CA Inter Advanced Accounting Important Question - Jan 26

Question 3:

As per the revised scheme effective from accounting periods commencing on or after April 1, 2024, classify non-company entities for the purpose of applicability of Accounting Standards. Briefly explain the criteria for each category.

Solution:

Question 4:

Explain the methods/criteria for the selection and application of Accounting Policies.

Solution:

Question 5:

Garnet Limited has 4 operating segments. The total revenue (internal and external) and assets are set out as below :

₹ in Lakhs)

Segment	Inter Segment Sales	External Sales	Total Assets
Fan	3,200	10,900	23,700
Light	200	1,400	13,200
Lamp	0	1,500	4,200
Printer	1,100	200	3400
TOTAL	4,500	14,000	44,500

How many reportable segments does Garnet Limited have as per the  Revenue and Assets criteria given in AS 17 ? State Reasons for your answer. 

Solution:

 Question 6:

 Consider the following organization structure related to P Ltd.  

Given the above structure: Identify related party relationships, if R Ltd. is the reporting enterprise

Solution:

Question 7:

On 1 April 2023, ABC Limited has given. following information :

	₹
50,000 equity shares of ₹ 100 each (₹ 80 paid up by all shareholders)	40,00,000
2,00,000, 8% Prefrance shares of ₹ 10 each	20,00,000
10,000, 12% Debentures of ₹ 100 each	10,00,000
(Each debenture is convertible into 3 equity shares of  ₹ 100 each)

On 1st July 2023, the remaining ₹ 20 was called up and paid by all the shareholders except one shareholder holding 10,000 equity shares. During the year 2023-24 the company had a profit after tax of ₹ 3,44,000. Tax rate is 30%.

You are required to compute Basic and Diluted EPS.

Solution:

Question 8:

Arzoo Ltd. is in the business of manufacture of Passenger cars and commercial vehicles. The company is working on a strategic plan to shift from the Passenger car segment over the coming 5 years. However, no specific plans have been drawn up for sale of neither the division nor its assets. As part of its plan it will reduce the production of passenger cars by 20% annually. It also plans to commence another new factory for the manufacture of commercial vehicles plus transfer of employees in a phased manner.

(i) You are required to comment if mere gradual phasing out in itself can be considered as a ‘Discontinuing Operation' within the meaning of AS 24.

(ii) lf the company passes a resolution to sell some of the assets in the passenger car division and also to transfer few other assets of the passenger car division to the new factory, does this trigger the application of AS 24?

(iii) Would your answer to the above be different if the company resolves to sell the assets of the Passenger Car Division in a phased but time bound manner?

Solution:

Question 9:

On 30th June, 20X1, Asmitha Ltd. incurred ₹ 2,00,000, net loss from disposal of a business segment. Also, on 31st July, 20X1, the company paid ₹ 60,000 for property taxes assessed for the calendar year 20X1. How the above transactions should be included in determination of net income of Asmitha Ltd. for the six months interim period ended on 30th September, 20X1.

Solution:

Question 10:

Wooden Plywood Limited has a normal wastage of 5% in the production process.  During the year 2024-25, the Company used 16,000 MT of Raw material costing ₹ 190 per MT. At the end of the year, 950 MT of wastage was in stock. The accountant wants to know how this wastage is to be treated in the books.

You are required to: 

(1) Calculate the amount of abnormal loss.

(2)  Explain the treatment of normal loss and abnormal loss. [In the context of AS-2 ]

Solution:

Question 11:

Akshar Ltd. installed a new Plant (not a qualifying asset), at its production facility, and incurred the following costs:

▪ Cost of the Plant (as per supplier’s invoice): ₹ 30,00,000

▪ Initial delivery and handling costs: ₹ 1,00,000

▪ Cost of site preparation: ₹ 2,00,000

▪ Consultant fee for advice on acquisition of Plant: ₹ 50,000

▪ Interest charges paid to supplier against deferred credit: ₹ 1,00,000

▪ Estimate of Dismantling and Site Restoration costs: ₹ 50,000 after 10 years (Present Value is ₹ 30,000)

▪ Operating losses before commercial production: ₹ 40,000

The company identified motors installed in the Plant as a separate component and a cost of ₹ 5,00,000 (Purchase Price) and other costs were allocated to them proportionately. The company estimates the useful life of the Plant and those of the Motors as 10 years and 6 years respectively and SLM method of Depreciation is used.

At the end of Year 4, the company replaces the Motors installed in the Plant at a cost of ₹ 6,00,000 and estimated the useful life of new motors to be 5 years. Also, the company revalued its entire class of Fixed Assets at the end of Year 4. The revalued amount of Plant as a whole is ₹ 25,00,000. At the end of Year 8, the company decides to retire the Plant from active use and also disposed the Plant as a whole for ₹ 6,00,000.

There is no change in the Dismantling and Site Restoration liability during the period of use. You are required to explain how the above transaction would be accounted in accordance with AS 10.

Solution:

Question 12:

Gyan Ltd. borrowed ₹ 10 crore for construction of a plant at the rate of 10% per annum (interest paid annually ₹ 1 crore). The construction was being carried on and out of the borrowings, ₹ 4 crore was temporarily placed in a fixed deposit at the rate of 6% per annum (interest earned ₹ 24 lakh). At the year end, how much cost of borrowing Gyan Limited will capitalise?

1. Interest paid on ₹ 10 crore i.e. ₹ 1 crore
2. Interest paid on ₹ 6 crore as only this amount was utilized i.e. ₹ 60 Lakh.
3. Interest paid less income on temporary investment i.e. ₹ 76 lakh
4. Nothing will be capitalized

Solution:

Question 13:

Money Limited leased a machine to Hello Limited on the following terms :

		(₹ in lakh)
(i)	Fair value of the machine	24.00
(ii)	Lease term	5 years
(iii)	Lease rental per annum	4.00
(iv)	Guaranteed residual value	0.8
(v)	Expected residual value	1.5
(vi)	Internal rate of return	15%

Discounted rates for 1st year to 5th year are 0.8696, 0.7561, 0.6575, 0.5718, and 0.4972 respectively.

Ascertain Unearned Finance Income.

Solution:

Question 14:

As per provisions of AS-26, how would you deal to the following situations:

(1)₹ 23,00,000 paid by a manufacturing company to the legal advisor for defending the patent of a product is treated as a capital expenditure. 

(2) During the year 20X1-X2, a company spent ₹ 7,00,000 for publicity and research expenses on one of its new consumer product which was marketed in the same accounting year but proved to be a failure.

(3) A company spent ₹ 25,00,000 in the past three years to develop a product, these expenses were charged to profit and loss account since they did not meet AS-26 criteria for capitalization. In the current year approval of the concerned authority has been received. The company wishes to capitalize ₹ 25,00,000 by disclosing it as a prior period item.

(4) A company with a turnover of ₹ 200 crores and an annual advertising budget of ₹ 50,00,000 had taken up for the marketing of a new product by a company.  It was estimated that the company would have a turnover of ₹ 20 crore from the new product. The company had debited to its Profit & Loss Account the total expenditure of ₹ 50,00,000 incurred on extensive special initial advertisement campaign for the new product. 

Solution:

Question 15:

Ergo Industries Ltd. gives the following estimates of cash flows relating to Property, Plant and Equipment on 31-12-20X1. The discount rate is 15%.

Year	Cash Flow (₹ in lakhs)
20X2	4,000
20X3	6,000
20X4	6,000
20X5	8,000
20X6	4,000
Residual value at the end of 20X6	₹ 1,000 lakhs
Property, Plant and Equipment purchased on 1-1-20XX	₹ 40,000 lakhs
Useful life	8 years
Net selling price on 31-12-20X1	₹ 20,000 lakhs

Calculate the following on 31-12-20X1:

(a) Carrying amount at the end of 20X1

(b) Value in use on 31-12-20X1

(c) Recoverable amount on 31-12-20X1

(d) Impairment loss to be recognized for the year ended 31-12-20X1

(e) Revised carrying amount

(f) Depreciation charge for 20X2.

Note: The year 20XX is the immediate preceding year before the year 20X0.

Solution:

Question 16:

Whether an entitlement to earned leave which can be carried forward to future periods is a short -term employee benefit or a long-term employee benefit.

Solution:

Question 17:

The company has not made provision for warranty in respect of certain goods considering that the company can claim the warranty cost from the original supplier.

You are required to examine in line with the provisions of AS 29.

Solution:

Question 18:

The financial statements of PQ Ltd. for the year 2024-25 approved by the Board of Directors on 15th July, 2025. The following information was provided:

1. A suit against the company's advertisement was filed by a party on 20th April, 2025, claiming damages of ₹ 25 lakhs. 

2. The terms and conditions for acquisition of business of another company have been decided by March, 2025. But the financial resources were arranged in April, 2025 and amount invested was ₹ 50 lakhs. 

3. Theft of cash of ₹ 5 lakhs by the cashier on 31st March, 2025 but was detected on 16th July, 2025. 

4. Company sent a proposal to sell an immovable property for ₹ 40 lakhs in March, 2025. The book value of the property was ₹ 30 lakhs on 31st March, 2025. However, the deed was registered on 15th April, 2025. 

5. A, major fire has damaged the assets in a factory on 5th April, 2025. However, the assets are fully insured. 

6. 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. 

Solution:

Question 19:

i. During the year 20X1-20X2, a medium size manufacturing company wrote down its inventories to net realisable value by ₹ 5,00,000. Is a separate disclosure necessary?

ii. A company signed an agreement with the Employees Union on 1.9.20X2 for revision of wages with retrospective effect from 30.9.20X1. This would cost the company an additional liability of ₹ 5,00,000 per annum. Is a disclosure necessary for the amount paid in 20X2-X3? 

Solution:

Question 20:

Explain briefly the accounting treatment needed in the following cases as per AS 11 as on 31.3.20X1.

Trade receivables include amount receivable from Umesh ₹ 5,00,000 recorded at the prevailing exchange rate on the date of sales, transaction recorded at US $ 1= ₹ 58.50.

Long term loan taken from a U.S. Company, amounting to ₹ 60,00,000. It was recorded at US $ 1 = ₹ 55.60, taking exchange rate prevailing at the date of transaction. US $ 1 = ₹ 61.20 on 31.3.20X1.

Solution:

Question 21:

The following particulars are stated in the Balance Sheet of HS Ltd. as on 31-3-20X2 : 

Particulars	(₹ in lakhs)
Deferred Tax Liability (Cr.)	60.00
Deferred Tax Assets (Dr.)	30.00
The following transactions were reported during the year 20X2-X3 :
Depreciation as per accounting records	160.00
Depreciation as per income tax records	140.00
Items disallowed for tax purposes in 20X1-X2 but allowed in 20X2-X3	20.00
Donation to Private Trust	20.00
Tax rate	30%

There were no additions to fixed assets during the year. You are required to show the  impact of various items on Deferred Tax Assets and Deferred Tax Liability as on 31-3-20X3 as per AS-22.

Solution:

Question 22:

Constructions Limited is engaged in the business of constructing Flyovers and Railway over bridges. It obtained a contract from Railway Authorities to construct a railway over bridge for ₹ 400 crores. The construction of the railway over bridge is expected to be completed in 4 years.

At the outset of the contract, it was estimated that the total costs to be incurred will be ₹ 370 crores but by the end of year 1, this estimate stands revised to ₹ 375 crores.

During year 3, the Construction Limited has requested for a variation in the contract which is approved by Railway Authorities and accordingly the total contract value will increase  by ₹ 10 and costs will increase by ₹ 7 crores.

The Constructions Limited measure the stage of completion on the basis of the proportion of contract costs incurred to the total estimated contract costs. Contract costs incurred at the end of each year is : 

Year 1	₹ 98.8 crores
Year 2	₹ 202.4 crores
Year 3	₹ 310 crores  (including unused material of 3 crores)
Year 4	₹ 382 crores

You are required to:

(i) Calculate stage of completion of contract for each year.

(ii) Profit to be recognised for each year.

Solution:

Question 23:

Indicate in each case whether revenue can be recognized and when it willbe recognized as per AS-9.

(1) Trade discount and volume rebate received.

(2) Where goods are sold to distributors or others for resale.

(3) Where seller concurrently agrees to repurchase the same goods ata later date.

(4) Insurance agency commission for rendering services.

(5) On 11-03-2024 cloths worth ₹ 50,000 were sold to X mart, but due to refurbishing of their showroom being underway, on their request, clothes were delivered on 12-04-2024

Solution:

Question 24:

Big Box Ltd., a start-up purchased on April 1, 2020, a machine worth ₹ 44,85,000 in relation to which it received ₹ 7,35,000 as grant from Government of India. The company decided to treat this grant as a capital receipt. It is estimated that the realizable value of the machine at the end of its useful life of 4 years will be ₹ 15,36,000. During the financial year 2022-23, the grant became refundable as the start-up company failed to comply with the necessary terms and conditions of the grant.

You are required to calculate the amount of depreciation that is to be charged to the statement of profit and loss for the years 2022-23 and 2023-24 given that the company follows straight line method of charging depreciation. 

Solution:

Question 25:

SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction having turnover of ₹ 200 crores. SEAS Ltd. and ADI Ltd. hold 9% and 23% respectively in an associate company, ASOC Ltd. Both SEAS Ltd.  and ADI Ltd.  prepare consolidated financial statements as per Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006. 

Please comment regarding consolidation requirements for SEAS Ltd.  and ADI Ltd.  using the below mentioned options as to which one should be correct. 

1. ADI Ltd. would using equity method of accounting for 23% in ASOC Ltd. SEAS Ltd.would consolidate ADI Ltd. and consequently automatically equity account 23% and separately account for the balance 9% as per AS 13. 
2. ADI Ltd. would account for 23% in ASOC Ltd. as per AS 13. SEAS Ltd. would consolidate ADI Ltd. and consequently automatically account 23% and separately account for the balance 9%. 
3. ADI Ltd. would account for 23% share in ASOC Ltd using equity method of accounting. SEAS Ltd. would consolidate ADI Ltd. and consequently, automatically account foASOC Ltd 23% share and separately account for 9% share in ASOC Ltd. using equity method of accounting in consolidated financial statements. 
4. ADI Ltd. would account for 23% in ASOC Ltd. as per AS 13. SEAS Ltd. would consolidate ADI Ltd. and using equity method of accounting 23% in ASOC Ltd. and separately account for the balance 9% as per AS 13.

Solution:

Question 26:

A Ltd. entered into a joint venture with B Ltd. on 1:1 basis and a new company C Ltd. was formed for the same purpose and following is the balance sheet of all the three companies:

Particulars	A Ltd.	B Ltd.	C Ltd.
Share Capital	10,00,000	7,50,000	5,00,000
Reserve & Surplus	18,00,000	16,00,000	12,00,000
Loans	3,00,000	4,00,000	2,00,000
Current Liabilities	4,00,000	2,50,000	1,00,000
Property, Plant and Equipment	30,50,000	26,25,000	19,50,000
Investment in JV	2,50,000	2,50,000	-
Current Assets	2,00,000	1,25,000	50,000

Prepare the balance sheet of A Ltd. and B Ltd. under proportionate consolidatIon method.

Solution:

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Chapter 3: Preparation of Financial Statements

Question 27:

The following is the Trial Balance of Anmol Limited as on 31st March, 2022:

Debit Balance	Amount (₹)	Credit Balances	Amount (₹)
Purchases	82,95,000	Sales	1,25,87,000
Wages and Salaries	12,72,000	Commission	72,500
Rent	2,20,000	Equity Share Capital	10,00,000
Rates and Taxes	50,000	General Reserve	10,00,000
Selling and Distribution Expenses	4,36,000	Surplus (P&L A/c) 01.04.2021	8,75,500
Directors Fees	32,000	Securities Premium	2,50,000
Bad Debts	38,500	Term Loan from Public Sector Bank	1,02,00,000
Interest on Term Loan	8,05,000	Trade Payables	55,08,875
Land	24,00,000	Provision for Depreciation:
Factory Building	36,80,000	On Plant & Machinery	9,37,500
Plant and Machinery	62,50,000	On Furniture and Fittings	82,500
Furniture and Fittings	8,25,000	On Factory Building	1,84,000
Trade Receivables	64,75,000	Provision for Doubtful Debts	25,000
Advance Income Tax Paid	37,500	Bills Payable	1,25,000
Stock (1st April, 2021)	9,25,000
Bank Balances	9,75,000
Cash on Hand	1,31,875
Total	3,28,47,875	Total	3,28,47,875

Following information is provided: 

(1) The Authorized Share Capital of the Company is 2,00,000 Equity Shares of ₹ 10 each. The Company has issued 1,00,000 Equity Shares of ₹ 10 each. 

(2) Rent of ₹ 20,000 and Wages of ₹ 1,56,500 are outstanding as on 31st March, 2022. 

(3) Provide Depreciation @ 10% per annum on Plant and Machinery, 10% on Furniture and Fittings and 5% on Factory Building on written down value basis. 

(4) Closing Stock as on 31st March, 2022 is ₹ 11,37,500. 

(5) Make a provision for Doubtful Debt @ 5% on Debtors. 

(6) Make a provision of 25% for Corporate Income Tax. 

(7) Transfer ₹ 1,00,000 to General Reserve. 

(8) Term Loan from Public Sector Bank is secured against Hypothecation of Plant and Machinery. Instalment of Term Loan falling due within one year is ₹ 17,00,000. 

(9) Trade Receivables of ₹ 85,600 are outstanding for more than six months. 

(10) The Board declared a dividend @10% on Paid up Share Capital on 5th April, 2022. 

You are required to prepare Balance Sheet as on 31st March 2022 and Statement of Profit and Loss with Note to Accounts for the year ending 31st March, 2022 as per Schedule III of the Companies Act, 2013. Ignore previous years' figures. 

Solution:

Question 28:

The following information has been extracted from the books of account of Hero Ltd. as at 31st March, 2024:

	Dr. (₹ '000)	Cr. (₹ '000)
Administration Expenses	480
Cash at Bank and on Hand	228
Cash Received on Sale of Fittings		10
Long Term Loan		70
Investments	200
Depreciation on Fixtures, Fittings, Tools and Equipment (1st April, 2023)		260
Distribution Costs	102
Factory Closure Costs	60
Fixtures, Fittings, Tools and Equipment at Cost	680
Profit & Loss Account (at 1st April, 2023)		80
Purchase of Equipment	120
Purchases of Goods for Resale	1710
Sales (net of Excise Duty)		3,000
Share Capital (1,00,000 shares of ₹ 10 each fully paid)		1,000
Stock (at 1st April, 2023)	140
Trade Creditors		80
Trade Debtors	780
	4,500	4,500

Additional Information:

1. The stock at 31st March, 2024 (valued at the lower of cost or net realizable value) was estimated to be worth ₹ 2,00,000.

2. Fixtures, fittings, tools and equipment all related to administration. Depreciation is charged at a rate of 20% per annum on cost. A full year’s depreciation is charged in the year of acquisition, but no depreciation is charged in the year of disposal.

3. During the year to 31st March, 2024, the Company purchased equipment of ₹ 1,20,000. It also sold some fittings (which had originally cost ₹ 60,000) for ₹ 10,000 and for which depreciation of ₹ 30,000 had been set aside.

4. The average Income tax for the Company is 50%. Factory closure cost is to be presumed as an allowable expenditure for Income tax purpose.

5. The company proposes to pay a dividend of 20% per Equity Share. Profits transferred to reserves  ₹ 30,000

Prepare Hero Ltd.’s Profit and Loss Account for the year to 31st March, 2024 and balance Sheet as at that date in accordance with the Companies Act, 2013 in the Vertical Form along with the Notes on Accounts containing only the significant accounting policies.

Solution:

 Question 29:

Due to inadequacy of profits during the year ended 31^st March, 2025, DAY Ltd proposes to declare 9% dividend out of General reserves.

From the following particulars, ascertain the amount that can be utilized from the General reserves according to the Companies (Declaration of dividend) rules, 2014.

Particulars	₹
9,50,000 , Equity shares of ₹ 10 each fully paid up	95,00,000
General reserves as on 1st April , 2024	18,50,000
Revaluation Reserve as on 1st April, 2024	4,25,000
Net profit for the year ended 31st March, 2025	3,75,000
Average rate of dividend during the last 3 years has been	12.5%

Solution:

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Chapter 4:  Cash Flow Statement 

Question 30:

The summarized Balance Sheet of Flora Limited for the year ended 31^st March, 2024 and 31^st March, 2025 are as below:

Assets	31.03.2025 (₹)	31.03.2024 (₹)
Goodwill	60,000	1,12,000
Land	23,00,000	24,00,000
Furniture and Fixtures	1,92,000	1,76,000
Vehicles	88,000	1,12,000
Office Equipment	84,000	-
Long-term Investments	2,40,000	4,40,000
Stock-in-hand	3,84,000	3,52,000
Bills Receivables	72,600	58,000
Trade Receivables	1,84,000	2,08,000
Cash and Bank Balances	5,19,400	1,38,000
Total	41,24,000	39,96,000
Liabilities
Equity Share Capital	27,20,000	20,00,000
General Reserves	3,60,000	2,40,000
Profit and Loss Account	3,72,000	2,08,000
Capital Reserve	3,00,000	-
8% Debentures of 100 each	-	12,00,000
Loan from Mr. Andrew	-	60,000
Bills Payables	44,000	52,000
Trade Payables	1,96,000	1,80,000
Creditors for Equipment	42,000	-
Outstanding Expenses	18,000	12,000
Provision for Taxation	72,000	44,000
Total	41,24,000	39,96,000

Additional Information:

1.On 1^st April, 2024, one of the vehicles was sold for ₹ 12,000. No new purchases were made during the year.

2.A part of the total land was sold for ₹ 5,00,000 (Cost ₹ 4,00,000) and the balance land was revalued. Capital reserve consists of profit on revaluation of balance land. No new purchases were made during the year.

3.Depreciation provided during the year -

Furniture and Fixtures: ₹ 20,000

Vehicles: ₹ 8,800

4.Interim dividend of ₹ 20,000 was paid during the year.

5.Provision for taxation for the year 2024-2025 was ₹ 64,000.

6.8% Debentures were redeemed at par after half year interest payment on 30^th September, 2024.

7.Part of the long-term investments were sold at a profit of ₹ 32,000.

8.Interest income received during the year on long-term investment was ₹ 26,000.

You are required to prepare Cash Flow Statement from Operating Activities for the year ended 31^st March, 2025 using indirect method. (All workings should form part of the answer)

Solution:

Question 31:

Notes to accounts

		20X1	20X0
		₹	₹
1	Share capital
	Equity shares of ₹ 10 each	60,000	50,000
2	Reserve & Surplus
	Profit and loss account	5,000	4,000
3	Other current liabilities
	Dividend payable	-	1,000
4	Property, Plant and Equipment (at WDV)
	Building	10,000	10,000
	Fixtures	17,000	11,000
	Vehicles	12,500	8,000
	Total	39,500	29,000
5	Cash and cash equivalents
	Cash and Bank	4,000	8,500

The profit and loss account for the year ended 31st March, 20X1 disclosed:

Particulars	₹
Profit before tax	4,500
Tax expense: Current tax	(1,500)
Profit for the year	3,000
Declared dividend	(2,000)
Retained profit	1,000

Further information is available:

Particulars	Fixtures ₹	Vehicles ₹
Depreciation for year	1,000	2,500
Disposals:
Proceeds on disposal of vehicles	-	1,700
Written down value	-	(1,000)
Profit on disposal		700

Prepare a Cash Flow Statement for the year ended 31st March, 20X1.

Solution:

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Chapter 5: Buyback of Securities

Question 32:

Alpha Co. Ltd. has a paid up equity share capital of ₹ 20,00,000 in 2,00,000 shares of ₹ 10 each. It resolved to buy-back 50,000 equity shares at ₹ 15 per share. For this purpose. it issued 20,000 12% preference shares of ₹ 10 each, at par, payable along with application. The company has to its credit ₹ 2,50,000 in securities premium account and ₹ 10,00,000 in the general reserve account. The company utilized the general reserve. Pass the necessary journal entries.

Solution:

Question 33:

SMM Ltd. has the following capital structure as on 31st March, 20X1:                  

		Rs. in crore
	Particulars	Situation I	Situation II
(i)	Equity share capital (shares of Rs. 10 each)	1,200	1,200
(ii)	Reserves:
	General Reserves	1,080	1,080
	Securities Premium	400	400
	Profit & Loss	200	200
	Infrastructure Development Reserve (Statutory Reserve)	320	320
(i)	Loan Funds	3,200	6,000

The company has offered buy back price of Rs. 30 per equity share. You are required to calculate maximum permissible number of equity shares that can be bought back in both situations and also required to pass necessary Journal Entries.

Solution:

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Chapter 6: Amalgamation of Companies

Question 34:

Antu Limited and Bantu Limited decided to amalgamate and form a new company Anban Limited as on 31st March, 2025 and provide you the following information:

Particulars	As on 31st March 2025		Revalued figures for amalgamation
	Antu Limited (₹)	Bantu Limited (₹)	Antu Limited (₹)	Bantu Limited (₹)
Equity shares of ₹ 10 each	26,88,000	10,08,000
10% Preference Shares of ₹ 100 each	13,44,000	6,72,000
Reserve & Surplus	21,76,960	10,61,920
Trade Payable	3,36,000	7,04,000	3,22,560	6,75,840
Property, Plant & Equipment	30,76,000	17,45,600	42,32,400	20,80,400
Goodwill	6,48,000	-	6,48,000	-
Inventories	7,56,000	4,70,400	11,14,480	8,27,120
Trade Receivables	11,24,000	5,88,000	9,88,560	5,52,720
Cash & Cash Equivalents	9,40,960	6,41,920	-	-

The purchase consideration is to be satisfied as follows:

(1) By issue of 4 Preference Shares of ₹ 100 each in Anban Limited @ ₹ 85 paid up and at a premium of ₹ 30 per share for every 3 preference shares held in both the companies.

(2) By issue of 5 Equity shares of ₹ 10 each in Anban Limited @ ₹ 7 paid up and at a premium of ₹ 5 per share for every 3 equity shares held in both the companies.

(3) In addition, necessary cash should be pai to equity shareholders of both the companies as required to adjust the rights of shareholders of both the companies in accordance with the intrinsic value of the shares of both the companies.

You are required to compute the purchase consideration for both the companies.

Solution:

 

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Chapter 7: Accounting for Reconstruction of Companies 

Question 35:

X Ltd. had ₹ 1,00,000 equity share capital divided into 1,000 shares of ₹ 100 each out of which ₹ 80 per share was called up and paid up. It has 1,500 cumulative preference shares of ₹ 100 each fully paid up. Intangible assets include Goodwill of ₹ 80,000 and patents of ₹27,800. Preference dividends are in arrears of ₹ 33,000.

You are required to show the entries (Ignore dates) under each of the following conditions:

(i) If X Ltd. resolves to subdivide the equity shares into 10,000 equity shares of ₹ 10 each of which ₹ 8 per share is called up and paid up. 

(ii) If X Ltd. resolves to convert its 1,000 equity shares of ₹ 100 each (assume fully - paid) into ₹ 1,00,000 worth of stock. 

(iii) The preference shares are to be converted into 11% unsecured debentures of ₹ 100 each (including arrears of dividends). 

(iv) Patents and Goodwill to be written-off. 

Solution:

Question 36:

The following information of Rocky Ltd. as at March 31, 2024:

Particulars	₹ in lacs
Fully paid equity shares of ₹ 10 each	500
Capital Reserve	6
12% Debentures	400
Debenture Interest Outstanding	48
Trade payables	165
Directors’ Remuneration Outstanding	10
Other Outstanding Expenses	10
Provisions	33
Assets
Goodwill	15
Land and Building	184
Plant and Machinery	286
Furniture and Fixtures	41
Inventory	142
Trade receivables	80
Cash at Bank	27
Discount on Issue of Debentures	8
Profits and Loss Account	(390)

The following scheme of internal reconstruction was framed, approved by the Tribunal all the concerned parties and implemented:

(i) All the equity shares be converted into the same number of fully-paid equity shares of ₹ 2.50 each.

(ii) Directors agree to forego their outstanding remuneration.

(iii) The debentureholders also agree to forego outstanding interest in return of their 12% debentures being converted into 13% debentures.

(iv) The existing shareholders agree to subscribe for cash, fully paid equity shares of ₹ 2.50 each for ₹ 125 lacs.

(v) Trade payables are given the option of either to accept fully-paid equity shares of ₹ 2.50 each for the amount due to them or to accept 80% of the amount due in cash. Trade payables for ₹ 65 lacs accept equity shares whereas those for ₹ 100 lacs accept ₹ 80 lacs in cash in full settlement.

(vi) The Assets are revalued as under:

Particulars	₹ in lacs
Land and building	230
Plant and Machinery	220
Inventory	120
Trade receivables	76

Pass Journal Entries for all the above mentioned transactions immediately after the reconstruction.

Solution:

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Chapter 8: Accounting for Branches including Foreign Branches

Question 37:

M/s Marena, having head office at Chennai has a branch at Hyderabad. The head office does wholesale trade only at cost plus 60%. The goods are sent to branch at the wholesale price i.e. cost plus 60%. The branch at Hyderabad is wholly engaged in retail trade and the goods are sold at cost to H.O. plus 80%.

Following details are furnished for the year ended 31^st March, 2025 :-

Particulars	Chennai office (H.O)	Hyderabad Office
Opening Stock	75,000	–
Purchases	9,25,000	–
Goods sent to branch (Cost plus 60%)	3,60,000	–
Sales	10,25,000	2,70,000
Office expenses	9,000	3,000
Staff Salary	13,700	2,500

Prepare Trading and Profit and Loss Account of the head office and branch for the year ended 31^st March, 2025.

Solution:

Question 38:

Why goods are marked on invoice price by the head office while sending goods to the branch?

Solution:

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Chapter 9: Accounting Standard 13 Accounting for Investment

Question 39:

Mr. Rohan acquired 200 equity shares of Zeta Technologies Ltd. on a cum-right basis for ₹ 1,40,000 as a long-term investment. Subsequently, the company announced a right issue offering one fresh share for every share held (i.e., in the ratio of 1:1) at a price of ₹ 214 per share.

Mr. Rohan, however, decided not to subscribe to the right shares and instead sold his entire rights entitlement for ₹ 24,000 in the open market.

After the rights issue became ex-rights, the market value of his existing 200 shares fell to ₹ 1,20,000.

You are required to state the appropriate accounting treatment for the sale of rights entitlement and the fall in market value of the existing shares, in accordance with the provisions of Accounting Standard (AS) 13 – Accounting for Investments.

Solution:

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Chapter 10: Accounting Standard for Consolidated Financial Statement

Question 40:

H Ltd and its subsidiary S Ltd provide the following information for the year ended 31st March, 20X3:

	H Ltd.	S Ltd.
	(₹ in lacs)	(₹ in lacs)
Sales and other income	5,000	1,000
Increase in Inventory (closing less opening)	1,000	200
Raw material consumed	800	200
Wages and Salaries	800	150
Production expenses	200	100
Administrative Expenses	200	100
Selling and Distribution Expenses	200	50
Interest	100	50
Depreciation	100	50

Other Information:

H Ltd. sold goods to S Ltd. of ₹120 lacs at cost plus 20%. Inventory of S Ltd. includes such goods valuing ₹ 24 lacs. Administrative expenses of S Ltd. include ₹ 5 lacs paid to H Ltd. as consultancy fees. Selling and distribution expenses of H Ltd. include ₹ 10 lacs paid to S Ltd. as commission.

H Ltd. holds 80% of equity share capital of ₹ 1,000 lacs in S Ltd. prior to 20X1-20X2. H Ltd. took credit to its Profit and Loss Account, the proportionate amount of dividend declared and paid by S Ltd. for the year 20X1-20X2.

Prepare a consolidated statement of profit and loss.

Solution: