CA Jai Chawla
CA INTER
ADVANCED ACCOUNTING
MUST DO QUESTIONS FOR BEFORE EXAM
Total Questions - 151
Compiled by CA. Jai Chawla
V'Smart Academy Page |1
,CA Jai Chawla
INDEX
Sr. Chapter Name Page No. Question
No. of No.
1. AS 1
– Disclosure of Accounting Policies 3 3
2. AS 2
- Valuation of Inventory 5 3
3. AS 4
– Events Occurring after the BS Date 7 4
4. AS 5
– NP for the Period, Prior Period Items & 10 6
Changes in Accounting Policies
5. AS 7 - Construction Contracts 14 3
6. AS 9 – Revenue Recognition 17 5
7. AS 10 – Property, Plant & Equipment 20 5
8. AS 11 - Effects of changes in Foreign Exchange 25 4
Rates
9. AS 12 - Accounting for Government Grants 28 5
10. AS 13 - Accounting for Investments 32 5
11. AS 15 - Employee Benefits 41 4
12. AS 16 - Borrowing Costs 44 4
13. AS 17 – Segment Reporting 48 2
14. AS 18 – Related Party Disclosures 49 4
15. AS 19 – Leases 52 5
16. AS 20 – Earnings Per Share 56 7
17. AS 22 – Accounting for Taxes on Income 61 4
18. AS 23 - Accounting for Investments in Associates 65 7
19. AS 24 – Discontinuing Operations 72 2
20. AS 25 – Interim Financial Reporting 74 6
21. AS 26 - Intangible Assets 78 4
22. AS 27 – Joint Ventures 81 2
23. AS 28 - Impairment of Assets 85 3
24. AS 29 – Provisions, Contingent Liabilities & 88 6
Contingent Assets
25. Preparation of Financial Statements 93 5
26. Cash Flow Statement (AS 3) 108 5
27. Buyback of Securities 116 3
28. Accounting For Reconstruction of Companies 123 4
29. Amalgamation of Companies (AS 14) 132 10
30. Consolidated Financial Statement (AS 21) 158 8
31. Branch 180 10
32. Framework for Preparation & Presentation of FS 196 3
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,CA Jai Chawla
1. AS – 1
DISCLOSURE OF ACCOUNTING POLICIES
Question 1 (Q.AS1.SM.02)
Jagannath Ltd. had made a rights issue of shares in 2012. In the offer document to its members, it had
projected a surplus of ₹40 crores during the accounting year to end on 31st March, 2014. The draft results
for the year, prepared on the hitherto followed accounting policies and presented for perusal of the board
of directors showed a deficit of ₹10 crores. The board in consultation with the managing director, decided
on the following:
(i) Value year-end inventory at works cost (₹50 crores) instead of the hitherto method of valuation of
inventory at prime cost (₹30 crores).
(ii) Provide depreciation for the year on straight line basis on account of substantial additions in gross
block during the year, instead of on the reducing balance method, which was hitherto adopted. As a
consequence, the charge for depreciation at ₹27 crores is lower than the amount of ₹45 crores which
would have been provided had the old method been followed, by ₹18 cores.
(iii) Not to provide for “after sales expenses” during the warranty period. Till the last year, provision at 2%
of sales used to be made under the concept of “matching of costs against revenue” and actual expenses
used to be charged against the provision. The board now decided to account for expenses as and when
actually incurred. Sales during the year total to ₹600 crores.
(iv) Provide for permanent fall in the value of investments - which fall had taken place over the past five
years - the provision being ₹10 crores.
As chief accountant of the company, you are asked by the managing director to draft the notes on accounts
for inclusion in the annual report for 2013-2014.
Solution
As per AS 1, any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be disclosed. In the case of a
change in accounting policies which has a material effect in the current period, the amount by which any
item in the financial statements is affected by such change should also be disclosed to the extent
ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated.
Accordingly, the notes on accounts should properly disclose the change and its effect.
Notes on Accounts:
(i) During the year inventory has been valued at factory cost, against the practice of valuing it at prime
cost as was the practice till last year. This has been done to take cognizance of the more capital-
intensive method of production on account of heavy capital expenditure during the year. As a result of
this change, the year-end inventory has been valued at ₹50 crores and the profit for the year is
increased by ₹20 crores.
(ii) In view of the heavy capital-intensive method of production introduced during the year, the company
has decided to change the method of providing depreciation from reducing balance method to straight
line method. As a result of this change, depreciation has been provided at ₹27 crores which is lower
than the charge which would have been made had the old method and the old rates been applied, by
₹18 crores. To that extent, the profit for the year is increased.
(iii) So far, the company has been providing 2% of sales for meeting “after sales expenses during the
warranty period. With the improved method of production, the probability of defects occurring in the
products has reduced considerably. Hence, the company has decided not to make provision for such
expenses but to account for the same as and when expenses are incurred. Due to this change, the
profit for the year is increased by ₹12 crores than would have been the case if the old policy were to
continue.
The company has decided to provide ₹10 crores for the permanent fall in the value of investments which
has taken place over the period of past five years. The provision so made has reduced the profit disclosed
in the accounts by ₹10 crores.
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Question 2 (Q.AS1.RMP.05: (EXAM Nov18) (MTP May21 & May22))
HIL Ltd. was making provision for non-moving stocks based on no issues having occurred for the last 12
months upto 31.03.2019. The company now wants to change it and make provision based on technical
evaluation during the year ending 31.03.2020. Total value of stock on 31.3.20 is Rs. 120 lakhs. Provision
required based on technical evaluation amounts Rs. 3.00 lakhs. However, provision required based on 12
months (no issues) is Rs. 4.00 lakhs. You are required to discuss the following points in the light of
Accounting Standard (AS)-1:
i. Does this amount to change in accounting policy?
ii. Can the company change the method of accounting?
iii. Explain how it will be disclosed in the annual accounts of HIL Ltd. for the year 2019 -20
SOLUTION
The decision of making provision for non-moving inventories on the basis of technical evaluation does not
amount to change in accounting policy. Accounting policy of a company may require that provision for non-
moving inventories should be made but the basis for making provision will not constitute accounting policy.
The method of estimating the amount of provision may be changed in case a more prudent estimate can be
made.
In the given case, considering the total value of inventory, the change in the amount of required provision
of non-moving inventory from Rs. 4 lakhs to Rs. 3 lakhs is also not material. The disclosure can be made
for such change in the following lines by way of notes to the accounts in the annual accounts of HIL Ltd. for
the year 2019-20 in the following manner:
“The company has provided for non-moving inventories on the basis of technical evaluation unlike preceding
years. Had the same method been followed as in the previous year, the profit for the year and the value of
net assets at the end of the year would have been lower by Rs. 1 lakh.”
Question 3 (Q.AS1.RMP.06: (Exam May23))
You are required to comment on the following cases as per the provisions of Accounting Standard-1
‘Disclosure of Accounting Policies’:
(1) Bee Limited has not complied with AS-2 "Valuation of inventories" and the same is disclosed in the Notes
on Accounts. Management is of the view that the financial statements give a true and fair view as non-
compliance with AS-2 is disclosed.
(2) Cee Limited sold its Office Building for ` 10,00,000 on 1st March, 2023. The buyer has paid the full
amount and taken possession of the building. The book value of the Office Building is ` 4,00,000. On 31st
2023, documentation and legal formalities are pending. The company has not recorded the disposal and the
amount received is shown as an advance.
(3) Dee Limited has prepared its accounts on cash basis and the same is not disclosed.
(4) Jee Limited disclosed significant accounting policies adopted in the preparation of financial statements,
in the Directors' Report.
Solution
(1) As per AS-I disclosure of accounting policies is not a remedy for wrong or inappropriate treatment in
accounting. In the given case the financial statement does not give a true and fair view as they are not in
compliance with AS-2.
(2) Considering the substance over form as per AS-I, documentation and legal formalities represent the form
of the transaction, although the legal title has not been transferred, the economic reality and substance are
that the rights and beneficial interest in the Office Building have been transferred. Therefore, recording of
acquisition/ disposal (by the transferee and transferor respectively) would in substance represent the
transaction entered into.
(3) Accrual is a fundamental accounting assumption. If it is not followed by the company, the facts should
be disclosed under AS-I. Hence the company should disclose the fact that the cash basis of accounting has
been followed in the notes on accounts.
(4) The practice followed by the company is not correct. It should be disclosed as part of financial statements
(The director’s report is not part of financial statements).
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CA INTER
ADVANCED ACCOUNTING
MUST DO QUESTIONS FOR BEFORE EXAM
Total Questions - 151
Compiled by CA. Jai Chawla
V'Smart Academy Page |1
,CA Jai Chawla
INDEX
Sr. Chapter Name Page No. Question
No. of No.
1. AS 1
– Disclosure of Accounting Policies 3 3
2. AS 2
- Valuation of Inventory 5 3
3. AS 4
– Events Occurring after the BS Date 7 4
4. AS 5
– NP for the Period, Prior Period Items & 10 6
Changes in Accounting Policies
5. AS 7 - Construction Contracts 14 3
6. AS 9 – Revenue Recognition 17 5
7. AS 10 – Property, Plant & Equipment 20 5
8. AS 11 - Effects of changes in Foreign Exchange 25 4
Rates
9. AS 12 - Accounting for Government Grants 28 5
10. AS 13 - Accounting for Investments 32 5
11. AS 15 - Employee Benefits 41 4
12. AS 16 - Borrowing Costs 44 4
13. AS 17 – Segment Reporting 48 2
14. AS 18 – Related Party Disclosures 49 4
15. AS 19 – Leases 52 5
16. AS 20 – Earnings Per Share 56 7
17. AS 22 – Accounting for Taxes on Income 61 4
18. AS 23 - Accounting for Investments in Associates 65 7
19. AS 24 – Discontinuing Operations 72 2
20. AS 25 – Interim Financial Reporting 74 6
21. AS 26 - Intangible Assets 78 4
22. AS 27 – Joint Ventures 81 2
23. AS 28 - Impairment of Assets 85 3
24. AS 29 – Provisions, Contingent Liabilities & 88 6
Contingent Assets
25. Preparation of Financial Statements 93 5
26. Cash Flow Statement (AS 3) 108 5
27. Buyback of Securities 116 3
28. Accounting For Reconstruction of Companies 123 4
29. Amalgamation of Companies (AS 14) 132 10
30. Consolidated Financial Statement (AS 21) 158 8
31. Branch 180 10
32. Framework for Preparation & Presentation of FS 196 3
V'Smart Academy Page |2
,CA Jai Chawla
1. AS – 1
DISCLOSURE OF ACCOUNTING POLICIES
Question 1 (Q.AS1.SM.02)
Jagannath Ltd. had made a rights issue of shares in 2012. In the offer document to its members, it had
projected a surplus of ₹40 crores during the accounting year to end on 31st March, 2014. The draft results
for the year, prepared on the hitherto followed accounting policies and presented for perusal of the board
of directors showed a deficit of ₹10 crores. The board in consultation with the managing director, decided
on the following:
(i) Value year-end inventory at works cost (₹50 crores) instead of the hitherto method of valuation of
inventory at prime cost (₹30 crores).
(ii) Provide depreciation for the year on straight line basis on account of substantial additions in gross
block during the year, instead of on the reducing balance method, which was hitherto adopted. As a
consequence, the charge for depreciation at ₹27 crores is lower than the amount of ₹45 crores which
would have been provided had the old method been followed, by ₹18 cores.
(iii) Not to provide for “after sales expenses” during the warranty period. Till the last year, provision at 2%
of sales used to be made under the concept of “matching of costs against revenue” and actual expenses
used to be charged against the provision. The board now decided to account for expenses as and when
actually incurred. Sales during the year total to ₹600 crores.
(iv) Provide for permanent fall in the value of investments - which fall had taken place over the past five
years - the provision being ₹10 crores.
As chief accountant of the company, you are asked by the managing director to draft the notes on accounts
for inclusion in the annual report for 2013-2014.
Solution
As per AS 1, any change in the accounting policies which has a material effect in the current period or
which is reasonably expected to have a material effect in later periods should be disclosed. In the case of a
change in accounting policies which has a material effect in the current period, the amount by which any
item in the financial statements is affected by such change should also be disclosed to the extent
ascertainable. Where such amount is not ascertainable, wholly or in part, the fact should be indicated.
Accordingly, the notes on accounts should properly disclose the change and its effect.
Notes on Accounts:
(i) During the year inventory has been valued at factory cost, against the practice of valuing it at prime
cost as was the practice till last year. This has been done to take cognizance of the more capital-
intensive method of production on account of heavy capital expenditure during the year. As a result of
this change, the year-end inventory has been valued at ₹50 crores and the profit for the year is
increased by ₹20 crores.
(ii) In view of the heavy capital-intensive method of production introduced during the year, the company
has decided to change the method of providing depreciation from reducing balance method to straight
line method. As a result of this change, depreciation has been provided at ₹27 crores which is lower
than the charge which would have been made had the old method and the old rates been applied, by
₹18 crores. To that extent, the profit for the year is increased.
(iii) So far, the company has been providing 2% of sales for meeting “after sales expenses during the
warranty period. With the improved method of production, the probability of defects occurring in the
products has reduced considerably. Hence, the company has decided not to make provision for such
expenses but to account for the same as and when expenses are incurred. Due to this change, the
profit for the year is increased by ₹12 crores than would have been the case if the old policy were to
continue.
The company has decided to provide ₹10 crores for the permanent fall in the value of investments which
has taken place over the period of past five years. The provision so made has reduced the profit disclosed
in the accounts by ₹10 crores.
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Question 2 (Q.AS1.RMP.05: (EXAM Nov18) (MTP May21 & May22))
HIL Ltd. was making provision for non-moving stocks based on no issues having occurred for the last 12
months upto 31.03.2019. The company now wants to change it and make provision based on technical
evaluation during the year ending 31.03.2020. Total value of stock on 31.3.20 is Rs. 120 lakhs. Provision
required based on technical evaluation amounts Rs. 3.00 lakhs. However, provision required based on 12
months (no issues) is Rs. 4.00 lakhs. You are required to discuss the following points in the light of
Accounting Standard (AS)-1:
i. Does this amount to change in accounting policy?
ii. Can the company change the method of accounting?
iii. Explain how it will be disclosed in the annual accounts of HIL Ltd. for the year 2019 -20
SOLUTION
The decision of making provision for non-moving inventories on the basis of technical evaluation does not
amount to change in accounting policy. Accounting policy of a company may require that provision for non-
moving inventories should be made but the basis for making provision will not constitute accounting policy.
The method of estimating the amount of provision may be changed in case a more prudent estimate can be
made.
In the given case, considering the total value of inventory, the change in the amount of required provision
of non-moving inventory from Rs. 4 lakhs to Rs. 3 lakhs is also not material. The disclosure can be made
for such change in the following lines by way of notes to the accounts in the annual accounts of HIL Ltd. for
the year 2019-20 in the following manner:
“The company has provided for non-moving inventories on the basis of technical evaluation unlike preceding
years. Had the same method been followed as in the previous year, the profit for the year and the value of
net assets at the end of the year would have been lower by Rs. 1 lakh.”
Question 3 (Q.AS1.RMP.06: (Exam May23))
You are required to comment on the following cases as per the provisions of Accounting Standard-1
‘Disclosure of Accounting Policies’:
(1) Bee Limited has not complied with AS-2 "Valuation of inventories" and the same is disclosed in the Notes
on Accounts. Management is of the view that the financial statements give a true and fair view as non-
compliance with AS-2 is disclosed.
(2) Cee Limited sold its Office Building for ` 10,00,000 on 1st March, 2023. The buyer has paid the full
amount and taken possession of the building. The book value of the Office Building is ` 4,00,000. On 31st
2023, documentation and legal formalities are pending. The company has not recorded the disposal and the
amount received is shown as an advance.
(3) Dee Limited has prepared its accounts on cash basis and the same is not disclosed.
(4) Jee Limited disclosed significant accounting policies adopted in the preparation of financial statements,
in the Directors' Report.
Solution
(1) As per AS-I disclosure of accounting policies is not a remedy for wrong or inappropriate treatment in
accounting. In the given case the financial statement does not give a true and fair view as they are not in
compliance with AS-2.
(2) Considering the substance over form as per AS-I, documentation and legal formalities represent the form
of the transaction, although the legal title has not been transferred, the economic reality and substance are
that the rights and beneficial interest in the Office Building have been transferred. Therefore, recording of
acquisition/ disposal (by the transferee and transferor respectively) would in substance represent the
transaction entered into.
(3) Accrual is a fundamental accounting assumption. If it is not followed by the company, the facts should
be disclosed under AS-I. Hence the company should disclose the fact that the cash basis of accounting has
been followed in the notes on accounts.
(4) The practice followed by the company is not correct. It should be disclosed as part of financial statements
(The director’s report is not part of financial statements).
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