PAPER – 1 : ADVANCED ACCOUNTING

PART - I
Case Scenario 1
Mr. Vikram took a loan of ` 6,00,000 carrying interest @ 10% p.a. on 1st August,
2023 to purchase raw material. He purchased 4000 units of raw material @ 125
per unit. Replacement cost of raw material as on 31 March, 2024 is 100 per unit.
Labour charges and variable overheads incurred are ` 1,00,000 to produce 1000
units of finished goods.
1000 units of Finished goods are produced with raw material (for every unit of
finished goods produced, 2 units of raw material are required). Net realizable
value of finished good is ` 300 per unit. All the finished goods produced are lying
in stock as on 31 March, 2024.
There is no opening stock of raw material and finished goods.
Mr. Vikram used 1500 units of raw material to construct an Asset (Qualifying
Asset). Labour and other overhead charges incurred on construction of asset are
` 90,000. Mr. Vikram also paid `15,000 to install the asset at Factory premises.
Mr. Vikram used Balance of loan proceeds of ` 1,00,000 to invest in Equity Shares
of P. Ltd. He purchased 9,000 Equity shares (Face Value ` 10 each) for ` 1,00,000
on 25th March, 2024.
The P. Ltd declared and paid dividend @ 20% on 30th March for the year
2023-24.
Based on the information given in above Case Scenario, answer the following
Question No. 1-4:
1. What would be the value of closing stock of Raw Material X and Finished
Goods as on 31st March 2024?
(A) Closing Stock of Raw Material X ` 50,000 and closing stock of Finished
Goods ` 3,50,000
(B) Closing Stock of Raw Material X ` 50,000 and closing stock of Finished
Goods` 3,00,000
 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(C) Closing Stock of Raw Material X ` 62,500 and closing stock of Finished
Goods ` 3,50,000
(D) Closing Stock of Raw Material X ` 62,500 and closing stock of Finished
Goods ` 3,00,000
2. Cost of Self Constructed Asset as per AS 10 will be ?
(A) ` 2,92,500
(B) ` 2,77,500
(C) ` 3,05,000
(D) ` 2,90,000
3. As per AS 16 what will be the amount of interest to be capitalized and
amount of interest to be charged to Profit & Loss A/c ?
(A) ` 12,500 interest to be capitalised and Profit & Loss A/c. ` 27,500
interest to be charged to Profit & Loss A/c
(B) ` 12,500 interest to be capitalised and ` 20,833 interest to be charged
to Profit & Loss A/c.
(C) ` 19,167 interest to be capitalised and ` 20,833 interest to be charged
to Profit & Loss A/c.
(D) Whole of `40,000 interest to be charged to Profit & Loss A/c.
4. What is the carrying amount of investment as on 31st March, 2024 as per
AS 13 and suggest the treatment of dividend received from P. Ltd.?
(A) Carrying amount of Investment as on 31st March, 2024 is ` 72,000
and the dividend is deducted from the nominal value of investment.
(B) Carrying amount of Investment as on 31st March, 2024 is `90,000 and
the dividend is credited to Profit & Loss A/c.
(C) Carrying amount of Investment as on 31st March, 2024 is` 1,00,000
and the dividend is credited to Profit & Loss A/c.
(D) Carrying amount of Investment as on 31st March, 2024 is 82,000 and
the dividend is deducted from the cost of investment.

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Case Scenario 2
Kay Ltd. sold goods of ` 22,00,000 to Mr. Ravi Kumar on 1st February, 2024 but
at the request of the buyer, these goods were delivered on 10th April 2024.
Kay Ltd. also sold ` 2,00,000 goods on approval basis on 1st January, 2024 to
Sheetal Enterprises. The period of approvals 3 months after which they were
considered sold. Buyer sent disapproval for 25% of goods and approval for 50%
of goods till 31 March, 2024.
Mr. Ravi Kumar has commenced legal action against Kay Ltd. for supply of faulty
goods to claim damages. The lawyers of Kay Ltd. have advised that it is not remote
yet that resources may be required to settle the claim. Legal cost to be incurred
irrespective of the outcome of the case is ` 45,000. Settlement amount if the claim
is required to be paid ` 5,00,000,
Sheetal Enterprises, a trade receivable of Kay Ltd. suffered a heavy loss due to an
earthquake that occurred on 30th March, 2024. The loss was not covered by any
insurance policy. In April, 2024, Sheetal Enterprises became bankrupt. The
Balance due from Sheetal Enterprises as on 31 March, 2024 is ` 75,000.
Kay Ltd. makes provision for doubtful debts @ 5%.
Based on the information given in above Case Scenario, answer the following
Question No. 5-7
5. What is the amount to be recognized as Revenue as per AS 9 in the books
of Kay Ltd. as on 31 March, 2024?
(A) ` 23,50,000
(B) ` 1,50,000
(C) ` 23,00,000
(D) ` 1,00,000
6. What will be the treatment of legal cost and claim for legal action
commenced by Mr. Ravi Kumar in the Books of Kay Ltd. as on 31 March,
2024 as per AS 29?
(A) Create a Provision for ` 5,45,000
(B) Create a Provision for ` 5,00,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(C) Create a Provision for` 45,000 and make a disclosure of contingent

liability of ` 5,00,000
(D) Make a disclosure of contingent liability of ` 5,45,000
7. What is the treatment of insolvency of Sheetal Enterprises in the Books of
Kay Ltd. as on 31st March, 2024 as per AS 4?
(A) An Adjusting Event, full provision of ` 75,000 should be made in the
Final Accounts for the year ended 31 March, 2024.
(B) An Adjusting Event, provision of ` 3,750 should be made in the Final
Accounts for the year ended 31 March, 2024.
(C) A Non-adjusting event, no provision is required to be made as Sheetal
Enterprises became bankrupt in April, 2024.
(D) A Non-adjusting event, only disclosure is required in the Final
Accounts for the year ended 31st March, 2024.
8. P Ltd. has 60% voting right in Q Ltd. Q Ltd. has 20% voting right in R Ltd.
Also, P Ltd. directly enjoys voting right of 14% in R Ltd. R Ltd. is a Listed
Company and regularly supplies goods to P Ltd. The Management of R Ltd.
has not disclosed its relationship with P Ltd. While preparing Financial
Statements of P Ltd., which entities would you disclose as related parties
with reference to AS-18?
(A) Q Ltd.
(B) R Ltd.
(C) Q Ltd. and R Ltd.
(D) Neither of Q Ltd. or R Ltd.
9. A Machinery was giver on 3 years lease by a dealer of the machinery for
equal annual lease rentals to yield 20% profit margin on cost of the
machinery, which is Rs.3,00,000. Economic life of the machinery is 5 years,
and estimated output from the machinery in 5 years is as follows:
Year I 50,000 units
Year II 60,000 units
Year III 40,000 units
Year IV 65,000 units

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Year V 85,000 units.

Compute Annual Lease Rent.
(A) ` 30,000
(B) ` 60,000
(C) ` 50,000
(D) ` 36,000
10. A Ltd. had 1,50,000 shares of common stock outstanding on 1 April, 2023.
Additional 50,000 shares were issued on 1 November, 2023 and 32,000
shares were bought back on 1 February, 2024. Calculate the weighted
average number of shares outstanding at the year ended on 31 March, 2024
is:
(A) 1,34,500 shares
(B) 1,65,500 shares
(C) 1,76,167 shares
(D) 1,23,833 shares
Case Scenario 3
Jay Ltd. submits the following data extracted from the Final Accounts as on 31
March, 2023:

Equity Share Capital 50,000

Equity shares of ` 10 each
Profit & Loss (Dr. balance) (50,000)
9% Debentures 2,00,000
Loan from Bank 3,00,000
Advance given to suppliers of goods 45,000
Provision for tax 14,000
Plant & Machinery 4,50,000
Furniture & Fixtures 85,000
Investment in Star Ltd. 1,25,000
10,000 equity shares of 10 each

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Sundry Debtors 70,000

Cash & Bank Balance 65,500

Additional information given by Jay Ltd.:

On 31 March, 2023 Jay Ltd. decided to reconstruct the company for which
necessary resolution was passed. Accordingly, it was decided that:
(a) 9% Debentures to be settled in full by issuing them 15,000 Equity shares of
10 each.
(b) Equity shareholders will give up 40% of their capital in exchange for
allotment of new 11% Debentures of ` 1,00,000.
(c) Balance of Profit & Loss to be written off.
(d) Equity shares issued for ` 1,00,000.
In addition to above, following information was also presented by Jay Ltd. on 1st
April, 2023:
(a) Interest is received on advances given to suppliers of goods` 3,000.
(b) Taxation liability is settled at ` 14,000.
(c) A debtor of ` 40,000 is insolvent, only 40% of his dues are recovered from
his estate.
(d) Dividend is received on Investment in Star Ltd. ` 1 per equity share invested.
(e) Part of Plant and Machinery is sold at a loss of` 3,000 (book value
` 15,000)
Based on the information given in above Case Scenario, answer the following
Question No. 11-14:
11. The amount of Cash Flow from operating activity is:
(A) ` 2,000
(B) ` 5,000
(C) ` 12,000
(D) ` 15,000

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ADVANCED ACCOUNTING

12 The amount of Cash Flow from investing Activity is

(A) ` 28,000
(B) ` 25,000
(C) ` 15,000
(D) ` 22,000
13. What is the amount of closing Cash and Cash equivalents as on 1 April,
2023 ?
(A) `1,92,500
(B) ` 92,500
(C) ` 1,27,000
(D) ` 1,98,500
14. The Balance of Equity Share Capital after internal reconstruction is :
(A) ` 6,50,000
(B) ` 4,50,000
(C) ` 5,50,000
(D) ` 7,50,000
15. "Fixed Asset held for sale" will be classified in the Balance Sheet as per
Schedule III of the Companies Act as:
(A) Deferred Tax Assets
(B) Current Asset
(C) Non-Current Asset
(D) Long term Investments
Answers Key

MCQ No. Answers

1. B
2. C
3. A

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

4. D
5. A
6. C
7. A
8. C
9. B
10. B
11. B
12. D
13. A
14. C
15. B

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 PAPER – 1 : ADVANCED ACCOUNTING

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in
answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) In the following cases, record Journal Entries for amortization in the books of
Huge Ltd. for the year ended 31st March, 2024 with reference to AS-26:
(i) The company had acquired Patent Rights for ` 340 lakhs on 01.04.2022.
The estimated product life is 4 years. Amortization was decided in the
ratio of estimated future cash flows which are as under:
1st Year ` 140 Lakhs
2nd Year ` 350 Lakhs
3rd Year ` 280 Lakhs
4th Year ` 420 Lakhs
(ii) The company had developed know-how by incurring expenditure of ` 80
lakhs. The know-how has been used by the company since 01.04.2018.
Its useful life is 8 years from the year of commencement of its use. The
company has not amortised the asset until 31.03.2024.
(b) Pendora Ltd. has given the following details in respect of employee benefit
pension plan:

Particulars Amount `
The fair value of plan assets as on 01-04-2023 5,00,000
The benefits paid out on 30-11-2023 63,000
Inward contributions received on 30-09-2023 1,42,000
The fair value of plan assets as on 31-03-2024 7,50,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

On 01.04.2023, the company made following estimates, based on its market

studies and prevailing prices :

Particulars %
Interest and dividend income (after tax) payable by fund 10.50
Realised gains on plan assets (after tax) 2.00
Fund administrative costs -2.00
Expected rate of annual return 10.50
(Interest is compounded annually)

You are required to find the expected and actual returns on plan assets as on
31.03.2024 as per AS 15.
(c) Delta Ltd. is working on different projects those are likely to be completed
within 3 years period. It recognizes revenue from these contracts on
Percentage of Completion Method for Financial Statements for the years
ending 2021, 2022 and 2023 for ` 34 Lakhs, ` 50 Lakhs and ` 65 Lakhs
respectively.
However, for Income Tax purpose, it has adopted the Completed Contract
Method under which it has recognized revenue of ` 30 Lakhs, ` 52 Lakhs and
` 67 Lakhs for the years ending 2021, 2022 and 2023 respectively.
Income Tax rate is 30%.
Compute the amount of Deferred Tax Asset / Liability and Total Tax Expenses
for the years ending 31st March 2021, 2022 and 2023. (4+5+5=14 Marks)
Answer
(a) (i) Journal Entry for the year ended on 31st March 2024
` `
in lakhs in lakhs
31.3.24 Amortization A/c (340 × 350/ 1,190) Dr. 100
To Patent Rights A/c 100
P&L A/c Dr. 100
To Amortization A/c 100

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ADVANCED ACCOUNTING

Working note
Huge Limited amortised ` 340 lakhs during next 4 years on the basis of net
cash flows arising of the product. The amortisation for second year will be
worked out as under:
` 340 x 350 /1,190 (140+350+280+420) = ` 100 lakhs
(ii)

Particulars ` in lakhs ` in lakhs

Prior period item Dr. 50
Amortization A/c Dr. 10
To Know-how A/c 60
[Being amortization of 6 years (out of
which amortization of 5 years charged as
prior period item i.e. 80 x 6 /8 = 60 lakhs)]
Profit and Loss A/c Dr. 60
To Amortization A/c 10
To Prior Period Item 50
(Being amount transferred to Profit and
Loss account)

(b) Computation of Expected and Actual Returns on Plan Assets

`
Return on ` 5,00,000 held for 12 months at 10.50% 52,500
Return on ` 1,42,000 for 6 months at 10.50% 7,455
Loss of interest on benefits paid for 4 months on ` 63,000 (2,205)
for 4 months @ 10.50%
Expected return on plan assets for 2023-2024 57,750
Fair value of plan assets as on 31 March 2024
st
7,50,000
Less: Fair value of plan assets as on 1 April,2023 5,00,000
Contributions received on 30.9.2023 1,42,000 (6,42,000)
1,08,000
Add: Benefits paid on 30 Nov 2023
th
63,000
Actual return on plan assets 1,71,000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(c) Calculation of Deferred Tax Asset/Liability in Delta Limited

Year Accounting Taxable Timing Timing Deferred Deferred
Income Income Difference Difference Tax Tax
(balance) Liability
(balance)
2021 34,00,000 30,00,000 4,00,000 4,00,000 1,20,000 1,20,000
2022 50,00,000 52,00,000 (2,00,000) 2,00,000 (60,000) 60,000
2023 65,00,000 67,00,000 (2,00,000) NIL (60,000) NIL
1,49,00,000 1,49,00,000

Calculation of total tax

Year Deferred Tax Current tax expense Total tax

2021 1,20,000 9,00,000 10,20,000
(30,00,000 x 30%)
2022 (60,000) 15,60,000 15,00,000
(52,00,000 x 30%)
2023 (60,000) 20,10,000 19,50,000
(67,00,000 x 30%)
Note: It is assumed that the revenue and the taxable profit is the same.
Question 2
The following is the Trial Balance of Shivam Ltd as on 31st March, 2024 :

Particulars Dr. Particulars Cr.

(` 000) (` 000)
Land at Cost 148 Equity Share of ` 10 each 200
Plant & Machinery at Cost 520 10% Debenture of ` 100 each 135
Debtors 65 General Reserve 90
Closing Stock 58 Profit & Loss Ale 48
Bank 14 Security Premium 27
Adjusted Purchases 226 Sales 473
Factory Expenses 40 Creditors 35
Administration Expenses 22 Provision for Depreciation 116

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Selling Expenses 20 Suspense A/c 3

Debenture Interest 14
Total 1,127 Total 1,127

Additional Information:
• On 31st March, the Company issued Bonus Shares to the Shareholders on
1 : 2 basis (one equity share issued as bonus for every 2 equity shares held).
No entry relating to this has yet been made.
• The Authorized Share Capital of the Company is 35,000 Equity Shares of
` 10 each.
• The Company, on the advice of an independent valuer, revalued the Land at
` 2,45,000.
• The Directors declared a Dividend of 10% on 5th April, 2024 and also
transferred profit @ 10% to General Reserve.
• Suspense Account of ` 3,000 represents cash received for the Sale of some
Machinery on the 1st day of the financial year 2023-24. Cost of this Machinery
was ` 10,000 and Accumulated Depreciation thereon being ` 8,000.
• Depreciation is to be provided on Plant & Machinery at 10% on Cost.
• Provision for Income tax is required@ 30%.
You are required to prepare Shivam Ltd.'s Profit and Loss A/c for the year ended
31st March, 2024 and Balance Sheet as at that date as per the provisions of the
Companies Act, 2013 after considering the above information. Ignore previous
year figures. (14 Marks)
Answer
Shivam Limited
Balance Sheet as at 31st March 2024

Particulars Note No. ` (in 000)

I. Equity and Liabilities
1. Shareholders' funds
(a) Share capital 1 300.00
(b) Reserves and Surplus 2 232.70

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

2. Non-Current liabilities
(a) Long term borrowings 3 135.00
3. Current liabilities
(a) Trade Payables 35.00
(b) Short-Term Provisions 30.30
Total 733.00
II. Assets
1. Non-current assets
(a) Property, Plant and Equipment and
Intangible assets
(i) Property, Plant and Equipment 4 596.00
2. Current assets
(a) Inventories 58.00
(b) Trade receivables 65.00
(c) Cash and cash equivalents 14.00
Total 733.00

Shivam Limited
Statement of Profit and Loss for the year ended 31st March 2024

Particulars Notes ` (in ‘000)

I. Revenue from operations 473.00
II. Other Income 5 1.00
III. Total Income 474.00
IV. Expenses:
Purchases 226.00
Finance costs 14.00
Depreciation and Amortisation expenses (10% 51.00
of 510 ∗)
Other expenses 6 82.00

∗
520 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold)

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Total Expenses 373.00

V. Profit before Tax (III-IV) 101.00
Tax Expense:
Current tax (30.30)
Profit for the period (after tax) 70.70
Notes to accounts

` (in 000)
1. Share Capital
Equity share capital
Authorised
35,000 shares of ` 10 each 350.00
Issued, subscribed & paid-up
20,000 shares of ` 10 each fully paid up 200.00
Add: 10,000 Bonus Shares issued during
the year 100.00 300.00
2. Reserves and Surplus
Securities Premium Account
Opening Balance 27.00
Less: Utilised for bonus issue 27.00 0.00
Revaluation reserve (2,45,000 – 1,48,000) 97.00
General Reserve 90
Less: Utilized for bonus issue (73) 17.00
Add: Transfer from Profit & loss @ 10% 7.07 24.07
Profit & loss Balance
Opening balance 48.00
Profit for the period 70.70
Appropriations
Transfer to General Reserve @ 10% (7.07) 111.63
232.70

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

3. Long term borrowing

10% Debentures 135.00
4 Property, Plant and Equipment
Land
Opening balance 148.00
Add: Revaluation adjustment 97.00
Closing balance 245.00
Plant and Machinery
Opening balance 520.00
Less: Disposed off (10.00)
510.00
Less: Depreciation (1,16,000-8,000+51,000) (159.00)
Closing balance 351.00
Total 596.00
5 Other Income
Profit on sale of machinery:
Sale value of machinery 3.00
Less: Book value of machinery (10,000-8,000) (2.00) 1.00
6 Other expenses:
Factory expenses 40.00
Selling expenses 20.00
Administrative expenses 22.00 82.00

The final dividend will not be recognized as a liability at the balance sheet
date (even if it is declared after reporting date but before approval of the
financial statements) as per Accounting Standards. Hence, it has not been
recognized in the financial statements for the year ended 31 March 2024.
Such dividends will be disclosed in notes only.

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ADVANCED ACCOUNTING

Working note:
Bonus Shares Issue:

• Bonus shares are issued in a 1:2 ratio, so for every 2 equity shares, 1 bonus
share is issued.
• Equity Share Capital = ` 2,00,000 / ` 10 = 20,000 shares.
• Bonus Shares = 20,000 / 2 = 10,000 shares × ` 10 = ` 1,00,000.
Alternatively, since, the amount of interest on 10% 1,35,000 Debentures comes to
Rs 13,500 while the Debenture Interest in the trial balance is listed as ` 14,000, the
difference of ` 500 (`13,500 - `14,000) may be treated as an advance payment.

Question 3
(a) On the basis of the following data, prepare Cash Flow Statement as per
AS-3 for the year ended 31st March, 2024:
• Total Sales for the year were ` 380 lakhs out of which Cash Sales
amounted to ` 262 Lakhs.
• Receipts from credit customers during the year, total ` 134 lakhs.
• Total Purchases for the year amounted to ` 220 lakhs, out of which 80%
were credit purchases.
• Opening balance in creditors ` 84 lakhs and Closing balance in creditors
` 92 lakhs.
• Suppliers of other consumables and services were paid ` 19 lakhs in cash.
• Employees of the enterprise were paid ` 20 lakhs in cash.
• Fully-paid preference shares of the face value of ` 32 lakhs were
redeemed.
• Issued equity shares of the face value of ` 20 lakhs at a premium of 20%.
• Debenture of ` 20 lakhs at premium of 10% were redeemed by issuing
equity shares in lieu of their claims.
• ` 26 lakhs were paid by way of Income Tax.
• A new machinery costing ` 20 lakhs was purchased in a part exchange
of an old machinery. The book value of the old machinery was ` 13 lakhs,

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but the vendor agreed to take over the old machinery at a higher value
of ` 15 lakhs. The balance due to vendor was paid in cash.
• Dividend ` 15 lakhs (including dividend distribution tax) ∗ of ` 2.7 lakhs
was also paid on 30th March, 2024.
• Debenture interest ` 3 lakhs was paid.
• During the year ` 8 lakhs rent was received from property held as
investment.
• ` 0.50 lakh interest was earned on the advance payments to suppliers of
Goods.
• Cash and cash equivalents on 1st April 2023, ` 2 lakhs. (7 Marks)
(b) Aerodots Ltd. has the following capital structure as on 31.03.2024 :

Particulars Amount
(` in thousands)
Equity Share Capital (shares of ` 10 each) 600
Reserves:
General Reserve 540
Securities Premium 200
Profit & Loss 100
Revaluation Reserve 30
Investment Allowance Reserve (Statutory Reserve) 75
Infrastructure Development Reserve 25
Loan Funds 2000

On 1st April, 2024 the company wants to buy back 14,000 equity shares of
` 10 each at ` 30 per Equity share.
You are required to calculate maximum permissible number of equity shares
that can be bought back.
Buy Back of shares is duly authorized by its articles and necessary resolution
has been passed by the company. (7 + 7 = 14 Marks)

∗
PS: As per IT Act, 1961 DDT is no more applicable

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Answer
(a) Cash flow statement
for the year ended 31st March 2024

(` in lakhs) (` in lakhs)
Cash flow from operating activities
Cash sales 262.00
Cash collected from credit customers 134.00
Interest received on advance payment to 0.50
suppliers
Less: Cash purchases (44.00)
Less: Payment to Creditors (84 + 176 – 92) (168.00)
Less: Cash paid to suppliers for consumables & (19.00)
services
Less: Cash paid to employee (20.00)
Cash from operations 145.50
Less: Income tax paid (26.00)
Net cash generated from operating 119.50
activities
Cash flow from investing activities
Payment for purchase of Machine (20-15) (5.00)
Proceeds from rent received 8.00
Net cash used in investing activities 3.00
Cash flow from financing activities
Redemption of Preference shares (32.00)
Proceeds from issue of Equity shares 24.00
Debenture interest paid (3.00)
Dividend Paid (15.00)
Net cash used in financing activities (26.00)
Net increase in cash and cash equivalent 96.50
Add: Cash and cash equivalents as on 2.00
1.04.2023
Cash and cash equivalents as on 31.3.2024 98.50

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

(b) Statement determining the maximum number of shares to be bought back

(in thousands)

Particulars Number of
shares
Shares Outstanding Test (W.N.1) 15
Resources Test (W.N.2) 12
Debt Equity Ratio Test (W.N.3) 11
Maximum number of shares that can be bought back 11
[least of the above]

Thus, the lowest being 11,000 shares, the company cannot buy back 14,000
shares.
Working Notes:
1. Shares Outstanding Test

Particulars (Shares in
thousands)
Number of shares outstanding 60
25% of the shares outstanding 15

2. Resources Test

Particulars ` (in thousands)

Paid up capital 600
Free reserves (540 + 200 +100) 840
Shareholders’ funds 1,440
25% of Shareholders fund 360
Buy-back price per share ` 30
Number of shares that can be bought back 12,000 shares

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3. Debt Equity Ratio Test: Loans cannot be in excess of twice the

Equity Funds post Buy-Back

Particulars ` in thousands
(a) Loan funds 2,000
(b) Minimum equity to be maintained after 1,000
buy-back in the ratio of 2:1 (`) (a/2)
(c) Present equity shareholders fund (`) 1,440
(d) Future equity shareholders fund (`) (see 1,330
W.N.4) (1,440-110)
(e) Maximum permitted buy-back of Equity (`) 330
[(d) – (b)]
(f) Maximum number of shares that can be 11,000 shares
bought back @ ` 30 per share

4. Amount transferred to CRR and maximum equity to be bought back

will be calculated by simultaneous equation method.
Suppose amount transferred to CRR account is ‘x’ and maximum
permitted buy-back of equity is ‘y’ Then
Equation 1: (Present Equity- Transfer to CRR)- Minimum Equity to be
maintained = Maximum Permitted Buy-Back
= (1,440 – x) – 1,000 = y

= 440 – x = y (1)
Equation 2: Maximum Permitted Buy-Back X Nominal Value Per
Share/Offer Price Per Share
y/30 x 10 = x
or
3x = y (2)
by solving the above two equations we get
x = ` 110 thousands
y = ` 330 thousands

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Alternatively, Maximum number of shares from debt equity ratio test

may be worked out as follows:
Buy-back price + Face value of equity shares ` 30 + ` 10 = ` 40
Excess of equity fund over the minimum equity to be maintained
1440-1000 = 440 thousands
Number of Shares that can be bought back = 440/40 thousands
= 11 thousands.
Question 4
The following are the summarized Balance Sheets of Well Ltd. and Nice Ltd. as at
31st March, 2024 :

Particulars Notes Nice Ltd. Well Ltd.

(` in '000) (` in '000)
Equity and Liabilities
1. Shareholder's funds
a. Share capital 1 41,000 14,300
b. Reserves and Surplus 2 19,500 (7,350)
2. Non-current liabilities
a. Long-term borrowings 3 20,500 5,425
3. Current Liabilities
a. Trade Payables 15,740 4,850
b. Short-term Borrowings - 1,975
Total 96,740 19,200
Assets
1. Non-current Assets
a. Property, plant, and equipment 4 62,550 16,380
b. Non-current Investments 22,500 -
2. Current assets
a. Inventories 300 870
b. Trade Receivables 6,590 1,950

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c. Cash and Cash equivalents 4,800 -

Total 96,740 19,200

Notes to Accounts

Nice Ltd. Well Ltd.

(` in '000) (` in '000)

1. Share Capital
Equity Share Capital
Issued, subscribed & paid up capital
Equity Shares of ` 100 each 31,500 12,500
Preference Share Capital
Issued, subscribed & paid up capital
9% Preference Shares of ` 100 each 9,500
10% Preference Shares of ` 100 each 1,800
Total 41,000 14,300
2. Reserves and Surplus
Balance of Profit and Loss A/c 19,500 (7,350)
3. Long-term borrowings
9% Debentures of ` 100 each 11,200
10% Debentures of ` 100 each 900
Loan from Banks 9,300 4,525
20,500 5,425

Details of Trade receivables and Trade payables are as under :

Nice Ltd. Well Ltd.

(` in '000) (` in '000)
1. Trade receivables
Debtors 6,200 1,800

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Bills Receivables 390 150

6,590 1,950
2. Trade payables
Creditors 14,750 4,400
Bills Payables 990 450
15,740 4,850

On 31.03.2024, Nice Ltd. absorbs the business of Well Ltd. on the following terms:
• For every five equity shares held by the equity shareholders of Well Ltd., they
receive three equity shares of Nice Ltd. issued at a premium of ` 20 per share.
• The 10% debenture-holders of Well Ltd. were to be allotted such 9%
debentures in Nice Ltd. as would bring the same amount of interest.
• 10% Preference Shareholders of Well Ltd. are to be paid at 10% discount by
issue of 9% Preference Shares at par in Nice Ltd.
• Banks agreed to waive off the loan of ` 270 thousand of Well Ltd.
• Expenses of Liquidation of Well Ltd. are to be reimbursed by Nice Ltd. ` 55
thousand.
• Inventory of Well Ltd. is taken over at 10% more than their book value by
Nice Ltd.
• Debtors of Nice Ltd. include ` 215 thousand receivables from Well Ltd.
• Property, Plant, and Equipment of Well Ltd. are revalued at 20% abo their
book value.
• The remaining Assets and Liabilities of Well Ltd. are taken over at book value
by Nice Ltd.
You are required to :
1. Record Journal Entries in the books of Nice Ltd.
2. Prepare Balance Sheet of Nice Ltd. after absorption as at 31 March, 2024.
(14 Marks)

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Answer
Journal Entries in the Books of Nice Ltd.

Dr. Cr.
` in ‘000 ` in ‘000
Business Purchase Account Dr. 10,620
To Liquidator of Well Ltd. 10,620
(Consideration payable for the business taken over
from Well Ltd.)
Property, Plant and Equipment (120% of ` 16,380) Dr. 19,656
Inventory (110% of ` 870) Dr. 957
Trade receivables Dr. 1,950
Goodwill A/c (Balancing figure) Dr. 137
To Trade payables 4,850
To Debenture Holders Account 1,000
To Loan from bank (4,525-270) 4,255
To Short term borrowings 1,975
To Business Purchase Account 10,620
(Incorporation of various assets and liabilities taken
over from Well Ltd. at agreed values and difference of
net assets and purchase consideration debited to
Goodwill A/c))
Liquidator of Well Ltd. Dr. 10,620
To Equity Share Capital (75,000x 100) 7,500
To 9% Preference Share Capital 1,620
To Securities premium (7,5000x 20) 1,500
(Discharge of consideration for Well Ltd.’s business)
Debenture holders A/c Dr. 1,000
To 9% Debentures A/c 1,000
(Being 9% debentures issued to 10% debenture
holders)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Sundry Creditors of Well Ltd. Dr. 215

To Sundry Debtors of Nice Ltd. 215
(Cancellation of mutual owing)
Goodwill Dr. 55
To Bank 55
(Being liquidation expenses reimbursed to Well Ltd.)

Working Note:
The purchase consideration will be:

` Form
Preference shareholders: 16,200 × 100 16,20,000 9% Pref. shares
Equity shareholders: 1,25,000 × 3/5 × 120 90,00,000 Equity shares
1,06,20,000
10 % Preference shares 18,00,000
Less: 10% discount 1,80,000
16,20,000
Debenture calculation

Interest
10% Debenture 9,00,000 90,000
Therefore 9% debentures 90,000/9% = 10,00,000

Balance Sheet of Nice Ltd. (After absorption) as at 31st March 2024

Particulars Notes ` in ‘000

I Equity and Liabilities
1 Shareholders' funds
(a) Share capital 1 50,120
(b) Reserves and Surplus 2 21,000
2 Non-current liabilities
(a) Long-term borrowings 3 25,755
3 Current liabilities
(a) Trade payables 4 20,375

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(b) Short term borrowing 1,975

Total 1,19,225
II Assets
1 Non-current assets
(a) Property, Plant and Equipment and 5
Intangibles
(i) Property, plant and equipment 82,206
(ii) Intangible assets 192
(b) Non-current investments 22,500
2 Current assets
(a) Inventories 6 1,257
(b) Trade receivables 7 8,325
(c) Cash and Cash equivalents 8 4,745
Total 1,19,225
Notes to accounts

` in ‘000
1 Share Capital
Equity share capital
Issued, subscribed and paid up
3,90,000 Equity shares of ` 100 each
(out of above 75,000 shares are issued for 39,000
consideration other than cash)
Preference Shares
Issued, subscribed and paid up
1,11,200 9% Preference Shares of ` 100 each (9,500
+ 1,620)
11,120
(out of above 16,200 shares are issued for
consideration other than cash)
50,120

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

2 Reserves and Surplus

Securities premium 1,500
Reserves and surplus 19,500 21,000
3 Long-term borrowings
9 % Debentures (11,200+1,000) 12,200
Loan from bank (9,300+4255) 13,555 25,755

4 Trade Payable
Nice Limited 15,740
Well Limited 4,850
20,590
Less: Inter Company holdings (215) 20,375
5 Property, Plant and Equipment and Intangibles
Property, Plant and Equipment 62,550
Acquired during the year 19,656 82,206
Intangibles
Goodwill (137+55) 192

6 Inventories 300
Acquired during the year 957 1,257
7 Trade receivables 6,590
Acquired during the year (1,585+150) 1,735 8,325
8 Cash and Cash Equivalents
Nice Limited 4,800
Less: Expenses on liquidation (55) 4,745

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Question 5
On 1st February, 2024, Best Ltd. acquired 80% Equity shares of Cool Ltd. for
` 14,80,000.
On 31st March, 2024, Best Ltd. also acquired 25% Equity shares of Good Ltd. for
` 3,80,000.
The following are the balances extracted from the books of Best Ltd., Cool Ltd.,
and Good Ltd. as on 31st March, 2024 :

Particulars Best Ltd. Cool Ltd. Good Ltd.

Amount in ` Amount in ` Amount in `
Equity Shares of ` 100 each fully 30,00,000 20,00,000 10,00,000
paid
Securities Premium - 2,20,000 -
9% Debentures 6,30,000 - 2,40,000
General Reserve 2,69,000 84,000 1,20,000
Profit & Loss Account (Credit 3,26,000 2,70,000 50,000
Balance)
Investments 17,50,000 6,10,000 -
Property, Plant, and Equipment 18,90,000 18,14,000 12,10,000
Current Assets 9,65,000 5,60,000 2,25,000
Trade Payable (Including Bills 3,80,000 4,10,000 25,000
Payable)
Sales and other income 56,00,000 38,00,000 27,00,000
Raw material consumed 36,50,000 31,20,000 22,30,000
Wages and Salaries 5,07,000 4,01,000 2,69,000
Production expenses 1,35,000 1,06,000 98,000

Additional information :
• The Profit and Loss account of Cool Ltd. showed a credit balance of ` 30,000
on 1st April, 2023.
• The General Reserve balance is brought forward from the previous year.
• On 31st March, 2024, all the bills payable in Cool Ltd.'s balance sheet were

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

acceptances in favour of Best Ltd. However, on the date, Best Ltd. held only
` 3,00,000 of these acceptances in hand, the rest having been endorsed in
favour of its creditor.
• Best Ltd. purchased goods costing ` 5,00,000 from Cool Ltd. on 1st June, 2023
at a price of ` 6,50,000. The entire goods remain unsold with Best Ltd. at the
end of the financial year.
• Best Ltd. is preparing Consolidated Financial Statements for the year ending
31.03.2024.
You are required to calculate :
(1) Trade Payable (Consolidated)
(2) Current Assets (Consolidated)
(3) Minority Interest
(4) Goodwill/Capital Reserve on the acquisition of Cool Ltd.'s shares
(5) Goodwill/Capital Reserve on the acquisition of Good Ltd.'s shares
(6) Profit & Loss Account (Consolidated)
(7) General Reserve (Consolidated)
(8) Revenue from Operations (Consolidated)
(9) Cost of material purchased/consumed (Consolidated) (14 Marks)
Answer
1. Trade payable (Consolidated)

Best limited 3,80,000

Add: Cool Ltd 4,10,000
Less: Elimination (3,00,000)
Total 4,90,000
2. Current assets (Consolidated)

Best limited 9,65,000

Add: Cool Ltd 5,60,000
Less: Elimination of inter company owing (3,00,000)
Total 12,25,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

3. Minority interest Cool Ltd

Share Capital (20,00,000 x 20%) 4,00,000

Add: Securities premium (2,20,000 x 20%) 44,000
Add: General Reserve (84,000 x 20%) 16,800
Add: Profit and loss balance (20% of 2,70,000) 54,000
Total 5,14,800

4. Goodwill/Capital Reserve on Acquisition of Cool Ltd.:

Purchase Consideration 14,80,000

Less: Share Capital (20,00,000 x 80%) 16,00,000
Less: Securities premium (2,20,000 x 80%) 1,76,000
Less: General Reserve (84,000 x 80%) 67,200
Less: Profit and loss balance opening (30,000 x 80%) 24,000
Less: Pre acquisition profits
(2,70,000-30,000) x 10/12 x 80% 1,60,000
Capital Reserves 5,47,200

5. Goodwill/Capital Reserve on Acquisition of Good Ltd.

Purchase Consideration 3,80,000

Less: Share Capital (10,00,000 x 25%) 2,50,000
Less: General Reserve (1,20,000 x 25%) 30,000
Less: Profit and loss balance (50,000 x 25%) 12,500
Goodwill 87,500

6. Profit and Loss Account (Consolidated)

Best limited 3,26,000

Add: Post acquisition profit of Cool Ltd
{(2,70,000-30,000) x 2/12}80% 32,000
Total 3,58000

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

7. General Reserve (Consolidated)

Best limited 2,69,000
8. Revenue (Consolidated) as per para no 15 and 22 of AS 21

Revenue of Best Ltd 56,00,000

Add: Revenue of Cool Ltd. (38,00,000 × 2/ 12) 6,33,333
62,33,333
9. Cost of materials purchased/consumed (Consolidated) as per para no
15 and 22 of AS 21

Raw material of Best Ltd 36,50,000

Add: Raw material of Cool Ltd (31,20,000x 2/12) 5,20,000
41,70,000

Question 6
(a) On 01.04.2023, Mr. Day has 25,000 shares of Squares Ltd. at a book value of
` 25 per share (nominal value of ` 10 each). Further information is as under:
(i) On 31st July 2023, the Directors of Squares Ltd. issued one equity bonus
share for every five shares held by the shareholders.
(ii) On 30th September 2023, the Directors of Squares Ltd. announced a right
issue which entitled the ·holders to subscribe three shares for every two
shares at ` 20 per share. Shareholders can transfer their rights in full or
in part.
Mr. Day sold 1/4th of entitlement to Dhwani for a consideration of ` 5 per
share and subscribed the rest on 5th October, 2023.
You are required to prepare Investment A/c in the books of Mr. Day for the
year ending 31.03.2024.
OR
(a) "In determining the cost of inventories, it is appropriate to exclude certain
costs and recognise them as expenses in the period in which they are
incurred."
Provide examples of such costs as per AS 2 (Revised) 'Valuation of Inventories.

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

(b) The following scheme of reconstruction has been approved for Equity
shareholders and Debenture holders of TP Ltd.
(i) The Equity shareholders to receive in lieu of their present holding of
1,50,000 shares of ` 10 each, the following :
(1) For ` 50,000, equivalent cash
(2) For ` 9,00,000, 10% debentures issued at premium of 20% (Face
value of debenture is ` I00 each)
(3) For balance ` 5,50,000, Equity shareholders agreed to accept 50,000
equity shares of ` 10 each in full settlement.
(ii) 8% Debenture ` 5,00,000.

Debenture holders agreed to accept Freehold property (Book value

` 3,50,000) at a valuation of ` 4,45,000 in full settlement of their claim.
Pass necessary Journal Entries in the Books of TP Ltd. for the above
reconstruction. Narration for Journal entries is not required to be given.
(c) Following is the information of Kullu Branch of M/s Best Enterprises of Shimla
for the year ending 31st March 2023 :
(1) Goods are invoiced to the branch at cost plus 20%
(2) Branch sold goods at invoice price plus 25%.
(3) Other Information is as follows:
(i) Stock (at cost price) as on 1st April, 2022 is ` 2,25,000
(ii) Goods sent by Head office to branch during the year (at cost price)
are ` 14,85,000
(iii) Goods returned by Branch to Head office during the year (at Invoice
price) are ` 75,000
(iv) Sales by the branch during the year ` 19,50,000

(v) Expenses incurred at Branch ` 56,000.

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

You are required to ascertain the following:

(a) Profit earned by the Branch by Preparing Trading and profit and loss
account for the year ended 31st March 2023
(b) Also find the stock reserve on Closing stock (4 + 6 + 6 = 14 Marks)
Answer
(a) In the books of Mr. Day
Investment Account
(Equity shares in Square Ltd.)
Date Particulars No. of Amount Date Particulars No. of Amount
shares (`) shares (`)
1.4.23 To Balance 25,000 6,25,000 31.3.24 By Balance 63,750 13,00,000
b/d c/d (Bal.
fig.)
31.7.23 To Bonus issue 5,000
(W.N.1) -
5.10.23 To Bank A/c 33,750 6,75,000
(right shares)
(W.N.4)
63,750 13,00,000 63,750 13,00,000

Working Notes:
25,000
(1) Bonus shares = = 5,000 shares
5
25,000 + 5,000
(2) Right shares = × 3 = 45,000 shares
2
1
(3) Sale of rights = 45,000 shares × 4
×`5
= 11,250 x 5 = 56,250
` 56,250 to be credited to statement of
profit and loss
3
(4) Rights subscribed = 45,000 shares × 4 × ` 20 = ` 6,75,000

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 SUGGESTED ANSWER
ADVANCED ACCOUNTING

Or
In determining the cost of inventories, it is appropriate to exclude certain
costs and recognise them as expenses in the period in which they are
incurred. Examples of such costs are:
(a) Abnormal amounts of wasted materials, labour, or other production
costs;
(b) Storage costs, unless the production process requires such storage.
(c) Administrative overheads that do not contribute to bringing the
inventories to their present location and condition.
(d) Selling and distribution costs.
(b) Journal Entries
` `
Equity Share Capital (old) A/c Dr. 15,00,000
To Equity Share Capital (` 10) A/c 5,00,000
To Cash A/c 50,000
To 10% Debentures A/c 7,50,000
To Securities premium 1,50,000
To Capital Reduction/Reconstruction 50,000
A/c
(Being new equity shares, 8% Debentures
issued, cash of ` 50,000 and the balance
transferred to Reconstruction account as
per the Scheme)
8% Debentures A/c Dr. 5,00,000
To Freehold Property A/c 4,45,000
To Capital Reduction/Reconstruction 55,000
A/c
(Being the debenture holders claim
settled partly and foregone partly as per
reconstruction scheme)

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 SUGGESTED ANSWER INTERMEDIATE EXAMINATION: SEPTEMBER 2024

Capital Reduction/Reconstruction A/c Dr. 1,05,000

To Capital Reserves A/c 1,05,000
(Being balance in capital reduction
account transferred to Capital Reserves
A/c)

(c) (i) In the books of Kullu Branch

Trading and Profit and Loss Account

Particulars Amount Particulars Amount

` `
To Opening stock 2,70,000 By Sales 19,50,000
To Goods received 17,82,000 By Goods returned by 75,000
by Head office Branch
To Expenses 56,000 By Closing stock (Refer 4,17,000
W.N.)
To Net profit (Bal fig) 3,34,000
24,42,000 24,42,000

(ii) Calculation of Closing Stock

Cost price 100
Invoice price 120 (100+20)
Sales price 150 (120+25% of 120)
Opening Stock 2,70,000
Goods received 17,82,000
Less: Goods Returned 75,000
19,77,000
Less: Cost of Goods Sold (Invoice price) 15,60,000
Closing Stock 4,17,000
Stock reserve in respect of unrealised profit
= 4,17,000 x (20/120) = ` 69,500

36