Question 1

On 1st December 2015, Mrs. Blue & Black purchased, 20,000 12% fully paid debentures of ₹ 100 each at ₹ 105 cum interest price, also paying brokerage @ 1% of cum interest amount of the purchase. On 1st March, 2016, the firm sold all these debentures at ₹ 110 cum-interest price, again paying brokerage @ 1% of cum interest amount. Prepare Investment Account in the books of Mrs. Blue & Black for the period 1st Dec. 2015 to 1st March 2016. Interest being payable half yearly on 30th September and 31st March of every accounting year.

Accepted Answer

**Investment Account (12% Debentures of ₹100 each)**

The Investment Account is maintained with three columns: **Nominal Value**, **Interest**, and **Principal (Cost)**. Interest is payable on 30th September and 31st March each year.

**At Purchase (1st December 2015):**
The last interest date was 30th September 2015. Accrued interest for 2 months (October & November) = ₹40,000 is debited to the Interest column. Total cum-interest amount paid = ₹21,00,000 plus brokerage ₹21,000 = ₹21,21,000. Deducting accrued interest ₹40,000, the **Principal cost = ₹20,81,000**.

**At Sale (1st March 2016):**
The last interest date was still 30th September 2015 (next date 31st March 2016 not yet reached). Accrued interest for 5 months (October to February) = ₹1,00,000 is credited to the Interest column. Net sale proceeds after brokerage ₹22,000 = ₹21,78,000. Deducting accrued interest ₹1,00,000, **Principal proceeds = ₹20,78,000**.

**Loss on Sale** = ₹20,81,000 − ₹20,78,000 = **₹3,000** (transferred to P&L, Principal column Cr side).
**Net Interest Income** = ₹1,00,000 − ₹40,000 = **₹60,000** (transferred to P&L, Interest column Dr side to balance).

---

**Dr. — Investment Account (12% Debentures) — Cr.**

| Date | Particulars | Nominal (₹) | Interest (₹) | Principal (₹) |
|---|---|---|---|---|
| 1.12.2015 | To Bank A/c (Purchase) | 20,00,000 | 40,000 | 20,81,000 |
| 1.3.2016 | To P&L A/c (Interest Income) | — | 60,000 | — |
| | **Total** | **20,00,000** | **1,00,000** | **20,81,000** |

|…

Question 2

You are required to find the said average due date. Any fraction of a day arising from the calculation to be considered as full day.

Accepted Answer

**Average Due Date — Concept and Methodology**

The question as provided does not include the specific transaction data (amounts and due dates) required to compute the average due date. The methodology for solving any average due date problem is as follows:

**Step 1 — Select the Base Date:** Choose the earliest due date as the base date (also called the starting date or zero date).

**Step 2 — Compute Days from Base Date:** For each transaction, calculate the number of days between its due date and the base date.

**Step 3 — Compute Products:** Multiply each amount by the corresponding number of days to get the product for each transaction.

**Step 4 — Apply the Formula:**

**Average Due Date = Base Date + (Total of Products ÷ Total of Amounts)**

The result gives the number of days to be added to the base date to arrive at the Average Due Date.

**Step 5 — Rounding:** As stated in the question, any fraction of a day is to be treated as a full day (round up).

**Note:** Please provide the complete data table (individual amounts and their respective due dates) so that the average due date can be computed with specific figures.

Question 3

On 1st April, 2016 the stock of Mr. Hariprasad was destroyed by fire but sufficient records were saved from which following particulars were ascertained:

Stock at cost 1 Jan. 2015: 1,47,000
Stock at cost 31 Dec. 2015: 1,59,200
Purchases year ended 31 Dec. 2015: 7,96,000
Sales year ended 31st Dec. 2015: 9,74,000
Purchases 1-1-2016 to 31-3-2016: 3,24,000
Sales 1-1-2016 to 31-3-2016: 4,62,400

In valuing the stock for the Balance Sheet at 31st Dec. 2015 ₹ 4,600 had been written off on certain stock which was a poor selling line having the cost ₹ 13,800. A portion of these goods were sold in March 2016 at a loss of ₹ 500 on original cost of ₹ 6,900. The remainder of this stock was now estimated to be worth in original cost. Subject to the above exception gross profit had remained at a uniform…

Accepted Answer

**Step 1 — Establish the Gross Profit Rate (Year ended 31 Dec 2015)**

The closing stock figure of ₹1,59,200 given as 'stock at cost' is the **Balance Sheet (B/S) value**, which is after the write-off of ₹4,600 on the poor-selling stock. Therefore, the actual cost of closing stock = ₹1,59,200 + ₹4,600 = **₹1,63,800**.

Cost of Goods Sold = Opening Stock + Purchases − Closing Stock (at actual cost)
= ₹1,47,000 + ₹7,96,000 − ₹1,63,800 = **₹7,79,200**

Gross Profit = ₹9,74,000 − ₹7,79,200 = ₹1,94,800

**GP Rate = 1,94,800 ÷ 9,74,000 × 100 = 20% on Sales** (uniform rate to be applied for Jan–Mar 2016)

**Step 2 — Identify Special (Poor-Selling) Stock details**

Total special stock at cost: ₹13,800 | Written off: ₹4,600 | B/S value: ₹9,200

The write-off is allocated equally per unit, so each half (₹6,900 cost) carries a B/S value of ₹4,600.

- Portion **sold in March 2016**: cost ₹6,900 → B/S value ₹4,600 → sold at ₹6,400 (loss of ₹500 on cost).
- Remaining portion: cost ₹6,900 → **now estimated at original cost ₹6,900** (write-off reversal, full value restored).

**Step 3 — Memorandum Trading Account (1 Jan 2016 to 1 Apr 2016)**

Treat special stock and normal stock separately, since the 20% GP rate does not apply to special goods.

*Normal stock:*
Opening normal stock (B/S value) = ₹1,59,200 − ₹9,200 = ₹1,50,000
Normal sales = Total sales − Special stock sales = ₹4,62,400 − ₹6,400 = ₹4,56,000
COGS (normal) at 80% = ₹4,56,000 × 80% = ₹3,64,800
Closing normal stock = ₹1,50,000 + …

Question 4

A manufacturing company has the following stages of production and sale in manufacturing fine paper rolls. Explain the stage on which you think revenue will be generated and state how much would be net profit for year ending 31-3-16 on this product according to AS-9.

Accepted Answer

**Revenue Recognition under AS-9 (Revenue Recognition):**

As per **AS-9** issued by the Institute of Chartered Accountants of India, revenue from the sale of goods should be recognised only when the following conditions are satisfied: (i) the seller has transferred to the buyer the property in goods or all significant **risks and rewards of ownership** have passed to the buyer, (ii) no significant uncertainty exists as to the **measurability or collectability** of the amount of consideration.

Analysing each stage of production and sale:

**Stage 1 – Raw Material** (Cost ₹1,00,000 / NRV ₹80,000): Mere holding of raw material does not give rise to revenue. No revenue recognised.

**Stage 2 – Pulp** (Cost ₹1,20,000 / NRV ₹1,20,000): An intermediate WIP stage. No revenue recognised.

**Stage 3 – Rough & Thick Paper** (Cost ₹1,50,000 / NRV ₹1,80,000): Still in production. No revenue recognised.

**Stage 4 – Fine Paper Rolls** (Cost ₹1,80,000 / NRV ₹3,50,000): Production is complete but no sale has taken place. No revenue recognised.

**Stage 5 – Sale Agreed and Invoiced** (Cost ₹2,00,000 / NRV ₹3,50,000): A mere agreement to sell or raising of an invoice does **not** transfer property in goods or significant risks and rewards to the buyer. Delivery has not yet taken place. **Revenue is NOT recognised** at this stage.

**Stage 6 – Delivered and Paid For** (Cost ₹2,00,000 / NRV ₹3,50,000): At this stage, the goods have been physically delivered to the buyer (risks and rewards tran…

Question 5

X, Y, Z were partners in a firm sharing Profit & Loss in ratio of 2:1:1. The firm took a joint life policy on the lives of all the partners of assured value of ₹ 2,00,000. The firm also took separate life policies of partners as follows:

X: 1,00,000
Y: 2,00,000
Z: 3,00,000

The premium paid for separate life policies was debited to Profit & Loss A/c. Surrender value of all policies is 50%. You are required to calculate the share of life policies which X's executors will get in event of X's death?

Accepted Answer

**Treatment of Life Insurance Policies on Death of Partner X**

When premiums of separate life policies are debited to the Profit & Loss Account, the policies are not recorded as assets during the life of the firm. However, on the death of a partner, all policies are brought into the books — policies that **mature** are recorded at their **maturity (assured) value**, and policies that **do not mature** are recorded at their **surrender value**. The total is then credited to all partners' capital accounts (including the deceased) in their **Profit & Loss sharing ratio** of 2:1:1.

**On X's death:**

- **Joint Life Policy (JLP):** Matures on X's death → recorded at assured value = ₹ 2,00,000
- **X's Separate Policy:** Matures on X's death → recorded at assured value = ₹ 1,00,000
- **Y's Separate Policy:** Does not mature → recorded at surrender value (50% of ₹ 2,00,000) = ₹ 1,00,000
- **Z's Separate Policy:** Does not mature → recorded at surrender value (50% of ₹ 3,00,000) = ₹ 1,50,000

**Total value of all policies = ₹ 5,50,000**

This total is credited to partners in their P&L ratio of 2:1:1 (total 4 parts).

**X's executors' share = 2/4 × ₹ 5,50,000 = ₹ 2,75,000**

Question 6

What are the purposes for which Pre-incorporation Profit & Pre-incorporation Losses can be used for?

Accepted Answer

**Pre-incorporation Profit** refers to profit earned by the business before the company was legally incorporated, while **Pre-incorporation Loss** refers to loss incurred during the same pre-incorporation period.

**Purposes of Pre-incorporation Profit:**

1. **Writing off Pre-incorporation Losses** – The primary purpose is to absorb and write off all pre-incorporation losses incurred during the period before incorporation. The pre-incorporation profit is set off against pre-incorporation loss to determine the net result.

2. **Meeting Pre-incorporation Expenses** – Pre-incorporation profit can be used to pay/adjust expenses directly related to incorporation and commencement of business, such as legal fees, registration fees, underwriting commission, brokerage, and preliminary expenses.

3. **Capitalization and Creation of Reserves** – After adjusting for losses and incorporation expenses, any remaining pre-incorporation profit can be capitalized by transferring it to capital reserves, general reserves, or statutory reserves as per the company's policy and legal requirements.

4. **Adjustment of Underwriting Commission** – When shares are underwritten, the underwriting commission is often adjusted against pre-incorporation profit rather than treating it as an expense affecting current profits.

**Purposes of Pre-incorporation Loss:**

1. **Set-off Against Pre-incorporation Profit Only** – Pre-incorporation losses can only be adjusted/set off against pre-incorporation profits.…

Question 7

GTI Ltd. negotiates with Bharat Oil Corporation Ltd. (BOCL), for construction of 'Retail Petrol & Diesel Outlet Stations'. Based on proposals submitted to different Regional Offices of BOCL, the final approval for one outlet each in Region X, Region Y, Region Z is awaited to GTI Ltd. A single agreement is entered into between two. The agreement lays down values for each of the three outlets i.e. ₹ 102 lacs, ₹ 150 lacs, ₹ 130 lacs for Region X, Region Y, Region Z respectively. Also no separate completion time for each Region. Comment whether GTI Ltd. will treat it as a single contract or three separate contracts with reference to AS-7?

Accepted Answer

**Applicable Standard: AS 7 – Construction Contracts (issued by ICAI)**

**Issue:** Whether the agreement between GTI Ltd. and BOCL for construction of three Retail Petrol & Diesel Outlet Stations across Region X, Region Y, and Region Z should be treated as a **single construction contract** or **three separate construction contracts**.

**Relevant Provisions of AS 7:**

AS 7 (paragraph 9) provides that even though a single contract exists, the construction of **each asset** within that contract should be treated as a **separate construction contract** if ALL of the following conditions are satisfied:

**(a)** Separate proposals have been submitted for each asset;
**(b)** Each asset has been subject to separate negotiation, and the contractor and customer have been able to accept or reject the part of the contract relating to each asset; and
**(c)** The costs and revenues of each asset can be identified.

**Analysis in the given case:**

**Condition (a) – Separate Proposals:** GTI Ltd. submitted separate proposals to **different Regional Offices** of BOCL for each outlet station (Region X, Region Y, Region Z). The final approval for each is also awaited separately from each Regional Office. This condition is **satisfied**.

**Condition (b) – Separate Negotiation / Separate Acceptance:** Since proposals were submitted to distinct Regional Offices and separate approvals are pending for each, each asset was subject to independent negotiation. BOCL (through its Regional Offices) …

Question 8

Hema Ltd. purchased a machinery on 1.04.2008 for ₹ 15,00,000. The company charged straight line depreciation based on 15 years working life estimate and residual value ₹ 3,00,000. At the beginning of the 4th year, the company by way of systematic revaluation revalued the machinery upward by 20% of net book value as on date and also re-estimated the useful life in 3 years and scrap value as nil. The increase in net book value was credited directly to revaluation reserves. Depreciation (on SLM basis) later on was charged to Profit & Loss Account. After the beginning of the 5th year the company decided to dispose off the machinery and estimated the realizable value to ₹ 2,00,000. You are required to ascertain the amount to be charged to Profit & Loss Account at the beginning of 8th year with …

Accepted Answer

**Step 1 — Original Depreciation (Years 1–3)**

Under **AS 10 (Accounting for Fixed Assets)**, annual SLM depreciation = (₹15,00,000 − ₹3,00,000) ÷ 15 = **₹80,000 per year**. Total for 3 years = ₹2,40,000.

**NBV at beginning of Year 4 = ₹15,00,000 − ₹2,40,000 = ₹12,60,000.**

**Step 2 — Revaluation at Beginning of Year 4**

Revaluation upward by 20% of NBV = 20% × ₹12,60,000 = **₹2,52,000**, credited to **Revaluation Reserve**. Revised NBV = **₹15,12,000**. New remaining life = 3 years; new scrap = nil. New annual depreciation = ₹15,12,000 ÷ 3 = **₹5,04,000**, charged to P&L.

**Step 3 — NBV at Beginning of Year 5 (Disposal Decision)**

NBV = ₹15,12,000 − ₹5,04,000 = **₹10,08,000**. Estimated NRV = ₹2,00,000.

**Step 4 — Write-Down Under AS 10**

As per AS 10 para 25, when a fixed asset is **retired from active use and held for disposal**, it must be stated at the **lower of NBV and NRV**; any expected loss is recognised immediately. Write-down = ₹10,08,000 − ₹2,00,000 = **₹8,08,000**.

**Step 5 — Utilisation of Revaluation Reserve and P&L Charge**

As per AS 10 para 28, on disposal of a previously revalued asset, the loss is first **charged against the Revaluation Reserve** for that asset; the balance goes to P&L. The question states the Revaluation Reserve was credited but no interim transfer was made during Year 4 depreciation, so **Revaluation Reserve at beginning of Year 5 = ₹2,52,000**.

- Charged to Revaluation Reserve: ₹2,52,000 (fully exhausted)
- **Charged to Profi…

Question 9

Paridhi Electronics Ltd. invested in the shares of another unlisted company on 1st May 2012 at a cost of ₹ 3,30,000 with the intention of holding more than a year. The published accounts of unlisted company received in Jan 2016 reveals that the company has incurred cash losses with deficit market share and investment of Paridhi Electronics Ltd. may not fetch more than ₹ 45,000. How you will deal with this in the financial statement as on 31.3.16 with reference to AS-13?

Accepted Answer

**Classification of Investment under AS 13 (Accounting for Investments):**

Since Paridhi Electronics Ltd. purchased the shares on 1st May 2012 with the intention of holding them for **more than one year**, this investment is classified as a **Long-term Investment** as per AS 13.

**Normal Treatment for Long-term Investments:**

As per **Para 17 of AS 13**, long-term investments are normally carried in the financial statements at **cost**. Accordingly, the investment should ordinarily appear at ₹3,30,000 in the Balance Sheet as on 31.3.2016.

**Exception — Decline Other Than Temporary:**

However, AS 13 (Para 17) further states that when there is a **decline, other than temporary**, in the value of a long-term investment, the carrying amount must be reduced to recognise such decline. The reduction should be charged to the **Profit & Loss Account**.

In the present case, the published accounts of the unlisted company (received in January 2016) reveal:
- The company has been incurring **cash losses**, and
- There is a **deficit in market share**.

These facts indicate that the decline in value is **not temporary** but is of a **permanent nature**. The recoverable value of the investment has fallen drastically from ₹3,30,000 to merely ₹45,000.

**Accounting Treatment in Financial Statements as on 31.3.2016:**

Since the decline is other than temporary, Paridhi Electronics Ltd. must **write down** the carrying value of the investment to ₹45,000. A **provision for diminution in va…

Question 10

Srikumar bought 2 cars from 'Fair Value Motors Pvt Ltd.' on 1-4-2012 on the following terms: Down payment ₹6,00,000; 1st Installment at the end of first year ₹4,20,000; 2nd Installment at the end of 2nd year ₹4,90,000; 3rd Installment at the end of 3rd year ₹5,50,000. Interest is charged at 10% p.a. Srikumar provides depreciation @ 25% on the diminishing balances. On 31-3-15 Srikumar failed to pay the 3rd installment upon which 'Fair Value Motors Pvt Ltd.' repossessed 1 car. Srikumar agreed to leave one car with Fair Value Motors Pvt Ltd. and adjusted the value of the car against the amount due. The car taken over was valued on the basis of 40% depreciation annually on written down basis. The balance amount remaining in the vendor's account after the above adjustment was paid by Srikumar a…

Accepted Answer

**Part (i): Calculation of Cash Price and Interest**

Using the **retrospective (actuarial) method**, the cash price is determined by discounting the installments at the given interest rate of 10% p.a.

Working backwards from the last installment:

**Year 3:** Closing balance before 3rd installment = ₹5,50,000 ÷ 1.10 = **₹5,00,000**
**Year 2:** Balance before 2nd installment = (₹5,00,000 + ₹4,90,000) ÷ 1.10 = ₹9,90,000 ÷ 1.10 = **₹9,00,000**
**Year 1:** Balance before 1st installment = (₹9,00,000 + ₹4,20,000) ÷ 1.10 = ₹13,20,000 ÷ 1.10 = **₹12,00,000**

**Cash Price = Down Payment + Opening HP Balance = ₹6,00,000 + ₹12,00,000 = ₹18,00,000** (for 2 cars; ₹9,00,000 per car)

**Interest Included in Each Installment:**
- 1st Installment: ₹12,00,000 × 10% = **₹1,20,000** (Principal repaid = ₹3,00,000)
- 2nd Installment: ₹9,00,000 × 10% = **₹90,000** (Principal repaid = ₹4,00,000)
- 3rd Installment: ₹5,00,000 × 10% = **₹50,000** (Principal repaid = ₹5,00,000)

Total interest = ₹2,60,000

---

**Part (ii): Ledger Accounts**

**Car Account** (in the books of Srikumar)

Cars are recorded at **Cash Price of ₹18,00,000**. Depreciation @ 25% p.a. on **Written Down Value (WDV)**.

*Year 2012-13:*
Dr: To Fair Value Motors Pvt Ltd. ₹18,00,000 | Cr: By Depreciation A/c ₹4,50,000; By Balance c/d ₹13,50,000

*Year 2013-14:*
Dr: To Balance b/d ₹13,50,000 | Cr: By Depreciation A/c ₹3,37,500; By Balance c/d ₹10,12,500

*Year 2014-15 (Repossession on 31-3-2015):*
Dr: To Balance b/d ₹10,12,500 | Cr…

Question 11

A, B and C were partners sharing Profits and Losses in the ratio of 2:2:1. Their Balance Sheet as on 1-4-2015 stood as follows:

Capital Accounts: A 5,00,000; B 4,00,000; C 3,00,000; Reserves 1,00,000; Trade Payables 4,00,000
Assets: Fixed Assets 10,00,000; Inventory 2,50,000; Trade Receivable 3,50,000; Cash and Bank 1,00,000
Total: 17,00,000

On 1st Oct. 2015, C died. His representatives agreed that:
(i) Goodwill of the firm be valued at ₹ 5,00,000. Goodwill not to be shown off in books of Accounts.
(ii) Fixed assets to written down by ₹ 1,20,000 and
(iii) In lieu of profits, C should be paid at the rate of 25% p.a. on his capital as on 1-4-2015. Current year's (2014-2015) profit after charging depreciation of ₹ 95,000 (₹ 50,000 related to the 1st half) was ₹ 4,05,000. Profit was evenly s…

Accepted Answer

**Partnership: Death of Partner C on 1st October 2015**

**Step 1 — Gaining Ratio on C's Death**

Old ratio A:B:C = 2:2:1. On death of C, new ratio A:B = 2:2 = 1:1.

Gaining ratio = New ratio − Old ratio
A: 1/2 − 2/5 = 1/10 | B: 1/2 − 2/5 = 1/10 → Gaining ratio A:B = **1:1**

**Step 2 — Goodwill Adjustment (Not to be raised in books)**

Firm's goodwill = ₹5,00,000. C's share = 1/5 × 5,00,000 = **₹1,00,000**

Since goodwill is not to be shown in books, A and B (gaining partners) compensate C's account in gaining ratio 1:1:
A's Capital A/c Dr. ₹50,000 | B's Capital A/c Dr. ₹50,000 → C's Capital A/c Cr. ₹1,00,000

**Step 3 — Revaluation of Fixed Assets**

Fixed assets written down by ₹1,20,000. Loss distributed in old ratio 2:2:1:
A = ₹48,000 | B = ₹48,000 | C = ₹24,000

**Revaluation Account**

Dr: Fixed Assets A/c ₹1,20,000
Cr: A's Capital (2/5) ₹48,000 | B's Capital (2/5) ₹48,000 | C's Capital (1/5) ₹24,000

**Step 4 — Distribution of Reserves**

Reserves ₹1,00,000 distributed in old ratio 2:2:1:
A = ₹40,000 | B = ₹40,000 | C = ₹20,000

**Step 5 — Profit to Date of Death (April 2015 to October 2015 = 6 months)**

Annual profit (after depreciation ₹95,000) = ₹4,05,000. Profit is evenly spread.
6-month profit = ₹4,05,000 × 6/12 = **₹2,02,500**

C is entitled to profit **in lieu** at 25% p.a. on his capital (₹3,00,000):
C's profit in lieu = ₹3,00,000 × 25% × 6/12 = **₹37,500**

Remaining profit shared between A and B in ratio 1:1:
Balance = ₹2,02,500 − ₹37,500 = ₹1,65,000 → A = …

Question 12

Prepare the Balance Sheet of the firm as on 31-3-2016, assuming that final settlement to C's executors was made on 31-3-2016.

Accepted Answer

**Incomplete Question — Insufficient Data Provided**

The question asks to prepare the Balance Sheet of a firm as on 31-3-2016 (following the death of partner C and final settlement with C's executors), but **no supporting numerical data has been provided** in the question as submitted.

To prepare such a Balance Sheet, the following information would typically be required:

**1. Capital Accounts of all partners** (including C's capital at date of death, adjusted for: share of profit/loss up to date of death, C's share of goodwill, revaluation gain/loss, drawings, interest on capital).

**2. Revaluation Account** — to record increase/decrease in asset values and liabilities at the time of C's retirement/death.

**3. Goodwill treatment** — whether goodwill is raised/written off and how C's share of goodwill is credited to C's executor's loan account.

**4. C's Executor's Loan Account** — the balance payable to C's executors, including any interest accrued up to 31-3-2016. If final settlement is made on 31-3-2016, this balance should be **nil** in the Balance Sheet (fully paid off).

**5. Assets and Liabilities schedule** — fixed assets, current assets, loans, creditors, etc., after revaluation adjustments.

**Standard Balance Sheet format** (as per the Partnership Act framework applicable to CA Intermediate):

*Liabilities side:* Capitals of surviving partners, Sundry Creditors, Loans, Outstanding expenses, etc.
*Assets side:* Fixed Assets (after revaluation), Current Assets (…

Question 13

Prepare the Capital A/c of the partners as on 1-10-2015 & 31-3-2016.

Accepted Answer

**Insufficient Data Provided**

The question asks to prepare the Capital Accounts of partners as on **1-10-2015** and **31-3-2016**, but the necessary data to solve the problem has **not been provided** in the question text.

To prepare the Capital Accounts, the following information is typically required:

**1. Opening Balances:** Capital balances of each partner at the start of the period.

**2. Profit Sharing Ratio:** The ratio in which profits/losses are shared among partners.

**3. Transactions during the period** (e.g., drawings, interest on capital, interest on drawings, salary/commission to partners, admission/retirement of a partner, goodwill adjustments, revaluation of assets/liabilities).

**4. Net Profit/Loss** for the period (or periods, if the year is split — here likely 1-4-2015 to 30-9-2015 and 1-10-2015 to 31-3-2016, suggesting a change in constitution mid-year such as admission or retirement of a partner).

**5. Nature of Capital Accounts:** Whether Fixed Capital Method or Fluctuating Capital Method is followed.

The dates (1-10-2015 and 31-3-2016) suggest a mid-year change in partnership constitution (admission, retirement, or death of a partner), which would require preparing accounts at both dates.

Please provide the complete question with all data so that the Capital Accounts can be correctly prepared.

Question 14

Recently a growing trend has developed for outsourcing the accounting function to a third party. What are the basis on which choice of such third party made?

Accepted Answer

When outsourcing accounting functions to a third party, the entity must exercise professional judgment in selecting an appropriate service provider. The choice is based on several critical criteria:

**Competence and Technical Expertise**: The third party must possess adequate knowledge of applicable accounting standards (Indian Accounting Standards and Accounting Standards), statutory requirements (Income Tax Act 1961, GST Law, Companies Act 2013), and relevant audit standards. Understanding of the entity's specific industry and business risks is essential for accurate financial reporting.

**Professional Qualifications and Standing**: The service provider should be registered with ICAI or equivalent regulatory bodies with qualified personnel (CAs, CMAs). Professional indemnity insurance and appropriate registrations provide assurance of accountability and ability to meet professional standards.

**Internal Control Framework**: A robust system of internal controls within the service organization is paramount. This includes segregation of duties, secure IT systems, data protection mechanisms, and compliance with SA 402 (Audit Considerations Relating to an Entity Using a Service Organization). The auditor must assess whether the service provider maintains adequate controls over financial reporting processes.

**Reputation and Financial Stability**: References from existing clients, demonstrated track record of timely and accurate work, absence of regulatory violations, and fin…

Question 15

A merchant trader having accepted the following several bills falling due on different dates, now desires to have these bills cancelled and to accept a new bill for the whole amount payable on the average due date.

Accepted Answer

**Note:** The specific bill details (amounts and individual due dates) were not included in the question as submitted. The table of bills appears to be missing. Below is the complete **Average Due Date** methodology applicable to this type of question, which a student should apply once the data is available.

**Concept of Average Due Date:** The average due date is a single date on which all the bills (of different amounts and due dates) can be settled together without any loss of interest to either party.

**Formula:**
Average Due Date = Base Date + (Sum of Products ÷ Total Amount)

Where **Product** = Amount of each bill × Number of days from the base date to that bill's due date.

**Step-by-Step Method:**

**Step 1 – Choose a Base Date:** Select the earliest due date among all bills as the base date (to avoid negative products).

**Step 2 – Calculate Days:** For each bill, count the number of days from the base date to the bill's due date.

**Step 3 – Calculate Products:** Multiply each bill's amount by the corresponding number of days.

**Step 4 – Apply Formula:**
Average Due Date = Base Date + (Total of Products ÷ Total Amount of all Bills)

**Step 5 – New Bill:** The merchant accepts a single new bill for the **total amount** of all bills, payable on the computed average due date.

**Important Note on Days of Grace:** For Bills of Exchange, 3 days of grace are added to the bill's tenor to arrive at the due date before computation.

**Conclusion:** Once the bill amounts …

Question 16

You are required to prepare an Income & Expenditure A/c of Retreat & Refresh Club for the year ending 31st March, 2016 and Balance Sheet as on that date.

Accepted Answer

**Note:** The Receipts & Payments Account (R&P A/c) for Retreat & Refresh Club has not been provided in the case scenario. The solution below demonstrates all adjustments and presents the complete framework with definitive computations for every item derivable from the additional information. Plug R&P figures into the indicated placeholders to arrive at final totals.

**Treatment of Each Adjustment Item**

**1. Depreciation on Club Premises:** Written Down Value (WDV) as on 1.4.2015 = ₹1,16,000 − ₹75,200 = ₹40,800. Depreciation @ 5% on WDV = ₹40,800 × 5% = **₹2,040**. Closing WDV (Balance Sheet value) = ₹40,800 − ₹2,040 = **₹38,760**.

**2. Depreciation on Car:** WDV as on 1.4.2015 = ₹48,760 − ₹41,160 = ₹7,600. Depreciation @ 15% on WDV = ₹7,600 × 15% = **₹1,140**. Closing WDV = ₹7,600 − ₹1,140 = **₹6,460**.

**3. Subscription (Income):** I&E credit = Cash received (from R&P) + Closing accrued (₹3,920) − Opening accrued (₹4,800) = Cash received − ₹880. Opening accrued subscription of ₹4,800 appears as an asset in the opening Balance Sheet; closing accrued ₹3,920 appears as asset in the closing Balance Sheet.

**4. Bar Trading Account:** Bar Purchases (accrual basis) = Cash paid for bar purchases (from R&P) + Closing creditors (₹1,720) − Opening creditors (₹2,360) = Cash paid − ₹640. Bar Surplus = Bar Receipts (from R&P) − [Opening stock ₹2,840 + Purchases − Closing stock ₹3,480]. Opening bar creditors ₹2,360 and opening bar stock ₹2,840 feature in opening Balance Sheet; closi…

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

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Date	Particulars	Nominal (₹)	Interest (₹)	Principal (₹)
1.12.2015	To Bank A/c (Purchase)	20,00,000	40,000	20,81,000
1.3.2016	To P&L A/c (Interest Income)	—	60,000	—
	Total	20,00,000	1,00,000	20,81,000

Date	Particulars	Nominal (₹)	Interest (₹)	Principal (₹)
1.3.2016	By Bank A/c (Sale Proceeds)	20,00,000	1,00,000	20,78,000
1.3.2016	By P&L A/c (Loss on Sale)	—	—	3,000
	Total	20,00,000	1,00,000	20,81,000