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Test Series: March, 2018

MOCK TEST PAPER
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5 : ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
(Time allowed: Three hours) (Maximum Marks: 100)

1. (a) X Ltd. negotiates with Bharat Petroleum Corporation Ltd (BPCL), for construction of “Franchise
Retail Petrol Outlet Stations”. Based on proposals submitted to different “Zonal offices of BPCL,
the final approval for one outlet each in Zone A, Zone B, Zone C, Zone D, is awarded to X Ltd.
Agreement (in single document) is entered into with BPCL for ` 490 lakhs. The agreement lays
down values for each of the four outlets (` 88 + 132 + 160 + 110 lakhs) in addition to individual
completion time. Examine and Decide whether X Ltd., will treat it as a single contract or four
separate contracts.
(b) From the following information, you are required to compute the basic and adjusted Earnings per
share:
Net profit for 2015-16 11 lakh
Net profit for 2016-17 15 lakh
No. of shares issued before rights issue 5 lakhs
Right issue One for every 5 held
Right issue price 15 per share
Last date of exercising right option 1-06-2016
Fair value of shares before right issue 21 per share
(c) A Ltd. sold machinery having WDV of ` 40 lakhs to B Ltd. for ` 50 lakhs and the same machinery
was leased back by B Ltd. to A Ltd. The lease back is operating lease. Explain the accounting
treatment as per AS 19 in the following cases:
(i) Sale price of ` 50 lakhs is equal to fair value.
(ii) Fair value is ` 45 lakhs and sale price is ` 38 lakhs.
(iii) Fair value is ` 40 lakhs and sale price is ` 50 lakhs.
(iv) Fair value is ` 46 lakhs and sale price is ` 50 lakhs
(v) Fair value is ` 35 lakhs and sale price is ` 39 lakhs.
(d) Sun Ltd. has entered into a sale contract of ` 5 crores with X Ltd. during 2015-2016 financial
year. The profit on this transaction is ` 1 crore. The delivery of goods to take place during the
first month of 2016-2017 financial year. In case of failure of Sun Ltd. to deliver within the
schedule, a compensation of ` 1.5 crores is to be paid to X Ltd. Sun Ltd. planned to
manufacture the goods during the last month of 2015-2016 financial year. As on balance sheet
date (31.3.2016), the goods were not manufactured and it was unlikely that Sun Ltd. will be in a
position to meet the contractual obligation.
(i) Should Sun Ltd. provide for contingency as per AS 29? Explain.
(ii) Should provision be measured as the excess of compensation to be paid over the profit?
(4 parts x 5 Marks = 20 Marks)
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2. (a) Paper Limited comes out with a public issue of share capital on 01 -01-2016 of 30,00,000 equity
shares of ` 10 each at a premium of 5%. ` 2.50 is payable on application (on or before 31-01-
2016) and ` 3 on allotment (31-3-2016) including premium.
This issue was underwritten by two underwriters namely White and Black, equally, the
commission being 4% of the issue price. Each of the underwriters underwrites 60,000 shares
firm. Subscriptions including firm underwriting came for 28,80,000 shares, the distribution of
forms being White: 15,60,000; Black; 10,80,000 and Unmarked 2,40,000.
One of the allottees (using forms marked with name of White) for 6000 shares fails to pay the
amount due to allotment, all the other money due being received in full including any due from
the shares devolving upon the underwriters. The commission due was paid separately.
6,000 shares of one allottee who failed to pay the allotment money were finally forfeited by
30-06-2016 and were re-allotted for payment in cash of ` 4 per share. You are required to
prepare each underwriter’s liability (in shares) in statement form and to pass necessary journal
entries to record the above events and transactions (including cash).
(b) SMM Ltd. has the following capital structure as on 31 st March, 2017: ` in crore
Particulars Situation Situation
(i) Equity share capital (shares of ` 10 each) 1,200 1,200
(ii) Reserves:
General Reserves 1,080 1,080
Securities Premium 400 400
Profit & Loss 200 200
Infrastructure Development Reserve (Statutory Reserve) 320 320
(iii) Loan Funds 3,200 6,000
The company has offered buy back price of ` 30 per equity share. You are required to calculate
maximum permissible number of equity shares that can be bought back in both situations and
also required to pass necessary Journal Entries. (8 +12 = 20 Marks)
3. (a) The Balance Sheet of Lion Limited as on 31-03-2016 is given below:
Particulars Note No. Amount (` in lakh)
Equity & Liabilities
Shareholders' Funds
Shares’ Capital 1 1,400
Reserves & Surplus 2 (522)
Non-Current Liabilities
Long term Borrowings 3 700
Current Liabilities
Trade Payables 4 102
Other Liabilities 5 24
Total 1704
Assets
Non-Current Assets
Fixed Assets
Tangible Assets 6 750

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Current Assets
Current Investments 7 200
Inventories 8 300
Trade Receivables 9 450
Cash & Cash Equivalents 10 4
Total 1704
Notes to Accounts:
` in Lakhs
(1) Share Capital
Authorised :
200 lakh shares of ` 10 each 2,000
8 lakh, 8% Preference Shares of ` 100 each 800
2,800
Issued, Subscribed and paid up:
100 lakh Equity Shares of ` 10 each, full paid up 1,000
4 lakh 8% Preference Shares of ` 100 each, fully paid up 400
Total 1400
(2) Reserves and Surplus
Debit balance of Profit & Loss A/c (522)
(3) Long Term Borrowings
6% Debentures (Secured by Freehold Property) 400
Directors’ Loan 300
700
(4) Trade Payables
Trade payables for Goods 102
(5) Other Current Liabilities
Interest Accrued and Due on 6% Debentures 24
(6) Tangible Assets
Freehold Property 550
Plant & Machinery 200
750
(7) Current Investment
Investment in Equity Instruments 200
(8) Inventories
Finished Goods 300
(9) Trade Receivables
Trade receivables for Goods 450
(10) Cash and Cash Equivalents
Balance with Bank 4

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The Board of Directors of the company decided upon the following scheme of reconstruction with
the consent of respective shareholders:
(1) Preference Shares are to be written down to ` 80 each and Equity Shares to ` 2 each.
(2) Preference Shares Dividend in arrears for 3 years to be waived by 2/3 rd and for balance
1/3rd, Equity Shares of ` 2 each to be allotted.
(3) Debenture holders agreed to take one Freehold Property at its book value of ` 300 lakh in
part payment of their holding. Balance Debentures to remain as liability of the company.
(4) Interest accrued and due on Debentures to be paid in cash.
(5) Remaining Freehold Property to be valued at ` 400 lakh.
(6) All investments sold out for ` 250 lakh.
(7) 70% of Directors' loan to be waived and for the balance, Equity Shares of ` 2 each to be
allowed.
(8) 40% of Trade receivables and 80% of Inventories to be written off.
(9) Company's contractual commitments amounting to ` 600 lakh have been settled by paying
5% penalty of contract value.
You are required to:
(a) Pass Journal Entries for all the transactions related to internal reconstruction;
(b) Prepare Capital Reduction Account; and
(c) Prepare notes on Share Capital and Tangible Assets to Balance Sheet, immediately after
the implementation of scheme of internal reconstruction.
(b) A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The
assets were realized for ` 25,00,000 against which payment was made as follows:
Liquidation expenses ` 25,000
Secured Creditors ` 10,00,000
Preferential Creditors ` 75,000
The amount due to Unsecured Creditors was ` 15,00,000. You are asked to calculate the total
Remuneration payable to Liquidator. Calculation shall be made to the nearest multiple of a
rupee. (15 + 5 = 20 Marks)
4. (a) From the following information as on 31 st March, 2016 of Xeta Insurance Co. Ltd. engaged in fire
insurance business, prepare the Revenue Account, reserving 50% of the net premiums for
unexpired risks and an additional reserve of ` 7,00,000:
Particulars Amount (`)
Reserve for unexpired risk on 31st March, 2015 15,00,000
Additional reserve on 31st March, 2015 3,00,000
Claims paid 19,20,000
Estimated liability in respect of outstanding claims on 31st March, 2015 1,95,000
Estimated liability in respect of outstanding claims on 31st March, 2016 2,70,000
Expenses of management (including ` 90,000 incurred in connection with claims) 8,40,000
Re-insurance premium paid 2,25,000
Re-insurance recoveries 60,000
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Premiums 33,60,000
Interest and dividend (gross before TDS) 1,50,000
Profit on sale of investments 30,000
Commission 50,000

(b) As on 31st March 2016, Strong Bank Ltd. has a balance of ` 27 crores in “rebate on bills
discounted” account. The bank provides you the following further information:
(1) During the financial year ending 31 st March 2017, Strong Bank Ltd. discounted bills of
exchange of ` 4,000 crores charging interest @ 15% p.a. and the average period of
discount being 146 days.
(2) Bills of exchange of ` 600 crores were due for realization from the acceptors/customers after
31st March 2017, the average period outstanding after 31st March 2017, being 73 days.
You are required to pass necessary journal entries in the books of Strong Ba nk Ltd. for the above
transactions.
(c) A Mutual Fund raised 100 lakh on April 1, 2017 by issue of 10 lakh units of ` 10 per unit. The
fund invested in several capital market instruments to build a portfolio of ` 90 lakhs. The initial
expenses amounted to ` 5 lakh. During April, 2017, the fund sold certain securities of cost ` 38
lakhs for ` 40 lakhs and purchased certain other securities for ` 28.20 lakhs. The fund
management expenses for the month amounted to ` 4.50 lakhs of which ` 0.35 lakh was in
arrears. The dividend earned was ` 1.20 lakhs. 75% of the realized earnings were distributed.
The market value of the portfolio on 30.04.2017 was ` 112 lakh.
Determine NAV per unit. (10 Marks +6 Marks +4 Marks = 20 Marks)
5. (a) Given below are the Profit & Loss Accounts of H Ltd. and its subsidiary Ltd. for the year ended
31st March, 2017:
H Ltd. S Ltd.
(` in lacs) (` in lacs)
Incomes:
Sales and other income 5,000 1,000
Increase in Inventory 1,000 200
6,000 1,200
Expenses:
Raw material consumed 800 200
Wages and Salaries 800 150
Production expenses 200 100
Administrative Expenses 200 100
Selling and Distribution Expenses 200 50
Interest 100 50
Depreciation 100 50
2,400 700
Profit before tax 3,600 500
Provision for tax 1,200 200
Profit after tax 2,400 300
Dividend paid 1,200 150
Balance of Profit 1,200 150

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Other Information:
H Ltd. sold goods to S Ltd. of ` 120 lacs at cost plus 20%. Inventory of S Ltd. includes such
goods valuing ` 24 lacs. Administrative expenses of S Ltd. include ` 5 lacs paid to H Ltd. as
consultancy fees. Selling and distribution expenses of H Ltd. include ` 10 lacs paid to S Ltd. as
commission.
H Ltd. holds 80% of equity share capital of ` 1,000 lacs in S Ltd. prior to 2015-2016. H Ltd. took
credit to its Profit and Loss Account, the proportionate amount of dividend declared and paid by
S Ltd. for the year 2015-2016.
You are required to prepare a consolidated profit and loss account of H Ltd. and its subsidiary
S Ltd. for the year ended on 31st March, 2017.
(b) The summarized Balance Sheet of K Ltd. for the year ended on 31 st March, 2015, 2016 and 2017
are as follows:
(` in thousands)
Liabilities 31.3.2015 31.3.2016 31.3.2017
1,60,000 equity shares of ` 10 each, fully paid 1,600 1,600 1,600
General reserve 1,200 1,400 1,600
Profit and Loss account 140 160 240
Trade Payables 600 800 1,000
3,540 3,960 4,440
Assets
Goodwill 1,000 800 600
Building and Machinery less, depreciation 1,400 1,600 1,600
Inventory 1,000 1,200 1,400
Trade Receivables 20 160 440
Bank balance 120 200 400
3,540 3,960 4,440
Additional information:
(a) Actual valuations were as under:
Building and machinery less, depreciation 1,800 2,000 2,200
Inventory 1,200 1,400 1,600
Net profit (including opening balance after writing off
depreciation, goodwill, tax provision and transferred to
general reserve) 420 620 820
(b) Capital employed in the business at market value at the beginning of 201 4-15 was
` 36,60,000 which included the cost of goodwill. The normal annual return on average
capital employed in the line of business engaged by K Ltd. is 12½%.
(c) The balance in the general reserve on 1 st April, 2014 was ` 10 lakhs.
(d) The goodwill shown on 31.3.2015 was purchased on 1.4.2014 for ` 10 lakhs on which date
the balance in the Profit and Loss account was ` 1,20,000.
(e) Goodwill is to be valued at 5 year’s purchase of Super profit (Simple average method).
You are required to compute the average capital employed in each year and find out the value of
goodwill. (12 Marks +8 Marks = 20 Marks)

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6. (a) A company has its share capital divided into shares of ` 10 each. On 1-1-20X1, it granted 5,000
employees stock options at ` 50, when the market price was ` 140. The options were to be
exercised between 1-3-20X2 to 31-03-20X2. The employees exercised their options for 4,800
shares only; remaining options lapsed. Pass the necessary journal entries for the year ended
31-3-20X2, with regard to employees’ stock options.
(b) Explain “Non-Performing Assets” as per NBFC Prudential Norms (RBI) directions.
(c) Explain on ‘presentation of MAT credit’ in the financial statements in brief.
OR
How will a company classify its investment in preference shares, which are convertible into equity
shares within one year from the balance sheet date? Will it classify the investment as a current
asset or a non-current asset? Explain.
(d) XYZ Ltd. purchased 80% shares of ABC Ltd. on 1st January, 2016 for ` 2,80,000. The issued
capital of ABC Ltd., on 1st January, 2016 was ` 2,00,000 and the balance in the Profit & Loss
Account was ` 1,20,000.
During the year ended 31 st December, 2016, ABC Ltd. earned a profit of ` 40,000 and at year
end, declared and paid a dividend of ` 60,000.
Show by an entry how the dividend should be recorded in the books of XYZ Ltd.
You are required to compute amount of minority interest as on 1st January, 2016 and
31st December, 2016? (4 Parts x 5 Marks = 20 Marks)

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Test Series: March, 2018

MOCK TEST PAPER
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) As per para 7 of AS 7 on ‘Construction Contracts’, when a contract covers a number of assets, the
construction of each asset should be treated as a separate construction contract when:
(a) separate proposals have been submitted for each asset;
(b) each asset has been subject to separate negotiation and the contractor and customer have
been able to accept or reject that part of the contract relating to each asset; and
(c) the costs and revenues of each asset can be identified.
In the given case, each outlet is submitted as a separate proposal to different Z onal Office, which
can be separately negotiated, and costs and revenues thereof can be separately identified. Hence,
each asset will be treated as a “single contract” even if there is one document of contract.
Therefore, four separate contract accounts have to be recorded and maintained in the books of X
Ltd. For each contract, principles of revenue and cost recognition have to be applied separately and
net income will be determined for each asset as per AS -7.
(b) Computation of theoretical ex-rights fair value per share
Fair value of all outstanding shares immediately prior to exercise of rights + Total amount received from exercise of rights

Number of shares outstanding prior to exercise + number of shares issued in the exercise
(` 21.00 x 5,00,000 shares) + (`15.00 x 1,00,000 shares)
5,00,000 shares + 1,00,000 shares
Theoretical ex-rights fair value per share = ` 20.00
(a) Computation of adjustment factor
Fair value per share prior to exercise of rights ` (21.00)
(b) = =1.05
Theoretica l ex - rights value per share ` (20.00)

Computation of earnings per share

Year Year
2015-16 2016-17
EPS for the year 2015-16 as originally reported: ` 2.20
(` 11,00,000/5,00,000 shares)
EPS for the year 2015-16 restated for rights issue: ` 2.10
[` 11,00,000/ (5,00,000 shares x 1.05)]
EPS for the year 2016-17 including effects of rights
` 15,00,000
issue ` 2.55
(5,00,000 x 1.05 x 2 / 12) + (6,00,000 x 10 / 12)

(c) Following will be the treatment in the given cases:

(i) When sales price of ` 50 lakhs is equal to fair value, A Ltd. should immediately recognise the
profit of ` 10 lakhs (i.e. 50 – 40) in its books.
(ii) When fair value of leased machinery is ` 45 lakhs & sales price is ` 38 lakhs, then loss of
` 2 lakhs (40 – 38) to be immediately recognised by A Ltd. in its books provided loss is not
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compensated by future lease payment.
(iii) When fair value is ` 40 lakhs & sales price is ` 50 lakhs then, profit of ` 10 lakhs is to be
deferred and amortised over the lease period.
(iv) When fair value is ` 46 lakhs & sales price is ` 50 lakhs, profit of ` 6 lakhs (46-40) to be
immediately recognised in its books and balance profit of ` 4 lakhs (50-46) is to be
amortised/deferred over lease period.
(v) When fair value is ` 35 lakhs & sales price is ` 39 lakhs, then the loss of ` 5 lakhs (40-35) to
be immediately recognised by A Ltd. in its books and profit of ` 4 lakhs (39-35) should be
amortised/deferred over lease period.
(d) (i) AS 29 “Provisions, Contingent Liabilities and Contingent Assets” provides that when an
enterprise has a present obligation, as a result of past events, that probably requires an
outflow of resources and a reliable estimate can be made of the amount of obligation, a
provision should be recognised. Sun Ltd. has the obligation to deliver the goods within the
scheduled time as per the contract. It is probable that Sun Ltd. will fail to deliver the goods
within the schedule and it is also possible to estimate the amount of compensation. Therefore,
Sun Ltd. should provide for the contingency amounting ` 1.5 crores as per AS 29.
(ii) Provision should not be measured as the excess of compensation to be paid over the profit.
The goods were not manufactured before 31st March, 2016 and no profit had accrued for the
financial year 2015-2016. Therefore, provision should be made for the full amount of
compensation amounting ` 1.50 crores.
2. (a) Statement showing liability of underwriters
a Particulars Basis White Black
A. Gross Liability [No. of Shares) 1:1 15,00,000 15,00,000
B. Less: Marked Applications {Net of firm underwriting} (15,00,000) (10,20,000)
C. Balance [A-B] - 4,80,000
D Less: Unmarked Applications 1:1 (1,20,000) (1,20,000)
E Balance [C-D] (1,20,000) 3,60,000
F Less: Firm Underwriting (60,000) (60,000)
G Balance (1,80,000) 3,00,000
H Credit for White ’s Oversubscription 1,80,000 (1,80,000)
I Net Liability - 1,20,000
J Add: Firm Underwriting 60,000 60,000
K Total Liability [No. Shares] 60,000 1,80,000
Note: In the above statement, it has been assumed that the benefit of firm underwriting is given to
individual underwriter.
Journal Entries
2016
Jan 31 Bank A/c Dr. 72,00,000
To Equity Share Application A/c 72,00,000
(Being application money received @ ` 2.50 per share)
March Equity Share Application A/c Dr. 72,00,000
To Equity Share Capital A/c 72,00,000
(Being the transfer of application money to share
capital on 28,80,000 shares vide Board’s Resolution)

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March Equity Share Allotment A/c Dr. 86,40,000

(28,80,000 x ` 3)
To Equity Share Capital A/c (28,80,000 x ` 2.5) 72,00,000
To Securities Premium A/c (28,80,000 x ` 0.5) 14,40,000
(Being allotment money due on 28,80,000 shares
allotted to public)
Black (1,20,000 x ` 5.5) Dr. 6,60,000
To Equity Share Capital A/c 6,00,000
(1,20,000 x ` 5)
To Securities Premium A/c 60,000
(1,20,000 x ` 0.5)
(Being the application and allotted money due on net
liability of underwriter i.e. 1,20,000 shares)
March Bank A/c Dr. 92,82,000
To Equity Share Allotment A/c 86,22,000
[(28,80,000 – 6,000) x ` 3]
To Black (1,20,000 x ` 5.5) 6,60,000
(Being the receipt of money due on allotment except
from the allottee for 6,000 shares)
March Underwriting Commission A/c Dr. 12,60,000
To Black A/c 6,30,000
To White A/c 6,30,000
(Being commission @ 4 % on issue price of ` 10.50 for
` 30 lakh shares payable to underwriters)
March Black A/c 6,30,000
White A/c 6,30,000
To Bank A/c 12,60,000
(Being commission paid to underwriters)
June 30 Equity Share Capital A/c (6,000 x 5) Dr. 30,000
Securities Premium A/c (6,000 x 0.5) Dr. 3,000
To Share Allotment A/c (6,000 x 3) 18,000
To Forfeited Shares A/c (6,000 x 2.5) 15,000
(Being 6,000 shares forfeited vide Board’s Resolution)
June 30 Bank A/c (6,000 x ` 4) Dr. 24,000
Forfeited Shares A/c Dr. 6,000
To Equity Share Capital A/c (6,000 x ` 5) 30,000
(Being the reissue of 6,000 shares @ ` 4 as ` 5 paid
up at par)
Forfeited Shares A/c (15,000 – 6,000) Dr. 9,000
To Capital Reserve A/c 9,000
(Being the transfer of profit on reissue)

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(b) Statement determining the maximum number of shares to be bought back
Number of shares (in crores)
Particulars When loan fund is
` 3,200 crores ` 6,000 crores
Shares Outstanding Test (W.N.1) 30 30
Resources Test (W.N.2) 24 24
Debt Equity Ratio Test (W.N.3) 32 Nil
Maximum number of shares that can be bought back 24 Nil
[least of the above]
Journal Entries for the Buy Back
(applicable only when loan fund is ` 3,200 crores)
` in crores
Debit Credit
(a) Equity share buyback account Dr. 720
To Bank account 720
(Being payment for buy back of 24 crores equity shares of ` 10
each @ ` 30 per share)
(b) Equity share capital account Dr. 240
Premium Payable on buyback account Dr. 480
To Equity share buyback account 720
(Being cancellation of shares bought back)
Securities Premium account Dr. 400
General Reserve / Profit & Loss A/c Dr. 80
To Premium Payable on buyback account 480
(Being Premium Payable on buyback account charged to
securities premium and general reserve/Profit & Loss A/c)
(c) General Reserve / Profit & Loss A/c Dr. 240
To Capital redemption reserve account 240
(Being transfer of free reserves to capital redemption reserve to
the extent of nominal value of share capital bought back out of
redeemed through free reserves)
Working Notes:
1. Shares Outstanding Test
Particulars (Shares in crores)
Number of shares outstanding 120
25% of the shares outstanding 30
2. Resources Test
Particulars
Paid up capital (` in crores) 1,200
Free reserves (` in crores) (1,080 + 400 +200) 1,680
Shareholders’ funds (` in crores) 2,880
25% of Shareholders fund (` in crores) ` 720 crores
Buy back price per share ` 30
Number of shares that can be bought back 24 crores shares

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3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy
Back
Particulars When loan fund is
` 3,200 crores ` 6,000 crores
(a) Loan funds (`) 3,200 6,000
(b) Minimum equity to be maintained 1,600 3,000
after buy back in the ratio of 2:1
(`) (a/2)
(c) Present equity shareholders fund 2,880 2,880
(`)
(d) Future equity shareholders fund 2,560 (2,880-320) N.A.
(`) (see W.N.4)
(e) Maximum permitted buy back of 960 Nil
Equity (`) [(d) – (b)]
(f) Maximum number of shares that 32 crore shares
can be bought back @ ` 30 per Nil
share
As per the provisions of the
Companies Act, 2013, company Qualifies Does not Qualify
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
= (2,880 – x) – 1,600 = y
= 1280 – x =y (1)
Equation 2: Maximum Permitted Buy Back X Nominal Value Per Share/Offer Price Per Share
y
=  10  = x Or 3x = y (2)
 30 
by solving the above two equations we get
x= ` 320
y = ` 960
3. (a) Journal Entries in the books of Lion Ltd.
Particulars Debit Credit
(` in lakhs) ( ` in lakhs )
(i) 8% Preference share capital A/c (`100 each) Dr. 400
To 8% Preference share capital A/c 320
(` 80 each)
To Capital Reduction A/c 80
(Being the preference shares of `100 each reduced
to `80 each as per the approved scheme)

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(ii) Equity share capital A/c (`10 each) Dr. 1,000

To Equity share capital A/c (` 2 each) 200
To Capital Reduction A/c 800
(Being the equity shares of `10 each reduced to ` 2
each)
(iii) Capital Reduction A/c Dr. 32
To Equity share capital A/c (` 2 each) 32
(Being 1/3rd arrears of preference share dividend of 3
years to be satisfied by issue of 8 lakhs equity shares of
` 2 each)
(iv) 6% Debentures A/c Dr. 300
To Freehold property A/c 300
(Being claim of Debenture holders settled in part by
transfer of freehold property)
(v) Accrued debenture interest A/c Dr. 24
To Bank A/c 24
(Being accrued debenture interest paid)
(vi) Freehold property A/c Dr. 150
To Capital Reduction A/c 150
(Being appreciation in the value of freehold property)
(vii) Bank A/c Dr. 250
To Investments A/c 200
To Capital Reduction A/c 50
(Being investment sold at profit)
(viii) Director’s loan A/c Dr. 300
To Equity share capital A/c (` 2 each) 90
To Capital Reduction A/c 210
(Being director’s loan waived by 70% and balance
being discharged by issue of 45 lakhs equity shares
of `2 each)
(ix) Capital Reduction A/c Dr. 972
To Profit and Loss A/c 522
To Trade receivables A/c (450x 40%) 180
To Inventories-in-trade A/c (300x 80%) 240
To Bank A/c (600 x 5%) 30
(Being certain value of various assets, penalty on
cancellation of contract, profit and loss account debit
balance written off through Capital Reduction
Account)
(x) Capital Reduction A/c 286
To Capital reserve A/c 286
(Being balance transferred to capital reserve
account as per the scheme)

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Capital Reduction Account
Dr. Cr.
(` in lakhs) (` in lakhs)
To Equity Share Capital 32 By Preference Share Capital 80
To Trade receivables 180 By Equity Share Capital 800
To Finished Goods 240 By Freehold Property 150
To Profit & Loss A/c 522 By Bank 50
To Bank A/c 30 By Director’s Loan 210
To Capital Reserve 286
1,290 1,290
Notes to Balance Sheet
(` in lakhs) (` in lakhs)
1. Share Capital
Authorised:
200 lakhs Equity shares of ` 2 each 400
8 lakhs 8% Preference shares of ` 80 each 640
1,040
Issued:
161 lakhs equity shares of ` 2 each 322
4 lakhs Preference Shares of ` 80 each 320
642
2. Tangible Assets
Freehold Property 550
Less: Utilized to pay Debenture holders (300)
250
Add: Appreciation 150 400
Plant and Machinery 200
600
(b) Calculation of Total Remuneration payable to Liquidator
Amount in `
2% on Assets realised 25,00,000 x 2% 50,000
3% on payment made to Preferential creditors 75,000 x 3% 2,250
3% on payment made to Unsecured creditors (Refer W.N) 39,255
Total Remuneration payable to Liquidator 91,505
Working Note:
Liquidator’s remuneration on payment to unsecured creditors = Cash available for unsecured
creditors after all payments including liquidation expenses, payment to secured creditors,
preferential creditors & liquidator’s remuneration
= ` 25,00,000 – ` 25,000 – ` 10,00,000 – ` 75,000 – ` 50,000 – ` 2,250 = ` 13,47,750.
Liquidator’s remuneration on payment to unsecured creditors = 3/103 x ` 13,47,750= ` 39,255

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4. (a) Name of the Insurer: Xeta Insurance Company Limited
Registration No. and Date of registration with IRDA: ……………………..
Revenue Account for the year ended 31 st March, 2016
Particulars Schedule Amount (`)
Premium earned (net) 1 26,67,500
Profit on sale of investment 30,000
Others –
Interest and dividend (gross) 1,50,000
Total (A) 28,47,500
Claims incurred (Net) 2 20,25,000
Commission 3 50,000
Operating expenses related to insurance 4 7,50,000
Total (B) 28,25,000
Operating profit from insurance business (A) – (B) 22,500
Schedule –1 Premium earned (net)
`
Premium received 33,60,000
Less: Premium on reinsurance ceded (2,25,000)
Net Premium 31,35,000
Less: Adjustment for change in Reserve for Unexpired risk (as per (4,67,500)
W.N.)
Total premium earned 26,67,500
Schedule -2 Claims incurred (net)
`
Claims paid 19,20,000
Add: Expenses regarding claims 90,000
20,10,000
Less: Re-insurance recoveries (60,000)
19,50,000
Add: Claims outstanding as on 31 st March, 2016 2,70,000
22,20,000
Less: Claims outstanding as on 31 st March, 2015 (1,95,000)
20,25,000
Schedule -3 Commission
`
Commission paid 50,000

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Schedule-4 Operating expenses related to Insurance Business
`
Expenses of management (` 8,40,000 – ` 90,000) 7,50,000
Working Note:
Calculation for change in Reserve for Unexpired risk:
`
Reserve for Unexpired Risk as on 31 st March, 2016 15,67,500
Additional Reserve as on 31 st March, 2016 7,00,000 22,67,500
Less: Reserve for Unexpired Risk as on 31 st March, 2015 15,00,000
Additional Reserve as on 31 st March, 2015 3,00,000 (18,00,000)
4,67,500
(b) In the books of Strong Bank Ltd.
Journal Entries
Particulars Debit (`) Credit (`)
Rebate on bills discounted A/c Dr. 27
To Discount on bills A/c 27
(Being the transfer of opening balance in ‘Rebate on bills
discounted A/c’ to ‘Discount on bills A/c’)
Bills purchased and discounted A/c Dr. 4,000
To Discount on bills A/c 240
To Clients A/c 3,760
(Being the discounting of bills of exchange during the year)
Discount on bills A/c Dr. 18
To Rebate on bills discounted A/c 18
(Being the unexpired portion of discount in respect of the
discounted bills of exchange carried forward)
Discount on bills A/c Dr. 249
To Profit and Loss A/c 249
(Being the amount of income for the year from discounting of
bills of exchange transferred to Profit and loss A/c)
Working Notes:
1. Discount received on the bills discounted during the year
15 146
` 4,000 crores   = ` 240 crores
100 365
2. Calculation of rebate on bill discounted
15 73
` 600 crores   = ` 18 crores
100 365
(It is assumed that discounting rate of 15% is used for the bill of ` 600 crores also)
3. Income from bills discounted transferred to Profit and Loss A/c would be calculated by
preparing Discount on bills A/c

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Discount on bills A/c
` in crores
Date Particulars Amount Date Particulars Amount
31 March To Rebate on 18 1st April, By Rebate on bills 27
2017 bills discounted 2016 discounted b/f
” To Profit and 2016-17 By Bills purchased
Loss A/c (Bal. Fig.) 249 and discounted 240
267 267
(c)
` in lakhs ` in lakhs
Opening bank balance [` (100 – 90 - 5) lakhs] 5.00
Add: Proceeds from sale of securities 40.00
Dividend received 1.20 46.20
Less: Cost of securities 28.20
Fund management expenses
[` (4.50–0.35) lakhs] 4.15
Capital gains distributed
[75% of ` (40.00 – 38.00) lakhs] 1.50
Dividends distributed (75% of ` 1.20 lakhs) 0.90 (34.75)
Closing bank balance 11.45
Closing market value of portfolio 112
123.45
Less: Arrears of expenses (0.35)
Closing net assets 123.10
Number of units 10,00,000
Closing Net Assets Value (NAV) ` 12.31
5. (a) Consolidated Profit & Loss Account of H Ltd. and its subsidiary S Ltd.
for the year ended on 31st March, 2017
Particulars Note No. ` in Lacs
I. Revenue from operations 1 5,865
II. Total revenue 5,865
III. Expenses
Cost of Material purchased/Consumed 3 1,180
Changes of Inventories of finished goods 2 (1,196)
Employee benefit expense 4 950
Finance cost 6 150
Depreciation and amortization expense 7 150
Other expenses 5 535
Total expenses 1,769
IV. Profit before Tax(II-III) 4,096
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V. Tax Expenses 8 1,400

VI. Profit After Tax 2,696
Profit transferred to Consolidated Balance Sheet
Profit After Tax 2,696
Dividend paid
H Ltd. 1,200
S Ltd. 150
1,350
Less: Share of H Ltd. in dividend of S Ltd.
80% of ` 150 lacs (120) (1,230)
Profit to be transferred to consolidated balance sheet 1,466
Notes to Accounts
` in Lacs ` in Lacs
1. Revenue from Operations
Sales and other income
H Ltd. 5,000
S Ltd. 1,000
6,000
Less: Inter-company Sales (120)
Consultancy fees received by H Ltd. from S Ltd. (5)
Commission received by S Ltd. from H Ltd. (10) 5,865
2. Increase in Inventory
H Ltd. 1,000
S Ltd. 200
1,200
20
Less: Unrealized profits ` 24 lacs × (4) 1,196
120
7,061
3. Cost of Material purchased/consumed
H Ltd. 800
S Ltd. 200
1,000
Less: Purchases by S Ltd. from H Ltd. (120) 880
Direct Expenses
H Ltd. 200
S Ltd. 100 300
1,180
4. Employee benefits and expenses
Wages and Salaries:
H Ltd. 800

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S Ltd. 150 950

5. Other Expenses
Administrative Expenses
H Ltd. 200
S Ltd. 100
300
Less: Consultancy fees received by H Ltd. from S Ltd. (5) 295
Selling and Distribution Expenses:
H Ltd. 200
S Ltd. 50
250
Less: Commission received from S Ltd. from H Ltd. (10) 240
535
6. Finance Cost
Interest:
H Ltd. 100
S Ltd. 50 150
7. Depreciation and Amortisation
Depreciation:
H Ltd. 100
S Ltd. 50 150
8. Provision for tax
H Ltd. 1,200
S. Ltd. 200 1,400
(b) 1. Capital Employed at the end of each year
31.3.2015 31.3.2016 31.3.2017
` ` `
Goodwill 10,00,000 8,00,000 6,00,000
Building and Machinery (Revaluation) 18,00,000 20,00,000 22,00,000
Inventory (Revalued) 12,00,000 14,00,000 16,00,000
Trade Receivables 20,000 1,60,000 4,40,000
Bank Balance 1,20,000 2,00,000 4,00,000
Total Assets 41,40,000 45,60,000 52,40,000
Less: Trade Payables (6,00,000) (8,00,000) (10,00,000)
Closing Capital 35,40,000 37,60,000 42,40,000
Add: Opening Capital 36,60,000 35,40,000 37,60,000
Total 72,00,000 73,00,000 80,00,000
Average Capital 36,00,000 36,50,000 40,00,000
Since the goodwill has been purchased, it is taken as a part of Capital employed.

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2. Valuation of Goodwill
(i) Future Maintainable Profit 31.3.2015 31.3.2016 31.3.2017
Net Profit as given 4,20,000 6,20,000 8,20,000
Less: Opening Balance (1,20,000) (1,40,000) (1,60,000)
Adjustment for Valuation of Opening - (2,00,000) (2,00,000)
Inventory
Add: Adjustment for Valuation of closing 2,00,000 2,00,000 2,00,000
inventory
Goodwill written off - 2,00,000 2,00,000
Transferred to General Reserve 2,00,000 2,00,000 2,00,000
Future Maintainable Profit 7,00,000 8,80,000 10,60,000
Less: 12.50% Normal Return (4,50,000) (4,56,250) (5,00,000)
(ii) Super Profit 2,50,000 4,23,750 5,60,000
(iii) Average Super Profit = ` (2,50,000+4,23,750+5,60,000) ÷3 = ` 4,11,250
(iv) Value of Goodwill at five years’ purchase= ` 4,11,250 × 5 = ` 20,56,250.
6. (a) Journal Entries in the books of company
Date Particulars Dr. ` Cr. `
1-3-X2 to Bank A/c Dr. 2,40,000
31-3-X2 Employees compensation expenses A/c Dr. 4,32,000
To Equity Share Capital A/c 48,000
To Securities Premium A/c 6,24,000
(Being allotment to employees 4,800 shares of
` 10 each at a premium of ` 130 at an exercise price of
` 50 each)
31-3-X2 Profit and Loss account Dr. 4,32,000
To Employees compensation expenses A/c 4,32,000
(Being transfer of employees compensation expenses)
Working Note:
1. Employee Compensation Expenses = Discount between Market Price and option price
= ` 140 – ` 50 = ` 90 per share = ` 90 x 4,800 = ` 4,32,000/- in total.
2. The Employees Compensation Expense is transferred to Securities Premium Account.
3. Securities Premium Account = ` 50 – ` 10 = ` 40 per share + ` 90 per share on account of
discount of option price over market price = ` 130 per share = ` 130 x 4,800 = ` 6, 24,000/-
in total.
(b) ‘Non-performing asset’ means:
(a) an asset, in respect of which, interest has remained overdue for a period of six months or
more;
(b) a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months
or more or on which interest amount remained overdue for a period of six months or more;
(c) a demand or call loan, which remained overdue for a period of six months or more from the
date of demand or call or on which interest amount remained overdue for a period of six
months or more;
(d) a bill which remains overdue for a period of six months or more;
(e) the interest in respect of a debt or the income on receivables under the head ‘other current
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assets’ in the nature of short term loans/advances, which facility remained overdue for a
period of six months or more;
(f) any dues on account of sale of assets or services rendered or reimbursement of expenses
incurred, which remained overdue for a period of six months or more;
Note: As per Non-Banking Financial Company - Systemically Important Non-Deposit taking
Company and Deposit taking Company (Reserve Bank) Directions, 2016, the above six
months criteria for the assets covered under (a) to (f) is 4 months for the financial year ending
March 31, 2017; and from next year ending March 31, 2018 and thereafter it will be 3 months.
(g) the lease rental and hire purchase instalment, which has become overdue for a period of
twelve months or more;
Note: The above twelve months criteria for the assets covered under (g) is 6 months for the
financial year ending March 31, 2017 and from next year ending March 31, 2018 and
thereafter it will be 3 months.
(h) in respect of loans, advances and other credit facilities (including bills purchased and
discounted), the balance outstanding under the credit facilities (including accrued interest)
made available to the same borrower/beneficiary when any of the above credit facilities
becomes non-performing asset
(c) Presentation of MAT credit in the financial statements:
Balance Sheet: Where a company recognizes MAT credit as an asset on the basis of the
considerations specified in the Guidance Note on Accounting for Credit Available in respect of
Minimum Alternate Tax under the Income Tax Act, 1961, the same should be presented under the
head ‘Loans and Advances’  since, there being a convincing evidence of realization of the asset,
it is of the nature of a pre-paid tax which would be adjusted against the normal income tax during
the specified period. The asset may be reflected as ‘MAT credit entitlement’.
In the year of set-off of credit, the amount of credit availed should be shown as a deduction from
the ‘Provision for Taxation’ on the liabilities side of the balance sheet. The unavailed amount of
MAT credit entitlement, if any, should continue to be presented under the head ‘Loans and
Advances’ if it continues to meet the considerations stated in paragraph 11 of the Guidance Note.
Profit and Loss Account: According to explanation given for paragraph 21 of Accounting
Standard 22, “Accounting for Taxes on Income” in the context of Section 115JB of the Income-tax
Act, 1961, MAT is the current tax. Accordingly, the tax expense arising on account of payment of
MAT should be charged at the gross amount, in the normal way, to the statement of profit and loss
in the year of payment of MAT. In the year in which the MAT credit becomes eligible to be
recognized as an asset in accordance with the recommendations contained in this Guidance Note,
the said asset should be created by way of a credit to the statement of profit and loss and presented
as a separate line item therein.
OR
In accordance with the Schedule III, an investment realizable within 12 months from the reporting
date is classified as a current asset. Such realisation should be in the form of cash or cash
equivalents, rather than through conversion of one asset into another non -current asset. Hence,
company must classify such an investment as a non-current asset, unless it expects to sell the
preference shares or the equity shares on conversion and realise cash withi n 12 months.
(d) Total dividend paid = ` 60,000
Out of post-acquisition profit = ` 40,000
Out of pre-acquisition profit = ` 20,000


As per Schedule III to the Companies Act, 2013, it should be presented under the head ‘Non-current Assets’ sub head
‘Long-term Loans and Advances’.
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Hence, 2/3rd of dividend received by XYZ will be credited to P & L and 1/3rd will be credited to
Investment.
XYZ Ltd.’s share of dividend = ` 60,000 X 80% = ` 48,000
In the books of XYZ Ltd.
` `
Bank A/c Dr. 48,000
To Profit & Loss A/c 32,000
To Investments in ABC Ltd. 16,000
(Dividend received from ABC Ltd. 1/3 credited to investment A/c
being out of capital profits – as explained above)
Goodwill on Consolidation: `
Cost of shares less dividend out of capital profits 2,64,000
Less: Face value of capital i.e. 80% of capital 1,60,000
Share of capital profits [1,20,000-20,000 (dividend portion out of
pre-acquisition profits)] X 80 % 80,000 2,40,000
Goodwill 24,000
Minority interest on: 64,000
1st January, 2016: 20% of ` 3,20,000 [2,00,000 + 1,20,000]
31st December, 2016: 20% of ` 3,00,000 [2,00,000 + 1,20,000 + 60,000
40,000 – 60,000]

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Test Series: August, 2018

MOCK TEST PAPER - 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5 : ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
(Time allowed: Three hours) (Maximum Marks: 100)
1. (a) Sun Limited wishes to obtain a machine costing Rs. 30 lakhs by way of lease. The effective life of
the machine is 14 years, but the company requires it only for the first 5 years. It enters into an
agreement with Star Ltd., for a lease rental for Rs. 3 lakhs p.a. payable in arrears and the implicit
rate of interest is 15%. The chief accountant of Sun Limited is not sure about the treatment of
these lease rentals and seeks your advise. You are required to explain the necessary accounting
treatment in line with AS 19. (use annuity factor at @ 15% for 3 years as 3.36)
(b) An airline is required by law to overhaul its aircraft once in every five years. The pacific Airlines
which operate aircrafts does not provide any provision as required by law in its final accounts.
Discuss with reference to relevant Accounting Standard 29.
(c) X Ltd. negotiates with Bharat Petroleum Corporation Ltd (BPCL), for construction of “Franchise
Retail Petrol Outlet Stations”. Based on proposals submitted to different “Zonal offices of BPCL,
the final approval for one outlet each in Zone A, Zone B, Zone C, Zone D, is awarded to X Ltd.
Agreement (in single document) is entered into with BPCL for Rs. 490 lakhs. The agreement lays
down values for each of the four outlets (Rs. 88 + 132 + 160 + 110 lakhs) in addition to individual
completion time. You are required to examine and comment whether X Ltd., will treat it as a
single contract or four separate contracts.
(d) Fashion Limited is engaged in manufacturing of readymade garments. They provide you the
following information on 31 st March, 2017:
(i) On 15th January, 2017 garments worth Rs. 4,00,000 were sent to Anand on consignment
basis of which 25% garments unsold were lying with Anand as on 31 st March, 2017.
(ii) Garments worth Rs. 1,95,000 were sold to Shine boutique on 25 th March, 2017 but at the
request of Shine Boutique, these were delivered on 15th April, 2017.
(iii) On 1st November, 2016 garments worth Rs. 2,50,000 were sold on approval basis. The
period of approval was 4 months after which they were considered sold. Buyer sent
approval for 75% goods up to 31 st December, 2016 and no approval or disapproval received
for the remaining goods till 31 st March, 2017.
You are required to advise the accountant of Fashion Limited, the amount to be recognised as
revenue in above cases in the context of AS 9. (4 Parts x 5 Marks = 20 Marks)
2. (a) Z Limited came up with an issue of 60,00,000 equity shares of Rs. 10 each at par. 15,00,000
shares were issued to the promoters and the balance offered to the public was underwritten by
three underwriters D, E and F - equally with firm underwriting of 1,40,000 shares each,
Subscriptions totalled 38,91,000 shares including the marked forms which were:
D 12,75,000 shares
E 13,50,000 shares
F 10,50,000 shares
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The underwriters had applied for the number of shares covered by firm underwriting. The
amounts payable on application and allotment were Rs. 2.50 and Rs. 2.00 respectively. The
agreed commission was 5%.
You are required to give journal entries for -
(a) The allotment of shares to the underwriters
(b) The commission due to each of them and
(c) The net cash paid and or received.
Note: Unmarked applications are to be credited to underwriters equally. Benefit of firm
underwriting is given to individual underwriter.
(b) SMM Ltd. has the following capital structure as on 31 st March, 2017: Rs. in crore
Particulars Situation Situation
(i) Equity share capital (shares of Rs. 10 each) 1,200 1,200
(ii) Reserves:
General Reserves 1,080 1,080
Securities Premium 400 400
Profit & Loss 200 200
Infrastructure Development Reserve (Statutory Reserve) 320 320
(iii) Loan Funds 3,200 6,000
The company has offered buy back price of Rs. 30 per equity share. You are required to
calculate maximum permissible number of equity shares that can be bought back in both
situations and also required to pass necessary Journal Entries. (8 +12 = 20 Marks)
3. (a) The following were the summarized Balance Sheets of P Ltd. and V Ltd. as at 31 -3-20X1:
Liabilities P Ltd. V Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Equity Share Capital (Fully paid shares of Rs. 10 each) 15,000 6,000
Securities Premium 3,000 –
Foreign Project Reserve – 310
General Reserve 9,500 3,200
Profit and Loss Account 2,870 825
12% Debentures – 1,000
Trade payables 1,200 463
Provisions 1,830 702
33,400 12,500
Assets P Ltd. V Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Land and Buildings 6,000 –
Plant and Machinery 14,000 5,000
Furniture, Fixtures and Fittings 2,304 1,700
Inventory 7,862 4,041
Trade receivables 2,120 1,100
Cash at Bank 1,114 609
Cost of Issue of Debentures — 50
33,400 12,500
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All the bills receivable held by V Ltd. were P Ltd.’s acceptances.
On 1st April 20X1, P Ltd. took over V Ltd in an amalgamation in the nature of merger. It was
agreed that in discharge of consideration for the business P Ltd. would allot three fully paid
equity shares of Rs. 10 each at par for every two shares held in V Ltd. It was also agreed that
12% debentures in V Ltd. would be converted into 13% debentures in P Ltd. of the same amount
and denomination.
Details of trade receivables and trade payables as under:
Assets P Ltd. V Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Trade payables
Bills Payable 120 -
Creditors 1,080 463
1,200 463
Trade receivables
Debtors 2,120 1,020
Bills Receivable — 80
2,120 1,100
Expenses of amalgamation amounting to Rs. 1 lakh were borne by P Ltd.
You are required to:
(i) Prepare journal entries in the books of P Ltd. and
(ii) Prepare P Ltd.’s Balance Sheet immediately after the merger considering that the cost of
issue of debentures shown in the balance sheet of the V Ltd. company is not transferred to
the P Ltd. company.
(b) XYZ Limited is being would up by the tribunal. All the assets of the company have been charged
to the company’s bankers to whom the company owes Rs. 5 crores. The company owes following
amounts to others:
Dues to workers – Rs. 1,25,00,000
Unsecured Creditors – Rs. 60,00,000
You are required to compute, with the reference to the provision of the Companies Act, 2013, the
amount each kind of creditors is likely to get if the amount realized by the official liquidator from
the secured assets available for distribution among creditors is only Rs. 4,00,00,000/-
(15 + 5 = 20 Marks)
4. (a) The following are the figures extracted from the books of TOP Bank Limited as on 31.3.2017.
Rs.
Interest and discount received 59,29,180
Interest paid on deposits 32,59,920
Issued and subscribed capital 16,00,000
Salaries and allowances 3,20,000
Directors fee and allowances 48,000
Rent and taxes paid 1,44,000
Postage and telegrams 96,460
Statutory reserve fund 12,80,000
Commission, exchange and brokerage 3,04,000

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Rent received 1,04,000

Profit on sale of investments 3,20,000
Depreciation on bank’s properties 48,000
Statutory expenses 44,000
Preliminary expenses 40,000
Auditor’s fee 28,000
The following further information is given:
(i) A customer to whom a sum of Rs. 16 lakhs has been advanced has become insolvent and it
is expected only 40% can be recovered from his estate.
(ii) There were also other debts for which a provision of Rs. 2,10,000 was found necessary by
the auditors.
(iii) Rebate on bills discounted on 31.3.2016 was Rs. 19,000 and on 31.3.2017 was Rs. 25,000.
(iv) Preliminary expenses are to be fully written off during the year.
(v) Provide Rs. 9,00,000 for Income-tax.
(vi) Profit and Loss account opening balance was Nil as on 31.3.2016.
You are required to Prepare the Profit and Loss account of TOP Bank Limited for the year ended
31.3.2017.
(b) From the following particulars of M/s. Tsunami Marine Insurance Limited for the year ending
31st March, 2018, find out the
(i) Net Premium earned
(ii) Net Claims incurred
Direct Business Re- Insurance
(Rs.) lakhs (Rs.) lakhs
PREMIUM:
Received 4,400 376
Receivable -01.04.2017 220 18
Receivable -31.03.2018 189 16
Paid 305
Payable - 01.04.2017 14
Payable - 31.03.2018 9
CLAIMS:
Paid 3,450 277
Payable - 01.04.2017 45 8
Payable - 31.03.2018 48 6
Received 101
Receivable - 01.04.2017 20
Receivable - 31.03.2018 19

(16 + 4 = 20 Marks)

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5. (a) Given below are the Profit & Loss Accounts of Hello Ltd. and its subsidiary Sun Ltd. for the year
ended 31st March, 2017:
Hello Ltd. Sun Ltd.
(Rs. in lacs) (Rs. in lacs)
Incomes:
Sales and other income 10,000 2,000
Increase in Inventory 2,000 400
12,000 2,400
Expenses:
Raw material consumed 1,600 400
Wages and Salaries 1,600 300
Production expenses 400 200
Administrative Expenses 400 200
Selling and Distribution Expenses 400 100
Interest 200 100
Depreciation 200 100
4,800 1,400
Profit before tax 7,200 1,000
Provision for tax 2,400 400
Profit after tax 4,800 600
Dividend paid 2,400 300
Balance of Profit 2,400 300
Other Information:
Hello Ltd. sold goods to Sun Ltd. of Rs. 240 lacs at cost plus 20%. Inventory of Sun Ltd. includes
such goods valuing Rs. 48 lacs. Administrative expenses of Sun Ltd. include Rs. 10 lacs paid to
Hello Ltd. as consultancy fees. Selling and distribution expenses of Hello Ltd. include Rs. 20 lacs
paid to Sun Ltd. as commission.
Hello Ltd. holds 80% of equity share capital of Rs. 2,000 lacs in Sun Ltd. prior to 2015-2016.
Hello Ltd. took credit to its Profit and Loss Account, the proportionate amount of dividend
declared and paid by Sun Ltd. for the year 2015-2016.
You are required to prepare a consolidated profit and loss account of Hello Ltd. and its subsidiary
Sun Ltd. for the year ended 31st March, 2017
(b) You are required to compute the value of Goodwill by equity approach in the following case:
(i) Current cost of capital employed Rs. 10,40,000
(ii) Profit earned after current cost adjustments Rs. 1,72,000
(iii) 10% long term loan Rs. 4,50,000
(iv) Normal rate of return on equity capital employed 15.6%

(16 Marks + 4 Marks = 20 Marks)

6. (a) How will a company classify its investment in preference shares, which are convertible into equity
shares within one year from the balance sheet date? Will it classify the investment as a current
asset or a non-current asset? Explain.
5

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Or
(a) A consumer goods producer has changed the product line as follows:
Dish washing Bar Clothes washing Bar
(Per month) (Per month)
January 2016 - September 2016 2,00,000 2,00,000
October 2016 - December 2016 1,00,000 3,00,000
January 2017 - March 2017 Nil 4,00,000
The company has enforced a gradual enforcement of change in product line on the basis of an
overall plan. The Board of Directors has passed a resolution in March 2016 to this effect. The
company follows calendar year as its accounting year. You are required to examine whether it
should it be treated as discontinuing operation as per AS 24?
(b) A company has its share capital divided into shares of Rs. 10 each. On 1-1-20X1, it granted
5,000 employees stock options at Rs. 50, when the market price was Rs. 140. The options were
to be exercised between 1-3-20X2 to 31-03-20X2. The employees exercised their options for
4,800 shares only; remaining options lapsed. You are required to prepare the necessary journal
entries for the year ended 31-3-20X2, with regard to employees’ stock options.
(c) Explain, in brief, the investment valuation norms for traded securities in case of mutual funds as
per SEBI (Mutual fund) Regulations.
(d) Balance Sheets of X Ltd.
As on 31st March 2017 and 31st March 2018
(Rs. In lakhs)
Liabilities 31.3.17 31.3.18 Assets 31.3.17 31.3.18
Share Capital 18,00 18,00 Fixed assets 24,00 26,00
General Reserve 6,00 6,00 Investments 1,00 2,00
Profit &Loss A/c 6,80 9,40 Inventory 6,00 5,50
12% Debentures 2,00 2,00 Trade receivables 3,00 3,50
18% Term Loan 3,00 3,20 Cash and Bank 4,00 3,40
Cash Credit 1,20 80
Trade payables 70 60
Tax Provision 30 40
38,00 40,40 38,00 40,40
Non-trade investments were 75% of the total investments. You are required to compute capital
employed as on 31.3.17 and as on 31.3.18 and average capital employed.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: August, 2018

MOCK TEST PAPER - 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) 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 5) 3.36 (approx.)
Present Value of minimum lease payments Rs.10.08 lakhs (approx.)
(Rs.3 lakhs each year)

Thus present value of minimum lease payments is Rs.10.08 lakhs and the fair value of the machine
is Rs. 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 five 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.
(b) A provision should be recognized only when an enterprise has a present obligation arising from a
past event or obligation. In the given case, there is no present obligation but a future one, therefore
no provision is recognized as per AS 29.
The cost of overhauling aircraft is not recognized as a provision because it is a future obligation
and the incurring of the expenditure depends on the company’s decision to continue operating the
aircrafts. Even a legal requirement to overhaul does not require the company to make a provision
for the cost of overhaul because there is no present obligation to overhaul the aircrafts. Further,
the enterprise can avoid the future expenditure by its future action, for example by selling the
aircraft. However, an obligation might arise to pay fines or penalties under the legislation after
completion of five years. Assessment of probability of incurring fines and penalties depends upon
the provisions of the legislation and the stringency of the enforcement regime. A provision should
be recognized for the best estimate of any fines and penalties if airline continues to operate
aircrafts for more than five years.
(c) As per AS 7 on ‘Construction Contracts’, when a contract covers a number of assets, the
construction of each asset should be treated as a separate construction contract when:
(a) separate proposals have been submitted for each asset;
(b) each asset has been subject to separate negotiation and the contractor and customer have
been able to accept or reject that part of the contract relating to each asset; and
(c) the costs and revenues of each asset can be identified.
In the given case, each outlet is submitted as a separate proposal to different Zonal Office, whic h
can be separately negotiated, and costs and revenues thereof can be separately identified. Hence,
each asset will be treated as a “single contract” even if there is one document of contract.
Therefore, four separate contract accounts have to be recorded and maintained in the books of X
Ltd. For each contract, principles of revenue and cost recognition have to be applied separately and
net income will be determined for each asset as per AS 7.

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(d) As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(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.
Case (i): 25% goods lying unsold with consignee should be treated as closing inventory and sales
should be recognized for Rs. 3,00,000 (75% of Rs. 4,00,000) for the year ended on 31.3.17. In
case of consignment sale revenue should not be recognized until the goods are sold to a third
party.
Case (ii): The sale is complete but delivery has been postponed at buyer’s request. Fashion Ltd.
should recognize the entire sale of Rs.1,95,000 for the year ended 31 st March, 2017.
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 Rs. 2,50,000 as the time period for rejecting the goods had expired.
Thus total revenue amounting Rs. 7,45,000 (3,00,000+1,95,000+2,50,000) will be recognized for
the year ended 31 st March, 2017 in the books of Fashion Ltd.
2. (a) Z Ltd.
Journal Entries
Dr. Cr.
Rs. Rs.
Bank A/c Dr. 10,50,000
To Share Application A/c 10,50,000
(Application money received on firm applications for 140,000
shares each @ Rs. 2.50 per share from D, E & F)
D Dr. 2,80,000
E Dr. 2,80,000
F Dr. 11,30,500
Share Application A/c Dr. 10,50,000
To Share Capital A/c 27,40,500
(Allotment of shares to underwriters - 1,40,000 to D; 1,40,000
to E and 3,29,000 to F; application and allotment money
credited to share capital)
Underwriting Commission A/c Dr. 22,50,000
To D 7,50,000
To E 7,50,000
To F 7,50,000
(Amount of underwriting commission payable to D, E and F @
5% on the amount of shares underwritten.)
Bank A/c Dr. 3,80,500
2

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To F 3,80,500
(Amount received from F on shares allotted less underwriting
commission)
D Dr. 4,70,000
E Dr. 4,70,000
To Bank A/c 9,40,000
(Amount paid to D & E in final settlement of underwriting
commission due less amount payable on shares allotted payable
by them.)
Working Notes:
(1) Calculation of Liability of Underwriters
D E F
Gross Liability (No. of shares) 15,00,000 15,00,000 15,00,000
Less: Marked Applications (excluding firm
underwriting) (12,75,000) (13,50,000) (10,50,000)
2,25,000 1,50,000 4,50,000
Less: Unmarked Applications (equally) (72,000) (72,000) (72,000)
1,53,000 78,000 3,78,000
Less: Firm Underwriting (1,40,000) (1,40,000) (1,40,000)
13,000 (62,000) 2,38,000
Surplus of E distributed between D & F equally (31,000) 62,000 (31,000)
(18,000) - 2,07,000
Surplus of D allocated to F totally 18,000 — (18,000)
Net Liability, excluding Firm Underwriting - - 1,89,000
Add: Firm underwriting 1,40,000 1,40,000 1,40,000
Total liability of underwriters 1,40,000 1,40,000 3,29,000
(2) Calculation of Amounts Payable by Underwriters
D E F
Liability (No. of shares) 1,40,000 1,40,000 3,29,000
Amount payable @ Rs. 4.50 per share 6,30,000 6,30,000 14,80,500
Less: Amount paid on Firm Applications of
1,40,000 each @ Rs. 2.50* (3,50,000) (3,50,000) (3,50,000)
Balance payable 2,80,000 2,80,000 11,30,500
Underwriting Commission Receivable 7,50,000 7,50,000 7,50,000
Amount Paid 4,70,000 4,70,000 —
Amount received by the Co. — — 3,80,500
* Underwriters had already paid the application money on these shares.
(b) Statement determining the maximum number of shares to be bought back
Number of shares (in crores)
Particulars When loan fund is
Rs. 3,200 crores Rs. 6,000 crores
Shares Outstanding Test (W.N.1) 30 30

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Resources Test (W.N.2) 24 24

Debt Equity Ratio Test (W.N.3) 32 Nil
Maximum number of shares that can be 24 Nil
bought back [least of the above]
Journal Entries for the Buy Back
(applicable only when loan fund is Rs.3,200 crores)
Rs. in crores
Debit Credit
(a) Equity share buyback account Dr. 720
To Bank account 720
(Being payment for buy back of 24 crores equity shares
of Rs. 10 each @ Rs. 30 per share)
(b) Equity share capital account Dr. 240
Premium Payable on buyback account Dr. 480
To Equity share buyback account 720
(Being cancellation of shares bought back)
Securities Premium account Dr. 400
General Reserve / Profit & Loss A/c Dr. 80
To Premium Payable on buyback account 480
(Being Premium Payable on buyback account charged to
securities premium and general reserve/Profit & Loss
A/c)
(c) General Reserve / Profit & Loss A/c Dr. 240
To Capital redemption reserve account 240
(Being transfer of free reserves to capital redemption
reserve to the extent of nominal value of share capital
bought back out of redeemed through free reserves)
Working Notes:
1. Shares Outstanding Test
Particulars (Shares in crores)
Number of shares outstanding 120
25% of the shares outstanding 30
2. Resources Test
Particulars
Paid up capital (Rs. in crores) 1,200
Free reserves (Rs. in crores) (1,080 + 400 +200) 1,680
Shareholders’ funds (Rs. in crores) 2,880
25% of Shareholders fund (Rs. in crores) Rs. 720 crores
Buy back price per share Rs. 30
Number of shares that can be bought back 24 crores shares

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3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy
Back
Particulars When loan fund is
Rs. 3,200 crores Rs. 6,000 crores
(a) Loan funds (Rs.) 3,200 6,000
(b) Minimum equity to be maintained after 1,600 3,000
buy back in the ratio of 2:1 (Rs.) (a/2)
(c) Present equity shareholders fund (Rs.) 2,880 2,880
(d) Future equity shareholders fund (Rs.) 2,560 (2,880-320) N.A.
(see W.N.4)
(e) Maximum permitted buy back of Equity 960 Nil
(Rs.) [(d) – (b)]
(f) Maximum number of shares that can be 32 crore shares
bought back @ Rs. 30 per share Nil
As per the provisions of the Companies
Act, 2013, company Qualifies Does not Qualify
3. (a) Books of P Ltd.
Journal Entries
Dr. Cr.
(Rs. in Lacs) (Rs. in Lacs)
Business Purchase A/c Dr. 9,000
To Liquidator of V Ltd. 9,000
(Being business of V Ltd. taken over for consideration
settled as per agreement)
Plant and Machinery Dr. 5,000
Furniture & Fittings Dr. 1,700
Inventory Dr. 4,041
Debtors Dr. 1,020
Cash at Bank Dr. 609
Bills Receivable Dr. 80
To Foreign Project Reserve 310
To General Reserve (3,200 - 3,000) 200
To Profit and Loss A/c (825 – 50*) 775
To Liability for 12% Debentures 1,000
To Creditors 463
To Provisions 702
To Business Purchase 9,000
(Being assets & liabilities taken over from V Ltd.)
Liquidator of V Ltd. A/c Dr. 9,000
To Equity Share Capital A/c 9,000
5

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(Purchase consideration discharged in the form of equity

shares)
Profit & loss A/c Dr. 1
To Bank A/c 1
(Liquidation expenses paid by P Ltd.)
Liability for 12% Debentures A/c Dr. 1,000
To 13% Debentures A/c 1,000
(12% debentures discharged by issue of 13% debentures)
Bills Payable A/c Dr. 80
To Bills Receivable A/c 80
(Cancellation of mutual owing on account of bills)

Balance Sheet of P Ltd. as at 1st April, 20X1 (after merger)

Particulars Notes Rs. (in lakhs)
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 24,000
B Reserves and Surplus 2 16,654
2 Non-current liabilities
A Long-term borrowings 3 1,000
3 Current liabilities
A Trade Payables (1,543 + 40) 1,583
B Short-term provisions 2,532
Total 45,769
Assets
1 Non-current assets
A Fixed assets
Tangible assets 4 29,004
2 Current assets
A Inventories 11,903
B Trade receivables 3,140
C Cash and cash equivalents 1,722
Total 45,769
Notes to accounts
Rs.
1. Share Capital
Equity share capital
Authorised, issued, subscribed and paid up

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24 crores equity shares of Rs. 10 each (Of the above shares, 9 crores shares
have been issued for consideration other than cash) 24,000
Total 24,000
2. Reserves and Surplus
General Reserve 9,700
Securities Premium 3,000
Foreign Project Reserve 310
Profit and Loss Account 3,644
Total 16,654
3. Long-term borrowings
Secured
13% Debentures 1,000
4. Tangible assets
Land & Buildings 6,000
Plant & Machinery 19,000
Furniture & Fittings 4,004
Total 29,004
Working Note:
Computation of purchase consideration
The purchase consideration was discharged in the form of three equity shares of P Ltd. for every
two equity shares held in V Ltd.
3
Purchase consideration = Rs. 6,000 lacs × = Rs. 9,000 lacs.
2
* Cost of issue of debenture adjusted against P & L Account of V Ltd.
(b) Section 326 of the Companies Act, 2013 is talks about the overriding preferential payments to be
made from the amount realized from the assets to be distributed to various kind of creditors.
According to the proviso given in the section 326 the security of every secured creditor should be
deemed to be subject to a paripassu change in favor of the workman to the extent of their portion.
Amount Realized × Workman's Dues
Workman's Share to Secured Asset =
Workman's Dues + Secured Loan
4,00,00,000  1,25,00,000
Workman's Share to Secured Asset =
1,25,00,000  5,00,00,000

= 4,00,00,000 x 1/5
= 80,00,000
Amount available to secured creditor is Rs. 400 Lakhs – 80 Lakhs = 320 Lakhs
Hence, no amount is available for payment of unsecured creditors.

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4. (a) TOP Bank Limited
Profit and Loss Account for the year ended 31st March, 2017
Schedule Year ended
31.03.2017
(Rs. in ‘000s)
I. Income:
Interest earned 13 5923.18
Other income 14 728.00
Total 6,651.18
II. Expenditure
Interest expended 15 3259.92
Operating expenses 16 768.46
Provisions and contingencies (960+210+900) 2,070.00
Total 6,098.38
IIII. Profits/Losses
Net profit for the year 552.80
Profit brought forward nil
552.80
IV. Appropriations
Transfer to statutory reserve (25%) 138.20
Balance carried over to balance sheet 414.60
552.80

Year ended
31.3. 2017
(Rs. in ‘000s)
Schedule 13 – Interest Earned
I. Interest/discount on advances/bills (Refer W.N.) 5923.18
5923.18
Schedule 14 – Other Income
I. Commission, exchange and brokerage 304
II. Profit on sale of investments 320
III. Rent received 104
728
Schedule 15 – Interest Expended
I. Interests paid on deposits 3259.92

Schedule 16 – Operating Expenses

I. Payment to and provisions for employees 320
II. Rent and taxes 144
III. Depreciation on bank’s properties 48

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IV. Director’s fee, allowances and expenses 48

V. Auditors’ fee 28
VI. Law (statutory) charges 44
VII. Postage and telegrams 96.46
VIII. Preliminary expenses 40
768.46
Working Note:
(Rs. in ‘000s)
Interest/discount 5,929.18
Add: Rebate on bills discounted on 31.3. 2016 19.00
Less: Rebate on bills discounted on 31.3. 2017 ( 25.00)
5,923.18
(b) (i) Net Premium earned
Rs. In lakhs
Premium from direct business received 4,400
Add: Receivable as 31.03.18 189
Less: Receivable as on 01.04.2017 (220) 4,369
Add: Premium on re-insurance accepted 376
Add: Receivable as on 31.03.18 16
Less: Receivable as on 01.04.2017 (18) 374
4,743
Less: Premium on re-insurance ceded 305
Add: Payable as on 31.03.18 9
Less: Payable as on 01.04.17 (14) (300)
Net Premium earned 4,443
(ii) Net Claims incurred
Rs. In lakhs
Claims paid on direct business 3,450
Add: Reinsurance 277
Add: Reinsurance outstanding as 31.03.18 6
Less: Reinsurance outstanding as on 01.04.2017 (8) 275
Less: Claims Received from re-insurance 101
Add: Receivable as on 31.03.18 19
Less: Receivable as on 01.04.2017 (20) 100
3,625
Add: Outstanding direct claims at the end of the year 48
3,673
Less: Outstanding Claims at the beginning of the year (45)
Net Claims Incurred 3,628

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5. (a) Consolidated Profit & Loss Account of Hello Ltd. and its subsidiary Sun Ltd.
for the year ended on 31st March, 2017
Particulars Note No. Rs. in Lacs
I. Revenue from operations 1 11,730
II. Total revenue 11,730
III. Expenses
Cost of Material purchased/Consumed 3 2,360
Changes of Inventories of finished goods 2 (2,392)
Employee benefit expense 4 1,900
Finance cost 6 300
Depreciation and amortization expense 7 300
Other expenses 5 1,070
Total expenses 3,538
IV. Profit before Tax(II-III) 8,192
V. Tax Expenses 8 2,800
VI. Profit After Tax 5,392
Profit transferred to Consolidated Balance Sheet
Profit After Tax 5,392
Dividend paid
Hello Ltd. 2,400
Sun Ltd. 300
2,700
Less: Share of Hello Ltd. in dividend of Sun Ltd.
80% of Rs. 300 lacs (240) (2,460)
Profit to be transferred to consolidated balance sheet 2,932
Notes to Accounts
Rs. in Lacs Rs. in Lacs
1. Revenue from Operations
Sales and other income
Hello Ltd. 10,000
Sun Ltd. 2,000
12,000
Less: Inter-company Sales (240)
Consultancy fees received by Hello Ltd. from Sun Ltd. (10)
Commission received by Sun Ltd. from Hello Ltd. (20) 11,730
2. Increase in Inventory
Hello Ltd. 2,000
Sun Ltd. 400
2,400
20
Less: Unrealized profits Rs. 48 lacs × (8) 2,392
120
14,122
10

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3. Cost of Material purchased/consumed

Hello Ltd. 1,600
Sun Ltd. 400
2,000
Less: Purchases by Sun Ltd. from Hello Ltd. (240) 1,760
Direct Expenses
Hello Ltd. 400
Sun Ltd. 200 600
2,360
4. Employee benefits and expenses
Wages and Salaries:
Hello Ltd. 1,600
Sun Ltd. 300 1,900
5. Other Expenses
Administrative Expenses
Hello Ltd. 400
Sun Ltd. 200
600
Less: Consultancy fees received by Hello Ltd. from Sun Ltd. (10) 590
Selling and Distribution Expenses:
Hello Ltd. 400
Sun Ltd. 100
500
Less: Commission received from Sun Ltd. from Hello Ltd. (20) 480
1,070
6. Finance Cost
Interest:
Hello Ltd. 200
Sun Ltd. 100 300
7. Depreciation and Amortization
Depreciation:
Hello Ltd. 200
Sun Ltd. 100 300
8. Provision for tax
Hello Ltd. 2,400
Sun Ltd. 400 2,800
Note: Since the amount of dividend received by Hello Ltd. for the year 2015-2016 is not given, it
has not been deducted from ‘sales and other income’ in consolidated profit and loss account and
not added to consolidated opening retained earnings (which is also not given).
(b)
Rs.
Profit for equity fund after current cost adjustment 1,72,000
Current cost of capital employed (by Equity approach) 10,40,000
Value of Goodwill by Equity Approach

11

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1,72,000
Capitalized value of Profit as per equity approach = ×100 11,02,564
15.60
Less: Capital employed as per equity approach (10,40,000)
Value of Goodwill 62,564
6. (a) In accordance with the Schedule III, an investment realizable within 12 months from the reporting
date is classified as a current asset. Such realisation should be in the form of cash or cash
equivalents, rather than through conversion of one asset into another non - current asset. Hence,
company must classify such an investment as a non-current asset, unless it expects to sell the
preference shares or the equity shares on conversion and realise cash within 12 months.
Or
As per AS 24 ‘Discontinuing Operations’, a discontinuing operation is a component of an enterprise:
(i) that the enterprise, pursuant to a single plan, is:
(1) disposing of substantially in its entirety,
(2) disposing of piecemeal, or
(3) terminating through abandonment; and
(ii) that represents a separate major line of business or geographical area of operations; and
(iii) that can be distinguished operationally and for financial reporting purposes.
As per provisions of the standard, business enterprises frequently close facilities, abandon
products or even product lines, and change the size of their work force in response to market
forces. While those kinds of terminations generally are not, in themselves, discontinuing
operations, they can occur in connection with a discontinuing operation. Examples of activities that
do not necessarily satisfy criterion of discontinuing operation are gradual or evolutionary phasing
out of a product line or class of service, discontinuing, even if relatively abruptly, several products
within an ongoing line of business;
In the given case, the company has enforced a gradual enforcement of change in product line and
does not represent a separate major line of business and hence is not a discontinued operation
(b) In the books of Company
Journal Entries
Date Particulars Dr. Rs. Cr. Rs.
1-3-X2 Bank A/c Dr. 2,40,000
t
Employees compensation expenses A/c Dr. 4,32,000
o To Equity Share Capital A/c 48,000
3
To Securities Premium A/c 6,24,000
1
(Being- allotment to employees 4,800 shares of
Rs. 10X each at a premium of Rs. 130 at an exercise price
of Rs.250 each)
31-3- Profit and Loss account Dr. 4,32,000
X To Employees compensation expenses A/c 4,32,000
(Being2 transfer of employees compensation expenses)
Working Note:
1. Employee Compensation Expenses = Discount between Market Price and option price =
Rs. 140 – Rs. 50 = Rs. 90 per share = Rs. 90 x 4,800 = Rs. 4,32,000 in total.
2. The Employees Compensation Expense is transferred to Securities Premium Account.
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3. Securities Premium Account = Rs. 50 – Rs. 10 = Rs. 40 per share + Rs. 90 per share on
account of discount of option price over market price = Rs. 130 per share = Rs. 130 x 4,800
= Rs. 6, 24,000 in total.
(c) Eight Schedule of the SEBI (Mutual Fund) Regulations, 1996 states the Investment Valuation
Norms for traded securities. The significant norms can be explained as:
(i) The securities shall be valued at the last quoted closing price on the recognized stock
exchange.
(ii) When the securities are traded on more than one recognised stock exchange, the securities
shall be valued at the last quoted closing price on the stock exchange where the security is
principally traded. It would be left to the asset management company to select the appropriate
stock exchange, but the reasons for the selection should be recorded in writing. There should
however be no objection for all scrips being valued at the prices quoted on the stock exchange
where a majority in value of the investments is principally traded.
(iii) Once a stock exchange has been selected for valuation of a particular security, reasons for
change of the exchange shall be recorded in writing by the asset management company.
(iv) When on a particular valuation day, a security has not been traded on the selected stock
exchange, the value at which it is traded on another stock exchange may be used.
(v) When a security is not traded on any stock exchange on a particular valuation day, the value
at which it was traded on the selected stock exchange or any other stock exchange, as the
case may be, on the earliest previous day may be used provided such date is not more than
sixty days prior to the valuation date.
(d) Computation of capital employed
(Rs. in lakhs)
31.3.17 31.3.18
Total Assets as per
Balance Sheet 38,00 40,40

Less: Non-trade Investments (75) (1,50)

37,25 38,90
Less: Outside Liabilities:
12% Debentures 2,00 2,00
18% Term Loan 3,00 3,20
Cash Credit 1,20 80
Trade payables 70 60
Tax Provision 30 7,20 40 7,00
Capital employed 30,05 31,90
30,05 lakhs+31,90 lakhs
Average capital employed = = Rs. 3,097.5 lakhs.
2

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Test Series: March, 2019

MOCK TEST PAPER - 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5 : ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
(Time allowed: Three hours) (Maximum Marks: 100)

1. (a) Sun Ltd. has entered into a sale contract of Rs. 5 crores with X Ltd. during 2015-2016 financial
year. The profit on this transaction is Rs. 1 crore. The delivery of goods to take place during the
first month of 2016-2017 financial year. In case of failure of Sun Ltd. to deliver within the
schedule, a compensation of Rs. 1.5 crores is to be paid to X Ltd. Sun Ltd. planned to
manufacture the goods during the last month of 2015-2016 financial year. As on balance sheet
date (31.3.2016), the goods were not manufactured and it was unlikely that Sun Ltd. will be in a
position to meet the contractual obligation.
(i) Should Sun Ltd. provide for contingency as per AS 29? Explain.
(ii) Should provision be measured as the excess of compensation to be paid over the profit?
(b) K Ltd. launched a project for producing product X in October, 2016. The Company incurred
Rs. 40 lakhs towards Research and Development expenses upto 31st March, 2018. Due to
prevailing market conditions, the Management came to conclusion that the product cannot be
manufactured and sold in the market for the next 10 years. The Management hence wants to
defer the expenditure write off to future years. Advise the Company as per the applicable
Accounting Standard
(c) ABC Ltd. took a machine on lease from XYZ Ltd., the fair value being Rs. 10,00,000. The
economic life of the machine as well as the lease term is 4 years. At the end of each year, ABC
Ltd. pays Rs. 3,50,000. The lessee has guaranteed a residual value of Rs. 50,000 on expiry of
the lease to the lessor. However, XYZ Ltd. estimates that the residential value of the machinery
will be Rs. 35,000 only. The implicit rate of return is 16% and PV factors at 16% for year 1, year
2, year 3 and year 4 are 0.8621, 0.7432, 0.6407 and 0.5523 respectively.
You are required to calculate the value of machinery to be considered by ABC Ltd. and the
finance charges for each year.
(d) From the following information, you are required to compute the basic and adjusted Earnings per
share:
Net profit for 2015-16 11 lakh
Net profit for 2016-17 15 lakh
No. of shares issued before rights issue 5 lakhs
Right issue One for every 5 held
Right issue price 15 per share
Last date of exercising right option 1-06-2016
Fair value of shares before right issue 21 per share
(4 parts x 5 Marks = 20 Marks)

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2. (a) The shareholders of Lili Ltd. decided on a corporate restructuring exercise necessitated because
of economic recession. From the given summarised balance sheet as on 31-3-2017 and the
information supplied, you are required to prepare (i) Journal entries reflecting the scheme of
reconstruction, (ii) Capital reduction account, (iii) Cash account in the books of Lili Ltd.
Summarised Balance Sheet of Lili Ltd. as on 31.3.2017
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets
30,000 Equity shares of Rs.10 3,00,000 Trademarks and Patents 1,10,000
each
40,000 8% Cumulative Preference Goodwill at cost 36,100
shares Rs.10 each 4,00,000
Freehold Land 1,20,000
Reserves and Surplus Freehold Premises 2,44,000
Securities Premium Account 10,000 Plant and Equipment 3,20,000
Profit and Loss Account (1,38,400) Investment (marked to market)
Secured Borrowings 64,000
9% Debentures (Rs.100) 1,20,000 Current Assets
Accrued Interest 5,400 1,25,400 Inventories:
Current liabilities Raw materials and packing
Trade payables 1,20,000 materials 60,000
Tax payable 50,000 Finished goods 16,000 76,000
Temporary bank overdraft 2,23,100 Trade receivables 1,20,000
10,90,100 10,90,100
Note: Preference dividends are in arrears for 4 years.
The scheme of reconstruction that received the permission of the Court was on the following
lines:
(1) The authorized capital of the Company to be re-fixed at Rs.10 lakhs (preference capital of
Rs.3 lakhs and equity capital ofRs.7 lakhs). Both classes of shares are of Rs.10 each.
(2) The preference shares are to be reduced to Rs. 5 each and equity shares reduced by Rs. 3
per share. Post reduction, both classes of shares to be re-consolidated into Rs.10 shares.
(3) Trade Investments are to be liquidated in open market.
(4) One fresh equity shares of Rs.10 to be issued for every Rs.40 of preference dividends in
arrears (ignore taxation).
(5) Expenses for the scheme were Rs. 10,000.
(6) The debenture holders took over freehold land at Rs.2,10,000 and settled the balance after
adjusting their dues.
(7) Unprovided contingent liabilities were settled at Rs. 54,000 and a pending insurance claim
receivable settled at Rs. 12,500.
(8) The intangible assets were all to be written off along with Rs. 10,000 worth obsolete packing
material and 10% of the receivables.
(9) Remaining cash available as a result of the above transactions is to be utilized to pay off the
bank overdraft to that extent.

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(10) The Equity shareholders agree that they will bring in necessary cash to liquidate the
balance outstanding on the overdraft account by subscribing the fresh shares. The equity
shares will be issued at par for this purpose.
(b) A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The
assets were realized for Rs. 25,00,000 against which payment was made as follows:
Liquidation expenses Rs. 25,000
Secured Creditors Rs. 10,00,000
Preferential Creditors Rs. 75,000
The amount due to Unsecured Creditors was Rs. 15,00,000. You are asked to calculate the total
Remuneration payable to Liquidator. Calculation shall be made to the nearest multiple of a
rupee. (15 + 5 = 20 Marks)
3. (a) From the following information as on 31 st March, 2016 of Xeta Insurance Co. Ltd. engaged in fire
insurance business, prepare the Revenue Account, reserving 50% of the net premiums for
unexpired risks and an additional reserve of Rs. 7,00,000:
Particulars Amount
(Rs.)
Reserve for unexpired risk on 31st March, 2015 15,00,000
Additional reserve on 31st March, 2015 3,00,000
Claims paid 19,20,000
Estimated liability in respect of outstanding claims on 31st March, 2015 1,95,000
Estimated liability in respect of outstanding claims on 31st March, 2016 2,70,000
Expenses of management (including Rs. 90,000 incurred in connection with claims) 8,40,000
Re-insurance premium paid 2,25,000
Re-insurance recoveries 60,000
Premiums 33,60,000
Interest and dividend (gross before TDS) 1,50,000
Profit on sale of investments 30,000
Commission 50,000

(b) As on 31st March 2016, Strong Bank Ltd. has a balance of Rs. 27 crores in “rebate on bills
discounted” account. The bank provides you the following further information:
(1) During the financial year ending 31 st March 2017, Strong Bank Ltd. discounted bills of
exchange of Rs. 4,000 crores charging interest @ 15% p.a. and the average period of
discount being 146 days.
(2) Bills of exchange of Rs. 600 crores were due for realization from the acceptors/customers after
31st March 2017, the average period outstanding after 31 st March 2017, being 73 days.
You are required to pass necessary journal entries in the books of Strong Bank Ltd. for the above
transactions.

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(c) A Mutual Fund raised 100 lakh on April 1, 2017 by issue of 10 lakh units of Rs. 10 per unit. The
fund invested in several capital market instruments to build a portfolio of Rs. 90 lakhs. The initial
expenses amounted to Rs. 5 lakh. During April, 2017, the fund sold certain securities of cost
Rs. 38 lakhs for Rs. 40 lakhs and purchased certain other securities for Rs. 28.20 lakhs. The
fund management expenses for the month amounted to Rs. 4.50 lakhs of which Rs. 0.35 lakh
was in arrears. The dividend earned was Rs. 1.20 lakhs. 75% of the realized earnings were
distributed. The market value of the portfolio on 30.04.2017 was Rs. 112 lakh.
Determine NAV per unit. (10 Marks + 6 Marks + 4 Marks = 20 Marks)
4. (a) SMM Ltd. has the following capital structure as on 31 st March, 2017: Rs. in crore
Particulars Situation Situation
(i) Equity share capital (shares of Rs. 10 each) 1,200 1,200
(ii) Reserves:
General Reserves 1,080 1,080
Securities Premium 400 400
Profit & Loss 200 200
Infrastructure Development Reserve (Statutory Reserve) 320 320
(iii) Loan Funds 3,200 6,000
The company has offered buy back price of Rs. 30 per equity share. You are required to
calculate maximum permissible number of equity shares that can be bought back in both
situations and also required to pass necessary Journal Entries.
(b) Paper Limited comes out with a public issue of share capital on 01-01-2016 of 30,00,000 equity
shares of Rs. 10 each at a premium of 5%. Rs. 2.50 is payable on application (on or before 31-
01-2016) and Rs. 3 on allotment (31-3-2016) including premium.
This issue was underwritten by two underwriters namely White and Black, equally, the
commission being 4% of the issue price. Each of the underwriters underwrites 60,000 shares
firm. Subscriptions including firm underwriting came for 28,80,000 shares, the distribution of
forms being White: 15,60,000; Black; 10,80,000 and Unmarked 2,40,000.
One of the allottees (using forms marked with name of White) for 6000 shares fails to pay the
amount due to allotment, all the other money due being received in full including any due from
the shares devolving upon the underwriters. The commission due was paid separately.
6,000 shares of one allottee who failed to pay the allotment money were finally forfeited by
30-06-2016 and were re-allotted for payment in cash of Rs. 4 per share. You are required to
prepare each underwriter’s liability (in shares) in statement form and to pass necessary journal
entries to record the above events and transactions (including cash). (12 + 8 = 20 Marks)
5. (a) A Ltd. acquired 70% of equity shares of B Ltd. on 1.4.2010 at cost of Rs. 10,00,000 when B Ltd.
had an equity share capital of Rs. 10,00,000 and reserves and surplus of Rs. 80,000. In the four
consecutive years, B Ltd. fared badly and suffered losses of Rs. 2,50,000, Rs. 4,00,000,
Rs. 5,00,000 and Rs. 1,20,000 respectively. Thereafter in 2014-15, B Ltd. experienced
turnaround and registered an annual profit of Rs. 50,000. In the next two years i.e. 2015-16 and
2016-17, B Ltd. recorded annual profits of Rs. 1,00,000 and Rs. 1,50,000 respectively.
You are required to compute the minority interests and cost of control at the end of each year for
the purpose of consolidation.

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(b) The summarized Balance Sheet of R Ltd. for the year ended on 31 st March, 2013, 2014 and 2015
are as follows:
(Rs. in thousands)
Liabilities 31.3.2013 31.3.2014 31.3.2015
3,20,000 equity shares of Rs. 10 each, fully paid 3,200 3,200 3,200
General reserve 2,400 2,800 3,200
Profit and Loss account 280 320 480
Trade Payables 1,200 1,600 2,000
7,080 7,920 8,880
Assets
Goodwill 2,000 1,600 1,200
Building and Machinery less, depreciation 2,800 3,200 3,200
Inventory 2,000 2,400 2,800
Trade Receivables 40 320 880
Bank balance 240 400 800
7,080 7,920 8,880
Additional information:
(i) Actual valuations were as under:
Building and machinery less, depreciation 3,600 4,000 4,400
Inventory 2,400 2,800 3,200
Net profit (including opening balance after writing off
depreciation, goodwill, tax provision and transferred to
general reserve) 840 1,240 1,640
(ii) Capital employed in the business at market value at the beginning of 2012-13 was
Rs. 73,20,000 which included the cost of goodwill. The normal annual return on average
capital employed in the line of business engaged by R Ltd. is 12½%.
(iii) The balance in the general reserve on 1 st April, 2012 was Rs. 20 lakhs.
(iv) The goodwill shown on 31.3.2013 was purchased on 1.4.2012 for Rs. 20 lakhs on which
date the balance in the Profit and Loss account was Rs. 2,40,000. Find out the average
capital employed in each year.
You are required to compute the value of Goodwill at 5 year’s purchase of Super profit (Simple
average method). (10+ 10 = 20 Marks)
6. (a) Explain on ‘presentation of MAT credit’ in the financial statements in brief.
OR
How will a company classify its investment in preference shares, which are convertible into equity
shares within one year from the balance sheet date? Will it classify the investment as a current
asset or a non-current asset? Explain.
(b) A company has its share capital divided into shares of Rs. 10 each. On 1-1-20X1, it granted
5,000 employees stock options at Rs. 50, when the market price was Rs. 140. The options were
to be exercised between 1-3-20X2 to 31-03-20X2. The employees exercised their options for
4,800 shares only; remaining options lapsed. Pass the necessary journal entries for the year
ended 31-3-20X2, with regard to employees’ stock options.

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(c) Explain “Non-Performing Assets” as per NBFC Prudential Norms (RBI) directions.
(d) From the following data, determine the amount of holding company’s profit in the consolidated
Balance Sheet assuming holding company’s own Profit & Loss Account to be Rs.2,00,000 in
each case:
Subsidiary % shares Cost Date of acquisition Consolidation Date
Company owned
1.1.2018 31.12.2018
Case Share Profit & Loss Share Profit & Loss
Capital Account Capital Account
Rs. Rs. Rs. Rs. Rs.
Case 1 A 90% 1,40,000 1,00,000 50,000 1,00,000 70,000
Case 2 B 85% 1,04,000 1,00,000 30,000 1,00,000 20,000
Case 3 C 80% 56,000 50,000 20,000 50,000 20,000
Case 4 D 100% 1,00,000 50,000 40,000 50,000 55,000
(4 Parts x 5 Marks = 20 Marks)

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Test Series: March, 2019

MOCK TEST PAPER - 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) (i) AS 29 “Provisions, Contingent Liabilities and Contingent Assets” provides that when an
enterprise has a present obligation, as a result of past events, that probably requires an
outflow of resources and a reliable estimate can be made of the amount of obligation, a
provision should be recognised. Sun Ltd. has the obligation to deliver the goods within the
scheduled time as per the contract. It is probable that Sun Ltd. will fail to deliver the goods
within the schedule and it is also possible to estimate the amount of compensation. Therefore,
Sun Ltd. should provide for the contingency amounting Rs. 1.5 crores as per AS 29.
(ii) Provision should not be measured as the excess of compensation to be paid over the profit.
The goods were not manufactured before 31st March, 2016 and no profit had accrued for the
financial year 2015-2016. Therefore, provision should be made for the full amount of
compensation amounting Rs. 1.50 crores.
(b) As per provisions of AS 26 “Intangible Assets”, expenditure on research should be recognized as
an expense when it is incurred. An intangible asset arising from development (or from the
development phase of an internal project) should be recognized if, and only if, an enterprise can
demonstrate all of the conditions specified in para 44 of the standard. An intangible asset (arising
from development) should be derecognized when no future economic benefits are expected from
its use according to para 87 of the standard. Thus, the manager cannot defer the expenditure write
off to future years in the given case. Hence, the expenses amounting Rs. 40 lakhs incurred on the
research and development project has to be written off in the current year ending 31 st March, 2018.
(c) As per AS 19 “Leases”, the lessee should recognize the lease as an asset and a liability at the
inception of a finance lease. Such recognition should be at an amount equal to the fair value of the
leased asset at the inception of lease. However, if the fair value of the leased asset exceeds the
present value of minimum lease payment from the standpoint of the lessee, the amount recorded
as an asset and liability should be the present value of minimum lease payments from the
standpoint of the lessee.
Value of machinery
In the given case, fair value of the machinery is Rs. 10, 00,000 and the net present value of
minimum lease payments is Rs. 10, 07,020 (Refer working Note). As the present value of the
machine is more than the fair value of the machine, the machine and the corresponding liability will
be recorded at value of Rs.10,00,000.
Calculation of finance charges for each year
Year Finance Payment Reduction in outstanding Outstanding
charge (Rs.) (Rs.) liability (Rs.) liability (Rs.)
1st year beginning - - - 10,00,000
End of 1st year 1,60,000 3,50,000 1,90,000 8,10,000
End of 2nd year 1,29,600 3,50,000 2,20,400 5,89,600
End of 3rd year 94,336 3,50,000 2,55,664 3,33,936
End of 4th year 53,430 3,50,000 2,96,570 37,366

 The difference between this figure and guaranteed residual value (Rs. 50,000) is due to rounding off.
1

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Working Note:
Present value of minimum lease payments
Annual lease rental x PV factor
Rs. 3,50,000 x (0.8621 + 0.7432 + 0.6407+ 0.5523) Rs. 9,79 ,405
Present value of guaranteed residual value
Rs. 50,000 x (0.5523) Rs. 27,615
Rs. 10,07,020
(d) Computation of theoretical ex-rights fair value per share
Fair value of all outstanding shares immediately prior to exercise of rights + Total amount received from exercise of rights

Number of shares outstanding prior to exercise + number of shares issued in the exercise
(Rs. 21.00 x 5,00,000 shares) + (Rs.15.00 x 1,00,000 shares)
5,00,000 shares + 1,00,000 shares

Theoretical ex-rights fair value per share = Rs. 20.00

(a) Computation of adjustment factor
Fair value per share prior to exercise of rights Rs. (21.00)
(b) = =1.05
Theoretica l ex - rights value per share Rs.(20.00)

Computation of earnings per share

Year 2015-16 Year 2016-17
EPS for the year 2015-16 as originally reported: Rs. 2.20
(Rs. 11,00,000/5,00,000 shares)
EPS for the year 2015-16 restated for rights issue: Rs. 2.10
[Rs. 11,00,000/ (5,00,000 shares x 1.05)]
EPS for the year 2016-17 including effects of rights issue
` 15,00,000
Rs. 2.55
(5,00,000 x 1.05 x 2 / 12) + (6,00,000 x 10 / 12)

2. (a) (i) In the books of Lili Ltd.

Journal Entries
Dr. Cr.
2017 Rs. Rs.
1. March Equity Share Capital A/c (Rs.10) Dr. 3,00,000
31
To Capital Reduction A/c 90,000
To Equity Share Capital A/c (Rs.7) 2,10,000
(Being reduction of equity shares of Rs.10 each to
shares of Rs. 7 each as per Reconstruction
Scheme dated...)
2. 8% Cum. Preference Share Capital A/c (Rs. 10) Dr. 4,00,000
To Capital Reduction A/c 2,00,000
To Preference Share Capital A/c (Rs. 5) 2,00,000
(Being reduction of preference shares of
Rs.10 each to shares of Rs.5 each as per
reconstruction scheme)
2

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3. Equity Share Capital A/c (30,000 x Rs.7) Dr. 2,10,000

Preference Share Capital A/c (40,000 x Rs.5) Dr. 2,00,000
To Equity Share Capital A/c
(21,000 x Rs. 10) 2,10,000
To Preference Share Capital A/c
(20,000 x Rs.10) 2,00,000
(Being post reduction, both classes of shares
reconsolidated into Rs.10 each) s
4. Cash Account Dr. 64,000
To Trade Investments 64,000
(Being trade investments liquidated in the open
market)
5. Capital Reduction Account Dr. 32,000
To Equity Share Capital Account 32,000
(Being arrears of preference dividends of 4 years
satisfied by the issue of 3,200 equity shares of
Rs.10 each)
6. Capital Reduction Account Dr. 10,000
To Cash Account 10,000
(Being expenses of reconstruction scheme paid in
cash)
7. 9% Debentures Account Dr. 1,20,000
Accrued Interest Account Dr. 5,400
To Debenture holders Account 1,25,400
(Being amount due to debenture holders)
8. Debenture holders Account Dr. 1,25,400
Cash Account (2,10,000 – 1,25,400) Dr. 84,600
To Freehold Land 1,20,000
To Capital Reduction Account 90,000
(2,10,000 – 1,20,000)
(Being Debenture holders took over freehold land
at Rs.2,10,000 and settled the balance)
9. Capital Reduction Account Dr. 54,000
To Cash Account 54,000
(Being contingent liability of Rs.54,000 paid)
10. Cash Account Dr. 12,500
To Capital Reduction Account 12,500
(Being pending insurance claim received)
11. Capital Reduction Account Dr. 1,68,100
To Trademarks and Patents 1,10,000
To Goodwill 36,100
To Raw materials & Packing materials 10,000
To Trade receivables 12,000
(Being intangible assets written off along with raw
materials and packing materials worth Rs.10,000
and 10% of trade receivables)
12. Cash Account Dr. 1,26,000
To Equity Share Capital Account 1,26,000
3

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(Being 12,600 shares issued to existing

shareholders)
13. Bank Overdraft Account Dr. 2,23,100
To Cash Account 2,23,100
(Being cash balance utilized to pay off bank
overdraft)
14. Capital Reduction Account Dr. 1,28,400
To Capital reserve Account 1,28,400
(Being balance of capital reduction account
transferred to capital reserve account)
(ii) Capital Reduction Account
Particulars Rs. Particulars Rs.
To Equity share capital 32,000 By Preference share capital 2,00,000
To Cash (contingent liability settled) 54,000 By Equity share capital 90,000
To Trademarks and Patents 1,10,000 By Freehold land 90,000
To Goodwill 36,100 By Cash (insurance claim) 12,500
To Raw material and
Packing materials 10,000
To Trade receivables 12,000
To Cash account 10,000
To Capital reserve account 1,28,400
3,92,500 3,92,500
(iii) Cash Account
Particulars Rs. Particulars Rs.
To Investment 64,000 By Capital reduction (Contingent 54,000
To 9% Debenture holders liability)
(2,10,000-1,25,400) 84,600 By Expenses 10,000
To Capital reduction (insurance 12,500 By Temporary bank overdraft
claim) - From available cash
(64,000+84,600+12,500
-54,000-10,000) 97,100
To Equity share capital 12,600 - From proceeds of equity share
shares @ Rs.10 each capital (2,23,100–97,100) 1,26,000 2,23,100
1,26,000
2,87,100 2,87,100

Note: Shares issued to existing equity shareholders for bringing cash for payment of balance of
bank overdraft =Rs.2,23,100 – Rs. 97,100 = Rs.1,26,000
(b) Calculation of Total Remuneration payable to Liquidator
Amount in
Rs.
2% on Assets realised 25,00,000 x 2% 50,000
3% on payment made to Preferential creditors 75,000 x 3% 2,250
3% on payment made to Unsecured creditors (Refer W.N) 39,255
Total Remuneration payable to Liquidator 91,505

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Working Note:
Liquidator’s remuneration on payment to unsecured creditors = Cash available for unsecured
creditors after all payments including liquidation expenses, payment to secured creditors,
preferential creditors & liquidator’s remuneration
= Rs. 25,00,000 – Rs. 25,000 – Rs. 10,00,000 – Rs. 75,000 – Rs. 50,000 – Rs. 2,250 =
Rs. 13,47,750.
Liquidator’s remuneration on payment to unsecured creditors = 3/103 x Rs. 13,47,750= Rs. 39,255
3. (a) Name of the Insurer: Xeta Insurance Company Limited
Registration No. and Date of registration with IRDA: ……………………..
Revenue Account for the year ended 31 st March, 2016
Particulars Schedule Amount (Rs.)
Premium earned (net) 1 26,67,500
Profit on sale of investment 30,000
Others –
Interest and dividend (gross) 1,50,000
Total (A) 28,47,500
Claims incurred (Net) 2 20,25,000
Commission 3 50,000
Operating expenses related to insurance 4 7,50,000
Total (B) 28,25,000
Operating profit from insurance business (A) – (B) 22,500
Schedule –1 Premium earned (net)
Rs.
Premium received 33,60,000
Less: Premium on reinsurance ceded (2,25,000)
Net Premium 31,35,000
Less: Adjustment for change in Reserve for Unexpired risk (as per (4,67,500)
W.N.)
Total premium earned 26,67,500
Schedule -2 Claims incurred (net)
Rs.
Claims paid 19,20,000
Add: Expenses regarding claims 90,000
20,10,000
Less: Re-insurance recoveries (60,000)
19,50,000
Add: Claims outstanding as on 31 st March, 2016 2,70,000
22,20,000
Less: Claims outstanding as on 31 st March, 2015 (1,95,000)
20,25,000

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Schedule -3 Commission
Rs.
Commission paid 50,000
Schedule-4 Operating expenses related to Insurance Business
Rs.
Expenses of management (Rs. 8,40,000 – Rs. 90,000) 7,50,000
Working Note:
Calculation for change in Reserve for Unexpired risk:
Rs.
Reserve for Unexpired Risk as on 31 st March, 2016 15,67,500
Additional Reserve as on 31 st March, 2016 7,00,000 22,67,500
Less: Reserve for Unexpired Risk as on 31 st March, 2015 15,00,000
Additional Reserve as on 31 st March, 2015 3,00,000 (18,00,000)
4,67,500
(b) In the books of Strong Bank Ltd.
Journal Entries
Particulars Debit Credit
(Rs.) (Rs.)
Rebate on bills discounted A/c Dr. 27
To Discount on bills A/c 27
(Being the transfer of opening balance in ‘Rebate on bills
discounted A/c’ to ‘Discount on bills A/c’)
Bills purchased and discounted A/c Dr. 4,000
To Discount on bills A/c 240
To Clients A/c 3,760
(Being the discounting of bills of exchange during the year)
Discount on bills A/c Dr. 18
To Rebate on bills discounted A/c 18
(Being the unexpired portion of discount in respect of the
discounted bills of exchange carried forward)
Discount on bills A/c Dr. 249
To Profit and Loss A/c 249
(Being the amount of income for the year from discounting of
bills of exchange transferred to Profit and loss A/c)
Working Notes:
1. Discount received on the bills discounted during the year
15 146
Rs. 4,000 crores   = Rs. 240 crores
100 365
2. Calculation of rebate on bill discounted
15 73
Rs. 600 crores   = Rs. 18 crores
100 365
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(It is assumed that discounting rate of 15% is used for the bill of Rs. 600 crores also)
3. Income from bills discounted transferred to Profit and Loss A/c would be calculated by
preparing Discount on bills A/c
Discount on bills A/c
Rs. in crores
Date Particulars Amount Date Particulars Amount
31 March To Rebate on 18 1st April, By Rebate on bills 27
2017 bills discounted 2016 discounted b/f
” To Profit and 2016-17 By Bills purchased
Loss A/c (Bal. Fig.) 249 and discounted 240
267 267
(c)
Rs. in Rs. in
lakhs lakhs
Opening bank balance [Rs. (100 – 90 - 5) lakhs] 5.00
Add: Proceeds from sale of securities 40.00
Dividend received 1.20 46.20
Less: Cost of securities 28.20
Fund management expenses
[Rs. (4.50–0.35) lakhs] 4.15
Capital gains distributed
[75% of Rs. (40.00 – 38.00) lakhs] 1.50
Dividends distributed (75% of Rs. 1.20 lakhs) 0.90 (34.75)
Closing bank balance 11.45
Closing market value of portfolio 112
123.45
Less: Arrears of expenses (0.35)
Closing net assets 123.10
Number of units 10,00,000
Closing Net Assets Value (NAV) Rs. 12.31
4. (a) Statement determining the maximum number of shares to be bought back
Number of shares (in crores)
Particulars When loan fund is
Rs. 3,200 Rs. 6,000
crores crores
Shares Outstanding Test (W.N.1) 30 30
Resources Test (W.N.2) 24 24
Debt Equity Ratio Test (W.N.3) 32 Nil
Maximum number of shares that can be bought back 24 Nil
[least of the above]

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Journal Entries for the Buy Back

(applicable only when loan fund is Rs. 3,200 crores)
Rs. in crores
Debit Credit
(a) Equity share buyback account Dr. 720
To Bank account 720
(Being payment for buy back of 24 crores equity shares of Rs. 10
each @ Rs. 30 per share)
(b) Equity share capital account Dr. 240
Premium Payable on buyback account Dr. 480
To Equity share buyback account 720
(Being cancellation of shares bought back)
Securities Premium account Dr. 400
General Reserve / Profit & Loss A/c Dr. 80
To Premium Payable on buyback account 480
(Being Premium Payable on buyback account charged to
securities premium and general reserve/Profit & Loss A/c)
(c) General Reserve / Profit & Loss A/c Dr. 240
To Capital redemption reserve account 240
(Being transfer of free reserves to capital redemption reserve to
the extent of nominal value of share capital bought back out of
redeemed through free reserves)
Working Notes:
1. Shares Outstanding Test
Particulars (Shares in crores)
Number of shares outstanding 120
25% of the shares outstanding 30
2. Resources Test
Particulars
Paid up capital (Rs. in crores) 1,200
Free reserves (Rs. in crores) (1,080 + 400 +200) 1,680
Shareholders’ funds (Rs. in crores) 2,880
25% of Shareholders fund (Rs. in crores) Rs. 720 crores
Buy back price per share Rs. 30
Number of shares that can be bought back 24 crores shares
3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy
Back
Particulars When loan fund is
Rs. 3,200 crores Rs. 6,000 crores
(a) Loan funds (Rs.) 3,200 6,000
(b) Minimum equity to be maintained after 1,600 3,000
buy back in the ratio of 2:1 (Rs.) (a/2)
(c) Present equity shareholders fund (Rs.) 2,880 2,880

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(d) Future equity shareholders fund (Rs.) 2,560 (2,880-320) N.A.

(see W.N.4)
(e) Maximum permitted buy back of Equity 960 Nil
(Rs.) [(d) – (b)]
(f) Maximum number of shares that can be 32 crore shares
bought back @ Rs. 30 per share Nil
As per the provisions of the Companies
Act, 2013, company Qualifies Does not Qualify
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
= (2,880 – x) – 1,600 = y
= 1280 – x =y (1)
Equation 2: Maximum Permitted Buy Back X Nominal Value Per Share/Offer Price Per Share
y
=  10  = x Or 3x = y (2)
30
 
by solving the above two equations we get
x= Rs. 320
y = Rs. 960
(b) Statement showing liability of underwriters
a Particulars Basis White Black
A. Gross Liability [No. of Shares) 1:1 15,00,000 15,00,000
B. Less: Marked Applications {Net of firm underwriting} (15,00,000) (10,20,000)
C. Balance [A-B] - 4,80,000
D Less: Unmarked Applications 1:1 (1,20,000) (1,20,000)
E Balance [C-D] (1,20,000) 3,60,000
F Less: Firm Underwriting (60,000) (60,000)
G Balance (1,80,000) 3,00,000
H Credit for White ’s Oversubscription 1,80,000 (1,80,000)
I Net Liability - 1,20,000
J Add: Firm Underwriting 60,000 60,000
K Total Liability [No. Shares] 60,000 1,80,000
Note: In the above statement, it has been assumed that the benefit of firm underwriting is gi ven to
individual underwriter.
Journal Entries
2016
Jan 31 Bank A/c Dr. 72,00,000
To Equity Share Application A/c 72,00,000

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(Being application money received @ Rs. 2.50 per

share)
March Equity Share Application A/c Dr. 72,00,000
To Equity Share Capital A/c 72,00,000
(Being the transfer of application money to share
capital on 28,80,000 shares vide Board’s Resolution)
March Equity Share Allotment A/c Dr. 86,40,000
(28,80,000 x Rs. 3)
To Equity Share Capital A/c (28,80,000 x Rs. 2.5) 72,00,000
To Securities Premium A/c (28,80,000 x Rs. 0.5) 14,40,000
(Being allotment money due on 28,80,000 shares
allotted to public)
Black (1,20,000 x Rs. 5.5) Dr. 6,60,000
To Equity Share Capital A/c 6,00,000
(1,20,000 x Rs. 5)
To Securities Premium A/c 60,000
(1,20,000 x Rs. 0.5)
(Being the application and allotted money due on net
liability of underwriter i.e. 1,20,000 shares)
March Bank A/c Dr. 92,82,000
To Equity Share Allotment A/c 86,22,000
[(28,80,000 – 6,000) x Rs. 3]
To Black (1,20,000 x Rs. 5.5) 6,60,000
(Being the receipt of money due on allotment except
from the allottee for 6,000 shares)
March Underwriting Commission A/c Dr. 12,60,000
To Black A/c 6,30,000
To White A/c 6,30,000
(Being commission @ 4 % on issue price of Rs. 10.50
for Rs. 30 lakh shares payable to underwriters)
March Black A/c 6,30,000
White A/c 6,30,000
To Bank A/c 12,60,000
(Being commission paid to underwriters)
June 30 Equity Share Capital A/c (6,000 x 5) Dr. 30,000
Securities Premium A/c (6,000 x 0.5) Dr. 3,000
To Share Allotment A/c (6,000 x 3) 18,000
To Forfeited Shares A/c (6,000 x 2.5) 15,000
(Being 6,000 shares forfeited vide Board’s Resolution)
June 30 Bank A/c (6,000 x Rs. 4) Dr. 24,000
Forfeited Shares A/c Dr. 6,000
To Equity Share Capital A/c (6,000 x Rs. 5) 30,000

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(Being the reissue of 6,000 shares @ Rs. 4 as Rs. 5

paid up at par)
Forfeited Shares A/c (15,000 – 6,000) Dr. 9,000
To Capital Reserve A/c 9,000
(Being the transfer of profit on reissue)
5. (a) The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest
in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are
adjusted against the majority interest except to the extent that the minority has a binding obligation
to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such
profits are allocated to the majority interest until the minority's share of losses previously absorbed
by the majority has been recovered. Accordingly,
Year Profit/(Loss) Minority Additional Minority's Share of Cost of
Interest (30%) Consolidated P&L losses borne by A Control
(Dr.) Cr. Ltd.
Rs. Balance
At the time of -
acquisition in 3,24,000
2010 (W.N.)
2010-11 (2,50,000) (75,000) (1,75,000) 2,44,000
(W.N.)
Balance 2,49,000
2011-12 (4,00,000) (1,20,000) (2,80,000) 2,44,000
Balance 1,29,000
2012-13 (5,00,000) (1,50,000) (3,50,000) 2,44,000
(21,000)
Loss of 21,000 (21,000) 21,000 21,000
minority
borne by
Holding Co.
Balance Nil (3,71,000)
2013-14 (1,20,000) (36,000) (84,000) 2,44,000
Loss of
minority 36,000 (36,000) 36,000 57,000
borne by
Holding Co.
Balance Nil (1,20,000)
2014-15 50,000 15,000 35,000 2,44,000

Profit share (15,000) 15,000 (15,000) 42,000

of minority
adjusted
against
losses of
minority
absorbed by
Balance Nil 50,000
Holding Co.
2015-16 1,00,000 - 1,00,000 (30,000) 12,000 2,44,000
Balance Nil
2016-17 1,50,000 45,000 1,05,000 (12,000) Nil 2,44,000
(12,000) 12,000
Balance 33,000 1,17,000

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Working Note:
Calculation of Minority interest and Cost of control on 1.4.2010
Share of Holding Co. Minority Interest
100% 70% 30%
(Rs. ) (Rs. ) (Rs. )
Share Capital 10,00,000 7,00,000 3,00,000
Reserve 80,000 56,000 24,000
7,56,000 3,24,000
Less: Cost of investment (10,00,000)
Goodwill 2,44,000

(b) 1. Capital Employed at the end of each year

31.3.2013 31.3.2014 31.3.2015
Rs. Rs. Rs.
Goodwill 20,00,000 16,00,000 12,00,000
Building and Machinery (Revaluation) 36,00,000 40,00,000 44,00,000
Inventory (Revalued) 24,00,000 28,00,000 32,00,000
Trade Receivables 40,000 3,20,000 8,80,000
Bank Balance 2,40,000 4,00,000 8,00,000
Total Assets 82,80,000 91,20,000 104,80,000
Less: Trade Payables (12,00,000) (16,00,000) (20,00,000)
Closing Capital 70,80,000 75,20,000 84,80,000
Add: Opening Capital 73,20,000 70,80,000 75,20,000
Total 1,44,00,000 1,46,00,000 1,60,00,000
Average Capital 72,00,000 73,00,000 80,00,000
Since the goodwill has been purchased, it is taken as a part of Capital employed.
2. Valuation of Goodwill
(i) Future Maintainable Profit 31.3.2013 31.3.2014 31.3.2015
Net Profit as given 8,40,000 12,40,000 16,40,000
Less: Opening Balance (2,40,000) (2,80,000) (3,20,000)
Adjustment for Valuation of Opening - (4,00,000) (4,00,000)
Inventory
Add: Adjustment for Valuation of closing 4,00,000 4,00,000 4,00,000
inventory
Goodwill written off - 4,00,000 4,00,000
Transferred to General Reserve 4,00,000 4,00,000 4,00,000
Future Maintainable Profit 14,00,000 17,60,000 21,20,000
Less: 12.50% Normal Return (9,00,000) (9,12,500) (10,00,000)
(ii) Super Profit 5,00,000 8,47,500 11,20,000
(iii) Average Super Profit = Rs. (5,00,000+8,47,500+11,20,000)÷3 = Rs. 8,22,500
(iv) Value of Goodwill at five years’ purchase= Rs. 8,22,500 × 5 = Rs. 41,12,500.

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6. (a) Presentation of MAT credit in the financial statements:

Balance Sheet: Where a company recognizes MAT credit as an asset on the basis of the
considerations specified in the Guidance Note on Accounting for Credit Available in respect of
Minimum Alternate Tax under the Income Tax Act, 1961, the same should be presented under the
head ‘Loans and Advances’  since, there being a convincing evidence of realization of the asset,
it is of the nature of a pre-paid tax which would be adjusted against the normal income tax during
the specified period. The asset may be reflected as ‘MAT credit entitlement’.
In the year of set-off of credit, the amount of credit availed should be shown as a deduction from
the ‘Provision for Taxation’ on the liabilities side of the balance sheet. The unavailed amount of
MAT credit entitlement, if any, should continue to be presented under the head ‘Loans and
Advances’ if it continues to meet the considerations stated in paragraph 11 of the Guidance Note.
Profit and Loss Account: According to explanation given for paragraph 21 of Accounting
Standard 22, “Accounting for Taxes on Income” in the context of Section 115JB of the Income-tax
Act, 1961, MAT is the current tax. Accordingly, the tax expense arising on account of payment of
MAT should be charged at the gross amount, in the normal way, to the statement of profit and loss
in the year of payment of MAT. In the year in which the MAT credit becomes eligible to be
recognized as an asset in accordance with the recommendations contained in this Guidance Note,
the said asset should be created by way of a credit to the statement of profit and loss and presented
as a separate line item therein.
OR
In accordance with the Schedule III, an investment realizable within 12 months from the reporting
date is classified as a current asset. Such realisation should be in the form of cash or cash
equivalents, rather than through conversion of one asset into another non-current asset. Hence,
company must classify such an investment as a non-current asset, unless it expects to sell the
preference shares or the equity shares on conversion and realise cash within 12 months.
(b) Journal Entries in the books of company
Date Particulars Dr. Rs. Cr. Rs.
1-3-X2 to Bank A/c Dr. 2,40,000
31-3-X2 Employees compensation expenses A/c Dr. 4,32,000
To Equity Share Capital A/c 48,000
To Securities Premium A/c 6,24,000
(Being allotment to employees 4,800 shares of
Rs. 10 each at a premium of Rs. 130 at an exercise price
of
Rs. 50 each)
31-3-X2 Profit and Loss account Dr. 4,32,000
To Employees compensation expenses A/c 4,32,000
(Being transfer of employees compensation expenses)
Working Note:
1. Employee Compensation Expenses = Discount between Market Price and option price
= Rs. 140 – Rs. 50 = Rs. 90 per share = Rs. 90 x 4,800 = Rs. 4,32,000/- in total.
2. The Employees Compensation Expense is transferred to Securities Premium Account.

 As per Schedule III to the Companies Act, 2013, it should be presented under the head ‘Non-current Assets’ sub head
‘Long-term Loans and Advances’.
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3. Securities Premium Account = Rs. 50 – Rs. 10 = Rs. 40 per share + Rs. 90 per share on
account of discount of option price over market price = Rs. 130 per share = Rs. 130 x 4,800
= Rs. 6, 24,000/- in total.
(c) ‘Non-performing asset’ means:
(a) an asset, in respect of which, interest has remained overdue for a period of six months or
more;
(b) a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months
or more or on which interest amount remained overdue for a period of six months or more;
(c) a demand or call loan, which remained overdue for a period of six months or more from the
date of demand or call or on which interest amount remained overdue for a period of six
months or more;
(d) a bill which remains overdue for a period of six months or more;
(e) the interest in respect of a debt or the income on receivables under the head ‘other current
assets’ in the nature of short term loans/advances, which facility remained overdue for a
period of six months or more;
(f) any dues on account of sale of assets or services rendered or reimbursement of expenses
incurred, which remained overdue for a period of six months or more;
Note: As per Non-Banking Financial Company - Systemically Important Non-Deposit taking
Company and Deposit taking Company (Reserve Bank) Directions, 2016, the above six
months criteria for the assets covered under (a) to (f) is 4 months for the financial year ending
March 31, 2017; and from next year ending March 31, 2018 and thereafter it will be 3 months.
(g) the lease rental and hire purchase instalment, which has become overdue for a period of
twelve months or more;
Note: The above twelve months criteria for the assets covered under (g) is 6 months for the
financial year ending March 31, 2017 and from next year ending March 31, 2018 and
thereafter it will be 3 months.
(h) in respect of loans, advances and other credit facilities (including bills purchased and
discounted), the balance outstanding under the credit facilities (including accrued interest)
made available to the same borrower/beneficiary when any of the above credit facilities
becomes non-performing asset
(d) The balance in the Profit & Loss Account on the date of acquisition (1.1.2018) is Capital profit, as
such the balance of Consolidated Profit & Loss Account shall be equal to Holding Co.’s profit.
On 31.12.2018 in each case the following amount shall be added or deducted from the balance of
holding Co.’s Profit & Loss account.
% Share P & L as on P & L as on P & L post Amount to be added /
holding 31.12.2018 consolidation acquisition (deducted) from
[K] date holding’s P & L
[L] [M] [N] = [M]-[L] [O] = [K] x [N]
1 90 % 50,000 70,000 20,000 18,000
2 85 % 30,000 20,000 (10,000) (8,500)
3 80 % 20,000 20,000 NIL NIL
4 100 % 40,000 55,000 15,000 15,000

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Test Series: April, 2019

MOCK TEST PAPER – 2
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) Ruby Ltd. sold goods through its agent. As per terms of sales, consideration is payable within one
month. In the event of delay in payment, interest is chargeable @ 10% p.a. from the agent. The
company has not realized interest from the agent in the past. For the year ended 31 st March, 2017
interest due from agent (because of delay in payment) amounts to Rs. 5 lakhs. The accountant of
Ruby Ltd. booked Rs. 5 lakhs as interest income in the year ended 31 st March, 2017.
Examine and discuss the contention of the accountant with reference to AS 9 “Revenue
Recognition”.
(b) EXOX Ltd. is in the process of finalising its accounts for the year ended 31 st March, 2017. The
company seeks your advice on the following:
(i) The Company’s sales tax assessment for assessment year 2014-15 has been completed on
14th February, 2017 with a demand of Rs. 2.76 crore. The company paid the entire due under
protest without prejudice to its right of appeal. The Company files its appeal before the
appellate authority wherein the grounds of appeal cover tax on additions made in the
assessment order for a sum of 2.10 crore.
(ii) The Company has entered into a wage agreement in May, 2017 whereby the labour union
has accepted a revision in wage from June, 2016. The agreement provided that the hike till
May, 2017 will not be paid to the employees but will be settled to them at the ti me of
retirement. The company agrees to deposit the arrears in Government Bonds by
September, 2017.
You required to examine and give suggestions in line with the relevant Accounting Standards.
(c) A Ltd. has got the license to manufacture particular medicines for 10 years at a license fee of
Rs. 200 lakhs. Given below is the pattern of expected production and expected operating cash
inflow:
Year Production in bottles (in lakhs) Net operating cash flow (Rs. in lakhs)
1 300 900
2 600 1,800
3 650 2,300
4 800 3,200
5 800 3,200
6 800 3,200
7 800 3,200
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8 800 3,200
9 800 3,200
10 800 3,200
Net operating cash flow has increased for third year because of better inventory management and
handling method.
You are required to determine the amortization method in line with AS 26.
(d) ABC Ltd. took a machine on lease from XYZ Ltd., the fair value being Rs. 10,00,000. The economic
life of the machine as well as the lease term is 4 years. At the end of each year, ABC Ltd. pays
Rs. 3,50,000. The lessee has guaranteed a residual value of Rs. 50,000 on expiry of the lease to
the lessor. However, XYZ Ltd. estimates that the residential value of the machinery will be
Rs. 35,000 only. The implicit rate of return is 16% and PV factors at 16% for year 1, year 2, year 3
and year 4 are 0.8621, 0.7432, 0.6407 and 0.5523 respectively.
You are required to calculate the value of machinery to be considered by ABC Ltd. and the finance
charges for each year. (4 parts x 5 Marks = 20 Marks)
2. (a) Z Limited came up with an issue of 60,00,000 equity shares of Rs. 10 each at par. 15,00,000 shares
were issued to the promoters and the balance offered to the public was underwritten by three
underwriters D, E and F - equally with firm underwriting of 1,40,000 shares each, Subscriptions
totalled 38,91,000 shares including the marked forms which were:
D 12,75,000 shares
E 13,50,000 shares
F 10,50,000 shares
The underwriters had applied for the number of shares covered by firm underwriting. The amounts
payable on application and allotment were Rs. 2.50 and Rs. 2.00 respectively. The agreed
commission was 5%.
You are required to give journal entries for -
(a) The allotment of shares to the underwriters
(b) The commission due to each of them and
(c) The net cash paid and or received.
Note: Unmarked applications are to be credited to underwriters equally. Benefit of firm underwriting
is given to individual underwriter.
(b) SMM Ltd. has the following capital structure as on 31 st March, 2017: Rs. in crore
Particulars Situation Situation
(i) Equity share capital (shares of Rs. 10 each) 1,200 1,200
(ii) Reserves:
General Reserves 1,080 1,080
Securities Premium 400 400
Profit & Loss 200 200
Infrastructure Development Reserve (Statutory Reserve) 320 320
(iii) Loan Funds 3,200 6,000

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The company has offered buy back price of Rs. 30 per equity share. You are required to calculate
maximum permissible number of equity shares that can be bought back in both situations and also
required to pass necessary Journal Entries. (10 + 10 = 20 Marks)
3. (a) The following were the summarized Balance Sheets of P Ltd. and V Ltd. as at 31-3-20X1:
Liabilities P Ltd. V Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Equity Share Capital (Fully paid shares of Rs. 10 each) 15,000 6,000
Securities Premium 3,000 –
Foreign Project Reserve – 310
General Reserve 9,500 3,200
Profit and Loss Account 2,870 825
12% Debentures – 1,000
Trade payables 1,200 463
Provisions 1,830 702
33,400 12,500

Assets P Ltd. V Ltd.

(Rs. in lakhs) (Rs. in lakhs)
Land and Buildings 6,000 –
Plant and Machinery 14,000 5,000
Furniture, Fixtures and Fittings 2,304 1,700
Inventory 7,862 4,041
Trade receivables 2,120 1,100
Cash at Bank 1,114 609
Cost of Issue of Debentures — 50
33,400 12,500
All the bills receivable held by V Ltd. were P Ltd.’s acceptances.
On 1st April 20X1, P Ltd. took over V Ltd in an amalgamation in the nature of merger. It was agreed
that in discharge of consideration for the business P Ltd. would allot three fully paid equity shares
of Rs. 10 each at par for every two shares held in V Ltd. It was also agreed that 12% debentures
in V Ltd. would be converted into 13% debentures in P Ltd. of the same amount and denomination.
Details of trade receivables and trade payables as under:
Assets P Ltd. V Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Trade payables
Bills Payable 120 -
Creditors 1,080 463
1,200 463

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Trade receivables
Debtors 2,120 1,020
Bills Receivable — 80
2,120 1,100
Expenses of amalgamation amounting to Rs. 1 lakh were borne by P Ltd.
You are required to:
(i) Prepare journal entries in the books of P Ltd. and
(ii) Prepare P Ltd.’s Balance Sheet immediately after the merger considering that the cost of
issue of debentures shown in the balance sheet of the V Ltd. company is not transferred to
the P Ltd. company.
(b) XYZ Limited is being would up by the tribunal. All the assets of the company have been charged
to the company’s bankers to whom the company owes Rs. 5 crores. The company owes following
amounts to others:
Dues to workers – Rs. 1,25,00,000
Taxes Payable to Government – Rs. 30,00,000
Unsecured Creditors – Rs. 60,00,000
You are required to compute with the reference to the provision of the Companies Act, 2013 the
amount each kind of creditors is likely to get if the amount realized by the official liquidator from
the secured assets and available for distribution among creditors is only Rs. 4,00,00,000/-
(15 + 5 = 20 Marks)
4. (a) The following are the figures extracted from the books of TOP Bank Limited as on 31.3.2017.
Rs.
Interest and discount received 59,29,180
Interest paid on deposits 32,59,920
Issued and subscribed capital 16,00,000
Salaries and allowances 3,20,000
Directors fee and allowances 48,000
Rent and taxes paid 1,44,000
Postage and telegrams 96,460
Statutory reserve fund 12,80,000
Commission, exchange and brokerage 3,04,000
Rent received 1,04,000
Profit on sale of investments 3,20,000
Depreciation on bank’s properties 48,000
Statutory expenses 44,000
Preliminary expenses 40,000
Auditor’s fee 28,000

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The following further information is given:

(i) A customer to whom a sum of Rs. 16 lakhs has been advanced has become insolvent and it
is expected only 40% can be recovered from his estate.
(ii) There were also other debts for which a provision of Rs. 2,10,000 was found necessary by
the auditors.
(iii) Rebate on bills discounted on 31.3.2016 was Rs. 19,000 and on 31.3.2017 was Rs. 25,000.
(iv) Preliminary expenses are to be fully written off during the year.
(v) Provide Rs. 9,00,000 for Income-tax.
(vi) Profit and Loss account opening balance was Nil as on 31.3.2016.
You are required to Prepare the Profit and Loss account of TOP Bank Limited for the year ended
31.3.2017.
(b) From the following particulars of M/s. Tsunami Marine Insurance Limited for the year ending
31st March, 2016, find out the
(i) Net Premium earned
(ii) Net Claims incurred
Direct Business Re- Insurance
(Rs.) lakhs (Rs.) lakhs
PREMIUM:
Received 4,400 376
Receivable -01.04.2015 220 18
Receivable -31.3.2016 189 16
Paid 305
Payable - 01.04.2015 14
Payable - 31.3.2016 9
CLAIMS:
Paid 3,450 277
Payable - 01.04.2015 45 8
Payable - 31.3.2016 48 6
Received 101
Receivable - 01.04.2015 20
Receivable - 31.3.2016 19
(16+ 4 = 20 Marks)
5. (a) Consider the following summarized balance sheets of subsidiary Neel Ltd.:
2015 2016 2015 2016
Rs. Rs. Rs. Rs.
Share-Capital Fixed Assets
Issued & subscribed Cost 1,60,000 1,60,000
2,500 equity shares Less: Accumulated
of Rs. 100 each 2,50,000 2,50,000 depreciation (24,000) (48,000)
Reserves & Surplus 1,36,000 1,12,000
5

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Revenue reserves 1,43,000 3,57,000 Investments at cost

Current Liabilities & Current Assets: — 2,00,000
Provisions:
Trade Payables 2,45,000 2,47,000 Inventory 2,98,500 3,71,000
Bank overdraft — 85,000 Trade Receivables 2,97,000 4,45,500
Provision for taxation 1,55,000 2,15,000 Prepaid Expenses 36,000 24,000
Cash at Bank 25,500 1,500
7,93,000 11,54,000 7,93,000 11,54,000
Also consider the following information:
(i) Neel Ltd. is a subsidiary of Sky Ltd. Both the companies follow calendar year as the
accounting year.
(ii) Sky Ltd. values inventory on LIFO basis while Neel Ltd. used FIFO basis. To bring Neel Ltd.’s
values in line with those of Sky Ltd. its value of inventory is required to be reduced by Rs.
6,000 at the end of 2015 and Rs. 17,000 at the end of 2016.
(iii) Neel Ltd. deducts 1% from Trade Receivables as a general provision against doubtful debts.
(iv) Prepaid expenses in Neel Ltd. include advertising expenditure carried forward of
Rs. 30,000 in 2015 and Rs. 15,000 in 2016, being part of initial advertising expenditure of
Rs. 45,000 in 2015 which is being written off over three years. Similar amount of advertising
expenditure of Sky Ltd. has been fully written off in 2015.
You are required to restate the balance sheet of Neel Ltd. as on 31 st December, 2016 after
considering the above information, for the purpose of consolidation. Make the necessary
restatement which is necessary to make the accounting policies adopted by Sky Ltd. and Neel Ltd.
uniform.
(b) The summarized Balance Sheet of K Ltd. for the year ended on 31 st March, 2015, 2016 and 2017
are as follows:
(Rs. in thousands)
Liabilities 31.3.2015 31.3.2016 31.3.2017
1,60,000 equity shares of Rs. 10 each, fully paid 1,600 1,600 1,600
General reserve 1,200 1,400 1,600
Profit and Loss account 140 160 240
Trade Payables 600 800 1,000
3,540 3,960 4,440
Assets
Goodwill 1,000 800 600
Building and Machinery less, depreciation 1,400 1,600 1,600
Inventory 1,000 1,200 1,400
Trade Receivables 20 160 440
Bank balance 120 200 400
3,540 3,960 4,440

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Additional information:
(a) Actual valuations were as under:
Building and machinery less, depreciation 1,800 2,000 2,200
Inventory 1,200 1,400 1,600
Net profit (including opening balance after
writing off depreciation, goodwill, tax
provision and transferred to general 420 620 820
reserve)
(b) Capital employed in the business at market value at the beginning of 2014-15 was
Rs. 36,60,000 which included the cost of goodwill. The normal annual return on average
capital employed in the line of business engaged by K Ltd. is 12½%.
(c) The balance in the general reserve on 1 st April, 2014 was Rs. 10 lakhs.
(d) The goodwill shown on 31.3.2015 was purchased on 1.4.2014 for Rs. 10 lakhs on which date
the balance in the Profit and Loss account was Rs. 1,20,000. Compute the average capital
employed in each year.
Goodwill is to be valued at 5 year’s purchase of Super profit (Simple average method). Also find
out the total value of the business as on 31.3.2017. (12 Marks + 8 Marks = 20 Marks)
6. (a) A consumer goods producer has changed the product line as follows:
Dish washing Bar Clothes washing Bar
(Per month) (Per month)
January 2016 - September 2016 2,00,000 2,00,000
October 2016 - December 2016 1,00,000 3,00,000
January 2017 - March 2017 Nil 4,00,000
The company has enforced a gradual enforcement of change in product line on the basis of an
overall plan. The Board of Directors has passed a resolution in March 2016 to this effect. The
company follows calendar year as its accounting year. You are required to advise whether it should
it be treated as discontinuing operation as per AS 24?
(b) Explain, in brief, the investment valuation norms for traded securities in case of mutual funds as
per SEBI(Mutual fund) Regulations.
(c) Balance Sheets of X Ltd.
As on 31st March 2014 and 31st March 2015
(Rs. In lakhs)
Liabilities 31.3.14 31.3.15 Assets 31.3.14 31.3.15
Share Capital 18,00 18,00 Fixed assets 24,00 26,00
General Reserve 6,00 6,00 Investments 1,00 2,00
Profit &Loss A/c 6,80 9,40 Inventory 6,00 5,50
12% Debentures 2,00 2,00 Trade 3,00 3,50
receivables
18% Term Loan 3,00 3,20 Cash and Bank 4,00 3,40

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Cash Credit 1,20 80

Trade payables 70 60
Tax Provision 30 40
38,00 40,40 38,00 40,40
Non-trade investments were 75% of the total investments. Find capital employed as on 31.3.14
and as on 31.3.15 and average capital employed.
(d) XYZ Ltd. purchased 80% shares of ABC Ltd. on 1 st January, 2016 for Rs. 2,80,000. The issued
capital of ABC Ltd., on 1 st January, 2016 was Rs. 2,00,000 and the balance in the Profit & Loss
Account was Rs. 1,20,000.
During the year ended 31 st December, 2016, ABC Ltd. earned a profit of Rs. 40,000 and at year
end, declared and paid a dividend of Rs. 60,000.
Show by an entry how the dividend should be recorded in the books of XYZ Ltd.
What is the amount of minority interest as on 1 st January, 2016 and 31st December, 2016?
(4 Parts x 5 Marks = 20 Marks)

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Test Series: April, 2019

MOCK TEST PAPER - 2
INTERMEDIATE (NEW): GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS

1. (a) As per AS 9 “Revenue Recognition”, “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, the company
never realized interest for the delayed payments made by the agent. Hence, based on the past
experience, the realization of interest for the delayed payments by the agent is very much
uncertain. The interest should be recognized only if the ultimate collection is certain. Therefore,
the interest income of Rs. 5 lakhs should not be recognized in the books for the year ended 31 st
March, 2017. Thus the contention of accountant is incorrect. However, if the agents have agreed
to pay the amount of interest and there is an element of certainty associated with these receipts,
the accountant is correct regarding booking of Rs. 5 lakhs as interest amount.
(b) (i) Since the company is not appealing against the addition of Rs. 0.66 crore the same should
be provided for in its accounts for the year ended on 31st March, 2017. The amount paid
under protest can be kept under the heading ‘Loans & Advances’ and disclosed along with
the contingent liability of Rs. 2.10 crore.
(ii) The arrears for the period from June, 2016 to March, 2017 are required to be provided for in
the accounts of the company for the year ended on 31st March, 2017.
(c) As per AS 26 ‘Intangibles Assets’, the amortization method used should reflect the pattern in which
economic benefits are consumed by the enterprise. If pattern cannot be determined reliably, then
straight-line method should be used.
In the instant case, the pattern of economic benefit in the form of net operating cash flow vis-à-vis
production is determined reliably. A Ltd. should amortize the license fee of Rs. 200 lakhs as under:
Year Net operating Cash in Ratio Amortize amount (Rs. in lakhs)
flow (Rs.)
1 900 0.03 6
2 1,800 0.06 12
3 2,300 0.08 16
4 3,200 0.12 24
5 3,200 0.12 24
6 3,200 0.12 24
7 3,200 0.12 24
8 3,200 0.12 24
9 3,200 0.12 24
10 3,200 0.11 (bal.) 22
27,400 1.00 200

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(d) As per AS 19 “Leases”, the lessee should recognize the lease as an asset and a liability at the
inception of a finance lease. Such recognition should be at an amount equal to the fair value of the
leased asset at the inception of lease. However, if the fair value of the leased asset exceeds the
present value of minimum lease payment from the standpoint of the lessee, the amount recorded
as an asset and liability should be the present value of minimum lease payments from the
standpoint of the lessee.
Value of machinery
In the given case, fair value of the machinery is Rs. 10, 00,000 and the net present value of
minimum lease payments is Rs. 10, 07,020 (Refer working Note). As the present value of the
machine is more than the fair value of the machine, the machine and the corresponding liability will
be recorded at value of Rs.10,00,000.
Calculation of finance charges for each year
Year Finance Payment Reduction in Outstanding
charge outstanding liability liability
(Rs.) (Rs.) (Rs.) (Rs.)
1 year beginning
st - - - 10,00,000
End of 1st year 1,60,000 3,50,000 1,90,000 8,10,000
End of 2nd year 1,29,600 3,50,000 2,20,400 5,89,600
End of 3rd year 94,336 3,50,000 2,55,664 3,33,936
End of 4th year 53,430 3,50,000 2,96,570 37,366
Working Note:
Present value of minimum lease payments
Annual lease rental x PV factor
Rs. 3,50,000 x (0.8621 + 0.7432 + 0.6407+ 0.5523) Rs. 9,79 ,405
Present value of guaranteed residual value
Rs. 50,000 x (0.5523) Rs. 27,615
Rs. 10,07,020
2. (a) Z Ltd.
Journal Entries
Dr. Cr.
Rs. Rs.
Bank A/c Dr. 10,50,000
To Share Application A/c 10,50,000
(Application money received on firm applications for 140,000 shares
each @ Rs. 2.50 per share from D, E & F)
D Dr. 2,80,000
E Dr. 2,80,000
F Dr. 11,30,500
Share Application A/c Dr. 10,50,000

 The difference between this figure and guaranteed residual value (Rs. 50,000) is due to rounding off.
2

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To Share Capital A/c 27,40,500

(Allotment of shares to underwriters - 1,40,000 to D; 1,40,000 to E
and 3,29,000 to F; application and allotment money credited to
share capital)
Underwriting Commission A/c Dr. 22,50,000
To D 7,50,000
To E 7,50,000
To F 7,50,000
(Amount of underwriting commission payable to D, E and F @ 5%
on the amount of shares underwritten.)
Bank A/c Dr. 3,80,500
To F 3,80,500
(Amount received from F on shares allotted less underwriting
commission)
D Dr. 4,70,000
E Dr. 4,70,000
To Bank A/c 9,40,000
(Amount paid to D & E in final settlement of underwriting commission
due less amount payable on shares allotted payable by them.)
Working Notes:
(1) Calculation of Liability of Underwriters
D E F
Gross Liability (No. of shares) 15,00,000 15,00,000 15,00,000
Less: Marked Applications (excluding
firm underwriting) (12,75,000) (13,50,000) (10,50,000)
2,25,000 1,50,000 4,50,000
Less: Unmarked Applications (equally) (72,000) (72,000) (72,000)
1,53,000 78,000 3,78,000
Less: Firm Underwriting (1,40,000) (1,40,000) (1,40,000)
13,000 (62,000) 2,38,000
Surplus of E distributed between D & F
equally (31,000) 62,000 (31,000)
(18,000) - 2,07,000
Surplus of D allocated to F totally 18,000 — (18,000)
Net Liability, excluding Firm Underwriting - - 1,89,000
Add: Firm underwriting 1,40,000 1,40,000 1,40,000
Total liability of underwriters 1,40,000 1,40,000 3,29,000
(2) Calculation of Amounts Payable by Underwriters
D E F
Liability (No. of shares) 1,40,000 1,40,000 3,29,000
Amount payable @ Rs. 4.50 per share 6,30,000 6,30,000 14,80,500
3

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Less: Amount paid on Firm Applications of

1,40,000 each @ Rs. 2.50* (3,50,000) (3,50,000) (3,50,000)
Balance payable 2,80,000 2,80,000 11,30,500
Underwriting Commission Receivable 7,50,000 7,50,000 7,50,000
Amount Paid 4,70,000 4,70,000 —
Amount received by the Co. — — 3,80,500
* Underwriters had already paid the application money on these shares.
(b) Statement determining the maximum number of shares to be bought back
Number of shares (in crores)
Particulars When loan fund is
Rs. 3,200 crores Rs. 6,000
crores
Shares Outstanding Test (W.N.1) 30 30
Resources Test (W.N.2) 24 24
Debt Equity Ratio Test (W.N.3) 32 Nil
Maximum number of shares that can be 24 Nil
bought back [least of the above]
Journal Entries for the Buy Back
(applicable only when loan fund is Rs.3,200 crores)
Rs. in crores
Debit Credit
(a) Equity share buyback account Dr. 720
To Bank account 720
(Being payment for buy back of 24 crores equity shares
of Rs. 10 each @ Rs. 30 per share)
(b) Equity share capital account Dr. 240
Premium Payable on buyback account Dr. 480
To Equity share buyback account 720
(Being cancellation of shares bought back)
Securities Premium account Dr. 400
General Reserve / Profit & Loss A/c Dr. 80
To Premium Payable on buyback account 480
(Being Premium Payable on buyback account charged to
securities premium and general reserve/Profit & Loss
A/c)
(c) General Reserve / Profit & Loss A/c Dr. 240
To Capital redemption reserve account 240
(Being transfer of free reserves to capital redemption
reserve to the extent of nominal value of share capital
bought back out of redeemed through free reserves)
4

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Working Notes:
1. Shares Outstanding Test
Particulars (Shares in crores)
Number of shares outstanding 120
25% of the shares outstanding 30
2. Resources Test
Particulars
Paid up capital (Rs. in crores) 1,200
Free reserves (Rs. in crores) (1,080 + 400 +200) 1,680
Shareholders’ funds (Rs. in crores) 2,880
25% of Shareholders fund (Rs. in crores) Rs. 720 crores
Buy back price per share Rs. 30
Number of shares that can be bought back 24 crores shares
3. Debt Equity Ratio Test: Loans cannot be in excess of twice the Equity Funds post Buy
Back
Particulars When loan fund is
Rs. 3,200 crores Rs. 6,000 crores
(a) Loan funds (Rs.) 3,200 6,000
(b) Minimum equity to be maintained after buy 1,600 3,000
back in the ratio of 2:1 (Rs.) (a/2)
(c) Present equity shareholders fund (Rs.) 2,880 2,880
(d) Future equity shareholders fund (Rs.) (see 2,560 (2,880-320) N.A.
W.N.4)
(e) Maximum permitted buy back of Equity (Rs.) 960 Nil
[(d) – (b)]
(f) Maximum number of shares that can be 32 crore shares
bought back @ Rs. 30 per share Nil
As per the provisions of the Companies Act,
2013, company Qualifies Does not Qualify
3. (a) Books of P Ltd.
Journal Entries
Dr. Cr.
(Rs. in Lacs) (Rs. in Lacs)
Business Purchase A/c Dr. 9,000
To Liquidator of V Ltd. 9,000
(Being business of V Ltd. taken over for consideration
settled as per agreement)
Plant and Machinery Dr. 5,000

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Furniture & Fittings Dr. 1,700

Inventory Dr. 4,041
Debtors Dr. 1,020
Cash at Bank Dr. 609
Bills Receivable Dr. 80
To Foreign Project Reserve 310
To General Reserve (3,200 - 3,000) 200
To Profit and Loss A/c (825 – 50*) 775
To Liability for 12% Debentures 1,000
To Creditors 463
To Provisions 702
To Business Purchase 9,000
(Being assets & liabilities taken over from V Ltd.)
Liquidator of V Ltd. A/c Dr. 9,000
To Equity Share Capital A/c 9,000
(Purchase consideration discharged in the form of equity
shares)
Profit & loss A/c Dr. 1
To Bank A/c 1
(Liquidation expenses paid by P Ltd.)
Liability for 12% Debentures A/c Dr. 1,000
To 13% Debentures A/c 1,000
(12% debentures discharged by issue of 13% debentures)
Bills Payable A/c Dr. 80
To Bills Receivable A/c 80
(Cancellation of mutual owing on account of bills)

Balance Sheet of P Ltd. as at 1st April, 20X1 (after merger)

Particulars Notes Rs. (in lakhs)
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 24,000
B Reserves and Surplus 2 16,654

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2 Non-current liabilities
A Long-term borrowings 3 1,000
3 Current liabilities
A Trade Payables (1,543 + 40) 1,583
B Short-term provisions 2,532
Total 45,769
Assets
1 Non-current assets
A Fixed assets
Tangible assets 4 29,004
2 Current assets
A Inventories 11,903
B Trade receivables 3,140
C Cash and cash equivalents 1,722
Total 45,769
Notes to accounts
Rs.
1. Share Capital
Equity share capital
Authorised, issued, subscribed and paid up
24 crores equity shares of Rs. 10 each (Of the above shares, 9 crores shares
have been issued for consideration other than cash) 24,000
Total 24,000
2. Reserves and Surplus
General Reserve 9,700
Securities Premium 3,000
Foreign Project Reserve 310
Profit and Loss Account 3,644
Total 16,654
3. Long-term borrowings
Secured
13% Debentures 1,000
4. Tangible assets
Land & Buildings 6,000
Plant & Machinery 19,000
Furniture & Fittings 4,004
Total 29,004

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Working Note:
Computation of purchase consideration
The purchase consideration was discharged in the form of three equity shares of P Ltd. for every
two equity shares held in V Ltd.

Purchase consideration = Rs. 6,000 lacs × 3 = Rs. 9,000 lacs.

2
* Cost of issue of debenture adjusted against P & L Account of V Ltd.
(b) Section 326 of the Companies Act, 2013 talks about the overriding preferential payments to be
made from the amount realized from the assets to be distributed to various kind of creditors.
According to the proviso given in the section 326 the security of every secured creditor should be
deemed to be subject to a paripassu change in favor of the workman to the extent of their portion.
Amount Realied X Workman′ s Dues
Workman′ s Share to Secured Asset =
Workman′ s Dues + Secured Loan
Workman′ s Share to Secured Asset
4,00,00,000 X 1,25,00,000
=
1,25,00,000 + 5,00,00,000

1
4,00,00,000 X
5

Workman′ s Share to Secured Assets = 80,00,000

Amount available to secured creditor is Rs. 400 Lakhs – 80 Lakhs = 320 Lakhs
Hence, no amount is available for payment of government dues and unsecured creditors.
4. (a) TOP Bank Limited
Profit and Loss Account for the year ended 31 st March, 2017
Schedule Year ended
31.03.2017
(Rs. in ‘000s)
I. Income:
Interest earned 13 5923.18
Other income 14 728.00
Total 6,651.18
II. Expenditure
Interest expended 15 3259.92
Operating expenses 16 768.46
Provisions and contingencies (960+210+900) 2,070.00
Total 6,098.38
IIII. Profits/Losses
Net profit for the year 552.80
Profit brought forward nil
552.80

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IV. Appropriations
Transfer to statutory reserve (25%) 138.20
Balance carried over to balance sheet 414.60
552.80

Year ended
31.3. 2017
(Rs. in ‘000s)
Schedule 13 – Interest Earned
I. Interest/discount on advances/bills (Refer W.N.) 5923.18
5923.18
Schedule 14 – Other Income
I. Commission, exchange and brokerage 304
II. Profit on sale of investments 320
III. Rent received 104
728
Schedule 15 – Interest Expended
I. Interests paid on deposits 3259.92

Schedule 16 – Operating Expenses

I. Payment to and provisions for employees 320
II. Rent and taxes 144
III. Depreciation on bank’s properties 48
IV. Director’s fee, allowances and expenses 48
V. Auditors’ fee 28
VI. Law (statutory) charges 44
VII. Postage and telegrams 96.46
VIII. Preliminary expenses 40
768.46
Working Note:
(Rs. in
‘000s)
Interest/discount 5,929.18
Add: Rebate on bills discounted on 31.3. 2016 19.00
Less: Rebate on bills discounted on 31.3. 2017 ( 25.00)
5,923.18

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(b) (i) Net Premium earned

Rs. In lakhs
Premium from direct business received 4,400
Add: Receivable as 31.03.16 189
Less: Receivable as on 01.04.2015 (220) 4,369
Add: Premium on re-insurance accepted 376
Add: Receivable as on 31.03.16 16
Less: Receivable as on 01.04.2015 (18) 374
4,743
Less: Premium on re-insurance ceded 305
Add: Payable as on 31.03.16 9
Less: Payable as on 01.04.15 (14) (300)
Net Premium earned 4,443
(ii) Net Claims incurred
Rs. In lakhs
Claims paid on direct business 3,450
Add: Reinsurance 277
Add: Reinsurance outstanding as 31.03.16 6
Less: Reinsurance outstanding as on 01.04.2015 (8) 275
Less: Claims Received from re-insurance 101
Add: Receivable as on 31.03.16 19
Less: Receivable as on 01.04.2015 (20) 100
3,625
Add: Outstanding direct claims at the end of the year 48
3,673
Less: Outstanding Claims at the beginning of the year (45)
Net Claims Incurred 3,628
5. (a) Adjusted revenue reserves of Neel Ltd.
Rs. Rs.
Revenue reserves as given 3,57,000
Add: Provision for doubtful debts [4,45,500 / 99 X 1] 4,500
3,61,500
Less: Reduction in value of Inventory 17,000
Advertising expenditure to be written off 15,000 (32,000)
Adjusted revenue reserve 3,29,500

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Note: Since Neel Ltd. follows FIFO basis, it is assumed that opening inventory has been sold out
during the year 2015. Therefore, reduction in inventory would have been taken care of by sale
value. Hence no adjustment has been made for the same.
Restated Balance Sheet of Neel Ltd.
as at 31st December, 2016
Particulars Note No. (Rs.)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 2,50,000
(b) Reserves and Surplus 1 3,29,500
(2) Current Liabilities
(a) Short term borrowings 2 85,000
(b) Trade Payables 2,47,000
(c) Short-term provision 3 2,15,000
Total 11,26,500
II. Assets
(1) Non-current assets
(a) Fixed assets
Tangible assets 4 1,12,000
(b) Non-current Investment 2,00,000
(2) Current assets
(a) Inventories 3,54,000
(b) Trade Receivables 4,50,000
(c) Cash & Cash Equivalents 1,500
(d) Other current assets 5 9,000
Total 11,26,500

Notes to Accounts
Rs.
1. Reserves and Surplus
Revenue Reserve (refer computation of adjusted revenue 3,29,500
reserves of Neel Ltd)
2. Short term borrowings
Bank overdraft 85,000
3. Short-term provision
Provision for taxation 2,15,000
4. Tangible Assets
Cost 1,60,000
Less: Depreciation to date (48,000) 1,12,000

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5. Other current assets

Prepaid expenses (After adjusting advertising expenditure to be 9,000
written off each year)
(b)
Total value of business Rs.
Total net Asset as on 31.3.2017 42,40,000
Less: Goodwill as per Balance Sheet (6,00,000)
Add: Goodwill as calculated in Working Note 2 20,56,250
Value of Business 56,96,250
Working Notes:
1. Capital Employed at the end of each year
31.3.2015 31.3.2016 31.3.2017
Rs. Rs. Rs.
Goodwill 10,00,000 8,00,000 6,00,000
Building and Machinery (Revaluation) 18,00,000 20,00,000 22,00,000
Inventory (Revalued) 12,00,000 14,00,000 16,00,000
Trade Receivables 20,000 1,60,000 4,40,000
Bank Balance 1,20,000 2,00,000 4,00,000
Total Assets 41,40,000 45,60,000 52,40,000
Less: Trade Payables (6,00,000) (8,00,000) (10,00,000)
Closing Capital 35,40,000 37,60,000 42,40,000
Add: Opening Capital 36,60,000 35,40,000 37,60,000
Total 72,00,000 73,00,000 80,00,000
Average Capital 36,00,000 36,50,000 40,00,000
Since the goodwill has been purchased, it is taken as a part of Capital employed.
2. Valuation of Goodwill
(i) Future Maintainable Profit 31.3.2015 31.3.2016 31.3.2017
Net Profit as given 4,20,000 6,20,000 8,20,000
Less: Opening Balance (1,20,000) (1,40,000) (1,60,000)
Adjustment for Valuation of Opening - (2,00,000) (2,00,000)
Inventory
Add: Adjustment for Valuation of closing 2,00,000 2,00,000 2,00,000
inventory
Goodwill written off - 2,00,000 2,00,000
Transferred to General Reserve 2,00,000 2,00,000 2,00,000
Future Maintainable Profit 7,00,000 8,80,000 10,60,000
Less: 12.50% Normal Return (4,50,000) (4,56,250) (5,00,000)
(ii) Super Profit 2,50,000 4,23,750 5,60,000
(iii) Average Super Profit = Rs. (2,50,000+4,23,750+5,60,000) ÷3 = Rs. 4,11,250
(iv) Value of Goodwill at five years’ purchase= Rs. 4,11250 × 5 = Rs. 20,56,250.

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6. (a) As per AS 24 ‘Discontinuing Operations’, a discontinuing operation is a component of an enterprise:

(i) that the enterprise, pursuant to a single plan, is:
(1) disposing of substantially in its entirety,
(2) disposing of piecemeal, or
(3) terminating through abandonment; and
(ii) that represents a separate major line of business or geographical area of operations; and
(iii) that can be distinguished operationally and for financial reporting purposes.
As per provisions of the standard, business enterprises frequently close facilities, abandon
products or even product lines, and change the size of their work force in response to market
forces. While those kinds of terminations generally are not, in themselves, discontinuing
operations, they can occur in connection with a discontinuing operation. Examples of activities that
do not necessarily satisfy criterion of discontinuing operation are gradual or evolutionary phasing
out of a product line or class of service, discontinuing, even if relatively abruptly, several products
within an ongoing line of business;
In the given case, the company has enforced a gradual enforcement of change in product line and
does not represent a separate major line of business and hence is not a discontinued operation.
If it were a discontinuing operation, the initial disclosure event is the occurrence of one of the
following, whichever occurs earlier:
(i) the enterprise has entered into a binding sale agreem ent for substantially all of the assets
attributable to the discontinuing operation; or
(ii) the enterprises board of directors or similar governing body has both approved a detailed, formal
plan for discontinuance and made an announcement of the plan.
(b) Eight Schedule of the SEBI (Mutual Fund) Regulations, 1996 states the Investment Valuation
Norms. NAV of a scheme is determined by dividing the net assets of the scheme by the number
of outstanding units on the valuation date.
Traded Securities:-
(i) The securities shall be valued at the last quoted closing price on the recognized stock
exchange.
(ii) When the securities are traded on more than one recognised stock exchange, the securities
shall be valued at the last quoted closing price on the stoc k exchange where the security is
principally traded. It would be left to the asset management company to select the appropriate
stock exchange, but the reasons for the selection should be recorded in writing. There should
however be no objection for all scrips being valued at the prices quoted on the stock exchange
where a majority in value of the investments is principally traded.
(iii) Once a stock exchange has been selected for valuation of a particular security, reasons for
change of the exchange shall be recorded in writing by the asset management company.
(iv) When on a particular valuation day, a security has not been traded on the selected stock
exchange, the value at which it is traded on another stock exchange may be used.
(v) When a security is not traded on any stock exchange on a particular valuation day, the value
at which it was traded on the selected stock exchange or any other stock exchange, as the
case may be, on the earliest previous day may be used provided such date is not more than
sixty days prior to the valuation date.

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(c) Computation of capital employed

(Rs. in lakhs)
31.3.14 31.3.15
Total Assets as per
Balance Sheet 38,00 40,40

Less: Non-trade Investments (75) (1,50)

37,25 38,90
Less: Outside Liabilities:
12% Debentures 2,00 2,00
18% Term Loan 3,00 3,20
Cash Credit 1,20 80
Trade payables 70 60
Tax Provision 30 7,20 40 7,00
Capital employed 30,05 31,90
30,05 lakhs+31,90 lakhs
Average capital employed = = Rs. 3,097.5 lakhs.
2
(d) Total dividend paid = Rs. 60,000
Out of post-acquisition profit = Rs. 40,000
Out of pre-acquisition profit = Rs. 20,000
Hence, 2/3rd of dividend received by XYZ will be credited to P & L and 1/3rd will be credited to
Investment.
XYZ Ltd.’s share of dividend = Rs. 60,000 X 80% = Rs. 48,000
In the books of XYZ Ltd.
Rs. Rs.
Bank A/c Dr. 48,000
To Profit & Loss A/c 32,000
To Investments in ABC Ltd. 16,000
(Dividend received from ABC Ltd. 1/3 credited to investment A/c
being out of capital profits – as explained above)
Goodwill on Consolidation: Rs.
Cost of shares less dividend out of capital profits 2,64,000
Less: Face value of capital i.e. 80% of capital 1,60,000
Add: Share of capital profits [1,20,000-20,000 (dividend portion 80,000 2,40,000
out of pre-acquisition profits)] X 80 %
Goodwill 24,000
Minority interest on: 64,000
1st January, 2016: 20% of Rs. 3,20,000 [2,00,000 + 1,20,000]
31st December, 2016: 20% of Rs. 3,00,000 [2,00,000 + 1,20,000 60,000
+ 40,000 – 60,000]

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Test Series: October, 2019

MOCK TEST PAPER 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) ABC Ltd. took a machine on lease from XYZ Ltd., the fair value being Rs. 10,00,000. The economic
life of the machine as well as the lease term is 4 years. At the end of each year, ABC Ltd. pays
Rs. 3,50,000. The lessee has guaranteed a residual value of Rs. 50,000 on expiry of the lease to
the lessor. However, XYZ Ltd. estimates that the residential value of the machinery will be
Rs. 35,000 only. The implicit rate of return is 16% and PV factors at 16% for year 1, year 2, year 3
and year 4 are 0.8621, 0.7432, 0.6407 and 0.5523 respectively. You are required to calculate the
value of machinery to be considered by ABC Ltd. and the finance charges for each year.
(b) A Ltd. has got the license to manufacture particular medicines for 10 years at a license fee of
Rs. 200 lakhs. Given below is the pattern of expected production and expected operating cash
inflow:
Year Production in bottles (in lakhs) Net operating cash flow (Rs. in lakhs)
1 300 900
2 600 1,800
3 650 2,300
4 800 3,200
5 800 3,200
6 800 3,200
7 800 3,200
8 800 3,200
9 800 3,200
10 800 3,200
Net operating cash flow has increased for third year because of better inventory management and
handling method. Suggest the amortization method.
(c) X Ltd. negotiates with Bharat Petroleum Corporation Ltd (BPCL), for construction of “Franchise
Retail Petrol Outlet Stations”. Based on proposals submitted to different Zonal offices of BPCL,
the final approval for one outlet each in Zone A, Zone B, Zone C, Zone D, is awarded to X Ltd.
Agreement (in single document) is entered into with BPCL for Rs. 490 lakhs. The agreement lays
down values for each of the four outlets (Rs. 88 + 132 + 160 + 110 lakhs) in addition to individual
completion time. You are required to examine and comment whether X Ltd., will treat it as a single
contract or four separate contracts.

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(d) Fashion Limited is engaged in manufacturing of readymade garments. They provide you the
following information on 31 st March, 2019:
(i) On 15th January, 2019 garments worth Rs. 4,00,000 were sent to Anand on consignment basis
of which 25% garments unsold were lying with Anand as on 31 st March, 2019.
(ii) Garments worth Rs. 1,95,000 were sold to Shine boutique on 25 th March, 2019 but at the
request of Shine Boutique, these were delivered on 15 th April, 2019.
(iii) On 1st November, 2018 garments worth Rs. 2,50,000 were sold on approval basis. The period
of approval was 4 months after which they were considered sold. Buyer sent approval for 75%
goods up to 31st December, 2018 and no approval or disapproval received for the remaining
goods till 31st March, 2019.
You are required to advise the accountant of Fashion Limited, the amount to be recognised as
revenue in above cases in the context of AS 9. (4 Parts x 5 Marks = 20 Marks)
2. (a) M/s Xylem Limited has decided to reconstruct the Balance Sheet since it has accumulated huge
losses. The following is the summarized Balance Sheet of the company as on 31st March, 2019
before reconstruction:
Liabilities Amount (Rs.) Assets Amount (Rs.)
Share Capital Land & Building 42,70,000
50,000 shares of Rs. 50 Machinery 8,50,000
each fully paid up 25,00,000 Computers 5,20,000
1,00,000 shares of Rs. 50 Inventories 3,20,000
each Rs. 40 paid up 40,00,000 Trade receivables 10,90,000
Capital Reserve 5,00,000 Cash at Bank 2,68,000
8% Debentures of Rs. 100 each 4,00,000 Profit & Loss Account 29,82,000
12% Debentures of Rs. 100 each 6,00,000
Trade payables 12,40,000
Outstanding Expenses 10,60,000
1,03,00,000 1,03,00,000
Following is the interest of Mr. A and Mr. B in M/s Xylem Limited:
Mr. A Mr. B
8% Debentures 3,00,000 1,00,000
12% Debentures 4,00,000 2,00,000
Total 7,00,000 3,00,000
The following scheme of internal reconstruction was framed and implemented, as approved by the
court and concerned parties:
(1) Uncalled capital is to be called up in full and then all the shares to be converted into Equity
Shares of Rs. 40 each.
(2) The existing shareholders agree to subscribe in cash, fully paid up equity shares of 40 each
for Rs. 12,50,000.

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(3) Trade payables are given option of either to accept fully paid equity shares of Rs. 40 each
for the amount due to them or to accept 70% of the amount due to them in cash in full
settlement of their claim. Trade payables for Rs. 7,50,000 accept equity shares and rest of
them opted for cash towards full and final settlement of their claim .
(4) Mr. A agrees to cancel debentures amounting to Rs. 2,00,000 out of total debentures due
to him and agree to accept 15% Debentures for the balance amount due. He also agree to
subscribe further 15% Debentures in cash amounting to Rs. 1,00,000.
(5) Mr. B agrees to cancel debentures amounting to Rs. 50,000 out of total debentures due to
him and agree to accept 15% Debentures for the balance amount due.
(6) Land & Building to be revalued at Rs. 51,84,000, Machinery at Rs. 7,20,000, Computers at
Rs. 4,00,000, Inventories at Rs. 3,50,000 and Trade receivables at 10% less to as they are
appearing in Balance Sheet as above.
(7) Outstanding Expenses are fully paid in cash.
(8) Profit & Loss A/c will be written off and balance, if any, of Capital Reduction A/c will be
adjusted against Capital Reserve.
You are required to pass necessary Journal Entries for all the above transactions and draft the
company's Balance Sheet immediately after the reconstruction.
(b) A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The
assets were realized for Rs. 25,00,000 against which payment was made as follows:
Liquidation expenses Rs. 25,000
Secured Creditors Rs. 10,00,000
Preferential Creditors Rs. 75,000
The amount due to Unsecured Creditors was Rs. 15,00,000. You are asked to calculate the total
Remuneration payable to Liquidator. Calculation shall be made to the nearest multiple of a
rupee. (15 + 5 = 20 Marks)
3. (a) The following was the summarized balance sheet of Mukta Ltd. as on 31 st March, 2019:
Equity & liability Rs. (in lakhs) Assets Rs. (in lakhs)
Authorised Capital: Fixed Assets 1,12,000
Equity shares of Rs. 10 each 80,000 Investments 24,000
Issued Capital Cash at Bank 13,200
Equity Shares of Rs.10 each Fully Trade Receivables 66,000
Paid Up 64,000
10% Redeemable Preference
Shares of 10 each, Fully Paid Up 20,000
Reserves & Surplus:
Capital Redemption Reserve 8,000
Securities Premium 6,400
General Reserve 48,000

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Profit & Loss Account 2,400

9% Debentures 40,000
Trade Payables 26,400
2,15,200 2,15,200

On 1st April,2019 the Company redeemed all its Preference Shares at a Premium of 10% and
bought back 25% of its Equity Shares at Rs.20 per Share. In order to make Cash available, the
Company sold all the Investments for Rs.25,200 Lakhs and raised a Bank Loan amounting to
Rs.16,000 lakh on the Security of the Company's Plant.
Give the necessary Journal Entries considering that the buy back is authorised by the articles of
company and necessary resolution is passed by the company for this. The amount of Securities
premium will be utilized to the maximum extents allowed by law.
(b) On 1st April, 2018, a company offered 100 shares to each of its 500 employees at Rs. 50 per share.
The employees are given a year to accept the offer. The shares issued under the plan shall be
subject to lock-in on transfer for three years from the grant date. The market price of shares of the
company on the grant date is Rs. 60 per share. Due to post-vesting restrictions on transfer, the fair
value of shares issued under the plan is estimated at Rs. 56 per share. On 31st March, 2019, 400
employees accepted the offer and paid Rs. 50 per share purchased. Nominal value of each shares
is Rs. 10.
Record the issue of shares in the books of the company under the aforesaid plan.
(c) Gemini Ltd. came up with public issue of 30,00,000 Equity shares of Rs. 10 each at Rs. 15 per
share. A, B and C took underwriting of the issue in 3 : 2 : 1 ratio.
Applications were received for 27,00,000 shares.
The marked applications were received as under:
A 8,00,000 shares
B 7,00,000 shares
C 6,00,000 shares
Commission payable to underwriters is at 5% on the face value of shares.
You are required to compute the liability of each underwriter as regards the number of shares to
be taken up. (12+4+4= 20 Marks)
4. (a) From the following balances extracted from the books of General Insurance Company Limited as
on 31.3.2019 you are required to prepare Revenue Accounts in respect of Fire and marine
Insurance business for the year ended 31.3.2019 and a Profit and Loss Account for the same
period:
Rs. Rs.
Directors’ Fees 80,000 Interest received 19,000
Dividend received 1,00,000 Fixed Assets (1.4.2018) 90,000
Provision for Taxation Income-tax paid during
(as on 1.4. 2018) 85,000 the year 60,000

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Fire Marine
Rs. Rs.
Outstanding Claims on 1.4. 2018 28,000 7,000
Claims paid 1,00,000 80,000
Reserve for Unexpired Risk on 1.4.2018 2,00,000 1,40,000
Premiums Received 4,50,000 3,30,000
Agent’s Commission 40,000 20,000
Expenses of Management 60,000 45,000
Re-insurance Premium (Dr.) 25,000 15,000
The following additional points are also to be taken into account:
(a) Depreciation on Fixed Assets to be provided at 10% p.a.
(b) Interest accrued on investments Rs. 10,000.
(c) Closing provision for taxation on 31.3.2019 to be maintained at Rs. 1,24,138.
(d) Claims outstanding on 31.3.2019 were Fire Insurance Rs. 10,000; Marine Insurance
Rs. 15,000.
(e) Premium outstanding on 31.3.2019 were Fire Insurance Rs. 30,000; Marine Insurance Rs.
20,000.
(f) Reserve for unexpired risk to be maintained at 50% and 100% of net premiums in respect of
Fire and Marine Insurance respectively.
(g) Expenses of management due on 31.3.2019 were Rs. 10,000 for Fire Insurance and
Rs. 5,000 in respect of marine Insurance.
(b) Templeton Finance Ltd. is a non-banking finance company. The extracts of its balance sheet are
given below:
Liabilities Amount Assets Amount
Rs. in 000 Rs. in 000
Paid-up equity capital 100 Leased out assets 800
Free reserves 500 Investment:
Loans 400 In shares of subsidiaries and
Deposits 400 group companies 100
In debentures of subsidiaries and
group Companies 100
Cash and bank balances 200
Deferred expenditure 200
1,400 1,400
You are required to compute 'Net owned Fund' of Templeton Finance Ltd. as per Non-Banking
Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking
Company (Reserve Bank) Directions, 2016. (15 + 5 = 20 Marks)

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5. (a) A Ltd. acquired 70% of equity shares of B Ltd. on 1.4.2010 at cost of Rs. 10,00,000 when B Ltd.
had an equity share capital of Rs. 10,00,000 and reserves and surplus of Rs. 80,000. In the four
consecutive years, B Ltd. fared badly and suffered losses of Rs. 2,50,000, Rs. 4,00,000,
Rs. 5,00,000 and Rs. 1,20,000 respectively. Thereafter in 2014-15, B Ltd. experienced turnaround
and registered an annual profit of Rs. 50,000. In the next two years i.e. 2015-16 and 2016-17, B
Ltd. recorded annual profits of Rs. 1,00,000 and Rs. 1,50,000 respectively. Show the minority
interests and cost of control at the end of each year for the purpose of consolidation.
(b) The summarized Balance Sheet of R Ltd. for the year ended on 31 st March, 2017, 2018 and 2019
are as follows:
(Rs. in thousands)
Liabilities 31.3.2017 31.3.2018 31.3.2019
3,20,000 equity shares of Rs. 10 each, fully paid 3,200 3,200 3,200
General reserve 2,400 2,800 3,200
Profit and Loss account 280 320 480
Trade Payables 1,200 1,600 2,000
7,080 7,920 8,880
Assets
Goodwill 2,000 1,600 1,200
Building and Machinery less, depreciation 2,800 3,200 3,200
Inventory 2,000 2,400 2,800
Trade Receivables 40 320 880
Bank balance 240 400 800
7,080 7,920 8,880
Additional information:
(i) Actual valuations were as under:
Building and machinery less, depreciation 3,600 4,000 4,400
Inventory 2,400 2,800 3,200
Net profit (including opening balance after writing off
depreciation, goodwill, tax provision and transferred to
general reserve) 840 1,240 1,640
(ii) Capital employed in the business at market value at the beginning of 2016-17 was
Rs. 73,20,000 which included the cost of goodwill. The normal annual return on average
capital employed in the line of business engaged by R Ltd. is 12½%.
(iii) The balance in the general reserve on 1 st April, 2016 was Rs. 20 lakhs.
(iv) The goodwill shown on 31.3.2017 was purchased on 1.4.2016 for Rs. 20 lakhs on which date
the balance in the Profit and Loss account was Rs. 2,40,000. Find out the average c apital
employed in each year.
You are required to compute the value of Goodwill at 5 year’s purchase of Super profit (Simple
average method). (12 + 8 = 20 Marks)

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6. (a) An airline is required by law to overhaul its aircraft once in every five years. The pacific Airlines
which operate aircrafts does not provide any provision as required by law in its final accounts. You
are required to comment on the validity of the treatment done by the company in line with the
provisions of AS 29.
(b) Omega Bank Statement of interest on advances in respect of Performing assets and Non-
Performing Assets are as follows:- (in lakhs)
Performing Assets Non-Performing Assets
Interest Interest Interest Interest
earned received earned received
Cash credits and overdrafts 1800 1060 450 70
Term Loan 480 320 300 40
Bills purchased and discounted 700 550 350 36
Find out the income to be recognized for the year ended 31st March, 20X1.
OR
A fund purchased 10,000 debentures of a company on June 1, 2018 for Rs. 10.7 lakh and further
5,000 debentures on Nov 1, 2018 for Rs. 5.45 lakh. The debentures carry fixed annual coupon of
12%, payable on every 31 March and 30 September. On Feb 28, 2019 the fund sold 6,000 of these
debentures for Rs. 6.78 lakh. Nominal value per debenture is Rs. 100.
Show Investment in Debentures A/c in books of the fund.
(c) W, X, Y and Z hold equity share capital in the proportion of 40:30:10:20. A, B, C and D hold
preference share capital in the proportion of 30:40:20:10. If the paid up capital of the company is
Rs. 40 Lakh and Preference share capital is Rs. 20 Lakh, Find their voting rights in case of
resolution of winding up of the company.
(d) The following is the summarized Balance Sheet of ‘A’ Ltd. as on 31.3.2019:
Liabilities Rs. Assets Rs.
14,000 Equity shares of Rs. 100 each, fully paid 14,00,000 Sundry assets 18,00,000
up
General reserve 10,000
10% Debentures 2,00,000
Trade payables 1,40,000
Bank overdraft 50,000
18,00,000 18,00,000
B Ltd. agreed to take over the business of ‘A’ Ltd. Calculate purchase consideration under Net
Assets method on the basis: Market value of 75% of the sundry assets is estimated to be 12%
more than the book value and that of the remaining 25% at 8% less than the book value. The
liabilities are taken over at book values. There is an unrecorded liability of Rs. 25,000.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: Oct 2019

MOCK TEST PAPER 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS
1. (a) As per AS 19 “Leases”, the lessee should recognize the lease as an asset and a liability at the
inception of a finance lease. Such recognition should be at an amount equal to the fair value of the
leased asset at the inception of lease. However, if the fair value of the leased asset exceeds the
present value of minimum lease payment from the standpoint of the lessee, the amount recorded
as an asset and liability should be the present value of minimum lease payments from the
standpoint of the lessee.
Value of machinery
In the given case, fair value of the machinery is Rs. 10, 00,000 and the net present value of
minimum lease payments is Rs. 10, 07,020 (Refer working Note). As the present value of the
machine is more than the fair value of the machine, the machine and the corresponding liability will
be recorded at value of Rs.10,00,000.
Calculation of finance charges for each year
Year Finance Payment Reduction in Outstanding
charge (Rs.) (Rs.) outstanding liability liability (Rs.)
(Rs.)
1st year beginning - - - 10,00,000
End of 1st year 1,60,000 3,50,000 1,90,000 8,10,000
End of 2nd year 1,29,600 3,50,000 2,20,400 5,89,600
End of 3rd year 94,336 3,50,000 2,55,664 3,33,936
End of 4th year 53,430 3,50,000 2,96,570 37,366
Working Note:
Present value of minimum lease payments
Annual lease rental x PV factor
Rs. 3,50,000 x (0.8621 + 0.7432 + 0.6407+ 0.5523) Rs. 9,79 ,405
Present value of guaranteed residual value
Rs. 50,000 x (0.5523) Rs. 27,615
Rs. 10,07,020
(b) As per AS 26 ‘Intangibles Assets’, the amortization method used should reflect the pattern in which
economic benefits are consumed by the enterprise. If pattern cannot be determined reliably, then
straight-line method should be used.

In the instant case, the pattern of economic benefit in the form of net operating cash flow vis-à-vis
production is determined reliably. A Ltd. should amortize the license fee of Rs. 200 lakhs as under:
Year Net operating Cash in flow (Rs.) Ratio Amortize amount (Rs. in lakhs)

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1 900 0.03 6
2 1,800 0.06 12
3 2,300 0.08 16
4 3,200 0.12 24
5 3,200 0.12 24
6 3,200 0.12 24
7 3,200 0.12 24
8 3,200 0.12 24
9 3,200 0.12 24
10 3,200 0.11 (bal.) 22
27,400 1.00 200
(c) As per AS 7 on ‘Construction Contracts’, when a contract covers a number of assets, the
construction of each asset should be treated as a separate construction contract when:
(a) separate proposals have been submitted for each asset;
(b) each asset has been subject to separate negotiation and the contractor and customer have
been able to accept or reject that part of the contract relating to each asset; and
(c) the costs and revenues of each asset can be identified.
In the given case, each outlet is submitted as a separate proposal to different Zonal Office, which
can be separately negotiated, and costs and revenues thereof can be separately identified. Hence,
each asset will be treated as a “single contract” even if there is one document of contract.
Therefore, four separate contract accounts have to be recorded and maintained in the books of X
Ltd. For each contract, principles of revenue and cost recognition have to be applied separately
and net income will be determined for each asset as per AS 7.
(d) As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance
should be regarded as being achieved when the following conditions are fulfilled:
(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.
Case (i): 25% goods lying unsold with consignee should be treated as closing inventory and
sales should be recognized for Rs. 3,00,000 (75% of Rs. 4,00,000) for the year ended on
31.3.19. In case of consignment sale revenue should not be recognized until the goods are
sold to a third party.
Case (ii): The sale is complete but delivery has been postponed at buyer’s request. Fashion
Ltd. should recognize the entire sale of Rs.1,95,000 for the year ended 31 st March, 2019.
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,

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a reasonable time has elapsed. Therefore, revenue should be recognized for the total sales
amounting Rs. 2,50,000 as the time period for rejecting the goods had expired.
Thus total revenue amounting Rs. 7,45,000 (3,00,000+1,95,000+2,50,000) will be recognized
for the year ended 31st March, 2019 in the books of Fashion Ltd.
2. Journal Entries
Rs. Rs.
Bank A/c Dr. 10,00,000
To Equity share capital A/c 10,00,000
(Being money on final call received)
Equity share capital (Rs. 50) A/c Dr. 75,00,000
To Equity share capital (Rs. 40) A/c 60,00,000
To Capital Reduction A/c 15,00,000
(Being conversion of equity share capital of Rs. 50 each into
Rs. 40 each as per reconstruction scheme)
Bank A/c Dr. 12,50,000
To Equity Share Capital A/c 12,50,000
(Being new shares allotted at Rs. 40 each)
Trade payables A/c Dr. 12,40,000
To Equity share capital A/c 7,50,000
To Bank A/c (4,90,000 x 70%) 3,43,000
To Capital Reduction A/c 1,47,000
(Being payment made to trade payables in shares or cash to the
extent of 70% as per reconstruction scheme)
8% Debentures A/c Dr. 3,00,000
12% Debentures A/c Dr. 4,00,000
To A A/c 7,00,000
(Being cancellation of 8% and 12% debentures of A)
A A/c Dr. 8,00,000
To 15% Debentures A/c 6,00,000
To Capital Reduction A/c 2,00,000
(Being issuance of new 15% debentures and balance transferred
to capital reduction account as per reconstruction scheme)
Bank A/c Dr. 1,00,000
To A A/c 1,00,000
(Being new debentures subscribed by A)

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8% Debentures A/c Dr. 1,00,000

12% Debentures A/c Dr. 2,00,000
To B A/c 3,00,000
(Being cancellation of 8% and 12% debentures of B)
B A/c Dr. 3,00,000
To 15% Debentures A/c 2,50,000
To Capital Reduction A/c 50,000
(Being issuance of new 15% debentures and balance transferred
to capital reduction account as per reconstruction scheme)
Land and Building Dr.
(51,84,000 – 42,70,000) 9,14,000
Inventories Dr. 30,000
To Capital Reduction A/c 9,44,000
(Being value of assets appreciated)
Outstanding expenses A/c Dr. 10,60,000
To Bank A/c 10,60,000
(Being outstanding expenses paid in cash)
Capital Reduction A/c Dr. 33,41,000
To Machinery A/c 1,30,000
To Computers A/c 1,20,000
To Trade receivables A/c 1,09,000
To Profit and Loss A/c 29,82,000
(Being amount of Capital Reduction utilized in writing off P & L A/c
(Dr.) balance and downfall in value of other assets)
Capital Reserve A/c Dr. 5,00,000
To Capital Reduction A/c 5,00,000
(Being debit balance of capital reduction account adjusted against
capital reserve)

Balance Sheet of Xylem Ltd. (as reduced) as on 31.3.2019

Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 80,00,000
2 Non-current liabilities
a Long-term borrowings 2 8,50,000
Total 88,50,000

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Assets
1 Non-current assets
a Property, Plant and Equipment
Tangible assets 3 63,04,000
2 Current assets
a Inventories 3,50,000
b Trade receivables 9,81,000
c Cash and cash equivalents 12,15,000
Total 88,50,000

Notes to accounts
Rs.
1. Share Capital
2,00,000 Equity shares of Rs. 40 80,00,000
2. Long-term borrowings
Secured
15% Debentures (assumed to be secured) 8,50,000
3. Tangible assets
Land & Building 51,84,000
Machinery 7,20,000
Computers 4,00,000 63,04,000
Working Notes:
1. Cash at Bank Account
Particulars Rs. Particulars Rs.
To Balance b/d 2,68,000 By Trade payables A/c 3,43,000
To Equity Share capital A/c 10,00,000 By Outstanding expenses A/c 10,60,000
To Equity Share Capital A/c 12,50,000 By Balance c/d (bal. fig.) 12,15,000
To A A/c 1,00,000
26,18,000 26,18,000
2. Capital Reduction Account
Particulars Rs. Particulars Rs.
To Machinery A/c 1,30,000 By Equity Share Capital A/c 15,00,000
To Computers A/c 1,20,000 By Trade payables A/c 1,47,000
To Trade receivables A/c 1,09,000 By A A/c 2,00,000
To Profit and Loss A/c 29,82,000 By B A/c 50,000
By Land & Building 9,14,000
By Inventories 30,000

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By Capital Reserve A/c 5,00,000

33,41,000 33,41,000
(b) Calculation of Total Remuneration payable to Liquidator
Amount in
Rs.
2% on Assets realised 25,00,000 x 2% 50,000
3% on payment made to Preferential creditors 75,000 x 3% 2,250
3% on payment made to Unsecured creditors (Refer 39,255
W.N)
Total Remuneration payable to Liquidator 91,505
Working Note:
Liquidator’s remuneration on payment to unsecured creditors =
Cash available for unsecured creditors after all payments including liquidation expenses,
payment to secured creditors, preferential creditors & liquidator’s remuneration
= Rs. 25,00,000 – Rs. 25,000 – Rs. 10,00,000 – Rs. 75,000 – Rs. 50,000 – Rs. 2,250 =
Rs. 13,47,750.
Liquidator’s remuneration on payment to unsecured creditors = 3/103 x Rs. 13,47,750 = Rs. 39,255
3. (a) Journal entries
In the books of Mukta Ltd.
Dr. Cr.
Rs. in lakhs
1 Bank A/c Dr. 25,200
To Investments A/c 24,000
To Profit and Loss A/c 1,200
(Being Investments sold and, profit being credited to
Profit and Loss Account)
2 10% Redeemable Preference Share Capital A/c Dr. 20,000
Premium payable on Redemption of Preference Shares Dr. 2,000
A/c
To Preference Shareholders A/c 22,000
(Being amount payable on redemption of Preference
shares, at a Premium of 10%)
3 Securities Premium A/c Dr. 2,000
To Premium payable on Redemption of
Preference Shares A/c 2,000
(Being Securities Premium utilised to provide Premium
on Redemption of Preference Shares)
4 Equity Share Capital A/c Dr. 16,000
Premium payable on Buyback A/c Dr. 16,000

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To Equity Share buy back A/c 32,000

(Being the amount due on buy-back)
5 Securities Premium A/c (6,400 – 2,000) Dr. 4,400
General Reserve A/c (balancing figure) Dr. 11,600
To Premium payable on Buyback A/c 16,000
(Being premium on buyback provided first out of
Securities Premium and the balance out of General
Reserves.)
6 Bank A/c Dr. 16,000
To Bank Loan A/c 16,000
(Being Loan taken from Bank to finance Buyback)
7 Preference Shareholders A/c Dr. 22,000
Equity Shares buy back A/c Dr. 32,000
To Bank A/c 54,000
(Being payment made to Preference Shareholders and
Equity Shareholders)
8 General Reserve Account Dr. 36,000
To Capital Redemption Reserve Account 36,000
(Being amount transferred to Capital Redemption
Reserve Account to the extent of face value of
preference shares redeemed and equity Shares bought
back) (20,000 + 16,000)

(b) Fair value of an option = Rs. 56 – Rs. 50 = Rs. 6

Number of shares issued = 400 employees x 100 shares/employee = 40,000 shares
Fair value of ESOP = 40,000 shares x Rs. 6 = Rs. 2,40,000
Vesting period = 1 month
Expenses recognized in 2018-19 = Rs. 2,40,000
Date Particulars Rs. Rs.
31.03.2019 Bank (40,000 shares x Rs. 50) Dr. 20,00,000
Employees compensation expense A/c Dr. 2,40,000
To Share Capital 4,00,000
(40,000 shares x Rs.10)
To Securities Premium 18,40,000
(40,000 shares x Rs. 46)
(Being option accepted by 400 employees &
payment made @ Rs. 56 share)
Profit & Loss A/c Dr. 2,40,000
To Employees compensation expense 2,40,000
A/c
(Being Employees compensation expense
transferred to Profit & Loss A/c)
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(c) Computation of liability of underwriters in respect of shares

(In shares)
A B C
Gross liability (Total Issue of 30,00,000 equity
shares) in agreed ration of 3 : 2 : 1 15,00,000 10,00,000 5,00,000
Less: Unmarked applications (Subscribed
shares – marked shares) in 3 : 2 : 1 (3,00,000) (2,00,000) (1,00,000)
Marked shares as per agreed ratio 12,00,000 8,00,000 4,00,000
Less: Marked applications actually received (8,00,000) (7,00,000) (6,00,000)
Shortfall / surplus in marked shares 4,00,000 1,00,000 (2,00,000)
Surplus of C distributed to A & B in 3:2 ratio (1,20,000) (80,000) 2,00,000
Net liability for underwriting shares 2,80,000 20,000 Nil
4. (a) Form B – RA (Prescribed by IRDA)
General Insurance Co. Ltd
Revenue Account for the year ended 31 st March, 2019
Fire and Marine Insurance Businesses
Schedule Fire Marine
Current Year Current Year
Rs. Rs.
Premiums earned (net) 1 4,27,500 1,40,000
Profit / (Loss) on sale / redemption of — —
investments
Others (to be specified)
Interest, Dividends and Rent – Gross — —

Total (A) 4,27,500 1,40,000

Claims incurred (net) 2 82,000 88,000
Commission 3 40,000 20,000
Operating expenses related to Insurance 4 70,000 50,000
business
Premium Deficiency
Total (B) 1,92,000 1,58,000
Profit from Fire / Marine Insurance business
(A-B) 2,35,500 (18,000)
Schedules forming part of Revenue Account
Schedule –1
Premiums earned (net) Fire Marine
Current Year Current Year
Rs. Rs.
Premiums from direct business written 4,80,000 3,50,000
Less: Premium on reinsurance ceded (25,000) (15,000)
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Total Premium earned 4,55,000 3,35,000

Less: Change in provision for unexpired risk (27,500) (1,95,000)
4,27,500 1,40,000
Schedule – 2
Claims incurred (net) 82,000 88,000
Schedule – 4
Operating expenses related to insurance business
Expenses of Management 70,000 50,000
Form B-PL
General Insurance Co. Ltd.
Profit and Loss Account for the year ended 31 st March, 2019
Particulars Schedule Current Year Previous Year
Rs. Rs.
Operating Profit/(Loss)
(a) Fire Insurance 2,35,500
(b) Marine Insurance (18,000)
(c) Miscellaneous Insurance —
Income From Investments
Interest, Dividend & Rent–Gross 1,29,000
Other Income (To be specified)
Total (A) 3,46,500
Provisions (Other than taxation) —
Depreciation 9,000
Other Expenses –Director’s Fee 80,000
Total (B) 89,000
Profit Before Tax 2,57,500
Provision for Taxation 99,138
Profit After Tax 1,58,362

Working Notes:
Fire Marine
Rs. Rs.
1. Claims under policies less reinsurance
Claims paid during the year 1,00,000 80,000
Add: Outstanding on 31st March, 2019 10,000 15,000
1,10,000 95,000
Less: Outstanding on 1st April, 2018 (28,000) (7,000)
82,000 88,000
2. Expenses of management

 Interest and dividend in case can’t be bifurcated between fire and marine thus taken to profit and loss account.
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Expenses paid during the year 60,000 45,000

Add: Outstanding on 31st March, 2019 10,000 5,000
70,000 50,000
3. Premiums less reinsurance
Premiums received during the year 4,50,000 3,30,000
Add: Outstanding on 31st March, 2019 30,000 20,000
4,80,000 3,50,000
Less: Reinsurance premiums (25,000)
(15,000)
4,55,000 3,35,000
4. Reserve for unexpired risks is 50% of net premium for fire insurance and 100% of net premium
for marine insurance. Reserve for unexpired risks for fire insurance = Rs. 4,55,000 x 50% =
Rs. 2,27,500. Opening Balance in reserves for unexpired risk for fire insurance was
Rs. 2,00,000. Hence, additional transfer to reserve for fire insurance in the year will be
Rs. 27,500. On similar basis of calculation, the additional transfer to reserve for marine
insurance will be Rs. 1,95,000
5. Provision for taxation account
Rs. Rs.
31.3.2019 To Bank A/c 1.4.2018 By Balance b/d 85,000
(taxes paid) 60,000 31.3.2019 By P & L A/c (Bal Fig) 99,138
31.3.2019 To Balance c/d 1,24,138
1,84,138 1,84,138

(b) Statement showing computation of 'Net Owned Fund'

Rs. in 000
Paid up Equity Capital 100
Free Reserves 500
600
Less: Deferred expenditure (200)
A 400
Investments
In shares of subsidiaries and group companies 100
In debentures of subsidiaries and group companies 100
B 200
10% of A 40
Excess of Investment over 10% of A (200-40) C 160
Net Owned Fund [(A) - (C)] (400-160) 240

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5. (a) The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest
in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are
adjusted against the majority interest except to the extent that the minority has a binding obligation
to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such
profits are allocated to the majority interest until the minority's share of losses previously absorbed
by the majority has been recovered. Accordingly, the minority interests will be computed as follows:
Year Profit/(Loss) Minority Additional Minority's Share of Cost of
Interest Consolidated P losses borne by A Control
(30%) & L (Dr.) Cr. Ltd.
Rs. Balance
At the time of -
acquisition in 3,24,000
2010 (W.N.)
2010-11 (2,50,000) (75,000) (1,75,000) 2,44,000
(W.N.)
Balance 2,49,000
2011-12 (4,00,000) (1,20,000) (2,80,000) 2,44,000
Balance 1,29,000
2012-13 (5,00,000) (1,50,000) (3,50,000) 2,44,000
(21,000)
Loss of 21,000 (21,000) 21,000 21,000
minority borne
by Holding
Co.
Balance Nil (3,71,000)
2013-14 (1,20,000) (36,000) (84,000) 2,44,000
Loss of
minority borne 36,000 (36,000) 36,000 57,000
by Holding
Co.
Balance Nil (1,20,000)
2014-15 50,000 15,000 35,000 2,44,000

Profit share of (15,000) 15,000 (15,000) 42,000

minority
adjusted
against losses
of minority
absorbed by
Holding Co.

Balance Nil 50,000

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2015-16 1,00,000 30,000 70,000

Profit share of (30,000) 30,000 (30,000) 12,000 2,44,000
minority
adjusted
against losses
of minority
absorbed by
Holding Co.
Balance Nil 100,000
2016-17 1,50,000 45,000 1,05,000 (12,000) Nil 2,44,000
(12,000) 12,000
Balance 33,000 1,17,000

Working Note:
Share of Holding Co. Minority Interest
100% 70% 30%
(Rs. ) (Rs. ) (Rs. )
Share Capital 10,00,000 7,00,000 3,00,000
Reserve 80,000 56,000 24,000
7,56,000 3,24,000
Less: Cost of investment (10,00,000)
Goodwill 2,44,000
(b) 1. Capital Employed at the end of each year
31.3.2017 31.3.2018 31.3.2019
Rs. Rs. Rs.
Goodwill 20,00,000 16,00,000 12,00,000
Building and Machinery (Revaluation) 36,00,000 40,00,000 44,00,000
Inventory (Revalued) 24,00,000 28,00,000 32,00,000
Trade Receivables 40,000 3,20,000 8,80,000
Bank Balance 2,40,000 4,00,000 8,00,000
Total Assets 82,80,000 91,20,000 104,80,000
Less: Trade Payables (12,00,000) (16,00,000) (20,00,000)
Closing Capital 70,80,000 75,20,000 84,80,000
Add: Opening Capital 73,20,000 70,80,000 75,20,000
Total 1,44,00,000 1,46,00,000 1,60,00,000
Average Capital 72,00,000 73,00,000 80,00,000
Since the goodwill has been purchased, it is taken as a part of Capital employed.

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2. Valuation of Goodwill
(i) Future Maintainable Profit 31.3.2017 31.3.2018 31.3.2019
Net Profit as given 8,40,000 12,40,000 16,40,000
Less: Opening Balance (2,40,000) (2,80,000) (3,20,000)
Adjustment for Valuation of Opening - (4,00,000) (4,00,000)
Inventory
Add: Adjustment for Valuation of closing 4,00,000 4,00,000 4,00,000
inventory
Goodwill written off - 4,00,000 4,00,000
Transferred to General Reserve 4,00,000 4,00,000 4,00,000
Future Maintainable Profit 14,00,000 17,60,000 21,20,000
Less: 12.50% Normal Return (9,00,000) (9,12,500) (10,00,000)
(ii) Super Profit 5,00,000 8,47,500 11,20,000

(iii) Average Super Profit = Rs. (5,00,000+8,47,500+11,20,000) ÷ 3 = Rs. 8,22,500

(iv) Value of Goodwill at five years’ purchase= Rs. 8,22,500 × 5 = Rs. 41,12,500.
6. (a) A provision should be recognized only when an enterprise has a present obligation arising from a
past event or obligation. In the given case, there is no present obligation but a future one, therefore
no provision is recognized as per AS 29.
The cost of overhauling aircraft is not recognized as a provision because it is a future obligation
and the incurring of the expenditure depends on the company’s decision to continue operating the
aircrafts. Even a legal requirement to overhaul does not require the company to make a provision
for the cost of overhaul because there is no present obligation to overhaul the aircrafts. Further,
the enterprise can avoid the future expenditure by its future action, for example by selling the
aircraft. However, an obligation might arise to pay fines or penalties under the legislation after
completion of five years. Assessment of probability of incurring fines and penalties depends upon
the provisions of the legislation and the stringency of the enforcement regime. A provision should
be recognized for the best estimate of any fines and penalties if airline continues to operate aircrafts
for more than five years.
(b) Interest on performing assets should be recognised on accrual basis, but interest on NPA should
be recognised on cash basis.
Rs. in lakhs
Interest on cash credits and overdraft : (1800+70) = 1,870
Interest on Term Loan (480+40) = 520
Income from bills purchased and discounted : (700+36) = 736
3,126
OR

13

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Investment in Debentures A/c

Rs. Lakh Rs.
Lakh
June 1, 2018 To Bank 10.70 June 1, 2018 By Interest 0.20
Recoverable
(Note 1)
Nov 1, 2018 To Bank 5.45 Nov 1, 2018 By Interest 0.05
Recoverable
(Note 2)
Feb 28, 2019 To Interest 0.30 Feb 28, 2019 By Bank 6.78
Recoverable
(Note 3)
Feb 28, 2019 To Profit on 0.12 Mar 31, 2019 By Balance c/d 9.54
disposal (Note 4)
16.57 16.57

Working Notes:
1. 10,000 x 100 x 12/100 x 2/12 = Rs. 0.20 Lakhs
2. 5,000 x 100 x 12/100 x 1/12 = Rs. 0.05 Lakhs
3. 6,000 x 100 x 12/100 x 5/12 = Rs. 0.30 Lakhs
4. Cost of investments (per unit) = [(10,70,000 -20,000)+(5,45,000– 5,000)]/15,000 units
= [10,50,000+ 5,40,000]/15,000 = Rs. 106
Cost of investments sold = Rs. 106 x 6,000 = Rs. 6,36,000
Sale proceeds = Rs. 6,78,000 - Rs. 30,000(interest) = Rs. 6,48,000
Profit = Rs. 6,48,000 - Rs. 6,36,000 = Rs. 12,000
(c) W, X, Y and Z hold Equity capital is held by in the proportion of 40:30:10:20 and A, B, C and D hold
preference share capital in the proportion of 30:40:20:10. As the paid up equity share capital of the
company is Rs. 40 Lakhs and Preference share capital is Rs. 20 Lakh (2:1), then relative weights
in the voting right of equity shareholders and preference shareholders will be 2/3 and 1/3. The
respective voting right of various shareholders will be
W = 2/3X40/100 = 4/15
X = 2/3X30/100 = 3/15
Y = 2/3X10/100 = 1/15
Z = 2/3X20/100 = 2/15
A = 1/3X30/100 = 1/10
B = 1/3X40/100 = 2/15
C = 1/3X20/100 = 1/15
D = 1/3X10/100 = 1/30
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(d) Calculation of Purchase Consideration under Net Assets Method

Rs. Rs.
Sundry assets
75 112
18,00,000    15,12,000
100 100
25 92
18,00,000    4,14,000 19,26,000
100 100
Less: Liabilities:

10% Debentures 2,00,000

Trade payables 1,40,000
Bank overdraft 50,000
Unrecorded liability 25,000 (4,15,000)
Purchase consideration 15,11,000

15

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Test Series: May, 2020

MOCK TEST PAPER – 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) A machine was given on 3 years operating lease by a dealer of the machine for equal annual lease
rentals to yield 30% profit margin on cost Rs. 1,50,000. Economic life of the machine is 5 years
and output from the machine are estimated as 40,000 units, 50,000 units, 60,000 units, 80,000
units and 70,000 units consecutively for 5 years. Straight line depreciation in proportion of output
is considered appropriate.
You are required to compute the following:
(i) Annual Lease Rent
(ii) Lease Rent income to be recognized in each operating year
(b) During 2019-20, an enterprise incurred costs to develop and produce a routine low risk computer
software product, as follows:
Particular Rs.
Completion of detailed program and design (Phase 1) 50,000
Coding and Testing (Phase 2) 40,000
Other coding costs (Phase 3 & 4) 63,000
Testing costs (Phase 3 & 4) 18,000
Product masters for training materials (Phase 5) 19,500
Packing the products (1,500 units) (Phase 6) 16,500

After completion of phase 2, it was established that the product is technically feasible for the
market.
You are required to state how the above referred cost to be recognized in the books of accounts.
(c) With reference to AS 4 "Contingencies and events occurring after the balance sheet date", state
whether the following events will be treated as contingencies, adjusting events or non-adjusting
events occurring after balance sheet date in case of a company which follows financial year (April
to March).
(i) A major fire has damaged the assets in a factory on 5 th April, 5 days after the year end. The
assets are not insured; and the books have not been approved by the Directors.
(ii) A suit against the company's advertisement was filed by a party on 10th April, 10 days after
the year end claiming damages of Rs. 20 lakhs.

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(d) Net Profit for financial year 2018-2019 30,00,000
Net Profit for financial year 2019-2020 50,00,000
No. of shares outstanding prior to rights issue 20,00,000 shares
Rights Issue Price Rs. 20
Last day to exercise rights 1st June, 2019
Right issue is one new share for each five equity share outstanding (i.e. 4,00,000 new shares).
Fair value of one equity share immediately prior to exercise of rights on 1 st June, 2019 was
Rs. 26.00.
Compute Basic Earnings Per Share for financial year 2018-19, 2019-2020 and restated EPS for
2018-19. (4 parts x 5 Marks = 20 Marks)
2. The following were summarized Balance sheets of Robert Ltd. and Diamond Ltd. as at 31.03.2020
Robert Ltd. Diamond Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Liabilities
Equity Share Capital (Fully paid shares of Rs. 10 each) 22,500 9,000
Securities Premium 4,500 -
Foreign Project Reserve - 465
General Reserve 14,250 4,800
Profit and Loss Account 4,305 1,237.5
12% Debentures - 1,500
Trade payables 1,800 694.5
Provisions 2,745 1,053
50,100 18,750
Assets
Land and Buildings 9,000 -
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
Cost of Issue of Debentures - 75
. 50,100 18,750

All the bills receivable held by Diamond Ltd. were Robert Ltd.'s acceptances.
On 1st April 2020, Robert Ltd. took over Diamond Ltd. in an amalgamation in the nature of merger.
It was agreed that in discharge of consideration for the business, Robert Ltd. would allot three fully
paid equity shares of Rs. 10 each at par for every two shares held in Diamond Ltd. It was also
agreed that 12% debentures in Diamond Ltd. would be converted into 13% debentures in Robert
Ltd. of the same amount and denomination.

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Details of trade receivables and trade payables are as under:
Particulars Robert Ltd. Diamond Ltd.
(Rs. 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 Rs. 1.5 lakhs were borne by Robert Ltd.
You are required to:
(i) Pass journal entries in the books of Robert Ltd. and
(ii) Prepare Robert Ltd.'s Balance Sheet immediately after the merger considering that the cost
of issue of debentures shown in the balance sheet of Diamond Ltd. is not transferred to Robert
Ltd. (20 Marks)
3. (a) P, Q and R are partners sharing profit and losses in the ratio 2:2:1. The partners decided to dissolve
the partnership on 31st March, 2020 when their Balance Sheet was as under:
Liabilities Amount Assets Amount
Partners’ Capital Land & Building 90,000
Accounts:
P 40,000 Plant & Machinery 30,000
Q 40,000 Furniture 17,000
General Reserve 33,000 Investments 10,000
R's Loan A/c 10,000 Book Debts 40,000
Loan from D 80,000 Less: Provision for bad debts (4,000) 36,000
Trade Creditors 20,000 Stock 24,000
Bills Payable 8,000 Bank 9,000
Outstanding Salary 5,000
R’s Capital Account 20,000
Total 2,36,000 Total 2,36,000
The following information is given to you:
(i) Realisation expenses amounted to Rs. 12,000 out of which Rs. 2,000 was borne by P.
(ii) A creditor agreed to takeover furniture of book value Rs. 8,000 at Rs. 7,200. The rest of the
creditors were paid off at a discount of 6.25%.
(iii) The other assets realized as follows:
Furniture - Remaining taken over by R at 90% of book value
Stock - Realised 120% of book value
Book Debts - Rs. 8,000 of debts proved bad, remaining were fully realized

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Land & Building - Realised Rs. 1,10,000
Investments - Taken over by P at 15% discount
(iv) For half of his loan, D accepted Plant & Machinery and Rs. 5,000 cash. The remaining amount
was paid at a discount of 10%.
(v) Bills payable were due on an average basis of one month after 31st March, 2020, but they
were paid immediately on 31st March @ 6% discount "per annum".
Prepare the Realisation Account, Bank Account and Partners’ Capital Accounts in columnar form
in the books of Partnership firm.
(b) Babu Bhai Financiers Ltd. is an NBFC providing Hire Purchase Solutions for acquiring consumer
durables. The following information is extracted from its books for the year ended 31st March, 2020:
Assets Funded Interest Overdue but recognized in Profit Net Book Value of
& Loss Assets Outstanding
Period Overdue Interest Amount
(Rs. In crore) (Rs. In crore)
LCD Televisions Up to 12 Months 500.00 20,000
Washing Machines For 24 Months 100.00 2,000
Refrigerators For 30 Months 50.00 1,250
Air Conditioners For 45 Months 25.00 600
Mobile Phones For 60 Months 10.00 100

You are required to calculate the amount of provision to be made. (15 + 5 = 20 Marks)
4. (a) The summarized Profit and Loss Accounts of A Ltd. and its subsidiary B Ltd. for the year ended
31st March, 2020 are given below:
Rs. in Lakhs
Incomes A Ltd. B Ltd.
Sales and other income 7,500 1,500
Increase in Inventory 1,500 300
Total 9,000 1,800
Expenses
Raw material consumed 1,200 300
Wages and Salaries 1,200 225
Production expenses 300 150
Administrative expenses 300 150
Selling and distribution expenses 300 75
Interest 150 75
Depreciation 150 75
Total 3,600 1,050
Profit before tax 5,400 750
Provision for tax 1,800 300
Profit after tax 3,600 450
The following information is also given:
(i) A Ltd sold goods of Rs. 180 Lakhs to B Ltd at cost plus 25% (1/6 of such goods were still in
inventory of B Ltd at the end of the year).
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(ii) Administrative expenses of B Ltd include Rs. 8 Lakhs paid to A Ltd as consultancy fees.
(iii) Selling and distribution expenses of A Ltd include Rs.15 Lakhs paid to B Ltd as commission.
(iv) A Ltd. holds 72% of the Equity Capital of B Ltd. The Equity Capital of B Ltd prior to 2018-19
is Rs.1,500 Lakhs.
Prepare a consolidated Profit and Loss Account of A Ltd. with its subsidiary B Ltd. for the year
ended 31st March, 2020.
(b) What are circumstances when an LLP can be wound up by the Tribunal. Explain in brief.
(15 + 5 =20 Marks)
5. (a) BT Ltd. went into Voluntary Liquidation on 31st March, 2019, when their summarized Balance Sheet
was as follows:
In Rs.
Liabilities
Issued & Subscribed Capital
10,000 12% cumulative preference shares of Rs. 100 each, fully paid 10,00,000
10,000 Equity Shares of Rs. 100 each 75 per share paid up 7,50,000
20,000 Equity Shares of Rs. 100 each 60 per share paid up 12,00,000
Profit & Loss Account (5,25,000)
12% Debentures (Secured by a floating charge) 10,00,000
Interest outstanding on Debentures 1,20,000
Creditors 8,50,000
43,95,000
Assets
Land & Building 17,60,000
Plant & Machinery 12,50,000
Furniture 4,75,000
Patents 1,45,000
Stock 1,80,000
Trade Receivables 5,09,300
Cash at Bank 75,700
43,95,000
Preference dividends were in arrear for 1 year. Creditors include preferential creditors of
Rs. 75,000. Balance creditors are discharged subject to 5% discount.
Assets are realised as under:
In Rs.
Land & Building 24,50,000
Plant & Machinery 9,00,000
Furniture 2,85,000
Patents 90,000
Stock 2,80,000
Trade Receivables 3,15,000
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Expenses of liquidation amounted to Rs. 45,000. The liquidator is entitled to a remuneration of 3%
on all assets realised (except cash at bank). All payments were made on 30 th June, 2019.
You are required to prepare the Liquidator's Final Statement of Account as on 30 th June, 2019.
Working Notes should form part of the answer.
(b) From the following information, prepare the Profit & Loss A/c of Indus Bank Ltd. for the year ending
31st March, 2020. Also give necessary schedules.
Particulars Figures in '000
Total Interest earned on term loans 2,550
Interest earned on term loans classified as NPA 731
Interest received on term loans classified as NPA 238
Total Interest earned on cash credits and overdrafts 5,663
Interest earned but not received on cash credit and overdrafts treated as NPA 923
Interest on deposits 4,120
Commission 201
Profit on sale of investments 1,876
Profit on revaluation of investments 342
Income from Investments 2,174
Payments to and provision for employees 2,745
Rent, Taxes and Lighting 385
Printing and Stationery 62
Director's fees, allowances and expenses 313
Repairs and Maintenance 56
Depreciation on Bank's property 99
Insurance 43
Other Information:
Make necessary provision on Risk Assets:
Particulars Figures in '000
Standard 4,700
Sub-Standard (fully secured) 1,900
Doubtful Assets not covered by security 400
Doubtful Assets covered by security for 1 year 40
Loss Assets 300

(10 + 10 = 20 Marks)
6. (a) You are required to identify the related parties in the following cases as per AS 18:
M Ltd. holds 61 % shares of S Ltd.
S Ltd. holds 51 % shares of F Ltd.
C Ltd. holds 49% shares of F Ltd.
(Give your answer - Reporting Entity wise for M Ltd., S Ltd., C Ltd. and F Ltd.)

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(b) The Paid-up capital of S Limited amounted to Rs. 5,00,000 Equity Shares of Rs. 10 each. Due to
continuous loss incurred by the company, the following scheme of Reconstruction has been
approved for S Limited on 1st April, 2020.
(i) In lieu of present holding the Equity Shareholders are to receive:
(a) Fully Paid Equity Shares equal to 3/5th of their holding.
(b) 8% Preference Shares fully paid to the extent of 20% of the above new Equity Shares.
(c) 10% Second Debentures of Rs. 40,000.
(ii) An issue of 8% Debentures First Debentures of Rs. 1,00,000 was made and fully subscribed
for cash,
(iii) The Assets were reduced as follows:-
(a) Building from Rs. 2,00,000 to Rs. 1,50,000
(b) Plant & Machinery from Rs. 1,50,000 to Rs. 1,30,000
(c) Goodwill from Rs. 30,000 to Nil.
Show the Journal Entries in the books of S Limited to give effect of the scheme of Reconstruction.
(c) The Accountant of a company has sought your opinion with relevant reasons, whether the following
will be treated as change in Accounting Policy or not for the year ended 31 st March, 2020. Please
advise him in the following situations in accordance with the provisions of relevant Accounting
Standard;
(i) Provision for doubtful debts was created @ 2% till 31st March, 2019. From the Financial year
2019-2020, the rate of provision has been changed to 3%.
(ii) During the year ended 31st March, 2020, the management has introduced a formal gratuity
scheme in place of ad-hoc ex-gratia payments to employees on retirement.
(iii) Till the previous year the furniture was depreciated on straight line basis over a period of 5
years. From current year, the useful life of furniture has been changed to 3 years.
(iv) Management decided to pay pension to those employees who have retired after completing
5 years of service in the organization. Such employees will get pension of Rs. 20,000 per
month. Earlier there was no such scheme of pension in the organization.
(v) During the year ended 31st March, 2020, there was change in cost formula in measuring the
cost of inventories.
(d) Ganga Ltd. has its share capital divided into Equity Shares of Rs. 10 each. On 1 st April, 2019, the
company offered 250 shares to each of its 520 employees at Rs. 60 per share, when the market
price was Rs. 150 per share. The options were to be exercised between 01-03-2020 to
31-03-2020. 410 employees accepted the offer and paid Rs. 60 per share on purchased shares
and the remaining options lapsed. The company closes its books on 31st March every year.
You are required to show Journal Entries (with narrations) as would appear in the books of Ganga
Ltd. for the year ended 31st March, 2020 with regard to employee stock options.
OR
Equity capital is held by L, M, N and O in the proportion of 30:40:20:10. A, B, C and D hold
Preference share capital in the proportion of 40:30:10:20. If the paid up Equity Share capital of the
company is Rs. 60 lakhs and Preference share capital is Rs. 30 lakhs, find the voting rights of
shareholders (in percentage) in case of resolution of winding up of the company.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: May, 2020
MOCK TEST PAPER - 1
INTERMEDIATE (NEW): GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS

1. (a) (i) Annual lease rent

Total lease rent
Output during lease period
= 130% of Rs. 1,50,000 ×
Total output
= 130% of Rs. 1,50,000 x (40,000 +50,000+ 60,000)/(40,000 + 50,000 + 60,000 + 80,000 +
70,000)
= 1,95,000 x 1,50,000 units/3,00,000 units = Rs. 97,500
Annual lease rent = Rs. 97,500 / 3 = Rs. 32,500
(ii) Lease rent Income to be recognized in each operating year
Total lease rent should be recognized as income in proportion of output during lease period,
i.e. in the proportion of 40 : 50 : 60.
Hence income recognized in years 1, 2 and 3 will be as:
Year 1 Rs. 26,000,
Year 2 Rs. 32,500 and
Year 3 Rs. 39,000.
(b) As per 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 program design or working model.
In this case, Rs. 90,000 would be recorded as an expense (Rs. 50,000 for completion of detailed
program design and Rs. 40,000 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 (63,000+ 18,000+ 19,500) =
Rs. 1,00,500. Packing cost Rs. 16,500 should be recognized as expenses and charged to Profit &
Loss A/c.
(c) According to AS 4 on ‘Contingencies and Events Occurring after the Balance Sheet Date’,
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. However, 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. “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.
(i) Fire has occurred after the balance sheet date and also the loss is not insured. Therefore,
the event becomes material and the event is adjusting in nature.
(ii) The contingency is restricted to conditions existing at the balance sheet date. However, in
the given case, suit was filed against the company’s advertisement by a party on 10 th April for
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amount of Rs. 20 lakhs. Therefore, it does not fit into the definition of a contingency and
hence is a non-adjusting event.
(d) Computation of Basic Earnings Per Share (as per AS 20 Earnings Per Share)
Year Year
2018-19 2019-20
Rs. Rs.
EPS for the year 2018-19 as originally reported
Net Profitof the year attributable to equity shareholders
=
Weighted average number of equity shares outstanding during the year
= (Rs. 30,00,000 / 20,00,000 shares) 1.5
EPS for the year 2018-19 restated for rights issue
= [Rs. 30,00,000 / (20,00,000 shares × 1.04 (W.N. 2)] 1.44
(approx.)
EPS for the year 2019-20 including effects of rights issue
𝑅𝑅𝑅𝑅. 50,00,000
(20,00,000 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 × 1.04 × 2/12) + (24,00,000 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 × 10/12)

Rs. 50,00,000/ 23,46,667 shares 2.13

(approx.)

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 amount received from exercise
Number of shares outstanding prior to exercise + Number of shares issued in the exercise

(𝑅𝑅𝑅𝑅. 26 x 20,00,000 shares) + (Rs. 20 x 4,00,000 shares)

= 20,00,000 shares + 4,00,000 shares

𝑅𝑅𝑅𝑅. 6,00,00,000
= = 𝑅𝑅𝑅𝑅. 25
24,00,000 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎
𝑎𝑎
2. Computation of adjustment factor
Fair value per share prior to exercise of rights 𝑹𝑹𝑹𝑹. 𝟐𝟐𝟐𝟐
= = 𝑹𝑹𝑹𝑹. 𝟐𝟐𝟐𝟐 (𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾𝑾 𝑵𝑵𝑵𝑵𝑵𝑵𝑵𝑵 𝟏𝟏)
=
Theoretical ex - rights value per share
1.04 (𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎. )
2. Books of Robert Ltd.
Journal Entries
(Rs. in Lacs) (Rs. in Lacs)
Business Purchase A/c Dr. 13,500
To Liquidator of Diamond Ltd. 13,500
(Being business of Diamond Ltd. taken over for
consideration settled as per agreement)
Plant and Machinery Dr. 7,500
Furniture & Fittings Dr. 2,550
Inventory Dr. 6,061.5
Debtors Dr. 1,530

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Cash at Bank Dr. 913.5

Bills Receivable Dr. 120
To Foreign Project Reserve 465
To General Reserve Rs. (4,800 - 4,500) 300
To Profit and Loss A/c Rs. (1,237.5 – 75 ) ∗
1,162.5
To Liability for 12% Debentures 1,500
To Creditors 694.5
To Provisions 1,053
To Business Purchase A/c 13,500
(Being assets & liabilities taken over from Diamond Ltd.)
Liquidator of Diamond Ltd. A/c Dr. 13,500
To Equity Share Capital A/c 13,500
(Purchase consideration discharged in the form of equity
shares)
Profit & Loss A/c Dr. 1.5
To Bank A/c 1.5
(Liquidation expenses paid and charged to P& L A/c)
Liability for 12% Debentures A/c Dr. 1,500
To 13% Debentures A/c 1500
(12% debentures discharged by issue of 13% debentures)
Bills Payable A/c Dr. 120
To Bills Receivable A/c 120
(Cancellation of mutual owing on account of bills)
Balance Sheet of Robert Ltd. as at 1st April, 2020 (after merger)
Particulars Notes Rs. (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

∗
Cost of issue of debentures adjusted against P & L A/c of Diamond Ltd.
3

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A Inventories (11,793+6,061.5) 17,854.5

B Trade receivables (3,180+1,650-120) 4,710
C Cash and cash equivalents (1,671+913.5-1.5) 2,583
Total 68,653.5
Notes to Accounts
Rs.
1. Share Capital
Equity share capital
Authorized, issued, subscribed and paid-up: 36 crores equity shares of
Rs. 10 each (out of these shares, 13.5 crores shares have been issued for
consideration other than cash) 36,000
2. Reserves and Surplus
General Reserve 14,550
Securities Premium 4,500
Foreign Project Reserve 465
Profit and Loss Account Rs. (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 Robert Ltd. for every
two equity shares held in Diamond Ltd.
3
Purchase consideration = Rs. 9,000 lacs × = Rs. 13,500 lacs
2
3. (a) Realization Account
Rs. Rs.
To Land and Building 90,000 By Provision for bad debts 4,000
To Plant and Machinery 30,000 By Loan from D 80,000
To Furniture 17,000 By Trade creditors 20,000
To Investments 10,000 By Bills payable 8,000
To Book debts 40,000 By Outstanding salary 5,000
To Stock 24,000 By R - Furniture taken over 8,100
(9,000 x .9)

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To Bank (Realization expenses) 10,000 By Bank A/c

Stock Realized 28,800
To P – Realization expenses 2,000 Land & Building 1,10,000
Debtors 32,000 1,70,800
To Bank A/c -
Bill payable 7,960 By P (Investment taken over) 8,500
D’s Loan 5,000
D’s Loan 36,000
Creditors 12,000
Salary 5,000
To Profit trs/f to partners’ capital
Accounts
P 6,176
Q 6,176
R 3,088 15,440
3,04,400 3,04,400
Bank Account
Rs. Rs.
To Balance b/d 9,000 By Realization A/c 75,960
(payment of liabilities: 7,960+ 5,000 +
36,000 + 10,000 + 12,000 + 5,000)
To Realization A/c 1,70,800 By P 52,876
(assets realized)
To R 8,412 By Q 59,376
1,88,212 1,88,212
Partners’ Capital Accounts
P Q R P Q R
Rs. Rs. Rs. Rs. Rs. Rs.
To Balance b/d. 20,000 By Balance b/d 40,000 40,000
To Realization A/c 8,500 By R’s Loan 10,000

(Investment taken By General Reserve 13,200 13,200 6,600

over)
To Realization A/c 8,100 By Realization A/c 2,000
(Furniture taken over) (expense)
To Bank A/c 52,876 59,376 By Realization A/c 6,176 6,176 3,088
(profit)
By Bank 8,412
61,376 59,376 28,100 61,376 59,376 28,100

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Working Notes:
1. Payment for Bills Payable
Particulars Amount
(Rs.)
Bills Payable as per Balance Sheet 8,000.00
Less: Discount for early payment {8,000 x 6% x (1/12)} 40.00
Amount Paid in Cash 7,960.00
2. Payment for D’s Loan
Particulars Amount (Rs.)
D’s Loan as per Balance Sheet 80,000.00
50% of Loan adjusted as below:
Plant & Machinery accepted at Book Value (Rs. 30,000) and Rs. 5,000 in 5,000.00
cash.
Balance 50% of Loan adjusted as below:
In cash after allowing discount of 10% i.e. Rs. 40,000 – Rs. 4,000 = 36,000.00
Rs. 36,000.
3. Payment to Trade Creditors
Particulars Amount
(Rs.)
Trade Creditors as per Balance Sheet 20,000.00
Less: Furniture of Book Value Rs. 8,000 accepted at value Rs. 7,200 7,200.00
12,800.00
Less: Discount @ 6.25% 800.00
Amount paid in Cash 12,000.00
4. Furniture taken over by R
Particulars Amount (Rs.)
Furniture as per Balance Sheet 17,000.00
Less: Furniture of Book Value Rs. 8000 accepted by trade creditors 8,000.00
9,000.00
Less: 10% of Book Value 900.00
Value of Furniture taken over by R 8,100.00
(b) On the basis of the information, in respect of hire purchase and leased assets, additional
provision shall be made as under:
(Rs. in crore)
(a) Where hire charges are overdue upto 12 Nil -
months
(b) Where hire charges are overdue for more 10% of the net book value 200
than 12 months but upto 24 months 10% x 2,000

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(c) Where hire charges are overdue for more 40 percent of the net book value 500
than 24 months but upto 36 months 40% x 1,250
(d) Where hire charges or lease rentals are 70 percent of the net book value 420
overdue for more than 36 months but upto 48 70% x 600
months
(e) Where hire charges or lease rentals are 100% of net book value 100
overdue for more than 48 months (100% x 100)
Total 1,220
4. (a) Consolidated Profit & Loss Account of A Ltd. and its subsidiary B Ltd.
for the year ended on 31st March, 2020
Particulars Note No. Rs. in Lacs
I. Revenue from operations 1 8,797
II. Total revenue 8,797
III. Expenses
Cost of Material purchased/consumed 3 1,770
Changes of Inventories of finished goods 2 (1,794)
Employee benefit expense 4 1,425
Finance cost 6 225
Depreciation and amortization expense 7 225
Other expenses 5 802
Total expenses 2,653
IV. Profit before Tax(II-III) 6,144
V. Tax Expenses 8 2,100
VI. Profit After Tax 4,044
Notes to Accounts
Rs. in Lacs Rs. in Lacs
1. Revenue from Operations
Sales and other income
A Ltd. 7,500
B Ltd. 1,500
9,000
Less: Inter-company Sales (180)
Consultancy fees received by A Ltd. from B Ltd. (8)
Commission received by B Ltd. from A Ltd. (15) 8,797
2. Increase in Inventory
A Ltd. 1,500
B Ltd. 300
1,800
Less: Unrealized profits Rs. 180×1/6 x 25/125 (6) 1,794
3. Cost of Material purchased/consumed

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A Ltd. 1,200
B Ltd. 300
1,500
Less: Purchases by B Ltd. from A Ltd. (180) 1,320
Direct Expenses
A Ltd. 300
B Ltd. 150 450
1,770
4. Employee benefits and expenses
Wages and Salaries:
A Ltd. 1,200
B Ltd. 225 1,425
5. Other Expenses
Administrative Expenses
A Ltd. 300
B Ltd. 150
450
Less: Consultancy fees received by A Ltd. from B Ltd. (8) 442
Selling and Distribution Expenses:
A Ltd. 300
B Ltd. 75
375
Less: Commission received from B Ltd. from A Ltd. (15) 360
802

6. Finance Cost
Interest:
A Ltd. 150
B Ltd. 75 225
7. Depreciation and Amortization
Depreciation:
A Ltd. 150
B Ltd. 75 225
8. Provision for tax
A Ltd. 1800
B Ltd. 300 2100
(b) Under section 64 of the LLP Act, 2008, an LLP may be wound up by the Tribunal:
• If the LLP decides that it should be wound up by the Tribunal;
• If for a period of more than six months, the number of partners of the LLP is reduced below
two;

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• If the LLP is unable to pay its debts;

• If the LLP has acted against the interests of the integrity and sovereignty of India, the security
of the state or public order;
• If the LLP has defaulted in the filing of the Statement of Account and Solvency with the
Registrar for five consecutive financial years;
• If the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
5. (a) BT Limited
Liquidator’s Statement of Account
Receipts Rs. Payments Rs.
To Assets realized: By Liquidation expenses 45,000
Bank 75,700 By Preferential creditors 75,000
Other assets: By Liquidator’s Remuneration (W.N.1) 1,29,600
Land & building 24,50,000 By Debenture holders:
Plant & Machinery 9,00,000 Debentures 10,00,000
Furniture 2,85,000 Interest accrued 1,20,000
Patents 90,000 Interest 1-4-19 to 30-6-19 30,000 11,50,000
Stock 2,80,000 By Unsecured creditors 7,36,250
Trade receivables 3,15,000 43,20,000 By Preferential shareholders
Preference capital 10,00,000
Arrear of Dividend 1,20,000 11,20,000
32,55,850
By Equity shareholders -
Rs. 32.995 on 20,000 shares 6,59,900
Rs. 47.995 on 10,000 shares 4,79,950

43,95,700 43,95,700

Working Notes:
(1) Liquidator’s remuneration 43,20,000 × 3/100 =Rs. 1,29,600
(2) As the company is solvent, interest on the debentures will have to be paid for the period
1-4-2019 to 30-6-2019
10,00,000 x 12% x 3/12 = Rs. 30,000
(3) Total equity capital - paid up (7,50,000 +12,00,000) Rs. 19,50,000
Less: Balance available (43,95,700 — 32,55,850) Rs. (11,39,850)
Rs. 8,10,150
Loss to be borne by 30,000 equity shares
Loss per share Rs. 27.005
Hence, Refund for share on Rs. 60 paid share (60 - 27.005) Rs. 32.995
Refund for share on Rs. 75 paid (75 - 27.005) Rs. 47.995

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(b) Indus Bank Limited
Profit & Loss Account for the year ended 31st March, 2020
Schedule Rs. ’000s
I. Income
Interest earned 13 8,971
Other income 14 2,419
Total 11,390
II. Expenditure
Interest expended 15 4,120
Operating expenses 16 3,703
Provisions (Refer W.N.) 1,013.8
Total 8,836.8
III. Profit/Loss 2,553.20

Schedule 13 – Interest Earned

Rs. ’000s
Interest / discount on advances bills
Interest on term loans [2,550- (731-238)] 2,057
Interest on cash credits and overdrafts (5,663-923) 4,740
Income on investments 2,174
8,971
Note: Interest on non-performing assets is recognized on receipt basis.
Schedule 14 – Other Income
Rs. ’000s
Commission, exchange and brokerage 201
Profit on sale of investments 1,876
Profit on revaluation of investments 342
2,419
Schedule 15 – Interest Expended
Rs. ’000s
Interest on deposits 4120
Schedule 16 – Operating Expenses
Rs. ’000s
Payments to and provision for employees - salaries, bonus and allowances 2,745
Rent, taxes and lighting 385
Printing & stationery 62
Director’s fee, allowances and expenses 313
Depreciation Charges 99
Repairs & maintenance 56
Insurance 43
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3,703
Working Note:
Provisions Rs. ’000s
Provision for standard and non-performing assets
Standard (4,700 x .4%) 18.8
Sub-standard (1900 x 15%) 285
Doubtful (400 x 100%) 400
Doubtful (40 x25%) 10
Loss assets (300 x 100%) 300
1,013.8
6. (a) (i) (a) Reporting entity- M Ltd.
• S Ltd. (subsidiary) is a related party
• F Ltd.(subsidiary) is a related party
(b) Reporting entity- S Ltd.
• M Ltd. (holding company) is a related party
• F Ltd. (subsidiary) is a related party
(c) Reporting entity- F Ltd.
• M Ltd. (holding company) is a related party
• S Ltd. (holding company) is a related party
• C Ltd. (investor/ investing party) is a related party
(d) Reporting entity- C Ltd.
• F Ltd. (associate) is a related party
(b) Journal Entries in the books of S Ltd.
Dr. Cr.
2020 Rs. Rs.
April 1 Equity Share Capital A/c (Rs. 10) Dr. 5,00,000
To Equity Share Capital A/c 3,00,000
To 8% Preference Equity Share Capital A/c 60,000
To 10% Second Debentures A/c 40,000
To Capital Reduction /Reconstruction A/c 1,00,000
(Being reduction of equity shares to 3/5 shares,
issue of preference shares and debentures as per
Reconstruction Scheme dated...)
Capital Reduction / Reconstruction A/c Dr. 1,00,000
To Building A/c 50,000
To Plant and Machinery A/c 20,000
To Goodwill A/c 30,000
(Being value of building and plant and machinery
reduced and goodwill written off completely.)

11

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Bank A/c Dr. 1,00,000

To 8% First Debentures A/c 1,00,000
(Being Rs. 1,00,000 debentures issued)
(c) (i) In the given case, company has created 2% provision for doubtful debts till 31st March, 2019.
Subsequently in 2019-20, the company revised the estimates based on the changed
circumstances and wants to create 3% provision. Thus change in rate of provision of doubtful
debt is change in estimate and is not change in accounting policy. This change will affect
only current year.
(ii) As per AS 5, 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. Introduction of a formal retirement gratuity scheme by an
employer in place of ad hoc ex-gratia payments to employees on retirement is a transaction
which is substantially different from the previous policy, will not be treated as change in an
accounting policy.
(iii) Change in useful life of furniture from 5 years to 3 years is a change in estimate and is not a
change in accounting policy.
(iv) Adoption of a new accounting policy for events or transactions which did not occur previously
should not be treated as a change in an accounting policy. Hence the introduction of new
pension scheme is not a change in accounting policy.
(v) Change in cost formula used in measurement of cost of inventories is a change in accounting
policy.
(d) Journal Entries in the books of Ganga Ltd.
Rs. Rs.
1.3.20 Bank A/c (1,02,500 x Rs. 60) Dr. 61,50,000
to Employee compensation expense A/c Dr. 92,25,000
31.3.20 (1,02,500 x Rs.90)
To Equity share capital A/c (1,02,500 x Rs.10) 10,25,000
To Securities premium A/c (1,02,500 x Rs.140) 1,43,50,000
(Being shares issued to the employees against the options
vested to them in pursuance of Employee Stock Option
Plan)
31.3.20 Profit and Loss A/c Dr. 92,25,000
To Employee compensation expense A/c 92,25,000
(Being transfer of employee compensation expenses to
Profit and Loss Account)
OR
L, M, N and O hold Equity capital is held by in the proportion of 30:40:20:10 and A, B, C and D hold
preference share capital in the proportion of 40:30:10:20. As the paid up equity share capital of the
company is Rs.60 Lakhs and Preference share capital is Rs.30 Lakh (2:1), then relative weights in
the voting right of equity shareholders and preference shareholders will be 2/3 and 1/3.
The respective voting right of various shareholders will be:
L = 2/3X30/100 = 3/15 = 20%
M = 2/3X40/100 = 4/15 = 26.67%

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N = 2/3X20/100 = 2/15 = 13.33%
O = 2/3X10/100 = 1/15 = 6.67%
A = 1/3X40/100 = 4/30 = 13.33%
B = 1/3X30/100 = 3/30 = 10%
C = 1/3X10/100 = 1/30 = 3.33%
D = 1/3X20/100 = 2/30 = 6.67%

13

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Test Series: October, 2020

MOCK TEST PAPER
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) (i) Mr. Arnav a relative of key management personnel received remuneration of
` 3,00,000 for his services in the company for the period April 1, 2019 to June 30, 2019. On
July 1, 2019 he left the job.
Should Mr. Arnav be identified as Related Party at the closing date i.e. March 31, 2020 for
the purposes of AS 18?
(ii) A limited company sold goods to its associate company for the 1 st quarter ending June 30,
2020. After that, the related party relationship ceased to exist. However, goods were supplied
continuously even after June 30, 2020 as was supplied to another ordinary customer. Does
this require disclosure as related party transaction for the entire financial year?
(b) New Era Publications publishes a monthly magazine on 15 th of every month. It sells advertising
space in the magazine to advertisers on the terms of 80% sale value payable in advance and the
balance within 30 days of the release of the publication. The sale of space for the March 2020
issue was made in February 2020. The magazine was published on its scheduled date. It received
` 2,40,000 on 10.3.2020 and ` 60,000 on 10.4.2020 for the March, 2020 issue.
Discuss in the context of AS 9 the amount of revenue to be recognized and the treatment of the
amount received from advertisers for the year ending 31.3.2020. What will be the treatment if the
publication is delayed till 2.4.2020?
(c) Akar Ltd. signed on 01/04/19, a construction contract for ` 1,50,00,000. Following particulars are
extracted in respect of contract, for the period ending 31/03/20.
- Materials used ` 71,00,000
- Labour charges paid ` 36,00,000
- Hire charges of plant ` 10,00,000
- Other contract cost incurred ` 15,00,000
- Labour charges of ` 2,00,000 are still outstanding on 31.3.20.
- It is estimated that by spending further ` 33,50,000 the work can be completed in all respect.
You are required to compute profit/loss for the year to be taken to Profit & Loss Account and
additional provision for foreseeable loss to be recognized as per AS 7.
(d) Sudesh Ltd. acquired a patent at a cost of ` 2,40,00,000 for a period of 5 years and the product
life-cycle was also 5 years. The company capitalized the cost and started amortizing the asset at
` 48,00,000 per annum. After two years it was found that the product life -cycle may continue for
another 5 years from then. The net cash flows from the product during these 5 years were expected
to be ` 36,00,000, ` 46,00,000, ` 44,00,000, ` 40,00,000 and ` 34,00,000. Find out the
amortization cost of the patent for each of the years if the patent was renewable and Sudesh Ltd.
got it renewed after expiry of five years. (4 Parts x 5 Marks = 20 Marks)
1

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2. (a) M, N and O were Partners sharing Profits and Losses in the ratio of 5:3:2 respectively. The Trial
Balance of the Firm as on 31st March, 2020 was the following:
Particulars ` `
Machinery at Cost 2,00,000
Inventory 1,37,400
Trade receivables 1,24,000
Trade payables 1,69,400
Capital A/cs:
M 1,36,000
N 90,000
O 46,000
Drawing A/cs:
M 50,000
N 46,000
O 34,000
Depreciation on Machinery 80,000
Profit for the year ended 31 st March 2,48,600
Cash at Bank 1,78,600
7,70,000 7,70,000
Interest on Capital Accounts at 10% p.a. on the amount standing to the credit of Partners' Capital
Accounts at the beginning of the year, was not provided before preparing the above Trial Balance.
On the above date, they formed MNO Private Limited Company with an Authorized Share Capital
of 2,00,000 in shares of ` 10 each to be divided in different classes to take over the business of
Partnership firm.
You are given terms and conditions as under:
1. Machinery is to be transferred at ` 1,40,000.
2. Shares in the Company are to be issued to the partners, at par, in such numbers, and in such
classes as will give the partners, by reason of their shareholdings alone, the same rights as
regards interest on capital and the sharing of profit and losses as they had in the partnership.
3. Before transferring the business, the partners wish to draw from the partnership pro fits to
such an extent that the bank balance is reduced to ` 1,00,000. For this purpose, sufficient
profits of the year are to be retained in profit-sharing ratio.
4. Assets and liabilities except Machinery and Bank, are to be transferred at their book val ue as
on the above date.
You are required to prepare:
(i) Statement showing the workings of the Number of Shares of each class to be issued by the
company, to each partner.
(ii) Capital Accounts showing all adjustments required to dissolve the Partnership.
(iii) Balance Sheet of the Company immediately after acquiring the business of the Partnership
and Issuing of Shares.

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(b) A Ltd. holds 80% of the equity capital and voting power in B Ltd. A Ltd sells inventories costing
` 180 lacs to B Ltd at a price of ` 200 lacs. The entire inventories remain unsold with B Ltd at the
financial year end i.e. 31 March 2020. What will be the accounting treatment for this transaction
in the consolidated financial statements of A Ltd? (16+4 = 20 Marks)
3. (a) Two companies named Alex Ltd. and Beta Ltd. provide you the following summary of ledger
balances as on 31st March, 2020:
Alex Ltd. (`) Beta Ltd. (`)
Goodwill 1,40,000 70,000
Building 8,40,000 2,80,000
Machinery 14,00,000 4,20,000
Inventory 7,00,000 4,90,000
Trade receivables 5,60,000 2,80,000
Cash at Bank 1,40,000 56,000
Equity Shares of ` 10 each 28,00,000 8,40,000
8% Preference Shares of ` 100 each 2,80,000 –
10% Preference Shares of ` 100 each – 2,80,000
General Reserve 1,96,000 1,96,000
Retirement Gratuity fund 1,40,000 56,000
Trade payables 3,64,000 2,24,000

Beta Ltd. is absorbed by Alex Ltd. on the following terms:

(a) 10% Preference Shareholders are to be paid at 10% premium by issue of 8% Preference
Shares of Alex Ltd.
(b) Goodwill of Beta Ltd. is valued at ` 1,40,000, Buildings are valued at ` 4,20,000 and the
Machinery at ` 4,48,000.
(c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created
@ 7.5%.
(d) Equity Shareholders of Beta Ltd. will be issued Equity Shares of Alex Ltd. @ 5% premium.
You are required to:
(i) Prepare necessary Ledger Accounts to close the books of Beta Ltd.
(ii) Show the acquisition entries in the books of Alex Ltd.
(iii) Also draft the Balance Sheet after absorption as at 31 st March, 2020.
(b) Explain the difference between pooling of interest and purchase method of accounting for
amalgamations. (16 + 4 = 20 Marks)
4. (a) Astha Bank has the following Capital Funds and Assets as at 31st March, 2020:
` in crores
Capital Funds:
Equity Share Capital 600.00
Statutory Reserve 470.00
Profit and Loss Account (Dr. Balance) 30.00

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Capital Reserve (out of which ` 25 crores were due to revaluation of assets 130.00
and balance due to sale of assets)
Assets:
Balance with other banks 15.00
Cash balance with RBI 35.50
Claim on Banks 52.50
Other Investments 70.00
Loans and Advances:
(i) Guaranteed by Government 22.50
(ii) Guaranteed by PSUs of Central Government 110.00
(iii) Other 9,365.00
Premises, furniture and fixtures 92.50
Leased assets 40.00
Off- Balance Sheet items:
(i) Acceptances, endorsements and letters of credit 1,100.00
(ii) Guarantees and other obligations 6,200.00
You are required to: (i) Segregate the capital funds into Tier I and Tier II capitals; and (ii) Find
out the risk-adjusted assets.
(b) A non-banking finance company provides the extract of its balance sheet as given below:
Equity and Liabilities Amount Assets Amount
` in 000 ` in 000
Paid-up equity capital 400 Leased out assets 3,200
Free reserves 2,000 Investment:
Loans 1,600 In shares of subsidiaries and
Deposits 1,600 group companies 400
In debentures of subsidiaries and
group Companies 400
Cash and bank balances 800
Deferred expenditure 800
5,600 5,600
You are required to compute 'Net owned Fund' of this NBFC as per Non-Banking Financial
Company - Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016.
(c) The following was the summarized balance sheet of Bhoomi Ltd. as on 31st March, 2020:
Equity & liability ` (in lakhs) Assets ` (in lakhs)
Authorised Capital: Property, plant and
equipment 1,12,000
Equity shares of ` 10 each 80,000 Investments 24,000
Issued Capital Cash at Bank 13,200
Equity Shares of `10 each Fully Paid Trade Receivables 66,000
up 64,000

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10% Redeemable Preference Shares

of 10 each, Fully Paid Up 20,000
Reserves & Surplus:
Capital Redemption Reserve 8,000
Securities Premium 6,400
General Reserve 48,000
Profit & Loss Account 2,400
9% Debentures 40,000
Trade Payables 26,400
2,15,200 2,15,200
On 1st April,2020 the Company redeemed all its Preference Shares at a Premium of 10% and
bought back 25% of its Equity Shares at `20 per Share. In order to make Cash available, the
Company sold all the Investments for `25,000 Lakhs and raised a Bank Loan amounting to `16,000
lakh on the Security of the Company's Plant.
Give the necessary Journal Entries considering that the buy back is authorised by the articles of
company and necessary resolution is passed by the company for this. The amount of Securities
premium may be utilized to the maximum extent allowed by law. (8 +4 + 8 = 20 Marks)
5. (a) (i) Hemant Ltd. purchased 80% shares of Power Ltd. on 1st January, 2019 for ` 2,10,000. The
issued capital of Power Ltd., on 1st January, 2019 was ` 1,50,000 and the balance in the
Profit & Loss Account was ` 90,000. During the year ended 31st December, 2019, Power Ltd.
earned a profit of ` 30,000 and at year end, declared and paid a dividend of ` 22,500. What
is the amount of minority interest as on 1st January, 2019 and 31st December, 2019? Also
compute goodwill/ capital reserve at the date of acquisition.
(ii) King Ltd. acquires 70% of equity shares of Queen Ltd. as on 31st March, 2020 at a cost of `
140 lakhs. The following information is available from the balance sheet of Queen Ltd. as on
31st March, 2020:
` in lakhs
Property, plant and equipment 240
Investments 110
Current Assets 140
Loans & Advances 30
15% Debentures 180
Current Liabilities 100
The following revaluations have been agreed upon (not included in the above figures):
Property, plant and equipment Up by 20%
Investments Down by 10%
Queen Ltd. declared and paid dividend @ 20% on its equity shares as on 31 st March, 2020
(Face value - `10 per share). King Ltd. purchased the shares of Queen Ltd. @ `20 per share.
Calculate the amount of goodwill/capital reserve on acquisition of shares of Queen Ltd.
(6 + 6 = 12 Marks)

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(b) The summarised Balance Sheet of Preeti Limited as on 31 st March 2019, was as follows:
Liabilities (`) Assets (`)
Authorized and subscribed capital: Property, plant and
equipment:
20,000 Equity shares of ` 100 each fully Machineries 7,00,000
paid 20,00,000
Unsecured loans: Current Assets:
15% Debentures 6,00,000 Inventory 5,06,000
Interest payable thereon 90,000 Trade receivables 4,60,000
Current Liabilities: Bank 40,000
Trade payables 1,04,000 Profit & loss A/c 11,60,000
Provision for income tax 72,000

28,66,000 28,66,000
It was decided to reconstruct the company for which necessary resolution was passed and
sanctions were obtained from the appropriate authorities. Accordingly, it was decided that:
(i) Each share be sub-divided into 10 fully paid up equity shares of ` 10 each.
(ii) After sub-division, each shareholder shall surrender to the company 50% of his holding for
the purpose of reissue to debenture holders and trade payables as necessary.
(iii) Out of shares surrendered 20,000 shares of ` 10 each shall be converted into 10% Preference
shares of ` 10 each fully paid up.
(iv) The claims of the debenture holders shall be reduced by 50%. In consideration of the
reduction, the debenture holder shall receive Preference Shares of ` 2,00,000 which are
converted out of shares surrendered.
(v) Trade payables claim shall be reduced by 25%. Remaining trade payables are to be settled
by the issue of equity shares of ` 10 each out of shares surrendered.
(vi) Balance of Profit and Loss account to be written off.
(vii) The shares surrendered and not re-issued shall be cancelled.
Pass Journal Entries giving effect to the above. (8 Marks)
6. (a) On 1st April, 2019 a company had 6,00,000 equity shares of ` 10 each (` 5 paid up by all
shareholders). On 1 st September, 2019 the remaining ` 5 was called up and paid by all
shareholders except one shareholder having 60,000 equity shares. The net pro fit for the year
ended 31 st March, 2020 was ` 21,96,000 after considering dividend on preference shares and
dividend distribution tax on such dividend totalling to ` 3,40,000.
You are required to compute Basic EPS for the year ended 31 st March, 2020 as per Accounting
Standard 20 "Earnings Per Share".
(b) The financial statements of Alpha Ltd. for the year 2019-2020 were approved by the Board of
Directors on 15 th July, 2020. The following information was provided:
(i) A suit against the company’s advertisement was filed by a party on 20 th April, 2020 claiming
damages of ` 25 lakhs.
(ii) The terms and conditions for acquisition of business of another company ha d been decided
by March, 2020. But the financial resources were arranged in April, 2020 and amount invested
was ` 50 lakhs.
6

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(iii) Theft of cash of ` 5 lakhs by the cashier on 31 st March, 2020, was detected on 16 th July, 2020.
(iv) The company started a negotiation with a party to sell an immovable property for ` 40 lakhs
in March, 2020. The book value of the property is ` 30 lakh on 31 st March, 2020. However,
the deed was registered on 15 th April, 2020.
(v) A major fire had damaged the assets in a factory on 5 th April, 2020. However, the assets
were fully insured.
With reference to AS 4, state whether the above mentioned events will be treated as contingencies,
adjusting events or non-adjusting events occurring after the balance sheet date.
OR
Monu Ltd. sold machinery having WDV of ` 400 lakhs to Sonu Ltd. for ` 500 lakhs and the same
machinery was leased back by Sonu Ltd. to Monu Ltd. The lease back was in nature of operating
lease.
Explain the accounting treatment as per AS 19 in the following cases:
(i) Sale price of ` 500 lakhs is equal to fair value.
(ii) Fair value is ` 450 lakhs and sale price is ` 380 lakhs.
(iii) Fair value is ` 400 lakhs and sale price is ` 500 lakhs.
(iv) Fair value is ` 460 lakhs and sale price is ` 500 lakhs
(c) A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The
assets were realized for ` 25,00,000 against which payment was made as follows:
Liquidation expenses ` 25,000
Secured Creditors ` 10,00,000
Preferential Creditors ` 75,000
The amount due to Unsecured Creditors was ` 15,00,000. You are asked to calculate the total
Remuneration payable to Liquidator. Calculation shall be made to the nearest multiple of a rupee.
(d) Suvidhi Ltd. offered 50 stock options to each of its 1500 employees on 1 st April 2019 for ` 30.
Option was exercisable within a year it was vested. The shares issued under this plan shall be
subject to lock-in on transfer for three years from the grant date. The market price of shares of the
company is ` 50 per share on grant date. Due to post vesting restrictions on transfer, the fair value
of shares issued under the plan is estimated at ` 38 per share. On 31 st March, 2020,1200
employees accepted the offer and paid ` 30 per share purchased. Nominal value of each share is
` 10. Record the issue of shares in the books of the company under the aforesaid plan.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: October, 2020

MOCK TEST PAPER
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
1. (a) (i) According to AS 18 ‘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, Mr. Arnav a relative of key management personnel should be identified as related
party as at the closing date i.e. on 31.3.2020.
(ii) As per AS 18, transactions of company with its associate company for the first quarter ending
30.06.2020 only are required to be disclosed as related party transactions. The transactions
for the period in which related party relationship did not exist need not be reported.
(b) As per AS 9 ‘Revenue Recognition’, in a transaction involving the rendering of s ervices,
performance should be measured either under the completed service contract method or under the
proportionate completion method as the service is performed, whichever relates the revenue to the
work accomplished. In the given case, income accrues when the related advertisement appears
before public. The advertisement service would be considered as performed on the day the
advertisement is published and hence revenue is recognized on that date. In this case, 15.03.20 20
is the date of publication of the magazine. Hence, ` 3,00,000 (` 2,40,000 + ` 60,000) is recognized
as income in March, 2020. The terms of payment are not relevant for considering the date on which
revenue is to be recognized. Since, the revenue of ` 3,00,000 will be recognised in the March,
2020, ` 60,000 will be treated as amount due from advertisers as on 31.03.20 20 and
` 2,40,000 will be treated as payment received against the sale. However, if the publication is
delayed till 02.04.2020 revenue recognition will also be delayed till the advertisements get
published in the magazine. In that case revenue of ` 3,00,000 will be recognized in the year ended
31.03.2020 after the magazine is published on 02.04.2020. The amount received from sale of
advertising space on 10.03.2020 of ` 2,40,000 will be considered as an advance from advertisers
as on 31.03.2020.
(c) Statement showing the amount of profit/loss to be taken to Profit and Loss Account and
additional provision for the foreseeable loss as per AS 7
Cost of Construction ` `
Material used 71,00,000
Labour Charges paid 36,00,000
Add: Outstanding on 31.03.2020 2,00,000 38,00,000
Hire Charges of Plant 10,00,000
Other Contract cost incurred 15,00,000
Cost incurred upto 31.03.2020 1,34,00,000
Add: Estimated future cost 33,50,000
Total Estimated cost of construction 1,67,50,000
Degree of completion (1,34,00,000/1,67,50,000 x 100) 80%
Revenue recognized (80% of 1,50,00,000) 1,20,00,000
Total foreseeable loss (1,67,50,000 - 1,50,00,000) 17,50,000
1

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Less: Loss for the current year (1,34,00,000 - 1,20,00,000) 14,00,000

Loss to be provided for 3,50,000
(d) The entity amortised ` 48,00,000 per annum for the first two years i.e. ` 96,00,000. The remaining
carrying cost can be amortized during next 5 years on the basis of net cash flows arising from the
sale of the product. The amortisation may be found as follows:
Year Net cash flows Amortization Ratio Amortization Amount
` `
I - 0.20 48,00,000
II - 0.20 48,00,000
III 36,00,000 0.180 25,92,000
IV 46,00,000 0.230 33,12,000
V 44,00,000 0.220 31,68,000
VI 40,00,000 0.200 28,80,000
VII 34,00,000 0.170 24,48,000
Total 2,00,00,000 1.000 2,40,00,000
It may be seen from above that from third year onwards, the balance of carrying amount i.e.,
` 1,44,00,000 has been amortized in the ratio of net cash flows arising from the product of Change
Ltd.
2. (a) (i) Number of Shares to be issued to Partners
`
Assets: Machinery ` 1,40,000 + Inventory ` 1,37,400 + Trade Receivable 5,01,400
` 1,24,000 + Bank ` 1,00,000
Less: Liabilities taken over (1,69,400)
Net Assets taken over (Purchase Consideration) 3,32,000

Classes of Shares to be issued: M N O Total

10% Preference Shares of ` 10 each 1,36,000 90,000 46,000 2,72,000
(to retain rights as to Interest on Capital)
Balance in Equity Shares of ` 10 each 30,000 18,000 12,000 60,000
(3,32,000 -2,72,000) (issued in profit
sharing ratio)
1,66,000 1,08,000 58,000 3,32,000
(ii) Partners’ Capital Accounts
Particulars M N O Particulars M N O
To Drawings 50,000 46,000 34,000 By balance b/d 1,36,000 90,000 46,000
To 10% 1,36,000 90,000 46,000 By Interest on Capital 13,600 9,000 4,600
Preference
share
capital
To Equity 30,000 18,000 12,000 By profit for the 1,10,700 66,420 44,280
Shares year 5:3:2
(W.N. 1)
2

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To Bank – 54,300 17,420 6,880 By Machinery* A/c 10,000 6,000 4,000
Additional
Drawings
(W.N. 2)
Total 2,70,300 1,71,420 98,880 2,70,300 1,71,420 98,880

* Gain on Transfer of Machinery = ` 1,40,000 – (` 2,00,000-` 80,000) = ` 20,000 in 5:3:2

ratio.
(iii) Balance sheet of MNO Ltd. as on 31 st March, 2020 (after Takeover of Firm)
Note no. `
I Equity and Liabilities:
(1) Shareholders Funds
Share Capital 1 3,32,000
(2) Current Liabilities
Trade Payables 1,69,400
Total 5,01,400
II Assets
(1) Non-Current Assets
Property, plant and equipment - Machinery 1,40,000
(2) Current Assets:
(a) Inventories 1,37,400
(b) Trade Receivables 1,24,000
(c) Cash and Cash Equivalents 1,00,000
Total 5,01,400
Notes to Accounts
Particulars `
1. Share capital
Authorized shares capital 20,00,000
Issued, Subscribed & paid up
6,000 Equity Shares of ` 10 each 60,000
27,200 10% Preference Shares capital of ` 10 each 2,72,000
(All above shares issued for consideration other than cash, in takeover 3,32,000
of partnership firm)
Working Notes:
1. Profit & Loss Appropriation Account for the year ended 31 st March, 2020
Particulars ` ` Particulars `
To Interest on Capital: By Net Profit 2,48,600
M [` 1,36,000 x 10%] 13,600 (given)
N [` 90,000 x 10%] 9,000
O [` 46,000 x 10%] 4,600 27,200

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To Profits transferred to
Capital in profit sharing
ratio 5:3:2
M 1,10,700
N 66,420
O 44,280 2,21,400
2,48,600 2,48,600
2. Statement showing Additional Drawings in Cash
(a) Funds available for Drawings
Total Drawing of Partners (given) 1,30,000
Add: Further Funds available for Drawings (1,78,600-1,00,000) 78,600
2,08,600
Less: Interest on Capital (27,200)
Amount available for Drawings 1,81,400
(b) Ascertainment of Additional Drawings
Particulars M N O
As per above statement ` 1,81,400 (in 90,700 54,420 36,280
profit sharing ratio)
Add: Interest 13,600 9,000 4,600
1,04,300 63,420 40,880
Less: Already drawn (50,000) (46,000) (34,000)
Additional Drawings 54,300 17,420 6,880
(b) This would be the case of downstream transaction. In the consolidated profit and loss account for
the year ended 31 March 2020, entire transaction of sale and purchase of ` 200 lacs each, would
be eliminated by reducing both sales and purchases (cost of sales). Further, the unrealized profits
of ` 20 lacs (i.e. ` 200 lacs – ` 180 lacs), would be eliminated from the consolidated financial
statements for financial year ended 31 March 2020, by reducing the consolidated profits/ increasing
the consolidated losses, and reducing the value of closing inventories as of 31 March 20 20.
3. (a) (i) In the Books of Beta Ltd.
Realisation Account
` `
To Sundry Assets 15,96,000 By Retirement Gratuity Fund 56,000
To Preference Shareholders By Trade payables 2,24,000
(Premium on Redemption) 28,000 (Purchase Consideration)
To Equity Shareholders By Alex Ltd. 14,84,000
(Profit on Realisation) 1,40,000 _______
17,64,000 17,64,000

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Equity Shareholders Account
` `
To Equity Shares of Alex Ltd. 11,76,000 By Share Capital 8,40,000
By General Reserve 1,96,000
By Realisation Account
(Profit on Realisation)
_______ 1,40,000
11,76,000 11,76,000
Preference Shareholders Account
` `
To 8% Preference 3,08,000 By Preference Share Capital 2,80,000
Shares of Alex Ltd.
By Realisation Account (Premium on
Redemption of Preference Shares) 28,000
3,08,000 3,08,000
Alex Ltd. Account

` `
To Realisation Account 14,84,000 By 8% Preference Shares 3,08,000
_______ By Equity Shares 11,76,000
14,84,000 14,84,000
(ii) In the Books of Alex Ltd.
Journal Entries
Dr. Cr.
` `
Business Purchase A/c Dr. 14,84,000
To Liquidators of Beta Ltd. Account 14,84,000
(Being business of Beta Ltd. taken over)
Goodwill Account Dr. 1,40,000
Building Account Dr. 4,20,000
Machinery Account Dr. 4,48,000
Inventory Account Dr. 4,41,000
Trade receivables Account Dr. 2,80,000
Bank Account Dr. 56,000
To Retirement Gratuity Fund Account 56,000
To Trade payables Account 2,24,000
To Provision for Doubtful Debts Account 21,000
To Business Purchase A/c 14,84,000

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(Being Assets and Liabilities taken over as per agreed

valuation).
Liquidators of Beta Ltd. A/c Dr. 14,84,000
To 8% Preference Share Capital A/c 3,08,000
To Equity Share Capital A/c 11,20,000
To Securities Premium A/c 56,000
(Being Purchase Consideration satisfied as above).
(iii) Balance Sheet of Alex Ltd. (after absorption) as at 31 st March, 2020
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 45,08,000
B Reserves and Surplus 2 2,52,000
2 Non-current liabilities
A Long-term provisions 1,96,000
3 Current liabilities
A Trade Payables 5,88,000
B Short term provision 21,000
Total 55,65,000
Assets
1 Non-current assets
A Property, Plant and Equipment (PPE) 3 31,08,000
B Intangible assets 2,80,000
2 Current assets
A Inventories 11,41,000
B Trade receivables 8,40,000
C Cash and cash equivalents 1,96,000
Total 55,65,000
Notes to accounts:
`
1 Share Capital
Equity share capital
3,92,000 Equity Shares of ` 10 each fully paid (Out of above 1,12,000 39,20,000
Equity Shares were issued in consideration other than for cash)
Preference share capital
5,880 8% Preference Shares of ` 100 each (Out of above 3,080 5,88,000
Preference Shares were issued in consideration other than for cash)
Total 45,08,000

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2 Reserves and Surplus

Securities Premium 56,000
General Reserve 1,96,000
Total 2,52,000
3 PPE
Buildings 12,60,000
Machinery 18,48,000
Total 31,08,000
Working Notes:
Purchase Consideration: `
Goodwill 1,40,000
Building 4,20,000
Machinery 4,48,000
Inventory 4,41,000
Trade receivables 2,59,000
Cash at Bank 56,000
Less: Liabilities:
Retirement Gratuity (56,000)
Trade payables (2,24,000)
Net Assets/ Purchase Consideration 14,84,000
To be satisfied as under:
Preference Shareholders of Beta Ltd. 2,80,000
Add: 10% Premium 28,000
Satisfied by issue of 3,080 no. of 8% Preference Shares of Alex Ltd. 3,08,000
Equity Shareholders of Beta Ltd. to be satisfied by issue of 1,12,000 Equity
Shares of Alex Ltd. at 5% Premium 11,76,000
Total 14,84,000
(b) Pooling of Interest Method
Under pooling of interests method, the assets, liabilities and reserves of the Transferor Company
will be taken over by Transferee Company at existing carrying amounts unless any adjustment is
required due to different accounting policies followed by these companies. As a result th e
difference between the amount recorded as share capital issued (plus any additional consideration
in the form of cash or other assets) and the amount of share capital of Transferor Company should
be adjusted in reserves.
Purchase Method
The assets and liabilities of the transferor company should be incorporated at their existing carrying
amounts or the purchase consideration should be allocated to individual identifiable assets and
liabilities on the basis of their fair values at the date of amalga mation. No reserves, other than

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statutory reserves, of the transferor company should be incorporated in the financial statements of
transferee company.
4. (a) (i) Capital Funds –
Tier I : ` in crore
Equity Share Capital 600
Statutory Reserve 470
Capital Reserve (arising out of sale of assets) 105
Less: Profit & Loss (Dr. bal.) (30)
1,145
Capital Funds - Tier II :
Capital Reserve (arising out of revaluation of assets) 25
Less: Discount to the extent of 55% (13.75)
11.25
(ii) Risk Adjusted Assets
Funded Risk Assets ` in Percentage Amount
crore weight ` in crore
Cash Balance with RBI 35.50 0 —
Balances with other Banks 15 20 3
Claims on banks 52.50 20 10.50
Other Investments 70 100 70
Loans and Advances:
(i) guaranteed by government 22.50 0 —
(ii) guaranteed by PSUs 110 0 —
(iii) Others 9,365 100 9,365
Premises, furniture and fixtures 92.50 100 92.50
Leased Assets 40 100 40
9,581
(b) Statement showing computation of 'Net Owned Fund'
` in 000
Paid up Equity Capital 400
Free Reserves 2,000
2,400
Less: Deferred expenditure (800)
A 1,600
Investments
In shares of subsidiaries and group companies 400
In debentures of subsidiaries and group companies 400

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B 800
10% of A 160
Excess of Investment over 10% of A (800-160) C 640
Net Owned Fund [(A) - (C)] (1,600-640) 960
(c) Journal entries
In the books of Bhoomi Ltd.
Dr. Cr.
` in lakhs
1 Bank A/c Dr. 25,000
To Investments A/c 24,000
To Profit and Loss A/c 1,000
(Being Investments sold and, profit being credited to
Profit and Loss Account)
2 10% Redeemable Preference Share Capital A/c Dr. 20,000
Premium payable on Redemption of Preference Shares Dr. 2,000
A/c
To Preference Shareholders A/c 22,000
(Being amount payable on redemption of Preference
shares, at a Premium of 10%)
3 Securities Premium A/c Dr. 2,000
To Premium payable on Redemption of
Preference Shares A/c 2,000
(Being Securities Premium utilised to provide Premium
on Redemption of Preference Shares)
4 Equity Share Capital A/c Dr. 16,000
Premium payable on Buyback A/c Dr. 16,000
To Equity Share buy back A/c 32,000
(Being the amount due on buy-back)
5 Securities Premium A/c (6,400 – 2,000) Dr. 4,400
General Reserve A/c (balancing figure) Dr. 11,600
To Premium payable on Buyback A/c 16,000
(Being premium on buyback provided first out of
Securities Premium and the balance out of General
Reserves.)
6 Bank A/c Dr. 16,000
To Bank Loan A/c 16,000
(Being Loan taken from Bank to finance Buyback)
7 Preference Shareholders A/c Dr. 22,000
Equity Shares buy back A/c Dr. 32,000

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To Bank A/c 54,000

(Being payment made to Preference Shareholders and
Equity Shareholders)
8 General Reserve Account Dr. 36,000
To Capital Redemption Reserve Account 36,000
(Being amount transferred to Capital Redemption
Reserve Account to the extent of face value of
preference shares redeemed and equity Shares bought
back) (20,000 + 16,000)
5. (a) (i) Total dividend paid is ` 22,500 (out of post-acquisition profits), hence dividend received by
Hemant will be credited to P & L account.
Hemant Ltd.’s share of dividend = ` 22,500 X 80% = ` 18,000
Goodwill on consolidation (at the date of acquisition): ` `
Cost of shares 2,10,000
Less: Face value of capital i.e. 80% of capital 1,20,000
Add: Share of capital profits [90,000 X 80 %] 72,000 (1,92,000)
Goodwill 18,000
Minority interest on:
- 1st January, 2019:
20% of ` 2,40,000 [1,50,000 + 90,000] 48,000
- 31st December, 2019: 49,500
20% of `2,47,500 [1,50,000 + 90,000 + 30,000 – 22,500]
(ii) Revalued net assets of Queen Ltd. as on 31st March, 2020
` in lakhs ` in lakhs
PPE [240 X 120%] 288
Investments [110 X 90%] 99
Current Assets 140
Loans and Advances 30
Total Assets after revaluation 557
Less: 15% Debentures 180.0 0
Current Liabilities 100.0 (280)
Equity / Net Worth 277
King Ltd.’s share of net assets (70% of 277) 193.9
King Ltd.’s cost of acquisition of shares of
Queen Ltd. 0
(`140 lakhs – `14 lakhs*) 126
Capital reserve 67.9
* Total Cost of 70 % Equity of Queen Ltd ` 140 lakhs

10

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Purchase Price of each share ` 20
Number of shares purchased [140 lakhs /` 20] ` 7 lakhs
Dividend @ 20 % i.e. ` 2 per share ` 14 lakhs
Since dividend received is for pre-acquisition period, it has been reduced from the cost of
investment in the subsidiary company.
(b) In the books of Preeti Limited
Journal Entries
` `
(i) Equity Share Capital (` 100) A/c Dr. 20,00,000
To Share Surrender A/c 10,00,000
To Equity Share Capital (` 10) A/c 10,00,000
(Sub-division of 20,000 equity shares of ` 100 each into
2,00,000 equity shares of ` 10 each and surrender of
1,00,000 of such sub-divided shares as per capital
reduction scheme)
(ii) 15% Debentures A/c Dr. 3,00,000
Interest payable A/c (proportionate 50%) Dr. 45,000
To Reconstruction A/c 3,45,000
(Transferred 50% of the claims of the debenture holders
to Reconstruction A/c in consideration of which 10%
Preference shares are being issued, out of share
surrender A/c as per capital reduction scheme)
(iii) Trade payables A/c Dr. 1,04,000
To Reconstruction A/c 1,04,000
(Transferred claims of the trade payables to
Reconstruction A/c, 25% of which is reduction and equity
shares are issued in consideration of the balance
amount)
(iv) Share Surrender A/c Dr. 10,00,000
To 10% Preference Share Capital A/c 2,00,000
To Equity Share Capital A/c 78,000
To Reconstruction A/c 7,22,000
(Issued preference and equity shares to discharge the
claims of the debenture holders and the trade payables
respectively as per scheme and the balance in share
surrender account is transferred to reconstruction
account)
(v) Reconstruction A/c Dr. 11,71,000
To Profit & Loss A/c 11,60,000
To Capital Reserve A/c 11,000

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(Adjusted debit balance of profit and loss account

against reconstruction account and the balance is
transferred to Capital Reserve account)
Note: Alternative set of correct journal entries may be given for transfer of surrendered shares to trade
payables and debenture holders.
6. (a) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year

21,96,000
 = ` 4.80 per share
4,57,500 Shares (as per working note)

Working Note:
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 no. of equity
shares per share shares
` ` `
1.4.2020 6,00,000 5 6,00,000 х 5/10 х 5/12 = 1,25,000
1.9.2020 5,40,000 10 5,40,000 х 7/12 = 3,15,000
1.9.2020 60,000 5 60,000 х 5/10 х 7/12 = 17,500
Total weighted average equity shares 4,57,500

(b) (i) Non-adjusting event: 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 20 th 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. Hence, it will have no effect on financial statement and will be a non -adjusting
event.
(ii) Adjusting event: In the given case, terms and conditions for acquisition of business were
finalised before the balance sheet date and carried out before the closure of the books of
accounts but transaction for payment of financial resources was effected in April, 2020.
Hence, necessary adjustment to assets and liabilities for acquisition of business is necessary
in the financial statements for the year ended 31 st March 2020.
(iii) Non-adjusting event: Only those events which occur between the balance sheet date and
the date on which the financial statements are approved, may indicate the need for
adjustments to assets and liabilities as at the balance sheet date or may require disclosure.
In the given case, as the theft of cash was detected on 16 th July, 2020 ie after approval of
financial statements, no adjustment is required.

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(iv) Non-adjusting event: 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 only started) on the balance sheet date, and was not finalized. Therefore,
adjustment to assets for sale of immovable property is not necessary in the financial
statements for the year ended 31 st March, 2020. Disclosure may be given in Report of
approving Authority.
(v) Non-adjusting event: 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. The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding fire and loss, being completely insured may be
given in the report of approving authority.
OR
Following will be the treatment in the given cases:
(i) When sales price of ` 500 lakhs is equal to fair value, Monu Ltd. should immediately recognise
the profit of ` 100 lakhs (i.e. 500 – 400) in its books.
(ii) When fair value of leased machinery is ` 450 lakhs & sales price is ` 380 lakhs, then loss of
` 20 lakhs (400 – 380) to be immediately recognised by Monu Ltd. in its books provided loss
is not compensated by future lease payment.
(iii) When fair value is ` 400 lakhs & sales price is ` 500 lakhs then, profit of ` 100 lakhs is to be
deferred and amortised over the lease period.
(iv) When fair value is ` 460 lakhs & sales price is ` 500 lakhs, profit of ` 60 lakhs (460-400) to
be immediately recognised in its books and balance profit of ` 40 lakhs (500-460) is to be
amortised/deferred over lease period.
(c) Calculation of Total Remuneration payable to Liquidator
Amount in `
2% on Assets realized 25,00,000 x 2% 50,000
3% on payment made to Preferential creditors 75,000 x 3% 2,250
3% on payment made to Unsecured creditors (Refer W.N) 39,255
Total Remuneration payable to Liquidator 91,505
Working Note:
Liquidator’s remuneration on payment to unsecured creditors =
Cash available for unsecured creditors after all payments including liquidation expenses,
payment to secured creditors, preferential creditors & liquidator’s remuneration
= ` 25,00,000 – ` 25,000 – ` 10,00,000 – ` 75,000 – ` 50,000 – ` 2,250 = ` 13,47,750.
Liquidator’s remuneration on payment to unsecured creditors = 3/103 x ` 13,47,750 = ` 39,255
(d) Journal Entries in the books of Suvidhi Ltd.

Date Particulars Dr. ( `) Cr. ( `)

31.3.20 Bank A/c (60,000 shares x ` 30) Dr. 18,00,000
Employees stock compensation expense A/c Dr. 4,80,000

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To Share Capital A/c (60,000 shares x ` 10) 6,00,000

To Securities Premium 16,80,000
(60,000 shares x ` 28)
(Being shares issued under ESOP @ ` 30 to 1,200
employees)
Profit & Loss A/c Dr. 4,80,000
To Employees stock compensation expense A/c 4,80,000
(Being Employees stock compensation expense transferred
to Profit & Loss A/c)

Working Note:
Fair value of an option = ` 38 – ` 30 = ` 8
Number of shares issued = 1,200 employees x 50 shares = 60,000 shares
Fair value of ESOP which will be recognized as expenses in the year 2019-2020
= 60,000 shares x ` 8 = ` 4,80,000
Vesting period = 1 year
Expenses recognized in 2019-2020 = ` 4,80,000

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Test Series: March, 2021

MOCK TEST PAPER – 1
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) RC Ltd. is showing an intangible asset at Rs. 72 lakhs as on 31-3-2020. This asset was acquired
for Rs. 120 lakhs as on 01-04-2014 and the same was used from that date. The company has been
following the policy of amortization of the intangible assets over a period of 15 years, on straight
line basis.
You are required to comment on the accounting treatment of asset with reference to AS 26
“Intangible Assets” and also give the necessary rectification journal entry in the books.
(b) A machine was given on 3 years operating lease by a dealer of the machine for equal annual lease
rentals to yield 30% profit margin on cost Rs. 1,50,000. Economic life of the machine is 5 years
and output from the machine are estimated as 40,000 units, 50,000 units, 60,000 units, 80,000
units and 70,000 units consecutively for 5 years. Straight line depreciation in proportion of output
is considered appropriate.
You are required to compute: (i) Annual Lease Rent and (ii) Lease Rent income to be recognized
in each operating year.
(c) A company created a provision of Rs. 7,50,000 for staff welfare while preparing the financial
statements for the year 2020-21. On 31st March 2021, in a meeting with staff welfare association,
it was decided to increase the amount of provision for staff welfare to Rs. 10,00,000. The accounts
were approved by Board of Directors on 15 th April, 2021.
You are required to explain the treatment of such revision in financial statements for the year ended
31st March 2021 in line with the provisions of AS 5?
(d) An organization operates an offshore oilfield where its licensing agreement requires it to remove
the oil rig at the end of production and restore the seabed. Ninety percent of the eventual costs
relate to the removal of the oil rig and restoration of damage caused by building it and ten percent
arise through the extraction of oil. At the balance sheet date, the rig has been constructed but no
oil has been extracted. With reference to AS 29, how would you deal with this in the annual
accounts of the company at the Balance Sheet date? Explain. (4 parts x 5 Marks = 20 Marks)
2. Robert Ltd. and Diamond Ltd. give the following information as at 31.03.2020:
Robert Ltd. Diamond Ltd.
(Rs. in lakhs) (Rs. in lakhs)
Equity Share Capital (Fully paid shares of Rs. 10 each) 22,500 9,000
Securities Premium 4,500 -
Foreign Project Reserve - 465
General Reserve 14,250 4,800
Profit and Loss Account 4,305 1,162.5
12% Debentures - 1,500
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Trade payables 1,800 694.5

Provisions 2,745 1,053
Land and Buildings 9,000 -
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 Diamond Ltd. were Robert Ltd.'s acceptances.
On 1st April 2020, Robert Ltd. took over Diamond Ltd. in an amalgamation in the nature of merger. It
was agreed that in discharge of consideration for the business, Robert Ltd. would allot three fully paid
equity shares of Rs. 10 each at par for every two shares held in Diamond Ltd. It was also agreed that
12% debentures in Diamond Ltd. would be converted into 13% debentures in Robert Ltd. of the same
amount and denomination.
Details of trade receivables and trade payables are as under:
Particulars Robert Ltd. Diamond Ltd.
(Rs. 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 Rs. 1.5 lakhs were borne by Robert Ltd.
You are required to:
(i) Pass journal entries in the books of Robert Ltd. and
(ii) Prepare Robert Ltd.'s Balance Sheet immediately after the merger. (20 Marks)
3. (a) The following is the summarized Balance Sheet of M/s Red and Black as on 31 st March, 2018:
Liabilities (Rs.) Assets (Rs.)
Red's Capital 80,000 Building 1,00,000
Black's Capital 1,00,000 1,80,000 Closing Stock 60,000
Red's Loan 20,000 Sundry Debtors 40,000
General Reserve 20,000 Investment 40,000
Sundry Creditors 40,000 (6% Debentures in XYZ Ltd.)
Cash 20,000
2,60,000 2,60,000
It was agreed that Mr. White is to be admitted for a fifth share in the future profits from
1st April, 2018. He is required to contribute cash towards goodwill and Rs. 20,000 towards capital.

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(a) The following further information is furnished:
(i) The partners Red and Black shared the profits in the ratio of 3 : 2.
(ii) Mr. Red was receiving a salary of Rs. 1000 p.m. from the very inception of the firm in
addition to the share of profit.
(iii) The future profit ratio between Red, Black and White will be 3 : 1 : 1. Mr. Red will not
get any salary after the admission of Mr. White.
(iv) The goodwill of the firm should be determined on the basis of 2 years' purchase of the
average profits from business of the last 5 years. The particulars of profits/losses are as
under:
Year Ended (Rs.) Profit/Loss
31.3.2014 40,000 Profit
31.3.2015 20,000 Loss
31.3.2016 40,000 Profit
31.3.2017 50,000 Profit
31.3.2018 60,000 Profit
The above profits and losses are after charging the salary of Mr. Red. The profit of the
year ended 31st March, 2014 included an extraneous profit of Rs.60,000 and the loss of
the year ended 31st March, 2015 was on account of loss by strike to the extent o f
Rs.40,000.
(v) It was agreed that the value of the goodwill should not appear in the books of the firm.
(b) Trading profit for the year ended 31st March, 2019 was Rs. 80,000 (Before charging
depreciation)
(c) Each partner had drawn Rs.2,000 per month as drawing during the year 2018-19.
(d) On 31st March, 2019 the following balances appeared in the books:
Building (Before Depreciation) Rs. 1,20,000
Closing Stock Rs. 80,000
Sundry Debtors Nil
Sundry Creditors Nil
Investment Rs.40,000
(e) Interest@ 6% per annum on Red's loan was not paid during the year.
(f) Interest on Debentures received during the year.
(g) Depreciation is to be provided @ 5% on closing balance of Building.
(h) Partners applied for conversion of the firm into a private Limited Company ; i.e. RBW Private
Limited. Certificate received on 1.4.2019.
They decided to convert Capital accounts of the partners into share capital, in the ratio of 3: 1: 1
(on the basis of total Capital as on 31.3.2019). If necessary, partners have to subscribe to fresh
capital or withdraw.
You are required to prepare: (1) Profit & Loss Account for the year ended 31 st March, 2019 in
the books of M/s Red and Black and (2) Balance Sheet as on 1st April, 2019 in the books of RBW
Private Limited.
(b) Omega Financiers Ltd. is an NBFC providing Hire Purchase Solutions for acquiring consumer
durables. The following information is extracted from its books for the year ended 31 st March, 2020:
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Assets Funded Interest Overdue but recognized in Profit Net Book Value of
& Loss Assets outstanding
Period Overdue Interest Amount
(Rs. In crore) (Rs. In crore)
LCD Televisions Up to 12 Months 500.00 20,000
Washing Machines For 24 Months 100.00 2,000
Refrigerators For 30 Months 50.00 1,250
Air Conditioners For 45 Months 25.00 600
Mobile Phones For 60 Months 10.00 100

You are required to calculate the amount of provision to be made. (16 + 4 = 20 Marks)
4. (a) A Ltd. and its subsidiary B Ltd. give the following information for the year ended 31st March, 2020:
Rs. in Lakhs
A Ltd. B Ltd.
Sales and other income 7,500 1,500
Increase in Inventory 1,500 300
Raw material consumed 1,200 300
Wages and Salaries 1,200 225
Production expenses 300 150
Administrative expenses 300 150
Selling and distribution expenses 300 75
Interest 150 75
Depreciation 150 75

The following information is also given:

(i) A Ltd sold goods of Rs. 180 Lakhs to B Ltd at cost plus 25% (1/6 of such goods were still in
inventory of B Ltd at the end of the year).
(ii) A Ltd. holds 72% of the Equity Capital of B Ltd and the Equity Capital of B Ltd is Rs.1,500
Lakhs on 1.4.2019 (date of acquisition of shares).
(iii) Administrative expenses of B Ltd include Rs. 8 Lakhs paid to A Ltd as consultancy fees.
Moreover, selling and distribution expenses of A Ltd include Rs.15 Lakhs paid to B Ltd as
commission.
You are required to prepare a consolidated Statement of Profit and Loss Account of A Ltd. with its
subsidiary B Ltd. for the year ended 31 st March, 2020.
(b) What are circumstances when an LLP can be wound up by the Tribunal. Explain in brief.
(15 + 5 =20 Marks)
5. (a) BT Ltd. went into Voluntary Liquidation on 31 st March, 2019. It gives the following information as
on 31st March, 2019:
Rs.
Issued & Subscribed Capital:
10,000 12% cumulative preference shares of Rs. 100 each, fully paid 10,00,000

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10,000 Equity Shares of Rs. 100 each 75 per share paid up 7,50,000
20,000 Equity Shares of Rs. 100 each 60 per share paid up 12,00,000
Profit & Loss Account (Dr. balance) 5,25,000
12% Debentures (Secured by a floating charge) 10,00,000
Interest outstanding on Debentures 1,20,000
Creditors 8,50,000
Land & Building 17,60,000
Plant & Machinery 12,50,000
Furniture 4,75,000
Patents 1,45,000
Stock 1,80,000
Trade Receivables 5,09,300
Cash at Bank 75,700

Preference dividends were in arrear for 1 year. Creditors include preferential creditors of
Rs. 75,000. Balance creditors are discharged subject to 5% discount.
Assets are realised as under:
Rs.
Land & Building 24,50,000
Plant & Machinery 9,00,000
Furniture 2,85,000
Patents 90,000
Stock 2,80,000
Trade Receivables 3,15,000
Expenses of liquidation amounted to Rs. 45,000. The liquidator is entitled to a remuneration of 3%
on all assets realised (except cash at bank). All payments were made on 30 th June, 2019.
You are required to prepare the Liquidator's Final Statement of Account as on 30 th June, 2019.
Working Notes should form part of the answer.
(b) From the following information, prepare the Profit & Loss A/c of Indus Bank Ltd. for the year ending
31st March, 2020. Also give necessary schedules.
Particulars Figures in '000
Total Interest earned on term loans 2,550
Interest earned on term loans classified as NPA 731
Interest received on term loans classified as NPA 238
Total Interest earned on cash credits and overdrafts 5,663
Interest earned but not received on cash credit and overdrafts treated as NPA 923
Interest on deposits 4,120
Commission 201
Profit on sale of investments 1,876

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Profit on revaluation of investments 342

Income from Investments 2,174
Payments to and provision for employees 2,745
Rent, Taxes and Lighting 385
Printing and Stationery 62
Director's fees, allowances and expenses 313
Repairs and Maintenance 56
Depreciation on Bank's property 99
Insurance 43
Also make necessary provision on Risk Assets as per the following details:
Particulars Figures in '000
Standard 4,700
Sub-Standard (fully secured) 1,900
Doubtful Assets not covered by security 400
Doubtful Assets covered by security for 1 year 40
Loss Assets 300
(10 + 10 = 20 Marks)
6. (a) (i) Mr. Raj a relative of key management personnel received remuneration of
Rs. 2,50,000 for his services in the company for the period from 1.4.2020 to 30.6.2020. On
1.7.2020, he left the service. Should the relative be identified as at the closing date i.e. on
31.3.2021 for the purposes of AS 18?
(ii) X Ltd. sold goods to its associate Company during the 1st quarter ending 30.6.20 20. After
that, the related party relationship ceased to exist. However, goods were supplied as were
supplied to any other ordinary customer. Decide whether transactions of the entire year need
disclosure as related party transaction.
(b) The Paid-up capital of S Limited amounted to Rs. 5,00,000 Equity Shares of Rs. 10 each. Due to
continuous losses incurred by the company, the following scheme of reconstruction has been
approved for S Limited on 1 st April, 2020:
(i) In lieu of present holding the Equity Shareholders are to receive:
(a) Fully Paid Equity Shares equal to 3/5th of their holding.
(b) 8% Preference Shares fully paid to the extent of 20% of the above new Equity Shares.
(c) 10% Second Debentures of Rs. 40,000.
(ii) An issue of 8% Debentures First Debentures of Rs. 1,00,000 was made and fully subscribed
for cash,
(iii) The Assets were reduced as follows:-
(a) Building from Rs. 2,00,000 to Rs. 1,50,000
(b) Plant & Machinery from Rs. 1,50,000 to Rs. 1,30,000
(c) Goodwill from Rs. 30,000 to Nil.
Show the Journal Entries in the books of S Limited to give effect of the scheme of Reconstruction.

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(c) Akar Ltd. Signed on 01/04/19, a construction contract for Rs. 1,50,00,000. Following particulars
are extracted in respect of contract, for the period ending 31/03/20:
- Materials issued Rs. 75,00,000
- Labour charges paid Rs. 36,00,000
- Hire charges of plant Rs. 10,00,000
- Other contract cost incurred Rs. 15,00,000
- Out of material issued, material lying unused at the end of period is Rs. 4,00,000
- Labour charges of Rs. 2,00,000 are still outstanding on 31.3.20.
- It is estimated that by spending further Rs. 33,50,000 (including material unused
Rs. 4,00,000), the work can be completed in all respect.
You are required to compute profit/loss to be taken to Profit & Loss Account and additional provision
for foreseeable loss as per AS 7.
(d) Ganga Ltd. has its share capital divided into Equity Shares of Rs. 10 each. On 1 st April, 2019, the
company offered 250 shares to each of its 520 employees at Rs. 60 per share, when the market
price was Rs. 150 per share. The options were to be exercised between 01-03-2020 to
31-03-2020. 410 employees accepted the offer and paid Rs. 60 per share on purchased shares
and the remaining options lapsed. The company closes its books on 31 st March every year.
You are required to show Journal Entries (with narrations) as would appear in the books of Ganga
Ltd. for the year ended 31 st March, 2020 with regard to employee stock options.
OR
Equity capital is held by L, M, N and O in the proportion of 30:40:20:10. A, B, C and D hold
Preference share capital in the proportion of 40:30:10:20. If the paid up Equity Share capital of the
company is Rs. 60 lakhs and Preference share capital is Rs. 30 lakhs, find the voting rights of
shareholders (in percentage) in case of resolution of winding up of the company.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: March, 2021
MOCK TEST PAPER - 1
INTERMEDIATE (NEW): GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
SUGGESTED ANSWERS/HINTS

1. (a) As per AS 26 'Intangible Assets', the depreciable amount of an intangible asset should be allocated
on systematic basis over the best estimate of its useful life. There is a rebuttable presumption that
the useful life of an intangible asset will not exceed ten years from the date when the asset is
available for use. The Company has been following the policy of amortization of the intangible
asset over a period of 15 years on straight line basis. The period of 15 years is more than the
maximum period of 10 years specified as per AS 26.
Accordingly, the company would be required to restate the carrying amount of intangible asset as
on 31.3.2020 at Rs. 48 lakhs i.e. Rs. 120 lakhs less Rs. 72 lakhs (Rs. 120 Lakhs / 10 years x 6
years = 72 Lakhs). The difference of Rs. 24 Lakhs (Rs. 72 lakhs – Rs. 48 lakhs) will be adjusted
against the opening balance of revenue reserve. The carrying amount of Rs. 48 lakhs will be
amortized over remaining 4 years by amortizing Rs. 12 lakhs per year.
The necessary journal entry (for rectification) will be
Revenue Reserves Dr. Rs. 24 Lakhs
To Intangible Assets Rs. 24 Lakhs
(Adjustment to reserves due to restatement of the carrying amount of intangible asset)
(b) (i) Annual lease rent
Total lease rent
Output during lease period
= 130% of Rs. 1,50,000 
Total output
= 130% of Rs. 1,50,000 x (40,000 +50,000+ 60,000)/(40,000 + 50,000 + 60,000 + 80,000 +
70,000)
= 1,95,000 x 1,50,000 units/3,00,000 units = Rs. 97,500
Annual lease rent = Rs. 97,500 / 3 = Rs. 32,500
(ii) Lease rent Income to be recognized in each operating year
Total lease rent should be recognized as income in proportion of output during lease period,
i.e. in the proportion of 40 : 50 : 60.
Hence income recognized in years 1, 2 and 3 will be as:
Year 1 Rs. 26,000,
Year 2 Rs. 32,500 and
Year 3 Rs. 39,000.
(c) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies”, the change in amount of staff welfare provision amounting
Rs. 2,50,000 is neither a prior period item nor an extraordinary item. It is a change in es timate,
which has been occurred in the year 2020-21.

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As per the provisions of the standard, normally, all items of income and expense which are
recognized in a period are included in the determination of the net profit or loss for the period. This
includes extraordinary items and the effects of changes in accounting estimates. However, the
effect of such change in accounting estimate should be classified using the same classification in
the statement of profit and loss, as was used previously, for the estimate.
(d) The construction of the oil rig creates an obligation under the terms of the license to remove the
rig and restore the seabed and is thus an obligating event. At the balance sheet date, however,
there is no obligation to rectify the damage that will be caused by extraction of the oil. An outflow
of resources embodying economic benefits in settlement is probable. Thus, a provision is
recognized for the best estimate of ninety per cent of the eventual costs that relate to the removal
of the oil rig and restoration of damage caused by building it. These costs are included as part of
the cost of the oil rig. However, there is no obligation to rectify the damage that will be caused by
extraction of oil, as no oil has been extracted at the balance sheet date. So, no provision is required
for the cost of extraction of oil at balance sheet date. Ten per cent of costs that arise through the
extraction of oil are recognized as a liability when the oil is extracted.
2. Books of Robert Ltd.
Journal Entries
(Rs. in Lacs) (Rs. in Lacs)
Business Purchase A/c Dr. 13,500
To Liquidator of Diamond Ltd. 13,500
(Being business of Diamond Ltd. taken over for
consideration settled as per agreement)
Plant and Machinery Dr. 7,500
Furniture & Fittings Dr. 2,550
Inventory Dr. 6,061.5
Debtors Dr. 1,530
Cash at Bank Dr. 913.5
Bills Receivable Dr. 120
To Foreign Project Reserve 465
To General Reserve Rs. (4,800 - 4,500) 300
To Profit and Loss A/c 1,162.5
To Liability for 12% Debentures 1,500
To Creditors 694.5
To Provisions 1,053
To Business Purchase A/c 13,500
(Being assets & liabilities taken over from Diamond Ltd.)
Liquidator of Diamond Ltd. A/c Dr. 13,500
To Equity Share Capital A/c 13,500
(Purchase consideration discharged in the form of equity
shares)
Profit & Loss A/c Dr. 1.5
To Bank A/c 1.5
(Liquidation expenses paid and charged to P& L A/c)
2

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Liability for 12% Debentures A/c Dr. 1,500

To 13% Debentures A/c 1500
(12% debentures discharged by issue of 13% debentures)
Bills Payable A/c Dr. 120
To Bills Receivable A/c 120
(Cancellation of mutual owing on account of bills)
Balance Sheet of Robert Ltd. as at 1st April, 2020 (after merger)
Particulars Notes Rs. (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
C Cash and cash equivalents (1,671+913.5-1.5) 2,583
Total 68,653.5
Notes to Accounts
Rs.
1. Share Capital
Equity share capital
Authorized, issued, subscribed and paid-up: 36 crores equity shares of
Rs. 10 each (out of these shares, 13.5 crores shares have been issued for
consideration other than cash) 36,000
2. Reserves and Surplus
General Reserve 14,550
Securities Premium 4,500
Foreign Project Reserve 465
Profit and Loss Account Rs. (4,305 +1,162.5-1.5) 5,466
Total 24,981
3. Long-term borrowings

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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 Robert Ltd. for every
two equity shares held in Diamond Ltd.
3
Purchase consideration = Rs. 9,000 lacs × = Rs. 13,500 lacs
2
3. (a) M/s Red, Black and White
Statement of Profit & Loss for the year ended on 31st March, 2019
Rs. Rs.
To Dep. Building (1,20,000x5%) 6,000 By Trading Profit 80,000
To Interest on Red’s loan (20,000 x 6%) 1,200 By Interest on Debentures 2,400
To Net Profit to :
Red’s Capital A/c 45,120
Black’s Capital A/c 15,040
White’s Capital A/c 15,040
82,400 82,400
Balance Sheet of the RBW Pvt. Ltd. as at 1-4-2019
Notes No. Rs.
I Equity and Liabilities
Shareholders funds 2,39,040
Non-current liabilities
Long term borrowings 1 21,200
Total 2,60,240
Assets
Non-current assets
PPE 2 1,14,000
Non-current investments 40,000
Current assets
Inventories 80,000
Cash and cash equivalents 26,240
Total 2,60,240

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Notes to Accounts
Rs.
1. Borrowings
Loan from Red 21,200
2. PPE
Land and Building (1,20,000 – 6,000) 1,14,000
Working Notes:
1. Calculation of goodwill:
Year ended March, 31
2014 2015 2016 2017 2018
Rs. Rs. Rs. Rs. Rs.
Book Profits 40,000 (20,000) 40,000 50,000 60,000
Adjustment for extraneous profit
2014 and abnormal loss 2015 (60,000) 40,000 — — —
(20,000) 20,000 40,000 50,000 60,000
Add Back: Remuneration of Red 12,000 12,000 12,000 12,000 12,000
(8,000) 32,000 52,000 62,000 72,000
Less : Debenture Interest being
non-operating income (2,400) (2,400) (2,400) (2,400) (2,400)
(10,400) 29,600 49,600 59,600 69,600
Total Profit from 2015 to 2018 2,08,400
Less : Loss for 2014 (10,400)
Accumulated Profit 1,98,000
Average Profit 39,600
Goodwill equal to 2 years’ purchase 79,200
Contribution from White, equal to 15,840
1/5
2. Partners’ Capital accounts
Red Black White Red Black White
Rs. Rs. Rs. Rs. Rs. Rs.
To Drawings 24,000 24,000 24,000 By Balance b/d 80,000 1,00,000 —
To Black 15,840
To Balance c/d 1,13,120 1,14,880 11,040 By General 12,000 8,000 —

Reserve
By White 15,840 —
By Bank — — 35,840
By Profit & 45,120 15,040 15,040

Loss A/c
1,37,120 1,38,880 50,880 1,37,120 1,38,880 50,880

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3. Balance Sheet as on 31st March, 2019
Liabilities Rs. Rs. Assets Rs. Rs.
Red’s Capital 1,13,120 Land & Building 1,20,000
Black’s Capital 1,14,880 Less : Dep. (6,000) 1,14,000
White’s Capital 11,040 Investments 40,000
Red’s Loan 20,000 Stock-in-trade 80,000
Add : Int. due 1,200 21,200 Cash (Balancing figure) 26,240*
2,60,240 2,60,240
4. Conversion into Company
Rs.
Capital : Red 1,13,120
Black 1,14,880
White 11,040
Share Capital 2,39,040
Distribution of share: Red (3/5) 1,43,424
Black (1/5) 47,808
White (1/5) 47,808
Red should subscribe shares of Rs. 30,304 (Rs. 1,43,424 – Rs. 1,13,120) and White should
subscribe shares of Rs. 36,768 (Rs. 47,808 less 11,040). Black withdraws Rs. 67,072 (Rs. 47,808
– Rs.1,14,880).
5 Adjustment for Goodwill amounting Rs. 79,200
To be raised in old To be written off in new Difference
Ratio ratio
Red 47,520 47,520 Nil
Black 31,680 15,840 15,840 Cr.
White 15,840 15,840 Dr.
* Also the closing cash balance can be derived as shown below:
Rs. Rs.
Trading profit (assume realised) 80,000
Add: Debenture Interest 2,400
Add: Decrease in Debtors Balance 40,000
1,22,400
Less: Increase in stock 20,000
Less: Decrease in creditors 40,000 (60,000)
Cash Profit 62,400
Add: Opening cash balance 20,000
Add: Cash brought in by White 35,840
1,18,240
Less: Drawings 72,000
Less: Additions to Building 20,000 (92,000)
26,240
6

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(b) On the basis of the information, in respect of hire purchase and leased assets, additional
provision shall be made as under:
(Rs. in crore)
(a) Where hire charges are overdue upto 12 Nil -
months
(b) Where hire charges are overdue for more 10% of the net book value 200
than 12 months but upto 24 months 10% x 2,000
(c) Where hire charges are overdue for more 40 percent of the net book value 500
than 24 months but upto 36 months 40% x 1,250
(d) Where hire charges or lease rentals are 70 percent of the net book value 420
overdue for more than 36 months but upto 48 70% x 600
months
(e) Where hire charges or lease rentals are 100% of net book value 100
overdue for more than 48 months (100% x 100)
Total 1,220
4. (a) Consolidated Profit & Loss Account of A Ltd. and its subsidiary B Ltd.
for the year ended on 31st March, 2020
Particulars Note No. Rs. in Lacs
I. Revenue from operations 1 8,797
II. Total revenue 8,797
III. Expenses
Cost of Material purchased/consumed 3 1,770
Changes of Inventories of finished goods 2 (1,794)
Employee benefit expense 4 1,425
Finance cost 6 225
Depreciation and amortization expense 7 225
Other expenses 5 802
Total expenses 2,653
IV. Profit before Tax(II-III) 6,144
Notes to Accounts
Rs. in Lacs Rs. in Lacs
1. Revenue from Operations
Sales and other income
A Ltd. 7,500
B Ltd. 1,500
9,000
Less: Inter-company Sales (180)
Consultancy fees received by A Ltd. from B Ltd. (8)
Commission received by B Ltd. from A Ltd. (15) 8,797

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2. Increase in Inventory
A Ltd. 1,500
B Ltd. 300
1,800
Less: Unrealized profits Rs. 180×1/6 x 25/125 (6) 1,794
3. Cost of Material purchased/consumed
A Ltd. 1,200
B Ltd. 300
1,500
Less: Purchases by B Ltd. from A Ltd. (180) 1,320
Direct Expenses
A Ltd. 300
B Ltd. 150 450
1,770
4. Employee benefits and expenses
Wages and Salaries:
A Ltd. 1,200
B Ltd. 225 1,425
5. Other Expenses
Administrative Expenses
A Ltd. 300
B Ltd. 150
450
Less: Consultancy fees received by A Ltd. from B Ltd. (8) 442
Selling and Distribution Expenses:
A Ltd. 300
B Ltd. 75
375
Less: Commission received from B Ltd. from A Ltd. (15) 360
802
6. Finance Cost
Interest:
A Ltd. 150
B Ltd. 75 225
7. Depreciation and Amortization
Depreciation:
A Ltd. 150
B Ltd. 75 225
(b) Under section 64 of the LLP Act, 2008, an LLP may be wound up by the Tribunal:
• If the LLP decides that it should be wound up by the Tribunal;

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• If for a period of more than six months, the number of partners of the LLP is reduced below
two;
• If the LLP is unable to pay its debts;
• If the LLP has acted against the interests of the integrity and sovereignty of India, the security
of the state or public order;
• If the LLP has defaulted in the filing of the Statement of Account and Solvency with the
Registrar for five consecutive financial years;
• If the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
5. (a) BT Limited
Liquidator’s Statement of Account
Receipts Rs. Rs. Payments Rs. Rs.
To Assets realized: By Liquidation expenses 45,000
Bank 75,700 By Preferential creditors 75,000
Other assets: By Liquidator’s Remuneration (W.N.1) 1,29,600
Land & building 24,50,000 By Debenture holders:
Plant & Machinery 9,00,000 Debentures 10,00,000
Furniture 2,85,000 Interest accrued 1,20,000
Patents 90,000 Interest 1-4-19 to 30-6-19 30,000 11,50,000
Stock 2,80,000 By Unsecured creditors 7,36,250
Trade receivables 3,15,000 43,20,000 By Preferential shareholders
Preference capital 10,00,000
Arrear of Dividend 1,20,000 11,20,000
32,55,850
By Equity shareholders -
Rs. 32.995 on 20,000 shares 6,59,900
Rs. 47.995 on 10,000 shares 4,79,950

43,95,700 43,95,700

Working Notes:
(1) Liquidator’s remuneration 43,20,000 × 3/100 =Rs. 1,29,600
(2) As the company is solvent, interest on the debentures will have to be paid for the period
1-4-2019 to 30-6-2019= 10,00,000 x 12% x 3/12 = Rs. 30,000
(3) Total equity capital - paid up (7,50,000 +12,00,000) Rs. 19,50,000
Less: Balance available (43,95,700 — 32,55,850) Rs. (11,39,850)
Rs. 8,10,150
Loss to be borne by 30,000 equity shares
Loss per share Rs. 27.005
Hence, Refund for share on Rs. 60 paid share (60 - 27.005) Rs. 32.995
Refund for share on Rs. 75 paid (75 - 27.005) Rs. 47.995

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(b) Indus Bank Limited
Profit & Loss Account for the year ended 31 st March, 2020
Schedule Rs. ’000s
I. Income
Interest earned 13 8,971
Other income 14 2,419
Total 11,390
II. Expenditure
Interest expended 15 4,120
Operating expenses 16 3,703
Provisions (Refer W.N.) 1,013.8
Total 8,836.8
III. Profit/Loss 2,553.20

Schedule 13 – Interest Earned

Rs. ’000s
Interest / discount on advances bills
Interest on term loans [2,550- (731-238)] 2,057
Interest on cash credits and overdrafts (5,663-923) 4,740
Income on investments 2,174
8,971
Note: Interest on non-performing assets is recognized on receipt basis.
Schedule 14 – Other Income
Rs. ’000s
Commission, exchange and brokerage 201
Profit on sale of investments 1,876
Profit on revaluation of investments 342
2,419
Schedule 15 – Interest Expended
Rs. ’000s
Interest on deposits 4120
Schedule 16 – Operating Expenses
Rs. ’000s
Payments to and provision for employees - salaries, bonus and allowances 2,745
Rent, taxes and lighting 385
Printing & stationery 62
Director’s fee, allowances and expenses 313
Depreciation Charges 99
Repairs & maintenance 56
Insurance 43
3,703

10

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Working Note:
Provisions Rs. ’000s
Provision for standard and non-performing assets
Standard (4,700 x .4%) 18.8
Sub-standard (1900 x 15%) 285
Doubtful (400 x 100%) 400
Doubtful (40 x25%) 10
Loss assets (300 x 100%) 300
1,013.8
6. (a) (i) 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, Mr. Raj, a relative of key management personnel should be identified as
related party for disclosure in the financial statements for the year ended 31.3.2021.
(ii) As per AS 18, transactions of X Ltd. with its associate company for the first quarter ending
30.06.2020 only are required to be disclosed as related party transactions. The transactions
for the period in which related party relationship did not exist need not be reported.
(b) Journal Entries in the books of S Ltd.
Dr. Cr.
2020 Rs. Rs.
April 1 Equity Share Capital A/c (Rs. 10) Dr. 5,00,000
To Equity Share Capital A/c 3,00,000
To 8% Preference Equity Share Capital A/c 60,000
To 10% Second Debentures A/c 40,000
To Capital Reduction /Reconstruction A/c 1,00,000
(Being reduction of equity shares to 3/5 shares,
issue of preference shares and debentures as per
Reconstruction Scheme dated...)
Capital Reduction / Reconstruction A/c Dr. 1,00,000
To Building A/c 50,000
To Plant and Machinery A/c 20,000
To Goodwill A/c 30,000
(Being value of building and plant and machinery
reduced and goodwill written off completely.)
Bank A/c Dr. 1,00,000
To 8% First Debentures A/c 1,00,000
(Being Rs. 1,00,000 debentures issued)
(c) Statement showing the amount of profit/loss to be taken to Profit and Loss Account and
additional provision for the foreseeable loss as per AS 7
Cost of Construction Rs. Rs.
Material Issued 75,00,000
Less: Unused Material at the end of period 4,00,000 71,00,000
11

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Labour Charges paid 36,00,000

Add: Outstanding on 31.03.2020 2,00,000 38,00,000
Hire Charges of Plant 10,00,000
Other Contract cost incurred 15,00,000
Cost incurred upto 31.03.2020 1,34,00,000
Add: Estimated future cost 33,50,000
Total Estimated cost of construction 1,67,50,000
Degree of completion (1,34,00,000/1,67,50,000 x 100) 80%
Revenue recognized (80% of 1,50,00,000) 1,20,00,000
Total foreseeable loss (1,67,50,000 - 1,50,00,000) 17,50,000
Less: Loss for the current year (1,34,00,000 - 1,20,00,000) 14,00,000
Loss to be provided for 3,50,000
(d) Journal Entries in the books of Ganga Ltd.
Rs. Rs.
1.3.20 Bank A/c (1,02,500 x Rs. 60) Dr. 61,50,000
to Employee compensation expense A/c Dr. 92,25,000
31.3.20 (1,02,500 x Rs.90)
To Equity share capital A/c (1,02,500 x Rs.10) 10,25,000
To Securities premium A/c (1,02,500 x Rs.140) 1,43,50,000
(Being shares issued to the employees against the options
vested to them in pursuance of Employee Stock Option
Plan)
31.3.20 Profit and Loss A/c Dr. 92,25,000
To Employee compensation expense A/c 92,25,000
(Being transfer of employee compensation expenses to
Profit and Loss Account)
OR
L, M, N and O hold Equity capital is held by in the proportion of 30:40:20:10 and A, B, C and D hold
preference share capital in the proportion of 40:30:10:20. As the paid up equity share capital of the
company is Rs.60 Lakhs and Preference share capital is Rs.30 Lakh (2:1), then relative weights in
the voting right of equity shareholders and preference shareholders will be 2/3 and 1/3.
The respective voting right of various shareholders will be:
L = 2/3X30/100 = 3/15 = 20%
M = 2/3X40/100 = 4/15 = 26.67%
N = 2/3X20/100 = 2/15 = 13.33%
O = 2/3X10/100 = 1/15 = 6.67%
A = 1/3X40/100 = 4/30 = 13.33%
B = 1/3X30/100 = 3/30 = 10%
C = 1/3X10/100 = 1/30 = 3.33%
D = 1/3X20/100 = 2/30 = 6.67%

12

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Test Series: April, 2021

MOCK TEST PAPER – 2
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (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 = Rs. 50,000 at the end of each year.
Guaranteed residual value = Rs. 25,000
Fair Value at the inception (beginning) of lease = Rs. 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).
(b) Plymouth Ltd. is engaged in research on a new process design for its product. It had incurred
Rs. 10 lakh on research during first 5 months of the financial year 2020-21. The development of
the process began on 1st September, 2020 and upto 31st March, 2021, a sum of Rs. 8 lakh was
incurred as Development Phase Expenditure, which meets assets recognition criteria. From 1st
April, 2021, the Company has implemented the new process design and it is likely that this will
result in after tax saving of Rs. 2 lakh per annum for next five years. The cost of capital is 10%.
The present value of annuity factor of Rs. 1 for 5 years @ 10% is 3.7908.
Decide the treatment of Research and Development Cost of the project as per AS 26.
(c) S.T.B. Ltd. makes provision for expenses amounting Rs. 7,00,000 as on March 31, 2020, but the
actual expenses during the year ending March 31, 2021 comes to Rs. 9,00,000 against provision
made during the last year. State with reasons whether difference of Rs. 2,00,000 is to be treated
as prior period item as per AS 5 ‘Net Profit or Loss for the Period, Prior Period Items and Changes
in Accounting Policies’.
(d) (i) XYZ Ltd. is in a dispute with a competitor company. The dispute is regarding alleged
infringement of Copyrights. The competitor has filed a suit in the court of law seeking damages
of Rs. 200 lacs.
The Directors are of the view that the claim can be successfully resisted by the Company.
How would the matter be dealt in the annual accounts of the Company in the light of AS 29 ?
Explain in brief giving reasons for your answer.
(ii) What is meant by “Restructuring Provision” as per AS 29? What costs are excluded while
computing such provision as per the standard? (4 parts x 5 Marks = 20 Marks)

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2. (a) Meghna Limited gives the following information as on 31-03-2021:
Particulars Amount
(Rs. in lakh)
Share capital
Issued, subscribed and paid up:
100 lakh Equity Shares of Rs. 10 each, full paid up 1,000
4 lakh 8% Preference Shares of Rs. 100 each, fully paid up 400
Debit balance of Profit & Loss A/c 522
6% Debentures (secured by Freehold Property) 400
Directors’ Loan 300
Trade Payables 102
Interest accrued and outstanding on 6% Debentures 24
Freehold Property 550
Plant & Machinery 200
Current Investments (Investment in Equity Instruments) 200
Inventories (Finished goods) 300
Trade Receivables 450
Bank balance 4
The Board of Directors of the company decided upon the following scheme of reconstruction with
the consent of respective shareholders:
(1) Preference Shares are to be written down to Rs. 80 each and Equity Shares to Rs. 2 each.
(2) Preference Shares Dividend in arrears for 3 years to be waived by 2/3 rd and for balance 1/3rd,
Equity Shares of Rs. 2 each to be allotted.
(3) Debenture holders agreed to take one Freehold Property at its book value of Rs. 300 lakh in
part payment of their holding. Balance Debentures to remain as liability of the company.
(4) Interest accrued and due on Debentures to be paid in cash.
(5) Remaining Freehold Property to be valued at Rs. 400 lakh.
(6) All investments sold out for Rs. 250 lakh.
(7) 70% of Directors' loan to be waived and for the balance, Equity Shares of Rs. 2 each to be
allowed.
(8) 40% of Trade receivables and 80% of Inventories to be written off.
(9) Company's contractual commitments amounting to Rs. 600 lakh have been settled by paying
5% penalty of contract value.
You are required to:
(a) Pass Journal Entries for all the transactions related to internal reconstruction;
(b) Prepare Capital Reduction Account.
(b) List the conditions to be fulfilled as per AS 14 (Revised) for an amalgamation to be in the nature of
merger, in the case of companies. (16+4 =20 Marks)

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3. (a) A partnership firm was dissolved on 30 th June, 2020. Its Balance Sheet on the date of dissolution
was as follows:
Liabilities Rs. Rs. Assets Rs.
Capitals: Cash 10,800
A 76,000 Sundry Assets 1,89,200
B 48,000
C 36,000 1,60,000
Loan A/c – B 10,000
Sundry Creditors 30,000
2,00,000 2,00,000
The assets were realized in instalments and the payments were made on the proportionate capital
basis. Creditors were paid Rs. 29,000 in full settlement of their account. Expenses of realization
were estimated to be Rs. 5,400 but actual amount spent was Rs. 4,000. This amount was paid on
15th September. Draw up a statement showing distribution of cash, which was realized as follows:
Rs.
On July, 2020
5th 25,200
On 30th August, 2020 60,000
On 15th September, 2020 80,000
The partners shared profits and losses in the ratio of 2 : 2 : 1. Prepare a statement showing
distribution of cash amongst the partners by ‘Highest Relative Capital’ method.
(b) Explain Garner v/s Murray rule applicable in the case of partnership firms. State the conditions
when this rule is not applicable.
(c) A NBFC provides the following information:
Rs. in crores
Investment in shares of subsidiaries and group companies 100
Investment in debentures of subsidiaries and group Companies 100
Cash and bank balances 200
Paid-up equity capital 150
Securities premium 50
Free reserves 200
Loans 400
Deposits 400
You are required to compute 'Net owned Fund' from the above information as per Non-Banking
Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking
Company (Reserve Bank) Directions, 2016. (12 + 4 +4= 20 Marks)
4. (a) H Ltd. and its subsidiary S Ltd. Give the following information as on 31st March, 2021:
H Ltd. (Rs.) S Ltd. (Rs.)
Share Capital
Equity Share Capital (fully paid up shares of Rs. 10 each) 12,00,000 2,00,000
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 S Ltd. - 16,000 shares @ Rs. 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
H Ltd. acquired the 80% shares of S Ltd. on 1 st April, 2020. On the date of acquisition, General
Reserve and Profit Loss Account of S Ltd. stood at Rs. 50,000 and Rs. 30,000 respectively.
Machinery (book value Rs. 2,00,000) and Furniture (book value Rs. 40,000) of S Ltd. were revalued
at Rs. 3,00,000 and Rs. 30,000 respectively on 1 st April,2020 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 H Ltd. include Rs. 35,000 due to S Ltd. for goods supplied since the acquisition of the
shares. These goods are charged at 10% above cost. The inventories of H Ltd. includes goods
costing Rs. 55,000 (cost to H Ltd.) purchased from S Ltd.
You are required to prepare the Consolidated Balance Sheet of H Ltd. With its subsidiary as at 31 st
March, 2021.
(b) Explain the nature of Limited Liability Partnership. Who can be a designated partner in a Limited
Liability Partnership? (16 + 4 =20 Marks)
5. (a) The following information relates to Shah Ltd. Co. which is in the hands of the liquidator:
Liabilities Rs.
Share Capital:
1,000, 6% Preference Shares of Rs. 100 each, fully paid 1,00,000
2,000 Equity shares of Rs. 100 each, fully paid 2,00,000
2,000 Equity shares of Rs. 100 each Rs. 75 paid up 1,50,000
Loan from bank (on security of stock) 1,00,000
Trade Payables 3,50,000
Property, Plant and Equipment 2,00,000
Inventory 1,20,000
Book Debts 2,40,000
Cash in hand 40,000
Profit and loss A/c (Dr. Balance) 3,00,000
The assets realized the following amounts (after all costs of realization and liquidator’s commission
amounting to Rs. 5,000 paid out of cash in hand):
Rs.
Property, Plant and Equipment 1,68,000
Inventory 1,10,000
Trade Receivables 2,30,000

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Calls on partly paid shares were made but the amounts due on 200 shares were found to be
irrecoverable.
You are required to prepare Liquidator’s Final Statement of Receipts and Payments . (10 Marks)
(b) (i) The following is an extract of Trial Balance of a bank as on 31 st March, 2021:
Dr. (Rs.) Cr. (Rs.)
Bill Discounted 15,16,800
Discount Received 1,26,859
Rebate on Bills discounted not due on 31 st March, 2020 26,592
An analysis of bill discounted is as follows:
Amount in Rs. Due Date Rate of Discount
1,46,200 4th May, 2021 15
2,30,400 12th May, 2021 15
4,35,900 28th May, 2021 15
4,36,200 18th June, 2021 16
2,68,100 4th July, 2021 16
You are required to calculate Rebate on Bills Discounted as on 31 st March, 2021 and show
necessary Journal Entries.
(ii) The following information relates to a bank:
Assets Rs. in Lakhs
Standard 75,00
Sub-Standard 60,00
Doubtful: for 1 Year (fully secured) 12,00
for 1 to 3 Year (fully secured) 9,00
for more than 3 Years 9,00
Loss Assets 15,00
Additional Information:
(1) Standard Assets includes Rs. 15,00 Lakhs Advances to Commercial Real Estate (CRE).
(2) Out of Rs. 60,00 Lakhs of Sub-Standard Asset Rs. 20,00 Lakhs are unsecured.
Unsecured amount includes Rs. 5,00 Lakhs in respect of Infrastructure Loan Accounts
with ESCROW safeguard.
(3) Doubtful Asset for more than 3 Years includes Rs. 4,00 Lakhs, which is covered by 50%
ECGC, value of security of which is Rs. 150 Lakhs.
You are required to find out the amount of provision to be shown in the Profit & Loss Account
of Bank. (6+4=10 Marks)
6. (a) SP hotels Limited enters into an agreement with Mr. A for running its hotel for a fixed return payable
to the later every year. The contract involves the day-to-day management of the hotel, while all
financial and operating policy decisions are taken by the Board of Directors of the compa ny. Mr. A
does not own any voting power in SP Hotels Limited. Would he be considered as a related party of
SP Hotels Limited? Also explain the required related party disclosure requirements under AS 18?
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(b) Explain the concept of ‘weighted average number of equity shares outstanding during the period’.
Also compute, based on AS 20, the weighted average number of equity shares in the following
case:
No. of shares
1st April, 2020 Balance of equity shares 7,20,000
31st August, 2020 Equity shares issued for cash 2,40,000
1st February, 2021 Equity shares bought back 1,20,000
31st March, 2021 Balance of equity shares 8,40,000
(c) In a company, equity share capital is held by X, Y and Z in the proportion of 40:40:20. Moreover,
A, B and C hold preference share capital in the proportion of 50:30:20. If the paid-up equity share
capital of the company is Rs. 1 Crore and Preference share capital is Rs. 50 Lakh, then compute
the relative weights in the voting rights of all these equity shareholders and preference
shareholders for the purpose of winding up of company.
(d) On 1st April, 2021, Bimal Ltd. take over the business of Vimal Ltd. and discharged purchase
consideration as follows:
(i) Issued 50,000 fully paid Equity shares of Rs. 10 each at a premium of Rs. 5 per share to the
equity shareholders of Vimal Ltd.
(ii) Cash payment of Rs. 50,000 was made to equity shareholders of Vimal Ltd.
(iii) Issued 2,000 fully paid 12% Preference shares of Rs. 100 each at par to discharge the
preference shareholders of Vimal Ltd.
(iv) Debentures of Vimal Ltd. (Rs.1,20,000) will be converted into equal number and amount of
10% debentures of Bimal Ltd.
Calculate the amount of Purchase consideration as per AS 14 and pass Journal Entry relating to
discharge of purchase consideration in the books of Bimal Ltd.
OR
Om Ltd. has its share capital divided into Equity Shares of Rs. 10 each. On 1st April, 2020, the
company offered 250 shares to each of its 520 employees at Rs. 60 per share, when the market
price was Rs. 150 per share. The options were to be exercised between 01-03-2021 to
31-03-2021.
410 employees accepted the offer and paid Rs. 60 per share on purchased shares and the
remaining options lapsed. You are required to show Journal Entries (with narrations) as would
appear in the books of Om Ltd. for the year ended 31st March, 2021 with regard to employee stock
options. (4 Parts x 5 Marks = 20 Marks)

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Test Series: April, 2021

MOCK TEST PAPER – 2
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
ANSWERS
1. (a) Present value of minimum lease payment is computed below:
Year MLP PV
DF (12.6%)
Rs. Rs.
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 = Rs. 1,91,500
Fair value of leased asset = Rs. 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:
Rs. Rs.
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) Research Expenditure – According to AS 26 ‘Intangible Assets’, the expenditure on research of

new process design for its product Rs. 10 lakhs should be charged to Profit and Loss Account in
the year in which it is incurred. It is presumed that the entire expenditure is incurred in the financial
year 2020-21. Hence, it should be written off as an expense in that year itself.
Cost of internally generated intangible asset – it is given that development phase expenditure
amounting Rs. 8 lakhs incurred upto 31 st March, 2021 meets asset recognition criteria. As per AS
26, for measurement of such internally generated intangible asset, fair value should be estimated
by discounting estimated future net cash flows.
Savings (after tax) from implementation of new design for next 5 years Rs. 2 lakhs p.a.
Company’s cost of capital 10 %
Annuity factor @ 10% for 5 years 3.7908
Present value of net cash flows (Rs. 2 lakhs x 3.7908) Rs. 7.582 lakhs
The cost of an internally generated intangible asset would be lower of cost value Rs. 8 lakhs or
present value of future net cash flows Rs. 7.582 lakhs.

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Hence, cost of an internally generated intangible asset will be Rs. 7.582 lakhs.
The difference of Rs. 0.418 lakhs (i.e. Rs. 8 lakhs – Rs. 7.582 lakhs) will be amortized by Plymouth
for the financial year 2020-21.
Amortisation - The company can amortise Rs. 7.582 lakhs over a period of five years by charging
Rs. 1.516 lakhs per annum from the financial year 2021-2022 onwards.
(c) As per AS 5 ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies’, as a result of the uncertainties inherent in business activities, many financial statement
items cannot be measured with precision but can only be estimated. The estimation process
involves judgments based on the latest information available. The use of reasonable estimates is
an essential part of the preparation of financial statements and does not undermine their reliability.
Estimates may have to be revised, if changes occur regarding the circumstances o n which the
estimate was based, or as a result of new information, more experience or subsequent
developments.
As per the standard, the effect of a change in an accounting estimate should be classified using
the same classification in the statement of profit and loss as was used previously for the estimate.
Prior period items are 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. Thus, revisio n
of an estimate by its nature i.e. the difference of Rs. 2 lakhs, is not a prior period item. Therefore,
in the given case expenses amounting Rs. 2,00,000 (i.e. Rs. 9,00,000 – Rs. 7,00,000) recorded in
the current year, should not be regarded as prior period item.
(d) (i) As per AS 29, 'Provisions, Contingent Liabilities and Contingent Assets’, a provision should
be recognized when
 an enterprise has a present obligation as a result of a past event;
 it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation; and
 a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision should be recognized.
In the given situation, since, the directors of the company are of the opinion that the claim can
be successfully resisted by the company, therefore there will be no outflow of the resources.
Hence, no provision is required. The company will disclose the same as contingent liability by
way of the following note:
“Litigation is in process against the company relating to a dispute with a competitor who
alleges that the company has infringed copyrights and is seeking damages of Rs. 200 lakhs.
However, the directors are of the opinion that the claim can be successfully resisted by the
company.”
(ii) As per AS 29, a restructuring provision should include only the direct expenditures arising
from the restructuring, which are those that are both: (a) necessarily entailed by the
restructuring; and (b) Not associated with the ongoing activities of the enterprise. A
restructuring provision does not include such costs as: (a) Retraining or relocating
continuing staff; (b) Marketing; or (c) Investment in new systems and distribution
networks.
2. (a) Journal Entries in the books of Meghna Ltd.
Particulars Debit Credit
(Rs. in lakhs) (Rs. in lakhs)
(i) 8% Preference share capital A/c (Rs. 100 each) Dr. 400
To 8% Preference share capital A/c (Rs. 80 each) 320
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To Capital Reduction A/c 80

(Being the preference shares of Rs. 100 each
reduced toRs. 80 each as per the approved scheme)
(ii) Equity share capital A/c (Rs. 10 each) Dr. 1,000
To Equity share capital A/c (Rs. 2 each) 200
To Capital Reduction A/c 800
(Being the equity shares of Rs. 10 each reduced to
Rs. 2 each)
(iii) Capital Reduction A/c Dr. 32
To Equity share capital A/c (Rs. 2 each) 32
(Being 1/3rd arrears of preference share dividend of 3
years to be satisfied by issue of 8 lakhs equity shares of
Rs. 2 each)
(iv) 6% Debentures A/c Dr. 300
To Freehold property A/c 300
(Being claim of Debenture holders settled in part by
transfer of freehold property)
(v) Accrued debenture interest A/c Dr. 24
To Bank A/c 24
(Being accrued debenture interest paid)
(vi) Freehold property A/c Dr. 150
To Capital Reduction A/c 150
(Being appreciation in the value of freehold property)
(vii) Bank A/c Dr. 250
To Investments A/c 200
To Capital Reduction A/c 50
(Being investment sold at profit)
(viii) Director’s loan A/c Dr. 300
To Equity share capital A/c (Rs. 2 each) 90
To Capital Reduction A/c 210
(Being director’s loan waived by 70% and balance
being discharged by issue of 45 lakhs equity shares
of Rs. 2 each)
(ix) Capital Reduction A/c Dr. 972
To Profit and loss A/c 522
To Trade receivables A/c (450x 40%) 180
To Inventories-in-trade A/c (300x 80%) 240
To Bank A/c (600 x 5%) 30
(Being certain value of various assets, penalty on
cancellation of contract, profit and loss account debit
balance written off through Capital Reduction
Account)
(x) Capital Reduction A/c 286
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To Capital reserve A/c 286
(Being balance transferred to capital reserve
account as per the scheme)
Capital Reduction Account
(Rs. in lakhs) (Rs. in lakhs)
To Equity Share Capital 32 By Preference Share Capital 80
To Trade receivables 180 By Equity Share Capital 800
To Finished Goods 240 By Freehold Property 150
To Profit & Loss A/c 522 By Bank 50
To Bank A/c 30 By Director’s Loan 210
To Capital Reserve 286
1,290 1,290
(b) Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions.
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets
and liabilities of the transferee company and the business of the transfer or company is
intended to be carried on, after the amalgamation, by the transferee company
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor
company (other than the equity shares already held therein, imme diately before the
amalgamation, by the transferee company or its subsidiaries or their nominees) become
equity shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
(iv) No adjustment is intended to be made to the book values of the assets and liabilities of the
transferor company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity of accounting policies.
3. (a) Statement showing distribution of cash amongst the partners
Creditors B’s Loan A B C
2020 Rs. Rs. Rs. Rs. Rs.
June 30
Balance b/d 30,000 10,000 76,000 48,000 36,000
Cash balance less Provision for
expenses (Rs. 10,800 – Rs. 5,400) 5,400 - - - -
Balances unpaid 24,600 10,000 76,000 48,000 36,000
July 5
1st Instalment of Rs. 25,200 23,600 1,600 - - -
Discount received on full settlement 1,000 8,400 76,000 48,000 36,000
Less: Transferred to Realization A/c 1,000
Nil
August 30

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2nd instalment of Rs. 60,000 (W.N. 2) 8,400 32,640 4,640 14,320

Balance unpaid Nil 43,360 43,360 21,680
September 15
Amount realised Rs. 80,000
Add: Balance out
of the Provision for
Expenses A/c 1,400
81,400 32,560 32,560 16,280
Amount unpaid being loss on Realization 10,800 10,800 5,400
in the ratio of 2 : 2 : 1
Working Notes:
1. Highest relative capital basis
A B C
Rs. Rs. Rs.
1. Present Capitals 76,000 48,000 36,000
2. Profit-sharing ratio 2 2 1
3 Capital per unit of Profit share (1 ÷ 2) 38,000 24,000 36,000
4. Proportionate capitals taking B, whose capital is the 48,000 48,000 24,000
least, as the basis
5. Excess capital (1-4) 28,000 Nil 12,000
6. Profit-sharing ratio 2 - 1
7. Excess capital per unit of Profit share (5 ÷ 6) 14,000 12,000
8. Proportionate capitals as between A and C taking C 24,000 - 12,000
capital as the basis
9. Excess of A’s Capital over C’s Excess capital (5-8) 4,000 - -
10. Balance of Excess capital (5-9) 24,000 12,000
11. Distribution sequence:
First Rs. 4,000 (2 : 0 : 0) 4,000 - -
Next Rs. 36,000 (2 : 0 : 1) 24,000 - 12,000
Over Rs. 40,000 (2 : 2 : 1)
2. Distribution of Second instalment
Creditors A B C
First Rs. 8,400 8,400 - - -
Next Rs. 4,000 (2 : 0 : 0) 4,000 - -
Next Rs. 36,000 (2 : 0 : 1) 24,000 - 12,000
Balance Rs. 11,600 (2 : 2 : 1) 4,640 4,640 2,320
60,000 8,400 32,640 4,640 14,320
(b) Garner vs. Murray rule: When a partner is unable to pay his debt due to the firm, he is said to be
insolvent and the share of loss is to be borne by other solvent partners in accordance with the
decision held in the English case of Garner vs. Murray. According to this decision, normal loss on
realisation of assets is to be brought in cash by all partners (including insolvent partner) in the profit
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sharing ratio but a loss due to insolvency of a partner has to be borne by the solvent partners in
their capital ratio. In order to calculate the capital ratio, no adjustment will be made in case of fixed
capitals. However, in case of fluctuating capitals, ratio should be calculated on the basis of
adjusted capital before considering profit or loss on realization at the time of dissolution.
Non-Applicability of Garner vs Murray rule:
1. When the solvent partner has a debit balance in the capital account.
Only solvent partners will bear the loss of capital deficiency of insolvent partner in their capital
ratio. If incidentally a solvent partner has a debit balance in his capital account, he will escape
the liability to bear the loss due to insolvency of another partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital account
of insolvent partner.
4. When all the partners of the firm are insolvent.
(c) Statement showing computation of 'Net Owned Fund'
Rs. in crores
Paid up Equity Capital 150
Securities Premium 50
Free Reserves 200
A 400
Investments
In shares of subsidiaries and group companies 100
In debentures of subsidiaries and group companies 100
B 200
10% of A 40
Excess of Investment over 10% of A (200-40) C 160
Net Owned Fund [(A) - (C)] (400-160) 240
4. (a) Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.
as at 31st March, 2021
Particulars Note No. (Rs.)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 12,00,000
(1,20,000 equity shares of Rs. 10 each)
(b) Reserves and Surplus 1 8,16,200
(2) Minority Interest (W.N.4) 99,300
(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

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(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
Rs.
1. Reserves and Surplus
General Reserves 4,35,000
Add: 80% share of S Ltd.’s post-acquisition
reserves (W.N.3) 84,000 5,19,000
Profit and Loss Account 2,80,000
Add: 80% share of S Ltd.’s post-acquisition 21,200
profits (W.N.3)
Less: Unrealised gain (4,000) 17,200 2,97,200
8,16,200
2. Trade Payables
H Ltd. 3,22,000
S Ltd. 1,23,000
Less: Mutual transaction (35,000) 4,10,000
3. Property, plant and equipment
Machinery
H Ltd. 6,40,000
S Ltd. 2,00,000
Add: Appreciation 1,00,000
3,00,000
Less: Depreciation (30,000) 2,70,000 9,10,000
Furniture
H. Ltd. 3,75,000
S 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
H Ltd. 2,68,000
S Ltd. 62,000 3,30,000
Less: Inventory reserve (5,000)
3,25,000
6. Trade Receivables
H Ltd. 4,70,000
S Ltd. 2,35,000
7,05,000
Less: Mutual transaction (35,000)
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6,70,000
7. Cash and Bank
H Ltd. 1,64,000
S Ltd. 32,000 1,96,000

Working Notes:
1. Profit or loss on revaluation of assets in the books of S Ltd. and their book values as
on 1.4.2020
Rs.
Machinery
Revaluation as on 1.4.2020 3,00,000
Less: Book value as on 1.4.2020 (2,00,000)
Profit on revaluation 1,00,000
Furniture
Revaluation as on 1.4.2020 30,000
Less: Book value as on 1.4.2020 (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
3. Analysis of reserves and profits of S Ltd. as on 31.03.2021
Pre-acquisition Post-acquisition profits
profit upto (1.4.2020 – 31.3.2021)
1.4.2020
(Capital General Profit and
profits) Reserve loss account
General reserve as on 31.3.2021 50,000 1,05,000
Profit and loss account as on 31.3.2021 30,000 35,000
Upward Revaluation of machinery as on 1,00,000
1.4.2020
Downward Revaluation of Furniture as on (10,000)
1.4.2020
Short depreciation on machinery (10,000)

Excess depreciation on furniture 1,500

Total 1,70,000 1,05,000 26,500

4. Minority Interest
Rs.
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
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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
(Rs. 64,000 + Rs.72,000) 1,36,000 (2,96,000)
Cost of control or Goodwill 24,000
(b) Nature of Limited Liability Partnership: A limited liability partnership is a body corporate formed
and incorporated under the LLP Act, 2008 and is a legal entity separate from that of its partners.
A limited liability partnership shall have perpetual succession and any change in the partners of a
limited liability partnership shall not affect the existence, rights or liabilities of the limited liability
partnership.
Designated partners: Every limited liability partnership shall have at least two designated partners
who are individuals and at least one of them shall be a resident in India. In case of a limited liability
partnership in which all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such limited liability
partnership or nominees of such bodies corporate shall act as designated partners .
5. (a) Liquidator’s Final Statement of Receipts and Payments A/c
Rs. Rs. Rs.
To Cash in hand 40,000 By Liquidator’s remuneration 5,000
To Assets realised: and expenses
PPE 1,68,000 By Trade Payables 3,50,000
Inventory By Preference shareholders 1,00,000
(1,10,000 – 1,00,000) 10,000 By Equity shareholders @
Book debts 2,30,000 4,08,000 Rs. 10 on 2,000 shares 20,000
To Cash - proceeds of
call on 1,800 equity
shares @ Rs. 15* 27,000
4,75,000 4,75,000
Working Note:
Return per equity share
Rs.
Cash available before paying preference shareholders
(Rs. 4,48,000 – Rs. 3,55,000) 93,000
Add: Notional calls 1,800 shares (2,000-200) × Rs. 25 45,000
1,38,000
Less: Preference share capital (1,00,000)
Available for equity shareholders 38,000
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` 38,000
Return per share=  ` 10
3,800 (4,000  200)
and Loss per Equity Share Rs. (100-10) = Rs. 90
*Calls to be made @ Rs. 15 per share (Rs. 90-75) on 1,800 shares.
(b) (i) Statement showing rebate on bills discounted
Value Due Date Days after 31.3.2021 Rate of discount Discount Amount

1,46,200 4.5.21 (30+ 4) = 34 15% 2,043

2,30,400 12.5.21 (30+12) = 42 15% 3,977
4,35,900 28.5.21 (30+28) = 58 15% 10,390
4,36,200 18.6.21 (30+ 31+ 18) = 79 16% 15,106
2,68,100 4.7.21 (30+ 31+30+4) = 95 16% 11,165
15,16,800 Rebate on bills discounted on 31.3.2021 42,681
Note: 365 days have been considered in a year.
In the books of SM Bank Ltd. - Journal Entries
(i) Rebate on bills discounted Account Dr. 26,592
To Discount on bills Account 26,592
[Being opening balance of rebate on bills discounted
account transferred to discount on bills account]
(ii) Bills purchased & discounted Account Dr. 15,16,800
To Discount on bills Account 1,26,859
To Clients Account 13,89,941
(Being bills purchased and discounted during the year)
(iii) Discount on bills Account Dr. 42,681
To Rebate on bills discounted Account 42,681
[Being provision made on 31st March, 2021]
(iv) Discount on bills Account Dr. 1,10,770
To Profit and loss Account* 1,10,770
[Being transfer of discount on bills, of the year, to profit
and loss account]
*Credit to Profit and Loss A/c will be as follows:
Rs. (1,26,859 + 26,592 – 42,681) = Rs. 1,10,770
(ii) Statement showing the amount of provisions on Assets
(Rs. in lakhs)
Assets Amount % of provision Provision
Standard:
Advances to CRE 15,00 1 15
Others 60,00 .4 24
Sub-standard:
Secured 40,00 15 6,00

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Unsecured- Others 15,00 25 3,75

Unsecured infrastructure 5,00 20 1,00
Doubtful Secured:
up to one year 12,00 25 3,00
For more than 1 year up to 3 years 9,00 40 3,60
More than 3 years 4,00 W.N.1 2,75
Doubtful unsecured (more than 3 years) 5,00 100 5,00
Loss 15,00 100 15,00
Total Provision Required 40,49
Working Note:
Provision required where assets are ECGC covered
Rs. In Lakhs
Outstanding balance (ECGC Covered) 4,00
Less: Value of security 1,50
Unrealised balance 2,50
Less: ECGC Cover @ 50% 1,25
Net Unsecured Balance 1,25
Provision for unsecured portion @100% 1,25
Provision for secured portion @100% 1,50
Total Provision to be made 2,75
6. (a) Mr. A will not be considered as a related party of SP Hotels Limited in view of AS 18 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”. In the given case, in the absence of share ownership, Mr. A would not be considered
to exercise significant influence on SP Hotels Limited, even though there is an agreement giving
him the power to manage the company. Further, the fact that Mr. A does not have the ability to
direct or instruct the board of directors does not qualify him as a ke y management personnel.
Related Party Disclosures: Name of the related party and nature of the related party relationship
where control exists should be disclosed irrespective of whether or not there have been
transactions between the related parties.
This is to enable users of financial statements to form a view about the effects of related party
relationships on the enterprise.
If there have been transactions between related parties, during the existence of a related party
relationship, the reporting enterprise should disclose the following:
(i) The name of the transacting related party;
(ii) A description of the relationship between the parties;
(iii) A description of the nature of transactions;
(iv) Volume of the transactions either as an amount or as an appropriate proportion;
(v) Any other elements of the related party transactions necessary for an understanding of the
financial statements;
(vi) The amounts or appropriate proportions of outstanding items pertaining to related parties at
the balance sheet date and provisions for doubtful debts due from such parties at that date;

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(vii) Amounts written off or written back in the period in respect of debts due from or to related
parties.
(b) As per AS 20, “Earnings Per Share”, the weighted average number of equity shares outstanding
during the period reflects the fact that the amount of shareholders’ capital may have varied during
the period as a result of a larger or less number of shares outstanding at any time. For the purpose
of calculating basic earnings per share, the number of equity shares should be the weighted
average number of equity shares outstanding during the period.
Weighted average number of equity shares:
7,20,000 X 5/12 = 3,00,000 shares
9,60,000 X 5/12 = 4,00,000 shares
8,40,000 X 2/12 = 1,40,000 shares
= 8,40,000 shares
(c) The respective voting right of various shareholders will be
X = 2/3X40/100 = 4/15
Y = 2/3X40/100 = 4/15
Z = 2/3X20/100 = 2/15
A = 1/3X50/100 = 1/6
B = 1/3X30/100 = 1/10
C = 1/3X20/100 = 2/30
Hence their relative weights are 4/15 : 4/15 : 2/15 : 1/6 : 1/10 : 2/30 or 8:8:4:5:3:2.
Their voting power is X (26.67%), Y (26.67%), Z (13.33%), A (16.67%), B (10%) and C (6.67%)
(d)
Particulars Rs.
Equity Shares (50,000 x 15) 7,50,000
Cash payment 50,000
12% Preference Share Capital 2,00,000
Purchase Consideration 10,00,000
As per AS 14, consideration for the amalgamation means 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. Thus, payment to debenture holders are
not covered by the term ‘consideration’.
Journal entry relating to discharge of consideration
in the books of Bimal Ltd.
Liquidation of Vimal Ltd.A/c 10,00,000
To Equity share capital A/c 5,00,000
To 12% Preference share capital A/c 2,00,000
To Securities premium A/c 2,50,000
To Bank/Cash A/c 50,000
(Discharge of purchase consideration)
OR

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Journal Entries in the books of Om Ltd.
Rs. Rs.
1.3.21 Bank A/c (1,02,500 x Rs. 60) Dr. 61,50,000
to 31.3.21 Employee compensation expense A/c Dr. 92,25,000
(1,02,500 x Rs.90)
To Equity share capital A/c (1,02,500x Rs.10) 10,25,000
To Securities premium A/c 1,43,50,000
(1,02,500 x Rs.140)
(Being shares issued to the employees against the
options vested to them in pursuance of Employee Stock
Option Plan)
31.3.21 Profit and Loss A/c Dr. 92,25,000
To Employee compensation expense A/c 92,25,000
(Being transfer of employee compensation expenses to
Profit and Loss Account)

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Test Series: November, 2021

MOCK TEST PAPER 2
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) A contractor firm obtained a contract for construction of bridge. The following details are
available in the records kept for the year ended March 31, 2021:
(` in Crore)
Total Contract Price 500
Work Certified 250
Work not Certified 80
Estimated further Cost to Completion 220
Progress Payment Received 200
Payment to be Received 70
You are required to calculate :
(i) The amount of revenue to be recognized.
(ii) The amount of profit or loss to be recognized.
(iii) The amount due from/ to customers.
Also present relevant disclosures as per AS-7 (Revised).
(b) S. Square Private Limited has taken machinery on finance lease from S.K. Ltd. The information
is as under:
Lease term = 4 years
Fair value at inception of lease = ` 20,00,000
Lease rent = ` 6,25,000 p.a. at the end of year
Guaranteed residual value = ` 1,25,000
Expected residual value = ` 3,75,000
Implicit interest rate = 15%
Discounted rates for 1 st year, 2nd year, 3rd year and 4th year are 0.8696, 0.7561, 0.6575 and
0.5718 respectively.
You are required to calculate the value of the lease liability as per AS-19 and also disclose
impact of this on Balance sheet and Profit & loss account at the end of year 1.
(c) Fashion Limited is engaged in manufacturing of readymade garments. They provide you the
following information on 31 st March, 2021:
(i) On 15th January, 2021 garments worth ` 4,00,000 were sent to Anand on consignment
basis of which 25% garments unsold were lying with Anand as on 31 st March, 2021.

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(ii) Garments worth ` 1,95,000 were sold to Shine boutique on 25 th March, 2021 but at the
request of Shine Boutique, these were delivered on 15 th April, 2021.
(iii) On 1st November, 2020 garments worth ` 2,50,000 were sold on approval basis. The
period of approval was 4 months after which they were considered sold. Buyer sent
approval for 75% goods up to 31 st December, 2020 and no approval or disapproval
received for the remaining goods till 31 st March, 2021.
You are required to advise the accountant of Fashion Limited, the amount to be recognised
as revenue in above cases in the context of AS 9.
(d) An airline is required by law to overhaul its aircraft once in every five years. The pacific Airlines
which operate aircrafts does not provide any provision as required by law in its final accounts.
You are required to comment on the validity of the treatment done by the company in line with
the provisions of AS 29. (4 Parts x 5 Marks = 20 Marks)
2. (a) P, Q, R and S are sharing profits and losses in the ratio 3 : 3 : 2 : 1. Frauds committed by R
during the year were found out and it was decided to dissolve the partnership on
31st March, 2021 when their Balance Sheet was as under:
Equity & Liabilities Amount (` ) Assets Amount (` )
Capitals: Building 1,90,000
P 1,50,000 Stock 1,30,000
Q 1,50,000 Investments 50,000
R - Debtors 70,000
S 60,000 Cash 30,000
General reserve 40,000 R’s capital 40,000
Trade creditors 80,000 (overdrawn)
Bills payable 30,000
5,10,000 5,10,000
Following information is given to you:
(i) A cheque for ` 7,000 received from debtor was not recorded in the books and was
misappropriated by R.
(ii) Investments costing ` 8,000 were sold by R at ` 11,000 and the funds transferred to his
personal account. This sale was omitted from the firm’s books.
(iii) A creditor agreed to take over investments of the book value of ` 9,000 at
` 13,000. The rest of the creditors were paid off at a discount of 5%.
(iv) The other assets realized as follows:
Building 110% of book value
Stock ` 1,20,000
Investments The rest of investments were sold at a profit of ` 7,000
Debtors The rest of the debtors were realized at a discount of 10%
(v) The bills payable were settled at a discount of ` 500.
(vi) The expenses of dissolution amounted to ` 8,000
(vii) It was found out that realization from R’s private assets would only be ` 7,000.
Prepare Realization Account, Cash Account and Partners’ Capital Accounts. All workings
should part of your answer.
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(b) Classify the following NPAs of the SG Banking Limited:

- Loan Assets overdue for more than 3 months but less than 12 months: ` 150 Lakhs, fully
secured.
- Loan Assets overdue for more than 12 months: ` 90 Lakhs, fully secured.
- Loan Assets overdue for more than 36 months and considered uncollectible : ` 50 Lakhs.
(This comprise of two assets worth ` 25 Lakhs each. One of these has a security value of
` 20 Lakhs).
Also, give the amount of provisioning required in each case.
(16 + 4 = 20 Marks)
3. (a) A Ltd. gives the following information on 31 st March, 2021:
`
8,000 Equity shares of ` 100 each 8,00,000
10% Debentures 4,00,000
Loans 1,60,000
Trade payables 3,20,000
General Reserve 80,000
Building 3,40,000
Machinery 6,40,000
Inventory 2,20,000
Trade receivables 2,60,000
Bank 1,36,000
Patent 1,30,000
Profit & Loss account (Dr. balance) 34,000

B Ltd. agreed to absorb A Ltd. on the following terms and conditions:

(1) B Ltd. would take over all assets, except bank balance and Patent at their book values less
10%. Goodwill is to be valued at 4 year’s purchase of super profits, assuming that the normal
rate of return be 8% on the combined amount of share capital and general reserve.
(2) B Ltd. is to take over trade payables at book value.
(3) The purchase consideration is to be paid in cash to the extent of ` 6,00,000 and the balance
in fully paid equity shares of ` 100 each at ` 125 per share.
The average profit is ` 1,24,400. The liquidation expenses amounted to ` 16,000. B Ltd. sold prior
to 31st March, 2021 goods costing ` 1,20,000 to A Ltd. for ` 1,60,000. ` 1,00,000 worth of goods
are still in Inventory of A Ltd. on 31 st March, 2021. Trade payables of A Ltd. include ` 40,000 still
due to B Ltd.
Show the Realisation A/c, Bank A/c, B Ltd. A/c and Equity shareholders A/c to close the books of
A Ltd. and prepare the Balance Sheet of B Ltd. as at 1 st April, 2021 after the takeover from the
available information.
(b) Explain B List Contributories and the liability of contributories included in the list.
(16 + 4 = 20 Marks)
4. (a) The following is an extract from the Trial Balance of Jeevan Bank Ltd. as at 31 st March, 2021:
Rebate on bills discounted as on 1-4- 2020 1,36,518 (Cr.)

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Discount received 3,40,312 (Cr.)

Analysis of the bills discounted reveals as follows:
Amount (`) Due date
5,60,000 June 1, 2021
17,44,000 June 8, 2021
11,28,000 June 21, 2021
16,24,000 July 1, 2021
12,00,000 July 5, 2021
You are required to find out the amount of discount to be credited to Profit and Loss account
for the year ending 31 st March, 2021 and pass Journal Entries. The rate of discount may be
taken at 10% per annum.
(b) While closing its books of account on 31 st March, 2021 a Non-Banking Finance Company has
classified its advances as follows:
` in lakhs
Standard assets 13,400
Sub-standard assets 670
Secured portions of doubtful debts:
− Up to one year 160
− one year to three years 45
− more than three years 20
Unsecured portions of doubtful debts 48
Loss assets 24
You are required to calculate the amount of provision, which must be made against the
advances as per the Non-Banking Financial Company –Systemically Important Non-Deposit
taking Company (Reserve Bank) Directions, 2016.
(c) SM Limited gives the following information as on 31st March, 2020:
`
Share capital
(60,000 Equity Shares of ` 10 Each) 6,00,000
Reserve & Surplus:
Security premium ` 70,000
General reserve ` 63,000
Profit and Loss ` 1,40,000 2,73,000
Non-current liability:
9% debentures (secured) 3,00,000
Current Liabilities:
Term loan 40,000
Creditors 65,000
Provision for taxation 15,000
Property plant and equipment 6,00,000
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Non-current investment 1,50,000

Current assets:
Stock ` 2,00,000
Debtors ` 2,60,000
Bank ` 83,000 5,43,000
The shareholders adopted the resolution on 31st March, 2020 to:
(i) Buy back 25% of the paid up capital @ ` 15 each.
(ii) Issue 10% debentures of ` 60,000 at a premium of 10% to finance the buyback of shares.
(iii) Maintain a balance of ` 20,000 in General Reserve.
(iv) Sell investments worth ` 1,00,000 for ` 80,000.
(v) Buy back expenses were ` 2,000.
You are required to pass necessary journal entries to record the above transactions and prepare
Ledger account of Bank. (8 + 4 + 8 = 20 Marks)
5. On 31st March, 2020 H Ltd. and its subsidiary S Ltd. give the following information:
H Ltd. S Ltd.
` `
Shareholders' Fund:
Equity shares of ` 10 each 13,40,000 2,40,000
Reserves and Surplus 4,80,000 1,80,000
Profit & Loss Account 2,40,000 60,000
Secured Loans:
12% Debentures 1,00,000 -
Current Liabilities:
Creditors 2,00,000 1,22,000
Bank Overdraft 1,00,000 -
Bills Payable 60,000 14,800
Property, Plant & Equipment:
Machinery 7,20,000 2,16,000
Furniture 3,60,000 40,800
Investments:
Investments in S Ltd. 3,84,000 -
(19,200 shares at ` 20 each)
Current Assets:
Inventories 6,00,000 2,00,000
Trade Receivables 3,00,000 90,000
Bill Receivables 1,00,000 30,000
Cash at Bank 56,000 40,000
The following information is also provided to you:
(a) H Ltd. purchased 19,200 shares of S Ltd. on 1 st April, 2019, when the balances of
Reserves & Surplus and Profit & Loss Account of S Ltd. stood at ` 60,000 and ` 36,000
respectively.
(b) Machinery (Book value ` 2,40,000) and Furniture (Book value ` 48,000) of S Ltd were
revalued at ` 3,60,000 and ` 36,000 respectively on 1 st April, 2019, for the purpose of
fixing the price of its shares. (Rates of depreciation computed on the basis of useful lives:
Machinery 10%, Furniture 15%).
(c) On 31st March, 2020, Bills payable of ` 12,000 shown in S Ltd.'s Balance Sheet had
been accepted in favour of H Ltd.
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You are required to prepare Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.
as at 31st March, 2020. (20 Marks)
6. (a) The following information relates to XYZ Limited for the year ended 31 st March, 2021:
Net Profit for the year after tax: ` 37,50,000
Number of Equity Shares of ` 10 each outstanding: ` 5,00,000
Convertible Debentures Issued by the Company (at the beginning of the year)
Particulars No.
8% Convertible Debentures of ` 100 each 50,000
Equity Shares to be issued on conversion 55,000
The Rate of Income Tax: 30%.
You are required to calculate Basic and Diluted Earnings Per Share (EPS).
(b) An earthquake destroyed a major warehouse of PQR Ltd. on 30.4.2021. The accounting year
of the company ended on 31.3.2021. The accounts were approved on 30.6.2021. The loss
from earthquake is estimated at ` 25 lakhs. State with reasons, whether the loss due to
earthquake is an adjusting or non-adjusting event and how the fact of loss is to be disclosed
by the company.
OR
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?
(c) W, X, Y and Z hold equity share capital in the proportion of 40:30:10:20. A, B, C and D hold
preference share capital in the proportion of 30:40:20:10. You are required to find their voting
rights in case of resolution of winding up of the company if the paid up capital of the company
is Rs. 40 Lakh and Preference share capital is Rs. 20 Lakh,
(d) Raja Ltd. has its share capital divided into equity shares of ` 10 each. On 01-08-2019, it
granted 2,500 employees stock options at ` 50 per share, when the market price was
` 140 per share. The options were to be exercised between 1-10-2019 to 31-03-2020. The
employees exercised their options for 2,400 shares only and the remaining options lapsed.
Raja Ltd. closes its books of accounts on 31st March, every year.
You are to required to pass the necessary Journal Entries (including narration) for the year
ended 31-03-2020, with regard to employees' stock options and give working notes also.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: November, 2021

MOCK TEST PAPER 2
INTERMEDIATE (NEW) : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
1. (a) (i) Proportion of total contract value recognized as revenue
Percentage of completion of contract to total estimated cost of construction
= [(250 + 80) / (250 +80 + 220)]×100 = 60%
Revenue to be recognized till date = 60% of ` 500 crore = ` 300 crore.
(ii) Calculation of profit/ loss for the year ended 31 st March, 2021 ( ` in crore)
Total estimated cost of construction
Work certified 250
Work not certified 80
Estimated further cost to completion 220 550
Less: Total contract price (500)
Total foreseeable loss to be recognized as expense 50
According to AS 7 “Construction Contracts”, when it is probable that total contract costs
will exceed total contract revenue, the expected loss should be recognized as an
expense immediately.
(iii) Amount due from / to customers = Contract costs incurred till date +
Recognised profits – Recognised losses
– (Progress payments received + Progress
payments to be received)
= ` [(250 + 80) + Nil – 50 – (200 + 70)] crore
= ` [330 – 50 – 270] crore
Amount due from customers (shown as an asset) = ` 10 crore.
(iv) The relevant disclosures under AS 7 (Revised) are given below:
` in crores
Contract revenue till 31st March, 2021 300
Contract expenses till 31st
March, 2021 330
Recognized losses for the year 31st March, 2021 50
Progress billings ` (200+ 70) 270
Progress (billed but not received from contractee) 70
Gross amount due from customers 10
(b) According to AS 19 “Leases”, the lessee should recognise the lease as an asset and a
liability at an amount equal to the lower of the fair value of the leased asset at the inception
of the finance lease and the present value of the minimum lease payments from the
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In calculating the present value of the minimum lease payments the discount rate is the interest
rate implicit in the lease. Present value of minimum lease payments will be calculated as follows:
Year Minimum Lease Payment Implicit interest rate (Discount Present value `
` rate @15%)
1 6,25,000 0.8696 5,43,500
2 6,25,000 0.7561 4,72,563
3 6,25,000 0.6575 4,10,937
4 7,50,000 ∗
0.5718 4,28,850
Total 26,25,000 18,55,850
Present value of minimum lease payments ` 18,55,850 is less than fair value at the
inception of lease i.e. ` 20,00,000, therefore, the asset and corresponding lease liability
should be recognised at ` 18,55,850 as per AS 19.
(c) As per AS 9 “Revenue Recognition”, in a transaction involving the sale of goods,
performance should be regarded as being achieved when the following conditions are
fulfilled:
(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.
Case (i): 25% goods lying unsold with consignee should be treated as closing
inventory and sales should be recognized for ` 3,00,000 (75% of Rs. 4,00,000) for the
year ended on 31.3.21. In case of consignment sale revenue should not be recognized
until the goods are sold to a third party.
Case (ii): The sale is complete but delivery has been postponed at buyer’s request.
Fashion Ltd. should recognize the entire sale of Rs.1,95,000 for the year ended 31st
March, 2021.
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 Rs. 2,50,000 as the time period for rejecting
the goods had expired.
Thus total revenue amounting Rs. 7,45,000 (3,00,000+1,95,000+2,50,000) will be
recognized for the year ended 31st March, 2021 in the books of Fashion Ltd.
(d) A provision should be recognized only when an enterprise has a present obligation arising
from a past event or obligation. In the given case, there is no present obligation but a future
one, therefore no provision is recognized as per AS 29.
The cost of overhauling aircraft is not recognized as a provision because it is a future
obligation and the incurring of the expenditure depends on the company’s decision to
continue operating the aircrafts. Even a legal requirement to overhaul does not require the
company to make a provision for the cost of overhaul because there is no present obligation

∗
Minimum Lease Payment of 4th year includes guaranteed residual value amounting
` 1,25,000.
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to overhaul the aircrafts. Further, the enterprise can avoid the future expenditure by its
future action, for example by selling the aircraft. However, an obligation might arise to pay
fines or penalties under the legislation after completion of five years. Assessment of
probability of incurring fines and penalties depends upon the provisions of the legislation
and the stringency of the enforcement regime. A provision should be recognized for the best
estimate of any fines and penalties if airline continues to operate aircrafts for more than five
years.
2. (a) Realization Account
Particulars ` Particulars `
To Building 1,90,000 By Trade creditors 80,000
To Stock 1,30,000 By Bills payable 30,000
To Investment 50,000 By Cash
To Debtors 70,000 Building 2,09,000
To Cash-creditors paid 63,650 Stock 1,20,000
(W.N.1)
To Cash-expenses 8,000 Investments (W.N.2) 40,000
To Cash-bills payable 29,500 Debtors (W.N. 3) 56,700 4,25,700
(30,000-500)
To Partners’ Capital A/cs By R – (Receipt from 7,000
Debtors unrecorded)
P 4,183 By R - Receipt from 11,000
Q 4,183 Investments unrecorded
R 2,789
S 1,395 12,550
5,53,700 5,53,700

Cash Account

Particulars Amount Particulars Amount

` `
To Balance b/d 30,000 By Realization-creditors 63,650
paid
To Realization – assets realized By Realization-bills payable 29,500
Building 2,09,000 By Realization-expenses 8,000
Stock 1,20,000 By Capital accounts:
Investments 40,000 P 1,51,132
Debtors 56,700 4,25,700 Q 1,51,132
To R’s capital A/c 7,000 S 59,286
4,62,700 4,62,700

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Partners’ Capital Accounts

Particulars P Q R S Particulars P Q R S
` ` ` ` ` ` ` `
To Balance b/d 40,000 By Balance b/d 1,50,000 1,50,000 - 60,000
To Realization 7,000 By General 13,333 13,333 8,889 4,445
A/c-Debtors reserve
misappropriation
To Realization 11,000 By Realization 4,183 4,183 2,789 1,395
A/c-Investment- profit
misappropriation
To R’s capital A/c 16,384 16,384 6,554 By Cash A/c 7,000
(W.N. 4)
To Cash A/c 1,51,132 1,51,132 59,286 By P’s capital 16,384
A/c
By Q’s capital 16,384
A/c
By S’s capital
A/c 6,554
1,67,516 1,67,516 58,000 65,840 1,67,516 1,67,516 58,000 65,840

Working Notes:
1. Amount paid to creditors in cash
`
Book value 80,000
Less: Creditors taking over investments ( 13,000)
67,000
Less: Discount @ 5% (3,350)
63,650
2. Amount received from sale of investments
`
Book value 50,000
Less: Misappropriated by R (8,000)
42,000
Less: Taken over by a creditor (9,000)
33,000
Add: Profit on sale of investments 7,000
Cash received from sale of remaining investment 40,000
3. Amount received from debtors
`
Book value 70,000
Less: Unrecorded receipt (7,000)
63,000
Less: Discount @ 10% (6,300)
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4. Deficiency of R
`
Balance of capital as on 31st
March, 2021 40,000
Debtors-misappropriation 7,000
Investment-misappropriation 11,000
58,000
Less: Realization Profit (2,789)
General reserve (8,889)
Contribution from private assets (7,000)
Net deficiency of capital 39,322
This deficiency of ` 39,322 in R’s capital account will be shared by other partners P, Q and
S in their capital ratio of 15 : 15 : 6.by
Accordingly,
P’s share of deficiency = [39,322 x (15/36)] = ` 16,384
Q’s share of deficiency = [39,322 x (15/36)] = ` 16,384
S’s share of deficiency = [39,322 x (6/36)] = ` 6,554
(b)
Assets Classification Amount % of Provision
- (` in lakhs) Provision (` in lakhs)
Overdue for more Sub-standard 150 15 22.50
than 3 months but
less than 12 months
Overdue for more Doubtful less 90 25 22.50
than 12 months than 1 year
Overdue for more Doubtful 1 to 20 40 8
than three years 3 years
(fully secured-
secured by ` 20
lakhs)
Overdue for more Doubtful 1 to 3 5 100 5
than three years years
(unsecured)
Overdue for more Loss 25 100 25
than three years
Total provision 83
3. (a) Books of A Limited
Realization Account
` `
To Building 3,40,000 By Trade payables 3,20,000
To Machinery 6,40,000 By B Ltd. 12,10,000
To Inventory 2,20,000 By Equity Shareholders (Loss) 76,000
To Trade receivables 2,60,000
To Patent 1,30,000
To Bank (Exp.) 16,000
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Bank Account
To Balance b/d 1,36,000 By Realization (Exp.) 16,000
To B Ltd. 6,00,000 By 10% Debentures 4,00,000
By Loans 1,60,000
By Equity shareholders 1,60,000
7,36,000 7,36,000
B Ltd. Account
To Realisation A/c 12,10,000 By Bank 6,00,000
By Equity share in B Ltd.
(4,880 shares at ` 125 6,10,000
each)
12,10,000 12,10,000
Equity Share Holders Account
To Realization Account 76,000 By Equity share capital 8,00,000
To Profit & Loss A/c (Dr.) 34,000 By General reserve 80,000
To Equity shares in B Ltd. 6,10,000
To Bank 1,60,000
8,80,000 8,80,000
B Ltd
Balance Sheet as on 1st April, 2021 (An extract) 1

Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 4,88,000
b Reserves and Surplus 2 1,07,000
2 Current liabilities
a Trade Payables 3 2,80,000
b Bank overdraft 6,00,000
Total 14,75,000
Assets
1 Non-current assets
Property, Plant and Equipment 4 8,82,000
Intangible assets 5 2,16,000
2 Current assets
a Inventories 6 1,83,000
b Trade receivables 7 1,94,000
14,75,000

1
In the absence of the particulars of assets and liabilities (other than those of A Ltd.), the complete Balance
Sheet of B Ltd. after takeover cannot be prepared.
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Notes to Accounts
`
1 Share Capital
Equity share capital
4,880 Equity shares of ` 100 each (Shares have been
issued for consideration other than cash) 4,88,000
Total 4,88,000
2 Reserves and Surplus (an extract)
Securities Premium 1,22,000
Profit and loss account …..
Less: Unrealized profit (15,000) (15,000)
Total 1,07,000
3 Trade payables
Opening balance 3,20,000
Less: Inter-company transaction cancelled upon
amalgamation (40,000) 2,80,000
4 Property, Plant and Equipment
Buildings 3,06,000
Machinery 5,76,000
Total 8,82,000
5 Intangible assets
Goodwill 2,16,000
6 Inventories
Opening balance 1,98,000
Less: Cancellation of profit upon amalgamation (15,000) 1,83,000
7 Trade receivables
Opening balance 2,34,000
Less: Intercompany transaction cancelled upon (40,000) 1,94,000
amalgamation

Working Notes:
1. Valuation of Goodwill `
Average profit 1,24,400
Less: 8% of ` 8,80,000 (70,400)
Super profit 54,000
Value of Goodwill = 54,000 x 4 2,16,000
2. Net Assets for purchase consideration
Goodwill as valued in W.N.1 2,16,000
Building 3,06,000
Machinery 5,76,000
Inventory 1,98,000
Trade receivables 2,34,000
Total Assets 15,30,000
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Less: Trade payables (3,20,000)

Net Assets 12,10,000
Out of this ` 6,00,000 is to be paid in cash and remaining i.e., (12,10,000 – 6,00,000)
` 6,10,000 in shares of ` 125. Thus, the number of shares to be allotted 6,10,000/125 = 4,880
shares.
3. Unrealized Profit on Inventory `
The Inventory of A Ltd. includes goods worth ` 1,00,000 which was sold
by B Ltd. on profit. Unrealized profit on this Inventory will be
40,000 25,000
×1,00,000
1,60,000
As B Ltd. purchased assets of A Ltd. at a price 10% less than the book
value, 10% need to be adjusted from the Inventory i.e., 10% of (10,000)
` 1,00,000.
Amount of unrealized profit 15,000

(b) B List Contributories:

(a) Persons: Shareholders who had transferred Partly Paid Shares (otherwise than by
operation of law or by death) within one year, prior to the date of winding up may be
called upon to pay an amount to pay off such Creditors as existed on the date of
transfer of shares. These Transferors are called as B List Contributories.
(b) Liability: Their liability is restricted to the amount not called up when the shares were
transferred. They cannot be called upon to pay more than the entire face value of the share.
For example, if Shares having Face Value ` 100 were paid up ` 60, the B List Contributory
can be called up to pay a maximum of ` 40 only.
(c) Conditions: Liability of B List Contributories will crystallize only (a) when the existing
assets available with the liquidator are not sufficient to cover the liabilities; (b) when the
existing shareholders fail to pay the amount due on the shares to the Liquidator.
4. (a) The amount of rebate on bills discounted as on 31 st March, 2021 the period which has not
been expired upto that day will be calculated as follows:
Discount on `5,60,000 for 62 days @ 10% 9,512
Discount on `17,44,000 for 69 days @ 10% 32,969
Discount on `11,28,000 for 82 days @ 10% 25,341
Discount on `16,24,000 for 92 days @ 10% 40,934
Discount on `12,00,000 for 96 days @ 10% 31,562
Total 1,40,318
Note: The due date of the bills discounted is included in the number of days above.
The amount of discount to be credited to the profit and loss account will be:
`
Transfer from rebate on bills discounted as on 1.4. 2020 1,36,518
Add: Discount received during the year 3,40,312
4,76,830
Less: Rebate on bills discounted as on 31.03. 2021 (as (1,40,318)
above)
3,36,512
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Journal Entries
` `
Rebate on bills discounted A/c Dr. 1,36,518
To Discount on bills A/c 1,36,518
(Transfer of opening unexpired discount on 1.4. 2020)
Discount on bills A/c Dr. 1,40,318
To Rebate on bills discounted A/c 1,40,318
(Unexpired discount on 31.03. 2021 taken into account)
Discount on Bills A/c Dr. 3,36,512
To P & L A/c 3,36,512
(Discount earned in the year, transferred to P&L A/c)
(b) Calculation of provision required on advances as on 31st March, 2021:
Amount Percentage of Provision
` in lakhs provision ` in lakhs
Standard assets 13,400 .40 53.60
Sub-standard assets 670 10 670
Secured portions of doubtful debts
−up to one year 160 20 32
−one year to three years 45 30 13.5
−more than three years 20 50 10
Unsecured portions of doubtful debts 48 100 48
Loss assets 24 100 24
851.10

(c) In the books of SM Limited

Journal Entries
Particulars Dr. Cr.
` `
1. Equity share capital A/c (15,000 x `10) Dr. 1,50,000
Premium on buyback A/c (15,000 x `5) Dr. 75,000
To Equity shares buy back or Equity shareholders A/c 2,25,000
(15,000 x `15)
(Being the amount due to equity shareholders on buy
back)
2. Equity shares buy back/Equity shareholders 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 as per the Companies Act)
3. Bank A/c Dr. 66,000
To 10 % Debentures A/c 60,000
To Securities Premium A/c 6,000
(Being 14 % debentures issued to finance buy back)
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4. Buyback Expenses A/c Dr. 2,000

To Bank A/c 2,000
(Buyback expenses paid)
5. Bank A/c Dr. 80,000
Profit and Loss A/c (Loss on sale of investment) Dr. 20,000
To Investment A/c 1,00,000
(Being investment sold at loss)
6. General reserve Dr. 43,000
Profit and Loss A/c Dr. 1,07,000
To Capital redemption reserve A/c 1,50,000
(Being amount equal to nominal value of buy back shares
from free reserves transferred to capital redemption
reserve account as per the law)
7. Securities Premium Dr. 75,000
Profit and Loss A/c Dr. 2,000
To Premium on buyback 75,000
To Buyback Expenses A/c 2,000
(Being premium on buyback and buyback expenses
charged to securities premium and profit and loss
account)
Bank Account
Particulars Amount Particulars Amount
(`) (`)
To Balance b/d 83,000 By Equity Shareholders A/c 2,25,000
To Investment A/c 80,000 By Expenses on buy back of 2,000
To 10% Debentures and 66,000 shares
Securities premium By Balance c/d 2,000
Total 2,29,000 Total 2,29,000
Note: It may be noted that as per the provisions of the Companies Act, no buy-back of any kind of
shares or other specified securities shall be made out of the proceeds of an earlier issue of
the same kind of shares or same kind of other specified securities. Issue of debentures has
been excluded for the purpose of “specified securities” and the entire amount of ` 1,50,000
has been credited to CRR while solving the question.
5. Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 2020
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 13,40,000
(b) Reserves and Surplus 2 8,27,040
(2) Minority Interest 1,15,560
(3) Non- Current Liabilities
(a) 12% Debentures 1,00,000

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(4) Current Liabilities

(a) Trade Payables 3 3,84,800
(b) Short term Borrowings (Bank 1,00,000
overdraft)
Total 28,67,400
II. Assets
(1) Non-current assets
(a)
(i) Property, Plant and Equipment 4 14,34,600

(ii) Intangible assets 5 28,800

(2) Current assets
(a) Inventory (6,00,000+2,00,000) 8,00,000
(b) Trade Receivables 6 5,08,000
(c) Cash and Cash equivalents 96,000
Total 28,67,400

Notes to Accounts
`
1. Share Capital
Equity share capital 13,40,000
1,34,000 shares of ` 10 each fully paid
up
2. Reserves and Surplus
Reserves 4,80,000
Add: 4/5th share of S Ltd.’s post-
acquisition reserves (W.N.3) 96,000 5,76,000
Profit and Loss Account 2,40,000
Add: 4/5th share of S Ltd.’s post-
acquisition profits (W.N.4) 11,040 2,51,040
8,27,040
3. Trade Payables
Creditors
H Ltd. 2,00,000
S Ltd. 1,22,000 3,22,000
Bills Payables
H Ltd. 60,000
S Ltd. 14,800 74,800
3,96,800
Less: Mutual Owings (12,000) 3,84,800
4. Property Plant and Equipment
Machinery
H. Ltd. 7,20,000

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S Ltd. 2,40,000
Add: Appreciation 1,20,000
3,60,000
Less: Depreciation (3,60,000 X 10%) (36,000) 3,24,000
Furniture
H. Ltd. 3,60,000
S Ltd. 48,000
Less: Decrease in value (12,000)
36,000
Less: Depreciation (36,000 X 15%) 5,400 30,600 14,34,600
5. Intangible assets
Goodwill [WN 6] 28,800
6. Trade receivables
H Ltd. 3,00,000
S Ltd. 90,000 3,90,000
Bills Receivables
H Ltd. 1,00,000
S Ltd. 30,000 1,30,000
5,20,000
Less: Mutual Owings (12,000) 5,08,000
Working Notes:
1. Pre-acquisition profits and reserves of S Ltd. `
Reserves 60,000
Profit and Loss Account 36,000
96,000
H Ltd.’s = 4/5 (or 80%) × 96,000 76,800
Minority Interest= 1/5 (or 20%) × 96,000 19,200
2. Profit on revaluation of assets of S Ltd.
Profit on Machinery ` (3,60,000 – 2,40,000) 1,20,000
Less: Loss on Furniture `(48,000 –36,000)
(12,000)
Net Profit on revaluation 1,08,000
H Ltd.’s share 4/5 × 1,08,000 86,400
Minority Interest 1/5 × 1,08,000 21,600

3. Post-acquisition reserves of S Ltd.

Total reserves 1,80,000
Less: Pre- acquisition reserves (60,000)
Post-acquisition reserves 1,20,000
H Ltd.’s share 4/5 × 1,20,000 96,000
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Minority interest 1/5 × 1,20,000 24,000

4. Post -acquisition profits of S Ltd.
Post-acquisition profits (Profit & loss account balance less 24,000
pre-acquisition profits = ` 60,000 – 36,000)
Add: Excess depreciation charged on furniture @ 15%
on ` 12,000 i.e. (48,000 – 36,000) 1,800
25,800
Less: Under depreciation on machinery @ 10%
on ` 1,20,000 i.e. (3,60,000 – 2,40,000)
(12,000)
Adjusted post-acquisition profits 13,800
H Ltd.’s share 4/5 × 13,800 11,040
Minority Interest 1/5 × 13,800 2,760
5. Minority Interest
Paid-up value of (24,000 – 19,200) = 4,800 shares
held by outsiders i.e. 2,40,000 X 20% 48,000
Add: 1/5th share of pre-acquisition profits and reserves 19,200
1/5th share of profit on revaluation 21,600
1/5th share of post-acquisition reserves 24,000
1/5th share of post-acquisition profit 2,760
1,15,560
6. Cost of Control or Goodwill
Price paid by H Ltd. for 19,200 shares (A) 3,84,000
Less: Intrinsic value of the shares
Paid-up value of shares held by H Ltd. i.e. 2,40,000 X 1,92,000
80%
Add: 4/5th share of pre-acquisition profits and reserves 76,800
4/5th share of profit on the revaluation 86,400
Intrinsic value of shares on the date of acquisition (B) 3,55,200
Cost of control or Goodwill (A – 28,800
B)

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6. (a) Computation of basic earnings per share

Net profit for the current year / Weighted average number of equity shares outstanding
during the year
` 37,50,000 / 5,00,000 = ` 7.50 per share
Adjusted net profit for the current year
Computation of diluted earnings per share
Weighted average number of equity shares
Adjusted net profit for the current year
`
Net profit for the current year 37,50,000
Add: Interest expense for the current year 4,00,000
Less: Tax relating to interest expense (30% of ` 4,00,000) (1,20,000)
Adjusted net profit for the current year 40,30,000
Number of equity shares resulting from conversion of debentures
= 55,000 Equity shares (given in the question)
Weighted average number of equity shares used to compute diluted earnings per
share
= 5,55,000 shares (5,00,000 + 55,000)
Diluted earnings per share
= 40,30,000/ 5,55,000 = ` 7.26 per share
Note: Conversion of convertible debentures into Equity Share will be dilutive potential equity
shares. Hence, to compute the adjusted profit the interest paid on such debentures will be
added back as the same would not be payable in case these are converted into equity
shares.
(b) AS 4 “Contingencies and Events Occurring after the Balance Sheet Date”, states that
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. The destruction of warehouse due to earthquake did not exist on the balance sheet
date i.e. 31.3.2021. Therefore, loss occurred due to earthquake is not to be recognized in
the financial year 2020-2021.
However, according the standard, unusual changes affecting the existence or substratum of
the enterprise after the balance sheet date may indicate a need to consider the use of
fundamental accounting assumption of going concern in the preparation of the financial
statements. As per the information given in the question, the earthquake has caused major
destruction; therefore, fundamental accounting assumption of going concern is called upon.
Hence, the fact of earthquake together with an estimated loss of ` 25 lakhs should be
disclosed in the Report of the Directors for the financial year 2020-2021.
OR
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.

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Therefore, in the given case inter-segment transfer pricing policy adopted by the company is
correct if followed consistently.
(c) W, X, Y and Z hold Equity capital is held by in the proportion of 40:30:10:20 and A, B, C and
D hold preference share capital in the proportion of 30:40:20:10. As the paid up equity share
capital of the company is Rs. 40 Lakhs and Preference share capital is Rs. 20 Lakh (2:1),
then relative weights in the voting right of equity shareholders and preference shareholders
will be 2/3 and 1/3. The respective voting right of various shareholders will be
W = 2/3X40/100 = 4/15
X = 2/3X30/100 = 3/15
Y = 2/3X10/100 = 1/15
Z = 2/3X20/100 = 2/15
A = 1/3X30/100 = 1/10
B = 1/3X40/100 = 2/15
C = 1/3X20/100 = 1/15
D = 1/3X10/100 = 1/30
(d) Journal Entries in the books of Raja Ltd.
` `
1.10.19 Bank A/c Dr. 1,20,000
to 31.3.20 Employee compensation expense A/c Dr. 2,16,000
To Equity share capital A/c 24,000
To Securities premium A/c 3,12,000
(Being shares issued to the employees against the
options vested to them in pursuance of Employee Stock
Option Plan)
31.3.20 Profit and Loss A/c Dr. 2,16,000
To Employee compensation expense A/c 2,16,000
(Being transfer of employee compensation expenses to
Profit and Loss Account)
No entry is passed when stock options are granted to employees. Hence, no entry will be
passed on 1st August, 2019;
Working Note:
Market Price = ` 140 per share and stock option price = 50, Hence, the difference
140 – 50 = ` 90 per share is equivalent to employee cost or employee compensation
expense and will be charged to P&L Account as such for the number of options exercised
i.e. 2,400 shares. Hence, Employee compensation expenses will be 2,400 shares X ` 90 =
` 2,16,000

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Test Series: March 2022
MOCK TEST PAPER 1
INTERMEDIATE: GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) (i) Mr. Arnav a relative of key management personnel received remuneration of
` 3,00,000 for his services in the company for the period April 1, 2019 to June 30, 2019. On
July 1, 2019 he left the job.
Should Mr. Arnav be identified as Related Party at the closing date i.e. March 31, 20 20 for
the purposes of AS 18?
(ii) A limited company sold goods to its associate company for the 1 st quarter ending June 30,
2020. After that, the related party relationship ceased to exist. However, goods were supplied
continuously even after June 30, 2020 as was supplied to another ordinary customer. Does
this require disclosure as related party transaction for the entire financial year?
(b) New Era Publications publishes a monthly magazine on 15 th of every month. It sells advertising
space in the magazine to advertisers on the terms of 80% sale value payable in advance and the
balance within 30 days of the release of the publication. The sale of space for the March 2020
issue was made in February 2020. The magazine was published on its scheduled date. It received
` 2,40,000 on 10.3.2020 and ` 60,000 on 10.4.2020 for the March, 2020 issue.
Discuss in the context of AS 9 the amount of revenue to be recognized and the treatment of the
amount received from advertisers for the year ending 31.3.2020. What will be the treatment if the
publication is delayed till 2.4.2020?
(c) Sarita Construction Co. obtained a contract for construction of a dam. The following details a re
available in records of company for the year ended 31 st March, 2021:
` In Lakhs
Total Contract Price 12,000
Work Certified 6,250
Work not certified 1,250
Estimated further cost to completion 8,750
Progress payment received 5,500
Progress payment to be received 1,500
Applying the provisions of Accounting Standard 7 "Accounting for Construction Contracts" you are
required to compute:
(i) Profit/Loss for the year ended 31 st March, 2021.
(ii) Contract work in progress as at end of financial year 2020-21.
(iii) Revenue to be recognized out of the total contract value.
(iv) Amount due from/to customers as at the year end.

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(d) Sudesh Ltd. acquired a patent at a cost of ` 2,40,00,000 for a period of 5 years and the product
life-cycle was also 5 years. The company capitalized the cost and started amortizing the asset at
` 48,00,000 per annum. After two years it was found that the product life -cycle may continue for
another 5 years from then. The net cash flows from the product during these 5 years were expected
to be ` 36,00,000, ` 46,00,000, ` 44,00,000, ` 40,00,000 and ` 34,00,000. Find out the
amortization cost of the patent for each of the years if the patent was renewable and Sudesh Ltd.
got it renewed after expiry of five years. (4 Parts x 5 Marks = 20 Marks)
2. (a) A partnership firm was dissolved on 30 th June, 2020. Its Balance Sheet on the date of dissolution
was as follows:
Equity & Liabilities ` ` Assets `
Capitals: Cash 10,800
A 76,000 Sundry Assets 1,89,200
B 48,000
C 36,000 1,60,000
Loan A/c – B 10,000
Sundry Creditors 30,000
2,00,000 2,00,000
The assets were realized in instalments and the payments were made on the proportionate capital
basis. Creditors were paid ` 29,000 in full settlement of their account. Expenses of realization
were estimated to be ` 5,400 but actual amount spent was ` 4,000. This amount was paid on 15 th
September. Draw up a statement showing distribution of cash, which was realized as follows:
`
On 5th July, 2020 25,200
On 30th August, 2020 60,000
On 15th September, 2020 80,000
The partners shared profits and losses in the ratio of 2 : 2 : 1. Prepare a statement showing
distribution of cash amongst the partners by ‘Highest Relative Capital’ method.
(b) Explain Garner v/s Murray rule applicable in the case of partnership firms. State the conditions
when this rule is not applicable.
(c) A Ltd. holds 80% of the equity capital and voting power in B Ltd. A Ltd sells inventories costing
` 180 lacs to B Ltd at a price of ` 200 lacs. The entire inventories remain unsold with B Ltd at the
financial year end i.e. 31 March 2020. What will be the accounting treatment for this transaction
in the consolidated financial statements of A Ltd? (12+4+4 = 20 Marks)
3. (a) Two companies named Alex Ltd. and Beta Ltd. provide you the following summary of ledger
balances as on 31 st March, 2020:
Alex Ltd. (`) Beta Ltd. (`)
Goodwill 1,40,000 70,000
Building 8,40,000 2,80,000
Machinery 14,00,000 4,20,000
Inventory 7,00,000 4,90,000
Trade receivables 5,60,000 2,80,000
Cash at Bank 1,40,000 56,000
Equity Shares of ` 10 each 28,00,000 8,40,000
8% Preference Shares of ` 100 each 2,80,000 –

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10% Preference Shares of ` 100 each – 2,80,000
General Reserve 1,96,000 1,96,000
Retirement Gratuity fund 1,40,000 56,000
Trade payables 3,64,000 2,24,000
Beta Ltd. is absorbed by Alex Ltd. on the following terms:
(a) 10% Preference Shareholders are to be paid at 10% premium by issue of 8% Preference
Shares of Alex Ltd.
(b) Goodwill of Beta Ltd. is valued at ` 1,40,000, Buildings are valued at ` 4,20,000 and the
Machinery at ` 4,48,000.
(c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created
@ 7.5%.
(d) Equity Shareholders of Beta Ltd. will be issued Equity Shares of Alex Ltd. @ 5% premium.
You are required to:
(i) Prepare necessary Ledger Accounts to close the books of Beta Ltd.
(ii) Show the acquisition entries in the books of Alex Ltd.
(iii) Also draft the Balance Sheet after absorption as at 31st March, 2020.
(b) List the conditions to be fulfilled as per AS 14 (Revised) for an amalgamation to be in the nature of
merger, in the case of companies. (16 + 4 = 20 Marks)
4. (a) Alpha Ltd. furnishes the following information as at 31st March, 2021:
` In lakhs ` In lakhs
Shareholders' Funds
Equity share capital (fully paid up shares of ` 10 each) 2,400
Reserves and Surplus
Securities Premium 350
General Reserve 530
Capital Redemption Reserve 400
Profit & Loss Account 340 1,620
Non-current Liabilities
12% Debentures 1,500
Current Liabilities
Trade PayabIes 1,490
Other Current Liabilities 390 1,880
Non-current Assets
Property, plant and equipment 4,052
Current Assets
Current Investments 148
Inventories 1,200
Trade Receivables 520
Cash and Bank 1,480 3,348

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(i) On 1 April, 2021, the company announced buy-back of 25% of its equity shares
st

@ ` 15 per share. For this purpose, it sold all its investment for ` 150 lakhs.
(ii) On 10th April, 2021 the company achieved the target of buy-back.
(iii) On 30th April, 2021, the company issued one fully paid up equity share of ` 10 each by way
of bonus for every four equity shares held by the equity shareholders by capitalization of
Capital Redemption Reserve. Premium (excess of buy-back price over the par value) paid on
buy-back should be adjusted against securities premium account.
You are required to pass necessary journal entries and prepare the Balance Sheet of Alpha Ltd.
after bonus issue.
(b) A non-banking finance company provides the extract of its balance sheet as given below:
Equity and Liabilities Amount Assets Amount
` in 000 ` in 000
Paid-up equity capital 400 Leased out assets 3,200
Free reserves 2,000 Investment:
Loans 1,600 In shares of subsidiaries and
Deposits 1,600 group companies 400
In debentures of subsidiaries and
group Companies 400
Cash and bank balances 800
Deferred expenditure 800
5,600 5,600
You are required to compute 'Net owned Fund' of this NBFC as per Non-Banking Financial
Company - Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016.
(c) State with reason whether the following cash credit accounts are NPA or not:
Case-1 Case-2 Case- 3 Case-4
Sanctioned limit 50,00,000 60,00,000 55,00,000 45,00,000
Drawing power 44,00,000 56,00,000 50,00,000 42,00,000
Amount outstanding continuously 40,00,000 48,00,000 56,00,000 30,00,000
01-01-21 to 31-03-21
Total interest debited for the above 3,20,000 3,84,000 4,48,000 2,40,000
period
Total credits for the above period 1,80,000 Nil 4,48,000 3,20,000

(12 +4 + 4 = 20 Marks)
5. (a) H Ltd. and its subsidiary S Ltd. give the following information as on 31 st March, 2021:
H Ltd. (`) S Ltd. (`)
Share Capital
Equity Share Capital (fully paid up shares of ` 10 each) 12,00,000 2,00,000
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 S 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

H Ltd. acquired the 80% shares of S Ltd. on 1 st April, 2020. On the date of acquisition, General
Reserve and Profit Loss Account of S Ltd. stood at ` 50,000 and ` 30,000 respectively.
Machinery (book value ` 2,00,000) and Furniture (book value ` 40,000) of S Ltd. were revalued at
` 3,00,000 and ` 30,000 respectively on 1 st April,2020 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 H Ltd. include ` 35,000 due to S Ltd. for goods supplied since the acquisition of the shares.
These goods are charged at 10% above cost. The inventories of H Ltd. includes goods costing
` 55,000 (cost to H Ltd.) purchased from S Ltd.
You are required to prepare the Consolidated Balance Sheet of H Ltd. with its subsidiary as at
31st March, 2021.
(b) Preeti Limited gives the following information as on 31 st March 2021, was as follows:
(`)
Authorized and subscribed capital:
20,000 Equity shares of ` 100 each fully paid 20,00,000
Unsecured loans:
15% Debentures 6,00,000
Interest payable thereon 90,000
Current Liabilities:
Trade payables 1,04,000
Provision for income tax 72,000
Property, plant and equipment:
Machineries 7,00,000
Current Assets:
Inventory 5,06,000
Trade receivables 4,60,000
Bank 40,000
Profit & loss A/c (Dr.) 11,60,000

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It was decided to reconstruct the company for which necessary resolution was passed and
sanctions were obtained from the appropriate authorities. Accordingly, it was decided that:
(i) Each share be sub-divided into 10 fully paid up equity shares of ` 10 each.
(ii) After sub-division, each shareholder shall surrender to the company 50% of his holding for
the purpose of reissue to debenture holders and trade payables as necessary.
(iii) Out of shares surrendered 20,000 shares of ` 10 each shall be converted into 10% Preference
shares of ` 10 each fully paid up.
(iv) The claims of the debenture holders shall be reduced by 50%. In consider ation of the
reduction, the debenture holder shall receive Preference Shares of ` 2,00,000 which are
converted out of shares surrendered.
(v) Trade payables claim shall be reduced by 25%. Remaining trade payables are to be settled
by the issue of equity shares of ` 10 each out of shares surrendered.
(vi) Balance of Profit and Loss account to be written off.
(vii) The shares surrendered and not re-issued shall be cancelled.
Pass Journal Entries giving effect to the above. (15+5=20 Marks)
6. (a) On 1st April, 2019 a company had 6,00,000 equity shares of ` 10 each (` 5 paid up by all
shareholders). On 1 st September, 2019 the remaining ` 5 was called up and paid by all
shareholders except one shareholder having 60,000 equity shares. The net profit for the year
ended 31 st March, 2020 was ` 21,96,000 after considering dividend on preference shares and
dividend distribution tax on such dividend totalling to ` 3,40,000.
You are required to compute Basic EPS for the year ended 31 st March, 2020 as per Accounting
Standard 20 "Earnings Per Share".
(b) The financial statements of Alpha Ltd. for the year 2019-2020 were approved by the Board of
Directors on 15 th July, 2020. The following information was provided:
(i) A suit against the company’s advertisement was filed by a party on 20 th April, 2020 claiming
damages of ` 25 lakhs.
(ii) The terms and conditions for acquisition of business of another company had been decided
by March, 2020. But the financial resources were arranged in April, 2020 and amount invested
was ` 50 lakhs.
(iii) Theft of cash of ` 5 lakhs by the cashier on 31 st March, 2020, was detected on 16 th July, 2020.
(iv) The company started a negotiation with a party to sell an immovable property for ` 40 lakhs
in March, 2020. The book value of the property is ` 30 lakh on 31 st March, 2020. However,
the deed was registered on 15 th April, 2020.
(v) A major fire had damaged the assets in a factory on 5 th April, 2020. However, the assets
were fully insured.
With reference to AS 4, state whether the above mentioned events will be treated as contingencies,
adjusting events or non-adjusting events occurring after the balance sheet date.
OR
XYZ Ltd. has not made provision for warrantee in respect of certain goods due to the fact that th e
company can claim the warranty cost from the original supplier. Hence the accountant of the
company says that the company is not having any liability for warrantees on a particular date as
the amount gets reimbursed. You are required to comment on the accounting treatment done by
the XYZ Ltd. in line with the provisions of AS 29.

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(c) ABC Limited went into voluntary liquidation. Details are as follows :
1,000 - 10% Preference Shares of ` 100 each fully paid up
Class A - 1,200 Equity shares of ` 100 each (` 80 paid up)
Class B - 800 Equity shares of ` 100 each (` 65 paid up)
Assets realized ` 3,50,000 and liquidation expenses is ` 8,000. Company has secured Bank Loan
of ` 60,000 and salary of 3 clerks for 3 months at a rate of ` 500 per month are outstanding.
Creditors are ` 70,000.
Calculate amount receivable from / or returnable to equity shareholders.
(d) Suvidhi Ltd. offered 50 stock options to each of its 1500 employees on 1 st April 2019 for ` 30.
Option was exercisable within a year it was vested. The shares issued under this plan shall be
subject to lock-in on transfer for three years from the grant date. The market price of shares of the
company is ` 50 per share on grant date. Due to post vesting restrictions on transfer, the fair value
of shares issued under the plan is estimated at ` 38 per share. On 31 st March, 2020,1200
employees accepted the offer and paid ` 30 per share purchased. Nominal value of each share is
` 10. Record the issue of shares in the books of the company under the aforesaid plan.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: March, 2022
MOCK TEST PAPER 1
INTERMEDIATE: GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
1. (a) (i) According to AS 18 ‘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, Mr. Arnav a relative of key management personnel should be identified as related
party as at the closing date i.e. on 31.3.2020.
(ii) As per AS 18, transactions of company with its associate company for the first quarter ending
30.06.2020 only are required to be disclosed as related party transactions. The transa ctions
for the period in which related party relationship did not exist need not be reported.
(b) As per AS 9 ‘Revenue Recognition’, in a transaction involving the rendering of services,
performance should be measured either under the completed service contract method or under the
proportionate completion method as the service is performed, whichever relates the revenue to the
work accomplished. In the given case, income accrues when the related advertisement appears
before public. The advertisement service would be considered as performed on the day the
advertisement is published and hence revenue is recognized on that date. In this case, 15.03.20 20
is the date of publication of the magazine. Hence, ` 3,00,000 (` 2,40,000 + ` 60,000) is recognized
as income in March, 2020. The terms of payment are not relevant for considering the date on which
revenue is to be recognized. Since, the revenue of ` 3,00,000 will be recognised in the March,
2020, ` 60,000 will be treated as amount due from advertisers as on 31.03.2020 and ` 2,40,000
will be treated as payment received against the sale. However, if the publication is delayed till
02.04.2020 revenue recognition will also be delayed till the advertisements get published in the
magazine. In that case revenue of ` 3,00,000 will be recognized in the year ended 31.03.2020
after the magazine is published on 02.04.2020. The amount received from sale of advertising
space on 10.03.2020 of ` 2,40,000 will be considered as an advance from advertisers as on
31.03.2020.
(c)
(i) Loss for the year ended, 31 st March, 2021 (` in lakhs)
Amount of foreseeable loss
Total cost of construction (6,250 + 1,250 + 8,750) 16,250
Less: Total contract price (12,000)
Total foreseeable loss to be recognised as expense 4,250
According to AS 7, when it is probable that total contract costs will exceed total contract revenue,
the expected loss should be recognised as an expense immediately.
Loss for the year ended, 31 st March, 2021 amounting ` 4,250 will be recognized.
(ii) Contract work-in-progress as on 31.3.21 (` in lakhs)
Contract work-in-progress i.e. cost incurred to date are
` 7,500 lakhs:
Work certified 6,250
Work not certified 1,250
7,500
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(iii) Proportion of total contract value recognised as revenue
Cost incurred till 31.3.21 is 46.15% (7,500/16,250  100) of total costs of
construction.
Proportion of total contract value recognised as revenue:
46.15% of ` 12,000 lakhs = ` 5,538 lakhs
(iv) Amount due from/to customers at year end
(Contract costs + Recognised profits – Recognised Losses) – (Progress payments received
+ Progress payments to be received)
= [ (7,500 + Nil – 4,250) – (5,500 + 1,500)] ` in lakhs = [3,250 – 7,000] ` in lakhs
Amount due to customers = ` 3,750 lakhs
(d) The entity amortised ` 48,00,000 per annum for the first two years i.e. ` 96,00,000. The remaining
carrying cost can be amortized during next 5 years on the basis of net cash flows arising from the
sale of the product. The amortisation may be found as follows:
Year Net cash flows (`) Amortization Ratio Amortization Amount (`)
I - 0.20 48,00,000
II - 0.20 48,00,000
III 36,00,000 0.180 25,92,000
IV 46,00,000 0.230 33,12,000
V 44,00,000 0.220 31,68,000
VI 40,00,000 0.200 28,80,000
VII 34,00,000 0.170 24,48,000
Total 2,00,00,000 1.000 2,40,00,000
It may be seen from above that from third year onwards, the balance of carrying amount
` 1,44,00,000 has been amortized in the ratio of net cash flows arising from the product .
2. (a) Statement showing distribution of cash amongst the partners
Creditors B’s Loan A B C
2020 ` ` ` ` `
June 30
Balance b/d 30,000 10,000 76,000 48,000 36,000
Cash balance less Provision for
expenses (` 10,800 – ` 5,400) 5,400 - - - -
Balances unpaid 24,600 10,000 76,000 48,000 36,000
July 5
1st Instalment of ` 25,200 23,600 1,600 - - -
Discount received on full settlement 1,000 8,400 76,000 48,000 36,000
Less: Transferred to Realization A/c 1,000
Nil

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August 30
2nd instalment of ` 60,000 (W.N. 2) 8,400 32,640 4,640 14,320
Balance unpaid Nil 43,360 43,360 21,680
September 15
Amount realised ` 80,000
Add: Balance out
of the Provision for
Expenses A/c 1,400
81,400 32,560 32,560 16,280
Amount unpaid being loss on Realization 10,800 10,800 5,400
in the ratio of 2 : 2 : 1
Working Notes:
1. Highest relative capital basis
A B C
` ` `
1. Present Capitals 76,000 48,000 36,000
2. Profit-sharing ratio 2 2 1
3 Capital per unit of Profit share (1 ÷ 2) 38,000 24,000 36,000
4. Proportionate capitals taking B, whose capital is the 48,000 48,000 24,000
least, as the basis
5. Excess capital (1-4) 28,000 Nil 12,000
6. Profit-sharing ratio 2 - 1
7. Excess capital per unit of Profit share (5 ÷ 6) 14,000 12,000
8. Proportionate capitals as between A and C taking C 24,000 - 12,000
capital as the basis
9. Excess of A’s Capital over C’s Excess capital (5-8) 4,000 - -
10. Balance of Excess capital (5-9) 24,000 12,000
11. Distribution sequence:
First ` 4,000 (2 : 0 : 0) 4,000 - -
Next ` 36,000 (2 : 0 : 1) 24,000 - 12,000
Over ` 40,000 (2 : 2 : 1)
2. Distribution of Second instalment
Creditors A B C
First ` 8,400 8,400 - - -
Next ` 4,000 (2 : 0 : 0) 4,000 - -
Next ` 36,000 (2 : 0 : 1) 24,000 - 12,000
Balance ` 11,600 (2 : 2 : 1) 4,640 4,640 2,320
60,000 8,400 32,640 4,640 14,320
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(b) Garner vs. Murray rule: When a partner is unable to pay his debt due to the firm, he is said to be
insolvent and the share of loss is to be borne by other solvent partners in accordance with the
decision held in the English case of Garner vs. Murray. According to this decision, normal loss on
realisation of assets is to be brought in cash by all partners (including insolvent partner) in the profit
sharing ratio but a loss due to insolvency of a partner has to be borne by the solvent partners in
their capital ratio. In order to calculate the capital ratio, no adjustment will be made in case of fixed
capitals. However, in case of fluctuating capitals, ratio should be calculated on the basis of
adjusted capital before considering profit or loss on realization at the time of dissolution.
Non-Applicability of Garner vs Murray rule:
1. When the solvent partner has a debit balance in the capital account.
Only solvent partners will bear the loss of capital deficiency of insolvent partner in their capital
ratio. If incidentally a solvent partner has a debit balance in his capital account, he will escape
the liability to bear the loss due to insolvency of another partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital account
of insolvent partner.
4. When all the partners of the firm are insolvent.
(c) This would be the case of downstream transaction. In the consolidated profit and loss account for
the year ended 31 March 2020, entire transaction of sale and purchase of ` 200 lacs each, would
be eliminated by reducing both sales and purchases (cost of sales). Further, the unrealized profits
of ` 20 lacs (i.e. ` 200 lacs – ` 180 lacs), would be eliminated from the consolidated financial
statements for financial year ended 31 March 2020, by reducing the consolidated profits/ increasing
the consolidated losses, and reducing the value of closing inventories as of 31 March 20 20.
3. (a) (i) In the Books of Beta Ltd.
Realisation Account
` `
To Sundry Assets 15,96,000 By Retirement Gratuity Fund 56,000
To Preference Shareholders By Trade payables 2,24,000
(Premium on Redemption) 28,000 (Purchase Consideration)
To Equity Shareholders By Alex Ltd. 14,84,000
(Profit on Realisation) 1,40,000 _______
17,64,000 17,64,000
Equity Shareholders Account
` `
To Equity Shares of Alex Ltd. 11,76,000 By Share Capital 8,40,000
By General Reserve 1,96,000
By Realisation Account
(Profit on Realisation)
_______ 1,40,000
11,76,000 11,76,000

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Preference Shareholders Account
` `
To 8% Preference 3,08,000 By Preference Share Capital 2,80,000
Shares of Alex Ltd.
By Realisation Account (Premium on
Redemption of Preference Shares) 28,000
3,08,000 3,08,000
Alex Ltd. Account

` `
To Realisation Account 14,84,000 By 8% Preference Shares 3,08,000
_______ By Equity Shares 11,76,000
14,84,000 14,84,000
(ii) In the Books of Alex Ltd.
Journal Entries
Dr. Cr.
` `
Business Purchase A/c Dr. 14,84,000
To Liquidators of Beta Ltd. Account 14,84,000
(Being business of Beta Ltd. taken over)
Goodwill Account Dr. 1,40,000
Building Account Dr. 4,20,000
Machinery Account Dr. 4,48,000
Inventory Account Dr. 4,41,000
Trade receivables Account Dr. 2,80,000
Bank Account Dr. 56,000
To Retirement Gratuity Fund Account 56,000
To Trade payables Account 2,24,000
To Provision for Doubtful Debts Account 21,000
To Business Purchase A/c 14,84,000
(Being Assets and Liabilities taken over as per agreed
valuation).
Liquidators of Beta Ltd. A/c Dr. 14,84,000
To 8% Preference Share Capital A/c 3,08,000
To Equity Share Capital A/c 11,20,000
To Securities Premium A/c 56,000
(Being Purchase Consideration satisfied as above).

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(iii) Balance Sheet of Alex Ltd. (after absorption) as at 31 st March, 2020
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 45,08,000
B Reserves and Surplus 2 2,52,000
2 Non-current liabilities
A Long-term provisions 1,96,000
3 Current liabilities
A Trade Payables 5,88,000
B Short term provision 21,000
Total 55,65,000
Assets
1 Non-current assets
A Property, Plant and Equipment (PPE) 3 31,08,000
B Intangible assets 2,80,000
2 Current assets
A Inventories 11,41,000
B Trade receivables 8,40,000
C Cash and cash equivalents 1,96,000
Total 55,65,000
Notes to accounts:
`
1 Share Capital
Equity share capital
3,92,000 Equity Shares of ` 10 each fully paid (Out of above 1,12,000 39,20,000
Equity Shares were issued in consideration other than for cash)
Preference share capital
5,880 8% Preference Shares of ` 100 each (Out of above 3,080 5,88,000
Preference Shares were issued in consideration other than for cash)
Total 45,08,000
2 Reserves and Surplus
Securities Premium 56,000
General Reserve 1,96,000
Total 2,52,000
3 PPE
Buildings 12,60,000
Machinery 18,48,000
Total 31,08,000

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Working Notes:
Purchase Consideration: `
Goodwill 1,40,000
Building 4,20,000
Machinery 4,48,000
Inventory 4,41,000
Trade receivables 2,59,000
Cash at Bank 56,000
Less: Liabilities:
Retirement Gratuity (56,000)
Trade payables (2,24,000)
Net Assets/ Purchase Consideration 14,84,000
To be satisfied as under:
Preference Shareholders of Beta Ltd. 2,80,000
Add: 10% Premium 28,000
Satisfied by issue of 3,080 no. of 8% Preference Shares of Alex Ltd. 3,08,000
Equity Shareholders of Beta Ltd. to be satisfied by issue of 1,12,000 Equity
Shares of Alex Ltd. at 5% Premium 11,76,000
Total 14,84,000
(b) Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions.
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets
and liabilities of the transferee company and the business of the transferor company is
intended to be carried on, after the amalgamation, by the transferee company
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor
company (other than the equity shares already held therein, immediately before t he
amalgamation, by the transferee company or its subsidiaries or their nominees) become
equity shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of th e
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
(iv) No adjustment is intended to be made to the book values of the assets and liabilities of the
transferor company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity of accounting policies.
4. (a) In the books of Alpha Limited
Journal Entries
Date Particulars Dr. Cr.
2021 (` in lakhs)
April 1 Bank A/c Dr. 150
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To Investment A/c 148
To Profit on sale of investment 2
(Being investment sold on profit)
April 10 Equity share capital A/c Dr. 600
Securities premium A/c Dr. 300
To Equity shares buy back A/c 900
(Being the amount due to equity shareholders on buy
back)
Equity shares buy back A/c Dr. 900
To Bank A/c 900
(Being the payment made on account of buy back of ` 60
Lakh Equity Shares)
April 10 General reserve A/c Dr. 530
Profit and Loss A/c Dr. 70
To Capital redemption reserve (CRR) A/c 600
(Being amount equal to nominal value of buy back shares
from free reserves transferred to capital redemption reserve
account as per the law)
April 30 Capital redemption reserve A/c Dr. 450
To Bonus shares A/c (W.N.1) 450
(Being the utilization of capital redemption reserve to
issue bonus shares)
Bonus shares A/c Dr. 450
To Equity share capital A/c 450
(Being issue of one bonus equity share for every four
equity shares held)
Profit on sale of Investment Dr. 2
To Profit and Loss A/c 2
(Profit on sale transfer to Profit and Loss A/c)
Note: For transferring amount equal to nominal value of buy back shares from free reserves to capital
redemption reserve account, the amount of ` 340 lakhs from P & L A/c and the balance from general
reserve may also be utilized. The combination of different set of amounts (from General Reserve
and Profit and Loss Account) aggregating ` 600 lakhs may also be considered for the purpose of
transfer to CRR.
Balance Sheet (After buy back and issue of bonus shares)
Particulars Note No Amount
(` in Lakhs)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 2,250

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(b) Reserves and Surplus 2 872
(2) Non-Current Liabilities
(a) Long-term borrowings - 12% Debentures 1,500
(3) Current Liabilities
(a) Trade payables 1,490
(b) Other current liabilities 390
Total 6,502
II. Assets
(1) Non-current assets
(a) Property, plant and equipment 4,052
(2) Current assets
(a) Current investments
(b) Inventory 1,200
(c) Trade receivables 520
(d) Cash and cash equivalents (W.N. 2) 730
Total 6,502
Notes to Accounts
` In lakhs
1. Share Capital
Equity share capital (225 lakh fully paid up shares of
` 10 each) 2,250
2. Reserves and Surplus
General Reserve 530
Less: Transfer to CRR (530) -
Capital Redemption Reserve 400
Add: Transfer due to buy-back of shares from P/L 70
Add: Transfer due to buy-back of shares from Gen. res. 530
Less: Utilisation for issue of bonus shares (450) 550
Securities premium 350
Less: Adjustment for premium paid on buy back (300) 50
Profit & Loss A/c 340
Add: Profit on sale of investment 2
Less: Transfer to CRR (70) 272 872
Working Notes:
1. Amount of equity share capital = 2,400 - 600 (buyback) + 450 (Bonus shares)
= 2,250

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2. Cash at bank after issue of bonus shares
` in lakhs
Cash balance as on 1 st April, 2021 1480
Add: Sale of investments 150
1630
Less: Payment for buy back of shares (900)
730
(b) Statement showing computation of 'Net Owned Fund'
` in 000
Paid up Equity Capital 400
Free Reserves 2,000
2,400
Less: Deferred expenditure (800)
A 1,600
Investments
In shares of subsidiaries and group companies 400
In debentures of subsidiaries and group companies 400
B 800
10% of A 160
Excess of Investment over 10% of A (800-160) C 640
Net Owned Fund [(A) - (C)] (1,600-640) 960
(c)
Case 1 Case 2 Case 3 Case 4
`Rs `s `s R`s
Sanctioned limit 50,00,000 60,00,000 55,00,000 45,00,000
Drawing power 44,00,000 56,00,000 50,00,000 42,00,000
Amount outstanding continuously 40,00,000 48,00,000 56,00,000 30,00,000
from 1.01.2021 to 31.03.2021
Total interest debited 3,20,000 3,84,000 4,48,000 2,40,000
Total credits 1,80,000 - 4,48,000 320,000
Is credit in the account is sufficient No No The credit in the Yes
to cover the interest debited during account is
the period or amount is not sufficient to
‘overdue’ for a continuous period of cover the
90 days. interest debited
but the amount
outstanding is
continuously in
excess of the

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sanctioned
drawing power
for a continuous
period of 90
days.
NPA NPA NPA NOT NPA
5. (a) Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.
as at 31st March, 2021
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
(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 S Ltd.’s post-acquisition
reserves (W.N.3) 84,000 5,19,000
Profit and Loss Account 2,80,000
Add: 80% share of S Ltd.’s post-acquisition 21,200
profits (W.N.3)
Less: Unrealised gain (4,000) 17,200 2,97,200
8,16,200
2. Trade Payables
H Ltd. 3,22,000
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S Ltd. 1,23,000
Less: Mutual transaction (35,000) 4,10,000
3. Property, plant and equipment
Machinery
H Ltd. 6,40,000
S Ltd. 2,00,000
Add: Appreciation 1,00,000
3,00,000
Less: Depreciation (30,000) 2,70,000 9,10,000
Furniture
H. Ltd. 3,75,000
S 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
H Ltd. 2,68,000
S Ltd. 62,000 3,30,000
Less: Inventory reserve (5,000)
3,25,000
6. Trade Receivables
H Ltd. 4,70,000
S Ltd. 2,35,000
7,05,000
Less: Mutual transaction (35,000)
6,70,000
7. Cash and Bank
H Ltd. 1,64,000
S Ltd. 32,000 1,96,000

Working Notes:
1. Profit or loss on revaluation of assets in the books of S Ltd. and their book values as
on 1.4.2020
`
Machinery
Revaluation as on 1.4.2020 3,00,000
Less: Book value as on 1.4.2020 (2,00,000)
Profit on revaluation 1,00,000

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Furniture
Revaluation as on 1.4.2020 30,000
Less: Book value as on 1.4.2020 (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
3. Analysis of reserves and profits of S Ltd. as on 31.03.2021
Pre-acquisition Post-acquisition profits
profit upto (1.4.2020 – 31.3.2021)
1.4.2020
(Capital General Profit and
profits) Reserve loss account
General reserve as on 31.3.2021 50,000 1,05,000
Profit and loss account as on 31.3.2021 30,000 35,000
Upward Revaluation of machinery as on 1,00,000
1.4.2020
Downward Revaluation of Furniture as on (10,000)
1.4.2020
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

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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
(b) In the books of Preeti Limited
Journal Entries
` `
(i) Equity Share Capital (` 100) A/c Dr. 20,00,000
To Share Surrender A/c 10,00,000
To Equity Share Capital (` 10) A/c 10,00,000
(Sub-division of 20,000 equity shares of ` 100 each into
2,00,000 equity shares of ` 10 each and surrender of
1,00,000 of such sub-divided shares as per capital
reduction scheme)
(ii) 15% Debentures A/c Dr. 3,00,000
Interest payable A/c (proportionate 50%) Dr. 45,000
To Reconstruction A/c 3,45,000
(Transferred 50% of the claims of the debenture holders
to Reconstruction A/c in consideration of which 10%
Preference shares are being issued, out of share
surrender A/c as per capital reduction scheme)
(iii) Trade payables A/c Dr. 1,04,000
To Reconstruction A/c 1,04,000
(Transferred claims of the trade payables to
Reconstruction A/c, 25% of which is reduction and
equity shares are issued in consideration of the balance
amount)
(iv) Share Surrender A/c Dr. 10,00,000
To 10% Preference Share Capital A/c 2,00,000
To Equity Share Capital A/c 78,000
To Reconstruction A/c 7,22,000
(Issued preference and equity shares to discharge the
claims of the debenture holders and the trade payables
respectively as per scheme and the balance in share
surrender account is transferred to reconstruction
account)
(v) Reconstruction A/c Dr. 11,71,000
To Profit & Loss A/c 11,60,000

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To Capital Reserve A/c 11,000
(Adjusted debit balance of profit and loss account
against reconstruction account and the balance is
transferred to Capital Reserve account)
Note: Alternative set of correct journal entries may be given for transfer of surrendered shares to
trade payables and debenture holders.
6. (a) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year

21,96,000 = ` 4.80 per share

=
4,57,500 Shares (as per working note)

Working Note:
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 no. of equity
shares per share shares
` ` `
1.4.2020 6,00,000 5 6,00,000 х 5/10 х 5/12 = 1,25,000
1.9.2020 5,40,000 10 5,40,000 х 7/12 = 3,15,000
1.9.2020 60,000 5 60,000 х 5/10 х 7/12 = 17,500
Total weighted average equity shares 4,57,500

(b) (i) Non-adjusting event: 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 20 th 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. Hence, it will have no effect on financial statement and will be a non-adjusting
event.
(ii) Adjusting event: In the given case, terms and conditions for acquisition of business were
finalised before the balance sheet date and carried out before the closure of the books of
accounts but transaction for payment of financial resources was effected in April, 2020.
Hence, necessary adjustment to assets and liabilities for acquisition of business is necessary
in the financial statements for the year ended 31 st March 2020.
(iii) Non-adjusting event: Only those events which occur between the balance sheet date and
the date on which the financial statements are approved, may indicate the need for
adjustments to assets and liabilities as at the balance sheet date or may require disclosure.

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In the given case, as the theft of cash was detected on 16 th July, 2020 ie after approval of
financial statements, no adjustment is required.
(iv) Non-adjusting event: 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 only started) on the balance sheet date, and was not finalized. Therefore,
adjustment to assets for sale of immovable property is not necessary in the financial
statements for the year ended 31 st March, 2020. Disclosure may be given in Report of
approving Authority.
(v) Non-adjusting event: 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. The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding fire and loss, being completely insured may be
given in the report of approving authority.
OR
As per 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 recognised 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 recognised 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 is
viewed that the accounting treatment adopted by the company with respect to warranty is not
correct.
(c) Amount receivable from/returnable to Equity Shareholders
Total equity capital - paid up ` 1,48,000
Less: Balance available after payment to unsecured and preference shares
(3,50,000 — 2,42,500) ` (1,07,500)
Loss to be born by 2,000 equity shares ` 40,500
Loss per share ` 20.25
Hence,
Amount refunded on ` 65 paid share 65 - 20.25 per share = ` 44.75
Amount refunded on ` 80 paid share 80 - 20.25 per share= ` 59.75
Working note:
Liquidator’s Statement of Account
` `
To Assets realized 3,50,000 By Liquidation Expenses 8,000
By Secured bank loan 60,000

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By Preferential creditors (salary of 3 4,500
clerks at ` 500 per month for three
months)
By Unsecured creditors 70,000
By Preference Shareholders 1,00,000
2,42,500
By Equity Shareholders
` 59.75 on 1,200 shares 71,700
` 44.75 on 800 shares 35,800
3,50,000 3,50,000

(d) Journal Entries in the books of Suvidhi Ltd.

Date Particulars Dr. (`) Cr. (`)
31.3.20 Bank A/c (60,000 shares x ` 30) Dr. 18,00,000
Employees stock compensation expense A/c Dr. 4,80,000
To Share Capital A/c (60,000 shares x ` 10) 6,00,000
To Securities Premium 16,80,000
(60,000 shares x ` 28)
(Being shares issued under ESOP @ ` 30 to 1,200
employees)
Profit & Loss A/c Dr. 4,80,000
To Employees stock compensation expense A/c 4,80,000
(Being Employees stock compensation expense transferred
to Profit & Loss A/c)
Working Note:
Fair value of an option = ` 38 – ` 30 = ` 8
Number of shares issued = 1,200 employees x 50 shares = 60,000 shares
Fair value of ESOP which will be recognized as expenses in the year 2019-2020
= 60,000 shares x ` 8 = ` 4,80,000
Vesting period = 1 year
Expenses recognized in 2019-2020 = ` 4,80,000

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Test Series: April, 2022

MOCK TEST PAPER – 2
INTERMEDIATE: GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (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).
(b) PIL Ltd. is showing an intangible asset at ` 72 lakhs as on 31-3-2022. This asset was acquired for
` 120 lakhs as on 01-04-2016 and the same was used from that date. The company has been
following the policy of amortization of the intangible assets over a period of 15 years, on straight
line basis.
You are required to comment on the accounting treatment of asset with reference to AS 26
“Intangible Assets” and also give the necessary rectification journal entry in the books.
(c) A company created a provision of ` 7,50,000 for staff welfare while preparing the financial
statements for the year 2021-22. On 31st March 2022, in a meeting with staff welfare association,
it was decided to increase the amount of provision for staff welfare to ` 10,00,000. The accounts
were approved by Board of Directors on 15 th April, 2022.
You are required to explain the treatment of such revision in financial statements for the year ended
31st March 2022 in line with the provisions of AS 5?
(d) (i) Bonfire Ltd. is in a dispute with a competitor company. The dispute is regarding alleged
infringement of Copyrights. The competitor has filed a suit in the court of law seeking damages
of ` 200 lacs.
The Directors are of the view that the claim can be successfully resisted by the Company.
How would the matter be dealt in the annual accounts of the Company in the light of AS 29 ?
Explain in brief giving reasons for your answer.
(ii) What is meant by “Restructuring Provision” as per AS 29? What costs are excluded while
computing such provision as per the standard? (4 parts x 5 Marks = 20 Marks)

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2. (a) Sulpher Ltd. and Diamond Ltd. give the following information as at 31.03.2022:
Sulpher Ltd. Diamond Ltd.
(` in lakhs) (` in lakhs)
Equity Share Capital (Fully paid shares of ` 10 each) 22,500 9,000
Securities Premium 4,500 -
Foreign Project Reserve - 465
General Reserve 14,250 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 -
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 Diamond Ltd. were Sulpher Ltd.'s acceptances.
On 1st April 2022, Sulpher Ltd. took over Diamond Ltd. in an amalgamation in the nature of merger.
It was agreed that in discharge of consideration for the business, Sulpher Ltd. would allot three
fully paid equity shares of ` 10 each at par for every two shares held in Diamond Ltd. It was also
agreed that 12% debentures in Diamond Ltd. would be converted into 13% debentures in Sulpher
Ltd. of the same amount and denomination.
Details of trade receivables and trade payables are as under:
Particulars Sulpher Ltd. Diamond 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 Sulpher Ltd.
You are required to:
(i) Pass journal entries in the books of Sulpher Ltd. and
(ii) Prepare Sulpher Ltd.'s Balance Sheet immediately after the merger.

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(b) Minda Financiers Ltd. is an NBFC providing Hire Purchase Solutions for acquiring consumer
durables. The following information is extracted from its books for the year ended 31 st March, 2022:
Assets Funded Interest Overdue but recognized in Profit Net Book Value of
& Loss Assets outstanding
Period Overdue Interest Amount
(` In crore) (` In crore)
LCD Televisions Up to 12 Months 500.00 20,000
Washing Machines For 24 Months 100.00 2,000
Refrigerators For 30 Months 50.00 1,250
Air Conditioners For 45 Months 25.00 600
Mobile Phones For 60 Months 10.00 100

You are required to calculate the amount of provision to be made. (16+4 =20 Marks)
3. The following is the summarized Balance Sheet of M/s Red and Black as on 31 st March, 2021:
Liabilities (`) Assets (`)
Red's Capital 80,000 Building 1,00,000
Black's Capital 1,00,000 1,80,000 Closing Stock 60,000
Red's Loan 20,000 Sundry Debtors 40,000
General Reserve 20,000 Investment 40,000
Sundry Creditors 40,000 (6% Debentures in XYZ Ltd.)
Cash 20,000
2,60,000 2,60,000
It was agreed that Mr. White is to be admitted for a fifth share in the future profits from
1st April, 2021. He is required to contribute cash towards goodwill and ` 20,000 towards capital.
(a) The following further information is furnished:
(i) The partners Red and Black shared the profits in the ratio of 3 : 2.
(ii) Mr. Red was receiving a salary of ` 1000 p.m. from the very inception of the firm in addition
to the share of profit.
(iii) The future profit ratio between Red, Black and White will be 3 : 1 : 1. Mr. Red will not get any
salary after the admission of Mr. White.
(iv) The goodwill of the firm should be determined on the basis of 2 years' purchase of the average
profits from business of the last 5 years. The particulars of profits/losses are as under:
Year Ended (`) Profit/Loss
31.3.2017 40,000 Profit
31.3.2018 20,000 Loss
31.3.2019 40,000 Profit
31.3.2020 50,000 Profit
31.3.2021 60,000 Profit
The above profits and losses are after charging the salary of Mr. Red. The profit of the year
ended 31st March, 2017 included an extraneous profit of `60,000 and the loss of the year
ended 31st March, 2018 was on account of loss by strike to the extent of `40,000.

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(v) It was agreed that the value of the goodwill should not appear in the books of the firm.
(b) Trading profit for the year ended 31st March, 2022 was ` 80,000 (Before charging depreciation)
(c) Each partner had drawn ` 2,000 per month as drawing during the year 2021-22.
(d) On 31st March, 2022 the following balances appeared in the books:
Building (Before Depreciation) ` 1,20,000
Closing Stock ` 80,000
Sundry Debtors Nil
Sundry Creditors Nil
Investment `40,000
(e) Interest@ 6% per annum on Red's loan was not paid during the year.
(f) Interest on Debentures received during the year.
(g) Depreciation is to be provided @ 5% on closing balance of Building.
(h) Partners applied for conversion of the firm into a private Limited Company; i.e. RBW Private
Limited. Certificate received on 1.4.2022.
They decided to convert Capital accounts of the partners into share capital, in the ratio of 3: 1: 1
(on the basis of total Capital as on 31.3.2022). If necessary, partners have to subscribe to fresh
capital or withdraw.
You are required to prepare: (1) Profit & Loss Account for the year ended 31 st March, 2022 in the
books of M/s Red and Black and (2) Balance Sheet as on 1 st April, 2022 in the books of RBW
Private Limited. (20 Marks)
4. (a) A Ltd. and its subsidiary B Ltd. give the following information for the year ended 31st March, 2022:
` in Lakhs
A Ltd. B Ltd.
Sales and other income 7,500 1,500
Increase in Inventory 1,500 300
Raw material consumed 1,200 300
Wages and Salaries 1,200 225
Production expenses 300 150
Administrative expenses 300 150
Selling and distribution expenses 300 75
Interest 150 75
Depreciation 150 75
The following information is also given:
(i) A Ltd sold goods of ` 180 Lakhs to B Ltd at cost plus 25% (1/6 of such goods were still in
inventory of B Ltd at the end of the year).
(ii) A Ltd. holds 72% of the Equity Capital of B Ltd and the Equity Capital of B Ltd is `1,500
Lakhs on 1.4.2021 (date of acquisition of shares).
(iii) Administrative expenses of B Ltd include ` 8 Lakhs paid to A Ltd as consultancy fees.
Moreover, selling and distribution expenses of A Ltd include `15 Lakhs paid to B Ltd as
commission.

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You are required to prepare a consolidated Statement of Profit and Loss of A Ltd. with its subsidiary
B Ltd. for the year ended 31 st March, 2022.
(b) The following is an extract of Trial Balance of a bank as on 31 st March, 2022:
Dr. (`) Cr. (`)
Bill Discounted 15,16,800
Discount Received 1,26,859
Rebate on Bills discounted not due on 31 st March, 2021 26,592
An analysis of bill discounted is as follows:
Amount in ` Due Date Rate of Discount
1,46,200 4th May, 2022 15
2,30,400 12th May, 2022 15
4,35,900 28th May, 2022 15
4,36,200 18th June, 2022 16
2,68,100 4th July, 2022 16
You are required to calculate Rebate on Bills Discounted as on 31 st March, 2022 and show
necessary Journal Entries. (15 + 5 =20 Marks)
5. (a) The following information relates to Surya Ltd. Co. which is in the hands of the liquidator:
Liabilities `
Share Capital:
1,000, 6% Preference Shares of ` 100 each, fully paid 1,00,000
2,000 Equity shares of ` 100 each, fully paid 2,00,000
2,000 Equity shares of ` 100 each ` 75 paid up 1,50,000
Loan from bank (on security of stock) 1,00,000
Trade Payables 3,50,000
Property, Plant and Equipment 2,00,000
Inventory 1,20,000
Book Debts 2,40,000
Cash in hand 40,000
Profit and loss A/c (Dr. Balance) 3,00,000
The assets realized the following amounts (after all costs of realization and liquidator’s commission
amounting to ` 5,000 paid out of cash in hand):
`
Property, Plant and Equipment 1,68,000
Inventory 1,10,000
Trade Receivables 2,30,000
Calls on partly paid shares were made but the amounts due on 200 shares were found to be
irrecoverable.
You are required to prepare Liquidator’s Final Statement of Receipts and Payments .

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(b) From the following information, prepare the Profit & Loss A/c of PNG Bank Ltd. for the year ending
31st March, 2022. Also give necessary schedules.
Particulars Figures in '000
Total Interest earned on term loans 2,550
Interest earned on term loans classified as NPA 731
Interest received on term loans classified as NPA 238
Total Interest earned on cash credits and overdrafts 5,663
Interest earned but not received on cash credit and overdrafts treated as NPA 923
Interest on deposits 4,120
Commission 201
Profit on sale of investments 1,876
Profit on revaluation of investments 342
Income from Investments 2,174
Payments to and provision for employees 2,745
Rent, Taxes and Lighting 385
Printing and Stationery 62
Director's fees, allowances and expenses 313
Repairs and Maintenance 56
Depreciation on Bank's property 99
Insurance 43
Also make necessary provision on Risk Assets as per the following details:
Particulars Figures in '000
Standard 4,700
Sub-Standard (fully secured) 1,900
Doubtful Assets not covered by security 400
Doubtful Assets covered by security for 1 year 40
Loss Assets 300
(10+10 = 20 Marks)
6. (a) Bricks Ltd. signed on 01/04/21, a construction contract for ` 1,50,00,000. Following particulars are
extracted in respect of contract, for the period ending 31/03/22:
- Materials issued ` 75,00,000
- Labour charges paid ` 36,00,000
- Hire charges of plant ` 10,00,000
- Other contract cost incurred ` 15,00,000
- Out of material issued, material lying unused at the end of period is ` 4,00,000
- Labour charges of ` 2,00,000 are still outstanding on 31.3.22.
- It is estimated that by spending further ` 33,50,000 (including material unused
` 4,00,000), the work can be completed in all respect.
You are required to compute profit/loss to be taken to Profit & Loss Account and additional provision
for foreseeable loss as per AS 7.
6

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(b) Explain the concept of ‘weighted average number of equity shares outstanding during the period’.
Also compute, based on AS 20, the weighted average number of equity shares in the following
case:
No. of shares
1st April, 2021 Balance of equity shares 7,20,000
31st August, 2021 Equity shares issued for cash 2,40,000
1st February, 2022 Equity shares bought back 1,20,000
31st March, 2022 Balance of equity shares 8,40,000
(c) The Paid-up capital of S Limited amounted to ` 5,00,000 Equity Shares of ` 10 each. Due to
continuous losses incurred by the company, the following scheme of reconstruction has been
approved for S Limited on 1 st April, 2022:
(i) In lieu of present holding the Equity Shareholders are to receive:
(a) Fully Paid Equity Shares equal to 3/5th of their holding.
(b) 8% Preference Shares fully paid to the extent of 20% of the above new Equity Shares.
(c) 10% Second Debentures of ` 40,000.
(ii) An issue of 8% Debentures First Debentures of ` 1,00,000 was made and fully subscribed for
cash,
(iii) The Assets were reduced as follows:-
(a) Building from ` 2,00,000 to ` 1,50,000
(b) Plant & Machinery from ` 1,50,000 to ` 1,30,000
(c) Goodwill from ` 30,000 to Nil.
Show the Journal Entries in the books of S Limited to give effect of the scheme of Reconstruction.
(d) Shiv Ltd. has its share capital divided into Equity Shares of ` 10 each. On 1st April, 2021, the
company offered 250 shares to each of its 520 employees at ` 60 per share, when the market price
was ` 150 per share. The options were to be exercised between 01-03-2022 to 31-03-2022.
410 employees accepted the offer and paid ` 60 per share on purchased shares and the remaining
options lapsed. You are required to show Journal Entries (with narrations) as would appear in the
books of Shiv Ltd. for the year ended 31st March, 2022 with regard to employee stock options.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: April, 2022

MOCK TEST PAPER – 2
INTERMEDIATE: GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
ANSWERS
1. (a) Present value of minimum lease payment is computed below:
Year MLP PV
DF (12.6%)
` `
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 26 'Intangible Assets', the depreciable amount of an intangible asset should be allocated
on systematic basis over the best estimate of its useful life. There is a rebuttable presumption that
the useful life of an intangible asset will not exceed ten years from the date when the asset is
available for use. The Company has been following the policy of amortization of the intangible
asset over a period of 15 years on straight line basis. The period of 15 years is more than the
maximum period of 10 years specified as per AS 26.
Accordingly, the company would be required to restate the carrying amount of intangible asset as
on 31.3.2022 at ` 48 lakhs i.e. ` 120 lakhs less ` 72 lakhs (` 120 Lakhs / 10 years x 6 years = 72
Lakhs). The difference of ` 24 Lakhs (` 72 lakhs – ` 48 lakhs) will be adjusted against the opening
balance of revenue reserve. The carrying amount of ` 48 lakhs will be amortized over remaining 4
years by amortizing ` 12 lakhs per year.
The necessary journal entry (for rectification) will be
Revenue Reserves Dr. ` 24 Lakhs
To Intangible Assets ` 24 Lakhs
(Adjustment to reserves due to restatement of the carrying amount of intangible asset)
1

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(c) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies”, the change in amount of staff welfare provision amounting ` 2,50,000 is neither a prior
period item nor an extraordinary item. It is a change in estimate, which has been occurred in the
year 2021-22.
As per the provisions of the standard, normally, all items of income and expense which are
recognized in a period are included in the determination of the net profit or loss for the period. This
includes extraordinary items and the effects of changes in accounting estimates. However, the
effect of such change in accounting estimate should be classified using the same classification in
the statement of profit and loss, as was used previously, for the estimate.
(d) (i) As per AS 29, 'Provisions, Contingent Liabilities and Contingent Assets’, a provision should
be recognized when
• an enterprise has a present obligation as a result of a past event;
• it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation; and
• a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision should be recognized.
In the given situation, since, the directors of the company are of the opinion that the claim can
be successfully resisted by the company, therefore there will be no outflow of the resources.
Hence, no provision is required. The company will disclose the same as contingent liability by
way of the following note:
“Litigation is in process against the company relating to a dispute with a competitor who
alleges that the company has infringed copyrights and is seeking damages of ` 200 lakhs.
However, the directors are of the opinion that the claim can be successfully resisted by the
company.”
(ii) As per AS 29, a restructuring provision should include only the direct expenditures arising
from the restructuring, which are those that are both: (a) necessarily entailed by the
restructuring; and (b) Not associated with the ongoing activities of the enterprise. A
restructuring provision does not include such costs as: (a) Retraining or relocating continuing
staff; (b) Marketing; or (c) Investment in new systems and distribution networks.
2. (a) Books of Sulpher Ltd.
Journal Entries
(` in Lacs) (` in Lacs)
Business Purchase A/c Dr. 13,500
To Liquidator of Diamond Ltd. 13,500
(Being business of Diamond Ltd. taken over for
consideration settled as per agreement)
Plant and Machinery Dr. 7,500
Furniture & Fittings Dr. 2,550
Inventory Dr. 6,061.5
Debtors Dr. 1,530
Cash at Bank Dr. 913.5
Bills Receivable Dr. 120
To Foreign Project Reserve 465
To General Reserve ` (4,800 - 4,500) 300
8

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To Profit and Loss A/c 1,162.5

To Liability for 12% Debentures 1,500
To Creditors 694.5
To Provisions 1,053
To Business Purchase A/c 13,500
(Being assets & liabilities taken over from Diamond Ltd.)
Liquidator of Diamond Ltd. A/c Dr. 13,500
To Equity Share Capital A/c 13,500
(Purchase consideration discharged in the form of equity
shares)
Profit & Loss A/c Dr. 1.5
To Bank A/c 1.5
(Liquidation expenses paid and charged to P& L A/c)
Liability for 12% Debentures A/c Dr. 1,500
To 13% Debentures A/c 1500
(12% debentures discharged by issue of 13%
debentures)
Bills Payable A/c Dr. 120
To Bills Receivable A/c 120
(Cancellation of mutual owing on account of bills)
Balance Sheet of Sulpher Ltd. as at 1 st April, 2022 (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
C Cash and cash equivalents (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 crores shares have been issued for
consideration other than cash) 36,000
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 Sulpher Ltd. for every
two equity shares held in Diamond Ltd.
3
Purchase consideration = ` 9,000 lacs × = ` 13,500 lacs
2
(b) On the basis of the information, in respect of hire purchase and leased assets, additional
provision shall be made as under:
(` in crore)
(a) Where hire charges are overdue upto 12 Nil -
months
(b) Where hire charges are overdue for more 10% of the net book value 200
than 12 months but upto 24 months 10% x 2,000
(c) Where hire charges are overdue for more 40 percent of the net book value 500
than 24 months but upto 36 months 40% x 1,250
(d) Where hire charges or lease rentals are 70 percent of the net book value 420
overdue for more than 36 months but upto 70% x 600
48 months
(e) Where hire charges or lease rentals are 100% of net book value 100
overdue for more than 48 months (100% x 100)
Total 1,220
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3. (a) M/s Red, Black and White

Statement of Profit & Loss for the year ended on 31st March, 2022
` `
To Dep. Building (1,20,000x5%) 6,000 By Trading Profit 80,000
To Interest on Red’s loan (20,000 x 1,200 By Interest on 2,400
6%) Debentures
To Net Profit to :
Red’s Capital A/c 45,120
Black’s Capital A/c 15,040
White’s Capital A/c 15,040
82,400 82,400
Balance Sheet of the RBW Pvt. Ltd. as at 1-4-2022
Notes No. `
I Equity and Liabilities
Shareholders funds 2,39,040
Non-current liabilities
Long term borrowings 1 21,200
Total 2,60,240
Assets
Non-current assets
PPE 2 1,14,000
Non-current investments 40,000
Current assets
Inventories 80,000
Cash and cash equivalents 26,240
Total 2,60,240
Notes to Accounts
`
1. Borrowings
Loan from Red 21,200
2. PPE
Land and Building (1,20,000 – 6,000) 1,14,000
Working Notes:
1. Calculation of goodwill:
Year ended March, 31
2017 2018 2019 2020 2021
` ` ` ` `
Book Profits 40,000 (20,000) 40,000 50,000 60,000
Adjustment for extraneous profit
2017 and abnormal loss 2018 (60,000) 40,000 — — —
(20,000) 20,000 40,000 50,000 60,000
Add Back: Remuneration of Red 12,000 12,000 12,000 12,000 12,000

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(8,000) 32,000 52,000 62,000 72,000

Less: Debenture Interest being non-
operating income (2,400) (2,400) (2,400) (2,400) (2,400)
(10,400) 29,600 49,600 59,600 69,600
Total Profit from 2018 to 2021 2,08,400
Less: Loss for 2017 (10,400)
Accumulated Profit 1,98,000
Average Profit 39,600
Goodwill equal to 2 years’ purchase 79,200
Contribution from White, equal to 1/5 15,840
2. Partners’ Capital accounts
Red Black White Red Black White
` ` ` ` ` `
To Drawings 24,000 24,000 24,000 By Balance b/d 80,000 1,00,000 —
To Black 15,840
To Balance 1,13,120 1,14,880 11,040 By General 12,000 8,000 —
c/d Reserve
By White 15,840 —
By Bank — — 35,840
By Profit & 45,120 15,040 15,040
Loss A/c
1,37,120 1,38,880 50,880 1,37,120 1,38,880 50,880
3. Balance Sheet as on 31st March, 2022
Liabilities ` ` Assets ` `
Red’s Capital 1,13,120 Land & Building 1,20,000
Black’s Capital 1,14,880 Less : Dep. (6,000) 1,14,000
White’s Capital 11,040 Investments 40,000
Red’s Loan 20,000 Stock-in-trade 80,000
Add: Int. due 1,200 21,200 Cash (Balancing figure) 26,240*
2,60,240 2,60,240
4. Conversion into Company
`
Capital : Red 1,13,120
Black 1,14,880
White 11,040
Share Capital 2,39,040
Distribution of share: Red (3/5) 1,43,424
Black (1/5) 47,808
White (1/5) 47,808
Red should subscribe shares of ` 30,304 (` 1,43,424 – ` 1,13,120) and White should
subscribe shares of ` 36,768 (` 47,808 less 11,040). Black withdraws ` 67,072 (` 47,808 –
`1,14,880).
8

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5 Adjustment for Goodwill amounting ` 79,200

To be raised in old To be written off in new ratio Difference
Ratio
Red 47,520 47,520 Nil
Black 31,680 15,840 15,840 Cr.
White 15,840 15,840 Dr.
* Also the closing cash balance can be derived as shown below:
` `
Trading profit (assume realised) 80,000
Add: Debenture Interest 2,400
Add: Decrease in Debtors Balance 40,000
1,22,400
Less: Increase in stock 20,000
Less: Decrease in creditors 40,000 (60,000)
Cash Profit 62,400
Add: Opening cash balance 20,000
Add: Cash brought in by White 35,840
1,18,240
Less: Drawings 72,000
Less: Additions to Building 20,000 (92,000)
26,240
4. (a) Consolidated Statement of Profit & Loss of A Ltd. and its subsidiary B Ltd.
for the year ended on 31 st March, 2022
Particulars Note No. ` in Lacs
I. Revenue from operations 1 8,797
II. Total revenue 8,797
III. Expenses
Cost of Material purchased/consumed 3 1,770
Changes of Inventories of finished goods 2 (1,794)
Employee benefit expense 4 1,425
Finance cost 6 225
Depreciation and amortization expense 7 225
Other expenses 5 802
Total expenses 2,653
IV. Profit before Tax(II-III) 6,144
Notes to Accounts
` in Lacs ` in Lacs
1. Revenue from Operations
Sales and other income

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A Ltd. 7,500
B Ltd. 1,500
9,000
Less: Inter-company Sales (180)
Consultancy fees received by A Ltd. from B Ltd. (8)
Commission received by B Ltd. from A Ltd. (15) 8,797
2. Increase in Inventory
A Ltd. 1,500
B Ltd. 300
1,800
Less: Unrealized profits ` 180×1/6 x 25/125 (6) 1,794
3. Cost of Material purchased/consumed
A Ltd. 1,200
B Ltd. 300
1,500
Less: Purchases by B Ltd. from A Ltd. (180) 1,320
Direct Expenses
A Ltd. 300
B Ltd. 150 450
1,770
4. Employee benefits and expenses
Wages and Salaries:
A Ltd. 1,200
B Ltd. 225 1,425
5. Other Expenses
Administrative Expenses
A Ltd. 300
B Ltd. 150
450
Less: Consultancy fees received by A Ltd. from B Ltd. (8) 442
Selling and Distribution Expenses:
A Ltd. 300
B Ltd. 75
375
Less: Commission received from B Ltd. from A Ltd. (15) 360
802
6. Finance Cost
Interest:
A Ltd. 150
B Ltd. 75 225

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7. Depreciation and Amortization

Depreciation:
A Ltd. 150
B Ltd. 75 225
(b) Statement showing rebate on bills discounted
Value Due Date Days after 31.3.2021 Rate of discount Discount
Amou
nt
1,46,200 4.5.22 (30+ 4) = 34 15% 2,043
2,30,400 12.5.22 (30+12) = 42 15% 3,977
4,35,900 28.5.22 (30+28) = 58 15% 10,390
4,36,200 18.6.22 (30+ 31+ 18) = 79 16% 15,106
2,68,100 4.7.22 (30+ 31+30+4) = 95 16% 11,165
15,16,800 Rebate on bills discounted on 31.3.2022 42,681
Note: 365 days have been considered in a year.
In the books of SM Bank Ltd. - Journal Entries
(i) Rebate on bills discounted Account Dr. 26,592
To Discount on bills Account 26,592
[Being opening balance of rebate on bills discounted
account transferred to discount on bills account]
(ii) Bills purchased & discounted Account Dr. 15,16,800
To Discount on bills Account 1,26,859
To Clients Account 13,89,941
(Being bills purchased and discounted during the year)
(iii) Discount on bills Account Dr. 42,681
To Rebate on bills discounted Account 42,681
[Being provision made on 31 st March, 2022]
(iv) Discount on bills Account Dr. 1,10,770
To Profit and loss Account* 1,10,770
[Being transfer of discount on bills, of the year, to profit
and loss account]
*Credit to Profit and Loss A/c will be as follows:
` (1,26,859 + 26,592 – 42,681) = ` 1,10,770
5. (a) Liquidator’s Final Statement of Receipts and Payments
` ` `
To Cash in hand 40,000 By Liquidator’s remuneration 5,000
To Assets realised: and expenses
PPE 1,68,000 By Trade Payables 3,50,000
Inventory By Preference shareholders 1,00,000

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(1,10,000 – 1,00,000) 10,000 By Equity shareholders @

Book debts 2,30,000 4,08,000 ` 10 on 2,000 shares 20,000
To Cash - proceeds of
call on 1,800 equity
shares @ ` 15* 27,000
4,75,000 4,75,000
Working Note:
Return per equity share
`
Cash available before paying preference shareholders
(` 4,48,000 – ` 3,55,000) 93,000
Add: Notional calls 1,800 shares (2,000-200) × ` 25 45,000
1,38,000
Less: Preference share capital (1,00,000)
Available for equity shareholders 38,000
` 38,000
Return per share= = ` 10
3,800 (4,000 − 200)
and Loss per Equity Share ` (100-10) = ` 90
*Calls to be made @ ` 15 per share (` 90-75) on 1,800 shares.
(b) PNG Bank Limited
Profit & Loss Account for the year ended 31 st March, 2022
Schedule ` ’000s
I. Income
Interest earned 13 8,971
Other income 14 2,419
Total 11,390
II. Expenditure
Interest expended 15 4,120
Operating expenses 16 3,703
Provisions (Refer W.N.) 1,013.8
Total 8,836.8
III. Profit/Loss 2,553.20

Schedule 13 – Interest Earned

` ’000s
Interest / discount on advances bills
Interest on term loans [2,550- (731-238)] 2,057
Interest on cash credits and overdrafts (5,663-923) 4,740
Income on investments 2,174
8,971
Note: Interest on non-performing assets is recognized on receipt basis.
8

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Schedule 14 – Other Income

` ’000s
Commission, exchange and 201
brokerage
Profit on sale of investments 1,876
Profit on revaluation of investments 342
2,419
Schedule 15 – Interest Expended
` ’000s
Interest on deposits 4120
Schedule 16 – Operating Expenses
` ’000s
Payments to and provision for employees - salaries, bonus and allowances 2,745
Rent, taxes and lighting 385
Printing & stationery 62
Director’s fee, allowances and expenses 313
Depreciation Charges 99
Repairs & maintenance 56
Insurance 43
3,703
Working Note:
Provisions ` ’000s
Provision for standard and non-performing assets
Standard (4,700 x .4%) 18.8
Sub-standard (1900 x 15%) 285
Doubtful (400 x 100%) 400
Doubtful (40 x25%) 10
Loss assets (300 x 100%) 300
1,013.8
6. (a) Statement showing the amount of profit/loss to be taken to Profit and Loss Account and
additional provision for the foreseeable loss as per AS 7
Cost of Construction ` `
Material Issued 75,00,000
Less: Unused Material at the end of period 4,00,000 71,00,000
Labour Charges paid 36,00,000
Add: Outstanding on 31.03.2022 2,00,000 38,00,000
Hire Charges of Plant 10,00,000
Other Contract cost incurred 15,00,000
Cost incurred upto 31.03.2022 1,34,00,000

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Add: Estimated future cost 33,50,000

Total Estimated cost of construction 1,67,50,000
Degree of completion (1,34,00,000/1,67,50,000 x 100) 80%
Revenue recognized (80% of 1,50,00,000) 1,20,00,000
Total foreseeable loss (1,67,50,000 - 1,50,00,000) 17,50,000
Less: Loss for the current year (1,34,00,000 - 1,20,00,000) 14,00,000
Loss to be provided for 3,50,000

(b) As per AS 20, “Earnings Per Share”, the weighted average number of equity shares outstanding
during the period reflects the fact that the amount of shareholders’ capital may have varied during
the period as a result of a larger or less number of shares outstanding at any time. For the purpose
of calculating basic earnings per share, the number of equity shares should be the weighted
average number of equity shares outstanding during the period.
Weighted average number of equity shares:
7,20,000 X 5/12 = 3,00,000 shares
9,60,000 X 5/12 = 4,00,000 shares
8,40,000 X 2/12 = 1,40,000 shares
8,40,000 shares
(c) Journal Entries in the books of S Ltd.
Dr. Cr.
2022 ` `
April 1 Equity Share Capital A/c (` 10) Dr. 5,00,000
To Equity Share Capital A/c 3,00,000
To 8% Preference Equity Share Capital A/c 60,000
To 10% Second Debentures A/c 40,000
To Capital Reduction /Reconstruction A/c 1,00,000
(Being reduction of equity shares to 3/5 shares,
issue of preference shares and debentures as per
Reconstruction Scheme dated...)
Capital Reduction / Reconstruction A/c Dr. 1,00,000
To Building A/c 50,000
To Plant and Machinery A/c 20,000
To Goodwill A/c 30,000
(Being value of building and plant and machinery
reduced and goodwill written off completely.)
Bank A/c Dr. 1,00,000
To 8% First Debentures A/c 1,00,000
(Being ` 1,00,000 debentures issued)

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(d) Journal Entries in the books of Shiv Ltd.

` `
1.3.22 Bank A/c (1,02,500 x ` 60) Dr. 61,50,000
to 31.3.22 Employee compensation expense A/c Dr. 92,25,000
(1,02,500 x ` 90)
To Equity share capital A/c (1,02,500x `10) 10,25,000
To Securities premium A/c 1,43,50,000
(1,02,500 x `140)
(Being shares issued to the employees against the
options vested to them in pursuance of Employee
Stock Option Plan)
31.3.22 Profit and Loss A/c Dr. 92,25,000
To Employee compensation expense A/c 92,25,000
(Being transfer of employee compensation
expenses to Profit and Loss Account)

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Test Series: March 2023

MOCK TEST PAPER 1
INTERMEDIATE : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) (i) On the basis of provisions of AS 18 'Related Party Disclosures':
Identify the related parties in the following cases:
X Limited holds 60% shares of Y Limited
Y Limited holds 55% shares of W Limited
Z Limited holds 35% shares of W Limited
(ii) Himalaya Limited sold goods for ` 40 Lakhs to Aravalli Limited during financial year ended on
March 31, 2022. The Managing Director of Himalaya Limited owns 80% shares of Aravalli
Limited. The sales were made to Aravalli Limited at normal selling prices followed by Himalaya
Limited. The chief accountant of Himalaya Limited contends that these sales need not require
a different treatment from the other sales made by the company and hence no disclosure is
necessary as per AS 18. You are required to comment on this.
(b) Tonk Tanners is engaged in manufacturing of leather shoes. They provide you the following
information for the year ended 31 st March, 2022:
(i) On 31st December, 2021 shoes worth ` 3,20,000 were sent to Mohan Shoes for sale on
consignment basis of which 25% shoes were unsold and lying with Mohan Shoes as on 31 st
March, 2022.
(ii) On 10th January, 2022, Tonk Tanner supplied shoes worth ` 4,50,000 to Shani Shoes and
concurrently agrees to re-purchase the same goods on 11 th April. 2022.
(iii) On 21st March, 2022 shoes worth ` 1,60,000 were sold to Shoe Shine but due to
refurbishing of their showroom being underway, on their request, shoes were delivered on
12th April, 2022.
You are required to advise the accountant of Tonk Tanners when amount is to be recognised as
revenue in 2021-2022 in above cases in the context of AS 9.
(c) The Chief Accountant of Cotton Garments Limited gives the following data regarding its five
segments:
( ` in Crore)
Particulars A B C D E Total
Segment Assets 40 15 10 10 5 80
Segment Results (95) 5 5 (5) 15 (75)
Segment Revenue 310 40 30 40 30 450
The Chief Accountant is of the opinion that segment "A" alone should be reported. Is he justified in
his view? Examine his opinion in the light of provisions of AS 17 'Segment Reporting'.

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(d) Som Ltd. agreed to takeover Dove Ltd. on 1 st April, 2022. The terms and conditions of takeover
were as follows:
(i) Som Ltd. issued 56,000 equity shares of `100 each at a premium of `10 per share to the
equity shareholders of Dove Ltd.
(ii) Cash payment of ` 1,00,000 was made to equity shareholders of Dove Ltd.
(iii) 20,000 fully paid preference shares of ` 70 each issued at par to discharge the preference
shareholders of Dove Ltd.
You are required to calculate the amount of purchase consideration as per provisions of AS 14.
(4 Parts x 5 Marks = 20 Marks)
2 Read, Write and Add give you the following Balance Sheet as on 31st March, 2022 :
Equity and Liabilities ` Assets `
Read’s Loan 15,000 Plant and Machinery at cost 30,000
Capital Accounts: Fixtures and Fittings 2,000
Read 30,000 Stock 10,400
Write 10,000 Debtors 18,400
Add 2,000 42,000 Less: Provision (400) 18,000
Sundry Creditors 17,800 Joint Life Policy 15,000
Loan on Hypothecation of Patents and Trademarks 10,000
Stock 6,200 Cash at Bank 8,000
Joint Life Policy Reserve 12,400
93,400 93,400
The partners shared profits and losses in the ratio of Read 4/9, Write 2/9 and Add 1/3. Firm was
dissolved on 31st March, 2022 and you are given the following information:
(a) Add had taken a loan from insurers for ` 5,000 on the security of Joint Life Policy.
The policy was surrendered and Insurers paid a sum of ` 10,200 after deducting ` 5,000 for Add’s
loan and ` 300 as interest thereon.
(b) One of the creditors took some of the patents whose book value was ` 6,000 at a valuation of
` 4,500. The balance to that creditor was paid in cash.
(c) The firm had previously purchased some shares in a joint stock company and had written them off
on finding them useless. The shares were now found to be worth ` 3,000 and the loan creditor
agreed to accept the shares at this value.
(d) The remaining assets realized the following amount: `
Plant and Machinery 17,000
Fixtures and Fittings 1,000
Stock 9,000
Debtors 16,500
Patents 50% of their book value.
(e) The liabilities were paid and a total discount of ` 500 was allowed by the creditors.
(f) The expenses of realization amounted to ` 2,300.
Prepare the Realization Account, Bank Account and Partners’ Capital Accounts in columnar form.
(20 Marks)
2

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3. (a) A Ltd. gives the following information on 31 st March, 2022:
`
8,000 Equity shares of ` 100 each 8,00,000
10% Debentures 4,00,000
Loans 1,60,000
Trade payables 3,20,000
General Reserve 80,000
Building 3,40,000
Machinery 6,40,000
Inventory 2,20,000
Trade receivables 2,60,000
Bank 1,36,000
Patent 1,30,000
Profit & Loss account (Dr. balance) 34,000

B Ltd. agreed to absorb A Ltd. on the following terms and conditions:

(1) B Ltd. would take over all assets, except bank balance and Patent at their book values less
10%. Goodwill is to be valued at 4 year’s purchase of super profits, assuming that the normal
rate of return be 8% on the combined amount of share capital and general reserve.
(2) B Ltd. is to take over trade payables at book value.
(3) The purchase consideration is to be paid in cash to the extent of ` 6,00,000 and the balance
in fully paid equity shares of ` 100 each at ` 125 per share.
The average profit is ` 1,24,400. The liquidation expenses amounted to ` 16,000. B Ltd. sold prior
to 31st March, 2022 goods costing ` 1,20,000 to A Ltd. for ` 1,60,000. ` 1,00,000 worth of goods
are still in Inventory of A Ltd. on 31 st March, 2022. Trade payables of A Ltd. include ` 40,000 still
due to B Ltd.
Show the Realisation A/c, Bank A/c, B Ltd. A/c and Equity shareholders A/c to close the books of
A Ltd. and prepare the Balance Sheet of B Ltd. as at 1 st April, 2022 after the takeover from the
available information.
(b) A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The
assets were realized for ` 25,00,000 against which payment was made as follows:
Liquidation expenses ` 25,000
Secured Creditors ` 10,00,000
Preferential Creditors ` 75,000
The amount due to Unsecured Creditors was ` 15,00,000. You are asked to calculate the total
Remuneration payable to Liquidator. Calculation shall be made to the nearest multiple of a rupee.
(16 + 4 = 20 Marks)
4. (a) Pratham Ltd. (a non-listed company) has the following Capital structure as on 31 st March, 2022:
Particulars ` `
Equity Share Capital (shares of ` 10 each fully paid 30,00,000
Reserves & Surplus
General Reserve 32,50,000
Security Premium Account 6,00,000
3

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Profit & Loss Account 4,30,000

Revaluation Reserve 6,20,000 49,00,000
Loan Funds 42,00,000
You are required to compute by Debt Equity Ratio Test, the maximum number of shares that can
be bought back in the light of above information, when the offer price for buy back is ` 30 per
share.
(b) While closing its books of account on 31 st March, 2022, a Non-Banking Finance Company has
classified its advances as follows:
` in lakhs
Standard assets 13,400
Sub-standard assets 670
Secured portions of doubtful debts:
− Up to one year 160
− one year to three years 45
− more than three years 20
Unsecured portions of doubtful debts 48
Loss assets 24
You are required to calculate the amount of provision, which must be made against the advances
as per the Non-Banking Financial Company –Systemically Important Non-Deposit taking Company
(Reserve Bank) Directions, 2016. (15+5 = 20 Marks)
5. On 31st March, 2022 H Ltd. and its subsidiary S Ltd. give the following information:
H Ltd. S Ltd.
` `
Shareholders' Fund:
Equity shares of ` 10 each 13,40,000 2,40,000
Reserves and Surplus 4,80,000 1,80,000
Profit & Loss Account 2,40,000 60,000
Secured Loans:
12% Debentures 1,00,000 -
Current Liabilities:
Creditors 2,00,000 1,22,000
Bank Overdraft 1,00,000 -
Bills Payable 60,000 14,800
Property, Plant & Equipment:
Machinery 7,20,000 2,16,000
Furniture 3,60,000 40,800
Investments:
Investments in S Ltd. 3,84,000 -
(19,200 shares at ` 20 each)
Current Assets:
Inventories 6,00,000 2,00,000
4

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Debtors 3,00,000 90,000

Bill Receivables 1,00,000 30,000
Cash at Bank 56,000 40,000
The following information is also provided to you:
(a) H Ltd. purchased 19,200 shares of S Ltd. on 1st April, 2021, when the balances of Reserves &
Surplus and Profit & Loss Account of S Ltd. stood at ` 60,000 and ` 36,000 respectively.
(b) Machinery (Book value ` 2,40,000) and Furniture (Book value ` 48,000) of S Ltd were revalued at
` 3,60,000 and ` 36,000 respectively on 1st April, 2021, for the purpose of fixing the price of its
shares. (Rates of depreciation computed based on useful lives: Machinery 10%, Furniture 15%).
(c) On 31st March, 2022, Bills payable of ` 12,000 shown in S Ltd.'s Balance Sheet had been accepted
in favour of H Ltd.
You are required to prepare Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st
March, 2022. (20 Marks)
6. (a) Saharsh Ltd. is engaged in manufacturing of electric home appliances. The company is in the
process of finalizing its accounts for the year ended 31.3.2022 and needs your expert advice on
the following issues in line with the provisions of AS 29:
(i) A case has been filed against the company in the consumer court and a notice for levy of a
penalty of ` 20 lakhs has been received. The company has appointed a lawyer to defend the
case for a fee of ` 2 lakhs. 50% of the fees has been paid and balance 50% will be paid after
finalisation of the case. There are 75% chances that the penalty may not be levied.
(ii) The company had committed to supply a consignment worth ` 1 crore to one of its dealers by
the year-end. As per the contract, if delivery is not made on time, a compensation of 15% is
to be paid on the value of delayed/lost consignment. While the consignment was in transit,
one of the trucks carrying goods worth ` 30 lakhs met with an accident. It was however
covered by Insurance. According to the surveyor's report, the policy amount is collectable,
subject to 10% deduction. Before closing the books of accounts, the company has received
the information that the policy amount has been processed and the dealer has also claimed
the compensation for the consignment of goods worth ` 30 lakhs which was in transit.
(b) On 1st April, 2021 a company had 6,00,000 equity shares of ` 10 each (` 5 paid up by all
shareholders). On 1 st September, 2021 the remaining ` 5 was called up and paid by all
shareholders except one shareholder having 60,000 equity shares. The net profit for the year
ended 31 st March, 2022 was ` 21,96,000 after considering dividend ` 3,40,000 on preference
shares. You are required to compute Basic EPS for the year ended 31 st March, 2022 as per
Accounting Standard 20 “Earnings Per Share”.
OR
X Ltd. carried on business of manufacturing of Bakery products. The company has two trademarks
"Sun" and "Surya''. One month before the company knows through one of the marketing managers
that both trademarks have allegedly been infringed by other competitors engaged in the same field.
After investigation, legal department of the company informed that it had weak case on trademark
“Sun” and strong case in regard to trademark “Surya”. X Ltd. incurred additional legal fees to stop
infringement on both trademarks. Both trademarks have a remaining legal life of 10 years. How
should X Ltd. account for these legal costs incurred relating to the two trademarks?
(c) State with reason whether the following cash credit accounts are NPA or not:
Case-1 Case-2
` `
Sanctioned limit 60,00,000 45,00,000
5

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Drawing power 56,00,000 42,00,000

Amount outstanding continuously 01-01-22 to 31-03-22 48,00,000 30,00,000
Total interest debited for the above period 3,84,000 2,40,000
Total credits for the above period Nil 3,20,000
(d) Raja Ltd. has its share capital divided into equity shares of ` 10 each. On 01-08-2021, it granted
2,500 employees stock options at ` 50 per share, when the market price was
` 140 per share. The options were to be exercised between 1-10-2021 to 31-03-2022. The
employees exercised their options for 2,400 shares only and the remaining options lapsed. Raja
Ltd. closes its books of accounts on 31st March, every year.
You are to required to pass the necessary Journal Entries (including narration) for the year ended
31-03-2022, with regard to employees' stock options and give working notes also.
(4 Parts x 5 Marks = 20 Marks)

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Test Series: March 2023

MOCK TEST PAPER 1
INTERMEDIATE : GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
ANSWERS
1. (a) (i) X Ltd., Y Ltd. & W Ltd. are related to each other. Z Ltd. & W Ltd. are related to each other by
virtue of associate relationship. However, neither X Ltd. nor Y Ltd. is related to Z Ltd. and
vice versa since neither control nor significant influence exists between them.
(ii) Himalaya Ltd. and Aravalli Ltd are related parties since key management personnel of
Himalaya Ltd. ie. its managing director holds 80% in Aravalli Ltd. and hence disclosure of
transaction between them is required irrespective of whether the transaction was done at
normal selling price. Hence the contention of Chief Accountant of Himalaya L td that these
sales require no disclosure under related party Transactions, is wrong.
(b) (i) Shoes sent to Mohan Shoes (consignee) for consignment sale
In case goods are sent for consignment sale, revenue is recognized when significant risks of
ownership have passed from seller to the buyer.
In the given case, Mohan Shoes is the consignee i.e. an agent of Tonk Tanners and not the
buyer. Therefore, the risk and reward is considered to vest with Tonk Tanners only till the
time the sale is made to the third party by Mohan Shoes; although the goods are held by
Mohan Shoes. Hence, in the year 2021-2022, the sale will be recognized for the amount of
goods sold by Mohan Shoes to the third party i.e. for ` 3,20,000 x 75% = ` 2,40,000.
(ii) Sale/repurchase agreements i.e. where seller concurrently agrees to repurchase the
same goods at a later date
For such transactions that are in substance a financing agreement, the resulting cash inflow
is not revenue and should not be recognised as revenue in the year 2021 -2022. Hence, sale
of ` 4,50,000 to Shani Shoes should not be recognized as revenue.
(iii) Delivery is delayed at buyer’s request
On 21 st March, 2022, if Shoe Shine takes title and accepts billing for the goods then it is
implied that the sale is complete and all the risk and rewards of ownership has been
transferred to the buyer. In case no significant uncertainty exists regarding the amount of
consideration for sale, revenue shall be recognized in the year 2021 -2022 irrespective of
the fact that the delivery is delayed on the request of Shoe Shine.
(c) As per para 27 of AS 17 ‘Segment Reporting’, a business segment or geographical segment
should be identified as a reportable segment if:
(i) Its revenue from sales to external customers and from other transactions with other segments
is 10% or more of the total revenue- external and internal of all segments; or
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
(2) The combined result of all segments in loss,
whichever is greater in absolute amount; or
(iii) Its segment assets are 10% or more of the total assets of all segments.
Further, if the total external revenue attributable to reportable segments constitutes less than 75%
of total enterprise revenue, additional segments should be identified as reportable segments even

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if they do not meet the 10% thresholds until at least 75% of total enterprise revenue is included in
reportable segments.
Accordingly,
(a) On the basis of revenue from sales criteria, segment A is a reportable segment.
(b) On the basis of the result criteria, segments A & E are reportable segments (since their
results in absolute amount is 10% or more of ` 100 crore).
(c) On the basis of asset criteria, all segments except E are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have to be
reported upon in accordance with AS 17.
Hence, the opinion of chief accountant that only segment ‘A’ is reportable is wrong.
(d) 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.
Computation of Purchase Consideration:
`
(a) Preference Shares:
20,000 Preference shares in Som Ltd. @ ` 70 per share 14,00,000
(b) Cash 1,00,000
(c) Equity shares: 56,000 equity shares in Som Ltd.
@ ` 110 per share 61,60,000
76,60,000
2. Realisation Account
` `
To Plant and machinery 30,000 By Provision for doubtful debts 400
To Fixtures and fittings 2,000 By Loan on hypothecation of stock (W.N.3) 3,000
To Stock 10,400 By Creditors (W.N.2) 500
To Debtors 18,400 By Joint Life Policy A/c (W.N.4) 12,900
To Patents and Trademarks 5,500 By Bank
(W.N.5) Plant and machinery 17,000
To Bank 2,300 Fixtures and fittings 1,000
Stock 9,000
Debtors 16,500
Patents and Trademarks 2,000 45,500
By Partners’ Capital Accounts
Read 2,800
Write 1,400
Add 2,100 6,300
68,600 68,600

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Bank Account
` `
To Balance b/d 8,000 By Add’s Capital A/c- drawings 5,300
To Joint Life Policy 15,500 By Loan on hypothecation of stock 3,200
To Realisation A/c 45,500
To Add’s Capital A/c 5,400 By Creditors 12,800
By Realisation A/c (expenses) 2,300
By Read’s Loan A/c 15,000
By Read’s Capital A/c 27,200
By Write’s Capital A/c 8,600
74,400 74,400
Partners’ Capital Accounts
Read Write Add Read Write Add
` ` ` ` ` `
To Bank 5,300 By Balance b/d 30,000 10,000 2,000
To Realisation A/c 2,800 1,400 2,100
To Bank (Bal. Fig.) By Bank A/c (bal.fig.) 5,400
27,200 8,600
30,000 10,000 7,400 30,000 10,000 7,400

Working Notes:
1. Read’s Loan Account
` `
To Bank A/c 15,000 By Balance b/d 15,000
15,000 15,000
2. Sundry Creditors Account
` `
To Patents and Trademarks A/c 4,500 By Balance b/d 17,800
To Realisation A/c 500
To Bank A/c 12,800
17,800 17,800
3. Loan on Hypothecation of Stock Account
` `
To Realisation A/c 3,000 By Balance b/d 6,200
To Bank A/c 3,200
6,200 6,200
4. Joint Life Policy Account
` `
To Balance b/d 15,000 By Joint Life Policy Reserve A/c 12,400
3

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To Realisation A/c 12,900 By Bank A/c (10,200 + 5,300) 15,500

27,900 27,900
5. Patents and Trademarks Account
` `
To Balance b/d 10,000 By Creditors A/c 4,500
By Realization A/c 1,500
By Realization A/c (bal.fig.) 4,000
10,000 10,000
3. (a) Books of A Limited
Realization Account
` `
To Building 3,40,000 By Trade payables 3,20,000
To Machinery 6,40,000 By B Ltd. 12,10,000
To Inventory 2,20,000 By Equity Shareholders (Loss) 76,000
To Trade receivables 2,60,000
To Patent 1,30,000
To Bank (Exp.) 16,000
16,06,000 16,06,000
Bank Account
To Balance b/d 1,36,000 By Realization (Exp.) 16,000
To B Ltd. 6,00,000 By 10% Debentures 4,00,000
By Loans 1,60,000
By Equity shareholders 1,60,000
7,36,000 7,36,000

B Ltd. Account
To Realisation A/c 12,10,000 By Bank 6,00,000
By Equity share in B Ltd. (4,880
shares at ` 125 each) 6,10,000
12,10,000 12,10,000

Equity Share Holders Account

To Realization Account 76,000 By Equity share capital 8,00,000
To Profit & Loss A/c (Dr.) 34,000 By General reserve 80,000
To Equity shares in B Ltd. 6,10,000
To Bank 1,60,000
8,80,000 8,80,000

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Balance Sheet of B Ltd. as at 1st April, 2021 (An extract) 1
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 4,88,000
b Reserves and Surplus 2 1,07,000
2 Current liabilities
a Trade Payables 3 2,80,000
b Short term Borrowings (Bank overdraft) 6,00,000
Total 14,75,000
Assets
1 Non-current assets
Property, Plant and Equipment 4 8,82,000
Intangible assets 5 2,16,000
2 Current assets
a Inventories 6 1,83,000
b Trade receivables 7 1,94,000
14,75,000
Notes to Accounts
`
1 Share Capital
Equity share capital
4,880 Equity shares of ` 100 each (Shares have been issued
for consideration other than cash) 4,88,000
Total 4,88,000
2 Reserves and Surplus (an extract)
Securities Premium 1,22,000
Profit and loss account …..
Less: Unrealized profit (15,000) (15,000)
Total 1,07,000
3 Trade payables
Opening balance 3,20,000
Less: Inter-company transaction cancelled upon amalgamation (40,000) 2,80,000
4 Property, Plant and Equipment
Buildings 3,06,000
Machinery 5,76,000
Total 8,82,000
5 Intangible assets
Goodwill 2,16,000

1In the absence of the particulars of assets and liabilities (other than those of A Ltd.), the complete Balance Sheet of B Ltd.
after takeover cannot be prepared.
5

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6 Inventories
Opening balance 1,98,000
Less: Cancellation of profit upon amalgamation (15,000) 1,83,000
7 Trade receivables
Opening balance 2,34,000
Less: Intercompany transaction cancelled upon amalgamation (40,000) 1,94,000
Working Notes:
1. Valuation of Goodwill `
Average profit 1,24,400
Less: 8% of ` 8,80,000 (70,400)
Super profit 54,000
Value of Goodwill = 54,000 x 4 2,16,000
2. Net Assets for purchase consideration
Goodwill as valued in W.N.1 2,16,000
Building 3,06,000
Machinery 5,76,000
Inventory 1,98,000
Trade receivables 2,34,000
Total Assets 15,30,000
Less: Trade payables (3,20,000)
Net Assets 12,10,000
Out of this ` 6,00,000 is to be paid in cash and remaining i.e., (12,10,000 – 6,00,000)
` 6,10,000 in shares of ` 125. Thus, the number of shares to be allotted 6,10,000/125 = 4,880
shares.
3. Unrealized Profit on Inventory `
The Inventory of A Ltd. includes goods worth ` 1,00,000 which was sold by B Ltd.
40,000 25,000
on profit. Unrealized profit on this Inventory will be 1,00,000
1,60,000
As B Ltd. purchased assets of A Ltd. at a price 10% less than the book value,
10% need to be adjusted from the Inventory i.e., 10% of (10,000)
` 1,00,000.
Amount of unrealized profit 15,000
(b) Calculation of Total Remuneration payable to Liquidator
Amount in `
2% on Assets realized 25,00,000 x 2% 50,000
3% on payment made to Preferential creditors 75,000 x 3% 2,250
3% on payment made to Unsecured creditors (Refer W.N) 39,255
Total Remuneration payable to Liquidator 91,505

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Working Note:
Liquidator’s remuneration on payment to unsecured creditors = Cash available for unsecured
creditors after all payments including liquidation expenses, payment to secured creditors,
preferential creditors & liquidator’s remuneration
= ` 25,00,000 – ` 25,000 – ` 10,00,000 – ` 75,000 – ` 50,000 – ` 2,250 = ` 13,47,750.
Liquidator’s remuneration on payment to unsecured creditors = 3/103 x ` 13,47,750 = ` 39,255
4. (a) Debt Equity Ratio Test
Particulars `
(a) Loan funds 42,00,000
(b) Minimum equity to be maintained after buy back in the
ratio of 2:1 (` in crores) 21,00,000
(c) Present equity shareholders fund (` in crores) 72,80,000
(d) Future equity shareholder fund (` in crores) (See Note 2) 59,85,000
(72,80,000-12,95,000)
(e) Maximum permitted buy back of Equity (` in crores) [(d) – 38,85,000 (by simultaneous
(b)] (See Note 2) equation)
(f) Maximum number of shares that can be bought back @ 1,29,500 (by simultaneous
` 30 per share (shares in crores) (See Note 2) equation)
Working Note:
1. Shareholders’ funds
Particulars `
Paid up capital 30,00,000
Free reserves (32,50,000 +6,00,000+4,30,000) 42,80,000
72,80,000
2. As per section 68 of the Companies Act, 2013, amount transferred to CRR and maximum
equity to be bought back will be calculated by simultaneous equation method.
Suppose amount equivalent to nominal value of bought back shares transferred to CRR
account is ‘x’ and maximum permitted buy-back of equity is ‘y’.
Equation 1 :(Present equity – Nominal value of buy-back transfer to CRR) – Minimum equity
to be maintained = Maximum permissible buy-back of equity
(72,80,000 –x)-21,00,000 = y (1)
Since 51,80,000 – x = y
 Maximum buy - back 
Equation 2:  x Nominal Value 
 Offer price for buy - back 
= Nominal value of the shares bought –back to be transferred to CRR
 y 
x =  10  = x
 30 
3x = y (2)
x = ` 12,95,000 crores and y = ` 38,85,000 crores

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(b) Calculation of provision required on advances as on 31 st March, 2022:
Amount Percentage of Provision
` in lakhs provision ` in lakhs
Standard assets 13,400 .40 53.60
Sub-standard assets 670 10 670
Secured portions of doubtful debts
−up to one year 160 20 32
−one year to three years 45 30 13.5
−more than three years 20 50 10
Unsecured portions of doubtful debts 48 100 48
Loss assets 24 100 24
851.10
5. Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 202 2
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 13,40,000
(b) Reserves and Surplus 2 8,27,040
(2) Minority Interest 1,15,560
(3) Non-Current Liabilities
(a) 12% Debentures 1,00,000
(4) Current Liabilities
(a) Trade Payables 3 3,84,800
(b) Short term Borrowings (Bank overdraft) 1,00,000
Total 28,67,400
II. Assets
(1) Non-current assets
(a)
(i) Property, Plant and Equipment 4 14,34,600
(ii) Intangible assets 5 28,800
(2) Current assets
(a) Inventory (6,00,000+2,00,000) 8,00,000
(b) Trade Receivables 6 5,08,000
(c) Cash and Cash equivalents 96,000
Total 28,67,400

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Notes to Accounts
`
1. Share Capital
Equity share capital 13,40,000
1,34,000 shares of ` 10 each fully paid up
2. Reserves and Surplus
Reserves 4,80,000
Add: 4/5th share of S Ltd.’s post-
acquisition reserves (W.N.3) 96,000 5,76,000
Profit and Loss Account 2,40,000
Add: 4/5th share of S Ltd.’s post-
acquisition profits (W.N.4) 11,040 2,51,040
8,27,040
3. Trade Payables
Creditors
H Ltd. 2,00,000
S Ltd. 1,22,000 3,22,000
Bills Payables
H Ltd. 60,000
S Ltd. 14,800 74,800
3,96,800
Less: Mutual Owings (12,000) 3,84,800
4. Property Plant and Equipment
Machinery
H. Ltd. 7,20,000
S Ltd. 2,40,000
Add: Appreciation 1,20,000
3,60,000
Less: Depreciation (3,60,000 X 10%) (36,000) 3,24,000
Furniture
H. Ltd. 3,60,000
S Ltd. 48,000
Less: Decrease in value (12,000)
36,000
Less: Depreciation (36,000 X 15%) 5,400 30,600 14,34,600
5. Intangible assets
Goodwill [WN 6] 28,800
6. Trade receivables
Debtors
H Ltd. 3,00,000
S Ltd. 90,000 3,90,000
Bills Receivables
H Ltd. 1,00,000

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S Ltd. 30,000 1,30,000

5,20,000
Less: Mutual Owings (12,000) 5,08,000
Working Notes:
1. Pre-acquisition profits and reserves of S Ltd. `
Reserves 60,000
Profit and Loss Account 36,000
96,000
H Ltd.’s = 4/5 (or 80%) × 96,000 76,800
Minority Interest= 1/5 (or 20%) × 96,000 19,200
2. Profit on revaluation of assets of S Ltd.
Profit on Machinery ` (3,60,000 – 2,40,000) 1,20,000
Less: Loss on Furniture `(48,000 –36,000) (12,000)
Net Profit on revaluation 1,08,000
H Ltd.’s share 4/5 × 1,08,000 86,400
Minority Interest 1/5 × 1,08,000 21,600
3. Post-acquisition reserves of S Ltd.
Total reserves 1,80,000
Less: Pre- acquisition reserves (60,000)
Post-acquisition reserves 1,20,000
H Ltd.’s share 4/5 × 1,20,000 96,000
Minority interest 1/5 × 1,20,000 24,000
4. Post -acquisition profits of S Ltd.
Post-acquisition profits (Profit & loss account balance less 24,000
pre-acquisition profits = ` 60,000 – 36,000)
Add: Excess depreciation charged on furniture @ 15%
on ` 12,000 i.e. (48,000 – 36,000) 1,800
25,800
Less: Under depreciation on machinery @ 10%
on ` 1,20,000 i.e. (3,60,000 – 2,40,000) (12,000)
Adjusted post-acquisition profits 13,800
H Ltd.’s share 4/5 × 13,800 11,040
Minority Interest 1/5 × 13,800 2,760
5. Minority Interest
Paid-up value of (24,000 – 19,200) = 4,800 shares
held by outsiders i.e. 2,40,000 X 20% 48,000
Add: 1/5th share of pre-acquisition profits and reserves 19,200
1/5th share of profit on revaluation 21,600
1/5th share of post-acquisition reserves 24,000
1/5th share of post-acquisition profit 2,760
1,15,560
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6. Cost of Control or Goodwill

Price paid by H Ltd. for 19,200 shares (A) 3,84,000
Less: Intrinsic value of the shares
Paid-up value of shares held by H Ltd. i.e. 2,40,000 X 80% 1,92,000
Add: 4/5th share of pre-acquisition profits and reserves 76,800
4/5th share of profit on the revaluation 86,400
Intrinsic value of shares on the date of acquisition (B) 3,55,200
Cost of control or Goodwill (A – B) 28,800
6. (a) (i) As per AS 29, an obligation is a present obligation if, based on the evidence available, its
existence at the balance sheet date is considered probable, i.e., more likely than not.
Liability is a present obligation of the enterprise arising from past events, the settlement of
which is expected to result in an outflow from the enterprise of resources embodying economic
benefits.
In the given case, there are 75% chances that the penalty may not be levied. Accordingly,
Saharsh Ltd. should not make the provision for penalty.
However, a provision should be made for remaining 50% fees of the lawyer in the financial
statements of financial year 2021-22.
(ii) Loss due to accident ` 30,00,000
Insurance claim receivable by company = ` 30,00,000 x 90% = ` 27,00,000
Loss to be recognised in the books for 2021-22 ` 3,00,000
Insurance claim receivable to be recorded in the books ` 27,00,000
Compensation claim by dealer against company to be provided for in the books
= ` 30,00,000 x 15% = ` 4,50,000
(b) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year

21,96,000
= = ` 4.80 per share
4,57,500 Shares (as per working note)
Working Note:
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 shares Amount paid per Weighted average no. of equity
share shares
` ` `
1.4.2021 6,00,000 5 6,00,000 х 5/10 х 5/12 = 1,25,000
1.9.2021 5,40,000 10 5,40,000 х 7/12 = 3,15,000
1.9.2021 60,000 5 60,000 х 5/10 х 7/12 = 17,500
Total weighted average equity shares 4,57,500

11

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OR
As per para 59 of AS 26, subsequent expenditure on an intangible asset after its purchase or its
completion should be recognized as an expense. However, if the subsequent expenditure enables
the asset to generate future economic benefits in excess of its originally assessed standard of
performance or can be measured and attributed to the asset reliably, then such subsequent
expenditure should be added to the cost of the intangible asset.
The legal costs incurred for both the trademarks do not enable them to generate future economic
benefits in excess of its originally assessed standard of performance. They only ensure to maintain
them if the case is decided in favour of the company. Therefore, such legal costs must be
recognised as an expense.
(c)
Case 1 Case 2
` `
Sanctioned limit 60,00,000 45,00,000
Drawing power 56,00,000 42,00,000
Amount outstanding continuously from 1.01.2022 to 31.03.2022 48,00,000 30,00,000
Total interest debited 3,84,000 2,40,000
Total credits - 320,000
Is credit in the account is sufficient to cover the interest debited No Yes
during the period or amount is not ‘overdue’ for a continuous
period of 90 days.
NPA NOT NPA
(d) Journal Entries in the books of Raja Ltd.
` `
1.10.21 to 31.3.22 Bank A/c Dr. 1,20,000
Employee compensation expense A/c Dr. 2,16,000
To Equity share capital A/c 24,000
To Securities premium A/c 3,12,000
(Being shares issued to the employees against the
options vested to them in pursuance of Employee
Stock Option Plan)
31.3.22 Profit and Loss A/c Dr. 2,16,000
To Employee compensation expense A/c 2,16,000
(Being transfer of employee compensation
expenses to Profit and Loss Account)
No entry is passed when stock options are granted to employees. Hence, no entry will be passed
on 1st August, 2021.
Working Note:
Market Price = ` 140 per share and stock option price = 50, Hence, the difference 140 – 50 = ` 90
per share is equivalent to employee cost or employee compensation expense and will be charged
to P&L Account as such for the number of options exercised i.e. 2,400 shares. Hence, Employee
compensation expenses will be 2,400 shares X ` 90 = ` 2,16,000

12

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Test Series: April, 2023

MOCK TEST PAPER 2
INTERMEDIATE: GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
Time Allowed: 3 Hours Maximum Marks: 100
1. (a) PRZ & Sons Ltd. are Heavy Engineering contractors specializing in construction of dams.
From the records of the company, the following data is available pertaining to year ended
31st March, 2023:
(` crore)
Total Contract Price 2,400
Work Certified 1,250
Work pending certification 250
Estimated further cost to completion 1,750
Stage wise payments received 1,100
Progress payments in pipe line 300
Using the given data and applying the relevant Accounting Standard you are required to:
(i) Compute the amount of profit/loss for the year ended 31 st March, 2023.
(ii) Arrive at the contract work in progress as at the end of financial year 2022-23.
(iii) Determine the amount of revenue to be recognized out of the total contract value.
(iv) Work out the amount due from/to customers as at year end.
(b) S. Square Private Limited has taken machinery on finance lease from S.K. Ltd. The
information is as under:
Lease term = 4 years
Fair value at inception of lease = ` 20,00,000
Lease rent = ` 6,25,000 p.a. at the end of year
Guaranteed residual value = ` 1,25,000
Expected residual value = ` 3,75,000
Implicit interest rate = 15%
Discount rates for 1 st year, 2nd year, 3rd year and 4 th year are 0.8696, 0.7561, 0.6575 and
0.5718 respectively.
You are required to calculate the value of the lease liability as per AS-19 and also disclose
impact of this on Balance sheet and Profit & loss account at the end of year 1.
(c) Old Era Publication Publishes a popular monthly magazine on 15 th of every month. The
publication sells the advertising space on terms of 90% payable in advance and the balance
10% payable within 30 days of release of the publication. The space for March 2023 issue
of the magazine was sold in the month of February, 2023. The magazine was published as
1

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per schedule on 15 th of the month. The amount of ` 2,70,000 has been received upto
31st March, 2023 and ` 30,000 was received on 10 th April, 2023 for advertisement published
in the March issue of the publication.
Please advise the accountant the amount of revenue to be recognized in the context of the
provisions of AS 9 ‘Revenue Recognition’ during the year ending on 31 st March, 2023.
(d) An airline is required by law to overhaul its aircraft once in every five year s. The pacific
Airlines which operate aircrafts does not provide any provision as required by law in its final
accounts. You are required to comment on the validity of the treatment done by the
company in line with the provisions of AS 29. (4 Parts x 5 Marks = 20 Marks)
2. (a) P, Q, R and S are sharing profits and losses in the ratio 3 : 3 : 2 : 1. Frauds committed by R
during the year were found out and it was decided to dissolve the partnership on
31st March, 2023 when their Balance Sheet was as under:
Equity & Liabilities Amount (`) Assets Amount (`)
Capitals: Building 1,90,000
P 1,50,000 Stock 1,30,000
Q 1,50,000 Investments 50,000
R - Debtors 70,000
S 60,000 Cash 30,000
General reserve 40,000 R’s capital 40,000
Trade creditors 80,000 (overdrawn)
Bills payable 30,000
5,10,000 5,10,000
Following information is given to you:
(i) A cheque for ` 7,000 received from debtor was not recorded in the books and was
misappropriated by R.
(ii) Investments costing ` 8,000 were sold by R at ` 11,000 and the funds transferred to
his personal account. This sale was omitted from the firm’s books.
(iii) A creditor agreed to take over investments of the book value of ` 9,000 at
` 13,000. The rest of the creditors were paid off at a discount of 5%.
(iv) The other assets realized as follows:
Building 110% of book value
Stock ` 1,20,000
Investments The rest of investments were sold at a profit of ` 7,000
Debtors The rest of the debtors were realized at a discount of 10%
(v) The bills payable were settled at a discount of ` 500.
(vi) The expenses of dissolution amounted to ` 8,000
(vii) It was found out that realization from R’s private assets would only be ` 7,000.
Prepare Realization Account, Cash Account and Partners’ Capital Accounts. All workings
should part of your answer.

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(b) Statement of interest on advances in respect of Performing assets and Non-Performing

Assets of Omega Bank is as follows:- (` in lakhs)
Performing Assets Non-Performing Assets
Interest Interest Interest Interest
earned received earned received
Cash credits and overdrafts 1800 1060 450 70
Term Loan 480 320 300 40
Bills purchased and discounted 700 550 350 36

Find out the income to be recognized for the year ended 31 st March, 2020.
(16 + 4 = 20 Marks)
3. (a) Sun and Neptune (both companies) had been carrying on business independently. They
agreed to amalgamate and form a new company Jupiter Ltd. with an authorised share
capital of ` 4,00,000 divided into 80,000 equity shares of ` 5 each. On 31 st March, 2023 Sun
and Neptune provide the following information:
Sun (`) Neptune (`)
Property, Plant & Equipment 6,35,000 3,65,000
Current Assets 3,27,000 1,67,750
9,62,000 5,32,750
Less: Current Liabilities (5,97,000) (1,80,250)
Representing Capital 3,65,000 3,52,500
Additional Information:
(a) Revalued figures of Fixed and Current assets were as follows:
Sun (`) Neptune (`)
Fixed Assets 7,10,000 3,90,000
Current Assets 2,99,500 1,57,750
(b) The debtors and creditors include ` 43,350 owed by Sun to Neptune.
The purchase consideration is satisfied by issue of the following shares and debentures.
(i) 60,000 equity shares of Jupiter Ltd. to Sun and Neptune in the proportion to the
profitability of their respective business based on the average net profit during the
last three years which were as follows:
Sun (`) Neptune (`)
2021 Profit 4,49,576 2,73,900
2022 (Loss)/Profit (2,500) 3,42,100
2023 Profit 3,77,924 3,59,000
(ii) 15% debentures in Jupiter Ltd. at par to provide an income equivalent to 8%
return business as on capital employed in their respective business as on
31st March, 2023 after revaluation of assets.

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You are required to :
(1) Compute the amount of debentures and shares to be issued to Sun and Neptune.
(2) A Balance sheet of Jupiter Ltd. showing the position immediately after amalgamation.
(b) Explain B List Contributories and the liability of contributories included in the list.
(16 + 4 = 20 Marks)
4. (a) The following is an extract from the Trial Balance of Jeevan Bank Ltd. as at
31st March, 2022:
Rebate on bills discounted as on 1-4- 2021 1,36,518 (Cr.)
Discount received 3,40,312 (Cr.)
Analysis of the bills discounted reveals as follows:
Amount (`) Due date
5,60,000 June 1, 2022
17,44,000 June 8, 2022
11,28,000 June 21, 2022
16,24,000 July 1, 2022
12,00,000 July 5, 2022
You are required to find out the amount of discount to be credited to Profit and Loss account
for the year ending 31 st March, 2022 and pass Journal Entries. The rate of discount may be
taken at 10% per annum.
(b) While closing its books of account on 31 st March, 2023 a Non-Banking Finance Company
has classified its advances as follows:
` in lakhs
Standard assets 13,400
Sub-standard assets 670
Secured portions of doubtful debts:
− Up to one year 160
− one year to three years 45
− more than three years 20
Unsecured portions of doubtful debts 48
Loss assets 24
You are required to calculate the amount of provision, which must be made against the
advances as per the Non-Banking Financial Company –Systemically Important Non-Deposit
taking Company (Reserve Bank) Directions, 2016.
(c) SM Limited gives the following information as on 31st March, 2023:
`
Share capital
(60,000 Equity Shares of ` 10 Each) 6,00,000
Reserve & Surplus:
Security premium ` 70,000
General reserve ` 63,000

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Profit and Loss ` 1,40,000 2,73,000

Non-current liability:
9% debentures (secured) 3,00,000
Current Liabilities:
Term loan 40,000
Creditors 65,000
Provision for taxation 15,000
Property plant and equipment 6,00,000
Non-current investment 1,50,000
Current assets:
Stock ` 2,00,000
Debtors ` 2,60,000
Bank ` 83,000 5,43,000
The shareholders adopted the resolution on 31st March, 2023 to:
(i) Buy back 25% of the paid up capital @ ` 15 each.
(ii) Issue 10% debentures of ` 60,000 at a premium of 10% to finance the buyback of
shares.
(iii) Maintain a balance of ` 20,000 in General Reserve.
(iv) Sell investments worth ` 1,00,000 for ` 80,000.
(v) Buy back expenses were ` 2,000.
You are required to pass necessary journal entries to record the above transactions and
prepare Ledger account of Bank. (8 + 4 + 8 = 20 Marks)
5. On 31st March, 2023 H Ltd. and its subsidiary S Ltd. give the following information:
H Ltd. S Ltd.
` `
Shareholders' Fund:
Equity shares of ` 10 each 13,40,000 2,40,000
Reserves and Surplus 4,80,000 1,80,000
Profit & Loss Account 2,40,000 60,000
Secured Loans:
12% Debentures 1,00,000 -
Current Liabilities:
Trade Payables 2,00,000 1,22,000
Bank Overdraft 1,00,000 -
Bills Payable 60,000 14,800
Property, Plant & Equipment:
Machinery 7,20,000 2,16,000
Furniture 3,60,000 40,800

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Investments:
Investments in S Ltd. 3,84,000 -
(19,200 shares at ` 20 each)
Current Assets:
Inventories 6,00,000 2,00,000
Trade Receivables 3,00,000 90,000
Bill Receivables 1,00,000 30,000
Cash at Bank 56,000 40,000

The following information is also provided to you:

(a) H Ltd. purchased 19,200 shares of S Ltd. on 1 st April, 2022, when the balances of Reserves
& Surplus and Profit & Loss Account of S Ltd. stood at ` 60,000 and ` 36,000 respectively.
(b) Machinery (Book value ` 2,40,000) and Furniture (Book value ` 48,000) of S Ltd were
revalued at ` 3,60,000 and ` 36,000 respectively on 1 st April, 2022, for the purpose of fixing
the price of its shares. (Rates of depreciation computed on the basis of useful lives:
Machinery 10%, Furniture 15%).
(c) On 31st March, 2023, Bills payable of ` 12,000 shown in S Ltd.'s Balance Sheet had been
accepted in favour of H Ltd.
You are required to prepare Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at
31st March, 2023. (20 Marks)
6. (a) During 2020-21, an enterprise incurred costs to develop and produce a routine low risk
computer software product, as follows:
Particular `
Completion of detailed program and design (Phase 1) 50,000
Coding and Testing (Phase 2) 40,000
Other coding costs (Phase 3 & 4) 63,000
Testing costs (Phase 3 & 4) 18,000
Product masters for training materials (Phase 5) 19,500
Packing the products (1,500 units) (Phase 6) 16,500
After completion of phase 2, it was established that the product is technically feasible for the
market. You are required to state how the above cost to be recognized in the books of
accounts as per AS 26.
(b) An earthquake destroyed a major warehouse of PQR Ltd. on 30.4.2021. The accounting
year of the company ended on 31.3.2021. The accounts were approved on 30.6.2021. The
loss from earthquake is estimated at ` 25 lakhs. State with reasons, whether the loss due to
earthquake is an adjusting or non-adjusting event and how the fact of loss is to be disclosed
by the company.
OR
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?

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(c) W, X, Y and Z hold equity share capital in the proportion of 40:30:10:20. A, B, C and D hold
preference share capital in the proportion of 30:40:20:10. You are required to find their
voting rights in case of resolution of winding up of the company if the paid up capital of the
company is ` 40 Lakh and Preference share capital is ` 20 Lakh.
(d) On 1st October, 2022, A Limited granted 25,000 Employees’ Stock Option at ` 70 per share.
The market price of share was ` 130 per share. The options were to be exercised between
1st December, 2022 and 31st March, 2023. The face value of shares is ` 10 each. The
employees exercised option for 18,000 shares only and the balance options lapsed. The
company closes its books of accounts on 31 st March every year.
Pass necessary journal entries with narration to record the transaction in the books of the
company. (4 Parts x 5 Marks = 20 Marks)

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Test Series: April, 2023

MOCK TEST PAPER 2
INTERMEDIATE: GROUP – II
PAPER – 5: ADVANCED ACCOUNTING
1. (a)
(i) Calculation of profit/ loss for the year ended 31 st March, 2023 (` in crores)
Total estimated cost of construction (1,250 + 250 + 1,750) 3,250
Less: Total contract price (2,400)
Total foreseeable loss to be recognized as expense 850
According to AS 7 (Revised 2002) “Construction Contracts”, when it is probable that total
contract costs will exceed total contract revenue, the expected loss should be recognized as
an expense immediately.
(ii) Contract work-in-progress i.e. cost incurred to date (` in crores)
Work certified 1,250
Work not certified 250
1,500
(iii) Proportion of total contract value recognised as revenue
Percentage of completion of contract to total estimated cost of construction
= (1,500 / 3,250)100 = 46.15%
Revenue to be recognized till date = 46.15% of ` 2,400 crores = ` 1,107.60 crores.
(iv) Amount due from / to customers = Contract costs + Recognised profits –
Recognised losses – (Progress payments
received + Progress payments to be
received)
= ` [1,500 + Nil – 850 – (1100 + 300)] crores
= ` [1,500 – 850 – 1,400] crores
Amount due to customers (shown as liability) = ` 750 crores.
(b) According to AS 19 “Leases”, the lessee should recognise the lease as an asset and a
liability at an amount equal to the lower of the fair value of the leased asset at the inception
of the finance lease and the present value of the minimum lease payments from the
standpoint of the lessee.
In calculating the present value of the minimum lease payments the discount rate is the interest
rate implicit in the lease. Present value of minimum lease payments will be calculated as follows:
Year Minimum Lease Payment Implicit interest rate (Discount Present value
` rate @15%) `
1 6,25,000 0.8696 5,43,500
2 6,25,000 0.7561 4,72,563
3 6,25,000 0.6575 4,10,937
4 7,50,000 0.5718 4,28,850
Total 26,25,000 18,55,850


Minimum Lease Payment of 4th year includes guaranteed residual value amounting` 1,25,000.
1

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Present value of minimum lease payments ` 18,55,850 is less than fair value at the
inception of lease i.e. ` 20,00,000, therefore, the asset and corresponding lease liability
should be recognised at ` 18,55,850 as per AS 19.
(c) Definition: As per AS 9 ‘Revenue Recognition’, in a transaction involving the rendering of
services, performance should be measured either under the completed service contract
method or under the proportionate completion method, whichever relates the revenue to the
work accomplished.
Analysis of given case: In the given case, income accrues when the related advertisement
appears before public. The advertisement service would be considered as performed on the
day the advertisement is appeared for public and hence revenue is recognized on that date.
In this case, it is 15.03.2023, the date of publication of the magazine.
Accounting treatment for given situation: Hence, ` 3,00,000 (` 2,70,000 + ` 30,000) is
recognized as income in March, 2023. The terms of payment are not relevant for
considering the date on which revenue is to be recognized. ` 30,000 is treated as amount
due from advertisers as on 31.03.2023 and ` 2,70,000 will be treated as payment received
against the sale.
(d) A provision should be recognized only when an enterprise has a present obligation arising
from a past event or obligation. In the given case, there is no present obligation but a future
one, therefore no provision is recognized as per AS 29.
The cost of overhauling aircraft is not recognized as a provision because it is a future
obligation and the incurring of the expenditure depends on the company ’s decision to
continue operating the aircrafts. Even a legal requirement to overhaul does not require the
company to make a provision for the cost of overhaul because there is no present obligation
to overhaul the aircrafts. Further, the enterprise can avoid the future expenditure by its
future action, for example by selling the aircraft. However, an obligation might aris e to pay
fines or penalties under the legislation after completion of five years. Assessment of
probability of incurring fines and penalties depends upon the provisions of the legislation
and the stringency of the enforcement regime. A provision should be recognized for the best
estimate of any fines and penalties if airline continues to operate aircrafts for more than five
years.
2. (a) Realization Account
Particulars ` Particulars `
To Building 1,90,000 By Trade creditors 80,000
To Stock 1,30,000 By Bills payable 30,000
To Investment 50,000 By Cash
To Debtors 70,000 Building 2,09,000
To Cash-creditors paid (W.N.1) 63,650 Stock 1,20,000
To Cash-expenses 8,000 Investments (W.N.2) 40,000
To Cash-bills payable 29,500 Debtors (W.N. 3) 56,700 4,25,700
(30,000-500)
To Partners’ Capital A/cs By R – (Receipt from 7,000
Debtors unrecorded)
P 4,183 By R - Receipt from 11,000
Q 4,183 Investments unrecorded
R 2,789

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S 1,395 12,550
5,53,700 5,53,700
Cash Account

Particulars Amount Particulars Amount

` `
To Balance b/d 30,000 By Realization-creditors paid 63,650
To Realization – assets realized By Realization-bills payable 29,500
Building 2,09,000 By Realization-expenses 8,000
Stock 1,20,000 By Capital accounts:
Investments 40,000 P 1,51,132
Debtors 56,700 4,25,700 Q 1,51,132
To R’s capital A/c 7,000 S 59,286
4,62,700 4,62,700

Partners’ Capital Accounts

Particulars P Q R S Particulars P Q R S
` ` ` ` ` ` ` `
To Balance b/d 40,000 By Balance 1,50,000 1,50,000 - 60,000
b/d
To Realization 7,000 By General 13,333 13,333 8,889 4,445
A/c-Debtors reserve
misappropriation
To Realization 11,000 By Realization 4,183 4,183 2,789 1,395
A/c-Investment- profit
misappropriation
To R’s capital A/c 16,384 16,384 6,554 By Cash A/c 7,000
(W.N. 4)
To Cash A/c 1,51,132 1,51,132 59,286 By P’s capital 16,384
A/c
By Q’s capital 16,384
A/c
By S’s capital
A/c 6,554
1,67,516 1,67,516 58,000 65,840 1,67,516 1,67,516 58,000 65,840

Working Notes:
1. Amount paid to creditors in cash
`
Book value 80,000
Less: Creditors taking over investments (13,000)
67,000
Less: Discount @ 5% (3,350)
63,650

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2. Amount received from sale of investments
`
Book value 50,000
Less: Misappropriated by R (8,000)
42,000
Less: Taken over by a creditor (9,000)
33,000
Add: Profit on sale of investments 7,000
Cash received from sale of remaining investment 40,000
3. Amount received from debtors
`
Book value 70,000
Less: Unrecorded receipt (7,000)
63,000
Less: Discount @ 10% (6,300)
56,700
4. Deficiency of R
`
Balance of capital as on 31 st
March, 2023 40,000
Debtors-misappropriation 7,000
Investment-misappropriation 11,000
58,000
Less: Realization Profit (2,789)
General reserve (8,889)
Contribution from private assets (7,000)
Net deficiency of capital 39,322
This deficiency of ` 39,322 in R’s capital account will be shared by other partners P, Q
and S in their capital ratio of 15 : 15 : 6.by
Accordingly,
P’s share of deficiency = [39,322 x (15/36)] = ` 16,384
Q’s share of deficiency = [39,322 x (15/36)] = ` 16,384
S’s share of deficiency = [39,322 x (6/36)] = ` 6,554
(b) Interest on performing assets should be recognised on accrual basis, but interest on NPA
should be recognised on cash basis. ` in lakhs
Interest on cash credits and overdraft : (1800+70) = 1,870
Interest on Term Loan (480+40) = 520
Income from bills purchased and discounted : (700+36) = 736
3,126

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3. (a) (1) Computation of Amount of Debentures and Shares to be issued:

Sun Neptune
` `
(i) Average Net Profit
` (4,49,576-2,500+3,77,924)/3 = 2,75,000
` (2,73,900+,3,42,100+3,59,000)/3 = 3,25,000
(ii) Equity Shares Issued
(a) Ratio of distribution
Sun : Neptune
275 : 325
(b) Number
Sun : 27,500
Neptune : 32,500
60,000
(c) Amount
Sun Neptune
` `
27,500 shares of ` 5 each 1,37,500
32,500 shares of ` 5 each 1,62,500
(iii) Capital Employed (after revaluation of ` `
assets)
Fixed Assets 7,10,000 3,90,000
Current Assets 2,99,500 1,57,750
10,09,500 5,47,750
Less: Current Liabilities -5,97,000 -1,80,250
4,12,500 3,67,500
(iv) Debentures Issued
8% Return on capital employed 33,000 29,400
15% Debentures to be issued to provide
equivalent income:
Sun: 33,000 × 100/15 2,20,000
Neptune: 29,400 × 100/15 1,96,000
(2) Balance Sheet of Jupiter Ltd.
As at 31st March 2023 (after amalgamation)
Particulars Note No `
I. Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital 1 3,00,000
(b) Reserves and Surplus 2 64,000
5

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(2) Non-Current Liabilities

(a) Long-term borrowings 3 4,16,000
(3) Current Liabilities
(a) Other current liabilities 7,33,900
Total 15,13,900
II. Assets
(1) Non-current assets
(a) Property, Plant & Equipment (PPE) 11,00,000
(2) Current assets
(a) Other current assets 4,13,900
Total 15,13,900
Notes to Accounts
`
1 Share Capital
Authorized
80,000 Equity Shares of ` 5 each 4,00,000
Issued and Subscribed
60,000 Equity Shares of ` 5 each 3,00,000
(all the above shares are allotted as fully paid-up pursuant to a
contract without payment being received in cash)
2 Reserve and Surplus
Capital Reserve 64,000
3 Long-term borrowings
Secured Loans
15% Debentures 4,16,000
Working Notes:
Sun Neptune Total
` ` `
(1) Purchase Consideration
Equity Shares Issued 1,37,500 1,62,500 3,00,000
15% Debentures Issued 2,20,000 1,96,000 4,16,000
3,57,500 3,58,500 7,16,000
(2) Capital Reserve
(a) Net Assets taken over
PPE 7,10,000 3,90,000 11,00,000
Current Assets 2,99,500 1,14,400* 4,13,900
10,09,500 5,04,400 15,13,900
Less: Current Liabilities (5,53,650**) (1,80,250) (7,33,900)
4,55,850 3,24,150 7,80,000
(b) Purchase Consideration 3,57,500 3,58,500 7,16,000
(c) Capital Reserve [(a) - (b)] 98,350
(d) Goodwill [(b) - (a)] 34,350

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(e) Capital Reserve [Final Figure(c) - 64,000

(d)]
* 1,57,750–43,350= 1,14,400
** 5,97,000–43,350= 5,53,650
(b) B List Contributories are shareholders who had transferred Partly Paid Shares (otherwise
than by operation of law or by death) within one year, prior to the date of winding up may be
called upon to pay an amount to pay off such Creditors as existed on the date of transfer of
shares. These Transferors are called as B List Contributories. Their liability is restricted to
the amount not called up when the shares were transferred. They cannot be called upon to
pay more than the entire face value of the share. For example, if Shares having Face Value
` 100 were paid up ` 60, the B List Contributory can be called up to pay a maximum of ` 40
only. Liability of B List Contributories will crystallize only (a) when the existing assets
available with the liquidator are not sufficient to cover the liabilities; (b) when the existing
shareholders fail to pay the amount due on the shares to the Liquidator.
4. (a) The amount of rebate on bills discounted as on 31 st March, 2022 the period which has not
been expired upto that day will be calculated as follows:
Discount on `5,60,000 for 62 days @ 10% 9,512
Discount on `17,44,000 for 69 days @ 10% 32,969
Discount on `11,28,000 for 82 days @ 10% 25,341
Discount on `16,24,000 for 92 days @ 10% 40,934
Discount on `12,00,000 for 96 days @ 10% 31,562
Total 1,40,318
Note: The due date of the bills discounted is included in the number of days above.
The amount of discount to be credited to the profit and loss account will be:
`
Transfer from rebate on bills discounted as on 1.4. 2021 1,36,518
Add: Discount received during the year 3,40,312
4,76,830
Less: Rebate on bills discounted as on 31.03. 2022 (as above) (1,40,318)
3,36,512
Journal Entries
` `
Rebate on bills discounted A/c Dr. 1,36,518
To Discount on bills A/c 1,36,518
(Transfer of opening unexpired discount on 1.4. 2021)
Discount on bills A/c Dr. 1,40,318
To Rebate on bills discounted A/c 1,40,318
(Unexpired discount on 31.03. 2022 taken into account)
Discount on Bills A/c Dr. 3,36,512
To P & L A/c 3,36,512
(Discount earned in the year, transferred to P&L A/c)

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(b) Calculation of provision required on advances as on 31 st March, 2023:
Amount Percentage of Provision
` in lakhs provision ` in lakhs
Standard assets 13,400 .40 53.60
Sub-standard assets 670 10 670
Secured portions of doubtful debts
−up to one year 160 20 32
−one year to three years 45 30 13.5
−more than three years 20 50 10
Unsecured portions of doubtful debts 48 100 48
Loss assets 24 100 24
851.10
(c) In the books of SM Limited
Journal Entries
Particulars Dr. Cr.
` `
1. Equity share capital A/c (15,000 x `10) Dr. 1,50,000
Premium on buyback A/c (15,000 x `5) Dr. 75,000
To Equity shares buy back or Equity shareholders A/c 2,25,000
(15,000 x `15)
(Being the amount due to equity shareholders on buy back)
2. Equity shares buy back/Equity shareholders 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 as per the Companies Act)
3. Bank A/c Dr. 66,000
To 10 % Debentures A/c 60,000
To Securities Premium A/c 6,000
(Being 14 % debentures issued to finance buy back)
4. Buyback Expenses A/c Dr. 2,000
To Bank A/c 2,000
(Buyback expenses paid)
5. Bank A/c Dr. 80,000
Profit and Loss A/c (Loss on sale of investment) Dr. 20,000
To Investment A/c 1,00,000
(Being investment sold at loss)
6. General reserve Dr. 43,000
Profit and Loss A/c Dr. 1,07,000
To Capital redemption reserve A/c 1,50,000
(Being amount equal to nominal value of buy back shares from
free reserves transferred to capital redemption reserve
account as per the law)

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7. Securities Premium Dr. 75,000

Profit and Loss A/c Dr. 2,000
To Premium on buyback 75,000
To Buyback Expenses A/c 2,000
(Being premium on buyback and buyback expenses charged
to securities premium and profit and loss account)
Bank Account
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 83,000 By Equity Shareholders A/c 2,25,000
To Investment A/c 80,000 By Expenses on buy back of shares 2,000
To 10% Debentures and 66,000 By Balance c/d
Securities premium 2,000
Total 2,29,000 Total 2,29,000
Note: It may be noted that as per the provisions of the Companies Act, no buy -back of any
kind of shares or other specified securities shall be made out of the proceeds of an earlier
issue of the same kind of shares or same kind of other specified securities. Issue of
debentures has been excluded for the purpose of “specified securities” and the entire
amount of ` 1,50,000 has been credited to CRR while solving the question.
5. Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 2023
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 13,40,000
(b) Reserves and Surplus 2 8,27,040
(2) Minority Interest 1,15,560
(3) Non- Current Liabilities
(a) 12% Debentures 1,00,000
(4) Current Liabilities
(a) Trade Payables 3 3,84,800
(b) Short term Borrowings (Bank overdraft) 1,00,000
Total 28,67,400
II. Assets
(1) Non-current assets
(a)
(i) Property, Plant and Equipment 4 14,34,600
(ii) Intangible assets 5 28,800
(2) Current assets
(a) Inventory (6,00,000+2,00,000) 8,00,000
(b) Trade Receivables 6 5,08,000
(c) Cash and Cash equivalents 96,000
Total 28,67,400
9

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Notes to Accounts
`
1. Share Capital
Equity share capital 13,40,000
1,34,000 shares of ` 10 each fully paid up
2. Reserves and Surplus
Reserves 4,80,000
Add: 4/5th share of S Ltd.’s post-acquisition
reserves (W.N.3) 96,000 5,76,000
Profit and Loss Account 2,40,000
Add: 4/5th share of S Ltd.’s post-acquisition
profits (W.N.4) 11,040 2,51,040
8,27,040
3. Trade Payables
Creditors
H Ltd. 2,00,000
S Ltd. 1,22,000 3,22,000
Bills Payables
H Ltd. 60,000
S Ltd. 14,800 74,800
3,96,800
Less: Mutual Owings (12,000) 3,84,800
4. Property Plant and Equipment
Machinery
H. Ltd. 7,20,000
S Ltd. 2,40,000
Add: Appreciation 1,20,000
3,60,000
Less: Depreciation (3,60,000 X 10%) (36,000) 3,24,000
Furniture
H. Ltd. 3,60,000
S Ltd. 48,000
Less: Decrease in value (12,000)
36,000
Less: Depreciation (36,000 X 15%) 5,400 30,600 14,34,600
5. Intangible assets
Goodwill [WN 6] 28,800
6. Trade receivables
H Ltd. 3,00,000
S Ltd. 90,000 3,90,000
Bills Receivables
H Ltd. 1,00,000
S Ltd. 30,000 1,30,000
5,20,000
Less: Mutual Owings (12,000) 5,08,000

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Working Notes:
1. Pre-acquisition profits and reserves of S Ltd. `
Reserves 60,000
Profit and Loss Account 36,000
96,000
H Ltd.’s = 4/5 (or 80%) × 96,000 76,800
Minority Interest= 1/5 (or 20%) × 96,000 19,200
2. Profit on revaluation of assets of S Ltd.
Profit on Machinery ` (3,60,000 – 2,40,000) 1,20,000
Less: Loss on Furniture `(48,000 –36,000) (12,000)
Net Profit on revaluation 1,08,000
H Ltd.’s share 4/5 × 1,08,000 86,400
Minority Interest 1/5 × 1,08,000 21,600
3. Post-acquisition reserves of S Ltd.
Total reserves 1,80,000
Less: Pre- acquisition reserves (60,000)
Post-acquisition reserves 1,20,000
H Ltd.’s share 4/5 × 1,20,000 96,000
Minority interest 1/5 × 1,20,000 24,000
4. Post -acquisition profits of S Ltd.
Post-acquisition profits (Profit & loss account balance less 24,000
pre-acquisition profits = ` 60,000 – 36,000)
Add: Excess depreciation charged on furniture @ 15%
on ` 12,000 i.e. (48,000 – 36,000) 1,800
25,800
Less: Under depreciation on machinery @ 10%
on ` 1,20,000 i.e. (3,60,000 – 2,40,000) (12,000)
Adjusted post-acquisition profits 13,800
H Ltd.’s share 4/5 × 13,800 11,040
Minority Interest 1/5 × 13,800 2,760
5. Minority Interest
Paid-up value of (24,000 – 19,200) = 4,800 shares
held by outsiders i.e. 2,40,000 X 20% 48,000
Add: 1/5th share of pre-acquisition profits and reserves 19,200
1/5th share of profit on revaluation 21,600
1/5th share of post-acquisition reserves 24,000
1/5th share of post-acquisition profit 2,760
1,15,560
6. Cost of Control or Goodwill
Price paid by H Ltd. for 19,200 shares (A) 3,84,000
Less: Intrinsic value of the shares

11

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Paid-up value of shares held by H Ltd. i.e. 2,40,000 X 80% 1,92,000
Add: 4/5th share of pre-acquisition profits and reserves 76,800
4/5th share of profit on the revaluation 86,400
Intrinsic value of shares on the date of acquisition (B) 3,55,200
Cost of control or Goodwill (A – B) 28,800
6. (a) As per 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 feasibi lity/asset
recognition criteria have been established upon completion of detailed program design or
working model.
In this case, ` 90,000 would be recorded as an expense (` 50,000 for completion of detailed
program design and ` 40,000 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 (63,000+ 18,000 +
19,500) = ` 1,00,500. Packing cost ` 16,500 should be recognized as expenses and
charged to P & L A/c.
(b) AS 4 “Contingencies and Events Occurring after the Balance Sheet Date”, states that
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. The destruction of warehouse due to earthquake did not exist on the balance sheet
date i.e. 31.3.2021. Therefore, loss occurred due to earthquake is not to be recognized in
the financial year 2020-2021.
However, according to the standard, unusual changes affecting the existence or substratum
of the enterprise after the balance sheet date may indicate a need to consider the use of
fundamental accounting assumption of going concern in the preparation of the financial
statements. As per the information given in the question, the earthquake has caused major
destruction; therefore, fundamental accounting assumption of going concern is called upon.
Hence, the fact of earthquake together with an estimated loss of ` 25 lakhs should be
disclosed in the Report of the Directors for the financial year 2020-2021.
OR
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.
(c) W, X, Y and Z hold Equity capital in the proportion of 40:30:10:20 and A, B, C and D hold
preference share capital in the proportion of 30:40:20:10. As the paid u p equity share capital
of the company is ` 40 Lakhs and Preference share capital is ` 20 Lakh (2:1), then relative
weights in the voting right of equity shareholders and preference shareholders will be 2/3
and 1/3. The respective voting right of various shareholders will be -
W = 2/3X40/100 = 4/15

12

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X = 2/3X30/100 = 3/15
Y = 2/3X10/100 = 1/15
Z = 2/3X20/100 = 2/15
A = 1/3X30/100 = 1/10
B = 1/3X40/100 = 2/15
C = 1/3X20/100 = 1/15
D = 1/3X10/100 = 1/30
(d) Journal Entries in the books of A Ltd.
Date Particulars Dr. (`) Cr. (`)
01.12.2022 Bank A/c (18,000 x ` 70) Dr. 12,60,000
to
31.03.2023 Employee compensation expenses account Dr. 10,80,000
[18,000 x (` 130- ` 70)]
To Equity share capital account 1,80,000
(18,000 x ` 10)
To Securities premium account 21,60,000
(18,000 x `120)
(Being 18,000 employees stock option
exercised at an exercise price of ` 70 each)
31.3.2023 Profit and Loss account Dr. 10,80,000
To Employee compensation 10,80,000
expenses account
(Being transfer of employee compensation
expenses account to profit and loss
account)

Working Note:
Fair value of an option = Market price of a share – Exercise price of a share
= ` 130 – ` 70 = ` 60 per share

13

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