CA Inter Advanced Accounting MCQ Test 4: 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 13 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 16 Borrowing Costs; AS 10 Property, Plant and Equipment (1 Q)
AS 10 Property, Plant and Equipment; AS 12 Government Grants (1 Q)
AS 10 Property, Plant and Equipment (1 Q)
AS 12 Government Grants; AS 10 Property, Plant and Equipment (1 Q)
AS 2 Valuation of Inventories (1 Q)
AS 11 Foreign Exchange; AS 16 Borrowing Costs (2 Q)
AS 12 Government Grants (2 Q)
AS 25 Interim Financial Reporting (check) (1 Q)
Schedule III Division I; Share capital notes (1 Q)
Schedule III Division I; Trade receivables (1 Q)
Schedule III Division I; CWIP ageing (1 Q)
Schedule III Division I; Contingent liabilities and commitments (1 Q)
Buy-back of Securities (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 16 Borrowing Costs; AS 10 Property, Plant and Equipment · hard
Scenario. Nirvaan Alloys Ltd. prepares financial statements for the year ended 31 March 2026. On 1 April 2025 it began constructing a smelting plant and borrowed ₹60,00,000 at 11% p.a. specifically for the plant. The loan was drawn on the same date and unutilised amounts were placed in bank deposits, earning ₹45,000 during the active construction period. Construction was suspended for three months from 1 September 2025 to 30 November 2025 because of a prolonged labour dispute; no technical or administrative work continued. Work resumed on 1 December 2025 and the plant was completed and ready for its intended use on 31 March 2026. Direct construction costs, excluding the items below, were ₹72,00,000. The initial present value of the dismantling and site restoration obligation was ₹2,50,000. On 31 March 2026 the company received a government grant of ₹8,00,000 towards the plant and, under its policy, deducted it from the asset cost. The plant has a 10-year useful life and an estimated residual value of 5% of cost. Depreciation is charged on a straight-line basis. On 1 April 2026 the grant became refundable because a condition was not met.
What amount of borrowing cost is capitalised in the cost of the smelting plant for 2025-26?
₹4,50,000 (correct answer)
₹6,15,000
₹4,95,000
₹2,70,000
Answer: A — ₹4,50,000
Working. Interest for 12 months = 60,00,000 × 11% = 6,60,000. Interest for 3-month suspension = 6,60,000 × 3/12 = 1,65,000. Interest for capitalisation period = 6,60,000 − 1,65,000 = 4,95,000. Less temporary investment income 45,000 = 4,50,000.
Explanation. Specific borrowing interest for the nine-month capitalisation period is ₹60,00,000 × 11% × 9/12 = ₹4,95,000. Income from temporary investment of ₹45,000 is deducted, giving ₹4,50,000. The three-month suspension interest of ₹1,65,000 is expensed because active development was interrupted for a prolonged period. Option b ignores suspension, while option c ignores temporary investment income.
Where it goes wrong. Capitalising full-year interest without deducting temporary investment income or excluding the prolonged suspension period.
Authority. AS 16 Borrowing Costs
Question 2 · 2 marks · AS 10 Property, Plant and Equipment; AS 12 Government Grants · hard
What is the initial carrying amount of the smelting plant on 1 January 2026 before depreciation?
Explanation. The plant cost includes direct construction cost ₹72,00,000, the initial present value of dismantling and restoration ₹2,50,000, and capitalised borrowing cost ₹4,50,000. The government grant of ₹8,00,000 is deducted from asset cost under the company policy. Thus the initial carrying amount is ₹71,00,000. Option a omits the restoration liability; option c omits the grant deduction.
Where it goes wrong. Forgetting to add the dismantling obligation or deducting the grant from profit instead of asset cost.
Authority. AS 10 Property, Plant and Equipment; ICAI Study Material, Paper 1: Advanced Accounting, AS 12 Accounting for Government Grants; AS 16 Borrowing Costs
Question 3 · 2 marks · AS 10 Property, Plant and Equipment · medium
Under AS 10, what is the annual depreciation on the smelting plant for the subsequent financial year 2026-27 under the straight-line method?
₹7,10,000
₹6,40,775
₹6,74,500 (correct answer)
₹6,96,350
Answer: C — ₹6,74,500
Working. Cost on 31 March 2026 = 71,00,000. Residual value (5%) = 3,55,000. Depreciable amount = 71,00,000 - 3,55,000 = 67,45,000. Annual SLM depreciation = 67,45,000 / 10 = 6,74,500.
Explanation. Under AS 10, depreciable amount is cost less estimated residual value. Cost is ₹71,00,000 and residual value at 5% is ₹3,55,000, giving a depreciable amount of ₹67,45,000. Annual straight-line depreciation over 10 years is ₹6,74,500. Option (a) incorrectly ignores the 5% residual value.
Where it goes wrong. Charging depreciation for the full year or from the date construction began instead of the date available for use.
Authority. AS 10 Property, Plant and Equipment
Question 4 · 2 marks · AS 12 Government Grants; AS 10 Property, Plant and Equipment · hard
Immediately after the government grant refund on 1 April 2026, what is the revised carrying amount of the smelting plant before charging prospective depreciation?
₹71,00,000
₹72,00,000
₹75,45,000
₹79,00,000 (correct answer)
Answer: D — ₹79,00,000
Working. Carrying amount on 31 March 2026 = 71,00,000. Refund of grant credited to asset = 8,00,000. Revised carrying amount on 1 April 2026 = 71,00,000 + 8,00,000 = 79,00,000.
Explanation. Under AS 12, when a government grant related to a specific fixed asset that was deducted from asset cost becomes refundable, the amount refundable is recorded by increasing the book value of the asset. Therefore, ₹8,00,000 is added back to ₹71,00,000, giving ₹79,00,000 before prospective depreciation.
Where it goes wrong. Charging the refund to profit and loss instead of increasing the asset carrying amount when the original grant reduced cost.
Authority. ICAI Study Material, Paper 1: Advanced Accounting, AS 12 Accounting for Government Grants; AS 10 Property, Plant and Equipment
Question 5 · 2 marks · AS 2 Valuation of Inventories · medium
Scenario. Vardhman Ceramics Ltd. operates a plant with normal capacity of 2,40,000 units a year. Fixed production overheads for 2025-26 are ₹36,00,000. Actual production was 1,80,000 units because of an unexpected machine breakdown. Variable production cost is ₹85 per unit. Closing inventory on 31 March 2026 is 30,000 units and is valued under AS 2 (Revised). The company allocates fixed production overheads on normal capacity and treats unallocated overhead as an expense.
What is the value of closing inventory of 30,000 units under AS 2 (Revised)?
₹25,50,000
₹30,00,000 (correct answer)
₹34,50,000
₹31,50,000
Answer: B — ₹30,00,000
Working. Fixed overhead rate = 36,00,000 / 2,40,000 = 15 per unit. Cost per unit = 85 + 15 = 100. Closing inventory = 30,000 × 100 = 30,00,000. Unallocated fixed overhead = (2,40,000 − 1,80,000) × 15 = 9,00,000.
Explanation. Fixed production overhead is absorbed on normal capacity: ₹36,00,000 / 2,40,000 units = ₹15 per unit. Cost per unit is variable ₹85 + fixed ₹15 = ₹100. Closing inventory is 30,000 × ₹100 = ₹30,00,000. The unallocated overhead of ₹9,00,000 is expensed. Option c wrongly uses actual capacity and inflates inventory.
Where it goes wrong. Allocating fixed overhead on actual production of 1,80,000 units instead of normal capacity.
Authority. AS 2 Valuation of Inventories
Question 6 · 2 marks · AS 11 Foreign Exchange; AS 16 Borrowing Costs · hard
Scenario. Aurelia Exports Ltd. purchased a packaging line from a US supplier for USD 1,20,000 on 1 October 2025. The line requires a substantial period to install and was not ready for use at 31 March 2026, so it is a qualifying asset. The company borrowed USD 1,20,000 at 6% p.a. on the same date specifically for the line, with interest payable annually. Exchange rates were ₹82 per USD on 1 October 2025 and ₹85 per USD on 31 March 2026. The rate at which the company could have borrowed in rupees on 1 October 2025 was 11% p.a. No repayment was made during the year. In a separate transaction, the State Government granted Aurelia a plot of land for a new warehouse at a nominal charge of ₹3,00,000; the land market value was ₹90,00,000 and the company met the condition attached to the grant. Aurelia also received ₹24,00,000 on 1 April 2025 to meet staff training costs over three years. It incurred ₹6,00,000 of eligible training expense in 2025-26 and follows a policy of recognising such grant on a straight-line basis over the period of related costs.
What amount of exchange difference on the foreign currency loan is treated as borrowing cost under AS 16?
Explanation. Principal exchange loss is USD 1,20,000 × (85 − 82) = ₹3,60,000. Foreign interest for six months is ₹3,06,000. Local-currency interest would be USD 1,20,000 × 82 × 11% × 6/12 = ₹5,41,200. The difference is ₹2,35,200, which is lower than the exchange loss, so ₹2,35,200 is treated as borrowing cost. Option b treats the entire exchange loss as borrowing cost.
Where it goes wrong. Treating the full exchange loss as borrowing cost without comparing with the local-foreign interest difference.
Authority. AS 16 Borrowing Costs; ICAI Study Material, Paper 1: Advanced Accounting, AS 11 The Effects of Changes in Foreign Exchange Rates
Question 7 · 2 marks · AS 11 Foreign Exchange; AS 16 Borrowing Costs · hard
What amount of the exchange loss is recognised in profit and loss under AS 11, rather than as borrowing cost?
₹1,24,800 (correct answer)
₹2,35,200
₹3,60,000
₹5,41,200
Answer: A — ₹1,24,800
Working. Total exchange loss 3,60,000 − borrowing cost component 2,35,200 = 1,24,800 charged to profit and loss under AS 11.
Explanation. Total principal exchange loss is ₹3,60,000. The portion regarded as borrowing cost under AS 16 is limited to ₹2,35,200. The balance ₹1,24,800 is accounted for under AS 11 and charged to profit and loss. Option b is the borrowing cost component, not the residual exchange difference.
Where it goes wrong. Reporting the full exchange loss under AS 11 or the full amount as borrowing cost.
Authority. ICAI Study Material, Paper 1: Advanced Accounting, AS 11 The Effects of Changes in Foreign Exchange Rates; AS 16 Borrowing Costs
Question 8 · 2 marks · AS 12 Government Grants · medium
At what amount should the land received from the State Government be recognised?
₹90,00,000
₹3,00,000 (correct answer)
₹93,00,000
₹87,00,000
Answer: B — ₹3,00,000
Working. Acquisition cost or nominal value = ₹3,00,000.
Explanation. A non-monetary government grant given at a concessional rate is recognised at acquisition cost or nominal value. The land was granted for a nominal charge of ₹3,00,000, so it is recorded at that amount. Market value of ₹90,00,000 is not used because the grant is not recognised at fair value under AS 12.
Where it goes wrong. Recording the land at market value and crediting the difference to income.
Authority. ICAI Study Material, Paper 1: Advanced Accounting, AS 12 Accounting for Government Grants
Question 9 · 2 marks · AS 12 Government Grants · medium
What is the deferred income balance for the staff training grant at 31 March 2026?
Explanation. The revenue grant of ₹24,00,000 is recognised over the three-year period of related training costs at ₹8,00,000 each year. For 2025-26, ₹8,00,000 is credited to profit and loss. The unamortised balance is ₹24,00,000 − ₹8,00,000 = ₹16,00,000. Option d recognises only the amount spent and ignores the grant period.
Where it goes wrong. Recognising the grant only to the extent of expenditure incurred instead of over the related cost period.
Authority. ICAI Study Material, Paper 1: Advanced Accounting, AS 12 Accounting for Government Grants
Question 10 · 2 marks · AS 25 Interim Financial Reporting (check) · medium
Scenario. Kaveri Resorts Ltd. prepares quarterly interim financial results under AS 25 (check). For the quarter ended 30 June 2025, revenue from rooms is ₹28,00,000 and expenses are ₹18,00,000, giving profit before tax of ₹10,00,000. The resort peak season falls in the December quarter; no part of peak-season revenue is included in the June quarter. The company estimates annual profit before tax of ₹50,00,000 and annual tax expense of ₹15,00,000. There are no permanent differences and no changes in tax rates.
What tax expense should be recognised for the quarter ended 30 June 2025?
Explanation. Interim tax expense is based on the estimated annual effective tax rate applied to interim profit before tax. The annual rate is ₹15,00,000 / ₹50,00,000 = 30%. Tax for the quarter is 30% × ₹10,00,000 = ₹3,00,000. Seasonal peak revenue is not anticipated in the June quarter. Option b applies the annual tax amount without prorating.
Where it goes wrong. Applying the full annual tax estimate to the quarter or anticipating peak-season revenue.
Authority. AS 25 Interim Financial Reporting (check)
Question 11 · 2 marks · Schedule III Division I; Share capital notes · medium
Scenario. Meridian Infra Ltd. is preparing its Balance Sheet as at 31 March 2026 under Division I of Schedule III to the Companies Act, 2013. Its equity share capital is 40,00,000 equity shares of ₹10 each. At 1 April 2025 the company had 38,00,000 equity shares, of which promoters held 18,00,000 shares. On 1 October 2025 the company issued 2,00,000 fresh equity shares to the promoters. At 31 March 2026 promoters held 20,00,000 shares. Trade receivables have a gross balance of ₹84,00,000 and an allowance for doubtful debts of ₹4,00,000. Ageing shows: undisputed considered good less than 6 months ₹38,00,000; 6 months to 1 year ₹12,00,000; 1 to 2 years ₹9,00,000; 2 to 3 years ₹7,00,000; more than 3 years ₹6,00,000; disputed considered good ₹8,00,000; disputed considered doubtful ₹4,00,000, against which the allowance is held. Capital work-in-progress is ₹62,00,000: Project A ₹20,00,000 for less than 1 year; Project B ₹18,00,000 for 1 to 2 years; Project C ₹14,00,000 for 2 to 3 years; Project D ₹10,00,000 for more than 3 years. Of Project D, ₹4,00,000 relates to work temporarily suspended and ₹6,00,000 is in progress. The company has bills discounted but not matured ₹12,00,000, a claim not acknowledged as debt ₹25,00,000, a bank undertaking given ₹8,00,000 and capital commitments ₹15,00,000.
What promoter shareholding disclosure is required at 31 March 2026 and for the year?
50.00% at year-end and 11.11% increase during the year (correct answer)
50.00% at year-end and 5.26% increase during the year
47.37% at year-end and 11.11% increase during the year
50.00% at year-end and 11.11% decrease during the year
Answer: A — 50.00% at year-end and 11.11% increase during the year
Explanation. At year-end promoters hold 20,00,000 of 40,00,000 shares, i.e. 50.00%. At the beginning they held 18,00,000 shares. The change is 2,00,000 / 18,00,000 = 11.11% increase. Schedule III requires promoter shareholding at the end and percentage change during the year. Option b divides by the closing total, which is not the prescribed change base.
Where it goes wrong. Computing percentage change on the closing total instead of the opening promoter holding.
Authority. Schedule III Division I, Companies Act 2013
Question 12 · 2 marks · Schedule III Division I; Trade receivables · hard
What net amount of trade receivables is presented as a current asset at 31 March 2026?
₹84,00,000
₹80,00,000 (correct answer)
₹76,00,000
₹88,00,000
Answer: B — ₹80,00,000
Working. Net trade receivables = 84,00,000 − 4,00,000 = 80,00,000.
Explanation. Trade receivables are presented net of the allowance for doubtful debts. Gross receivables are ₹84,00,000 and the allowance is ₹4,00,000, so the net current asset is ₹80,00,000. Ageing and disputed classification are disclosed in notes, but they do not change the net carrying amount. Option c deducts the doubtful amount twice.
Where it goes wrong. Deducting both the allowance and the disputed doubtful balance from gross receivables.
Authority. Schedule III Division I, Companies Act 2013
Question 13 · 2 marks · Schedule III Division I; CWIP ageing · hard
In the CWIP ageing schedule, what amount is shown under more than 3 years for projects temporarily suspended?
₹10,00,000
₹6,00,000
₹4,00,000 (correct answer)
₹14,00,000
Answer: C — ₹4,00,000
Working. Project D more than 3 years = 10,00,000. Temporarily suspended portion = 4,00,000. In-progress portion = 6,00,000.
Explanation. Project D of ₹10,00,000 is in the more-than-3-years bucket. Within it, ₹4,00,000 relates to work temporarily suspended and ₹6,00,000 is in progress. Schedule III requires separate disclosure of projects temporarily suspended in the ageing schedule. Thus ₹4,00,000 is shown under that sub-head. Option a reports the whole project without splitting suspended work.
Where it goes wrong. Reporting the full Project D amount as in progress and ignoring the temporary suspension split.
Authority. Schedule III Division I, Companies Act 2013
Question 14 · 2 marks · Schedule III Division I; Contingent liabilities and commitments · hard
What total is disclosed under contingent liabilities, excluding commitments, at 31 March 2026?
₹60,00,000
₹37,00,000
₹25,00,000
₹45,00,000 (correct answer)
Answer: D — ₹45,00,000
Working. 12,00,000 + 25,00,000 + 8,00,000 = 45,00,000. Capital commitments of 15,00,000 are disclosed separately.
Explanation. Contingent liabilities exclude capital commitments, which are disclosed separately. The items are bills discounted but not matured ₹12,00,000, claim not acknowledged ₹25,00,000 and bank undertaking ₹8,00,000. Total is ₹45,00,000. Option a adds capital commitments of ₹15,00,000, which belong under commitments, not contingent liabilities.
Where it goes wrong. Combining capital commitments with contingent liabilities in one total.
Authority. Schedule III Division I, Companies Act 2013
Question 15 · 2 marks · Buy-back of Securities · hard
Scenario. Suvarna Textiles Ltd. is an unlisted company. As at 31 March 2026 its paid-up equity capital is ₹50,00,000 (5,00,000 shares of ₹10 each), reserves available for distribution are ₹30,00,000, securities premium is ₹5,00,000 and loan funds are ₹40,00,000. The board proposes to buy back 40,000 equity shares at ₹25 per share, amounting to ₹10,00,000. The buy-back is authorised by the articles. No default subsists. The company wants to know whether a board resolution is enough or a special resolution is required, and whether the post-buy-back debt-equity ratio stays within the statutory ceiling.
Which statement is correct for the proposed buy-back of 40,000 shares at ₹25 each?
Board resolution is enough because ₹10,00,000 is below 10% of ₹1,00,00,000.
Board resolution is enough because loan funds remain below twice equity after buy-back.
Special resolution is required because loan funds exceed twice equity after buy-back.
Special resolution is needed; ₹10,00,000 exceeds ₹8,50,000 and debt is within twice equity. (correct answer)
Answer: D — Special resolution is needed; ₹10,00,000 exceeds ₹8,50,000 and debt is within twice equity.
Working. 10% threshold = 10% × (50,00,000 + 30,00,000 + 5,00,000) = 8,50,000. Proposed amount = 40,000 × 25 = 10,00,000, so special resolution is required. Post-buy-back equity = 46,00,000 + 25,00,000 = 71,00,000; twice equity = 1,42,00,000; debt 40,00,000 is within the limit.
Explanation. A board resolution route is available only up to 10% of paid-up capital plus reserves available for distribution, including securities premium. That limit is 10% × (₹50,00,000 + ₹30,00,000 + ₹5,00,000) = ₹8,50,000. The proposed ₹10,00,000 exceeds it, so a special resolution is needed. After buy-back, paid-up is ₹46,00,000 and reserves ₹25,00,000, giving equity ₹71,00,000; debt ₹40,00,000 is within twice equity.
Where it goes wrong. Using only the 25% overall ceiling and ignoring the lower 10% board-resolution threshold.
Authority. Sections 68 and 69, Companies Act 2013 (check)
Authorities cited in this paper
AS 16 Borrowing Costs · AS 10 Property, Plant and Equipment · ICAI Study Material, Paper 1: Advanced Accounting, AS 12 Accounting for Government Grants · AS 2 Valuation of Inventories · ICAI Study Material, Paper 1: Advanced Accounting, AS 11 The Effects of Changes in Foreign Exchange Rates · AS 25 Interim Financial Reporting (check) · Schedule III Division I, Companies Act 2013 · Sections 68 and 69, Companies Act 2013 (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 2 Valuation of Inventories, AS 10 Property, Plant and Equipment, AS 11 The Effects of Changes in Foreign Exchange Rates, AS 12 Accounting for Government Grants, AS 16 Borrowing Costs, AS 25 Interim Financial Reporting, Schedule III Division I Financial Statements of Companies, 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 2 Valuation of Inventories, AS 10 Property, Plant and Equipment, AS 11 The Effects of Changes in Foreign Exchange Rates, AS 12 Accounting for Government Grants, AS 16 Borrowing Costs, AS 25 Interim Financial Reporting, Schedule III Division I Financial Statements of Companies, 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.
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