✅ 1 of 20 questions have AI-generated solutions with bare-Act citations.
Q1(a)Exchange difference on foreign currency loan, depreciation c
5 marks medium
Om Ltd. purchased an item of property, plant and equipment for US $ 50 lakh on 01.04.2019 and the same was fully financed by the foreign currency loan [US $] repayable in five equal instalments annually. (Exchange rate at the time of purchase was 1 US $ = ` 60). As on 31.03.2020 the first instalment was paid when 1 US $ fetched ` 62.00. The entire loss on exchange was included in cost of goods sold. Om Ltd. normally provides depreciation on an item of property, plant and equipment at 20% on WDV basis and exercised the option to adjust the cost of asset for exchange difference arising out of loan restatement and payment. Calculate the amount of exchange loss, its treatment and depreciation on this item of property, plant and equipment.
Q1(b)Government grant refund accounting under AS 12
5 marks medium
On 01.04.2017, XYZ Ltd. received Government grant of ` 100 Lakhs for an acquisition of new machinery costing ` 500 lakhs. The grant was received and credited to the cost of the assets. The life span of the machinery is 5 years. The machinery is depreciated at 20% on WDV method. The company had to refund the entire grant in 2nd April, 2020 due to non-fulfilment of certain conditions which was imposed by the government at the time of approval of grant. How do you deal with the refund of grant to the Government in the books of XYZ Ltd. as per AS 12?
Q1(c)(i)Insurance claim, replacement of PPE under AS 10
0 marks easy
Entity A carried plant and machinery in its books at ` 2,00,000 which were destroyed in a fire. These machines were insured 'New for old' and were replaced by the insurance company with new machines of fair value ` 20,00,000. The old destroyed machines were acquired by the insurance company and the company did not receive any cash compensation. State, how Entity A should account for the same?
Q1(c)(ii)Capitalization of remodelling costs under AS 10
0 marks easy
Omega Ltd, a supermarket chain, is renovating one of its major stores. The store will have more available space for store promotion outlets after the renovation and will include a restaurant. Management is preparing the budgets for the year after the store reopens, which include the cost of remodelling and the expectation of a 15% increase in sales resulting from the store renovations, which will attract new customers. Decide whether Omega Ltd. can capitalize the remodelling cost or not as per provisions of AS 10 "Property plant & Equipment".
Q1(d)Cash and cash equivalent definition and calculation under AS
5 marks medium
What do you mean by the term 'cash and cash equivalent' as per AS 3?
Q2(a)Financial statement preparation under Schedule III
16 marks very hard
Shree Ltd. has authorized capital of ` 50 lakhs divided into 5,00,000 equity shares of ` 10 each. Their books show various balances including inventory, purchases, sales, payables, receivables, and fixed assets. You are required to prepare Statement of Profit & Loss for the year ended 31st March, 2020 and Balance Sheet as on that date in line with Schedule III to the Companies Act, 2013 after considering adjustments for closing inventory, outstanding liabilities, depreciation, doubtful debts, and income tax provision.
Q2(b)Loan classification as current vs non-current liability
4 marks medium
Medha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.2020 of ` 1,00,000. Determine how the loan will be classified in preparation of Financial Statements of Medha Ltd. for the year ended 31st March, 2020 according to Schedule III.
Q3(a)(i)Investment account with bonus shares, dividend, and rights i
8 marks hard
Mr. Vijay entered into the following transactions of purchase and sale of equity shares of JP Power Ltd. (paid up value ` 10 per share): Purchases on 01.01.2019 (600 shares @ ` 20), 15.03.2019 (900 shares @ ` 25), 20.05.2019 (1000 shares @ ` 23); Bonus shares received 25.07.2019 (2500 shares); Sales on 20.12.2019 (1500 shares @ ` 22) and 01.02.2020 (1000 shares @ ` 24); Dividend received 15.09.2019 (` 3 per share); Right issue 12.11.2019 (1:5 ratio @ ` 20 per share, subscribed 60%, renounced remainder @ ` 3 per share). Shares valued on weighted average cost basis. You are required to prepare Investment Account for the year ended 31.03.2019 and 31.03.2020.
Q3(a)(ii)Long-term investment valuation and diminution provision unde
4 marks medium
Whether the accounting treatment 'at cost' under the head 'Long Term Investments' without providing for any diminution in value is correct and in accordance with the provisions of AS 13. If not, what should have been the accounting treatment in such a situation? What methodology should be adopted for ascertaining the provision for diminution in the value of investment, if any. Explain in brief.
Q3(b)Insurance claim calculation for stock loss
8 marks hard
A fire occurred in the premises of M/s. Fireproof on 31st August, 2020. From the particulars relating to 1st April, 2020 to 31st August, 2020, ascertain the amount of claim to be filed with the insurance company for the loss of stock. Insurance policy for ` 60,000 subject to average clause. Opening stock at 31-03-2020: ` 99,000; Purchases: ` 1,70,000; Wages: ` 50,000 (including machine installation ` 3,000); Sales: ` 2,42,000; Partner drawings: ` 15,000; Consignment sent 16.08.2020 (cost ` 16,500); Free samples distributed: ` 1,500. Previous write-off of slow-moving item: ` 1,000 (original cost ` 5,000); Portion sold at loss of ` 500 (original cost ` 2,500); Remainder at original cost. Salvaged goods value: ` 20,000. Gross profit rate: 20% on sales.
Q4(a)Departmental Trading Account with inter-departmental transfe
0 marks easy
The following balances were extracted from the books of Beta for the year ended 31st March, 2020: Department A - Opening Stock ` 3,00,000, Purchases ` 39,00,000, Sales ` 60,00,000; Department B - Opening Stock ` 2,40,000, Purchases ` 54,60,000, Sales ` 90,00,000. General expenses for both departments: ` 7,50,000. Closing stock of Dept A: ` 6,00,000 (including goods from Dept B ` 1,20,000 at cost); Closing stock of Dept B: ` 12,00,000 (including goods from Dept A ` 1,80,000 at cost). Opening stocks include inter-departmental transfers at cost to transferee. Gross profit is uniform year to year. You are required to prepare Departmental Trading Account and general Profit & Loss Account.
Q4(b)Accounts from incomplete records using net worth method
20 marks very hard
Ram carried on business as retail merchant without maintaining regular account books. He maintained ` 10,000 minimum cash and deposited balance into bank. He sold goods at 25% profit on sales. Assets and Liabilities as on 1.4.2019: Cash ` 10,000, Bank balance ` 50,000 (Cr.), Debtors ` 1,00,000, Stock ` 2,80,000, Creditors ` 40,000, Capital ` 3,00,000. As on 31.3.2020: Cash ` 10,000, Bank balance ` 80,000 (Dr.), Debtors ` 3,50,000, Creditors ` 90,000. Bank pass book: Payments to creditors ` 7,00,000, Business expenses ` 1,20,000, Receipts from debtors ` 7,50,000, Loan from Laxman ` 1,00,000 @ 10% p.a. (from 1.10.2019), Cash deposited ` 1,00,000. Cash paid to creditors ` 20,000, Salaries ` 40,000, Drawings ` 80,000. No additional capital introduced. Surplus cash treated as sales.
💡 Show solution AI SOLUTION
Accounts from Incomplete Records — Net Worth / Statement of Affairs Method
(i) Trading and Profit & Loss Account for the year ended 31st March, 2020
To determine figures for the final accounts, intermediate accounts (Cash, Bank, Debtors, Creditors) are reconstructed first.
Cash Account (Reconstructed): Opening cash ₹10,000 + Cash Sales (balancing figure) = Payments to creditors ₹20,000 + Salaries ₹40,000 + Drawings ₹80,000 + Cash deposited to bank ₹1,00,000 + Closing cash ₹10,000. Cash Sales = ₹2,40,000.
Bank Account (Reconstructed): Opening overdraft ₹50,000 (Cr.) + Receipts [Debtors ₹7,50,000 + Loan from Laxman ₹1,00,000 + Cash deposited ₹1,00,000] = Payments [Creditors ₹7,00,000 + Business expenses ₹1,20,000] + Closing balance ₹80,000. Confirmed closing bank Dr. balance ₹80,000 ✓.
Debtors Account (Reconstructed): Opening ₹1,00,000 + Credit Sales = Bank receipts ₹7,50,000 + Closing ₹3,50,000. Credit Sales = ₹10,00,000.
Creditors Account (Reconstructed): Opening ₹40,000 + Credit Purchases = Bank payments ₹7,00,000 + Cash payments ₹20,000 + Closing ₹90,000. Credit Purchases = ₹7,70,000.
Total Sales = ₹2,40,000 + ₹10,00,000 = ₹12,40,000
Gross Profit (25% on sales) = ₹3,10,000 | COGS = ₹9,30,000
Closing Stock = ₹2,80,000 + ₹7,70,000 − ₹9,30,000 = ₹1,20,000
| Dr. | Trading A/c | Cr. |
|---|---|---|
| Opening Stock | ₹2,80,000 | Sales | ₹12,40,000 |
| Purchases | ₹7,70,000 | Closing Stock | ₹1,20,000 |
| Gross Profit c/d | ₹3,10,000 | | |
| Total | ₹13,60,000 | Total | ₹13,60,000 |
Interest on Loan from Laxman: ₹1,00,000 × 10% × 6/12 = ₹5,000 (accrued, 1.10.2019 to 31.3.2020).
| Dr. | Profit & Loss A/c | Cr. |
|---|---|---|
| Business Expenses | ₹1,20,000 | Gross Profit b/d | ₹3,10,000 |
| Salaries | ₹40,000 | | |
| Interest on Loan (Laxman) | ₹5,000 | | |
| Net Profit (to Capital) | ₹1,45,000 | | |
| Total | ₹3,10,000 | Total | ₹3,10,000 |
(ii) Balance Sheet as at 31st March, 2020
Capital Account: Opening ₹3,00,000 + Net Profit ₹1,45,000 − Drawings ₹80,000 = ₹3,65,000.
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital | 3,65,000 | Cash in hand | 10,000 |
| Loan from Laxman | 1,00,000 | Bank balance | 80,000 |
| Outstanding Interest on Loan | 5,000 | Sundry Debtors | 3,50,000 |
| Sundry Creditors | 90,000 | Closing Stock | 1,20,000 |
| Total | 5,60,000 | Total | 5,60,000 |
The Balance Sheet balances at ₹5,60,000.
Q5(a)Pre and post-incorporation apportionment of revenue and cost
10 marks hard
The partners of Ojasvi Enterprises decided to convert the partnership firm into Tejasvi (P) Ltd. with effect from 1st January, 2019. Company incorporated on 1st June, 2019. Business continued on company's behalf; consideration ` 6,00,000 settled on 1.6.2019 with interest @ 12% p.a. Loan ` 9,00,000 @ 10% p.a. availed on 1.6.2019. Accounts closed 31st March, 2020. Sales: ` 19,80,000; COGS: ` 11,88,000; Discount to dealers: ` 46,200; Directors' remuneration: ` 60,000; Salaries: ` 90,000; Rent: ` 1,35,000; Interest: ` 1,05,000; Depreciation: ` 30,000; Office expenses: ` 1,05,000; Preliminary expenses: ` 15,000; Profit: ` 2,05,800. Sales June-December, 2019 were 2.5 times average; January-March 2020 were 3.5 times average. Salaries doubled from July, 2019. Additional showroom rent ` 10,000 p.m. from July, 2019. You are required to prepare a statement showing apportionment of cost and revenue between pre-incorporation and post-incorporation periods.
Q5(b)Branch accounting with inter-branch transfers and unrealised
6 marks medium
L Ltd. has head office at Mumbai and branches at Pune and Goa. Branches purchase independently. Pune branch profit: one-third on cost; Goa branch profit: 20% on sales. Goods supplied by one branch to another at respective sales price. Pune Branch: Opening Stock ` 40,000, Purchases ` 2,00,000, Sales ` 2,80,000, Chargeable Expenses ` 15,000, Closing Stock ` 30,000, Office and Admin Expenses ` 13,250, Selling and Distribution Expenses ` 15,000. Goa Branch: Opening Stock ` 30,000, Purchases ` 2,50,000, Sales ` 2,95,625, Chargeable Expenses ` 27,500, Closing Stock ` 43,500, Office and Admin Expenses ` 7,000, Selling and Distribution Expenses ` 10,000. Inter-branch transfers: Pune opening stock from Goa (invoice price ` 10,000); Goa opening stock from Pune (invoice price ` 17,000); Pune sales to Goa (selling price ` 20,000); Goa sales to Pune (selling price ` 15,000); Pune closing stock from Goa (invoice price ` 5,000); Goa closing stock from Pune (invoice price ` 4,000). Prepare Pune branch Trading and Profit & Loss Account, finding profit/loss considering reserve for unrealised profits.
Q5(c)Foreign branch accounting with exchange rate conversion
4 marks medium
Ganesh Ltd. has head office at Delhi (India) and integral foreign branch at New York. New York branch trial balance as on 31st March, 2020 (in $): Stock 1.4.2019 (Dr. 300), Purchases and Sales (Dr. 800, Cr. 1,500), Sundry Debtors and Creditors (Dr. 400, Cr. 300), Bills of Exchange (Dr. 120, Cr. 240), Sundry Expenses (Dr. 1,080), Bank Balance (Dr. 420), Delhi Office A/c (Cr. 1,080). Exchange rates: 1.4.2019 @ ` 40/USD, 31.3.2020 @ ` 42/USD, average ` 41/USD. New York branch account showed debit balance of ` 44,380 on 31.3.2020 in Delhi books; no items pending reconciliation. You are asked to prepare trial balance of New York in ` in the books of Ganesh Ltd.
Q6(a)Preference share redemption journal entries
5 marks medium
The following extracts are from the Balance Sheet of ABC Ltd. as on 31st March, 2020: Share Capital - 40,000 Equity shares of ` 10 each fully paid (` 4,00,000) and 1,000 10% Redeemable Preference shares of ` 100 each fully paid (` 1,00,000). Reserve & Surplus: Capital Reserve ` 50,000, Securities Premium ` 50,000, General Reserve ` 75,000, Profit and Loss Account ` 35,000. On 1st April 2020, the Board decided to redeem the preference shares at par by utilisation of reserve. You are required to pass necessary Journal Entries including cash transactions in the books of the company.
Q6(b)Effective Capital calculation under Schedule V
5 marks medium
The following extract of Balance Sheet of X Ltd. (a non-investment company) as on 31.3.2020 is obtained: Issued and subscribed capital - 20,000 14% Preference shares of ` 100 each fully paid (` 20,00,000) and 1,20,000 Equity shares of ` 100 each @ ` 80 paid-up (` 96,00,000); Capital Reserves ` 1,95,000 (including Revaluation Reserve ` 1,50,000); Securities Premium ` 50,000; 15% Debentures ` 65,00,000; Unsecured Loans - Public Deposits repayable after one year ` 3,70,000; Investment in shares, debentures, etc. ` 75,00,000; Profit and Loss Account (debit balance) ` 15,00,000. You are required to compute Effective Capital as per the provisions of Schedule V to Companies Act, 2013.
Q6(c)(i)Income assessment using net worth method
5 marks medium
Mr. Aman is running a business of readymade garments without maintaining books under double entry system. Income Tax Officer contends that he has not disclosed full income for 2018-19. Assets on 31.3.2018: ` 16,65,000; Liabilities: ` 4,13,000. Assets on 31.3.2019: ` 28,40,000; Liabilities: ` 5,80,000. Monthly drawings: ` 32,000. Income declared: ` 9,12,000. Matured life insurance policy received: ` 50,000 (retained in business). State whether the Income Tax Officer's contention is correct. Explain by giving your working.
Q6(c)(ii)Hire purchase accounting, cash price present value calculati
5 marks medium
On 1st April, 2017, X Ltd. sells a Truck on hire purchase basis to Transporters & Co. for total purchase price ` 18,00,000, payable as ` 4,80,000 down payment and balance in three equal annual instalments of ` 4,40,000 each payable on 31st March 2018, 2019 and 2020. The hire vendor charges interest @ 10% per annum. You are required to ascertain the cash price of the truck for Transporters & Co. Calculations may be made to the nearest rupee.
Q6(d)Onerous contract provision for loss on PPE
5 marks medium
ABC Ltd. has entered into a binding agreement with XYZ Ltd. to buy a custom-made machine amounting to Rs. 4,00,000. As on 31st March, 2020 before delivery of the machine, ABC Ltd. had to change its method of production. The new method will not require the machine ordered and so it shall be scrapped after delivery. The expected scrap value is 'NIL'. Show the treatment of machine in the books of ABC Ltd.