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Adv AccM24 RRC

The document provides revision class course material for the Intermediate (IPC) exam in Advanced Accounting, covering various accounting standards including AS 1, AS 17, AS 18, AS 20, and AS 25. It includes questions and answers related to accounting policies, segment reporting, related party disclosures, earnings per share, and consolidation of financial statements. Additionally, it contains practical examples and calculations to illustrate the application of these accounting standards.

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0% found this document useful (0 votes)
25 views32 pages

Adv AccM24 RRC

The document provides revision class course material for the Intermediate (IPC) exam in Advanced Accounting, covering various accounting standards including AS 1, AS 17, AS 18, AS 20, and AS 25. It includes questions and answers related to accounting policies, segment reporting, related party disclosures, earnings per share, and consolidation of financial statements. Additionally, it contains practical examples and calculations to illustrate the application of these accounting standards.

Uploaded by

adithya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 32

CA. K. SHANMUGANATHAN FCA.

, ACMA

SOUTHERN INDIA REGIONAL COUNCIL OF ICAI


INTERMEDIATE (IPC) EXAM REVISION CLASS COURSE MATERIAL
PAPER 1 – Advanced Accounting
CA. K. SHANMUGANATHAN FCA.,ACMA.,

Accounting standards
AS 1
Question 1

ABC Ltd. was making provision for non-moving inventories based on no issues for the last 12
months up to 31.03.2019
The company wants to provide during the year ending 31.3.2020 based on technical evaluation:
Total value of inventory 100 lakhs
Provision required based on 12 months issue 3.5 lakhs
Provision required based on technical evaluation 2.5 lakhs
Does this amount to change in Accounting Policy? Can the company change the method of
provision?

Ans:
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 3.5 lakhs to 2.5 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 2019-20.
“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”.

Question 2 RTP M20


State whether the following statements are ‘True’ or ‘False’. Also give reason for your answer.
1. Certain fundamental accounting assumptions underline the preparation and presentation of
financial statements. They are usually specifically stated because their acceptance and use
are not assumed.
2. If fundamental accounting assumptions are not followed in presentation and preparation
financial statements, a specific disclosure is not required.
3. All significant accounting policies adopted in the preparation and presentation of financial
statements should form part of the financial statements.
4. Any change in an accounting policy, which has material effect should be disclosed. Where
the amount by which any item in the financial statements is affected by such change is not
ascertainable, wholly or in part, the fact need not to be indicated.

Ans

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CA. K. SHANMUGANATHAN FCA., ACMA

1. False: As per AS1 “Disclosure of Accounting Policies”, certain fundamental accounting


assumptions underline the preparation and presentation of financial statements. They are
usually not specifically stated because their acceptance and use are assumed. Disclosure
is necessary if they are not followed.

2. False: As per AS 1, if the fundamental accounting assumptions, viz. Going Concern,


Consistency and Accrual are followed in financial statements, specific disclosure is not
required. If a fundamental accounting assumption is not followed, the fact should be
disclosed.

3. True: To ensure proper understanding of financial statements, it is necessary that all


significant accounting policies adopted in the preparation and presentation of financial
statements should be disclosed. The disclosure of the significant accounting policies as
such should form part of the financial statements and they should be disclosed in one place.

4. False: Any change in the accounting policies which has a material effect in the current period
or which is reasonably expected to have a material effect in later periods should be
disclosed. Where such amount is not ascertainable, wholly or in part, the fact should be
indicated.

AS 17 Segment reporting
Question 1
Calculate the segment results of a manufacturing organization from the following information:
Segments A B C Total
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue (allocated in 5:4:2 1,10,000
ratio)
Revenue from transactions with other
segments
Transactions from Segment B 1,00,000 50,000 1,50,000
Transactions from Segment C 10,000 50,000 60,000
Transactions from Segment A 25,000 1,00,000 1,25,000
Other income
Revenue from extra-ordinary items
Dividend income 5,000 10,000 15,000 30,000
Interest earned on Advances & loans 20,000 15,000 10,000 45,000
Gain on sale of Investments 30,000 40,000 50,000 1,20,000

1,000 5,000 3,000 9,000


Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses (allocated in 77,000
5:4:2 basis)
Expenses on transactions with other
segments
Transactions from Segment B 75,000 30,000
Transactions from Segment C 6,000 40,000
Transactions from Segment A 18,000 82,000
Other expenses

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CA. K. SHANMUGANATHAN FCA., ACMA

Expenses on extra ordinary items


Interest on Bank overdraft 3,000 7,000 11,000 21,000
Income tax 30,000 28,000 12,000 70,000
60,000 55,000 50,000 1,65,000
You are required to prepare a statement showing financial information about Focus Ltd’s operations
in different industry segments.

AS 18 Related party disclosures


1) Narmada Ltd. sold goods for 90 lakhs to Ganga Ltd. During financial year ended 31.03.2021.
The Managing Director of Narmada Ltd. own 100% of Ganga Ltd. The sales were made to Ganga
Ltd at normal selling prices followed by Narmada Ltd., The Chief accountant of Narmada Ltd
contends that these sales need not require a different treatment from the other sales made by the
company and hence no disclosure is necessary as per accounting standards. Is the Chief
Accountant correct?

Answer
As per paragraph 13 of AS 18 Related Party Disclosures, Enterprises over which a key management
personnel is able to exercise significant influence are related parties.
This includes enterprises owned by directors or major shareholders of the reporting enterprise that
have a member of key management in common with the reporting enterprise.
In the given case, Narmada Ltd. and Ganga Ltd are related parties and hence disclosure of
transaction between them is required irrespective of whether the transaction was done at normal
selling price.
Hence the contention of Chief Accountant of Narmada Ltd is wrong.

AS-20 Earnings per share


1.From the following information relating to Y Ltd. Calculate Earnings Per Share (EPS):
in crores
Profit before V.R.S. payments but after depreciation 75.00
Depreciation 10.00
VRS payments 32.10
Provision for taxation 15.00
Paid up share capital (shares of 10 each fully paid) 93.00

2. From the following information relating to X Ltd., calculate Diluted Earnings Per Share as per
AS 20:

Net Profit for the current year 2,00,00,000


Number of equity shares outstanding 40,00,000
Basic earnings per share 5.00
Number of 11% convertible debentures of Rs.100 each 50,000
Each debenture is convertible into 8 equity shares.
Interest expense for the current year 5,50,000
Tax saving relating to interest expense (30%) 1,65,000

3.“While calculating diluted earnings per share, effect is given to all dilutive potential equity shares
that were outstanding during that period.” Explain. Also calculate the diluted earnings per share
from the following information:
Net profit for the current year 85,50,000
Weighted average No. of equity shares outstanding 20,00,000
No. of 8% convertible debentures of 100 each 1,00,000

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CA. K. SHANMUGANATHAN FCA., ACMA

Each debenture is convertible into 10 equity shares


Interest expenses for the current year 6,00,000
Tax relating to interest expenses 30%

AS 25
1.Narayan Ltd. provides you the following information and asks you to calculate the tax expense for
each quarter with reference to Ind AS 34, assuming that there is no difference between the
estimated taxable income and the estimated accounting income:
Estimated Gross Annual Income 33,00,000 (inclusive of Estimated Capital Gains of 8,00,000)
Estimated Income of Quarter I is 7,00,000,
Quarter II is 8,00,000,
Quarter III (including Estimated Capital Gains of 8,00,000) is 12,00,000 and
Quarter IV is 6,00,000.
Tax Rates: On Capital Gains 12%
On Other Income: First 5,00,000 @ 30%
Balance Income· 40%

2 To comply with listing requirements and other statutory obligations Quaker Ltd. prepares interim
financial reports at the end of each quarter. The company has brought forward losses of 700 lakhs
under Income Tax Law, of which 90% is eligible for set off as per the recent verdict of the Court,
that has attained finality. No Deferred Tax Asset has been recognized on such losses in view of the
uncertainty over its eligibility for set off. The company has reported quarterly earnings of 700 lakhs
and 300 lakhs respectively for the first two quarters of Financial year 2023-24 and anticipates a
net earning of 800 lakhs in the coming half year ended March 2024 of which 100 lakhs will be
the loss in the quarter ended Dec. 2023. The tax rate for the company is 30% with a 10% surcharge.

3. Company A has reported 60,000 as pre tax profit in first quarter and expects a loss of 15,000
each in the subsequent quarters. It has a corporate tax slab of 20 percent on the first 20,000 of
annual earnings and 40 per cent on all additional earnings. Calculate the amount of tax to be shown
in each quarter.

Consolidation of financial statements


1) A Ltd acquired 1,600 ordinary shares of ₹100 each of B Ltd on 1st July, 2020. On 31st December,
2020, the balance sheets of the two companies were as given below:
Balance Sheet of A Ltd. and its subsidiary, B Ltd. as at 31st December, 2020
A Ltd B Ltd
I) Equity & liabilities
1)Share holder’s funds
Share capital 1 10,00,000 2,00,000
Reserves & surplus 2 2,97,200 1,82,000
2)Current liabilities
Short term borrowings 3 80,000
Trade payable 47,100 17,400
14,24,300 3,99,400
II) Assets
1) Non-current assets
Property, plant and equipment 4 8,90,000 3,15,000
Non-current Investment 5 3,40,000 ---
2) Current assets

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CA. K. SHANMUGANATHAN FCA., ACMA

Inventories 1,20,000 36,400


Trade receivables 59,800 40,000
Cash & Cash equivalents 6 14,500 8,000
14,24,300 3,99,400

Notes to Balance sheet A Ltd B Ltd


1) Share capital
10,000 equity shares of ₹ 100 each 10,00,000 --
2,000 equity shares of ₹ 100 each -- 2,00,000

2) Reserves & surplus


General Reserve 2,40,000 1,00,000
Profit & loss A/c 57,200 82,000
2,97,200 1,82,000
3) Short term borrowings
Bank OD 80,000 --
4) Property, Plant and Equipment
Land & Building 6,50,000 1,80,000
Plant & Machinery 2,40,000 1,35,000
8,90,000 3,15,000
5) Non-current Investment
Investment in B Ltd 3,40,000
6) Cash & cash equivalents
Bank 14,500 8,000

The Profit & Loss Account of B Ltd. showed a credit balance of 30,000 on 1st January, 2020 out
of which a dividend of 10% was paid on 1st August, 2020; A Ltd. credited the dividend received to
its Profit & Loss Account. The balance of General reserves on 1 January 2020 was ₹ 1,00,000.
The Plant & Machinery which stood at 1,50,000 on 1st January, 2020 was considered as worth
1,80,000 on 1st July, 2020; this figure is to be considered while consolidating the Balance Sheets.
The rate of depreciation on plant & machinery is 10% (computed on the basis of useful lives).

Prepare consolidated Balance Sheet as on 31st December, 2020.

2 From the following data, determine in each case:


(1) Minority interest at the date of acquisition (using proportionate share) and at the date of
consolidation
(2) Goodwill or Capital reserve.
Amount of holding company’s profit in the consolidated Balance Sheet assuming holding
company’s own retained earnings to be 2,00,000 in each.
Case Subsidiar Cost of % of Date of acquisition Date of
y Investment shares consolidation
owned
Share Profit & Share Profit &
capital loss A/c capital loss A/c
Case 1 A 1,40,000 90% 1,00,000 50,000 1,00,000 70,000
Case 2 B 1,04,000 85% 1,00,000 30,000 1,00,000 20,000
Case 3 C 56,000 80% 50,000 20,000 50,000 20,000
Case 4 D 1,00,000 100% 50,000 40,000 50,000 56,000

-5–
CA. K. SHANMUGANATHAN FCA., ACMA

3. A Ltd. acquire 45% of B Ltd. shares on April 01, 2021, the price paid was ₹15,00,000. Following
are the extracts of balance sheet of B Ltd. as of 1 April 2021:
Paid up Equity Share Capital ₹10,00,000
Securities Premium ₹1,00,000
Reserve & Surplus ₹5,00,000
B Ltd. has reported net profits of ₹3,00,000 and paid dividends of ₹1,00,000 for the year ended 31
March 2022. Calculate the amount at which the investment in B Ltd. should be shown in the
consolidated balance sheet of A Ltd. as on March 31, 2022.

4.A Ltd. acquired 25% of shares in B Ltd. as on 31.3.2021 for ₹3 lakhs. The Balance Sheet of B
Ltd. as on 31.3.2021 is given below: ₹
Share capital 5,00,000
Reserves & Surplus 5,00,000
Total 10,00,000
Property, Plant and equipment 5,00,000
Investments 2,00,000
Current Assets 3,00,000
Total 10,00,000

During the year ended 31.3.2022 the following are the additional information available:
(i)A Ltd. received dividend from B Ltd., for the year ended 31.3.2021 at 40% from the Reserves.

(ii)B Ltd., made a profit after tax of ₹7 lakhs for the year ended 31.3.2022.

(iii)B Ltd., declared a dividend @ 50% for the year ended 31.3.2022 on30.4.2022. A Ltd. is
preparing Consolidated Financial Statements in accordance with AS 21 for its various
subsidiaries.

Calculate and present the following:

(i)Goodwill if any on acquisition of B Ltd.’s shares.

(ii)How A Ltd., will reflect the value of investment in B Ltd., in the Consolidated Financial
Statements?

(iii)How the dividend received for 31.3.2022 on 30.4.2022 from B Ltd. will be shown in the
Consolidated Financial Statements?

5.A Ltd. entered into a joint venture with B Ltd. on 1:1 basis and a new company C Ltd. was
formed for the same purpose and following is the balance sheet of all the three companies:

Particulars A ltd B Ltd C ltd


Share capital 10,00,000 7,50,000 5,00,000
Reserves & surplus 18,00,000 16,00,000 12,00,000
Current liabilities 4,00,000 2,50,000 1,00,000
PPE 30,50,000 26,25,000 19,50,000
Investment in JV 2,50,000 2,50,000 -
Current Assets 2,00,000 1,25,000 1,50,000
Prepare the balance sheet of A Ltd. and B Ltd. under proportionate consolidation method.

-6–
CA. K. SHANMUGANATHAN FCA., ACMA

AS 11
Question 1
Udyog Ltd. borrowed US$ 5,00,000 on 01/01/2019, which will be repaid as on 31/07/2019. Udyog
Ltd. prepares financial statement ending on 31/03/2019. Rate of exchange between reporting
currency (INR) and foreign currency (USD) on different dates are as under:
Date Exchange rate
01-01-2019 $1=69.72
31-03-2019 $1=70.72
31-07-2019 $1=71.22

Question 2
Rahul Ltd. purchased a plant for US$ 2,00,000 on 1st January 2017, payable after 5 months.
Company entered into a forward contract for five months @ 64.75 per dollar. Exchange rate per
dollar on 1st Jan. 2017 was 64.25. How will you recognize the profit or loss on forward contract
in the books of Rahul Ltd.?

Question 3
PPE Ltd. purchased fixed assets costing 6,000 lakh on 01.04.2016 payable in foreign currency
(US$) on 05.04.2017. Exchange rate of 1 US$ = 60.00 and 64.98 as on 01-04-2016 and 31-03-
2017 respectively.
The company also obtained a soft loan of US$ 1 lakh on 01-04-2016 payable in three annual equal
instalments. First instalment was due on 01-05-2017. You are required to state, how these
transactions would be accounted for in the books of accounts ending 31st March, 2017 as per the
relevant Accounting Standards.
Note: Assume that the company has availed the option under para 46A of AS 11.

AS 12 Government grant
Question 1
Alps Limited has received the following Grants from the Government during the year ended 31st
March, 2021:
(i) ₹120 Lacs received as subsidy from the Central Government for setting up an Industrial
undertaking in Medak, a notified backward area.
(ii) ₹15 Lacs Grant received from the Central Government on installation of Effluent Treatment
Plant.
(iii) ₹25 Lacs received from State Government for providing Medical facilities to its workmen
during the pandemic.
Advise Alps Limited on the treatment of the above Grants in its books of Account in accordance
with AS-12 "Government Grants".

Financial statement of companies

Question 1)
State under which head the following accounts should be classified in Balance Sheet, as per
Schedule III of the Companies Act, 2013:
(i) Share application money received in
excess of issued share capital.
(ii) Share option outstanding account.

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CA. K. SHANMUGANATHAN FCA., ACMA

(iii) Unpaid matured debenture and interest


accrued thereon.
(iv) Uncalled liability on shares and other
partly paid investments.
(v) Calls unpaid.
(vi) Intangible Assets under development.
(vii) Money received against share warrant.
(viii) Cash equivalents.

Question 2)
From the following particulars furnished by the Prashant Ltd., prepare the Balance Sheet as at
31st March, 2019 as required by Schedule III of the Companies Act, 2013 :
Particulars Debit Credit
(₹) (₹)
Equity share capital (face value of Rs. 10 each) 15,00,000
Calls-in-arears 5,000
Land 5,50,000
Building 4,85,000
Plant & Machinery 5,60,000
General reserve 2,70,000
Loan from State Financial Corporation 2,10,000
Inventories 3,15,000
Provision for taxation 72,000
Trade receivables 2,95,000
Short-term loans & advances 58,500
Profit & loss account 1,06,800
Cash in hand 37,300
Cash at bank 2,85,000
Unsecured loans 1,65,000
Trade payables 2,67,000
Total 25,90,800 25,90,800
The following additional information is also provided :
1) 10,000 equity shares were issued for consideration other than cash.
2) Trade receivables of Rs.55,000 are due for more than six months.
3) The cost of building and plant & machinery is Rs.5,50,000 and Rs.6,25,000 respectively.
4) The loan from State Financial Corporation is secured by hypothecation of plant &
machinery. The balance of Rs.2,10,000 in this account is inclusive of Rs.10,000 for
interest accrued but not due.
5) Balance at Bank included Rs.15,000 with Aakash Bank Ltd., which is not a scheduled
bank.

Question 3
Due to inadequacy of profits during the year ended 31st March, 2021, AS Ltd. proposes to declare
10% dividend out of general reserves. From the following particulars, ascertain the amount that can
be utilized from general reserves, according to the Companies (Declaration of dividend out of
Reserves) Rules, 2014:

30,000 9% Preference shares of 100 each, fully paid up 30,00,000


12,00,000 Equity shares of 10 each, fully paid up 1,20,00,000

-8–
CA. K. SHANMUGANATHAN FCA., ACMA

General Reserves as on 1.4.2020 37,50,000


Capital Reserves as on 1.4.2020 4,50,000
Revaluation Reserves as on 1.4.2020 5,25,000
Net profit for the year ended 31st March, 2021 4,50,000
Average rate of dividend during the last three year has been 12%.

Question 4)
Calculate the maximum remuneration payable to managing director based on effective capital of
the non-investment company for the year, from the information given below:
Particulars ₹in 000’s
Profit for the year calculated as per the companies Act,
2013 3,000
Paid up capital 18,000
Reserves & surplus 7,200
Securities premium 1,200
Long term loans 6,000
Investment 3,600
Preliminary expenses not written off 3,000
Remuneration paid to the managing director 600

Note: The effective capital should be calculated based on financial statement at the end of the
preceding financial year. (in which the appointment is made)

Cash flow statement


Question 1
The following are the summarized Balance Sheets of Lotus Ltd. as on 31st March 2020 and 2021:
Liabilities 31-03-2020 31-03-2021
Equity share capital ( 10 each ) 10,00,000 12,50,000
Capital reserve - 10,000
Profit & loss A/c 4,00,000 4,80,000
Long term loan from the bank 5,00,000 4,00,000
Sundry creditors 5,00,000 4,00,000
Provision for taxation 50,000 60,000
Total 24,50,000 26,00,000
Assets
Land & Building 4,00,000 3,80,000
Machineries 7,50,000 9,20,000
Investment 1,00,000 50,000
Stock 3,00,000 2,80,000
Sundry debtors 4,00,000 4,20,000
Cash-in-hand 2,00,000 1,40,000
Cash at bank 3,00,000 4,10,000
Total 24,50,000 26,00,000

Additional information:
(1) Depreciation written off on land and building 20,000.
(2) The company sold some investment at a profit of 10,000, which was credited to Capital
Reserve.
(3) Income-tax provided during the year 55,000.

-9–
CA. K. SHANMUGANATHAN FCA., ACMA

(4) During the year, the company purchased a machinery for 2,25,000. They paid 1,25,000 in
cash and issued 10,000 equity shares of 10 each at par.

You are required to prepare a cash flow statement for the year ended 31st March 2021 as per AS
3 by using indirect method.

12 Buy back of shares


1. Dee Limited (a non-listed company) furnishes the following summarized Balance Sheet as at
31st March, 2018:
( in 000’s)

Liabilities
Share capital:
Authorised capital 30,00
Issued and subscribed capital:
2,50,000 Equity shares of 10 each fully paid up 25,00
2,000, 10% Preference shares of 100 each
(Issued two months back for the purpose of buy back) 2,00 27,00
Reserves and surplus:
Capital reserve 10,00
Revenue reserve 30,00
Securities premium 22,00
Profit and loss account 35,00 97,00
Current liabilities and provisions 14,00
Total 1,38,00
Assets
Fixed assets 93,00
Investments 30,00
Current assets, loans and advances (including cash and
bank balance) 15,00

The company passed a resolution to buy back 20% of its equity capital @ 50 per share.
For this purpose, it sold all of its investment for 22,00,000.
You are required to pass necessary journal entries and prepare the Balance Sheet.

14. Internal reconstruction


Question 3
The following is the Balance sheet of Rocky Ltd. as at March 31,2021;
Liabilities ₹ in lakhs
Fully paid equity shares of 10 each 500
Capital Reserve 6
12% Debentures 400
Debenture Interest Outstanding 48
Trade Creditors 165
Directors’ Remuneration Outstanding 10
Other Outstanding Expenses 11
Provisions 33
TOTAL 1173

- 10 –
CA. K. SHANMUGANATHAN FCA., ACMA

Assets
Goodwill 15
Land and Building 184
Plant and Machinery 286
Furniture and Fixtures 41
Stock 142
Debtors 80
Cash at Bank 27
Discount on Issue of Debentures 8
Profits and Loss Account 390
TOTAL 1173

The following scheme of internal reconstruction was framed, approved by the Court, all the
concerned parties and implemented:
(i) All the equity shares be converted into the same number of fully-paid equity shares of
2.50 each
(ii) Directors agree to forego their outstanding remuneration.
(iii) The debenture holders also agree to forego outstanding interest in return of their 12%
debentures being converted into 13% debentures.
(iv) The existing shareholders agree to subscribe for cash, fully paid equity shares of 2.50
each for 125 lacs
(v) Trade creditors are given the option of either to accept fully paid equity shares of 2.50
each for the amount due to them or to accept 80% of the amount due in cash. Creditors for
65 lacs accept equity shares whereas those for 100 lacs accept 80 lacs in cash in
full settlement.
(vi) The Assets are revalued as under;
In lacs
Land and Building 230
Plant and Machinery 220
Stock 120
Debtors 76

Pass journal entries for all the above mentioned transactions and draft the company’s balance sheet
immediately after the reconstruction.

15. Branch Accounts


1. KDK Ltd., Chennai has a branch at Kochi to which goods are sent @20% above cost. The branch
makes both Cash and credit sales. Branch expenses are met partly from H.O. and partly by the branch.
The statement of expenses incurred by the branch every month is sent to head office for recording.
Following further details are given for the year ended 31st December, 2020.

Cost of goods sent to Branch at cost 3,00,000


Goods received by Branch till 31-12-2020 at invoice price 3,30,000
Credit Sales for the year @ invoice price 2,47,500
Cash Sales for the year @ invoice price 88,500
Cash Remitted to head office 3,33,750
Expenses paid by H.O. 18,000
Bad Debts written off 1,125
Balance as on 01-01-2020 31-12-2020

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CA. K. SHANMUGANATHAN FCA., ACMA

Stock 37,500 (Cost) 42,000(IP)


Debtors 49,125 39,000
Cash in Hand 5,000 3,750

Prepare Branch A/c in the books of the head office and determine the Profit and Loss of the Branch for the
year ended 31st December, 2020.

2. M/s SW Enterprises who carried on a retail business opened a branch in Jaipur on 1 st January 2021
where all the sales were on credit basis. All goods required by the branch were supplied from the head
office and were invoiced to the branch at 10% above cost.
JAN 2021 FEB 2021 MAR 2021

Goods send to branch (purchase 1,20,000 1,50,000 1,80,000


price)
Sales as shown by branch monthly 1,14,000 1,26,000 1,65,000
report
Cash received from debtors and 60,000 1,53,000 1,05,000
remitted to head office
Returns to H.O(Invoice price to 3,600 1,800 7,200
branch)

The stock of goods held by the branch on 31 st March 2021 amounted to 1,60,200 at invoice to
branch. Record these transactions in the books of head office, showing balance as on 31 st March
2021 and the branch gross profit for the three months ended on that date.
All workings should form part of your solution.

3. Positive Ltd. having head office at Mumbai has a branch at Chennai. The Head Office does
wholesale trade only at cost plus 80%. The goods are sent to branch at the wholesale price viz., Cost
plus 80%. The branch at Nagpur is wholly engaged in retail trade and the goods are sold at cost to H.O.
plus 100%.
Following details are furnished for the year ended 31st March, 2021:
Head Office Branch

Opening Stock (as on 1.4.2020) 4,50,000 ---


Purchases 51,00,000 ---
Goods sent to Branch 19,08,000 ---
(Cost to Head office plus 80%)
Sales 55,62,000 19,00,000
Office expenses 1,80,000 17,000
Selling expenses 1,44,000 12,600
Staff Salary 1,30,000 24,000

You are required to prepare Trading and Profit and Loss Account of the Head Office and Branch for
the year ended 31st March, 2021.

- 12 –
CA. K. SHANMUGANATHAN FCA., ACMA

4. Bismi Enterprises Delhi has a branch in London. London branch is an integral foreign operation
of Bismi Enterprises. At the end of the year 31st March, 2020 the branch furnishes the following
trial balance in U.K. Pound:
Particulars £ £
Dr. Cr.
Fixed assets (Acquired on 1st April, 2016) 24,000
Stock as on 1st April, 2019 11,200
Goods from head office 64,000
Expenses 4,800
Debtors 4,800
Creditors 9,200
Cash at bank 1,200
Head office account 22,800
Purchases 18,000
Sales 96,000
Total 1,28,000 1,28,000

In head office books, the branch account stood as shown below:


London Branch A/c
Particulars Amount Particulars Amount

To Balance b/d 20,10,000 By Bank A/c 52,16,000


To Goods sent to branch 49,26,000 By Balance c/d 17,20,000
Total 69,36,000 69,36,000

The following further information are given:


(a) Fixed assets are to be depreciated @ 10% p.a on written down value basis.
(b) On 31st March, 2020 :
Expenses outstanding - £ 400
Prepaid expenses - £ 200
Closing stock - £ 8,000
(c) Rate of Exchange:
1st April, 2016 - 70 to £ 1
1st April, 2019 - 78 to £ 1
31st March, 2020 - ₹ 93 to £ 1
Average - 85 to £ 1

You are required to prepare:


(i) Trial balance, incorporating adjustments of outstanding and prepaid expenses, converting U.K.
pound into Indian rupees.

(ii) Trading and profit and loss account for the year ended 31st March, 2020 and the Balance Sheet
as on that date of London branch as would appear in the books of Delhi head office of Bismi
Enterprises.

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CA. K. SHANMUGANATHAN FCA., ACMA

Part II - Multiple choice questions


1) Introduction to AS
1. Accounting Standards deal with the following aspects:
(i) recognition of events and transactions in the financial statements;
(ii) measurement of these transactions and events;
(iii) presentation and disclosure of these transactions and events in the financial statements in a
manner that is meaningful and understandable to the reader;
(d) All of the above

2. The Accounting Standards applicable for preparation of consolidated financial statements are
(a) AS 1, AS 7 and AS 9
(b) AS 1, AS 21 and AS 29
(c) AS21, AS 23 and AS 27.
(d) MCA

3.Accounting Standards for non-corporate entities in India are issued by


(a) Central Govt.
(b) State Govt.
(c) Institute of Chartered Accountants of India.
(d) MCA

4. Accounting Standards
(a) Harmonise accounting policies and eliminate the non-comparability of financial statements.
(b) Improve the reliability of financial statements.
(c) Both (a) and (b).
(d) manipulate the data for the management.

5. It is essential to standardize the accounting principles and policies in order to ensure


(a) Transparency.
(b) Consistency.
(c) Comparability .
(d) All the above.

6. Which committee is responsible for approval of accounting standards and their modification for
the purpose of applicability to companies?
(a) NFRA.
(b) MCA.
(c) Central Government Advisory Committee.
(d) IASB

7. Global Standards facilitate


(a) Cross border flow of money.
(b) Comparability of financial statements.
(c) Uniformity and Transparency of financial statements.
(d) All the three.

8. Ind AS is applicable to companies having _______ of Rs. ____ or more


(a) net worth, 50 crores
(b) turnover, 50 crores
(c) net worth, 250 crores
(d) turnover, 250 crores

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CA. K. SHANMUGANATHAN FCA., ACMA

9. The term IFRS comprises of


(a) IFRS issued by IASB
(b) IAS issued by ASL
(c) interpretations issued by standard interpretation committee (SIC) and IFRS interpretation
committee
(d) All of the above

10. The government of India decided to become IFRS compliant by


a) adoption process
b) convergence process
c) both of the above
d) none of the above

11. Additional guidance given in Ind AS over and above the IFRS is termed as
a) carve outs
b) carve in
c) International Accounts Standards (IAS)
d) International Financial Reporting Standards( IFRS)

2)Framework for preparation and presentation of financial statements


1. It is essential to standardize the accounting principles and policies in order to ensure
a) Transparency
b) Consistency
c) Comparability
d) All of the three.

2.The 'going concern' concept assumes that


(a) The business can continue in operational existence for the foreseeable future.
(b) The business cannot continue in operational existence for the foreseeable future.
(c) The business is continuing to be profitable.
(d) The business cannot continue if it is not able to earn profits.

3. Two principal qualitative characteristics of financial statements are


(a) Understandability and materiality
(b) Relevance and reliability
(c) Relevance and materiality
(d) Comparability and materiality.

4. All of the following are components of financial statements except


(a) Balance sheet
(b) Statement of Profit and loss
(c) Human responsibility report
(d) Social responsibility report.

5. An accounting policy can be changed if the change is required


(a) By statute or accounting standard
(b) For more appropriate presentation of financial statements
(c) Both (a) and (b)
(d) By statute as well as accounting standards.

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CA. K. SHANMUGANATHAN FCA., ACMA

6.Value of equity may change due to


(a) Contribution from or Distribution to equity participants
(b) Income earned
(c) expenses incurred
(d) All the three

7. A trader purchased article A on credit in period 1 for ₹50,000.


He also purchased article B in period 1 for ₹2,000 cash.
The trader sold article A in period 1 for ₹60,000 in cash.
He also sold article B in period 1 for ₹2,500 on credit
Compute the profit for period 1 as per cash basis of accounting
a) 10,500
b) (47,500)
c) 58,000
d) 10,000

Applicability of AS

1. Non-corporate entities which are not Level I entities whose turnover (excluding other income)
exceeds rupees ___________ but does not exceed rupees two-fifty crores in the immediately
preceding accounting year are classified as Level II entities.
(a) five crores.
(b) two crores.
(c) fifty crores.
(d) ten crores.

2. The following Accounting Standard is not applicable to Non-corporate Entities falling in Level II
in its entirety
(a) AS 10.
(b) AS 17.
(c) AS 2.
(d) AS 13.

3. All non-corporate entities engaged in commercial, industrial and business reporting entities,
whose turnover (excluding other income) exceeds rupees 250 crores in the immediately
preceding accounting year, are classified as
(a) Level II entities.
(b) Level I entities.
(c) Level III entities.
(d) Level IV entities.

4. All non-corporate entities engaged in commercial, industrial or business activities having


borrowings (including public deposits) in excess of rupees two crores but does not exceed rupees
ten crores at any time during the immediately preceding accounting year.
(a) Level II entities.
(b) Level IV entities.
(c) Level III entities.
(d) Level I entities.

5. “Small and Medium Sized Company” (SMC) means, a company-


(a) which may be a bank, financial institution or an insurance company.

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CA. K. SHANMUGANATHAN FCA., ACMA

(b) whose turnover (excluding other income) does not exceed rupees two-fifty crores in the
immediately preceding accounting year;
(c) whose turnover (excluding other income) does not exceed rupees fifty crores in the
immediately preceding accounting year;
(d) whose turnover (excluding other income) does not exceed rupees five hundred crores in the
immediately preceding accounting year.

AS 1 Disclosure of Accounting Policies


1) AS-1 recognizes___________ Fundamental Accounting Assumptions
a) three.
b) four.
c) five.
d) none of the three.
Description: Refer AS 1

2) Fundamental accounting assumption is


a) Materiality
b) Business entity
c) Going concern
d) Dual aspect
Description: Refer AS 1

3) The major considerations governing the selection and application of accounting policies are
a) Prudence.
b) Substance over form.
c) Materiality.
d) All of the three.
Description: Refer AS 1

4. Which of the following is NOT a major consideration in selection and application of accounting
policies?
(a) Prudence
(b) Comparability
(c) Materiality
(d) Substance over form

5. Adoption of different accounting policies by different companies operating in the same industry
affects which of the qualitative characteristics the most?
(a) Comparability
(b) Relevance
(c) Faithful representation
(d) Reliability

6. Which of the following statement would not be correct in relation to disclosures to be made in the
financial statements after making any change in an accounting policy?
(a) Any change in an accounting policy which has a material effect should be disclosed.
(b) The amount by which any item in the financial statements is affected by such change should be
disclosed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part,
the fact should be indicated.
(c) If a change is made in the accounting policies which has no material effect on the financial
statements for the current period but which is reasonably expected to have a material effect in later

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CA. K. SHANMUGANATHAN FCA., ACMA

periods, the fact of such change should be appropriately disclosed in the period in which the change
is adopted.
(d) If a change is made in an accounting policy which has material effect on the financial
statements for the current period and is reasonably expected to have a material effect in later
periods, the fact of such change should be appropriately disclosed only in the later periods i.e.
year(s) next to the year in which the change is adopted

AS 1

Questions

1) Accounting Policies refers to ----------------------- and---------------- in the preparation and


presentation of financial statements.
2) Transactions and events must be accounted for and presented in accordance with ----------------
--------legal form.
3) All significant accounting policies adopted in the ----------------and ------------of financial
statements should be disclosed.
4) In certain cases, Materiality can be decided based on ------------------ but not always.
5) The major considerations that govern selection of a particular accounting policy are----------------
---------------
6) Any change in accounting policies expected to have a material effect in the --------------------------
--------should be disclosed.

Answer:
1) Specific accounting principles, methods adopted in applying these principles
2) their substance (financial reality) and not merely
3) preparation, presentation
4) relative significance
5) Prudence, substance over form and materiality
6) current accounting period, or in later periods

AS 3 Cash Flow Statements


1.Which of the following items is not considered as cash or cash equivalent?
a) Cash on hand
b) Cash at Bank
c) Securities deposits for 4 months
d) Investments with a maturity of two months from the date of acquisition.

2. As per AS 3 on Cash Flow Statements, cash received by a manufacturing company from sale
of shares ofABC Company Ltd. should be classified as
a) Operating activity.
b) Financing activity.
c) Investing activity.
d) None of the above.

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CA. K. SHANMUGANATHAN FCA., ACMA

3. XYZ Co. Ltd is a financial institution and has given loans and advances to its subsidiary and
earned interest of Rs. 5 lacs on that loan. Interest earned by XYZ Co. Ltd is shown as
a)Operating Cash Flow.
b)Investing Cash Flow.
c)Financing Cash Flow
d)cash and cash equivalent
Description: Refer AS 3

4.In the cash flow statement of a financial enterprise, interest paid and dividends received should
be
a)classified as operating cash flows
b)classified as financing cash flows
c)Not shown in cash flow statement
d)classified as investing cash flows
Description: Refer AS 3

5.XYZ Co. Ltd is a financial institution and has given loans and advances to its subsidiary and
earned interest of Rs. 5 lacs on that loan. Interest earned by XYZ Co. Ltd is shown as
a) Operating Cash Flow.
b) Investing Cash Flow.
c) Financing Cash Flow
d) cash and cash equivalent

6. While preparing cash flow statement, conversion of debt to equity


(a) Should be shown as a financing activity.
(b) Should be shown as an investing activity.
(c) Should not be shown as it is a non-cash transaction
(d) Should not be shown as operating activity.

7. 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.

8. All of the following would be included in a company’s operating activities except:


(a) Income tax payments
(b) Collections from customers or Cash payments to suppliers
(c) Dividend payments
(d) Office and selling expenses.

10. As per AS 3 on Cash Flow Statements, cash received by a manufacturing company from sale
of shares of ABC Company Ltd. should be classified as
(a) Operating activity.
(b) Financing activity.
(c) Investing activity.
(d) Non-cash transaction

11. Crown 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

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CA. K. SHANMUGANATHAN FCA., ACMA

(a) Nil
(b)Rs.8,000
(c)Rs.68,000
(d)Rs.60,000

12. While preparing cash flows statement, an entity (other than a financial institution) should
disclose the dividends received from its investment in shares as
(a) operating cash inflow
(b) investing cash inflow
(c) financing cash inflow
(d) cash & cash equivalent

13. XYZ Co. is a financial enterprise. In its cash flow statement, interest paid and dividends received
should be
(a) classified as operating cash flows.
(b) classified as financing cash flows.
(c) Not shown in cash flow statement.
(d) classified as investing cash flows.

14. In the cash flow statement, ‘cash and cash equivalents’ do not include
(a) Bank balances
(b) Short-term investments readily convertible into Cash are subject to an insignificant risk of
changes in value.
(c) Cash balances.
(d) Loan from bank.

15. While preparing a Cash Flow Statement using the Indirect method as required under AS 3,
which of the following will not be deducted from/added to the Net Profit to arrive at the “Cash flow
from Operating activities”?
(a) Interest income
(b) Gain on sale of a fixed asset.
(c) Depreciation.
(d) Gain on sale of inventory

Questions

1) The term cash comprises of---------------and ----------------for the purpose of preparation of cash
flow statement under AS - 3.

2) The activities that result in change in the size and composition of capital and borrowings are
disclosed under -------------.

3) The receipts of income from investment are also shown under the head -------------

4) Only the cash flow from -------------can be presented either under direct method or under
indirect method.
Answer:
Answers

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CA. K. SHANMUGANATHAN FCA., ACMA

1) cash on hand, demand deposit with banks

2) financing activities

3) investing activities

4) operating activities

AS 17 Segment reporting
1. Following is not included in Segment Expense.
a) Income tax expense
b) The expense resulting from the operating activities of a segment that is directly attributable to
the segment
c) The relevant portion of enterprise expense that can be allocated on a reasonable basis to the
segment
d) Expense relating to transactions with other segments of the enterprise
Description: Para 5.6 of AS 17

2. Following is included in Segment Revenue.


a) Extraordinary items as defined in AS 5
b) Revenue from transactions with other segments of the enterprise.
c) Interest or dividend income
d) Gain on sale of investments
Description: Para 5.5 of AS 17

3. As per AS 17, reportable segments are those whose total revenue from external sales and inter-
segment sales is
(a) 10% or more of the total revenue of all segments
(b) 10% or more of the total revenue of all external segments
(c) 12% or more of the total revenue of all segments
(d) 12% or more of the total revenue of all external segments

4. Which of the following statements is correct?


(a) Management has a discretion to include a segment as a reportable segment even if it passes
the 10% materiality test.
(b) Management has a discretion to include any segment as a reportable segment if it fails the 12%
materiality test.
(c) It is mandatory for the management to include the segment as a reportable segment if it passes
the 10% materiality test.
(d) It is not mandatory for the management to include the segment as a reportable segment if it
passes the 10% materiality test.

5. Which of the following statements is correct?


(a) The overall test of 75% considers only external revenue to compute the threshold limit.
(b) The overall test of 75% considers only internal revenue to compute the threshold limit.
(c) The overall test of 75% considers both internal and external revenue to compute the threshold
limit.

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CA. K. SHANMUGANATHAN FCA., ACMA

(d) It is management choice whether they want to include both external and internal revenue for
computing threshold limit.

6. Which of the following statements is correct?


(a) The 10% test computed on the basis of revenue, considers both internal and external revenue
to compute the threshold limit.
(b) The 10% test computed on the basis of revenue, considers only external revenue to compute
the threshold limit.
(c) The 10% test computed on the basis of revenue, considers only internal revenue to compute
the threshold limit.
(d) It is management choice whether they want to include both external and internal revenue for
computing threshold limit.

8) Identify the reportable segment by profitability test from the following particulars of MP ltd:
Segment V W X Y Z
Profit / (loss) (200) 250 150 (350) (50)

(A) W, X, Y and Z P‐
(B) V, W, X and Z
(C) V, W, X and Y
(D) V, W, X, Y and Z

AS 18 Related party transactions


1.Which of the following disclosure is required asper AS 18?
a) Disclosure of Intra-group transactions in Standalone Financial Statements.
b) Transaction of one Central government controlled enterprise with other State government
controlled enterprise.
c) Transaction of one Central government controlled enterprise with other Central government
controlled enterprise.
d) Transaction of one State government controlled enterprise with other State government
controlled enterprise.
Description: Para 7-9 of AS 18

2.A Ltd. sold goods for Rs. 90 lakhs to B Ltd. during financial year ended 31-3-2023. The
Managing Directors of A Ltd. exercise 100% control in B Ltd. The sales were made to B Ltd. at
normal selling prices followed by A Ltd. What should be treatment for this transaction in the
financial statements of A Ltd.?
a) Sales need not require a different treatment from the other sales made by the company.

b) A Ltd. and B Ltd. are not related parties.

c) A Ltd. and B Ltd. are related parties and hence disclosure of transaction between them is
required irrespective of whether the transaction was done at normal selling price.

d) A Ltd. and B Ltd. are related parties but no disclosure is necessary as per the accounting
standard because sales are made at normal selling prices.
Description: Refer AS 18

3.Which of the following disclosure is required asper AS 18?


a) Disclosure of Intra-group transactions in Consolidated Financial Statements.

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CA. K. SHANMUGANATHAN FCA., ACMA

b) Transaction of one Central government controlled enterprise with other State government
controlled enterprise.
c) Transaction of one Central government controlled enterprise with other Central government
controlled enterprise.
d) Name of the related party where control exists even if there is no transaction in the financial
year.
Description: Para 21 of AS 18

4.Which of the following may be treated as Related party as per AS 18?


a) A Limited & B Limited only because Mr. X is a common director in both the company
b) A Limited & B Limited are totally independent company, however, majority of the Board of
Directors of both the company are same
c) Mr. S & A limited only because Mr. S purchases majority of the products of A Limited.
d) ABC Bank & N Limited because all borrowings of N Limited is financed by ABC Bank.
Description: Para 4 of AS 18

5) X Ltd holds 69% of Y Ltd, Y Ltd holds 51% of W Ltd, Z Ltd holds 49% of W Ltd As per AS 18
related parties are:
(A) X Ltd, Y Ltd & W Ltd
(B) X Ltd & Z Ltd
(C) Y Ltd & Z Ltd
(D) X Ltd & Y Ltd
As per AS 18 holding of 20% or more is necessary to become a related party. Hence related
parties are X Ltd Y Ltd and W Ltd

AS 20 Earnings per share


1.In which of the following scenario, calculation of basic and diluted earnings per share for prior
period is not restated?
a) If the number of equity shares outstanding increases as a result of a bonus issue
b) If the number of potential equity shares outstanding decreases as a result of a reverse share
split
c) If Bonus shares are issued after the balance sheet date but before the date on which the financial
statements are approved by the board of directors
d) If the number of equity shares outstanding increases as a result of a right issue
Description: Para 44 of AS 20

2.Which of the following is not a Potential Equity share?


a) Employee stock option
b) Share warrants
c) Cumulative Preference Shares
d) Shares issuable under a loan contract upon default of payment of principal or interest
Description: Para 7 of AS 20

3.Which of the following statements is true?


a) Right issue always contains a bonus element.
b) Right issue may or may not contain a bonus element.
c) Right issue does not contain a bonus element.
d) Right issue may or may not be considered to contain abonus element depending on the
accounting policy of the company.
Description: Refer AS 20

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CA. K. SHANMUGANATHAN FCA., ACMA

4.Which of the following statements is correct? 1. Options are generally dilutive in nature. 2.
Options are generally more dilutive as compared to other potential equity shares.
a) Both (1) and (2) are correct.
b) Both (1) and (2) are incorrect.
c) Only (1) is correct.
d) Only (2) is correct.
Description: Refer AS 20

5.Which of the following statements is correct?


a) Reported Diluted EPS is always less than reported Basic EPS.
b) Reported Diluted EPS can be greater than reported Basic EPS.
c) Reported Diluted EPS is always greater than reported Basic EPS.
d) Reported Diluted EPS is always equal to or more than reported Basic EPS.

Your Answer: Reported Diluted EPS is always less than reported Basic EPS.
Description: Refer AS 20

6) ABC Ltd has equity capital of ₹40,00,000 consisting of fully paid equity shares of ₹10 each. The
net profit for the year 2017-18 was ₹60,00,000. It has also issued 36,000, 10% convertible
debentures of ₹50 each. Each debenture is convertible into five equity shares. The tax rate
applicable is 30%. The diluted earnings of 2017-18 are
(A) ₹61,80,000
(B) ₹61,26,000
(C) ₹60,00,000
(D) ₹62,34,000

Hint: Increase in earnings due to conversion of Debentures into Equity Shares


Interest on Debentures = 36,000 debentures × ₹50 per Debenture × 10%
= ₹18,00,000 × 10% = ₹1,80,000
Tax on Interest on Debentures = ₹1,80,000 × 30% = ₹54,000
Net Savings due to conversion of Debenture into Equity Shares
= ₹1,80,000 - ₹54,000 = ₹1,26,000
Diluted Earnings = Net Profits after tax + Net Savings due to conversion of Debentures into Equity
Shares
= ₹60,00,000 + ₹1,26,000 = ₹61,26,000

7) What is the weighted avg. number of equity shares for the following situation prescribed under
AS-20:
Accounting year: 2016-17
01/04/2016 Balance 3600 equity shares
15/09/2016 Issued for Cash 1800 equity shares
01/02/2017 Buyback 120 equity shares
(A) 4630
(B) 4600
(C) 5280
(D) None of the above
Hint: (3600 x 12/12) + (1800 x 7/12) - (120 x 2/12) i.e. 4630 shares

AS 24 Discontinuing operation
1. AB decided to dispose of its Clothing division as part of its long-term strategy.

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CA. K. SHANMUGANATHAN FCA., ACMA

Date of Board approval - 1st March 2021;


Date of formal announcement made to affected parties - 15th March 2021.
Date of Binding Sale agreement – 1st July 2021;
Reporting date – 31st March 2021 The date of initial disclosure event would be:
(a) 1st March 2021
(b) 15th March 2021
(c) 31st March 2021
(d) 31st July 2021

2. To qualify as a component that can be distinguished operationally and for financial reporting
purposes, the condition(s) to be met is (are):
(a) The operating assets and liabilities of the component can be directly attributed to it.
(b) Its revenue can be directly attributed to it.
(c) At least a majority of its operating expenses can be directly attributed to it.
(d) All of the above

3. Identify which of the following statements is incorrect?


(a) A discontinuing operation is a component of an enterprise that represents a separate major
line of business or geographical area of operations.
(b) A discontinuing operation is a component of an enterprise that can be distinguished
operationally and for financial reporting purposes.
(c) A discontinuing operation is a component of an enterprise that may or may not be
distinguished operationally and for financial reporting purposes.
(d) A discontinuing operation may be disposed of in its entirety or piecemeal, but always pursuant
to an overall plan to discontinue the entire component.

4. Identify the incorrect statement.


(a) Discontinuing operations are infrequent events, but this does not mean that all infrequent
events are discontinuing operations.
(b) The fact that a disposal of a component of an enterprise is classified as a discontinuing
operation under AS 24 would always raise a question regarding the enterprise's ability to continue
as a going concern.
(c) For recognising and measuring the effect of discontinuing operations, AS 24 does not provide
any guidelines, but for the purpose the relevant Accounting Standards should be referred.
(d) An enterprise shall include a description of the discontinuing operation, in its financial
statements beginning with the financial statements for the period in which the initial disclosure
event occurs.

AS 25 Interim financial statements

1.Interim period as per AS 25 means:


a) A Quarter
b) Half year
c) a Calendar year
d) Any period shorter than a full financial year
Description: Para 4.1 of AS 25

2.Following is not part of Minimum component ofan Interim Financial Report:

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CA. K. SHANMUGANATHAN FCA., ACMA

a) Condensed Cashflow statement


b) Condensed Director's Report
c) Condensed profit & loss statement
d) Selected Explanatory Notes
Description: Para 9 of AS 25

3.XYZ limited is incorporated on 01.10.2022 in India. Its first financial statement is prepared on
31.03.2023 for 6 months. AS 25 is applicable for XYZ Limited if financial statements are published
:
a) From 01.10.2022 to 31.03.2023
b) From 01.10.2022 to 31.12.2024
c) From 01.10.2022 to 31.12.2022
d) AS 25 is not applicable during 1st year of operations.
Description: Para 5 of AS 25

4. Income tax expense should be accrued using the best estimate of the weighted average annual
income tax rate expected for the __________
a) Interim period
b) Year to date period
c) Full financial year
d) Current period and comparative period

5. The standard defines Interim Financial Report as a financial report for an interim period that
contains a set of __________ financial statements.
a) Complete
b) Condensed
c) Financial statement similar to annual
d) Complete or condensed

6. An entity prepares quarterly interim financial reports in accordance with Ind AS 34. The entity is
engaged in sale of mobile phones and normally 5% of customers claim on their warranty. The
provision in the first quarter was calculated as 5% of sales to date, which was ₹10 million.
However, in the second quarter, a fault was found and warranty claims were expected to be 10%
for the whole of the year. Sales in the second quarter were ₹15 million. What would be the provision
charged in the second quarter's interim financial statements?
(a) ₹1 million
(b) ₹2 million
(c) ₹1.25 million
(d) ₹1.5 million

8. Which of the following is not the minimum components of an interim financial report?
a) condensed balance sheet
b) condensed statement of changes in equity
c) condensed statement of cash flows
d) Annual complete financial information in respect of the preceding period

Ch 10: Accounting Standards for CFS (AS 21, AS 23 and AS 27)

1. Which of the following is not a current liability as per Schedule III?


A) Bank overdraft
B) Net deferred tax liability

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CA. K. SHANMUGANATHAN FCA., ACMA

C) Dividend declared.
D) Provisions for employee benefits

2. Trade payables as per Schedule III will include:


A) Dues payable in respect to statutory obligation
B) Interest accrued on trade payables
C) Bills payables.
D) Bills receivables

3. Fixed assets held for sale will be classified in the company’s balance sheet as
A) Current asset
B) Non-current asset
C) Capital work- in- progress
D) Deferred tax assets

4. Current maturities of long- term debt will come under


A) Current Liabilities.
B) Short term borrowings.
C) Long term borrowings.
D) Short term provisions

5. As per the Schedule III, separate disclosure is required in the financial statements for an item of
income or expenditure which exceeds
A) 5 % of Revenue from operations or Rs. 1,00,000 whichever is lower
B) 1% of Revenue or Rs. 5,000
C) 1% of Revenue from operations or Rs. 1,00,000 whichever is higher.
D) 1% of Revenue from operations or Rs. 50,000 whichever is higher.

6. Which item will form part of Share capital as per Schedule III to the Companies Act, 2013?
A) Share options outstanding account
B) Forfeited Shares
C) Share application money pending allotment
D) Capital work-in-progress.

7. All of the following would be included in a company􀳦s operating activities except:


A) Income tax payments
B) Collections from customers or Cash payments to suppliers
C) Dividend payments
D) Office and selling expenses.

8. 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.

9. Identity which of the statements are correct.


(i)In case an associate has made a provision for proposed dividend (i.e. dividend declared after the
reporting period but it pertains to that reporting year) in its financial statements, the investor's share
of the results of operations of the associate should be computed without taking into consideration
the proposed dividend.

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CA. K. SHANMUGANATHAN FCA., ACMA

(ii) In case an associate has made a provision for proposed dividend (i.e. dividend declared after
the reporting period but it pertains to that reporting year) in its financial statements, the investor's
share of the results of operations of the associate should be computed after taking into
consideration the proposed dividend.
(iii) The potential equity shares of the investee held by the investor should not be taken into account
for determining the voting power of the investor.
(iv) The potential equity shares of the investee held by the investor should be taken into account for
determining the voting power of the investor.
A) Statement (i) and (iii).
B) Statement (ii) and (iv).
C) Statement (i) only.
D) Statement (iii) only.

10. A Ltd. acquired 10% stake of B Ltd. on April 01and further 15% on October 01 during the same
year. Other information is as follow: Cost of Investment for 10% ₹1,00,000 and for 15% ₹ 1,45,000
Net asset on April 01 ₹8,50,000 and on October 01 ₹ 10,00,000. What is the amount of goodwill or
capital reserve arising on significant influence?
A) Goodwill = ₹ 10,000.
B) Goodwill = ₹ 20,000.
C) Capital Reserve = ₹ 10,000.
D) Capital Reserve = ₹ 20,000.

11. If the subsidiary company follows weighted average method for valuation of inventories and the
holding company follows FIFO method, then while consolidating,
A) Financial statements of subsidiary company should be restated by adjusting the value of
inventories to bring the same in line with the valuation procedure adopted by the holding company.
B) Financial statements of holding company should be restated by adjusting the value of inventories
to bring the same in line with the valuation procedure adopted by the subsidiary company.
C) Financial statements of both companies may continue as per the basis followed by them.
D) No changes are required to be done for consolidation purposes.

12. A Ltd. is holding 90% share in B Ltd. and 10%shares in C Ltd., and B Ltd. is holding 11% shares
in C Ltd. Identity which of the statements are incorrect.
(i) In this case,A Ltd. is parent of B Ltd.
(ii) As far as the relationship between A Ltd. and C Ltd. is concerned; A Ltd. has a total of direct and
indirect holding of (10% + 90% of 11%) 19.9 % in C Ltd. (iii) C Ltd. is an associate of A Ltd.
A) Statement (ii) is incorrect.
B) Statement (iii) is incorrect.
C) Statement (ii) and (iii) both are incorrect.
D) All statements are incorrect.

13. Identify which of the following is not a feature of a Jointly controlled operations (JCO):
A) Each venturer has his own separate business.
B) There is a separate entity for joint venture business.
C) Each venturer record only his own transactions without any separately set of books maintained
for the joint venture business.
D) There is a common agreement between all of them.

14. A Ltd. acquired 10% stake of B Ltd. on April 01and further 15% on October 01 of the same year.
Other information is as follows: Cost of Investment for 10% ₹1,00,000 and for 15% ₹1,55,000. Net

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CA. K. SHANMUGANATHAN FCA., ACMA

asset on April 01 ₹8,50,000 and on October 01 ₹10,00,000. What is the amount of goodwill or
capital reserve arising on significant influence?
A) Goodwill = ₹10,000.
B) Goodwill = ₹20,000
C) Capital Reserve = ₹10,000.
D) Capital Reserve = ₹20,000.

15. State which of the following statements are incorrect.


(i) The requirements relating to accounting for joint ventures in consolidated financial statements
according to proportionate consolidation method, as contained in AS 27,applies only when
consolidated financial statements are prepared by venturer.
(ii) The requirements relating to accounting for joint ventures in consolidated financial statements
according to proportionate consolidation method, as contained in AS 27, applies irrespective
whether consolidated financial statements are prepared by venturer or not.
(iii) An investor in joint venture, which does not have joint control, should report its interest in a joint
venture in its consolidated financial statements in accordance with AS 13,AS 21 and AS 23as the
case may be.
A) Point (i) is incorrect.
B) Point (ii) is incorrect.
C) Point (iii) is incorrect.
D) None of the above.

Ch 11: Financial Statement of Companies

1. Trade payables as per Schedule III will include:


(a) Dues payable in respect to statutory obligation
(b) Interest accrued on trade payables
(c) Bills payables.
(d) Bills receivables

2. Securities Premium Account is shown on the liabilities side in the Balance Sheet under the
heading:
(a) Reserves and Surplus.
(b) Current Liabilities.
(c) Share Capital.
(d) Share application money pending allotment

3. “Fixed assets held for sale” will be classified in the company’s balance sheet as
(a) Current asset
(b) Non-current asset
(c) Capital work- in- progress
(d) Deferred tax assets

4. Current maturities of long- term debt will come under


(a) Current Liabilities.
(b) Short term borrowings.
(c) Long term borrowings.
(d) Short term provisions

5. Declaration of dividends for current year is made after providing for

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CA. K. SHANMUGANATHAN FCA., ACMA

(a) Depreciation of past years only.


(b) Depreciation on assets for the current year and arrears of depreciation of past years (if any).
(c) Depreciation on current year only and by forgoing arrears of depreciation of past years.
(d) Excluding current year depreciation

Ch 12: BUY-BACK OF SECURITIES


1. As per section 68(1) of the Companies Act, buy-back of own shares by the company, shall not
exceed
(a) 25% of the total paid-up capital and free reserves of the company.
(b) 20% of the total paid-up capital and free reserves of the company.
(c) 15% of the total paid-up capital and free reserves of the company.
(d) 10% of the total paid-up capital and free reserves of the company.

2. The companies are permitted to buy-back their own shares out of


(a) Free reserves and Securities premium
(b) Proceeds of the issue of any shares.
(c) Both (a) and (b)
(d) Neither (a) nor (b).

3. When a company purchases its own shares out of free reserves; a sum equal to nominal value
of shares so purchased shall be transferred to
(a) Revenue redemption reserve.
(b) Capital redemption reserve.
(c) Buy-back reserve
(d) Special reserve

4. State which of the following statements is true?


(a) Buy-back is for more than twenty-five per cent of the total paid-up capital and free reserves of
the company.
(b) Partly paid shares cannot be bought back by a company.
(c) Buy-back of equity shares in any financial year shall exceed twenty-five per cent of its total paid-
up equity capital in that financial year.
(d) Partly paid shares can be bought back by a company.

5. 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).

6. 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.

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CA. K. SHANMUGANATHAN FCA., ACMA

Ch 14: Accounting for Reconstruction of companies

1. When the object of reconstruction is usually tore-organise capital or to compound with creditors
or to effect economies then such type of reconstruction is called
A) Internal reconstruction with liquidation
B)Internal reconstruction without liquidation of the company
C)External reconstruction
D)None of the above.

2. In case of internal reconstruction


A) Only one company is liquidated.
B)Two or more companies are liquidated.
C)No company is liquidated.
D)Two companies amalgamated.

3. A process of reconstruction, which is carried out without liquidating the company and forming a
new one is called
A) Internal reconstruction.
B)External reconstruction.
C)Amalgamation in the nature of merger.
D)Amalgamation in the nature of purchase.

4. The accumulated losses under scheme of internal reconstruction are written off against
A) Capital Reduction account
B)Share Capital account
C)Shareholders􀳦 account
D)General Reserves.

5. Reconstruction is a process by which affairs of a company are reorganized by


A) Revaluation of assets and Reassessment of liabilities.
B) Writing off the losses already suffered by reducing the paid-up value of shares and/or varying
the rights attached to different classes of shares.
C)Both (a) and (b).
D) None of the above.

6. For reduction of the share capital, the permission has to be sought from
A) Court.
B)Controller.
C)State government.
D)Shareholders.

Ch 15: Accounting for Branch including foreign branches

1. Under branch trading and profit loss account method


A) H.O prepares profit and loss account.
B) Each branch is treated separate entity.
C)Both (a) and (b).
D) Either (a) or (b).

2. Goods may be invoiced to branch at


A) Cost or Selling price.

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CA. K. SHANMUGANATHAN FCA., ACMA

B) Wholesale price.
C)Both (a) and (b).
D) Either (a) or (b).

3. If goods are invoiced to branches at cost, trading results of branch can be ascertained by
A) Debtors method.
B) Stock and debtors method.
C)Either (a) or (b).
D) Both (a) and (b).

4. Under debtors method, opening balance of debtors is


A) Debited to branch account.
B) Credited to branch account.
C)Debited to H.O account.
D)Credited to H.O account.

5. Cost of goods returned by branch will have the following effect


A) Goods sent to branch account will be debited.
B) Branch stock account will be credited.
C)Both (a) and (b).
D) Either (a) or (b).

6. The goods are sent by HO to Branch at Invoice price by including a profit margin of 33 1/3% on
cost. Compute the stock reserve if the Branch stock at the end of the year is ₹1,40,000.
A) 46,667
B) 93,333.
C) 35,000
D) 28,000.

7. The goods are sent by HO to Branch at Invoice price by including a profit margin of 33 1/3% on
Invoice price. Compute the stock reserve if the Branch stock at the end of the year is ₹1,50,000.
A) 37,500
B) 1,12,500.
C) 50,000
D) 30,000.

**********Best wishes**********

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