Question 1

Asha Ltd. sells all the manufactured furniture of ₹ 1,00,00,000 to Sasha Ltd. as per agreement. Sasha Ltd. is the only customer to Asha Ltd. In the financial statements, Asha Ltd. wants to present Sasha Ltd. company as a related party. Comment on the disclosure requirement.

Accepted Answer

**Analysis of Related Party Classification under Ind AS 24:**

**Definition of Related Party:** According to Ind AS 24 (Related Party Disclosures), a related party is a person or entity that is related to the entity preparing financial statements. Related parties include: (a) entities under common control or significant influence; (b) associates and joint ventures; (c) key management personnel and their close family members; (d) entities controlled by KMP or their family; and (e) post-employment benefit plans.

**Assessment of Sasha Ltd.:** In this case, Sasha Ltd. is merely the only customer of Asha Ltd., purchasing all manufactured furniture worth ₹1,00,00,000. The mere fact that Sasha Ltd. is a major or sole customer does not automatically make it a related party. The question does not indicate any of the following:
- Ownership or control relationship between Asha Ltd. and Sasha Ltd.
- Significant influence by Sasha Ltd. over Asha Ltd.
- Common management or key personnel relationship.
- Any ownership linkage, directorate overlap, or control through shareholding.

**Conclusion:** Sasha Ltd. **cannot be presented as a related party** in the financial statements of Asha Ltd. solely on the basis of being the only customer. Presenting it as such would be incorrect and non-compliant with Ind AS 24.

**Disclosure Requirement:** While Sasha Ltd. is not a related party and related party disclosures under Ind AS 24 would not apply, Asha Ltd. should consider the following: (1) **Con…

Question 2

The Accountant of X Ltd. provides the following data regarding the five segments: Segment Assets (50, 20, 15, 10, 5 with Total 100), Segment Results ((85), 10, 10, (15), 7 with Total (75)), Segment Revenue (250, 50, 40, 60, 30 with Total 430). The accountant is of the opinion that segment 'A' alone should be reported. Is he justified in his view? Examine his opinion in the light of Ind AS-17 Segment Reporting.

Accepted Answer

**Applicable Standard: AS 17 – Segment Reporting** (Note: The question refers to 'Ind AS-17'; however, under the ICAI CA Intermediate syllabus, Segment Reporting is governed by **AS 17**. For listed/Ind AS entities, **Ind AS 108** applies. The analysis below follows AS 17 principles, which the question intends.)

Under **AS 17**, a business segment or geographical segment is a **reportable segment** if it satisfies ANY ONE of three quantitative threshold tests — the **10% Tests**:

**Test 1 – Revenue Test:** Segment revenue ≥ 10% of combined revenue of all segments.
10% of ₹430 = **₹43**

| Segment | Revenue | ≥ ₹43? | Reportable? |
|---------|---------|---------|-------------|
| A | 250 | Yes | Yes |
| B | 50 | Yes | Yes |
| C | 40 | No | — |
| D | 60 | Yes | Yes |
| E | 30 | No | — |

**Test 2 – Result Test:** |Segment result| ≥ 10% of the **greater of** (i) combined profit of all profit-making segments, or (ii) combined loss of all loss-making segments (absolute).
Profit segments: B(10) + C(10) + E(7) = **27**; Loss segments: A(85) + D(15) = **100**
Greater = **100**; 10% threshold = **₹10**

| Segment | |Result| | ≥ ₹10? | Reportable? |
|---------|----------|--------|-------------|
| A | 85 | Yes | Yes |
| B | 10 | Yes (=) | Yes |
| C | 10 | Yes (=) | Yes |
| D | 15 | Yes | Yes |
| E | 7 | No | — |

**Test 3 – Asset Test:** Segment assets ≥ 10% of total assets.
10% of ₹100 = **₹10**

| Segment | Assets | ≥ ₹10? | Reportable? |
|---------|--------|---------|-------------|
…

Question 3

In the books of Topmaker Limited, carrying amount of Plant and Machinery as on 1st April, 2022 is ₹ 35,30,000. On scrutiny, it was found that a purchase of Machinery worth ₹ 12,600 was included in the purchase of Plant on 1st June, 2022. On 30th June, 2022 the company disposed a Machine having book value of ₹ 9,60,000 (as on 1st July, 2022) for ₹ 8,25,000 in part exchange of a new machine costing ₹ 15,65,000. The company charges depreciation @ 10% p.a. on written down value method on Plant and Machinery.

Accepted Answer

**Plant and Machinery Account — Year ended 31st March, 2023**

Under **AS 10 (Property, Plant and Equipment)**, fixed assets are carried at cost less accumulated depreciation, and gains/losses on disposal are recognised in the Statement of Profit and Loss.

**Opening WDV (1st April, 2022):** ₹35,30,000

**Addition 1 — Machinery ₹12,600 (1st June, 2022):** On scrutiny, machinery worth ₹12,600 purchased on 1st June, 2022 was found to have been included in the Plant account (capital expenditure correctly recorded, but under the wrong sub-head within Plant & Machinery). Since the combined account "Plant and Machinery" is maintained, this amount is treated as an addition during the year and depreciated from the date of purchase (10 months: June 2022 to March 2023).

**Part Exchange Transaction (30th June, 2022):**
The old machine (WDV ₹9,60,000 as on 1st April, 2022) is disposed of after charging 3 months' depreciation. The new machine is capitalised at its full cost of ₹15,65,000 in accordance with AS 10 (cost = invoice price, not net exchange value).

**Dr — Plant and Machinery Account — Cr**

| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| Opening Balance (1.4.2022) | 35,30,000 | Disposal A/c (WDV at 30.6.22) | 9,36,000 |
| Bank A/c – Machinery (1.6.22) | 12,600 | Depreciation A/c | 3,99,425 |
| New Machine – Part Exchange (30.6.22) | 15,65,000 | **Closing Balance (31.3.23)** | **37,72,175** |
| **Total** | **51,07,600** | **Total** | **51,07,600** |

**Disposal / Par…

Question 4

Grant deduction and depreciation scenarios. Depreciation on the basis of Straight-Line Method.

Accepted Answer

**Note on Sub-parts (iii) & (iv):** These are continuation sub-parts. The following assumed base values (typical for this class of ICAI question) are used — Plant cost: ₹20,00,000; Government grant received: ₹4,00,000; Useful life: 5 years; SLM; Purchase date: 1 April 2020.

**Sub-part (iii) — Grant Deducted from Asset Cost; Grant Refunded ₹4,00,000 at end of 2022-23 [AS-12]**

Under the **cost deduction method**, the grant of ₹4,00,000 was originally deducted from the asset cost, giving a net carrying amount of ₹16,00,000. Annual SLM depreciation = ₹3,20,000.

By 31 March 2023, three years of depreciation have been charged (FY 2020-21, 21-22, 22-23). WDV before refund = ₹16,00,000 − ₹9,60,000 = ₹6,40,000.

Upon **refund of the grant**, the carrying amount of the asset is increased by the amount refunded (per AS-12, Government Grants, issued by ICAI). The asset is reinstated and the remaining life is used to re-compute depreciation.

Revised carrying amount = ₹6,40,000 + ₹4,00,000 = **₹10,40,000**. Remaining useful life = 2 years. **Revised annual depreciation = ₹5,20,000**.

Journal entry on refund: Plant & Machinery A/c Dr. ₹4,00,000 | To Grant Refund Payable A/c ₹4,00,000.

The higher depreciation (₹5,20,000 vs earlier ₹3,20,000) is treated as a **change in accounting estimate** and applied prospectively.

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**Sub-part (iv) — Grant Treated as Deferred Income [AS-12]**

Under the **deferred income method**, the full asset cost of ₹20,00,000 is capitalised. The grant of ₹…

Question 5

X Ltd. and Y Ltd. had been carrying on business independently. They agreed to amalgamate and form a new company XY Ltd. with an authorized share capital of ₹ 40,00,000 divided into 3,00,000 equity shares of ₹ 3 each.

Accepted Answer

**Sub-part (1): Amount of Debentures and Shares to be issued**

**Step A — Capital Employed (at revalued figures)**

Capital Employed = Revalued PPE + Revalued Current Assets − Trade Payables

**X Ltd.:** ₹71,00,000 + ₹29,95,000 − ₹59,70,000 = **₹41,25,000**

**Y Ltd.:** ₹39,00,000 + ₹15,77,500 − ₹18,02,500 = **₹36,75,000**

**Step B — 7.5% Debentures to be issued** (to provide 4% return on capital employed)

Required income = 4% × Capital Employed; Debenture face = Income ÷ 7.5%

**X Ltd.:** Income required = 4% × ₹41,25,000 = ₹1,65,000 → Debentures = ₹1,65,000 ÷ 7.5% = **₹22,00,000**

**Y Ltd.:** Income required = 4% × ₹36,75,000 = ₹1,47,000 → Debentures = ₹1,47,000 ÷ 7.5% = **₹19,60,000**

**Step C — Equity Shares to be issued** (in proportion to average net profit over 4 years)

Average Net Profit: X Ltd. = ₹1,24,00,000 ÷ 4 = **₹31,00,000**; Y Ltd. = ₹1,24,00,000 ÷ 4 = **₹31,00,000**

Ratio = 1 : 1. Total shares = 6,20,000 → Each company receives **3,10,000 equity shares of ₹3 each = ₹9,30,000**

**Summary — Purchase Consideration:**

| Component | X Ltd. | Y Ltd. | Total |
|-----------|--------|--------|-------|
| Equity Shares (3,10,000 × ₹3) | ₹9,30,000 | ₹9,30,000 | ₹18,60,000 |
| 7.5% Debentures | ₹22,00,000 | ₹19,60,000 | ₹41,60,000 |
| **Total PC** | **₹31,30,000** | **₹28,90,000** | **₹60,20,000** |

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**Sub-part (2): Balance Sheet of XY Ltd. immediately after amalgamation**

The amalgamation is treated as **Amalgamation in the Nature of Purchase** under **AS 1…

Question 6

TMP - You are required to compute: (i) Depreciation to be charged to Profit & Loss Account; (ii) Book value of Plant & Machinery on 31st March, 2023; and (iii) Profit/Loss on exchange of Plant & Machinery.

Accepted Answer

**Sub-part (a) – TMP Company (Depreciation, Book Value & Exchange Profit/Loss):**

The numerical data for the TMP case (original cost, rate of depreciation, exchange details, dates) appears to be missing from the question as presented. A complete solution requires: original cost of Plant & Machinery, depreciation method and rate, date of acquisition, exchange/disposal details and consideration received. The framework would be: (i) Depreciation = Opening WDV × Rate (or cost less salvage ÷ useful life for SLM); (ii) Closing Book Value = Opening WDV − Depreciation for the year; (iii) Profit/Loss on Exchange = Net consideration received − Book value at date of exchange. Please provide the original question data for a full numerical solution.

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**Sub-part (b) – Trouser Limited: Option Analysis**

Trouser Limited has a payable of **₹5,00,000** and must choose between two payment options. The borrowing rate is **15% p.a.**

**Option 1 – Pay immediately with 1% cash discount:**
Net payment = ₹5,00,000 × (1 − 1%) = **₹4,95,000**. Since Trouser must borrow to pay immediately at its borrowing rate of 15% p.a. for 4 months, the total cost at the end of 4 months = ₹4,95,000 + (₹4,95,000 × 15% × 4/12) = ₹4,95,000 + ₹24,750 = **₹5,19,750**.

**Option 2 – Pay after 4 months with 5% p.a. interest:**
Interest = ₹5,00,000 × 5% × 4/12 = ₹8,333. Total payment = ₹5,00,000 + ₹8,333 = **₹5,08,333**.

**Recommendation: Choose Option 2.** The total outflow under Option 2 (₹5,08,333) is **₹11,417 l…

Question 7

Moustrek Limited purchased 2 Machines costing ₹ 2,30,000 each from M/s Khanna Enterprises on 01-April, 2023 on hire purchase basis.

Terms of payments for both the Machines together are as follows:
Date: 01-04-2023, Particulars: Down Payment, Amount: 1,40,000
Date: 30-09-2023, Particulars: 1st Instalment, Amount: 1,00,000
Date: 31-03-2022, Particulars: 2nd Instalment, Amount: 95,600
Date: 30-09-2022, Particulars: 3rd Instalment, Amount: 85,600
Date: 31-03-2023, Particulars: 4th Instalment, Amount: 76,000
Date: 30-09-2023, Particulars: 5th Instalment, Amount: 76,000
Date: 31-03-2024, Particulars: 6th Instalment, Amount: 59,700

Additional Information:
(i) M. K. Traders charges interest @ 8% p.a. on hi-hire basis.
(ii) Instalment payments are towards principal repayment and interest.
(iii) M…

Accepted Answer

**MACHINERY ACCOUNT**

Dr. | Particulars | Amount (₹) | Cr. | Particulars | Amount (₹)
---|---|---|---|---|---
 | Opening Balance | — | | Depreciation (20% p.a. DDB) | 92,000
 | To M/s Khanna Enterprises | 4,60,000 | | Repossession (one machine at book value) | 1,84,000
 | (Cost of 2 machines @ ₹2,30,000 each) | | | |
 | | | | Balance c/d (one machine net) | 1,95,500
 | | 4,60,000 | | | 4,60,000

Balance b/d (31-03-2023):
- Cost of remaining machine: ₹2,30,000
- Less: Depreciation @ 20% p.a. DDB: ₹46,000
- **Net Book Value: ₹1,84,000**

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**M/S KHANNA ENTERPRISES (OR M.K. TRADERS) ACCOUNT**

Dr. | Particulars | Amount (₹) | Cr. | Particulars | Amount (₹)
---|---|---|---|---|---
 | Bank—Down Payment (01-04-2022) | 1,40,000 | | To Machinery | 4,60,000
 | Bank—1st Instalment (30-09-2022) | 1,00,000 | | |
 | Bank—2nd Instalment (31-03-2023) | 95,600 | | |
 | Bank—3rd Instalment (30-09-2023 assumed) | 85,600 | | |
 | Interest on Outstanding Balance (accrued) | 12,800 | | |
 | Repossessed Machine Adjustment (at 25% depreciation value) | 1,72,500 | | |
 | Balance c/d (Outstanding liability—remaining machine) | 1,53,500 | | |
 | | 4,60,000 | | | 4,60,000

Calculation of Outstanding Balance:
- Total payments made: ₹1,40,000 + ₹1,00,000 + ₹95,600 + ₹85,600 = ₹4,21,600
- Purchase price: ₹4,60,000
- Interest accrued (6 months @ 8% p.a. on ₹3,20,000 outstanding after down payment): ₹12,800
- Total liability: ₹4,72,800
- Less: Payments made: ₹4,21,600
- Outstanding before repossession: …

Question 8

G Ltd. and its subsidiary K Ltd. give the following information for the year ended 31st March, 2023: Sales and other Income (G Ltd. 3000, K Ltd. 750); Increase in Inventory (750, 100); Raw material consumed (600, 100); Wages and Salaries (600, 75); Production expenses (100, 50); Administrative expenses (75, 25); Selling and Distribution expenses (100, 25); Interest (75, 30); Depreciation (75, 30). Additional information: (i) G Ltd. sold goods of ₹ 200 crores to K Ltd. at cost plus 25%. Half of such goods were still in inventory of K Ltd. at the end of the year. (ii) G Ltd. holds 75% of the Equity share capital of K Ltd. and the Equity share capital of K Ltd. is ₹ 800 crores as on 31.03.2023 (fair value on acquisition of shares). (iii) Administrative expenses of K Ltd. include ₹ 5 crore pai…

Accepted Answer

**Consolidated Statement of Profit and Loss of G Ltd. and its Subsidiary K Ltd.**
**For the year ended 31st March, 2023**
**(All figures in ₹ Crores)**

**Particulars** | **₹ Crores**

**I. INCOME**

**Total Income (I)** | **4,255**

**II. EXPENSES**

**Raw Material Consumed:**
G Ltd. | 600
K Ltd. | 100
Less: K's raw material sourced from G (inter-company) | (100)
**Net Raw Material Consumed** | **600**

**Wages and Salaries** (600 + 75) | **675**

**Production Expenses** (100 + 50) | **150**

**Administrative Expenses:**
G Ltd. | 75
K Ltd. | 25
Less: Consultancy fees paid by K to G (eliminated) | (5)
**Net Administrative Expenses** | **95**

**Selling and Distribution Expenses:**
G Ltd. | 100
K Ltd. | 25
Less: Commission paid by K to G (eliminated) | (20)
**Net Selling and Distribution Expenses** | **105**

**Interest** (75 + 30) | **105**

**Depreciation** (75 + 30) | **105**

**Total Expenses (II)** | **1,835**

**Consolidated Profit for the Year (I − II)** | **2,420**

**Attributable to:**
Minorit…

Question 9

SR Finance Ltd. is a Non - Banking Finance Company. The extracts of its balance sheet are as follows: Equity and Liabilities - Shareholders' Funds: Paid up Equity Capital 300, Free Reserves 900; Non - Current Liabilities: Loans 750, Deposits 900 (Total 2850); Assets - Non - Current Assets: Property, Plant and Equipment 1350, Investments in shares of subsidiaries 375, In Debentures of group companies 600; Current Assets: Cash and Bank balances 525 (Total 2850) (Amount in ₹ in lakhs). You are required to compute 'Net Owned Fund' of SR Finance Ltd. as per Non-Banking Financial Company - Systematically Important Non - Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

Accepted Answer

**Net Owned Fund (NOF) of SR Finance Ltd.**

As per the **Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016** issued by the Reserve Bank of India, **Net Owned Fund** is computed as follows:

**Step 1 – Compute Owned Fund:**

**Owned Fund** = Paid-up Equity Capital + Free Reserves − Accumulated losses − Deferred revenue expenditure − Other intangible assets.

Owned Fund = ₹300 lakhs + ₹900 lakhs = **₹1,200 lakhs**

(No accumulated losses or intangible assets are mentioned, so no deductions apply here.)

**Step 2 – Identify Investments to be Deducted:**

The following items must be deducted from Owned Fund **to the extent they exceed 10% of Owned Fund**:

(a) Investments in shares of subsidiaries and companies in the same group, and all other NBFCs; AND

(b) Book value of debentures, bonds, outstanding loans, advances, and deposits with subsidiaries and companies in the same group.

Here:
- Investments in shares of subsidiaries = ₹375 lakhs
- Investments in debentures of group companies = ₹600 lakhs
- **Total = ₹975 lakhs**

**Step 3 – Compute the Deductible Excess:**

10% of Owned Fund = 10% × ₹1,200 = ₹120 lakhs

Excess over 10% = ₹975 − ₹120 = **₹855 lakhs** (this is the amount to be deducted)

**Step 4 – Compute Net Owned Fund:**

Net Owned Fund = Owned Fund − Excess investments
= ₹1,200 − ₹855 = **₹345 lakhs**

**The Net Owned Fund of SR Finance Ltd. is ₹345 lakhs.**

Question 10

H Ltd. acquired 15000 shares in S Ltd. for ₹ 1,55,000 on July 1, 2022. The Balance sheet of the two companies as on 31st March, 2023 were as follows: [Balance sheet provided with Equity Share Capital (H Ltd.: ₹ 9,00,000; S Ltd.: ₹ 2,50,000), General Reserves, Surplus in P&L, various liabilities and assets]. Additional information: (i) General reserve appearing in the Balance Sheet of S Ltd. remained unchanged since 31st March, 2022. (ii) Profit earned by S Ltd. for the year ended 31st March, 2023 amounted to ₹ 20,000. (iii) H Ltd. sold goods to S Ltd. costing ₹ 8,000 for ₹ 10,000. 25% of these goods remained unsold with S Ltd. on 31st March, 2023. (iv) Creditors of S Ltd. include ₹ 4,000 due to H Ltd. on account of these goods. (v) Out of Bills payable issued by S Ltd. ₹ 15,000 are those w…

Accepted Answer

**Part (a): Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as on 31st March, 2023**

Note: The balance sheets for H Ltd. and S Ltd. were provided in the original question. The solution below uses internally consistent assumed figures that incorporate all the given additional information. Key figures (Share Capitals: H ₹9,00,000; S ₹2,50,000) are as stated.

**Holding Pattern:** S Ltd. has 25,000 shares of ₹10 each. H Ltd. holds 15,000 shares = **60% holding**; **Minority Interest = 40%**.

**Pre/Post Acquisition Split:** H Ltd. acquired shares on 1 July 2022. The financial year is April 2022 to March 2023 (12 months). Pre-acquisition period: 3 months (April to June 2022). Post-acquisition period: 9 months (July 2022 to March 2023). S Ltd.'s profit for the year = ₹20,000. Pre-acquisition profit = 3/12 × ₹20,000 = **₹5,000**. Post-acquisition profit = 9/12 × ₹20,000 = **₹15,000**.

**Cost of Control (Capital Reserve):** Net assets of S Ltd. at date of acquisition (1.7.2022) = ₹2,50,000 (Share Capital) + ₹50,000 (General Reserve, unchanged) + ₹5,000 (pre-acquisition profit) = ₹3,05,000. H's share at 60% = ₹1,83,000. Cost of Investment = ₹1,55,000. Since H's share in net assets (₹1,83,000) exceeds cost (₹1,55,000), **Capital Reserve = ₹28,000**.

**Minority Interest:** 40% × (₹2,50,000 + ₹50,000 + ₹20,000) = 40% × ₹3,20,000 = **₹1,28,000**.

**Unrealised Profit in Closing Stock:** H Ltd. sold goods costing ₹8,000 for ₹10,000 to S Ltd. Profit = ₹2,000. 25% remains …

Question 11

The following balances are extracted from the books of Traverse Limited as on 31st March 2023: Debentures ₹48,45,000; Plant & Machinery (at cost) ₹37,43,400; Trade Receivables ₹35,70,000; Lands ₹9,37,600; Debenture Interest ₹3,94,150; Bank Interest ₹13,260; Sales ₹47,22,600; Transfer Fees ₹38,250; Discount received ₹66,300; Purchases ₹28,86,600; Inventories 1.04.2022 ₹4,97,250; Factory Expenses ₹2,58,660; Rates, Taxes and Insurance ₹65,025; Repairs ₹1,49,685; Sundry Expenses ₹1,27,500; Selling Expenses ₹26,520; Directors Fees ₹38,250; Interest on Investment for the year 2022-2023 ₹55,000; Provision for Depreciation ₹5,96,700; Miscellaneous receipts ₹1,42,800. Additional information: (i) Inventory on 31.03.2023 is ₹4,76,850. (ii) Miscellaneous receipts represent cash received from the sale …

Accepted Answer

**Statement of Profit and Loss of Traverse Limited for the year ended 31st March 2023** (as per Schedule III of the Companies Act, 2013)

**I. Revenue from Operations**
Sales: ₹47,22,600; Other Operating Revenue (Transfer Fees): ₹38,250
**Total Revenue from Operations: ₹47,60,850**

**II. Other Income**
Discount Received: ₹66,300; Interest on Investments: ₹55,000; Profit on Sale of Plant & Machinery (W.N. 1): ₹62,300
**Total Other Income: ₹1,83,600**

**III. Total Revenue (I + II): ₹49,44,450**

**IV. Expenses**
(a) Purchases of Stock-in-Trade: ₹28,86,600
(b) Changes in Inventories of Stock-in-Trade (Opening ₹4,97,250 − Closing ₹4,76,850): ₹20,400
(c) Employee Benefits Expense (Directors' Fees): ₹38,250
(d) Finance Costs — Debenture Interest ₹3,94,150 + Bank Interest ₹13,260: ₹4,07,410
(e) Depreciation and Amortisation Expense (W.N. 2): ₹3,59,765
(f) Other Expenses:
  — Factory Expenses: ₹2,58,660
  — Rates, Taxes and Insurance: ₹65,025
  — Repairs: ₹1,49,685
  — Sundry Expenses: ₹1,27,500
  — Selling Expenses: ₹26,520
  **Sub-total Other Expenses: ₹6,27,390**
**Total Expenses: ₹43,39,815**

**V. Profit Before Tax (III − IV): ₹6,04,635**

**VI. Tax Expense — Provision for Income Tax @ 25%: ₹1,51,159**

**VII. Profit for the Year (V − VI): ₹4,53,476**

**Notes:**
(1) **Revaluation of Land:** The surplus of ₹99,25,400 (₹1,08,63,000 − ₹9,37,600) on revaluation of Land is transferred to **Revaluation Reserve** directly under equity. It does not pass through the Statement of Profi…

Question 12

The summarised Balance Sheet of Flora Limited for the year ended 31st March, 2022 and 31st March, 2023 are as below: [Balance Sheet showing Goodwill, Land, Furniture and Fixtures, Vehicles, Office Equipment, Long-term Investments, Stock-in-hand, Bills Receivables, Trade Receivables, Cash and Bank Balances with values for 31/03/2023 (₹) and 31/03/2022 (₹)]

Accepted Answer

**Note: The actual numerical data from the Balance Sheet of Flora Limited has not been provided in the question.** The question references a Balance Sheet with items such as Goodwill, Land, Furniture and Fixtures, Vehicles, Office Equipment, Long-term Investments, Stock-in-hand, Bills Receivables, Trade Receivables, and Cash and Bank Balances for 31st March 2023 and 31st March 2022 — but the specific ₹ figures are missing from the input.

**Framework for solving this type of question (Comparative Balance Sheet Analysis):**

A **Comparative Balance Sheet** is prepared to analyse changes in the financial position of a company over two periods. It shows **absolute change** (increase or decrease in ₹) and **percentage change** for each item.

**Steps to prepare a Comparative Balance Sheet:**

**Step 1 — Classify assets and liabilities** into Non-Current Assets (Fixed Assets + Long-term Investments), Current Assets (Stock, Bills Receivables, Trade Receivables, Cash & Bank), Non-Current Liabilities, and Current Liabilities.

**Step 2 — Compute Absolute Change:** Absolute Change = Amount in 31/03/2023 − Amount in 31/03/2022. A positive figure indicates an increase; a negative figure indicates a decrease.

**Step 3 — Compute Percentage Change:** Percentage Change = (Absolute Change ÷ Amount in 31/03/2022) × 100.

**Step 4 — Interpret significant changes:** Comment on trends such as increase in current assets indicating improved liquidity, increase in long-term investments indicating …

Question 13

You are required to prepare Cash Flow Statement from Operating Activities for the year ended 31st March, 2023 using indirect method. (All workings should form part of the answer)

Accepted Answer

**Cash Flow Statement — Operating Activities (Indirect Method)**

As per **AS 3 — Cash Flow Statements** (issued by ICAI), the indirect method starts with **Net Profit before Tax and Extraordinary Items** and adjusts for non-cash items, non-operating items, and changes in working capital to arrive at **Cash Generated from Operations**.

**Note:** No financial data was provided with this question. The solution below presents the **standard format with illustrative figures** and all required workings to demonstrate the complete methodology as expected in the CA Intermediate exam.

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**CASH FLOW STATEMENT (EXTRACT — OPERATING ACTIVITIES)**
**For the year ended 31st March, 2023**

**A. Cash Flow from Operating Activities**

Net Profit before Tax and Extraordinary Items — ₹1,50,000

**Adjustments for Non-Cash / Non-Operating Items:**
Add: Depreciation — ₹30,000
Add: Amortisation of Goodwill — ₹5,000
Add: Loss on Sale of Fixed Asset — ₹4,000
Add: Interest Expense (Finance Cost) — ₹12,000
Less: Profit on Sale of Investments — (₹6,000)
Less: Dividend / Interest Income (Investing) — (₹8,000)

**Operating Profit before Working Capital Changes — ₹1,87,000**

**Adjustments for Changes in Working Capital:**
Increase in Trade Receivables — (₹15,000)
Decrease in Inventories — ₹10,000
Increase in Trade Payables — ₹8,000
Decrease in Other Current Liabilities — (₹3,000)
Increase in Prepaid Expenses — (₹2,000)

**Cash Generated from Operations — ₹1,85,000**
Less: Income Tax Paid (Net of Refu…

Question 14

VJJ Ltd. has the following capital structure as on 31st March, 2022: Equity share capital (Shares of ₹ 10 each, fully paid) ₹ 990 lakhs, General Reserve ₹ 720 lakhs, Securities Premium Account ₹ 270 lakhs, Profit & Loss Account ₹ 270 lakhs, Infrastructure development Reserve ₹ 540 lakhs (Capital ₹ 1800 lakhs), Loan Funds ₹ 5400 lakhs.

Accepted Answer

**Capital Structure Analysis of VJJ Ltd. as on 31st March, 2022**

**Step 1: Identification of Capital Structure Components**

The capital structure of VJJ Ltd. comprises two broad categories — **Shareholders' Funds (Equity)** and **Loan Funds (Debt)**.

**Shareholders' Funds:**
- Equity Share Capital (99 lakh shares of ₹10 each) = ₹990 lakhs
- General Reserve = ₹720 lakhs
- Securities Premium Account = ₹270 lakhs
- Profit & Loss Account = ₹270 lakhs
- Infrastructure Development Reserve = ₹540 lakhs
- **Total Shareholders' Funds = ₹2,790 lakhs**

Note: Infrastructure Development Reserve is a **statutory capital reserve** (not freely distributable). Securities Premium is also a **capital reserve** under Section 52 of the Companies Act, 2013.

**Loan Funds (Fixed Charge Capital):** ₹5,400 lakhs

**Total Capital Employed = ₹2,790 + ₹5,400 = ₹8,190 lakhs**

**Step 2: Classification of Reserves**
- **Revenue (Free) Reserves** = General Reserve + P&L Account = ₹720 + ₹270 = ₹990 lakhs
- **Capital Reserves** = Securities Premium + Infrastructure Dev. Reserve = ₹270 + ₹540 = ₹810 lakhs
- **Total Reserves & Surplus = ₹1,800 lakhs**

**Step 3: Key Capital Structure Ratios**

**(i) Debt-Equity Ratio** = Loan Funds ÷ Shareholders' Funds
= ₹5,400 ÷ ₹2,790 = **1.94 : 1**
This indicates that for every ₹1 of equity, the company has ₹1.94 of debt — significantly leveraged.

**(ii) Capital Gearing Ratio** = Fixed Interest-Bearing Capital ÷ Equity Shareholders' Funds
= ₹5,400 ÷ ₹2,790 = **1.94*…

Question 15

The following information is given for Mr. Atwood for the year ended 31.03.2023:

01.04.2022: Mr. Atwood has 3,000 equity shares in Sun Limited at a book value of ₹ 3,30,000 (nominal value ₹ 100 each)
01.07.2022: Purchased 1,500 equity shares in Sun Limited for ₹ 1,50,600
01.08.2022: Purchased 5,000, 9% Bonds at ₹ .97 cum-interest (face value ₹ 100). The due dates of interest are 1st September and 1st March.
02.10.2022: Dividend declared on equity shares and paid by Sun Limited for the year 2021-2022 @ 10%
15.10.2022: Sun Limited made a bonus issue of two equity shares for every five shares held
01.01.2023: 1,000 equity shares in Sun Limited sold @ ₹ 1.15 per share
31.03.2023: Sold 4,000, 9% Bonds @ ₹ 99 ex-interest

Additional Information:
• The market price of Equity Shares of Sun Limite…

Accepted Answer

**Investment Account in the Books of Mr. Atwood for the year ended 31st March 2023**

**Note on price interpretation:** Bond purchase price ₹97 and sale price ₹99 are per ₹100 face value. Equity sale price ₹1.15 and market price ₹1.25 represent ₹115 and ₹125 per share respectively (expressed as a ratio of ₹100 face value, consistent with bond quotation convention).

---

**INVESTMENT ACCOUNT — EQUITY SHARES IN SUN LIMITED (Current Investment)**

| Date | Particulars | Shares | ₹ | Date | Particulars | Shares | ₹ |
|---|---|---|---|---|---|---|---|
| 01.04.22 | Balance b/d | 3,000 | 3,30,000 | 01.01.23 | Bank (Sale @ ₹115) | 1,000 | 1,15,000 |
| 01.07.22 | Bank (Purchase) | 1,500 | 1,50,600 | 31.03.23 | Balance c/d | 5,300 | 4,04,314 |
| 15.10.22 | Bonus Shares (2:5) | 1,800 | — | | | | |
| 01.01.23 | P&L (Profit on Sale) | — | 38,714 | | | | |
| | **Total** | **6,300** | **5,19,314** | | **Total** | **6,300** | **5,19,314** |

**Notes on Equity Account:**
- Dividend of ₹45,000 (10% on ₹100 × 4,500 shares) received on 02.10.2022 is credited directly to P&L as **Dividend Income** (not routed through Investment Account).
- **Closing Valuation:** Cost ₹4,04,314 vs. Market Value (5,300 × ₹125) = ₹6,62,500 → Valued at **₹4,04,314** (cost is lower).

---

**INVESTMENT ACCOUNT — 9% BONDS (Current Investment)**

*(Columns: Nominal Value | Interest | Principal/Cost)*

| Date | Particulars | NV (₹) | Int (₹) | Prin (₹) | Date | Particulars | NV (₹) | Int (₹) | Prin (₹) |
|---|---|---|--…

Question 16

Wringler Limited took over the running business of FIG Enterprises with effect from 1st August 2022. However, due to some procedural delay, the company could be incorporated on 1st August 2022. The following information for the year ended 31.03.2023 is provided: Sales ₹1,19,70,000; Interest received on Investment ₹60,000; Profit on sale of investment ₹40,000; Cost of goods sold ₹64,40,000; Expenses: Printing & Stationery ₹87,000; Sales Manager's Salary ₹81,000; Donation ₹21,000; Rent ₹1,35,000; Bad debts ₹57,000; Underwriting Commission ₹56,000; Depreciation ₹70,200; Interest paid on Debentures ₹8,900; Audit Fees ₹15,000; Sundry office expenses ₹55,500; Interest on Loan ₹62,500

Accepted Answer

**Statement of Pre-incorporation and Post-incorporation Profits of Wringler Limited** for the year ended 31st March 2023

**Key Assumption:** The question contains an apparent typographical error (both dates read as 1st August 2022). The standard interpretation is that Wringler Limited agreed to take over FIG Enterprises' business with effect from **1st April 2022** (commencement of the financial year), but due to procedural delay, the company was legally incorporated only on **1st August 2022**. Accordingly:
- **Pre-incorporation period:** 1st April 2022 to 31st July 2022 = **4 months**
- **Post-incorporation period:** 1st August 2022 to 31st March 2023 = **8 months**
- **Ratio (Pre : Post) = 4 : 8 = 1 : 2**

**Basis of Apportionment:**
- **Sales/Turnover basis (1:2):** Cost of Goods Sold, Sales Manager's Salary, Bad Debts (items varying with business volume/sales activity)
- **Time basis (1:2):** Printing & Stationery, Rent, Depreciation, Audit Fees, Sundry Office Expenses, Interest on Loan (these accrue with passage of time)
- **Post-incorporation only:** Underwriting Commission (incurred for issue of securities after incorporation), Interest on Debentures (debentures issued post-incorporation), Donation (company policy decision after incorporation), Interest on Investment, Profit on Sale of Investment (investments made post-incorporation)

**Statement of Pre and Post-incorporation Profits (₹)**

| Particulars | Basis | Pre-inc. (4M) ₹ | Post-inc. (8M) ₹ |
|---|---|---|---…

Question 17

The following information is given: (i) Salaries outstanding are ₹ 500. (ii) The Head Office sent goods to Branch for ₹ 24,00,000. (iii) The Head Office shows an amount of ₹ 21,00,000 due from Branch. The exchange rates were as below: On 1st January 2022 = ₹ 79 to 1$; On 31st December 2022 = ₹ 83 to 1$; Average rate during the year was ₹ 79.50 to 1$. You are required to prepare the Seattle Branch Trial Balance incorporating adjustments given above, converting dollars into rupees.

Accepted Answer

**Branch Accounting — Foreign Branch (Seattle) Trial Balance Conversion into Rupees**

**Note on Question:** The question refers to a Seattle Branch Trial Balance in US dollars that must have been provided in the original paper. The three items listed are **adjustments** to that trial balance. The solution below demonstrates the complete methodology, incorporates the three adjustments, and applies the correct conversion rates as per **AS 11 — The Effects of Changes in Foreign Exchange Rates** (integral foreign operations approach, applicable for CA Intermediate).

**Conversion Rules (AS 11 — Integral Foreign Operation):**

(i) **Fixed Assets:** Historical rate — rate on the date of acquisition.
(ii) **Depreciation:** Same historical rate as the related asset.
(iii) **Opening Stock:** Rate prevailing at the beginning of the year (₹79 per $1).
(iv) **Closing Stock:** Lower of cost (historical rate) or NRV (closing rate). Typically closing rate for simplicity — ₹83 per $1.
(v) **Monetary items** — Debtors, Creditors, Cash, Bank, Outstanding Liabilities: **Closing rate ₹83 per $1**.
(vi) **Revenue items** — Sales, Purchases, Expenses (Salaries, Rent, etc.): **Average rate ₹79.50 per $1**.
(vii) **HO Current Account in Branch Books:** Taken at the figure appearing in **HO books** after reconciliation — NOT converted at any exchange rate.
(viii) **Exchange Difference:** The trial balance will not tally after conversion; the difference (debit or credit) is the **Exchange Fluctuation…

Question 18

Profound Enterprises, a manufacturer of Bed Sheets, has three Operating Departments A, B, and C and one service department. Department A processes Gray Cloth and supplies to Department B for further processing. Department B processes the material obtained from Department A and transfers 100% production to Department C for further processing. Department C manufactures Bed Sheets from Gray Cloth received from Department B and sells the same into the market.

Particulars data:
- Opening Stock: Dept A ₹3,50,000, Dept B ₹2,20,000, Dept C ₹3,80,000
- Consumption of Materials: Dept A ₹7,20,000, Dept B ₹7,60,000
- Wages: Dept A ₹1,60,000, Dept B ₹1,80,000, Dept C ₹3,20,000
- Closing Stock: Dept A ₹4,30,000, Dept B ₹2,80,000, Dept C ₹10,20,000
- Sales: Dept C ₹26,40,000
- No. of Employees: Dept A 1…

Accepted Answer

**PART (a): DEPARTMENTAL TRADING ACCOUNTS**

Only direct costs (materials and wages) appear in the Trading Account. Salaries and depreciation are indirect overheads allocated in the P&L Account. Transfer prices are computed on direct-cost base.

| Particulars | Dept A (₹) | Dept B (₹) | Dept C (₹) |
|---|---|---|---|
| To Opening Stock | 3,50,000 | 2,20,000 | 3,80,000 |
| To Materials Consumed | 7,20,000 | 7,60,000 | — |
| To Wages | 1,60,000 | 1,80,000 | 3,20,000 |
| To Transfer from Dept A | — | 11,20,000 | — |
| To Transfer from Dept B | — | — | 25,00,000 |
| **To Gross Profit c/d** | **3,20,000** | **5,00,000** | **4,60,000** |
| **Total** | **15,50,000** | **27,80,000** | **36,60,000** |
| By Transfer to Dept B | 11,20,000 | — | — |
| By Transfer to Dept C | — | 25,00,000 | — |
| By Sales | — | — | 26,40,000 |
| By Closing Stock | 4,30,000 | 2,80,000 | 10,20,000 |
| **Total** | **15,50,000** | **27,80,000** | **36,60,000** |

Dept A direct cost = ₹3,50,000 + ₹7,20,000 + ₹1,60,000 − ₹4,30,000 = **₹8,00,000**; transferred at cost + 40% = **₹11,20,000**.
Dept B direct cost = ₹2,20,000 + ₹11,20,000 + ₹7,60,000 + ₹1,80,000 − ₹2,80,000 = **₹20,00,000**; transferred at cost + 25% = **₹25,00,000**.
Dept C: Dr ₹32,00,000 vs Cr ₹36,60,000 → **Gross Profit ₹4,60,000**.

---

**PART (b): PROFIT AND LOSS ACCOUNT**

Indirect overheads are allocated on prescribed bases. **Interest on Loan** is a financing charge excluded from departmental allocation.

Allocation summary:

| Overhead | …

Question 19

Answer any four of the following

Accepted Answer

**Sub-part (a): AS-2 Non-Compliance and Fair Presentation**

The management's view is **not tenable**. Under **AS-1 'Disclosure of Accounting Policies'** (ICAI), compliance with Accounting Standards is mandatory for all enterprises to ensure that financial statements give a **true and fair view**. A departure from a mandatory Accounting Standard cannot be legitimised merely by disclosing the non-compliance in the Notes to Accounts.

The **Framework for Preparation and Presentation of Financial Statements** (ICAI) makes clear that financial statements cannot be described as complying with Accounting Standards if they contain material departures, regardless of how transparent the disclosure of non-compliance is. Disclosing a wrong does not make it right. Therefore, the financial statements of Bee Limited **do not give a true and fair view**, and the auditor would be required to qualify the audit report for non-compliance with AS-2.

---

**Sub-part (b): Installment Purchase — Dhruv (Assumed: 1st April 2023 purchase, 3 half-yearly installments)**

*Note: The question contains transcription inconsistencies. It is assumed the purchase date is 1st April 2023, with a down payment of ₹40,000 immediately and 3 half-yearly installments of ₹50,000 each commencing 1st October 2023.*

Half-yearly interest rate = 9% ÷ 2 = **4.5%**

Using the **present value / working-backwards method**:

Balance before 3rd installment = 50,000 ÷ 1.045 = **₹47,847**
Balance before 2nd installment = (47,847 …

Question 20

What are the conditions to be fulfilled by a Joint Stock Company to buy-back its equity shares as per Companies Act, 2013? Explain.

Accepted Answer

**Conditions for Buy-Back of Equity Shares under Companies Act, 2013**

Section 68 of the Companies Act, 2013 governs the buy-back of shares by a company. A Joint Stock Company must fulfill the following conditions to buy-back its equity shares:

**1. Authorization by Articles of Association:** The buy-back must be authorized by the Articles of Association of the company. If not so authorized, the Articles must first be amended.

**2. Special Resolution or Board Resolution:** Buy-back must be authorized by a **special resolution** passed in the general meeting. However, if the buy-back is **10% or less** of the total paid-up equity capital and free reserves, it may be authorized by a **Board Resolution** alone.

**3. Ceiling on Buy-Back (25% Limit):** The buy-back of equity shares in any financial year shall not exceed **25% of the total paid-up equity capital and free reserves** of the company in that financial year.

**4. Debt-Equity Ratio:** After the buy-back, the **ratio of the aggregate of secured and unsecured debts owed by the company shall not be more than twice the paid-up capital and its free reserves** (i.e., Debt : Equity ≤ 2:1). The Central Government may prescribe a higher ratio for a class or classes of companies.

**5. Fully Paid-Up Shares:** Only **fully paid-up shares** can be bought back. Partly paid shares are not eligible for buy-back.

**6. Sources of Buy-Back:** The buy-back may be made out of —
- The company's **free reserves**;
- The **securities pre…

Question 21

Following are the Balance Sheet of Hari Ltd. which is in the hands of liquidators: Balance Sheet as on 31/03/2023. Liabilities: Share Capital - 2,000 6% Preference Shares of ₹100 each fully paid ₹2,00,000; Equity Shares of ₹100 each fully paid ₹4,00,000; Equity Shares of ₹100 each ₹75 paid-up ₹3,00,000; Loan from Bank (on security of inventory) ₹2,00,000; Trade payables ₹7,00,000; Total ₹18,00,000. Assets: Fixed Assets ₹4,00,000; Inventory ₹2,40,000; Trade Receivables ₹4,80,000; Profit & Loss account ₹6,00,000; Total ₹18,00,000.

Accepted Answer

**Liquidator's Statement of Account — Hari Ltd. (Liquidation)**

The liquidator must distribute available assets in the following priority under the Companies Act, 2013: (1) Secured creditors to the extent of their security, (2) Preferential creditors (none mentioned here), (3) Unsecured creditors, (4) Preference shareholders, and (5) Equity shareholders.

**Step 1 — Calls on Partly Paid Shares**

The ₹75 paid-up equity shares have an uncalled amount of ₹25 per share. Number of shares = ₹3,00,000 ÷ ₹75 = 4,000 shares. Calls collected = 4,000 × ₹25 = **₹1,00,000**. These are brought into the liquidation pool.

**Step 2 — Total Realisable Assets**

Fixed Assets ₹4,00,000 + Inventory ₹2,40,000 + Trade Receivables ₹4,80,000 + Calls on partly paid shares ₹1,00,000 = **₹12,20,000**. The P&L Account (Dr. balance ₹6,00,000) represents accumulated losses — it is not an asset and is ignored in realisation.

**Step 3 — Payment to Secured Creditor (Bank)**

Bank loan of ₹2,00,000 is secured against Inventory of ₹2,40,000. Bank is paid ₹2,00,000 fully from inventory proceeds. Surplus from inventory = ₹40,000 flows back to the general pool.

**Step 4 — Amount Available After Secured Creditor**

₹12,20,000 − ₹2,00,000 = **₹10,20,000** available for unsecured creditors and shareholders.

**Step 5 — Payment to Unsecured Creditors (Trade Payables)**

Trade payables = ₹7,00,000. Fully paid from the pool. Balance remaining = ₹10,20,000 − ₹7,00,000 = **₹3,20,000**.

**Step 6 — Payment to Preferen…

Question 22

Mr. Takewood keeps his books on single entry system. The following information of Mr. Takewood is given:
(i) Balances as on 1st April, 2023: Cash in Hand ₹4,000, Stock ₹35,000, Cash at Bank ₹28,000, Fixed Assets ₹20,000, Sundry Debtors ₹13,000, Sundry Creditors ₹13,000, Capital Account ₹93,000
(ii) During the year 2022-23, Sundry Creditors were paid ₹36,000 in cash and ₹15,000 in cheque, and received ₹5,000 in cash
(iii) All Sales and Purchases were on credit
(iv) Balances on 31st March, 2023 were: Sundry Debtors ₹27,000 and Sundry Creditors ₹3,000
(v) All expenses debited to profit and loss account were disbursed by cheques except petty expenses amounting to ₹7,500 paid in cash
(vi) Outstanding expenses on 31st March 2023 were ₹2,100
(vii) Net Profit for the year was ₹41,000 after allowin…

Accepted Answer

**PART (a): PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH 2023**

**To Opening Stock:** ₹35,000
**Add: Purchases:** ₹41,000
**Less: Closing Stock:** ₹75,000
**Cost of Goods Sold:** ₹1,000

**By Sales (on credit):** ₹53,600

**Gross Profit:** ₹52,600

**Less: Expenses:**
Petty Expenses (cash): ₹7,500
Outstanding Expenses: ₹2,100
Total Expenses: ₹9,600

**Less: Depreciation on Fixed Assets (10% of ₹20,000):** ₹2,000

**Net Profit:** ₹41,000

---

**PART (b): BALANCE SHEET AS AT 31st MARCH 2023**

**LIABILITIES & CAPITAL** | **ASSETS**
---|---
**Capital Account:** | **Fixed Assets:**
Opening Balance: ₹93,000 | Gross Value: ₹20,000
Add: Net Profit: ₹41,000 | Less: Depreciation (10%): ₹2,000
₹134,000 | Net Value: ₹18,000
Less: Drawings: ₹24,000 | |
Closing Balance: ₹110,000 | **Current Assets:**
 | Stock: ₹75,000
**Current Liabilities:** | Sundry Debtors: ₹27,000
Sundry Creditors: ₹3,000 | Cash in Hand & Bank: ₹(4,900)*
Outstanding Expenses: ₹2,100 | |
₹5,100 | **Total Assets:** ₹115,100
 | |
**TOTAL:** ₹115,100 | **TOTAL:** ₹115,100

*Note: The closing cash balance as derived from the given figures shows a deficiency of ₹4,900. This suggests a possible inconsistency or missing information in the problem data. In practice, this would indicate either unreported receipts, additional investments, or an error in the stated opening figures. For examination purposes, the balance sheet should reflect the closing capital of ₹110,000 derived from opening capital plus profit less dr…

Question 23

On the recommendation of the Board of Directors, the shareholders of the company have approved on 2nd September 2023 a proposal to buy-back the maximum permissible number of equity shares, considering the sufficient funds available at the disposal of the company. The current market value of the company's shares is ₹5.25 per share and in order to induce the existing shareholders to offer their shares for buy-back, it is decided to offer a price of 20% over market value. You are also informed that the Infrastructure Development Reserve is created to satisfy income tax requirements. You are requested to compute the maximum permissible number of equity shares that can be brought back in the light of the above information and also under a situation where the loan funds of the company were eithe…

Accepted Answer

**SHARE BUYBACK – MAXIMUM PERMISSIBLE NUMBER AND ACCOUNTING ENTRIES**

**PART (i): COMPUTATION OF MAXIMUM PERMISSIBLE SHARES**

The maximum permissible shares for buyback are governed by **Section 68, Companies Act 2013**. The buyback amount cannot exceed the **lower of**: (a) 10% of aggregate of paid-up capital and free reserves; or (b) 25% of (paid-up capital + securities premium account balance).

**Critical exclusion**: Infrastructure Development Reserve created to satisfy income tax requirements is excluded from "free reserves" per Section 68(2)(e).

**Note**: The question as presented lacks essential balance sheet details (paid-up capital, free reserves breakdown, securities premium balance, and total issued shares) required for exact numerical computation. The methodology below illustrates the correct approach.

**Buyback consideration per share**: ₹5.25 × 1.20 = **₹6.30 per share**

**Required calculation framework**:
1. Identify total paid-up capital (P)
2. Identify free reserves excluding Infrastructure Development Reserve (R)
3. Identify securities premium account balance (SP)
4. Maximum permissible amount = Min of: [10% of (P + R)] OR [25% of (P + SP)]
5. Maximum shares = Maximum permissible amount ÷ ₹6.30

For illustration, if assumed paid-up capital is ₹1,000 lakh, free reserves (after excluding infrastructure reserve) ₹3,000 lakh, and securities premium ₹2,000 lakh:

**Scenario 1 (₹3,600 lakh loan funds)**: The loan amount does not directly limit the buyback un…

Question 24

Balance on Bills Discounted (01.04.2022) ₹65,500. Discount received during the year ₹1,25,000. An analysis of the bills discounted:

| Amount | Due Date | Rate of Discount (%) |
|---|---|---|
| ₹36,000 | June 7, 2023 | 12 |
| ₹34,200 | June 14, 2023 | 12 |
| ₹14,000 | July 19, 2023 | 10 |
| ₹14,000 | August 10, 2023 | 15 |
| ₹12,500 | September 5, 2023 | 13 |
| ₹11,000 | October 7, 2023 | 14 |

Accepted Answer

**Bills Discounted — Rebate Calculation and Journal Entries (as on 31.03.2023)**

**(i) Rebate on Bills Discounted as on 31.03.2023**

All six bills listed have due dates after 31.03.2023; hence all are outstanding on the balance sheet date. The **rebate on bills discounted** represents the unexpired (unearned) portion of discount, calculated as:

**Rebate = Face Value × Rate of Discount × Unexpired Days / (100 × 365)**

The unexpired days are counted from 31.03.2023 to each bill's due date:

| Bill (₹) | Due Date | Days (31.03.23 to Due Date) | Rate | Rebate (₹) |
|---|---|---|---|---|
| 36,000 | 07.06.2023 | 68 | 12% | 804.82 |
| 34,200 | 14.06.2023 | 75 | 12% | 843.29 |
| 14,000 | 19.07.2023 | 110 | 10% | 421.92 |
| 14,000 | 10.08.2023 | 132 | 15% | 759.45 |
| 12,500 | 05.09.2023 | 158 | 13% | 703.42 |
| 11,000 | 07.10.2023 | 190 | 14% | 801.64 |
| **Total** | | | | **₹4,334.54 ≈ ₹4,335** |

**Rebate on Bills Discounted as on 31.03.2023 = ₹4,335**

**Journal Entries:**

**Entry 1 — 01.04.2022** (Reversal of opening rebate brought forward):
Rebate on Bills Discounted A/c  Dr.  ₹65,500
   To Discount on Bills Discounted A/c       ₹65,500
*(Being opening rebate transferred to Discount account on commencement of new year)*

**Entry 2 — 31.03.2023** (Creation of closing rebate on unexpired discount):
Discount on Bills Discounted A/c  Dr.  ₹4,335
   To Rebate on Bills Discounted A/c           ₹4,335
*(Being rebate on unexpired portion of discount on bills outstanding as on 31.03…

Question 25

What are the requirements an LLP regarding Financial Disclosures, Books of Accounts, Audits, and Annual returns?

Accepted Answer

**LLP Regulatory Requirements under the Limited Liability Partnership Act, 2008 and LLP Rules, 2009**

**1. Books of Accounts (Section 34(1) of the LLP Act, 2008)**

Every LLP is required to maintain **proper books of accounts** at its registered office. The books must be maintained on **cash basis or accrual basis** and in accordance with the **double entry system of accounting**. All books of accounts must be **preserved for a period of 8 years** from the date of their creation.

**2. Financial Disclosures – Statement of Account and Solvency**

Every LLP must prepare a **Statement of Account and Solvency in Form 8** for each financial year (April 1 to March 31). This statement must be:
- Filed with the **Registrar of Companies** within **30 days from the end of six months** of the financial year, i.e., by **30th October** each year.
- Signed by the **designated partners** of the LLP.
- It contains the statement of assets and liabilities, and a declaration of solvency by the designated partners.

Failure to file Form 8 attracts a **penalty of ₹100 per day** for each day of default.

**3. Audit Requirements (Section 34(2) of the LLP Act, 2008)**

Audit of accounts is **not mandatory for all LLPs**. It is compulsory only if:
- The **annual turnover exceeds ₹40 lakhs**, OR
- The **contribution exceeds ₹25 lakhs**.

Where required, the audit must be conducted by a **Chartered Accountant in practice** as defined under the Chartered Accountants Act, 1949. LLPs below these threshol…

Question 26

On 1st April, 2022, the company offered 150 share options to each of its 250 employees at ₹ 70 per share, when the market price was ₹ 160 per share. Fair value per option was ₹ 90. The options were to be exercised between 01-03-2023 and 31-03-2023. 200 employees accepted the offer and paid ₹ 70 per share and the remaining options lapsed. The company closes its books on 31st March every year. You are required to show journal entries as would appear in the books of ABC Ltd. for the year ended 31st March, 2023 with regards to employee stock options.

Accepted Answer

**Assumption:** Face value of shares = ₹10 per share (not stated in question; standard assumption).

The question involves accounting for Employee Stock Options (ESOPs) under the **Guidance Note on Accounting for Employee Share-based Payments** issued by ICAI. The grant date is 1st April, 2022, and the exercise window is 1st March, 2023 to 31st March, 2023 — all within the financial year 2022-23.

The **fair value method** is applied: total compensation expense is measured as the fair value per option (₹90) multiplied by total options granted. This expense is recognised over the vesting period. Since the entire vesting period falls within FY 2022-23, the full expense is booked in a single year.

For **lapsed options** (50 employees who did not exercise): since the options lapsed *after* vesting (employees chose not to exercise during the exercise window), the compensation expense already recognised is **not reversed**. Instead, the corresponding Employee Stock Options Outstanding balance is transferred to **General Reserve**.

**Journal Entries in the books of ABC Ltd. for the year ended 31st March, 2023:**

**(1) On recognition of Employee Compensation Expense (vesting of options):**
Employee Compensation Expense A/c &emsp; Dr. &emsp; ₹33,75,000
&emsp; To Employee Stock Options Outstanding A/c &emsp; ₹33,75,000
*(Being fair value of 37,500 options recognised as compensation expense: 250 × 150 × ₹90)*

**(2) On exercise of options by 200 employees (30,000 options exercised be…

Question 27

Additional information:
(1) Details of Sales during the year 2022-23 are as follows:
• From April 2022 to June 2022 average monthly Sales was ₹6,00,000
• From July 2022 to January 2023 average monthly Sales was ₹9,00,000
• From February 2023 to March 2023 average monthly Sales was ₹15,75,000
(2) There was a loan of ₹1,50,000 at an interest rate of 10% p.a. The Loan was repaid on 1st September, 2022.
(3) Rented space was occupied from 1st June 2022 to 31st August 2022 for which additional rent of ₹5,000 per month was incurred.
(4) Audit fee pertains to Wringler Limited.
(5) Bad debts recovered amounting to ₹17,000 for a sale made in November 2022, have been deducted from bad debts mentioned above.
(6) All investments were sold in June 2022.
(7) Donation is given to a political party by the …

Accepted Answer

**PART (i): TIME RATIO AND SALES RATIO**

Assuming incorporation date of **1st September 2022** (indicated by loan repayment and rent period ending):

**Time Ratio = 5:7**
Pre-incorporation: 1st April to 31st August 2022 = 5 months
Post-incorporation: 1st September 2022 to 31st March 2023 = 7 months

**Sales Ratio:**
Pre-incorporation sales:
- April-June (₹6,00,000 × 3 months) = ₹18,00,000
- July-August (₹9,00,000 × 2 months) = ₹18,00,000
- Total = ₹36,00,000

Post-incorporation sales:
- September-January (₹9,00,000 × 5 months) = ₹45,00,000
- February-March (₹15,75,000 × 2 months) = ₹31,50,000
- Total = ₹76,50,000

**Sales Ratio = 36,00,000 : 76,50,000 = 8:17** (or 36:76.5)

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**PART (ii): STATEMENT ASCERTAINING PRE AND POST-INCORPORATION PROFITS/LOSSES**

[Note: Complete P&L figures not provided in case excerpt. Following items would be allocated:]

**Items allocation principles:**
- **Sales & COGS**: Split using Sales Ratio (8:17)
- **Interest on Loan**: ₹1,50,000 × 10% × 5/12 = **₹6,250 (entirely pre-incorporation)** — loan repaid 1st Sept
- **Additional Rent**: ₹5,000 × 3 months = **₹15,000 (entirely pre-incorporation)** — June to August only
- **Bad Debts**: Adjust for ₹17,000 recovery relating to November 2022 sale (post-incorporation item)
- **Audit Fee**: Deductible; **entirely post-incorporation** — Wringler Limited's statutory audit
- **Donation to Political Party**: **Not deductible under Section 80A of Income Tax Act 1961** — disallowed in both periods
- **Sale…

Question 28

X Ltd. had ₹ 1,00,000 equity share capital divided into 1,000 shares of ₹ 100 each. 100 equity shares of ₹ 10 each fully paid up called up and paid up. 1,500 cumulative preference shares of ₹ 100 each fully paid up. Intangible assets include Goodwill of ₹ 80,000 and patents of ₹ 27,800. Preference shares are in arrears of ₹ 33,000. You are required to show the entries (Ignore dates) under each of the following conditions:

Accepted Answer

**Sub-part (i): Sub-division of Equity Shares**

The 1,000 equity shares of ₹100 each (with ₹80 per share called up and paid up) are sub-divided into 10,000 equity shares of ₹10 each (₹8 per share called up and paid up). The total authorised/issued capital of ₹1,00,000 and the called-up amount of ₹80,000 remain unchanged; only the denomination changes.

| Particulars | Dr (₹) | Cr (₹) |
|---|---|---|
| Equity Share Capital A/c (1,000 shares × ₹100) Dr | 1,00,000 | |
| To Equity Share Capital A/c (10,000 shares × ₹10) | | 1,00,000 |

*(Being 1,000 equity shares of ₹100 each sub-divided into 10,000 equity shares of ₹10 each; called-up amount proportionately reduces from ₹80 per old share to ₹8 per new share)*

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**Sub-part (ii): Conversion of Shares into Stock**

1,000 fully-paid equity shares of ₹100 each are converted into ₹1,00,000 worth of **equity stock**. Stock is not divided into shares of fixed denomination and is freely transferable in any amount.

| Particulars | Dr (₹) | Cr (₹) |
|---|---|---|
| Equity Share Capital A/c (1,000 shares × ₹100) Dr | 1,00,000 | |
| To Equity Stock A/c | | 1,00,000 |

*(Being 1,000 fully paid-up equity shares of ₹100 each converted into ₹1,00,000 equity stock as per resolution)*

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**Sub-part (iii): Conversion of Preference Shares into 11% Unsecured Debentures (including arrears)**

The **1,500 cumulative preference shares** of ₹100 each (fully paid = ₹1,50,000) plus **arrears of preference dividend** of ₹33,000 are together convert…

Question 29

Storck Limited has a subscribed capital of ₹ 21,00,000 in Equity Shares. Capital consisting of 1,50,000 shares of ₹ 10 each fully paid and 1,20,000 shares of ₹ 10 each, called up capital ₹ 6 per share. On 01.04.2022 the company decides to convert partly paid-up shares into fully paid-up shares by way of bonus issue and holders of the partly paid-up shares are also allotted fully paid-up bonus share in the same ratio. The following figures appear in trial balance of Storck Limited as on 31.03.2023: Capital Redemption Reserve ₹ 80,000; Capital Reserve ₹ 2,10,000; Securities Premium ₹ 2,20,000; General Reserve ₹ 12,50,000; Surplus (credit balance in Profit & Loss Account) ₹ 2,40,000. Securities Premium Account includes a premium of ₹ 75,000 for shares issued to vendors pursuant to a scheme of…

Accepted Answer

**Preliminary Analysis:**

Storck Limited has two classes of equity shares:
- **Fully paid shares:** 1,50,000 shares × ₹10 = ₹15,00,000
- **Partly paid shares:** 1,20,000 shares × ₹10 (₹6 called up) = ₹7,20,000 called-up

**Nature of the Bonus Issue:**

On 01.04.2022, the company undertakes a two-part bonus action exclusively in respect of the **partly paid shareholders**:
1. **Conversion:** The uncalled amount of ₹4 per share (₹10 − ₹6) on 1,20,000 partly paid shares is capitalized via bonus → 1,20,000 × ₹4 = **₹4,80,000** (no new shares issued; existing shares made fully paid).
2. **Additional Allotment:** Holders of partly paid shares are also allotted new fully paid bonus shares "in the same ratio" — i.e., in the same ratio as the conversion bonus bears to the face value: ₹4 / ₹10 = **2:5** (2 bonus shares for every 5 partly paid shares held). New bonus shares = 1,20,000 × 2/5 = **48,000 shares** × ₹10 = **₹4,80,000**.

**Total Bonus Required:** ₹4,80,000 + ₹4,80,000 = **₹9,60,000**

**Sources (Minimum Reduction in Free Reserves):**

To minimise the use of free reserves, **non-free reserves** are utilised first. Under Section 63 of the Companies Act 2013, bonus shares may be issued from free reserves, Securities Premium Account, or Capital Redemption Reserve Account. Capital Reserve (non-distributable) is used before free reserves to the extent permissible:

| Source | ₹ |
|---|---|
| Capital Redemption Reserve | 80,000 |
| Capital Reserve | 2,10,000 |
| Securities Premiu…

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