SUGGESTED SOLUTION

CA INTERMEDIATE

SUBJECT- ACCOUNTING

Test Code – IJP 2501

BRANCH - () (Date :)

Head Office : Shraddha, 3rd Floor, Near Chinai College, Andheri (E), Mumbai – 69.
Tel : (022) 26836666

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ANSWER : 1(A)
(1) As per AS-1 disclosure of accounting policies is not a remedy for wrong or
inappropriate treatment in accounting.
(2) Considering the substance over form as per AS-1, documentation and legal
formalities represent the form of the transaction, although the legal title has not
been transferred, the economic reality and substance are that the rights and
beneficial interest in the Office Building have been transferred. Therefore, recording
of acquisition/ disposal (by the transferee and transferor respectively) would in
substance represent the transaction entered into.
(3) Accrual is a fundamental accounting assumption. If it is not followed by the company,
the facts should be disclosed under AS-1. Hence the company should disclose the
fact that the cash basis of accounting has been followed in the notes on accounts.
(4) The practice followed by the company is not correct. It should be disclosed as part of
financial statements (The director's report is not part of financial statements).

(5 Marks)
ANSWER : 1(B)
i) Depreciation to be charged in the Profit & Loss Account
Particulars Amount in ₹
Depreciation on old Machinery 1, 40, 750
[10% on ₹ 56, 30, 000 for 3 months (01.04.2022 to 30.06 .2022
)]
Add: Depreciation on Machinery acquired on 01.06.2022 1, 76, 000
(₹21,12,000 ×10%×10/12 )
Add: Depreciation on Machinery after adjustment of Exchange 4, 67, 625
[10% of 56,30,000-9,60,000 + 15,65,000) for 9 months]
Total Depreciation to be charged in Profit & Loss A/c 7, 84, 375

ii) Book value of Plant & Machinery as on 31.3.2023

Particulars Amount in ₹
Balance as per books on 01.04.2022 56, 30, 000
Add: Included in purchases on 01.06 .2022 15, 65, 000
Add: Purchases on 30.06 .2022 36, 77, 000
93, 07, 000
Less: Book value of Machine sold on 30.06.2022 (9, 60, 000)
83, 47, 000
Less: Depreciation on Machinery in use (7, 60, 375)
₹ (7, 84, 375-24,000)

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 Book Value as on 31.03 .2023 75, 86, 625

Note: The computation of depreciation and book value of Plant & Machinery can be
presented in the following alternative manner:
Particulars Book Value Period Depreciation Book Value as on
or Cost or 31. 03. 2023
Acquisition
Opening 46, 70, 000 01.04 .2022 4, 67, 000 42, 03, 000
Value (56, 30, 000 − to 31.03 .2023 (46, 70, 000×10%)
9, 60, 000)
Sold 9, 60, 000 01.04 .2022 24,000
to 30.06 .2022 (9, 60, 000×10%×3/12)
Purchases 21, 12, 000 01.06 .2022 1, 76, 000 19, 36, 000

to 31.03 .2023 (21, 12, 000×10%×10/12)

New 15, 65, 000 01.07 .2022 1, 17, 375 14, 47, 625
Machinery to 31.03 .2023
(15, 65, 000×10%×9/12)
Total 7, 84, 375 75, 86, 625 75,86,625

iii) Profit/Loss on Exchange of Machinery

Particulars Amount in
Balance as per books on 01.04 .2022 9, 60, 000
Less: Depreciation for 3 months (₹ 9, 60, 000×10/100×3/12) (24, 000)
W.D.V. as on 30.06 .2022 9, 36, 000
Less: Exchange value (8, 25, 000)
1,11,000
Loss on Exchange of Machinery

(5 Marks)

ANSWER : 2(A)
Alpha Ltd.
Cash Flow Statement (from Operating Activities) for the year ended 31st March, 2022
₹ ₹
Cash flow from Operating Activities
Net profit before income tax and extraordinary items: 40, 00, 000
Adjustments for:

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 Depreciation on Property, plant and equipment 10, 00, 000
Discount on issue of debentures 60,000
Interest on debentures paid 7, 00, 000
Interest on investments received (1, 20, 000)
Profit on sale of investments (40, 000) 16, 00, 000
Operating profit before working capital changes 56, 00, 000
Adjustments for:
Increase in inventory (2, 36, 000)
Increase in Sundry Debtors (10, 200)
Decrease in Bills receivables 20,000
Increase in Sundry Creditors 10,600
Increase in Bills payables 10, 000)
Increase in outstanding expenses 13,600 (2, 12, 000)
Cash generated from operations 53, 88, 000
Income tax paid (21, 00, 000)
Cash flow from ordinary items 32, 88, 000
Cash flow from extraordinary items:
Compensation received in a suit filed 1, 80, 000
Net cash flow from operating activities 36,68,000

(5 Marks)

ANSWER : 2(B)
As per AS 5 "Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies" Extraordinary items should be disclosed in the statement of profit and loss as a part
of net profit or loss for the period. The nature and the amount of each extraordinary item
should be separately disclosed in the statement of profit and loss in a manner that its impact
on current profit or loss can be perceived. In the given case the selling of land to tide over
liquidation problems as well as fire in the Factory does not constitute ordinary activities of
the Company. These items are distinct from the ordinary activities of the business. Both the
events are material in nature and expected not to recur frequently or regularly. Thus, these
are Extrgindinary Items.
Therefore, in the give case, disclosing net profits by setting off fire losses against profit from
sale of land is not correct. The profit on sale of land, and loss due to fire should be disclosed
separately in the statement of profit and loss.
(5 Marks)

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ANSWER : 3(A)
(i) Proportion of total contract value recognized as revenue
Percentage of completion of contract to total estimated cost of construction
= [(250 + 80)/(250 + 80 + 220)] × 100 = 60%
Revenue to be recognized till date =60% of Rs. 500 crore = Rs. 300 crore.
𝑠𝑡
Calculation of profit/ loss for the year ended 31 March, 2021 (Rs. in crore)
Total estimated cost of construction
Work certified 250
Work not certified 80
Estimated further cost to completion 220 550
Less: Total contract price (500)
Total foreseeable loss to be recognized as expense 50

According to AS 7 "Construction Contracts", when it is probable that total contract

costs will exceed total contract revenue, the expected loss should be recognized as
an expense immediately.
(iii) Amount due from / to customers = Contract costs incurred till date + Recognized
profits - Recognized losses - (Progress payments received + Progress payments to be
received)
= Rs. [(250 + 80) + Nil – 50 – (200 + 70)] crore = Rs. [330 – 50 – 270] crore
Amount due from customers (shown as an asset) = Rs. 10 crore.
(iv) The relevant disclosures under AS 7 (Revised) are given below:
Rs. in crores
𝑠𝑡 300
Contract revenue till 31 March, 2021
𝑠𝑡 330
Contract expenses till 31 March, 2021
𝑠𝑡 50
Recognized losses for the year 31 March, 2021
Progress billings Rs. (200+ 70) 270
Progress (billed but not received from contractee) 70
Gross amount due from customers 10

(5 Marks)

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ANSWER : 3(B)
₹ ₹
Deferred Grant A/c Dr. 36 lakhs
Profit & Loss A/c Dr. 54 lakhs
To Bank A/c 90 lakhs
(Being Government grant refunded)
Workings:
Total grant received: ₹ 90 Lakhs Grant recognised as
Income for first 3 years: ₹ 18 lakhs x 3
= ₹ 54 lakhs
Remaining Deferred Income = ₹ 90 Lakhs - 54 lakhs
= ₹ 36 lakhs
Reference: The students are advised to refer the full text of AS 12 "Accounting for
Government Grants".
(5 Marks)

ANSWER : 4(A)
Effect of each transaction on Balance sheet of Mrs. A is shown below:
Transactions Assets - Liabilities = Equity
₹ lakh ₹ lakh ₹ lakh
Opening 10.00 - 4.00 = 6.00
(1) Dividend earned 10.20 - 4.00 = 6.20
[10. 00 + 0. 20] [6. 00 + 0. 20]
(2) Settlement of Creditors 9.50 - 3.10 = 6.40
[10. 20 − 0. 70] [4. 00 − 0. 90] [6. 20 + 0. 20]
(3) Salary Outstanding 9.50 - 3.30 = 6.20
[3. 10 + 0. 20] [6. 40 − 0. 20]
(4) Drawings 9.30 - 3.30 = 6.00
[9. 20 − 0. 20] [6. 20 − 0. 20]

(5 Marks)

ANSWER : 4(B)
As per AS 9 "Revenue Recognition", in a transaction involving the sale of goods,
performance should be regarded as being achieved when the following conditions
are fulfilled:

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 (i) the seller of goods has transferred to the buyer the property in the goods for a price
or all significant risks and rewards of ownership have been transferred to the buyer
and the seller retains no effective control of the goods transferred to a degree usually
associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the consideration that will
be derived from the sale of the goods.
Case (i)
The sale is complete but delivery has been postponed at buyer's request. B.S. Ltd.
should recognize the entire sale of ₹50, 000 for the year ended 31st March, 2023 .
Case (ii)
In case of consignment sale revenue should not be recognized until the goods are
sold to a third party. 20% goods lying unsold with consignee should be treated as
closing inventory and sales should be recognized for ₹1, 00, 000 ( 80% of
₹1, 25, 000).
Case (iii)
In case of goods sold on approval basis, revenue should not be recognized until the
goods have been formally accepted by the buyer or the buyer has done an act
adopting the transaction or the time period for rejection has elapsed or where no
time has been fixed, a reasonable time has elapsed. Therefore, revenue should be
recognized for the total sales amounting ₹1, 00, 000 as the time period for rejecting
the goods had expired.
Thus total revenue amounting ₹ 2, 50, 000(50, 000 + 1, 00, 000 + 1, 00, 000) will
be recognized for the year ended 31 st March, 2023 in the books of B.S. Ltd.
(5 Marks)

ANSWER : 5(A)
As per AS 13 (Revised) 'Accounting for Investments', for investment in shares if the
investment is purchased with an intention to hold for short-term period (less than one year),
then it will be classified as current investment and to be carried at lower of cost and fair
value, i.e., in case of shares, at lower of cost ( ₹2,50,000 ) and market value ( ₹2,25,000 ) as
on 31 March 2023 , i.e., ₹2,25,000.
If equity shares are acquired with an intention to hold for long term period (more than one
year), then should be considered as long-term investment to be shown at cost in the Balance
Sheet of the company. However, provision for diminution should be made to recognise a
decline, if other than temporary, in the value of the investments.
Gold and silver are generally purchased with an intention to hold it for long term period
(more than one year) until and unless given otherwise. Hence, the investment in Gold and
Silver (purchased on 1st March, 2020) should continue to be shown at cost (since there is no
'other than temporary' diminution) as on 31st March, 2023 , i.e., ₹4,00,000 and ₹2,00,000
respectively, though their market values have been increased.
(5 Marks)

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ANSWER : 5(B)
Recognition of Asset: The new boiler will produce economic benefits to RS Ltd., and the cost
is measurable. Hence, the item should be recognized as an asset. The cost old boiler should
be derecognized and the new boiler will be added.
Statement showing cost of new boiler and machine after year 2
Original cost of plant ₹2, 00, 00, 000
Less: Accumulated depreciation [(2, 00, 00, 000/10)×2] ₹40, 00, 000
Carrying value of the plant after two years ₹1, 60, 00, 000
Less: Current Cost of Old Boiler to be derecognized
Less: WDV of Boiler (replaced) after 2 years ₹40, 00, 000
(50, 00, 000/10×8)
₹1, 20, 00, 000
Add: Cost of new Boiler to be recognized ₹60, 00, 000
Revised carrying amount of Plant ₹1, 80, 00, 000

(5 Marks)

ANSWER : 6(A)
Calculation of capitalization rate on borrowings other than specific borrowings
Nature of Period of Amount of Rate of interest Weighted average
general Outstanding loan(Rs.) p.a. amount of Interest (Rs.)
borrowings balance
a b c 𝑑 = [𝑏 × 𝑐) × (𝑎/12
)]
9% Debentures 12 months 20, 00, 000 9% 1, 80, 000
Bank overdraft 9 months 4, 00, 000 10% 30,000
2 months 4, 00, 000 12% 8,000
1 month 8, 00, 000 12% 8,000
36, 00, 000 2, 26, 000
Weighted average cost of borrowings
= (20, 00, 000×(12/12)) + (4, 00, 000×(11/12)) + (8, 00, 000×(1/12)} = 24, 33, 334

Capitalization rate = [( Weighted average amount of interest / Weighted average of general

borrowings) ×100] = [(2, 26, 000/24, 33, 334)×100] = 9. 29% p.a.
(5 Marks)

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ANSWER : 6(B)
(i) Value in Use
𝑠𝑡 Cash flow Discounting Present Value
Year ended on 31 March
(₹ in lakh) factor @ 8% (₹ in lakh)
2019 800 0.926 740.80
2020 800 0.857 685.60
2021 800 0.794 635.20
2022 600 0.735 441.00
2023 600 0.681 408.60
2024 500 0.630 315.00
2025 400 0.583 233.20
3459.40

(ii) Impairment loss

Impairment loss = Carrying amount of the asset - Recoverable Amount
= ₹4, 600 lakhs - ₹ 3, 459. 40 lakhs (Refer W.N.)
= ₹1, 140. 60 lakhs
(iii) Revised Carrying Amount on 31.3.2018
As per para 87 of AS 28 'Impairment of Assets', an impairment loss should be
allocated to reduce the carrying amount of the assets of CGU in the following order:
(a) first, to goodwill allocated to the cash-generating unit (if any); and
(b) then, to the other assets of the unit on a pro-rata basis based on the carrying
amount of each asset in the unit.
Hence, first goodwill is impaired at full value and then identifiable assets are
impaired to arrive at recoverable value.
(₹ in lakh)
Goodwill Identifiable Total
assets
Useful life 4 years 5 years
Historical cost 2,000 6,000 8,000
Accumulated (1, 000) (2, 400) (3, 400)
(for 2 years)
Carrying amount before impairment 1,000 3,600 4,600
Impairment loss (1, 000) (140. 60) (1, 140. 60)

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 Revised carrying amount after impairment 0 3, 459. 40 3, 459. 40
loss
Working Note:
Calculation of Recoverable Amount
Recoverable amount = Higher of Asset's Net Selling Price or Value in Use
Where, Asset's net selling price is not determinable
Recoverable Amount of the asset will be equal to the Value in use ie. ₹3,459.40 lakh.
(5 Marks)

ANSWER : 7(A)
In the books of Ms. Jayshree
Investment Account (Equity shares in Rama Ltd.)
Date Particulars No. of Amount Date Particulars No. of Amount
shares (₹) Shares (₹)
1.4 .21 To Balance b/d 5,000 77,250 1.11 .21 By Bank A/C 10,000 2, 50, 000
15.5 .21 To Bank A/c 5,000 90,000
26.8 .21 To Bonus issue 10,000 - 31.3 .22 By Balance c/d 17,500 1, 92, 500
(W.N.1)
1.11 .21 To Bank A/C 31.3 .22 By Profit & Loss 9,386
(right shares) A/c (loss on
(W.N.4) 7,500 1, 50, 000 valuation)
1.11 .21 To profit & 1, 34, 636
Loss A/C
27,500 4, 51, 886 27,500 4, 51, 886
Working Notes:
(1) Profit on sale of shares (average cost basis) on 1.11.2110,000 shares @ ₹25 per share
= 2, 50, 000
Cost of shares sold = [(77, 250 + 90, 000 + 1, 50, 000)/27, 500×10, 000]
= ₹1, 15, 364

Profit on sale of shares = ₹1, 34, 636

(2) Value of shares on 31.3 .22 [(77,250+90,000+1,50,000)/27,500 ×17, 500]
= ₹2, 01, 886 or ₹1, 92, 500 ( 17,500 shares at ₹11)
Shares will be valued at ₹, 1, 92, 500 as market value is less than cost.
Note: Average cost basis has been considered for valuation of shares at the year end and
for calculation of cost of shares sold in the given answer.

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 (5 Marks)

ANSWER : 7(B)
Cash Flow Statement of Gagan Ltd. for the year ended March 31, 2022
A Cash Flow from Operating Activities
Net Profit as per Profit & Loss A/c
Add: Premium on Redemption of Debentures 1,650
Add: Interest on 10% Debentures 11,000
Less: Interest on 10% Investments (35, 000)
B Cash Flow from Investing Activities
Interest on Investments [35,000-10,500] 24,500
C Cash Flow from Financing Activities
Interest on Debentures paid [11,000-(1,175-275)] (10, 100)
Redemption of Debentures [(1,10,000-77,000) at 5% premium] (34, 650)
Note: Debtors written off against provision for doubtful debts does not require any further
adjustment in Cash Flow Statement
(5 Marks)

ANSWER : 8(A)
According to AS 16 'Borrowing costs', qualifying asset is an asset that necessarily takes
substantial period of time to get ready for its intended use. As per the standard, borrowing
costs that are directly attributable to the acquisition, construction or production of a
qualifying asset should be capitalized as part of the cost of that asset. Other borrowing costs
should be recognized as an expense in the period in which they are incurred. Capitalization
of borrowing costs is also not suspended when a temporary delay is a necessary part of the
process of getting an asset ready for its intended use or sale.
The treatment of interest by Zen Bridge Construction Ltd. can be shown as:
Qualifying Interest to be Interest to be
Asset capitalized charged to
Rs. in crores Profit & Loss
A/c Rs. in crores
Construction of hill road * Yes 1.25 0.15 1. 6/64×50
Purchase of equipment
and
No
Machineries
Working capital No 0.10 1. 6/64×6
Purchase of vehicles No 0.025 1. 6/64×4

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 Advance for tools, cranes No 0.25 1. 6/64×1
etc.
Purchase of technical 0.5 1. 6/64×1
know-how No
Total 1.25 0.35 1. 6/64×2
*Note: It is assumed that construction of hill road will normally take more than a year
(substantial period of time), hence considered as qualifying asset.
(5 Marks)

ANSWER : 8(B)
Calculation of cost of software (intangible asset) acquired for internal use
Purchase cost of the software £1, 50, 000
Less: Trade discount @ 2.5% £(3, 750)
£1, 46, 250
Cost in ₹ (UK £1, 46, 250×₹100 ) 146, 25, 000
Add: Import duty on cost @ 10% (₹) 14, 62, 500
160, 87, 500
Add: Additional import duty @ 5% (₹) 8, 04, 375
168, 91, 875
Add: Installation expenses (₹) 1, 50, 000
Add: Professional fee for clearance from customs (₹) 50,000
Cost of the software to be capitalized (₹) 170, 91, 875

Note: Since entry tax has been mentioned as a recoverable / refundable tax, it is not
included as part of the cost of the asset.
(5 Marks)

ANSWER : 9
𝑠𝑡
Cash Flow Statement of Flora Limited from Operating Activities For the year ended 31
March, 2023
Net profit before taxation (W.N.1) ₹ ₹
Adjustment: Depreciation on Furniture & Fixtures 92,000
Depreciation on Vehicles 5,000
Profit on sale of land (₹ 125000-7100000) 2,200
Loss on sale (Vehicle) (25, 000)

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Profit on sale of long-term investments 18, 000)
Interest received (6, 500)
Interest on debentures 12,000
Goodwill written off 13,000 (6, 500)
Operating profit before working capital changes 85,500
Increase in Stock in Hand (8, 000)
Increase in Bills Receivables (3, 650)
Decrease in Trade Receivables 6,000
Decrease in Bills payable (2, 000)
Increase in Trade Payables 4,000
Increase in outstanding expenses 1,500 (2, 150)
Cash generated from Operations 83,350
Less: Income taxes paid 9,000
Cash flow from Operating activities 74,350
Alternative presentation:
Cash Flow Statement of Flora Limited from Operating Activities For the year ended
31st March, 2023.
₹
Net profit before taxation (W.N. 1) 92,000
Adjustment: Depreciation on Furniture & fixtures 5,000
Depreciation on Vehicles 2,200
Profit on sale of land (25, 000)
Loss on sale (Vehicle) 800
Profit on sale of long- term investments (8, 000)
Interest received (6, 500)
Interest on debentures 12,000
Goodwill written off 13,000 (6, 500)
Operating profit before working capital changes 85,500
Increase in inventory (8, 000)

Decrease in Trade receivables * 2,350

Increase in Trade payables ** 2,000

Increase in outstanding expenses 1,500 (2, 150)

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 Cash generated from Operations 83,350

Less: Income taxes paid 9,000

Cash flow from Operating activities 74,350

[(18,150 + 46,000) - (14,500 + 52,000)]

** [(11,00049,000) - (13,000 + 45,000)]
Working Notes:
1. Net Profit before Taxation

Increases in Profit and Loss A/c (93, 000 − 52, 000) 41,000

Increases in General Reserve (90, 000 − 60, 000) 30,000

Interim dividend Paid 5,000

Transfer - provision for Taxation 16,000

Increase in retained earnings(Net Profit before Taxation) 92,000

2. Provision for Taxation Account

₹ ₹

To Bank (Balancing figure) 9,000 By Balance b/d 11,000

To Balance c/d 18,000 By Profit and loss account 16,000

27,000 27,000

3. Vehicles Account

Particulars (₹)

Opening Balance 28,000

Less: Depreciation (2, 200)

Less: Closing Balance (22, 000)

Book value of vehicle sold 3,800

Less: Sale Value (3, 000)

Loss on sale of Vehicle 800

(10 Marks)

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ANSWER : 10(A)
₹ in lakhs
Cost of construction incurred till date 32.50
Add: Estimated future cost 15.10
Total estimated cost of construction 47.60
Percentage of completion till date to total estimated cost of construction
= (32. 50/47. 60)×100 = 68. 28%

Proportion of total contract value recognized as revenue for the year ended 31st
March, 2022 per AS 7 (Revised)
= Contract price × percentage of completion
= ₹45 lakh × 68.28% = ₹30.73 lakhs.
(₹ in lakhs)
Total cost of construction 47.60
Less: Total contract price (45. 00 )
Total foreseeable loss to be recognized as expense 2.60
According to of AS 7, when it is probable that total contract costs will exceed total contract
revenue, the expected loss should be recognized as an expense immediately.
EXAMINERS' COMMENTS ON THE PERFORMANCE OF EXAMINEES:
May 19: Majority of the examinees were not able to give the required answer in line with AS
9 recognized as resition'. Few examinees were able to calculate the correct amount to be
recognized as revenue but failed to substantiate it with valid reasons
(5 Marks)

ANSWER : 10(B)
Physical Capital Maintenance at Current Cost
In the given case, the specific price index applicable to the product is 125 (25/20X100).
Current cost of opening stock = (₹ 1, 20, 000 / 100) ×125 Or 6,000 unit's
𝑥 ₹ 25 = ₹1, 50, 000
Current cost of closing cash = ₹1, 20, 000 ( ₹1, 80, 000 − ₹60, 000 ) Opening equity at
closing current costs = ₹1, 50, 000
Closing equity at closing current costs = ₹1, 20, 000 Retained Profit
= ₹1, 20, 000 − ₹1, 50, 000 = (−)₹30, 000 The negative retained profit indicates that
the trader has failed to maintain his capital. The available fund of ₹1, 20, 000 is not

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 sufficient to buy 6,000 units again at increased price of ₹25 per unit. The drawings should
have been restricted to ₹ 30,000 (₹ 60,000 – ₹ 30,000 ).
If the trader had not withdrawn any amount, then the answer would have been as below:
Current cost of opening stock = ₹1, 80, 000
Opening equity at closing current costs = ₹1, 50, 000
Retained Profit = ₹1, 80, 000 − ₹1, 50, 000 = ₹30, 000
If the trader had not withdrawn any amount, then the retained profit would have been
₹30, 000.
(5 Marks)

ANSWER : 11(A)
As per AS 26 'Intangible Assets'
(i) For the year ending 31.03 .2018
(1) Carrying value of intangible as on 31.03 .2018 :
At the end of financial year 31st March 2018 , the production process will be
recognized (i.e. carrying amount) as an intangible asset at a cost of Rs. 28
lakhs (expenditure incurred since the date the recognition criteria were met,
i.e., from 1st December 2017).
(2) Expenditure to be charged to Profit and Loss account:
The Rs. 22 lakhs is recognized as an expense because the recognition criteria
were not met until 1st December 2018. This expenditure will not form part of
the cost of the production process recognized in the balance sheet.
(ii) For the year ending 31.03 .2019
(1) Expenditure to be charged to Profit and Loss account:
(Rs. in lakhs)
Carrying Amount as on 31.03.2018 28
Expenditure during 2018-2019 80
Total book cost 108
Recoverable Amount (72)
Impairment loss 36
Rs. 36 lakhs to be charged to Profit and loss account for the year ending 31.03.2019.
(2) Carrying value of intangible as on 31.03 .2019 :
(Rs.in lakhs)
Total Book Cost 108
Less: Impairment loss (36)
Carrying amount as on 31.03 .2019 72
(5 Marks)

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ANSWER : 11(B)
The final bill having been paid in February 20X8 should have been accounted for in the
annual accounts of the company for the year ends 31st March, 20X8. However, it seems that
as a result of error or omission in the preparation of the financial statements of prior period
l.e., for the year ended 31st March 20X8, this material charge has arisen in the current
period i.e., year ended 31st March, 20X9. Therefore it should be treated as 'Prior period
item' as per AS 5. As per AS 5, prior period items are normally included in the determination
of net profit or loss for the current period. An alternative approach is to show such Items in
the statement of profit and loss after determination of current net profit or loss. In either
case, the objective is to indicate the effect of such items on the current profit or loss. It may
be mentioned that it is an expense arising from the ordinary course of business. Although
abnormal in amount or infrequent in occurrence, such an expense does not qualify an
extraordinary item as per AS 5. For better understanding, the fact that power bill is
accounted for at provisional rates billed by the state electricity board and final adjustment
thereof is made as and when final bill is received may be mentioned as an accounting policy.
(5 Marks)

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