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QUESTION PAPER
Adv. Accounting Duration: 95
Details: Test 4 [Ch-3, 6,7 and 15] Marks: 50
Instructions:
All the questions are compulsory
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Q-1 During the year, QA Ltd. delivered manufactured products to customer K. The products
were faulty and on 1st October, 2023 customer K commenced legal action against the
Company claiming damages in respect of losses due to the supply of faulty product. Upon
investigating the matter, QA Ltd. discovered that the products were faulty due to defective
raw material procured from supplier F. Therefore, on 1st December, 2023, the Company
commenced legal action against F claiming damages in respect of the supply of defective
raw materials.
QA Ltd. has estimated that it's probability of success of both legal actions, the action of K
against QA Ltd. and action of QA Ltd. against F, is very high.
On 1st October, 2023, QA Ltd. has estimated that the damages it would have to pay K would
be Rs. 5 crore. This estimate was revised to Rs. 5.2 crore as on 31st March, 2024 and Rs. 5.25
crore as at 15th May, 2024. This case was eventually settled on 1 st June, 2022, when the
Company paid damages of Rs. 5.3 crore to K.
On 1st December, 2023, QA Ltd. had estimated that it would receive damages of Rs. 3.5
crore from F. This estimate was revised to Rs. 3.6 crore as at 31st March, 2024 and Rs. 3.7
crore as on 15th May, 2024. This case was eventually settled on 1st June, 2022 when F paid
Rs. 3.75 crore to QA Ltd. QA Ltd. had, in its financial statements for the year ended 31 st
March, 2024, provided Rs. 3.6 crore as the financial statements were approved by the Board
of Directors on 26th April, 2024.
(i) Whether the Company is required to make provision for the claim from customer K as per
applicable AS? If yes, please give the rationale for the same.
(ii) If the answer to (a) above is yes, what is the entry to be passed in the books of account
as on 31st March, 2024?
(iii) What will the accounting treatment of the action of QA Ltd. against supplier F as per
applicable AS?
(8 Marks)
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Q-2
(i) Jared Limited purchased a Machine for US $ 20,000 on 31 st December, 2021 payable after
four months. It entered into a forward contract for four months @Rs. 78.85 per US $. On
31st December, 2021 the exchange rate was Rs. 77.50 per US $.
How will you recognize the Profit or Loss on Forward Contract for the year ended 31 st
March, 2022 in the books of Jared Limited?
(ii) Trade Payables of Jared Limited includes amount due to Sterling Limited Rs. 9,75,000
recorded at the prevailing exchange rate on the date of purchase; transaction recorded at
US $ 1 = Rs. 75.00. The exchange rate on Balance Sheet date (31 st March,2022) was US $ 1 =
79.00 The payment was made on 1st May,2022 when the exchange rate was US $ 1 = Rs.
78.30.
You are required to calculate the amount of exchange difference on 31 st March, 2022 and 1st
May, 2022 and also explain the accounting treatment needed in the above case as per AS 11
in the books of Jared Limited.
(8 Marks)
Q-3 Pendora Ltd. has given the following details in respect of employee benefit pension
plan:
Particulars Amount (Rs.)
The fair value of plan assets as on 01-04-2023 5,00,000
The benefits paid out on 30-11-2023 63,000
Inward contributions received on 30-09-2023 1,42,000
The fair value of plan assets as on 31-03-2024 7,50,000
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On 01.04.2023, the company made following estimates, based on its market studies and
prevailing prices:
Particulars %
Interest and dividend income (after tax) payable by fund 10.50%
Realised gains on plan assets (after tax) 2.00%
Fund administrative costs -2.00%
Expected rate of annual return (Interest is compounded annually) 10.50%
You are required to find the expected and actual returns on plan assets as on 31.03.2024 as
per AS 15.
(8 Marks)
Q-4 (a) State with reasons, how the following events would be dealt with in the financial
statements of Hari Ltd. for the year ended 31st March, 2024 (accounts were approved on
25th July, 2024):
(1) Negotiations with another company for acquisition of its business was started on 21 st
January, 2024. Hari Ltd. invested Rs. 40 lakh on 22nd April, 2024.
(2) The company made a provision for bad debts @ 4% of its total debtors (as per trend
followed from the previous years). In the second week of March 2024, a debtor for Rs.
2,50,000 had suffered heavy loss due to an earthquake; the loss was not covered by any
insurance policy. In May, 2024 the debtor became bankrupt.
(3) During the year 2023-24, Hari Ltd. was sued by a competitor for Rs. 13 lakhs for
infringement of a trademark. Based on the advice of the company's legal counsel, Hari Ltd.
provided for a sum of Rs. 8 lakhs in its financial statements for the year ended 31st March,
2024. On 26th May, 2024, the Court decided in favour of the party alleging infringement of
the trademark and ordered Hari Ltd. to pay the aggrieved party a sum of Rs. 12 lakhs.
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(4) Cashier of Hari Ltd. embezzled cash amounting to Rs. 3,00,000 during March, 2024.
However the same comes to the notice of Company management during August, 2024.
(5) Cheques dated 31st March, 2024 collected in the month of April, 2024. All cheques are
presented to the bank in the month of April, 2024 and are also realized in the same month
in the normal course after deposit in the bank.
(5 Marks)
Q-5(a) Smart Limited is an Indian Company and has its Branch at New York. The following
balances in respect of Smart Limited's USA Branch office are provided:
(i) Debit Balances (in USD):
Particulars Amount
Expenditure (excluding Depreciation) 1,03,095
Cash & Bank Balances 2,175
Debtors 7,365
Fixed Assets (Gross) (Rate of Depreciation on Fixed Assets: 20%) 34,200
Inventory - Stock 'P' 5,520
Inventory - Stock 'Q' 1,035
(ii) Credit Balances (in USD)
Particulars Amount
Incomes 1,32,000
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Creditors 15,570
HO Control A/c 5,820
The following additional information is provided:
(1) The average exchange rate during the above financial year was 1 USD = Rs. 56.
(2) The fixed assets were purchased when the exchange rate was 1 USD Rs. 55.
(3) The closing exchange rate on reporting date is 1 USD = Rs. 58.
(4) Stock item 'P' is valued at cost of USD 5,520, purchased when the exchange rate was Rs.
56.50. The present net realizable value of this item is Rs. 2,85,000.
(5) Stock item 'Q' is carried at net realizable value of USD 1,035, but its cost in USD is 1,065,
It was purchased when exchange rate was 1 USD = Rs. 53.
(6) Branch Control Account as per HO books was Rs. 2,66,265.
You are required to show how it will be reflected in the books of Head Office in the form of
Trial Balance, if the USA Branch Office is classified as an Integral Foreign Operation.
(10 Marks)
Q-5(b) Based upon criteria for rating of non-corporate entity, categorize the following as
Level I, Level II and Level III Level IV entities for the purpose of compliance of Accounting
Standards in India.
(a) Rama Textiles whose turnover (excluding other income) exceeds ten Crore but does not
exceed rupees fifty Crore in the immediately preceding accounting year.
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(b) Star Industries is having borrowings (including public deposits) in excess of rupees two
Crore but not in excess of rupees ten Crore at any time during the immediately preceding
accounting year.
(c) Newman Industries is having borrowings (including public deposits) less than rupees fifty
lakh at any time during the immediately preceding accounting year.
(d) SS Finance is a financial institution carrying its business in India since last 10 years.
(e) DD Finance, holding company of SS Finance. (Entity mentioned at Point (v) above)
(f) Reliable Co-op Bank, a co-operative bank, carrying banking operations since last 15 years.
(6 Marks)
Q-6 MCQ’s Question
1. Which of the following statements is correct regarding Ind AS in relation to IFRS?
a) Ind AS fully adopts IFRS without any changes.
b) Ind AS is similar to IFRS but has some carve-outs to make it suitable for the Indian
environment.
c) Ind AS is a completely separate set of standards, not related to IFRS.
d) Ind AS represents a complete divergence from IFRS in all accounting areas.
2. Which of the following correctly defines extraordinary items in accounting?
a) Extraordinary items are income or expenses that arise from events that are expected to
recur frequently and regularly in the ordinary course of business.
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b) Extraordinary items are income or expenses that arise from events that are clearly
distinct from the ordinary activities of the enterprise and are not expected to recur
frequently or regularly.
c) Extraordinary items are income or expenses that are expected to occur on a regular basis
as part of the ordinary business activities.
d) Extraordinary items are income or expenses that arise due to normal operating
conditions and are expected to recur regularly.
3. In the context of foreign branches, which of the following best describes the key
difference between an Integral Foreign Operation (IFO) and a Non-Integral Foreign
Operation (NFO)?
a) IFO is operated independently from the reporting enterprise, while NFO is integrated with
the enterprise.
b) IFO’s activities are a part of the reporting enterprise, while NFO operates independently,
with its own cash flow and transactions in local currency.
c) Both IFO and NFO have no impact on the financial statements of the reporting enterprise.
d) IFO accumulates its own income and expenses in local currency, while NFO operates in
the reporting enterprise’s currency.
4. Which of the following best describes an executory contract?
a) A contract where one party has fully performed its obligations while the other has not.
b) A contract under which neither party has performed any obligations, nor both parties
have partially performed their obligations to an equal extent.
c) A contract that is completed immediately upon signing.
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d) A contract that always results in a provision being recognized in the financial statements.
5. Which of the following statements is true regarding the measurement of current and
deferred taxes?
a) Current tax is measured at the amount expected to be paid to the tax authorities, but
deferred tax assets and liabilities should be discounted to their present value using the
applicable tax rate.
b) Current tax is measured using the applicable tax rates and tax laws, while deferred tax
assets and liabilities are generally measured using tax rates that have been enacted at the
balance sheet date.
c) Deferred tax assets and liabilities should always be measured using announced tax rates
and laws, even if these are not yet enacted.
d) Both current and deferred tax are always measured at the amount expected to be paid to
the taxation authorities, and deferred tax should be discounted to its present value.
(5 x 1 = 5 Marks)
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