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CA Intermediate
Advanced Accounting
Mock Test Paper – 5
Question No. 1 is Compulsory.
Candidates also required to answer any four questions from the remaining five
questions.
Working notes should form part of the respective answers.

Q. Questions Marks
No.
1. Answer the following questions: [5 x 4]
a) As on 31st March, there was a claim for damage from one of the customers
against the Company engaged in selling of accounting software for an alleged
failure to provide satisfactory after-sales services in relation to the software
purchased from it. Before finalization of the accounts for the year ended 31st
March (the accounts were finalized on 14th June), the Company won the case and
had no liability whatsoever in this regard. The Company has made a Provision
for this Contingent Liability in its accounts for the year ended 31st March, which,
it says, will be reversed in the next year. Comment.

b) An engineering goods company provides after sales warranty for 2 years to its
customers. Based on past experience, the company has been following policy for
making provision for warranties on the invoice amount, on the remaining
balance warranty period:
Less than 1 year: 2% provision
More than 1 year: 3% provision
The company has raised invoices as under:
Invoice Date Amount (₹)
19th January, 2016 40,000
29th January, 2017 25,000
15 October, 2018
th 90,000
Calculate the provision to be made for warranty under Accounting Standard 26 as at
31st March, 2018 and 31st March, 2019. Also compute amount to be debited to Profit
and Loss Account for the year ended 31st March, 2019.

c) In April, 2018, A Limited issued 18,00,000 Equity shares of ₹10 each, ₹5 per
share was called up on that date which was paid by all the shareholders. The
remaining ₹5 was called up on 1-9-2018. All the Shareholders (except one
having 3,60,000 shares) paid the sum in September 2018. The net profit for the
year ended 31-3-2019 is ₹33 lakhs. After dividend on preference shares and
dividend distribution tax of ₹ 6.60 lakhs.
Compute the basic EPS for the year ended 31st March, 2019 as per AS 20.

d) A Ltd. entered into a contract with B Ltd. to dispatch goods valuing ₹25,000
every month for 4 months upon receipt of entire payment. B Ltd. accordingly
made the payment of ₹1,00,000 and A Ltd. started dispatching the goods. In
third month, due to a natural calamity, B Ltd. requested A Ltd. not to dispatch
goods until further notice through A Ltd. is holding the remaining goods worth
₹50,000 ready for dispatch. A Ltd. accounted ₹50,000 as sales and transferred
the balance to Advance Received against Sales.
Comment upon the treatment of balance amount with reference to the
provisions of Accounting Standard 9.

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2. a) The Balance Sheet of indu limited as at 31st March 2019 was as follows: 10
Liabilities Amount Assets Amount
(₹) (₹)
Authorized and Subscribed Fixed Assets: 3,50,000
capital: Machineries
10.000 Equity Shares of 10,00,000 Current Assets:
₹100 each
Unsecured Loan: Stock 2,53,000
15% Debentures 3,00,000 Debtors 2,30,000
Accrued Interest 45, 000 Bank 20,000
Current Liabilities: Creditors 52,000 Profit and Loss 5,80,000
Account
Provision for Income-Tax 36,000
Total 14,33,000 Total 14,33,000
It was decided to reconstruct the Company for which necessary resolution was
passed and sanctions were obtained from appropriate authorities. Accordingly it was
decided that-
1. Each Share shall be sub-divided into 10 Fully paid Shares at ₹10 each.
2. After sub-division, each Shareholder shall surrender to the Company, 50% of his
holdings for the purpose of re-issue to Debenture holders and Creditors as
necessary.
3. Out of shares surrendered, 10.000 Shares of ₹10 each shall be converted into 10%
Preference Shares of ₹10 each fully paid up.
4. The claims of the Debenture holders shall be reduced by 50%. In consideration of
the reduction, the Debenture holders shall receive Preference Shares of ₹1,00,000
which are converted out of shares surrendered.
5. Creditors’ claims shall be reduced by 25%, and balance claim is to be settled by
the issue of Equity shares of ₹10 each out of shares surrendered.
6. Balance of Profit and Loss Account to be written off.
7. The shares surrendered and not re-issued shall be cancelled.
You are required to show the Journal Entries given effect to the above and the
resultant Balance Sheet.
b) The following particulars are extracted from the records of M/s. Engco Bank 10
Limited for the year ended 31st March, 2019:
Particulars Amount (₹)
Rebate on bills discounted (not due on March 31 , 2018)
st 60,610
Discount received 6,10,800
Bills discounted 24,42,250
An analysis of the bills discounted is a follows:
Amount (₹) Due Date
3,75,000 April 15, 2019
4,90,000 May 6, 2019
2,45,000 June 1, 2019
3,68,000 June 20, 2019
4,85,000 July 4, 2019
The rate of discount is 12% per annum. You are required to:
i) Calculate rebate on bills discounted as on 31st March, 2019.
ii) Determine the amount of discount to be credited to the profit and loss account for
the year ended 31st March, 2019.
iii) Show the necessary journal entries in the books of M/s. Engco Bank Ltd. as on 31st
March, 2019.

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3. a) The statement of affair of Hl. Ltd. and its subsidiary S. Ltd. as on 31 March, 2019 20
are as follows:
Equity and Liability H. Ltd. (₹) S. Ltd. (₹)
Equity Shares of ₹100 each, fully paid up 10,00,000 5,00,000
General Reserve 1,00,000 1,70,000
Surplus 1,60,000 1,30,000
Current Liabilities 4,40,000 2,00,000
17,00,000 10,00,000
Assets
Fixed Assets 4,80,000 2,50,000
Investment in Shares of S. Ltd. 5,00,000 -
Current Assets 7,20,000 7,50,000
17,00,000 10,00,000
The following additional information is provided:
i) H. Ltd. acquired 3,000 shares in S. Ltd. on 1 July, 2018. The Reserve and Surplus
position of S. Ltd. as on 1 April 2018 was as under:
General Reserve: ₹2,50,000
Surplus: ₹1,20,000
ii) On 1 October, 2018 S. Ltd. issued one equity share for every four shares held as
Bonus shares out of the General Reserve. No entry has been made in the books of H.
Ltd., for the receipt of these bonus shares. However, entry has been made in the
books of S. Ltd. for the issue of bonus shares.
iii) On 30 September, 2018, S. Ltd. declared a dividend out of pre-acquisition profits
@ 25% on ₹4,00,000, its capital on that date. H. Ltd., transferred the dividend to its
Profit and Loss Statement.
iv) S. Ltd. owed H. Ltd., ₹50,000 for purchase of stock from H. Ltd. The entire stock is
held by S. Ltd. on 31 March 2019. H. Ltd. made a profit of 25% on cost.
Prepare a Consolidated Balance Sheet of H. Ltd. and its subsidiary S. Ltd. as on 31
March 2019.
4. a) In a winding up which commenced on 15th September 2019, certain creditors 10
could not receive payments out of the realization of assets and out of contribution
from ‘A’ list of contributories. Following are the details of certain shares transfers
that took place prior to liquidation and the amount of creditors remaining unpaid:
Shareholders No. of Shares Date when Creditors remaining
transferred ceased to be unpaid and outstanding
member on the date of creasing
to be a member
(₹)
L 2,000 31-8-2018 8,000
M 1,800 20-9-2018 12,000
N 1,200 15-11-2018 17,400
O 1,000 22-4-2019 18,600
P 500 10-7-2019 22,000

All the shares were of ₹10 each, on which ₹5 per share had been called and paid up.
Ignoring expenses of liquidation, remuneration to liquidator etc., work out the
amount to be realized from the above contributories.

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b) East, West and South were in partnership sharing profits and losses in the ratio of 10
5:3:2 respectively. They decide to dissolve the firm on 31st March, 2010 on which
date their balance sheet stood as follows:-
Liabilities ₹ Assets ₹
East’s Capital 60,000 Machinery 1,00,000
Account
West’s Capital 33,000 Furniture 26,000
Account
South’s Capital 20,000 Stock 74,000
Account
East’s Loan 10,000 Debtors 39,000
Account
North’s Loan 40,000 Cash 4,000
Account
Sundry creditors 80,000
2,43,000 2,43,000
The asset were realized piecemeal as follows and it was agreed that cash should be
distributed as and when realized:
Date Assets realized ₹
30th April, 2010 Machinery and Stock 95,000
31 May, 2010
st Debtors and Stock 40,000
30th June, 2010 Debtors and Stock 38,000
31st July, 2010 Stock and Furniture 30,000
Cash as on 31 March, 2010, ₹ 4,000 was held back for dissolution expenses which
st

ultimately amounted to ₹ 3,500. prepare a statement showing distribution of cash at

the end of each one of the four months.
Apply proportionate Capitals Methods.
5. a) The following are the Balance Sheets of Strong Limited and Small Limited as at 10
31st December, 2018:-
Liabilities Strong Small Assets Strong Small
Limited Limited Limited Limited
(₹) (₹) (₹) (₹)
Share Capital Fixed Assets
cost
Shares of the Less 1,40,000 75,000
face depreciation
Value of ₹10 Current Assets
Each 1,50,000 1,20,000 Stock 42,000 47,000
Reserves 95,000 10,000 Trade Debtors 30,000 50,000
Secured Loans Balance at Bank 80,000 10,000
10% ---- 20,000
Debentures
Current
Liabilities
Trade 47,000 32,000 ------ ------
Creditors
2,92,000 1,82,000 2,92,000 1,82,000
Strong Limited agreed to absorb small Limited as on 31 December, 2018 on the
st

following terms:-
i) Strong Limited agreed to repay 10% debentures of Small Limited.
ii) Strong Limited to revalue its Fixed Assets at ₹1,95,000, to be incorporated in the
books.
iii) Shares of both the companies to be valued on net assets basis, after considering

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₹50,000 towards value of goodwill of Small Limited.

iv) The Costs of absorption of ₹3,000 are met by Strong Limited.
You are Required to:-
i) Calculate the ratio of exchange of shares.
ii) Give journal entries in the books of Strong Limited.
iii) Construct the bank account to arrive at the balance on absorption.

b) Following is the Balance Sheet of M/s competent Limited as on 31st March, 2019: 10
Liabilities Amount Assets Amount
(₹) (₹)
Equity Shares of ₹10 Each) 12,50,000 Fixed Assets 76,50,000
Revenue reserve 15,00,000
Securities Premium 2,50,000
Profit & Loss Account 1,25,000
Secured Loans:
12% Debentures 18,75,000
Unsecured Loans 10,00,000
Current Liabilities 16,50,000
76,50,000 76,50,000
The company wants to buy back 25,000 equity shares of ₹10 each, on 1st April, 2019
at ₹20 per share. Buy back of shares is duly authorized by its articles and necessary
resolution passed by the company towards this. The payment of buy back of shares
will be made by the company out of sufficient back balance available as part of
Current Assets.
Comment with your calculations, whether buy back of shares by company is within
the provision of the companies Act, If you pass necessary journal entries towards buy
back of shares and prepare of Balance Sheet after buy back of shares.
6. Answer any four of the following:
a) Explain the concept of preferential payments as per section 327 of the
Companies Act.
Preferential Creditors as per Section 327 it includes the following (all the
following have the equal preferences in order)
b) People Financiers Ltd, is an NBFC providing Hire Purchase Solutions for acquiring 5
Consumer Durables. The following information is extracted from its books for
year ended 31st March:
Asset Funded Interest Overdue but recognized in Net Book Value of
Profit & Loss Assets Outstanding
Period Overdue Interest Amount (₹ Crores)
(₹ Crores)
LCD Televisions 4 months 480.00 20,123.00
Washing For 16 months 102.00 2,410.00
Machines
Refrigerators For 36 months 50.50 1,280.00
Air Conditioners For 48 months 56.75 647.00
You are required to calculate the amount of provision to be made.
c) X Co. Ltd. has its share capital divided into equity shares of ₹10 each. On 5
1.10.2018 it granted 20,000 employees’ stock option at ₹50 per share, when the
market price was ₹120 per share. The options were to be exercised between 10th
December, 2018 and 31st March, 2019. The employees exercised their options for
16,000 shares only and the remaining options lapsed. The company closes its
books on 31st March every year.
Show Journal entries (with narration) as would appear in the book of he company
upto 31st March, 2019.

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d) Write short note on: Acceptance and Endorsements. 5

e) A Machine having expected useful life of 6 years, is leased for 4 years. Both the 5
Cost and the Fair Value of the Machinery are ₹7,00,000. The amount will be paid
in 4 equal instalments and at the termination of lease, Lessor will get back the
Machinery. The Unguaranteed Residual Value at the end of the 4th year is
₹70,000. The IRR of the investment is 10%. The Present Value of Annuity Factor
of ₹1 due at the end of 4th year at 10% IRR is 3.169. The Present Value of ₹1 due
at the end of 4th year at 10% Rate Interest is 0.683. State with reasons whether
the Lease constitutes Finance Lease and also compute the Unearned Finance
Income.

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