CODE : ADV P2536 MARKS : 100

CA INTERMEDIATE
ADVANCE ACCOUNTING
TOPIC : FULL TIME ALLOWED : 3 HOURS
DIVISION A (MCQ)
CASE SCENARIO - I
RTS Ltd, (“RTS” or the “Company”), is engaged in the business of manufacturing of urea, has set up its business
in a designated backward area which entitles the company to receive from the Government of India a subsidy
of 20% of the cost of investment of manufacturing of equipments/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 after the reporting period provide 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, LPP Media & Creations Ltd (LPP), an advertising agency which prepares and publishes
advertisement in newspapers on behalf of its clients. LPP invoices its clients for the commission they are
entitled to as well as the media space payable to the newspaper.
Based on the above information, answer the following questions.
1. When should RTS Ltd recognize revenue as per the Accounting Standards notified under the Companies
(Accounting Standards) Rules. Would your answer be different if inspection is normally known to lead to no
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 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.
(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.
2. In respect of LPP, how should the revenue be recognized as per Accounting Standards?
(a) LPP should record net amount of commission earned by it.
(b) LPP should record net amount of commission earned by it and disclose the information about gross income
from advertisement through media and preparation of advertisement material as well as payments to
media and expenditure incurred for creation of an advertisement in the notes to accounts.
(c) LPP should record gross income from advertisement through media and preparation of advertisement
material and gross amount of payments to media and expenditure incurred for creation of an advertisement.
(d) LPP may record this on net or gross basis depending on its accounting policy.
3. Please guide the management of RTS Ltd as to which one of the events mentioned above (i to v) after the
reporting period provide evidence of conditions that existed at the end of the reporting period?
(a) ii and v. (b) ii. (c) v. (d) i, iii and iv.
4. 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.
(4*2=8 MARKS)
CASE SCENARIO - II
On 1st April, 2022, Shubham Limited purchased some land for `30 lakhs for the purpose of constructing a new
factory. This cost of 30 lakhs included legal cost of `2 lakhs incurred for the purpose of acquisition of this land.
Construction work could start on 1st May, 2022 and Shubham Limited provides you the details of the following
costs incurred in relation to its construction:

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 The construction of the factory was completed on 31st December, 2022 and production could begin on 1st
February, 2023. The overall useful life of the factory building was estimated at 40 years from the date of
completion. However, it was estimated that the roof will need to be replaced 20 years after the date of completion
and that the cost of replacing the roof at current prices would be 25% of the total cost of the building.
The construction of the factory was partly financed by a loan of `28 lakhs borrowed on 1st April, 2022. The loan
was taken at an annual rate of interest of 9%. During the period when the loan proceeds had been fully utilized
to finance the construction, Shubham Limited received investment income of `25,000 on the temporary investment
of the proceeds.
You are required to assume that all of the net finance costs to be allocated to the cost of factory (not land) and
interest cost to be capitalized based on nine months’ period.
Based on the information given in the above scenario, answer the following multiple choice questions:
5. Which of the following cost (incurred directly on construction) will be capitalized to the cost of factory building?
(a) `2,00,000 incurred as legal cost (b) `60,000 – costs of relocating employees
(c) `80,000 costs of inauguration ceremony (d) `24,000 – allocated general overhead cost
6. What amount of employment cost of construction workers will be capitalized to the cost of factory building?
(a) `2,90,000 (b) `3,48,000 (c) `2,32,000 (d) `29,000
7. What is the amount of net borrowing cost capitalized to the cost of the factory?
(a) `1,89,000 (b) `1,68,000 (c) `1,44,000 (d) `1,64,000
8. What will be the carrying amount (i.e. value after charging depreciation) of the factory in the Balance Sheet of
Shubham Limited as at 31st March, 2023?
(a) `30,00,000 (b) `57,78,125 (c) `27,78,125 (d) `58,00,000
(4*2=8 MARKS)
CASE SCENARIO - III
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.
9. On which date the Intangible asset should be recognised:
(a) April 2022 (When it was decided that SAP ERP is to be implemented)
(b) June 2022 (When the implementation work started)
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 (c) September 2023 (When the implementation work should have completed as per agreed terms)
(d) May 2024 (When the SAP actually got implemented)
10. At what amount the SAP ERP should be initially recognised as ‘intangible asset:
(a) `25,00,000 (b) `26,00,000 (c) `23,00,000 (d) `32,00,000
11. How should the annual maintenance and updation expenses should be accounted for:
(a) Should be capitalised with ‘Intangible Asset’
(b) Should be recognised as a separate ‘Intangible Asset’
(c) Should be recognised as expense in Profit and Loss annually.
(d) No accounting is required
12. During the implementation period, how the expenditure incurred will be accounted for:
(a) It will be expensed in profit and loss as and when incurred
(b) It will be recognised as an asset ‘Intangible asset under development’
(c) It will only be disclosed in notes to accounts and will be recognised when complete
(d) It will be recognised as an item of Property, Plant and Equipment
(4*2=8 MARKS)
CASE SCENARIO - IV
Energy Ltd. acquired a generator on 1st April, 20X1, for `100 lakh. The company applied for a subsidy from the
Indian Renewable Energy Development Authority (IREDA) on 2nd April, 20X1. The subsidy was granted in June,
20X2, after the accounts for the financial year 20X1-20X2 were finalized. The company did not account for the
subsidy in the financial statements for the year ended 31st March, 20X2.
Additionally, consider the following scenarios:
1. The sanction letter for the subsidy was received in June, 20X2, before the Board of Directors approved the
accounts for the year 20X1-20X2.
2. Energy Ltd. had previously made similar applications for subsidies and received them every time without
exception.
13. In the original scenario, how should the subsidy granted in June, 20X2, be treated in the financial statements?
(a) Recognize it as income for the financial year 20X1-20X2.
(b) Treat it as a prior period item in the financial year 20X2-20X3.
(c) Deduct it from the cost of the generator in the financial year 20X2-20X3.
(d) Ignore it as it relates to a past financial year.
14. If the subsidy sanction letter was received before the accounts for 20X1-20X2 were approved by the Board of
Directors, how should the subsidy be treated?
(a) Recognize it in the financial statements for 20X1-20X2 by deducting it from the cost of the generator.
(b) Disclose it as a contingent asset in the notes for 20X1-20X2.
(c) Recognize it as deferred income in the financial year 20X2-20X3.
(d) Ignore it as the event occurred after 31st March, 20X2.
15. If Energy Ltd. had a history of receiving subsidies on all similar applications in the past, how should the subsidy
for 20X1-20X2 be treated?
(a) Recognize it in the financial statements for 20X1-20X2 by deducting it from the cost of the generator.
(b) Recognize it as deferred income for the financial year 20X2-20X3.
(c) Treat it as a prior period item in the financial year 20X2-20X3.
(d) Disclose it as a contingent asset in the notes for 20X1-20X2.
(3*2=6 MARKS)
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 (30 MARKS)
DIVISION B (DESCRIPTIVE)
[Q-1 IS COMPULSORY. ANSWER ANY FOUR FROM THE REST.]
Q-1.(a) The following information is provided for the year ended 31st March, 2024:
(i) AX Limited holds 70% shares of BX Limited
(ii) BX Limited holds 30% shares of CX Limited
(iii) DX Limited holds 40% shares of in CX Limited
(iv) DX Limited holds 49% shares in EX Limited
You are required to:
(i) Identity the related parties for the reporting entities – AX Limited, CX Limited and EX Limited.
(ii) If DX Limited would have sold its investment in EX Limited on 1st October, 2023, but goods were continued
to be supplied by DX Limited to EX Limited throughout the year, will this scenario change your answer with
respect to any of the reporting entity mentioned in point (i)?
Give reasons for your answer as per AS 18.
(5 MARKS)
Q-1.(b) Delta Ltd. is working on different projects those are likely to be completedwithin 3 years period. It recognizes
revenue from these contracts onPercentage of Completion Method for Financial Statements for the yearsending
2021, 2022 and 2023 for `34 Lakhs, `50 Lakhs and `65 Lakhsrespectively.
However, for Income Tax purpose, it has adopted the Completed ContractMethod 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 Expensesfor the years ending 31st March
2021, 2022 and 2023.
(5 MARKS)
Q-1.(c) Given the following information of Rainbow Ltd.
(i) On 15th November, goods worth `5,00,000 were sold on approvalbasis. The period of approval was 4
months after which they wereconsidered sold. Buyer sent approval for 75% goods sold upto31st January
and no approval or disapproval received for theremaining goods till 31st March.
(ii) On 31st March, goods worth `2,40,000 were sold to Bright Ltd. butdue to refurnishing of their show-room
being underway, on theirrequest, goods were delivered on 10th April.
(iii) Rainbow Ltd. supplied goods worth `6,00,000 to Shyam Ltd. andconcurrently agrees to re-purchase the
same goods on 14th April.
(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)
Q-2. You are required to prepare a Balance Sheet as at 31st March 2024, as per Schedule III of the Companies Act,
2013, from the following information of Mehar Ltd.:

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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.
(14 MARKS)
Q-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, 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)
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Q-3.(b)Aerodots Ltd. has the following capital structure as on 31.03.2024 :

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 MARKS)
Q-4. Following are the summarized Balance Sheet of Light Limited and Bright Limited as at 31st March,2024:

Notes to Accounts:

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 Other Information:
(a) A company Rainbow Limited is formed to acquire the Assets and Liability of both the companies. Assets
were acquired at book values except Land and Building of Light Limited, which is revalued at `62 lakhs.
(b) Other Assets of Bright Limited are obsolete and are scrapped and sold for `50,000 by Bright Limited itself
before acquisition of its assets and liabilities by Rainbow Limited.
(c) Light Limited and Bright Limited will be issued 80,000 and 64,000 equity shares of `100 each respectively
of new company Rainbow Limited in lieu of purchase consideration due to them.
You are required to Prepare:
(a) Realisation Account and Equity Shareholders Account in the books of Light Limited and Bright Limited;
(b) Opening Balance Sheet of Rainbow Limited as at 31st March,2024.
(14 MARKS)
Q-5. Consider the following summarized Balance Sheets of subsidiary MNT Ltd.

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 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)
Q-6.(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 1st April, 2023 were as follows:

The construction of building started on 1stApril, 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:

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 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 31st March, 2024.
(iv) Carrying value of building as on 31st March, 2024.
(7 MARKS)
Q-6.(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

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 MARKS)

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