Advanced Accounting (Group I) Model Test Paper - 2 (Answers) - CA Intermediate PDF Download

 Page 1


ANSWER OF MODEL TEST PAPER 2 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
1. (i) (c) 
(ii) (b)
(iii) (c)
(iv) (d)
2. (i) (a)
(ii) (a)
(iii) (b)
(iv) (a)
(v) (b)
3. (i) (b)
(ii) (a)
(iii) (b)
4. (a)
5. (d)
6. (a)
PART II – Descriptive Questions (70 Marks) 
1. (a) As per AS 26 “Intangible Assets”, expenditure on research should be
recognized as an expense when it is incurred.  An intangible asset 
arising from development (or from the development phase of an internal 
project) should be recognized if, and only if, an enterprise can 
demonstrate all of the conditions specified in para 44 of the standard. 
An intangible asset (arising from development) should be derecognised 
when no future economic benefits are expected from its use according 
to para 87 of the standard.  Thus, the manager cannot defer the 
expenditure write off to future years in the given case.  
Hence, the expenses amounting ` 40 lakhs incurred on the research and 
development project has to be written off in the current year ending 
31
st
 March, 2024.  
(b) (i) As per AS 2 ‘Valuation of Inventories’, abnormal amounts of wasted 
materials, labour and other production costs are excluded from cost 
of inventories and such costs are recognised as expenses in the 
period in which they are incurred. The normal loss will be included 
in determining the cost of inventories (finished goods) at the year 
end. 
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000 
304
Page 2


ANSWER OF MODEL TEST PAPER 2 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
1. (i) (c) 
(ii) (b)
(iii) (c)
(iv) (d)
2. (i) (a)
(ii) (a)
(iii) (b)
(iv) (a)
(v) (b)
3. (i) (b)
(ii) (a)
(iii) (b)
4. (a)
5. (d)
6. (a)
PART II – Descriptive Questions (70 Marks) 
1. (a) As per AS 26 “Intangible Assets”, expenditure on research should be
recognized as an expense when it is incurred.  An intangible asset 
arising from development (or from the development phase of an internal 
project) should be recognized if, and only if, an enterprise can 
demonstrate all of the conditions specified in para 44 of the standard. 
An intangible asset (arising from development) should be derecognised 
when no future economic benefits are expected from its use according 
to para 87 of the standard.  Thus, the manager cannot defer the 
expenditure write off to future years in the given case.  
Hence, the expenses amounting ` 40 lakhs incurred on the research and 
development project has to be written off in the current year ending 
31
st
 March, 2024.  
(b) (i) As per AS 2 ‘Valuation of Inventories’, abnormal amounts of wasted 
materials, labour and other production costs are excluded from cost 
of inventories and such costs are recognised as expenses in the 
period in which they are incurred. The normal loss will be included 
in determining the cost of inventories (finished goods) at the year 
end. 
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000 
304
Normal Loss (5% of 16,000 MT) 800 MT (included 
in calculation of cost of inventories) 
Net quantity of material 15,200 MT 
( i i i ) Abnormal Loss in quantity (950 - 800)    150 MT 
Abnormal Loss ` 30,000  
[150 units @ ` 200 (` 30,40,000/15,200)]  
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit 
and Loss statement. 
(c) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term
investments are reclassified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer; and
where investments are reclassified from current to long term, transfers
are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer
is less than the cost; hence this re-classified current investment
should be carried at ` 12 lakhs in the books.
(ii) In this case, reclassification of current investment into long-term
investments will be made at ` 7 lakhs as cost is less than its fair
value of ` 8.5 lakhs on the date of transfer.
2. Oliva Company Ltd. 
Statement of Profit and loss for the year ended 31.03.2024 
Particulars Note Amount (`) 
I Revenue from operations 17,10,000 
II Other income (3,900 +300)  4,200 
III Total Revenue (I +II) 17,14,200 
IV Expenses: 
Cost of materials consumed 10 12,64,200 
Purchases of inventory-in-trade -- 
Changes in inventories of finished goods, 
work-in-progress and inventory-in-Trade 
11 (13,500) 
Employee benefit expenses 12 44,700 
Finance costs -- 
Depreciation and amortization expenses 18,240 
Other expenses 13 3,51,510 
Total Expenses 16,65,150 
V Profit before exceptional and extraordinary 
items and tax  
49,050 
305
Page 3


ANSWER OF MODEL TEST PAPER 2 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
1. (i) (c) 
(ii) (b)
(iii) (c)
(iv) (d)
2. (i) (a)
(ii) (a)
(iii) (b)
(iv) (a)
(v) (b)
3. (i) (b)
(ii) (a)
(iii) (b)
4. (a)
5. (d)
6. (a)
PART II – Descriptive Questions (70 Marks) 
1. (a) As per AS 26 “Intangible Assets”, expenditure on research should be
recognized as an expense when it is incurred.  An intangible asset 
arising from development (or from the development phase of an internal 
project) should be recognized if, and only if, an enterprise can 
demonstrate all of the conditions specified in para 44 of the standard. 
An intangible asset (arising from development) should be derecognised 
when no future economic benefits are expected from its use according 
to para 87 of the standard.  Thus, the manager cannot defer the 
expenditure write off to future years in the given case.  
Hence, the expenses amounting ` 40 lakhs incurred on the research and 
development project has to be written off in the current year ending 
31
st
 March, 2024.  
(b) (i) As per AS 2 ‘Valuation of Inventories’, abnormal amounts of wasted 
materials, labour and other production costs are excluded from cost 
of inventories and such costs are recognised as expenses in the 
period in which they are incurred. The normal loss will be included 
in determining the cost of inventories (finished goods) at the year 
end. 
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000 
304
Normal Loss (5% of 16,000 MT) 800 MT (included 
in calculation of cost of inventories) 
Net quantity of material 15,200 MT 
( i i i ) Abnormal Loss in quantity (950 - 800)    150 MT 
Abnormal Loss ` 30,000  
[150 units @ ` 200 (` 30,40,000/15,200)]  
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit 
and Loss statement. 
(c) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term
investments are reclassified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer; and
where investments are reclassified from current to long term, transfers
are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer
is less than the cost; hence this re-classified current investment
should be carried at ` 12 lakhs in the books.
(ii) In this case, reclassification of current investment into long-term
investments will be made at ` 7 lakhs as cost is less than its fair
value of ` 8.5 lakhs on the date of transfer.
2. Oliva Company Ltd. 
Statement of Profit and loss for the year ended 31.03.2024 
Particulars Note Amount (`) 
I Revenue from operations 17,10,000 
II Other income (3,900 +300)  4,200 
III Total Revenue (I +II) 17,14,200 
IV Expenses: 
Cost of materials consumed 10 12,64,200 
Purchases of inventory-in-trade -- 
Changes in inventories of finished goods, 
work-in-progress and inventory-in-Trade 
11 (13,500) 
Employee benefit expenses 12 44,700 
Finance costs -- 
Depreciation and amortization expenses 18,240 
Other expenses 13 3,51,510 
Total Expenses 16,65,150 
V Profit before exceptional and extraordinary 
items and tax  
49,050 
305
VI Exceptional items -- 
VII Profit before extraordinary items and tax 49,050 
VIII Extraordinary items -- 
IX Profit before tax  49,050 
X Tax expense (40% of 49,050) 19,620 
XI Profit/Loss for the period from continuing 
operations  
29,430 
Oliva Company Ltd. 
Balance Sheet for the year ended 31.03.2024 
Particulars Note Amount 
1 Equity and Liabilities 
(i) Shareholders’ funds
(a) Share Capital 3,15,000 
(b) Reserves and surplus 1 50,430 
2) Non-current liabilities 
(a) Long-term borrowings 2 24,300 
(3) Current Liabilities 
(a) Short -term borrowings 3 6,000 
(b) Trade payables 3,27,000 
(c) Other current liability 4 72,000 
(d) Short term provision 5 19,620 
8,14,350 
II ASSETS 
(1) Non current assets 
(a) Property, Plant & equipment 6 2,04,160 
(b) Non-current investments 7,500 
(2) Current assets 
(a) Current investments 4,500 
(b) Inventories 7 85,800 
(c) Trade receivables 2,38,500 
(d) Cash and cash equivalents 2,71,100 
(e) Short-term loans and advances 8 2,490 
(f) Other current assets 9  300 
8,14,350 
306
Page 4


ANSWER OF MODEL TEST PAPER 2 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
1. (i) (c) 
(ii) (b)
(iii) (c)
(iv) (d)
2. (i) (a)
(ii) (a)
(iii) (b)
(iv) (a)
(v) (b)
3. (i) (b)
(ii) (a)
(iii) (b)
4. (a)
5. (d)
6. (a)
PART II – Descriptive Questions (70 Marks) 
1. (a) As per AS 26 “Intangible Assets”, expenditure on research should be
recognized as an expense when it is incurred.  An intangible asset 
arising from development (or from the development phase of an internal 
project) should be recognized if, and only if, an enterprise can 
demonstrate all of the conditions specified in para 44 of the standard. 
An intangible asset (arising from development) should be derecognised 
when no future economic benefits are expected from its use according 
to para 87 of the standard.  Thus, the manager cannot defer the 
expenditure write off to future years in the given case.  
Hence, the expenses amounting ` 40 lakhs incurred on the research and 
development project has to be written off in the current year ending 
31
st
 March, 2024.  
(b) (i) As per AS 2 ‘Valuation of Inventories’, abnormal amounts of wasted 
materials, labour and other production costs are excluded from cost 
of inventories and such costs are recognised as expenses in the 
period in which they are incurred. The normal loss will be included 
in determining the cost of inventories (finished goods) at the year 
end. 
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000 
304
Normal Loss (5% of 16,000 MT) 800 MT (included 
in calculation of cost of inventories) 
Net quantity of material 15,200 MT 
( i i i ) Abnormal Loss in quantity (950 - 800)    150 MT 
Abnormal Loss ` 30,000  
[150 units @ ` 200 (` 30,40,000/15,200)]  
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit 
and Loss statement. 
(c) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term
investments are reclassified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer; and
where investments are reclassified from current to long term, transfers
are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer
is less than the cost; hence this re-classified current investment
should be carried at ` 12 lakhs in the books.
(ii) In this case, reclassification of current investment into long-term
investments will be made at ` 7 lakhs as cost is less than its fair
value of ` 8.5 lakhs on the date of transfer.
2. Oliva Company Ltd. 
Statement of Profit and loss for the year ended 31.03.2024 
Particulars Note Amount (`) 
I Revenue from operations 17,10,000 
II Other income (3,900 +300)  4,200 
III Total Revenue (I +II) 17,14,200 
IV Expenses: 
Cost of materials consumed 10 12,64,200 
Purchases of inventory-in-trade -- 
Changes in inventories of finished goods, 
work-in-progress and inventory-in-Trade 
11 (13,500) 
Employee benefit expenses 12 44,700 
Finance costs -- 
Depreciation and amortization expenses 18,240 
Other expenses 13 3,51,510 
Total Expenses 16,65,150 
V Profit before exceptional and extraordinary 
items and tax  
49,050 
305
VI Exceptional items -- 
VII Profit before extraordinary items and tax 49,050 
VIII Extraordinary items -- 
IX Profit before tax  49,050 
X Tax expense (40% of 49,050) 19,620 
XI Profit/Loss for the period from continuing 
operations  
29,430 
Oliva Company Ltd. 
Balance Sheet for the year ended 31.03.2024 
Particulars Note Amount 
1 Equity and Liabilities 
(i) Shareholders’ funds
(a) Share Capital 3,15,000 
(b) Reserves and surplus 1 50,430 
2) Non-current liabilities 
(a) Long-term borrowings 2 24,300 
(3) Current Liabilities 
(a) Short -term borrowings 3 6,000 
(b) Trade payables 3,27,000 
(c) Other current liability 4 72,000 
(d) Short term provision 5 19,620 
8,14,350 
II ASSETS 
(1) Non current assets 
(a) Property, Plant & equipment 6 2,04,160 
(b) Non-current investments 7,500 
(2) Current assets 
(a) Current investments 4,500 
(b) Inventories 7 85,800 
(c) Trade receivables 2,38,500 
(d) Cash and cash equivalents 2,71,100 
(e) Short-term loans and advances 8 2,490 
(f) Other current assets 9  300 
8,14,350 
306
Notes to accounts 
No. Particulars Amount Amount 
1. Reserve & Surplus 
Profit & Loss Account: 
Balance b/f 
48,000 
Net Profit for the year 29,430 
Less: Interim Dividend  (27,000) 50,430 
2. Long term borrowings 
Secured loans  21,000 
Fixed Deposits: Unsecured 3,300 24,300 
3. Short term borrowings 
Secured loans 4,500 
Fixed Deposits -Unsecured 1,500 6,000 
4. Other current liabilities 
Expenses Payable  
(67,500 + 4,500) 
72,000 
5. Short term provisions 
Provision for Income tax 19,620 
6. PPE 
Building 1,01,000 
Less: Depreciation @ 2%   (2,020) 98,980 
Plant & Machinery 70,400 
Less: Depreciation @ 10%   (7,040) 63,360 
Furniture 10,200 
Less: Depreciation @ 10%   (1,020) 9,180 
Motor vehicles 40,800 
Less: Depreciation @ 20%  (8,160) 32,640 2,04,160 
7 Inventory 
Raw Material 25,800 
Finished goods 60,000 85,800 
8. Short term Loans & 
Advances 
General Charges prepaid 2,490 
9. Other Current Assets 
Interest accrued 300 
10. Cost of material consumed 
Opening inventory of raw 
material  
30,000 
Add: Purchases 12,15,000 
307
Page 5


ANSWER OF MODEL TEST PAPER 2 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
1. (i) (c) 
(ii) (b)
(iii) (c)
(iv) (d)
2. (i) (a)
(ii) (a)
(iii) (b)
(iv) (a)
(v) (b)
3. (i) (b)
(ii) (a)
(iii) (b)
4. (a)
5. (d)
6. (a)
PART II – Descriptive Questions (70 Marks) 
1. (a) As per AS 26 “Intangible Assets”, expenditure on research should be
recognized as an expense when it is incurred.  An intangible asset 
arising from development (or from the development phase of an internal 
project) should be recognized if, and only if, an enterprise can 
demonstrate all of the conditions specified in para 44 of the standard. 
An intangible asset (arising from development) should be derecognised 
when no future economic benefits are expected from its use according 
to para 87 of the standard.  Thus, the manager cannot defer the 
expenditure write off to future years in the given case.  
Hence, the expenses amounting ` 40 lakhs incurred on the research and 
development project has to be written off in the current year ending 
31
st
 March, 2024.  
(b) (i) As per AS 2 ‘Valuation of Inventories’, abnormal amounts of wasted 
materials, labour and other production costs are excluded from cost 
of inventories and such costs are recognised as expenses in the 
period in which they are incurred. The normal loss will be included 
in determining the cost of inventories (finished goods) at the year 
end. 
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000 
304
Normal Loss (5% of 16,000 MT) 800 MT (included 
in calculation of cost of inventories) 
Net quantity of material 15,200 MT 
( i i i ) Abnormal Loss in quantity (950 - 800)    150 MT 
Abnormal Loss ` 30,000  
[150 units @ ` 200 (` 30,40,000/15,200)]  
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit 
and Loss statement. 
(c) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term
investments are reclassified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer; and
where investments are reclassified from current to long term, transfers
are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer
is less than the cost; hence this re-classified current investment
should be carried at ` 12 lakhs in the books.
(ii) In this case, reclassification of current investment into long-term
investments will be made at ` 7 lakhs as cost is less than its fair
value of ` 8.5 lakhs on the date of transfer.
2. Oliva Company Ltd. 
Statement of Profit and loss for the year ended 31.03.2024 
Particulars Note Amount (`) 
I Revenue from operations 17,10,000 
II Other income (3,900 +300)  4,200 
III Total Revenue (I +II) 17,14,200 
IV Expenses: 
Cost of materials consumed 10 12,64,200 
Purchases of inventory-in-trade -- 
Changes in inventories of finished goods, 
work-in-progress and inventory-in-Trade 
11 (13,500) 
Employee benefit expenses 12 44,700 
Finance costs -- 
Depreciation and amortization expenses 18,240 
Other expenses 13 3,51,510 
Total Expenses 16,65,150 
V Profit before exceptional and extraordinary 
items and tax  
49,050 
305
VI Exceptional items -- 
VII Profit before extraordinary items and tax 49,050 
VIII Extraordinary items -- 
IX Profit before tax  49,050 
X Tax expense (40% of 49,050) 19,620 
XI Profit/Loss for the period from continuing 
operations  
29,430 
Oliva Company Ltd. 
Balance Sheet for the year ended 31.03.2024 
Particulars Note Amount 
1 Equity and Liabilities 
(i) Shareholders’ funds
(a) Share Capital 3,15,000 
(b) Reserves and surplus 1 50,430 
2) Non-current liabilities 
(a) Long-term borrowings 2 24,300 
(3) Current Liabilities 
(a) Short -term borrowings 3 6,000 
(b) Trade payables 3,27,000 
(c) Other current liability 4 72,000 
(d) Short term provision 5 19,620 
8,14,350 
II ASSETS 
(1) Non current assets 
(a) Property, Plant & equipment 6 2,04,160 
(b) Non-current investments 7,500 
(2) Current assets 
(a) Current investments 4,500 
(b) Inventories 7 85,800 
(c) Trade receivables 2,38,500 
(d) Cash and cash equivalents 2,71,100 
(e) Short-term loans and advances 8 2,490 
(f) Other current assets 9  300 
8,14,350 
306
Notes to accounts 
No. Particulars Amount Amount 
1. Reserve & Surplus 
Profit & Loss Account: 
Balance b/f 
48,000 
Net Profit for the year 29,430 
Less: Interim Dividend  (27,000) 50,430 
2. Long term borrowings 
Secured loans  21,000 
Fixed Deposits: Unsecured 3,300 24,300 
3. Short term borrowings 
Secured loans 4,500 
Fixed Deposits -Unsecured 1,500 6,000 
4. Other current liabilities 
Expenses Payable  
(67,500 + 4,500) 
72,000 
5. Short term provisions 
Provision for Income tax 19,620 
6. PPE 
Building 1,01,000 
Less: Depreciation @ 2%   (2,020) 98,980 
Plant & Machinery 70,400 
Less: Depreciation @ 10%   (7,040) 63,360 
Furniture 10,200 
Less: Depreciation @ 10%   (1,020) 9,180 
Motor vehicles 40,800 
Less: Depreciation @ 20%  (8,160) 32,640 2,04,160 
7 Inventory 
Raw Material 25,800 
Finished goods 60,000 85,800 
8. Short term Loans & 
Advances 
General Charges prepaid 2,490 
9. Other Current Assets 
Interest accrued 300 
10. Cost of material consumed 
Opening inventory of raw 
material  
30,000 
Add: Purchases 12,15,000 
307
Stores & spare parts 
consumed 
 45,000 12,90,000 
Less: Closing inventory (25,800) 12,64,200 
11. Changes in inventory of 
Finished Goods & WIP 
Closing Inventory of Finished 
Goods 
60,000 
Less: Opening Inventory of 
Finished Goods 
46,500 13,500 
12. Employee Benefit 
expenses 
Salary & Wages  
(40,200 + 4,500) 
44,700 
13. Other Expenses 
Manufacturing Expenses 
(2,70,000 + 67,500) 
3,37,500 
General Charges  
(16,500 – 2,490) 
14,010 3,51,510 
3. (a) As per AS 29 "Provisions, Contingent Liabilities and Contingent Assets",
where some or all of the expenditure required to settle a provision is 
expected to be reimbursed by another party, the reimbursement should 
be recognised when, and only when, it is virtually certain that 
reimbursement will be received if the enterprise settles the obligation. 
The reimbursement should be treated as a separate asset. The amount 
recognised for the reimbursement should not exceed the amount of the 
provision. 
It is apparent from the question that the company had not made provision 
for warranty in respect of certain goods considering that the company 
can claim the warranty cost from the original supplier.  However, the 
provision for warranty should have been made as per AS 29 and the 
amount claimable as reimbursement should be treated as a separate 
asset in the financial statements of the company rather than omitting the 
disclosure of such liability.  Accordingly, it is viewed that the accounting 
treatment adopted by the company with respect to warranty is not 
correct. 
(b) Balance Sheet of Radhika Ltd. (and Reduced) as on 1.4.2024
Particulars Notes ` 
I. Equity & Liabilities  
  A 
 a 
 b 
Shareholders' Fund 
Share Capital 1 3,16,800 
Reserves & Surplus 2 1,10,200 
  B Non-Current Liabilities 
308