CA Inter Advanced Accounting MCQ Test 12: 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
AS 11 The Effects of Changes in Foreign Exchange Rates (2 Q)
AS 15 Employee Benefits (2 Q)
AS 18 Related Party Disclosures (1 Q)
AS 29 Provisions, Contingent Liabilities and Contingent Assets (2 Q)
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (2 Q)
AS 20 Earnings Per Share (1 Q)
Internal Reconstruction (4 Q)
Branch Accounting including Foreign Branches (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 11 The Effects of Changes in Foreign Exchange Rates · hard
Scenario. Orion Precision Ltd. prepares financial statements to 31 March each year. On 1 November 2025 it entered a forward contract to buy USD 200,000 on 31 March 2026 at ₹84.50 per USD; the spot rate was ₹83.20. On 31 January 2026 it cancelled the contract at the prevailing forward rate of ₹85.00 and immediately booked a fresh forward for the same amount to 30 June 2026 at ₹85.10; the bank charged a separate rollover fee of ₹25,000. The company also borrowed USD 120,000 on 1 April 2025 to acquire a depreciable plant, repayable after four years. Spot rates were ₹79.00 on 1 April 2025 and ₹82.50 on 31 March 2026. Orion has exercised the option under Para 46A of AS 11 to adjust the exchange difference against the cost of the plant. Separately, Orion has 40 employees who had completed four years of continuous service on 31 March 2026. Under its sabbatical policy, each employee who completes five years is entitled to three months' paid leave once every five years. Average monthly salary is ₹60,000; 90% of these employees are expected to remain until entitlement; an 8% discount rate applies and the present value factor for one year is 0.926. Salary increases are ignored. No sabbatical leave has yet been taken by these employees.
What net amount is recognised in profit or loss for the year ended 31 March 2026 on cancellation and renewal of the forward contract?
₹1,00,000 gain
₹75,000 gain (correct answer)
₹25,000 loss
₹1,25,000 gain
Answer: B — ₹75,000 gain
Working. Cancellation gain = USD 200,000 × (₹85.00 − ₹84.50) = ₹1,00,000. Less rollover fee ₹25,000 = net gain ₹75,000.
Explanation. AS 11 requires profit or loss on cancellation or renewal of a forward contract to be recognised in the statement of profit and loss. Cancelling a contract to buy USD 200,000 at ₹84.50 when the cancellation rate is ₹85.00 gives a gain of ₹1,00,000. The separate rollover fee of ₹25,000 is an expense, so the net gain is ₹75,000. The tempting ₹1,00,000 option ignores the rollover fee.
Where it goes wrong. Ignoring the separate rollover fee and recognising only the contract cancellation gain.
Authority. AS 11
Question 2 · 2 marks · AS 11 The Effects of Changes in Foreign Exchange Rates · hard
Under the Para 46A option exercised by Orion, what amount is added to the cost of the plant on 31 March 2026?
Explanation. Para 46A of AS 11 permits exchange differences on long-term foreign currency monetary items related to a depreciable capital asset to be added to or deducted from the asset cost. The exchange difference is USD 120,000 × (₹82.50 − ₹79.00) = ₹4,20,000. The ₹1,20,000 option uses the USD amount without conversion, while ₹4,80,000 uses an incorrect rate.
Where it goes wrong. Using the loan amount in USD as the exchange difference or applying an incorrect spot rate.
Authority. AS 11 para 46A
Question 3 · 2 marks · AS 15 Employee Benefits · hard
What is the sabbatical leave obligation to be recognised on 31 March 2026 under AS 15?
Explanation. Sabbatical leave is a long-term compensated absence. The obligation is built over the five-year qualifying service. At the end of four years, 4/5 of three months' salary is attributable. Expected employees = 40 × 90% = 36. Undiscounted obligation = 36 × 3 × 4/5 × ₹60,000 = ₹51,84,000. Discounting one year at 0.926 gives ₹48,00,384. Option ₹51,84,000 omits discounting.
Where it goes wrong. Omitting discounting or omitting the 4/5 service proportion.
Authority. AS 15
Question 4 · 2 marks · AS 15 Employee Benefits · medium
How should Orion classify and measure the sabbatical leave obligation under AS 15?
Treated as short-term benefit because leave is paid within 12 months of availing
Treated as post-employment benefit because it is available after five years
Treated as long-term benefit and discounted over service (correct answer)
No obligation until employee actually takes sabbatical leave
Answer: C — Treated as long-term benefit and discounted over service
Working. Sabbatical leave is not short-term and is not post-employment; it is a long-term compensated absence measured on a discounted basis over the service period.
Explanation. AS 15 treats sabbatical leave as another long-term employee benefit when it is not payable wholly within twelve months after the service period. The obligation accrues as employees render qualifying service and is measured at present value using appropriate actuarial assumptions. It is not post-employment merely because five years must pass, and it cannot be ignored until leave is taken.
Where it goes wrong. Classifying it as post-employment benefit or recognising no obligation until leave is availed.
Authority. AS 15
Question 5 · 2 marks · AS 18 Related Party Disclosures · medium
Scenario. Nova Build Ltd. paid ₹15,00,000 as remuneration to its whole-time director, ₹2,50,000 to the director's spouse for interior design services, and ₹4,00,000 to an unrelated cement supplier during 2025-26. The director's spouse is not employed by Nova. No other transactions with relatives occurred. What amount should be aggregated as related party transactions with key management personnel and relatives under AS 18?
What amount should Nova Build Ltd. aggregate as related party transactions with key management personnel and relatives under AS 18?
₹15,00,000
₹17,50,000 (correct answer)
₹2,50,000
₹21,50,000
Answer: B — ₹17,50,000
Working. Related party amount = ₹15,00,000 + ₹2,50,000 = ₹17,50,000. Unrelated supplier ₹4,00,000 excluded.
Explanation. AS 18 requires disclosure of transactions with key management personnel and their relatives. Remuneration to the whole-time director is ₹15,00,000 and payment to the director's spouse, a relative, is ₹2,50,000. The unrelated supplier payment is not a related party transaction. The aggregate disclosed amount is ₹17,50,000; ₹15,00,000 omits the relative's transaction.
Where it goes wrong. Including the unrelated supplier or omitting the transaction with the director's spouse.
Authority. AS 18
Question 6 · 2 marks · AS 29 Provisions, Contingent Liabilities and Contingent Assets · hard
Scenario. Zenith Home Appliances Ltd. prepares accounts to 31 March. It gives two-year warranties and measures warranty provisions on outstanding invoice balances using remaining warranty windows: less than 6 months, 2%; 6 to 18 months, 4%; more than 18 months, 6%. At 31 March 2026 outstanding invoice balances were ₹60 lakh for less than 6 months, ₹90 lakh for 6 to 18 months, and ₹30 lakh for more than 18 months. Opening warranty provision was ₹2,50,000 and claims settled during the year were ₹1,80,000. On 20 March 2026 a customer filed a suit claiming ₹18 lakh for a burn injury from a defective appliance. Legal counsel states that a loss is 75% probable and a reliable estimate of damages is ₹12 lakh; the final award is uncertain. During 2025-26 Zenith discovered that inventory sheets at 31 March 2025 omitted ₹4,50,000 due to a counting error. It also corrected a mathematical error in prior-year depreciation of ₹75,000 and revised the useful life of a plant, increasing 2025-26 depreciation by ₹1,20,000.
What amount should be transferred to the warranty provision from profit or loss for 2025-26?
Where it goes wrong. Computing only closing minus opening and ignoring warranty claims settled during the year.
Authority. AS 29
Question 7 · 2 marks · AS 29 Provisions, Contingent Liabilities and Contingent Assets · hard
How should Zenith treat the customer's legal claim in its financial statements for 2025-26?
Disclose ₹12,00,000 as contingent liability only
Recognise provision ₹12,00,000 and disclose nature (correct answer)
Recognise provision ₹18,00,000
No provision; disclose ₹18,00,000
Answer: B — Recognise provision ₹12,00,000 and disclose nature
Working. Probability of outflow = 75%, which is probable. Reliable estimate = ₹12,00,000. Provision = ₹12,00,000; disclose nature and uncertainty.
Explanation. AS 29 requires a provision when a present obligation from a past event is probable and a reliable estimate can be made. A 75% probability of loss is probable and ₹12,00,000 is reliably estimated, so a provision of ₹12,00,000 is recognised with disclosure. The claim amount ₹18,00,000 is not used merely because it is claimed, and contingent-liability-only treatment is insufficient.
Where it goes wrong. Using the full claim amount or treating a probable reliable obligation as only a contingent liability.
Authority. AS 29
Question 8 · 2 marks · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies · medium
What total amount should be separately disclosed as prior period items in the 2025-26 financial statements?
Explanation. AS 5 defines prior period items as income or expenses arising in the current period from errors or omissions in prior-period financial statements. The omitted inventory ₹4,50,000 and mathematical depreciation error ₹75,000 are prior period items. The revised useful life effect ₹1,20,000 is a change in accounting estimate. Total prior period items = ₹5,25,000.
Where it goes wrong. Including the revised useful-life depreciation as a prior period item or omitting the mathematical error.
Authority. AS 5
Question 9 · 2 marks · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies · hard
What amount arising from the revision of the plant's useful life is recognised as a change in accounting estimate in 2025-26?
₹75,000
₹1,95,000
₹1,20,000 (correct answer)
Nil
Answer: C — ₹1,20,000
Working. Change in estimate = additional depreciation due to revised useful life = ₹1,20,000, recognised in current period. Mathematical error ₹75,000 is prior period.
Explanation. AS 5 treats a revision of useful life as a change in accounting estimate, recognised prospectively in the current and future periods. The additional depreciation of ₹1,20,000 is therefore charged in 2025-26 as a change in estimate. It is not a prior period item, and the ₹75,000 mathematical error is a separate prior period item.
Where it goes wrong. Clubbing the revised useful-life depreciation with prior period errors or treating it retrospectively.
Authority. AS 5
Question 10 · 2 marks · AS 20 Earnings Per Share · hard
Scenario. Radiant Ltd. had 5,00,000 equity shares outstanding on 1 April 2025. On 1 October 2025 it issued 1,20,000 equity shares at ₹25 per share, the fair value on that date. Profit after tax for 2025-26 was ₹22,00,000. Preference dividend of ₹2,00,000 was declared. No other changes in equity shares occurred. Compute basic EPS under AS 20.
What is Radiant Ltd.'s basic earnings per share for 2025-26 under AS 20?
Explanation. Shares issued at fair value during the year are included in the weighted average from the date of issue. Weighted average shares = 5,00,000 + 1,20,000 × 6/12 = 5,60,000. Earnings attributable to equity shareholders = ₹22,00,000 − ₹2,00,000 = ₹20,00,000. Basic EPS = ₹20,00,000 ÷ 5,60,000 = ₹3.57.
Where it goes wrong. Using closing shares without time-weighting or omitting preference dividend.
Authority. AS 20
Question 11 · 2 marks · Internal Reconstruction · hard
Scenario. Apex Circuits Ltd. had equity share capital of 10,000 shares of ₹100 each (₹10,00,000), 8% preference share capital of 1,000 shares of ₹100 each (₹1,00,000), 10% debentures of ₹2,00,000, trade payables of ₹1,50,000, debit balance of Profit and Loss Account ₹3,50,000, patents ₹60,000, preliminary expenses ₹40,000 and plant with book value ₹4,00,000 on 31 March 2026. A court-approved internal reconstruction scheme effective 1 April 2026 provides that: (i) equity shares are reduced to ₹25 each fully paid and preference shares to ₹50 each fully paid; (ii) trade payables forgo 20% and accept 4,800 equity shares of ₹25 each fully paid for the balance; (iii) plant is revalued upward by ₹50,000; (iv) patents, preliminary expenses and the debit balance of Profit and Loss Account are written off; and (v) any balance in Capital Reduction Account is transferred to Capital Reserve.
What amount is credited to Capital Reduction Account on reduction of equity and preference share capital?
Explanation. Capital Reduction credits are equity reduction ₹7,50,000, preference reduction ₹50,000, creditor sacrifice ₹30,000 and plant appreciation ₹50,000, totalling ₹8,80,000. Write-offs are patents ₹60,000, Profit and Loss debit ₹3,50,000 and preliminary expenses ₹40,000, totalling ₹4,50,000. Balance to Capital Reserve = ₹8,80,000 − ₹4,50,000 = ₹4,30,000.
Where it goes wrong. Omitting preliminary expenses or creditor sacrifice from Capital Reduction Account.
Authority. Ch 14 Internal Reconstruction; Companies Act 2013 s 66
Question 13 · 2 marks · Internal Reconstruction · medium
What is the total equity share capital immediately after the scheme?
₹2,50,000
₹1,20,000
₹3,70,000 (correct answer)
₹4,90,000
Answer: C — ₹3,70,000
Working. Existing reduced equity = 10,000 × ₹25 = ₹2,50,000. New shares to creditors = 4,800 × ₹25 = ₹1,20,000. Total = ₹3,70,000.
Explanation. Existing equity shares become 10,000 shares of ₹25 each = ₹2,50,000. Creditors receive 4,800 equity shares of ₹25 each = ₹1,20,000. Total equity share capital after scheme = ₹3,70,000. The ₹2,50,000 option ignores the shares issued to creditors.
Where it goes wrong. Forgetting the equity shares issued to creditors in settlement of their balance claim.
Authority. Ch 14 Internal Reconstruction; Companies Act 2013 s 66
Question 14 · 2 marks · Internal Reconstruction · medium
What total amount is debited to Capital Reduction Account for writing off patents, preliminary expenses and the debit balance of Profit and Loss Account?
₹4,50,000 (correct answer)
₹4,10,000
₹4,90,000
₹3,50,000
Answer: A — ₹4,50,000
Working. Patents ₹60,000 + preliminary expenses ₹40,000 + Profit and Loss debit ₹3,50,000 = ₹4,50,000.
Explanation. The write-offs are patents ₹60,000, preliminary expenses ₹40,000 and Profit and Loss Account debit balance ₹3,50,000. Total debited to Capital Reduction Account = ₹4,50,000. The ₹4,10,000 option omits preliminary expenses, and ₹3,50,000 considers only the Profit and Loss balance.
Where it goes wrong. Omitting preliminary expenses or one of the intangible assets written off.
Authority. Ch 14 Internal Reconstruction; Companies Act 2013 s 66
Question 15 · 2 marks · Branch Accounting including Foreign Branches · medium
Scenario. Sunrise Traders sends goods to its Jaipur branch at cost plus 25%. Closing stock at the branch at invoice price is ₹6,80,000. Opening stock reserve was ₹35,000. What is the closing stock reserve to be carried in the head office balance sheet under branch accounting?
What is the closing stock reserve to be carried in the head office balance sheet?
Explanation. Goods are invoiced at cost plus 25%, so loading is 25/125 = 20% of invoice price. Closing stock reserve = ₹6,80,000 × 20% = ₹1,36,000. The ₹1,70,000 option incorrectly applies 25% to the invoice value; ₹1,01,000 is the net charge after considering opening reserve, not the closing reserve.
Where it goes wrong. Applying 25% directly on invoice price instead of converting loading to 25/125.
Authority. Ch 15 Branch Accounting
Authorities cited in this paper
AS 11 · AS 11 para 46A · AS 15 · AS 18 · AS 29 · AS 5 · AS 20 · Ch 14 Internal Reconstruction · Companies Act 2013 s 66 · Ch 15 Branch Accounting
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 11 The Effects of Changes in Foreign Exchange Rates, AS 15 Employee Benefits, AS 18 Related Party Disclosures, AS 29 Provisions, Contingent Liabilities and Contingent Assets, AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, AS 20 Earnings Per Share, Internal Reconstruction, Branch Accounting including Foreign Branches. 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 11 The Effects of Changes in Foreign Exchange Rates, AS 15 Employee Benefits, AS 18 Related Party Disclosures, AS 29 Provisions, Contingent Liabilities and Contingent Assets, AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, AS 20 Earnings Per Share, Internal Reconstruction, Branch Accounting including Foreign Branches. 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.
