Page 1
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE COURSE; GROUP I
PAAPER 1 ADVANCED ACCOUNTING
1. (i) (d)
(ii) (c)
(iii) (b)
(iv) (a)
2. (i) (b)
(ii) (d)
(iii) (c)
(iv) (c)
3. (i) (b)
(ii) (a)
(iii) (d)
(iv) (a)
4. (a)
5. (b)
6. (c)
Part II- Descriptive questions (70 marks)
1. (a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses
Date of
incurrence of
expenditure
Amount
spent
Financed
through
Calculation `
1
st
April 2023 4,00,000 Specific
borrowing
4,00,000 x 12% x
10/12
40,000
1
st
August 2023
10,00,00 0
Specific
borrowing
10,00,000 x 12% x
10/12
1,00,000
1
st
December
2023
25,00,00 0 General
borrowing
25,00,000 x 10.8%
x 2/12 45,000
31
st
January 2024 5,00,000 General
borrowing
5,00,000 x 10.8% x
0/12
Nil
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000
340
Page 2
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE COURSE; GROUP I
PAAPER 1 ADVANCED ACCOUNTING
1. (i) (d)
(ii) (c)
(iii) (b)
(iv) (a)
2. (i) (b)
(ii) (d)
(iii) (c)
(iv) (c)
3. (i) (b)
(ii) (a)
(iii) (d)
(iv) (a)
4. (a)
5. (b)
6. (c)
Part II- Descriptive questions (70 marks)
1. (a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses
Date of
incurrence of
expenditure
Amount
spent
Financed
through
Calculation `
1
st
April 2023 4,00,000 Specific
borrowing
4,00,000 x 12% x
10/12
40,000
1
st
August 2023
10,00,00 0
Specific
borrowing
10,00,000 x 12% x
10/12
1,00,000
1
st
December
2023
25,00,00 0 General
borrowing
25,00,000 x 10.8%
x 2/12 45,000
31
st
January 2024 5,00,000 General
borrowing
5,00,000 x 10.8% x
0/12
Nil
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000
340
(ii) Journal Entry
Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account
To Interest payable
(borrowing cost)
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)
44,00,000
1,70,000
Note: In the above journal entry, it is assumed that interest amount will
be paid at the year end. Hence, entry for interest payable has been
passed on 31.1.2024.
(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap
or waste materials by their nature, are immaterial. They are often
measured at net realizable value and this value is deducted from the cost
of the main product.
Determination of value of closing inventory of Polyester and Nylon
Polyester Nylon
Closing inventory in units 1,600 units 400 units
Cost per unit ` 31.14 ` 18.68
Value of closing inventory ` 49,824 ` 7,472
Working Notes
1. Calculation of net realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40
per unit)
1,28,000
Less: Separate processing
charges of by-product
Fiber
(10,000)
Packing charges (9,000)
Net realizable value of by-
product Fiber
1,09,000
2. Calculation of cost of conversion for allocation between joint
products Polyester and Nylon
` `
Raw material 3,50,000
Wages 1,60,000
Fixed overhead 1,20,000
341
Page 3
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE COURSE; GROUP I
PAAPER 1 ADVANCED ACCOUNTING
1. (i) (d)
(ii) (c)
(iii) (b)
(iv) (a)
2. (i) (b)
(ii) (d)
(iii) (c)
(iv) (c)
3. (i) (b)
(ii) (a)
(iii) (d)
(iv) (a)
4. (a)
5. (b)
6. (c)
Part II- Descriptive questions (70 marks)
1. (a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses
Date of
incurrence of
expenditure
Amount
spent
Financed
through
Calculation `
1
st
April 2023 4,00,000 Specific
borrowing
4,00,000 x 12% x
10/12
40,000
1
st
August 2023
10,00,00 0
Specific
borrowing
10,00,000 x 12% x
10/12
1,00,000
1
st
December
2023
25,00,00 0 General
borrowing
25,00,000 x 10.8%
x 2/12 45,000
31
st
January 2024 5,00,000 General
borrowing
5,00,000 x 10.8% x
0/12
Nil
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000
340
(ii) Journal Entry
Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account
To Interest payable
(borrowing cost)
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)
44,00,000
1,70,000
Note: In the above journal entry, it is assumed that interest amount will
be paid at the year end. Hence, entry for interest payable has been
passed on 31.1.2024.
(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap
or waste materials by their nature, are immaterial. They are often
measured at net realizable value and this value is deducted from the cost
of the main product.
Determination of value of closing inventory of Polyester and Nylon
Polyester Nylon
Closing inventory in units 1,600 units 400 units
Cost per unit ` 31.14 ` 18.68
Value of closing inventory ` 49,824 ` 7,472
Working Notes
1. Calculation of net realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40
per unit)
1,28,000
Less: Separate processing
charges of by-product
Fiber
(10,000)
Packing charges (9,000)
Net realizable value of by-
product Fiber
1,09,000
2. Calculation of cost of conversion for allocation between joint
products Polyester and Nylon
` `
Raw material 3,50,000
Wages 1,60,000
Fixed overhead 1,20,000
341
Variable overhead 60,000
6,90,000
Less: NRV of by-product Fiber (W.N. 1) (1,09,000)
Sale value of scrap (5,000) (1,14,000)
Joint cost to be allocated between
Polyester and Nylon
5,76,000
Determination of “basis for allocation” and allocation of joint
cost to Polyester and Nylon
Polyester Nylon
Output in units (a) 12,500 units 10,000 units
Sales price per unit (b) ` 100 ` 60
Sales value (a x b) ` 12,50,000 ` 6,00,000
Total value (12,50,000 + 6,00,000)
= 18,50,000
Joint cost of ` 5,76,000 allocated in
the ratio of 12,50,000 : 6,00,000
` 3,89,189 ` 1,86,811
Cost per unit [c/a] ` 31.14 ` 18.68
2. (1) Journal Entries
In the Books of Z Ltd. as on 1
st
April 2024
Particulars Dr. Cr.
01.04.2024 Amount
(`)
Amount
(`)
1. Equity share capital A/c (` 100) Dr. 60,00,000
To Equity share capital A/c (` 10) 60,00,000
(Being sub-division of one share of
` 100 each into 10 shares of ` 10 each)
2. Equity share capital A/c (` 10) Dr. 24,00,000
To Capital reduction A/c 24,00,000
(Being reduction of Equity capital by
40%)
3. Capital reduction A/c Dr. 1,68,000
To Bank A/c 1,68,000
(Being payment in cash of 25% of
arrear of preference dividend)
[21,00,000x8%] x 4 years
4. Bank A/c Dr. 2,35,200
To Own debentures A/c
(5,76,000/6,00,000) x 2,40,000
2,30,400
To Capital reduction A/c 4,800
(Being profit on sale of own debentures
of ` 2,40,000 transferred to capital
reduction A/c)
342
Page 4
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE COURSE; GROUP I
PAAPER 1 ADVANCED ACCOUNTING
1. (i) (d)
(ii) (c)
(iii) (b)
(iv) (a)
2. (i) (b)
(ii) (d)
(iii) (c)
(iv) (c)
3. (i) (b)
(ii) (a)
(iii) (d)
(iv) (a)
4. (a)
5. (b)
6. (c)
Part II- Descriptive questions (70 marks)
1. (a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses
Date of
incurrence of
expenditure
Amount
spent
Financed
through
Calculation `
1
st
April 2023 4,00,000 Specific
borrowing
4,00,000 x 12% x
10/12
40,000
1
st
August 2023
10,00,00 0
Specific
borrowing
10,00,000 x 12% x
10/12
1,00,000
1
st
December
2023
25,00,00 0 General
borrowing
25,00,000 x 10.8%
x 2/12 45,000
31
st
January 2024 5,00,000 General
borrowing
5,00,000 x 10.8% x
0/12
Nil
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000
340
(ii) Journal Entry
Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account
To Interest payable
(borrowing cost)
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)
44,00,000
1,70,000
Note: In the above journal entry, it is assumed that interest amount will
be paid at the year end. Hence, entry for interest payable has been
passed on 31.1.2024.
(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap
or waste materials by their nature, are immaterial. They are often
measured at net realizable value and this value is deducted from the cost
of the main product.
Determination of value of closing inventory of Polyester and Nylon
Polyester Nylon
Closing inventory in units 1,600 units 400 units
Cost per unit ` 31.14 ` 18.68
Value of closing inventory ` 49,824 ` 7,472
Working Notes
1. Calculation of net realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40
per unit)
1,28,000
Less: Separate processing
charges of by-product
Fiber
(10,000)
Packing charges (9,000)
Net realizable value of by-
product Fiber
1,09,000
2. Calculation of cost of conversion for allocation between joint
products Polyester and Nylon
` `
Raw material 3,50,000
Wages 1,60,000
Fixed overhead 1,20,000
341
Variable overhead 60,000
6,90,000
Less: NRV of by-product Fiber (W.N. 1) (1,09,000)
Sale value of scrap (5,000) (1,14,000)
Joint cost to be allocated between
Polyester and Nylon
5,76,000
Determination of “basis for allocation” and allocation of joint
cost to Polyester and Nylon
Polyester Nylon
Output in units (a) 12,500 units 10,000 units
Sales price per unit (b) ` 100 ` 60
Sales value (a x b) ` 12,50,000 ` 6,00,000
Total value (12,50,000 + 6,00,000)
= 18,50,000
Joint cost of ` 5,76,000 allocated in
the ratio of 12,50,000 : 6,00,000
` 3,89,189 ` 1,86,811
Cost per unit [c/a] ` 31.14 ` 18.68
2. (1) Journal Entries
In the Books of Z Ltd. as on 1
st
April 2024
Particulars Dr. Cr.
01.04.2024 Amount
(`)
Amount
(`)
1. Equity share capital A/c (` 100) Dr. 60,00,000
To Equity share capital A/c (` 10) 60,00,000
(Being sub-division of one share of
` 100 each into 10 shares of ` 10 each)
2. Equity share capital A/c (` 10) Dr. 24,00,000
To Capital reduction A/c 24,00,000
(Being reduction of Equity capital by
40%)
3. Capital reduction A/c Dr. 1,68,000
To Bank A/c 1,68,000
(Being payment in cash of 25% of
arrear of preference dividend)
[21,00,000x8%] x 4 years
4. Bank A/c Dr. 2,35,200
To Own debentures A/c
(5,76,000/6,00,000) x 2,40,000
2,30,400
To Capital reduction A/c 4,800
(Being profit on sale of own debentures
of ` 2,40,000 transferred to capital
reduction A/c)
342
5. 10% Debentures A/c
(6,00,000 -2,40,000)
Dr. 3,60,000
To Own debentures A/c 3,45,600
To Capital reduction A/c 14,400
(Being profit on cancellation of own
debentures transferred to capital
reduction A/c)
6. 10% Debentures A/c Dr. 6,00,000
Capital reduction A/c Dr. 3,00,000
To Machinery or PPE A/c 9,00,000
(Being machinery taken up by
debenture holders for ` 6,00,000)
7. Capital reduction A/c (balancing figure) Dr. 3,00,000
To PPE A/c
(72,00,000 - 9,00,000 - 60,00,000)
3,00,000
(Being PPE revalued)
8. Trade payables A/c
(16,80,000 -15,00,000)
Dr. 1,80,000
To Trade receivables A/c
(13,75,000-13,00,000)
75,000
To Inventory A/c
(9,80,000-9,44,000)
36,000
To Capital Reduction A/c 69,000
(Being assets and liabilities revalued)
9. Capital reduction A/c Dr. 13,16,000
To Goodwill A/c 81,000
To Profit and Loss A/c 12,35,000
(Being the above assets written off)
10. Capital reduction A/c Dr. 60,000
To Bank A/c 60,000
(Being penalty paid for avoidance of
capital commitments)
11. Capital reduction A/c Dr. 3,44,200
To Capital reserve A/c 3,44,200
(Being the credit balance in Capital
Reduction A/c transferred to Capital
Reserve)
343
Page 5
ANSWERS OF MODEL TEST PAPER 5
INTERMEDIATE COURSE; GROUP I
PAAPER 1 ADVANCED ACCOUNTING
1. (i) (d)
(ii) (c)
(iii) (b)
(iv) (a)
2. (i) (b)
(ii) (d)
(iii) (c)
(iv) (c)
3. (i) (b)
(ii) (a)
(iii) (d)
(iv) (a)
4. (a)
5. (b)
6. (c)
Part II- Descriptive questions (70 marks)
1. (a) (i) Computation of borrowing cost to be capitalized for specific
borrowings and general borrowings based on weighted average
accumulated expenses
Date of
incurrence of
expenditure
Amount
spent
Financed
through
Calculation `
1
st
April 2023 4,00,000 Specific
borrowing
4,00,000 x 12% x
10/12
40,000
1
st
August 2023
10,00,00 0
Specific
borrowing
10,00,000 x 12% x
10/12
1,00,000
1
st
December
2023
25,00,00 0 General
borrowing
25,00,000 x 10.8%
x 2/12 45,000
31
st
January 2024 5,00,000 General
borrowing
5,00,000 x 10.8% x
0/12
Nil
1,85,000
Less: interest income on borrowing (15,000)
Total amount borrowing cost to be capitalized 1,70,000
340
(ii) Journal Entry
Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account
To Interest payable
(borrowing cost)
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)
44,00,000
1,70,000
Note: In the above journal entry, it is assumed that interest amount will
be paid at the year end. Hence, entry for interest payable has been
passed on 31.1.2024.
(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap
or waste materials by their nature, are immaterial. They are often
measured at net realizable value and this value is deducted from the cost
of the main product.
Determination of value of closing inventory of Polyester and Nylon
Polyester Nylon
Closing inventory in units 1,600 units 400 units
Cost per unit ` 31.14 ` 18.68
Value of closing inventory ` 49,824 ` 7,472
Working Notes
1. Calculation of net realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40
per unit)
1,28,000
Less: Separate processing
charges of by-product
Fiber
(10,000)
Packing charges (9,000)
Net realizable value of by-
product Fiber
1,09,000
2. Calculation of cost of conversion for allocation between joint
products Polyester and Nylon
` `
Raw material 3,50,000
Wages 1,60,000
Fixed overhead 1,20,000
341
Variable overhead 60,000
6,90,000
Less: NRV of by-product Fiber (W.N. 1) (1,09,000)
Sale value of scrap (5,000) (1,14,000)
Joint cost to be allocated between
Polyester and Nylon
5,76,000
Determination of “basis for allocation” and allocation of joint
cost to Polyester and Nylon
Polyester Nylon
Output in units (a) 12,500 units 10,000 units
Sales price per unit (b) ` 100 ` 60
Sales value (a x b) ` 12,50,000 ` 6,00,000
Total value (12,50,000 + 6,00,000)
= 18,50,000
Joint cost of ` 5,76,000 allocated in
the ratio of 12,50,000 : 6,00,000
` 3,89,189 ` 1,86,811
Cost per unit [c/a] ` 31.14 ` 18.68
2. (1) Journal Entries
In the Books of Z Ltd. as on 1
st
April 2024
Particulars Dr. Cr.
01.04.2024 Amount
(`)
Amount
(`)
1. Equity share capital A/c (` 100) Dr. 60,00,000
To Equity share capital A/c (` 10) 60,00,000
(Being sub-division of one share of
` 100 each into 10 shares of ` 10 each)
2. Equity share capital A/c (` 10) Dr. 24,00,000
To Capital reduction A/c 24,00,000
(Being reduction of Equity capital by
40%)
3. Capital reduction A/c Dr. 1,68,000
To Bank A/c 1,68,000
(Being payment in cash of 25% of
arrear of preference dividend)
[21,00,000x8%] x 4 years
4. Bank A/c Dr. 2,35,200
To Own debentures A/c
(5,76,000/6,00,000) x 2,40,000
2,30,400
To Capital reduction A/c 4,800
(Being profit on sale of own debentures
of ` 2,40,000 transferred to capital
reduction A/c)
342
5. 10% Debentures A/c
(6,00,000 -2,40,000)
Dr. 3,60,000
To Own debentures A/c 3,45,600
To Capital reduction A/c 14,400
(Being profit on cancellation of own
debentures transferred to capital
reduction A/c)
6. 10% Debentures A/c Dr. 6,00,000
Capital reduction A/c Dr. 3,00,000
To Machinery or PPE A/c 9,00,000
(Being machinery taken up by
debenture holders for ` 6,00,000)
7. Capital reduction A/c (balancing figure) Dr. 3,00,000
To PPE A/c
(72,00,000 - 9,00,000 - 60,00,000)
3,00,000
(Being PPE revalued)
8. Trade payables A/c
(16,80,000 -15,00,000)
Dr. 1,80,000
To Trade receivables A/c
(13,75,000-13,00,000)
75,000
To Inventory A/c
(9,80,000-9,44,000)
36,000
To Capital Reduction A/c 69,000
(Being assets and liabilities revalued)
9. Capital reduction A/c Dr. 13,16,000
To Goodwill A/c 81,000
To Profit and Loss A/c 12,35,000
(Being the above assets written off)
10. Capital reduction A/c Dr. 60,000
To Bank A/c 60,000
(Being penalty paid for avoidance of
capital commitments)
11. Capital reduction A/c Dr. 3,44,200
To Capital reserve A/c 3,44,200
(Being the credit balance in Capital
Reduction A/c transferred to Capital
Reserve)
343
2. Capital Reduction Account
(`) (`)
To Bank 1,68,000 By Equity Share Capital 24,00,000
To Property, Plant &
Equipment
3,00,000 By Trade Payable 1,80,000
To Property, Plant &
Equipment
3,00,000 By Bank A/c (Profit on
Sale)
4,800
To Trade Receivables 75,000 By 10% debentures A/c
(Profit on cancellation)
14,400
To Inventory 36,000
To Goodwill 81,000
To Profit and Loss A/c 12,35,000
To Cash/Bank A/c 60,000
To Capital Reserve 3,44,200
25,99,200 25,99,200
3. Bank Account
` `
To To balance b/d 1,33,000 By Capital Reduction 1,68,000
To Own Debenture 2,35,200 By Capital Reduction A/c 60,000
(2,30,400 +4,800) By balance c/d 1,40,200
3,68,200 3,68,200
3. (a) (i) Stage of completion = Costs incurred to date / Total estimated
costs
Year 1: 98.8 crore / 375 crore = 26.35%
Year 2: 202.4 crore / 375 crore = 53.97%
Year 3: (310 crore – 3 crore) / (375+7) crore = 80.37%
Year 4: 382 crore / 382 crore = 100%
(ii) Profit to be recognized each year has been calculated as
follows:
Year 1 Year 2 Year 3 Year 4
Contract
Revenue
(1)
105.40
crore
110.48 crore 113.64 crore 80.48 crore
(400 crore x
26.35%)
(400 crore x
53.97% -
105.40 crore)
(410 crore x
80.37%
- 105.40 crore -
110.48 crore)
(410 crore x
100% - 105.40
crore - 110.48
crore - 113.64
crore)
Contract
Cost (2)
98.8 crore 103.60 crore 104.60 crore 75 crore
344
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