1.

Answer the following questions:

(a) Glen Ltd. began construction of a new building on 1 January, 2022. On 1 April, 2022,
following two loans were obtained to find the construction cost:
(i) Loan of ₹ 60,00,000 from Data Bank Ltd. was taken at interest rate of 8% per annum.
This loan was fully utilized for construction of the new building.
(i) Loan of ₹ 20,00,000 from Satya Bank Ltd. Out of this, loan amount of ₹ 6,00,000 was
utilized for working capital purpose. Total interest of ₹ 1,92,000 were paid to Satya Bank
Ltd. for the financial year 2022-23.
Construction of the new building was completed on 31 January, 2023 and was ready for its
intended use on the same date.
None of the loan was repaid during the year. The building is a qualifying asset for the purpose
of AS-16.
Out of loan from Data Bank Ltd., surplus funds were temporarily invested for the short period
of time. This temporary investment earned interest of 30,000.
You are required to calculate the amount of interest (a) to be capitalized, (b) to be charged
to profit and loss account from the total interest incurred as borrowing cost during the year
2022-23. (as per AS-16).
(b) Karna Ltd., an Indian Company, has the following foreign currency transactions during
the financial year 2022-23:
(i) On 1 July, 2022, imported goods from Try Ltd., a German based company, amounting to
₹ 30,96,000.
(ii) (ii) On 1st October,2022 imported plant and machinery from Lucy Ltd, a German based
company, fir € 18,500. The amount was paid on the date of import itself. (Ignore
depreciation).
(iii) On 1st December, 2022, exported goods on credit to Cream Ltd, a German based
company, amounting to ₹50,40,000.
All the above transactions were recorded in the books of account at the prevailing exchange
rate on the date of the transactions. Ignore taxes and duty on the above transactions
. Payment due from Cream Ltd. and payment due to Try Ltd. Is outstanding as on 31 March,
2023.
Rate of exchange between reporting currency (₹) and foreign currency (€) on different dates
are as under:
On 1 July, 20221 €= ₹ 86
On 1 October, 20221 €= ₹88
On 1 December, 20221 €= ₹84
On 31 March, 2023 1 €= ₹90
You are required, as per AS-11:
(i) To show value at which above items will appear in Balance sheet as on 31 March,
2023
(ii) To calculate the amount of gain / loss on each of above transactions on account of
exchange differences, if any.
(c) In the following cases, find the value of closing stock as per AS 2:

pg. 1
 (i) Sonu is a retailer dealing in toys. During the year, he purchased items worth for₹ 1,47,000
and made a total sale ₹1,54,000. The average percentage of gross margin is 10% on
cost. Opening stock of toys at cost was₹ 20,000.
(ii) On 21 March, 2023, Mohan purchased 250 chairs at 300 each. The selling price of the
chair is ₹400 each. Owing to a manufacturing defect, net realisable value of the whole
lot of chair was determined at 70% of their normal selling price. No chairs were sold during
the year.
(d) A Ltd. purchased a Machinery for ₹75 Lakhs. Government Grant received towards this
Machinery is 10 Lakhs. Residual Value of Machinery at the end of useful life of 6 Years is
5 Lakhs.
Asset is shown in Balance Sheet at net of grant.
At the beginning of the 3rd year, an amount becomes refundable to the extent of ₹8 Lakhs
due to non-compliance of certain conditions of grant.
You are required to give necessary Journal entries for the 1st year and the 3rd year in the
books of A Ltd.

2. Answer the following questions:

(a) In the books of Top maker Limited, carrying amount of Plant & Machinery as on 1st April,
2022 is ₹56,30,000.
On scrutiny, it was found that a purchase of Machinery worth ₹21,12,000 was included in
the purchase of goods on 1 June, 2022.
On 30th June, 2022 the company disposed a Machine having book value of 9,60,000 (as
on 1 April, 2022) for ₹8,25,000 in part exchange of a new machine costing ₹15,65,000.
The company charges depreciation @ 10% p.a. on written down value method on Plant
and Machinery.
You are required to compute:
(i) Depreciation to be charged to Profit & Loss Account;
(ii) Book value of Plant & Machinery as on 31 March, 2023; and
(iii) Profit/Loss on exchange of Plant & Machinery.
(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 31 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 ₹/€
31 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.

pg. 2
(c) On 1" April 2021, Eleanor Limited purchased a manufacturing Plant for ₹60 lakhs, which
has an estimated useful life of 10 years with a salvage value of 10 lakhs. On purchase of
the Plant, a grant of ₹20 lakhs was received from the government.
You are required to calculate the amount of depreciation as per AS-12 for the financial
year 2022-23 in the following cases:
(i) If the grant amount is deducted from the value of Plant.
(ii) If the grant is treated as deferred income.
(iii) If the grant amount is deducted from the value of Plant, but at the end of the year
2022-2023 grant is refunded to the extent of ₹4 lakhs, due to non-compliance of
certain conditions.
(iv) If the grant is treated as the promoter's contribution.
(Assume depreciation on the basis of Straight-Line Method.)
(d) On 1st April, 2022 Workhouse Limited took a loan from a Financial Institution for
₹25,00,000 for the construction of Building. The rate of interest is 12%.
In addition to above loan, the company has taken multiple borrowings as follows:
(i) 8% Debentures ₹15,00,000
(ii) 15% Term Loan ₹30,00,000
(iii) 10% Other Loans ₹18,00,000
The company has utilised the above funds in construction/purchase of the following
assets:
(i) Building ₹70,00,000
(ii) Furniture ₹22,00,000
(iii) Plant & Machinery ₹90,00,000
(iv) Factory Shed ₹43,00,000
The construction of Building, Plant & Machinery and Factory Shed was completed on 31st
March 2023. Readymade Furniture was purchased directly from the market. The factory
was ready for production on I" April 2023.
₹You are required to calculate the borrowing cost for both qualifying and non-qualifying
assets.

3.Answer the following questions:

(a) Following information of Sarah Limited is given:
Sarah Limited uses Raw Material 'A' for production of Finished Goods ‘B’

Closing balance of Raw Material 'A' in 750

units on 31 March, 2022

Price Per Unit in

₹
150
Cost Price
Freight inward 10

Replacement Cost 152

pg. 3
 Closing balance of Finished Goods 'B' in 1600
units on 31st March, 2022
Price Per Unit in
₹
225
Material Consumed
Direct Labour 75

Direct variable overhead 60

Total Fixed Overheads amounts to 1,00,000 on normal capacity of 20,000 units.

You are required to calculate the value of Closing Stock of Raw materials and Closing
Stock of Finished Goods, as on 31 March, 2022, as per AS 2, when selling price of
Finished Goods 'B' is ₹360 per unit.
(b) Ridgeway Limited, a Non-Financial company has the following activities:
(i) Dividend paid for the year.
(ii) TDS on interest income earned on investments made.
(iii) Loans and advances given to suppliers and interest earned from them.
(iv) Deposit with bank for a term of two years.
(v) Highly liquid Marketable Securities (without risk of change in value).
(vi) Investments made and dividends earned on them.
(vii) Insurance claims received against loss of stock or loss of profits.
(viii) Loans and advances given from them subsidiaries and interest earned
(ix) Issue of Bonus Shares.
(x) Term loan repaid.
You are required to classify the above activities in Cash Flow Statement as per 'AS-3'.
(c) (i) Jared Limited purchased a Machine for US $ 20,000 31 December, 2021 payable after
four months. It entered into a forward contract for four months @ 78.85 per US $. On 31
December, 2021, the exchange rate was ₹ 77.50 as per US $.
How will you recognize the Profit or Loss on Forward Contract for the year ended 31
March, 2022 in the books of Jared Limited?
(ii) Trade Payable of Jared Limited includes amount due to Sterling Limited ₹9,75,000
recorded at the prevailing exchange rate on the date of purchase; transaction recorded
at US $1=₹75.00. The exchange rate on Balance Sheet date (31" March, 2022) was US
$1 = ₹79.00. The payment was made on 1 May, 2022 when the exchange rate was US
$1=₹78.30.
You are required to calculate the amount of exchange difference on 31 March, 2022 and
1 May, 2022 and also explain the accounting treatment needed in the above case as per
AS 11 in the books of Jared Limited.
(d) (i) An unquoted long-term investment made in the shares of Rachel Limited is carried in the
books of Ziva Limited at a cost of₹ 1,00,000. The audited financial statements of Rachel
Limited received in May, 2021 showed that the ₹company had been incurring cash losses

pg. 4
 with declining market share and the long-term investment may not fetch more than
₹55,000.
(ii) On 1 December, 2021 Ziva Limited had made an investment of ₹5,00,000 in 4000 Equity
Shares of Garry Limited at a price of ₹125 per share with an intention to hold it for not
more than six months. In the first week of March, 2022, Garry Limited suffered heavy loss
due to an earthquake; the loss was not covered by an insurance policy. On 31 March,
2022, the shares of Garry Limited were trading at a price of ₹80 per share on the Stock
Exchange.
How would you deal with the above investments in the books of Ziva Limited for the year
ended 31 March, 2022 as per the provisions of Accounting Standard 13 'Accounting for
Investments'?

4. Answer the following questions:

(a) Suraj Limited provides you the following information:
(i) It received a Government Grant @40% towards the acquisition of Machinery
worth ₹25 Crores.
(ii) (ii) It received a Capital Subsidy of ₹150 Lakhs from Government for setting up
a Plant costing ₹300 Lakhs in a notified backward region.
(iii) It received ₹50 Lakhs from Government for setting up a project. for supply of
arsenic free water in a notified area.
(iv) It received 5 Lakhs from the Local Authority for providing Corona Vaccine free
of charge to its employees and their families.
(v) It also received a performance award of ₹500 Lakhs from Government with a
condition of major renovation in the Power Plant within 3 years. Suraj Limited
incurred 90% of amount towards Capital expenditure and balance for Revenue
Expenditure.
State, how you will treat the above in the books of Suraj Limited.
(b) SM Enterprises is a leading distributor of petrol. A detail inventory of petrol in hand is taken
when the books are closed at the end of each month. For the end month of June 2021
following information is available:
(i) Sales for the month of June 2021 was ₹30,40,000.
(ii) General overheads cost ₹4,00,000.
(iii) Inventory at beginning 10,000 litres @₹92 per litre.
(iv) Purchases - June 1 2021, 20,000 litres @ ₹90 per litre, June 30 2021, 10,000 litres @
₹95 per litre.
(v) Closing inventory 13,000 litres.
You are required to compute the following by FIFO method as per AS 2:
(i) Value of Inventory on 30th June, 2021.
(ii) Amount of cost of goods sold for June, 2021.
(iii) Profit/Loss for the month of June, 2021.
(c) XYZ Limited provided you the following information for the year ended 31 March, 2022:-
(i) The carrying amount of a property at the end of the year amounted to ₹2,16,000
(cost/value ₹2,50,000 and accumulated depreciation ₹34,000). On this date the property
was revalued and was deemed to have a fair value of ₹1,90,000. The balance on the
revaluation surplus relating to a previous revaluation gain for this property was ₹20,000.

pg. 5
 (ii) You are required to calculate the revaluation loss as per AS-10 (Revised) and give its
treatment in the books of accounts.
(iii) An asset that originally cost 76,000 and had accumulated depreciation of 62,000 was
disposed of during the year for ₹4,000 cash.
You are required to explain how the disposal should be accounted for in the financial statements
as per AS-10 (Revised).
(d) Zebra Limited began construction of a new plant on 1 April, 2021 and obtained a special
loan of ₹20,00,000 to finance the construction of the plant. The rate of interest on loan
was 10%.
The expenditure that was incurred on the construction of plant was as follows:
₹

1 April, 2021 10,00,000

1 August, 2021 24,00,000

1 January, 2022 4,00,000

The company's other outstanding non-specific loan was ₹46,00,000 at an interest rate of
12%.
The construction of the plant completed on 31 March, 2022.
You are required to:
(a) Calculate the amount of interest to be capitalized as per the provisions of AS 16
"Borrowing Cost".
(b) Pass a journal entry for capitalizing the cost and the borrowing cost in respect of the plant.

5.Answer the following Questions:

(a)
(i) PP Ltd. an Indian Company acquired long term finance from WW (P) Ltd, a U.S. company,
amounting to 40,88,952. The transaction was recorded at US $172.00, taking exchange
rate prevailing at the date of transaction. The exchange rate on balance sheer date
(31.03.2021) is US $173.60.
(ii) Trade receivables of PP Ltd. include amount receivable from Preksha Ltd, 20,00,150
recorded at the prevailing exchange rate on the date of sales, transaction recorded at US
$173.40. The exchange rate on balance sheet date (31.03.2021) is US $I- 73.60.
Exchange rate on 1 April, 2020 is US SI=74.00
You are required to calculate the amount of exchange difference and also explain the
accounting treatment needed in the above two cases as per AS 11 in the books of PP Ltd.
(b) Following are the extracts from the Balance Sheet of ABC Ltd.

Liabilities 31.3.2020 31.3.2021

Equity Share Capital 25,00,000 35,60,000

10% Preference Share Capital 7,00,000 6,00,000

pg. 6
 Securities Premium Account 5,00,000 5,50,000
Profit & Loss A/c 20,00,000 28,00,000
Equity Share Capital for the year ended 31 March, 2021 includes₹ 60,000 of equity shares
issued to Grey Ltd at par for supply of Machinery of ₹60,000.
Profit & Loss account on 31 March, 2021 includes ₹50,000 of dividend received on Equity
shares invested in X Ltd
Show how the related items will appear in the Cash Flow Statement of ABC Ltd. as per
AS-3 (Revised)
(c) Mr. Mohan has invested some money in various Mutual funds. Following information in
this regard is given:
Mutual Date of Purchase Brokerage Stamp Market
Funds purchase cost (₹) Cost (₹) duty value as on
(₹) 31.03.2021
(₹)

A 01.05.2017 50,000 200 20 48,225

B 05.08.2020 25,000 150 25 24,220

C 01.01.2021 75,000 300 75 78,190

D 07.05.2020 70,000 275 50 65,880

You are required to;

1. Classify his investment in accordance with AS-13 (revised).
2. Value of Investment in mutual fund as on 31.03.2021
(d)(i) ABC Ltd. was previously making provision for non-moving stocks based on not issued for
the last 12 months up to 31.03.2020. Now, the company wants to make provision based
on technical evaluation during the year ending 31.03.2021.
Total value of stock ₹133.75 lakhs
Provision required based on technical evaluation ₹4.00 lakhs
Provision required based on 12 months not issued ₹5.00 lakhs

6. Answer the following questions:

a) Joy Ltd. purchased 20,000 kilograms of Raw Material @ 20 per kilogram during the year
2020-21. They have furnished you with the following further information for the year ended
31 March, 2021: -20
Particulars Units Amount (₹)

pg. 7
 Opening Inventory:
Finished Goods 2,000 1,00,000
Raw Materials 2,200 44,000
Direct Labour 3,06,000
Fixed Overheads 3,00,000
Sales 20,000 11,20,000
Closing Inventory:
Finished Goods 2,400
Raw Materials 1,800
The plant has a capacity to produce 30,000 Units of finished product per annum.
However, the actual production of finished products during the year 2020-21 was 20,400
Units. Due to a fall in the market demand, the price of the finished goods in which the raw
material has been utilized is expected to be sold ₹40 per unit. The replacement cost of
the raw material was ₹19 per kilogram.
You are required to ascertain the value of closing inventory as at 31 March, 2021 as per
AS 2.
b)
(i) A Limited has contracted with a supplier to purchase machinery which is to be
installed at its new plant in four months’ time. Special foundations were required
for the machinery which were to be prepared within this supply lead time. The cost
of the site preparation and laying foundations were 2,10,000. These activities were
supervised by an Architect during the entire period, who is employed for this
purpose at a salary of 35,000 per month. The machinery was purchased for
1,27,50,000 and a sum of 2,12,500 was incurred towards transportation charges
to bring the machinery to the plant site. An Engineer was appointed. at a fee of
37,500 to supervise the installation of the machinery at the plant site. You are
required to ascertain the amount at which the machinery should be capitalized in
the books of A Limited.
(ii) B Limited, which operates a major chain of retail stores, has acquired a new store
location. The new location requires substantial renovation expenditure.
Management expects that the renovation will last for 4 months during which the
store will be closed. Management has prepared the budget for this period including
expenditure related to construction and re-modelling costs, salary of staff who shall
be preparing the store before its opening and related utilities cost. How would such
expenditure be treated in the books of B Limited?
c) Alps Limited has received the following Grants from the Government during the year ended
31st March, 2021:
(i) ₹120 Lacs received as Subsidy from the Central Government for setting up an
Industrial undertaking in Medak, a notified backward area.
(ii) ₹15 Lacs Grant received from the Central Government on installation of Effluent
Treatment Plant.
(iii) ₹25 Lacs received from State Government for providing Medical facilities to its
workmen during the pandemic.
Advise Alps Limited on the treatment of the above Grants in its books of Account in
accordance with AS-12 "Government Grants".

pg. 8
(d) Prepare cash flow statement of Gama Limited for the year ended 31 March, 2021 in
accordance with AS-3(Revised) from the following cash account summary:

Cash summary Account

Inflows ₹ ('000) Outflows ₹ ('000)

Opening Balance 945 Payment to suppliers 54,918

Receipts from Customers 74,682 Purchase of Investments 351
Sale of Investments (Cost ₹
4,05,000) 459 Property, plant and equipment 6,210
Issue of Shares 8,100 require
Sale of Property, Plant and 1,863
equipment Wages & salaries
3,456
3,105
Payment of Overheads

6,561
Taxation

2,160
Dividends

6,750
Repayment of Bank Overdraft

1,350
Interest paid on Bank Overdraft

4,374
Closing Balance
87,642 87,642

7. Answer the following questions:

(a) Darshan Ltd. purchased a Machinery on 1 April, 2016 for 130 lakhs (Useful be in 4 years)
Government grant received is ₹40 lakhs for the purchase of above Machinery.
Salvage value at the end of useful life is estimated at 60 lakhs
Darshan Lat decides to treat the grant as deferred income.
You are required to calculate the amount of depreciation and grant to be recognised in
profit & loss account for the year ending 31 March, 2017, 31 March, 2018, 31 March,
2019 & 31 March, 2020.
Darshan Ltd. follows straight line method for charging depreciation.
(b) Kunal Securities Ltd. wants to reclassify its investments in accordance with AS-13
(Revised). State the values, at which the investments have to be reclassified in the
following cases:

pg. 9
 (i) Long Term investment in Company A, costing ₹ 10.5 lakhs is to be re-classified as
current investment. The company had reduced the value of these investments to ₹ 9
lakhs to recognize a permanent decline in value. The fair value on the date of
reclassification is ₹ 9.3 lakhs
(ii) Long term investment Company B, costing ₹ 14 lakhs is to be re-classified as current
investment. The fair value on the date of reclassification is ₹ 16 lakhs and book value
is ₹ 14 lakhs
(iii) Current investment in Company C, costing ₹ 12 lakhs is to be re-classified as a long-
term investment as the Company wants to retain them. The market value on the date
of reclassification is ₹ 13.5 lakhs
(iv) Current investment in Company D, costing ₹ 18 lakhs is to be re-classified as long-
term investment. The market value on the date of reclassification is ₹ 16.5 lakhs

(c) Mr. Jatin gives the following information relating to the items forming part of the inventory
as on 31.03.2019. His enterprise produces product. P using Raw Material X.

(i) 900 units of Raw Materials X (purchased @₹ 100 per unit). Replacement cost of
Raw Material X as on 31.03.2019 is ₹ 80 per unit
(ii) 400 units of partly finished goods in process of producing P. Cost incurred till date
is ₹ 245 per unit. These units can be finished next year by incurring additional cost
of ₹ 50 per unit.
(iii) 800 units of Finished goods P and total cost incurred is ₹ 295 per unit.
Expected selling price of product P is ₹ 280 per unit, subject to a payment of 5%
brokerage on selling price.
Determine how each item of inventory will be valued as on 31.03.2019.
Also calculate the value of total Inventory as on 31.03.2019.

(d) Explain briefly the accounting treatment needed in the following cases as per AS 11 as
on 31.03.2020
(i) Debtors include amount due from Mr. S ₹ 9,00,000 recorded at the prevailing
exchange rate on the date of sales, transaction recorded at US $ 1 - ₹72.00
US $ 1 = ₹ 73.50 on 31st March, 2020
US $ 1 - ₹ 72.50 on 1st April, 2019
(ii) Long term loan taken on 1st April 2019 from a U.S company amounting to ₹
75,00,000. ₹ 5,00,000 was repaid on 31st December, 2019, recorded at US $ 1 = ₹
70.50. Interest has been paid as and when debited by the US company.
US $ 1 = ₹ 73.50 on31st March, 2020
US $ 1 = ₹ 72.50 on 1st April 2019

8.Answer the following questions:

(a) A Ltd had following assets. Calculate depreciation for the year ending 31 st March 2020
for each asset as per A$ 10 (Revised)
(i) Machinery purchased for ₹ 10 lakhs on 1st April 2015 and residual value after useful
life of 5 years, based on 2015 prices is ₹ 10 lakhs.
(ii) Land for ₹ 50 lakhs.
(iii) A Machinery is constructed for ₹ 5,00,000 for its own use (useful life is 10 years).
Construction completed on 1st April, 2019, but the company does not begin using
the machine until 31st March, 2020

pg. 10
 (iv) Machinery purchased on 1 April, 2017 for ₹50,000 with useful life of 5 years and
residual value is NIL. On 1 April, 2019, management decided to use this asset for
further 2 years only.
(b) On 1 April, 2016, Mac Ltd. received a Government Grant of 60 lakhs for acquisition of
machinery costing ₹300 lakhs. The grant was credited to the cost of the asset. The
estimated useful life of the machinery is 10 years. The machinery is depreciated @ 10%
on WDV basis. The company had to refund the grant in June 2019 due to non- compliance
of certain conditions.
How the refund of the grant is dealt with in the books of Mac Ltd. assuming that the
company did not charge any depreciation for the year 2019-20.
Pass necessary Journal Entries for the year 2019-20.
(c) A Limited invested in the shares of XYZ Ltd. on 1 December, 2019 at a cost of ₹50,000.
Out of these shares ₹25,000 shares were purchased with an intention to hold for 6 months
and ₹25,000 shares were purchased with an intention to hold as long-term Investment.
A Limited also earlier purchased Gold of ₹1,00,000 and Silver of ₹30,00,000 on 1st April,
2019. Market value as on 31 March, 2020 of above investments are as follows:
Shares ₹47,500 (Decline in the value of shares is temporary.)
Gold ₹1,80,000
Silver ₹30,55,000
How above investments will be shown in the books of accounts of M/s A Limited for the
year ending 31 March, 2020 as per the provisions of AS 13 (Revised)?
(d) On 15th April, 2019 RBM ltd. obtained a Term Loan from the Bank for 320 lakhs to be
utilized as under:
₹ (in lakhs)
Construction for factory shed 240
Purchase of Machinery 30
Working capital 24
Purchase of Vehicles 12
Advance for tools/cranes etc. 8
Purchase of technical know how 6

In March, 2020 construction of shed was completed and machinery was installed. Total
interest charged by the bank for the year ending 31 March, 2020 was 40 lakhs.
In the context of provisions of AS 16 'Borrowing Costs', show the treatment of interest and
also explain the nature of Assets.

9 . Answer the following questions:

(A) Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited
for year ended 31.3.2019.
Particulars Amount (₹)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
pg. 11
 Unsecured loans given to associates 5,00,000
Interest on loan received form associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ₹8,200 was
deducted on the above interest) 73,800
Purchased debentures of X Lad., on 1 December, 2018
which are redeemable within 3 months. 3,00,000
Book value of plant & machinery sold (loss incurred ₹9,600) 90,000
(b) Karan Enterprises having lead Office in Mangalore, Karnataka has a branch in
Greenville, USA. Following is the trial balance of Branch at 31-3-2019:
Particulars Amount ($) Amount ($)
Dr. Cr.
Fixed assets 8000
Opening inventory 800
Cash 700
Goods received from Head office 2800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to Head office 2,450
Head office account 4,300
28,350 28,350
(1) Fixed assets were purchased on 1 April, 2015.
(ii) Depreciation at 10% p.a. is to be charged on fixed assets in straight line method..
(iii) Closing inventory at branch is $700 as on 31-3-2019.
(iv) Goods received form Head Office (HO) were recorded at 1.85.500 in HD books.
(v) Remittances to HO were recorded at 1,62,000 in HO books.
(vi) HO account is recorded in HO books at 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as:
1-4-2015 ₹63;
1-4-2018 ₹65 and
31-3-2019 ₹67.
Prepare the trial balance after been converted into Indian rupee in accordance with AS-11
(c) Mr. Rakshit gives the following information relating to items forming part of inventory as on
31 March, 2019. His factory produces product X using raw material A.

pg. 12
 (i) 800 units of raw material A (purchased @ ₹140 per units) Replacement cost of raw
material A as on 31st March,2019 is ₹190 per unit
(ii) 650 units of partly finished goods in the process of producing X and cost incurred till
date ₹310 per unit. These units can be finished next year by incurring additional cost
of ₹50 per unit.
(iii) 1,800 units of finished product X and total cost incurred ₹360 per unit.
Expected selling price of product X is ₹350 per unit.
In the context of AS-2, determine how each item of inventory will be valued as on 31
March, 2019. Also, calculate the value of total inventory as on 31 March, 2019.
(d) Sheetal Ltd. has provided the following information for the year ended 31 March, 2019:
Particulars Amount (₹)
Accounting profit 9,00,000
Book profit as per MAT 5,25,000
Profit as per Income Tax Act 95,000
Tax rate 30%
MAT rate 7.5%
You are required to 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.

10.(a) M/s First Ltd, began construction of a new factory building on 1"April, 2017. It obtained
₹2,00,000 as a special loan to finance the construction of the factory building on 1 April,
2017 at an interest rate of 8% per annum. Further, expenditure on construction of the
factory building was financed through other non-specific loans. Details of other
outstanding non-specific loans were: -20
Amount Rate of Interest per annum
(₹)
4,00,000 9%
5,00,000 12%
3,00,000 14%

The expenditures that were made on the factory building construction were as follows:
Date Amount (₹)

1st April, 2017 3,00,000

31st May, 2017 2,40,000
1st August, 2017 4,00,000
31stDecember,2017 3,60,000
The construction of factory building was completed by 31 March, 2018. As per the
provisions of AS-16, you are required to:
(1) Calculate the amount of interest to be capitalized
(2) Pass Journal entry for capitalizing the cost and borrowing cost in respect of the
factory building.
pg. 13
(b) On 15th June, 2018, 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 March, 2017 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 15th June, 2018 was ₹11 lakhs.
2) ) Another portion of long-term investments purchased on 15th January, 2017 are to be re-
classified as current investments. The original cost of these investments was ₹7 lakhs but
had been written down to ₹5 lakhs (to recognize 'other than temporary' decline in value).
The fair value of these investments on 15th June, 2018 was ₹4.5 lakhs.
3) ) A portion of current investments purchased on 15th March, 2018 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 March, 2018 was ₹6 lakhs and fair value on 15th
June 2018 was ₹ 8.5 lakhs.
4) Another portion of current investments purchased on 7th December, 2017 for 4 lakhs are
to be re-classified as long-term investments. The market value of these investments was:
on 31 March, 2018 ₹3.5 lakhs
on 15th June, 2018 ₹3.8 lakhs
(c) State whether the following statements are 'True' or 'False'. Also give reason for your answer.
1) As per the provisions of AS-5, extraordinary items should not be disclosed in the
statement of profit and loss as a part of net profit or loss for the period.
2) As per the provisions of AS-12, government grants in the nature of promoters' contribution
which become refundable should be reduced from the capital reserve.
3) As per the provisions of AS-2, inventories should be valued at the lower of cost and selling
price.
4) As per the provisions of AS-13, a current investment is an investment that is by its nature
is readily realisable and is intended to be held for not more than six months from the date
on which such investment is made.
5) As per the provisions of AS-4, a contingency is a condition or situation, the ultimate
outcome of which (gain or loss) will be known or determined only on the occurrence of
one or more uncertain future events.
(d) The financial statements of PQ Ltd. for the year 2017-18 approved by the Board of
Directors on 15th July, 2018. The following information was provided:
(i) A suit against the company's advertisement was filed by a party on 20th April, 2018,
claiming damages of ₹25 lakhs.
(ii) The terms and conditions for acquisition of business of another company have been
decided by March, 2018. But the financial resources were arranged in April, 2018 and
amount invested was ₹50 lakhs.
(iii) Theft of cash of ₹5 lakhs by the cashier on 31 March, 2018 but was detected on 16th
July, 2018.
(iv) ) Company sends a proposal to sell an immovable property for ₹40 lakhs in March,
2018. The book value of the property is ₹30 lakhs on 31 March, 2018. However, the
deed was registered on 15th April, 2018.
(v) ) A major fire has damaged the assets in a factory on 5th April, 2018. However, the
assets are fully insured
With reference to AS-4 "Contingencies and events occurring after the balance sheet
date", state whether the above mentioned events will be treated as contingencies,
adjusting events or non-adjusting events occurring after the balance sheet date.

pg. 14
11. (a) Neon Enterprise operates a major chain of restaurants located in different cities. The
company has acquired a new restaurant located at Chandigarh. The new restaurant
requires significant renovation expenditure. Management expects that the renovations
will last for 3 months during which the restaurant will be closed.
Management has prepared the following budget for this period –
Salaries of the staff engaged in preparation of restaurant
before its opening ₹7,50,000
Construction and remodelling cost of restaurant ₹30,00,000
Explain the treatment of these expenditures as per the provisions of AS 10 "Property,
Plant and Equipment".
(b)
(i) ABC Ltd. a Indian Company obtained long term loan from WWW private Ltd., a U.S.
company amounting to ₹30,00,000. It was recorded at US $1 = ₹60.00, taking exchange
rate prevailing at the date of transaction. The exchange rate on balance sheet date
(31.03.2018) was US $1 = ₹62.00.
(ii) Trade receivable includes amount receivable from Preksha Ltd., ₹10,00,000 recorded at
the prevailing exchange rate on the date of sales, transaction recorded at US $1 = ₹59.00.
The exchange rate on balance sheet date (31.03.2018) was US $1 = ₹62.00. You are
required to calculate the amount of exchange difference and also explain the accounting
treatment needed in the above two cases as per AS 11 in the books of ABC Ltd.
(c) HIL Ltd. was making provision for non-moving stocks based on no issues having occurred
for the last 12 months up to 31.03.2017. The company now wants to make provision
based on technical evaluation during the year ending 31.03.2018.
Total value of stock 120 lakhs
Provision required based on technical evaluation ₹3.00 lakhs
Provision required based on 12 months no issues ₹4.00 lakhs
You are requested to discuss the following points in the light of Accounting Standard (AS)-
1:
(i) Does this amount to change in accounting policy?
(ii) Can the company change the method of accounting?
(d) The accounting year of Dee Limited ended on 31 March, 2018 but the accounts were
approved on 30th April, 2018. On 15th April, 2018 a fire occurred in the factory and office
premises. The loss by fire is of such a magnitude that it was not possible to expect the
enterprise Dee Limited to start operation again.
State with reasons, whether the loss due to fire is an adjusting or non- adjusting event
and how the fact of loss is to be disclosed by the company in the context of the provisions
of AS-4 (Revised).

12. (a) On 01.04.2014, XYZ Ltd. received Government grant of ₹100 Lakhs for an acquisition
of new machinery costing ₹500 lakhs. The grant was received and credited to the cost of
the asset. The life span of the machinery is 5 years. The machinery is depreciated at 20%
on WDV method
The company had to refund the entire grant in 2nd April, 2017 due to non-fulfilment of
certain conditions which was imposed by the government at the time of approval of grant.

pg. 15
 How do you deal with the refund of grant to the government in the books of XYZ Ltd., as
per AS12?
b) ABC Ltd. borrowed US $ 5,00,000 on 01/01/2017, which was repaid as on 31/07/2017.
ABC Ltd. prepares financial statement ending on 31/03/2017. Rate of Exchange between
reporting currency (INR) and foreign currency (USD) on different dates are as under:
01/01/2017 1 US$ = ₹68.50
31/03/2017 1 US$ = ₹69.50
31/07/2017 1 US$ = ₹70.00
You are required to pass necessary journal entries in the books of ABC Ltd. as per AS 11.
(c) Rohit Ltd. has provided the following information:
Particulars ₹
Depreciation as per accounting records 2,50,000
Depreciation as per tax records 5,50,000
Unamortized preliminary expenses as per tax record 40,000
There is adequate evidence of future profit sufficiency. How much deferred tax
asset/liability should be recognised as transition adjustment when the tax rate is 50%?
(d) M/s PQR Ltd. is in the process of finalising its accounts for the year ended 31 March,
2018. The company seeks your advice on the following:
(i) Goods worth ₹5,00,000 were destroyed due to flood in September, 2015. A claim was
lodged with insurance company. But no entry was passed in the books for insurance
claim in the financial year 2015-16. In March, 2018, the claim was passed and the
company received a payment of ₹3,50,000 against the claim. Explain the treatment of
such receipt in final account for the year ended 31 March, 2018.
(ii) Company created a provision for bad and doubtful debts at 2.5% on debtors in
preparing the financial statements for the year 2017-18. Subsequently, on a review of the
credit period allowed and financial capacity of the customers, the company decides to
increase the provision to 8% on debtors as on 31.03.2018. The accounts were not
approved by the Board of Directors till the date of decision. While applying the relevant
accounting, standard, can this revision be considered as an extra-ordinary item or prior
period item?
13.(a) Haresh infra projects has undertaken a project to construct a bridge for the Government
of India. The construction commenced during the financial year ending 31.03.2020 and
is likely to be completed by the end of next financial year. The contract is for a fixed price
of ₹22 Crore with an escalation clause.
You are given the following information for the year ended 31.03."
Cost incurred up to 31.03.2020 ₹8 Crore
Estimated costs to complete the contract ₹12 Crore
There is an escalation in cost by 5% and accordingly the contract price is increased by
5%.
During the second year, the total cost incurred on the contract was ₹13 Crore. You are
required to ascertain the stage of completion and state the revenue and profit to be
recognized for the first year as per AS 7 and calculate the profit made on the contract
during second year.

pg. 16
(b) An enterprise ordered 20,000 KG of certain material at ₹110 per unit. The purchase price
includes GST ₹12 per KG, in respect of which full input tax credit (ITC) is admissible.
Freight incurred amounted to ₹1,17,600. Normal transit loss is 2%. The enterprise actually
received 19,500 KG and consumed 18,000 KG of the material.
(i) You are required to calculate Cost of material per KG
(ii) Allocation of material cost
(c) M/s. Star Limited purchased machinery for 6,80,000 (inclusive of GST of 40,000). Input
credit is available for entire amount of GST paid. The company incurred the following
other expenses for installation.
₹
Cost of preparation of site for installation 21,200
Total Labour charges 56,000
(200 out of the total of 500 men hours worked, were spent on installation of machinery)
Spare parts and tools consumed in installation 5,000
Total salary of supervisor 26,000
(Time spent for installation was 25% of the total time worked)
Total administrative expenses 34,000
(1/10 relates to the plant installation)
Test run and experimental production expenses 18,000
Consultancy charges to architect for plant set up 11,000
Depreciation on assets used for installation 12,000
The machine was ready for use on 15.01.2021 but was used from 01.02.2021. Due to
this delay further expenses of ₹8,900 were incurred. Calculate the value at which the
plant should be capitalized in the books of M/s. Star Limited.
(d) Sanket had 50,000 Equity shares of XYZ Ltd. on 01.04.2020 at a book value of ₹25 per
share (face value ₹10). On 01.06.2020, he purchased another 10,000 shares of the
company at ₹20 per share.
The director of XYZ Ltd. announces a bonus and right issue. No. dividend was payable
on these issues. The terms of the issue were as follows:
• Bonus basis 1:6 (Date: 16.08.2020)
• Right basis 3:7 (Date: 31.08.2020) price ₹15 per share
• Due date for payment 30.09.2020
• Shareholders can transfer their rights in full or in part.
Accordingly, Sanket sold 33 1/3% of his entitlement in the market for consideration of 4 per
share on 31.08.2020 & he procured other entitlement by payment.
Dividends for the year ended 31.03.2020 at the rate of 20% were declared by XYZ Ltd. and
received by Sanket on 31.10.2020. Dividend amount for shares acquired by him on
01.06.2020 are to be adjusted against the cost of purchase.
On 15.11.2020, Sanket sold 25,000 equity shares at premium ₹12 per share.
pg. 17
 You are required to prepare in books of Sanket.
(i) Investment Account
(ii) Profit & Loss Account (Extract for Investment)
Books of accounts are closed by Sanket on 31.12.2020 and market price of shares on that
date is ₹20 per share.

14. (a) Following information of M/s BS Products Ltd. is given:

(i) Goods of ₹2,00,000 sold to M/s Den Ltd. on 20-03-2020 but at the request of the buyer
these were delivered on 10-04-2020.
(ii) On 15-01-2020 goods of ₹3,00,000 were sent on consignment basis, of which 20% of the
goods unsold are lying with the consignee as on 31-03-2020.
(iii) ₹4,00,000 worth of goods were sold on approval basis on 01-12-2019. The period of
approval was 3 months after which they were considered as sold. Buyer sent approval
for 75% goods up to 31-01-2020 and no approval or disapproval received for the
remaining goods till 31-03-2020.
(iv) Apart from the above, M/s BS Products Ltd. sells goods to dealers also. One of the
conditions of sale is that interest is payable @2% p.m for delayed payments by dealers.
Percentage of interest recovery is only 10% i.e. ₹50,000 on such overdue outstanding
due to various reasons. During the year 2019-20, company wants to recognize the entire
interest receivable of ₹60,000.
You are required to advise the accountant of M/s BS Products Ltd., with valid reasons,
the amount to be recognized as revenue in above cases in the context of AS-9 and also
determine the total revenue to be recognized for the year ending 31-03-2020.
(b) The closing inventory at cost of a company amounted to ₹11,38,800 as on 31 March,
2020. The following items were included at cost in the total:
(i) 1600 units of coats, which had cost of ₹150 each. These goods. can be sold for
₹300 each subject to 5% brokerage on proceeds. Owing to the defect in
manufacture, they were all sold after the balance sheet date at 50% of their selling
price.
(ii) 2000 units of partly finished sets of dresses, cost incurred till date (31 March, 2020)
is ₹220 per unit. These units can be sold in next year by incurring additional
expense of ₹80 per unit. Expected Selling price is 310 subject to selling expenses
of ₹15 per unit.
What should the inventory value be according to AS-2 after considering the above items?
(c) A construction contractor bas a fixed price contract for ₹36,000 lakhs to build a bridge in
3 years’ time frame. A summary of some of the financial data is as under:
(Amount in lakhs)
Particulars Year 1 Year 2 Year 3

Initial amount for revenue agreed in contract 36,000 36,000 36,000

Variation in revenue (+)

…. 800 800

pg. 18
 Construction cost incurred upto the reporting date 8,372 24,672* 32,800**

Estimated Profit for whole contract 3,800 4,000 4,000

*Includes ₹400 lakhs for standard materials stored at the site to be used in year 3 to
complete the work.
**includes ₹400 lakhs for standard material brought forward from year 2.
The variation of cost and revenue in year 2 has been approved by customer.
Compute year wise amount of revenue, expenses, contract cost to complete and profit or
loss to be recognized in the statement of profit & loss as per AS-7. (Revised)
(d) Fast Ltd. decides to absorb Slow Ltd. Following particulars of Slow Ltd. are given:
Particulars Amount (₹)

56,000 Equity shares of 10 each fully paid up 5,60,000

9% Preference Shares of 100 each.
4,00,000
7% Debentures of 100 each
3,50,000

Other Information:
(i) 7% Debenture holders of Slow Ltd. will be discharged by Fast Ltd. at 10% premium
by issuing 6% New Debentures of Fast Ltd.
(ii) 9% Preference Shareholders of Slow Ltd. will be discharged at 5% premium by
issuing necessary number of 10% preference shares of Fast Ltd. (Face value 100
each)
(iii) Equity shareholders of Slow Ltd. will be issued 6 equity shares of Fast Ltd. for 7
Equity shares of Slow Ltd. at par. Nominal Value of each equity share of Fast Ltd.
is ₹10 each,
(iv) Equity Shareholders of Slow Ltd. will get ₹2 in cash for each share they held in
Slow Ltd.
Compute Purchase consideration as per AS 14.

15. (a) P Ltd., a construction contractor, undertakes the construction of a commercial complex.
This commercial complex consists of three towers. Each tower is subject to separate
negotiation. P Ltd. entered into an agreement for this commercial complex construction.
The agreement lays down the contract revenue for each tower as ₹40 lakhs, ₹50 lakhs
and ₹65 lakhs respectively besides other terms and conditions for each tower.
P Ltd. is of view that since a single agreement has been entered, with a single customer,
the above contract should be treated as a single construction contract. Comment in
context of AS-7 (Revised).
pg. 19
 (b) Following is the Cash Flow abstract of Beta Ltd., for the year ended 31 March 2020:
Inflows ₹ Outflows ₹

Opening Balance Payment to creditors 1,00,000

Cash 20,000 Salaries and wages 25,000

Bank 90,000 Debentures redeemed 50,000

Collection from Debtors 4,10,000 Bank loan repaid 3,50,000

Sale of Fixed assets 1,15,000 Taxations 60,000

Closing balance:

Cash 10,000

Bank 40,000

6,35,000 6,35,000

Prepare Cash Flow Statement for the year ended 31-03-2020 using direct method is
accordance with AS 3.
(c)(i) A Ltd. purchased an asset on 1st April 2014 for ₹5,00,000 and asset had useful life
of 8 years with NIL residual value.
On 1 April 2019, directors reviewed the estimated life of the asset and decided that
the asset would probably be useful for further 2 years with residual value of 5% of
the original cost.
Calculate the amount of depreciation to be charged for each year as per AS-10, if
the company charges depreciation on straight line basis.
(ii) A company manufactures a machine for its own use. The manufacturing of
machine was completed on November 1" 2019. The machine was finally capable
of operating as on December 15th 2019, however company started using the
machinery from February 1 2020. The company charged depreciation from
February 1 2020. Comment in context of AS-10.
(d) A company purchased 20,000 kg of certain material at ₹140 per kg. Purchase price
includes the GST of ₹1,00,000, in respect of which full input tax credit is admissible. The
company availed full GST input tax credit. Freight inward incurred ₹1,20,000. Unloading
charges ₹32,000. Normal loss during transit is 8%. The enterprise actually received
18,200 kg and consumed 16,500 kg. Compute Cost of inventory as per AS 2 and also
allocate material cost.

16.(a) On 1 December, 2019, Mahindra Construction Co. Ltd. undertook a contract to construct
a building for ₹170 lakhs. On 31 March, 2020, the company found that it had already
spent ₹1,29,98,000 on the construction. Prudent estimate of additional cost for completion

pg. 20
 was₹ 64,02,000. Calculate total estimated loss on contract and what should be charged
to statement of profit and loss account as contract revenue and contract cost in the final
accounts for the year ended 31 March, 2020, as per provision of Accounting Standard 7
(Revised).
(b) In the year 2019-20, an entity has acquired a new freehold building with a useful life of
50 years for ₹45,00,000. The entity desired to calculate the depreciation charge per
annum using a straight-line method. It has identified the following components (with no
residual value of lifts & fixtures at the end of their useful life) as follows:
Component Useful life Cost
(years) (Amounts in )
Land Finite 10,00,000

Roof 25 5,00,000

Lifts 20 2,50,000

Fixtures 10 2,50,000

Remainders of Building 50 25,00,000

45,00,000

Calculate depreciation expense for the year 2019-20 as per componentization method.
(c) M/s. Gowtham Limited invested in shares of another company (with the intention to hold
the shares for short-term period) on 30th November, 2019 at a cost of ₹4,25,000. It also
earlier purchased Gold of ₹8,00,000 and Silver of ₹3,50,000 on 31 March, 2017.
Market values as on 31 March, 2020, of the above investments are as follows:
Shares 3,50,000
Gold 10,25,000
Silver 5,10,000
You are required to explain how will the above investments be shown (individually and in
total) in the books of account of M/s. Gowtham Limited for the year ending 31 March,
2020 as per the provisions of AS 13.
(d) In the books of Rani Ltd., closing inventory as on 31.03.2020 amounts to ₹1,75,000
(valued on the basis of FIFO method).
The Company decides to change from FIFO method to weighted average method for
ascertaining the costs of inventory from the year 2019-20. On the basis of weighted
average method, closing inventory as on 31.03.2020 amounts to ₹1,59,000. Realizable
value of the inventory as on 31.03.2020 amounts to ₹2,07,000.
Discuss disclosure requirements of changes in accounting policy as per AS 1.

17.(a) From the following information of XYZ Limited, calculate cash and cash equivalent as on
31-03-2019, as per AS-3.
Particulars Amount (₹)

pg. 21
 Balance as per the Bank Statement 25,000
Cheque issued but not presented in the Bank 15,000

Short Term Investment in liquid equity shares of ABC Limited 50,000

Fixed Deposit created on 01-11-2018 and maturing on 15-04-2019 75,000
Short Term Investment in highly liquid Sovereign Debt Mutual Fund
on 01-03-2019 1,00,000
Bank Balance in a Foreign Currency Account in India $1,000
(Conversion Rate: On the day of deposit - 69/USD
As on 31-03-2019-70/USD)
(b) Given the following information of M/s. ABC Ltd.
(i) Goods of ₹80,000 were sold on 10-03-2019 but at the request of the buyer these
were delivered on 10-04-2019.
(ii) On 25-01-2019 goods of ₹2,00,000 were sent on consignment basis of which 20%
of the goods unsold are lying with the consignee as on 31-03-2019.
(iii) ₹2,40,000 worth of goods were sold on approval basis on 1-12-2018. The period
of approval was 3 months after which they were considered sold. Buyer sent
approval for 75% goods up to 31-1-2019 and no approval or disapproval received
for the remaining goods till 31-3-2019.
(iv) Apart from the above, the company has made cash sales of ₹9,60,000 (gross).
Trade discount of 5% was allowed on the cash sales.
You are required to advise the accountant of M/s. ABC Ltd., with valid reasons, the
amount to be recognized as revenue in above cases in the context of AS-9 for the year
ending 31-3-2019.
(c) Shyan Limited commenced a construction contract on 01-04-2018. The company
expended ₹500 crores in 2018-19 for 40% work. The total estimated cost of the project is
₹1,250 crores. Compute (i) Revenue, (ii) Expense, (iii) Provision for loss and (iv) Profit or
loss to be recognized in the statement of Profit and Loss A/c. as per AS-7 for the year
ending 31-03-2019 if:
(1) It is fixed price contract of ₹1,200 crores.
(2) It is cost plus contract of 20%.
(d) With reference to AS-10, classify the items under the following heads:
HEADS
(i) Purchase Price of PPE
(ii) Directly attributable cost of PPE or
(iii) Cost not included in determining the carrying amount of an item of PPE.
ITEMS
(1) Import duties and non-refundable purchase taxes.
(2) Initial delivery and handling costs.

pg. 22
 (3) Costs of testing whether the asset is functioning properly, after deducting the
net proceeds.
(4) Initial operating losses, such as those incurred while demand for the output of an
item builds up.
(5) Costs incurred while an item capable of operating in the manner intended by
management has yet to be brought into use or is operated at less than full capacity.
(6) Trade discounts and rebates.
(7) Costs of relocating or reorganizing part or all of the operations of an enterprise.
(8) Installation and assembly costs.
(9) Cost of site preparation.
(10) Administration and other general overhead costs. SDY
18. (a) The closing stock of finished goods at cost of a company amounted to ₹4,50,000.
The following items were included at cost in the total:
(a) 100 coats, which had cost ₹2200 each and normally sold for ₹4000 each. Owing
to a defect in manufacture, they were all sold after the balance sheet date at 50%
of their normal selling price.
(b) 200 skirts, which had cost ₹50 each. These too were found to be defective.
Remedial work in April cost ₹2 per skirt, and selling. expenses for the batch totalled
₹200. They were sold for ₹55 each.
(c) Shirts which had cost ₹50,000, their net realizable value Balance sheet date was
₹55,000. Commission 10% on sales is payable to agents
What should the inventory value be according to AS 2 after considering the above items?
(b) Classify the following activities as (a) Operating activities, (b) Investing activities, (c)
Financing activities, (d) Cash equivalents, with reference to AS 3 (Revised).
(a) Brokerage paid on purchase of investments
(b) Underwriting commission paid
(c) Trading commission received
(d) Proceeds from sale of investment
(e) Purchase of goodwill
(f) Redemption of preference shares
(g) Rent received from property held as investment
(h) Interest paid on long-term borrowings
(i) Marketable securities
(j) Refund of income tax received
(c) In the year 2017-18, an entity has acquired a new freehold building with a useful life of
25 years for ₹45,00,000. The entity desires to calculate the depreciation charge per
annum using a straight-line method. It has identified the following components (with no
residual value of lifts & fixtures at the end of their useful life) as follows:

pg. 23
 Component Useful life (Years) Cost (₹)

Land Infinite 10,00,000

Roof 25 5,00,000
Lifts 10 2,50,000
Fixtures 5 2,50,000
Remainder of building 25 25,00,000
45,00,000
(i) Calculate depreciation for the year 2017-18 as per componentization method.
(ii) Also state the treatment, in case Roof requires replacement at the end of its useful
life.
(d) Mother Mart Ltd., wants to re-classify its investment in accordance with AS 13. Decide on
the treatment to be given in each of the following cases assuming that the market value
has been determined in an arm's length transaction between knowledgeable and willing
buyer and seller:
(i) A portion of current investments purchased for ₹25 lakhs to be reclassified as long-
term investments, as the company has decided to retain them. The market value as on
the date of balance sheet was ₹30 lakhs.
(ii) Another portion of current investments purchased for ₹20 lakhs has to be re-
classified as long-term investments. The market value of these investments as on the
date of the balance sheet was ₹12.5 lakhs.
(iii) One portion of long-term investments no longer considered for holding purposes,
to be reclassified as current investments. The original cost of these was 15 lakhs, but had
been written down to ₹11 lakhs to recognize permanent decline as per AS 13.

19. (a) Shrishti Lad. contracted with a supplier to purchase machinery which is to be installed in
its Department A in three months' time. Special. foundations were required for the
machinery which were be prepared within this supply lead time. The cost of the site
preparation and laying foundations were ₹1,41.870. These activities were supervised by
a technician during the entire period, who is employed for this purpose of ₹45,000 per
month. The technician's services were given by Department B to Department A, which
hilled the services at ₹49,500 per month after adding 10% profit margin.
The machine was purchased at ₹1,58,34,000 inclusive of IGST @12% for which input
credit is available to Shrishti Ltd. ₹55,770 transportation charges were incurred to bring
the machine to the factory site. An Architect was appointed at a fee of ₹30,000 to
supervise machinery installation at the factory site.
Also, payment under the invoice was due in 5 months. However, the Company made the
payment in 3rd month. The company operates on Bank Overdraft @ 14% p.a.
Ascertain the amount at which the Machinery should be capitalized under AS 10.
(b) Goods worth ₹6,62,500 were sold on 31.10.2017 by X Ltd. to Y Ltd. Y Ltd. requested for
a trade discount of 8% which was agreed by X Ltd. The sale was effected and goods were
dispatched. However, on receipt of the goods, Y Ltd. found that goods worth ₹77,500
pg. 24
 were damaged. Consequently, Y Ltd. returned the damaged goods to X Ltd. and made
the due payment amounting to ₹5,32,000. The accountant of X Ltd. booked the sale for
₹5,32,000.
Discuss the above treatment by the accountant with reference to applicable Accounting
Standard.

(c) M/s Action Construction Company Ltd. undertook a fixed price construction contract to
construct a building within 3 years’ time for ₹10,000 lakhs.
A summary of the financial data during the construction period is as follows:
(₹lakhs)
Year-1 Year 2 Year-3

Initial amount for revenue agreed in contract 10000 10000 10000

Variation in Revenue (+) -- 500 1000

Contract costs incurred upto the reporting date

2415 6375 8500

Estimated profit for whole contract
1950 2000 2500

The variation in cost and revenue in year 2 and 3 has been approved by customer.
Determine the stage of completion of contract and amount of revenue, expenses and
profit or loss to be recognised in the statement of Profit and Loss for three years as per
AS-7 (Revised).
(d) Enumerate type of alternatives available to a business entity for accounting in
computerised environment. 5
Also, describe the criteria for selection among above alternatives.

20. (a) How will you disclose following items while preparing Cash Flow Statement of Gagan
Ltd. as per AS-3 for the year ended 31 March, 2018?
(i) 10% Debentures issued: As on 01-04-2017 ₹1,10,000
As on 31-03-2018 ₹77,000
(ii) Debentures were redeemed at 5% premium at the end of the year. Premium was
charged to the Profit & Loss Account for the year.
(iii) Unpaid Interest on Debentures: As on 01-04-2017 ₹275
As on 31-03-2018 ₹1,175
(iv) Debtors of ₹36,000 were written off against the Provision for Doubtful Debts A/c
during the year.

pg. 25
 (v) 10% Bonds (Investments): As on 01-04-2017 ₹3,50,000
As on 31-03-2018 ₹3,50,000
(vi) Accrued Interest on Investments: As on 31-03-2018 ₹10,500
(b) State whether the following statements are 'True' or "False". Also give reason for your
answer.
(1) Certain fundamental accounting assumptions underline the preparation and
presentation of financial statements. They are usually specifically stated because
their acceptance and use are not assumed.
(ii) If fundamental accounting assumptions not followed in presentation and
preparation of financial statements, a specific disclosure is not required.
(iii) All significant accounting policies adopted in the preparation and presentation of
financial statements should form part of the financial statements.
(iv) Any change in an accounting policy, which has a material effect should be
disclosed. Where the amount by which any item in the financial statements is
affected by such change is not ascertainable, wholly or in part, the fact need not to
be indicated.
(v) There is no single list of accounting policies which are applicable to all
circumstances.
(c) Som Ltd. agreed to takeover Dove Ltd. on 1 April, 2018. The terms and conditions of
takeover were as follows:
(i) Som Ltd. issued 56,000 equity shares of ₹100 each at a premium of ₹15 per share
to the equity shareholders of Dove Ltd.
(ii) Cash payment of ₹39,000 was made to equity shareholders of Dove Ltd.
(iii) 24,000 fully paid preference shares of ₹50 each issued at par to discharge the
preference shareholders of Dove Ltd.
(iv) The 8% Debentures of Dove Ltd. ( ₹78,000) converted into equivalent value of 9%
debentures in Som Ltd.
(v) The actual cost of liquidation of Dove Ltd. was ₹23,000. Liquidation cost is to be
reimbursed by Som Ltd, to the extent of ₹15,000.
You are required to:
(1) calculate the amount of purchase consideration as per the provisions of AS-14 and
(2) pass Journal Entry relating to discharge of purchase consideration in books of Som
Ltd.
(d) Explain 'Bearer Plant' & 'Biological Asset' as per AS-10.

21. (a) ABC Ltd. is installing a new plant at its production facility. It provides you the
following information:
Cost of the plant (cost as per supplies invoice) ₹31,25,000
Estimated dismantling costs to be incurred after 5 years ₹2,50,000
Initial Operating losses before commercial production ₹3,75,000

pg. 26
 Initial delivery and handling costs ₹1,85,000
Cost of site preparation ₹4,50,000
Consultants used for advice on the acquisition of the plant ₹6,50,000
Please advise ABC Ltd. on the costs that can be capitalised for plant in accordance with
AS 10: Property, Plant and Equipment.
(b) A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is
required. The company provides you following information for the year ended 31 March,
2017.
₹ per unit
Raw Material X
Cost price 380
Unloading Charges 20
Freight Inward 40
Replacement cost 300
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80
Additional Information:
(i) Total fixed overhead for the year was ₹4,00,000 on normal capacity of 20,000 units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was ₹2,400
units.
You are required to calculate the total value of closing stock of Raw Material X and
Chemical Y according to AS 2, when
(a) Net realizable value of Chemical Y is ₹800 per unit
(b) Net realizable value of Chemical Y is ₹600 per unit
(c) Fashion Limited is engaged in manufacturing of readymade garments. They provide you
the following information on 31st March, 2017:
(i) On 15th January, 2017 garments worth ₹4,00,000 were sent to Anand on
consignment basis of which 25% garments unsold were lying with Anand as on
31st March, 2017.
(ii) Garments worth ₹1,95,000 were sold to Shine boutique on 25th March, 2017 but
at the request of Shine Boutique, these were delivered on 15th April, 2017.
(iii) On 1 November, 2016 garments worth ₹2,50,000 were sold on approval basis. The
period of approval was 4 months after which they were considered sold. Buyer sent
approval for 75% goods up to 31 December, 2016 and no approval or disapproval
received for the remaining goods till 31st March, 2017.
You are required to advise the accountant of Fashion Limited, the amount to be
recognised as revenue in above cases in the context of AS 9.
pg. 27
(d) What are Accounting Standards? Explain the issues, with which they 5 deal.

22. (a) ABC Financial Services Ltd. is engaged in the business of financial services and
is undergoing tight liquidity position, since most of the assets of the company are
blocked in various claims/petitions in a Special Court. ABC Financial Services Ltd.
has accepted Inter- Corporate Deposits (ICDs) and it is making its best efforts to
settle the dues. There were claims at varied rates of interest, from lenders, from:
the due date of ICDs to the date of repayment. The company has provided interest,
as per the terms of the contract till the due date and a note for non-provision of
interest from the due date to date of repayment was mentioned in financial
statements.
On account of uncertainties existing regarding the determination of the amount and
in the absence of any specific legal obligation at present as per the terms of
contracts, the company considers that these claims are in the nature of "claims
against the company not acknowledged as debt", and the same has been disclosed
by way of a note in the accounts instead of making a provision in the Profit and
Loss Account. State whether the treatment done by the company is correct or not
as per relevant Accounting Standard.
(b) Explain the meaning of the terms 'cash' and 'cash equivalent' for the purpose of
Cash Flow Statement as per AS-3
Ruby Exports had a bank balance of USD 25,000, stated in books at ₹16,76,250
using the rate of exchange ₹67.05 per USD prevailing on the date of receipt of
dollars. However, on the balance sheet date, the closing rate of exchange was
₹67.80 and the bank balance had to be restated at ₹16,95,000.
Comment on the effect of change in bank balance due to exchange rate fluctuation
and also discuss how it will be disclosed in Cash Flow Statement of Ruby Exports
with reference to AS 3.
(c) Akar Ltd. signed on 01/04/16, a construction contract for ₹1,50,00,000. Following
particulars are extracted in respect of contract, for the period ending 31/03/17.
- Materials issued ₹75,00,000
- Labour charges paid ₹36,00,000
- Hire charges of plant ₹10,00,000
- Other contract cost incurred ₹15,00,000
- Out of material issued, material lying unused at the end of period is
₹4,00,000
- Labour charges of ₹2,00,000 are still outstanding on 31.3.17.
- It is estimated that by spending further 33,50,000 the work can be completed
in all respect.
You are required to compute profit/loss to be taken to Profit & Loss Account and additional
provision for foreseeable loss as per AS-7
(d) Raj Ltd. entered into an agreement with Heena Ltd. to dispatch goods valuing
₹5,00,000 every month for next 6 months on receipt of entire payment. Heena Ltd.
accordingly made the entire payment of ₹30,00,000 and Raj Ltd. started
dispatching the goods. In fourth month, due to fire in premise of Heena Ltd., Heena
Ltd. requested to Raj Ltd. not to dispatch goods until further notice. Due to this, Raj
pg. 28
 Ltd. is holding the remaining goods worth ₹15,00,000 ready for dispatch. Raj Ltd.
accounted ₹15,00,000 as sales and transferred the balance to Advance received
against Sales account. 5
Comment upon the above treatment by Raj Ltd. with reference to the provision of
AS-9.

23.(a) GTI Ltd. negotiates with Bharat Oil Corporation Ltd. (BOCL), for construction of
"Retail Petrol & Diesel Outlet Stations". Based on proposals submitted to different
Regional Offices of BOCL, the final approval for one outlet each in Region X.
Region Y. Region Z is awarded to GTI Ltd. A single agreement is entered into
between two. The agreement lays down values for each of the three outlets ie.
₹102. lacs, ₹150 lacs, ₹130 lacs for Region X, Region Y. Region Z respectively.
Agreement also lays down completion time for each Region.
Comment whether GTI Lid. will treat it as single contract or three separate
contracts with reference to AS-7?
(b) Hema Lid. purchased a machinery on 1.04.2008 for ₹15,00,000. The company
charged straight line depreciation based on 15 years working. life estimate and
residual value ₹3,00,000. At the beginning of the 4 years, the company by way of
systematic evaluation revalued the machinery upward by 20% of net book value
as on date and also re-estimated the useful life as 7 years and scrap value as nil.
The increase in net book value was credited directly to revaluation reserves.
Depreciation (on SLM basis) later on was charged to Profit & Loss Account. At the
beginning of 8 year the company decided to dispose off the machinery and
estimated the realizable value to ₹2,00,000.
You are required to ascertain the amount to be charged to Profit & Loss
Account at the beginning of 8th year with reference to AS-10.
(c) How you will deal with following in the financial statement of the Paridhi Electronics
Ltd. as on 31.3.16 with reference to AS-137
(i) Paridhi Electronics Ltd. invested in the shares of another unlisted company
on 1 May 2012 at a cost of 3,00,000 with the intention of holding more than
a year. The published accounts of unlisted company received in Jan 2016
reveals that the company has incurred cash losses with decline market
share and investment of Paridhi Electronics Ltd. may not fetch more than
45,000,
(ii) Also, Paridhi Electronics Ltd. has current investment (X Ltd.'s shares)
purchased for ₹5 lakhs, which the company wants to reclassify as long term
investment. The market value of these investments as on date of Balance
Sheet was ₹2.5 lakhs.
(d) A manufacturing company has the following stages of production and sale in
manufacturing Fine paper rolls:

Date Activity Costs to Not Realizable

Date (₹) Value (₹)

pg. 29
 15.1.16 Raw material 1,00,000 80,000
20.1.16 Pulp (WIP 1) 1,20,000 1,20,000
27.1.16 Rough & thick paper (WIP 2) 1,50,000 1,80,000
15.2.16 Fine Paper Rolls 1,80,000 3,50,000
20.2.16 Ready for sale 1,80,000 3,50,000
15.3.16 Sale agreed and invoice raised 2,00,000 3,50,000
02.4.16 Delivered and paid for 2,00,000 3,50,000
Explain the stage on which you think revenue will be generated and state how much
would be net profit for year ending 31-3-16 on this product according to AS-9. AS 2021-
2016....

24. (a) Uday Constructions undertake to construct a bridge for the Government of Uttar
Pradesh. The construction commenced during the financial year ending
31.03.2016 and is likely to be completed by the next financial year. The contract is
for a fixed price of ₹12 crores with an escalation clause. The costs to complete the
whole contract are estimated at ₹9.50 crores of rupees. You are given the following
information for the year ended 31.03.2016: BML
Cost incurred upto 31.03.2016 ₹4 crores
Cost estimated to complete the contract 6 crores.
Escalation in cost by 5% and accordingly the contract price is increased by 5%.
You are required to ascertain the state of completion and state the revenue and profit to
be recognized for the year as per AS-7.
(b) M/s Active Builders Ltd. invested in the shares of another company on 31 October, 2015
at a cost of ₹4,50,000. It also earlier purchased Gold of ₹5,00,000 and Silver of ₹2,25,000
on 31 March, 2013. Market values as on 31 March, 2016 of the above investments are
as follows:
Shares ₹3,75,000; Gold ₹7,50,000 and Silver ₹4,35,000
How will the above investments be shown in the books of account of M/s Active Builders
Lid. for the year ending 31 March, 2016 as per the provision of AS-13?
(c) Argon Lad. purchased a shop on 1 January, 2001 at a cost of ₹8,50,000. The useful life
of the shop is estimated as 30 years with. residual value of ₹25,000 and depreciation is
provided on a straight line basis. The shop was revalued on 30 June, 2015 for ₹19,50,000
and the revaluation was incorporated in the accounts.
Calculate:
(i) The surplus on revaluation;
(ii) Depreciation to be charged in the Profit and Loss account for the year ended
on 31 December, 2015.
(d) Z Limited ordered 13,000 kg. of chemicals at ₹90 per kg. The purchase price includes
excise duty of 5 per kg, in respect of which full CENVAT credit is admissible. Further,
State VAT is leviable at 2.5 per kg on purchase price. Freight incurred amounted to
₹30,000. Normal transit loss is 4%. The company actually received 12,400 kg and
pg. 30
 consumed 10,000 kg. The company has received trade discount in the form of cash
amounting to 1 per kg. The chemicals were delivered in containers. The containers were
not reusable, hence sold for ₹500. The administrative expenses incurred to bring the
chemicals were ₹10,000.
Compute the value of inventory and allocate the material cost as per AS-2.

25. (a) M/S-Umang Ltd. sold goods through its agent. As per terms of sales, consideration
is payable within one month. In the event of delay in payment, interest is
chargeable @ 12% p.a. from the agent. The company has not realized interest
from the agent in the past. For the year ended 31 March, 2015 interest due from
agent (because of delay in payment) amounts to ₹1,72,000. The accountant of M/s
Umang Ltd. booked ₹1,72,000 as interest income in the year ended 31 st March
2015.
Discuss the contention of the accountant with reference to Accounting Standard-9.
(b) In the books of M/s Prashant Ltd., closing inventory as on 31.03.2015 5 amounts
to ₹1,63,000 (on the basis of FIFO method).
The company decides to change from FIFO method to weighted average method
for ascertaining the cost of inventory from the year 2014-15. On the basis of
weighted average method, closing inventory as on 31.03.2015 amounts to
₹1,47,000. Realisable value of the inventory as on 31.03.2015 amounts to
₹1,95,000.
Discuss disclosure requirement of change in accounting policy as per AS-1.
(c) A machinery with a useful life of 6 years was purchased on 1 April, 2012 for
₹1,50,000. Depreciation was provided on straight line method for first three years
considering a residual value of 10% of cost. In the beginning of fourth year the
company reassessed the remaining useful life of the machinery at 4 years and
residual value was estimated at 5% of original cost.
The accountant recalculated the revised depreciation historically and charged the
difference to profit and loss account. You are required to comment on the treatment
by accountant and calculate the depreciation to be charged for the fourth year.
(d) Briefly explain the treatment of following items as per relevant accounting
standards:
- The accountant of Star Limited valued the Goodwill of the company at 50 lakhs
and showed the same as Fixed Asset in Balance Sheet. The corresponding
credit was given to Reserves.
- An expense of 5 crores was incurred on a Machine towards its Repairs and
Maintenance. The accountant wants to capitalize the same considering the
significance of amount spent.
- A plant was ready for commercial production on 01.04.2014 but could
commence actual production only on 01.06.2014. The company incurred 50
lakhs as administrative expenditure during the period of which 20% was
allocable to the plant. The accountant added 10 lakhs to cost of plant.

pg. 31
26. (a) Prepare Cash Flow from Investing Activities of M/s. Creative $ Furnishings Limited for
the year ended 31-3-2015.
Particulars ₹
Plant acquired by the issue of 8% Debentures 1,56,000
Claim received for loss of plant un fire 49,000
Unsecured loans given to subsidiaries. 4,85,000
Interest un loan received from subsidiary companies 82,500
Pre-acquisition dividend received on investment made 62,400
Debenture interest paid 1,16,000
Term loan repaid 4,25,000
Interest received on investment 68,000
(TDS of 8,200 was deducted on the above interest)
Book value of plant sold (loss incurred 9,600) 84,000

(b) A construction contractor has a fixed price contract for ₹9,000 lacs to build a bridge in 3
years’ time frame. A summary of some of the financial data is as under:
(Amount ₹ in lacs)
Year 1 Year 2 Year 3
Initial Amount for revenue agreed in contract 9,000 9,000 9,000
Variation in Revenue (+) -- 200 200
Contracts costs incurred up to the reporting date 2093 6168* 8100**
Estimated profit for whole contract 950 1000 1000
*Includes ₹100 lacs for standard materials stored at the site to be used in year 3 to
complete the work.
**Excludes ₹100 lacs for standard material brought forward from year 2. The variation in
cost and revenue in year 2 has been approved by customer.
Compute year wise amount of revenue, expenses, contract cost to complete and profit or
loss to be recognized in the Statement of Profit and Loss as per AS-7 (revised).
(c) Mr. Mehul gives the following information relating to items forming part of inventory as on
31-3-2015. His factory produces Product X using Raw material A. 5
(i) 600 units of Raw material A (purchased ₹120). Replacement cost of raw material
A as on 31-3-2015 is ₹90 per unit.
(ii) 500 units of partly finished goods in the process of producing X and cost incurred
till date ₹260 per unit. These units can be finished next year by incurring additional
cost of ₹60 per unit.
(in) 1500 units of finished Product X and total cost incurred ₹320 per unit.
Expected selling price of Product X is ₹300 per unit.
Determine how each item of inventory will be valued as on 31-3-2015.
pg. 32
 Also calculate the value of total inventory as on 31-3-2015.
(d) M/s. Laghu Udyog Limited has been charging depreciation on an item of Plant and
Machinery on straight line basis. The machine was purchased on 1-4-2012 at ₹3,25,000.
It is expected to have a total useful life of 5 years from the date of purchase and residual
value of ₹25,000. Calculate the book value of the machine as on 1-4-2014 and the total
depreciation charged till 31-3-2014 under SLM. The company wants to change the
method of depreciation and charge depreciation@ 20% on WDV from 2014-15. 5
Is it valid to change the method of depreciation? Explain the treatment required to be
done in the books of accounts in the context of AS-6. Ascertain the amount of depreciation
to be charged for 2014-15 and the net book value of the machine as on 31-3-2015 after
giving effect of the above change.

27.(a) In the books of Optic Fiber Ltd, plant and machinery stood at ₹6,32,000 on 1.4.2013.
However, on scrutiny it was found that Machinery worth ₹120,000 was included in the
purchases on 1.6.2013. On 30.6.2013 the company disposed a machine having book
value of ₹1,89,000 on 1.4.2013 at ₹1,75,000 in part exchange of a new machine costing
₹2,56,000. The company charges depreciation @20% WDV on plant and machinery.
You are required to calculate:
(i) Depreciation to be charged to P/L
(ii) Book value of Plant and Machinery A/c as 31.3.2014
(iii) Loss on exchange of machinery
(b) Sarita Publications publishes a monthly magazine on the 15 th of every month. It sells
advertising space in the magazine to advertisers on the terms of 80% sale value payable
in advance and the balance within 30 days of the release of the publication. The sale of
space for the March 2014 issue was made in February 2014. The magazine was
published on its scheduled date. It received ₹2,40,000 on 10.3.2014 and ₹60,000 on
10.4.2014 for the March 2014 issue
Discuss in the context of AS 9 the amount of revenue to be recognized and the treatment
of the amount received from advertiser for the year ending 31.3.2014. What will be the
treatment if the publication is delayed sill 2.4.2014?
(c) Capital Cables Ltd, has a normal wastage of 4% in the production process. During the
year 2013-14 the Company and 12,000 MT of raw material costing ₹150 per MT.
At the end of the year 630 MT of wastage was in stock. The accountant wants to know
how this wastage is to be treated in the books.
Explain in the context of AS 2 the treatment of normal loss and abnormal loss and find
out the amount of abnormal loss if any.
(d) Blue-chip Equity Investments Ltd., wants to re-classify its investments in accordance with
AS 13. 5
(i) Long term investments in Company A, costing ₹8.5 lakhs are to be re-classified as
current. The company had reduced the value of these investments to ₹6.5 lakhs to
recognize a permanent decline in value. The fair value on date of transfer is ₹6.8
lakhs.

pg. 33
 (ii) Long term investments in Company B, costing ₹7 lakhs are to be re-classified as
current. The fair value on date of transfer is ₹8 lakhs and book value is ₹7 lakhs.
(iii) Current investment in Company C, costing ₹10 lakhs are to be re-classified as long
term as the company wants to retain them. The market value on date of transfer is
₹12 lakhs.
(iv) Current investment in Company D, costing ₹15 lakhs are to be re-classified as long
term. The market value on date of transfer is ₹14 lakhs.

28. (a) Calculate the value of raw materials and closing following information:
Raw material X
Closing balance 500 units
₹Per unit
Cost piece including excise duty 200
Excise duty 10
(Cenvat credit is receivable on the excise duty paid)
Freight inward 20
Unloading charges 10
Replacement cost 150
Finished goods Y
Cloning Balance 1200 units
₹Per unit
Material Consumed 220
Direct Labour 60
Direct overhead 40
Total Fixed overhead for the year was ₹2,00,000 on normal capacity of 20.000 units
Calculate the value of the closing stock, when
(i) Net Realizable Valar of the Finished Goods Y is ₹400
(ii) Net Realizable Value of the Finished Goods Y is ₹300
(b) On 01.01.2010 a machine was acquired machine ₹4.00,000 The machine was expected
to have a useful life of 10 years. The residual value was estimated at 10% of the original
cost. At the end of the 3rd year, an attachment was made to the machine at the cost of
₹1.80,000 to enhance its capacity. The attachment was expected to have a useful life of
10 years and zero terminal value During the same time the original machine was revalued
upwards by ₹90,000 and remaining useful life was reassessed at 9 years and residual
value was NIL
Find depreciation for the year, if
(1) attachment retains its separate identity.
(ii) attachment becomes integral part of the machine

pg. 34
 (c) Ascertain the value at which various items of Fixed Assets are to be shown in the Financial
Statements of Velvet Ltd, and amount to be debited to the Profit and Loss Account in the
context of the relevant Accounting Standard
Narrations for the adjustments made should part of the answer:
(i) Goodwill and no consideration recorded the same 1,30,000 by independent
valuers and no consideration was paid. The Company has not yet recorded the
same
(ii) Balance of Office Equipment as on 01.04.2013 is. ₹1,20.000 On 01.04.2013. out
of the above office equipment having book value ₹20,000 has been retired from
use and held for disposal. The net realizable value of the same is ₹2,000 Rate of
depreciation is 15% p.a on WDV basis.
(iii) Book Value of Plant and Machinery as on 01.04.2013 was ₹7,20,000. On
01.08.2013 an item of machinery was purchased in exchange for 500 equity shares
of face value ₹10. The Fair Market value of the equity shares on 01.08.2013 was
₹120. Rate of depreciation is 100% p.a. on WDV basis.
(d) M/s. Highway Constructions undertook the construction of a highway on 01.04.2013. The
contract was to be completed in 2 years. The contract price was estimated at ₹150 crores.
Up to 31.03.2014 the company incurred ₹120 crores on the construction. The engineers
involved in the project estimated that a further ₹45 crores would be incurred for
completing the work.
What amount should be charged to revenue for the year 2013-14 as per the provisions of
Accounting Standard 7 "Construction Contracts"? Show the extract of the Profit & Loss
A/c in the books of M/s. Highway Constructions.

29. (a) Amna Ltd, contracted with a supplier to purchase a specific machinery to be installed in
Department A months’ time. Special foundations were required for the plant, which were
to be prepared within this supply lead time. The cost of site preparation and laying
foundations were ₹47.290. These activities were supervised by a technician during the
entire period, who is employed for this purpose of ₹15.000 per month. The Technician's
services. were given to Department A by Department B. which billed the services at
₹16,500 per month after adding 10% profit margin.
The machine was purchased at ₹52,78,000. Sales Tax was charged at 4% on the invoice.
₹18,590 transportation charges were incurred to bring the machine to the factory. An
Architect was engaged at a fee of ₹10,000 to supervise machinery installation at the
factory premises. Also, payment under the invoice was due in 3 months. However, the
Company made the payment in 2nd month. The company operates on Bank Overdraft @
11%.
Ascertain the amount at which the asset should be capitalized under AS 10.
(b) Narmada Ltd. purchased an existing bottling unit from Kaveri Ltd. Kaveri Lid. followed
straight line method of charging depreciation on machinery of the sold unit whereas
Narmada Ltd. followed written down value method in its other units. The directors of
Narmada Ltd. want to continue to charge depreciation for the acquired unit in Straight
Line Method which is not consistent with the WDV method followed in other units. Discuss
the contention of the directors with reference to the Accounting Standard 6. Further during

pg. 35
 the year, Narmada Ltd. set up a new plant on coastal land. In view of the corrosive climate,
the Company felt that its machine life is reducing faster. Can the Company charge a
higher rate of depreciation?
c) A Ltd. entered into a contract with B Ltd. to despatch goods valuing ₹25,000 every month
for 4 months upon receipt of entire payment. B Ltd. accordingly made the payment of
₹1,00,000 and A Ltd. started despatching the goods. In third month, due to a natural
calamity, B Ltd. requested A Ltd. not to despatch goods until further notice though A Ltd.
is holding the remaining goods worth ₹50,000 ready for despatch. A Ltd. accounted
₹50,000 as sales and transferred the balance to Advance Received against Sales.
Comment upon the treatment of balance amount with reference to the provisions of
Accounting Standard 9.
(d) A Ltd. is amalgamating with B Ltd. They are undecided on the method of accounting to
be followed. You are required to advice the management of B Ltd. on the method of
accounting that can be adopted under AS-14.

30.(a) M/s. Zed Laptop Co..has a hire-purchase department and goods are sold hire-purchase
adding 25% to cost. From the following information (all figures are at hire-purchase price),
prepare Hire-Purchase Trading Account for the year ending March 31, 2013:
₹
April 01, 2012 goods with customer (instalments not yet due) 80,000
Goods sold on Hire-purchase during the year 4,00,000
Cash received during the year from customers 3,00,000
Instalments due but not yet received at the end of the
year, customers paying 10,000
(b) M/s. Big Systematic Ltd. maintains self-balancing ledgers preparing control accounts at
the end of each calendar month.
On 3 January, 2013 the accountant of the company located the following errors in the
books of account:
(i) An amount of 8,700 received from customer Mehra was credited to Mehta, another
customer.
(ii) The sales book for December, 2012 was undercast by ₹1,000.
(iii) Goods invoiced at ₹15,600 were returned to supplier. M/s. Mega Ltd., but no entry
was made in the books for this return made on 28th December, 2012.
Pass the necessary Journal Entries to rectify the above-mentioned errors.
(c) On 15th December, 2012, a fire occurred in the premises of M/s. OM Exports. Most of the
stocks were destroyed. Cost of stock salvaged being ₹1,40,000. From the books of
account, the following particulars were available:
(1) Stock at the close of account on 31 March, 2012 was valued at ₹9,40,000.
(ii) Purchases from 01-04-2012 to 15-12-2012 amounted to ₹13,20,000 and the sales
during that period amounted to ₹20,25,000.

pg. 36
 On the basis of his accounts for the past three years, it appears that average gross profit
ratio is 20% on sales.
Compute the amount of the claim, if the stock were insured for ₹4,00,000.
(d) In 2011, M/s. Wye Ltd. issued 12% fully paid debentures of ₹100 each, interest being
payable half yearly on 30th September and 31 March of every accounting year.

On 1 December, 2012, M/s. Bull & Bear purchased 10,000 of these debentures at ₹101
cum-interest prices, also paying brokerage @ 1% of cum- interest amount of the
purchase. On 1 March, 2013 the firm sold all of these debentures at ₹106 cum-interest
price, again paying brokerage @ 1% of cum-interest amount.
Prepare Investment Account in the books of M/s. Bull & Bear for the period 1 December,
2012 to 1 March, 2013.

31..(a) A business concern maintains self-balancing ledgers. On the basis of following

information, prepare General Ledger Adjustment Account in Debtors Ledger for the month
of April, 2012:
₹
Debit balances in Debtors Ledger on 01-04-2012 3,58,200
Credit balances in Debtors Ledger on 01-04-2012 9.400
Transactions during the month of April, 2012 are:
Total Sales (including Cash Sales, ₹ 1,00,000) 20,95,400
Sales Returns 33.100
Cash received from credit customers 17,25,700
Bills Receivable received from customers 95,000
Bills Receivable dishonoured 7.500
Cash paid to customers for returns 6,000
Transfers to Creditors Ledger 16,000
Credit balances in Debtors Ledger on 30-04-2012 9,800
(b) Arun and Varun were partners sharing profits in the ratio of 13: 11 respectively. On 1 April,
2012 they admitted Tarun as a new partner on the following conditions:
(i) All partners would share profits equally in the new firm.
(ii) Tarun would bring in ₹52,000 as his capital and ₹36,000 as his share of goodwill.
No goodwill account appeared in the books of the firm at the time of Tarun's
admission and it was decided not to open any goodwill account. Adjustment for
Tarun's goodwill being made through capital accounts.
Pass journal entries to record all the transactions on Tarun's admission. Clearly show the
calculation of ratio of sacrifice,
(c) On 1 April, 2012 Fastrack Motors Co. sells a truck on hire purchase basis to Teja Transport
Co. for a total hire purchase price of ₹9,00,000 payable as to ₹2,40,000 as down payment

pg. 37
 and the balance in three equal annual instalments of ₹2,20,000 each payable on 31
March, 2013, 2014 and 2015. The hire vendor charges interest @ 10% per annum.
You are required to ascertain the cash price of the truck for Teja Transport Co.
Calculations may be made to the nearest rupee.

(d) During the year ended 31 March, 2012, Sachin Cricket Club received 5 subscriptions as
follows:
₹
For year ending 31 March, 2011 12,000
For year ending 31 March, 2012 6,15,000
For year ending 31" March, 2013 18,000
------------------------------
Total 6,45,000
-------------------------------
There are 500 members and annual subscription is ₹1,500 per member.
On 31 March, 2012, a sum of ₹15,000 was still in arrears for subscriptions for the year
ended 31 March, 2011.
Ascertain the amount of subscriptions that will appear on the credit side of Income and
Expenditure Account for the year ended 31 March, 2012. Also show how the items would
appear in the Balance Sheet as on 31 March, 2011 and the Balance Sheet as on 31
March, 2012.

32.(a) M/s Excellent Construction Company Limited undertook a contract construct a building
for ₹3 Crore on 1st September, 2011. On 31st March, 2012 the company found that it had
already spent ₹1 Crore 80 Lakhs on construction. Prudent estimate of additional cost for
completion was ₹1 Cr 40 Lakhs. What amount should be charged, to revenue in the final
accounts the year ended on 31st March, 2012, as per the provisions of Account Standard
7 "Construction Contracts (Revised)"?
(b) M/s Innovative Garments Manufacturing Company Limited invested in the shares of
another company on 1 October, 2011 at a cost of ₹2,50,000. It also earlier purchased
Gold of ₹4,00,000 and Silver of ₹2,00,000 on 1 March, 2009. Market value as on 31
March, 2012 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 M/s Innovative
Garments Manufacturing Company Limited for the year ending 31 March, 2012 as per
the provisions of Accounting Standard 13 "Accounting for Investments"?

pg. 38
 (c) M/s Progressive Company Limited has not charged depreciation for the year ended on
31 March, 2012, in respect of a spare bus purchased during the financial year 2011-12
and kept ready by the company for use as a stand-by, on the ground that, it was not
actually used during the year. State your views with reference to Accounting Standard 6
"Depreciation Accounting".
Further during the year company made additions to its factory by using its own workforce,
at a cost of ₹4,50,000 as wages and materials. The lowest estimate from an outside
contractor to carry out the same work was ₹6,00,000. The directors contend that, since
they are fully entitled to employ an outside contractor, it is reasonable to debit the Factory
Building Account with ₹6,00,000. Comment whether the directors' contention is right in
view of the provisions of Accounting Standard 10 "Accounting for Fixed Assets"?
(d) Briefly explain the types of Amalgamations?

33. Answer the following question:

(a) Calculate the maximum remuneration payable to the Managing Director based on
effective capital of a non-investment company for the year, from the information given
below

(₹in 000)
(i) Profit for the year (calculated as per Section 349,
350 & 351 of the Companies Act, 1956) 3,000
(ii) Paid up Capital 18,000
(iii) Reserves & Surplus 7,200
(iv) Securities Premium 1,200
(v) Long term Loans 6,000
(vi) Investments 3,600
(vii) Preliminary expenses not written off 3,000
(viii) Remuneration paid the Managing Director during the year 600
(b) M/s Vijoy Electricals sends goods to its customer on sale or returnable basis. The following
transactions took place during January to March 2011.
2011 ₹
January 10 Sent goods to customer on sale or returnable 5,00,000
basis at cost plus 25%.
January 30 Goods returned by customer 2,00,000
February-28 Received letter of approval from customer 2,00,000
March-31 Goods with customer awaiting approval 1,00,000
Vijoy Electricals records sale or return transactions as ordinary sales transaction. You are
required to pass the necessary Journal Entries in the books. of accounts assuming that
the accounting year closes on 31 March, 2011.
(c) In the Trial Balance of M/s Sun Ltd. as on 31-3-2011, balance of machinery appears
₹5,60,000. The company follows rate of depreciation on machinery @10% p.a. on
Straight Line Method. On scrutiny it was found that a machine appearing in the books on
pg. 39
 1-4-2010 at ₹1,60,000 was disposed of on 30-9-2010 at ₹1,35,000 in part exchange of a
new machine costing ₹1,50,000
You are required to calculate
(1) Total depreciation to be charged in the Profit and Loss Account.
(i) Loss on exchange of machine
(ii) Book value of machinery in the Balance Sheet as on 31-3-2011.
(d) A and B are in partnership sharing profits and losses in the ratio of 3: 2 The capitals of A
and B are ₹80,000 and ₹60,000 respectively. They admit C as a partner who contributes
₹35,000 as capital for 1/5 share of profits-to be acquired equally from both A & B. The
capital accounts of old partners are to be adjusted on the basis of the proportion of C's
capital to his share in the business. Calculate the amount of actual cash to be paid off or
brought in by the old partners for the purpose and pass the necessary Journal Entries

34. Answer the following questions:

(a) The abstract of the Balance Sheet of the AXE Ltd. as at 31 March 2011, are as
follows:

Liabilities ₹
Equity share capital (* 100 each) 15,00,000
12% preference share capital (100 each) 8,00,000
13% Debentures 3,00,000
On 31 March, 2011 BXE Ltd. agreed to take over AXE Lad on the following
terms
(1) For each preference share in AXE Ltd, ₹10 in cash and 9% preference share
of ₹100 in BXE Lid.
(2) For each equity share in AXE Ltd., ₹20 in cash and one equity share in BXE
Lid of ₹100 each. It was decided that the share in BXE Lid, will be issued at
market price ₹140 per share
(3) Liquidation expenses of AXE Lid are to be reimbursed by BXE Ltd. to the
extent of ₹10,000. Actual expenses amounted to ₹12,500
You are required to compute the amount of purchase consideration.
(b) On 30 March, 2011 fire occurred in the premises of M/s Suraj Brothers The concern had
taken an insurance policy of ₹60.000 which was subject to the average clause. From the
books of accounts. He following particulars are available relating to the period 1st January
to 30th March 2011
(1) Stock as per Balance Sheet at 31 December, 2010, ₹95,600.
(2) Purchases (including purchase of machinery costing ₹30,000) ₹1,70,000
(3) Wages (including wages ₹3.000 for installation of machinery) ₹50,000
(4) Sales (including goods sold on approval basis amounting to ₹49,500)
pg. 40
 ₹2,75,000. No approval has been received in respect of 2/3 rd of the goods
sold on approval
(5) The average rate of gross profit is 20% of sales
(6) The value of the salvaged goods was ₹12.300.
You are required to compute the amount of the claim to be lodged to the insurance
company.
(c) Shiv and Mohan are partners in a firm sharing profits and losses equally. On 31st March,
2011, the balances of their capital accounts were ₹3,000,000 and ₹2,00,000 respectively.
The average profits of the firm are ₹1,36,000 and the rate of normal profit is 20%
On 1 April. 2011 they agreed to admit Hari as a partner for one fourth share.
Hari will bring ₹1,00,000 as capital.
You are required to compute the value of the Goodwill of the firm on admission of Hari, if
goodwill is to be calculated on the basis of:
(1) 5 years purchase of super profit
(2) Capitalisation method
(3) 3 years purchase of average profit
(d) On 1st April, 2010, Rajat has 50,000 equity shares of P Ltd., at a book value of ₹15 per
share (face value ₹10 each). He provides you the further information:
(1) On 20th June, 2010, be purchased another 10.000 shares of P Ltd at ₹16
per share
(2) On 1st August, 2010, P Ltd issue one. equity bonus share for every six shares
held by the shareholders
(3) On 31 October, 2010 the directors of P Lid announced a right issue which
entitle the holders to subscribe three shares for every seven shares at ₹15
per share. Shareholders can transfer their rights in full or in part.
Rajat sold 1/3rd of entitlement to Umang for a consideration of ₹2 per share
and subscribe the rest on 5th November, 2010
You are required to prepare Investment Ac in the books of Rajat for the year ending 31st
March, 2011.

35. (a) Following two problems are regarding issues in Partnership Accounts, kindly solve both:
(i) Anil and Mukesh are partners sharing profit and losses in the ratio of 3: 2 Govind
is admitted for 1/4th share of firm. Thereafter Madan enters for 20 paisa in a rupee.
Compute new profit-sharing ratios under both the admission of partners.
(ii) The following Goodwill Account was opened by the partners of R and S, on the
admission of H as a new partner into firm Om and Sons. Calculate the share of
profit agreed to be given to "H".

pg. 41
 Goodwill A/c.
₹ ₹
1-4-2010 To R's Capital A/c 24,800 1-4-2010 By R's Capital A/c 12,400
1-4-2010 To S's Capital A/c 18,600 1-4-2010 By S's Capital A/c 12,400
1-4-2010 By H's Capital A/c 18,600
43,400 43,400
(b) HP is a leading distributor of petrol. A detail inventory of petrol in hand is taken when the
books are closed at the end of each month. At the end of month following information is
available:
Sales ₹ 47,25,000
General overheads cost. ₹ 1,25,000
Inventory at beginning 1,00,000 litres @ ₹15/- per litre
Purchases
June 1 two lakh litres @ 14.25
June 30 one lakh litres @ 15.15
Closing inventory 1.30 lakh litres
Compute the following by the FIFO as per AS-2:
(i) Value of Inventory on June 30.
(ii) Amount of cost of goods sold for June.
(iii) Profit/Loss for the month of June.
(c) A and B decide to amalgamate themselves into Sharp Limited. The following. are their
Balance Sheets as on 31st December, 2009.
Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd

Face value and paid Investments

up capital
Share capital (₹100 1000 shares in B
each)
5,00,000 4,00,000 Ltd. 1,30,000
General Reserves
2,00,000 1,00,000 2000 shares in A
10% Debentures Ltd.
2,00,000 1,50,000 −
Sundry Assets
2.10,000
7,70,000 4,40,000

9,00,000 6,50,000 9,00,000 6,50,000

Compute the amount of purchase consideration each of these companies under purchase
method as per AS-14.

pg. 42
 (d) H purchased 500 equity shares of 100 each in the ABC Company Limited for ₹62,500
inclusive of brokerage and stamp duty. Some years later the company decided to
capitalise its profit and to issue to the holders of equity shares one equity share as Bonus
for every equity share held by them. Prior to capitalization, the shares of ABC Company
Limited were quoted at ₹175 per share. After the capitalization, the shares were quoted
at ₹92.50 per share. H sold the Bonus shares and received ₹90 per share. Show
Investment A/c in H's books on average cost basis as per AS-13.

36.(I) A and B are partners in a firm sharing profits and the ratio of3:2 Their capitals are ₹ 60,000
and Rs. 40,000 respectively. They admit Ca s a new partner who will get 1/6th share in
the profit of the firm. C brings in Rs. 25,000 as his capital. Find out the amount of goodwill
on the basis of the above information.
(ii) From the following, calculate the cash price of the asset:
Rs.
Hire purchase price of the asset 50,000
Down payment 10,000
Four annual instalments at the end of each year 10.000
Rate of Interest 5% p.a.
(iii) Mr. X purchased 1,000, 6% Government Bonds of the 100 each on 31st January 2009 at
Rs 95 each. Interest is payable on 30th June and 31st December. The price quoted is
cum interest. Journalise the transaction
(iv) Swaminathan owed to Subramanium the following sums:
Rs 5,000 on 20th January, 2009
Rs.8,000 on 3rd March, 2009
Rs 6,000 on 5th April, 2009
Rs 11,000 on 30th April, 2009
Ascertain the average due date
(v) A company acquired a machine on 1.4.2006 for Rs. 5,00,000. The company charged
depreciation upto 2008-09 on straight line basis with estimated working life of 10 years
and scrap value of Rs. 50,000. From 2009-10, the company decided to change
depreciation method at 20% on reducing balance method. Compute the amount of
depreciation to be debited to Profits and Loss A/c for the year 2009-10.
(vi) An unquoted long-term investment is carried in the books at cost of Rs. 2 lac. The
published accounts of unlisted company received in May, 2009 showed that the company
has incurred cash losses with decline market share and the long-term investment may
not fetch more than Rs. 20,000. How you will deal with it in the financial statement of
investing company for the year ended 31.3.2009.
(vii) In the absence of a partnership deed, what will be your decision in disputes. amongst
partners regarding the following matters:
(a) Profit sharing ratio;

pg. 43
 (b) Interest rate at which interest is to be allowed to a partner on loan given to
the firm by a partner.
(viii) According to Accounting Standard-9, when revenue from sales should be recognised?
(ix) In January, 2010 a firm took an insurance policy for Rs. 60 lakhs to insure goods in its
godown against fire subject to average clause. On 7th March, 2010 a fire broke out
destroying goods costing Rs. 44 lakhs. Stock in the godown was estimated at Rs. 80
lakhs. Compute the amount of insurance claim.
(x) On 1st April, 2009 a car company sold to Arya Bros., a motor car on hire purchase basis.
The total hire-purchase price was Rs. 4,60,000 with down payment of Rs. 1,60,000,
Balance amount was to be paid in three annual instalments of Rs. 1,00,000 each. The
first instalment payable on 31st March,2010. The cash price of the car was Rs. 4,00,000.
How will Arya Bros, account for interest over three accounting years books of accounts
are closed on 31st March every year.

AS 2 Valuation of Inventories
37. Alpha Ltd. sells flavoured milk to customers; some of the customers consume the milk in
the shop run by Alpha Limited. While leaving the shop, the consumers leave the empty
bottles in the shop and the company takes possession of these empty bottles. The
company has laid down a detailed internal record procedure for accounting for these
empty bottles which are sold by the company by calling for tenders.
Keeping this in view:
Decide whether the inventory of empty bottles is an asset of the company;
If so, whether the inventory of empty bottles existing as on the date of Balance Sheet is
to be considered as inventories of the company and valued as per AS 2 or to be treated
as scrap and shown at realizable value with corresponding credit to 'Other Income'?

AS 10 Property, Plant & Equipment

38. A Ltd. is installing a new plant at its production facility. It has incurred these costs:

₹
1. Cost of the plant (cost per supplier's invoice plus taxes) 25,00,000
2. Initial delivery and handling costs 2,00,000
3. Cost of site preparation 6,00,000
4. Consultants used for advice on the acquisition of the plant 7,00,000
5. Interest charges paid to supplier of plant for deferred credit 2,00,000
6. Estimated dismantling costs to be incurred after 7 years 3,00,000
7. Operating losses before commercial production 4,00,000
Advise A Ltd. on the costs that can be capitalized in accordance with AS 10.
AS 11 the effects of changes in foreign exchange rates
39. Explain "monetary item" as per Accounting Standard 11.

pg. 44
 How are foreign currency monetary items to be recognized at each Balance Sheet date?
Classify the following as monetary or non-monetary item: Share Capital.
Trade Receivables.
Investments.
Fixed Assets.

AS 12 Accounting for Government Grant

40. S Ltd. has received a grant of 18 crores from the Government for setting up a factory in
a backward area. Out of this grant, the company distributed 12 crores as dividend.
Also, S Ltd. received land free of cost from the State Government but it has not recorded
it at all in the books as no money has been spent.
In the light of AS-12 examine, whether the treatment of both the grants is correct.

AS 16 Borrowing Costs
41. Raj & Co. has taken a loan of US$ 20,000 at the beginning of the financial year for a
specific project at an interest rate of 6% per annum, payable annually. On the day of
taking loan, the exchange rate between currencies was ₹48 per 1 US$. The exchange
rate at the closing of the financial year was ₹50 per 1 US$. The corresponding amount
could have been borrowed by the company in Indian Rupee at an interest rate of 11% per
annum.
Determine the treatment of borrowing cost in the books of accounts.

AS 1 "Disclosure of Accounting Policies"

42.(a) In the books of Rani Ltd., closing inventory as on 31.03.2022 amounts to ₹1,75,000
(valued on the basis of FIFO method).
The Company decides to change from FIFO method to weighted average method for
ascertaining the costs of inventory from the year 2021-22. On the basis of weighted
average method, closing inventory as on 31.03.2022 amounts to ₹ 1,59,000.
Realizable value of the inventory as on 31.03.2022 amounts to₹ 2,07,000.
Discuss disclosure requirements of change in accounting policy as per AS 1.
AS 2 Valuation of Inventories
(b) An enterprise ordered 20,000 KG of certain material at ₹ 110 per unit. The purchase price
includes GST ₹ 12 per KG, in respect of which full input tax credit (ITC) is admissible.
Freight incurred amounted to ₹ 1,17.600. Normal transit loss is 2%. The enterprise
actually received 19,500 KG and consumed 18,000 KG of the material.
(i) You are required to calculate cost of material per KG;
(ii) Allocation of material cost.

pg. 45
AS 10 Property, Plant and Equipment
43. Star Limited purchased machinery for ₹ 6,80,000 (inclusive of GST of ₹ 40,000). Input
credit is available for entire amount of GST paid. The company incurred the following
other expense for installation.
₹
Cost of preparation of site for installation 21,200
Total Labour charges 56,000
(200 out of the total of 500 men hours worked,
were spent on installation of the machinery)
Spare parts and tools consumed in installation 5,000
Total salary of supervisor 26,000
(Time spent for installation was 25% of the total time worked)
Total administrative expense 34,000
(1/10 relates to the plant installation)
Test run and experimental production expenses 18,000
Consultancy charges to architect for plant set up 11,000
Depreciation on assets used for installation 12,000
The machine was ready for use on 15.01.2021 but was used from 01.02.2021. Due to
this delay further expenses of ₹8,900 were incurred. Calculate the value at which the
plant should be capitalized in the books of Star Limited.

AS 11 The Effects of Changes in Foreign Exchange Rates and AS 16 Borrowing Costs

44. ABC Builders Limited had borrowed a sum of US $ 15,00,000 at the beginning of financial
year 2020-21 for its residential project at London Interbank Offered Rate (LIBOR) + 4%.
The interest is payable at the end of the Financial Year. At the time of availing the loan,
the exchange rate was ₹72 per US $ and the rate as on 31st March, 2021 was ₹76 per
US $. If ABC Builders Limited borrowed the loan in Indian Rupee equivalent, the pricing
of loan would have been 9.50%. Compute Borrowing Cost and exchange difference for
the year ending 31 March, 2021 as per applicable Accounting Standards. (Applicable
LIBOR is 1%).

AS 12 Accounting for Government Grants

45.(a) Hygiene Ltd. had received a grant of ₹50 lakh in 2012 from a State Government towards
installation of pollution control machinery on fulfilment of certain conditions.
The company, however, failed to comply with the said conditions and consequently
was required to refund the said amount in 2022. The company debited the said amount
to its machinery account in 2022on payment of the same. It also reworked the depreciation
for the said machinery from the date of its purchase and passed necessary adjusting

pg. 46
 entries in the year 2022 to incorporate the retrospective impact of the same. State
whether the treatment done by the company is correct or not.
AS 13 Accounting for Investments
(b) Gowtham Limited invested in shares of another company (with the intention to hold the
shares for short-term period) on 30th November, 2021 at a cost of ₹4,25,000. It also
earlier purchased Gold of ₹8,00,000 and Silver of ₹3,50,000 on March, 2019,
Market values as on 31st March, 2022, of the above investments are as follows:
Shares ₹ 3,50,000
Gold ₹ 10,25,000
Silver ₹ 5,10,000
You are required to explain how will the above investments be shown (individually and in
total) in the books of account of Gowtham Limited for the year ending 31st March, 2022
as per the provisions of AS 13.

AS 16 Borrowing Costs
46. Expert Limited issued 12% secured debentures of ₹ 100 lakhs on 01.06.2021. Money
raised from debentures to be utilized as under:
Intended Purpose Amount ₹ in
Lakhs
Construction of factory building 40
Working Capital 30
Purchase of Machinery 15
Purchase of Furniture 2
Purchase of truck 13

Additional Information:
(i) Interest on debentures for the Financial Year 2021-2022 was paid by the
Company.
(ii) During the year, the company invested idle fund of ₹ 5 lakhs (out of the money
raised from debentures) in Bank's fixed deposit and earned interest of ₹ 50,000.
(iii) In March, 2022 construction of factory building was not completed (it is expected
that it will take another 6 months).
(iv) In March 2022, Machinery was installed and ready for its intended use.
(v) Furniture was put to use at the end of March 2022.
(vi) Truck is going to be received in April, 2022.
You are required to show the treatment of interest as per AS 16 in respect of borrowing
cost for the year ended 31st March, 2022 in the Books of Expert Limited.

pg. 47
AS 2 Valuation of Inventories
47. The closing stock of finished goods (at cost) of a company amounted to ₹ 4,50,000. The
following items were included at cost in the total:
(a) 100 coats, which had cost ₹ 2,200 each and normally sold for ₹4,000 each. Owing
to a defect in manufacture their NRV was determined at 50% of their normal selling
price.
b) Shirts which had cost ₹ 50,000, their net realizable value at Balance sheet date
was ₹ 55,000. Commission @ 10% on sales is payable to agents.
What should the inventory value be according to AS 2 after considering the above items?

AS 10 Property, Plant and Equipment

48. RS Ltd. has acquired a heavy plant at a cost of ₹ 2,00,00,000. The estimated useful life
is 10 years. At the end of the 2nd year, one of the major components ie. the Boiler has
become obsolete (which was acquired at price of ₹ 50,00,000) and requires replacement,
as further maintenance is uneconomical. The remainder of the plant is perfect and is
expected to last for next 8 years. The cost of a new boiler is ₹ 60,00,000.
Can the cost of the new boiler be recognised as an asset, and, if so, what should be the
carrying value of the plant at the end of second year?

AS 11 The Effects of Changes in Foreign Exchange Rates

49. A company had imported raw materials worth US Dollars 6,00,000 on 5th January, 2022,
when the exchange rate was ₹ 43 per US Dollar. The company had recorded the
transaction in the books at the above-mentioned rate. The payment for the import
transaction was made on 5 April, 2022 when the exchange rate was ₹ 47 per US Dollar.
However, on 31 March, 2022, the rate of exchange was ₹ 48 per US Dollar. The company
passed an entry on 31 March, 2022 adjusting the cost of raw materials consumed for the
difference between ₹ 47 and ₹ 43 per US Dollar.
In the background of the relevant accounting standard, is the company's accounting
treatment correct? Discuss.

AS 12 Accounting for Government Grants

50.(a) Samrat Limited has set up its business in a designated backward area which entities the
company for subsidy of 25% of the total investment from Govemment of India. The
company has invested ₹ 80 crores in the eligible investments. The company is eligible for
the subsidy and has received ₹ 20 crores from the govemment in February 2022. The
company wants to recognize the said subsidy as its income to improve the bottom line of
the company.
Do you approve the action of the company in accordance with the Accounting Standard?
AS 13 Accounting for Investments
(b) Mother Mart Ltd, wants to re-classify its investment in accordance with AS 13.

pg. 48
 Decide the treatment to be given in each of the following cases assuming that the market
value has been determined in an arm's length transaction between. Knowledgeable and
willing buyer and seller.
(1) A portion of current investments purchased for ₹ 25 lakhs to be reclassified as long-
term investments, as the company has decided to retain them. The market value
as on the date of balance sheet was ₹ 30 lakhs. The fair value of the investments
on the date of transfer is same as the market value on the balance sheet date
(ii) Another portion of current investments purchased for ₹ 20 lakhs has to be re-
classified as long-term investments. The Fair value of these investments as on the
date of the balance sheet was ₹ 12.5 lakhs.
(iii) One portion of long-term investments, no longer considered for holding purposes,
to be reclassified as current investments. The original cost of these was ₹ 15 lakhs,
but had been written down to ₹ 11 lakhs to recognize permanent decline as per AS
13.

AS 16 Borrowing Costs
51. Harish Construction Company is constructing a huge building project consisting of four
phases. It is expected that the full building will be constructed over several years but
Phase I and Phase II of the building will be started as soon as they are completed.
Following is the detail of the work done on different phases of the building during the

Phase I Phase II Phase III Phase IV

₹ ₹ ₹ ₹
Cash expenditure 10 30 25 30
Building purchased 24 34 30 38
Total expenditure 34 64 55 68
Total expenditure of all phases 221
Loan taken @ 15% at the beginning of 200
the year
current year: (in lakhs)
During mid of the current year, Phase I and Phase Il have become operational. Find out
the total amount to be capitalized and to be expensed during the year.
Applicability of Accounting Standards

52.(a) A company with a turnover of ₹ 225 crores and borrowings of ₹ 51 crore during the year
ended 31 March, 2021, wants to avail the exemptions available in adoption of Accounting
Standards applicable to companies for the year ended 31.3.2021. Advise the
management on the exemptions that are available as per the Companies (Accounting
Standards) Rules, 2021.
(b) An organization whose objects are charitable or religious, believes that the Accounting
Standards are not applicable to it since only a very small proportion of its activities are
business in nature. Comment.

pg. 49
AS 2 Valuation of Inventories
53.(a) In determining the cost of inventories, it is appropriate to exclude certain costs and
recognize them as expenses in the period in which they are incurred. Provide examples
of such costs as per AS 2 Valuation of Inventories'.
(b) On the basis of information given below, find the value of inventory (by periodic inventory
method) as per AS 2, to be considered while preparing the Balance Sheet as on 31 March,
2021 on weighted Average Basis.
Details of Purchases:
Date of purchase Unit (Nos.) Purchase cost per unit (₹)
01-03-2021 20 108
08-03-2021 15 107
17-03-2021 30 109
25-03-2021 15 107
Details of issue of Inventory:
Date of Issue Unit (Nos.)
03-03-2021 10
12-03-2021 20
18-03-2021 10
24-03-2021 20
Net realizable value of inventory as on 31 March, 2021 is ₹ 107.75 per unit. You are
required to compute the value of Inventory as per AS 27
(c) Rohan Pvt. Ltd., a wholesaler in agriculture products, has valued the inventory on Net
Realizable Value on the ground that AS 2 does not apply to inventory of agriculture
products.

AS 10 Property, Plant and Equipment

54.(a) A Ltd. has incurred the following costs. Determine if the following costs can be added to
the invoiced purchase price and included in the initial recognition of the cost of the item
of property, plant and equipment:
1. Import duties paid
2. Shipping costs and cost of road transport for taking the machinery to factory
3. Insurance for the shipping
4. Inauguration costs for the factory
5. Professional fees charged by consulting engineer for the installation process
6. Costs of advertising and promotional activities
7. Administration and other general overhead costs
8. Cost of site preparation.

pg. 50
AS 11 The Effects of Changes in Foreign Exchange Rates
(b) Kumar Ltd. borrowed US $ 3,00,000 on 31-12-2020 which will repaid as on 30-06-2021.
Kumar Ltd. prepares its financial statements ending on 31-03-2021. Rate of exchange
between reporting currency (Rupee) and foreign currency (US$) on different dates are as
under:
31-12-2020 1 US $ = ₹ 44.00
31-03-2021 1 US $ = ₹ 44.50
30-06-2021 1 US $ = ₹ 44.75
(i) Calculate Borrowings in reporting currency to be recognized in the books on above
mentioned dates and also show journal entries for the same.
(ii) if borrowings were repaid on 28-2-2021 on which date exchange rate was 1 US $=
₹ 44.20 then what entry should be passed?

AS 12 Accounting for Government Grants

55.(a) A fixed asset is purchased for 30 lakhs. Government grant received towards it is ₹ 12
lakhs. Residual Value is ₹ 6 lakhs and useful life is 4 years. The company charges
depreciation based on Straight-Line method. Asset is shown in the balance sheet net of
grant. After 1 year, grant becomes refundable to the extent of ₹ 7.5 lakhs due to non-
compliance with certain conditions. You are required to give necessary journal entries for
second year.
AS 13 Accounting for Investments
(b) JVR Limited has made investment of ₹ 97.84 Crores in Equity Shares of QSR Limited in
2016-17. The investment has been made at par. QSR Limited has been in continuous
losses for the last 2 years. JVR Limited is willing to re-assess the carrying amount of its
investment in QSR Limited and wish to provide for diminution in value of investment for
the year ended 31st March, 2021. Discuss whether the connection of JVR Limited to bring
down the carrying Amount of investment in QSR Limited is in accordance with Accounting
Standards.

AS 16 Borrowing Costs
56. (a) An enterprise has constructed a complex piece of equipment (qualifying asset) that is to
be installed on the production line of a manufacturing plant. The equipment has been
constructed over a period of 15 months. However, on installation, certain calibrations are
required to achieve the desired level of production before it is finally commissioned. This
process is expected to take approximately 2 months during which test runs will be made.
Should the borrowing costs attributable to borrowings pertaining to the 2 months test run
period be capitalized?
(b) Should capitalization of borrowing costs be continued when the qualifying asset has been
constructed but marketing activities to sell the asset are still in progress?

pg. 51
AS 2 Valuation of Inventories
57. On 31st March 2020, a business firm finds that cost of a partly finished unit on that date
is ₹ 430. The unit can be finished in 2020-21 by an additional expenditure of ₹ 310. The
finished unit can be sold for ₹ 750 subject to payment of 2% brokerage on selling price.
The firm seeks your advice regarding the amount at which the unfinished unit should be
valued as at 31st March, 2020 for preparation of final accounts. Assume that the partly
finished unit cannot be sold in semi-finished form and its NRV is zero without processing
it further.

AS 10 Property, Plant and Equipment

58. A property costing ₹ 10,00,000 is bought on 1.4.2020. Its estimated total physical life is
50 years. However, the company considers it likely that it will sell the property after 25
years.
The estimated residual value in 25 years' time, based on current year prices, is:
Case (a) ₹ 10,00,000
Case (b) ₹ 9,00,000
You are required to compute the amount of depreciation charged for the year ended
31.3.2021.

AS 11 The Effects of Changes in Foreign Exchange Rates

59. Mona Ltd. purchased a plant for US$ 1,00,000 on 01st December 2020, payable after
three months. Company entered into a forward contract for three months @ ₹ 49.15 per
dollar. Exchange rate per dollar on 01st December was ₹ 48.85. How will you recognize
the profit or loss on forward contract in the books of Mona Ltd for the year ended 31st
March, 2021?

AS 12 Accounting for Government Grants

60. (a) D Ltd. acquired a machine on 01-04-2017 for ₹ 20,00,000. The useful life is 5 years. The
company had applied on 01-04-2017, for a subsidy to the tune of 80% of the cost. The
sanction letter for subsidy was received in November 2020. The Company's Fixed Assets
Account for the financial year 2020-21 shows a credit balance as under:

Particulars ₹
Machine (Original Cost) 20,00,000
Less: Accumulated Depreciation (from 2017-18- to 2019-20 on
Straight Line Method) 12,00,000
8,00,000
Less: Grant received (16,00,000)
Balance (8,00,000)
You are required to explain how should the company deal with this asset in its accounts
for 2020-217

pg. 52
AS 13 Accounting for Investments
(b) Z Bank has classified its total investment on 31-3-2021 into three categories (a) held to
maturity (b) available for sale (c) held for trading as per the RBI Guidelines.
'Held to maturity' investments are carried at acquisition cost less amortised amount.
'Available for sale' investments are carried at marked to market. 'Held for trading'
investments are valued at weekly intervals at market rates. Net depreciation, if any, is
charged to revenue and net appreciation, if any, is ignored. Comment whether the policy
of the bank is in accordance with AS 13?

AS 16 Borrowing Costs
61. In May, 2020, Omega Ltd. took a bank loan from a Bank. This loan was to be used
specifically for the construction of a new factory building. The construction was completed
in January, 2021 and the building was put to its use immediately thereafter. Interest on
the actual amount used for construction of the building till its completion was ₹ 18 lakhs,
whereas the total interest payable to the bank on the loan for the period till 31st March,
2021 amounted to ₹ 25 lakhs.
The company wants to treat ₹ 25 lakhs as part of the cost of factory building and thus
capitalize it on the plea that the loan was specifically taken for the construction of factory
building? Explain the treatment in line with the provisions of AS 16.

62.(a) The draft results of Surya Ltd. for the year ended 31st March, 2020, prepared on the
hitherto followed accounting policies and presented for perusal of the board of directors
showed a deficit of ₹ 10 crores. The board in consultation with the managing director,
decided to value year-end inventory at works cost (₹ 50 crores) instead of the hitherto
method of valuation of inventory at prime cost (₹ 30 crores). As chief accountant of the
company, you are asked by the managing director to draft the notes on accounts for
inclusion in the annual report for 2019-2020.
AS 2 Valuation of Inventories
(b) The inventory of Rich Ltd. as on 31st March, 2020 comprises of Product - A: 200 units
and Product - B: 800 units.
Details of cost for these products are:
Product A : Material cost, wages cost and overhead cost of each unit are ₹ 40, ₹ 30
and ₹ 20 respectively, Each unit is sold at ₹ 110, selling expenses amounts to 10% of
selling costs.
Product – B : Material cost and wages cost of each unit are ₹ 45 and ₹ 35 respectively
and normal selling rate is ₹ 150 each, however due to defect in the manufacturing process
800 units of Product-B were expected to be sold at ₹ 70.
You are requested to value closing inventory according to AS 2 after considering the
above.

pg. 53
AS 10 Property, Plant and Equipment
63. You are required to give the correct accounting treatment for the following in line with
provisions of AS 10:
(a) Trozen Ltd. operates a major chain of supermarkets all over India. It acquires a
new store in Pune which requires significant renovation expenditure. It is expected
that the renovations will be done in 2 months during which the store will be closed.
The budget for this period, including expenditure related to construction and
remodelling costs (₹ 18 lakhs), salaries of staff (₹ 2 lakhs) who will be preparing
the store before its opening and related utilities costs (₹ 1.5 lakhs), is prepared.
The cost of salaries of the staff and utilities are operating expenditures that would
be incurred even after the opening of the supermarket. What will the treatment of
all these expenditures in the books of accounts?
(b) ABC Ltd is setting up a new refinery outside the city limits. In order to facilitate the
construction of the refinery and its operations, ABC Ltd. is required to incur
expenditure on the construction/development of railway siding, road and bridge.
Though ABC Ltd. incurs the expenditure on the construction/development, it will
not have ownership rights on these items and they are also available for use to
other entities and public at large. Can ABC Ltd. capitalize expenditure incurred on
these items as property, plant and equipment (PPE)?

AS 11 The Effects of Changes in Foreign Exchange Rates

64. (a) Classify the following items into Monetary and Non-monetary:
(i) Share capital; (ii) Trade Payables; (iii) Cash balance; (iv) Property, plant and
equipment
(b) Trade payables of CAT Ltd. include amount payable to JBB Ltd., ₹ 10,00,000
recorded at the prevailing exchange rate on the date of transaction, transaction
recorded at US $1 = ₹ 80.00. The exchange rate on balance sheet date
(31.03.2020) was US $1 = ₹ 85.00. You are required to calculate the amount of
exchange difference and also explain the accounting treatment needed for this as
per AS 11 in the books of CAT Ltd.

AS 12 Accounting for Government Grants

65. (a) (i) Hygiene Ltd. had received a grant of ₹ 50 lakh in 2012 from a State Government
towards installation of pollution control machinery on fulfilment of certain
conditions. The company, however, failed to comply with the said conditions and
consequently was required to refund the said amount in 2020.
The company debited the said amount to its machinery account in 2020 on
payment of the same. It also reworked the depreciation for the said machinery from
the date of its purchase and passed necessary adjusting entries in the year 2020
to incorporate the retrospective impact of the same. State whether the treatment
done by the company is correct or not.
(ii) ABC Ltd. received two acres of land received for set up of plant. It also received
₹ 2 lakhs received for purchase of machinery of ₹ 10 lakhs. Useful life of machinery

pg. 54
 is 5 years. Depreciation on this machinery is to be charged on straight-line basis.
How should ABC Ltd. recognize these government grants in its books of accounts?
AS 13 Accounting for Investments
(b) Paridhi Electronics Ltd. invested in the shares of Dhansukh Ltd. on 1st May 2020
at a cost of ₹ 10,00,000. Three fourth of these investments were current
investments and the remaining investments were intended to be held for more than
a year. The published accounts of Dhansukh Ltd. received in January, 2021 reveals
that the company has incurred cash losses with decline in market share and
investment of Paridhi Electronics Ltd. may not fetch more than 7,50,000. The
reduction in value is apparent to be non-temporary.
You are required to explain how you will deal with the above in the financial statements
of the Paridhi Electronics Ltd. as on 31.3.21 with reference to AS 13?

AS 16 Borrowing Costs
66.(a) When capitalisation of borrowing cost should cease as per Accounting Standard16?
Explain in brief.
AS 11 The Effects of Changes in Foreign Exchange Rates and AS 16 Borrowing Costs
(b) Shan Builders Limited has borrowed a sum of US $ 10,00,000 at the beginning of
Financial Year 2019-20 for its residential project at 4 %. The interest is payable at the end
of the Financial Year. At the time of availment, exchange rate was ₹ 56 per and the rate
as on 31st March, 2020 ₹ 62 per US $. If Shan Builders Limited had borrowed the loan in
India in Indian Rupee equivalent, the pricing of loan would have been 10.50%. You are
required to compute Borrowing Cost and exchange difference for the year ending 31st
March, 2020 as per applicable Accounting Standards
(b) What are the issues, with which Accounting Standards deal?

AS 1 Disclosure of Accounting Policies

67.(a) What are the three fundamental accounting assumptions recognized by Accounting
Standard (AS) 17 Briefly describe each one of them.
AS 2 Valuation of Inventories
(b) A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is required.
The company provides you following information for the year ended 31 March, 2020.
₹ Per unit
Raw Material X
Cost price 400
Freight Inward 40
Replacement cost 320
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80

pg. 55
 Additional Information:
(i) Total fixed overhead for the year was ₹ 4,00,000 on normal capacity of 25,000
units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was 2,400
units.
You are required to calculate the total value of closing stock of Raw Material X and
Chemical Y according to AS 2, when Net realizable value of Chemical Y is 600 per unit.

AS 10 Property, Plant and Equipment

68. Omega Ltd. contracted with a supplier to purchase machinery which is to be installed in
its one department in three months' time. Special foundations were required for the
machinery which were to be prepared within this supply lead time. The cost of the site
preparation and laying foundations were ₹ 1,40,000. These activities were supervised by
a technician during the entire period, who is employed for this purpose of ₹ 45,000 per
month.
The machine was purchased at ₹ 1,58,00,000 and ₹ 50,000 transportation charges were
incurred to bring the machine to the factory site. An Architect was appointed at a fee of
₹ 30,000 to supervise machinery installation at the factory site.
You are required to ascertain the amount at which the Machinery should be capitalized
under AS 10.

AS 11 The Effects of Changes in Foreign Exchange Rates

69 (a) Classify the following items as monetary or non-monetary item:
Share Capital
Trade Receivables
Investment in Equity shares
Fixed Assets
(b)
Exchange Rate per $
Goods purchased on 1.1.2019 for US $ 15,000 ₹75
Exchange rate on 31.3.2019 ₹74
Date of actual payment 7.7.2019 ₹73
You are required to ascertain the loss/gain to be recognized for financial years 2018- 19
and 2019-20 as per AS 11.

AS 12 Accounting for Government Grants

70. (a) How would you treat the following in the accounts in accordance with AS 12. 'Government
Grants'?

pg. 56
 (i) ₹35 Lakhs received from the Local Authority for providing Medical facilities to the
employees.
(ii) ₹100 Lakhs received as Subsidy from the Central Government for setting up a unit
in notified backward area.
AS 13 Accounting for Investments
(b) A Ltd. on 1-1-2020 had made an investment of ₹600 lakhs in the equity shares of B Ltd.
of which 50% is made in the long-term category and the rest as temporary investment.
The realizable value of all such investment on 31-3-2020 became ₹ 200 lakhs as B Ltd.
lost a case of copyright. How will you recognize the reduction in the value of the
investment in the financial statements for the year ended on 31-3-2020 as per AS 13
considering this downfall in the value of shares as non-temporary?

AS 16 Borrowing Costs
71.(a) Vital Limited borrowed an amount of ₹150 crores on 1.4.2019 for construction of boiler
plant @ 10% p.a. The plant is expected to be completed in 4 years. Since the weighted
average cost of capital is 13% p.a., the accountant of Vital Ltd. capitalized ₹19.50 crores
for the accounting period ending on 31.3.2020. Due to surplus fund out of ₹150 crores,
an income of ₹1.50 crores was earned and credited to profit and loss account. Comment
on the above treatment of accountant with reference to relevant accounting standard.
(b) When capitalization of borrowing cost should cease as per Accounting Standard 16?
Explain in brief.

Applicability of Accounting Standards

AS 1 Disclosure of Accounting Policies
72.(a) ABC Ltd. was making provision for non-moving inventories based on no issues for the
last 12 months up to 31.3.2019.
The company wants to provide during the year ending 31.3.2020 based on technical
evaluation:
Total value of inventory ₹100 lakhs
Provision required based on 12 months issue ₹3.5 lakhs
Provision required based on technical evaluation ₹2.5 lakhs
Does this amount to change in Accounting Policy? Can the company change the method
of provision?
(b) State whether the following statements are 'True' or 'False'. Also give reason for your
answer.
1. Certain fundamental accounting assumptions underline the preparation and
presentation of financial statements. They are usually specifically stated because
their acceptance and use are not assumed.
2 If fundamental accounting assumptions are not followed in presentation and
preparation of financial statements, a specific disclosure is not required.

pg. 57
 3. All significant accounting policies adopted in the preparation and presentation of
financial statements should form part of the financial statements.
4. Any change in an accounting policy, which has a material effect should be
disclosed. Where the amount by which any item in the financial statements is
affected by such change is not ascertainable, wholly or in part, the fact need not to
be indicated.

AS 2 Valuation of Inventories
73. (a)
Particulars Kg. ₹
Opening Inventory: Finished Goods 1,000 25,000
Raw Materials 1,100 11,000
Purchases 10,000 1,00,000
Labour 76,500
Overheads (Fixed) 75,000
Sales 10,000 2,80,000
Closing Inventory: Raw Materials 900
Finished Goods 1200
The expected production for the year was 15,000 kg of the finished product. Due to fall in
market demand the sales price for the finished goods was ₹20 per kg and the replacement
cost for the raw material was ₹9.50 per kg on the closing day. You are required to calculate
the closing inventory as on that date.
AS 3 Cash Flow Statements
(b) Classify the following activities as (1) Operating Activities, (2) Investing Activities, (3)
Financing Activities (4) Cash Equivalents.
a. Proceeds from long-term borrowings.
b. Proceeds from Trade receivables.
C. Trading Commission received.
d. Redemption of Preference Shares.
e. Proceeds from sale of investment
f. Interim Dividend paid on equity shares.
g. Interest received on debentures held as investment.
h. Dividend received on shares held as investments.
i. Rent received on property held as investment.
j. Dividend paid on Preference shares.
k. Marketable Securities

pg. 58
AS 10 Property, Plant and Equipment
74.(a) Entity A has a policy of not providing for depreciation on PPE capitalized in the year until
the following year, but provides for a full year's depreciation in the year of disposal of an
asset. Is this acceptable?
(b) Entity A purchased an asset on 1st January 2016 for₹ 1,00,000 and the asset had an
estimated useful life of 10 years and a residual value of nil. On 1st January 2020, the
directors review the estimated life and decide that the asset will probably be useful for a
further 4 years. Calculate the amount of depreciation for each year, if company charges
depreciation on Straight Line basis.
(c) The following items are given to you:
ITEMS
(1) Costs of testing whether the asset is functioning properly, after deducting the net
proceeds from selling any items produced while bringing the asset to that location
and condition (such as samples produced when testing equipment);
(2) Costs of conducting business in a new location or with a new class of customer
(including costs of staff training);
(3) Any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management
(4) Costs of opening a new facility or business, such as, inauguration costs;
(5) Purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates.
With reference to AS 10 "Property, Plant and Equipment", classify the above items under
the following heads:
HEADS
(i) Purchase Price of PPE
(ii) Directly attributable cost of PPE or
(iii) Cost not included in determining the carrying amount of an item of PPE.

AS 11 The Effects of Changes in Foreign Exchange Rates

75.(a) (i) AXE Limited purchased fixed assets costing $ 5,00,000 on 1st Jan. 2018 from an
American company M/s M&M Limited. The amount was payable after 6 months.
The company entered into a forward contract on 1st January 2018 for five
months@₹ 62.50 per dollar. The exchange rate per dollar was as follows:
On 1st January, 2018 ₹ 60.75 per dollar
On 31st March, 2018 ₹ 63.00 per dollar
You are required to state how the profit or loss on forward contract would be recognized
in the books of AXE Limited for the year ending 2017-18, as per the provisions of AS 11.
(ii) Assets and liabilities and income and expenditure items in respect of integral
foreign operations are translated into Indian rupees at the prevailing rate of
exchange at the end of the year. The resultant exchange differences in the case of
profit, is carried to other Liabilities Account and the Loss, if any, is charged to
pg. 59
 revenue. You are required to comment in line with AS 11.
AS 12 Accounting for Government Grants
(b) How would you treat the following in the accounts in accordance with AS 12 'Government
Grants'?
(i) ₹ 35 Lakhs received from the Local Authority for providing Medical facilities to the
employees.
(ii) ₹ 100 Lakhs received as Subsidy from the Central Government for setting up a unit
in a notified backward area.
(iii) ₹ 10 Lakhs Grant received from the Central Government on installation of anti-
pollution equipment.

AS 13 Accounting for Investments

76. (a)Omega Equity Investments Ltd., wants to re-classify its investments in accordance with
AS 13. State the values, at which the investments have to be reclassified in the following
cases:
(i) Long term investments in Company A, costing ₹ 8.5 lakhs are to be re-classified
as current. The company had reduced the value of these investments to ₹ 6.5 lakhs
to recognize a permanent decline in value. The fair value on date of transfer is ₹
6.8 lakhs.
(ii) Current investment in Company C, costing 10 lakhs are to be re-classified as long
term as the company wants to retain them. The market value on date of transfer is
₹ 12 lakhs.
(iii) Certain long term investments no longer considered for holding purposes, to be
reclassified as current investments. The original cost of these investments was ₹
18 lakhs but had been written down to ₹ 12 lakhs to recognize permanent decline
as per AS 13.
AS 16 Borrowing Costs
(b) Govind Ltd. issued 12% secured debentures of ₹ 100 Lakhs on 01.04.2018, to be utilized
as under:
Particulars Amount (₹ inlakhs)
Construction of factory building 40
Purchase of Machinery 35
Working Capital 25
In March 2019, construction of the factory building was completed and machinery was
installed and ready for its intended use. Total interest on debentures for the financial year
ended 31.03.2019 was ₹ 12,00,000. During the year 2018-19, the company had
invested idle fund out of money raised from debentures in banks' fixed o had earned an
interest of ₹ 3,00,000.
You are required to show the treatment of interest under Accounting Standard 16 and
also explain nature of assets.

pg. 60
AS 2 Valuation of Inventories
77. (a) Hello Ltd. purchased goods at the cost of ₹ 20 lakhs in October. Till the end of the financial
year, 75% of the stocks were sold. The Company wants to disclose closing stock at ₹ 5
lakhs. The expected sale value is ₹ 5.5 lakhs and a commission at 10% on sale is payable
to the agent. You are required to ascertain the value of closing stock?
AS 4 Contingencies and Events Occurring after the Balance Sheet Date
(b) An earthquake destroyed a major warehouse of PQR Ltd. on 30.4.2019. The accounting
year of the company ended on 31.3.2019. The accounts were approved on 30.6.2019.
The loss from earthquake is estimated at ₹ 25 lakhs. State with reasons, whether the loss
due to earthquake is an adjusting or non-adjusting event and how the fact of loss is to be
disclosed by the company.

AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Polices
78. (a) The Accountant of Mobile Limited has sought your opinion with relevant reasons, whether
the following transactions will be treated as change in Accounting Policy or not for the
year ended 31 March, 2019. Please advise him in the following situations in accordance
with the provisions of relevant Accounting Standard;
(i) Provision for doubtful debts was created @ 2% till 31 March, 2018. From the
Financial year 2018-2019, the rate of provision has been changed to 3%.
(ii) During the year ended 31 March, 2019, the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement
(iii) Till the previous year the furniture was depreciated on straight line basis over a
period of 5 years. From current year, the useful life of furniture has been changed
to 3 years.
(iv) 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.
(v) During the year ended 31st March, 2019, there was change in cost formula in
measuring the cost of inventories.
AS 10 Property, Plant and Equipment
(b) Shrishti Ltd. contracted with a supplier to purchase machinery which is to be installed in
its Department A in three months' time. Special foundations were required for the
machinery which were to be prepared within this supply lead time. The cost of the site
preparation and laying foundations were ₹ 1,41,870. These activities were supervised by
a technician during the entire period, who is employed for this purpose of ₹ 45,000 per
month. The technician's services were given by Department B to Department A which
billed the services at ₹ 49,500 per month after adding 10% profit margin.
The machine was purchased at ₹ 1,58,34,000 inclusive of IGST @ 12% for which input
credit is available to Shrishti Ltd. ₹ 55,770 transportation charges were incurred to bring
the machine to the factory site. An Architect was appointed at a fee of ₹ 30,000 to
supervise machinery installation at the factory site.

pg. 61
 Ascertain the amount at which the Machinery should be capitalized under AS 10
considering that IGST credit is availed by the Shristhi Limited. Internally booked profits
should be eliminated in arriving at the cost of machine.

AS 11 The Effects of Changes in Foreign Exchange Rates

79.(a) (i) Trade receivables as on 31.3.2019 in the books of XYZ Ltd. include an amount
receivable from Umesh ₹ 5,00,000 recorded at the prevailing exchange rate on the
date of sales, i.e. at US $1 = ₹58.50. US $1 = ₹ 61.20 on 31.3.2019.
Explain briefly the accounting treatment needed in this case as per AS 11 as on
31.3.2019.
(ii) Power Track Ltd. purchased a plant for US$ 50,000 on 31st October, 2018 payable
after 6 months. The company entered into a forward contract for 6 months @
₹64.25 per Dollar. On 31st October, 2018, the exchange rate was ₹61.50 per
Dollar.
You are required to recognise the profit or loss on forward contract in the books of the
company for the year ended 31 March, 2019.
AS 12 Accounting for Government Grants
(b) Samrat Limited has set up its business in a designated backward area which entitles the
company for subsidy of 25% of the total investment from Government of India. The
company has invested ₹ 80 crores in the eligible investments. The company is eligible for
the subsidy and has received ₹ 20 crores from the government in February 2019. The
company wants to recognize the said subsidy as its income to improve the bottom line of
the company.
Do you approve the action of the company in accordance with the Accounting Standard?

AS 13 Accounting for Investments

80. (a) Z Bank has classified its total investment on 31-3-2018 into three categories (a) held to
maturity (b) available for sale (c) held for trading as per the RBI Guidelines.
'Held to maturity investments are carried at acquisition cost less amortized amount.
'Available for sale' investments are carried at marked to market. 'Held for trading'
investments are valued at weekly intervals at market rates. Net depreciation, if any, is
charged to revenue and net appreciation, if any, is ignored.
You are required to comment whether the policy of the bank is in accordance with AS 13?
AS 16 Borrowing costs
(b) In May, 2018, Capacity Ltd. took a bank loan to be used specifically for the construction
of a new factory building. The construction was completed in January. 2019 and the
building was put to its use immediately thereafter. Interest on the actual amount used for
construction of the building till its completion was ₹ 18 lakhs, whereas the total interest
payable to the bank on the loan for the period till 31 March, 2019 amounted to ₹ 25 lakhs.

pg. 62
 Can ₹ 25 lakhs be treated as part of the cost of factory building and thus be capitalized
on the plea that the loan was specifically taken for the construction of factory building?
Explain the treatment in line with the provisions of AS 16.

AS 17 Segment Reporting
81 (a) A Company has an inter-segment transfer pricing policy of charging at cost less 5%. The
market prices are generally 20% above cost.
You are required to examine whether the policy adopted by the company is correct or
Not?
AS 22 Accounting for Taxes on Income
(b) The Accountant of Sohna Ltd. provides the following information for the year ended
31-03-2019:
Particulars ₹
Accounting Profit 7,50,000
Book Profit as per MAT 4,37,500
Profit as per Income Tax Act 90,000
Tax rate 20%
MAT rate 7.50%
You are required to 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.
(c) What are fundamental accounting assumptions?

AS 2 Valuation of Inventories
82.(a) On 31 March 2017, a business firm finds that cost of a partly finished unit on that date is
₹ 530. The unit can be finished in 2017-18 by an additional expenditure of ₹ 310. The
finished unit can be sold for ₹ 750 subject to payment of 4% brokerage on selling price.
The firm seeks your advice regarding the amount at which the unfinished unit should be
valued as at 31 March, 2017 for preparation of final accounts. Assume that the partly
finished unit cannot be sold in semi finished form and its NRV is zero without processing
it further.
AS 4 Contingencies and Events Occurring after the Balance Sheet Date
(b) The Board of Directors of New Graphics Ltd. in its Board Meeting held on 18th April, 2017,
considered and approved the Audited Financial results along with Auditors Report for the
Financial Year ended 31 March, 2017 and recommended a dividend of ₹ 2 per equity
share (on 2 crore fully paid up equity shares of ₹ 10 each) for the year ended31 March,
2017 and if approved by the members at the forthcoming Annual General Meeting of the
company on 18 June, 2017, the same will be paid to all the eligible shareholders.
Discuss on the accounting treatment and presentation of the said proposed dividend in
the annual accounts of the company for the year ended 31 March, 2017 as per the
applicable Accounting Standard and other Statutory Requirements.

pg. 63
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Polices
83.(a) Goods of ₹ 5,00,000 were destroyed due to flood in September, 2015. A claim was lodged
with insurance company, but no entry was passed in the books for insurance claim.
In March, 2018, the claim was passed and the company received a payment of ₹ 3,50,000
against the claim. Explain the treatment of such receipt in final accounts for the year
ended 31 March, 2018.
AS 10 Property, Plant and Equipment
(b) Preet Ltd. is installing a new plant at its production facility. It has incurred these costs:

1. Cost of the plant (cost per supplier's invoice plus taxes) ₹50,00,000
2. Initial delivery and handling costs ₹ 4,00,000
3. Cost of site preparation ₹ 12,00,000
4. Consultants used for advice on the acquisition of the plant ₹ 14,00,000
5. Interest charges paid to supplier of plant for deferred credit ₹ 4,00,000
6. Estimated dismantling costs to be incurred after 7 years ₹ 6,00,000
7. Operating losses before commercial production ₹ 8,00,000
Please advise Preet Ltd. on the costs that can be capitalised in accordance with AS
10 (Revised)

AS 11 The Effects of Changes in Foreign Exchange Rates

84.(a) Rau Ltd. purchased a plant for US$ 1,00,000 on 01st February 2016, payable after three
months. Company entered into a forward contract for three months @ ₹ 49.15 per dollar.
Exchange rate per dollar on 01 Feb. was ₹ 48.85. How will you recognise the profit or
loss on forward contract in the books of Rau Ltd.?
AS 12 Accounting for Government Grants
(b) Viva Ltd. received a specific grant of ₹ 30 lakhs for acquiring the plant of ₹ 150 lakhs
during 2014-15 having useful life of 10 years. The grant received was credited to deferred
income in the balance sheet and was not deducted from the cost of plant. During 2017-
18, due to non-compliance of conditions laid down for the grant, the company had to
refund the whole grant to the Government. Balance in the deferred income on that date
was ₹ 21 lakhs and written down value of plant was ₹ 105 lakhs. What should be the
treatment of the refund of the grant and the effect on cost of the fixed asset and the
amount of depreciation to be charged during the year 2017-18 in profit and loss account?

AS 13 Accounting for Investments

85. (a) Paridhi Electronics Ltd. has current investment (X Ltd.'s shares) purchased for ₹ 5 lakhs,
which the company want to reclassify as long-term investment on 31.3.2018. The market
value of these investments as on date of Balance Sheet was ₹ 2.5 lakhs. How will you
deal with this as on 31.3.18 with reference to AS-13?

pg. 64
AS 16 Borrowing Costs
(b) Zen Bridge Construction Limited obtained a loan of 64 crores to be utilized as under:
(i) Construction of Hill link road in Kedarnath ₹ 50 crores
(ii) Purchase of Equipment and Machineries ₹ 6 crores
(iii) Working Capital ₹ 4 crores
(iv) Purchase of Vehicles ₹ 1 crore
(V) Advances for tools/cranes etc. ₹ 1 crore
(vi) Purchase of Technical Know how ₹ 2 crores
(vii) Total Interest charged by the Bank for the year ending ₹ 1.6 crores
31 March, 2018

Show the treatment of Interest according to Accounting Standard by Zen Bridge

Construction Limited.

AS 17 Segment Reporting
86.(a) PK Ltd. has identified business segment as its primary reporting format. It has identified
India, USA and UK as three geographical segments. It sells its products in the Indian
market, which constitutes 70 percent of the Company's sales. 25 per cent is sold in USA
and the balance is sold in UK. Is PK Ltd as part of its geographical secondary segment
information, required to disclose segment revenue from export sales, where such sales
are not significant?
AS 22 Accounting for taxes on income
(b) Is it permissible not to recognize deferred tax liability on the ground that the Company
expects that there will be losses both for accounting and tax purposes in near future? You
are required to give advice to the company.

AS 2 Valuation of Inventories
87. (a) A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is
required. The company provides you following information for the year ended 31 March,
2017. ₹ Per unit
Raw Material X
Cost price 380
Unloading Charges
Freight Inward 20
Replacement cost 40
Chemical Y
Material consumed 300
Direct Labour
Variable Overheads
440
120
80

pg. 65
 Additional Information:
(i) Total fixed overhead for the year was ₹ 4,00,000 on normal capacity of 20,000
units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was ₹ 2,400
units.
You are required to calculate the total value of closing stock of Raw Material X and
Chemical Y according to AS 2, when
i) Net realizable value of Chemical Y is ₹ 800 per unit
(ii) Net realizable value of Chemical Y is ₹ 600 per unit
AS 4 Contingencies and Events Occurring after the Balance Sheet Date
(b) While preparing its final accounts for the year ended 31 March, 2017, a company made
provision for bad debts @ 5% of its total debtors. In the last week of February, 2017, a
debtor for ₹ 20 lakhs had suffered heavy loss due to an earthquake; the loss was not
covered by any insurance policy. In April, 2017 the debtor became a bankrupt. Can the
company provide for the full loss arising out of insolvency of the debtor in the final
accounts for the year ended 31st March, 2017? You are required to advise the company
in line with AS 4.

AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Polices
88. (a) The Accountant of Mobile Limited has sought your opinion with relevant reasons, whether
the following transactions will be treated as change in Accounting Policy or not for the
year ended 31st March, 2017. You are required to advise him in the following situations
in accordance with the provisions of AS 5
(i) Provision for doubtful debts was created @ 2% till 31st March, 2016. From the
Financial year 2016-2017, the rate of provision has been changed to 3%.
(ii) During the year ended 31st March, 2017, the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.
(iii) Till the previous year the furniture was depreciated on straight line basis over a
period of 5 years. From current year, the useful life of furniture has been changed
to 3 years.
(iv) 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.
(v) During the year ended 31st March, 2017, there was change in cost formula in
measuring the cost of inventories.

AS 10 Property, Plant and Equipment

(b) ABC Ltd. is installing a new plant at its production facility. It provides you the following
information:

pg. 66
 ₹
Cost of the plant (cost as per supplier's invoice) 31,25,000
Estimated dismantling costs to be incurred after 5 years 2,50,000
Initial Operating losses before commercial production 3,75,000
Initial delivery and handling costs 1,85,000
Cost of site preparation 4,50,000
Consultants used for advice on the acquisition of the plant 6,50,000
You are required to compute the costs that can be capitalised for plant by ABC Ltd., in
accordance with AS 10: Property, Plant and Equipment.

AS 11 The Effects of Changes in Foreign Exchange Rates

89.(a) (i) Classify the following items as monetary or non-monetary item:
Share Capital
Trade Receivables
Investment in Equity shares
Fixed Assets.
(ii) Exchange Rate per $
Goods purchased on 1.1.2017 for US $ 15,000 ₹75
Exchange rate on 31.3.2017 ₹74
Date of actual payment 7.7.2017 ₹73

You are required to ascertain the loss/gain for financial years 2016-17 and 2017- 18, also
give their treatment as per AS 11.
AS 12 Government Grants
(b) A specific government grant of ₹15 lakhs was received by USB Ltd. for acquiring the Hi-
Tech Diary plant of ₹95 lakhs during the year 2014-15. Plant has useful life of 10 years.
The grant received was credited to deferred income in the balance sheet. During 2017-
18, due to non-compliance of conditions laid down for the grant, the company had to
refund the whole grant to the Government. Balance in the deferred income on that date
was ₹10.50 lakhs and written down value of plant was ₹66.50 lakhs.
(i) What should be the treatment of the refund of the grant and the effect on
cost of plant and the amount of depreciation to be charged during the year
2017-18 in profit and loss account?
(ii) What should be the treatment of the refund, if grant was deducted from the
cost of the plant during 2014-15 assuming plant account showed the
balance of ₹ 56 lakhs as on 1.4.2017?
You are required to explain in the line with provisions of AS 12.

AS 13 Accounting for Investments

pg. 67
90.(a) M/s Active Builders Ltd. invested in the shares of another company (with an intention to
hold the shares for short term period) on 31st October, 2016 at a cost of ₹4,50,000. It also
earlier purchased Gold of ₹5,00,000 and Silver of ₹2,25,000 on 31 March, 2014.
Market values as on 31st March, 2017 of the above investments are as follows: Shares
₹3,75,000; Gold ₹7,50,000 and Silver ₹4,35,000
You are required explain how will the above investments be shown in the books of account
of M/s Active Builders Ltd. for the year ending 31st March, 2017 as per the provisions of
AS 137

AS 16 Borrowing costs
(b) A company incorporated in June 2017, has setup a factory within a period of 8 months
with borrowed funds. The construction period of the assets had reduced drastically due
to usage of technical innovations by the company. Whether interest on borrowings for the
period prior to the date of setting up the factory should be capitalized although it has taken
less than 12 months for the assets to get ready for use. You are required to comment on
the necessary treatment with reference to AS 16.

AS 17 Segment Reporting
91.(a) Calculate the segment results of a manufacturing organization from the following
information:
Segments A B C Total
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 1,10,000
(allocated in 5:4:2 basis)
Revenue from transactions with
other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses 77,000
(allocated in 5:4: 2 basis)
Expenses on transactions with

other segments
Transaction from B
Transaction from C 75,000 30,000

Transaction from A 6,000 40,000

18,000 82,000
AS 22 Accounting for Taxes on Income

pg. 68
 (b) Beta Ltd. is a full tax-free enterprise for the first ten years of its existence and is in the
second year of its operation. Depreciation timing difference resulting in a tax liability in
year 1 and 2 is ₹1,000 lakhs and ₹2,000 lakhs respectively. From the third year it is
expected that the timing difference would reverse each year by ₹50lakhs. Assuming tax
rate of 40%, you are required to compute to the deferred tax liability at the end of the
second year and any charge to the Profit and Loss account

AS 2 Valuation of Inventories
92.(a) A private limited company manufacturing fancy terry towels had valued its closing
inventory of inventories of finished goods at the realizable value, inclusive of profit and
the export cash incentives. Firm contracts had been received and goods were packed for
export, but the ownership in these goods had not been transferred to the foreign buyers.
You are required to advise the company on the valuation of the inventories in line with the
provisions of AS 2.
AS 4 Contingencies and Events Occurring after the Balance Sheet Date
(b) With reference to AS 4 "Contingencies and events occurring after the balance sheet date",
identify whether the following events will be treated as contingencies, adjusting events or
non-adjusting events occurring after balance sheet date in case. of a company which
follows April to March as its financial year.
(i) A major fire has damaged the assets in a factory on 5th April, 5 days after the year
end. However, the assets are fully insured and the books have not been. approved
by the Directors.
(ii) A suit against the company's advertisement was filed by a party on 10 April, 10
days after the year end claiming damages of ₹20 lakhs.

AS 5 Net profit or Loss for the period, Prior Period Items and Changes in Accounting Policies
93.(a) Bela Ltd. has a vacant land measuring 20,000 sq. mts, which it had no intention to use in
the future. The Company decided to sell the land to tide over its liquidity problems and
made a profit of ₹10 Lakhs by selling the said land. Moreover, there was a fire in the
factory and a part of the unused factory shed valued at ₹8 Lakhs was destroyed. The loss
from fire was set off against the profit from sale of land and profit of ₹2 lakhs was disclosed
as net profit from sale of assets.
You are required to examine the treatment and disclosure done by the company and
advise the company in line with AS 5.
Depreciation Accounting as per AS 10 Property, Plant and Equipment
(b) In the year 2016-17, an entity has acquired a new freehold building with a useful life of
50 years for ₹90,00,000. The entity desires to calculate the depreciation charge per
annum using a straight-line method. It has identified the following components (with no
residual value of lifts & fixtures at the end of their useful life) as follows:

pg. 69
 Component Useful life (Years) Cost
Land Infinite ₹20,00,000
Roof 25 ₹10,00,000
Lifts 20 ₹5,00,000
Fixtures 10 ₹5,00,000
Reminder of building 50 ₹50,00,000
₹90,00,000
You are required to calculate depreciation for the year 2016-17 as per componentization
method.

AS 11 The Effects of Changes in Foreign Exchange Rates.

94.(a) Power Track Ltd. purchased a plant for US$ 50,000 on 31 October, 2016 payable after 6
months. The company entered into a forward contract for 6 months @₹64.25 per Dollar.
On 31 October, 2016, the exchange rate was ₹61.50 per Dollar.
You are required to calculate the amount of the profit or loss on forward contract to be
recognized in the books of the company for the year ended 31 March, 2017
AS 12 Government Grants
(b) D Ltd. acquired a machine on 01-04-2012 for ₹20,00,000. The useful life is 5 years. The
company had applied on 01-04-2012, for a subsidy to the tune of 80% of the cost. The
sanction letter for subsidy was received in November 2015. The Company's Fixed Assets
Account for the financial year 2015-16 shows a credit balance as under:
Particulars ₹
Machine (Original Cost) 20,00,000
Less: Accumulated Depreciation (from 2012-13- to 2014-15
on Straight Line Method) 12,00,000
8,00,000
Less: Grant received
(16,00,000)
Balance
(8,00,000)
You are required to explain how should the company deal with this asset in its accounts
for 2015-167

AS 13 Accounting for Investments

95. (a) Paridhi Electronics Ltd. invested in the shares of another unlisted company on 1 May
2012 at a cost of ₹3,00,000 with the intention of holding more than a year. The published
accounts of unlisted company received in January, 2017 reveals that the company has
incurred cash losses with decline in market share and investment of Paridhi Electronics
Ltd. may not fetch more than ₹45,000.
You are required to explain how you will deal with the above in the financial statements
of the Paridhi Electronics Ltd. as on 31.3.17 with reference to AS 13?

pg. 70
AS 16 Borrowing costs
(b) In May, 2016, Capacity Ltd. took a bank loan to be used specifically for the construction
of a new factory building. The construction was completed in January, 2017 and the
building was put to its use immediately thereafter. Interest on the actual amount used for
construction of the building till its completion was ₹18 lakhs, whereas the total interest
payable to the bank on the loan for the period till 31 March, 2017 amounted to ₹25 lakhs.
Can ₹25 lakhs be treated as part of the cost of factory building and thus be capitalized on
the plea that the loan was specifically taken for the construction of factory building?
Explain the treatment in line with the provisions of AS 16.

AS 17 Segment Reporting
96(a) A Company has an inter-segment transfer pricing policy of charging at cost less 5%.
The market prices are generally 20% above cost.
You are required to examine whether the policy adopted by the company is correct or
not?
AS 22 Accounting for Taxes on Income
(b) Rama Ltd., has provided the following information:
₹
Depreciation as per accounting records =2,00,000
Depreciation as per income tax records =5,00,000
Unamortized preliminary expenses as per tax record =30,000
There is adequate evidence of future profit sufficiency.
You are required to calculate the amount of deferred tax asset/liability recognized as
transition adjustment assuming Tax rate as 50%.

pg. 71