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NOV-2022
CA INTERMEDIATE
PAPER - 01
ACCOUNTING

Timing:- 3 Hrs. Total No. of Printed Pages – 11

Total No. of Questions – 06 Maximum Marks – 100
GENERAL INSTRUCTIONS TO CANDIDATES
1. The question paper comprises DESCRIPTIVE ANSWERS.
2. In case of Verification of your ans sheets by the experts please Scan your Ans sheet in One PDF Form
and Send the same on inter.vsmartexamprep@vsmartacademy.com (verification is chargeable)
3. The size of the scanned PDF file should be less than 25 MB.
4. Details to be compulsorily mentioned on your answer sheet:
Name: e.g. Aneesh
Course: CA Intermediate
Subject: Accounting
Syllabus: New/Old
Test No: (See on Page no. 2 )
5. If any of the details are missing there would be delay in checking your answer sheets.
6. Ans. Sheet will be evaluated within 7 days.
7. Answer sheet submitted after 6pm will be considered in next day Cycle.
8. Answer all the questions in English.
____________________________________________________________________________________
PART – 2
1. Question paper Comprise 6 questions. Question No. 1 is compulsory, Attempt any 4 out of remaining
5 Questions.
2. Working notes should form part of the answer.
3. Answers to the questions are to be given only in English except in the case of candidates who have
opted for Hindi Medium. If a candidate has not opted for Hindi Medium, his/her answers in Hindi
will not be evaluated.

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PORTIONWISE TEST ROUND – 4

CA INTERMEDIATE

PAPER 1: ACCOUNTING

Question 1. A) (5 Marks)
Calculate the value of Raw Materials and Closing Stock based on the following:
Particulars Raw Particulars Finished
Material X Goods Y
Closing Balance 500 units Closing Balance 1,200 units
Cost Price including GST ₹ 200 per unit Material Consumed ₹ 220 per unit
GST (Input Tax Credit is receivable) ₹ 10 per unit Direct Labour ₹ 60 per unit
Freight Inward ₹ 20 per unit Direct Overhead ₹ 40 per unit
Unloading Charges ₹ 10 per unit Total Fixed Overhead ₹ 2,00,000
Replacement Cost ₹ 150 per unit Normal Capacity 20,000 units

Calculate the value of the Closing Stock, when Net Realizable Value of the Finished
Goods Y is:
(a) ₹400,

(b) ₹300.

Question 1. B) (5 Marks)
(i) ABC Ltd. was previously making provision for non-moving stocks based on
stocks not issued for the last 12 months up to 31.03.2020. Now, the company
wants to make provisions based on technical evaluation during the year ending
31.03.2021.
Total value of stock ₹133.75 lakhs
Provision required based on technical evaluation ₹4.00 lakhs

Provision required based on 12 months not issued ₹5.00 lakhs.

(ii) In the Books of Kay Ltd., Closing stock as on 31st March, 2021 amounts to
₹1,24,000 (on the basis of FIFO method)

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The company decides to change from FIFO method to weighted average method
for ascertaining the cost of inventory from the year 2020-2021. On the basis of
weighted average method, closing stock as on 31st March, 2021 amounts to
₹1,15,000. Realisable value of the inventory as on 31st March, 2021 amounts to
₹1,54,000.
Discuss Disclosure Requirements of change in accounting policy in above cases as per
AS 1.

Question 1. C) (5 Marks)
Note No. 7 to the Balance Sheet of Swayambu Ltd, as on 31st December is as follows –
“The Company had a large engineering contract with a Foreign Government, work to be
carried out in foreign country and payments to be received in dollars. The work was
completed in the current year and the entire contracted amount was duly recorded in the
books of the Company at the prevalent exchange rate on the date of completion of the
work. However, payments to the extent of ₹ 20 Crores could not be released by the
Foreign Government because of temporary foreign exchange crisis in that Country. This
₹20 Crores unrealised at the end, if converted at the year-end rate would amount to
₹20.50 Crores. The Company has adopted and follows the following accounting policy:
“In respect of foreign currency transactions, Current Assets & Current Liabilities are
revalued at the year-end rates. However if there is net loss due to exchange difference,
the same is charged off to the P & L a/c but if there is net gain the same is ignored in
view of the prudent accounting principle of not recording unrealised gains due to
exchange rate fluctuations”.
Comment on the appropriateness of the above policy.

Question 1. D) (5 Marks)
Prepare cash flow statement of Gama Limited for the year ended 31st March, 2021 in
accordance with AS-3(Revised) from the following cash account summary:
Cash summary Account

Inflows ₹ Outflows ₹
('000) ('000)
Opening Balance 945 Payment to suppliers 54,918
Receipts from Customers 74,682 Purchase of Investments 351

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Sale of Investments 459 Property, plant and 6,210

(Cost ₹ 4,05,000) equipment acquired
Issue of Shares 8,100 Wages and salaries 1,863
Sale of Property, Plant and 3,456 Payment of overheads 3,105
Equipment
Taxation 6,561
Dividends 2,160
Repayment of Bank 6,750
Overdraft
Interest paid on 1,350
Bank Overdraft
Closing Balance 4,374

87,642 87,642

Question 2. A) (10 Marks)

The Godown of X Ltd. caught fire on 01.06.2021, records saved from fire shows the
following particulars:

₹
Stock at cost on 01.01.2020 50,000
Stock at cost on 31.12.2020 80,000
Purchases for the year 2020 4,75,000
Purchase returns for the year 2020 5,000
Carriage inward for the year 2020 20,000
Sales for the year 2020 5,60,000
Sales returns for the year 2020 10,000
Following information is given for the period of 1st January 2021 to 1st June, 2021:
Credit sales of ₹2,50,000, which constituted 25% of total sales.
Sales return ₹ 9,500, Goods used for personal purpose costing ₹ 5,000, Good distributed
as free sample costing ₹ 2,700, Wages ₹ 25,000.
Sales include goods sold on approval basis amounting to ₹81,000, no confirmation had
been received in respect of 50% of such goods sold on approval basis.
Stock on 31 December, 2020 was calculated at 20% less than cost.
Purchases for the period 1st January, 2021 to 1st June, 2021 is ₹ 6,75,000, purchase
returns ₹ 10,000.

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Selling price was increased by 20% with effect from 01.01.2021.

Company had taken an insurance policy of ₹ 70,000 which was subject to an average
clause. The value of salvaged goods was ₹ 21,967. You are required to compute the
amount of the claim.

Question 2. B) (10 Marks)

Vijay & Co. of Jaipur has a branch in Patna to which goods are sent @ 20% above cost.
The branch makes both cash & credit sales. Branch expenses are paid direct from Head
office and the branch has to remit all cash received into the bank account of Head office.
Branch doesn't maintain any books of accounts, but sends monthly returns to the head
office.
Following further details are given for the year ended 31st March, 2020:

Amount
(₹)
Goods received from Head office at Invoice Price 8,40,000
Goods returned to Head office at Invoice Price 60,000
Cash sales for the year 2019-20 1,85,000
Credit Sales for the year 2019-20 6,25,000
Stock at Branch as on 01-04-2019 at Invoice price 72,000
Sundry Debtors at Patna branch as on 01-04-2019 96,000
Cash received from Debtors 4,38,000
Discount allowed to Debtors 7,500
Goods returned by customer at Patna Branch 14,000
Bad debts written off 5,500
Amount recovered from Bad debts previously written off as Bad 1,000
Rent, Rates & taxes at Branch 24,000
Salaries & wages at Branch 72,000
Office Expenses (at Branch) 9,200
Stock at Branch as on 31-03-2020 at cost price 1,25,000
Prepare necessary ledger accounts in the books of Head office by following Stock and
Debtors method and ascertain Branch profit.

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Question 3. A) (12 Marks)

The Capital structure of a company BK Ltd., consists of 30,000 Equity Shares of ₹ 10
each fully paid up and 2,000 9% Redeemable Preference Shares of ₹ 100 each fully paid
up as on 31.03.2020. the other particulars as at 31.03.2020 are as follows:

Amount (₹)
General Reserve 1,20,000
Profit &Loss Account 60,000
Investment Allowance Reserve (not free for 15,000
distribution as dividend)
Cash at bank 1,95,000
Preference Shares are to be redeemed at a premium of 10%. For the purpose of
redemption, the directors are empowered to make fresh issue of Equity Shares at per after
utilizing the undistributed reserve &surplus, subject to the conditions that a sum of
₹ 40,000 shall be retained in General Reserve and which should not be utilized.
Company also sold investment of 4,500 Equity Shares in G Ltd., costing ₹ 45,000 at ₹ 9
per share.
Pass Journal entries to give effect to the above arrangements and also show how the
relevant items will appear in the Balance Sheet as at 31.03.2020 of BK Ltd., after the
redemption is carried out.

Question 3. B) (8 Marks)
On 1st April, Mr. Nilesh acquired a Tractor on Hire purchase from Raj Ltd. the terms of
contract were as follows:
(i) The Cash price of the Tractor was ₹11,50,000.
(ii) ₹ 2,50,000 were to be paid as down payment on the date of purchase.
(iii) The Balance was to be paid in annual instalments of ₹3,00,000 plus interest at the
end of the year.
(iv) Interest chargeable on the outstanding balance was 8% p.a.
(v) Depreciation @ 10% p.a. is to be written off using straight line method.
Mr. Nilesh adopted the interest Suspense method for recording his Hire purchase
transactions.
You are required to prepare the Tractor Account, Interest Suspense Account and Raj
Ltd’s Account in the books of Mr. Nilesh.

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Question 4.) (20 Marks)

The following is the Trial Balance of H Ltd., as on 31st March, 2021:
Dr. Cr.
Equity Capital (Shares of ₹ 100 each) 8,05,000
5,000, 6% preference shares of ₹ 100 each 5,00,000
9% Debentures 4,00,000
General Reserve 40,00,000
Profit & Loss A/c (of previous year) 72,000
Sales 60,00,000
Trade Payables 10,40,000
Provision for Depreciation on Plant & Machinery 1,72,000
Suspense Account 40,000
Land at cost 24,00,000
Plant & Machinery at cost 7,70,000
Trade Receivables 19,60,000
Inventories (31-03-2021) 9,50,000
Bank 2,30,900
Adjusted Purchases 22,32,100
Factory Expenses 15,00,000
Administration Expenses 3,00,000
Selling Expenses 14,00,000
Debenture Interest 36,000
Goodwill 12,50,000
1,30,29,000 1,30,29,000
Additional Information:
(i) The authorised share capital of the company is : ₹
5,000, 6% preference shares of ₹100 each 5,00,000
10,000, equity shares of ₹100 each 10,00,000
Issued equity capital as on 1st April 2020 stood at ₹7,20,000, that is 6,000
shares fully paid and 2,000 shares of ₹ 60 paid. The directors made a call of ₹ 40
per share on 1st October 2020. A shareholder could not pay the call on 100
shares and his shares were then forfeited and reissued @ ₹ 90 per share as fully
paid.
(ii) On 31st March 2021, the Directors declared a dividend of 5% on equity shares,
transferring any amount that may be required from General Reserve. Ignore
Taxation.
(iii) The company on the advice of independent valuer wishes to revalue the land at
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₹36,00,000.
(iv) Suspense account of ₹ 40,000 represents amount received for the sale of some
of the machinery on 1-4-2020. The cost of the machinery was ₹1,00,000 and the
accumulated depreciation thereon being ₹30,000.
(v) Depreciation is to be provided on plant and machinery at 10% on cost.
(vi) Amortize 1/5th of Goodwill.
You are required to prepare H Limited's Balance Sheet as on 31-3-2021 and Statement of
Profit and Loss with notes to accounts for the year ended 31-3-2021 as per Schedule III
of the Companies Act, 2013. Ignore previous years' figures & taxation.

Question 5. A) (10 Marks)

M/s. Shyam Udyog. a Retail Store, has two Departments X and Department Y for each of
which Stock Account and Memorandum Mark-Up Account are kept. All the goods
supplied to each Departments are debited to the Stock Account at cost plus Mark-Up,
which together make up the Selling Price of the goods, and in the account the Sale
Proceeds of the goods are credited. The amount of ‘Mark-Up’ is credited to the
Departmental Mark-Up Account. If the Selling Price of any goods is reduced below its
Normal Selling Price, the reduction ‘Marked Down’ is adjusted both in the Stock
Account and the Departmental Mark-Up Account.
The rate of ‘Mark up’ for X Department is 33-1/3% of the cost and for Y Department it is
50% of the cost. The following figures have been taken from the books of the year ended
March -
Particulars Dept. X (₹) Dept. Y (₹)
st
Stock as on April 1 at Cost 3,15,000 5,58,000
Purchases 22,77,000 28,02,000
Sales 28,68,000 37,50,000

(1) The Opening Stock of Department X included goods the Selling Price of which
had been marked down by ₹37,800. These goods were sold the year at the reduced
prices.
(2) Certain Stock of the value of ₹2,07,000 purchased from the Department X, was
later in the year transferred to Department Y, and sold for ₹3,10,500. As a result
though cost of the goods is included in Department X, the Sale Proceeds have
been credited to the Department Y.
(3) During the year, to promote the goods, they were marked down as follows:
Cost Marked Down
(₹) (₹)
Department X 1,68,000 10,800
Department Y 3,00,000 60,000

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All the Goods Marked Down, were sold except of Department Y of the value of
₹1,50,000 marked down by ₹ 30,000.
(4) At the time of stock taking on 31st March, it was discovered that Cloth of
Department X of the cost of ₹ 11,700 was missing and it was decided that the
amount be written-off.
Prepare for the year ended 31st December – (1) Trading A/c, (2) Memorandum Stock A/c,
and (3) Memorandum Mark Up A/c.

Question 5. B) (10 Marks)

The partners of Ojasvi Enterprises decided to convert the partnership firm into a Private
Limited Company Tejasvi (P) Ltd. with effect from 1st January, 2019. However,
company could be incorporated only on 1st 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 1st 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.

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Question 6. Answer any four of the following:

Question 6. A) (5 Marks)
JVR Limited has made investment of ₹ 97.84 Crores in Equity Shares of QSR Limited in
2016-17. The investment has been made at par. QSR Limited has been in continuous
losses for the last 2 years. JVR Limited is willing to re-assess the carrying amount of its
investment in QSR Limited and wish to provide for diminution in value of investment for
the year ended 31st March, 2021. Discuss whether the connection of JVR Limited to
bring down the carrying Amount of investment in QSR Limited is in accordance with
Accounting Standards.

Question 6. B) (5 Marks)
X Ltd. a non investment company has been incurring losses for the past few years. The
company provides the following information for the current year:
₹ in lakhs
Paid up equity share capital 90
Paid up preference share capital 10
Reserves (including revaluation reserve ₹ 5 lakhs) 75
Securities premium 30
Long term loans 20
Deposit repayable after one year 10
Application money pending allotment 360
Accumulated losses not written off 40
Investment 90
X Ltd. has only one whole time director, Mr. Y. You are required to calculate the amount
of maximum remuneration that can be paid to him if no special resolution is passed at the
general meeting of the company in respect of payment of remuneration for a period not
exceeding three years.

Question 6. C) (5 Marks)
Explain how financial capital is maintained at historical cost?
Kishore started a business on 1st April, 2019 with ₹15,00,000 represented by 75,000
units of ₹20 each. During the financial year ending on 31st March, 2020, he sold the
entire stock for ₹ 30 each. In order to maintain the capital intact, calculate the maximum
amount, which can be withdrawn by Kishore in the year 2019-20 if Financial Capital is
maintained at historical cost.

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Question 6. D) (5 Marks)
Pass Journal Entries in the following circumstances:
(i) Rise Limited with subscribed capital of ₹7,50,000 consisting of 75,000 Equity
shares of ₹10 each; called up capital ₹7.50 per share. A bonus of ₹1,87,500
declared out of General Reserve to be applied in making the existing shares fully
paid up.
(ii) A Limited company having fully paid up capital of ₹75,00,000 consisting of
Equity shares of ₹10 each, had General Reserve of ₹13,50,000. It was resolved to
capitalize ₹ 7,50,000 out of General Reserve by issuing 75,000 fully paid bonus
shares of ₹ 10 each, each shareholder to get one such share for every ten shares
held by him in the company.

Question 6. E) (5 Marks)
A company with a turnover of ₹ 225 crores and borrowings of ₹ 51 crore during the year
ended 31st March, 2021, wants to avail the exemptions available in adoption of
Accounting Standards applicable to companies for the year ended 31.3. 2021. Advise the
management on the exemptions that are available as per the Companies (Accounting
Standards) Rules, 2021.

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NOV-2022
CA INTER NEW SYLLABUS
PORTIONWISE TEST ROUND – 4
ACCOUNTING
SUGGESTED ANSWERS

Question 1. A) (5 Marks)
Solution:-
1. Valuation Principle:
For Finished Goods (FG) For Raw Materials
Lower of cost or Net (a) If Finished Goods is valued at cost: Cost.
Realisable Value
(b) If Finished Goods is valued lower than Cost:
Lower of Cost or NRV.

2. Computation of Cost:
Cost of Raw Materials Cost of Finished Goods (FG)
Purchase Price 200 Material 220
Less: GST for which ITC is (10) Add: Direct Labour 60
eligible
Add: 20 Add: Direct Overhead 40
Freight Charges
Add: 10 Add: Fixed OH ₹2,00,000 ÷
Unloading Charges 20,000 Units = 10
Cost per unit ₹ Cost per unit ₹ 330 p.u.
220
p.u.

3. Value of Closing Stock

Particulars If NRV is ₹ 400 p.u. If NRV is ₹ 300 p.u.
Valuation of - Fin. Goods Raw Materials Fin. Goods Raw Materials
(a) Cost p.u. ₹ 330 ₹ 220 ₹ 330 ₹ 220

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(b) NRV p.u. ₹400 [Note] ₹ 150 ₹ 300 [Note] ₹ 150

(c) Relevant ₹330 ₹220 [Since FG ₹ 300 ₹ 150 [Since FG
Value p.u. valued @ Cost] valued @NRV]
(d) Closing Stock 1200 Units 500 Units 1200 Units 500 Units
(e) Value of Clg ₹ 3,96,000 500 × ₹ 220= ₹ 3,60,000 500× 150 =
Stock ₹1,10,000 ₹75,000
Note: Replacement Cost of the Raw Materials is assumed as its Net Realisable Value.

Question 1. B) (5 Marks)
Solution:-
(i) 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. 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 ₹ 5 lakhs to ₹ 4 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 ABC Ltd. for the
year 2020 -21:
“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 corresponding effect on the year end
net assets would have been lower by ₹ 1 lakh.”
(ii) As per AS 1 “Disclosure of Accounting Policies”, any change in an accounting
policy which has a material effect should be disclosed in the financial statements.
The amount by which any item in the financial statements is affected by such
change should also be disclosed to the extent ascertainable. Where such amount is
not ascertainable, wholly or in part, the fact should be indicated. Thus company
should disclose the change in valuation method of inventory and its effect on
financial statements. The company may disclose the change in accounting policy
in the following manner:
“The company values its inventory at lower of cost and net realizable value. Since
net realizable value of all items of inventory in the current year was greater than
respective costs, the company valued its inventory at cost. In the present year i.e.
2020-21, the company has changed to weighted average method, which better
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from the earlier practice of using FIFO for the purpose. The change in policy has
reduced current profit and value of inventory by ₹ 9,000.”

Question 1. C) (5 Marks)
Solution:-
1. Analysis (a) The Company has a Receivable, i.e. a monetary item denominated
in a foreign currency, of ₹ 20 Crores on Balance Sheet date. The
amount thereof at the Closing Rate will be ₹ 20.50 Crores.
(b) This amount does not relate to any foreign operation either Integral
or Non-Integral.
For Monetary Items at each Balance Sheet date, the reporting /
translation will be at -
(a) Closing Rate, or
2. Principle (b) Amount, which is likely to be realised from, or required to
disburse, such item at the B/Sheet date, where the Closing rate is
unrealistic e.g. where there are restrictions on remittances and it is
not possible to effect an exchange of currencies at that rate at the
Balance Sheet date.
3. Conclusion (a) In the present case, the foreign exchange remittance
restriction/crisis is of a temporary nature. Thus, the Exchange
Gain of ₹ 0.50 Crores should be recognised as income for the
period & the amount receivable should be stated at ₹ 20.50 Crores
only.
(b)
The treatment presently adopted by the Company is not in
accordance with AS-11

Question 1. D) (5 Marks)
Solution:-
Gama Limited
Cash Flow Statement
For the Year Ended 31st March 2021

Particulars Amount Amount

(₹’000) (₹’000)

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Cash flow from Operating Activities:

Cash receipts from customers 74,682
Cash payments to suppliers (54,918)
Cash payments for wages & salaries (1,863)
Cash payments of overheads (3,105)
Cash Generated from Operations 14,796
Payment of Taxation (6,561)
Net Cash from Operating Activities 8,235
Cash Flow from Investing Activities:
Proceeds from sale of investments 459
Proceeds from sale of Property, Plant and 3,456
Equipment
Purchase of Investments (351)
Purchase of Property, Plant and Equipment (6,210)
Net Cash Used in Investing Activities (2,646)
Cash Flow from Financing Activities:
Proceeds from issue of shares 8,100
Payment of Dividend (2,160)
Repayment of Bank Overdraft (6,750)
Interest paid on Bank Overdraft (1,350)
Net Cash Used in Financing Activities (2,160)
Net Increase in Cash & Cash Equivalent 3,429
Cash and Cash Equivalent in the Beginning of the 945
year
Cash and Cash Equivalent in the end of the year 4374

Question 2. A) (10 Marks)

Solution:-
X Ltd.
Trading Account for the year ending 31st December, 2020
(To determine the rate of gross profit)
₹ ₹
To Opening Stock 50,000 By Sales A/c 5,50,000
To Purchases (4,75,000 – 5,000) 4,70,000 (5,60,000 – 10,000)
By Closing Stock: 1,00,000
To Carriage inward 20,000 (80,000/80x100)
To Gross Profit (b.f.) 1,10,000

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6,50,000 6,50,000
The (normal) rate of gross profit to sales is = ₹1,10,000/ 5,50,000 x100= 20%
Memorandum Trading Account for the period
1st January, 2021 to 1st June, 2021
₹ ₹
To Opening Stock 1,00,000 By Sales (W.N. 2) 9,50,000
To Purchases 6,75,000 By Goods with 27,000
Less: Returns (10,000) customers (for
Samples (2,700) approval) (W.N.1)*
Drawings By Closing stock (Bal.
(5,000) 1,21,967
6,57,300 fig.)
To Wages 25,000
To Gross Profit [1/3of
Sales - Refer W.N. 3] 3,16,667
10,98,967 10,98,967
* For financial statement purposes, this would form part of closing stock (since there is
no sale). However, this has been shown separately for computation of claim for loss of
stock since the goods were physically not with the concern and, hence, there was no loss
of such stock as a result of fire.
Statement of claim for loss of stock on 18.06.2021
Book value of stock ₹ 1,21,967
Less: Salvaged value of stock ₹ 21,967
Loss of stock 1,00,000
Insured Value
Amount of claim = × Loss of stock 57,393
Total cost of stock on the date of fire
(rounded off)
70,000
( × 1,00,000)
1,21,967

A claim of ₹ 57,393 (rounded off) should be lodged to the insurance company.

Working Notes:
1. Calculation of goods with customers
Since no approval for sale has been received for the goods of ₹40,500 (i.e. 1/2 of
₹81,000) hence, these should be valued at cost i.e. ₹ 27,000 (40,500/120 x 80)
2. Calculation of actual sales
Total sales – Returns - Sale of goods on approval (1/2)

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= ₹10,00,000 – ₹ 9,500 – ₹ 40,500 (81,000/2) = ₹ 9,50,000

3. Calculation of Gross Profit Ratio
For year 2020: Cost of goods sold was 80, Gross profit rate 20% and sales 100
For year 2021: Cost of goods sold was 80, Gross profit rate 33.33% (1/3 of sales)
and sales 120
Note: It is given in the question, that selling price was increased by 20% with effect from
01.01.2021. While solving the question in the given answer, new gross profit ratio has
been computed and applied to arrive at the value of closing stock. Alternatively, instead
of computing new gross profit ratio, sales can be reduced to the levels before increase and
old gross profit ratio can be applied to arrive at the value of closing stock.

Question 2. B) (10 Marks)

Solution:-
(a) Branch Stock Account
₹ ₹ ₹ ₹
1.4.19 To Balance b/d 72,000 31.3.20 By Sales:
(opening
stock)
31.3.20 To Goods Sent 8,40,000 Cash 1,85,000
to Branch A/c Credit 6,25,000
To Branch P&L 94,000
Less: Return (14,000) 6,11,000 7,96,000

By Goods 60,000
sent to
branch -
Returns
By Balance c/d 1,50,000
(closing
stock)
10,06,000 10,06,000
1.4.20 To Balance b/d 1,50,000
Branch Debtors Account
₹ ₹
1.4.19 To Balance b/d 96,000 31.3.20 By Cash 4,38,000
31.3.20 To Sales 6,25,000 By Returns 14,000
By Discounts 7,500
By Bad debts 5,500

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By Balance c/d 2,56,000

7,21,000 7,21,000
1.4.20 To Balance b/d 2,56,000
Branch Expenses Account
₹ ₹
31.3.20 To Salaries & Wages 72,000 31.3.20 By Branch P&L 1,18,200
A/c
To Rent, Rates & 24,000
Taxes
To Office Expenses 9,200
To Discounts 7,500
To Bad Debts 5,500
1,18,200 1,18,200
Branch Profit & Loss Account for year ended 31.3.20
₹ ₹
31.3.20 To Branch 1,18,200 31.3.20 By Branch stock 94,000
Expenses A/c
To Net Profit By Branch Stock 1,17,000
transferred to Adjustment
account
General P & L 93,800 By Bad debts 1,000
A/c recovered
2,12,000 2,12,000
Branch Stock Adjustment Account for year ended 31.3.20
₹ ₹
31.3.20 To Goods sent to 10,000 31.3.20 By Balance b/d 12,000
branch (72,000x1/6)
(60,000x1/6) -
Returns
To Branch P & L 1,17,000 By Goods sent to 1,40,000
A/c branch
(8,40,000x1/6)
To Balance c/d 25,000
(1,50,000x1/6)
1,52,000 1,52,000

Question 3. A) (12 Marks)

Solution:-

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Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
Bank A/c Dr. 84,500
To Equity Share Capital A/c 84,500
(Being the issue of 8,450 Equity Shares of
₹ 10 each as per Board’s Resolution
No…..dated…….)
9% Redeemable Preference Share Capital A/c Dr. 2,00,000
Premium on Redemption of Preference Shares A/c Dr. 20,000
To Preference Shareholders A/c 2,20,000
(Being the amount paid on redemption transferred to
Preference Shareholders Account)
Bank A/c Dr. 40,500
Profit and Loss A/c (loss on sale) A/c Dr. 4,500
To Investment A/c 45,000
(Being investment sold at loss of ₹ 4,500)
Preference Shareholders A/c Dr. 2,20,000
To Bank A/c 2,20,000
(Being the amount paid on redemption of
preference shares)
Profit & Loss A/c Dr. 20,000
To Premium on Redemption of 20,000
Preference Shares A/c
(Being the premium payable on redemption is
adjusted against Profit & Loss Account)
General Reserve A/c Dr. 80,000
Profit & Loss A/c Dr. 35,500
To Capital Redemption Reserve A/c 1,15,500
(Being the amount transferred to Capital
Redemption Reserve Account)

Balance Sheet as on ...[Extracts]

Particula Notes ₹
rs No.
EQUITY AND LIABILITIES
1. Shareholders’ funds
a Share capital 1 3,84,500
b Reserves and Surplus 2 1,70,500
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ASSETS
Current Assets
2.
Cash and cash equivalents 1,00,000
(1,95,000 + 84,500+ 40,500 – 2,20,000)
Notes to accounts

1. Share Capital
38,450 Equity shares (30,000 + 8,450) of ₹10 each 3,84,500
fully paid up
2. Reserves and Surplus
General Reserve 40,000
Profit and loss account NIL
Capital Redemption Reserve 1,15,500
Investment Allowance Reserve 15,000
1,70,500
Working Note:
Number of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed ₹2,00,000
Less: Profit available for distribution as dividend:
General Reserve: ₹(1,20,000-40,000) ₹ 80,000
Profit and Loss (60,000 less 20,000 set aside
for adjusting premium payable on redemption of Pref.
shares less 4,500 loss on sale of investments) ₹ 35,500
₹ (1,15,500)
₹ 84,500
Therefore, No. of shares to be issued = 84,500/₹10 = 8,450 shares.

Question 3. B) (8 Marks)
Solution:-
Working note: Loan Schedule
Year Opening Interest at 8% Repayment Closing
0 11,50,000 Nil 2,50,000 900,000
1 9,00,000 72,000 3,72,000 6,00,000

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2 6,00,000 48,000 3,48,000 3,00,000

3 3,00,000 24,000 3,24,000
1,44,000

1. Tractor A/c (in the Books of Mr. Nilesh)

Date Particulars ₹ Date Particulars ₹

Yr 1 beg To Raj Ltd A/c 11,50,000 Yr 1 end By Depreciation (11,50,000 × 10%) 1,15,000
Yr 1 end By balance c/d 10,35,000

Total 11,50,000 Total 11,50,000

Yr 2 beg To balance b/d 10,35,000 Yr 2 end By Depreciation 1,15,000
Yr 2 end By balance c/d 9,20,000
Total 10,35,000 Total 10,35,000

Yr 3 beg To balance b/d 9,20,000 Yr 3 end By Depreciation 1,15,000

Yr 3 end By Balance c/d 8,05,000

Total 9,20,000 Total 9,20,000

2. Interest Suspense A/c (in the Books of Mr. Nilesh)

Date Particulars ₹ Date Particulars ₹
Yr 1 beg To Raj Ltd A/c 1,44,000 Yr 1 end By Interest Expense 72,000
Yr 1 end By balance c/d 72,000
Total 1,44,000 Total 1,44,000
Yr 2 beg To balance b/d 72,000 Yr 2 end By Interest Expense 48,000
Yr 2 end By Balance c/d 24,000
Total 72,000 Total 72,000
Yr 3 beg To balance b/d 24,000 Yr 3 end By Interest Expense 24,000
Total 24,000 Total 24,000

3. Raj Ltd A/c (in the Books of Mr. Nilesh)

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Date Particulars ₹ Date Particulars ₹

Yr 1 beg To Cash A/c 2,50,000 Yr 1 beg By Tractor 11,50,000
Yr 1 end To Cash A/c 3,72,000 Yr 1 beg By Interest suspense 1,44,000
Yr 1 end
To balance c/d 6,72,000
Total 12,94,000 Total 12,94,000
Yr 2 end To Cash A/c 3,48,000 Yr 2 beg By Balance b/d 6,72,000
Yr 2 end To balance c/d 3,24,000
Total 6,72,000 Total 6,72,000
Yr 3 end To Cash A/c 3,24,000 Yr 3 beg By Balance b/d 3,24,000
Total 3,24,000 Total 3,24,000

Question 4.) (20 Marks)

Solution:-
H Ltd
Balance Sheet as at 31st March 2021
Particulars Note Amount in
No ₹
Equity and Liabilities
I. Shareholders’ Funds
a. Share Capital 1 13,00,000
b. Reserves and Surplus 2 53,91,900
II. Non-Current Liabilities
a. Long Term Borrowings 3 4,00,000
III. Current Liabilities
a. Trade Payables 4 10,40,000
b. Other Current Liabilities 5 70,000
Total 82,01,900
Assets
I. Non-Current Assets
a. Property, Plant and Equipment 6 40,61,000
b. Intangible Assets 7 10,00,000
II. Current Assets
a. Inventories 9,50,000
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b. Trade Receivables 19,60,000

c. Cash and Cash equivalents 2,30,900
Total 82,01,900

Statement of Profit and Loss for the year ended 31st March 2021
Particulars Note Amount in ₹
No
I. Revenue from operations 60,00,000
Total Revenue 60,00,000
II. Expenses
Purchases (adjusted) 22,32,100
Finance Costs 8 36,000
Depreciation and Amortization 9 3,17,000
Other Expenses 10 32,30,000
Total Expenses 58,15,100
III. Profit/(Loss) for the period 1,84,900

Notes to Accounts (Amount in ₹)

1 Share Capital
a. Authorized Capital
5,000, 6% Preference shares of ₹ 100/- each 5,00,000
10,000 Equity Shares of ₹100/- each 10,00,000
15,00,000
b. Issued & Subscribed Capital
5,000, 6% Preference shares of ₹100/- each 5,00,000
8,000, Equity shares of ₹100/- each 8,00,000
Total 13,00,000
2 Reserves & Surplus
Capital Reserve (100 X (90-40)) 5,000
Revaluation Reserve (36,00,000-24,00,000) 12,00,000
General Reserve 40,00,000
Surplus 1,84,900
Add: Balance from previous year 72,000
Less: Dividends declared (70,000)
Profit/(Loss) carried forward to Balance Sheet 1,86,900
Total 53,91,900

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3 Long-Term Borrowings
Secured
9% Debentures 4,00,000
4 Trade Payables 10,40,000
5 Other Current Liabilities
Dividend Payable
Preference Dividend 30,000
Equity Dividend 40,000
Total 70,000
6 Property, Plant and Equipment
Land
Opening balance 24,00,000
Add: Revaluation Adjustment 12,00,000
Closing Balance 36,00,000
Plant and Machinery
Opening Balance 7,70,000
Less: Disposed off (1,00,000)
Depreciation (2,09,000)
Closing Balance 4,61,000
Total 40,61,000
7 Intangible Assets
Goodwill 12,50,000
Less: Amortized (1/5th) (2,50,000)
Total 10,00,000
8 Finance Costs
Debenture Interest 36,000
9 Depreciation and Amortization
Plant and Machinery 67,000
Goodwill 2,50,000
Total 3,17,000
10 Other Expenses
Factory Expenses 15,00,000
Selling Expenses 14,00,000
Administrative Expenses 3,00,000
Loss on sale of Plant and Machinery
Book Value (1,00,000-30,000) 70,000
Less: Sale Value (40,000) 30,000

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Total 32,30,000

Note
1. The inventories (31.3.20) amounting ₹9,50,000 (given in the trial balance of the
question) should have been as closing inventory i.e. as on 31.3.21. In the above
solution, this inventory has been considered as closing inventory i.e. for 31.3.21.
If this is considered as inventory of 31.3.20, the closing inventory (as on
31.3.21) will not be available for the balance sheet as on 31.3.21 and in that
case, the balance sheet will not tally without using suspense account amounting
₹9,50,000.
2. The financial statements given in the above answer include adjustment for
dividend declared on 31st March, 2021, strictly, as per the information given in
the question. However, practically dividends are declared in the annual general
meetings which take place after the reporting date.

Question 5. A) (10 Marks)

Solution:-
1. Memorandum Stock Account (in ₹)
Particulars X Y Particulars X Y
To balance b/d (Given 4,20,000 8,37,000 By balance b/d 37,800 -
Cost + 33.33% & 50% (Mark Down b/fd as
Mark-Up) given) 28,68,000 37,50,000
To Purchases (given) 22,77,000 28,02,000 By Int. Tfr (as per 2,07,000
To Memorandum Mark Contra) 69,000
Up (33.33% & 50% on 7,59,000 14,01,000 By Memorandum
Purchase) Mark Up 10,800 60,000
To Internal Transfer (as 2,07,000 (Mark-up on Int.
per contra) Trfr) 11,700
To Memorandum Mark 1,03,500 By Memorandum
Up Mark Up (Mark-up 3,900
(50% on Internal Transfer) on Stock Lost)
To Memorandum Mark 30,000 By balance c/d 2,47,800 15,70,500
Up (on Marked Down (Closing Stock –
Goods still in Stock – balancing figure)
Given)
Total 34,56,000 53,80,500 Total 34,56,000 53,80,500

2. Valuation of Closing Stock at Cost (in ₹)

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Department X Y
Closing Stock at Invoice Price as per Memorandum 2,47,800 15,70,500
Stock A/c
Less: Markup = 33.33% & 50% on Cost = 1/4th & 1/3rd on 1/4th 1/3rd
Invoice price respectively =61,950 =5,23,500
Closing Stock at Cost 1,85,850 10,47,000

3. Trading Account for the year (in ₹)

Particulars X Y Particulars X Y
To Opening Stock 3,15,000 5,58,000 By Sales 28,68,000 37,50,000
To Purchases 22,77,000 28,02,000 By Internal Transfer 2,07,000 -
To Internal - 2,07,000 By Abnormal Loss 11,700 -
Transfer
To Gross Profit 6,80,550 12,30,000 By Closing Stock 1,85,850 10,47,000
(bal. Fig) (WN 2)
Total 32,72,550 47,97,000 Total 32,72,550 47,97,000

4. Memorandum Mark Up Account (in ₹)

Particulars X Y Particulars X Y
To balance b/d 37,800 By balance b/d 1,05,000 2,79,000
(Mark Down- (1/3rd and 50% on
Given –per Contra) given cost)
To Memorandum 69,000 By Memorandum 7,59,000 14,01,000
Stock A/c (Markup Stock A/c (Mark up
on Int. Transfer) on Purchase)
To Memorandum 10,800 60,000 By Memorandum 1,03,500
Stock A/c (Mark Stock A/c
Down-given) (2,07,000×50%) Mark
3,900
To Memorandum Up on Int. Trf)
Stock A/c (Mark- By Memorandum 30,000
up on Goods Lost) 12,30,000 Stock A/c (Market
To Gross Profit (as 6,80,550 Down goods still in
above) 5,23,500 Stock)
To balance c/d 61,950
(b/f) (Note)
Total 8,64,000 18,13,500 Total 8,64,000 18,13,500

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Note: The figure (i.e. Closing Balance in Memo Mark-Up A/c) to match with WN 2
above, i.e. Mark-Up on Closing Stock.
5. Confirmation/Verification of Gross Profit (in ₹)
Department P Q
Sales (given) 28,68,000 37,50,000
Add back: Reduction/Mark down (37,800+10,800)=48,600 (60,000-30,000)=30,000
Total 29,16,600 37,80,000
Normal Gross Profit at ¼ 7,29,150 12,60,000
and 1/3 of above
Less: Reduction/Mark down 48,600 30,000
Gross Profit (to match with 6,80,550 12,30,000
Trading A/c)

Question 5. B) (10 Marks)

Solution:-
Tejasvi (P) Limited
Statement showing apportionment of cost and revenue between pre-
incorporation and post-incorporation periods
Pre. inc. Post inc.
(5 months) (10 months)
(₹) (₹)
Sales (W.N.1) 3,00,000 16,80,000
Less: Cost of sales 1,80,000 10,08,000
Discount to dealers 7,000 39,200
Directors’ remuneration - 60,000
Salaries (W.N.2) 18,750 71,250
Rent (W.N.3) 15,000 1,20,000
Interest (W.N.4) 30,000 75,000
Depreciation 10,000 20,000
Office expenses 35,000 70,000
Preliminary expenses 15,000
Net profit 4,250 2,01,550

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Working Notes:

1. Calculation of sales ratio

Let the average sales per month in pre-incorporation period be x
Average Sales (Pre-incorporation) =xX5 = 5x

Sales (Post incorporation) from June to December, 2019 = 2½x X 7 = 17.5x

From January to March, 2020 = 3½x X 3 = 10.5x

Total Sales 28.0x

Sales ratio of pre-incorporation & post incorporation is 5x : 28x
2. Calculation of ratio for salaries
Let the average salary be x
Pre-incorporation salary = xX5 = 5x
Post incorporation salary
June, 2019 = x
July,2019 to March, 2020 =xX9X2= 18x
19x
Ratio is 5 : 19
3. ₹
Calculation of Rent
Total rent 1,35,000
Less: Additional rent for 9 months @ ₹ 10,000 p.m. 90,000
Rent of old premises apportioned in time ratio 45,000
Apportionment Pre Inc. Post Inc.
Old premises rent 15,000 30,000
Additional Rent 90,000
15,000 1,20,000
4. Calculation of interest
Pre-incorporation period from January, 2019 to May, 2019
6,00,000×12×5
( ) = ₹30,000
100×12
Post incorporation period from June, 2019 to March, 2020

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9,00,000×10×10
( ) ₹ 75,000
100×12

₹ 1,05,000

Question 6. A) (5 Marks)
Solution:-
The investments are classified into two categories as per AS 13, viz., Current Investments
and Long-term Investments. A current Investment is an investment that is by its nature
readily realizable and is intended to be held for not more than one year from the date on
which such investment is made. The carrying amount for current investments is the lower
of cost and fair value. Any reduction to fair value and any reversals of such reductions
are included in the statement of profit and loss. A long - term investment is an investment
other than a current investment. The investments referred in the question can be classified
as long-term investments and long-term investments are usually carried at cost. However,
when there is a decline, other than temporary, in the value of a long-term investment, the
carrying amount is reduced to recognize the decline. The contention of the company to
bring down the value of investment may be correct if the decline in value is permanent in
nature and the reduction in carrying amount may be charged to the statement of profit and
loss. The reduction in carrying amount is reversed when there is a rise in the value of the
investment, or if the reasons for the reduction no longer exist.

Question 6. B) (5 Marks)
Solution:-
Calculation of effective capital and maximum amount of managerial remuneration
(₹ In lakhs)
Paid up equity share capital 90
Paid up Preference share capital 10
Reserve excluding Revaluation reserve (75 – 5) 70
Securities premium 30
Long term loans 20
Deposits repayable after one year 10
230
Less: Accumulated losses not written off (40)
Investments (90)
Effective capital for the purpose of managerial 100
remuneration
Since X Ltd. is incurring losses and no special resolution has been passed by the
company for payment of remuneration, managerial remuneration will be calculated on the
basis of effective capital of the company as the effective capital is less than 5 crores.

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Therefore, maximum remuneration payable to the Managing Director should be @

₹60,00,000 per annum.
Note: Revaluation reserve, and application money pending allotment are not included
while computing effective capital of Kumar Ltd.

Question 6. C) (5 Marks)
Solution:-
Financial capital maintenance at historical cost: Under this convention, opening and
closing assets are stated at respective historical costs to ascertain opening and closing
equity. If retained profit is greater than or equals to zero, the capital is said to be
maintained at historical costs. This means the business will have enough funds to replace
its assets at historical costs. This is quite right as long as prices do not rise.
Maximum amount withdrawn by Kishore in year 2019-20 if Financial capital is
maintained at historical cost

Particulars Financial Capital Maintenance

at Historical Cost (₹)
Closing equity (₹ 30 x 75,000 units) 22,50,000 represented by cash
Opening equity 75,000 units x ₹ 20 = 15,00,000
Permissible drawings to keep 7,50,000 (22,50,000 – 15,00,000)
Capital intact
Thus ₹7,50,000 is the maximum amount that can be withdrawn by Kishore in year 2019-
20 if financial capital is maintained at historical cost.

Question 6. D) (5 Marks)
Solution:-
Journal Entries
₹ ₹
(i) General Reserve A/c Dr. 1,87,500
To Bonus to shareholders A/c 1,87,500
(For making provision of bonus issue)
Share final call A/c 1,87,500
To Equity share capital A/c 1,87,500
(For final calls of ₹ 2.50 per share on
75,000 equity shares due as per
Board’s Resolution dated….)
Bonus to shareholders A/c Dr. 1,87,500

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To Share final call A/c 1,87,500

(For bonus money applied for call)
(ii) General Reserve A/c Dr. 7,50,000
To Bonus to shareholders A/c 7,50,000
(For making provision of bonus issue)
Bonus to shareholders A/c Dr. 7,50,000
To Equity share capital A/c 7,50,000
(For issue of 75,000 bonus shares at ₹ 10)

Question 6. E) (5 Marks)
Solution:-
The question deals with the issue of Applicability of Accounting Standards for corporate
entities. The companies can be classified under two categories viz SMCs and Non-SMCs
under the Companies (Accounting Standards) Rules, 2021. As per the Companies
(Accounting Standards) Rules, 2021, criteria for above classification as SMCs, are:
“Small and Medium Sized Company” (SMC) means, a company-
 whose equity or debt securities are not listed or are not in the process of listing on
any stock exchange, whether in India or outside India;
 which is not a bank, financial institution or an insurance company;
 whose turnover (excluding other income) does not exceed rupees two-fifty crores
in the immediately preceding accounting year;

 which does not have borrowings (including public deposits) in excess of rupees
fifty crores at any time during the immediately preceding accounting year; and

 which is not a holding or subsidiary company of a company which is not a small

and medium-sized company.
Since, XYZ Ltd.’s turnover was ₹ 225 crores which does not exceed ₹ 250 crores but
borrowings of ₹ 51 crore are more than ₹ 50 crores, it is not a small and medium sized
company (SMC). The exemptions available to SMC are not available to this company.

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