CA Inter Advanced Accounting MCQ Test 9: 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 19 Leases (2 Q)
AS 26 Intangible Assets (2 Q)
AS 24 Discontinuing Operations (1 Q)
AS 7 Construction Contracts (3 Q)
AS 9 Revenue Recognition (1 Q)
AS 13 Accounting for Investments (1 Q)
Amalgamation of Companies (4 Q)
Internal Reconstruction (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · AS 19 Leases · hard
Scenario. Vistara Green Energy Ltd. prepares financial statements for the year ended 31 March 2026. On 1 April 2025 it sold a solar equipment block to Nimbus Finance Ltd. for ₹105 lakh and immediately took the same block back on a five-year operating lease with equal annual rentals. On the sale date, the carrying amount of the block was ₹90 lakh and its fair value was ₹100 lakh. The sale and leaseback was negotiated as a package, and the lease does not transfer ownership or substantially all risks and rewards to Vistara Green Energy Ltd. During 2025-26, Vistara Green Energy Ltd. also developed a customer-facing website. Costs incurred were: planning and feasibility study before technical feasibility ₹5 lakh; infrastructure configuration and domain setup before technical feasibility ₹7 lakh; content development after all AS 26 recognition criteria were met on 1 October 2025 ₹12 lakh; staff training ₹2 lakh; launch advertising ₹3 lakh; and routine website maintenance after launch ₹1 lakh. The content development cost met the recognition criteria and is expected to generate future economic benefits. The company wants to know the profit impact of the sale and leaseback and the amount of website costs to be capitalised and expensed for 2025-26.
What amount of gain on the sale and leaseback should Vistara Green Energy Ltd. recognise immediately in profit or loss for 2025-26?
Answer: B — ₹10 lakh recognised immediately; ₹5 lakh deferred
Working. Carrying amount ₹90 lakh; fair value ₹100 lakh; sale price ₹105 lakh. Immediate gain = ₹100 lakh - ₹90 lakh = ₹10 lakh. Deferred gain = ₹105 lakh - ₹100 lakh = ₹5 lakh.
Explanation. For an operating leaseback, a sale price above fair value is split. The gain up to fair value is recognised immediately, while the excess over fair value is deferred and amortised over the lease term. Here, fair value ₹100 lakh less carrying amount ₹90 lakh gives ₹10 lakh immediate gain; the ₹5 lakh excess over fair value is deferred. Recognising the full ₹15 lakh immediately ignores the deferred excess.
Where it goes wrong. Recognising the entire ₹15 lakh sale gain immediately.
Authority. AS 19
Question 2 · 2 marks · AS 19 Leases · medium
What amount of the deferred gain should be amortised to profit or loss for the year ended 31 March 2026?
₹3 lakh
₹5 lakh
₹1 lakh (correct answer)
₹15 lakh
Answer: C — ₹1 lakh
Working. Deferred gain = ₹5 lakh. Lease term = 5 years. Annual amortisation = ₹5 lakh / 5 = ₹1 lakh.
Explanation. The deferred gain of ₹5 lakh is amortised over the five-year lease term on a systematic basis. One full year falls in 2025-26 because the sale and leaseback was on 1 April 2025. Therefore, ₹5 lakh ÷ 5 years = ₹1 lakh is amortised in 2025-26. Amortising ₹5 lakh immediately defeats the deferral requirement.
Where it goes wrong. Writing off the full deferred gain in the first year.
Authority. AS 19
Question 3 · 2 marks · AS 26 Intangible Assets · medium
What amount of website development cost should be capitalised as an intangible asset under AS 26?
₹12 lakh (correct answer)
₹19 lakh
₹24 lakh
₹7 lakh
Answer: A — ₹12 lakh
Working. Capitalisable = content development after criteria = ₹12 lakh. Pre-feasibility planning ₹5 lakh and infrastructure ₹7 lakh are expensed.
Explanation. AS 26 requires research-phase expenditure to be expensed. Development expenditure is capitalised only after all recognition criteria are met. Planning and infrastructure setup before technical feasibility are expensed, and training, advertising and maintenance are also expensed. Only the ₹12 lakh content development incurred after 1 October 2025 qualifies. Capitalising the ₹7 lakh infrastructure cost ignores the cut-off.
Where it goes wrong. Capitalising all website-related costs or including pre-feasibility infrastructure.
Authority. AS 26
Question 4 · 2 marks · AS 26 Intangible Assets · hard
What total amount of website-related cost should be recognised as expense for 2025-26?
Explanation. Expense includes pre-feasibility planning ₹5 lakh, pre-feasibility infrastructure ₹7 lakh, staff training ₹2 lakh, launch advertising ₹3 lakh and maintenance ₹1 lakh. Total = ₹18 lakh. The ₹12 lakh content development is capitalised and is not expensed. Charging only the obvious training and advertising costs misses the pre-feasibility costs.
Where it goes wrong. Omitting pre-feasibility planning and infrastructure costs from expense.
Authority. AS 26
Question 5 · 2 marks · AS 24 Discontinuing Operations · medium
Scenario. Orion Infra Ltd. approved and announced a formal plan on 1 October 2025 to discontinue its cement division, a separate major line of business. The division will be disposed of by 30 September 2026. For the year ended 31 March 2026, the company is preparing its cash flow statement and wants to know how the cash flows attributable to the cement division should be presented in that statement under AS 24.
Under AS 24, how should Orion Infra Ltd. disclose the net cash flows attributable to the operating, investing and financing activities of the discontinuing cement division?
Clubbed with continuing operations under operating activities only
Disclosed separately for operating, investing and financing activities (either in notes or on the face of the cash flow statement) (correct answer)
Netted against extraordinary items within financing activities
Excluded entirely from cash flow disclosures until actual disposal
Answer: B — Disclosed separately for operating, investing and financing activities (either in notes or on the face of the cash flow statement)
Working. AS 24 paragraphs 32-33: Net cash flows of discontinuing operation for operating, investing and financing activities must be disclosed separately in notes or on the face of the cash flow statement. Correct option is b.
Explanation. Under AS 24 paragraph 32 and 33, an enterprise must disclose the amounts of net cash flows attributable to the operating, investing and financing activities of the discontinuing operation. Paragraph 33 clarifies that these disclosures may be presented either in the notes to the financial statements or on the face of the financial statements.
Where it goes wrong. Showing discontinued cash flows only in notes or netting them.
Authority. AS 24
Question 6 · 2 marks · AS 7 Construction Contracts · hard
Scenario. Suryodaya Infra Ltd. commenced a fixed-price construction contract on 1 April 2025 to build a metro depot for ₹200 lakh, expected to be completed on 31 March 2028. At 31 March 2026, costs incurred were ₹150 lakh and estimated further costs to complete were ₹90 lakh. Progress billings raised were ₹130 lakh and an advance of ₹30 lakh was received from the customer. The contract is expected to result in an overall loss. Separately, Suryodaya Infra Ltd. sold a perpetual software licence on 1 January 2026 for ₹72 lakh. The arrangement includes one year of maintenance and unspecified upgrades starting 1 January 2026. Standalone fair values are ₹60 lakh for the licence and ₹12 lakh for the maintenance obligation. The licence was delivered and accepted on 1 January 2026, and maintenance is to be recognised over the twelve-month obligation period. The company follows the percentage-of-completion method based on costs incurred and wants to compute contract revenue, the provision for the expected contract loss, the amount due from/to the customer, and revenue from the software arrangement for 2025-26.
What amount of contract revenue should Suryodaya Infra Ltd. recognise for 2025-26 using the percentage-of-completion method?
Explanation. Percentage of completion = cost incurred to date ÷ total estimated cost = ₹150 lakh ÷ (₹150 lakh + ₹90 lakh) = 62.5%. Contract revenue = 62.5% of ₹200 lakh = ₹125 lakh. Using ₹150 lakh as revenue mistakes cost incurred for revenue, while ₹133.33 lakh misuses a simple one-third or billing-based measure.
Where it goes wrong. Recognising cost incurred or progress billings as contract revenue.
Authority. AS 7
Question 7 · 2 marks · AS 7 Construction Contracts · hard
What amount should be provided separately for the expected contract loss at 31 March 2026?
₹40 lakh
₹25 lakh
₹10 lakh
₹15 lakh (correct answer)
Answer: D — ₹15 lakh
Working. Total loss = 240 - 200 = 40. Current loss = 125 - 150 = -25. Additional provision = 40 - 25 = 15.
Explanation. Total expected loss = total estimated cost ₹240 lakh - contract price ₹200 lakh = ₹40 lakh. Current-year loss already reflected is revenue ₹125 lakh - cost ₹150 lakh = ₹25 lakh. The additional provision required is ₹40 lakh - ₹25 lakh = ₹15 lakh. Providing the whole ₹40 lakh again double-counts the current-year loss.
Where it goes wrong. Providing the whole foreseeable loss without deducting the current-year loss.
Authority. AS 7
Question 8 · 2 marks · AS 7 Construction Contracts · medium
What is the gross amount due from/to the customer for contract work at 31 March 2026?
Asset of ₹20 lakh
Liability of ₹20 lakh (correct answer)
Asset of ₹50 lakh
Liability of ₹30 lakh
Answer: B — Liability of ₹20 lakh
Working. 150 + 0 - 40 - 130 = -20. Negative means gross amount due to customers ₹20 lakh.
Explanation. Gross amount = costs incurred + recognised profits - recognised losses - progress billings = ₹150 lakh + ₹0 - ₹40 lakh - ₹130 lakh = negative ₹20 lakh. A negative amount is presented as a liability due to the customer. Treating the ₹30 lakh advance as the only liability ignores the contract-asset computation.
Where it goes wrong. Ignoring recognised losses or confusing advance received with gross amount due.
Authority. AS 7
Question 9 · 2 marks · AS 9 Revenue Recognition · hard
What revenue should Suryodaya Infra Ltd. recognise for 2025-26 from the software licence arrangement?
Explanation. The licence and maintenance have separate fair values. Licence revenue of ₹60 lakh is recognised on delivery on 1 January 2026. Maintenance revenue of ₹12 lakh is recognised over the twelve-month obligation; three months fall in 2025-26, giving ₹3 lakh. Total = ₹63 lakh. Recognising ₹72 lakh at once ignores the continuing maintenance obligation.
Where it goes wrong. Recognising the entire arrangement consideration on licence delivery.
Authority. AS 9
Question 10 · 2 marks · AS 13 Accounting for Investments · medium
Scenario. Kaveri Ltd. purchased 20,000 equity shares of Yamuna Ltd. on 1 February 2026 for ₹18,00,000 cum-dividend and classified them as current investments. On 20 February 2026, Yamuna Ltd. declared a dividend of ₹2 per share out of pre-acquisition profits. Kaveri Ltd. received the dividend on 15 March 2026. The market value of the shares on 31 March 2026 was ₹17,20,000. Kaveri Ltd. wants to know the amount of dividend that should reduce the carrying amount of the current investment under AS 13.
What amount of dividend received by Kaveri Ltd. should reduce the carrying amount of the current investment under AS 13?
₹40,000 (correct answer)
₹0
₹36,000
₹44,000
Answer: A — ₹40,000
Working. Dividend = 20,000 × 2 = ₹40,000. Reduce cost from ₹18,00,000 to ₹17,60,000 before lower of cost and fair value.
Explanation. The dividend is declared out of pre-acquisition profits and clearly represents a recovery of part of the cost. AS 13 requires such pre-acquisition dividend to be reduced from the cost of the investment. Dividend = 20,000 shares × ₹2 = ₹40,000. Crediting the whole amount to income overstates both income and the investment carrying amount.
Where it goes wrong. Crediting pre-acquisition dividend fully to profit or loss.
Authority. AS 13
Question 11 · 2 marks · Amalgamation of Companies · hard
Scenario. Sankalp Ltd. absorbs Vardhan Ltd. on 1 April 2026 in an amalgamation in the nature of purchase. Before absorption, Sankalp Ltd. had a general reserve of ₹40,00,000 and a credit balance in profit and loss of ₹15,00,000. Vardhan Ltd. had 5,00,000 equity shares of ₹10 each fully paid, a general reserve of ₹18,00,000 and a credit balance in profit and loss of ₹6,00,000. Under the scheme, shareholders holding 92% of Vardhan Ltd. are to receive 3 equity shares of Sankalp Ltd. of ₹10 each at ₹18 per share for every 5 shares held. The remaining 8% shareholders dissented and are to be paid cash at ₹24 per Vardhan share. Vardhan Ltd.'s trade payables include ₹80,000 due to Sankalp Ltd., and Sankalp Ltd.'s trade receivables include the same amount. Vardhan Ltd. has accepted bills of Sankalp Ltd. amounting to ₹1,50,000, and Sankalp Ltd.'s bills receivable include that amount. Vardhan Ltd. sold goods to Sankalp Ltd. for ₹6,00,000 at 25% profit on cost. Sankalp Ltd.'s closing stock includes one-third of those goods at invoice value. The company wants to record the absorption and determine the inter-company cancellation, unrealised profit elimination, dissenting shareholders' payment and the balance in general reserve of Sankalp Ltd. after absorption.
What amount of inter-company balances should be cancelled in Sankalp Ltd.'s books after absorbing Vardhan Ltd.?
₹1,50,000
₹80,000
₹3,10,000
₹2,30,000 (correct answer)
Answer: D — ₹2,30,000
Working. Trade dues ₹80,000 + bills ₹1,50,000 = ₹2,30,000.
Explanation. Inter-company trade dues of ₹80,000 and accepted bills of ₹1,50,000 both represent mutual obligations. After absorption they cannot survive and must be cancelled. Total = ₹80,000 + ₹1,50,000 = ₹2,30,000. Cancelling only bills or only trade dues leaves a common pitfall of overstating both assets and liabilities.
Where it goes wrong. Cancelling only bills or only trade receivables.
Authority. AS 14; Chapter 13 (check)
Question 12 · 2 marks · Amalgamation of Companies · hard
What amount of unrealised profit on stock should be eliminated in Sankalp Ltd.'s consolidated absorption entries?
Explanation. Goods sold were ₹6,00,000 at 25% profit on cost, so cost was ₹4,80,000 and profit ₹1,20,000. One-third remains in stock, invoice value ₹2,00,000. The profit element is ₹2,00,000 × 25/125 = ₹40,000. Taking 25% of invoice value gives ₹50,000, which is the classic markup-on-cost error.
Where it goes wrong. Applying 25% directly to invoice value instead of 25/125.
Authority. AS 14; Chapter 13 (check)
Question 13 · 2 marks · Amalgamation of Companies · medium
What cash amount is payable to the dissenting shareholders of Vardhan Ltd.?
Explanation. Dissenting shareholders hold 8% of 5,00,000 shares = 40,000 shares. Cash is payable at ₹24 per share, so payment = 40,000 × ₹24 = ₹9,60,000. Using 10% or the consenting share exchange ratio gives a different figure and ignores the scheme's specific cash entitlement.
Where it goes wrong. Using the consenting shareholders' share ratio for dissenters.
Authority. AS 14; Chapter 13 (check)
Question 14 · 2 marks · Amalgamation of Companies · hard
What is the balance in Sankalp Ltd.'s general reserve immediately after the absorption under the purchase method?
₹58,00,000
₹46,00,000
₹40,00,000 (correct answer)
₹22,00,000
Answer: C — ₹40,00,000
Working. Sankalp general reserve before absorption = ₹40,00,000. Vardhan general reserve not retained. Closing = ₹40,00,000.
Explanation. In an amalgamation in the nature of purchase, the transferor's general reserve is not merged unless it is a statutory reserve requiring continuation. Sankalp Ltd.'s own general reserve of ₹40,00,000 remains. Adding Vardhan's ₹18,00,000 is the pooling-of-interests treatment and is incorrect for purchase method.
Where it goes wrong. Adding the transferor's general reserve under purchase method.
Authority. AS 14; Chapter 13 (check)
Question 15 · 2 marks · Internal Reconstruction · hard
Scenario. Nirvaan Ltd. is implementing a scheme of internal reconstruction approved by the tribunal. Before adjusting an unrecorded liability, the capital reduction account has a credit balance of ₹5,00,000. During reconstruction, an unrecorded damages liability of ₹1,20,000 is settled at ₹90,000 and paid by the company. The company wants to know the amount of balance remaining in the capital reduction account that can be transferred to capital reserve after this settlement.
What amount remains in the capital reduction account for transfer to capital reserve after settling the unrecorded liability?
₹5,00,000
₹3,80,000
₹5,90,000
₹4,10,000 (correct answer)
Answer: D — ₹4,10,000
Working. Capital reduction credit ₹5,00,000. Less unrecorded liability paid ₹90,000. Balance to capital reserve = ₹4,10,000.
Explanation. The unrecorded liability settled at ₹90,000 is a charge against the reconstruction surplus, so it reduces the capital reduction account credit. Balance = ₹5,00,000 - ₹90,000 = ₹4,10,000. Using the original liability of ₹1,20,000 or ignoring the settlement gives the tempting wrong figures.
Where it goes wrong. Debiting the original liability amount instead of the settled amount.
AS 19 · AS 26 · AS 24 · AS 7 · AS 9 · AS 13 · AS 14 · Chapter 13 (check) · Chapter 14 Internal Reconstruction (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 19 Leases, AS 26 Intangible Assets, AS 24 Discontinuing Operations, AS 7 Construction Contracts, AS 9 Revenue Recognition, AS 13 Accounting for Investments, AS 14 Amalgamations, Internal Reconstruction. 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 19 Leases, AS 26 Intangible Assets, AS 24 Discontinuing Operations, AS 7 Construction Contracts, AS 9 Revenue Recognition, AS 13 Accounting for Investments, AS 14 Amalgamations, Internal Reconstruction. 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.
