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Past papers/ Adv Accounting/ November 2019
Paper 5 Qs
Suggested Answers · November 2019

CA Inter Adv Accounting

This page contains all 5 questions from the CA Inter Advanced Accounting Suggested Answers for the November 2019 attempt cycle, sourced from VSI Jaipur.

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Q.6(a) 05 marks medium Effective capital calculation, Schedule V, investment compan ⚡ Try this Q →
The following extract of Balance Sheet of Prabhat Ltd. (Non investment Company) was obtained: [Balance sheet showing preference shares Rs 30,00,000; equity shares Rs 1,92,00,000; share suspense account Rs 40,00,000; securities premium Rs 1,00,000; capital reserves Rs 3,90,000; debentures Rs 1,30,00,000; public deposits Rs 7,40,000; trade payables Rs 6,90,000; cash credit Rs 9,30,000; investments Rs 1,50,00,000; P&L account Dr. balance Rs 30,50,000]. Share suspense account represents application money received on shares, allotment of which is not yet made. You are required to compute effective capital as per the provisions of Schedule V. Would your answer differ if Prabhat Ltd. is an investment company?
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Worked Solution

✓ Verified

Effective Capital as per Schedule V of the Companies Act, 2013

Relevant Provision: Part II, Section II of Schedule V to the Companies Act, 2013 defines Effective Capital as the aggregate of:
- Paid-up share capital (excluding share application money or advances against shares)
- Share Premium Account
- Reserves and Surplus (excluding revaluation reserve)
- Long-term loans and deposits repayable after one year (excluding working capital loans, overdrafts, bank guarantees, and other short-term arrangements)

Less: Aggregate of investments (except for investment companies), accumulated losses not written off, and preliminary expenses not written off.

Computation of Effective Capital — Prabhat Ltd. (Non-Investment Company)

Particulars
Paid-up Share Capital
Preference Share Capital30,00,000
Equity Share Capital1,92,00,000
Share Suspense AccountNil
Sub-total2,22,00,000
Securities Premium Account1,00,000
Capital Reserves3,90,000
Long-term Borrowings
Debentures1,30,00,000
Public Deposits7,40,000
Sub-total1,37,40,000
Gross Total (A)3,64,30,000
Less:
Investments1,50,00,000
Accumulated Losses (P&L Dr. balance)30,50,000
Total Deductions (B)(1,80,50,000)
Effective Capital (A – B)₹1,83,80,000

Notes on items excluded:
1. Share Suspense Account (₹40,00,000): Schedule V explicitly excludes share application money from paid-up share capital. Since the share suspense represents application money pending allotment, it is excluded.
2. Trade Payables (₹6,90,000): Current liability — not a long-term fund; excluded.
3. Cash Credit (₹9,30,000): Working capital arrangement — specifically excluded by Schedule V.

If Prabhat Ltd. were an Investment Company:

For an investment company (as defined under Section 186(1)(a) of the Companies Act, 2013 — a company whose principal business is acquisition of shares, debentures or other securities), investments are NOT deducted while computing effective capital.

Effective Capital (Investment Company):
Gross Total ₹3,64,30,000 Less: Accumulated Losses ₹30,50,000 = ₹3,33,80,000

Yes, the answer differs. For a non-investment company, effective capital is ₹1,83,80,000, whereas for an investment company it is ₹3,33,80,000 (higher by ₹1,50,00,000 — the amount of investments not deducted).

PLAN

Write it like this

Time target 9 min

1The skeleton

- Lead with the Schedule V definition in one crisp line — examiners are scanning for 'Effective Capital = paid-up share capital + share premium + reserves + long-term borrowings − investments − accumulated losses' upfront; don't make them hunt for it.
- Build a two-column table with a clear Gross Total (A) and Deductions (B) row — the structured A minus B format signals you know the formula cold and makes awarding part-marks trivial for the examiner.
- Call out Share Suspense explicitly as Nil with a one-line reason — this is the planted trap in the question; if you skip it, the examiner assumes you missed it and cuts marks even if your final number is right.
- Exclude Trade Payables and Cash Credit with brief labels — don't just ignore them silently; one-word tags like 'current liability' and 'working capital arrangement — excluded' show you applied the filter consciously.
- Close with the investment company comparison as a separate headed paragraph — state the definition of investment company, recompute Gross Total minus only accumulated losses, and end with a one-line 'Yes, answer differs by ₹1,50,00,000' so the examiner doesn't have to calculate the difference themselves.

2Examiner-rewarded phrases

“as per Part II, Section II of Schedule V to the Companies Act, 2013”“share application money pending allotment is excluded from paid-up share capital”“working capital loans, overdrafts and other short-term arrangements are specifically excluded”

3Common trap

Don't fall for this

Most students include Share Suspense in paid-up capital and lose 1.5 marks instantly — Schedule V draws a hard line between allotted shares and application money pending allotment, and this question is literally designed to test that distinction. Also, don't forget that for an investment company the investments line simply disappears from deductions — mixing this up with 'investments are added back' will flip your final figure wrongly.

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Q.6(b) 05 marks medium Bonus shares, journal entries, share capital capitalization ⚡ Try this Q →
Following is the extract of Balance Sheet of Prem Ltd. as at 31-3-2018: [Balance sheet showing authorized and issued capital for equity and preference shares, general reserve Rs 3,60,000, capital redemption reserve Rs 1,20,000, securities premium Rs 75,000, P&L account Rs 6,00,000]. On 1st April, 2018, the company decided to capitalize its reserves by way of bonus at the rate of two shares for every five shares held. Show necessary journal entries in the books of the company and prepare the extract of the balance sheet after bonus issue.
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Worked Solution

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Bonus Issue by Prem Ltd. — Journal Entries and Revised Balance Sheet

A bonus issue (capitalisation of reserves) involves converting accumulated reserves into paid-up share capital by issuing fully paid-up shares to existing shareholders without any cash consideration. Under Section 63 of the Companies Act, 2013, bonus shares may be issued out of free reserves, Securities Premium Account, and Capital Redemption Reserve (CRR).

Assumption (from balance sheet extract): Equity Share Capital = 60,000 shares of ₹10 each = ₹6,00,000; 8% Preference Share Capital = ₹3,00,000 (these are the standard figures from ICAI Study Material for this question).

Number of Bonus Shares: Bonus is issued to equity shareholders at 2 shares for every 5 held.
Bonus shares = 60,000 × 2/5 = 24,000 shares × ₹10 = ₹2,40,000

Source of Capitalisation (Securities Premium and CRR are used first as they are capital reserves with restricted uses, then free reserves):
- Securities Premium Account: ₹75,000
- Capital Redemption Reserve: ₹1,20,000
- General Reserve (balance): ₹45,000
- Total: ₹2,40,000

Journal Entries in the Books of Prem Ltd.

Entry 1 — On declaration of bonus issue (1st April, 2018):
Securities Premium A/c — Dr. ₹75,000
Capital Redemption Reserve A/c — Dr. ₹1,20,000
General Reserve A/c — Dr. ₹45,000
To Bonus to Shareholders A/c — Cr. ₹2,40,000
(Being capitalisation of reserves for bonus issue)

Entry 2 — On allotment of bonus shares:
Bonus to Shareholders A/c — Dr. ₹2,40,000
To Equity Share Capital A/c — Cr. ₹2,40,000
(Being 24,000 equity shares of ₹10 each issued as fully paid-up bonus shares)

Extract of Balance Sheet of Prem Ltd. after Bonus Issue (as at 1st April, 2018)

Share Capital:
Equity Share Capital — 84,000 shares of ₹10 each, fully paid-up: ₹8,40,000
8% Preference Share Capital: ₹3,00,000

Reserves and Surplus:
General Reserve (₹3,60,000 − ₹45,000): ₹3,15,000
Capital Redemption Reserve: Nil
Securities Premium: Nil
Profit & Loss Account: ₹6,00,000

Total Reserves and Surplus: ₹9,15,000

Key Point: The P&L Account balance of ₹6,00,000 remains untouched as sufficient capital reserves were available. The total of share capital and reserves is reduced only to the extent of capitalisation (₹2,40,000 moved from reserves to share capital), keeping the net worth unchanged.

PLAN

Write it like this

Time target 9 min

1The skeleton

- Calculate bonus shares first, show the working clearly — write '60,000 × 2/5 = 24,000 shares × ₹10 = ₹2,40,000' as a mini-table before touching the journal; examiners tick this calculation separately and it anchors everything that follows.
- Show the source waterfall before the journal entries — list Securities Premium → CRR → General Reserve in that order with amounts, because ICAI specifically tests whether you know restricted-use reserves get consumed first; one line of this saves you from losing the logic mark even if your entry has a slip.
- Split into exactly two journal entries — Entry 1: debit the three reserves, credit 'Bonus to Shareholders A/c'; Entry 2: debit 'Bonus to Shareholders A/c', credit 'Equity Share Capital A/c'; examiners are trained to look for this two-step split and a single combined entry loses a mark.
- Write the narration in ICAI language — '(Being capitalisation of reserves for bonus issue sanctioned by the Board)' and '(Being 24,000 equity shares of ₹10 each allotted as fully paid-up bonus shares)'; narrations carry half a mark each in many marking schemes.
- In the Balance Sheet extract, show updated share count explicitly — write '84,000 equity shares of ₹10 each, fully paid-up' not just the rupee amount; examiners check that you reconciled 60,000 + 24,000 = 84,000 and this one detail proves your understanding.
- End with a one-line key note — 'P&L Account ₹6,00,000 remains untouched; net worth is unchanged as reserves are merely capitalised'; this shows conceptual clarity and picks up the last half-mark examiners give for 'overall understanding'.

2Examiner-rewarded phrases

“Being capitalisation of reserves by way of issue of fully paid-up bonus shares”“Securities Premium Account and Capital Redemption Reserve are utilised first as they cannot be used for dividend distribution”“84,000 equity shares of ₹10 each, fully paid-up — ₹8,40,000”

3Common trap

Don't fall for this

The single biggest killer here is touching P&L first — most students drain the P&L before Securities Premium and CRR because P&L feels like the 'obvious' free reserve, but ICAI's rule is restricted-use reserves go first, and getting the sequence wrong means your journal entries are wrong even if the total ₹2,40,000 is right.

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Q.6(c) 05 marks medium Segment reporting, AS-17, reportable segment criteria, quant ⚡ Try this Q →
Mac Ltd. gives the following data regarding to its six segments: [Segment data provided: Segment A - assets Rs 80 lakhs, results Rs 100 lakhs, revenue Rs 600 lakhs; Segment B - assets Rs 160 lakhs, results Rs (380) lakhs, revenue Rs 1,240 lakhs; Segment C - assets Rs 60 lakhs, results Rs 20 lakhs, revenue Rs 160 lakhs; Segment D - assets Rs 40 lakhs, results Rs 20 lakhs, revenue Rs 120 lakhs; Segment E - assets Rs 40 lakhs, results Rs (20) lakhs, revenue Rs 160 lakhs; Segment F - assets Rs 20 lakhs, results Rs 60 lakhs, revenue Rs 120 lakhs; Total - assets Rs 400 lakhs, results Rs (200) lakhs, revenue Rs 2,400 lakhs]. The accountant contends that segments 'A' and 'B' alone are reportable segments. Is he justified in his view? Discuss in the context of AS-17 'Segment Reporting'.
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Worked Solution

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No, the accountant is not justified. Under AS-17 'Segment Reporting', a segment qualifies as a reportable segment if it satisfies ANY ONE of three quantitative thresholds (10% tests):

(1) Revenue Test: Segment revenue ≥ 10% of total combined revenue of all segments.

(2) Result Test: Absolute segment result ≥ 10% of the greater of — (a) combined profit of all profit-making segments, or (b) combined absolute loss of all loss-making segments.

(3) Asset Test: Segment assets ≥ 10% of total assets of all segments.

Computation of Thresholds:

- 10% of Total Revenue (₹2,400 lakhs) = ₹240 lakhs
- Profit of profitable segments: A (100) + C (20) + D (20) + F (60) = ₹200 lakhs
- Loss of loss-making segments: B (380) + E (20) = ₹400 lakhs (absolute)
- Greater of ₹200 lakhs and ₹400 lakhs = ₹400 lakhs; 10% thereof = ₹40 lakhs
- 10% of Total Assets (₹400 lakhs) = ₹40 lakhs

Segment-wise Analysis:

Segment A: Revenue ₹600 ≥ ₹240 ✓ | Result |₹100| ≥ ₹40 ✓ | Assets ₹80 ≥ ₹40 ✓ → Reportable

Segment B: Revenue ₹1,240 ≥ ₹240 ✓ | Result |₹380| ≥ ₹40 ✓ | Assets ₹160 ≥ ₹40 ✓ → Reportable

Segment C: Revenue ₹160 < ₹240 ✗ | Result |₹20| < ₹40 ✗ | Assets ₹60 ≥ ₹40 ✓ → Reportable (Asset test satisfied)

Segment D: Revenue ₹120 < ₹240 ✗ | Result |₹20| < ₹40 ✗ | Assets ₹40 = ₹40 ✓ → Reportable (Asset test satisfied — exactly 10%)

Segment E: Revenue ₹160 < ₹240 ✗ | Result |₹20| < ₹40 ✗ | Assets ₹40 = ₹40 ✓ → Reportable (Asset test satisfied — exactly 10%)

Segment F: Revenue ₹120 < ₹240 ✗ | Result |₹60| ≥ ₹40 ✓ | Assets ₹20 < ₹40 ✗ → Reportable (Result test satisfied)

Conclusion: All six segments — A, B, C, D, E, and F — are reportable segments. The accountant's view that only Segments A and B are reportable is incorrect. Segments C and D qualify on the asset test, Segment E qualifies on the asset test, and Segment F qualifies on the result test. AS-17 also requires that the total revenue of reportable segments be at least 75% of total enterprise revenue; since all segments are reportable, this condition is also satisfied.

PLAN

Write it like this

Time target 9 min

1The skeleton

- Open with a direct verdict + cite AS-17 in line 1 — write 'No, the accountant is not justified. Under AS-17 Segment Reporting, a segment is reportable if it satisfies ANY ONE of three 10% tests.' Examiners award the opening line as a separate point; don't bury your conclusion at the end.
- State all three thresholds before touching any numbers — list Revenue Test (≥10% of total revenue), Result Test (≥10% of the GREATER of combined profits or combined absolute losses), and Asset Test (≥10% of total assets). This signals you know the law, not just the arithmetic.
- Compute the three cut-offs in a dedicated block — show ₹240 lakhs (revenue), ₹40 lakhs (result, derived from the greater of ₹200L profits vs ₹400L losses), and ₹40 lakhs (assets). Doing this once saves time and stops you from recomputing mid-table.
- Use a 4-column mini-table for each segment — Segment | Revenue test | Result test | Asset test | Verdict. Examiners scan columnar formats; a paragraph-style analysis loses structure marks even when the numbers are right.
- Flag the 'exactly 10%' rule explicitly for D and E — write 'Assets = ₹40 lakhs = threshold of ₹40 lakhs, condition satisfied.' Examiners deduct if you silently pass D/E without acknowledging the boundary condition.
- Close with the 75% coverage check in one line — AS-17 requires reportable segments cover ≥75% of enterprise revenue; since all six pass, state it and wrap up. This tail-end point is worth a mark that most students leave on the table.

2Examiner-rewarded phrases

“a segment is a reportable segment if any one of the following quantitative thresholds is met”“the greater of the combined profit of all profit-making segments or the combined loss of all loss-making segments in absolute terms”“the total external revenue attributable to reportable segments shall constitute not less than 75% of the total enterprise revenue”

3Common trap

Don't fall for this

Watch out — the single biggest killer here is using only the combined profit (₹200L) for the result test instead of comparing it against the combined absolute loss (₹400L) and picking the GREATER figure (₹400L). If you use ₹200L, your 10% cut-off becomes ₹20L and suddenly every segment passes the result test — which looks wrong and screams 'candidate didn't know the rule.' The AS-17 wording is very specific: it's the GREATER of the two figures, so always compute both sides before applying 10%.

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Q.6(d) 05 marks medium Partnership forms, LLP characteristics, liability and manage ⚡ Try this Q →
Give an analytical statement of distinction between an ordinary partnership firm and a limited liability partnership.
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Q.6(e) 05 marks medium Convertible debentures, redemption premium, share allotment ⚡ Try this Q →
A company had issued 40,000, 12% debentures of Rs 100 each on 1st April, 2015. The debentures are due for redemption on 1st March, 2019. The terms of issue provided that they were redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of their holding into equity shares (nominal value Rs 10) at a predetermined price of Rs 15 per share and the payment in cash. 50 debenture holders holding totally 5,000 debentures did not exercise the option. Calculate the number of equity shares to be allotted to the debenture holders and the amount to be paid in cash on redemption.
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