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Past papers › Adv Accounting › May 2015

CA Inter Adv Accounting — Suggested Answers — May 2015

This page contains all 16 questions from the CA Inter Advanced Accounting Suggested Answers for the May 2015 attempt cycle, sourced from VSI Jaipur.

✅ 2 of 16 questions have AI-generated solutions with bare-Act citations.
Q1(a)Cash Flow Statement - Investing Activities
5 marks medium
Prepare Cash Flow from Investing Activities of Furnishings Limited for the year ended 31-3-2015.
Q1(b)Construction Contracts - Revenue Recognition under IND AS 11
5 marks medium
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).
Q1(c)Inventory Valuation - NRV Method
5 marks medium
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.
Q1(d)Depreciation - Change from SLM to WDV Method
5 marks medium
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.
Q2Amalgamation of Companies - Goodwill and Share Valuation
16 marks very hard
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. (5) Bank balance of both companies to be taken over after deducting liquidation expenses of ₹60,000 to be borne by M/s. Abhay Ltd. and M/s. Asha Ltd. in the ratio 2:1. (i) Compute the basis on which shares of M/s. Abhilasha to be issued to the shareholders of the existing company. (ii) Draw new Balance sheet of M/s. Abhilasha Ltd. as on 1-4-2015 after the merger.
💡 Show solution AI SOLUTION

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) = ₹1,75,000 − Normal Profit of Asha
- Goodwill = 2 years' purchase of Super Profit (computed separately for each company and added to respective Net Assets)

Step 3: Preference Shares Issued for Debentures

For 12% Debentures of each company:
- Preference Shares (face value) issued = Debenture Amount ÷ 1.10 (since issued at 10% premium)
- Number of 12% Preference Shares = Debenture Face Value ÷ Issue Price per share

Step 4: Equity Shares Issued to Existing Shareholders

Net Assets available for Equity = Revised Net Assets + Goodwill − Preference Shares issued for Debentures

Shares of Abhilasha Ltd. issued to each company's shareholders:
- Number of Equity Shares = Net Assets attributable to Equity ÷ Face Value per share of Abhilasha Ltd.

The exchange ratio is computed as:
- Shares of Abhilasha issued per share of Abhay = Total Abhilasha shares for Abhay shareholders ÷ Existing shares of Abhay
- Similarly for Asha Ltd.

Step 5: Balance Sheet of M/s. Abhilasha Ltd. as on 1-4-2015

The new Balance Sheet is drawn by pooling together all revalued assets of both companies, replacing debentures with preference shares, and recording goodwill (if any net super profit exists). The Share Capital of Abhilasha consists of Equity Share Capital (issued to old shareholders) + 12% Preference Share Capital (issued for debentures). The Securities Premium account reflects any premium on preference share issue. Sundry Creditors, unrecorded liability, and bank balances (net of expenses) are carried over.

Final Answer: Without the original balance sheet figures, exact share ratios and the numerical balance sheet cannot be stated. The examiner is advised to apply the above framework to the balance sheet data provided in the original question paper to arrive at numerical answers.

📖 AS 14 – Accounting for Amalgamations (ICAI)Companies Act 2013 – Sections 230–232 (Merger and Amalgamation)Schedule III to the Companies Act 2013 (Balance Sheet Format)
Q3(a)Partnership to Company Conversion - Pre/Post-Incorporation P
10 marks hard
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/Loss for each periods. Also suggest how the pre-incorporation profits are to be dealt with.
Q3(b)Loss of Profit Insurance Policy
0 marks easy
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 policy to be taken up for the current year by M/s. Platinum Jewelers.
Q4Incomplete Records - Fire Loss Recovery
16 marks very hard
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 purchased on 1-1-2014. (7) Rent was paid for 11 months only and 25% of advertising expenses relates to next year. (8) Traveling expenses of ₹7,800 for which cheques issued but not passed in bank. (9) Furniture was sold on 1-8-2014 at loss of ₹2,900. (10) Physical verification on 31-3-2015 ascertained stock position at ₹1,81,000 and petty cash at nil. (11) There was no change in outstanding interest. (12) Depreciation at 10% on machinery. Prepare Bank Account, Trading and Profit and Loss Account for year ended 31-3-2015 in the books of M/s. Case Traders and a Balance Sheet on that date. Make necessary assumptions wherever necessary.
Q5(a)Hire Purchase - Repossession and Settlement
0 marks easy
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 books of Lucky assuming books are closed on September 30 every year. Figures may be rounded off to the nearest rupee.
Q5(b)Debenture Investment Account - FIFO Method
0 marks easy
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.
Q6Partnership - Retirement and Admission of Partner
16 marks very hard
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 admitted as partner. Further Profits & Loss shall be shared - A:2/5; B:3/5 and C:2/5. Additional information includes firm's goodwill at ₹15,000, stock valuation, partners' drawings, bad debts, and depreciation provisions. You are required to prepare: (a) The Trading and Profit & Loss Account for the year ended March 31, 2015. (b) Partners' Capital Account for the year ended March 31, 2015. (c) The Balance Sheet as on that date.
💡 Show solution AI SOLUTION

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/d; then Miscellaneous Income
- Net Profit is transferred to Partners' Capital Accounts via apportionment

Goodwill Treatment (No Goodwill in Books):
Firm Goodwill = ₹15,000. Since goodwill is not to be maintained:
- A's share of goodwill on retirement = 15,000 × 2/3 = ₹10,000 — credited to A's Capital
- C's share on admission = 15,000 × 2/5 = ₹6,000 — debited to C's Capital
- Net adjustment via B's Capital for gaining share:
- B's old share = 1/3; B's new share = 3/5; Gain = 3/5 – 1/3 = 4/15
- B debited: 15,000 × 4/15 = ₹4,000
- C debited: 15,000 × 6/15 = ₹6,000
- A credited: ₹10,000 (= 4,000 + 6,000)

(b) Partners' Capital Account for the year ended March 31, 2015

Prepared in columnar format with columns for A, B, C.

Dr. Side (Debits):
- Drawings (each partner)
- Goodwill adjustment: B — ₹4,000; C — ₹6,000
- Share of Loss (if any) — apportioned by period and ratio
- Balance c/d (for B and C)
- Amount transferred to A's Loan Account (on retirement, balance due to A)

Cr. Side (Credits):
- Opening Balances (A and B)
- C's Capital introduced on admission
- Goodwill credit to A — ₹10,000
- Share of Net Profit — Period 1 (A:B = 2:1 on half-year profit); Period 2 (B:C = 3:2 on half-year profit)
- Balance b/d (for B and C)

A's Loan Account: After A's Capital Account is settled, any balance due to A is transferred to A's Loan Account. Interest accrues at 9% p.a. from September 30, 2014 to March 31, 2015 (6 months). This interest is an expense in the P&L Account and credited to A's Loan Account.

(c) Balance Sheet as on March 31, 2015

Liabilities Side:
- B's Capital (closing balance)
- C's Capital (closing balance)
- A's Loan Account (principal + interest accrued)
- Sundry Creditors
- Any other current liabilities

Assets Side:
- Fixed Assets (after depreciation)
- Closing Stock (at revised/lower of cost or NRV)
- Sundry Debtors (net of bad debts and provision)
- Cash/Bank Balance
- Prepaid/Accrued items

Final Answer: The complete numerical solution requires the Trial Balance figures and additional data (opening stock, sales, purchases, expenses, partners' opening capitals, drawings, stock value, bad debts amount, depreciation rate). Once those are applied to the above framework, the three statements can be fully completed. The methodology above correctly handles the mid-year retirement/admission, goodwill adjustment without book entry, time-based profit apportionment, and A's Loan Account with 9% interest.

📖 Partnership Act 1932 — general principles of retirement and admissionAS 26 (Intangible Assets) — goodwill not to be maintained unless paid for; treatment consistent with partnership deed clauseICAI Study Material — Partnership Accounts: Retirement and Admission (CA Intermediate Paper 1 Financial Accounting)
Q7(a)Non-Profit Organization - Material Consumption and Sales
4 marks medium
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.
Q7(b)Average Due Date Calculation
4 marks medium
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).
Q7(c)Revenue Recognition under AS-9
4 marks medium
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 reasons, amount to be recognized as Revenue in the above cases in the context of AS-9 and also determine the total revenue to be recognized for the year ending 31-3-2015.
Q7(d)Accounting Software Selection Criteria
4 marks medium
What factors are to be considered at the time of choosing an appropriate Accounting Software for organizations?
Q7(e)Asset Capitalization - Plant and Machinery
4 marks medium
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 capitalized in the books of M/s. Versatile Limited.