CA Inter Advanced Accounting MCQ Test 11: 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 8 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
Accounting Standards — Borrowing Costs (2 Q)
Accounting Standards — Valuation of Inventories (2 Q)
Accounting Standards — Disclosure of Accounting Policies (1 Q)
Accounting Standards — Taxes on Income (2 Q)
Other Accounting Standards — Government Grants (2 Q)
Accounting Standards — Segment Reporting (1 Q)
Financial Statements of Companies — Schedule III Division I (4 Q)
Buy-back of Securities (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Accounting Standards — Borrowing Costs · medium
Scenario. Vardhan Industrial Materials Ltd. prepares its financial statements for the year ended 31 March 2026. On 1 April 2025, it began constructing a bespoke alloy-processing line that is expected to take more than twelve months to become ready for intended use. Construction continued throughout the year without any extended interruption. A specific loan of ₹40 lakh carrying interest at 11% per annum was drawn on 1 April 2025 and applied in full to the line on that date. The proceeds were not temporarily invested. Further construction payments of ₹18 lakh on 1 July 2025 and ₹12 lakh on 1 January 2026 were funded from the company’s general borrowing pool. General borrowings comprised Loan A of ₹30 lakh at 10% per annum outstanding throughout the year, Loan B of ₹20 lakh at 12% per annum outstanding throughout the year, and Loan C of ₹10 lakh at 9% per annum drawn on 1 October 2025 and outstanding until year-end. Interest accrued for each loan at the stated rate and no principal was repaid.
The company also processes a mineral input into a principal alloy and a secondary by-product. Joint processing costs incurred up to the split-off point were ₹48 lakh. The by-product is expected to sell for ₹6.40 lakh; further processing will cost ₹0.80 lakh and selling expenses will be ₹0.40 lakh. The entire principal-product output remains in closing inventory. Its estimated selling price is ₹49 lakh, with further completion costs of ₹4 lakh and selling expenses of ₹3.70 lakh. The production records identify no abnormal wastage, and the amounts relate to the same reporting date.
What capitalisation rate should Vardhan apply to expenditure on the qualifying asset financed from general borrowings for the year ended 31 March 2026?
10.64% weighted rate (correct answer)
9.75% unweighted rate
11.70% general pool rate
10.25% blended pool rate
Answer: A — 10.64% weighted rate
Working. General borrowing interest: Loan A = ₹30 lakh × 10% = ₹3.00 lakh; Loan B = ₹20 lakh × 12% = ₹2.40 lakh; Loan C = ₹10 lakh × 9% × 6/12 = ₹0.45 lakh. Total general borrowing cost = ₹5.85 lakh. Weighted average general principal = ₹30 lakh + ₹20 lakh + (₹10 lakh × 6/12) = ₹55 lakh. Capitalisation rate = ₹5.85 lakh / ₹55 lakh × 100 = 10.63636%, rounded to 10.64%. Specific loan excluded.
Explanation. AS 16 requires the capitalisation rate for general borrowings to be the weighted average borrowing cost on general borrowings outstanding during the period; specific-purpose debt is excluded. General interest is ₹3.00 lakh + ₹2.40 lakh + ₹0.45 lakh = ₹5.85 lakh. Time-weighted general principal is ₹30 lakh + ₹20 lakh + ₹5 lakh = ₹55 lakh. The rate is ₹5.85 lakh ÷ ₹55 lakh × 100 = 10.636%, or 10.64%. Option b uses Loan C’s full principal for the full year.
Where it goes wrong. Using Loan C’s full ₹10 lakh principal in the denominator although it was outstanding for only six months.
Authority. AS 16, Unit 4.7 (paragraph number: check)
Question 2 · 2 marks · Accounting Standards — Borrowing Costs · hard
What amount of borrowing cost should be capitalised as part of the alloy-processing line for the year ended 31 March 2026?
₹5.850 lakh borrowing cost
₹6.155 lakh eligible amount (correct answer)
₹7.592 lakh full-year charge
₹4.400 lakh specific charge
Answer: B — ₹6.155 lakh eligible amount
Working. Specific borrowing: ₹40 lakh × 11% = ₹4.400 lakh. No temporary investment income is deducted. General-funded weighted expenditure: ₹18 lakh × 9/12 = ₹13.50 lakh; ₹12 lakh × 3/12 = ₹3.00 lakh; total = ₹16.50 lakh. General capitalisation = ₹16.50 lakh × (₹5.85 lakh/₹55 lakh) = ₹1.755 lakh. Total borrowing cost capitalised = ₹4.400 lakh + ₹1.755 lakh = ₹6.155 lakh. Check: ₹6.155 lakh is below total borrowing cost incurred of ₹10.25 lakh.
Explanation. For a specific borrowing fully applied to the qualifying asset, AS 16 capitalises the actual borrowing cost, less any income from temporary investment; there is no such income here. Specific-loan interest is ₹4.40 lakh. General funds financed expenditure of ₹18 lakh for nine months and ₹12 lakh for three months, giving weighted expenditure of ₹16.50 lakh. Applying 10.63636% gives ₹1.755 lakh. Total capitalisation is ₹6.155 lakh. Option c wrongly applies the rate to both later payments for a full year.
Where it goes wrong. Applying the general borrowing rate to expenditure funded by the specific loan, or treating each general-funded payment as outstanding for twelve months.
Authority. AS 16, Units 4.6–4.7 (paragraph numbers: check)
Question 3 · 2 marks · Accounting Standards — Valuation of Inventories · medium
At what amount should the secondary by-product be valued for the purpose of reducing the joint processing cost allocated to the principal alloy?
Explanation. AS 2 explains that by-products, scraps and wastes are usually valued at net realisable value where their value is not material, and that amount is deducted from joint cost to determine the cost of the main product. The by-product’s NRV is its expected selling price of ₹6.40 lakh less completion cost of ₹0.80 lakh and selling expenses of ₹0.40 lakh, giving ₹5.20 lakh. Option b uses the gross selling price and ignores both deductions.
Where it goes wrong. Deducting the by-product’s gross expected selling price instead of its net realisable value.
Authority. AS 2, Unit 1.7 and Unit 1.3 (paragraph numbers: check)
Question 4 · 2 marks · Accounting Standards — Valuation of Inventories · hard
What is the carrying amount of the principal-alloy closing inventory after allocating joint cost and applying the NRV test?
Explanation. The principal product’s allocated cost is joint processing cost of ₹48 lakh less the by-product NRV of ₹5.20 lakh, or ₹42.80 lakh. Its NRV is the estimated selling price of ₹49 lakh less completion costs of ₹4 lakh and selling expenses of ₹3.70 lakh, or ₹41.30 lakh. AS 2 requires the lower of cost and NRV, so inventory is ₹41.30 lakh. Option a stops after deducting the by-product and omits the separate NRV ceiling.
Where it goes wrong. Treating the post-by-product allocation cost as the final inventory value without comparing it with NRV.
Authority. AS 2, Unit 1.3 and Unit 1.7 (paragraph numbers: check)
Question 5 · 2 marks · Accounting Standards — Disclosure of Accounting Policies · medium
Scenario. Kestrel Components Ltd. has historically prepared its financial statements on an accrual basis and on the assumption that it will continue as a going concern. At 31 March 2026, the board concludes that the company’s only operating facility has been permanently lost and that continuing operations are no longer a realistic basis for preparation. Management nevertheless proposes to retain the usual basis and merely add a note describing the uncertainty. It also proposes changing depreciation from straight-line to written-down value solely to reduce the current year charge, although the expected pattern of consumption has not changed. The finance head asks what AS 1 requires about fundamental assumptions and the selection and disclosure of accounting policies.
Which conclusion correctly addresses the accounting assumptions and policy selection described above?
Do not use going-concern basis; disclose the departure and reject the unsupported depreciation-policy change. (correct answer)
Retain going-concern basis after a note and accept the change because it reduces reported expense.
Disclose only the depreciation-policy change; a departure from going concern needs no separate mention.
Keep both treatments because a detailed policy note cures departures from accounting requirements.
Answer: A — Do not use going-concern basis; disclose the departure and reject the unsupported depreciation-policy change.
Working. The facts say the company has concluded that going concern is no longer a realistic preparation basis. It must not continue using that assumption without addressing the departure, and the departure must be disclosed. The proposed depreciation change has no change in consumption pattern to support it; a policy must be appropriate to the facts and cannot be selected merely to reduce the current charge. A disclosure note cannot cure an incorrect treatment.
Explanation. AS 1 identifies going concern, consistency and accrual as fundamental accounting assumptions. When a fundamental assumption is not followed, the fact must be disclosed; a note does not make an inappropriate basis suitable. Accounting policies should be selected to present a true and fair view, considering prudence, substance over form and materiality. A depreciation-method change unsupported by a change in the expected consumption pattern is not a sound policy choice. Option d confuses disclosure with proper recognition and measurement.
Where it goes wrong. Assuming that disclosure of the departure or policy change makes an otherwise inappropriate accounting treatment acceptable.
Authority. AS 1 (check — full unit not included in supplied files; supplied extract only addresses disclosure not curing an incorrect treatment)
Question 6 · 2 marks · Accounting Standards — Taxes on Income · hard
Scenario. Aurelia Components Ltd. is finalising its financial statements for the year ended 31 March 2026, which the board expects to approve on 30 June 2026. At the reporting date, the applicable income-tax rate already enacted was 30%. The company had unabsorbed depreciation of ₹2.10 crore and carried-forward business losses of ₹1.40 crore. No deferred tax asset had previously been recognised for these amounts. On 12 March 2026, Aurelia signed a binding multi-year supply contract that is expected to generate taxable income of ₹3.00 crore available against the carried-forward amounts. Cancellation would expose the customer to substantial contractual damages, and the contract was in force at the reporting date. Management’s further expansion forecast of ₹1.50 crore taxable income is not supported by signed orders. On 18 May 2026, the government announced a reduction in the tax rate to 25%, and the change was enacted on 25 May 2026, before the board approved the statements.
Separately, on 1 July 2025, Aurelia acquired and brought into use a production machine for ₹36 lakh. Its estimated useful life is six years and its residual value is ₹3 lakh. The government provided a ₹9 lakh grant specifically for this machine. At the grant date, there was reasonable assurance that Aurelia would comply with the attached conditions and receive the grant. The company is considering the two AS 12 presentation alternatives for grants related to depreciable fixed assets. Depreciation is charged on a straight-line basis from the date the machine was available for use, and there are no impairment indicators or other changes in estimates.
What deferred tax asset may Aurelia recognise at 31 March 2026 in respect of unabsorbed depreciation and carried-forward business losses?
₹1.05 crore on all carried-forward deductions
₹0.90 crore on evidence-backed deductions (correct answer)
₹0.75 crore at the post-reporting tax rate
₹0.60 crore on the business-loss balance only
Answer: B — ₹0.90 crore on evidence-backed deductions
Working. Unabsorbed depreciation = ₹2.10 crore. Carried-forward business loss = ₹1.40 crore. Total carry-forward tax deductions = ₹3.50 crore. Convincing evidence at the reporting date supports taxable income of only ₹3.00 crore; the further ₹1.50 crore estimate is only a forecast. Amount supporting DTA = lower of ₹3.50 crore and ₹3.00 crore = ₹3.00 crore. DTA = ₹3.00 crore × 30% = ₹0.90 crore.
Explanation. Under AS 22, deferred tax assets relating to unabsorbed depreciation and carried-forward losses are recognised only to the extent that virtual certainty, supported by convincing evidence, exists that sufficient future taxable income will be available. The binding contract supports ₹3.00 crore of taxable income; the additional expansion forecast is unsupported and is excluded. The recognised amount is ₹3.00 crore × 30% = ₹0.90 crore. Option a applies the rate to all ₹3.50 crore despite evidence supporting only ₹3.00 crore of utilisation.
Where it goes wrong. Applying the tax rate to the full carry-forward balance without restricting recognition to amounts supported by virtual certainty and convincing evidence.
Authority. AS 22, Units 4.4 and 4.8 (paragraph numbers: check)
Question 7 · 2 marks · Accounting Standards — Taxes on Income · medium
Which tax rate should be used to measure the deferred tax asset at 31 March 2026?
25%, enacted after the reporting date
27.5%, average of the two stated rates
30%, enacted by the reporting date (correct answer)
25%, enacted before approval of statements
Answer: C — 30%, enacted by the reporting date
Working. Balance sheet date = 31 March 2026. Rate enacted on that date = 30%. The 25% rate was announced on 18 May 2026 and enacted on 25 May 2026, both after the reporting date. AS 22 measurement therefore uses 30% for the deferred tax asset at 31 March 2026.
Explanation. AS 22 generally measures deferred tax assets and liabilities using tax rates and tax laws enacted by the balance sheet date. The 25% rate was first announced on 18 May and enacted on 25 May, both after 31 March 2026. The financial statements were approved later, but that does not shift the measurement date for this purpose. The rate at 31 March was 30%, so option c is appropriate. Option a incorrectly uses the approval date instead of the balance sheet date.
Where it goes wrong. Using the rate enacted before approval of the financial statements rather than the rate enacted at the balance sheet date.
Authority. AS 22, Unit 4.5 (paragraph number: check)
Question 8 · 2 marks · Other Accounting Standards — Government Grants · hard
Under Method I, where the grant is deducted from the asset’s gross value, what are the machine’s depreciation charge for 2025–26 and its carrying amount at 31 March 2026?
Explanation. Under AS 12 Method I, the grant is deducted from the asset’s gross value and the reduced asset cost is depreciated over its useful life. The depreciable amount is ₹36 lakh less the ₹9 lakh grant and ₹3 lakh residual value, or ₹24 lakh. Nine months’ depreciation is ₹24 lakh ÷ 6 × 9/12 = ₹3 lakh. Carrying amount is ₹36 lakh − ₹9 lakh − ₹3 lakh = ₹24 lakh. Option a calculates depreciation on the gross asset without deducting the grant.
Where it goes wrong. Charging depreciation on the gross cost or applying a full twelve-month charge although the machine was available for use for nine months.
Authority. AS 12, Unit 1.6, Method I (paragraph number: check)
Question 9 · 2 marks · Other Accounting Standards — Government Grants · hard
Under Method II, where the grant is treated as deferred income, which combination is correct at 31 March 2026?
Deferred grant ₹7.875 lakh; asset ₹31.875 lakh; net P&L charge ₹3.000 lakh (correct answer)
Deferred grant ₹7.500 lakh; asset ₹31.500 lakh; net P&L charge ₹3.375 lakh
Deferred grant ₹9.000 lakh; asset ₹31.875 lakh; net P&L charge ₹4.125 lakh
Answer: A — Deferred grant ₹7.875 lakh; asset ₹31.875 lakh; net P&L charge ₹3.000 lakh
Working. Gross depreciable amount = ₹36 lakh − ₹3 lakh residual value = ₹33 lakh. Depreciation for nine months = ₹33 lakh ÷ 6 × 9/12 = ₹4.125 lakh. Grant income for nine months = ₹9 lakh ÷ 6 × 9/12 = ₹1.125 lakh. Closing deferred grant = ₹9 lakh − ₹1.125 lakh = ₹7.875 lakh. Asset carrying amount = ₹36 lakh − ₹4.125 lakh = ₹31.875 lakh. Net P&L charge = ₹4.125 lakh − ₹1.125 lakh = ₹3.000 lakh.
Explanation. Under AS 12 Method II, the machine remains at gross cost and the grant is recognised as deferred income over the asset’s useful life. Gross depreciation for nine months is (₹36 lakh − ₹3 lakh) ÷ 6 × 9/12 = ₹4.125 lakh. Grant income released is ₹9 lakh ÷ 6 × 9/12 = ₹1.125 lakh, leaving deferred income of ₹7.875 lakh. Net P&L charge is ₹3 lakh and the asset carrying amount is ₹31.875 lakh. Option c omits the grant income from the P&L impact.
Where it goes wrong. Recognising the gross depreciation charge without releasing the matching grant income, or deducting the grant from the asset under Method II.
Authority. AS 12, Unit 1.6, Method II (paragraph number: check)
Question 10 · 2 marks · Accounting Standards — Segment Reporting · hard
Scenario. Nexora Services Ltd. reports two business segments, Mobility and Networks. Their direct external revenues for the year were ₹90 lakh and ₹60 lakh respectively. A joint marketing arrangement generated revenue of ₹15 lakh that cannot be identified with either segment separately. The management’s documented allocation basis for benefits from this arrangement is each segment’s direct external revenue. The company also incurred ₹20 lakh of shared campaign and distribution costs that support both segments and cannot be directly traced; the same revenue-based ratio reflects the relative benefits received. Direct expenses were ₹50 lakh for Mobility and ₹36 lakh for Networks. No other segment income or expense items arise. The segment accountant must allocate both joint revenue and joint expenses consistently before reporting the Mobility segment result.
After allocating the joint marketing revenue and shared campaign costs on the stated basis, what should be reported for the Mobility segment?
Revenue ₹96 lakh; expenses ₹62 lakh; segment result ₹34 lakh
Explanation. The documented basis is the segments’ direct external revenue ratio of ₹90 lakh:₹60 lakh, or 3:2. Mobility receives 3/5 of joint revenue, ₹9 lakh, and 3/5 of shared expenses, ₹12 lakh. Its allocated revenue is ₹90 lakh + ₹9 lakh = ₹99 lakh; expenses are ₹50 lakh + ₹12 lakh = ₹62 lakh; segment result is ₹37 lakh. Option a allocates only ₹6 lakh of joint revenue to Mobility, using the wrong share of the ratio.
Where it goes wrong. Allocating the joint revenue or joint expenses equally, or applying the 2:3 share to Mobility instead of its 3:2 relative-revenue share.
Authority. AS 17 (check — substantive segment-allocation unit is not included in supplied files)
Question 11 · 2 marks · Financial Statements of Companies — Schedule III Division I · medium
Scenario. Northstar Appliances Ltd. prepares its financial statements for the year ended 31 March 2026. It manufactures household equipment and also provides installation and repair services. During the year, sales of products were ₹18.40 crore, service income was ₹4.60 crore and other operating revenue was ₹0.80 crore. Excise duty of ₹0.40 crore is separately identifiable. Interest income was ₹0.35 crore, dividend income ₹0.10 crore and net gain on sale of investments ₹0.15 crore. The statement of profit and loss, before considering an exceptional item, shows profit before exceptional and extraordinary items and tax of ₹3.20 crore. A one-off plant-damage settlement has resulted in an exceptional loss of ₹0.55 crore; no extraordinary item or discontinued operation exists.
Northstar is covered by the CSR provisions. The amount required to be spent for the year is ₹1.20 crore and expenditure incurred is ₹0.92 crore. The previous years’ unspent CSR amount is ₹0.12 crore. The current shortfall arose because municipal approval for a rural sanitation project was delayed. During the year, ₹0.15 crore was contributed to a trust controlled by the company, and rural sanitation was the principal CSR activity. A contractual CSR provision had an opening balance of ₹4 lakh; ₹8 lakh was additionally provided, ₹3 lakh was utilised and ₹1 lakh was reversed as no longer required. The company also has working-capital borrowings secured by current assets. Its latest quarterly bank statement reported inventory of ₹6.35 crore and trade receivables of ₹4.10 crore, whereas the books showed inventory of ₹5.80 crore and trade receivables of ₹4.40 crore. The inventory difference arose from goods not owned at the reporting date being included in the bank statement; the receivable difference arose because an eligible invoice was omitted from that statement.
What amounts should Northstar present as revenue from operations and other income, respectively, under the supplied Schedule III format?
₹23.80 crore and ₹0.60 crore, respectively (gross)
₹23.40 crore and ₹0.75 crore, respectively
₹23.40 crore and ₹0.60 crore, respectively (correct answer)
₹24.20 crore and ₹0.40 crore, respectively
Answer: C — ₹23.40 crore and ₹0.60 crore, respectively
Working. Revenue from operations = sale of products ₹18.40 crore + sale of services ₹4.60 crore + other operating revenue ₹0.80 crore − excise duty ₹0.40 crore = ₹23.40 crore. Other income = interest ₹0.35 crore + dividend ₹0.10 crore + net gain on sale of investments ₹0.15 crore = ₹0.60 crore.
Explanation. For a company other than a finance company, Schedule III presents sales of products, sale of services and other operating revenue under revenue from operations, less excise duty. Thus ₹18.40 crore + ₹4.60 crore + ₹0.80 crore − ₹0.40 crore = ₹23.40 crore. Interest, dividend and net gain on sale of investments are classified under other income: ₹0.35 crore + ₹0.10 crore + ₹0.15 crore = ₹0.60 crore. Option a omits the excise duty deduction.
Where it goes wrong. Ignoring excise duty or classifying other operating revenue as other income while omitting it from revenue from operations.
Authority. Companies Act, 2013, Schedule III, Part II, General Instructions 2 and 4 (subparagraph references: check)
Question 12 · 2 marks · Financial Statements of Companies — Schedule III Division I · hard
How should the exceptional loss affect the Statement of Profit and Loss, and what is profit before extraordinary items and tax?
Add the ₹0.55 crore exceptional loss and report ₹3.75 crore before extraordinary items and tax
Include the exceptional loss within other expenses and retain ₹3.20 crore before extraordinary items and tax
Deduct the exceptional loss after tax and retain ₹3.20 crore before extraordinary items and tax
Show ₹0.55 crore separately as exceptional and report ₹2.65 crore before extraordinary items and tax (correct answer)
Answer: D — Show ₹0.55 crore separately as exceptional and report ₹2.65 crore before extraordinary items and tax
Working. Profit before exceptional and extraordinary items and tax = ₹3.20 crore. Less: exceptional loss = ₹0.55 crore. Profit before extraordinary items and tax = ₹3.20 crore − ₹0.55 crore = ₹2.65 crore. The loss is presented separately as exceptional items between the two subtotals.
Explanation. The supplied Schedule III Statement of Profit and Loss format shows profit before exceptional and extraordinary items and tax, followed by a separate exceptional items line, and then profit before extraordinary items and tax. Northstar’s ₹3.20 crore subtotal is reduced by the exceptional loss of ₹0.55 crore to ₹2.65 crore. Option b hides the separate exceptional item within ordinary expenses and leaves the post-exceptional subtotal unchanged, contrary to the prescribed presentation format in the study material.
Where it goes wrong. Including the exceptional loss within ordinary expenses or deducting it only after tax instead of showing it separately at the prescribed line.
Authority. Companies Act, 2013, Schedule III, Part II, Statement of Profit and Loss format (line references: check)
Question 13 · 2 marks · Financial Statements of Companies — Schedule III Division I · hard
Which combination reflects the CSR note disclosures required by the supplied Schedule III material?
Current shortfall ₹28 lakh; prior-years shortfall ₹12 lakh; related-trust contribution ₹15 lakh; closing provision ₹8 lakh, with reasons and activity disclosed (correct answer)
Current shortfall ₹40 lakh including prior years; related-trust contribution ₹15 lakh; closing provision ₹8 lakh, with no separate prior-year figure
Current shortfall ₹28 lakh; prior-years shortfall ₹12 lakh; omit the trust contribution and provision movement because neither is a cash shortfall
Current shortfall ₹28 lakh; prior-years shortfall ₹12 lakh; related-trust contribution ₹15 lakh; closing provision ₹10 lakh, with reasons and activity disclosed
Answer: A — Current shortfall ₹28 lakh; prior-years shortfall ₹12 lakh; related-trust contribution ₹15 lakh; closing provision ₹8 lakh, with reasons and activity disclosed
Working. Current-year CSR shortfall = required ₹1.20 crore − expenditure ₹0.92 crore = ₹0.28 crore = ₹28 lakh. Previous years’ shortfall remains separately disclosed at ₹0.12 crore = ₹12 lakh. Related-party contribution to company-controlled trust = ₹0.15 crore = ₹15 lakh. Closing contractual provision = opening ₹4 lakh + additional provision ₹8 lakh − utilisation ₹3 lakh − reversal ₹1 lakh = ₹8 lakh. Disclose the reason for the shortfall and the nature of CSR activity.
Explanation. Schedule III requires disclosure of the amount required to be spent, expenditure incurred, shortfall at year-end, total of previous years’ shortfall, reason for shortfall and nature of CSR activities. It also calls for related-party transaction details and separate movement of a provision arising from a contractual obligation. The current shortfall is ₹1.20 crore − ₹0.92 crore = ₹28 lakh; the prior-years amount remains ₹12 lakh. The provision closes at ₹8 lakh. Option b wrongly merges the prior-year amount into the current shortfall.
Where it goes wrong. Combining previous years’ shortfall with the current-year shortfall and omitting related-party or contractual-provision disclosures.
Authority. Companies Act, 2013, Schedule III, Part II, General Instructions 5(x)(a)–(h) (subparagraph references: check)
Question 14 · 2 marks · Financial Statements of Companies — Schedule III Division I · hard
What disclosure is required because the quarterly current-asset statement submitted to the bank differs from Northstar’s books?
Treat returns as agreeing because the net variance is just ₹0.25 crore; no separate line-item reconciliation is needed
Disclose mismatch; reconcile inventory +₹0.55 crore and receivables −₹0.30 crore (net +₹0.25 crore), with reasons (correct answer)
Disclose only the ₹0.55 crore inventory overstatement and treat the receivable difference as offset
Replace book balances with bank totals of ₹10.45 crore and omit reconciliation because security was provided
Answer: B — Disclose mismatch; reconcile inventory +₹0.55 crore and receivables −₹0.30 crore (net +₹0.25 crore), with reasons
Working. Inventory difference: bank statement ₹6.35 crore − books ₹5.80 crore = +₹0.55 crore. Trade receivables difference: bank statement ₹4.10 crore − books ₹4.40 crore = −₹0.30 crore. Bank statement total = ₹6.35 crore + ₹4.10 crore = ₹10.45 crore. Book total = ₹5.80 crore + ₹4.40 crore = ₹10.20 crore. Net excess in bank statement = ₹10.45 crore − ₹10.20 crore = ₹0.25 crore. Disclose non-agreement, summary reconciliation and reasons for the discrepancies.
Explanation. Schedule III requires a company with borrowings from banks or financial institutions secured by current assets to state whether quarterly returns or statements agree with the books. If they do not, a summary reconciliation and reasons for material discrepancies must be disclosed. The bank statement is higher for inventory by ₹0.55 crore and lower for receivables by ₹0.30 crore, producing a net excess of ₹0.25 crore. Option a wrongly treats a net difference as agreement.
Where it goes wrong. Netting the two differences and declaring agreement, or disclosing only one gross mismatch without the reconciliation and reasons.
Question 15 · 2 marks · Buy-back of Securities · medium
Scenario. Meridian Cables Ltd. has paid-up equity share capital of ₹4.80 crore divided into equity shares of ₹10 each. It has not made any buy-back during the current financial year. The board is considering a buy-back of fully paid equity shares and has sufficient eligible resources; the post-buy-back debt-to-capital ratio would also remain within the statutory ceiling described in the company’s study material. The proposed offer price is ₹24 per share. For the present decision, the board asks the company secretary to calculate only the maximum number of equity shares permitted by the 25% paid-up equity capital test for the financial year, without applying any other limiting test.
What is the maximum number of equity shares that Meridian may buy back under the 25% paid-up equity capital test for the financial year?
10.00 lakh equity shares
14.00 lakh equity shares
12.00 lakh equity shares (correct answer)
15.00 lakh equity shares
Answer: C — 12.00 lakh equity shares
Working. Number of paid-up equity shares = ₹4.80 crore ÷ ₹10 per share = 48 lakh shares. Annual share-capital ceiling = 48 lakh × 25% = 12 lakh equity shares. No prior buy-back has occurred in the year, and the question directs that no other limiting test be applied. Maximum under this test = 12 lakh shares.
Explanation. The Companies Act provision reproduced in the supplied buy-back chapter limits the buy-back of equity shares in a financial year to 25% of total paid-up equity capital. At ₹10 face value, paid-up capital of ₹4.80 crore represents 48 lakh shares. Twenty-five per cent of 48 lakh is 12 lakh shares. The available reserves and debt ratio do not increase this separate share-capital ceiling. Option b applies a higher volume than the statutory percentage permits.
Where it goes wrong. Applying 25% to reserves or shareholders’ funds instead of the number of equity shares represented by paid-up equity capital.
AS 16, Unit 4.7 (paragraph number: check) · AS 16, Units 4.6–4.7 (paragraph numbers: check) · AS 2, Unit 1.7 and Unit 1.3 (paragraph numbers: check) · AS 2, Unit 1.3 and Unit 1.7 (paragraph numbers: check) · AS 1 (check — full unit not included in supplied files; supplied extract only addresses disclosure not curing an incorrect treatment) · AS 22, Units 4.4 and 4.8 (paragraph numbers: check) · AS 22, Unit 4.5 (paragraph number: check) · AS 12, Unit 1.6, Method I (paragraph number: check) · AS 12, Unit 1.6, Method II (paragraph number: check) · AS 17 (check — substantive segment-allocation unit is not included in supplied files) · Companies Act, 2013, Schedule III, Part II, General Instructions 2 and 4 (subparagraph references: check) · Companies Act, 2013, Schedule III, Part II, Statement of Profit and Loss format (line references: check) · Companies Act, 2013, Schedule III, Part II, General Instructions 5(x)(a)–(h) (subparagraph references: check) · Companies Act, 2013, Schedule III, Additional Regulatory Information, clause (vii) (subparagraph references: check) · Companies Act, 2013, Section 68 (25% paid-up equity capital test; subsection reference: check)
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 16 — Borrowing Costs, AS 2 — Valuation of Inventories, AS 1 — Disclosure of Accounting Policies, AS 22 — Taxes on Income, AS 12 — Government Grants, AS 17 — Segment Reporting, Chapter 11 — Financial Statements of Companies and Schedule III Division I, Chapter 12 — Buy-back of Securities. 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 16 — Borrowing Costs, AS 2 — Valuation of Inventories, AS 1 — Disclosure of Accounting Policies, AS 22 — Taxes on Income, AS 12 — Government Grants, AS 17 — Segment Reporting, Chapter 11 — Financial Statements of Companies and Schedule III Division I, Chapter 12 — Buy-back of Securities. 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.
