CMA Inter Suggested Answers | Dec 24 Paper 10 Corporate Accounting and Auditing (CAA)

Table of Contents

1. MCQs
2. 2 (a) P Ltd. issued 6,000 equity shares of ₹10 each payable as ₹3 per share on
3. 2 (b) Akash Ltd. has issued 2,000, 12% convertible debentures of ₹100 each
4. 3 Alpha Ltd. provides the following Trial Balance as on 31st March, 2024:
5. 4 (a) The books of a Bank include a loan of ₹15,00,000 advanced on 31.12.2022
6. 4 (b) The Revenue Account of an Insurance company shows the life assurance
7. 5 (a) Consider the following information:No. of employees (same as the
8. 5 (b) The following figures have been extracted from the books of Y Ltd. for
9. 6 (a) Describe the essential characteristics of a sound internal check system.
10. 6 (b) Illustrate the provisions of Companies Act, 2013 and SEBI Regulations
11. 7 (a) State the differences between Audit report and Audit certificate.
12. 7 (b) Explain, in detail, the Role of NFRA (National Financial Reporting Authority).
13. 8 (a) Mr. A has been appointed as the Auditor of XYZ Co-operative Society for
14. 8 (b) Discuss the provisions of the Companies Act, 2013 regarding appointment of
15. CMA Inter Dec 24 Paper 10 : Corporate Accounting and Auditing detailed analysis

CMA Inter Dec 24 Suggested Answer Other Subjects Blogs :

1. Suggested Answer Dec 24 Paper 5 : Business Laws and Ethics
2. Suggested Answer Dec 24 Paper 6 : Financial Accounting
3. Suggested Answer Dec 24 Paper 7 : Direct and Indirect Taxation
4. Suggested Answer Dec 24 Paper 8 : Cost Accounting (CA)
5. Suggested Answer Dec 24 Paper 9 : Operations Management and Strategic Management
6. Suggested Answer Dec 24 Paper 11 : Financial Management and Business Data Analytics
7. Suggested Answer Dec 24 Paper 12 : Management Accounting
8. CMA Inter Syllabus (New Updates)

Section - A

MCQs

(i) Which of the following is not a statutory book of a company?

1. Register of investments held and their names
2. Annual Returns
3. Register of officers
4. Register of shareholdings of the directors

Answer :

(C) Register of officers

Statutory books are those which a limited company is under statutory obligation to maintain at its registered office as per the provisions of different Sections of the Act. The most important statutory books are: 

(i) Register of Investments held and their names (ii) Register of charges (iii) Register of Members (iv) Register of debenture holders (v) Annual returns (vi) Minutes books (vii)Register of contracts (viii)Register of Directors (ix) Register of shareholdings of the directors (x) Register of loans to companies under the same management (xi) Register of Investment in the shares of other companies.

(ICMAI book page number 6 | This Question is also a part of www.konceptca.com Question Bank)

(ii) Company may purchase its own shares or other specific securities out of

1. Free reserves

2. Securities premium account

3. Proceeds of issue of any shares

4. Proceeds of issue of specified securities

1. 1 and 3 only
2. 1, 2 and 3 only
3. 1, 3 and 4 only
4. 1 or 2 or 3 or 4

Answer :

(D) 1 or 2 or 3 or 4.

Under Section 68 of the Companies Act, 2013, a company may purchase its own shares or specified securities (buy-back) from the following sources:

1. Free Reserves.
2. Securities Premium Account.
3. Proceeds of any shares or other specified securities.

These provisions allow buy-back from any of these sources, making option (D) correct.

(ICMAI book page number 69 | This Question is also a part of www.konceptca.com Question Bank)

(iii) Which of the following is/are not a criteria to classify a liability as current liability?

1. It is expected to be settled in the company’s normal operating cycle.
2. It is held primarily not for the purpose of being traded.
3. It is due to be settled within twelve months after the reporting date.
4. The company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

Answer :

(B) It is held primarily not for the purpose of being traded.

A liability is classified as current if it meets any of the following criteria as per Schedule III of the Companies Act, 2013 and relevant accounting standards (Ind AS 1):

1. It is expected to be settled in the company’s normal operating cycle.
2. It is held primarily for the purpose of being traded.
3. It is due to be settled within twelve months after the reporting date.
4. The company does not have an unconditional right to defer settlement for at least twelve months after the reporting date.

Option (B) contradicts the definition of a current liability, as a liability held "not for the purpose of being traded" does not meet the conditions for classification as current liability.

(ICMAI book page number 151 | This Question is also a part of www.konceptca.com Question Bank)

(iv) In the Notes to Accounts, Contingent Liabilities shall be classified as______

1. claims against the company not acknowledged as debt
2. guarantees
3. other money for which the company is contingently liable
4. All of the above

Answer :

(D) All of the above.

As per Schedule III of the Companies Act, 2013, contingent liabilities in the Notes to Accounts must be classified under the following categories:

1. Claims against the company not acknowledged as debt.
2. Guarantees.
3. Other money for which the company is contingently liable.

This ensures comprehensive disclosure of potential obligations that may impact the company's financial position in the future.

(ICMAI book page number 170 | This Question is also a part of www.konceptca.com Question Bank)

(v) Which of the following is not a mandatory financial statement of a General Insurance company as per IRDA regulations?

1. Revenue Account
2. Profit and Loss Account
3. Balance Sheet
4. Cash Flow Statement

Answer :

(D) Cash Flow Statement.

As per the IRDA (Insurance Regulatory and Development Authority of India) Regulations, the mandatory financial statements for a General Insurance company are:

1. Revenue Account: For policyholder-related income and expenses.
2. Profit and Loss Account: For overall financial performance.
3. Balance Sheet: To depict the financial position.

The Cash Flow Statement is not listed as a mandatory statement under IRDA regulations for General Insurance companies.

(ICMAI book page number 375 | This Question is also a part of www.konceptca.com Question Bank)

(vi) SA 600 deals in matters connected with __________.

1. Using the work of another Auditor.
2. Audit Sampling.
3. Comparative Information.
4. Related Parties.

Answer :

(A) Using the work of another Auditor.

• SA 600, titled "Using the Work of Another Auditor", provides guidance to the principal auditor when using the work and reports of another auditor in relation to the financial information of one or more components of an entity. It includes considerations for planning, supervision, and reporting.

The other options relate to different Standards on Auditing:

• SA 530: Audit Sampling.
• SA 710: Comparative Information.
• SA 550: Related Parties.

(ICMAI book page number 471 | This Question is also a part of www.konceptca.com Question Bank)

(vii) As per SQC 1, the audit working papers must be retained by the statutory auditors for a period of __________ years.

1. five
2. six
3. seven
4. eight

Answer :

(C) seven

(ICMAI book page number 476 | This Question is also a part of www.konceptca.com Question Bank)

(viii) Audit Documentation is related to __________.

1. SA300
2. SA230
3. SA250
4. SA310

Answer :

(B) SA 230.

• SA 230 is titled "Audit Documentation" and deals with the auditor's responsibility to prepare audit documentation that provides evidence of the audit's basis and conclusions, as well as compliance with standards.
• The other Standards on Auditing relate to different areas:
• SA 300: Planning an Audit of Financial Statements.
• SA 250: Consideration of Laws and Regulations in an Audit.
• SA 310: Terms of Audit Engagements (not in syllabus for CMA Inter).

(ICMAI book page number 471 | This Question is also a part of www.konceptca.com Question Bank)

(ix) A Cost Auditor submits his report along with reservations and observations in Form No. __________.

1. CRA 1
2. CRA 2
3. CRA 3
4. CRA 4

Answer :

(C) CRA 3.

• As per the Companies (Cost Records and Audit) Rules, 2014, a cost auditor submits their report, including any reservations or observations, in Form CRA-3.
• The forms mentioned serve the following purposes:
• CRA-1: Maintenance of Cost Records.
• CRA-2: Intimation of Appointment of Cost Auditor.
• CRA-4: Filing of Cost Audit Report with the Central Government.

(ICMAI book page number 606 | This Question is also a part of www.konceptca.com Question Bank)

(x) Which of the following is/are the benefits of Internal Financial Control?

1. Improved controls over financial reporting process
2. Tricking down of accountability to operational management
3. Improved investor confidence in entity's operations and financial reporting process
4. All of the above

Answer :

(D) All of the above.

Benefits of Internal Financial Control With adequate and effective internal financial controls, some of the benefits that the companies would experience include: 

Senior Management Accountability, Improved controls over financial reporting process,  Improved investor confidence in entity’s operations and financial reporting process, Promotes culture of openness and transparency within the entity, Trickling down of accountability to operational management, Improvements in Board, Audit Committee and senior management engagement in financial reporting and financial controls, More accurate, reliable financial statements, Making audits more comprehensive.

(ICMAI book page number 498 | This Question is also a part of www.konceptca.com Question Bank)

(xi) The statutory auditor apprehends a possible material misstatement due to inadequate internal check system. The risk associated with this apprehension is known as

1. Inherent Risk
2. Detection Risk
3. Control Risk
4. Operational Risk

Answer :

(C) Control Risk.

• Control Risk refers to the risk that a material misstatement in financial statements will not be prevented, detected, or corrected by the entity’s internal control system on a timely basis. When the statutory auditor identifies inadequacies in the internal check system, they are assessing Control Risk.
• Other risks in the audit risk model:
• Inherent Risk (A): Risk of material misstatement due to the nature of the business or transaction, without considering internal controls.
• Detection Risk (B): Risk that the auditor’s procedures will fail to detect a material misstatement.
• Operational Risk (D): A broader term not directly linked to financial statement audits but related to risks arising from operational failures.

(ICMAI book page number 482 | This Question is also a part of www.konceptca.com Question Bank)

(xii) In relation to advances made by bank, an Auditor needs to review which of the following?

1. Scrutinise the subsidiary ledger and control accounts
2. Scrutinize the overdue account and scheme for recovery of such account
3. Ensure proper documentation of account
4. All of the above

Answer :

(D) All of the above.

Advances: In relation to advances made by bank an auditor needs to review the followings: 

Ensure that the internal control is in place in relation to advances made. Scrutinise the subsidiary, ledger, & control accounts Ensure the proper documentation of account. Scrutinise the overdue account and scheme for recovery of such amount. 

(ICMAI book page number 623 | This Question is also a part of www.konceptca.com Question Bank)

(xiii) Which of the following is not a part of Temporary Audit file?

1. Correspondence relating to acceptance of annual reappointment
2. Audit programme
3. Extracts of minutes of board meetings
4. Legal and organization structure of the company

Answer :

(D) Legal and organization structure of the company.

(ICMAI book page number 513 | This Question is also a part of www.konceptca.com Question Bank)

(xiv) Which of the following is not a content of audit report as per CARO?

1. Inventory
2. Acceptance of Deposit
3. Recruitment of Employees
4. Repayment of Loan

Answer :

(C) Recruitment of Employees.

(ICMAI book page number 495 | This Question is also a part of www.konceptca.com Question Bank)

(xv) Reappointment of Company Auditor is guided by section ________ of Companies Act, 2013.

1. 139(3)
2. 139(5)
3. 139(7)
4. 139(9)

Answer : (D) 139(9)

(ICMAI book page number 524 | This Question is also a part of www.konceptca.com Question Bank)

Section - B

Question 2 (a)

P Ltd. issued 6,000 equity shares of ₹10 each payable as ₹3 per share on Application, ₹2 per share (including ₹2 as premium) on Allotment and ₹4 per share on Call. All the shares were subscribed. Money due on all shares was fully received except M, holding 100 shares, failed to pay the Allotment and Call money and N, holding 200 shares, failed to pay the Call Money. All those 300 shares were forfeited. Of the shares forfeited, 250 shares (including whole of M's shares) were subsequently reissued as fully paid up at a price of ₹8 per share. Prepare necessary entries (with narration) in the Journal of the company to record the forfeiture and reissue. Working should form part of your answer.

Answer :

View solution in koncept education app - Download App

Question 2 (b)

Akash Ltd. has issued 2,000, 12% convertible debentures of ₹100 each redeemable after a period of five years. According to the terms and conditions of the issue, the debentures were redeemable at a premium of 5%. The debenture holders also had the option at the time of redemption to convert 20% of their holdings into equity shares of ₹10 each at a price of ₹20 per share and get the balance in cash. Debenture holders amounting ₹40,000 opted to get their debentures converted into equity shares as per terms of the issue. You are required to

1. Calculate the number of shares issued;
2. Calculate cash paid for redemption of ₹40,000 debenture holders; and
3.  Pass journal entry for conversion and redemption of debentures.

Answer :

View solution in koncept education app - Download App

Question 3 

Alpha Ltd. provides the following Trial Balance as on 31st March, 2024:

Additional Information:
(i) Closing Stock as on 31st March, 2024 was ₹3,50,000.

(ii) Depreciation Rates: Motor Vehicle 10%, Machinery 20%, and Building 5%.

(iii) Interest on debenture is payable quarterly and the last quarter’s interest is yet to be paid.

(iv) Trade receivables include a sum of ₹25,000 due from Mr. X who has become insolvent and only 25 paisa in a rupee is expected to be recoverable from him. Create a provision for doubtful debt @ 2% on other trade receivables.

(v) Provide for income tax ₹1,50,000.

What is the life assurance fund after taking into account the above omissions?

Answer :

View solution in koncept education app - Download App

Question 4 (a)

The books of a Bank include a loan of ₹15,00,000 advanced on 31.12.2022, interest chargeable @ 10% p.a. compounded quarterly.

The security for the loan is 21,000 shares of ₹100 each in a public limited company valued @ ₹80 each. There is no repayment till 31.03.2024 (including accrued Interest). On 31.03.2024, the value of shares declined to ₹70 per share.

How would you classify the loan as secured or unsecured in the Balance Sheet? State with reasons. 

Answer :

View solution in koncept education app - Download App

Question 4 (b)

The Revenue Account of an Insurance company shows the life assurance fund on 31st March 2023 at ₹30,00,000 before taking into account the following items:

1. Claims covered under re-insurance ₹6,000.
2. Bonus utilized in reduction of life insurance premium ₹2,250.
3. Interest accrued on securities ₹4,100.
4. Outstanding premium ₹2,700.
5. Claims intimated but not admitted ₹13,250.

What is the life assurance fund after taking into account the above omissions? 

Answer :

View solution in koncept education app - Download App

Question 5 (a)

Consider the following information:
No. of employees (same as the previous year) = 450
Employees’ turnover rate = 8%
Bonus paid to each employee last year = ₹3,00,000
Increase in bonus rate due to inflation = 6% (as per company’s regular practice)

Calculate the liability and expense to be recognized as per Ind AS-19. Also state under which category this type of Employee Benefit will be classified:
(i) Short Term
(ii) Post employment
(iii) Other long term
(iv) Termination

Answer :

View solution in koncept education app - Download App

Question 5 (b)

The following figures have been extracted from the books of Y Ltd. for the year ended on 31.03.2024, you are required to work out Cash Flow from Operating Activities.

(i) Net profit before taking into account Income Tax but after taking into account the following items was ₹10 lakhs:

1. Depreciation on Fixed Assets ₹2,95,000.
2. Discount on issue of Debentures written off ₹15,000.
3. Interest on Debentures paid ₹1,75,000.
4. Book value of investments ₹1,50,000 (sale of investments for ₹1,60,000).
5. Interest received on investments ₹30,000.

(ii) Income tax paid during the year ₹5,25,000.
(iii) Non-cash Working capital on 1.4.2023 ₹5,86,000 and on 31.3.2024 ₹6,39,000.

Answer :

View solution in koncept education app - Download App

Question 6 (a)

Describe the essential characteristics of a sound internal check system.

Answer :

View solution in koncept education app - Download App

Question 6 (b)

Illustrate the provisions of Companies Act, 2013 and SEBI Regulations relating to the applicability and conduct of Secretarial Audit.

Answer :

View solution in koncept education app - Download App

Question 7 (a)

State the differences between Audit report and Audit certificate.

Answer :

View solution in koncept education app - Download App

Question 7 (b)

Explain, in detail, the Role of NFRA (National Financial Reporting Authority).

Answer :

View solution in koncept education app - Download App

Question 8 (a)

Mr. A has been appointed as the Auditor of XYZ Co-operative Society for the financial year 2023-24. Mr. A seeks your opinion in designing an elaborate plan for this assignment. Prepare and suggest a list of important steps to be taken by Mr. A in conducting the audit of XYZ Co-operative Society.

Answer :

View solution in koncept education app - Download App

Question 8 (b)

Discuss the provisions of the Companies Act, 2013 regarding appointment of first Auditor of a company.

Answer :

View solution in koncept education app - Download App

Corporate Accounting and Auditing detailed analysis