Problems & Solutions in Advanced Accounting - CA Inter - New Syllabus 2023

by Kapileshwar Bhalla, Parveen Sharma

Preface	iii
Chapter 1 Introduction to Accounting Standards	1
Chapter 2 Framework for Preparation & Presentation of FS	4
Section I Theory Questions	4
Section II Practical Problems	7
Chapter 3 Chapter No. 3 Applicability of Accounting Standards	11
What are Accounting Standards (AS)? What are the Advantages/Benefits of AS?	11
Classification of Enterprises – By ICAI (Level I, II and III Entities)	12
Exemptions from AS (Based on ICAI Directive)	13
Exemptions from AS [Based on Companies (Accounting Standards) Rules, 2006]	14

Presentation and Disclosures Based Standards

AS-1 Disclosure of Accounting Policies	13
Fundamental Accounting Assumptions (Based on Para no. 9, 10 and 27)	19
Areas in which different Accounting Policies are encountered (Based on Para no. 14 and 15)	19
Considerations in selection of Accounting Policies (Based on Para no. 16 and 17)	20
Disclosure of Accounting Policies (Based on Para no. 18 to 26)	22
Practical Problem on AS-1	27
AS-3 Cash Flow Statement (AS-3)	30
Section I Theory Questions	30
Section II Classification of Activities + Cash and cash equivalents [Based on Para no. 3 and Para nos. 11 to 17 of AS 3]	31
Section III Basic Problems — Direct Method	37
Section IV Basic Problems — Indirect Method	46
Section V Advanced Problems — Direct Method	72
Section VI Advanced Problems — Indirect Method	83
Section VII Problems — Direct + Indirect Method	101
AS-17 Segment Reporting	103
Identifying - Reportable Segment (Based on Para no. 27 to 29)	103
Practical Questions on AS-17	108
AS-18 Related Party Disclosures	114
Identifying Related Parties (Based on Para no. 3 and 4)	114
Related Party Transaction	119
AS 20 Earnings per Share	120
Basic EPS Issue no. 1 - Weighted average no. of shares: (Based on Para no. 10 to 21)	120
Basic EPS Issue no. 2 – Numerator & Denominator Both: (Based on Para no. 10 to 21)	122
Basic EPS Issue no. 3 – Bonus Issue & Right Issue (Based on Para no. 22 to 25)	125
Bonus Issue	125
Right Issue	127
Diluted EPS (Based on Para no. 26 to 43)	136
Theory Questions	136
Computation of Diluted EPS	137
AS-24 Discontinuing Operations	149
AS 25 Interim Financial Reporting	177

Assets Based Standards

AS-2 Valuation of Inventories	34
Definition (Based on Para no. 3)	34
Scope (Based on Para no. 1 and 2)	34
Cost (Based on Para no. 6 to 13)	35
Measurement of Inventories (Based on Para no. 5 and 24)	40
Cost formulas (Based on Para no. 14, 16, 18 and 19) & Net Realisable Value (Based on Para no. 20 to 23 and 25)	52
General Questions (On AS-2)	53
AS-10 Property, Plant & Equipment (PPE)	185
Definition and Recognition (Based on Para no. 6 to 10)	185
Measurement — Initial [Acquired and Self Constructed] (Based on Para no. 16 to 23)	187
Measurement — Initial [Deferred; Exchange etc.] (Based on Para no. 25, 26 and 29 to 31)	193
Measurement — Subsequent (Based on Para no. 32 to 44) Depreciation (Based on Para no. 45, 50, 53, 56, 57 and 62 to 65)	194
Retirement and Derecognition (Based on Para no. 73, 74 and 79)	198
AS-13 Accounting for Investments	202
Scope (Based on Para no. 1 and 2)	202
Cost of Investment (Based on Para no. 9 to 11)	202
Interest and Dividend (Based on Para no. 12)	203
Right Issue (Based on Para no. 13)	204
Long Term Investments (Based on Para no. 17 to 19)	204
Mix Questions (Based on various aspects of AS-13)	206
Reclassification of Investment (Based on Para no. 23 and 24)	211
Disclosures (Based on Para no. 25)	216
Ledger Accounts (Variable Return Securities)	216
Ledger Accounts (Fixed Return Securities)	220
Ledger Accounts (Mix Questions – Fixed and Variable Return Securities)	223
AS-16 Borrowing costs	227
Borrowing Costs (Based on Para no. 3 and 4)	227
Qualifying Asset (Based on Para no. 3 and 5)	229
Specific and General Borrowings + Qualifying Asset Concept (Based on Para no. 3, 5, 10 and 12)	230
Commencement, Suspension & Cessation of Borrowing Costs (Based on Para no. 14, 17, 19 and 21)	248
AS-19 Leases	252
Classification of Lease (Based on Para no. 8 and 9)	252
Computation of Implicit rate of Interest (Based on Para no. 3)	254
Finance Lease	256
Accounting in the books of Lessee (Based on Para no. 11,16 and 18)	256
Finance Lease	262
Accounting in the Books of Lessor (Based on Para no. 26 and 28)	262
Operating Lease	270
Accounting in the Books of Lessee (Based on Para no. 23)	270
Operating Lease	271
Accounting in the Books of the Lessor (Based on Para no. 40)	271
Sale and leaseback (Based on Para no. 47 to 52)	273
AS-26 Intangible Assets	278
Recognition of Intangible Asset (Based on Para no. 20, 35, 50 and 56 + Appendix A)	278
Measurement of Intangible Asset (Based on Para no. 24 to 34 and 58)	280
Research & Development (Based on Para no. 41 to 44 and 52)	281
Amortization (Based on Para no. 63 to 78)	291
AS-28 Impairment of Assets	301
Theory Questions	301
Treatment of Goodwill in Impairment Loss	310
Allocation of Corporate Assets	312
Deferred Tax Implications on Impairment Loss	314
Reversal of Impairment Loss	316

Liabilities Based Standards

AS- 15 Employee Benefits	321
Introduction	321
Short Term Employee Benefits	322
Post Employment Employee Benefits	324
AS-29 'Provisions, Contingent Liabilities and Contingent Assets	332
Recognition of Provision (Based on Para no. 10 and 14)	332
Measurement of Provision (Based on Para no. 35)	337
Reimbursement (Based on Para no. 46 and 47)	339
Contingent Liability (Based on Para no. 10, 14 and 26)	340
Contingent Assets (Based on Para no. 10 and 30)	346

Accounting Standards Based on Items in Financial Statements

AS- 4 Contingencies & Events occurring after the Balance Sheet Date	349
Adjustment Events (Based on Para nos. 3, 8.1, 8.2 and 13)	349
Non-Adjusting Events (Based on Para no. 3, 8.1, 8.3 and 8.4)	353
Events after approval of Financial Statements (Based on Para no. 3)	357
Mix Problems (Adjusting Events + Non-Adjusting Events)	357
Dividends (Based on Para no. 8.5)	365
Going Concern (Based on Para no. 8.6)	366
AS-5 Net profit or Loss for the period, Prior Period Items and Changes in Accounting Policies	368
Extraordinary items (Based on Para no. 4 and 8 to 11)	368
Exceptional items (Based on Para no. 12 to 14)	368
Prior Period items (Based on Para no. 4 and 15 to 19)	371
Changes in Accounting Policies (Based on Para no. 4 and 28 to 33)	373
Changes in Accounting Estimates (Based on Para no. 20 to 27)	376
Mix Questions (Extra-ordinary Items; Exceptional Items; Prior period errors; Changes in Accounting policies and Changes in Accounting estimates)	378
AS-11 The Effects of Changes in Foreign Exchange Rates:	383
Monetary and Non-monetary Items (Based on Para no. 7)	383
Foreign Currency Transactions (Based on Para no. 8 to 14)	383
Foreign Operations — Classification (Based on Para no. 17 to 20)	390
Foreign Branches (Based on Para no. 21 to 28)	391
Forward Exchange Contracts (Based on Para no. 36 to 39)	393
Exchange gain/loss on Long term Foreign currency Monetary Items (Based on Para no. 46 and 46A)	398
AS-22 Accounting for Taxes on Income	405
Basic Questions on Deferred Tax	405
MAT and Deferred tax	411
Tax holiday period and Deferred Tax	412
Transitional Provisions w.r.t. AS-22	412

Revenue Based Standards

AS-7 Construction Contracts	417
Combining and Segmenting Construction contracts (Based on par no. 6 to 9)	417
Contract Revenue (Based on para no. 10 to 14)	418
Contract Costs (Based on Para No. 15 to 20)	418
Recognition of contract revenue and expenses: (Based on Para No. 21 to 34)	419
Recognition of Expected Losses (Based on Para No. 35 and 36)	423
Disclosures (Based on Para No. 38 to 43)	436
AS – 9 Revenue Recognition	405
Sale of Goods (Based on Para no. 6 and 11)	437
Rendering of services (Based on Para no. 7 and 12)	448
Interest, Royalties and dividends (Based on Para no. 8 and 13)	452
Effect of uncertainties on Revenue recognition (Based on Para no. 9 and 10)	453
General Questions	454
AS-12 Accounting for Government Grants	459
Non-monetary Grants (Based on Para no. 7)	459
Grant related to specific Fixed Assets (Based on Para no. 8)	459
Grant related to Promoters Contribution (Based on Para no. 10)	464
Refund of Government Grants (Based on Para no. 11)	468
Refund - Grant related to Fixed Assets:	468
Refund - Grant related to Revenue:	478
AS-14 Amalgamation	479
Methods of Accounting for Amalgamation	479
Computation of Purchase Consideration	480
Simple problems – Merger	486
Simple Problems – Purchase	486
Disclosures	489

Consolidated Financial Statements

AS - 21 Consolidated Financial Statements	495
Section I Case Studies on Rules for Preparing Consolidated Balance Sheet	495
Section II Very Basic Problems -	500
Consolidated Balance Sheet Date on Date of Acquisition date itself	500
Section III Very Basic Questions – Consolidated Balance Sheet Date not on acquisition date but at a later date	511
Section IV Problems with Special issues	523
Special Issue no. 1 Inter-company owing + Unrealised Profits (Downstream Transaction)	523
Special Issue no. 2 Abnormal loss (goods destroyed by fire) + Special Issue no. 1	530
Special Issue no. 3 Revaluation of Assets	534
Special Issue no. 4 Bonus Issue	545
Special Issue no. 5 Dividend for Last Year	551
Special Issue no. 6 Dividend for Current year – Proposed Dividend	563
Special Issue no. 6 Preference Share Capital (PSC) of Subsidiary company	572
Section V Advanced Problems (With some special issues in each question)	576
Section VI Consolidated Profit & Loss Account	593
AS 23 Accounting for Investments in Associates in Consolidated Financial Statements	605
AS 27 Financial Reporting of Interests in Joint Ventures	610
Jointly Controlled Operations (JCO)	610
Jointly Controlled Entities (JCE)	615
Consolidated Financial Statements of a Venturer	617
Chapter no. 11 Final Statement of Companies	622
Section I Questions – Presentation of Items in Schedule III (Division I) + Operating Cycle	622
Section II Problems - Managerial Remuneration	626
Part I: Theory Questions:	626
Part II: Computation of Profits and Managerial Remuneration:	626
Part III: Computation of Effective Capital for Managerial Remuneration in case of loss-making company:	640
Section IV: Problem - Appropriations:	640
Section V Simple Problems – Final Statements	642
Section VI Advanced Problems – Final Statements	688
Chapter no. 12 Buy Back & Equity Shares with Differential Rights	702
Section I Theory Questions	702
Section II Problems – Without 3 Test	704
Section III Problems – With 3 Test	718
Section IV Mix Problems – Buy back + Redemption of PSC + Redemption of Debentures + ESOP + Bonus	746
Section V Equity Shares with Differential Rights – Theory Questions	762
Section VI Equity Shares with Differential Rights – Practical Problems	763
Chapter No. 13 Amalgamation	766
Section I Computation of Purchase Consideration	766
Section II Problems – How to Adjust difference in takeover entry in case of Merger + How to Identify the difference in takeover entry in case of Purchase	773
Section III Basic Problems - Merger	778
Section IV Advanced Problems - Merger	787
Section V Basic Problems – Transactions Pre- Amalgamation: (In case of Purchase)	790
Section VI Basic Problems - Purchase	793
Section VII Advanced Problems - Purchase	862
Section VIII Mix Problems – Merger and Purchase	899
Section IX Problems – Inter Company Holdings	907
Chapter no. 14 Internal Reconstruction	916
Section I Conceptual Base Building Problems	916
Sub-division of shares + Consolidation of shares	916
Conversion of shares into stock + Re-conversion of stock into shares	916
Conversion of shares into stock + Sub-division of shares (Mix problem)	917
Section II Basic Problems – Journal Entries only	919
Section III Basic Problems – Journal Entries + Balance Sheet	944
Section IV Advanced Problems – Journal Entries only	973
Section V Advanced Problems – Journal Entries + Balance Sheet	990
Section VI Amalgamation + Internal Reconstruction	996
Chapter no. 15 Branch Accounting	1000
Section I Theory Questions	1000
Section II Problems – Debtors Method	1001
Goods are sent by Head office to Branch at Cost Price:	1001
Goods are sent by Head office to Branch at Invoice Price:	1004
Section III Problems – Stock & Debtors Method	1016
Section IV Problems – Final Accounts Method	1031
Section V Mix Problems – Various Methods	1036
Section VI Problems – Wholesale Branch System	1044
Section VII Problems – Independent Branches (Journal Entries)	1048
Journal Entries – Relating to reconciliation of H.O. A/c and Branch A/c:	1048
Journal Entries – Relating to Transactions with Branch:	1052
Section VIII Problem – Independent Branches (Branch Balance Sheet)	1063
Section IX Problem – Independent Branches (Ledger Accounts)	1068
Section X Problem – Independent Branches (Columnar Trading and P&L Account)	1070
Section XI Problems – Foreign Branches	1073
Chapter no. 16 Multiple Choice Questions	1100
Amalgamation	1100
Internal Reconstruction	1102
Buy Back	1105
Branch Accounting	1108
Preparation of Financial Statements	1111
Amalgamation	1113
Internal Reconstruction	1114
Branch Accounting	1118
Preparation of Financial Statements	1119

About the Author

Kapileshwar Bhalla, Parveen Sharma

Kapileshwar Bhalla-CA Kapileshwar Bhalla is a qualified Chartered Accountant. He is a fellow member of the Institute of Chartered Accountants of India. He did his graduation from Delhi University (Shri Ram College of Commerce) in 1996. He has been actively teaching students Accountancy and Cost Accounting at IPCC and Final levels of Chartered Accountancy since 1999. He has delivered various seminars on Accounting Standards, IFRS, and Ind AS at multiple forums to the students and industry. He is currently associated with Aldine CA, which coaches CA aspirants via satellite. He is also a visiting faculty with ICAI and other professional institutes.

Parveen Sharma-CA Parveen Sharma is a first-Class Commerce Graduate from Delhi University, having graduated from Sri Venkateswara College. He qualified Chartered Accountancy Course in 1996 and was placed on the merit list (Rank Holder) in Intermediate and Finals. He completed his post-graduation in Indian Accounting Standards and US GAAP in July 2007. He qualified certificate course on valuation from ICAI in January 2010. He is also an Associate Member of the Institute of Cost and Works Accountants of India and Licentiate of Institute of Company Secretaries of India. He topped Delhi University by scoring 100% marks in Accountancy. He also won Gold Medal in Accounts Olympiad held in 1990. He has the honour of being co-opted as a member of Board of Studies (2006-2007), Advisor, Accounting Standards Committee (2007-08), Member of Committee for Accounting Standards for Local Bodies for the year 2007-2008, and Regional Monitoring Committee (2003-04) of Institute of Chartered Accountants of India and Member, Committee on Management Accounting of ICAI for the year 2008-09. He has vast experience teaching Accountancy to students of CA Final and CA IPCC P.E.II / Intermediate and has been visiting faculty at ICAI and ICWAI. He is currently teaching accountancy to various levels of Professional Institutes and Universities and has addressed several courses and seminars organized by Professional Institute. He has authored research documents on various issues.

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