Test Series: March 2023

MOCK TEST PAPER 1

INTERMEDIATE:-GROUP – I
1. (a) Cash Flow Statement of Gagan Ltd. for the year ended March 31, 2022
A Cash Flow from Operating Activities
Net Profit as per Profit & Loss A/c --------
Add: Premium on Redemption of Debentures 1,650
Add: Interest on 10% Debentures 11,000
Less: Interest on 10% Investments (35,000)
B Cash Flow from Investing Activities
Interest on Investments [35,000-10,500] 24,500
C Cash Flow from Financing Activities
Interest on Debentures paid [11,000 - (1,175 - 275)] (10,100)
Redemption of Debentures [(1,10,000 - 77,000) at 5% premium] (34,650)
Note: Debtors written off against provision for doubtful debts does not require any further
adjustment in Cash Flow Statement.
(b) From the above account, it is inferred that the Company has deducted grant from the book value
of asset for accounting of Government Grants. Accordingly, out of the ` 16,00,000 that has been
received, ` 8,00,000 (being the balance in Machinery A/c) should be credited to the machinery
A/c.
The balance ` 8,00,000 may be credited to P&L A/c, since already the cost of the asset to the
tune of ` 12,00,000 had been debited to P&L A/c in the earlier years by way of depreciation
charge, and ` 8,00,000 transferred to P&L A/c now would be partial recovery of that cost.
There is no need to provide depreciation for 2020-21 or 2021-22 as the depreciable amount is
now Nil.
(c) Calculation of cost for closing inventory
Particulars `
Cost of Purchase (10,200 x 10) 1,02,000
Direct Labour 76,500
75,000 x 10,200
Fixed Overhead 51,000
15,000

Cost of Production 2,29,500

Cost of closing inventory per unit (2,29,500/10,200) ` 22.50
Net Realisable Value per unit ` 20.00
Since net realisable value is less than cost, closing inventory will be valued at ` 20.
As NRV of the finished goods is less than its cost, relevant raw materials will be valued at
replacement cost i.e. ` 9.50.
Therefore, value of closing inventory: Finished Goods (1,200 x 20) ` 24,000
Raw Materials (900 x 9.50) ` 8,550
` 32,550

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 (d) 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 ma de. 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 2021-22:
“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 previo us year, the profit
for the year and the corresponding effect on the year end net assets would have been lower by `
1 lakh.”.
2. (a) Books of Sanket
Investment Account
(Scrip: Equity Shares in XYZ Ltd.)
No. Amount No. Amount
` `
1.1.2022 To Bal b/d 50,000 12,50,000 31.10.2022 By Bank (dividend — 20,000
1.6.2022 To Bank 10,000 2,00,000
16.8.2022 To Bonus 10,000 — on shares
(W.N.1) acquired on
30.9.2022 To Bank 20,000 3,00,000 1.6.2022) (W.N.4)
(Rights
Shares)
(W.N.3)
15.11.2022 To Profit (on sale 69,444 15.11.2022 By Bank 25,000 5,50,000
of shares) (Sale of shares)
31.12.2022 By Bal. c/d 65,000 12,49,444
(W.N.6)
90,000 18,19,444 90,000 18,19,444

Profit and Loss Account (An extract for investment)

31.12.2022 To Balance c/d (profit) 2,09,444 31.8.22 By Sale of rights (W.N.3) 40,000
31.10.22 By Dividend (W.N.4) 1,00,000
15.11.22 By Profit transferred 69,444
2,09,444 2,09,444

Working Notes:
(1) Bonus Shares = = 10,000 shares

(2) Right Shares = = 30,000 shares × 2/3 = 20,000 shares

(3) Right shares renounced = 30,000×1/3 = 10,000 shares

Sale of right shares = 10,000 x 4 = ` 40,000
Right shares subscribed = 20,000 shares
Amount paid for subscription of right shares = 20,000 x 15 = ` 3,00,000
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 (4) Dividend received = 50,000 (shares as on 1st April 2022) × 10 × 20% = ` 1,00,000
Dividend on shares purchased on 1.6.2022 = 10,000×10×20% = ` 20,000 is adjusted to
Investment A/c
(5) Profit on sale of 25,000 shares
= Sales proceeds – Average cost
Sales proceeds = ` 5,50,000
Average cost = = ` 4,80,556

Profit = ` 5,50,000 – ` 4,80,556 = ` 69,444.

(6) Cost of shares on 31.12.2022 = ` 12,49,444

Market value of share = 65,000 shares × ` 20 = 13,00,000

Shares will be valued at ` 12,49,444 as market value is more than cost.
(b) M/s Raxby & Co.
Trading Account for 2021-22
(to determine the rate of gross profit)
` ` `
To Opening Stock 1,20,000 By Sales A/c 6,00,000
To Purchases 5,25,000 By Closing Stock :
To Gross Profit 90,000 As valued 1,30,000
Add: Amount written off
to restore stock to
full cost 5,000 1,35,000
7,35,000 7,35,000
90,000
The normal rate of gross profit to sales is =  100 = 15%
6,00,000
Memorandum Trading Account up to June 30, 2022
Normal Abnormal Total Normal Abnormal Total
items items items items
` ` ` ` ` `
To Opening 1,27,000 8,000* 1,35,000 By Sales 1,60,000 6,000 1,66,000
Stock
To Purchases By Loss — 1,000 1,000
(97,000+35,000) 1,32,000 — 1,32,000
To Gross Profit By Closing
(15% on Stock
` 1,60,000) 24,000 — 24,000 (bal. fig.) 1,23,000 1,000 1,24,000
2,83,000 8,000 2,91,000 2,83,000 8,000 2,91,000
* at cost.
Calculation of Insurance Claim
`
Value of stock on June 30, 2022 1,24,000
Less: Salvage (10,000)
Loss of stock 1,14,000
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 Claim subject to average clause:
Amount of Policy
× Actual Loss of Stock = 1,00,000 / 1,24,000 X 1,14,000
Value of stock
= ` 91,935 (approx.)
Therefore, insurance claim will be limited to ` 91,935 (approx.)
3. (a) (i) Books of Branch
Journal Entries
(` in lacs)
Dr. Cr.
Goods in Transit A/c Dr. 10
To Head Office A/c 10
(Goods dispatched by head office but not
received by branch before 1st April, 2022)
Expenses A/c Dr. 1
To Head Office A/c 1
(Amount charged by head office for centralised
services)
(ii) Trading and Profit & Loss Account of the Branch
for the year ended 31st March, 2022
` in lacs ` in lacs
To Opening Stock 60 By Sales 360
To Goods received from By Closing Stock 62
Head Office 288
Less : Returns (5) 283
To Carriage Inwards 7
To Gross Profit c/d 72
422 422
To Salaries 25 By Gross Profit b/d 72
To Depreciation on Furniture 2
To Rent 10
To Advertising 6
To Telephone, Postage & Stationery 3
To Sundry Office Expenses 1
To Head Office Expenses 1
To Net Profit Transferred to
Head Office A/c 24
72 72

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 Balance Sheet as on 31st March, 2022
Liabilities ` in lacs Assets ` in lacs
Head Office 80 Furniture & Equipment 20
Add : Goods in transit 10 Less : Depreciation (2) 18
Head Office Expenses 1 Stock in hand 62
Net Profit 24 Goods in Transit 10
115 Debtors 20
Outstanding Expenses 3 Cash at bank and in
hand 8
118 118
(b) Departmental Trading Account in the books of M/s P
for the year ended 31 st March 2022
Particulars Department Department Particulars Department Department
X Y X Y
` ` ` `
To Opening 2,45,000 2,43,000 By Sales 20,02,000 20,70,000
stock
To Purchases 13,72,000 13,41,000 By Transfers:
To Carriage 21,000 40,500 Purchased 1,26,000 2,25,000
inward goods
To Wages 1,89,000 1,62,000 Finished 4,55,000 5,31,000*
To Transfers goods (net of
returns)
Purchased 2,25,000 1,26,000 By Closing
goods stock:
Finished 5,31,000 4,55,000 Purchased 84,000 1,35,000
goods goods
(net of returns)
To Gross profit 4,41,000 8,72,500 Finished 3,57,000 2,79,000
c/d goods
30,24,000 32,40,000 30,24,000 32,40,000
General Profit and Loss A/c
for the year ended 31 st March, 2022
Particulars ` Particulars `
To Provision for By Gross profit b/d
unrealized profit
included in closing
stock
Department X (W.N. 3) 35,921 Department X 4,41,000


Net transfers of finished goods by
Department X to Y = ` 6,12,500 – ` 1,57,500 = ` 4,55,000
Department Y to X = ` 6,75,000 – ` 1,44,000= ` 5,31,000
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 Department Y (W.N. 3) 15,024 Department Y 8,72,500
To Net profit 12,62,555
13,13,500 13,13,500
Working Notes:
1. Calculation of rates of gross profit margin on sales
Department X Department Y
` `
Sales 20,02,000 20,70,000
Add: Transfer of finished goods 6,12,500 6,75,000
26,14,500 27,45,000
Less: Return of finished goods (1,57,500) (1,44,000)
24,57,000 26,01,000
Gross Profit 4,41,000 8,72,500
Gross profit margin = (4,41,000/24,57,000) x 100 (8,72,500/26,01,000) x 100
= 17.95% = 33.54%
2. Finished goods from other department included in the closing stock
Department X Department Y
` `
Stock of finished goods 3,57,000 2,79,000
Stock related to other department
(30% of finished goods) 1,07,100 83,700
3. Unrealized profit included in the closing stock
Department X = 33.54% of ` 1,07,100 = ` 35,921
Department Y = 17.95% of ` 83,700 = ` 15,024
4. (a) Trading and Profit and Loss Account
for the year ended 31st March, 2022
Amount Amount
` `
To Opening Inventory 50,000 By Sales (` 2,60,000  3,25,000
125/100)
To Purchases (balancing figure) 2,72,500 By Closing Inventory 62,500
To Gross profit c/d
(` 2,60,000  25/100) 65,000 _______
3,87,500 3,87,500
To Expenses 49,250 By Gross profit b/d 65,000
To Loss on sale of fixed assets 750
To Depreciation on fixed assets
(W.N.1) 1,000
To Net profit 14,000 ______
65,000 65,000

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 Balance Sheet as on 31st March, 2022
Amount Amount
Liabilities ` Assets `
Capital (W.N. 5) 1,69,000 Fixed assets 9,000
Add: Additional capital 5,000 Debtors (W.N. 3) 87,500
Net profit 14,000 Inventory 62,500
1,88,000 Bank balance 50,000
Less: Drawings (25,000) 1,63,000
Creditors 46,000 _______
2,09,000 2,09,000

Working Notes:
1. Fixed assets account
` `
To Balance b/d 7,500 By Bank (sale) 1,750
To Bank 5,000 By Loss on sale of fixed asset(2,500- 750
1,750)
By Depreciation (balancing figure) 1,000
_____ By Balance c/d 9,000
12,500 12,500
2. Bank account
` `
To Balance b/d (balancing figure) 62,500 By Creditors 2,80,000
To Debtors 3,40,000 By Expenses 49,250
To Capital 5,000 By Drawings 25,000
To Sale of fixed assets 1,750 By Fixed assets 5,000
_______ By Balance c/d 50,000
4,09,250 4,09,250
3. Debtors account
` `
To Balance b/d 1,02,500 By Bank 3,40,000
To Sales 3,25,000 By Balance c/d 87,500
125 (balancing figure)
(` 2,60,000  )
100 _______ _______
4,27,500 4,27,500
4. Creditors account
` `
To Bank 2,80,000 By Balance b/d (balancing figure) 53,500
To Balance c/d 46,000 By Purchases (from trading account) 2,72,500
3,26,000 3,26,000
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 5. Balance Sheet as on 1st April, 2021
Liabilities ` Assets `
Creditors (W.N. 4) 53,500 Fixed assets 7,500
Capital (balancing figure) 1,69,000 Debtors 1,02,500
Stock 50,000
_______ Bank balance (W.N. 2) 62,500
2,22,500 2,22,500
4 (b) In the books of Alfa Limited
Journal Entries
Date Particulars Dr. (`) Cr. (`)
2022
April 10% Redeemable Preference Share Capital A/c Dr. 3,37,500
1
Premium on Redemption of Preference Shares Dr. 33,750
To Preference Shareholders A/c 3,71,750
(Being the amount payable on redemption
transferred to Preference Shareholders Account)
Preference Shareholders A/c Dr. 3,71,750
To Bank A/c 3,71,750
(Being the amount paid on redemption of
preference shares)
General Reserve A/c Dr. 2,25,000
Profit & Loss A/c Dr. 1,12,500
To Capital Redemption Reserve A/c 3,37,500
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
Profit & Loss A/c Dr. 33,750
To Premium on Redemption of Preference 33,750
Shares A/c
(Being premium on redemption charged to Profit
and Loss A/c)
Note: Capital reserve cannot be utilized for transfer to Capital Redemption Reserve.
5 (a) Harry Ltd.
Cash Flow Statement
for the year ended 31st March, 2022
(`) (`)
Cash flows from operating activities
Net Profit before taxation 8,000
Adjustments for:
Depreciation ` (1,000 + 2,000 +5,000) 8,000
Profit on sale of Investment (8,000)
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 Profit on sale of car (1,400)
Operating profit before working capital changes 6,600
Increase in Trade receivables (2,000)
Increase in inventories (6,000)
Increase in Trade payables 3,000
Cash generated from operations 1,600
Income taxes paid (2,000)
Net cash generated from operating activities (A) (400)
Cash flows from investing activities
Sale of car 3,400
Purchase of car (16,000)
Sale of Investment 10,000
Purchase of Investment (6,000)
Purchase of Furniture & fixtures (14,000)
Net cash used in investing activities (B) (22,600)
Cash flows from financing activities
Issue of shares for cash 20,000
Dividends paid (2,000)
Net cash from financing activities(C) 18,000
Net decrease in cash and cash equivalents (A + B +C) (5,000)
Cash and cash equivalents at beginning of period 17,000
Cash and cash equivalents at end of period 12,000
Working Notes:
1. Calculation of Income taxes paid
`
Income tax expense for the year 3,000
Add: Income tax liability at the beginning of the year 2,000
5,000
Less: Income tax liability at the end of the year (3,000)
2,000
2. Calculation of Fixed assets acquisitions
Furniture & Fixtures (`) Car (`)
W.D.V. at 31.3.2022 34,000 25,000
Add back: Depreciation for the year 2,000 5,000
Disposals — 2,000
36,000 32,000
Less: W.D.V. at 31. 3. 2021 (22,000) (16,000)
Acquisitions during 2021-22 14,000 16,000

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 (b) Omega Limited
Debenture Account
2022 ` 2022 `
Mar 1 To Own Debentures 74,175 Jan 1 By Balance b/d 4,50,000
Mar 1 To Profit on cancellation
(25,000-24,725) 825
Sep 1 To Own Debentures
(Note 3) 59,124
Sep 1 To Profit on cancellation
(20,000-19,708) 876
Dec 31 Balance c/d 3,15,000
4,50,000 4,50,000
Own Debenture (Investment) Account
Nominal Interest Cost Nominal Interest Cost
Cost Cost
` ` ` ` ` `
2022 2022
Mar 1 To Bank Mar 1 By Debentures A/c -
(W.N. 1) 75000 1563 74,175 75,000 74,175
Sep 1 To Bank Sep 1 By Debentures A/c -
(W.N. 2
& 3) 60,000 1,251 59,124 60,000 59,124
Dec. 31 By P&L A/c
- - 2,814 -
1,33,29 1,35,00
1,35,000 2,814 9 0 2,814 1,33,299

Working notes:
1. 75,000 x 5% x 5/12 = 1,563
2. 60,000 x 5% x 5/12 = 1,251
3. 60,375 – 1,251= 59,124
6 (a) According to AS 10 (Revised), these costs can be capitalised:
1. Cost of the plant ` 10,00,000
2. Initial delivery and handling costs ` 80,000
3. Cost of site preparation ` 2,40,000
4. Consultants’ fees `2,80,000
5. Estimated dismantling costs to be incurred after 7 years ` 1,20,000
` 17,20,000
Note: Operating losses before commercial production amounting to ` 1,60,000 are not
regarded as directly attributable costs and thus cannot be capitalized. They should be written
off to the Statement of Profit and Loss in the period they are incurred.

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 (b) Calculation of effective capital and maximum amount of monthly remuneration
(` in lakhs)
Paid up equity share capital 270
Paid up Preference share capital 45
Reserve excluding Revaluation reserve (337.5- 22.5) 315
Securities premium 90
Long term loans 90
Deposits repayable after one year 45
855
Less: Accumulated losses not written off (45)
Investments (405)
Effective capital for the purpose of managerial remuneration 405
Since Kartik Ltd. is incurring losses and no special resolution has been passed by the company
for payment of remuneration. Effective capital of the company is less than 5 crores, maximum
remuneration payable to the Managing Director should be @ ` 60,00,000 per annum.
Note: Revaluation reserve and application money pending allotment are not included while
computing effective capital of Kartik Ltd.
OR
Bonus
Journal Entries in the books of Madhu Ltd.
` `
1-4-2022 Equity share final call A/c Dr. 8,10,000
To Equity share capital A/c 8,10,000
(For final calls of ` 2 per share on 4,05,000 equity
shares due as per Board’s Resolution dated….)
20-4-2022 Bank A/c Dr. 8,10,000
To Equity share final call A/c 8,10,000
(For final call money on 4,05,000 equity shares
received)
Securities Premium A/c Dr. 1,12,500
Capital redemption reserve A/c Dr. 1,80,000
General Reserve A/c Dr. 5,40,000
Profit and Loss A/c (b.f.) Dr. 1,80,000
To Bonus to shareholders A/c 10,12,500
(For making provision for bonus issue of one share
for every four shares held)
Bonus to shareholders A/c Dr. 10,12,500
To Equity share capital A/c 10,12,500
(For issue of bonus shares)
Extract of Balance Sheet as at 30th April, 2022 (after bonus issue)
`
Authorized Capital
45,000 12% Preference shares of ` 10 each 4,50,000
6,00,000 Equity shares of ` 10 each 60,00,000

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 Issued and subscribed capital
36,000 12% Preference shares of `10 each, fully paid 3,60,000
5,06,250 Equity shares of ` 10 each, fully paid 50,62,500
(Out of the above, 1,01,250 equity shares @ ` 10 each were issued by way of bonus
shares)
Reserves and surplus
Profit and Loss Account 7,20,000
(c) Para 10 of AS 16 ‘Borrowing Costs’ states that to the extent the funds are borrowed specifically
for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for
capitalization on that asset should be determined as the actual borrowing costs incurred on that
borrowing during the period less any income on the temporary investment of those borrowings.
The capitalization rate should be the weighted average of the borrowing costs applicable to the
borrowings of the enterprise that are outstanding during the period, other than borrowings made
specifically for the purpose of obtaining a qualifying asset. Hence, in the above case, treatmen t
of accountant of Vital Ltd. is incorrect. The amount of borrowing costs capitalized for the
financial year 2021-22 should be calculated as follows:
Actual interest for 2021-22 (10% of ` 150 crores) ` 15.00 crores
Less: Income on temporary investment from specific borrowings (` 1.50 crores)
Borrowing costs to be capitalized during year 2021-22 ` 13.50 crores
(d) (i) (1) Users of financial statements: Investors, Employees, Lenders, Supplies/Creditors,
Customers, Government & Public
(2) Qualitative Characteristics of Financial Statements:
Understandability, Relevance, Comparability, Reliability & Faithful Representation
(3) Elements of Financial Statements:
Asset, Liability, Equity, Income/Gain and Expense/Loss
(ii) Fundamental Accounting Assumptions:
Accrual, Going Concern and Consistency

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