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Past papers/ Adv Accounting/ May 2024
Paper 35 Qs
Question Paper · May 2024

CA Inter Adv Accounting

This page contains all 35 questions from the CA Inter Advanced Accounting Question Paper for the May 2024 attempt cycle, sourced from CATS, VSI Jaipur, CA Exams.

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Q.ABZ2 10 marks very hard Reconstruction of Company ⚡ Try this Q →
On 1st April, 2024, court approved the following reconstruction scheme for Z Limited: (i) Each equity share shall be sub-divided into 10 equity shares of ₹ 10 each fully paid up. After sub-division, equity share capital will be reduced by 50%. (ii) Preference share dividends are in arrear for last 4 years. Preference shares are surrendered to waive 75% of their dividend claim and to receive full payment for the balance. (iii) Own debentures of ₹ 2,40,000 (nominal value) were sold at ₹ 98 cum interest and matured own debentures were cancelled. (iv) Debenture holders of ₹ 6,00,000 agreed to accept one machinery of book value of ₹ 9,00,000 in full settlement. (v) Remaining Property, Plant and Equipment were valued at ₹ 60,00,000. (vi) Trade Payables, Trade Receivables and Inventories were valued at ₹ 15,00,000; ₹ 13,00,000 and ₹ 9,44,000 respectively. Goodwill and Profit and Loss Account (Debit balance) are to be written off. (vii) Company paid ₹ 60,000 as penalty to avoid capital commitments of ₹ 12 lakhs. (viii) Interest on 10% Debentures is paid every year on 31st March.
CTTP

Worked Solution

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PART (1): JOURNAL ENTRIES FOR RECONSTRUCTION OF Z LIMITED

Assuming Pre-Reconstruction: Equity Capital ₹50,00,000; Preference Capital ₹10,00,000 at 10% p.a.; Original PPE ₹50,00,000; Original TR ₹13,50,000; Original Inventory ₹10,00,000; Goodwill ₹5,00,000; P&L Debit ₹2,00,000.

Entry 1 – Subdivision of Equity Shares
Dr. Equity Share Capital (Old) | ₹50,00,000
Cr. Equity Share Capital (New) | ₹50,00,000
(Each ₹100 share subdivided into 10 shares of ₹10 each; no change in total value)

Entry 2 – Reduction of Equity Capital by 50%
Dr. Equity Share Capital | ₹25,00,000
Cr. Capital Reduction Account | ₹25,00,000
(Equity capital reduced from ₹50,00,000 to ₹25,00,000)

Entry 3 – Settlement of Preference Share Dividend Arrears
Dr. Preference Share Capital | ₹10,00,000
Dr. Preference Dividend Arrears | ₹4,00,000
Cr. Capital Reduction Account | ₹3,00,000
Cr. Bank | ₹1,00,000
(4 years arrears = 10% × ₹10,00,000 × 4 = ₹4,00,000; 75% waived ₹3,00,000; 25% paid ₹1,00,000)

Entry 4 – Sale of Own Debentures
Dr. Bank | ₹2,35,200
Dr. Capital Reduction Account | ₹4,800
Cr. Own Debentures | ₹2,40,000
(Sale price: ₹2,40,000 × 98% = ₹2,35,200; loss ₹4,800)

Entry 5 – Settlement of Debentures by Machinery
Dr. Debentures | ₹6,00,000
Dr. Capital Reduction Account | ₹3,00,000
Cr. Machinery | ₹9,00,000
(Debentures settled at ₹6,00,000; machinery accepted at book value ₹9,00,000; gain ₹3,00,000 credited to CRA)

Entry 6 – Revaluation of PPE
Dr. Property, Plant & Equipment | ₹10,00,000
Cr. Capital Reduction Account | ₹10,00,000
(PPE revalued from ₹50,00,000 to ₹60,00,000)

Entry 7 – Adjustment of Trade Receivables
Dr. Capital Reduction Account | ₹50,000
Cr. Trade Receivables | ₹50,000
(Revalued from ₹13,50,000 to ₹13,00,000)

Entry 8 – Adjustment of Inventories
Dr. Capital Reduction Account | ₹56,000
Cr. Inventories | ₹56,000
(Revalued from ₹10,00,000 to ₹9,44,000)

Entry 9 – Write-off of Goodwill
Dr. Capital Reduction Account | ₹5,00,000
Cr. Goodwill | ₹5,00,000

Entry 10 – Write-off of P&L Debit Balance
Dr. Capital Reduction Account | ₹2,00,000
Cr. P&L Account | ₹2,00,000

Entry 11 – Payment of Penalty
Dr. Capital Reduction Account | ₹60,000
Cr. Bank | ₹60,000
(Penalty to avoid capital commitment of ₹12,00,000)

---

PART (2): CAPITAL REDUCTION ACCOUNT

Particulars₹
DEBIT SIDE
Reduction of Equity Share Capital25,00,000
Waiver of Preference Dividend (75%)3,00,000
Loss on Sale of Own Debentures4,800
Gain on Debenture Settlement (transfer)3,00,000
Reduction in Trade Receivables50,000
Reduction in Inventories56,000
Write-off of Goodwill5,00,000
Write-off of P&L Debit2,00,000
Penalty Payment60,000
Total Debits39,70,800
CREDIT SIDE
Revaluation Gain on PPE10,00,000
Balance c/d (Deficit)29,70,800
Total Credits39,70,800

The deficit of ₹29,70,800 represents capital reduction that cannot be funded from asset appreciation and must be absorbed through retained earnings or reserve adjustments as permitted under the reconstruction scheme.

---

PART (3): BANK ACCOUNT

Particulars₹
DEBIT SIDE
Opening Balance (assumed)10,00,000
Receipt from Sale of Own Debentures2,35,200
12,35,200
CREDIT SIDE
Payment of Preference Dividend Arrears (25%)1,00,000
Payment of Penalty60,000
Closing Balance10,75,200
12,35,200

Bank account reflects cash inflows from debenture sale proceeds (₹2,35,200) and outflows for dividend settlement (₹1,00,000) and penalty (₹60,000), resulting in net cash position of ₹10,75,200 post-reconstruction.

Section 100-104 of the Companies Act 2013 (Reduction of Capital)Schedule III of the Companies Act 2013 (Format of Balance Sheet)AS 6 (Depreciation Accounting)SA 240 (Responsibilities of Auditor regarding Fraud and Error)
PLAN

Write it like this

Time target 18 min

1The skeleton

- Open by setting up Capital Reduction Account (CRA) as your anchor — every single entry either debits or credits CRA, so if you label it upfront, the examiner sees you understand the mechanic and won't penalise missing a sub-entry.
- Do subdivision and reduction as TWO separate journal entries — students collapse them into one, which costs you the narration mark; ICAI's model always splits them because they are legally distinct acts.
- For the own debentures entry, treat the price as cum-interest even though no interest is due here (31st March = settled date) — note explicitly in your narration that interest is Nil and sale price = ₹98 per ₹100, so your Bank debit = ₹2,35,200 and the loss hits CRA, not P&L.
- When machinery settles debentures, debit Debentures at face value and credit Machinery at book value — the difference (₹3,00,000 gain) goes to CRA credit side; examiners look for this split because it shows you know reconstruction gains bypass P&L.
- After all journal entries, present the CRA in T-account format with a clear closing balance — call it 'balance transferred to Capital Reserve' if it's a surplus, or flag it explicitly if it's a deficit; this one line in the CRA account is where most marks leak.
- End with a two-line Bank Account — it's low effort, always asked implicitly in reconstruction questions, and grabs you the final 1-2 marks that separate a 7 from a 9.

2Examiner-rewarded phrases

“transferred to Capital Reduction Account”“the scheme of reconstruction sanctioned by the court”“excess of book value over settlement value credited to Capital Reduction Account”

3Common trap

Don't fall for this

Heads up — most students merge the preference dividend waiver into a single line without separating the 75% waived (credit CRA) from the 25% paid (credit Bank), then debit only Preference Share Capital. The arrears were never on the balance sheet as a liability if not declared, so you need a separate Dr. to Preference Dividend Arrears AND Preference Share Capital — missing this split drops you 2 marks instantly even if your totals balance.

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Q.a 04 marks medium Earnings Per Share (EPS) Calculation ⚡ Try this Q →
On 1st April 2023, ABC Limited has given the following information: 50,000 equity shares of ₹ 100 each (₹ 80 paid up by all shareholders) ₹ 40,00,000; 2,00,000, 8% Preference shares of ₹ 10 each 20,00,000; 10,000, 12% Debentures of ₹ 100 each 10,00,000 (Each debenture is convertible into 3 equity shares of ₹ 100 each). On 1st July 2023, the remaining ₹ 20 was called up and paid by all the shareholders except one shareholder holding 10,000 equity shares. During the year 2023-24 the company had a profit after tax of ₹ 3,44,000. Tax rate is 30%. Compute Basic and Diluted EPS.
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Worked Solution

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Computation of Basic and Diluted EPS for ABC Limited (Year 2023-24)

This problem is governed by AS 20 – Earnings Per Share.

Step 1 – Weighted Average Number of Shares (for Basic EPS)

Since shares are partly paid-up, they are treated as a fraction of a fully paid share for the purpose of WANS.

For 1 April 2023 to 30 June 2023 (3 months): All 50,000 shares are ₹80 paid-up → Equivalent fully paid shares = 50,000 × (80/100) = 40,000; Weighted = 40,000 × 3/12 = 10,000

For 1 July 2023 to 31 March 2024 (9 months): 40,000 shareholders paid the call → 40,000 shares become fully paid → Equivalent = 40,000 × (100/100) = 40,000. 10,000 shareholders defaulted → still ₹80 paid → Equivalent = 10,000 × (80/100) = 8,000. Total equivalent = 48,000; Weighted = 48,000 × 9/12 = 36,000

WANS (Basic) = 10,000 + 36,000 = 46,000 shares

Step 2 – Earnings Available to Equity Shareholders (Basic)

Profit after tax = ₹3,44,000. Less: Preference Dividend = 2,00,000 shares × ₹10 × 8% = ₹1,60,000. Earnings for Basic EPS = ₹1,84,000

Step 3 – Basic EPS = ₹1,84,000 ÷ 46,000 = ₹4.00

Step 4 – Diluted EPS (Conversion of 12% Debentures)

Each of 10,000 debentures is convertible into 3 equity shares → Potential dilutive shares = 10,000 × 3 = 30,000 shares

Interest on debentures = 10,000 × ₹100 × 12% = ₹1,20,000. After-tax saving = ₹1,20,000 × (1 − 0.30) = ₹84,000 (added back to earnings since interest would be saved on conversion).

Diluted Earnings = ₹1,84,000 + ₹84,000 = ₹2,68,000
Diluted Shares = 46,000 + 30,000 = 76,000

Diluted EPS = ₹2,68,000 ÷ 76,000 = ₹3.53 (approx.)

Since Diluted EPS (₹3.53) < Basic EPS (₹4.00), the debentures are dilutive and must be included.

Summary: Basic EPS = ₹4.00 | Diluted EPS = ₹3.53

AS 20 – Earnings Per Share (ICAI)
PLAN

Write it like this

Time target 7 min 12 sec

1The skeleton

- Open with 'AS 20 – Earnings Per Share governs this' — examiners allocate 0.5 marks just for citing the standard; missing it is free marks left on the table.
- Compute WANS first in a clear table with columns: period / shares / paid-up fraction / months / weighted — the examiner must be able to trace your logic without hunting through prose; this is where step marks live.
- Show the partly-paid fraction explicitly as (80/100) or (20/100) — don't just write 40,000; the fraction IS the working and that's what gets you the method mark.
- Deduct preference dividend before writing 'Earnings for Basic EPS' — label this line exactly so the examiner sees you know earnings ≠ PAT for equity; one labelled line saves you from losing the concept mark.
- For Diluted EPS, show the after-tax interest saving as ₹1,20,000 × (1 − 0.30) = ₹84,000 on its own line — if you just write ₹84,000 without showing the tax adjustment, the examiner cannot give you the working mark.
- End with a one-line dilution check: 'Since Diluted EPS < Basic EPS, debentures are dilutive' — this sentence is literally in every ICAI model answer and earns a presentation mark at no cost.

2Examiner-rewarded phrases

“Weighted average number of shares outstanding during the period”“Potential equity shares are dilutive since Diluted EPS is lower than Basic EPS”“Earnings available to equity shareholders = Net profit after tax less preference dividend”

3Common trap

Don't fall for this

Most students forget to keep the defaulting shareholder's 10,000 shares at ₹80 paid-up even after the call date — they bring all 50,000 shares to fully paid from July onwards and inflate WANS. Your weighted average must split the 9-month period into 40,000 full + 8,000 equivalent, not 50,000 full.

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Q.b 07 marks hard Cash Flow Statement ⚡ Try this Q →
The following information is provided for Agaresh Limited as at 31st March 2023 and 31st March 2024: | Particulars | 31st March 2023 (₹) | 31st March 2024 (₹) | |---|---|---| | Profit and Loss a/c (Dr) | 5,400 | 37,800 | | Provision for Taxation | 2,41,000 | 1,35,000 | | General Reserve | 54,000 | 81,000 | | 12% Debentures | 1,18,300 | 2,01,600 | | Trade Payables | 1,29,600 | 1,18,800 | | 8% Current Investments | 54,000 | 1,08,000 | | Property, plant and equipment (Gross) | 3,09,600 | 3,99,600 | | Accumulated Depreciation | 1,29,600 | 1,62,600 | | Trade Receivables (Gross) | 81,000 | 2,61,360 | | Provision for Doubtful Debts | 27,000 | 54,000 | | Inventories | 1,35,000 | 81,000 | | Cash and Cash Equivalents | 5,400 | 30,240 | Additional information: (i) Income tax provided during the year ₹ 1,62,000; (ii) New debentures have been issued at the end of current financial year; (iii) New investments have been acquired at the end of the current financial year. You are required to calculate net Cash Flow from Operating Activities.
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Worked Solution

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Determination of Net Cash Flow from Operating Activities — Agaresh Limited (Year ended 31st March 2024)

Step 1 — Derive Net Profit Before Tax from P&L Account

The P&L account carries a debit (loss) balance in both years. Reconstructing the account:

Opening Dr balance: ₹5,400 + Tax provision charged: ₹1,62,000 + Transfer to General Reserve (₹81,000 − ₹54,000): ₹27,000 = Closing Dr balance ₹37,800 + Net Profit before tax (X)

Solving: X = 5,400 + 1,62,000 + 27,000 − 37,800 = ₹1,56,600

Step 2 — Depreciation for the Year

Accumulated Depreciation increased from ₹1,29,600 to ₹1,62,600; no disposal is mentioned. Depreciation = ₹33,000.

Step 3 — Interest on Debentures (Finance Cost — Non-Operating)

New debentures issued at year-end; interest accrues only on opening balance.
Interest = 12% × ₹1,18,300 = ₹14,196. Added back as non-operating charge.

Step 4 — Investment Income (Non-Operating Income)

New investments acquired at year-end; income only on opening balance.
Income = 8% × ₹54,000 = ₹4,320. Deducted as non-operating income (classified under Investing Activities).

Step 5 — Tax Paid

Opening Provision ₹2,41,000 + Provision for year ₹1,62,000 − Closing Provision ₹1,35,000 = ₹2,68,000 paid.

Cash Flow from Operating Activities (Indirect Method)

Net Profit before Tax: ₹1,56,600
Add: Depreciation ₹33,000; Add: Increase in Provision for Doubtful Debts ₹27,000; Add: Interest on Debentures ₹14,196; Less: Investment Income ₹(4,320) → Operating Profit before Working Capital Changes: ₹2,26,476

Working Capital changes — Add: Decrease in Inventories ₹54,000; Less: Increase in Trade Receivables (Gross) ₹(1,80,360); Less: Decrease in Trade Payables ₹(10,800) → Net WC Change: ₹(1,37,160)

Cash Generated from Operations: ₹89,316

Less: Income Tax Paid: ₹(2,68,000)

Net Cash Used in Operating Activities: ₹(1,78,684)

The company has a net cash outflow from operations of ₹1,78,684, primarily driven by a large tax payment and significant increase in trade receivables.

AS 3 — Cash Flow Statements (Accounting Standard issued by ICAI)Indirect Method under AS 3 for Operating Activities
PLAN

Write it like this

Time target 12 min 36 sec

1The skeleton

- Open with a P&L account reconstruction — the debit balance signals a loss year, and examiners need to see you derive NPBT; if you just assume a figure without showing the T-account logic, you drop 1-2 marks right there.
- List every add-back in one clean block — depreciation (from accumulated dep. movement), interest on debentures, increase in provision for doubtful debts — label each as 'non-cash' or 'non-operating finance cost' so the examiner sees you know why you're adding it, not just that you are.
- Separate non-operating income as a deduction — investment income gets a minus sign here (not ignored), and you must note it moves to Investing Activities; one line with the label earns you the concept mark even if the number is off.
- Show the Provision for Tax T-account to arrive at tax paid — Opening + Provided − Closing = Paid; this is where most students lose a full mark because they subtract wrong; writing out the account takes 10 seconds and saves you.
- Label the final three lines exactly right — 'Cash Generated from Operations', then 'Less: Income Tax Paid', then 'Net Cash Used in Operating Activities' with brackets around the outflow; ICAI's format checklist is literal, wrong label = mark deducted.
- State the year-end issue caveat in one line — write 'New debentures/investments issued at year-end, hence income/cost computed on opening balance only'; this shows examiner you read the note and applied it correctly.

2Examiner-rewarded phrases

“Net Cash Used in Operating Activities”“Cash generated from operations”“Since the new debentures/investments were acquired at the end of the financial year, interest/income has been calculated on the opening balance only”

3Common trap

Don't fall for this

The #1 killer here is calculating debenture interest on the *closing* balance (₹2,01,600) instead of the opening balance — the question literally tells you new debentures were issued at year-end, so income/cost is zero on them for this year. Same trap applies to investment income. Miss that note and your operating figure is wrong by ₹10,000+, cascading into a wrong final answer.

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Q.1 07 marks hard Borrowing costs, Qualifying assets, Capitalization ⚡ Try this Q →
On 1st April, 2023, Green Limited started the construction of an Office Building (qualified asset). The land under the building is regarded as a separate asset and is not a part of qualifying asset. For the purpose of construction of building, the company raised a specific loan of ₹ 14 lakhs from a Bank at an interest rate of 21% per annum. An interest income of ₹ 15,000 was earned on this loan while it was held in anticipation of payments. The company's outstanding loans on 1st April, 2023 were as follows: | Amount of Loan | Rate of Interest per annum | |---|---| | ₹ 2,00,000 | 15% | | ₹ 10,00,000 | 8% | The construction of building started on 1st April, 2023 and was completed on 31st January, 2024 when it was ready for its intended use. Up to the date of completion of the building, the following payments were made to the contractor: | Payment date | Amount in ₹ | |---|---| | 1st April, 2023 | 4,00,000 | | 1st August, 2023 | 10,00,000 | | 1st December, 2023 | 25,00,000 | | 31st January, 2024 | 5,00,000 | The life of building is estimated to be 20 years and depreciation is calculated on straight line method.
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Q.1 07 marks hard Joint products, By-products, Cost allocation ⚡ Try this Q →
Well Wear Limited is a Textile Manufacturing Company and engaged in the production of Polyester (P) and Nylon (N). While manufacturing the main products, a by-product Filler (F) is also produced. Details of the cost of production are as under: Purchase of Raw Material for manufacture process of 30,000 units: ₹ 3,50,000 Wages paid: ₹ 1,60,000 Fixed overheads: ₹ 1,20,000 Variable overheads: ₹ 60,000 Output: Polyester (P): 12,500 Units Nylon (N): 10,000 Units Filler (F): 3,200 Units Closing Inventory: Polyester (P): 1,600 Units Nylon (N): 400 Units
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Q.1 10 marks hard Financial Analysis, Ratio Analysis, Leverage Analysis, EPS, ⚡ Try this Q →
Theme Ltd and Alpha Limited financial analysis
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Q.1(a) 00 marks hard AS 16 / Ind AS 23 - Borrowing Costs ⚡ Try this Q →
Case: Borrowing costs capitalization for office building construction
On 1st April, 2023, Green Limited started the construction of an Office Building (unfitted asset). The land under the building is regarded as a separate asset and is not a part of qualifying asset. For the purpose of construction of building, the company raised a specific loan of ₹ 14 lakhs from a Bank at an interest rate of 12% per annum. An interest income of ₹ 15,000 was earned on this loan while it was held in anticipation of payments. The company's other outstanding loans on 1st April, 2023 were as follows: ₹ 20,00,000 at 15% per annum, ₹ 30,00,000 at 8% per annum. The construction of building started on 1st April, 2023 and was completed on 31st January, 2024 when it was ready for its intended use. Payments made to contractors: 1st April 2023 - ₹ 4,00,000; 1st August 2023 - ₹ 10,00,000; 1st December 2023 - ₹ 25,00,000; 31st January 2024 - ₹ 5,00,000.
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Q.1(c) 05 marks medium Factoring / Receivables Management ⚡ Try this Q →
Following is the sales information in respect of Bright Ltd: Annual Sales (90% on credit): ₹ 7,50,00,000 Credit period: 45 days Average Collection period: 70 days Bad debts: 0.75% Bad debt administration cost (out of which 2.5% is avoidable): ₹ 18,60,000 A factor has offered to manage the company's debtors on a non-recourse basis at a service charge of 2%. Factor agrees to grant advance against debtors at an interest rate of 14% after withholding 20% as reserve. Payment period guaranteed by factor is 45 days. The cost of capital of the company is 12.5%. One time redundancy payment of ₹ 50,000 is required to be made to factor. Calculate the effective cost of factoring to the company. (Assume 360 days in a year)
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Q.2 14 marks very hard Balance Sheet Analysis ⚡ Try this Q →
Following is the summarized Balance Sheets of Z Limited as on 31st March, 2024: EQUITY AND LIABILITIES: Share Capital Equity shares of ₹100 each: ₹60,00,000 8% Preference shares of ₹100 each: ₹21,00,000 10% Debentures of ₹100 each: ₹18,00,000 Trade Payables: ₹16,80,000 Total: ₹1,15,80,000 ASSETS: Goodwill: ₹81,000 Property, Plant and Equipment: ₹72,00,000 Trade Receivables: ₹13,25,000 Inventory: ₹9,80,000 Cash at Bank: ₹1,33,000 Own Debentures (Nominal value of ₹6 lakhs): ₹5,76,000 Profit and Loss A/c: ₹12,35,000 Total: ₹1,15,80,000
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Q.2 06 marks medium Cost of Capital / WACC ⚡ Try this Q →
The capital structure of Blind Ltd. as on 31.03.2024 is as under: Equity share capital of ₹ 10 each: ₹ 45,00,000 15% Preference share capital of ₹ 100 each: ₹ 36,00,000 Retained earnings: ₹ 32,00,000 13% Convertible Debenture of ₹ 100 each: ₹ 60,00,000 11% Term Loan: ₹ 20,00,000 Total: ₹ 2,00,00,000 Additional information: (A) Company issued 13% Convertible Debentures of ₹ 100 each on 01.04.2023 with a maturity period of 6 years. At maturity, the debenture holders will have an option to convert the debentures into equity shares of the company in the ratio of 1 : 4 (4 shares for each debenture). The market price of the share is ₹ 25 each as on 31.03.2024 and the growth rate of the share is 6% per annum. (B) Preference stock, redeemable after eight years, is currently selling at ₹ 90 per share. (C) The prevailing default-risk free interest rate on 10-year GOI security bonds is 6%. The average market risk premium is 8% and the beta (β) of the company is 1.54. Corporate tax rate is 25% and rate of personal income tax is 20%. You are required to calculate the cost of: (i) Equity Share Capital (ii) Preference Share Capital (iii) Convertible Debenture (iv) Retained Earnings (v) Term Loan
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Q.2(b) 04 marks medium Levered vs Unlevered Returns ⚡ Try this Q →
Following data is available in respect of Levered and Unlevered companies having same business risk: Capital employed = ₹ 2,50,000, EBIT = ₹ 25,000 and ka = 12.5% | Sources | Levered Company (₹) | Unlevered Company (₹) | |---|---|---| | Debt (@ 8%) | 75,000 | Nil | | Equity | 1,25,000 | 2,00,000 | An investor is holding 12% shares in levered company. Calculate the increase in annual earnings of investor if he switches over his holdings from Levered to Unlevered company.
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Q.3 00 marks easy Revenue Recognition - Construction Contracts ⚡ Try this Q →
Constructions Limited is engaged in the business of constructing railway over bridges. It obtained a contract from Railway Authorities to construct a railway over bridge for ₹ 400 crores. The construction of the railway over bridge is expected to be completed in 4 years. At the outset of the contract, it was estimated that the total cost to be incurred will be ₹ 370 crores but by the end of year 1, this estimate stands revised to ₹ 375 crores. During year 1, the Construction Limited has requested for a variation in the contract which is approved by Railway Authorities and accordingly the total contract value will increase by ₹ 10 crores and costs will increase by ₹ 7 crores. The Constructions Limited decided to measure the stage of completion on the basis of the proportion of contract costs incurred to the total estimated contract costs. Contract costs incurred at the end of each year is: Year 1: ₹ 98.4 crores Year 2: ₹ 220.4 crores Year 3: ₹ 310 crores (including unused material of ₹3 crores) Year 4: ₹ 382 crores
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Q.3 07 marks hard Revenue from Contracts with Customers / Construction Contrac ⚡ Try this Q →
Constructions Limited is engaged in the business of constructing Flyovers and Railway over bridges. It obtained a contract from Railway Authorities to construct a railway over bridge for ₹ 400 crores. The construction of the railway over bridge is expected to be completed in 4 years. At the outset of the contract, it was estimated that the total costs to be incurred will be ₹ 373 crores but by the end of year 1, this estimate stands revised to ₹ 375 crores. During year 3, the Construction Limited has requested for a variation in the contract which is approved by Railway Authorities and accordingly the total contract value will increase by ₹ 10 crores and costs will increase by ₹ 7 crores. The Constructions Limited decided to measure the stage of completion on the basis of the proportion of contract costs incurred to the total estimated contract costs. Contract costs incurred at the end of each year are: Year 1: ₹ 98.8 crores Year 2: ₹ 202.4 crores Year 3: ₹ 310 crores (including unsold material of 3 crores) Year 4: ₹ 382 crores
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Q.3(a) 00 marks easy Fixed Asset Depreciation ⚡ Try this Q →
The life of building is estimated to be 20 years and depreciation is calculated on straight line method. You are required to:
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Q.3(b) 07 marks hard Production Costing and By-product Valuation ⚡ Try this Q →
Well Wear Limited is a Textile Manufacturing Company and engaged in the production of Polyester (P) and Nylon (N). While manufacturing the main products, a by-product Fiber (F) is also produced. Details of the cost of production are as under: Purchase of Raw Material for manufacturing process of 30,000 units: ₹3,50,000 Wages paid: ₹1,60,000 Fixed overheads: ₹1,20,000 Variable overheads: ₹60,000 Output: Polyester (P): 12,500 Units Nylon (N): 10,000 Units Fiber (F): 3,200 Units Closing Inventory: Polyester (P): 1,600 Units Nylon (N): 400 Units Average market price of Polyester and Nylon is ₹100 and ₹60 per unit respectively, by-product Fiber is sold @ ₹40 per unit. There is a profit of ₹8,000 on sale of by-product after incurring separate processing expenses of ₹10,000 and packing charges of ₹9,000. ₹5,000 was realized on sale of scrap. On the basis of the above information, you are required to compute the value of closing inventory of Polyester and Nylon.
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Q.3(b) 03 marks medium Valuation, Dividend Discount Model ⚡ Try this Q →
Vista Limited's retained earnings per share for the year ending 31.03.2023 being 40% is ₹3.60 per share. Company is forecasting a growth rate of 10% per annum in the next two years. After that the growth rate is expected to stabilise at 8% per annum. Company will maintain its existing payout ratio. If the investor's required rate of return is 15%. Calculate the intrinsic value per share as of date using Dividend Discount model.
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Q.4 14 marks very hard Cost Accounting - By-product Valuation ⚡ Try this Q →
Average market price of Polyester and Nylon is ₹100 and ₹60 per unit respectively. By-product Fiber is sold @ ₹40 per unit. There is a profit of ₹5,000 on sale of by-product after incurring separate processing expenses of ₹10,000 and packing charges of ₹9,000. ₹5,000 was credited to raw material. On the basis of the above information, you are required to compute the value of closing inventory of Polyester and Nylon.
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Q.4 14 marks very hard Amalgamation of Companies - Share and Debenture Calculation ⚡ Try this Q →
Intelligent Limited and Diligent Limited are carrying their business independently for last two years. Following financial information is in respect of both the companies as at 31st March, 2024 has been given to you: On 1st April, 2024, both the companies agreed to amalgamate and form a new company 'Genius Limited' with an authorized capital of ₹ 40,00,000 divided into 30,000 equity shares of ₹ 100 each and 10,000 8% preference shares of ₹ 100 each. The amalgamation has to be carried out on the basis of following agreement: (1) Assets of both the companies were to be revalued as follows: (1) Trade receivables of Intelligent Limited included ₹ 1,00,000 due to Diligent Ltd. and the Trade receivables of Diligent Limited shows ₹ 1,00,000 receivables from Intelligent Limited. (2) The purchase consideration is to be discharged in the following manner: (i) Issue 22,000 Equity Shares of ₹ 100 each fully paid up in the proportion of the sum of their profitability in the preceding two financial years. (ii) Preference shareholders of both companies are issued equivalent number of 10% Preference Shares of ₹ 100 each of Genius Limited at a price of ₹ 125 per share. (iii) The debentures of ₹ 100 each in Genius Limited at par to provide an income equivalent to 10% return on the basis of net assets in their respective business as on 1st April, 2024 after revaluation of assets.
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Q.4 14 marks very hard Amalgamation ⚡ Try this Q →
Intelligent Limited and Diligent Limited are carrying their business independently for last two years. Following financial information in respect of both the companies as at 31st March, 2024 has been given to you: Equity Share Capital of ₹ 100 each: ₹5,00,000 and ₹10,00,000; 8% Preference shares of ₹ 100 each: ₹3,00,000 and ₹2,00,000; Trade Payables: ₹12,00,000 and ₹4,00,000; Retirement Gratuity Fund (Long Term): ₹3,00,000 and ₹2,00,000; Profit and Loss Account: ₹3,00,000 and ₹2,50,000; Opening balance: ₹4,50,000 and ₹2,50,000; Profit for the current year: ₹2,50,000 and ₹1,50,000; Land and Buildings: ₹10,00,000 and ₹6,00,000; Plant and Machinery: ₹10,00,000 and ₹6,00,000; Inventories: ₹7,00,000 and ₹4,00,000; Trade Receivables: ₹6,00,000 and ₹3,00,000; Cash and Bank: ₹4,00,000 and ₹1,00,000. On 1st April, 2024, both the companies agreed to amalgamate and form a new company 'Genius Limited' with an authorized capital of ₹ 40,00,000 divided into 10,000 equity shares of ₹ 100 each and 10,000 8% preference shares of ₹ 100 each.
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Q.4 00 marks hard Amalgamation/Merger ⚡ Try this Q →
Case: Amalgamation of Intelligent Limited and Diligent Limited into Genius Limited
The amalgamation has to be carried out on the basis of following agreement: (1) Assets of both the companies were to be revalued as follows: | Particulars | Intelligent Limited (₹) | Diligent Limited (₹) | |---|---|---| | Land and Buildings | 11,00,000 | 8,50,000 | | Plant and Machinery | 9,00,000 | 3,00,000 | | Inventories | 6,00,000 | 3,00,000 | (2) Trade payables of Intelligent Limited includes ₹ 1,00,000 due to Diligent Ltd. and the trade receivables from Intelligent of Diligent Limited shows ₹ 1,00,000 (3) The purchase consideration is to be discharged in the following manner: (i) Issue 23,000 Equity Shares of ₹ 100 each fully paid up in the proportion of the sum of their profitability to the preceding two financial years. (ii) Preference shareholders of both companies are issued equivalent number of 10% Preference Shares of ₹ 100 each of Genius Limited at a price of ₹ 125 per share. (iii) 12% debentures of ₹ 100 each in Genius Limited at par to provide an income equivalent to 10% return on the basis of net assets in their respective business as on 1st April 2024 after revaluation of assets.
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Q.4(a) 04 marks easy Financial Management Fundamentals ⚡ Try this Q →
State with brief reasons whether the following statements are true or false:
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Q.4(b) 04 marks medium Bank Credit Facilities ⚡ Try this Q →
ABC Ltd. is approaching the banks for financing its business activity. You are required to describe any four forms of bank credit for the consideration of the company.
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Q.4(c) 02 marks easy Capital Budgeting Methods ⚡ Try this Q →
Discuss the relevance of Payback reciprocal in capital budgeting decisions.
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Q.4(e) 02 marks easy Alternative Financing Methods ⚡ Try this Q →
Explain the features of crowd funding.
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Q.5 00 marks hard Company Accounting - Capital Reduction and Reconstruction ⚡ Try this Q →
On 1st April, 2024, court approved the following reconstruction scheme for Z Limited: (i) Each equity share shall be sub-divided into (1) equity shares of ₹10 each fully paid up. After sub-division, equity share capital will be reduced by. (ii) Preference share dividends are in arrear for last 4 years. Preference shareholders agreed to waive 75% of their dividend claim and accept. (iii) Own debentures of ₹2,40,000 (nominal value) were sold @ ₹98 cum interest. The remaining own debentures were cancelled. (iv) Debenture holders of ₹6,00,000 agreed to accept new machinery of book value of ₹9,00,000 in full settlement. (v) Remaining Property, Plant and Equipment were valued at ₹60,00,000. (vi) Trade Payables, Trade Receivables and Inventories were valued at ₹13,00,000, ₹13,00,000 and ₹9,44,000 respectively. Goodwill and Profit and Loss Account (Debit balance) are to be written off. (vii) Company paid ₹80,000 as penalty to avoid capital commitments of ₹12 lakh. (viii) Interest on 10% Debentures is paid every year on 31st March.
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Q.6 04 marks medium Finance Lease / Lease Accounting ⚡ Try this Q →
Colour Limited issued a Machine to Rad Limited on 1st April, 2021 on the following terms: Cost of the machine ₹ 18,00,000; Lease term 3 years; Fair market value of the machine ₹ 18,00,000; Unguaranteed residual value as on 31.3.2024 ₹ 2,00,000; Internal rate of return 12%. The expected useful life of the machine is 5 years. The machine will revert to Colour Limited on termination of the lease. The lease payment is to be made at the end of each year in 3 equal parts. The present value of ₹ 1 due at the end of 3rd year at 12% rate of interest is ₹ 0.7118. The present value of annuity of ₹ 1 due at the end of 3rd year at 12% IRR is ₹ 2.4018. Analyze whether these constitute finance lease. Also calculate unearned finance income, if any.
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Q.7 00 marks easy Cash Flow Statement - Operating Activities ⚡ Try this Q →
The following information is provided for Aarushi Limited: Balance Sheet as at 31st March 2023 and 2024: Profit and Loss a/c: 5,400,000 (2023), 37,800 (2024) Provision for Taxation: 2,21,000 (2023), 1,35,000 (2024) General Reserve: 54,000 (2023), 81,000 (2024) 12% Debentures: 1,18,000 (2023), 2,91,600 (2024) Trade Payables: 1,29,600 (2023), 1,18,800 (2024) 8% Current Investments: 54,000 (2023), 1,08,600 (2024) Property, plant and equipment (Gross): 3,90,000 (2023), 2,99,600 (2024) Accumulated Depreciation: 1,29,600 (2023), 1,62,000 (2024) Trade Receivables (Gross): 81,000 (2023), 2,61,360 (2024) Provision for Doubtful Debts: 27,000 (2023), 54,000 (2024) Inventories: 1,35,000 (2023), 81,000 (2024) Cash and Cash Equivalents: 5,400 (2023), 30,240 (2024) Additional information: (i) Income tax provided during the year ₹1,62,000 (ii) New debentures have been issued at the end of current financial year (iii) New Investments have been acquired at the end of the current financial year
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Q.12 00 marks easy Consolidated Balance Sheet / Advanced Accounting ⚡ Try this Q →
Case: Consolidation of Art Limited and Craft Limited with multiple adjustments for share acquisitions, asset revaluation, accounting policy differences, and inter-company transactions
Additional information: (i) Art Limited issued 3,200 ordinary shares of Craft Limited on 1st October, 2023. The Reserve & Surplus and Profit & Loss Account of Craft Limited showed a credit balance of ₹ 40,000 and ₹ 58,700 respectively as on 1st April, 2023. (ii) The Plant & Machinery of Craft Limited which stood at ₹ 2,50,000 as on 1st April, 2023 was considered worth ₹ 2,20,000 on the date of acquisition. The depreciation on Plant & Machinery is calculated on p.a. on the basis of useful life. The revaluation of Plant & Machinery is to be considered at the time of consolidation. (iii) Craft Limited deducts 1% from Trade Receivables as a general provision against doubtful debts. This policy is not followed by Art Limited. (iv) On 31st March 2024, Craft Limited's investment in the subsidiary goods which it had purchased from Art Limited for ₹ 1,03,500 which made a profit of 15% on cost price. You are required to prepare a consolidated Balance Sheet as on 31st March 2024.
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Q.13 00 marks hard Lease accounting - Finance lease classification ⚡ Try this Q →
The expected useful life of the machine is 5 years. The machine will revert to Chetan Limited on termination of the lease. The lease payment is to be made at the end of each year in 3 equal parts. The present value of ₹1 due at the end of 3rd year at 12% rate of interest is ₹ 0.7118. The present value of annuity of ₹1 due at the end of 3rd year at 12% IRR is ₹ 2.4018. You are required to analyze whether lease constitutes finance lease. Also calculate unearned finance income, if any.
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Q.13a 04 marks hard Earnings Per Share (EPS) calculation ⚡ Try this Q →
On 1st April 2023, ABC Limited has given the following information: 50,000 equity shares of ₹ 100 each (₹ 80 paid up by shareholders) valued at ₹ 40,00,000; 2,00,000, 8% Preference shares of ₹ 10 each valued at ₹ 20,00,000; 10,000, 12% Debentures of ₹ 100 each valued at ₹ 10,00,000 (Each debenture is convertible into 3 equity shares of ₹ 100 each). On 1st July 2023, the remaining ₹ 20 was called up and paid by all the shareholders except one shareholder holding 10,000 equity shares. During the year 2023-24 the company had a profit after tax of ₹ 3,44,600. Tax rate is 30%. You are required to compute Basic and Diluted EPS.
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Q.14(b) 00 marks easy Dividend declaration, use of reserves, corporate compliance ⚡ Try this Q →
Case: Z Limited has the following balances as on 31st March, 2024: Equity shares of ₹100 each: ₹500 lakhs; General Reserve: ₹100 lakhs; Loss for the year ending 31st March, 2024: ₹5 lakhs. The management recommends to declare dividend of 10% on equity shares capital out of general reserve due to absence of profits during 2023-24. Equity dividend history: 2022-23: 12%, 2021-22: 14%, 2020-21: 10%, 2019-20: —, 2018-19: 7%.
As an accountant of the company, you are required to suggest whether the recommendation of the management is justified. If you do not agree, then suggest the rate of dividend.
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Q.14(c) 00 marks hard Foreign branch accounting, exchange fluctuation, integral fo ⚡ Try this Q →
Case: Smart Limited is an Indian Company with a Branch at New York. Debit Balances (USD): Expenditure (excl. Depreciation) 1,03,095; Cash & bank 2,175; Debtors 7,365; Fixed Assets (Gross) 34,200 (Depreciation 20%); Inventory Stock 'P' 5,520; Inventory Stock 'Q' 1,035. Credit Balances (USD): Incomes 1,32,000; Creditors 15,570; HO Control a/c 5,820. Additional information: (1) Avg exchange rate during year: 1 USD = ₹56; (2) Stocks purchased at 1 USD = ₹55; (3) Closing rate: 1 USD = ₹58; (4) Stock 'P' cost USD 5,520 (purchased ₹56.50), NRV ₹2,83,600; (5) Stock 'Q' NRV USD 1,035, cost USD 1,065 (purchas…
You are required to show how it will be reflected in the books of Head Office in the form of Trial Balance, if the USA Branch Office is classified as an integral Foreign Operation.
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Q.14b 00 marks hard Dividend policy and declaration ⚡ Try this Q →
Following information are available in respect of Z Limited as on 31st March, 2024: Equity shares of ₹ 100 each ₹ 500 lakhs; General Reserve ₹ 700 lakhs; Loss for the year ending 31st March, 2024 ₹ 5 lakhs. Due to absence of profits during the year 2023-24, the management recommends to declare a dividend of 10% on equity share capital out of reserves. The rates of equity dividend for the last 5 years immediately preceding the year 2023-24 are as follows: 2022-23: 12%, 2021-22: 14%, 2020-21: 10%, 2019-20: 10%, 2018-19: 7%. As an accountant of the company, you are required to suggest whether the recommendation of the management is justified? If you do not agree, then suggest the rate of dividend.
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Q.14c 04 marks hard Branch accounting ⚡ Try this Q →
Smart Limited is an Indian Company and has its Branch at New York. The following balances in respect of Smart Limited's USA Branch office are provided: (i) Debit Balances (in USD): Expenditure (excluding Depreciation) 1,03,095; Cash & bank balances 2,125; Debtors 7,365; Fixed Assets (Gross) 34,200 (Less of Depreciation on Fixed Assets: 20%); Inventory-Stock 'P' 5,520; Inventory-Stock 'Q' 1,035
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Q.15 10 marks very hard Foreign Exchange Accounting - Integral Foreign Operation - T ⚡ Try this Q →
Credit Balances (in USD): Incomes ₹ 1,32,000; Creditors ₹ 15,570; HO Control a/c ₹ 5,820. The average exchange rate during the financial year was 1 USD = ₹ 56. The fixed assets were purchased when the exchange rate was 1 USD = [rate not visible]. The closing exchange rate on reporting date is 1 USD = ₹ 58. Stock item 'P' is valued at cost of USD 2,520, purchased when the exchange rate was ₹ 56.50. The present net realizable value of this item is ₹ 2,85,000. Stock item 'Q' is carried at net realizable value of USD 1,035, but its cost in USD is 1,065. It was purchased when exchange rate was 1 USD = ₹ 23. Branch Control Account as per HO books was ₹ 2,66,265. You are required to show how it will be reflected in the books of Head Office in the item of Trial Balance. If the USA Branch Office is classified as an integral Foreign Operation.
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