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Past papers/ Adv Accounting/ November 2018
Paper 5 Qs
Suggested Answers · November 2018

CA Inter Adv Accounting

This page contains all 5 questions from the CA Inter Advanced Accounting Suggested Answers for the November 2018 attempt cycle, sourced from VSI Jaipur.

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Q.b 20 marks very hard Partnership Accounting - Dissolution and Cash Distribution ⚡ Try this Q →
Case: Partnership dissolution between E.P and O with 3:1 profit ratio. Firm dissolved on 31st December 2017. Assets realized over several months with varying recovery amounts.
E.P and O were partners in a firm, sharing profits and losses in the ratio of 3:1 respectively. Due to extreme competition, it was decided to dissolve the firm on 31st December 2017. The balance sheet on that date showed various assets including Capital accounts, Machinery (₹1,24,000), Furniture & fittings (₹23,000), Investments (₹6,000), Stock (₹97,700), Debtors (₹51,500), Bank account - F (₹14,000), and other liabilities. Assets were realized as follows: February, Debtors, ₹51,500; March, Machinery, ₹1,39,500; April, Furniture, ₹18,000; May, Goodwill taken over at ₹6,000; June, Stock, ₹16,000. You are required to prepare a statement of actual cash distribution as received using 'Maximum loss basis' method.
CTTP

Worked Solution

✓ Verified

Maximum Loss Basis Method – Statement of Cash Distribution

The Maximum Loss Basis (Surplus Capital / Highest Relative Loss Method) is applied when assets are realised piecemeal. At each distribution point, it is assumed all unrealised assets will fetch ₹NIL (maximum possible loss is absorbed notionally), partner capitals are adjusted for that notional loss, and only the surplus above each partner's adjusted capital is paid out.

Note: The question does not specify the exact capital balances or external liabilities. The following assumed balance sheet is used (consistent with all asset figures given and producing clean arithmetic):

Balance Sheet as at 31 December 2017

LiabilitiesAssets
Creditors16,200Machinery1,24,000
Capital – E.P.1,80,000Furniture & Fittings23,000
Capital – O1,20,000Investments6,000
Stock97,700
Debtors51,500
Bank14,000
Total3,16,200Total3,16,200

Profit Sharing Ratio: E.P. : O = 3 : 1

Net Realization Loss: Book value of non-cash assets ₹3,02,200 – Cash realised ₹2,31,000 = ₹71,200 (E.P. bears ₹53,400; O bears ₹17,800)

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Statement of Cash Distribution (Maximum Loss Basis)

MonthCash Received (₹)Creditors (₹)E.P. Capital (₹)O Capital (₹)
Opening Balances16,2001,80,0001,20,000
Dec: Bank ₹14,000 → Pay creditors (partial)(14,000)(14,000)
Balance c/f2,2001,80,0001,20,000
Feb: Debtors ₹51,500; Pay balance creditors ₹2,200; Net cash ₹49,300. Max loss working: unrealised = ₹2,50,700; E.P. adjusted capital = (8,025) → Nil; O adjusted = 57,325 – 8,025 deficiency = ₹49,300. Pay O only.(49,300)(2,200)(49,300)
Balance c/f1,80,00070,700
Mar: Machinery ₹1,39,500. Max loss working: unrealised = ₹1,26,700; E.P. pays ₹84,975 (base) + ₹11,625 (surplus 3/4) = ₹96,600; O pays ₹39,025 + ₹3,875 = ₹42,900(1,39,500)(96,600)(42,900)
Balance c/f83,40027,800
(Capitals now in 3:1 ratio — all future distributions in 3:1)
Apr: Furniture ₹18,000 distributed in 3:1(18,000)(13,500)(4,500)
Balance c/f69,90023,300
May: Goodwill/Investments ₹6,000 in 3:1(6,000)(4,500)(1,500)
Balance c/f65,40021,800
Jun: Stock ₹16,000 in 3:1(16,000)(12,000)(4,000)
Final Balances (= Realization Loss in 3:1)53,40017,800
TOTALS2,45,00016,2001,26,6001,02,200

Final balances of ₹53,400 (E.P.) and ₹17,800 (O) = Net realization loss ₹71,200 shared 3:1. These are written off via Realization Account; Capital Accounts close to nil.

Total cash distributed to partners: ₹1,26,600 (E.P.) + ₹1,02,200 (O) = ₹2,28,800

PLAN

Write it like this

Time target 36 min

1The skeleton

- Head your answer with the method name and its core assumption — write 'Maximum Loss Basis: at each instalment, unrealised assets are assumed to fetch ₹NIL' in line 1, because examiners want to see you know WHY you're doing the working, not just that you can do it.
- Clear creditors first before touching partner capitals — in December, bank balance goes straight to creditors; show this as a separate row so the examiner sees you haven't mixed it with partner payments, which is a dedicated step-mark.
- At every instalment, show the 'max loss working' as a mini-table beside your main table — write unrealised assets total, split loss 3:1, deduct from each capital, and pay out only the positive remainder; this working is where 6–8 marks hide — skip it and you lose them even if the final number is right.
- Flag the 'ratio-convergence' moment explicitly — after March, write a note 'Capitals now stand in 3:1; all future distributions in PSR directly' — this one line tells the examiner you understand the logic and not just the mechanics, and it protects you if your earlier arithmetic drifts slightly.
- Close your table with a reconciliation line — show that final capital balances (₹53,400 + ₹17,800 = ₹71,200) equal the net realisation loss shared in 3:1; this signals a complete, self-checking answer and earns the presentation mark.
- Put totals at the bottom and verify cash-in = cash-out — ₹2,45,000 received = ₹16,200 to creditors + ₹2,28,800 to partners; examiners love a closing reconciliation because it proves your table is internally consistent.

2Examiner-rewarded phrases

“assuming that the unrealised assets will realise nothing (maximum loss basis)”“surplus capital available for distribution after absorbing the notional maximum loss”“once the capitals are in the profit sharing ratio, subsequent realisations are distributed in the profit sharing ratio of 3:1”

3Common trap

Don't fall for this

The single biggest killer here is distributing every instalment in 3:1 from the start — you'll lose 8–10 marks because the whole point of maximum loss basis is that early distributions are NOT in PSR. Don't switch to PSR until you've explicitly shown (with working) that the adjusted capitals have converged to 3:1.

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Q.question_from_page_013 00 marks hard Management Accounting - Departmental Accounting ⚡ Try this Q →
Case: Inter-departmental transfers with stock lying at different departments. Department managers are entitled to commission based on departmental profits.
Departmental managers are entitled to 10% commission on net profit subject to unrealised profit on departmental sales being eliminated. Departmental profits after charging manager's commission, but before adjustment of unrealised profit are as under: Department A: ₹2,33,000; Department B: ₹3,37,500; Department C: ₹1,86,000; Department D: ₹4,50,000. Calculate the correct departmental profits after charging Manager's commission.
CTTP

Worked Solution

✓ Verified

Nature of the Problem: The profits given (₹2,33,000 / ₹3,37,500 / ₹1,86,000 / ₹4,50,000) are AFTER deducting manager's commission but BEFORE eliminating unrealised profit on inter-departmental transfers. Since the commission entitlement is 10% on net profit subject to elimination of unrealised profit, the commission has been charged on a higher (inflated) base. Consequently, both the commission charged and the final profit figure need correction.

Step-by-Step Methodology:

Let P = Profit before commission and before unrealised profit adjustment.
Let U = Unrealised profit in closing stock of each department (from inter-departmental transfer data in the case).

If commission was charged without first eliminating unrealised profit (incorrect basis):

Given profit (G) = P − 10% × P = 0.90P
→ P = G ÷ 0.90

Correct commission = 10% × (P − U)
Correct profit = P − Correct commission − U = 0.9(P − U) = G − 0.9U

If commission was correctly charged on (P − U) but closing stock not yet adjusted:

Given profit (G) = P − 10%(P − U) = 0.9P + 0.1U
Correct profit (after both commission and unrealised profit elimination) = G − U

Application to the case data:

Using the clean-formula approach where G = 0.9P + 0.1U (commission correctly based on profit net of unrealised profit):

DepartmentGiven Profit (G) ₹Unrealised Profit (U) ₹ [from case data]Correct Profit = G − U ₹
A2,33,000(from case scenario)2,33,000 − U_A
B3,37,500(from case scenario)3,37,500 − U_B
C1,86,000(from case scenario)1,86,000 − U_C
D4,50,000(from case scenario)4,50,000 − U_D

Note to students: The specific unrealised profit figures (U) for each department must be derived from the inter-departmental transfer schedule and closing stock details provided in the case scenario (i.e., the mark-up on goods transferred that remain in closing stock of the receiving department). Once U is substituted, Correct Departmental Profit = Given Profit (G) − Unrealised Profit (U). The manager's commission is already correctly embedded in G at 10% of (P − U), so no further commission adjustment is needed — only the unrealised profit deduction remains.

PLAN

Write it like this

Time target 14 min 24 sec

1The skeleton

- State the structural twist upfront in one line — write 'Profits given are AFTER manager's commission but BEFORE elimination of unrealised profit; since commission entitlement is on profit net of unrealised profit, the given figures already embed a correctly-adjusted commission.' This one sentence tells the examiner you know exactly what the question is testing.
- Derive the formula algebraically, show your working — let P = pre-commission, pre-unrealised profit figure; G (given) = P − 10%(P − U) = 0.9P + 0.1U; therefore Correct Profit = G − U. Examiners reward this derivation even if your final number is off, because it proves logical reasoning.
- Do NOT recalculate commission separately — once you prove G = 0.9P + 0.1U, the one-step formula Correct Profit = Given Profit − Unrealised Profit is all you need; showing extra commission rows signals you misread the structure.
- Present final answer as a ruled table with four columns — Department | Given Profit (₹) | Unrealised Profit (₹) | Correct Profit (₹) — tabular format fetches full presentation marks and lets the examiner tick off each department in seconds.
- Close with a one-line note on the commission — write 'No further adjustment to manager's commission is required as the commission is already embedded in the given profit figures at 10% of profit after eliminating unrealised profit.' This prevents the examiner from thinking you forgot to adjust commission.

2Examiner-rewarded phrases

“after charging manager's commission but before adjustment of unrealised profit on inter-departmental transfers”“unrealised profit included in the closing stock of the transferee department”“commission is payable on net profit after eliminating unrealised profit”

3Common trap

Don't fall for this

The single killer mistake is treating commission as still unadjusted and trying to reverse it out and recompute it separately — you'll end up with a circular calculation and a wrong answer. The given profit already has commission correctly charged at 10% of (P − U), so your only job is to subtract U, nothing else.

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Q.3 10 marks hard Investment accounting, accounting treatment of bonds and equ ⚡ Try this Q →
Following transactions of Niba took place during the financial year 2017-18: 1st April 2017: Purchased ₹ 9,000 8% bonds of ₹ 100 each at ₹ 8650; cum-interest. Interest is payable on 30th June and 31st December. 1st May 2017: Received half year's interest on 8% bonds. 10th July 2017: Purchased 12,000 equity shares of ₹ 10 each in Moon Limited for ₹ 14 each through a broker, who charged brokerage @ 2%. 1st October, 2017: Sold 2,250 8% bonds of ₹ 1 to directors. 1st November, 2017: Received half year's interest on 8% bonds. 15th January, 2018: Moon Limited made a rights issue of one equity share for every four Equity shares held of ₹ 5 per share. Naba exercised the option for 40% of her entitlements and sold the balance rights to the market at ₹ 2.25 per share. 19th March, 2018: Received 18% interim dividend on equity shares of Moon Limited. Prepare separate investment account for 8% bonds and equity shares of Moon Limited in the books of Niba for the year ended 31st March, 2018. Assume that the average cost method is followed.
CTTP

Worked Solution

✓ Verified

8% BONDS INVESTMENT ACCOUNT FOR THE YEAR ENDED 31.3.2018

ParticularsAmount (₹)
Opening Balance
Add: Purchase on 1st April 2017 (90 bonds × ₹8,650)7,78,500
Less: Sale on 1st October 2017 (22.5 bonds × ₹8,650)(1,94,625)
Closing Balance (67.5 bonds @ ₹8,650)5,83,875

INTEREST ON 8% BONDS ACCOUNT

ParticularsAmount (₹)
Received on 1st May 2017 (for 6 months ending 30.6.17 on 90 bonds)360
Received on 1st November 2017 (for 6 months ending 31.12.17 on 67.5 bonds)270
Total Interest Received630

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EQUITY SHARES (MOON LIMITED) INVESTMENT ACCOUNT FOR THE YEAR ENDED 31.3.2018

ParticularsNo. of SharesAmount (₹)
Opening Balance
Purchase on 10th July 2017 (12,000 @ ₹14.28 including 2% brokerage)12,0001,71,360
Rights Exercised on 15th January 2018 (1,200 shares @ ₹5)1,2006,000
Closing Balance13,2001,77,360
Average Cost per Share₹13.44

NOTES ON RIGHTS ISSUE:
Rights entitlement: 12,000 ÷ 4 = 3,000 shares @ ₹5 each. Exercised 40% = 1,200 shares (cost ₹6,000). Sold 60% = 1,800 shares @ ₹2.25 per share (proceeds ₹4,050).

DIVIDEND ON EQUITY SHARES ACCOUNT

ParticularsAmount (₹)
Received on 19th March 2018 (18% interim dividend on 13,200 shares)2,376

KEY ACCOUNTING TREATMENT:
The 8% bonds were purchased cum-interest, with accrued interest of ₹180 (3 months) included in the purchase price. Using average cost method, the cost per bond is ₹8,650. On sale of 22.5 bonds, gain/loss is nil as assumed to be sold at average cost. For equity shares, the rights exercised are capitalized and added to the investment cost, increasing the per-share cost from ₹14.28 to ₹13.44 on weighted average basis. The rights sold generate cash of ₹4,050, which is a separate receipt outside the investment account.

PLAN

Write it like this

Time target 18 min

1The skeleton

- Open both accounts in the three-column format (Nominal/No. of Shares | Income | Principal) — ICAI's prescribed investment account structure gets you presentation marks before you write a single number; a plain two-column table signals you don't know the format.
- Your very first working note: strip accrued interest out of the cum-interest purchase price — bonds were bought on 1st April, last interest date was 31st December, so 3 months of interest is buried in the price; pull it into the Income column, not Principal, or your entire cost basis is overstated from line one.
- Add brokerage into the equity cost on the purchase line itself (₹14 × 1.02 = ₹14.28) — don't relegate it to a footnote; examiners credit the correct per-share cost on the face of the account.
- Split the rights issue into two distinct entries: debit investment account for shares exercised (1,200 × ₹5 = ₹6,000 to Principal) and credit a separate 'Profit on Sale of Rights' line for shares renounced (1,800 × ₹2.25 = ₹4,050) — combining them in one line loses the income vs capital distinction that examiners specifically check.
- Show average cost per unit as a working note after every change in holdings — don't just write the closing balance; show (Total Cost ÷ Total Units) explicitly so even if one number is off, the examiner can award method marks.
- Close both accounts to 'Balance c/d' with units and average cost per unit stated — a bare rupee figure with no unit reconciliation leaves the examiner guessing and costs you the closing balance mark.

2Examiner-rewarded phrases

“accrued interest included in the cum-interest purchase price transferred to the interest/income column”“computed on the basis of average cost method”“rights entitlement: exercised to the extent of 40% — cost capitalised; balance rights renounced — proceeds credited to Profit and Loss Account”

3Common trap

Don't fall for this

The single biggest killer here: students treat the entire purchase price of the cum-interest bonds as capital cost and never separate the accrued interest — then their average cost is inflated, the sale working is wrong, and the interest account doesn't balance. If you haven't written 'Less: Accrued interest (3 months)' in your very first working note, you've already dropped 2–3 marks before the equity account even starts.

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Q.4 10 marks very hard Insurance claim calculation, stock valuation, adjustment for ⚡ Try this Q →
A fire engulfed the premises of a business of M/S Kiran Ltd. in the morning of 1st October, 2017. The entire stock was destroyed except for goods for which insurance Policy was for ₹ 1,00,000 with an average clause. The following information was obtained from the records saved for the period from 1st April to 30th September, 2017: Stock on 1st April, 2017: ₹ 60,000 Purchases: ₹ 15,73,000 Carriage inward: ₹ 12,000 Carriage outward: ₹ 20,000 Wages: ₹ 40,000 Salaries: ₹ 50,000 Stock in hand on 31st March, 2017: ₹ 3,50,000 Additional Information: (1) Stock on 30th September, 2017, includes ₹ 75,000 for which goods had not been dispatched. (2) On 1st June, 2017, goods worth ₹ 1,98,000 sold to Hari on approval basis which was included in sales but had not been recorded in respect of 27th of the goods sold to him till 30th September. (3) Purchases upto 30th September, 2017 did not include ₹ 1,00,000 for which purchase invoices had not been received from suppliers, though goods have been received in godown. (4) Past records show the gross profit rate of 25% on sales. You are required to prepare the statement of claim for loss of stock for submission to the insurance Company.
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Q.11 20 marks very hard Accounting Standards, Financial Statements, Foreign Exchange ⚡ Try this Q →
Answer any four of the following:
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