Advanced Accounting (Group I) Model Test Paper - 1 (Questions) | Model Test Papers for CA Intermediate PDF Download

 Page 1


MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Time Allowed – 3 Hours Maximum Marks – 100 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks) 
Part I is compulsory. 
Case Scenario 
1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells
holiday packages to the customers. The Company negotiates upfront with
the Airlines for specified number of seats in flight. The Company agrees to
buy a specific number of tickets and pay for those tickets regardless of
whether it is able to resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and
agreed in advance. The Company also assists the customers in resolving
complaints with the service provided by airlines. However, each airline is
responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000
on 1 March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1
= INR 83.02. On 31 March 2024, when the Company closed its books,
exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company
decided for premature settlement of the contract due to some exceptional
circumstances.
The Company is evaluating below mentioned schemes:
i. Introduction of a formal retirement gratuity scheme by an employer in
place of ad hoc ex-gratia payments to employees on retirement.
ii. Management decided to pay pension to those employees who have
retired after completing 5 years of service in the organization. Such
employees will get pension of ` 20,000 per month. Earlier there was no
such scheme of pension in the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction 
having turnover of ` 200 crores. SEAS Ltd.  and ADI Ltd.  hold 9% and 23% 
respectively in an associate company, ASOC Ltd. Both SEAS Ltd.  and ADI 
Ltd.  prepare consolidated financial statements as per Accounting Standards 
notified under the Companies (Accounting Standards) Rules, 2021.  
i. What would be the basis of revenue recognition for SEAS Ltd.  as per
the requirements of Accounting Standards?
(a) Gross basis.
1
Page 2


MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Time Allowed – 3 Hours Maximum Marks – 100 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks) 
Part I is compulsory. 
Case Scenario 
1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells
holiday packages to the customers. The Company negotiates upfront with
the Airlines for specified number of seats in flight. The Company agrees to
buy a specific number of tickets and pay for those tickets regardless of
whether it is able to resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and
agreed in advance. The Company also assists the customers in resolving
complaints with the service provided by airlines. However, each airline is
responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000
on 1 March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1
= INR 83.02. On 31 March 2024, when the Company closed its books,
exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company
decided for premature settlement of the contract due to some exceptional
circumstances.
The Company is evaluating below mentioned schemes:
i. Introduction of a formal retirement gratuity scheme by an employer in
place of ad hoc ex-gratia payments to employees on retirement.
ii. Management decided to pay pension to those employees who have
retired after completing 5 years of service in the organization. Such
employees will get pension of ` 20,000 per month. Earlier there was no
such scheme of pension in the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction 
having turnover of ` 200 crores. SEAS Ltd.  and ADI Ltd.  hold 9% and 23% 
respectively in an associate company, ASOC Ltd. Both SEAS Ltd.  and ADI 
Ltd.  prepare consolidated financial statements as per Accounting Standards 
notified under the Companies (Accounting Standards) Rules, 2021.  
i. What would be the basis of revenue recognition for SEAS Ltd.  as per
the requirements of Accounting Standards?
(a) Gross basis.
1
(b)  Net basis. 
(c)  Depends on the accounting policy of the Company. 
(d)  Indian GAAP allows a choice to the Company to recognize revenue 
on gross basis or net basis. 
ii. Please suggest accounting treatment of forward contract for the year 
ended 31 March 2024 as per Accounting Standard 11. 
(a)  MTM (marked to market value) of contract will be recorded on 31 
March 2024. 
(b)  MTM (marked to market value) of contract will be computed as at 
31 March 2024 and only if there is loss, it will be recorded during 
the year ended 31 March 2024. 
(c)  No accounting will be done during the year ended 31 March 2024. 
(d)  Premium on contract will be amortized over the life of the contract. 
iii. You are requested to advise the Company in respect of the accounting 
requirements of above schemes related to employee benefits as to 
which one of those schemes should be considered as a change in 
accounting policy during the year. 
(a)  1 – Change in accounting policy. 2 – Change in accounting policy. 
(b)  1– Not a change in accounting policy. 2 – Change in accounting 
policy. 
(c)  1 – Not a change in accounting policy. 2 – Not a change in 
accounting policy. 
(d)  1– Change in accounting policy. 2 – Not a change in accounting 
policy. 
iv. Please comment regarding consolidation requirements for SEAS Ltd.  
and ADI Ltd.  using the below mentioned options as to which one should 
be correct. 
(a) ADI Ltd. would using equity method of accounting for 23% in ASOC 
Ltd.  SEAS Ltd. would consolidate ADI Ltd. and consequently 
automatically equity account 23% and separately account for the 
balance 9% as per AS 13. 
(b) ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd.  would consolidate ADI Ltd. and consequently automatically 
account 23% and separately account for the balance 9%. 
(c)  ADI Ltd. would account for 23% share in ASOC Ltd using equity 
method of accounting. SEAS Ltd. would consolidate ADI Ltd.  and 
consequently, automatically account for ASOC Ltd 23% share and 
separately account for 9% share in ASOC Ltd. using equity method 
of accounting in consolidated financial statements. 
(d)  ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd. would consolidate ADI Ltd. and using equity method of 
2
Page 3


MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Time Allowed – 3 Hours Maximum Marks – 100 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks) 
Part I is compulsory. 
Case Scenario 
1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells
holiday packages to the customers. The Company negotiates upfront with
the Airlines for specified number of seats in flight. The Company agrees to
buy a specific number of tickets and pay for those tickets regardless of
whether it is able to resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and
agreed in advance. The Company also assists the customers in resolving
complaints with the service provided by airlines. However, each airline is
responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000
on 1 March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1
= INR 83.02. On 31 March 2024, when the Company closed its books,
exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company
decided for premature settlement of the contract due to some exceptional
circumstances.
The Company is evaluating below mentioned schemes:
i. Introduction of a formal retirement gratuity scheme by an employer in
place of ad hoc ex-gratia payments to employees on retirement.
ii. Management decided to pay pension to those employees who have
retired after completing 5 years of service in the organization. Such
employees will get pension of ` 20,000 per month. Earlier there was no
such scheme of pension in the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction 
having turnover of ` 200 crores. SEAS Ltd.  and ADI Ltd.  hold 9% and 23% 
respectively in an associate company, ASOC Ltd. Both SEAS Ltd.  and ADI 
Ltd.  prepare consolidated financial statements as per Accounting Standards 
notified under the Companies (Accounting Standards) Rules, 2021.  
i. What would be the basis of revenue recognition for SEAS Ltd.  as per
the requirements of Accounting Standards?
(a) Gross basis.
1
(b)  Net basis. 
(c)  Depends on the accounting policy of the Company. 
(d)  Indian GAAP allows a choice to the Company to recognize revenue 
on gross basis or net basis. 
ii. Please suggest accounting treatment of forward contract for the year 
ended 31 March 2024 as per Accounting Standard 11. 
(a)  MTM (marked to market value) of contract will be recorded on 31 
March 2024. 
(b)  MTM (marked to market value) of contract will be computed as at 
31 March 2024 and only if there is loss, it will be recorded during 
the year ended 31 March 2024. 
(c)  No accounting will be done during the year ended 31 March 2024. 
(d)  Premium on contract will be amortized over the life of the contract. 
iii. You are requested to advise the Company in respect of the accounting 
requirements of above schemes related to employee benefits as to 
which one of those schemes should be considered as a change in 
accounting policy during the year. 
(a)  1 – Change in accounting policy. 2 – Change in accounting policy. 
(b)  1– Not a change in accounting policy. 2 – Change in accounting 
policy. 
(c)  1 – Not a change in accounting policy. 2 – Not a change in 
accounting policy. 
(d)  1– Change in accounting policy. 2 – Not a change in accounting 
policy. 
iv. Please comment regarding consolidation requirements for SEAS Ltd.  
and ADI Ltd.  using the below mentioned options as to which one should 
be correct. 
(a) ADI Ltd. would using equity method of accounting for 23% in ASOC 
Ltd.  SEAS Ltd. would consolidate ADI Ltd. and consequently 
automatically equity account 23% and separately account for the 
balance 9% as per AS 13. 
(b) ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd.  would consolidate ADI Ltd. and consequently automatically 
account 23% and separately account for the balance 9%. 
(c)  ADI Ltd. would account for 23% share in ASOC Ltd using equity 
method of accounting. SEAS Ltd. would consolidate ADI Ltd.  and 
consequently, automatically account for ASOC Ltd 23% share and 
separately account for 9% share in ASOC Ltd. using equity method 
of accounting in consolidated financial statements. 
(d)  ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd. would consolidate ADI Ltd. and using equity method of 
2
accounting 23% in ASOC Ltd. and separately account for the 
balance 9% as per AS 13. 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2.  On 1
st
 April, 2022, Shubham Limited purchased some land for ` 30 lakhs for 
the purpose of constructing a new factory. This cost of 30 lakhs included legal 
cost of ` 2 lakhs incurred for the purpose of acquisition of this land. 
Construction work could start on 1
st
 May, 2022 and Shubham Limited provides 
you the details of the following costs incurred in relation to its construction:  
 ` 
Preparation and levelling of the land  80,000 
Employment costs of the construction workers (per month)  29,000 
Purchase of materials for the construction  21,24,000 
Cost of relocating employees to new factory for work 60,000 
Costs of inauguration ceremony on 1
st
 January, 2023 80,000 
Overhead costs incurred directly on the construction of the 
factory (per month) 
25,000 
General overhead costs allocated to construction project by the Manager 
is ` 30,000. However, as per company’s normal overhead allocation 
policy, it should be ` 24,000. The auditor of the company has support 
documentation for the cost of ` 15,000 only) and raised objection for the 
balance amount. 
 The construction of the factory was completed on 31
st
 December, 2022 and 
production could begin on 1
st
 February, 2023. The overall useful life of the 
factory building was estimated at 40 years from the date of completion. 
However, it was estimated that the roof will need to be replaced 20 years after 
the date of completion and that the cost of replacing the roof at current prices 
would be 25% of the total cost of the building.  
 The construction of the factory was partly financed by a loan of ` 28 lakhs 
borrowed on 1st April, 2022. The loan was taken at an annual rate of interest 
of 9%. During the period when the loan proceeds had been fully utilized to 
finance the construction, Shubham Limited received investment income of  
` 25,000 on the temporary investment of the proceeds.  
 You are required to assume that all of the net finance costs to be allocated to 
the cost of factory (not land) and interest cost to be capitalized based on nine 
months’ period. 
 Based on the information given in the above scenario, answer the following 
multiple choice questions: 
i.  Which of the following cost  (incurred directly on construction) will be 
capitalized to the cost of factory building?  
(a) ` 2,00,000 incurred as legal cost  
(b) ` 60,000 – costs of relocating employees  
(c) ` 80,000 costs of inauguration ceremony  
3
Page 4


MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Time Allowed – 3 Hours Maximum Marks – 100 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks) 
Part I is compulsory. 
Case Scenario 
1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells
holiday packages to the customers. The Company negotiates upfront with
the Airlines for specified number of seats in flight. The Company agrees to
buy a specific number of tickets and pay for those tickets regardless of
whether it is able to resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and
agreed in advance. The Company also assists the customers in resolving
complaints with the service provided by airlines. However, each airline is
responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000
on 1 March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1
= INR 83.02. On 31 March 2024, when the Company closed its books,
exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company
decided for premature settlement of the contract due to some exceptional
circumstances.
The Company is evaluating below mentioned schemes:
i. Introduction of a formal retirement gratuity scheme by an employer in
place of ad hoc ex-gratia payments to employees on retirement.
ii. Management decided to pay pension to those employees who have
retired after completing 5 years of service in the organization. Such
employees will get pension of ` 20,000 per month. Earlier there was no
such scheme of pension in the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction 
having turnover of ` 200 crores. SEAS Ltd.  and ADI Ltd.  hold 9% and 23% 
respectively in an associate company, ASOC Ltd. Both SEAS Ltd.  and ADI 
Ltd.  prepare consolidated financial statements as per Accounting Standards 
notified under the Companies (Accounting Standards) Rules, 2021.  
i. What would be the basis of revenue recognition for SEAS Ltd.  as per
the requirements of Accounting Standards?
(a) Gross basis.
1
(b)  Net basis. 
(c)  Depends on the accounting policy of the Company. 
(d)  Indian GAAP allows a choice to the Company to recognize revenue 
on gross basis or net basis. 
ii. Please suggest accounting treatment of forward contract for the year 
ended 31 March 2024 as per Accounting Standard 11. 
(a)  MTM (marked to market value) of contract will be recorded on 31 
March 2024. 
(b)  MTM (marked to market value) of contract will be computed as at 
31 March 2024 and only if there is loss, it will be recorded during 
the year ended 31 March 2024. 
(c)  No accounting will be done during the year ended 31 March 2024. 
(d)  Premium on contract will be amortized over the life of the contract. 
iii. You are requested to advise the Company in respect of the accounting 
requirements of above schemes related to employee benefits as to 
which one of those schemes should be considered as a change in 
accounting policy during the year. 
(a)  1 – Change in accounting policy. 2 – Change in accounting policy. 
(b)  1– Not a change in accounting policy. 2 – Change in accounting 
policy. 
(c)  1 – Not a change in accounting policy. 2 – Not a change in 
accounting policy. 
(d)  1– Change in accounting policy. 2 – Not a change in accounting 
policy. 
iv. Please comment regarding consolidation requirements for SEAS Ltd.  
and ADI Ltd.  using the below mentioned options as to which one should 
be correct. 
(a) ADI Ltd. would using equity method of accounting for 23% in ASOC 
Ltd.  SEAS Ltd. would consolidate ADI Ltd. and consequently 
automatically equity account 23% and separately account for the 
balance 9% as per AS 13. 
(b) ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd.  would consolidate ADI Ltd. and consequently automatically 
account 23% and separately account for the balance 9%. 
(c)  ADI Ltd. would account for 23% share in ASOC Ltd using equity 
method of accounting. SEAS Ltd. would consolidate ADI Ltd.  and 
consequently, automatically account for ASOC Ltd 23% share and 
separately account for 9% share in ASOC Ltd. using equity method 
of accounting in consolidated financial statements. 
(d)  ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd. would consolidate ADI Ltd. and using equity method of 
2
accounting 23% in ASOC Ltd. and separately account for the 
balance 9% as per AS 13. 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2.  On 1
st
 April, 2022, Shubham Limited purchased some land for ` 30 lakhs for 
the purpose of constructing a new factory. This cost of 30 lakhs included legal 
cost of ` 2 lakhs incurred for the purpose of acquisition of this land. 
Construction work could start on 1
st
 May, 2022 and Shubham Limited provides 
you the details of the following costs incurred in relation to its construction:  
 ` 
Preparation and levelling of the land  80,000 
Employment costs of the construction workers (per month)  29,000 
Purchase of materials for the construction  21,24,000 
Cost of relocating employees to new factory for work 60,000 
Costs of inauguration ceremony on 1
st
 January, 2023 80,000 
Overhead costs incurred directly on the construction of the 
factory (per month) 
25,000 
General overhead costs allocated to construction project by the Manager 
is ` 30,000. However, as per company’s normal overhead allocation 
policy, it should be ` 24,000. The auditor of the company has support 
documentation for the cost of ` 15,000 only) and raised objection for the 
balance amount. 
 The construction of the factory was completed on 31
st
 December, 2022 and 
production could begin on 1
st
 February, 2023. The overall useful life of the 
factory building was estimated at 40 years from the date of completion. 
However, it was estimated that the roof will need to be replaced 20 years after 
the date of completion and that the cost of replacing the roof at current prices 
would be 25% of the total cost of the building.  
 The construction of the factory was partly financed by a loan of ` 28 lakhs 
borrowed on 1st April, 2022. The loan was taken at an annual rate of interest 
of 9%. During the period when the loan proceeds had been fully utilized to 
finance the construction, Shubham Limited received investment income of  
` 25,000 on the temporary investment of the proceeds.  
 You are required to assume that all of the net finance costs to be allocated to 
the cost of factory (not land) and interest cost to be capitalized based on nine 
months’ period. 
 Based on the information given in the above scenario, answer the following 
multiple choice questions: 
i.  Which of the following cost  (incurred directly on construction) will be 
capitalized to the cost of factory building?  
(a) ` 2,00,000 incurred as legal cost  
(b) ` 60,000 – costs of relocating employees  
(c) ` 80,000 costs of inauguration ceremony  
3
(d) ` 24,000 – allocated general overhead cost  
ii.   What amount of employment cost of construction workers will be 
capitalized to the cost of factory building?  
(a) ` 2,90,000  
(b) ` 3,48,000  
(c) ` 2,32,000  
(d) ` 29,000  
iii.  What is the amount of net borrowing cost capitalized to the cost of the 
factory? 
(a) ` 1,89,000 
(b) ` 1,68,000 
(c) ` 1,44,000 
(d) ` 1,64,000 
iv. What will be the carrying amount (i.e. value after charging depreciation) 
of the factory in the Balance Sheet of Shubham Limited as at 31
st
 March, 
2023? 
(a) ` 30,00,000 
(b) ` 57,78,125 
(c) ` 27,78,125 
(d) ` 58,00,000 
   Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 
Marks] 
3. Kesar Ltd., a company engaged in various business activities, has decided to 
initiate a share buy-back on 1st April, 2023. The company plans to repurchase 
25,000 equity shares of ` 10 each at a price of ` 20 per share. This buy-back 
initiative is in compliance with the company's articles of association, and the 
necessary resolution has been duly passed by the company. As part of the 
financial arrangement for the share buy-back, Kesar Ltd. intends to utilize its 
current assets, particularly the bank balance, to make the payment for the 
repurchased shares. 
 Here is a snapshot of Kesar Ltd.'s Balance Sheet as of 31
st
 March, 2023: 
A.  Share Capital: Equity share capital (fully paid up shares of ` 10 each) -  
` 12,50,000 
B.  Reserves and Surplus: Securities premium ` 2,50,000; Profit and loss 
account ` 1,25,000; Revenue reserve ` 15,00,000;  
C.  Long term borrowings: 14% Debentures- ` 28,75,000, Unsecured Loans 
- ` 16,50,000 
D. Land and Building ` 19,30,000; Plant and machinery ` 18,00,000; 
Furniture and fitting ` 9,20,000 and Other Current Assets - ` 30,00,000 
4
Page 5


MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Time Allowed – 3 Hours Maximum Marks – 100 
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.
PART I – Case Scenario based MCQs (30 Marks) 
Part I is compulsory. 
Case Scenario 
1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells
holiday packages to the customers. The Company negotiates upfront with
the Airlines for specified number of seats in flight. The Company agrees to
buy a specific number of tickets and pay for those tickets regardless of
whether it is able to resell all of those in package.
The rate paid by the Company for each ticket purchased is negotiated and
agreed in advance. The Company also assists the customers in resolving
complaints with the service provided by airlines. However, each airline is
responsible for fulfilling obligations associated with the ticket, including
remedies to a customer for dissatisfaction with the service.
The Company bought a forward contract for three months of US$ 1,00,000
on 1 March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1
= INR 83.02. On 31 March 2024, when the Company closed its books,
exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company
decided for premature settlement of the contract due to some exceptional
circumstances.
The Company is evaluating below mentioned schemes:
i. Introduction of a formal retirement gratuity scheme by an employer in
place of ad hoc ex-gratia payments to employees on retirement.
ii. Management decided to pay pension to those employees who have
retired after completing 5 years of service in the organization. Such
employees will get pension of ` 20,000 per month. Earlier there was no
such scheme of pension in the organization.
SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction 
having turnover of ` 200 crores. SEAS Ltd.  and ADI Ltd.  hold 9% and 23% 
respectively in an associate company, ASOC Ltd. Both SEAS Ltd.  and ADI 
Ltd.  prepare consolidated financial statements as per Accounting Standards 
notified under the Companies (Accounting Standards) Rules, 2021.  
i. What would be the basis of revenue recognition for SEAS Ltd.  as per
the requirements of Accounting Standards?
(a) Gross basis.
1
(b)  Net basis. 
(c)  Depends on the accounting policy of the Company. 
(d)  Indian GAAP allows a choice to the Company to recognize revenue 
on gross basis or net basis. 
ii. Please suggest accounting treatment of forward contract for the year 
ended 31 March 2024 as per Accounting Standard 11. 
(a)  MTM (marked to market value) of contract will be recorded on 31 
March 2024. 
(b)  MTM (marked to market value) of contract will be computed as at 
31 March 2024 and only if there is loss, it will be recorded during 
the year ended 31 March 2024. 
(c)  No accounting will be done during the year ended 31 March 2024. 
(d)  Premium on contract will be amortized over the life of the contract. 
iii. You are requested to advise the Company in respect of the accounting 
requirements of above schemes related to employee benefits as to 
which one of those schemes should be considered as a change in 
accounting policy during the year. 
(a)  1 – Change in accounting policy. 2 – Change in accounting policy. 
(b)  1– Not a change in accounting policy. 2 – Change in accounting 
policy. 
(c)  1 – Not a change in accounting policy. 2 – Not a change in 
accounting policy. 
(d)  1– Change in accounting policy. 2 – Not a change in accounting 
policy. 
iv. Please comment regarding consolidation requirements for SEAS Ltd.  
and ADI Ltd.  using the below mentioned options as to which one should 
be correct. 
(a) ADI Ltd. would using equity method of accounting for 23% in ASOC 
Ltd.  SEAS Ltd. would consolidate ADI Ltd. and consequently 
automatically equity account 23% and separately account for the 
balance 9% as per AS 13. 
(b) ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd.  would consolidate ADI Ltd. and consequently automatically 
account 23% and separately account for the balance 9%. 
(c)  ADI Ltd. would account for 23% share in ASOC Ltd using equity 
method of accounting. SEAS Ltd. would consolidate ADI Ltd.  and 
consequently, automatically account for ASOC Ltd 23% share and 
separately account for 9% share in ASOC Ltd. using equity method 
of accounting in consolidated financial statements. 
(d)  ADI Ltd. would account for 23% in ASOC Ltd.  as per AS 13. SEAS 
Ltd. would consolidate ADI Ltd. and using equity method of 
2
accounting 23% in ASOC Ltd. and separately account for the 
balance 9% as per AS 13. 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2.  On 1
st
 April, 2022, Shubham Limited purchased some land for ` 30 lakhs for 
the purpose of constructing a new factory. This cost of 30 lakhs included legal 
cost of ` 2 lakhs incurred for the purpose of acquisition of this land. 
Construction work could start on 1
st
 May, 2022 and Shubham Limited provides 
you the details of the following costs incurred in relation to its construction:  
 ` 
Preparation and levelling of the land  80,000 
Employment costs of the construction workers (per month)  29,000 
Purchase of materials for the construction  21,24,000 
Cost of relocating employees to new factory for work 60,000 
Costs of inauguration ceremony on 1
st
 January, 2023 80,000 
Overhead costs incurred directly on the construction of the 
factory (per month) 
25,000 
General overhead costs allocated to construction project by the Manager 
is ` 30,000. However, as per company’s normal overhead allocation 
policy, it should be ` 24,000. The auditor of the company has support 
documentation for the cost of ` 15,000 only) and raised objection for the 
balance amount. 
 The construction of the factory was completed on 31
st
 December, 2022 and 
production could begin on 1
st
 February, 2023. The overall useful life of the 
factory building was estimated at 40 years from the date of completion. 
However, it was estimated that the roof will need to be replaced 20 years after 
the date of completion and that the cost of replacing the roof at current prices 
would be 25% of the total cost of the building.  
 The construction of the factory was partly financed by a loan of ` 28 lakhs 
borrowed on 1st April, 2022. The loan was taken at an annual rate of interest 
of 9%. During the period when the loan proceeds had been fully utilized to 
finance the construction, Shubham Limited received investment income of  
` 25,000 on the temporary investment of the proceeds.  
 You are required to assume that all of the net finance costs to be allocated to 
the cost of factory (not land) and interest cost to be capitalized based on nine 
months’ period. 
 Based on the information given in the above scenario, answer the following 
multiple choice questions: 
i.  Which of the following cost  (incurred directly on construction) will be 
capitalized to the cost of factory building?  
(a) ` 2,00,000 incurred as legal cost  
(b) ` 60,000 – costs of relocating employees  
(c) ` 80,000 costs of inauguration ceremony  
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(d) ` 24,000 – allocated general overhead cost  
ii.   What amount of employment cost of construction workers will be 
capitalized to the cost of factory building?  
(a) ` 2,90,000  
(b) ` 3,48,000  
(c) ` 2,32,000  
(d) ` 29,000  
iii.  What is the amount of net borrowing cost capitalized to the cost of the 
factory? 
(a) ` 1,89,000 
(b) ` 1,68,000 
(c) ` 1,44,000 
(d) ` 1,64,000 
iv. What will be the carrying amount (i.e. value after charging depreciation) 
of the factory in the Balance Sheet of Shubham Limited as at 31
st
 March, 
2023? 
(a) ` 30,00,000 
(b) ` 57,78,125 
(c) ` 27,78,125 
(d) ` 58,00,000 
   Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 
Marks] 
3. Kesar Ltd., a company engaged in various business activities, has decided to 
initiate a share buy-back on 1st April, 2023. The company plans to repurchase 
25,000 equity shares of ` 10 each at a price of ` 20 per share. This buy-back 
initiative is in compliance with the company's articles of association, and the 
necessary resolution has been duly passed by the company. As part of the 
financial arrangement for the share buy-back, Kesar Ltd. intends to utilize its 
current assets, particularly the bank balance, to make the payment for the 
repurchased shares. 
 Here is a snapshot of Kesar Ltd.'s Balance Sheet as of 31
st
 March, 2023: 
A.  Share Capital: Equity share capital (fully paid up shares of ` 10 each) -  
` 12,50,000 
B.  Reserves and Surplus: Securities premium ` 2,50,000; Profit and loss 
account ` 1,25,000; Revenue reserve ` 15,00,000;  
C.  Long term borrowings: 14% Debentures- ` 28,75,000, Unsecured Loans 
- ` 16,50,000 
D. Land and Building ` 19,30,000; Plant and machinery ` 18,00,000; 
Furniture and fitting ` 9,20,000 and Other Current Assets - ` 30,00,000 
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 Authorized, issued and subscribed capital: Equity share capital (fully paid up 
shares of 10 each) - 12,50,000. 
i. By using the Shares Outstanding Test the number of shares that can be 
bought back  
(a) 1,25,000 
(b) 31,250 
(c) 25,000 
(d) 30,000 
ii. By using the Resources Test determine the number of shares that can 
be bought back: 
(a) 25,000 
(b) 31,250 
(c) 28,750 
(d) 39,062 
iii. By using the Debt Equity Ratio Test determine the number of shares that 
can be bought back: 
(a) 25,000 
(b) 31,250 
(c) 28,750 
(d) 39,062 
iv. On the basis of all three tests determine Maximum number of shares that 
can be bought back: 
(a) 25,000 
(b) 31,250 
(c) 28,750 
(d) 39,062 
 Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
4.  All of the following costs are excluded while computing value of inventories 
except? 
(a) Selling and Distribution costs 
(b) Allocated fixed production overheads based on normal capacity.   
(c) Abnormal wastage   
(d)  Storage costs (which is necessary part of the production process) 
(2 Marks) 
 
 
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