Advanced Accounting (Group I) Model Test Paper - 4 (Questions) - CA Intermediate PDF Download

 Page 1


MODEL TEST PAPER 4 
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. Super Ltd., a manufacturing company, has the following summarized Balance 
Sheet as of March 31, 2024: 
Equity Shares of ` 10 each fully paid up: ` 17,00,000 
Reserves & Surplus: 
Revenue Reserve: ` 23,50,000 
Securities Premium: ` 2,50,000 
Profit & Loss Account: ` 2,00,000 
Infrastructure Development Reserve: ` 1,50,000 
Secured Loan: 
9% Debentures: ` 38,00,000 
Unsecured Loan: ` 8,50,000 
Property, Plant & Equipment: ` 58,50,000 
Current Assets: ` 34,50,000 
 Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up 
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles, 
and necessary resolutions have been passed. The payment for the buyback 
will be made using the company's bank balance, which is part of its current 
assets. 
 Answer the following questions based on the above information: 
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of 
shares in any financial year must not exceed 
i 20% of its total paid-up capital and free reserves 
ii 25% of its total paid-up capital and free reserves 
iii 25% of its total paid-up capital  
iv 20% of its total paid-up capital  
 
35
Page 2


MODEL TEST PAPER 4 
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. Super Ltd., a manufacturing company, has the following summarized Balance 
Sheet as of March 31, 2024: 
Equity Shares of ` 10 each fully paid up: ` 17,00,000 
Reserves & Surplus: 
Revenue Reserve: ` 23,50,000 
Securities Premium: ` 2,50,000 
Profit & Loss Account: ` 2,00,000 
Infrastructure Development Reserve: ` 1,50,000 
Secured Loan: 
9% Debentures: ` 38,00,000 
Unsecured Loan: ` 8,50,000 
Property, Plant & Equipment: ` 58,50,000 
Current Assets: ` 34,50,000 
 Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up 
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles, 
and necessary resolutions have been passed. The payment for the buyback 
will be made using the company's bank balance, which is part of its current 
assets. 
 Answer the following questions based on the above information: 
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of 
shares in any financial year must not exceed 
i 20% of its total paid-up capital and free reserves 
ii 25% of its total paid-up capital and free reserves 
iii 25% of its total paid-up capital  
iv 20% of its total paid-up capital  
 
35
 
(b) How many shares can Super Ltd. buy back according to the Shares 
Outstanding Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(c) What is the maximum number of shares that can be bought back 
according to the Resources Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(d) According to the Debt Equity Ratio Test, what is the maximum number 
of shares that can be bought back? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2. Venus Limited received a parcel of land at no cost from the government for 
the purpose of developing a factory in an outlying area. The land is valued at 
` 75 lakhs, while the nominal value is ` 10 lakhs. Additionally, the company 
received a government grant of ` 30 lakhs, which represents 25% of the total 
investment needed for the factory development. Furthermore, the company 
received ` 15 lakhs with the stipulation that it be used to purchase machinery. 
There is no expectation from the government for the repayment of these 
grants.  
Answer the following questions based on the above information: 
(a) The land received from Government, free of cost should be presented 
at: 
(i) ` 75 Lakhs 
(ii) ` 30 Lakhs   
(iii) ` 10 Lakhs   
(iv) ` 45 Lakhs    
(b) As per AS 12, how the Government Grant of ` 30 Lakhs should be 
presented: 
(i) It should be recognised in the profit and loss statement as per the 
related cost.   
36
Page 3


MODEL TEST PAPER 4 
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. Super Ltd., a manufacturing company, has the following summarized Balance 
Sheet as of March 31, 2024: 
Equity Shares of ` 10 each fully paid up: ` 17,00,000 
Reserves & Surplus: 
Revenue Reserve: ` 23,50,000 
Securities Premium: ` 2,50,000 
Profit & Loss Account: ` 2,00,000 
Infrastructure Development Reserve: ` 1,50,000 
Secured Loan: 
9% Debentures: ` 38,00,000 
Unsecured Loan: ` 8,50,000 
Property, Plant & Equipment: ` 58,50,000 
Current Assets: ` 34,50,000 
 Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up 
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles, 
and necessary resolutions have been passed. The payment for the buyback 
will be made using the company's bank balance, which is part of its current 
assets. 
 Answer the following questions based on the above information: 
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of 
shares in any financial year must not exceed 
i 20% of its total paid-up capital and free reserves 
ii 25% of its total paid-up capital and free reserves 
iii 25% of its total paid-up capital  
iv 20% of its total paid-up capital  
 
35
 
(b) How many shares can Super Ltd. buy back according to the Shares 
Outstanding Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(c) What is the maximum number of shares that can be bought back 
according to the Resources Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(d) According to the Debt Equity Ratio Test, what is the maximum number 
of shares that can be bought back? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2. Venus Limited received a parcel of land at no cost from the government for 
the purpose of developing a factory in an outlying area. The land is valued at 
` 75 lakhs, while the nominal value is ` 10 lakhs. Additionally, the company 
received a government grant of ` 30 lakhs, which represents 25% of the total 
investment needed for the factory development. Furthermore, the company 
received ` 15 lakhs with the stipulation that it be used to purchase machinery. 
There is no expectation from the government for the repayment of these 
grants.  
Answer the following questions based on the above information: 
(a) The land received from Government, free of cost should be presented 
at: 
(i) ` 75 Lakhs 
(ii) ` 30 Lakhs   
(iii) ` 10 Lakhs   
(iv) ` 45 Lakhs    
(b) As per AS 12, how the Government Grant of ` 30 Lakhs should be 
presented: 
(i) It should be recognised in the profit and loss statement as per the 
related cost.   
36
(ii) It will be treated as capital reserve.
(iii) It will be treated as deferred income.
(iv) It will not be recognised in the financial statements.
(c) As per AS 12, how the Government Grant of ` 15 Lakhs with a condition
to purchase machinery may be presented as:
(i) Capital Reserve
(ii) Shareholders Fund
(iii) Deferred Income
(iv) Income in statement of profit and loss as received.
(d) Which of the above grants are required to be recognised in the statement
of profit and loss on a systematic and rational basis over the useful life
of the asset:
(i) Land received as Grant
(ii) Government Grant of ` 30 Lakhs
(iii) Government Grant of ` 15 Lakhs with a condition to purchase
machinery
(iv) Noe of the above
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
3. Axis limited is a manufacturing company. It purchased a machinery costing
` 10 Lakhs in April 2023. It paid ` 4 lakhs upfront and paid the remaining
` 6,00,000 as deferred payment by paying instalment of ` 1,05,000 for the
next 6 months.  During the year, the Company sold a land which was classified
as its ‘property, plant and equipment’ for ` 25,00,000 and paid ` 1,00,000 as
income tax as long term capital gain on such sale. During the year, the
Company also received income tax refund along with interest.
(a) As per the requirements of AS 3, ‘Cash Flow Statements’, how the
amount for purchase of machinery should be presented:
(i) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000
will simply be booked in profit and loss with no presentation if Cash
Flow Statement.
(ii) ` 10.30 lakhs as ‘Cash flows from Investing Activities’ as entire
amount is spend on purchase of machinery.
(iii) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000 as
‘Cash flows from Financing Activities’.
(iv) ` 10.30 lakhs as ‘Cash flows from Financing Activities’ as the
machinery has been purchased on finance.
(b) At what amount, the machinery should be recognised in the financial
statements:
(i) ` 400,000
(ii) ` 10,30,000
37
Page 4


MODEL TEST PAPER 4 
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. Super Ltd., a manufacturing company, has the following summarized Balance 
Sheet as of March 31, 2024: 
Equity Shares of ` 10 each fully paid up: ` 17,00,000 
Reserves & Surplus: 
Revenue Reserve: ` 23,50,000 
Securities Premium: ` 2,50,000 
Profit & Loss Account: ` 2,00,000 
Infrastructure Development Reserve: ` 1,50,000 
Secured Loan: 
9% Debentures: ` 38,00,000 
Unsecured Loan: ` 8,50,000 
Property, Plant & Equipment: ` 58,50,000 
Current Assets: ` 34,50,000 
 Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up 
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles, 
and necessary resolutions have been passed. The payment for the buyback 
will be made using the company's bank balance, which is part of its current 
assets. 
 Answer the following questions based on the above information: 
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of 
shares in any financial year must not exceed 
i 20% of its total paid-up capital and free reserves 
ii 25% of its total paid-up capital and free reserves 
iii 25% of its total paid-up capital  
iv 20% of its total paid-up capital  
 
35
 
(b) How many shares can Super Ltd. buy back according to the Shares 
Outstanding Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(c) What is the maximum number of shares that can be bought back 
according to the Resources Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(d) According to the Debt Equity Ratio Test, what is the maximum number 
of shares that can be bought back? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2. Venus Limited received a parcel of land at no cost from the government for 
the purpose of developing a factory in an outlying area. The land is valued at 
` 75 lakhs, while the nominal value is ` 10 lakhs. Additionally, the company 
received a government grant of ` 30 lakhs, which represents 25% of the total 
investment needed for the factory development. Furthermore, the company 
received ` 15 lakhs with the stipulation that it be used to purchase machinery. 
There is no expectation from the government for the repayment of these 
grants.  
Answer the following questions based on the above information: 
(a) The land received from Government, free of cost should be presented 
at: 
(i) ` 75 Lakhs 
(ii) ` 30 Lakhs   
(iii) ` 10 Lakhs   
(iv) ` 45 Lakhs    
(b) As per AS 12, how the Government Grant of ` 30 Lakhs should be 
presented: 
(i) It should be recognised in the profit and loss statement as per the 
related cost.   
36
(ii) It will be treated as capital reserve.
(iii) It will be treated as deferred income.
(iv) It will not be recognised in the financial statements.
(c) As per AS 12, how the Government Grant of ` 15 Lakhs with a condition
to purchase machinery may be presented as:
(i) Capital Reserve
(ii) Shareholders Fund
(iii) Deferred Income
(iv) Income in statement of profit and loss as received.
(d) Which of the above grants are required to be recognised in the statement
of profit and loss on a systematic and rational basis over the useful life
of the asset:
(i) Land received as Grant
(ii) Government Grant of ` 30 Lakhs
(iii) Government Grant of ` 15 Lakhs with a condition to purchase
machinery
(iv) Noe of the above
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
3. Axis limited is a manufacturing company. It purchased a machinery costing
` 10 Lakhs in April 2023. It paid ` 4 lakhs upfront and paid the remaining
` 6,00,000 as deferred payment by paying instalment of ` 1,05,000 for the
next 6 months.  During the year, the Company sold a land which was classified
as its ‘property, plant and equipment’ for ` 25,00,000 and paid ` 1,00,000 as
income tax as long term capital gain on such sale. During the year, the
Company also received income tax refund along with interest.
(a) As per the requirements of AS 3, ‘Cash Flow Statements’, how the
amount for purchase of machinery should be presented:
(i) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000
will simply be booked in profit and loss with no presentation if Cash
Flow Statement.
(ii) ` 10.30 lakhs as ‘Cash flows from Investing Activities’ as entire
amount is spend on purchase of machinery.
(iii) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000 as
‘Cash flows from Financing Activities’.
(iv) ` 10.30 lakhs as ‘Cash flows from Financing Activities’ as the
machinery has been purchased on finance.
(b) At what amount, the machinery should be recognised in the financial
statements:
(i) ` 400,000
(ii) ` 10,30,000
37
(iii) ` 600,000
(iv) ` 10,00,000
(c) How should the income tax paid on sale of land should be disclosed in
the Cash Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
(d) How should the interest on income tax refunds should be disclosed in
the Cash Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
Multiple Choice Questions [4 MCQs of 2 Marks each: Total8 Marks] 
4. Gyan Ltd. borrowed ` 10 crore for construction of a plant at the rate of 10%
per annum (interest paid annually ` 1 crore). The construction was being
carried on and out of the borrowings, ` 4 crore was temporarily placed in a
fixed deposit at the rate of 6% per annum (interest earned ` 24 lakh). At the
year end, how much cost of borrowing Gyan Limited will capitalise?
(a) Interest paid on ` 10 crore i.e. ` 1 crore
(b) Interest paid on ` 6 crore as only this amount was utilized i.e. ` 60 Lakh.
(c) Interest paid less income on temporary investment i.e. ` 76 lakh
(d) Nothing will be capitalised. (2 Marks) 
5. Cost of current investment acquired was ` 1,00,000 but the fair value was
` 80,000. The Investment was recorded at ` 80,000. Now the fair value of
Investment is Rs 1,20,000. At what value should it be recorded and how much
gain will be credited to profit and loss account.
(a) No change is required and it will continue at ` 80,000
(b) Current investment will be recorded at ` 1,00,000 and gain of ` 20,000
will be credited to profit and loss account.
(c) Current investment will be recorded at ` 1,20,000 and gain of ` 40,000
will be credited to profit and loss account.
(d) Current investment will be recorded at ` 1,20,000 but no gain will be
credited to profit and loss account.  (2 Marks)
6. In determining the cost of inventories, it is appropriate to exclude certain costs
and recognise them as expenses in the period in which they are incurred.
Which of the following is not an examples of such costs:
38
Page 5


MODEL TEST PAPER 4 
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. Super Ltd., a manufacturing company, has the following summarized Balance 
Sheet as of March 31, 2024: 
Equity Shares of ` 10 each fully paid up: ` 17,00,000 
Reserves & Surplus: 
Revenue Reserve: ` 23,50,000 
Securities Premium: ` 2,50,000 
Profit & Loss Account: ` 2,00,000 
Infrastructure Development Reserve: ` 1,50,000 
Secured Loan: 
9% Debentures: ` 38,00,000 
Unsecured Loan: ` 8,50,000 
Property, Plant & Equipment: ` 58,50,000 
Current Assets: ` 34,50,000 
 Super Ltd. plans to buy back 35,000 equity shares of ` 10 each fully paid up 
on April 1, 2024, at ` 30 per share. The buyback is authorized by its articles, 
and necessary resolutions have been passed. The payment for the buyback 
will be made using the company's bank balance, which is part of its current 
assets. 
 Answer the following questions based on the above information: 
(a) As per The Companies Act, 2013 under Section 68 (2) the buy-back of 
shares in any financial year must not exceed 
i 20% of its total paid-up capital and free reserves 
ii 25% of its total paid-up capital and free reserves 
iii 25% of its total paid-up capital  
iv 20% of its total paid-up capital  
 
35
 
(b) How many shares can Super Ltd. buy back according to the Shares 
Outstanding Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(c) What is the maximum number of shares that can be bought back 
according to the Resources Test? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
(d) According to the Debt Equity Ratio Test, what is the maximum number 
of shares that can be bought back? 
(i)  35,000 shares 
(ii)  42,500 shares 
(iii)  37,500 shares 
(iv)  54,375 shares 
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
2. Venus Limited received a parcel of land at no cost from the government for 
the purpose of developing a factory in an outlying area. The land is valued at 
` 75 lakhs, while the nominal value is ` 10 lakhs. Additionally, the company 
received a government grant of ` 30 lakhs, which represents 25% of the total 
investment needed for the factory development. Furthermore, the company 
received ` 15 lakhs with the stipulation that it be used to purchase machinery. 
There is no expectation from the government for the repayment of these 
grants.  
Answer the following questions based on the above information: 
(a) The land received from Government, free of cost should be presented 
at: 
(i) ` 75 Lakhs 
(ii) ` 30 Lakhs   
(iii) ` 10 Lakhs   
(iv) ` 45 Lakhs    
(b) As per AS 12, how the Government Grant of ` 30 Lakhs should be 
presented: 
(i) It should be recognised in the profit and loss statement as per the 
related cost.   
36
(ii) It will be treated as capital reserve.
(iii) It will be treated as deferred income.
(iv) It will not be recognised in the financial statements.
(c) As per AS 12, how the Government Grant of ` 15 Lakhs with a condition
to purchase machinery may be presented as:
(i) Capital Reserve
(ii) Shareholders Fund
(iii) Deferred Income
(iv) Income in statement of profit and loss as received.
(d) Which of the above grants are required to be recognised in the statement
of profit and loss on a systematic and rational basis over the useful life
of the asset:
(i) Land received as Grant
(ii) Government Grant of ` 30 Lakhs
(iii) Government Grant of ` 15 Lakhs with a condition to purchase
machinery
(iv) Noe of the above
Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 
3. Axis limited is a manufacturing company. It purchased a machinery costing
` 10 Lakhs in April 2023. It paid ` 4 lakhs upfront and paid the remaining
` 6,00,000 as deferred payment by paying instalment of ` 1,05,000 for the
next 6 months.  During the year, the Company sold a land which was classified
as its ‘property, plant and equipment’ for ` 25,00,000 and paid ` 1,00,000 as
income tax as long term capital gain on such sale. During the year, the
Company also received income tax refund along with interest.
(a) As per the requirements of AS 3, ‘Cash Flow Statements’, how the
amount for purchase of machinery should be presented:
(i) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000
will simply be booked in profit and loss with no presentation if Cash
Flow Statement.
(ii) ` 10.30 lakhs as ‘Cash flows from Investing Activities’ as entire
amount is spend on purchase of machinery.
(iii) ` 10 lakhs as ‘Cash flows from Investing Activities’ and ` 30,000 as
‘Cash flows from Financing Activities’.
(iv) ` 10.30 lakhs as ‘Cash flows from Financing Activities’ as the
machinery has been purchased on finance.
(b) At what amount, the machinery should be recognised in the financial
statements:
(i) ` 400,000
(ii) ` 10,30,000
37
(iii) ` 600,000
(iv) ` 10,00,000
(c) How should the income tax paid on sale of land should be disclosed in
the Cash Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
(d) How should the interest on income tax refunds should be disclosed in
the Cash Flows Statement:
(i) Cash flows from Operating Activities
(ii) Cash flows from Investing Activities
(iii) Cash flows from Financing Activities
(iv) No disclosure in Cash Flow Statement
Multiple Choice Questions [4 MCQs of 2 Marks each: Total8 Marks] 
4. Gyan Ltd. borrowed ` 10 crore for construction of a plant at the rate of 10%
per annum (interest paid annually ` 1 crore). The construction was being
carried on and out of the borrowings, ` 4 crore was temporarily placed in a
fixed deposit at the rate of 6% per annum (interest earned ` 24 lakh). At the
year end, how much cost of borrowing Gyan Limited will capitalise?
(a) Interest paid on ` 10 crore i.e. ` 1 crore
(b) Interest paid on ` 6 crore as only this amount was utilized i.e. ` 60 Lakh.
(c) Interest paid less income on temporary investment i.e. ` 76 lakh
(d) Nothing will be capitalised. (2 Marks) 
5. Cost of current investment acquired was ` 1,00,000 but the fair value was
` 80,000. The Investment was recorded at ` 80,000. Now the fair value of
Investment is Rs 1,20,000. At what value should it be recorded and how much
gain will be credited to profit and loss account.
(a) No change is required and it will continue at ` 80,000
(b) Current investment will be recorded at ` 1,00,000 and gain of ` 20,000
will be credited to profit and loss account.
(c) Current investment will be recorded at ` 1,20,000 and gain of ` 40,000
will be credited to profit and loss account.
(d) Current investment will be recorded at ` 1,20,000 but no gain will be
credited to profit and loss account.  (2 Marks)
6. In determining the cost of inventories, it is appropriate to exclude certain costs
and recognise them as expenses in the period in which they are incurred.
Which of the following is not an examples of such costs:
38
(a) Abnormal amounts of wasted materials, labour, or other production
costs;
(b) Storage costs, unless the production process requires such storage;
(c) Raw Material cost
(d) Selling and distribution costs. (2 Marks) 
PART II – Descriptive Questions (70 Marks) 
Question No.1 is compulsory 
Answer any four questions from the remaining five questions. 
Wherever necessary, suitable assumptions may be made and indicated in answer 
by the candidates. Working Notes should form part of the answer. 
1. (a)  On 15
th
 June, 2024, Y limited wants to re-classify its investments in
accordance with AS 13 (revised). Decide and state the amount of 
transfer, based on the following information: 
i) A portion of long term investments purchased on 1
st
 March, 2023 
are to be re-classified as current investments. The original cost of 
these investments was ` 14 lakhs but had been written down by 
` 2 lakhs (to recognise 'other than temporary' decline in value). The 
market value of these investments on 15
th
 June, 2024 was ` 11 
lakhs.
ii) Another portion of long term investments purchased on 
15
th
 January, 2023 are to be re-classified as current investments. 
The original cost of these investments was ` 7 lakhs but had been 
written down to ` 5 lakhs (to recognize 'other than temporary' 
decline in value). The fair value of these investments on 15
th
 June, 
2024 was ` 4.5 lakhs.
iii) A portion of current investments purchased on 15
th
 March, 2024 for 
` 7 lakhs are to be re-classified as long term investments, as the 
company has decided to retain them. The market value of these 
investments on 31
st
 March, 2024 was ` 6 lakhs and fair value on 
15th June 2024 was ` 8.5 lakhs.
iv) Another portion of current investments purchased on 7
th
 December, 
2023 for ` 4 lakhs are to be re-classified as long term investments. 
The market value of these investments was:
on 31st March, 2024 ` 3.5 lakhs 
on 15th June, 2024 ` 3.8 lakhs (7 Marks) 
(b) The financial statements of PQ Ltd. for the year 2023-24 approved by
the Board of Directors on 15
th
 July, 2024. The following information was
provided:
(i) A suit against the company's advertisement was filed by a party on
20th April, 2024, claiming damages of ` 25 lakhs.
39