CAPS – Education to Profess CA Intermediate

Mock Test for May 2024 Exams

Paper 1: Advanced Accounting
Date: 08/03/2024 Marks: 100 Marks

Day: Friday Time: 3 Hours

Answer Key
Part I
Case Scenario and Multiple Choice Questions
1 A 9 C 17 D
2 C 10 A 18 C
3 B 11 B 19 A
4 D 12 C 20 A
5 D 13 B 21 C
6 A 14 C 22 B
7 D 15 C
8 C 16 A
 CAPS – Education to Profess CA Intermediate

Part II
Descriptive Questions
1)

a)
Particulars ₹
Original cost of the asset 2,50,00,000
Less: Depreciation for 2 years 50,00,000
Book value in the beginning of year 3 2,00,00,000
Add: Revaluation Surplus (balancing figure) 1,00,00,000
Revalued Amount 3,00,00,000
Less: Depreciation for years 3-5 1,12,50,000
Carrying amount at the end of Year 5 1,87,50,000
The treatment of Gain/Loss on Disposal/ Revaluation is as below: Alternatively,
Particulars Disposal Proceeds = Disposal Proceeds =
₹1,12,50,000 ₹42,50,000
Book Value Less ₹1,87,50,000 – ₹1,87,50,000 –
Disposal Proceeds = ₹1,12,50,000 = ₹42,50,000 =
Loss recognised in Profit ₹75,00,000 (Loss) ₹1,45,00,000 (Loss)
or Loss
Revaluation Surplus ₹ 1,00,00,000 ₹ 1,00,00,000
directly transferred to
Retained Earnings
if Depreciation and Loss on sale is assumed to be transferred to Revaluation
Surplus the Loss will be ₹7,50,000 and ₹77,50,000
b) Interest Amount to be capitalised
₹
Specific borrowings 72,000
Non-Specific borrowings * 4,64,052
Amount of Interest to be Capitalised 5,36,052
Journal Entry for capitalising cost and borrowing cost

Date Particulars Dr. ₹ Cr. ₹

31.3.2023 Building A/c Dr 66,56,052
(Cost of building ₹ 61,20,000 +
borrowing cost ₹ 5,36,052)
To Bank A/c 66,56,052
(Being amount of cost of building and
borrowing cost thereon capitalised)
 CAPS – Education to Profess CA Intermediate

Working notes
(i) Computation of average accumulated expenses
₹
₹ 12,00,000 x 11/12 11,00,000
₹ 15,00,000 x 9/12 11,25,000
₹ 27,00,000 x 6/12 13,50,000
₹ 7,20,000 x 1/12 60,000
61,20,000 36,35,000

(ii) Calculation of average interest rate other than for specific borrowings
Amount of loan (₹) Rate of Amont of
interest interest
30,00,000 14% 4,20,000
54,00,000 16% 8,64,000
84,00,000 12,84,000
Weighted average rate of interest 15.29% *
(Rounded off)

c)
Theoretical ex right fair value per share = ₹ 20.00
Computation of adjustment factor
Computation of earnings per share
EPS for the year 2022 as originally reported ₹ 11,00,000/5,00,000 shares=₹2.20
EPS for the year 2022 restated for rights issue ₹11,00,000/(5,00,000 shares x
1.05) = ₹2.10
EPS for the year 2023 including the effects of rights issue
(5,00,000 x 1.05 x 2/12) + (6,00,000 x 10/12) = 5,87,500 shares
EPS = 15,00,000/5,87,500 = ₹ 2.55
 CAPS – Education to Profess CA Intermediate

2) Ring Ltd.
Profit & Loss Statement for the year ended 31st March, 2022

Particulars Note (₹ in lacs)

No
I Revenue from operations 10,40,000
II Other income (interest on investment) 24,000
III Total income 10,64,000
IV Expenses:
Cost of Purchase [4,20,000 + 1,60,000] 5,80,000
Changes in inventories [20,000-1,80,000] (1,60,000)
Employee benefit expenses 1,20,000
Finance cost (Debenture interest) 56,000
Depreciation and amortisation expenses 40,000
Other expenses 8 1,24,000
Total expenses 7,60,000
V Profit before tax (III – IV) 3,04,000
VI Tax expenses @ 30% (91,200)
VII Profit for the period 2,12,800

Balance Sheet as at 31st March, 2022

Particulars Note ₹
no
I Equity and labilities
(1) Shareholders’ funds
(a) Share Capital 1 4,00,000
(b) Reserves and surplus 2 3,42,800
(2) Non – Current Liabilities
(a) Long term Borrowings (14% 4,00,000
debentures)
(3) Current Liabilities
(a) Trade payables (Sundry Creditors) 1,84,000
(b) Other Current Liabilities 3 42,000
(c) Short Term provisions 4 91,200
Total 14,60,000
II Assets
(1) Non – Current Assets
(a) PPE 5 5,70,000
(b) Non current investments 2,40,000
(2) Current Assets
(a) Inventories 6 2,26,000
(b) Trade receivables 7 2,40,000
(c) Cash and Bank Balances 60,000
 CAPS – Education to Profess CA Intermediate

(d) Short term loans and advances 1,20,000

(Advance payment of tax)
(e) Other current assets (Interest accrued 4,000
on investments)
Total 14,60,000
Note: There is a Contingent liability for bills discounted but not yet matured
amounting to ₹20,000
Notes to Accounts

1 Share capital
Authorised capital
10,000 equity shares of ₹ 100 each 10,00,000
Issued capital
4,000 equity shares of ₹ 100 each 4,00,000
Subscribed capital and fully paid up
4,000 equity shares of ₹ 100 each 4,00,000
2 Reserves and surplus
General reserve [80,000 + 21,280] 1,01,280
Balance of statement of profit & loss
account
Opening balance 50,000
Add: profit for the period 2,12,800
2,62,800
Appropriations
Transfer to general reserve @ 10% (21,280) 2,41,520
3,42,800
3 Other current liabilities
Unclaimed dividend 10,000
Outstanding expenses 4,000
Interest accrued on debentures 28,000
42,000
4 Short term provisions
 CAPS – Education to Profess CA Intermediate

Provision for tax 91,200

5 Property, plant & equipment
Buildings 5,80,000
Less: provision for depreciation (1,00,000) 4,80,000
Plant and equipment 2,00,00
Less: provision for depreciation (1,10,000) 90,000
5,70,000
6 Inventories
Closing stock of finished goods 1,80,000
Loose tools 46,000 2,26,000
7 Trade receivables
Sundry debtors 2,50,000
Less: provision for doubtful debts (10,000) 2,40,000
8 Other expenses
Rent 52,000
Director’s fees 20,000
Bad debts 12,000
Provision for doubtful debts (4% of 4,000
2,50,000 less 6,000)
Sundry expenses 36,000
1,24,000
Note: The final dividend will not be recognized as a liability at the balance sheet date
(even if it is declared after reporting date but before approval of the financial
statements) as per Accounting Standards. Hence, it has not been recognized in the
financial statements for the year ended 31st March, 2022. Such dividends will be
disclosed in notes only.
 CAPS – Education to Profess CA Intermediate

3)
a) As per AS 9 on Revenue Recognition, revenue arising from the use by others of
enterprise resources yielding interest and royalties should only be recognized
when no significant uncertainty as to measurability or collectability exists. These
revenues are recognized on the following bases:
(i) Interest: on a time proportion basis taking into account the amount
outstanding and the rate applicable. Therefore X Ltd. should recognize interest
revenue of 10 Lakhs.
(ii) Royalties: on an accrual basis in accordance with the terms of the relevant
agreement. X Ltd. therefore should recognize royalty revenue of 15 Lakhs.
b) Journal entries

Dr ₹ Cr ₹
8% Preference Share Capital A/c Dr 6,00,000
To 11% Debentures A/c 4,20,000
To Capital Reduction (₹ 10) A/c 1,80,000
(Being 30% reduction in liability of
preference share capital and issue of 11%
debentures)
9% Debentures A/c Dr 12,00,000
To Plant & Machinery A/c 9,00,000
To Capital Reduction A/c 3,00,000
(Settlement of debenture holders by
allotment of plant & machinery)
Trade payables A/c Dr 5,92,000
To Inventory A/c 5,00,000
To Capital Reduction A/c 92,000
(Being settlement of creditors by giving
Inventories)
Bank A/c Dr 1,50,000
To Bank A/c 1,50,000
(Being settlement of bank overdraft)
Capital Reduction A/c Dr 5,72,000
To Investment A/c 13,000
To Profit and Loss A/c 4,05,000
To Capital Reserve A/c 1,54,000
(Being decrease in investment and profit
and loss account (Dr. bal.); and balance of
capital reduction account transferred to
capital reserve)
 CAPS – Education to Profess CA Intermediate

Capital Reduction A/c

₹ ₹
To Investments A/c 13,000 By Preference share 1,80,000
capital A/c
To Profit and loss A/c 4,05,000 By 9% Debenture holders 3,00,000
A/c
To Capital reserve A/c 1,54,000 By Trade payables A/c 92,000
5,72,000 5,72,000
Balance sheet of ABC Limited (as reduced) as at 31 March 2023
st

Note ₹
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 20,00,000
(b) Reserves and Surplus 2 1,54,000
(2) Non-Current Liabilities
(a) Long-term borrowings 3 7,20,000
Total 28,74,000
Notes to accounts
₹
1 Share capital
2,00,000 Equity Shares of 10 each fully paid up 20,00,000
2 Reserve and Surplus
Capital Reserve 1,54,000
3 Long-term borrowings
11% Debentures (₹ 4,20,000 + ₹ 3,00,000) 7,20,000

4)
Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st March,
2022
Note Amount (₹)
Equity and Liabilities
1 Shareholders' Fund:
(a) Share Capital 1 3,00,000
(b) Reserve and Surplus 2 1,10,500
2 Minority interest 3 84,000
3 Current Liabilities
Trade payables 4 3,20,000
Total 8,14,500
II Assets
1 Non-Current Assets:
Property, plant and equipment 5 4,60,000
Intangible Asset 6 66,500
2 Current Assets 7 2,88,000
Total 8,14,500
 CAPS – Education to Profess CA Intermediate

Notes to accounts
Amount (₹)
1 Share capital
30,000 Equity Shares @ ₹ 10 each 3,00,000
2 Reserve and Surplus
Profit and loss account (₹ 1,00,000 + 70% of 9/12 x 20,000 1,10,500
i.e. ₹ 10,500)
3 Minority Interest (W/N 2) 84,000
4 Trade payables
H Ltd. 2,00,000
S Ltd. 1,20,000
3,20,000
5 Property, plant and equipment
H Ltd. 2,00,000
S Ltd. 2,60,000
4,60,000
6 Intangible Asset:
Goodwill (WIN 3) 66,500
7 Current Assets
H Ltd. 1,48,000
S Ltd. 1,40,000
2,88,000
Working notes
1. Percentage of holding
No of shares Percentage
Holding co. 14,000 70%
Minority shareholders 6,000 30%
Total shares 20,000
2. Calculation of minority interest
Share capital (30% of ₹ 2,00,000) 60,000
Share in profit and loss A/c (₹ 80,000 x 30%) 24,000 84,000
3. Calculation of cost of control or (Goodwill)
Cost of Investment 2,52,000
Less: Paid up value of shares (70% of 2,00,000) (1,40,000)
Share in pre-acquisition profits (45,500)
70% of [60,000 + 3/12(80,000 – 60,000)]
66,500
5)
a) 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.
 CAPS – Education to Profess CA Intermediate

Computation of purchase consideration

Particulars ₹
Equity shares 7,50,000
Cash payment 50,000
12% Preference share capital 2,00,000
Purchase consideration 10,00,000
Note: Payment to debenture holders are not covered by the term ' consideration'.
Journal entry
Particulars ₹ ₹
Liquidation of Rina 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
(Being payment of cash and issue of shares
for discharge of purchase consideration)
b)
In the Books of Buckingham Bros, Bombay
Nagpur Branch Account
Particulars ₹ Particulars ₹
To Opening Branch By Bank — Remittances
Assets- received from branch
Stock (24,000+ 16,000) 40,000 Cash Sales 45,000
Debtors 25,000 Cash from Debtors * 1,20,000
Imprest Cash 2,000 Cash in transit * 5,000 1,70,000
To Goods sent to Branch 60,000 By Closing Branch
A/c Assets
To Creditors (Direct 45,000 Stock (15,000 +10,000) 25,000
Purchases)
To Bank (Sundry exp.) 30,000 Debtors (W.N. 1) 24,000
To Bank (Petty cash exp.) 4,000 Imprest Cash (W.N. 2) 2,000
To Net Profit transferred 15,000
to General Profit & Loss
A/c
2,21,000 2,21,000
Working notes
1.Memorandum debtors
Particulars ₹ Particulars ₹
To Bal b/d 25,000 By Sales Return 3,000
To sales 1,30,000 By Bad Debts 1,000
By Discount 2,000
By Cash * 1,25,000
By Bal c/d 24,000
1,55,000 1,55,000
 CAPS – Education to Profess CA Intermediate

2.Memorandum Petty Cash

Particulars ₹ Particulars ₹
To Bal b/d 2,000 By Expenses (met by 4,000
branch)
To Transfer from H.O. 4,000 By Bal c/d 2,000
6,000 6,000
* Collection from Debtors = Total Remittances (1,65,000+5,000) — Cash
Sales(45,000) = ₹ 1,25,000
6)
a) The qualitative characteristics are attributes that improve the usefulness of
information provided in financial statements. Understandability; Relevance;
Reliability; Comparability are the qualitative characteristics of financial
statements.
Qualitative characteristics of
Understandability
Information presented in financial statements should be readily understandable
by the users with reasonable knowledge of business and economic activities.
Relevance
Financial statements should contain relevant information only. Information,
which is likely to influence the economic decisions of the users is called relevant.
Reliability
Information must be reliable; that is to say, they must be free from material error
and bias.
Comparability
Financial statements should provide both inter-firm and intra-firm comparison.
(OR)
a) (i) Prior Period item
(ii) Attachment of property of enterprise is an extraordinary item.
(iii) Introduction of new pension scheme for employes is not a change in
accounting policy. It is an ordinary activity.
(iv) Change in provision for obsolete inventory is a change in accounting
estimate.
(v) Litigation settlement is an ordinary activity but requires separate disclosure
(vi) Change in estimate
(vii) Ordinary activity requiring separate disclosure
(viii) Error*
(ix) Change in Accounting policy.
(x) Ordinary activity requiring separate disclosure or extra ordinary item.
 CAPS – Education to Profess CA Intermediate

b) (i) As per AS 12 "Accounting for Govt. Grants", two methods of presentation in

financial statements of grants related to specific fixed assets are regarded as
acceptable alternatives. Under the first alternative, the grant of ₹ 10 crores (40%
of ₹ 25 crores) is shown as a deduction from the gross value of the asset
concerned in arriving at its book value. The grant is thus recognized the profit
and loss statement over the useful life of a depreciable asset by way of a reduced
depreciation charge. Under second alternative method, grant amounting ₹ 10
crores is treated as deferred income which is recognized in the profit and loss
statement on a systematic and rational basis over the useful life of the asset.
(ii) In the given case, the grant amounting ₹ 150 lakhs received from the Central
Government for setting up a plant in notified backward area may be considered
as in the nature of promoters' contribution. Thus, amount of ₹ 150 lakhs should
be credited to capital reserve-and the plant will be shown at ₹ 300 lakhs.
(iii) ₹ 50 lakhs received from Govt. for setting up a project for supply of arsenic
free water in notified area should be credited to capital reserve. Alternatively, if
it is assumed that the project consists of capital asset only, then the amount of
₹50 lakhs received from Govt. for setting up a project for supply of arsenic free
water should either be deducted from cost of asset of the project concerned in
the balance sheet or treated as deferred income which is recognized in the profit
and loss statement on a systematic and rational basis over the useful life of the
asset.
(iv) ₹ 5 lakhs received from the local authority for providing corona vaccine to
the employees is a grant received in nature of revenue grant. Such grants are
generally presented as a credit in the profit and loss account, either separately
or under a general heading 'Other Income'. Alternatively, ₹ 5 lakhs may be
deducted in reporting the related expense i.e. employee benefit expenses.

c) Cash Flow Statement of ____ for the year ended March 31, 2023(Direct Method):
Particulars ₹ ₹
Operating Activities:
Cash received from sale of goods 1,40,000
Cash received from Trade receivables 1,75,000
Trade Commission received 50,000 3,65,000
Less: Payment for Cash Purchases (1,20,000)
Payment to Trade payables (1,57,000)
Office and Selling Expenses (75,000)
Payment for Income Tax (30,000) (3,82,000)
Net Cash Flow used in Operating Activities (17,000)