Advanced Accounting (Group I) Model Test Paper - 6 (Answers) - CA Intermediate PDF Download

 Page 1


ANSWER OF MODEL TEST PAPER 6 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWERS 
1. (a) (iii)
(b) (i)
(c) (ii)
(d) (iii)
2. (a) (ii)
(b) (iii)
(c) (iii)
(d) (i)
3. (a) (iii)
(b) (iii)
(c) (ii)
(d) (iv)
4. (ii)
5. (i)
6. (iv)
PART II – Descriptive Questions (70 Marks) 
1. (a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’ 
As at 31
st
 March, 2023 = ` 60,000 x .02 + ` 40,000 x .03 
= ` 1,200 + ` 1,200 = ` 2,400 
As at 31
st
 March, 2024 = ` 40,000 x .02 + ` 1,35,000 x .03 
= ` 800 + ` 4,050 = ` 4,850 
Amount debited to Profit and Loss Account for year ended 
31
st
 March, 2024 
` 
Balance of provision required as on 31.03.2024 4,850 
Less: Opening Balance as on 1.4.2023 (2,400) 
Amount debited to profit and loss account 2,450 
357
Page 2


ANSWER OF MODEL TEST PAPER 6 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWERS 
1. (a) (iii)
(b) (i)
(c) (ii)
(d) (iii)
2. (a) (ii)
(b) (iii)
(c) (iii)
(d) (i)
3. (a) (iii)
(b) (iii)
(c) (ii)
(d) (iv)
4. (ii)
5. (i)
6. (iv)
PART II – Descriptive Questions (70 Marks) 
1. (a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’ 
As at 31
st
 March, 2023 = ` 60,000 x .02 + ` 40,000 x .03 
= ` 1,200 + ` 1,200 = ` 2,400 
As at 31
st
 March, 2024 = ` 40,000 x .02 + ` 1,35,000 x .03 
= ` 800 + ` 4,050 = ` 4,850 
Amount debited to Profit and Loss Account for year ended 
31
st
 March, 2024 
` 
Balance of provision required as on 31.03.2024 4,850 
Less: Opening Balance as on 1.4.2023 (2,400) 
Amount debited to profit and loss account 2,450 
357
Note: No provision will be made on 31
st
 March, 2024 in respect of sales 
amounting ` 60,000 made on 11
th
 February, 2022 as the warranty period 
of 2 years has already expired. 
(b) As per AS 26 “Intangible Assets”, subsequent expenditure on an
intangible asset after its purchase or its completion should be recognized
as an expense when it is incurred unless (a) it is probable that the
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standard of performance; and (b)
expenditure can be measured and attributed to the asset reliably. If these
conditions are met, the subsequent expenditure should be added to the
cost of the intangible asset.
(i) In the given case, the legal expenses to defend the patent of a
product amounting ` 23,00,000 should not be capitalized and be
charged to Profit and Loss Statement.
(ii) The company is required to expense the entire amount of
` 7,00,000 in the Profit and Loss account for the year ended
31
st
 March, 2024 because no benefit will arise in the future.
(iii) As per AS 26, expenditure on an intangible item that was initially
recognized as an expense by a reporting enterprise in previous
annual financial statements should not be recognized as part of the
cost of an intangible asset at a later date. Thus, the company
cannot capitalize the amount of ` 25,00,000 and it should be
recognized as expense
(iv) Expenditure of ` 50,00,000 on advertising and promotional
activities should always be charged to Profit and Loss Statement.
Hence, the company has done the correct treatment by debiting the
sum of 50 lakhs to Profit and Loss Account.
(c) (1)  Trade discounts and volume rebates received are not
encompassed within the definition of revenue, since they represent 
a reduction of cost. Trade discounts and volume rebates given 
should be deducted in determining revenue. 
(2) When goods are sold to distributor or others, revenue from such
sales can generally be recognized if significant risks of ownership
have passed; however, in some situations the buyer may in
substance be an agent and in such cases the sale should be treated
as a consignment sale.
(3) For transactions, where seller concurrently agrees to repurchase
the same goods at a later date that are in substance a financing
agreement, the resulting cash inflow is not revenue as defined and
should not be recognized as revenue.
(4) Insurance agency commissions should be recognized on the
effective commencement or renewal dates of the related policies.
358
Page 3


ANSWER OF MODEL TEST PAPER 6 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWERS 
1. (a) (iii)
(b) (i)
(c) (ii)
(d) (iii)
2. (a) (ii)
(b) (iii)
(c) (iii)
(d) (i)
3. (a) (iii)
(b) (iii)
(c) (ii)
(d) (iv)
4. (ii)
5. (i)
6. (iv)
PART II – Descriptive Questions (70 Marks) 
1. (a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’ 
As at 31
st
 March, 2023 = ` 60,000 x .02 + ` 40,000 x .03 
= ` 1,200 + ` 1,200 = ` 2,400 
As at 31
st
 March, 2024 = ` 40,000 x .02 + ` 1,35,000 x .03 
= ` 800 + ` 4,050 = ` 4,850 
Amount debited to Profit and Loss Account for year ended 
31
st
 March, 2024 
` 
Balance of provision required as on 31.03.2024 4,850 
Less: Opening Balance as on 1.4.2023 (2,400) 
Amount debited to profit and loss account 2,450 
357
Note: No provision will be made on 31
st
 March, 2024 in respect of sales 
amounting ` 60,000 made on 11
th
 February, 2022 as the warranty period 
of 2 years has already expired. 
(b) As per AS 26 “Intangible Assets”, subsequent expenditure on an
intangible asset after its purchase or its completion should be recognized
as an expense when it is incurred unless (a) it is probable that the
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standard of performance; and (b)
expenditure can be measured and attributed to the asset reliably. If these
conditions are met, the subsequent expenditure should be added to the
cost of the intangible asset.
(i) In the given case, the legal expenses to defend the patent of a
product amounting ` 23,00,000 should not be capitalized and be
charged to Profit and Loss Statement.
(ii) The company is required to expense the entire amount of
` 7,00,000 in the Profit and Loss account for the year ended
31
st
 March, 2024 because no benefit will arise in the future.
(iii) As per AS 26, expenditure on an intangible item that was initially
recognized as an expense by a reporting enterprise in previous
annual financial statements should not be recognized as part of the
cost of an intangible asset at a later date. Thus, the company
cannot capitalize the amount of ` 25,00,000 and it should be
recognized as expense
(iv) Expenditure of ` 50,00,000 on advertising and promotional
activities should always be charged to Profit and Loss Statement.
Hence, the company has done the correct treatment by debiting the
sum of 50 lakhs to Profit and Loss Account.
(c) (1)  Trade discounts and volume rebates received are not
encompassed within the definition of revenue, since they represent 
a reduction of cost. Trade discounts and volume rebates given 
should be deducted in determining revenue. 
(2) When goods are sold to distributor or others, revenue from such
sales can generally be recognized if significant risks of ownership
have passed; however, in some situations the buyer may in
substance be an agent and in such cases the sale should be treated
as a consignment sale.
(3) For transactions, where seller concurrently agrees to repurchase
the same goods at a later date that are in substance a financing
agreement, the resulting cash inflow is not revenue as defined and
should not be recognized as revenue.
(4) Insurance agency commissions should be recognized on the
effective commencement or renewal dates of the related policies.
358
(5) On 11.03.2024, if X mart takes title and accepts billing for the goods
then it is implied that the sale is complete and all risk and reward
on ownership has been transferred to the buyers.
Revenue should be recognized for year ended 31
st
 March, 2024 
notwithstanding that physical delivery has not been completed so long 
as there is every expectation that delivery will be made and items were 
ready for delivery to the buyer at the time. 
2. MN Limited 
Balance Sheet as at 31
st
 March, 2024 
Particulars Note No. (` in 000) 
Equity and Liabilities 
1. Shareholders' funds 
A Share capital 1 300 
B Reserves and Surplus 2 530 
2. Non-Current liabilities 
A Long term borrowings 3 200 
3. Current liabilities 
A Trade Payables   52 
Total 1082 
Assets 
1. Non-current assets 
A PPE (Property, Plant & Equipment) 4 880 
2 Current assets 
A Inventories 86 
B Trade receivables 96 
C Cash and bank balances   20 
Total 1082 
MN Limited 
Statement of Profit and Loss for the year ended 31st March, 2024 
Particulars Notes (` in 000) 
I. Revenue from operations 700 
II. Other Income 5   2 
III Total Income 702 
IV Expenses: 
Purchases 320 
Finance costs 6 20 
359
Page 4


ANSWER OF MODEL TEST PAPER 6 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWERS 
1. (a) (iii)
(b) (i)
(c) (ii)
(d) (iii)
2. (a) (ii)
(b) (iii)
(c) (iii)
(d) (i)
3. (a) (iii)
(b) (iii)
(c) (ii)
(d) (iv)
4. (ii)
5. (i)
6. (iv)
PART II – Descriptive Questions (70 Marks) 
1. (a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’ 
As at 31
st
 March, 2023 = ` 60,000 x .02 + ` 40,000 x .03 
= ` 1,200 + ` 1,200 = ` 2,400 
As at 31
st
 March, 2024 = ` 40,000 x .02 + ` 1,35,000 x .03 
= ` 800 + ` 4,050 = ` 4,850 
Amount debited to Profit and Loss Account for year ended 
31
st
 March, 2024 
` 
Balance of provision required as on 31.03.2024 4,850 
Less: Opening Balance as on 1.4.2023 (2,400) 
Amount debited to profit and loss account 2,450 
357
Note: No provision will be made on 31
st
 March, 2024 in respect of sales 
amounting ` 60,000 made on 11
th
 February, 2022 as the warranty period 
of 2 years has already expired. 
(b) As per AS 26 “Intangible Assets”, subsequent expenditure on an
intangible asset after its purchase or its completion should be recognized
as an expense when it is incurred unless (a) it is probable that the
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standard of performance; and (b)
expenditure can be measured and attributed to the asset reliably. If these
conditions are met, the subsequent expenditure should be added to the
cost of the intangible asset.
(i) In the given case, the legal expenses to defend the patent of a
product amounting ` 23,00,000 should not be capitalized and be
charged to Profit and Loss Statement.
(ii) The company is required to expense the entire amount of
` 7,00,000 in the Profit and Loss account for the year ended
31
st
 March, 2024 because no benefit will arise in the future.
(iii) As per AS 26, expenditure on an intangible item that was initially
recognized as an expense by a reporting enterprise in previous
annual financial statements should not be recognized as part of the
cost of an intangible asset at a later date. Thus, the company
cannot capitalize the amount of ` 25,00,000 and it should be
recognized as expense
(iv) Expenditure of ` 50,00,000 on advertising and promotional
activities should always be charged to Profit and Loss Statement.
Hence, the company has done the correct treatment by debiting the
sum of 50 lakhs to Profit and Loss Account.
(c) (1)  Trade discounts and volume rebates received are not
encompassed within the definition of revenue, since they represent 
a reduction of cost. Trade discounts and volume rebates given 
should be deducted in determining revenue. 
(2) When goods are sold to distributor or others, revenue from such
sales can generally be recognized if significant risks of ownership
have passed; however, in some situations the buyer may in
substance be an agent and in such cases the sale should be treated
as a consignment sale.
(3) For transactions, where seller concurrently agrees to repurchase
the same goods at a later date that are in substance a financing
agreement, the resulting cash inflow is not revenue as defined and
should not be recognized as revenue.
(4) Insurance agency commissions should be recognized on the
effective commencement or renewal dates of the related policies.
358
(5) On 11.03.2024, if X mart takes title and accepts billing for the goods
then it is implied that the sale is complete and all risk and reward
on ownership has been transferred to the buyers.
Revenue should be recognized for year ended 31
st
 March, 2024 
notwithstanding that physical delivery has not been completed so long 
as there is every expectation that delivery will be made and items were 
ready for delivery to the buyer at the time. 
2. MN Limited 
Balance Sheet as at 31
st
 March, 2024 
Particulars Note No. (` in 000) 
Equity and Liabilities 
1. Shareholders' funds 
A Share capital 1 300 
B Reserves and Surplus 2 530 
2. Non-Current liabilities 
A Long term borrowings 3 200 
3. Current liabilities 
A Trade Payables   52 
Total 1082 
Assets 
1. Non-current assets 
A PPE (Property, Plant & Equipment) 4 880 
2 Current assets 
A Inventories 86 
B Trade receivables 96 
C Cash and bank balances   20 
Total 1082 
MN Limited 
Statement of Profit and Loss for the year ended 31st March, 2024 
Particulars Notes (` in 000) 
I. Revenue from operations 700 
II. Other Income 5   2 
III Total Income 702 
IV Expenses: 
Purchases 320 
Finance costs 6 20 
359
Depreciation (10% of 760
*
) 76 
Other expenses 7 120 
Total Expenses 536 
V. Profit (Loss) for the period  (III – IV) 166 
Notes to accounts 
(` in 000) 
1. Share Capital 
Equity share capital 
Authorised 
  40,000 shares of ` 10 each 400 
Issued & subscribed & called up 
  30,000 shares of ` 10 each 300 
2. Reserves and Surplus 
Securities Premium Account 40 
Revaluation reserve (360 – 220) 140 
General reserve 130 
Profit & loss Balance 
Opening balance  72 
Profit for the period 166 238 
Less: Appropriations 
  Interim Dividend (18) 220 
530 
3. Long term borrowing 
10% Debentures 200 
4. PPE
Land 
Opening balance 220 
Add: Revaluation adjustment 140 
Closing balance 360 
Plant and Machinery 
Opening balance 770 
Less: Disposed off (10) 
760 
Less: Depreciation (172-8+76) (240) 
Closing balance 520 
*
 770 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold) 
360
Page 5


ANSWER OF MODEL TEST PAPER 6 
INTERMEDIATE COURSE: GROUP – I 
PAPER – 1 : ADVANCED ACCOUNTING 
ANSWERS 
1. (a) (iii)
(b) (i)
(c) (ii)
(d) (iii)
2. (a) (ii)
(b) (iii)
(c) (iii)
(d) (i)
3. (a) (iii)
(b) (iii)
(c) (ii)
(d) (iv)
4. (ii)
5. (i)
6. (iv)
PART II – Descriptive Questions (70 Marks) 
1. (a) Provision to be made for warranty under AS 29 ‘Provisions, Contingent
Liabilities and Contingent Assets’ 
As at 31
st
 March, 2023 = ` 60,000 x .02 + ` 40,000 x .03 
= ` 1,200 + ` 1,200 = ` 2,400 
As at 31
st
 March, 2024 = ` 40,000 x .02 + ` 1,35,000 x .03 
= ` 800 + ` 4,050 = ` 4,850 
Amount debited to Profit and Loss Account for year ended 
31
st
 March, 2024 
` 
Balance of provision required as on 31.03.2024 4,850 
Less: Opening Balance as on 1.4.2023 (2,400) 
Amount debited to profit and loss account 2,450 
357
Note: No provision will be made on 31
st
 March, 2024 in respect of sales 
amounting ` 60,000 made on 11
th
 February, 2022 as the warranty period 
of 2 years has already expired. 
(b) As per AS 26 “Intangible Assets”, subsequent expenditure on an
intangible asset after its purchase or its completion should be recognized
as an expense when it is incurred unless (a) it is probable that the
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standard of performance; and (b)
expenditure can be measured and attributed to the asset reliably. If these
conditions are met, the subsequent expenditure should be added to the
cost of the intangible asset.
(i) In the given case, the legal expenses to defend the patent of a
product amounting ` 23,00,000 should not be capitalized and be
charged to Profit and Loss Statement.
(ii) The company is required to expense the entire amount of
` 7,00,000 in the Profit and Loss account for the year ended
31
st
 March, 2024 because no benefit will arise in the future.
(iii) As per AS 26, expenditure on an intangible item that was initially
recognized as an expense by a reporting enterprise in previous
annual financial statements should not be recognized as part of the
cost of an intangible asset at a later date. Thus, the company
cannot capitalize the amount of ` 25,00,000 and it should be
recognized as expense
(iv) Expenditure of ` 50,00,000 on advertising and promotional
activities should always be charged to Profit and Loss Statement.
Hence, the company has done the correct treatment by debiting the
sum of 50 lakhs to Profit and Loss Account.
(c) (1)  Trade discounts and volume rebates received are not
encompassed within the definition of revenue, since they represent 
a reduction of cost. Trade discounts and volume rebates given 
should be deducted in determining revenue. 
(2) When goods are sold to distributor or others, revenue from such
sales can generally be recognized if significant risks of ownership
have passed; however, in some situations the buyer may in
substance be an agent and in such cases the sale should be treated
as a consignment sale.
(3) For transactions, where seller concurrently agrees to repurchase
the same goods at a later date that are in substance a financing
agreement, the resulting cash inflow is not revenue as defined and
should not be recognized as revenue.
(4) Insurance agency commissions should be recognized on the
effective commencement or renewal dates of the related policies.
358
(5) On 11.03.2024, if X mart takes title and accepts billing for the goods
then it is implied that the sale is complete and all risk and reward
on ownership has been transferred to the buyers.
Revenue should be recognized for year ended 31
st
 March, 2024 
notwithstanding that physical delivery has not been completed so long 
as there is every expectation that delivery will be made and items were 
ready for delivery to the buyer at the time. 
2. MN Limited 
Balance Sheet as at 31
st
 March, 2024 
Particulars Note No. (` in 000) 
Equity and Liabilities 
1. Shareholders' funds 
A Share capital 1 300 
B Reserves and Surplus 2 530 
2. Non-Current liabilities 
A Long term borrowings 3 200 
3. Current liabilities 
A Trade Payables   52 
Total 1082 
Assets 
1. Non-current assets 
A PPE (Property, Plant & Equipment) 4 880 
2 Current assets 
A Inventories 86 
B Trade receivables 96 
C Cash and bank balances   20 
Total 1082 
MN Limited 
Statement of Profit and Loss for the year ended 31st March, 2024 
Particulars Notes (` in 000) 
I. Revenue from operations 700 
II. Other Income 5   2 
III Total Income 702 
IV Expenses: 
Purchases 320 
Finance costs 6 20 
359
Depreciation (10% of 760
*
) 76 
Other expenses 7 120 
Total Expenses 536 
V. Profit (Loss) for the period  (III – IV) 166 
Notes to accounts 
(` in 000) 
1. Share Capital 
Equity share capital 
Authorised 
  40,000 shares of ` 10 each 400 
Issued & subscribed & called up 
  30,000 shares of ` 10 each 300 
2. Reserves and Surplus 
Securities Premium Account 40 
Revaluation reserve (360 – 220) 140 
General reserve 130 
Profit & loss Balance 
Opening balance  72 
Profit for the period 166 238 
Less: Appropriations 
  Interim Dividend (18) 220 
530 
3. Long term borrowing 
10% Debentures 200 
4. PPE
Land 
Opening balance 220 
Add: Revaluation adjustment 140 
Closing balance 360 
Plant and Machinery 
Opening balance 770 
Less: Disposed off (10) 
760 
Less: Depreciation (172-8+76) (240) 
Closing balance 520 
*
 770 (Plant and machinery at cost) – 10 (Cost of plant and machinery sold) 
360
Total 880 
5. Other Income
Profit on sale of machinery: 
Sale value of machinery 4 
Less: Book value of machinery (10-8) (2) 2 
6. Finance costs
Debenture interest 20 
7. Other expenses:
Factory expenses 60 
Selling expenses 30 
Administrative expenses 30 120 
Note: The final dividend will not be recognized as a liability at the balance 
sheet date (even if it is declared after reporting date but before approval of 
the financial statements) as per Accounting Standards. Hence, it has not been 
recognized in the financial statements for the year ended 31 March, 2024.  
Such dividends will be disclosed in notes only.  
3. (a)
Fair value of shares immediately prior to exercise of rights + Total  amount  received  from  exercise
Number of shares outstanding prior to exercise + Number of shares issued in the exercise
102 x 2,50,000 Shares +  98 x 1,00,000 shares
3,50,000 shares
`
Theoretical ex-rights fair value per share = `  100.86 
Computation of adjustment factor: 
Fair value per share prior to exercise of rights
Theoretical ex - rights value per share
= 102/100.86 = 1.01 
Computation of earnings per share: 
EPS for the year 2022-23 as originally reported: ` 50,00,000/2,50,000 
shares = ` 20 
EPS for the year 2022-23 restated for rights issue: = ` 50,00,000/ 
(2,50,000 shares x 1.01) 
= ` 19.80 
EPS for the year 2023-24 including effects of rights issue:  
EPS = 75,00,000/3,25,625* = ` 23.03  
* [(2,50,000 x 1.01 x 3/12) + (3,50,000 x 9/12)] =63,125 + 2,62,500
= 3,25,625 shares
Note: Financial year (ended 31st March) is considered as accounting 
year while giving the above answer.  
361