69587bos55533-P1.pdf 2

PAPER 1: ACCOUNTING
PART I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY

A. Applicable for May, 2022 examination
I. Amendments in Schedule III (Division I) to the Companies Act, 2013
In exercise of the powers conferred by sub-section (1) of section 467 of the
Companies Act, 2013 (18 of 2013), the Central Government made amendments in
Schedule III (Division I) to the said Act, vide MCA Notification dated 24 th March, 2021,
applicable with effect from 1st day of April, 2021. These amendments have been
September, 2021 Edition. The students are advised to refer the link
https://resource.cdn.icai.org/66494bos53751-cp4-annex.pdf for the revised content.
II. Criteria for classification of Non-Company entities for applicability of
Accounting Standards
The Council, at its 400th meeting, held on March 18-19, 2021, revised the criteria
relating to applicability of Accounting Standards issued by The Institute of Chartered
Accountants of India (ICAI), to Non-company entities (Enterprises). The scheme for
applicability of Accounting Standards to Non-company entities shall come into effect
in respect of accounting periods commencing on or after April 1, 2020. For the
purpose of applicability of Accounting Standards, Non-company entities are classified
into four categories, viz., Level I, Level II, Level III and Level IV. Level I entities are
large size entities, Level II entities are medium size entities, Level III entities are small
size entities and Level IV entities are micro entities. Level IV, Level III and Level II
entities are referred to as Micro, Small and Medium size entities (MSMEs). The terms
Level I entities
are required to comply in full with all the Accounting Standards. However, certain
exemptions/relaxations have been provided to Level II, Level III and Level IV Non-
company entities.
The revised criteria for classification of Non-Company entities reg. applicability of
Accounting Standards has been incorporated in the revised chapter 3 unit 1 of
September, 2021 Edition of the Study Material. The students are advised to refer the
link https://resource.cdn.icai.org/66492bos53751-cp3-u1.pdf for the revised content.
NOTE: September, 2021 Edition of the Study Material on Paper 1 Accounting is applicable
for May, 2022 Examination which incorporates the above amendments. The students who
have editions prior to September, 2021 may refer the uploaded chapters for the revised
content.
2 INTERMEDIATE EXAMINATION: MAY 2022
B. Not applicable for May, 2022 examination

Non-Applicability of Ind AS for May, 2022 Examination
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards)
Rules, 2015 on 16 th February, 2015, for compliance by certain class of companies. These
Ind AS are not applicable for May, 2022 Examination.
PART II: QUESTIONS AND ANSWERS
QUESTIONS
Preparation of Statement of Profit and Loss and Balance Sheet

1. (a) Following is the trial balance of Delta limited as on 31.3.2021.
(Figures in `
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
1.4.20)
Trade receivables 120 Securities premium 40
Inventories (31-3-21) 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.
PAPER 1 : ACCOUNTING 3
(iii) Equity share capital includes shares of ` 50,000 issued for consideration other
than cash.
(iv) Suspense account of ` 10,000 represents cash received from the sale of some
of the machinery on 1.4.2020. 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 31.3.2021 and
Statement of Profit and Loss with notes to accounts for the year ended 31.3. 2021 as
per Schedule Ill. Ignore previous year's figures & taxation.
(b) Current maturities of long term borrowing are disclosed separately under the head
Other current liabilities You are required to
comment in line with schedule III to the Companies Act 2013.
Managerial remuneration
2. The following is the extract of Balance Sheet of Jupiter Ltd. as at 31 st March 2021:
`
Equity and Liabilities
Authorized Capital:
40,000, 14% preference shares of ` 100 40,00,000
4,00,000 Equity shares of ` 100 each 4,00,00,000
4,40,00,000
Issued and Subscribed Capital:
30,000, 14% Preference Shares of `100 each, fully paid up 30,00,000
2,40,000 Equity Shares of `100 each, `80 paid-up 1,92,00,000
Share Suspense Account 40,00,000
Reserve & Surplus:
Capital reserves (60% is revaluation reserve) 5,00,000
Securities Premium 1,00,000
Secured loans:
15% Debentures 1,30,00,000
Unsecured loans:
Public deposits 7,40,000
Cash credit loan from IDBI (short term) 9,30,000
Current Liabilities:
Trade payables 6,90,000
Assets
Investment in Shares, debentures, etc. 1,50,00,000
Profit and Loss Account 30,50,000
Preliminary expenses not written off 1,10,000
Share Suspense Account represents application money received on shares, the allotment
of which is not yet made.
Jupiter Ltd. has been incurring losses for the last few years. Jupiter Ltd. has only one
whole-time director.
You are required to compute effective capital as per provisions of schedule V to the
Companies Act, 2013. Would your answer differ if Jupiter Ltd. is an investment company?
Also calculate the amount of maximum remuneration that can be paid if no special
resolution is passed at the general meeting of the company in respect of payment for a
period not exceeding three years.
Cash Flow Statement
3. From the following details relating to the accounts of Omega Ltd. prepare Cash Flow
Statement for the year ended 31st March, 2021:
31.03.2021(`) 31.03.2020 (`)
Share Capital 14,00,000 11,20,000
General Reserve 5,60,000 3,50,000
Profit and Loss Account 1,40,000 84,000
Debentures 2,80,000 -
Provision for taxation 1,40,000 98,000
Trade payables 9,80,000 11,48,000
Plant and Machinery 9,80,000 7,00,000
Land and Building 8,40,000 5,60,000
Investments 1,40,000 -
Trade receivables 7,00,000 9,80,000
Inventories 5,60,000 2,80,000
Cash in hand and at Bank 2,80,000 2,80,000
(i) Depreciation @ 20% was charged on the opening value of Plant and Machinery.
(ii) At the year end, one old machine costing 70,000 (WDV 28,000) was sold for ` 49,000.
Purchase of machinery was also made at the year end.
(iii) ` 70,000 was paid towards Income tax during the year.
(iv) Land & Building is not subject to any depreciation. Expenses on renovation of
building amount ` 2,80,000 were incurred during the year.
Prepare Cash Flow Statement.
Profit/Loss prior to Incorporation
4. The partners of Shamsher converted their partnership firm into a Private Limited Company
named Smriti (P) Ltd. w.e.f 1 st January, 2020 which was incorporated on 1 st June, 2020.
The purchase consideration amounting to ` 11,40,000 was payable later on an interest of
12% per annum. To make the payment of purchase consideration and meet working capital
requirements a loan worth ` 17,10,000 @ 10% per annum was availed on 1 st June, 2020
& payment for purchase consideration was made. The company obtained a building on
lease at a monthly rent of ` 19,000 on 1st July, 2020.Following is the information of the
company as on 31 st March, 2021 (for the period of 15 months):
` `
Sales 37,62,000
Less:
Cost of goods sold 22,57,200
Discount 87,780
1,14,000
Salaries 1,71,000
Rent 2,56,500
Interest 1,99,500
Depreciation 57,000
Office expenses 1,99,500
Sales promotion expenses 62,700
Preliminary expenses 28,500 (34,33,680)
Profit 3,28,320
Sales between June 2020 and December, 2020 were 2 ½ times of the average sales, which
further increased to 3½ times in January to March quarter, 2021. The salaries from July,
2020 doubled. Prepare a statement showing the calculation of profits or losses for the pre-
incorporation and post-incorporation periods.
Accounting for Bonus Issue

5. Mobile Limited has authorized share capital of 1,00,000 equity shares @ ` 10 each. The
company has already issued 60% of its capital for cash. Now the company wishes to issue
bonus shares in the ratio 1:5 to its existing shareholders. The following is the status of
Reserve and Surplus of the company:
General Reserve ` 1,60,000
Plant Revaluation Reserve ` 25,000
Securities Premium Account (Realised in cash) ` 60,000
Capital Redemption Reserve ` 80,000
Answer the following questions:
(a) What is the number of Bonus shares to be issued?
(b) Can company issue Bonus out of General Reserve only?
(c) Give Journal Entries and also give the extracts of the balance-sheet after such Bonus
issue.
(d) Is it possible for the company to issue partly paid-up bonus shares?
Issue of Right Shares
6. (a) A company offers new right shares of ` 100 each at 20% premium to existing
shareholders on one for four shares. The cum-right market price of a share is ` 140.
You are required to calculate (i) Ex-right value of a share; (ii) Value of a right.
(b) A company having 1,00,000 shares of ` 10 each as its issued share capital, and
having a market value of ` 45 issues rights shares in the ratio of 1:5 at an issue price
of ` 25. Pass journal entry for issue of right shares.
Redemption of Preference Shares
7. Rohan Ltd. gives you following information as at 31st March, 2021:
Particulars ` `
Equity and Liabilities
Issued & subscribed capital:
Equity shares capital:
60,000 Equity shares of ` 10 each fully paid up 6,00,000
12% Redeemable Preference share Capital:
5,000 share of ` 100 each 5,00,000
Less: Calls in arrear (4,000) 4,96,000 10,96,000
(final call of ` 20 on 200 shares)
Reserve & surplus

Profit and Loss Account 3,00,000
Securities Premium Account 30,000 3,30,000
Non- current liability
Long term borrowings: 14% Debentures 1,50,000
Current liabilities
Trade payables 74,000
Assets
Non-current Assets
(i) Property, Plant & Equipment 13,00,000
(ii) Non- current Investment 1,00,000
Current Assets
(i) Inventory 50,000
(ii) Trade Receivables 20,000
(iii) Bank 1,80,000
On April 1, 2021, the Board of Directors decided to redeem the preference shares
(excluding 200 shares on which there are calls in arrear) at 10% premium and to sell the
investment at its market price of ` 80,000. They also decided to issue sufficient number of
equity shares of ` 10 at a premium of ` 1 per share and the balance in profit and loss
account was to be maintained at ` 1,00,000. Premium on redemption set off
against securities premium account as Rohan Ltd. is governed by section 133 of the
Companies act, 2013 and comply with Accounting Standards.
You are required to show the journal entries and the balance sheet of the company
immediately after completion of redemption as per Schedule III. Show working for
availability of profits for redemption and determination of bank balance at the end. All the
above formalities and transactions were completed up to the end of 15 th May, 2021.
Redemption of Debentures
8. Case Ltd. (unlisted company other than AIFI, Banking company, NBFC and HFC) provides
the following information as at 31st March, 2021:
Particulars `
Shareholder's Funds
(a) Share Capital
Authorized share capital:
45,000 equity shares of ` 10 each fully paid 4,50,000
Issued and subscribed share capital:

30,000 equity shares of ` 10 each fully paid 3,00,000
(b) Reserves and Surplus
Profit & Loss Account 1,62,000
Debenture Redemption Reserve 18,000
Non-current liabilities
(a) Long term borrowings
12% Debentures 1,80,000
Current Liabilities
(a) Trade payables 1,72,500
Non-current assets
(a) Property, Plant and Equipment (Freehold property) 1,72,500
(b) Non-current Investment: DRR Investment 27,000
Current assets
(a) Inventories 2,02,500
(b) Trade receivables 1,12,500
(c) Cash and bank balances:
Cash at bank 2,73,000
Cash in hand 45,000
At the Annual General Meeting on 1.4.2021, it was resolved:
(a) To give existing shareholders the option to purchase one ` 10 share at ` 15 for every
four shares (held prior to the bonus distribution). This option was taken up by all the
shareholders.
(b) To issue one bonus share for every five shares held.
(c) To repay the debentures at a premium of 3%.
transactions are completed.

Investment Accounts
9. Mr. Wise had 12% Debentures of Face Value ` 100 of Alpha Ltd. as current investments.
He provides the following details relating to the investments.
1-4-2020 Opening balance 4,000 debentures costing ` 98 each
1-6-2020 Purchased 2,000 debentures @ ` 120 cum interest
1-9-2020 Sold 3,000 debentures @ ` 110 cum interest

1-12-2020 Sold 2,000 debentures @ ` 105 ex interest
31-1-2021 Purchased 3,000 debentures @ ` 100 ex interest
31-3-2021 Market value of the investments ` 105 each
Interest due dates are 30 th June and 31 st December.
Mr. Wise closes his books on 31-3-2021. He incurred 2% brokerage for all his transactions.
Show investment account in the books of Mr. Wise assuming FIFO method is followed.
Insurance Claim for loss of stock
10. A fire occurred in the premises of M/s Star & Sons on 21st March 2020. The concern had
taken Insurance Policy of ` 70,000 which was subject to average clause. From the books
of accounts, the following particulars are available relating to the period
1st April 2019 to March 21 st 2020:
(i) Stock as on April 1 st 2019 ` 1,50,500
(ii) Purchases (including purchase of ` 40,000 for which purchase
invoices had not been received from suppliers, though goods
have been received in godown) ` 3,17,000
(iii) Cost of goods distributed as, samples for advertising
from April 1 st 2019 to the date of fire, included in
above purchases ` 32,000
(iv) Sales (excluding goods sold on approval basis
having sale value ` 35,000) ` 4,55,000
Approval has been received for all goods sold on approval basis,
before the date of fire.
(v) Purchase return ` 15,000
(vi) Wages (including salary of Manager ` 10000) ` 65,000
(vii) Average Rate of Gross Profit @ 20% on sales.
(viii) Cost of goods salvaged ` 12,000
You are required to calculate the amount of claim to be lodged to Insurance Company.
Hire Purchase Transactions
11. M/s Beta Enterprises bought 3 trucks from Gamma Ltd. on 01-04-2017 on the following
terms:
`
Down Payment 6,50,000
3 Instalments to be paid, each at the end of each year:

1st Instalment ` 3,55,000
2nd Instalment ` 3,38,000
3rd Instalment ` 3,30,000
Interest is charged @ 10 % p.a. and included in above instalments.
M/s Beta Enterprises provides depreciation @ 20 % on the diminishing
balance of the Trucks
On 31st March, 2020, M/s Beta Enterprises failed to pay the 3 rd Instalment upon which
Gamma Ltd. repossessed 1 truck. Gamma Ltd. agreed to leave 2 trucks with M/s Beta
Enterprises and adjusted the value of 1 truck against the amount due.
The truck taken over was valued on the basis of 30% depreciation annually on written down
value basis.
The balance amount remaining in the Vendor's Account after the above adjustment was
paid by M/s. Beta Enterprises after 2 months with interest @ 18 % p.a.
You are required to:
(i) Calculate the Cash Price of the trucks and the amount of Interest paid with each
instalment.
(ii) Prepare Truck Account, Gamma Ltd.'s Account in the books of M/s Beta Enterprises
assuming that the books of accounts are closed on 31st March every year.
Departmental Accounts
12. P Ltd. has two Departments X and Y. From the following particulars you are required to
prepare Departmental Trading Account and Combined Trading and P & L Account for the
year ending 31st March, 2021.
Particulars Department X Department Y
` `
Opening stock (at Cost) 70,000 54,000
Purchase 2,14,000 1,66,000
Carriage inwards 6,000 6,000
Wages 21,000 24,450
Sales 3,10,000 2,54,000
Purchased goods transferred by Dept. Y to Dept. X 30,000 -
Purchased goods transferred by Dept. X to Dept. Y - 24,000
Finished goods transferred by Dept. Y to Dept. X 80,000 -
Finished goods transferred by Dept. X to Dept. Y - 1,00,000
Return of Finished Goods by Dept. Y to Dept. X 25,000 -

Return of Finished Goods by Dept. X to Dept. Y - 17,000
Closing Stock of Purchased Goods 12,000 15,000
Closing Stock of Finished Goods 60,000 35,000
Purchased goods have been transferred mutually at their respective departmental
purchase cost and finished goods at departmental market price and that 20% of the
finished stock (closing) at each department represented finished goods received from the
other department.
Accounting for Branches
13. Mr. Chena Swami of Chennai trades in Refined Oil and Ghee. It has a branch at Salem.
He despatches 30 tins of Refined Oil @ ` 1,500 per tin and 20 tins of Ghee @ ` 5,000 per
tin on 1st of every month. The Branch has incurred expenditure of ` 45,890 which is met
out of its collections; this is in addition to expenditure directly paid by Head Office.
Following are the other details:
Chennai H.O. Salem B.O.
Amount (`) Amount (`)
Purchases:
Refined Oil 27,50,000
Ghee 48,28,000
Direct Expenses 6,35,800
Expenses paid by H.O. 76,800
Sales:
Refined Oil 24,10,000 5,95,000
Ghee 38,40,500 14,50,000
Collection during the year 20,15,000
Remittance by Branch to Head Office 19,50,000
Chennai H.O.
Balance as on 01-04-2020 31-03-2021
Stock:
Refined Oil 44,000 8,90,000
Ghee 10,65,000 15,70,000
Building 5,10,800 7,14,780
Furniture & Fixtures 88,600 79,740
Salem Brach Office

Balance as on 01-04-2020 31-03-2021
Stock:
Refined Oil 22,500 19,500
Ghee 40,000 90,000
Sundry Debtors 1,80,000 ?
Cash in hand 25,690 ?
Furniture & Fixtures 23,800 21,420
Additional information:
(i) Addition to Building on 01-04-2020 ` 2,41,600 by H.O.
(ii) Rate of depreciation: Furniture & Fixtures @ 10% and Building @ 5% (already
adjusted in the above figure)
(iii) The Branch Manager is entitled to 10% commission on Branch profits (after charging
his commission).
(iv) The General Manager is entitled to a salary of ` 20,000 per month.
(v) General expenses incurred by Head Office is ` 1,86,000.
You are requested to prepare Branch Account in the Head Office books and also prepare
year ended 31 st March, 2021.

Accounts from Incomplete Records
14. The following is the Balance Sheet of Mr. Kumar as on 31st March, 2020:
Equity and Liabilities ` Assets `
Capital Account 4,10,000 Machinery 1,60,000
Sundry Creditors for purchases 60,000 Furniture 35,000
Stock 25,000
Debtors 1,45,000
Cash in Hand 25,000
Cash at Bank 80,000
4,70,000 4,70,000
Riots occurred and fire broke out on the evening of 31 st March, 2021, destroying the books
of account and furniture. The cash available in the cash box was stolen.
The trader gives you the following information:

(i) Sales are 25% for cash and the balance on credit. His total sales for the year ended
31st March, 2021 were 25% higher than the previous year. All the sales and purchases
of goods were evenly spread throughout the year (as also in the last year).
(ii) Terms of credit
Debtors 2 Months
Creditors 1 Month
(iii) Stock level was maintained at ` 25,000 all throughout the year.
(iv) A steady Gross Profit rate of 25% on the turnover was maintained throughout the
year. Creditors are paid by cheque only, except for cash purchases of ` 60,000.
(v) His private records and the Bank Pass-book disclosed the following transactions for
the year.
a. Miscellaneous Business expenses ` 1,85,500 (including ` 20,000
paid by cheque)
b. Travelling expenses ` 24,000 (paid by cash)
c. Addition to Machinery ` 1,00,000 (paid by cheque)
(on 1st April, 2020)
d. Private drawings ` 10,000 (paid by cash)
e. Introduction of additional capital by ` 25,000
deposited into the Bank
(vi) Collection from debtors were all through cheques.
(vii) Depreciation on Machinery is to be provided @ 15% p.a.
(viii) The Cash stolen is to be charged to the Profit and Loss Account,
(ix) Loss of furniture is to be adjusted from Capital Account.
Prepare Trading, Profit and Loss Account for the year ended 31st March, 2021 and a
Balance Sheet as on that date.
Framework for Preparation and Presentation of Financial Statements
15. Summarised Balance Sheet of Cloth Trader as on 31.03.2020 is given below:
Equity and Liabilities Amount (`) Assets Amount (`)
Proprietor's Capital 3,00,000 Fixed Assets 3,60,000
Profit & Loss Account 1,25,000 Closing Stock 1,50,000
10% Loan Account 2,10,000 Trade receivables 1,00,000
Trade payables 50,000 Deferred Expenses 50,000
Cash & Bank 25,000

6,85,000 6,85,000
Additional Information is as follows:
(1) The remaining life of fixed assets is 8 years. The pattern of use of the asset is even.
The net realizable value of fixed assets on 31.03.2021 was ` 3,25,000.
(2) Purchases and Sales in 2020-21 amounted to ` 22,50,000 and ` 27,50,000
respectively.
(3) The cost and net realizable value of stock on 31.03.2021 were ` 2,00,000 and
` 2,50,000 respectively.
(4) Expenses for the year amounted to ` 78,000 which includes interest on 10% loan
amount for the year.
(5) Deferred Expenses are amortized equally over 5 years.
(6) Trade receivables on 31.03.2021 are ` 1,50,000 of which ` 5,000 is doubtful.
Collection of another ` 25,000 depends on successful re-installation of certain
product supplied to the customer;
(7) Closing trade payables are ` 75,000, likely to be settled at 10% discount.
(8) Cash balance as on 31.03.2021 is ` 4,22,000.
(9) There is an early repayment penalty for the loan of ` 25,000.
You are required to prepare: (Not assuming going concern)
(1) Profit & Loss Account for the year 2020-21.
(2) Balance Sheet as on 31 st March, 2021.
Applicability of Accounting Standards
16. (a) A company with a turnover of ` 225 crores and borrowings of ` 51 crore during the
year ended 31st March, 2021, wants to avail the exemptions available in adoption of
Accounting Standards applicable to companies for the year ended 31.3.2021. Advise
the management on the exemptions that are available as per the Companies
(Accounting Standards) Rules, 2021.
(b) An organization whose objects are charitable or religious, believes that the
Accounting Standards are not applicable to it since only a very small proportion of its
activities are business in nature. Comment.
AS 2 Valuation of Inventories
17. (a)
recognize them as expenses in the period in which they are incu
examples of such costs as per AS 2 Valuation of Inventories .
(b) On the basis of information given below, find the value of inventory (by periodic
inventory method) as per AS 2, to be considered while preparing the Balance Sheet
as on 31st March, 2021 on weighted Average Basis.
Details of Purchases:
Date of purchase Unit (Nos.) Purchase cost per unit (`)
01-03-2021 20 108
08-03-2021 15 107
17-03-2021 30 109
25-03-2021 15 107
Details of issue of Inventory:
Date of Issue Unit (Nos.)
03-03-2021 10
12-03-2021 20
18-03-2021 10
24-03-2021 20
Net realizable value of inventory as on 31 st March, 2021 is ` 107.75 per unit.
You are required to compute the value of Inventory as per AS 2?
(c) Rohan Pvt. Ltd., a wholesaler in agriculture products, has valued the inventory on Net
Realizable Value on the ground that AS 2 does not apply to inventory of agriculture
products.
AS 10 Property, Plant and Equipment
18. (a) A Ltd. has incurred the following costs. Determine if the following costs can be added
to the invoiced purchase price and included in the initial recognition of the cost of the
item of property, plant and equipment:
1. Import duties paid
2. Shipping costs and cost of road transport for taking the machinery to factory
3. Insurance for the shipping
4. Inauguration costs for the factory
5. Professional fees charged by consulting engineer for the installation process
6. Costs of advertising and promotional activities
7. Administration and other general overhead costs
8. Cost of site preparation.
AS 11 The Effects of Changes in Foreign Exchange Rates

(b) Kumar Ltd. borrowed US $ 3,00,000 on 31-12-2020 which will repaid as on
30-06-2021. Kumar Ltd. prepares its financial statements ending on 31-03-2021. Rate
of exchange between reporting currency (Rupee) and foreign currency (US$) on
different dates are as under:
31-12-2020 1 US $ = ` 44.00
31-03-2021 1 US $ = ` 44.50
30-06-2021 1 US $ = ` 44.75
(i) Calculate Borrowings in reporting currency to be recognized in the books on
above mentioned dates and also show journal entries for the same.
(ii) if borrowings were repaid on 28-2-2021 on which date exchange rate was 1 US
$ = ` 44.20 then what entry should be passed?
AS 12 Accounting for Government Grants
19. (a) A fixed asset is purchased for ` 30 lakhs. Government grant received towards it is
` 12 lakhs. Residual Value is ` 6 lakhs and useful life is 4 years. The company
charges depreciation based on Straight-Line method. Asset is shown in the balance
sheet net of grant. After 1 year, grant becomes refundable to the extent of ` 7.5 lakhs
due to non-compliance with certain conditions. You are required to give necessary
journal entries for second year.
AS 13 Accounting for Investments
(b) JVR Limited has made investment of ` 97.84 Crores in Equity Shares of QSR Limited
in 2016-17. The investment has been made at par. QSR Limited has been in
continuous losses for the last 2 years. JVR Limited is willing to re-assess the carrying
amount of its investment in QSR Limited and wish to provide for diminution in value
of investment for the year ended 31 st March, 2021. Discuss whether the connection
of JVR Limited to bring down the carrying Amount of investment in QSR Limited is in
accordance with Accounting Standards.
AS 16 Borrowing Costs
20. (a) An enterprise has constructed a complex piece of equipment (qualifying asset) that
is to be installed on the production line of a manufacturing plant. The equipment has
been constructed over a period of 15 months. However, on installation, certain
calibrations are required to achieve the desired level of production before it is finally
commissioned. This process is expected to take approximately 2 months during which
test runs will be made. Should the borrowing costs attributable to borrowings
pertaining to the 2 months test run period be capitalized?
(b) Should capitalization of borrowing costs be continued when the qualifying asset has
been constructed but marketing activities to sell the asset are still in progress?
SUGGESTED ANSWERS
1. (a) Delta Limited

Balance Sheet as at 31 st March 2021
Particulars Note No. (`
A. Equity and Liabilities
1. Shareholders funds
(a) Share Capital 1 495.00
(b) Reserves and Surplus 2 807.20
2. Non-Current Liabilities
(a) Long Term Borrowings 3 300.00
3. Current Liabilities
(a) Trade Payables 30.00
(b) Short- term provision 4 163.80
Total 1,796.00
B. Assets
1. Non-Current Assets
(a) Property, Plant and Equipment 5 1,550.00
2. Current Assets
(a) Inventories 96.00
(b) Trade Receivables 6 120.00
(c) Cash and Cash equivalents 7 30.00
Total 1,796.00
Statement of Profit and Loss for the year ended 31 st March 2021
Particulars Note No. (`
I. Revenue from Operations 1200.00
II. Other Income 8 6.00
III. Total Income (I +II) 1,206.00
IV. Expenses:
Purchases (adjusted) 400.00
Finance Costs 9 30.00
Depreciation (10% of 800) 80.00

Other expenses 10 150.00
Total Expenses 660.00
V. Profit / (Loss) for the period before tax (III IV) 546.00
VI. Tax expenses @30% 163.80
VII Profit for the period 382.20
Notes to Accounts
Particulars (`
1 Share Capital
Equity Share Capital
Authorised
80,000 Shares of ` 10/- each 800
Issued, Subscribed and Called-up
50,000 Shares of ` 10/- each 500
(Out of the above 5,000 shares have been
issued for consideration other than cash)
Less: Calls in arrears (5) 495
2 Reserves and Surplus
Securities Premium 40.00
Revaluation Reserve ` (960 800) 160.00
General Reserve 150.00
Surplus i.e. Profit & Loss Account Balance
Opening Balance 75.00
Add: Profit for the period 382.20 457.20
807.20
3 Long-Term Borrowings
10% Debentures 300
4. Short term provision
Provision for tax 163.80
5 Property, plant & equipment
Land
Opening Balance 800
Add: Revaluation adjustment 160

Closing Balance 960
Plant and Machinery
Opening Balance 824
Less: Disposed off (24)
800
Less: Depreciation ` (150 20 + 80) (210)
Closing Balance 590
Total 1,550
6 Trade receivables
Debits outstanding for a period exceeding six
50
months
Other debts 70 120
7 Cash and Cash Equivalents
Cash at Bank With scheduled banks 23
With others (ABC Bank Limited) 5
Cash in hand 2 30
8 Other Income
Profit on sale of machinery
Sale value of machinery 10
Less: Book value of machinery (24 20) (4) 6
9 Finance Costs
Debenture Interest 30
10 Other Expenses:
Factory expenses 80
Selling expenses 25
Administrative expenses 45 150
(b) Current maturities of loan term borrowing are shown short
as per the amendment to Schedule III vide
MCA notification dated 24 th March, 2021. Hence the statement given in the question
is not valid.
2. Calculation of effective capital

Particulars Where Jupiter Ltd. is a Where Jupiter Ltd.
non-investment is an investment
Company (`) Company (`)
Paid-up share capital
30,000, 14% Preference Shares 30,00,000 30,00,000
2,40,000 Equity Shares 1,92,00,000 192,00,000
Capital Reserves excluding 2,00,000 2,00,000
revaluation reserve
Securities Premium 1,00,000 1,00,000
15% Debentures 1,30,00,000 1,30,00,000
Public Deposits 7,40,000 7,40,000
Total (A) 362,40,000 362,40,000
Investments 1,50,00,000
Profit and Loss Account (Dr. balance) 30,50,000 30,50,000
Preliminary Expenses not written off 1,10,000 1,10,000
Total (B) 181,60,000 31,60,000
Effective Capital [A B] 1,80,80,000 3,30,80,000
Effective capital of the company for both the situations is less than 5 crores. Hence
maximum remuneration payable to director should be @ ` 60,00,000 per annum.
3. Omega Ltd.
Cash Flow Statement for the year ended 31 st March, 2021
Cash Flow from Operating Activities
Increase in balance of Profit and Loss Account 56,000
Provision for taxation 1,12,000
Transfer to General Reserve 2,10,000
Depreciation 1,40,000
Profit on sale of Plant and Machinery (21,000)
Operating Profit before Working Capital changes 4,97,000
Increase in Inventories (2,80,000)
Decrease in Trade receivables 2,80,000
Decrease in Trade payables (1,68,000)
Cash generated from operations 3,29,000

Income tax paid (70,000)
Net Cash from operating activities 2,59,000
Cash Flow from Investing Activities
Purchase of plant & machinery (4,48,000)
Expenses on building (2,80,000)
Increase in investments (1,40,000)
Sale of old machine 49,000
Net Cash used in investing activities (8,19,000)
Cash Flow from Financing activities
Proceeds from issue of shares 2,80,000
Proceeds from issue of debentures 2,80,000
Net cash from financing activities 5,60,000
Net increase in cash or cash equivalents NIL
Cash and Cash equivalents at the beginning of the 2,80,000
year
Cash and Cash equivalents at the end of the year 2,80,000
Working Notes:
Provision for taxation account
` `
To Cash (Tax Paid) 70,000 By Balance b/d 98,000
To Balance c/d 1,40,000 By Profit and Loss A/c 1,12,000
(Balancing figure)
2,10,000 2,10,000
Plant and Machinery account
` `
To Balance b/d 7,00,000 By Depreciation 1,40,000
To Profit and Loss A/c (profit 21,000
on sale of machine)
To Cash (Balancing figure) 4,48,000 By Cash (sale of 49,000
machine)
_______ By Balance c/d 9,80,000
11,69,000 11,69,000
4. Statement showing the calculation of Profits/losses for the pre-incorporation and

post-incorporation periods
Particulars Total Amount Basis of Pre. Inc. Pos. Inc.
Allocation
Sales 37,62,000 Sale Ratio 5,70,000 31,92,000
Less: Cost of goods sold 22,57,200 Sales Ratio 3,42,000 19,15,200
Discount 87,780 Sales Ratio 13,300 74,480
1,14,000 Post ----- 1,14,000
Salaries 1,71,000 (W.N. 3) 35,625 1,35,375
Rent 2,56,500 (W.N. 4) 28,500 2,28,000
Interest 1,99,500 (W.N. 5) 57,000 1,42,500
Depreciation 57,000 Time Ratio 19,000 38,000
Office Expenses 1,99,500 Time Ratio 66,500 1,33,000
Preliminary Expenses 28,500 Post ----- 28,500
Sales Promotion expenses 62,700 Sales Ratio 9,500 53,200
Net Profit/loss (1,425) 3,29,745
Working Notes:
1. Calculation of Time ratio
Date of Purchase : 01/01/2020
Date of Incorporation: 01/06/2020
Date of Closing of Books of Accounts : 31/03/2021
Time Ratio = 5:10 i.e 1:2
2. Computation of sales ratio:
Let average Sale per month= 1
Then average Sale for June to Dec. 20 = 2.5 per month
Average Sale from January to March 21 = 3.5 per month
Month Sale Average Sale Month Sale Average Sale
January 1 September 2.5
February 1 October 2.5
March 1 November 2.5
April 1 December 2.5
May 1 January 3.5
June 2.5 February 3.5

July 2.5 March 3.5
August 2.5
Total Sale during Pre-Incorporation Period = 5
& Post Incorporation Period = 28
Hence Sales Ratio = 5:28
3. Computation of ratio for salaries:
Let Salary from January 20 to June 20 = 1 per month
Then Salary from July 20 to March 21 = 2 per month
Month Sale Average Salary Month Salary Average Salary
January 1 September 2
February 1 October 2
March 1 November 2
April 1 December 2
May 1 January 2
June 1 February 2
July 2 March 2
August 2
Total Salary during Pre-Incorporation Period = 5
& Post Incorporation Period = 19
Hence Salary Ratio = 5:19
4. Computation of Rent:
Total rent 2,56,500
Less: Building rent for 9 months @ 19,000 p.m. 1,71,000
Rent of old premises apportioned in time ratio 85,500
Apportionment Pre Inc. Post Inc.
Old premises rent 28,500 57,000
Building Rent ___ 1,71,000
28,500 2,28,000
5. Computation of interest:
Pre-incorporation period from Jan, 2020 to May, 2020
11,40,000 x 12 x 5
= 57,000
100 12
Post incorporation period from June, 2020 to March, 2021
17,10,000 x 10 x 10
= 1,42,500
100 12
1,99,500
5. (a) Number of Bonus shares to be issued:
Existing paid up Capital = 60,000 Shares
Number of Bonus Shares = (60,000 × 1) ÷ 5 = 12,000 Shares (i.e. for ` 1,20,000)
(b) Bonus out of General Reserve:
It is a usual practice to utilize specific reserve (available for specific purpose).
Therefore, if CRR and Securities Premium are available, then company should utilize
these reserves in priority over other free reserves. It is clear that company should not
use General Reserve, in the given example, as Capital Redemption Reserve and
Securities Premium are sufficiently available
(c) Journal Entries in the Books of Mobile Ltd.
Particulars Dr. (`) Cr. (`)
Capital Redemption Reserve A/c Dr. 80,000
Securities Premium A/c Dr. 40,000
To Bonus to Shareholders A/c 1,20,000
(Being issue of 1 Share for every 5 Shares held, by utilizing
Bonus to Shareholders A/c Dr. 1,20,000

To Equity Share Capital A/c 1,20,000
(Capitalization of profits)
Extracts of the Balance-Sheet after Bonus issue
Particulars Note No. Amount (`)
EQUITY AND LIABILITIES
1.
(a) Share Capital 1 7,20,000
(b) Reserves and Surplus 2 2,05,000
Notes to Accounts
1. Share capital
Authorised Capital
1,00,000 Equity Shares @ ` 10 each 10,00,000
Issued, Called up & Paid up Capital
72,000 Equity Shares @ ` 10 each 7,20,000
(Out of above, 12,000 shares have been
issued as bonus shares).
2. Reserve and Surplus
Plant Revaluation Reserve 25,000
Securities Premium A/c 20,000
General Reserve 1,60,000 2,05,000
(d) Fully Paid up bonus shares only

As per section 63 of the Companies Act, 2013, only fully paid up bonus shares can
be issued. Therefore, it is not possible for the company to issue partly paid-up bonus
shares.
6. (a) (i) Ex-right value of the shares = (Cum-right value of the existing shares + Rights
shares X Issue Price) / (Existing Number of shares + No. of right shares)
= (` 140 X 4 Shares + ` 120 X 1 Share) / (1 + 4) Shares
= ` 680 / 5 shares = ` 136 per share.
(ii) Value of right = Cum-right value of the share Ex-right value of the share
= ` 140 ` 136 = ` 4 per share.
(b) The entry at the time of subscription of right shares by the existing shareholders will
be:
Bank A/c Dr. 5,00,000
To Securities Premium A/c 3,00,000
(Being issue of 20,000 right shares @ ` 25 offered)
7. Journal Entries in the books of Rohan Ltd.

Dr. (`) Cr. (`)
Bank A/c Dr. 80,000
Profit & Loss A/c (Loss on sale) Dr. 20,000
To Investment A/c 1,00,000
(Being sale of Investments and transfer of Loss to Profit
and Loss A/c)
12% Preference Share Capital A/c Dr. 4,80,000
Premium Payable on Redemption A/c Dr. 48,000
To Preference Shareholders Account 5,28,000
(Being amount payable to Preference Shareholders on
redemption of Preference Shares at a premium of 10%)
Bank Account Dr. 3,82,800
To Equity Share Application & Allotment A/c 3,82,800
(Being application money received on Equity Shares
issued)
Equity Share Application & Allotment A/c Dr. 3,82,800
To Securities Premium A/c 34,800
(Being the allotment of 34,800 equity shares of ` 10 each
at a premium of ` 1 per share)
Profit & Loss Account Dr. 1,32,000
To Capital Redemption Reserve Account 1,32,000
Being creation of CRR to the extent of nominal value of
Preference Shares redeemed out of profits.)
Profit & loss Account 48,000
To Premium Payable on Redemption A/c 48,000
(Being Premium Payable on Redemption written off.)
Preference Shareholders Account Dr. 5,28,000
To Bank Account 5,28,000
(Being amount paid to Preference Shareholders holding
4,800 preference shares on Redemption.)
Balance Sheet of Rohan Limited

As at 15th May 2021 (After Redemption of Preference Shares)
Particulars Note No. Amount (`)
I EQUITY AND LIABILITIES
1 Shareholders funds
(b) Reserve and surplus 2 2,96,800
2. Non-Current Liabilities
Long Term Borrowings (14% Debentures) 1,50,000
3. Current Liabilities
(a) Trade Payables 74,000
Total 14,84,800
II ASSETS
1 Non-current Assets
(a) PPE 13,00,000
2. Current Assets
(a) Inventories 50,000
(b) Trade Receivables 20,000
(c) Cash and Cash Equivalent (W.N -4) 1,14,800
Total 14,84,800
Notes to Accounts
` `
1 Share Capital
Equity Share Capital
Issued Subscribed and paid up:
94,800 Equity Shares of ` 10 each fully paid up 9,48,000
12% Preference share Capital
200, 12% Preference Shares fully called up 20,000
Less: Calls-in-arrears (@ ` 20 per share) (4,000) 16,000
Total 9,64,000
2 Reserve and Surplus
(a) Capital redemption Reserve Account 1,32,000
(Transfer from Profit and Loss A/c)

(b) Securities Premium Account
Opening Balance 30,000
Add: Received on Fresh Issue (34,800 Shares × ` 1 34,800 64,800
each)
(c) Profit and Loss A/c balance 1,00,000
Total 2,96,800
Working Notes:
1. 200 preference shares having calls in arrears, will not be redeemed. The amount of
fresh issue under section 55 of the Companies Act has been calculated taking into
consideration the redemption of 4,800 Preference shares, which are fully paid -up.
2 Calculation of Profits Available for Redemption
Balance given in the Question 3,00,000
Less: Loss on sale of Investment (1,00,000 80,000) (20,000)
Less: Minimum balance to be maintained in P& L A/c (1,00,000)
Less: Premium on redemption of Preference shares (48,000)
Closing Balance 1,32,000
3 No. of shares to be issued
Total Nominal Value of Preference Shares 4,80,000
Less: Amount of profit available for redemption of Preference shares (1,32,000)
Amount required out of fresh issue 3,48,000
Amount required out of proceeds of fresh issue of shares
No. of Shares to be issued =
Par value per share (proposed Issue)
= = 34,800 shares of ` 10 each
4. Determination of closing bank balance

Opening bank balance 1,80,000
Add: Proceeds from sale of Investment 80,000
Add: Proceeds from fresh issue of 34,800 equity shares @ ` 11 3,82,800
Less: Paid to Preference Shareholders on Redemption (5,28,000)
(4,800 × ` 110)
Closing Balance 1,14,800
8. Journal Entries in the Books of Case Ltd.

Dr. Cr.
` `
Bank A/c Dr. 1,12,500
To Equity Shareholders A/c 1,12,500
(Application money received on 7,500 shares @
` 15 per share to be issued as rights shares in the ratio of
1:4)
Equity Shareholders A/c Dr. 1,12,500
To Equity Share Capital A/c 75,000
To Securities Premium A/c 37,500
(Share application money on 7,500 shares @ ` 10 per share
transferred to Share Capital Account, and ` 5 per share to
Securities Premium A/c Dr. 37,500

Profit & Loss A/c Dr. 37,500
To Bonus to Shareholders A/c 75,000
(Amount transferred for issue of bonus shares to existing
shareholders in the ratio of 1:5 vide
resolution dated...)
Bonus to Shareholders A/c Dr. 75,000
To Equity Share Capital A/c 75,000
(Issue of bonus shares in the ratio of 1 for 5 vide
resolution dated....)
12% Debentures A/c Dr. 1,80,000
Premium Payable on Redemption A/c (@ 3%) Dr. 5,400
To Debenture holders A/c 1,85,400
(Amount payable to debentures holders)
Profit and loss A/c Dr. 5,400
To Premium Payable on Redemption A/c 5,400
(Premium payable on redemption of debentures charged to
Profit & Loss A/c)
Debenture Redemption Reserve A/c Dr. 18,000
To General Reserve 18,000
(For DRR transferred to general reserve)
Bank A/c Dr. 27,000

To Debenture Redemption Reserve Investment 27,000
(for DRR Investment realised)
Debenture holders A/c Dr. 1,85,400
To Bank A/c 1,85,400
(Amount paid to debenture holders on redemption)
Balance Sheet of Case Ltd. as at...... (after completion of transactions)
Particulars Note No `
I. Equity and liabilities
(1) Shareholder's Funds
(b) Reserves and Surplus 2 1,37,100
(2) Current Liabilities
(a) Trade payables 1,72,500
Total 7,59,600
II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 3 1,72,500
(2) Current assets
(a) Inventories 2,02,500
(b) Trade receivables 1,12,500
(c) Cash and bank balances 4 2,72,100
Total 7,59,600
Notes to Accounts
`
1. Share Capital
45,000 shares of ` 10 each fully paid (7,500 shares 4,50,000
of ` 10 each, fully paid issued as bonus shares out
of securities premium and P&L Account)
2. Reserve and Surplus
Profit & Loss Account 1,62,000
Less: Premium on redemption of debenture (5,400)
Less: Utilisation for issue of bonus shares (37,500)
1,19,100
General Reserve 18,000 1,37,100
3. Property, Plant and Equipment
Freehold property 1,72,500
4. Cash and bank balances
Cash at bank 2,27,100
(2,73,000 + 1,12,500 - 1,85,400 + 27,000)
Cash in hand 45,000 2,72,100
9. Investment A/c of Mr. Wise
for the year ending on 31-3-2021
(Scrip: 12% Debentures of Alpha Limited)
(Interest Payable on 30 th June and 31 st December) Amount in `
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value Value
1.4.2020 To Balance 4,00,000 12,000 3,92,000 30.6.2020 By Bank - 36,000 -
b/d (6,00,000 x
6%)
1.6.2020 To Bank 2,00,000 10,000 2,34,800 1.9.2020 By Bank 3,00,000 6,000 3,17,400
1.9.2020 To Profit & 23,400 1.12.2020 By Bank 2,00,000 10,000 2,05,800
Loss A/c
31.1.2021 To Bank 3,00,000 3,000 3,06,000 1.12.2020 By Profit & - - 9,600
Loss a/c
31.3.2021 To Profit & 45,000 31.12.20 By Bank - 6,000 -
Loss A/c (1,00,000 x
(Bal. fig.) 6%)
31.3.2021 By Profit & - - 3,400
Loss A/c
31.3.2021 By Balance
c/d 4,00,000 12,000 4,20,000
9,00,000 70,000 9,56,200 9,00,000 70,000 9,56,200
Working Notes:
1. Valuation of closing balance as on 31.3.2021
`
Market value of 4,000 Debentures at ` 105 4,20,000
Cost price of 1,000 debentures at 1,17,400
3,000 debentures at 3,06,000 4,23,400

Value at the end = ` 4,20,000 i.e. whichever is less
2. Profit on sale of debentures as on 1.9.2020

`
Sales price of debentures (3,000 x ` 110) 3,30,000
Less: Brokerage @ 2% (6,600)
3,23,400
Less: Interest for 2 months (6,000)
3,000
Less: Cost price of Debentures 3,92,000x (2,94,000)
4,000
Profit on sale 23,400
3. Loss on sale of debentures as on 1.12.2020
`
Sales price of debentures (2,000 x ` 105) 2,10,000
2,05,800
Less: Cost price of Debentures (98,000 + 1,17,400) (2,15,400)
Loss on sale 9,600
4. Purchase Cost of 2,000 debentures on 1.6.2020
`
2000 Debentures @` 120 cum interest 2,40,000
Add: Brokerage @ 2% 4,800
2,44,800
Purchase cost of 2,000 debentures 2,34,800
5. Sale value for 3,000 debentures on 1.9.2020
`
Sales price of debentures cum interest (3,000 x ` 110) 3,30,000
3,23,400

Sale value for 3,000 debentures 3,17,400
10. Books of M/s Star & Sons
Memorandum Trading Account for the period 1 st April, 2019 to 21 st March, 2020
` `
To Opening Stock 1,50,500 By Sales 4,90,000
(4,55,000 + 35,000)
To Purchases 3,17,000
Less: Returns (15,000) By Closing Stock (Bal. 83,500
fig.)
Goods distributed
as samples (32,000) 2,70,000
To Wages 55,000
To Gross Profit 98,000
(20% of Sales)
5,73,500 5,73,500
Statement of Insurance Claim
`
Value of stock destroyed by fire 83,500
Less: Salvaged Stock 12,000
Loss of stock 71,500
Note: Since policy amount is less than vale of stock on date of fire, average clause
will apply. Therefore, claim amount will be computed by applying the formula.
Insured value
Claim= ×Loss suffered
Total cost
Claim amount = ` 71,500X 70,000/ 83,500= ` 59,940 (rounded off)
11. (a) (i) Calculation of Interest and Cash Price
No. of Outstanding Amount Outstanding Interest Outstanding
instalments balance at due at the balance at the balance at
the end after time of end before the the
the payment instalment payment of beginning
of instalment instalment
[1] [2] [3] [4] = 2 +3 [5] = 4 x [6] = 4-5
10/110
3rd - 3,30,000 3,30,000 30,000 3,00,000
2nd 3,00,000 3,38,000 6,38,000 58,000 5,80,000

1st 5,80,000 3,55,000 9,35,000 85,000 8,50,000
Total cash price = ` 8, 50,000+ 6, 50,000 (down payment) = ` 15, 00,000.
(ii) In the books of M/s Beta Enterprises
Trucks Account
Date Particulars ` Date Particulars `
1.4.2017 To Gamma Ltd. A/c 15,00,000 31.3.2018 By Depreciation A/c 3,00,000
Balance c/d 12,00,000
15,00,000 15,00,000
1.4.2018 To Balance b/d 12,00,000 31.3.2019 By Depreciation A/c 2,40,000
Balance c/d 9,60,000
12,00,000 12,00,000
1.4.2019 To Balance b/d 9,60,000 31.3.2020 By Depreciation A/c 1,92,000
By Gamma Ltd. A/c 1,71,500
(Value of 1 truck
taken over after
depreciation for 3
years @30% p.a.)
{5,00,000 -(1,50,000
+ 1,05,000 +
73,500)}
By Loss transferred 84,500
to Profit and Loss a/c
on surrender (Bal.
fig.) or (2,56,000 -
1,71,500)
By Balance c/d 5,12,000
2/3 (9,60,000 -
1,92,000 = 7,68,000)
9,60,000 9,60,000
Gamma Ltd. Account
Date Particulars ` Date Particulars `
1.4.17 To Bank (down 6,50,000 1.4.17 By Trucks A/c
payment)
31.3.18 To Bank (1st 3,55,000 31.3.18 By Interest A/c 15,00,000
Instalment)
To Balance c/d 5,80,000 85,000

15,85,000 15,85,000
31.3.19 To Bank (2 nd 3,38,000 1.4.18 By Balance b/d 5,80,000
Instalment)
31.3.19 To Balance c/d 3,00,000 31.3.19 By Interest a/c 58,000
6,38,000 6,38,000
31.3.20 To Trucks A/c 1,71,500 1.4.19 By Balance b/d 3,00,000
31.3.20 To Balance c/d (b.f.) 1,58,500 31.3.20 By Interest A/c 30,000
3,30,000 3,30,000
31.5.20 To Bank (Amount 1,63,255 1.4.20 By Balance b/d 1,58,500
settled after 2 months)
31.5.20 By Interest A/c 4,755
(@ 18% on bal.)
(1,58,500x2/12
x 18/100)
1,63,255 1,63,255
12. P Ltd.
Departmental Trading A/c for the year ending 31 st March, 2021
Deptt. X. Deptt. Y Deptt. X Deptt. Y
` ` ` `
To Stock 70,000 54,000 By Sales 3,10,000 2,54,000
To Purchases 2,14,000 1,66,000 By Purchased Goods 24,000 30,000
transferred
To Wages 21,000 24,450 By Finished goods 1,00,000 80,000
transferred
To Carriage 6,000 6,000 Return of finished 17,000 25,000
inward Goods
To Purchased By Closing Stock:
Goods
transferred 30,000 24,000 Purchased Goods 12,000 15,000
To Finished 80,000 1,00,000 Finished Goods 60,000 35,000
Goods
transferred
To Return of 25,000 17,000
finished Goods
To Gross profit 77,000 47,550
c/d
5,23,000 4,39,000 5,23,000 4,39,000
Combined Trading and P & L Account for the year ending 31 st March, 2021
` `
(` 70,000 + ` 54,000) (` 3,10,000 + ` 2,54,000)
To Purchases 3,80,000 By Closing Stock:
(` 2,14,000 + ` 1,66,000)
To Wages 45,450 Purchased Goods 27,000
(` 21,000 + ` 24,450) (` 12,000 + ` 15,000)
To Carriage 12,000 Finished Goods 95,000
(` 6,000 + ` 6,000) (` 60,000 + ` 35,000)
To Gross Profit c/d 1,24,550
6,86,000 6,86,000
To Stock Reserve 3,200 By Gross Profit b/d 1,24,550
To Net Profit 1,21,350
1,24,550 1,24,550
Working note:
1. Calculation of Rate of Gross Profit Deptt. X Deptt. Y
Closing Stock out of transfer (20%) 12,000 7,000
Sale 3,10,000 2,54,000
Add: Transfer 1,00,000 80,000
4,10,000 3,34,000
Less: Returns (25,000) (17,000)
Net Sales plus Transfer 3,85,000 3,17,000
Rate of Gross profit
= 20% = 15%
2. Unrealized Profit Deptt. X ` 12,000 × 15% = ` 1,800
Deptt. Y ` 7,000 × 20% = ` 1,400
13 In the books of Mr. Chena Swami
Salem Branch Account
` `
To Balance b/d By Bank (Remittance to 19,50,000
Opening stock: H.O.)
Ghee 40,000 By Balance c/d

Refined Oil 22,500 Closing stock:
Debtors 1,80,000 Refined oil 19,500
Cash on hand 25,690 Ghee 90,000
Furniture & fittings 23,800 Debtors (W.N. 1) 2,10,000
To Goods sent to Branch A/c Cash on hand (W.N. 2) 44,800
Refined Oil 5,40,000 Furniture & fittings 21,420
(30 x ` 1,500x12)
Ghee 12,00,000
(20 x ` 5,000 x12)
To Bank (Expenses paid by 76,800
H.O.)
To commission in
profits
10% (2,26,930x10/110) 20,630
To Net Profit transferred
to General P & L A/c 2,06,300
23,35,720 23,35,720
Mr. Chena Swami
Trading and Profit and Loss account for the year ended 31 st March, 2021
(Excluding branch transactions)
` `
To Opening Stock: By Sales:
Refined Oil 44,000 Refined Oil 24,10,000
Ghee 10,65,000 Ghee 38,40,500
To Purchases: By Closing Stock:
Refined Oil 27,50,000 Refined Oil 8,90,000
Less: Goods sent Ghee 15,70,000
to Branch (5,40,000) 22,10,000
Ghee 48,28,000
Less: Goods sent
to Branch (12,00,000) 36,28,000
To Direct Expenses 6,35,800
To Gross Profit 11,27,700
87,10,500 87,10,500
To 2,40,000 By Gross Profit 11,27,700

To General Expenses 1,86,000 By Branch Profit 2,06,300
transferred
To Depreciation
Furniture (88,600 - 79,740) 8,860
Building
(5,10,800 + 2,41,600 - 37,620
7,14,780)
To Net profit 8,61,520
13,34,000 13,34,000
Working Notes:
(1) Debtors Account
` `
To Balance b/d 1,80,000 By Cash Collections 20,15,000
To Sales made during By Balance c/d 2,10,000
the year: (Bal. Figure)
Refined oil 5,95,000
Ghee 14,50,000
22,25,000 22,25,000
(2) Branch Cash Account
` `
To Balance b/d 25,690 By Remittance 19,50,000
To Collections 20,15,000 By Exp. 45,890
By Balance c/d (Bal. Figure) 44,800
20,40,690 20,40,690
14. Trading and Profit and Loss Account of Mr. Kumar for the year ended
31st March, 2021
` `
To Opening Stock 25,000 By Sales 14,50,000
To Purchases 10,87,500 By Closing Stock 25,000
To Gross Profit c/d 3,62,500 _______
14,75,000 14,75,000
To Business Expenses 1,85,500 By Gross Profit b/d 3,62,500
To Repairs 4,000 By Net loss 14,000

To Depreciation (WDV basis) 39,000
To Travelling Expenses 20,000
To Loss by theft 1,28,000 _______
3,76,500 3,76,500
Balance Sheet of Mr. Kumar as at 31 st March, 2021
Liabilities ` ` Assets ` `
Capital 4,10,000 Machinery 1,60,000
Add: additions 1,00,000
2,60,000
Add: Additional 25,000 Less: Dep. @ 15% (39,000) 2,21,000
Capital
Less: Net Loss Stock in Trade 25,000
(14,000)
4,56,000 Sundry Debtors 1,81,250
Less: Loss of (35,000) Bank 34,375
Furniture
Drawings (10,000) 3,76,000
Sundry 85,625 _______
Creditors
4,61,625 4,61,625
Working Notes:
1. Sales during 2020-2021 `
Debtors as on 31st March, 2020 1,45,000
(Being equal to 2 months' sales)
Total credit sales in 2019- 2020, ` 1,45,000 × 6 8,70,000
Cash Sales, being equal to 1/3rd of credit sales or 1/4th of the total 2,90,000
Sales in 2019-2020 11,60,000
Increase, 25% as stated in the problem 2,90,000
Total sales during 2020-2021 14,50,000
Cash sales: 1/4th 3,62,500
Credit sales: 3/4th 10,87,500
2. Purchases
Sales in 2020-2021 14,50,000
Gross Profit @ 25% 3,62,500

Cost of goods sold being purchases (no change in stock level) 10,87,500
3. Debtors equal to two months credit sales 1,81,250
4. Sundry Creditors for goods
(` 10,87,500 ` 60,000) /12 = ` 10,27,500/12 85,625
5. Collections from Debtors
Opening Balance 1,45,000
Add: Credit Sales 10,87,500
12,32,500
Less: Closing Balance (1,81,250)
10,51,250
6. Payment to Creditors
Opening Balance 60,000
Add: Credit Purchases (` 10,87,500 ` 60,000) 10,27,500
10,87,500
Less: Closing Balance (85,625)
Payment by cheque 10,01,875
7. Cash and Bank Account

Cash Bank Cash Bank
To Balance b/d 25,000 80,000 By Payment to 60,000 10,01,875
Creditors
To Collection 10,51,250 By Misc. Expenses 1,75,500 10,000
from Debtors
To Sales 3,62,500 By Addition to 1,00,000
Machinery
To Additional 50,000 By Travelling 24,000
Capital Expenses
By Private Drawings 10,000
By Loss by theft 1,18,000
By Balance c/d 69,375
3,87,500 11,81,250 3,87,500 11,81,250
15. Books of Cloth Trader

Profit and Loss Account for the year ended 2020-21 (not assuming going concern)
Particulars Amount Particulars Amount
` `
To Purchases 22,50,000 By Closing Stock 2,50,000
To Expenses 78,000 By Trade payables 7,500
To Depreciation 35,000
To Provision for doubtful debts 30,000
To Deferred cost 50,000
To Loan penalty 25,000
To Net Profit (b.f.) 3,89,500
30,07,500 30,07,500
Balance Sheet as at 31 st March, 2021 (not assuming going concern)
Liabilities Amount Assets Amount
` `
Capital 3,00,000 Fixed Assets 3,25,000
Profit & Loss A/c 5,14,500 Stock 2,50,000
10% Loan 2,35,000 Trade receivables (less provision) 1,20,000
Trade payables 67,500 Deferred costs Nil
Bank 4,22,000
11,17,000 11,17,000
16. (a) The question deals with the issue of Applicability of Accounting Standards for
corporate entities. The companies can be classified under two categories viz SMCs
and Non-SMCs under the Companies (Accounting Standards) Rules, 2021. As per
the Companies (Accounting Standards) Rules, 2021, criteria for above classification
as SMCs, are:
-
whose equity or debt securities are not listed or are not in the process of listing
on any stock exchange, whether in India or outside India;
which is not a bank, financial institution or an insurance company;

whose turnover (excluding other income) does not exceed rupees two -fifty
crores in the immediately preceding accounting year;
which does not have borrowings (including public deposits) in excess of rupees
fifty crores at any time during the immediately preceding accounting year; and
which is not a holding or subsidiary company of a company which is not a small

and medium-sized company.
` 225 crores which does not exceed ` 250 crores but
borrowings of ` 51 crore are more than ` 50 crores, it is not a small and medium
sized company (SMC). The exemptions available to SMC are not available to this
company.
(b) Accounting Standards apply in respect of any enterprise (whether org anized in
corporate, co-operative or other forms) engaged in commercial, industrial or business
activities, whether or not profit oriented and even if established for charitable or
religious purposes. Accounting Standards however, do not apply to enterprises solely
carrying on the activities, which are not of commercial, industrial or business nature,
(e.g., an activity of collecting donations and giving them to flood affected people).
Exclusion of an enterprise from the applicability of the Accounting Stan dards would
be permissible only if no part of the activity of such enterprise is commercial, industrial
or business in nature. Even if a very small proportion of the activities of an enterprise
were considered to be commercial, industrial or business in nature, the Accounting
Standards would apply to all its activities including those, which are not commercial,
industrial or business in nature.
17. (a) As per AS 2 Valuation of Inventories , certain costs are excluded from the cost of
the inventories and are recognised as expenses in the period in which incurred.
Examples of such costs are: (a) abnormal amount of wasted materials, labour, or
other production costs; (b) storage costs, unless those costs are necessary in the
production process prior to a further production stage; (c) administrative overheads
that do not contribute to bringing the inventories to their present location and
condition; and (d) selling and distribution costs.
(b) Net Realisable Value of Inventory as on 31 st March, 2021
= ` 107.75 x 20 units = ` 2,155
Value of inventory as per Weighted Average basis
Total units purchased and total cost:
01.03.2021 ` 108 x 20 units = ` 2160
08.3.2021 ` 107 x 15 units = ` 1605
17.03.2021 ` 109 x 30 units = ` 3270
25.03.2021 ` 107 x 15 units = ` 1605
Total 80 units = ` 8640
Weighted Average Cost = ` 8640/80 units = `108

Total cost = ` 108 x 20 units = ` 2,160
Value of inventory to be considered while preparing Balance Sheet as on 31 st March,
2021 is, Cost or Net Realisable value whichever is lower i.e. ` 2,155.
(c) AS 2 does not apply to producers of agricultural products but applies to traders in
agricultural products. Hence AS 2 will apply to Rohan Pvt. Ltd. and it will have to
value inventory at lower of cost or market value.
18. (a) Included in Cost:
Point no. 1,2,3,5,8
Excluded from Cost:
Point no. 4,6,7
(b) (i) The Effect of
currency transaction should be recorded, on initial recognition in the reporting
currency, by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the transaction.
Moreover, at each balance sheet date, foreign currency monetary items should
be reported using the closing rate. Accordingly, on 31.12.2020 borrowings will
be recorded at ` 1,32,00,000 (i.e., ` 3,00,000 × ` 44.00). On 31.3.2021
borrowings (monetary items) will be recorded at ` 1,33,50,000 (i.e. $ 3,00,000
× ` 44.50).
Journal of Kumar Ltd.
Date Particular Dr. (`) Cr. (`)
31-12-2020 Bank A/c Dr. 1,32,00,000
To Foreign Loan Account 1,32,00,000
31-03-2021 Foreign Exchange Difference 1,50,000
Account A/c Dr.
To Foreign Loan Account 1,50,000
30-06-2021 Foreign Loan Account A/c Dr. 1,33,50,000
Foreign Exchange Difference 75,000
Account A/c Dr.
To Bank A/c 1,34,25,0000
(ii) In case borrowings were repaid before Balance Sheet Date, then the entry would
be as follows:
Date Particular Dr. (`) Cr. (`)
28-02-2021 Foreign Loan Account A/c Dr. 1,32,00,000
Foreign Exchange Difference 60,000
Account A/c Dr.
To Bank A/c 1,32,60,000
Working Notes:
(i) The exchange difference of ` 1,50,000 is arising because the transaction has
been reported at different rate (` 44.50 = 1 US $) from the rate initially recorded
(i.e., ` 44 = 1 US $) from the rate initially recorded (i.e., ` 44 = 1 US $)
(ii) The exchange difference of ` 75,000 is arising because the transaction has been
settled at an exchange rate (` 44.75 = 1 US$) different from the rate at which
reported in the last financial statements (` 44.50 = 1 US$).
(iii) The exchange difference of ` 60,000 is arising because the transaction has been
settled at a different rate (i.e., ` 44.20 = 1 US $) than the rate at which initially
recorded (1 US $ = ` 44.00)
19. (a) Journal Entries
Year Particulars ` in lakhs ` in lakhs
(Dr.) (Cr.)
2nd Fixed Asset Account Dr. 7.5
To Bank Account 7.5
(Being government grant on asset partly
refunded which increased the cost of
fixed asset)
Depreciation Account (W.N.) Dr. 5.5
To Fixed Asset Account 5.5
(Being depreciation charged on SLM on
revised value of fixed asset
prospectively)
Profit & Loss Account Dr. 5.5
To Depreciation Account 5.5
(Being depreciation transferred to Profit
and Loss Account at the end of year 2)
Working Note:
Depreciation for Year 2
` in lakhs
Cost of the Asset 30
Less: Government grant received (12)
18
Less: Depreciation for the first year 3

15
Add: Government grant refundable 7.5
22.5
Depreciation for the second year 5.5

(b) The investments are classified into two categories as per AS 13, viz., Current
Investments and Long-term Investments. A current Investment is an investment that
is by its nature readily realizable and is intended to be held for not more than one
year from the date on which such investment is made. The carrying amount for current
investments is the lower of cost and fair value. Any reduction to fair value and any
reversals of such reductions are included in the statement of profit and loss. A long -
term investment is an investment other than a current investment. The investments
referred in the question can be classified as long-term investments and long-term
investments are usually carried at cost. However, when there is a decline, other than
temporary, in the value of a long-term investment, the carrying amount is reduced to
recognize the decline. The contention of the company to bring down the value of
investment may be correct if the decline in value is permanent in nature and the
reduction in carrying amount may be charged to the statement of profit and loss. The
reduction in carrying amount is reversed when there is a rise in the value of the
investment, or if the reasons for the reduction no longer exist.
20. (a) As per AS 16 Borrowing Costs
substantially all the activities necessary to prepare the qualifying asset for its intended
made to conclude whether substantially all the activities necessary to prepare the
asset are complete. After an equipment has been installed it is usually tested and
adjusted for commercial production before it is finally commissioned. The calibrations
and adjustments required during this period are performed in order to bring the
equipment up to the stage at which it is ready to commence commercial production.
Until the asset reaches the stage when it is ready to support commercial levels of
production, it is not appropriate to conclude that substantially all the activities
necessary to prepare the asset are complete. Thus, the borrowing cost incurred
during the normal period of test runs (after the installation) are required to be
capitalized.
(b) As per provisions of AS 16, capitalization of borrowing costs should cease when
substantially all the activities necessary to prepare the qualifying asset for its intended
use or sale are complete. Further, the standard also
normally ready for its intended use or sale when its physical construction or
production is complete even though routine administrative work might sill continue. If
are all that are outstanding, this indicates that substantially all the activities are
construction of the asset is complete, substantially all the activities necessary to

prepare the qualifying asset for its intended use or sale are complete. Therefore, in
the given case, the borrowing costs pertaining to the period during which the
marketing activities to sell the asset are still in progress should not be capitalized as
part of the cost of the asset.

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PAPER 1: ACCOUNTING

PART I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY

B. Not applicable for May, 2022 examination

PART II: QUESTIONS AND ANSWERS

Preparation of Statement of Profit and Loss and Balance Sheet

Accounting for Bonus Issue

Reserve & surplus

Issued and subscribed share capital:

transactions are completed.

1-9-2020 Sold 3,000 debentures @ ` 110 cum interest

3 Instalments to be paid, each at the end of each year:

Return of Finished Goods by Dept. Y to Dept. X 25,000 -

Salem Brach Office

year ended 31 st March, 2021.

The trader gives you the following information:

Cash & Bank 25,000

AS 11 The Effects of Changes in Foreign Exchange Rates

1. (a) Delta Limited

Depreciation (10% of 800) 80.00

Add: Revaluation adjustment 160

2. Calculation of effective capital

Cash generated from operations 3,29,000

4. Statement showing the calculation of Profits/losses for the pre-incorporation and

June 2.5 February 3.5

Bonus to Shareholders A/c Dr. 1,20,000

(d) Fully Paid up bonus shares only

7. Journal Entries in the books of Rohan Ltd.

Balance Sheet of Rohan Limited

(Transfer from Profit and Loss A/c)

= = 34,800 shares of ` 10 each

4. Determination of closing bank balance

8. Journal Entries in the Books of Case Ltd.

Securities Premium A/c Dr. 37,500

Bank A/c Dr. 27,000

3,000 debentures at 3,06,000 4,23,400

2. Profit on sale of debentures as on 1.9.2020

Less: Interest for 2 months (6,000)

2nd 3,00,000 3,38,000 6,38,000 58,000 5,80,000

To Balance c/d 5,80,000 85,000

Ghee 40,000 By Balance c/d

To 2,40,000 By Gross Profit 11,27,700

To Repairs 4,000 By Net loss 14,000

Gross Profit @ 25% 3,62,500

7. Cash and Bank Account

15. Books of Cloth Trader

which is not a bank, financial institution or an insurance company;

which is not a holding or subsidiary company of a company which is not a small

Weighted Average Cost = ` 8640/80 units = `108

Less: Depreciation for the first year 3

Depreciation for the second year 5.5

construction of the asset is complete, substantially all the activities necessary to

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