Overview of Accounting Standards Important Question & Answer | Accounting for CA Intermediate (Old Scheme) PDF Download

 Page 1


Overview of Accounting Standards
UNIT - I
Q-1 Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited for year ended
31.3.2019.
Particulars Amount (`)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received form associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ` 8,200 was deducted on the above interest) 73,800
Purchased debentures of X Ltd., on 1
st
 December, 2018 which are redeemable
within 3 months 3,00,000
Book value of plant & machinery sold (loss incurred ` 9,600) 90,000
Ans. Cash Flow Statement from Investing Activities of
Subham Creative Limited for the year ended 31-03-2019
Cash generated from investing activities ` `
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
 Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery ` (90,000 – 9,600) 80,400
Cash used in investing activities (before extra-ordinary item) (2,23,200)
Extraordinary claim received for loss of machinery 55,000
Net cash used in investing activities (after extra-ordinary item) (1,68,200)
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Page 2


Overview of Accounting Standards
UNIT - I
Q-1 Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited for year ended
31.3.2019.
Particulars Amount (`)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received form associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ` 8,200 was deducted on the above interest) 73,800
Purchased debentures of X Ltd., on 1
st
 December, 2018 which are redeemable
within 3 months 3,00,000
Book value of plant & machinery sold (loss incurred ` 9,600) 90,000
Ans. Cash Flow Statement from Investing Activities of
Subham Creative Limited for the year ended 31-03-2019
Cash generated from investing activities ` `
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
 Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery ` (90,000 – 9,600) 80,400
Cash used in investing activities (before extra-ordinary item) (2,23,200)
Extraordinary claim received for loss of machinery 55,000
Net cash used in investing activities (after extra-ordinary item) (1,68,200)
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Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore not considered
for preparing cash flow from investing activities.
2. Machinery acquired by issue of shares does not amount to cash outflow, hence also not considered
in the above cash flow statement.
3. The investments made in debentures are for short-term, it will be treated as ‘cash equivalent’
and will not be considered as outflow in cash flow statement.
Q-2 Karan Enterprises having is Head office in Mangalore, Karnataka has a branch in Greenville, USA.
Following is the trial balance of Branch as at 31-3-2019:
Particulars Amount ($) Dr. Amount ($) Cr.
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received form Head Office 2,800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
28,350 28,350
(i) Fixed assets were purchased on 1
st
 April, 201
(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method,
(iii) Closing inventory at branch is $ 700 as on 31-3-2019.
(iv) Goods received form Head Office (HO) were recorded at ` 1,85,500 in HO books.
(v) Remittances to HO were recorded at ` 1,62,000 in HO books.
(vi) HO account is recorded in HO books at ` 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as :
1-4-2015     ` 63;
1-4-2018     ` 65 and
31-3-2019   ` 67.
Prepare the trial balance after been converted into Indian rupees in accordance with AS-11.
Ans. Trial Balance of Foreign Branch (converted into Indian Rupees) as on March 31, 2019
Particulars $ (Dr.) $ (Cr.) Conversion Basis Rate ` (Dr.) ` (Cr.)
Fixed Assets 8,000 Transaction Date
Rate 63 5,04,000
Opening Inventory 800 Opening Rate 65 52,000
Goods Received Actuals 1,85,500
from HO 2,800
Sales 24,050 Average Rate 66 15,87,300
Purchases 11,800 Average Rate 66 7,78,800
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Page 3


Overview of Accounting Standards
UNIT - I
Q-1 Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited for year ended
31.3.2019.
Particulars Amount (`)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received form associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ` 8,200 was deducted on the above interest) 73,800
Purchased debentures of X Ltd., on 1
st
 December, 2018 which are redeemable
within 3 months 3,00,000
Book value of plant & machinery sold (loss incurred ` 9,600) 90,000
Ans. Cash Flow Statement from Investing Activities of
Subham Creative Limited for the year ended 31-03-2019
Cash generated from investing activities ` `
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
 Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery ` (90,000 – 9,600) 80,400
Cash used in investing activities (before extra-ordinary item) (2,23,200)
Extraordinary claim received for loss of machinery 55,000
Net cash used in investing activities (after extra-ordinary item) (1,68,200)
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Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore not considered
for preparing cash flow from investing activities.
2. Machinery acquired by issue of shares does not amount to cash outflow, hence also not considered
in the above cash flow statement.
3. The investments made in debentures are for short-term, it will be treated as ‘cash equivalent’
and will not be considered as outflow in cash flow statement.
Q-2 Karan Enterprises having is Head office in Mangalore, Karnataka has a branch in Greenville, USA.
Following is the trial balance of Branch as at 31-3-2019:
Particulars Amount ($) Dr. Amount ($) Cr.
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received form Head Office 2,800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
28,350 28,350
(i) Fixed assets were purchased on 1
st
 April, 201
(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method,
(iii) Closing inventory at branch is $ 700 as on 31-3-2019.
(iv) Goods received form Head Office (HO) were recorded at ` 1,85,500 in HO books.
(v) Remittances to HO were recorded at ` 1,62,000 in HO books.
(vi) HO account is recorded in HO books at ` 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as :
1-4-2015     ` 63;
1-4-2018     ` 65 and
31-3-2019   ` 67.
Prepare the trial balance after been converted into Indian rupees in accordance with AS-11.
Ans. Trial Balance of Foreign Branch (converted into Indian Rupees) as on March 31, 2019
Particulars $ (Dr.) $ (Cr.) Conversion Basis Rate ` (Dr.) ` (Cr.)
Fixed Assets 8,000 Transaction Date
Rate 63 5,04,000
Opening Inventory 800 Opening Rate 65 52,000
Goods Received Actuals 1,85,500
from HO 2,800
Sales 24,050 Average Rate 66 15,87,300
Purchases 11,800 Average Rate 66 7,78,800
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Expenses 1,800 Average Rate 66 1,18,800
Cash 700 Closing Rate 67 46,900
Remittance to HO 2,450 Actuals 1,62,000
HO Account 4,300 Actuals 2,84,500
Exchange Rate
Difference ______ ______ Balancing Figure 23,800 _______
28,350 28,350 18,71,800 18,71,800
Closing Stock 700 Closing Rate 67 46,900
Depreciation 800 Fixed Asset Rate 63 50,400
Q-3 Mr. Rakshit gives the following information relating to items forming part of inventory as on 31
st
 March,
2019. His factory produces product X using raw material A.
(i) 800 units of raw material A (purchased @ ` 140 per unit).
Replacement cost of raw material A as on 31
st
 March, 2019 is ` 190 per unit.
(ii) 650 units of partly finished goods in the process of producing X and cost incurred till date ` 310
per unit. These units can be finished next year by incurring additional cost of ` 50 per unit.
(iii) 1,800 units of finished product X and total cost incurred `  360 per unit.
Expected selling price of product X is `  350 per unit.
In the context of AS-2, determine how each item of inventory will be valued as on 31
st
 March, 2019.
Also, calculate the value of total inventory as on 31
st
 March, 2019.
Ans. As per AS 2 (Revised) “Valuation of Inventories”, materials and other supplies held for use in the
production of inventories are not written down below cost if the finished products in which they will
be incorporated are expected to be sold at cost or above cost. However, when there has been a decline
in the price of materials and it is estimated that the cost of the finished products will exceed net
realizable value, the materials are written down to net realizable value. In such circumstances, the
replacement cost of the materials may be the best available measure of their net realizable value. I n
the given case, selling price of product X is `  350 and total cost per unit for production is ` 360.
Hence the valuation will be done as under:
(i) 800 units of raw material will be valued at cost 140.
(ii) 650 units of partly finished goods will be valued at 300 per unit* i.e. lower of cost (` 310) or Net
realizable value ` 300 (Estimated selling price ` 350 per unit less additional cost of ` 50).
(iii) 1,800 units of finished product X will be valued at NRV of ` 350 per unit since it is lower than cost
` 360 of product X.
Valuation of Total Inventory as on 31.03.2019:
Units Cost (` ) NRV / Value = units `
Replacement x cost or NRV
cost ` whichever is
less (`)
Raw material A 800 140 190 1,12,000 (800 x 140)
Partly finished goods 650 310 300 1,95,000 (650 x 300)
Finished goods X 1,800 60 350 6,30,000 (1,800 x 350)
Value of Inventory 9,37,000
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Page 4


Overview of Accounting Standards
UNIT - I
Q-1 Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited for year ended
31.3.2019.
Particulars Amount (`)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received form associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ` 8,200 was deducted on the above interest) 73,800
Purchased debentures of X Ltd., on 1
st
 December, 2018 which are redeemable
within 3 months 3,00,000
Book value of plant & machinery sold (loss incurred ` 9,600) 90,000
Ans. Cash Flow Statement from Investing Activities of
Subham Creative Limited for the year ended 31-03-2019
Cash generated from investing activities ` `
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
 Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery ` (90,000 – 9,600) 80,400
Cash used in investing activities (before extra-ordinary item) (2,23,200)
Extraordinary claim received for loss of machinery 55,000
Net cash used in investing activities (after extra-ordinary item) (1,68,200)
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Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore not considered
for preparing cash flow from investing activities.
2. Machinery acquired by issue of shares does not amount to cash outflow, hence also not considered
in the above cash flow statement.
3. The investments made in debentures are for short-term, it will be treated as ‘cash equivalent’
and will not be considered as outflow in cash flow statement.
Q-2 Karan Enterprises having is Head office in Mangalore, Karnataka has a branch in Greenville, USA.
Following is the trial balance of Branch as at 31-3-2019:
Particulars Amount ($) Dr. Amount ($) Cr.
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received form Head Office 2,800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
28,350 28,350
(i) Fixed assets were purchased on 1
st
 April, 201
(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method,
(iii) Closing inventory at branch is $ 700 as on 31-3-2019.
(iv) Goods received form Head Office (HO) were recorded at ` 1,85,500 in HO books.
(v) Remittances to HO were recorded at ` 1,62,000 in HO books.
(vi) HO account is recorded in HO books at ` 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as :
1-4-2015     ` 63;
1-4-2018     ` 65 and
31-3-2019   ` 67.
Prepare the trial balance after been converted into Indian rupees in accordance with AS-11.
Ans. Trial Balance of Foreign Branch (converted into Indian Rupees) as on March 31, 2019
Particulars $ (Dr.) $ (Cr.) Conversion Basis Rate ` (Dr.) ` (Cr.)
Fixed Assets 8,000 Transaction Date
Rate 63 5,04,000
Opening Inventory 800 Opening Rate 65 52,000
Goods Received Actuals 1,85,500
from HO 2,800
Sales 24,050 Average Rate 66 15,87,300
Purchases 11,800 Average Rate 66 7,78,800
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Expenses 1,800 Average Rate 66 1,18,800
Cash 700 Closing Rate 67 46,900
Remittance to HO 2,450 Actuals 1,62,000
HO Account 4,300 Actuals 2,84,500
Exchange Rate
Difference ______ ______ Balancing Figure 23,800 _______
28,350 28,350 18,71,800 18,71,800
Closing Stock 700 Closing Rate 67 46,900
Depreciation 800 Fixed Asset Rate 63 50,400
Q-3 Mr. Rakshit gives the following information relating to items forming part of inventory as on 31
st
 March,
2019. His factory produces product X using raw material A.
(i) 800 units of raw material A (purchased @ ` 140 per unit).
Replacement cost of raw material A as on 31
st
 March, 2019 is ` 190 per unit.
(ii) 650 units of partly finished goods in the process of producing X and cost incurred till date ` 310
per unit. These units can be finished next year by incurring additional cost of ` 50 per unit.
(iii) 1,800 units of finished product X and total cost incurred `  360 per unit.
Expected selling price of product X is `  350 per unit.
In the context of AS-2, determine how each item of inventory will be valued as on 31
st
 March, 2019.
Also, calculate the value of total inventory as on 31
st
 March, 2019.
Ans. As per AS 2 (Revised) “Valuation of Inventories”, materials and other supplies held for use in the
production of inventories are not written down below cost if the finished products in which they will
be incorporated are expected to be sold at cost or above cost. However, when there has been a decline
in the price of materials and it is estimated that the cost of the finished products will exceed net
realizable value, the materials are written down to net realizable value. In such circumstances, the
replacement cost of the materials may be the best available measure of their net realizable value. I n
the given case, selling price of product X is `  350 and total cost per unit for production is ` 360.
Hence the valuation will be done as under:
(i) 800 units of raw material will be valued at cost 140.
(ii) 650 units of partly finished goods will be valued at 300 per unit* i.e. lower of cost (` 310) or Net
realizable value ` 300 (Estimated selling price ` 350 per unit less additional cost of ` 50).
(iii) 1,800 units of finished product X will be valued at NRV of ` 350 per unit since it is lower than cost
` 360 of product X.
Valuation of Total Inventory as on 31.03.2019:
Units Cost (` ) NRV / Value = units `
Replacement x cost or NRV
cost ` whichever is
less (`)
Raw material A 800 140 190 1,12,000 (800 x 140)
Partly finished goods 650 310 300 1,95,000 (650 x 300)
Finished goods X 1,800 60 350 6,30,000 (1,800 x 350)
Value of Inventory 9,37,000
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*It has been assumed that the partly finished unit cannot be sold in semi-finished form and its NRV is
zero without processing it further.
Q-4 Sheetal Ltd. has provided the following information for the year ended 31
st
 March, 2019:
Particulars Amount (` )
Accounting profit 9,00,000
Book profit as per MAT 5,25,000
Profit as per Income Tax Act 95,000
Tax rate 30%
MAT rate 7.5%
You are required to 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.
Ans.
Tax as per accounting profit 9,00,000 x 30%= ` 2,70,000
Tax as per Income-tax Profit 95,000 x 30% = ` 28,500
Tax as per MAT 5,25,000 x 7.50%= ` 39,375
Tax expense= Current Tax +Deferred Tax
` 2,70,000 = ` 28,500+ Deferred tax
Deferred Tax liability as on 31-03-2019
= `  2,70,000 – `  28,500 = `  2,41,500
Amount of tax to be debited in Profit and Loss account for the year 31-03-2019
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ` 28,500 + ` 2,41,500+ ` 10,875 (39,375 – 28,500)
= ` 2,80,875
Q-5 M/s X & Co. (a partnership firm), had a turnover of Rs. 1.25 crores (excluding other income) and
borrowings of Rs. 0.95 crores in the previous year. It wants to avail the exemptions available in application
of Accounting Standards to non-corporate entities for the year ended 31.3.2018. Advise the management
of M/s X & Co in respect of the exemptions of provisions of ASs, as per the directive issued by the ICAI.
Ans. The question deals with the issue of Applicability of Accounting Standards to a non-corporate entity.
For availment of the exemptions, first of all, it has to be seen that M/s X& Co. falls in which level of the
non-corporate entities. Its classification will be done on the basis of the classification of non-corporate
entities as prescribed by the ICAI. According to the ICAI, non-corporate entities can be classified under
3 levels viz Level I, Level II (SMEs) and Level III (SMEs).
An entity whose turnover (excluding other income) does exceed rupees fifty crore in the immediately
preceding accounting year, will fall under the category of Level I entities. Non-corporate entities which
are not Level I entities but fall in any one or more of the following categories are classified as Level II
entities:
(i) All commercial, industrial and business reporting entities, whose turnover (excluding other
income) exceeds rupees one crore but does not exceed rupees fifty crore in the immediately
preceding accounting year.
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Page 5


Overview of Accounting Standards
UNIT - I
Q-1 Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited for year ended
31.3.2019.
Particulars Amount (`)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received form associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of ` 8,200 was deducted on the above interest) 73,800
Purchased debentures of X Ltd., on 1
st
 December, 2018 which are redeemable
within 3 months 3,00,000
Book value of plant & machinery sold (loss incurred ` 9,600) 90,000
Ans. Cash Flow Statement from Investing Activities of
Subham Creative Limited for the year ended 31-03-2019
Cash generated from investing activities ` `
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
 Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery ` (90,000 – 9,600) 80,400
Cash used in investing activities (before extra-ordinary item) (2,23,200)
Extraordinary claim received for loss of machinery 55,000
Net cash used in investing activities (after extra-ordinary item) (1,68,200)
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Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore not considered
for preparing cash flow from investing activities.
2. Machinery acquired by issue of shares does not amount to cash outflow, hence also not considered
in the above cash flow statement.
3. The investments made in debentures are for short-term, it will be treated as ‘cash equivalent’
and will not be considered as outflow in cash flow statement.
Q-2 Karan Enterprises having is Head office in Mangalore, Karnataka has a branch in Greenville, USA.
Following is the trial balance of Branch as at 31-3-2019:
Particulars Amount ($) Dr. Amount ($) Cr.
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received form Head Office 2,800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
28,350 28,350
(i) Fixed assets were purchased on 1
st
 April, 201
(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method,
(iii) Closing inventory at branch is $ 700 as on 31-3-2019.
(iv) Goods received form Head Office (HO) were recorded at ` 1,85,500 in HO books.
(v) Remittances to HO were recorded at ` 1,62,000 in HO books.
(vi) HO account is recorded in HO books at ` 2,84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as :
1-4-2015     ` 63;
1-4-2018     ` 65 and
31-3-2019   ` 67.
Prepare the trial balance after been converted into Indian rupees in accordance with AS-11.
Ans. Trial Balance of Foreign Branch (converted into Indian Rupees) as on March 31, 2019
Particulars $ (Dr.) $ (Cr.) Conversion Basis Rate ` (Dr.) ` (Cr.)
Fixed Assets 8,000 Transaction Date
Rate 63 5,04,000
Opening Inventory 800 Opening Rate 65 52,000
Goods Received Actuals 1,85,500
from HO 2,800
Sales 24,050 Average Rate 66 15,87,300
Purchases 11,800 Average Rate 66 7,78,800
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Expenses 1,800 Average Rate 66 1,18,800
Cash 700 Closing Rate 67 46,900
Remittance to HO 2,450 Actuals 1,62,000
HO Account 4,300 Actuals 2,84,500
Exchange Rate
Difference ______ ______ Balancing Figure 23,800 _______
28,350 28,350 18,71,800 18,71,800
Closing Stock 700 Closing Rate 67 46,900
Depreciation 800 Fixed Asset Rate 63 50,400
Q-3 Mr. Rakshit gives the following information relating to items forming part of inventory as on 31
st
 March,
2019. His factory produces product X using raw material A.
(i) 800 units of raw material A (purchased @ ` 140 per unit).
Replacement cost of raw material A as on 31
st
 March, 2019 is ` 190 per unit.
(ii) 650 units of partly finished goods in the process of producing X and cost incurred till date ` 310
per unit. These units can be finished next year by incurring additional cost of ` 50 per unit.
(iii) 1,800 units of finished product X and total cost incurred `  360 per unit.
Expected selling price of product X is `  350 per unit.
In the context of AS-2, determine how each item of inventory will be valued as on 31
st
 March, 2019.
Also, calculate the value of total inventory as on 31
st
 March, 2019.
Ans. As per AS 2 (Revised) “Valuation of Inventories”, materials and other supplies held for use in the
production of inventories are not written down below cost if the finished products in which they will
be incorporated are expected to be sold at cost or above cost. However, when there has been a decline
in the price of materials and it is estimated that the cost of the finished products will exceed net
realizable value, the materials are written down to net realizable value. In such circumstances, the
replacement cost of the materials may be the best available measure of their net realizable value. I n
the given case, selling price of product X is `  350 and total cost per unit for production is ` 360.
Hence the valuation will be done as under:
(i) 800 units of raw material will be valued at cost 140.
(ii) 650 units of partly finished goods will be valued at 300 per unit* i.e. lower of cost (` 310) or Net
realizable value ` 300 (Estimated selling price ` 350 per unit less additional cost of ` 50).
(iii) 1,800 units of finished product X will be valued at NRV of ` 350 per unit since it is lower than cost
` 360 of product X.
Valuation of Total Inventory as on 31.03.2019:
Units Cost (` ) NRV / Value = units `
Replacement x cost or NRV
cost ` whichever is
less (`)
Raw material A 800 140 190 1,12,000 (800 x 140)
Partly finished goods 650 310 300 1,95,000 (650 x 300)
Finished goods X 1,800 60 350 6,30,000 (1,800 x 350)
Value of Inventory 9,37,000
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*It has been assumed that the partly finished unit cannot be sold in semi-finished form and its NRV is
zero without processing it further.
Q-4 Sheetal Ltd. has provided the following information for the year ended 31
st
 March, 2019:
Particulars Amount (` )
Accounting profit 9,00,000
Book profit as per MAT 5,25,000
Profit as per Income Tax Act 95,000
Tax rate 30%
MAT rate 7.5%
You are required to 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.
Ans.
Tax as per accounting profit 9,00,000 x 30%= ` 2,70,000
Tax as per Income-tax Profit 95,000 x 30% = ` 28,500
Tax as per MAT 5,25,000 x 7.50%= ` 39,375
Tax expense= Current Tax +Deferred Tax
` 2,70,000 = ` 28,500+ Deferred tax
Deferred Tax liability as on 31-03-2019
= `  2,70,000 – `  28,500 = `  2,41,500
Amount of tax to be debited in Profit and Loss account for the year 31-03-2019
Current Tax + Deferred Tax liability + Excess of MAT over current tax
= ` 28,500 + ` 2,41,500+ ` 10,875 (39,375 – 28,500)
= ` 2,80,875
Q-5 M/s X & Co. (a partnership firm), had a turnover of Rs. 1.25 crores (excluding other income) and
borrowings of Rs. 0.95 crores in the previous year. It wants to avail the exemptions available in application
of Accounting Standards to non-corporate entities for the year ended 31.3.2018. Advise the management
of M/s X & Co in respect of the exemptions of provisions of ASs, as per the directive issued by the ICAI.
Ans. The question deals with the issue of Applicability of Accounting Standards to a non-corporate entity.
For availment of the exemptions, first of all, it has to be seen that M/s X& Co. falls in which level of the
non-corporate entities. Its classification will be done on the basis of the classification of non-corporate
entities as prescribed by the ICAI. According to the ICAI, non-corporate entities can be classified under
3 levels viz Level I, Level II (SMEs) and Level III (SMEs).
An entity whose turnover (excluding other income) does exceed rupees fifty crore in the immediately
preceding accounting year, will fall under the category of Level I entities. Non-corporate entities which
are not Level I entities but fall in any one or more of the following categories are classified as Level II
entities:
(i) All commercial, industrial and business reporting entities, whose turnover (excluding other
income) exceeds rupees one crore but does not exceed rupees fifty crore in the immediately
preceding accounting year.
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(ii) All commercial, industrial and business reporting entities having borrowings (including public
deposits) in excess of rupees one crore but not in excess of rupees ten crore at any time during
the immediately preceding accounting year.
(iii) Holding and subsidiary entities of any one of the above.
As the turnover of M/s X& Co. is more than Rs. 1 crore, it falls under 1st criteria of Level II non-
corporate entities as defined above. Even if its borrowings of Rs. 0.95 crores is less than Rs. 1
crores, it will be classified as Level II Entity. In this case, AS 3, AS 17, AS 21, AS 23, AS 27 will not be
applicable to M/s X & Co. Relaxations from certain requirements in respect of AS 15, AS 19, AS 20,
AS 25, AS 28 and AS 29 are also available to M/s X& Co.
UNIT - II
Q-1 Mac Ltd. gives the following data regarding to its six segments :
(` in lakhs)
Particulars A B C D E F Total
Segment assets 80 160 60 40 40 20 400
Segment results 100 (380) 20. 20 (20) 60 (200)
Segment revenue 600 1,240 160 120 160 120 2,400
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’.
Ans. As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be identified as
a reportable segment if:
- Its revenue from sales to external customers and from other transactions with other segments is
10% or more of the total revenue- external and internal of all segments; or
- Its segment result whether profit or loss is 10% or more of combined result of all segments in
profit; or combined result of all segments in loss, whichever is greater in absolute amount; or
- Its segment assets are 10% or more of the total assets of all segments.
If the total external revenue attributable to reportable segments constitutes less than 75% of total
enterprise revenue, additional segments should be identified as reportable segments even if they do
not meet the 10% thresholds until at least 75% of total enterprise revenue is included in reportable
segments.
On the basis of turnover criteria segments A and B are reportable segments.
On the basis of the result criteria, segments A, B and F are reportable segments (since their results in
absolute amount is 10% or more of ` 400 lakhs).
On the basis of asset criteria, all segments except F are reportable segments.
Since all the segments are covered in at least one of the above criteria all segments have to be reported
upon in accordance with Accounting Standard (AS) 17. Hence, the opinion of accountant is wrong.
Q-2 First Ltd. began construction of a new factory building on 1st April, 2017. It obtained ` 2,00,000 as a
special loan to finance the construction of the factory building on 1st April, 2017 at an interest rate of
8% per annum. Further, expenditure on construction of the factory building was financed through
other non-specific loans. Details of other outstanding non-specific loans were:
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