Group I Suggested Answers May 2019 2 PDF

PAPER – 1 : ACCOUNTING
Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.
Wherever necessary, suitable assumptions may be made and indicated in answer by the
candidates.
Working Notes should form part of the answer.
Question 1
(a) First Ltd. began construction of a new factory building on 1st April, 2017. It obtained
` 2,00,000 as a special loan to finance the construction of the factory building on
1st April, 2017 at an interest rate of 8% per annum. Further, expenditure on construction of
the factory building was financed through other non-specific loans. Details of other
outstanding non-specific loans were:
Amount (` ) Rate of Interest per annum
4,00,000 9%
5,00,000 12%
3,00,000 14%
The expenditures that were made on the factory building construction were as follows:
Date Amount (` )
1 April, 2017
st 3,00,000
31 May, 2017
st 2,40,000
1st August, 2017 4,00,000
31st December, 2017 3,60,000
The construction of factory building was completed by 31 st March, 2018. As per the
provisions of AS 16, you are required to:
(1) Calculate the amount of interest to be capitalized.
(2) Pass Journal entry for capitalizing the cost and borrowing cost in respect of the factory
building.
(b) On 15th June, 2018, Y limited wants to re-classify its investments in accordance with
AS 13 (revised). Decide and state the amount of transfer, based on the following
information:
(1) A portion of long term investments purchased on 1st March, 2017 are to be re-
classified as current investments. The original cost of these investments was ` 14
lakhs but had been written down by ` 2 lakhs (to recognise 'other than temporary'
2 INTERMEDIATE (NEW) EXAMINATION: MAY 2019
decline in value). The market value of these investments on 15 th June, 2018 was
` 11 lakhs.
(2) Another portion of long term investments purchased on 15 th January, 2017 are to be
re-classified as current investments. The original cost of these investments was ` 7
lakhs but had been written down to ` 5 lakhs (to recognize 'other than temporary'
decline in value). The fair value of these investments on 15 th June, 2018 was ` 4.5
lakhs.
(3) A portion of current investments purchased on 15 th March, 2018 for ` 7 lakhs are to
be re-classified as long term investments, as the company has decided to retain them.
The market value of these investments on 31st March, 2018 was ` 6 lakhs and fair
value on 15th June 2018 was ` 8.5 lakhs,
(4) Another portion of current investments purchased on 7 th December, 2017 for ` 4 lakhs
are to be re-classified as long term investments. The market value of these
investments was:
on 31st March, 2018 ` 3.5 lakhs
on 15th June, 2018 ` 3.8 lakhs
(c) State whether the following statements are 'True' or 'False'. Also give reason for your
answer.
(1) As per the provisions of AS-5, extraordinary items should not be disclosed in the
statement of profit and loss as a part of net profit or loss for the period.
(2) As per the provisions of AS-12, government grants in the nature of promoters'
contribution which become refundable should be reduced from the capital reserve.
(3) As per the provisions of AS-2, inventories should be valued at the lower of cost and
selling price.
(4) As per the provisions of AS-13, a current investment is an investment, that by its
nature, is readily realisable and is intended to be held for not more than six months
from the date on which such investment is made.
(5) As per the provisions of AS-4, a contingency is a condition or situation, the ultimate
outcome of which (gain or loss) will be known or determined only on the occurrence
of one or more uncertain future events.
(d) The financial statements of PQ Ltd. for the year 2017-18 approved by the Board of
Directors on 15th July, 2018. The following information was provided :
(i) A suit against the company's advertisement was filed by a party on 20th April, 2018,
claiming damages of ` 25 lakhs.
(ii) The terms and conditions for acquisition of business of another company have been
decided by March, 2018. But the financial resources were arranged in April, 2018 and
amount invested was ` 50 lakhs.
PAPER – 1 : ACCOUNTING 3
(iii) Theft of cash of ` 5 lakhs by the cashier on 31st March, 2018 but was detected on
16th July, 2018.
(iv) Company sent a proposal to sell an immovable property for ` 40 lakhs in March,
2018. The book value of the property was ` 30 lakhs on 31st March, 2018. However,
the deed was registered on 15 th April, 2018.
(v) A, major fire has damaged the assets in a factory on 5th April, 2018. However, the
assets are fully insured.
With reference to AS-4 "Contingencies and events occurring after the balance sheet date",
state whether the above mentioned events will be treated as contingencies, adjusting
events or non-adjusting events occurring after the balance sheet date.
(4 Parts x 5 Marks = 20 Marks)
Answer
(a) (i) Computation of average accumulated expenses
`
` 3,00,000 x 12 / 12 = 3,00,000
` 2,40,000 x 10 / 12 = 2,00,000
` 4,00,000 x 8 / 12 = 2,66,667
` 3,60,000 x 3 / 12 = 90,000
8,56,667
(ii) Calculation of average interest rate other than for specific borrowings
Amount of loan (`) Rate of interest Amount of
interest (`)
4,00,000 9% = 36,000
5,00,000 12% = 60,000
3,00,000 14% = 42,000
1,38,000
Weighted average rate of interest = 11.5%
 1,38,000 
 12,00,000  100 
 
(iii) Amount of interest to be capitalized
`
Interest on average accumulated expenses:
Specific borrowings (` 2,00,000 x 8%) = 16,000
Non-specific borrowings (` 6,56,667 x 11.5%) = 75,517

Amount of interest to be capitalised = 91,517
(iv) Total expenses to be capitalised for building
`
Cost of building ` (3,00,000 + 2,40,000 + 4,00,000 + 3,60,000) 13,00,000
Add: Amount of interest to be capitalized 91,517
13,91,517
(v) Journal Entry

Date Particulars Dr. (`) Cr. (` )
31.3.2018 Building A/c Dr. 13,91,517
To Building WIP  A/c 13,00,000
To Borrowing costs A/c 91,517
(Being amount of cost of building and
borrowing cost thereon capitalised)
(b) As per AS 13 (Revised) ‘Accounting for Investments’, where long-term investments are
reclassified as current investments, transfers are made at the lower of cost and carrying
amount at the date of transfer; and where investments are reclassified from current to long
term, transfers are made at lower of cost and fair value on the date of transfer.
Accordingly, the re-classification will be done on the following basis:
(i) In this case, carrying amount of investment on the date of transfer is less than the
cost; hence this re-classified current investment should be carried at ` 12 lakhs in the
books.
(ii) In this case also, carrying amount of investment on the date of transfer is less than
the cost; hence this re-classified current investment should be carried at ` 5 lakhs in
the books.
(iii) In this case, reclassification of current investment into long-term investments will be
made at ` 7 lakhs as cost is less than its fair value of ` 8.5 lakhs on the date of
transfer.
 ( ` 8,56,667 – ` 2,00,000)
 Considering that ` 13,00,000 was debited to Building WIP A/c earlier.
(iv) In this case, market value (considered as fair vale) is ` 3.8 lakhs on the date of
transfer which is lower than the cost of ` 4 lakhs. The reclassification of current
investment into long-term investments will be made at ` 3.8 lakhs.
(c) (1) False: The nature and the amount of each extraordinary item should be separately
disclosed in the statement of profit and loss in a manner that its impact on current
profit or loss can be perceived.
(2) True: When grants in the nature of promoters’ contribution becomes refundable, in
part or in full to the government on non-fulfillment of some specified conditions, the
relevant amount refundable to the government is reduced from the capital reserve.
(3) False: Inventories should be valued at the lower of cost and net realizable value (not
selling price) as per AS 2.
(4) False: A current investment is an investment that is by its nature readily realizable
and is intended to be held for not more than one year from the date on which such
investment is made.
(5) False: A contingency is a condition or situation, the ultimate outcome of which, gain
or loss, will be known or determined only on the occurrence, or non-occurrence, of
one or more uncertain future events.
(d) (i) Suit filed against the company is a contingent liability but it was not existing as on
balance sheet date as the suit was filed on 20 th April after the balance Sheet date.
As per AS 4, 'Contingencies' used in the Standard is restricted to conditions or
situations at the balance sheet date, the financial effect of which is to be determined
by future events which may or may not occur. Hence, it will have no effect on financial
statements and will be a non-adjusting event.
(ii) In the given case, terms and conditions for acquisition of business were finalised and
carried out before the closure of the books of accounts but transaction for payment
of financial resources was effected in April, 2018. This is clearly an event occuring
after the balance sheet date. Hence, necessary adjustment to assets and liabilities
for acquisition of business is necessary in the financial statements for the year ended
31st March 2018.
(iii) Only those significant events which occur between the balance sheet date and the
date on which the financial statements are approved, may indicate the need for
adjustment to assets and liabilities existing on the balance sheet date or may require
disclosure. In the given case, theft of cash was detected on 16 th July, 18 after approval
of financial statements by the Board of Directors, hence no treatment is required.
(iv) Adjustments to assets and liabilities are not appropriate for events occurring after the
balance sheet date, if such events do not relate to conditions existing at the balance
sheet date. In the given case, sale of immovable property was under proposal stage
(negotiations also not started) on the balance sheet date. Therefore, no adjustment
to assets for sale of immovable property is required in the financial statements for the
year ended 31st March, 2018.
(v) The condition of fire occurrence was not existing on the balance sheet date. Only the
disclosure regarding event of fire and loss being completely insured may be given in
the report of approving authority.
Question 2
(a) M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the following terms:
Down payment ` 3,00,000
1st instalment payable at the end of 1st year ` 1,59,000
2nd instalment payable at the end of 2nd year ` 1,47,000
3 instalment payable at the end of 3rd year
rd ` 1,65,000
Interest is charged at the rate of 10% per annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing balance method.
On 31st March, 2018 M/s Amar failed to pay the 3 rd instalment upon which M/s Bhanu
repossessed two Scooters. M/s Bhanu agreed to leave the other four Scooters with M/s
Amar and adjusted the value of the repossessed Scooters against the amount due. The
Scooters taken over were valued on the basis of 30% depreciation per annum on written
down value. The balance amount remaining in the vendor's account after the above
adjustment was paid by M/s Amar after 5 months with interest@ 15% per annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters and sold
scooters for ` 1,05,000 on 25th April, 2018.
You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.
(b) A fire occurred in the premises of M/s Bright on 25th May, 2017. As a result of fire, sales
were adversely affected up to 30 th September, 2017. The firm had taken Loss of profit
policy (with an average clause) for ` 3,50,000 having indemnity period of 5 months. There
is an upward trend of 10% in sales.
The firm incurred an additional expenditure of ` 30,000 to maintain the sales.
There was a saving of ` 5,000 in the insured standing charges.
Actual turnover from 25th May, 2017 to 30th September, 2017 ` 1,75,000
Turnover from 25 May, 2016 to 30th September, 2016
th ` 6,00,000
Net profit for last financial year ` 2,00,000
Insured standing charges for the last financial year ` 1,75,000

Total standing charges for the last financial year ` 3,00,000
Turnover for the last financial year ` 15,00,000
Turnover for one year from 25th May, 2016 to 24th May, 2017 ` 14,00,000
You are required to calculate the loss of profit claim amount, assuming that entire sales
during the interrupted period was due to additional expenses. (10 + 10 = 20 Marks)
Answer
(a) (i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
installments balance at at the time of balance at balance at
the end installment the end the beginning
after the before the
payment of payment of
installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5
3rd - 1,65,000 1,65,000 15,000 1,50,000
2 nd 1,50,000 1,47,000 2,97,000 27,000 2,70,000
1 st 2,70,000 1,59,000 4,29,000 39,000 3,90,000
Down 3,00,000
payment
Total of interest and Total cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account
Date Particulars ` Date Particulars `
1.4.2015 To Bhanu A/c 6,90,000 31.3.2016 By Depreciation A/c 1,38,000
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.2016 To Balance b/d 5,52,000 31.3.2017 By Depreciation A/c 1,10,400
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.2017 To Balance b/d 4,41,600 31.3.2018 By Depreciation A/c 88,320
By M/s Bhanu a/c (Value of 78,890
2 Scooters taken over)
By Profit and Loss A/c (Bal. 38,870
fig.)

4
(4,41,600 - 88,320)
6
4,41,600 4,41,600
(iii) M/s Bhanu Account

1.4.15 To Bank (down 3,00,000 1.4.15 By Scooters A/c 6,90,000
payment) 31.3.16 By Interest A/c 39,000
31.3.16 To Bank (1st 1,59,000
Installment)
To Balance c/d 2,70,000
7,29,000 7,29,000
31.3.17 To Bank (2nd 1,47,000 1.4.2016 By Balance b/d 2,70,000
Installment) 31.3.2017 By Interest A/c 27,000
To Balance c/d 1,50,000
2,97,000 2,97,000
31.3.18 To Scooter A/c 78,890 1.4.2017 By Balance b/d 1,50,000
To Balance c/d (b.f.) 86,110 31.3.2018 By Interest A/c 15,000
1,65,000 1,65,000
31.8.18 To Bank (Amount 91,492 1.4.2018 By Balance b/d 86,110
settled after 5 31.8.2018 By Interest A/c (@ 15 %
months) on bal.) 5,382
(86,110 x 5/12 x 15/100)
91,492 91,492
(iv) In the Books of M/s Bhanu

Goods Repossessed A/c
31.3.18 To Amar A/c 78,890 31.3.2018 By Balance c/d 78,890
78,890 78,890
1.04.2018 To Balance b/d 78,890 25.4.2018 By Bank (Sale) 1,05,000
25.4.2018 To Repair A/c 15,000
25.4.2018 To Profit & Loss A/c 11,110
1,05,000 1,05,000
Working Note:
Value of Scooters taken over
`
2 Scooters (6,90,000/6 x 2) 2,30,000
Depreciation @ 30% WDV for 3 years
(69,000 + 48,300 +33,810) (1,51,110)
78,890
(b) Computation of the amount of claim for the loss of profit
1. Reduction in turnover `
Turnover from 25th May, 2016 to 30th September, 2016 6,00,000
Add: 10% expected increase 60,000
6,60,000
Less: Actual Turnover from 25 th May, 2017 to 30th September, 2017 (1,75,000)
Short Sales 4,85,000
2. Calculation of loss of Profit
Gross Profit on reduction in turnover @ 25% on ` 4,85,000 1,21,250
(see working note 1)
Add: Additional Expenses
Lower of
(i) Actual = ` 30,000
(ii) G.P. on Adjusted Annual Turnover
Additional Exp. x
G.P. as above + Uninsured Standing Charges
30,000x [3,85,000/(3,85,000+1,25,000)] = ` 22,647

(iii) G.P. on sales generated by additional expenses
175000 x 25% = ` 43,750
It is given that entire sales during the interrupted period was due to additional
expenses.
Therefore, lower of above is (i, ii & iii) ` 22,647
1,43,897
Less: Saving in Insured Standing Charges (5,000)
Amount of claim before application of Average Clause 1,38,897
3. Application of Average Clause:

Amount of Policy
× Amount of Claim
G.P. on Annual Turnover
(3,50,000/3,85,000) x 1,38,897= ` 1,26,270
Amount of claim under the policy = ` 1,26,270
Working Notes:
1. Rate of Gross Profit for last Financial Year: `
Net Profit for last financial year 2,00,000
Add: Insured Standing Charges 1,75,000
Gross Profit 3,75,000
Turnover for the last financial year 15,00,000
Rate of Gross Profit = 3,75,000 ×100 = 25%
15,00,000
2. Annual Turnover (adjusted):

Turnover from 25 May, 2016 to 24 May, 2017 14,00,000
Add: 10% expected increase 1,40,000
15,40,000
Gross Profit on ` 15,40,000 @ 25% 3,85,000
Standing charges not Insured (3,00,000 – 1,75,000) 1,25,000
Gross profit + Uninsured standing charges 5,10,000
Question 3
(a) The following balances appeared in the books of M/s Sunshine Traders:
As on As on
31-03-2018 31-03-2019
(` ) (` )
Land and Building 2,50,000 2,50,000
Plant and Machinery 1,10,000 1,65,000
Office Equipment 52,500 42,500
Sundry Debtors 77,750 1,10,250
Creditors for Purchases 47,500 ?
Provision for office expenses 10,000 7,500
Stock ? 32,500
Long Term loan from ABC Bank @ 10% per annum 62,500 50,000
Bank 12,500 ?
Capital 4,65,250 ?
Other information was as follows:
In (` )
- Collection from Sundry Debtors 4,62,500
- Payments to Creditors for Purchases 2,62,500
- Payment of office Expenses 21,000
- Salary paid 16,000
- Selling Expenses paid 7,500
- Total sales 6,25,000
Credit sales (80% of Total sales)
- Credit Purchases 2,70,000
Cash Purchases (40% of Total Purchases)
- Gross Profit Margin was 25% on cost
- Discount Allowed 2,750
- Discount Received 2,250
- Bad debts 2,250
- Depreciation to be provided as follows:
Land and Building - 5% per annum
Plant and Machinery - 10% per annum
Office Equipment - 15% Per annum
- On 01.10.2018 the firm sold machine having book value, ` 20,000 (as on 31.03.2018)
at a loss of ` 7,500. New machine was purchased on 01.01.2019.
- Office equipment was sold at its book value on 01.04.2018.
- Loan was partly repaid on 31.03.2019 together with interest for the year.
You are required to prepare:
(i) Trading and Profit & Loss account for the year ended 31 st March, 2019.
(ii) Balance Sheet as on 31st March 2019. (12 Marks)
(b) M/s Rani & Co. has head office at Singapore and branch at Delhi (India). Delhi branch is
an integral foreign operation of M/s Rani & Co. Delhi branch furnishes you with its Trial
Balance as on 31st March, 2019 and the additional information thereafter:
Dr. Cr.
Rupees in thousands
Stock on 1st April, 2018 600 -
Purchases and Sales 1,600 2,400
Sundry Debtors and Creditors 800 600
Bills of Exchange 240 480
Wages 1,120 -
Rent, rates and taxes 720 -
Sundry Expenses 320 -
Computers 600 -
Bank Balance 520 -
Singapore Office A/c - 3,040
Total 6,520 6,520
Additional information :
(a) Computers were acquired from a remittance of Singapore dollar 12,000 received from
Singapore Head Office and paid to the suppliers. Depreciate Computers at the rate
of 40% for the year.
(b) Closing Stock of Delhi branch was ` 15,60,000 on 31st March, 2019.
(c) The Rates of Exchange may be taken as follows :
(i) on 1.4.2018 @ ` 50 per Singapore Dollar
(ii) on 31.3.2019 @ ` 52 per Singapore Dollar
(iii) Average Exchange Rate for the year @ ` 51 per Singapore Dollar.
(iv) Conversion in Singapore Dollar shall be made upto two decimal accuracy.
(d) Delhi Branch Account showed a debit balance of Singapore Dollar 59,897.43 on
31.3.2019 in the Head office books and there were no items pending for reconciliation.
In the books of Head office you are required to prepare :
(1) Revenue statement for the year ended 31st March, 2019 (in Singapore Dollar)
(2) Balance Sheet as on that date. (in Singapore Dollar) (8 Marks)
Answer
(a) Trading and Profit and Loss A/c for the year ended 31.3.2019
` `
To Opening stock 82,500 By Sales- Cash 1,25,000
(Balancing figure) (W.N.1)
To Purchases-Cash 1,80,000 Credit 5,00,000 6,25,000
Credit (W.N.1) 2,70,000 4,50,000 By Closing stock 32,500
To Gross profit c/d 1,25,000
6,57,500 6,57,500
To Loss on sale of 7,500 By Gross profit b/d 1,25,000
Machine By Discount
To Depreciation received 2,250
Land & Building 12,500
Plant & Machinery 11,875
Office Equipment 6,375 30,750
To Expenses paid
Salary 16,000
Selling Expenses 7,500
Office Expenses 18,500 42,000
To Bed debt 2,250
To Discount allowed 2,750
To Interest on loan 6,250
To Net profit 35,750
1,27,250 1,27,250
Balance Sheet as on 31-3-2019
Liabilities ` Assets `
Capital (Balancing 4,65,250 Land & Building 2,50,000
Figure)
Add: Net profit 35,750 5,01,000 Less: Depreciation (12,500) 2,37,500
Sundry creditors (W.N.3) 52,750 Plant & Machinery 1,65,000
Bank loan 50,000 Less: Depreciation (10,875) 1,54,125
Provision for expenses 7,500 Office Equipment 42,500
Less: Depreciation (6,375) 36,125

Debtors 1,10,250
Stock 32,500
Bank balance 40,750
(W.N.4)
6,11,250 6,11,250
Working Notes:
1. Calculation of Sales and Purchases
Total sales = ` 6,25,000
Cash sales = 20% of total sales (6,25,000) = ` 1,25,000
Credit sales = 80% of total sales = (6,25,000) ` 5,00,000
25
Gross Profit 25% on cost = 6,25,000 x = `1,25,000
125
Credit purchases = ` 2,70,000
Credit purchases = 60% of total purchases
Cash purchases = 40% of total purchases
2,70,000
Total purchases = 100 ` 4,50,000
60
Cash purchases = 4,50,000 – 2,70,000 = ` 1,80,000
2. Plant & Machinery
` `
To Balance b/d 1,10,000 By Sale of Machinery A/c 20,000
To Cash-purchase (Bal. Fig.) 75,000 By Balance c/d 1,65,000
1,85,000 1,85,000
Depreciation on Plant & Machinery:
@ 10% p.a. on ` 20,000 for 6 months = 1,000
@ 10% p.a. on ` 90,000 (i.e. ` 1,10,000 – ` 20,000) = 9,000
@ 10% p.a. on ` 75,000 for 3 months (i.e. during the year) = 1,875
11,875
Sale of Machinery Account

To Plant and Machinery 20,000 By Depreciation (20,000 x 10% 1000
x 1/2
By Profit and Loss A/c 7,500
By Bank (Balancing figure) 11,500
20,000 20,000
3. Creditors Account
` `
To Cash 2,62,500 By Balance b/d 47,500
To Discount received 2,250 By Credit purchases (W.N.2) 2,70,000
To Balance c/d (Bal. Fig.) 52,750
3,17,500 3,17,500
Debtors Account
` `
To Balance b/d (Given) 77,750 By Cash 4,62,500
To Sales (Credit) 5,00,000 By Discount allowed 2,750
By Bad debts 2,250
5,77,750 5,77,750
Provision for Office Expenses Account
` `
To Bank 21,000 By balance b/d 10,000
To balance c/d 7,500 By Expenses. (Bal. fig.) 18,500
28,500 28,500
4. Bank Account
` `
To Balance b/d 12,500 By Creditors 2,62,500
To Debtors 4,62,500 By Purchases 1,80,000
To Office Equipment 10,000 By Expenses 44,500
(sales) ` (16,000 + 7,500 + 21,000)
To Cash sales (W.N.1) 1,25,000 By Bank loan paid 18,750
To Machine sold 11,500 By Machine purchased (W.N.4) 75,000

By Balance c/d (Bal. Fig.) 40,750
6,21,500 6,21,500
5. Office Equipment Account
To balance b/d 52,500 By Sales 10,000
By balance c/d 42,500
52,500 52,500
(b) Revenue Statement
for the year ended 31 st March, 2019
Singapore dollar Singapore dollar
To Opening Stock 12,000.00 By Sales 47,058.82
To Purchases 31,372.55 By Closing stock 30,000.00
To Wages 21,960.78 (15,60,000/52)
To Gross profit b/d 11,725.49
77,058.82 77,058.82
To Rent, rates and taxes 14,117.65 By Gross profit c/d 11,725.49
To Sundry Expenses 6,274.51 By Net loss b/d 13,466.67
To Depreciation on computers
(Singapore dollar 12,000 × 0.4) 4,800.00
25,192.16 25,192.16
Balance Sheet of Delhi Branch
as on 31st March, 2019
Liabilities Singapore Assets Singapore Singapore
dollar dollar dollar
Singapore Office A/c 59,897.43 Computers 12,000.00
Less: Net Loss (13,466.67) 46,430.76 Less: Depreciation (4,800.00) 7,200.00
Sundry creditors 11,538.46 Closing stock 30,000.00
Bills payable 9,230.77 Sundry debtors 15,384.61
Bank balance 10,000.00
Bills receivable 4,615.38
67,199.99 67,199.99
Working Note:
M/s Rani & Co.
Delhi Branch Trial Balance in (Singapore $)
as on 31st March, 2019
Conversion Dr. Cr.
rate per Singapore Singapore
Singapore dollar dollar
dollar
(`)
Stock on 1.4.18 6,00,000.00 50 12,000.00 –
Purchases and sales 16,00,000.00 24,00,000.00 51 31,372.55 47,058.82
Sundry Debtors and 8,00,000.00 6,00,000.00 52 15,384.61 11,538.46
Creditors
Bills of exchange 2,40,000.00 4,80,000.00 52 4,615.38 9,230.77
Wages 11,20,000.00 51 21,960.78 –
Rent, rates and taxes 7,20,000.00 51 14,117.65 –
Sundry Expenses 3,20,000.00 51 6,274.51 –
Computers 6,00,000.00 – 12,000.00 –
Bank balance 5,20,000.00 52 10,000.00 –
Singapore office A/c – 59,897.43
1,27,725.48 1,27,725.48
Question 4
The following is the Balance Sheet of M/s Red and Black as on 31st March, 2018:
Liabilities (` ) Assets (` )
Red’s Capital 80,000 Building 1,00,000
Black's Capital 1,00,000 1,80,000 Closing Stock 60,000
Red's Loan 20,000 Sundry Debtors 40,000
General Reserve 20,000 Investment 40,000
Sundry Creditors 40,000 (6% Debentures in Cool Ltd.)
Cash 20,000
2,60,000 2,60,000
It was agreed that Mr. White is to be admitted for a fifth share in the future profits from
1st April, 2018. He is required to contribute cash towards goodwill and ` 20,000 towards capital.
(a) The following further information is furnished:
(i) The partners Red and Black shared the profits in the ratio of 3 : 2.
(ii) Mr. Red was receiving a salary of ` 1,000 p.m. from the very inception of the firm in
addition to the share of profit.
(iii) The future profit ratio between Red, Black and White will be 3 : 1 : 1. Mr. Red will not
get any salary after the admission of Mr. White.
(iv) The goodwill of the firm should be determined on the basis of 2 years' purchase of the
average profits from business of the last 5 years. The particulars of profits/losses are
as under :
Year Ended (` ) Profit/Loss
31.3.2014 40,000 Profit
31.3.2015 20,000 Loss
31.3.2016 40,000 Profit
31.3.2017 50,000 Profit
31.3.2018 60,000 Profit
The above profits and losses are after charging the salary of Mr. Red. The profit of
the year ended 31st March, 2014 included an extraneous profit of ` 60,000 and the
loss for the year ended 31st March, 2015 was on account of loss by strike to the
extent of ` 40,000.
(v) It was agreed that the value of the goodwill should not appear in the books of the firm.
(b) Trading profit for the year ended 31 st March, 2019 was ` 80,000 (Before charging
depreciation)
(c) Each partner had drawn ` 2,000 per month as drawing during the year 2018-19.
(d) On 31st March, 2019 the following balances appeared in the books:
Building (Before Depreciation) ` 1,20,000
Closing Stock ` 80,000
Sundry Debtors Nil
Sundry Creditors Nil
Investment ` 40,000
(e) Interest was @ 6% per annum on Red's loan was not paid during the year.
(f) Interest on Debenture was received during the year.
(g) Depreciation is to be provided @ 5% on Closing Balance of Building.
(h) Partners applied for conversion of the firm into a private Limited Company i.e. RBW Private
Limited. Certificate received on 1.4.2019.
They decided to convert Capital accounts of the partners into share capital, in the ratio of
3: 1: 1 (on the basis of total Capital as on 31.3.2019). If necessary, partners have to
subscribe to fresh capital or withdraw.
You are required to prepare :
(1) Profit & Loss Account for the year ended 31st March, 2019 in the books of M/s Red
and Black.
(2) Balance Sheet as on 1st April, 2019 in the books of RBW Private Limited. (20 Marks)
Answer
M/s Red, Black and White
Statement of Profit & Loss for the year ended on 31 st March, 2019
` `
To Depreciation on Building (1,20,000 x 5%) 6,000 By Trading Profit 80,000
To Interest on Red’s loan (20,000 x 6%) 1,200 By Interest on 2,400
To Net Profit to : Debentures
Red’s Capital A/c 45,120
Black’s Capital A/c 15,040
White’s Capital A/c 15,040
82,400 82,400
Balance Sheet of the RBW Pvt. Ltd. as on 1-4-2019
Notes No. `
I Equity and Liabilities
Shareholders funds 2,39,040
Non-current liabilities
Long term borrowings 1 21,200
Total 2,60,240
II Assets
Non-current assets
Property, Plant & Equipment
Tangible assets 2 1,14,000
Non-current investments 40,000
Current assets
Inventories 80,000
Cash and cash equivalents 26,240
Total 2,60,240
Notes to Accounts
`
1. Borrowings
Loan from Red 21,200
2. Tangible assets
Land and Building ` (1,20,000 – 6,000) 1,14,000
Working Notes:
1. Calculation of goodwill
Year ended March, 31
2014 2015 2016 2017 2018
₹ ` ` ` `
Book Profits 40,000 (20,000) 40,000 50,000 60,000
Adjustment for extraneous profit of
2014 and abnormal loss for 2015 (60,000) 40,000 — — —
(20,000) 20,000 40,000 50,000 60,000
Add Back: Remuneration of Red 12,000 12,000 12,000 12,000 12,000
(8,000) 32,000 52,000 62,000 72,000
Less: Debenture Interest being non-
operating income (2,400) (2,400) (2,400) (2,400) (2,400)
(10,400) 29,600 49,600 59,600 69,600
Total Profit from 2015 to 2018 2,08,400
Less: Loss for 2014 (10,400)
Accumulated Profit 1,98,000
Average Profit 39,600
Goodwill equal to 2 years’ purchase 79,200
Contribution from White, equal to 1/5 15,840
2. Partners’ Capital Accounts
Red Black White Red Black White
` ` ` ` ` `
To Drawings 24,000 24,000 24,000 By Balance b/d 80,000 1,00,000 —
To Black A/c 15,840 By General 12,000 8,000 —
To Balance c/d 1,13,120 1,14,880 11,040 Reserve
By White A/c 15,840 —

By Bank A/c — — 35,840
By Profit & 45,120 15,040 15,040
Loss A/c
1,37,120 1,38,880 50,880 1,37,120 1,38,880 50,880
3. Balance Sheet as on 31 st March, 2019
Liabilities ` ` Assets ` `
Red’s Capital 1,13,120 Land & Building 1,20,000
Black’s Capital 1,14,880 Less: Depreciation (6,000) 1,14,000
White’s Capital 11,040 Investments 40,000
Red’s Loan 20,000 Stock-in-trade 80,000
Add: Interest due 1,200 21,200 Cash (Balancing figure) 26,240*
2,60,240 2,60,240
4. Conversion into Company

`
Capital: Red 1,13,120
Black 1,14,880
White 11,040
Share Capital 2,39,040
Distribution of share: Red (3/5) 1,43,424
Black (1/5) 47,808
White (1/5) 47,808
Red should subscribe shares of ` 30,304 (` 1,43,424 – ` 1,13,120) and White should
subscribe shares of ` 36,768 (` 47,808 less 11,040). Black withdraws ` 67,072
(` 47,808 – ` 1,14,880).
5 Adjustment for Goodwill
To be raised in old Raio To be written off in new ratio Difference
Red 47,520 47,520 Nil
Black 31,680 15,840 15,840 Cr.
White 15,840 15,840 Dr.
6. Closing cash balance* can also be derived as shown below:

` `
Trading profit (assume realised) 80,000
Add: Debenture Interest 2,400
Add: Decrease in Debtors Balance 40,000
1,22,400
Less: Increase in stock 20,000
Less: Decrease in creditors 40,000 (60,000)
Cash Profit 62,400
Add: Opening cash balance 20,000
Add: Cash brought in by White 35,840
1,18,240
Less: Drawings 72,000
Less: Additions to Building 20,000 (92,000)
26,240
Question 5
(a) The Summarized Balance Sheet of Clean Ltd. as on 31 st March, 2019 is as follows:
Particulars (` )
EQUITY AND LIABILITIES
1. Shareholder's funds:
(a) Share Capital 5,80,000
(b) Reserves and Surplus 96,000
2. Current Liabilities:
Trade Payables 1,13,000
Total 7,89,000
ASSETS:
1. Non-Current Assets
(a) Property, Plant and Equipment
Tangible Assets 6,90,000
(b) Non-current investments 37,000
2. Current Assets
Cash and cash equivalents (Bank) 62,000
Total 7,89,000
The Share Capital of the company consists of ` 50 each Equity shares of ` 4,50,000 and
` 100 each 8% Redeemable Preference Shares of ` 1,30,000 (issued on 1.4.2017).
Reserves and Surplus comprises statement of profit and loss only.
In order to facilitate the redemption of preference shares at a premium of 10%, the
Company decided:
(a) to sell all the investments for ` 30,000.
(b) to finance part of redemption from company funds, subject to, leaving a Bank balance
of ` 24,000.
(c) to issue minimum equity share of ` 50 each at a premium of ` 10 per share to raise
the balance of funds required.
You are required to
(1) Pass Journal Entries to record the above transactions.
(2) Prepare Balance Sheet after completion of the above transactions.
(b) The following information was provided by PQR Ltd. for the year ended 31st March, 2019 :
(1) Gross Profit Ratio was 25% for the year, which amounts to ` 3,75,000.
(2) Company sold goods for cash only.
(3) Opening inventory was lesser than closing inventory by ` 25,000.
(4) Wages paid during the year ` 5,55,000.
(5) Office expenses paid during the year ` 35,000.
(6) Selling expenses paid during the year ` 15,000.
(7) Dividend paid during the year ` 40,000 (including dividend distribution tax).
(8) Bank Loan repaid during the year ` 2,05,000 (included interest ` 5,000)
(9) Trade Payables on 31st March, 2018 were ` 50,000 and on 31st March, 2019 were
` 35,000.
(10) Amount paid to Trade payables during the year ` 6,10,000
(11) Income Tax paid during the year amounts to ` 55,000
(Provision for taxation as on 31st March, 2019 ` 30,000)·
(12) Investments of ` 8,20,000 sold during the year at a profit of ` 20,000.
(13) Depreciation on furniture amounts to ` 40,000.
(14) Depreciation on other tangible assets amounts to ` 20,000.
(15) Plant and Machinery purchased on 15 th November, 2018 for ` 3,50,000.
(16) On 31st March, 2019 ` 2,00,000, 7% Debentures were issued at face value in an
exchange for a plant.
(17) Cash and Cash equivalents on 31 st March, 2018 ` 2,25,000.
(A) Prepare cash flow statement for the year ended 31st March, 2019, using direct method.
(B) Calculate cash flow from operating activities, using indirect method. (10 + 10 = 20 Marks)
Answer
(a) Journal Entries
Particulars Dr. (` ) Cr. (` )
1 Bank A/c Dr. 75,000
To Share Application A/c 75,000
(For application money received on 1,250 shares @
` 60 per share)
2 Share Application A/c Dr. 75,000
To Equity Share Capital A/c 62,500
To Securities Premium A/c 12,500
(For disposition of application money received)
3 Preference Share Capital A/c Dr. 1,30,000
Premium on Redemption of Preference Shares A/c Dr. 13,000
To Preference Shareholders A/c 1,43,000
(For amount payable on redemption of preference
shares)
4 Profit and Loss A/c Dr. 13,000
To Premium on Redemption of 13,000
Preference Shares A/c
(For writing off premium on redemption out of
profits)
5 Bank A/c Dr. 30,000
Profit and Loss A/c (loss on sale) A/c Dr. 7,000
To Investment A/c 37,000
(For sale of investments at a loss of ` 3,500)
6 Preference Shareholders A/c Dr. 1,43,000
To Bank 1,43,000
(Being amount paid to Preference shareholders)
7 Profit and Loss A/c Dr. 67,500

To Capital Redemption Reserve A/c 67,500
(For transfer to CRR out of divisible profits an
amount equivalent to excess of nominal value of
preference shares over proceeds (face value of
equity shares) i.e., ` 1,30,000 - ` 62,500)
Balance Sheet of Clean Ltd. (after redemption)
Particulars Notes No. `
EQUITY AND LIABILITIES
1. Shareholders’ funds
a) Share capital 1 5,12,500
b) Reserves and Surplus 2 88,500
2. Current liabilities
Trade Payables 1,13,000
Total 7,14,000
ASSETS
1. Non-Current Assets
Property Plant and Equipments
Tangible asset 6,90,000
2. Current Assets
Cash and cash equivalents (bank) 3 24,000
Total 7,14,000
Notes to accounts
`
1. Share Capital
Equity share capital ` (4,50,000 + 62,500) 5,12,500
2. Reserves and Surplus
Capital Redemption Reserve 67,500
Profit and Loss Account ` (96,000 – 13,000 – 7,000 – 67,500) 8,500
Security Premium 12,500
88,500
3. Cash and cash equivalents
Balances with banks ` (62,000 + 75,000 +30,000 – 1,43,000) 24,000
Working Note:
Calculation of Number of Shares: `
Amount payable on redemption (1,30,000 + 10% Premium) 1,43,000
Less: Sale price of investment (30,000)
1,13,000
Less: Available bank balance (62,000 - 24,000) (38,000)
Funds required from fresh issue 75,000
No. of shares = 75,000/60 = 1,250 shares
(b) (i) PQR Ltd.
Cash Flow Statement for the year ended 31 st March, 2019
(Using direct method)
Particulars ` `
Cash flows from Operating Activities
Cash sales (` 3,75,000/25%) 15,00,000
Less: Cash payments for trade payables (6,10,000)
Wages Paid (5,55,000)
Office and selling expenses ` (35,000 + 15,000) (50,000) (12,15,000)
Cash generated from operations before taxes 2,85,000
Income tax paid (55,000)
Net cash generated from operating activities (A) 2,30,000
Cash flows from Investing activities
Sale of investments ` (8,20,000 + 20,000) 8,40,000
Payments for purchase of Plant & machinery (3,50,000)
Net cash used in investing activities (B) 4,90,000
Cash flows from financing activities
Bank loan repayment (including interest) (2,05,000)
Dividend paid (including dividend distribution tax) (40,000)
Net cash used in financing activities (C) (2,45,000)
Net increase in cash (A+B+C) 4,75,000
Cash and cash equivalents at beginning of the period 2,25,000
Cash and cash equivalents at end of the period 7,00,000
(ii) ‘Cash Flow from Operating Activities’ by indirect method

`
Net Profit for the year before tax and extraordinary items 2,80,000
Add: Non-Cash and Non-Operating Expenses:
Depreciation 60,000
Interest Paid 5,000
Less: Non-Cash and Non-Operating Incomes:
Profit on Sale of Investments (20,000)
Net Profit after Adjustment for Non-Cash Items 3,25,000
Less: Decrease in trade payables 15,000
Increase in inventory 25,000 (40,000)
Cash generated from operations before taxes 2,85,000
Working Note:
Calculation of net profit earned during the year
` `
Gross profit 3,75,000
Less: Office expenses, selling expenses 50,000
Depreciation 60,000
Interest paid 5,000 (1,15,000)
2,60,000
Add: Profit on sale of investments 20,000
Net profit before tax 2,80,000
Question 6
Answer any four of the following :
(a) Write short note on Timing difference and Permanent Difference as per AS 22.
(b) Summarised Balance Sheet of Cloth Trader as on 31.03.2017 is given below:
Liabilities Amount Assets Amount
(` ) (` )
Proprietor's Capital 3,00,000 Fixed Assets 3,60,000
Profit & Loss Account 1,25,000 Closing Stock 1,50,000
10% Loan Account 2,10,000 Sundry Debtors 1,00,000
Sundry Creditors 50,000 Deferred Expenses 50,000

Cash & Bank 25,000
6,85,000 6,85,000
Additional Information is as follows :
(1) The remaining life of fixed assets is 8 years. The pattern of use of the asset is even.
The net realisable value of fixed assets on 31.03.2018 was ` 3,25,000.
(2) Purchases and Sales in 2017-18 amounted to ` 22,50,000 and ` 27,50,000
respectively.
(3) The cost and net realizable value of stock on 31.03.2018 were ` 2,00,000 and
` 2,50,000 respectively.
(4) Expenses for the year amounted to ` 78,000.
(5) Deferred Expenses are amortized equally over 5 years.
(6) Sundry Debtors on 31.03.2018 are ` 1,50,000 of which ` 5,000 is doubtful. Collection
of another ` 25,000 depends on successful re-installation of certain product supplied
to the customer;
(7) Closing Sundry Creditors are ` 75,000, likely to be settled at 10% discount.
(8) Cash balance as on 31.03.2018 is ` 4,22,000.
(9) There is an early repayment penalty for the loan of ` 25,000.
You are required to prepare: (Not assuming going concern)
(1) Profit & Loss Account for the year 2017-18.
(2) Balance Sheet as on 31 st March, 2018.
(c) Tarun Ltd. was incorporated on 1 st July, 2018 to acquire a running business of Vinay Sons
with effect from 1st April, 2018. During the year 2018-19, the total sales were
` 12,00,000 of which ` 2,40,000 were for the first six months. The Gross Profit for the
year is ` 4,15,000. The expenses debited to the Profit and Loss account included:
(i) Director's fees ` 25,000
(ii) Bad Debts ` 6,500
(iii) Advertising ` 18,000 (under a contract amounting to ` 1,500 per month)
(iv) Company Audit Fees ` 15,000
(v) Tax Audit Fees ` 10,000
(1) Prepare a statement showing pre-incorporation and post incorporation profit for the
year ended 31st March, 2019.
(2) Explain how profits are to be treated.
(d) State the circumstances when Garner V/s Murray rule is not applicable.
(e) Wooden Plywood Limited has a normal wastage of 5% in the production process. During
the year 2017-18, the Company used 16,000 MT of Raw material costing ` 190 per MT. At
the end of the year, 950 MT of wastage was in stock. The accountant wants to know how
this wastage is to be treated in the books.
You are required to :
(1) Calculate the amount of abnormal loss.
(2) Explain the treatment of normal loss and abnormal loss. [In the context of AS-2
(Revised)] (4 Parts x 5 Marks = 20 Marks)
Answer
(a) Matching of taxes against revenue for a period poses special problems arising from the
fact that in number of cases, taxable income may be different from the accounting income.
The divergence between taxable income may be different from the accounting income
arises due to two main reasons: Firstly, there are differences between items of revenue
and expenses as appearing in the statement of profit and loss and the items which are
considered as revenue, expenses or deductions for tax purposes, known as Permanent
Difference. Secondly, there are differences between the amount in respect of a particular
item of revenue or expense as recognised in the statement of profit and loss and the
corresponding amount which is recognised for the computation of taxable incom e, known
as Timing Difference.
Permanent differences are the differences between taxable income and accounting income
which arise in one accounting period and do not reverse subsequently. For example, an
income exempt from tax or an expense that is not allowable as a deduction for tax
purposes.
Timing differences are those differences between taxable income and accounting income
which arise in one accounting period and are capable of reversal in one or more
subsequent periods. For e.g., Depreciation, Bonus, etc.
(b) Profit and Loss Account for the year ended 2017-18(not assuming going concern)
Particulars Amount Particulars Amount
` `
To Opening Stock 1,50,000 By Sales 27,50,000
To Purchases 22,50,000 By Closing Stock 2,50,000
To Expenses* 78,000 By Trade payables 7,500
To Depreciation 35,000
To Provision for doubtful debts 30,000
To Deferred cost 50,000
To Loan penalty 25,000
To Net Profit (b.f.) 3,89,500

30,07,500 30,07,500
Balance Sheet as at 31 st March, 2018 (not assuming going concern)
Liabilities Amount Assets Amount
` `
Capital 3,00,000 Fixed Assets 3,25,000
Profit & Loss A/c 5,14,500 Stock 2,50,000
10% Loan 2,35,000 Trade receivables (less provision) 1,20,000
Trade payables 67,500 Deferred costs Nil
Bank 4,22,000
11,17,000 11,17,000
*Assumed that ` 78,000 includes interest on 10% loan amount for the year.
(c) Statement showing the calculation of Profits for the pre-incorporation and post-
incorporation periods
For the year ended 31 st March, 2019
Particulars Total Basis of Pre- Post-
Amount Allocation incorporation incorporation
Gross Profit 4,15,000 Sales (1:9) 41,500 3,73,500
Less: Directors’ fee 25,000 Post 25,000
Bad debts 6,500 Sales (1:9) 650 5,850
Advertising 18,000 Time (1:3) 4,500 13,500
Company Audit Fees 15,000 Post 15,000
Tax Audit Fee 10,000 Sales (1:9) 1,000 9,000
Net Profit 3,40,500 35,350 3,05,150
Pre-incorporation profits to be transferred to capital reserve and post-incorporation profit
to be transferred to profit & Loss A/c.
Working Notes:
(i) Sales ratio
Particulars `
Sales for period up to 30.06.2018 (2,40,000 x 3/6) 1,20,000
Sales for period from 01.07.2018 to 31.03.2019 (12,00,000 – 10,80,000
1,20,000)
Thus, Sales Ratio = 1 : 9 (1,20,000 : 10,80,000)

(ii) Time ratio
1st April, 2018 to 30 June, 2018: 1 st July, 2018 to 31st March, 2019
= 3 months: 9 months = 1: 3
Thus, Time Ratio is 1: 3
(d) Garner vs Murray rule is non-applicable in the following cases:
1. When the solvent partner has a debit balance in the capital account.
Only solvent partners will bear the loss of capital deficiency of insolvent partner in
their capital ratio. If incidentally a solvent partner has a debit balance in his capital
account, he will escape the liability to bear the loss due to insolvency of another
partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital
account of insolvent partner.
4. When all the partners of the firm are insolvent.
(e) (i) As per AS 2 (Revised) ‘Valuation of Inventories’, abnormal amounts of wasted
materials, labour and other production costs are excluded from cost of inventories
and such costs are recognised as expenses in the period in which they are incurred.
The normal loss will be included in determining the cost of inventories (finished goods)
at the year end.
Amount of Abnormal Loss:
(ii) Material used 16,000 MT @ ` 190 = ` 30,40,000
Normal Loss (5% of 16,000 MT) 800 MT (included in calculation of cost of
inventories)
Net quantity of material 15,200 MT
(iii) Abnormal Loss in quantity (950 - 800) 150 MT
Abnormal Loss ` 30,000
[150 units @ ` 200 (` 30,40,000/15,200)]
Amount of ` 30,000 (Abnormal loss) will be charged to the Profit and Loss statement.
PAPER – 2 : CORPORATE & OTHER LAW
Attempt any three questions from the remaining four questions.
Question 1
(a) As at 31st March, 2018, the paid up share capital of S Ltd. is ` 1,00,00,000 divided into
10,00,000 equity shares of ` 10 each. Of this, H Ltd. is holding 6,00,000 equity shares
and 4,00,000 equity shares are held by others. Simultaneously, S Ltd. is holding 5%
equity shares of H Ltd. out of which 1% shares are held as a legal representative of a
deceased member of H Ltd. On the basis of the given information, examine and answer
the following queries with reference to the provisions of the Companies Act, 2013 :
(i) Can S Ltd. make further investment in equity shares of H Ltd. during 2018-19?
(ii) Can S Ltd. exercise voting rights at Annual general meeting of H Ltd.?
(iii) Can H Ltd. allot or transfer some of its shares to S Ltd.? (4 Marks)
(b) (i) Modem Jewellery Ltd. decides to pay 5% of the issue price gap of shares as
underwriting commission to the underwriters, but the Articles of the company
authorize only 4% underwriting commission on shares. Examine the validity of the
above decision under the provision of the Companies Act, 2013. (2 Marks)
(ii) PQ Ltd. declared and paid 10% dividend to all its shareholders except Mr. Kumar,
holding 500 equity shares, who instructed the company to deposit the dividend
amount directly in his bank account. The company accordingly remitted the
dividend, but the bank returned the payment on the ground that the account number
as given by Mr. Kumar doesn't tally with the records of the bank. The company,
however, did not inform Mr. Kumar about this discrepancy. ·Comment on this issue
with reference to the provisions of the Companies Act, 2013 regarding failure to
distribute dividend. (2 Marks)
(c) The Government of India is holding 51% of the paid-up equity share capital of Sun Ltd.
The Audited financial statements of Sun Ltd. for the financial year 2017-18 were placed
at its annual general meeting held on 31st August, 2018. However, pending the
comments of the Comptroller and Auditor General of India (CAG) on the said accounts
the meeting was adjourned without adoption of the accounts. On receipt of CAG
comments on the accounts, the adjourned annual general meeting was held on
15th October, 2018 whereat the accounts were adopted. Thereafter, Sun Ltd. filed its
financial statements relevant to the financial year 2017-18 with the Registrar of
Companies on 12 th November, 2018. Examine, with reference to the applicable
provisions of the Companies Act, 2013, whether Sun Ltd. has complied with the statutory
requirement regarding filing of accounts with the Registrar? (4 Marks)
PAPER – 2 : CORPORATE AND OTHER LAWS 33
(d) Manoj guarantees for Ranjan, a retail textile merchant, for an amount of ` 1,00,000, for
which Sharma, the supplier may from time to time supply goods on credit basis to Ranjan
during the next 3 months.
After 1 month, Manoj revokes the guarantee, when Sharma had supplied goods on credit
for ` 40,000. Referring to the provisions of the Indian Contract Act, 1872, decide whether
Manoj is discharged from all the liabilities to Sharma for any subsequent credit supply.
What would be your answer in case Ranjan makes default in paying back Sharma for the
goods already supplied on credit i.e. ` 40,000 ? (4 Marks)
(e) Ram purchases some goods on credit from Singh, payable within 3 months. After 2
months, Ram makes out a blank cheque in favour of Singh, signs and delivers it to Singh
with a request to fill up the amount due, as Ram does not know the exact amount
payable by him.
Singh fills up fraudulently the amount larger than the amount payable by Ram and
endorses the cheque to Chandra in full payment of Singh's own due. Ram's cheque is
dishonoured. Referring to the provisions of the Negotiable Instruments Act, 1881, discuss
the rights of Singh and Chandra. (3 Marks)
Answer
(a) The paid up share capital of S Ltd. is ` 1,00,00,000 divided into 10,00,000 equity shares
of ` 10 each. Of this, H Ltd. is holding 6,00,000 equity shares.
Hence, H Ltd. is the holding company of S Ltd. and S Ltd. is the subsidiary company of H
Ltd. by virtue of section 2(87) of the Companies Act, 2013.
In the instant case,
(i) As per the provisions of sub-section (1) of Section 19 of the Companies Act, 2013,
no company shall, either by itself or through its nominees, hold any shares in its
holding company. Therefore, S Ltd. cannot make further investment in equity shares
of H Ltd. during 2018-19.
(ii) As per second proviso to Section 19, a subsidiary company shall have a right to
vote at a meeting of the holding company only in respect of the shares held by it as
a legal representative or as a trustee. Therefore, S Ltd. can exercise voting rights at
the Annual General Meeting of H Ltd. only in respect of 1% shares held as a legal
representative of a deceased member of H Ltd.
(iii) Section 19 also provides that no holding company shall allot or transfer its shares to
any of its subsidiary companies and any such allotment or transfer of shares of a
company to its subsidiary company shall be void. Therefore, H Ltd. cannot allot or
transfer some of its shares to S Ltd.
(b) (i) Section 40(6) of the Companies Act, 2013 provides that a company may pay
commission to any person in connection with the subscription to its securities
subject to such conditions as may be prescribed. Rule 13 of the Companies
34 INTERMEDIATE (NEW) EXAMINATION: MAY, 2019
(Prospectus and Allotment of Securities) Rules, 2014 provides the conditions. As

per Rule 13(c) of the Companies (Prospectus and Allotment of Securities) Rules,
2014, the rate of commission paid or agreed to be paid shall not exceed, in case of
shares, five per cent of the price at which the shares are issued or a rate authorised
by the articles, whichever is less.
In the instant case, Modern Jewellery Ltd. decides to pay 5% of the issue price gap
of shares as underwriting commission to the underwriters, but the Articles of the
company authorize only 4% underwriting commission on shares.
Hence, the company can only pay a maximum of 4% underwriting commission on
shares.
(ii) Section 127 of the Companies Act, 2013 provides for punishment for failure to
distribute dividend on time. One of such situations is where a shareholder has
given directions to the company regarding the payment of the dividend and those
directions cannot be complied with and the same has not been communicated to the
shareholder.
In the instant case, PQ Ltd. has failed to communicate to the shareholder Mr. Kumar
about non-compliance of his direction regarding payment of dividend. Hence, the
penal provisions under section 127 will be attracted.
(c) According to first proviso to section 137(1) of the Companies Act, 2013, where the
financial statements are not adopted at annual general meeting or adjourned annual
general meeting, such unadopted financial statements along with the required documents
shall be filed with the Registrar within thirty days of the date of annual general meeting
and the Registrar shall take them in his records as provisional till the financial statements
are filed with him after their adoption in the adjourned annual general meeting for that
purpose.
According to second proviso to section 137(1) of the Companies Act, 2013, financial
statements adopted in the adjourned AGM shall be filed with the Registrar within thirty
days of the date of such adjourned AGM with such fees or such additional fees as may
be prescribed.
In the instant case, the accounts of Sun Ltd. were adopted at the adjourned AGM held on
15th October, 2018 and filing of financial statements with Registrar was done on 12 th
November, 2018 i.e. within 30 days of the date of adjourned AGM.
Hence, Sun Ltd. has not complied with the statutory requirement regarding filing of
unadopted accounts with the Registrar, but has certainly complied with the provisions by
filing of adopted accounts within the due date with the Registrar.
(d) Discharge of Surety by Revocation: As per section 130 of the Indian Contract Act,
1872 a specific guarantee cannot be revoked by the surety if the liability has already
accrued. A continuing guarantee may, at any time, be revoked by the surety, as to future
transactions, by notice to the creditor, but the surety remains liable for transactions
already entered into.
As per the above provisions, liability of Manoj is discharged with relation to all
subsequent credit supplies made by Sharma after revocation of guarantee, because it is
a case of continuing guarantee.
However, liability of Manoj for previous transactions (before revocation) i.e. for ` 40,000
remains. He is liable for payment of ` 40,000 to Sharma because the transaction was
already entered into before revocation of guarantee.
(e) According to section 44 of the Negotiable Instruments Act, 1881, when the consideration
for which a person signed a promissory note, bill of exchange or cheque consisted of
money, and was originally absent in part or has subsequently failed in part, the sum
which a holder standing in immediate relation with such signer is entitled to receive from
him is proportionally reduced.
Explanation—The drawer of a bill of exchange stands in immediate relation with the
acceptor. The maker of a promissory note, bill of exchange or cheque stands in
immediate relation with the payee, and the indorser with his indorsee. Other signers may
by agreement stand in immediate relation with a holder.
In the given question, Singh is a party in immediate relation with the drawer (Ram) of the
cheque and so he is entitled to recover only the exact amount due from Ram and not the
amount entered in the cheque. However, the right of Chandra, who is a holder for value,
is not adversely affected and he can claim the full amount of the cheque from Singh.
Question 2
(a) State, with reasons, whether the following statements are True or False?
(i) ABC Private Limited may accept the deposits from its members to the extent of
` 50.00 Lakh, if the aggregate of its paid-up capital; free reserves and security
premium account is ` 50.00 Lakh. (1 Mark)
(ii) A Government Company, which is eligible to accept deposits under Section 76 of
the Companies Act, 2013 cannot accept deposits from public exceeding 25% of the
aggregate of its paid- up capital, free reserves and security premium account.
(1 Mark)
(iii) The Registrar of Companies is not bound to issue notice to the holder of charge, if
the company gives intimation of satisfaction of charge in the specified form and
signed by the holder of charge. (1 Mark)
(iv) The Registrar of Companies may allow the company or holder of charge to file
intimation within a period of 300 days of the satisfaction of charge on payment of
fee and additional fees as may be prescribed. (1 Mark)
(b) (i) The Income Tax Authorities in the current financial year 2019-20 observed, during
the assessment proceedings, a need to re-open the accounts of Chetan Ltd. for the
financial year 2008-09 and, therefore, filed an application before the National
Company Law Tribunal (NCLT) to issue the order to Chetan Ltd. for re-opening of
its accounts and recasting the financial statements for the financial year 2008-09.
Examine the validity of the application filed by the Income Tax Authorities to NCLT.
(3 Marks)
(ii) The Board of Directors of A Ltd. requested its Statutory Auditor to accept the
assignment of designing and implementation of suitable financial information system
to strengthen the internal control mechanism of the Company. How will you
approach to this proposal, as an Statutory Auditor of A Ltd., taking into account the
consequences, if any, of accepting this proposal? (3 Marks)
(c) Aarthi is the wife of Naresh. She purchased some sarees on credit from M/s Rainbow
Silks, Jaipur.
M/s Rainbow Silks, Jaipur demanded the amount from Naresh. Naresh refused. M/s
Rainbow Silks, Jaipur filed a suit against Naresh for the said amount. Decide in the light
of provisions of the Indian Contract Act, 1872, whether M/s Rainbow Silks, Jaipur would
succeed? (4 Marks)
(d) Explain the concept of 'Noting', 'Protest' and 'Protest for better security' as per the
Negotiable Instruments Act,1881. (3 Marks)
Answer
(a) (i) As per the provisions of Section 73(2) of the Companies Act, 2013 read with Rule 3
of the Companies (Acceptance of Deposits) Rules, 2014, as amended by the
Companies (Acceptance of Deposits) Amendment Rules, 2016, a company shall
accept any deposit from its members, together with the amount of other deposits
outstanding as on the date of acceptance of such deposits not exceeding thirty five
per cent of the aggregate of the Paid-up share capital, free Reserves and securities
premium account of the company. Provided that a private company may accept
from its members monies not exceeding one hundred per cent of aggregate of the
paid up share capital, free reserves and securities premium account and such
company shall file the details of monies so accepted to the Registrar in such
manner as may be specified.
Therefore, the given statement of eligibility of ABC Private Ltd. to accept deposits
from its members to the extent of ` 50.00 lakh is True.
(ii) A Government company is not eligible to accept or renew deposits under section
76, if the amount of such deposits together with the amount of other deposits
outstanding as on the date of acceptance or renewal exceeds thirty five per cent of
the aggregate of its Paid-up share capital, free Reserves and securities premium
account of the company.
Therefore, the given statement prescribing the limit of 25% to accept deposits is False.
(iii) According to the proviso to section 82(2) of the Companies Act, 2013, no notice
shall be required to be sent, in case the intimation to the Registrar in this regard is
in the specified form and signed by the holder of charge.
Hence, the given statement is True.
(iv) As per section 77 of the Companies Act, 2013, it shall be duty of the company
creating a charge within or outside India, on its property or assets or any of its
undertakings, whether tangible or otherwise and situated in or outside India, to
register the particulars of the charge signed by the company and the charge holder
together with the instruments, if any, creating such charge in such form, on payment
of such fees and in such manner as may be prescribed, with the registrar within 30
days of creation. The Registrar may, on an application by the company, allow such
registration to be made within a period of three hundred days of such creation on
payment of such additional fees as may be prescribed.
Hence, the given statement is True.
(b) (i) As per section 130 of the Companies Act, 2013, a company shall not re-open its
books of account and not recast its financial statements, unless an application in
this regard is made by the Central Government, the Income-tax authorities, the
Securities and Exchange Board, any other statutory body or authority or any person
concerned and an order is made by a court of competent jurisdiction or the Tribunal
to the effect that—
(i) the relevant earlier accounts were prepared in a fraudulent manner; or
(ii) the affairs of the company were mismanaged during the relevant period,
casting a doubt on the reliability of financial statements:
However, no order shall be made in respect of re-opening of books of account
relating to a period earlier than eight financial years immediately preceding the
current financial year.
In the given instance, an application was filed for re-opening and re-casting of the
financial statements of Chetan Ltd. for the financial year 2008-2009.
Though application filed by the Income Tax Authorities to NCLT is valid, its
recommendation for reopening and recasting of financial statements for the period
earlier than eight financial years immediately preceding the current financial year
i.e. 2019-2020, is invalid.
(ii) According to section 144 of the Companies Act, 2013, an auditor appointed under
this Act shall provide to the company only such other services as are approved by
the Board of Directors or the audit committee, as the case may be. But such
services shall not include designing and implementation of any financial information
system.
In the said instance, the Board of directors of A Ltd. requested its Statutory Auditor
to accept the assignment of designing and implementation of suitable financial
information system to strengthen the internal control mechanism of the company. As
per the above provision said service is strictly prohibited.
In case the Statutory Auditor accepts the assignment, he will attract the penal
provisions as specified in Section 147 of the Companies Act, 2013.
In the light of the above provisions, we shall advise the Statutory Auditor not to take
up the above stated assignment.
(c) The situation asked in the question is based on the provisions related with the modes of
creation of agency relationship under the Indian Contract Act, 1872. Agency may be
created by a legal presumption; in a case of cohabitation by a married woman (i.e. wife i s
considered as an implied agent of her husband). If wife lives with her husband, there is a
legal presumption that a wife has authority to pledge her husband’s credit for
necessaries. But the legal presumption can be rebutted in the following cases:
(i) Where the goods purchased on credit are not necessaries.
(ii) Where the wife is given sufficient money for purchasing necessaries.
(iii) Where the wife is forbidden from purchasing anything on credit or contracting debts.
(iv) Where the trader has been expressly warned not to give credit to his wife.
If the wife lives apart for no fault on her part, wife has authority to pledge her husband’s
credit for necessaries. This legal presumption can be rebutted only in cases (iii) and (iv)
above.
Applying the above conditions in the given case M/s Rainbow Silks will succeed. It can
recover the said amount from Naresh if sarees purchased by Aarthi are necessaries for
her.
(d) Noting: When a promissory note or bill of exchange has been dishonoured by non-
acceptance or non-payment, the holder may cause such dishonour to be noted by a
notary public upon the instrument, or upon a paper attached thereto, or partly upon each.
Such note must be made within a reasonable time after dishonour, and must specify the
date of dishonor, the reason if any assigned for such dishonor, or if the instrument has
not been expressly dishonoured, the reason why the holder treats it as dishonoured and
the notary’s charges.
Protest: When a promissory note or bill of exchange has been dishonoured by non-
acceptance or non-payment, the holder may, within a reasonable time, cause such
dishonour to be noted and certified by a notary public. Such certificate is called a protest.
Protest for better security: When the acceptor of a bill of exchange has become
insolvent, or his credit has been publicly impeached, before the maturity of the bill, the
holder may, within a reasonable time, cause a notary public to demand better security of
the acceptor, and on its being refused, may with a reasonable time, cause such facts to
be noted and certified as aforesaid. Such certificate is called a protest for better security.
Question 3
(a) Which fund may be utilized by a public limited company for purchasing (buy back) its own
shares? Also explain the provisions of the Companies Act, 2013 regarding the
circumstances in which a company is prohibited to buy back its own shares. (5 Marks)
(b) (i) Alex limited is facing loss in business during the financial year 2018-2019. In the
immediate preceding three financial years, the company had declared dividend at
the rate of 7%, 11% and 12% respectively. The Board of Directors has decided to
declare 12% interim dividend for the current financial year atleast to be in par with
the immediate preceding year. Is the act of the Board of Directors valid ? (3 Marks)
(ii) The Directors of East West Limited proposed dividend at 15% on equity shares for
the financial year 2017-2018. The same was approved in the Annual general body
meeting held on 24th October 2018. The Directors declared the approved dividends.
Mr. Binoy was the holder of 2000 equity of shares on 31 st March, 2018, but he
transferred the shares to Mr. Mohan, whose name has been registered on 18th
June, 2018. Who will be entitled to the above dividend ? (2 Marks)
(c) (i) 'M' draws bill on 'N'. 'N' accepts the bill without any consideration. The bill is
transferred to 'O' without consideration. 'O' transferred it to 'P' for ` 10,000. On
dishonor of the bill, 'P' sued 'O' for recovery of the value of ` 10,000. Examine
whether 'O' has any right to action against M and N? (2 Marks)
(ii) A Bill of Exchange was made without mentioning any time for payment. The holder
added the words "on demand" on the face of the instrument. Does this amount to
any material alteration? Explain. (2 Marks)
(d) 'Preamble does not over-ride the plain provision of the Act.' Comment. Also give suitable
example. (3 Marks)
Answer
(a) Funds utilized for purchase of its own securities: Section 68 of the Companies Act,
2013 states that a company may purchase its own securities out of:
(i) its free reserves; or
(ii) the securities premium account; or
(iii) the proceeds of the issue of any shares or other specified securities.
However, buy-back of any kind of shares or other specified securities cannot be made
out of the proceeds of an earlier issue of the same kind of shares or same kind of other
specified securities.
Prohibition for buy-back in certain circumstances [Section 70]

(1) The provision says that no company shall directly or indirectly purchase its own
shares or other specified securities-
(a) through any subsidiary company including its own subsidiary companies; or
(b) through any investment company or group of investment companies; or
(c) if a default is made by the company in repayment of deposits or interest
payment thereon, redemption of debentures or preference shares or payment
of dividend to any shareholder or repayment of any term loan or interest
payable thereon, to any financial institutions or banking company;
But where the default is remedied and a period of three years has lapsed after
such default ceased to subsist, then such buy-back is not prohibited.
(2) No company shall directly or indirectly purchase its own shares or other specified
securities in case such company has not complied with provisions of Sections 92
(Annual Report), 123 (Declaration of dividend), 127 (Punishment for failure to
distribute dividends), and section 129 (Financial Statements).
(b) (i) As per Section 123(3) of the Companies Act, 2013, the Board of Directors of a
company may declare interim dividend during any financial year out of the surplus in
the profit and loss account and out of profits of the financial year in which such
interim dividend is sought to be declared:
Provided that in case the company has incurred loss during the current financial
year up to the end of the quarter immediately preceding the date of declaration of
interim dividend, such interim dividend shall not be declared at a rate higher than
the average dividends declared by the company during the immediately preceding
three financial years.
According to the given facts, Alex Ltd. is facing loss in business during the financial
year 2018-2019. In the immediate preceding three financial years, the company
declared dividend at the rate of 7%, 11% and 12% respectively. Accordingly, the
rate of dividend declared shall not exceed 10%, the average of the rates
(7+11+12=30/3) at which dividend was declared by it during the immediately
preceding three financial years.
Therefore the act of the Board of Directors as to declaration of interim dividend at
the rate of 12% during the F.Y 2018-2019 is not valid.
(ii) Payment of dividend: According to section 123(5) of the Companies Act, 2013,
dividend shall be payable only to the registered shareholder of the share or to his
order or to his banker. As said in the question, East West Limited proposed
dividend for Financial Year 2017- 2018. Mr. Binoy was the holder of 2000 equity
shares on 31st March, 2018. He transferred the shares to Mr. Mohan, whose name
was registered on 18th June 2018 in the register of members.
Since, Mr. Mohan became the registered shareholder before the declaration of
dividend in the Annual General Meeting of the company held on 24 th October, 2018
he will be entitled to the dividend.
(c) (i) Negotiable instrument made, etc. without consideration : A negotiable
instrument—
➢ made, drawn, accepted, endorsed, or transferred without consideration, or
➢ for a consideration which fails,
creates no obligation of payment between the parties to the transaction.
But if any such party has transferred the instrument with or without endorsement to
a holder for a consideration, such holder, and every subsequent holder deriving title
from him, may recover the amount due on such instrument from the transferor for
consideration or any prior party thereto.
In the light of the above provisions, in the given instance the bill was drawn,
accepted and transferred without consideration by ‘M’ to ‘N’, and from ‘N’ to ‘O’
respectively. Therefore, no obligation of payment is created between the parties. So
‘O’ has no right to action against ‘M’ and ‘N’.
(ii) Payment of instrument on which alteration is not apparent: A bill of exchange
was made without mentioning any time for payment. The holder added the words
“on demand” on the face of the instrument. As per the provision of Section 89 of the
Negotiable Instruments Act, 1881 this is not a material alteration since a bill of
exchange where no date of payment is specified will be treated as payable on
demand. Therefore, adding the words “on demand” does not alter the business
effect of the instrument.
Therefore, this cannot be said to have caused material alteration to the instrument.
(d) Preamble: The Preamble expresses the scope, object and purpose of the Act more
comprehensively. The Preamble of a Statute is a part of the enactment and can legitimately
be used as an internal aid for construing it. However, the Preamble does not over-ride the
plain provision of the Act. But if the wording of the statute gives rise to doubts as to its
proper construction, for example, where the words or phrase has more than one meaning
and a doubt arises as to which of the two meanings is intended in the Act, the Preamble
can and ought to be referred to in order to arrive at the proper construction.
In short, the Preamble to an Act discloses the primary intention of the legislature but can
only be brought in as an aid to construction if the language of the statute is not clear.
However, it cannot override the provisions of the enactment.
Example: Use of the word ‘may’ in section 5 of the Hindu Marriage Act, 1955 provides that “a
marriage may be solemnized between two Hindus…..” has been construed to be mandatory
in the sense that both parties to the marriage must be Hindus as defined in section 2 of the
Act. It was held that a marriage between a Christian male and a Hindu female solemnized
under the Hindu Marriage Act was void. This result was reached also having regard to the
preamble of the Act which reads: ‘An Act to amend and codify the law relating to marriage
among Hindus” [GullipoliSowria Raj V. BandaruPavani, (2009)1 SCC714].
Question 4
(a) Explain various instances which make the allotment of securities as irregular allotment
under the Companies Act, 2013. (4 Marks)
(b) Madurai Ltd. issued a notice for holding of its Annual general meeting on 7 th November
2018. The notice was posted to the members on 16 th October 2018. Some members of
the company allege that the company had not complied with the provisions of the
Companies Act, 2013 with regard to the period of notice and as such the meeting was
valid. Referring to the provisions of the Act, decide:
(i) Whether the meeting has been validly called?
(ii) If there is a shortfall, state and explain by how many days does the notice fall short
of the statutory requirement?
(iii) Can the delay in giving notice be condoned? (6 Marks)
(c) (i) The Companies Act, 2013 provides that the amount of dividend remained
unpaid/unclaimed on expiry of 30 days from the date of declaration of dividend shall
be transferred to unpaid dividend account within 7 days from the date of expiry of
such period of 30 days. If the expiry date of such 30 days is 30.10.2018, decide the
last date on or before which the unpaid/unclaimed dividend amount shall be
required to be transferred to a separate bank account in the light of the relevant
provisions of the General Clauses Act, 1897? (2 Marks)
(ii) Referring to the provisions of the General Clauses Act, 1897, find out the day/ date
on which the following Act/Regulation comes into force. Give reasons also,
(1) An Act of Parliament which has not specifically mentioned a particular date.
(2) The Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) (Fifth Amendment) Regulations, 2015 was issued by SEBI vide
Notification dated 14th August, 2015 with effect from 1st January, 2016.
(2 Marks)
(d) How will you understand whether a provision in a statute is 'mandatory' or 'directory'?
(3 Marks)
Answer
(a) Irregular allotment: The Companies Act, 2013 does not specifically provide for the term
“Irregular Allotment” of securities. Hence, we have to examine the requirements of a
proper issue of securities and consider the consequences of non- fulfillment of those
requirements.
In broad terms an allotment of shares is deemed to be irregular when it has been made
by a company in violation of Sections 23, 26, 39 or 40. Irregular allotment therefore
arises in the following instances:
1. Where a company does not issue a prospectus in a public issue as required by
section 23; or
2. Where the prospectus issued by the company does not include any of the matters
required to be included therein under section 26 (1), or the information given is
misleading, faulty and incorrect; or
3. Where the prospectus has not been filed with the Registrar for registration under
section 26 (4); or
4. The minimum subscription as specified in the prospectus has not been received in
terms of section 39; or
5. The minimum amount receivable on application is less than 5% of the nominal value
of the securities offered or lower than the amount prescribed by SEBI in this behalf; or
6. In case of a public issue, approval for listing has not been obtained from one or
more of the recognized stock exchanges under section 40 of the Companies Act,
2013.
(b) According to section 101(1) of the Companies Act, 2013, a general meeting of a
company may be called by giving not less than clear twenty-one days' notice either in
writing or through electronic mode in such manner as may be prescribed.
Also, it is to be noted that 21 clear days mean that the date on which notice is served
and the date of meeting are excluded for sending the notice.
Further, Rule 35(6) of the Companies (Incorporation) Rules, 2014, provides that in case
of delivery by post, such service shall be deemed to have been effected - in the case of a
notice of a meeting, at the expiration of forty eight hours after the letter containing the
same is posted.
Hence, in the given question:
(i) A 21 days’ clear notice must be given. In the given question, only 19 clear days’
notice is served (after excluding 48 hours from the time of its posting and the day of
sending and date of meeting). Therefore, the meeting was not validly called.
(ii) As explained in (i) above, notice falls short by 2 days.
(iii) The Companies Act, 2013 does not provide anything specific regarding the
condonation of delay in giving of notice. Hence, the delay in giving the notice calling
the meeting cannot be condoned.
(c) (i) Section 9 of the General Clauses Act, 1897 provides that, for computation of time,
in any legislation or regulation, it shall be sufficient, for the purpose of excluding the
first in a series of days or any other period of time to use the word “from” and for the
purpose of including the last in a series of days or any other period of time, to use
the word “to”.
As per the facts of the question the company shall transfer the unpaid/unclaimed
dividend to unpaid dividend account within the period of 7 days. 30 th October 2018
will be excluded and 6 th November 2018 shall be included, i.e. 31st October, 2018
to 6th November, 2018 (both days inclusive).
(ii) (1) According to section 5 of the General Clauses Act, 1897, where any Central
Act has not specifically mentioned a particular date to come into force, it
shall be implemented on the day on which it receives the assent of the
President in case of an Act of Parliament.
(2) If any specific date of enforcement is prescribed in the Official Gazette, the Act
shall come into enforcement from such date.
Thus, in the given question, the SEBI (Issue of Capital and Disclosure
Requirements) (Fifth Amendment) Regulations, 2015 shall come into
enforcement on 1st January, 2016 rather than the date of its notification in the
gazette.
(d) Practically speaking, the distinction between a provision which is ‘mandatory’ and one
which is ‘directory’ is that when it is mandatory, it must be strictly observed; when it is
‘directory’ it would be sufficient that it is substantially complied with. However, we have to
look into the substance and not merely the form; an enactment in mandatory form might
substantially be directory and, conversely, a statute in directory form may in substance
be mandatory. Hence, it is the substance that counts and m ust take precedence over
mere form. If a provision gives a power coupled with a duty, it is mandatory; whether it is
or is not so would depend on such consideration as:
(i) the nature of the thing empowered to be done,
(ii) the object for which it is done, and
(iii) the person for whose benefit the power is to be exercised.
Question 5
(a) A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited
liability company to impart class room teaching and aircraft flight training to trainee pilots.
It was decided to form a limited liability company for charitable purpose under Section 8
of the Companies Act, 2013 for a period of ten years and thereafter the club will be
dissolved and the surplus of assets over the liabilities, if any, will be distributed amongst
the members as a usual procedure allowed under the Companies Act.
Examine the feasibility of the proposal and advise the promoters considering the
provisions of the Companies Act, 2013. (5 Marks)
OR
Give the points of distinction between ordinary resolution and special resolution. (5 Marks)
(b) (i) Explain the provisions of the Companies Act, 2013 relating to quorum for general
meeting of a public company having total 30 members, of which, two members are
bodies corporate and one member is the President of India.
Whether the representatives appointed by body corporate and President of India to
participate in the general meeting shall be counted for quorum and can such
representatives cast vote at that general meeting? (3 Marks)
(ii) If a member of a listed company who has casted his vote through electronic voting
can attend general meeting of the company and change his vote subsequently and
can he appoint a proxy? (2 Marks)
(c) (i) "An agent is neither personally liable nor can he personally enforce the contract on
behalf of the principal." Comment.
(ii) What is the liability of a bailee making unauthorized use of goods bailed? (4 Marks)
(d) If it is defined as:
(i) "Company means a company incorporated under the Companies Act, 2013 or under
any previous company Law".
(ii) "Person" includes, _______ under the Consumer Protection Act,1986.
How would you interpret/construct the nature and scope of the above definitions?
(3 Marks)
Answer
(a) According to section 8(1) of the Companies Act, 2013, where it is proved to the
satisfaction of the Central Government that a person or an association of persons
proposed to be registered under this Act as a limited company—
(a) has in its objects the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such
other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members;
the Central Government may, by issue of licence, allow that person or association of
persons to be registered as a limited liability company.
In the instant case, the decision of the group of individuals to form a limited liability
company for charitable purpose under section 8 for a period of ten years and thereafter
to dissolve the club and to distribute the surplus of assets over the liabilities, if any,
amongst the members will not hold good, since there is a restriction as pointed out in
point (b) above regarding application of its profits or other income only in promoting its
objects. Further, there is restriction in the application of the surplus assets of such a
company in the event of winding up or dissolution of the company as provided in sub-
section (9) of Section 8 of the Companies Act, 2013. Therefore, the proposal is not
feasible.
OR
Difference between ordinary resolution and Special resolution
Ordinary Resolution—
Section 114(1) of the Companies Act, 2013 states that a resolution shall be ordinary
resolution, if the notice required under this Act has been duly given and it is required to
be passed by the votes cast, whether on a show of hands, or electronically or on a poll,
as the case may be, in favour of the resolution, including the casting vote of the
Chairman, if any, of the Chairman, by members, who, being entitled so to do, vote in
person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if
any cast against the resolution by members, so entitled and voting.
Simply put, the votes cast in the favour of the resolution, by any mode of voting should
exceed the votes cast against it.
Special Resolution—
As per Section 114(2) of the Act, a resolution shall be a special resolution, when–
(a) The intention to propose the resolution as a special resolution has been duly
specified in the notice calling the general meeting or other intimation given to the
members of the resolution;
(b) The notice required under this Act has been duly given; and
(c) The votes cast in favour of the resolution, whether on a show of hands, or
electronically or on a poll, as the case may be, in favour of the resolution, including
the casting vote of the Chairman, if any, of the Chairman, by members, who, being
entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal
ballot, are required to be not less than 3 times the number of the votes, if any, cast
against the resolution by members so entitled and voting.
(b) (i) According to section 103(1)(a)(i) of the Companies Act, 2013, unless the articles of
the company provide for a larger number, in case of public company, if the number
of members as on the date of meeting is not more than one thousand, five members
personally present shall be the quorum for a meeting of the company.In the instant
case, the quorum for the public company will be 5 members personally present.
In the said company, two members are bodies corporate and one member is the
President of India.
Only members present in person and not by proxy are to be counted. Hence,
proxies whether they are members or not will have to be excluded for the purposes
of quorum.
As per section 113 of the Companies Act, 2013, if a company is a member of
another company, it may authorize a person by resolution to act as its
representative at a meeting of the latter company, then such a person shall be
deemed to be a member present in person and counted for the purpose of quorum
and shall be entitled to vote.
As per section 112 of the Companies Act, 2013, the President of India, if he is a
member of a company, may appoint such a person as he thinks fit, to act as his
representative at any meeting of the company. A person so appointed shall be
deemed to be a member of such a company and thus considered as member
personally present and shall be entitled to vote.
(ii) According to Rule – 20(4)(iii)(C) of the Companies (Management and
Administration) Rules, 2014, the notice of the meeting shall clearly state that the
members who have cast their vote by remote e-voting prior to the meeting may also
attend the meeting but shall not be entitled to cast their vote again.
In the instant case, a member of a listed company who has casted his vote through
electronic voting can attend general meeting of the company but cannot c hange his
vote subsequently and is not permitted to appoint a proxy.
(c) (i) According to section 230 of the Indian Contract Act, 1872, in the absence of any
contract to that effect, an agent cannot personally enforce contracts entered into by
him on behalf of his principal, nor is he personally bound by them. Thus, an agent
cannot personally enforce, nor be bound by, contracts on behalf of principal.
Presumption of contract to the contrary: But, such a contract shall be presumed
to exist in the following cases:
(1) Where the contract is made by an agent for the sale or purchase of goods for a
merchant resident abroad/foreign principal;
(2) Where the agent does not disclose the name of his principal or undisclosed
principal; and
(3) Where the principal, though disclosed, cannot be sued.
(ii) Liability of bailee making unauthorised use of goods bailed: According to
section 154 of the Indian Contract Act, 1872, if the bailee makes any use of the
goods bailed, which is not according to the conditions of the bailment, he is liable to
make compensation to the bailor for any damage arising to the goods from or during
such use of them.
(d) Restrictive and extensive definitions: The definition of a word or expression in the
definition section may either be restricting of its ordinary meaning or may be extensive of
the same.
When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive
and exhaustive, we must restrict the meaning of the word to that given in the definition
section.
But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’
extensive: here the word defined is not restricted to the meaning assigned to it but has
extensive meaning which also includes the meaning assigned to it in the definiti on
section.
Thus,
(i) The definition is restrictive and exhaustive to the effect that only an entity
incorporated under the Companies Act, 2013 or under any previous Companies Act,
shall deemed to be company.
(ii) The definition is inclusive in nature, thereby the meaning assigned to the respective
word (here ‘person’) is extensive. It has a wider scope to include other terms into
the ambit of the definition having regard to the object of the definition.
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
Attempt any four questions out of the remaining five questions.
In case, any candidate answers extra question(s)/ sub-question(s) over and above the
required number, then only the requisite number of questions first answered in the answer
book shall be valued and subsequent extra question(s) answered shall be ignored.
Working notes should form part of the answer
Question 1
Answer the following:
(a) Following data is available for ABC Ltd.:
Standard working hours 8 hours per day of 5 days per
week
Maximum Capacity 60 employees
Actual working 50 employees
Actual hours expected to be worked per four week 8,000 hours
Standard hours expected to be earned per four week 9,600·hours
Actual hours worked in the four week period 7,500 hours
Standard hours earned in the four week period 8,800 hours
The related period is of four weeks. Calculate the following Ratios :

(i) Efficiency Ratio
(ii) Activity Ratio
(iii) Standard Capacity Usage Ratio
(iv) Actual Capacity Usage Ratio
(v) Actual Usage of Budgeted Capacity Ratio
(b) M/s Zeba Private Limited allotted a standard time of 40 hours for a job and the rate per
hour is ` 75. The actual time taken by a worker is 30 hours.
You are required to calculate the total earnings under the following plans:
(i) Halsey Premium Plan (Rate 50%)
(ii) Rowan Plan
(iii) Time Wage System
(iv) Piece Rate System
(v) Emerson Plan

(c) A Factory is engaged in the production of chemical Bomex and in the course of its
manufacture a by-product Cromex is produced which after further processing has a
commercial value. For the month of April 2019 the following are the summarised cost data:
Joint Expenses Separate Expenses
(` ) (` )
Bomex Cromex
Materials 1,00,000 6,000
4,000
Labour 50,000 20,000
18,000
Overheads 30,000 10,000
6,000
Selling Price per unit 100
40
Estimated profit per unit on sale of Cromex 5
Number of units produced 2,000 2,000
units units
The factory uses net realisable value method for apportionment of joint cost to
by-products.
You are required to prepare statements showing :
(i) Joint cost allocable to Cromex
(ii) Product wise and overall profitability of the factory for April 2019.
(d) M/s Abid Private Limited disclosed a net profit of ` 48,408 as per cost books for the year
ending 31st March 2019. However, financial accounts disclosed net loss of ` 15,000 for
the same period. On scrutinizing both the set of books of accounts, the following
information was revealed:
Works Overheads under-recovered in Cost Books 48,600
Office Overheads over-recovered in Cost Books 11,500
Dividend received on Shares 17,475
Interest on Fixed Deposits 21,650
Provision for doubtful debts 17,800
Obsolescence loss not charged in Cost Accounts 17,200
Stores adjustments (debited in Financial Accounts) 35,433
Depreciation charged in financial accounts 30,000
Depreciation recovered in Cost Books 35,000
Prepare a Memorandum Reconciliation Account.
(4 x 5 = 20 Marks)
PAPER – 3 : COST AND MANAGEMENT ACCOUNTING 51
Answer
(a) (i) Efficiency Ratio:
Standard Hrs 8,800 hours
= ×100 = ×100 = 117.33%
Actual Hrs 7,500 hours
(ii) Activity Ratio:

Standard Hrs 8,800 hours
= ×100 = ×100 = 110%
Budgeted Hrs 8,000 hours
(iii)Standard Capacity Usage Ratio:

Budgeted Hours
= ×100
Max. possible hours in the budgeted period
8,000 hours
= ×100 = 83.33%
9,600 hours
(iv) Actual Capacity Usage Ratio:

Actual Hours worked
= ×100
Max. possible working hours in a period
7,500 hours
= ×100 = 78.125%
9,600 hours
(v) Actual Usage of Budgeted Capacity Ratio:

Actual working Hours 7,500 hours
= ×100 = ×100 = 93.75%
Budgeted Hours 8,000 hours
Working Notes:
1. Maximum Capacity in a budget period
= 60 Employees × 8 Hrs. × 5 Days × 4 Weeks = 9,600 Hrs.
2. Budgeted Hours (Hrs)
= 50 Employees × 8 Hrs. × 5 Days × 4 Weeks = 8,000 Hrs.
3. Actual Hrs. = 7,500 Hrs. (given)
4. Standard Hrs. for Actual Output = 8,800 Hrs.
(b) (i) Halsey Premium plan:

1
= (Time taken×Rate per hour)+ ( ×Time saved×Rate per hour)
2
1
= (30hours×Rs.75)+ ( ×10hours×Rs.75)
2
= ` 2,250 + ` 375 = ` 2,625
(ii) Rowan Premium plan:
 Time saved 
= (Time taken×Rate per hour)+  ×Time taken×Rate per hour 
 Time allowed 
 10 
= (30hours× ` 75)+  ×30× ` 75 
 40 
= ` 2,250 + ` 562.5 = ` 2,812.5 or ` 2,813
(iii) Time wage system:
= Time taken × Rate per hour
= 30 × ` 75 = ` 2,250
(iv) Piece Rate System:
= Std. Time × Rate per hour
= 40 × ` 75 = ` 3,000
(v) Emerson plan:
Efficiency level = 40/30 = 133.33%
Time taken × (120% + 33.33%) of Rate
= 30 hours × 153.33% of ` 75
= ` 3,450
(c) (i) Statement Showing Joint Cost Allocation to ‘Cromex’
Particulars Cromex (`)
Sales (` 40 × 2,000 units) 80,000
Less: Post Split Off Costs (28,000)
(4,000+18,000+6,000)
Less: Estimated Profit (` 5 × 2,000 units) (10,000)
Joint cost allocable 42,000
(ii) Statement Showing Product Wise and Overall Profitability

Particulars Bomex (`) Cromex (`) Total (`)
Sales 2,00,000 80,000 2,80,000
Less: Share in Joint Expenses (1,38,000)* (42,000) (1,80,000)
Less: Post Split Off Costs (36,000) (28,000) (64,000)
Profit 26,000 10,000 36,000
(*) 1,80,000 – 42,000

(d) Memorandum Reconciliation Account
Dr. Cr.
Particulars (`) Particulars (`)
To Works overheads under 48,600 By Net profit as per 48,408
recovered in Cost Accounts Costing books
To Provision for doubtful debts 17,800 By Office overheads over 11,500
recovered in cost
accounts
To Obsolescence loss 17,200 By Dividend received on 17,475
shares
To Store adjustment (Debit) 35,433 By Interest on fixed deposit 21,650
By Depreciation over- 5,000
charged
By Net loss as per financial 15,000
accounts
1,19,033 1,19,033
[Note: This question may also be solved by taking net loss as per financial accounts as basis.]
Question 2
(a) M/s Areeba Private Limited has a normal production capacity of 36,000 units of toys per
annum. The estimated costs of production are as under:
(i) Direct Material ` 40 per unit
(ii) Direct Labour ` 30 per unit (subject to a minimum of ` 48,000 p.m.)
(iii) Factory Overheads:
(a) Fixed ` 3,60,000 per annum
(b) Variable ` 10 per unit
(c) Semi-variable ` 1,08,000 per annum up to 50% capacity and additional

` 46,800 for every 20% increase in capacity or any part
thereof.
(iv) Administrative Overheads ` 5, 18,400 per annum (fixed)
(v) Selling overheads are incurred at ` 8 per unit.
(vi) Each unit of raw material yields scrap which is sold at the rate of ` 5 per unit.
(vii) In year 2019, the factory worked at 50% capacity for the first three months but it
was expected that it would work at 80% capacity for the remaining nine months.
(viii) During the first three months, the selling price per unit was ` 145.
You are required to:
(i) Prepare a cost sheet showing Prime Cost, Works Cost, Cost of Production and Cost
of Sales.
(ii) Calculate the selling price per unit for remaining nine months to achieve the total
annual profit of ` 8,76,600. (10 Marks)
(b) KT Ltd. produces a product EMM which passes through two processes before it is
completed and transferred to finished stock. The following data relate to May 2019:
Particulars Process Finished stock
A B
(` ) (` ) (` )
Opening Stock 5,000 5,500 10,000
Direct Materials 9,000 9,500
Direct Wages 5,000 6,000
Factory Overheads 4,600 2,030
Closing Stock 2,000 2,490 5,000
Inter-process profit included in opening stock 1,000 4,000
Output of Process A is transferred to Process B at 25% profit on the transfer price and
output of Process B is transferred to finished stock at 20% profit on the transfer price.
Stock in process is valued at prime cost. Finished stock is valued at the price at which it
is received from Process B. Sales during the period are ` 75,000.
Prepare the Process cost accounts and Finished stock account showing the profit
element at each stage. (10 Marks)
Answer
(a) (i) Cost Sheet of M/s Areeba Pvt. Ltd. for the year 2019.
Normal Capacity: 36,000 units p.a.
3 Months 9 Months
Particulars 4,500 Units 21,600 units
Amount Cost per Amount Cost per
(`) unit (`) (`) unit (`)
Direct material 1,80,000 8,64,000
Less: Scrap (22,500) (1,08,000)
Materials consumed 1,57,500 35 7,56,000 35
Direct Wages 1,44,000 32 6,48,000 30
Prime Cost 3,01,500 67 14,04,000 65
Factory overheads:
- Fixed 90,000 2,70,000
- Variable 45,000 2,16,000
- Semi variable 27,000 36 1,51,200 29.50
Works Cost 4,63,500 103 20,41,200 94.50
Add: Administrative overheads 1,29,600 28.80 3,88,800 18
Cost of Production 5,93,100 131.80 24,30,000 112.5
Selling Overheads 36,000 8 1,72,800 8
Cost of Sales 6,29,100 139.80 26,02,800 120.5
Working Notes:
1. Calculation of Costs
Particulars 4,500 units 21,600 units
Amount (`) Amount (`)
Material 1,80,000 (` 40 × 4,500 units) 8,64,000 (`40 × 21,600 units)
Wages 1,44,000 (Max. of ` 30 × 4,500 6,48,000 (21600 Units×30)
units = `1,35,000 and ` 48,000
× 3 months = `1,44,000)
Variable Cost 45,000 (`10 × 4,500 units) 2,16,000 (`10 × 21,600 units)
Semi-variable ` 1,08,000 ` 1,08,000
27,000 ( ×3 Months ) 1,51,200[( ×9 Months )
Cost 12 Months 12 Months
+46,800(for 20 % increase)
+23,400(for 10% increase)
Selling 36,000 (`8 × 4,500 units) 1,72,800(` 8 × 21,600 units)
Overhead
Notes:
1. Alternatively scrap of raw material can also be reduced from Work cost.
2. Administrative overhead may be treated alternatively as a part of general overhead.
In that case, Works Cost as well as Cost of Production will be same i.e. ` 4,63,500
and Cost of Sales will remain same as ` 6,29,100.
(ii) Calculation of Selling price for nine months period
Particulars Amount (`)
Total Cost of sales ` (6,29,100+26,02,800) 32,31,900
Add: Desired profit 8,76,600
Total sales value 41,08,500
Less: Sales value realised in first three months (`145 × 4,500 units) (6,52,500)
Sales Value to be realised in next nine months 34,56,000
No. of units to be sold in next nine months 21,600
Selling price per unit (` 34,56,000 ÷ 21,600 units) 160
(b) Process-A A/c
Particulars Total Cost Profit Particulars Total Cost Profit
(`) (`) (`) (`) (`) (`)
Opening stock 5,000 5,000 _ Process B 28,800 21,600 7,200
A/c
Direct materials 9,000 9,000 _
Direct wages 5,000 5,000 _
19,000 19,000 _
Less: Closing (2,000) (2,000) _
stock
Prime Cost 17,000 17,000 _
Overheads 4,600 4,600 _
Process Cost 21,600 21,600 _
Profit (33.33% of 7,200 - 7,200

total cost)
28,800 21,600 7,200 28,800 21,600 7,200
Process-B A/c
(`) (`) (`) (`) (`) (`)
Opening stock 5,500 4,500 1,000 Finished stock 61,675 41,550 20,125
A/c
Process A A/c 28,800 21,600 7,200
Direct materials 9,500 9,500 _
Direct wages 6,000 6,000 _
49,800 41,600 8,200
Less: Closing stock (2,490) (2,080) (410)
Prime Cost 47,310 39,520 7,790
Overheads 2,030 2,030 _
Process Cost 49,340 41,550 7,790
Profit (25% of total 12,335 - 12,335
cost)
61,675 41,550 20,125 61,675 41,550 20,125
Finished Stock A/c

(`) (`) (`) (`) (`) (`)
Opening stock 10,000 6,000 4,000 Costing P&L A/c 75,000 44,181 30,819
Process B A/c 61,675 41,550 20,125
71,675 47,550 24,125
Less: Closing stock (5,000) (3,369) (1,631)
COGS 66,675 44,181 22,494
Profit 8,325 - 8,325
75,000 44,181 30,819 75,000 44,181 30,819
Question 3
(a) A gang of workers normally consists of 30 skilled workers, 15 semi-skilled workers and
10 unskilled workers. They are paid at standard rate per hour as under:
Skilled ` 70
Semi-skilled ` 65
Unskilled ` 50
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of
output. During the week ended 31 st March, 2019, the gang consisted of 40 skilled, 10
semi-skilled and 5 unskilled workers. The actual wages paid were at the rate of ` 75,
` 60 and ` 52 per hour respectively. Four hours were lost due to machine breakdown
and 1,600 units were produced.
Calculate the following variances showing clearly adverse (A) or favourable (F)
(i) Labour Cost Variance (ii) Labour Rate Variance
(iii) Labour Efficiency Variance (iv) Labour Mix Variance
(v) Labour Idle Time Variance (10 Marks)
(b) MNO Ltd. manufactures two types of equipment A and B and absorbs overheads on the
basis of direct labour hours. The budgeted overheads and direct labour hours for the
month of March 2019 are ` 15,00,000 and 25,000 hours respectively. The information
about the company's products is as follows:
Equipment
A B
Budgeted Production Volume 3,200 units 3,850 units
Direct Material Cost ` 350 per unit ` 400 per unit
Direct Labour Cost
A: 3 hours @ ` 120 per hour ` 360
B: 4 hours @ ` 120 per hour ` 480
Overheads of ` 15,00,000 can be identified with the following three major activities:
Order Processing: ` 3,00,000
Machine Processing: ` 10,00,000
Product Inspection: ` 2,00,000
These activities are driven by the number of orders processed, machine hours worked
and inspection hours respectively. The data relevant to these activities is as follows:
Orders processed Machine hours worked Inspection hours
A 400 22,500 5,000
B 200 27,500 15,000
Total 600 50,000 20,000
Required:
(i) Prepare a statement showing the manufacturing cost per unit of each product using
the absorption costing method assuming the budgeted manufacturing volume is
attained.
(ii) Determine cost driver rates and prepare a statement showing the manufacturing
cost per unit of each product using activity based costing, assuming the budgeted
manufacturing volume is attained.
(iii) MNO Ltd.'s selling prices are based heavily on cost. By using direct labour hours as
an application base, calculate the amount of cost distortion (under costed or over
costed) for each equipment. (10 Marks)
Answer
(a) (i) Labour Cost Variance = Standard Cost – Actual Cost
= `1,14,400 – `1,54,400
= 40,000 (A)
(1,600*75+400*60+200*52= `1,54,400)
Or
Types of workers Standard Cost – Actual Cost Amount (`)

Skilled Workers (30x40x70/2,000x1,600)- (40x40x75) 52,800 (A)
67,200-1,20,000
Semi- Skilled (15x40x65/2,000x1,600)- (10x40x60) 7,200 (F)
31,200-24,000
Un-Skilled Workers (10x40x50/2,000x1,600)- (5x40x52) 5,600 (F)
16,000-10,400
Total 1,14,400-1,54,400 40,000 (A)
(ii) Labour Rate Variance
Types of workers Actual Hours × (Standard Rate - Amount (`)
Actual Rate)
Skilled Workers 1,600 hours × (`70.00 – `75.00) 8,000 (A)
Semi- Skilled 400 hours × (`65.00 – `60.00) 2,000 (F)
Un-Skilled Workers 200 hours × (`50.00 – `52.00) 400 (A)
Total `8,000 (A) + `2,000 (F) + `400 (A) 6,400 (A)
(iii) Labour Efficiency Variance

Types of workers Standard Rate × (Standard Hours – Amount
Actual Hours) (`)
Skilled Workers `70.00 × (960 hours – 1,440 hours) 33,600 (A)
Semi- Skilled `65.00 × (480 hours – 360 hours) 7,800 (F)

Un-Skilled Workers `50.00 × (320 hours – 180 hours) 7,000 (F)
Total 33,600 (A) + 7,800 (F) + 7,000 (F) 18,800 (A)
Alternatively labour efficiency can be calculated on basis of labour hours paid
Types of workers Standard Rate × (Standard Hours – Amount
Actual Hours) (`)
Skilled Workers 70.00 × (960 hours – 1600 hours) 44,800 (A)
Semi- Skilled 65.00 × (480 hours – 400 hours) 5,200 (F)
Un-Skilled Workers 50.00 × (320 hours – 200 hours) 6,000 (F)
Total 33,600 (A) + 7,800 (F) + 7,000 (F) 33,600 (A)
(iv) Labour Mix Variance
= Total Actual Time Worked (hours) × {Average Standard
Rate per hour of Standard Gang Less Average Standard
Rate per hour of Actual Gang}
@ on the basis of hours worked
= 1,980 hours × 
`1,14,400 1,440hrs.×`70 + 360hrs.×`65 + 180hrs.×`50 
– 
 1,760 hrs. 1,980 hrs. 
= ` 4,500 (A)
Or
Labour Mix Variance
Types of workers Std. Rate  (Revised Actual Hours Worked- Amount (`)
Actual Hours Worked)
Skilled Workers `70 × (1,080 hrs. – 1440 hrs.) 25,200 (A)

Semi- Skilled `65 × (540 hrs. – 360 hrs.) 11,700 (F)
Un Skilled Workers `50 × (360 hrs. – 180 hrs.) 9,000 (F)
Total `25,200 (A) + `11,700 (F) + `9,000 (F) 4,500 (A)
(v) Labour Idle Time Variance

Types of workers Standard Rate × (Hours Paid – Hours Amount (`)
Worked)
Skilled Workers `70.00 × (1,600 hours – 1,440 hours) 11,200 (A)
Semi- Skilled `65.00 × (400 hours – 360 hours) 2,600 (A)

Un-Skilled Workers `50.00 × (200 hours – 180 hours) 1,000 (A)
Total 11,200 (A) + 2,600 (A) + 1,000 (A) 14,800 (A)
Verification:
Labour Cost Variance
= Labour Rate Variance + Labour Efficiency Variance + Labour Idle Time Variance
= 6,400 (A) + 18,800 (A) + 14,800 (A) = ` 40,000 (A)
Labour Cost Variance
= Labour Rate Variance + Labour Efficiency Variance
= 6400(A) + 33600(A)= `40000(A)
In this case, labour idle time variance is a part of labour efficiency variance.
Working Notes:
Category Standard Cost Actual (1600 units) Revised
Actual
Hrs. Rate Amt. (`) Hrs. Rate Amt. (`)
Hours
Skilled 960 70.00 67,200 1,440 1,08,000 1,080

(30Wx40x1,600/ 2, 000) (40Wx36) 75.00 (1,980x6/11)
Semi- 480 65.00 31,200 360 21,600 540

Skilled (15Wx40 x1,600/2,000) (10Wx36) 60.00 (1,980x3/11)
Unskilled 320 50.00 16,000 180 52.00 9,360 360

(10Wx40 x1,600/2,000) (5Wx36) (1,980x2/11)
Total 1,760 65 1,14,400 1,980 1,38,960 1,980
(b) (i) Overheads application base: Direct labour hours
Equipment Equipment
A (`) B (`)
Direct material cost 350 400
Direct labour cost 360 480
Overheads* 180 240

890 1120
Budgeted overheads ` 15,00,000
*Pre-determined rate = = = `60
Budgeted direct labour hours 25,000 hours
(ii) Estimation of Cost-Driver rate
Activity Overhead cost Cost-driver level Cost driver rate
(`) (`)
Order processing 600
3,00,000 Orders processed 500
Machine processing 50,000
10,00,000 Machine hours 20
Inspection 15,000
2,00,000 Inspection hours 10
Equipment Equipment
A (`) B (`)
Direct material cost 350 400
Direct labour cost 360 480
Prime Cost(A) 710 880
Overhead Cost
Order processing 400: 200 2,00,000 1,00,000
Machine processing 22,500: 27,500 4,50,000 5,50,000
Inspection 5,000: 15,000 50,000 1,50,000
Total overhead cost 7,00,000 8,00,000
(Overheads cost per unit for each overhead can also be calculated)
Per unit cost A (`) B (`)
7,00,000 /3,200 (B)-A 218.75
8,00,000/ 3,850 (B)-B 207.79
Unit manufacturing cost (A+B) 928.75 1,087.79
(iii) Calculation of Cost Distortion

Equipment Equipment
A (`) B (`)
Unit manufacturing cost–using direct labour
hours as an application base 890.00 1,120.00
Unit manufacturing cost-using activity based
costing 928.75 1,087.79
Cost distortion -38.75 32.21
Question 4
(a) X Ltd. distributes' its goods to a regional dealer using single lorry. The dealer premises
are 40 kms away by road. The capacity of the lorry is 10 tonnes. The lorry makes the
journey twice a day fully loaded on the outward journey and empty on return journey. The
following information is available:
Diesel Consumption 8 km per litre
Diesel Cost ` 60 per litre
Engine Oil ` 200 per week
Driver's Wages (fixed) ` 2,500 per week
Repairs ` 600 per week
Garage Rent ` 800 per week
Cost of Lorry (excluding cost of tyres) ` 9,50,000
Life of Lorry 1,60,000 kms
Insurance ` 18,200 per annum
Cost of Tyres ` 52,500
Life of Tyres 25,000 kms
Estimated sale value of the lorry at end of its life is ` 1,50,000
Vehicle License Cost ` 7,800 per annum
Other Overhead Cost ` 41,600 per annum
The lorry operates on a 5 day week.
Required:
(i) A statement to show the total cost of operating the vehicle for the four week period
analysed into Running cost and Fixed cost.
(ii) Calculate the vehicle operating cost per km and per tonne km. (Assume 52 weeks in
a year) (10 Marks)
(b) The following are the details of receipt and issue of material 'CXE' in a manufacturing Co.
during the month of April 2019:
Date Particulars Quantity Rate
(kg) per kg
April 4 Purchase 3,000 ` 16
April8 Issue 1,000
April15 Purchase 1,500 ` 18
April 20 Issue 1,200
April 25 Return to supplier out of purchase made on April 15 300
April 26 Issue 1,000
April 28 Purchase 500 ` 17
Opening stock as on 01-04-2019 is 1,000 kg @ ` 15 per kg.
On 30th April, 2019 it was found that 50 kg of material 'CXE' was fraudulently
misappropriated by the store assistant and never recovered by the Company.
Required:
(i) Prepare a store ledger account under each of the following method of pricing the
issue:
(a) Weighted Average Method
(b) LIFO
(ii) What would be the value of material consumed and value of closing stock as on
30-04-2019 as per these two methods? (10 Marks)
Answer
(a) Working Notes:
Particulars For 4 weeks For 1 week
(by dividing by 4)
Total distance travelled (40 k.m × 2 3,200 km 800 km
× 2 trips × 5 days × 4 weeks)
Total tonne km (40 k.m × 10 tonnes × 2 16,000 tonne km 4,000 tonne km
× 5 days × 4 weeks)
(i) Statement showing Operating Cost

Amount (`)
Particulars For 4 For 1 week
weeks (by dividing
by 4)
A. Fixed Charges:
Drivers’ wages (`2,500  4 weeks) 10,000 2,500
Garage rent (`800 × 4 weeks) 3,200 800
Insurance {(`18,200 ÷ 52 weeks) × 4 weeks} 1,400 350
Vehicle license {(`7,800 ÷ 52 weeks) × 4 600 150
weeks}
Other overheads cost {(`41,600 ÷ 52 weeks) × 3,200 800
4 weeks}
Total (A) 18,400 4,600
B. Running Cost:
Cost of diesel {(3,200 ÷ 8 kms) × `60} 24,000 6,000
Engine Oil (`200 × 4 weeks)* 800 200
Repairs (`600 × 4 weeks)* 2,400 600
Depreciation on vehicle 16,000 4,000
 `9,50,000 `1,50,000 
  3,200km 
 1,60,000km 
 `52,500  6,720 1,680
Depreciation on tyres   3,200km 
 25,000km 
Total (B) 49,920 12,480
C. Total Cost (A + B) 68,320 17,080
*Cost of engine oil & repairs may also be treated as fixed cost, as the question relates
these with time i.e. in weeks instead of running of vehicle.
(ii) Calculation of vehicle operating cost:
Operating cost per k.m. = ` 68,320 or ` 17,080 = ` 21.35
3,200 kms 800 Kms
Operating cost per Tonne-k.m. = ` 68,320 or ` 17,080 = ` 4.27
16,000 4,000
(b) (i) (a) Stores Ledger Account for the month of April, 2019 (Weighted Average
Method)
Receipt Issue Balance
Date Qty Rate Amount Qty Rate Amount Qty Rate Amount
Units (`) (`) Units (`) (`) Units (`) (`)
1-4-19 _ _ _ _ _ _ 1,000 15.00 15,000
4-4-19 3,000 16.00 48,000 _ _ _ 4,000 15.75 63,000
8-4-19 _ _ _ 1,000 15.75 15,750 3,000 15.75 47,250
15-4-19 1,500 18.00 27,000 _ _ _ 4,500 16.50 74,250
20-4-19 _ _ _ 1,200 16.50 19,800 3,300 16.50 54,450
25-4-19 _ _ _ 300 18.00 5,400 3,000 16.35 49,050
26-4-19 _ _ _ 1,000 16.35 16,350 2,000 16.35 32,700
28-4-19 500 17.00 8,500 _ _ _ 2,500 16.48 41,200
30-4-19 _ _ _ 50 16.48 824 2,450 16.48 40,376
(b) Stores Ledger Account for the month of April, 2019 (LIFO)
Receipt Issue Balance
Date Qty Rate Amount Qty Rate Amount Qty Rate Amount
Units (`) (`) Units (`) (`) Units (`) (`)
1-4-19 _ _ _ _ _ _ 1,000 15 15,000
4-4-19 3,000 16 48,000 _ _ _ 1,000 15 15,000
3,000 16 48,000
8-4-19 _ _ _ 1,000 16 16,000 1,000 15 15,000
2,000 16 32,000
15-4-19 1,500 18 27,000 _ _ _ 1,000 15 15,000
2,000 16 32,000
1,500 18 27,000
20-4-19 _ _ _ 1,200 18 21,600 1,000 15 15,000
2,000 16 32,000
300 18 5,400
25-4-19 _ _ _ 300 18 5,400 1,000 15 15,000
2,000 16 32,000
26-4-19 _ _ _ 1,000 16 16,000 1,000 15 15,000
1,000 16 16,000
28-4-19 500 17 8,500 _ _ _ 1,000 15 15,000
1,000 16 16,000
500 17 8,500
30-4-19 _ _ _ 50 17 850 1,000 15 15,000
1,000 16 16,000
450 17 7,650
(ii) Value of Material Consumed and Closing Stock

Weighted Average LIFO method
method (`) (`)
Opening stock as on 01-04-2019 15,000 15,000
Add: Purchases 83,500 83,500
98,500 98,500
Less: Return to supplier 5,400 5,400
Less: Abnormal loss 824 850
Less: Closing Stock as on 30-04-2019 40,376 38,650
Value of Material Consumed 51,900 53,600
Question 5
(a) M/s Gaurav Private Limited is manufacturing and selling two products:
'BLACK' and 'WHITE' at selling price of ` 20 and ` 30 respectively.
The following sales strategy has been outlined for the financial year 2019-20:
(i) Sales planned for the year will be ` 81,00,000 in the case of 'BLACK' and
` 54,00,000 in the case of 'WHITE'.
(ii) The selling price of 'BLACK' will be reduced by 10% and that of 'WHITE' by 20%.
(iii) Break-even is planned at 70% of the total sales of each product.
(iv) Profit for the year to be maintained at ` 8,26,200 in the case of 'BLACK' and
` 7,45,200 in the case of 'WHITE'. This would be possible by reducing the present
annual fixed cost of ` 42,00,000 allocated as ` 22,00,000 to 'BLACK' and
` 20,00,000 to 'WHITE'.
You are required to calculate:
(1) Number of units to be sold of 'BLACK' and 'WHITE' to Break even during the
financial year 2019-20.
(2) Amount of reduction in fixed cost product-wise to achieve desired profit mentioned
at (iv) above. (5 Marks)
(b) M/s Zaina Private Limited has purchased a machine costing ` 29,14,800 and it is
expected to have a salvage value of ` 1,50,000 at the end of its effective life of 15 years.
Ordinarily the machine is expected to run for 4,500 hours per annum but it is estimated
that 300 hours per annum will be lost for normal repair & maintenance. The other details
in respect of the machine are as follows :
(i) Repair & Maintenance during the whole life of the machine are expected to be
` 5,40,000.
(ii) Insurance premium (per annum) 2% of the cost of the machine.
(iii) Oil and Lubricants required for operating the machine (per annum) ` 87,384.
(iv) Power consumptions: 10 units per hour @ ` 7 per unit. No power consumption
during repair and maintenance. ·
(v) Salary to operator per month ` 24,000. The operator devotes one third of his time to
the machine.
You are required to calculate comprehensive machine hour rate. (5 Marks)
(c) A contractor prepares his accounts for the year ending 31 st March each year. He
commenced a contract on 1 st September, 2018. The following information relates to
contract as on 31st March, 2019:
Material sent to site ` 18,75,000
Wages paid ` 9,28,500
Wages outstanding at end ` 84,800
Sundry expenses ` 33,825
Material returned to supplier ` 15,000
Plant purchased ` 3,75,000
Salary of supervisor ` 15,000 per month
(Devotes 1/3rd of his time on contract)
Material at site as on 31-03-2019 ` 2,16,800
Some of material costing ` 10,000 was found unsuitable and was sold for ` 11,200. On
31-12-2018 plant which costs ` 25,000 was transferred to some other contract and on
31-01-2019 plant which costs ` 32,000 was returned to stores. The plant is subject to
annual depreciation @ 15% on written down value method.
The contract price is ` 45,00,000. On 31st March, 2019 two-third-of the contract was
completed. The architect issued certificate covering 50% of the contract price.
Prepare Contract A/c and show the notional profit or loss as on 31st March, 2019.
(10 Marks)
Answer
(a) (i) Statement showing Break Even Sales
Particulars Black White
Sales Planned 81,00,000 54,00,000
Selling Price (`) 18 24
Number of Units to be sold 4,50,000 2,25,000
Break Even sales (in Units),70% of total sales 3,15,000 1,57,500
Or
Break Even sales (in `),70% of total sales 56,70,000 37,80,000
(ii) Statement Showing Fixed Cost Reduction
Profit to be maintained (`) 8,26,200 7,45,200
Margin of Safety (70% of Sales) (`) 24,30,000 16,20,000
PVR (Profit/ Margin of Safety) x 100 34% 46%
Contribution (Sales x 34% or 46%) (`) 27,54,000 24,84,000
Less: Profit (`) 8,26,200 7,45,200
Revised Fixed Cost (`) 19,27,800 17,38,800
Present Fixed Cost (`) 22,00,000 20,00,000
Reduction in Fixed Cost 2,72,200 2,61,200
(b) Effective machine hour = 4,500 – 300 = 4,200 hours
Calculation of Comprehensive machine hour rate
Elements of Cost and Revenue Amount (`) Per

Annum
Repair and Maintenance 36,000
(`5,40,000 ÷15 years)
Power (4,200 hours × 10 units × `7) 2,94,000
 `29,14,800 - `1,50,000  1,84,320
Depreciation  
 15 years 
Insurance (`29,14,800 × 2%) 58,296
Oil and Lubricant 87,384
Salary to Operator {(`24,000×12)/3} 96,000
Total Cost 7,56,000

Effective machine hour 4,200
Total Machine Rate Per Hour 180
(c) Contract Account as on 31-03-2019

Particulars (` ) Particulars (` )
To Materials sent to site 18,75,000 By Material returned to 15,000
Supplier
To Wages paid 9,28,500 By Material sold 11,200
Add: Outstanding 84,800 10,13,300 By Plant transferred to 23,750
other contract
To Plant purchased 3,75,000 By Plant returned to 30,000
stores
To Sundry Expenses 33,825 By Plant at site c/d 2,90,175
To Salary of Supervisor 35,000 By Material at site c/d 2,16,800
{1/3rd (`15,000 × 7 month)}
To Costing P & L A/c 1,200 By Works Cost 27,46,400
(’11,200-10,000)
33,33,325 33,33,325
To Works Cost 27,46,400 By Work-in-progress c/d 22,50,000
Work certified
By Work uncertified 6,86,600
To Notional profit (Profit 1,90,200
for the year)
29,36,600 29,36,600
Working Notes:
1. Value of plant transferred to other contract:
` 25,000 less Depreciation for 4 months
= ` 25,000-(` 25,000×15%×4/12) = ` 23,750
2. Value of plant returned to stores:
` 32,000 less Depreciation for 5 months
= ` 32,000-(` 32,000×15%×5/12) = ` 30,000
3. Value for work uncertified:
The cost of 2/3rd of the contract is `27,46,400

` 27,46,400
 Cost of 100% " " " " ×3 = `41,19,600
2
Cost of 50% of the contract which has been certified by the architect is
` 41,19,600 /2= ` 20,59,800. Also, the cost of 1/3 rd of the contract, which has been
completed but not certified by the architect is ` (27,46,400- 20,59,800) = `
6,86,600/-
Question 6
Answer any four of the following:
(a) Differentiate between cost control and cost reduction.
(b) What are the cases when a flexible budget is found suitable?
(c) Explain integrated accounting system and state its advantages.
(d) Explain Direct Expenses and how these are measured and their treatment in cost
accounting.
(e) What are the limitations of marginal costing? (4 x 5 = 20 Marks)
Answer
(a) Difference between Cost Control and Cost Reduction
Cost Control Cost Reduction
1. Cost control aims at maintaining 1. Cost reduction is concerned with
the costs in accordance with the reducing costs. It challenges all
established standards. standards and endeavours to better
them continuously.
2. Cost control seeks to attain 2. Cost reduction recognises no condition
lowest possible cost under as permanent, since a change will
existing conditions. result in lower cost.
3. In case of Cost Control, 3. In case of cost reduction it is on
emphasis is on past and present and future.
present.
4. Cost Control is a preventive 4. Cost reduction is a corrective
function. function. It operates even when an
efficient cost control system exists.
5. Cost control ends when targets 5. Cost reduction has no visible end.
are achieved.
(b) Flexible budgeting may be resorted to under following situations:

(i) In the case of new business venture due to its typical nature it may be difficult to
forecast the demand of a product accurately.
(ii) Where the business is dependent upon the mercy of nature e.g., a person dealing in
wool trade may have enough market if temperature goes below the freezing point.
(iii) In the case of labour-intensive industry where the production of the concern is
dependent upon the availability of labour.
Suitability for flexible budget:
1. Seasonal fluctuations in sales and/or production, for example in soft drinks
industry;
2. a company which keeps on introducing new products or makes changes in the
design of its products frequently;
3. industries engaged in make-to-order business like ship building;
4. an industry which is influenced by changes in fashion; and
5. General changes in sales.
(c) Integrated Accounting System: Integrated Accounts is the name given to a system of
accounting, whereby cost and financial accounts are kept in the same set of books.
Obviously, then there will be no separate sets of books for Costing and Financial records.
Integrated accounts provide or meet out fully the information requirement for Costing a s
well as for Financial Accounts. For Costing it provides information useful for ascertaining
the cost of each product, job, and process, operation of any other identifiable activity and
for carrying necessary analysis. Integrated accounts provide relevant information which
is necessary for preparing profit and loss account and the balance sheets as per the
requirement of law and also helps in exercising effective control over the liabilities and
assets of its business.
Advantages of Integrated Accounting System
The main advantages of Integrated Accounts are as follows:
(i) No need for Reconciliation - The question of reconciling costing profit and finan-
cial profit does not arise, as there is only one figure of profit.
(ii) Less efforts - Due to use of one set of books, there is a significant saving in efforts
made.
(iii) Less time consuming - No delay is caused in obtaining information as it is
provided from books of original entry.
(iv) Economical process - It is economical also as it is based on the concept of
“Centralisation of Accounting function”.
(d) Direct Expense: Expenses other than direct material cost and direct employee cost,
which are incurred to manufacture a product or for provision of service and can be
directly traced in an economically feasible manner to a cost object. The following costs
are examples for direct expenses:
(i) Royalty paid/ payable for production or provision of service;
(ii) Hire charges paid for hiring specific equipment;
(iii) Cost for product/ service specific design or drawing;
(iv) Cost of product/ service specific software;
(v) Other expenses which are directly related with the production of goods or provision
of service.
The above list of expenses is not exhaustive; any other expenses which are directly
attributable to the production or service are also included as direct expenses.
Measurement of Direct Expenses
The direct expenses are measured at invoice or agreed price net of rebate or discount
but includes duties and taxes (for which input credit not available), commission and other
directly attributable costs.
In case of sub-contracting, where goods are get manufactured by job workers
independent of the principal entity, are measured at agreed price. Where the principal
supplies some materials to the job workers, the value of such materials and other
incidental expenses are added with the job charges paid to the job workers.
Treatment of Direct Expenses
Direct Expenses forms part the prime cost for the product or service to which it can be
directly traceable and attributable. In case of lump-sum payment or one time payment,
the cost is amortised over the estimated production volume or benefit derived. If the
expenses incurred are of insignificant amount i.e. not material, it can be treated as part of
overheads.
(e) Limitations of Marginal Costing
(i) Difficulty in classifying fixed and variable elements: It is difficult to classify
exactly the expenses into fixed and variable category. Most of the expenses are
neither totally variable nor wholly fixed. For example, various amenities provided to
workers may have no relation either to volume of production or time factor.
(ii) Dependence on key factors: Contribution of a product itself is not a guide for
optimum profitability unless it is linked with the key factor.
(iii) Scope for Low Profitability: Sales staff may mistake marginal cost for total cost
and sell at a price; which will result in loss or low profits. Hence, sales staff should
be cautioned while giving marginal cost.
(iv) Faulty valuation: Overheads of fixed nature cannot altogether be excluded

particularly in large contracts, while valuing the work-in- progress. In order to show
the correct position fixed overheads have to be included in work-in-progress.
(v) Unpredictable nature of Cost: Some of the assumptions regarding the behaviour
of various costs are not necessarily true in a realistic situation. For example, the
assumption that fixed cost will remain static throughout is not correct. Fixed cost
may change from one period to another. For example, salaries bill may go up
because of annual increments or due to change in pay rate etc. The variable costs
do not remain constant per unit of output. There may be changes in the prices of
raw materials, wage rates etc. after a certain level of output has been reached due
to shortage of material, shortage of skilled labour, concessions of bulk purchases
etc.
(vi) Marginal costing ignores time factor and investment: The marginal cost of two
jobs may be the same but the time taken for their completion and the cost of
machines used may differ. The true cost of a job which takes longer time and uses
costlier machine would be higher. This fact is not disclosed by marginal costing.
(vii) Understating of W-I-P: Under marginal costing stocks and work in progress are
understated.
PAPER – 4 : TAXATION
SECTION A : INCOME TAX LAW
Part - II
Question No.1 is compulsory.
Candidates are also required to answer any two questions from the remaining three
questions.
Working notes should form part of the respective answers.
All questions relate to assessment year 2019-20, unless otherwise stated.
Question 1
From the following particulars of Shri Jagdish (aged 59 years) for the Assessment Year
2019-20, you are required to find out his taxable income and net tax liability :
(i) Basic Salary @ ` 51,000 per month, Dearness allowance @ ` 10,000 per month (Part of
salary for retirement benefits), House rent allowance ` 4,000 per month and rent paid for
house in Mumbai is ` 7 ,000 per month.
(ii) He owns a commercial building at New Delhi, which is let out on 1/7/2018 at a monthly rent
of ` 46,000. He paid municipal taxes of ` 27,000 and ` 25,000 for the financial year 2017-
18 and 2018-19 on 31-3-2019 and 20-4-2019, respectively.
(iii) He deals in shares. During financial year 2018-19, he earned ` 1,70,000 from his share
business and paid ` 30,000 as securities transaction tax.
(iv) He purchased 4000 unlisted shares of Shyam Limited on 16-1-2008 for ` 80,000. Company
declared bonus in the ratio of 1:1 on 1st February, 2008. Shri Jagdish sold 3000 Bonus
Shares on 28/12/2018 for ` 2,00,000 to his friend Mr. Mehul through unrecognized stock
exchange. (Cost Inflation Index: 2007-08: 129, 2018-19: 280)
(v) He received dividend of ` 13,00,000 as dividend income from listed domestic company (on
which dividend distribution tax is paid) Interest from saving bank account deposits with
IDBI Bank ` 15,000 and lottery winnings (Net of TDS@30%) is ` 21,000.
He paid the following amount out of his taxable income:
(a) Deposits in Public Provident Fund ` 2,00,000.
(b) Medical insurance 'premium paid for health of his wife ` 19,000 and for health of dependent
son ` 12,000 through cheque. (14 Marks)
The Suggested Answers for Paper 4A: Income-tax law are based on the provisions of income-
tax law as amended by the Finance Act, 2018. The relevant assessment year is A.Y.2019-20.
Answer
Computation of Taxable Income of Mr. Jagdish for the A.Y.2019-20
Particulars ` `
Salaries
Basic Salary = ` 51,000 x 12 6,12,000
Dearness Allowance (DA) = ` 10,000 x 12 1,20,000
House Rent Allowance (HRA) = ` 4,000 x 12 ` 48,000
Less: Least of the following exempt u/s 10(13A) ` 10,800
37,200
(i) HRA actually received = ` 4,000 x 12 = ` 48,000
(ii) Rent paid (-) 10% of salary [` 84,000 (i.e., ` 7,000 x 12)
(-) ` 73,200 (10% of salary i.e., 10% of ` 7,32,000 (Basic
Salary + DA)] = ` 10,800
(iii) 50% of salary [50% of ` 7,32,000 (Basic Salary + DA)] =
` 3,66,000
Gross Salary 7,69,200
Less: Standard deduction u/s 16(ia) 40,000
7,29,200
Income from house property
Gross Annual Value [` 46,000 x 9]1 4,14,000
Less: Municipal tax paid during the P.Y. 2018-19 27,000
Net Annual Value 3,87,000
Less: Deduction u/s 24 [30% of Net Annual Value] 1,16,100
2,70,900
Profits and gains of business or profession
Profits from share business 1,70,000
Less: Securities transaction tax paid deductible u/s 36(1)(xv) 30,000
1,40,000
1 In the absence of information relating to fair rent, the GAV in the above solution has been worked out on the assumption
that the actual rent for 9 months exceeds the fair rent for the whole year. In the alternative, it is possible to assume that the
fair rent is equal to actual rent. In such a case, GAV would be ` 5,52,000 i.e., ` 46,000 x 12, being fair rent for the whole
year. The income from house property would be ` 3,67,500. The gross total income and total income would, accordingly,
change to ` 17,81,700 and ` 15,96,700 respectively. The tax payable would be ` 2,10,970.
PAPER – 4 : TAXATION 77
Particulars ` `
Capital Gains
Full value of consideration 2,00,000
Less: Cost of acquisition of bonus shares allotted on or after Nil
1.4.2001
Long-term capital gains (since bonus shares are held for a 2,00,000
period of more than 24 months)
Income from Other Sources
Dividend received from domestic company 13,00,000
Less: Exempt under section 10(34) 10,00,000
Dividend in excess of ` 10 lakh chargeable to tax u/s 3,00,000
115BBDA@10%
Interest from saving bank account deposits with IDBI Bank 15,000
Lottery winnings [21,000 x 100/70] 30,000
3,45,000
Gross Total Income 16,85,100
Less: Deduction under Chapter VI-A
Section 80C
Deposits in PPF ` 2,00,000
Restricted to ` 1,50,000, being the maximum allowable deduction 1,50,000
Section 80D
Medical insurance premium for wife and dependent son ` 25,000
31,000, restricted to
Section 80TTA
Interest on saving bank account deposit 10,000 1,85,000
Total Income 15,00,100
Computation of tax liability of Mr. Jagdish for A.Y. 2019-20
Particulars ` `
Tax on total income of ` 15,00,100
Tax on long-term capital gains of ` 2,00,000@20% u/s 112 40,000
Tax on lottery income of ` 30,000 @30% u/s 115BB 9,000
Tax on dividend income of ` 3,00,000@10% u/s 115BBDA 30,000
Tax on other income of ` 9,70,100 [` 15,00,100 – ` 2,00,000, capital

gains – ` 30,000, lottery income – ` 3,00,000, dividend income]
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 [i.e., ` 2,50,000@5%] 12,500
` 5,00,001 – ` 9,70,100 [i.e., ` 4,70,100@20%] 94,020
1,85,520
Add: Health and education cess@4% 7,421
Tax liability 1,92,941
Less: Tax deducted at source 2
TDS on lottery income 9,000
Tax Payable 1,83,941
Tax Payable (rounded off) 1,83,940
Question 2
(a) The following are the incomes of Shri Subhash Chandra, a citizen of India, for the previous
year 2018-19 :
(i) Income from business in India ` 2,00,000. The business is controlled from London
and ` 60,000 were remitted to London.
(ii) Profits from business earned in Japan ` 70,000 of which ` 20,000 were received in
India. This business is controlled from India.
(iii) Untaxed income of ` 1,30,000 for the year 2016-17 of a business in England which
was brought in India on 3 rd March, 2019.
(iv) Royalty of ` 4,00,000 received from Shri Ramesh, a resident, for technical service
provided to run a business outside India.
(v) Agricultural income of ` 90,000 in Bhutan.
(vi) Income of ` 73,000 from house property in Dubai, which was deposited in bank at
Dubai.
Compute Gross Total Income of Shri Subhash Chandra for the A.Y. 2019-20, if he is -
(1) A Resident and Ordinarily Resident; and
(2) A Resident but Not Ordinarily Resident (7 Marks)
2 It is presumed that commercial building is let out to an individual/HUF whose turnover does not exceed limit specified in
section 44AB during the immediately preceding F.Y. Hence, TDS u/s 194-I is not attracted. Also, TDS u/s 194-IB is not
attracted since monthly rent does not exceed ` 50,000.
(b) Examine the TDS implications in the following cases along-with reasons thereof:
(i) Ms. Varsha received a sum of ` 95,000 on 31st December 2018 towards maturity
proceeds of LIC taken on 1 st October 2013 for which sum assured was ` 80,000. and
annual premium was ` 10,000.
(ii) Mr. Deepak transferred a residential house property to Mr. Karan for ` 45 lacs. The
stamp duty value of such property is ` 55 lacs.
(iii) XYZ Private Limited pays the following amounts to Mr. Narayan during previous year
2018-19 :
(1) ` 22,000 towards fee for professional services
(2) ` 18,000 towards royalty.
(iv) Payment of ` 1,75,000 made to Mr. Vaibhav for purchase of calendar according to
specifications of M/s. ABC Limited. However, no material was supplied for such
calendar by ABC Limited to Mr. Vaibhav.
(v) Talent Private Limited pays ` 12,000 to Ms. Sudha, its director, towards sitting fee
which is not taxable u/s 192.
(vi) Radha Limited is engaged for Shyam Limited only in the business of operation of call
centre. On 18-03-2019, the total amount credited by Shyam Limited in the ledger
account of Radha Limited is ` 70,000 regarding service charges of call centre. The
amount is paid through cheque on 28/03/2019 by Shyam Limited. (7 Marks)
Answer
(a) Computation of Gross Total Income of Shri Subhash Chandra for the A.Y. 2019-20
Resident and Resident but
Ordinarily Not Ordinarily
Particulars Resident Resident
[ROR] [RNOR]
(`) (`)
(i) Income from business in India, 2,00,000 2,00,000
controlled from London
[Taxable both in the hands ROR and
RNOR, since income accrues/arises from
business in India, irrespective of the fact
that business is controlled from London]
(ii) Profits earned from business in Japan 70,000 70,000
[Profits from business in Japan is taxable
in the hands of ROR, since global income
is taxable in the hands of ROR. Moreover,
entire profit of ` 70,000 would be taxable
in the hands of RNOR, even if only
` 20,000 is received in India, since the
business in Japan is controlled from India]
(iii) Untaxed income for the year 2016-17 of Nil Nil

a business in England which was
brought in India during the P.Y. 2018-19
[Not taxable either in the hands of ROR or
RNOR, since such income is not related to
the P.Y. 2018-19.]
(iv) Royalty received from a resident for 4,00,000 Nil
technical service provided to run a
business outside India
[Taxable in the hands of ROR, since global
income is taxable in the hands of ROR. Not
taxable in the hands RNOR, since royalty
income is not deemed to accrue or arise in
India as such income is paid by a resident
for technical services used to run a
business outside India.]
(v) Agricultural Income in Bhutan 3 90,000 Nil
[Since agricultural income accrues/arises
outside India, it is taxable only in the hands
of ROR. No exemption is available in
respect of agricultural income earned
outside India]
(vi) Income from house property in Dubai,
which was deposited in a bank at Dubai
Since income accrues/arises
outside India and is also
received outside India, it is 73,000
taxable only in the hands of
ROR
21,900
Less: Deduction u/s 24@30% 51,100 Nil
[See Note below for alternative treatment]
Gross Total Income 8,11,100 2,70,000
Note – In the above solution, income of ` 73,000 from house property in Dubai is
presumed to be the rent received, since the said amount is stated to be the amount
deposited in bank. Accordingly, deduction@30% of the said amount has been provided
to compute the “Income from house property”, where Shri Subhash Chandra is a ROR.
3 Presumed that the same was received in Bhutan

However, since the words “Income from house property” appears to indicate that the same
is the income computed under that head of income, it is possible to consider the said amount
of ` 73,000 as income computed under the head “Income from house property” after
providing deduction@30% under section 24(a). In such a case, the gross total income of Shri
Subhash Chandra, if he were a ROR, would be ` 8,33,000.
(b) TDS implications
(i) On payment of LIC maturity proceeds - The annual premium exceeds 10% of sum
assured in respect of a policy taken after 31.3.2012, and consequently, the maturity
proceeds of ` 95,000 would not be exempt u/s 10(10D) in the hands of Ms. Varsha.
However, tax deduction provisions u/s 194-DA are not attracted since the maturity
proceeds are less than ` 1 lakh.
(ii) On payment of sale consideration for purchase of residential house property
- Since the sale consideration of house property is less than ` 50 lakhs, Mr. Karan
is not required to deduct tax at source u/s 194-IA, irrespective of the fact that the
stamp duty value is more than the sale consideration as well as the threshold limit
of ` 50 lakhs.
(iii) On payment of fee for professional services and royalty – Under section 194J,
the threshold limit of ` 30,000 is specified separately for, inter alia, fees for
professional services and royalty. Therefore, XYZ Private Limited is not required to
deduct tax at source under section 194J either on fee of ` 22,000 for professional
services or on royalty of ` 18,000 paid to Mr. Narayan, since the payment under
each category does not exceed the independent threshold ` 30,000 specified
thereunder.
(iv) On payment for purchase of calendar according to specifications - As per
section 194C, the definition of “work” does not include the manufacturing or supply
of product according to the specification by customer in case the material is
purchased from a person other than the customer.
Therefore, M/s ABC Limited is not required to deduct tax at source in respect of
payment of ` 1,75,000 to Mr. Vaibhav, for purchase of calendar according to its
specifications, since it did not supply the material for such calendar. Hence, the
contract is a contract for ‘sale’ and not a works contract.
(v) On payment of sitting fees to the director - Talent Private Limited is required to
deduct tax at source @10% on sitting fees of ` 12,000 paid to its director, since the
threshold limit of ` 30,000 u/s 194J is not applicable in respect of fees paid to a
director of a company.
(vi) On payment of call centre service charges - Since Radha Limited is engaged only
in the business of operation of call centre, Shyam Limited is required deduct tax at
source@2% on the amount of ` 70,000 u/s 194J on 18.3.2019 i.e., at the time of credit
of call centre service charges to the account of Radha Limited, since the said date is
earlier than the payment date i.e., 28.3.2019.
Question 3
(a) Mr. Madhvan is a finance manager in Star Private Limited. He gets a salary of ` 30,000
per month. He owns two houses, one of which has been let out to his employer and which
is in tum provided to him as rent free accommodation. Following details (annual) are
furnished in respect of two house properties for the Financial Year 2018-19.
House 1 House 2
Fair rent 75,000 1,95,000
Actual rent 65,000 2,85,000
Municipal Valuation 74,000 1,90,000
Municipal taxes paid 18,000 70,000
Repairs 15,000 35,000
Insurance premium on building 12,000 17,000
Ground rent 7,000 9,000
Nature of occupation Let-out to Let-out to
Star Private Limited Ms. Puja
` 17,000 were paid as interest on loan taken by mortgaging House 1 for construction of
House 2.
During the previous year 2018-19, Mr. Madhvan purchased a rural agricultural land for
` 2,50,000. Stamp valuation of such property is ` 3,00,000.
Determine the taxable income of Mr. Madhvan for the assessment year 2019-20. All
workings should form part of your answer. (8 Marks)
(b) Mr. Roy owned a residential house in Noida. It was acquired on 09.09.2009 for
` 30,00,000. He sold it for ` 1,57,00,000 on 07.01.2016.
Mr. Roy utilized the sale proceeds of the above property to acquire a residential house in
Panchkula for ` 2,05,00,000 on 20.07.2016. The said house property was sold on
31.10.2018 and he purchased another residential house in Delhi for ` 2,57,00,000 on
02.03.2019. The property at Panchkula was sold for ` 3,25,00,000.
Calculate capital gains chargeable to tax for the assessment year 2016-17 and 2019-20.
All workings should form part of your answer: Cost inflation index for various financial years
are as under :
2009-10 - 148
2015-16 - 254
2016-17 - 264
2018-19 - 280 (6 Marks)
Answer
(a) Computation of taxable income of Mr. Madhvan for A.Y. 2019-20
Particulars ` ` `
Salaries
Basic Salary = ` 30,000 x 12 3,60,000
Rent free accommodation 54,000
[Lower of lease rental paid or payable by the
employer (or) 15% of salary i.e., lower of ` 65,000
or ` 54,000, being 15% of ` 3,60,000]
Gross Salary 4,14,000
Less: Standard deduction u/s 16(ia)
[Actual salary or ` 40,000, whichever is less] 40,000
Net Salary 3,74,000
Income from house property House 1 House 2
Municipal value (A) 74,000 1,90,000
Fair rent (B) 75,000 1,95,000
Higher of (A) and (B) = (C) 75,000 1,95,000
Actual rent received 65,000 2,85,000
Gross Annual Value 75,000 2,85,000
[Higher of (C) and Actual rent]
Less: Municipal tax paid 18,000 70,000
Net Annual Value (NAV) 57,000 2,15,000
Less: Deductions u/s 24
30% of NAV 17,100 64,500
Interest on loan Nil 17,000
39,900 1,33,500
Income from house property 1,73,400
[` 39,900 + ` 1,33,500]
Purchase of rural agricultural land for a
consideration less than stamp duty value [Not
taxable under section 56(2)(x), since rural
agricultural land is not a capital asset] Nil
Note - Expenditure on repairs, insurance premium on building and ground rent are
not allowable under the head “Income from house property.”
(b) Computation of capital gains chargeable to tax for A.Y. 2016-17

Particulars `
Full value of consideration received on sale of residential house in Noida 1,57,00,000
Less: Indexed cost of acquisition [` 30,00,000 x 254/148] 51,48,649
Long-term capital gain 1,05,51,351
Less: Exemption under section 54
Purchase of new residential house property at Panchkula for
` 2,05,00,000 on 20.7.2016 i.e., within two years from the date of
transfer of residential house in Noida; exemption restricted to long term
capital gain, since cost of new house exceeds long-term capital gain 1,05,51,351
Taxable long term capital gain Nil
Computation of capital gains chargeable to tax for A.Y. 2019-20
Particulars `
Full value of consideration received on sale of residential house at 3,25,00,000
Panchkula
Less: Indexed cost of acquisition [As per section 54, if the new
residential house purchased (i.e., on 20.7.2016, in this case) is
transferred within 3 years of its purchase (i.e., on 31.10.2018, in this
case), and the cost of acquisition of the new house (i.e.,
` 2,05,00,000) is higher than the long-term capital gain (i.e.,
` 1,05,51,351,) then, the cost of acquisition of such new residential
house shall be reduced by long term capital gain exempted earlier,
while computing capital gains on sale of the new residential house]
[` 99,48,649 (` 2,05,00,000 – ` 1,05,51,351) x 280/264] 1,05,51,597
Long-term capital gain [Since the residential house is held for more
than 24 months] 2,19,48,403
Less: Exemption under section 54
Purchase of new residential house property in Delhi for `
2,57,00,000 on 2.3.2019 i.e., within two years from 31.10.2018,
being the date of transfer of residential house at Panchkula;
exemption restricted to long term capital gain, since cost of new
house exceeds long-term capital gains 2,19,48,403
Taxable long term capital gain Nil
Question 4
(a) Ms. Geeta, a resident individual, provides the following details of her income/losses for the
year ended 31.03.2019:
Particulars Amount
(` )
(i) Income from salary (computed) 41,20,000
(ii) Rent received from house property situated in Delhi 5,00,000
(iii) Interest on loan taken for purchase of above property. Loan was 7,50,000
taken from a friend
(iv) Rent received from house property situated in Jaipur 3,20,000
(v) Interest on loan taken for house property in Mumbai, which is self- 1,57,000
occupied. Loan was taken from PNB on 01.01.1999 for purchase
of this property.
(vi) Interest on loan taken for repair of house properties situated in 1,50,000
Mumbai and Delhi. Loan was taken on 01.04.17 and was utilized
in 50:50 ratio for house properties situated in Mumbai and Delhi,
respectively.
(vii) Long-term capital gains on sale of equity shares computed in 8,95,000
accordance with section 112A
(viii) Interest on fixed deposit 73,000
(ix) Loss from textile business 7,50,000
(x) Speculation profit 2,30,000
(xi) Lottery income 75,000
(xii) Loss incurred by the firm in which she is a partner 1,60,000
(xiii) Salary received as a partner from partnership firm. The same was 50,000
allowed to firm
(xiv) Brought forward short-term capital loss on sale of gold 2,75,000
(xv) Brought forward loss on sale of equity shares of the nature 25,000
specified u/s 111A
(xvi) Life insurance premium paid for her son who is 30 years of age 15,000
and is working in USA
Compute total income of Ms. Geeta for the assessment year 2019-20 and the amount of
loss that can be carried forward.
For the above solution, you may assume principal repayment of loan as under:
(1) Loan taken for purchase of house property in Delhi - · ` 2,50,000
(2) Loan taken for purchase of house property in Mumbai - ` 50,000

(3) Loan taken for repair of house properties in Delhi and Mumbai - ` 75,000
Working notes should form part of your answer. Wherever necessary, suitable assumptions
may be made by the candidates and disclosed by way of note. (10 Marks)
(b) Discuss the provisions of section 139A(1) which provides the persons who are compulsorily
required to apply for allotment of Permanent Account Number (PAN) with the Assessing
Officer. (4 Marks)
OR
(i) What is the fee for default in furnishing return of income u/s 234F? (2 Marks)
(ii) To whom the provisions of section 139AA relating to quoting of Aadhar Number do
not apply? (2 Marks)
Answer
(a) Computation of total income of Ms. Geeta for the A.Y.2019-20
Particulars ` ` `
Income from salary (computed) 41,20,000
Income from house property
(i) House property at Delhi (Let out)
Rent received (taken as Annual Value in the 5,00,000
absence of information relating to Fair Rent and
Municipal Value)
Less: Deduction u/s 24
(a) 30% of Annual Value 1,50,000
[30% of ` 5 lakh]
(b) Interest on loan
for purchase of property 7,50,000
for repairs of property
[` 1,50,000/2] 75,000
9,75,000
(4,75,000)
(ii) House property at Jaipur (Let out)
Rent received (taken as Annual Value in the 3,20,000
absence of information relating to Fair Rent and
Municipal Value)
Less: Deduction u/s 24
30% of Annual Value = 30% of ` 3,20,000 96,000
2,24,000
(iii) House property at Mumbai (Self-occupied)

Annual value of self-occupied property Nil
Less: Deduction u/s 24(b)
Interest on loan for purchase and repairs
(to be restricted to ` 30,000, since loan for
purchase was taken prior to 1.4.1999) 30,000 (30,000)
Loss from house property [(i) + (ii) + (iii)] (2,81,000)
As per section 71(3A), loss from house property to
be set-off against salary income to the extent of (2,00,000)
39,20,000
Profits and gains of business or profession
Speculation profit (assumed as business 2,30,000
income)
Salary received as partner of firm is taxable in
her hands since the entire salary was allowed as 50,000
deduction in the hands of the firm
2,80,000
Set-off of loss from textile business to the extent of (2,80,000) Nil
Note – Share of loss of ` 1,60,000 incurred by
the firm in which she is partner cannot be set-off
against salary received as partner of firm or any
other income, since loss from an exempt source
cannot be set-off against profit from a taxable
source.
Capital Gains
Long-term capital gains on sale of equity shares 8,95,000
computed in accordance with section 112A
Less: Set-off of brought forward short-term
capital loss as per section 744
B/f Short-term capital loss on sale of gold 2,75,000
B/f Short-term capital loss u/s 111A 25,000
3,00,000
5,95,000
Less: Set-off of balance loss of textile business5
[` 7,50,000 – ` 2,80,000 – ` 73000] (3,97,000) 1,98,000
4 As per section 74, B/f short-term capital loss can be set-off against long-term capital gain taxable u/s 112A.
It is assumed that the eight year period for set-off of losses has not expired.
5 Permitted as per section 71(2)
Particulars ` `
Interest on fixed deposit 73,000
Less: Set off balance loss of textile business to the extent of (73,000)
Nil
Lottery income (assumed as Gross Income) 75,000 75,000
Gross Total Income 41,93,000
Less: Deduction under Chapter VI-A
Under section 80C
Life insurance premium paid
Life insurance premium paid to insure the life of her 15,000
son allowable as deduction even if he is major,
resides abroad and is not dependent on her
Repayment of housing loan
` 2,50,000, for house property in Delhi, not allowable Nil
since loan is taken from a friend
` 50,000 for house property in Mumbai, allowable 50,000
since loan is taken from a bank for purchase of
property
` 75,000, for house properties in Mumbai and Delhi, Nil
not allowable since loan is taken for repairs of
properties
65,000
Loss to be carried forward to A.Y.2020-21:
Particulars `
Loss from house property (` 2,81,000 - ` 2,00,000) 81,000
As per section 71(3A), loss from house property can be set-off against
any other head of income to the extent of ` 2,00,000 only. As per section
71B, balance loss not set-off can be carried forward to the next year for
set-off against income from house property of that year. Such loss can be
carried forward for a maximum of eight assessment years.
(b) [First Alternative]
Persons who are mandatorily required to apply for PAN as per section 139A(1)
(i) Every person whose total income or the total income of any other person in
respect of which he is assessable under the Income-tax Act, 1961 during any
previous year exceeds the basic exemption limit
(ii) Every person carrying on business or profession whose total sales, turnover or
gross receipts are or is likely to exceed ` 5 lakh in any previous year
(iii) Every person, being a resident, other than an individual, which enters into a
financial transaction of an amount aggregating to ` 2,50,000 or more in a
financial year
(iv) Every person who is the managing director, director, partner, trustee, author,
founder, karta, chief executive officer, principal officer or office bearer of the
person referred to in (iii) above or any person competent to act on behalf of the
person referred to in (iii) above.
(b) [Second Alternative]
(i) Fee for default in furnishing return of income u/s 234F
Where a person, who is required to furnish a return of income under section 139, fails
to do so within the prescribed time limit under section 139(1), he shall pay, by way of
fee, a sum of –
Fee Circumstances
` 5,000 If the return is furnished on or before the 31st December of the
assessment year;
` 10,000 In any other case
Note - However, if the total income of the person does not exceed ` 5 lakhs, the
fees payable shall not exceed ` 1,000
(i i ) Persons to whom provisions of section 139AA relating to quoting of Aadhar
Number does not apply
T he provisions of section 139AA relating to quoting of Aadhar Number would not
apply to an individual who does not possess the Aadhar number or Enrolment ID
and is:
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India.
PAPER – 4 : TAXATION
SECTION B: INDIRECT TAXES
Candidates are also required to answer any three questions from the remaining four
questions.
All questions should be answered on the basis of position of GST law as amended upto
31st October,2018.
Working notes should form part of the answer.
Wherever necessary, suitable assumptions may be made by the candidates and disclosed by
way of note.
Question 5
Mr. Himanshu, a registered supplier of chemicals, pays GST under regular scheme. He is not
eligible for any threshold exemption. He has made the following outward taxable supplies for
the month of September 2018:
Intra-State supply of goods ` 25,00,000
Inter-State supply of goods ` 5,00,000
He has also made the following inward supply :
Intra-State purchase of goods from registered dealer ` 14,00,000
Intra-State purchase of goods from unregistered dealer ` 2,00,000
Inter-State purchase of goods from registered dealer ` 4,00,000
Balance of ITC at the beginning of September 2018 :
CGST ` 95,000
SGST ` 60,000
IGST ` 50,000
Additional Information :
• He purchased a car (Intra-State supply) used for business purpose at a price of `
6,72,000/- (including CGST of ` 36,000 & SGST of ` 36,000) on September 15, 2018.
He capitalized the full value including GST in the books on the same date to claim
depreciation.
• Out of Inter-State purchase from registered dealer, goods worth ` 1,00,000 were
received on October 3, 2018 due to road traffic jams.
Note:
(i) Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively.
(ii) Both inward and outward supplies given above are exclusive of taxes, wherever
applicable.
(iii) All the conditions necessary for availing the ITC have been fulfilled except mentioned
above.
Compute the net CGST, SGST and IGST payable in cash by Mr. Himanshu for the month of
September, 2018. (8 Marks)
Answer
Computation of net GST payable in cash of Mr. Himanshu for September, 2018
Particulars Value (` ) CGST (`) SGST IGST (`)
(` )
Total tax liability
Intra-State outward supplies of goods 25,00,000 2,25,000 2,25,000
Inter-State outward supplies of goods 5,00,000 90,000
Total tax liability (A) 2,25,000 2,25,000 90,000
Input Tax Credit (ITC)
Brought forward ITC 95,000 60,000 50,000
Intra-State purchase of goods from 14,00,000 1,26,000 1,26,000
registered dealer [Note-1]
Inter-State purchase of goods from 3,00,000 - - 54,000
registered dealer [Note-1 and Note 4]
Intra-State purchase of goods from 2,00,000 - - -
unregistered dealer [Note-2]
Purchase of car used for business - - - -
purpose [Note-3]
Total ITC (B) 2,21,000 1,86,000 1,04,000
Net GST liability = (A)-(B) 4,000 39,000 (14,000)
Less: Set off from IGST credit [Note-5] 4,000 10,000
Net GST payable in cash Nil 29,000 Nil
Notes:
1. Every registered person is entitled to take credit of input tax charged on any inward
supply of goods used/intended to be used in the course/furtherance of his business.
2. Intra-State supplies received by a registered person from any unregistered supplier, are
exempt from the whole of the tax leviable thereon under reverse charge till 30.09.2019.
Since no tax has been paid, so no credit is available.
3. Input tax paid on capital goods cannot be availed as ITC if depreciation has been claimed
on such tax component. Moreover, ITC on motor vehicle (car) is blocked under section
17(5) of CGST Act, 2017.
4. A registered person is entitled to avail input tax in respect of any supply of goods to him
only if he has actually received the said goods. Since goods worth ` 1,00,000 have not
been received by Mr. Himanshu in the month of September 2018, credit in respect of
same cannot be claimed in the said month.
5. Input tax credit of IGST has been used to pay IGST, CGST and SGST in that order.
Question 6
(a) M/s. Apna Bank Limited, a Scheduled Commercial Bank has furnished the following
details for the month of August, 2018:
Particulars Amount ` in Crores
(Excluding GST)
Extended Housing Loan to its customers 100
Processing fees collected from its customers on sanction of 20
loan
Commission collected from its customers on bank guarantee 30
Interest income on credit card issued by the bank 40
Interest received on housing loan extended by the bank 25
Minimum balance charges collected from current account and 01
saving account holder
Compute the value of taxable supply. Give reasons with suitable assumptions. (6 Marks)
(b) Decide with reason whether the following independent services are exempt under CGST
Act, 2017:
(i) Gokul Residents' Welfare Association received ` 9,000 per month as contribution
from each member for sourcing of goods and services from third persons for
common use of its members.
(ii) Mr. Vikalp, a performing artist, has received ` 1,58,000 from performance of
classical dance and ` 90,000 from acting in TV Serial during the month of June
2018. (4 Marks)
Answer
(a) Computation of value of taxable supply of M/s. Apna Bank Limited for the month of
August, 2018
Particulars Amount in
crores (`)
Housing loan extended to customers Nil
[Since money does not constitute goods, extending housing loan is not
a supply.]
Processing fee collected on sanction of loan 20
[Interest does not include processing fee on sanction of the loan.
Hence, the same is taxable.]
Commission collected on bank guarantee 30
[Any commission collected over and above interest on loan, advance or
deposit are not exempt.]
Interest income on credit card issued by the bank 40
[Services by way of extending loans in so far as the consideration is
represented by way of interest are exempt from tax. However, interest
involved in credit card services is not exempt.]
Interest received on housing loan Nil
[Services by way of extending loans in so far as the consideration is
represented by way of interest are exempt from tax.]
Minimum balance charges collected from current account and saving 01
account holder
[Any charges collected over and above interest on loan, advance or
deposit are not exempt.]
Value of taxable supply 91
(b) (i) Service by an unincorporated body or a registered non-profit entity, to its own
members by way of share of contribution up to an amount of ` 7,500 per month per
member for sourcing of goods/services from a third person for the common use of
its members in a housing society or residential complex, is exempt.
In the given case, monthly contribution per month per member received by Gokul
Residents’ Welfare Association exceeds ` 7,500.
Therefore, exemption will be available up to ` 7,500 and GST would be payable on
the amount in excess of ` 7,500 (viz. ` 1,500 in this case).
(ii) Services by an artist by way of a performance in folk or classical art forms of music,
dance, or theatre, if the consideration charged for such performance is not more
than ` 1,50,000 are exempt from GST.
In the given case, since the consideration received by the performing artist -
Mr. Vikalp for performance of classical dance is more than ` 1,50,000, said services
are not exempt.
Further, consideration received for acting in TV serial is also not exempt since said
performance is not in folk/classical art forms of theatre.
Question 7
(a) Examine the following independent cases of supply of goods and services and determine the
time of issue of invoice under each of the cases as per the provisions of CGST Act, 2017:
(i) Sakthi Enterprises, Kolkata entered into a contract with Suraj Enterprises, Surat for
supply of goods on 31 st October, 2018. The goods were removed from the factory at
Kolkata on 11th October, 2018. As per the agreement, the goods were to be
delivered by 31st October, 2018. Suraj Enterprises has received the goods on
14th October, 2018.
(ii) Trust and Fun Ltd, an event management company, has provided its services for an
event at Kapoor Film Agencies, Mumbai on 5 th June, 2018. Payment for the event
was made on 19t h June, 2018. (4 Marks)
(b) M/s. Daksha Enterprises has made a cash deposit of ` 10,000 under minor head 'tax' of
major head 'SGST’. It has a liability of ` 2,000 for minor head "Interest" under the major
head "SGST".
State whether M/s. Daksha Enterprises can utilise the amount available for payment of
interest. (2 Marks)
(c) State with brief reason, whether following suppliers of taxable goods are required to
register under the GST Law :
(i) Mr. Raghav is engaged in wholesale cum retail trading of medicines in the State of
Assam. His aggregate turnover during the financial year is ` 9,00,000 which
consists of ` 8,00,000 as Intra-State supply and ` 1,00,000 as Inter-State supply.
(ii) Mr. S.N Gupta of Rajasthan is engaged in trading of taxable goods on his own
account and also acting as an agent of Mr. Rishi of Delhi. His turnover in the
financial year 2017-18 is of ` 12 lakhs on his own account and ` 9 lakhs on behalf
of principal. Both turnovers are Intra -State supply. (4 Marks)
Answer
(a) (i) A registered person supplying taxable goods shall issue a tax invoice, before or at
the time of removal of goods for supply to the recipient, where the supply involves
movement of goods.
Therefore, in the given case, invoice has to be issued on or before, 11th October
2018 (the time of removal of goods).
(ii) A registered person [other than an insurer/banking company/financial institution,
including an NBFC] supplying taxable services shall issue a tax invoice before or after
the provision of service, but within a period of 30 days from the date of supply of service.
Thus, in the given case, invoice has to be issued within 30 days of 5th June 2018
(date of supply of service), i.e. on or before, 5th July 2018.
(b) The cash available in any minor head of a major head cannot be utilised for any other
minor head of the same major head.
Therefore, in the given case, amount of ` 10,000 available under minor head ‘tax’ of
major head ‘SGST’ cannot be utilised for payment of liability of `2,000 under minor head
‘interest’ of the same major head.
(c) (i) Person making any inter-State taxable supply of goods is required to obtain registration
compulsorily under GST laws irrespective of the quantum of aggregate turnover.
Thus, in the given case Mr. Raghav is required to obtain registration compulsorily
under GST laws even though his aggregate turnover does not exceed the threshold
limit of ` 10 lakh [since Assam is a Special Category State] in the financial year.
(ii) Persons who make taxable supply of goods on behalf of other taxable persons
whether as an agent or otherwise are required to obtain registration compulsorily
under GST laws irrespective of the quantum of aggregate turnover.
Aggregate turnover includes all supplies made by the taxable person, whether on
his own account or made on behalf of all his principals.
Since Mr. S.N Gupta is also acting as an agent of Mr. Rishi of Delhi, he is required
to obtain registration compulsorily under GST laws.
Question 8
(a) Enumerate the persons who are not eligible to opt for Composition Scheme under section
10(2) of the CGST Act, 2017. (5 Marks)
Answer either 8(b) or 8(c) but not both
(b) List out the situations in which a Credit note/Debit note may be issued under the CGST
Act, 2017. (5 Marks)
(c) Answer the following questions with respect to casual taxable person under the CGST
Act, 2017 :
(i) Who is a casual taxable person?
(ii) Can a casual taxable person opt for the composition scheme?
(iii) When is the casual taxable person liable to get registered?
(iv) What is the validity period of the registration certificate issued to a casual taxable
person?
(v) Can the validity of registration certificate issued to a casual taxable person be
extended? If yes, what will be the period of extension. (5 Marks)
Answer
(a) A registered person shall not be eligible to opt for composition scheme if:-
(i) he is engaged in supply of services other than supplies referred to in clause (b) of
paragraph 6 of Schedule II.
(ii) he is engaged in supply of goods not leviable to tax

(iii) he is engaged in inter-State outward supplies of goods
(iv) he is engaged in supply of goods through an electronic commerce operator
(v) he is a manufacturer of notified goods, namely, manufacturer of ice cream, pan
masala and tobacco.
(b) Credit note is required to be issued by the Supplier:-
(i) If taxable value charged in the tax invoice is found to exceed the taxable value in
respect of supply of goods and/or services, or
(ii) If tax charged in the tax invoice is found to exceed the tax payable in respect of
supply of goods and/or services, or
(iii) if goods supplied are returned by the recipient, or
(iv) if goods and/or services supplied are found to be deficient.
Debit note is required to be issued by the Supplier:-
(i) if taxable value charged in the tax invoice is found to be less than the taxable value
in respect of supply of goods and/or services or
(ii) if tax charged in the tax invoice is found to be less than the tax payable in respect of
supply of goods and/or services
(c) (i) Casual taxable person means a person who occasionally undertakes transactions
involving supply of goods and/or services in the course or furtherance of business,
whether as principal, agent or in any other capacity, in a State/UT where he has no
fixed place of business.
(ii) No, a casual taxable person cannot opt for the composition scheme.
(iii) A casual taxable person (CTP) is liable to obtain registration compulsorily under
GST laws, at least 5 days prior to commencement of business.
However, threshold limit of ` 20 lakh (` 10 lakh in case of Special Category States
other than Jammu & Kashmir) is available in case of CTP making taxable supplies
of specified handicraft goods.
(iv) The registration certificate issued to a casual taxable person will be valid for:
(a) the period specified in the registration application, or
(b) 90 days from the effective date of registration
whichever is earlier.
(v) Yes, the validity of registration certificate issued to a casual taxable person can be
extended.
It can be extended by a further period not exceeding 90 days.

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PAPER – 1 : ACCOUNTING

Question No. 1 is compulsory.

Non-specific borrowings (` 6,56,667 x 11.5%) = 75,517

(v) Journal Entry

Insured standing charges for the last financial year ` 1,75,000

By Balance c/d 2,35,520

(iii) M/s Bhanu Account

(iv) In the Books of M/s Bhanu

30,000x [3,85,000/(3,85,000+1,25,000)] = ` 22,647

3. Application of Average Clause:

2. Annual Turnover (adjusted):

Less: Depreciation (6,375) 36,125

Sale of Machinery Account

To Machine sold 11,500 By Machine purchased (W.N.4) 75,000

By White A/c 15,840 —

4. Conversion into Company

6. Closing cash balance* can also be derived as shown below:

7 Profit and Loss A/c Dr. 67,500

(ii) ‘Cash Flow from Operating Activities’ by indirect method

Sundry Creditors 50,000 Deferred Expenses 50,000

To Net Profit (b.f.) 3,89,500

Thus, Sales Ratio = 1 : 9 (1,20,000 : 10,80,000)

(Prospectus and Allotment of Securities) Rules, 2014 provides the conditions. As

Prohibition for buy-back in certain circumstances [Section 70]

The related period is of four weeks. Calculate the following Ratios :

(v) Emerson Plan

(ii) Activity Ratio:

(iii)Standard Capacity Usage Ratio:

(iv) Actual Capacity Usage Ratio:

(v) Actual Usage of Budgeted Capacity Ratio:

(b) (i) Halsey Premium plan:

(ii) Statement Showing Product Wise and Overall Profitability

(*) 1,80,000 – 42,000

(c) Semi-variable ` 1,08,000 per annum up to 50% capacity and additional

Profit (33.33% of 7,200 - 7,200

Finished Stock A/c

Types of workers Standard Cost – Actual Cost Amount (`)

(iii) Labour Efficiency Variance

Semi- Skilled `65.00 × (480 hours – 360 hours) 7,800 (F)

Skilled Workers `70 × (1,080 hrs. – 1440 hrs.) 25,200 (A)

(v) Labour Idle Time Variance

Semi- Skilled `65.00 × (400 hours – 360 hours) 2,600 (A)

Skilled 960 70.00 67,200 1,440 1,08,000 1,080

Semi- 480 65.00 31,200 360 21,600 540

Unskilled 320 50.00 16,000 180 52.00 9,360 360

Total 1,760 65 1,14,400 1,980 1,38,960 1,980

(b) (i) Overheads application base: Direct labour hours

Overheads* 180 240

(iii) Calculation of Cost Distortion

(i) Statement showing Operating Cost

(ii) Value of Material Consumed and Closing Stock

Elements of Cost and Revenue Amount (`) Per

Total Cost 7,56,000

(c) Contract Account as on 31-03-2019

The cost of 2/3rd of the contract is `27,46,400

(b) Flexible budgeting may be resorted to under following situations:

(iv) Faulty valuation: Overheads of fixed nature cannot altogether be excluded

Tax on other income of ` 9,70,100 [` 15,00,100 – ` 2,00,000, capital

(iii) Untaxed income for the year 2016-17 of Nil Nil