Time: 3 Hours
Maximum Marks: 100
Instructions
- Answer Question 1 which is compulsory.
- Answer any four from the remaining questions.
- Working notes should form part of the answer.
Question 1 (Compulsory) – 20 Marks
(a) Conceptual Questions (5 × 2 = 10)
Answer briefly:
- Explain the concept of substance over form in accounting with an example.
- What is the difference between Capital Reserve and Revenue Reserve?
- When should revaluation of fixed assets be carried out?
- State two objectives of preparing Cash Flow Statements.
- What is meant by impaired asset?
(b) Journal Entries (5 × 2 = 10)
Pass necessary journal entries:
- A company purchased machinery for ₹5,00,000 and paid installation charges ₹40,000.
- A debtor owing ₹30,000 becomes insolvent and 40% is recovered.
- Provision for doubtful debts increased from ₹8,000 to ₹12,000.
- Goods costing ₹15,000 destroyed by fire and insurance company accepted claim for ₹12,000.
- Depreciation charged on machinery ₹20,000.
Question 2 – Buyback of Shares (20 Marks)
The balance sheet of ABC Ltd. shows the following:
Equity Share Capital: ₹20,00,000 (₹10 each)
Securities Premium: ₹3,00,000
General Reserve: ₹5,00,000
Profit & Loss Balance: ₹4,00,000
The company decides to buy back 20,000 equity shares at ₹15 each.
You are required to:
- Pass necessary journal entries.
- Prepare Capital Redemption Reserve account.
- Show the extract of balance sheet after buyback.
Question 3 – Amalgamation (20 Marks)
X Ltd. is absorbed by Y Ltd. on the following terms:
Balance Sheet of X Ltd.
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Share Capital | 10,00,000 | Land & Building | 6,00,000 |
| Creditors | 2,00,000 | Machinery | 3,00,000 |
| Stock | 2,00,000 | ||
| Debtors | 1,00,000 |
Additional Information:
- Purchase consideration agreed ₹12,00,000.
- Y Ltd. issued shares worth ₹10,00,000 and paid balance in cash.
Required:
- Calculate Purchase Consideration.
- Pass journal entries in the books of X Ltd.
- Prepare Realisation Account.
Question 4 – Consolidated Financial Statements (20 Marks)
Holding Ltd. acquired 80% shares of Subsidiary Ltd. on 1 April 2024.
Balance sheets as on 31 March 2025:
| Particulars | Holding Ltd. | Subsidiary Ltd. |
|---|---|---|
| Share Capital | 15,00,000 | 10,00,000 |
| Reserves | 5,00,000 | 3,00,000 |
Additional Information:
- Cost of investment ₹12,00,000.
- Subsidiary profits earned equally during the year.
Required:
- Calculate Capital Profit and Revenue Profit.
- Determine Goodwill or Capital Reserve.
- Compute Minority Interest.
Question 5 – Cash Flow Statement (20 Marks)
From the following information prepare a Cash Flow Statement:
| Particulars | 2024 | 2025 |
|---|---|---|
| Fixed Assets | 10,00,000 | 13,00,000 |
| Debtors | 2,00,000 | 3,50,000 |
| Creditors | 1,50,000 | 2,20,000 |
| Cash | 80,000 | 1,20,000 |
Additional Information:
- Depreciation ₹1,00,000.
- Dividend paid ₹50,000.
- Machinery sold ₹70,000 (book value ₹80,000).
Prepare Cash Flow from Operating, Investing, and Financing Activities.
Question 6 – Branch Accounting (20 Marks)
Head Office in Delhi sends goods to Mumbai Branch at cost plus 25%.
Information for the year:
- Goods sent to branch ₹4,00,000
- Cash sales ₹2,50,000
- Credit sales ₹1,50,000
- Expenses paid by HO ₹40,000
- Closing stock ₹60,000 (invoice price)
Required:
- Prepare Branch Stock Account
- Calculate Branch Profit.
Solutions
Question 1
(a) Conceptual Answers
1. Substance over form
Under this principle, transactions are recorded according to their economic reality rather than legal form.
Example: If an asset is legally owned by one party but controlled and used by another, it may be recorded by the controlling entity.
2. Capital Reserve vs Revenue Reserve
| Capital Reserve | Revenue Reserve |
|---|---|
| Arises from capital profits | Arises from operating profits |
| Not available for dividend distribution | Can be distributed as dividend |
| Example: profit on asset revaluation | Example: retained earnings |
3. Revaluation of Fixed Assets
Revaluation should be done when the fair market value of assets differs significantly from book value.
4. Objectives of Cash Flow Statement
- Shows sources and uses of cash
- Helps assess liquidity and solvency
5. Impaired Asset
An asset is impaired when its carrying amount exceeds its recoverable amount.
Question 1(b) Journal Entries
1. Purchase of Machinery
Machinery A/c Dr ₹5,40,000
To Bank/Cash A/c ₹5,40,000
(Being machinery purchased including installation)
2. Debtor Insolvent
Bad Debts A/c Dr ₹18,000
Cash A/c Dr ₹12,000
To Debtor A/c ₹30,000
3. Increase Provision
Profit & Loss A/c Dr ₹4,000
To Provision for Doubtful Debts A/c ₹4,000
4. Goods destroyed by fire
Loss by Fire A/c Dr ₹15,000
To Purchase/Inventory A/c ₹15,000
Insurance Company A/c Dr ₹12,000
To Loss by Fire A/c ₹12,000
5. Depreciation
Depreciation A/c Dr ₹20,000
To Machinery A/c ₹20,000
Question 2 – Buyback of Shares
Step 1: Amount Payable
Shares bought back = 20,000
Price per share = ₹15
Total payment =
20,000 × 15 = ₹3,00,000
Nominal value =
20,000 × 10 = ₹2,00,000
Premium =
₹1,00,000
Journal Entries
1. Transfer to Capital Redemption Reserve
General Reserve A/c Dr ₹2,00,000
To Capital Redemption Reserve A/c ₹2,00,000
2. Buyback entry
Equity Share Capital A/c Dr ₹2,00,000
Premium on Buyback A/c Dr ₹1,00,000
To Bank A/c ₹3,00,000
3. Adjust Premium
Securities Premium A/c Dr ₹1,00,000
To Premium on Buyback A/c ₹1,00,000
Question 3 – Amalgamation
Step 1: Purchase Consideration
Given = ₹12,00,000
Shares issued = ₹10,00,000
Cash = ₹2,00,000
Realisation Account
| Debit | ₹ | Credit | ₹ |
|---|---|---|---|
| Land & Building | 6,00,000 | Creditors | 2,00,000 |
| Machinery | 3,00,000 | Y Ltd (PC) | 12,00,000 |
| Stock | 2,00,000 | ||
| Debtors | 1,00,000 |
Total debit = 12,00,000
Total credit = 14,00,000
Profit on realization = ₹2,00,000
Question 4 – Consolidation
Step 1: Minority Interest
Subsidiary share capital = 10,00,000
Minority = 20%
Minority Interest =
10,00,000 × 20% = ₹2,00,000
Step 2: Profit Analysis
Subsidiary reserves = ₹3,00,000
Holding share (80%) =
3,00,000 × 80% = ₹2,40,000
Minority share =
3,00,000 × 20% = ₹60,000
Step 3: Goodwill
Cost of investment = ₹12,00,000
Holding share of net assets:
Share capital share
= 10,00,000 × 80% = 8,00,000
Reserves share
= 3,00,000 × 80% = 2,40,000
Total = 10,40,000
Goodwill =
12,00,000 − 10,40,000
Goodwill = ₹1,60,000
Question 5 – Cash Flow Statement
Operating Activities
Net profit (assumed balancing) = ₹1,50,000
Add Depreciation = 1,00,000
Operating profit = 2,50,000
Working Capital Changes
Increase in Debtors = −1,50,000
Increase in Creditors = +70,000
Net = −80,000
Cash from operations =
2,50,000 − 80,000
₹1,70,000
Investing Activities
Purchase of Fixed Assets
Increase = 3,00,000
Sale of Machinery = +70,000
Net = −2,30,000
Financing Activities
Dividend Paid = −50,000
Net Increase in Cash
Operating = +1,70,000
Investing = −2,30,000
Financing = −50,000
Net change = −1,10,000
Question 6 – Branch Accounting
Goods sent to branch = ₹4,00,000
Invoice price = cost + 25%
Cost =
4,00,000 ÷ 1.25
= ₹3,20,000
Loading = 80,000
Branch Profit Calculation
Sales:
Cash sales = 2,50,000
Credit sales = 1,50,000
Total = 4,00,000
Cost of goods sold:
Goods sent = 3,20,000
Closing stock:
60,000 ÷ 1.25 = 48,000
COGS =
3,20,000 − 48,000
= 2,72,000
Gross Profit
Sales − COGS
4,00,000 − 2,72,000
= 1,28,000
Expenses
40,000
Net Branch Profit
1,28,000 − 40,000
₹88,000
| Question | Result |
|---|---|
| Buyback Payment | ₹3,00,000 |
| Goodwill | ₹1,60,000 |
| Minority Interest | ₹2,60,000 |
| Cash from Operations | ₹1,70,000 |
| Branch Profit | ₹88,000 |
Short Disclaimer
This mock test is an independently created educational resource for practice purposes. It is not affiliated with or endorsed by the Institute of Chartered Accountants of India (ICAI). All questions are original and designed to simulate the CA Intermediate exam pattern.