PAPER – 5: ADVANCED ACCOUNTING

Question No.1 is compulsory.

Candidates are also required to answer any four questions from the remaining five questions.
Working notes should form part of the respective answers.
Wherever necessary, candidates are permitted to make suitable assumptions which should be
disclosed by way of a note.
Question 1
(a) TQ Cycles Ltd. is in the manufacturing of bicycles, a labour intensive manufacturing sector.
In April 2022, the Government enhanced the minimum wages payable to workers with
retrospective effect from the 1 st January,2022. Due to this legislative change, the additional
wages for the period from January 2022 to March 2022 amounted to ` 30 lakhs. The
management asked the Finance manager to charge ` 30 lakhs as prior period item while
finalizing financial statements for the year 2022-23. Further, the Finance manager is of the
view that this amount being abnormal should be disclosed as extra-ordinary item in the
Profit and loss account for the financial year 2021-22.
Discuss with reference to applicable Accounting Standards.
(b) NAT, a listed entity, as on 1 st April,2021 had the following capital structure:
`
10,00,000 Equity Shares having face value of ` 1 each 10,00,000
10,00,000 8% Preference Shares having face value of ` 10 each 1,00,00,000
During the year 2021-2022, the company had profit after tax of ` 90,00,000
On 1st January,2022, NAT made a bonus issue of one equity share for every 2 equity
shares outstanding as at 31 st December,2021.
On 1st January,2022, NAT issued 2,00,000 equity shares of ` 1 each at their full market
price of ` 7.60 per share.
NAT's shares were trading at ` 8.05 per share on 31 st March,2022.
Further it has been provided that the basic earnings per share for the year en ded
31st March,2021 was previously reported at ` 62.30.
You are required to:
(i) Calculate the basic earnings per share to be reported in the financial statements of
NAT for the year ended 31 st March,2022 including the comparative figure, in
accordance with AS-20 Earnings Per Share.
(ii) Explain why the bonus issue of shares and the shares issue at full market price are
treated differently in the calculation of the basic earnings per share?

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 2 INTERMEDIATE EXAMINATION: MAY, 2022

(c) Alloy Fabrication Limited is engaged in manufacturing of iron and steel rods. The company
is in the process of finalisation of the accounts for the year ended 31 st March,2022 and
needs your advice on the following issues in line with the provisions of AS -29:
(i) On 1stApril,2019, the company installed a huge furnace in their plant. The furnace has
a lining that needs to be replaced every five years for technical reasons. At the
Balance Sheet date 31 st March,2022, the company does not provide any provision for
replacement of lining of the furnace.
(ii) A case has been filed against the company in the consumer court and a notice for
levy of a penalty of ` 50 Lakhs has been received. The company has appointed a
lawyer to defend the case for a fee of ` 5 Lakhs. 60% of the fees have been paid in
advance and rest 40% will be paid after finalization of the case. There are 70%
chances that the penalty may not be levied.
(d) Grace Ltd., a firm of contractors provided the following information in respect of a contract
for the year ended on 31 st March,2022:
Particulars (` in ‘000)
Fixed Price Contract with an escalation clause 35,000
Work Certified 17,500
Work not Certified (includes ` 26,25,000 for materials issued, out of 3,815
which material lying unused at the end of the period is ` 1,40,000)
Estimated further cost to completion
Progress Payment Received 17,325
Payment to be Received 14,000
Escalation in cost is by 8% and accordingly the contract price is 4,900
increased by 8%
From the above information, you are required to:
(i) Compute the contract revenue to be recognized.
(ii) Calculate Profit /Loss for the year ended 31 st March,2022 and additional provision for
loss to be made, if any, for the year ended 31 st March,2022.
(4 Parts X 5 Marks = 20 Marks)
Answer
(a) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies” prior period items are income or expenses which arise in the current
period as a result of errors or omissions in the preparation of the financial statem ents of
one or more prior periods. The term does not include other adjustments necessitated by
circumstances which though related to prior periods, are determined in the current period.

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 PAPER – 5 : ADVANCED ACCOUNTING 3

It is given that revision of wages took place in April, 2022 with retrospective effect from
1st January, 2022. Therefore, wages payable for the period from 1.01.2022 to 31.3.2022
cannot be taken as an error or omission in the preparation of financial statements and
hence this expenditure cannot be taken as a prior period item. The full amount of wages
payable to workers will be treated as an expense of current year and it will be charged to
profit & loss account for the year 2022-23 as normal expenses.
It may be mentioned that additional wages is an expense arising from the ordinary activities
of the company. Such an expense does not qualify as an extraordinary item. Therefore,
finance manager is incorrect in treating increase as extraordinary item. However, as per
AS 5, when items of income and expense within profit or loss from ordinary activities are
of such size, nature or incidence that their disclosure is relevant to explain the performance
of the enterprise for the period, the nature and amount of such items should be disclosed
separately.
Therefore, additional wages liability of ` 30 lakhs should be disclosed separately in the
financial statements of TQ Cycles Ltd. for the year ended 31 stMarch, 2023.
(b) (i) Calculation of Basic Earnings per share for the year ended 31 stMarch, 2022 including
the comparative figure:
(a) Earnings for the year ended 31 st March, 2021 = EPS x Number of shares
outstanding during 2020-2021
= ` 62.30 x 10,00,000 equity shares
= ` 6,23,00,000
(b) Adjusted Earnings per share after taking into consideration bonus issue
Adjusted Basic EPS = Earnings for the year 2020-2021 / Total outstanding
shares +Bonus issue
= ` 6,23,00,000 / (10,00,000+ 5,00,000)
= ` 6,23,00,000 / 15,00,000
= ` 41.53 per share
(c) Basic EPS for the year 2021-2022
Basic EPS = Total Earnings – Preference Shares Dividend) / (Total shares
outstanding at the beginning + Bonus issue + weighted average of the shares
issued in January, 2022)
= (` 90,00,000 – ` (1,00,00,000 x 8%) / (10,00,000 + 5,00,000 + (2,00,000 x
3/12))
= ` 82,00,000 / 15,50,000 shares
= ` 5.29 per share

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 4 INTERMEDIATE EXAMINATION: MAY, 2022

(ii) In case of a bonus issue, equity shares are issued to existing shareholders for no
additional consideration. Therefore, the number of equity shares outstanding is
increased without an increase in resources. Since the bonus issue is an issue without
consideration, the issue is treated as if it had occurred prior to the beginning of the
year 2021, the earliest period reported.
However, the share issued at full market price does not carry any bonus element and
usually results in a proportionate change in the resources available to the enterprise.
Therefore, it is taken into consideration from the time it has been issued i.e. the time -
weighting factor is considered based on the specific shares outstanding as a
proportion of the total number of days in the period.
(c) (i) A provision should be recognized only when an enterprise has a present obligation
arising from a past event or obligation. In the given case, there is no present
obligation but a future one, therefore no provision is recognized as per AS 29. The
cost of replacement of lining of furnace is not recognized as a provision because it is
a future obligation. Even a legal requirement does not require the company to make
a provision for the cost of replacement because there is no present obligation. Even
the intention to incur the expenditure depends on the company deciding to continue
operating the furnace or to replace the lining.
(ii) As per AS 29, an obligation is a present obligation if, based on the evidence available,
its existence at the balance sheet date is considered probable, i.e., more likely than
not. Liability is a present obligation of the enterprise arising from past event s, the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits.
In the given case, there are 70% chances that the penalty may not be levied.
Accordingly, Alloy Fabrication Ltd. should not make the provision for penalty. The
matter is disclosed as a contingent liability unless the probability of any outflow is
regarded as remote.
However, a provision should be made for remaining 40% fees of the lawyer amounting
` 2,00,000 in the financial statements of financial year 2021-2022.
(d) Calculation of total estimated cost of construction
` in thousand
Cost of Contract incurred till date
Work certified 17,500
Work not certified (3,815 thousand – 140 thousand) 3,675 21,175
Add: Estimated future cost 17,325
Total estimated cost of construction 38,500
Contract Price (35,000 thousand x 1.08) 37,800

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 PAPER – 5 : ADVANCED ACCOUNTING 5

Stage of completion
Percentage of completion till date to total estimated cost of construction = [Cost of work
completed till date / total estimated cost of the contract] x 100
= [` 21,175 thousand / ` 38,500 thousand] x 100= 55%
Revenue to be recognized for the year ended 31 stMarch, 2022
Proportion of total contract value recognized as revenue = Contract price x percentage of
completion = ` 37,800 thousand x 55% = ` 20,790 thousand
Loss to be recognized for the year ended 31 stMarch, 2022
Loss for the year ended 31 stMarch, 2022 = Cost incurred till date – Revenue to be
recognized for the year ended 31 st March, 2022
= ` 21,175 thousand – ` 20,790 thousand = ` 385 thousand
Provision for loss to be made at the end of 31 stMarch, 2022
` in thousand
Total estimated loss on the contract
Total estimated cost of the contract 38,500
Less: Total revised contract price (37,800) 700
Less: Loss recognized for the year ended 31 st March, (385)
2022
Provision for loss to be made at the end of 31 stMarch, 315
2022
Question 2
The summarized Balance Sheet of A Ltd. and B Ltd. as at 31 st March,2022 are as under:
A Ltd. (in `) B Ltd. (in `)
Equity shares of `10 each, fully paid up 30,00,000 24,00,000
Securities Premium Account 4,00,000
General Reserve 6,20,000 5,00,000
Profit and Loss Account 3,60,000 3,20,000
Retirement Gratuity Fund Account 1,00,000
10% Debentures 20,00,000
Unsecured Loan (including loan from A Ltd.) 6,00,000 8,20,000
Trade Payables 1,00,000 3,40,000
71,80,000 43,80,000
Land and Buildings 28,00,000 21,00,000
Plant and Machinery 20,00,000 7,60,000

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Long term advance to B Ltd. 2,20,000

Inventories 10,40,000 7,00,000
Trade Receivables 8,20,000 5,20,000
Cash and Bank 3,00,000 3,00,000
71,80,000 43,80,000

B Ltd. is to declare and pay ` 1 per equity share as dividend, before the following amalgamation
takes place with Z Ltd.
Z Ltd. was incorporated to take over the business of both A Ltd. and B Ltd.
(a) The authorized share capital of Z Ltd. is ` 60 lakhs divided into ` 6 lakhs equity shares of
` 10 each.
(b) As per Registered Valuer the value of equity shares of A Ltd. is ` 18 per share and of B
Ltd. is ` 12 per share respectively and agreed by respective shareholders of the
companies.
(c) 10% Debentures of A Ltd. to be issued 12% Debentures of Z Ltd. at par in consideration
of their holdings.
(d) A contingent liability of A Ltd. of ` 2,00,000 is to be treated as actual liability.
(e) Liquidation expenses including Registered Valuer fees of A Ltd.` 50,000 and B Ltd.
` 30,000 respectively to be borne by Z Ltd.
(f) The shareholders of A Ltd. and B Ltd. is to be paid by issuing sufficient number of fully
paid up equity shares of ` 10 each at a premium of ` 10 per share.
Assuming amalgamation in the nature of purchase, you are required to pass the necessary
journal entries (narrations not required) in the books of Z Ltd. and Prepare Balance Sheet of Z
Ltd. immediately after amalgamation of both the companies. (20 Marks)
Answer
Journal Entries in the books of Z Ltd.
` `
Business Purchase A/c Dr. 54,00,000
To Liquidator of A Ltd. A/c 54,00,000
Land & Building A/c Dr. 28,00,000
Plant & Machinery A/c Dr. 20,00,000
Long term advance to B Ltd. A/c Dr. 2,20,000
Inventories A/c Dr. 10,40,000
Trade Receivables A/c Dr. 8,20,000

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Cash and Bank A/c Dr. 3,00,000

Goodwill A/c Dr. 12,20,000
To Retirement Gratuity Fund A/c 1,00,000
To 10% Debentures A/c 20,00,000
To Unsecured Loan A/c 6,00,000
To Trade Payables A/c 1,00,000
To Other liabilities A/c 2,00,000
To Business Purchase A/c 54,00,000
10% Debentures A/c Dr. 20,00,000
To 12% Debentures A/c 20,00,000
Liquidator of A Ltd. A/c Dr. 54,00,000
To Equity Share Capital A/c 27,00,000
To Securities Premium A/c 27,00,000
Business Purchase A/c Dr. 28,80,000
To Liquidator of B Ltd. A/c 28,80,000
Land and Building A/c Dr. 21,00,000
Plant & Machinery A/c Dr. 7,60,000
Inventories A/c Dr. 7,00,000
Trade Receivables A/c Dr. 5,20,000
Cash and Bank (less dividend) A/c Dr. 60,000
To Unsecured Loan A/c 8,20,000
To Trade Payables A/c 3,40,000
To Business Purchase A/c 28,80,000
To Capital Reserve A/c 1,00,000
Liquidators of B Ltd. A/c Dr. 28,80,000
To Equity Share Capital A/c 14,40,000
To Securities Premium A/c 14,40,000
Unsecured Loans A/c Dr. 2,20,000
To Long term Advance to B Ltd. A/c 2,20,000
*Capital Reserve A/c Dr. 1,00,000
To Cash and Bank A/c (Liquidation expenses) 80,000
To Goodwill A/c 20,000

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 8 INTERMEDIATE EXAMINATION: MAY, 2022

Note:
1. The journal entries for A Ltd. and B Ltd. have been given separately in the above solution.
Alternatively, the entries may be given as combined for both companies.
2. *Alternatively, following set of entries may be given in place of the last entry given in the
above solution:

Goodwill A/c Dr. 50,000

To Cash & Bank A/c (Liquidation expenses of A Ltd.) 50,000
Capital Reserve A/c Dr. 30,000
To Cash and Bank A/c (Liquidation expenses of B Ltd.) 30,000
Capital Reserve A/c Dr. 70,000
To Goodwill A/c 70,000
Balance Sheet of Z Ltd. as at 31 st March, 2022
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 41,40,000
(b) Reserves and Surplus 2 41,40,000
(2) Non-Current Liabilities
(a) Long-term borrowings 3 20,00,000
(b) Long term provisions 4 1,00,000
(3) Current Liabilities
(a) Short-term borrowings 1 5 12,00,000
(b) Trade payables 6 4,40,000
(a) Other liability 2,00,000
Total 1,22,20,000
II. Assets
(1) Non-current assets
(a) i. Property, plant and equipment 7 76,60,000

1Unsecured loans have been considered as short-term borrowings. Alternatively, it may be considered
as long-term borrowings and presented accordingly.

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ii. Intangible assets 12,00,000

(Goodwill 12,20,000-20,000)
(2) Current assets
(a) Inventories 8 17,40,000
(b) Trade receivables 9 13,40,000
(c) Cash and cash equivalents 10 2,80,000
Total 1,22,20,000

Notes to Accounts
(`) (`)
1. Share Capital
Authorized Share Capital
6,00,000 Equity shares of ` 10 each 60,00,000
Issued: 4,14,000 Equity shares of ` 10 each 41,40,000
(all these shares were Issued for consideration
other than cash)
2. Reserves and surplus
Securities Premium Account
(4,14,000 shares × ` 10) 41,40,000
3. Long-term borrowings
12% Debentures 20,00,000
4 Long term Provisions
Retirement gratuity fund 1,00,000
5. Short-term borrowings
Unsecured loans
A Ltd. 6,00,000
B Ltd. 8,20,000 14,20,000
Less: Mutual (2,20,000) 12,00,000
6. Trade payables
A Ltd. 1,00,000
B Ltd. 3,40,000 4,40,000

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 10 INTERMEDIATE EXAMINATION: MAY, 2022

7. Property, plant & equipment

Land and Building
A Ltd. 28,00,000
B Ltd. 21,00,000 49,00,000
Plant and Machinery
A Ltd. 20,00,000
B Ltd. 7,60,000 27,60,000
76,60,000
8. Inventories
A Ltd. 10,40,000
B Ltd. 7,00,000 17,40,000
9 Trade receivables
A Ltd. 8,20,000
B Ltd. 5,20,000 13,40,000
10 Cash & cash equivalents
A Ltd. 3,00,000
B Ltd. [3,00,000-2,40,000(dividend)] 60,000
3,60,000
Less: Liquidation Expenses (80,000) 2,80,000

Working Note:
Calculation of amount of Purchase Consideration

A Ltd. B Ltd.
Existing shares 3,00,000 2,40,000
Agreed value per share ` 18 ` 12
Purchase consideration 54,00,000 28,80,000
No. of shares to be issued of ` 20 each (including ` 10 premium) 2,70,000 1,44,000
Face value of shares at ` 10 27,00,000 14,40,000
Premium of shares at ` 10 27,00,000 14,40,000

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Question 3
(a) White Ltd. acquired 2,250 shares of Black Ltd. on 1 st October, 2020. The summarized
balance sheets of both the companies as on 31 st March, 2021 are given below:
White Ltd. ( `) Black Ltd. ( `)
(I) Equity and Liabilities
(1) Shareholder's fund
Share capital (Equity shares of ` 100
each fully paid up) 6,50,000 3,00,000
Reserves and Surplus
General Reserve 60,000 30,000
Profit and loss account 1,50,000 90,000
(2) Current Liabilities
Trade payables 1,15,000 75,000
Due to White Ltd. - 30,000
Total 9,75,000 5,25,000
(II) Assets:
Non-current assets
Property, Plant and Equipment 5,80,000 3,51,000
Investments
Shares in Black Ltd. (2,250 shares) 2,70,000
Current assets
Inventories 50,000 1,20,000
Due from Black Ltd. 36,000
Cash and Cash equivalents 39,000 54,000
Total 9,75,000 5,25,000

Other information:
(i) During the year, Black Limited fabricated a machine, which is sold to White Ltd. for
` 39,000, the transaction being completed on 30 th March,2021.
(ii) Cash in transit from Black Ltd. to White Ltd. was ` 6,000 on 31 st March,2021.
(iii) Profits during the year 2020-2021 were earned evenly.

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(iv) The balances of Reserve and Profit and Loss account as on 1 st April,2020 were as
follows:
Reserves Profit and Loss A/c
` `
White Ltd. 30,000 15,000 Profit
Black Ltd. 30,000 10,000 Loss
You are required to prepare consolidated Balance Sheet of the group as on
31st March,2021 as per the requirement of Schedule III of the Companies Act, 2013.
(b) (i) Write a short note on Non-performing assets of a banking company.
(ii) Dee Bank provides you the following information relating to their two cash credit
accounts:
Account A Account B
` In Lakhs ` In Lakhs
Sanctioned limit 4,500 3,200
Drawing power 4,200 2,500
Amount outstanding continuously from 01.01.2021 3,600 2,000
to 31.03.2021
Total Interest debited for the above period 288 315
Total credits for the above period 120 380
State with reason whether the above cash credit accounts are NPA or not?
(15 + 5 = 20 Marks)
Answer
(a) Consolidated Balance Sheet of White Ltd. and its Subsidiary Black Ltd.
as at 31st March, 2021
Particulars Note No. (`)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 6,50,000
(b) Reserves and Surplus 2 2,55,000
(2) Minority Interest 3 1,05,000
(3) Current Liabilities
(a) Trade Payables 4 1,90,000
Total 12,00,000

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II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 5 9,31,000
(2) Current assets
(i) Inventory 6 1,70,000
(ii) Cash & cash equivalent 7 99,000
Total 12,00,000
Notes to Accounts
`
1. Share capital
6,500 equity shares of ` 100 each, fully paid up 6,50,000
Total 6,50,000
2. Reserves and Surplus
General Reserves 60,000
Profit and Loss Account 1,50,000
Add: 75% share of Black Ltd.’s post-acquisition profits
(W.N.1) 37,500 1,87,500
Capital reserve (W.N. 5) 7,500
Total 2,55,000
3. Minority interest in Black Ltd. (WN 4) 1,05,000
4. Trade payables
White Ltd. 1,15,000
Black Ltd. 75,000 1,90,000
5. Property, plant and equipment
White Ltd. 5,80,000
Black Ltd. 3,51,000 9,31,000
6 Inventory
White Ltd. 50,000
Black Ltd. 1,20,000 1,70,000
7 Cash & cash equivalent
White Ltd. 39,000
Black Ltd. 54,000
Cash in transit 6,000 99,000

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Working Notes:
1. Post-acquisition profits of Black Ltd. `
profits earned during the year = ` 90,000 + `10,000 1,00,000
Pre-acquisition profits (1.4.20 to 30.9.20) 50,000
Post-acquisition profits (1.10.20 to 31.3.21) 50,000
White Ltd.’s share 75% of 50,000 37,500
Minority Interest 25% of 50,000 12,500
2. Pre-acquisition profits and reserves of Black Ltd.
Reserves as on 1.4.2020 30,000
Profit and Loss Account 40,000
[10,000 (loss as on 1.4.20) +50,000 (6 month Adjusted pre-acquisition
profits)]
70,000
White Ltd.’s = (75%) × 70,000 52,500
Minority Interest= (25%) × 70,000 17,500
3. Post-acquisition reserves of Black Ltd.
Post-acquisition reserves (Total reserves less pre-acquisition nil
reserves = ` 30,000 – 30,000)
4. Minority Interest
Paid-up value of (3,000 – 2,250) = 750 shares
held by outsiders i.e. 750 × ` 100 75,000
Add: 25% share of pre-acquisition reserves & Profit 17,500
25% share of post-acquisition profit 12,500
1,05,000
5. Capital Reserve
Price paid by White Ltd. for 2,250 shares (A) 2,70,000
Intrinsic value of the shares-
Paid-up value of 2,250 shares held by White Ltd. 2,25,000
i.e. 2,250 × ` 100
Add 75% share of pre-acquisition reserves & profit
(70,000 x 75%) 52,500 (B) 2,77,500
Capital reserve (A – B) 7,500

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(b) (i) Performing assets are also called as Standard Assets. A non-performing asset is a
loan or advance for which the principal or interest payment remains overdue for a
period of 90 days. The assets other than performing assets are called Non-Performing
Assets (NPA). NPAs are classified into three groups: (i) sub-standard Assets (ii)
doubtful assets & (iii) Loss Assets.
(i) Sub-standard Assets –A Sub-standard asset is one which has been classified
as an NPA for a period not exceeding 12 months.
(ii) Doubtful Assets - An asset would be classified as doubtful if it has remained in
the substandard category for a period of at least12 months.
(iii) Loss Assets - A loss asset is one where loss has been identified by the bank
or internal or external auditors or the RBI inspectors but the amount has not
been written off, wholly or partly. In other words, such an asset is considered
uncollectible or if collected of such little value that its continuance as a bank
asset is not warranted although there may be some salvage or recovery value.
Income from non-performing assets can only be accounted for as and when it is
actually received.
(ii)
Account A Account B
` in lakhs ` in lakhs
Sanctioned limit 4,500 3,200
Drawing power 4,200 2,500
Amount outstanding continuously from 1.01.2021 3,600 2,000
to 31.03.2021
Total interest debited 288 315
Total credits 120 380
Is credit in the account is sufficient to cover the No Yes
interest debited during the period? or
Is amount ‘overdue’ for a continuous period of 90 Yes No
days?
NPA Not NPA
Question 4
(a) Ajay, Vijay and Sanjay have been in partnership for a number of years, sharing profits and
losses in the ratio 7:7: 4 as a wholesale stationers running business under the name "AVS
Traders". On 31 st March,2021, it was found that some frauds were committed by Sanjay
during the year 2020-2021. So, it was decided to dissolve the partnership business on
31st March,2021 when their Balance sheet stood as under:

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 16 INTERMEDIATE EXAMINATION: MAY, 2022

Balance Sheet as at 31 st March,2021

Liabilities Amount (`) Assets Amount (`)
Capital accounts: Building 1,90,000
Ajay 1,80,000 Inventory 1,30,000
Vijay 1,80,000 3,60,000 Investments 50,000
General Reserve 36,000 Trade Debtors 70,000
Trade Creditors 80,000 Cash & Bank 26,000
Bills payables 30,000 Sanjay's Capital (overdrawn) 40,000
5,06,000 5,06,000
Additional Information:
(i) Following frauds were committed by Sanjay:
(1) Investments costing ` 8,000 were sold by Sanjay at ` 11,000 and the funds
were transferred to his personal account. This sale was omitted from firm's
books.
(2) A cheque for ` 7,000 received from trade debtors was not recorded in the books
and was misappropriated by Sanjay.
(ii) A trade creditor agreed to take over investments of the book value of ` 9,000 at
` 13,000. The rest of the trade creditors were paid off at a discount of 10%.
(iii) Other assets were realized as follows:
Inventory ` 1,20,000
Building 110% of book value
Investments The rest of the investments were sold at a profit of ` 7,000
Trade Debtors The rest of the trade debtors were realised at a discount of 10%
(iv) The Bills payables were settled at a discount of, ` 500.
(v) The expenses of dissolution amounted to ` 8,060.
(vi) It was found out, that realisation from Sanjay's private assets would be ` 7,000.
You are required to prepare
(1) Realisation Account
2) Cash & Bank Account
(3) Partners’ Capital Accounts.
(All workings should form part of your answer)

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(b) Explain the nature of a Limited Liability Partnership. Who can be a designated partner in a
Limited Liability Partnership and what are their liabilities? (15 + 5 = 20 Marks)
Answer
(a) Realization Account
Particulars ` Particulars `
To Building 1,90,000 By Trade creditors 80,000
To Inventory 1,30,000 By Bills payable 30,000
To Investment 50,000 By Cash
To Trade Debtors 70,000 Building 2,09,000
To Cash - Trade creditors 60,300 Inventory 1,20,000
paid (W.N.1)
To Cash-expenses 8,060 Investments (W.N.2) 40,000
To Cash-bills payable 29,500 Trade Debtors 56,700 4,25,700
(30,000-500) (W.N. 3)
To Partners’ Capital A/cs By Sanjay’s Capital A/c 7,000
(Trade Debtors-
unrecorded)
Ajay 6,160 By Sanjay’s Capital A/c 11,000
(Investments-
unrecorded)
Vijay 6,160
Sanjay 3,520 15,840
5,53,700 5,53,700

Cash and Bank Account

Particulars Amount Particulars Amount
` `
To Balance b/d 26,000 By Realization A/c- Trade 60,300
creditors paid
To Realization A/c– By Realization A/c-bills 29,500
(Assets realized) payable
Building 2,09,000 By Realization A/c- 8,060
expenses
Inventory 1,20,000 By Capital accounts:
Investments (W.N.2) 40,000 Ajay 1,80,420

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 18 INTERMEDIATE EXAMINATION: MAY, 2022

Trade Debtors 56,700 4,25,700 Vijay 1,80,420

(W.N. 3)
To Sanjay’s capital A/c 7,000
4,58,700 4,58,700
Partners’ Capital Accounts
Particulars Ajay Vijay Sanjay Particulars Ajay Vijay Sanjay
` ` ` ` ` `
To Balance b/d 40,000 By Balance b/d 1,80,000 1,80,000 -
To Trade Debtors- 7,000 By General 14,000 14,000 8,000
misappropriation reserve
To Investment- 11,000 By Realization 6,160 6,160 3,520
misappropriation profit
To Sanjay’s 19,740 19,740 By Cash A/c 7,000
capital A/c
(W.N. 4)
To Cash A/c 1,80,420 1,80,420 By Ajay’s 19,740
capital A/c
By Vijay’s
capital A/c 19,740
2,00,160 2,00,160 58,000 2,00,160 2,00,160 58,000

Working Notes:
1. Amount paid to Trade creditors
`
Book value 80,000
Less: Creditors taking over investments (13,000)
67,000
Less: Discount @ 10% (6,700)
60,300
2. Amount received from sale of investments
`
Book value 50,000

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 PAPER – 5 : ADVANCED ACCOUNTING 19

Less: Misappropriated by Sanjay (8,000)

42,000
Less: Taken over by a trade creditor (9,000)
33,000
Add: Profit on sale of investments 7,000
40,000
3. Amount received from Trade debtors
`
Book value 70,000
Less: Unrecorded receipt (7,000)
63,000
Less: Discount @ 10% (6,300)
56,700
4. Deficiency of Sanjay
`
Balance of capital as on 31 st March, 2021 40,000
Debtors-misappropriation 7,000
Investment-misappropriation 11,000
58,000
Less: Realization Profit (3,520)
General reserve (8,000)
Contribution from private assets (7,000)
Net deficiency of capital 39,480
This deficiency of ` 39,480 in Sanjay’s capital account will be shared by other
partners Ajay and Vijay in their capital ratio of 1:1
Accordingly,
Ajay’s share of deficiency = [39,480/2] = ` 19,740
Vijay’s share of deficiency = [39,480/2] = ` 19,740
(b) Nature of Limited Liability Partnership: A limited liability partnership is a body corporate
formed and incorporated under the LLP Act, 2008 and is a legal entity separate from that
of its partners. A limited liability partnership shall have perpetual succession and any

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 20 INTERMEDIATE EXAMINATION: MAY, 2022

change in the partners of a limited liability partnership shall not affect the existence, rights,
or liabilities of the limited liability partnership.
Designated partners: Every limited liability partnership shall have at least two designated
partners who are individuals and at least one of them shall be a resident in India. In case
of a limited liability partnership in which all the partners are bodies corporate or in which
one or more partners are individuals and bodies corporate, at least two individuals who are
partners of such limited liability partnership or nominees of such bodies corporate shall act
as designated partners.
Liabilities of Designated partners: As per the LLP Act, unless expressly provided
otherwise in this Act, a designated partner should be-
(a) responsible for the doing of all acts, matters, and things as are required to be done
by the limited liability partnership in respect of compliance of the provisions of this
Act including filing of any document, return, statement, and the like report pursuant
to the provisions of this Act and as may be specified in the limited liability partnership
agreement; and.
(b) Liable to all penalties imposed on the limited liability partnership for any contravention
of those provisions.
Question 5
(a) Quick Ltd. has the following capital structure as on 31 st March,2021:
` in Crores
(1) Share Capital: 462
(Equity Shares of ` 10 each, fully paid)
(2) Reserves and Surplus:
General Reserve 336
Securities Premium Account 126
Profit and Loss Account 126
Statutory Reserve 180
Capital Redemption Reserve 87
Plant Revaluation Reserve 33 888
(3) Loan Funds:
Secured 2,200
Unsecured 320 2,520
On the recommendations of the Board of Directors, on 16 th September, 2021, the
shareholders of the company have approved a proposal to buy-back of equity shares. The
prevailing market value of the company's share is ` 20 per share and in order to induce
the existing shareholders to offer their shares for buy-back, it was decided to offer a price

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 PAPER – 5 : ADVANCED ACCOUNTING 21

of 50% over market value. The company had sufficient balance in its bank account for the
buy-back of shares.
You are required to compute the maximum number of shares that can be bought back in
the light of the above information and also under a situation where the loan funds of the
company were either ` 1,680 Crores or ` 2,100 Crores.
Assuming that the entire buy-back is completed by 31 st December,2021, Pass the
necessary accounting entries (narrations not required) in the books of the company in each
situation.
(b) Deluxe Commercial Bank has the following capital funds and assets:
` In Crores
Capital Funds and Assets
Capital Funds:
Paid up Equity Share Capital 2,400
Statutory Reserves 480
Securities Premium 480
Capital Reserve (of Which ` 128 Crores were due to revaluation of
assets and balance due to sale of assets) 288
Profit and Loss Account (Dr. Balance) 48
Assets:
(i) Cash balance with Reserve Bank of India 192
(ii) Claims on Banks 544
(iii) Other Investments 7,360
Loans and Advances:
(i) Guaranteed by Government of India and State Governments 1,280
(ii) Bank Staff Advances - fully covered by superannuation benefit 160
Other loans and advances 544
Other Assets:
(i) Premises, Furniture & Fixtures 12,560
(ii) Intangible Assets 48
Off-Balance Sheet Items:
Acceptance, Endorsements and Letters of Credit 4,800
Guarantee and other obligations 160

You are required to:

(i) Segregate the capital funds into Tier I and Tier II capitals, and

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 22 INTERMEDIATE EXAMINATION: MAY, 2022

(ii) Find out the risk-adjusted asset and risk weighted assets ratio. (10 +10 = 20 Marks)
Answer
(a) Statement determining the maximum number of shares to be bought back
Number of shares
Particulars When loan fund is
` 2,520 crores ` 1,680 crores ` 2,100 crores
Shares Outstanding Test (W.N.1) 11.55 11.55 11.55
Resources Test (W.N.2) 8.75 8.75 8.75
Debt Equity Ratio Test (W.N.3) Nil 5.25 Nil
Maximum number of shares that
can be bought back [least of the Nil 5.25 Nil
above]

Journal Entries for the Buy-Back

(applicable only when loan fund is ` 1,680 crores)
` in crores
Particulars Debit Credit
(a) Equity share buy-back account Dr. 157.5
To Bank account 157.5
(b) Equity share capital account (5.25 x ` 10) Dr. 52.5
Securities premium account (5.25 x ` 20) Dr. 105
To Equity share buy-back account 157.5
(c) General reserve account Dr. 52.5
To Capital redemption reserve account 52.5
Working Notes:
1. Shares Outstanding Test
Particulars (Shares in crores)
Number of shares outstanding 46.2
25% of the shares outstanding 11.55
2. Resources Test
Particulars
Paid up capital (` in crores) 462

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 PAPER – 5 : ADVANCED ACCOUNTING 23

Free reserves (` in crores) (336+126+126) 588

Shareholders’ funds (` in crores) 1,050
25% of Shareholders fund (` in crores) ` 262.5 crores
Buy-back price per share ` 30
Number of shares that can be bought back (shares in 8.75 crores shares
crores)
3. Debt Equity Ratio Test
Particulars When loan fund is
` 2,520 crores ` 1,680 crores ` 2,100 crores
(a) Loan funds (` in 2,520 1,680 2,100
crores)
(b) Minimum equity to be
maintained after buy- 1,260 840 1,050
back in the ratio of 2:1
(` in crores)
(c) Present equity 1,050 1,050 1,050
shareholders fund
(` in crores)
(d) Future equity N.A. 997.5 N.A.
shareholder fund (1,050-52.5)
(` in crores) (See
Note 2)
(e) Maximum permitted Nil 157.5 (by Nil
buy-back of Equity simultaneous
(` in crores) [(d) – (b)] equation)
(See Note 2)
(f) Maximum number of 5.25 (by
shares that can be simultaneous
bought back @ Nil equation) Nil
` 30 per share
(shares in crores)
(See Note 2)
Note:
1. Under Situations 1 & 3 the company does not qualify for buy-back of shares as per
the provisions of the Companies Act, 2013.
2. As per section 68 of the Companies Act, 2013, the ratio of debt owed by the company
should not be more than twice the capital and its free reserve after such buy-back.

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 24 INTERMEDIATE EXAMINATION: MAY, 2022

Amount transferred to CRR and maximum equity to be bought back will be calculated
by simultaneous equation method.
Suppose amount equivalent to nominal value of bought back shares transferred to
CRR account is ‘x’ and maximum permitted buy-back of equity is ‘y’.
Then
Equation 1: (Present equity – Nominal value of buy-back transfer to CRR) – Minimum
equity to be maintained= Maximum permissible buy-back of equity
(1,050 –x)-840 = y
Since 210 – x = y
Maximum buy-back
Equation 2: ( x Nominal Value)
Offer price for buy-back
= Nominal value of the shares bought –back to be transferred to CRR

=  y 10  = x
 30 
Or 3x = y (2)
by solving the above two equations we get
x = ` 52.5 crores
y = ` 157.5 crores
3. Statutory reserves, capital redemption reserve and plant revaluation reserves are not
free reserves.
4. For calculation of debt -equity ratio both secured and unsecured loans have been
considered.
(b)
(` in crores)
(i) Capital Funds - Tier I:
Paid up Equity Share Capital 2,400.00
Securities premium 480.00
Statutory Reserve 480.00
Capital Reserve (arising out of sale of assets) 160.00
3,520.00
Less: Intangible assets 48.00
Profit and Loss Account (Dr. balance) 48.00 (96.00)
Total 3,424.00

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 PAPER – 5 : ADVANCED ACCOUNTING 25

Capital Funds - Tier II:

Capital Reserve (arising out of revaluation of assets) 128.00
Less: Discount to the extent of 55% (70.40) 57.60
Total Capital Funds 3,481.60
(ii) Calculation of Risk Adjusted Assets
` in crore Weight in % Amount
(` in crore)
Funded Risk Assets
Cash Balance with RBI 192 0 0
Claims on banks 544 20 108.80
Other Investments 7,360 100 7,360
Loans and Advances:
(i) Guaranteed by government 1,280 0 0
(ii) Staff advances fully covered by
superannuation benefits 160 20 32
(iii) Other Loans 544 100 544
Premises, furniture and fixtures 12,560 100 12,560
20,604.80

Off-Balance Sheet Items ` in crores Credit Conversion ` in crore

Factor
Acceptances, Endorsements and 4,800 100 4,800
Letters of credit
Guarantees and other obligations 160 100 160
4,960

Capital Funds (Tier I & Tier II)

Risk Weighted Assets Ratio: × 100
Risk Adjusted Assets+off Balance sheet items
Capital Adequacy Ratio = 3424 + 57.60/ 20,604.80 + 4,960
= (3481.60/25,564.80) x 100
= 13.62% (rounded off)

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 26 INTERMEDIATE EXAMINATION: MAY, 2022

Question 6
Answer any four of the following:
(a) XYZ Ltd. has 5 business segments. Profit / Loss of each of the segments for the year
ended 31st March,2022 has been provided below. You are required to identify from the
following whether reportable segments or not reportable segments, on the basis of
"profitability test" as per AS-17.
Segment Profit (Loss) ` in lakhs
A 225
B 25
C (175)
D (20)
E (105)
(b) In a limited company, Equity Share Capital is held by X, Y and Z in the proportion of
30:30:40. Also A, B and C hold preference share capital in the proportion of 50:30:20. The
company has not paid the dividend to holders of preference share capital for more than 3
years. Given that the paid-up equity share capital of the company is ` 1 Crore and that of
preference share capital is ` 50 Lakh.
(i) Find out the relative weight in the voting right of equity shareholders and preference
shareholders.
(ii) Also the company proposing to issue equity shares with differential voting rights
(DVR) to the extent of ` 50 lakhs. Assuming the company fulfils other conditions
pertaining to the issue of shares with DVR. Can the company issue the shares with
DVR?
(c) What are the disclosures requirements for operating leases by the lessee as per AS -19?
(d) The position of Bad Luck Limited on its liquidation on 31 st March, 2022 is as under:
Issued and paid up capital:
90,000, 10% Preference Shares of ` 100 each, fully paid
90,000 Equity Shares of ` 100 each, fully paid up
30,000 Equity Shares of ` 50 each, 40 paid up
10,000 Equity Shares of ` 10 each, 4 paid up
Calls in arrears are ` 3,00,000 and calls received in advance ` 2,55,000. Preference
dividends are in arrears for two years. Amount left with the liquidator after discharging of
all liabilities is ` 1,25,15,000. Articles of Association of the company provide for payment
of preference dividend arrears in priority to return of equity capital.

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 PAPER – 5 : ADVANCED ACCOUNTING 27

You are required to prepare the Liquidator's Final Statement of Account.

(e) On 1st April,2021, a company offered 100 shares to each of its 5,000 employees at ` 50
per share. The employees are given a year to accept the offer. The shares issued under
the plan shall be subject to lock-in on transfer for three years from the grant date. The
market price of shares of the company on the grant date is ` 60 per share. Due to post
vesting restrictions on transfer, the fair value of shares issued under the plan is estimated
at ` 56 per share and fair value per option worked out to be ` 6.
On 31st March,2022, 4,000 employees accepted the offer and paid ` 50 per share
purchased. Nominal value of each share is ` 10.
You are required to pass journal entries (with narration) as would appear in the books of
the company up to 31 st March,2022. (4 Parts x 5 Marks = 20 Marks)
Answer
(a) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should
be identified as a reportable segment if:
Its segment results whether profit or loss is 10% or more of:
 The combined result of all segments in profit; i.e. ` 250 Lakhs or
 The combined result of all segments in loss; i.e. ` 300 Lakhs
Whichever is greater in absolute amount i.e. ` 300 Lakhs.
Operating Absolute amount of Profit Reportable Segment
Segment or Loss (` In lakhs) Yes or No
A 225 Yes
B 25 No
C 175 Yes
D 20 No
E 105 Yes
On the basis of the profitability test (result criteria), segments A, C and E are reportable
segments (since their results in absolute amount is 10% or more of ` 300 lakhs i.e.
30 lakhs).
(b) (i) The respective voting right of various shareholders will be
X = 2/3X30/100 = 3/15 OR 20%
Y = 2/3X30/100 = 3/15 OR 20%
Z = 2/3X40/100 = 4/15 OR 26.67%
A = 1/3X50/100 = 1/6 OR 16.67%

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 28 INTERMEDIATE EXAMINATION: MAY, 2022

B = 1/3X30/100 = 1/10 OR 10%

C = 1/3X20/100 = 2/30 OR 6.67%
Hence their relative weights are 3/15: 3/15: 4/15: 1/6: 1/10:2/30 or 6:6:8:5:3:2.
(ii) The voting power in respect of shares with differential rights shall not exceed seventy
four percent of the total voting power including voting power in respect of equity
shares with differential rights (DVR) issued at any point of time as per Companies
(Share Capital and Debentures) Rules.
`
Existing Equity Share Capital paid up 1,00,00,000.00
Proposed DVR 50,00,000.00
Post DVR Equity Share Capital paid up 1,50,00,000.00
% of shares with DVR to total paid up Equity Share Capital 33.33%
(including Equity Shares with DVR) (` 50,00,000 /
` 150,00,000 X 100)
In the given case 33.33% of shares with DVR to total post issue paid up Equity Capital
(including Equity Shares with DVR) is not exceeding 74%. Hence, the company can
issue such equity shares.
(c) As per AS 19, lessees are required to make following disclosures for operating leases:
(a) the total of future minimum lease payments under non-cancelable operating leases
for each of the following periods:
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years;
(b) the total of future minimum sublease payments expected to be received under non -
cancelable subleases at the balance sheet date;
(c) lease payments recognised in the statement of profit and loss for the period, with
separate amounts for minimum lease payments and contingent rents;
(d) sub-lease payments received (or receivable) recognised in the statement of profit and
loss for the period;
(e) a general description of the lessee's significant leasing arrangements including, but
not limited to, the following:
(i) the basis on which contingent rent payments are determined;
(ii) the existence and terms of renewal or purchase options and escalation clauses;
and

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 PAPER – 5 : ADVANCED ACCOUNTING 29

(iii) restrictions imposed by lease arrangements, such as those concerning

dividends, additional debt, and further leasing.
Note: The Level II and Level III non-corporate entities (and SMCs) need not make
disclosures required by (a), (b) and (e) above.
(d) Liquidator’s Final Statement of Account
Receipts ` Payments `
Cash with liquidator 125,15,000 Return to contributors:
Realization from: Arrears of Preference dividend 18,00,000
Calls in arrears 3,00,000 Preference shareholders 90,00,000
Final call of ` 4 per equity Calls in advance 2,55,000
share on 10,000 shares Equity shareholders
(` 4  10,000) See WN 40,000 (90,000  ` 20) 18,00,000
128,55,000 128,55,000
Working Notes:
(i) Calculation of amount available with liquidator after paying pref. shareholders
`
Cash account balance 125,15,000
Less: Payment for dividend 18,00,000
Preference shareholders 90,00,000
Calls in advance 2,55,000 (110,55,000)
14,60,000
Add: Calls in arrears 3,00,000
17,60,000

(ii) Paid up Share capital = 90,00,000 + 12,00,000 + 40,000 = ` 1,02,40,000

(iii) Deficiency for equity shareholders:
` 1,02,40,000 - ` 17,60,000 = ` 84,80,000
(iv) Nominal Value of Share Capital
= ` 90,00,000 + 15,00,000+1,00,000 = 1,06,00,000
(v) % of deficiency to be borne by each equity shareholder:
= (` 84,80,000 / ` 1,06,00,000) x 100 = 80%

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 30 INTERMEDIATE EXAMINATION: MAY, 2022

(vi) Amount refunded/recovered from equity shareholders:

90,000 shares 30,000 shares 10,000 shares
of ` 100 each of ` 50 each of ` 10 each
Paid up per share ` 100 ` 40 `4
Deficiency to bear per ` 80 ` 40 `8
share (80% of nominal
value)
To refund NIL To recover
` 20 per share ` 4 per share

Note: Alternative presentation of the above working notes may be provided in the answer.
(e) Fair value of an option = ` 56 – ` 50 = ` 6
Number of shares issued = 4,000 employees x 100 shares = 4,00,000 shares
Fair value of ESOP = 4,00,000 shares x ` 6 = ` 24,00,000
Vesting period = 1 year
Expenses recognized in 2021 – 22 = ` 24,00,000
Date Particulars ` `
31.03.2022 Bank (4,00,000 shares x ` 50) Dr. 200,00,000
Employees stock compensation expense Dr. 24,00,000
A/c
To Share Capital (4,00,000 shares x 40,00,000
` 10)
To Securities Premium 184,00,000
(4,00,000 shares x ` 46)
(Being option accepted by 4,000
employees & payment made @ ` 56
share)
Profit & Loss A/c Dr. 24,00,000
To Employees stock compensation 24,00,000
expense A/c
(Being Employees stock compensation
expense transferred to Profit & Loss A/c)

© The Institute of Chartered Accountants of India