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 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

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

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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) ` 4,700,000.
(b) ` 5,000,000.
(c) ` 4,950,000.
(d) ` 4,947,368.
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

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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. enter 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 own
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 1st 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 31st 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 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
1 July, 2022
st
15,00,000
1 October, 2022
st
27,00,000
1st March, 2023 7,20,000

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The building was completed by 31 st March 2023.

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 running business of Sunil Ltd. for ` 10,80,000
on 15th 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.

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Goodwill on acquisition of business to be amortized over 5 years (SLM)

as per AS 14.
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.

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(iii) Labour Expenses for workers engaged at site - ` 16 Lakhs (out of

which ` 1 Lakh is still unpaid)
(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 condition of sale is that interest is payable @ 2% p.m.
for delayed payments by dealers. Percentage of interest recovery is
only 10% i.e. ` 50,000 on such overdue outstanding due to various
reasons. During the year 2022-23, 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. The Trial Balances of Preet Limited and Shiva Limited as on 31 st March,
2023 were as under:

Preet Limited Shiva Limited

(` In 000) (` In 000)
Dr. Cr. Dr. Cr.
Equity Share capital (Share of 2,000 400
` 100 each)
7% Preference share capital - 400
Reserves 600 200
6% Debentures 400 400
Trade Payables/ Trade 160 180 100 120
Receivables
Profit & Loss A/c balance 40 30
Purchases /Sales 1,000 1,800 1,200 1.900
Wages and Salaries 200 300
Debenture Interest 24 24
General Expenses 160 120
Preference share dividend up to 7 14
30.09.2022
Inventory (as on 31.03.2023) 200 100
Cash at Bank 27 12
Investment in Shiva Limited 1,056 -
Fixed Assets 2,200 1,580
Total 5,027 5,027 3,450 3,450

Investment in Shiva Limited was acquired on 1 st July, 2022 and consisted

of 80% of Equity Share Capital and 50% of Preference Share Capital.
− After acquiring control over Shiva Limited, Preet Limited supplied
to Shiva Limited goods at cost plus 25%, the total invoice value of

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such goods being ` 1,20,000, one fourth of such goods were still
lying-in inventory at the end of the year.
− Depreciation to be charged @ 10% in Preet Limited and @ 15% in
Shiva Limited on Fixed Assets.
You are required to prepare the Consolidated Statement of Profit and
Loss for the year ended on 31st March, 2023.
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
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

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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 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
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 10,00,000
up
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

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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;
(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.

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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’.
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

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rupees ten crore at any time during the immediately preceding

accounting year.
(c) Level IV Entity– Newman Industries is having borrowings (including
public deposits) less than rupees fifty lakhs at any time during the
immediately preceding accounting year.
(d) Level I Entity – SS is a financial institutions 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 since 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
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)

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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.
(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 30 th 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 circum-
stances, include:
(1) Gradual or evolutionary phasing out of a product line or class of
service;

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(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. commercial vehicle production line in a
new factory has not started.
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

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ADVANCED ACCOUNTING

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
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)

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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
` 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 (84,00,000 × 100)
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:

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

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Annuity Factor (Year 1 to Year 3) 2.28

Present Value of minimum lease payments (` 3 lakhs each ` 6.84 lakhs
year)
Thus present value of minimum lease payments is ` 6.84 lakhs and the
fair value of the machine is ` 30 lakhs. In a finance lease, lease term
should be for the 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, lease agreement is an operating lease. Lease payments under
an operating lease should be recognized as an expense in the statement
of 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

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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 (1,12,800)
per SLM)
Balance to be shown in the balance sheet 4,51,200
(2) Franchise 1,80,000
Less: Amortisation (over 6 years) (30,000)
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, 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 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

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the amounts stated in the financial statements for the year ended
31st March, 2023. There was just a proposal before 31st 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.
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

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(ii) no significant uncertainty exists regarding the amount of the

consideration that will be derived from the sale of the goods.
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 31 st 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 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 ` 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
31st March, 2023.

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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 31st March, 2023 in the
books of BS Products Ltd.
17. Consolidated Profit and Loss Account of Preet Ltd. and Shiva Ltd.
for the year ended 31st March, 2023

Particulars Note `
No.
I. Revenue from operations 1 35,80,000
II. Total revenue 35,80,000
III. Expenses
Cost of Material purchased/Consumed 2 20,80,000
Changes of Inventories of finished -
goods
Employee benefit expense 3 5,00,000
Finance cost 4 48,000
Depreciation and amortization expense 5 4,57,000
Other expenses 6 2,80,000
Total expenses 33,65,000
IV. Profit before Tax (II-III) 2,15,000
Profit transferred to Consolidated Balance
Sheet
Profit After Tax 2,15,000
Preference dividend 7,000
Preference dividend payable 7,000 (14,000)
2,01,000
Share in pre-acquisition loss (WN 3) 1,800
Share of Minority interest in losses (WN 1) 1,800

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Less: Investment Account-dividend for 3 (3,500)

months (prior to acquisition)
Inventory reserve (WN 2) (6,000)
Profit to be transferred to consolidated 1,95,100
balance sheet

Notes to Accounts
` `
1 Revenue from Operations
Preet Ltd. 18,00,000
Shiva Ltd. 19,00,000
Total 37,00,000
Less: Intra-group sales (Preet sold to (1,20,000) 35,80,000
Shiva)
2 Cost of Materials Purchased/Consumed
Preet Ltd. 10,00,000
Shiva Ltd. 12,00,000
Total 22,00,000
Less: Intra-group sales (Preet sold to (1,20,000) 20,80,000
Shiva)
3 Employee benefit and expenses
Wages and salaries
Preet Ltd. 2,00,000
Shiva Ltd. 3,00,000 5,00,000
4 Finance cost
Interest
Preet Ltd. 24,000
Shiva Ltd. 24,000 48,000
5 Depreciation
Preet Ltd. 2,20,000

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Shiva Ltd. 2,37,000 4,57,000

6 Other expenses
Preet Ltd. 1,60,000
Shiva Ltd. 1,20,000 2,80,000

Working Note
Profit of Subsidiary

Revenue from Operations 19,00,000

Less: Expenses
Cost of Material purchased/Consumed 12,00,000
Changes of Inventories of finished -
goods
Employee benefit expense 3,00,000
Finance cost 24,000
Depreciation and amortization expense 2,37,000
Other expenses 1,20,000
Total expenses (18,81,000)
Profit Before Tax 19,000
Less: Preference Dividend 14,000
Less: Preference Dividend Payable 14,000 (28,000)
Profit available for shareholders (9,000)
Minority Share (20% of loss ` 9,000) (1,800)
120,000 25
1. Inventory reserve =[ × ] = ` 6,000
4 125
3 Pre-acquisition loss = 80% of 3 month’s profit up to
30th June,2022 i.e. 80 % of ¼ of loss ` 9,000
Hence, pre-acquisition loss = ` 1,800
4 Investment account includes Preference dividend for 3 months
prior to acquisition i.e. ` 4,00,000 X 50% X7% X1/4 = ` 3,500

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18. (a) 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
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:

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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 82,500
Expenses
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

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

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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
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

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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
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)

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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
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)× 8] ×10

= ` 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

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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...)
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)

33 MAY 2024 EXAMINATION

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