UDESH REGULAR MAY 24 (GROUP-1) 23/03/2024

Marks : 50 Time : 90 Min

Master Test – 3
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
Question 1 (i to x) (1 Mark × 10 = 10 Marks)

1(i). As per AS 10 (Revised) ‘Property, Plant and Equipment’, an enterprise holding investment properties should value
Investment property
(1) as per fair value
(2) under discounted cash flow model.
(3) under cost model
(4) under cash flow model

(ii). Actuarial gains / losses should be

(1) Recognised through reserves.
(2) Charged over the expected life of employees.
(3) Charged immediately to Profit and Loss Statement
(4) Do not charged to Profit and Loss Statement

(iii). If the amount eligible for capitalisation in case of inventory as per AS 16 is ₹ 12,000 and cost of inventory is ₹
40,000 and its net realizable value is ₹ 45,000; What amount can be capitalised as a part of inventory cost.
(1) 12000
(2) 5000
(3) 7000
(4) 10000

(iv). A director of a company purchases goods from that company for personal use. How should this transaction be
disclosed in financial statements?
(1) No disclosure required
(2) Disclose only if the transaction value exceeds a certain threshold
(3) Disclose as a related party transaction
(4) Disclose in the footnotes if the director owns more than 10% of the company's shares

(v). The basis of classification of a lease is:

(1) Control Test.
(2) Risk and reward Test.
(3) Both control test and risk and reward test.
(4) Only reward Test

(vi). According to AS 22, how should deferred tax assets and liabilities be measured?
(1) At the enacted or substantively enacted tax rates
(2) At the highest current tax rate
(3) At the average of historical tax rates
(4) At the lowest current tax rate
(vii). X ltd acquired 10% shareholding of Y Ltd. on 1 January and further 15% on 1 July of the same year.
Cost of investment for 10% = 200000 Cost of investment for 15% = 290000
Net asset on 1 January 1700000 and on 1 July 2000000
Calculate the amount of goodwill/capital reserve.
(1) Goodwill 20000
(2) Goodwill 40000
(3) Capital reserve 20000
(4) Capital reserve 40000

(viii). ABC Ltd. has identified a significant impairment loss on one of its assets during the second quarter of the financial
year. According to AS 25, how should this impairment loss be disclosed in the interim financial statements?
(1) Disclose only in the notes to the interim financial statements
(2) Recognize the impairment loss in the profit and loss statement for the second quarter
(3) Ignore the impairment loss until the annual financial statements
(4) Recognize the impairment loss in the profit and loss statement for the entire financial year

(ix). In case of jointly controlled entity, how are joint assets and liabilities recognized in the financial statements?
(1) Using proportionate consolidation
(2) Using equity method
(3) Based on the controlling interest
(4) Ignored in accounting

(x). On 1st January Year 1, Entity Q purchased a machine costing ₹ 2,40,000 with an estimated useful life of 20 years
and an estimated zero residual value. Depreciation is computed on straight-line basis. The asset had been re- valued
on 1st January Year 3 to ₹ 2,50,000, but with no change in useful life at that date. On 1st January Year 4 an
impairment review showed the machine’s recoverable amount to be ₹ 1,00,000 and its estimated remaining useful
life to be 10 years.
Calculate the carrying amount of the machine at the end of Year 2
(1) 200000
(2) 216000
(3) 235000
(4) 266000
2(a). (i) Khushi Limited enter into an agreement with Mr. Happy for running a business for a fixed amount payable to
the later every year. The contract states that the day-to-day management of the business will be handled by.
Mr. Happy, while all financial and operating policy decisions are taken by the Board of Directors of the
Company. Mr. Happy does not own any voting power in Khushi Limited.
(ii) Shri Bhanu a relative of key management personnel received remuneration of ₹ 3,50,000 for his services in the
company for the period from 1st April, 2020 to 30th June, 2020. On 1st July, 2020, he left the service.
You are required to suggest how the above transactions will be treated as at the closing date i.e. on 31st March,
2021 for the purposes of AS 18- Related Party Disclosures.
(5 Marks)

2(b). XYZ is having its Branch at Kolkata. Goods are invoiced to the branch at 20% profit on sale. Branch has been
instructed to send all cash daily to head office. All expenses are paid by head office except petty expenses which
are met by the Branch Manager. From the following particulars prepare branch account in the books of Head
Office.
₹ ₹
Stock on 1st April 2020 (invoice price) 30,000 Expenses paid by head office:
Sundry Debtors on 1st April, 2020 18,000 Rent 1,800
Cash in hand as on 1st April, 2020 800 Salary 3,200
Office furniture on 1st April, 2020 3,000 Stationery & Printing 800
Goods invoiced from the head office 1,60,000 Petty expenses paid by the branch 600
(invoice price)
Goods return to Head Office 2,000 Discount allowed to debtors 160
Goods return by debtors 960 Credit sales 60,000
Cash received from debtors 60,000 Depreciation to be provided on branch
furniture at 10% p.a
Cash Sales 1,00,000 Stock on 31st March, 2021 (at invoice price) 28,000
(5 Marks)

3(a). Hemant Ltd. purchased 80% shares of Power Ltd. on 1st January, 2020 for ₹ 2,10,000. The issued capital of Power
Ltd., on 1st January, 2020 was ₹ 1,50,000 and the balance in the Profit & Loss Account was ₹ 90,000. During the
year ended 31st December, 2020, 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, 2020 and 31st December, 2020? Also compute goodwill/
capital reserve at the date of acquisition.
(5 Marks)

3(b). Aman started a business on 1st April 2021 with ₹ 24,00,000 represented by 1,20,000 units of ₹ 20 each. During the
financial year ending on 31st March, 2022, he sold the entire stock for ₹ 30 each. In order to maintain the capital
intact, calculate the maximum amount, which can be withdrawn by Aman in the year 2021-22 if Financial Capital
is maintained at historical cost.
(3 Marks)

3(c). Saras Ltd. closes its books as on 31st March 2022. They have accrued ₹ 5,00,000 towards GST Liability for the
month of March 2022 by debiting their Profit and loss statement which is expected to be paid o by 21st April 2022 .
As per the provisions of Section 43B of the Income Tax Act, 1961 – Any expenditure of the nature mentioned in
section 43B (e.g. taxes, duty, cess, fees, etc.) accrued in the statement of profit and loss on mercantile basis will be
allowed for tax purposes in subsequent years on payment basis only. Assuming a Tax rate of 30% determine the
Deferred Tax Asset/Liability as at 31st March 2022.
(2 Marks)
4(a). RS Ltd. has acquired a heavy plant at a cost of ₹ 2,00,00,000. The estimated useful life is 10 years. At the end of
the 2nd year, one of the major components i.e. the Boiler has become obsolete (which was acquired at price of ₹
50,00,000) and requires replacement, as further maintenance is uneconomical. The remainder of the plant is perfect
and is expected to last for next 8 years. The cost of a new boiler is ₹ 60,00,000.
Can the cost of the new boiler be recognised as an asset, and, if so, what should be the carrying value of the plant at
the end of second year?
(5 Marks)

4(b). Rock Star Ltd. discontinues a business segment. Under the agreement with employee’s union, the employees of the
discontinued segment will earn no further benefit. This is a curtailment without settlement, because employees will
continue to receive benefits for services rendered before discontinuance of the business segment. Curtailment
reduces the gross obligation for various reasons including change in actuarial assumptions made before curtailment.
If the benefits are determined based on the last pay drawn by employees, the gross obligation reduces after the
curtailment because the last pay earlier assumed is no longer valid.
Rock Star Ltd. estimates the share of unamortized service cost that relates to the part of the obligation at ₹18 (10%
of ₹180). Calculate gain from curtailment and liability after curtailment to be recognised in the balance sheet of
Rock Star Ltd. on the basis of given information:
(a) Immediately before the curtailment, gross obligation is estimated at ₹ 6,000 based on current actuarial
assumption.
(b) The fair value of plan assets on the date is estimated at ₹ 5,100.
(c) The unamortized past service cost is ₹ 180.
(d) Curtailment reduces the obligation by ₹ 600, which is 10% of the gross obligation.
(3 Marks)

4(c). In May, 2021, Capacity Ltd. took a bank loan to be used specifically for the construction of a new factory building.
The construction was completed in January, 2022 and the building was put to its use immediately thereafter.
Interest on the actual amount used for construction of the building till its completion was ₹ 18 lakhs, whereas the
total interest payable to the bank on the loan for the period till 31st March, 2022 amounted to ₹ 25 lakhs.
Can ₹ 25 lakhs be treated as part of the cost of factory building and thus be capitalized on the plea that the loan was
specifically taken for the construction of factory building? Explain the treatment in line with the provisions of AS
16.
(2 Marks)

5. The summarized Balance Sheets of Black Limited and White Limited as on 31st March, 2020 is as follows:
Black Limited White Limited
Particulars Notes
(₹ in 000) (₹ in 000)
Equity and Liabilities
Shareholders' Funds 1 6,000 3,600
(a) Share Capital 2 1,080 660
(b) Reserves and Surplus
Current Liabilities
Trade payables 600 360
Total 7,680 4,620
Assets
Non-Current assets
Property, Plant and Equipment 3,600 2,400
Current assets
(a) Inventories 960 720
(b) Trade receivables 1,680 1,080
(c) Cash and Cash Equivalents 1,440 420
Total 7,680 4,620
 Black Limited White Limited
Note No. Particulars
(₹ in 000) (₹ in 000)
Share Capital 6,000 3,600
1.
Equity Shares of ₹100 each
Reserves and Surplus
2. General Reserve 360 180
Profit and Loss Account 720 480
Total 1,080 660
Black Limited takes over White Limited on 1st July, 2020.
No Balance Sheet of White Limited is available as on that date. It is, however estimated that White Limited earned
profit of ₹ 2,40,000 after charging proportionate depreciation @ 10% p.a. on Property Plant and Equipment, during
April- June, 2020.
Estimated profit of Black Limited during these 3 months was ₹ 4,80,000 after charging proportionate deprecation
@ 10% p.a. on Property Plant and Equipment Both the companies have declared and paid 10% dividend within this
3 months' period. Goodwill of White Limited is valued at ₹ 2,40,000 and Property Plant and Equipment are valued
at ₹ 1,20,000 above the depreciated book value on the date of takeover.
Purchase consideration is to be satisfied by Black Limited by issuing shares at par.
Ignore income tax.
You are required to:
(a) Compute No. of shares to be issued by Black Limited to White Limited against purchase consideration.
(b) Calculate balance of Net Current Assets of Black Ltd. & White Ltd. as on 1st July, 2020
(c) Give balance of Profit or Loss of Black Limited as on 1st July, 2020
(d) Give balance of Property Plant and Equipment as on 1st July, 2020 after takeover.
(10 Marks)

Attempt any two out of following Questions

6(a). A Ltd. sold JCB having WDV of ₹ 20 lakhs to B Ltd. for ₹ 24 lakhs and the same JCB was leased back by B Ltd. to
A Ltd. The lease is operating lease. In context of Accounting Standard 19 "Leases" explain the accounting
treatment of profit or loss in the books of A Ltd. if
(i) Sale price of ₹ 24 lakhs is equal to fair value.
(ii) Fair value is ₹ 20 lakhs and sale price is ₹ 24 lakhs.
(iii) Fair value is ₹ 22 lakhs and sale price is ₹ 25 lakhs.
(iv) Fair value is ₹ 25 lakhs and sale price is ₹ 18 lakhs.
(v) Fair value is ₹ 18 lakhs and sale price is ₹ 19 lakhs
(5 Marks)

6(b). What are the disclosure requirements under AS 23?

(5 Marks)

6(c). (i) Accountants of Poornima Ltd. showed a net profit of ₹ 7,20,000 for the third quarter of 2021 after
incorporating the following:
(a) Bad debts of ₹ 40,000 incurred during the quarter. 50% of the bad debts have been deferred to the next
quarter.
(b) Extra ordinary loss of ₹ 35,000 incurred during the quarter has been fully recognized in this quarter.
(c) Additional depreciation of ₹ 45,000 resulting from the change in the method of charge of depreciation
assuming that ₹ 45,000 is the charge for the 3rd quarter only.
Ascertain the correct quarterly income.
(3 Marks)
(ii) Good Drugs and Pharmaceuticals Ltd. acquired a sachet filling machine on 1st April, 2021 for ₹ 60 lakhs. The
machine was expected to have a productive life of 6 years. At the end of financial year 2021-2022 the carrying
amount was ₹ 41 lakhs. A short circuit occurred in this financial year but luckily the machine did not get badly
damaged and was still in working order at the close of the financial year. The machine was expected to fetch ₹
36 lakhs, if sold in the market. The machine by itself is not capable of generating cash flows. However, the
smallest group of assets comprising of this machine also, is capable of generating cash flows of ₹ 54 crore per
annum and has a carrying amount of ₹ 3.46 crore. All such machines put together could fetch a sum of ₹ 4.44
crore if disposed. Discuss the applicability of Impairment loss
(2 Marks)

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