CA Inter Advanced Accounting MCQ Test 1: answer key
This practice test covers Advanced Accounting for CA Intermediate Group 1 students preparing for the January 2027 examination attempt. It carries 30 marks across 15 questions in 6 case scenarios with a time limit of 60 minutes and no negative marking.
15 questions across 12 chapters, 30 marks and 60 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: Accounting Standards (AS 1 to AS 29 applicable to CA Intermediate), Framework for the Preparation and Presentation of Financial Statements, and Companies Act 2013 (Schedule III Division I and relevant Rules) as in the ICAI Study Material for Paper 1.
Questions
15
Marks
30
Time limit
60 minutes
Attempt
January 2027
Group
Group 1
Law basis
Accounting Standards (AS 1 to AS 29 applicable to CA Intermediate), Framework for the Preparation and Presentation of Financial Statements, and Companies Act 2013 (Schedule III Division I and relevant Rules) as in the ICAI Study Material for Paper 1
Content as of
2026-11-02
Chapters covered
AS 10 Property, Plant and Equipment (1 Q)
AS 16 Borrowing Costs (1 Q)
AS 2 Valuation of Inventories (1 Q)
AS 29 Provisions, Contingent Liabilities and Contingent Assets (1 Q)
AS 1 Disclosure of Accounting Policies (1 Q)
AS 11 The Effects of Changes in Foreign Exchange Rates (1 Q)
AS 12 Accounting for Government Grants (1 Q)
AS 15 Employee Benefits (2 Q)
AS 20 Earnings Per Share (1 Q)
Buy-back of Securities (3 Q)
AS 3 Cash Flow Statements (1 Q)
Schedule III Division I (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 10 Property, Plant and Equipment · hard
Scenario. Vardhman Precision Components Ltd. prepares accounts to 31 March. On 1 April 2025 it began construction of an automated forging line, a qualifying asset, using a specific loan of ₹60,00,000 taken at 12% p.a. The line was ready for use on 31 January 2026, although trial runs continued till 15 February 2026. Unutilised loan money was placed in bank deposits and earned ₹75,000 during the construction period. Interest for the full year on the loan was ₹7,20,000. On 1 April 2025 the company also installed a special-purpose machine at ₹90,00,000. Its significant components are: main frame ₹60,00,000 with 15-year life, replaceable rotor ₹24,00,000 with 5-year life and a major inspection component ₹6,00,000 requiring inspection every 3 years. Depreciation is SLM with nil residual value. No component was replaced during 2025-26. The company holds 500 kg of raw material M, purchased at ₹1,700 per kg, for use in product Z. Each kg makes one unit of Z; conversion cost is ₹450 per unit; Z sells at ₹2,050 per unit and selling expense is ₹120 per unit. Replacement cost of M is ₹1,520 per kg. At year-end, warranty records show outstanding invoice balances of ₹18,00,000 with remaining warranty below one year and ₹9,00,000 above one year. Warranty provision is 2% and 3% respectively. Opening warranty provision was ₹42,000; claims paid during the year were ₹55,000.
What is the depreciation on the special-purpose machine for FY 2025-26?
Explanation. AS 10 requires each significant part of an item of PPE to be depreciated separately. Depreciation is ₹60,00,000 ÷ 15 = ₹4,00,000; ₹24,00,000 ÷ 5 = ₹4,80,000; and ₹6,00,000 ÷ 3 = ₹2,00,000. Total is ₹10,80,000. The inspection component is depreciated over its inspection cycle; ignoring it gives a tempting but lower figure.
Where it goes wrong. Depreciating the entire machine over one common life or ignoring the major inspection component.
Authority. AS 10
Question 2 · 2 marks · AS 16 Borrowing Costs · hard
What amount of borrowing cost may be capitalised in the cost of the forging line for FY 2025-26?
₹6,00,000
₹5,25,000 (correct answer)
₹7,20,000
₹4,50,000
Answer: B — ₹5,25,000
Working. Interest for 10 months = 60,00,000 × 12% × 10/12 = 6,00,000. Less temporary investment income = 75,000. Eligible = 5,25,000.
Explanation. For a specific borrowing, AS 16 permits capitalisation of actual borrowing cost less income from temporary investment of those borrowings. Capitalisation stops when the asset is ready for use on 31 January 2026, i.e. 10 months. Interest is ₹60,00,000 × 12% × 10/12 = ₹6,00,000; less ₹75,000 = ₹5,25,000. Using 12 months wrongly gives ₹6,45,000 before income deduction.
Where it goes wrong. Taking full-year interest or deducting temporary income after capitalising the full interest.
Authority. AS 16
Question 3 · 2 marks · AS 2 Valuation of Inventories · hard
What is the value of 500 kg of raw material M at 31 March 2026?
₹8,50,000
₹9,65,000
₹8,00,000
₹7,60,000 (correct answer)
Answer: D — ₹7,60,000
Working. Finished cost per unit = 1,700 + 450 = 2,150. NRV per unit = 2,050 - 120 = 1,930. Cost > NRV, so material is written down to replacement cost: 500 × 1,520 = 7,60,000.
Explanation. Finished product cost is ₹1,700 + ₹450 = ₹2,150; net realisable value is ₹2,050 − ₹120 = ₹1,930. Since the finished product NRV is below cost, raw material is written down; replacement cost ₹1,520 per kg is used as the measure. 500 kg × ₹1,520 = ₹7,60,000. Valuing at raw material cost ignores the lower finished product NRV.
Where it goes wrong. Not writing down raw material because it is held for use, or using finished product NRV directly without units.
Authority. AS 2
Question 4 · 2 marks · AS 29 Provisions, Contingent Liabilities and Contingent Assets · medium
What amount is charged to profit and loss for warranty for FY 2025-26?
Explanation. Closing warranty provision is 2% of ₹18,00,000 plus 3% of ₹9,00,000 = ₹36,000 + ₹27,000 = ₹63,000. The P&L charge is closing provision plus claims paid less opening provision: ₹63,000 + ₹55,000 − ₹42,000 = ₹76,000. Taking only the closing provision ignores claims and opening balance.
Where it goes wrong. Using only the closing provision or ignoring opening provision and claims paid.
Authority. AS 29
Question 5 · 2 marks · AS 1 Disclosure of Accounting Policies · medium
Scenario. Suryodaya Foods Ltd. recognises revenue only when cash is received and expenses only when paid. In the notes, it states: Accounts are prepared on cash basis; accrual has not been followed, and this change was made for administrative convenience. The company continues to describe the statements as prepared under the applicable Accounting Standards. You are examining the disclosure treatment under AS 1.
Which treatment is appropriate under AS 1?
Cash basis is acceptable if the notes state that accrual has not been followed and the reason is administrative convenience.
No disclosure is needed because selecting cash basis is a management policy choice and consistency has been maintained across years.
The fact that accrual has not been followed must be disclosed, and the effect on the statements should be indicated; disclosure alone does not make cash basis acceptable. (correct answer)
The shift to cash basis is a change in accounting estimate; its effect is adjusted prospectively in the current year without any note disclosure.
Answer: C — The fact that accrual has not been followed must be disclosed, and the effect on the statements should be indicated; disclosure alone does not make cash basis acceptable.
Working. Identify the fundamental assumption: accrual. If not followed, disclose the fact and effect. No calculation.
Explanation. AS 1 treats going concern, consistency and accrual as fundamental accounting assumptions. If accrual is not followed, the fact and its effect should be disclosed. A note does not make a cash basis statement compliant with accrual; it only informs users of the departure. Treating it as a change in estimate is wrong because this is a policy departure, not an estimate revision.
Where it goes wrong. Believing note disclosure converts an unacceptable cash basis into compliance.
Authority. AS 1
Question 6 · 2 marks · AS 11 The Effects of Changes in Foreign Exchange Rates · hard
Scenario. Orion Advanced Materials Ltd. closes accounts on 31 March. On 1 January 2026 it bought equipment from a US supplier for USD 2,00,000 payable after six months. Spot rate on 1 January was ₹84 per USD. On the same date Orion entered a six-month forward contract to buy USD 2,00,000 at ₹86 per USD. On 31 March 2026 the spot rate was ₹88 per USD. The contract was not for trading; the company measures exchange differences on the contract from the spot rates at inception and year-end and amortises the forward premium over the contract life. On 1 April 2024 Orion received a government grant of ₹30,00,000 for machinery costing ₹1,50,00,000. The grant was credited to the machinery account. Depreciation is SLM over 10 years with nil residual value. On 1 April 2026 Orion refunded the grant because conditions were not met. On 1 April 2025 the fair value of pension plan assets was ₹12,00,000. On 30 September 2025 the plan paid benefits of ₹1,40,000 and received contributions of ₹3,60,000. On 31 March 2026 the fair value was ₹16,80,000. Expected return was 9% p.a. For expected return, treat the net inflow on 30 September as invested for six months at 4.5%.
What net amount is recognised in profit or loss for FY 2025-26 for the forward contract?
₹2,00,000 expense
₹8,00,000 income
₹4,00,000 income
₹6,00,000 income (correct answer)
Answer: D — ₹6,00,000 income
Working. Premium = (86-84)×2,00,000 = 4,00,000. Current year premium expense = 4,00,000×3/6 = 2,00,000. Exchange gain = (88-84)×2,00,000 = 8,00,000. Net = 6,00,000 income.
Explanation. The forward premium is (₹86 − ₹84) × 2,00,000 = ₹4,00,000 over six months; three months belong to FY 2025-26, so expense is ₹2,00,000. The exchange difference on the contract is (₹88 − ₹84) × 2,00,000 = ₹8,00,000 income. Net income is ₹8,00,000 − ₹2,00,000 = ₹6,00,000. Taking the full premium or only the exchange gain misses the net treatment.
Where it goes wrong. Recognising the entire forward premium in the current year or ignoring premium amortisation.
Authority. AS 11
Question 7 · 2 marks · AS 12 Accounting for Government Grants · hard
What is the carrying amount of the machinery immediately after the refund on 1 April 2026?
Explanation. The grant was credited to the asset, so initial carrying amount was ₹1,50,00,000 − ₹30,00,000 = ₹1,20,00,000. Depreciation for two years is ₹12,00,000 × 2 = ₹24,00,000, leaving ₹96,00,000. AS 12 records a refund of a capital grant by increasing the asset carrying amount by ₹30,00,000, giving ₹1,26,00,000 before prospective depreciation on the revised amount.
Where it goes wrong. Ignoring the refund addition or charging retrospective depreciation immediately.
Authority. AS 12
Question 8 · 2 marks · AS 15 Employee Benefits · medium
What is the actual return on plan assets for FY 2025-26?
Explanation. Actual return is closing fair value less opening fair value less contributions plus benefits paid: ₹16,80,000 − ₹12,00,000 − ₹3,60,000 + ₹1,40,000 = ₹2,60,000. Using closing minus opening alone ignores the cash flows into and out of the plan.
Where it goes wrong. Taking closing fair value minus opening fair value without adjusting contributions and benefits.
Authority. AS 15
Question 9 · 2 marks · AS 15 Employee Benefits · hard
What is the expected return on plan assets for FY 2025-26?
₹1,08,000
₹1,25,000
₹1,17,900 (correct answer)
₹1,20,000
Answer: C — ₹1,17,900
Working. Opening: 12,00,000×9% = 1,08,000. Net inflow: 3,60,000 - 1,40,000 = 2,20,000. For six months: 2,20,000×4.5% = 9,900. Total = 1,17,900.
Explanation. Expected return on opening assets is ₹12,00,000 × 9% = ₹1,08,000. The net inflow on 30 September is ₹3,60,000 − ₹1,40,000 = ₹2,20,000; for six months at 4.5% it gives ₹9,900. Total expected return is ₹1,17,900. Taking 9% on closing assets or ignoring timing gives a different figure.
Where it goes wrong. Applying the annual rate to the closing balance or ignoring the half-year timing of net contributions.
Authority. AS 15
Question 10 · 2 marks · AS 20 Earnings Per Share · medium
Scenario. Crestline Technologies Ltd. reported basic EPS of ₹8.00 for FY 2024-25 based on 5,00,000 equity shares. On 1 October 2025, during FY 2025-26, it issued one bonus share for every four shares held. No other changes in equity occurred. While preparing FY 2025-26 statements, the accountant retained ₹8.00 as the comparative basic EPS for FY 2024-25 on the ground that bonus shares were issued only in FY 2025-26. You are applying AS 20.
What is the restated comparative basic EPS for FY 2024-25 under AS 20?
Explanation. AS 20 requires the number of shares before a bonus issue to be adjusted by the bonus factor for all periods presented. The factor is 1 + 1/4 = 1.25. Restated EPS is ₹8.00 ÷ 1.25 = ₹6.40. Retaining ₹8.00 ignores the bonus issue and makes comparatives not comparable.
Where it goes wrong. Not restating the prior period EPS for the bonus issue.
Authority. AS 20
Question 11 · 2 marks · Buy-back of Securities · hard
Scenario. Pinnacle Infra Ltd., a non-listed company, has the following position on 31 March 2026: equity share capital 80,00,000 shares of ₹10 each fully paid ₹8,00,00,000; general reserve ₹3,20,00,000; securities premium ₹1,10,00,000; profit and loss balance ₹90,00,000; revaluation reserve ₹60,00,000; loan funds ₹14,00,00,000. The board proposes to buy back 8,00,000 equity shares at ₹24 per share. To part-fund the buyback, the company sold non-current investments costing ₹28,00,000 for ₹25,00,000. The buyback is authorised by its articles and by a special resolution; all shares are fully paid. The company wants to adjust premium on buyback first against securities premium and the balance, if any, against general reserve. The statutory transfer to Capital Redemption Reserve under Section 69 is to be made from general reserve. Ignore tax on sale of investments. The company follows Schedule III Division I.
What is the maximum number of equity shares Pinnacle can buy back at ₹24 after applying the Section 68 limits?
13,75,000 shares (correct answer)
20,00,000 shares
8,00,000 shares
18,23,529 shares
Answer: A — 13,75,000 shares
Working. Paid-up + available reserves = 8,00,00,000 + (3,20,00,000 + 1,10,00,000 + 90,00,000) = 13,20,00,000. 25% = 3,30,00,000. Shares = 3,30,00,000 / 24 = 13,75,000. Shares outstanding test = 20,00,000. Debt test is not lower.
Explanation. The resources test gives 25% of paid-up capital plus reserves available for dividend: 25% of ₹13,20,00,000 = ₹3,30,00,000. At ₹24 per share this permits 13,75,000 shares. The 25% shares outstanding test gives 20,00,000 shares. The debt-equity test does not reduce this figure below 13,75,000. Taking 25% of share capital alone or the proposed 8,00,000 shares is not the statutory maximum.
Where it goes wrong. Applying only the 25% shares outstanding test or treating revaluation reserve as available.
Authority. Section 68, Companies Act 2013
Question 12 · 2 marks · Buy-back of Securities · hard
For the proposed buyback of 8,00,000 shares at ₹24, what is the closing balance of General Reserve after premium adjustment and CRR transfer?
₹2,40,00,000
₹3,18,00,000
₹2,36,00,000
₹2,38,00,000 (correct answer)
Answer: D — ₹2,38,00,000
Working. Premium total = 8,00,000×14 = 1,12,00,000. Securities premium used = 1,10,00,000. General premium shortfall = 2,00,000. CRR = 8,00,000×10 = 80,00,000. Closing general = 3,20,00,000 - 2,00,000 - 80,00,000 = 2,38,00,000.
Explanation. Premium on buyback is 8,00,000 × (₹24 − ₹10) = ₹1,12,00,000. Securities premium absorbs ₹1,10,00,000; balance ₹2,00,000 is charged to general reserve. CRR transfer is nominal value 8,00,000 × ₹10 = ₹80,00,000 from general reserve. Closing general reserve is ₹3,20,00,000 − ₹2,00,000 − ₹80,00,000 = ₹2,38,00,000. Using only the CRR transfer or only premium gives other options.
Where it goes wrong. Forgetting the securities premium shortfall or the CRR transfer from general reserve.
Authority. Section 69, Companies Act 2013
Question 13 · 2 marks · Buy-back of Securities · hard
What total amount is shown under Reserves and Surplus immediately after the proposed buyback?
₹5,80,00,000
₹4,70,00,000
₹4,65,00,000 (correct answer)
₹4,80,00,000
Answer: C — ₹4,65,00,000
Working. Opening reserves = 3,20,00,000+1,10,00,000+90,00,000+60,00,000 = 5,80,00,000. Reduce premium paid 1,12,00,000. CRR transfer is internal. Closing = 4,68,00,000.
Explanation. Opening free reserves and securities premium total ₹5,80,00,000. Premium payable on buyback is ₹1,12,00,000, which is written off against reserves. In addition, the sale of non-current investments (cost ₹28,00,000 sold for ₹25,00,000) results in a loss of ₹3,00,000 debited to profit and loss. Hence, the remaining balance under Reserves and Surplus is ₹5,80,00,000 − ₹1,12,00,000 − ₹3,00,000 = ₹4,65,00,000.
Where it goes wrong. Reducing reserves by the full buyback consideration or treating CRR transfer as a further reduction.
Authority. Schedule III Division I; Section 69, Companies Act 2013
Question 14 · 2 marks · AS 3 Cash Flow Statements · medium
Under AS 3, how should the buyback payment and sale proceeds of investments be classified?
Buyback ₹1,92,00,000 is operating; sale ₹25,00,000 is investing.
Buyback ₹1,92,00,000 is financing; sale ₹25,00,000 is investing. (correct answer)
Buyback ₹1,92,00,000 is financing; sale ₹25,00,000 is operating.
Buyback ₹1,92,00,000 is investing; sale ₹25,00,000 is financing.
Answer: B — Buyback ₹1,92,00,000 is financing; sale ₹25,00,000 is investing.
Working. Buyback = 8,00,000×24 = 1,92,00,000 financing. Investment sale proceeds = 25,00,000 investing. Loss = 3,00,000 adjusted in operating reconciliation.
Explanation. AS 3 classifies cash paid to owners to acquire or redeem the entity's shares as a financing activity. Buyback payment is ₹8,00,000 × ₹24 = ₹1,92,00,000. Sale proceeds from non-current investments are an investing activity, ₹25,00,000. The loss on sale is added back in the operating section reconciliation, not classified as operating cash flow itself.
Where it goes wrong. Classifying buyback as operating or the investment sale as financing because it part-funded the buyback.
Authority. AS 3
Question 15 · 2 marks · Schedule III Division I · medium
Scenario. Sundara Traders Ltd. has an operating cycle of 18 months. On 31 March 2026 it has two trade payables: ₹18,00,000 for raw material purchased on credit, due in 14 months; and ₹12,00,000 for shop consumables, due in 20 months. Both are expected to be settled in the ordinary course of business. You are classifying these items under Schedule III Division I.
How should the two trade payables be classified under Schedule III Division I?
Both are current liabilities.
Both are non-current liabilities.
Raw material payable is non-current; consumables payable is current.
Raw material payable is current; consumables payable is non-current. (correct answer)
Answer: D — Raw material payable is current; consumables payable is non-current.
Explanation. Schedule III uses the operating cycle for current classification. The raw material payable is due in 14 months, within the 18-month operating cycle, so it is current. The consumables payable is due in 20 months, beyond the operating cycle, so it is non-current. Applying a rigid 12-month rule to both items is the common trap.
Where it goes wrong. Classifying both payables by the 12-month rule without considering the 18-month operating cycle.
Authority. Schedule III Division I, Companies Act 2013
Authorities cited in this paper
AS 10 · AS 16 · AS 2 · AS 29 · AS 1 · AS 11 · AS 12 · AS 15 · AS 20 · Section 68, Companies Act 2013 · Section 69, Companies Act 2013 · Schedule III Division I · AS 3 · Schedule III Division I, Companies Act 2013
Questions people ask
What does this Advanced Accounting test cover?
This practice paper carries 30 marks across 15 questions arranged in 6 case scenarios covering AS 1 Disclosure of Accounting Policies, AS 2 Valuation of Inventories, AS 3 Cash Flow Statements, AS 10 Property, Plant and Equipment, AS 11 The Effects of Changes in Foreign Exchange Rates, AS 12 Accounting for Government Grants, AS 15 Employee Benefits, AS 16 Borrowing Costs, AS 20 Earnings Per Share, AS 29 Provisions, Contingent Liabilities and Contingent Assets, Buy-back of Securities and Schedule III Division I. Each scenario presents realistic commercial transactions, financial statements, and statutory adjustments requiring practical computations and accounting standard applications.
How many questions are there and what is the time limit?
There are 15 questions carrying 2 marks each, giving a maximum score of 30 marks. The time limit is 60 minutes. There is no negative marking, so an incorrect answer costs nothing.
Which accounting standards and statutory enactments are tested?
The questions follow the ICAI Study Material for Paper 1: Advanced Accounting (relevant for the January 2027 examination attempt). This covers Accounting Standards (AS 1 to AS 29 applicable to CA Intermediate), the Framework for the Preparation and Presentation of Financial Statements, and Schedule III Division I of the Companies Act 2013.
Which specific chapters and standards are included in this paper?
The questions are drawn from AS 1 Disclosure of Accounting Policies, AS 2 Valuation of Inventories, AS 3 Cash Flow Statements, AS 10 Property, Plant and Equipment, AS 11 The Effects of Changes in Foreign Exchange Rates, AS 12 Accounting for Government Grants, AS 15 Employee Benefits, AS 16 Borrowing Costs, AS 20 Earnings Per Share, AS 29 Provisions, Contingent Liabilities and Contingent Assets, Buy-back of Securities and Schedule III Division I. They evaluate balance sheet carrying amounts, profit and loss adjustments, journal entries, disclosure thresholds, and statutory reserve transfers.
Is this test affiliated with ICAI?
No. This is an independent practice paper prepared for CA Intermediate students. It is not issued by or affiliated with ICAI. Questions are prepared with AI tools and cross-checked by independent solvers; they are not reviewed by a Chartered Accountant.
How do exam mode and practice mode work?
In exam mode the test is timed and marked upon final submission, providing your score, tier, and a performance certificate. In practice mode you can review answers, step-by-step workings, and standard citations as you work through the questions.
Are the questions purely theoretical or numerical and application-oriented?
Every question is application-oriented and based on a detailed factual case scenario with realistic corporate events, ledger balances, transaction dates, and practical computations.
What should I do if I notice a potential mistake in a question?
Every question on the review screen includes a Report a mistake button that allows students to submit feedback directly.
