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CA Intermediate: Mock Test Paper (1) -Accounting Nov 2020

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Test Series: October, 2020 MOCK TEST PAPER INTERMEDIATE (NEW) : GROUP I PAPER 1: ACCOUNTING Question No. 1 is compulsory. Answer any four questions from the remaining five questions. Wherever necessary suitable assumptions may be made and disclosed by way of a note. Working Notes should form part of the answer. (Time allowed: Three hours) 1. (Maximum Marks: 100) (a) Om Ltd. purchased an item of property, plant and equipment for US $ 50 lakh on 01.04.2019 and the same was fully financed by the foreign currency loan [US $] repayable in five equal instalments annually. (Exchange rate at the time of purchase was 1 US $ = ` 60]. As on 31.03.2020 the first instalment was paid when 1 US $ fetched ` 62.00. The entire loss on exchange was included in cost of goods sold. Om Ltd. normally provides depreciation on an item of property, plant and equipment at 20% on WDV basis and exercised the option to adjust the cost of asset for exchange difference arising out of loan restatement and payment. Calculate the amount of exchange loss, its treatment and depreciation on this item of property, plant and equipment. (b) On 01.04.2017, XYZ Ltd. received Government grant of ` 100 Lakhs for an acquisition of new machinery costing ` 500 lakhs. The grant was received and credited to the cost of the assets. The life span of the machinery is 5 years. The machinery is depreciated at 20% on WDV method. The company had to refund the entire grant in 2 nd April, 2020 due to non-fulfilment of certain conditions which was imposed by the government at the time of approval of grant. How do you deal with the refund of grant to the Government in the books of XYZ Ltd. as per AS 12? (c) (i) Entity A carried plant and machinery in its books at ` 2,00,000 which were destroyed in a fire. These machines were insured 'New for old' and were replaced by the insurance company with new machines of fair value ` 20,00,000. The old destroyed machines were acquired by the insurance company and the company did not receive any cash compensation. State, how Entity A should account for the same? (ii) Omega Ltd, a supermarket chain, is renovating one of its major stores. The store will have more available space for store promotion outlets after the renovation and will include a restaurant. Management is preparing the budgets for the year after the store reopens, which include the cost of remodelling and the expectation of a 15% increase in sales resulting from the store renovations, which will attract new customers. Decide whether Omega Ltd. can capitalize the remodelling cost or not as per provisions of AS 10 Property plant & Equipment . (d) What do you mean by the term cash and cash equivalent as per AS 3? From the following information of XYZ Limited, calculate cash and cash equivalent as on 31-03-2019. Particulars Amount (`) Cash balance with Bank Fixed Deposit created on 01-11-2018 and maturing on15-07-2019 Short Term Investment in highly liquid Sovereign Debt Mutual fund made on 01-03-2019 (having maturity period of less than 3 months) Bank Balance in a Foreign Currency Account in India 1 The Institute of Chartered Accountants of India 10,000 75,000 1,00,000 $ 1,000 (Conversion Rate: on the day of deposit ` 69/USD; ` 70/USD as on 31-03-2019) Debentures purchased of ` 10 lacs of A Ltd., which are redeemable on 31st October, 2019 90,000 Shares of Alpha Ltd. purchased on 1 st January, 2019 60,000 (4 Parts x 5 Marks = 20 Marks) 2. (a) Shree Ltd. has authorized capital of ` 50 lakhs divided into 5,00,000 equity shares of ` 10 each. Their books show the following balances as on 31 st March, 2020: ` Inventory 1.4.2019 Discounts & Rebates allowed ` 6,65,000 Bank balance in Current Account 30,000 Cash in hand Carriage Inwards 57,500 Interest (bank overdraft) Patterns 3,75,000 Calls in Arrear @ `2 per share Rate, Taxes and Insurance 55,000 Equity share capital Furniture & Fixtures Purchases 1,50,000 (2,00,000 shares of ` 10 each) 12,32,500 Bank Overdraft Wages Freehold Land 13,68,000 16,25,000 Trade Payables (for goods) Plant & Machinery Engineering Tools 7,50,000 Sales 1,50,000 Rent (Cr.) Trade Receivables Advertisement Commission & Brokerage (Dr.) 4,00,500 Transfer fees received 15,000 Profit & Loss A/c (Cr.) 67,500 Repairs to Building Business Expenses 56,000 Bad debts 20,000 8,000 1,11,000 10,000 20,00,000 12,67,000 2,40,500 36,17,000 30,000 6,500 67,000 56,500 25,500 You are required to prepare Statement of Profit & Loss for the year ended 31 st March, 2020 and Balance Sheet as on that date in line with Schedule III to the Companies Act, 2013 after considering the following: The inventory (valued at cost or market value, which is lower) as on 31 st March, 2020 was ` 7,08,000. Outstanding liabilities for wages ` 25,000 and business expenses ` 36,000. Charge depreciation on closing written down value of Plant & Machinery @ 5%, Engineering Tools @ 20%; Patterns @ 10%; and Furniture & Fixtures @10%. Provide 25,000 as doubtful debts after writing off ` 16,000 as additional bad debts. Provide for income tax @ 30%. (b) Medha Ltd. took a loan from bank for ` 10,00,000 to be settled within 5 years in 10 equal half yearly instalments with interest. First instalment is due on 30.09.2020 of ` 1,00,000. Determine how the loan will be classified in preparation of Financial Statements of Medha Ltd. for the year ended 31st March, 2020 according to Schedule III. (16 + 4 = 20 Marks) 3. (a) (i) Mr. Vijay entered into the following transactions of purchase and sale of equity shares of JP Power Ltd. The shares have paid up value of ` 10 per share. Date No. of Shares 01.01.2019 600 15.03.2019 20.05.2019 900 1000 Terms Buy @ ` 20 per share Buy @ ` 25 per share Buy @ ` 23 per share 2 The Institute of Chartered Accountants of India 25.07.2019 20.12.2019 2500 1500 Bonus Shares received Sale @ ` 22 per share 01.02.2020 1000 Sale @ ` 24 per share Addition information: (1) On 15.09.2019 dividend @ ` 3 per share was received for the year ended 31.03.2019. (2) On 12.11.2019 company made a right issue of equity shares in the ratio of one share for five shares held on payment of ` 20 per share. He subscribed to 60% of the shares and renounced the remaining shares on receipt of ` 3 per share. (3) Shares are to be valued on weighted average cost basis. You are required to prepare Investment Account for the year ended 31.03.2019 and 31.03.2020. (ii) Whether the accounting treatment 'at cost' under the head Long Term Investments without providing for any diminution in value is correct and in accordance with the provisions of AS 13. If not, what should have been the accounting treatment in such a situation? What methodology should be adopted for ascertaining the provision for diminution in the value of investment, if any. Explain in brief. (8 + 4 =12 Marks) (b) A fire occurred in the premises of M/s. Fireproof on 31 st August, 2020. From the following particulars relating to the period from 1 st April, 2020 to 31 st August, 2020, you are requested to ascertain the amount of claim to be filed with the insurance company for the loss of stock. The concern had taken an insurance policy for ` 60,000 which is subject to an average clause. ` (i) Stock as per Balance Sheet at 31-03-2020 99,000 (ii) Purchases (iii) Wages (including wages for the installation of a machine ` 3,000) (iv) (v) (vi) Sales Sale value of goods drawn by partners Cost of goods sent to consignee on 16 th August, 2020, lying unsold with them 1,70,000 50,000 2,42,000 15,000 16,500 (vii) Cost of goods distributed as free samples 1,500 While valuing the stock at 31 st March, 2020, ` 1,000 were written off in respect of a slow moving item. The cost of which was ` 5,000. A portion of these goods were sold at a loss of ` 500 on the original cost of ` 2,500. The remainder of the stock is now estimated to be worth the original cost. The value of goods salvaged was estimated at ` 20,000. The average rate of gross profit was 20% (on sales) throughout. (8 Marks) 4. (a) The following balances were extracted from the books of Beta. You are required to prepare Departmental Trading Account and general Profit & Loss Account for the year ended 31st March, 2020: Particulars Opening Stock Purchases Sales 3 The Institute of Chartered Accountants of India Deptt. A Deptt. B ` ` 3,00,000 2,40,000 39,00,000 60,00,000 54,60,000 90,00,000 General expenses incurred for both the Departments were ` 7,50,000 and you are also supplied with the following information: (i) Closing stock of Department A ` 6,00,000 including goods from Department B for ` 1,20,000 at cost to Department A. (ii) Closing stock of Department B ` 12,00,000 including goods from Department A for ` 1,80,000 at cost to Department B. (iii) Opening stock of Department A and Department B include goods of the value of ` 60,000 and ` 90,000 taken from Department B and Department A respectively at cost to transferee departments. (iv) The gross profit is uniform from year to year. (b) Ram carried on business as retail merchant. He has not maintained regular account books. However, he always maintained ` 10,000 in cash and deposited the balance into the bank account. He informs you that he has sold goods at profit of 25% on sales. Following information is given to you: Assets and Liabilities As on 1.4.2019 As on 31.3.2020 Cash in Hand 10,000 10,000 Sundry Creditors 40,000 90,000 50,000 (Cr.) 80,000 (Dr.) Sundry Debtors 1,00,000 3,50,000 Stock in Trade 2,80,000 ? Ram s capital 3,00,000 Cash at Bank Analysis of his bank pass book reveals the following information: (a) Payment to creditors ` 7,00,000 (b) Payment for business expenses ` 1,20,000 (c) Receipts from debtors ` 7,50,000 (d) Loan from Laxman ` 1,00,000 taken on 1.10.2019 at 10% per annum (e) Cash deposited in the bank ` 1,00,000 He informs you that he paid creditors for goods ` 20,000 in cash and salaries ` 40,000 in cash. He has drawn ` 80,000 in cash for personal expenses. During the year Ram had not introduced any additional capital. Surplus cash if any, to be taken as cash sales. You are required to prepare: (i) Trading and Profit and Loss Account for the year ended 31.3.2020. (ii) Balance Sheet as at 31 st March, 2020. (8 + 12 = 20 Marks) 5. (a) The partners of Ojasvi Enterprises decided to convert the partnership firm into a Private Limited Company Tejasvi (P) Ltd. with effect from 1 st January, 2019. However, company could be incorporated only on 1 st June, 2019. The business was continued on behalf of the company and the consideration of ` 6,00,000 was settled on that day along with interest @ 12% per annum. The company availed loan of ` 9,00,000 @ 10% per annum on 1 st June, 2019 to pay purchase consideration and for working capital. The company closed its accounts for the first time on 31st March, 2020 and presents you the following summarized profit and loss account: ` Sales Cost of goods sold Discount to dealers 11,88,000 46,200 4 The Institute of Chartered Accountants of India ` 19,80,000 Directors remuneration Salaries Rent Interest Depreciation Office expenses Preliminary expenses (to be written off in first year itself) 60,000 90,000 1,35,000 1,05,000 30,000 1,05,000 15,000 17,74,200 2,05,800 Profit Sales from June, 2019 to December, 2019 were 2 times of the average sales, which further increased to 3 times in January to March quarter, 2019. The company recruited additional work force to expand the business. The salaries from July, 2019 doubled. The company also acquired additional showroom at monthly rent of ` 10,000 from July, 2019. You are required to prepare a statement showing apportionment of cost and revenue between preincorporation and post-incorporation periods. (b) L Ltd. has its head office at Mumbai and two branches at Pune and Goa. The branches purchase goods independently. Pune branch makes a profit of one third on cost and Goa branch makes a profit of 20% on sales. Goods are also supplied by one branch to another at the respective sales price. From the following particulars, prepare the Trading and Profit and Loss Account of Pune branch and find out the profit or loss made by it considering the reserve for unrealised profits: Particulars Pune Branch ` Goa Branch ` 40,000 30,000 2,00,000 2,80,000 15,000 2,50,000 2,95,625 27,500 Closing Stock 30,000 43,500 Office and Administration Expenses Selling and Distribution Expenses 13,250 15,000 7,000 10,000 Opening Stock Purchases (Including Inter Branch transfers) Sales Chargeable Expenses Information: (i) Opening stock at Pune Branch includes goods of ` 10,000 (invoice price) taken from Goa Branch, (ii) Opening stock at Goa Branch includes goods of invoice price ` 17,000 taken from Pune Branch, (iii) The Pune Branch sales includes transfer of goods to Goa Branch at selling price ` 20,000 (iv) The sales of Goa Branch include transfer of goods to Pune Branch at selling price ` 15,000. (v) Closing stock at Pune Branch includes goods received from Goa Branch (invoice price ` 5,000. (vi) Closing stock at Goa Branch includes goods of ` 4,000 (invoice price). (c) Ganesh Ltd. has head office at Delhi (India) and branch at New York. New York branch is an integral foreign operation of Ganesh Ltd. New York branch furnishes you with its trial balance as on 31st March, 2020 and the additional information given thereafter: Stock on 1st April, 2019 5 The Institute of Chartered Accountants of India Dr. ($) Cr. ($) 300 Purchases and sales Sundry Debtors and creditors 800 400 1,500 300 Bills of exchange 120 240 Sundry expenses 1,080 420 1,080 3,120 3,120 Bank balance Delhi office A/c The rates of exchange may be taken as follows: on 1.4.2019 @ ` 40 per US $ on 31.3.2020 @ ` 42 per US $ average exchange rate for the year @ ` 41 per US $. New York branch account showed a debit balance of ` 44,380 on 31.3.2020 in Delhi books and there were no items pending reconciliation. You are asked to prepare trial balance of New York in ` in the books of Ganesh Ltd. (10 + 6 + 4 = 20 Marks) 6. (a) The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st March, 2020. Share capital: 40,000 Equity shares of ` 10 each fully paid ` 4,00,000; 1,000 10% Redeemable preference shares of ` 100 each fully paid ` 1,00,000. Reserve & Surplus: Capital reserve ` 50,000; Securities premium ` 50,000; General reserve ` 75,000; Profit and Loss Account ` 35,000 On 1st April 2020, the Board of Directors decided to redeem the preference shares at par by utilisation of reserve. You are required to pass necessary Journal Entries including cash transactions in the books of the company. (b) The following extract of Balance Sheet of X Ltd. as on 31.3.2020 (a non-investment company) was obtained: Liabilities ` Issued and subscribed capital: 20,000, 14% preference shares of ` 100 each fully paid 20,00,000 1,20,000 Equity shares of ` 100 each, ` 80 paid-up 96,00,000 Capital reserves (` 1,50,000 is revaluation reserve) 1,95,000 Securities premium 15% Debentures 50,000 65,00,000 Unsecured loans: Public deposits repayable after one year Investment in shares, debentures, etc. Profit and Loss account (debit balance) 3,70,000 75,00,000 15,00,000 You are required to compute Effective Capital as per the provisions of Schedule V to Companies Act, 2013. 6 The Institute of Chartered Accountants of India (c) Mr. Aman is running a business of readymade garments. He does not maintain his books of accounts under double entry system. While assessing the income of Mr. Aman for the financial year 2018-19, Income Tax Officer feels that he has not disclosed the full income earned by him from his business. He provides you the following information: On 31st March, 2018 Sundry Assets `16,65,000 Liabilities `4,13,000 On 31st March, 2019 Sundry Assets `28,40,000 Liabilities `5,80,000 Mr. Aman s drawings for the year 2018-19 `32,000 per month Income declared to the Income Tax Officer `9,12,000 During the year 2018-19, one life insurance policy of Mr. Aman was matured and amount received ` 50,000 was retained in the business. State whether the Income Tax Officer's contention is correct. Explain by giving your working. OR 1st On April, 2017, X Ltd. sells a Trucks on hire purchase basis to Transporters & Co. for a total purchase price of ` 18,00,000 payable as to ` 4,80,000 as down payment and the balance in three equal annual instalments of ` 4,40,000 each payable on 31st March 2018, 2019 and 2020. The hire vendor charges interest @ 10% per annum. You are required to ascertain the cash price of the truck for Transporters & Co. Calculations may be made to the nearest rupee. (d) ABC Ltd. has entered into a binding agreement with XYZ Ltd. to buy a custom -made machine amounting to Rs. 4,00,000. As on 31st March, 2020 before delivery of the machine, ABC Ltd. had to change its method of production. The new method will not require the machine ordered and so it shall be scrapped after delivery. The expected scrap value is NIL . Show the treatment of machine in the books of ABC Ltd. (4 Parts x 5 Marks = 20 Marks) 7 The Institute of Chartered Accountants of India

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