Q1Inventory valuation method change under AS 2
0 marks hard
Case: In the books of G Ltd., closing inventory as at 31.03.2024 amounts to ` 10,40,000 (on the basis of FIFO method). The company decides to change from FIFO method to weighted average method for ascertaining the cost of inventory for 31.3.2024. On the basis of weighted average method, closing inventory as on 31.03.2024 amounts to ` 8,80,000. Realisable value of the inventory as on 31.03.2024 amounts to ` 12,00,000.
What will be the value of inventory in the books and what disclosure should be given in the financial statement on 31.3.2024?
(A) The value of inventory will be ` 8,80,000 and the fact that the valuation method has changed to be disclosed in the financial statement.
(B) The value of inventory will be ` 12,00,000, and full disclosure with the amount the valuation method has changed to be disclosed in the financial statement.
(C) The value of inventory will be ` 12,00,000, and the fact that valuation method has changed to be disclosed in the financial statement.
(D) The value of inventory will be ` 8,80,000, and full disclosure with the amount the valuation method has changed to be disclosed in the financial statement.
Q2Loan disclosure in balance sheet under Schedule III
0 marks hard
Case: A Ltd. has a balance of ` 17,15,000 in the loan account with State Finance Corporation which is inclusive of ` 1,15,000 for interest accrued but not due. The loan is secured by hypothecation of the Plant and Machinery.
As per Schedule III to the Companies Act, 2013 loan is to be disclosed in the balance sheet as:
(A) Disclosed ` 16,00,000 as a secured loan under long-term borrowings.
(B) Disclosed ` 16,00,000 as a secured loan under long-term borrowings and ` 1,15,000 under short-term borrowings.
(C) Disclosed ` 16,00,000 as a secured loan under long-term borrowings and ` 1,15,000 under other current liabilities.
(D) Disclosed ` 16,00,000 as a secured loan under long-term borrowings and no disclosure for ` 1,15,000.
Q3Measurement of by-products and scrap materials
0 marks easy
Most by-products as well as scrap or waste materials, by their nature, are immaterial. Thus, these are measured at:
(A) Cost
(B) Cost or Net Realisable Value whichever is lower
(C) Nil
(D) Net realisable value
Q4Accrual basis of accounting under AS 1
0 marks easy
What do you mean by 'Accrual' in reference to AS-1? Also, specify any three reasons for 'Accrual Basis of Accounting'.
Q5Inventory valuation under AS 2
0 marks easy
From the following information provided by LMN Ltd. for the year 2024, you are required to compute the closing inventory: Raw Material A (Closing balance: 700 units; Cost price including GST ` 280; ITC available ` 25; Freight inward ` 35; Handling charges ` 20; Replacement cost ` 200). Finished Goods B (Closing balance: 1,800 units; Material consumed ` 280; Direct labour ` 80; Direct overhead ` 40; Total fixed overhead for the year ` 3,60,000 on normal capacity of 36,000 units, actual production 30,000 units).
Q6Cash flow statement preparation using direct method
0 marks easy
From the following data of Vishnu Ltd. prepare cash flow statement from Operating activities using direct method as per AS 3: Current Assets (Inventory, Trade receivables, Cash & cash equivalents) and Current Liabilities (Trade payable, Provision for tax) as at 31.03.2024 and 31.03.2023, with Summary of Statement of Profit and Loss showing Sales ` 85,50,000, Cost of sales ` 56,00,000, Interest income ` 20,000, Fire insurance claim ` 1,10,000, Depreciation ` 24,000, Administrative and selling expenses ` 15,40,000, Interest expenses ` 36,000, Foreign exchange loss ` 18,000, Net Profit before tax ` 14,62,000, Income Tax ` 95,000, and Net Profit ` 13,67,000. Note: Trade receivables and Trade payables include amounts relating to credit sale and credit purchase only. Foreign exchange loss represents increment in liability of long-term borrowing due to exchange rate fluctuation.
Q7Events after balance sheet date under AS 4
0 marks hard
Case: (i) Smart Ltd. has an inventory of 50 stitching machines costing ` 5,500 per machine as on 31st March, 2024. The company is expecting heavy decline in demand. During April 2024, prices fell drastically. The company sold 5 machines at ` 4,000 per machine. (ii) A fire broke out in the company's godown on 15th April, 2024. Estimated loss ` 25 lakhs of which 75% is recoverable from Insurance. (iii) The company entered into a sale agreement on 30th March, 2024 to sell a property for ` 7,50,000 (carried in books at ` 5,50,000). Transfer of risk and reward completed in May 2024. (iv) The company rece…
Smart Ltd. closes its books of accounts every year on 31st March. The financial statements for the year ended 31st March, 2024 are to be approved by the approving authority on 30th June 2024. During the first quarter of 2024-2025, the following events / transactions have taken place. You are required to state with reasons, how the above transactions will be dealt with in the financial statement for the year ended 31st March 2024.
Q8Changes in accounting policies under AS 5
0 marks easy
The Accountant of Heera Ltd. has sought your opinion with relevant reasons, whether the following transactions will be treated as change in Accounting Policy or not for the year ended 31st March, 2024. Please advise him in accordance with the provisions of relevant Accounting Standard.
Q9Construction contract accounting under AS 7
0 marks easy
Comment on the treatment of construction contracts as per AS 7.
Q10Revenue recognition under AS 9
0 marks hard
Case: (i) Goods of ` 50,000 sold on 18-03-2024 but delivered at buyer's request on 15-04-2024. (ii) On 13-01-2024 goods of ` 1,25,000 sent on consignment basis, of which 20% goods unsold are lying with consignee as on 31-03-2024. (iii) ` 1,00,000 worth of goods sold on approval basis on 01-12-2023 for 3 months approval period. Buyer approved 75% goods up to 31-01-2024, no approval or disapproval for remaining goods till 31-03-2024.
You are required to advise the accountant of B.S. Ltd., with valid reasons, the amount to be recognized as revenue for the year ended 31st March, 2024 in the following cases in the context of AS-9.
Q11Capitalization of machinery costs under AS 10
0 marks easy
Shrishti Ltd. contracted with a supplier to purchase machinery to be installed in Department A in three months' time. Special foundations required costing ` 1,41,870. Technician employed at ` 45,000 per month supervised for 3 months, billed by Department B at ` 49,500 per month including 10% profit margin. Machine purchased at ` 1,58,34,000 inclusive of IGST @ 12% (input credit available). Transportation charges ` 55,770. Architect appointed at ` 30,000 to supervise installation. Ascertain the amount at which Machinery should be capitalized under AS 10 considering IGST credit is availed and internally booked profits eliminated.
Q12Foreign exchange differences and capitalization under AS 11
0 marks easy
Legal Ltd. is engaged in manufacturing of rubber and requires machineries of latest technology. It resorts to Long Term Foreign Currency Borrowings. On 1st April, 2023, it borrowed US $1 million when exchange rate was 1 $ = ` 63. Funds used for acquiring machineries for three different plants. Machinery useful life 10 years, residual value ` 30,00,000. Earlier, company charged exchange differences to profit and loss account. Now for this new purchase, Legal Ltd. wants to capitalize the exchange difference. Exchange rate on 31st March, 2024 is 1 US $ = ` 62. Company has no old long term foreign currency borrowings except for this amount. Comment whether Legal Ltd. can capitalize the exchange difference to the cost of asset on 31st March, 2024. If yes, calculate the depreciation amount on machineries as on 31st March, 2024.
Q13Accounting for government grants under AS 12
0 marks easy
XYZ Limited has set-up its business in a designated backward area which entitles the company to receive from the Government of India a subsidy of 20% of the cost of investment. Having fulfilled all conditions under the scheme, the company on its investment of ` 75 crore received ` 15 crore as subsidy from the Government in January 2024. The company wants to treat this receipt as an item of revenue and thereby reduce the losses for the year ended on 31st March, 2024. Keeping in view the relevant Accounting Standard, examine whether this action is justified or not.
Q14Investment accounting under AS 13
0 marks easy
Mr. Harsh provides the following details relating to his holding in 10% debentures (face value ` 100 each) of Exe Ltd. held as current assets: 1.4.2023 Opening balance - 12,500 debentures, cost ` 12,25,000; 1.6.2023 Purchased 9,000 debentures @ ` 98 each ex-interest; 1.11.2023 Purchased 12,000 debentures @ ` 115 each cum interest; 31.1.2024 Sold 13,500 debentures @ ` 110 each cum-interest; 31.3.2024 Market value ` 115 each. Due dates of interest: 30th June and 31st December. Brokerage 1% on each transaction. Mr. Harsh closes books on 31.3.2024. Show investment account as it would appear in his books assuming FIFO method.
Q15Accounting for amalgamations under AS 14
0 marks easy
The Summarized Balance Sheets of Gyan Ltd. And Kiran Ltd. as on 31st March 2024 are given. Gyan Ltd. has acquired the business of Kiran Ltd. as on 31 March 2024 as per a specified scheme of merger: (1) Banks agreed to waive-off 50% loan of Gyan Ltd.; (2) Gyan Ltd. will reduce its shares to ` 2 per share and then consolidate 5 such shares into one share of ` 10; (3) Gyan Ltd. will issue 2 equity shares (new) for 3 equity shares of Kiran Ltd. at ` 20 each with face value ` 10; (4) Preference shareholders of Kiran Ltd. will be paid off by issuing equivalent number of 10% Preference shares of Gyan Ltd. at ` 105 per share; (5) Dividend of Kiran Ltd. will be paid after merger; (6) Trade payables of Gyan Ltd. include ` 50 lakhs payable to Kiran Ltd. Pass necessary Journal entries in the books of Gyan Ltd. and prepare Balance Sheet after merger.
Q16Borrowing costs capitalization under AS 16
0 marks easy
U Limited has obtained a term loan of ` 620 lacs for a complete renovation and modernisation of its Factory on 1st April, 2023. Plant and Machinery was acquired under the modernisation scheme and installation was completed on 30th April, 2024. Expenditure of ` 510 lacs was incurred on installation of Plant and Machinery. ` 54 lacs has been advanced to suppliers for additional assets which were also received and installed before 30th April, 2024 (additional asset has taken substantial period of time in its installation). Balance loan of ` 56 lacs has been used for working capital purposes. The company has paid total interest of ` 68.20 lacs during financial year 2023-2024. The accountant seeks your advice how to account for the interest paid in the books of accounts.
Q17Related party identification under AS 18
0 marks easy
SP hotels Limited enters into an agreement with Mr. A for running its hotel for a fixed return payable to him every year. The contract involves the day-to-day management of the hotel, while all financial and operating policy decisions are taken by the Board of Directors of the company. Mr. A does not own any voting power in SP Hotels Limited. Would he be considered as a related party of SP Hotels Limited?
Q18Lease classification under AS 19
0 marks hard
Case: Machine costing ` 30 lakhs, effective life 14 years, company requires it for 3 years, lease rental ` 3 lakhs p.a. in arrears, implicit rate of interest 15%, annuity factor @ 15% for 3 years = 3.36
Sun Limited wishes to obtain a machine costing ` 30 lakhs by way of lease. The effective life of the machine is 14 years, but the company requires it only for the first 3 years. It enters into an agreement with Star Ltd., for a lease rental for ` 3 lakhs p.a. payable in arrears and the implicit rate of interest is 15%. The chief accountant of Sun Limited is not sure about the treatment of these lease rentals and seeks your advice. (Use annuity factor at @ 15% for 3 years as 3.36)
Q19EPS calculation under AS 20
0 marks easy
The following information relates to XYZ Limited for the year ended 31st March, 2024: Net Profit for the year after tax ` 37,50,000; Number of Equity Shares of ` 10 each outstanding ` 5,00,000; Convertible Debentures Issued by the Company (at the beginning of the year): 8% Convertible Debentures of ` 100 each - 50,000 Nos., to be converted into 55,000 Equity Shares. Rate of Income Tax 30%. You are required to calculate Basic and Diluted Earnings Per Share (EPS).
Q20Provisions and contingent liabilities under AS 29
0 marks hard
Case: (i) The company has plants at 3 different locations. It has to shut down one plant due to internal reasons. The plant site is under a rental agreement till 31.3.2024 at ` 80,000 per month. If the company cancels, it has to pay a penal amount equal to six month's rent. The company also has an option to sub-let the site at ` 45,000 per month. (ii) A case has been filed against the company in the consumer court and a notice for levy of a penalty of ` 20 lakhs has been received. The company appointed a lawyer to defend the case for ` 2 lakhs fee, 50% paid and 50% to be paid after finalisation. The…
Saharsh Ltd. is engaged in manufacturing of electric home appliances. The company is in the process of finalizing its accounts for the year ended 31.3.2023 and needs your expert advice on the following issues. Give your answers based on relevant Accounting standard.