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Past papers › Audit & Ethics › November 2022

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

This page contains all 20 questions from the CA Inter Auditing & Ethics Revision Test Paper (RTP) for the November 2022 attempt cycle, sourced from VSI Jaipur.

Q2Conversion of partnership firm into a limited company - real
0 marks easy
Conversion of Partnership firm into a Company: A and V, sharing profits and losses equally, desired to convert their business into a limited company on 31st December, 2021 when their balance sheet stood as follows: Liabilities: Sundry creditors ₹1,92,000; Loan creditors ₹1,60,000; Bank overdraft ₹64,000; Reserve fund ₹24,000; Capital-A ₹1,60,000; Capital-V ₹1,60,000; Total ₹7,60,000 Assets: Sundry debtors ₹2,40,000; Bills receivable ₹40,000; Stock in trade ₹1,44,000; Patents ₹32,000; Plant and machinery ₹64,000; Land and building ₹2,40,000; Total ₹7,60,000 (a) The goodwill of the firm was to be valued at two years' purchase of the profits average of the previous three years. (b) All assets and liabilities were taken over by the company. The loan creditor agreed to accept 7½% redeemable preference shares in settlement of his claim. (c) Land and buildings and plant and machinery were to be valued at ₹4,00,000 and ₹96,000 respectively. (d) The vendors were to be allotted equity shares. (e) The past working results of the firm showed profits of ₹1,20,000 in 2019, ₹1,44,000 in 2020 and ₹1,68,000 in 2021 after setting aside ₹8,000 to reserve fund each year. You are required to show realisation account and partners' capital accounts in the books of the firm assuming that all the transactions are duly completed.
Q3Employee Stock Option Plans - journal entries with vesting p
0 marks easy
Accounting for ESOPs: Mehta Ltd. grants 1,500 stock options to its employees on 1.4.2019 at ₹50. The vesting period is two and a half years. The maximum exercise period is one year. Market price on that date is ₹80. Fair value per option is ₹30. All the options were exercised on 30.9.2022. Give the necessary journal entries if the face value of equity share is ₹10 per share.
Q4Buy back of equity shares - journal entries with capital red
0 marks easy
Buy Back of Securities: Umesh Ltd. resolves to buy back 4 lakhs of its fully paid equity shares of ₹10 each at ₹22 per share. This buyback is in compliance with the provisions of the Companies Act and does not exceed 25% of Company's paid up capital in the financial year. For the purpose, it issues 1 lakh 11% preference shares of ₹10 each at par, the entire amount being payable with applications. The company uses ₹16 lakhs of its balance in Securities Premium Account apart from its adequate balance in General Reserve to fulfill the legal requirements regarding buy-back. Give necessary journal entries to record the above transactions.
Q6Amalgamation in nature of purchase - intrinsic value method,
0 marks easy
Amalgamation of Companies: The balance sheets of Truth Limited and Myth Limited as at 31.03.2021 are given below. Myth Limited is to be amalgamated with Truth Limited from 1.04.2021. The amalgamation is to be carried out in the nature of purchase. Balance Sheet (Truth Ltd. / Myth Ltd.): Share Capital (equity shares of ₹10 each): ₹10,00,000 / ₹4,00,000 General Reserve: ₹5,05,000 / ₹2,30,000 Profit & Loss A/c: ₹4,45,000 / ₹1,58,000 Export Profit Reserve: ₹1,85,000 / ₹25,000 14% Debentures (Non-Current): nil / ₹1,50,000 Trade Payables: ₹90,000 / ₹1,42,000 Other Current Liabilities: ₹50,000 / ₹40,000 Total: ₹22,75,000 / ₹11,45,000 Property, Plant & Equipment: ₹15,75,000 / ₹6,80,000 Investments: ₹1,87,500 / ₹1,00,000 Inventory: ₹2,15,000 / ₹85,000 Trade Receivables: ₹2,02,500 / ₹1,75,000 Cash and Cash equivalents: ₹95,000 / ₹1,05,000 Total: ₹22,75,000 / ₹11,45,000 Additional Information: - Truth Limited would issue 12% debentures to discharge the claim of debenture holders of Myth Limited so as to maintain their present annual interest income. - Non-trade investment constitutes 80% of respective total investments, yielding income of 20% to Truth Limited and 15% to Myth Limited. This income is to be deducted from profits while computing average profit for goodwill calculation. - Profit before tax for last 3 years (Truth Ltd. / Myth Ltd.): 2018-19: ₹8,20,000 / ₹2,55,000; 2019-20: ₹7,45,000 / ₹2,15,000; 2020-21: ₹6,04,000 / ₹2,14,000. - Goodwill to be calculated on simple average of three years profit by Capitalization method at 18% normal rate of return. Ignore taxation. - Purchase consideration to be discharged by Truth Limited on the basis of intrinsic value per share. Prepare Balance Sheet of Truth Limited after the amalgamation.
Q7Internal reconstruction - capital reduction account, journal
0 marks easy
Internal Reconstruction of a Company: Planet Limited has decided to reconstruct the Company since it has accumulated huge losses. The following is the balance sheet of the company as on 31st March, 2022 before reconstruction (₹ in lakh): Share Capital (Authorised): 300 lakh Equity shares of ₹10 each = 3,000; 12 lakh 8% Preference Shares of ₹100 each = 1,200; Total = 4,200 Share Capital (Paid up): 150 lakh Equity Shares of ₹10 each fully paid = 1,500; 6 lakh 8% Preference Shares of ₹100 each fully paid = 600; Total = 2,100 Reserves & Surplus: Debit balance of P&L A/c = (783) Long term Borrowings: 6% Debentures (Secured by freehold property) = 600; Directors' Loan = 450; Total = 1,050 Trade Payables: 153 Other Liabilities (Interest Accrued and Due on 6% Debentures): 36 Total: 2,556 Assets: Freehold Property 825; Plant & machinery 300; Total PPE = 1,125; Current Investment in Equity Instruments = 300; Inventories (Finished Goods) = 450; Trade Receivables = 675; Cash & Cash Equivalents (Balance with bank) = 6; Total = 2,556 The Board of Directors decided upon the following scheme of reconstruction: (1) Preference Shares to be written down to ₹75 each and Equity Shares to ₹2 each. (2) Preference Shares Dividend in arrears for 3 years to be waived by 2/3rd; for balance 1/3rd, Equity Shares of ₹2 each to be allotted. (3) Debenture holders agreed to take one Freehold Property at its book value of ₹450 lakh in part payment. Balance Debentures to remain as liability. (4) Interest accrued and due on Debentures to be paid in cash. (5) Remaining Freehold Property to be valued at ₹550 lakh. (6) All investments sold out for ₹425 lakh. (7) 70% of Directors' loan to be waived and for balance, Equity Shares of ₹2 each to be allotted. (8) 40% of Trade receivables and 80% of Inventories to be written off. (9) Company's contractual commitments amounting to ₹900 lakh have been settled by paying penalty of ₹72 lakhs. You are required to:
Q8Liquidation of company - liquidator's statement of account,
0 marks easy
Liquidation of Company: Debit and credit Balances of Blossam Ltd. as on 31.12.2021 were as follows: Dr. Balances: Land & Building ₹1,25,000; Other Fixed Assets ₹3,00,000; Inventory ₹5,25,000; Trade receivables ₹1,00,000; Profit & Loss A/c (debit balance) ₹58,000; Total ₹11,08,000 Cr. Balances: 8,000 Preference Shares of ₹10 each ₹80,000; 12,000 Equity Shares of ₹10 each ₹1,20,000; Bank Loan ₹4,00,000; 8% Debentures ₹1,00,000; Interest Outstanding on Debentures ₹8,000; Trade payables ₹4,00,000; Total ₹11,08,000 The Company went into Liquidation on that date. Prepare liquidator's account after taking into account the following: (a) Liquidation Expenses ₹3,000. (b) Liquidator Remuneration ₹10,000. (c) Bank Loan was secured by pledge of Stock. (d) Debentures & Interest thereon are secured by floating charge on all assets. (e) Fixed Assets were realized at book values and Current Assets @ 80% of book values.
Q9NBFC - Net Owned Fund computation under RBI Directions 2016
0 marks easy
NBFCs: XYZ Finance Ltd. is a non-banking finance company. The extract of its balance sheet are as follows (₹ in lakhs): Shareholders' Funds: Paid-up equity capital 200; General Reserve 600 Non-Current Liabilities: Loans 500; Deposits 600; Total 1,900 Assets: Property Plant and Equipment 900; Investments in shares of subsidiaries 250; Investments in debentures of group companies 400; Cash and bank balances 350; Total 1,900 You are required to compute 'Net Owned Fund' of XYZ Finance Ltd. as per Non-Banking Financial Company – Systemically Important Non-Deposit taking company and Deposit taking company (Reserve Bank) Directions, 2016.
Q10Banking company Profit and Loss account - rebate on bills, b
0 marks easy
Banking Companies: The following are the figures extracted from the books of TOP Bank Limited as on 31.3.2022: Interest and discount received: ₹59,29,180; Interest paid on deposits: ₹32,59,920; Issued and subscribed capital: ₹16,00,000; Salaries and allowances: ₹3,20,000; Directors fee and allowances: ₹48,000; Rent and taxes paid: ₹1,44,000; Postage and telegrams: ₹96,460; Statutory reserve fund: ₹12,80,000; Commission, exchange and brokerage: ₹3,04,000; Rent received: ₹1,04,000; Profit on sale of investments: ₹3,20,000; Depreciation on bank's properties: ₹48,000; Statutory expenses: ₹44,000; Preliminary expenses: ₹40,000; Auditor's fee: ₹28,000. The following further information is given: (i) A customer to whom ₹16 lakhs has been advanced has become insolvent and it is expected only 40% can be recovered from his estate. (ii) There were also other debts for which a provision of ₹2,10,000 was found necessary by the auditors. (iii) Rebate on bills discounted on 31.3.2021 was ₹19,000 and on 31.3.2022 was ₹25,000. (iv) Preliminary expenses are to be fully written off during the year. (v) Provide ₹9,00,000 for Income-tax and transfer 25% of profits to statutory reserves. (vi) Profit and Loss account opening balance was Nil as on 31.3.2021. Prepare the Profit and Loss account of TOP Bank Limited for the year ended 31.3.2022.
Q11Consolidated balance sheet - pre/post acquisition profits, b
0 marks easy
Consolidated Financial Statements: On 31st March, 2022, H Ltd. and S Ltd. give the following information (₹ in 000's): H Ltd. / S Ltd.: Equity Share Capital - Authorised: 5,000 / 3,000 Issued and subscribed (Equity Shares of ₹10 each fully paid): 4,000 / 2,400 General Reserve: 928 / 690 Profit and Loss Account (Cr. Balance): 1,305 / 810 Trade payables: 611 / 507 Provision for Taxation: 220 / 180 Other Provisions: 65 / 17 Plant and Machinery: 2,541 / 2,450 Furniture and Fittings: 615 / 298 Investment in Equity Shares of S Ltd.: 1,500 / nil Inventory: 983 / 786 Trade receivables: 820 / 778 Cash and Bank Balances: 410 / 102 Sundry Advances (Dr. balances): 260 / 190 Trade payables (H Ltd. / S Ltd.): Bills Payable 124/80; Sundry creditors 487/427; Total 611/507 Trade receivables (H Ltd. / S Ltd.): Debtors 700/683; Bills Receivables 120/95; Total 820/778 Additional Information: (a) H Ltd. purchased 90 thousand Equity Shares in S Ltd. on 1st April, 2021. On that date the following balances stood in S Ltd.'s books: General Reserve ₹1,500 thousand; Profit and Loss Account ₹633 thousand. (b) On 14th July, 2021, S Ltd. declared a dividend of 20% out of pre-acquisition profits. H Ltd. credited the dividend received to its Profit and Loss Account. (c) On 1st November, 2021, S Ltd. issued 3 fully paid Equity Shares of ₹10 each, for every 5 shares held as bonus shares out of pre-acquisition General Reserve. (d) On 31st March, 2021, the Inventory of S Ltd. included goods purchased for ₹50 thousand from H Ltd., which had made a profit of 25% on cost. (e) Details of Trade payables and Trade receivables as given above. Prepare a consolidated Balance Sheet as at 31st March, 2022.
Q12AS 4 - contingent gains recognition and disclosure
0 marks easy
Explain accounting treatment of Contingent Gains as per AS 4 'Contingencies and Events occurring after the Balance Sheet Date'.
Q14AS 9 Revenue Recognition - installment sales, repurchase agr
0 marks easy
AS 9 Revenue Recognition: When will revenue be recognized in the following situations? (i) Where the purchaser makes a series of installment payments to the seller and the seller delivers the goods only when the final payment is received. (ii) Where seller concurrently agrees to repurchase the same goods at a later date. (iii) Where goods are sold to distributors, dealers or others for resale. (iv) Commissions on service rendered as agent on insurance business.
Q15AS 17 - inter-segment transfer pricing policy
0 marks easy
AS 17 Segment Reporting: A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The market prices are generally 25% above cost. Is the policy adopted by the company correct?
Q16AS 18 - related party identification, management contractor
0 marks easy
AS 18 Related Party Transactions: SP Hotels Limited enters into an agreement with Mr. A for running its hotel for a fixed return payable to the latter every year. The contract involves the day-to-day management of the hotel, while all financial and operating policy decisions are taken by the Board of Directors of the company. Mr. A does not own any voting power in SP Hotels Limited. Would he be considered as a related party of SP Hotels Limited?
Q17AS 19 - annual lease payment computation, unearned finance i
0 marks easy
AS 19 Leases: WIN Ltd. has entered into a three year lease arrangement with Tanya sports club in respect of Fitness Equipments costing ₹16,99,999.50. The annual lease payments to be made at the end of each year are structured in such a way that the sum of the Present Values of the lease payments and that of the residual value together equal the cost of the equipments leased out. The unguaranteed residual value of the equipment at the expiry of the lease is estimated to be ₹1,33,500. The assets would revert to the lessor at the end of the lease. Given that the implicit rate of interest is 10%, you are required to compute the amount of the annual lease payment and the unearned finance income. Discounting Factor at 10% for years 1, 2 and 3 are 0.909, 0.826 and 0.751 respectively.
Q18AS 20 - Basic and Diluted EPS with convertible debentures
0 marks easy
AS 20 Earnings Per Share: The following information relates to XYZ Limited for the year ended 31st March, 2022: Net Profit for the year after tax: ₹37,50,000 Number of Equity Shares of ₹10 each outstanding: 5,00,000 Convertible Debentures Issued by the Company (at the beginning of the year): 8% Convertible Debentures of ₹100 each: 50,000 nos.; Equity Shares to be issued on conversion: 55,000 nos. Rate of Income Tax: 30%. You are required to calculate Basic and Diluted Earnings Per Share (EPS).