5. Adv. Acc. Top 50 Ques.

CA INTER- ADVANCE ACCOUNTING
Contact – 9070800090 info@gmtestseries.com

GMTESTSERIES.COM®
CA INTER NEW COURSE
ADVANCE ACCOUNTING
TOP 50 QUESTIONS
Q-1 Explain the nature of a Limited Liability Partnership. Who can be a designated partner in a
Limited Liability Partnership?
Q-2 P, Q, and R are partners sharing profits and losses as to 2:2:1. Their Balance Sheet as on 31 st
March, 20X1 is as follows:
Liabilities Amount Assets Amount
Capital accounts Plant and Machinery 1,08,000
P 1,20,000 Fixtures 24,000
Q 48,000 Stock 60,000
R 24,000 1,92,000 Sundry debtors 48,000
Reserve Fund 60,000 Cash 60,000
Creditors 48,000
3,00,000 3,00,000
They decided to dissolve the business. The following are the amounts realized:
Particulars Amounts
Plant and Machinery 1,02,000
Fixtures 18,000
Stock 84,000
Sundry debtors 44,400
GMTESTSERIES.COM®
Creditors allowed a discount of 5% and realization expenses amounted to Rs. 1,500. There was
an unrecorded asset of Rs. 6,000 which was taken over by Q at Rs. 4,800. An amount of Rs.
4,200 due for GST had come to notice during the course of realization and this was also paid.
You are required to prepare:
(i) Realization account.
(ii) Partners’ capital accounts.
(iii) Cash account.
Q-3 Describe the accounting procedure involved in amalgamation of two or more partnership
firms.
Q-4 Explain the importance of employee stock option plans in the modern time.
Q-5 S Ltd. grants 1,000 options to its employees on 1.4.20X0 at Rs. 60. The vesting period is two
and a half years. The maximum exercise period is one year. Market price on that date is Rs. 90.
Fair value per option is Rs. 30. All the options were exercised on 31.7.20X3. Journalize, if the
face value of equity share is Rs. 10 per share.
Q-6 Define the following terms:

(i) Vesting
(ii) Grant Date
(iii) Exercise Price
GMTESTSERIES.COM®
Q-7 W, X, Y and Z hold Equity capital is held by in the proportion of 40:30:10:20. A, B, C and D
hold preference share capital in the proportion of 30:40:20:10. If the paid up capital of the
company is Rs. 40 Lakh and Preference share capital is Rs. 20 Lakh, find their voting rights in
case of resolution of winding up of the company.
Q-8 Complicated Ltd. (an unlisted company) gives the following information as on 31.3.2021:
Particulars Amount (Rs.)
Equity shares of Rs. 10 each, fully paid up 13,50,000
Share option outstanding Account 4,00,000
Revenue Reserve 15,00,000
Securities Premium 2,50,000
Profit & Loss Account 1,25,000
Capital Reserve 2,00,000
Unpaid dividends 1,00,000
12% Debentures (Secured) 18,75,000
Advance from related parties (Long term – Unsecured) 10,00,000
Current maturities of long term borrowings 16,50,000
Application money received for allotment due for refund 2,00,000
Property, plant and equipment 46,50,000
Current assets 40,00,000
The Company wants to buy back 25,000 equity shares of Rs 10 each, on 1st April, 2021 at Rs. 15
per share. Buy back of shares is duly authorized by its Articles and necessary resolution has
been passed by the Company for this. The buy-back of shares by the Company is also within the
provisions of the Companies Act, 2013. The payment for buy back of shares was made by the
Company out of sufficient bank balance available shown as part of Current Assets. You are
required to prepare the necessary journal entries towards buy back of shares and prepare the
Balance Sheet of the company after buy back of shares.
GMTESTSERIES.COM®
Q-9 What is meant by “Equity shares with differential rights”. Can preference shares be also
issued with differential rights?
Q-10 List the conditions to be fulfilled as per AS 14 (Revised) for an amalgamation to be in the
nature of merger, in the case of companies.
Q-11 The following are the Balance Sheets of X Ltd. and Y Ltd.:
Particulars Notes X Ltd. (Rs.) Y Ltd. (Rs.)
Equity and Liabilities
1. Shareholders’ funds 1 1,00,000 50,000
A. Share Capital 2 10,000 (10,000)
B. Reserves and Surplus
2. Non-current liabilities
A. Long-term borrowings 3 -- 15,000
3. Current liabilities
A. Trade Payables 25,000 5,000
Total 1,35,000 60,000
Assets
1. Non-current assets
A. Property, Plant and Equipment 1,20,000 60,000
B. Non-current investments 4 15,000 --
Total 1,35,000 60,000
Notes of accounts
Particulars Notes X Ltd. (Rs.) Y Ltd. (Rs.)
1. Share Capital
Equity share capital 1,00,000 50,000
GMTESTSERIES.COM®
1,00,000 50,000
2. Reserves and Surplus
Profit and Loss A/c 10,000 --
Profit and Loss A/c (debit balance) -- (10,000)
10,000 (10,000)
3. Long term Borrowings
Loan from X Ltd. -- 15,000
4. Non-current investments
Loan to Y Ltd. 15,000 --
15,000 --
A new company XY Ltd. is formed to acquire the sundry assets and trade payables of X Ltd. and
Y Ltd. and for this purpose, the sundry assets of X Ltd. are revalued at Rs. 1, 00,000. The debt
due to X Ltd. is also to be discharged in shares of XY Ltd.
Show the Ledger Accounts to close the books of X Ltd.
Q-12 The following are the Balance Sheets of Yes Ltd. and No Ltd. as at 31st March, 20X1:
Particulars Notes Yes (Rs.) No (Rs.)
Equity and Liabilities
1. Shareholders’ funds
A. Share Capital 1 12 5
B. Reserves and Surplus 88 10
2. Non-current liabilities
A. Long-term borrowings 2 -- 10
3. Current liabilities 33
Total 133 40
Assets
1. Non-current assets
A. Property, plant and Equipment 3 20 6
GMTESTSERIES.COM®
B. Non-Current investment 4 13 --
2. Current assets 100 34
Total 133 40
Notes of accounts
Particulars Notes Yes (Rs.) No (Rs.)
1. Share Capital
Equity share capital
Authorized share capital 25 5
Issued and subscribed:
Equity shares of Rs. 10 each fully paid 12 5
12 5
2. Long term borrowing
Unsecured loan from Yes Ltd. -- 10
-- 10
3. Property, Plant and Equipment
Gross value 70 30
Depreciation (50) (24)
20 6
4. Non-current investments
30 lakhs equity shares of Rs.10 each 3 --
Long term loan to No Ltd. 10 --
13 --
On that day Yes Ltd. absorbed No Ltd. The members of No Ltd. are to get one equity share of
Yes Ltd. issued at a premium of Rs. 2 per share for every five equity shares held by them in No
Ltd. The necessary approvals are obtained.
You are asked to pass journal entries in the books of the two companies to give effect to the
above if the amalgamation is in the nature of merger.
GMTESTSERIES.COM®
Q-13 what are the methods of internal reconstruction generally followed by companies?
Q-14 The following scheme of reconstruction has been approved for Win Limited:
(i) The shareholders to receive in lieu of their present holding at 1, 00,000 shares of Rs. 10 each,
the following:
(a) New fully paid Rs. 10 Equity shares equal to 3/5th of their holding.
(b) 10% Preference shares fully paid to the extent of 1/5th of the above new equity shares.
(c) Rs. 40,000, 8% Debentures.
(ii) An issue of Rs. 1 lakh 10% first debentures was made and allotted, payment for the same
being received in cash forthwith.
(iii) Goodwill which stood at Rs. 1, 40,000 was completely written off.
(iv) Plant and machinery which stood at Rs. 2, 00,000 was written down to Rs. 1, 50,000.
(v) Freehold property which stood at Rs. 1, 50,000 was written down by Rs. 50,000.
You are required to draw up the necessary Journal entries in the Books of Win Limited for the
above reconstruction. Suitable narrations to Journal entries should form part of your answer.
Q-15 Z Limited provides the following information as on 31st March, 2021:

Particulars Amounts
Share Capital:
5,00,000 Equity shares of Rs. 10 each fully paid up 50,00,000
9% 20,000 Preference shares of Rs. 100 each fully paid up 20,00,000
Reserves and Surplus:
Profit and Loss Account (Dr. balance) 14,60,000
Non-Current Liabilities:
10% Secured Debentures 16,00,000
Current Liabilities:
GMTESTSERIES.COM®
Interest due on Debentures 1,60,000
Trade Payables 5,00,000
Loan from Directors 1,00,000
Bank Overdraft 1,00,000
Provision for tax 1,00,000
Non-Current Assets:
Property, Plant and Equipment:
Land & Building 30,00,000
Plant & Machinery 12,50,000
Furniture & Fixtures 2,50,000
Intangible Assets:
Goodwill 11,00,000
Patents 5,00,000
Current Assets:
Trade Investments 5,00,000
Trade receivables 5,00,000
Inventory 10,00,000
Note: Preference dividend is in arrears for last 2 years.

Mr. Y holds 60% of debentures and Mr. Z holds 40% of debentures. Moreover Rs. 1, 00,000 and
Rs. 60,000 were also payable to Mr. Y and Mr. Z respectively as trade payable.
The following scheme of reconstruction has been agreed upon and duly approved.
(i) All the equity shares to be converted into fully paid equity shares of Rs. 5.00 each.
(ii) The Preference shares be reduced to Rs. 50 each and the preference shareholders agreed to
forego their arrears of preference dividends, in consideration of which 9% preference shares
are to be converted into 10% preference shares.
(iii) Mr. Y and Mr. Z agreed to cancel 50% each of their respective total debt including interest
on debentures. Mr. Y and Mr. Z also agreed to pay Rs. 1, 00,000 and Rs. 60,000 respectively in
cash and to receive new 12% debentures for the balance amount.
GMTESTSERIES.COM®
(iv) Persons relating to trade payables, other than Mr. Y and Mr. Z also agreed to forgo their
50% claims.
(v) Directors also waived 60% of their loans and accepted equity shares for the balance.
(vi) Capital commitments of Rs. 3.00 lacs were cancelled on payment of Rs. 15,000 as penalty.
(vii) Directors refunded Rs. 1, 00, 000 of the fees previously received by them.
(viii) Reconstruction expenses paid Rs. 15,000.
(ix) The taxation liability of the company was settled for Rs. 75,000 and was paid immediately.
(x) The Assets were revalued as under:
Land and Building 32,00,000
Plant and Machinery 6,00,000
Inventory 7,50,000
Trade Receivables 4,00,000
Furniture and Fixtures 1,50,000
Trade Investments 4,50,000
You are required to pass journal entries for all the above-mentioned transactions including
amounts to be written off for Goodwill, Patents and Loss in Profit and Loss account. Also
prepare Bank Account and Reconstruction A/c.
Q-16 XYZ Limited is being would up by the tribunal. All the assets of the company have been
charged to the company’s bankers to whom the company owes Rs. 5 crores. The company owes
following amounts to others:
 Dues to workers – Rs. 1, 25, 00,000
 Taxes Payable to Government – Rs. 30, 00,000
 Unsecured Creditors – Rs. 60, 00,000
You are required to compute with the reference to the provision of the Companies Act, 2013
the amount each kind of creditors is likely to get if the amount realized by the official liquidator
from the secured assets and available for distribution among creditors is only Rs. 4,00,00,000.
GMTESTSERIES.COM®
Q-17 A liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the
amount distributed to preferential creditors and 3% on the payment made to unsecured
creditors. The assets were realized for Rs. 50, 00,000 against which payment was made as
follows:
Liquidation Rs. 50,000
Secured Creditors Rs. 20, 00,000
Preferential Creditors Rs. 1, 50,000
The amount due to unsecured creditors was Rs. 30, 00,000
You are asked to calculate the total Remuneration payable to Liquidator. Calculation shall be
made to the nearest multiple of a rupee.
Q-18 ABC Limited went into voluntary liquidation. Details are as follows:
1,000 – 10% Preference Shares of Rs. 100 each fully paid up
Class A – 1,200 Equity shares of Rs. 100 each (Rs. 80 paid up)
Class B – 800 Equity shares of Rs. 100 each (Rs. 65 paid up)
Assets realized Rs. 3, 50,000 and liquidation expenses is Rs. 8,000. Company has secured Bank
Loan of Rs. 60,000 and salary of 3 clerks for 3 months at a rate of Rs. 500 per month are
Outstanding. Creditors are Rs. 70,000.
Calculate amount receivable from/ or returnable to equity shareholders.
Q-19 From the following information find out the amount of provisions to be shown in the
Profit and Loss Account of a Commercial Bank:
Assets Amounts
Standard 4,000
Sub-standard 2,000
Doubtful upto one year 900
Doubtful upto three years 400
GMTESTSERIES.COM®
Doubtful more than three years 300
Loss Assets 500
Q-20 Statement of interest on advances in respect of Performing assets and Non-Performing

Assets of Omega Bank is as follows:-
Performing Assets Non-Performing Assets
Interest Interest Interest Interest
earned received earned Received
Cash credit and overdrafts 1800 1060 450 70
Term Loan 480 320 300 40
Bills purchased and discounted 700 550 350 36
Find out the income to be recognized for the years ended 31st March, 20X1.
Q-21 How will you disclose the following ledger balances in the Final accounts of DVD bank:
Rs. in Lakhs
Current accounts 700
Saving accounts 500
Fixed deposits 700
Cash credits 600
Term Loans 500
Bills discounted & Purchased 800
Additional information:
(i) Current accounts ledger (not included in above figure) is accounts overdrawn to the
extent of Rs. 250 lacs.
(ii) One of the cash credit accounts of Rs. 10 lacs (including interest Rs. 1 lac) is doubtful.
GMTESTSERIES.COM®
(iii) 60% of term loans are secured by government guarantees, 20% of cash credits are
unsecured, and other portion is secured by tangible assets.
Q-22 Calculate ‘Owned Fund’ of an NBFC based on the following information:

Paid up share capital: Rs. 200 lakhs
Free reserves: Rs. 150 lakhs
Compulsory convertible preference shares (CCPS): Rs. 50 lakhs
Revaluation reserve: Rs. 50 lakhs (created by revaluation of assets)
Securities premium: Rs. 25 lakhs
Book value of intangible assets: Rs. 10 lakhs
Capital reserves (surplus arising out of sale proceeds of assets): Rs. 15 lakhs
Q-23 LK Finance Ltd. is a non-banking financial company. It provides you with the following
information regarding its outstanding amount, Rs. 400 lakhs of which installments are overdue
on 400 accounts for last two months (amount overdue Rs. 80 lakhs), on 24 accounts for three
months (amount overdue Rs. 48 Lakhs), on 10 accounts for more than 30 months (amount
overdue Rs. 40 lakhs) and on 4 accounts for more than three years (amount over due Rs. 40
lakhs already identified as sub-standard assets) and one account of Rs. 20 lakhs which has been
Identified as non-recoverable by the management. Out of 10 accounts overdue for more than
30 months, 6 accounts are already identified as sub-standard (amount Rs. 12 lakhs) for more
than fourteen months and other are identified as sub-standard asset for a period of less than
fourteen months.
Classify the assets of the company in line with Non-Banking Financial Company – Systemically
Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016.
GMTESTSERIES.COM®
Q-24 Peoples Financiers Ltd. is an NBFC providing Hire Purchase Solutions for acquiring
consumer durables. The following information is extracted from its books as at year end:
Asset Funded Interest Overdue but recognized in Profit & Net Book
loss Value of
Period Overdue Interest Amount Assets
outstanding
(Rs. in crore) (Rs. in crore)
LCD Televisions Upto 12 months 480.00 20,123.00
Washing Machines For 24 months 102.00 2,410.00
Refrigerators For 30 months 50.50 1,280.00
Air Conditioners For 45 months 26.75 647.00
You are required to calculate the amount of provision to be made.
Q-25 Hemant Ltd. purchased 80% shares of Power Ltd. on 1st January, 20X1 for Rs. 2, 10,000.
The issued capital of Power Ltd., on 1st January, 20X1 was Rs. 1, 50,000 and the balance in the
Profit & Loss Account was Rs. 90,000. During the year ended 31st December, 20X1, Power Ltd.
earned a profit of Rs. 30,000 and at year end, declared and paid a dividend of Rs. 22,500. What
is the amount of minority interest as on 1st January, 20X1 and 31st December, 20X1? Also
compute goodwill/ capital reserve at the date of acquisition.
Q-26 From the following information, determine Minority Interest on the date of acquisition
and on the date of consolidation in each case:
Date of Acquisition Consolidation Date
% of
Subsidiary 1.1.20X1 31.12.20X1
Case Shares Cost
Company Share Profit & Share Profit &
owned
Capital Loss Capital Loss
GMTESTSERIES.COM®
Account Account
Case – A X 90% 2,00,000 1,50,000 75,000 1,50,000 85,000
Case – B Y 75% 1,75,000 1,40,000 60,000 1,40,000 20,000
Case – C Z 70% 98,000 40,000 20,000 40,000 20,000
Case – D M 95% 75,000 60,000 35,000 60,000 55,000
Q-27 From the following information of Beta Ltd. and its subsidiary Gamma Ltd. drawn up at
31st March, 2021, prepare a consolidated balances sheet as at that date:
Beta Ltd. Gamma Ltd.
Share Capital:
Shares of Rs. 100 each 15,00,000 2,50,000
Reserves 5,00,000 1,87,500
Profit and Loss Account 2,50,000 62,500
Trade Payables 3,75,000 1,42,500
Property, Plant and Equipment:
Machinery Furniture 7,50,000 2,25,000
Other non-current assets 3,75,000 42,500
Non-current Investments: 11,00,000 3,75,000
Shares in Gamma Ltd.: 2,000 shares at Rs. 200 each 4,00,000
Other information:
Reserves and Profit and Loss Account of Gamma Ltd. stood at Rs. 62,500 and Rs. 37,500
respectively on the date of acquisition of its 80% shares by Beta Ltd. on 1st April, 2020.
Machinery (Book-value Rs. 2,50,000) and Furniture (Book value Rs. 50,000) of Gamma Ltd. were
revalued at Rs. 3, 75,000 and Rs. 37,500 respectively on 1st April, 2020 for the purpose of fixing
the price of its shares. [Rates of depreciation computed on the basis of useful lives: Machinery
10%, Furniture 15%.]
GMTESTSERIES.COM®
Q-28 In preparing the financial statements of R Ltd. for the year ended 31st March, 20X1, you
come across the following information. State with reasons, how you would deal with this in the
financial statements:
The company invested 100 lakhs in April, 20X1 before approval of Financial Statements by the
Board of directors in the acquisition of another company doing similar business, the
negotiations for which had started during the year.
Q-29 The financial statement of Alpha Ltd. for the year 2019-2020 were approved by the
Board of Directors on 15th July, 2020. The following information was provided:
(i) A suit against the company’s advertisement was filed by a party on 20th April, 2020
claiming damages of Rs. 25 lakhs.
(ii) The terms and conditions for acquisition of business of another company had been
decided by March, 2020. But the financial resources were arranged in April, 2020 and
amount invested was Rs. 50 lakhs.
(iii) Theft of cash of Rs. 5 lakhs by the cashier on 31st March, 2020, was detected on 16th
July, 2020.
(iv) The company started a negotiation with a party to sell an immovable property for Rs. 40
lakhs in March, 2020. The book value of the property is Rs. 30 lakhs on 31st March,
2020. However, the deed was registered on 15th April, 2020.
(v) A major fire had damaged the assets in a factory on 5th April, 2020. However, the assets
were fully insured.
With reference to AS 4, state whether the above mentioned events will be treated as
contingencies, adjusting events or non-adjusting events occurring after the balance sheet date.
Q-30 Bela Ltd. has a vacant land measuring 20,000 sq. mts, which it had no intention to use in
the future. The company decided to sell the land to tide over its liquidity problems and made a
GMTESTSERIES.COM®
Profit of Rs. 10 Lakhs by selling the said land. Moreover, there was a fire in the factory and a
part of the unused factory shed valued at Rs. 8 Lakhs was destroyed. The loss from fire was set
off against the profit from sale of land and profit of Rs. 2 lakhs was disclosed as net profit from
sale of assets. Do you agree with the treatment and disclosure? If not, state your views.
Q-31 Fuel surcharge is billed by the State Electricity Board at provisional rates. Final bill for fuel
Surcharge of Rs. 5.30 lakhs for the period October, 20X1 to September, 20X7 has been received
and paid in February, 20X8. However, the same was accounted in the year 20X8-X9. Comment
On treatment done in the said case.
Q-32 On 1st December, 20X1, Vishwakarma Construction Co. Ltd. undertook a contract to
construct a building for Rs. 85 lakhs. On 31st March, 20X2, the company found that it had
already spent Rs. 64, 99,000 on the construction. Prudent estimate of additional cost for
completion was Rs. 32, 01,000. What amount should be recognized in the statement of profit
and loss for the year ended 31st March, 20X2 as per provisions of Accounting Standard 7
(Revised)?
Q-33 On 1st December, 2020, “Sampath” Construction Limited undertook a contract to

construct a building for Rs. 108 lakhs. On 31st March, 2021 the company found that it had
already spent Rs. 83.99 lakhs on the construction. A prudent estimate of additional cost for
completion was Rs. 36.01 lakhs.
You are required to compute the amount of provision for foreseeable loss, which must be made
in the Final Accounts for the year ended 31st March, 2021 based on AS 7 “Accounting for
Construction Contracts.”
GMTESTSERIES.COM®
Q-34 when revenue will be recognized in the following situation:
(i) Where the purchaser makes a series of installment payments to the seller and the seller
deliver the goods only when the final payment is received.
(ii) Where seller concurrently agrees to repurchase the same goods at a later date.
(iii) Where goods are sold to distributors, dealers or other for resale.
(iv) Commissions on service rendered as agent on insurance business.
Q-35 Y Ltd., used certain resources of X Ltd. In return X Ltd. received Rs. 10 lakhs and Rs. 15
lakhs as interest and royalties respective from Y Ltd. during the year 20X1-X2. You are required
to state whether and on what basis these revenues can be recognized by X Ltd.
Q-36 The Chief Accountant of Sports Ltd. gives the following data regarding its six segments:
Particulars M N O P Q R TOTAL
Segment Assets 40 80 30 20 20 10 200
Segment Results 50 (190) 10 10 (10) 30 (100)
Segment Revenue 300 600 80 60 80 60 1200
The Chief accountant is of the opinion that segments “M” and “N” alone should be reported. Is
he justified in his view? Discuss.
Q-37 A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The
market prices are generally 25% above cost. Is the policy adopted by the company correct?
Q-38 In respect of a key supplier who is dependent on the company for its existence and the
company enjoys influence over the prices of this supplier (which may not be formally
demonstrable), can the supplier and the company be considered as related parties?
GMTESTSERIES.COM®
Q-39 Prakash Limited leased a machine to Badal Limited on the following terms:
Rs. in Lakhs
(i) Fair value of the machine 48.00
(ii) Lease term 5 years
(iii) Lease rental per annum 8.00
(iv) Guaranteed residual value 1.60
(v) Expected residual value 3.00
(vi) Internal rate of return 15%
Discounted rates for 1st year to 5th year are 0.8696, 0.7561, 0.6575, 0.5718, and 0.4972
respectively.
Ascertain Unearned Finance Income.
Q-40 A Ltd. sold machinery having WDV of Rs. 40 lakhs to B Ltd. for Rs. 50 lakhs and the same
machinery was leased back by B Ltd. to A Ltd. The lease back is operating lease. Comment if –
(a) Sale price of Rs. 50 lakhs is equal to fair value.
(b) Fair value is Rs. 60 lakhs.
(c) Fair value is Rs. 45 lakhs and sale price is Rs. 38 lakhs.
(d) Fair value is Rs. 40 lakhs and sale price is Rs. 50 lakhs.
(e) Fair value is Rs. 46 lakhs and sale price is Rs. 50 lakhs
(f) Fair value is Rs. 35 lakhs and sale price is Rs. 39 lakhs.
Q-41 Net profit for the year 20X1 Rs. 11, 00,000
Net profit for the year 20X2 Rs. 15, 00,000
No. of shares outstanding prior to rights issue 5, 00,000 shares
GMTESTSERIES.COM®
Rights issue price Rs. 15.00
Last date to exercise rights 1st March 20X2
Rights issue is one new share for each five outstanding (i.e. 1, 00,000 new shares)
Fair value of one equity share immediately prior to exercise of rights on 1st March 20X2 was Rs
21.00. Compute Basic Earnings Per Share.
Q-42 Stock options have been granted by AB Limited to its employees and they vest equally
over 5 years, i.e., 20 per cent at the end of each year from the date of grant. The options will
vest only if the employee is still employed with the company at the end of the year. If the
employee leaves the company during the vesting period, the options that have vested can be
exercised, while the others would lapse. Currently, AB Limited includes only the vested options
for calculating Diluted EPS. Should only completely vested options be included for computation
of Diluted EPS? Is this in accordance with the provisions of AS 20? Explain.
Q-43 Rama Ltd. has provided the following information:

Amount
Depreciation as per accounting records 2,00,000
Depreciation as per income tax records 5,00,000
Unamortized preliminary expenses as per tax record 30,000
There is adequate evidence of future profit sufficiency. How much deferred tax asset/ liability
Should be recognized as transition adjustment? Tax rate 50%.
Q-44 Define following as per AS 22:

(i) Accounting income (loss)
(ii) Taxable income (tax loss)
GMTESTSERIES.COM®
(iii) Tax expense (tax saving)
Q-45 From the following details of A Ltd. for the year ended 31-03-20X1, calculate the
deferred tax asset/ liability as per AS 22 and amount of tax to be debited to the Profit and
Loss Account for the year.
Particulars Amount
Accenting Profit 6,00,000
Book Profit as per MAT 3,50,000
Profit as per Income Tax Act 60,000
Tax rate 20%
MAT rate 7.50%
Q-46
(i) What are the disclosure and presentation requirements of AS 24 for discontinuing
operations?
(ii) Give four examples of activities that do not necessarily satisfy criterion (a) of paragraph
3 of AS 24, but that might do so in combination with other circumstances.
Q-47 PQR Ltd. has acquired a Brand from another company for Rs. 100 lakhs. PQR Ltd. contends
that since the said brand is a very popular and famous brand, no amortization needs to be
provided. Comment on this in line with the Accounting Standards.
GMTESTSERIES.COM®
Q-48 The Company had spent Rs. 45 lakhs for publicity and research expenses on one of its new
consumer product, which was marketed in the accounting year 20X1-20X2, but proved to be a
failure. State, how you will deal with the following matters in the accounts of U Ltd. for the year
ended 31st March, 20X2.
Q-49 Chaos Limited is in the process of finalizing its accounts for the year ended 31st March,
2020. It seeks your advice in the following cases:
(i) Chaos Limited has filed a court case in 2014-2015 against its competitors. It became
evident to its lawyers during the year ended 31st March, 2020 that Chaos Limited may
lose the case and would have to pay Rs. 3, 00,000 being the cost of litigation. No
entries/provisions have been made in the books.
(ii) A new regulation has been passed in 2019-2020 by the healthcare ministry to upgrade
facilities. Deadline set by the government is 31.03.2021. The company estimates an
expenditure of Rs. 10, 00,000 for the said upgrade.
(iii) The company gives one year warranty for its healthcare equipment under the contract
of sale that it will make good any manufacturing defect by repair or replacement. As per
past experience, it is probable that there will be 1% such cases and estimated cost of
repair / replacement is estimated at 10% of such sale value. During the year, the
company has made a sale of Rs. 5 crores.
Kindly give your answer for each of above with proper reasoning according to the relevant
Accounting Standard. Also state the principles for recognition of provision, as per AS 29.
Q-50 EXOX Ltd. is in the process of finalizing its accounts for the year ended 31st March, 20X2.
The company seeks your advice on the following:
(i) The Company’s sales tax assessment for assessment year 20X1-X2 has been completed on
14th February, 20X4 with a demand of Rs. 2.76 crore. The company paid the entire due under
GMTESTSERIES.COM®
protest without prejudice to its right of appeal. The Company files its appeal before the
appellate authority wherein the grounds of appeal cover tax on additions made in the
assessment order for a sum of 2.10 crore.
(ii) The Company has entered into a wage agreement in May, 20X2 whereby the labour union
has accepted a revision in wage from June, 20X1. The agreement provided that the hike till
May, 20X2 will not be paid to the employees but will be settled to them at the time of
retirement. The company agrees to deposit the arrears in Government Bonds by September,
20X2.
SUGGESTED ANSWERS
A-1 Nature of Limited Liability Partnership:

A limited liability partnership is a body corporate formed and incorporated under the LLP Act,
2008 and is a legal entity separate from that of its partners. A limited liability partnership shall
have perpetual succession and any change in the partners of a limited liability partnership shall
not affect the existence, rights, or liabilities of the limited liability partnership.
Designated partners:
Every limited liability partnership shall have at least two designated partners who are
individuals and at least one of them shall be a resident in India. In case of a limited liability
partnership in which all the partners are bodies corporate or in which one or more partners are
individuals and bodies corporate, at least two individuals who are partners of such limited
liability partnership or nominees of such bodies corporate shall act as designated partners.
A-2
GMTESTSERIES.COM®
Realization Account
Particulars Amount Particulars Amount
To Debtors 48,000 By Creditors 48,000
To Stock 60,000 By Cash A/c (Assets realized):
To Fixtures 24,000 Plant and Machinery 1,02,000
To Plant and machinery 1,08,000 Fixtures 18,000
To Cash A/c (Creditors) 45,600 Stock 84,000
To Cash A/c (GST) 4,200 Sundry Debtors 44,400 2,48,400
To Cash A/c (Realization 1,500 By Q (Unrecorded asset)* 4,800
expenses)
To Profit on Realization
P 3,960
Q 3,960
R 1,980 9,900
3,01,200 3,01,200
Partners’ Capital Accounts

Particulars P (Rs.) Q (Rs.) R (Rs.) Particulars P (Rs.) Q (Rs.) R (Rs.)
To Realization 4,800 By Balance b/d 1,20,000 48,000 24,000
A/c
(unrecorded
asset)
To Cash (Bal. 1,47,960 71,160 37,980 By Reserve 24,000 24,000 24,000
fig.) Fund
By Realization 3,960 3,960 1,980
A/c (Profit)
1,47,960 75,960 37,980 1,47,960 75,960 37,980
Cash Account
GMTESTSERIES.COM®
To Balance b/d 60,000 By Realization A/c (Creditors) 45,600
To Realization A/c (Assets) 2,48,400 By Realization A/c (Expenses) 1,500
By Realization A/c (GST) 4,200
By P’s Capital A/c 1,47,960
By Q’s Capital A/c 71,160
By R’s Capital A/c 37,980
3,08,400 3,08,400
A-3
Amalgamation includes:
Closing the books of old firm
(a) Each firm should prepare a Revaluation Account relating to its own assets and liabilities and
transfer the balance to the partners’ capital accounts in the profit-sharing ratio.
(b) Entries for raising goodwill should be passed.
(c) Assets and liabilities not taken over by the new firm should be transferred to the capital
accounts of partners in the ratio of their capitals.
(d) The new firm should be debited with the difference between the value of assets and
liabilities taken over by it; the assets should be credited and liabilities debited.
(e) Partners’ capital accounts should be transferred to the new firm’s account.
Opening the books of the new firm
Debit assets taken out at the agreed values
Credit the liabilities taken over at the agreed values, and
Credit individual partner’s capital accounts with the closing balances in the erstwhile firm.
GMTESTSERIES.COM®
A-4 ESOPs are plans under which an enterprise grants options for a specified period to its
employees to purchase its shares at a fixed or determinable price. One advantage of ESOPs as
remuneration is that they need not entail any cash cost to the enterprise. Unlisted companies,
in particular, start-up companies, often give share-based compensation since they cannot
afford to pay high salaries to their employees but are willing to share the future prosperity of
the company. It is hence important that cost relating to these stock option plans get recognized
in the financial statements.
The importance of Employee Stock Option Plan lies in the following advantages which accrue to
both the company and the employees:
1. Stock options provide an opportunity to employees to participate and contribute in the
growth of the company.
2. Stock options create long term wealth in the hands of the employees.
3. They are important means to attract, retain and motivate the best available talent for the
company.
4. It creates a common sense of ownership between the company and its employees.
A-5
Date Particulars Debit (Rs.) Credit (Rs.)
31.3.X1 Employees Compensation Expense Account Dr. 12,000
To Employees Stock Option Outstanding Account 12,000
(Being compensation expense recognized in respect
of 1,000 options granted to employees at discount
of Rs. 30 each, amortized on straight line basis over
2 ½ years) Refer WN)
Profit and Loss Account Dr. 12,000
To Employees Compensation Expense Account 12,000
(Being employees compensation expenses of the
GMTESTSERIES.COM®
year transferred to P&L A/c)
31.3.X2 Employees Compensation Expense Account Dr. 12,000
(Being compensation expense recognized in respect
of 1,000 options granted to employees at discount
of Rs. 30 each, amortized on straight line basis over
2½ years) (Refer WN)
To Employees Compensation Expenses Account 12,000
31.3.X3 Employees Compensation Expenses Account Dr. 6,000
(Being balance of compensation expenses
amortized Rs. 30,000 less Rs. 24,000) (Refer WN)
To Employees Compensation Expenses Account 6,000
31.7.X3 Bank Account (Rs. 60 x 1,000) Dr. 60,000
To Equity Share Capital Account 10,000
To Securities Premium Account 50,000
(Being exercise of 1,000 options at an exercise price
of Rs.60)
31.7.X3 Stock Option Outstanding A/c (Rs.30 x 1,000) Dr. 30,000
To Securities Premium Account 30,000
(Being the balance in the Employees Stock Option
Outstanding Account transferred to Securities
Premium A/c)
GMTESTSERIES.COM®
Working Notes:
1. Total employees compensation expense = 1,000 x (Rs. 30) = Rs. 30,000
2. Employees compensation expense has been written off during 2½ years on straight line basis
as under:
I year = Rs. 12,000 (for full year)
II year = Rs. 12,000 (for full year)
III year = Rs. 6,000 (for half year)
A-6
(i) Vesting means to become an entitlement. Under an employee stock option plan, a
counterparty’s right to receive cash, other assets or equity instruments of the enterprise vests
when the counterparty’s entitlement is no longer conditional on the satisfaction of any vesting
conditions.
(ii) Grant Date is the date at which the enterprise and another party (i.e. an employee) agree to
an employee stock option plan, being when the enterprise and the counterparty have a shared
understanding of the terms and conditions of the arrangement. At grant date, the enterprise
confers on the counterparty the right to cash, other assets, or equity instruments of the
enterprise, provided the specified vesting conditions, if any, are met. If that agreement is
subject to an approval process (for example, by shareholders), grant date is the date when that
approval is obtained.
(iii) Exercise Price is the price payable by the counterparty for exercising the option granted to
him/her/it in pursuance of the employee stock option plan.
GMTESTSERIES.COM®
A-7 W, X, Y and Z hold Equity capital is held by in the proportion of 40:30:10:20 and A, B, C and
D hold preference share capital in the proportion of 30:40:20:10. As the paid up equity share
capital of the company is Rs. 40 Lakhs and Preference share capital is Rs. 20 Lakh (2:1), then
relative weights in the voting right of equity shareholders and preference shareholders will be
2/3 and 1/3. The respective voting right of various shareholders will be
W= 2/3X40/100 = 4/15
X = 2/3X30/100 = 3/15
Y = 2/3X10/100 = 1/15
Z = 2/3X20/100 = 2/15
A = 1/3X30/100 = 1/10
B = 1/3X40/100 = 2/15
C = 1/3X20/100 = 1/15
D = 1/3X10/100 = 1/30
A-8 As per the information given in the question, buy-back of 25,000 shares @ Rs. 15, as
desired by the company, is within the provisions of the Companies Act, 2013.
Journal Entries for buy-back of shares
Date Particulars Debit (Rs.) Credit (Rs.)
(a) Equity shares buy-back account Dr. 3,75,000
To Bank Account 3,75,000
(Being buy back of 25,000 equity shares of Rs. 10
each @ 15 per share)
(b) Equity share capital account Dr. 2,50,000
Premium payable on buyback account Dr. 1,25,000
To Equity shares buy-back account 3,75,000
(Being cancellation of shares bought back)
(c) Securities premium account Dr. 1,25,000
To Premium payable on buyback account 1,25,000
(Being Premium payable on buyback adjusted
GMTESTSERIES.COM®
against securities premium account)
(d) Revenue reserve account Dr. 2,50,000
To Capital redemption reserve account 2,50,000
(Being transfer of free reserves to capital
redemption reserve to the extent of nominal value
of capital bought back through free reserves)
Balance Sheet of Complicated Ltd. as at 1st April, 2021

Particulars Note No. Amount
I EQUITY AND LIABILITIES
(a) Share Capital 1 11,00,000
(b) Reserve and surplus 2 23,50,000
2. Non-current Liabilities 3 28,75,000
(a) Long-term borrowings
3. Current Liabilities
(a) Short-term borrowings 4 16,50,000
(b) Other current liabilities 5 3,00,000
Total 82,75,000
II ASSETS
1. Non-current Assets
(a) Property, Plant and Equipment 46,50,000
2. Current Assets (Rs. 40,00,000 – Rs. 3,75,000) 36,25,000
Total 82,75,000
Notes to Accounts
Particulars Note No. Amount
1. Share Capital
Equity share capital
GMTESTSERIES.COM®
1,10,000 Equity shares of Rs. 10 each 11,00,000
2. Reserves and Surplus 2,00,000
Capital Reserve 2,50,000
Capital Redemption Reserve
Securities Premium 2,50,000
Less: Utilization for share buy-back (1,25,000) 1,25,000
Share Option Outstanding Account 4,00,000
Revenue reserves 15,00,000
Less: transfer to CRR (2,50,000) 12,50,000
Surplus i.e. Profit and Loss A/c 1,25,000 23,50,000
3. Long-term borrowings
Secured 18,75,000
12% Debentures 10,00,000 28,75,000
4. Short-term borrowings
Current maturities of long-term borrowings 16,50,000
5. Other Current Liabilities
Unpaid dividend 1,00,000
Application money received for allotment due for refund 2,00,000 3,00,000
A-9 Equity shares with Differential Rights means the share with dissimilar rights as to dividend,
voting or otherwise. Preference shares cannot be issued with deferential rights. It is only the
equity shares, which are issued.
A-10 Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions.
GMTESTSERIES.COM®
(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company and the business of the transferor company is
intended to be carried on, after the amalgamation, by the transferee company
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately before the
amalgamation, by the transferee company or its subsidiaries or their nominees) become equity
shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
(iv) No adjustment is intended to be made to the book values of the assets and liabilities of the
Transferor Company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity of accounting policies.
A-11
Books of X Ltd.
Realization Account
Amount Amount
To Sundry Assets 1,20,000 By Trade payables 25,000
By XY Ltd. (Purchase 75,000
consideration) 20,000
By Shareholders (Loss on
realization)
1,20,000 1,20,000
Shareholders Account
Amount Amount
To Realization Account (Loss) 20,000 By Equity Share Capital 1,00,000
GMTESTSERIES.COM®
To Shares in XY Ltd. 90,000 By Profit and Loss Account 10,000
1,10,000 1,10,000
Loan Y Ltd.
Amount Amount
To Balance b/d 15,000 By Shares in XY Ltd. 15,000
Shares in XY Ltd.
Amount Amount
To XY Ltd. 75,000 By Shareholders 90,000
To Loan Y Ltd. 15,000
90,000 90,000
XY Ltd.
Amount Amount
To Realization Account 75,000 By Shares in XY Ltd. 75,000
A-12
Journal Entries in the books of No Ltd.
Dr. Cr.
Realization Account Dr. 64.00
To Property, Plant and equipment Account 30.00
To Current Assets Account 34.00
(Being the assets taken over by Yes Ltd. transferred to
Realization Account)
Provision for depreciation Account Dr. 24.00
Current Liabilities Account Dr. 15.00
Unsecured Loan from Yes Ltd. Account Dr. 10.00
To Realization Account 49.00
(Being the transfer of liabilities and provision to Realization
GMTESTSERIES.COM®
Account)
Yes Ltd. Dr. 1.2
(Being the amount of consideration due from Yes Ltd. credited
to Realization Account)
Equity Shareholders Account Dr. 13.80
(Being the loss on Realization transferred to equity share –
holders account)
Equity Share Capital Account Dr. 5.00
Reserves and Surplus Account Dr. 10.00
To Equity Shareholders Account 15.00
(Being the amount of share capital, reserves and surplus
credited to equity shareholders account)
Equity shares of Yes Ltd. Dr. 1.20
To Yes Ltd. 1.20
(Being the receipt of 10 lakhs equity shares of Rs. 10 each at
Rs. 12 per share for allotment to shareholders)
Equity shareholders Account Dr. 1.20
To Equity shares of Yes Ltd. 1.20
(Being the distribution of equity shares received from Yes Ltd.
to shareholders)
Journal Entries in the books of Yes Ltd.

Dr. Cr.
Business Purchase Account Dr. 1.2
To Liquidator of No Ltd. Account 1.2
(Being the amount of purchase consideration agreed under
approved scheme of amalgamation – W.N. 1)
GMTESTSERIES.COM®
Property, plant and equipment Dr. 6.00
Current Assets Dr. 34.00
To Current Liabilities 15.00
To Unsecured Loan (from Yes Ltd.) 10.00
To Business Purchase Account 1.20
To Reserve & Surplus A/c 10.00
To Profit & Loss A/c* 3.80
(Being the assets and liabilities taken over and the surplus
transferred to Profit and loss account)
Liquidator of No Ltd. Dr. 1.20
To Equity Share Capital Account 1.00
To Securities Premium Account 0.20
(Being the allotment to shareholders of No Ltd. 10 Lakhs
equity shares of Rs. 10 each at premium of Rs. 2 per share)
Unsecured Loan (from Yes Ltd.) Dr. 10.00
To Loan to No. Ltd. 10.00
(Being the cancellation of unsecured loan given to No Ltd.)
Working Note:
Purchase Consideration Rs. in crores
50 lakhs / 5 × Rs. 1.2 i.e., 10 lakhs equity shares at Rs. 12 per share
Number of equity shares of Rs. 10 each to be issued [1.20 crores/ 12] = 10 lakhs.
A-13 Methods of Internal reconstruction:

• Sub-division or consolidation of shares into smaller or higher Denomination and Conversion of
share into stock or vice-versa
• Variation of shareholders’ rights
• Reduction of share capital
• Compromise, arrangements etc.
GMTESTSERIES.COM®
• Surrender of Shares.
A-14
Journal Entries
Dr. Cr.
Equity Share Capital (old) A/c Dr. 10,00,000
To Equity Share Capital (Rs. 10) A/c 6,00,000
To 10% Preference Share Capital A/c 1,20,000
To 8% Debentures A/c 40,000
To Capital Reduction A/c 2,40,000
(Being new equity shares, 10% Preference Shares, 8%
Debentures issued and the balance transferred to
Reconstruction account as per the Scheme)
Bank A/c Dr. 1,00,000
To 10% First Debentures A/c 1,00,000
(Being allotment of 10% first Debentures)
Capital Reduction A/c Dr. 2,40,000
To Goodwill Account 1,40,000
To Plant and Machinery Account 50,000
To Freehold Property Account 50,000
(Being Capital Reduction Account utilized for writing off of
Goodwill, Plant and Machinery and Freehold property as per
the scheme)
A-15
Journal Entries in the Books of Z Ltd.
GMTESTSERIES.COM®
Dr. Cr.
(i) Equity Shares Capital (Rs. 10 each) A/c Dr. 50,00,000
To Equity Shares Capital (Rs. 5 each) A/c 25,00,000
To Reconstruction A/c 25,00,000
(Being conversion of 5, 00,000 equity shares of Rs. 10 each fully
paid into same number of fully paid equity shares of Rs. 5 each
as per scheme of reconstruction.)
(ii) 9% Preference Share Capital (Rs. 100 each) A/c Dr. 20,00,000
To 10% Preference Shares Capital (Rs. 50 each)A/c 10,00,000
(Being conversion of 9% preference share of Rs. 100 each into
same number of 10% preference share of Rs. 50 each and
claims of preference dividends settled as per scheme of
reconstruction.)
(iii) 10% Secured Debentures A/c Dr. 9,60,000
Trade payables A/c Dr. 1,00,000
Interest on Debentures payable A/c Dr. 96,000
Bank A/c Dr. 1,00,000
To 12% Debentures A/c 6,78,000
(Being Rs. 11, 56,000 due to Y (including trade payables)
cancelled and 12% debentures allotted for the amount after
waving 50% as per scheme of reconstruction.)
(iv) 10% Secured Debentures A/c Dr. 6,40,000
Trade Payables Dr. 60,000
Interest on debentures payable A/c Dr. 64,000
Bank A/c Dr. 60,000
To 12% debentures A/c 4,42,000
GMTESTSERIES.COM®
(Being Rs. 7, 64,000 due to Z (including trade payables)
cancelled and 12% debentures allotted for the amount after
waving 50% as per scheme of reconstruction.)
(v) Trade payables A/c Dr. 1,70,000
To reconstruction A/c 1,70,000
(Being remaining trade payables sacrificed 50% of their claim.)
(vi) Directors’ Loan A/c Dr. 1,00,000
To Equity Share Capital (Rs. 5) A/c 40,000
To Reconstruction A/c 60,000
(Being Directors' loan claim settled by issuing 8,000 equity
shares of Rs. 5 each as per scheme of reconstruction.)
(vii) Reconstruction A/c Dr. 15,000
To Bank A/c 15,000
(Being payment made towards penalty of 5% for cancellation of
capital commitments of Rs. 3 Lakhs)
(viii) Bank A/c Dr. 1,00,000
(Being refund of fees by directors credited to reconstruction
A/c.)
(ix) Reconstruction A/c Dr. 15,000
To Bank A/c 15,000
(Being payment of reconstruction expenses.)
(x) Provision for Tax A/c Dr. 1,00,000
To Bank A/c 75,000
To Reconstruction A/c 25,000
(Being payment of tax liability in full settlement against
provision for tax)
(xi) Land and Building A/c Dr. 2,00,000
GMTESTSERIES.COM®
(Being appreciation in value of Land & Building recorded)
(xii) Reconstruction A/c Dr. 49,85,000
To Goodwill A/c 11,00,000
To Patent A/c 5,00,000
To Profit and Loss A/c 14,60,000
To Plant and Machinery A/c 6,50,000
To Furniture & Fixture A/c 1,00,000
To Trade Investment A/c 50,000
To Inventory A/c 2,50,000
To Trade Receivables A/c 1,00,000
To Capital Reserve (bal. fig.) 7,75,000
(Being writing off of losses and reduction in the value of assets
as per scheme of reconstruction, balance of reconstruction A/c
transfer to Capital Reserve.)
Bank Account
To Reconstruction (Y) 1,00,000 By Balance b/d (overdraft) 1,00,000
To Reconstructions (Z) 60,000 By Reconstruction A/c 15,000
To Reconstruction A/c 1,00,000 (capital commitment penalty
(refund of earlier fees by paid)
directors) By Reconstruction A/c 15,000
(reconstruction expenses paid)
By Provision for tax A/c 75,000
(tax paid)
By Balance c/d 55,000
2,60,000 2,60,000
GMTESTSERIES.COM®
Reconstruction Account
To Bank (Penalty) 15,000 By Equity Shares
To Bank (reconstruction 15,000 Capital A/c 25,00,000
expenses) By 9% Pref. Share
To Goodwill 11,00,000 Capital A/c 10,00,000
To Patent 5,00,000 By Mr. Y (Settlement) 5,78,000
To P & L A/c 14,60,000 By Mr. Z (Settlement) 3,82,000
To P & M 6,50,000 By Trade Payables A/c 1,70,000
To Furniture and Fixtures 1,00,000 By Director’s loan 60,000
To Trade investment 50,000 By Bank 1,00,000
To Inventory 2,50,000 By Provision for tax 25,000
To Trade Receivables To Capital 1,00,000 By Land and Building 2,00,000
Reserve (bal. fig.) 7,75,000
50,15,000 50,15,000
A-16 Section 326 of the Companies Act, 2013 is talks about the overriding preferential
payments to be made from the amount realized from the assets to be distributed to various
kinds of creditors. According to the proviso given in the section 326 the security of every
secured creditor should be deemed to be subject to a paripassu change in favor of the
workman to the extent of their portion.
Amount Realized × Workman′s Dues
Workman’s Shares to Secured Assets =
Workman′s Dues + Secured Loan
4,00,00,000 × 1,25,00,000
Workman’s Shares to Secured Asset =
1,25,00,000 + 5,00,00,000
1
= 4,00,00,000 x
5
Workman’s Shares to Secured Assets = 80, 00,000
Amount available to secured creditor is Rs. 400 Lakhs – 80 Lakhs = 320 lakhs
Hence, no amount is available for payment of government dues and unsecured creditors.
GMTESTSERIES.COM®
A-17 Calculation of Total Remuneration payable to Liquidator
Amounts
2% on Assets realized (50, 00,000 x 2%) 1,00,000
3% on payment made to Preferential creditors (1, 50,000 x 3%) 4,500
3% on payment made to Unsecured creditors
(Refer W.N.) 78,510
Total Remuneration payable to Liquidator 1,83,010
Working Note:
Liquidator’s remuneration on payment to unsecured creditors =
Cash available for unsecured creditors after all payments including liquidation expenses,
payment to secured creditors, preferential creditors & liquidator’s remuneration
= Rs. 50, 00,000 – Rs. 50,000 – Rs. 20, 00,000 – Rs. 1, 50,000 – Rs. 1, 00,000 – Rs. 4,500
= Rs. 26, 95,500
Since cash balance is available for unsecured creditors, Liquidator’s remuneration on payment
to unsecured creditors = Rs. 26, 95,500 X 3 /103= Rs. 78,510 (rounded off)
A-18 Amount receivable from/returnable to Equity Shareholders

Total equity capital – paid up Rs. 1, 48,000
Less: Balance available after payment to unsecured and preference shares
(3, 50,000 – 2, 42,500) Rs. (1, 07,500)
Loss to be borne by 2,000 equity shares Rs. 40,500
Loss per share Rs. 20.25
Hence,
Amount refunded on Rs. 65 paid share 65 – 20.25 per share = Rs. 44.75
Amount refunded on RS. 80 paid share 80 – 20.25 per share = Rs. 59.75
GMTESTSERIES.COM®
Working note:
Liquidator’s Statement of Account
Amount Amount
To Assets realized 3,50,000 By Liquidation Expenses 8,000
By Secured bank loan 60,000
By Preferential creditors 4,500
(salary of 3 clerks at Rs. 500 per
month for three months)
By Unsecured creditors 70,000
By Preference Shareholders 1,00,000
2,42,500
By Equity Shareholders
Rs. 59.75 on 1,200 shares 71,700
Rs. 44.75 on 800 shares 35,800
3,50,000 3,50,000
A-19 Computation of provision in the Profit & Loss Account of the Commercial Bank:
ASSETS Amount (Rs. in % of Provision Provision (Rs.
Lakhs) in Lakhs)
Standard 4,000 0.40 16
Sub-standard* 2,000 15 300
Doubtful upto one year* 900 25 225
Doubtful upto three years* 400 40 160
Doubtful more than three years* 300 100 300
Loss 500 100 500
1,501
* Sub-standard and doubtful assets are assumed as fully secured.
GMTESTSERIES.COM®
A-20 Interest on performing assets should be recognised on accrual basis, but interest on NPA
should be recognised on cash basis.
Rs. in Lakhs
Interest on cash credits and overdraft (1800 + 70) = 1,870
Interest on Term Loan (480 + 40) = 520
Income from bills purchased and Discounted (700 + 36) = 736
3,126
A-21
Relevant Schedules (forming part of the Balance sheet) of DVD Bank
Schedule 3: Deposits
Rs. in Lakhs
A. Demand deposits 700
B. Saving bank deposits 500
C. Term deposits (Fixed Deposit) 700
1,900
Schedule 9: Advances
Rs. in Lakhs
A. (i) Bills discounted and purchased 800
(ii) Cash credits and overdrafts 850
(iii) Term loans 500
2,150
B. (i) Secured by tangible assets (bal. fig.) 1,730
(ii) Secured by Bank / Govt. guarantees (500 x 60%) 300
(iii) Unsecured (600 x 20%) 120
2,150
GMTESTSERIES.COM®
Schedule 5: Other Liabilities & Provisions
Rs. in Lakhs
Other (Provision for doubtful debts) 10
Profit and Loss Account (an extract)

Rs. in Lakhs
Less: Provision for doubtful debts* 10
Note: The overdrawn extent in Current Accounts will be shown as Overdrafts.

* It is assumed that the cash credit has been in ‘doubtful’ category for more than three years,
hence provision made at 100%.
A-22 Owned fund calculation:

Paid up share capital: Rs. 200 lakhs
Free reserves: Rs. 150 lakhs
Compulsory convertible preference shares (CCPS): Rs. 50 lakhs
Securities premium: Rs. 25 lakhs
Capital Reserves: 15 lakhs
Total of all above items: Rs. 440 lakhs reduced by the value of intangible assets Rs. 10 lakhs i.e.
owned fund is computed as Rs. 430 lakhs.
Note: Revaluation reserve to be excluded while computing owned fund.
A-23 Statement showing classification as per Non-Banking Financial Company – Systemically

Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016
(Rs. in Lakhs)
Standard Assets
GMTESTSERIES.COM®
Accounts (Balancing figure) 172.00
400 accounts overdue for a period for 2 months 80.00
24 accounts overdue for a period by 3 months 48.00 300.00
Sub-Standard Assets
4 accounts identified as sub-standard assets for a period less than 14 months 28.00
Doubtful Debts
6 accounts identified as sub-standard for a period more than 14 months 12.00
4 accounts identified as sub-standard for a period more than 3 years 40.00
Loss Assets
1 account identified by management as loss asset 20.00
Total overdue 400.00
A-24 On the basis of the information given, in respect of hire purchase and leased assets,
additional provision shall be made as under:
(Rs. in crore)
(a) Where hire charges are overdue upto 12 Nil --
months
(b) Where hire charges are overdue for more 10% of the net book value 241
than 12 months but upto 24 months 10% x 2,410
(c) Where hire charges are overdue for more 40 % of the net book value 512
than 24 months but upto 36 months 40% x 1,280
(d) Where hire charges are overdue for more 70 % of the net book value 452.90
than 36 months but upto 48 months 70% x 647
Total 1,205.90
GMTESTSERIES.COM®
A-25
Total dividend paid is Rs. 22,500 (out of post-acquisition profits), hence dividend received by
Hemant will be credited to P & L account. Hemant Ltd.’s share of dividend = Rs. 22,500 X 80% =
Rs. 18,000
Goodwill on consolidation (at the date of acquisition): Amount Amount
Cost of shares 2,10,000
Less: Face value of capital i.e. 80% of capital 1,20,000
Add: Shares of capital profit [90,000 x 80%] 72,000 (1,92,000)
Goodwill 18,000
Minority interest on:
- 1st January, 20X1:
20% of Rs. 2,40,000 [1,50,000 + 90,000] 48,000
- 31st December, 20X1:
20% of Rs. 2,47,500 [1,50,000 + 90,000 + 30,000 – 22,500] 49,500
A-26
Minority Interest = Equity attributable to minorities
Equity is the residual interest in the assets of an enterprise after deducting all its liabilities i.e. in
this case, it should be equal to Share Capital + Profit & Loss A/c
A = Share capital on 1.1.20X1
B = Profit & loss account balance on 1.1.20X1
C = Share capital on 31.12.20X1
D = Profit & loss account balance on 31.12.20X1
Minority % Shares Minority interest Minority interest
Owned as at the date of as at the date of
[E] acquisition consolidation
[E] x [A + B] (Rs) [E] x [C + D] (Rs)
GMTESTSERIES.COM®
Case A [100 – 90] 10% 22,500 23,500
Case B [100 – 75] 25% 50,000 40,000
Case C [100 – 70] 30% 18,000 18,000
Case D [100 – 95] 5% 4,750 5,750
A-27
Consolidated Balance Sheet of Beta Ltd. and its Subsidiary Gamma Ltd. as at 31st March,
2021
Notes Amount
I EQUITY AND LIABILITIES
(a) Share Capital 1 15,00,000
(b) Reserves and Surplus 8,61,500
2. Minority Interest (W.N.5) 1,20,375
3. Current Liabilities
II (a) Trade Payables 2 5,17,500
Total 29,99,375
ASSETS
1. Non-current Assets
(a) (i) Property, Plant and Equipment 3 14,94,375
(ii) Intangible assets 4 30,000
(b) Other non-current assets 5 14,75,000
Total 29,99,375
Notes to Accounts
GMTESTSERIES.COM®
1. Reserves and Surplus
Reserves 5,00,000
Add: 4/5th share of Gamma Ltd.’s post- acquisition 1,00,000 6,00,000
reserves (W.N.3)
Profit and Loss Account 2,50,00
Add: 4/5th share of Gamma Ltd.’s post-acquisition 11,500 2,61,500
profits (W.N.4) 8,61,500
2. Trade Payables
Beta Ltd. 3,75,000
Gamma Ltd. 1,42,500 5,17,500
3. Property, Plant and Equipment
Machinery 7,50,000
Beta Ltd.
Gamma Ltd. 2,50,000
Add: Appreciation 1,25,000
3,75,000
Less: Depreciation (37,500) 3,37,500
Furniture
Beta Ltd. 3,75,000
Gamma Ltd. 50,000
Less: Decrease in value (12,500)
37,500
Less: Depreciation (5,625) 31,875 14,94,37
4. Intangible assets
Goodwill [WN 6] 30,000
5. Other non-current assets
Beta Ltd. 11,00,000
Gamma Ltd. 3,75,000 14,75,00
GMTESTSERIES.COM®
Working Notes:
1. Pre-acquisition profits and reserves of Gamma Ltd. Rs.
Reserves 62,500
Profit and Loss Account 37,500
1,00,000
Beta Ltd.’s = 4/5 x 1,00,000 80,000
Minority Interest = 1/5 x 1,00,000 20,000 20,000
2. Profit on revaluation of assets of Gamma Ltd.
Profit on Machinery Rs. (3,75,000 – 2,50,000) 1,25,000
Less: Loss on Furniture Rs. (50,000 – 37,500) 12,500
Net Profit on revaluation 1,12,500
Beta Ltd.’s share 4/5 x 1,12,500 90,000
Minority Interest 1/5 x 1,12,500 22,500
3. Post-acquisition reserves of Gamma Ltd.
Post-acquisition reserves (Total reserves less pre-acquisition reserves 1,25,000
= Rs. 1,87,500 – 62,500)
Beta Ltd.’s share 4/5 x 1,25,000 1,00,000
Minority interest 1/5 x 25,000 25,000
4. Post-acquisition profit of Gamma Ltd.
Post-acquisition profits (Profit & loss account balance less pre- 25,000
acquisition profits = Rs. 62,500 – 37,500)
Add: Excess depreciation charged on furniture @ 15% on Rs. 12,500 1,875
i.e. (50,000 – 37,500) 26,875
Less: Under depreciation on machinery @ 10% on Rs. 1,25,000 i.e. (12,500)
(3,75,000 –2,50,000)
Adjusted post-acquisition profits 14,375
Beta Ltd.’s share 4/5 x 14,375
11,500
Minority Interest 1/5 x 14,375
2,875
5. Minority Interest
GMTESTSERIES.COM®
Paid-up value of (2,500 – 2,000) = 500 shares held by outsiders i.e. 50,000
500 x Rs. 100
Add: 1/5th share of pre-acquisition profits and reserves 20,000
1/5th share of profit on revaluation 22,500
1/5th share of post-acquisition reserves 25,000
1/5th share of post-acquisition profit 2,875
1,20,375
6. Cost of Control or Goodwill
Paid-up value of 2,000 shares held by Beta Ltd. i.e. 2,000 x Rs. 100 2,00,000
Add: 4/5th share of pre-acquisition profits and reserves 80,000
4/5th share of profit of the revaluation 90,000
Intrinsic value of shares on the date of acquisition 3,70,000
Price paid by Beta Ltd. for 2,000 shares 4,00,000
Less: Intrinsic value of the shares) (3,70,000
Cost of control or Goodwill 30,000
A-28 AS 4 (Revised) defines "Events Occurring after the Balance Sheet Date" as those significant
events, both favourable and unfavorable, that occur between the balance sheet date and the
date on which the financial statements are approved by the Approving Authority in the case of
a company. Accordingly, the acquisition of another company is an event occurring after the
balance sheet date. However, no adjustment to assets and liabilities is required as the event
does not affect the determination and the condition of the amounts stated in the financial
statements for the year ended 31st March, 20X1. The disclosure should be made in the report
of the approving authority of those events occurring after the balance sheet date that
represent material changes and commitments affecting the financial position of the enterprise,
the investment of Rs. 100 lakhs in April, 20X1 for the acquisition of another company should be
disclosed in the report of the Approving Authority to enable users of financial statements to
make proper evaluations and decisions.
GMTESTSERIES.COM®
A-29 (i) Non-adjusting event: Suit filed against the company is a contingent liability but it was
not existing as on date of balance sheet date as the suit was filed on 20th April after the
balance sheet date. As per AS 4, 'Contingencies' is restricted to conditions or situations at the
balance sheet date, the financial effect of which is to be determined by future events which
may or may not occur. Hence, it will have no effect on financial statement and will be a non-
adjusting event.
(ii) Adjusting event: In the given case, terms and conditions for acquisition of business were
finalized before the balance sheet date and carried out before the closure of the books of
accounts but transaction for payment of financial resources was effected in April, 2020. Hence,
necessary adjustment to assets and liabilities for acquisition of business is necessary in the
financial statements for the year ended 31st March 2020.
(iii) Non-adjusting event: Only those events which occur between the balance sheet date and
the date on which the financial statements are approved, may indicate the need for
adjustments to assets and liabilities as at the balance sheet date or may require disclosure. In
the given case, as the theft of cash was detected on 16th July, 2020 ie after approval of financial
statements, no adjustment is required.
(iv) Non-adjusting event: Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate to conditions existing at the
balance sheet date. In the given case, sale of immovable property was under proposal stage
(negotiations only started) on the balance sheet date, and was not finalized. Therefore,
adjustment to assets for sale of immovable property is not necessary in the financial
statements for the year ended 31st March, 2020. Disclosure may be given in Report of
approving Authority.
(v) Non-adjusting event: Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate to conditions existing at the
balance sheet date. The condition of fire occurrence was not existing on the balance sheet date.
GMTESTSERIES.COM®
Only the disclosure regarding fire and loss, being completely insured may be given in the report
of approving authority.
A-30 As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies” Extraordinary items should be disclosed in the statement of profit and loss
as a part of net profit or loss for the period. The nature and the amount of each extraordinary
item should be separately disclosed in the statement of profit and loss in a manner that its
impact on current profit or loss can be perceived.
In the given case the selling of land to tide over liquidation problems as well as fire in the
factory does not constitute ordinary activities of the Company. These items are distinct from
the ordinary activities of the business. Both the events are material in nature and expected not
to recur frequently or regularly. Thus, these are Extraordinary Items.
Therefore, in the given case, disclosing net profits by setting off fire losses against profit from
sale of land is not correct. The profit on sale of land, and loss due to fire should be disclosed
separately in the statement of profit and loss.
A-31 The final bill having been paid in February, 20X8 should have been accounted for in the
annual accounts of the company for the year ended 31st March, 20X8. However, it seems that
as a result of error or omission in the preparation of the financial statements of prior period
i.e., for the year ended 31st March 20X8, this material charge has arisen in the current period
i.e., year ended 31st March, 20X9. Therefore it should be treated as 'Prior period item' as per
AS 5. As per AS 5, prior period items are normally included in the determination of net profit or
loss for the current period. An alternative approach is to show such items in the statement of
Profit and loss after determination of current net profit or loss. In either case, the objective is to
indicate the effect of such items on the current profit or loss.
It may be mentioned that it is an expense arising from the ordinary course of business.
Although abnormal in amount or infrequent in occurrence, such an expense does not qualify an
extraordinary item as per AS 5. For better understanding, the fact that power bill is accounted
GMTESTSERIES.COM®
for at provisional rates billed by the state electricity board and final adjustment thereof is made
as and when final bill is received may be mentioned as an accounting policy.
A-32
Amount
Cost incurred till 31st March, 20X2 Prudent estimate of additional cost for 64,99,000
completion 32,01,000
Total cost of construction 97,00,000
Less: Contract price (85,00,000)
Total foreseeable loss 12,00,000
According to AS 7, the amount of Rs. 12, 00,000 is required to be recognised as an expense.

64,99,000 × 100
Contract work in progress = = 67%
97,00,000
Proportion of total contract value recognised as turnover:
= 67% of Rs. 85, 00,000 = Rs.56, 95,000
A-33
Calculation of foreseeable loss for the year ended 31st March, 2021
(as per AS 7 “Construction Contracts”)
Amount
Cost incurred till 31st March, 2021 83.99
Prudent estimate of additional cost for completion 36.01
Total cost of construction 120.00
Less: Contract price) (180.00)
Foreseeable loss 12.00
According to AS 7 (Revised 2002) “Construction Contracts”, when it is probable that total

contract costs will exceed total contract revenue; the expected loss should be recognized as an
GMTESTSERIES.COM®
expense immediately. Therefore, amount of Rs.12 lakhs is required to be provided for in the
books of Sampath Construction Ltd. for the year ended 31st March, 2021.
A-34 (i) Revenue from sales where the purchaser makes a series of instalment payments to the
seller and the seller delivers the goods only when the final payment is received, should not be
recognised until goods are delivered. However, when experience indicates that most such sales
have been consummated, revenue may be recognised when a significant is received.
(ii) For sale where seller concurrently agrees to repurchase the same goods at a later date, such
transactions are in substance a financing agreement. In such a situation, the resulting cash
inflow should not be recognised as revenue.
(iii) Revenue from sales of goods to distributors, dealers or others for resale can generally be
recognised if significant risks of ownership have passed. However, in some situations the buyer
may in substance be an agent and in such cases the sale should be treated as a consignment
sale.
(iv) Commissions on service rendered as agent on insurance business should be recognised as
revenue when the service is completed. Insurance agency commissions should be recognised
on the effective commencement or renewal dates of the related policies
A-35 As per AS 9 on Revenue Recognition, revenue arising from the use by others of enterprise
resources yielding interest and royalties should only be recognized when no significant
uncertainty as to measurability or collectability exists. These revenues are recognized on the
following bases:
(i) Interest: on a time proportion basis taking into account the amount outstanding and the rate
applicable. Therefore X Ltd. should recognize interest revenue of Rs. 10 Lakhs
GMTESTSERIES.COM®
(ii) Royalties: on an accrual basis in accordance with the terms of the relevant agreement. X Ltd.
therefore should recognize royalty revenue of Rs. 15 Lakhs.
A-36 As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be

identified as a reportable segment if:
Its revenue from sales to external customers and from other transactions with other segments
is 10% or more of the total revenue-external and internal of all segments; or
Its segment results whether profit or loss is 10% or more of:
The combined result of all segments in profit; or
The combined result of all segments in loss,
Whichever is greater in absolute amount; or
Its segment assets are 10% or more of the total assets of all segments.
If the total external revenue attributable to reportable segments constitutes less than 75% of
total enterprise revenue, additional segments should be identified as reportable segments even
if they do not meet the 10% thresholds until at least 75% of total enterprise revenue is included
in reportable segments.
On the basis of turnover criteria segments M and N are reportable segments.
On the basis of the result criteria, segments M, N and R are reportable segments (since their
result in absolute amount is 10% or more of Rs. 200 lakhs).
On the basis of assets criteria, all segments except R are reportable segments.
Since all the segments are covered in at least one of the above criteria all segments have to be
reported upon in accordance with Accounting Standard (AS) 17. Hence, the opinion of chief
accountant is wrong.
GMTESTSERIES.COM®
A-37 AS 17 ‘Segment Reporting’ requires that inter-segment transfers should be measured on
the basis that the enterprise actually used to price these transfers. The basis of pricing inter-
segment transfers and any change therein should be disclosed in the financial statements.
Hence, the enterprise can have its own policy for pricing inter-segment transfers and hence,
inter-segment transfers may be based on cost, below cost or market price. However, whichever
policy is followed, the same should be disclosed and applied consistently. Therefore, in the
given case inter-segment transfer pricing policy adopted by the company is correct if, followed
consistently.
A-38 The supplier and the company cannot be considered to be related parties merely because
the latter is able to influence the transaction price between the parties. Paragraph 3 of AS 18
states that “enterprises that directly, or indirectly through one or more intermediaries, control,
or are controlled by, or are under common control with, the reporting enterprise” are
considered to be related party relationships.
However, the conditions which define the existence of control, as follows, are not satisfied in
the given example.
• ‘Ownership, directly or indirectly, of more than one-half of the voting power of an enterprise,
or
• Control of the composition of the board of directors in the case of a company or of the
composition of the corresponding governing body in case of any other enterprise, or
• A substantial interest in voting power and the power to direct, by statue or agreement, the
financial and/or operating policies of the enterprise”.
Paragraph 10 of the standard defines significant influence as “participation in the financial
and/or operating policy decisions of an enterprise, but not control of those policies”. In the
given example, although the supplier and the company have entered into a commercial
transaction, the terms of which are influenced by the latter because of its better bargaining
power in the specific market for such goods, it cannot be concluded that there is participation
in the financial and/or operating policy decisions.
GMTESTSERIES.COM®
Therefore, as the conditions specified by the Standard for being classified as a related party are
not satisfied in the given example, the company cannot be said to be related to the supplier.
This view is supported by paragraph 4 (b) of the Standard which states that “a single customer,
supplier, franchiser, distributor, or general agent with whom an enterprise transacts a
significant volume of business merely by virtue of the resulting economic dependence” would
not be deemed to be related parties.
A-39 As per AS 19 on Leases, unearned finance income is the difference between (a) the gross
investment in the lease and (b) the present value of minimum lease payments under a finance
lease from the standpoint of the lessor; and any unguaranteed residual value accruing to the
lessor, at the interest rate implicit in the lease.
Where:
(a) Gross investment in the lease is the aggregate of (i) minimum lease payments from the
stand point of the lessor and (ii) any unguaranteed residual value accruing to the lessor.
Gross investment = Minimum lease payments + Unguaranteed residual value = [Total lease rent
+ Guaranteed residual value (GRV)] + Unguaranteed residual value (URV)
= [Rs. 8, 00,000 × 5 years) + Rs. 1, 60,000] + Rs. 1, 40,000 = Rs. 43, 00,000 (a)
(b) Table showing present value of (i) Minimum lease payments (MLP) and (ii) Unguaranteed
residual value (URV).
Year MLP inclusive of URV Internal rate of return Present Value
(Discount factor @ 15%)
1 8,00,000 0.8696 6,95,680
2 8,00,000 0.7561 6,04,880
3 8,00,000 0.6575 5,26,000
4 8,00,000 0.5718 4,57,440
5 8,00,000 0.4972 3,97,760
1,60,000 (GRV) 0.4972 79,552
41,60,000 27,61,312 (i)
GMTESTSERIES.COM®
1,40,000 (URV) 0.4972 69,608 (ii)
43,00,000 (i) + (ii) 28,30,920 (b)
Unearned Finance Income (a) – (b) = Rs. 43, 00,000 – Rs. 28, 30,920 = Rs. 14, 69, 080.
A-40 Following will be the treatment in the given cases:

(a) When sales price of Rs. 50 lakhs is equal to fair value, A Ltd. should immediately recognise
the profit of Rs. 10 lakhs (i.e. 50 – 40) in its books.
(b) When fair value is Rs. 60 lakhs then also profit of Rs. 10 lakhs should be immediately
recognised by A Ltd.
(c) When fair value of leased machinery is Rs. 45 lakhs & sales price is Rs. 38 lakhs, then loss of
Rs. 2 lakhs (40 – 38) to be immediately recognised by A Ltd. in its books provided loss is not
compensated by future lease payment.
(d) When fair value is Rs. 40 lakhs & sales price is Rs. 50 lakhs then, profit of Rs. 10 lakhs is to be
deferred and amortised over the lease period.
(e) When fair value is Rs. 46 lakhs & sales price is Rs. 50 lakhs, profit of Rs. 6 lakhs (46 - 40) to be
immediately recognised in its books and balance profit of Rs. 4 lakhs (50-46) is to be
amortised/deferred over lease period.
(f) When fair value is Rs. 35 lakhs & sales price is Rs. 39 lakhs, then the loss of Rs. 5 lakhs (40 –
35) to be immediately recognised by A Ltd. in its books and profit of Rs. 4 lakhs (39 – 35) should
be amortised/ deferred over lease period.
A-41
Fair value of shares immediately prior to exercise of rights + Total amount received from exercise
Number of shares outstanding prior to exercise + Number of shares issued in the exercise
GMTESTSERIES.COM®
(21.00 x 5,00,000 shaes) + (Rs. 15.00 x 1,00,000 Shares)
5,00,000 Shares + 1,00,000 Shares
Theoretical ex-rights fair value per share = Rs. 20.00
Computation of adjustment factor:
Fair value per share prior to exercise of rights 21.00
= 1.05
Theoretical ex − rights vlaue per share 20.00
Computation of earnings per share:
EPS for the year 20X1 as originally reported: Rs. 11, 00,000/5, 00,000 shares = Rs. 2.20
EPS for the year 20X1 restated for rights issue: Rs. 11, 00,000/ (5, 00,000 shares x 1.05) = Rs.
2.10
EPS for the year 20X2 including effects of rights issue:
(5, 00,000 x 1.05 x 2/12) + (6, 00,000 x 10/12) = 5, 87,500 shares
EPS = 15, 00,000/5, 87,500 = Rs. 2.55
A-42 The current method of calculating Diluted EPS adopted by AB limited is not in accordance
with AS 20. The calculation of Diluted EPS should include all potential equity shares, i.e., all the
stock options granted at the balance sheet date, which are dilutive in nature, irrespective of the
vesting pattern. The options that have lapsed during the year should be included for the portion
of the period the same were outstanding, pursuant to the requirement of the standard.
AS 20 states that “A potential equity share is a financial instrument or other contract that
entitles, or may entitle, its holder to equity shares”. Options including employee stock option
plans under which employees of an enterprise are entitled to receive equity shares as part of
their remuneration and other similar plans are examples of potential equity shares. Further, for
the purpose of calculating diluted earnings per share, the net profit or loss for the period
attributable to equity shareholders and the weighted average number of shares outstanding
during the period should be adjusted for the effects of all dilutive potential equity shares.
GMTESTSERIES.COM®
A-43
Table showing calculation of deferred tax assets/ liability
Particulars Amount Timing Deferred Amount @
differences tax 50%
Excess depreciation as per tax 3,00,000 Timing Deferred 1,50,000
records (Rs. 5,00,000 – Rs. tax liability
2,00,000)
Unamortized preliminary 30,000 Timing Deferred tax (15,000)
expenses as per tax records asset
Net deferred tax liability 1,35,000
A-44 Accounting income (loss) is the net profit or loss for a period, as reported in the
statement of profit and loss, before deducting income-tax expense or adding income tax saving.
Taxable income (tax loss) is the amount of the income (loss) for a period, determined in
accordance with the tax laws, based upon which income-tax payable (recoverable) is
determined.
Taxable expenses is the aggregate of current tax and deferred tax charged or credited to the
statement of profit and loss for the period.
A-45 Tax as per accounting profit 6, 00, 000 x 20% = Rs. 1, 20,000
Tax as per Income-tax Profit 60,000 x 20% = Rs. 12,000
Tax as per MAT 3, 50,000 x 7.50% = Rs. 26,250
Tax expense = Current Tax + deferred Tax
Rs. 1, 20,000 = Rs. 12,000 + Deferred Tax
GMTESTSERIES.COM®
Therefore, Deferred Tax liability as on 31-03-20X1
= Rs. 1, 20,000 - Rs. 12,000 = Rs. 1, 08,000
Amount of tax to be debited in Profit and Loss account for the year 31-03-20X!
Current Tax + Deferred Tax Liability + Excess of MAT over current tax
= Rs. 12,000 + Rs. 1, 08,000 + Rs. 14,250 (26,250 – 12,000)
= Rs. 1, 34,250
A-46 (i) An enterprise should include the following information relating to a discontinuing
operation in its financial statements beginning with the financial statements for the period in
which the initial disclosure event occurs:
(a) A description of the discontinuing operation(s);
(b) The business or geographical segment(s) in which it is reported as per AS 17 ‘Segment
Reporting’;
(c) The date and nature of the initial disclosure event;
(d) The date or period in which the discontinuance is expected to be completed if known or
determinable;
(e) The carrying amounts, as of the balance sheet date, of the total assets to be disposed of and
the total liabilities to be settled;
(f) The amounts of revenue and expenses in respect of the ordinary activities attributable to the
discontinuing operation during the current financial reporting period;
(g) the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing
operation during the current financial reporting period, and the income tax expense related
thereto; and
(h) The amounts of net cash flows attributable to the operating, investing, and financing
activities of the discontinuing operation during the current financial reporting period.
(ii) Para 3 of AS 24 “Discontinuing Operations” explains the criteria for determination of
discontinuing operations. According to AS 24, examples of activities that do not necessarily
GMTESTSERIES.COM®
satisfy criterion (a) of paragraph 3, but that might do so in combination with other
circumstances, include:
(i) Gradual or evolutionary phasing out of a product line or class of service;
(ii) Discontinuing, even if relatively abruptly, several products within an ongoing line of
business;
(iii) Shifting of some production or marketing activities for a particular line of business from one
location to another; and
(iv) Closing of a facility to achieve productivity improvements or other cost savings.
An example in relation to consolidated financial statements is selling a subsidiary whose
activities are similar to those of the parent or other subsidiaries
A-47 AS 26 ‘Intangible Assets” provides that an intangible asset should be measured initially at
cost. After initial recognition, an intangible asset should be carried at cost less any accumulated
amortization and any accumulated impairment losses. The amount of an intangible asset
should be allocated on a systematic basis over the best estimate of its useful life for computing
amortization. There is a rebuttable presumption that the useful life of an intangible asset will
not exceed 10 years from the date when the asset is available for use. It must be ensured that
the value of brand is amortized in accordance with AS 26, as brand is considered to be
intangible asset. The contention of PQR Ltd. that Brand is very popular and famous, hence no
amortization needs to be provided is not correct as there is no persuasive evidence that the
useful life of the intangible asset will exceed 10 years.
A-48 In the given case, the company spent Rs. 45 lakhs for publicity and research of a new
product which was marketed but proved to be a failure. It is clear that in future there will be no
related further revenue/benefit because of the failure of the product. Thus, according to AS 26
GMTESTSERIES.COM®
‘Intangible Assets’, the company should charge the total amount of Rs. 45 lakhs as an expense
in the profit and loss account.
A-49 Principles for recognition of provisions: As per AS 29, “a provision shall be recognized
when:
(i) An entity has a present obligation (legal or constructive) as a result of a past event;
(ii) It is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; and
(iii) A reliable estimate can be made of the amount of the obligation. If these conditions are not
met, no provision shall be recognized.”
Accounting treatment under the given scenarios:
(i) On 31st March, 2020, since it is evident to the lawyer that Chaos Limited may lose the case
and also a reliable estimate of the outflow can be made as Rs. 3, 00,000, there is a present
obligation. Hence, provision should be recognized for Rs. 3, 00,000 for the amount which may
be required to settle the obligation.
(ii) Under new regulation, an entity is required to upgrade its facilities by 31st March, 2021.
However, on 31st March, 2020, i.e. at the end of the reporting period, there is no obligation
because there is no obligating event either for the costs of upgrading the facilities or for fines
under the regulations. Hence, no provision should be recognized on 31st March, 2020 for
upgrading the facilities by 31st March, 2021.
(iii) The obligating event is the sale of health care equipment with a warranty, which gives rise
to a legal obligation. Here, an outflow of resources embodying economic benefits in settlement
is probable for the warranties as a whole. Hence, a provision is recognized for the best estimate
of the costs of making good under the warranty products sold before the end of the reporting
period as follows:
Probability of warranty cases for the entity where repair/replacement may be required as per
past experience = 1% of Rs. 5, 00, 00,000 = Rs. 5, 00,000
Estimated cost of repair / replacement = Rs. 5, 00,000 x 10% = Rs. 50,000.
GMTESTSERIES.COM®
A-50
(i) Since the company is not appealing against the addition of Rs. 0.66 crore the same
should be provided for in its accounts for the year ended on 31st March, 20X4. The
amount paid under protest can be kept under the heading ‘Loans & Advances’ and also
disclosed as a contingent liability of Rs. 2.10 crore.
(ii) The arrears for the period from June, 20X1 to March, 20X2 are required to be provided
for in the accounts of the company for the year ended on 31st March, 20X2.
GMTESTSERIES.COM®

5. Adv. Acc. Top 50 Ques.

Uploaded by

Copyright:

Available Formats

5. Adv. Acc. Top 50 Ques.

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

5. Adv. Acc. Top 50 Ques.

Uploaded by

Copyright:

Available Formats

CA INTER- ADVANCE ACCOUNTING

Contact – 9070800090 info@gmtestseries.com

Q-6 Define the following terms:

Q-15 Z Limited provides the following information as on 31st March, 2021:

Note: Preference dividend is in arrears for last 2 years.

Q-20 Statement of interest on advances in respect of Performing assets and Non-Performing

Q-22 Calculate ‘Owned Fund’ of an NBFC based on the following information:

Q-33 On 1st December, 2020, “Sampath” Construction Limited undertook a contract to

Q-43 Rama Ltd. has provided the following information:

Q-44 Define following as per AS 22:

A-1 Nature of Limited Liability Partnership:

Partners’ Capital Accounts

Balance Sheet of Complicated Ltd. as at 1st April, 2021

Journal Entries in the books of Yes Ltd.

A-13 Methods of Internal reconstruction:

A-18 Amount receivable from/returnable to Equity Shareholders

Profit and Loss Account (an extract)

Note: The overdrawn extent in Current Accounts will be shown as Overdrafts.

A-22 Owned fund calculation:

A-23 Statement showing classification as per Non-Banking Financial Company – Systemically

According to AS 7, the amount of Rs. 12, 00,000 is required to be recognised as an expense.

According to AS 7 (Revised 2002) “Construction Contracts”, when it is probable that total

A-36 As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be

A-40 Following will be the treatment in the given cases:

You might also like