Mock -2

Advance Account
PART I – Case Scenario based MCQs
Case Scenario
100 Marks
1. Super Ltd., a manufacturing company, has the following summarized Balance Sheet as
of March 31, 2024:
Equity Shares of ₹ 10 each fully paid up: ₹ 17,00,000

Reserves & Surplus:

Revenue Reserve: ₹23,50,000 Securities Premium: ₹2,50,000
Profit & Loss Account: ₹2,00,000
Infrastructure Development Reserve: ₹1,50,000
Secured Loan:
9% Debentures: ₹38,00,000 Unsecured Loan: ₹8,50,000
Property, Plant & Equipment: ₹58,50,000
Current Assets: ₹34,50,000
Super Ltd. plans to buy back 35,000 equity shares of ₹10 each fully paid up on April 1,
2024, at ₹30 per share. The buyback is authorized by its articles, and necessary
resolutions have been passed. The payment for the buyback will be made using the
company₹s bank balance, which is part of its current assets.
Answer the following questions based on the above information:
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of shares in
any financial year must not exceed
i 20% of its total paid-up capital and free reserves

ii 25% of its total paid-up capital and free reserves

iii 25% of its total paid-up capital

iv 20% of its total paid-up capital

(b) How many shares can Super Ltd. buy back according to the Shares
Outstanding Test?
(i) 35,000 shares
(ii) 42,500 shares
(iii) 37,500 shares
(iv) 54,375 shares
(c) What is the maximum number of shares that can be bought back according to
the Resources Test?
 (i) 35,000 shares
(ii) 42,500 shares
(iii) 37,500 shares
(iv) 54,375 shares
(d) According to the Debt Equity Ratio Test, what is the maximum numberof
shares that can be bought back?
(i) 35,000 shares
(ii) 42,500 shares
(iii) 37,500 shares
(iv) 54,375 shares
(2 Marks each)
2. Venus Limited received a parcel of land at no cost from the government for the purpose
of developing a factory in an outlying area. The land is valued at
₹75 lakhs, while the nominal value is ₹10 lakhs. Additionally, the company received a
government grant of ₹30 lakhs, which represents 25% of the total investment needed
for the factory development. Furthermore, the company received ₹15 lakhs with the
stipulation that it be used to purchase machinery. There is no expectation from the
government for the repayment of these grants.
Answer the following questions based on the above information:
(a) The land received from Government, free of cost should be presented at:
(i) ₹75 Lakhs
(ii) ₹30 Lakhs
(iii) ₹10 Lakhs
(iv) ₹45 Lakhs
(b) As per AS 12, how the Government Grant of ₹30 Lakhs should be
presented:
(i) It should be recognised in the profit and loss statement as per the
related cost.
(ii) It will be treated as capital reserve.
(iii) It will be treated as deferred income.
(iv) It will not be recognised in the financial statements.
(c) As per AS 12, how the Government Grant of ₹15 Lakhs with a condition to
purchase machinery may be presented as:
(i) Capital Reserve
(ii) Shareholders Fund
(iii) Deferred Income
 (iv) Income in statement of profit and loss as received.
(d) Which of the above grants are required to be recognised in the statement of profit
and loss on a systematic and rational basis over the useful life of the asset:
(i) Land received as Grant
(ii) Government Grant of ₹30 Lakhs
(iii) Government Grant of ₹15 Lakhs with a condition to purchase machinery
(iv) Noe of the above
(2 Marks each)
3. Axis limited is a manufacturing company. It purchased a machinery costing ₹10 Lakhs
in April 2023. It paid ₹4 lakhs upfront and paid the remaining ₹6,00,000 as deferred
payment by paying instalment of ₹1,05,000 for the next 6 months. During the year,
the Company sold a land which was classified as its ₹property, plant and equipment₹ for
₹25,00,000 and paid ₹1,00,000 as income tax as long term capital gain on such sale.
During the year, the Company also received income tax refund along with interest.
(a) As per the requirements of AS 3, ₹Cash Flow Statements₹, how the amount for
purchase of machinery should be presented:
(i) ₹10 lakhs as ₹Cash flows from Investing Activities₹ and ₹30,000 will simply
be booked in profit and loss with no presentation if Cash Flow Statement.
(ii) ₹10.30 lakhs as ₹Cash flows from Investing Activities₹ as entire amount is
spend on purchase of machinery.
(iii) ₹10 lakhs as ₹Cash flows from Investing Activities₹ and ₹30,000 as ₹Cash
flows from Financing Activities₹.
(iv) ₹10.30 lakhs as ₹Cash flows from Financing Activities₹ as the machinery has
been purchased on finance.
(b) At what amount, the machinery should be recognised in the financial
statements:
(i) ₹400,000
(ii) ₹10,30,000
(iii) ₹600,000

(iv) ₹10,00,000
(c) How should the income tax paid on sale of land should be disclosed in the Cash
Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
(d) How should the interest on income tax refunds should be disclosed inthe Cash
Flows Statement:
 (i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
(2 Marks each)
4. Gyan Ltd. borrowed ₹10 crore for construction of a plant at the rate of 10% per
annum (interest paid annually ₹1 crore). The construction was beingcarried on and out
of the borrowings, ₹4 crore was temporarily placed in afixed deposit at the rate of
6% per annum (interest earned ₹24 lakh). At the year end, how much cost of borrowing
Gyan Limited will capitalise?
(a) Interest paid on ₹10 crore i.e. ₹1 crore
(b) Interest paid on ₹6 crore as only this amount was utilized i.e. ₹60 Lakh.
(c) Interest paid less income on temporary investment i.e. ₹76 lakh
(d) Nothing will be capitalised. (2 Marks)
5. Cost of current investment acquired was ₹1,00,000 but the fair value was
₹80,000. The Investment was recorded at ₹80,000. Now the fair value of Investment
is Rs 1,20,000. At what value should it be recorded and how much gain will be credited
to profit and loss account.
(a) No change is required and it will continue at ₹80,000
(b) Current investment will be recorded at ₹1,00,000 and gain of ₹20,000 will be
credited to profit and loss account.
(c) Current investment will be recorded at ₹1,20,000 and gain of ₹40,000 will be
credited to profit and loss account.

(d) Current investment will be recorded at ₹1,20,000 but no gain will be credited to
profit and loss account.

(2 Marks)
6. In determining the cost of inventories, it is appropriate to exclude certain costs and
recognise them as expenses in the period in which they are incurred. Which of the
following is not an examples of such costs:
(a) Abnormal amounts of wasted materials, labour, or other production costs;
(b) Storage costs, unless the production process requires such storage;
(c) Raw Material cost
(d) Selling and distribution costs.
(2 Marks)
 PART – B
Question 1 (A)
From the following details of Aditya Limited for accounting year ended on 31st March, 2020:
Particulars ₹
Accounting profit 15,00,000
Book profit as per MAT 7,50,000
Profit as per Income tax Act 2,50,000
Tax Rate 20%
MAT Rate 7.5%
Calculate the deferred tax asset/liability as per AS 22 and amount of tax to be debited to
the profit and loss account for the year.
(4)

Question 1 (B)
Trower Limited is an Indian importer. It imports goods from True View Limited situated at
London. Trower Limited has a payable of £50,000 to True View Limited as on 31st March,
2023. True View Limited has given Trower Limited the following two options:
(i) Pay immediately with a cash discount of 1% on the payable.
(ii) Pay after 6 months with interest @ 5% p.a. on the payable. The borrowing rate for Trower
Limited in rupees is 15% p.a. The following are the exchange rates:
Date ₹
31st March,2023 97
30th September, 2023 99
You are required to give your opinion to Trower Limited on which of the above two options to
be chosen.
(5)

Questions 1 (C)
AB contactors enters into a contract on 1st January 20X1 with XY to construct a 5-
storied building. Under the contract, AB is required to complete the construction in 3 years
(i.e., by 31st December 20X3). The following information is relevant:
Fixed price (agreed) ₹5 crore
Material cost escalation (to the extent of 20% of increase in material cost)
Labour cost escalation (up to 30% of increase in minimum wages)

In case AB is able to complete the construction in less than 2 years and 10 months, it will be
entitled for an additional incentive of ₹50 lakh. However, in case the construction is delayed
beyond 3 years and 2 months, XY will charge a penalty of ₹20 lakh. At the start of the
contract, AB has a reason to believe that construction will be completed in 2 years and 8
months. Assume that the construction was actually completed in 2 years 9 months.

Labour cost was originally estimated to be ₹1.20 crore (based on initial minimum wages).
However, the costs have increased by 25% during the construction period.
Material costs have increased by 40% due to short-supply. The total increase in material cost
due to the 40% escalation is ₹80 lakh.

You are required to suggest what should be the contract revenue in above case?
Assume that in year 20X2, XY has requested AB to increase the scope of the contract.
An additional floor is required to be constructed and there is an increase in contract fee
by ₹1 crore.
AB has incurred a cost of ₹20 lakh for getting the local authority approvals which it will be
entitled to claim from XY in addition to the increase in the fixed fee.
Also measure the total contract revenue in this case.
(5)

Question 2
White Ltd. acquired 2,250 shares of Black Ltd. on 1st October,.2020. The summarized
balance sheets of both the companies as on 31st March, 2021 are given below:
White Ltd. Black Ltd. (₹)
(₹)
Equity and Liabilities
Shareholder’s fund
Share capital (Equity shares of ₹ 100 each fully
paid 6,50,000 3,00,000
up) 60,000 30,000
Reserves and Surplus General Reserve Profit and 1,50,000 90,000
loss account 1,15,000 75,000
Current Liabilities - 30,000
Trade payables Due to White Ltd.
Total 9,75,000 5,25,000
(II) Assets:
Non-current assets
Property, Plant and Equipment 5,80,000 3,51,000
Investments
Shares in Black Ltd. (2,250 shares) 2,70,000
Current assets
Inventories 50,000 1,20,000
Due from Black Ltd. 36,000
Cash and Cash equivalents 39,000 54,000
Total 9,75,000 5,25,000

Other information:
(a) During the year, Black Limited fabricated a machine, which is sold to White Ltd. for
₹ 39,000, the transaction being completed on 30th March,2021. Cash in transit from
 Black Ltd. to White Ltd. was ₹ 6,000 on 31st March,2021. Profits during the year
2020-2021 were earned evenly.

(b) The balances of Reserve and Profit and Loss account as on 1st April,2020 were as
follows:
Reserves Profit and Loss A/c
₹ ₹
(c) White Ltd. 30,000 15,000 Profit
(d) Black Ltd. 30,000 10,000 Loss
(e) You are required to prepare consolidated Balance Sheet of the group as on 31st
March,2021 as per the requirement of Schedule III of the Companies Act, 2013.

(14)

Question 3 (A)
From the following Balance Sheets and information, prepare Cash Flow Statement
of Ryan Ltd. by Indirect method for the year ended 31st March, 20X1:
Particulars Notes 31st March 31st March
20X1 20X0
Rs. Rs.
Equity and Liabilities
1 Shareholders₹ funds
A Share capital 1 6,00,000 7,00,000
B Reserves and Surplus 2 4,20,000 3,00,000
2 Non-current liabilities
Long term borrowings 3 2,00,000 -
3 Current liabilities
A Trade Payables 1,15,000 1,10,000
B Other current liabilities 4 30,000 80,000
C Short term provision (provision for tax)
95,000 60,000
Total 14,60,000 12,50,000
Assets
1 Non-current assets
A Property, plant and Equipment 5 9,15,000 7,00,000
B Non-Current Investments 50,000 80,000
2 Current assets
A Inventories 95,000 90,000
B Trade receivables 2,50,000 2,25,000
C Cash and Cash equivalents 50,000 90,000
D Other Current assets 1,00,000 65,000
Total 14,60,000 12,50,000

Notes to accounts
No. 31st March, 31st March,
20X1 20X0
1. Share capital
Equity share capital 6,00,000 5,00,000
10% Redeemable Preference share
capital -- 2,00,000

Total 6,00,000 7,00,000

2 Reserves and Surplus
Capital redemption reserve 1,00,000 -
Capital reserve 70,000 -
General reserve 1,50,000 2,50,000
Profit and Loss account 1,00,000 50,000
Total 4,20,000 3,00,000
3 Long term borrowings
9% Debentures 2,00,000 --

4. Other current liabilities

Dividend payable - 60,000
Liabilities for expenses 30,000 20,000
Total 30,000 80,000

5 Property, plant and equipment

Plant and machinery 7,65,000 5,00,000
Land and building 1,50,000 2,00,000
Net carrying value 9,15,000 7,00,000

Additional Information
(i) A piece of land has been sold out for Rs.1,50,000 (Cost – Rs.1,20,000) and the balance
land was revalued. Capital Reserve consisted of profit on revaluation of land.
(ii) On 1st April, 20X0 a plant was sold for Rs.90,000 (Original Cost – Rs.70,000 and
W.D.V. – Rs. 50,000) and Debentures worth Rs.1 lakh were issued at par as part
consideration for plant of Rs.4.5 lakhs acquired.
(iii) Part of the investments (Cost – Rs.50,000) was sold for Rs.70,000.
(iv) Pre-acquisition dividend received Rs.5,000 was adjusted against cost of investment.
(v) Interim dividend was declared and paid @ 15% during the current year.
Income-tax liability for the current year was estimated at Rs.1,35,000.
(vi) Depreciation @ 15% has been charged on Plant and Machinery but no
depreciation has been charged on Building.
(8)
Question 3 (B)
M/s Marena, Delhi has a branch at Bangalore to which office goods are invoiced at cost plus
25%. The branch sells both for cash and on credit. Branch Expenses are paid direct from
head office and the Branch has to remit all cash received into the Head Office Bank
Account. From the following details, relating to calendar year 20X1, prepare the accounts in
the Head Office Ledger and ascertain the Branch Profit under Stock and Debtors Method₹.
Branch does not maintain any books of account, but sends weekly returns to the Head Office
Rs
Goods received from Head Office at invoice price 45,00,000
Returns to Heads Office at invoice price 90,000
Stock at Bangalore as on 1st January, 20X1 4,50,000
Sales during the year – Cash 15,00,000
- Credit 27,00,000
Sundry Debtors at Bangalore as on 1st January, 20X1 5,40,000
Cash received from Debtors 24,00,000
Discount allowed to Debtors 45,000
Bad Debts in the year 30,000
Sales returns at Bangalore Branch 60,000
Rent, Rates and Taxes at Branch 1,35,000
Salaries, Wages and Bonus at Branch 4,50,000
Office Expenses 45,000
Stock at Branch on 31st December, 20X1 at invoice price 9,00,000

(6)

Question 4
The following information from Balance Sheet of X Ltd. as at 31st March, 2023:
₹
4,000 Equity shares of ₹ 100 each 4,00,000
10% Debentures 2,00,000
Loans 80,000
Trade payables 1,60,000
General Reserve 40,000
Building 1,70,000
Machinery 3,20,000
Inventory 1,10,000
Trade receivables 1,30,000
Bank 68,000
Patent 65,000
Share issue Expenses 17,000

Y Ltd. agreed to absorb X Ltd. on the following terms and conditions:

(1) Y Ltd. would take over all assets, except bank balance and Patent at their book values less
 10%. Goodwill is to be valued at 4 year₹s purchase of super profits, assuming that the
normal rate of return be 8% on the combined amount of share capital and general reserve.

(2) Y Ltd. is to take over trade payables at book value.

The purchase consideration is to be paid in cash to the extent of ₹ 3,00,000 and the
balance in fully paid equity shares of ₹ 100 each at ₹ 125 per share.
The average profit is ₹ 62,200. The liquidation expenses amounted to ₹ 8,000. Y Ltd. sold
prior to 31st March, 2023 goods costing ₹ 60,000 to X Ltd. for ₹ 80,000. ₹ 50,000 worth
of goods are still in Inventory of X Ltd. on 31st March, 2023. Trade payables of X Ltd.
include
₹ 20,000 still due to Y Ltd.
Show the necessary Ledger Accounts to close the books of X Ltd. and prepare the Balance
Sheet of Y Ltd. as at 1st April, 2023 after the takeover
(14)

Question 5
Particulars Notes ₹
Equity and Liabilities
1 Shareholders₹ funds
A Share capital 1 13,50,000
B Reserves and Surplus 2 (4,51,000)
2 Non-current liabilities
A Long-term borrowings (Loan) 3 5,73,000
3 Current liabilities
A Trade Payables 2,07,000
B Other current liabilities 35,000
Total 17,14,000
Assets
1 Non-current assets
A Property, plant and equipment 4 6,68,000
B Intangible assets 5 3,18,000
2 Current assets
A Inventories 4,00,000
B Trade receivables 3,28,000
Total 17,14,000

₹
1 Share Capital
Equity share capital 7,50,000
15,000 Equity Shares of ₹ 50 each
 Preference share capital
12,000, 7% Cumulative Preference Shares of ₹ 50 each
(Preference dividend is in arrears for five years) 6,00,000
Total 13,50,000
2 Reserves and Surplus
Debit balance of Profit and loss Account (4,51,000)
(4,51,000)
3 Long-term borrowings
Loan 5,73,000
5,73,000
4 Property, plant and Equipment
Building at cost less depreciation 4,00,000
Plant at cost less depreciation 2,68,000
6,68,000
5 Intangible assets
Trademarks and Goodwill at cost 3,18,000
3,18,000

The Company is not earning profits, short of working capital and a scheme of
reconstruction has been approved by both the classes of shareholders. A summary
of the scheme is as follows:

(a) The equity shareholders have agreed that their ₹ 50 shares should be reduced
to ₹ 2.50 by cancellation of ₹ 47.50 per share. They have also agreed to
subscribe for three new equity shares of ₹ 2.50 each for each equity share
held.
(b) The preference shareholders have agreed to cancel the arrears of dividends
and to accept for each ₹ 50 share, 4 new 5% preference shares of ₹ 10 each,
plus 6 new equity shares of
₹ 2.50 each, all credited as fully paid.
(c) Lenders to the company for ₹ 1,50,000 have agreed to convert their loan into
share and for this purpose they will be allotted 12,000 new preference shares
of ₹ 10 each and 12,000 new equity shares of ₹ 2.50 each.
(d) The directors have agreed to subscribe in cash for 40,000, new equity shares
of ₹ 2.50 each in addition to any shares to be subscribed by them under (a)
above.
(e) Of the cash received by the issue of new shares, ₹ 2,00,000 is to be used
to reduce the loan due by the company.
(f) The equity share capital cancelled is to be applied:
i. to write off the debit balance in the profit and loss A/c; and
ii. to write off ₹ 35,000 from the value of plant.
Any balance remaining is to be used to write down the value of trademarks and goodwill.

Show by journal entries how the financial books are affected by the scheme and
prepare the balance sheet of the company after reconstruction. The nominal capital
as reduced is to be increased to
₹ 6,50,000 for preference share capital and ₹ 7,50,000 for equity share capital.
(14)

Question 6 (A)
Following is the Balance Sheet of Competent Limited as at 31st March, 20X1

Particulars Notes ₹
Equity and Liabilities
1 Shareholders₹ funds
A Share capital 1 12,50,000
B Reserves and Surplus 2 18,75,000
2 Non-current liabilities
Long term borrowings 3 28,75,000
3 Current liabilities
A Other Current Liabilities 16,50,000
Total 76,50,000
Assets
1 Non-current assets
A Property, plant and Equipment 46,50,000
2 Current assets 4
A Other Current Assets 30,00,000
Total 76,50,000

Notes to accounts
No. Particulars ₹
1 Share Capital
Authorized, issued and subscribed capital:
Equity share capital (fully paid up shares of ₹10 each) 12,50,000
2 Reserves and Surplus
Securities premium 2,50,000
Profit and loss account 1,25.000
Revenue reserve 15,00,000
Total 18,75,000
3 Long term borrowings
14% Debentures 18,75,000
Unsecured Loans 10,00,000
Total 28,75,000
4 Property, plant and equipment
Land and Building 19,30,000
 Plant and machinery 18,00,000
Furniture and fitting 9,20,000
Net carrying value 46,50,000
The company wants to buy-back 25,000 equity shares of ₹ 10 each, on 1st April,20X1 at ₹
20 per share. Buy-back of shares is duly authorized by its articles and necessary resolution
has been passed by the company towards this. The payment for buy-back of shares will be
made by the company out of sufficient bank balance available shown as part of Current
Assets.
Comment with your calculations, whether buy-back of shares by company is within the
provisions of the Companies Act, 2013. If yes, pass necessary journal entries towards buy-
back of shares and prepare the Balance Sheet after buy-back of shares.
(8)

Question 6 (B)
You are required to comment on the following cases as per the provisions of Accounting
Standard-1
₹Disclosure of accounting Policies₹:
(1) Bee Limited has not complied with AS-2 "Valuation of inventories" and the same is
disclosed in the Notes on Accounts. Management is of the view that the financial statements
give a true and fair view as non-compliance with AS-2 is disclosed.
(2) Cee Limited sold its Office Building for ₹ 10,00,000 on 1st March, 2023. The buyer has
paid the full amount and taken possession of the building. The book value of the Office Building
is ₹ 4,00,000. On 31st 2023, documentation and legal formalities are pending. The company
has not recorded the disposal and the amount received is shown as an advance.
(3) Dee Limited has prepared its accounts on cash basis and the same is not disclosed.
(4) Jee Limited disclosed significant accounting policies adopted in the preparation of
financial statements, in the Directors₹ Report.
(4)

Question 6 (C)
What is the disclosure requirement in interim financial reports as per AS 24 for
discontinuing operations?
(2)