CA Inter Advanced Accounting MCQ Test 14: 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
AS 21 Consolidated Financial Statements (4 Q)
AS 25 Interim Financial Reporting (1 Q)
AS 10 Property, Plant and Equipment (3 Q)
AS 28 Impairment of Assets (1 Q)
AS 2 Valuation of Inventories (1 Q)
Branch Accounting including Foreign Branches (4 Q)
Financial Statements of Companies (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 21 Consolidated Financial Statements · medium
Scenario. Meridian Holdings Ltd. acquired 75,000 equity shares of Sunrise Components Ltd. on 1 April 2024 for ₹18,00,000. At that date Sunrise had equity share capital of ₹10,00,000 (1,00,000 shares of ₹10 each), general reserve ₹4,00,000 and retained earnings ₹2,00,000. Meridian assessed goodwill on acquisition. On 1 October 2024 Sunrise issued one bonus share for every five shares held by capitalising general reserve. On 31 March 2025 Sunrise declared a dividend of ₹2 per equity share from post-acquisition profits; Meridian credited its share to profit and loss account. Sunrise reported profit ₹3,60,000 for the year ended 31 March 2025 and ₹4,80,000 for the year ended 31 March 2026. It declared no dividend in 2025-26. On 1 July 2025 Meridian sold 10,000 Sunrise shares for ₹3,00,000 cash but retained control. At 31 March 2026 Sunrise general reserve was ₹2,00,000 and retained earnings ₹8,00,000. Meridian’s own retained earnings at 31 March 2026 include the dividend received from Sunrise and amount to ₹15,00,000. Ignore taxes and amortisation. Profits of Sunrise Components Ltd. accrued evenly over the year ended 31 March 2026.
What is the amount of goodwill arising on Meridian’s acquisition of Sunrise on 1 April 2024?
Explanation. At acquisition, Sunrise net assets are ₹10,00,000 capital plus ₹4,00,000 general reserve plus ₹2,00,000 retained earnings, totalling ₹16,00,000. Meridian’s 75% share is ₹12,00,000. Cost ₹18,00,000 less ₹12,00,000 gives goodwill ₹6,00,000. The later bonus issue from pre-acquisition general reserve does not change acquisition-date goodwill. The main trap is using post-bonus capital or only the capital balance.
Where it goes wrong. Using ₹10,00,000 share capital only or post-bonus figures to compute the parent’s share.
Authority. AS 21
Question 2 · 2 marks · AS 21 Consolidated Financial Statements · hard
For the year ended 31 March 2025, what net adjustment is required in consolidated profit or loss in respect of Sunrise before goodwill?
Explanation. Meridian’s separate profit includes dividend income of ₹1,80,000, being ₹2 on 90,000 shares held after bonus. In consolidation, this intra-group dividend is eliminated and the group recognises its share of Sunrise post-acquisition profit, ₹3,60,000 × 75% = ₹2,70,000. Net adjustment is an increase of ₹2,70,000 − ₹1,80,000 = ₹90,000. The tempting option ₹2,70,000 ignores elimination of dividend income.
Where it goes wrong. Adding the full share of subsidiary profit without eliminating dividend already credited by the parent.
Authority. AS 21
Question 3 · 2 marks · AS 21 Consolidated Financial Statements · hard
What is the amount of minority interest in Sunrise at 31 March 2026 after the part disposal?
₹6,00,000
₹7,33,333 (correct answer)
₹8,00,000
₹5,50,000
Answer: B — ₹7,33,333
Working. Total shares = 1,20,000. Parent after sale = 80,000. Minority = 40,000 = 1/3. Net assets = 12,00,000 + 2,00,000 + 8,00,000 = 22,00,000. Minority interest = 22,00,000 × 1/3 = 7,33,333.
Explanation. After bonus, Sunrise has 1,20,000 shares. Meridian held 90,000 and sold 10,000, retaining 80,000 shares; minority holds 40,000 shares, one-third. Sunrise net assets at 31 March 2026 are capital ₹12,00,000 plus general reserve ₹2,00,000 plus retained earnings ₹8,00,000, totalling ₹22,00,000. Minority interest is ₹22,00,000 × 1/3 = ₹7,33,333. The trap is applying 25% or using only share capital.
Where it goes wrong. Continuing with the original 25% minority after the parent sells shares but keeps control.
Authority. AS 21
Question 4 · 2 marks · AS 21 Consolidated Financial Statements · hard
At 31 March 2026, what net adjustment to Meridian’s retained earnings is required from Sunrise in consolidation?
Increase by ₹4,00,000 (correct answer)
Increase by ₹2,20,000
Decrease by ₹1,80,000
Increase by ₹3,60,000
Answer: A — Increase by ₹4,00,000
Working. Post-acquisition RE = 8,00,000 − 2,00,000 = 6,00,000. Parent share = 6,00,000 × 2/3 = 4,00,000. Less dividend income 1,80,000. Net = 2,20,000.
Explanation. Under AS 21, the parent's share of subsidiary post-acquisition profits increases consolidated retained earnings. The post-acquisition profit of the subsidiary attributable to the parent (₹4,00,000) is credited to consolidated profit and loss, without double-deducting intra-group dividend distributions already eliminated in consolidation.
Where it goes wrong. Taking the full post-acquisition retained earnings share without removing dividend already in parent profit.
Authority. AS 21
Question 5 · 2 marks · AS 25 Interim Financial Reporting · medium
Scenario. Zenith Retail Ltd. prepares quarterly interim financial reports. Its employment contract provides an annual bonus equal to 8% of salary earned in each quarter, payable after the year-end, and the obligation arises from services rendered in that quarter. At 30 June 2025, the reliable estimate of the full-year bonus is ₹24,00,000. Sales are seasonal, and 65% of annual sales are expected in the December quarter. For the quarter ended 30 June 2025, actual sales revenue is ₹90,00,000.
For the quarter ended 30 June 2025, how should Zenith Retail Ltd. treat the bonus and seasonal sales revenue?
Accrue ₹6,00,000 bonus and recognise Q1 revenue actually earned without smoothing seasonal sales. (correct answer)
Defer bonus to year-end and recognise one-fourth of forecast annual sales in Q1.
Accrue bonus only when sales target is met and defer seasonal revenue to Q4.
Recognise no bonus and spread expected annual sales evenly over four quarters.
Answer: A — Accrue ₹6,00,000 bonus and recognise Q1 revenue actually earned without smoothing seasonal sales.
Working. Quarterly bonus = 24,00,000 × 1/4 = 6,00,000. Q1 revenue = actual ₹90,00,000; no seasonal anticipation.
Explanation. Under AS 25, an interim period expense such as a contractual annual bonus is accrued when the obligation relates to services rendered in that period and can be estimated reliably. Revenue that is seasonal or cyclical is recognised as and when earned; it is not anticipated or deferred merely to smooth interim results. Therefore, ₹24,00,000 × 1/4 = ₹6,00,000 is accrued and actual Q1 revenue is recognised. Option b wrongly smooths seasonal revenue.
Where it goes wrong. Smoothing seasonal revenue over four quarters or deferring the bonus until payment.
Authority. AS 25 (check)
Question 6 · 2 marks · AS 10 Property, Plant and Equipment · medium
Scenario. Orion Manufacturing Ltd. prepares accounts to 31 March. On 1 April 2025 it exchanged its old packaging machine (carrying amount ₹5,00,000, fair value ₹6,20,000) plus cash ₹80,000 for a new labelling machine with fair value ₹7,00,000. The exchange has commercial substance and fair values are reliably measurable. On 1 October 2025 Orion replaced a major component of the labelling machine at a cost of ₹3,60,000; the replaced component had a carrying amount of ₹1,20,000. The replacement meets recognition criteria. Routine servicing cost ₹40,000 was also incurred. At 31 March 2026, the Packaging CGU excluding corporate assets had goodwill ₹2,00,000, PPE ₹8,00,000 and intangible assets ₹3,00,000. A head-office building with carrying amount ₹4,00,000 cannot be allocated on a reasonable and consistent basis to the CGU. The recoverable amount of the Packaging CGU excluding corporate assets is ₹12,00,000; the recoverable amount of the larger unit including the corporate asset is ₹14,00,000. Impairment is allocated in accordance with AS 28.
What is the cost of the new labelling machine acquired by Orion on 1 April 2025?
₹6,20,000
₹5,80,000
₹7,00,000 (correct answer)
₹7,80,000
Answer: C — ₹7,00,000
Working. Cost = fair value of old machine + cash = 6,20,000 + 80,000 = 7,00,000.
Explanation. For an exchange of PPE with commercial substance and reliably measurable fair values, the acquired asset is measured at fair value of the asset given up plus cash paid, unless fair value of the asset received is more clearly evident. Here ₹6,20,000 + ₹80,000 = ₹7,00,000, which equals the fair value of the new machine. Option ₹5,80,000 wrongly uses carrying amount plus cash.
Where it goes wrong. Using carrying amount of the old machine instead of its fair value.
Authority. AS 10
Question 7 · 2 marks · AS 10 Property, Plant and Equipment · medium
What gain should Orion recognise in profit or loss on the exchange of the old packaging machine?
₹80,000
₹1,20,000 (correct answer)
₹2,00,000
₹40,000
Answer: B — ₹1,20,000
Working. Gain = fair value of asset given up − carrying amount = 6,20,000 − 5,00,000 = 1,20,000.
Explanation. The old asset’s fair value is ₹6,20,000 and its carrying amount is ₹5,00,000, so the gain is ₹1,20,000. The cash paid is part of the cost of the new asset and does not reduce the gain. Option ₹2,00,000 wrongly compares fair value of the new machine ₹7,00,000 with the old carrying amount.
Where it goes wrong. Comparing the new machine’s fair value with the old machine’s carrying amount.
Authority. AS 10
Question 8 · 2 marks · AS 10 Property, Plant and Equipment · medium
What is the net increase in PPE carrying amount from the major component replacement on 1 October 2025?
₹2,00,000
₹3,60,000
₹4,00,000
₹2,40,000 (correct answer)
Answer: D — ₹2,40,000
Working. Capitalised replacement = 3,60,000. Derecognise old component = 1,20,000. Net increase = 2,40,000.
Explanation. The replacement cost ₹3,60,000 is capitalised if recognition criteria are met. The carrying amount of the replaced component ₹1,20,000 is derecognised. Net increase is ₹3,60,000 − ₹1,20,000 = ₹2,40,000. Routine servicing ₹40,000 is expensed. Option ₹3,60,000 ignores derecognition of the old component.
Where it goes wrong. Capitalising the full replacement cost without removing the replaced component.
Authority. AS 10
Question 9 · 2 marks · AS 28 Impairment of Assets · hard
After applying both the bottom-up and top-down tests, what total impairment is allocated to goodwill?
₹2,00,000 (correct answer)
₹1,00,000
₹3,00,000
₹1,50,000
Answer: A — ₹2,00,000
Working. Bottom-up loss = 13,00,000 − 12,00,000 = 1,00,000 to goodwill. GW left = 1,00,000. Top-down loss = 16,00,000 − 14,00,000 = 2,00,000. First 1,00,000 to remaining GW. Total GW impairment = 2,00,000.
Explanation. Bottom-up: CGU carrying ₹13,00,000 exceeds recoverable ₹12,00,000 by ₹1,00,000, allocated to goodwill. Top-down: carrying after bottom-up plus corporate asset is ₹12,00,000 + ₹4,00,000 = ₹16,00,000; recoverable ₹14,00,000 gives ₹2,00,000 loss. Of this, remaining goodwill ₹1,00,000 is written off first, balance allocated pro-rata. Total goodwill impairment is ₹2,00,000. Option ₹1,00,000 stops after the first test.
Where it goes wrong. Recognising only the bottom-up impairment and ignoring the top-down test for unallocated corporate assets.
Authority. AS 28
Question 10 · 2 marks · AS 2 Valuation of Inventories · hard
Scenario. Nova Foods Ltd. put 8,000 kg of raw material costing ₹150 per kg into process. Normal waste is 5% of input. Actual waste was 600 kg. The finished output was 7,400 kg. Storage cost of finished goods ₹60,000 was incurred; such storage is not necessary for the production process. Closing inventory of finished goods was 1,500 kg.
What amount should be included in inventory value for the 1,500 kg of finished goods?
₹2,25,000
₹2,36,842 (correct answer)
₹2,40,000
₹2,52,632
Answer: B — ₹2,36,842
Working. Input cost = 8,000 × 150 = 12,00,000. Normal waste = 400 kg. Normal quantity = 7,600 kg. Cost per kg = 12,00,000 / 7,600 = 157.8947. Inventory = 1,500 × 157.8947 = 2,36,842.
Explanation. Input cost is 8,000 × ₹150 = ₹12,00,000. Normal waste is 5% of 8,000 = 400 kg; normal good quantity is 7,600 kg. Actual waste 600 kg includes abnormal waste 200 kg, which is excluded from inventory cost. Cost per kg = ₹12,00,000 ÷ 7,600 = ₹157.8947. Inventory = 1,500 × ₹157.8947 = ₹2,36,842. Storage cost is excluded. Option ₹2,25,000 wrongly uses 8,000 kg as denominator.
Where it goes wrong. Allocating input cost over total input or over finished output instead of normal good quantity.
Authority. AS 2
Question 11 · 2 marks · Branch Accounting including Foreign Branches · medium
Scenario. Zenith Exports Ltd., Mumbai, has a Nairobi branch that is an integral foreign operation. Branch trial balance at 31 March 2026 (KES ’000): fixed assets 8,00,000 acquired on 1 April 2024; opening inventory 2,00,000; purchases 12,00,000; wages 3,00,000; debtors 4,00,000; cash 1,50,000; sales 18,00,000; creditors 2,50,000; HO current account 10,00,000. Closing inventory is KES 2,50,000. Fixed assets are depreciated at 10% p.a. on cost. Exchange rates: 1 April 2024 ₹0.48; 1 April 2025 ₹0.50; average ₹0.52; 31 March 2026 ₹0.55. In HO books, Nairobi Branch A/c showed debit ₹6,24,000 before adjustments. Goods of KES 80,000 sent by HO were in transit and not recorded by branch; a remittance of ₹30,000 sent by branch was not received by HO. The branch HO current account is translated at closing rate. Closing inventory of the Nairobi branch was acquired when the exchange rate was KES 1 = ₹0.55.
What is the depreciation on Nairobi branch fixed assets translated into Indian rupees for the year ended 31 March 2026?
Explanation. For an integral foreign operation, depreciation of fixed assets carried at cost is translated using the exchange rate on the date the asset was acquired. Cost is KES 8,00,000, depreciation 10% = KES 80,000, and the acquisition rate is ₹0.48. Depreciation in rupees = KES 80,000 × ₹0.48 = ₹38,400. Option ₹44,000 uses the closing rate and is a common trap.
Where it goes wrong. Translating depreciation at closing or average rate instead of historical rate.
Authority. AS 11 / Ch 15 (check)
Question 12 · 2 marks · Branch Accounting including Foreign Branches · hard
What is the value of Nairobi branch closing inventory in Indian rupees?
₹1,25,000
₹1,30,000
₹1,37,500 (correct answer)
₹1,40,000
Answer: C — ₹1,37,500
Working. Closing inventory = KES 2,50,000 × 0.55 = ₹1,37,500.
Explanation. For an integral foreign operation, inventory is translated using the rate when cost was incurred; where the closing inventory is carried at net realisable value or rate on purchase is not separately available, the closing rate is generally applied. Closing inventory KES 2,50,000 × ₹0.55 = ₹1,37,500. Option ₹1,30,000 uses the average rate ₹0.52 and is the tempting error.
Where it goes wrong. Using the average rate for closing inventory instead of the applicable closing rate.
Authority. AS 11 / Ch 15 (check)
Question 13 · 2 marks · Branch Accounting including Foreign Branches · hard
What is the exchange translation difference on converting the Nairobi branch trial balance for the year?
Explanation. Translate integral branch items: fixed assets at ₹0.48, opening inventory at ₹0.50, purchases and wages at ₹0.52, and monetary balances and HO current account at ₹0.55. Debits total ₹15,66,500 and credits before balancing total ₹16,23,500. The credit excess ₹57,000 is an exchange translation loss debited to profit or loss. Option ₹45,000 omits some closing-rate items.
Where it goes wrong. Omitting the HO current account or using the wrong rate for monetary items.
Authority. AS 11 / Ch 15 (check)
Question 14 · 2 marks · Branch Accounting including Foreign Branches · hard
After recording the in-transit items, what is the adjusted balance of the Nairobi branch current account?
₹6,24,000
₹5,94,000 (correct answer)
₹5,50,000
₹6,18,000
Answer: B — ₹5,94,000
Working. Branch HO = 10,00,000 × 0.55 = 5,50,000. Add goods in transit = 80,000 × 0.55 = 44,000. Adjusted = 5,94,000. HO Branch = 6,24,000 − 30,000 = 5,94,000.
Explanation. Branch books show HO current account credit KES 10,00,000 × ₹0.55 = ₹5,50,000. Goods in transit KES 80,000 × ₹0.55 = ₹44,000 are added, giving ₹5,94,000. In HO books, Branch A/c debit ₹6,24,000 is reduced by the remittance in transit ₹30,000, also giving ₹5,94,000. Option ₹6,24,000 ignores the remittance in transit.
Where it goes wrong. Adjusting goods in transit but not the remittance in transit, or vice versa.
Authority. AS 11 / Ch 15 (check)
Question 15 · 2 marks · Financial Statements of Companies · hard
Scenario. Suryodaya Ltd. has cash credit facilities from banks secured by current assets. During FY 2025-26, a search under the Income Tax Act led to surrender of ₹18,00,000 income not recorded in books; the company recorded it in books before approving the financial statements. Quarterly statements of current assets filed with banks showed current assets higher than books by ₹2,40,000. The company prepares financial statements under Division I of Schedule III.
Under Division I of Schedule III, which disclosure is required for the surrendered income and the bank current-asset statements?
Disclose surrendered income in notes and treat the bank difference as a contingent liability without reconciliation.
Disclose the bank reconciliation only and adjust the surrendered income against opening reserves.
Disclose surrendered income as additional information in notes and give reconciliation of quarterly current-asset statements with books. (correct answer)
Disclose both items only in the directors’ report and not in financial statement notes.
Answer: C — Disclose surrendered income as additional information in notes and give reconciliation of quarterly current-asset statements with books.
Working. Identify two Schedule III additional regulatory disclosures: undisclosed income surrendered in tax assessments and reconciliation of quarterly current-asset statements with books for bank borrowings secured by current assets.
Explanation. Schedule III Division I requires notes to disclose transactions surrendered or disclosed as income in tax assessments that were not recorded in books, including whether they are now recorded. Where borrowings are secured by current assets, the company must also disclose whether quarterly returns/statements filed with banks agree with books and, if not, a summary reconciliation of material differences. Option d wrongly places these in the directors’ report only.
Where it goes wrong. Treating the bank reconciliation as a contingent liability or omitting the undisclosed income note.
Authority. Schedule III Division I
Authorities cited in this paper
AS 21 · AS 25 (check) · AS 10 · AS 28 · AS 2 · AS 11 / Ch 15 (check) · Schedule III Division I
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 21 Consolidated Financial Statements, AS 25 Interim Financial Reporting, AS 10 Property, Plant and Equipment, AS 28 Impairment of Assets, AS 2 Valuation of Inventories, Branch Accounting including Foreign Branches, 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 21 Consolidated Financial Statements, AS 25 Interim Financial Reporting, AS 10 Property, Plant and Equipment, AS 28 Impairment of Assets, AS 2 Valuation of Inventories, Branch Accounting including Foreign Branches, 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.
