CA Inter Advanced Accounting MCQ Test 8: 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 2 Valuation of Inventories (2 Q)
AS 11 The Effects of Changes in Foreign Exchange Rates (2 Q)
AS 12 Accounting for Government Grants (1 Q)
AS 15 Employee Benefits (3 Q)
AS 29 Provisions, Contingent Liabilities and Contingent Assets (1 Q)
AS 20 Earnings Per Share (1 Q)
Buy-back of Securities (4 Q)
AS 3 Cash Flow Statements (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 2 Valuation of Inventories · medium
Scenario. Riverglen Foods Ltd. operates a joint processing plant. During FY 2025-26 it processed 40,000 kg of raw seed incurring joint material cost of ₹18,00,000 and joint conversion cost of ₹9,00,000. The joint process yielded main product P 24,000 kg, main product Q 12,000 kg and by-product R 4,000 kg. By-product R requires further processing cost of ₹15 per kg and selling cost of ₹5 per kg; its realisable price is ₹45 per kg. Main products P and Q have split-off selling prices of ₹120 per kg and ₹80 per kg respectively. Riverglen deducts by-product net realisable value from joint cost and allocates the balance between P and Q on split-off sales value. It also holds 8,000 kg of semi-finished product S. Cost incurred on S to date is ₹7,20,000. To complete S requires ₹1,80,000 in total; completed S sells at ₹110 per kg with brokerage of 4% of selling price. Semi-finished S cannot be sold as it is. On 1 February 2026, Riverglen entered a six-month forward contract to buy USD 1,00,000 at ₹85.00 per USD for a forecast equipment purchase; spot rate on that date was ₹83.50 per USD. On 31 March 2026, the contract had two months remaining. Separately, on 1 January 2026, Riverglen sold USD 50,000 forward at ₹87.00 per USD for speculation and closed the contract on 31 March 2026 at ₹88.20 per USD. The company follows a 31 March year-end.
What amount of joint cost is assigned to main product Q after deducting by-product net realisable value and allocating the balance on split-off sales value?
₹6,50,000 (correct answer)
₹6,00,000
₹7,20,000
₹6,75,000
Answer: A — ₹6,50,000
Working. R NRV = 4000*(45-15-5)=100000. Net joint cost = 2700000-100000=2600000. P sales = 24000*120=2880000. Q sales = 12000*80=960000. Total = 3840000. Q share = 2600000*960000/3840000=650000.
Explanation. By-product R net realisable value is 4,000 × (₹45 − ₹15 − ₹5) = ₹1,00,000. Joint cost after by-product is ₹27,00,000 − ₹1,00,000 = ₹26,00,000. Split-off sales value: P ₹28,80,000 and Q ₹9,60,000, total ₹38,40,000. Q gets ₹26,00,000 × 9,60,000/38,40,000 = ₹6,50,000. Option (d) omits by-product deduction; option (b) uses an equal split.
Where it goes wrong. Ignoring the by-product net realisable value deduction or allocating joint cost equally.
Authority. AS 2
Question 2 · 2 marks · AS 2 Valuation of Inventories · hard
What is the carrying amount of the 8,000 kg semi-finished product S under AS 2?
₹6,40,000
₹6,64,800 (correct answer)
₹6,90,000
₹7,20,000
Answer: B — ₹6,64,800
Working. Add cost per kg = 180000/8000=22.5. Brokerage per kg = 4%*110=4.4. NRV per kg = 110-22.5-4.4=83.1. Total NRV = 8000*83.1=664800. Cost 720000. Lower = 664800.
Explanation. S cannot be sold as it is, so net realisable value is computed after completion. Additional cost per kg = ₹1,80,000/8,000 = ₹22.50. Brokerage = 4% × ₹110 = ₹4.40. NRV per kg = ₹110 − ₹22.50 − ₹4.40 = ₹83.10. Total NRV = 8,000 × ₹83.10 = ₹6,64,800. Cost ₹7,20,000 is higher, so inventory is at ₹6,64,800. Option (d) uses cost; option (a) ignores brokerage and part of completion cost.
Where it goes wrong. Using cost when NRV is lower, or deducting only completion cost and not brokerage.
Authority. AS 2
Question 3 · 2 marks · AS 11 The Effects of Changes in Foreign Exchange Rates · medium
For the six-month forward contract to buy USD 1,00,000, what amount of premium or discount is amortised to profit or loss for FY 2025-26?
Explanation. Under AS 11 paragraph 36, the accounting treatment for forward exchange contracts applies to contracts entered into to manage the risk of foreign currency exposure on recognised assets and liabilities. The premium or discount arising at the inception of the contract is amortised as expense or income over the life of the contract.
Where it goes wrong. Charging the full premium in the year of inception or reversing income and expense.
Authority. AS 11
Question 4 · 2 marks · AS 11 The Effects of Changes in Foreign Exchange Rates · hard
For the speculative forward sale of USD 50,000, what gain or loss is recognised on closure on 31 March 2026?
₹60,000 gain
₹1,10,000 loss
₹50,000 gain
₹60,000 loss (correct answer)
Answer: D — ₹60,000 loss
Working. Loss = (88.20-87.00)*50000 = 1.20*50000=60000.
Explanation. For a speculative forward, premium or discount is ignored and the contract is marked to market. Selling USD forward at ₹87.00 and closing at ₹88.20 gives loss = (₹88.20 − ₹87.00) × 50,000 = ₹60,000. Option (a) reverses the sign; option (b) uses spot movement instead of the forward close rate.
Where it goes wrong. Treating a speculative forward like a hedge and amortising premium, or reversing gain and loss.
Authority. AS 11
Question 5 · 2 marks · AS 12 Accounting for Government Grants · medium
Scenario. Himavant Green Power Ltd. received ₹8 crore from the State Government in June 2025 as a grant towards the promoter's contribution to the initial capital of the company. The company fulfilled all conditions attached to the grant and there is no repayment obligation. The accountant credited the entire ₹8 crore to the statement of profit and loss as other income for FY 2025-26. The company is preparing its financial statements under the applicable Accounting Standards.
How should Himavant Green Power Ltd. account for the ₹8 crore State Government grant received towards the promoter's contribution to initial capital?
Credit ₹8 crore to capital reserve (correct answer)
Credit ₹8 crore to profit or loss
Defer ₹8 crore and amortise over ten years
Reduce the cost of plant by ₹8 crore
Answer: A — Credit ₹8 crore to capital reserve
Working. Grant towards promoter contribution is credited to capital reserve; no P&L income and no asset cost reduction.
Explanation. A government grant received as a contribution towards the promoter's initial capital is not an income item. It is credited to capital reserve. Crediting it to profit or loss overstates profit for FY 2025-26. Amortising it over ten years is also not appropriate because it is not a grant related to a specific asset or a deferred income item. Reducing plant cost is not relevant as the grant is not linked to a depreciable asset.
Where it goes wrong. Treating a promoter-capital grant as revenue income or deferred income.
Authority. AS 12 check
Question 6 · 2 marks · AS 15 Employee Benefits · hard
Scenario. Meridian Alloys Ltd. maintains a defined benefit gratuity plan. On 1 April 2025, it amended the plan. The amendment increased the defined benefit obligation by ₹12,00,000 for employees whose benefits had already vested and by ₹8,00,000 for employees whose benefits vest after an average remaining period of four years. On 1 January 2026, Meridian curtailed the plan following closure of a unit. Immediately before curtailment, the defined benefit obligation was ₹2,50,00,000 and plan assets were ₹2,05,00,000. The curtailment reduced the obligation by ₹18,00,000. Unamortised past service cost relating to the curtailed part was ₹2,40,000. On 31 March 2026, Meridian settled the gratuity obligation for 300 employees. The obligation settled was ₹64,00,000 and the settlement payment from plan assets was ₹58,00,000; no unamortised past service cost related to this settlement. Meridian also announced a restructuring plan on 15 March 2026. Direct costs are: employee termination ₹30,00,000 payable immediately; lease termination penalty ₹12,00,000 payable after two years; retraining of continuing staff ₹5,00,000; and marketing ₹3,00,000. The pre-tax discount rate is 10%; present value factor for two years at 10% is 0.826.
What amount of past service cost from the 1 April 2025 plan amendment is recognised in profit or loss for FY 2025-26?
Explanation. Past service cost for vested benefits is recognised immediately: ₹12,00,000. For unvested benefits, the cost is recognised on a straight-line basis over the average period until vesting: ₹8,00,000/4 = ₹2,00,000. Total FY 2025-26 charge = ₹12,00,000 + ₹2,00,000 = ₹14,00,000. Option (c) expenses all unvested cost immediately; option (a) ignores the unvested portion.
Where it goes wrong. Expensing all unvested past service cost immediately or ignoring it.
Authority. AS 15
Question 7 · 2 marks · AS 15 Employee Benefits · hard
What is the gain or loss on curtailment of the gratuity plan on 1 January 2026?
₹18,00,000 gain
₹13,20,000 gain
₹15,60,000 gain (correct answer)
₹2,40,000 loss
Answer: C — ₹15,60,000 gain
Working. Gain = 1800000 - 240000 = 1560000.
Explanation. Curtailment gain = reduction in defined benefit obligation ₹18,00,000 less unamortised past service cost relating to the curtailed part ₹2,40,000 = ₹15,60,000 gain. Plan assets are not deducted in this curtailment gain computation. Option (a) ignores the past service cost deduction; option (d) treats the deduction as a loss.
Where it goes wrong. Ignoring unamortised past service cost or treating it as a loss.
Authority. AS 15
Question 8 · 2 marks · AS 15 Employee Benefits · medium
What amount is recognised on the 31 March 2026 settlement of the gratuity obligation for 300 employees?
₹6,00,000 loss
₹4,00,000 gain
₹8,00,000 gain
₹6,00,000 gain (correct answer)
Answer: D — ₹6,00,000 gain
Working. Gain = 6400000 - 5800000 = 600000.
Explanation. Settlement gain = obligation settled ₹64,00,000 less settlement payment ₹58,00,000 = ₹6,00,000 gain. It is recognised when the settlement occurs. Option (a) reverses the sign; option (c) uses the wrong amount by adding rather than deducting the payment.
Where it goes wrong. Reversing settlement gain into loss or using plan assets instead of settlement amount.
Authority. AS 15
Question 9 · 2 marks · AS 29 Provisions, Contingent Liabilities and Contingent Assets · hard
What amount should be recognised as the restructuring provision on 15 March 2026?
Explanation. Under AS 29 paragraph 38, provisions should not be discounted to their present value (discounting is not permitted under Indian AS 29). The restructuring provision includes termination benefits of ₹30,00,000 and lease penalty of ₹12,00,000 at their undiscounted nominal amounts, giving a total provision of ₹42,00,000. Retraining and marketing costs are future operating expenses and are excluded.
Where it goes wrong. Including retraining or marketing costs, or ignoring discounting of the lease penalty.
Authority. AS 29
Question 10 · 2 marks · AS 20 Earnings Per Share · hard
Scenario. Nalanda Ltd. reported net profit attributable to equity shareholders of ₹18,00,000 for FY 2025-26. Throughout the year it had 2,00,000 fully paid equity shares of ₹10 each. It also had 80,000 partly paid equity shares of ₹10 each with ₹6 paid up. These partly paid shares were entitled to dividend in proportion to the amount paid. In addition, ₹5,00,000 share application money was pending allotment at year-end; it was not required by law to be kept separately and was being used in the business. The company is computing basic earnings per share under AS 20.
What is the basic earnings per share of Nalanda Ltd. for FY 2025-26?
Explanation. Partly paid shares are treated as a fraction of an equity share to the extent of dividend participation: 80,000 × 6/10 = 48,000. Denominator = 2,00,000 + 48,000 = 2,48,000. Basic EPS = ₹18,00,000/2,48,000 = ₹7.26. Share application money pending allotment is considered for diluted EPS, not basic EPS. Option (a) wrongly includes application money; option (d) treats partly paid shares as fully paid.
Where it goes wrong. Including share application money in basic EPS or treating partly paid shares as fully paid.
Authority. AS 20
Question 11 · 2 marks · Buy-back of Securities · hard
Scenario. Sundara Ceramics Ltd. is an unlisted company. As at 31 March 2026, its equity share capital was ₹20,00,000 comprising 2,00,000 fully paid shares of ₹10 each. Reserves were: general reserve ₹14,00,000; securities premium ₹3,00,000; profit and loss balance ₹6,00,000; revaluation reserve ₹5,00,000; capital reserve ₹2,00,000. Loan funds were ₹24,00,000. On 1 April 2026, the board approved a buy-back of 30,000 equity shares at ₹40 per share and sold investments for ₹12,00,000 (cost ₹10,00,000) to provide funds. The company wants to test the buy-back limits. For a planned buy-back of 25,000 shares at ₹40 per share, it will use the securities premium account for premium to the maximum extent, charge the remaining premium to general reserve, and transfer the nominal value bought back to Capital Redemption Reserve from general reserve. After buy-back, the company considers further issue of shares within six months.
What is the maximum number of equity shares that Sundara Ceramics Ltd. can buy back at ₹40 per share under the resources test?
30,000 shares
50,000 shares
26,875 shares (correct answer)
62,000 shares
Answer: C — 26,875 shares
Working. Reserves eligible = 1400000+300000+600000=2300000. Total = 2000000+2300000=4300000. 25%=1075000. Shares=1075000/40=26875.
Explanation. Paid-up capital ₹20,00,000 plus reserves available for distribution ₹14,00,000 + ₹3,00,000 + ₹6,00,000 = ₹43,00,000. The 25% resources limit = ₹10,75,000. At ₹40 per share, maximum shares = ₹10,75,000/₹40 = 26,875 shares. Option (a) is the proposed buy-back, which exceeds this limit; option (b) is the 25% shares outstanding test.
Where it goes wrong. Applying the 25% shares outstanding test instead of the 25% paid-up capital plus reserves test.
Question 12 · 2 marks · Buy-back of Securities · medium
If Sundara Ceramics Ltd. buys back 25,000 shares at ₹40 per share, what amount is transferred to Capital Redemption Reserve?
₹10,00,000
₹7,50,000
₹3,00,000
₹2,50,000 (correct answer)
Answer: D — ₹2,50,000
Working. Nominal value = 25000*10=250000.
Explanation. On buy-back out of reserves, a sum equal to the nominal value of shares bought back is transferred to Capital Redemption Reserve. Nominal value = 25,000 × ₹10 = ₹2,50,000. Option (a) is the full buy-back consideration; option (b) is the premium on buy-back.
Where it goes wrong. Transferring the full buy-back consideration or only the premium to Capital Redemption Reserve.
Question 13 · 2 marks · Buy-back of Securities · hard
After the buy-back of 25,000 shares at ₹40 and the stated use of reserves, what is the closing balance of general reserve?
₹7,00,000 (correct answer)
₹9,50,000
₹6,00,000
₹8,00,000
Answer: A — ₹7,00,000
Working. Premium total=25000*30=750000. SP used=300000. General premium=450000. CRR=250000. Closing general=1400000-450000-250000=700000.
Explanation. Total buy-back = ₹10,00,000. Share capital ₹2,50,000; premium ₹7,50,000. Use securities premium ₹3,00,000; balance premium ₹4,50,000 from general reserve. Transfer nominal ₹2,50,000 to Capital Redemption Reserve from general reserve. Closing general reserve = ₹14,00,000 − ₹4,50,000 − ₹2,50,000 = ₹7,00,000. Option (b) omits the Capital Redemption Reserve transfer.
Where it goes wrong. Forgetting that the nominal value transferred to Capital Redemption Reserve also reduces the reserve used.
Question 14 · 2 marks · Buy-back of Securities · medium
Which further issue is permitted within six months after completion of the buy-back without attracting the statutory bar on issuing the same kind of shares?
Fresh public issue of equity shares for cash
Issue of bonus shares out of accumulated reserves (correct answer)
Preferential allotment of equity shares for cash
Buy-back of the remaining equity shares
Answer: B — Issue of bonus shares out of accumulated reserves
Working. Permitted exception includes bonus issue; cash issues and another buy-back are not permitted within six months.
Explanation. After buy-back, a company cannot make a further issue of the same kind of shares within six months except by way of bonus issue or to discharge subsisting obligations such as conversion of warrants, stock options or debentures. A fresh cash issue, preferential cash allotment and another buy-back are not within that exception. Option (a) is a common commercial action but is barred by the six-month restriction.
Where it goes wrong. Assuming any equity issuance is allowed after buy-back or confusing bonus issue with cash issue.
Question 15 · 2 marks · AS 3 Cash Flow Statements · hard
Scenario. Vistara Exports Ltd. held a bank deposit in France. On 1 April 2025, the deposit was €10,000 when ₹1 = €1 at ₹80. On 31 March 2026, the balance was €10,500 at ₹84. The increase of €500 was interest credited on the last day of the reporting period. There were no other transactions in the deposit. During FY 2025-26, Vistara also received a ₹7,00,000 insurance claim for loss of stock due to flood and paid ₹2,00,000 tax on that claim. The company is preparing its cash flow statement under AS 3.
How should Vistara Exports Ltd. report the French deposit interest and the flood insurance claim in its cash flow statement?
Interest ₹40,000 as investing inflow; claim ₹7,00,000 as extraordinary operating inflow
Interest ₹84,000 as operating inflow; claim ₹7,00,000 as extraordinary investing inflow
Interest ₹42,000 as investing inflow; claim ₹7,00,000 as extraordinary operating inflow (correct answer)
Interest ₹42,000 as operating inflow; claim ₹7,00,000 as ordinary operating inflow
Answer: C — Interest ₹42,000 as investing inflow; claim ₹7,00,000 as extraordinary operating inflow
Explanation. Interest credited €500 on the last day is a cash inflow translated at ₹84 = ₹42,000; for a non-financial enterprise it is an investing inflow. The €10,000 opening balance exchange difference ₹40,000 is non-cash and is not reported as a flow. The flood claim for stock is an extraordinary operating inflow. Option (a) treats the exchange difference as a flow; option (d) treats the claim as ordinary.
Where it goes wrong. Reporting unrealised exchange difference as cash flow or classifying the insurance claim as ordinary.
Authority. AS 3
Authorities cited in this paper
AS 2 · AS 11 · AS 12 check · AS 15 · AS 29 · AS 20 · Companies Act 2013 Section 68 · Chapter 12 Buy-back of Securities · Companies Act 2013 Section 69 · AS 3
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 11 The Effects of Changes in Foreign Exchange Rates, AS 12 Accounting for Government Grants, AS 15 Employee Benefits, AS 29 Provisions, Contingent Liabilities and Contingent Assets, AS 20 Earnings Per Share, Buy-back of Securities and Companies Act 2013, AS 3 Cash Flow Statements. 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 11 The Effects of Changes in Foreign Exchange Rates, AS 12 Accounting for Government Grants, AS 15 Employee Benefits, AS 29 Provisions, Contingent Liabilities and Contingent Assets, AS 20 Earnings Per Share, Buy-back of Securities and Companies Act 2013, AS 3 Cash Flow Statements. 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.
