CA Inter Advanced Accounting MCQ Test 10: 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 7 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
Consolidated Financial Statements (AS 23) (4 Q)
Interim Financial Reporting (AS 25) (1 Q)
Property, Plant and Equipment (AS 10) (1 Q)
Impairment of Assets (AS 28) (3 Q)
Events After the Balance Sheet Date (AS 4) (1 Q)
Branch Accounting Including Foreign Branches (4 Q)
Financial Statements of Companies (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Consolidated Financial Statements (AS 23) · hard
Scenario. P Ltd prepares consolidated financial statements for the year ended 31 March 2026. On 1 April 2025 it acquired 30% of the equity shares of A Ltd for ₹18,00,000 and treats A Ltd as an associate under AS 23. On the acquisition date A Ltd had equity share capital of ₹40,00,000 and reserves of ₹10,00,000. The fair values of A Ltd net assets equalled their book values and there were no contingent liabilities. For 2025-26 A Ltd reported profit after tax of ₹12,00,000 and paid dividend of ₹4,00,000. P Ltd sold goods to A Ltd during the year at a profit of ₹5,00,000. At 31 March 2026, 40% of those goods remained in A Ltd inventory. P Ltd has no other transactions with A Ltd. P Ltd also has a subsidiary S Ltd, but the questions below concern only the associate accounting and related consolidation adjustments. Ignore taxes and impairment. P Ltd uses the equity method for A Ltd in consolidated financial statements.
What is the amount of goodwill arising on acquisition of the investment in associate A Ltd?
₹6,00,000
₹3,00,000 (correct answer)
₹4,50,000
₹1,50,000
Answer: B — ₹3,00,000
Working. Net assets at acquisition = share capital ₹40,00,000 + reserves ₹10,00,000 = ₹50,00,000. P share = 30% × ₹50,00,000 = ₹15,00,000. Goodwill = cost ₹18,00,000 − ₹15,00,000 = ₹3,00,000.
Explanation. Under AS 23, goodwill on acquisition of an associate is cost less the investor's share in the associate's net assets at acquisition. P Ltd paid ₹18,00,000 for a 30% share of net assets of ₹50,00,000. The share is ₹15,00,000, so goodwill is ₹3,00,000. The tempting ₹6,00,000 uses only share capital and ignores reserves.
Where it goes wrong. Comparing cost only with share capital and omitting reserves in equity.
Authority. AS 23
Question 2 · 2 marks · Consolidated Financial Statements (AS 23) · hard
What amount should P Ltd include in consolidated profit and loss for its share of A Ltd profit after eliminating the unrealised profit?
Explanation. AS 23 requires the investor's share of the associate's results to be included in consolidated profit and loss. The share is 30% of ₹12,00,000, equal to ₹3,60,000. Unrealised profit in A Ltd inventory is ₹5,00,000 × 40% = ₹2,00,000; P share is ₹60,000. Hence ₹3,00,000 is included. The ₹3,60,000 option ignores elimination of unrealised profit.
Where it goes wrong. Not eliminating the investor's share of unrealised profit on inventory.
Authority. AS 23
Question 3 · 2 marks · Consolidated Financial Statements (AS 23) · hard
What is the carrying amount of the investment in associate A Ltd in the consolidated balance sheet at 31 March 2026?
Explanation. Under the equity method, carrying amount starts at cost, increases by share of post-acquisition profit, decreases by dividends received and by the investor's share of unrealised profit. Cost is ₹18,00,000; add ₹3,60,000; deduct ₹1,20,000; deduct ₹60,000. The resulting ₹19,80,000 is correct. ₹20,40,000 ignores the unrealised profit adjustment.
Where it goes wrong. Forgetting to reduce investment by share of unrealised profit or dividend.
Authority. AS 23
Question 4 · 2 marks · Consolidated Financial Statements (AS 23) · medium
How should P Ltd treat dividend received from associate A Ltd under the equity method in consolidated financial statements?
Credited to consolidated profit and loss as dividend income
Added to carrying amount as post-acquisition profit
Ignored until the associate investment is disposed of
Deducted from carrying amount of investment in associate (correct answer)
Answer: D — Deducted from carrying amount of investment in associate
Working. Dividend received ₹4,00,000 × 30% = ₹1,20,000. Under equity method, debit bank and credit investment in associate by ₹1,20,000.
Explanation. Under AS 23, distributions received from an associate reduce the carrying amount of the investment. They are not recognised as dividend income in consolidated profit and loss because the investor already includes its share of the associate's results. The tempting option of crediting dividend income is correct only in separate financial statements under AS 13, not under equity method consolidation.
Where it goes wrong. Treating dividend as income instead of a recovery of investment under equity method.
Authority. AS 23
Question 5 · 2 marks · Interim Financial Reporting (AS 25) · medium
Scenario. Suvarna Ltd prepares quarterly interim financial statements under AS 25. Its annual employee bonus is 8% of annual profit and is payable only to employees continuing in service at 31 March. At 30 June 2025, profit for Q1 is ₹40 lakh; management estimates full-year profit of ₹1,60,00,000 and that 90% employees will remain. Past practice creates a constructive obligation. The company did not accrue any bonus in Q1 because the bonus is annual.
Under AS 25, what is the appropriate treatment of the annual employee bonus in the Q1 interim report?
Defer bonus recognition until annual profit is confirmed after year-end
Accrue expected bonus if payment is probable and reliably estimable (correct answer)
Recognise bonus only when it is actually paid to the employees
Charge the bonus only in Q4 as an annual expense item
Answer: B — Accrue expected bonus if payment is probable and reliably estimable
Working. Identify constructive obligation from past practice. Test probability and reliable estimate. If both are met, accrue bonus in Q1 interim report rather than waiting for annual confirmation or cash payment.
Explanation. AS 25 requires interim reports to use accounting policies consistent with annual financial statements. An annual bonus is accrued in an interim period when payment is probable and the amount can be reliably estimated. Deferring it merely because it is annual, or recognising it only when paid, is not appropriate if the obligation relates to services already rendered.
Where it goes wrong. Deferring annual bonus solely because payment is determined at year-end.
Authority. AS 25 check
Question 6 · 2 marks · Property, Plant and Equipment (AS 10) · medium
Scenario. Orion Ltd owns a plant purchased on 1 April 2020 for ₹60,00,000. Useful life is 10 years, residual value nil, and depreciation is straight line. On 1 April 2024 the carrying amount was revalued to ₹48,00,000 and the surplus was credited to revaluation reserve. The remaining useful life on that date was 6 years. Orion transfers the excess depreciation on revalued amount over original-cost depreciation from revaluation reserve to retained earnings each year. On 31 March 2026, indicators of impairment existed and the recoverable amount of the plant was ₹20,00,000. On 31 March 2027, due to improved conditions, the recoverable amount rose to ₹30,00,000. Orion also carries goodwill of ₹5,00,000 from an earlier acquisition. In 2025-26 it recognised ₹2,00,000 impairment of goodwill due to a general market decline. In 2026-27 the market recovered generally.
What is the balance in revaluation reserve immediately before impairment on 31 March 2026?
Explanation. The revaluation surplus at 1 April 2024 was ₹12,00,000. On the revalued amount, depreciation is ₹8,00,000 per year, while depreciation on original cost is ₹6,00,000. Excess depreciation transferred each year is ₹2,00,000. For two years, ₹4,00,000 is transferred, leaving ₹8,00,000 in revaluation reserve before impairment.
Where it goes wrong. Not transferring excess depreciation from revaluation reserve or using wrong depreciation base.
Authority. AS 10
Question 7 · 2 marks · Impairment of Assets (AS 28) · hard
What amount of impairment loss on the plant should be charged to profit and loss on 31 March 2026?
₹4,00,000 (correct answer)
₹12,00,000
₹8,00,000
₹0
Answer: A — ₹4,00,000
Working. Carrying amount at 31 March 2026 = ₹48,00,000 − 2 × ₹8,00,000 = ₹32,00,000. Impairment = ₹32,00,000 − ₹20,00,000 = ₹12,00,000. Set off against revaluation reserve ₹8,00,000. P&L charge = ₹12,00,000 − ₹8,00,000 = ₹4,00,000.
Explanation. The impairment loss is carrying amount ₹32,00,000 less recoverable amount ₹20,00,000, equal to ₹12,00,000. Under AS 28, for a revalued asset the loss is first set off against revaluation surplus of ₹8,00,000. The balance ₹4,00,000 is charged to profit and loss. Charging the full ₹12,00,000 to profit and loss ignores the revaluation reserve.
Where it goes wrong. Charging the entire impairment loss to profit and loss without using revaluation surplus.
Authority. AS 28; AS 10
Question 8 · 2 marks · Impairment of Assets (AS 28) · hard
What amount of reversal of impairment loss can Orion recognise on 31 March 2027 for the plant?
₹15,00,000
₹24,00,000
₹12,00,000
₹9,00,000 (correct answer)
Answer: D — ₹9,00,000
Working. Carrying after impairment = ₹20,00,000. Depreciation 2026-27 = ₹5,00,000. Carrying on 31 March 2027 = ₹15,00,000. No-impairment carrying = ₹32,00,000 − ₹8,00,000 = ₹24,00,000. Reversal = lower of (₹30,00,000 − ₹15,00,000 = ₹15,00,000) and (₹24,00,000 − ₹15,00,000 = ₹9,00,000) = ₹9,00,000.
Explanation. After impairment, carrying amount is ₹20,00,000 and depreciation for 2026-27 is ₹20,00,000 ÷ 4 = ₹5,00,000, leaving ₹15,00,000. The no-impairment carrying amount would have been ₹32,00,000 − ₹8,00,000 = ₹24,00,000. Recoverable amount is ₹30,00,000, so reversal is limited to ₹24,00,000 − ₹15,00,000 = ₹9,00,000.
Where it goes wrong. Using full excess of recoverable amount over carrying amount without the no-impairment ceiling.
Authority. AS 28
Question 9 · 2 marks · Impairment of Assets (AS 28) · medium
How should Orion treat the goodwill impairment in 2026-27 when the market has recovered generally?
Reverse the full ₹2,00,000 through profit and loss as an estimate change
Do not reverse unless a specific external event caused and reverses it (correct answer)
Reverse only fifty per cent of the amount under the prudence concept
Adjust the reversal against revaluation reserve instead of profit
Answer: B — Do not reverse unless a specific external event caused and reverses it
Working. Assess original cause: general market decline, not a specific exceptional external event. Therefore no reversal is recognised in 2026-27.
Explanation. AS 28 does not permit reversal of goodwill impairment merely because estimates change or markets improve generally. Reversal is allowed only if the original loss was caused by a specific external event of exceptional nature not expected to recur and later external events reverse that event. General market recovery does not meet this test.
Where it goes wrong. Reversing goodwill impairment due to general improvement in market conditions.
Authority. AS 28
Question 10 · 2 marks · Events After the Balance Sheet Date (AS 4) · medium
Scenario. On 20 May 2026, the board of Tanvi Ltd proposed a final dividend of ₹18,00,000 for the year ended 31 March 2026. The financial statements were approved by the board on 30 May 2026 and shareholders approved the dividend at the AGM on 25 June 2026. No dividend was proposed before 31 March 2026. The company reports under Schedule III Division I and applies AS 4.
How should Tanvi Ltd treat the proposed final dividend in its financial statements for the year ended 31 March 2026?
Recognise ₹18,00,000 as a liability on 31 March 2026
Reduce general reserve by ₹18,00,000 on 31 March 2026
Disclose in notes; no liability is recognised on 31 March 2026 (correct answer)
Recognise a provision and charge profit and loss for 2025-26
Answer: C — Disclose in notes; no liability is recognised on 31 March 2026
Working. Proposal date 20 May 2026 is after 31 March 2026. No liability existed at year-end. Disclose proposed dividend in notes to accounts; do not charge 2025-26 profit and loss.
Explanation. Under AS 4, dividends proposed after the reporting date do not represent a liability at the balance sheet date because no obligation existed then. They are disclosed in the notes as proposed dividend. Recognising a liability or provision on 31 March 2026 would anticipate a subsequent event that does not adjust the year-end position.
Where it goes wrong. Recognising proposed dividend after year-end as a liability at the balance sheet date.
Authority. AS 4 check; Schedule III Division I
Question 11 · 2 marks · Branch Accounting Including Foreign Branches · hard
Scenario. Nova Ltd has two foreign branches. Branch I in Kenya is an integral foreign operation. Branch N in Singapore is a non-integral foreign operation. For Branch I, a fixed asset costing FC 80,000 was acquired on 1 April 2024 when the exchange rate was 1 FC = ₹70. The closing rate on 31 March 2026 is 1 FC = ₹75. Branch I also has a monetary receivable of FC 40,000 recorded at 1 FC = ₹70; it remains unsettled at year-end. For Branch N, sales for 2025-26 are FC 2,00,000, the average rate is 1 FC = ₹72 and the closing rate is 1 FC = ₹75. Closing inventory of Branch N is FC 30,000. Nova Ltd translates both branches for consolidation at 31 March 2026.
For integral Branch I, at what amount should the fixed asset be translated for consolidation?
₹56,00,000 (correct answer)
₹60,00,000
₹54,00,000
₹50,00,000
Answer: A — ₹56,00,000
Working. FC 80,000 × ₹70 = ₹56,00,000.
Explanation. For an integral foreign operation, fixed assets carried at cost are translated using the exchange rate at the date of purchase. The asset was acquired when 1 FC = ₹70. Therefore FC 80,000 is translated at ₹70, giving ₹56,00,000. Using the closing rate ₹75 is the rule for non-integral operations, not integral operations.
Where it goes wrong. Using closing rate for fixed assets of an integral foreign operation.
Authority. AS 11; Chapter 15
Question 12 · 2 marks · Branch Accounting Including Foreign Branches · hard
For non-integral Branch N, what amount of sales should be included in consolidation?
₹1,50,00,000
₹1,38,00,000
₹1,56,00,000
₹1,44,00,000 (correct answer)
Answer: D — ₹1,44,00,000
Working. FC 2,00,000 × ₹72 = ₹1,44,00,000.
Explanation. For a non-integral foreign operation, income and expense items are translated at actual exchange rates on transaction dates, or at an average rate if there are no significant variations. Sales of FC 2,00,000 at the average rate of ₹72 equal ₹1,44,00,000. Using the closing rate ₹75 is a common but incorrect shortcut.
Where it goes wrong. Translating revenue at closing rate instead of average or transaction-date rate.
Authority. AS 11; Chapter 15
Question 13 · 2 marks · Branch Accounting Including Foreign Branches · hard
For non-integral Branch N, at what amount should closing inventory be translated?
₹21,60,000
₹22,50,000 (correct answer)
₹24,00,000
₹20,00,000
Answer: B — ₹22,50,000
Working. FC 30,000 × ₹75 = ₹22,50,000.
Explanation. For a non-integral foreign operation, balance sheet items, including inventory, are translated at the closing exchange rate. Closing inventory is FC 30,000 and the closing rate is ₹75, so the translated amount is ₹22,50,000. Using the average rate ₹72 would be appropriate for income and expense items, not closing inventory.
Where it goes wrong. Translating closing inventory of a non-integral branch at average rate.
Authority. AS 11; Chapter 15
Question 14 · 2 marks · Branch Accounting Including Foreign Branches · hard
For integral Branch I, how should the exchange difference on the monetary receivable be treated?
₹2,00,000 loss credited to profit and loss account
₹2,00,000 gain transferred to translation reserve
₹2,00,000 gain credited to profit and loss account (correct answer)
No exchange difference until the receivable is settled
Answer: C — ₹2,00,000 gain credited to profit and loss account
Working. FC 40,000 × (₹75 − ₹70) = FC 40,000 × ₹5 = ₹2,00,000 gain. Integral foreign operation: credit profit and loss account.
Explanation. For an integral foreign operation, monetary items are translated at the closing rate and exchange differences are recognised in profit and loss. The receivable was recorded at ₹70 and the closing rate is ₹75, giving a gain of FC 40,000 × ₹5 = ₹2,00,000. Transferring it to a translation reserve is the treatment for a non-integral operation.
Where it goes wrong. Putting exchange difference of an integral branch into translation reserve.
Authority. AS 11; Chapter 15
Question 15 · 2 marks · Financial Statements of Companies · medium
Scenario. Meera Ltd prepares its financial statements under Schedule III Division I for the year ended 31 March 2026. It has bills discounted but not matured ₹6,00,000; a security given to a bank for a supplier ₹4,00,000; contracts remaining to be executed on capital account and not provided for ₹15,00,000; and a disputed tax demand of ₹3,00,000 not acknowledged as debt. No outflow is probable for any item.
How should Meera Ltd present the items under Schedule III Division I at 31 March 2026?
Show contingent liabilities ₹13,00,000 and capital commitments ₹15,00,000 in notes (correct answer)
Provide ₹13,00,000 as current liability and disclose capital commitment in notes
Disclose only capital commitment; contingent items need no disclosure
Provide ₹3,00,000 and disclose the balance as capital commitments
Answer: A — Show contingent liabilities ₹13,00,000 and capital commitments ₹15,00,000 in notes
Working. Contingent liabilities = ₹6,00,000 + ₹4,00,000 + ₹3,00,000 = ₹13,00,000. Capital commitments = ₹15,00,000. Present both in notes; no current liability or provision is recognised.
Explanation. Schedule III Division I requires disclosure of contingent liabilities and commitments in notes to accounts when no provision is required. Bills discounted ₹6,00,000 plus security ₹4,00,000 plus disputed tax demand ₹3,00,000 total ₹13,00,000 contingent liabilities. Capital contracts remaining ₹15,00,000 are capital commitments. No liability is recognised on the face because outflow is not probable.
Where it goes wrong. Creating provisions for items that require only contingent liability disclosure.
Authority. Schedule III Division I
Authorities cited in this paper
AS 23 · AS 25 check · AS 10 · AS 28 · AS 4 check · Schedule III Division I · AS 11 · Chapter 15
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 Consolidated Financial Statements (AS 21 and AS 23), Interim Financial Reporting (AS 25), Property, Plant and Equipment (AS 10) and Impairment of Assets (AS 28), Events After the Balance Sheet Date (AS 4), Branch Accounting Including Foreign Branches, Financial Statements of Companies under 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 Consolidated Financial Statements (AS 21 and AS 23), Interim Financial Reporting (AS 25), Property, Plant and Equipment (AS 10) and Impairment of Assets (AS 28), Events After the Balance Sheet Date (AS 4), Branch Accounting Including Foreign Branches, Financial Statements of Companies under 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.
