CA Inter May 26 Suggested Answers | Advanced Accounting

Looking for solutions to the CA Inter May 26 Suggested Answers for Advanced Accounting ? You’re in the right place! This blog covers everything you need to know about the CA Inter May 2026 Exam, including detailed solutions and insights to help you excel. We’re here to provide a comprehensive breakdown of the May 2026 Advanced Accounting Paper.

Table of Content

1. MCQs
2. Q 1 (A) : 
3. Q 1 (B) : 
4. Q 1 (C) :
5. Q 2 : 
6. Q 3 (A) : 
7. Q 3 (B) : 
8. Q 4 :
9. Q 5 (A) :
10. Q 5 (B) :
11. Q 6 (A) : 
    OR
12. Q 6 (A): 
13. Q 6 (B): 
14. Q 6 (C):

CA Inter May 26 Suggested Answer Other Subjects Blogs :

1. Suggested answer May 26 Paper 2 : Corporate and Other Laws
2. Suggested answer May 26 Paper 3 : Taxation
3. Suggested answer May 26 Paper 4 : Cost & Management accounting 
4. Suggetsed answer May 26 Paper 5 : Auditing and Ethics 
5. Suggested answer May 26 Paper 6 : Financial Management and Strategic Management 
6. CA Inter Syllabus (New Update)
7. CA Inter Online Classes

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MCQs

Case Scenario-I:

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Question 1 (A):

Mr. A has joined a company XYZ Ltd. on 1st April, 2025. The terms of his appointment was as follows;

(i) Mr. A will get ₹ 18,62,764 as annual emoluments.

(ii) The salary of Mr. A is expected to grow @ 10% per annum.

The company also has a policy of giving lump sum payment of 30% of the last drawn annual salary of the employee for each completed year of service if the employee retires after completing minimum 5 years of service.

Since the company has inducted Mr. A in the beginning of the year and it is expected that he will complete the minimum five-year term before retiring. Thus, he will get 5 yearly increments.

You are required to :

(i) Compute the amount that should be charged by XYZ Limited in its Profit & Loss account every year as cost for the Defined Benefit Obligation.

(ii) Calculate the current service cost and the interest cost to be charged per year assuming the discount rate is 8% p.a.

(P.V. factor for 8% - 0.735, 0.794, 0.857, 0.926, 1)

Solution :

Question 1 (B):

On 1st April, 2022, Sky Limited purchased a machinery for ₹ 7,35,000 (inclusive of GST @ 5%). Input credit is available for entire amount of GST paid. The company incurred the following other expenses for installation :

The machine was ready for use on October 1, 2022 but was put to use from February 1, 2023. Due to this delay further expenses of ₹ 10,800 were incurred. The estimated useful life of machine is 10 years. The machine is depreciated on straight line basis and does not carry any residual value.

On September 30, 2025, the company has revalued the machine at ₹ 7 lakhs and the surplus arising out of the revaluation being credited to revaluation reserve. For the year ended March 31, 2026, conditions indicating an impairment of the machine existed and the amount recoverable ascertained to be only ₹ 3 Lakhs.

You are required to :

(i) Calculate the value at which the machine should be capitalized and the amount of depreciation to be charged for the year ending March 31, 2023 in the books of Sky Limited.

(ii) Calculate the loss on impairment of the machine and show how this loss is to be treated in the books of Sky Limited. The company had followed the policy of writing down the revaluation surplus by the increased charge of depreciation resulting from the revaluation.

Solution :

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Question 1 (C):

The following information are provided to you in respect of Vardhman Ltd. for the financial year 2025-26 :

Estimated total annual income ₹ 5,00,000

(Inclusive of estimated capital gains earned in 2nd quarter ₹ 1,00,000)

Tax rates for the financial year 2025-26 are :

Assuming that there is no difference between the estimated taxable income and the estimated accounting income, you are required :

(i) To compute total tax expenses for the year 2025-26;

(ii) To calculate tax expenses for each quarter, when the estimated income of each quarter is ₹ 1,25,000 and income for 2nd quarter includes capital gain of ₹ 1,00,000.

Solution :

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Question 2:

Following is the trial balance of Vinayak Ltd. as on 31st March 2026 :

 

Additional information :

(a) The authorized share capital of the company is 1,20,000 shares of ₹ 100 each.

(b) The company revalued the land at ₹ 1,44,00,000.

(c) Equity share capital includes shares of ₹ 7,50,000 issued for consideration other than cash.

(d) Suspense account of ₹ 1,50,000 represents cash received from the sale of some of machinery on 1st April, 2025. The cost of the machinery was ₹ 3,60,000 and the accumulated depreciation thereon being ₹ 3,00,000. The balance of Plant and Machinery given in the trial balance is before adjustment of sale of machinery.

(e) Depreciation is to be provided on plant and machinery at 10% p.a. on cost.

(f) Balance at bank includes ₹ 75,000 with XYZ Bank Ltd., which is not a Scheduled Bank.

(g) Make provision for income tax @ 40%.

(h) Trade receivables of ₹ 7,50,000 are due for more than six months.

On the basis of the above information, you are required to prepare Vinayaka Ltd.’s Balance Sheet as on 31st March, 2026 and Statement of Profit and Loss with notes to accounts for the year ended 31st March, 2026 as per Schedule III (ignore previous year’s figures).

Solution :

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Question 3 (A):

Following is the trial balance of Vinayak Ltd. as on 31st March 2026 :

 

Additional information :

(a) The authorized share capital of the company is 1,20,000 shares of ₹ 100 each.

(b) The company revalued the land at ₹ 1,44,00,000.

(c) Equity share capital includes shares of ₹ 7,50,000 issued for consideration other than cash.

(d) Suspense account of ₹ 1,50,000 represents cash received from the sale of some of machinery on 1st April, 2025. The cost of the machinery was ₹ 3,60,000 and the accumulated depreciation thereon being ₹ 3,00,000. The balance of Plant and Machinery given in the trial balance is before adjustment of sale of machinery.

(e) Depreciation is to be provided on plant and machinery at 10% p.a. on cost.

(f) Balance at bank includes ₹ 75,000 with XYZ Bank Ltd., which is not a Scheduled Bank.

(g) Make provision for income tax @ 40%.

(h) Trade receivables of ₹ 7,50,000 are due for more than six months.

On the basis of the above information, you are required to prepare Vinayaka Ltd.’s Balance Sheet as on 31st March, 2026 and Statement of Profit and Loss with notes to accounts for the year ended 31st March, 2026 as per Schedule III (ignore previous year’s figures).

Solution :

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Question 3 (B):

Given below is the Balance Sheet of ABC Ltd. as at March 31, 2026 :

 

Notes to accounts :

Since the company was not earning profits, it was decided to reconstruct the company for which necessary resolution was passed and sanctions were obtained from appropriate authorities.

A summary of the reconstruction scheme is as follows :

(i) The equity shareholders have agreed that their ₹ 50 shares should be reduced to ₹ 10 by cancellation of ₹ 40 per share. They have also agreed to subscribe for three new equity shares of ₹ 10 each for each equity share held.

(ii) The preference shareholders have agreed to waive off the arrear of dividends. They also agreed to accept for each ₹ 50 share, 4 new 5% preference shares of ₹ 10 each fully paid up, plus one new equity share of ₹ 10 each fully paid up.

(iii) The debenture holders accepted the inventories at an agreed figure of ₹ 5,20,000 and ₹ 1,48,680 in cash and forego the remaining amount due to them.

(iv) Building is to be revalued at ₹ 6,50,000.

(v) A contingent liability for which no provision had been made was settled at ₹ 10,800 and of this amount, ₹ 4,800 was recovered from insurance.

(vi) The debit balance of Profit and Loss account is to be written off.

(vii) Any balance remaining is first used to write down the value of goodwill and then applied to trademarks.

You are required to pass necessary journal entries to record the above reconstruction in the books of ABC Limited.

Solution :

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Question 4:

Blue Limited and Green Limited had been carrying on business independently. They agreed to amalgamate and form a new company BG Ltd. with an authorized share capital of ₹ 12,00,000 divided into 2,40,000 equity shares of ₹ 5 each. On 31st March, 2026 the Balance sheets of both the companies were as follows :

Additional Information :

(a) Details of trade receivables and trade payables is given as under :

 

(b) Revalued figures of non-current and current assets as on 31st March, 2026 were as follows :

(c) The trade debtors and trade creditors include ₹ 75,000 owed by Blue Limited to Green Limited.

(d) All the bills receivables held by Green Limited were Blue Limited’s acceptances.

(e) The purchase consideration is satisfied by issue of the following shares and debentures :

(i) 1,80,000 equity shares of ₹ 5 each in BG Ltd. to Blue Limited and Green Limited in the proportion to the profitability of their respective business based on the average net profit of previous three years which were as follows :

(ii) 15% debentures in BG Ltd. at par to provide an income equivalent to 8% return on capital employed in their respective business as on 31st March, 2026 after revaluation of assets.

You are required to :

(A) Compute the number of debentures and shares to be issued to Blue Limited and Green Limited.

(B) A Balance Sheet of BG Ltd. as at 31st March, 2026 showing the position immediately after amalgamation.

Solution :

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Question 5 (A) :

Glamour Ltd. and its subsidiary Fashion Ltd. has provided you the following information for the year ended 31st March, 2026 :

Other information :

(i) On 1st April, 2024 Glamour Ltd. acquired 6,000 equity shares of ₹ 100 each fully paid up in Fashion Ltd.

(ii) Fashion Ltd. paid a dividend of 12% for the year ended 31st March, 2025, the same was correctly accounted for by Glamour Ltd.

(iii) Glamour Ltd. purchased goods worth ₹ 5,00,000 (Invoice Price) from Fashion Ltd. at a profit of 25% on cost. 50% of these goods are still in stock of Glamour Ltd.

(iv) Selling & Distribution expenses of Fashion Ltd. includes ₹ 45,000 paid to Glamour Ltd. as brokerage fees.

(v) Administrative expenses of Glamour Ltd. include ₹ 65,000 paid to Fashion Ltd. as consultancy fees.

(vi) Consultancy fees and brokerage fee is to be considered as operating revenues.

You are required to prepare consolidated Profit and Loss Account of Glamour Ltd. and its subsidiary Fashion Ltd. for the year ended 31st March, 2026 as per Schedule III of the Companies Act, 2013.

Solution :

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Question 5 (B):

Oasis Limited runs a famous chain of super markets and restaurants. Restaurant division constitutes 35% of total group revenue.

The management of the company decides to close the business of restaurants as the company has been experiencing declining profitability due to increased competition. On 1st April, 2025, the management announced its intention to discontinue the restaurant business and concentrate on Super market segment only. The decision was made through strategic review and the management started actively seeking buyers for the restaurant division. During the year 2025-26, the company has sold 5 restaurants out of 12 restaurants so far as part of the sale.

Comment, whether it will be considered as discontinuing operation or not as per the provisions of AS-24 ?

Solution :

Question 6 (A):

Explain the key aspects which required the need for convergence towards global standards of financial reporting.

Solution :

OR

Question 6 (A):

ABC Ltd. borrowed 10,000 US $ in foreign currency on 1st April, 2025 at 6% p.a. annual interest and acquired a depreciable asset. The exchange rates are as under :

(Assume interest accrued on 31st March, 2026 is paid on the same date.)

You are required to :

(i) Pass the journal entries in case option under Para 46 A of AS 11 is availed by the company.

(ii) Explain the difference in treatment of exchange difference if Para 46 A of AS 11 is not availed.

(iii) Would your answer be different regarding treatment of exchange difference if the loan was taken to finance the operations of the entity, not to procure a depreciable asset and option under Para 46 A of AS 11 is availed by the company ?

Solution :

Question 6 (B):

The accountant of Moon Limited provides you the following information :

(i) Provision for doubtful debts was created @ 3% till 31st March, 2025. From the Financial Year 2025-26, the rate of provision has been changed to 5%.

(ii) During the year ended 31st March, 2026 the management has introduced a formal gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.

(iii) During the year 2025-26, there was change in cost formula in measuring the cost of inventories.

(iv) Management of Moon Limited decided to pay pension to its employees who have retired after completing 5 years of service in the organization. Such employees will get pension of ₹ 25,000 per month. Earlier there was no such scheme of pension in the organization.

You are required to advise the accountant of Moon Limited, with valid reasons, whether the above transactions would be treated as change in accounting policy or not, for the year ended 31st March, 2026 in the context of AS 5.

Solution :

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Question 6 (C):

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

(ii) Rama Ltd. has a branch at Delhi, that closes its books of accounts every year on 31st March. This is an independent branch, which maintains comprehensive books of accounts for recording their transactions. You are required to show Journal Entries in the books of branch on 31st March, 2026 to rectify or adjust the following :

(A) Head Office allocates ₹ 2,70,000 to the Branch as Head Office Expenses, which have not yet been recorded by Branch.

(B) Depreciation of Branch Fixed Assets, whose accounts are kept by Head Office in its books, not yet recorded in the Branch Books ₹ 2,30,000.

(C) Branch paid ₹ 2,80,000 as salary to a Head Office manager, the amount paid has been debited by the branch to its Salaries A/c.

(D) Head Office collected ₹ 2,60,000 directly from a Branch Customer on behalf of the Branch. The intimation of the fact has been received by the branch only now. It is not recorded in the branch books till now.

(E) A remittance of ₹ 3,00,000 sent by the Branch has not yet been received by Head Office.

(F) The Branch incurred Advertisement Expenses of ₹ 60,000 on behalf of another Branch.

(G) Goods worth ₹ 1,50,000 dispatched by the head office, but the branch has received the goods worth ₹ 1,10,000 till date of reconciliation. Rest goods have been received subsequently by the branch.

(H) Goods worth ₹ 25,000 returned by the branch to head office yet not received by the head office.

Solution :

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