PROFESSIONAL ACCESS Ph:98494 19306

Vijayawada
Sub :Advanced Accounts
Topic:AS Problems
AS1
1) Can same type of inventory at two different factories be valued by applying two different accounting
policies.

2) The finished goods inventory is valued on prime cost and on principle of market value, whichever is lower.
The cost included the cost of the material,packing material, direct production , labour expenses and excise duty
is applicable on the finished goods. Comment.

3) A & Co a partnership firm has prepared its accounts on cash basis. comment

4) X ltd had accounted for its liability towards retirement benefits of its employees on cash basis, and had
disclosed the same in the Notes on Accounts. Since, it has not followed the fundamental accounting
assumptions of `accrual' the Auditors want to qualify the report. The company feels that a qualified report is not
necessary since AS-1 simply requires a disclosure if a fundamental accounting assumption has not been
followed. Comment.

5) X Ltd has a branch office in India since 1994. As of March 2007, it has decided to close operations in India.
There is no disagreement on the going concern issue between the management and auditors. This is a branch
office with Skelton operations there are no significant assets /liabilities. Besides the branch operates in a
rented premises. Comment the following based on AS-1

a) Should the going concern assumption quantified

b) Will the assets and liabilities have to be restated / revalued
c) What if any and how are the disclosure requirements to be complied with.

6) A Ltd sold its building for Rs. 50 lakhs. The purchaser has paid full price. Company has given possession to
the purchaser. The book value of the building is Rs.35 lakhs. As at 31 st March 2008, documentation and legal
formalities are pending. The company has not recorded the disposal. It has shown the amount received as
advance. Do you agree with this treatment.

7) B Ltd has taken a loan of Rs. 10 crores from ICICI Ltd. Its bankers Canara Bank have given guarantee to
ICICI on its behalf. B ltd has mortgaged its assets to Canara Bank. B Ltd has disclosed this loan in balance sheet
as unsecured loan on the grounds that no security has been given to the lender ICICI Ltd.

8) X Ltd follows the practice of disclosing accounting policies adopted in preparation of financial statements in
the Directors report. Comment on this practice.

AS-2
9) X Co Ltd purchased goods at the cost of Rs.40 lakhs in October, 2006, 75% of the stocks were sold. The
company to disclose Closing stock at Rs.10 lakhs. The expected sale value is Rs.11 lakh and a commission of
10% on sale is payable to the agent. Advise, what is the correct Closing Stock to be disclosed as at 31-3-
2007. ( PE II May 2006)

10) A private Limited company manufacturing fancy terry towels has valued its closing stock of inventories of
finished goods at the realizable value, inclusive of profit and export cash incentives. Firm contracts had been
received and goods were packed for export, but the ownership in these goods had not been transferred to the
foreign buyers. Comment on the valuation of the stocks by the company. ( Nov 2006 Final)

11) In a production process normal waste is 5% of input, 5,000 MT of input were put in process resulting in
wastage of 300 MT. Cost per MT of input is Rs.1,000. The entire quantity of waste is on stock at the year end
State with reference to Accounting Standard , how will you value the inventories in this case.
(PCC May 2008 Accounts)

12) What are the items that are to be excluded in determination of the cost of inventories as per AS-2.
( PCC May 2008)

13) The management tells you that WIP is not valued since it is difficult to know the same in view of multiple
Processes involved and in any case opening and closing WIP should be more or less the same.
( Auditing Nov 2006)

14) X Co Ltd purchase goods at the cost of Rs. 40 lakhs in October 2005. Till March, 2006 , 75% of the stocks
were sold. The company wants to disclose closing stock at Rs. 10 lakhs. The expected sale value is Rs. 11 lakhs
and a commission of 10% on sale is payable to the agent. Advise, the correct closing stock to be disclosed as at
31-5-2006.
( Accounts May 2006)

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 PROFESSIONAL ACCESS Ph:98494 19306
Vijayawada
Sub :Advanced Accounts
Topic:AS Problems

15) Best Ltd deals in five products P,Q R S and T which are neither similar nor interchangeable. At the time of
closing of its account for the year ending 31-3-2011 the Historical cost and net realizable value of the items of
closing stock are determined as follows.
Historical Cost Net Realisable Value
P Rs. 5,70,000 4,75,000
Q 9,80,000 10,32,000
R 3,16,000 2,89,000
S 4,25,000 4,25,000
T 1,60,000 2,15,000
What will be value of of closing stocks. ( May 2011 4 M)

16) Sonly Pharma ordered 12,000 Kg of certain material at Rs.80 per unit. The purchase price includes excise
duty of Rs.4 per kg in respect of which CENVAT credit is admissible. Freight incurred amounted to Rs.77,400.
Normal transit loss is 3%. The company actually received 11,600 kg and consumed 10,100 kg of material.
Compute cost of inventory under AS-2 and abnormal loss. ( PCC June 2009 4M)

17) Night Ltd sells beer to customers, some of the customers consume the beer in the bars run by Night Ltd.
While leaving the bars, the consumers leave the empty bottles in the bars and the company takes possession of
these empty bottles. The company has laid down a detailed internal record procedure for accounting for these
empty bottles which are sold by the company by calling for tenders. Keeping this in view

i) Decide whether the stock of empty bottles is an asset of the company

ii) If so whether the stock of empty bottles existing as on the date of Balance sheet is to be considered as
inventories of the company and valued as per AS-2 or to be treated as scrap and shown at realizable value
with corresponding credit to other income. (Final Nov 2010)

AS-3
18) X Ltd purchased debentures of Rs.10 lakhs of Y Ltd. Which are traded in Stock exchange. How will you
show this item as per AS-3 while preparing cash flow statement for the year ended 31-3-2008.
( May 2008 Accounts)
AS-6
19) X Co Ltd charged depreciation on its asset on SLM basis. For the year ended 31-3-2003 it changed to
WDV basis. The impact of the change when computed from the date of purchase amounts to Rs. 20 lakhs being
additional charge.

Decide how it must be disclosed in P & L A/c. Also discuss, when such changes in method of depreciation can
be adopted by an enterprise as per AS-6. ( PE II may 2003)

20) A limited company charged depreciation on its assets on the basis of WDV method from the date of assets
coming to use till date amount to 32.23 lakhs. Now the company decides to switch over to Straight line
method of providing for depreciation. The amount of depreciation computed on the basis of SLM from date
of assets coming to use till the date of change of method amounts to rs.20 lakhs.

Discuss as per AS-6 when such changes in method can be adopted by the company and what would be
accounting treatment and disclosure requirement. ( PE II Nov 2003)

21) A plant was depreciated under two different methods as under.

Year SLM WDV
( Rs in lakhs) ( Rs. in lakhs)
1 7.8 21.38
2 7.8 15.80
3 7.8 11.68
4 7.8 8.64
--- -----
31.20 57.50
5 7.8 6.38
What should be the amount of resultant surplus/deficiency, if the company decides to switch over from WDV
to SLM method for for first four years ? Also state how will you treat the same in Accounts. (M 2004)

22) Ram Co ( P ) Ltd furnishes you the following information for the year ended 31-3-2005.
Depreciation for the year ended 31-3-2005 ( Under SLM) Rs. 100 lakhs
Depreciation for the year ended 31-3-2005 ( under WDV method) Rs. 200 lakhs
Depreciation for the earlier years combined in WDV method and its excess to SLM Rs. 500 lakhs
The company wants to change its methods of claiming depreciation from SLM to WDV.
Decide how the depreciation should be disclosed in the Financial Statement for the year ended 31-3-2005.
( PE II Nov 2005)

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 PROFESSIONAL ACCESS Ph:98494 19306
Vijayawada
Topic:AS Problems
Sub :Advanced Accounts

23) A Machinery costing Rs.10 lakhs has useful life of 5 years. After the end of 5 years its scrap value is Rs.1
lakh. How much depreciation is to be charged in the books of the company ( PCC May 2007)

24) Mention four assets Where AS-6 is not applicable ( PCC Nov 2008)

AS-7
25) X Infrastructure Ltd has the following details of a contract that started in 2005.
i) Contract Value Rs. 10,00,000
ii) % of Completion
2005 10% ; 2006 60% ; 2007 80%
Calculate the amount of revenue to be recognized in the P & L A/c for 2005,2006 and 2007.

26) A company took a construction contract for Rs.100 lakhs in January 2006. It was found that 80% of the
contract was completed at a cost of Rs.92 lakhs on the closing date.i.e on 31-3-2007. The company estimates
further expenditure of Rs.23 lakhs for completing the contract. The expected loss would be Rs.15 lakhs. Can the
company recognize the loss in the financial statements prepared for the year ended 31-3-2007.
( PCC May 2007)

27) Compute the % of completion and contract Revenue and Costs to be recognised from the following data.

Contract price Rs. 75 lakhs

Materials issue to the contract Rs.18 lakhs of which materials costing Rs.3 lakhs still lying at the end of the
period.
Labour paid for workers engaged at site Rs. 12 lakhs ( Rs. 2 lakhs still payable)
Specific contract costs Rs. 6 lakhs, subcontract costs for work executed Rs.5 lakhs, Advances to sub
contractors Rs. 3 lakhs

Cost estimated to be incurred to complete the contract 30 lakhs.

28) X Ltd undertook ltd a contract for building a crane for Rs.10 lakhs. As on 31st March of a financial year, it
incurred a cost of Rs. 1.5 lakh and expects that Rs.9 lakhs more will be required for completing the crane. It
has received so far Rs 1.2 lakh as progress payment. Discuss the treatment of the above items under AS-7
( Final Nov 96)

AS-9
29) X Ltd entered into a contract with Y Ltd to despatch goods valuing Rs.One lakh every month for 6 months
upon receipt of entire payment. Y ltd accordingly made the payment. In 3rd month due to a natural calamity
Y ltd requested X Ltd not despatch until further notice. X Ltd accounted Rs. 2 lakhs as sales and transferred the
balance to Advanced Receipt against sales.

30) Arjun Ltd sold farm equipments through its dealers. One of the conditions at the time of sale is, payment of
consideration in 14 days and in the event of delay interest is chargeable @ 15% p.a The company has not realized
interest from the dealers in the past. However, for the year ended 31-3-2006 it wants to recognize interest due on
the balances due from dealers. The amount is ascertained at Rs.9 lakhs. Decide whether the income by way of
interest from dealers is elgigible for recognition as per AS-9. ( PE II 2006 May)

31) Y used certain resources of X Ltd . In return X ltd receives Rs. 10 lakhs and Rs.15 lakhs as interest and
royalties respectively from Y Ltd during the P.Y 2007-08. State on what basis X Ltd should recognize their
revenue as per AS-9.

32) X Ltd has 1000 shares of S Ltd as on 31-3-2007. On 14-4-2007 S Ltd declared a dividend of Rs.3 per share
for the year 2006-07. X Ltd wants to recognize this dividend income of Rs.3,000 in the financial statement for the
year 2006-2007, as the dividend had been declared before the preparation of Balance sheet.

33)X Ltd received an amount of Rs.2,00,000 towards after sales service contract under which the services are to
be provided during next 3 years. It is expected that X ltd would incur a cost of Rs.20,000, Rs.40,000 and
Rs.40,000 on providing services during 3 years respectively. Find out the amount to be recognized by X Ltd.

AS-10

34) Explain the Accounting of Revaluation of Assets with reference to AS-10 ( PE II May 2006)

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 PROFESSIONAL ACCESS Ph:98494 19306
Vijayawada
Sub :Advanced Accounts
Topic:AS Problems

35) During the current year 2002-03 X Limited made the following expenditure relating to its plant building
Rs in lakhs
Routine repairs 4
Repairing 1
Partial replacement of roof tiles 0.5
Substantial improvements to the electrical wiring system which
Will increase efficiency 10
What ;amount should be capitalized. ( PE II May 2004 4M)

36) BC Ltd gave 50,000 equity shares of Rs.10 each ( fully paid up) in consideration for supply of certain
machinery by X & Co. The shares exchanged for machinery are quoted on Bombay Stock Exchange (BSE) at
Rs.15 per share, at the time of transaction. In the absence of fair market value of machinery acquired, how the
value of machinery would be recorded in the books of the company ( PCC May 2007 2M)

37) What is the accounting entry to be passed as per AS-10 for the following situations.

a) Increase in value of fixed assets by Rs.50,00,000 on account of revaluation

b) Decrease in the value of fixed assets by Rs. 30,00,000 on account of Revaluation
( PCC May 2008 2M)

AS-13
38) Mention two categories of investments defined by AS-13 and also state their valuation principles.
As per AS-13 investments is the assets held for earning of income by way dividend, interest and rentals for
capital appreciation or for other benefits.
Current investments are valued Lower of cost or Net realizable value
Long term investments are valued Cost less permanent diminution in the value of investmens.

IPCC Nov 2009( Group I)

1) Year to year results of a company were not found comparable on the basis of gross profit margin.
List out the probable reasons.

2) MY Ltd. had acquired 200 equity shares of YZ Ltd. at Rs. 105 per share on 01.01.2009 and paid Rs.
200 towards brokerage, stamp duty and STT. On 31st March, 2009 Shares of YZ Ltd, were traded at Rs.
110 per share. At what value investment is to be shown in the Balance Sheet of MYLtd. as at 31st
March, 2009.

3) What are the basic characteristics of a Pvt. Ltd. Company ?

4) Sumo Ltd. has a profit of Rs. 25 lakhs before charging depreciation for Financial year 2008-09.
Depreciation in the books was Rs. 11 lakhs and depreciation chargeable under Section 205 comes to Rs.
17 lakhs. Compute divisible profit for the year.

5)From the following data, find out value of inventory as on 30.04.2009 using (a) LIFO method, and
(b) FIFO method :
(1) 01.04.2009 Purchased 10 units @ Rs. 70 per unit
(2) 06.04.2009 Sold 6 units @ Rs. 90 per unit
(3) 09.04.2009 Purchased 20 units @ Rs. 75 per unit
(4) 18.04.2009 Sold 14 units @ Rs. 100 per unit.

6) Explain contract costs as per Accounting Standard-7 related to 'Construction Contracts'.

7)Omshanti Club has 500 members with annual fee of Rs. 1,000 per member. At the end of the
accounting year, accountant noticed that 40 members have not paid annual fee and 70 members had paid
fee in advance. Help the accountant to compute Cash receipts of annual fee for the year

8). Rose Ltd. had made an investment of Rs. 500 lakhs in the equity shares of Nose Ltd. On 10.1.2009.
The realisable value of such investment on 31.03.2009 became Rs 200 lakhs as Nose Ltd, 0lost a case of
patent rights. Rose Ltd follows financial year as accounting year. How will you recognize this reduction
in Financial statements for the year 2008-09.

9)A company provided Rs. 10,00,000 for dividend payment. Is the Corporate Dividend Tax payable in
this case? If yes, please compute corporate Dividend Tax assuming rate of 15% plus surcharge of 10%
and disclose as it would appear in profit and Loss Account of the Company.

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10) SAD Enterprises, a partnership firm had purchased business of SWAD enterprises on 01.04.2008
and paid Rs. 50,000 towards goodwill. On 01.04.2009, SAD enterprises decided to admit W as partner
and the goodwill was valued at Rs. 1,00,000 for the purpose. Please explain with reasons, at what price
goodwill can be shown in the books of Accounts

PROFESSIONAL ACCESS Ph:98494 19306

Vijayawada
Sub :Advanced Accounts
Topic:AS Problems
May 2010 IPCC
i) A and B are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals are Rs.60,000 and Rs.
40,000 respectively. They admit C as a new partner who will get 1/6th share in the profit of the firm. C brings in
Rs. 25,000 as his capital. Find out the amount of goodwill on the basis of the above information.

ii) Mr. X purchased 1,000, 6% Government Bonds of Rs. 100 each on 31st January, 2009 at Rs. 95 each.
Interest is payable on 30th June and 31st December. The price quoted is cum interest. Journalise the transaction.

iii) A company acquired a machine on 1.4.2006 for Rs. 5,00,000. The company charged depreciation upto 2008-
09 on straight line basis with estimated working life of 10 years and scrap value of Rs. 50,000. From 2009-10, the
company decided to change depreciation method at 20% on reducing balance method. Compute the amount of
depreciation to be debited to Profits and Loss A/c for the year 2009-10.

iv) An unquoted long-term investment is carried in the books at cost of Rs. 2 lac. The published accounts of
unlisted company received in May, 2009 showed that the company has incurred cash losses with decline
market share and the long-term investment may not fetch more than Rs. 20,000. How you will deal with it
in the financial statement of investing company for the year ended 31.3.2009.

(v) In the absence of a partnership deed, what will be your decision in disputes amongst partners regarding
the following matters :
(a) Profit sharing ratio;
(b) Interest rate at which interest is to be allowed to a partner on loan given to the firm by a partner.

(vi) According to Accounting Standard-9, when revenue from sales should be recognised ?

(vii) In January, 2010 a firm took an insurance policy for Rs. 60 lakhs to insure goods in its godown against
fire subject to average clause. On 7th March, 2010 a fire broke out destroying goods costing Rs. 44
lakhs. Stock in the godown was estimated at Rs. 80 lakhs. Compute the amount of insurance claim.

viii) Weak Ltd. acquired the fixed assets of Rs. 100 lakhs on which it received the grant of Rs. 10 lakhs. What
will be the cost of the fixed assets as per AS-12 and how it will be disclosed in the financial statements.

(ix) During the current year 2009-10 M/s L & C Ltd. made the following expenditure relating to its plant and
machinery
General repairs 4,00,000 ; Repairing of Electric Motors 1,00,000
Partial Replacement of parts of Machinery 50,000 Substantial improvements to the electrical wiring system
which will increase efficiency of the plant and machinery 10,00,000
What amount should be capitalised according to AS-10 ?

(x) Raw materials inventory of a company includes certain material purchased at Rs. 100 per kg. The price
of the material is on decline and replacement cost of the inventory at the year end is Rs. 75 per kg. It is
possible to convert the material into finished product at conversion cost of Rs. 125. Decide whether to
make the product or not to make the product, if selling price is (i) Rs. 175 and (ii) Rs.225. Also find out
the value of inventory in each case.
IPCC Nov 2010

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1) A company installed a plant at a cost of ˆ 29 lakhs with estimated useful life of 10 years and decided to
depreciate on straight line method. In the fifth year company the company decided to switch over from straight
line method WDV. Compute the resultant surplus/deficiency if any, and state how will you treat same in the
accounts. ( 4 M)

2) A large size multi departments hospital decided to outsource the accounting functions. Hospital invited
proposals from vendors through open tender and received three proposals. How will you select the vendor.

3) An amount ˆ9,90,000 was incurred on a contract work up to 31-3-2010. Certificates have been received to date
to the value of ˆ12,00,000 against which ˆ 10,80,000 has been received in cash. The cost of work done but not
certified amounted to ˆ22,500. It is estimated that by spending an additional amount of ˆ 60,000 (including
provision for contingencies) the work can be completed in all respects in another two months. The agreed
contract price of work is ˆ 12,50,000. Compute a conservative estimate of the profit to be taken to the P& L A/c
as per AS-7.

4) HP is a leading distributor in petrol. A detail inventory of petrol in hand is taken when the books are closed at
the end of each month. Following information is available.
Sales ˆ 47,25,000 ; General overheads at cost ˆ 1,25,000 ; Inventory at beginning 1,00,000 litrest @ 15/-
per litre.
Purchases: June 1 two lakh litres @ 14.25 ; June 30 one lakh litres closing inventory 1.30 lakh litires.
Compute the following FIFO as per AS-2 i) Value of inventory on June 30 ; Amount of CGS iii) Profit/loss