CAPS – Education to Profess CA Intermediate

Mock Test for May 2024 Exams

Paper 1: Advanced Accounting
Date: 08/03/2024 Marks: 100 Marks
Day: Friday Time: 3 Hours
The question paper comprises two parts, Part I and Part II.
Part I comprises Case Scenarios and Multiple Choice Questions (MCQs)
Part II comprises questions which require descriptive type answers.
Part I
Case Scenario and Multiple Choice Questions
Case scenarios carry 2 marks for each Question and MCQ carries one mark each
Answer MCQs 1-2 based on the following case study.
SEAS Ltd., the "Company", is in the business of tours and travels. It sells holiday
packages to the customers. The Company negotiates upfront with the Airlines
for specified number of seats in flight. The Company agrees to buy a specific
number of tickets and pay for those tickets regardless of whether it is able to
resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and
agreed in advance. The Company also assists the customers in resolving
complaints with the service provided by airlines. However, each airline is
responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000 on 1
March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1 = INR 83.02.
On 31 March 2024, when the Company closed its books, exchange rate was US$
1 = INR 83.15. On 1 April 2024, the Company decided for premature
settlement of the contract due to some exceptional circumstances.
The Company is evaluating below mentioned schemes:
(i) Introduction of a formal retirement gratuity scheme by an employer in
place of ad hoc ex- gratia payments to employees on retirement.
(ii) Management decided to pay pension to those employees who have retired
after completing 5 years of service in the organization. Such employees will get
pension of 20,000 per month. Earlier there was no such scheme of pension in
the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction
having turnover of ₹ 200 crores. SEAS Ltd. and ADI Ltd. hold 9% and 23%
respectively in an associate company, ASOC Ltd. Both SEAS Ltd. and ADI Ltd.
 CAPS – Education to Profess CA Intermediate

prepare consolidated financial statements as per Accounting Standards

notified under the Companies (Accounting Standards) Rules, 2006.
1. What would be the basis of revenue recognition for SEAS Ltd. as per the
requirements of Accounting Standards?
a. Gross basis.
b. Net basis.
c. Depends on the accounting policy of the Company.
d. Indian GAAP allows a choice to the Company to recognize revenue on
gross basis or net basis.
2. Please suggest accounting treatment of forward contract for the year ended
31 March 2024 as per Accounting Standard 11.
a. MTM (marked to market value) of contract will be recorded on 31 March
2024.
b. MTM (marked to market value) of contract will be computed as at 31
March 2024 and only if there is loss, it will be recorded during the year
ended 31 March 2024.
c. No accounting will be done during the year ended 31 March 2024.
d. Premium on contract will be amortized over the life of the contract.
Answer MCQs 3-5 based on the following case study.
RTS Ltd, ("RTS" or the "Company"), is engaged in the business of manufacturing of
equipment/components. The Company has a contract with the Indian Railways
for a brake component which is structured such that:
• The Company's obligation is to deliver the component to the Railways'
stockyard, while the delivery terms are ex-works, the Company is responsible
for engaging a transporter for delivery.
• Railways sends an order for a defined quantity.
• The Company manufactures the required quantity and informs Railways for
carrying out the inspection.
• Railways representatives visit the Company's factory and inspect the
components and mark each component with a quality check sticker.
• Goods once inspected by Railways are marked with a hologram sticker to
earmark for delivery identification by the customer when they are delivered to
the customer's location.
• The Company raises an invoice once it dispatches the goods.
The management of RTS is under discussion with the auditors of the Company in
respect of accounting of a critical matter as regards its accounting with respect
subsequent events i.e. events after the reporting period. They have been checking
as to which one of the following events after the reporting period provides
evidence of conditions that existed at the end of the reporting period?
i. Nationalisation or privatization by government
 CAPS – Education to Profess CA Intermediate

ii. Out of court settlement of a legal claim

iii. Rights issue of equity shares
iv. Strike by workforce
v. Announcing a plan to discontinue an operation
The Company has received a grant of ₹ 8 crores from the Government for setting
up a factory in a backward area. Out of this grant, the Company distributed ₹ 2
crores as dividend. The Company also received land, free of cost, from the State
Government but it has not recorded this at all in the books as no money has been
spent. RTS has a subsidiary, A Ltd, which is evaluating its production process
wherein 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 was ₹ 1,000. The entire
quantity of waste was on stock at the end of the financial year.
3. When should RTS Ltd recognize revenue as per the Accounting Standards
notified under the Companies (Accounting Standards) Rules, 2006? Would
your answer be different if inspection is normally known to lead to no quality
rejections?
a. Revenue should be recognized on dispatch of components. The assessment
would not change even in case where inspection is normally known to lead
to no quality rejections.
b. Revenue should be recognized on completion of inspection of components.
The assessment would not change even in case where inspection is
normally known to lead to no quality rejections.
c. Revenue should be recognized on dispatch of components. The assessment
would change where inspection is normally known to lead to no quality
rejections.
d. Revenue should be recognized on delivery of the component to the
Railways' stockyard. The assessment would change where inspection is
normally known to lead to no quality rejections.
4. In respect of A Ltd. state with reference to Accounting Standards notified
under the Companies (Accounting Standards) Rules, 2006, what would be
value of the inventory to be recorded in the books of accounts?
a. ₹ 47,00,435
b. ₹ 50,00,000
c. ₹ 49,50,000
d. ₹ 49,37,368
5. Please guide regarding the accounting treatment of both the grants mentioned
above in line with the requirements of Accounting Standard 12.
a. Distribution of dividend out of grant is correct. In the second case also not
recording land in the books of accounts is correct.
b. Distribution of dividend out of grant is incorrect. In the second case, not
recording land in the books of accounts is correct.
 CAPS – Education to Profess CA Intermediate

c. Distribution of dividend out of grant is correct. In the second case, land

should be recorded in the books of accounts at a nominal value.
d. Distribution of dividend out of grant is incorrect. In the second case, land
should be recorded in the books of accounts at a nominal value.
Answer MCQs 6-8 based on the following case study.
XY Ltd. agrees to construct a building on behalf of its client GH Ltd. on 1st April
20X1. The expected completion time is 3 years. XY Ltd. incurred a cost of Rs 30
lakh up to 31st March 20X2. It is expected that additional costs of Rs. 90 lakh.
Total contract value is Rs 112 lakh. As at 31st March 20X2, XY Ltd. has billed
GH Ltd. for Rs. 42 lakh as per the agreement. Assume that the work is
completed to the extent of 75% by the end of Year 2
6. Revenue to be recognized by XY Ltd. for the year ended 31st March 20X2 is
a. 28
b. 42
c. 30
d. 32
7. Total expense to be recognised in Year 1 is?
a. 30
b. 120
c. 38
d. 36
8. Revenue to be recognised for year 2 is
a. 84
b. 42
c. 56
d. 28
9. Gyan Ltd. borrowed ₹ 10 crore for construction of a plant at the rate of 10%
per annum (interest paid annually ₹ 1 crore). The construction was being
carried on and out of the borrowings, 4 crore was temporarily placed in a fixed
deposit at the rate of 6% per annum (interest earned ₹ 24 lakh). At the year
end, how much cost of borrowing Gyan Limited will capitalise?
a. Interest paid on ₹ 10 crore i.e. ₹ 1 crore
b. Interest paid on ₹ 6 crore as only this amount was utilized i.e. ₹ 60 Lakh.
c. Interest paid less income on temporary investment i.e. ₹ 76 lakh
d. Nothing will be capitalized
10. What is the correct treatment of income from temporary investment from
borrowed fund pending expenditure on qualifying asset.
a. Income is deducted from borrowing cost.
b. Income is credited to P&L account.
c. Income is deducted from PPE.
d. Income is deducted from borrowing amount.
 CAPS – Education to Profess CA Intermediate

11. All of the following costs are excluded while computing value of inventories
except?
a. Selling and Distribution costs
b. Allocated fixed production overheads based on normal capacity.
c. Abnormal wastage
d. Storage costs (which is necessary part of the production process)
12. Advantages of Buy-back of shares include to
a. Encourage others to make hostile bid to take over the company.
b. Decrease promoters holding as the shares which are bought back are
cancelled.
c. Discourage others to make hostile bid to take over the company as the
buy-back will increase the promoters holding.
d. All of the above
13. Which of the following would be considered a cash-flow item from an
investing activity?
a. Cash outflow to the government for payment of taxes.
b. Cash outflow to purchase bonds issued by another company.
c. Cash outflow to shareholders as dividends
d. Cash outflow to make payment to trade payables.
14. As per AS 26 there is a rebuttable presumption that the useful life of an
intangible asset will not exceed
a. 2 years
b. 5 years
c. 10 years
d. 15 years
15. As per AS 16, all the following are qualifying assets except
a. Manufacturing plants and Power generation facilities
b. Inventories that require substantial period of time
c. Assets those are ready for sale.
d. None of the above
16. Yash Ltd. wants to prepare its cash flow statement. It sold equipment of
book value of Rs. 60,000 at a gain of Rs. 8,000. The amount to be reported in
its cash flow statement under operating activities is
a. Nil
b. -8,000
c. 8,000
d. 60,000
17. Which of the following circumstances may not give rise to the separate
disclosure of items of income and expense
a. The write-down of inventories to net realisable value
b. Legislative changes having retrospective application
c. Litigation settlements
CAPS – Education to Profess CA Intermediate

d. Separation cost paid to CEO of the company

18. Premium (excess of buy-back price over the par value) paid on buy-back
should be adjusted against
a. Free reserves.
b. Securities premium.
c. Both (a) and (b).
d. Neither (a) nor (b).
19. A Ltd. acquired 2,000 equity shares of Omega Ltd. on cum-right basis at ₹ 75
per share. Subsequently, omega Ltd. made a right issue of 1:1 at ₹ 60 per
share, which was subscribed for by A. Total cost of investments at the year-
end will be
a. 2,70,000
b. 1,50,000
c. 1,20,000
d. 1,70,000
20. If the purchase consideration is more than net assets (at agreed values) of
the transferor company, difference shall be recorded as ____ in the books of
the transferee company.
a. Goodwill.
b. Capital Reserve.
c. Profit.
d. Loss.
21. An item that meets the definition of an element of financial statements
should be recognised in the financial statements if:
a. It is probable that any future economic benefit associated with the item
will flow to the enterprise
b. Item has a cost or value that can be measured with reliability
c. Both a and b
d. It is probable that no future economic benefit associated with the item
will flow to the enterprise.
22. Deferred payment liabilities will be shown in the balance sheet of a company
under the heading
a. Other long term liability
b. Long term borrowings.
c. Short term borrowings
d. Current Liabilities
 CAPS – Education to Profess CA Intermediate

Part II
Descriptive Questions
Question No 1 is compulsory
Answer any four from the remaining five questions
Wherever necessary suitable assumptions may be made and indicated in answer by the
candidates. Working notes should form part of your answers
1)
a) Skanda Ltd. acquired a machinery for ₹ 2,50,00,000 five years ago.
Depreciation was charged at 10% p.a. on SLM basis, useful life being 10 years.
At the beginning of Year 3, the machinery was revalued to with the surplus on
revaluation being credited to Revaluation Reserve. Depreciation was provided
on the revalued amount over the balance useful life of 8 years. The machinery
was sold in the current year for ₹ 1,12,50,000. Give the accounting treatment
for the above in the Company's accounts. What will be the treatment if the
machinery fetched only ₹ 42,50,000 now? (5 Marks)
b) H Ltd. began the construction of a new building on 1st April 2022. It obtained
a special loan of ₹ 6,00,000 on 1st April 2022 at an interest of 12% to finance
the construction of the building.
The company's other outstanding two non-specific loans on 1st April, 2022
were as follows:
Amount in ₹ Rate of Interest
30,00,000 14%
54,00,000 16%
The expenditure incurred on the building project was as per detail given
below:
Amount in ₹
1st
May, 2022 12,00,000
1 July, 2022
st 15,00,000
1 October, 2022
st 27,00,000
1 March, 2023
st 7,20,000
The building was completed by 31st March 2023. (5 Marks)
Following the provisions of Accounting Standard 16, you are required to
calculate the amount of interest to be capitalized and also give one Journal
Entry for capitalizing the cost and borrowing cost in respect of the building.
c) Net profit for the year 2022 ₹ 11,00,000
Net profit for the year 2023 ₹ 15,00,000
No. of shares outstanding prior to rights issue 5,00,000 shares
Rights issue price ₹ 15
Last date to exercise rights shares 1st March 2023
 CAPS – Education to Profess CA Intermediate

Rights issue is one new share for each five outstanding (i.e. 1,00,000 new
shares)
Fair value of one equity share immediately prior to exercise of rights on 1st
March 2023 was ₹ 21.00. Compute Basic Earnings Per Share. (4 Marks)
2) Ring Ltd. was registered with a nominal capital of ₹ 10,00,000 divided into
shares of ₹ 100 each. The following Trial Balance is extracted from the books on
31st March, 2022.
Particulars ₹ Particulars ₹
Buildings 5,80,000 Sales 10,40,000
Machinery 2,00,000 Outstanding expenses 4,000
Closing stock 1,80,000 Provision for doubtful 6,000
debts (1-4-2021)
Loose tools 46,000 Equity share capital 4,00,000
Purchases (finished 4,20,000 General reserve 80,000
goods)
Salaries 1,20,000 Profit and loss A/c (1-4- 50,000
2021)
Director’s fees 20,000 Creditors 1,84,000
Rent 52,000 Provision for 2,10,000
Depreciation 40,000 depreciation
Bad Debts 12,000 On Building 1,00,000
On Machinery 1,10,000
Investment 2,40,000
Interest accrued on 4,000 14% Debentures 4,00,000
investment
Debenture interest 56,000 Interest on debentures 28,000
accrued but not due
Advance tax 1,20,000 Interest on investments 24,000
Sundry expenses 36,000 Unclaimed Dividend 10,000
Debtors 2,50,000
Bank 60,000
24,36,000 24,36,000
You are required to prepare statement of Profit and Loss for the year ending 31st
March, 20X2 and Balance sheet as at that date after taking into consideration the
following information:
(a) Closing stock is more than opening stock by ₹ 1,60,000
(b) Provide to doubtful debts @ 4% on Debtors.
(c) Make a provision for income tax @30%.
(d) Depreciation expense included depreciation of ₹ 16,000 on Building and that
of ₹ 24,000 on Machinery.
(e) The directors declared a dividend @ 25% on 2nd April 2022, and transfer to
General Reserve @ 10%.
(f) Bills Discounted but not yet matured ₹ 20,000. (14 Marks)
 CAPS – Education to Profess CA Intermediate

3)
a) Y Ltd., used certain resources of X Ltd. In return X Ltd. received 10 lakhs and
15 lakhs as interest and royalties respective from Y Ltd. during the year 2022-
23. You are required to state whether and on what basis these revenues can be
recognized by X Ltd. (4 Marks)
b) The balance sheet of ABC Limited as at 31 March, 2023 was as follows
st

Particulars Notes ₹
Equity and liabilities
1 Shareholders’ funds
A Share capital 1 26,00,000
B Reserves and Surplus 2 (4,05,000)
2 Non current liabilities
A Long term borrowings 3 12,00,000
3 Current liabilities
A Trade payables 5,92,000
B Short term borrowings – bank 1,50,000
overdraft
Total 41,37,000
Assets
1 Non current assets
A Property, plant and equipment 4 11,50,000
B Intangible assets 5 70,000
C Non current investments 6 68,000
2 Current assets
A Inventory 14,00,000
B Trade receivables 14,39,000
C Cash and cash equivalents 10,000
Total 41,37,000
Notes to accounts
₹
1 Share capital
2,00,000 equity shares of ₹ 10 each 20,00,000
6,000 8% preference shares of ₹ 100 each 6,00,000
26,00,000
2 Reserves and surplus
Debit balance of profit and loss account (4,50,000)
(4,50,000)
3 Long term borrowings
9% debentures 12,00,000
12,00,000
4 Property plant and equipment
Plant and machinery 9,00,000
Furniture and fixtures 2,50,000
11,50,000
 CAPS – Education to Profess CA Intermediate

5 Intangible assets
Patents and copyrights 70,000
70,000
6 Non current investments
Investments (market value of ₹ 55,000) 68,000
68,000
It was decided to reconstruct the company for which necessary resolution was
passed and sanctions were obtained from appropriate authorities.
Accordingly, it was decided that:
(a) Preference shareholders would give up 30% of their capital in exchange
for allotment of 11% Debentures to them.
(b) Debenture holders having charge on plant and machinery would accept
plant and machinery in full settlement of their dues.
(c) Inventory equal to ₹ 5,00,000 in book value will be taken over by trade
payables in full settlement of their dues.
(d) Investment value to be reduced to market price.
(e) The company would issue 11% Debentures for 3,00,000 and augment its
working capital requirement after settlement of bank overdraft.
Pass necessary Journal Entries in the books of the company. Prepare Capital
Reduction account and Balance Sheet extract for Equity & Liabilities of the
company after internal reconstruction. (10 Marks)
4) H Ltd. and S Ltd. provide the following information as at 31st March,2023:
H Ltd S Ltd
Property, Plant and Equipment 2,00,000 2,60,000
Investments (14,000 Equity Shares of S Ltd.) 2,52,000 -
Current Assets 1,48,000 1,40,000
Share capital (Fully paid equity shares of 10 3,00,000 2,00,000
each)
Profit and loss account 1,00,000 80,000
Trade Payables 2,00,000 1,20,000
Additional information:
H Ltd. acquired the shares of S Ltd. on 1st July, 2021 and Balance of profit and
loss account of S Ltd. on 1stApril, 2021 was ₹ 60,000. Prepare consolidated
balance sheet of H Ltd. and its subsidiary as at 31st March, 2022. (14 Marks)
5)
a) On 1st April, 2018, Tina Ltd. take over the business of Rina Ltd. and
discharged purchase consideration as follows:
(i) Issued 50,000 fully paid Equity shares of ₹ 10 each at a premium of ₹ 5 per
share to the equity shareholders of Rina Ltd.
(ii) Cash payment of ₹ 50,000 was made to equity shareholders of Rina Ltd.
(iii) Issued 2,000 fully paid 12% Preference shares of ₹ 100 each at par to
discharge the preference shareholders of Rina Ltd.
(iv) Debentures of Rina Ltd. 20,000 will be converted into equal number and
 CAPS – Education to Profess CA Intermediate

amount of 10% debentures of Tina Ltd. (5 Marks)

Give the meaning of Purchase consideration as per AS 14. Calculate the
amount of Purchase consideration as per AS-14 and pass Journal Entry
relating to discharge of purchase consideration in the books of Tina Ltd.
b) Buckingham Bros, Bombay have a branch at Nagpur. They send goods at cost
to their branch at Nagpur. However, direct purchases are also made by the
branch for which payments are made at head office. All the daily collections
are transferred from the branch to the head office.
From the following, prepare Nagpur branch account in the books of head
office by Debtors method: (9 Marks)

Opening balance (1-1- 2,000 Bad Debts 1,000

2023) Imprest Cash
Sundry Debtors 25,000 Discount to Customers 2,000
Stock: Transferred from 24,000 Remittances to H.O. 1,65,000
H.O. (received by H.O.)
Direct Purchases 16,000 Remittances to H.O. (not 5,000
received by H.O. so far)
Cash Sales 45,000 Branch Exp. directly paid 30,000
by H. O.
Credit Sales 1,30,000 Closing Balance (31-12-
2023)
Direct Purchases 45,000 Stock: Transfer from H.O. 15,000
Returns from Customers 3,000 Direct Purchase 10,000
Goods sent to branch 60,000 Debtors ?
from H.O.
Transfer from H.O. for 4,000 Imprest Cash ?
Petty Cash expenses
Petty Cash expenses 4,000

6)
a) What are the qualitative characteristics of the financial statements which
improve the usefulness of the information furnished therein? (5 Marks)
(OR)
a) The accountant of Beryl Limited has asked you to identify the following items
as — Change in Accounting Policies / Change in Accounting Estimates /
Extraordinary Items / Prior period items / Ordinary Activity:
(i) Non-provision for salary already due in earlier year.
(ii) Attachment of the property of the enterprise.
(iii) Introduction of new pension scheme for employees.
(iv) Change in Reserve for obsolete inventory.
(v) Settlement of litigation case.
(vi) Actual Bad debts exceeds the provision.
 CAPS – Education to Profess CA Intermediate

(vii) Legislative changes having long term retrospective application.

(viii) Capitalisation of working capital loan interest.
(ix) Change from Cost Model to Revaluation Model for measurement of
carrying amount of PPE.
(x) Government sanctioned grant in current year for expenses incurred in
previous accounting year. (5 Marks)

b) Suraj Limited provides you the following information:

(i) It received a Government Grant @40% towards the acquisition of
Machinery worth ₹ 25 Crores.
(ii) It received a Capital Subsidy of ₹ 150 Lakhs from Government for setting
up a Plant costing ₹ 300 Lakhs in a notified backward region.
(iii) It received ₹ 50 Lakhs from Government for setting up a project for
supply of arsenic free water in a notified area.
(iv) It received ₹ 5 Lakhs from the Local Authority for providing Corona
Vaccine free of charge to its employees and their families.
State, how you will treat the above in the books of Suraj Limited. (4 Marks)
c) From the following information, calculate cash flow from operating activities:
Summary of Cash Account for the year ended March 31, 2023
Particulars ₹ Particulars ₹
To Balance b/d 1,00,000 By Cash Purchases 1,20,000
To Cash sales 1,40,000 By Trade payables 1,57,000
To Trade receivables 1,75,000 By Office & Selling 75,000
Expenses
To Trade Commission 50,000 By Income Tax 30,000
To Sale of Investment 30,000 By Investment 25,000
To Loan from Bank 1,00,000 By Repayment of Loan 75,000
To Interest & Dividend 1,000 By Interest on loan 10,000
By Balance c/d 1,04,000
5,96,000 5,96,000
(5 Marks)