CA Inter May 25 Suggested Answers | Advanced Accounting

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Table of Content

1. CA Inter Paper Analysis 
2. MCQs
3. Q 1 (A) : Hardy Ltd. intends to extend the factory set up on the
4. Q 1 (B) : Ms. Neha had 20,000 Equity shares in Nexus Ltd. at a
5. Q 2 : Following particulars are furnished by Bela Ltd for the
6. Q 3 (A) : The Balance Sheet of Moon Ltd. as on 31st March 2025
7. Q 3 (B) : XY Limited reported a Profit Before Tax (PBT) of ₹ 18
8. Q 4 : The following is summarized Balance Sheet of Pickles Ltd.
9. Q 5 : (A) Birds Ltd. and its subsidiary Rooster Ltd. provided the
10. Q 5: (B) Rubber Ltd. purchased 70% of shares of Tyre Ltd. on
11. Q 6 (A): What are Accounting standards? Explain the objectives
    OR
12. Q 6 (A): A machine was acquired by Zest Ltd. on 01/04/2019 for
13. Q 6 (B): Due to inadequacy of profits during the year ended 31st
14. Q 6 (C): M/s Marena, having head office at Chennai has a branch at

CA Inter Jan 25 Suggested Answer Other Subjects Blogs :

1. Suggested answer Jan 25 Paper 2 : Corporate and Other Laws 
2. Suggested answer Jan 25 Paper 3 : Taxation
3. Suggested answer Jan 25 Paper 4 : Cost & Management accounting 
4. Suggetsed answer Jan 25 Paper 5 : Auditing and Ethics 
5. Suggested answer Jan 25 Paper 6 : Financial Management and Strategic Management 
6. CA Inter Syllabus (New Update)

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CA Inter Paper Analysis 

MCQs

 

MCQ No	Correct Answer
1	B
2	A
3	C
4	D
5	C
6	C
7	C
8	D
9	D
10	B
11	Download App - Konceptca
12	Download App - Konceptca
13	Download App - Konceptca
14	D
15	A

 

Case Scenario I :

Gray Ltd is engaged in the business of constructing towers since 15 years. Alpha Ltd gave a contract to Gray Ltd for construction of 2 towers.

Contract price for 2 towers is agreed at ₹ 160 crore. (each tower has contract price of 80 crore)

At the time of contract, Gray Ltd has estimated that the contract cost will be ₹ 141 crore. It is assumed that construction will be completed in 3 years.

At the end of year 1, Gray Ltd has revised the construction cost to ₹ 150 crore.

At the beginning of year 2, the customer has requested for a variation in the contract. Customer now wants construction of 3 towers instead of 2 towers. The term of the contract will not change, construction of all the towers will be completed simultaneously.

As a result of this variation, contract price will increase by ₹ 80 crore and contract costs will increase by ₹ 7.5 crore.

Gray Ltd has decided to 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: ₹ 35.25 crore
Year 2: ₹ 148.5 crore (including unused material of ₹ 2.25 crore)
Year 3: Total Revised contract costs

Based on the information given in above Case Scenario, answer the following Question 1 – 3:

1. What is the stage of completion of contract on the basis of proportion of contract costs incurred to the total estimated contract costs at the end of year 1 and Year 2 respectively?

(A) Year 1: 23.5% and Year 2: 66%
(B) Year 1: 23.5% and Year 2: 65%
(C) Year 1: 25% and Year 2: 66%
(D) Year 1: 25% and Year 2: 65%

Answer: (B) Year 1: 23.5% and Year 2: 65%

Year 1:

Estimated cost at that time = ₹150 crore

Stage = ₹35.25 / ₹150 = 0.235 = 23.5%

Year 2:

Revised estimated cost = ₹225 crore

Actual cost incurred till Year 2 = ₹148.5 – ₹2.25 = ₹146.25 crore

Stage = ₹146.25 / ₹225 = 0.65 = 65%

2. What is the amount of the profit to be recognized at the end of Year 1?
    
(A) ₹ 2.35 crore
(B) ₹ 44.75 crore
(C) ₹ 4.75 crore
(D) ₹ 21 crore

Answer: (A) ₹ 2.35 crore

At the end of Year 1:

Contract value: ₹160 crore (for 2 towers)

Cost estimate: ₹150 crore

Stage of completion: 23.5%

Revenue:

= ₹160 × 23.5% = ₹37.60 crore

Cost:

= ₹150 × 23.5% = ₹35.25 crore

Profit = Revenue – Cost:

= ₹37.60 – ₹35.25 = ₹2.35 crore

3. What is the amount of contract revenue recognized in each year of contract?

(A) Year 1: ₹ 80 crore, Year 2: ₹ 80 crore and Year 3: ₹ 80 crore
(B) Year 1: ₹ 40 crore, Year 2: ₹ 116 crore and Year 3: ₹ 84 crore
(C) Year 1: ₹ 37.60 crore, Year 2: ₹ 118.40 crore and Year 3: ₹ 84 crore
(D) Year 1: ₹ 37.60 crore, Year 2: ₹ 120.80 crore and Year 3: ₹ 81.60 crore

Answer: (C) Year 1: ₹ 37.60 crore, Year 2: ₹ 118.40 crore and Year 3: ₹ 84 crore

Year 1:

As computed above:

= ₹160 × 23.5% = ₹37.60 crore

Year 2:

Revised contract value = ₹240 crore

Stage of completion at end of Year 2 = 65%

Revenue to date = ₹240 × 65% = ₹156.00 crore

Already recognized in Year 1 = ₹37.60 crore

Year 2 Revenue = ₹156.00 – ₹37.60 = ₹118.40 crore

Year 3:

Total contract = ₹240 crore

Already recognized = ₹156.00 crore

Year 3 Revenue = ₹240 – ₹156 = ₹84.00 crore

4. X Ltd. has entered into a binding agreement with Beta Ltd. to buy a custom-made machine for ₹ 2 lakhs. During the year 2024-25 X Ltd has to change its method of production due to changes in market trend. Before the delivery of the machine, X Ltd had already changed its method of production and the new method will not require the machine ordered. Now the company decides to scrap it after delivery. The expected scrap value is ₹ 25,000. Machine was received on 10th October, 2024 and was scrapped on 15th October, 2024. The correct accounting treatment for above machine in the year 2024-25 is:

(A) Machine A/c to be debited with ₹ 2 lakhs and Bank A/c to be credited with ₹ 2 lakhs.
(B) Impairment A/c to be debited with ₹ 1.75 lakhs and Bank A/c to be credited with ₹ 1.75 lakhs.
(C) Profit and Loss A/c to be debited with ₹ 2 lakhs and Bank A/c to be credited with ₹ 2 lakhs.
(D) Profit and Loss A/c to be debited with ₹ 1.75 lakhs and Bank A/c to be credited with ₹ 1.75 lakhs.

Answer:(D) Profit and Loss A/c to be debited with ₹ 1.75 lakhs and Bank A/c to be credited with ₹ 1.75 lakhs

✔ Step 1: Liability Recognition

• Since a binding obligation exists, X Ltd must recognize ₹2 lakh liability toward Beta Ltd.

✔ Step 2: Asset Recognition Criteria (AS 10)

An asset should be capitalized only if future economic benefits are probable.

• Here, the machine will not be used and is being scrapped — no future benefit expected.

• So, it fails the asset recognition criteria under AS 10.

• Therefore, the cost should be expensed off, not capitalized as an asset.

✔ Step 3: Net Expense to be Recognized

• Total cost = ₹2,00,000

• Scrap value = ₹25,000 (likely recovered in cash or receivable)

• So, Net Loss = ₹1,75,000

So correct Journal entry :  (D) Profit and Loss A/c to be debited with ₹ 1.75 lakhs and Bank A/c to be credited with ₹ 1.75 lakhs

5. ABC Ltd., is in the business of creating contents for various OTT platforms. The company has developed a technical know-how (the asset) by incurring expenditure of ₹ 25 lakhs. The company started using the asset from 1st April 2019. The management of the company is of the view that the asset has infinite lifetime and therefore has not amortized the asset till date.

What should be the total amortization amount (including current as well as the previous years amortization) to be charged to Profit and loss account for the year ended March 31St 2024, with reference to AS 26?;

(A) Nil, as per the management the know how has infinite life and the management is correct.
(B) ₹ 25 lakhs as the know how is an intangible asset as per AS 26.
(C) ₹ 12.5 lakhs (including current year’s amortization of ₹ 2.5 lakhs) to be charged to Profit and Loss Account.
(D) ₹ 15 lakhs (including current year’s amortization of ₹ 2.5 lakhs) to be charged to Profit and Loss Account.

Answer: (C) ₹ 12.5 lakhs (including current year’s amortization of ₹ 2.5 lakhs) to be charged to Profit and Loss Account.

Accounting Treatment (AS 26):

Rule: Rebuttable presumption of 10 years

AS 26 presumes that the useful life of an intangible asset shall not exceed 10 years unless there is strong and persuasive evidence for a longer or indefinite life.

In this case, management has not provided any persuasive evidence.

Therefore, the asset must be amortized over 10 years from the date it is available for use.

Asset life from 1st April 2019:

Period: 1st April 2019 to 31st March 2024 = 5 years

So, 5 years of amortization should have already been charged.

Annual amortization:

= ₹25 lakhs ÷ 10 years = ₹2.5 lakhs per year

Total amortization till 2023-24:

= ₹2.5 lakhs × 5 years = ₹12.5 lakhs

Case Scenario – II:

Health India Limited (HIL), incorporated under the The Companies Act, 2013, is engaged in the production and distribution of medicines. It has manufacturing plants at Baddi (Himachal Pradesh) and Bhopal (Madhya Pradesh). It also imports medicines from Pharma Inc., New York (United States).

On 1st Jan 2024, HIL sold 2,00,000 strips of Medicine to Dee Limited for ₹ 50 Lakhs on 60 days of credit. Cost per strip of this medicine was ₹ 20 (i.e., total cost ₹ 40 Lakhs (2,00,000 strips @ ₹ 20). Dee Ltd paid 20% of the amount due on 5th January, 2024. In March 2024, Dee Limited is having significant cash flow issues.

... and is trying to raise funds through bank loan to run its operations. However, it is unable to do so and not able to release payment to HIL on due date. Subsequent to this, it has gone under liquidation on 15st March, 2024. At the time when medicine was sold by HIL to Dee Limited, there was no reason for HIL to believe that it will not be able to collect the sales proceeds from Dee Limited in future.

On 1st April, 2023 HIL has made an investment of ₹ 200 Lakhs in the equity shares of Rose Limited of which 50% is made in the long-term category i.e. long-term investment and rest as temporary investment i.e. current investment. The realisable value of all such investments on 31st March, 2024 becomes ₹ 50 Lakhs as Rose Limited lost a copyright. From the given market conditions, it is apparent that the reduction in the value of investment is not temporary in nature.

HIL imported medicine from Pharma Inc. for a sum of US $ 2,50,000 on 1st January, 2024. HIL released full payment on 17st April, 2024 to Medicine Ltd. The exchange rates are as follows:

HIL is working on a strategic plan to close the production unit of Bhopal due to change in technology. The board of directors approved the closure of Bhopal Plant on 1st March, 2024. The company did a formal announcement regarding closure to the affected parties on 10th March, 2024. The company entered into a binding-sale agreement on 21st April, 2024.

Reporting date of the company is 31st March, 2024.

Based on the information given in the above Case Scenario, answer the following Question No. 6 – 9:

6. How the recognition of revenue from sales of medicine to Dee Limited will be done by HIL under AS 9 and what would be the treatment of unrealised amount for the year ended 31st March, 2024?

(A) Revenue will be recognised for ₹ 50 Lakhs, subsequently unrealised amount ₹ 50 lakhs will be debited to bad debts A/c.
(B) Revenue will be recognised for ₹ 40 Lakhs, subsequently unrealised amount ₹ 40 lakhs will be debited to bad debts A/c.
(C)  Revenue will be recognised for ₹ 50 Lakhs, subsequently unrealised amount ₹ 40 lakhs will be debited to bad debts A/c.
(D) Revenue will be recognised for ₹ 40 Lakhs, unrealised amount of ₹ 40 lakhs will be shown in Sundry Debtors list.

Answer: (C)  Revenue will be recognised for ₹ 50 Lakhs, subsequently unrealised amount ₹ 40 lakhs will be debited to bad debts A/c.

Sale: ₹50 lakhs on 60-day credit (1 Jan 2024)

₹10 lakhs (20%) received on 5 Jan

Dee Ltd went into liquidation on 15 March 2024

At the time of sale, there was no reason to doubt recovery

AS 9 – Revenue Recognition:

Revenue from sale of goods is recognized when significant risks and rewards are transferred, i.e., at the point of sale — not dependent on cash collection.

So, full ₹50 lakhs is recognized as revenue.

Subsequently, only ₹10 lakhs was received. ₹40 lakhs becomes bad debt, since the company went into liquidation.

7. How will you recognise the reduction in the value of the investments in the financial statements for the year ended 31st  March 2024 as per AS 13 (Revised)?

(A) The reduction of ₹ 50 Lakhs in the carrying value of current investment will be charged to the profit and loss account. There will be no impact on the value of long-term investments.
(B) The reduction of ₹ 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. There will be no impact on the value of long-term investments.
(C) The reduction of ₹ 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ₹ 75 Lakhs in the carrying value of long-term investment will also be charged to the profit and loss account.
(D) The reduction of ₹ 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ₹ 75 Lakhs in the carrying value of long-term investment will also be charged to capital reserve account.

Answer: (C) The reduction of ₹ 75 Lakhs in the carrying value of current investment will be charged to the profit and loss account. The reduction of ₹ 75 Lakhs in the carrying value of long-term investment will also be charged to the profit and loss account.

Investment details:

₹200 lakhs total investment

50% long-term = ₹100 lakhs

50% current = ₹100 lakhs

Realisable value at year-end = ₹50 lakhs

Total loss = ₹150 lakhs

Fall in value is not temporary

AS 13 – Investment Classification:

Current investments: Always shown at lower of cost or fair value → full ₹50 lakh loss (from ₹100 to ₹50) must go to P&L

Long-term investments: If permanent diminution, write-down required → ₹100 to ₹50 = ₹50 lakh loss also charged to P&L

8. Ascertain the loss/gain due to change in foreign exchange rates to be recognised in the financial statements for the year ended 31st March, 2024 as per AS 11.

(A) ₹ 2,50,000 Exchange gain should be credited to profit and loss account.
(B) ₹ 5,00,000 Exchange gain should be credited to profit and loss account.
(C) ₹ 5,00,000 Exchange loss should be debited to profit and loss account.
(D) ₹ 2,50,000 Exchange loss should be debited to profit and loss account.

Answer: (D) ₹ 2,50,000 Exchange loss should be debited to profit and loss account.

Facts:

Import of $250,000 on 1 Jan 2024 (₹81/$)

Year-end rate (31 Mar 2024): ₹80/$

Payment made on 17 April 2024 (₹79/$)

Outstanding liability as of 31 Mar 2024: 250,000 × ₹80 = ₹2.00 Cr (books)

Initial booking: 250,000 × ₹81 = ₹2.025 Cr

So,

Exchange Loss till 31 Mar 2024 = ₹2.025 Cr – ₹2.00 Cr = ₹0.025 Cr = ₹2.5 lakhs (loss)

As per AS 11, the outstanding foreign currency liability is restated at closing rate and gain/loss is charged to P&L.

9. What would be the date of “initial disclosure of event” be considered for Bhopal Plant?
(A) 31st  March, 2024
(B) 1st March, 2024
(C) 21st  April, 2024
(D) 10st March, 2024

Answer: (D) 10st March, 2024

• Board approved closure: 1 Mar 2024

• Announcement made to stakeholders: 10 Mar 2024

• Binding agreement signed: 21 Apr 2024

✔ AS 29 – Events Requiring Provision Disclosure:

A constructive obligation arises when the entity has communicated the decision to affected parties in a manner that creates valid expectations.

So, the “initial disclosure event” is when the company publicly announced the closure → 10 March 2024

10. X Ltd. sold Plant & Machinery having WDV of ₹ 60 lakhs to Y Ltd. for ₹ 75 lakhs (Fair value of ₹ 75 Lakhs) and the same plant was leased back by Y Ltd. to X Ltd. The lease back is in the nature of operating lease. The treatment will be:

(A) X Ltd. should amortize the profit of ₹ 15 lakhs over the lease term.
(B) X Ltd. should recognize the Profit of ₹ 15 lakhs immediately.
(C) No profit/loss, as fair value is equal to sale price.
(D) Y Ltd. should recognize the profit of ₹ 15 lakhs immediately.

Answer: (B) X Ltd. should recognize the Profit of ₹ 15 lakhs immediately

 Key Principle from AS 19:

If a sale and leaseback transaction results in an operating lease, and the sale is made at fair value, then:

The profit or loss should be recognized immediately by the seller-lessee.

X Ltd. sells P&M (WDV ₹60L) to Y Ltd. for ₹75L → Fair Value = ₹75L

The same P&M is leased back to X Ltd. as an operating lease

Hence:

Sale price = Fair value

Nature of leaseback = Operating lease.

AS 19 Treatment:

Since:

Sale price = Fair value

Leaseback = Operating lease

The profit of ₹15 lakhs (₹75L – ₹60L) is recognized immediately in the books of X Ltd.

Case Scenario – III :

Following information is given by Z Ltd as on 31st March 2025 :

Note: On 1st April 2024, Z Ltd redeemed all its preference shares at a premium of 5%.

Z Ltd bought back 8,00,000 equity shares @ ₹ 20 per share.

Buy back is fully authorized by Z Ltd’s articles and necessary resolution has been passed for this. The payment for buy back of shares will be made through available balance in bank account.

To finance Redemption of preference shares and buy back of shares, the company has decided to sell its investments for ₹ 98 Lakhs.

Z Ltd had 80,000 Equity stock options outstanding on the above mentioned date, to the employees @ ₹ 15 per share when the market price was ₹ 20 per share. (This was included under the head current liabilities). On 1st April, 2024, 70% of the employees exercised their options.

Based on the information given in the above Case Scenario, answer the following Question No. 11 – 13:

11. What will be the balance of capital redemption reserve as on 31st March 2025?

(A) ₹ 280 Lakhs
(B) ₹ 330 Lakhs
(C) ₹ 250 Lakhs
(D) ₹ 130 Lakhs

Answer:

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12. What will be the Cash and Bank Balance as on 31st March 2025?

(A) ₹ 56.40 Lakhs
(B) ₹ 66.40 Lakhs
(C) ₹ 59.20 Lakhs
(D) ₹ 48 Lakhs

Answer:

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13. What will be the Balance of Reserves as on 31st March 2025 excluding capital redemption reserve?

(A) General Reserve and Profit & Loss ₹ 323 Lakhs and Securities Premium ₹ 10 lakhs
(B) General Reserve and Profit & Loss ₹ 243 Lakhs and Securities Premium ₹ 10 lakhs
(C) ✅ General Reserve and Profit & Loss ₹ 323 Lakhs and Securities Premium ₹ 15.60 lakhs
(D) General Reserve and Profit & Loss ₹ 243 Lakhs and Securities Premium ₹ 15.60 lakhs

Answer:

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14. Past Ltd. had the following items under the head “Reserves and Surplus” in the Balance Sheet as on 31 st March 2025:
(Amount ₹ in lakhs)

The company had an accumulated loss of ₹ 280 lakhs on the same date, which was disclosed under the head “Statement of Profit and Loss” as an asset in its Balance Sheet.

What should be disclosed on the face of Balance Sheet as per Schedule III to the Companies Act, 2013?

(A) Reserve and Surplus – Securities premium ₹ 90 lakhs; others ₹ 110 lakhs and Accumulated loss ₹ 280 lakhs in the Asset side.
(B) Reserve and Surplus – ₹ 200 lakhs; and Accumulated loss ₹ 280 lakhs in the Asset side.
(C) Reserve and Surplus – ₹ 200 lakhs only
(D) Reserve and Surplus – (₹ 80) lakhs only

Answer:

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15. During the process of Internal Reconstruction, JAY Ltd has come across the following adjustment:

There is a contingent liability for which no provision had been made. This contingent liability was settled at ₹ 7,500 and also ₹ 6,000 was recovered from the insurance company in this regard.

Which of the following is the correct treatment for the above adjustment?

(A) Reconstruction A/c Dr ₹ 1,500 and Bank A/c Cr ₹ 1,500
(B) Reconstruction A/c Dr ₹ 7,500 and Bank A/c Cr ₹ 7,500
(C) Contingent Liability A/c Dr ₹ 1,500 and Bank A/c Cr ₹ 1,500
(D) Profit and Loss A/c Dr ₹ 1,500 and Bank A/c Cr ₹ 1,500

Answer:

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Question 1 (A):

Hardy Ltd. intends to extend the factory set up on the adjacent plot with disintegrated old premises. It acquired the land having an area of 250 hectares at a cost of ₹ 25,000 per hectare.

Hardy Ltd. incurred Stamp duty and registration charges of 5% of land value. Legal fees were paid ₹ 4,75,000 for land acquisition.

Hardy Ltd. incurred ₹ 37,85,000 for demolishing old premises thereon. A sum of ₹ 12,60,000 (including 5% GST thereon) was realized from the sale of material salvaged from the site.

Till the new site with extended factory premises is ready, the company needs to move the present production facilities to another (temporary) site. The following incremental costs will be incurred:

1. Set up costs of ₹ 7,50,000 to install machinery in the new location.
2. Rent of ₹ 12,00,000.
3. Removal costs of ₹ 2,50,000 to transport the machinery from the old location to the temporary location.
   1. Management is of the opinion that the cost of moving the production facilities to another temporary location can be capitalised.You are required to advise.
   2. You are also required to compute the cost of land acquired.

Solution :

AS 10 Guidance:

Costs that are not directly attributable to bringing the asset to its intended location and condition cannot be capitalized.

Setup cost, rent, and removal cost for temporary relocation are in the nature of reorganization/relocation costs, and are not part of the cost of the new asset.

Therefore:

Management’s opinion is incorrect — these relocation costs cannot be capitalized.
They must be charged to the Profit and Loss A/c as revenue expenditure.

(ii) Let’s compute the components of cost as per AS 10.

 

Question 1 (B):

Ms. Neha had 20,000 Equity shares in Nexus Ltd. at a book value of ₹ 2,40,000 on 01.04.2024. Face value of shares is ₹ 10 per share.

The Directors of Nexus Ltd. announced a bonus of equity shares in the ratio of one share for every 5 shares held on 30/04/2024.

On 31/07/2024 the company made a right issue in the ratio of three shares for every 4 shares held, on payment of ₹ 14 per share. The due date for payment was 31/08/2024. Ms. Neha opted to subscribe 50% of the right shares and sold the remaining of her entitlement to Ms. Rewa for a consideration of ₹ 3 per share.

On 08/10/2024, Ms. Neha received dividend from Nexus Ltd. @ 15% for the year ended 31/03/2024.

On 01/11/2024, Neha sold 11,500 shares at a premium of ₹ 16 per share.

You are required to prepare Investment A/c as per AS -13 in the books of Ms. Neha for the year ended 31/03/2025 assuming that the shares are being valued at average cost.

Solution :

In the books of Ms. Neha

Investment in equity shares of Nexus Ltd.

for the year ended 31st March, 2025

Working Notes

1. Calculation of no. of bonus shares issued

Bonus shares = (20,000 shares)/ 5 x 1 = 4,000 shares

2. Calculation of right shares subscribed

Right shares = (20,000 Shares + 4,000 shares)/4 x 3 = 18,000 shares

Shares subscribed by XY Ltd. = 18000/2 = 9,000 shares

Value of right shares subscribed = 9,000 shares @ ₹ 14 per share = ₹1, 26,000

3. Calculation of sale of right entitlement

9,000 shares x ₹ 3 per share = ₹ 27,000

Amount received from sale of rights will be credited to statement of profit and loss.

4. Calculation of profit on sale of shares

Total holding = 20,000 shares (original) + 4,000 shares (bonus) + 9,000 shares (right shares) = 33,000 shares

Cost of total holdings of 33,000 shares (on average basis)

= ₹ 2,40,000 + ₹ 1,26,000 

= ₹ 3,66,000

Average cost of 11,500 shares would be

= (3,66,000/33,000) x 11,500 = ₹ 1,27,545.45

5. Dividend received on investment held as on 1st April, 20X1

= 20,000 shares x ₹ 10 x 15%

= ₹ 30,000 will be transferred to Profit and Loss A/c

Note : It is presumed that no dividend is received on bonus shares as bonus shares are declared on 1st July, 20X1 and dividend pertains to the year ended 31.3.20X1.

6. Calculation of closing value of shares (on average basis) as on 31st March, 20X2

21,500 x (3,66,000/33,000) = ₹ 2,38,454.54

Question 2:

Following particulars are furnished by Bela Ltd for the year ended 31st March 2025:

 

Other Information:

(1) The cost of assets was:

• Factory Building – ₹ 6,94,000
• Plant & Machinery – ₹ 5,35,000
• Furniture & Fittings – ₹ 1,76,000

(2) The Equity Capital on 01/04/2024 stood at 5,000 shares fully paid up and 1,000 shares ₹ 70 paid up. The directors made final call of ₹ 30 per share on 01/10/2024.

A shareholder could not pay the call on 75 shares and his shares were forfeited. They were reissued @ ₹ 70 per share as fully paid.

(3) Profit on reissue of forfeited equity shares was included in profit and loss account.

(4) Bills discounted but not yet matured ₹ 15,000

(5) The balance of Term Loan from Public Finance Corporation includes ₹ 8,000 for interest accrued but not due. The loan is secured against hypothecation of Plant and Machinery.

(6) The directors declared a dividend of 5% on Equity shares on 10/04/2025.

You are required to prepare the Balance Sheet as at 31^st March, 2025 as required under Part-1 of Schedule III of the Companies Act.

Workings should form part of the answer.

Solution :

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Question 3 (A):

 

Notes to Accounts :

Further information related to Profit and Loss A/c for the year ended March 2025 is as under:

(i) Profit before tax is ₹ 45,000

(ii) Tax expense during the year ₹ 15,000 (it includes deferred tax liability of ₹ 6,000 created during the year)

(iii) Depreciation charged on furniture and fixture for the year was ₹ 35,000. One old furniture item was sold for ₹ 17,000 and the profit on such disposal amounting to ₹ 8,000 was booked in the current year.

Prepare a Cash Flow Statement for the year ended 31st March, 2025.

Solution :

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Question 3 (B):

XY Limited reported a Profit Before Tax (PBT) of ₹ 18 lakhs for the third quarter ending 31 st December 2024. Following observations are noted:

(i) Dividend income of ₹ 8 lakhs received during the quarter has been recognized to the extent of ₹ 2 lakh only.

(ii) Sales promotion expenses ₹ 15 lakhs incurred in the third quarter, 70% has been deferred to the fourth quarter as the sales in the last quarter is high.

(iii) In the third quarter, the company changed depreciation method from WDV to SLM, which resulted in excess depreciation of ₹ 4 lakhs. The entire amount has been debited in the third quarter, though the share of the third quarter is only ₹ 1 lakh.

(iv) ₹ 3 lakhs extra-ordinary gain received in third quarter was allocated equally to the third and fourth quarter.

(vi) Sale of investment in the first quarter resulted in a gain of ₹ 30 lakhs. The company had apportioned this equally to the four quarters.

Calculate the result of the third quarter as per AS – 25 and also comment on the company’s view on each observation.

Solution :

As per para 36 of AS 25 “Interim Financial Reporting”, seasonal or occasional revenue and cost within a financial year should not be deferred as of interim date until it is appropriate to defer at the end of the enterprise’s financial year. Therefore, dividend income, extra-ordinary gain, and gain on sale of investment received during 3rd quarter should be recognised in the 3rd quarter only. Similarly, sales promotion expenses incurred in the 3rd quarter should also be charged in the 3rd quarter only.

Further, as per AS 10, Property, Plant and Equipment, if there is change in the depreciation method, such a change should be accounted for as a change in accounting estimate in accordance with AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, and applied prospectively.  Therefore, no adjustment would be required due to change in the method of depreciation.  

Accordingly, the adjusted profit before tax for the 3rd quarter will be as follows:

Statement showing Adjusted Profit Before Tax for the third quarter

Question 4:

The following is summarized Balance Sheet of Pickles Ltd. as on 31/03/2025.

 

On 31/03/2025, Foods Ltd. acquires the business of Pickles Ltd. on the following terms:

• Foods Ltd. to take over all assets (except cash) and liabilities at their book values.

• Part of the Furniture and Fixtures is disposed of by Pickles Ltd. for ₹ 55,000 at cost.

• The retirement of employees was due on 31/03/2025. A portion of ₹ 35,000 from Retirement Gratuity Fund was earmarked towards the payment due to them.

• Foods Ltd. decided to pay for each Preference share in Pickles Ltd., ₹ 27 in cash and one 8% Preference share of ₹ 100 in Foods Ltd.

• For each Equity share in Pickles Ltd., it was decided to pay ₹ 30 in cash and one Equity share of Foods Ltd. for ₹ 145. (Face value of each share of Foods Ltd. is ₹ 100)

• Liquidation expenses of ₹ 22,500 paid by Pickles Ltd. were subsequently reimbursed by Foods Ltd.

• The fixed assets of Pickles Ltd. were not revalued for the purpose of amalgamation.

You are required to pass the necessary Journal entries and also prepare Realisation Account and Cash Account in the books of Pickles Ltd.

Solution :

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Question 5 (A):

Birds Ltd. and its subsidiary Rooster Ltd. provided the following information for the year ended 31/03/2025:

Other Information:

• On 1 st April, 2022, Birds Ltd. acquired 2,500 shares of ₹100 each fully paid up in Rooster Ltd.

• Rooster Ltd. paid a dividend of 12% for the year ended 31/03/2024. The dividend was correctly accounted for by Birds Ltd.

• Rooster Ltd. pays ₹11,250 per month to Birds Ltd. towards rent for the portion of premises occupied.

• Selling and Distribution Expenses of Rooster Ltd. include ₹15,000 received from Birds Ltd.

Prepare Consolidated Profit and Loss Account of Birds Ltd. and its subsidiary Rooster Ltd. for the year ended 31/03/2025.

Solution :

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Question 5 (B):

Rubber Ltd. purchased 70% of shares of Tyre Ltd. on 31/03/2024 for ₹ 4,05,000. The following is the position of Tyre Ltd. as on that date:

You are required to calculate:

• The capital reserve / goodwill at the date of acquisition.

• The calculations are to be made under the following assumptions:

Case (i): It is assumed that the dividend is paid out of post-acquisition profits.

Case (ii): It is assumed that the dividend is received for pre-acquisition period.

Solution :

Capital Reserve / Goodwill Calculation

 

Question 6 (A):

What are Accounting standards? Explain the objectives of “Accounting Standards” in brief; also state the advantages of setting Accounting Standards.

Solution :

OR

Question 6 (A):

A machine was acquired by Zest Ltd. on 01/04/2019 for ₹ 60 lakhs. It had a useful life of 6 years. The machine is depreciated on straight line basis and does not carry any residual value. On 01/04/2022, the carrying value of the machine was reassessed at ₹ 36 lakhs.

The surplus arising out of the revaluation being credited to Revaluation Reserve.

For the year ended March 2024, conditions indicating an impairment of the existing machine and the amount recoverable ascertained to be ₹ 9 lakhs.

You are required to calculate the loss on impairment of the machine and show how this loss is to be treated in the books of Zest Ltd. The company had followed the policy of writing down the revaluation surplus by the increased charge of depreciation resulting from the revaluation.

Solution :

Revaluation Reserve Balance:

 

Treatment of Impairment Loss (AS 28 – Para 58)

• Total Impairment Loss = ₹3.00 lakhs

• Available Revaluation Reserve = ₹2.00 lakhs

• Set off from Revaluation Reserve = ₹2.00 lakhs

• Remaining to be charged to P&L = ₹1.00 lakh

Question 6 (B):

Due to inadequacy of profits during the year ended 31st 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:

Solution :

Conditions as per Companies (Declaration of dividend out of Reserves) Rules, 20X1:

Condition I

Since 9% is lower than the average rate of dividend (12.5%), 9% dividend can be declared.

Condition II

Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of paid-up capital plus free reserves i.e. ₹ 11,35,000 [10% of (95,00,000 + 18,50,000)]

Condition III

The balance of reserves after drawn ₹ 13,70,000 (₹ 18,50,000 - ₹ 4,80,000) should not fall below 15% of its paid up capital i.e. ₹ 14,25,000 (15% of ₹ 95,00,000)

Conclusion:

• Conditions I and II are satisfied

• Condition III is not satisfied

Question 6 (C):

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 31st March, 2025:

Would you like help with the combined Trading and P&L account format based on the given scenario, including adjustments for goods sent to branch at invoice price?

Solution :

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