CMA Inter Suggested Answers | Dec 25 Paper 6 Financial Accounting (FA)

Table of contents

1. MCQs (Question 1, 2, 8, 9, 12, 13, 15 were same as in our Question Bank)
2. 2 (a) : On 31st March, 2025, Sandip’s Cash Book showed a bank (This Question is a part of konceptca.com question bank)
3. 2 (b) : Classify the following items as capital or revenue expenditure (This Question is a part of konceptca.com question bank)
4. 3 (a) : Raj and Sonu decided to work in Joint Venture with the following
5. 3 (b) : PQ Ltd. sold machinery to BR Ltd. and immediately leased it
6. 4 (a): Following is the summary of Receipts and Payments of RR Clinic
7. 4 (b): Chandana Enterprises maintain their books of accounts under
8. 5 : The Balance Sheet of Amit, Bhusan and Charan, who share profits
9. 6 (a) : From the following particulars of Delta Ltd., prepare Patna Branch
10. 6 (b) : A fire occurred in the premises of M/s Bright on 25th May, 2024.
11. 7 (a) : (i) Alpha Ltd. contracted with a supplier to purchase machinery (This Question is a part of konceptca.com question bank)
12. 7 (b) : (i) Raj & Co. has taken a loan of US$ 20,000 at the beginning of (This Question is a part of konceptca.com question bank)
13. 8 (a) : HIL Ltd. was making provision for non-moving stocks based on (This Question is a part of konceptca.com question bank)
14. 8 (b) : How will you deal with the following while preparing final accounts?
15. 8 (c) : A & B, who were partners sharing profits and losses in the ratio of

CMA Inter Dec 25 Suggested Answer Other Subjects Blogs :

1. Suggested Answer Dec 25 Paper 5 : Business Laws and Ethics
2. Suggested Answer Dec 25 Paper 7 : Direct and Indirect Taxation
3. Suggested Answer Dec 25 Paper 8 : Cost Accounting (CA)
4. Suggested Answer Dec 25 Paper 9 : Operations Management and Strategic Management
5. Suggested Answer Dec 25 Paper 10 : Corporate Accounting and Auditing
6. Suggested Answer Dec 25 Paper 11 : Financial Management and Business Data Analytics
7. Suggested Answer Dec 25 Paper 12 : Management Accounting
8. CMA Inter Syllabus (New Updates)
9. CMA Intermediate Online Classes

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Section A

MCQs

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Section B

Question 2 (A):

On 31st March, 2025, Sandip’s Cash Book showed a bank overdraft of ₹ 2,50,000. On comparing with the pass book, the following differences were noted:

(i) Cash and cheques amounting to ₹ 26,800 were sent to the bank on 27th March, but cheques worth ₹ 4,600 were credited on 2nd April and one cheque for ₹ 900 was returned by them as dishonoured on 4th April.

(ii) During the month of March, Sandip issued cheques worth ₹ 33,400 to his creditors. Out of these, cheques worth ₹ 27,400 were presented for payment on 5th April.

(iii) According to Sandip’s standing orders, the bankers have made the following payments during the month of March:

(a) Life insurance premium ₹ 3,840.

(b) Television license fee ₹ 2,400.

(iv) Sandip’s bankers have collected ₹ 3,000 as dividend on his shares.

(v) Interest charged by the bank ₹ 2,500.

(vi) A bill receivable of ₹ 2,000 discounted with the bank in February, 2025, were dishonoured on 31st March, 2025.

You are required to:

(i) Ascertain the amended cash book balance as on 31st March, 2025.

(ii) Prepare a Bank Reconciliation Statement from the amended cash book as on 31st March, 2025.

Solution:

In the Books of Sandip

Cash Book (Bank column only)

Date	Particulars	(₹)	Date	Particulars	(₹)
2025 Jan-31	To, Dividend on shares	3,000	2025 Jan-31	By, Balance b/f	2,50,000
	To Bal c/d	2,57,740		By, Drawings (₹ 3840 + ₹ 2400)	6,240
				By, Interest	2500
				By, Debtors- discounted bill dishonoured	2000
		2,60,740			2,60,740
			2025 Feb:1	By, Bal b/d	2,57,740

Bank Reconciliation Statement

as on 31.01.2025

Particulars	(₹)
Bank balance as per Cash Book (overdrawn)	2,57,740
Add: Cheques deposited but not credited in the Pass Book (4600+ 900)	5,500
	2,65,240
Less: Cheques issued but not presented for payment	27,400
Bank balance as per Pass Book (overdrawn)	2,35,840

 

Question 2 (B):

Classify the following items as capital or revenue expenditure with proper reasoning:

(i) An extension of railway tracks in the factory area;

(ii) Wages paid to machine operators;

(iii) Installation costs of new production machine;

(iv) Materials for extension to foremen’s offices in the factory;

(v) Rent paid for the factory;

(vi) Payment for computer time to operate a new stores control system;

(vii) Wages paid to own employees for building the foremen’s offices.

Solution:

(i) Expenses incurred for extension of railway tracks in the factory area should betreated as a Capital Expenditure because it will yield benefit for more than oneaccounting period. 

(ii) Wages paid to machine operators should be treated as a Revenue Expenditure as it will yield benefit for the current period only. 

(iii) Installation costs of new production machine should be treated as a Capital Expenditure because it will benefit the business for more than one accountingperiod. 

(iv) Materials for extension to foremen’s offices in the factory should be treated asa Capital Expenditure because it will benefit the business for more than oneaccounting period. 

(v) Rent paid for the factory should be treated as a Revenue Expenditure because it willbenefit the Company only during the current period. 

(vi) Payment for computer time to operate a new stores control system should be treated as Revenue Expenditure because it has been incurred to carry on the normalbusiness. 

(vii) Wages paid for building foremen’s offices should be treated as a Capital Expenditure because it will benefit the business for more than one accounting period. 

Question 3 (A):

Raj and Sonu decided to work in Joint Venture with the following scheme, agreeing to share profit/loss in the ratio of 3 : 1. They guaranteed subscription of 5 lakhs shares of ₹ 20 each in Rainbow Ltd. and to bear all expenses up to allotment. In consideration, Rainbow Ltd. will issue 30,000 shares of Snow White Ltd. @ ₹ 20 each fully paid and 1% commission in cash which will be taken by Raj and Sonu equally.

Raj spent ₹ 16,500 as stamp charge, ₹ 15,000 as advertisement and ₹ 35,000 towards car expenses and printing charges. Similarly, Sonu spent ₹ 13,000 towards rent and ₹ 10,000 towards legal charges.

Application fell short of 20,000 shares and Raj introduced necessary cash for purchase of these shares. The guarantee having been met, Rainbow Ltd. handed over the shares as agreed and paid commission in cash. All shares were subsequently sold @ ₹ 19 per share and the co-venturers share the proceeds equally.

You are required to prepare:

(i) Memorandum Joint Venture Account

(ii) Joint Venture with Sonu in Raj’s Book

Solution:

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Question 3 (B):

PQ Ltd. sold machinery to BR Ltd. and immediately leased it back. The Written Down Value (WDV) of the machinery in PQ Ltd.’s books is ₹ 80 lakhs. The leaseback is classified as an operating lease, except where specifically mentioned.

You are required to comment on the accounting treatment under AS-19 (Accounting for Leases) in each of the following cases:

(i) Sale price of ₹ 100 lakhs is equal to fair value.

(ii) Fair value is ₹ 120 lakhs.

(iii) Fair value is ₹ 90 lakhs and sale price is ₹ 76 lakhs.

(iv) Fair value is ₹ 80 lakhs and sale price is ₹ 100 lakhs.

(v) Fair value is ₹ 92 lakhs and sale price is ₹ 100 lakhs.

(vi) Fair value is ₹ 70 lakhs and sale price is ₹ 78 lakhs.

(vii) Fair value of machinery is ₹ 95 lakhs, sale price is ₹ 100 lakhs, and the present value of lease payments substantially covers the fair value of the machinery (i.e. the leaseback is a finance lease).

Solution:

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Question 4 (A) :

Following is the summary of Receipts and Payments of RR Clinic for the year ended 31st March, 2025:

You are required to prepare the Income and Expenditure Account for the year ended 31st March, 2025.

Solution:

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Question 4 (B) :

Chandana Enterprises maintain their books of accounts under single entry system.

The Balance Sheet as on 31st March, 2025 was as follows:

The following was the summary of cash and bank book for the year ended 31st March, 2025:

Additional Information:

(i) Discount allowed to trade debtors and received from trade creditors amounted to ₹ 54,000 and ₹ 42,500 respectively (for the year ended 31st March, 2025).

(ii) Annual fire insurance premium of ₹ 9,000, which is part of Sundry Expenses, was paid every year on 1st August for the renewal of the policy.

(iii) Furniture & fixtures were subject to depreciation @ 15% p.a. on diminishing balance method.

(iv) The following are the balances as on 31st March, 2025:

(v) Gross profit ratio of 10% on sales is maintained throughout the year.

You are required to prepare the Trading and Profit & Loss Account for the year ended 31st March, 2025 and Balance Sheet as on that date.

Solution:

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Question 5 :

The Balance Sheet of Amit, Bhusan and Charan, who share profits and losses as 3 : 2 : 1 respectively, as on 01.04.2024 is as follows:

Dev is admitted as a partner for 1/5ᵗʰ share in the profit and loss.

Following are agreed upon:

(i) The profit and loss sharing ratio among the old partners will be equal.

(ii) Dev brings in ₹ 1,50,000 as capital but is unable to bring the required amount of premium for goodwill.

(iii) The goodwill of the firm is valued at ₹ 60,000.

(iv) Assets and liabilities are to be valued as follows:

Machinery ₹ 2,16,000; Furniture ₹ 1,28,000; Provision for doubtful debts @ 10% on debtors.

(v) Necessary adjustments regarding goodwill and profit/loss on revaluation are to be made through the partners’ Current Accounts.

(vi) It is decided that the revalued figures of assets including goodwill and liabilities will not appear in the Balance Sheet of the new firm.

(vii) Capital Accounts of the old partners in the new firm should be proportionate to the new profit and loss sharing ratio, taking Dev’s capital as base. The existing partners will not bring cash for future capital.

The necessary adjustments are to be made through the partners’ Current Accounts.

Prepare Partners’ Capital & Current Accounts and the Balance Sheet of the new firm after admission.

Solution:

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Question 6 (A):

From the following particulars of Delta Ltd., prepare Patna Branch Account in the books of Mumbai H.O. assuming that the sales at branch are on cash basis:

(Figures are in ₹)

Closing stock could not be ascertained, but it is known that the branch usually sells at cost plus 20%. The Branch Manager is entitled to a commission of 5% on the profit before charging such commission.

Solution:

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Question 6 (B):

A fire occurred in the premises of M/s Bright on 25th May, 2024. As a result of fire, sales were adversely affected up to 30th September, 2024. The firm had taken Loss of Profit policy (with an average clause) for ₹ 3,50,000 having indemnity period of 5 months. There is an upward trend of 10% in sales. The firm incurred an additional expenditure of ₹ 30,000 to maintain the sales.

There was a saving of ₹ 5,000 in the insured standing charges. Following information are available:

You are required to calculate the loss of profit claim amount, assuming that entire sales during the interrupted period were due to additional expenses.

Solution:

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Question 7 (A):

(i) Alpha Ltd. contracted with a supplier to purchase machinery which is to be installed in one of its departments in three months’ time. Special foundations were required for the machinery which were to be prepared within this supply lead time.

The cost of the site preparation and laying foundation were ₹ 1,40,000. These activities were supervised by a technician during the entire period, who is employed for this purpose @ ₹ 45,000 per month.

The machine was purchased at ₹ 1,58,00,000 and transportation charges of ₹ 50,000 were incurred to bring the machine to the factory site. An Architect was appointed at a fee of ₹ 30,000 to supervise machinery installation at the factory site.

You are required to ascertain the amount at which the Machinery should be capitalized as per AS 10.

Solution:

Calculation of Cost of Fixed Asset (i.e. Machinery)

Particulars		₹
Purchase Price	Given	1,58,00,000
Add: Site Preparation Cost	Given	1,40,000
Technician’s Salary	Specific/Attributable overheads for 3 months (45,000 x3)	1,35,000
Initial Delivery Cost	Transportation	50,000
Professional Fees for Installation	Architect’s Fees	30,000
Total Cost of Machinery
		1,61,55,000

 

(ii) Neon Enterprise operates a major chain of restaurants located in different cities. The company has acquired a new restaurant located at Chandigarh. The new restaurant requires significant renovation expenditure. Management expects that the renovations will last for 3 months during which the restaurant will be closed.

Management has prepared the following budget for this period:

Salaries of the staff engaged in preparation of restaurant before its opening: ₹ 7,50,000

Construction and remodelling cost of restaurant: ₹ 30,00,000

Explain the treatment of these expenditures as per the provisions of AS 10 “Property, Plant and Equipment”.

Solution:

Constructing or acquiring a new asset may result in incremental costs that would have been avoided if the asset had not been constructed or acquired. These costs are not be included in the  cost of the asset if they are not directly attributable to bringing the asset to the location and  condition necessary for it to be capable of operating in the manner intended by management.

The costs to be incurred by the company are in the nature of costs of reducing or reorganizing  the operations of the accompany. These costs do not meet that requirement of AS 10 “Property,  Plant and Equipment” and cannot, therefore, be capitalized.

Question 7 (B):

(i) Raj & Co. has taken a loan of US$ 20,000 at the beginning of the financial year for a specific project at an interest rate of 6% per annum, payable annually.

On the day of taking loan, the exchange rate between currencies was ₹ 48 per 1 US$. The exchange rate at the closing of the financial year was ₹ 50 per 1 US$.

The corresponding amount could have been borrowed by the company in Indian Rupee at an interest rate of 11% per annum.

Determine the treatment of borrowing cost in the books of account.

Solution:

Interest on Foreign Currency Loan: = US $ 20,000 x₹ 50 per US $ x 6% = ₹ 60,000. 

Foreign Exchange Loss on Foreign currency loan: = US$ 20,000 x₹ (50-48) = ₹ 40,000. 

Interest that would have been if the loan was taken in Indian currency i.e. local currency: = US $ 20,000 x 48 x 11% = ₹1,05,600 

Difference between interest on local currency borrowing and foreign currency borrowing: = ₹ 1,05,600 - ₹ 60,000 = ₹45,600 

The entire exchange difference of 40,000 would be considered as borrowing costs. 

The total borrowing cost would be ₹ 1,00,000 (₹ 60000+ ₹ 40000).

(ii) Rohini Limited has obtained a loan from an institution for ₹ 500 lacs for modernization and renovation of its plant and machinery.

The installation of plant and machinery amounting to ₹ 320 lacs was completed on 31.03.2025 and ₹ 50 lacs were advanced to suppliers of additional assets.

The balance of ₹ 130 lacs has been utilized for working capital requirements.

Total interest paid for the above loan amounted to ₹ 65 lacs during 2024–25.

You are required to state how the interest on institutional loan is to be accounted for in the year 2024–25.

Solution:

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Question 8 (A):

HIL Ltd. was making provision for non-moving stocks based on no issues having occurred for the last 12 months up to 31.03.2024. The company now wants to make provision based on technical evaluation during the year ending 31.03.2025.

Total value of stock: ₹ 120 lakhs

Provision required based on technical evaluation: ₹ 3.00 lakhs.

Provision required based on 12 months no issues: ₹ 4.00 lakhs.

You are required to discuss the following points in the light of Accounting Standard (AS)-1:

(i) Does this amount to change in accounting policy?

(ii) Can the company change the method of accounting?

Solution:

The decision of making provision for non-moving inventories on the basis of technical evaluation does not amount to change in accounting policy. Accounting policy of a company may require that provision for non-moving inventories should be made but the basis for making provision will not constitute accounting policy. The method of estimating the amount of provision may be changed in case a more prudent estimate can be made.

In the given case, considering the total value of inventory, the change in the amount of required provision of non-moving inventory from ₹ 4 lakhs to ₹ 3 lakhs is also not material. The disclosure can be made for such change in the following lines by way of notes to the accounts in the annual accounts of HIL Ltd. for the year 20X1-X2 in the following manner:

“The company has provided for non-moving inventories on the basis of technical evaluation unlike preceding years. Had the same method been followed as in the previous year, the profit for the year and the value of net assets at the end of the year would have been lower by ₹1 lakh.”

Question 8 (B):

Solution:

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Question 8 (C):

A & B, who were partners sharing profits and losses in the ratio of 4 : 3 respectively, decided to dissolve the partnership on 31.03.2025. On the date of dissolution, capital was ₹ 1,25,030 and B’s capital was ₹ 2,070. The creditors amounted to ₹ 23,150 and cash ₹ 4,520. The remaining assets realised ₹ 1,24,910 and the expenses of dissolution were ₹ 1,860. Both A & B are solvent.

Prepare

(i) Balance Sheet at the beginning,

(ii) Capital Account of partners on Dissolution

Solution:

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