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QUESTION PAPER

Adv. ACCOUNTING Duration: 65

Details: Test 1 (CH-1,2,3) Marks: 35

Instructions:

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Q-1

Summarised Balance Sheet of Cloth Trader as on 31.03.2023 is given below:

Liabilities Amount (Rs.) Assets Amount (Rs.)

Proprietor's Capital 3,00,000 Fixed Assets 3,60,000

Profit & Loss Account 1,25,000 Closing Stock 1,50,000

10% Loan Account 2,10,000 Sundry Debtors 1,00,000

Sundry Creditors 50,000 Deferred Expenses 50,000

Cash & Bank 25,000

6,85,000 6,85,000

Additional Information is as follows:

(1) The remaining life of fixed assets is 8 years. The pattern of use of the asset is even. The
net realisable value of fixed assets on 31.03.2024 was Rs. 3,25,000.
(2) Purchases and Sales in 2023-24 amounted to Rs. 22,50,000 and Rs. 27,50,000 respectively.
(3) The cost and net realizable value of stock on 31.03.2024 were Rs. 2,00,000 and Rs.
2,50,000 respectively.
(4) Expenses for the year amounted to Rs. 78,000.
(5) Deferred Expenses are amortized equally over 5 years.
(6) Sundry Debtors on 31.03.2024 are Rs. 1,50,000 of which Rs. 5,000 is doubtful. Collection
of another Rs. 25,000 depends on successful re-installation of certain product supplied to the
customer;
(7) Closing Sundry Creditors are Rs. 75,000, likely to be settled at 10% discount.
(8) Cash balance as on 31.03.2024 is Rs. 4,22,000.
(9) There is an early repayment penalty for the loan of Rs. 25,000.

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You are required to prepare Profit & Loss Account for the year 2023-24 (Not assuming going
concern).

(5 Marks)

Q-2

M/s. Bright Horizon Ltd., an Indian manufacturing company, is preparing its financial
statements for the year ended March 31, 20X2. The company's financial controller, Mr. Arjun,
is keen on ensuring that the financial statements adhere to the qualitative characteristics
recommended in the framework for the preparation and presentation of financial
statements. Additionally, he wants to ensure that the financial statements provide a true and
fair view of the company's performance, financial position, and cash flows. Answer the
following questions based on the case study:

a. Discuss the constraints on relevant and reliable information, as mentioned in the

framework, and how they might impact M/s. Bright Horizon Ltd.'s financial reporting
decisions.

b. Mr. Arjun is concerned about the concept of "true and fair view" in financial reporting.
Explain what is meant by a "true and fair view" in the context of financial statements. Provide
reasons why adherence to qualitative characteristics and accounting standards generally
results in financial statements portraying a true and fair view.

(6 marks)

Q-3

Based upon criteria for rating of non-corporate entity, categorize the following as Level I,
Level II and Level IIl Level IV entities for the purpose of compliance of Accounting Standards
in India.

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(a) Rama Textiles whose turnover (excluding other income) exceeds ten crore but does not
exceed rupees fifty crore in the immediately preceding accounting year.

(b) Star Industries is having borrowings (including public deposits) in excess of rupees two
crore but not in excess of rupees ten crore at any time during the immediately preceding
accounting year.

(c) Newman Industries is having borrowings (including public deposits) less than rupees fifty
lakh at any time during the immediately preceding accounting year.

(d) SS Finance is a financial institution carrying its business in India since last 10 years.

(e) DD Finance, holding company of SS Finance. (Entity mentioned at Point (v) above)

(f) Reliable Co-op Bank, a co-operative bank, carrying banking operations since last 15 years.

(6 Marks)

Q-4

Explain in detail various steps and procedures involved in the standard setting process?

(6 Marks)

Q-5

A company with a turnover of Rs. 225 crores and borrowings of Rs. 51 crore during the year
ended 31st March, 2023 wants to avail the exemptions available in adoption of Accounting
Standards applicable to companies for the year ended 31.3.2023. Advise the management on
the exemptions that are available as per the Companies (Accounting Standards) Rules, 2021.

(4 Marks)

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Q-6

Discuss the key objective of “Accounting Standards” in brief. State the advantages of setting
Accounting Standards.

(4 Marks)

Q-7 MCQ Question’s

1. Rajesh, a financial analyst, is studying the Indian Accounting Standards (Ind AS) and their
relationship with International Financial Reporting Standards (IFRS). He comes across the
concept of "Carve-outs" and "Carve-ins" in Ind AS. Which of the following statements
regarding "Carve-outs" and "Carve-ins" is correct?

a) "Carve-outs" are additional guidance given in Ind AS beyond what is stated in IFRS, while
"Carve-ins" represent deviations from IFRS due to economic conditions in India.
b) "Carve-outs" are deviations from IFRS due to economic conditions in India, while "Carve-
ins" are additional guidance given in Ind AS beyond what is stated in IFRS.
c) Both "Carve-outs" and "Carve-ins" are terms used interchangeably in Ind AS to refer to
deviations from IFRS.
d) "Carve-outs" and "Carve-ins" have no significance in the context of Ind AS and IFRS.

2. Which accounting principle requires revenues and expenses to be recognized when they
are earned or incurred, regardless of cash flows?

a) Matching principle
b) Revenue recognition principle
c) Accrual basis principle
d) Cash basis principle

3. On 31st March, 20X2, Mr. Sandeep, a successful entrepreneur, decided to retire and sell
his business, ABC Enterprises. Before the sale, he prepared financial statements for the year

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ending on that date. However, Sandeep's friend, Mr. Robert, raised concerns about the
assumption used in preparing the financial statements.

Which fundamental accounting assumption has Sandeep considered in preparing the financial
statements, and what does it entail?

a) Consistency: Sandeep assumed that his accounting policies remained unchanged from the
previous year to ensure comparability in the financial statements.
b) Going Concern: Sandeep assumed that ABC Enterprises will continue its operations in the
foreseeable future and recognized the need for sufficient profit retention to meet its financial
commitments.
c) Accrual Basis: Sandeep assumed that revenues and expenses were recognized when they
were earned or incurred, not when the money was received or paid, to ensure accurate
financial reporting.
d) Users of Financial Statements: Sandeep considered the diverse group of users, including
investors, employees, lenders, suppliers, customers, government, and the public, who rely on
financial statements to make informed economic decisions.

4. Non-corporate entities falling in Level I are those whose turnover (excluding other income)
does exceed:

a) Rs. 100 crores

b) Rs. 250 crores
c) Rs. 500 crores
d) Rs. 150 crores

(4×1=4 Marks)

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