CATestSeries.

org (Since 2015)

CA Final | CA Inter | CA IPCC | CA Foundation Online Test Series

Question Paper

Advance Accounting Duration: 3 Hours

Details: Full Test – 1 Marks: 100

Instructions:

▪ All the questions are compulsory

▪ Properly mention test number and page number on your answer sheet, Try to
upload sheets in arranged manner.
▪ In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
▪ Do not copy any solution from any material. Attempt as much as you know to fairly
judge your performance.

Legal: Material provided by catestseries.org is subject to copyright. No part of this

publication may be reproduced, distributed, or transmitted in any form or by any means,
including photocopying, recording, or other electronic or mechanical methods, without the
prior written permission of the publisher. For permission requests, write to the publisher,
addressed “Attention: Permissions Coordinator,” at [email protected]. If any person
caught of copyright infringement, strong legal action will be taken. For more details check
legal terms on the website: catestseries.org

CATESTSERIES.ORG
Case Study I

Reliance Industries Limited (RIL) is a large diversified company with business interests in
energy, petrochemicals, textiles, retail, and telecommunications sectors.

In the financial year ending March 31, 2023, RIL undertook some major business
restructuring activities. It decided to spin off its textiles business into a separate entity called
Reliance Textiles Private Limited (RTPL) to allow greater management focus on its core
businesses. As part of this move, all the assets and liabilities related to the textiles division
were transferred to RTPL at book values on October 1, 2022. RIL subscribed to 51% of the
equity shares of RTPL by issuing 50 lakh shares of Rs 10 each at par value. The remaining
49% shares were issued to RIL shareholders on a proportionate basis.

In November 2022, RIL acquired a majority stake in Jio Platforms Limited (JPL), a technology
company, by acquiring 60% of its equity shares for Rs 50,000 lakhs. This acquisition provided
RIL a foothold in the high-growth technology space. An independent valuer assessed the fair
value of JPL's net assets as on the acquisition date at Rs 80,000 lakhs.

In December 2022, a major fire destroyed one of RIL's warehouses storing finished textile
goods worth Rs 5,000 lakhs. The company had adequate insurance coverage for such an
event. RIL plans to receive the full claim amount from the insurers in the next financial year.

The companyreported a net profit of Rs 70,000 lakhs for the year ended March 31, 2023 as
per its standalone financial statements. The Board of Directors proposed a final dividend of
Rs 7 per share in its meeting on April 25, 2023 amounting to Rs 3,500 lakhs.

Based on the above case study, answer the following MCQs:

Q1) As per AS 24, should RIL classify the spin off of its textiles business as a discontinuing
operation in its standalone financial statements for the year ended March 31, 2023?

A) Yes, as it involves spinning off a major line of business into a separate legal entity.

B) No, as it does not involve selling the business.

CATESTSERIES.ORG
C) Yes, as textiles division contributed more than 10% to RIL’s revenues.

D) No, as RIL continues to own 51% stake in the textiles business.

Q2) In its consolidated financial statements for the year ended March 31, 2023, what should
be the accounting treatment for RIL’s acquisition of 60% stake in JPL?

A) Goodwill of Rs 2000 lakhs should be recognized and added to the investment cost.

B) A capital reserve of Rs 20,000 lakhs should be recognized and added to the investment
cost.

C) The investment should be recognized at cost of Rs 50,000 lakhs.

D) The investment should be recognized at fair value of Rs 80,000 lakhs.

Q3) The fire in RIL's warehouse occurred after the balance sheet date but before the
approval of financial statements. As per AS 4, how should RIL account for this event?

A) Recognize the loss of Rs 5,000 lakhs in the financial statements for the year ended March
31, 2023.

B) Disclose it as a non-adjusting event in the financial statements.

C) Make provision for loss by a charge to the Statement of Profit and Loss.

D) Disclose it as a contingent liability in the financial statements.

Q4) The proposed final dividend for the year ended March 31, 2023 was declared after the
balance sheet date. As per AS 4, how should RIL account for this event?

A) Recognize proposed dividend as a liability in the balance sheet.

CATESTSERIES.ORG
B) Disclose proposed dividend as a note to accounts.

C) Recognize proposed dividend as an appropriation from reserves.

D) No recognition or disclosure needed for proposed dividend.

Q5) RIL has an outstanding loan of USD 10 million taken on April 1, 2022 when the exchange
rate was USD 1 = INR 75. On March 31, 2023, the reporting date, the exchange rate changed
to USD 1 = INR 80. As per AS 11, how should RIL account for this change?

A) The increased liability of Rs 50 lakhs should be recognized as an exchange loss in profit

and loss account.

B) The increased liability of Rs 50 lakhs should be recognized in a Foreign Currency

Monetary Item Translation Difference Account.

C) RIL should recognize the increased liability of Rs 50 lakhs as an asset representing the
right to receive more rupees.

D) No exchange loss or gain needs to be recognized since there is no realised settlement or

translation.

(5 x 2 = 10 marks)

Case Study II

ABC Ltd is a manufacturing company with headquarters in Mumbai. It has branches in Delhi,
Chennai, Kolkata and an integral foreign branch in Dubai.

In April 2022, ABC Ltd acquired 80% shares of XYZ Ltd by issuing equity shares. XYZ Ltd is
engaged in a similar business as ABC Ltd. As per the scheme of amalgamation approved by
the High Court, assets and liabilities of XYZ Ltd were incorporated into ABC Ltd's books at
their existing carrying amounts as on 1st April 2022. The purchase consideration was
discharged by issuing equity shares in the ratio of 1 share of ABC Ltd for every 5 shares held
in XYZ Ltd.

CATESTSERIES.ORG
On 1st January 2023, ABC Ltd undertook a scheme of internal reconstruction to address
accumulated losses from past years. As per the scheme approved by the court, ABC Ltd
wrote down the value of land by 30% and reduced its share capital by 25%. The amount of
reduction was transferred to Capital Reconstruction Account.

The Delhi branch of ABC Ltd maintains stock records whereas the other branches do not.
Goods are supplied by Mumbai HO to branches at cost. Delhi branch purchases some goods
locally. All branches deposit cash sales locally. Credit sales are managed by HO.

During the year, the HO declared three interim dividends of Rs 2 per share each. The fourth
interim dividend was declared but not paid. A final dividend of Rs 3 per share was proposed.

Q6) What type of amalgamation has taken place between ABC Ltd and XYZ Ltd?

A) Amalgamation in the nature of merger

B) Amalgamation in the nature of purchase

C) External reconstruction

D) Internal reconstruction

Q7) Which of the following statements is correct regarding reduction of capital by ABC Ltd?

A) The amount of reduction will be added to reserves

B) Shareholders will need to pay the reduced amount per share

C) It will lead to a debit balance in Capital Reconstruction Account

D) The nominal value of shares will reduce

CATESTSERIES.ORG
Q8) What is the accounting treatment for interim dividends declared but not paid by ABC
Ltd?

A) Debited to P&L Appropriation Account

B) Credited to Dividend Payable Account

C) Debited to Reserves

D) Credited to Proposed Dividend Account

Q9) How will ABC Ltd value the closing stock at its Delhi branch?

A) At selling price

B) At cost price

C) At market price

D) At wholesale price

Q10) What is the recommended accounting treatment for exchange differences arising from
translation of Integral Foreign Branch balances of ABC Ltd?

A) Debited/Credited to Reserve Account

B) Debited/Credited to Foreign Currency Translation Reserve

C) Debited/Credited to Profit & Loss Account

D) No translation required

(5 x 2 = 10 marks)

CATESTSERIES.ORG
General MCQs:-

11. A Ltd. and B Ltd. established a joint venture entity, JVentures Ltd., to collaborate on a
new technology project. Each company has a 50% ownership interest in JVentures Ltd. A
Ltd. contributed a piece of land with a carrying value of Rs. 80 crore, while B Ltd.
contributed specialized equipment with a carrying value of Rs. 60 crore, both of which have
fair values equal to their carrying values. During the year, JVentures Ltd. recognized a
contingent liability of Rs. 10 crore related to potential legal claims. A Ltd. and B Ltd. are
contingently liable for the entire amount in case of any legal claims arising. As per
Accounting Standard (AS) 27 - & Financial Reporting of Interests in Joint Ventures,& how
should A Ltd. and B Ltd. disclose the contingent liability and capital commitment related to
JVentures Ltd.?

A) A Ltd. should disclose Rs. 10 crore and B Ltd. should disclose Rs. 10 crore as contingent
liabilities in their separate financial statements.

B) A Ltd. and B Ltd. should each disclose Rs. 5 crore as their share of the contingent liability
in their separate financial statements.

C) A Ltd. and B Ltd. should each disclose Rs. 10 crore as their share of the contingent
liability in their separate financial statements.

D) A Ltd. and B Ltd. should not disclose the contingent liability in their separate financial
statements since it is related to a joint venture.

12. Company A & Co. Ltd. is charting a course of transformation through a comprehensive
reconstruction scheme. Mr. X, a shareholder with a keen interest in the company’s revival, is
in the spotlight as the scheme unfolds. The company’s balance sheet reflects an assortment
of assets, liabilities, and shareholders’ funds. On April 1, 20X2, the company undergoes a
pivotal restructuring endeavor that involves altering share capital, varying shareholders’

CATESTSERIES.ORG
rights, and making adjustments to assets and liabilities. Assume Mr. X holds 800 shares with
a face value of Rs. 10 each, and he is set to participate in the reconstruction process. The
scheme mandates a reduction of his shares’ nominal value to Rs. 2 each, with an allotment
of additional fully paid-up shares. Mr. X’s shares account for a debit balance of Rs. 6,000 in
the profit and loss account. Considering the intricate alterations within this scheme, what
would be the outcome for Mr. X’s shareholding and the debit balance in the profit and loss
account after the reconstruction?

A) Mr. X’s shares are reduced to Rs.2 each, and he receives additional fully paid-up shares as
compensation. The debit balance of Rs. 6,000 in the profit and loss account is adjusted
against reserves.

B) Mr. X’s shares are reduced to Rs. 2 each, and he receives cash in lieu of additional shares.
The debit balance of Rs. 6,000 in the profit and loss account is adjusted against reserves.

C) Mr. X’s shares remain at Rs. 10 each, but he is granted additional fully paid-up shares. The
debit balance of Rs. 6,000 in the profit and loss account is written off through issuance of
bonus shares.

D) Mr. X’s shares are reduced to Rs. 2 each, and he receives cash in lieu of additional shares.
The debit balance of Rs. 6,000 in the profit and loss account is treated as a loss and offset
against capital reduction.

13. A company named XYZ Ltd. deals in three different products, Product A, Product B, and
Product C. At the end of the financial year 20X2-20X3, the company has assessed the
Historical Cost and Net Realisable Value (NRV) of its closing stock as follows:

Product A Product B Product C

Historical Cost Rs. 60,000 Rs. 45,000 Rs. 30,000

Net Realisable Value Rs. 48,000 Rs. 42,000 Rs. 36,000

CATESTSERIES.ORG
The company applies AS 2 (Revised) “Valuation of inventories” and values inventories at the
lower of cost and NRV on an item-by- item basis. Based on the above information, what will
be the value of the closing stock for XYZ Ltd.?

A) Rs. 114,000

B) Rs. 126,000

C) Rs. 120,000

D) Rs. 108,000

14. Entity PQ has decided to discontinue one of its major business segments, segment X, AS
it plans to focus on its core operations. The financial details for Segment X are as follows:

Particulars Amount (in Rs.)

Sales 1,00,00,000

Cost of Goods Sold (60,00,000)

Gross Margin 40,00,000

Operational Expenses (20,00,000)

Profit before Tax 20,00,000

Entity PQ's board of directors has approved a detailed, formal plan for the discontinuance of
Segment X, including identification of assets to be disposed of, the expected method of
disposal, the period for completion of the disposal, and principal locations affected. There is
no binding sale agreement in place yet. As per AS 24, how should Entity PQ present the
amount of pre-tax profit from ordinary activities attributable to Segment X in its financial
statements?

A) The amount of pre-tax profit should be presented on the face of the statement of profit
and loss.

CATESTSERIES.ORG
B) The amount of pre-tax profit should be disclosed in the notes to the financial statements.

C) The amount of pre-tax profit should be disclosed in both the notes to the financial
statements and on the face of the statement of profit and loss.

D) The amount of pre-tax profit is not required to be disclosed in the financial statements.

15. Alpha Electronics Ltd. is a multinational company engaged in manufacturing and selling
various electronic products. It operates in three major business segments: Segment X,
Segment Y, and Segment Z. The financial data for these segments for the year 2022 is as
follows:

Segment X Segment Y Segment Z

Segment Revenue Rs 50 million Rs 15 million Rs 8 million

Segment Result Rs 3 million (profit) Rs 1.5 million (profit) Rs 500,000 (loss)

Segment Assets Rs 45 million Rs 10 million Rs 20 million

The total revenue of all segments combined is Rs 73 million, and the total assets of all
segments combined amount to Rs 75 million. The Chief Financial Officer (CFO) of Alpha
Electronics Ltd. believes that Segment Y and Segment Z alone should be reported as the
reportable segments. He justifies his view by stating that Segment X, being the largest
segment, dominates the overall financial performance, and reporting it may not add any
significant value to the financial statements. Based on the above information and AS 17
'Segment Reporting', which of the following statements is correct?

A) The CFO is justified in his view, and only Segment Y and Segment Z should be reported as
the reportable segments since Segment X dominates the overall financial performance.

B) The CFO is not justified in his view, and all three segments, Segment X, Segment Y, and
Segment Z, should be reported as the reportable segments since each segment meets the
criteria for reportable segments individually.

CATESTSERIES.ORG
C) The CFO is partially justified in his view, and only Segment Y should be reported as the
reportable segment since it has the highest segment result, which is 10% of the combined
result of all segments in profit.

D) The CFO is partially justified in his view, and only Segment Z should be reported as the
reportable segment since it has the lowest segment result, which is 10% of the combined
result of all segments in loss.

(5 x 2 = 10 marks)

CATESTSERIES.ORG
 Descriptive Part

Q-1. (a) You are required to prepare a Statement of Profit and Loss and Balance Sheet from
the following Trial Balance extracted from the books of the International Hotels Ltd.,
on 31st March, 20X2:

Dr. Cr.

Authorised Capital-divided into 5,000 6% Preference - -

Shares of Rs. 100 each and 10,000 equity Shares of
Rs.100 each

Subscribed Capital - 15,00,00

5,000 6% Preference Shares of Rs. 100 each 5,00,000

Equity Capital 8,05,000

Purchases - Wines, Cigarettes, Cigars, etc. 45,800

- Foodstuffs 36,200

Wages and Salaries 28,300

Rent, Rates and Taxes 8,900

Laundry 750

Sales - Wines, Cigarettes, Cigars, etc. 68,400

- Food 57,600

Coal and Firewood 3,290

Carriage and Cooliage 810

CATESTSERIES.ORG
Sundry Expenses 5,840

Advertising 8,360

Repairs 4,250

Rent of Rooms 48,000

Billiard 5,700

Miscellaneous Receipts 2,800

Discount received 3,300

Transfer fees 700

Freehold Land and Building 8,50,000

Furniture and Fittings 86,300

Inventory on hand, 1st April, 20X1

Wines, Cigarettes. Cigars, etc. 12,800

Foodstuffs 5,260

Cash in hand 2,200

Cash with Bankers 76,380

Preliminary and formation expenses 8,000

2,000 Debentures of Rs. 100 each (6%) 2,00,000

Profit and Loss Account 41,500

Trade payables 42,000

Trade receivables 19,260

CATESTSERIES.ORG
Investments 2,72,300

Goodwill at cost 5,00,000

General Reserve 2,00,000

19,75,000 19,75,000

Wages and Salaries Outstanding 1,280

Inventory on 31st March, 20X2

Wines, Cigarettes and Cigars, etc. 22,500

Foodstuffs 16,400

Depreciation:

Furniture and Fittings @ 5% p.a.: Land and Building @ 2% p.a.

The Equity capital on 1st April, 20X1 stood at Rs.7,20,000, that is 6,000 shares fully paid and
2,000 shares Rs. 60 paid. The directors made a call of Rs. 40 per share on 1st October 20X1.
A shareholder could not pay the call on 100 shares and his shares were then forfeited and
reissued @ Rs. 90 per share as fully paid. The Directors declare a dividend of 8% on equity
shares, transferring any amount that may be required from General Reserve. Ignore
Taxation

(10 Marks)

(b) M Ltd. is a full tax-free enterprise for the first ten years of its existence and is in the
second year of its operation. Depreciation timing difference resulting in a tax liability in year
1 and 2 is Rs. 1,000 lakhs and Rs. 2,000 lakhs respectively. From the third year it is expected
that the timing difference would reverse each year by Rs. 50 lakhs. Assuming tax rate of

CATESTSERIES.ORG
40%, you are required to compute to the deferred tax liability at the end of the second year
and any charge to the Profit and Loss account.

(4 marks)

Q-2 The Summarized Balance Sheet of X Ltd. and its subsidiary Y Ltd. as on 31 stMarch, 2022
are as follows:

Particulars Amounts as at 31st March, 2022

X Ltd.(Rs. in lakhs) Y Ltd.(Rs. in lakhs)

Liabilities

Share Capital:

Authorized 20,000 8,000

Issues and subscribed:

Equity share of Rs. 10 each, fully paid up 15,000 6,000

15% preference shares of Rs. 10 each, fully 4,000 1,000

paid up

General Reserves 2,500 1,450

Profit & Loss Account 2,750 1,250

Trade payables 1,646 1,027

25,896 10,727

ASSESTS

CATESTSERIES.ORG
 Land & Building 3,550 1,510

Plant & Machinery 5,275 3,600

Furniture & Fittings 1,945 655

Investment in Y Ltd.:

450 Lakh Equity share in Y Ltd. purchased on 6,800

1stApril, 2021

Inventory 4,142 2,520

Trade Receivables 3,010 1,882

Cash and Bank Balance 1,174 560

25,896 10,727

The following information is also given to you

(a) 10% dividend on Equity shares was declared by Y Ltd. on 31st March, 2021 for the year
ended 31st March, 2021. X Ltd. credited the dividend received to its Profit & Loss Account.

(b) Credit Balance of Profit & Loss account of Y Ltd. as on 1st April, 2021 was Rs. 650 Lakhs.

(c) General Reserve of Y Ltd. stood at same Rs.1,450 Lakhs as on 1st April, 2021.

(d) Y Ltd.’s Plant & machinery showed a balance of Rs. 4,000 Lakh on 1st April 2021. At the
time of purchase of shares in Y Ltd., X Ltd. revalued Y’s Ltd. Plant & Machinery upward by
Rs. 1,000 Lakh.

(e) Included in Trade Payables of Y Ltd. are Rs. 50 Lakh for goods supplied by X Ltd.

(f) On 31st March, 2022, Y’s ltd. inventory included goods for Rs. 150 lakhs which it had
purchased from X Ltd. sold goods to Y Ltd. at cost plus 25%.

CATESTSERIES.ORG
You are required to prepare a Consolidated Balance Sheet of X Ltd. and its subsidiary Y Ltd.
as on 31st March, 2022 giving working notes.

(14 marks)

Q-3 (a) 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

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

CATESTSERIES.ORG
 Trade payables 1,30,000 80,000

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.

(10 marks)

(b) Ayushman Ltd is engaged in a business of genetically creating high breed food products
and manufacturing. A major portion of its output is exported.

During April 2008, to support its activities, the company had acquired a R&D cum
Manufacturing Plant for a total consideration of Rs. 7.50 crores. Identifiable Assets were
worth Rs. 5 crores and the balance was treated as Goodwill, to be amortised over a period
of 5 years. The useful life of the plant was estimated at 20 years. The company adopts a
Straight Line Method of depreciation for its assets with a NIL residual value.

In March 2011, new Government had sworn in and put a restriction on export of all
agricultural produces. This had let to impairment of Ayushman’s assets. Ayushman had

CATESTSERIES.ORG
recognised the Impairment Loss by determining the recoverable amount of assets at Rs.
3.40 crores.

In March 2013, due to change in policy, the restriction was removed and the recoverable
amount of the plant is estimated at Rs. 4.27 crores.

If the company’s financial year ends on 31st March —

(a) Compute the Impairment Loss recognised for the year ending 31st March,2011 and
determine its allocation.

(b) Compute the reversal of Impairment Loss for the year ending 31st March 2013 and
determine its allocation.

(4 marks)

Q-4. (a) X Ltd. has two Branches in Cochin and Bangalore. During the year ended
31.03.2013, goods have been invoiced to the Cochin Branch at 20% above cost and to the
Bangalore Branch at 25% above cost. The Branches do not maintain complete books of
account but the following figures are available for the year ended on 31.03.2013

Particulars Cochin Bangalore

Opening Stock at invoice price 10,000 10,000

Goods Sent to Branch at cost 50,000 40,000

Amount remitted by Branch 80,000 80,000

Amount remitted by H.O. 15,000 15,000

Goods returned by Branch at 3,000 -

invoice price

CATESTSERIES.ORG
Cash as on 1.4. 2,000 1,000

2012Cash on 31.3.2013 1,000 500

Goods returned by customers at Branch at selling 5,000 4,000

price

Expenses at Branch in cash 9,000 3,000

All sales at the Branches are for Cash. During the year Cochin Branch purchased Fixed Assets
worth Rs. 4,000 and this amount is included in the figure of Branch expenses. Cochin Branch
transferred to the Bangalore Branch Stock costing Rs. 5,000 during the year. The Bangalore
Branch remitted Rs. 2,000 to Cochin Branch also during the year. There was a Closing Stock
of Rs. 24,000 valued at invoice price at the Cochin Branch. There was no Closing Stock at the
Bangalore Branch. The Branch Stock Adjustment Account in the Head Office books showed
the following position as on 1st April 2012.

For Cochin Rs. 2,500 (Cr.)

For Bangalore Rs. 2,000 (Cr.)

Prepare Branch Stock Account, Branch Stock Adjustment Account, Branch Cash Account and
Branch Profit and Loss Account in the Head Office books ignoring depreciation.

(10 marks)

(b) Jet Carriers Ltd. has initiated a lease for four years in respect of a vehicle costing Rs.
20,00,000 with expected useful life of 5 years. The asset would revert to the company under
the lease agreement. The other information available in respect of lease agreement is:

(1) The unguaranteed residual value of the equipment after the expiry of the lease term is
estimated at Rs. 2,50,000.
(2) The implicit rate of interest is 10%.

CATESTSERIES.ORG
(3) The annual payments have been determined in such a way that the present value of the
lease payment plus the residual value is equal to the cost of asset.

Ascertain in the hand of Jet Carriers Ltd.

(1) The annual lease payment.

(2) The unearned finance income.
(3) The segregation of finance income.

Note:

(a) PV Residual value for 4 years @ 10% is 0.683.

(b) PV Factor for 4 years @ 10% is 3.16987.

(4 marks)

Q-5. (a) XYZ Ltd. has the following capital structure on of 31st March 2021.

Particulars Rs. In Crores

a. Equity Share capital (Shares of Rs. 10 each) 300

b. Reserves :

General reserve 270

Security Premium 100

Profit and Loss A/c 50

Export Reserve (Statutory reserve) 80

c. Loan Funds 800

The shareholders have on recommendation of Board of Directors approved vide special

CATESTSERIES.ORG
resolution at their meeting on 10th April 2021 a proposal to buy back maximum permissible
equity shares considering the huge cash surplus following A/c of one of its divisions.

The market price was hovering in the range of Rs. 25 and in order to induce existing
shareholders to offer their shares for buy back, it was decided to offer a price of 20% above
market.

Advice the company on maximum number of shares that can be bought back and record
journal entries for the same assuming the buy back has been completed in full within the
next 3 months.

If borrowed funds were Rs. 1260 crores, and 1500 crores respectively would your answer
change?

(5 marks)

(b) Raghav Ltd. grants 250stock options to each of its 800 employees on 1st April, 2016,
conditional upon the employees remaining in the company for 2 years. The fair value of the
option is Rs. 22 on the grant date and the exercise price is Rs. 70 per share. The number of
employees expected to satisfy service condition are 720 in the first year and 670 in the
second year. 30 employees left the company in the first year of service and 700 employees
have actually completed second year vesting period. The profit of the enterprise before
amortization of the compensation cost on account of ESOP is Rs. 58,65,000 for 2016-2017
and Rs. 76,45,000 for 2017-2018. The fair values of shares for these years were Rs. 90 and
Rs. 100 respectively. The company has 5 lakhs shares of Rs. 10 each, outstanding at the end
of both years. Ignore taxation impact, compute Basic and Diluted EPS for both the years.

(5 marks)

(c) X Ltd. borrowed US $500,000 on 31-12-2021 which will be repaid (settled) as on 30-6-
2022. X Ltd. Prepares its financial statements ending on 31-03-2022. Rate of exchange

CATESTSERIES.ORG
between reporting currency (Rupee) and foreign currency (US $) on different dates are as
under:

31-12-2021 1 US$ = Rs. 44.00

31-03-2022 1 US$ = Rs. 44.50

30-06-2022 1 US$ = Rs. 44.75

1) Calculate Borrowings in reporting currency to be recognised in the books on above

mentioned dates and also show journal entries for the same.

(4 marks)

Q-6 (a) P Ltd. had 8,000 Equity Shares of K Ltd. at a book value of Rs. 15 per share (Face
value of Rs. 10 each) on 1st April 2019. On 1st September 2019, P Ltd. acquired another
2,000 Equity Shares of K Ltd. at a premium of Rs. 4 per share. K Ltd. announced a bonus and
right issue for existing shareholders.

The term of bonus and right issue were:

(i) Bonus was declared at the ratio for two-equity shares for every five shares held on 30th
September 2019.

(ii) Right shares are to be issued to the existing shareholders on 1st December 2019. The
company had issued two right shares for every seven shares held at 25% premium on face
value. No dividend was payable on these shares. The whole sum being payable by 31st
December 2019.

(iii) Existing shareholders were entitled to transfer their right to outsiders either wholly or in
part.

(iv) P Ltd. exercised its option under the issue for 50% of its entitlements and sold the
remaining rights for Rs. 8 per share.

CATESTSERIES.ORG
(v) Dividend for the year ended 31st March 2019 at the rate of 20% was declared by K Ltd.
and received by P Ltd. on 20th January 2020.

(vi) On 1st February 2020 P Ltd. sold half of its shareholdings at a premium of Rs. 4 per
share.

(vii) The market price of share on 31st March 2020 was Rs. 13 per share.

You are required to prepare the Investment Account of P Ltd. for the year ended 31st March
2020 and determine the value of shares held on that date, assuming the investment as
current investment. Consider average cost basis for ascertainment for cost for equity shares
sold.

(8 marks)

(b) The fair value of plan assets of Anupam Ltd. was Rs. 2,00,000 in respect of employee
benefit pension plan as on 1st April, 2016. On 30th September, 2016 the plan paid out
benefits of Rs. 25,000 and received inward contributions of Rs. 55,000. On 31st March,
2017 the fair value of plan assets was Rs. 3,00,000. On 1st April, 2016 the company made
the following estimates, based on its market studies and prevailing prices.

Interest and dividend income (after tax) payable by fund 10.25

Realized gains on plan assets (after tax) 3.00

Fund administrative costs (3.00)

Expected rate of return 10.25

Calculate the expected and actual returns on plan assets as on 31st March, 2017, as per AS
15.

(4 marks)

CATESTSERIES.ORG
 OR

Antarbarti Limited reported a Profit Before Tax (PBT) of Rs. 4 lakhs for the third quarter
ending 30-09-2016. On enquiry you observe the following. Give the treatment required
under AS 25:

(i) Dividend income of Rs. 4 lakhs received during the quarter has been recognized to the
extent of Rs. 1 lakh only.

(ii) 80% of sales promotion expenses Rs. 15 lakhs incurred in the third quarter has been
deferred to the fourth quarter as the sales in the last quarter is high.

(iii) In the third quarter, the company changed depreciation method from WDV to SLM,
which resulted in excess depreciation of Rs. 12 lakhs. The entire amount has been debited in
the third quarter, though the share of the third quarter is only Rs. 3 lakhs.

(iv) Rs. 2 lakhs extra-ordinary gain received in third quarter was allocated equally to the
third and fourth quarter.

(v) Cumulative loss resulting from change in method of inventory valuation was recognized
in the third quarter of Rs. 3 lakhs. Out of this loss Rs. 1 lakh relates to previous quarters.

(vi) Sale of investment in the first quarter resulted in a gain of Rs. 20 lakhs. The company
had apportioned this equally to the four quarters.

Prepare the adjusted profit before tax for the third quarter

(6 marks)

CATESTSERIES.ORG