CA Inter Advanced Accounting MCQ Test 2: answer key

Question 1 · 2 marks · AS 19 Leases · hard

Scenario. Nexa Dynamics Ltd. prepares financial statements to 31 March 2026. On 1 April 2025 it took a specialised packaging machine on a four-year non-cancellable lease from Finlease Ltd. The machine's economic life is six years and only Nexa can use it without major modification. Annual lease rent is ₹7,00,000 payable at each year-end. Nexa has assured Finlease a residual value of ₹80,000; expected residual value at end of term is ₹2,00,000. The interest rate implicit in the lease is 10%. Discount factors at 10% for years 1 to 4 are 0.9091, 0.8264, 0.7513 and 0.6830. The machine's fair value at inception is ₹23,55,460. During 2025-26 Nexa developed 'Apollo' software. Research expenditure of ₹6,20,000 was incurred up to 30 September 2025. From 1 October 2025 Nexa demonstrated technical feasibility, intention and ability to complete and use the software, a market for its output, adequate resources and reliable measurement. Development expenditure after that date comprised coding and testing ₹8,40,000, design of a new interface ₹1,20,000, staff training ₹90,000 and general administration ₹1,10,000. Nexa's assembly cash-generating unit (CGU) has carrying amounts at 31 March 2026: goodwill ₹2,00,000, plant ₹9,00,000 and other assets ₹4,00,000. Its recoverable amount, computed from value in use, is ₹12,50,000. Impairment losses are allocated under AS 28.

What amount should Nexa recognise as the lease liability at inception of the lease?

1. ₹22,73,500, being present value of minimum lease payments. (correct answer)
2. ₹23,55,460, being the fair value of the leased machine.
3. ₹24,00,000, being gross lease rentals plus residual value.
4. ₹22,18,860, being present value of lease rents only.

Answer: A — ₹22,73,500, being present value of minimum lease payments.

Working. PV of rents = ₹7,00,000 × 3.1698 = ₹22,18,860. PV of residual assured by lessee = ₹80,000 × 0.6830 = ₹54,640. PV of MLP = ₹22,18,860 + ₹54,640 = ₹22,73,500. Liability = lower of ₹23,55,460 and ₹22,73,500 = ₹22,73,500.

Explanation. AS 19 requires the lessee to recognise the finance lease asset and liability at the lower of fair value and present value of minimum lease payments. The minimum lease payments include rents and the residual value assured by the lessee. The present value is ₹22,73,500, which is below the fair value of ₹23,55,460. Using only rents ignores the assured residual; using fair value ignores the required lower-of rule.

Where it goes wrong. Candidates often use fair value or only the present value of rents and omit the assured residual.

Authority. AS 19

Question 2 · 2 marks · AS 19 Leases · medium

What finance charge should be allocated to the year ended 31 March 2026?

1. ₹1,80,085 on the opening lease liability.
2. ₹2,27,350 on the opening lease liability. (correct answer)
3. ₹2,35,546 on the fair value of the machine.
4. ₹2,40,000 on the gross lease rentals payable.

Answer: B — ₹2,27,350 on the opening lease liability.

Working. Opening lease liability = ₹22,73,500. Finance charge = ₹22,73,500 × 10% = ₹2,27,350.

Explanation. Under AS 19, the finance charge is computed at the implicit rate on the outstanding lease liability at the start of the period. The opening liability is ₹22,73,500, so the finance charge is ₹2,27,350. Applying the rate to fair value or gross rents is incorrect because the liability is measured at the present value of minimum lease payments.

Where it goes wrong. Candidates may apply 10% to the fair value or to gross rentals instead of the opening lease liability.

Authority. AS 19

Question 3 · 2 marks · AS 26 Intangible Assets · medium

What amount should be capitalised as the Apollo software intangible at 31 March 2026?

1. ₹8,40,000, comprising coding and testing costs only.
2. ₹9,60,000, comprising coding, testing and interface design. (correct answer)
3. ₹10,50,000, adding staff training to development costs.
4. ₹11,60,000, adding training and administration to development.

Answer: B — ₹9,60,000, comprising coding, testing and interface design.

Working. Capitalised: coding and testing ₹8,40,000 + interface design ₹1,20,000 = ₹9,60,000. Excluded: research ₹6,20,000, training ₹90,000 and administration ₹1,10,000.

Explanation. AS 26 permits capitalisation only from the date all development recognition criteria are met. Coding, testing and interface design are directly attributable development costs. Staff training and general administration are expensed. Research expenditure of ₹6,20,000 is also expensed. Hence capitalised cost is ₹8,40,000 + ₹1,20,000 = ₹9,60,000.

Where it goes wrong. Candidates may include training or administration, or capitalise research expenditure incurred before criteria were met.

Authority. AS 26

Question 4 · 2 marks · AS 28 Impairment of Assets · hard

How much of the impairment loss is allocated to the plant of the CGU?

1. ₹50,000, allocated equally to plant and other assets.
2. ₹2,00,000, allocated first to the plant of the CGU.
3. ₹2,50,000, charged entirely against the CGU's assets.
4. ₹34,615, allocated pro rata after goodwill absorption. (correct answer)

Answer: D — ₹34,615, allocated pro rata after goodwill absorption.

Working. Total carrying = ₹2,00,000 + ₹9,00,000 + ₹4,00,000 = ₹15,00,000. Impairment = ₹15,00,000 − ₹12,50,000 = ₹2,50,000. Goodwill = ₹2,00,000. Balance = ₹50,000. Plant share = ₹50,000 × 9/13 = ₹34,615.

Explanation. The CGU carrying amount is ₹15,00,000 against recoverable amount ₹12,50,000, giving an impairment loss of ₹2,50,000. AS 28 allocates the loss first to goodwill ₹2,00,000. The remaining ₹50,000 is allocated to plant and other assets in the ratio 9:4. Plant receives ₹50,000 × 9/13 = ₹34,615.

Where it goes wrong. Candidates may allocate the whole loss pro rata or forget that goodwill absorbs the loss first.

Authority. AS 28

Question 5 · 2 marks · AS 5 Net Profit or Loss, Prior Period Items and Changes in Accounting Policies · medium

Scenario. Veda Ltd. is finalising its financial statements for 2025-26. In April 2026 it discovered that a material credit sale invoice of ₹4,80,000, raised in March 2025, had been omitted from the previous year's accounts. The company also changed depreciation on its packing line from straight-line to written-down value because the expected pattern of consumption changed; the effect is material. A separate arithmetic error in the warranty provision of the prior year was corrected while preparing the current year's accounts. Veda does not wish to reopen the prior period financial statements.

How should the omitted sale invoice be treated under AS 5?

1. Disclose it separately as a prior period item in 2025-26 profit and loss. (correct answer)
2. Adjust it against opening retained earnings without any separate disclosure.
3. Treat it as a change in accounting estimate and apply it prospectively.
4. Include it in current-year revenue without any separate disclosure.

Answer: A — Disclose it separately as a prior period item in 2025-26 profit and loss.

Working. Omitted invoice = prior period item; separate disclosure in 2025-26 statement of profit and loss. Depreciation method change = change in estimate, prospective. Arithmetic error in warranty provision = prior period item.

Explanation. AS 5 defines prior period items as income or expenses arising in the current period as a result of errors or omissions in prior period financial statements. The omitted sale invoice is material and is a prior period item. It is disclosed separately in the current statement of profit and loss, not adjusted silently against opening retained earnings or treated as a change in estimate.

Where it goes wrong. Candidates may treat the omission as a current-year sale or as a retrospective adjustment to opening retained earnings.

Authority. AS 5

Question 6 · 2 marks · AS 7 Construction Contracts · hard

Scenario. Vardhan Infra Ltd. prepares accounts to 31 March 2026. It has two construction contracts. Contract A, a bridge package, has a fixed price of ₹90,00,000. Costs incurred to 31 March 2026 are ₹28,00,000; estimated further costs to complete are ₹42,00,000. Progress payments received are ₹25,00,000. The outcome can be estimated reliably and costs incurred reflect work performed. Contract B, canal lining, has a fixed price of ₹45,00,000. Costs incurred to date are ₹30,00,000 and estimated further costs are ₹20,00,000. The contract is expected to be completed in 2026-27. No amount has been billed for Contract B. Separately, Vardhan sold goods costing ₹9,00,000 for ₹12,00,000 on 28 March 2026. The buyer asked Vardhan to retain the goods until 20 April 2026 because its warehouse was full; the goods were identified, ready and not mixed with other stock. Vardhan also sold a customised machine for ₹18,00,000 on 25 March 2026; installation is complex and was completed on 10 April 2026. On 1 February 2026 Vardhan supplied goods for ₹7,00,000 on approval; the buyer had neither accepted nor rejected them by 31 March 2026. Vardhan holds a current investment in equity shares bought on 1 January 2026 at a cost of ₹8,50,000, including brokerage of ₹25,000; fair value at 31 March 2026 is ₹7,90,000. It also holds long-term debentures costing ₹12,00,000; their fair value is ₹11,60,000, a temporary decline.

What revenue should Vardhan recognise on Contract A for 2025-26?

1. ₹27,00,000, based on costs incurred to date.
2. ₹36,00,000, using the proportion of costs incurred. (correct answer)
3. ₹28,00,000, equal to the costs incurred on the contract.
4. ₹25,00,000, equal to progress payments received.

Answer: B — ₹36,00,000, using the proportion of costs incurred.

Working. Total cost = ₹28,00,000 + ₹42,00,000 = ₹70,00,000. Completion = ₹28,00,000 / ₹70,00,000 = 40%. Revenue = ₹90,00,000 × 40% = ₹36,00,000.

Explanation. AS 7 applies the percentage of completion method when the outcome is reliably estimable. Total estimated cost is ₹70,00,000 and cost incurred is ₹28,00,000, so completion is 40%. Contract revenue is ₹90,00,000 × 40% = ₹36,00,000. Costs incurred or progress payments are not the measure of revenue.

Where it goes wrong. Candidates may use costs incurred or progress payments as revenue instead of applying the completion percentage.

Authority. AS 7

Question 7 · 2 marks · AS 7 Construction Contracts · hard

What provision for foreseeable loss on Contract B is required at 31 March 2026 after charging costs incurred?

1. ₹5,00,000, being the total expected loss on the contract.
2. ₹3,00,000, being the loss on work performed to date.
3. ₹2,00,000, being further loss after charging costs incurred. (correct answer)
4. ₹1,00,000, being the loss after deducting billed amounts.

Answer: C — ₹2,00,000, being further loss after charging costs incurred.

Working. Total cost = ₹30,00,000 + ₹20,00,000 = ₹50,00,000. Total loss = ₹50,00,000 − ₹45,00,000 = ₹5,00,000. Completion = 30/50 = 60%. Revenue = ₹45,00,000 × 60% = ₹27,00,000. Loss to date = ₹30,00,000 − ₹27,00,000 = ₹3,00,000. Further provision = ₹5,00,000 − ₹3,00,000 = ₹2,00,000.

Explanation. AS 7 requires the entire foreseeable loss to be recognised immediately. Total cost is ₹50,00,000 against contract price ₹45,00,000, so total loss is ₹5,00,000. Completion is 60%, revenue ₹27,00,000 and cost incurred ₹30,00,000, giving a loss already charged of ₹3,00,000. The additional provision is ₹2,00,000.

Where it goes wrong. Candidates may provide the whole ₹5,00,000 without deducting the loss already charged on costs incurred.

Authority. AS 7

Question 8 · 2 marks · AS 9 Revenue Recognition · medium

What revenue should Vardhan recognise in 2025-26 from the delayed-delivery, customised-machine and approval sales?

1. ₹30,00,000, recognising all three transactions in the year.
2. ₹19,00,000, recognising delayed delivery and approval sales.
3. ₹25,00,000, recognising delayed delivery and machine sale.
4. ₹12,00,000, recognising only the delayed-delivery sale. (correct answer)

Answer: D — ₹12,00,000, recognising only the delayed-delivery sale.

Working. Delayed-delivery sale = ₹12,00,000 recognised. Customised machine = ₹18,00,000 deferred. Approval sale = ₹7,00,000 deferred. Revenue = ₹12,00,000.

Explanation. AS 9 allows revenue on the delayed-delivery sale because the goods are identified, ready and held at the buyer's request, with risks and rewards transferred. The customised machine involves complex installation, so revenue is deferred until installation is complete. Goods on approval are not recognised until acceptance or expiry of the approval period. Only ₹12,00,000 is recognised.

Where it goes wrong. Candidates may recognise the approval sale or the machine sale before installation is complete.

Authority. AS 9

Question 9 · 2 marks · AS 13 Accounting for Investments · hard

What is the total carrying amount of Vardhan's investments at 31 March 2026?

1. ₹19,90,000, after valuing the current investment at fair value. (correct answer)
2. ₹20,50,000, carrying both investments at original cost.
3. ₹19,50,000, after writing down both investments to fair value.
4. ₹20,40,000, after reducing only the long-term investment.

Answer: A — ₹19,90,000, after valuing the current investment at fair value.

Working. Current investment = lower of ₹8,50,000 and ₹7,90,000 = ₹7,90,000. Long-term investment = ₹12,00,000 because decline is temporary. Total = ₹19,90,000.

Explanation. AS 13 carries current investments at the lower of cost and fair value. The equity investment is carried at ₹7,90,000. Long-term investments are carried at cost unless there is a decline other than temporary. The debenture decline is temporary, so it remains at ₹12,00,000. Total carrying amount is ₹19,90,000.

Where it goes wrong. Candidates may write down the long-term debentures despite the decline being temporary.

Authority. AS 13

Question 10 · 2 marks · AS 17 Segment Reporting · medium

Scenario. Trident Ltd. reports five business segments for 2025-26. Segment revenue is: P ₹4,800 lakh, Q ₹3,200 lakh, R ₹1,600 lakh, S ₹900 lakh and T ₹500 lakh. External revenue is P ₹4,300 lakh, Q ₹3,000 lakh, R ₹1,500 lakh, S ₹800 lakh and T ₹400 lakh. Segment results are P profit ₹600 lakh, Q profit ₹400 lakh, R loss ₹150 lakh, S profit ₹100 lakh and T loss ₹50 lakh. Segment assets are P ₹8,000 lakh, Q ₹5,000 lakh, R ₹2,500 lakh, S ₹1,200 lakh and T ₹300 lakh. Trident applies AS 17 quantitative thresholds.

Which segments are reportable under AS 17?

1. P, Q, R and S, since S meets the 10% result threshold.
2. P, Q and R only, after thresholds and the 75% test. (correct answer)
3. P, Q and R only, since the 75% test excludes S.
4. P and Q only, because R reports a segment loss.

Answer: B — P, Q and R only, after thresholds and the 75% test.

Working. Revenue threshold = 10% × ₹11,000 = ₹1,100; P, Q, R. Result threshold = 10% × greater of ₹1,100 profit and ₹200 loss = ₹110; P, Q, R. Asset threshold = 10% × ₹17,000 = ₹1,700; P, Q, R. External PQR = ₹8,800 / ₹10,000 = 88%.

Explanation. Total segment revenue is ₹11,000 lakh, so the 10% threshold is ₹1,100 lakh; P, Q and R qualify. For results, the greater absolute total is profit ₹1,100 lakh, threshold ₹110 lakh; R's loss qualifies, while S's profit of ₹100 lakh does not. Asset threshold ₹1,700 lakh is met by P, Q and R. Reportable external revenue of P, Q and R is 88% of total external revenue, so the 75% test is met.

Where it goes wrong. Candidates may include S on result or asset grounds, or incorrectly apply the 75% test.

Authority. AS 17

Question 11 · 2 marks · Amalgamation of Companies (AS 14) · hard

Scenario. Orion Ltd. absorbed Pinnacle Ltd. on 1 April 2026. Pinnacle's summarised balance sheet at 31 March 2026 showed equity share capital ₹7,00,000 (70,000 shares of ₹10), 12% preference share capital ₹3,00,000 (3,000 shares of ₹100), general reserve ₹1,50,000, statutory reserve under the Income-tax Act ₹1,20,000, surplus in profit and loss ₹80,000, 10% debentures ₹3,00,000 and trade payables ₹2,00,000. Assets were land and building ₹5,50,000, plant ₹6,50,000, investments ₹2,00,000, inventory ₹2,30,000, trade receivables ₹1,70,000 and cash ₹50,000. Orion took over all assets and liabilities. Agreed values were land and building ₹6,00,000, plant ₹5,80,000, investments ₹2,20,000, inventory ₹2,10,000, trade receivables ₹1,60,000 and cash ₹50,000. Orion discharged the 10% debenture holders by issuing its 11% debentures of the same amount. Preference shareholders of Pinnacle were discharged at a 10% premium by issue of 12% preference shares of Orion. Equity shareholders received two Orion equity shares of ₹10 each at an agreed value of ₹14 per share for every five Pinnacle shares, plus cash of ₹1.50 per Pinnacle share. The scheme did not satisfy all conditions for an amalgamation in the nature of merger. Orion intends to preserve the statutory reserve for the remaining period required by law. Assume the actual consideration under the scheme is ₹8,27,000 and net assets at agreed values are ₹13,20,000.

What is the purchase consideration under the net assets method?

1. ₹8,27,000, being the actual consideration discharged by Orion.
2. ₹10,00,000, being Pinnacle's paid-up share capital.
3. ₹13,20,000, being agreed assets less outside liabilities. (correct answer)
4. ₹18,20,000, being the total agreed value of assets taken over.

Answer: C — ₹13,20,000, being agreed assets less outside liabilities.

Working. Agreed assets = 6,00,000 + 5,80,000 + 2,20,000 + 2,10,000 + 1,60,000 + 50,000 = ₹18,20,000. Less debentures ₹3,00,000 and trade payables ₹2,00,000 = ₹13,20,000.

Explanation. Under the net assets method, purchase consideration is agreed assets taken over less outside liabilities taken over. Agreed assets total ₹18,20,000. Debentures ₹3,00,000 and trade payables ₹2,00,000 are outside liabilities. Net assets are therefore ₹13,20,000. Actual consideration under the scheme is a different figure and is not the net assets method result.

Where it goes wrong. Candidates may use actual consideration or total assets instead of net assets.

Authority. AS 14

Question 12 · 2 marks · Amalgamation of Companies (AS 14) · medium

How should Orion record Pinnacle's statutory reserve of ₹1,20,000?

1. Credit it to capital reserve without a corresponding debit.
2. Ignore it because purchase method does not preserve reserves.
3. Add it to general reserve and disclose it as a revenue reserve.
4. Debit amalgamation adjustment reserve and credit statutory reserve. (correct answer)

Answer: D — Debit amalgamation adjustment reserve and credit statutory reserve.

Working. Entry: Amalgamation Adjustment Reserve A/c Dr. ₹1,20,000; To Statutory Reserve A/c ₹1,20,000. Presentation: separate negative line item under Reserves and Surplus.

Explanation. In an amalgamation in the nature of purchase, statutory reserves are an exception and retain their identity where the relevant statute requires it. Orion records the reserve by debiting Amalgamation Adjustment Reserve and crediting Statutory Reserve. The debit is shown as a separate negative line item under Reserves and Surplus; it is not netted against the statutory reserve.

Where it goes wrong. Candidates may ignore the statutory reserve or net the adjustment reserve against it.

Authority. AS 14

Question 13 · 2 marks · Amalgamation of Companies (AS 14) · hard

If pooling of interests had applied, what adjustment to Orion's reserves is needed for the difference between consideration of ₹8,27,000 and Pinnacle's share capital of ₹10,00,000?

1. Credit ₹1,73,000 to reserves for capital over consideration. (correct answer)
2. Debit ₹1,73,000 to reserves for consideration over capital.
3. Credit ₹3,27,000 to capital reserve as a pooling adjustment.
4. Debit ₹3,27,000 to goodwill as a merger adjustment.

Answer: A — Credit ₹1,73,000 to reserves for capital over consideration.

Working. Consideration = 28,000 shares × ₹14 + 3,000 preference shares × ₹110 + 70,000 × ₹1.50 = ₹3,92,000 + ₹3,30,000 + ₹1,05,000 = ₹8,27,000. Share capital = ₹7,00,000 + ₹3,00,000 = ₹10,00,000. Difference = ₹10,00,000 − ₹8,27,000 = ₹1,73,000 credit to reserves.

Explanation. Under pooling of interests, the difference between share capital issued plus additional consideration and the transferor's share capital is adjusted in reserves. Consideration is ₹8,27,000 and Pinnacle's share capital is ₹10,00,000. The shortfall of ₹1,73,000 is credited to reserves; it is not goodwill or capital reserve.

Where it goes wrong. Candidates may debit reserves or treat the difference as goodwill/capital reserve.

Authority. AS 14

Question 14 · 2 marks · Amalgamation of Companies (AS 14) · hard

Under purchase method, what is the amount of capital reserve or goodwill using actual consideration and agreed net assets?

1. Goodwill ₹4,93,000 because consideration exceeds net assets.
2. Capital reserve ₹4,93,000 because net assets exceed consideration. (correct answer)
3. Capital reserve ₹7,63,000 after adding statutory reserve.
4. Goodwill ₹1,73,000 after adjusting share capital difference.

Answer: B — Capital reserve ₹4,93,000 because net assets exceed consideration.

Working. Net assets at agreed values = ₹13,20,000. Purchase consideration = ₹8,27,000. Capital reserve = ₹13,20,000 − ₹8,27,000 = ₹4,93,000.

Explanation. Under purchase method, compare purchase consideration with net assets at agreed values. Net assets are ₹13,20,000 and consideration is ₹8,27,000. Since net assets exceed consideration by ₹4,93,000, the difference is credited to capital reserve. It is not goodwill, and statutory reserve is not added to this calculation.

Where it goes wrong. Candidates may reverse the calculation and record goodwill, or include statutory reserve.

Authority. AS 14

Question 15 · 2 marks · Internal Reconstruction · hard

Scenario. Sagar Ltd. implements a court-approved internal reconstruction scheme in 2025-26. Its capital reduction account has a credit balance of ₹5,20,000 after the scheme. The scheme permits writing off accumulated business losses ₹3,60,000, preliminary expenses ₹40,000 and goodwill ₹90,000. The balance remaining in the capital reduction account is to be transferred to capital reserve. No other adjustment is permitted by the scheme.

What amount is transferred to capital reserve?

1. ₹1,20,000, being the balance after writing off losses only.
2. ₹90,000, being the amount equal to goodwill written off.
3. ₹30,000, being the unutilised capital reduction balance. (correct answer)
4. ₹5,20,000, being the entire capital reduction account.

Answer: C — ₹30,000, being the unutilised capital reduction balance.

Working. Total write-offs = ₹3,60,000 + ₹40,000 + ₹90,000 = ₹4,90,000. Balance = ₹5,20,000 − ₹4,90,000 = ₹30,000.

Explanation. The capital reduction account is applied to write off the permitted items: accumulated losses ₹3,60,000, preliminary expenses ₹40,000 and goodwill ₹90,000, totalling ₹4,90,000. The credit balance is ₹5,20,000, so the unutilised balance of ₹30,000 is transferred to capital reserve.

Where it goes wrong. Candidates may omit preliminary expenses or goodwill, or transfer the entire balance.

Authority. Internal Reconstruction (check)