Chapter 11: Financial Statements of Companies - Test 3: answer key

Question 1 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. Sterling Garments Ltd. is a listed textile manufacturer preparing its financial statements for the year ended 31 March 2027 under Schedule III, Division I. Its equity share capital increased during the year from 8,00,000 shares to 10,00,000 shares. The promoter shareholding records indicate that Aarav Mehta held 2,40,000 shares on 1 April 2026 and received an additional allotment of 60,000 shares on 30 September 2026. Another promoter, Kavya Shah, held 1,20,000 shares at the beginning of the year but transferred 12,000 shares to an unrelated investor during the year. The accounts department has also prepared the following Trade Payables Ageing Schedule (₹ in lakh): Particulars | Less than 1 year | 1–2 years | 2–3 years | More than 3 years MSME – undisputed | 12 | 3 | 1 | 0.50 Others – undisputed | 18 | 4 | 2 | 1 Disputed dues – MSME | 2 | 1 | 0.50 | Nil Disputed dues – Others | 3 | 1 | 1.50 | Nil Trade receivables outstanding at the reporting date are summarised below (₹ in lakh). The ageing columns are less than 6 months, 6 months–1 year, 1–2 years, 2–3 years and more than 3 years, respectively. Undisputed, considered good: 24, 4, 2, 1, 1. Undisputed, considered doubtful: 2, 1, 1, Nil, Nil. Disputed, considered good: 3, 2, 1, 1, Nil. Disputed, considered doubtful: 1, 1, 2, 1, 1. The receivables schedule additionally contains unbilled dues of ₹3.50 lakh. A separate undisputed invoice of ₹2 lakh has no contractual due date and was raised seven months before the reporting date. The accountant proposes using the reporting date as the starting point for every ageing calculation and including unbilled dues in the oldest ageing bucket. The audit committee requires the correct statutory disclosures and computations.

What are the correct year-end shareholding percentage and percentage change during the year for promoter Aarav Mehta?

1. 30% of total shares; increase of 25% during the year. (correct answer)
2. 30% of total shares; increase of 30% during the year.
3. 24% of total shares; increase of 25% during the year.
4. 25% of total shares; increase of 30% during the year.

Answer: A — 30% of total shares; increase of 25% during the year.

Explanation. Aarav's closing shareholding is 2,40,000 + 60,000 = 3,00,000 shares. His percentage of total year-end equity shares is 3,00,000/10,00,000 × 100 = 30%. Percentage change is calculated with reference to beginning holdings: 60,000/2,40,000 × 100 = 25% increase. The 30% figure represents his year-end holding as a proportion of total shares, not the percentage increase in his individual holding.

Where it goes wrong. Confusing percentage of total company share capital with percentage change in the promoter's individual shareholding.

Authority. Schedule III, Division I, Part I, Note 6(A)(m); Section 2(69), Companies Act, 2013; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.147

Question 2 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Calculate the aggregate trade payables outstanding for more than one year as at 31 March 2027.

1. ₹13.50 lakh
2. ₹14.50 lakh
3. ₹16.50 lakh
4. ₹15.50 lakh (correct answer)

Answer: D — ₹15.50 lakh

Explanation. Amounts outstanding for more than one year comprise the 1–2 years, 2–3 years and more than 3 years columns. These aggregate to ₹9 lakh + ₹5 lakh + ₹1.50 lakh = ₹15.50 lakh. All four categories must be included: undisputed MSME, undisputed Others, disputed MSME and disputed Others. The ₹35 lakh outstanding for less than one year is excluded from this computation.

Where it goes wrong. Omitting disputed dues or counting only MSME outstanding balances while preparing the aggregate ageing.

Authority. Schedule III, Division I, Part I, Note 6(FB), Trade Payables Ageing Schedule; MCA Notification G.S.R. 207(E), dated 24 March 2021; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.151

Question 3 · 2 marks · Chapter 11: Financial Statements of Companies · hard

What is the total amount of trade receivables outstanding for more than one year, considering all four statutory categories?

1. ₹9 lakh
2. ₹11 lakh (correct answer)
3. ₹13 lakh
4. ₹15 lakh

Answer: B — ₹11 lakh

Explanation. Receivables outstanding for more than one year are those in the 1–2, 2–3 and more than 3 years columns. The undisputed-good category contributes ₹4 lakh, undisputed-doubtful contributes ₹1 lakh, disputed-good contributes ₹2 lakh and disputed-doubtful contributes ₹4 lakh. Total outstanding beyond one year is ₹11 lakh. The ₹3.50 lakh unbilled dues are disclosed separately and are not added to these ageing buckets.

Where it goes wrong. Ignoring doubtful or disputed receivables while computing the total outstanding beyond one year.

Authority. Schedule III, Division I, Part I, Note 6(P)(i); Schedule III, Division I, Part I, Note 6(M)(iv); Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed pages 11.156–11.159

Question 4 · 2 marks · Chapter 11: Financial Statements of Companies · medium

How should the ₹2 lakh invoice with no contractual due date and the ₹3.50 lakh unbilled dues be disclosed?

1. Age the invoice from the reporting date and combine unbilled dues with the oldest bucket.
2. Exclude the invoice from ageing and include unbilled dues in the less-than-six-month bucket.
3. Age the invoice from its transaction date in the 6-month–1-year bucket and disclose unbilled dues separately. (correct answer)
4. Age the invoice from its transaction date in the 1–2-year bucket and merge unbilled dues with it.

Answer: C — Age the invoice from its transaction date in the 6-month–1-year bucket and disclose unbilled dues separately.

Explanation. Where a contractual due date is not specified, Schedule III requires the ageing period to be measured from the date of the transaction. The invoice was raised seven months before the reporting date and therefore belongs in the 6-month–1-year bucket. Unbilled dues must be disclosed separately rather than included in any ageing period. Using the reporting date or placing unbilled balances in an arbitrary ageing bucket would misstate the statutory schedule.

Where it goes wrong. Using the reporting date instead of the transaction date and merging unbilled receivables into an ageing bucket.

Authority. Schedule III, Division I, Part I, Note 6(P)(i), Trade Receivables Ageing Schedule; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.159

Question 5 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. Zenith Infrastructure Projects Ltd. undertakes industrial construction and software development activities. It prepares its financial statements for the year ended 31 March 2027 in accordance with Schedule III, Division I. The balance sheet reports Capital Work-in-Progress (CWIP) of ₹80 lakh and Intangible Assets under Development of ₹24 lakh. The CWIP ageing records (₹ in lakh) are as follows, with columns representing less than one year, 1–2 years, 2–3 years and more than three years, respectively: Projects in progress: 30, 18, 12 and 8. Projects temporarily suspended: 4, 3, 2 and 3. The company's project department has separately identified four CWIP projects whose completion is overdue or whose costs have exceeded original estimates. Their amounts and revised expected completion periods are: Project A ₹15 lakh, less than one year; Project B ₹20 lakh, 1–2 years; Project C ₹10 lakh, 2–3 years; and Project D ₹5 lakh, more than three years. A further CWIP project of ₹12 lakh has been temporarily suspended because of a pending environmental clearance. The Intangible Assets under Development ageing records are (₹ in lakh): Projects in progress: 5, 7, 4 and 3. Projects temporarily suspended: 1, 2, 1 and 1. The software development department has also identified projects with overdue completion or expenditure exceeding approved budgets. Project IA, having a carrying amount of ₹4 lakh, is expected to be completed within one year, while Project IB, having a carrying amount of ₹6 lakh, is expected to be completed in 1–2 years. Project IS, having a carrying amount of ₹5 lakh, has been temporarily suspended owing to a technical licensing dispute. Management proposes to show only the total CWIP and intangible-development balances without ageing details, arguing that project completion dates are uncertain. The statutory auditor insists that the prescribed ageing and completion schedules be prepared separately, with suspended projects appropriately identified.

What is the aggregate CWIP amount outstanding for one year or more at 31 March 2027?

1. ₹34 lakh
2. ₹46 lakh (correct answer)
3. ₹25 lakh
4. ₹21 lakh

Answer: B — ₹46 lakh

Explanation. CWIP outstanding for one year or more comprises the 1–2 years, 2–3 years and more than 3 years buckets. Their aggregate amounts are ₹21 lakh, ₹14 lakh and ₹11 lakh, respectively. Therefore, the aggregate is ₹21 + ₹14 + ₹11 = ₹46 lakh. Both ongoing and temporarily suspended projects are included in the ageing schedule, but separately identified in their respective rows.

Where it goes wrong. Considering only projects in progress and excluding temporarily suspended projects from the ageing total.

Authority. Schedule III, Division I, Part I, Note Y(iv)(a), CWIP Ageing Schedule; MCA Notification G.S.R. 207(E), dated 24 March 2021; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.164

Question 6 · 2 marks · Chapter 11: Financial Statements of Companies · hard

What amount should be reported in the CWIP completion schedule as expected to be completed after more than two years?

1. ₹10 lakh
2. ₹20 lakh
3. ₹35 lakh
4. ₹15 lakh (correct answer)

Answer: D — ₹15 lakh

Explanation. The completion schedule covers projects whose completion is overdue or whose cost has exceeded the original plan. Projects C and D are expected to be completed after two years: ₹10 lakh in 2–3 years and ₹5 lakh beyond three years. Their combined amount is ₹15 lakh. The ₹12 lakh temporarily suspended project is disclosed separately and should not be merged into the completion-period calculation.

Where it goes wrong. Including temporarily suspended projects in the normal overdue-project completion buckets.

Authority. Schedule III, Division I, Part I, Note Y(iv)(b), CWIP Completion Schedule; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.164

Question 7 · 2 marks · Chapter 11: Financial Statements of Companies · hard

What is the total amount of Intangible Assets under Development outstanding for more than one year?

1. ₹9 lakh (correct answer)
2. ₹12 lakh
3. ₹15 lakh
4. ₹19 lakh

Answer: A — ₹9 lakh

Explanation. The amount outstanding for more than one year consists of the 2–3 years and more than 3 years columns. For projects in progress, this is ₹4 + ₹3 = ₹7 lakh. For temporarily suspended projects, it is ₹1 + ₹1 = ₹2 lakh. Therefore, the aggregate is ₹9 lakh. The less-than-one-year and 1–2-year balances are excluded, although suspended projects must still be included in the ageing schedule.

Where it goes wrong. Using only projects in progress and omitting the ageing of temporarily suspended intangible-development projects.

Authority. Schedule III, Division I, Part I, Note Y(v)(a), Intangible Assets under Development Ageing Schedule; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.165

Question 8 · 2 marks · Chapter 11: Financial Statements of Companies · medium

What is the aggregate balance of temporarily suspended projects in CWIP and Intangible Assets under Development?

1. ₹12 lakh
2. ₹24 lakh
3. ₹17 lakh (correct answer)
4. ₹29 lakh

Answer: C — ₹17 lakh

Explanation. Temporarily suspended CWIP amounts to ₹4 + ₹3 + ₹2 + ₹3 = ₹12 lakh. Temporarily suspended intangible assets under development amount to ₹1 + ₹2 + ₹1 + ₹1 = ₹5 lakh. Their aggregate is ₹17 lakh. Schedule III requires suspended projects to be shown separately in both ageing schedules, rather than being merged with projects in progress or omitted altogether.

Where it goes wrong. Reporting only suspended CWIP and overlooking suspended intangible assets under development.

Authority. Schedule III, Division I, Part I, Note Y(iv)(a); Schedule III, Division I, Part I, Note Y(v)(a); Section 129(1), Companies Act, 2013

Question 9 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. Vardhan Chemicals Ltd. prepares its financial statements as at 31 March 2027 under Schedule III, Division I. During the year, the company reviewed its immovable-property records and identified the following properties: 1. Factory land recorded under PPE at a gross carrying value of ₹4.80 crore. The land was acquired on 1 April 2022 through a business takeover, but the title deed continues in the name of the previous owner because the conveyance formalities remain pending. The previous owner is neither a promoter nor a director or their relative. 2. An investment warehouse in which the company holds a 60% undivided interest. The total property value is ₹3 crore, of which ₹1.80 crore is recorded in the company's books. The title deed is held by the sister of one of the directors, and the property has been held since 1 July 2023. The matter is also the subject of a pending title dispute. 3. An office building occupied as lessee under a duly executed and registered lease agreement. The company has also granted loans in the nature of loans, all repayable on demand, to promoters ₹30 lakh, directors ₹18 lakh, KMPs ₹12 lakh and other related parties ₹20 lakh. An additional ₹20 lakh advance to an unrelated entity carries specified repayment instalments and is not repayable on demand. Total loans and advances in the nature of loans outstanding are ₹100 lakh. For its ratio disclosures, the company has the following preceding-year and current-year figures: Current Ratio 2.00:1 and 1.45:1; Debt-Equity Ratio 1.20:1 and 1.50:1; DSCR 1.60:1 and 1.75:1; Return on Equity 14% and 15%; Inventory Turnover 6 times and 7.5 times; Trade Receivables Turnover 5 times and 6.5 times; Trade Payables Turnover 4 times and 5 times; Net Capital Turnover 3.2 times and 3.5 times; Net Profit Ratio 8% and 10.4%; Return on Capital Employed 12% and 13.2%; and Return on Investment 9% and 9.9%. Current assets are ₹290 lakh and current liabilities are ₹200 lakh. The finance manager proposes omitting explanatory disclosures for ratios whose changes are exactly 25%.

What aggregate carrying value of immovable property must Vardhan Chemicals Ltd. include in its disclosure of title deeds not held in the company's name?

1. ₹4.80 crore
2. ₹8.60 crore
3. ₹6.60 crore (correct answer)
4. ₹3.00 crore

Answer: C — ₹6.60 crore

Explanation. The factory land of ₹4.80 crore must be disclosed because its title deed remains in the previous owner's name. For the jointly held warehouse, the company's share alone is disclosed: ₹3 crore × 60% = ₹1.80 crore. The executed leasehold office building is excluded because the company is lessee under a duly executed lease agreement. Total carrying value requiring disclosure is ₹4.80 + ₹1.80 = ₹6.60 crore.

Where it goes wrong. Disclosing the entire jointly held property value or including property held under a duly executed lease agreement.

Authority. Schedule III, Division I, Part I, Note Y(i), Title Deeds of Immovable Property not held in name of Company; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed pages 11.162–11.163

Question 10 · 2 marks · Chapter 11: Financial Statements of Companies · hard

What amount and aggregate percentage of total loans and advances in the nature of loans should be covered by the disclosure relating to promoters, directors, KMPs and related parties?

1. ₹80 lakh and 90%
2. ₹80 lakh and 80% (correct answer)
3. ₹100 lakh and 100 percent
4. ₹60 lakh and 60%

Answer: B — ₹80 lakh and 80%

Explanation. The qualifying loans are those granted to promoters, directors, KMPs and related parties that are repayable on demand or have no specified repayment terms. The amount is ₹30 + ₹18 + ₹12 + ₹20 = ₹80 lakh. Total loans and advances in the nature of loans are ₹100 lakh, so the aggregate percentage is ₹80/₹100 × 100 = 80%. The additional ₹20 lakh advance has specified repayment instalments and does not qualify for this particular disclosure.

Where it goes wrong. Including a fixed-term advance in the demand-loan disclosure or treating the eligible amount as the entire loan portfolio.

Authority. Schedule III, Division I, Part I, Note Y(iii); Section 2(76), Companies Act, 2013; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.163

Question 11 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Which combination of financial ratios requires additional explanation because the percentage change exceeds 25% compared with the preceding year?

1. Current Ratio, Trade Receivables Turnover Ratio and Net Profit Ratio. (correct answer)
2. Debt-Equity Ratio, Inventory Turnover Ratio and Trade Payables Turnover Ratio.
3. Return on Equity, Return on Capital Employed and Return on Investment.
4. Debt Service Coverage Ratio, Net Capital Turnover Ratio and Return on Equity.

Answer: A — Current Ratio, Trade Receivables Turnover Ratio and Net Profit Ratio.

Explanation. Current Ratio decreases from 2.00 to 1.45, a decline of 0.55/2.00 × 100 = 27.5%. Trade Receivables Turnover increases from 5 to 6.5 times, a 30% increase. Net Profit Ratio rises from 8% to 10.4%, also a 30% increase. The remaining changes are either less than or exactly 25%. Schedule III requires additional explanation only when the change exceeds 25%.

Where it goes wrong. Including ratios that changed by exactly 25%, even though the statutory threshold is more than 25%.

Authority. Schedule III, Division I, Part I, Note Y(xii), Disclosure of Ratios; Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.168

Question 12 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Using the current borrowings and shareholders' funds, calculate the current Debt-Equity Ratio and determine whether its change from the preceding-year ratio requires an additional explanation.

1. 1.20:1; increase of 20%, requiring explanation.
2. 1.25:1; increase of 25%, requiring explanation.
3. 1.50:1; increase of 30%, requiring explanation.
4. 1.50:1; increase of 25%, without the mandatory greater-than-25% explanation. (correct answer)

Answer: D — 1.50:1; increase of 25%, without the mandatory greater-than-25% explanation.

Explanation. Total borrowings are ₹180 lakh + ₹60 lakh = ₹240 lakh. Dividing by shareholders' funds of ₹160 lakh gives a Debt-Equity Ratio of 1.50:1. The preceding ratio is 1.20:1, so the percentage increase is (1.50 − 1.20)/1.20 × 100 = 25%. Since Schedule III requires further explanation for a change of more than 25%, an precise 25% change does not trigger that specific requirement.

Where it goes wrong. Treating an precise 25% movement as exceeding the statutory threshold.

Authority. Schedule III, Division I, Part I, Note Y(xii); Section 129(1), Companies Act, 2013; ICAI Study Material, Chapter 11, printed page 11.168

Question 13 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company first allots 40,000 equity shares to promoter Rohan on 1 October 2026. A further 10,000 shares are allotted to him on 1 February 2027. At 31 March 2027, total equity shares of the company are 5,00,000. What percentage of total shares does Rohan hold, and what is the percentage change in his holding for the year?

A company first allots 40,000 equity shares to promoter Rohan on 1 October 2026. A further 10,000 shares are allotted to him on 1 February 2027. At 31 March 2027, total equity shares of the company are 5,00,000. What percentage of total shares does Rohan hold, and what is the percentage change in his holding for the year?

1. 10% holding; 25% increase from the date of first allotment. (correct answer)
2. 10% holding; 20% increase from the date of first allotment.
3. 12.5% holding; 25% increase from the date of first allotment.
4. 25% holding; 10% increase from the date of first allotment.

Answer: A — 10% holding; 25% increase from the date of first allotment.

Explanation. Rohan holds 50,000 shares at year-end. His percentage of total shares is 50,000/5,00,000 × 100 = 10%. Since the shares were issued to him for the first time during the year, the percentage change is calculated with reference to the 40,000 shares held on the first date of issue. The increase is 10,000/40,000 × 100 = 25%.

Where it goes wrong. Using zero beginning-year holdings as the denominator when the shares were first issued during the year.

Authority. Schedule III, Division I, Part I, Note 6(A)(m); Section 2(69), Companies Act, 2013; Section 129(1), Companies Act, 2013

Question 14 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company has an undisputed payable of ₹1.20 lakh to a registered MSME supplier. The invoice does not mention a contractual payment due date. The underlying purchase transaction occurred 30 months before the balance sheet date. In which ageing category should the amount be reported?

A company has an undisputed payable of ₹1.20 lakh to a registered MSME supplier. The invoice does not mention a contractual payment due date. The underlying purchase transaction occurred 30 months before the balance sheet date. In which ageing category should the amount be reported?

1. Less than one year, under MSME undisputed dues.
2. One to two years, under MSME undisputed dues.
3. More than three years, under MSME undisputed dues.
4. Two to three years, under MSME undisputed dues. (correct answer)

Answer: D — Two to three years, under MSME undisputed dues.

Explanation. The trade payables ageing schedule is measured from the due date of payment. Where no due date is specified, the ageing is measured from the date of the transaction. The purchase transaction occurred 30 months before the reporting date, which falls in the 2–3 years bucket. Since the supplier is an MSME and the payable is undisputed, the amount is shown in the MSME row under that bucket.

Where it goes wrong. Using the invoice date or reporting date incorrectly when the schedule specifically requires the transaction date where no due date is specified.

Authority. Schedule III, Division I, Part I, Note 6(FB), Trade Payables Ageing Schedule; Section 129(1), Companies Act, 2013; MCA Notification G.S.R. 207(E), dated 24 March 2021

Question 15 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company has the following trade receivables ageing balances as at 31 March 2027 (₹ in lakh). The columns represent less than 6 months, 6 months–1 year, 1–2 years, 2–3 years and more than 3 years: Undisputed – good: 5, 3, 2, 1, 1. Undisputed – doubtful: 1, 1, 1, 0.5, 0.5. Disputed – good: 2, 1, 1, 1, Nil. Disputed – doubtful: 0.5, 0.5, 1, 1, 1. What is the aggregate trade receivables balance outstanding for more than two years?

A company has the following trade receivables ageing balances as at 31 March 2027 (₹ in lakh). The columns represent less than 6 months, 6 months–1 year, 1–2 years, 2–3 years and more than 3 years: Undisputed – good: 5, 3, 2, 1, 1. Undisputed – doubtful: 1, 1, 1, 0.5, 0.5. Disputed – good: 2, 1, 1, 1, Nil. Disputed – doubtful: 0.5, 0.5, 1, 1, 1. What is the aggregate trade receivables balance outstanding for more than two years?

1. ₹5 lakh
2. ₹6 lakh (correct answer)
3. ₹8 lakh
4. ₹10 lakh

Answer: B — ₹6 lakh

Explanation. Balances outstanding for more than two years comprise the 2–3 years and more than 3 years columns. The four categories contribute respectively ₹2 lakh, ₹1 lakh, ₹1 lakh and ₹2 lakh. Total outstanding beyond two years is ₹6 lakh. All four categories are included regardless of whether the receivable is disputed or considered doubtful. The first three ageing columns are excluded from the calculation.

Where it goes wrong. Ignoring disputed and doubtful receivables while calculating the oldest outstanding balances.

Authority. Schedule III, Division I, Part I, Note 6(P)(i); Section 129(1), Companies Act, 2013

Question 16 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company reports CWIP ageing details as follows (₹ in lakh): Projects in progress: less than one year ₹20; 1–2 years ₹12; 2–3 years ₹8; more than 3 years ₹5. Projects temporarily suspended: less than one year ₹3; 1–2 years ₹2; 2–3 years ₹1; more than 3 years ₹4. What amount should be reported in the more-than-three-years column for projects in progress only?

A company reports CWIP ageing details as follows (₹ in lakh): Projects in progress: less than one year ₹20; 1–2 years ₹12; 2–3 years ₹8; more than 3 years ₹5. Projects temporarily suspended: less than one year ₹3; 1–2 years ₹2; 2–3 years ₹1; more than 3 years ₹4. What amount should be reported in the more-than-three-years column for projects in progress only?

1. ₹9 lakh
2. ₹7 lakh
3. ₹5 lakh (correct answer)
4. ₹4 lakh

Answer: C — ₹5 lakh

Explanation. The more-than-three-years column must distinguish projects in progress from projects temporarily suspended. Projects in progress contribute ₹5 lakh, while suspended projects contribute ₹4 lakh. The question specifically asks for projects in progress only, so the correct amount is ₹5 lakh. Although the total balance in the oldest bucket is ₹9 lakh, reporting the combined amount in the projects-in-progress row would incorrectly merge the two categories.

Where it goes wrong. Adding temporarily suspended projects to the projects-in-progress row instead of showing them separately.

Authority. Schedule III, Division I, Part I, Note Y(iv)(a); Section 129(1), Companies Act, 2013

Question 17 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company's CWIP project completion records identify the following projects whose completion is overdue or whose costs have exceeded original estimates (₹ in lakh): Project A: 12, expected completion within one year. Project B: 16, expected completion in 1–2 years. Project C: 9, expected completion in 2–3 years. Project D: 7, expected completion after three years. A separate project of ₹5 lakh has been temporarily suspended. What amount should be included in the completion schedule for projects expected to be completed within two years?

A company's CWIP project completion records identify the following projects whose completion is overdue or whose costs have exceeded original estimates (₹ in lakh): Project A: 12, expected completion within one year. Project B: 16, expected completion in 1–2 years. Project C: 9, expected completion in 2–3 years. Project D: 7, expected completion after three years. A separate project of ₹5 lakh has been temporarily suspended. What amount should be included in the completion schedule for projects expected to be completed within two years?

1. ₹28 lakh (correct answer)
2. ₹33 lakh
3. ₹16 lakh
4. ₹44 lakh

Answer: A — ₹28 lakh

Explanation. The projects expected to be completed within two years are Project A and Project B. Their amounts are ₹12 lakh and ₹16 lakh, respectively. The completion schedule therefore reports ₹28 lakh for the less-than-one-year and 1–2-year periods. Projects C and D fall into later completion periods, while the temporarily suspended project must be separately identified. Its ₹5 lakh balance is not included in the normal completion buckets.

Where it goes wrong. Including the suspended project in the regular completion schedule or omitting the 1–2-year completion bucket.

Authority. Schedule III, Division I, Part I, Note Y(iv)(b); Section 129(1), Companies Act, 2013

Question 18 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company has Intangible Assets under Development of ₹24 lakh, analysed as follows (₹ in lakh): Projects in progress: less than one year ₹10; 1–2 years ₹4; 2–3 years ₹3; more than 3 years ₹2. Projects temporarily suspended: less than one year ₹2; 1–2 years ₹1; 2–3 years ₹1; more than 3 years ₹1. What is the total amount outstanding for more than three years?

A company has Intangible Assets under Development of ₹24 lakh, analysed as follows (₹ in lakh): Projects in progress: less than one year ₹10; 1–2 years ₹4; 2–3 years ₹3; more than 3 years ₹2. Projects temporarily suspended: less than one year ₹2; 1–2 years ₹1; 2–3 years ₹1; more than 3 years ₹1. What is the total amount outstanding for more than three years?

1. ₹2 lakh
2. ₹4 lakh
3. ₹5 lakh
4. ₹3 lakh (correct answer)

Answer: D — ₹3 lakh

Explanation. The more-than-three-years bucket contains ₹2 lakh for projects in progress and ₹1 lakh for temporarily suspended projects. The aggregate is ₹3 lakh. The two categories must be separately identifiable in the statutory ageing schedule, although they are added when calculating the total amount in the oldest ageing column. The total of all ageing buckets must also reconcile with the balance-sheet amount of ₹24 lakh.

Where it goes wrong. Reporting only the ongoing-project balance and omitting the suspended-project balance from the total ageing bucket.

Authority. Schedule III, Division I, Part I, Note Y(v)(a); Section 129(1), Companies Act, 2013

Question 19 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company has two immovable properties whose title deeds are not held in its name. Property X is recorded at ₹2.50 crore, with the title deed in the name of a former owner. Property Y is jointly held: the entire property's carrying value is ₹3.60 crore, but the company owns only 50%. A separate office building is occupied as lessee under a duly executed lease agreement. What aggregate carrying value should be included in the title-deed disclosure?

A company has two immovable properties whose title deeds are not held in its name. Property X is recorded at ₹2.50 crore, with the title deed in the name of a former owner. Property Y is jointly held: the entire property's carrying value is ₹3.60 crore, but the company owns only 50%. A separate office building is occupied as lessee under a duly executed lease agreement. What aggregate carrying value should be included in the title-deed disclosure?

1. ₹6.10 crore
2. ₹4.30 crore (correct answer)
3. ₹4.50 crore
4. ₹2.50 crore

Answer: B — ₹4.30 crore

Explanation. Property X is disclosed at ₹2.50 crore. For jointly held Property Y, disclosure is limited to the company's interest: ₹3.60 crore × 50% = ₹1.80 crore. The executed leasehold building is excluded because the company is a lessee under a duly executed lease agreement. Thus, the aggregate carrying value to be disclosed is ₹2.50 + ₹1.80 = ₹4.30 crore.

Where it goes wrong. Disclosing the whole jointly owned property's value or including a properly documented leasehold property.

Authority. Schedule III, Division I, Part I, Note Y(i); Section 129(1), Companies Act, 2013

Question 20 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company has total loans and advances in the nature of loans of ₹125 lakh outstanding. This includes ₹40 lakh granted to promoters, ₹20 lakh to directors, ₹10 lakh to KMPs and ₹30 lakh to related parties, all repayable on demand. The remaining ₹25 lakh relates to an unrelated borrower. What percentage of total loans and advances in the nature of loans should be disclosed against Directors?

A company has total loans and advances in the nature of loans of ₹125 lakh outstanding. This includes ₹40 lakh granted to promoters, ₹20 lakh to directors, ₹10 lakh to KMPs and ₹30 lakh to related parties, all repayable on demand. The remaining ₹25 lakh relates to an unrelated borrower. What percentage of total loans and advances in the nature of loans should be disclosed against Directors?

1. 12%
2. 25%
3. 16% (correct answer)
4. 20%

Answer: C — 16%

Explanation. The outstanding demand loan to directors is ₹20 lakh. The prescribed percentage is calculated using total loans and advances in the nature of loans outstanding as the denominator. Accordingly, ₹20/₹125 × 100 = 16%. The amount granted to directors is not divided merely by the aggregate of the four specified borrower groups; the stated total portfolio of ₹125 lakh is the relevant denominator.

Where it goes wrong. Using the total loans granted to the four specified borrower categories instead of the stated total loan portfolio.

Authority. Schedule III, Division I, Part I, Note Y(iii); Section 2(76), Companies Act, 2013; Section 129(1), Companies Act, 2013

Question 21 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company uses Net Credit Sales divided by Average Trade Receivables as its stated formula for Trade Receivables Turnover Ratio. Net credit sales are ₹900 lakh. Opening trade receivables are ₹90 lakh and closing trade receivables are ₹110 lakh. Calculate the ratio.

A company uses Net Credit Sales divided by Average Trade Receivables as its stated formula for Trade Receivables Turnover Ratio. Net credit sales are ₹900 lakh. Opening trade receivables are ₹90 lakh and closing trade receivables are ₹110 lakh. Calculate the ratio.

1. 9 times (correct answer)
2. 8 times
3. 10 times
4. 11 times

Answer: A — 9 times

Explanation. Average trade receivables are (₹90 + ₹110)/2 = ₹100 lakh. Applying the company's stated formula, Trade Receivables Turnover Ratio is ₹900/₹100 = 9 times. The closing balance alone should not be used because the prescribed disclosure requires the company to explain the numerator and denominator adopted for its ratios. Average receivables provide the denominator specified in the question.

Where it goes wrong. Using closing receivables instead of average receivables when the company's stated ratio formula specifies the average.

Authority. Schedule III, Division I, Part I, Note Y(xii), Trade Receivables Turnover Ratio; Section 129(1), Companies Act, 2013

Question 22 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company's ratio increases from 0.90:1 in the preceding year to 1.14:1 in the current year. What is the percentage change, and what disclosure is required under Schedule III?

A company's ratio increases from 0.90:1 in the preceding year to 1.14:1 in the current year. What is the percentage change, and what disclosure is required under Schedule III?

1. 24%; no additional explanation is required.
2. 25%; additional explanation is required.
3. 26%; no additional explanation is required.
4. 26.67%; additional explanation is required. (correct answer)

Answer: D — 26.67%; additional explanation is required.

Explanation. The absolute increase is 1.14 − 0.90 = 0.24. Percentage change is calculated with the preceding-year ratio as the base: 0.24/0.90 × 100 = 26.67%. Since the change exceeds 25%, Schedule III requires the company to provide an explanation for the change. Comparing only the absolute ratio-point difference with 25% would be an incorrect interpretation of the threshold.

Where it goes wrong. Calculating the percentage movement using the current-year ratio as the denominator instead of the preceding-year ratio.

Authority. Schedule III, Division I, Part I, Note Y(xii); Section 129(1), Companies Act, 2013

Question 23 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company has long-term borrowings of ₹150 lakh, short-term borrowings of ₹50 lakh and shareholders' funds of ₹100 lakh. As per its disclosed ratio policy, Debt-Equity Ratio is calculated as total borrowings divided by shareholders' funds. What is the ratio?

A company has long-term borrowings of ₹150 lakh, short-term borrowings of ₹50 lakh and shareholders' funds of ₹100 lakh. As per its disclosed ratio policy, Debt-Equity Ratio is calculated as total borrowings divided by shareholders' funds. What is the ratio?

1. 1.50:1
2. 2.00:1 (correct answer)
3. 1.25:1
4. 2.50:1

Answer: B — 2.00:1

Explanation. Total borrowings are ₹150 lakh + ₹50 lakh = ₹200 lakh. Dividing this by shareholders' funds of ₹100 lakh gives Debt-Equity Ratio of ₹200/₹100 = 2.00:1. The question specifies the company's numerator and denominator, which must be explained in the notes as required by Schedule III. Trade payables and other non-borrowing liabilities are not added to the borrowings figure under the stated formula.

Where it goes wrong. Ignoring short-term borrowings or including trade payables in total borrowings despite the stated ratio policy.

Authority. Schedule III, Division I, Part I, Note Y(xii), Debt-Equity Ratio; Section 129(1), Companies Act, 2013

Question 24 · 2 marks · Chapter 11: Financial Statements of Companies · hard

Scenario. A company calculates Debt Service Coverage Ratio using the following formula: (Net Profit after Tax + Depreciation + Interest on Term Loan) / (Interest on Term Loan + Principal Repayment). The relevant figures are: Net Profit after Tax ₹72 lakh, Depreciation ₹18 lakh, Interest on Term Loan ₹10 lakh and Scheduled Principal Repayment ₹20 lakh. Calculate DSCR.

A company calculates Debt Service Coverage Ratio using the following formula: (Net Profit after Tax + Depreciation + Interest on Term Loan) / (Interest on Term Loan + Principal Repayment). The relevant figures are: Net Profit after Tax ₹72 lakh, Depreciation ₹18 lakh, Interest on Term Loan ₹10 lakh and Scheduled Principal Repayment ₹20 lakh. Calculate DSCR.

1. 2.50:1
2. 3.00:1
3. 3.33:1 (correct answer)
4. 4.00:1

Answer: C — 3.33:1

Explanation. Earnings available for debt service are ₹72 + ₹18 + ₹10 = ₹100 lakh. Debt service comprises interest of ₹10 lakh and scheduled principal repayment of ₹20 lakh, totalling ₹30 lakh. DSCR is therefore ₹100/₹30 = 3.33:1, approximately. Both numerator and denominator must be explained in the statutory ratio disclosures. Omitting interest from the numerator or principal repayment from the denominator would distort the ratio.

Where it goes wrong. Omitting interest from earnings available for debt service or excluding principal repayment from the debt-service denominator.

Authority. Schedule III, Division I, Part I, Note Y(xii), Debt Service Coverage Ratio; Section 129(1), Companies Act, 2013

Question 25 · 2 marks · Chapter 11: Financial Statements of Companies · medium

Scenario. A company reports Profit after Tax of ₹96 lakh and Revenue from Operations of ₹800 lakh in the current year. The preceding year's Net Profit Ratio was 10%. Using Profit after Tax divided by Revenue from Operations, calculate the current Net Profit Ratio and determine whether the change triggers the additional explanation requirement under Schedule III.

A company reports Profit after Tax of ₹96 lakh and Revenue from Operations of ₹800 lakh in the current year. The preceding year's Net Profit Ratio was 10%. Using Profit after Tax divided by Revenue from Operations, calculate the current Net Profit Ratio and determine whether the change triggers the additional explanation requirement under Schedule III.

1. 12%; increase of 20%; no mandatory additional explanation. (correct answer)
2. 12%; increase of 25%; mandatory additional explanation.
3. 10%; unchanged; no mandatory additional explanation.
4. 12%; increase of 30%; mandatory additional explanation.

Answer: A — 12%; increase of 20%; no mandatory additional explanation.

Explanation. The current Net Profit Ratio is ₹96/₹800 × 100 = 12%. The increase over the preceding-year ratio of 10% is 2 percentage points. Relative percentage change is 2/10 × 100 = 20%. Since the movement is not more than 25%, the additional explanation requirement specifically linked to a greater-than-25% change is not triggered. The ratio itself and its numerator and denominator must nevertheless be disclosed.

Where it goes wrong. Mistaking the percentage-point increase of 2 points for a 25% or greater relative percentage change.

Authority. Schedule III, Division I, Part I, Note Y(xii), Net Profit Ratio; Section 129(1), Companies Act, 2013