CA Inter Audit & Ethics — Revision Test Paper (RTP) — November 2023

P, Q, R and S are sharing profits and losses in the ratio 3 : 3 : 2 : 1. Frauds committed by R during the year were found out and it was decided to dissolve the partnership on 31st March, 2023 when their Balance Sheet was as under: Liabilities: Capitals: P 3,00,000; Q 3,00,000; R -; S 1,20,000; General reserve 80,000; Trade creditors 1,60,000; Bills payable 60,000 | Total 10,20,000 Assets: Building 3,80,000; Stock 2,60,000; Investments 1,00,000; Debtors 1,40,000; Cash 60,000; R's current A/c 80,000 | Total 10,20,000 Following information is given to you: (i) A cheque for ₹14,000 received from debtor was not recorded in the books and was misappropriated by R. (ii) Investments costing ₹16,000 were sold by R at ₹22,000 and the funds transferred to his personal account. This sale was omitted from the firm's books. (iii) A creditor agreed to take over investments of the book value of ₹18,000 at ₹26,000. The rest of the creditors were paid off at a discount of 5%. (iv) The other assets realized as follows: Building 110% of book value; Stock ₹2,40,000; Investments – the rest were sold at a profit of ₹14,000; Debtors – the rest were realized at a discount of 10%. (v) The bills payable were settled at a discount of ₹1,000. (vi) The expenses of dissolution amounted to ₹16,000. (vii) It was found out that realization from R's private assets would only be ₹14,000. Prepare Realisation Account, Cash Account and Partner's Capital Accounts. All workings should be part of your answer.

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X, Y and Z are partners sharing profits and losses in the ratio 3 : 2 : 1 after allowing interest on capital @ 9% p.a. Their Balance Sheet as at 31st March, 2023 are as follows: Liabilities: Capital Accounts: X 1,00,000; Y 60,000; Z 40,000 (Total 2,00,000); Reserve Fund 1,20,000; Creditors 96,000 | Total 4,16,000 Assets: Plant & Machinery 2,16,000; Fixtures 40,000; Stock 1,00,000; Sundry Debtors 60,000 | Total 4,16,000 They applied for conversion of the firm into a Private Limited Company named XYZ Pvt. Ltd. and the certificate was received on 01-04-2023. They decided to maintain same profit sharing ratio and to preserve the priority in regard to repayment of capital as far as possible. For that purpose, they decided to insert a clause of issuance of Preference shares in Memorandum of Association in addition to issuance of Equity shares of ₹10 each. On 01-04-2023, the value of goodwill is to be determined on the basis of 2 years' purchase of the average profit from the business of the last 5 years. The particulars of profits are as under: Year ended 31.03.2019: Profit 20,000 Year ended 31.03.2020: Loss 10,000 Year ended 31.03.2021: Profit 36,000 Year ended 31.03.2022: Profit 54,000 Year ended 31.03.2023: Profit 60,000 The loss for the year ended 31-03-2020 was on account of loss by strike to the extent of ₹10,000. There was an abnormal loss also to the extent of ₹10,000 for the year ended 31-03-2020. It was agreed that rest of the assets are valued on the basis of the Balance Sheet as at 31-03-2023 except Plant & Machinery which is valued at ₹2,04,000. You are required to prepare (a) the Balance Sheet of the Company as at 01-04-2023, (b) Partners' Capital Accounts and (c) Statement showing the final settlement between the partners taking Y's capital as basis.

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Arzoo Limited has its share capital divided into equity shares of ₹10 each. On 1-10-2021, it granted 10,000 employees' stock options at ₹50 per share, when the market price was ₹120 per share. The fair value of options, calculated using an option pricing model, is ₹70 per option. The options were to be exercised between 10th December, 2021 and 31st March, 2022. The employees exercised their options for 8,000 shares only and the remaining options lapsed. The company closes its books on 31st March every year. Show Journal Entries (with narration) as would appear in the books of the company upto 31st March, 2022.

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The following information from Balance Sheet of Z Ltd. as on 31st March, 2023 (₹ Lakhs): Equity shares of ₹10 each Fully Paid Up: 16,000; 10% Redeemable Pref. Shares of ₹10 each Fully Paid Up: 5,000; Capital Redemption Reserve: 2,000; Securities Premium: 1,600; General Reserve: 12,000; Profit & Loss Account: 600; 9% Debentures: 10,000; Trade payables: 4,600; Sundry Provisions: 2,000; Fixed Assets: 28,000; Investments: 4,700; Cash at Bank: 4,600; Other Current Assets: 16,500. On 1st April, 2023 the Company redeemed all its Preference Shares at a Premium of 10% and bought back 10% of its Equity Shares at ₹20 per Share. In order to make cash available, the Company sold all the Investments for ₹5,000 lakhs. You are required to pass journal entries for the above and prepare the Company's Balance Sheet immediately after buyback of equity shares and redemption of preference shares.

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Explain how the rights of a share can be altered.

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The following information from Balance Sheet of X Ltd. as at 31st March, 2023: 4,000 Equity shares of ₹100 each: 4,00,000; 10% Debentures: 2,00,000; Loans: 80,000; Trade payables: 1,60,000; General Reserve: 40,000; Building: 1,70,000; Machinery: 3,20,000; Inventory: 1,10,000; Trade receivables: 1,30,000; Bank: 68,000; Patent: 65,000; Share issue Expenses: 17,000. Y Ltd. agreed to absorb X Ltd. on the following terms and conditions: (1) Y Ltd. would take over all assets, except bank balance and Patent at their book values less 10%. Goodwill is to be valued at 4 years' purchase of super profits, assuming that the normal rate of return be 8% on the combined amount of share capital and general reserve. (2) Y Ltd. is to take over trade payables at book value. (3) The purchase consideration is to be paid in cash to the extent of ₹3,00,000 and the balance in fully paid equity shares of ₹100 each at ₹125 per share. The average profit is ₹62,200. The liquidation expenses amounted to ₹8,000. Y Ltd. sold prior to 31st March, 2023 goods costing ₹60,000 to X Ltd. for ₹80,000. ₹50,000 worth of goods are still in Inventory of X Ltd. on 31st March, 2023. Trade payables of X Ltd. include ₹20,000 still due to Y Ltd. Show the necessary Ledger Accounts to close the books of X Ltd. and prepare the Balance Sheet of Y Ltd. as at 1st April, 2023 after the takeover.

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Following information from Balance Sheet of Ruby Limited as on 31st March, 2023: Authorised and Issued equity share capital – 60,000 shares of ₹100 each fully paid: 60,00,000; 40,000 7% cumulative preference shares of ₹100 each fully paid: 40,00,000; General Reserve: 12,00,000; Loan from Director: 8,80,000; Trade Payables: 49,20,000; Outstanding expenses: 6,40,000; Bank loan: 6,00,000; Patent: 8,00,000; Plant & machinery: 60,00,000; Building: 11,00,000; Trade receivables: 47,00,000; Inventory: 32,60,000; Cash: 2,40,000; Bank Balance: 4,60,000; Profit and Loss account (Dr.): 16,80,000. Note: The arrears of preference dividend amount to ₹5,60,000. The company had suffered losses since last 3 years due to bad market conditions and hope for a better position in the future. The following scheme of reconstruction has been agreed upon and duly approved by all concerned: (1) Equity shares to be converted into 6,00,000 shares of ₹10 each. (2) Equity shareholders to surrender to the company 80 percent of their holdings. (3) Preference shareholders agree to forgo their right on arrears of dividends in consideration of which 7% preference shares are to be converted into 8% preference shares. (4) Trade payables agree to reduce their claim by one fourth in consideration of their getting shares of ₹10,00,000 out of the surrendered equity shares. (5) Directors agree to forego the amounts due on account of loan. (6) Surrendered shares not otherwise utilized to be cancelled. (7) Assets to be reduced as under: Patent to Nil; Plant & Machinery by ₹8,00,000; Inventory by ₹6,80,000. (8) Trade receivables to the extent of ₹34,00,000 are considered good. (9) Revalued figures for building is accepted at ₹14,00,000. (10) Bank loan is paid. (11) Any surplus after meeting the losses should be utilized in writing down the value of the plant further. (12) Expenses of reconstruction amounted to ₹1,20,000. (13) Further 80,000 equity shares were issued to the existing members for increasing the working capital. The issue was fully subscribed and paid up. You are required to pass the Journal Entries for giving effect to the above arrangement and also to draw up the resultant Balance Sheet of the Company.

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Amounts payable in winding-up of a company are as follows: - Secured Creditors ₹2,50,000 - Workmen's Due ₹5,00,000 Show the payments made and treatment of balance in the following two instances:

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MS Finance Limited is a non-banking financial company. It provides you with the following information regarding its outstanding amount, ₹200 lakhs of which instalments are overdue on: • 400 accounts for last one month (amount overdue ₹40 lakhs) • 24 accounts for two months (amount overdue ₹24 lakhs) • 10 accounts for more than 30 months (amount overdue ₹20 lakhs) • 4 accounts for more than 3 years (amounts overdue ₹20 lakhs – already identified as sub-standard assets) • 1 account of ₹10 lakhs which has been identified as non-recoverable by management • Out of 10 accounts overdue for more than 30 months, 6 accounts are already identified as sub-standard (amount ₹6 lakhs) for more than 12 months and others are identified as sub-standard assets for a period of less than twelve months. Classify the assets of the company in line with Non-Banking Financial Company-Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

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Following information of Raja Bank Limited for the year ended 31st March, 2023 are as under (₹ in '000): Total interest earned and received on term loans: 12,750.00; Interest earned on term loans classified as NPA: 3,655.00; Interest received on term loans classified as NPA: 1,190.00; Total interest earned on cash credits and overdrafts: 28,315.00; Interest earned but not received on cash credits and overdrafts treated as NPA: 4,615.00; Interest on Deposits: 20,600.00; Commission, exchange and brokerage: 1,005.00; Profit on sale of Investments: 9,380.00; Profit on revaluation of Investments: 1,710.00; Income from Investments: 10,870.00; Payment to and provision for employees: 13,725.00; Rent, Taxes and Lighting: 1,925.00; Printing and Stationery: 310.00; Director's fees, allowances and expenses: 1,565.00; Repairs and Maintenance: 280.00; Depreciation on Bank's property: 495.00; Insurance: 215.00. Classification of Assets (₹): Standard [including advances to Commercial Real Estate (CRE) sector ₹35,00,000]: 23,500; Sub-standard (fully secured): 9,500; Doubtful Assets not covered by security: 2,000; Doubtful Assets covered by security for 1 year: 200; Loss Assets: 1,500. You are required to calculate profit before tax and prepare Profit and Loss account of Raja Bank Limited including Schedules for the year ended 31st March, 2023 and calculate provision required to be made on Risk Assets.

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Chand Ltd. and its subsidiary Sitara Ltd. provided the following information for the year ended 31st March, 2023: Particulars | Chand Ltd (₹) | Sitara Ltd. (₹) Equity Share Capital: 20,00,000 | 6,00,000 Finished Goods Inventory as on 01.04.2022: 4,20,000 | 3,01,000 Finished Goods Inventory as on 31.03.2023: 8,57,500 | 3,76,250 Dividend Income: 1,68,000 | 43,750 Other non-operating Income: 35,000 | 10,500 Raw material consumed: 13,93,000 | 4,72,500 Selling and Distribution Expenses: 3,32,500 | 1,57,500 Production Expenses: 3,15,000 | 1,40,000 Loss on sale of investments: 26,250 | Nil Sales and other operating income: 33,25,000 | 19,07,500 Wages and Salaries: 13,30,000 | 2,45,000 General and Administrative Expenses: 2,80,000 | 1,22,500 Royalty paid: Nil | 5,000 Depreciation: 31,500 | 14,000 Interest expense: 17,500 | 5,250 Other information: • On 1st September 2020 Chand Ltd. acquired 5,000 equity shares of ₹100 each fully paid up in Sitara Ltd. • Sitara Ltd. paid a dividend of 10% for the year ended 31st March 2022. The dividend was correctly accounted for by Chand Ltd. • Chand Ltd. sold goods of ₹1,75,000 to Sitara Ltd. at a profit of 20% on selling price. Inventory of Sitara Ltd. includes goods of ₹70,000 received from Chand Ltd. • Selling and Distribution expenses of Sitara Ltd. include ₹21,250 paid to Chand Ltd. as brokerage fees. • General and Administrative expenses of Chand Ltd. include ₹28,000 paid to Sitara Ltd. as consultancy fees. • Sitara Ltd. used some resources of Chand Ltd., and Sitara Ltd. paid ₹5,000 to Chand Ltd. as royalty. • Consultancy fees, Royalty and brokerage received is to be considered as operating revenues. Prepare Consolidated Statement of Profit and Loss of Chand Ltd. and its subsidiary Sitara Ltd. for the year ended 31st March, 2023 as per Schedule III to the Companies Act, 2013.

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Answer the following with reference to AS 7 'Construction Contracts':

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Given below are the following information of B.S. Ltd. You are required to advise the accountant of B.S. Ltd., with valid reasons, the amount to be recognized as revenue for the year ended 31st March, 2023 in each case in the context of AS-9.

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The accountant of Parag Limited has furnished you with the following data related to its Business Divisions (₹ in Lacs): Division | A | B | C | D | Total Segment Revenue: 100 | 300 | 200 | 400 | 1,000 Segment Result: 45 | (70) | 80 | (10) | 45 Segment Assets: 39 | 51 | 48 | 12 | 150 You are requested to identify the reportable segments in accordance with the criteria laid down in AS 17.

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Identify the related parties in the following cases as per AS-18: (i) Maya Ltd. holds 61% shares of Sheetal Ltd. Sheetal Ltd. holds 51% shares of Fair Ltd. Care Ltd. holds 49% shares of Fair Ltd. (Give your answer – Reporting Entity wise for Maya Ltd., Sheetal Ltd., Care Ltd. and Fair Ltd.)

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Jaya Ltd. took a machine on lease from Deluxe Ltd., the fair value being ₹11,50,000. Economic life of the machine as well as lease term is 4 years. At the end of each year, lessee pays ₹3,50,000 to lessor. Jaya Ltd. has guaranteed a residual value of ₹70,000 on expiry of the lease to Deluxe Ltd., however Deluxe Ltd. estimates that residual value will be only ₹25,000. The implicit rate of return is 10% p.a. and present value factors at 10% are: 0.909, 0.826, 0.751 and 0.683 at the end of 1st, 2nd, 3rd and 4th year respectively. Calculate the value of machinery to be considered by Jaya Ltd. and the value of the lease liability as per AS-19.

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Net Profit for FY 2021-22: ₹30,00,000 Net Profit for FY 2022-23: ₹50,00,000 No. of shares outstanding prior to rights issue: 20,00,000 shares Rights Issue Price: ₹20 Last day to exercise rights: 1st June, 2022 Right issue is one new share for each five equity shares outstanding (i.e. 4,00,000 new shares) Fair value of one equity share immediately prior to exercise of rights on 1st June, 2022 was ₹26.00. Compute Basic Earnings Per Share for FY 2016-17, FY 2022-23 and restated EPS for FY 2021-22.

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From the following details of Aditya Limited for accounting year ended on 31st March, 2023: Particulars | ₹ Accounting profit: 15,00,000 Book profit as per MAT: 7,50,000 Profit as per Income tax Act: 2,50,000 Tax Rate: 20% MAT Rate: 7.5% Calculate the deferred tax asset/liability as per AS 22 and amount of tax to be debited to the profit and loss account for the year.

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Swift Limited acquired patent rights to manufacture Solar Roof Top Panels at a cost of ₹600 lacs. The product life cycle has been estimated to be 5 years and the amortization was decided in the ratio of future cash flows which are estimated as under: Year: 1 | 2 | 3 | 4 | 5 Cash Flows (₹ in lacs): 300 | 300 | 300 | 150 | 150 After 3rd year, it was estimated that the patents would have an estimated balance future life of 3 years and Swift Ltd. expected the estimated cash flow after 5th year to be ₹75 Lacs. Determine the amortization cost of the patent for each of the above years as per Accounting Standard 26.

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With reference to AS 29, how would you deal with the following in the Annual Accounts of the company at the Balance Sheet date:

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