Securities Premium Account 19,00,000
General reserve 62,00,000
Profit & Loss Balance
Opening balance -
Profit for the period 32,00,000
Less: Miscellaneous Expenditure
written off (2,32,000) 29,68,000 110,68,000
3. Other current liabilities
Loan from other parties 8,00,000
4. Property, plant and equipment
Plant and Machinery (WDV) 214,00,000
5. Inventories
Finished Goods 30,00,000
Stores 16,00,000
Loose Tools 2,00,000 48,00,000
6. Trade Receivables
Trade receivables 49,00,000
Less: Provision for Doubtful Debts (80,000) 48,20,000
7. Short term loans & Advances
Staff Advances* 2,20,000
Other Advances* 14,88,000 17,08,000

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3. (a) Present value of minimum lease payment is computed below:

Year MLP DF (12.6%) PV
` `
1 50,000 0.890 44,500
2 50,000 0.790 39,500
3 50,000 0.700 35,000
4 50,000 0.622 31,100
5 50,000 0.552 27,600
5 25,000 0.552 13,800
1,91,500
Present value of minimum lease payment = ` 1,91,500
Fair value of leased asset = ` 2,00,000
As per AS 19, on the date of inception of Lease, Lessee should show it
as an asset and corresponding liability at lower of Fair value of leased
asset at the inception of the lease and present value of minimum lease
payments from the standpoint of the lessee. The accounting entry at the
inception of lease to record the asset taken on finance lease in books of
lessee is suggested below:
` `
Asset A/c Dr. 1,91,500
To Lessor (Lease Liability) A/c 1,91,500
(Being recognition of finance lease as asset and
liability)
(b) As per AS 12 ‘Accounting for Government Grants,’ income from Deferred
Grant Account is allocated to Profit and Loss account usually over the
periods and in the proportions in which depreciation on related assets is
charged. Accordingly, in the first two years (` 32 lakhs /4 years) = ` 8
lakhs x 2 years= ` 16 lakhs will be credited to Profit and Loss Account
and ` 16 lakhs will be the balance of Deferred Grant Account after two
years. Therefore, on refund of grant, following entry will be passed:
` `
Deferred Grant A/c Dr. 16 lakhs
Profit & Loss A/c Dr. 16 lakhs
To Bank A/c 32 lakhs
(Being Government grant refunded)
1. Value of Fixed Assets after two years but before refund of
grant
Fixed assets initially recorded in the books = ` 80 lakhs
Depreciation for each year
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= (` 80 lakhs – `8 lakhs)/4 years = ` 18 lakhs per year

Book value of fixed assets after two years
= ` 80 lakhs – (` 18 lakhs x 2 years) = ` 44 lakhs
2. Value of Fixed Assets after refund of grant
On refund of grant the balance of deferred grant account will
become nil. The fixed assets will continue to be shown in the books
at ` 44 lakhs.
3. Amount of depreciation for remaining two years
Depreciation will continue to be charged at ` 18 lakhs per annum
for the remaining two years.
4. Books of A Ltd.
Balance Sheet of A Ltd. as at 1st April, 2024 (after merger)
Particulars Notes ` (in lakhs)
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 36,000
B Reserves and Surplus 2 24,981
2 Non-current liabilities
A Long-term borrowings 3 1,500
3 Current liabilities
A Trade Payables (1,800+694.5-120) 2,374.5
B Short-term provisions (2,745+1,053) 3,798
Total 68,653.5
Assets
1 Non-current assets
A Property, Plant & Equipment 4 43,506
2 Current assets
A Inventories (11,793+6,061.5) 17,854.5
B Trade receivables (3,180+1,650-120) 4,710
Cash and cash equivalents
C (1,671+913.5-1.5) 2,583
Total 68,653.5

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Notes to Accounts
`
1. Share Capital
Equity share capital
Authorized, issued, subscribed and paid-up: 36 crores
equity shares of ` 10 each (out of these shares, 13.5 36,000
crores shares have been issued for consideration other
than cash)
2. Reserves and Surplus
General Reserve 14,550
Securities Premium 4,500
Foreign Project Reserve 465
Profit and Loss Account ` (4,305 +1,162.5-1.5) 5,466
Total 24,981
3. Long-term borrowings
Secured
13% Debentures 1,500
4. PPE
Land & Buildings 9,000
Plant & Machinery 28,500
Furniture & Fittings 6,006
Total 43,506
Working Note:
Computation of purchase consideration
Purchase consideration was discharged in the form of three equity
shares of A Ltd. for every two equity shares held in B Ltd.

Purchase consideration = ` 9,000 lacs × 3 = ` 13,500 lacs

2
5. Consolidated Balance Sheet of Star Ltd. and its Subsidiary Moon Ltd.
as at 31 st March, 2024
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 12,00,000
(1,20,000 equity shares of ` 10 each)
(b) Reserves and Surplus 1 8,16,200
(2) Minority Interest (W.N.4) 99,300

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(3) Current Liabilities

(a) Trade Payables 2 4,10,000
Total 25,25,500
II. Assets
(1) Non-current assets
(i) Property, plant and equipment 3 13,10,500
(ii) Intangible assets 4 24,000
(2) Current assets
(i) Inventories 5 3,25,000
(ii) Trade Receivables 6 6,70,000
(iii) Cash at Bank 7 1,96,000
Total 25,25,500
Notes to Accounts
`
1. Reserves and Surplus
General Reserves 4,35,000
Add: 80% share of Moon Ltd.’s
post-acquisition reserves (W.N.3) 84,000 5,19,000
Profit and Loss Account 2,80,000
Add: 80% share of Moon Ltd.’s 21,200
post-acquisition profits (W.N.3)
Less: Unrealised gain (4,000) 17,200 2,97,200
8,16,200
2. Trade Payables
Star Ltd. 3,22,000
Moon Ltd. 1,23,000
Less: Mutual transaction (35,000) 4,10,000
3. Property, plant and equipment
Machinery
Star Ltd. 6,40,000
Moon Ltd. 2,00,000
Add: Appreciation 1,00,000
3,00,000
Less: Depreciation (30,000) 2,70,000 9,10,000
Furniture
Star Ltd. 3,75,000

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Moon Ltd. 40,000

Less: Decrease in value (10,000)
30,000
Less: Depreciation (4,500) 25,500 4,00,500
13,10,500
4. Intangible assets
Goodwill [WN 5] 24,000
5. Inventories
Star Ltd. 2,68,000
Moon Ltd. 62,000 3,30,000
Less: Inventory reserve (5,000)
3,25,000
6. Trade Receivables
Star Ltd. 4,70,000
Moon Ltd. 2,35,000
7,05,000
Less: Mutual transaction (35,000)
6,70,000
7. Cash and Bank
Star Ltd. 1,64,000
Moon Ltd. 32,000 1,96,000
Working Notes:
1. Profit or loss on revaluation of assets in the books of Moon Ltd. and
their book values as on 1.4.2023
`
Machinery
Revaluation as on 1.4.2023 3,00,000
Less: Book value as on 1.4.2023 (2,00,000)
Profit on revaluation 1,00,000
Furniture
Revaluation as on 1.4.2023 30,000
Less: Book value as on 1.4.2023 (40,000)
Loss on revaluation (10,000)
2. Calculation of short/excess depreciation
Machinery Furniture
Upward/ (Downward) Revaluation 1,00,000 (10,000)
Rate of depreciation 10% p.a. 15% p.a.
Difference [(short)/excess] (10,000) 1,500

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3. Analysis of reserves and profits of Moon Ltd. as on 31.03.2024

Pre- Post-acquisition
acquisition profits
profit upto (1.4.2023–31.3.2024)
1.4.2023
(Capital General Profit and
profits) Reserve loss
account
General reserve as on 31.3.2024 50,000 1,05,000
Profit and loss account as on 30,000 35,000
31.3.2024
Upward Revaluation of machinery 1,00,000
as on 1.4.2023
Downward Revaluation of (10,000)
Furniture as on 1.4.2023
Short depreciation on machinery (10,000)
Excess depreciation on furniture 1,500
Total 1,70,000 1,05,000 26,500
4. Minority Interest
`
Paid-up value of (2,00,000 x 20%) 40,000
Add: 20% share of pre-acquisition profits and reserves
[(20% of (50,000 + 30,000)] 16,000
20% share of profit on revaluation 18,000
20% share of post-acquisition reserves 21,000
20% share of post-acquisition profit 5,300
1,00,300
Less: Unrealised Profit on Inventory
(55,000 x 10/110) x 20% (1,000)
99,300
5. Cost of Control or Goodwill
Cost of Investment 3,20,000
Less: Paid-up value of 80% shares 1,60,000
80% share of pre-acquisition profits and
reserves (` 64,000 + `72,000) 1,36,000 (2,96,000)
Cost of control or Goodwill 24,000
6. (a) Accounting Standards standardize diverse accounting policies with a
view to eliminate the non-comparability of financial statements and
improve the reliability of financial statements. Accounting Standards
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provide a set of standard accounting policies, valuation norms and

disclosure requirements. Accounting standards aim at improving the
quality of financial reporting by promoting comparability, consistency and
transparency, in the interests of users of financial statements.
The following are the benefits of Accounting Standards:
(i) Standardization of alternative accounting treatments:
Accounting Standards reduce to a reasonable extent confusing
variations in the accounting treatment followed for the purpose of
preparation of financial statements.
(ii) Requirements for additional disclosures: There are certain
areas where important is not statutorily required to be disclosed.
Standards may call for disclosure beyond that required by law.
(iii) Comparability of financial statements: The application of
accounting standards would facilitate comparison of financial
statements of different companies situated in India and facilitate
comparison, to a limited extent, of financial statements of
companies situated in different parts of the world. However, it
should be noted in this respect that differences in the institutions,
traditions and legal systems from one country to another give rise
to differences in Accounting Standards adopted in different
countries.
Or
Amount that can be drawn from reserves
for (10% dividend on ` 80,00,000 i.e. ` 8,00,000)
Profits available
Current year profit ` 1,42,500
Amount which can be utilized from
reserves (` 8,00,000 – 1,42,500) ` 6,57,500
Conditions as per Companies (Declaration of dividend out of
Reserves) Rules, 2014:
Condition I
Since 10% is lower than the average rate of dividend (12%), 10%
dividend can be declared.
Condition II
Maximum amount that can be drawn from the accumulated profits and
reserves should not exceed 10% of paid up capital plus free reserves ie.
` 10,50,000 [10% of (80,00,000 + 25,00,000)]
Condition III
The balance of reserves after drawl ` 18,42,500 (` 25,00,000 -
` 6,57,500) should not fall below 15% of its paid up capital ie.
` 12,00,000 (15% of ` 80,00,000]

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Since all the three conditions are satisfied, the company can withdraw
` 6,57,500 from accumulated reserve (as per Declaration and Payment
of Dividend Rules, 2014).
(b) Cash Flow Statement for the year ended 31.3.2024
` `
Cash flow from operating activities
Cash received on account of trade 3,50,000
receivables
Cash paid on account of trade payables (90,000)
Cash paid to employees (salaries and wages) (25,000)
Other cash payments (overheads) (15,000)
Cash generated from operations 2,20,000
Income tax paid (1,55,000)
Net cash generated from operating activities 65,000
Cash flow from investing activities
Payment for purchase of machinery (4,00,000)
Proceeds from sale of machinery 70,000
Net cash used in investment activities (3,30,000)
Cash flow from financing activities
Proceeds from issue of share capital 5,00,000
Bank loan repaid (2,50,000)
Debentures redeemed (50,000)
Net cash used in financing activities 2,00,000
Net decrease in cash and cash equivalents (65,000)
Cash and cash equivalents at the beginning 80,000
of the year
Cash and cash equivalents at the end of the 15,000
year
(c) Outlet Stock A/c
Particulars ` Particulars `
To balance b/d 45,000 By Sales (90,000/20 × 5,40,000
120)
To Goods sent at outlet 4,86,000 By goods lost 27,000
(balancing figure)
To Gross Profit 90,000 By balance c/d 54,000
6,21,000 6,21,000

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Outlet Profit and Loss A/c

Particulars ` Particulars `
To Expenses 30,000 By Gross Profit 90,000
To Goods lost 27,000
To Net Profit 33,000
(balancing figure)
90,000 90,000

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