CA - INTER COURSE MATERIAL Quality Education beyond your imagination... DISCOVER MATERIAL ON ACCOUNTING STANDARDS (COVERS PAST EXAM QUESTION PAPERS UPTO MAY — 2019) — MASTER MINDS" GUNTUR | RAJAHMUNDRY | KURNOOL | VIZAG | NELLORE HYDERABAD | VUAYAWADA | TIRUPATHI Cell: 98851 25025 / 26 Visit us @ www.mastermin lia.com | Mail: [email protected] Facebook Page: Masterminds For CA | YouTube Channel: Masterminds For CA Page 1Ph: 98851 25025/26 www.mastermindsindia.com DISCOVER_2E/ ACCOUNTING STANDARDS (GR.1&GR.I1) WE HAVE INCLUDED THE PAST EXAM QUESTION PAPERS OF 7 RECENT ATTEMPTS UNDER IPCC & 3 RECENT ATTEMPTS UNDER CA INTER UPTO MAY 2019 INDEX ACCOUNTING STANDARD NAME PG.NO e e ACCOUNTING (GROUP) i i Introduction To Accounting Standards Framework For Preparation And Presentation Of Financial Statements 14 ‘AS—1 [Disclosure Of Accounting Policies 15 ‘AS—2_|Valuation Of Inventories 17 ‘AS—3 |Cash Flow Statement [ears ‘AS — 10 | Property, Plant and Equipment (Revised) 1.10 ‘AS 11 | The Effects of Changes in Foreign Exchange Rates 1.13 ‘AS — 12. | Accounting for Government Grants 1.14 ‘AS — 13 [Accounting for Investments 1.15 ‘AS — 16 | Borrowing Costs 1.16 oe : ___ ADVANCED ACCOUNTING (GROUP 2) ‘AS—4 [Contingencies and Events occurring after the B: heet date ED ‘AS—5 | Net Profit or Loss for the Period, Prior Period id Changes in Accounting | 1.20 Policies | ‘AS—7_|Construction Contracts 124 AS—9 [Revenue Recognition 1.23 ‘AS = 14 [Accounting for Amalgamation 1.24 ‘AS — 17 | Segment Reporting SS) 1.25 AS - 18 [Related Party Transaction 1.25 ‘AS —19 |Leases 1.26 ‘AS =20 |Eamings Per Share 127 ‘AS 22 [Accounting For Taxes on Income 1.29 ‘AS — 24 |Discontinuing Operations 1.29 AS = 26 | Intangible Assets 1.29 ‘AS — 29 | Provisions, Contingent Liabilities And Contingent Assets 1.30 (Guidance Notes 134 ACCOUNTING STANDARDS (GROUP - 1) INTRODUCTION TO ACCOUNTING STANDARDS PART 4: DESCRIPTIVE QUESTIONS 4. Benefits and limitations of accounting standards Explain, [M19 (0) - 4m] 2. “Accounting Standards standardize diverse accounting policies with a view to eliminate the non- comparability of financial statements and improve the reliability of financial statements. “Discuss and explain the benefits of Accounting Standards, [N18 (N) - 5M] 3. What are Accounting Standards? Explain the issues, with which they deal IN17 (0)- 5M] 4, List out the criteria laid down for classification of non-corporate entities to bring them under Level | category as per ICAI. IN17 (0) - 4M] CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 1.2(No.1 tor cAICWA & MECICEC. MASTER MINDS FRAMEWORK FOR PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS PART 4: PROBLEMS 1. ‘Summarized Balance Sheet of Cloth Trader as on 31.03.2017 is given below: [M19 (N)- 5M] Liabilities Amount (Rs.) Assets ‘Amount (Rs.) Proprietor’s Capital 3,00,000|Fixed Assets 3,860,000 Profit & Loss Account 1,25,000 | Closing Stock 1,50,000, 10% Loan Account 2,10,000| Sundry Debtors 1,00,000. ‘Sundry Creditors ‘50,000 | Deferred Expenses 50,000 [Cash & Bank 25,000 6,85,000 6,85,000 Additional Information is as follows: 4. The remaining life if fixed assets is 8 years. The pattern of use of the asset is even. The net realizable value of fixed assets on 31.03.2018 was Rs. 3,25,000 Purchases and sales in 2017-18 amounted to Rs. 22,50,000 and Rs. 27,50,000 respectively. 3. The cost and net realizable value of stock on 31.03.2018 were Rs. 2,00,000 and Rs. 2,560,000 respectively. Expenses for the year amounted to Rs. 78,000 Deferred expenses are amortized equally over 5 y 6. Sundry debtors on 31.03.2018 are Rs. 1,50,00. Rs. 25,000 depends on successful re installa 7. Closing sundry creditors are Rs. 75,00 8. Cash balance as on 31.03.2018 is R: 0 loan of Rs. 25,000 Rs. 8,000 is doubtful. Collection of another in product supplied to the customer. je settled at 10% discount. 9. There is an early repayment per You are required to prepare: (Not assuming going concern) 4. Profit & Loss Account for the year 2017-18 2. Balance Sheet as on 31% March, 2018 2. Balance sheet of Ram & Co. on 31st March, 2017 is given below. [M19 (0) - 5M] Rs Assets Rs Capital 50,000 | Fixed assets 69,000 Profit and Loss 29,000| Stock in trade 43,000 10% Loan’ 43,000| Trade receivables 10,000 Trade payables 18,000 | Deferred 15,000 Expenditure 3,000 Bank Total 1,40,000 Total 1,40,000 CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 Additional Information:- a) Remaining life of fixed assets is 5 years with even use. The net realizable value of fixed assets as on 31st March, 2018 was Rs. 54,000. b) Firm's sales and purchases for the year 2017-18 amounted to Rs.3.55 lakhs and Rs 2.5 lakhs respectively. c) The cost and net realizable value of the stock were Rs34, 000 and Rs. 38,000 respectively, 13(F 98851 25025/26 www.mastermindsindia.com | d) General Expenses for the year 2017-18 were Rs. 16,500. e) Deferred Expenditure is normally amortised equally over 4 years starting from FY. 2016-17 ie. Rs.5,000 per year. f) Out of Debtors worth Rs. 10,000, collection of Rs. 4,000 depends on successful redesign of certain product already supplied to the customer. 4) Closing trade payable is Rs 10,000, which is likely to be settled at 95% fh) There is prepayment penalty of Rs 2,000 for Bank loan outstanding Prepare Profit & Loss Account for the year ended 31st March,2018 by assuming itis not a going concem. 3. Shankar started a business on 1st April, 2017 with Rs. 12,00,000 represented by 60,000 units of Rs. 20 each. During the financial year ending on 31st March, 2018, he sold the entire stock for Rs. 30 each. In order to maintain the capital intact, calculate the maximum amount, which can be withdrawn by Shankar in the year 2017-18 if Financial Capital is maintained at Historical cost. [M18 (0) - 4M] 4, ABC Ltd. has entered info a binding agreement with XYZ Ltd. to buy a custom-made machine amounting to Rs. 4,00,000. As on 31st March, 2016 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 Lt. [M17 (0) - 4M] PART 2: DESCRIPTIVE QUESTIONS 5. “One of the characteristic of the financial statement is, eer Do you agree with this statement? [N48 (N) - 5M] Explain in brief. S 6. What are the basis of measurement of Elements Qe ‘Statements? Explain in brief. SS IN18 (0) - 4M] [M18 - 5M, M17 - 4M, M17 (0) -4M] IN17 (0) - 4m] 9. Explain in brief, the alternative meaSQgMient bases, for determining the value at which an element can be recognized in the Balance Sheet of Statement of Profit and Loss. [N16 (0) - 4m] 7. Briefly explain the elements of financial st 8, What are fundamental accounting a: 410. What are the qualitative characteristics of the financial statements which improve the usefulness of the information furnished therein? [M13 (0) - 4M] 11. List out the criteria laid down for classification of non-corporate entities to bring them under level | category as per ICA. IN17 (0) - 4M] AS: CLOSURE OF ACCOUNTING POLICIES PART 4: PROBLEMS 1. HIL Ltd. was making provision for non-moving stocks based on no issues having occurred for the last 12 months upto 31.03.2017. The company now wants to make provision based on technical evaluation during the year ending 31.03.2018. [N18 (N) - 5M] Total value of stock Rs. 120 lakhs Provision required based on technical evaluation Rs. 3.00 lakhs Provision required based on 12 months no issues Rs. 4.00 lakhs You are requested to discuss the following points in the light of Accounting Standard (AS)-1 i) Does this amount to change in accounting policy? )) Can the company change the method of accounting? CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 14(No.1 tor cAICWA & MECICEC. MASTER MINDS } 2. ABC Financial Services Ltd. is engaged in the business of financial services and is undergoing tight liquidity position, since most of the assets of the company are blocked in various claimsipetitions in a Special Court. ABC Financial Services Ltd. has accepted Inter Corporate Deposits (ICDs) and it is making its best efforts to settle the dues. There were claims at varied rates of interest, from lenders, from the due date of ICDs to the date of repayment. The company has provided interest, as per the terms of the contract tll the due date and a note for non-provision of interest from the due date to date of repayment was mentioned in FS [M17 (0) - 5M] (On account of uncertainties existing regarding the determination of the amount and in the absence of any specific legal obligation at present as per the terms of contracts, the company considers that these claims are in the nature of “claims against the company not acknowledged as debt’, and the same has been disclosed by was of a note in the accounts instead of making a provision in the Profit and Loss Account State whether the treatment done by the company is correct or not as per relevant AS. 3. Balance Sheet of Anurag Trading Co. on 31st March, 2014 is given below: IN15 (0) - 5M] Liabilities Rs. Assets Rs. Capital ‘50,000 | Fixed Assets 69,000) Profit and Loss Alc 22,000 | Stock in Trade 36,000) 10% Loan 43,000 | Trade Receivables 10,000 Trade Creditors 18,000 | Deferred Expenditure 15,000 -|Bank 3,000 1,33,000 4,33,000 Additional Information: i) Remaining life of fixed assets is 5 years with < 'e net realizable value of fixed assets as on 31st March, 2015 was Rs. 64,000 ii) Firm's sales and purchases for the EQS Srnec to Rs. 5 lakhs and Rs. 4.50 lakhs respectively, The cost and net realizable value of ‘were Rs. 34,000 and Rs. 38,000 respectively re Rs, 16,500. iv) General Expenses for the year v) Deferred Expenditure is normally Rs. 5,000 per year. vi) Out of debtors worth Rs. 10,000, collection of Rs. 4,000 depends on successful redesign of certain product already supplied to the customer. vii) Closing trade payable is Rs. 10,000, which is likely to be settled at 95%. viii) There is pre-payment penalty of Rs. 2,000 for Bank loan outstanding. Prepare P&L A/c for the year ended 31.03.15 by assuming it is not a Going Concemed 4. In the books of M/s Prashant Ltd, closing inventory as on 31.03.2015 amounts to Rs. 1,63,000 (on the basis of FIFO method) IN15 (0)- 5M] The company decides to change from FIFO method to weighted average method for ascertaining the cost of inventory from the year 2014-15. On the basis of weighted average method, closing inventory as on 31.3.15 amounts to Rs. 1,47,000. Realisable value of the inventory as on 31.3.15 amounts to Rs. 1,95,000. jortized equally over 4 years starting from F.Y. 2013-14 i.e Discuss disclosure requirement of change in accounting policy as per AS-1 PART 2: DESCRIPTIVE QUESTIONS 5. What do you mean by ‘Accrual in reference to AS-1? Also specify any three reasons for ‘Accrual Basis of Accounting’ [M19 (N) - 5M] 6. State whether the following statements are ‘True’ or False’. Also give reason for your answer. [M18 (0) 5™] i) Certain fundamental accounting assumptions underline the preparation and presentation of financial statements. They are usually specifically stated because their acceptance and use are not assumed. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 15(F 98851 25025/26 www.mastermindsindia.com | ii) If fundamental accounting assumptions are not followed in presentation and preparation of financial statements, a specific disclosure is not required iii) All significant accounting policies adopted in the preparation and presentation of financial statements should form part of the financial statements. iv) Any change in an accounting policy, which has a material effect should be disclosed. Where the amount by which any item in the financial statements is affected by such change is not ascertainable, wholly or in part, the fact need not to be indicated v) There is no single list of accounting policies which are applicable to all circumstances. 7. What are the three fundamental accounting assumptions recognised by Accounting Standard (AS) 1? Briefly describe each one of them IN17 (0)- 4M] AS-2: VALUATION OF INVENTORIES PART1: OBJECTIVE QUESTIONS inventories should be valued at the lower of cost and selling price. (TIF) [M19 (NN) - 1M] 4. As per the provisions of AS~ PART 2: PROBLEMS 2. Wooden plywood limited has a normal wastage of 5% in the production process. During the year 2017-18, the company used 16,000 MT of Raw material costing Rs190 per MT. At the end of the year, 950 MT of wastage was in stock. The accountant wants to know how this wastage is to be treated in the books. [M19 (N) - 5M] You are required to: 1) Calculate the amount of abnormal loss 2) Explain the treatment of normal loss and ama) [in the context of AS-2(revised)] 3. A Limited is engaged in manufacturing of, Y for which Raw Material X is required. The company provides you following informati Year ended 31st March, 2017. [N17 (O)- 5M] lars: Rs. Per unit Raw Material X: Cost price 380 Unloading Charges 20 Freight Inward 40 Replacement cost 300 Chemical Y: Material consumed 440 Direct Labour 120 (Variable Overheads 80 Additional Information: i) Total fixed overhead for the year was Rs. 4,00,000 on normal capacity of 20,000 units. ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was 2,400 units. You are required to calculate the total value of closing stock of Raw Material X and Chemical Y according to AS 2, when a) Net realizable value of Chemical Y is Rs. 800 per unit. b) Net realizable value of Chemical Y is Rs. 600 per unit, 4, The closing stock of finished goods at cost of a company amounted to Rs. 4,50,000. The following items were included at cost in the total [M19 (0) - 5M] a, 100 coats, which had cost Rs. 2,200 each and normally sold for Rs, 4,000 each. Owing to a defect in manufacture, they were all sold after the balance sheet date at 50% of their normal selling price. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 1.6(No.1 tor cAICWA & MECICEC. MASTER MINDS } b. 200 skirts, which had cost Rs. 50 each. These too were found to be defective. Remedial work in April cost Rs. 2 per skit, and seling expenses forthe batch totaled Rs. 200. They were sold for Rs. 55 each, ¢. Shirts which had cost Rs. 50,000, their net realizable value at Balance sheet date was Rs. 55,000. Commission @ 10% on sales is payable to agents. What should the inventory value be according to AS 2 after considering the above item 5. Z Limited ordered 13,000 kg. of chemicals at Rs. 90 per kg. The purchase price includes excise duty Of Rs. 5 per kg, in respect of which full CENVAT credit is admissible. Further, State VAT is leviable at Rs. 2.5 per kg on purchase price. Freight incurred amounted to Rs. 30,000. [M16 (0) - 5M] Normal transit loss is 4%. The company actually received 12,400 kg and consumed 10,000 kg. The company has received trade discount in the form of cash amounting to Rs. 1 per kg. The chemicals were delivered in containers. The containers were not reusable, hence sold for Rs. 500. The administrative expenses incurred to bring the chemicals were Rs. 10,000 Compute the value of inventory and allocate the material cost as per AS-2 6. Mr. Mehul gives the following information relating to items forming part of inventory as on 31-3-2015. His factory produces Product X using Raw material A [M45 (0) — 5M] ') 600 units of Raw material A (purchased @ Rs. 120). Replacement cost of raw material A as on 31-03-2018 is RS. 90 per unit ii) 500 units of partly finished goods in the process of producing X and cost incurred till date Rs. 260 per unit. These units can be finished next year by incurring additional cost of Rs. 60 per unit. iil) 1800 units of finished Product X and total cost incurred Rs. 320 per unit Expected selling price of Product X is Rs 300 per unit. Determine how each item of inventory will be valued total inventory as-on31-3-2015, 7. Capital Cables Ltd, has a normal wastage of 4% iC RNR ction process. During the year 2013-14 the Company used 12,000 MT of raw material cosog MT. At the end of the year 630 MT of wastage Gusts 2015. Also calculate the value of S was in stock. The accountant wants to know hg ae Delage is to be treated in books. [N14 (0) ~ 5M] Explain in the context of AS 2 the treatr jormal loss and abnormal loss and also find out the amount of abnormal loss if any. 8. Calculate the value of raw materials® Raw Material X: Closing balance 500 units Rs. Per unit| Closing price including excise duty 200 Excise duty (CENVAT credit is receivable on the excise duty paid.) 10 Freight inward 20 Unloading charges 10 Replacement cost 150 Finished goods, Closing Balance 71200 units Rs, Per unit| Material consumed 220 Direct labour 60 Direct overhead 40 Total Fixed overhead for the year was Rs. 2,00,000 on normal capacity of 20,000 units Calculate the value of the closing stock, when i) Net Realizable Value of the Finished Goods Y is Rs. 400. ) Net Realizable Value of the Finished Goods Y is Rs. 300. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 17(F 98851 25025/26 www.mastermindsindia.com | AS-3: CASH FLOW STATEMENT PART 4: PROBLEMS 1. Classify the following activities as (a) Operating activities, (b) Investing activities, (c) Financing activities, (d) Cash equivalents, with reference to As 3 (Revised) [M19 (0) - 5M] a, Brokerage paid on purchase of investments Underwriting commission paid Trading commission received Proceeds from sale of investment Purchase of goodwill Redemption of preference shares Rent received from property held as investment Interest paid on long-term borrowings i, Marketable securities j. Refund of income tax received Fosse aggs 2. Classify the following activities as [M18 (N)- 5M] (i) Operating Activities, (i) Investing activities, (ii) Financial activities and (iv) Cash Equivalents. a) Cash receipts from Trade Receivables b) Marketable Securities ¢) Purchase of investment a) eds from long term borrowings e) Wages and Salaries paid overdraft 9) Purchase of Goodwill iterim dividend paid on equity shares i) Short term Deposits S§ Underwriting commission paid 3. Howwill you disclose following items while 46 for the year ended 31st March, 20187 i) 10% Debentures issued jy Cash Flow Statement of Gagan Ltd. as per AS-3, [M18 (0) - 5M] 3 on 01-04-2017 Rs. 1,10,000 ‘As on 31-03-2018 Rs. 77,000 ji) Debentures were redeemed at 5% premium at the end of the year. Premium was charged to the Profit & Loss Account for the year. i) Unpaid Interest on Debentures: As on 01-04-2017 Rs. 275 As on 31-03-2018 Rs. 1,175 iv) Debtors of Rs. 38,000 were written off against the Provision for Doubtful Debts A/c during the year. v) 10% Bonds (Investments): As on 01-04-2017 Rs. 3,50,000 As on 31-03-2018 Rs. 3,50,000 vi) Accrued Interest on Investments: As on 31-03-2018 Rs. 10,500 4, Explain the terms ‘cash’ and ‘cash equivalent for the purpose of Cash Flow Statement as per AS-3. [M17 (0)- 5m] Ruby Exports had a bank balance of USD 25,000, stated in books at Rs. 16,76,250 using the rate of exchange Rs. 67.05 per USD prevailing on the date of receipt of dollars. However, on the balance sheet date, the closing rate of exchange was Rs. 67.80 and the bank balance had to be restated at Rs. 16,95,000, Comment on the effect of change in bank balance due to exchange rate fluctuation and also discuss howit will be disclosed in Cash Flow Statement of Ruby Exports with reference to AS-3. 5. Classify the following activities as per AS 3 Cash Flow Statement: i) Interest paid by financial enterprise ii) Dividend paid CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 18(No.1 tor cAICWA & MECICEC. MASTER MINDS } Tax deducted at source on interest received from subsidiary company iv) Deposit with Bank for a term of two years v) Insurance claim received towards loss of machinery by fire vi) Bad debts vnitten off Which activity does the purchase of business falls under and whether netting off of aggregate cash flows from disposal and acquisition of business units is possible? [M16 (0) - 4m] 6. Prepare Cash Flow from Investing Activities of M/s. Creative S Fumishings Limited for the year ended 313-45. [M45 (0) - 5M] Particulars. Rs. Plant acquired by the issue of 6% Debentures 1,56,000) Claim received for loss of plant in fire 49,600) Unsecured loan given to subsidiaries 4,85,000 Interest on loan received from subsidiaries Company 82,500) Pre-acquisition dividend received on investment made 62,400) Debenture interest paid 116,000) Term loan repaid 4,25,000 Interest received on investment (TDS of Rs.8,200 was deducted on the above interest) 68,000) Book value of plant sold (loss incurred Rs.9,600) 84,000) 7. Intelligent Ltd., a non-financial company has the following entries in its Bank Account. It has sought your advice on the treatment of the same for preparing, low statement [M14 (0) - 4M] a) Loans and Advances given to the following and ned on them: ili) to its subsidiaries companies b) Investment made in subsidiary Sm ¢) Dividend paid for the year d) TDS on interest income eamed on vestments made e) TDS on interest eamed on advance given to suppliers f)_ Insurance claim received against loss of fixed asset by fire. Discuss in the context of AS 3 Cash Flow Statement. AS-10 (REVISED): PROPERTY, PLANT AND EQUIPMENT ’) to suppliers ii) to employees QS & and dividend received PART 4: PROBLEMS 1. In the year 2017-18, an entity has acquired a new freehold building with a useful life of 25 years for Rs. 45,00,000. The entity desires to calculate the depreciation charge per annum using a straight line method. It has identified the following components (with no residual value of lifts & fixtures at the end of their useful life) as follows: [M19 (0) - 5M] Component Useful life (Years) | Cost (Rs.) Land Infinite 70,00,000 Roof 25 5,00,000 Lifts 10 2,50,000 Fixtures 5 2,50,000 Remainder of building 25 25,00,000 45,00,000 i) Calculate depreciation for the year 2017-18 as per componentization method. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 19(F 98851 25025/26 www.mastermindsindia.com | ii) Also state the treatment, in case Roof requires replacement at the end of its useful life 2. Neon Enterprise operates a major chain of restaurants located in different cities. The company has acquired a new restaurant located at Chandigarh. The new-restaurant requires significant renovation expenditure. Management expects that the renovations will last for 3 months during which the restaurant will be closed. [N18 (N)- 5M] Management has prepared the following budget for this period: Salaries of the staff engaged in preparation of restaurant before its opening Rs. 7,50,000 Construction and remodeling cost of restaurant Rs. 30,00,000 Explain the treatment of these expenditures as per the provisions of AS 10 "Property, Plant and Equipment’ 3. Shrishti Ltd. contracted with a supplier to purchase machinery which is to be installed in its Department A in three months’ time. Special foundations were required for the machinery which were to be prepared within this supply lead time. The cost of the site preparation and laying foundations were Rs. 141,870. These activities were supervised by a technician during the entire period, who is employed for this purpose of Rs. 45,000 per month. The technician’s services were given by Department B to Department A, which billed the services at Rs. 49,500 per month after adding 10% profit margin. [N18 (0) - 5M] ‘The machine was purchased at Rs. 1,58,34,000 inclusive of IGST @ 12% for which input credit is available to Shrishti Ltd. Rs. 55,770 transportation charges were incurred to bring the machine to the factory site. An Architect was appointed at a fee of Rs. 30,000 to supervise machinery installation at the factory site. Also, payment under the invoice was due in § months. 3rd month. The company operates on Bank Overdraft XW) p.a. Ascertain the amount at which the Machinery show pitalized under AS 10 4, ABC Ltd. is instaling a new plant atts producti provides you following information:[N17 (0) - 4M] Cost of the plant (cost as per supplier's Rs. 31,25,000 Estimated dismantling costs to be ing@yegafier 5 years Rs. 2,50,000 Initial Operating losses before compass production Rs. 3,75,000 Initial delivery and handling costs Rs. 1,85,000 Cost of site preparation Rs. 4,50,000 Consultants used for advice on the acquisition of the plant Rs. 6,50,000 Please advise ABC Ltd. on the costs that can be capitalised for plant in accordance with AS 10: Property, Plant and Equipment. 5. Hema Ltd. purchased a machinery on 1.04.2008 for Rs.15,00,000. The company charged straight line depreciation based on 15 years working life estimate and residual value Rs.3,00,000. At the beginning of the 4th year, the company by way of systematic evaluation revalued the machinery upward by 20% of net book value as on date and also re-estimated the useful life as 7 years and scrap value as nil The increase in net book value was credited directly to revaluation reserves. Deprecation (on SLM basis) later on was charged to Profit & Loss Account. At the beginning of 8th year the company decided to dispose off the machinery and estimated the realizable value to Rs.2,00,000[N16 (0) - 5M] You are required to ascertain the amount to be charged to Profit & Loss Account at the beginning of 8th year with reference to AS-10. 6. A machinery with a useful life of 6 years was purchased on ‘st April, 2012 for Rs. 1,50,000. Depreciation was provided on straight line method for first three years considering a residual value of 10% of cost. IN15 (0) - 5M] In the beginning of fourth year the company reassessed the remaining useful life of the machinery at 4 years and residual value was estimated at 5% of original cost. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 1.10(No.1 tor cAICWA & MECICEC. MASTER MINDS } The accountant recalculated the revised depreciation historically and charged the difference to profit and loss account. You are required to comment on the treatment by accountant and calculate the depreciation to be charged for the fourth year. 7. Briefly explain the treatment of following items as per relevant accounting standards: [N15 (0) - 5M] i) The accountant of Star Limited valued the Goodwill of the company at Rs. 50 lakhs and showed the same as Fixed Asset in Balance Sheet. The corresponding credit was given to Reserves. ii) An expense of Rs. 5 crores was incurred on a Machine towards its Repairs and Maintenance. The accountant wants to capitalize the same considering the significance of amount spent. i) A plant was ready for commercial production on 01.04.2014 but could commence actual production only on 01.06.2014, The company incurred Rs. 50 lakhs as administrative expenditure during the period of which 20% was allocable to the plant. The accountant added Rs. 10 lakhs to cost of plant. 8. Mls. Versatile Limited purchased machinery for 4,80,000 (inclusive of excise duty of 40,000). CENVAT credit is available for 50% of the duty paid. The company incurred the following other expenses for installation [M15 (0) - 4m] Particulars Rs. Cost of preparation of site for installation 21,000) Total labour charges 66,000) (200 out of the total of 600 men hours worked, were spent for installation of the machinery) Spare parts and tools consumed in installation 6,000) Total salary of supervisor 24,000) (time spent for installation was 25% of the total time wor Total administrative expenses (1/10 relates to the pla tion) 32,000 Test run and experimental production expenses. SS 23,000, Consultancy Charges to architect for plant setup WN 9,000) Depreciation on assets used for the installation 12,000 Used from 1-2-15 but was used from 1-2-15. Due % incurred, Calculate the value at which the plant tile Limited, The machine was ready for use on 15-1-1 to this delay further expenses of Rs.1 should be capitalized in the books of, 9. In the books of Optic Fiber Ltd., plar ‘machinery stood at Rs. 6,32,000 on 1.4.2013. However on scrutiny it was found that machinery worth Rs. 1,20,000 was included in the purchases on 1.6.2013. (On 30.6.2013 the company disposed a machine having book value of Rs. 1,89,000 on 1.4.2013 at Rs. 1,75,000 in part exchange of a new machine costing Rs. 2,56,000. The company charges depreciation 20% WDV on plant and machinery. You are required to calculate: IN14 (0) - 5M] i) Depreciation to be charged to P/L ii) Book value of Plant and Machinery A/c as on 31.3.2014 Loss on Exchange of Machinery 10. From the following information state the amount to be capitalized as per AS 10. Give the explanations for your answer. IN14 (0) - 4m] i) Rs. 5 lakhs as routine repairs and Rs. 1 lakh on partial replacement of a part of a machine. ii) Rs. 10 lakhs on replacement of part of a machinery which will improve the efficiency of a machine. 11. Ascertain the value at which various items of Fixed Assets are to be shown in the Financial Statements of Velvet Ltd. and amount to be debited to the Profit and Loss Account in the context of the relevant Accounting Standard [M14 (0) - 5M] Narrations for the adjustments made should form part of the answe! i) Goodwill was valued at Rs. 1,20,000 by independent valuers and no consideration was paid. The Company has not yet recorded the same CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 wat(F 98851 25025/26 www.mastermindsindia.com | ii) Balance of Office Equipment as on 01.04.2013 is Rs. 1,20,000. On 01.04.2013, out of the above office equipment having book value Rs, 20,000 has been retired from use and held for disposal. The net realizable value of the same is Rs. 2,000. Rate of depreciation is 15% p.a. on WDV basis. ili) Book Value of Plant and Machinery as on 01.04.2013 was Rs. 7,20,000. On 01.08.2013 an item of machinery was purchased in exchange for 500 equity shares of face value Rs. 10. The Fair Market value of the equity shares on 01.08.2013 was Rs. 120. Rate of depreciation is 10% p.a. on WDV basis. PART 2: DESCRIPTIVE QUESTIONS 12. Explain ‘Bearer Plant’ & 'Biological Asset’ as per AS-10. [M18 (0) - 5M} AS-11: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES PART 4; PROBLEMS 1. Legal Ltd. is engaged in the manufacturing of rubber. For its plant, it required machines of latest technology. it usually resorts to Long Term Foreign Currency Borrowings for its fund requirements. On 1" April, 2017. It borrowed US41 milion form Intemational Funding Agency, USA when exchange rate was 1$= Rs 63. The funds were used for acquiring machineries on the same date to be used in three different plants. The useful life of the machineries is 10 years and their residual value is R's 30,00,000. [M19 (0) - 5M] Earlier also the company used to purchase machineries out of foreign borrowings. The exchange differences arising on such borrowings were charged to profit and loss account and were not capitalised even though the company had an option to capitalize it as per notified As. 11 Now for this new purchase of machinery, Legal Ltd, is intesgsted to avail the option of capitalizing the same to the cost of asset. Exchange rate on 31st Marct CRyis ‘us $= Rs 62. Assume that on 31st March, 2018, legal Ltd is not having any old long ta GOP n currency borrowings except for the RO RUnge difference to the cost of asset on 3ist jount on machineries as on 31st March, 2018 Comment whether Legal Ltd. can capitalize March, 2018. If yes, then calculate the depre 2 i) ABC Ltd. a Indian Company ob! term loan from WW private Ltd, a U.S. company ‘amounting to Rs. 30,00,000. It d at US $1 = Rs. 60.00, taking exchange rate prevailing at the date of transaction. The exch te on balance sheet date (31.03.2018) was US $1 = Rs. 62.00. IN18 (N) - 5M] ii) Trade receivable includes amount receivable from Preksha Ltd., Rs. 10,00,000 recorded at the prevailing exchange rate on the date of sales, transaction recorded at US $1 = Rs. 59.00. The exchange rate on balance sheet date (31.03.2018) was US $1 = Rs. 62.00. 3. AXE Limited purchased fixed assets costing $ 5,00,000 on ‘st Jan. 2018 from an American company M/s M&M Limited. The amount was payable after 6 months. The company entered into a forward contract on 1st January 2018 for five months @ Rs. 62.50 per dollar. The exchange rate per dollar was as follows: IN18 (N) - 5M] On 4st January, 2018 Rs. 60.75 per dollar On 31st March, 2018 Rs. 63.00 per dollar You are required to state how the profit or loss on forward contract would be recognized in the books of AXE Limited for the year ending 2017-18, as per the provisions of AS 11 4, ABC Ltd. borrowed US $ §,00,000 on 01/07/2017, which was repaid as on 31/07/2017. ABC Ltd prepares financial statement ending on 31/03/2017. Rate of Exchange between reporting currency (INR) and foreign currency (USD) on different dates are as under: [M18 (N)- 5M] 01/01/2017 1 US$ = Rs. 68.50 34/03/2017 1US$ Rs. 69.50 34/07/2017 1US $= Rs. 70.00 You are required to pass necessary journal entries in the books of ABC Ltd. as per AS 11 5. Rahul Ltd. purchased a plant for US$ 2,00,000 on ist January 2017, payable after 5 months Company entered into a forward contract for five months @ Rs. 64.75 per dollar. Exchange rate per CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 1.12(No.1 tor cAICWA & MECICEC. MASTER MINDS } dollar on 1st Jan. 2017 was Rs. 64.25. How will you recognize the profit or loss on forward contract in the books of Rahul Ltd.? IN17 (0) - 4M} 6. Power Track Ltd. purchased a plant for US$ 50,000 on 31st October, 2015 payable after 6 months The company entered into a forward contract for 6 months @Rs. 64.25 per Dollar. On 31st October, 2015, the exchange rate was Rs. 61.50 per Dollar. You are required to recognise the profit or loss on forward contract in the books of the company for the year ended 31st March, 2016, [M16 (0) - 5M] 7. Explain briefly the accounting treatment needed in the following cases as per AS 11 as on 31.3.2015: [N45 (0) - 5M] Sundry Debtors include amount receivable from Umesh Rs. 5,00,000 recorded at the prevailing exchange rate on the date of sales, transaction recorded at US § 1= Rs. 58.50 Long term loan taken from a U.S. Company, amounting to Rs. 60,00,000. It was recorded at US $ 1 = Rs. 55.60, taking exchange rate prevailing at the date of transaction US $ 1 = Rs. 61.20 on 31.3,2016. 8, Stem Ltd, purchased a Plant for US$ 30,000 on 30th November, 2013 payable after 6 months. The company entered into a forward contract for 6 months @ Rs. 62.15 per dollar. On 30th November, 2013; the exchange rate was Rs. 60.75 per dollar. [N14 (0) - 5M] How will you recognise the profit or loss on forward contract in the books of Stem Ltd. for the year ended 31st March, 20147 PART 2: DESCRIPTIVE QUESTIONS 9. With reference to AS 11, define the following: IN16 (0) - 4m] i) Integral Foreign Operation ) Non-Integral Foreign Operation “: 10. What are the indicators of Non-Integral Foreigi Sa (NFO)? IN14 (0) - 4m] fs AS-12: ACCOUNTING FOR GOVERNMENT GRANTS PART1:OBJECTIVE QUESTIONS CS 4. As per the provisions of AS-12, gOSWMent grants in the nature of promoters’ contribution which become refundable should be reduced Wom the capital reserve.(TIF) [M19 (N) - 1M] PART 2: PROBLEMS 2. How would you treat the following in the accounts in accordance with As-12 ‘Government Grants?" [M19 (0) 5™] a) Rs 35 Lakhs received from the local authority for providing medical facilities to the employees. b) Rs 100 Lakhs received as subsidy from the Central Government for setting up a unit in a notified backward area. Rs 10 Lakhs Grant received from the Central Government on installation of ant pollution equipment 3. On 01.04.2014, XYZ Ltd. received Govemment grant of Rs. 100 Lakhs for an acquisition of new machinery costing Rs. 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, [M18 (N) - 5M] The company had to refund the entire grant in 2nd April, 2017 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? 4, Ram Ltd. purchased machinery for Rs. 80 lakhs. (Useful life 4 years and residual value Rs. 8 lakhs). Government grant received is Rs. 32 lakhs. Show the Journal Entry to be passed at the time of refund of grant and the value of the fixed assets in the third year and the amount of depreciation for remaining two years, if [M17 (0) - 5M] i) The grantis credited to Fixed Alc. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 1.13(F 98851 25025/26 www.mastermindsindia.com | ii) The grants credited to Deferred Grant AVc. 5. ABC Lid. purchased fixed assets for Rs. 50,00,000. Goverment grant received towards it is 20% Residual value is Rs. 8,00,000 and useful life is 8 years. Assumed depreciation is on the basis of Straight Line Method, asset is shown in the Balance Sheet net of grant. After one year, grant becomes refundable to the extent of Rs. 7,00,000 due to noncompliance of certain conditions. [M16 (0) - 5M] Pass Journal entries for 2nd year in the books of the company. 6. Mis. A Ltd. has set up its business in a designated backward area with an investment of Rs, 200 Lakhs. The Company is eligible for 25% subsidy and has received Rs. 50 Lakhs from the Government, Explain the treatment of the Capital Subsidy received from the Government in the Books of the ‘Company, [M15 (0) - 4M] PART 2: DESCRIPTIVE QUESTIONS 7. Explain in brief the treatment of Refund of Government Grants in line with AS 12 in the following three situations: [M14 (0) - 4m] i) When Government Grant is related to revenue, ii) When Government Grant is related to specific fixed assets, i) When Government Grant is in the nature of Promoter's contribution, AS-13: ACCOUNTING FOR INVESTMENTS PART1 OBJECTIVE QUESTIONS 4. As per the provision of AS-13, a current investments i jestment that is by its nature is readily realizable and is intended to be held for not more }X months from the date on which such investment is made WS [M 19 (N) - 1M] PART 2: PROBLEMS \ 2, Mother Mart Ltd. wants to re-classify its in to be given in each of the following cas ams length transaction between knoweeg ') A portion of current investmer@RstBhased for Rs. 25 lakhs to be reclassified as long-term investments, as the company M¥Q¥ecided to retain them. The market value as on the date of balance sheet was Rs. 30 Lakhs. ) Another portion of current investments purchased for Rs. 20 lakhs has to be re-classified as long- term investments. The market value of these investments as on the date of the balance sheet was Rs. 12.5 lakhs. ne portion of long-term investments no longer considered for holding purposes, to be reclassified as current investments. The original cost of these was Rs. 15 lakhs, but had been written down to Rs, 11 lakhs to recognize permanent decline as per AS 13 3. On 15" June, 2018, Y limited wants to re-classify its investments in accordance with AS 13 (revised) Decide and state the amount of transfer, based on the following information [M19 (N)- 5M] 1) A portion of long term investments purchased on 1% March, 2017 are to be re classified as current investments. The original cost of these investments was Rs. 14 lakhs but had been written down by Rs. 2 lakhs (to recognize other than temporary dectine in value). The market value of these investments on 15" June, 2018 was Rs. 11 lakhs. 2) Another portion of long term investments purchased on 15" January, 2017 are to be re classified as current investments. The original cost of these investments was Rs. 7 lakhs but had been written down to Rs. 5 lakhs (to recognize other than temporary deciine in value). The fair value of this investment on 15" June, 2018 was Rs. 4.5 lakhs. 3) A portion of current investments purchased on 15" March, 2018 for Rs. 7 lakhs are to be re classified as Jong term investments, as the company has decided to retain them. The market value of these investments on 31% March, 2018 was Rs. 6 lakhs and fair value on 15” June 2018 was Rs. 8.5 lakhs. 4) Another portion of current investments purchased on 7" December, 2017 for Rs. 4 lakhs are to be re Classified as long term investments. The market value of these investments was: CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 114(No.1 tor cAICWA & MECICEC. MASTER MINDS } (On 31" March, 2018 Rs. 3.5 lakhs On 15" June, 2018 Rs. 3.8 lakhs, 4. Sun Ltd. wants to re-classify its investments in accordance with AS-13, State the values at which the investments have to be re-classified as per AS-13 in the following cases: [M18 (0) - 4M) a) Current investments in Company Fine Ltd. costing Rs. 39,000 are to be re-classified as long term investments. The fair value on the date of transfer is Rs. 37,000 b) Long term investment in Company Bold Ltd., costing Rs. 16 lakhs are to be reclassified as current investments. The fair value on the date of transfer is Rs. 15 lakhs and book value is Rs. 16 lakhs 5. How you will deal with following in the financial statement of the Paridhi Electronics Ltd. as on 31.3.16 with reference to AS-13? IN16 (0) - 5M] i) Paridhi Electronics Ltd. invested in the shares of another unlisted company on 1* May 2012 at a cost of Rs.3,00,000 with the intention of holding more than a year. The published accounts of unlisted ‘company received in January, 2016 reveals that the company has incurred cash losses with decline market share and investment of Paridhi Electronics Ltd. may not fetch more than Rs.45,000. ii) Also Paridhi Electronics Ltd. has current investment (X Ltd.'s shares) purchased for Rs.5 lakhs, which the company want to reclassify as long term investment. The market value of these investments as on date of Balance Sheet was Rs. 2.5 lakhs. 6. Mls Active Builders Ltd. invested in the shares of another company on 31st October, 2015 at a cost of Rs. 4,50,000. It also earlier purchased Gold of Rs. 5,00,000 and Silver of Rs. 2,25,000 on 31st March, 2013. Market values as on 31st March, 2016 of the above investments are as follows: [M16 (0) - 5M] Shares Rs. 3,75,000; Gold Rs. 7,50,000 and Silver Rs, 4,35,000 company wants to retain them. The market value on date of transfer is Rs. 12 lakhs. Current investment in Company D, costing Rs. 15 lakhs are to be re-classified as long term. The market value on date of transfer is Rs. 14 Lakhs. AS-16: BORROWING COSTS PART 1: PROBLEMS 4. Mis First Ltd began construction of a new factory building on 1% April, 2017. It obtained Rs. 2,00,000 as a special loan to finance the construction of the factory building on 1 April, 2017 at an interest rate of 8% per annum. Further, expenditure on construction of the factory building was financed through other nonspecific loans, Details of other outstanding nonspecific loans were: [M19 (N) - 5M] Amount (Rs.) Rate of Interest per annum 4,00,000 9% 5,00,000 12% 3,00,000 14% ‘The expenditure that was made on the factory building construction was as follows: Date ‘Amount (Rs.) 1% April, 2017 3,00,000 31 May, 2017 2,40,000 CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 1.45Ph: 98851 25025/26 www.mastermindsindia.com | 4,00,000 3,860,000 17 August, 2017 31" December, 2017 The construction of factory building was completed by 31° March, 2018. As per the provisions of AS — 16, you are required to: ‘© Calculate the amount of interest to be capitalized. Pass Journal entry for capitalizing the cost and borrowing cost in respect of the factory building 2. Rutu Builders Limited has borrowed a sum of USS 20,00,000 at the beginning of Financial year 2017-18 for its residential project at LIBOR +3%. The interest is payable at the end of the financial year. [M18 (0) - 5M] At the time of availment exchange rate was 61 per US $ and the rate as on 31st March, 2018 was 65 per US $. If Rutu Builders Limited had borrowed the loan in India in Indian Rupee equivalent, the pricing of loan would have been @ 10.50%. Compute Borrowing cost and exchange difference for the year ending 31st March, 2018 as per Accounting Standards 16. (Applicable LIBOR is 1%). 3. Small Limited began construction of a building on 1st April, 2016 which is expected to cost Rs 25,00,000. The construction of the building was financed through a special loan of Rs. 10,00,000 obtained at an interest rate of 10% per annum on 1st April, 2016. Further, expenditure on the building was financed through other non-specific finance arrangements of the company. Details of non-specific finance arrangements are as under: IN17 (0) - 5M] ‘Amount (RS.) stPa. 30,00,000 2% 20,00,000 18% Cumulative expenses incurred on the bie OP follows: ee Amount (Rs.) 1st Apri, 2016 Rs. 6,00,000 ‘st July, 2016 Rs. 13,00,000 ‘1st November, 2016 Rs. 20,00,000 3st January, 2017 Rs. 25,00,000 Construction of the building was completed on 31st March, 2017. Following the principles specified in AS 16 ‘Borrowing Cost’, calculate the amount of interest to be capitalized. 4, Mis, Zen Bridge Construction Limited obtained a loan of Rs. 64 crores be utlized as under: [N16 (0) - 5M] i) Construction of Hill link road in Kedamath: (work was held up totally for a month during the year due to heavy rain which are common in the geographic region] Rs. 50 crores involved) ii) Purchase of Equipment and Machineries Rs. 6 crores ili) Working Capital Rs. 4 crores iv) Purchase of Vehicles Rs. 1crore| v) Advances for toolsicranes etc. Rs. 1crore| vi) Purchase of Technical Know-how Rs. 2 crores vii) Total Interest charged by the Bank for the year ending 31st March, 2016 Rs. 1.6 crores ‘Show the treatment of Interest according to Accounting Standard by M/s, Zen Bridge Construction Limited. 5. Shan Builders Limited has borrowed a sum of US $ 10,00,000 at the beginning of Financial Year 2014- 16 for its residential project at LIBOR + 3 %, The interest is payable at the end of the Financial Year. At CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _Gr.I 1.16(No.1 tor cAICWA & MECICEC. MASTER MINDS } the time of availment, exchange rate was Rs. 56 per US $ and the rate as on 31st March, 2015 Rs. 62 per US $. If Shan Builders Limited borrowed the loan in India in Indian Rupee equivalent, the pricing of loan would have been 10.50%. Compute Borrowing Cost and exchange difference for the year ending 31st March, 2015 as per applicable Accounting Standards. (Applicable LIBOR is 1%). [N15 (0) - 5M] 6. Mis. Ayush Ltd. began construction of a new building on 1st January, 2014. It obtained Rs. 3 lakh special loan to finance the construction of the building on 1st January, 2014 at an interest rate of 12% p.a. The company's other outstanding two non-specific loans were: IM45 (0) - 5M] ‘Amount Rate of Interest Rs.6,00,000 11% Rs.11,00,000 13% The expenditure that were made on the building project were as follows: ‘Amount (Rs) January, 2014 300,000 April, 2014 3,50,000 July, 2074 5,50,000 December 2014 1,50,000) Building was completed on 31st December, 2014. Following the principles prescribed in AS 16 “Borrowing Cost’, calculate the amount of interest to be capitalized and pass one Joumal entry for capitalizing the cost and borrowing in respect of the build 7. Suhana Ltd. issued 12% secured debentures of Rs. 4 on 01.05.2013, to be utilized as under: [M14 (0)-5™] Particulars 3). ‘Amount (Rs. in Lakhs) Construction of factory building 40) Purchase of Machinery & 35) Working Capital 25) In March 2014, construction of the fastp¥y building was completed and machinery was installed and ready for its intended use. Total interest on debentures for the financial year ended 31.03.2014 was Rs. 11,00,000. During the year 2013-14, the company had invested idle fund out of money realised from debentures in bank's fixed deposit and had eared an interest of Rs. 2,00,000. ‘Show the treatment of interest under AS 16 and also explain nature of assets, PART 2: DESCRIPTIVE QUESTIONS 8. Write short note on ‘Suspension of Capitalisation’ in context of AS 16. IM46 (0) - 4M] THE END CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS _ Gr.1 1.47(No.1 for CAICWA & MECICEC MASTER MINDS } ACCOUNTING STANDARDS (GROUP - 2) AS-4: CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE PARTI: OBJECTIVE QUESTIONS 1. As per the provisions of AS-4, a contingency is a condition or situation, the ultimate outcome of which (gain ‘or loss) will be known or determined only on the occurrence of one or more uncertain future events (TIF) [M19 (N) - 1M] PART 2: PROBLEMS 2. The financial statements of PQ Ltd, for the Year 2017-18 approved by the Board of Directors on 15" July, 2018. The following information was provided: [M19 (N) - 5M] i) A suit against the company's advertisement was filed by a party on 20" April, 2018, claiming damages of Rs. 25 lakhs ii) The terms and conditions for acquisition of business of another company have been decided by March, 2018. But the financial resources were arranged in April, 2018 and amount invested was Rs. 50 lakhs. i) Theft of cash of Rs. 5 lakhs by the cashier on 31% March, 2018 But was detected on 16" July, 2018. iv) Company sends a proposal to sell an immovable property for Rs. 40 lakhs in March, 2018. The ook value of the property is Rs. 30 lakhs on 31° March, 2018. However, the deed was registered ‘on 15" April, 2018 v) Amajor fire has damaged the assets in a factory on 5” April, 2018. However, the assets are fully insured. With reference to AS — 4 “Contingencies and events occu@ag after the balance sheet date”, state whether the above mentioned events will be treated ingencies, adjusting events or non- adjusting events occurring after the balance sheet RR 3. The accounting year of Dee Limited ended on 31 Soe but the accounts were approved on 30th April, 2018. On 15th April, 2018 a fire occurres "factory and office premises. The loss by fire is of such a magnitude that it was not possible to ie enterprise Dee Limited to start operation again IN18 (N)- 5M] State with reasons, whether the loss. Wire is an adjusting or non- adjusting event and how the fact of loss is to be disclosed by the coMpeiny in the context of the provisions of AS-4 (Revised). 4. The Board of Directors of M/s. New Graphics Ltd. in its Board Meeting held on 18th April, 2017, considered and approved the Audited Financial results along with Auditors Report for the Financial Year ended 31st March, 2017 and recommended a dividend of Rs. 2 per equity share (on 2 crore fully paid up equity shares of Rs. 10 each) for the year ended 31st March, 2017 and if approved by the members at the forthcoming Annual General Meeting of the company on 18th June, 2017, the same will be paid to all the eligible shareholders. [M17 (0) - 5M] Discuss on the accounting treatment and presentation of the said proposed dividend in the annual accounts of the company for the year ended 31st March, 2017 as per the applicable Accounting Standard and other Statutory Requirements. 5. While preparing its final accounts for the year ended 31st March, 2016, a company made provision for bad debts @ 5% of its total debtors. In the last week of February, 2016 a debtor for Rs. 20 lakhs had suffered heavy loss due to an earthquake; the loss was not covered by any insurance policy. In Apri, 2016 the debtor became a bankrupt. Can the company provide for the full loss arising out of insolvency of the debtor in the final accounts for the year ended 31st March, 2016? [N16 (0) - 5M] Comment with reference to relevant Accounting Standard 6. With reference to AS 4 "Contingencies and events occurring after the balance sheet date”, state whether the following events will be treated as contingencies, adjusting events or non-adjusting events occurring after balance sheet in case of a company which follows April to March as its financial year. [M416 (0) - 5M] i) Amajor fire has damaged the assets in a factory on Sth April, 5 days after the year end. However, the assets are fully insured and the books have not been approved by the Directors. ii) A suit against the company's advertisement was filed by a party on 10th April, 10 days after the year end claiming damages of Rs. 20 lakhs. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.188851 25025/26 www.mastermindsindia.com iil) It sends a proposal to purchase an immovable property for Rs. 30 lakhs in March, The book value of the property is Rs. 20 lakhs as on year end date. However, the deed was registered as on 15th April iv) The terms and conditions for acquisition of business of another company have been decided by March end. But the financial resources were arranged in April and amount invested was Rs. 40 lakhs. v) Theft of cash of Rs. 2 lakhs by the cashier on 31st March but was detected the next day after the financial statements have been approved by the Directors. 7. MIS AB Lid is in the process of finalizing its account for the year ended 31% March, 2015. The ‘company seeks your advice on the following IM16 (0)- 5M] i) the company sale tax assessment for assessment year 2012-13 has been completed on 14" Feb 2015 with a demand of Rs 5.40 cr. The company paid the entire due under protest without prejudice to its right of appeal before the appellate authority where in the grounds of appeal cover tax on additions made in the assessment order for a sum of 3.70 cr. ii) The company has entered into a wage agreement in May 2018 where by the labour union has accepted a revision in wage from June2014.The agreement provides that the hike till May 2015 will not be paid to the employees but will be settled to them at the time of retirement The company agrees to deposit the arrears in government Bonds by September 2015, 8. In its Final Accounts for the year ended 31st March, 2014, Z Ltd. made a provision of 3% of its total debtors. On 10th March 2014, a debtor of Rs. 5 lakhs suffered a heavy loss and became insolvent in April 2014. The loss was not insured. [M14 (0)- 5M] State giving reasons, if the company may provide for the full loss in its accounts for the year ended 31st March, 2014. AS-5: NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIO! AND CHANGES IN ACCOUNTING POLICIES PART1:OBJECTIVE QUESTIONS 1. As per the provisions of AS-5, extraordinary it juld not be disclosed in the statement of profit and loss as a part of net profit or loss for the. IF) [M19 (N) - 1M] PART 2: PROBLEMS 2. Shama was working with ABC Ltd. ‘monthly salary of Rs. 25,000 per month. She went on matemity leave with pay for 7 mont ym 1-01-2017 to 31-7-17. Her salary for 3 months was not provided for in financial statementsNghF.Y. 2016-17 due to omission. When she joined after leave period, the whole salary for 7 months was paid to her. You are required to: IN18 (0) - 5M] i) Pass the necessary journal entries in F.Y. 2017-18 to record the above transaction as per accounting standard-5 and state reason for the same. ii) Would the treatment have been different, if Shama was terminated on 01-01-2017 and was reinstated in service by the court w.ef. 01-08-2017 with instruction to pay Shama salary for the intervening period i.e. 1-01- 2017 to 31-07-2017. 3. PQR Lid. is in the process of finalizing its accounts for the year ended 31st March, 2018. The ‘company seeks your advice on the following: [M18 (N)- 5M] i) Goods worth Rs. ,00,000 were destroyed due to flood in September, 2015. A claim was lodged with insurance company. But no entry was passed in the books for insurance claim in the financial year 2015-16. In March, 2018, the claim was passed and the company received a payment of Rs. 3,50,000 against the claim. Explain the treatment of such receipt in final account for the year ended 31st March, 2018. ii) Company created a provision for bad and doubtful debts at 2.5% on debtors in preparing the financial statements for the year 2017-18. ‘Subsequently, on a review of the credit period allowed and financial capacity of the customers, the ‘company decides to increase the provision to 8% on debtors as on 31.03.2018. The accounts were not approved by the Board of Directors til the date of decision. While applying the relevant accounting standard, can this revision be considered as an extra-ordinary iter or prior period item? 4, The Accountant of Mobile Limited has sought your opinion with relevant reasons, whether the following transactions will be treated as change in Accounting Policy or not for the year ended 31° March, 2017. Please advise him in the following situations in accordance with the provisions of relevant Accounting Standard. IN17 (0)- 5M] CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS. Gr.II 1.19No.f for CAICWA & MEGICEC. MASTER MINDS i) Provision for doubiful debts was created @ 2% till 31st March, 2016. From the Financial year 2016-2017, the rate of provision has been changed to 3%. ) During the year ended 31% March, 2017, the management has introduced a formal gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement. iii) Till the previous year the furniture was depreciated on straight line basis over a period of 5 years. From current year, the useful life of furniture has been changed to 3 years. iv) Management decided to pay pension to those employees who have retired after completing 5 years of service in the organization. Such employees will get pension of Rs. 20,000 per month. Earlier there was no such scheme of pension in the organization, v) During the year ended 31% March, 2017, there was change in cost formula in measuring the cost of inventories, 5. Mls. Shishir Ltd., a public Sector Company, provides consultancy and engineering services to its clients. In the year 2014-15, the Government set up a commission to decide about the pay revision. The pay will be revised with respect from 1-1-2012 based on the recommendations of the commission. The company makes the provision of Rs.1250 lakhs for pay revision in the financial year 2014-15 on the estimated basis as there port of the commission is yet to come. As per the contracts with client on cost plus job, the billing is done on the actual payment made to the employees and allocated to jobs based on hours booked by these employees on each job. IM15 (0)- 5M] ‘The company discloses through notes to accounts: “Salaries and benefits include the provision of Rs.1,250 lakhs in respect of pay revision. The amount chargeable from reimbursable jobs willbe billed as per the contract when the actual payment is made.” The Accountant feels that the company should also bookirecognize the income by Rs. 1250 lakhs in Profit & Loss Account as per the terms of the contract. 2" it will be the violation of matching concept & understatement of profit. Comment on the oj of the Accountant with reference to relevant Accounting Standards. 6. Give two examples on each of the following items: S IN14 (0)- 4M] i) Change in Accounting Policy i) QSChange in Accounting Estimate iii) Extra Ordinary Items Prior Period Items AS-7: CONSTRUCTION CONTRACTS PART 1: PROBLEMS Ay 4. on tst December 2017, GR ConstructiON Co Lid. undertook a contract a building for RS.45 Lakhs .on 31st March, 2018, the company found that it had spent Rs.32.50 Lakhs on the Construction. Additional cost of completion is estimated at Rs.15.10 lakhs What amount should be charged to revenue in the final Accounts for the year ended 31st march , 2018 as per provisions for AS-7? [M19 (N) - 2.5M] 2. AP Ltd., a construction contractor, undertakes the construction of commercial Complex for kay Ltd. AP Ltd submitted separate Proposals for each of 3 units of commercial Complex . A single agreement is entered into between the two parties . The agreement lays down the value of each of the 3 units , ie. RS.50 Lakh, Rs.60lakh and RS.75 Lakh respectively Agreement also lays down the completion time for each unit. Comment ,with reference to AS-7, whether AP Ltd., Should treat it as a single contract or three separate contracts [M19 (N) - 25M] 3. Mls Action Construction Company Ltd. undertook a fixed price construction contract to construct a building within 3 years time for Rs. 10,000 lakhs. IN18 (0) - 5M] ‘A summary of the financial data during the construction period is as follows: (Rs. lakhs) Particulars Year-4 |Year-2 |Year-3, Initial amount for revenue agreed in contract 40,000] 10,000] 10,000 ‘Variation in Revenue (+) -[ 500] 1000 Contract costs incurred upto the reporting date 2415] 6375| 8500 Estimated profit for whole contract 1950] 2000] 2500 The variation in cost and revenue in year 2 and 3 has been approved by customer. Determine the stage of completion of contract and amount of revenue expenses and profit or loss to be recognised in the statement of Profit and Loss for three years as per AS-7 (Revised). CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.208851 25025/26 www.mastermindsindia.com 4. Sarita Construction Co, obtained a contract for construction of a dam. The following details are available in records of company for the year ended 31% March, 2018: [M18 (N)- 5M] Particulars Rs. In Lakhs Total Contract Price 12,000 Work Certified 6,250 Work not certified 1,250 Estimated further cost to completion 8,750 Progress payment received 5,500 Progress payment to be received 1,500 Applying the provisions of AS 7 "Accounting for Construction Contracts”. you are required to compute: a) ProfitiLoss for the year ended 31% March, 2018. b) Contract work in progress as at end of financial year 2017-18. 6) Revenue to be recognized out of the total contract value d) Amount due fromito customers as at the year end. 5. Akar Ltd. Signed on 01/04/16, a construction contract for Rs. 1,50,00,000. Following particulars are extracted in respect of contract, for the period ending 31/03/17. IM17 (0)- 5M] © Materials issued Rs. 75,00,000 + Labour charges paid Rs. 36,00,000 © Hire charges of plant Rs. 10,00,000 @ © Other contract cost incurred Rs. 15,00,000 SS \S + Qutof material issued, material ying unused ate@RRW of period is Rs. 4,00,000 © Labour charges of Rs. 2,00,000 are stil out SY ’on 313.17 + Itis estimated that by spending further You are required to compute profitloss jof4&eNeaRen to Profit & Loss Account and additional provision for foreseeable loss as per AS-7. S 6. GTI Ltd, negotiates with Bharat Og Outlet Stations". Based on proposSp”submitted to different Regional Offices of BOCL, the final approval for one outlet each in Region X, Region Y, Region Z is awarded to GTI Ltd. A single agreement is entered into between two, The agreement lays down values for each of the three outlets i.e. Rs.102 lacs, Rs.160 lacs, Rs.130 lacs for Region X, Region Y, Region Z respectively. Agreement also lays down completion time for each Region IN16 (0) - 5M] ‘Comment whether GT! Lid. will treat it as single contract or three separate contracts with reference to AS-7? 7. Uday Constructions undertake to construct a bridge for the Government of Uttar Pradesh, The construction commenced during the financial year ending 31.03.16 and is likely to be completed by the next financial year. The contract is for a fixed price of Rs. 12 crores with an escalation clause. The costs to complete the whole contract are estimated at Rs. 9.50 crores of rupees, You are given the following information for the year ended 31.03.16: [M16 (0) - 5M] Cost incurred upto 31.03.2016 Rs. 4 crores Cost estimated to complete the contract Rs. 6 crores Escalation in cost by 5% and accordingly the contract price is increased by 5%. You are required to ascertain the state of completion and state the revenue and profit to be recognized for the year as per AS-7. 8. A construction contractor has a fixed price contract for Rs.9,000 lacs to 5 build a bridge in 3 years’ time frame. A summary of some of the financial data is as under: IM15 (0)- 5M] Year 1|Year2 |Year3 Initial Amount for revenue agreed in contract 9,000) 9,000] _ 9,000 (Variation in Revenue (+) [200] 200 Contracts costs incurred up to the reporting date 2093 6168"| 8100" Estimated profit for whole contract 950| 1000/1000 CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS. Gr.II 1.21No.f for CAICWA & MEGICEC. MASTER MINDS “Includes Rs 100 lacs for standard materials stored at the site to be used in year 3 to complete the work “Excludes Rs 100.lacs for standard material brought forward from year 2. The variation in cost and revenue in year 2 has been approved by customer Compute year wise amount Rs.100 Lacs of revenue, expenses, contract cost to complete and profit or loss to be recognized in the Statement of Profit and Loss as per AS-7 (revised), AS-9: REVENUE RECOGNITION PART 4: PROBLEMS 4. on 1st December 2017, GR Construction Co Ltd. undertook a contract a building for RS.45 Lakhs .on 31st March, 2018, the company found that it had spent Rs.32.50 Lakhs on the Construction. Additional cost of completion is estimated at Rs.15.10 lakhs What amount should be charged to revenue in the final Accounts for the year ended 31st march , 2018 as per provisions for AS-7? [M19 (N) - 5M] 2. Goods worth Rs. 6,62,500 were sold on 31.10.2017 by X Ltd. to Y Ltd. Y Ltd. requested for a trade discount of 8% which was agreed by X Ltd, The sale was effected and goods were dispatched, However, on receipt of the goods, Y Ltd. found that goods worth Rs. 77,500 were damaged Consequently, Y Ltd. retumed the damaged goods to X Ltd. and made the due payment amounting to Rs. 5,32,000. The accountant of X Ltd. booked the sale for Rs. 5,32,000. IN18 (0) - 5M] Discuss the above treatment by the accountant with reference to applicable Accounting Standard. 3. Fashion Limited is engaged in manufacturing of readymade garments. They provide you the following information on 31st March, 2017: IN17 (0) - 5M} i) On 15th January, 2017 garments worth Rs. 4,00,000 wer which 25% garments unsold were lying with Anand as, ii) Garments worth Rs. 1,95,000 were sold to Shine. of Shine Boutique, these were delivered on 15t ent to Anand on consignment basis of st March, 2017. on 2th March, 2017 but at the request 1017. iii) On 1st November, 2016 garments worth R; 1800 were sold on approval basis. The period of approval was 4 months after which they fered sold. Buyer sent approval for 75% goods up to 31st December, 2016 and no a fr disapproval received for the remaining goods till 31st March, 2017. Ss You are required to advise the accOQwnt of Fashion Limited, the amount to be recognised as revenue in above cases in the context oPAS 9, 4, Raj Ltd. entered into an agreement with Heena Ltd. to dispatch goods valuing Rs. 5,00,000 every month for next 6 months on receipt of entire payment. Heena Ltd. accordingly made the entire payment of Rs. 30,00,000 and Raj Ltd. Stated dispatching the goods. In fourth month, due to fire in premise of Heena Ltd, Heena Ltd. requested to Raj Ltd. not to dispatch goods worth Rs. 15,00,000 ready for dispatch. Raj Ltd. accounted Rs. 15,00,000 as sales and transferred the balance to Advance received against Sales account. ‘Comment upon the above treatment by Raj Ltd. With reference to the provision of AS-9, [M17 (0) - 5M] 5. Amanufacturing company has the following stages of production and sale in manufacturing Fine paper rolls: IN46 (0) - 5M] Costto | Net Realizable pate) Date (Rs.) | __Value (Rs.) 15.1.46 [Raw Material 1,00,000) 80,000 201.16 [Pulp (WIP 1) 1,20,000) 41,20,000 274.16 [Rough & thick paper (WIP 2) 7,50,000) 4,80,000 152.16 _ |Fine Paper Rolls, 1,80,000) 3,50,000 202.16 _|Ready for sale 1,80,000) 350,000 15.3.16 _ | Sale agreed and invoice raised 2,00,000 3,50,000 02.4.16 [Delivered and paid for 2,00,000 3,50,000 Explain the stage on which you think revenue will be generated and state how much would be net profit for year ending 31.3.16 on this product according to AS-9 CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.228851 25025/26 www.mastermindsindia.com 6. M/s Umang Ltd. sold goods through its agent. As per terms of sales, consideration is payable within ‘one month. In the event of delay in payment, interest is chargeable @ 12% p.a. from the agent. The company has not realized interest from the agent in the past. For the year ended 31st March, 2015, interest due from agent (because of delay in payment) amounts to Rs. 1,72,000. The accountant of M/s Umang Ltd. booked Rs. 1,72,000 as interest income in the year ended 31st March, 2015. Discuss the contention of the accountant with reference to AS-9. IN15 (0) - 5M] 7. Given the following information of M/S. Paper Products Ltd, IM15 (0)- 4m] i) Goods of RS.60,000 were sold on 20-03-2015 but at the request of the buyer these were delivered on 10-04-2016. ii) On 15-01-2015 goods of RS.1,50,000 were sent on consignment basis of which 20% of the goods unsold are lying with the consignee as on 31-03-2016. RS.1,20,000 worth of goods were sold on approval basis on 1-12-2014.The period of approval was 3 months after which they were considered sold. Buyer sent for approval 75% goods up to 31-01- 2015 and no approval or disapproval received for the remaining goods till 31-03-2015. iv) Apart from the above , the company has made cash sales of RS.7,80,000 (gross). Trade discount of 5% was allowed on the cash sales You are required to advise ,the accountant of Mis. papers Products Ltd., with valid reasons, the amount to be recognized as revenue in above cases in the context of AS-9 and also determine the total revenue to be recognized for the year ending 31-03-2015. 8. Sarita Publications publishes a monthly magazine on th space in the magazine to advertisers on the terms of, balance within 30 days of the release of the publicati was made in February 2014. The magazine was, 18th of every month. It sells advertising fale value payable in advance and the sale of space for the March 2014 issue fed on its scheduled date. It received Rs. fe March 2014 issue. IN14 (0) - 5M] venue to be recognized and the treatment of the iding 31.03.2014. What will be the treatment if the S WI AS-14: ACCOUNTING FOR AMALGAMATION PART 4: PROBLEMS 4. On 1* April, 2018, Tina Ltd. take over the business of Rina Ltd. and discharged purchase consideration as follows’ IN18 (N) - 5M] i) Issued 50,000 fully paid Equity shares of Rs. 10 each at a premium of Rs. 5 per share to the equity shareholders of Rina Ltd. amount received from advertisers for the publication is delayed till 2.4.2014? ) Cash payment of Rs. 50,000 was made to equity shareholders of Rina Lid ii) Issued 2,000 fully paid 12% Preference shares of Rs. 100 each at par to discharge the preference shareholders of Rina Ltd. iv) Debentures of Rina Ltd. (Rs. 1,20,000) will be converted into equal number and amount of 10% debentures of Tina Ltd, Calculate the amount of Purchase consideration as per AS-14 and pass Journal Entry relating to discharge of purchase consideration in the books of Tina Ltd. 2. Som Ltd, agreed to takeover Dove Ltd. on 1% April, 2018. The terms and conditions of takeover were as follows: [M18 (0) - 5m] i) Som Ltd. issued 56,000 equity shares of Rs. 100 each at a premium of Rs. 15 per share to the equity shareholders of Dove Ltd ) Cash payment of Rs. 39,000 was made to equity shareholders of Dove Ltd. 24,000 fully paid preference shares of Rs, 50 each issued at par to discharge the preference shareholders of Dove Ltd, iv) The 8% Debentures of Dove Ltd. (Rs. 78,000) converted into equivalent value of 9% debentures in Som Ltd CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS. Gr.II 1.23No.f for CAICWA & MEGICEC. MASTER MINDS v) The actual cost of liquidation of Dove Ltd. was Rs. 23,000. Liquidation cost is to be reimbursed by ‘Som Ltd, to the extent of Rs. 15,000, You are required to: a) Calculate the amount of purchase consideration as per the provisions of AS-14 and b) Pass Journal Entry relating to discharge of purchase consideration in books of Som Ltd. 3. Anjana Ltd. is absorbed by Sanjana Ltd.; the consideration being the takeover of liabilities, the payment of cost of absorption not exceeding Rs. 10,000 (actual cost Rs. 9,000) the payment of the 9% debentures of Rs, 50,000 at a premium of 20% in 8% debentures issued at a premium of 25% at face value and the payment of Rs. 15 per share in cash and allotment of three 11% preference share of Rs. 10 each at a discount of 10% and four equity share of Rs. 10 each. at a premium of 20% fully paid for every five shares in Anjana Ltd. The number of share of the vendor company are 1,50,000 of Rs. 10 each fully paid Calculate purchase consideration as per Accounting Standard 14. [M16 (0) - 4m] PART 2: DESCRIPTIVE QUESTIONS 4, Describe the conditions to be satisfied for Amalgamation in the nature of merger as per AS-14 IN15 (0)- 4M] AS-17: SEGMENT REPORTING PART 1: PROBLEMS 1. M/s Nathan Limited has three segments namely P, Q and R. The assets of the company are Rs. 15 crores. Segment P has 4 crores, Segment Q has 6 crores and Segment R has 5 crores. Deferred tax assets included in the assets of each segment are P - Rs. 1 crore, Q - Rs. 0.90 crores and R - Rs. 0.80 crores. The accountant contends all these three segments are reportable segments. Comment. [M18 (N) - 5M] TED PARTY DISCLOSURES PART 4: PROBLEMS 4. Identify the related parties in the following cas (I) Maya Ltd. holds 61% shares of sheetal Sheetal Ltd, holds 51% of shares of Fair Care Ltd, holds 49% shares of Fair Li (give your answer Reporting Entity wise Yor Maya Ltd., Sheetal Ltd. care Ltd, and Fair Ltd.) Mr. Subhash Kumar is Managing Director of A ltd. and also holds 72% capital B Ltd (B Lid. is subsidiary of A Ltd.) 2. Following transactions are disclosed as on 31st March, 2018 IN18 (N) - 5M] i) Mr. Sumit, a relative of Managing Director, received remuneration of Rs. 2,10,000 for his services in the company for the period from 1™ April, 2017 to 30" June, 2017. He left the service on 1* July, 2017. Should the relative be identified as a related party as on closing date i.e. on 31-3-2018 for the Purpose of AS-18. ) Goods sold amounting to Rs. 50 lakhs to associate company during the 1st quarter ended on 30th June, 2017. After that related party relationship ceased to exist. However, goods were supplied as was supplied to any other ordinary customer. Decide whether transactions of the entire year have to be disclosed as related party transactions. AS-19: LEASES [M19 (N)- 5M] PART 4: PROBLEMS 4. Sun Limited leased a machine to Moon Limited on the following terms: [M19 (0) - 5M] ‘Amount Fair value at inception of lease '50,00,000 Lease term 4 Years Lease rental per annum 16,00,000 Guaranteed residual value 3,00,000 CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.248851 25025/26 www.mastermindsindia.com Expected residual value 4,50,000 Implicit Interest rate 15% Discounted rates for 1* year, 2" Year, 3 year and 4" year are 0,8696, 0.7561, 0.6575, 0.5718 respectively. Calculate the value of the lase liability and ascertain unearned finance income as per As-19 2. Jaya Ltd. Took a machine on lease from Deluxe Ltd,, the fair value being Rs.11,50,000. [M19 (N)- 5M] Economic life of the machine as well as lease term is 4 years .At the end of each year, lessee pays RS.3,50,000 to lessor. jaya Ltd. has guaranteed a residual value of RS.70,000 on expiry of the lease to deluxe Ltd., however Deluxe Ltd. estimates that residual value will be only RS.25,000. The implicit rate of return is 10% p.a.and present value factors at 10% are: 0.909, 0.826, 0.751 and 0.683 at the end of 1st, 2nd, 3rd and 4th year Respectively. Calculate the value of machinery to be considered by Jaya Ltd. and the value of the lease liability as per AS-19 3. Amachine was given on 3 years operating lease by a dealer of the machine for equal annual lease rentals to yield 30% profit margin on cost Rs. 1,50,000. Economic life of the machine is 5 years and output from the machine are estimated as 40,000 units, 50,000 units, 60,000 units, 80,000 units and 70,000 units consecutively for 5 years. Straight line depreciation in proportion of output is considered appropriate, Compute the following: IN18 (0) - 5M] i) Annual Lease Rent ) Lease Rent income to be recognized in each operating year and ili) Depreciation for 3 years of lease. 4, ALtd, sold JCB having WDV of Rs. 20 lakhs to B Ltd, 24 lakhs and the same JCB was leased back by B Ltd. to A Ltd. The lease is operating SS ntext of Accounting Standard 19 "Leases" explain the accounting treatment of profit or loss i Oks of A Lid. if [M18 (N)- 5M] i) Sale price of Rs. 24 lakhs is equal to fair ii) Fair value is Rs. 20 lakhs and sale prigg® i) Fair value is Rs. 22 lakhs and sale @fayRs. 25 lakhs iv) Fair value is Rs. 25 lakhs and se@QNCS is Rs. 16 lakhs v) Fair value is Rs. 18 lakhs and saldSprice is Rs. 19 lakhs. 5. Ram Ltd. sold a machine having WDV of Rs. 125 lakhs to Shyam Ltd. for Rs. 150 lakhs and the same machine was leased back by Shyam Ltd. to Ram Ltd. under Operating lease system: [M18 (O) - 5M] Comment according to relevant Accounting Standard if: i) Sale price of Rs. 150 lakhs. is equal to fair value ) Fair value is Rs. 125 lakhs and Sale price is Rs. 112.50 lakhs. iii) Fair value is Rs. 137.50 lakhs and Sale price is Rs. 155 lakhs iv) Fair value is Rs. 112.50 lakhs and Sale price is Rs. 120 lakhs. 6. ABC Lid. took a machine on lease from XYZ Ltd., the fair value being Rs. 10,00,000. The economic life of the machine as well as the lease term is 4 years. At the end of each year, ABC Ltd. pays Rs. 3,50,000. The lessee has guaranteed a residual value of Rs. 50,000 on expiry of the lease to the lessor. However, XYZ Lid. estimates that the residential value of the machinery will be Rs. 35,000 only. The implicit rate of return is 16% and PV factors at 16% for year 1, year 2, year 3 and year 4 are 0.8621, 0.7432, 0.6407 and 0.5523, respectively. You are required to calculate the value of machinery to be considered by ABC Ltd. and the finance charges for each year. [M17 (0)- 5M] 7. Aksat Intemational Limited has given a machinery on lease for 36 months, and its useful life is 60 months. Cost & fair market value of the machinery is Rs. 5,00,000. The amount will be paid in 3 equal annual installments and the lessee will retune the machinery to lessor at termination of lease. The unguaranteed residual value at the end of 3 years is Rs. 50,000. IRR of investment is 10% and present value of annuity factory of Rs. 1 due at the end of 3 years at 10% IRR is 2.4868 and present value of Rs. 1 due at the end of 3rd year at 10% IRR is 0.7513, [N15 (0) - 5M] You are required to comment with reason whether the lease constitute finance lease or operating lease. If itis finance lease, calculate unearned finance income. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS. Gr.II 1.25No.1 for CA/CWA & MECICEC MASTER MINDS 8. Amachine having expected useful life of 6 years, is leased for 4 years. Both the cost and the fair value of the machinery are Rs. 7,00,000. The amount will be paid in 4 equal installments and at the termination of lease, lessor will get back the machinery. The unguaranteed residual value at the end of the 4th year is Rs. 70,000. The IRR of the investment is 10%. The present value of annuity factor of Rs. 1 due at the end of 4th year at 10% IRR is 3.169. The present value of Rs. 1 due at the end of 4th year at 10% rate of interest is 0.683. IN14 (0) - 5M] State with reasons whether the lease constitutes finance lease and also compute the uneamed finance income PART 2: DESCRIPTIVE QUESTIONS 9. State any four situations when a lease would be classified as Finance Lease [M15 (0) - 4M] AS-20: EARNINGS PER SHARE PART 4: PROBLEMS 1. Net profit for FY 2016-17 Rs. 30,00,000 [M19 (0)- 5M] Net profit for FY 2017-18 Rs. 50,00,000 No. of shares outstanding prior to rights issue Rs. 20,00,000 shares Rights issue price Rs 201- Last day to exercise rights ‘1st June, 2017 Right issue is one new share for each five equity share outstanding (i.e. 40,00,000 new shares) Fair value of one equity share immediately prior to exercise of rights on 1st June, 2017 was Rs. 26.00 Compute Basic earings per share for FY 2016-17, FY 2017-1@and Restated EPS for FY 2016-17. 2. From the following information given by Sampark Ltd., Cal sis EPS and Diluted EPS as per AS 20: IN18 (N) - 5M] Particulars, ‘Amount Net Profit for the current year 23 2,50,00,000 No. of Equity Shares Outstanding '50,00,000 No. of 12% convertible debentures of Rs (@ee8ch 50,000) Each debenture is convertible into 8 Eg fares Interest expense for the current year 6,00,000 Tax saving relating to interest expense (30%) 1,80,000) 3. As at 1st April, 2016 a company had 6,00,000 equity shares of Rs. 10 each (Rs. 5 paid up by all shareholders). On 1st September, 2016 the remaining Rs. 5 was called up and paid by all shareholders except one shareholder having 60,000 equity shares. The net profit for the year ended 31st March, 2017 was Rs. 21,96,000 after considering dividend on preference shares and dividend distribution tax on such dividend totalling to Rs. 3,40,000. [M18 (N) - 5M] Compute Basic EPS for the year ended 31st March, 2017 as per Accounting Standard 20 "Eamings Per Share”. 4. From the following information compute Basic and Diluted Earnings Per Share (EPS) of M/s. XYZ Limited for the year ended 31st March, 2017: IN17 (0)- 5M] Net Profit for the year after tax: Rs. 75,00,000 Number of Equity Shares of Rs. 10 each outstanding: Rs. 10,00,000 Convertible Debentures Issued by the Company Particulars Nos. 8% Convertible Debentures of Rs. 100 each 7,00,000) Equity Shares to be issued on conversion 1,40,000) Rate of Income Tax: 30%. 5. “While calculating diluted EPS, effect is given to all dilutive potential equity shares that were outstanding during the period.” Explain this statement in the light of relevant AS. Also calculate the diluted EPS from the following information IN16 (0) - 5M] CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.26h: 98851 25025/26 www.mastermindsindia.com Net Profit for the current year (After Tax) Rs. 1,00,00,000 No. of Equity shares outstanding 10,00,000 No. of 10% Fully Convertible Debentures of Rs. 100 each 1,00,000) (Each Debenture is compulsorily & fully convertible into 10 equity shares) Debenture interest expense for the current year Rs. 5,00,000) [Assume applicable Income Tax rate @ 30% 6. What do you mean by “Weighted average number of equity shares outstanding during the period” and why is it required to be calculated? Compute weighted average number of equity shares in the following case: IN15 (0) - 4M] Date Particulars No. of shares Ast April, 2014 Balance of Equity Share 5,00,000 30th June, 2014 [Balance Shares issued for cash 1,00,000. 15th January, 2015 |Equity Shares bought back 50,000 31st March, 2015 [Balance of Equity Shares 5,50,000 7. Mls. A Ltd, had 8,00,000 Equity Shares outstanding on 1st April, 2013. The Company eared a profit of Rs. 20,00,000 during the year 2013-14. The average fair value per share during 2013-14 was Rs. 40. The Company has given Share Option to its employees of 1,00,000 Equity Shares at option price of Rs. 20. Calculate Basic EPS and Diluted EPS. [M15 (0)- 5M] 8. In the following list of shares issued, for the purpose of calculation of weighted average number of shares, from which date weight is to be considered: &y [N14 (0) - 4m] i) Equity Shares issued in exchange of cash, eilestient of a lability of the enterprise, BS to the enterprise, Also define Potential Equity Share. AS-22: ACCOUNTING FOR TAXES ON INCOME PART 1: DESCRIPTIVE QUESTIONS 4. Write short note on timing difference and permanent difference as per AS22 [M19 (N)- 5M] 2, How is Minimum Altemative Tax (MAT) to be presented in the financial statements? [M18 (N) - 5M] PART 2: PROBLEMS 3. Rohit Ltd. has provided the following information [M13 (N) - 5M] Particulars Amount Depreciation as per accounting records 2,50,000 Depreciation as per tax records 5,50,000 Unamortised preliminary expenses as per tax record 40,000 There is adequate evidence of future profit sufficiency. How much deferred tax assets/liability should be recognized as transition adjustment when the tax rate is 50%? AS-24: DISCONTINUING OPERATIONS PART 4; DESCRIPTIVE QUESTIONS 1. What are the initial disclosure requirements of AS 24 for discontinuing operations? IN18 (N)- 5M] CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS. Gr.II 1.27No.1 for CAICWA & MECICEG MASTER MINDS AS-26: INTANGIBLE ASSETS PART 1: PROBLEMS 1. During 2016-17, an enterprise incurred costs to develop produce a routine low risk computer software produet, as follows IM19 (0) - 5M] Particular Rs Completion of detailed program and design (Phase |) 50,000) Coding and Testing (Phase 2) 40,000) Other Coding Costs(Phase 384) 63,000) Testing costs (Phase 384) 18,000 Product masters for training materials9Phase 5) 19,500 Packing the product (1,500) (Phase 6) 16,500 After completion of phase 2, it was established that the product is technically feasible for the market. You are required to state how the above referred cost to e recognised in the books of accounts. 2. RC Lid. is showing an intangible asset at Rs. 72 lakhs as on 31-3-18, This asset was acquired for Rs. 120 lakhs as on 01-04-12 and the same was used from that date. The company has been following the policy of amortization of the intangible assets over a period of 15 years, on straight line basis, IN18 (0)- 5M] Comment on the accounting treatment of asset with reference to AS- 26 and also give the necessary rectification joumal entry. 3. Acompany acquired a patent at a cost of Rs. 160 lakhs for a period of 5 years and the product lfe cycle is also 5 years. The company capitalized the cost and started arpgrtsing the asset at Rs. 16 lakhs per year based on the economic benefits derived from the product tured under the patent. After 2 years it was found that the product life cycle may continue for ang Years from then (the patent is renewable and the company can get it renewed after 5 years). T ssh flows from the product during these 5 years were expected to be Rs. 50 lakhs, Rs. 30 lakh 0 lakhs, Rs. 70 lakhs and Rs. 40 lakhs. Find ‘out the amortization cost of the patent for each of [M18 (N) - 5M] 4. A.company acquired patent right for Rs. 120, The product life cycle has been estimated to be 5 years and the amortization was decided in io of estimated future cash flows which are as under: Year 1 2 3 4 5 Estimated future cash flows (Rs. in ay 600 600 600 300 300 After 3rd year, it was ascertained that the patent would have an estimated balance future life of 3 years and the estimated cash flow after Sth year is expected to be Rs. 150 lakhs. Determine the amortization under Accounting Standard 26. IM18 (0)- 5M] 5. Fast Ltd, acquired a patent at a cost of Rs. 40,00,000 for a period of five years and its product life- cycle is also five years. The company capitalized the cost and started amortising the asset at Rs. 5,00,000 per annum. After two years, it was found that the product life-cycle may continue for another 5 years from then. The net cash flows from the product during these 5 years are expected to be Rs. 18,00,000, Rs. 23,00,000, Rs. 22,00,000, Rs. 20,00,000 and Rs. 17,00,000. Find out the amortization cost of the patent for each of the years. [M17 (0)- 5M] 6. ACompany with a tumover of Rs. 375 crores and an annual advertising budget of Rs. 3 crores had taken up the marketing of a new product. It was estimated that the company would have a tumover of Rs. 37.5 crores from the new product. The company had debited to its Profit and Loss account the total expenditure of Rs. 3 crores incurred on extensive special intial advertisement camipaign for the new product. [N16 (0) - 5M] Is the procedure adopted by the Company correct? 7. M/s. Mahesh Ltd. is developing a new production process. During the Financial Year ended 31st March, 2013, the total expenditure incurred on the process was Rs.60 lacs. The production process met the criteria for recognition as an intangible asset on 1 December, 2012. Expenditure incurred til this date was Rs. 32 lacs. IM15 (0) - 5M] Further expenditure incurred on the process for the Financial Year ending 31st March, 2014 was Rs. 90 lacs, As on 31-03-2014, the recoverable account of know-how embodied in the process is estimated to be Rs. 82 lacs. This includes estimates of future cash outflows and inflows CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.288851 25025/26 www.mastermindsindia.com You are required to work out: i) Whats the expenditure to be charged to Profit & Loss Account for the year ended''st March, 2013? ii) What is the carrying amount of the intangible asset as on 31st March, 20137 i) What is the expenditure to be charged to Profit & Loss Account for the year ended 31" March, 2014? iv) What is the carrying amount of the intangible asset as on 31st March, 20147 8. Accompany is showing an intangible asset at Rs. 88 lakhs as on 01.04.2013. This asset was acquired for Rs, 120 lakhs on 01.04.2009 and the same was available for use from that date. The company has been following the policy of amortization of the intangible assets over a period of 15 years on straight line basis. Comment on the accounting treatment of the above with reference to the relevant AS. [N14 (O)- 5M] AS-29: PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS PART 4: PROBLEMS 1. With reference to AS-29, how would you deal with the following in the annual accounts of the company atthe Balance Sheet dates: IN18 (0) - 5M] i) An organization operates an offshore oilfield where its licensing agreement requires it to remove the oil rig at the end of production and restore the seabed. Ninety percent of the eventual costs relate to the removal of the oil rig and restoration of damage caused by building it, and ten percent arise through the extraction of oil, At the balance sheet date, the rig has been constructed but no oil has been extracted, ii) During 2016-17 Ace Ltd. gives a guarantee of certai condition at that time is sound. During 2017-18, t and at 31st Dec, 2017 it goes into Liquidation. (B: borrowings of Brew Ltd,, whose financial 2. A.Ltd. manufactures engineering goods, provid Sales warranty for 2 years to its customers. Based on past experience, the company hi following the policy for making provision for warranties on the invoice amount, on the rerp@hsiee Balance warranty period [M18 (0) - 5m) Less than 1 year. 2% provision More than 1 year: 3% provision Invoice Date Amount 19th January, 2016 80,000 29th January, 2017 50,000 15th October, 2017, 180,000) Calculate the provision to be made for warranty under Accounting Standard 29 as at 31st March, 2017 and 31st March, 2018, Also compute amount to be debited to Profit and Loss Account for the year ended 31st March, 2018. 3. Legal department of XYZ Limited provides that as on 31st March 2017, there were 25 law suits pending which have not been settled til the approval of accounts by the Board of Directors. The possible outcome of suits are follows: IN17 (0) - 5M] Particulars Probability Loss (Rs.) In respect of Seven cases (Win) 100% Next Twelve cases (Win) 60% Loss (Low damages) 30% 1,50,000 Loss (High damages) 10% 2,50,000 Remaining Six cases (Win) | 50% Loss (Low damages) 35% 1,25,000 Loss (High damages) 15% 3,00,000 Outcome of each case is to be taken as a separate one. Ascertain the amount of contingent loss to be reported in the Financial Statement. CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS. Gr.II 1.29No.f for CAICWA & MEGICEC. MASTER MINDS 4, Mis. XYZ Lid. is in a dispute with a competitor company. The dispute is regarding alleged infringement of Copyrights. The competitor has filed a suit in the court of law seeking damages of Rs. 200 lacs. [N16 (0) - amy The Directors are of the view that the claim can be successfully resisted by the Company, How would the matter be dealt in the annual accounts of the Company in the light of AS 29? Explain in brief giving reasons for your answer. 5. AB Ltd. is in the process of finalizing its account for the year ended 31% March, 2015. The company seeks your advice on the following: IM16 (0) - 5M] i) The company’s sale tax assessment for assessment year 2012-13 has been completed on 14th February, 2015 with a demand of Rs. 5.40 crore. The company paid the entire due under protest without prejudice to its right of appeal. The company files its appeal before the appellate authority wherein the grounds of appeal cover tax on additions made in the assessment order fora sum of RS. 3.70 crore. i) The company has entered into a wage agreement in May 2015 whereby the labour union has accepted a revision in wage from June 2014, The agreement provides that the hike til May 2015 will not be paid to the employees but will be settled to them at the time of retirement. The company agrees to deposit the arrears in Government Bonds by September 2015. WW Ltd. is in dispute involving allegation of infringement of patents by a competitor company who is seeking damages of a huge sum of Rs. 1,000 Lakhs. The directors are of the opinion that the claim can be successfully resisted by the company. How would you deal the same in the Annual Accounts of the company? IN14 (0) - 5M] PART 2: DESCRIPTIVE QUESTIONS 6. With reference to AS 29 "Provisions, Contingent Liabilities anc, Contingent Assets’, define: [M16 (0)- 4m] i) Provision contingent Asset ii) ALial Ry Present Odigation oS GUIDANCE NOTES PART 4: PROBLEMS ‘Sagar Ltd. has issued convertible bonds for IN18 (N)- 5M] res which are due to mature on 30" September, 2018, While preparing financial statements for the ing 31st March, 2018, company expects that bond holders wil not exercise their option of converting is to equity shares. How should the company classify the convertible bonds as per the requirements of Sthedule-IIlo the Companies Act, 2013 as on 31st March, 2018? Also state, whether classification of convertible Bonds as per Schedule-III to the Companies Act will change if the company expects that convertible bond holders will convert their holdings into equity shares of Sagar Ltd Copyrights Reserved To MASTER MIND: THE END CA INTER_DISCOVER_2e_ACCOUNTING STANDARDS_ Gr.IT 1.30