CMA Inter Suggested Answers | Dec 24 Paper 6 Financial Accounting (FA)

Table of Content

1. MCQs
2. 2 (a) On comparing the Cash Book of Shivam with the Bank Pass Book (a)
3. 2 (b) State with reasons whether the following are Capital Expenditure
4. 3 (a) Indra drew upon Chandra a bill for ₹90,000 on April 1, 2024, for
5. 3 (b) On 1st April 2021, Aarvi Limited purchased a machine on hire
6. 4 Rahul does not maintain a proper books of account. However, he
7. 5 Raylink Ltd. agreed to purchase the business of a firm consisting of
8. 6 (a) Adhiraj Ltd., Noida, started a branch in Surat on April 1, 2023, to
9. 6 (b) On 10th December, 2024, a fire occurred in the premises of Chandu
10. 7 (a) (i) In the context of AS 11, what do you mean by 'Integral Foreign
11. 7 (a) (ii) While clarifying the scope of AS 22 (Accounting for Taxes on
12. 7 (b) (i) As per AS-12, explain the treatment of the following:
13. 7 (b) (ii) List out comparative provisions between AS 11 and IND AS 21.
14. 8 (a) Briefly explain merits of IND AS.
15. 8 (b) Answer the following questions:
16. 8 (c) Give entries for the following transactions:
17. CMA Inter Dec 24 Paper 6 : Financial Accounting 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 7 : Direct and Indirect Taxation
3. Suggested Answer Dec 24 Paper 8 : Cost Accounting
4. Suggested Answer Dec 24 Paper 9 : Operations Management and Strategic Management
5. Suggested Answer Dec 24 Paper 10 : Corporate Accounting and Auditing
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

1.  A Company is a going concern if

1. its Balance Sheet shows a strong Financial Position.
2. its Income Statement for the current year shows huge Profit.
3. there is no evidence that it will or will have to cease operations within foreseeable future.
4. its a Public Limited company.

Answer :

(C) there is no evidence that it will or will have to cease operations within foreseeable future.

The Going Concern Concept in accounting assumes that a company will continue to operate for the foreseeable future and has no intention or necessity of liquidation or ceasing operations. This is a fundamental accounting assumption, and financial statements are prepared based on this concept unless there is evidence to the contrary.

(ICMAI book page no 8 | This question is also a part of www.konceptca.com question bank)

2. Which of the following errors/omissions are not part of the Bank reconciliation process?

1. Wrong totalling of Bank column of cash book.
2. Wrong totalling of cash column of cash book.
3. Posting wrong amount in Bank column of cash book.
4. Omission to carry forward balance in the Bank column of the cash book.

Answer :

(B) Wrong totaling of cash column of cash book.

Bank reconciliation focuses on reconciling discrepancies specifically related to the Bank Column of the Cash Book and the Bank Pass Book. Errors like wrong totaling in the Cash Column of the Cash Book are unrelated to this process.

(ICMAI book not directly mentioned | This question is a part of www.konceptca.com question bank)

3. Which of the following is true about financial statements?
(a) Financial Statements give a summary of Accounts.
(b) Financial Statements can be stated as recorded facts.

Select the correct answer.

1. Statement (a) is correct
2. Statement (b) is correct
3. Both (a) and (b) are correct
4. None of the above.

Answer :

(C) Both (a) and (b) are correct.

Financial Statements:

1. Provide a summary of accounts to determine the financial position and operating results.
2. Are prepared using recorded facts based on entries in the books of accounts.

(ICMAI book not directly mentioned | This question is a part of www.konceptca.com question bank)

4. X draws a bill on Y for ₹1,80,000 for mutual accommodation in the ratio of 2 : 1. X got it discounted for ₹1,69,200 and remitted 1/3rd of the proceeds to Y. How much money should be remitted by X to Y at the time of maturity so as to enable Y to honour the bill?

1. ₹1,20,000
2. ₹1,15,200
3. ₹1,16,800
4. ₹1,20,400

Answer :

(A) ₹1,20,000.

To calculate the amount remitted by X to Y at maturity:

1. Bill Amount: ₹1,80,000.
   Sharing ratio between X and Y is 2:1.
• X’s share: ₹1,20,000
• Y’s share: ₹60,000
2. Discounted Value of the Bill: ₹1,69,200.
• Discount: ₹1,80,000 − ₹1,69,200 = ₹10,800.
3. X remits 1/3rd of proceeds to Y:
• Proceeds received by X: ₹1,69,200.
• 1/3rd remitted to Y: ₹1,69,200 × 1/3 = ₹56,400.
4. Amount Y requires to honor the bill: ₹60,000.
5. Deficit to be covered by X:
• ₹60,000 − ₹56,400 = ₹3,600.

Total amount remitted by X to Y at maturity: ₹1,20,000.

(ICMAI book page no 159 | This question is also a part of www.konceptca.com question bank)

5. A firm had a capital balance of ₹1,00,000 at the beginning of a year. At the end of the year, the firm has total assets of ₹1,50,000 and total liabilities of ₹70,000. If the withdrawals during the period is ₹30,000, what was the amount of net profit made for the year?

1. ₹10,000 Profit
2. ₹20,000 Loss
3. ₹50,000 Loss
4. ₹10,000 Loss

Answer :

(A) ₹10,000 Profit

Calculation:

1. Closing Capital = Total Assets − Total Liabilities
   = ₹1,50,000 − ₹70,000 = ₹80,000.
2. Net Profit = Closing Capital − Opening Capital + Withdrawals
   = ₹80,000 − ₹1,00,000 + ₹30,000 = ₹10,000 (Profit).

(ICMAI book not directly mentioned | This question is a part of www.konceptca.com question bank)

6. Depreciation charged to Income Statement ₹8,00,000, Depreciation u/s 32 of Income Tax Act ₹20,00,000; unamortised Preliminary Expenditures as per Income Tax records ₹1,50,000; Corporate Tax rate is 40%. In this situation, the amount of deferred tax asset/liabilities to be created
It is assumed that there is adequate evidence of future profits sufficiency.

1. Deferred Tax Assets ₹4,20,000
2. Deferred Tax Liabilities ₹4,20,000
3. Deferred Tax Liabilities ₹4,80,000
4. Deferred Tax Assets ₹4,80,000

Answer :

(B) Deferred Tax Liabilities ₹4,20,000.

Calculation:

1. Timing Difference:
   Depreciation as per Income Statement = ₹8,00,000
   Depreciation as per Income Tax Act = ₹20,00,000
   Difference = ₹20,00,000 − ₹8,00,000 = ₹12,00,000
   Unamortized Preliminary Expenditure = ₹1,50,000 (allowed as per IT Act).
   Total Timing Difference = ₹12,00,000 − ₹1,50,000 = ₹10,50,000.
2. Deferred Tax Liability:
   Corporate Tax Rate = 40%.
   Deferred Tax = ₹10,50,000 × 40% = ₹4,20,000.

(ICMAI book page no 619 | This question is also a part of www.konceptca.com question bank)

7. Provision for doubtful debt on 1st April 2023 was ₹14,000. During the year 2023-24, the Bad Debts was ₹9,500. The Sundry Debtors on 31st March 2024 were ₹3,25,000. Provision is to be made @ 5% on debtors. If on 31st March 2024, there was the additional bad debt of ₹2,500, then provision for doubtful debts will be

1. Debited to Profit and Loss Account by ₹16,125
2. Debited to Profit and Loss Account by ₹14,125
3. Debited to Profit and Loss Account by ₹18,125
4. Debited to Profit and Loss Account by ₹2,000

Answer :

(B) Debited to Profit and Loss Account by ₹14,125

1. Opening Provision: ₹14,000
2. Bad Debts During the Year: ₹9,500
3. Additional Bad Debts: ₹2,500
   Balance of Provision:
   ₹14,000 − ₹9,500 − ₹2,500 = ₹2,000.
4. Required Provision for 31st March 2024:
   5% of Adjusted Sundry Debtors (₹3,25,000 − ₹2,500) = ₹16,125.
5. Amount to be Created:
   Required Provision − Balance of Provision = ₹16,125 − ₹2,000 = ₹14,125.

(ICMAI book page no 79 | This question is also a part of www.konceptca.com question bank)

8. Cost of Machinery is ₹60,000. Useful life of the asset is 5 years. Annual Depreciation on Machine under Straight Line Method is ₹10,000. The scrap value of the Machine will be

1. ₹60,000
2. ₹10,000
3. ₹70,000
4. ₹70,000

Answer :

(B) ₹10,000.

1. Given Data:
• Cost of Machinery = ₹60,000
• Useful Life = 5 years
• Annual Depreciation = ₹10,000
2. Formula:
   Scrap Value = Cost of Machinery − (Annual Depreciation × Useful Life)
3. Calculation: Scrap Value = ₹60,000 − (₹10,000 × 5)
   Scrap Value = ₹60,000 − ₹50,000
   Scrap Value = ₹10,000.

9. A company deals in 3 products X, Y, and Z which are neither similar nor interchangeable. At the time of closing of its Accounts for the year 2023-24, historical cost and net realisable values of the items of closing stock are determined as below:

What will be the value of closing stock?

1. ₹44
2. ₹42
3. ₹38
4. None of the above

Answer :

(C) ₹38

1. Item X:
   Historical Cost = ₹20, Net Realizable Value (NRV) = ₹14.
   Use the lower value: ₹14.
2. Item Y:
   Historical Cost = ₹16, NRV = ₹16.
   Use the lower value: ₹16.
3. Item Z:
   Historical Cost = ₹8, NRV = ₹12.
   Use the lower value: ₹8.

Total Value of Closing Stock:
= ₹14 + ₹16 + ₹8 = ₹38.

(ICMAI book page no 111 | This question is also a part of www.konceptca.com question bank)

10. In case of a club, the excess of expenditure over Income is called as ________

1. Surplus
2. Deficit
3. Capital Fund
4. Investment in Fixed Assets

Answer :

(B) Deficit

(ICMAI book page no 208 | This question is also a part of www.konceptca.com question bank)

11. Which of these statements is not true?

1. Accumulated Profit and Loss, General Reserve are transferred to old partners' capital accounts.
2. If assets and liabilities are to be shown in the Balance Sheet at old value,  Memorandum Revaluation account is to be opened.
3. Profit on Revaluation is transferred to the capital account of old partners in equal ratio.
4. A Revaluation Account is a Nominal Account.

Answer :

(C) Profit on Revaluation is transferred to the capital account of old partners in equal ratio.

1. (A) Accumulated Profit and Loss, General Reserve are transferred to old partners' capital accounts.
   True, reserves and accumulated profits are shared among old partners in their old ratio.
2. (B) If assets and liabilities are to be shown in the Balance Sheet at old value, Memorandum Revaluation account is to be opened.
   True, Memorandum Revaluation is used to reverse revaluation entries.
3. (C) Profit on Revaluation is transferred to the capital account of old partners in equal ratio.
   False, profits are transferred in the old profit-sharing ratio, not equally.
4. (D) A Revaluation Account is a Nominal Account.
   True, it records gains or losses on revaluation.

(ICMAI book page no 383)

12. P sends 1,000 bags to Q costing ₹400 each at an invoice price of ₹500 each. The costs incurred were: P’s expenses ₹4,000, Q’s expenses ₹1,000 (non-selling) and ₹2,000 (selling); 800 bags were sold by Q. What is the value of Consignment Stock at invoice price?

1. ₹1,01,000
2. ₹1,01,800
3. ₹1,01,400
4. ₹1,02,000

Answer :

(A) ₹1,01,000

1. Data Given:
   • Non-Selling (Non-Recurring) = ₹1,000.
   • Selling (Recurring) = ₹2,000.
• Cost of 1,000 bags = ₹400 each.
• Invoice Price = ₹500 each.
• P's (Consignor's) Expenses = ₹4,000.
• Q's (Consignee's) Expenses:
• Bags Sold = 800.
2. Unsold Stock:
   Bags Unsold = 1,000 − 800 = 200.
3. Valuation of Unsold Stock at Invoice Price:
• Invoice Price = 200 bags × ₹500 = ₹1,00,000.
• Add Proportionate Non-Recurring Expenses:
  Non-Recurring Expenses = ₹4,000 (P's) + ₹1,000 (Q's).
  Total Non-Recurring Expenses = ₹5,000.
4. Proportionate Non-Recurring Expenses for 200 bags:
   ₹5,000 × (200/1,000) = ₹1,000.
   Value of Unsold Stock at Invoice Price = ₹1,00,000 + ₹1,000 = ₹1,01,000.

(ICMAI book page no 109 | This question is also a part of www.konceptca.com question bank)

13. X and Y entered into a joint venture to undertake the public issue of ABC Ltd. The company invited applications for allotment of 2,00,000 shares at ₹10 per share. The issue was subscribed to the extent of 90% and the remaining were taken by Y. They agreed to share profit and loss in the ratio of 2 : 3. The shares undertaken by X and Y were subsequently sold at a premium of ₹40 per share. How many shares were undertaken by X and Y?

1. 20,000
2. 25,000
3. 18,000
4. 30,000

Answer :

(A) 20,000

1. Data Provided:
• Total shares invited: 2,00,000.
• Subscribed shares: 90% of 2,00,000 = 1,80,000.
• Remaining shares = 2,00,000 − 1,80,000 = 20,000.

14. Match the following:

Answer :

(C) (d), (c), (b), (a).

Match the correct pairs as follows:

1. (I) IND AS 16 (d): Property, Plant, and Equipment acquired in exchange of non-monetary assets are recognized at fair value.
2. (II) AS 10 (c): No specific recognition criteria for fixed assets are laid out.
3. (III) AS 12 (b): Government grants as capital contributions are specifically recognized.
4. (IV) IND AS 23 (a): Borrowing costs capitalized do not include qualifying biological assets.

(ICMAI book page no 599, 609, 613 | This question is also a part of www.konceptca.com question bank)

15. State which of the following statements is correct.

1. Stock Debtors System of maintaining Branch Account is used for independent branch.
2. The buyer gets immediate possession but not ownership of the asset under Installment Payment.
3. Unusual items and defective items are separate under insurance claims.
4. Operation lease is a Revocable contract.

Answer :

(D) Operation lease is a Revocable contract

(ICMAI book page no 436 | This question is also a part of www.konceptca.com question bank)

Section - B

Question 2 (a)

On comparing the Cash Book of Shivam with the Bank Pass Book for the year ended 31st March, 2024, following discrepancies were noticed:
(i) Cheques of ₹85,000 deposited into the bank on 25th March, cheques amounting to ₹25,000 were collected on 5th April.
(ii) Cheques amounting to ₹38,000 drawn on 28th March, of which a cheque for ₹8,000 was presented on 3rd April.
(iii) A cheque for ₹4,000 entered in Cash Book but omitted to be banked on 31st March.
(iv) A bill receivable for ₹18,000 previously discounted (discount ₹90) with the bank had been dishonoured but advice was received on 3rd April.
(v) A cheque of ₹20,000 wrongly credited in the Pass Book on 29th March was reversed on 2nd April.
(vi) Bank had wrongly debited ₹15,000 in the account on 31st March and reversed it on 10th April, 2024.

Prepare a Bank Reconciliation Statement as on 31st March, 2024, if the Balance as per Cash Book on 31st March, 2024 was ₹1,82,500.

Answer :

Bank Reconciliation Statement as on 31st March 2024

(Starting with the Cash Book Balance)

(ICMAI book page no 44 | This question is also a part of www.konceptca.com question bank)

Question 2 (b)

State with reasons whether the following are Capital Expenditure or Revenue Expenditure:

(i) Expenses incurred in connection with obtaining a license for starting the factory were ₹10,000.
(ii) ₹1,000 paid for removal of stock to a new site.
(iii) Rings and Pistons of an engine were changed at a cost of ₹5,000 to get full efficiency.
(iv) ₹2,000 spent as lawyer's fee to defend a suit claiming that the firm's factory site belonged to the Plaintiff. The suit was not successful.
(v) ₹10,000 were spent on advertising the introduction of a new product in the market, the benefit of which will be effective during four years.
(vi) A factory shed was constructed at a cost of ₹1,00,000. A sum of ₹5,000 had been incurred for the construction of the temporary huts for storing building materials.
(vii) A pair of bullocks of ₹50,000 was killed by lightning.

Answer :

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Question 3 (a)

Indra drew upon Chandra a bill for ₹90,000 on April 1, 2024, for 3 months, for mutual accommodation. Chandra accepted the same immediately on receipt. On April 4, Indra got it discounted at 6% p.a. and remitted 1/3rd of the proceeds to Chandra. At maturity, Indra was not able to send the required sums and asked Chandra to receive a 2 months Promissory Note for ₹60,900 which Chandra did. Chandra got the Note discounted for ₹60,000 and met his acceptance. Indra became insolvent just before his Promissory Note was due for payment. Only 25% was received from his estate. You are required to pass journal entries in the books of Indra. 

Answer :

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Question 3 (b)

On 1st April 2021, Aarvi Limited purchased a machine on hire purchase system, whose cash price was ₹12,00,000. The hire purchase price of the machine was ₹15,00,000. ₹3,00,000 was payable immediately and the balance was to be paid in three equal annual installments. The books are closed on 31st March each year. The company charges depreciation @ 15% per annum on the reducing balance basis.

Calculate interest included in each installment and prepare Machinery Account for three years in the books of Aarvi Limited. 

Answer :

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Question 4 

Rahul does not maintain a proper books of account. However, he maintains a record of his bank transactions and is also to give the following information from which you are requested to prepare his final accounts for the year 2023-24.

Details of Bank transactions are as follows:

No cash transactions took place during the year. Goods are sold at cost plus 25%. Cost of goods sold was ₹2,60,000.

Answer :

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Question 5

Raylink Ltd. agreed to purchase the business of a firm consisting of two brothers, A. Ray and S. Ray as on March 31, 2024. The Balance Sheet of the firm on that date was as follows:

The company agreed to take over the liabilities and all the assets, with the exception of cash, the agreed purchase price being ₹4,50,000 to be satisfied as to 1/4th in cash and 3/4th by issue of fully paid equity shares of ₹10 each at an agreed value of ₹12.50 per share.

The company made the following revaluations of the assets taken over when bringing them to books:

• Leasehold Premises: ₹1,55,000
• Plant & Machinery: ₹62,500
• Furniture & Fixtures: ₹12,500
• Stock-in-Trade: ₹1,45,000
• Debtors: ₹1,25,000

You are required to:
(a) Pass the necessary journal entries to record the acquisition of the business in the books of the company; and
(b) Prepare the post-acquisition Balance Sheet of Raylink Ltd.

Answer :

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Question 6 (a)

Adhiraj Ltd., Noida, started a branch in Surat on April 1, 2023, to which goods were sent at 20% above cost. The branch makes both credit and cash sales. It is the policy to meet branch expenses from branch cash, and remit the balance money to Head Office (H.O.). The branch does not maintain double-entry books of accounts, and necessary accounts relating to the branch are maintained by the H.O.

Show the Surat Branch Account in the books of the Noida H.O. to determine the profit and loss of the branch for the year ended March 31, 2024.

Answer :

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Question 6 (b)

On 10th December, 2024, a fire occurred in the premises of Chandu. All stock except to the extent of ₹ 28,800 were destroyed. Chandu values the stock at cost less 10 percent. Stock was insured for ₹ 1,00,000. From the following information, ascertain the amount of claim to be lodged by Chandu:

Answer :

Question 7 (a) (i)

In the context of AS 11, what do you mean by 'Integral Foreign Operation'?

State how the following items of integral foreign operation should be translated:

(I) Salaries & Wages;

(II) Depreciation on Furniture; and

(III) Machineries carried at fair value.

Answer :

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Question 7 (a) (ii)

While clarifying the scope of AS 22 (Accounting for Taxes on Income), explain the meaning of the following terms related to it:

(I) Accounting income (loss)

(II) Taxable income (tax loss)

(III) Tax expense (tax saving)

Answer :

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Question 7 (b) (i)

As per AS-12, explain the treatment of the following:

(I) A firm acquired a fixed asset for ₹ 850 lakhs on which the Government grant received was 40%.

(II) Capital subsidy received from the Central Government for setting up a plant in the notified backward region. Cost of the plant ₹ 900 lakhs, subsidy received ₹ 250 lakhs.

(III) ₹ 225 lakhs received from the local authority for providing medical facilities to the employees.

Answer :

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Question 7 (b) (ii)

List out comparative provisions between AS 11 and IND AS 21.

Answer :

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Question 8 (a)

Briefly explain merits of IND AS.

Answer :

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Question 8 (b)

Answer the following questions:
(i) Profit is earned on sale of fixed asset. What should be the accounting treatment of this profit?
(ii) Why is the full cost of an asset not treated as an expense in the year of its purchase?
(iii) Do you think that the convention of conservatism results in the creation of secret reserves?
(iv) Goods worth ₹ 1,00,000 were burnt by fire and a claim of ₹ 70,000 has been accepted by the insurance company. How will it be recorded in the final account?
(v) State with the reasons whether the following statement is true or false:
"The provision for the discount on Debtors is calculated after deducting the provision for doubtful debts from debtors."

Answer :

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Question 8 (c)

Give entries for the following transactions:
(i) Realisation expenses ₹ 8,000 were paid by Rana, a partner.
(ii) Realisation expenses ₹ 10,000 paid by the firm on behalf of Dhana (a partner), he has to bear the realisation expenses.
(iii) Realisation expenses ₹ 20,000, out of which 60% to be borne by Mana (a partner) and remaining by the firm.
(iv) Realisation expenses ₹ 10,000 to be borne by Kana, a partner, but paid by Dhana, another partner.

Answer :

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Financial Accounting detailed analysis