CA INTER MAY 2023

TEST SERIES
TEST 5
TOPICS: Profit or loss Pre and Post Incorporation, AS-1. AS-10,
AS-11, Branch Accounting
Max Marks: 60 Max time: 1hr 45 min

Q1. Jindal Steel Ltd. was incorporated on 1st August 2022 to take over the running business of
Mysore Steel as from 1st April,2022. From the following information given to us on 31.03.2023
you are required to calculate the profits earned by the company in pre and post incorporation
period.
a) Total Sales for the year amount to Rs.4,80,000.
The trend of Sales was as under:
April: Twice the average Sales in each month
May, February and March One and half times the average sales in each month
October Equal to Average Sale
July and January Half the average Sales in each month
b) Gross profit Rs.84000
c) Director fees Rs.3600
d) Bank Charges Rs.4200
e) Rent Rs.15600
f) Discount and Bad debts Rs.13200
g) General Charges Rs.6600
h) Salary Rs.8800 (There were 3 employees in Pre incorporation period and in Post
incorporation period one more employee was hired). 8

Q2. Sahil Narang Classes Limited was formed to take over a running business of SN
Classes with effect from 1st April,2021. The company was incorporated on 1st
August,2021 and the certificate of commencement of business was received on 1st
October 2021. No entries relating to the transfer of the business were entered in the
books which were continued until 31st March,2022. The following Trial Balance was
extracted from the books as on 31st March,2022.
Particulars Dr. (₹) Cr. (₹)
Sales 9,60,000
Cost of Goods sold 7,77,000
Rent 40,000
Salaries 21,000
Travelling Expenses 8400
Depreciation 4800
Carriage outward 400
Printing & Stationary 2400
Advertisement 8,000
Miscellaneous Expenses 12600
Directors' fees 600
Managing Director's Remuneration 4100
Bad debts 1600

CA SAHIL NARNG 8054449596

 Commission & Brokerage to selling Agents 8,000
Audit fees 3,000
Interest on Debentures 1500
Interest to Vendors 2100
Selling & Distribution Expenses 12000
Preliminary Expenses 1500
Underwriting Commission 900
Fixed Assets 365,000
Current Assets 43800
Cool Limited’s Capital as on 1st April, 2021 278,000
Current Liabilities 30700
Debentures 50,000
Total 1318700 1318700

Additional Information:
(a) Total Sales for the year arose evenly up to the date of the certificate of
commencement where-after they spurted to record an increase of two third during
the rest of the year.
(b) The Company deals in one type of product. The unit cost of goods sold was
reduced by 10% since 1st August, 2021 as compared to the pre incorporation
period.
(c) Rent of old office building was increased by 20% since 1 st November,2021. It had to
also occupy additional space from 1stJuly, 2021 for which rent was ₹3,000 p.m.
(d) The Salaries were tripled from 1st July,2021.
(e) Travelling Expenses include ₹2400 towards sales promotion.
(f) Depreciation includes, ₹300 for new assets acquired in August 2021.
(g) Purchase consideration was discharged by the company on 30 th September, 2021
by issuing 30,000 Equity shares of ₹10 each.
You are required to prepare the Profit & Loss Statement in a columnar form for the year
ended 31st March,2022 showing the allocation of profits between pre-incorporation and post-
incorporation periods indicating the basis of apportionment. 20
Q3. A ltd. has filed an application with the High Court to merge its subsidiary B Ltd with
effect from 01.04.2022. As per the books of accounts, a loan was given by A Ltd. to B Ltd.
and B Ltd. had given assets to A Ltd. on lease. In view of the aforesaid pending application,
A Ltd. has neither disclosed the interest income on the loan given to B Ltd. nor the lease
rentals payable by it to B Ltd. during the year 2022-23. Comment whether the treatment
done by A ltd. is correct. 5

Q4. Arush Limited is installing a new plant in its factory. It provides you the following
information:

CA SAHIL NARNG 8054449596

Cost of the plant (cost as per supplier’s invoice) 31,25,000
Estimated dismantling costs to be incurred after 5 years 250000
Initial operating losses before commercial production 375000
Initial delivery and handling costs 185000
Cost of site preparation 450000
Consultants used for advice on the acquisition of the plant 650000
5

Q5.
a) An entity bought a plot of land for development of office buildings. Development of the
land was scheduled in 6 phases. The land scheduled for development in phases 5 and 6
was leased to another entity on a short term basis as a parking lot for heavy vehicles.
What is treatment of rental income from car parking lot?

b) Determine if the following costs can be added to the invoiced purchase price and
included in the initial recognition of the cost of the asset:
(i) Insurance for Shipping
(ii) Cost associated with removing a section of factory roof to allow the machine to be
dropped into place and subsequently refitting the roof.
(iii) A portion of the operating costs (Salaries, office Expenses) of the purchasing
department 5

Q6. Explain briefly the accounting treatment needed in the following cases as per AS 11 as on
31.3. 20X1.
Trade receivables include amount receivable from Ted of US ₹5,00,000 recorded at the
prevailing exchange rate on the date of sales, transaction recorded at US $ 1=₹38.70.
Long term loan taken from a U.S. Company, amounting to ₹60,00,000. It was recorded at US $
1 = ₹35.60, taking exchange rate prevailing at the date of transaction.
Exchange rates at the end of year were as under:
US $ 1 receivable = Rs.45.80
US $ 1 Payable = Rs.45.90 5

Q7. Show adjustment journal entry in the books of head office at the end of April, 2014 for
incorporation of inter-branch transactions assuming that only head office maintains different
branch accounts in its books.
A. AP branch:
1. Received goods from MP – ₹ 30,000 and 25,000 from UP.
2. Sent goods to WB – ₹ 20,000, UP – ₹ 30,000.
3. Bill Receivable received – ₹ 10,000 from WB.
4. Acceptances sent to MP – ₹ 10,000, UP – ₹ 20,000.
B. MP Branch (apart from the above):
5. Received goods from UP – ₹ 20,000, AP – ₹ 10,000.
6. Cash sent to AP– ₹ 20,000, UP – ₹ 10,000.
C. WB branch (apart from the above):
7. Received goods from UP – ₹ 40,000.
8. Acceptances and Cash sent to UP – ₹ 10,000 and ₹15,000 respectively.

CA SAHIL NARNG 8054449596

 D. UP Branch (apart from the above):
9. Paid cash to WB and MP – ₹15,000 and Rest. 10000 respectively. 7

Q8. Global limited has a branch which closes its books of accounts every year on 31 st March.
This is an independent branch which maintains comprehensive books of account for recording
their transactions, you are required to show journal entries in the books of branch on 31.03.2011
to rectify or adjust the following:
(i) Head Office expenses 135000 allocated to the Branch, but not recorded in the Branch
Books.
(ii) Depreciation of branch assets, whose accounts are kept by the Head Office not provided
earlier for 11500.
(iii) Branch paid 140000 as salary to a H.O. Inspector, but the amount paid has been debited
by the Branch to Salaries account.
(iv) H.O. collected 130000 directly from a customer on behalf of the Branch, but no
intimation to this effect has been received by the Branch.
(v) A remittance of ₹ 150000 sent by the Branch has not yet been received by the Head
Office. 5

CA SAHIL NARNG 8054449596