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

 Page 1


ANSWERS OF MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWER 
Division A (30 Marks)  
1.   (i) (a) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
2.  (i) (a) 
(ii) (c) 
(iii) (d) 
(iv) (b) 
3 (i) (b) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
4.  (b) 
5 (b) 
6 (a) 
Division B  
1. (a) As per AS 13 (Revised) ‘Accounting for Investments’, for investment in 
shares if the investment is purchased with an intention to hold for short-
term period (less than one year), then it will be classified as current 
investment and to be carried at lower of cost and fair value, i.e., in case 
of shares, at lower of cost (` 2,50,000) and market value (` 2,25,000) as 
on 31 March 2023, i.e., ` 2,25,000. 
 If equity shares are acquired with an intention to hold for long term period 
(more than one year), then should be considered as long-term 
investment to be shown at cost in the Balance Sheet of the company. 
However, provision for diminution should be made to recognise a 
decline, if other than temporary, in the value of the investments. 
 Gold and silver are generally purchased with an intention to hold it for 
long term period (more than one year) until and unless given otherwise. 
Hence, the investment in Gold and Silver (purchased on 1
st
 March, 2020) 
should continue to be shown at cost (since there is no ‘other than 
temporary’ diminution) as on 31
st
 March, 2023, i.e., ` 4,00,000 and ` 
2,00,000 respectively, though their market values have been increased.  
(b) As per AS 19 "Leases", the lessee should recognize the lease as an 
asset and a liability at the inception of a finance lease. Such recognition 
should be at an amount equal to the fair value of the leased asset at the 
291
Page 2


ANSWERS OF MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWER 
Division A (30 Marks)  
1.   (i) (a) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
2.  (i) (a) 
(ii) (c) 
(iii) (d) 
(iv) (b) 
3 (i) (b) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
4.  (b) 
5 (b) 
6 (a) 
Division B  
1. (a) As per AS 13 (Revised) ‘Accounting for Investments’, for investment in 
shares if the investment is purchased with an intention to hold for short-
term period (less than one year), then it will be classified as current 
investment and to be carried at lower of cost and fair value, i.e., in case 
of shares, at lower of cost (` 2,50,000) and market value (` 2,25,000) as 
on 31 March 2023, i.e., ` 2,25,000. 
 If equity shares are acquired with an intention to hold for long term period 
(more than one year), then should be considered as long-term 
investment to be shown at cost in the Balance Sheet of the company. 
However, provision for diminution should be made to recognise a 
decline, if other than temporary, in the value of the investments. 
 Gold and silver are generally purchased with an intention to hold it for 
long term period (more than one year) until and unless given otherwise. 
Hence, the investment in Gold and Silver (purchased on 1
st
 March, 2020) 
should continue to be shown at cost (since there is no ‘other than 
temporary’ diminution) as on 31
st
 March, 2023, i.e., ` 4,00,000 and ` 
2,00,000 respectively, though their market values have been increased.  
(b) As per AS 19 "Leases", the lessee should recognize the lease as an 
asset and a liability at the inception of a finance lease. Such recognition 
should be at an amount equal to the fair value of the leased asset at the 
291
inception of lease. However, if the fair value of the leased asset exceeds 
the present value of minimum lease payment from the standpoint of the 
lessee, the amount recorded as an asset and liability should be the 
present value of minimum lease payments from the standpoint of the 
lessee. 
Computation of Value of machinery: 
Present value of minimum lease payment = `   6,99,054  
(See working note below) 
Fair value of leased asset = `   7,00,000 
Therefore, the recognition will be at the lower of the two i.e. 6,99,054 
Working Note - Present value of minimum lease payments: 
Annual lease rental × PVIF+ Present value of guaranteed residual value 
= `  3,00,000 × (0.869 + 0.756 + 0.657) + `  22,000 × 0.657 
= `  6,84,600 + `  14,454  = 6,99,054 
Computation of finance charges: 
Year Finance 
charge 
Payment 
 
Reduction in 
outstanding 
liability 
Outstandin
g liability 
1
st
 Year 
beginning 
– – – 6,99,054 
End of 1
st
 year 1,04,858 3,00,000 1,95,142 5,03,912 
End of 2
nd
 year 75,587 3,00,000 2,24,413 2,79,499 
End of 3
rd
 year 41,925 3,00,000 2,58,075 21,424 
(c) Treatment of Impairment Loss 
 As per AS 28 “Impairment of assets”, if the recoverable amount (higher 
of net selling price and its value in use) of an asset is less than its 
carrying amount, the carrying amount of the asset should be reduced to 
its recoverable amount. In the given case, net selling price is ` 64.50 
lakhs (` 67.50 lakhs – ` 3 lakhs) and value in use is ` 60 lakhs. 
Therefore, recoverable amount will be ` 64.50 lakhs. Impairment loss 
will be calculated as ` 10.50 lakhs [` 75 lakhs (Carrying Amount after 
revaluation - Refer Working Note) less ` 64.50 lakhs (Recoverable 
Amount)].  
 Thus impairment loss of ` 10.50 lakhs should be recognised as an 
expense in the Statement of Profit and Loss immediately since there was 
downward revaluation of asset which was already charged to Statement 
of Profit and Loss.   
  
292
Page 3


ANSWERS OF MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWER 
Division A (30 Marks)  
1.   (i) (a) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
2.  (i) (a) 
(ii) (c) 
(iii) (d) 
(iv) (b) 
3 (i) (b) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
4.  (b) 
5 (b) 
6 (a) 
Division B  
1. (a) As per AS 13 (Revised) ‘Accounting for Investments’, for investment in 
shares if the investment is purchased with an intention to hold for short-
term period (less than one year), then it will be classified as current 
investment and to be carried at lower of cost and fair value, i.e., in case 
of shares, at lower of cost (` 2,50,000) and market value (` 2,25,000) as 
on 31 March 2023, i.e., ` 2,25,000. 
 If equity shares are acquired with an intention to hold for long term period 
(more than one year), then should be considered as long-term 
investment to be shown at cost in the Balance Sheet of the company. 
However, provision for diminution should be made to recognise a 
decline, if other than temporary, in the value of the investments. 
 Gold and silver are generally purchased with an intention to hold it for 
long term period (more than one year) until and unless given otherwise. 
Hence, the investment in Gold and Silver (purchased on 1
st
 March, 2020) 
should continue to be shown at cost (since there is no ‘other than 
temporary’ diminution) as on 31
st
 March, 2023, i.e., ` 4,00,000 and ` 
2,00,000 respectively, though their market values have been increased.  
(b) As per AS 19 "Leases", the lessee should recognize the lease as an 
asset and a liability at the inception of a finance lease. Such recognition 
should be at an amount equal to the fair value of the leased asset at the 
291
inception of lease. However, if the fair value of the leased asset exceeds 
the present value of minimum lease payment from the standpoint of the 
lessee, the amount recorded as an asset and liability should be the 
present value of minimum lease payments from the standpoint of the 
lessee. 
Computation of Value of machinery: 
Present value of minimum lease payment = `   6,99,054  
(See working note below) 
Fair value of leased asset = `   7,00,000 
Therefore, the recognition will be at the lower of the two i.e. 6,99,054 
Working Note - Present value of minimum lease payments: 
Annual lease rental × PVIF+ Present value of guaranteed residual value 
= `  3,00,000 × (0.869 + 0.756 + 0.657) + `  22,000 × 0.657 
= `  6,84,600 + `  14,454  = 6,99,054 
Computation of finance charges: 
Year Finance 
charge 
Payment 
 
Reduction in 
outstanding 
liability 
Outstandin
g liability 
1
st
 Year 
beginning 
– – – 6,99,054 
End of 1
st
 year 1,04,858 3,00,000 1,95,142 5,03,912 
End of 2
nd
 year 75,587 3,00,000 2,24,413 2,79,499 
End of 3
rd
 year 41,925 3,00,000 2,58,075 21,424 
(c) Treatment of Impairment Loss 
 As per AS 28 “Impairment of assets”, if the recoverable amount (higher 
of net selling price and its value in use) of an asset is less than its 
carrying amount, the carrying amount of the asset should be reduced to 
its recoverable amount. In the given case, net selling price is ` 64.50 
lakhs (` 67.50 lakhs – ` 3 lakhs) and value in use is ` 60 lakhs. 
Therefore, recoverable amount will be ` 64.50 lakhs. Impairment loss 
will be calculated as ` 10.50 lakhs [` 75 lakhs (Carrying Amount after 
revaluation - Refer Working Note) less ` 64.50 lakhs (Recoverable 
Amount)].  
 Thus impairment loss of ` 10.50 lakhs should be recognised as an 
expense in the Statement of Profit and Loss immediately since there was 
downward revaluation of asset which was already charged to Statement 
of Profit and Loss.   
  
292
 Working Note: 
 Calculation of carrying amount of the Property, Plant and 
Equipment at the end of the fourth year on revaluation 
 (` in lakhs) 
Purchase price of a Property, Plant and Equipment 150.00 
Less: Depreciation for four years [(150 lakhs / 10 
years) x 4 years] 
(60.00) 
Carrying value at the end of fourth year 90.00 
Less: Downward revaluation charged to profit and 
loss account 
(15.00) 
Revalued carrying amount   75.00 
2.     Delta Limited 
Balance Sheet as at 31
st
 March 2023 
Particulars Note No. (` in ‘000) 
A. Equity and Liabilities     
1. Shareholders’ funds     
 (a) Share Capital 1 495.00 
 (b) Reserves and Surplus 2 807.20 
2. Non-Current Liabilities     
 (a) Long Term Borrowings 3 300.00 
3. Current Liabilities     
 (a) Trade Payables   30.00 
 (b) Short- term provision  4 163.80 
     Total   1,796.00 
B. Assets     
1. Non-Current Assets     
 (a) Property, Plant and 
Equipment 
5 1,550.00 
2. Current Assets     
 (a)  Inventories   96.00 
 (b)  Trade Receivables  6 120.00 
 (c) Cash and Cash equivalents 7 30.00 
  Total   1,796.00 
Statement of Profit and Loss for the year ended 31
st
 March 2023 
Particulars Note No. (` in ‘000) 
I. Revenue from Operations   1200.00 
II. Other Income 8         6.00 
293
Page 4


ANSWERS OF MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWER 
Division A (30 Marks)  
1.   (i) (a) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
2.  (i) (a) 
(ii) (c) 
(iii) (d) 
(iv) (b) 
3 (i) (b) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
4.  (b) 
5 (b) 
6 (a) 
Division B  
1. (a) As per AS 13 (Revised) ‘Accounting for Investments’, for investment in 
shares if the investment is purchased with an intention to hold for short-
term period (less than one year), then it will be classified as current 
investment and to be carried at lower of cost and fair value, i.e., in case 
of shares, at lower of cost (` 2,50,000) and market value (` 2,25,000) as 
on 31 March 2023, i.e., ` 2,25,000. 
 If equity shares are acquired with an intention to hold for long term period 
(more than one year), then should be considered as long-term 
investment to be shown at cost in the Balance Sheet of the company. 
However, provision for diminution should be made to recognise a 
decline, if other than temporary, in the value of the investments. 
 Gold and silver are generally purchased with an intention to hold it for 
long term period (more than one year) until and unless given otherwise. 
Hence, the investment in Gold and Silver (purchased on 1
st
 March, 2020) 
should continue to be shown at cost (since there is no ‘other than 
temporary’ diminution) as on 31
st
 March, 2023, i.e., ` 4,00,000 and ` 
2,00,000 respectively, though their market values have been increased.  
(b) As per AS 19 "Leases", the lessee should recognize the lease as an 
asset and a liability at the inception of a finance lease. Such recognition 
should be at an amount equal to the fair value of the leased asset at the 
291
inception of lease. However, if the fair value of the leased asset exceeds 
the present value of minimum lease payment from the standpoint of the 
lessee, the amount recorded as an asset and liability should be the 
present value of minimum lease payments from the standpoint of the 
lessee. 
Computation of Value of machinery: 
Present value of minimum lease payment = `   6,99,054  
(See working note below) 
Fair value of leased asset = `   7,00,000 
Therefore, the recognition will be at the lower of the two i.e. 6,99,054 
Working Note - Present value of minimum lease payments: 
Annual lease rental × PVIF+ Present value of guaranteed residual value 
= `  3,00,000 × (0.869 + 0.756 + 0.657) + `  22,000 × 0.657 
= `  6,84,600 + `  14,454  = 6,99,054 
Computation of finance charges: 
Year Finance 
charge 
Payment 
 
Reduction in 
outstanding 
liability 
Outstandin
g liability 
1
st
 Year 
beginning 
– – – 6,99,054 
End of 1
st
 year 1,04,858 3,00,000 1,95,142 5,03,912 
End of 2
nd
 year 75,587 3,00,000 2,24,413 2,79,499 
End of 3
rd
 year 41,925 3,00,000 2,58,075 21,424 
(c) Treatment of Impairment Loss 
 As per AS 28 “Impairment of assets”, if the recoverable amount (higher 
of net selling price and its value in use) of an asset is less than its 
carrying amount, the carrying amount of the asset should be reduced to 
its recoverable amount. In the given case, net selling price is ` 64.50 
lakhs (` 67.50 lakhs – ` 3 lakhs) and value in use is ` 60 lakhs. 
Therefore, recoverable amount will be ` 64.50 lakhs. Impairment loss 
will be calculated as ` 10.50 lakhs [` 75 lakhs (Carrying Amount after 
revaluation - Refer Working Note) less ` 64.50 lakhs (Recoverable 
Amount)].  
 Thus impairment loss of ` 10.50 lakhs should be recognised as an 
expense in the Statement of Profit and Loss immediately since there was 
downward revaluation of asset which was already charged to Statement 
of Profit and Loss.   
  
292
 Working Note: 
 Calculation of carrying amount of the Property, Plant and 
Equipment at the end of the fourth year on revaluation 
 (` in lakhs) 
Purchase price of a Property, Plant and Equipment 150.00 
Less: Depreciation for four years [(150 lakhs / 10 
years) x 4 years] 
(60.00) 
Carrying value at the end of fourth year 90.00 
Less: Downward revaluation charged to profit and 
loss account 
(15.00) 
Revalued carrying amount   75.00 
2.     Delta Limited 
Balance Sheet as at 31
st
 March 2023 
Particulars Note No. (` in ‘000) 
A. Equity and Liabilities     
1. Shareholders’ funds     
 (a) Share Capital 1 495.00 
 (b) Reserves and Surplus 2 807.20 
2. Non-Current Liabilities     
 (a) Long Term Borrowings 3 300.00 
3. Current Liabilities     
 (a) Trade Payables   30.00 
 (b) Short- term provision  4 163.80 
     Total   1,796.00 
B. Assets     
1. Non-Current Assets     
 (a) Property, Plant and 
Equipment 
5 1,550.00 
2. Current Assets     
 (a)  Inventories   96.00 
 (b)  Trade Receivables  6 120.00 
 (c) Cash and Cash equivalents 7 30.00 
  Total   1,796.00 
Statement of Profit and Loss for the year ended 31
st
 March 2023 
Particulars Note No. (` in ‘000) 
I. Revenue from Operations   1200.00 
II. Other Income 8         6.00 
293
III. Total Income (I +II)   1,206.00 
IV. Expenses:     
 Purchases (adjusted)   400.00 
 Finance Costs 9 30.00 
 Depreciation (10% of 800)   80.00 
 Other expenses 10 150.00 
 Total Expenses   660.00 
V. Profit / (Loss) for the period before 
tax (III – IV) 
  546.00 
VI.  Tax expenses @30%  163.80 
VII  Profit for the period  382.20 
 Notes to Accounts 
  Particulars   (` in ‘000) 
1 Share Capital   
 Equity Share Capital   
 Authorised   
       80,000 Shares of ` 10/- each   800 
 Issued, Subscribed and Called-up   
        50,000 Shares of ` 10/- each 500  
 
(Out of the above 5,000 shares have been 
issued for consideration other than cash) 
 
 
 Less: Calls in arrears (5) 495 
2 Reserves and Surplus  
 
 Securities Premium   40.00 
 Revaluation Reserve ` (960 – 800)  160.00 
 General Reserve  150.00 
 Surplus i.e. Profit & Loss Account Balance   
      Opening Balance 75.00  
      Add: Profit for the period 382.20 457.20 
     807.20 
3 Long-Term Borrowings  
 
 
      10% Debentures  300 
4.  Short – term provision   
  Provision for tax  163.80 
5 Property, plant & equipment  
  
  Land 
  
           Opening Balance 800  
           Add: Revaluation adjustment 160  
           Closing Balance  960 
294
Page 5


ANSWERS OF MODEL TEST PAPER 1 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWER 
Division A (30 Marks)  
1.   (i) (a) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
2.  (i) (a) 
(ii) (c) 
(iii) (d) 
(iv) (b) 
3 (i) (b) 
(ii) (d) 
(iii) (c) 
(iv) (c) 
4.  (b) 
5 (b) 
6 (a) 
Division B  
1. (a) As per AS 13 (Revised) ‘Accounting for Investments’, for investment in 
shares if the investment is purchased with an intention to hold for short-
term period (less than one year), then it will be classified as current 
investment and to be carried at lower of cost and fair value, i.e., in case 
of shares, at lower of cost (` 2,50,000) and market value (` 2,25,000) as 
on 31 March 2023, i.e., ` 2,25,000. 
 If equity shares are acquired with an intention to hold for long term period 
(more than one year), then should be considered as long-term 
investment to be shown at cost in the Balance Sheet of the company. 
However, provision for diminution should be made to recognise a 
decline, if other than temporary, in the value of the investments. 
 Gold and silver are generally purchased with an intention to hold it for 
long term period (more than one year) until and unless given otherwise. 
Hence, the investment in Gold and Silver (purchased on 1
st
 March, 2020) 
should continue to be shown at cost (since there is no ‘other than 
temporary’ diminution) as on 31
st
 March, 2023, i.e., ` 4,00,000 and ` 
2,00,000 respectively, though their market values have been increased.  
(b) As per AS 19 "Leases", the lessee should recognize the lease as an 
asset and a liability at the inception of a finance lease. Such recognition 
should be at an amount equal to the fair value of the leased asset at the 
291
inception of lease. However, if the fair value of the leased asset exceeds 
the present value of minimum lease payment from the standpoint of the 
lessee, the amount recorded as an asset and liability should be the 
present value of minimum lease payments from the standpoint of the 
lessee. 
Computation of Value of machinery: 
Present value of minimum lease payment = `   6,99,054  
(See working note below) 
Fair value of leased asset = `   7,00,000 
Therefore, the recognition will be at the lower of the two i.e. 6,99,054 
Working Note - Present value of minimum lease payments: 
Annual lease rental × PVIF+ Present value of guaranteed residual value 
= `  3,00,000 × (0.869 + 0.756 + 0.657) + `  22,000 × 0.657 
= `  6,84,600 + `  14,454  = 6,99,054 
Computation of finance charges: 
Year Finance 
charge 
Payment 
 
Reduction in 
outstanding 
liability 
Outstandin
g liability 
1
st
 Year 
beginning 
– – – 6,99,054 
End of 1
st
 year 1,04,858 3,00,000 1,95,142 5,03,912 
End of 2
nd
 year 75,587 3,00,000 2,24,413 2,79,499 
End of 3
rd
 year 41,925 3,00,000 2,58,075 21,424 
(c) Treatment of Impairment Loss 
 As per AS 28 “Impairment of assets”, if the recoverable amount (higher 
of net selling price and its value in use) of an asset is less than its 
carrying amount, the carrying amount of the asset should be reduced to 
its recoverable amount. In the given case, net selling price is ` 64.50 
lakhs (` 67.50 lakhs – ` 3 lakhs) and value in use is ` 60 lakhs. 
Therefore, recoverable amount will be ` 64.50 lakhs. Impairment loss 
will be calculated as ` 10.50 lakhs [` 75 lakhs (Carrying Amount after 
revaluation - Refer Working Note) less ` 64.50 lakhs (Recoverable 
Amount)].  
 Thus impairment loss of ` 10.50 lakhs should be recognised as an 
expense in the Statement of Profit and Loss immediately since there was 
downward revaluation of asset which was already charged to Statement 
of Profit and Loss.   
  
292
 Working Note: 
 Calculation of carrying amount of the Property, Plant and 
Equipment at the end of the fourth year on revaluation 
 (` in lakhs) 
Purchase price of a Property, Plant and Equipment 150.00 
Less: Depreciation for four years [(150 lakhs / 10 
years) x 4 years] 
(60.00) 
Carrying value at the end of fourth year 90.00 
Less: Downward revaluation charged to profit and 
loss account 
(15.00) 
Revalued carrying amount   75.00 
2.     Delta Limited 
Balance Sheet as at 31
st
 March 2023 
Particulars Note No. (` in ‘000) 
A. Equity and Liabilities     
1. Shareholders’ funds     
 (a) Share Capital 1 495.00 
 (b) Reserves and Surplus 2 807.20 
2. Non-Current Liabilities     
 (a) Long Term Borrowings 3 300.00 
3. Current Liabilities     
 (a) Trade Payables   30.00 
 (b) Short- term provision  4 163.80 
     Total   1,796.00 
B. Assets     
1. Non-Current Assets     
 (a) Property, Plant and 
Equipment 
5 1,550.00 
2. Current Assets     
 (a)  Inventories   96.00 
 (b)  Trade Receivables  6 120.00 
 (c) Cash and Cash equivalents 7 30.00 
  Total   1,796.00 
Statement of Profit and Loss for the year ended 31
st
 March 2023 
Particulars Note No. (` in ‘000) 
I. Revenue from Operations   1200.00 
II. Other Income 8         6.00 
293
III. Total Income (I +II)   1,206.00 
IV. Expenses:     
 Purchases (adjusted)   400.00 
 Finance Costs 9 30.00 
 Depreciation (10% of 800)   80.00 
 Other expenses 10 150.00 
 Total Expenses   660.00 
V. Profit / (Loss) for the period before 
tax (III – IV) 
  546.00 
VI.  Tax expenses @30%  163.80 
VII  Profit for the period  382.20 
 Notes to Accounts 
  Particulars   (` in ‘000) 
1 Share Capital   
 Equity Share Capital   
 Authorised   
       80,000 Shares of ` 10/- each   800 
 Issued, Subscribed and Called-up   
        50,000 Shares of ` 10/- each 500  
 
(Out of the above 5,000 shares have been 
issued for consideration other than cash) 
 
 
 Less: Calls in arrears (5) 495 
2 Reserves and Surplus  
 
 Securities Premium   40.00 
 Revaluation Reserve ` (960 – 800)  160.00 
 General Reserve  150.00 
 Surplus i.e. Profit & Loss Account Balance   
      Opening Balance 75.00  
      Add: Profit for the period 382.20 457.20 
     807.20 
3 Long-Term Borrowings  
 
 
      10% Debentures  300 
4.  Short – term provision   
  Provision for tax  163.80 
5 Property, plant & equipment  
  
  Land 
  
           Opening Balance 800  
           Add: Revaluation adjustment 160  
           Closing Balance  960 
294
 Plant and Machinery 
 
 
            Opening Balance 824  
            Less: Disposed off (24)  
   800  
 
           Less: Depreciation ` (150 – 20 + 
  80) 
(210) 
 
            Closing Balance        590 
 Total      1,550 
6 Trade receivables   
 
Debits outstanding for a period exceeding 
six months 
50  
 Other debts 70 120 
7 Cash and Cash Equivalents     
 
      Cash at Bank With scheduled 
 banks 
23   
       With others (ABC Bank Limited) 5   
       Cash in hand   2 30 
8 Other Income   
 
     Profit on sale of machinery 
  
             Sale value of machinery 10   
 
            Less: Book value of machinery 
   (24 – 20) 
(4) 6 
9 Finance Costs     
 
             Debenture Interest   30 
10 Other Expenses: 
  
  Factory expenses 80   
  Selling expenses 25   
  Administrative expenses     45 150 
3. (a) As per AS 9 on Revenue Recognition, revenue arising from the use by 
others of enterprise resources yielding interest and royalties should only 
be recognized  when no significant uncertainty as to measurability or 
collectability exists. These  revenues are recognized on the following 
bases: 
(i)  Interest: on a time proportion basis taking into account the amount 
outstanding and the rate applicable. Therefore X Ltd. should 
recognize interest revenue of ` 10 Lakhs. 
(ii)  Royalties: on an accrual basis in accordance with the terms of the 
relevant agreement. X Ltd. therefore should recognize royalty 
revenue of ` 15 Lakhs. 
  
295