CA Inter Audit & Ethics — Revision Test Paper (RTP) — May 2022

The firm of M/s Om has four partners - A,B,C & D and as of 31st March, 2021, its Balance Sheet stood as follows: Equity and Liabilities | ` | Assets | ` Capital A/cs: | | Land | 50,000 A | 2,00,000 | Building | 2,50,000 B | 2,00,000 | Office equipment | 1,25,000 C | 1,00,000 | Computers | 70,000 Current A/cs: | | Debtors | 4,00,000 A | 50,000 | Stocks | 3,00,000 B | 1,50,000 | Cash at Bank | 75,000 C | 1,10,000 | Other Current Assets | 22,600 Loan from NBFC | 5,00,000 | Current A/c: D | 87,400 Current Liabilities | 70,000 | | Total | 13,80,000 | Total | 13,80,000 The partners have been sharing profits and losses in the ratio of 4:4:1:1. It has been agreed to dissolve the firm on 1.4.2021 on the basis of the following understanding: (a) The following assets are to be adjusted to the extent indicated with respect to the book values: Land 200%, Building 120%, Computers 70%, Debtors 95%, Stocks 90%. (b) In the case of the loan, the lenders are to be paid at their insistence a prepayment premium of 1%. (c) D is insolvent and no amount is recoverable from him. His father, C, however, agrees to bear 50% of his deficiency. The balance of the deficiency is agreed to be apportioned according to law. (d) The assets are realized at the agreed (adjusted) values. Assuming that the realization of the assets and discharge of liabilities is carried out immediately, show the Cash A/c, Realization Account and the Partners' capital accounts (including their current accounts).

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Explain the nature of a Limited Liability Partnership. Under what circumstances, an LLP may be wound up voluntarily or by the Tribunal?

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U and V were in partnership with sharing of profit and loss equally. The firm's Balance sheet as at 31/12/2021 (for 9 months) was: Equity and Liabilities | ` | Assets | ` Partners' Capital Accounts: | | Plant | 1,85,000 U | 1,50,000 | Building | 1,00,000 V | 1,80,000 | 3,30,000 | Debtors | 85,000 Sundry Creditors | 90,000 | Stock | 56,000 Bank Overdraft | 83,000 | Profit & Loss A/c (Dr. balance) | 60,000 Partners' Drawings Accounts: U | 8,000 | | V | 9,000 | 17,000 | | Total | 5,03,000 | Total | 5,03,000 The operations of the business were carried on till 31/03/2022. U and V both withdrew in equal amount half the amount of profit made during the current period of three months after charging depreciation of ` 5,000 on plant and after writing off 5% of building. During the current period of three months, creditors were reduced by ` 50,000 and bank overdraft by ` 50,000. The stock was valued at ` 24,000 and debtors at ` 40,500 on 31st March, 2022. The other items remained the same as at 31/12/2021. On 31/03/2022, the firm sold its business to UV Limited. The value of goodwill was estimated at ` 1,84,000 and the remaining assets were valued on the basis of the balance sheet as on 31/03/2022 except building and stock, which were valued as below: Building ` 1,20,000; Stock ` 36,000 UV Limited paid the purchase consideration in equity shares of ` 10 each. You are required to prepare (with necessary working notes):

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Define the following terms:

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Noor Ltd. has its share capital divided into equity shares of ` 10 each. On 1.1.2021 it granted 4,000 employee stock options at ` 40 per share, when the market price was ` 60 per share. Fair value per option was ` 20. The options were to be exercised between 15th March, 2021 and 31st March, 2021. The employees exercised their options for 2,500 shares only and the remaining options lapsed. The company closes its books on 31st March every year. You are required to give Journal entries (with narration) as would appear in the books of the company for the year ended 31st March, 2021.

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Complicated Ltd. (an unlisted company) gives the following information as on 31.3.2021: Particulars | Amount (`) Equity shares of ` 10 each, fully paid up | 13,50,000 Share option outstanding Account | 4,00,000 Revenue Reserve | 15,00,000 Securities Premium | 2,50,000 Profit & Loss Account | 1,25,000 Capital Reserve | 2,00,000 Unpaid dividends | 1,00,000 12% Debentures (Secured) | 18,75,000 Advance from related parties (Long term - Unsecured) | 10,00,000 Current maturities of long term borrowings | 16,50,000 Application money received for allotment due for refund | 2,00,000 Property, plant and equipment | 46,50,000 Current assets | 40,00,000 The Company wants to buy back 25,000 equity shares of ` 10 each, on 1st April, 2021 at ` 15 per share. Buy back of shares is duly authorized by its Articles and necessary resolution has been passed by the Company for this. The buy-back of shares by the Company is also within the provisions of the Companies Act, 2013. The payment for buy back of shares was made by the Company out of sufficient bank balance available shown as part of Current Assets. You are required to prepare the necessary journal entries towards buy back of shares and prepare the Balance Sheet of the company after buy back of shares.

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Explain the conditions for equity shares with differential rights under the Companies (Share Capital and Debentures) Rules.

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L, M, N and O hold Equity capital in the proportion of 30:30:20:20 in Hill Ltd. X, Y, Z and K hold preference share capital in the proportion of 40:30:20:10. You are required to identify the voting rights of shareholders in case of resolution of winding up of the company if the paid-up capital of the company is ` 60 Lakh and preference share capital is ` 30 Lakh.

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The following are the Balance Sheets of Aakash Limited and Ganga Limited as at March 31, 2021: Particulars | Note No. | Aakash Limited (`) | Ganga Limited (`) Share Capital | 1 | 80,00,000 | 20,00,000 Reserves and Surplus | 2 | (3,24,00,000) | 56,00,000 Secured Loans | 3 | 3,20,00,000 | 1,60,00,000 Unsecured Loans | 4 | 1,72,00,000 | - Trade Payables | | 56,00,000 | 36,00,000 Other Current Liabilities | 5 | 2,04,00,000 | 56,00,000 Total | | 5,08,00,000 | 3,28,00,000 Property, Plant & Equipment | | 68,00,000 | 1,36,00,000 Inventories | | 3,68,00,000 | - Other Current Assets | | 72,00,000 | 1,92,00,000 Total | | 5,08,00,000 | 3,28,00,000 Notes to Accounts: 1. Share Capital — Aakash Limited: 6,00,000 Equity Shares of `10 each: 60,00,000; 20,000 Preference Shares of ` 100 each: 20,00,000. Ganga Limited: 2,00,000 Equity Shares of ` 10 each: 20,00,000. 2. Reserves and Surplus — Aakash Limited: General Reserve 8,00,000; Surplus (3,32,00,000). Ganga Limited: General Reserve 56,00,000. 3. Secured Loans of Aakash Limited are secured against pledge of Inventories: 3,20,00,000; Ganga Limited: 1,60,00,000. 4. Unsecured Loans — Aakash Limited: 1,72,00,000. 5. Other Current Liabilities — Aakash: Statutory Liabilities 1,44,00,000; Liability to Employees 60,00,000. Ganga: Statutory Liabilities 20,00,000; Liability to Employees 36,00,000. Both the companies go into liquidation and a new company 'AakashGanga Limited' is formed to take over their business. The following information is given: (i) All Current Assets of two companies, except pledged inventory are taken over by AakashGanga Limited. The realizable value of all the Current Assets (including pledged inventory) is 80% of book value in case of Aakash Limited and 70% for Ganga Limited. (ii) Property, Plant and Equipment of both the companies are taken over at book value by AakashGanga Limited. (iii) Secured Loans include ` 32,00,000 accrued interest in case of Ganga Limited. (iv) 4,00,000 Equity Shares of ` 10 each are allotted by AakashGanga Limited at par against cash payment of entire face value to the shareholders of Aakash Limited and Ganga Limited in the ratio of shares held by them. (v) Preference Shareholders in Aakash Limited are issued Equity Shares in AakashGanga Ltd. worth ` 4,00,000 in lieu of their present holdings. (vi) Secured Loan agree to continue the balance amount of their loans to AakashGanga Limited after adjusting realizable value of pledged asset in case of Aakash Limited and after waiving 50% of interest due in the case of Ganga Limited. (vii) Unsecured Loans are taken over by AakashGanga Limited at 25% of loan amounts. (viii) Employees are issued fully paid Equity Shares in AakashGanga Limited in full settlement of their dues. (ix) Statutory Liabilities are taken over by AakashGanga Limited at full value and Trade Payables are taken over at 80% of the book value. You are required to prepare the opening Balance Sheet of AakashGanga Limited as at 1.4.2021.

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Z Limited provides the following information as on 31st March, 2021: Particulars | Amount in ` 5,00,000 Equity shares of ` 10 each fully paid up | 50,00,000 9%, 20,000 Preference shares of ` 100 each fully paid up | 20,00,000 Profit and Loss Account (Dr. balance) | 14,60,000 10% Secured Debentures | 16,00,000 Interest due on Debentures | 1,60,000 Trade Payables | 5,00,000 Loan from Directors | 1,00,000 Bank Overdraft | 1,00,000 Provision for Tax | 1,00,000 Land & Buildings | 30,00,000 Plant & Machinery | 12,50,000 Furniture & Fixtures | 2,50,000 Goodwill | 11,00,000 Patents | 5,00,000 Trade Investments | 5,00,000 Trade Receivables | 5,00,000 Inventory | 10,00,000 Note: Preference dividend is in arrears for last 2 years. Mr. Y holds 60% of debentures and Mr. Z holds 40% of debentures. Moreover ` 1,00,000 and ` 60,000 were also payable to Mr. Y and Mr. Z respectively as trade payable. The following scheme of reconstruction has been agreed upon and duly approved: (i) All the equity shares to be converted into fully paid equity shares of ` 5.00 each. (ii) The Preference shares be reduced to ` 50 each and the preference shareholders agreed to forego their arrears of preference dividends, in consideration of which 9% preference shares are to be converted into 10% preference shares. (iii) Mr. Y and Mr. Z agreed to cancel 50% each of their respective total debt including interest on debentures. Mr. Y and Mr. Z also agreed to pay ` 1,00,000 and ` 60,000 respectively in cash and to receive new 12% debentures for the balance amount. (iv) Persons relating to trade payables, other than Mr. Y and Mr. Z also agreed to forgo their 50% claims. (v) Directors also waived 60% of their loans and accepted equity shares for the balance. (vi) Capital commitments of ` 3.00 lacs were cancelled on payment of ` 15,000 as penalty. (vii) Directors refunded ` 1,00,000 of the fees previously received by them. (viii) Reconstruction expenses paid ` 15,000. (ix) The taxation liability of the company was settled for ` 75,000 and was paid immediately. (x) The Assets were revalued as under: Land and Building 32,00,000; Plant and Machinery 6,00,000; Inventory 7,50,000; Trade Receivables 4,00,000; Furniture and Fixtures 1,50,000; Trade Investments 4,50,000. You are required to pass journal entries for all the above-mentioned transactions including amounts to be written off for Goodwill, Patents and Loss in Profit and Loss account. Also prepare Bank Account and Reconstruction A/c.

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The Balance Sheet of Cloud Ltd., as at 31st March, 2021, being the date of voluntary winding up is as under: Particulars | Note | Amount (`) Share Capital | 1 | 21,00,000 Reserve and Surplus | 2 | 4,00,000 Long Term Borrowings | 3 | 4,20,000 Short Term Borrowings | 4 | 9,70,000 Trade Payables | | 12,00,000 Other Current Liabilities | 5 | 2,10,000 Total | | 53,00,000 Property, Plant and Equipment | 6 | 26,00,000 Inventories | | 6,50,000 Trade Receivables | | 20,50,000 Cash and Cash Equivalents | | - Total | | 53,00,000 Notes to Accounts: 1. Share Capital — Issued, Subscribed & Paid up: 10,000 Equity Shares of ` 100 each, ` 60 paid up: 6,00,000; 10,000 Equity Shares of ` 100 each, ` 50 paid up: 5,00,000; 10,000, 10% Cumulative Preference Shares of ` 100 each, fully paid up: 10,00,000; Total: 21,00,000. 2. Reserve and Surplus: Securities Premium 15,00,000; Profit & Loss A/c (Dr. balance) (11,00,000); Total: 4,00,000. 3. Long Term Borrowings: 10% Debentures: 4,20,000. 4. Short Term Borrowings: Bank Overdraft (unsecured): 9,70,000. 5. Other Current Liabilities: Preferential Creditors: 2,10,000. 6. Property, Plant and Equipment: Land and Buildings: 10,40,000; Plant and Machinery: 15,60,000; Total: 26,00,000. Preference Dividend is in arrears for three years (upto 31st March, 2021). The assets realized as follows: Land & Building ` 12,40,000; Plant & Machinery ` 14,20,000; Inventory ` 6,20,000; Trade receivables ` 13,20,000. Expenses of Liquidation are ` 1,72,000. The Remuneration of the Liquidator is 2% of the realization of assets. Income Tax Payable is ` 1,34,000. Interest on debentures for the year ended 31st March, 2021 has not been considered in the given balance sheet and is also to be paid. Prepare the Liquidator's Final Statement of Account.

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Calculate 'Owned Fund' of an NBFC based on the following information: Paid up share capital: ` 200 lakhs Free reserves: ` 150 lakhs Compulsory convertible preference shares (CCPS): ` 50 lakhs Revaluation reserve: ` 50 lakhs (created by revaluation of assets) Securities premium: ` 25 lakhs Book value of intangible assets: ` 10 lakhs Capital reserves (surplus arising out of sale proceeds of assets): ` 15 lakhs

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While closing its books of account at year end, a Non-Banking Finance Company has its advances classified as follows: Category | ` in lakhs Standard assets | 1,26,000 Sub-standard assets | 10,050 Secured portions of doubtful debts - up to one year | 2,400 Secured portions of doubtful debts - one year to three years | 675 Secured portions of doubtful debts - more than three years | 225 Unsecured portions of doubtful debts | 727 Loss assets | 360 Calculate the amount of provision, which must be made against the advances as per the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016.

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The following figures are available from the books of Star Bank Ltd. for the year ended 31st March, 2021: Particulars | Amount in ` Interest and Discounts Received | 1,52,00,640 Interest Paid on Deposits | 91,81,440 Salaries and Allowances | 10,00,000 Directors' Fees and Allowances | 1,40,000 Rent and Taxes Paid | 4,00,000 Postage | 2,61,360 Statutory Reserve Fund | 32,00,000 Commission, Exchange and Brokerage Earned | 7,60,000 Rent Received | 2,88,000 Profit on sale of Investments | 9,03,200 Depreciation on Assets | 1,60,000 Statutory Expenses | 1,52,000 Preliminary Expenses | 1,20,000 Auditors' Fees | 48,000 The following further information is also available: (i) Issued and Subscribed Capital of the Bank is ` 40,00,000. (ii) Preliminary Expenses to be fully written off during the year. (iii) Rebate on Bills Discounted was ` 60,000 as on 31st March, 2020 and was ` 80,000 on 31st March, 2021. (iv) Transfer 25% of the profits to statutory reserves. (v) Income Tax of ` 8,00,000 is to be provided. (vi) Mr. G, a customer of the bank, who had taken an advance of ` 40,00,000 from the bank became insolvent and only 25% was expected to be recovered from his estate. (vii) A provision of ` 8,00,000 was also necessary on other debts. (viii) There was no opening balance of Profit and Loss Account. You are required to prepare the Profit and Loss Account and the Schedules of Profit and Loss Account of Star bank for the year ended 31st March, 2021. Also show how the Profit and Loss Account will appear in the Balance Sheet.

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From the following information of Beta Ltd. and its subsidiary Gamma Ltd. drawn up at 31st March, 2021, prepare a consolidated balance sheet as at that date: Particulars | Beta Ltd. ` | Gamma Ltd. ` Share Capital (Shares of ` 100 each) | 15,00,000 | 2,50,000 Reserves | 5,00,000 | 1,87,500 Profit and Loss Account | 2,50,000 | 62,500 Trade Payables | 3,75,000 | 1,42,500 Machinery | 7,50,000 | 2,25,000 Furniture | 3,75,000 | 42,500 Other non-current assets | 11,00,000 | 3,75,000 Shares in Gamma Ltd. (2,000 shares at ` 200 each) | 4,00,000 | - Other information: Reserves and Profit and Loss Account of Gamma Ltd. stood at ` 62,500 and ` 37,500 respectively on the date of acquisition of its 80% shares by Beta Ltd. on 1st April, 2020. Machinery (Book-value ` 2,50,000) and Furniture (Book value ` 50,000) of Gamma Ltd. were revalued at ` 3,75,000 and ` 37,500 respectively on 1st April, 2020 for the purpose of fixing the price of its shares. [Rates of depreciation computed on the basis of useful lives: Machinery 10%, Furniture 15%.]

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Tee Ltd. closes its books of accounts every year on 31st March. The financial statements for the year ended 31st March 2020 are to be approved by the approving authority on 30th June 2020. During the first quarter of 2020-2021, the following events/transactions have taken place. You are required to state with reasons, how the above transactions will be dealt with in the financial statements for the year ended 31 March 2020.

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The Accountant of Mobile Limited has sought your opinion with relevant reasons, whether the following transactions will be treated as change in Accounting Policy or not for the year ended 31st March, 2021. Please advise him in the following situations in accordance with the provisions of relevant Accounting Standard:

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B Ltd. undertook a construction contract for ` 50 crores in April, 2020. The cost of construction was initially estimated at ` 35 crores. The contract is to be completed in 3 years. While executing the contract, the company estimated that the cost of completion of the contract would be ` 53 crores. Can the company provide for the expected loss in the financial Statements for the year ended 31st March, 2021? Explain.

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An infrastructure company has constructed a mall and entered into agreement with tenants towards license fee (monthly rental) and variable license fee, a percentage on the turnover of the tenant (on an annual basis). Chief Financial Officer of the company wants to account/recognize license fee as income for 12 months during current year and variable license fee as income during next year, since invoice is raised in the subsequent year. Comment whether the treatment desired by the CFO is correct or not.

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Indicate in each case whether revenue can be recognized and when it will be recognized as per AS 9.

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Company A is engaged in the manufacture and sale of products, which constitute two distinct business segments. The products of the Company are sold in the domestic market only. The management information system of the Company is organized to reflect operating information by two broad market segments, rural and urban. Besides the two business segments, how should Company A identify geographical segments? Do geographical segments exist within the same country? Explain in line with the provisions of AS 17.

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A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The market prices are generally 20% above cost. You are required to examine whether the policy adopted by the company is correct or not?

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In respect of a key supplier who is dependent on the company for its existence and the company enjoys influence over the prices of this supplier (which may not be formally demonstrable), can the supplier and the company be considered as related parties?

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Define 'Key management personnel' in the context of AS 18.

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Classify the following into either operating or finance lease:

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Viral Ltd. sold machinery having WDV of ` 40 lakhs to Saral Ltd. for ` 50 lakhs and the same machinery was leased back by Saral Ltd. to Viral Ltd. The lease back is in nature of operating lease. You are required to explain the treatment in the given cases:

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Stock options have been granted by AB Limited to its employees and they vest equally over 5 years, i.e., 20 per cent at the end of each year from the date of grant. The options will vest only if the employee is still employed with the company at the end of the year. If the employee leaves the company during the vesting period, the options that have vested can be exercised, while the others would lapse. Currently, AB Limited includes only the vested options for calculating Diluted EPS. Should only completely vested options be included for computation of Diluted EPS? Is this in accordance with the provisions of AS 20? Explain.

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X Limited, as at March 31, 2021, has income from continuing ordinary operations of ` 2,40,000, a loss from discontinuing operations of ` 3,60,000 and accordingly a net loss of ` 1,20,000. The Company has 1,000 equity shares and 200 potential equity shares outstanding as at March 31, 2021. You are required to compute Basic and Diluted EPS.

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The following transactions were reported by PQR Ltd. during the year 2020-2021. Tax Rate: 30%. Items | ` in lakh Items disallowed in 2019-2020 and allowed for tax purposes in 2020-2021 | 20.00 Interest to Financial Institutions accounted in the books on accrual basis, but actual payment was made before the due date of filing return and allowed for tax purpose also | 20.00 Donations to Private Trust made in 2020-2021 (not allowed under Income Tax Laws) | 10.00 You are required to show impact of the above items in terms of Deferred Tax Assets/Deferred Tax Liability for the year ended 31.03.2021.

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AS 24 Discontinuing Operations:

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PQR Ltd. has acquired a Brand from another company for ` 100 lakhs. PQR Ltd. contends that since the said brand is a very popular and famous brand, no amortization needs to be provided. Comment on this in line with the Accounting Standards.

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X Ltd. is engaged in the business of newspaper and radio broadcasting. It operates through different brand names. During the year ended 31st March, 2021, it incurred substantial amount on business communication and branding expenses by participation in various corporate social responsibility initiatives. The company expects to benefit by this expenditure by attracting new customers over a period of time and accordingly it has capitalized the same under brand development expenses and intends to amortize the same over the period in which it expects the benefits to flow. As the accountant of the company do you concur with these views? You are required to explain in line with provisions of Accounting Standards.

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Chaos Limited is in the process of finalizing its accounts for the year ended 31st March, 2020. It seeks your advice in the following cases. Kindly give your answer for each of the above with proper reasoning according to the relevant Accounting Standard. Also state the principles for recognition of provision, as per AS 29.

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