MODEL TEST PAPERS

INTERMEDIATE COURSE

PAPER 1 ADVANCED ACCOUNTING

S. No. Model Test Paper Page No.

QUESTION

1. Model Test Paper 1 1 - 12

2. Model Test Paper 2 13 - 24

ANSWER

3. Model Test Paper 1 25 - 36

4. Model Test Paper 2 37 - 48

 MODEL TEST PAPER - 1
INTERMEDIATE COURSE: GROUP - I
PAPER – 1 : ADVANCED ACCOUNTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks)
Part I is compulsory.
Case Scenario
1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells holiday packages to the
customers. The Company negotiates upfront with the Airlines for specified number of seats in flight.
The Company agrees to buy a specific number of tickets and pay for those tickets regardless of
whether it is able to resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and agreed in advance. The
Company also assists the customers in resolving complaints with the service provided by airlines.
However, each airline is responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000 on 1 March 2024 at 1
US$ = INR 83.10 when exchange rate was US$ 1 = INR 83.02. On 31 March 2024, when the
Company closed its books, exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company
decided for premature settlement of the contract due to some exceptional circumstances.
The Company is evaluating below mentioned schemes:
i. Introduction of a formal retirement gratuity scheme by an employer in place of ad hoc ex -
gratia payments to employees on retirement.
ii. Management decided to pay pension to those employees who have retired after completing
5 years of service in the organization. Such employees will get pension of ` 20,000 per month.
Earlier there was no such scheme of pension in the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction having turnover of
` 200 crores. SEAS Ltd. and ADI Ltd. hold 9% and 23% respectively in an associate company,
ASOC Ltd. Both SEAS Ltd. and ADI Ltd. prepare consolidated financial statements as per Accounting
Standards notified under the Companies (Accounting Standards) Rules, 2006.
i. What would be the basis of revenue recognition for SEAS Ltd. as per the requirements of
Accounting Standards?
(a) Gross basis.
(b) Net basis.
(c) Depends on the accounting policy of the Company.
(d) Indian GAAP allows a choice to the Company to recognize revenue on gross basis or
net basis.

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 ii. Please suggest accounting treatment of forward contract for the year ended 31 March 2024
as per Accounting Standard 11.
(a) MTM (marked to market value) of contract will be recorded on 31 March 2024.
(b) MTM (marked to market value) of contract will be computed as at 31 March 2024 and
only if there is loss, it will be recorded during the year ended 31 March 2024.
(c) No accounting will be done during the year ended 31 March 2024.
(d) Premium on contract will be amortized over the life of the contract.
iii. You are requested to advise the Company in respect of the accounting requirements of above
schemes related to employee benefits as to which one of those schemes should be
considered as a change in accounting policy during the year.
(a) 1 – Change in accounting policy. 2 – Change in accounting policy.
(b) 1– Not a change in accounting policy. 2 – Change in accounting policy.
(c) 1 – Not a change in accounting policy. 2 – Not a change in accounting policy.
(d) 1– Change in accounting policy. 2 – Not a change in accounting policy.
iv. Please comment regarding consolidation requirements for SEAS Ltd. and ADI Ltd. using the
below mentioned options as to which one should be correct.
(a) ADI Ltd. would using equity method of accounting for 23% in ASOC Ltd. SEAS Ltd.
would consolidate ADI Ltd. and consequently automatically equity account 23% and
separately account for the balance 9% as per AS 13.
(b) ADI Ltd. would account for 23% in ASOC Ltd. as per AS 13. SEAS Ltd. would
consolidate ADI Ltd. and consequently automatically account 23% and separately
account for the balance 9%.
(c) ADI Ltd. would account for 23% share in ASOC Ltd using equity method of accounting.
SEAS Ltd. would consolidate ADI Ltd. and consequently, automatically account for
ASOC Ltd 23% share and separately account for 9% share in ASOC Ltd. using equity
method of accounting in consolidated financial statements.
(d) ADI Ltd. would account for 23% in ASOC Ltd. as per AS 13. SEAS Ltd. would
consolidate ADI Ltd. and using equity method of accounting 23% in ASOC Ltd. and
separately account for the balance 9% as per AS 13.
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
2. On 1st April, 2022, Shubham Limited purchased some land for ` 30 lakhs for the purpose of
constructing a new factory. This cost of 30 lakhs included legal cost of ` 2 lakhs incurred for the
purpose of acquisition of this land. Construction work could start on 1 st May, 2022 and Shubham
Limited provides you the details of the following costs incurred in relation to its construction:
`
Preparation and levelling of the land 80,000
Employment costs of the construction workers (per month) 29,000
Purchase of materials for the construction 21,24,000
Cost of relocating employees to new factory for work 60,000
Costs of inauguration ceremony on 1 st January, 2023 80,000
Overhead costs incurred directly on the construction of the factory (per month) 25,000

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 General overhead costs allocated to construction project by the Manager is ` 30,000. However,
as per company’s normal overhead allocation policy, it should be ` 24,000. The auditor of the
company has support documentation for the cost of ` 15,000 only) and raised objection for the
balance amount.
The construction of the factory was completed on 31 st December, 2022 and production could begin on
1st February, 2023. The overall useful life of the factory building was estimated at 40 years from the
date of completion. However, it was estimated that the roof will need to be replaced 20 years after the
date of completion and that the cost of replacing the roof at current prices would be 25% of the total
cost of the building.
The construction of the factory was partly financed by a loan of ` 28 lakhs borrowed on 1st April, 2022.
The loan was taken at an annual rate of interest of 9%. During the period when the loan proceeds had
been fully utilized to finance the construction, Shubham Limited received investment income of
` 25,000 on the temporary investment of the proceeds.
You are required to assume that all of the net finance costs to be allocated to the cost of factory (not
land) and interest cost to be capitalized based on nine months’ period.
Based on the information given in the above scenario, answer the following multiple choice questions:
i. Which of the following cost (incurred directly on construction) will be capitalized to the cost of
factory building?
(a) ` 2,00,000 incurred as legal cost
(b) ` 60,000 – costs of relocating employees
(c) ` 80,000 costs of inauguration ceremony
(d) ` 24,000 – allocated general overhead cost
ii. What amount of employment cost of construction workers will be capitalized to the cost of
factory building?
(a) ` 2,90,000
(b) ` 3,48,000
(c) ` 2,32,000
(d) ` 29,000
iii. What is the amount of net borrowing cost capitalized to the cost of the factory?
(a) ` 1,89,000
(b) ` 1,68,000
(c) ` 1,44,000
(d) ` 1,64,000
iv. What will be the carrying amount (i.e. value after charging depreciation) of the factory in the
Balance Sheet of Shubham Limited as at 31 st March, 2023?
(a) ` 30,00,000
(b) ` 57,78,125
(c) ` 27,78,125
(d) ` 58,00,000 Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]

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3. Kesar Ltd., a company engaged in various business activities, has decided to initiate a share buy -back
on 1st April, 2023. The company plans to repurchase 25,000 equity shares of ` 10 each at a price of
` 20 per share. This buy-back initiative is in compliance with the company's articles of association,
and the necessary resolution has been duly passed by the company. As part of the financial
arrangement for the share buy-back, Kesar Ltd. intends to utilize its current assets, particularly the
bank balance, to make the payment for the repurchased shares.
Here is a snapshot of Kesar Ltd.'s Balance Sheet as of 31 st March, 2023:
A. Share Capital: Equity share capital (fully paid up shares of ` 10 each) - ` 12,50,000
B. Reserves and Surplus: Securities premium ` 2,50,000; Profit and loss account ` 1,25,000;
Revenue reserve ` 15,00,000;
C. Long term borrowings: 14% Debentures- ` 28,75,000, Unsecured Loans - ` 16,50,000
D. Land and Building ` 19,30,000; Plant and machinery ` 18,00,000; Furniture and fitting
` 9,20,000 and Other Current Assets - ` 30,00,000
Authorized, issued and subscribed capital: Equity share capital (fully paid up shares of 10 each) -
12,50,000.
i. By using the Shares Outstanding Test the number of shares that can be bought back
(a) 1,25,000
(b) 31,250
(c) 25,000
(d) 30,000
ii. By using the Resources Test determine the number of shares that can be bought back:
(a) 25,000
(b) 31,250
(c) 28,750
(d) 39,062
iii. By using the Debt Equity Ratio Test determine the number of shares that can be bou ght back:
(a) 25,000
(b) 31,250
(c) 28,750
(d) 39,062
iv. On the basis of all three tests determine Maximum number of shares that can be bought back:
(a) 25,000
(b) 31,250
(c) 28,750
(d) 39,062
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]

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4. All of the following costs are excluded while computing value of inventories except?
(a) Selling and Distribution costs
(b) Allocated fixed production overheads based on normal capacity.
(c) Abnormal wastage
(d) Storage costs (which is necessary part of the production process) (2 Marks)
5. According to AS-18 Related Party Disclosures, which ONE of the following is not a related party of
Skyline Limited?
(a) A shareholder of Skyline Limited owning 30% of the ordinary share capital
(b) An entity providing banking facilities to Skyline Limited in the normal course of business
(c) An associate of Skyline Limited
(d) Key management personnel of Skyline Limited (2 Marks)
6. A process of reconstruction, which is carried out without liquidating the company and forming a new
one is called
(a) Internal reconstruction.
(b) External reconstruction.
(c) Amalgamation in the nature of merger.
(d) Amalgamation in the nature of purchase. (2 Marks)
PART II – Descriptive Questions (70 Marks)
Question No.1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the candidates.
Working Notes should form part of the answer.
1. (a) Innovative Garments Manufacturing Company Limited invested in the shares of another
company on 1 st October, 2022 at a cost of ` 2,50,000. It also earlier purchased Gold of
` 4,00,000 and Silver of ` 2,00,000 on 1st March, 2020. Market value as on 31 st March, 2023
of above investments are as follows:
`
Shares 2,25,000
Gold 6,00,000
Silver 3,50,000
How above investments will be shown in the books of accounts of Innovative Garments
Manufacturing Company Limited for the year ending 31st March, 2023 as per the provisions of
Accounting Standard 13 "Accounting for Investments"? (5 Marks)
(b) Lessee Ltd. took a machine on lease from Lessor Ltd., the fair value being ` 7,00,000.
The economic life of machine as well as the lease term is 3 years. At the end of each year
Lessee Ltd. pays ` 3,00,000. The Lessee has guaranteed a residual value of ` 22,000 on expiry
of the lease to the Lessor. However, Lessor Ltd., estimates that the residual value of the

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 machinery will be only ` 15,000. The implicit rate of return is 15% p.a. and present value factors
at 15% are 0.869, 0.756 and 0.657 at the end of first, second and third years respectively.
Calculate the value of machinery to be considered by Lessee Ltd. and the finance charges in
each year. (5 Marks)
(c) X Ltd. purchased a Property, Plant and Equipment four years ago for ` 150 lakhs and
depreciates it at 10% p.a. on straight line method. At the end of the fourth year, it has revalued
the asset at ` 75 lakhs and has written off the loss on revaluation to the profit and loss account.
However, on the date of revaluation, the market price is ` 67.50 lakhs and expected disposal
costs are ` 3 lakhs. What will be the treatment in respect of impairment loss on the basis that
fair value for revaluation purpose is determined by market value and the value in use is
estimated at ` 60 lakhs?. (4 Marks)
2. Following is the trial balance of Delta limited as on 31.3.2023.
(Figures in ` ‘000)
Particulars Debit Particulars Credit
Land at cost 800 Equity share capital (shares of 500
` 10 each)
Calls in arrears 5 10% Debentures 300
Cash in hand 2 General reserve 150
Plant & Machinery at cost 824 Profit & Loss A/c (balance on 75
1.4.22)
Trade receivables 120 Securities premium 40
Inventories (31-3-23) 96 Sales 1200
Cash at Bank 28 Trade payables 30
Adjusted Purchases 400 Provision for depreciation 150
Factory expenses 80 Suspense Account 10
Administrative expenses 45
Selling expenses 25
Debenture Interest 30
2455 2455

Additional Information:
(i) The authorized share capital of the company is 80,000 shares of ` 10 each.
(ii) The company revalued the land at ` 9,60,000.
(iii) Equity share capital includes shares of ` 50,000 issued for consideration other than cash.
(iv) Suspense account of ` 10,000 represents cash received from the sale of some of the machinery
on 1.4.2022. The cost of the machinery was ` 24,000 and the accumulated depreciation thereon
being ` 20,000. The balance of Plant & Machinery given in trial balance is before adjustment
of sale of machinery.
(v) Depreciation is to be provided on plant and machinery at 10% on cost.
(vi) Balance at bank includes ` 5,000 with ABC Bank Ltd., which is not a Scheduled Bank.
(vii) Make provision for income tax @30%.

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 (viii) Trade receivables of ` 50,000 are due for more than six months.
You are required to prepare Delta Limited's Balance Sheet as at 31.3.20 23 and Statement of Profit
and Loss with notes to accounts for the year ended 31.3.2023 as per Schedule Ill. Ignore previous
year's figures & taxation. (14 Marks)
3. (a) Y Ltd., used certain resources of X Ltd. In return X Ltd. received ` 10 lakhs and 15 lakhs as
interest and royalties respective from Y Ltd. during the year 2022-23. You are required to state
whether and on what basis these revenues can be recognized by X Ltd. (4 Marks)
(b) Following is the Balance Sheet of ABC Ltd. as at 31st March, 2023:
Particulars Notes `
Equity and Liabilities
1 Shareholders’ funds
A Share capital 1 26,00,000
B Reserves and Surplus 2 (4,05,000)
2 Non-current liabilities
A Long-term borrowings 3 12,00,000
3 Current liabilities
A Trade Payables 5,92,000
B Short term borrowings - Bank overdraft 1,50,000
Total 41,37,000
Assets
1 Non-current assets
A Property, plant and equipment 4 11,50,000
B Intangible assets 5 70,000
C Non-current investment 6 68,000
2 Current assets
A Inventory 14,00,000
B Trade receivables 14,39,000
C Cash and cash equivalents 10,000
Total 41,37,000

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Notes to accounts
`
1 Share Capital
Equity share capital:
2,00,000 Equity Shares of ` 10 each 20,00,000
6,000, 8% Preference shares of ` 100 each 6,00,000
26,00,000
2 Reserves and Surplus
Debit balance of Profit and loss A/c (4,05,000)
(4,05,000)
3 Long-term borrowings
9% debentures 12,00,000
12,00,000
4 Property, Plant and Equipment
Plant and machinery 9,00,000
Furniture and fixtures 2,50,000
11,50,000
5 Intangible assets
Patents and copyrights 70,000
70,000
6 Non-current investments
Investments (market value of ` 55,000) 68,000
68,000

The following scheme of reconstruction was finalized:

(i) Preference shareholders would give up 30% of their capital in exchange for allotment of
11% Debentures to them.
(ii) Debenture holders having charge on plant and machinery would accept plant and
machinery in full settlement of their dues.
(iii) Inventory equal to ` 5,00,000 in book value will be taken over by trade payables in full
settlement of their dues.
(iv) Investment value to be reduced to market price.
(v) The company would issue 11% Debentures for ` 3,00,000 and augment its working
capital requirement after settlement of bank overdraft.
Pass necessary Journal Entries in the books of the company. Prepare Capital Reduction
account and Balance Sheet extract for Equity & Liabilities of the company after internal
reconstruction. (10 Marks)

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4. The financial position of two companies Hari Ltd. and Vayu Ltd. as at 31 st March, 2023 was as under:

Particulars Notes Hari Ltd. Vayu Ltd.

Equity and Liabilities
1 Shareholders’ funds
A Share capital 1 11,00,000 4,00,000
B Reserves and Surplus 2 70,000 70,000
2 Non-current liabilities
A Long term provisions 3 50,000 20,000
3 Current liabilities
A Trade Payables 1,30,000 80,000
Total 13,50,000 5,70,000
Assets
1 Non-current assets
A Property, Plant and Equipment 4 8,00,000 2,50,000
B Intangible assets 5 50,000 25,000
2 Current assets
A Inventories 2,50,000 1,75,000
B Trade receivables 2,00,000 1,00,000
C Cash and Cash equivalents 50,000 20,000
Total 13,50,000 5,70,000

Notes to accounts
Hari Ltd. Vayu Ltd.
1 Share Capital
Equity shares of ` 10 each 10,00,000 3,00,000
9% Preference Shares of ` 100 each 1,00,000 --
10% Preference Shares of ` 100 each -- 1,00,000
11,00,000 4,00,000
2 Reserves and Surplus
General reserve 70,000 70,000
70,000 70,000
3 Long term Provisions
Retirement gratuity fund 50,000 20,000
50,000 20,000
4 Property, plant and Equipment
Land and Building 3,00,000 1,00,000
Plant and machinery 5,00,000 1,50,000
8,00,000 2,50,000

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 5 Intangible assets
Goodwill 50,000 25,000
50,000 25,000

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 ` 50,000, Buildings are valued at ` 1,50,000 and the
Machinery at ` 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 necessary Equity Shares @ 5% premium.
Prepare necessary the acquisition entries in the books of Hari Ltd. Also draft the Balance Sheet after
absorption as at 31 st March, 2023. (14 Marks)
5. From the Balance Sheets and information given below, prepare Consolidated Balance Sheet of Virat
Ltd. and Anushka Ltd. as at 31 st March. Virat Ltd. holds 80% of Equity Shares in Anushka Ltd. since
its (Anushka Ltd.’s) incorporation.
Balance Sheet of Virat Ltd. and Anushka Ltd. as at 31 st March, 2023

Particulars Note No. Virat Ltd. (`) Anushka Ltd. (`)

I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 6,00,000 4,00,000
(b) Reserves and Surplus 2 1,00,000 1,00,000
(2) Non-current Liabilities
Long Term Borrowings 2,00,000 1,00,000
(3) Current Liabilities
(a) Trade Payables 1,00,000 1,00,000
Total 10,00,000 7,00,000
II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 4,00,000 3,00,000
(b) Non-current investments 3 3,20,000 -
(2) Current Assets
(a) Inventories 1,60,000 2,00,000
(b) Trade Receivables 80,000 1,40,000
(c) Cash & Cash Equivalents 40,000 60,000
Total 10,00,000 7,00,000

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 Notes to Accounts

Particulars (`) Virat Ltd. Anushka Ltd.

(`) (`)
1. Share capital
60,000 equity shares of ` 10 each fully paid up 6,00,000 --
40,000 equity shares of ` 10 each fully paid up -- 4,00,000
Total 6,00,000 4,00,000
2. Reserves and Surplus
General Reserve 1,00,000 1,00,000
Total 1,00,000 1,00,000
3. Non-current investments
Shares in Anushka Ltd 3,20,000 --

(14 Marks)
6. (a) What are the qualitative characteristics of the financial statements which improve the
usefulness of the information furnished therein? (4 Marks)
Or
What are the issues, with which Accounting Standards deal? (4 Marks)
(b) From the following information, calculate cash flow from operating activities:
Summary of Cash Account
for the year ended March 31, 2023

Particulars ` Particulars `
To Balance b/d 1,00,000 By Cash Purchases 1,20,000
To Cash sales 1,40,000 By Trade payables 1,57,000
To Trade receivables 1,75,000 By Office & Selling Expenses 75,000
To Trade Commission 50,000 By Income Tax 30,000
To Sale of Investment 30,000 By Investment 25,000
To Loan from Bank 1,00,000 By Repayment of Loan 75,000
To Interest & Dividend 1,000 By Interest on loan 10,000
By Balance c/d 1,04,000
5,96,000 5,96,000
(4 Marks)
(c) Following is the information of the Jammu branch of Best New Delhi for the year ending
31st March, 2023 from the following:
(1) Goods are invoiced to the branch at cost plus 20%.
(2) The sale price is cost plus 50%.

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(3) Other information: `
Stock as on 01.04.2022(invoice price) 2,20,000
Goods sent during the year (invoice price) 11,00,000
Sales during the year 12,00,000
Expenses incurred at the branch 45,000
Ascertain
(i) the profit earned by the branch during the year.
(ii) branch stock reserve in respect of unrealized profit. (6 Marks)

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 MODEL TEST PAPER 2
INTERMEDIATE COURSE: GROUP - I
PAPER – 1 : ADVANCED ACCOUNTING
Time Allowed – 3 Hours Maximum Marks – 100
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks)
Part I is compulsory.
Case Scenario
1. Mars Ltd. is a manufacturing enterprise which is starting a new manufacturing
plant at X Village. It has commenced construction of the plant on April 1, 2023
and has incurred following expenses:
 It has acquired land for installing Plant for ` 50,00,000
 It incurred ` 35,00,000 for material and direct labour cost for developing the
Plant.
 The Company incurred ` 10,00,000 for head office expenses at New Delhi
which included rent, employee cost and maintenance expenditure.
 The Company borrowed ` 25,00,000 for construction work of Plant @12%
per annum on April 1, 2023. Director finance of the Company incurred
travel and meeting expenses amounting to ` 5,00,000 during the year for
arranging this loan.
 On November 1, 2023, the construction activities of the plant were
interrupted as the local people alongwith the activists have raised issues
relating to environmental impact of plant being constructed. Due to agitation
the construction activities came to standstill for 3 months.
 With the help of Government and NGOs, the agitation was over by February
28, 2024 and the work resumed. However, to balance the impact on
environment, government ordered the company to install certain devices
for which the Company had to incur ` 6,00,000 in March 2024.
 The rate of depreciation on Plant is 10%.
Based on the above information, answer the following questions.
(i) Which of the following expenses cannot be included in the cost of plant:
(a) Cost of Land
(b) Construction material and labour cost
(c) Head office expenses
(d) Borrowing cost
(ii) How much amount of borrowing cost can be capitalised with the plant:
(a) ` 300,000

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 (b) ` 2,00,000
(c) ` 7,00,000
(d) ` 6,00,000
(iii) The total cost of plant as on march 31, 2024 will be:
(a) ` 85,00,000
(b) ` 98,00,000
(c) ` 93,00,000
(d) ` 95,00,000
(iv) The amount of depreciation to be charged for the year end March 31,
2024
(a) ` 4,30,000
(b) ` 9,30,000
(c) ` 9,80,000
(d) Nil
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks]
2. Beloved Finance Ltd. is a financial enterprise which is in the business of
lending loan to small businesses and earn interest on loans.
• During the year the Company has lend 50 crores and earned ` 1.5 crore
as interest on loans.
• The Company had surplus funds during the year and invested then in
Fixed Deposits with bank and earned interest on fixed deposits of ` 20
lacs.
• The Company also acquired a gold loan unit for ` 10 crore during the
year and the Company provided interest free loan of ` 15 crore to its
wholly-owned subsidiary.
• The Company paid a total income tax of ` 75 lacs for the year.
Based on the above information, answer the following questions.
(i) In the Cash Flow Statement as per AS 3, the interest income of ` 1.5
crore earned on earned on loans given by the Company will be disclosed
as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
(ii) In the Cash Flow Statement as per AS 3, the interest income of ` 20
Lacs earned fixed deposits with bank will be disclosed as:
(a) Cash Flow from Operating Activities

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 (b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
(iii) In the Cash Flow Statement as per AS 3, amount paid for acquiring gold
loan unit will be disclosed as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
(iv) In the Cash Flow Statement as per AS 3, total income tax of ` 75 lacs
paid for the year will be disclosed as:
(a) Cash Flow from Operating Activities
(b) Cash Flow from Investing Activities
(c) Cash Flow from Financing Activities
(d) Non-cash Items
(v) Is any specific disclosures required to made in relation to the interest
free loan of ` 15 crore provided by the Company to its wholly-owned
subsidiary, if yes, as per which Accounting Standard:
(a) Yes, disclosure is required to be made as per AS 3, Cash Flow
Statements.
(b) Yes, disclosure is required to be made as per AS 18, Related Party
Disclosures
(c) Yes, disclosure is required to be made as per AS 13, Accounting
for Investments
(d) No specific disclosures are required.
Multiple Choice Questions [5 MCQs of 2 Marks each: Total 10 Marks]
3. Kumar Ltd., a privately-held company, operates in the manufacturing industry.
Founded in 2008, the company has steadily grown its operations and
established a strong presence in the market. As of 31st March, 2023, the
company's capital structure reflects a blend of equity and debt financing.
Capital Structure Overview:
 Equity Share Capital: The company has a total of ` 30,00,000 invested
in equity shares, each valued at ` 10 and fully paid.
 Reserves & Surplus: Kumar Ltd. has accumulated reserves and surplus
totaling `49,00,000, comprising contributions from various sources
including General Reserve (` 32,50,000), Security Premium Account
(` 6,00,000), Profit & Loss Account (` 4,30,000), and Revaluation
Reserve (` 6,20,000).

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  Loan Funds: The company has acquired loan funds amounting to
` 42,00,000 to support its operational and growth initiatives.
Buy-Back Decision:
Considering its financial position and market conditions, Kumar Ltd. has
decided to initiate a share buy-back program. The company intends to
repurchase its shares at a price of `30 per share.
In accordance with financial regulations and internal policies, Kumar Ltd. aims
to assess the maximum number of shares it can repurchase while maintaining
a prudent debt-equity ratio. By utilizing the Debt Equity Ratio Test, the
company seeks to strike a balance between its equity base and debt
obligations.
Based on the above information, answer the following questions.
(i) What is the minimum equity Kumar Ltd. needs to maintain after buy-
back, according to the Debt Equity Ratio Test?
(a) ` 12,95,000
(b) ` 21,00,000
(c) ` 32,50,000
(d) ` 6,00,000
(ii) What is the maximum permitted buy-back of equity for Kumar Ltd.?
(a) ` 38,85,000
(b) ` 42,00,000
(c) ` 12,95,000
(d) ` 59,85,000
(iii) How many shares of Kumar Ltd. can be bought back at ` 30 per share
according to the Debt Equity Ratio Test?
(a) 43,000
(b) 1,29,500
(c) 2,00,000
(d) 78,000
Multiple Choice Questions [3 MCQs of 2 Marks each: Total 6 Marks]
4. Sahil Ltd agreed to sell its factory located in Assam to Kali Ltd on 4.12.20 23.
It entered into a sale deed (transferring all significant risks and rewards of
ownership) on 1.2.2024. But the transaction was registered with the registrar
on 30.5.2024 When should the sale and gain be recognized?
(a) Both sale and gain should be recognized as on the balance sheet date
i.e. 31.3.2024.
(b) Both sale and gain should be recognized on 30.5.2024.

16
 (c) The sale should be recognized as on balance sheet date but gain should
be recognized on 30.5.2024.
(d) Both sale and gain should be recognized on 4.12.2023. (2 Marks)
5. Pratham and Associates is a manufacturer of steel rods. It invests its profits
by purchasing shares of listed companies in order to earn dividend income. It
had purchased shares of Bharti Airtel Limited in FY 2018-19. However, it sold
all the shares of Bharti Airtel Limited during the current year i.e. FY 2023-24.
What amount would be disclosed in the profit and loss account for
FY 2023-24?
(a) This transaction would not affect the profit and loss account since the
primary business of the company is manufacturing, and not investment.
(b) The carrying amount net of expenses would be disclosed in the profit
and loss account.
(c) The disposal proceeds net of expenses would be disclosed in the profit
and loss account.
(d) The difference between the carrying amount and the disposal proceeds,
net of expenses, would be disclosed in the profit and loss account.
(2 Marks)
6. As per Accounting Standards, difference between the Gross Investment and
the present value of Minimum Lease Payments under finance lease (from the
standpoint of the lessor) and Unguaranteed Residual Value accruing to the
lessor is recorded as
(a) Unearned finance income
(b) Guaranteed Residual Value
(c) Profit on lease
(d) Loss on lease (2 Marks)

PART II – Descriptive Questions (70 Marks)

Question No.1 is compulsory
Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer
by the candidates. Working Notes should form part of the answer.
1. (a) K Ltd. launched a project for producing product X in October, 2023. The
Company incurred ` 40 lakhs towards Research and Development
expenses upto 31 st March, 2024. Due to prevailing market conditions,
the Management came to conclusion that the product cannot be
manufactured and sold in the market for the next 10 years. The
Management hence wants to defer the expenditure write off to future
years.
Advise the Company as per the applicable Accounting Standard.
(5 Marks)

17
 (b) Wooden Plywood Limited has a normal wastage of 5% in the production
process. During the year 2023-24, the Company used 16,000 MT of
Raw material costing ` 190 per MT. At the end of the year, 950 MT of
wastage was in stock. The accountant wants to know how this wastage
is to be treated in the books.
You are required to :
(1) Calculate the amount of abnormal loss.
(2) Explain the treatment of normal loss and abnormal loss in the
context of AS-2. (5 Marks)
(c) On 15th June, 2024, Y limited wants to re-classify its investments in
accordance with AS 13 (revised). Decide and state the amount of
transfer, based on the following information:
(1) A portion of long term investments purchased on 1 st March, 2023
are to be re-classified as current investments. The original cost of
these investments was ` 14 lakhs but had been written down by
` 2 lakhs (to recognise 'other than temporary' decline in value). The
market value of these investments on 15 th June, 2024 was
` 11 lakhs.
(2) A portion of current investments purchased on 15 th March, 2024 for
` 7 lakhs are to be re-classified as long term investments, as the
company has decided to retain them. The market value of these
investments on 31 st March, 2024 was ` 6 lakhs and fair value on
15th June 2018 was ` 8.5 lakhs. (4 Marks)
2. The following balance appeared in the books of Oliva Company Ltd. as on
31-03-2024.
Particulars ` Particulars `
Inventory Sales 17,10,000
01-04-2023
-Raw Material 30,000 Interest 3,900
-Finished goods 46,500 76,500 Profit and Loss 48,000
A/c
Purchases 12,15,000 Share Capital 3,15,000
Manufacturing 2,70,000 Secure Loans:
Expenses Short–term 4,500
Long-term 21,000 25,500
Salaries and 40,200 Deposits
wages (unsecured):
General 16,500 Short -Term 1,500
Charges
Interim Dividend 27,000 Long-term 3,300 4,800
paid Trade payables 3,27,000
Building 1,01,000

18
 Plant and
Machinery 70,400
Furniture 10,200
Motor Vehicles 40,800
Stores and
Spare Parts 45,000
Consumed
Investments:
Current 4,500
Non Current 7,500 12,000
Trade 2,38,500
receivables
Cash in Bank 2,71,100
24,34,200 24,34,200
From the above balance and the following information, prepare the company’s
Profit and Loss Account for the year ended 31 st March, 2024 and Company’s
Balance Sheet as on that date:
1. Inventory on 31st March,2024 Raw material ` 25,800 & finished goods
` 60,000.
2. Outstanding Expenses: Manufacturing Expenses ` 67,500 & Salaries
& Wages ` 4,500.
3. Interest accrued on Securities ` 300.
4. General Charges prepaid ` 2,490.
5. Provide depreciation: Building @ 2% p.a., Machinery @ 10% p.a.,
Furniture @ 10% p.a. & Motor Vehicles @ 20% p.a.
6. The Taxation provision of 40% on net profit is considered. (14 Marks)
3. (a) XYZ Ltd. has not made provision for warrantee in respect of certain
goods due to the fact that the company can claim the warranty cost from
the original supplier. Hence the accountant of the company says that the
company is not having any liability for warrantees on a particular date as
the amount gets reimbursed. You are required to comment on the
accounting treatment done by the XYZ Ltd. in line with the provisions of
AS 29. (4 Marks)
(b) The Balance Sheet of Radhika Ltd. as at 31-3-2024 is as follows:
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 13,80,000
b Reserves and Surplus 2 (6,42,000)
2 Non-current liabilities
a Long-term borrowings 3 4,50,000
3 Current liabilities

19
 a Trade Payables 3,60,000
b Short term borrowings - Bank Overdraft 2,34,000
c Other current liabilities 4 1,47,000
Total 19,29,000
Assets
1 Non-current assets
a Property, plant and equipment 5 5,70,000
b Intangible assets 6 2,01,000
c Non-current investments 7 66,000
2 Current assets
a Inventories 5,10,000
b Trade receivables 5,00,000
c Cash and Cash Equivalents 82,000
Total 19,29,000
Notes to accounts
`
1 Share Capital
Equity share capital:
9,000 Equity Shares of `100 each 9,00,000
Preference share capital:
4,800 6% Cumulative Preference Shares of `100 each 4,80,000
13,80,000
2 Reserves and Surplus
Debit balance of Profit and loss Account (6,42,000)

3 Long-term borrowings
Secured: 6% Debentures 4,50,000

4 Other current liabilities

Loan from directors 1,20,000
Interest payable on 6% debentures 27,000
1,47,000

20
 5 Property Plant and Equipment
Freehold property 5,10,000
Plant 60,000
5,70,000
6 Intangible assets
Goodwill 1,56,000
Patents 45,000
2,01,000
7 Non-current investments
Investments at cost 66,000

The Court approved a Scheme of re-organization to take effect on

1-4-2024, whereby:
(1) Equity Shares to be reduced to ` 20 each.
(2) Preference shareholders would give up 30% of their capital in
exchange for allotment of 11% Debentures to them.
(3) Of the Preference Share dividends which are in arrears for four
years, three fourths to be waived and Equity Shares of ` 20 each
to be allotted for the remaining quarter.
(4) Interest payable on debentures to be paid in cash.
(5) Goodwill to be written off.
(6) Inventory to be written off by `65,000.
(7) Amount of ` 68,500 to be provided for bad debts.
(8) Freehold property to be revalued at `6,49,000
(9) Investments be sold for ` 1,40,000.
(10) Directors to accept settlement of their loans as to 90% thereof by
allotment of equity shares of ` 20 each and as to 5% in cash, and
balance 5% being waived.
(11) There were capital commitments totaling ` 2,50,000. These
contracts are to be cancelled on payment of 5% of the contract
price as a penalty.
(12) Ignore taxation and cost of the scheme.
(13) Eliminate debit balance of Profit and Loss A/c
You are requested to prepare the Balance Sheet of the company after
completion of the Scheme. (10 Marks)

21
4. Following is the information of Anu Ltd. and Banu Ltd. as on 31.03.2023 were
as under:
Anu Ltd. Banu Ltd.
(`) (`)
Share Capital:
50,000 Equity Shares of `10 each, Fully Paid 5,00,000
37,500 Equity Shares of `10 each, Fully Paid 3,75,000
General Reserve 3,00,000 -
Profit and Loss Account 62,500 62,500
Trade Payables 2,62,500 1,62,500
5% Debentures - 1,50,000
Freehold Property 3,75,000 3,00,000
Plant and Machinery 75,000 50,000
Motor Vehicle 37,500 25,000
Trade Receivables 2,50,000 1,00,000
Inventory 2,87,500 2,25,000
Cash at Bank 1,00,000 50,000
Anu Ltd. and Banu Ltd. carry on business of similar nature and they agreed
to amalgamate.
A new Company, Anban Ltd. is formed to take over the Assets and Liabilities
of Anu Ltd. and Banu Ltd. on the following basis:
Assets and Liabilities are to be taken at Book Value, with the following
exceptions:
(a) Goodwill of Anu Ltd. and Banu Ltd. is to be valued at `1,75,000 and
`50,000 respectively.
(b) Plant and Machinery of Anu Ltd. are to be valued at `1,25,000.
(c) The Debentures of Banu Ltd. are to be discharged by the issue of 6%
Debentures of Anan Ltd. at a premium of 5%.
You are required to:
1. Compute the basis on which shares in Anban Ltd. will be issued to
Shareholders of the existing Companies assuming nominal value of each
share of Anban Ltd. is `10.
2. Draw up a Balance Sheet of Anban Ltd. as on 1st April, 2023, when
Amalgamation is completed. (14 Marks)
5. (a) Star Ltd.acquires 70% of equity shares of Moon Ltd.as on 31st March,
2024 at a cost of ` 140 lakhs. The following information is available from
the balance sheet of Moon Ltd.as on 31st March, 2024:
` in lakhs
Property, plant and equipment 240

22
 Investments 110
Current Assets 140
Loans & Advances 30
15% Debentures 180
Current Liabilities 100
The following revaluations have been agreed upon (not included in the
above figures):
Property, plant and equipment Up by 20%
Investments Down by 10%
Moon Ltd. declared and paid dividend @ 20% on its equity shares as on
31st March, 2024 (Face value - ` 10 per share). Star Ltd. purchased the
shares of Moon Ltd.@ ` 20 per share.
Calculate the amount of goodwill/capital reserve on acquisition of shares
of Moon Ltd. 31st March, 2024.
(b) Gamma Ltd. acquired 24,000 equity shares of ` 10 each, in Beta Ltd. on
October 1, 2023 for` 4,60,200. The profit and loss account of Beta Ltd.
showed a balance of ` 15,000 on April 1,2023. The plant and machinery
of Beta Ltd. which stood in the books at ` 2,25,000 on April 1,2023 was
considered worth ` 2,70,000 on the date of acquisition.
The information of the two companies as at 31-3-2024 was as follows:
Gamma Ltd. Beta Ltd.
(`) (`)
Shares capital (fully paid equity shares
of ` 10 each) 7,50,000 3,00,000
General reserve 3,60,000 1,50,000
Profit and loss account 85,800 1,23,000
Current Liabilities 2,54,700 49,500
Land and building 2,70,000 2,85,000
Plant and machinery 3,60,000 2,02,500
Investments 4,60,200
Current assets 3,60,300 1,35,000
You are required to compute impact of revaluation of Plant and
Machinery. (7+7 = 14 Marks)
6. (a) “One of the characteristics of financial statements is neutrality”- Do you
agree with this statement? (4 Marks)
Or
Opening Balance Sheet of Mr. Amit is showing the aggregate value of
assets, liabilities and equity ` 16 lakh, ` 6 lakh and ` 10 lakh respectively.
During accounting period, Mr. Amit has the following transactions:
(1) Earned 10% dividend on 4,000 equity shares held of ` 100 each

23
 (2) Paid ` 1,00,000 to creditors for settlement of ` 1,40,000
(3) Rent of the premises is outstanding ` 20,000
(4) Mr. A withdrew ` 18,000 for his personal use.
You are required to show the effect of above transactions on Balance
Sheet in the form of Assets - Liabilities = Equity after each transaction.
(4 Marks)
(b) C Ltd. had ` 5,00,000 authorized capital on 31-12-2021 divided into
shares of ` 100 each out of which 4,000 shares were issued and fully
paid up. In June 2022 the Company decided to convert the issued shares
into stock. But in June, 2023 the Company re-converted the stock into
shares of ` 10 each, fully paid up.
Pass entries and show how Share Capital will appear in Notes to Balance
Sheet as on 31-12-2022 and 31-12-2023. (4 Marks)
(c) Alfa of Chennai has a branch at Mumbai 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 December, 2023:
`
Cost of goods sent to Branch at cost 2,00,000
Goods received by Branch till 31-12-2023 at 2,20,000
invoice price
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 1-1-2023 31-12-2023
` `
Stock 25,000 (Cost) 28,000 (invoice price)
Debtors 32,750 26,000
Cash in Hand 5,000 2,500
You are required to prepare Branch stock account and branch debtor account
in the books of the head office for the year ended 31st December, 2023.
(6 Marks)

24
 ANSWER OF MODEL TEST PAPER - 1
INTERMEDIATE COURSE: GROUP - I
PAPER – 1 : ADVANCED ACCOUNTING
Division A (30 Marks)

1. (i) (a)
(ii) (d)
(iii) (c)
(iv) (c)
2. (i) (a)
(ii) (c)
(iii) (d)
(iv) (b)
3 (i) (b)
(ii) (d)
(iii) (c)
(iv) (c)
4. (b)
5 (b)
6 (a)
Division B
1. (a) As per AS 13 (Revised) ‘Accounting for Investments’, for investment in shares if the investment
is purchased with an intention to hold for short-term period (less than one year), then it will be
classified as current investment and to be carried at lower of cost and fair value, i.e., in case of
shares, at lower of cost (` 2,50,000) and market value (` 2,25,000) as on 31 March 2023, i.e.,
` 2,25,000.
If equity shares are acquired with an intention to hold for long term period (more than one year),
then should be considered as long-term investment to be shown at cost in the Balance Sheet
of the company. However, provision for diminution should be made to recognise a decline, if
other than temporary, in the value of the investments.
Gold and silver are generally purchased with an intention to hold it for long term period (more
than one year) until and unless given otherwise. Hence, the investmen t in Gold and Silver
(purchased on 1 st March, 2020) should continue to be shown at cost (since there is no ‘other
than temporary’ diminution) as on 31 st March, 2023, i.e., ` 4,00,000 and ` 2,00,000
respectively, though their market values have been increased.
(b) As per AS 19 "Leases", the lessee should recognize the lease as an asset and a liability at the
inception of a finance lease. Such recognition should be at an amount equal to the fair value of
the leased asset at the inception of lease. However, if the fair value of the leased asset exceeds
the present value of minimum lease payment from the standpoint of the lessee, the amount
recorded as an asset and liability should be the present value of minimum lease payments from
the standpoint of the lessee.

25
 Computation of Value of machinery:
Present value of minimum lease payment = ` 6,99,054
(See working note below)
Fair value of leased asset = ` 7,00,000
Therefore, the recognition will be at the lower of the two i.e. 6,99,054
Working Note - Present value of minimum lease payments:
Annual lease rental × PVIF+ Present value of guaranteed residual value
= ` 3,00,000 × (0.869 + 0.756 + 0.657) + ` 22,000 × 0.657
= ` 6,84,600 + ` 14,454 = 6,99,054
Computation of finance charges:
Year Finance Payment Reduction in Outstanding
charge outstanding liability liability
1st Year beginning – – – 6,99,054
End of 1 st year 1,04,858 3,00,000 1,95,142 5,03,912
End of 2 nd year 75,587 3,00,000 2,24,413 2,79,499
End of 3 rd year 41,925 3,00,000 2,58,075 21,424

(c) Treatment of Impairment Loss

As per AS 28 “Impairment of assets”, if the recoverable amount (higher of net selling price and
its value in use) of an asset is less than its carrying amount, the carrying amount of the asset
should be reduced to its recoverable amount. In the given case, net selling price is ` 64.50
lakhs (` 67.50 lakhs – ` 3 lakhs) and value in use is ` 60 lakhs. Therefore, recoverable amount
will be ` 64.50 lakhs. Impairment loss will be calculated as ` 10.50 lakhs [` 75 lakhs (Carrying
Amount after revaluation - Refer Working Note) less ` 64.50 lakhs (Recoverable Amount)].
Thus impairment loss of ` 10.50 lakhs should be recognised as an expense in the Statement
of Profit and Loss immediately since there was downward revaluation of asset which was
already charged to Statement of Profit and Loss.
Working Note:
Calculation of carrying amount of the Property, Plant and Equipment at the end of the
fourth year on revaluation

(` in lakhs)
Purchase price of a Property, Plant and Equipment 150.00
Less: Depreciation for four years [(150 lakhs / 10 years) x 4 years] (60.00)
Carrying value at the end of fourth year 90.00
Less: Downward revaluation charged to profit and loss account (15.00)
Revalued carrying amount 75.00

26
2. Delta Limited
Balance Sheet as at 31 st March 2023
Particulars Note No. (` in ‘000)
A. Equity and Liabilities
1. Shareholders’ funds
(a) Share Capital 1 495.00
(b) Reserves and Surplus 2 807.20
2. Non-Current Liabilities
(a) Long Term Borrowings 3 300.00
3. Current Liabilities
(a) Trade Payables 30.00
(b) Short- term provision 4 163.80
Total 1,796.00
B. Assets
1. Non-Current Assets
(a) Property, Plant and Equipment 5 1,550.00
2. Current Assets
(a) Inventories 96.00
(b) Trade Receivables 6 120.00
(c) Cash and Cash equivalents 7 30.00
Total 1,796.00

Statement of Profit and Loss for the year ended 31 st March 2023
Particulars Note No. (` in ‘000)
I. Revenue from Operations 1200.00
II. Other Income 8 6.00
III. Total Income (I +II) 1,206.00
IV. Expenses:
Purchases (adjusted) 400.00
Finance Costs 9 30.00
Depreciation (10% of 800) 80.00
Other expenses 10 150.00
Total Expenses 660.00
V. Profit / (Loss) for the period before tax (III – IV) 546.00
VI. Tax expenses @30% 163.80
VII Profit for the period 382.20
Notes to Accounts
Particulars (` in ‘000)
1 Share Capital
Equity Share Capital
Authorised

27
 80,000 Shares of ` 10/- each 800
Issued, Subscribed and Called-up
50,000 Shares of ` 10/- each 500
(Out of the above 5,000 shares have been issued for
consideration other than cash)
Less: Calls in arrears (5) 495
2 Reserves and Surplus
Securities Premium 40.00
Revaluation Reserve ` (960 – 800) 160.00
General Reserve 150.00
Surplus i.e. Profit & Loss Account Balance
Opening Balance 75.00
Add: Profit for the period 382.20 457.20
807.20
3 Long-Term Borrowings
10% Debentures 300
4. Short – term provision
Provision for tax 163.80
5 Property, plant & equipment
Land
Opening Balance 800
Add: Revaluation adjustment 160
Closing Balance 960
Plant and Machinery
Opening Balance 824
Less: Disposed off (24)
800
Less: Depreciation ` (150 – 20 + 80) (210)
Closing Balance 590
Total 1,550
6 Trade receivables
Debits outstanding for a period exceeding six months 50
Other debts 70 120
7 Cash and Cash Equivalents
Cash at Bank With scheduled banks 23
With others (ABC Bank Limited) 5
Cash in hand 2 30
8 Other Income
Profit on sale of machinery
Sale value of machinery 10
Less: Book value of machinery (24 – 20) (4) 6
9 Finance Costs

28
 Debenture Interest 30
10 Other Expenses:
Factory expenses 80
Selling expenses 25
Administrative expenses 45 150
3. (a) As per AS 9 on Revenue Recognition, revenue arising from the use by others of enterprise
resources yielding interest and royalties should only be recognized when no significant
uncertainty as to measurability or collectability exists. These revenues are recognized on
the following bases:
(i) Interest: on a time proportion basis taking into account the amount outstanding and the
rate applicable. Therefore X Ltd. should recognize interest revenue of ` 10 Lakhs.
(ii) Royalties: on an accrual basis in accordance with the terms of the relevant agreement.
X Ltd. therefore should recognize royalty revenue of ` 15 Lakhs.
(b) In the Books of ABC Ltd.
Journal Entries
Particulars ` `
8% Preference share capital A/c Dr. 6,00,000
To 11% Debentures A/c 4,20,000
To Capital reduction A/c 1,80,000
[Being 30% reduction in liability of preference share capital
and issue of 11% debentures]
9% Debentures A/c Dr. 12,00,000
To Plant & machinery A/c 9,00,000
To Capital reduction A/c 3,00,000
[Settlement of debenture holders by allotment of plant &
machinery]
Trade payables A/c Dr. 5,92,000
To Inventory A/c 5,00,000
To Capital reduction A/c 92,000
[Being settlement of creditors by giving Inventories]
Bank A/c Dr. 3,00,000
To 11% Debentures A/c 3,00,000
[Being fresh issue of debentures]
Bank overdraft A/c Dr. 1,50,000
To Bank A/c 1,50,000
[Being settlement of bank overdraft]
Capital reduction A/c Dr. 5,72,000
To Investment A/c 13,000
To Profit and loss A/c 4,05,000
To Capital reserve A/c 1,54,000

29
 [Being decrease in investment and profit and loss account
(Dr. bal.); and balance of capital reduction account
transferred to capital reserve]
Capital Reduction Account
` `
To Investments A/c 13,000 By Preference share capital A/c 1,80,000
To Profit and loss A/c 4,05,000 By 9% Debenture holders A/c 3,00,000
To Capital reserve A/c 1,54,000 By Trade payables A/c 92,000
5,72,000 5,72,000
Balance Sheet Extract of ABC Ltd. (And Reduced)
As at 31 st March 2023
Particulars Note No `
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 20,00,000
(b) Reserves and Surplus 2 1,54,000
(2) Non-Current Liabilities
(a) Long-term borrowings 3 7,20,000
Total 28,74,000
Notes to Accounts
`
1. Share Capital
2,00,000 Equity shares of ` 10 each fully paid-up 20,00,000
2. Reserve and Surplus
Capital Reserve 1,54,000
3. Long Term Borrowings
11% Debentures (` 4,20,000 + ` 3,00,000) 7,20,000
4. In the Books of Hari Ltd.
Journal Entries
` `
Business Purchase A/c Dr. 5,30,000
To Liquidators of Vayu Ltd. Account 5,30,000
(Being business of Vayu Ltd. taken over)
Goodwill Account Dr. 50,000
Building Account Dr. 1,50,000
Machinery Account Dr. 1,60,000
Inventory Account Dr. 1,57,500
Trade receivables Account Dr. 1,00,000
Bank Account Dr. 20,000
To Retirement Gratuity Fund Account 20,000

30
 To Trade payables Account 80,000
To Provision for Doubtful Debts Account 7,500
To Business Purchase A/c 5,30,000
(Being Assets and Liabilities taken over as per agreed valuation).
Liquidators of Vayu Ltd. A/c Dr. 5,30,000
To 9% Preference Share Capital A/c 1,10,000
To Equity Share Capital A/c 4,00,000
To Securities Premium A/c 20,000
(Being Purchase Consideration satisfied as above).

Balance Sheet of Hari Ltd. (after absorption)

as at 31 st March, 2023
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 16,10,000
B Reserves and Surplus 2 90,000
2 Non-current liabilities
A Long-term provisions 3 70,000
3 Current liabilities
A Trade Payables 2,10,000
Total 19,80,000
Assets
1 Non-current assets
A Property, Plant and Equipment 4 11,10,000
B Intangible assets 5 1,00,000
2 Current assets
A Inventories 4,07,500
B Trade receivables 6 2,92,500
C Cash and cash equivalents 70,000
Total 19,80,000
Notes to accounts
`
1 Share Capital
Equity share capital
1,40,000 Equity Shares of ` 10 each fully paid (Out of above 14,00,000
40,000 Equity Shares were issued in consideration other
than for cash)

31
 Preference share capital
2,100 9% Preference Shares of ` 100 each (Out of above 2,10,000
1,100 Preference Shares were issued in consideration other
than for cash)
Total 16,10,000
2 Reserves and Surplus
Securities Premium 20,000
General Reserve 70,000
Total 90,000
3 Long-term provisions
Retirement Gratuity fund 70,000
Total 70,000
4 Property, Plant and Equipment
Buildings 4,50,000
Machinery 6,60,000
Total 11,10,000
5 Intangible assets
Goodwill 1,00,000
6 Trade receivables 3,00,000
Less: Provision for Doubtful Debts 7,500
2,92,500
Working Notes:
Purchase Consideration: `
Goodwill 50,000
Building 1,50,000
Machinery 1,60,000
Inventory 1,57,500
Trade receivables 92,500
Cash at Bank 20,000
6,30,000
Less: Liabilities:
Retirement Gratuity Fund (20,000)
Trade payables (80,000)
Net Assets/ Purchase Consideration 5,30,000
To be satisfied as under:
10% Preference Shareholders of Vayu Ltd. 1,00,000
Add: 10% Premium 10,000
1,100 9% Preference Shares of Hari Ltd. 1,10,000
Equity Shareholders of Vayu Ltd. to be satisfied by issue of 40,000 Equity Shares
of Hari Ltd. at 5% Premium 4,20,000
Total 5,30,000

32
5. Consolidated balance Sheet of Virat Ltd. and its Subsidiary Anushka Ltd. as at 31st March, 2023
Particulars Note Amount (`)
I EQUITY AND LIABILITIES:
(1) Shareholders’ Funds:
(a) Share Capital 1 6,00,000
(b) Reserve and Surplus 2 1,80,000
(2) Minority Interest 3 1,00,000
(3) Non-Current Liabilities:
Long Term Borrowings 4 3,00,000
(4) Current Liabilities:
Trade Payables 5 2,00,000
Total 13,80,000
II ASSETS:
(1) Non-Current Assets
Property, Plant & Equipment 6 7,00,000
(2) Current Assets:
(a) Inventories 7 3,60,000
(b) Trade receivables 8 2,20,000
(c) Cash and Cash Equivalents 9 1,00,000
Total 13,80,000
Notes to Accounts
Particulars ` `
1. Share capital
60,000 equity shares of ` 10 each fully paid up 6,00,000
2. Reserves and Surplus
General Reserve 1,00,000
Add: General reserve of Anushka Ltd (80%) 80,000
Total 1,80,000
3. Minority interest
20% share in Anushka Ltd (WN 3) 1,00,000
4 Long term borrowings
Long term borrowings of Virat 2,00,000
Add: Long term borrowings of Anushka 1,00,000
Total 3,00,000
5. Trade payables
Trade payables of Virat 1,00,000
Add: Trade payables of Anushka 1,00,000
Total 2,00,000
6. Property, Plant and Equipment (PPE)
PPE of Virat Ltd 4,00,000
Add: PPE of Anushka Ltd 3,00,000
Total 7,00,000

33
 7. Inventories
Inventories of Virat Ltd 1,60,000
Add: Inventories of Anushka Ltd 2,00,000
Total 3,60,000
8. Trade receivables
Trade receivables of Virat Ltd 80,000
Add: Trade receivables of Anushka Ltd 1,40,000
Total 2,20,000
9 Cash and cash equivalents
Cash and cash equivalents of Virat Ltd 40,000
Add: Cash and cash equivalents of Anushka Ltd 60,000
Total 1,00,000
Working Notes:
1. Basic Information

Company Status Dates Holding Status

Holding Co. = Virat Ltd. Acquisition: Anushka’s Incorporation Holding Company
Subsidiary = Anushka Ltd. Consolidation: 31st March, 2023 = 80%
Minority Interest
= 20%

2. Analysis of General Reserves of Anushka Ltd

Since Virat holds shares in Anushka since its incorporation, the entire Reserve balance of
`1,00,000 will be Revenue.
3. Consolidation of Balances
Holding- 80%, Minority - 20% Total Minority Holding Company
Interest
Equity Capital 4,00,000 80,000 3,20,000 -
General Reserves
1,00,000 20,000 Nil (pre-acq) 80,000 (post-acq)
Total 1,00,000 3,20,000 80,000
Cost of Investment Goodwill/ (3,20,000) -
capital reserve NIL
Parent’s Balance 1,00,000
Amount for Consolidated 1,80,000
Balance Sheet
6. (a) The qualitative characteristics are attributes that improve the usefulness of information provided
in financial statements. Understandability; Relevance; Reliability; Comparability are the
qualitative characteristics of financial statements.
Qualitative Characteristics of Financial Statements
• Understandability • Information presented in financial statements should be
readily understandable by the users with reasonable
knowledge of business and economic activities.

34
 • Relevance • Financial statements should contain relevant information
only. Information, which is likely to influence the economic
decisions of the users is called relevant.
• Reliability • Information must be reliable; that is to say, they must be free
from material error and bias.
• Comparability • Financial statements should provide both inter-firm and
intra-firm comparison.
Or
(a) Accounting Standards deal with the issues of (i) Recognition of events and transactions in the
financial statements, (ii) Measurement of these transactions and events, (iii) Presentation of
these transactions and events in the financial statements in a manner that is meaningful and
understandable to the reader, and (iv) Disclosure requirements.
(b) Cash Flow Statement of ……
for the year ended March 31, 2023(Direct Method)
Particulars ` `
Operating Activities:
Cash received from sale of goods 1,40,000
Cash received from Trade receivables 1,75,000
Trade Commission received 50,000 3,65,000
Less: Payment for Cash Purchases 1,20,000
Payment to Trade payables 1,57,000
Office and Selling Expenses 75,000
Payment for Income Tax 30,000 (3,82,000)
Net Cash Flow used in Operating Activities (17,000)
(c) (i) Calculation of profit earned by the branch
In the books of Jammu Branch
Trading Account and Profit and Loss Account
Particulars Amount Particulars Amount
` `
To Opening stock 2,20,000 By Sales 12,00,000
To Goods received by 11,00,000 By Closing stock (Refer W.N.) 3,60,000
Head office
To Expenses 45,000
To Net profit (Bal fig) 1,95,000
15,60,000 15,60,000

35
(ii) Stock reserve in respect of unrealised profit
= ` 3,60,000 x (20/120) = ` 60,000
Working Note:
`
Cost Price 100
Invoice Price 120
Sale Price 150
Calculation of closing stock at invoice price `
Opening stock at invoice price 2,20,000
Goods received during the year at invoice price 11,00,000
13,20,000
Less: Cost of goods sold at invoice price (9,60,000) [12,00,000 x (120/150)]
Closing stock 3,60,000

36
 ANSWER OF MODEL TEST PAPER 2
INTERMEDIATE COURSE: GROUP – I
PAPER – 1 : ADVANCED ACCOUNTING
1. (i) (c)
(ii) (b)
(iii) (c)
(iv) (d)
2. (i) (a)
(ii) (a)
(iii) (b)
(iv) (a)
(v) (b)
3. (i) (b)
(ii) (a)
(iii) (b)
4. (a)
5. (d)
6. (a)
PART II – Descriptive Questions (70 Marks)
1. (a) As per AS 26 “Intangible Assets”, expenditure on research should be
recognized as an expense when it is incurred. An intangible asset
arising from development (or from the development phase of an internal
project) should be recognized if, and only if, an enterprise can
demonstrate all of the conditions specified in para 44 of the standard.
An intangible asset (arising from development) should be derecognised
when no future economic benefits are expected from its use according
to para 87 of the standard. Thus, the manager cannot defer the
expenditure write off to future years in the given case.
Hence, the expenses amounting ` 40 lakhs incurred on the research and
development project has to be written off in the current year ending
31st March, 2024.
(b) (i) As per AS 2 ‘Valuation of Inventories’, abnormal amounts of wasted
materials, labour and other production costs are excluded from cost
of inventories and such costs are recognised as expenses in the
period in which they are incurred. The normal loss will be included
in determining the cost of inventories (finished goods) at the year
end.
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000

37
 Normal Loss (5% of 16,000 MT) 800 MT (included
in calculation of cost of inventories)
Net quantity of material 15,200 MT
(iii) Abnormal Loss in quantity (950 - 800) 150 MT
Abnormal Loss ` 30,000
[150 units @ ` 200 (` 30,40,000/15,200)]
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit
and Loss statement.
(c) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term
investments are reclassified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer; and
where investments are reclassified from current to long term, transfers
are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer
is less than the cost; hence this re-classified current investment
should be carried at ` 12 lakhs in the books.
(ii) In this case, reclassification of current investment into long-term
investments will be made at ` 7 lakhs as cost is less than its fair
value of ` 8.5 lakhs on the date of transfer.
2. Oliva Company Ltd.
Statement of Profit and loss for the year ended 31.03.2024
Particulars Note Amount (`)
I Revenue from operations 17,10,000
II Other income (3,900 +300) 4,200
III Total Revenue (I +II) 17,14,200
IV Expenses:
Cost of materials consumed 10 12,64,200
Purchases of inventory-in-trade --
Changes in inventories of finished goods, 11 (13,500)
work-in-progress and inventory-in-Trade
Employee benefit expenses 12 44,700
Finance costs --
Depreciation and amortization expenses 18,240
Other expenses 13 3,51,510
Total Expenses 16,65,150
V Profit before exceptional and extraordinary 49,050
items and tax

38
VI Exceptional items --
VII Profit before extraordinary items and tax 49,050
VIII Extraordinary items --
IX Profit before tax 49,050
X Tax expense (40% of 49,050) 19,620
XI Profit/Loss for the period from continuing 29,430
operations
Oliva Company Ltd.
Balance Sheet for the year ended 31.03.2024
Particulars Note Amount
1 Equity and Liabilities
(i) Shareholders’ funds
(a) Share Capital 3,15,000
(b) Reserves and surplus 1 50,430
2) Non-current liabilities
(a) Long-term borrowings 2 24,300
(3) Current Liabilities
(a) Short -term borrowings 3 6,000
(b) Trade payables 3,27,000
(c) Other current liability 4 72,000
(d) Short term provision 5 19,620
8,14,350
II ASSETS
(1) Non current assets
(a) Property, Plant & equipment 6 2,04,160
(b) Non-current investments 7,500
(2) Current assets
(a) Current investments 4,500
(b) Inventories 7 85,800
(c) Trade receivables 2,38,500
(d) Cash and cash equivalents 2,71,100
(e) Short-term loans and advances 8 2,490
(f) Other current assets 9 300
8,14,350

39
 Notes to accounts
No. Particulars Amount Amount
1. Reserve & Surplus
Profit & Loss Account: 48,000
Balance b/f
Net Profit for the year 29,430
Less: Interim Dividend (27,000) 50,430
2. Long term borrowings
Secured loans 21,000
Fixed Deposits: Unsecured 3,300 24,300
3. Short term borrowings
Secured loans 4,500
Fixed Deposits -Unsecured 1,500 6,000
4. Other current liabilities
Expenses Payable 72,000
(67,500 + 4,500)
5. Short term provisions
Provision for Income tax 19,620
6. PPE
Building 1,01,000
Less: Depreciation @ 2% (2,020) 98,980
Plant & Machinery 70,400
Less: Depreciation @ 10% (7,040) 63,360
Furniture 10,200
Less: Depreciation @ 10% (1,020) 9,180
Motor vehicles 40,800
Less: Depreciation @ 20% (8,160) 32,640 2,04,160
7 Inventory
Raw Material 25,800
Finished goods 60,000 85,800
8. Short term Loans &
Advances
General Charges prepaid 2,490
9. Other Current Assets
Interest accrued 300
10. Cost of material consumed
Opening inventory of raw 30,000
material
Add: Purchases 12,15,000

40
 Stores & spare parts 45,000 12,90,000
consumed
Less: Closing inventory (25,800) 12,64,200
11. Changes in inventory of
Finished Goods & WIP
Closing Inventory of Finished 60,000
Goods
Less: Opening Inventory of 46,500 13,500
Finished Goods
12. Employee Benefit
expenses
Salary & Wages 44,700
(40,200 + 4,500)
13. Other Expenses
Manufacturing Expenses 3,37,500
(2,70,000 + 67,500)
General Charges 14,010 3,51,510
(16,500 – 2,490)
3. (a) As per AS 29 "Provisions, Contingent Liabilities and Contingent Assets",
where some or all of the expenditure required to settle a provision is
expected to be reimbursed by another party, the reimbursement should
be recognised when, and only when, it is virtually certain that
reimbursement will be received if the enterprise settles the obligation.
The reimbursement should be treated as a separate asset. The amount
recognised for the reimbursement should not exceed the amount of the
provision.
It is apparent from the question that the company had not made provision
for warranty in respect of certain goods considering that the company
can claim the warranty cost from the original supplier. However, the
provision for warranty should have been made as per AS 29 and the
amount claimable as reimbursement should be treated as a separate
asset in the financial statements of the company rather than omitting the
disclosure of such liability. Accordingly, it is viewed that the accounting
treatment adopted by the company with respect to warranty is not
correct.
(b) Balance Sheet of Radhika Ltd. (and Reduced) as on 1.4.2024
Particulars Notes `
I. Equity & Liabilities
A Shareholders' Fund
a Share Capital 1 3,16,800
b Reserves & Surplus 2 1,10,200
B Non-Current Liabilities

41
 a Long Term Borrowings 3 7,86,000
C Current Liabilities
a Trade Payables 3,60,000
b Short Term borrowings: Bank OD 2,34,000
Total 18,07,000
II. Assets
A Non-Current Assets
a Property, Plant & Equipment 4 7,09,000
b Intangible assets: Patents 45,000
B Current Assets
a Inventory (5,10,000-65,000) 4,45,000
b Trade Receivable 5 4,31,500
c Cash & Cash Equivalent 1,76,500
Total 18,07,000
Notes to Accounts
Particulars `
1 Share Capital -
Authorised, Issued, Subscribed & Paid Up Capital
Equity share Capital
15,840 Shares of `20 Paid up 3,16,800
(Out of above 6,840 shares are issued for
consideration other cash) (W.N 1)
2 Reserves & Surplus
Capital Reserve (W.N 2) 1,10,200
3 Long Term Borrowings Secured
6% Debentures 4,50,000
a 11% Debentures (70% of 4,80,000 preference 3,36,000
b shares)
7,86,000
4 PPE
Freehold property 6,49,000
Plant 60,000
7,09,000
5 Trade receivable 5,00,000
Less: Provision for Doubtful Debts (68,500)
4,31,500

42
 Working notes:
1. Computation of equity shares:
Equity No. of
share shares at
capital ` 20 each
1 After the reduction to 90,000 x 20 1,80,000 9,000
` 20 each
2. Equity shares allotted 6% of 28,800 1,440
to preference 4,80,000
shareholders for their
¼ arrears.
3. Equity shares allotted 90% of 1,08,000 5,400
to Directors in 1,20,000
settlement of their loan
Total equity shares 3,16,800 15,840

2. Calculation of capital reserve: Equity Share 7,20,000 + Preference

share 1,44,000 + Freehold property 1,39,000 +Investment 74,000
+ Director Loan 6,000 – Preference share dividend 28,800 -
Goodwill 1,56,000 – Inventory 65,000 – Bad debts 68,500 – Profit
& Loss A/c 6,42,000 = Capital Reserve 1,22,700
3. Cash balance:
`
Cash & cash equivalent 82,000
Add: Investment sold 1,40,000
Less: Directors Loan (1,20,000 x 5%) 6,000
Penalty (2,50,000x 5%) 12,500
Interest on debentures (6% on 27,000 45,500
4,50,000)
1,76,500
4. Calculation of Net Assets
Particulars Anu Ltd. (`) Banu Ltd. (`)
Goodwill 1,75,000 50,000
Freehold property 3,75,000 3,00,000
Plant & Machinery 1,25,000 50,000
Motor vehicle 37,500 25,000
Trade receivable 2,50,000 1,00,000
Inventory 2,87,500 2,25,000
Cash at Bank 1,00,000 50,000
Total 13,50,000 8,00,000

43
Less : Trade payable (2,62,500) (1,62,500)
6% debentures - (1,57,500)
Net Assets 10,87,500 4,80,000
Calculation of Purchase Consideration
Sr. Particulars Computation Anu Ltd Banu Ltd
No.
1 Amount payable to
Equity Share Holder in
the form of
1,08,750 Equity shares (1,08,750 × 10) 10,87,500
of `10 each
48,000 Equity shares of (48,000 × 10) 4,80,000
`10 each
Purchase Consideration 10,87,500 4,80,000
Balance Sheet of Anban Ltd.
as on 1st April, 2023
Particulars Note `
No.
Equity and Liabilities
(1) Shareholders' Funds
(a) Share Capital 1 15,67,500
(2) Non-current Liabilities
(a) Long term borrowings 2 1,57,500
(3) Current Liabilities
(a) Trade Payables (2,62,500 + 1,62,500) 4,25,000
Total 21,50,000
Assets
(1) Non-current Assets
(a) Property Plant and Equipment 3 9,12,500
(b) Intangible assets 4 2,25,000
(2) Current Assets
(a) Inventories (2,87,500 + 2,25,000) 5,12,500
(b) Trade Receivables (2,50,000 + 1,00,000) 3,50,000
(c) Cash and cash equivalents (1,00,000 + 1,50,000
50,000)
Total 21,50,000

44
 Notes to Accounts:
Note Particulars `
No.
1 Share Capital
Equity share capital
1,56,750 equity shares of `10 each 15,67,500
(out of above shares are issued for consideration other
than cash)
2 Long term borrowings
6% Debentures 1,57,500
3 Property, Plant & Equipment’s
Freehold property (3,75,000 + 3,00,000) 6,75,000
Plant & Machinery (1,25,000 + 50,000) 1,75,000
Motor Vehicle (37,500+25,000) 62,500
9,12,500
4 Intangible assets
Goodwill (1,75,000 + 50,000) 2,25,000
5. (a) Revalued net assets of Moon Ltd.as on 31 st March, 2024
` in lakhs ` in lakhs
Property, plant and equipment [240 x 120%] 288.0
Investments [110 X 90%] 99
Current Assets 140.0
Loans and Advances 30.0
Total Assets after revaluation 557
Less: 15% Debentures 180.0
Current Liabilities 100.0 (280.0)
Equity / Net Worth 277
Star Ltd.’s share of net assets (70% of 277) 193.9
Star Ltd.’s cost of acquisition of shares of
Moon Ltd.
(` 140 lakhs – ` 14 lakhs*) 126.00
Capital reserve 67.9
* Total Cost of 70 % Equity of Moon Ltd. ` 140 lakhs
Purchase Price of each share ` 20
Number of shares purchased [140 lakhs /` 20] 7 lakhs
Dividend @ 20 % i.e. ` 2 per share ` 14 lakhs
Since dividend received is for pre-acquisition period, it has been reduced
from the cost of investment in the subsidiary company.

45
 (b) Impact of Revaluation of Plant and Machinery will be as -
`
Book value of Plant and Machinery as on 01-04-2023 2,25,000
(2,25,000-2,02,500) 10%
Depreciation Rate = 22,500/2,25000 x100
2,25,000
Book value of Plant and Machinery as on 01-10-2023 after
six months depreciation @10% (2,25,000-11,250) 2,13,750
Revalued at 2,70,000
Revaluation profit (2,70,000-2,13,750) 56,250
Share of Gamma Limited in Revaluation Profit (80%) 45,000
Share of Minority in Revaluation profit (20%) 11,250
Additional Depreciation on appreciated value to be
charged from post-acquisition profits
(10% of ` 22,5,000 for 6 months) + (10% of ` 2,70,000 for
6 months) less ` 22500 (as already charged) 2,250
Share of Gamma Limited in additional depreciation that will
reduce its share (80%) in post-acquisition profit by 1,800
Share of Minority Interest in additional depreciation 450
Working note:
Percentage of holding:
No. of Shares Percentage
Holding Co. : 24,000 (80%)
Minority shareholders : 6,000 (20%)
TOTAL SHARES : 30,000
6. (a) Yes, one of the characteristics of financial statements is neutrality. To
be reliable, the information contained in financial statement must be
neutral, that is free from bias. Financial Statements are not neutral if by
the selection or presentation of information, the focus of analysis could
shift from one area of business to another thereby arriving at a totally
different conclusion on the business results.

46
 Or
Effects of each transaction on Balance sheet of the trader is shown
below:
Assets Liabilities Equity
Transactions – =
` lakh ` lakh ` lakh
Opening 16.00 – 6.00 = 10.00
(1) Dividend earned 16.40 – 6.00 = 10.80
(2) Settlement of 15.40 - 4.60 = 10.80
Creditors
(3) Rent Outstanding 15.40 – 4.80 = 10.60
(4) Drawings 15.22 – 4.80 = 10.42
(b) Journal Entries

` `
2022 Equity Share Capital A/c Dr. 4,00,000
June To Equity Stock A/c 4,00,000
(Being conversion of 4,000 fully
paid Equity Shares of ` 100 into
` 4,00,000 Equity Stock as per
resolution in general meeting
dated…)
2023
June Equity Stock A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
(Being re-conversion of
` 4,00,000 Equity Stock into
40,000 shares of ` 10 fully paid
Equity Shares as per resolution
in General Meeting dated...)
(c) Books of Harrison
Branch Stock Account
` `
To Balance b/d – Op 30,000 By Branch Debtors 1,65,000
Stock (Sales)
To Goods Sent to 2,40,000 By Branch Cash 59,000
Branch A/c
To Branch 2,000 By Balance c/d
Adjustment A/c

47
 (Balancing Figure Goods in Transit
– Excess of Sale (` 2,40,000 – 20,000
over Invoice Price) ` 2,20,000)
Closing Stock at 28,000
Branch
2,72,000 2,72,000
Branch Debtors Account
` `
To Balance b/d 32,750 By Bad debts written off 750
To Branch Stock 1,65,000 By Branch Cash (bal. fig.) 1,71,000
A/c (Sales)
By Balance c/d 26,000
1,97,750 1,97,750

48