Practice Test - 01 20/02/2024

UDESH REGULAR MAY 24 (GROUP-1)

Master Test – 1

ANSWER KEY

1(i). (2)
(vi). (2)
(ii). (2)
(vii). (2)
(iii). (2)
(viii). (2)
(iv). (3)
(ix). (4)
(v). (3)
(x). (4)
 Hints & Solution
2. (H & S)
Kumar Ltd.
Balance Sheet as on 31st March, 2022
Particulars Notes ₹
Equity and Liabilities
(1) Shareholders’ funds
a) Share capital 1 79,85,000
b) Reserves and Surplus 2 30,21,000
(2) Non-current liabilities
a) Long-term borrowings 3 42,66,000
(3) Current liabilities
a) Trade Payables 8,13,000
b) Other current liabilities 4 2,04,000
c) Short-term provisions 5 3,80,000
d) Short-term borrowings 6 9,40,000
Total 1,76,09,000
Assets
(1) Non Current assets
a) Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment 7 92,00,000
(2) Current assets
a) Inventories 8 58,00,000
b) Trade receivables 9 17,50,000
c) Cash and cash equivalents 10 4,84,000
d) Short-term loans and advances 3,75,000
Total 1,76,09,000
Notes to accounts
Particulars ₹
1. Share Capital
Equity share capital : Issued & subscribed & called up
1,60,000 Equity Shares of ₹50 each 80,00,000
(of the above 50,000 shares have been issued for consideration other than
cash)
Less: Calls in arrears (15,000) 79,85,000
Total 79,85,000
2. Reserves and Surplus
General Reserve 9,41,000
Add: Current year transfer 35,000 9,76,000
Profit & Loss balance
Profit for the year 5,80,000
 Less: Transfer to General reserve (35,000) 5,45,000
Securities Premium 15,00,000
Total 30,21,000
3. Long-term borrowings
Secured: Term Loan
Loan from Public Finance Corporation [repayable after 3 years (26,30,000 - 24,96,000
1,34,000 for interest accrued but not due)]
(Secured by hypothecation of plant and machinery
Unsecured Loan
Bank Loan (Nixes Bank) (13,80,000-4,80,000) 9,00,000
Loan from Directors 8,50,000
Others 20,000 17,70,000
Total 42,66,000
4. Other current liabilities
Interest accrued but not due on borrowings 1,34,000
Unpaid dividend 70,000 2,04,000
5. Short-term provisions
Provision for taxation 3,80,000
6. Short-term borrowings
Loan from Naya bank (Secured) 1,16,000
Loan from Directors 48,000
Others 2,96,000
Loan from Nixes bank repayable within one year 4,80,000 9,40,000
7. Property, Plant & Equipment
Land 25,00,000
Building 32,00,000
Less: Depreciation (2,00,000) 30,00,000
Plant & Machinery 30,00,000
Less: Depreciation (6,00,000) 24,00,000
Furniture & Fittings 16,50,000
Less: Depreciation (3,50,000) 13,00,000
Total 92,00,000
8. Inventories
Raw Materials 13,00,000
Finished Goods 40,00,000
Loose tools 5,00,000
Total 58,00,000
9. Trade receivables
Undisputed Trade Receivables: Good: Due Less than 6 months 12,64,000
Undisputed Trade Receivables: Good: Due More than 6 months 4,86,000
 Total 17,50,000
10. Cash and cash equivalents
Cash at bank
With Scheduled Banks 3,58,000
With others 56,000 4,14,000
Cash in hand 70,000
Total 4,84,000
Contingent Liabilities and Commitments (to the extent not provided for)
Contingent Liabilities: Bills discounted but not matured 1,60,000

3(a). (H & S)
(i) As per AS 9 “Revenue Recognition”, 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 ₹ 5,00,000 as the time period
for rejecting the goods had expired.
(ii) The sale is complete but delivery has been postponed at buyer’s request. The entity should recognize the entire
sale of ₹ 2,40,000 for the year ended 31st March.
(iii) Sale/repurchase agreements i.e. where seller concurrently agrees to repurchase the same goods at a later date,
such transactions that are in substance a financing agreement, the resulting cash inflow is not revenue as
defined and should not be recognized as revenue. Hence no revenue to be recognized in the given case.
(iv) Revenue arising from the use by others of enterprise resources yielding interest & royalty should be
recognized when no significant uncertainty as to measurability or collectability exists. The interest should be
recognized on time proportion basis taking into account the amount outstanding and rate applicable. The
royalty should be recognized on accrual basis in accordance with the terms of relevant agreement.
(v) 40% goods lying unsold with consignee should be treated as closing inventory and sales should be recognized
for ₹ 2,40,000 (60% of ₹ 4,00,000). In case of consignment sale revenue should not be recognized until the
goods are sold to a third party.

3(b). (H & S)
Jan. 01, 2021 Bank A/c (5,00,000*68.50) Dr. 3,42,50,000
To Foreign Loan A/c 3,42,50,000
Mar. 31, 2021 Foreign Exchange Difference A/c Dr. 5,00,000
To Foreign Loan A/c 5,00,000
[5,00,000*(69.50 – 68.50)]
Mar. 31, 2021 Profit & Loss A/c Dr. 5,00,000
To Foreign Exchange Difference A/c 5,00,000
Jul. 31, 2021 Foreign Loan A/c Dr. 3,47,50,000
Foreign Exchange Difference A/c 2,50,000
To Bank A/c 3,50,00,000
Profit & Loss A/c Dr. 2,50,000
To Foreign Exchange Difference A/c 2,50,000
4(a). (H & S)
(i) When Net Realizable Value of the Chemical Y is ₹ 800 per unit
NRV is greater than the cost of Finished Goods Y i.e. ₹ 660 (Refer W.N.)
Hence, Raw Material and Finished Goods are to be valued at cost
Value of Closing Stock: Qty Rate Amount
Raw Material X 1,000 440 4,40,000
Finished Goods Y 2,400 660 15,84,000
Total Value of Closing Stock 20,24,000
(ii) When Net Realizable Value of the Chemical Y is ₹ 600 per unit
NRV is less than the cost of Finished Goods Y i.e. ₹ 660.
Hence, Raw Material is to be valued at replacement cost and Finished Goods are to be valued at NRV since NRV is
less than the cost.
Value of Closing Stock:
Qty Rate Amount
Raw Material X 1,000 300 3,00,000
Finished Goods Y 2,400 600 14,40,000
Total Value of Closing Stock 17,40,000
Working Note:
Statement showing cost calculation of Raw material X and Chemical Y
Raw material X ₹ per unit
Cost price 380
Add: Unloading charges 20
Add: Freight inward 40
Cost 440
Chemical Y ₹ per unit
Material consumed 440
Direct labour 120
Variable overhead 80
Fixed overheads (4,00,000/20,000) 20
Cost 660

4(b). (H & S)
(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, grant amounting ₹ 10 crores is
treated as deferred income which is recognized in the profit & 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.
(v) ₹ 500 Lakhs will be reduced from the renovation cost of power plant or will be treated as deferred income
irrespective of the expenditure done by the entity out of it as it was specifically received for the purpose major
renovation of power plant. However, it may be, later on, decided by the Govt. whether the grant will have to
be refunded or not due to non-compliance of conditions attached to the grant.

5. (H & S)
Books of P Ltd
Investments in Equity shares of K Ltd. for year ended 31.3.2022
Date Particulars No. Dividend Amount Date Particulars No. Dividen Amount
d
01.04.2021 To Balance 8,000 - 1,20,000 20.01.2022 By Bank A/c - 16,000 4,000
b/d
01.09.2021 To Bank A/c 2,000 - 28,000 01.02.2022 By Bank A/c 8,000 - 1,12,0
00
30.09.2021 To Bonus 4,000 - - 31.03.2022 By Balance 8,000 - 84,500
Issue c/d
31.12.2021 To Bank A/c 2,000 - 25,000
01.02.2022 To P&L A/c - - 27,500
31.03.2022 To P&L A/c - 16,000 -
16,000 16,000 2,00,500 16,000 60,000 2,00,500
Working Notes:
8,000 + 2,000
1) Bonus shares =  2 = 4,000 shares
5
8,000 + 2,000 + 4,000
2) Right shares =  2 = 4,000 shares
7
Shares subscribed = 4,000 * 50% = 2,000 shares
Value of right shares subscribed = 2,000 shares @ ₹ 12.50 per share = ₹ 25,000
3) Calculation of sale of right entitlement: 2,000 shares × ₹ 8 per share = ₹ 16,000
Amount received from sale of rights will be credited to P & L A/c as per para 13 of AS 13 ‘Accounting for
Investments’.
4) Dividend received on investment held as on 1st April, 2021 = 8,000 shares x ₹ 10 × 20% = ₹ 16,000 will be
transferred to Profit and Loss A/c
5) Dividend received on shares purchased on 1st Sep, 2021 = 2,000 shares x ₹ 10 × 20% = ₹ 4,000 will be
adjusted to Investment A/c
Note: It is presumed that no dividend is received on bonus shares as bonus shares are declared on 30th Sep,
2021 and dividend pertains to the year ended 31.3.2021
6) Calculation of profit on sale of shares
Total Holding = 8,000 + 2,000 + 4,000 + 2,000 = 16,000
Cost of total holdings of 16,000 shares (on average basis) = ₹ 1,20,000 + ₹ 28,000 + ₹ 25,000 – ₹ 4,000 = ₹
1,69,000 Average cost of 8,000 shares would be = 1,69,000/16,000 * 8,000 = 84,500
Sale proceeds of 8,000 equity shares sold = 8,000 × 14 = 1,12,000
Profit on sale = = Sales proceeds – Average cost = 1,12,000 – 84,500 = 27,500
7) Calculation of closing value of shares
Cost of shares (on average cost basis) as on 31st March, 2022 = 1,69,000 × 8,000/16,000 = 84,500 MV = 8,000 *13
= 1,04,000 Lower = 84,500
6(a). (H & S)
Amount that can be drawn from reserves for (10% dividend on ₹ 50,00,000 i.e. ₹ 5,00,000) Profits available
Current year profit ₹ 1,42,500
Amount which can be utilized from reserves (₹ 5,00,000 – 1,42,500) ₹ 3,57,500
Conditions as per Companies (Declaration of dividend out of Reserves) Rules 2014:
Condition I
Since 10% is lower than the average rate of dividend (12%), 10% dividend can be declared.
Condition II
Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of paid up
capital plus free reserves ie. ₹ 7,50,000 [10% of (50,00,000 + 25,00,000)]
Condition III
The balance of reserves after withdrawal ₹ 21,42,500 (₹ 25,00,000 - ₹ 3,57,500) should not fall below 15 % of its
paid up capital ie. ₹ 7,50,000 (15% of ₹ 50,00,000]
Since all the three conditions are satisfied, the company can withdraw ₹ 3,57,500 from accumulated reserve (as per
Declaration and Payment of Dividend Rules, 2014).

6(b). (H & S)
The following dates should be considered for consideration of weights for the purpose of calculation of weighted
average number of shares in the given situations:
a) Date of Cash receivable
b) Date of conversion
c) Date on which settlement becomes effective
d) When the services are rendered
e) Date when interest ceases to accrue
f) Date on which the acquisition is recognised.
A Potential Equity Share is a financial instrument or other contract that entitles, or may entitle its holder to equity
shares.

6(c). (H & S)
According to AS 17 “Segment Reporting”, segment Assets do not include income tax assets.
Therefore, the revised total assets are 12.3 crores [₹ 15 – (₹ 1 + 0.9 + 0.8).
Details of Segment wise assets
Segment P holds total assets of ₹ 3 crores (₹ 4 crores – ₹ 1 crores);
Segment Q holds ₹ 5.1 crores (₹ 6 crores – 0.9 crores);
Segment R holds ₹ 4.2 crores (₹ 5 crores – ₹ 0.8 crores).
Thus, all the three segments hold more than 10% of the total assets, all segments are reportable segments. Hence,
the contention of the Accountant that all three segments are reportable segments is correct.

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