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Table of Content

1. Q 1 (A) : XYZ Limited has provided you the following information as on 31st March,
2. Q 1 (B) : J Limited availed an equipment on lease from K Limited. The conditions
3. Q 1 (C) : What is the difference between Defined Contribution Plan and Defined 
4. Q 2 : Sustain Limited is incurring losses due to adverse market conditions.
5. Q 3 (A) : An Engineering goods company provides "after sales warranty" for 2
6. Q 3 (B) : Given below are the extracts of the Balance Sheet of BGH Limited:
7. Q 4 : Following are the summarized Balance Sheets of Light Limited and Bright
8. Q 5 : The summarised Balance Sheets of Super Limited and Clear Limited as on 31st
9. Q 6 (A): The following information is provided for the year ended 31st March, 2024
   OR
10. Q 6 (A): Given below is the balance sheet of Sky and Associates as on 31st March
11. Q 6 (B): Following information are available in respect of Z Limited as on 31st
12. Q 6 (C): Give Journal Entries (with Narrations) in the books of an Independent

CA Inter Jan 25 Suggested Answer Other Subjects Blogs :

1. Suggested answer Jan 25 Paper 2 : Corporate and Other Laws 
2. Suggested answer Jan 25 Paper 3 : Taxation
3. Suggested answer Jan 25 Paper 4 : Cost & Management accounting (Coming Soon)
4. Suggetsed answer Jan 25 Paper 5 : Auditing and Ethics (Coming Soon)
5. Suggested answer Jan 25 Paper 6 : Financial Management and Strategic Management (Coming Soon)
6. CA Inter Syllabus (New Update)

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CA Inter Paper Analysis 

Question 1 (A) :

XYZ Limited has provided you the following information as on 31st March, 2024:

Particulars	₹
Net profit (After Tax)	₹31,20,000
No. of shares outstanding as on 31-3-2024 of ₹ 10 each	8,00,000
Average fair value of one equity share during the year 2023-24	₹25
Weighted average no. of shares under option during the year 2023-24	80,000
Exercise price for shares under option during the year 2023-24	₹20
12% Debentures of ₹ 100 each (Each debenture is convertible into 4 equity shares)	₹30,00,000
Tax rate	30%

The company issued one equity share as bonus for every 5 equity shares outstanding as on 1st October, 2023. It further issued 2,00,000 equity shares of ₹ 10 each as on 1st January, 2024. Financial Year of the company ends on 31st March each year.

You are required to calculate Basic and Diluted earnings per share as on 31st March, 2024 (round off your answer to 2 decimal places).

Answer:

EPS Calculation

Understanding the Shares Outstanding

Shares as on 31st March 2024 (Closing): 8,00,000 shares (includes all bonus shares and fresh issue).

Fresh issue on 1st January 2024: Fresh shares issued = 2,00,000.

Shares outstanding as of 31st December 2023 (before fresh issue) = 6,00,000.

Bonus issue on 1st October 2023: 1 share for every 5 shares.

Pre-bonus shares = 5,00,000.

Weighted Average Shares Calculation

Period	Shares Outstanding	Weight	Weighted Shares
1st April 2023 to 31st December 2023 (9 months) (as bonus is considered to be issued on 1st day)	6,00,000	9/12	4,50,000
1st January 2024 to 31st March 2024 (3 months)	8,00,000	3/12	2,00,000
Total			6,50,000

 

Basic EPS Calculation

Net Profit After Tax: ₹31,20,000.

Weighted Average Shares: 6,50,000.

Basic EPS: ₹31,20,000 / 6,50,000 = ₹4.80.

Adjustments for Diluted EPS

Net Profit Adjustment for Convertible Debentures:

Interest saved = ₹3,60,000.

Tax on interest = ₹1,08,000.

Adjusted Net Profit = ₹31,20,000 + ₹3,60,000 - ₹1,08,000 = ₹33,72,000.

Additional Shares:

Convertible Debentures = 30,000*4 = 1,20,000 shares.

Options : Incremental shares = 80,000 less 80000*20/25 = 16,000.

Total Adjusted Weighted Shares = 6,50,000 + 1,20,000 + 16,000 = 7,86,000.

Diluted EPS Calculation

Diluted EPS: ₹33,72,000 / 7,86,000 = ₹4.29.

Final Answer

Basic EPS: ₹4.80

Diluted EPS: ₹4.29

 

Question 1 (B) :

J Limited availed an equipment on lease from K Limited. The conditions of the lease terms are as under:

1. Lease starts from 1st April, 2020 for a period of 4 years and useful life of the equipment is 6 years. Both the cost and fair value of the equipment are ₹ 12,50,000.
2. The equipment reverts back to the lessor on termination of the lease.
3. The unguaranteed residual value is estimated at ₹ 1,20,000 at the end of the financial year 2023-2024.
4. The amount will be paid in 4 equal installments at the end of each year.
5. Consider IRR = 8%.
6. The present value of ₹ 1 at the end of the 4th year at 8% of interest is ₹ 0.735.
7. The present value of annuity of ₹ 1 due at the end of 4th year at 8% IRR is ₹ 3.312.

State whether this lease is Operating lease or Finance lease (by applying two deterministic parameters). Also calculate unearned finance income.

Answer:

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Question 1 (C) :

What is the difference between Defined Contribution Plan and Defined Benefit Plan? From the following information calculate the amount of defined benefit liability/asset:

Answer:

Difference Between Defined Contribution Plan and Defined Benefit Plan

1. Defined Contribution Plan (DCP):

• These are post-employment benefit plans under which an enterprise pays fixed contributions into a separate fund and has no obligation to pay further contributions.
• Actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall on the employee.
• Example: Provident Fund.
• Accounting: The contribution is charged directly to the income statement.

1. Defined Benefit Plan (DBP):

• These are post-employment benefit plans other than defined contribution plans.
• In DBPs, actuarial risk and investment risk fall on the employer.

Accounting: Detailed actuarial calculations are performed to determine the charge.

Recognition of Defined Benefit Liability/Asset

Formula for Recognition in the Balance Sheet

The amount recognized as a defined benefit liability or asset should be the net total of the following amounts:

• (a) The present value of the defined benefit obligation (PVDBO) at the balance sheet date;
• (b) Minus: Past service cost not yet recognized;
• (c) Minus: The fair value of plan assets at the balance sheet date (if any).

Calculation Based on Provided Data

Particulars	₹ in Lakhs
Present Value of Defined Benefit Obligation (PVDBO)	36.0
Past Service Cost Not Yet Recognized	7.5
Fair Value of Plan Assets	38.5
Present Value of Available Future Refund	6.0

Net Defined Benefit Liability/Asset

Using the formula:

Net Defined Benefit Liability/Asset = PVDBO - Past Service Cost Not Yet Recognized - Fair Value of Plan Assets

Substitute the values:

Net Defined Benefit Liability/Asset = 36.0 - 7.5 - 38.5 = -10.0 (Asset)

Adjustment for Future Refund

The Present Value of Available Future Refund is ₹6.0 lakhs. This means the overfunded amount of ₹10.0 lakhs should be limited to the refund available from the plan.

Rule under AS 15

As per AS 15, when the net defined benefit amount results in an asset (i.e., overfunded), the amount recognized as a defined benefit asset should not exceed the present value of available future refunds or reductions in future contributions to the plan. This ensures that only realizable benefits are reflected in the Balance Sheet.

Final Recognition

Defined Benefit Asset to Be Recognized: The net defined benefit asset is limited to ₹6.0 lakhs, as the refund available restricts recognition.

Balance Sheet Disclosure: The enterprise should recognize ₹6.0 lakhs as a Defined Benefit Asset in its Balance Sheet.

 

Question 2 :

Sustain Limited is incurring losses due to adverse market conditions. It decided to reorganize its capital structure. The summarized Balance Sheet of the company as on 31st March, 2024 is as follows:

Notes to accounts

Subsequent to approval by court and all interested parties, the following scheme of reconstruction were agreed:

1. Uncalled capital is to be called up in full and such shares and other fully paid-up equity shares to be reduced to ₹ 5 per share.
2. The preference shareholders will accept a reduction of ₹ 2.5 per share, in exchange the rate of dividend is to be increased to 9%.
3. Preference shareholders will forgo their claim of dividend for one year and one equity share of ₹ 5 each is to be issued for the remaining arrears of dividend.
   
4. Mr. X holds 10% debentures for ₹ 2,50,000. He is also a creditor for ₹ 50,000. He agreed to cancel 50% of his total debt, including interest on debentures, pay ₹ 20,000 to the company, and to receive new 12% debentures for the balance amount.
   
5. The remaining claim of the debenture holders, including outstanding interest, to be reduced to 60%. In consideration of the reduction, the debenture holders are to receive new 9% preference shares at new face value.
   
6. The taxation liability is to be settled at ₹ 1,20,000.
   
7. Market value of Non-current Investments is ₹ 2,50,000. Investments to be brought to their market value.
   
8. Inventory equal to ₹ 1,00,000 at book value will be taken over by remaining creditors in full settlement of their claim.
   
9. A bad debt provision of 2% is to be created on trade receivables.
   
10. Plant and Machinery is to be written down by 20%.
    
11. The company will further issue 12% debentures for such amount which is sufficient to pay off bank overdraft and other outstanding liabilities and maintain its cash/bank balance at ₹ 85,000.
    
12. The amount available by the scheme shall be utilized in writing off Goodwill, debit balance of profit and loss a/c and balance of inventory.

You are required to:
(a) Show the journal entries, necessary to record the above transaction in the company’s books and
(b) Prepare a note to show revised Share capital structure of the company after completion of the scheme.

Answer:

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Question 3 (A) :

An Engineering goods company provides "after sales warranty" for 2 years to its customers. Based on the past experience, the company has been following policy for making provision for warranties on the Invoice amount on the remaining balance warranty period:

• Invoice less than 1 year : 2.5% provision
• Invoice more than 1 year : 4.5% provision

The Company has raised Invoices as under:

You are required to:

1. Calculate the provision to be made for warranty under AS 29 as at 31st March, 2023 and 31st March, 2024.
2. Also compute the amount to be debited to Profit and Loss Account for the year ended 31st March, 2024.

Answer:

Provision for Warranty Calculation

Understanding Warranty Rates and Remaining Periods

The warranty provision is calculated based on the remaining warranty period for each invoice:

• Less than 1 year remaining: A provision of 2.5% is applied to the invoice amount.
• More than 1 year remaining: A provision of 4.5% is applied to the invoice amount.
• Expired Warranty: No provision is made for invoices where the 2-year warranty period has elapsed.

The remaining warranty period is calculated by comparing the invoice date to the current date (e.g., 31st March 2023 or 31st March 2024).

Step 1: Provision as at 31st March, 2023

Invoice Date	Invoice Amount (₹)	Warranty Period Remaining	Applicable Rate	Provision (₹)
20th February, 2021	42,000	Expired (> 2 years)	No provision	0
17th July, 2021	25,000	< 1 year remaining	2.5%	625
27th January, 2022	47,000	< 1 year remaining	2.5%	1,175
1st March, 2023	1,10,000	> 1 year remaining	4.5%	4,950
Total Provision as of 31-03-2023				6,750

Step 2: Provision as at 31st March, 2024

Invoice Date	Invoice Amount (₹)	Warranty Period Remaining	Applicable Rate	Provision (₹)
20th February, 2021	42,000	Expired (> 2 years)	No provision	0
17th July, 2021	25,000	Expired (> 2 years)	No provision	0
27th January, 2022	47,000	Expired (> 2 years)	No provision	0
1st March, 2023	1,10,000	< 1 year remaining	2.5%	2,750
24th August, 2023	34,000	> 1 year remaining	4.5%	1,530
20th March, 2024	75,000	> 1 year remaining	4.5%	3,375
Total Provision as of 31-03-2024				7,655

Step 3: Profit and Loss Account for Year Ended 31st March, 2024

The amount debited to the Profit and Loss Account is the increase in provision during the year:

Increase in Provision = Provision as of 31-03-2024 - Provision as of 31-03-2023
Increase in Provision = ₹7,655 - ₹6,750 = ₹905.

Final Answer

• Provision as at 31st March, 2023: ₹6,750
• Provision as at 31st March, 2024: ₹7,655
• Amount debited to Profit and Loss Account for the year ended 31st March, 2024: ₹905

 

Question 3 (B) :

Given below are the extracts of the Balance Sheet of BGH Limited:

You are required to prepare for the year ended 31st March, 2024:

1. Cash Flow from Operating Activities;
2. Cash Flow from Financing Activities.

Answer:

Cash Flow Statement for BGH Limited

(For the year ended 31st March, 2024)

1. Cash Flow from Operating Activities (CFOA)

Particulars	Amount (₹)
Net Profit before Working Capital Changes	50,000
Adjustments for Non-Cash/Non-Operating Items:
Amortization of Goodwill	30,000
Working Capital Adjustments:
Decrease in Trade Receivables	30,000
Increase in Inventory	(25,000)
Decrease in Trade Payables	(15,000)
Increase in Interest Payable	25,000
Less: Dividend Paid (Previous Year's Dividend Payable)	(50,000)
Net Cash Flow from Operating Activities	45,000

2. Cash Flow from Financing Activities (CFFA)

Particulars	Amount (₹)
Proceeds from Issue of Share Capital	1,00,000
Proceeds from Issue of Debentures	1,00,000
Increase in Bank Loan	50,000
Less: Interest Paid (on Bank Loan)	(20,000)
Net Cash Flow from Financing Activities	2,30,000

Summary of Cash Flows

Particulars	Amount (₹)
A. Cash Flow from Operating Activities	45,000
B. Cash Flow from Financing Activities	2,30,000
Net Increase in Cash	2,75,000

 

Note : The interest paid (₹20,000) is classified under financing cash flows, adhering to AS-3 guidelines for non-financial enterprises.

 

Question 4 :

Following are the summarized Balance Sheets of Light Limited and Bright Limited as at 31st March, 2024:

Notes to Accounts:

Other Information:

1. A company Rainbow Limited is formed to acquire the Assets and Liabilities of both the companies. Assets were acquired at book values except Land and Building of Light Limited, which is revalued at ₹ 62 lakhs.
2. Other Assets of Bright Limited are obsolete and are scrapped and sold for ₹ 50,000 by Bright Limited itself before acquisition of its assets and liabilities by Rainbow Limited.
3. Light Limited and Bright Limited will be issued 80,000 and 64,000 equity shares of ₹ 100 each respectively of new company Rainbow Limited in lieu of purchase consideration due to them.

You are required to Prepare:

1. Realisation Account and Equity Shareholders Account in the books of Light Limited and Bright Limited;
2. Opening Balance Sheet of Rainbow Limited as at 31st March, 2024.

Answer:

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Question 5 :

The summarised Balance Sheets of Super Limited and Clear Limited as on 31st March, 2024 is as below:

Notes to Accounts:

Additional Information:

Super Limited holds 75% of Equity Shares in Clear Limited since the incorporation of Clear Limited. 

1. 25% of Trade Receivables of Super Limited is due from Clear Limited.
2. During the year, Super Limited sold inventory costing ₹ 2,90,000 to Clear Limited at a price of 15% above cost. The entire inventory remains unsold with Clear Limited at the end of financial year.

You are required to prepare Consolidated Balance Sheet of Super Limited and Clear Limited as on 31st March, 2024.

Answer:

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Question 6 (A):

The following information is provided for the year ended 31st March, 2024:

(i) AX Limited holds 70% shares of BX Limited
(ii) BX Limited holds 30% shares of CX Limited
(iii) DX Limited holds 40% shares in CX Limited
(iv) DX Limited holds 49% shares in EX Limited

You are required to:
(i) Identify the related parties for the reporting entities – AX Limited, CX Limited, and EX Limited.

(ii) If DX Limited would have sold its investment in EX Limited on 1st October, 2023, but goods were continued to be supplied by DX Limited to EX Limited throughout the year, will this scenario change your answer with respect to any of the reporting entity mentioned in point (i)?

Give reasons for your answer as per AS 18.

Answer:

OR

Question 6 (A):

Given below is the balance sheet of Sky and Associates as on 31st March 2023 :

 

Additional Information:

1. The firm is planning to shut down its business with immediate effect from 1st April, 2024.
   
2. The sale and purchase of the firm for the year 2023-24 amounts to ₹ 8,20,000 and ₹ 6,50,000 respectively.
   
3. The value of Closing Stock as on 31-3-2024 was ₹ 65,000. The net realizable value is estimated at 120% of cost.
   
4. Other expenses for the period amount to ₹ 25,000.
   
5. Deferred expenditure is getting amortized over 5 years starting from 31-3-2022.
   
6. The remaining life of Machinery is expected to be 3 years. The realizable value of Machine is expected at ₹ 1,65,000, an expense of ₹ 5,000 is to be incurred to realize the same.
7. Out of trade receivables, ₹ 5,000 is expected to be unrealizable due to an ongoing dispute.
   
8. Bank has charged a penalty of ₹ 2,500 for crossing the overdraft limit.
   
9. The lender has agreed to forgo 50% of interest charge for the year.
   
10. The firm is expecting a discount of ₹ 4,000 from creditors at the time of full and final settlement.
    

You are required to prepare a Profit & Loss A/c for the year ended 31st March, 2024 to ascertain its Profit/Loss for the period.

Answer:

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Question 6 (B):

Following information are available in respect of Z Limited as on 31st March, 2024:

• 4,00,000 Equity share capital of ₹ 10 each: ₹ 40,00,000
• Capital Reserve: ₹ 20,00,000
• Revenue Reserve: ₹ 50,00,000
• Securities Premium: ₹ 6,00,000
• Profit and Loss Account: ₹ 19,00,000
• Inc\vestments:  ₹ 40,00,000

The company decides to buy back 20% of its Equity capital @ ₹ 15 per share on 1st April, 2024. Buy back is as per provisions of the Companies Act and company passed the necessary resolutions for it. For this purpose, it sold its investments of ₹ 40 lakhs for ₹ 32 lakhs.

You are required to pass the necessary journal entries.

Answer:

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Question 6 (C):

Give Journal Entries (with Narrations) in the books of an Independent Branch of a business entity to rectify or adjust the following:

(i) Commission (income) of ₹ 7,500 allocated to Branch by Head office but still no entry is passed in the books of Branch.

(ii) Head office paid ₹ 12,000 directly to one of Branch’s suppliers. The intimation is received by Branch on reconciliation of bank statement of Branch with its books.

(iii) A remittance of ₹ 85,000 is sent by Branch to Head office has not been received by Head office till date.

(iv) Branch paid ₹ 9,800 as salary to Head office’s employee, but the amount paid has been wrongly debited to salary account.

(v) Branch purchased Furniture for ₹ 18,000 through cheque, but the Furniture account was retained in Head Office Books. No entry has yet been passed.

(vi) Branch incurred ₹ 5,500 of expenses on behalf of other Branches of Head office, this transaction was not recorded in the books of Branch.

Answer:

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