2024 Intermediate Course Group 1 Paper 1 PDF

Mock Test Paper - Series I: March, 2024 Date of Paper: 5 March, 2024 Time of Paper: 2 P.M. to 5 P.M. INTERMEDIATE CO...

Mock Test Paper - Series I: March, 2024 Date of Paper: 5 March, 2024 Time of Paper: 2 P.M. to 5 P.M. INTERMEDIATE COURSE: GROUP - I PAPER – 1 : ADVANCED ACCOUNTING Time Allowed – 3 Hours Maximum Marks – 100 1. The question paper comprises two parts, Part I and Part II. 2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs) 3. Part II comprises questions which require descriptive type answers. PART I – Case Scenario based MCQs (30 Marks) Part I is compulsory. Case Scenario 1. SEAS Ltd., the “Company”, is in the business of tours and travels. It sells holiday packages to the customers. The Company negotiates upfront with the Airlines for specified number of seats in flight. The Company agrees to buy a specific number of tickets and pay for those tickets regardless of whether it is able to resell all of those in package. The rate paid by the Company for each ticket purchased is negotiated and agreed in advance. The Company also assists the customers in resolving complaints with the servi ce provided by airlines. However, each airline is responsible for fulfilling obligations associated with the ticket, including remedies to a customer for dissatisfaction with the service. The Company bought a forward contract for three months of US$ 1,00,000 on 1 March 2024 at 1 US$ = INR 83.10 when exchange rate was US$ 1 = INR 83.02. On 31 March 2024, when the Company closed its books, exchange rate was US$ 1 = INR 83.15. On 1 April 2024, the Company decided for premature settlement of the contract due to some exceptional circumstances. The Company is evaluating below mentioned schemes: i. Introduction of a formal retirement gratuity scheme by an employer in place of ad hoc ex - gratia payments to employees on retirement. ii. Management decided to pay pension to those employees who have retired after completing 5 years of service in the organization. Such employees will get pension of ` 20,000 per month. Earlier there was no such scheme of pension in the organization. SEAS Ltd. has a subsidiary, ADI Ltd., which is in the business of construction having turnover of ` 200 crores. SEAS Ltd. and ADI Ltd. hold 9% and 23% respectively in an associate company, ASOC Ltd. Both SEAS Ltd. and ADI Ltd. prepare consolidated financial statements as per Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006. i. What would be the basis of revenue recognition for SEAS Ltd. as per the requirements of Accounting Standards? (a) Gross basis. (b) Net basis. (c) Depends on the accounting policy of the Company. 1  (d) Indian GAAP allows a choice to the Company to recognize revenue on gross bas is or net basis. ii. Please suggest accounting treatment of forward contract for the year ended 31 March 2024 as per Accounting Standard 11. (a) MTM (marked to market value) of contract will be recorded on 31 March 2024. (b) MTM (marked to market value) of contract will be computed as at 31 March 2024 and only if there is loss, it will be recorded during the year ended 31 March 2024. (c) No accounting will be done during the year ended 31 March 2024. (d) Premium on contract will be amortized over the life of the contract. iii. You are requested to advise the Company in respect of the accounting requirements of above schemes related to employee benefits as to which one of those schemes should be considered as a change in accounting policy during the year. (a) 1 – Change in accounting policy. 2 – Change in accounting policy. (b) 1– Not a change in accounting policy. 2 – Change in accounting policy. (c) 1 – Not a change in accounting policy. 2 – Not a change in accounting policy. (d) 1– Change in accounting policy. 2 – Not a change in accounting policy. iv. Please comment regarding consolidation requirements for SEAS Ltd. and ADI Ltd. using the below mentioned options as to which one should be correct. (a) ADI Ltd. would using equity method of accounting for 23% in ASOC Ltd. SEAS Ltd. would consolidate ADI Ltd. and consequently automatically equity account 23% and separately account for the balance 9% as per AS 13. (b) ADI Ltd. would account for 23% in ASOC Ltd. as per AS 13. SEAS Ltd. would consolidate ADI Ltd. and consequently automatically account 23% and separately account for the balance 9%. (c) ADI Ltd. would account for 23% share in ASOC Ltd using equity method of accounting. SEAS Ltd. would consolidate ADI Ltd. and consequently, automatically account for ASOC Ltd 23% share and separately account for 9% share in ASOC Ltd. using equity method of accounting in consolidated financial statements. (d) ADI Ltd. would account for 23% in ASOC Ltd. as per AS 13. SEAS Ltd. would consolidate ADI Ltd. and using equity method of accounting 23% in ASOC Ltd. and separately account for the balance 9% as per AS 13. Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 2. On 1st April, 2022, Shubham Limited purchased some land for ` 30 lakhs for the purpose of constructing a new factory. This cost of 30 lakhs included legal cost of ` 2 lakhs incurred for the purpose of acquisition of this land. Construction work could start on 1 st May, 2022 and Shubham Limited provides you the details of the following costs incurred in relation to its construction: ` Preparation and levelling of the land 80,000 Employment costs of the construction workers (per month) 29,000 Purchase of materials for the construction 21,24,000 2  Cost of relocating employees to new factory for work 60,000 Costs of inauguration ceremony on 1 st January, 2023 80,000 Overhead costs incurred directly on the construction of the factory (per month) 25,000 General overhead costs allocated to construction project by the Manager is ` 30,000. However, as per company’s normal overhead allocation policy, it should be ` 24,000. The auditor of the company has support documentation for the cost of ` 15,000 only) and raised objection for the balance amount. The construction of the factory was completed on 31 st December, 2022 and production could begin on 1st February, 2023. The overall useful life of the factory building was estimated at 40 years from the date of completion. However, it was estimated that the roof will need to be replaced 20 years after the date of completion and that the cost of replacing the roof at current prices would be 25% of the total cost of the building. The construction of the factory was partly financed by a loan of ` 28 lakhs borrowed on 1st April, 2022. The loan was taken at an annual rate of interest of 9%. During the period when the loan proceeds had been fully utilized to finance the construction, Shubham Limited received investment income of ` 25,000 on the temporary investment of the proceeds. You are required to assume that all of the net finance costs to be allocated to the cost of factory (not land) and interest cost to be capitalized based on nine months’ period. Based on the information given in the above scenario, answer the following multiple choice questions: i. Which of the following cost (incurred directly on construction) will be capitalized to the cost of factory building? (a) ` 2,00,000 incurred as legal cost (b) ` 60,000 – costs of relocating employees (c) ` 80,000 costs of inauguration ceremony (d) ` 24,000 – allocated general overhead cost ii. What amount of employment cost of construction workers will be capitalized to the cost of factory building? (a) ` 2,90,000 (b) ` 3,48,000 (c) ` 2,32,000 (d) ` 29,000 iii. What is the amount of net borrowing cost capitalized to the cost of the factory? (a) ` 1,89,000 (b) ` 1,68,000 (c) ` 1,44,000 (d) ` 1,64,000 iv. What will be the carrying amount (i.e. value after charging depreciation) of the factory in the Balance Sheet of Shubham Limited as at 31 st March, 2023? (a) ` 30,00,000 3  (b) ` 57,78,125 (c) ` 27,78,125 (d) ` 58,00,000 Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 3. Kesar Ltd., a company engaged in various business activities, has decided to initiate a share buy -back on 1st April, 2023. The company plans to repurchase 25,000 equity shares of ` 10 each at a price of ` 20 per share. This buy-back initiative is in compliance with the company's articles of association, and the necessary resolution has been duly passed by the company. As part of the financial arrangement for the share buy-back, Kesar Ltd. intends to utilize its current assets, particularly the bank balance, to make the payment for the repurchased shares. Here is a snapshot of Kesar Ltd.'s Balance Sheet as of 31 st March, 2023: A. Share Capital: Equity share capital (fully paid up shares of ` 10 each) - ` 12,50,000 B. Reserves and Surplus: Securities premium ` 2,50,000; Profit and loss account ` 1,25,000; Revenue reserve ` 15,00,000; C. Long term borrowings: 14% Debentures- ` 28,75,000, Unsecured Loans - ` 16,50,000 D. Land and Building ` 19,30,000; Plant and machinery ` 18,00,000; Furniture and fitting ` 9,20,000 and Other Current Assets - ` 30,00,000 Authorized, issued and subscribed capital: Equity share capital (fully paid up shares of 10 each) - 12,50,000. i. By using the Shares Outstanding Test the number of shares that can be bought back (a) 1,25,000 (b) 31,250 (c) 25,000 (d) 30,000 ii. By using the Resources Test determine the number of shares that can be bought back: (a) 25,000 (b) 31,250 (c) 28,750 (d) 39,062 iii. By using the Debt Equity Ratio Test determine the number of shares that can be bought back: (a) 25,000 (b) 31,250 (c) 28,750 (d) 39,062 iv. On the basis of all three tests determine Maximum number of shares that can be bought back: (a) 25,000 4  (b) 31,250 (c) 28,750 (d) 39,062 Multiple Choice Questions [4 MCQs of 2 Marks each: Total 8 Marks] 4. All of the following costs are excluded while computing value of inventories except? (a) Selling and Distribution costs (b) Allocated fixed production overheads based on normal capacity. (c) Abnormal wastage (d) Storage costs (which is necessary part of the production process) (2 Marks) 5. According to AS-18 Related Party Disclosures, which ONE of the following is not a related party of Skyline Limited? (a) A shareholder of Skyline Limited owning 30% of the ordinary share capital (b) An entity providing banking facilities to Skyline Limited in the normal course of business (c) An associate of Skyline Limited (d) Key management personnel of Skyline Limited (2 Marks) 6. A process of reconstruction, which is carried out without liquidating the company and forming a new one is called (a) Internal reconstruction. (b) External reconstruction. (c) Amalgamation in the nature of merger. (d) Amalgamation in the nature of purchase. (2 Marks) PART II – Descriptive Questions (70 Marks) Question No.1 is compulsory. Answer any four questions from the remaining five questions. Wherever necessary, suitable assumptions may be made and indicated in answer by the candidates. Working Notes should form part of the answer. 1. (a) Innovative Garments Manufacturing Company Limited invested in the shares of another company on 1 st October, 2022 at a cost of ` 2,50,000. It also earlier purchased Gold of ` 4,00,000 and Silver of ` 2,00,000 on 1st March, 2020. Market value as on 31 st March, 2023 of above investments are as follows: ` Shares 2,25,000 Gold 6,00,000 Silver 3,50,000 5  How above investments will be shown in the books of accounts of Innovative Garments Manufacturing Company Limited for the year ending 31st March, 2023 as per the provisions of Accounting Standard 13 "Accounting for Investments"? (5 Marks) (b) Lessee Ltd. took a machine on lease from Lessor Ltd., the fair value being ` 7,00,000. The economic life of machine as well as the lease term is 3 years. At the end of each year Lessee Ltd. pays ` 3,00,000. The Lessee has guaranteed a residual value of ` 22,000 on expiry of the lease to the Lessor. However, Lessor Ltd., estimates that the residual value of the machinery will be only ` 15,000. The implicit rate of return is 15% p.a. and present value factors at 15% are 0.869, 0.756 and 0.657 at the end of first, second and third years respectively. Calculate the value of machinery to be considered by Lessee Ltd. and the finance charges in each year. (5 Marks) (c) X Ltd. purchased a Property, Plant and Equipment four years ago for ` 150 lakhs and depreciates it at 10% p.a. on straight line method. At the end of the fourth year, it has revalued the asset at ` 75 lakhs and has written off the loss on revaluation to the profit and loss account. However, on the date of revaluation, the market price is ` 67.50 lakhs and expected disposal costs are ` 3 lakhs. What will be the treatment in respect of impairment loss on the basis that fair value for revaluation purpose is determined by market value and the value in use is estimated at ` 60 lakhs?. (4 Marks) 2. Following is the trial balance of Delta limited as on 31.3.2023. (Figures in ` ‘000) Particulars Debit Particulars Credit Land at cost 800 Equity share capital (shares of 500 ` 10 each) Calls in arrears 5 10% Debentures 300 Cash in hand 2 General reserve 150 Plant & Machinery at cost 824 Profit & Loss A/c (balance on 75 1.4.22) Trade receivables 120 Securities premium 40 Inventories (31-3-23) 96 Sales 1200 Cash at Bank 28 Trade payables 30 Adjusted Purchases 400 Provision for depreciation 150 Factory expenses 80 Suspense Account 10 Administrative expenses 45 Selling expenses 25 Debenture Interest 30 2455 2455 Additional Information: (i) The authorized share capital of the company is 80,000 shares of ` 10 each. (ii) The company revalued the land at ` 9,60,000. (iii) Equity share capital includes shares of ` 50,000 issued for consideration other than cash. 6  (iv) Suspense account of ` 10,000 represents cash received from the sale of some of the machinery on 1.4.2022. The cost of the machinery was ` 24,000 and the accumulated depreciation thereon being ` 20,000. The balance of Plant & Machinery given in trial balance is before adjustment of sale of machinery. (v) Depreciation is to be provided on plant and machinery at 10% on cost. (vi) Balance at bank includes ` 5,000 with ABC Bank Ltd., which is not a Scheduled Bank. (vii) Make provision for income tax @30%. (viii) Trade receivables of ` 50,000 are due for more than six months. You are required to prepare Delta Limited's Balance Sheet as at 31.3.20 23 and Statement of Profit and Loss with notes to accounts for the year ended 31.3.2023 as per Schedule Ill. Ignore previous year's figures & taxation. (14 Marks) 3. (a) Y Ltd., used certain resources of X Ltd. In return X Ltd. received ` 10 lakhs and 15 lakhs as interest and royalties respective from Y Ltd. during the year 2022-23. You are required to state whether and on what basis these revenues can be recognized by X Ltd. (4 Marks) (b) Following is the Balance Sheet of ABC Ltd. as at 31st March, 2023: Particulars Notes ` Equity and Liabilities 1 Shareholders’ funds A Share capital 1 26,00,000 B Reserves and Surplus 2 (4,05,000) 2 Non-current liabilities A Long-term borrowings 3 12,00,000 3 Current liabilities A Trade Payables 5,92,000 B Short term borrowings - Bank overdraft 1,50,000 Total 41,37,000 Assets 1 Non-current assets A Property, plant and equipment 4 11,50,000 B Intangible assets 5 70,000 C Non-current investment 6 68,000 2 Current assets A Inventory 14,00,000 B Trade receivables 14,39,000 C Cash and cash equivalents 10,000 Total 41,37,000 7 Notes to accounts ` 1 Share Capital Equity share capital: 2,00,000 Equity Shares of ` 10 each 20,00,000 6,000, 8% Preference shares of ` 100 each 6,00,000 26,00,000 2 Reserves and Surplus Debit balance of Profit and loss A/c (4,05,000) (4,05,000) 3 Long-term borrowings 9% debentures 12,00,000 12,00,000 4 Property, Plant and Equipment Plant and machinery 9,00,000 Furniture and fixtures 2,50,000 11,50,000 5 Intangible assets Patents and copyrights 70,000 70,000 6 Non-current investments Investments (market value of ` 55,000) 68,000 68,000 The following scheme of reconstruction was finalized: (i) Preference shareholders would give up 30% of their capital in exchange for allotment of 11% Debentures to them. (ii) Debenture holders having charge on plant and machinery would accept plant and machinery in full settlement of their dues. (iii) Inventory equal to ` 5,00,000 in book value will be taken over by trade payables in full settlement of their dues. (iv) Investment value to be reduced to market price. (v) The company would issue 11% Debentures for ` 3,00,000 and augment its working capital requirement after settlement of bank overdraft. Pass necessary Journal Entries in the books of the company. Prepare Capital Reduction account and Balance Sheet extract for Equity & Liabilities of the company after internal reconstruction. (10 Marks) 8 4. The financial position of two companies Hari Ltd. and Vayu Ltd. as at 31 st March, 2023 was as under: Particulars Notes Hari Ltd. Vayu Ltd. Equity and Liabilities 1 Shareholders’ funds A Share capital 1 11,00,000 4,00,000 B Reserves and Surplus 2 70,000 70,000 2 Non-current liabilities A Long term provisions 3 50,000 20,000 3 Current liabilities A Trade Payables 1,30,000 80,000 Total 13,50,000 5,70,000 Assets 1 Non-current assets A Property, Plant and Equipment 4 8,00,000 2,50,000 B Intangible assets 5 50,000 25,000 2 Current assets A Inventories 2,50,000 1,75,000 B Trade receivables 2,00,000 1,00,000 C Cash and Cash equivalents 50,000 20,000 Total 13,50,000 5,70,000 Notes to accounts Hari Ltd. Vayu Ltd. 1 Share Capital Equity shares of ` 10 each 10,00,000 3,00,000 9% Preference Shares of ` 100 each 1,00,000 -- 10% Preference Shares of ` 100 each -- 1,00,000 11,00,000 4,00,000 2 Reserves and Surplus General reserve 70,000 70,000 70,000 70,000 3 Long term Provisions Retirement gratuity fund 50,000 20,000 50,000 20,000 4 Property, plant and Equipment Land and Building 3,00,000 1,00,000 Plant and machinery 5,00,000 1,50,000 8,00,000 2,50,000 9  5 Intangible assets Goodwill 50,000 25,000 50,000 25,000 Hari Ltd. absorbs Vayu Ltd. on the following terms: (a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference Shares of Hari Ltd. (b) Goodwill of Vayu Ltd. is valued at ` 50,000, Buildings are valued at ` 1,50,000 and the Machinery at ` 1,60,000. (c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created @ 7.5%. (d) Equity Shareholders of Vayu Ltd. will be issued necessary Equity Shares @ 5% premium. Prepare necessary the acquisition entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31 st March, 2023. (14 Marks) 5. From the Balance Sheets and information given below, prepare Consolidated Balance Sheet of Virat Ltd. and Anushka Ltd. as at 31 st March. Virat Ltd. holds 80% of Equity Shares in Anushka Ltd. since its (Anushka Ltd.’s) incorporation. Balance Sheet of Virat Ltd. and Anushka Ltd. as at 31 st March, 2023 Particulars Note No. Virat Ltd. (`) Anushka Ltd. (`) I. Equity and Liabilities (1) Shareholder's Funds (a) Share Capital 1 6,00,000 4,00,000 (b) Reserves and Surplus 2 1,00,000 1,00,000 (2) Non-current Liabilities Long Term Borrowings 2,00,000 1,00,000 (3) Current Liabilities (a) Trade Payables 1,00,000 1,00,000 Total 10,00,000 7,00,000 II. Assets (1) Non-current assets (a) Property, Plant and Equipment 4,00,000 3,00,000 (b) Non-current investments 3 3,20,000 - (2) Current Assets (a) Inventories 1,60,000 2,00,000 (b) Trade Receivables 80,000 1,40,000 (c) Cash & Cash Equivalents 40,000 60,000 Total 10,00,000 7,00,000 10  Notes to Accounts Particulars (`) Virat Ltd. Anushka Ltd. (`) (`) 1. Share capital 60,000 equity shares of ` 10 each fully paid up 6,00,000 -- 40,000 equity shares of ` 10 each fully paid up -- 4,00,000 Total 6,00,000 4,00,000 2. Reserves and Surplus General Reserve 1,00,000 1,00,000 Total 1,00,000 1,00,000 3. Non-current investments Shares in Anushka Ltd 3,20,000 -- (14 Marks) 6. (a) What are the qualitative characteristics of the financial statements which improve the usefulness of the information furnished therein? (4 Marks) Or What are the issues, with which Accounting Standards deal? (4 Marks) (b) From the following information, calculate cash flow from operating activities: Summary of Cash Account for the year ended March 31, 2023 Particulars ` Particulars ` To Balance b/d 1,00,000 By Cash Purchases 1,20,000 To Cash sales 1,40,000 By Trade payables 1,57,000 To Trade receivables 1,75,000 By Office & Selling Expenses 75,000 To Trade Commission 50,000 By Income Tax 30,000 To Sale of Investment 30,000 By Investment 25,000 To Loan from Bank 1,00,000 By Repayment of Loan 75,000 To Interest & Dividend 1,000 By Interest on loan 10,000 By Balance c/d 1,04,000 5,96,000 5,96,000 (4 Marks) (c) Following is the information of the Jammu branch of Best New Delhi for the year ending 31st March, 2023 from the following: (1) Goods are invoiced to the branch at cost plus 20%. (2) The sale price is cost plus 50%. 11 (3) Other information: ` Stock as on 01.04.2022(invoice price) 2,20,000 Goods sent during the year (invoice price) 11,00,000 Sales during the year 12,00,000 Expenses incurred at the branch 45,000 Ascertain (i) the profit earned by the branch during the year. (ii) branch stock reserve in respect of unrealized profit. (6 Marks) 12