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Past papers/ Adv Accounting/ July 2021
Paper 2 Qs
Mock Test Paper (MTP) · July 2021

CA Inter Adv Accounting

This page contains all 2 questions from the CA Inter Advanced Accounting Mock Test Paper (MTP) for the July 2021 attempt cycle, sourced from VSI Jaipur.

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Q.6(b) - Alternative 05 marks medium Bonus share issuance ⚡ Try this Q →
Following items appear in the Trial Balance of Hello Ltd. as on 31st March, 2020: 9,000 Equity Shares of Rs. 100 each Rs. 9,00,000; Securities Premium Rs. 80,000; Capital Redemption Reserve Rs. 1,40,000; General Reserve Rs. 2,10,000; Profit and Loss Account (Cr. Balance) Rs. 90,000. The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares held. Company decided that there should be the minimum reduction in free reserves. You are required to give the necessary Journal Entries in the books of Hello Ltd.
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Worked Solution

✓ Verified

Calculation of Bonus Shares:
Hello Ltd. has 9,000 equity shares outstanding. Bonus ratio is 1:3, so bonus shares = 9,000 ÷ 3 = 3,000 shares. Total amount to be capitalised = 3,000 × ₹100 = ₹3,00,000.

Sources for Bonus Issue (Minimum Reduction in Free Reserves):
Under Section 63 of the Companies Act, 2013, bonus shares may be issued from free reserves, Securities Premium Account, or Capital Redemption Reserve. Free reserves here are General Reserve (₹2,10,000) and Profit & Loss Account (₹90,000). Since the company desires minimum reduction in free reserves, Securities Premium and Capital Redemption Reserve (which are not free reserves) must be utilised first before touching free reserves.

Order of utilisation:
1. Securities Premium A/c: ₹80,000
2. Capital Redemption Reserve A/c: ₹1,40,000
3. General Reserve A/c (balance, from free reserves): ₹80,000
Total: ₹3,00,000

This uses only ₹80,000 from free reserves, which is the minimum possible.

Journal Entries in the books of Hello Ltd.

Entry 1 — On capitalisation of reserves for bonus issue:
Securities Premium A/c Dr. ₹80,000
Capital Redemption Reserve A/c Dr. ₹1,40,000
General Reserve A/c Dr. ₹80,000
To Bonus to Shareholders A/c ₹3,00,000
(Being reserves capitalised for issue of 3,000 bonus shares of ₹100 each)

Entry 2 — On allotment of bonus shares:
Bonus to Shareholders A/c Dr. ₹3,00,000
To Equity Share Capital A/c ₹3,00,000
(Being 3,000 fully paid bonus shares of ₹100 each allotted to existing equity shareholders in ratio 1:3)

After the bonus issue, the paid-up share capital becomes ₹12,00,000 (12,000 shares × ₹100).

Section 63 of the Companies Act 2013
PLAN

Write it like this

Time target 9 min

1The skeleton

- Lead with the bonus share calculation — write '9,000 ÷ 3 = 3,000 shares × ₹100 = ₹3,00,000 to be capitalised' in 2 lines before touching any journal entry, because the examiner needs to see your working to award the calculation mark separately.
- Explicitly invoke Section 63 of the Companies Act, 2013 when listing the permitted sources — one line is enough, but skipping the section reference costs you a presentation mark even if every rupee figure is correct.
- Spell out the utilisation order with ₹ figures — show Securities Premium ₹80,000 → CRR ₹1,40,000 → General Reserve ₹80,000 in a numbered list before the entries, so the examiner can see your 'minimum free reserves' logic without hunting for it inside the narrations.
- Write two separate journal entries, never collapse them into one — Entry 1 is the capitalisation (Dr. all reserve accounts, Cr. Bonus to Shareholders A/c) and Entry 2 is the allotment (Dr. Bonus to Shareholders A/c, Cr. Equity Share Capital A/c); merging them drops the intermediary account and loses a mark.
- Narration must mention quantity, face value, and ratio — write '3,000 fully paid bonus shares of ₹100 each allotted in ratio 1:3' not just 'bonus shares allotted', because ICAI's suggested answers always include all three details in the narration.

2Examiner-rewarded phrases

“Being reserves capitalised for issue of 3,000 bonus shares of ₹100 each”“minimum reduction in free reserves”“fully paid bonus shares allotted to existing equity shareholders in the ratio of 1:3”

3Common trap

Don't fall for this

The most dangerous move here is draining General Reserve first because it's the biggest pot — flips the entire 'minimum reduction in free reserves' logic and you'll lose the logic mark plus possibly the entries mark even if your total is ₹3,00,000. Always exhaust Securities Premium and CRR before touching any free reserve.

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Q.6(e) 05 marks medium Hire purchase accounting, Interest calculation ⚡ Try this Q →
M/s. Kodam Enterprises purchased a generator on hire purchase from M/s. Sanctum Ltd. on 1st April, 2019. The hire purchase price was Rs. 48,000. Down payment was Rs. 12,000 and the balance is payable in 3 annual instalments of Rs. 12,000 each payable at the end of each financial year. Interest is payable @ 8% p.a. and is included in the annual payment of Rs. 12,000. Depreciation at 10% p.a. is to be written off using the straight line method. You are required to calculate the cash price of the generator and the interest paid on each instalment.
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Worked Solution

✓ Verified

Step 1 – Find the Cash Price

The cash price of an asset purchased on hire purchase equals the down payment plus the present value of all future instalments discounted at the contractual interest rate.

Cash Price = Down Payment + Σ [Instalment ÷ (1 + r)^t]

= Rs. 12,000 + Rs. 12,000/1.08 + Rs. 12,000/(1.08)² + Rs. 12,000/(1.08)³

= Rs. 12,000 + Rs. 11,111 + Rs. 10,288 + Rs. 9,526

Cash Price = Rs. 42,925 (rounded to nearest rupee)

Total interest charged = HP Price − Cash Price = Rs. 48,000 − Rs. 42,925 = Rs. 5,075

Step 2 – Interest on Each Instalment (8% p.a. on Reducing Cash Price Balance)

Outstanding cash price balance after down payment = Rs. 42,925 − Rs. 12,000 = Rs. 30,925

Year 1 (ending 31st March 2020):
Interest = 8% × Rs. 30,925 = Rs. 2,474
Principal repaid = Rs. 12,000 − Rs. 2,474 = Rs. 9,526

Year 2 (ending 31st March 2021):
Opening balance = Rs. 30,925 − Rs. 9,526 = Rs. 21,399
Interest = 8% × Rs. 21,399 = Rs. 1,712
Principal repaid = Rs. 12,000 − Rs. 1,712 = Rs. 10,288

Year 3 (ending 31st March 2022):
Opening balance = Rs. 21,399 − Rs. 10,288 = Rs. 11,111
Interest = 8% × Rs. 11,111 = Rs. 889
Principal repaid = Rs. 12,000 − Rs. 889 = Rs. 11,111; Balance = Nil ✓

Verification: Total interest = Rs. 2,474 + Rs. 1,712 + Rs. 889 = Rs. 5,075; Cash Price + Total Interest = Rs. 42,925 + Rs. 5,075 = Rs. 48,000 (HP Price) ✓

PLAN

Write it like this

Time target 9 min

1The skeleton

- Start with the Cash Price formula and label it — write 'Cash Price = Down Payment + PV of instalments' before plugging numbers; examiners award a formula mark separately from calculation marks.
- Show the PV working year-by-year in a column — don't collapse it into one line; each discounted instalment on its own row signals you know the concept AND earns step marks if your final figure is off.
- State the opening balance explicitly before each year's interest — write 'Outstanding balance = Rs. X' at the top of each year block; this is the pivot the examiner checks first.
- Split each instalment into interest + principal in a mini table — three rows (Year 1/2/3), three columns (Opening balance, Interest @8%, Principal); this format mirrors ICAI suggested answers and is faster to mark.
- Close with a verification line — 'Total Interest Rs. 5,075 + Cash Price Rs. 42,925 = HP Price Rs. 48,000 ✓'; a single tick-line takes 10 seconds and signals examiner-level rigour, often the difference between 4/5 and 5/5.

2Examiner-rewarded phrases

“Cash price of the asset = Down payment + Present value of future instalments discounted at the contractual rate of interest”“Interest for the year = Rate of interest × Outstanding cash price at the beginning of the year”“Principal repaid = Instalment − Interest; Balance outstanding carried forward”

3Common trap

Don't fall for this

Most students reverse the logic — they apply 8% on the hire purchase price (Rs. 48,000) or on the total balance outstanding (Rs. 36,000) instead of the cash price balance (Rs. 30,925). The moment you use the HP price as the base, every single interest figure is wrong and you lose 3–4 marks in one shot.

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