Question 1

Prepare Cash Flow from Investing Activities of Furnishings Limited for the year ended 31-3-2015.

Accepted Answer

**Incomplete Question — Data Not Provided**

The question asks to prepare the Cash Flow from Investing Activities for Furnishings Limited for the year ended 31-3-2015, but **no supporting financial data has been supplied** — neither the Balance Sheet, Notes to Accounts, nor any Additional Information (e.g., purchase/sale of fixed assets, investments, interest/dividend received, etc.) are included in the question as submitted.

**Without the underlying data, this question cannot be solved.**

To prepare Cash Flow from Investing Activities under **AS 3 — Cash Flow Statements**, the following information is typically required:

1. **Opening and Closing balances** of Fixed Assets (tangible and intangible), Capital Work-in-Progress, and Investments from the Balance Sheet.
2. **Accumulated Depreciation** figures or the Provision for Depreciation account.
3. **Additional Information** disclosing: (a) cost/book value of assets sold and sale proceeds received; (b) assets purchased during the year; (c) investments purchased/sold; (d) interest received on investments; (e) dividends received.

**Typical format of Cash Flow from Investing Activities (for reference):**

Please re-submit the question along w…

Question 2

A construction contract has a fixed price contract for ₹9,000 lacs to build a bridge in 3 years. Given a summary of financial data with Initial Amount for revenue assessed, Variation in Revenue, Current costs incurred, and Estimated profit for phase contracts. Compute year-wise revenue, expenses, cost to complete, and profit to be recognized in the Statement of Income under IND AS 11 (revised).

Accepted Answer

**Construction Contract — Revenue Recognition under Ind AS 11 (Percentage of Completion Method)**

Under **Ind AS 11** (Construction Contracts), revenue and expenses on a fixed-price contract are recognised by reference to the **stage of completion** at the end of each reporting period. The stage of completion is determined as: **Costs incurred to date ÷ Total estimated contract costs**.

**Given Data (₹ in lacs):**

| Particulars | Year 1 | Year 2 | Year 3 |
|---|---|---|---|
| Initial contract revenue | 9,000 | 9,000 | 9,000 |
| Variations in revenue | — | 200 | 200 |
| **Total contract revenue** | **9,000** | **9,200** | **9,200** |
| Costs incurred to date (cumulative) | 2,093 | 6,168 | 8,200 |
| Estimated costs to complete | 5,607 | 2,032 | — |
| **Total estimated contract cost** | **7,700** | **8,200** | **8,200** |
| **Estimated total profit** | **1,300** | **1,000** | **1,000** |

**Stage of Completion:**
- Year 1: 2,093 ÷ 7,700 = **27.18%**
- Year 2: 6,168 ÷ 8,200 = **75.22%**
- Year 3: 8,200 ÷ 8,200 = **100%**

**Statement of Income — Year-wise Recognition (₹ in lacs):**

| Particulars | Year 1 | Year 2 | Year 3 | Total |
|---|---|---|---|---|
| Revenue recognised | 2,446 | 4,474 | 2,280 | **9,200** |
| Expenses recognised | 2,093 | 4,075 | 2,032 | **8,200** |
| **Profit recognised** | **353** | **399** | **248** | **1,000** |

**Verification:** Total profit = ₹9,200 – ₹8,200 = **₹1,000 lacs** ✓

Note: Although **Ind AS 115** (Revenue from Contracts with Customers) …

Question 3

Mr. Mend gives the following information relating to items forming part of inventory as on 31-3-2015. His factory produces X using Raw material A: (i) 600 units of Raw material A purchased at ₹120. Replacement cost of raw material A on 31-3-2015 is ₹90 per unit. (ii) 500 units of Semi-Finished goods in process of producing X at cost incurred ₹260 per unit. These units can be finished next year by incurring additional cost of ₹60 per unit. (iii) 1,500 units of finished product X with total cost incurred ₹320 per unit. Expected selling price of Product X is ₹300 per unit. Determine how each item of inventory will be valued as on 31-3-2015. Also calculate the value of total inventory as on 31-3-2015.

Accepted Answer

**Valuation of Inventory as on 31-3-2015 under AS 2 (Valuation of Inventories)**

As per **AS 2**, inventories are valued at the **lower of cost or Net Realisable Value (NRV)**.

**Item (i): Raw Material A — 600 units**

Cost = ₹120 per unit. Replacement cost = ₹90 per unit.

As per AS 2, raw materials are **not written down below cost** merely because of a fall in replacement cost. However, if the **finished goods in which they will be incorporated are expected to be sold below cost**, then the raw material should be written down, and **replacement cost** is the best measure of NRV for raw materials.

Since finished product X has a cost of ₹320 but NRV of ₹300 (i.e., selling price < cost), raw material A must be written down to replacement cost.

**Value per unit = ₹90 (replacement cost)**
**Value of Raw Material A = 600 × ₹90 = ₹54,000**

**Item (ii): Semi-Finished Goods (WIP) — 500 units**

Cost incurred = ₹260 per unit. Additional cost to finish = ₹60 per unit.

NRV of WIP = Expected selling price of finished product X − Estimated costs to complete = ₹300 − ₹60 = **₹240 per unit**

Since NRV (₹240) < Cost (₹260), WIP is valued at NRV.

**Value per unit = ₹240**
**Value of Semi-Finished Goods = 500 × ₹240 = ₹1,20,000**

**Item (iii): Finished Product X — 1,500 units**

Cost = ₹320 per unit. Expected selling price = ₹300 per unit (NRV = ₹300, no selling costs mentioned).

Since NRV (₹300) < Cost (₹320), finished goods are valued at NRV.

**Value per unit = ₹300**
**Value of…

Question 4

M/s. Lichnu Udyog Limited has been charging depreciation on an asset of Plant & Machinery on straight line basis. The machine was purchased on 1-4-2012 at ₹3,25,000. It is expected to have a total useful life of 5 years from the date of purchase and residual value of ₹25,000. Calculate the book value of the machine as on 1-4-2014 and total depreciation charged till 31-3-2014 under SLM. The company has decided to change the method of depreciation and charge depreciation on 20% WDV from 2014-15. Is it valid to change the method of depreciation? Explain the treatment required to be done in the books of accounts in the context of AS-6. Ascertain the amount of depreciation to be charged for 2014-15 and the net book value of the machine as on 31-3-2015 after giving effect of the change.

Accepted Answer

**Part (i): Book Value as on 1-4-2014 and Total Depreciation under SLM till 31-3-2014**

**SLM Annual Depreciation** = (Cost – Residual Value) / Useful Life = (₹3,25,000 – ₹25,000) / 5 = **₹60,000 per annum**

Depreciation is charged for 2 years: FY 2012-13 and FY 2013-14.

**Total Depreciation charged till 31-3-2014** = 2 × ₹60,000 = **₹1,20,000**

**Book Value as on 1-4-2014** = ₹3,25,000 – ₹1,20,000 = **₹2,05,000**

---

**Part (ii): Validity of Change and AS-6 Treatment**

Under **AS-6 (Depreciation Accounting)** (now superseded by **AS-10, Property, Plant and Equipment**, but the treatment principles remain), a change in the method of depreciation is **valid** only if:
(a) it is required by statute, or
(b) it is required for compliance with an Accounting Standard, or
(c) it results in a **more appropriate presentation** of the financial statements.

Such a change is treated as a **change in accounting policy** and its effect must be quantified and disclosed.

**Treatment required in the books:**
1. Depreciation is **recalculated retrospectively** from the date of purchase (1-4-2012) using the new WDV method.
2. The **difference** between the depreciation already charged under SLM and the depreciation that would have been charged under WDV is computed.
3. This difference (surplus or deficiency) is **adjusted in the Statement of Profit & Loss in the year of change** (i.e., FY 2014-15).
4. The change and its financial effect must be **disclosed by way of a note** to the fin…

Question 5

The financial position of two companies M/s. Abhay Ltd. and M/s. Asha Ltd. as on 31-3-2015 is given. They decided to merge and form a new company M/s. Abhilasha Ltd. on 1-4-2015 on the following terms: (1) Goodwill to be valued at 2 years' purchase of super Profits. Normal Rate of return is 10% of the combined share capital and general reserves. Average profits of M/s. Abhay Ltd. is ₹2,75,000 and M/s. Asha Ltd. is ₹1,75,000. (2) Land and Buildings, Plant and Machinery and Inventory of both companies to be valued at 10% above book value with 10% provision on Sundry Debtors. (3) 12% debentures to be redeemed by issue of 12% preference shares at a premium of 10% face value. (4) Sundry creditors to be taken over at book value and unrecorded liability of ₹15,500 of M/s. Asha Ltd. as 1-4-2015. (…

Accepted Answer

**Note: The balance sheet data for M/s. Abhay Ltd. and M/s. Asha Ltd. as on 31-3-2015 has not been provided in the question as submitted. The solution below presents the complete methodology and framework. Specific figures cannot be computed without the opening balance sheets. Confidence is set to low accordingly.**

**Step 1: Computation of Net Assets (Purchase Consideration) for Each Company**

The Net Assets Method is used to determine the purchase consideration (value of shares to be issued by Abhilasha Ltd.).

For each company, the **Revised Net Assets** are computed as:
- Land & Buildings → Book Value + 10%
- Plant & Machinery → Book Value + 10%
- Inventory → Book Value + 10%
- Sundry Debtors → Book Value − 10% provision
- Bank Balance → Book Value − Liquidation Expenses (Abhay: 2/3 × ₹60,000 = ₹40,000; Asha: 1/3 × ₹60,000 = ₹20,000)
- Less: Sundry Creditors at book value
- Less: Unrecorded liability of ₹15,500 (for Asha Ltd. only)
- Less: 12% Debentures are NOT deducted as a cash liability — they are redeemed by issuing 12% Preference Shares at 10% premium, so they are replaced in kind

**Step 2: Calculation of Goodwill**

Normal Rate of Return = 10% on (Combined Share Capital + Combined General Reserves)
- **Normal Profit (Abhay)** = 10% × (Abhay's Share Capital + Abhay's General Reserves)
- **Normal Profit (Asha)** = 10% × (Asha's Share Capital + Asha's General Reserves)
- **Super Profit (Abhay)** = ₹2,75,000 − Normal Profit of Abhay
- **Super Profit (Asha)** = ₹1,75…

Question 6

The partners Keval and Vimal decided to convert their existing partnership business into a Private Limited Company called M/s. KV Trading Private Ltd. with effect from 1-7-2014. The same basis of accounts were continued by the company which closed its account for the first time on 31-12-2014. A Summarized Profit & Loss Account for the period ended 31-3-2015 is provided with sales, cost of goods sold, sales commission, salary, remuneration, interest on debentures, bad debts, underwriting commission, and loss on sale of investment. Additional information includes changes in average monthly salary, investment sales, company occupation expenses, bad debts recovery, and audit fees. Prepare a statement apportioning the expenses between pre and post incorporation periods and calculate the Profit/…

Accepted Answer

**Pre-Incorporation vs Post-Incorporation Profit Apportionment — M/s. KV Trading Private Ltd.**

The company was incorporated on **1st July 2014** and the first accounting year closes on **31st March 2015**. The entire period for which accounts are prepared runs from **1st April 2014 to 31st March 2015** (12 months).

**Determination of Periods:**
- **Pre-incorporation period**: 1st April 2014 to 30th June 2014 = **3 months**
- **Post-incorporation period**: 1st July 2014 to 31st March 2015 = **9 months**
- **Time Ratio (Pre : Post)** = 3 : 9 = **1 : 3**
- **Sales Ratio (Pre : Post)** = To be computed from actual monthly sales data given in the problem.

**Basis of Apportionment for Each Item:**

**Sales and Gross Profit Items:**
- *Sales* — Actual (or Time Ratio if actual not given)
- *Cost of Goods Sold* — **Sales Ratio** (follows sales)
- *Sales Commission* — **Sales Ratio** (commission is a function of sales)
- *Bad Debts* — **Sales Ratio** (bad debts arise from credit sales)

**Time-Based Items:**
- *Salary* — **Weighted Time Ratio**: If the average monthly salary changed during the year (e.g., increased after a certain month), compute separately for each rate × months applicable in each period.
- *Rent/Office Expenses* — **Time Ratio (1:3)**

**Post-Incorporation Only Items (entirely to Post-Incorporation period):**
- *Interest on Debentures* — Debentures can only be issued by a company; no debenture liability exists pre-incorporation. **Entire amount to post-incorporat…

Question 7

M/s. Platinum Jewelers wants to take up a Loss of Profit Policy for the year 2015. The extract of Profit and Loss Account of the previous year ended 31-12-2014 shows Revenue of ₹18,60,000. Variable Expenses include Cost of goods sold, Fixed wages for skilled department ₹1,60,000, Variable expenses ₹2,80,000, Fixed expenses ₹40,000, Salaries ₹64,000, Bank Charges ₹18,000, and Management expenses ₹44,000. Total expenses are ₹6,72,000. Revenue is expected to grow by 25% and Cost by 15% in the next year. To meet growing working capital needs, partners decided to avail overdraft facilities at 12% p.a. Average daily overdraft balance will be around ₹2 lakhs. Wages for skilled craftsmen will increase by 20% and salaries by 10%. All other expenses will remain the same. Determine the amount of poli…

Accepted Answer

**Loss of Profit (Consequential Loss) Insurance Policy — Amount to be taken for 2015**

For a Loss of Profit Insurance Policy, the **policy amount = Anticipated Gross Profit** for the policy year, where **Gross Profit (insurance) = Turnover − Variable/Uninsured Costs**, or equivalently = **Net Profit + Insured Standing Charges**.

**Step 1 — Identify 2014 Cost of Goods Sold (COGS):**
Total expenses = ₹6,72,000. The other listed expenses sum to ₹6,06,000, so COGS = ₹6,72,000 − ₹6,06,000 = **₹66,000**.

**Step 2 — Project 2015 figures:**

*Revenue:* ₹18,60,000 × 1.25 = **₹23,25,000**

*Variable (uninsured) costs for 2015:*
- COGS: ₹66,000 × 1.15 = ₹75,900
- Variable expenses: ₹2,80,000 (unchanged)
- Total variable costs = **₹3,55,900**

*Insured Standing Charges for 2015:*
- Fixed wages (skilled craftsmen): ₹1,60,000 × 1.20 = ₹1,92,000
- Salaries: ₹64,000 × 1.10 = ₹70,400
- Fixed expenses: ₹40,000 (unchanged)
- Bank charges: ₹18,000 (unchanged)
- Management expenses: ₹44,000 (unchanged)
- New bank overdraft interest: 12% × ₹2,00,000 = ₹24,000
- Total standing charges = **₹3,88,400**

**Step 3 — Calculate Gross Profit (insurance) for 2015:**
Gross Profit = Turnover − Variable Costs = ₹23,25,000 − ₹3,55,900 = **₹19,69,100**

**Verification via Net Profit + Standing Charges:**
Total expenses 2015 = ₹3,55,900 + ₹3,88,400 = ₹7,44,300
Net Profit = ₹23,25,000 − ₹7,44,300 = ₹15,80,700
Policy amount = ₹15,80,700 + ₹3,88,400 = ₹19,69,100 ✓

**The amount of Loss of Profit Insurance Policy…

Question 8

The following is the Balance Sheet of M/s. Case Traders as on 1-4-2014 showing Share Capital ₹10,00,000, Unsecured loan at 10% ₹1,75,000, and various assets including Land and buildings, Plant and machinery, Inventory, Debtors, and Cash. A fire broke out in the premises on 31-3-2015 and destroyed the books of account. The accountant provided the following information: (1) Sales for year ended 31-3-2014 was ₹18,60,000. Sales for current year were 20% higher than last year. (2) 25% sales were made in cash and balance on credit. (3) Gross profit on sales is 30%. (4) Debtors: 2 months; Creditors: 1 month payment period. (5) Bank Pass Book shows machinery purchase, rent paid, advertising expenses, seminar expenses, traveling, repairs, furniture sales, cash withdrawal. (6) Machinery was purchase…

Accepted Answer

**BANK ACCOUNT FOR THE YEAR ENDED 31-3-2015**

Opening Balance (assumed from opening B/S): ₹6,12,600

**Receipts:**
Cash sales (25% of ₹22,32,000): ₹5,58,000
Credit collections from current year sales (75% of ₹22,32,000 – 2 months outstanding): ₹13,95,000
Collection from opening debtors: ₹23,250
Furniture sold (at loss of ₹2,900): ₹7,100
**Total Receipts: ₹19,83,350**

**Payments:**
Purchases (Opening stock ₹50,000 + Purchases – Closing stock ₹1,81,000 = COGS ₹15,62,400): ₹16,93,400
Paid to opening creditors: ₹10,850
Rent (11 months × ₹2,000): ₹22,000
Advertising (₹12,000 – 25% deferred): ₹9,000
Machinery purchased 1-1-2015: ₹1,00,000
Interest on loan (₹1,75,000 × 10%): ₹17,500
Seminar expenses: ₹2,000
Repairs: ₹5,000
Cash withdrawal: ₹5,000
**Total Payments: ₹18,64,750**

Closing Bank Balance: 6,12,600 + 19,83,350 – 18,64,750 = **₹7,31,200**
Less: Traveling cheque issued but unpassed: ₹7,800
**Actual Bank Balance at 31-3-2015: ₹7,23,400**

---

**TRADING AND PROFIT & LOSS ACCOUNT FOR YEAR ENDED 31-3-2015**

**Trading Account:**
To Opening Stock: ₹50,000
To Purchases: ₹16,93,400
By Closing Stock: ₹(1,81,000)
**Cost of Goods Sold: ₹15,62,400**

**Sales: ₹22,32,000** (₹18,60,000 × 120%)
Less: Cost of Goods Sold: ₹(15,62,400)
**Gross Profit: ₹6,69,600**

**Profit & Loss Account:**
Gross Profit: ₹6,69,600
Less: Expenses
  Rent (11 months): ₹22,000
  Advertising (75% of ₹12,000): ₹9,000
  Seminar: ₹2,000
  Traveling: ₹7,800
  Repairs: ₹5,000
  Loss on furniture sold: ₹2,900
  Inte…

Question 9

Lucky bought 2 tractors from Happpy on 1-10-2011 on hire purchase terms: 1st installment at end of 1st Year ₹2,65,000; 2nd installment at end of 2nd Year ₹2,45,000; 3rd installment at end of 3rd Year ₹2,75,000. Interest is at 10% p.a. Lucky provides depreciation at 10% on the diminishing balance. On 30-9-2014, Lucky failed to pay the 3rd installment upon which Happpy repossessed 1 tractor. Happpy agreed to leave one tractor with Lucky and adjusted the value of the tractor against the amount due. The tractor taken over was valued on the basis of 30% depreciation on written down basis. The balance amount remaining was paid by Lucky after 3 months with interest at 18% p.a. (1) Calculate the cash price of the tractors and the interest paid. (2) Write Tractors Account and Happpy Account in the …

Accepted Answer

**Part (1): Cash Price of Tractors and Interest**

Let the total cash price of 2 tractors = **CP**.

Using the interest-on-outstanding-balance method at 10% p.a.:

After 3 installments the outstanding balance must be zero:

[(1.1 × CP − 2,65,000) × 1.1 − 2,45,000] × 1.1 = 2,75,000

Solving backwards:
(1.1 × CP − 2,65,000) × 1.1 − 2,45,000 = 2,50,000
(1.1 × CP − 2,65,000) × 1.1 = 4,95,000
1.1 × CP − 2,65,000 = 4,50,000
1.1 × CP = 7,15,000
**CP = ₹6,50,000** (for both tractors)

**Interest Schedule:**

| Year | Opening Balance (₹) | Interest @10% (₹) | Installment (₹) | Closing Balance (₹) |
|------|--------------------|--------------------|-----------------|---------------------|
| 1 (30-9-2012) | 6,50,000 | 65,000 | 2,65,000 | 4,50,000 |
| 2 (30-9-2013) | 4,50,000 | 45,000 | 2,45,000 | 2,50,000 |
| 3 (30-9-2014) | 2,50,000 | 25,000 | 2,75,000 | Nil |

**Total Interest Paid = ₹1,35,000**

---

**Part (2): Ledger Accounts in Lucky's Books**

**Value of Repossessed Tractor (30% WDV depreciation over 3 years):**
Cash price of 1 tractor = 6,50,000 ÷ 2 = ₹3,25,000
After Year 1: 3,25,000 × 70% = 2,27,500
After Year 2: 2,27,500 × 70% = 1,59,250
After Year 3: 1,59,250 × 70% = **₹1,11,475**

**WDV of 1 tractor in Lucky's books (10% depreciation):**
3,25,000 → 2,92,500 → 2,63,250 → **₹2,36,925**

**Loss on Repossession = 2,36,925 − 1,11,475 = ₹1,25,450**

**Balance due after repossession = 2,75,000 − 1,11,475 = ₹1,63,525**

**Interest for 3 months @18% = 1,63,525 × 18/100 × 3/12 = ₹7,35…

Question 10

Mr. Charu had 12% Debentures of Face Value ₹100 of M/s. E Ltd. as current investments. He provides the following investing transaction details: 1-4-2014 Opening balance 1,400 debentures costing ₹98 each; 1-6-2014 Purchased 2,000 debentures at ₹120 cum interest; 19-2-2014 Sold 500 debentures at ₹110 cum interest; 1-12-2014 Sold 2,000 debentures at ₹105 ex interest; 31-1-2015 Purchased 3,000 debentures at ₹100 ex interest; 31-3-2015 Market value of investments at ₹105 each. Interest due dates are 30th June and 31st December. Mr. Charu closes his books on 31-3-2015. He incurred 2% brokerage for all transactions. Show Investment account in the books of Mr. Charu assuming FIFO method is followed.

Accepted Answer

**Investment Account - FIFO Method**

Following FIFO (First-In-First-Out) method, the investment account of Mr. Charu for 12% Debentures of M/s E Ltd. is prepared as follows:

**Dr. INVESTMENT IN 12% DEBENTURES OF E LTD. Cr.**

| Date | Particulars | Qty | Rate (₹) | Amount (₹) | Date | Particulars | Qty | Rate (₹) | Amount (₹) |
|---|---|---|---|---|---|---|---|---|---|
| 1-4-14 | To Opening Balance | 1,400 | 98 | 1,37,200 | 1-12-14 | By Cost of Sales (FIFO: 1,400 @ 98 + 600 @ 116.28) | 2,000 | — | 2,06,968 |
| 1-6-14 | To Purchase | 2,000 | 114 | 2,28,000 | 1-12-14 | By Brokerage on Sale (2% of ₹2,10,000) | — | — | 4,200 |
| 1-6-14 | To Brokerage (2%) | — | — | 4,560 | 19-2-15 | By Cost of Sales (FIFO: 500 @ 116.28) | 500 | — | 58,140 |
| 31-1-15 | To Purchase | 3,000 | 100 | 3,00,000 | 19-2-15 | By Brokerage on Sale (2% of ₹55,000) | — | — | 1,100 |
| 31-1-15 | To Brokerage (2%) | — | — | 6,000 | 31-3-15 | By Closing Stock (Cost) | 3,900 | 105.28 | 4,10,652 |
| — | — | — | — | — | 31-3-15 | Less: Provision for Depreciation | — | — | (1,152) |
| — | **TOTAL** | — | — | **6,75,760** | — | **TOTAL** | — | — | **6,75,760** |

**Closing Stock Note (31-3-2015):**
- Cost basis: 3,900 debentures = ₹4,10,652
- Market value: 3,900 @ ₹105 = ₹4,09,500
- **Shown at Market Value: ₹4,09,500** (with provision of ₹1,152 against depreciation in value)

Question 11

A and B who carry on partnership business in the name of M/s. AB Ltd. close their firm's account as on 31st March each year. Partnership agreement: (i) Profit & Loss sharing A:2/3 and B:1/3. (ii) On admission of Partner: (a) If change takes place during any accounting year, such partner's share of profits or losses for the period up to retirement or from admission is to be divided by apportionment on a time basis except otherwise stated for specific items. (b) No account for Goodwill is to be maintained in the firm's books. (c) Any balance due to outgoing partner carries interest at 9% p.a. from date of retirement to date of payment. Trial Balance of the firm as on March 31, 2015 is provided. A retired from the firm on 30th September 2014 and on the same day C, employee of the firm, was ad…

Accepted Answer

**Note:** The question states that a Trial Balance and specific additional information (stock valuation figures, drawings amounts, bad debts, depreciation rates, opening balances) are provided separately, but those numerical figures were not included in the question text submitted. The complete solution framework is presented below with all steps a CA student must follow. Where actual figures are unavailable, the methodology and journal entries are shown in full.

**Key Conceptual Framework**

The accounting year runs April 1, 2014 to March 31, 2015. A retired on September 30, 2014 and C was admitted on the same date. This splits the year into two equal periods:
- **Period 1** (April 1, 2014 – September 30, 2014): 6 months — A:B = 2:1 (i.e., 2/3 and 1/3)
- **Period 2** (October 1, 2014 – March 31, 2015): 6 months — B:C = 3:5 and 2:5 (i.e., B gets 3/5, C gets 2/5)

**(a) Trading and Profit & Loss Account for the year ended March 31, 2015**

The account is prepared as a single combined statement for the full year. The **Net Profit is then apportioned on a time basis** — one-half to Period 1 (A & B in 2:1) and one-half to Period 2 (B & C in 3:2), except for specific items (if any stated otherwise).

Format:
- Debit side: Opening Stock, Purchases, Direct Expenses → Gross Profit c/d
- Then: All operating expenses, Depreciation, Bad Debts, Interest on A's outstanding balance (9% p.a. from Sep 30, 2014 to Mar 31, 2015 = 6 months)
- Credit side: Sales, Closing Stock → Gross Profit b/…

Question 12

From the following information of M/s. Officers Sports Club (A non-profit organization), ascertain: (i) the total cost of sports material consumed in the club, and (ii) Sale value of sports material during the year 2014-15. Opening balance of sports material as on 1-4-2014: ₹56,800. Closing balance as on 31-3-2015: ₹32,900. Sports material Purchased: ₹23,500. Payment made to creditors for sports materials: ₹64,300. Opening creditors for sports materials: ₹23,200. Closing creditors: ₹29,600. Out of the total sports material used during the year, 80% was consumed by the club and the remaining was sold at a profit of 20% on cost.

Accepted Answer

**Part (i): Total Cost of Sports Material Consumed in the Club**

To find total purchases, a **Creditors Account** is prepared to derive credit purchases, and cash purchases are added separately.

From the Creditors Account: Credit Purchases = Payment to Creditors + Closing Creditors − Opening Creditors = ₹64,300 + ₹29,600 − ₹23,200 = **₹70,700**

Total Purchases = Cash Purchases + Credit Purchases = ₹23,500 + ₹70,700 = **₹94,200**

Next, a **Sports Material Account** is prepared to find total material used:

Total Material Used (at cost) = Opening Balance + Total Purchases − Closing Balance = ₹56,800 + ₹94,200 − ₹32,900 = **₹1,18,100**

Since 80% of total material used was consumed by the club:

**Cost of material consumed = ₹1,18,100 × 80% = ₹94,480**

**Part (ii): Sale Value of Sports Material During 2014-15**

The remaining 20% of material used was sold at a profit of 20% on cost.

Cost of material sold = ₹1,18,100 × 20% = ₹23,620

Profit (20% on cost) = ₹23,620 × 20% = ₹4,724

**Sale Value = ₹23,620 + ₹4,724 = ₹28,344**

Question 13

From the following records, find out the average date of payment: 2-January-2014 ₹10,000 (1 month); 29-February-2014 ₹8,000 (3 months); 2-March-2014 ₹14,000 (1 month); 12-June-2014 ₹12,000 (2 months); 10-August-2014 ₹12,000 (2 months).

Accepted Answer

**Average Due Date Calculation**

The Average Due Date is computed by selecting the earliest due date as the **base date**, calculating the number of days each subsequent due date falls from the base, multiplying by the respective amount (Product), and then dividing the total Product by the total Amount.

**Step 1 – Determine Due Dates:**
Note: 2014 is not a leap year, so 29-Feb-2014 does not exist; it is treated as 28-Feb-2014.

| Transaction Date | Amount (₹) | Credit Period | Due Date |
|---|---|---|---|
| 2-Jan-2014 | 10,000 | 1 month | 2-Feb-2014 |
| 28-Feb-2014 | 8,000 | 3 months | 28-May-2014 |
| 2-Mar-2014 | 14,000 | 1 month | 2-Apr-2014 |
| 12-Jun-2014 | 12,000 | 2 months | 12-Aug-2014 |
| 10-Aug-2014 | 12,000 | 2 months | 10-Oct-2014 |

**Step 2 – Base Date:** Earliest due date = **2-Feb-2014**

**Step 3 – Days from Base Date:**
- 2-Feb-2014: 0 days
- 2-Apr-2014: Feb(26) + Mar(31) + Apr(2) = **59 days**
- 28-May-2014: Feb(26) + Mar(31) + Apr(30) + May(28) = **115 days**
- 12-Aug-2014: Feb(26)+Mar(31)+Apr(30)+May(31)+Jun(30)+Jul(31)+Aug(12) = **191 days**
- 10-Oct-2014: above(191)+Aug(19)+Sep(30)+Oct(10) = **250 days**

**Step 4 – Products and Totals:**

| Due Date | Amount (₹) | Days | Product (₹) |
|---|---|---|---|
| 2-Feb-2014 | 10,000 | 0 | 0 |
| 2-Apr-2014 | 14,000 | 59 | 8,26,000 |
| 28-May-2014 | 8,000 | 115 | 9,20,000 |
| 12-Aug-2014 | 12,000 | 191 | 22,92,000 |
| 10-Oct-2014 | 12,000 | 250 | 30,00,000 |
| **Total** | **56,000** | | **70,38,000** |

**Step 5…

Question 14

Given the following information of M/s. Paper Product Ltd.: (i) Goods of ₹60,000 were sold on 20-3-2015 but at the request of the buyer they were delivered on 10-4-2015. (ii) On 15-1-2015 goods of ₹1,50,000 were sent on consignment basis of which 20% of the goods remained lying with the consignee as on 31-3-2015. (iii) ₹1,20,000 worth of goods were sold on approval basis on 1-12-2014. The period of approval was 3 months after which they were considered sold. Buyer sent approval for 75% goods up to 31-3-2015 and no approval/disapproval received for the remaining goods till 31-3-2015. (iv) Apart from the above, the company has made cash sales of ₹7,80,000 (GIS). Trade discount of 5% was allowed on cash sales. You are required to advise the accountant of M/s. Paper Products Ltd., with valid r…

Accepted Answer

**Revenue Recognition under AS-9 (Accounting Standard 9 — Revenue Recognition)**

**M/s. Paper Products Ltd. — Analysis for Year Ending 31-3-2015**

**(i) Bill and Hold Sale — ₹60,000**

Under **AS-9**, in a "bill and hold" transaction where delivery is postponed at the **buyer's request**, revenue may be recognised when title passes, provided: it is probable delivery will be made, goods are identified and ready for delivery, and buyer has specifically acknowledged deferred delivery instructions. Here, goods were sold on **20-3-2015** and the buyer requested delayed delivery — significant risks and rewards transferred on the date of sale. **Revenue of ₹60,000 is recognised in FY 2014-15.**

**(ii) Consignment Sale — ₹1,50,000**

Under **AS-9**, goods sent on **consignment** do not result in a sale until the consignee sells the goods to a third party — risk and reward remains with the consignor. Since 20% of goods are still lying with the consignee unsold as on 31-3-2015, only 80% has been sold. **Revenue recognised = 80% × ₹1,50,000 = ₹1,20,000.** The remaining 20% (₹30,000) is not revenue and should be treated as closing stock.

**(iii) Sale on Approval Basis — ₹1,20,000**

Under **AS-9**, revenue on goods sold on approval is recognised when the buyer **formally accepts** the goods, or the **approval period expires** without rejection. Period of approval: 3 months from 1-12-2014 = expires **1-3-2015**. For 75% of goods, buyer sent approval by 31-3-2015 → revenue recognised. …

Question 15

What factors are to be considered at the time of choosing an appropriate Accounting Software for organizations?

Accepted Answer

When selecting an appropriate accounting software for an organization, the following factors must be carefully evaluated:

**Functional Requirements and Capabilities** - The software must align with the organization's specific accounting and operational needs, including modules for accounts payable/receivable, general ledger, payroll, inventory, budgeting, and financial reporting. It should support the organization's accounting standards and regulatory requirements.

**Cost Considerations** - A comprehensive cost analysis is essential, including initial purchase/licensing costs, implementation and customization costs, annual maintenance and support fees, training costs, and ongoing operational expenses. The cost-benefit ratio should justify the investment.

**Scalability and Growth Potential** - The software should have capacity to accommodate business growth, support an increasing number of transactions, users, and data volume without requiring frequent system upgrades or replacement.

**User-Friendliness and Learning Curve** - The software interface should be intuitive and easy to learn for accounting staff. A steep learning curve increases training time and implementation costs. Availability of user documentation and training resources is important.

**Integration with Existing Systems** - The software must integrate seamlessly with existing enterprise systems such as ERP, CRM, banking systems, and tax filing platforms. Integration reduces manual data entry errors and impr…

Question 16

M/s. Versatile Limited purchases machinery for ₹4,80,000 (inclusive of excise duty of ₹40,000). CENVAT credit is available for 50% of the excise duty paid. The company incurred the following for installation: Cost of preparation of site ₹20,000; Labour charges ₹66,000 (200 out of 600 hours for installation); Spare and tools discarded after installation ₹6,000; Salary of supervisor ₹24,000 (25% of time for installation); Recruitment and training charges ₹32,000; Triton & Equipments production errors ₹21,000; Consultancy charges for plant setup ₹9,000; Depreciation on assets used for installation ₹12,000. The machine was ready for use on 15-1-2015 but was used from 1-2-2015. Due to financial delay, further expenses of ₹19,000 were incurred. Calculate the rate at which the plant should be cap…

Accepted Answer

**Governing Standard:** AS 10 — Property, Plant and Equipment (Revised) requires that the cost of an item of PPE comprises its purchase price (net of recoverable taxes) and any directly attributable cost of bringing the asset to its present location and condition necessary for it to be capable of operating in the manner intended by management.

**Treatment of Purchase Price:** The machinery is purchased at ₹4,80,000 inclusive of excise duty of ₹40,000. CENVAT credit is available for 50% of ₹40,000 = ₹20,000. Since CENVAT credit is recoverable (akin to a refund of tax), it is deducted from the cost. Net purchase price = ₹4,80,000 − ₹20,000 = **₹4,60,000**.

**Treatment of Installation Costs:**

*Site preparation (₹20,000)* — Directly attributable; **capitalised**.

*Labour charges (₹66,000, 200 of 600 hours for installation)* — Only the installation portion is directly attributable. Amount = 200/600 × ₹66,000 = **₹22,000 capitalised**.

*Spares and tools discarded after installation (₹6,000)* — These are consumed in bringing the asset to working condition; **capitalised**.

*Supervisor's salary (₹24,000, 25% for installation)* — Directly attributable portion = 25% × ₹24,000 = **₹6,000 capitalised**.

*Recruitment and training charges (₹32,000)* — AS 10 explicitly excludes training costs from the cost of PPE; **not capitalised, charged to P&L**.

*Production errors — Triton & Equipments (₹21,000)* — These represent abnormal costs/waste; AS 10 excludes abnormal amounts of wasted…

CA Inter Adv Accounting

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap