Test Series: March, 2022

MOCK TEST PAPER 1

INTERMEDIATE: GROUP – I
PAPER – 1: ACCOUNTING
Question No. 1 is compulsory.
Answer any four questions from the remaining five questions.
Wherever necessary suitable assumptions may be made and disclosed by way of a note.
Working Notes should form part of the answer.
(Time allowed: Three hours) (Maximum Marks: 100)
1. (a) State whether the following statements are 'True' or 'False' in line with the provisions of AS -1 Also
give reason for your answer.
(i) Certain fundamental accounting assumptions underline the preparation and presentation of
financial statements. They are usually specifically stated because their acceptance and use
are not assumed.
(ii) If fundamental accounting assumptions are not followed in presentation and preparation of
financial statements, a specific disclosure is not required.
(iii) All significant accounting policies adopted in the preparation and presentation of financial
statements should form part of the financial statements.
(iv) Any change in an accounting policy, which has a material effect should be disclosed. Where
the amount by which any item in the financial statements is affected by such change is not
ascertainable, wholly or in part, the fact need not to be indicated.
(v) There is no single list of accounting policies which are applicable to all circumstances.
(b) (i) Entity A carried plant and machinery in its books at ` 2,00,000 which were destroyed in a fire.
These machines were insured 'New for old' and were replaced by the insurance company with
new machines of fair value ` 20,00,000. The old destroyed machines were acquired by the
insurance company and the company did not receive any cash compensation. State, how
Entity A should account for the same?
(ii) Omega Ltd, a supermarket chain, is renovating one of its major stor es. The store will have
more available space for store promotion outlets after the renovation and will include a
restaurant. Management is preparing the budgets for the year after the store reopens, which
include the cost of remodelling and the expectation of a 15% increase in sales resulting from
the store renovations, which will attract new customers.
Decide whether Omega Ltd. can capitalize the remodelling cost or not as per provisions of
AS 10 “Property Plant & Equipment”.
(c) Following is the cash flow abstract of Alpha Ltd. for the year ended 31 st March, 2021:
Cash Flow (Abstract)
Inflows ` Outflows `
Opening cash and bank balance 80,000 Payment for Account Payables 90,000
Share capital – shares issued 5,00,000 Salaries and wages 25,000
Collection from Trade Payment of overheads 15,000
Receivables 3,50,000 Machinery acquired 4,00,000
Debentures redeemed 50,000

© The Institute of Chartered Accountants of India

 Sale of Machinery 70,000 Bank loan repaid 2,50,000
Tax paid 1,55,000
______ Closing cash and bank balance 15,000
10,00,000 10,00,000
Prepare Cash Flow Statement for the year ended 31 st March, 2021 in accordance with AS 3.
(d) On 01.04.2018, XYZ Ltd. received Government grant of ` 100 Lakhs for an acquisition of new
machinery costing ` 500 lakhs. The grant was received and credited to the cost of the assets. The
life span of the machinery is 5 years. The machinery is depreciated at 20% on WDV method. The
company had to refund the entire grant in 2 nd April, 2021 due to non-fulfilment of certain conditions
which was imposed by the government at the time of approval of grant. How do you deal with the
refund of grant to the Government in the books of XYZ Ltd. as per AS 12?
(4 Parts x 5 Marks = 20 Marks)
2. (a) Shree Ltd. has authorized capital of ` 50 lakhs divided into 5,00,000 equity shares of ` 10 each.
Their books show the following balances as on 31 st March, 2021:
` `
Inventory 1.4.2020 6,65,000 Bank balance in Current Account 20,000
Discounts & Rebates allowed 30,000 Cash in hand 8,000
Carriage Inwards 57,500 Interest (bank overdraft) 1,11,000
Patterns 3,75,000 Calls in Arrear @ `2 per share 10,000
Rate, Taxes and Insurance 55,000 Equity share capital 20,00,000
Furniture & Fixtures 1,50,000 (2,00,000 shares of ` 10 each)
Purchases 12,32,500 Bank Overdraft 12,67,000
Wages 13,68,000
Freehold Land 16,25,000 Trade Payables (for goods) 2,40,500
Plant & Machinery 7,50,000 Sales 36,17,000
Engineering Tools 1,50,000 Rent (Cr.) 30,000
Trade Receivables 4,00,500 Transfer fees received 6,500
Advertisement 15,000 Profit & Loss A/c (Cr.) 67,000
Commission & Brokerage (Dr.) 67,500 Repairs to Building 56,500
Business Expenses 56,000 Bad debts 25,500
You are required to prepare Statement of Profit & Loss for the year ended 31 st March, 2021 and
Balance Sheet as on that date in line with Schedule III to the Companies Act, 2013 after considering
the following:
The inventory (valued at cost or market value, which is lower) as on 31 st March, 2021 was
` 7,08,000. Outstanding liabilities for wages ` 25,000 and business expenses ` 36,000.
Charge depreciation on closing written down value of Plant & Machinery @ 5%, Engineering Tools
@ 20%; Patterns @ 10%; and Furniture & Fixtures @10%. Provide 25,000 as doubtful debts after
writing off `16,000 as additional bad debts. Provide for income tax @ 30%.
(b) State under which head these accounts should be classified in Balance Sheet, as per Schedule III
of the Companies Act, 2013:
(i) Share option outstanding account.
(ii) Unpaid matured debenture and interest accrued thereon.
2

© The Institute of Chartered Accountants of India

 (iii) Uncalled liability on shares and other partly paid investments.
(iv) Money received against share warrant. (16 + 4 = 20 Marks)
3. (a) (i) Mr. Vijay entered into the following transactions of purchase and s ale of equity shares of JP
Power Ltd. The shares have paid up value of ` 10 per share.
Date No. of Shares Terms
01.01.2019 600 Buy @ ` 20 per share
15.03.2019 900 Buy @ ` 25 per share
20.05.2019 1000 Buy @ ` 23 per share
25.07.2019 2500 Bonus Shares received
20.12.2019 1500 Sale @ ` 22 per share
01.02.2020 1000 Sale @ ` 24 per share
Addition information:
(1) On 15.09.2019 dividend @ ` 3 per share was received for the year ended 31.03.2019.
(2) On 12.11.2019 company made a right issue of equity shares in the ratio of one share for
five shares held on payment of ` 20 per share. He subscribed to 60% of the shares and
renounced the remaining shares on receipt of ` 3 per share.
(3) Shares are to be valued on weighted average cost basis.
You are required to prepare Investment Account for the year ended 31.03.2019 and
31.03.2020.
(ii) Whether the accounting treatment 'at cost' under the head ‘Long Term Investments’ without
providing for any diminution in value is correct and in accordance with the provisions of AS
13. If not, what should have been the accounting treatment in such a situation? What
methodology should be adopted for ascertaining the provision for diminution in the value of
investment, if any. Explain in brief. (8 + 4 =12 Marks)
(b) A fire engulfed the premises of a business of M/s Preet on the morning of 1 st July 2021. The
building, equipment and stock were destroyed and the salvage recorded the following:
Building – ` 4,000; Equipment – ` 2,500; Stock – ` 20,000. The following other information was
obtained from the records saved for the period from 1 st January to 30th June 2021:
`
Sales 11,50,000
Sales Returns 40,000
Purchases 9,50,000
Purchases Returns 12,500
Cartage inward 17,500
Wages 7,500
Stock in hand on 31st December, 2020 1,50,000
Building (value on 31st December, 2020) 3,75,000
Equipment (value on 31st December, 2020) 75,000
Depreciation provided till 31st December, 2020 on:
Building 1,25,000
Equipment 22,500

© The Institute of Chartered Accountants of India

 No depreciation has been provided after December 31 st 2020. The latest rate of depreciation is
5% p.a. on building and 15% p.a. on equipment by straight line method.
Normally business makes a profit of 25% on net sales. You are required to prepare the statement
of claim for submission to the Insurance Company. (8 Marks)
4. (a) The following is the Balance Sheet of Chirag as on 31st March, 2020:
Liabilities ` Assets `
Capital Account 48,000 Building 32,500
Loan 15,000 Furniture 5,000
Creditor 31,000 Motor car 9,000
Stock 20,000
Debtors 17,000
Cash in hand 2,000
Cash at bank 8,500
94,000 94,000
A riot occurred on the night of 31 st March, 2021 in which all books and records were lost. The
cashier had absconded with the available cash. He gives you the following information:
(a) His sales for the year ended 31 st March, 2021 were 20% higher than the previous year’s sales.
He always sells his goods at cost plus 25%; 20% of the total sales for the year ended
31st March, 2021 were for cash. There were no cash purchases.
(b) On 1st April, 2020 the stock level was raised to ` 30,000 and stock was maintained at this
new level all throughout the year.
(c) Collection from debtors amounted to ` 1,40,000 of which ` 35,000 was received in cash,
Business expenses amounted to ` 20,000 of which ` 5,000 was outstanding on 31 st March,
2021 and ` 6,000 was paid by cheques.
(d) Analysis of the Pass Book revealed the Payment to Creditors ` 1,37,500, Personal Drawing
` 7,500, Cash deposited in Bank ` 71,500, and Cash withdrawn from Bank
` 12,000.
(e) Gross profit as per last year’s audited accounts was ` 30,000.
(f) Provide depreciation on Building and Furniture at 5% and Motor Car at 20%.
(g) The amount defalcated by the cashier may be treated as recoverable from him.
You are required to prepare the Trading and Profit and Loss Account for the year ended 31 st March,
2021 and Balance Sheet as on that date.
(b) The following balances were extracted from the books of Beta. You are required to prepare
Departmental Trading Account and general Profit & Loss Account for the year ended
31st March, 2021:
Particulars Deptt. A Deptt. B
` `
Opening Stock 3,00,000 2,40,000
Purchases 39,00,000 54,60,000
Sales 60,00,000 90,00,000

© The Institute of Chartered Accountants of India

 General expenses incurred for both the Departments were ` 7,50,000 and you are also supplied
with the following information:
(i) Closing stock of Department A ` 6,00,000 including goods from Department B for ` 1,20,000
at cost to Department A.
(ii) Closing stock of Department B ` 12,00,000 including goods from Department A for ` 1,80,000
at cost to Department B.
(iii) Opening stock of Department A and Department B include goods of the value of ` 60,000 and
` 90,000 taken from Department B and Department A respectively at cost to transferee
departments.
(iv) The gross profit is uniform from year to year. (12 +8 = 20 Marks)
5. (a) The partners of Ojasvi Enterprises decided to convert the partnership firm into a Private Limited
Company Tejasvi (P) Ltd. with effect from 1 st January, 2019. However, company could be
incorporated only on 1 st June, 2019. The business was continued on behalf of the company and
the consideration of ` 6,00,000 was settled on that day along with interest @ 12% per annum. The
company availed loan of ` 9,00,000 @ 10% per annum on 1 st June, 2019 to pay purchase
consideration and for working capital. The company closed its accounts for the first time on
31st March, 2020 and presents you the following information:
` `
Sales 19,80,000
Cost of goods sold 11,88,000
Discount to dealers 46,200
Directors’ remuneration 60,000
Salaries 90,000
Rent 1,35,000
Interest 1,05,000
Depreciation 30,000
Office expenses 1,05,000
Preliminary expenses (to be written off in first year itself) 15,000
17,74,200
Profit 2,05,800
Sales from June, 2019 to December, 2019 were 2½ times of the average sales, which further
increased to 3½ times in January to March quarter, 2019. The company recruited additional work
force to expand the business. The salaries from July, 2019 doubled. The company also acquired
additional showroom at monthly rent of ` 10,000 from July, 2019.
You are required to prepare a statement showing apportionment of cost and revenue between pre -
incorporation and post-incorporation periods.
(b) L Ltd. has its head office at Mumbai and two branches at Pune and Goa. The branches purchase
goods independently. Pune branch makes a profit of one third on cost and Goa branch makes a
profit of 20% on sales. Goods are also supplied by one branch to another at the respective sales
price. From the following particulars, prepare the Trading and Profit and Loss Account of Pune
branch and find out the profit or loss made by it considering the reserve for unrealised profits:
Particulars Pune Branch ` Goa Branch `
Opening Stock 40,000 30,000
Purchases (Including Inter Branch transfers) 2,00,000 2,50,000
Sales 2,80,000 2,95,625

© The Institute of Chartered Accountants of India

 Chargeable Expenses 15,000 27,500
Closing Stock 30,000 43,500
Office and Administration Expenses 13,250 7,000
Selling and Distribution Expenses 15,000 10,000
Information:
(i) Opening stock at Pune Branch includes goods of ` 10,000 (invoice price) taken from Goa
Branch.
(ii) Opening stock at Goa Branch includes goods of invoice price ` 17,000 taken from Pune
Branch.
(iii) The Pune Branch sales includes transfer of goods to Goa Branch at selling price ` 20,000
(iv) The sales of Goa Branch include transfer of goods to Pune Branch at selling price ` 15,000.
(v) Closing stock at Pune Branch includes goods received from Goa Branch (invoice price
` 5,000.
(vi) Closing stock at Goa Branch includes goods of ` 4,000 (invoice price).
(c) Ganesh Ltd. has head office at Delhi (India) and branch at New York. New York branch is an
integral foreign operation of Ganesh Ltd. New York branch furnishes you with its trial balance as
on 31st March, 2020 and the additional information given thereafter:
Dr. ($) Cr. ($)
Stock on 1st April, 2019 300 –
Purchases and sales 800 1,500
Sundry Debtors and creditors 400 300
Bills of exchange 120 240
Sundry expenses 1,080 –
Bank balance 420 –
Delhi office A/c – 1,080
3,120 3,120
The rates of exchange may be taken as follows:
➢ on 1.4.2019 @ ` 40 per US $
➢ on 31.3.2020 @ ` 42 per US $
➢ average exchange rate for the year @ ` 41 per US $.
New York branch account showed a debit balance of ` 44,380 on 31.3.2020 in Delhi books and
there were no items pending reconciliation.
You are asked to prepare trial balance of New York in ` in the books of Ganesh Ltd.
(10 + 6 + 4 = 20 Marks)
6. (a) The following are the extracts from the Balance Sheet of ABC Ltd. as on 31 st March, 2021.
Share capital: 40,000 Equity shares of ` 10 each fully paid – ` 4,00,000; 1,000 10% Redeemable
preference shares of ` 100 each fully paid – ` 1,00,000.
Reserve & Surplus: Capital reserve – ` 50,000; Securities premium – ` 50,000; General reserve –
` 75,000; Profit and Loss Account – ` 35,000

© The Institute of Chartered Accountants of India

 On 1st April 2020, the Board of Directors decided to redeem the preference shares at par by
utilisation of reserve.
You are required to pass necessary Journal Entries including cash transactions in the books of the
company.
(b) X Ltd. (a non-investment company) provides the following information as on 31 st March, 2021 was
obtained:
`
Issued and subscribed capital:
15,000, 14% Preference shares of ` 100 each fully paid 15,00,000
1,20,000 Equity shares of ` 100 each, ` 80 paid-up 96,00,000
Capital reserves (` 1,50,000 is revaluation reserve) 1,95,000
Securities premium 50,000
15% Debentures 65,00,000
Investment in shares, debentures, etc. 75,00,000
Profit and Loss account (debit balance) 15,25,000

You are required to compute Effective Capital as per the provisions of Schedule V to the
Companies Act, 2013.
(c) Mr. Aman is running a business of readymade garments. He does not maintain his books of
accounts under double entry system. While assessing the income of Mr. Aman for the financial
year 2020-21, Income Tax Officer feels that he has not disclosed the full income earned by him
from his business. He provides you the following information:
On 31st March, 2020
Sundry Assets ` 16,65,000
Liabilities ` 4,13,000
On 31st
March, 2021
Sundry Assets ` 28,40,000
Liabilities ` 5,80,000
Mr. Aman’s drawings for the year 2020-21 ` 32,000 per month
Income declared to the Income Tax Officer ` 9,12,000
During the year 2020-21, one life insurance policy of Mr. Aman was matured and amount received
` 50,000 was retained in the business.
State whether the Income Tax Officer's contention is correct. Explain by giving your working.
OR
A acquired on 1st January, 2021 a machine under a Hire-Purchase agreement which provides for
5 half-yearly instalments of ` 6,000 each, the first instalment being due on 1st July, 2021.
Assuming that the applicable rate of interest is 10 per cent per annum, calculate the cash value of
the machine. All working should form part of the answer.
(d) ABC Ltd. has entered into a binding agreement with XYZ Ltd. to buy a custom-made machine
amounting to ` 4,00,000. As on 31 st March, 2021 before delivery of the machine, ABC Ltd. had to
change its method of production. The new method will not require the machine ordered and so it
shall be scrapped after delivery. The expected scrap value is ‘NIL’. Show the treatment of machine
in the books of ABC Ltd. (4 Parts x 5 Marks = 20 Marks)
7

© The Institute of Chartered Accountants of India