CA (INTERMEDIATE)

ACCOUNTING

MARKS- 100
FULL SYLLABUS- 1
QUESTION PAPER DURATION- 3 Hours

INSTRUCTIONS:

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 Necessary Instructions For Candidates:-
Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.

Wherever necessary suitable assumptions may be made and disclosed by way of a note.

Working Notes should form part of the answer.

QUESTION 1:

(a) A Limited has contracted with a supplier to purchase machinery which is to be

installed at its new plant in four months time. Special foundations were required
for the machinery which were to be prepared within this supply lead time. The
cost of the site preparation and laying foundations were ` 2,10,000. These
activities were supervised by an Architect during the entire period, who is
employed for this purpose at a salary of ` 35,000 per month. The machinery was
purchased for 1,27,50,000 and a sum of ` 2,12,500 was incurred towards
transportation charges to bring the machinery to the plant site. An Engineer was
appointed at a fees of ` 37,500 to supervise the installation of the machinery at
the plant site. You are required to ascertain the amount at which the machinery
should be capitalized in the books of A Limited.
(5 Marks)

(b) Alps Limited has received the following Grants from the Government during the
year ended 31st March, 2021:
a. ` 120 Lacs received as Subsidy from the Central Government for setting up an
Industrial undertaking in Medak, a notified backward area.
b. ` 15 Lacs Grant received from the Central Government on installation of
Effluent Treatment Plant.
c. ` 25 Lacs received from State Government for providing Medical facilities to
its workmen during the pandemic.
Advise Alps Limited on the treatment of the above Grants in its books of Account in
accordance with AS-12 "Government Grants".
(5 Marks)

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 (c) Mr. Rakshit gives the following information relating to items forming part of
inventory as on 31st March, 2019. His factory produces product X using raw
material A.
(i) 800 units of raw material A (purchased @ ` 140 per unit). Replacement cost of
raw material A as on 31st March, 2019 is ` 190 per unit.
(ii) 650 units of partly finished goods in the process of producing X and cost
incurred till date ` 310 per unit. These units can be finished next year by
incurring additional cost of ` 50 per unit.
(iii) 1,800 units of finished product X and total cost incurred ` 360 per unit.
Expected selling price of product X is ` 350 per unit.
In the context of AS-2, determine how each item of inventory will be valued as on 31st
March, 2019. Also, calculate the value of total inventory as on 31st March, 2019.
(5 Marks)

(d) M/s Innovative Garments Manufacturing Company Limited invested in the shares
of another company on 1st October, 20X3 at a cost of 2,50,000. It also earlier
purchased Gold of 4,00,000 and Silver of 2,00,000 on 1st March, 20X1. Market
value as on 31st March, 20X4 of above investments are as follows:
Shares 2,25,000
Gold 6,00,000
Silver 3,50,000

How above investments will be shown in the books of accounts of M/s Innovative
Garments Manufacturing Company Limited for the year ending 31st March, 20X4
as per the provisions of Accounting Standard 13 "Accounting for Investments"?
(5 Marks)

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QUESTION 2:
(a) Beta Ltd. purchased 5,000, 13.5% Debentures of Face Value of ` 100 each of Pergot Ltd.
on 1st May 2021 @ ` 105 on cum interest basis. The interest on these instruments is
payable on 31st & 30th of March & September respectively. On August 1st 2021 the
company again purchased 2,500 of such debentures @ ` 102.50 each on cum interest
basis. On October 1st, 2021 the company sold 2,000 Debentures @ ` 103 each on ex-
interest basis. The market value of the debentures as at the close of the year was `
106. You are required to prepare the Investment in Debentures Account in the books
of Beta Ltd. for the year ended 31st Dec. 2021 on Average Cost Basis.

(8 Marks)
(b) Below balances are taken from the records of M/s Big Shopping Complex for the
year ended 31st March, 2020:

Details Department P (`) Department Q (`)

Opening Stock 1,00,000 80,000
Purchases 13,00,000 18,20,000
Sales 20,00,000 30,00,000
 Closing stock of Department P was `2,00,000 including goods transferred
from Department Q for ` 40,000.
 Closing stock of Department Q was `4,00,000 including goods transferred
from Department P for ` 60,000.
 Opening stock of Department P included goods for ` 20,000 transferred from
Department Q and Opening stock of Department Q included goods for `
30,000 transferred from Department P.
 Assume that above transfer amounts are cost to the transferee departments
and the rate of gross profit is uniform from year to year.
 Total selling expenses incurred were `2,50,000 for both the departments.
From the above information, prepare Departmental Trading Account and Profit &
Loss Account for the year ended 31st March 2020, after adjusting the unrealized
departmental profits, if any.
(12 Marks)

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QUESTION 3:

(a) X purchased three cars from Y on hire purchase basis, the cash price of each car
being ` 2,00,000. The hire purchaser charged depreciation @ 20% on diminishing
balance method. Two cars were seized by on hire vendor when second installment
was not paid at the end of the second year. The hire vendor valued the two cars at
cash price less 30% depreciation charged under diminishing balance method. The
hire vendor spent ` 10,000 on repairs of the cars and then sold them for a total
amount of ` 1,70,000.
You are required to compute: (i) Agreed value of two cars taken back by the hire
vendor and book value of car left with the hire purchaser and (ii) Profit or loss to
hire purchaser on two cars taken back by the hire vendor.
(8 Marks)

(b) Mr. Wise had 12% Debentures of Face Value ` 100 of Alpha Ltd. as current
investments. He provides the following details relating to the investments.
1-4-2020 Opening balance 4,000 debentures costing ` 98 each
1-6-2020 Purchased 2,000 debentures @ ` 120 cum interest
1-9-2020 Sold 3,000 debentures @ ` 110 cum interest

1-12-2020 Sold 2,000 debentures @ ` 105 ex interest

31-1-2021 Purchased 3,000 debentures @ ` 100 ex interest

31-3-2021 Market value of the investments ` 105 each

Interest due dates are 30th June and 31st December.

Mr. Wise closes his books on 31-3-2021. He incurred 2% brokerage for all his
transactions. Show investment account in the books of Mr. Wise assuming FIFO
method is followed.

(12 Marks)

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 QUESTION 4:

(a) Arnold of Delhi, trades in Ghee and Oil. It has a branch at Lucknow. He
dispatches 25 tins of Oil @ ` 1,000 per tin and 15 tins of Ghee @ ` 1,500 per tin
on 1st of every month. The branch incurs some expenditure which is met out of
its collections; this is in addition to expenditure directly paid by Head Office.
Following are the other details:
Delhi Lucknow
` `
Purchases Ghee 14,75,000 -
Oil 29,32,000 -
Direct expenses 3,83,275 -
Expenses paid by H.O. - 14,250
Sales Ghee 18,46,350 3,42,750
Oil 27,41,250 3,15,730
Collection during the year (including - 6,47,330
CashSales)
Remittance by Branch to Head Office - 6,13,250

(Delhi)
Balance as on: 1-1-20X1 31-12-20X1
Stock: Ghee 1,50,000 3,12,500
Oil 3,50,000 4,17,250
Debtors 7,32,750 -
Cash on Hand 70,520 55,250
Furniture & Fittings 21,500 19,350
Plant/Machinery 3,07,250 7,73,500

(Lucknow)
Balance as on: 1-1-20X1 31-12-20X1
Stock: Ghee 17,000 13,250
Oil 27,000 44,750
Debtors 75,750 ?
Cash on Hand 7,540 12,350
Furniture & Fittings 6,250 5,625
Plant/Machinery -

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 Addition to Plant/Machinery on 1-1-20X1 ` 6,02,750.
Rate of Depreciation: Furniture / Fittings @ 10% and Plant / Machinery @
15% (already adjusted in the above figures).

The Branch Manager is entitled to 10% commission after charging such

commission whereas, the General Manager is entitled to 10% commission
on overall company profits after charging such commission. General
Manager is also entitled to a salary of ` 2,000 p.m. General expenses
incurred by H.O. ` 24,000.
Prepare Branch Account in the head office books and also prepare the Arnold’s
Trading and Profit and Loss A/c (excluding branch transactions).
(12 Marks)

(b) A fire engulfed the premises of a business of M/s Kite in the morning, of 1st
October, 2021. The entire stock was destroyed except, stock salvaged of ` 50,000.
Insurance Policy was for ` 5,00,000 with average clause.
Stock in hand on 31st March, 2021 ` 3,50,000

The following information was obtained from the records saved for the period
from 1st April to 30th September, 2021:

`
Sales 27,75,000
Purchases 18,75,000
Carriage inward 35,000
Carriage outward 20,000
Wages 40,000
Salaries 50,000

Additional Information:
(1) Sales upto 30th September, 2021, includes ` 75,000 for which goods had not
been dispatched.
(2) On 1stJune, 2021, goods worth ` 1,98,000 sold to Hari on approval basis
which was included in sales but no approval has been received in respect of
2/3rd of the goods sold to him till 30th September, 2021.

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 (3) Purchases upto 30th September, 2021 did not include ` 1,00,000 for which
purchase invoices had not been received from suppliers, though goods have
been received in godown.
(4) Past records show the gross profit rate of 25% on sales.
You are required to prepare the statement of claim for loss of stock for submission
to the Insurance Company.
(8 Marks)

QUESTION 5:
Rohan Ltd. gives you following information as at 31st March, 2021:

Particulars ` `
Equity and Liabilities
Issued & subscribed capital:
Equity shares capital:
60,000 Equity shares of ` 10 each fully paid up 6,00,000
12% Redeemable Preference share Capital:
5,000 share of ` 100 each 5,00,000
Less: Calls in arrear (4,000) 4,96,000 10,96,000
(final call of ` 20 on 200 shares)
Reserve & surplus
Profit and Loss Account 3,00,000
Securities Premium Account 30,000 3,30,000
Non- current liability
Long term borrowings: 14% Debentures 1,50,000
Current liabilities
Trade payables 74,000
Assets
Non-current Assets
(i) Property, Plant & Equipment 13,00,000
(ii) Non- current Investment 1,00,000
Current Assets
(i) Inventory 50,000
(ii Trade Receivables 20,000
(iii) Bank 1,80,000

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 On April 1, 2021, the Board of Directors decided to redeem the preference shares
(excluding 200 shares on which there are calls in arrear) at 10% premium and to sell
the investment at its market price of ` 80,000. They also decided to issue sufficient
number of equity shares of ` 10 at a premium of `1 per share and the balance in
profit and loss account was to be maintained at ` 1,00,000. Premium on redemption
can’t be set off against securities premium account as Rohan Ltd. is governed by
section 133 of the Companies act, 2013 and comply with Accounting Standards.
You are required to show the journal entries and the balance sheet of the
company immediately after completion of redemption as per Schedule III. Show
working for availability of profits for redemption and determination of bank
balance at the end. All the above formalities and transactions were completed up
to the end of 15th May, 2021.
(20 Marks)

QUESTION 6:

(a) A company incorporated in June 2020, has setup a factory within a period of 8
months with borrowed funds. The construction period of the assets had reduced
drastically due to usage of technical innovations by the company and the company
is able to justify the reasons for the same. Whether interest on borrowings for the
period prior to the date of setting up the factory should be capitalized although it
has taken less than 12 months for the assets to get ready for use. You are required
to comment on the necessary treatment with reference to AS 16.
(5 Marks)

(b) XYZ Ltd. proposes to declare 10% dividend out of General Reserves due to
inadequacy of profits in the year ending 31-03-2020.
From the following particulars ascertain the amount that can be utilized from
general reserves, according to the Companies Rules, 2014: (`)

8,00,000 Equity Shares of ` 10 each fully paid up 80,00,000

General Reserves 25,00,000
Revaluation Reserves 6,50,000
Net profit for the year 1,42,500

Average rate of dividend during the last five years has been 12%.
(5 Marks)
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 OR
The following extract of Balance Sheet of X Ltd. (a non-investment company)
was obtained:
Balance Sheet (Extract) as on 31st March, 2020
Liabilities `
Issued and subscribed capital:
20,000, 14% preference shares of ` 100 each fully paid 20,00,000
1,20,000 Equity shares of ` 100 each, ` 80 paid-up 96,00,000
Capital reserves (` 1,50,000 is revaluation reserve) 1,95,000
Securities premium 50,000
15% Debentures 65,00,000
Unsecured loans: Public deposits repayable after one year 3,70,000
Investment in shares, debentures, etc. 75,00,000
Profit and Loss account (debit balance) 15,00,000
You are required to compute Effective Capital as per the provisions of Schedule V to
Companies Act, 2013.
(5 Marks)

(c) Following is the cash flow abstract of Alpha Ltd. for the year ended 31st March, 2021:
Cash Flow (Abstract)
Inflows ` Outflows `
Opening cash and bank 80,000 Payment for Account 90,000
balance Payables
Share capital – shares 5,00,000 Salaries and wages 25,000
issued
Collection from Trade Payment of overheads 15,000
Receivables 3,50,000 Machinery acquired 4,00,000
Debentures redeemed 50,000
Sale of Machinery 70,000 Bank loan repaid 2,50,000
Tax paid 1,55,000
Closing cash and bank 15,000
balance
10,00,000 10,00,000

(5 Marks)

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(d) Opening Balance Sheet of Mr. A is showing the aggregate value of assets, liabilities
and equity ` 8 lakh, ` 3 lakh and ` 5 lakh respectively. During accounting period, Mr. A
has the following transactions:
(1) Earned 10% dividend on 2,000 equity shares held of ` 100 each
(2) Paid ` 50,000 to creditors for settlement of ` 70,000
(3) Rent of the premises is outstanding ` 10,000
(4) Mr. A withdrew ` 9,000 for his personal use.

You are required to show the effect of above transactions on Balance Sheet in the
form of Assets- Liabilities = Equity after each transaction.
(5 Marks)

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