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

 Page 1


ANSWER OF MODEL TEST PAPER 4 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Case Scenario 
1. (a)  (ii)
(b) (ii)
(c) (iii)
d) (iv)
2. (a) (iii)
(b) (ii)
(c) (iii)
(d) (iii)
3. (a) (iii)
(b) (iv)
(c) (ii)
(d) (ii)
4. (c)
5. (b)
6. (c)
PART II – Descriptive Questions (70 Marks) 
1. (a)  As per AS 13 ‘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 also, carrying amount of investment on the date of
transfer is less than the cost; hence this re-classified current
investment should be carried at ` 5 lakhs in the books.
(iii) 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.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on
the date of transfer which is lower than the cost of ` 4 lakhs.  The
328
Page 2


ANSWER OF MODEL TEST PAPER 4 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Case Scenario 
1. (a)  (ii)
(b) (ii)
(c) (iii)
d) (iv)
2. (a) (iii)
(b) (ii)
(c) (iii)
(d) (iii)
3. (a) (iii)
(b) (iv)
(c) (ii)
(d) (ii)
4. (c)
5. (b)
6. (c)
PART II – Descriptive Questions (70 Marks) 
1. (a)  As per AS 13 ‘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 also, carrying amount of investment on the date of
transfer is less than the cost; hence this re-classified current
investment should be carried at ` 5 lakhs in the books.
(iii) 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.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on
the date of transfer which is lower than the cost of ` 4 lakhs.  The
328
reclassification of current investment into long-term investments 
will be made at ` 3.8 lakhs. 
(b) (i) Suit filed against the company is a contingent liability but it was not 
existing as on balance sheet date as the suit was filed on 20
th
 April 
after the balance Sheet date.  As per AS 4, 'Contingencies' used in 
the Standard is restricted to conditions or situations at the balance 
sheet date, the financial effect of which is to be determined by 
future events which may or may not occur. Hence, it will have no 
effect on financial statements and will be a non-adjusting event.   
(ii) In the given case, terms and conditions for acquisition of business
were finalised and carried out before the closure of the books of
accounts but transaction for payment of financial resources was
effected in April, 2024.  This is clearly an event occuring after the
balance sheet date. Hence, necessary adjustment to assets and
liabilities for acquisition of business is necessary in the financial
statements for the year ended 31
st
 March 2024.
(iii) Only those significant events which occur between the balance
sheet date and the date on which the financial statements are
approved, may indicate the need for adjustment to assets and
liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16
th
July, 2024 after approval of financial statements by the Board of
Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate
to conditions existing at the balance sheet date.  In the given case,
sale of immovable property was under proposal stage (negotiations
also not started) on the balance sheet date.  Therefore, no
adjustment to assets for sale of immovable property is required in
the financial statements for the year ended 31
st
 March, 2024.
(v) The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding event of fire and loss
being completely insured may be given in the report of approving
authority.
2. Prashant Ltd. 
Balance Sheet as on 31
st
 March, 2024 
Particulars Notes `  
Equity and Liabilities 
1 Shareholders' funds 
a Share capital 1 14,95,000 
b Reserves and Surplus 2 3,76,800 
2 Non-current liabilities 
Long-term borrowings 3 3,65,000 
329
Page 3


ANSWER OF MODEL TEST PAPER 4 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Case Scenario 
1. (a)  (ii)
(b) (ii)
(c) (iii)
d) (iv)
2. (a) (iii)
(b) (ii)
(c) (iii)
(d) (iii)
3. (a) (iii)
(b) (iv)
(c) (ii)
(d) (ii)
4. (c)
5. (b)
6. (c)
PART II – Descriptive Questions (70 Marks) 
1. (a)  As per AS 13 ‘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 also, carrying amount of investment on the date of
transfer is less than the cost; hence this re-classified current
investment should be carried at ` 5 lakhs in the books.
(iii) 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.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on
the date of transfer which is lower than the cost of ` 4 lakhs.  The
328
reclassification of current investment into long-term investments 
will be made at ` 3.8 lakhs. 
(b) (i) Suit filed against the company is a contingent liability but it was not 
existing as on balance sheet date as the suit was filed on 20
th
 April 
after the balance Sheet date.  As per AS 4, 'Contingencies' used in 
the Standard is restricted to conditions or situations at the balance 
sheet date, the financial effect of which is to be determined by 
future events which may or may not occur. Hence, it will have no 
effect on financial statements and will be a non-adjusting event.   
(ii) In the given case, terms and conditions for acquisition of business
were finalised and carried out before the closure of the books of
accounts but transaction for payment of financial resources was
effected in April, 2024.  This is clearly an event occuring after the
balance sheet date. Hence, necessary adjustment to assets and
liabilities for acquisition of business is necessary in the financial
statements for the year ended 31
st
 March 2024.
(iii) Only those significant events which occur between the balance
sheet date and the date on which the financial statements are
approved, may indicate the need for adjustment to assets and
liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16
th
July, 2024 after approval of financial statements by the Board of
Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate
to conditions existing at the balance sheet date.  In the given case,
sale of immovable property was under proposal stage (negotiations
also not started) on the balance sheet date.  Therefore, no
adjustment to assets for sale of immovable property is required in
the financial statements for the year ended 31
st
 March, 2024.
(v) The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding event of fire and loss
being completely insured may be given in the report of approving
authority.
2. Prashant Ltd. 
Balance Sheet as on 31
st
 March, 2024 
Particulars Notes `  
Equity and Liabilities 
1 Shareholders' funds 
a Share capital 1 14,95,000 
b Reserves and Surplus 2 3,76,800 
2 Non-current liabilities 
Long-term borrowings 3 3,65,000 
329
3 Current liabilities 
a Trade Payables 2,67,000 
b Other current liabilities 4 10,000 
c Short-term provisions 5 72,000 
Total 25,85,800 
Assets 
1 Non-current assets 
Property, Plant and Equipment 6 15,95,000 
2 Current assets 
a Inventories 3,15,000 
b Trade receivables 7 2,95,000 
c Cash and bank balances 8 3,22,300 
d Short-term loans and advances 58,500 
Total 25,85,800 
Notes to accounts 
`  
1 Share Capital 
Equity share capital 
Issued & subscribed & fully paid up 
1,50,000 Equity Shares of ` 10 each 
(of the above 10,000 shares have been 
issued for consideration other than cash) 
15,00,000 
Less: Calls in arrears (5,000) 14,95,000 
2 Reserves and Surplus 
General Reserve 2,70,000 
Profit & Loss balance 1,06,800 
Total 3,76,800 
3 Long-term borrowings 
Secured 
Loan from State Financial Corporation 
(2,10,000-10,000) 
(Secured by hypothecation of Plant and 
Machinery) 
2,00,000 
Unsecured Loan 1,65,000 
Total 3,65,000 
4 Other current liabilities 
Interest accrued but not due on loans (SFC) 10,000 
5 Short-term provisions 
Provision for taxation 72,000 
330
Page 4


ANSWER OF MODEL TEST PAPER 4 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Case Scenario 
1. (a)  (ii)
(b) (ii)
(c) (iii)
d) (iv)
2. (a) (iii)
(b) (ii)
(c) (iii)
(d) (iii)
3. (a) (iii)
(b) (iv)
(c) (ii)
(d) (ii)
4. (c)
5. (b)
6. (c)
PART II – Descriptive Questions (70 Marks) 
1. (a)  As per AS 13 ‘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 also, carrying amount of investment on the date of
transfer is less than the cost; hence this re-classified current
investment should be carried at ` 5 lakhs in the books.
(iii) 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.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on
the date of transfer which is lower than the cost of ` 4 lakhs.  The
328
reclassification of current investment into long-term investments 
will be made at ` 3.8 lakhs. 
(b) (i) Suit filed against the company is a contingent liability but it was not 
existing as on balance sheet date as the suit was filed on 20
th
 April 
after the balance Sheet date.  As per AS 4, 'Contingencies' used in 
the Standard is restricted to conditions or situations at the balance 
sheet date, the financial effect of which is to be determined by 
future events which may or may not occur. Hence, it will have no 
effect on financial statements and will be a non-adjusting event.   
(ii) In the given case, terms and conditions for acquisition of business
were finalised and carried out before the closure of the books of
accounts but transaction for payment of financial resources was
effected in April, 2024.  This is clearly an event occuring after the
balance sheet date. Hence, necessary adjustment to assets and
liabilities for acquisition of business is necessary in the financial
statements for the year ended 31
st
 March 2024.
(iii) Only those significant events which occur between the balance
sheet date and the date on which the financial statements are
approved, may indicate the need for adjustment to assets and
liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16
th
July, 2024 after approval of financial statements by the Board of
Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate
to conditions existing at the balance sheet date.  In the given case,
sale of immovable property was under proposal stage (negotiations
also not started) on the balance sheet date.  Therefore, no
adjustment to assets for sale of immovable property is required in
the financial statements for the year ended 31
st
 March, 2024.
(v) The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding event of fire and loss
being completely insured may be given in the report of approving
authority.
2. Prashant Ltd. 
Balance Sheet as on 31
st
 March, 2024 
Particulars Notes `  
Equity and Liabilities 
1 Shareholders' funds 
a Share capital 1 14,95,000 
b Reserves and Surplus 2 3,76,800 
2 Non-current liabilities 
Long-term borrowings 3 3,65,000 
329
3 Current liabilities 
a Trade Payables 2,67,000 
b Other current liabilities 4 10,000 
c Short-term provisions 5 72,000 
Total 25,85,800 
Assets 
1 Non-current assets 
Property, Plant and Equipment 6 15,95,000 
2 Current assets 
a Inventories 3,15,000 
b Trade receivables 7 2,95,000 
c Cash and bank balances 8 3,22,300 
d Short-term loans and advances 58,500 
Total 25,85,800 
Notes to accounts 
`  
1 Share Capital 
Equity share capital 
Issued & subscribed & fully paid up 
1,50,000 Equity Shares of ` 10 each 
(of the above 10,000 shares have been 
issued for consideration other than cash) 
15,00,000 
Less: Calls in arrears (5,000) 14,95,000 
2 Reserves and Surplus 
General Reserve 2,70,000 
Profit & Loss balance 1,06,800 
Total 3,76,800 
3 Long-term borrowings 
Secured 
Loan from State Financial Corporation 
(2,10,000-10,000) 
(Secured by hypothecation of Plant and 
Machinery) 
2,00,000 
Unsecured Loan 1,65,000 
Total 3,65,000 
4 Other current liabilities 
Interest accrued but not due on loans (SFC) 10,000 
5 Short-term provisions 
Provision for taxation 72,000 
330
6 Property, Plant & Equipment 
Land 5,50,000 
Building 5,50,000 
Less: Depreciation(b.f.) (65,000) 4,85,000 
Plant & Machinery 6,25,000 
Less: Depreciation (b.f.) (65,000) 5,60,000 
Total 15,95,000 
7 Trade receivables 
Outstanding for a period exceeding six 
months 
55,000 
Other Amounts  2,40,000 
Total 2,95,000 
8 Cash and bank balances 
Cash and cash equivalents 
Cash at bank 2,85,000 
Cash in hand 
Other bank balances 
37,300 
Nil 
Total 3,22,300 
3. (a) (i) PQR Ltd. 
Cash Flow Statement for the year ended 31
st
 March, 2024 
(Using direct method) 
Particulars `  `  
Cash flows from Operating Activities 
Cash sales (` 3,75,000/25%) 15,00,000 
Less: Cash payments for trade payables (6,10,000) 
 Wages Paid (5,55,000) 
 Office and selling expenses 
 ` (35,000 + 15,000)   (50,000) (12,15,000) 
Cash generated from operations before 
taxes 2,85,000 
Income tax paid  (55,000) 
Net cash generated from operating activities 
(A) 2,30,000 
Cash flows from Investing activities 
Sale of investments ` (8,20,000 + 20,000) 8,40,000 
Payments for purchase of Plant & 
machinery (3,50,000) 
Net cash used in investing activities (B) 4,90,000 
331
Page 5


ANSWER OF MODEL TEST PAPER 4 
INTERMEDIATE COURSE: GROUP - I 
PAPER – 1 : ADVANCED ACCOUNTING 
Case Scenario 
1. (a)  (ii)
(b) (ii)
(c) (iii)
d) (iv)
2. (a) (iii)
(b) (ii)
(c) (iii)
(d) (iii)
3. (a) (iii)
(b) (iv)
(c) (ii)
(d) (ii)
4. (c)
5. (b)
6. (c)
PART II – Descriptive Questions (70 Marks) 
1. (a)  As per AS 13 ‘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 also, carrying amount of investment on the date of
transfer is less than the cost; hence this re-classified current
investment should be carried at ` 5 lakhs in the books.
(iii) 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.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on
the date of transfer which is lower than the cost of ` 4 lakhs.  The
328
reclassification of current investment into long-term investments 
will be made at ` 3.8 lakhs. 
(b) (i) Suit filed against the company is a contingent liability but it was not 
existing as on balance sheet date as the suit was filed on 20
th
 April 
after the balance Sheet date.  As per AS 4, 'Contingencies' used in 
the Standard is restricted to conditions or situations at the balance 
sheet date, the financial effect of which is to be determined by 
future events which may or may not occur. Hence, it will have no 
effect on financial statements and will be a non-adjusting event.   
(ii) In the given case, terms and conditions for acquisition of business
were finalised and carried out before the closure of the books of
accounts but transaction for payment of financial resources was
effected in April, 2024.  This is clearly an event occuring after the
balance sheet date. Hence, necessary adjustment to assets and
liabilities for acquisition of business is necessary in the financial
statements for the year ended 31
st
 March 2024.
(iii) Only those significant events which occur between the balance
sheet date and the date on which the financial statements are
approved, may indicate the need for adjustment to assets and
liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16
th
July, 2024 after approval of financial statements by the Board of
Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events
occurring after the balance sheet date, if such events do not relate
to conditions existing at the balance sheet date.  In the given case,
sale of immovable property was under proposal stage (negotiations
also not started) on the balance sheet date.  Therefore, no
adjustment to assets for sale of immovable property is required in
the financial statements for the year ended 31
st
 March, 2024.
(v) The condition of fire occurrence was not existing on the balance
sheet date. Only the disclosure regarding event of fire and loss
being completely insured may be given in the report of approving
authority.
2. Prashant Ltd. 
Balance Sheet as on 31
st
 March, 2024 
Particulars Notes `  
Equity and Liabilities 
1 Shareholders' funds 
a Share capital 1 14,95,000 
b Reserves and Surplus 2 3,76,800 
2 Non-current liabilities 
Long-term borrowings 3 3,65,000 
329
3 Current liabilities 
a Trade Payables 2,67,000 
b Other current liabilities 4 10,000 
c Short-term provisions 5 72,000 
Total 25,85,800 
Assets 
1 Non-current assets 
Property, Plant and Equipment 6 15,95,000 
2 Current assets 
a Inventories 3,15,000 
b Trade receivables 7 2,95,000 
c Cash and bank balances 8 3,22,300 
d Short-term loans and advances 58,500 
Total 25,85,800 
Notes to accounts 
`  
1 Share Capital 
Equity share capital 
Issued & subscribed & fully paid up 
1,50,000 Equity Shares of ` 10 each 
(of the above 10,000 shares have been 
issued for consideration other than cash) 
15,00,000 
Less: Calls in arrears (5,000) 14,95,000 
2 Reserves and Surplus 
General Reserve 2,70,000 
Profit & Loss balance 1,06,800 
Total 3,76,800 
3 Long-term borrowings 
Secured 
Loan from State Financial Corporation 
(2,10,000-10,000) 
(Secured by hypothecation of Plant and 
Machinery) 
2,00,000 
Unsecured Loan 1,65,000 
Total 3,65,000 
4 Other current liabilities 
Interest accrued but not due on loans (SFC) 10,000 
5 Short-term provisions 
Provision for taxation 72,000 
330
6 Property, Plant & Equipment 
Land 5,50,000 
Building 5,50,000 
Less: Depreciation(b.f.) (65,000) 4,85,000 
Plant & Machinery 6,25,000 
Less: Depreciation (b.f.) (65,000) 5,60,000 
Total 15,95,000 
7 Trade receivables 
Outstanding for a period exceeding six 
months 
55,000 
Other Amounts  2,40,000 
Total 2,95,000 
8 Cash and bank balances 
Cash and cash equivalents 
Cash at bank 2,85,000 
Cash in hand 
Other bank balances 
37,300 
Nil 
Total 3,22,300 
3. (a) (i) PQR Ltd. 
Cash Flow Statement for the year ended 31
st
 March, 2024 
(Using direct method) 
Particulars `  `  
Cash flows from Operating Activities 
Cash sales (` 3,75,000/25%) 15,00,000 
Less: Cash payments for trade payables (6,10,000) 
 Wages Paid (5,55,000) 
 Office and selling expenses 
 ` (35,000 + 15,000)   (50,000) (12,15,000) 
Cash generated from operations before 
taxes 2,85,000 
Income tax paid  (55,000) 
Net cash generated from operating activities 
(A) 2,30,000 
Cash flows from Investing activities 
Sale of investments ` (8,20,000 + 20,000) 8,40,000 
Payments for purchase of Plant & 
machinery (3,50,000) 
Net cash used in investing activities (B) 4,90,000 
331
Cash flows from financing activities 
Bank loan repayment (including interest) (2,05,000) 
Dividend paid    (40,000) 
Net cash used in financing activities (C) (2,45,000) 
Net increase in cash (A+B+C) 4,75,000 
Cash and cash equivalents at beginning of 
the period 2,25,000 
Cash and cash equivalents at end of the 
period 7,00,000 
(ii) ‘Cash Flow from Operating Activities’ by indirect method
` 
Net Profit for the year before tax and 
extraordinary items 
2,80,000 
Add: Non-Cash and Non-Operating Expenses: 
Depreciation 60,000 
Interest Paid 5,000 
Less: Non-Cash and Non-Operating Incomes: 
Profit on Sale of Investments (20,000) 
Net Profit after Adjustment for Non-Cash Items 3,25,000 
Less:   Decrease in trade payables 
Increase in inventory  
15,000 
25,000 (40,000) 
Cash generated from operations before taxes 2,85,000 
Working Note: 
Calculation of net profit earned during the year 
` ` 
Gross profit  3,75,000 
Less: Office expenses, selling expenses 50,000 
Depreciation 60,000 
Interest paid 5,000 (1,15,000) 
2,60,000 
Add: Profit on sale of investments     20,000 
Net profit before tax 2,80,000 
(b) As per AS 14, ‘Accounting for Amalgamations’ consideration for the
amalgamation means the aggregate of shares and other securities
issued and payment made in form of cash or other assets by the
transferee company to the shareholders of the transferor company.
(i) Computation of Purchase Consideration
`  
(a) Preference Shares: ` 50 per share
24,000 Preference shares 12,00,000 
332