CA Intermediate September 2026 Suggested Answers CA Intermediate (new scheme) September 2026 - Paper 1 Advanced Accounting - Suggested Answers

FOR CA INTERMEDIATE EXAM PREPARATION

CA Intermediate 2026
Suggested Answers ·
CA Intermediate (new
scheme) September
2026 - Paper 1
Advanced Accounting -
Suggested Answers
EXAM YEAR TYPE

CA Intermediate 2026 Suggested Answers
SUBJECT

CA Intermediate (new scheme) September 2026 - Paper 1 Advanced Accounting - Suggested Answ
DATE

September 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

m
m .co
c. o

e m
em l a s
s a g

PAPER – 1 : ADVANCED ACCOUNTING
m
m Part I - Multiple Choice Questions c. o
.co s em
me l a
a s
Case Scenario - I
g
l Ltd. is a listed company with diversified operations. The financial statementsa
aofgthe company are prepared on 31 March every year. While finalising the
Earth
st

financial statements for the year 2025-26, following transactions appeared before
the accountant of the company:
Earth Ltd. purchased fixed assets (PPE) costing US $ 3,00,000 on 1st January, 2026
from an American company. The amount was payable after 6 months. Earth Ltd.
entered into a forward contract on 1st January, 2026 for six months @ ` 93 per

m
US $. On 1st January, 2026 the exchange rate was 1 US $ = ` 90.

. co
em
On 1st April, 2024, Earth Ltd., received a government Grant of ` 50 lakhs for

s
acquisition of machinery costing ` 250 lakhs. The grant was credited to the cost

g l a
of asset. The estimated useful life of the machinery is 8 years. The machinery is

a
depreciated @ 15% on written down value basis. Earth Ltd. had to refund the
government grant on 1st April, 2026 due to non-compliance of certain conditions.
The fair value of plan assets of Earth Ltd. was ` 10,00,000 in respect of employee
benefit pension plan as on 1st April, 2025. During the year 2025-26, the plan paid
out benefits of ` 1,25,000 and received inward contribution of ` 2,75,000. On
31st March, 2026, the fair value of plan assets was ` 15,00,000. On 1st April, 2025,
expected rate of return was 10.5%.
m
m
Earth Limited provides a comprehensive 2-year after-sales warranty to its
.co
c. o customers. As per its documented accounting policy under AS-29, warranty

se
m
em la
provisions are measured on the outstanding invoice balances at the reporting

las date based on the remaining warranty window:
a g
ag • Remaining warranty period of less than 1 year: 2% provision
• Remaining warranty period of more than 1 year: 3% provision

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 1 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

The company has raised following invoices:
Invoice date `
20th Dec, 2024 ` 3,00,000
25th October, 2025 ` 2,50,000
Based on the information given in the above case scenario, answer the following
questions from 1 to 4 as per relevant accounting standards:
1. In respect of the asset purchased from an American Company, what will be
the amount of profit or loss on forward contract to be recognised by Earth
Ltd. for the year 2025-26?
(A) Loss of ` 4,50,000
(B) Profit of ` 4,50,000
(C) Loss of ` 9,00,000
(D) Profit of ` 3,00,000 (2 Marks)
2. What will be the book value of the machinery after the refund of the
government grant on 1st April, 2026?
(A) ` 140.00 lakhs
(B) ` 194.50 lakhs
(C) ` 144.50 lakhs
(D) ` 180.63 lakhs (2 Marks)
3. In respect of plan assets of Earth Ltd., what will be the actual returns on plan
assets as on 31st March, 2026?
(A) ` 1,00,000
(B) ` 3,50,000
(C) ` 5,00,000
(D) ` 6,50,000 (2 Marks)
4. Compute the amount to be transferred to provision for warranties A/c from
profit and loss account on 31st March, 2026, if opening balance of provision
for warranties as on 1st April, 2025 is ` 9,000.

2

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 2 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(A) ` 7,500
(B) ` 9,000
m
(C) ` 13,500
m c. o
c. o
(D) ` 4,500 (2 Marks)
s e m
m offers its employees a sabbatical leave policy. Employees who la
5. DeeeLtd.

l a s 5 years of continuous service are entitled to 3 months of paid g
a
g
complete

a sabbatical leave. The leave can be availed once every 5 years.
As per AS-15, sabbatical leave will be treated as a
(A) Short-term employee benefits
(B) Long-term employee benefits
(C) Post employment benefits
(D) Terminal benefits (2 Marks)

o m
Case Scenario - II
c
.of steel bars and also in construction of
e m
residential and commercial units.s The company is preparing its financial
Starline Ltd. is engaged in manufacturing

a
l 31, 2026. Following are the transactions
statements for the year endedgMarch
a
that took place in FY 2025-26.
On 1st April, 2025, Starline Ltd. took a specific bank term loan of ` 50,00,000
carrying interest @ 12% p.a. exclusively to construct an automated steel plant (a
qualifying asset). The structural layout and physical installation of the plant was
fully completed on 31st January, 2026, making it ready for active operations. Due
to subsequent testing schedules, commercial production was commenced on
1st April, 2026. During the construction phase, unutilized liquid funds from this

o m
c
loan were temporarily placed in fixed bank deposits, earning an interest income
m .
c. o On October 1, 2025, Starline Limited purchased 10,000 equity shares m
of ` 40,000.

m s e of a listed
s e a
entity, Zenex Ltd., at ` 150 per share, intended to be held for lshort-term
g
a a
trading.

gl
a
Brokerage of 1% was paid on the purchase. On October 11, 2025 (10 days after
purchase), Starline Limited received a dividend of ` 10 per share from Zenex Ltd.
This dividend was declared by Zenex Ltd. for the financial year ended

3

m .
.co s e m
e m l a
l a s ag
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 3 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

March 31, 2025. On March 31, 2026, the market price of Zenex Ltd. dropped to
` 130 per share.
In January 2026, a customer filed a lawsuit against Starline Limited claiming
damages of ` 8,00,000 due to supply of inferior quality of steel bars. The
company's legal counsel estimates a 70% chance that the court will rule against
company. However, the final payout is yet to be decided.
The company discovered a minor chemical leak at its factory site in March 2026.
While there is no legal obligation to clean up the local soil under current laws,
but the company has widely publicized the policy stating that it will clean up all
environmental contamination it causes. The estimated cost of clean-up is
` 2,50,000.
On 31st March, 26, in the construction business of Starline Limited, the company
finds that at the end of the year 10 flats are semi-finished and cost of each flat
till date is ` 15,90,000. These flats can be completed in 2026-27 by an additional
expenditure of ` 9,30,000 per flat. The completed flat can be sold out for
` 22,50,000 per flat subject to a payment of 5% brokerage on selling price. The
semi-finished flats cannot be sold in partly finished form and net realisable value
is zero without further construction.
Based on the information given in the above case scenario, answer the following
questions from 6 to 9:
6. In accordance with AS 16, what amount of borrowing cost can be capitalized
as a part of the cost of automated steel plant?
(A) ` 6,00,000
(B) ` 5,00,000
(C) ` 4,60,000
(D) ` 5,60,000 (2 Marks)
7. What should be the carrying amount of the short-term investment in Zenex
Ltd. in the books of Starline Ltd. as on 31st March, 2026?
(A) ` 13,00,000
(B) ` 14,15,000
(C) ` 14,00,000

4

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 4 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(D) ` 15,15,000 (2 Marks)
8. How should Starline Limited handle the Customer Lawsuit and the
m
c. o
Environmental Clean-up in its financial statements?
m
.co
(A) Recognize a provision for the lawsuit based on the customer's claim of

s em
e m
` 8,00,000; Recognize a provision of ` 2,50,000 for the environmental
l a
a s clean-up.
g
l(B) Disclose the lawsuit as a Contingent Liability in the Notes to Accounts;a
ag Recognize a provision of ` 2,50,000 for the environmental clean-up in
the Balance Sheet.
(C) Disclose both the lawsuit and the environmental clean-up as Contingent
Liabilities since the court has not passed a final order on either.
(D) Recognize a provision for the lawsuit at a nominal/estimated amount of
` 5,60,000; Ignore the environmental clean-up entirely because there is

m
no legal obligation. (2 Marks)
9.
. co
The Starline Ltd. seeks your advice regarding the amount at which the semi-

s em
finished flat should be valued. What will be the value of semi-finished flats

l a
as at 31st March, 2026 under the provisions of AS 2 (Revised) "Valuation of
g
Inventories"?
(A) ` 1,59,00,000
a
(B) ` 1,32,00,000
(C) ` 1,20,75,000
(D) ` 1,47,75,000 (2 Marks)
10. As per Accounting Standard Framework, Income:

m
co
(A) Decreases in economic benefits during the accounting period in the form
m .
c. o m
of inflow, or enhancement of assets or decreases in liabilities that result

em
in decreases in equity, other than those relating to contributions from

la se
las equity participants.
g
a period, in the form
ag (B) Increases in economic benefits during the accounting
of inflow, or enhancement of liabilities, or decreases in assets that result
in decreases in equity, other than those relating to contributions from
equity participants.

5

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 5 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(C) Increases in economic benefits during the accounting period in the form
of inflow, or enhancement of assets, or decreases in liabilities that result
in increases in equity, other than those relating to contributions from
equity participants.
(D) A resource controlled by the enterprise as a result of past events from
which future economic benefits are expected to flow to the enterprise.
(2 Marks)
Case Scenario - III
The summarized Balance Sheet of Gram Dynamics Limited as on 31st March, 2026
is as follows:

S.No. Particulars Note No. Amount `
Equity and Liabilities
1. Shareholders’ Funds
(a) Share Capital 1 50,00,000
(b) Reserves and Surplus 2 63,50,000
2. Non-current liabilities
(a) Long-terms borrowings 3 4,00,000
3. Current liabilities
(a) Trade Payables 40,000
Total 1,17,90,000
Assets
1. Non-current assets
Property, Plant and Equipment 37,50,000
Non-Current Investments (at cost) 40,00,000
2. Current assets
(a) Inventories 15,40,000
(b) Trade receivables 15,00,000
(c) Cash and cash equivalents 10,00,000
Total 1,17,90,000

6

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 6 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Notes to Accounts:

Note Particulars
m
`

c. o
No.

o m m
.c e
1. Share Capital

m a s
se3,00,000 Equity share capital of ` 10 each fully paid up
Authorized, Issued and subscribed Capital

a g l
20,00,000 a
30,00,000
l
ag
20,000, 8% Preference shares of ` 100 each fully paid up
Total 50,00,000
2. Reserves and Surplus
Capital Reserve 50,000
Revaluation Reserve 3,00,000
Revenue Reserve 40,00,000
Securities Premium 2,00,000

om
Profit & Loss Account 18,00,000

. c Total 63,50,000
Long-term borrowings em
3.

l a s
ag
10% Debentures 4,00,000
Total 4,00,000

On 1st April, 2026 Gram Dynamics Limited passed a special resolution and
received all necessary approvals to execute a buy-back of its equity shares. The
company decided to buy back 20% of its equity shares (face value of ` 10 each)
at a buy-back price of ` 15 per share.
For this purpose, the directors of the company decided to:
(i) Sell its investments of ` 30 Lakhs for ` 25 Lakhs.
o m
m (ii) Utilize the Securities Premium account to its maximum available c
. extent to
c. o s em
em
provide for the premium payable on the buy-back. Any remaining shortfall

s for the premium payable on buy-back was to be written
g l a off against the

l a a
ag
balance of Profit and Loss account.
(iii) The statutory transfer required for the Capital Redemption Reserve (CRR)
under Section 69 of the Companies Act, 2013 was to be funded entirely out
of the revenue reserve.

7

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 7 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Based on the information given in the above case scenario, answer the following
questions from 11 to 14:
11. What should be the exact amount that must be transferred to the Capital
Redemption Reserve (CRR) and what will be the closing balance of the
Revenue reserve immediately after the buy-back is recorded?
(A) ` 6,00,000 will be transferred to Capital Redemption Reserve (CRR) and
closing balance of Revenue Reserve after recording buy-back will be
` 40,00,000.
(B) ` 9,00,000 will be transferred to Capital Redemption Reserve (CRR) and
closing balance of Revenue Reserve after recording buy-back will be
` 31,00,000.
(C) ` 3,00,000 will be transferred to Capital Redemption Reserve (CRR) and
closing balance of Revenue Reserve after recording buy-back will be
` 37,00,000.
(D) ` 6,00,000 will be transferred to Capital Redemption Reserve (CRR) and
closing balance of Revenue Reserve after recording buy-back will be
` 34,00,000. (2 Marks)
12. According to Division I of Schedule III of the Companies ACT, 2013, what will
be the total value of "Reserves & Surplus" to be disclosed under shareholders'
funds in the Balance Sheet immediately after passing all the entries relating
to the buy back?
(A) ` 57,50,000
(B) ` 55,50,000
(C) ` 60,50,000
(D) ` 52,50,000 (2 Marks)
13. How would Gram Dynamics Limited classify the items of buy back if it
prepares Cash Flow Statement as per AS-3 after completion of buy-back of
its equity shares?
(A) Entire amount of buy-back ` 9,00,000 should be classified as cash flow
from financing activities and sale of investments ` 25,00,000 as cash
flow from investing activities.

8

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 8 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(B) Entire amount of buy-back ` 9,00,000 should be classified as cash flow
from financing activities and sale of investments ` 30,00,000 as cash
flow from investing activities.
m
m c. o
co
(C) Face value of shares ` 6,00,000 should be classified as cash flow from

. em
s
financing activities, Premium paid ` 3,00,000 as cash flow from

em l a
s
operating activities and sale of investments ` 25,00,000 as cash flow

l a from investing activities.
a g
ag (D) items
Entire amount of buy-back ` 9,00,000 should be disclosed as Extraordinary
under cash flow from operating activities and sale of investments
` 25,00,000 as cash flow from investing activities. (2 Marks)
14. Immediately after completion of buy back, what is the strictly permitted
utilization of the newly created Capital Redemption Reserve?
(A) It can be utilized to write off preliminary expenses or the direct expenses
incurred during the buy-back process.
m
c. o
(B) It can be utilized to declare and pay dividends to the remaining equity

emsubsequent capital losses incurred on the
shareholders in future financial years.

s
la assets.
(C) It can be utilized to set off any

a g
sale of the company's fixed
(D) It can be utilized by the company in paying up unissued shares of the
company to be issued to members of the company as fully paid bonus
shares. (2 Marks)
15. Due to inadequacy of profits during the year ended 31st March, 2026, Aditya
Ltd. proposes to declare 10% dividend out of General Reserves. Following
details are available from the books of Aditya Ltd.

o m`
c
Particulars
m .
c. o m
70,000, 9% Preference share capital of ` 100 each, fully paid up 70,00,000
32,00,000 Equity share capital of ` 10 each, fully paid up se 3,20,00,000
s em g la 1,00,00,000
la a
General Reserve as on 1 April, 2025
st

ag Capital Reserve as on 1 April, 2025
st
12,00,000
Revaluation Reserve as on 1st April, 2025 14,00,000
Net profit for the year 31 st
March, 2026 12,00,000

9

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 9 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Average rate of dividend during last 3 years has been 12%.
What will be balance amount of General Reserve after withdrawal for
dividend from reserves according to Companies (Declaration of Dividend out
of Reserves) Rules, 2014, assuming all the conditions are satisfied for
payment of dividend out of free reserves?
(A) ` 32,00,000
(B) ` 68,00,000
(C) ` 73,70,000
(D) ` 44,00,000 (2 Marks)
Answer Key

MCQ. No. Correct Answer
1. (A)
2. (B)
3. (B)
4. (D)
5. (B)
6. (C)
7. (A)
8. (A)
9. (C)
10. (C)
11. (D)
12. (B)
13. (A)
14. (D)
15. (C)

10

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 10 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Part II - Descriptive Questions
Question No. 1 is compulsory.
m
m c. o
Answer any four questions from the remaining five questions.

.co
Wherever necessary, suitable assumptions may be made and indicated in
s em
e m answer by the candidates.
l a
a
l 1s Working Notes should form part of the answer.
ag
ag
Question
(a) Mr. Atul wants to build a new office building. For this purpose, he borrowed
a loan of USD 50,000 on April 1, 2025 at an interest rate of 8% p.a. payable
annually. On the same day, he purchased land for ` 40 lakhs and incurred
` 1 lakh to demolish old structure built thereon. A sum of ` 12,000 was
realized from the sale of material salvaged from the office site. He also paid
stamp duty and registration charges @ 6% of land value. Following other

m
expenses were incurred in construction of office building during the year

c. o ` 23,000
2025-2026:

Legal fees
s em
l a
ag
Architect's fees ` 65,000
Labour and material charges ` 18,00,000
Interior designer fees ` 1,25,000
The office will take substantial period of time to get ready. On April 1, 2025
the exchange rate was 1 USD = ` 92 and on March 31, 2026, 1 USD = ` 96.
The corresponding amount could have been borrowed by Mr. Atul in local
currency at an interest rate of 12% p.a. as on April 1, 2025.

m
You are required to calculate:

m .c o
c. o
(i) Value of office building which should be capitalized in the books of
m
eloan amount
Mr. Atul as per the provisions of AS-10 and AS-16 as on 31st March, 2026,

em s
(ii) Discuss the treatment of exchange difference incurredaon
l
l as as on 31 March, 2026.
st
a g (5 Marks)

ag (b) On 1 April, 2025 a dealer Breeze Limited purchased a machine for
` 12,00,000. The economic life of the machine is estimated 5 years. The
estimated output from the machine over its useful life is as follows:

11

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 11 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Year Estimated output (In units)
1 12,000
2 24,000
3 36,000
4 48,000
5 30,000

On the same day, the machine was given on a 3 years operating lease to
Cool Limited. The terms and conditions of lease are as follows:
(i) The lease rental were fixed to yield a 25% margin on cost.
(ii) Lease rentals would be receivable in equal annual instalment over the
lease term.
The directors of Breeze Limited decided that the lease rentals would be
recognised in the books as income in proportion of output during the lease
period. The company will charge depreciation on machine on straight line
method @ 20% p.a.
You are required to:
(i) Compute the annual lease rent.
(ii) Lease rent income to be recognised in each operating year.
(iii) Journal entries in the books of Breeze Limited for the year ended
31st March, 2026. (5 Marks)
(c) Z Technologies Ltd. reports the following financial structure details for the
year ended 1st April, 2026:

10,00,000 equity shares of ` 10 each fully paid-up ` 1,00,00,000
50,000, 8% Preference Shares of ` 100 each fully paid up ` 50,00,000
Other Information:
(i) Profit after tax ` 58,00,000 for the financial year 2025-2026.
(ii) Employee Share Options (ESOPs): On 1st April, 2025, the company
granted 1,50,000 stock options to its employees at an exercise price of
` 20 per share. The options remained unexercised as of 31st March, 2026.

12

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 12 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(iii) Bonus Issue: On 1st October, 2025, the board approved a bonus issue of
1 new equity share for every 5 existing shares outstanding.

m
c. o
(iv) The average fair market value of one equity share of Z Technologies Ltd.
m
co
during the year 2025-2026 was ` 25.

. e m
m
You are required to:
e the Basic Earnings Per Share and Diluted Earnings Per Share for gl a s
a s
lZ Technologies Ltd. for the financial year ended 31 March, 2026, ina
Compute

g
a accordance with AS 20.
st

(4 Marks)
Answer
(a)

Cost Component Amount
(`)
Land Purchase Price 40,00,000
m
. co
Stamp Duty & Registration (6% of ` 40,00,000) 2,40,000

em
Demolition of Old Structure 1,00,000

la s
Less: Salvage Material Realized (12,000) 88,000
Legal Fees
a g 23,000
Architect's Fees 65,000
Labour and Material Charges 18,00,000
Interior Designer Fees 1,25,000
Borrowing Costs (W.N. 1) 5,52,000
Total Capitalized Project Value 68,93,000

m
c. o
The following computation would be made to determine the amount

m of borrowing costs for the purposes of paragraph 4(e) of AS 16:

c. o (i) Interest for the period = USD 50,000 x 8% x ` 96/USD m
s e= ` 3,84,000
s em g la = USD 50,000
la
(ii) Increase in the liability towards the principal amount

g
x (92-96) = ` 2,00,000 a
a (iii) Interest that would have resulted if the loan was taken in Indian currency
= USD 50,000 x 92 x 12% = ` 5,52,000

13

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 13 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(iv) Difference between interest on local currency borrowing and
foreign currency borrowing = ` 5,52,000 – ` 3,84,000 = ` 1,68,000
Therefore, out of ` 2,00,000 increases in the liability towards
principal amount, only
` 1,68,000 will be considered as the borrowing cost and capitalized
in value of the building as borrowing cost as per AS16 and balance
` 32,000 would be charged to Profit and Loss account as per AS 11.
Thus, total borrowing cost would be ` 5,52,000 (` 3,84,000 +
` 1,68,000) being the aggregate of interest of ` 3,84,000 on
foreign currency borrowings (covered by paragraph 4(a) of AS 16)
plus the exchange difference to the extent of difference between
interest on local currency borrowing and interest on foreign
currency borrowing of ` 1,68,000.
(b) (i) Annual lease rent
Total lease rent

Output during lease period
= 125% of ` 12,00,000 × Total output

= 15,00,000 x (12,000 +24,000+ 36,000)/(12,000 + 24,000 +
36,000 + 48,000 + 30,000)
= 15,00,000 x 72,000 units/1,50,000 units = ` 7,20,000
Annual lease rent = ` 7,20,000 / 3 = ` 2,40,000
(ii) Lease rent Income to be recognized in each operating year
Total lease rent should be recognized as income in proportion of
output during lease period, i.e. in the proportion of 12: 24: 36 i.e. 1:2:3.
Hence income recognized in years 1, 2 and 3 will be as:
Year 1 ` 1,20,000,
Year 2 ` 2,40,000 and
Year 3 ` 3,60,000.

14

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 14 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(iii) Journal Entries in the Books of Breeze Limited for the year
ended 31st March, 2026:

m
c. o
Date Particulars
mMachine A/c (Given
` `

c. o operating Lease) em
1.4.2025 on Dr. 12,00,000

me l a s
l a s To Bank/Vendor A/c 12,00,000
ag
g
a 31.03.2026 Cool Ltd.
(Being machine purchased)
Dr. 2,40,000
To Lease Rent Income A/c 1,20,000
To Unearned Lease 1,20,000
Income A/c Or Lease
Equalization A/c
(Being lease rent for the year
due)
m
co
Depreciation A/c Dr. 2,40,000
.
em
To Machine A/c (Given on 2,40,000
operating Lease)
l a s
(Being
year) a g
depreciation for the

31.03.2026 Bank A/c Dr 2,40,000
To Cool Ltd. A/c 2,40,000
31.03.2026 P & L A/c Dr. 2,40,000
To Depreciation A/c 2,40,000
(Being depreciation for the year
transferred to P & L A/c)

o m
m
31.03.2026 Lease Rent Income A/c Dr 1,20,000
.c
c. o To Profit and Loss A/c
se
m1,20,000

em la
(Being lease rent income

las transferred to P&L A/c)
a g
ag

15

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 15 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Working Note:
Depreciation for three years of lease
Since this is an operating lease, the machine remains an asset of the
lessor (Breeze Ltd.) and is depreciated over its own useful life
(5 years), not the 3-year lease term:
Depreciation p.a.=20% x `12,00,000 = ` 2,40,000.
(c) Earnings Attributable to Equity Shareholders
`
Profit after tax 58,00,000
Less: Preference Dividend (8% on ` 50,00,000): 4,00,000
Net Profit attributable to Equity Shareholders 54,00,000

Computation of Basic EPS

Shares
Existing Equity Shares as on 1st April, 2026 10,00,000
(inclusive
of Bonus shares)
Basic EPS 54,00,000/10,00,000
` 5.40 per share

Since bonus shares have been allotted on 1st October, 2025, they would
have been included in the above 10,00,000 shares.
Computation of Diluted EPS

Stock Options (ESOPs) granted 1,50,000 options at exercise price
of ` 20
Average Fair Market Value ` 25 per share
Proceeds from ESOP exercise 1,50,000 x 20 = ` 30,00,000
Shares issued for fair value ` 30,00,000 / ` 25 = 1,20,000
No-consideration (dilutive) shares 1,50,000 - 1,20,000 = 30,000
shares

16

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 16 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Total Diluted Weighted Average 10,00,000 + 30,000 = 10,30,000
Shares

m
c. o
Diluted EPS ` 54,00,000/10,30,000

o m m
c
` 5.24 per share (rounded off)

Question 2 . s e
e m l a
la s a g
g
(a) Following is the information provided by Gama Ltd. on 31 March, 10 2026: st

a (in Lakhs)

Particulars Debit (`) Credit (`)
Equity Share Capital (of 10 each fully paid up) 15,000
Calls in Arrear 15
Inventory of Raw Material 750
Inventory of Finished Goods 3,000

om
Trade Receivables 3,000

. c
em
Short term Advances 640

las
Cash in hand 450

ag
Cash at Bank 3,705
Land and Building 8,250
Plant and Machinery 7,875
Furniture 750
Profit and Loss Account 1,300
General Reserve 3,150
Loan from State Financial Corporation 2,250

om
Unsecured Loan 1,815

m c. 2,400
c. o
Trade payables (for Goods and expenses)

em 600
s 1,920
Loans and advances from related parties

s em Provision for Taxation
g la
gla Total
a
28,435 28,435
a The following additional information is also provided in respect of the above
balances:

17

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 17 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(i) The balance of ` 2,250 Lakhs in the Loan Account with State Financial
Corporation includes ` 110 Lakhs for interest Accrued but not Due. The
loan is secured by hypothecation of Plant and Machinery.
(ii) Trade receivables of ` 780 Lakhs are due for more than 6 months.
(iii) The cost of the assets are as follows:
Building ` 9,000 Lakhs; Plant and Machinery ` 10,500 Lakhs and
Furniture ` 950 Lakhs.
(iv) Inventory of finished goods includes loose tools costing ` 50 Lakhs (which
do not meet the definition of property, plant and equipment as per
AS 10)
(v) Bills receivables for ` 48 Lakhs maturing on 11th May, 2026 have been
discounted with bank.
(vi) Balance at bank includes ` 30 Lakhs in a bank which is not a Scheduled
Bank.
(vii) A transfer of ` 60 Lakhs to general reserve is proposed by Board of
Directors.
From the above information, you are required to prepare Balance Sheet of
Gama Ltd. as required by Division I, Schedule III of Companies Act, 2013.
(10 Marks)
(b) B Limited provides you the following balances for the year ended
31st March, 2026.

3,000, 9% preference shares of ` 100 each (fully paid up) ` 3,00,000
72,000 Equity Shares of ` 10 (fully paid up) ` 7,20,000
6% Debentures (4,000 Debentures of ` 100 each) ` 4,00,000
Unsecured Loan ` 60,000
On 1st April, 2026 A Ltd. takes over the business of B Ltd. and discharge the
purchase consideration as follows:
(i) 9% Preference shareholders of B Ltd. will be discharged at premium of
15% by issuing necessary number of 8% Preference shares of ` 100 each
in A Ltd.

18

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 18 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(ii) 6% Debenture holders of B Ltd. will be issued 7% Debentures of A Ltd. at
5% premium.

m
c. o
(iii) Equity shareholders of B Ltd. will be issued 5 equity shares in A Ltd. of
m
co
` 10 each in lieu of every 6 equity shares held in B Ltd.
. em
m
(iv) Equity Shareholders of B Ltd. will also be given cash ` @2 per equity
e l a s
l a s share on number of shares issued by A Ltd.
(v) Expenses of Liquidation of B Limited are to be reimbursed by A Limiteda
g
ag to the extent of ` 20,000. Actual expenses amounted to ` 25,000.
You are required to calculate purchase consideration as per AS 14.
(4 Marks)
Answer
(a) Gama Ltd.

m
Balance Sheet as at 31st March, 2026
Particulars
. co Notes ` In lakhs
Equity and Liabilities m
s e
l a
Share capital ag
1. Shareholders' funds
(a) 1 14,985
(b) Reserves and Surplus 2 4,450
2. Non-current liabilities
Long-term borrowings 3 3,955
3. Current liabilities
(a) Short Term Borrowings 4 600

110m
(b) Trade Payables 5 2,400

m
(c) Other current liabilities
. c o
c. o (d) Short Term Provisions
m
se 28,420
1,920

em la
Total

las Assets
a g
ag 1. Non-current assets
PPE 6 16,875

19

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 19 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

2. Current assets
(a) Inventories 7 3,750
(b) Trade receivables 8 3,000
(c) Cash and cash equivalents 9 4,155
(d) Short-term loans and advances 640
Total 28,420

Notes to accounts

` In lakhs
1. Share Capital Equity share capital
Issued & subscribed & called up
1500 lakh Equity Shares of ` 10 each 15,000
Less: Calls in arrears (15) 14,985
Total 14,985
2. Reserves and Surplus
General Reserve 3,150
Add: current year transfer 60 3,210
Profit & Loss balance
Profit for the year 1300
Less: Appropriations: 1,240
(60)
Transfer to General Reserve
Total 4,450
3. Long-term borrowings
Secured Term Loan
State Financial Corporation Loan
(2,250-110)
(Secured by hypothecation of Plant 2,140
and Machinery)
Unsecured Loan 1815
Total 3,955

20

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 20 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

4. Short term Borrowings
Loans and advances- from related 600
m
c. o
parties

o m m
c
5. Short-term provisions
. for taxation
mProvision s e
6.se Property, plant and equipment
a
1,920
l
g a
l Land and Building ag
a Less: Depreciation (b.f.)
9,000
(750) 8,250
Plant & Machinery 10,500
Less: Depreciation (b.f.) (2,625) 7,875
Furniture 950
Less: Depreciation (b.f.) (200) 750

m
Total 16,875
7. Inventories Raw Materials
. c o 750
Finished goods (3000-50) m
s e 2,950

l a
ag
Loose tools 50
Total 3,750
8. Trade receivables
Outstanding for a period exceeding six 780
months
Others 2,220
Total 3,000

m
9. Cash and cash equivalents

m c. o
c. o
Balances with Banks
3,675 m
with Scheduled Banks
s e 3705
s em with others
g la
30

gla Cash in hand a 450
a Total 4,155

21

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 21 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Contingent Liabilities
Bills receivable for ` 48 lakhs maturing on 11th May 2026 have been
discounted. (Not matured)
Note:
1. Loans and advances- from related parties and Unsecured Loan both
can be shown in either or of short-term Borrowing or Long-term
Borrowing as tenure of loans are not specified.
(b) Calculation of Purchase Consideration as per AS 14

Payment To Mode of Payment & Amount
Working (`)
1. 9%Preference Shareholders 3,000 shares × ` 100 each 3,45,000
= ` 3,00,000 + 15%
Premium (` 45,000)
discharged via 8%
Preference Shares in
A Ltd.
2. Equity Shareholders- (72,000 × 5/6) × ` 10 6,00,000
Share: 5 shares of A Ltd. = 60,000 shares × 10
(` 10 each) for every 6 of
B Ltd.
3. By Cash: 60,000 X ` 2 per share on 1,20,000
shares issued by
A Ltd.
4. Total Purchase Consideration 10,65,000

Exclusion from PC as per AS 14
• Debenture Holders: The discharge of 6% Debenture holders by
issuing 7% Debentures of A Ltd. at a 5% premium is an agreement
to settle a liability. This is not included in the calculation of purchase
consideration.
• Liquidation Expenses: The reimbursement of liquidation expenses
(up to ` 20,000) by A Ltd. is a post-takeover adjustment and is
excluded from the purchase consideration.

22

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 22 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Question 3
The following are the Balance Sheets of Big Ltd. and Small Ltd. as on March 31, 2026:
m
m
(in lakhs)
c. o
.co
Particulars Notes Big Ltd. Small Ltd.
s em
m
e Equity and Liabilities l a
s
(` ) (` )

g a
l Shareholders’ funds ag
a1.
(a) Share Capital 1 1,600 800
(b) Reserve and Surplus 2 600 400
2. Non-Current Liabilities
Long-term borrowings 3 400 300
3. Current Liabilities

om
(a) Trade Payables 500 300
(b) Other Current Liabilities
. c 100 80
m
eTotal
las
3,200 1,880

ag
Assets
1. Non-current Assets
(a) Property, Plant and Equipment 4 1,500 580
(b) Non-current investments 160 160
2. Current Assets
(a) Inventories 480 640
(b) Trade Receivables 840 420

o m80
.c 1,880
(c) Cash and Cash Equivalents 220
m
c. o Note to accounts: e(`min lakhs)
Total 3,200

em la s
las ag
g
Big Ltd. Small Ltd.
a (` ) (` )
1. Share capital
Equity share capital of ` 10 each 1,200 600

23

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 23 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

12% preference share capital of ` 10 each 400 200
1,600 800
2. Reserve and Surplus:
General reserve 450 350
Profit & Loss account 150 50
600 400
3. Long term borrowings:
10% Debentures of ` 100 each 400 300
400 300
4. Property, Plant and Equipment:
Land and Building 1,000 300
Plant & Machinery 400 180
Furniture and Fixtures 100 100
1,500 580

Big Ltd. agreed to acquire the business of Small Ltd. as on March 31, 2026.
While computing the agreed consideration, the directors of Big Ltd. revalued the
following assets and liabilities of Small Limited:

` in lakhs
Land and Building 400
Plant and Machinery 162
Furniture and Fixtures 90
Non-current Investments 180
Trade Receivables 399

The consideration payable by Big Ltd. was agreed as follows:
(i) Cash payment of ` 3 per share for every 12% Preference share and ` 2 each
to equity shares in Small Ltd.
(ii) Big Limited will issue 64 lakhs shares of ` 10 per share, fully paid up in Big
Ltd. at an agreed value of ` 25 per share to be divided among equity and
preference shareholders in the ratio of number of shares held in small
Limited.

24

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 24 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(iii) Big Limited also agreed to discharge the 10% Debentures of Small Ltd. at a
premium of 15% by allotment of 12% Debentures of ` 100 each at par.

m
c. o
Other information:
m
.co m
(I) The cost of liquidation of Small Ltd. came to `1,00,000 which was borne by

m s e
a
Small Ltd. The cash balance of Small Ltd. after deducting cost of liquidation

s e
is taken over by Big Ltd.
g l
a
(II) lThe non-current investments of Big Ltd. consist of 1.6 lakhs, 10% debenturesa
ag of small Ltd. purchased at par.
(III) On 1st April, 2026 Big Limited issued 20 lakh equity shares of ` 10 each fully
paid up for cash.
You are required to:
(i) Prepare necessary Ledger Accounts to close the books of Small Ltd.
(ii) Pass required journal entries on acquisition in the books of Big Ltd.
m
. co (14 Marks)
Answer
s em
(i)
g l a
Ledger Accounts to Close the Books of Small Ltd.

aRealization Account

` lakhs ` lakhs
To Land & Building 300 By Trade Payables 300
To Plant & Machinery 180 By Other Current Payables 80
To Furniture & Fixtures 100 By 10% Debentures 300
To Non-current Investments 160 By Big Ltd. A/c (PC) 1,780
m
co
To Inventories 640
m .
c. o To Trade Receivables 420

se
m
em la
To Cash (liquidation exp.) 1

las To Cash (bal. transferred) 79
a g
ag To Preference Shareholders 260
A/c (profit)

25

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 25 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

To Equity Shareholders A/c 320
(profit)
Total 2,460 Total 2,460

1. Cash and Cash Equivalents Account

` lakhs ` lakhs
To Balance b/d 80 By Realization A/c (liquidation 1
exp.)
By Realization A/c (transferred
to Big Ltd.) 79
Total 80 Total 80

2. Big Ltd. Account

` lakhs ` lakhs
To Realization A/c 1,780 By Equity shares in Big Limited 1,600
By cash A/c 180
Total 1,780 Total 1,780

3. Preference Shareholders Account

` lakhs ` lakhs
To equity shares in 400 By 12% Pref. Share 200
Big Limited Capital A/c
To Cash 60 By Realization A/c (profit 260
share)
Total 460 Total 460

4. Equity Shareholders Account

` lakhs ` lakhs
To equity share in 1,200 By Equity Share Capital 600
Big Ltd. A/c A/c
To cash A/c 120 By General Reserve A/c 350
By P&L A/c 50

26

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 26 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

By Realization A/c 320
(profit share)

m
c. o
Total 1,320 Total 1,320
m
(ii)
c. o Journal Entries in the Books of Big Ltd. ` lakhs
s em
mBusiness Purchase A/c ......
e To Liquidator of Small Ltd. A/c l a
s ag
1 Dr. 1,780

g l a 1,780
a (Being business of Small Ltd. taken over)
2 Land & Building A/c Dr. 400
Plant & Machinery A/c Dr. 162
Furniture & Fixtures A/c Dr. 90
Non-current Investments A/c Dr. 180
Inventories A/c Dr. 640

om
Trade Receivables A/c Dr. 399
. c
em
Cash and Cash Equivalents A/c (80-1) Dr. 79

s
laA/c
Goodwill A/c (Balancing figure) Dr. 510

g
a Payables A/c
To Trade Payables
To Other Current
300
80
To 10% Debentures of Small Ltd. A/c 300
To Business Purchase A/c 1,780
(Being assets and liabilities of Small Ltd.
incorporated at agreed values, balance
debited to Goodwill)

m
c. o 180
3 Liquidator of Small Ltd. A/c Dr. 1,780

m
c. o
To Bank A/c
m 640
se
To Share Capital A/c (64L × ` 10)

s em To Securities Premium A/c (64L × ` 15)
g la 960

gla (Being PC discharged by cash and issue of 64
a
a 4
lakh equity shares of ` 10 each at ` 25)
10% Debentures of Small Ltd. A/c Dr. 140
Goodwill A/c (15% of 140 L) Dr. 21

27

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 27 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

To 12% Debentures A/c 161
(Being external holding of 10% Debentures
discharged at 15% premium via 12%
Debentures at par; premium will be adjusted
as Goodwill)
5 10% Debentures of Small Ltd. A/c Dr. 160
To Non-current Investments A/c 160
(Being Big Ltd.'s own holding of Small Ltd.'s
debentures cancelled against corresponding
liability taken over)

Working Notes
1. Purchase Consideration (Net Payment Method)
Shares outstanding in Small Ltd.: Equity = 600/10 = 60 lakh shares;
Preference = 200/10 = 20 lakh shares (ratio 3:1) ` lakhs

Particulars Equity Preference Total
Shareholders Shareholders
Cash (` 2/equity share; 60L × 2 20L × 3 = 60 180
` 3/pref. share) = 120
Shares of Big Ltd. (64L shares 48L × 25 16L × 25 = 400 1,600
in ratio 3:1= 48L:16L, @ = 1,200
= ` 10 + `,15 premium) ` 25
agreed value)
Total 1,320 460 1,780
Purchase Consideration = ` 1,780 lakhs
2. Discharge of 10% Debentures (` 300 lakhs): Big Ltd. already holds
`160 lakhs of Small Ltd.'s 10% Debentures as investment; balance
`140 lakhs is held externally.
• External holders (`140L): discharged at 15% premium
= 140 × 1.15 = ` 161 lakhs, via 12% Debentures at par.
• Held by Big Ltd. itself (`160L): simply cancelled against the
Investment account (self-owed debt cannot survive
amalgamation).

28

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 28 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Question 4
(a) The Extracts from the Balance Sheets of Joy Limited for the year ended
m
c. o
31st March, 26 and 31st March, 25 are as follows: (Amount in `)

o m m
c
Equity. and Liabilities:
31 March,26 31 March,25
e
st st

e m l a s
s
laEquity Share Capital (of ` 100 each
Shareholder’s Funds
a g
g
a fully paid) 10,00,000 10,00,000

Reserves and Surplus
General Reserve 4,20,000 3,84,000
Profit and Loss Account 1,56,000 90,000
Current Labilities
Trade Payables 63,800 97,500

om
Provision for Tax 2,10,000 1,90,000
Provision for Doubtful Debts
. c 12,000 10,000

em
las
Total 18,61,800 17,71,500

ag
Assets
Non-Current Assets
(i) Property, Plant and Equipment
Building 4,50,000 4,68,000
Plant and Machinery 4,20,300 3,82,800
(ii) Intangible Assets
Goodwill 1,30,000 1,30,000

m
c. o
(iii) Non-current investments

m
c. o
Investment 1,12,500 1,00,000

em
s
Current Assets

s em Inventories 2,80,000 a
g l 3,00,000

gla Trade Receivables
a
2,23,000 2,20,700
a Cash 2,46,000 1,70,000
Total 18,61,800 17,71,500

29

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 29 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Additional Information:
(1) During the current year i.e. 2025-26, Company charged depreciation of
` 30,500 on plant and machinery and ` 18,000 on building. The
Company had created a further provision for doubtful debts for ` 2,000.
(2) ` 1,80,000 were paid towards the income tax.
(3) An interim dividend of ` 50,000 was paid in the month of January 2026.
(4) Investment costing ` 50,000 were sold in February 2026 for ` 48,000 and
on 1st March new investments were made for ` 62,500.
On the basis of the above information, you are required to prepare Cash Flow
Statement as per AS-3 for the year ending 31st March 2026. (10 Marks)
(b) Matrix Ltd. provides the following operational data for a production plant as
on 31st March, 2026 :

Cost of Plant ` 70,00,000
Carrying Amount ` 36,00,000 (This includes a revaluation
surplus of ` 8,00,000 credited to the
revaluation reserve in the year 2024-25).
Recoverable Amount 20,00,000.
Remaining Useful Life 4 years
Estimated Salvage Value 4,00,000

You are required to:
Calculate the Impairment Loss for the plant, show its accounting treatment
as per the provisions of AS 28 and also compute the current year's
depreciation charge. (4 Marks)
Answer
(a) Cash Flow Statement of Joy Limited
For the year ended 31st March, 2026
` `
Cash flow from operating activities
Net Profit before taxation (W.N.1) 3,52,000

30

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 30 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Adjustment for
Add: Adjustment for Provision for 2,000
m
c. o
Doubtful Debts (` 10,000-` 12,000)

o m m
c
Add: Depreciation ` (30,500 +18,000) 48,500
. on sale of investments (W.N.3)
mLoss s e
e a
2,000

s l
a
l changes ag
Operating profit before working capital 4,04,500

g
a Decrease in inventory 20,000
Increase in trade receivables (2,300)
Decrease in Trade payables (33,700)
Cash generated from operations 3,88,500
Income tax paid (1,80,000) 2,08,500
Net cash generated from operating activities

o m
c
Cash flow from investing activities

m . (W.N.3)
Purchase of plant (W.N.2) se
Proceeds from sale of investments 48,000

la(W.N.3)
(68,000)

a g
Purchase of investments (62,500) (82,500)
Net cash used in investing activities
Cash flow from financing activities
Dividends paid (50,000)
Net cash used in financing activities (50,000)
Net decrease in cash and cash equivalents 76,000

m
Cash and cash equivalents at the beginning 1,70,000

m
of the year
.c o
c. o Cash and Cash equivalents at the end of the
se
m2,46,000

em la
year

las a g
ag

31

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 31 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Working Notes:

1. `
Net profit before taxation
Retained profit 1,56,000
Less: Balance as on 31.3.2025 (90,000)
66,000
Add: Transfer to general reserve 36,000
Provision for taxation 2,00,000
Dividend 50,000
3,52,000

2. Plant and Machinery Account
` `
To Balance b/d 3,82,800 By Depreciation 30,500
To Bank-Purchase 68,000 By Balance c/d 4,20,300
4,50,800 4,50,800

3. Investments Account
` `
To Balance b/d 1,00,000 By Cash (Sale) 48,000
To Bank-Purchase 62,500 By P&L (Loss) 2,000
By Balance c/d 1,12,500
1,62,500 1,62,500

4. Provision for Taxation Account

` `
To Bank 1,80,000 By Balance b/d 1,90,000
To Balance c/d 2,10,000 By Profit and loss A/c 2,00,000
3,90,000 3,90,000

32

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 32 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(b) According to AS 28 (Impairment of Assets), an impairment loss occurs
when the carrying amount of an asset exceeds its recoverable amount.

m
c. o
Impairment loss = carrying amount – recoverable amount

o m m
c
. amount
Particulars `

s e
e m
Carrying 36,00,000
l a
l a s
Recoverable amount 20,00,000
a g
ag Impairment Loss 16,00,000

Accounting Treatment: As per AS 2 8 impairment loss on a revalued
asset must be recognized directly against any revaluation surplus
available for that specific asset.
Therefore, ` 8,00,000 of the carrying amount represents a revaluation
surplus (credited to Revaluation Reserve in 2024-25), the impairment
loss is first set off against that reserve; the balance goes to P& L.
m
Revaluation Reserve A/c
. co Dr. 8,00,000
Profit and Loss A/c
s em Dr. 8,00,000
To Plant A/c
l a 16,00,000

agEntry, it can be put in any other format also.
Note: Instead of Journal
(ii) Computation of current year deprecation:
`
New carrying amount (36,00,000 − 16,00,000) 20,00,000
Less: salvage (4,00,000)
Depreciable amount 16,00,000
m
co
Depreciation (16,00,000 / 4 years) 4,00,000 p.a.
m .
c. o se
m
s em g la
gla a
a

33

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 33 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

Question 5
Following are the summarized balance sheets of Himalaya Ltd. and Sagar Ltd. for
the year ended 31st March, 2026: (` in 000)

Particulars Himalaya Ltd. Sagar Ltd.
(` ) (` )
Equity and Liabilities
Shareholders’ Funds
Equity Share Capital (of ` 100 each fully paid) 2,400 400
Reserves and Surplus
General Reserve 870 310
Profit and Loss Account 560 130
Current Liabilities
Trade Payables 650 250
Total 4,480 1,090
Assets
Non-Current Assets
Property, Plant and Equipment
Plant and Machinery 1,280 360
Furniture 750 68
Non-current Investments
Shares in Sagar Ltd: 3,000 shares @ 200 each 600 -
Current Assets
Inventories 536 124
Trade Receivables 946 474
Cash and bank 368 64
Total 4,480 1,090
(i) On 1st April, 2025, Himalaya Ltd. acquired 75% shares of Sagar Ltd. On the
same date, the balance of General Reserve and Profit and Loss Account of
Sagar Ltd. stood as follows:
General Reserve : ` 1,00,000
Profit and Loss Account : ` 60,000

34

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 34 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

(ii) On 1st April, 2025, the Plant and machinery of Sagar Ltd. whose book value
was ` 4,00,000 had been revalued at ` 6,00,000. Similarly, on 1st April, 2025,
the furniture of Sagar Ltd. whose book value was ` 80,000 had been revalued
m
at ` 60,000.
m c. o
.co
(iii) The rate of Depreciation computed on the useful lives of Plant and Machinery
s em
e m l a
s
and Furniture are 10% and 15% respectively.

l a ag
ag
(iv) Trade receivables of Sagar Ltd. include ` 80,000 to be received from Himalaya
Ltd. for the goods supplied during the year 2025-26.
(v) The inventories of Himalaya Ltd. includes goods costing ` 1,23,000 (cost to
Himalaya Ltd.) purchased from Sagar Ltd. These goods were sold by Sagar
Limited at 23% above cost.
On the basis of the above information, you are required to prepare the
Consolidated Balance Sheet of Himalaya Ltd. with its subsidiary Sagar Ltd. as at
31st March, 2026. (14 Marks)

o m
c
Answer

m . Himalaya Ltd. and its Subsidiary
e 31 March, 2026
Consolidated Balance Sheet of

a s
Sagar Ltd. as at st

Particulars
a gl Note No. (` 000)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capita 1 2400
(b) Reserves and Surplus 2 1,610
(2) Minority Interest 3 245

m820
(3) Current Liabilities

m (a) Trade Payables (650 + 250 - 80)
c. o5,075
c. o Total
se
m
s em II. Assets
g la
gla (1) Non-current assets a
a (a) Property, Plant and Equipment 4 2621
(b) Intangible assets 5 45

35

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 35 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(2) Current assets
(a) Inventories 6 637
(a) Trade Receivables (946+474-80) 1,340
(a) Cash & Cash Equivalents (368 + 64) 7 432
Total 5,075

Notes to Accounts

` (000)
1. Share capital
Equity share capital
Issued & subscribed & called up
24,000 equity shares of ` 100 each, 2,400
fully paid up
2. Reserves and Surplus
Reserves 870
Add: 75%share of Sagar Ltd.’s post- 157.5 1,027.50
acquisition reserves (W.N.3)
Profit and Loss Account 560
Add: 75% share of Sagar Ltd.’s post- 39.75
acquisition profits (W.N.4)
Less: Unrealized profit on inventory (17.25) 582.50 1,610
75% of 23,000
3. Minority interest in Sagar Ltd. 245
(WN 5)
4. Property, plant and equipment
Plant & Machinery
Himalaya Ltd. 1,280
Sagar Ltd. 400
Add: Appreciation 200
600
Less: Depreciation (600 X 10%) (60) 540 1,820

36

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 36 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Furniture
Himalaya Ltd. 750
m
c. o
Sagar Ltd. 80
m
.co
Less: Decrease in value (20)

s em
m
e Depreciation (60 X 15%)
60
l a
l a s
Less: (9) 51 801
a g
g
a5. Intangible assets 2,621

Goodwill [WN 6] 45
6 Inventories
Himalaya Ltd. 536
Sagar Ltd. 124

om
Less: Unrealized profits (23) 637
7 Cash and cash equivalents
. c
Cash at Bank
s em
Himalaya Ltd.
g l a 368
Sagar Ltd. a 64 432

Working Notes:

1. Pre-acquisition profits and reserves of Sagar Ltd. ` (000) ` (000
Reserves 100
Profit and Loss Account 60
160

m
c. o 40
Himalaya Ltd.’s = 75% × 160 120

m
c. o
Minority Interest = 25% × 160

em
s200
em
2. Profit on revaluation of assets of Sagar Ltd.

s
Profit on Machinery ` (600-400)
g la 20
gla Less: Loss on Furniture ` (80-60)
a
a Net Profit on revaluation
Himalaya Ltd.’s share 75% × 180
180
135
Minority Interest 25% × 180 45

37

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 37 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

3. Post-acquisition reserves of Sagar Ltd.
Post-acquisition reserves (Total reserves less pre- 210
acquisition reserves = ` (310-100)
Himalaya Ltd.’s share 75% × 210 157.5
Minority interest 25% × 210 52.5
4. Post -acquisition profits of Sagar Ltd.
Post-acquisition profits (Profit & loss account 70
balance less pre-acquisition profits = ` (130-60)
Add: Excess depreciation charged on furniture 3
@ 15% on ` 20 i.e. (80-60)
73
Less: Under depreciation on machinery @ 10% on (20)
` 200 i.e. (600-400)
Adjusted post-acquisition profits 53
Himalaya Ltd.’s share 75% × 53 39.75
Minority Interest 25% × 53 13.25
5. Minority Interest
Paid-up value of (400-300) = 100 shares held by 100
outsiders i.e. 100 × ` 100
Add: 25% share of pre-acquisition profits and 40
reserves
25% share of profit on revaluation 45
85 85
25% share of post-acquisition reserves 52.5
25% share of post-acquisition profit 13.25
Less: Unrealized profit on inventory 25% of 23,000 (5.75)
245
6. Cost of Control or Goodwill
Price paid by Himalaya Ltd. For 3000 shares (A) 600
Intrinsic value of the shares-
Paid-up value of 3000 shares held by Himalaya 300
Ltd i.e. 3000 × ` 100 (or 400 X 75%)
Add: 75% share of pre-acquisition profits and 120
reserves

38

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 38 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

75% share of profit on the revaluation 135
255

m
c. o
Intrinsic value of shares on the date of acquisition 555
m
co
(B)

. em
s
Cost of control or Goodwill (A – B) 45

em l a
a s
Working Note
l a g
g
aHimalaya's
Unrealised Profit on Unsold Inventory (Upstream sale – Sagar to Himalaya)

stock includes goods costing ` 123 (cost to Himalaya = selling
price of Sagar), sold by Sagar at 23% above its cost. Sagar’s cost = 123 ÷
1.23 = 100
Unrealised Profit = 123 – 100 = 23
Since profit originated in Sagar (subsidiary), it is apportioned:

• Holding Co.'s share (75%) = 17.25 (deducted from Consolidated P&L)

m
co
Minority's share (25%) = 5.75 (deducted from MI)
.
•

em
Question 6

l a s
(a) Who are related parties under AS 18? What are the related party disclosure
requirements? Explain.
a g
OR
(a) State with reasons, how the following independent cases should be treated in
the financial statements of the respective entities as per provisions of relevant
Accounting Standards, for the financial year 2025-26.
(i) On 15th February, 2026, Zeal Garments Limited dispatched goods costing
` 6,00,000 (with selling price ` 8,00,000) on consignment to its agent
m
co
Trendz retails. Up to 31st March, 2026 Trendz retails had managed to sell

m .
c. o
75% of the stock to final third party customers for ` 6,00,000. Trendz
m
se
retails sent a sale confirmation to Zeal Garments Limited on 5th April,

s em 2026. Zeal Garments Limited wants to recognise the entire amount
g la
la a
` 8,00,000 as revenue for the financial year 2025-26 on the basis of the

ag fact that the goods had been physically dispatched from the factory.
(ii) Super Nova Motors Limited sold a fleet of delivery vans to a logistics firm
AXE Limited on 28th March, 2026. AXE Limited took legal title, signed the
invoice and accepted the billing on the same date but AXE Limited

39

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 39 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

requested Super Nova Motors Limited to delay physical delivery until
15th April, 2026 because their new parking facility was under
construction. The delivery vans were fully complete, identified and kept
ready for delivery in Super Nova Motors Limited's yard on 28th March,
2026. (4 Marks)
(b) Green Ltd. has been suffering from losses for past few years. To strengthen
its financial position, following scheme of reconstruction has been approved
by the Court:
(i) The shareholders to receive in lieu of their present holding of 1,00,000
shares of ` 10 each, the following:
(I) New fully paid ` 10 equity shares equal to 2/5 of their holding.
(II) 8% Preference shares of ` 10 each fully paid to the extent of 2/5 of
the above new equity shares.
(III) ` 50,000, 10% Debentures
(ii) An issue of ` 2,00,000, 10% first debentures were made and allotted,
payment for the same being received in cash.
(iii) Goodwill which stood at ` 1,20,000 was completely written off.
(iv) Plant and machinery which stood at ` 3,00,000 was written down to
` 2,50,000.
(v) Freehold property which stood at ` 2,00,000 was written down by
` 50,000.
(vi) Balance, if any left in capital reduction account be transferred to Capital
reserve account.
You are required:
(i) To draw up the necessary journal entries in the books of Green Ltd. For
the above reconstruction scheme with suitable narration.
(ii) To prepare Capital Reduction Account. (4 Marks)
(c) A firm with Head Office at Mumbai has two branches - one at Delhi and
another at Bangalore. Goods are sent to branches at 25% above cost. Both
branches make cash and credit sales. Branch expenses are partly met by the
Head Office and partly by the branches themselves. Monthly statements of
expenses are sent to the Head Office for recording.

40

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 40 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

The following details are available for the year ended March 31, 2026:

Particulars Delhi Bangalore
m
c. o
(` ) (` )

o m m
.c e
Goods sent to Branches (at cost) 2,00,000 2,00,000

m
e price
Goods received by Branch till March 31, 2026 at 2,50,000 2,30,000
l a s
a s
invoice
l Cash sales ag
g
a Credit sales
1,80,000 1,50,000
70,000 80,000
Cash remitted to Head office 2,35,000 2,10,000
Expenses paid by Head office 15,000 12,000
Bad Debts written off 1,000 500

Balances as on Delhi Bangalore
m
c. o
(` ) (` )

m 35,000
1-4-2025 31-3-2026 1-4-2025 31-3-2026
30,000 e
Stock (at Cost)
la s 25,000 32,000
Debtors
Cash
g
a 6,000
40,000 32,000
3,000
35,000
5,000
30,000
2,500

Additional Information:
• During the year, Delhi Branch transferred goods worth ` 20,000 (invoice
price) to Bangalore Branch.
• Head Office maintains Branch Accounts under the Debtors Method.

m
co
Prepare the Branch Ledger Accounts in the books of the Head Office and

m .
c. o
determine the Profit or Loss of each Branch for the year ended
m
se
March 31, 2026. (6 Marks)

s em Answer
g l a
gla (a) Parties are considered to be related if at any timeaduring the reporting
a period one party has the ability to control the other party or exercise
significant influence over the other party in making financial and/or
operating decisions.

41

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 41 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

If there have been transactions between related parties, during the
existence of a related party relationship, the reporting enterprise should
disclose the following:
(i) The name of the transacting related party;
(ii) A description of the relationship between the parties;
(iii) A description of the nature of transactions;
(iv) Volume of the transactions either as an amount or as an
appropriate proportion;
(v) Any other elements of the related party transactions necessary for
an understanding of the financial statements;
(vi) The amounts or appropriate proportions of outstanding items
pertaining to related parties at the balance sheet date and
provisions for doubtful debts due from such parties at that date;
(vii) Amounts written off or written back in the period in respect of
debts due from or to related parties.
OR
As per AS 9 “Revenue Recognition”, in a transaction involving the sale
of goods, performance should be regarded as being achieved when the
following conditions are fulfilled:
(a) the seller of goods has transferred to the buyer the property in the
goods for a price or all significant risks and rewards of ownership
have been transferred to the buyer and the seller retains no
effective control of the goods transferred to a degree usually
associated with ownership; and
(b) no significant uncertainty exists regarding the amount of the
consideration that will be derived from the sale of the goods.

(i) 25% goods lying unsold with consignee should be treated as
closing inventory and sales should be recognized for
` 6,00,000 (75% of the stock). In case of consignment sale
revenue should not be recognized until the goods are sold to a
third party.
Cost of Goods sent=75% of ` 8 lakhs= ` 6 lakh

42

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 42 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

Cost of Goods Sold=75% of ` 6 lakhs= ` 4.50 lakh
Unsold Stock at cost= ` 6 lakh - ` 4.50 lakh=1.50 lakh
m
m
(ii) In the current scenario, delivery of vans sold is delayed at the
c. o
.co m
request of buyer AXE Ltd. Super Nova Motors Limited can

m s e
a
recognize revenue for sale of Vans to AXE Ltd on 28th March

s e l
ag
2026 provided that the goods sold to AXE Ltd are held in

l a
ag
Super Nova Motors Ltd.’s warehouse separately and are not
clubbed with another inventory.
(b) (i) Journal Entries in the books of Green Ltd.
` `
Equity Share Capital (old) A/c Dr. 10,00,000
To Equity Share Capital (New) (` 10) 4,00,000
A/c

m
To 8% Preference Share Capital A/c 1,60,000

c. o
(` 4 lakh x 40%)

em
To 10% Debentures A/c 50,000

s
a 8% Preference
To Capital Reduction A/c

l
3,90,000

g
a issued and the
(Being new equity shares,
Shares, 10% Debentures
balance transferred to Reconstruction
account as per the Scheme)
Bank A/c Dr. 2,00,000
To 10% First Debentures A/c 2,00,000
(Being allotment of 10% first Debentures)
Capital Reduction A/c Dr. 3,90,000

om
To Goodwill Account 1,20,000

m c. 50,000
c. o
To Plant and Machinery Account

m
se 50,000
(` 3L-` 2.50L)

s em To Freehold Property Account

g la
gla To Capital Reserve A/c
a 1,70,000

a (Being Capital Reduction Account
utilized for writing off of Goodwill, Plant
and Machinery and Freehold property as
per the scheme)

43

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 43 of 45

SUGGESTED ANSWERS INTERMEDIATE EXAMINATION: SEPTEMBER 2026

(ii) Capital Reduction Account
` `
To Goodwill A/c 1,20,000 By Equity Share Capital A/c 3,90,000
To Plant and Machinery A/c 50,000
To Freehold Property A/c 50,000
To Capital Reserve A/c 1,70,000
Total 3,90,000 Total 3,90,000

(c) Delhi Branch Account
` `
To Balance b/d – Stock 37,500 By Stock reserve (37,500 x 7,500
(30,000 + 25%) 20%)
To Balance b/d – Debtors 40,000 By Goods Sent to Branch A/c 20,000
(transferred to Bangalore)
To Balance b/d – Cash 6,000 By Bank A/c (remittances) 2,35,000
To Goods Sent to Branch 2,50,000 By Balance c/d – Stock 43,750
A/c (35,000 + 25%)
To Bank A/c (expenses paid 15,000 By Balance c/d – Debtors 32,000
by H.O.)
To stock reserve 8,750 By Balance c/d – Cash 3,000
(43,750 x 20%)
To internal transfer 4,000 By Goods Sent to Branch A/c 50,000
(loading) (20,000 x 20%) (loading)
to Profit & Loss A/c 30,000
(bal. fig.)
Total 3,91,250 Total 3,91,250

Bangalore Branch Account
` `

To Balance b/d – Stock 31,250 By Bank A/c (remittances) 2,10,000
(25,000 + 25%)
To Balance b/d – 35,000 By Balance c/d – Stock (32,000 40,000
Debtors + 25%)
To Balance b/d – Cash 5,000 By Balance c/d – Debtors 30,000

44

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 44 of 45

m
m .co
c. o

e m
em l a s
s a g
SUGGESTED ANSWERS
ADVANCED ACCOUNTING

To Goods Sent to Branch 2,50,000 By Balance c/d – Cash 2,500
A/c (from H.O.)

m
c. o
To Goods received from 20,000 By Internal transfer (loading) 4,000

m
co
Delhi Branch A/c (20,000 x 20%)

. em
m s
To Bank A/c (expenses 12,000 By Stock reserve 6,250

e l a
Tos Stock reserve
paid by H.O.) (31,250 x 20%)

g a
l (40,000 x 20%) 8,000 By Goods Sent to Branch A/c 50,000
ag
a To Stock reserve 4,000 By
(loading)
Closing GIT 20000
(20,000 x 20%)
By Profit & Loss A/c (bal. fig.) 2,500
Total 3,65,250 Total 3,65,250

m
. co
s em
g l a
a

m
m .co
c. o se
m
s em g la
gla a
a

45

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 45 of 45