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Mock Test Paper - Series II: December, 2024

Date of Paper: 9 th December, 2024
Time of Paper: 2 P.M. to 5 P.M.

INTERMEDIATE COURSE: GROUP – I

PAPER – 1 : ADVANCED ACCOUNTING
ANSWERS
1. (i) (a)
(ii) (b)
(iii) (c)
(iv) (b)
2. (i) (c)
(ii) (c)
(iii) (c)
(iv) (c)
3. (a) (ii)
(b) (ii)
(c) (iii)
(d) (iv)
4. (ii)
5. (iii)
6. (b)

PART II – Descriptive Questions (70 Marks)

1. (a) (i) As per AS 4‘Contingencies and Events Occurring After the Balance
Sheet Date’, disclosure should be made in the report of the
approving authority of those events occurring after the balance
sheet date that represent material changes and commitments
affecting the financial position of the enterprise, the investment of
` 40 lakhs in April, 2024 in the acquisition of another company
should be disclosed in the report of the Board of Directors to enable
users of financial statements to make proper evaluations and
decisions.
(ii) As per AS 4, adjustment to assets and liabilities are required for
events occurring after the balance sheet date that provide
additional information materially affecting the determination of the
amounts relating to conditions existing at the Balance Sheet date.
A debtor for ` 2,50,000 suffered heavy loss due to earthquake in
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the second week of March, 2024 which was not covered by

insurance. This information with its implications was already known
to the company. The fact that he became bankrupt in May, 2024
(after the balance sheet date) is only an additional information
related to the existing condition on the balance sheet date.
Accordingly, full provision for bad debts amounting ` 2,50,000
should be made, to cover the loss arising due to the insolvency of
a debtor, in the final accounts for the year ended 31st March 2024.
(iii) As per AS 4, adjustments to assets and liabilities are required for
events occurring after the balance sheet date that provide
additional information materially affecting the determination of the
amounts relating to conditions existing at the balance sheet date.
In the given case, since Hari Ltd. was sued by a competitor for
infringement of a trademark during the year 2023-24 for which the
provision was also made by it, the decision of the Court on 26th
May, 2024, for payment of the penalty will constitute as an adjusting
event because it is an event occurred before approval of the
financial statements. Therefore, Hari Ltd. should adjust the
provision upward by ` 4 lakhs to reflect the award decreed by the
Court to be paid by them to its competitor.
(iv) As the embezzlement of cash comes to the notice of company
management only after approval of financial statements by board
of directors of the company, then the treatment will be done as per
the provisions of AS 5 “Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies” and the same will not
be adjusted in the financial statements for the year ended 31st
March, 2024. This being an extra-ordinary item should be disclosed
in the statement of profit and loss as a part of loss for the year
ending March, 2025, in a manner, that its impact on current profit
or loss can be perceived.
(v) Collection of cheques after balance sheet date is not an adjusting
event even if the cheques bear the date of 31st March. Recognition
of cheques in hand is therefore not consistent with requirements of
AS 4. Moreover, the collection of cheques after balance sheet date
does not represent any material change or commitments affecting
financial position of the enterprise and no disclosure of such
collections in the Directors’ Report is necessary.
(b) As per AS 26 ‘Intangible Assets’
(i) Carrying value of intangible asset as on 31.03.2023
At the end of financial year, on 31st March 2023, the production
process will be recognized (i.e. carrying amount) as an intangible
asset at a cost of ` 30 (98-68) lacs (expenditure incurred since the
date the recognition criteria were met, i.e., from 1st January, 2023).

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(ii) Expenditure to be charged to Profit and Loss account for the

year ended 31.03.2024
(` in lacs)
Carrying Amount as on 31.03.2023 30
Expenditure during 2023–2024 72
Book Value 102
Recoverable Amount (52)
Impairment loss 50
` 50 lakhs to be charged to Profit and loss account for the year
ending 31.03.2024.
(iii) Carrying value of intangible asset as on 31.03.2024
(` in lacs)
Book Value 102
Less: Impairment loss (50)
Carrying amount as on 31.03.2024 52
2. (a) Cost of Control
Sr. Particulars Computation `
No.
A] Cost of Investments Given 70,00,000
Less: Dividend out of (3.5 Lacs × `10 (FV) × (7,00,000)
Pre Acquisition 20%)
Dividend (No of Shares = 70
Lacs/20= 3.5 Lacs)
Subtotal A 63,00,000
B] Share in Net Assets (1,38,50,000 × 70%) 96,95,000
of Zed Ltd.
C] Goodwill / (Capital (A – B) 33,95,000
Reserve)
W.N. 1 : Calculation of Net Assets
Sr. Particulars `
No.
A] Assets
- Property, Plant & Equipment (120+20%) 1,44,00,000
- Investment (55 – 10%) 49,50,000
-
Current Assets 70,00,000
-
Loans & Advances 15,00,000
Subtotal A 2,78,50,000
B] Liabilities
- 15% Debentures 90,00,000
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- Current Liabilities 50,00,000

Subtotal B 1,40,00,000
C] Net Assets (A – B) 1,38,50,000
W.N. 2 : No of shares acquired
Cost of investment
=
Purchase price share
70,00,000
= = `3,50,000 shares
` 20 shares
Revalued net assets of Zed Ltd. as on 31.03.2024
Particulars ` in lakhs ` in lakhs
Property Plant & Equipment [120 × 120%] 144.0
Investments [55 × 90%] 49.5
Current Assets 70.0
Loans & Advances 15.0
Total Assets after revaluation 278.5
Less: 15% Debentures 90.0
Current Liabilities 50.0 (140.0)
Equity / Net Worth 138.50
Exe Ltd.’s share of net assets (70% of 96.95
138.50)
Exe Ltd.’s cost of acquisition of shares of 63.00
Zed Ltd.
(`70 lakhs – 7 lakhs*)
Capital Reserve 33.95
*Total Cost of 70% Equity of Zed Ltd. `70 lakhs
Purchase Price of each share `20
Number of shares purchases(70 lakhs/20) 3.50 lakhs
Dividend @ 20% i.e. `2/share `7 lakhs
Since, dividend received is for pre-acquisition period, it has been
reduced from the cost of investment in the subsidiary company.
(b) Minority Interest = Equity attributable to minorities
Equity is the residual interest in the assets of an enterprise after
deducting all its liabilities i.e. in this case, it should be equal to Share
Capital + Profit & Loss A/c
A = Share capital on 1.1.2024
B = Profit & loss account balance on 1.1.2024
C = Share capital on 31.12.2024
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D = Profit & loss account balance on 31.12.2024

Minority % Minority Minority
Shares interest as at interest as at
Owned the date of the date of
acquisition consolidation
[E] [E] x [A + B] ` [E] X [C + D] `
Case i [100-85] 15% 29,250 30,750
Case ii [100-70] 30% 51,000 39,000
Case iii [100-65] 35% 10,500 10,500
Case iv [100-90] 10% 6,500 8,500
Case v [100-100] NIL NIL NIL
3. (a) (i) As per AS 9 “Revenue Recognition”, in case of goods sold on
approval basis, revenue should not be recognized until the goods
have been formally accepted by the buyer or the buyer has done
an act adopting the transaction or the time period for rejection has
elapsed or where no time has been fixed, a reasonable time has
elapsed. Therefore, revenue should be recognized for the total
sales amounting ` 5,00,000 as the time period for rejecting the
goods had expired.
(ii) The sale is complete but delivery has been postponed at buyer’s
request. The entity should recognize the entire sale of ` 2,40,000
for the year ended 31st March.
(iii) Sale/repurchase agreements i.e. where seller concurrently agrees
to repurchase the same goods at a later date, such transactions
that are in substance a financing agreement, the resulting cash
inflow is not revenue as defined and should not be recognized as
revenue. Hence no revenue to be recognized in the given case.
(iv) Revenue arising from the use by others of enterprise resources
yielding interest and royalty should be recognized when no
significant uncertainty as to measurability or collectability exists.
The interest should be recognized on time proportion basis taking
into account the amount outstanding and rate applicable. The
royalty should be recognized on accrual basis in accordance with
the terms of relevant agreement.
(v) 40% goods lying unsold with consignee should be treated as
closing inventory and sales should be recognized for ` 2,40,000
(60% of ` 4,00,000). In case of consignment sale revenue should
not be recognized until the goods are sold to a third party.
(b) Journal Entries
` in
lacs
Dr. Cr.

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Equity Share Capital (` 10 each) A/c Dr. 500

To Equity Share Capital (` 2.50 each) A/c 125
To Reconstruction A/c 375
(Conversion of all the equity shares into the
same number of fully paid equity shares of
` 2.50 each as per scheme of reconstruction)
Director’s Remuneration Outstanding A/c Dr. 10
To Reconstruction A/c 10
(Outstanding remuneration foregone by the
directors as per scheme of reconstruction)
12% Debentures A/c Dr. 400
Debenture Interest Outstanding A/c Dr. 48
To 13% Debentures A/c 400
To Reconstruction A/c 48
(Conversion of 12% debentures into 13%
debentures, Debenture holders forgoing
outstanding debenture interest)
Bank A/c Dr. 125
To Equity Share Application A/c 125
(Application money received for fully paid
equity shares of ` 2.5 each from existing
shareholders)
Equity Share Application A/c Dr. 125
To Equity Share Capital (` 2.50 each) A/c 125
(Application money transferred to share
capital)
Trade payables A/c Dr. 165
To Equity Share Capital (` 2.50 each) A/c 65
To Bank A/c 80
To Reconstruction A/c 20
(Trade payables for ` 65 lakhs accepting
shares for full amount and those for ` 100
lakhs accepting cash equal to 80% of claim in
full settlement)
Capital Reserve A/c Dr. 6
To Reconstruction A/c 6
(Being the loss on reconstruction (balance in
the Reconstruction A/c) transferred to Capital
Reserve)
Land and Building A/c Dr. 46
To Reconstruction A/c 46
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(Appreciation made in the value of land and

building as per scheme of reconstruction)
Reconstruction A/c Dr. 505
To Goodwill A/c 15
To Plant and Machinery A/c 66
To Inventory A/c 22
To Trade receivables A/c 4
To Discount on issue of Debentures A/c 8
To Profit and Loss A/c 390
(Writing off losses and reduction in the values
of assets as per scheme of reconstruction—
W.N. 1)
Note: In a scheme of Reconstruction, Goodwill, Losses etc should be
written off against the Reconstruction Account whether or not it is
mentioned in the question.
4. (a) Hello Ltd.
Balance Sheet as at 31st March, 2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 50,00,000
b Reserves and Surplus 2 14,83,500
2 Non-current liabilities
Long-term borrowings 3 13,55,000
3 Current liabilities
a Trade Payables 10,00,000
b Short-term provisions 4 6,40,000
Total 94,78,500
Assets
1 Non-current assets
Property, Plant & equipment 5 56,25,000
2 Current assets
a Inventories 6 12,55,000
b Trade receivables 7 10,00,000
c Cash and Cash Equivalents 8 13,85,000
d Short-term loans and advances 2,13,500
Total 94,78,500

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Notes to accounts
`
1 Share Capital
Equity share capital
Issued & subscribed & called up
50,000 Equity Shares of ` 100 each 50,00,000
(of the above 10,000 shares have been
issued for consideration other than
cash)
2 Reserves and Surplus
General Reserve 10,50,000
Add: current year transfer 20,000 10,70,000
Profit & Loss balance
Profit for the year 4,33,500
Less: Appropriations:
Transfer to General reserve (20,000)
4,13,500
14,83,500
3 Long-term borrowings
Secured Term Loan
State Financial Corporation Loan
(Secured by hypothecation of Plant 7,50,000
and Machinery)
Unsecured Loan 6,05,000
Total 13,55,000
4 Short-term provisions
Provision for taxation 6,40,000
5 Property, plant and Equipment
Building 30,00,000
Less: Depreciation (2,50,000) 27,50,000
(b.f.)
Plant & Machinery 35,00,000
Less: Depreciation (8,75,000) 26,25,000
(b.f.)
Furniture & Fittings 3,12,500
Less: Depreciation (62,500) (b.f.) 2,50,000
Total 56,25,000

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6 Inventories
Raw Materials 2,55,000
Finished goods 10,00,000
Total 12,55,000
7 Trade receivables
Outstanding for a period exceeding six 2,60,000
months
Other Amounts 7,40,000
Total 10,00,000
8 Cash and Cash Equivalents
Cash at bank
with Scheduled Banks 12,25,000
with others (Omega Bank Ltd.) 10,000 12,35,000
Cash in hand 1,50,000
Other bank balances Nil
Total 13,85,000
5. Journal Entries in the books of A Ltd.
Particulars Debit Credit
` `
Business purchase A/c (W.N.1) Dr. 13,75,000
To Liquidator of B Ltd. 13,75,000
(Being business of B Ltd. taken over)
Land & Building A/c Dr. 8,40,000
Plant and machinery A/c Dr. 5,60,000
Office equipment A/c Dr. 2,10,000
Investments A/c Dr. 3,00,000
Inventory A/c Dr. 4,20,000
Debtors A/c Dr. 3,20,000
Bills receivables A/c Dr. 70,000
Bank A/c Dr. 61,000
To General reserve A/c (W.N.2) 95,000
(2,50,000-1,55,000)
To Export profit reserve A/c 1,20,000
To Investment allowance reserve 60,000
A/c
To Profit and loss A/c 1,20,000
To Liability for 9% Debentures A/c 2,00,000
(` 100 each)

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To Secured Loan 3,60,000

To Trade creditors A/c 2,76,000
To Bills payables A/c 1,00,000
To Other current liabilities A/c 75,000
To Business purchase A/c 13,75,000
(Being assets and liabilities taken over)
Liquidator of B Ltd. Dr. 13,75,000
To Equity share capital A/c 8,00,000
To 10% Preference share capital 4,00,000
A/c
To Securities premium A/c 1,75,000
(Being purchase consideration
discharged)
General Reserve* A/c Dr. 12,000
To Cash at bank 12,000
(Being expenses of amalgamation
paid)
Liability for 9% Debentures in B Ltd. A/c Dr. 2,00,000
To 9% Debentures A/c 2,00,000
(Being debentures in B ltd. discharged
by issuing own 9% debentures)
Bills payables A/c Dr. 60,000
To Bill receivables A/c 60,000
(Cancellation of mutual owing on
account of bills of exchange)
*Alternatively, profit & loss A/c may be debited in place of general reserve A/c.
Opening Balance Sheet of A Ltd. (after absorption)
as at 1st April, 2024
Particulars Notes `
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 30,00,000
b Reserves and Surplus 2 14,94,000
2 Non-current liabilities
a Long-term borrowings 3 8,60,000
3 Current liabilities
a Trade Payables 4 7,03,000

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b Other current liabilities 5 1,25,000

Total 61,82,000
Assets
1 Non-current assets
a PPE 6 36,35,000
b Investments 7 3,96,000
2 Current assets
a Inventories 8 10,50,000
b Trade receivables 9 8,80,000
c Cash and cash equivalents 10 2,21,000
Total 61,82,000
Notes to accounts
`
1 Share Capital
Equity share capital
2,00,000 Equity shares of ` 10 each
(Out of above, 80,000 shares were 20,00,000
issued for consideration other than
cash)
Preference share capital
10,000 10% Preference shares of ` 100
each
10,00,000
(Out of above, 4,000 shares were issued
for consideration other than cash)
Total 30,00,000
2 Reserves and Surplus
General Reserve
Opening balance 3,00,000
Add: Adjustment under scheme of
95,000
amalgamation
Less: Amalgamation expense paid (12,000) 3,83,000
Securities premium
4,15,000
(2,40,000 + 1,75,000)
Export profit reserve
Opening balance 1,80,000
Add: Adjustment under scheme of
1,20,000 3,00,000
amalgamation
Investment allowance reserve 60,000
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Profit and loss account

Opening balance 2,16,000
Add: Adjustment under scheme of
1,20,000 3,36,000
amalgamation
Total 14,94,000
3 Long-term borrowings
Secured
9% Debentures 3,00,000
Add: Adjustment under scheme of
2,00,000
amalgamation
Secured loan 3,60,000 8,60,000
4 Trade payables
Creditors: Opening balance 3,12,000
Add: Adjustment under scheme of
2,76,000 5,88,000
amalgamation
Bills Payables: Opening balance 75,000
Add: Adjustment under scheme of
1,00,000
amalgamation
Less: Cancellation of mutual owning
(60,000) 1,15,000
upon amalgamation
7,03,000
5 Other current liabilities
Opening balance 50,000
Add: Adjustment under scheme of
75,000 1,25,000
amalgamation
6 PPE
Land & Building- Opening balance 10,80,000
Add: Adjustment under scheme of
8,40,000 19,20,000
amalgamation
Plant and machinery- Opening balance 6,00,000
Add: Adjustment under scheme of
5,60,000 11,60,000
amalgamation
Office equipment-Opening balance 3,45,000
Add: Adjustment under scheme of
2,10,000 5,55,000
amalgamation
Total 36,35,000
7 Investments
Opening balance 96,000
Add: Adjustment under scheme of
3,00,000 3,96,000
amalgamation
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8 Inventories
Opening balance 6,30,000
Add: Adjustment under scheme of
4,20,000 10,50,000
amalgamation
9 Trade receivables
Debtors: Opening balance 4,90,000
Add: Adjustment under scheme of
3,20,000 8,10,000
amalgamation
Bills Payables: Opening balance 60,000
Add: Adjustment under scheme of
70,000
amalgamation
Less: Cancellation of mutual owning
(60,000) 70,000
upon amalgamation
Total 8,80,000
10 Cash and cash equivalents
Opening balance 1,72,000
Add: Adjustment under scheme of
61,000
amalgamation
Less: Amalgamation expense paid (12,000) 2,21,000
Working Notes:
1. Calculation of purchase consideration
`
Equity shareholders of B Ltd. (80,000 x ` 8,00,000
10)
Preference shareholders of B Ltd. (5,00,000 5,75,000
x 115%)
Purchase consideration would be 13,75,000
2. Amount to be adjusted from general reserve
The difference between the amount recorded as share capital
issued and the amount of share capital of transferor company
should be adjusted in General Reserve.
Thus, General reserve will be adjusted as follows:
`
Purchase consideration 13,75,000
Less: Share capital issued (` 7,20,000 + (12,20,000)
` 5,00,000)
Amount to be adjusted from general reserve 1,55,000

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3. Calculation of balances of Profit & Loss and Sundry Creditors

of B Limited to be taken over by A Limited
P&L Creditors
(`) (`)
Balance as per Balance Sheet of B 1,92,000 2,04,000
Limited
Less / Add: Contingent Trade Payable (72,000) 72,000
treated as Actual Liability
Taken by A Limited 1,20,000 2,76,000
6. (a) Yes, one of the characteristics of financial statements is neutrality. To
be reliable, the information contained in financial statement must be
neutral, that is free from bias. Financial Statements are not neutral if by
the selection or presentation of information, the focus of analysis could
shift from one area of business to another thereby arriving at a totally
different conclusion on the business results.
Or
Certain changes have been made in Ind AS considering the economic
environment of the country, which is different as compared to the
economic environment presumed to be in existence by IFRS. These
differences are due to differences in economic conditions prevailing in
India. These differences which are in deviation to the accounting
principles and practices stated in IFRS, are commonly known as ‘Carve-
outs’. Additional guidance given in Ind AS over and above what is given
in IFRS, is termed as ‘Carve in’.
(b) As per provisions of AS 29 “Provisions, Contingent Liabilities and
Contingent Assets”, where some or all of the expenditure required to
settle a provision is expected to be reimbursed by another party, the
reimbursement should be recognized when, and only when, it is virtually
certain that reimbursement will be received if the enterprise settles the
obligation. The reimbursement should be treated as a separate asset.
The amount recognized for the reimbursement should not exceed the
amount of the provision.
It is apparent from the question that the company had not made provision
for warranty in respect of certain goods considering that the company
can claim the warranty cost from the original supplier. However, the
provision for warranty should have been made as per AS 29 and the
amount claimable as reimbursement should be treated as a separate
asset in the financial statements of the company rather than omitting the
disclosure of such liability. Accordingly, it can be said that the
accounting treatment adopted by the company with respect to warranty
is not correct.

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(c) Goods are marked on invoice price to achieve the following objectives:
(i) To keep secret from the branch manager, the cost price of the
goods and profit made, so that the branch manager may not start a
rival and competitive business with the concern; and
(ii) To have effective control on stock i.e. stock at any time must be
equal to opening stock plus goods received from head office minus
sales made at branch.
(iii) To dictate pricing policy to its branches, as well as save work at
branch because prices have already been decided.

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