CA Intermediate May 2024 Suggested Answers CA Intermediate (new scheme) May 2024 - Paper 1 Advanced Accounting - Suggested Answers

FOR CA INTERMEDIATE EXAM PREPARATION

CA Intermediate 2024
Suggested Answers ·
CA Intermediate (new
scheme) May 2024 -
Paper 1 Advanced
Accounting -
Suggested Answers
EXAM YEAR TYPE

CA Intermediate 2024 Suggested Answers
SUBJECT

CA Intermediate (new scheme) May 2024 - Paper 1 Advanced Accounting - Suggested Answers
DATE

May 2024

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 1 : ADVANCED ACCOUNTING
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o m Question No. 1 is compulsory. c. o
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Answer any four questions from the remaining five questions.

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Wherever necessary, suitable assumptions may be made and indicated in

a answer by the candidates.
Working Notes should form part of the answer.
Question 1
(a) On 1st April, 2023, Green Limited started the construction of an Office
Building (qualified asset). The land under the building is regarded as a
separate asset and is not a part of qualifying asset.

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For the purpose of construction of building, the company raised a specific

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loan of ` 14 lakhs from a Bank at an interest rate of 12% per annum. An

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interest income of ` 15,000 was earned on this loan while it was held in
anticipation of payments.
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The company's other outstanding loans on 1 st April, 2023 were as follows:

Amount of Loan Rate of Interest per annum
` 20,00,000 15%
` 30,00,000 8%

The construction of building started on 1 stApril, 2023 and was completed on
31st January, 2024 when it was ready for its intended use. Up to the date of

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completion of the building, the following payments were made to the

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contractor:
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s em 1st Apirl,2023 4,00,000
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1st August,2023 10,00,000

ag 1st December,2023
st
25,00,000
31 January,2024 5,00,000

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The life of building is estimated to be 20 years and depreciation is calculated
on straight line method.
You are required to:
(i) Calculate the amount of borrowing cost to be capitalized.
(ii) Pass initial journal entry to recognise the cost of building.
(iii) Depreciation on building for the year ending 31 st March, 2024.
(iv) Carrying value of building as on 31 st March, 2024.
(b) Well Wear Limited is a Textile Manufacturing Company and engaged in the
production of Polyester (P) and Nylon (N). While manufacturing the main
products, a by-product Fiber (F) is also produced. Details of the cost of
production are as under:
Purchase of Raw Material for manufacturing process of

30,000 units ` 3,50,000
Wages paid ` 1,60,000
Fixed overheads ` 1,20,000
Variable overheads ` 60,000
Output:
Polyester (P) 12,500 Units
Nylon (N) 10,000 Units
Fiber (F) 3,200 Units
Closing Inventory:
Polyester (P) 1,600 Units
Nylon(N) 400 Units

Average market price of Polyester and Nylon is ` 100 and ` 60 per unit
respectively, by-product Fiber is sold@ ` 40 per unit. There is a profit of
` 8,000 on sale of by-product after incurring separate processing expenses of
` 10,000 and packing charges of ` 9,000. ` 5,000 was realized from sale of
scrap.
On the basis of the above information, you are required to compute the value
of closing inventory of Polyester and Nylon. (7 + 7 = 14 Marks)

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

Answer
(a) (i) Computation of borrowing cost to be capitalized for specific
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borrowings and general borrowings based on weighted average

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accumulated expenses

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Date of Amount Financed Calculation `

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incurrence of spent through

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1 April 2023 4,00,000 Specific 4,00,000 x 40,000
borrowing 12% x 10/12
1st August 10,00,000 Specific 10,00,000 x 1,00,000
2023 borrowing 12% x 10/12
1st December 25,00,000 General 25,00,000 x
2023 borrowing 10.8% x 2/12 45,000

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31st January 5,00,000 General 5,00,000 x Nil

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2024 borrowing 10.8% x 0/12

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1,85,000
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lacost to be capitalized
Less: interest income on borrowing (15,000)

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Total amount borrowing 1,70,000

(ii) Journal Entry

Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account 44,00,000
To Interest payable 1,70,000

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(borrowing cost)

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(Being expenditure incurred
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and borrowing cost thereon

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will be paid at the year end. Hence, entry for interest payable has
been passed on 31.1.2024.

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Alternatively, following journal entry may be passed if interest is paid
on the date of capitalization:

Date Particulars ` `
31.1.2024 Building account Dr. 45,70,000
To Bank account 45,70,000
(Being expenditure incurred
on construction of building
and borrowing cost thereon
capitalized)

(iii) Depreciation on building for the year ending 31.3.2024
Cost of building 45,70,000
Life of building = 20 years
Depreciation = (45,70,000/20) x 2/12 = 38,083.33
(iv) Carrying Value of Building on 31st March 2024:
Carrying Value = Cost of Building - Accumulated Depreciation
= 45,70,000- 38,083.33
= 45,31,917
Working Notes:
1. Calculation of capitalization rate on borrowings other than
specific borrowings

Amount of loan (`) Rate of Amount of
interest interest (`)
20,00,000 15% = 3,00,000
30,00,000 8% = 2,40,000
50,00,000 5,40,000
Weighted average rate of = 10.8%*
5,40,000
interest ( × 100)
50,00,000

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

2. Total expenses to be capitalized for building

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Cost of building ` (4,00,000 + 10,00,000 + 25,00,000 44,00,000

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mAdd:. Amount of interest to be capitalized e
+ 5,00,000)

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1,70,000
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l a s 45,70,000
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ag waste materials by their nature, are immaterial. They are often measured at
(b) As per AS 2 ‘Valuation of Inventories’, most by-products as well as scrap or

net realizable value and this value is deducted from the cost of the main
product.
Determination of value of closing inventory of Polyester and Nylon

Polyester Nylon
Closing inventory in units 1,600 units 400 units
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Cost per unit ` 31.14 ` 18.68

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Value of closing inventory ` 49,824 ` 7,472

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Working Notes
1. Calculation of net a
realizable value of by-product, Fiber
`
Selling price of by-product Fiber (3,200 units x ` 40 1,28,000
per unit)
Less: Separate processing
charges of by-product Fiber (10,000)

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Packing charges (9,000)

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Net realizable value of by-product 1,09,000
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Fiber

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2. Calculation of cost of conversion for allocation between joint

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products Polyester and Nylon a
a ` `
Raw material 3,50,000

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Wages 1,60,000
Fixed overhead 1,20,000
Variable overhead 60,000
6,90,000
Less: NRV of by-product Fiber (W.N. 1) (1,09,000)
Sale value of scrap (5,000) (1,14,000)
Joint cost to be allocated between 5,76,000
Polyester and Nylon

Determination of “basis for allocation” and allocation of joint cost
to Polyester and Nylon
Polyester Nylon
Output in units (a) 12,500 units 10,000 units
Sales price per unit (b) ` 100 ` 60
Sales value (a x b) ` 12,50,000 ` 6,00,000
Total value (12,50,000 + 6,00,000)
= 18,50,000
Joint cost of ` 5,76,000 allocated in the ` 3,89,189 ` 1,86,811
ratio of 12,50,000 : 6,00,000
Cost per unit [c/a] ` 31.14 ` 18.68

Question 2
Following is the summarized Balance Sheets of Z Limited as on 31 st March, 2024:

Particulars (`)
EQUITY AND LIABILITIES:
Share Capital
Equity shares of ` 100 each 60,00,000
8% Preference shares of ` 100 each 21,00,000
10% Debentures of ` 100 each 18,00,000
Trade Payables 16,80,000
Total 1,15,80,000
ASSETS:
Goodwill 81,000

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

Property, Plant and Equipment 72,00,000
Trade Receivables 13,75,000

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Inventories 9,80,000

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Cash at Bank 1,33,000

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Own Debentures (Nominal value of ` 6 lakhs) 5,76,000

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Profit and Loss A/c 12,35,000
1,15,80,000 g
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aLimited:
On 1 st
April, 2024, court approved the following reconstruction scheme for Z

(i) Each equity share shall be sub-divided into 10 equity shares of ` 10 each fully
paid up. After sub-division, equity share capital will be reduced by 40%.
(ii) Preference share dividends are in arrear for last 4 years. Preference
shareholders agreed to waive 75% of their dividend claim and accept
payment for the balance.
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(iii) Own debentures of ` 2,40,000 (nominal value) were sold at 98 cum interest

m to accept one machinery of book
eagreed
and remaining own debentures were cancelled.

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(iv) Debenture holders of ` 6,00,000 s
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value of ` 9,00,000 in full settlement.
(v) Remaining Property, Plant and Equipment were valued at ` 60,00,000.
(vi) Trade Payables, Trade Receivables and Inventories were valued at
` 15,00,000, ` 13,00,000 and ` 9,44,000 respectively. Goodwill and Profit and
Loss Account (Debit balance) are to be written off.
(vii) Company paid ` 60,000 as penalty to avoid capital commitments of ` 12
lakhs.

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(viii) Interest on 10% Debentures is paid every year on 31 st March.
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(1) Pass necessary journal entries in the books of Z Limited tosimplement
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the

l a above schemes.
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ag (2) Prepare Capital Reduction Account.
(3) Prepare Bank Account (14 Marks)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Answer
1. Journal entries
In the Books of Z Ltd. as on 1st April 2024
Particulars Dr. Cr.
01.04.2024 Amount Amount
(`) (`)
1. Equity share capital A/c (` 100) Dr. 60,00,000
To Equity share capital A/c (` 10) 60,00,000
(Being sub-division of one share of
` 100 each into 10 shares of ` 10 each)
2. Equity share capital A/c (` 10) Dr. 24,00,000
To Capital reduction A/c 24,00,000
(Being reduction of Equity capital by 40%)
3. Capital reduction A/c Dr. 1,68,000
To Bank A/c 1,68,000
(Being payment in cash of 25% of arrear
of preference dividend) [21,00,000x8%] x
4 years
4. Bank A/c Dr. 2,35,200
To Own debentures A/c 2,30,400
(5,76,000/6,00,000) x 2,40,000
To Capital reduction A/c 4,800
(Being profit on sale of own debentures of
` 2,40,000 transferred to capital reduction
A/c)
5. 10% Debentures A/c Dr. 3,60,000
(6,00,000 -2,40,000)
To Own debentures A/c 3,45,600
To Capital reduction A/c 14,400
(Being profit on cancellation of own
debentures transferred to capital
reduction A/c)

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

6. 10% Debentures A/c Dr. 6,00,000
Capital reduction A/c Dr. 3,00,000

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To Machinery or PPE A/c 9,00,000
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(Being machinery taken up by debenture

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holders for ` 6,00,000)
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A/c (balancing figure) Dr. 3,00,000

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PPE A/c 3,00,000
(72,00,000 - 9,00,000 - 60,00,000)
PPE revalued)
8. Trade payables A/c Dr. 1,80,000
(16,80,000 -15,00,000)
To Trade receivables A/c 75,000
(13,75,000-13,00,000)
To Inventory A/c 36,000
(9,80,000-9,44,000)
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To Capital Reduction A/c
. c 69,000

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Capital reduction A/c as
(Being assets and liabilities revalued)
9.
To Goodwill A/cg
l Dr. 13,16,000

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To Profit and Loss A/c
81,000
12,35,000
(Being the above assets written off)
10. Capital reduction A/c Dr. 60,000
To Bank A/c 60,000
(Being penalty paid for avoidance of
capital commitments)

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11. Capital reduction A/c Dr. 3,44,200

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To Capital reserve A/c 3,44,200

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(Being the credit balance in Capital

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Reduction A/c transferred to Capital
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Reserve)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

2. Capital Reduction Account

(`) (`)
To Bank 1,68,000 By Equity Share Capital 24,00,000
To Property, Plant & 3,00,000 By Trade Payable 1,80,000
Equipment
To Property, Plant & 3,00,000 By Bank A/c (Profit on 4,800
Equipment Sale)
To Trade Receivables 75,000 By 10% debentures A/c 14,400
(Profit on cancellation)
To Inventory 36,000
To Goodwill 81,000
To Profit and Loss A/c 12,35,000
To Cash/Bank A/c 60,000
To Capital Reserve 3,44,200
25,99,200 25,99,200

3. Bank Account
` `
To To balance b/d 1,33,000 By Capital Reduction 1,68,000
To Own Debenture 2,35,200 By Capital Reduction A/c 60,000
(2,30,400 +4,800) By balance c/d 1,40,200
3,68,200 3,68,200

Question 3
(a) Constructions Limited is engaged in the business of constructing Flyovers and
Railway over bridges. It obtained a contract from Railway Authorities to
construct a railway over bridge for ` 400 crores. The construction of the
railway over bridge is expected to be completed in 4 years.
At the outset of the contract, it was estimated that the total costs to be
incurred will be ` 370 crores but by the end of year 1, this estimate stands
revised to ` 375 crores.

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

During year 3, the Construction Limited has requested for a variation in the
contract which is approved by Railway Authorities and accordingly the total

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contract value will increase by ` 10 crores and costs will increase by ` 7

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crores.

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The Constructions Limited decided to measure the stage of completion on the

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basis of the proportion of contract costs incurred to the total estimated
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lYear 1
contract costs. Contract costs incurred at the end of each year is:
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a ` 98.8 crores
Year 2 ` 202.4 crores
Year 3 ` 310 crores (including unused material of 3 crores)
Year 4 ` 382 crores
You are required to:
(1) Calculate stage of completion of contract for each year

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(b) The following information is provided. for Aarambh Limited:
(2) Profit to be recognised for each year.

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st st
Particulars 31 March 2023 31 March 2024
a ( `) ( `)
Profit and Loss a/c 5,400 (Dr.) 37,800
Provision for Taxation 2,21,400 1,35,000
General Reserve 54,000 81,000
12% Debentures 1,18,800 2,91,600
Trade Payables 1,29,600 1,18,800
8% Current Investments 54,000 1,08,000

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Property, plant and equipment (Gross) 3,99,600 3,99,600
m .1,62,000
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Accumulated Depreciation 1,29,600

s e 2,61,360
em 27,000la
Trade Receivables (Gross) 81,000

las Provision for Doubtful Debts
a g 54,000

ag Inventories
Cash and Cash Equivalents
1,35,000
54,00
81,000
30,240

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Additional information:
(i) Income tax provided during the year ` 1,62,000.
(ii) New debentures have been issued at the end of current financial year.
(iii) New investments have been acquired at the end of the current financial
year.
You are required to calculate net Cash Flow from Operating Activities.
(7 Marks + 7 Marks = 14 Marks)
Answer
(a) (a) Stage of completion = Costs incurred to date / Total estimated
costs
Year 1: 98.8 crore / 375 crore = 26.35%
Year 2: 202.4 crore / 375 crore = 53.97%
Year 3: (310 crore – 3 crore) / (375+7) crore = 80.37%
Year 4: 382 crore / 382 crore = 100%
(b) Profit to be recognized each year has been calculated as follows:
Year 1 Year 2 Year 3 Year 4
Contract 105.40 110.48 crore 113.64 crore 80.48 crore
Revenue (1) crore
(400 crore (400 crore x (410 crore x (410 crore x
x 26.35%) 53.97% - 80.37% 100% -
105.40 crore) - 105.40 crore 105.40 crore -
-110.48 crore) 110.48 crore -
113.64 crore)
Contract 98.8 crore 103.60 crore 104.60 crore 75 crore
Cost (2)
202.40 - (307 crore - (382 crore -
98.80 crore) 98.8 crore- 98.8 crore-
103.60 crore) 103.6 crore –
104.6 crore)
Contract 6.60 crore 6.88 crore 9.04 crore 5.48 crore
Profit
(1) – (2)

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

(b) Cash Flow from Operating Activities

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Difference between Profit and Loss Account ` (37,800 + 5,400)
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43,200
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Add: Transfer to General Reserve (81,000-54,000) 27,000
Add:m
s e Before tax
Adjustment for Provision for taxation 1,62,000
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l Add: Adjustment for Depreciation (` 1,62,000 – ` 1,29,600)
Profit 2,32,200
a
a 32,400
Add: Adjustment for provision for doubtful debt (` 54,000 – 27,000
` 27,000)
Add: Debenture Interest Paid ` (1,18,800 × 12%) 14,256
Less: Income from Investments (54,000 × 8%) (4,320)
Operating Profit before Working Capital changes 3,01,536

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Decrease in Inventories ` (1,35,000-81,000) 54,000

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Increase in Trade receivables ` (2,61,360-81,000) (1,80,360)

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Decrease in Trade payables ` (1,29,600-1,18,800) (10,800)

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Cash generated from operations 1,64,376
Income tax paid (2,48,400)
Net Cash generated from Operating Activities (84,024)

Working Note:
Provision for taxation account
` `

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To Cash (Paid) 2,48,400 By Balance b/d 2,21,400

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(Balancing figure)
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To Balance c/d 1,35,000 By Profit and Loss A/c 1,62,000

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s em g la 3,83,400
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3,83,400

ag Question 4
Intelligent Limited and Diligent Limited are carrying their business independently
for last two years. Following financial information in respect of both the
companies as at 31 st March, 2024 has been given to you:

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Particulars Intelligent Limited Diligent Limited
(` ) (`)
Equity Shares Capital of ` 100 each 12,00,000 10,00,000
8% Preference shares of ` 100 each 3,00,000 2,00,000
Trade Payables 12,00,000 4,00,000
Retirement Gratuity Fund (Long Term) 3,00,000 2,00,000
Profit and Loss Account
Opening balance 4,50,000 2,50,000
Profit for the current year 2,50,000 1,50,000
Land and Buildings 10,00,000 8,00,000
Plant and Machinery 10,00,000 6,00,000
Inventories 7,00,000 4,00,000
Trade Receivables 6,00,000 3,00,000
Cash and Bank 4,00,000 1,00,000

On 1st April, 2024, both the companies agreed to amalgamate and form a new
company 'Genius Limited, with an authorized capital of ` 40,00,000 divided into
30,000 equity shares of ` 100 each and 10,000 8% preference shares of ` 100
each.
The amalgamation has to be carried out on the basis of following agreement:
(1) Assets of both the companies were to be revalued as follows:

Particulars Intelligent Limited (`) Diligent Limited (`)
Land and Buildings 11,00,000 8,50,000
Plant and Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000

(2) Trade payables of Intelligent Limited includes ` 1,00,000 due to Diligent Ltd.
and the Trade receivables of Diligent Limited shows ` 1,00,000 receivables
from Intelligent Limited.
(3) The purchase consideration is to be discharged in the following manner:
(i) Issue 22,000 Equity Shares of ` 100 each fully paid up in the proportion
of the sum of their profitability in the preceding two financial years.

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SUGGESTED ANSWER
ADVANCED ACCOUNTING

(ii) Preference shareholders of both companies are issued equivalent
number of 8% Preference Shares of ` 100 each of Genius Limited at a

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price of ` 125 per share.

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(iii) 12% debentures of ` 100 each in Genius Limited at par to provide an

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income equivalent to 10% return on the basis of net assets in their
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s e respective business as on 1 st April, 2024 after revaluation of assets.
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a(a)g Compute the amount of Shares & Debentures to be issued to Intelligent
You are required to:

Limited and Diligent Limited.
(b) Prepare a Balance Sheet of Genius Limited showing the position immediately
after amalgamation. (14 Marks)
Answer
Computation of shares and debentures to be issued

o mIntelligent Ltd. Diligent Ltd.
(i) Equity shares 22,000 x 7/11 = 14,000 .c
em
14,00,000
(W.N.1)
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22,000 x 4/11 =8,000
(W.N.1)
8,00,000

(ii)Preference 3,00,000 3,75,000
( × 125)
shares 100
2,00,000 2,50,000
( × 125)
100
(iii) Debentures Refer (W.N.3) 17,50,000 11,25,000
Total Purchase Consideration (i + ii + iii) 35,25,000 21,75,000
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Balance Sheet of Genius Limited
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c. o as at 1st April, 2024 (after amalgamation)

Notes no.s
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gla I. Equity and Liabilities
a
a (1) Shareholder’s fund
(a) Share Capital 1 27,00,000
(b) Reserves & Surplus 2 1,25,000

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

(2) Non-current Liabilities
(a) Long term borrowings 3 28,75,000
(b) Other non-current liabilities 4 5,00,000
(3) Current Liabilities
(a) Trade Payables 15,00,000
(12,00,000 + 4,00,000 – 1,00,000)
Total 77,00,000
II. Assets
(1) Non-current Assets
(a) Property, Plant & Equipment 5 32,50,000
(b) Intangible Assets 6 22,50,000
(2) Current Assets
(a) Inventories (6,00,000 + 3,00,000) 9,00,000
(b) Trade Receivables 8,00,000
(6,00,000 + 3,00,000 - 1,00,000)
(c) Cash & Cash Equivalents 5,00,000
Total 77,00,000

Notes to Accounts:

Sr. Particular `
No.
1. Share Capital
Authorized Share Capital
a) Equity Share Capital
30,000 Equity Shares of ` 100 each 30,00,000
b) Preference Share Capital
10% 10,000 Preference Shares ` 100 each 10,00,000
40,00,000
Issued, Subscribed & Paid-up Capital
a) Equity Share Capital

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ADVANCED ACCOUNTING

22,000 Equity Shares of `100 each 22,00,000
(out of the above all shares are issued for
m
c. o
consideration other than cash)

o m m
c
. 5,000 Preference Shares of `100 each e
b) Preference Share Capital

m10%
e (out of the above all shares are issued for
5,00,000
l a s
l a s ag
ag
consideration other than cash)
27,00,000
2. Reserves & Surplus
Securities Premium 1,25,000
3. Long term borrowings
12% Debentures of ` 100 each 28,75,000
4. Other Non-current Liabilities

o m
. c
Gratuity Fund 5,00,000
5. Property, Plant & Equipment
m
e + 8,50,000)
l a s
Land & Building (11,00,000 19,50,000
Plant & Machinery g
a (9, 00,000 + 4,00,000) 13,00,000
32,50,000
6. Intangible Assets
Goodwill 22,50,000

Working Notes:
1. Calculation of Ratio of Equity Shares

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Intelligent Ltd. Diligent Ltd
m .
c. o em

Opening balance P&L 4,50,000 2,50,000

em
Profit for the current year 2,50,000
la s
1,50,000

las Total 7,00,000
ag
4,00,000

ag

As the company has been in existence for two years, the opening balance of profit and
loss account has been assumed to be the profit of the previous year.

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

The total profits- ` 7,00,000+ ` 4,00,000 = ` 11,00,000.
No. of shares to be issued = 22,000 equity shares in the proportion of the
preceding 2 years’ profits. i.e. in 7:4.
2. Calculation of Net assets as on 31.3.2024

Particulars Intelligent Ltd. Diligent Ltd
Assets (after revaluation)
Land and Buildings 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade Receivables 6,00,000 3,00,000
Cash & Cash Equivalents 4,00,000 1,00,000
Total (a) 36,00,000 19,50,000
Liabilities
Trade Payables 12,00,000 4,00,000
Gratuity Fund 3,00,000 2,00,000
Total (b) 15,00,000 6,00,000
Net Assets (a – b) 21,00,000 13,50,000

3. Calculation of 12% Debentures to be issued to Intelligent Ltd. and
Diligent Ltd.

Intelligent Ltd. Diligent Ltd
` `
Net assets (Refer working note) 21,00,000 13,50,000
10% return on Net assets 2,10,000 1,35,000
12% Debentures to be issued 17,500
100
[2,10,000× ] =17,50,000of ` 100 each
12
100 11,250
[1,35,000× ] =11,25,000 of ` 100 each
12

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ADVANCED ACCOUNTING

4. Calculation of Goodwill / Capital Reserve

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S. Particulars Intelligent Diligent

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No. Ltd. Ltd.
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(i) Purchase Consideration Paid 35,25,000 21,75,000

m s e
e Goodwill a
(ii) Less: Net Assets 21,00,000 13,50,000

s l
l a ag
(iii) 14,25,000 8,25,000 22,50,000

g
a4. Calculation of Goodwill / Capital Reserve
Alternatively:

S. Particulars Intelligent Diligent
No. Ltd. Ltd
(i) Purchase Consideration Paid 35,25,000 21,75,000
(ii) Less: Net Assets* 22,00,000 12,50,000

m
(iii) Goodwill 13,25,000 9,25,000 22,50,000
* Calculation of Net assets taken over
c. o
Particulars
s em Intelligent Ltd. Diligent Ltd
l a
ag
Assets (after revaluation)
Land and Buildings 11,00,000 8,50,000
Plant & Machinery 9,00,000 4,00,000
Inventories 6,00,000 3,00,000
Trade Receivables 6,00,000 2,00,000*
Cash & Cash Equivalents 4,00,000 1,00,000
Total (a) 36,00,000 18,50,000

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Liabilities

m c o
.2,00,000
c. o
Trade Payables 11,00,000** 4,00,000

m
e 6,00,000
14,00,000 s
Gratuity Fund 3,00,000

s em Total (b)
g la 12,50,000
gla Net Assets (a – b)
a
22,00,000

a *` 3,00,000 - ` 1,00,000= ` 2,00,000
**` 12,00,000 - ` 1,00,000 = ` 11,00,000

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Question 5
The Balance Sheets of Art Limited and Craft Limited as on 31 March 2024 are as
below:

Particulars Note Art Limited Craft Limited
No (`) (`)
I. Equity and Liabilities
a. Shareholder’s Fund
i. Share Capital 1 6,50,000 4,00,000
ii. Reserve & Surplus 2 3,12,000 2,48,000
b. Current Liabilities
i. Trade Payables 1,45,000 92,000
ii. Short term borrowings 3 70,000 -
11,77,000 7,40,000
II. Assets
a. Non-current Assets
i. Property, Plant & 4 4,21,000 3,60,000
Equipment
ii. Non-current investment 5 4,32,000 -
b. Current Assets
i. Inventories 1,66,000 2,05,000
ii. Trade Receivables 6 1,33,500 1,68,300
iii. Cash & Cash equivalent 24,500 6,700
11,77,000 7,40,000

Notes to Accounts:

Art Limited Craft Limited
( `) (`)
1. Share capital
6,500 shares of ` 100 each fully paid up 6,50,000
4,000 shares of ` 100 each fully paid-up - 4,00,000
Total 6,50,000 4,00,000
2. Reserves and Surplus

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General Reserve 1,20,000 40,000
Profit and Loss account 1,92,000 2,08,000

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Total 3,12,000 2,48,000
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.co em
3. Short term borrowings -

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e Plant & Equipment
Bank Overdraft 70,000
l a s
a s
l Land & Building
4. Property
ag
g
a Plant & Machinery
1,90,000
2,31,000
1,35,000
2,25,000
Total 4,21,000 3,60,000
5. Non-current investments -
Investment in Craft Limited (Cost) 4,32,000
6. Cash & Cash equivalents
Cash 24,500 6,700

o m
c
(i) Art Limited acquired 3,200 ordinary .shares of Craft Limited on 1 October,
Additional information:

2023. The Reserve & Surplus s emProfit & Loss Account of Craft Limited
st

g a and ` 58,700 respectively as on 1 April,
showed a credit balance of `l40,000
and

a
st

2023.
(ii) The Plant & Machinery of Craft Limited which stood at ` 2,50,000 as on
1st April, 2023 was considered worth ` 2,20,000 on the date of acquisition.
The depreciation on Plant & Machinery is calculated @ 10% p.a. on the basis
of useful life. The revaluation of Plant & Machinery is to be considered at the
time of consolidation.

m
(iii) Craft Limited deducts 1% from Trade Receivables as a general provision

m c o
. it had
against doubtful debts. This policy is not followed by Art Limited.

c. o (iv) On m
e 15% on cost
st
31 March 2024, Craft Limited's inventory includes goods which

em l a s
purchased from Art Limited for 1,03,500 which made a profit of

las g
You are required to prepare a consolidated Balance Sheet a
price.

ag as on 31 March 2024.
(14 Marks)
st

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Answer
Consolidated Balance Sheet of Art and Craft Ltd
As on 31st March, 2024

Particulars Note no. `
I. Equity & Liabilities
(1) Shareholders’ fund
(a) Share Capital 1 6,50,000
(b) Reserves & Surplus 2 3,73,460
(2) Minority Interest 3 1,26,740
(3) Current Liabilities
(a) Short term borrowings 4 70,000
(b) Trade Payables (1,45,000 + 92,000) 2,37,000
Total 14,57,200
II. Assets
(1) Non-current Assets
(a) Property, Plant & Equipment 5 7,65,000
(2) Current Assets
(a) Inventories 6 3,57,500
(b) Trade Receivables 7 3,03,500
(c) Cash & Cash Equivalents 8 31,200
Total 14,57,200

Notes to Accounts

Sr. No. Particulars `

1. Share Capital
Issued, Subscribed & Paid-up Capital
a) Equity Share Capital
6,500 Equity Shares of ` 100 each 6,50,000

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ADVANCED ACCOUNTING

2. Reserves & Surplus

m
Profit & Loss A/c (WN 5) 2,40,100

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c. oCapital Reserve (W.N. 3)
General Reserve (WN 5) 1,20,000

em
m s
13,360

s e l a
a ag
3,73,460
l3. Minority interest in Craft Ltd. (W.N.4)
ag 4.
1,26,740
Short-term borrowings
Bank Overdraft 70,000
5. Property, Plant & Equipment
Land & Building
Art Ltd. 1,90,000

om
Craft Ltd. 1,35,000 3,25,000

. c
em
Plant & Machinery
Art Ltd.
l a s 2,31,000

ag
Craft Ltd. (2,25,000-17,500+1,500) 2,09,000 4,40,000
7,65,000
6. Inventories
Art Ltd. 1,66,000
Craft Ltd. 2,05,000
Less: unrealized profit (13,500) 3,57,500

o m
m .c
7. Trade Receivables

c. o Art Ltd.
m
1,70,000 se 3,03,500
1,33,500

s em Craft Ltd.
g la
gla 8. Cash & Cash Equivalents
a
a Art Ltd. 24,500
Craft Ltd. 6,700 31,200

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Working Notes:
1. Shareholding Pattern

Total 4,000 shares
3,200 shares 800 shares
Art Ltd (80%) 20% Minority Interest

2. Analysis of Profit

General reserve Profit and loss account
Opening balance 40,000 58,700
Closing balance 40,000 2,08,000
Changes during the year 1,49,300

Analysis of Profit

Particulars Pre acquisition Post acquisition
profit (6 months) profit (6 months)
(`) (`)
Opening Balances 98,700
(40,000 + 58,700)
Profit for 6 months 74,650 74,650
(1,49,300 x 6/12)
Provision reversed 850 850
(1,700) (W.N. 8)
Revaluation Loss (W.N. 6) (17,500) -
Savings in depreciation (W.N. 6) - 1,500
Total 1,56,700 77,000
Holding (80%) 1,25,360 61,600
Minority Interest (20%) 31,340 15,400

3. Cost of Control

Particulars ` `
Cost of Investment (Given) 4,32,000

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Less: Share in Net Assets:
a) Share Capital (3,200 shares × `100) 3,20,000
m
m c. o
b) Capital Profit (W.N. 2) 1,25,360 (4,45,360)

c. o
Capital Reserve 13,360
s em
s em Interest l a
ag
4. Minority

g laParticulars
a Share Capital (800 shares × 100)
`
80,000
Capital Profit (W.N. 2) 31,340
Revenue Profit (W.N. 2) 15,400
Total 1,26,740

5. Consolidated Profit and General Reserve of Art Ltd

om
Particulars Profit and loss General

. c account ` reserve `

s em
Balance as per Balance Sheet 1,92,000 1,20,000
Revenue Profit
g l a 61,600 -

Total
a
Unrealized Profit (Downstream) (13,500)
2,40,100 1,20,000

6. Calculation of Revaluation Profit /Loss

Particulars `
Balance as on 01.04.2023 (given) 2,50,000
Depreciation for 6 months (2,50,000 × 10% × 6/12) (12,500)

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WDV as on date of acquisition 2,37,500

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c. o m
Revalued amount 2,20,000

em Revaluation Loss
l a se 17,500
las 7. Savings in Depreciation
a g
ag = Depreciation Provided for 6 months – Depreciation Should be
= 12,500 – (2,20,000 × 10% × 6/12)
= 1,500

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

8. Calculation of provision reversed
Trade Receivable (Given) =1,68,300 it is after provision i.e 99%
So, 100% will be 1,70,000 therefor provision will be 1,700
As per para 20 and 21 of AS 21, Consolidated financial statements:
Consolidated financial statements should be prepared using uniform
accounting policies for like transactions and other events in similar
circumstances. If it is not practicable to use uniform accounting policies in
preparing the consolidated financial statements, that fact should be
disclosed together with the proportions of the items in the consolidated
financial statements to which the different accounting policies have been
applied.
Question 6
(a) Colour Limited leased a Machine to Red Limited on 1 April, 2021 on the
following:

Cost of the machine ` 18,00,000
Lease term 3 Years
Fair market value of the machine ` 18,00,000
Unguaranteed residual value as on 31.3.2024 ` 2,00,000
Internal rate of return 12%

Other information:
The expected useful life of the machine is 5 years. The machine will revert to
Colour Limited on termination of the lease. The lease payment is to be made
at the end of each year in 3 equal parts.
The present value of ` 1 due at the end of 3 rd year at 12% rate of interest is
` 0.7118. The present value of annuity of at ` 1 due at the end of 3 rd year at
12% IRR is ` 2.4018.
You are required to analyze whether lease constitutes finance lease. Also
calculate unearned finance income, if any.

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OR
(a) On 1 April 2023, ABC Limited has given the following information:
m
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co
`

. em
s
50,000 equity shares of ` 100 each ( ` 80 paid up by all 40,00,000
m
e 8% Preference shares of ` 10 each l a
s
shareholders)

a
l 10,000, 12% Debentures of ` 100 each
2,00,000
a g
g
20,00,000

a (Each debenture is convertible into 3 equity shares of ` 100 10,00,000

each)

On 1" July 2023, the remaining ` 20 was called up and paid by all the
shareholders except one shareholder holding 10,000 equity shares. During
the year 2023-24 the company had a profit after tax of ` 3,44,000.
Tax rate is 30%.

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You are required to compute Basic and Diluted EPS. (4 Marks)

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s
st
(b) Following information are available in respect of Z Limited as on 31 March,
2024
l a
1. Equity shares of ` 100geach
a ` 500 lakhs
2. General Reserve ` 100 lakhs
3. Loss for the year ending 31 st March, 2024 ` 5 lakhs
Due to absence of profits during the year 2023-24, the management
recommends to declare dividend of 10% on equity share capital out of
general reserve.

o m
The rates of equity dividend for the last 5 years immediately preceding the

m
year 2023-24 are as follows:
.c
c. o 10% s
m
e 7%
em
2022-23 2021-22 2020-21 2019-20 2018-19

s g la whether the
12% 14% 10%

gla a
As an accountant of the company, you are required to suggest
a recommendation of the management is justified? If, you do not agree, then
suggest the rate of dividend. (4 Marks)

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(c) Smart Limited is an Indian Company and has its Branch at New York. The
following balances in respect of Smart Limited's USA Branch office are
provided:
(i) Debit Balances (in USD)
Expenditure (excluding Depreciation) : 1,03,095
Cash & bank balances : 2,175
Debtors : 7,365
Fixed Assets (Gross) : 34,200
(Rate of Depreciation on Fixed Assets: 20%)
Inventory-Stock 'P' : 5,520
Inventory- Stock 'Q' : 1,035
(ii) Credit Balances (in USD)
Incomes : 1,32,000
Creditors : 15,570
HO Control a/c : 5,820
The following additional information is provided:
(1) The average exchange rate during the above financial year was 1 USD
= ` 56.
(2) The fixed assets were purchased when the exchange rate was 1 USD
` 55.
(3) The closing exchange rate on reporting date is 1 USD = ` 58.
(4) Stock item 'P' is valued at cost of USD 5,520, purchased when the
exchange rate was ` 56.50. The present net realizable value of this item
is ` 2,85,000.
(5) Stock item 'Q' is carried at net realizable value of USD 1,035, but its cost
in USD is 1,065, It was purchased when exchange rate was 1 USD
= ` 53.
(6) Branch Control Account as per HO books was ` 2,66,265.

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ADVANCED ACCOUNTING

You are required to show how it will be reflected in the books of Head Office
in the form of Trial Balance, if the USA Branch Office is classified as an

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Integral Foreign Operation. (6 Marks)

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Answer

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e a
(a) Computation of Annual Lease Payment

a s gl
l Cost of Equipment a
Particulars Amount
g
a Unguaranteed Residual Value 18,00,000
2,00,000
Present Value of unguaranteed residual value 1,42,360
(` 200,000 x 0.7118)
Present Value of Lease Payments
(` 18,00,000 – ` 1,42,360) 16,57,640

m
Present Value of Annuity for three years is 2.4018
Annual Lease Payment (16,57,640 / 2.4018)
. co 6,90,165.71

Classification of Lease:
s em
Parameter 1:
g l a
a
The present value of lease payment i.e. ` 16,57,649 which equals 92.09% of
the fair market value i.e., ` 18,00,000.
The present value of minimum lease payments is substantially covers the
fair value of the leased asset
Parameter 2:
The lease term (i.e. 3 years) covers the major part of the life of the asset (i.e.

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5 years).

m .
c. o m
Therefore, it constitutes a finance lease.

em
Computation of unearned Finance Income:
la se
las Particulars
a g Amount

ag Total Lease Payments (` 6,90,165 x 3) ` 20,70,495
Add: Unguaranteed residual value ` 2,00,000
` 22,70,495

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Less: Present value of lease payments and residual value
i.e. Net investment (1,42,360+16,57,640) ` 18,00,000
Unearned Finance Income ` 4,70,495

OR
(a) Basic Earnings per share (EPS) =
Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year
1,84,000
= = ` 4 per share
46,000 Shares (as per working note)

Diluted earnings per share

Net profit for the current year ` 3,44,000
No. of equity shares outstanding 50,000
Basic earnings per share `4
No. of 12% convertible debentures of ` 100 10,000
each
Each debenture is convertible into 3 equity
shares
Interest expense for the current year ` 1,20,000
Tax relating to interest expense (30%) ` 36,000
Adjusted net profit for the current year ` (1,84,000 + 1,20,000 -
36,000) = ` 2,68,000
No. of equity shares resulting from 30,000
conversion of debentures
No. of equity shares used to compute diluted 46,000 + 30,000 = 76,000
earnings per share
Diluted earnings per share 2,68,000 / 76,000 = ` 3.53

Working Note:
1. Net profit attributable to equity share holders = Net profit less
preference dividends
Total earnings – preference shares dividend

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ADVANCED ACCOUNTING

` 3,44,000 – ` (8% x 20,00,000)
` 3,44,000 - ` 1,60,000
m
m
= ` 1,84,000
c. o
2.
c. o
Calculation of weighted average number of equity shares
s e m
s eAsasmaperfraction of equity share to the extent that they were entitled to gl
AS 20 ‘Earnings Per Share’, partly paid equity shares are treated a
g la participate in dividend relative to a fully paid equity share during thea
a reporting period. Assuming that the partly paid shares are entitled to
participate in the dividend to the extent of amount paid, weighted
average number of shares will be calculated as follows:

Date No. of equity Amount paid Weighted average
shares per share no. of equity shares
` ` `

c om
01.04.2023 50,000 80 50,000x 80/100x 3/12

.
em
= 10,000
01.07.2023
la s
40,000 100 40,000 x 9/12

g
a 10,000
= 30,000
01.07.2023 80 10,000x 80/100x 9/12
= 6,000
Total weighted average equity shares 46,000

(b) In case of declaration of dividend out of free reserves, there are 3
conditions:
(1) Dividend Rate < Average Rate of last 3 years

o m
m . c
10% < 12% [(12+14+10)/3]

c. o Condition is Satisfied
s em
s em g a
l5,00,000)
(2) Dividend Distributed < 10% of PUSC + Reserve and Surplus

gla a
50,00,000 < 59,50,000 [(5,00,00,000 + 1,00,00,000 – × 10%]
a Condition is Satisfied
(3) Reserves after dividend > 15% of PUSC 45,00,000 not > 75,00,000
(5,00,00,000 × 15%)

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SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

Condition is Not Satisfied
(4) The closing balance of reserves after payment of dividend and set off
of loss = ` 75,00,000
Therefore, can be utilized = 20,00,000 (1,00,00,000 – 5,00,000 – 75,00,000)
Thus, rate of dividend = (20,00,000/5,00,00,000) = 4%
Alternatively
To judge the recommendation of management, the satisfaction of all three
conditions is to be checked:
(1) Condition I
The proposed dividend of 10% is less than the average rate of dividend
being 12%
(i.e.) (12+14+10) /5 =12 %.
Hence, this condition is satisfied.
(2) Condition II
Amount to be withdrawn.

10% dividend on Equity share capital 50,00,000
+ Loss of Current year 5,00,000
Amount to be drawn from General Reserve 55,00,000

Maximum amount that can be withdrawn should not exceed 10% of
paid-up share capital + free reserves.
= 10% of [` 500 lakhs + ` 100 lakhs] = ` 60,00,000
As the amount to be withdrawn is within the maximum limit, hence,
this condition is also satisfied.
(3) Condition III
Balance of reserves after withdrawal (100-55) ` 45,00,000
15% of paid-up capital ` 75,00,000
As the balance of reserves should not be less than 15% of its paid-up
share capital, but here the balance of reserves after withdrawal is less

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ADVANCED ACCOUNTING

than 15% of paid-up share capital, hence this condition is not satisfied,
hence, 10% dividend cannot be declared.

m
c. o
Maximum withdrawal of Reserve if condition II is satisfied.
m
.co
Opening balance of Reserves in the beginning = ` 1,00,00,000

s em
m
e- Closing balance of reserves being 15% of
of the year
l a
a s
l paid-up capital
=` 75,00,000
ag
g
a Reserves available = ` 25,00,000
Maximum permissible Divisible Profits
Permissible withdrawal as above = ` 25,00,000
Less: Current Year's Loss =` 5,00,000
Maximum permissible Divisible profit = ` 20,00,000

o m
c
Actual permissible rate of Dividend =

m . = 4%
e of management is not justified and a
(` 20,00,000 / ` 5,00,00,000) x 100

a s
l of 4% can be declared.
Therefore, the recommendation
dividend only up to agrate
a
(c) Converted branch trail balance (in the books of head office)

Particular Dr. $ Cr. $ Rate ` Dr. ` Cr.
per $
Expenditure 1,03,095 56 57,73,320
Cash & bank 2,175 58 1,26,150

m
balance

m
Debtors 7,365
55 15,04,800 .
58
co
4,27,170

c. o Fixed assets 27,360
s em
s em Depreciation 20% 6,840 55
g la
3,76,200

gla Inventory P 5,520 Direct
a 56,445
2,85,000

a Inventory Q 1,065 53
Income 1,32,000 56 73,92,000
Creditors 15,570 58 9,03,060

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 34

SUGGESTED ANSWER INTERMEDIATE EXAMINATION: MAY 2024

HO control A/c 5,820 2,66,265
Exchange difference 12,240
85,61,325 85,61,325

Working Note:

Inventory P $ 5,520 Inventory Q $ 1,065
Purchased Cost rate 56.50 NRV $ 1,035
NRV ` 2,85,000 Closing rate 58
Cost ` 3,11,880 Purchased Cost 53
rate
Value at cost or NRV ` 2,85,000 Value at cost or $ 1,035 @ ` 58 or
whichever is less NRV whichever $1,065 @ ` 53
is less = 56,445 or 60,030

34

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