CA EDGE…excellence in education

CA INTER TEST SERIES November 2023

MTP 2- Full Syllabus
Accounts

Max Time: 3 Hours Max Marks: 100

Instruc ons:

1. Q1 is compulsory. A empt any 4 out of remaining 5.

2. Working notes should form part of answers
3. Start new ques on from new page
4. Avoid Overwri ng and Cu ng
5. On 1st Page of Answer sheet following informa on is to be provided
Name:
Contact Number
Email id
A empt: November 2023
Test date:
Test Topics:
Max Marks:
Marks Obtained:

!!ALL THE BEST!!

Q1(a) Suraj Limited provides you the following information:

(i) It received a Government Grant @40% towards the acquisition of Machinery
worth
₹25 Crores.
(ii) It received a Capital Subsidy of ₹150 Lakhs from Government for setting up
a Plant costing ₹300 Lakhs in a notified backward region.
(iii) It received ₹50 Lakhs from Government for setting up a project for supply of
arsenic free water in a notified area.
(iv) It received ₹5 Lakhs from the Local Authority for providing Corona Vaccine
free of charge to its employees and their families.
(v) It also received a performance award of ₹500 Lakhs from Government with a
condition of major renovation in the Power Plant within 3 years. Suraj Limited
incurred 90% of amount towards Capital expenditure and balance for
Revenue Expenditure.
State, how you will treat the above in the books of Suraj Limited. 5
Q1(b) A trader commenced business on April 1, 2020 with ₹1,20,000 represented by 6,000
units of a certain product at ₹20 per unit. During the year 2020-21 he sold these units at ₹30/-
per unit and had withdrawn ₹60,000. The price of the product at the end of financial year was
₹25/- per unit. Compute retained profit of the trader under the concept of physical capital
maintenance at current cost. Also state, whether answer would be different if the trader had
not withdrawn any amount. 5

Q1(c) A company had imported raw materials worth US Dollars 6,00,000 on 5th January,
2022, when the exchange rate was ₹43 per US Dollar. The company had recorded the
transaction in the books at the above mentioned rate. The payment for the import
transaction was made on 5th April, 2022 when the exchange rate was ₹47 per US Dollar.
However, on 31st March, 2022, the rate of exchange was ₹48 per US Dollar. The company
passed an entry on 31st March, 2022 adjusting the cost of raw materials consumed for the
difference between ₹47 and ₹43 per US Dollar.
In the background of the relevant accounting standard, is the company’s accounting treatment
correct? Discuss. 5

Q1(d) The inventory of Rich Ltd. as on 31st March,2020 comprises of Product A – 200 units
and Product B – 800 units.
Details of cost of these products are
Product A: Material cost, wages cost and overhead cost of each unit are ₹40, ₹30 and ₹20
respectively, each unit is sold at ₹110, selling expenses amounts to 10% of selling costs.

Product B: Material cost, wages cost of each unit are ₹45 and ₹35 respectively and normal
selling rate is ₹150 each, however due to defect in the manufacturing process 800 units of
Product B were expected to be sold at ₹70.
You are requested to value closing inventory according to AS 2 after considering the above
5

Q2(a) A fire occurred on 15th September, 2013 in the premises of Sen & Co. from the following
figures, calculate the amount of claim to be lodged with the insurance company for loss of stock.

Par culars Amount(₹)

Stock at cost on 1.1.2012 40,000

Stock at cost on 1.1.2013 60,000

Purchases in 2012 80,000

Purchases from 1.1.2012 to 15.9.2013 1,76,000

Sales in 2012 1,20,000

Sales from 1.1.2012 to 15.9.2013 2,10,000

During the current year cost of purchase had risen by 10% above the last years’ level. Selling prices
have gone up by 5%. Salvage value of stock a er fire was ₹4, 000. 8
 Q2(b) A Ltd. purchased on 1st April,2022 8% conver ble debentures in C ltd. of face value of Rs.2,00,000
@Rs.108. On 1st July 2022 A Ltd purchased another Rs.1,00,000 debentures @Rs.112 cum interest. On
1st October,2022 Rs.80,000 debentures were sold @Rs.105. On 1st December 2022, C Ltd. give op on
for conversion of 8% Conver ble debentures into equity shares held on that date. A ltd. received 5000
equity shares in C Ltd. in conversion of 25% debentures held on that date. The market price of
debentures and equity shares in C Ltd. on 31st December 2022 is Rs.110 and Rs.15 respec vely. Interest
on debentures is payable each year on 31st March and 30th September. Prepare Investment Account in
the books of A Ltd. on average cost basis for the accoun ng year ended 31st December 2022.
8

Q2(c) XYZ Ltd. Is having inadequacy of profits in the year ending 31-03-2021 and it proposes to declare
10% dividend out of general reserves.
From the following par culars ascertain the amount that can be u lised from general reserves,
according to the Companies (Declara on of Dividend out of Reserves) Rules,2014:
5,00,000 Equity Shares of ₹10 each fully paid up 50,00,000
General Reserves 25,00,000
Revalua on Reserves 6,50,000
Net Profit for the year 1,42,500
Average rate of dividend during the last five years has been 12%. 4

Q3(a) X Ltd. purchased a machine on hire purchase basis from Ideal Machinery Co. Ltd. on the following
terms:
(a) Cash price 40,000;
(b) Down payment at the me of signing the agreement on 1.1.2017 ₹10,811.
(c) 5 annual instalments of 7,700, the first to commence at the end of twelve months from the date
of down payment.
(d) Rate of interest is 10% p.a. You are required to calculate the total interest and interest included in
cash instalment. 4

Q3(b) The following is the Profit & Loss A/c of CAS Ltd., for the year ended 31 st March, 2022:
Par culars Amount(₹) Par culars Amount(₹)

To Adm. And Selling Expenses 8,00,000 By Balance b/d 5,72,000

To dona on to charitable funds 25,000 By Balance from Trading A/c 40,25,000

To Directors Fees 66,000 By Subsidies received from Govt. 2,32,000

To interest on Debentures 31,000 By Interest on Investments 16,000

To Compensa on for breach of contract 42,000 By Transfer Fees 1,000

To Managerial remunera on 2,85,000 By Profit on sale of Machinery:

To Deprecia on on fixed assets 5,22,000 Amount realised- 55, 000

To Provision for Taxa on 12,42,000 Wri en down value- 30, 000 25,000

To General Reserve 4,00,000

To investment Revalua on Reserve 12,000

To Balance c/d 14,46,000

Total 48,71,000 Total 48,71,000

Addi onal informa on:

1. Original cost of machinery sold was ₹ 40, 000.
2. Deprecia on on fixed assets as per Schedule II of the Companies Act, 2013 was ₹ 6, 00, 000.

You are required to comment on the managerial remunera on in the following situa ons:
(a) There is only one whole me director.
(b) There are two whole me directors.
(c) There are two whole me directors and one part me director. 6

Q3(c) Mr. Kothari does not keep complete records of his business but gives you the following
informa on:
His assets on 31.03.2017 consisted of Machineries Rs.150000, furniture Rs. 60,000, Motor Car Rs.
40,000, Stock in trade Rs.50,000, Debtors Rs.80,000, Cash in hand Rs. 12,000 and Cash at bank Rs.
30,000. Creditors on that date amounted to Rs.1,20,000.
On further informa on received, you come to know that:
On 1.10.2016 he purchased a new machinery cos ng Rs.50,000.
Sales are made for cash as well as credit. There is no cash purchases. He always sells his goods at cost
plus 25%. Cash sales for the year 2016-17 were accounted for Rs.80,000.
During the year 2016-17 collec on from debtors amounted to Rs. 5,00,000 and sum of Rs.4,25,000
was paid to creditors. He obtained a bank loan for Rs.50,000 on 1.2.2016. The en re amount was
repaid in February 2017 with interest Rs.2500.
In November 2016 his life insurance policy for Rs. 50,000 became matured and the same was invested
in business. His drawings were Rs.2500 per month all through the year.
On 1.4.2016 he had Rs.1500 as cash in hand and balance at bank for Rs.40,000. Debtors and creditors
on that date amounted to Rs. 60,000 and Rs.90,000 respec vely.
Provide deprecia on on Machineries @15% p.a., on furniture @10% p.a., an on-Motor Car @20% p.a.
Mr. Kothari requests you to prepare a statement of Profit and Loss for the year ended 31.03.2017
10

Q4(a) Preet Ltd. presents you the following informa on for the year ended 31st march 2019:

No. Par cular (Rs. In Lacs)

1 Net profit before tax provision 72,000

2 Dividend paid 20,404

3 Income-tax paid 10,200

Book value of assets sold 444

4 Loss on sale of asset 96

5 Deprecia on debited to P & L A/c 48,000

 6 Capital grant received - amor zed to P & L A/c 20

Book value of investment sold 66,636

7 Profit on sale of investment 240

8 Interest income from investment ccredited to P & L A/c 6,000

9 Interest expenditure debited to P & L A/ 24,000

10 nterest actually paid (Financing ac vity) 26,084

11 Increase in working apital [Excluding cash and bank balance] 1,34,580

12 Purchase of fixed assets 44,184

13 Expenditure on construc on work 83,376

14 Grant received for capital projects 36

15 Long-term borrowings from banks 1,11,732

16 Provision for Income-tax debited to P & L 12,000

Cash and bank balance on 1.4.2018 12,000

Cash and bank balance on 31.3.2019 16,000

You are required to prepare a cash flow statement as per As-3. 10

Q4(b) Mobile Limited has authorized share capital of 1,00,000 equity shares @ ₹10 each. The company
has already issued 60% of its capital for cash. Now the company wishes to issue bonus shares in the
ra o of 1:5 to its exis ng shareholders. The following is the status of reserves and surplus of the
company:
General Reserve ₹1,60,000
Plant Revalua on Reserve ₹25,000
Securi es Premium Account (realised in cash) ₹60,000
Capital Redemp on Reserve ₹80,000
Answer the following ques ons:
a) What is the number of bonus shares to be issued?
b) Can company issue bonus out of General Reserve only?
c) Gove journal entries and also give the extracts of the balance sheet a er such Bonus issue
d) Is it possible for the company to issue partly paid-up bonus shares? 6

Q4(c)
State whether the following statements are 'True' or 'False'. Also give reason for your answer.
a) Certain fundamental accoun ng assump ons underline the prepara on and presenta on of
financial statements. They are usually specifically stated because their acceptance and use are
not assumed.
b) If fundamental accoun ng assump ons are not followed in presenta on and prepara on of
 financial statements, a specific disclosure is not required.
c) All significant accoun ng policies adopted in the prepara on and presenta on of financial
statements should form part of the financial statements.
d) Any change in an accoun ng policy, which has a material effect should be disclosed. Where
the amount by which any item in the financial statements is affected by such change is not
ascertainable, wholly or in part, the fact need not to be indicated. 4

Q5(a)

12

Q5(b)
From the list of following assets and liabili es, prepare the Balance Sheet of the Company as per
Schedule III, Part I of the Companies Act, 2013:
 Liabili es Amount(₹) Assets Amount(₹)

Sundry Creditors 1,00,000 Cash at Bank 79,800

General Reserve 50,000 Cash in Hand 1,500

Interest on Debentures 28,000 Investments- Long Term 95,000

Authorized Share Capital Preliminary Expenses 9,000

1, 20, 000 Equity shares of ₹10
per share- 12,00,000 Current Assets, Loans and Advances 95,000

Subscribed Capital Goodwill 50,000

80, 000 Shares of ₹ 10 each-
8, 00,000 Buildings 6,00,000
Less: Calls -in- Arrears-
15, 000 7,85,000 Plant and Machinery- 6, 60, 000

Profit & Loss Account 75,000 Less: Deprecia on- 66, 000 5,94,000

6% Debentures 6,00,000 Stock 10,000

Bills Payable 76,000 Debtors- 1, 74, 000

Less: Prov. For Doub ul Debts- 8, 700 1,65,300

Furniture 14,400

8 marks

Q6(a) As per the terms of issue of debentures, GGG Ltd. served no ce of its inten on to redeem its
outstanding ₹ 3, 00, 000, 15% debentures of ₹ 100 each at ₹ 110 and offered the holders the following
op ons:
1. To convert their holding into 12% Cumula ve Preference Shared of ₹ 20 each at 110%.
2. To convert their holdings into 15% Debentures at 96%.
3. To have their holdings redeemed in cash unless otherwise opted.
Holders of 1, 800 debentures opted for 1. and holders of 480 debentures opted for 2.
Pass the necessary journal entries. 8

Q6(b)
A firm has two departments- Raw Material and Manufacturing. The finished goods are produced by
the manufacturing department with raw materials supplied by Raw Material department at selling
price. From the following informa on, prepare Departmental Trading and Profit and Loss Account for
the year ended 31st March, 2014:
Raw Material Manufacturing
Par culars Department(₹) Department(₹)

Opening Stock 60,000 10,000

Purchases 4,00,000 3,000

 Raw Materials transferred to Manfacturing Department 60,000 -

Sales 4,40,000 90,000

Manufacturing Expenses - 12,000

Selling Expenses 800 400

Closing Stock 40,000 12,000

Total 10,00,800 1,27,400

It is es mated that the cost of closing stock of Manufacturing Department consists of 75% of raw
materials and 25% for manufacturing expenses. The rate of gross profit earned during the preceding
year by the Raw Materials Department was 10%. A er alloca ng the following expenses on
reasonable basis between the two departments work out the net profit of the firm as a whole:
1. Salaries ₹ 2, 500.
2. Insurance premium ₹ 800. 8

Q6(c) JVR Limited has made investment of ₹97.84 Crores in Equity Shares of QSR Limited in 2016-
17. The investment has been made at par. QSR Limited has been in con nuous losses for the last 2
years. JVR Limited is willing to re-assess the carrying amount of its investment in QSR Limited and
wish to provide for diminu on in value of investment for the year ended 31st March, 2021. Discuss
whether the connec on of JVR Limited to bring down the carrying Amount of investment in QSR
Limited is in accordance with Accoun ng Standards. 4