CA Inter Advanced Accounting MCQ Test 5: 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 9 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 15 Employee Benefits (2 Q)
AS 29 Provisions, Contingent Liabilities and Contingent Assets (2 Q)
AS 4 Contingencies and Events Occurring After the Balance Sheet Date (1 Q)
AS 19 Leases (1 Q)
AS 26 Intangible Assets (2 Q)
AS 19 Leases and AS 26 Intangible Assets (1 Q)
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (1 Q)
Internal Reconstruction (4 Q)
AS 20 Earnings Per Share (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 15 Employee Benefits · medium
Scenario. Nirvaan Chemicals Ltd. prepares its financial statements to 31 March each year. For its defined benefit gratuity plan, the following data relate to 2025-26: present value of the obligation on 1 April 2025 was ₹42,00,000 and the fair value of plan assets was ₹38,00,000. Current service cost for the year was ₹6,50,000. The discount rate used is 9% per annum. The company contributed ₹5,20,000 to the plan and benefits paid by the plan were ₹3,80,000. Actuarial loss on the obligation was ₹1,10,000. The fair value of plan assets on 31 March 2026 was ₹42,50,000. There is no past service cost and no reimbursement right. In a separate matter, a customer filed a lawsuit in February 2026 claiming ₹12,00,000 for loss caused by a defective chemical batch. The company's legal counsel states that it is probable that the company will be held liable and reliably estimates the liability at ₹7,50,000. The company has also publicly announced a policy that it will clean up all soil contamination caused by its operations. A minor leak in March 2026 is estimated to require clean-up expenditure of ₹3,20,000, although no law currently requires such clean-up. The company wants to apply AS 15 and AS 29 for the year ended 31 March 2026.
What is the actual return on plan assets of Nirvaan Chemicals Ltd. for 2025-26?
Explanation. Actual return is derived from the movement in plan assets: closing fair value ₹42,50,000 less opening fair value ₹38,00,000 less contributions ₹5,20,000 plus benefits paid ₹3,80,000, giving ₹3,10,000. Expected return is not the same as actual return. Option a uses an incorrect adjustment for benefits.
Where it goes wrong. Using expected return on plan assets instead of actual return, or adding benefits paid instead of adding them back.
Authority. AS 15
Question 2 · 2 marks · AS 15 Employee Benefits · hard
What amount is recognised as the net defined benefit liability of Nirvaan Chemicals Ltd. at 31 March 2026?
Explanation. Closing present value of obligation is ₹42,00,000 + ₹6,50,000 current service cost + ₹3,78,000 interest cost - ₹3,80,000 benefits paid + ₹1,10,000 actuarial loss = ₹49,58,000. Plan assets are ₹42,50,000. Net liability is ₹7,08,000. Option b incorrectly adds the actuarial loss twice or mishandles interest.
Where it goes wrong. Omitting interest cost on the opening obligation or treating actuarial loss as an asset gain.
Authority. AS 15
Question 3 · 2 marks · AS 29 Provisions, Contingent Liabilities and Contingent Assets · medium
How should Nirvaan Chemicals Ltd. account for the customer lawsuit under AS 29?
Recognise a provision of ₹7,50,000 and disclose the claim (correct answer)
Recognise a provision for the full claim of ₹12,00,000
Only disclose ₹12,00,000 as a contingent liability
Recognise a provision of ₹4,50,000 and ignore the claim
Answer: A — Recognise a provision of ₹7,50,000 and disclose the claim
Explanation. A provision is recognised when a present obligation from a past event is probable and can be reliably estimated. Legal counsel assesses liability as probable and estimates ₹7,50,000, so that amount is provided. The claim amount of ₹12,00,000 is not automatically the provision. Mere disclosure as a contingent liability is not enough because the outflow is probable.
Where it goes wrong. Using the claim amount as the provision instead of the reliably estimated liability.
Authority. AS 29
Question 4 · 2 marks · AS 29 Provisions, Contingent Liabilities and Contingent Assets · hard
What is the total amount recognised as provision for the lawsuit and the soil clean-up by Nirvaan Chemicals Ltd. at 31 March 2026?
Explanation. The lawsuit requires a provision of ₹7,50,000. The published clean-up policy creates a constructive obligation even without a legal requirement, so the clean-up cost of ₹3,20,000 is also provided. Total provision is ₹10,70,000. Option a ignores the constructive obligation; option c wrongly uses the lawsuit claim.
Where it goes wrong. Ignoring a constructive obligation arising from a publicly announced policy.
Authority. AS 29
Question 5 · 2 marks · AS 4 Contingencies and Events Occurring After the Balance Sheet Date · medium
Scenario. Vardhman Fabrics Ltd. is finalising its financial statements for the year ended 31 March 2026, which are approved by the board on 15 May 2026. A customer owing ₹9,50,000 had been in severe financial difficulty since January 2026. On 20 April 2026, an insolvency petition against that customer was admitted, and recovery is now assessed at nil. On 10 April 2026, a fire destroyed a plant having carrying amount ₹18,00,000; insurance recovery of ₹12,00,000 is probable. The company wants to know how these two events should be reflected under AS 4.
How should Vardhman Fabrics Ltd. treat the customer insolvency and the fire under AS 4?
Customer insolvency is adjusting; fire is non-adjusting with disclosure (correct answer)
Both events are adjusting events requiring adjustment
Both events are non-adjusting events requiring only disclosure
Customer insolvency is non-adjusting; fire is adjusting
Answer: A — Customer insolvency is adjusting; fire is non-adjusting with disclosure
Explanation. The customer's severe financial difficulty existed at the balance sheet date and the insolvency confirms that condition, so the receivable is adjusted. The fire occurred after the reporting date and does not confirm a condition at that date, so it is non-adjusting and is disclosed if material. Option b wrongly adjusts the fire.
Where it goes wrong. Treating all events before approval of financial statements as adjusting events.
Authority. AS 4
Question 6 · 2 marks · AS 19 Leases · medium
Scenario. Suryansh Retail Ltd. entered into a four-year lease of a store on 1 April 2025. The lease does not transfer ownership, contains no purchase option, and the store reverts to the lessor at the end. Annual lease rentals are payable at each year-end as follows: 2025-26 ₹8,00,000; 2026-27 ₹10,00,000; 2027-28 ₹14,00,000; and 2028-29 ₹16,00,000. The company recognises operating lease payments on a straight-line basis. Separately, Suryansh acquired the brand 'Mittal' on 1 April 2022 for ₹36,00,000. The brand was amortised over 12 years on a straight-line basis with nil residual value. On 1 April 2025, a review showed that the brand's remaining useful life is only six years. During 2025-26, Suryansh spent ₹5,00,000 on developing its own brand 'Surya Fresh'. The brand is not separable, cannot be transferred, and no legal right over it can be granted. It was launched in March 2026. The company wants to apply AS 19 and AS 26 for the year ended 31 March 2026.
What is the lease equalisation liability of Suryansh Retail Ltd. at 31 March 2026?
Explanation. Total lease rentals over four years are ₹48,00,000, giving a straight-line annual expense of ₹12,00,000. Rent paid in 2025-26 is ₹8,00,000. The excess expense over payment is ₹4,00,000, recognised as a lease equalisation liability. Option a may arise from taking only the first two years' rentals.
Where it goes wrong. Recognising rent paid as expense without straight-lining the total lease rentals.
Authority. AS 19
Question 7 · 2 marks · AS 26 Intangible Assets · hard
What is the amortisation charge on the acquired brand 'Mittal' for 2025-26 after the review of useful life?
Explanation. Carrying amount on 1 April 2025 is ₹36,00,000 less three years' amortisation at ₹3,00,000, i.e. ₹27,00,000. The revised remaining useful life is six years, so the charge is ₹27,00,000 ÷ 6 = ₹4,50,000. Option a ignores the revision and continues the old ₹3,00,000 charge.
Where it goes wrong. Continuing amortisation over the original 12-year life after a revision of useful life.
Authority. AS 26
Question 8 · 2 marks · AS 26 Intangible Assets · medium
How should Suryansh Retail Ltd. treat the ₹5,00,000 spent on developing its own brand 'Surya Fresh'?
Capitalise ₹5,00,000 as an intangible asset
Capitalise it if the brand launch is successful
Recognise it as a deferred expense and amortise over five years
Expense ₹5,00,000 immediately in profit or loss (correct answer)
Answer: D — Expense ₹5,00,000 immediately in profit or loss
Working. Internally generated brand → expense ₹5,00,000 in 2025-26.
Explanation. AS 26 prohibits recognition of internally generated brands, mastheads, publishing titles and similar items because their cost cannot be distinguished from developing the business as a whole. The brand is not separable and no legal right can be transferred. Therefore, the ₹5,00,000 is expensed when incurred. Options a and b wrongly create an intangible asset.
Where it goes wrong. Capitalising internally generated brand expenditure because it was launched in the same year.
Authority. AS 26
Question 9 · 2 marks · AS 19 Leases and AS 26 Intangible Assets · hard
What total amount is charged to the statement of profit and loss of Suryansh Retail Ltd. for 2025-26 in respect of the lease, the acquired brand and the own brand?
Explanation. The lease expense is ₹12,00,000 on straight-line basis. Acquired brand amortisation is ₹4,50,000 after revision. Own brand development cost of ₹5,00,000 is expensed. Total charge is ₹21,50,000. Option c omits the own-brand write-off; option b uses the old brand amortisation.
Where it goes wrong. Combining straight-line lease expense with the original brand amortisation and ignoring the internally generated brand rule.
Authority. AS 19; AS 26
Question 10 · 2 marks · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies · medium
Scenario. Rudra Ltd. reported the following for the year ended 31 March 2026: it changed the method of depreciation on plant from written-down-value method to straight-line method, resulting in a current-period effect of ₹6,00,000; it suffered an earthquake loss of ₹9,00,000 in a region where earthquakes are not expected to recur; and it earned a profit of ₹4,00,000 on sale of a long-term investment. The company wants to present these items in accordance with AS 5.
Which treatment by Rudra Ltd. is in accordance with AS 5?
Include all three items in ordinary profit and make no separate disclosure
Show earthquake loss as an extraordinary item separately; treat the depreciation change as a change in accounting estimate with its effect disclosed (correct answer)
Treat all three items as extraordinary items in the statement of profit and loss
Treat the depreciation change as a prior period item and the earthquake loss as an ordinary item
Answer: B — Show earthquake loss as an extraordinary item separately; treat the depreciation change as a change in accounting estimate with its effect disclosed
Working. Earthquake loss → extraordinary item; depreciation method change → estimate change with disclosure.
Explanation. AS 5 requires extraordinary items to be disclosed separately. The earthquake loss is clearly distinct from ordinary activities and is not expected to recur. A change in depreciation method is a change in accounting estimate, not a prior period item, and its current-period effect is disclosed. Profit on sale of a long-term investment is generally an ordinary item.
Where it goes wrong. Treating a change in depreciation method as a change in accounting policy or prior period item.
Authority. AS 5
Question 11 · 2 marks · Internal Reconstruction · hard
Scenario. Kaveri Steel Ltd. obtained court approval for an internal reconstruction scheme effective 1 April 2025. On that date, its capital and liabilities included: equity share capital of 1,00,000 shares of ₹10 each fully paid, amounting to ₹10,00,000; 10% preference share capital of 5,000 shares of ₹100 each fully paid, amounting to ₹5,00,000; 12% debentures of ₹4,00,000; trade payables of ₹2,00,000; debit balance in Profit and Loss Account of ₹2,80,000; and goodwill of ₹1,50,000. The scheme provided as follows: (i) each equity share was sub-divided into five shares of ₹2 each; holders surrendered two out of every five such shares, which were cancelled; (ii) each preference share was reduced to ₹60 fully paid; (iii) debenture holders were issued 1,25,000 equity shares of ₹2 each fully paid and the balance of their claim was waived; (iv) trade payables were settled by issue of 50,000 equity shares of ₹2 each fully paid and the balance was waived; and (v) goodwill and the debit balance in Profit and Loss Account were written off, and plant was written down by ₹1,20,000. The balance in the capital reduction account was transferred to capital reserve. The company wants to record the scheme under the Companies Act 2013 and applicable accounting principles.
What total amount is credited to the capital reduction account in the books of Kaveri Steel Ltd. under the scheme?
Explanation. Credits arise from cancellation of surrendered equity shares ₹4,00,000, reduction of preference capital ₹2,00,000, waiver by debenture holders ₹1,50,000 and waiver by trade payables ₹1,00,000. Total is ₹8,50,000. Option b omits the trade payable waiver; option d adds an extra amount not in the scheme.
Where it goes wrong. Ignoring waivers by creditors while computing capital reduction.
Authority. Companies Act 2013 internal reconstruction provisions (check); AS 5
Question 12 · 2 marks · Internal Reconstruction · hard
What amount is transferred to capital reserve after writing off the specified items in Kaveri Steel Ltd.?
Explanation. Capital reduction credits total ₹8,50,000. Write-offs are Profit and Loss debit balance ₹2,80,000, goodwill ₹1,50,000 and plant write-down ₹1,20,000, totaling ₹5,50,000. The balance of ₹3,00,000 is transferred to capital reserve. Option b treats only the Profit and Loss debit balance.
Where it goes wrong. Forgetting to write off goodwill or the plant write-down before computing capital reserve.
Explanation. After surrender, 3,00,000 equity shares of ₹2 each remain, amounting to ₹6,00,000. Issue to debenture holders is 1,25,000 shares of ₹2, i.e. ₹2,50,000. Issue to trade payables is 50,000 shares of ₹2, i.e. ₹1,00,000. Total equity share capital is ₹9,50,000. Option b ignores one of the new issues.
Where it goes wrong. Using the pre-scheme ₹10,00,000 or ignoring shares issued to creditors.
Explanation. The remaining equity shares after surrender are 3,00,000 shares. Add 1,25,000 shares issued to debenture holders and 50,000 shares issued to trade payables. Total is 4,75,000 shares of ₹2 each. Option c is the number before surrender; option a omits one issue.
Where it goes wrong. Using 5,00,000 shares after subdivision without accounting for the surrender.
Question 15 · 2 marks · AS 20 Earnings Per Share · hard
Scenario. Trinetra Ltd. reported profit after tax of ₹84,00,000 for the year ended 31 March 2026. It has 20,00,000 equity shares outstanding throughout the year. It also has 10% convertible debentures of ₹40,00,000; each debenture of ₹100 is convertible into eight equity shares. It has 8% convertible preference shares of ₹30,00,000; each preference share of ₹100 is convertible into four equity shares. The tax rate is 30%. The company wants to compute diluted earnings per share under AS 20.
What is the diluted earnings per share of Trinetra Ltd. for 2025-26?
Explanation. For diluted EPS, add back preference dividend ₹2,40,000 and debenture interest after tax ₹2,80,000 to profit after tax: ₹84,00,000 - ₹2,40,000 + ₹2,80,000 + ₹2,40,000 = ₹86,80,000. Potential shares are 3,20,000 from debentures and 1,20,000 from preference shares. Denominator is 24,40,000 shares. Diluted EPS is ₹3.56.
Where it goes wrong. Forgetting to add back preference dividend or deducting debenture interest without the tax adjustment.
Authority. AS 20
Authorities cited in this paper
AS 15 · AS 29 · AS 4 · AS 19 · AS 26 · AS 5 · Companies Act 2013 internal reconstruction provisions (check) · AS 20
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 15 Employee Benefits, AS 29 Provisions, Contingent Liabilities and Contingent Assets, AS 4 Contingencies and Events Occurring After the Balance Sheet Date, AS 19 Leases, AS 26 Intangible Assets, AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, Internal Reconstruction, AS 20 Earnings Per Share. 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 15 Employee Benefits, AS 29 Provisions, Contingent Liabilities and Contingent Assets, AS 4 Contingencies and Events Occurring After the Balance Sheet Date, AS 19 Leases, AS 26 Intangible Assets, AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, Internal Reconstruction, AS 20 Earnings Per Share. 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.
