SUGGESTED SOLUTION

CA INTERMEDIATE
SUBJECT- ACCOUNT

Test Code – INP 2211

BRANCH - () (Date :)

Head Office : Shraddha, 3rd Floor, Near Chinai College, Andheri (E), Mumbai – 69.
Tel : (022) 26836666

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ANSWER : 1(A)
The decision of making provision for non-moving inventories on the basis of technical evaluation
does not amount to change in accounting policy. Accounting policy of a company may require that
provision for non-moving inventories should be made but the basis for making provision will not
constitute accounting policy. The method of estimating the amount of provision may be changed
in case a more prudent estimate can be made.
In the given case, considering the total value of inventory, the change in the amount of required
provision of non-moving inventory from Rs. 4 lakhs to Rs. 3 lakhs is also not material. The disclosure
can be made for such change in the following lines by way of notes to the accounts in the annual
accounts of HIL Ltd. for the year 2019-20 in the following manner:
“The company has provided for non-moving inventories on the basis of technical evaluation unlike
preceding years. Had the same method been followed as in the previous year, the profit for the
year and the value of net assets at the end of the year would have been lower by Rs. 1 lakh.”
(5 MARKS)
ANSWER : 1(B)
According to AS 12 on Accounting for Government Grants, the amount refundable in respect of a
grant related to a specific fixed asset (if the grant had been credited to the cost of fixed asset at
the time of receipt of grant) should be recorded by increasing the book value of the asset, by the
amount refundable. Where the book value is increased, depreciation on the revised book value
should be provided prospectively over the residual useful life of the asset.
(Rs. in lakhs)
1st April, 2018 Acquisition cost of machinery (Rs. 500 – Rs. 100) 400.00
31st March, 2019 Less: Depreciation @ 20% (80)
1st April, 2019 Book value 320.00
31st March, 2020 Less: Depreciation @ 20% (64)
1st April, 2020 Book value 256.00
31st March, 2021 Less: Depreciation @ 20% (51.20)
1st April, 2021 Book value 204.80
2nd April, 2021 Add: Refund of grant 100.00
Revised book value 304.80
Depreciation @ 20% on the revised book value amounting Rs. 304.80 lakhs is to be provided
prospectively over the residual useful life of the asset.
(5 MARKS)
ANSWER : 1(C)
Net Realisable Value of Inventory as on 31st March, 2021
= Rs. 107.75 x 20 units = Rs. 2,155
Value of inventory as per Weighted Average basis

Total units purchased and total cost:

01.03.2021 Rs. 108 x 20 units = Rs. 2160
08.3.2021 Rs. 107 x 15 units = Rs. 1605
17.03.2021 Rs. 109 x 30 units = Rs. 3270
25.03.2021 Rs. 107 x 15 units = Rs. 1605
Total 80 units = Rs. 8640

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Weighted Average Cost = Rs. 8640/80 units = Rs.108
Total cost = Rs. 108 x 20 units = Rs. 2,160

Value of inventory to be considered while preparing Balance Sheet as on 31st March, 2021 is, Cost
or Net Realisable value whichever is lower i.e. Rs. 2,155.
(5 MARKS)
ANSWER : 1(D)
Entity A should account for a loss in the Statement of Profit and Loss on de-recognition of the
carrying value of plant and machinery in accordance with AS 10 on Property, Plant and Equipment.
Entity A should separately recognize a receivable and a gain in the income statement resulting from
the insurance proceeds once receipt is virtually certain. The receivable should be measured at the
fair value of assets provided by the insurer.
(5 MARKS)

ANSWER : 2(A)
(i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
instalments balance at the at thetime of balance at the balance at the
end afterthe instalment end before the beginning
payment payment of
of instalment instalment
[1] [2] [3] [4] = 2 + 3 [5] = 4 x 10/110 [6] = 4 – 5

3rd - 3,30,000 3,30,000 30,000 3,00,000

2nd 3,00,000 3,38,000 6,38,000 58,000 5,80,000
1st 5,80,000 3,55,000 9,35,000 85,000 8,50,000

Total cash price = Rs. 8, 50,000+ 6,50,000 (down payment) = Rs. 15,00,000.

(ii) In the books of M/s Beta Enterprises Trucks Account

Date Particulars Rs. Date Particulars Rs.
1.4.2017 To Gamma Ltd. A/c 15,00,000 31.3.2018 By Depreciation A/c 3,00,000
Balance c/d 12,00,000
15,00,000 15,00,000
1.4.2018 To Balance b/d 12,00,000 31.3.2019 By Depreciation A/c 2,40,000
Balance c/d 9,60,000
12,00,000 12,00,000
1.4.2019 To Balance b/d 9,60,000 31.3.2020 By Depreciation A/c 1,92,000
By Gamma Ltd. A/c (Value 1,71,500
of 1 truck taken over after
depreciation for 3 years
@30% p.a.)
{5,00,000 -(1,50,000
+ 1,05,000 + 73,500)}
By Loss transferred to 84,500
Profit and Loss a/c on
surrender (Bal. fig.) or
(2,56,000 - 1,71,500)

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 By Balance c/d 2/3 5,12,000
(9,60,000 - 1,92,000 =
7,68,000)
9,60,000 9,60,000

Gamma Ltd. Account

Date Particulars Rs. Date Particulars Rs.

1.4.17 To Bank (down payment) 6,50,000 1.4.17 By Trucks A/c
st
31.3.18 To Bank (1 Instalment) 3,55,000 31.3.18 By Interest A/c 15,00,000

To Balance c/d 5,80,000 85,000

15,85,000 15,85,000
31.3.19 nd
To Bank (2 Instalment) 3,38,000 1.4.18 By Balance b/d 5,80,000

31.3.19 To Balance c/d 3,00,000 31.3.19 By Interest a/c 58,000

6,38,000 6,38,000
31.3.20 To Trucks A/c 1,71,500 1.4.19 By Balance b/d 3,00,000
31.3.20 To Balance c/d (b.f.) 1,58,500 31.3.20 By Interest A/c 30,000
3,30,000 3,30,000
31.5.20 To Bank (Amount 1,63,255 1.4.20 By Balance b/d 1,58,500
settled after 2 months)
31.5.20 By Interest A/c (@ 4,755
18% on bal.)
(1,58,500x2/12
x 18/100)
1,63,255 1,63,255
(10 MARKS)

ANSWER : 2(B)
Memorandum Trading Account for the Period from 1.1.2021 to 30.6.2021

Rs. Rs.
To Opening Stock (1.1.2021) 1,50,000 By Sales 11,50,000
To Purchases 9,50,000 Less: Sales (40,000) 11,10,000
Less: Returns (12,500) 9,37,500 Returns
To Cartage Inwards 17,500 By Closing Stock 2,80,000
To Wages 7,500 (Bal. Fig.)
To Gross Profit 2,77,500
(25% of Rs. 11,10,000)
13,90,000 13,90,000
Stock Destroyed Account
Rs. Rs.
To Trading Account 2,80,000 By Stock Salvaged Account 20,000
By Balance c/d (For Claim) 2,60,000
2,80,000 2,80,000

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 Statement of Claim

Items Cost Depreciation Salvage Claim

(Rs.) (Rs.) (Rs.) (Rs.)
A B C D (E = B – C – D )
Stock 2,80,000 20,000 2,60,000
Buildings 3,75,000 1,25,000 + 9,375 4,000 2,36,625
Equipment 75,000 22,500 + 5,625 2,500 44,375
5,41,000
(8 MARKS)
ANSWER : 3(A)
In the books of Mittal ji
Trading and Profit and Loss Account
for the year ended 31st March, 2021

Rs. Rs. Rs. Rs.

To Opening stock 1,60,800 By Sales:
To Purchases: Cash 92,000
Cash 20,600 Credit 13,44,200
Credit (W.N. 3) 11,60,000 14,36,200
11,80,600 Less: (29,000) 14,07,200
Returns
Less: Returns (8,000) 11,72,600
To Gross Profit c/d 2,96,200 By Closing 2,22,400
stock
16,29,600 16,29,600
To Discount 30,000 By Gross profit 2,96,200
allowed b/d
To Bad debts 8,400 By Discount 14,000
To General 1,86,000
expenses (W.N.
5)
To Depreciation 55,000
(W.N. 4)
To Net profit 30,800
3,10,200 3,10,200

Balance Sheet as at 31st March, 2021

Liabilities Rs. Assets Rs.

Capital (W.N. 1) 5,35,400 Plant & Machinery 2,32,200
Add: Additional capital 1,70,000 Add: New
machinery 63,600
Net profit 30,800 2,95,800
7,36,200 Less: Depreciation (55,000)2,40,800
Less: Drawings (8,600) 7,27,600 Stock in trade 2,22,400
Sundry creditors 2,48,000 Sundry debtors (W.N. 2) 3,57,400
Expenses outstanding 6,600 Cash in hand 24,000

Cash in Bank 1,37,600

9,82,200 9,82,200

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Working Notes:
(1) Statement of Affairs as at 31st March, 2020

Liabilities Rs. Assets Rs.

Sundry creditors 3,15,400 Plant & Machinery 2,32,200
Outstanding 12,000 Stock 1,60,800
expenses
Mittal’s Capital Debtors 3,30,600
(Balancing figure) 5,35,400 Cash in hand 59,200
_______ Cash at Bank 80,000
8,62,800 8,62,800
(2) Sundry Debtors Account
Rs. Rs.
To Balance b/d 3,30,600 By Cash 12,50,000
To Sales 13,44,200 By Discount 30,000
(14,36,200 –
92,000) By Returns (sales) 29,000
By Bad debts 8,400
________ By Balance c/d (Bal. 3,57,400
fig.)
16,74,800 16,74,800
(3) Sundry Creditors Account
Rs. Rs.
To Bank – Payments 12,05,400 By Balance b/d 3,15,400
To Discount 14,000 By Purchases 11,60,000
credit
To Returns 8,000 (Balancing
figure)
To Balance c/d(closing
balance) 2,48,000
14,75,400 14,75,400
(4)
Depreciation on Plant & Machinery: Rs.

Opening balance 2,32,200

Add: Additions 63,600

2,95,800

Less: Closing balance (2,40,800)

Depreciation 55,000

(5) Expenses to be shown in profit and loss account

Expenses (in cash) 1,91,400
Add: Outstanding of 2021 6,600
1,98,000
Less: Outstanding of 2020 12,000
1,86,000

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 (6) Cash and Bank Account
Cash Bank Cash Bank
Rs. Rs. Rs. Rs.
To Balance 59,200 80,000 By Purchases 20,600 -
b/d
To Capital 1,70,000 By Expenses 1,91,400
To Debtors 12,50,000 By Plant and 63,600
Machinery
To Cash 12,50,000 By Bank 12,50,000
To Bank 1,84,800 By Drawings 8,600
To Cash 1,00,000 By Creditors 12,05,400
To Sales 92,000 By Cash 1,84,800
By Bank 1,00,000
_______ ________ By Balance c/d 24,000 1,37,600
15,86,000 16,00,000 15,86,000 16,00,000

(12 MARKS)

ANSWER : 3(B)
Departmental Trading Account for the year ended on 31st March, 2021

Particulars A B Particulars A B
Rs. Rs. Rs. Rs.
To Opening 3,00,000 2,40,000 By Sales 60,00,000 90,00,000
Stock
To Purchases 39,00,000 54,60,000 By Closing Stock 6,00,000 12,00,000
To Gross Profit 24,00,000 45,00,000
66,00,000 1,02,00,000 66,00,000 1,02,00,000

General profit and loss account of Beta for the year ended on 31 st March, 2021

Particulars Amount Particulars Amount

Rs. Rs.
To General expenses 7,50,000 By Stock reserve (opening
stock)
To Stock reserve(Closing Dept. A 30,000
Stock)
Dept. A 60,000 Dept. B 36,000
Dept. B 72,000 By Gross Profit
To Net Profit 60,84,000 Dept. A 24,00,000
Dept. B 45,00,000
69,66,000 69,66,000
Working Notes:
Dept. A Dept. B

Percentage of Profit 24,00,000/60,00,000 x 100 = 45,00,000/90,00,000 x 100 =

40% 50%

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 Opening Stock 60,000 x 50% = 30,000 90,000 X 40% = 36,000
reserve

Closing Stock reserve 1,20,000 x 50%=60,000 1,80,000 x 40% = 72,000

(8 MARKS)

ANSWER: 4(A)
Tejasvi (P) Limited
Statement showing apportionment of cost and revenue between
pre-incorporation and post- incorporation periods
Pre. inc. (5 Post inc. (10
months) months)
(Rs.) (Rs.)
Sales (W.N.1) 3,00,000 16,80,000
Less: Cost of sales 1,80,000 10,08,000
Discount to dealers 7,000 39,200
Directors’ remuneration - 60,000
Salaries (W.N.2) 18,750 71,250
Rent (W.N.3) 15,000 1,20,000
Interest (W.N.4) 30,000 75,000
Depreciation 10,000 20,000
Office expenses 35,000 70,000
Preliminary expenses 15,000
Net profit 4,250 2,01,550
Working Notes :

1. Calculation of sales ratio

Let the average sales per month in pre – incorporation period be x

Average Sales (Pre – incorporation) = x  5 = 5x

Sales (Post incorporation) from June to December, 2019 = 2 ½  7 = 17.5x

From January to March, 2020 = 31/2  3 = 10.5X

Total Sales 28 X

Sales ratio of pre – incorporation & post incorporation is 5x : 28x

2. Calculation of ratio for salaries

Let the average salary be x

Pre – incorporation salary = x  5 = 5x

Post incorporation Salary

June, 2019 = x

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 July, 2019 to March, 2020 = x  9  2 = 18x
19x
Ratio is 5 : 19

3. Calculation of Rent Rs.

Total rent 1,35,000
Less: Additional rent for 9 months @ Rs. 10,000 p.m. 90,000
Rent of old premises apportioned in time ratio 45,000
Apportionment Pre Inc. Post Inc.
Old premises rent 15,000 30,000
90,000
15,000 1,20,000

4. Calculation of interest

Pre – incorporation period from January, 2019 to May, 2019

, , × ×
= Rs. 30,000
×

Post incorporation period from June, 2019 to March, 2020

, , × ×
= Rs. 75,000
×
Rs. 1,05,000

(10 MARKS)
ANSWER : 4(B)

Journal Entries
Date Particulars Amount Dr. Amount Cr.
Rs. Rs.
1.5.2020 Bank A/c Dr. 1,50,00,000
To Debenture Application A/c 1,50,00,000
(Application money received on 1,50,000
debentures @ Rs. 100 each)
1.6.2020 Debenture Application A/c Dr. 1,50,00,000
Underwriters A/c Dr. 50,00,000
To 15% Debentures A/c 2,00,00,000
(Allotment of 1,50,000 debentures to
applicants and 50,000 debentures to
underwriters)
Underwriting Commission Dr. 4,00,000
To Underwriters A/c 4,00,000
(Commission payable to underwriters @ 2%
on Rs. 2,00,00,000)
Bank A/c Dr. 46,00,000
To Underwriters A/c 46,00,000

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 (Amount received from underwriters in
settlement of account)
01.06.2020 Debenture Redemption Investment A/c Dr. 12,00,000
To Bank A/c
(200,000 X 100 x 15% X 40%) 12,00,000
(Being Investments made for redemption
purpose)
30.9.2020 Debenture Interest A/c Dr. 10,00,000
To Bank A/c
10,00,000
(Interest paid on debentures for 4 months
@ 15% on Rs. 2,00,00,000)
31.10.2020 15% Debentures A/c Dr. 1,20,00,000
To Equity Share Capital A/c 20,00,000

To Securities Premium A/c 1,00,00,0000

(Conversion of 60% of debentures into
shares of Rs. 60 each with a face value of Rs.
10)
31.3.2021 Debenture Interest A/c Dr. 7,50,000
To Bank A/c 7,50,000
(Interest paid on debentures for the half
year)
(Refer working note below)
Working Note:
Calculation of Debenture Interest for the half year ended 31st March, 2021:

On Rs. 80,00,000 for 6 months @ 15% = Rs.6,00,000

On Rs. 1,20,00,000 for 1 months @ 15% = Rs. 1,50,000
Rs.7,50,000
(10 MARKS)
ANSWER : 5(A)

Omega Ltd.
Cash Flow Statement for the year ended 31st March, 2021
Cash Flow from Operating Activities
Increase in balance of Profit and Loss Account 56,000
Provision for taxation 1,12,000
Transfer to General Reserve 2,10,000
Depreciation 1,40,000
Profit on sale of Plant and Machinery (21,000)
Operating Profit before Working Capital changes 4,97,000
Increase in Inventories (2,80,000)
Decrease in Trade receivables 2,80,000
Decrease in Trade payables (1,68,000)
Cash generated from operations 3,29,000
Income tax paid (70,000)
Net Cash from operating activities 2,59,000
Cash Flow from Investing Activities

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 Purchase of plant & machinery (4,48,000)
Expenses on building (2,80,000)
Increase in investments (1,40,000)
Sale of old machine 49,000
Net Cash used in investing activities (8,19,000)
Cash Flow from Financing activities
Proceeds from issue of shares 2,80,000
Proceeds from issue of debentures 2,80,000
Net cash from financing activities 5,60,000
Net increase in cash or cash equivalents NIL
Cash and Cash equivalents at the beginning of the year 2,80,000
Cash and Cash equivalents at the end of the year 2,80,000
Working Notes:
Provision for taxation account

Rs. Rs.
To Cash (Tax Paid) 70,000 By Balance b/d 98,000
To Balance c/d 1,40,000 By Profit and Loss A/c 1,12,000
(Balancing figure)
2,10,000 2,10,000
Plant and Machinery account
Rs. Rs.
To Balance b/d 7,00,000 By Depreciation 1,40,000
To Profit and Loss A/c 21,000
(profit
on sale of machine)
To Cash (Balancing figure) 4,48,000 By Cash (sale of 49,000
machine)
_______ By Balance c/d 9,80,000
11,69,000 11,69,000
(10 MARKS)

ANSWER : 5(B)
In the books of Mr. Chena Swami Salem Branch Account

Rs. Rs.
To Balance b/d By Bank (Remittance to 19,50,000
Opening stock: H.O.)
Ghee 40,000 By Balance c/d
Refined Oil 22,500 Closing stock:
Debtors 1,80,000 Refined oil 19,500
Cash on hand 25,690 Ghee 90,000
Furniture & fittings 23,800 Debtors (W.N. 1) 2,10,000
To Goods sent to Branch A/c Cash on hand (W.N. 2) 44,800
Refined Oil 5,40,000 Furniture & fittings 21,420
(30 x Rs. 1,500x12)

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 Ghee (20 x Rs. 5,000 x 12) 12,00,000
To Bank (Expenses paid 76,800
by H.O.)
To Manager’s commission in
profits 10%
(2,26,930x10/110) 20,630
To Net Profit transferred
to General P & L A/c 2,06,300
23,35,720 23,35,720
Mr. Chena Swami
Trading and Profit and Loss account for the year ended 31st March, 2021
(Excluding branch transactions)

Rs. Rs.
To Opening Stock: By Sales:
Refined Oil 44,000 Refined Oil 24,10,000
Ghee 10,65,000 Ghee 38,40,500
To Purchases: By Closing Stock:
Refined Oil 27,50,000 Refined Oil 8,90,000
Less: Goods sent Ghee 15,70,000
to Branch (5,40,000) 22,10,000
Ghee 48,28,000
Less: Goods sent
to Branch (12,00,000) 36,28,000
To Direct Expenses 6,35,800
To Gross Profit 11,27,700
87,10,500 87,10,500
To Manager’s Salary 2,40,000 By Gross Profit 11,27,700
To General Expenses 1,86,000 By Branch Profit 2,06,300
transferred
To Depreciation
Furniture (88,600 - 79,740) 8,860
Building
(5,10,800 + 2,41,600 - 37,620
7,14,780)
To Net profit 8,61,520
13,34,000 13,34,000

Working Notes:

(1) Debtors Account

Rs. Rs.
To Balance b/d 1,80,000 By Cash Collections 20,15,000
To Sales made during By Balance c/d 2,10,000
the year: (Bal. Figure)
Refined oil 5,95,000
Ghee 14,50,000
22,25,000 22,25,000

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 (2) Branch Cash Account
Rs. Rs.
To Balance b/d 25,690 By Remittance 19,50,000
To Collections 20,15,000 By Exp. 45,890
By Balance c/d (Bal. 44,800
Figure)
20,40,690 20,40,690
(12 MARKS)
ANSWER : 6(A)

In the books of ABC Limited Journal Entries

Date Particulars Dr. (Rs.) Cr. (Rs.)
2021
April 1 10% Redeemable Preference Share Capital A/c Dr. 1,00,000
To Preference Shareholders A/c 1,00,000
(Being the amount payable on redemption
transferred to Preference Shareholders
Account)
Preference Shareholders A/c Dr. 1,00,000
To Bank A/c 1,00,000
(Being the amount paid on redemption of
preference shares)
General Reserve A/c Dr. 75,000
Profit & Loss A/c Dr. 25,000
To Capital Redemption Reserve A/c 1,00,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
Note: Securities premium and capital reserve cannot be utilised for transfer to Capital Redemption
Reserve.

(4 MARKS)
ANSWER : 6(B)

Computation of effective capital:

Rs.
Paid-up share capital-
20,000, 14% Preference shares 20,00,000
1,20,000 Equity shares 96,00,000
Capital reserves (excluding revaluation reserve) 45,000
Securities premium 50,000
15% Debentures 65,00,000
Public Deposits 3,70,000
(A) 1,85,65,000
Investments 75,00,000
Profit and Loss account (Dr. balance) 15,00,000
(B) 90,00,000
Effective capital (A–B) 95,65,000
(4 MARKS)
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ANSWER : 6(C)

Effects of each transaction on Balance sheet of Mr. A is shown below:

Assets Liabilities Equity

Transactions – =
Rs. lakh Rs. lakh Rs. lakh
Opening 8.00 – 3.00 = 5.00
(1) Dividend earned 8.20 – 3.00 = 5.20
(2) Settlement of Creditors 7.70 - 2.30 = 5.40
(3) Rent Outstanding 7.70 – 2.40 = 5.30
(4) Drawings 7.61 – 2.40 = 5.21
(4 MARKS)
ANSWER : 6(D)

(I) Ex – right value of the shares = (Cum – right value of the existing shares + Rights shares 
Issue Price) / (Existing Number of Shares + No. of right shares)
= (Rs. 140  4 Shares + Rs. 120  1 Shares) /(1 + 4) Shares
= Rs. 680/ 5 shares = Rs. 136 per share.
(II) Value of right = Cum – right value of the share – Ex – right value of the share
= Rs. 140 – Rs. 136 = Rs. 4 per share.
(4 MARKS)
ANSWER : 6(E)

(A) Bonus out of General Reserve:

It is a usual practice to utilize specific reserve (available for specific purpose). Therefore, if
CRR and Securities Premium are available, then company should utilize these reserves in
priority over other free reserves. It is clear that company should not use General Reserve,
in the given example, as Capital Redemption Reserve and Securities Premium are sufficiently
available

(B) Journal Entries in the Books of Mobile Ltd.

Particulars Dr. (Rs.) Cr. (Rs.)

Capital Redemption Reserve A/c Dr. 80,000
Securities Premium A/c Dr. 40,000
To Bonus to Shareholders A/c 1,20,000
(Being issue of 1 Share for every 5 Shares held,
by utilizing various reserves as per Board’s
Resolution dated …..)
Bonus to Shareholders A/c Dr. 1,20,000
To Equity Share Capital A/c 1,20,000
(Capitalization of profits)

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 Extracts of the Balance-Sheet after Bonus issue

Particulars Note Amount (Rs.)

No.
EQUITY AND LIABILITIES
1. Shareholder’s funds
(a) Share Capital 1 7,20,000
(b) Reserves and Surplus 2 2,05,000

Notes to Accounts

1. Share capital
Authorised Capital
1,00,000 Equity Shares @ Rs. 10 each 10,00,000
Issued, Called up & Paid up Capital
72,000 Equity Shares @ Rs. 10 each 7,20,000
(Out of above, 12,000 shares have
beenissued as bonus shares).
2. Reserve and Surplus
Plant Revaluation Reserve 25,000
Securities Premium A/c 20,000
General Reserve 1,60,000 2,05,000
(4 MARKS)

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