CHARTERED ACCOUNTANCY PROFESSIONAL II

(CAP-II)

Revision Test Paper

Group I
December 2020

Education Division
The Institute of Chartered Accountants of Nepal

The Revision Test Papers are prepared by the institute with a view to assist the students in their study.
The suggested answers given here are indicative and not exhaustive. Students are expected to apply their
knowledge and write the answer in the examinations taking the suggested answers as guide. Due care has
been taken to prepare the revision test paper. In case students need any clarification, creative feedbacks or
suggestions for the further improvement on the material, or any error or omission on the material, they
may report to the email [email protected] of the Institute.
Paper 1 : Advanced Accounting

Paper 1: Advanced Accounting

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Revision Questions:

CHAPTER: Accounting Principles, Concepts & Standard

Question No. 1
Explain about the hierarchy of Fair Value.

CHAPTER: Accounting for Special Transactions

Question No. 2
A firm acquired two tractors under hire purchase agreements, details of which were as follows:
Date of Purchase Tractor A 1st April, 20X1(Rs.) Tractor B 1st Oct., 20X1 (Rs.)
Cash price 14,000 19,000

Both agreements provided for payment to be made in twenty-four monthly installments (of Rs. 600 each for
Tractor A and Rs. 800 each for Tractor B), commencing on the last day of the month following purchase, all
installments being paid on due dates.

On 30th June, 20X2, Tractor B was completely destroyed by fire. In full settlement, on 10th July, 20X2 an
insurance company paid Rs. 15,000 under a comprehensive policy. Any balance on the hire purchase
company’s account in respect of these transactions was to be written off.

The firm prepared accounts annually to 31st December and provided depreciation on tractors on a straight-line
basis at a rate of 20 per cent per annum rounded off to nearest ten rupees, apportioned as from the date of
purchase and up to the date of disposal.

You are required to record these transactions in the following accounts, carrying down the balances on 31st
December, 20X1 and 31st December, 20X2:
(a) Tractors on hire purchase.
(b) Provision for depreciation of tractors.
(c) Disposal of tractors.

Question No. 3
Bageshwori Enterprises of Nepalgunj has a branch at New Baneshwor to which goods are sent @ 20% above
cost. The branch makes both cash and credit sales. Branch expenses are met partly from H.O. and partly by the
branch. The statement of expenses incurred by the branch every month is sent to head office for recording.
Following further details are given for the year ended 31st Ashadh, 2076:
Particulars Amount
Cost of goods sent to Branch at cost 2,00,000
Goods received by Branch till 31-03-2076 at invoice price 2,20,000
Credit Sales for the year @ invoice price 1,65,000
Cash Sales for the year @ invoice price 59,000
Cash Remitted to head office 2,22,500
Expenses paid by H.O. 12,000
Bad Debts written off 750

Balances as on 1-4-2075 30-4-2075

Stock 25,000 28,000
(Cost) (invoice price)
Debtors 32,750 26,000

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Cash in Hand 5,000 2,500

Show necessary ledger accounts in the books of the head office and determine the Profit and Loss of the
Branch for the year ended 31st Ashadh, 2076.

Question No. 4

A fire occurred in the premises of M/s Kirti & Co. on 15th December, 2018. The working
remained disturbed up to 15th March, 2019 as a result of which sales got adversely affected. The
firm had taken out an insurance policy with an average clause against consequential losses for
2,50,000.
Following details are available from the quarterly sales tax return filed/GST return filed:

Sales 2015-16 2016-17 2017-18 2018-19

From 1st April to 30th June 3,80,000 3,15,000 4,11,900 3,24,000

From 1st July to 30th September 1,86,000 3,92,000 3,86,000 4,42,000
From 1st October to 31st December 3,86,000 4,00,000 4,62,000 3,50,000
From 1st January to 31st March 2,88,000 3,19,000 3,80,000 2,96,000
Total 12,40,000 14,26,000 16,39,900 14,12,000
A period of 3 months (i.e. from 16-12-2018 to 15-3-2019) has been agreed upon as indemnity
period.

Sales from 16-12-2017 to 31-12-2017 68,000

Sales from 16-12-2018 to 31-12-2018 Nil
Sales from 16-03-2018 to 31-03-2018 1,20,000
Sales from 16~03-2019 to 31-03-2019 40,000
Net profit was 2,50,000 and standing charges (all insured) amounted to 77,980 for the year ending
31st March, 2018.
You are required to calculate the loss of profit claim amount.

Question No. 5
Mr. Vijay entered into the following transactions of purchase and sale of equity shares of JP
Power Ltd. The shares have paid up value of 10 per share.
Date No. of Shares Terms
01.01.2016 600 Buy @ 20 per share
15.03.2016 900 Buy @ 25 per share
20.05.2016 1000 Buy @ 23 per share
25.07.2016 2500 Bonus Shares received
20.12.2016 1500 Sale @ 22 per share
01.02.2017 1000 Sale @ 24 per share
Addition information:
(1) On 15.09.2016 dividend @ 3 per share was received for the year ended 31.03.2016.

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(2) On 12.11.2016 company made a right issue of equity shares in the ratio of one share for
five shares held on payment of 20 per share. He subscribed to 60% of the shares and
renounced the remaining shares on receipt of the premium of 3 per share.
(3) Shares are to be valued on weighted average cost basis.

CHAPTER: Analysis and Interpretation of Financial Statements

Question No. 6
From the following particulars extracted from the books of Ashok & Co. Ltd., compute the
following ratios and comment:
(a) Current ratio, (b) Acid Test Ratio, (c) Stock‐Turnover Ratio, (d) Debtors
Turnover Ratio, (e) Creditors' Turnover Ratio, and Average Debt Collection period.
1‐1‐2019 31‐12‐2019
Rs. Rs.
Bills Receivable 30,000 60,000
Bills Payable 60,000 30,000
Sundry Debtors 1,20,000 1,50,000
Sundry Creditors 75,000 1,05,000
Stock‐in‐trade 96,000 1,44,000
Additional information:
(a) On 31‐12‐2019, there were assets: Building Rs. 2,00,000, Cash Rs. 1,20,000 and Cash
at Bank Rs. 96,000.
(b) Cash purchases Rs. 1,38,000 and Purchases Returns were Rs. 18,000.
(c) Cash sales Rs. 1,50,000 and Sales returns were Rs. 6,000.
Rate of gross profit 25% on sales and actual gross profit was Rs. 1,50,000.

CHAPTER: Partnership Accounts

Question No. 7
G, S & J were partners sharing profits and losses in the ratio of 4:3:2, no partnership salary or interest on
capital being allowed. Their Balance Sheet as on 31.3.2019 is as follows:

Liabilities Amount Amount Assets Amount Amount

Partners’ fixed capital Fixed assets:
accounts:
G 24,000 Goodwill 48,000
S 24,000 Land 9,600
J 12,000 60,000 Plant & Machinery 15,360
Partners’ current accounts: Motor car 840 73,800

G 600 Current assets:

S 10,800 Stock 4,680
J (480) 10,920 Trade debtors 2,400
Loan from G 9,600 Less: provision 120 2,280
Trade creditors 14,880 Cash at bank 240
Miscellaneous losses:

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Profit & loss sale 14,400

95,400 95,400

On 1st April, 2019, the partnership was dissolved. Motor car was taken over by G at a value of 600,
but no cash was given specifically in respect of this transaction. Sale of other assets realized the
following amounts:
Particulars
Goodwill Nil
Land 8,400
Plant & machinery 6,000
Stock 3,600
Trade debtors 1,920
Trade creditors were paid 14,040 in full settlement of their debts. The cost of dissolution
amounted to 1,800. The loan from G was repaid; G and S both were fully solvent and able to bring
in any cash required but J was forced into bankruptcy and was only able to bring 1/2 of the amount
due.
You are required to prepare:
(i) Cash & Bank account
(ii) Realization account, and
(iii) Partners’ Fixed Capital Accounts (after transferring current accounts balances) Apply
Garner Vs. Murray rule.

Question No. 8
X, Y and Z are partners of the firm XYZ & Co., sharing profits and losses in the ratio of 5:3:2. Following is the
Balance sheet of the firm as at 31-3-2019.

Liabilities Amount Assets Amount

(Rs.) (Rs.)
Partners Capital Goodwill 200,000
X 500,000 Building 950,000
Y 250,000 Machinery 700,000
Z 200,000 Furniture 250,000
Investment Fluctuation Reserve 200,000 Investments (Market value Rs. 100,000
125,000)
General Reserve 95,000 Stock 550,000
Long-Term Loan 1,045,000 Sundry Debtors 500,000
Bank Overdraft 360,000 Profit & Loss A/c 50,000
Sundry Creditors 650,000
Total 3,300,000 3,300,000
It was decided that Y would retire from partnership on 1-4-2019 and M would be admitted as a partner on the
same date. Following adjustments are agreed amongst the partners for the retirement/admission:

i) Goodwill is to be valued at Rs. 600,000, but the same will not appear as assets in the books of
accounts.
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ii) Building and Machinery are to be revalued at Rs 1,000,000 and Rs. 640,000 respectively.
iii) Investments are to be taken over by Y at market value.
iv) Provision for doubtful debts is to be maintained at 15% of Sundry Debtors.
v) The capital of the reconstituted firm will be Rs. 1500,000 to be contributed by the partners X, Z and M
in their new profit sharing ratio of 2:2:1.
vi) Surplus funds, if any, will be used to pay bank overdraft.
vii) Amount due to retiring partner Y will be transferred to his loan account.

Required:
1. Revaluation Account
2. Capital Accounts of Partners, and
3. Balance Sheet of the firm after reconstitution

CHAPTER: Preparation and Presentation of Financial Statements of a Company

Question No. 9

The following is the summarised Balance Sheet of Bumbum Limited as at 31st March. 2015:

Sources of funds Amount in Rs.

Authorized capital
5,00,000
50,000 Equity shares of Rs. 10 each
10,00,000
10,000 Preference shares of Rs. 100 each (8% redeemable)
Total 15,00,000
Issued, subscribed and paid up
30,000 Equity shares of Rs. 10 each 3,00,000
5,000, 8% Redeemable Preference shares of Rs. 100 each 5,00,000
Reserves & Surplus
Securities Premium 6,00,000
General Reserve 6,50,000
Profit & Loss A/c 40,000
2,500, 9% Debentures of Rs. 100 each
Trade payables 2,50,000
1,70,000
25,10,000
Application of funds
Fixed Assets (net) 7,80,000
Investments (market value Rs. 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Trade receivables 6,20,000
Cash & Bank balance 2,80,000
25,10,000
In Annual General Meeting held on 20th June, 2015 the company passed the following resolutions:
1. To split equity share of Rs. 10 each into 5 equity shares of Rs. 2 each from 1st July, 2015.

2. To redeem 8% preference shares at a premium of 5%.

3. To redeem 9% Debentures by making offer to debenture holders to convert their holdings into equity shares
at Rs. 10 per share or accept cash on redemption.

4. To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held on record date
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On 10th July, 2015 investments were sold for Rs. 5,55,000 and preference shares were redeemed.

40% of Debenture holders exercised their option to accept cash and their claims were settled on 1st August,
2015.

The company fixed 5th September, 2015 as record date and bonus issue was concluded by 12th September,
2015

You are requested to journalize the above transactions including cash transactions and prepare Balance Sheet
as at 30th September, 2015. All working notes should form part of your answer.

Question No. 10
The financial position of two companies Hari Ltd. and Vayu Ltd. as on 31st March, 20X1 was as
under:
Assets Hari Ltd. (Rs. ) Vayu Ltd. (Rs. )
Goodwill 50,000 25,000
Building 3,00,000 1,00,000
Machinery 5,00,000 1,50,000
Inventory 2,50,000 1,75,000
Trade receivables 2,00,000 1,00,000
Cash at Bank 50,000 20,000
Total 13,50,000 5,70,000
Liabilities Hari Ltd. (Rs. ) Vayu Ltd. (Rs. )
Share Capital:
Equity Shares of Rs. 10 each 10,00,000 3,00,000
9% Preference Shares of Rs. 100 each 1,00,000 –
10% Preference Shares of Rs. 100 each – 1,00,000
General Reserve 70,000 70,000
Retirement Gratuity fund 50,000 20,000
Trade payables 1,30,000 80,000
Total 13,50,000 5,70,000
Hari Ltd. absorbs Vayu Ltd. on the following terms:
(a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference
Shares of Hari Ltd.
(b) Goodwill of Vayu Ltd. is valued at Rs. 50,000, Buildings are valued at Rs. 1,50,000 and the
Machinery at Rs. 1,60,000.
(c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created
@ 7.5%.
(d) Equity Shareholders of Vayu Ltd. will be issued Equity Shares @ 5% premium.
Prepare necessary Ledger Accounts to close the books of Vayu Ltd. and show the acquisition
entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31st March,
20X1.

Question No. 11
The following data were provided by the accounting records of Ryan Ltd. at year-end, March 31,
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20X1:
Income Statement
Particulars Rs.
Sales 6,98,000
Cost of Goods Sold (5,20,000)
Gross Margin 1,78,000
Operating Expenses
(including Depreciation Expense of Rs. 37,000) (1,47,000)
31,000
Other Income / (Expenses)
Interest Expense paid (23,000)
Interest Income received 6,000
Gain on Sale of Investments 12,000
Loss on Sale of Plant (3,000)
(8,000)
23,000
Income tax (7,000)
16,000
Comparative Balance Sheets Rs.
Particulars 31st March 31st March
20X1 20X0
Assets
Plant Assets 7,15,000 5,05,000
Less: Accumulated Depreciation (1,03,000) (68,000)
6,12,000 4,37,000
Investments (Long term) 1,15,000 1,27,000
Current Assets:
Inventory 1,44,000 1,10,000
Accounts receivable 47,000 55,000
Cash 46,000 15,000
Prepaid expenses 1,000 5,000
9,65,000 7,49,000
Liabilities
Share Capital 4,65,000 3,15,000
Reserves and surplus 1,40,000 1,32,000
Bonds 2,95,000 2,45,000
Current liabilities :
Accounts payable 50,000 43,000
Accrued liabilities 12,000 9,000
Income taxes payable 3,000 5,000
9,65,000 7,49,000
Analysis of selected accounts and transactions during 20X0-X1
1. Purchased investments for Rs. 78,000.
2. Sold investments for Rs. 1,02,000.These investments cost Rs. 90,000.
3. Purchased plant assets for Rs. 1,20,000.

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4. Sold plant assets that costRs. 10,000 with accumulated depreciation of Rs. 2,000 for
Rs. 5,000.
5. Issued Rs. 1,00,000 of bonds at face value in an exchange for plant assets on 31st March,
20X1.
6. Repaid Rs. 50,000 of bonds at face value at maturity.
7. Issued 15,000 shares of Rs. 10 each.
8. Paid cash dividends Rs. 8,000.
Prepare Cash Flow Statement using indirect method.
Question No. 12
The promotors of Shiva Ltd. took over on behalf of the company a running business with effect
from 1st April 2017. The company got incorporated on 1st August 2017. The annual accounts
were made up to 31st March, 2018 which revealed that the sales for the whole year totalled ` 2400
lakhs out of which sales till 31st July, 2017 were for 600 lakhs. Gross profit ratio was 20%.
The expenses from 1st April 2017, till 31st March, 2018 were as follows:

Particulars in lakhs
Salaries 75
Rent, Rates and Insurance 30
Sundry Office Expenses 72
Traveller's Commission 20
Discount allowed 16
Bad Debts 8
Directors' Fee 30
Tax Audit Fee 16
Depreciation on Tangible Assets 15
Debenture Interest 14
Prepare a statement showing the calculation of profits for the pre-incorporation and Post
incorporation periods.

Question No. 13
The Balance Sheet of Hilltop Limited as on 32nd Ashadh, 2075 was as follows:
Liabilities Amount Assets Amount
(Rs.) (Rs.)
5,00,000 Equity Shares of Rs. 10 each 50,00,000 Goodwill 10,00,000
fully paid Patent 5,00,000
9% 20,000 Preference shares of Rs. Land and Building 30,00,000
100 each fully paid 20,00,000 Plant and Machinery 10,00,000
10% First debentures 6,00,000 Furniture and Fixtures 2,00,000
10% Second debentures 10,00,000 Computers 3,00,000
Debentures interest outstanding 1,60,000 Trade Investment 5,00,000
Trade creditors 5,00,000 Debtors 5,00,000
Directors’ loan 1,00,000 Stock 10,00,000
Bank overdraft 1,00,000 Discount on issue of debentures 1,00,000
Outstanding liabilities 40,000

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Provision for Tax 1,00,000 Profit and Loss Account(Loss) 15,00,000

96,00,000 96,00,000
Note: Preference dividend is in arrears for last three years.
A holds 10% first debentures for Rs. 4,00,000 and 10% second debentures for Rs. 6,00,000. He is
also creditors for Rs. 1,00,000. B holds 10% first debentures for Rs. 2,00,000 and 10% second
debentures for Rs. 4,00,000 and is also creditors for Rs. 50,000.
The following scheme of reconstruction has been agreed upon and duly approved by the court.
(i) All the equity shares be converted into fully paid equity shares of Rs. 5 each.
(ii) The preference shares be reduced to Rs. 50 each and the preference shareholders agree
to forego their arrears of preference dividends in consideration of which 9% preference
shares are to be converted into 10% preference shares.
(iii) Mr. ‘A’ is to cancel Rs. 6,00,000 of his total debt including interest on debentures and
to pay Rs. 1 lakh to the company and to receive new 12% debentures for the Balance
amount.
(iv) Mr. ‘B’ is to cancel Rs. 3,00,000 of his total debt including interest on debentures and to
accept new 12% debentures for the balance amount.
(v) Trade creditors (other than A and B) agreed to forego 50% of their claim.
(vi) Directors to accept settlement of their loans as to 60% thereof by allotment of equity
shares and balance being waived.
(vii) There were capital commitments totalling Rs. 3,00,000. These contracts are to be
cancelled on payment of 5% of the contract price as a penalty.
(viii) The Directors refund Rs. 1,10,000 of the fees previously received by them.
(ix) Reconstruction expenses paid Rs. 10,000.
(x) The taxation liability of the company is settled at Rs. 80,000 and the same is paid
immediately.
(xi) The assets are revalued as under:
Rs.
Land and Building 28,00,000
Plant and Machinery 4,00,000
Stock 7,00,000
Debtors 3,00,000
Computers 1,80,000
Furniture and Fixtures 1,00,000
Trade Investment 4,00,000

Pass Journal entries for all the above-mentioned transactions including amounts to be written off
Goodwill, Patents, Loss in Profit & Loss Account and Discount on issue of debentures.

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Question No. 14
A company issued 1,50,000 shares of Rs. 10 each at a premium of Rs. 10. The entire issue
was underwritten as follows:
X-90,000 shares (firm underwriting 12,000 shares) Y- 37,500 shares (firm underwriting
4,500 shares) Z- 22,500 shares (firm underwriting 15,000 shares)
Total subscriptions received by the company (excluding firm underwriting and marked
applications) were 22,500 shares.
The marked applications (excluding firm underwriting) were as follows:
X-15,000 shares Y- 30,000 shares
Z- 7,500 shares
Commission payable to underwriters is at 5% of the issue price. The underwriting contract
provides that credit for unmarked applications be given to the underwriters in proportion to
the shares underwritten and benefit of firm underwriting is to be given to individual
underwriters.
Required:
i) Determine the liability of each underwriter (number of shares)
ii) Compute the amounts payable or due from underwrites; and
iii) Pass Journal Entries in the books of the company relating to underwriting.

Question No. 15
What are the complete set of financial statements as per NAS 1?

CHAPTER: Government Accounting

Question No. 16
What is NPSAS and What is the implementation status of NPSAS in Nepal?

CHAPTER: Accounting from Incomplete Records

Question No. 17
From the following information in respect of Mr. Preet, prepare Trading and Profit and
Loss Account for the year ended 31st March, 2018 and a Balance Sheet as at that date:
(1) Liabilities and Assets 31-03-2017 31-03-2018
Stock in trade 1,60,000 1,40,000
Debtors for sales 3,20,000 ?
Bills receivable - ?
Creditors for purchases 2,20,000 3,00,000
Furniture at written down value 1,20,000 1,27,000
Expenses outstanding 40,000 36,000
Prepaid expenses 12,000 14,000
Cash on hand 4,000 3,000
Bank Balance 20,000 1,500

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Receipts and Payments during 2017-2018:

(2) Collections from Debtors
(after allowing 2-1/2% discount) 11,70,000
Payments to Creditors
(after receiving 2% discount) 7,84,000
Proceeds of Bills receivable discounted at 2%) 1,22,500
Proprietor’s drawings 1,40,000
Purchase of furniture on 30.09.2017 20,000
12% Government securities purchased on 1-10-2017 2,00,000

Expenses 3,50,000
Miscellaneous Income 10,000
(3) Sales are effected so as to realize a gross profit of 50% on the cost.
(4) Capital introduced during the year by the proprietor by cheques was omitted to be recorded
in the Cash Book, though the bank balance on 31st March, 2018 (as shown above), is after
taking the same into account.
(5) Purchases and Sales are made only on credit.
(6) During the year, Bills Receivable of 2,00,000 were drawn on debtors. out of these, Bills
amount to 40,000 were endorsed in favour of creditors. Out of this latter amount, a Bill for
8,000 was dishonoured by the debtor.

CHAPTER: Accounting for Not for Profit Organization

Question No. 18
What are the components of Financial Statements of NPO?

CHAPTER: Preparation of Financial Statements of Special Organizations

Question No. 19
Following information as at third quarter ending FY 2076/77 were drawn from the records
of M/s Kankai Bank Limited as under:

Loan outstanding for Amount Rs.

Upto 1 month 1,673,000
More than 1 month but not more than 3 months 100,000
More than 3 months but not more than 6 months 13,612
More than 6 months but not more than 12 months 782
More than 12 months 2,198
Total 1,789,592
The bank has not restructured or rescheduled any of its credit.
Following additional information relating to previous quarter ending were extracted from
the records of the bank:
Particulars Amount Rs.
Paid up Equity Share Capital 171,010
General Reserve 155,432

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