November, 2018: Revision Test Papers

INTERMEDIATE COURSE
(UNDER REVISED SCHEME OF

EDUCATION AND TRAINING)
GROUP – I
REVISION TEST PAPERS

NOVEMBER, 2018
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without prior permission, in writing, from the publisher.
Edition : August, 2018
Website : www.icai.org
E-mail : [email protected]
Department/Committee : Board of Studies
Price :
ISBN No. :
Published by : The Publication Department on behalf of The Institute of Chartered

Accountants of India, ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi- 110 002, India.
Typeset and designed at Board of Studies.
Printed by :

Contents
Page Nos.
Objective & Approach ....................................................................................... i – viii
Objective of RTP ......................................................................................................... i
Planning & Preparing for Examination ........................................................................ ii
Subject-wise Guidance – An Overview ...................................................................... iii
Paper-wise RTPs
Paper 1: Accounting ....................................................................................... 1 – 43
Part – I : Announcements Stating Applicability & Non-Applicability ............ 1
Part – II : Questions and Answers .................................................... 1 – 43
Paper 2: Corporate and Other Laws ............................................................ 44 – 83
Part – I : Announcements Stating Applicability ...................................... 44 – 73
Part – II : Questions and Answers .................................................. 73 – 83
Paper 3: Cost and Management Accounting .................................................... 84 – 110
Paper 4 : Taxation ............................................................................................. 111 – 151
Section A: Income-tax Law ................................................................ 111 – 139
Part – I : Statutory Update .......................................................... 111 – 117
Part – II : Questions and Answers .............................................. 117 – 139
Section B: Indirect taxes .................................................................... 140 – 151
Applicability of Standards/Guidance Notes/Legislative Amendments etc.
for November, 2018 – Intermediate (New) Examination ........................................ 152 – 167

REVISION TEST PAPER, NOVEMBER 2018 – OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to derive
maximum benefit out of this RTP)
I Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs provided by the Board
of Studies (BOS) to its students. Popularly referred to as RTP by the students, it is one of
the very old publications of the BOS whose significance and relevance from th e
examination perspective has stood the test of time.
RTPs provide glimpses of not only the desirable ways in which examination questions are
to be answered but also of the professional quality and standard of the answers expected
of students in the examination. Further, aspirants can assess their level of preparation for
the examination by answering various questions given in the RTP and can also update
themselves with the latest developments in the various subjects relevant from the
examination point of view.
The primary objectives of the RTP are:
• To help students get an insight of their preparedness for the forthcoming examination;
• To provide an opportunity for a student to find all the latest developments relevant for
the forthcoming examination at one place;
• To supplement earlier studies;
• To enhance the confidence level of the students adequately; and
• To leverage the preparation of the students by giving guidance on how to approach
the examinations.
RTPs contain the following:
(i) Planning and preparing for examination
(ii) Subject-wise guidance – An overview
(iii) Updates applicable for a particular exam in the relevant subjects
(iv) Topic-wise questions and detailed answers thereof in respect of each paper
(v) Relevant announcement applicable for the particular examination
Students must bear in mind that the RTP contains a variety of questions based on different
sections of the syllabi and thus a comprehensive study of the entire syllabus is a pre -
requisite before answering the questions of the RTP. In other words, in order to derive
maximum benefit out of the RTPs, it is advised that before proceeding to solve the
questions given in the RTP, students ought to have thoroughly read the Study Materials .

REVISION TEST PAPER ii
The topics on which the questions are set herein have been carefully selected and
meticulous attention has been paid in framing different types of questions. Detailed
answers are provided to enable the students to do a self-assessment and have a focused
approach for effective preparation.
Students are welcome to send their suggestions for fine tuning the RTP to the Director,
Board of Studies, The Institute of Chartered Accountants of India, A-29, Sector-62, Noida
201 309 (Uttar Pradesh). RTP is also available on the Institute’s website www.icai.org
under the BOS knowledge portal in students section for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading the relevant
Study Materials of all the subjects. Make sure that you have read the Study Materials
thoroughly as they cover the syllabus comprehensively. Get a good grasp of the concepts/
provisions discussed therein. Solve each and every question/illustration given therein to
understand the application of the concepts and provisions.
After reading the Study Materials thoroughly, you should go through the Updates provided
in the RTP and then proceed to solve the questions given in the RTP on your own. RTP
is in an effective tool to revise and refresh the concepts and provisions discussed in the
Study Material. RTPs are provided to you to help you assess your level of preparation.
Hence you must solve the questions given therein on your own and thereafter compare
your answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and depth of his
preparation. However, there are certain important points which can help a student better
his performance in the examination. These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and thoroughly. You are
given separate 15 minutes for reading the question paper.
 Plan your time so that appropriate time is awarded for each question. Keep sometime
for checking the answers as well.
 First impression is the last impression. The question which you can answer in the
best manner should be attempted first.
 Always attempt to do all questions. Therefore, it is important that you must finish
each question within allocated time.
 Read the question carefully more than once before starting the answer to understand
very clearly as to what is required.

iii INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018
 Answer all parts of a question one after the other; do not answer different parts of the
same question at different places.
 Write in a neat and legible hand-writing.
 Always be concise and write to the point and do not try to fill pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions and then answer the
question.
 Check your answers carefully and underline important points before leaving the
examination hall.
III. Subject-wise Guidance – An Overview
PAPER – 1 : ACCOUNTING
The Revisionary Test Paper (RTP) of Accounting is divided into two parts viz
Part I - Relevant announcement stating Applicability and Non-Applicability for November,
2018examination and Part II –Questions and Answers.
It may be noted that the July, 2017 edition of the Study Material is relevant for November,
2018 Examination.
Part I of the Revisionary Test consists of the relevant Notifications and information
applicable and not applicable for November, 2018 examination. The purpose of this
information in the RTP is to apprise the students with the latest developments applicable
for November, 2018 examination. The brief summary of the same has been given as under:
A. Applicable for November, 2018 examination:
I Relevant Notified Sections of the Companies Act, 2013.
II Notification dated 13th June, 2017 to exempt start-up private companies
from preparation of Cash Flow Statement
B. Not applicable for November, 2018 examination:
Ind ASs issued by the Ministry of Corporate Affairs.
Part II of the Revisionary Test Paper consists of twenty questions together with their
answers. First fifteen questions are based on different topics discussed in the study
material. Last five questions of this RTP are based on Accounting Standards. For easy
reference the topic / accounting standard name and number on which the question is based
has been quoted at the top of each question. The details of topics, on which questions in
the RTP are based, are as under:

REVISION TEST PAPER iv
Question No. Topic

1 and 2 Financial Statements of Companies
3 Profit or Loss prior to Incorporation
4 Accounting for Bonus Issue
5 Right Issue
6 Redemption of Preference Shares
7 Redemption of Debentures
8 Investment Accounts
9 Insurance Claim for Loss of Stock
10 Hire purchase Transactions
11 Departmental Accounts
12 Branch Accounting
13 Accounts from Incomplete Records
14 Partnership accounts: Dissolution of Partnership
15 Framework for Preparation and Presentation of Financial
statements
16-20 Accounting Standards
Answers to the questions have been given in detail along with the working notes for easy
understanding and comprehending the steps in solving the problems. The answers to the
questions have been presented in the manner which is expected from the students in the
examination. The students are expected to solve the questions under examination
conditions and then compare their solutions with the solutions given in the Revisionary
Test Paper and further strategize their preparation for scoring more marks in the
examination.
PAPER – 2: CORPORATE AND OTHER LAWS
In the paper of Corporate and Other Laws, for the ‘Company Law’ portion the objective is
‘To develop an understanding of the provisions of company law and acquire the ability to
address application-oriented issues’ and for ‘Other Laws’ the objective is ‘To develop an
understanding of the provisions of select legislations and acquire the ability to address
application-oriented issues, and to develop an understanding of the rules for interpretation
of statutes’. The students need to prepare on basis of the objective entrusted in the
syllabus for the subject. Students should also give importance to the terms/definitions for
proper conceptualization of the answers. Students have to focus their study based on the
major legal provisions, case laws, if any, and understand their practical implications. Also,
Language is an important point of concern. This problem among many of the candidates

v INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018
can be overcome by way of practice writing and also undertaking self-examination by going
through Revisionary Test Papers (RTP).
RTP gives an idea to the student attempting law paper to give the answer of any practical
oriented questions by pinpointing the legal points or issues involved in any statement,
problem or situation given in the question, explaining the relevant legal provisions clearly,
co-relating the legal provisions to the given statement or problem or situation and cite the
relevant case law in support of their reasoning for reflecting on the quality of the answer.
For the theoretical question, the answer should be laid down by highlighting the main points
with brief description and explain the same with the help of an example.
Generally, the RTP is divided into two parts -
Part I: Containing the relevant legislative amendments which are applicable for
November 2018 examinations.
It consists of the relevant Notifications and information applicable for November 2018
examination. The purpose of this information in the RTP is to apprise the students with the
latest developments applicable for November 2018 examinations.
Part II: Topic wise questions with detailed answers
It constitutes of 15 Questions broadly categorised into two portions- Company Law
(covering 10 questions) and Other Laws (covering 5 questions), with their detailed
answers. The questions here are arranged in the same sequence as prescribed in the
Study Module to smoothen the progress of easy revision. The topics amongst which these
questions fall, are as follows:
QUESTION NO. ABOUT THE QUESTION
1 - 10 Based on the Companies Act, 2013
11 & 12 Deals with the Indian Contract Act, 1872.
13 Deals with the Negotiable Instruments Act,1881
14 Based on the General Clauses Act, 1897
15 Interpretation of Statutes, Deeds and Documents
Guidance on the citation of the Case Laws and Section
Students may kindly note that in view of various Acts covered under the subject, you may
find it difficult to remember various sections of the law and related case laws on the matter.
Case laws and citing of the Sections reflects on the quality of your preparation for the
examination and making yourself set to become a perfect professional. The answers that
are reflected here have reference to sections and case laws whereve r applicable. It may
kindly be noted that these are given for knowledge and to mainly inculcate such a habit.
However, at this level it may not affect on the scoring of the marks.

REVISION TEST PAPER vi
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
The Revision Test Paper (RTP) of Cost and Management Accounting comprises of fifteen
questions for full coverage of the syllabus. Theoretical questions alongwith computational
problems have also been incorporated so that you are able to give emphasis to the theoretical
portion of the syllabus as well. Since this paper’s inclination is more towards numerical-oriented
questions which involve mathematical calculations, therefore, it is very important that you have
thoroughly studied the theoretical aspects of the subject and are also clear about the concepts
and logic behind the mathematical workings and formulae.
A summary of the questions both theoretical and computational has been given for your
reference:
Qs No. Topic About the Problem
1. Material Calculation of Economic Order Quantity (EOQ).
2. Employee Cost Calculation of hourly wage rate.
3. Overheads Estimation of the comprehensive machine hour
rate.
4. Activity Based Costing Calculation the operating income and operating
income as a % of revenues for product line
through Activity Based Costing.
5. Cost Sheet Calculation of Cost of production
6. Cost Accounting Preparation of statement to calculate profit as per
System financial records and cost accounting records.
Reconciliation of profit calculated under both the
system.
7. Contract Costing Preparation of contract Account.
8. Job Costing Determination of quote for the job.
9. Process Costing Preparation of Process Account.
10. Joint Products & By Preparation of statement of profitability
Products
11. Service Costing Calculation of cost
12. Standard Costing Computation of variances.
13. Marginal Costing Calculation of BEP
14. Budget and Budgetary Preparation of production budget
Control
15.(a) Essential features of a good cost accounting
system

vii INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018
15.(b) Difference between Cost Control and Control

Reduction
15.(c) Miscellaneous theory Definition of Controllable Cost and Uncontrollable
Cost.
15(d) Distinguish between job and batch costing.
PAPER – 4: TAXATION
Section A: Income-tax Law (60 Marks)
The Income-tax law, as amended by the Finance Act, 2017, and significant notifications,
circulars and other legislative amendments upto 30.4.2018 are relevant for November,
2018 Examination. The relevant assessment year for November, 2018 examination is
A.Y. 2018-19.
The July 2017 edition of the Study Material, comprising of three modules (Modules 1-3), is
applicable for November, 2018 Examination.
Further, a list of topic-wise exclusions from the syllabus has been specified by way of
“Study Guidelines” in the above Study Material. The same is also given as part of
“Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2018 – Intermediate (New) Examination” appended at the end of this Revision
Test Paper.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. The amendments made by the Finance Act, 2017 and latest notifications a nd
circulars have been given in italics/bold italics. Examples and Illustrations given in the
Study Material would help you understand the application of concepts. Thereafter, work
out the exercise questions at the end of each chapter to hone your problem solving skills.
Compare your answers with the answers given to test your level of understanding.
Thereafter, solve the questions given in this RTP independently and compare the same
with the answers given to assess your level of preparedness for the examination.
Before you work out the questions in Part II of the RTP, do read the Statutory Update given
in Part I. Students may refer to the January, 2018 & February, 2018 issue of the Students'
Journal "The Chartered Accountant Student" for a quick recap of the income tax provisions
discussed in the Study Material.

REVISION TEST PAPER viii
Section B: Indirect Taxes (40 Marks)

For Section B: Indirect Taxes of Paper 4: Taxation, provisions of CGST Act, 2017 and IGST
Act, 2017, including significant circulars and notifications issued and other legislative
amendments made upto 30 th April, 2018 are applicable for November, 2018 examination.
Further, a list of topic-wise exclusions from the syllabus has been specified by way of
“Study Guidelines for November 2018 Examination”. The same is given as part of
“Applicability of Standards/Guidance Notes/Legislative Amendments etc. for Nove mber,
2018 Examination” appended at the end of this Revision Test Paper.
The July 2017 edition of the Study Material is applicable for New Intermediate Course
Paper 4: Taxation, Section B: Indirect Taxes. The Study Material has been divided into
two modules for ease of handling by students.
Study Material is based on the provisions of the Central Goods and Services Tax Act, 2017
and Integrated Goods and Services Act, 2017 as amended upto 31.07.2017.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. Examples and Illustrations given in the Study Material would help you
understand the application of concepts. Thereafter, work out the questions at the end of
each chapter to hone your problem-solving skills. Compare your answers with the answers
given to test your knowledge.
Thereafter, solve the questions given in this RTP independently and compare the same
with the answers given to assess your level of preparedness for the examination.
It may be noted that the Statutory Update comprising of the significant legislative
developments by way of notifications/circulars issued from 01.08.2017 to 30.04.2018 will
be web-hosted at the BoS Knowledge Portal on the ICAI’s website www.icai.org.

PAPER – 1: ACCOUNTING
PART – I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY
FOR NOVEMBER, 2018 EXAMINATION
A. Applicable for November, 2018 examination
I. Companies Act, 2013
Relevant Sections of the Companies Act, 2013 notified up to 30th April, 2018 will be
applicable for November, 2018 Examination.
II. Notification dated 13th June, 2017 to exempt startup private companies from
preparation of Cash Flow Statement as per Section 462 of the Companies Act 2013
As per the Amendment, under Chapter I, clause (40) of section 2, new exemption has
been provided to a startup private company besides one person company, small
company and dormant company. Accordingly, a startup private company is not
required to include the cash flow statement in the financial statements.
Thus the financial statements, with respect to one person company, small company,
dormant company and private company (if such a private company is a start-up), may
not include the cash flow statement.
B. Not applicable for November, 2018 examination
Non-Applicability of Ind ASs for November, 2018 Examination
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards)
Rules, 2015 on 16 th February, 2015, for compliance by certain class of companies. These
Ind AS are not applicable for November, 2018 Examination.
PART – II: QUESTIONS AND ANSWERS
QUESTIONS
Financial Statements of Companies

Preparation of Statement of Profit and Loss Statement and Balance Sheet
1. (a) You are required to prepare a Balance Sheet as at 31 st March 2018, as per Schedule
III of the Companies Act, 2013, from the following information of Mehar Ltd .:
Particulars Amount Particulars Amount
(`) (`)
Term Loans (Secured) 40,00,000 Investments (Non-
current) 9,00,000
Trade payables 45,80,000 Profit for the year 32,00,000

2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2018
Other advances 14,88,000 Trade receivables 49,00,000

Cash and Bank Balances 38,40,000 Miscellaneous Expenses 2,32,000
Staff Advances 2,20,000 Loan from other parties 8,00,000
Provision for Doubtful
Provision for Taxation 10,20,000
Debts 80,000
Securities Premium 19,00,000
Loose Tools 2,00,000 Stores 16,00,000
General Reserve 62,00,000 Fixed Assets (WDV) 2,26,00,000
Capital Work-in- progress 8,00,000 Finished Goods 30,00,000
Additional Information:-
1. Share Capital consist of-
(a) 1,20,000 Equity Shares of ` 100 each fully paid up.
(b) 40,000, 10% Redeemable Preference Shares of ` 100 each fully paid up.
2. The company declared dividend @ 5% of equity share capital. The dividend
distribution tax rate is 17.304%. (15% CDT, surcharge 12%, Education Cess
2% and SHEC @ 1% )
3. Depreciate Assets by ` 20,00,000.
(b) PQ Ltd., a non-investment company has been incurring losses for the past few years.
The company provides the following information for the current year:
(` in lakhs)
Paid up equity share capital 180
Paid up preference share capital 30
Reserves (including Revaluation reserve ` 15 lakhs) 225
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
Accumulated losses not written off 30
Investments 270
PQ Ltd. has only one whole-time director, Mr. Hello. You are required to calculate
the amount of maximum remuneration that can be paid to him as per provisions of
Companies Act, 2013, if no special resolution is passed at the general meeting of the
company in respect of payment of remuneration for a period not exceeding three
years.

PAPER – 1 : ACCOUNTING 3
Cash flow statement

2. The Balance Sheet of Harry Ltd. for the year ending 31 st March, 2018 and 31st March, 2017
were summarised as follows:
2018 (`) 2017 (`)
Equity share capital 1,20,000 1,00,000
Reserves:
Profit and Loss Account 9,000 8,000
Current Liabilities:
Trade Payables 8,000 5,000
Income tax payable 3,000 2,000
Declared Dividends 4,000 2,000
1,44,000 1,17,000
Fixed Assets (at W.D.V) :
Building 19,000 20,000
Furniture & Fixture 34,000 22,000
Cars 25,000 16,000
Long Term Investments 32,000 28,000
Current Assets:
Inventory 14,000 8,000
Trade Receivables 8,000 6,000
Cash & Bank 12,000 17,000
1,44,000 1,17,000
The Profit and Loss account for the year ended 31 st March, 2018 disclosed:
`
Profit before tax 8,000
Income Tax (3,000)
Profit after tax 5,000
Declared Dividends (4,000)
Retained Profit 1,000
Further Information is available:
1. Depreciation on Building ` 1,000.
2. Depreciation on Furniture & Fixtures for the year ` 2,000.

3. Depreciation on Cars for the year ` 5,000. One car was disposed during the year
for ` 3,400 whose written down value was ` 2,000.
4. Purchase investments for ` 6,000.
5. Sold investments for ` 10,000, these investments cost ` 2,000.
You are required to prepare Cash Flow Statement as per AS-3 (revised) using indirect
method.
Profit or Loss prior to Incorporation
3. Roshani & Reshma working in partnership, registered a joint stock company under the
name of Happy Ltd. on May 31 st 2017 to take over their existing business. The summarized
Profit & Loss A/c as given by Happy Ltd. for the year ending 31 st March, 2018 is as under:
Happy Ltd.
Profit & Loss Account for the year ending March 31, 2018
Particulars Amount (`) Particulars Amount (`)
To Salary 1,44,000 By Gross Profit 4,50,000
To Interest on Debenture 36,000
To Sales Commission 18,000
To Bad Debts 49,000
To Depreciation 19,250
To Rent 38,400
To Audit fees (Company
12,000
Audit)
To Net Profit 1,33,350
Total 4,50,000 Total 4,50,000
You are required to prepare a Statement showing allocation of expenses and calculation
of pre-incorporation and post- incorporation profits after considering the following
information:
(i) GP ratio was constant throughout the year.
(ii) Depreciation includes ` 1,250 for assets acquired in post incorporation period.
(iii) Bad debts recovered amounting to ` 14,000 for a sale made in 2014-15 has been
deducted from bad debts mentioned above.
(iv) Total sales were ` 18,00,000 of which ` 6,00,000 were for April to September.
(v) Happy Ltd. had to occupy additional space from 1 st Oct. 2017 for which rent was
` 2,400 per month.

Accounting for Bonus Issue

4. Following is the extract of the Balance Sheet of Xeta Ltd. as at 31 st March, 2017:
`
Authorised capital:
50,000 12% Preference shares of ` 10 each 5,00,000
4,00,000 Equity shares of ` 10 each 40,00,000
45,00,000
Issued and Subscribed capital:
24,000 12% Preference shares of ` 10 each fully paid 2,40,000
2,70,000 Equity shares of ` 10 each, ` 8 paid up 21,60,000
Reserves and surplus:
General Reserve 3,60,000
Securities premium 1,00,000
Profit and Loss Account 6,00,000
On 1st April, 2017, the Company has made final call @ ` 2 each on 2,70,000 equity shares.
The call money was received by 20 th April, 2017. Thereafter, the company decided to
capitalize its reserves by way of bonus at the rate of one share for every four shares held.
You are required to give necessary journal entries in the books of the company and prepare
the extract of the balance sheet as on 30 th April, 2017 after bonus issue.
Right issue
5. Zeta Ltd. has decided to increase its existing share capital by making rights issue to its
existing shareholders. Zeta Ltd. is offering one new share for every two shares held by
the shareholder. The market value (cum-right) of the share is ` 360 and the company is
offering one right share of ` 180 each to its existing shareholders. You are required to
calculate the value of a right. What should be the ex-right value of a share?
Redemption of preference shares
6. The following are the extracts from the Balance Sheet of Meera Ltd. as on
31st December, 2017.
Share capital: 60,000 Equity shares of `10 each fully paid – ` 6,00,000; 1,500 10%
Redeemable preference shares of ` 100 each fully paid – `1,50,000.
Reserve & Surplus: Capital reserve – ` 75,000; Securities premium – ` 75,000; General
reserve – ` 1,12,500; Profit and Loss Account – ` 62,500
On 1st January 2018, the Board of Directors decided to redeem the preference shares at
premium of 10% by utilisation of reserve.

You are required to prepare necessary Journal Entries including cash transactions in the
books of the company.
Redemption of Debentures
7. The summarized Balance Sheet of Spices Ltd. as on 31 st March, 2018 read as under:
`
Liabilities:
Share Capital: 9,000 equity shares of ` 10 each, fully paid up 90,000
General Reserve 38,000
Debenture Redemption Reserve 35,000
12% Convertible Debentures : 1,200 Debentures of ` 50 each 60,000
Unsecured Loans 28,000
Short term borrowings 19,000
2,70,000
Assets:
Fixed Assets (at cost less depreciation) 72,000
Debenture Redemption Reserve Investments 34,000
Cash and Bank Balances 86,000
Other Current Assets 78,000
2,70,000
The debentures are due for redemption on 1 st April, 2018. The terms of issue of debentures
provided that they were redeemable at a premium 10% and also conferred option to the
debenture holders to convert 40% of their holding into equity shares at a predetermined
price of ` 11 per share and the balance payment in cash.
Assuming that:
(i) Except for debentureholders holding 200 debentures in aggregate, rest of them
exercised the option for maximum conversion,
(ii) The investments realized ` 56,000 on sale,
(iii) All the transactions were taken place on 1st April, 2018
(iv) Premium on redemption of debentures is to be adjusted against General Reserve.
You are required to
(a) Redraft the Balance Sheet of Spices Ltd. as on 01.04.2018 after giving effect to the
redemption.
(b) Show your calculations in respect of the number of equity shares to be allotted and
the cash payment necessary.

Investment Accounts
8. Akash Ltd. had 4,000 equity share of X Limited, at a book value of ` 15 per share (face
value of ` 10 each) on 1st April 2017. On 1 st September 2017, Akash Ltd. acquired 1,000
equity shares of X Limited at a premium of ` 4 per share. X Limited announced a bonus
and right issue for existing shareholders.
The terms of bonus and right issue were -
(1) Bonus was declared, at the rate of two equity shares for every five equity shares held
on 30th September, 2017.
(2) Right shares are to be issued to the existing shareholders on 1 st December, 2017.
The company issued two right shares for every seven shares held at 25% premium.
No dividend was payable on these shares. The whole sum being payable by
31st December, 2017.
(3) Existing shareholders were entitled to transfer their rights to outsiders, either wholly
or in part.
(4) Akash Ltd. exercised its option under the issue for 50% of its entitlements and sold
the remaining rights for ` 8 per share.
(5) Dividend for the year ended 31 st March 2017, at the rate of 20% was declared by the
company and received by Akash Ltd., on 20th January 2018.
(6) On 1st February 2018, Akash Ltd., sold half of its shareholdings at a premium of ` 4
per share.
(7) The market price of share on 31.03.2018 was ` 13 per share.
You are required to prepare the Investment Account of Akash Ltd. for the year ended
31st March, 2018 and determine the value of share held on that date assuming the
investment as current investment. Consider average cost basis for ascertainment of cost
for equity share sold.
Insurance Claim for loss of stock
9. On 27th July, 2017, a fire occurred in the godown of M/s. Vijay Exports and most of the
stocks were destroyed. However goods costing ` 5,000 could be salvaged. Their fire
fighting expenses were amounting to ` 1,300.
From the salvaged accounting records, the following information is available relating to the
period from 1.4.2017 to 27.7.2017:
1. Stock as per balance sheet as on 31.3.2017 ` 63,000
2. Purchases (including purchase of machinery costing ` 10,000 ` 2,92,000
3. Wages (including wages paid for installation of machinery ` 53,000
` 3,000)
4. Sales (including goods sold on approval basis amounting to ` 4,12,300

` 40,000. No approval has been received in respect of 1/4 th of the

goods sold on approval)
5. Cost of goods distributed as free sample ` 2,000
Other Information:
(i) While valuing the stock on 31.3.2017, ` 1,000 had been written off in respect of
certain slow moving items costing ` 4,000. A portion of these goods were sold in
June, 2017 at a loss of ` 700 on original cost of ` 3,000. The remainder of these
stocks is now estimated to be worth its original cost.
(ii) Past record shows the normal gross profit rate is 20%.
(iii) The insurance company also admitted fire fighting expenses. The Company had taken
the fire insurance policy of ` 55,000 with the average clause.
You are required to compute the amount of claim of stock destroyed by fire, to be lodged
to the Insurance Company. Also prepare Memorandum Trading Account for the period
1.4.2017 to 27.7.2017 for normal and abnormal items.
Hire Purchase Transactions
10. The following particulars relate to hire purchase transactions:
(a) X purchased three cars from Y on hire purchase basis, the cash price of each car
being ` 2,00,000.
(b) The hire purchaser charged depreciation @ 20% on diminishing balance method.
(c) Two cars were seized by on hire vendor when second installment was not paid at the
end of the second year. The hire vendor valued the two cars at cash price less 30%
depreciation charged under it diminishing balance method.
(d) The hire vendor spent ` 10,000 on repairs of the cars and then sold them for a total
amount of ` 1,70,000.
You are required to compute:
(i) Agreed value of two cars taken back by the hire vendor.
(ii) Book value of car left with the hire purchaser.
(iii) Profit or loss to hire purchaser on two cars taken back by their hire vendor.
(iv) Profit or loss of cars repossessed, when sold by the hire vendor.
Departmental Accounts
11. The following balances were extracted from the books of M/s Division. You are required
to prepare Departmental Trading Account and Profit and Loss account for the year ended
31st December, 2017 after adjusting the unrealized department profits if any.

Deptt. A Deptt. B
` `
Opening Stock 50,000 40,000
Purchases 6,50,000 9,10,000
Sales 10,00,000 15,00,000
General expenses incurred for both the departments were ` 1,25,000 and you are also
supplied with the following information: (a) Closing stock of Department A ` 1,00,000
including goods from Department B for ` 20,000 at cost of Department A. (b) Closing stock
of Department B ` 2,00,000 including goods from Department A for ` 30,000 at cost to
Department B. (c) Opening stock of Department A and Department B include goods of the
value of ` 10,000 and ` 15,000 taken from Department B and Department A respectively
at cost to transferee departments. (d) The rate of gross profit is uniform from year to year.
Branch Accounting
12. Pass necessary Journal entries in the books of an independent Branch of M/s TPL Sons,
wherever required, to rectify or adjust the following transactions:
(i) Branch paid ` 5,000 as salary to a Head Office Manager, but the amount paid has
been debited by the Branch to Salaries Account.
(ii) A remittance of ` 1,50,000 sent by the Branch has not received by Head Office on
the date of reconciliation of Accounts.
(iii) Branch assets accounts retained at head office, depreciation charged for the year
` 15,000 not recorded by Branch.
(iv) Head Office expenses ` 75,000 allocated to the Branch, but not yet been recorded
by the Branch.
(v) Head Office collected ` 60,000 directly from a Branch Customer. The intimation of
the fact has not been received by the Branch.
(vi) Goods dispatched by the Head office amounting to ` 50,000, but not received by the
Branch till date of reconciliation.
(vii) Branch incurred advertisement expenses of ` 10,000 on behalf of other Branches,
but not recorded in the books of Branch.
(viii) Head office made payment of ` 16,000 for purchase of goods by branch, but not
recorded in branch books.
Accounts from Incomplete Records
13. The following information relates to the business of ABC Enterprises, who requests you to
prepare a Trading and Profit & Loss A/c for the year ended 31st March, 2017 and a Balance
Sheet as on that date.

(a) Assets and Liabilities as on:

in `
1.4.2016 31.3.2017
Furniture 60,000 63,500
Inventory 80,000 70,000
Sundry Debtors 1,60,000 ?
Sundry Creditors 1,10,000 1,50,000
Prepaid Expenses 6,000 7,000
Outstanding Expenses 20,000 18,000
Cash in Hand & Bank Balance 12,000 26,250
(b) Cash transaction during the year:
(i) Collection from Debtors, after allowing discount of ` 15,000 amounted to
` 5,85,000.
(ii) Collection on discounting of Bills of Exchange, after deduction of discount of
` 1,250 by bank, totalled to ` 61,250.
(iii) Creditors of ` 4,00,000 were paid ` 3,92,000 in full settlement of their dues.
(iv) Payment of Freight inward of ` 30,000.
(v) Amount withdrawn for personal use ` 70,000.
(vi) Payment for office furniture ` 10,000.
(vii) Investment carrying annual interest of 6% were purchased at ` 95 (200 shares,
face value ` 100 each) on 1st October 2016 and payment made thereof.
(viii) Expenses including salaries paid ` 95,000.
(ix) Miscellaneous receipt of ` 5,000.
(c) Bills of exchange drawn on and accepted by customers during the year amounte d to
` 1,00,000. Of these, bills of exchange of ` 20,000 were endorsed in favour of
creditors. An endorsed bill of exchange of ` 4,000 was dishonoured.
(d) Goods costing ` 9,000 were used as advertising material.
(e) Goods are invariably sold to show a gross profit of 20% on sales.
(f) Difference in cash book, if any, is to be treated as further drawing or introduction of
capital by proprietor of ABC enterprises.
(g) Provide at 2% for doubtful debts on closing debtors.

Partnership Accounts: Dissolution of Partnership

14. A, B and C are in partnership sharing profits and losses in the ratio of 5:4:4. The Balance
Sheet of the firm as on 31st March, 2018 is as below:
Liabilities ` Assets `
A’s Capital 1,20,000 Factory Building 1,93,280
B’s Capital 80,000 Plant and Machinery 1,30,200
C’s Capital 1,00,000 Trade Receivables 43,200
B’s Loan 36,000 Inventories 99,120
Trade Payables 1,32,000 Cash at Bank 2,200
4,68,000 4,68,000
On Balance Sheet date, all the three partners have decided to dissolve their partnership.
The partners decided to distribute amounts as and when feasible and for this purpose they
appoint C who was to get as his remuneration 1% of the value of the assets realised other
than cash at bank and 10% of the amount distributed to the partners.
Assets were realised piecemeal as under:
`
First instalment 1,49,200
Second instalment 1,38,602
Third instalment 80,000
Last instalment 56,000
Dissolution expenses were provided for estimated amount of ` 24,000

The trade payables were were settled finally for ` 1,27,200
You are required to prepare a statement showing distribution of cash amongst the partners
by "Highest Relative Capital Method".
Framework for Preparation and Presentation of Financial Statements
15. (a) Explain in brief, the alternative measurement bases, for determining the value at
which an element can be recognized in the Balance Sheet or Statement of Profit and
Loss.
(b) Mohan started a business on 1 st April 2017 with ` 12,00,000 represented by 60,000
units of ` 20 each. During the financial year ending on 31 st March, 2018, he sold the
entire stock for ` 30 each. In order to maintain the capital intact, calculate the
maximum amount, which can be withdrawn by Mohan in the year 2017-18 if Financial
Capital is maintained at historical cost.

Accounting Standards
AS 2 Valuation of Inventories
16. (a) A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is
required. The company provides you following information for the year ended
31st March, 2017.
` Per unit
Raw Material X
Cost price 380
Unloading Charges 20
Freight Inward 40
Replacement cost 300
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80
Additional Information:
(i) Total fixed overhead for the year was ` 4,00,000 on normal capacity of 20,000
units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was ` 2,400
units.
You are required to calculate the total value of closing stock of Raw Material X and
Chemical Y according to AS 2, when
(i) Net realizable value of Chemical Y is ` 800 per unit
(ii) Net realizable value of Chemical Y is ` 600 per unit
AS 4 Contingencies and Events Occurring after the Balance Sheet Date
(b) While preparing its final accounts for the year ended 31 st March, 2017, a company
made provision for bad debts @ 5% of its total debtors. In the last week of February,
2017 a debtor for ` 20 lakhs had suffered heavy loss due to an earthquake; the loss
was not covered by any insurance policy. In April, 2017 the debtor became a
bankrupt. Can the company provide for the full loss arising out of insolvency of the
debtor in the final accounts for the year ended 31 st March, 2017? You are required to
advise the company in line with AS 4.

AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Polices
17. (a) The Accountant of Mobile Limited has sought your opinion with relevant reasons,
whether the following transactions will be treated as change in Accounting Pol icy or
not for the year ended 31 st March, 2017. You are required to advise him in the
following situations in accordance with the provisions of AS 5
(i) Provision for doubtful debts was created @ 2% till 31 st March, 2016. From the
Financial year 2016-2017, the rate of provision has been changed to 3%.
(ii) During the year ended 31st March, 2017, the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.
(iii) Till the previous year the furniture was depreciated on straight line basis over a
period of 5 years. From current year, the useful life of furniture has been
changed to 3 years.
(iv) Management decided to pay pension to those employees who have retired after
completing 5 years of service in the organization. Such employees will get
pension of ` 20,000 per month. Earlier there was no such scheme of pension in
the organization.
(v) During the year ended 31st March, 2017, there was change in cost formula in
measuring the cost of inventories.
AS 10 Property, Plant and Equipment
(b) ABC Ltd. is installing a new plant at its production facility. It provides you the following
information:
`
Cost of the plant (cost as per supplier's invoice) 31,25,000
Estimated dismantling costs to be incurred after 5 years 2,50,000
Initial Operating losses before commercial production 3,75,000
Initial delivery and handling costs 1,85,000
Cost of site preparation 4,50,000
Consultants used for advice on the acquisition of the plant 6,50,000
You are required to compute the costs that can be capitalised for plant by ABC Ltd.,
in accordance with AS 10: Property, Plant and Equipment.
AS 11 The Effects of Changes in Foreign Exchange Rates
18. (a) (i) Classify the following items as monetary or non-monetary item:
Share Capital

Trade Receivables
Investment in Equity shares
Fixed Assets.
(ii) Exchange Rate per $
Goods purchased on 1.1.2017 for US $ 15,000 ` 75
Exchange rate on 31.3.2017 ` 74
Date of actual payment 7.7.2017 ` 73
You are required to ascertain the loss/gain for financial years 2016-17 and 2017-
18, also give their treatment as per AS 11.
AS 12 Government Grants
(b) A specific government grant of ` 15 lakhs was received by USB Ltd. for acquiring the
Hi-Tech Diary plant of ` 95 lakhs during the year 2014-15. Plant has useful life of 10
years. The grant received was credited to deferred income in the balance sheet. During
2017-18, due to non-compliance of conditions laid down for the grant, the company had
to refund the whole grant to the Government. Balance in the deferred income on that
date was ` 10.50 lakhs and written down value of plant was ` 66.50 lakhs.
(i) What should be the treatment of the refund of the grant and the effect on cost of
plant and the amount of depreciation to be charged during the year 2017-18 in
profit and loss account?
(ii) What should be the treatment of the refund, if grant was deducted from the cost
of the plant during 2014-15 assuming plant account showed the balance of ` 56
lakhs as on 1.4.2017?
You are required to explain in the line with provisions of AS 12.
AS 13 Accounting for Investments
19. (a) M/s Active Builders Ltd. invested in the shares of another company (with an intention
to hold the shares for short term period )on 31st October, 2016 at a cost of ` 4,50,000.
It also earlier purchased Gold of ` 5,00,000 and Silver of ` 2,25,000 on 31st March,
2014.
Market values as on 31 st March, 2017 of the above investments are as follows:
Shares ` 3,75,000; Gold ` 7,50,000 and Silver ` 4,35,000
You are required explain how will the above investments be shown in the books of
account of M/s Active Builders Ltd. for the year ending 31 st March, 2017 as per the
provisions of AS 13?

AS 16 Borrowing costs
(b) A company incorporated in June 2017, has setup a factory within a period of 8 months
with borrowed funds. The construction period of the assets had reduced drastically due
to usage of technical innovations by the company. Whether interest on borrowings for
the period prior to the date of setting up the factory should be capitalized although it
has taken less than 12 months for the assets to get ready for use. You are required to
comment on the necessary treatment with reference to AS 16.
AS 17 Segment Reporting
20 (a) Calculate the segment results of a manufacturing organization from the following
information:
Segments A B C Total
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 1,10,000
(allocated in 5 : 4 : 2 basis)
Revenue from transactions with
other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses 77,000
Expenses on transactions with
other segments
Transaction from B 75,000 30,000
Transaction from C 6,000 40,000
Transaction from A 18,000 82,000
AS 22 Accounting for Taxes on Income
(b) Beta Ltd. is a full tax free enterprise for the first ten years of its existence and is in
the second year of its operation. Depreciation timing difference resulting in a tax
liability in year 1 and 2 is ` 1,000 lakhs and ` 2,000 lakhs respectively. From the
third year it is expected that the timing difference would reverse each year by ` 50
lakhs. Assuming tax rate of 40%, you are required to compute to the deferred tax
liability at the end of the second year and any charge to the Profit and Loss account.

SUGGESTED ANSWERS
1. (a) Balance Sheet of Mehar Ltd. as at 31 st March, 2018

Note `
I EQUITY AND LIABILITIES:
(1) (a) Share Capital 1 1,60,00,000
(b) Reserves and Surplus 2 98,64,424
(2) Non-current Liabilities
Long term Borrowings- 40,00,000
Terms Loans (Secured)
(3) Current Liabilities
(a) Trade Payables - 45,80,000
(b) Other current liabilities 3 20,03,576
(c) Short-term Provisions (Provision for taxation) 10,20,000
Total 3,74,68,000
II ASSETS
(1) Non-current Assets
(a) Fixed Assets:
(i) Tangible Assets 4 2,06,00,000
(ii) Capital WIP 8,00,000
(b) Non- current Investments 9,00,000
(2) Current Assets:
(a) Inventories 5 48,00,000
(b) Trade Receivables 6 48,20,000
(c) Cash and Cash Equivalents 38,40,000
(d) Short-term Loans and Advances 7 17,08,000
Total 3,74,68,000
Notes to accounts
(` )
1. Share Capital
Authorized, issued, subscribed & called up
1,20,000, Equity Shares of ` 100 each 1,20,00,000

40,000 10% Redeemable Preference

Shares of 100 each 40,00,000 1,60,00,000
2. Reserves and Surplus
Securities Premium Account 19,00,000
General reserve 62,00,000
Profit & Loss Balance
Opening balance -
Profit for the period 32,00,000
Less: Miscellaneous Expenditure
written off (2,32,000)
29,68,000
Less: Appropriations
Dividend (10,00,000)
Dividend distribution tax (2,03,576) 17,64,424 98,64,424
3. Other current liabilities
Loan from other parties 8,00,000
Dividend 10,00,000
Dividend Distribution tax [W.N] 2,03,576 20,03,576
4. Tangible assets
Fixed Assets
Opening balance 2,26,00,000
Less: Depreciation (20,00,000)
Closing balance 2,06,00,000
5. Inventories
Finished Goods 30,00,000
Stores 16,00,000
Loose Tools 2,00,000 48,00,000
6. Trade Receivables
Trade receivables 49,00,000
Less: Provision for Doubtful Debts (80,000) 48,20,000
7. Short term loans & Advances
Staff Advances 2,20,000
Other Advances 14,88,000 17,08,000

Working Note:
Calculation of Dividend distribution tax
(i) Grossing-up of dividend:
`
Dividend distributed by Mehar Ltd.
Equity shares dividend 6,00,000
Preference share dividend 4,00,000 10,00,000
Add: Increase for the purpose of grossing up of dividend
10,00,000 x [15 /(100-15)] 1,76,470
Gross dividend 11,76,470
(ii) Dividend distribution tax @ 17.304% 2,03,576

(b) Calculation of effective capital and maximum amount of monthly remuneration
(` in lakhs)
Paid up equity share capital 180
Paid up Preference share capital 30
Reserve excluding Revaluation reserve (225-15) 210
Securities premium 60
Long term loans 60
Deposits repayable after one year 30
570
Less: Accumulated losses not written off (30)
Investments (270)
Effective capital for the purpose of managerial remuneration 270
Since PQ Ltd. is incurring losses and no special resolution has been passed by the
company for payment of remuneration, managerial remuneration will be calculated on
the basis of effective capital of the company, therefore maximum remuneration
payable to the Managing Director should be @ ` 60,00,000 per annum*.
*If the effective capital is less then 5 Crore, limit of yearly remuneration payable
should not exceed ` 60 lakhs as per Companies Act, 2013.

2. Harry Ltd.
Cash Flow Statement
for the year ended 31 st March, 2018
` `
Cash flows from operating activities
Net Profit before taxation 8,000
Adjustments for:
Depreciation (1,000 + 2,000 +5,000) 8,000
Profit on sale of Investment (8,000)
Profit on sale of car (1,400)
Operating profit before working capital changes 6,600
Increase in Trade receivables (2,000)
Increase in inventories (6,000)
Increase in Trade payables 3,000
Cash generated from operations 1,600
Income taxes paid (2,000)
Net cash generated from operating activities (A) (400)
Cash flows from investing activities
Sale of car 3,400
Purchase of car (16,000)
Sale of Investment 10,000
Purchase of Investment (6,000)
Purchase of Furniture & fixtures (14,000)
Net cash used in investing activities (B) (22,600)
Cash flows from financing activities
Issue of shares for cash 20,000
Dividends paid* (2,000)
Net cash from financing activities(C) 18,000
Net decrease in cash and cash equivalents (A + B +C) (5,000)
Cash and cash equivalents at beginning of period 17,000
Cash and cash equivalents at end of period 12,000

* Dividend declared for the year ended 31 st March, 2017 amounting ` 2,000 must have
been paid in the year 2017-18. Hence, it has been considered as cash outflow for
preparation of cash flow statement of 2017-18.
Working Notes:
1. Calculation of Income taxes paid
`
Income tax expense for the year 3,000
Add: Income tax liability at the beginning of the year 2,000
5,000
Less: Income tax liability at the end of the year (3,000)
2,000
2. Calculation of Fixed assets acquisitions
Furniture & Fixtures (`) Car (`)
W.D.V. at 31.3.2018 34,000 25,000
Add back: Depreciation for the year 2,000 5,000
Disposals — 2,000
36,000 32,000
Less: W.D.V. at 31. 3. 2017 (22,000) (16,000)
Acquisitions during 2016-2018 14,000 16,000
3. Pre-incorporation period is for two months, from 1st April, 2017 to 31 st May, 2017.
10 months’ period (from 1 st June, 2017 to 31st March, 2018) is post-incorporation period.
Statement showing calculation of profit/losses for pre and post incorporation
periods
Pre-Inc Post-Inc
` `
Gross Profit 50,000 4,00,000
Bad debts Recovery 14,000
64,000 4,00,000
Less: Salaries 24,000 1,20,000
Audit fees - 12,000
Depreciation 3,000 16,250
Sales commission 2,000 16,000
Bad Debts (49,000 + 14,000) 7,000 56,000

Interest on Debentures  36,000

Rent 4,000 34,400
Net Profit 24,000 1,09,350
Working Notes:
(i) Calculation of ratio of Sales
Sales from April to September = 6,00,000 (1,00,000 p.m. on average basis)
Oct. to March = ` 12,00,000 (2,00,000 p.m. on average basis)
Thus, sales for pre-incorporation period = `2,00,000
post-incorporation period = ` 16,00,000
Sales are in the ratio of 1:8
(ii) Gross profit, sales commission and bad debts written off have been allocated in pre
and post incorporation periods in the ratio of Sales.
(iii) Rent, salary are allocated on time basis.
(iv) Interest on debentures is allocated in post incorporation period.
(v) Audit fees charged to post incorporation period as relating to company audit.
(vi) Depreciation of ` 18,000 divided in the ratio of 1:5 (time basis) and ` 1,250 charged
to post incorporation period.
(vii) Bad debt recovery of ` 14,000/- is allocated in pre-incorporation period, being sale
made in 2014-15.
(viii) Rent
(` 38,400 – Additional rent for 6 months) `
[38,400- 14,400 (2,400 x 6)] = 24,000
1/4/17 -31/5//17 (2,000 x 2) = 4,000
1/6/17 -31/3/18 – [(2,000 x 10) +14,400] = 34,400
38,400
4. Journal Entries in the books of Xeta Ltd.
` `
1-4-2017 Equity share final call A/c Dr. 5,40,000
To Equity share capital A/c 5,40,000

(For final calls of ` 2 per share on 2,70,000

equity shares due as per Board’s Resolution
dated….)
20-4-2017 Bank A/c Dr. 5,40,000
To Equity share final call A/c 5,40,000
(For final call money on 2,70,000 equity shares
received)
Securities Premium A/c Dr. 1,00,000
General Reserve A/c Dr. 3,60,000
Profit and Loss A/c Dr. 2,15,000
To Bonus to shareholders A/c 6,75,000
(For making provision for bonus issue of one
share for every four shares held)
Bonus to shareholders A/c Dr. 6,75,000
To Equity share capital A/c 6,75,000
(For issue of bonus shares)
Extract of Balance Sheet as at 30 th April, 2017 (after bonus issue)
`
Authorised Capital
50,000 12% Preference shares of `10 each 5,00,000
4,00,000 Equity shares of `10 each 40,00,000
Issued and subscribed capital
24,000 12% Preference shares of `10 each, fully paid 2,40,000
3,37,500 Equity shares of `10 each, fully paid 33,75,000
(Out of above, 67,500 equity shares @ `10 each were issued by way of
bonus)
Reserves and surplus
Profit and Loss Account 3,85,000
5. Ex-right value of the shares = (Cum-right value of the existing shares + Rights shares x
Issue Price) / (Existing Number of shares + Number of
Right shares)
= (` 360 x 2 Shares + ` 180 x 1 Share) / (2 + 1) Shares
= ` 900 / 3 shares = ` 300 per share.

Value of right = Cum-right value of the share – Ex-right value of the

share
= ` 360 – ` 300 = ` 60 per share.
Hence, any one desirous of having a confirmed allotment of one share from the company
at ` 180 will have to pay ` 120 (2 shares x ` 60) to an existing shareholder holding 2
shares and willing to renounce his right of buying one share in favour of that person.
6. In the books of Meera Limited
Journal Entries
Date Particulars Dr. (`) Cr. (`)
2018
Jan 1 10% Redeemable Preference Share Capital Dr. 1,50,000
A/c
Premium on Redemption of Pref. shares Dr. 15,000
To Preference Shareholders A/c 1,65,000
(Being the amount payable on redemption
transferred to Preference Shareholders
Account)
Preference Shareholders A/c Dr. 1,65,000
To Bank A/c 1,65,000
(Being the amount paid on redemption of
preference shares)
Profit & Loss A/c Dr. 15,000
To Premium on Redemption of Pref. 15,000
Shares
(Being adjustment of premium on redemption)
General Reserve A/c Dr. 1,12,500
Profit & Loss A/c Dr. 37,500
To Capital Redemption Reserve A/c 1,50,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
Note: Securities premium and capital reserve cannot be utilized for transfer to Capital
Redemption Reserve.

7. Spices Ltd.
Balance Sheet as on 01.04.2018
Figures as at the
Particulars Note No. end of current
reporting period
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 1,10,000
(b) Reserves and Surplus 2 91,000
(2) Non-Current Liabilities
(a) Long-term borrowings - Unsecured Loans 28,000
(3) Current Liabilities
(a) Short-term borrowings 19,000
Total 2,48,000
II. Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets 72,000
(2) Current assets
(a) Cash and cash equivalents 98,000
(b) Other current assets 78,000
Total 2,48,000
Notes to Accounts
`
1 Share Capital
11,000 Equity Shares of ` 10 each 1,10,000
(Out of above, 2000 shares issued to debentures
holders who opted for conversion into shares)
2 Reserve and Surplus
General Reserve 38,000
Add: Debenture Redemption Reserve transfer 35,000
73,000
Add: Profit on sale of investments 22,000
95,000

Less: Premium on redemption of debentures (1,200 x ` 5) (6,000) 89,000

Securities Premium Account (2,000 x ` 1) 2,000
91,000
Working Notes:
(i) Calculation of number of shares to be allotted `
Total number of debentures 1,200
Less: Number of debentures not opting for conversion (200)
1,000
40% of 1,000 400
Redemption value of 400 debentures (400 x ` 55) ` 22,000
Number of Equity Shares to be allotted 22,000/11 = 2,000 shares of ` 10 each.
(ii) Calculation of cash to be paid `
Number of debentures 1,200
Less: Number of debentures to be converted into equity shares (400)
800
Redemption value of 800 debentures (800 × ` 55) ` 44,000
(iii) Cash and Bank Balance `
Balance before redemption 86,000
Add: Proceeds of investments sold 56,000
1,42,000
Less: Cash paid to debenture holders (44,000)
98,000
8. Investment Account-Equity Shares in X Ltd.
Date No. of Dividend Amount Date No. of Dividend Amount
shares shares
` ` ` `
2017 2018
April 1 To Balance 4,000 - 60,000 Jan. 20 By Bank 8,000 2,000
b/d (dividend)
Sept 1 To Bank 1,000 - 14,000 Feb. 1 By Bank 4,000 56,000
Sept.30 To Bonus 2,000 — Mar. 31 By Balance c/d 4,000 42,250
Issue
Dec.1 To Bank 1,000 - 12,500
(Right)

2018
Feb. 1 To Profit & 13,750
Loss A/c
Mar.31 To Profit &
Loss A/c
(Dividend 8,000
income)
8,000 8,000 1,00,250 8,000 8,000 1,00,250

April. 1 To Balance 4,000 42,250
b/d
Working Notes:
1. Cost of shares sold — Amount paid for 8,000 shares
`
(` 60,000 + ` 14,000 + ` 12,500) 86,500
Less: Dividend on shares purchased on 1 st Sept, 2017 (2,000)
Cost of 8,000 shares 84,500
Cost of 4,000 shares (Average cost basis*) 42,250
Sale proceeds (4,000 shares @ 14/-) 56,000
Profit on sale 13,750
* For ascertainment of cost for equity shares sold, average cost basis has been
applied.
2. Value of investment at the end of the year
Closing balance will be valued based on lower of cost (` 42,250) or net realizable
value (`13 x 4,000). Thus investment will be valued at ` 42,250.
3. Calculation of sale of right entitlement
1,000 shares x ` 8 per share = ` 8,000
Amount received from sale of rights will be credited to P & L A/c as per AS 13
‘Accounting for Investments’.
4. Dividend received on investment held as on 1 st April, 2017
= 4,000 shares x ` 10 x 20%
= ` 8,000 will be transferred to Profit and Loss A/c
Dividend received on shares purchased on 1 st Sep. 2017
= 1,000 shares x ` 10 x 20% = ` 2,000 will be adjusted to Investment A/c

Note: It is presumed that no dividend is received on bonus shares as bonus shares

are declared on 30 th Sept., 2017 and dividend pertains to the year ended 31.3.2017.
9. Memorandum Trading Account for the period 1 st April, 2017 to 27 th July, 2017
Normal Abnormal Total Normal Abnormal Total
Items Items Items Items
` ` ` ` ` `
To Opening 60,000 4,000 64,000 By Sales 4,00,000 2,300 4,02,300
stock (W.N. 3)
(W.N.5)
To Purchases 2,80,000 - 2,80,000 By Loss - 700 700
( W.N. 1)
To Wages 50,000 - 50,000 By Goods 8,000 - 8,000
(W.N. 4) on
Approval
( W.N. 2)
To Gross 80,000 - 80,000 By Closing 62,000 1,000 63,000
profit stock (Bal.
@ 20% fig.)
4,70,000 4,000 4,74,000 4,70,000 4,000 4,74,000
Statement of Claim for Loss of Stock

`
Book value of stock as on 27 th July, 2017 62,000
Add: Abnormal Stock 1,000
Less: Stock salvaged (5,000)
Loss of stock 58,000
Add: Fire fighting expenses 1,300
Total Loss 59,300
Amount of claim to be lodged with insurance company
Policy value
= Loss x
Value of stock on the date of fire
= ` 59,300 x (55,000/ 63,000) = ` 51,770 (rounded off)
Working Notes:
1. Calculation of Adjusted Purchases
`
Purchases 2,92,000

Less: Purchase of Machinery (10,000)

Less: Free samples (2,000)
Adjusted purchases 2,80,000
2. Calculation of Goods with Customers
Approval for sale has not been received = ` 40,000 X 1/4 = ` 10,000.
Hence, these should be valued at cost i.e. (` 10,000 – 20% of ` 10,000)
= ` 8,000
3. Calculation of Actual Sales
Total Sales ` 4,12,300
Less: Approval for sale not received (1/4 X ` 40,000) ` 10,000
Actual Sales ` 4,02,300
4. Calculation of Wages
Total Wages ` 53,000
Less: Wages for installation of machinery ` 3,000
` 50,000
5. Value of Opening Stock
Original cost of stock as on 31st March,2018
= ` 63,000 + 1,000 (Amount written off)
= ` 64,000.
10.
`
(i) Price of two cars = ` 2,00,000 x 2 4,00,000
Less: Depreciation for the first year @ 30% 1,20,000
2,80,000
30
Less: Depreciation for the second year = ` 2, 80,000 x 84,000
100
Agreed value of two cars taken back by the hire vendor 1,96,000
(ii) Cash purchase price of one car 2,00,000
Less: Depreciation on ` 2,00,000 @20% for the first year 40,000
Written drown value at the end of first year 1,60,000
Less: Depreciation on ` 1,60,000 @ 20% for the second year 32,000

Book value of car left with the hire purchaser 1,28,000

(iii) Book value of one car as calculated in working note (ii) above 1,28,000
Book value of Two cars = ` 1,28,000 x 2 2,56,000
Value at which the two cars were taken back, calculated in 1,96,000
working note (i) above
Hence, loss on cars taken back = ` 2,56,000 – ` 1,96,000 = ` 60,000
(iv) Sale proceeds of cars repossessed 1,70,000
Less: Value at which Cars were taken back ` 1,96,000
Repair ` 10,000 2,06,000
Loss on resale 36,000
11. Departmental Trading and Profit and Loss Account of M/s Division
For the year ended 31 st December, 2017
Deptt. A Deptt. B Deptt. A Deptt. B
` ` ` `
To Opening stock 50,000 40,000 By Sales 10,00,000 15,00,000
To Purchases 6,50,000 9,10,000 By Closing
To Gross profit 4,00,000 7,50,000 stock 1,00,000 2,00,000
11,00,000 17,00,000 11,00,000 17,00,000
To General Expenses 50,000 75,000 By Gross 4,00,000 7,50,000
(in ratio of sales) profit
To Profit ts/f to general 3,50,000 6,75,000
profit and loss
account
4,00,000 7,50,000 4,00,000 7,50,000
General Profit and Loss Account

` `
To Stock reserve required (additional) By Profit from:
Stock in Deptt. A Deptt. A 3,50,000
50% of (` 20,000 - ` 10,000) (W.N.1) 5,000 Deptt. B 6,75,000
Stock in Deptt. B
40% of (` 30,000 - ` 15,000) (W.N.2) 6,000
To Net Profit 10,14,000
10,25,000 10,25,000

Working Notes:
1. Stock of department A will be adjusted according to the gross profit rate applicable to
department B = [(7,50,000 ÷ 15,00,000) х 100] = 50%
2. Stock of department B will be adjusted according to the gross profit rate applicable to
department A = [(4,00,000 ÷ 10,00,000) х 100] = 40%
12. Books of Branch
Journal Entries
Amounts `
Dr. Cr.
(i) Head Office Account Dr. 5,000
To Salaries Account 5,000
(Being rectification of salary paid on behalf of Head
Office)
(ii) No entry in Branch Books is required.
(iii) Depreciation A/c Dr. 15,000
To Head Office Account 15,000
(Being depreciation of assets accounted for)
(iv) Expenses Account Dr. 75,000
(Being allocated expenses of Head Office recorded)
(v) Head Office Account Dr. 60,000
To Debtors Account 60,000
(Being adjustment entry for collection from Branch
Debtors directly by Head Office)
(vi) Goods in-transit Account Dr. 50,000
(Being goods sent by Head Office still in-transit)
(vii) Head Office Account Dr. 10,000
To expenses Account 10,000
(Being expenditure incurred, wrongly recorded in
books)
(vii) Purchases account A/c Dr. 16,000
(Being purchases booked)

13. Trading and Profit and Loss Account of ABC enterprise

for the year ended 31 st March, 2017
` `
To Opening Inventory 80,000 By Sales 6,08,750
To Purchases 4,56,000 By Closing inventory 70,000
Less: For advertising (9,000) 4,47,000
To Freight inwards 30,000
To Gross profit c/d 1,21,750
6,78,750 6,78,750
To Sundry expenses 92,000 By Gross profit b/d 1,21,750
To Advertisement 9,000 By Interest on investment 600
To Discount allowed – (20,000 x 6/100 x ½)
Debtors 15,000 By Discount received 8,000
Bills Receivable 1,250 16,250 By Miscellaneous income 5,000
To Depreciation on 6,500
furniture
To Provision for 1,455
doubtful debts
To Net profit 10,145
1,35,350 135,350
Balance Sheet as on 31 st March, 2017
Liabilities Amount Assets Amount
` ` ` `
Capital as on 1,88,000 Furniture (w.d.v.) 60,000
1.4.2016 Additions during the
Less: Drawings (91,000) year 10,000
97,000 Less: Depreciation (6,500) 63,500
Add: Net Profit 10,145 1,07,145 Investment (200 x 95) 19,000
Sundry creditors 1,50,000 Interest accrued 600
Outstanding 18,000 Closing inventory 70,000
expenses Sundry debtors 72,750
Less: Provision for

doubtful debts 1,455 71,295

Bills receivable 17,500
Cash in hand and at 26,250
bank
Prepaid expenses 7,000
2,75,145 2,75,145
Working Notes:
(1) Capital on 1 st April, 2016
Balance Sheet as on 1 st April, 2016
Liabilities ` Assets `
Capital (Bal.fig.) 1,88,000 Furniture (w.d.v.) 60,000
Creditors 1,10,000 Closing Inventory 80,000
Outstanding expenses 20,000 Sundry debtors 1,60,000
Cash in hand and at bank 12,000
Prepaid expenses 6,000
3,18,000 3,18,000
(2) Purchases made during the year
Sundry Creditors Account
` `
To Cash and bank A/c 3,92,000 By Balance b/d 1,10,000
To Discount received A/c 8,000 By Sundry debtors A/c 4,000
To Bills Receivable A/c 20,000 By Purchases A/c 4,56,000
To Balance c/d 1,50,000 (Balancing figure)
5,70,000 5,70,000
(3) Sales made during the year
`
Opening inventory 80,000
Purchases 4,56,000
Less: For advertising (9,000) 4,47,000
Freight inwards 30,000
5,57,000

Less: Closing inventory (70,000)

Cost of goods sold 4,87,000
Add: Gross profit (25% on cost) 1,21,750
6,08,750
(4) Debtors on 31 st March, 2017
Sundry Debtors Account
` `
To Balance b/d 1,60,000 By Cash and bank A/c 5,85,000
To Sales A/c 6,08,750 By Discount allowed A/c 15,000
To Sundry creditors A/c By Bills receivable A/c 1,00,000
(bill dishonoured) 4,000 By Balance c/d (Bal. fig.) 72,750
7,72,750 7,72,750
(5) Additional drawings by proprietors of ABC enterprises
Cash and Bank Account
` `
To Balance b/d 12,000 By Freight inwards A/c 30,000
To Sundry debtors A/c 5,85,000 By Furniture A/c 10,000
To Bills Receivable A/c 61,250 By Investment A/c 19,000
To Miscellaneous income A/c 5,000 By Expenses A/c 95,000
By Creditors A/c 3,92,000
By Drawings A/c
[` 70,000 + ` 21,000) 91,000
(Additional drawings)]
By Balance c/d 26,250
6,63,250 6,63,250
(6) Amount of expenses debited to Profit and Loss A/c
Sundry Expenses Account
` `
To Prepaid expenses A/c 6,000 By Outstanding expenses A/c 20,000
(on 1.4.2016) (on 1.4.2016)
To Bank A/c 95,000 By Profit and Loss A/c 92,000
(Balancing figure)

To Outstanding expenses By Prepaid expenses A/c

A/c (on 31.3.2017) 18,000 (on 31.3.17) 7,000
1,19,000 1,19,000
(7) Bills Receivable on 31 st March, 2017

Bills Receivable Account
` `
To Debtors A/c 1,00,000 By Creditors A/c 20,000
By Bank A/c 61,250
By Discount on bills receivable A/c 1,250
By Balance c/d (Balancing figure) 17,500
1,00,000 1,00,000
Note: All sales and purchases are assumed to be on credit basis.
14. Statement showing distribution of cash amongst the partners
Trade B’s A ( `) B ( `) C (` )
Payable Loan
Balance Due 1,32,000 36,000 1,20,000 80,000 1,00,000
Including 1st
Instalment amount
with the firm
` (2,200 + 1,49,200) 1,51,400
Less: Dissolution
expenses provided (24,000)
for
1,27,400
Less: C’s
remuneration of 1%
on assets realized (1,492)
(1,49,200 x 1%)
1,25,908
Less: Payment
made to Trade 1,25,908 1,25,908
Payables
Balance due NIL 6,092
2nd instalment 1,38,602
realised
Less: C’s
remuneration of 1% (1,386)

on assets realized 1,37,216

(1,38,602 x 1%)
Less: Payment
made to Trade (1,292) (1,292)
Payables
Transferred to P& L 4,800
A/c
1,35,924
Less: Payment for (36,000) 36,000
B’s loan A/c
Amount available for
distribution to 99,924 NIL
partners
Less: C’s
remuneration of 10% (9,084)
of the amount
distributed to
partners (99,924 x
10/110)
Balance to be
distributed to 90,840
partners on the
basis of HRCM
Less: Paid to C (4,000) (4,000)
(W.N.)
86,840 96,000
Less: Paid to A and (36,000) (20,000) (16,000)
C in 5:4 (W.N.)
Balance due 50,840 1,00,000 80,000 80,000
Less: Paid to A, B &
C in 5:4:4 50,840 (19,554) 15,643 (15,643)
Nil
Amount of 3rd 80,000 80,446 64,357 64,357
instalment
Less: C’s
remuneration of 1%
on assets realized
(80,000 x 1%) (800)
79,200
Less: C’s
remuneration of 10%

of the amount
distributed to
(7,200)
partners (79,200 x
10/110)
72,000
Less: Paid to A, B, C
in 5:4:4 for (W.N.) (72,000) (27,692) 22,154 (22,154)
Nil 52,754 42,203 42,203
Amount of 4th and 56,000
last instalment
Less: C’s
remuneration of 1%
on assets realized
(56,000 x 1%)
(560)
55,440
Less: C’s
remuneration of 10%
of the amount
distributed to
partners (55,440 x
10/110) (5,040)
Less: Paid to A, B 50,400
and C in 5:4:4
(19,384) 15,508 (15,508)
Loss suffered by 33,370 26,695 26,695
partners
Working Note:
(i) ` 2,200 added to the first instalment received on sale of assets represents the Cash
in Bank
(ii) The amount due to Creditors at the end of the utilization of First Instalment is ` 6,092.
However, since the creditors were settled for ` 1,27,200 only the balance ` 1,292
were paid and the balance ` 4,800 was transferred to the Profit & Loss Account.
(iii) Highest Relative Capital Basis
A B C
` ` `
Balance of Capital Accounts (1) 1,20,000 80,000 1,00,000
Profit sharing ratio 5 4 4
Capital Profit sharing ratio 24,000 20,000 25,000

Capital in profit sharing

ratio taking B’s Capital as base (2) 1,00,000 80,000 80,000
Excess of A’s Capital and C’s Capital 1-2) =(3) 20,000 Nil 20,000
Again repeating the process
Profit sharing ratio 5 4
Capital Profit sharing ratio 4,000 5,000
Capital in profit sharing
ratio taking A’s Capital as base (4) 20,000 16,000
Excess of C’s Capital (3-4)=(5) nil 4,000
Therefore, firstly `4,000 is to be paid to C, then A and C to be paid in proportion of
5:4 up to ` 36,000 to bring the capital of all partners A, B and C in proportion to their
profit sharing ratio. Thereafter, balance available will be paid in the profit sharing
ratio 5:4:4 to all partners viz A, B and C.
15. (a) The Framework for Recognition and Presentation of Financial statements recognizes
four alternative measurement bases for the purpose of determining the value at which
an element can be recognized in the balance sheet or statement of profit and loss.
These bases are: (i)Historical Cost; (ii)Current cost (iii) Realizable (Settlement) Value
and (iv) Present Value.
A brief explanation of each measurement basis is as follows:
1. Historical Cost: Historical cost means acquisition price. According to this, assets
are recorded at an amount of cash or cash equivalent paid or the fair value of
the asset at the time of acquisition. Liabilities are generally recorded at the
amount of proceeds received in exchange for the obligation.
2. Current Cost: Current cost gives an alternative measurement basis. Assets are
carried out at the amount of cash or cash equivalent that would have to be paid
if the same or an equivalent asset was acquired currently. Liabilities are carried
at the undiscounted amount of cash or cash equivalents that would be required
to settle the obligation currently.
3. Realizable (Settlement) Value: As per realizable value, assets are carried at the
amount of cash or cash equivalents that could currently be obtained by selling
the assets in an orderly disposal. Liabilities are carried at their settlement values;
i.e. the undiscounted amount of cash or cash equivalents paid to satisfy the
liabilities in the normal course of business.
4. Present Value: Under present value convention, assets are carried at present
value of future net cash flows generated by the concerned assets in the normal
course of business. Liabilities under this convention are carried at present value
of future net cash flows that are expected to be required to settle the liability in
the normal course of business.

(b)
Particulars Financial Capital Maintenance at
Historical Cost (`)
Closing equity
18,00,000 represented by cash
(` 30 x 60,000 units)
Opening equity 60,000 units x ` 20 = 12,00,000
Permissible drawings to keep Capital intact 6,00,000 (18,00,000 – 12,00,000)
Thus, in order to maintain the capital intact Mohan can withdraw ` 6,00,000 as the
maximum amount
16. (a) (i) When Net Realizable Value of the Chemical Y is ` 800 per unit
NRV is greater than the cost of Finished Goods Y i.e. ` 660 (Refer W.N.)
Hence, Raw Material and Finished Goods are to be valued at cost.
Value of Closing Stock:
Qty. Rate (`) Amount (`)
Raw Material X 1,000 440 4,40,000
Finished Goods Y 2,400 660 15,84,000
Total Value of Closing Stock 20,24,000
(ii) When Net Realizable Value of the Chemical Y is ` 600 per unit
NRV is less than the cost of Finished Goods Y i.e. ` 660. Hence, Raw Material
is to be valued at replacement cost and Finished Goods are to be valued at NRV
since NRV is less than the cost.
Value of Closing Stock:
Qty. Rate (`) Amount (`)
Raw Material X 1,000 300 3,00,000
Finished Goods Y 2,400 600 14,40,000
Total Value of Closing Stock 17,40,000
Working Note:
Statement showing cost calculation of Raw material X and Chemical Y
Raw Material X `
Cost Price 380
Add: Freight Inward 40

Unloading charges 20
Cost 440
Chemical Y `
Materials consumed 440
Direct Labour 120
Variable overheads 80
Fixed overheads (`4,00,000/20,000 units) 20
Cost 660
(b) As per AS 4 ‘Contingencies and Events Occurring After the Balance Sheet Date’,
adjustment to assets and liabilities are required for events occurring after the balance
sheet date that provide additional information materially affecting the determination
of the amounts relating to conditions existing at the Balance Sheet date.
A debtor for ` 20,00,000 suffered heavy loss due to earthquake in the last week of
February, 2017 which was not covered by insurance. This information with its
implications was already known to the company. The fact that he became bankrupt
in April, 2017 (after the balance sheet date) is only an additional information related
to the condition existing on the balance sheet date.
Accordingly, full provision for bad debts amounting ` 20,00,000 should be made, to
cover the loss arising due to the insolvency of a debtor, in the final accounts for the
year ended 31st March 2017. Since the company has already made 5% provision of
its total debtors, additional provision amounting ` 19,00,000 shall be made
(20,00,000 x 95%) for the year ended 31 st March, 2017.
17 (a) (i) In the given case, Mobile limited created 2% provision for doubtful debts till
31st March, 2016. Subsequently in 2016-17, the company revised the estimates
based on the changed circumstances and wants to create 3% provision. Thus
change in rate of provision of doubtful debt is change in estimate and is not
change in accounting policy. This change will affect only current year.
(ii) As per AS 5, the adoption of an accounting policy for events or transactions that
differ in substance from previously occurring events or transactions, will not be
considered as a change in accounting policy. Introduction of a formal retirement
gratuity scheme by an employer in place of ad hoc ex-gratia payments to
employees on retirement is a transaction which is substantially different from the
previous policy, will not be treated as change in an accounting policy.
(iii) Change in useful life of furniture from 5 years to 3 years is a change in estimate
and is not a change in accounting policy.
(iv) Adoption of a new accounting policy for events or transactions which did not
occur previously should not be treated as a change in an accounting policy.

Hence the introduction of new pension scheme is not a change in accounting

policy.
(v) Change in cost formula used in measurement of cost of inventories is a change
in accounting policy.
(b) According to AS 10 on Property, Plant and Equipment, the costs which will be
capitalized by ABC Ltd.:
`
Cost of the plant 31,25,000
Initial delivery and handling costs 1,85,000
Cost of site preparation 4,50,000
Consultants’ fees 6,50,000
Estimated dismantling costs to be incurred after 5 years 2,50,000
Total cost of Plant 46,60,000
Note: Operating losses before commercial production amounting to ` 3,75,000 will
not be capitalized as per AS 10. They should be written off to the Statement of Profit
and Loss in the period they are incurred.
18. (a) (i)
Share capital Non-monetary
Trade receivables Monetary
Investment in equity shares Non-monetary
Fixed assets Non-monetary
(ii) As per AS 11 on ‘The Effects of Changes in Foreign Exchange Rates’, all foreign
currency transactions should be recorded by applying the exchange rate on the
date of transactions. Thus, goods purchased on 1.1.2017 and corresponding
creditor would be recorded at ` 11,25,000 (i.e. $15,000 × ` 75)
According to the standard, at the balance sheet date all monetary transactions
should be reported using the closing rate. Thus, creditors of US $15,000 on
31.3.2017 will be reported at ` 11,10,000 (i.e. $15,000 × ` 74) and exchange
profit of ` 15,000 (i.e. 11,25,000 – 11,10,000) should be credited to Profit and
Loss account in the year 2016-17.
On 7.7.2017, creditors of $15,000 is paid at the rate of ` 73. As per AS 11,
exchange difference on settlement of the account should also be transferred to
Profit and Loss account. Therefore, ` 15,000 (i.e. 11,10,000 – 10,95,000) will
be credited to Profit and Loss account in the year 2017-18.

(b) As per para 21 of AS 12, ‘Accounting for Government Grants’, “the amount refundable
in respect of a grant related to specific fixed asset should be recorded by reducing
the deferred income balance. To the extent the amount refundable exceeds any such
deferred credit, the amount should be charged to profit and loss statement.
(i) In this case the grant refunded is ` 15 lakhs and balance in deferred income is
` 10.50 lakhs, ` 4.50 lakhs shall be charged to the profit and loss account for
the year 2017-18. There will be no effect on the cost of the fixed asset and
depreciation charged will be on the same basis as charged in the earlier years.
(ii) If the grant was deducted from the cost of the plant in the year 2014-15 then,
para 21 of AS 12 states that the amount refundable in respect of grant which
relates to specific fixed assets should be recorded by increasing the book value
of the assets, by the amount refundable. Where the book value of the asset is
increased, depreciation on the revised book value should be provided
prospectively over the residual useful life of the asset. Therefore, in this case,
the book value of the plant shall be increased by ` 15 lakhs. The increased cost
of ` 15 lakhs of the plant should be amortized over 7 years (residual life).
Depreciation charged during the year 2017-18 shall be (56+15)/7 years =
` 10.14 lakhs presuming the depreciation is charged on SLM.
19. (a) As per AS 13 ‘Accounting for Investments’, if the shares are purchased with an
intention to hold for short-term period then investment will be shown at the realizable
value. In the given case, shares purchased on 31 st October, 2016, will be valued at `
3,75,000 as on 31st March, 2017.
Gold and silver are generally purchased with an intention to hold it for long term period
until and unless given otherwise. Hence, the investment in gold and silver (purchased
on 31st March, 2014) shall continue to be shown at cost as on 31 st March, 2017 i.e.,
` 5,00,000 and ` 2,25,000 respectively, though their realizable values have been
increased.
Thus the shares, gold and silver will be shown at ` 3,75,000, ` 5,00,000 and
` 2,25,000 respectively and hence, total investment will be valued at ` 11,00,000 in
the books of account of M/s Active Builders for the year ending 31 st March, 2017 as
per provisions of AS 13.
(b) As per para 3.2 to AS 16 ‘Borrowing Costs’, a qualifying asset is an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale.
Further, Explanation to the above para states that what constitutes a substantial
period of time primarily depends on the facts and circumstances of each case.
However, ordinarily, a period of twelve months is considered as substantial period of
time unless a shorter or longer period can be justified on the basis of facts and
circumstances of the case. In estimating the period, time which an asset takes,

technologically and commercially, to get it ready for its intended use or sale is
considered.
It may be implied that there is a rebuttable presumption that a 12 months period
constitutes substantial period of time.
Under present circumstances where construction period has reduced drastically due
to technical innovation, the 12 months period should at best be looked at as a
benchmark and not as a conclusive yardstick. It may so happen that an asset under
normal circumstances may take more than 12 months to complete. However, an
enterprise that completes the asset in 8 months should not be penalized for its
efficiency by denying it interest capitalization and vice versa.
The substantial period criteria ensures that enterprises do not spend a lot of time and
effort capturing immaterial interest cost for purposes of capitalization.
Therefore, if the factory is constructed in 8 months then it shall be considered as a
qualifying asset. The interest on borrowings for the same shall be capitalised
although it has taken less than 12 months for the asset to get ready to u se.
20. (a) Calculation of segment result
Segments A B C Total
` ` ` `
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 50,000 40,000 20,000 1,10,000
Revenue from transactions with
other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from A 25,000 1,00,000 1,25,000
Total segment revenue as per
AS 17 (A) 6,60,000 4,15,000 2,70,000 13,45,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses 35,000 28,000 14,000 77,000
Expenses on transactions with
other segments
Transaction from B 75,000 30,000 1,05,000
Transaction from A 18,000 82,000 1,00,000

Total segment expenses as per

AS 17 (B) 4,16,000 2,36,000 2,01,000 8,53,000
Segment result (A-B) 2,44,000 1,79,000 69,000 4,92,000
(b) As per para 13 of Accounting Standard (AS) 22, Accounting for Taxes on Income”,
deferred tax in respect of timing differences which originate during the tax holiday
period and reverse during the tax holiday period, should not be recognized to the
extent deduction from the total income of an enterprise is allowed during the tax
holiday period as per the provisions of sections 10A and 10B of the Income -tax Act.
Deferred tax in respect of timing differences which originate during the tax holiday
period but reverse after the tax holiday period should be recognized in the year in
which the timing differences originate. However, recognition of deferred tax assets
should be subject to the consideration of prudence. For this purpose, the timing
differences which originate first should be considered to reverse first.
Out of ` 1,000 lakhs depreciation, timing difference amounting ` 400 lakhs (` 50
lakhs x 8 years) will reverse in the tax holiday period and therefore, should not be
recognized. However, for ` 600 lakhs (` 1,000 lakhs – ` 400 lakhs), deferred tax
liability will be recognized for ` 240 lakhs (40% of ` 600 lakhs) in first year. In the
second year, the entire amount of timing difference of ` 2,000 lakhs will reverse only
after tax holiday period and hence, will be recognized in full. Deferred tax liability
amounting ` 800 lakhs (40% of ` 2,000 lakhs) will be created by charging it to profit
and loss account and the total balance of deferred tax liability account at the end of
second year will be ` 1,040 lakhs (240 lakhs + 800 lakhs).

PAPER – 2: CORPORATE AND OTHER LAWS
PART – I: ANNOUNCEMENTS STATING APPLICABILITY

FOR NOVEMBER, 2018 EXAMINATIONS
Applicability for November, 2018 examinations
The Study Material (July 2017 edition) is updated for all amendments till 30 th April, 2017. Further,
all relevant amendments/ circulars/ notifications etc. in the Company law part for the period
1st May 2017 to 30th April, 2018 are mentioned below:
Relevant Legislative amendments from 1 st of May 2017 to 30th April, 2018
The Companies Act, 2013/ Corporate Laws
Sl. Amendments Relevant Amendments Pg Earlier Law
No. related to no.*
1. Enforcement In the Companies (Acceptance of 5.4 -
of the Deposits) Rules, 2014, (The words have been
Companies In rule 2, in sub-rule (1), in clause newly inserted in the
(Acceptance (c), in sub-clause (xviii), after the said sub- clause)
of Deposits) words “Domestic Venture Capital (xviii) any amount
Amendment Funds” the words “Infrastructure received by a company
Rules, 2017 Investment Trusts” shall be from Alternate
Vide inserted. Investment Funds,
Notification Domestic Venture
G.S.R. 454 (E) Capital Funds and
dated 11 th Mutual Funds
May, 2017 in registered with the
exercise of Securities and
powers Exchange Board of
conferred by India in accordance
section 73 and with regulations made
73 read with by it.
469(1) and
469(2).
2. Exemptions to The Central Government amends 7.51 Such other place as the
Government the Notification G.S.R. 463(E), Central Government
Companies dated 5th June 2015, whereby may approve in this
Vide Exceptions, Modifications and behalf.
Notification Adaptations were provided in
G.S.R. 582(E) case of Government companies.
Dated 13 th Following is the amendments:
June, 2017 In sub-section (2) of section 96,
for the words "such other place
as the Central Government may

PAPER – 2: CORPORATE AND OTHER LAWS 45
approve in this behalf”, the words

“such other place within the city,
town or village in which the
registered office of the company
is situate or such other place as
the Central Government may
approve in this behalf” shall be
substituted.”.
Insertion of Paragraph 2A in the principal notification G.S.R.
463(E), dated 5 th June 2015:
The aforesaid exceptions, modifications and adaptations (i.e. as given
in Notification G.S.R. 463(E), dated 5th June 2015 and Notification
G.S.R. 582(E) Dated 13th June, 2017) shall be applicable to a
Government company which has not committed a default in filing of its
financial statements under section 137 of the Companies Act or annual
return under section 92 of the said Act with the Registrar.
3. Exemptions to The Central Government amends
Private the Notification G.S.R. 464(E),
Companies dated 5th June 2015 whereby
Vide Exceptions, Modifications and
Notification Adaptations were provided in
G.S.R. 583(E) case of Private companies.
Dated 13 TH Following are the amendments:
June, 2017
(1) In Chapter I, Clause (40) of 1.9 Provided that the
section 2. financial statement,
For the proviso, the following with respect to One
shall be substituted, namely:- Person Company,
Provided that the financial small company and
statement, with respect to one dormant company, may
person company, small not include the cash
company, dormant company and flow statement
private company (if such private
company is a start-up) may not
include the cash flow statement;
Explanation. - For the purposes
of this Act, the term “start-up‟ or
“start-up company” means a
private company incorporated
under the Companies Act, 2013
or the Companies Act, 1956 and
recognised as start-up in

accordance with the notification

issued by the Department of
Industrial Policy and Promotion,
Ministry of Commerce and
Industry.
(2) In Chapter V, clauses (a) to 5.6 Clause (a) to (e) of
(e) of sub-section (2) of section Section 73 provides
73, shall not apply to a private conditions for
company- acceptance of deposits
(A) which accepts from its from members.
members monies not exceeding Notification dated 5th
one hundred per cent. of June, 2015, provided
aggregate of the paid up share that Clause (a) to (e) of
capital, free reserves and Sub-section 2 of
securities premium account; or Section 73 shall not
(B) which is a start-up, for five apply to private
years from the date of its Companies which
incorporation; or accepts from its
(C) which fulfils all of the members monies not
following conditions, namely:- exceeding one hundred
per cent, of aggregate
(a) which is not an associate or a
of the paid up share
subsidiary company of any other
capital and free
company;
reserves, and such
(b) if the borrowings of such a company shall file the
company from banks or financial details of monies so
institutions or any body corporate accepted to the
is less than twice of its paid up Registrar in such
share capital or fifty crore rupees, manner as may be
whichever is lower; and specified.
(c) such a company has not
defaulted in the repayment of
such borrowings subsisting at the
time of accepting deposits under
this section:
Provided that the company
referred to in clauses (A), (B) or
(C) shall file the details of monies
accepted to the Registrar in such
manner as may be specified.
(3) In Chapter VII, clause (g) of 7.11 clause (g) of sub-
sub-section (1) of section 92, section (1) of section
shall apply to private companies 92 is read as

which are small companies, “remuneration of

namely:- directors and key
“(g) aggregate amount of managerial personnel”
remuneration drawn by
directors;”
(4) In Chapter VII, proviso to 7.12 (4) However, in relation
sub-section (1) of section 92, to One Person
For the proviso, the following Company and small
proviso shall be substituted, company, the annual
namely:- return shall be signed
“Provided that in relation to One by the company
Person Company, small secretary, or where
company and private company (if there is no company
such private company is a start- secretary, by the
up), the annual return shall be director of the
signed by the company company.
secretary, or where there is no
company secretary, by the
director of the company.”.
(5) Section 143(3)(i), shall not 10.24 (5) Section 143(3)(i)
apply to a private company:- provides- whether the
(i) which is a one person company has adequate
company or a small company; or internal financial
(ii) which has turnover less than controls system in
rupees fifty crores as per latest place and the operating
audited financial statement or# effectiveness of such
which has aggregate borrowings controls;
from banks or financial
institutions or anybody corporate
at any point of time during the
financial year less than rupees
twenty five crore."
Insertion of Paragraph 2A in the principal notification G.S.R.
464(E), dated 5 th June 2015:
The aforesaid exceptions, modifications and adaptations shall be
applicable to a Private company which has not committed a default in
filing of its financial statements under section 137 or annual return
under section 92 of the said Act with the Registrar.
#4. Corrigendum Ministry of Corporate Affairs vide Refer In Section 143(3)(i)(ii)
vide corrigendum stated that for the point there were the words
Notification 3 “statement or” which
words “statement or” to read as
S.O. 2218(E) above has been replaced with

dated 13th July “statement and” under section the word “statement
2017 with 143(3)(i). and” through this
respect to the notification.
Notification
G.S.R. 583(E)
Dated 13 TH
June, 2017
5. Enforcement The Central Government hereby 10.6 Earlier Rule 5(b) stated
of the amends the Companies (Audit that -all private limited
Companies and Auditors) Rules, 2014. companies having paid
(Audit and up share capital of
Auditors) Through this amendment rule, in rupees 20 crore or
Second Rule 5(b), for the word “twenty”, more;
Amendment the word “fifty” shall be
Rules, 2017 substituted.
Vide
Notification
G.S.R. 621(E)
dated 22 nd
June 2017 in
exercise of
powers
conferred by
section 139.
6. Clarification Notification No. G.S.R. 583(E) - For the purposes of
regarding dated 13th June, 2017 stated that clause (i) of sub-section
applicability of requirements of reporting under (3) of section 143, for
exemption section 143(3)(i) read Rule 10 A the financial years
given to of the Companies (Audit and commencing on or after
certain private Auditors) Rules, 2014 of the 1st April, 2015, the
companies Companies Act 2013 shall not report of the auditor
under section apply to certain private shall state about
143(3)(i) vide companies. Through issue of this existence of adequate
circular no. circular, it is hereby clarified that internal financial
08/2017 dated the exemption shall be applicable controls system and its
25th July 2017 for those audit reports in respect operating effectiveness:
of financial statements pertaining
to financial year, commencing on Provided that auditor of
or after 1st April, 2016, which are a company may
made on or after the date of the voluntarily include the
said notification. statement referred to in
this rule for the financial
year commencing on or

after 1st April, 2014 and

ending on or before 31st
March, 2015.
7. Clarification Notification No. G.S.R. 583(E) - For the purposes of
regarding dated 13th June, 2017 stated that clause (i) of sub-section
applicability of requirements of reporting under (3) of section 143, for
exemption section 143(3)(i) read Rule 10 A the financial years
given to of the Companies(Audit and commencing on or after
certain private Auditors) Rules, 2014 of the 1st April, 2015, the
companies Companies Act 2013 shall not report of the auditor
under section apply to certain private shall state about
143(3)(i) vide companies. Through issue of this existence of adequate
circular no. circular, it is hereby clarified that internal financial
08/2017 dated the exemption shall be applicable controls system and its
25th July 2017 for those audit reports in respect operating effectiveness:
of financial statements pertaining
to financial year, commencing on Provided that auditor of
or after 1st April, 2016, which are a company may
made on or after the date of the voluntarily include the
said notification. statement referred to in
this rule for the financial
year commencing on or
after 1st April, 2014 and
ending on or before 31st
March, 2015.
8. Enforcement In the Companies (Acceptance of 5.8 Provided that a private
of the Deposits) Rules, 2014, in rule 3, company may accept
Companies in sub-rule (3), for the proviso, from its members
(Acceptance the following shall be substituted, monies not exceeding
of Deposits) namely:- one hundred per cent
Second “Provided that a Specified IFSC of aggregate of the
Amendment Public company and a private paid up share capital,
Rules, 2017 company may accept from its free reserves and
Vide members monies not exceeding securities premium
Notification one hundred per cent. of account and such
G.S.R. aggregate of the paid up share company shall file the
1172(E) dated capital, free reserves and details of monies so
19th securities premium account and accepted to the
September, such company shall file the Registrar in such
2017 in details of monies so accepted to manner as may be
exercise of the Registrar in Form DPT-3. specified.
powers Explanation.—For the purpose of
conferred by this rule, a Specified IFSC Public

section 73 and company means an unlisted

73 read with public company which is licensed
469(1) and to operate by the Reserve Bank
469(2). of India or the Securities and
Exchange Board of India or the
Insurance Regulatory and
Development Authority of India
from the International Financial
Services Centre located in an
approved multi services Special
Economic Zone set-up under the
Special Economic Zones Act,
2005 read with the Special
Economic Zones Rules, 2006:
Provided further that the
maximum limit in respect of
deposits to be accepted from
members shall not apply to
following classes of private
companies, namely:—
(i) a private company which is a
start-up, for five years from the
date of its incorporation;
(ii) a private company which
fulfils all of the following
conditions, namely:—
(a) which is not an associate or a
subsidiary company of any other
company;
(b) the borrowings of such a
company from banks or financial
institutions or any body corporate
is less than twice of its paid up
share capital or fifty crore rupees,
whichever is less ; and
(c) such a company has not
defaulted in the repayment of
such borrowings subsisting at the
time of accepting deposits under
section 73:
Provided also that all the
companies accepting deposits
shall file the details of monies so

accepted to the Registrar in Form

DPT-3.”.
9. Vide The Central Government hereby 1.20 -
notification appoints the 20 th September, (The proviso is newly
S.O. 3086(E) 2017 as the date on which notified)
dated 20 th proviso to clause (87) of section
September 2 of the said Act shall come into
2017 force.
The proviso to section 2(87) shall

be read as, “Provided that such
class or classes of holding
companies as may be prescribed
shall not have layers of
subsidiaries beyond such
numbers as may be prescribed.”
10. Companies Following sections of the
(Amendment) Companies Act, 2013 have been
Act, 2017 amended by the Companies
(Amendment) Act, 2017 with effect
from 26th January, 2018
[Notification S.O. 351 (E)] and from
9th February, 2018 [Notification S.
O. 630 (E)]
1. In section 2 of the Companies
Act, 2013 (hereinafter referred to
as the principal Act)-
Enforcement Date: 9 th
February, 2018
(i) for clause (28), the following 1.7 Cost accountant
clause shall be substituted, means a cost
namely:— accountant as
'(28) "Cost Accountant" means a defined in clause (b)
cost accountant as defined in of sub-section (1) of
clause (b) of sub-section (1) of section 2 of the Cost
section 2 of the Cost and Works and Works
Accountants Act, 1959 and who Accountants Act,
holds a valid certificate of 1959.
practice under sub-section (1) of
section 6 of that Act;

(ii) in clause (30), the following 1.8 –

proviso shall be inserted, (The proviso is newly
namely: inserted)
"Provided that-
(a) the instruments referred to
in Chapter III-D of the Reserve
Bank of India Act, 1934; and
(b) such other instrument, as
may be prescribed by the Central
Government in consultation with
the Reserve Bank of India,
issued by a company,
shall not be treated as
debenture;";
(iii) in clause (41), in the first 1.9 -
proviso, after the word (The words are newly
"subsidiary", the words "or inserted)
associate company" shall be which is a holding
inserted; company or a
subsidiary of a
company incorporated
outside India
(iv) in clause (46), the following 1.11 -
Explanation shall be inserted, (The Explanation is
namely:- newly inserted)
'Explanation.—For the purposes
of this clause, the expression
"company" includes any body
corporate;';
(v) clause (49) shall be omitted 1.11 (49) Interested
director means a
director who is in any
way, whether by
himself or through
any of his relatives or
firm, body corporate
or other association
of individuals in
which he or any of his
relatives is a partner,
director or a member,
interested in a

contract or
arrangement, or
proposed contract or
arrangement, entered
into or to be entered
into by or on behalf of
a company;
This definition is
relevant for section
174 relating to
quorum for meetings
of the Board of
Directors, for section
184 relating to
disclosure of interest
by directors and also
for section 188
relating to related
party transactions of
the Companies Act,
2013.
(vi) in clause (51),- 1.11 (iii) the whole-time
director;
(a) in sub-clause (iv), the word (iv) the Chief Financial
"and" shall be omitted; Officer; and
(v) such other officer
(b) for sub-clause (v), the as may be
following sub-clauses shall be prescribed;
substituted, namely:-
"(v) such other officer, not
more than one level below the
directors who is in whole-time
employment, designated as key
managerial personnel by the
Board; and
(vi) such other officer as may
be prescribed;"
(vii) in clause (57), for the words 1.12 ……the aggregate
"and securities premium value of the paid-up
account", the words ", securities share capital and all
premium account and debit or reserves created out of
the profits and

credit balance of profit and loss securities premium

account," shall be substituted account, after
deducting the
aggregate…..
(viii) in clause (71), in sub- 1.15 –
clause (a), after the word (The word is newly
"company;", the word "and" shall inserted)
be inserted;
(ix) in clause (72), in the proviso, 1.16 -
in clause (A), after the words (The words are newly
“State Act”, the words “other than inserted)
this Act or the previous company
law” shall be inserted;
(x) in clause (76), for sub-clause 1.17 (viii) any company
(viii), the following sub-clause which is—
shall be substituted, namely:— (A) a holding,
subsidiary or an
"(viii) any body corporate which associate company of
is— (A) a holding, subsidiary or such company; or
an associate company of such (B) a subsidiary of a
company; holding company to
(B) a subsidiary of a holding which it is also a
company to which it is also a subsidiary;
subsidiary; or
(C) an investing company or the
venturer of the company;";
Explanation.—For the purpose of
this clause, “the investing
company or the venturer of a
company” means a body
corporate whose investment in
the company would result in the
company becoming an associate
company of the body corporate.
(xi) in clause (85)- 1.20 For (a)
(a) in sub-clause (i), for the words paid-up share capital of
"five crore rupees", the words which does not exceed
"ten crore rupees" shall be fifty lakh rupees or
substituted; such
higher amount as may
be prescribed which
shall not be more than

five crore
rupees; or
(b) in sub-clause (ii),- For (b)

(A) for the words "as per its last turnover of which as
profit and loss account", the per its last profit and
words "as per profit and loss loss account does not
account for the immediately exceed two crore
preceding financial year" shall be rupees or such higher
substituted; amount as may be
(B) for the words "twenty crore prescribed which shall
rupees", the words "one hundred not be more than
crore rupees" shall be twenty crore rupees:
substituted;
(xii) for clause (91), the following 1.21 (91) Turnover means
clause shall be substituted, the aggregate value
namely:- of the realisation of
'(91) "turnover" means the gross amount made from
amount of revenue recognised in the sale, supply or
the profit and loss account from distribution of goods
the sale, supply, or distribution of or on account of
goods or on account of services services rendered, or
rendered, or both, by a company both, by the company
during a financial year;'. during a financial
year;
Note: There is in
ambiguity in
definition. So, there is
a need for
amendment in this
definition. Further,
the change in
definition is pending
in the Companies
(Amendment) Bill,
2016.
2. After section 3 of the principal 2.4 -
Act, the following section shall be (The section is newly
inserted, namely:- inserted)
"3A. If at any time the number of
members of a company is
reduced, in the case of a public
company, below seven, in the

case of a private company, below

two, and the company carries on
business for more than six
months while the number of
members is so reduced, every
person who is a member of the
company during the time that it
so carries on business after
those six months and is
cognisant of the fact that it is
carrying on business with less
than seven members or two
members, as the case may be,
shall be severally liable for the
payment of the whole debts of
the company contracted during
that time, and may be severally
sued therefor.".
February, 2018
3. In section 4 of the principal 2.11 Upon receipt of an
Act, in sub-section (5), for clause application, the
(i), the following shall be Registrar may, on the
substituted, namely:- basis of information
"(i) Upon receipt of an application and documents
under sub-section (4), the furnished along with
Registrar may, on the basis of the application,
information and documents reserve the name for
furnished along with the a period of sixty days
application, reserve the name for from the date of the
a period of twenty days from the application.
date of approval or such other
period as may be prescribed:
Provided that in case of an
application for reservation of
name or for change of its name
by an existing company, the
Registrar may reserve the name
for a period of sixty days from the
date of approval."
January, 2018

4. In section 21 of the principal 2.35 (ii) an officer of the

Act, for the words "an officer of company duly
the company", the words "an authorised by the
officer or employee of the Board in this behalf.
company" shall be substituted
February, 2018
5. In section 35 of the principal 3.22 -
Act, in sub-section (2), after (The clause is newly
clause (b), the following clause inserted)
shall be inserted, namely:- To be inserted in Point
"(c) that, as regards every (2) after point (b)
misleading statement purported
to be made by an expert or
contained in what purports to be
a copy of or an extract from a
report or valuation of an expert, it
was a correct and fair
representation of the statement,
or a correct copy of, or a correct
and fair extract from, the report or
valuation; and he had reasonable
ground to believe and did up to
the time of the issue of the
prospectus believe, that the
person making the statement
was competent to make it and
that the said person had given
the consent required by sub-
section (5) of section 26 to the
issue of the prospectus and had
not withdrawn that consent
before delivery of a copy of the
prospectus for registration or, to
the defendant's knowledge,
before allotment thereunder.".
February, 2018
6. In section 47, in sub-section 4.6 In Point (i), the
(1), for the words, figures and following may be
brackets "provisions of section added,
43 and sub-section (2) of section “Subject to
50", the words, figures and the provisions of

brackets "provisions of section section 43, sub-section

43, sub-section (2) of section 50 (2) of section 50 and
and sub-section (1) of section sub-section (1) of
188" shall be substituted. section 188,”
February, 2018
7. In section 53 of the principal 4.10 For (i)
Act,- Any share issued by a
(i) in sub-section (2), for the company at a
words "discounted price", the discounted price shall
word "discount" shall be be void.
substituted;
February, 2018
7. In section 53 of the principal 4.10 For (ii): -
Act,- (The sub- section is
(ii) after sub-section (2), the newly inserted)
following sub-section shall be
inserted, namely:-
"(2A) Notwithstanding anything
contained in sub-sections (1) and
(2), a company may issue shares
at a discount to its creditors when
its debt is converted into shares
in pursuance of any statutory
resolution plan or debt
restructuring scheme in
accordance with any guidelines
or directions or regulations
specified by the Reserve Bank of
India under the Reserve Bank of
India Act, 1934 or the Banking
(Regulation) Act, 1949.".
February, 2018
8. In section 62 of the principal 4.22 For (i)
Act,- (c) to any persons, if
(i) in sub-section (1), in clause it is authorised by a
(c), for the words "of a registered special resolution, …..
valuer subject to such conditions is determined by the
as may be prescribed", the words valuation report of a

and figures "of a registered registered valuer

valuer, subject to the compliance subject to such
with the applicable provisions of conditions as
Chapter III and any other prescribed ………
conditions as may be prescribed"
shall be substituted;
February, 2018
8. In section 62 of the principal 4.22 For (ii)
Act,- The notice of offer of
shares shall be
(ii) for sub-section (2), the despatched through
following sub-section shall be registered post or
substituted, namely:- speed post or
"(2) The notice referred to in through electronic
sub-clause (i) of clause (a) of mode to all the
sub-section (1) shall be existing shareholders
dispatched through registered at least three days
post or speed post or through before the opening of
electronic mode or courier or any the issue.
other mode having proof of
delivery to all the existing
shareholders at least three days
before the opening of the issue.".
February, 2018
9. In section 76A of the principal (a) For (a)
Act,- 5.14 the company …..shall
(a) in clause (a), for the words, not be less than one
“one crore rupees”, the words crore rupees but
“one crore rupees or twice the which may extend to
amount of deposit accepted by ten crore rupees; and
the company, whichever is lower”
shall be substituted;
February, 2018

9. In section 76A of the principal For (b)

Act,- 5.15 every officer …….with
imprisonment which
(b) in clause (b),- may extend to seven
(i) for the words "seven years years or with fine
or with fine", the words "seven which shall not be less
years and with fine" shall be than twenty-five lakh
substituted; rupees but which may
extend to two crore
(ii) the words "or with both"
rupees, or with both
shall be omitted
February, 2018
10. In section 100 of the 7.52 -
principal Act, in sub-section (1), (The proviso is newly
the following proviso shall be inserted)
inserted, namely:- "Provided that
an extraordinary general meeting
of the company, other than of the
wholly owned subsidiary of a
company incorporated outside
India, shall be held at a place
within India.".
February, 2018
11. In section 101 of the 7.19 The proviso to
principal Act, in sub-section (1), section 101(1) also
for the proviso, the following states that a shorter
proviso shall be substituted, notice may also be
namely:- given with the
"Provided that a general meeting consent of 95 per
may be called after giving shorter cent of the members
notice than that specified in this entitled to vote.
sub-section if consent, in writing Generally meetings
or by electronic mode, is need to be called by
accorded thereto- giving a notice of 21
(i) in the case of an annual clear days. However,
general meeting, by not less than they can be called on
ninty-five per cent. of the a shorter notice if, 95
members entitled to vote thereat; per cent of the
and members entitled to
vote in that meeting

(ii) in the case of any other give their consent in

general meeting, by members of writing or by
the company- electronic mode.
(a) holding, if the company It is also important to
has a share capital, majority in note that only the
number of members entitled to requirement as
vote and who represent not less regards the length of
than ninety-five per cent. of such the notice being 21
part of the paid-up share capital days, is dispensed
of the company as gives a right with by such consent
to vote at the meeting; or of not less than 95 per
(b) having, if the company has cent of the members
no share capital, not less than entitled to vote at
ninety-five per cent. of the total such meeting and not
voting power exercisable at that the necessity to call
meeting: and hold such
Provided further that where any meeting.
member of a company is entitled
to vote only on some resolution
or resolutions to be moved at a
meeting and not on the others,
those members shall be taken
into account for the purposes of
this sub-section in respect of the
former resolution or resolutions
and not in respect of the latter.".
February, 2018
principal Act, in sub-section (1), (The proviso is newly
the following proviso shall be inserted)
inserted, namely:-
"Provided that any item of
business required to be
transacted by means of postal
ballot under clause (a), may be
transacted at a general meeting
by a company which is required
to provide the facility to members
to vote by electronic means
under section 108, in the manner
provided in that section."

February, 2018
13. In section 123 of the 8.4
principal Act,-
(a) in sub-section (1)- (i) For point (A)

(i) in clause (a),- (c) out of both (a)
(A) for the words "both; or", and (b); or
the word "both:" shall be
substituted;
(B) the following proviso shall For point (B): -
be inserted, namely:-
(The proviso is newly
"Provided that in computing inserted)
profits any amount representing
unrealised gains, notional gains
or revaluation of assets and any
change in carrying amount of an
asset or of a liability on
measurement of the asset or the
liability at fair value shall be
excluded; or";
February, 2018
13. In section 123 of the 8.4 For (ii)
principal Act,- Where a company,
……. it in previous
(ii) in the second proviso, for the years and transferred
words "transferred by the by the company to the
company to the reserves", the reserves, such
words "transferred by the declaration of dividend
company to the free reserves" …… with prescribed
shall be substituted; rules. [Second Proviso
Enforcement Date: 9 th to section 123(1)]
February, 2018
13. In section 123 of the 8.6 According to section
principal Act,- 123(3), the Board of
Directors of a
(b) for sub-section (3), the company may declare
following sub-section shall be interim dividend
substituted, namely:- during any financial

"(3) The Board of Directors of a year out of the

company may declare interim surplus in the profit
dividend during any financial and loss account and
year or at any time during the out of profits of the
period from closure of financial financial year in
year till holding of the annual which such interim
general meeting out of the dividend is sought to
surplus in the profit and loss be declared.
account or out of profits of the However, in case the
financial year for which such company has
interim dividend is sought to be incurred loss during
declared or out of profits the current financial
generated in the financial year till year up to the end of
the quarter preceding the date of the quarter
declaration of the interim immediately
dividend: preceding the date of
Provided that in case the declaration of interim
company has incurred loss dividend, such
during the current financial year interim dividend shall
up to the end of the quarter not be declared at a
immediately preceding the date rate higher than the
of declaration of interim dividend, average dividends
such interim dividend shall not be declared by the
declared at a rate higher than the company during
average dividends declared by immediately
the company during immediately preceding three
preceding three financial years.". financial years.
February, 2018
14. In section 130 of the 9.13 For (i) -
principal Act,- (The words are newly
inserted)
(i) in sub-section (1), in the
proviso,-
(a) after the words "regulatory
body or authorities concerned",
the words "or any other person
concerned" shall be inserted;
(b) after the words "the body or
authority concerned", the words

"or the other person concerned"

shall be inserted;
February, 2018
14. In section 130 of the 9.13
principal Act,- For (ii) –
(This sub- section is
(ii) after sub-section (2), the newly inserted)
following sub-section shall be
inserted, namely:-
"(3) No order shall be made
under sub-section (1) in respect
of re-opening of books of account
relating to a period earlier than
eight financial years immediately
preceding the current financial
year: Provided that where a
direction has been issued by the
Central Government under the
proviso to sub-section (5) of
section 128 for keeping of books
of account for a period longer
than eight years, the books of
account may be ordered to be re-
opened within such longer
period."
Enforcement Date: 9th February,
2018
15. In section 136 of the 9.30 As per the amendment
principal Act,- the word Without
(i) in sub-section (1),- prejudice to the
(a) the words and figures provisions of section
"Without prejudice to the 101," shall be omitted
provisions of section 101," shall
be omitted; Enforcement Date:
9th February, 2018
principal Act,- (The proviso is newly
(i) in sub-section (1),- inserted)

(b) in the first proviso, for the

words "Provided that", the
following shall be substituted,
namely:-
"Provided that if the copies of the
documents are sent less than
twenty-one days before the date
of the meeting, they shall,
notwithstanding that fact, be
deemed to have been duly sent if
it is so agreed by members-
(a) holding, if the company
has a share capital, majority in
number entitled to vote and who
represent not less than ninety-
five per cent. of such part of the
paid-up share capital of the
company as gives a right to vote
at the meeting; or
(b) having, if the company
has no share capital, not less
than ninety five per cent. of the
total voting power exercisable at
the meeting:
Provided further that";
February, 2018
15. In section 136 of the 9.31 Related to point (ii) on
principal Act,- Page 9.31
(i) in sub-section (1),-
(c) in the second proviso, for the
words "Provided further", the
words, "Provided also" shall be
substituted;
February, 2018
15. In section 136 of the 9.31 (iii) Subsidiary
principal Act,- Companies:
(i) in sub-section (1),-

(d) for the fourth proviso, the Every company

following provisos shall be having a subsidiary
substituted, namely:— or subsidiaries
'Provided also that every listed shall,—
company having a subsidiary or (1) place separate
subsidiaries shall place separate audited accounts in
audited accounts in respect of respect of each of its
each of subsidiary on its website, subsidiary on its
if any: website, if any;
Provided also that a listed (2) provide a copy
company which has a subsidiary of separate audited
incorporated outside India financial statements
(herein referred to as "foreign in respect of each of
subsidiary")- its subsidiary, to any
(a) where such foreign shareholder of the
subsidiary is statutorily required company who asks
to prepare consolidated financial for it.
statement under any law of the
country of its incorporation, the
requirement of this proviso shall
be met if consolidated financial
statement of such foreign
subsidiary is placed on the
website of the listed company;
(b) where such foreign
subsidiary is not required to get
its financial statement audited
under any law of the country of its
incorporation and which does not
get such financial statement
audited, the holding Indian listed
company may place such
unaudited financial statement on
its website and where such
financial statement is in a
language other than English, a
translated copy of the financial
statement in English shall also be
placed on the website.’;
February, 2018


inserted)
(ii) in sub-section (2), the Add the proviso in point
following proviso shall be (iv)
inserted, namely:-
"Provided that every company
having a subsidiary or
subsidiaries shall provide a copy
of separate audited or unaudited
financial statements, as the case
may be, as prepared in respect of
each of its subsidiary to any
member of the company who
asks for it."
February, 2018
16. In section 140 of the 10.15 (d) If the auditor does
principal Act, in sub-section (3), not ……. with fine
for the words "fifty thousand which shall not be less
rupees", the words "fifty than ` 50,000 but which
thousand rupees or the may extend to ` 5 Lacs.
remuneration of the auditor,
whichever is less," shall be
substituted.
February, 2018
17. In section 141 of the 10.22 (9) any person whose
principal Act, in sub-section (3), subsidiary or
for clause (i), the following clause associate company
shall be substituted, namely:- or any other form of
‘(i) a person who, directly or entity, is engaged as
indirectly, renders any service on the date of
referred to in section 144 to the appointment in
company or its holding company consulting and
or its subsidiary company. specialised services
Explanation.—For the purposes as provided in
of this clause, the term "directly section 144
or indirectly" shall have the

meaning assigned to it in the

Explanation to section 144.’.
February, 2018
18. In section 143 of the 10.23 (c) Access to record of
principal Act,- all its subsidiaries: The
(i) in sub-section (1), in the auditor of a ……. the
proviso, for the words "its records of all its
subsidiaries", at both the places, subsidiaries in so far
the words "its subsidiaries and as it relates to the
associate companies" shall be consolidation of its
substituted; financial statements
with that of its
subsidiaries.
February, 2018
18. In section 143 of the 10.24 (9) whether the
principal Act,- company has adequate
(ii) in sub-section (3), in clause internal financial
(i), for the words "internal controls system in
financial controls system", the place and the operating
words "internal financial controls effectiveness of such
with reference to financial controls;
statements" shall be substituted;
Enforcement Date: 9th

February, 2018
18. In section 143 of the 10.36 The provisions of
principal Act,- section 143 shall
(iii) in sub-section (14), in clause mutatis mutandis apply
(a), for the words "cost to the cost accountant
accountant in practice", the in practice conducting
words "cost accountant" shall be cost audit under
substituted section 148.
February, 2018
principal Act,- The words shall be
(i) in sub-section (2),- inserted in point (iii) (a)

(a) after the words "five lakh

rupees", the words "or four times
the remuneration of the auditor,
whichever is less" shall be
inserted;
February, 2018
19. In section 147 of the 10.33 and
principal Act,-
(i) in sub-section (2),- (2) Fine which shall
(b) in the proviso, for the words not be less than Rs. 1
"and with fine which shall not be lac but which may
less than one lakh rupees but extend to Rs. 25 Lacs
which may extend to twenty-five
lakh rupees", the words "and with
fine which shall not be less than
fifty thousand rupees but which
may extend to twenty-five lakh
rupees or eight times the
remuneration of the auditor,
whichever is less" shall be
substituted;
February, 2018
19. In section 147 of the 10.33 (2) pay for damages to
principal Act,- the company, statutory
(ii) in sub-section (3), in clause bodies or authorities or
(ii), for the words "or to any other to any other persons
persons", the words "or to for loss arising out of
members or creditors of the incorrect …. audit
company" shall be substituted; report.
February, 2018
(iii) in sub-section (5), the inserted)
following proviso shall be
inserted, namely:-

"Provided that in case of criminal

liability of an audit firm, in respect
of liability other than fine, the
concerned partner or partners,
who acted in a fraudulent manner
or abetted or, as the case may
be, colluded in any fraud shall
only be liable.".
February, 2018
20. In section 148 of the 10.34 (iv) The cost audit shall
principal Act,- be conducted by a
(i) in sub-section (3),- Cost Accountant in
(a) for the words "Cost practice who shall be
Accountant in practice", the …… by the members in
words "cost accountant" shall be such manner as may
substituted; be prescribed.
February, 2018
20. In section 148 of the 10.35 Here, the expression
principal Act,- “cost auditing
(i) in sub-section (3),- standards” mean such
(b) in the Explanation, for the standards as are
words "Institute of Cost and issued by the Institute
Works Accountants of India", the of Cost and Works
words "Institute of Cost Accountants of India,
Accountants of India" shall be constituted under the
substituted; Cost and Works
Accountants Act, 1959,
Enforcement Date: 9 th with the approval of the
February, 2018 Central Government.
20. In section 148 of the 10.35 (x) The report on the
principal Act,- audit of cost records
(ii) in sub-section (5), in the shall be submitted by
proviso, for the words "cost the cost accountant in
accountant in practice", the practice to the Board
words "cost accountant" shall be of Directors (BoD) of
substituted the company.

February, 2018
11. Amendment in In exercise of the powers 9.7 Replace the footnote
the notification conferred by clauses (a) and (b) ‘Section 129 shall not
number of sub-section (1) and subsection apply to the
G.S.R. 463(E) (2) of section 462 of the Government
dated the 5th Companies Act, 2013, the companies to the
June, 2015 Central Government, in the extent of application
vide interest of public amends the of Accounting
Notification notification of the Government of Standard 17
no. S.O. India in the Ministry of Corporate (Segment Reporting)
802(E) dated Affairs number G.S.R. 463(E) to the companies
23rd February, dated the 5th June, 2015 engaged in defence
2018 namely:— production.
In the said notification, in
the Table, for serial number 8
and entries relating thereto, the
following serial number and
entries shall be respectively
substituted, namely:-
“In Chapter IX, Section 129-
Shall not apply to the companies
engaged in defence production to
the extent of application of
relevant Accounting Standard on
segment reporting”.
12. Enforcement The Central Government 9.14 -
of sub-section appoints the 21 March, 2018 as
st
(The said sub –
(3) and (11) of the date on which the provisions sections have been
Section 132 of of sub- sections (3) and (11) of notified)
the section 132 of the said Act shall
Companies come into force.
Act, 2013 vide “132 (3): The National Financial
Notification Reporting Authority shall consist
No. S.O. of a chairperson, who shall be a
1316(E) dated person of eminence and having
21st March, expertise in accountancy,
2018 auditing, finance or law to be
appointed by the Central
Government and such other
members not exceeding fifteen
consisting of part-time and full-

time members as may be

prescribed:
Provided that the terms and
conditions and the manner of
appointment of the chairperson
and members shall be such as
may be prescribed:
Provided further that the
chairperson and members shall
make a declaration to the Central
Government in the prescribed
form regarding no conflict of
interest or lack of independence
in respect of his or their
appointment:
Provided also that the
chairperson and members, who
are in full-time employment with
National Financial Reporting
Authority shall not be associated
with any audit firm (including
related consultancy firms) during
the course of their appointment
and two years after ceasing to
hold such appointment
132 (11): The Central
Government may appoint a
secretary and such other
employees as it may consider
necessary for the efficient
performance of functions by the
National Financial Reporting
Authority under this Act and the
terms and conditions of service
of the secretary and employees
shall be such as may be
prescribed.”
13. ‘Reservation Rule 9: Reservation of name 2.11 -
of Name of An application for reservation of (This Rule may be read
Company’ name shall be made through the with respect to point
web service available at (iv) Requirement for
Notification www.mca.gov.in by using [form reservation of the
G.S.R. 284(E) RUN](Reserve Unique Name) name of the company)

dated 23 rd along with fee as provided in the

March, 2018 Companies (Registration offices
and fees) Rules, 2014, which
may either be approved or
rejected, as the case may be, by
the Registrar, Central
Registration Centre after
allowing re--submission of such
application within fifteen days for
rectification of the defects, if any.
*Page No. of the Study material (New study material) with reference of relevant provisions
PART – II : QUESTIONS AND ANSWERS
QUESTIONS
COMPANY LAW
The Companies Act, 2013
1. Prakhar Ltd. intends to raise share capital by issuing Equity Shares in different stages over
a certain period of time. However, the company does not wish to issue prospectus each
and every time of issue of shares. Considering the provisions of the Companies Act, 2013,
discuss what formalities Prakhar Ltd. should follow to avoid repeated issuance of
prospectus?
2. Earth Ltd., a Public Company offer the new shares (further issue of shares) to persons
other than the existing shareholders of the Company. Explain the conditions when shares
can be issued to persons other than existing shareholders. Discuss whethe r these shares
can be offered to the Preference Shareholders?
3. Examine the validity of the following with reference to the relevant provisions of the
Companies Act, 2013:
(i) The Board of Directors of Shrey Ltd. called an extraordinary general meeting upon
the requisition of members. However, the meeting was adjourned on the ground that
the quorum was not present at the meeting. Advise the company.
(ii) Mary Ltd is a listed company having turnover of ` 1200 crores during the financial
year 2016-17. The CSR committee of the Board formulated and recommended a
CSR project which was approved by the Board. The company finalised the project
under its CSR initiatives which require funds @ 5 % of average net profit of the
company for last three financial years. Will such excess expense be counted in
subsequent financial years as a part of CSR expenditure? Advise the company.

4. Examine the validity of the following decisions of the Board of Directors with reference of
the provisions of the Companies Act, 2013.
(i) In an Annual General Meeting of Vrinda Ltd. having share capital, 80 members
present in person or by proxy, holding more than 1/10 th of the total voting power,
demanded for poll. The chairman of the meeting rejected the request on the ground
that only the members present in person can demand for poll.
(ii) In an annual general meeting, during the process of poll, the members who earlier
demanded for poll want to withdraw it. The chairman of the meeting rejected the
request on the ground that once poll started, it cannot be withdrawn.
5. Growmore Limited’s share capital is divided into different classes. Now, Growmore Limited
intends to vary the rights attached to a particular class of shares. Explain the provisions of
the Companies Act, 2013 to Growmore Limited as to obtaining consent from the
shareholders in relation to variation of rights.
6. Heavy Metals Limited wants to provide financial assistance to its employees, to enable
them to subscribe for certain number of fully paid shares. Considering the provision of the
Companies Act, 2013, what advice would you give to the company in this regard?
7. Lemon & Company, Chartered Accountants a Limited Liability Partnership firm with CA. L,
CA. M and CA. N as partners, is the statutory auditor of a listed company M/s Big Limited
for past 6 years as on 01.04.2014.
CA.M is also a partner in other Chartered Accountant firm Dew & Company, Chartered
Accountants. Advise under the provisions of the Companies Act, 2013 :
(1) Upto how many years can Lemon & Company continue as statutory auditors of M/s
Big Limited?
(2) What shall be the cooling-off period for Lemon & Company with respect to M/s Big
Limited?
(3) Can Dew & Company be appointed as statutory auditors of M/s Big Limited during
such cooling-off period?
(4) Can Lemon & Company be appointed as internal auditors of M/s Big Limited and it's
another listed subsidiary M/s Dark Limited, during such cooling-off period?
8. Mrs. Sita, wife of CA. ‘Arjun' the statutory auditor of Stellar Builders Limited, acquired
shares in the company for a face value of `75000/- on 15th March, 2018. CA. ‘Arjun’, issued
his audit report on 25 th April, 2018. Examine the validity of this transaction under the
Companies Act, 2013. Would your answer be different if face value of the shares have
been ` 150000/- (market value ` 95000/-)?
9. The Board of Directors of Sindhu Limited wants to make some changes and to alter some
Clauses of the Articles of Association which are to be urgently carried out, which include
the increase in Authorized Capital of the company, issue of shares, increase in borrowing
limits and increase in the number of directors.

Discuss about the provisions of the Companies Act, 2013 to be followed for alteration of
Articles of Association.
10. The directors of Element Ltd. want to voluntary revise the Financial statements of the
company. They have approached you to state to them the provisions of the Companies
Act, 2013 regarding voluntary revision of financial statements.
OTHER LAWS
The Indian Contract Act, 1872
11. Explaining the provisions of the Indian Contract Act, 1872, answer the following:
(i) A contracts with B for a fixed price to construct a house for B within a stipulated time.
B would supply the necessary material to be used in the construction. C guarant ees
A’s performance of the contract. B does not supply the material as per the agreement.
Is C discharged from his liability?
(ii) C, the holder of an over due bill of exchange drawn by A as surety for B, and accepted
by B, contracts with X to give time to B. Is A discharged from his liability?
12. Mr. Avinash wanted a loan for expanding his business, from ABC Bank. Mr. Avinash has
pledged the stock of his business to obtain the loan from bank. However, the expansion of
business did not reap the desired results and Mr. Avinash was not able to repay the loan.
Now, ABC bank wants to retain the stock for adjustment of their loan. Advise, ABC Bank
whether they can retain the stock for the adjustment of their loan and also for payment of
interest. Give your answer as per the provisions of the Contract Act, 1872.
The Negotiable Instruments Act, 1881
13. A bill of exchange has been dishonoured by non- payment. Now, Mr. Sandip, the holder
wants a certificate of protest for such a dishonoured bill. Advise, Mr. Sandip whether he
can get the certificate of protest. Also, advise him regarding the provisions of Protest for
better security.
The General Clauses Act, 1897
14. Mr. Ram, an advocate has fraudulently deceived his client Mr. Shyam, who was taking his
expert advise on taxation matters. Now, Mr. Ram is liable to a fine for acting fraudulently
both under the Advocates Act, 1961 as well as the Income Tax Act, 1961. State the
provision as to whether his offence is punishable under the both the Acts, as per the
General Clauses Act, 1897.
Interpretation of Statutes, Deeds and Documents
15. The ‘Statute should be read as a Whole’. Explain the statement.

SUGGESTED ANSWERS/HINTS
1. Shelf prospectus means a prospectus in respect of which the securities or class of

securities included therein are issued for subscription in one or more issues over a certain
period without the issue of a further prospectus
(1) According to Section 31 of the Company Act, 2013 any class or classes of companies,
as the Securities and Exchange Board may provide by regulations in this behalf, may
file a shelf prospectus with the Registrar at the stage—
(A) of the first offer of securities included therein which shall indicate a period not
exceeding one year as the period of validity of such prospectus which shall
commence from the date of opening of the first offer of securities under that
prospectus, and
(B) in respect of a second or subsequent offer of such securities issued during the period
of validity of that prospectus, no further prospectus is required.
(2) The other formalities related to such repeated/subsequent issue of shares- A
company filing a shelf prospectus shall be required to file an information
memorandum containing all material facts relating to new charges created, changes
in the financial position of the company as have occurred between the first or previous
offer of securities and the succeeding offer of securities and such other changes as
may be prescribed, with the Registrar within the prescribed time, prior to the issue of
a second or subsequent offer of securities under the shelf prospectus .
Thus, Prakhar Ltd. can follow the above provisions and can issue a shelf prospectus.
2. Issue of Further Shares: Section 62 (1) (a) of the Companies Act, 2013 provides that if,
at any time, a company having a share capital proposes to increase its subscribed capital
by the issue of further shares, such shares should be offered to the existing equity
shareholders of the company as at the date of the offer, in proportion to the capital paid up
on those shares.
However, certain exceptions have been provided in the Companies Act, 2013 when such
further shares of a company may-be offered to other persons as well. These are as under-
(a) Under section 62 (1) (b) issue of further shares may be offered to employees under
a scheme of employees’ stock option subject to a special resolution passed by the
company and subject to such conditions as may be prescribed.
(b) Under section 62 (1) (c) such shares may be offered to any persons, if it is authorised
by a special resolution, either for cash or for a consideration other than cash, if the
price of such shares is determined by the valuation report of a registered valuer,
subject to the compliance with the applicable provisions of Chapter III and any other
conditions as may be prescribed.
(c) if any equity shareholder to whom the shares are offered in terms of section 62 (1)
(a) as described above, declines such offer, the Board of Directors may dispose of

the shares in such manner as is not disadvantageous to the shareholders or to the

company.
Preference Shareholders: From the wordings of Section 62 (1) (c), it is quite clear that
these shares can be issued to any persons who may be preference shareholders as well
provided such issue is authorized by a special resolution of the company and are issued
on such conditions as may be prescribed.
3. (i) According to section 100 (2) of the Companies Act 2013, the Board of directors
must convene a general meeting upon requisition by the stipulated minimum number
of members.
As per Section 103 (2) (b) of the Companies Act, 2013, if the quorum is not present
within half an hour from the appointed time for holding a meeting of the company, t he
meeting, if called on the requisition of members, shall stand cancelled. Therefore, the
meeting stands cancelled and the stand taken by the Board of Directors to adjourn it,
is not proper.
(ii) As per section 135 of the Companies Act, 2013, every company having a turnover of
rupees 1,000 crores or more during any financial year shall constitute a Corporate
Social Responsibility Committee of the Board. Hence, Mary Ltd. has to constitute a
Corporate Social Responsibility Committee of the Board, as it is having turnover of
rupees 1200 crores.
In terms of Section 135(5) of the Companies Act, 2013, the Board of every company
to which section 135 is applicable, shall ensure that the company spends, in every
Financial year at least 2 per cent of average net profits of the company made during
the three immediately preceding financial years, in pursuance of its CSR policy. There
is no provision for carry forward of excess expenditure to the next year(s). The words
used in the section are 'at least'. Therefore, any expenditure over 2% would be
considered as voluntary higher spending. Hence, such excess expense will not be
counted in subsequent financial years as a part of CSR expenditure.
4. Section 109 of the Companies Act, 2013 provides for the demand of poll before or on the
declaration of the result of the voting on any resolution on show of hands. Accordingly law
says that:-
Order of demand for poll by the chairman of meeting: Before or on the declaration of
the result of the voting on any resolution on show of hands, a poll may be ordered to be
taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken
by him on a demand made in that behalf:-
(a) In the case a company having a share capital, by the members present in person or
by proxy, where allowed, and having not less than one-tenth of the total voting power
or holding shares on which an aggregate sum of not less than five lakh rupees or
such higher amount as may be prescribed has been paid-up; and

(b) in the case of any other company, by any member or members present in person or by
proxy, where allowed, and having not less than one tenth of the total voting power.
Withdrawal of the demand: The demand for a poll may be withdrawn at any time by the
persons who made the demand.
Hence, on the basis on the above provisions of the Companies Act, 2013:
(i) In the given case, the poll is demanded by members (including proxies) holding more
than 1/10 th of the total voting power. Hence, the chairman cannot reject the demand
for poll as poll can be demanded by the members present in person or by proxy.
subject to provision in the articles of company.
(ii) The chairman cannot reject the request of the members for withdrawing the demand
of the Poll.
5. According to section 48 of the Companies Act, 2013-
(1) Variation in rights of shareholders with consent: Where a share capital of the
company is divided into different classes of shares, the rights attached to the shares
of any class may be varied with the consent in writing of the holders of not less than
three-fourths of the issued shares of that class or by means of a special resolution
passed at a separate meeting of the holders of the issued shares of that class, —
(a) if provision with respect to such variation is contained in the memorandum or
articles of the company; or
(b) in the absence of any such provision in the memorandum or articles, if such
variation is not prohibited by the terms of issue of the shares of that class:
Provided that if variation by one class of shareholders affects the rights of any other
class of shareholders, the consent of three-fourths of such other class of shareholders
shall also be obtained and the provisions of this section shall apply to such variation.
(2) No consent for variation: Where the holders of not less than ten per cent of the
issued shares of a class did not consent to such variation or vote in favour of the
special resolution for the variation, they may apply to the Tribunal to have the variation
cancelled, and where any such application is made, the variation shall not have effect
unless and until it is confirmed by the Tribunal:
Provided that an application under this section shall be made within twenty-one days
after the date on which the consent was given or the resolution was passed, as the
case may be, and may be made on behalf of the shareholders entitled to make the
application by such one or more of their number as they may appoint in writing for the
purpose.
6. Under section 67 (2) of the Companies Act, 2013 no public company is allowed to give,
directly or indirectly and whether by means of a loan, guarantee, or security, any financial
assistance for the purpose of, or in connection with, a purchase or subscription, by any
person of any shares in it or in its holding company.

However, section 67 (3) makes an exception by allowing companies to give loans to their
employees other than its directors or key managerial personnel, for an amount not
exceeding their salary or wages for a period of six months with a view t o enabling them to
purchase or subscribe for fully paid-up shares in the company or its holding company to
be held by them by way of beneficial ownership.
It is further provided that disclosures in respect of voting rights not exercised directly by
the employees in respect of shares to which the scheme relates shall be made in the
Board's report in such manner as may be prescribed.
Hence, Heavy Metals Ltd can provide financial assistance upto the specified limit to its
employees to enable them to subscribe for the shares in the company provided the shares
are purchased by the employees to be held for beneficial ownership by them.
However, the directors or key managerial personnel will not be eligible for such assistance.
7. According to Section 139 (2) of the Companies Act, 2013,
I. Listed companies and other prescribed class or classes of companies (except one
person companies and small companies) shall not appoint or re-appoint an audit firm
as auditor for more than two terms of 5 consecutive years.
II. An audit firm which has completed its term (i.e. two terms of five consecutive years)
shall not be eligible for re- appointment as auditor in the same company for five years
from the completion of such term.
III. Further, as on the date of appointment no audit firm having a common partner or
partners to the other audit firm, whose tenure has expired in a company immediately
preceding the financial year, shall be appointed as an auditor of the same company
for a period of five years.
IV. For the purpose of the rotation of auditors, in case of an auditor (whether an individual
or audit firm), the period for which the individual or the firm has held office as auditor
prior to the commencement of the Act shall be taken into account for calculating the
period of 5 consecutive years or 10 consecutive years, as the case may be.
Applying the above provisions,
(1) Lemon & Company can continue as statutory auditors of M/s Big Limited for 4 more
years from 1.4.2014, i.e. they can continue in office only till 31.3.2018.
(2) The cooling- off period shall be of 5 years.
(3) Dew & Company cannot be appointed as a statutory auditor of M/s Big Limited during
the cooling – off period of Lemon & Company, as CA. M is the common partner in
both Lemon & Company and Dew & Company.
(4) As per Section 138 (1) of the Companies Act, 2013, every listed company and other
prescribed class of companies, shall be required to appoint an internal auditor, who
shall either be a chartered accountant or a cost accountant, or such other professional
(which may be either an individual or a partnership firm or a body corporate) as may

be decided by the Board to conduct internal audit of the functions and activities of the
company.
Accordingly, M/s Lemon & Company can be appointed as an internal auditors of M/s
Big Limited and in its subsidiary M/S Dark Limited (a listed company). The provision
of cooling off period as given under Section 139 of the Companies Act, 2013, shall
not be applicable on the Internal auditors.
8. As per Section 141(3)(d)(i) of the Companies Act, 2013, a person who, or his relative or
partner is holding any security of or interest in the company or its subsidiary, or of its
holding or associate company or a subsidiary of such holding company, shall not be
appointed as an auditor of the company.
However, Rule 10 of the Companies (Audit and Auditors) Rules, 2014, states that a relative
of an auditor may hold securities in the company of face value not exceeding rupees one
lakh.
In the given case Mrs. Sita, wife of CA. Arjun acquired shares in Stellar Builders Limited,
in which he was a statutory auditor on 15 th March, 2018. Since, the securities held by Mrs.
Sita is within the prescribed limit of ` 1 lakh, such a transaction is valid.
Yes, the answer will be different in case where the face value of acquired shares is
` 1,50,000. Then in that case:
(i) Corrective action to maintain the limit specified (i.e., 1 lac) shall be taken by the
auditor within 60 days of such acquisition, or
(ii) Auditor has to vacate his office.
9. Alteration in Articles of Association: Section 14 of the Companies Act, 2013, vests
companies with power to alter or add to its articles. The law with respect to alteration of
articles is as follows:
(1) Alteration by special resolution: Subject to the provisions of this Act and the
conditions contained in its memorandum, if any, a company may, by a special
resolution alter its articles.
(2) Filing of alteration with the registrar: Every alteration of the articles and a copy of
the order of the Tribunal approving the alteration, shall be filed with the Registrar,
together with a printed copy of the altered articles, within a period of fifteen days in
such manner as may be prescribed, who shall register the same.
(3) Any alteration made shall be valid: Any alteration of the articles registered as above
shall, subject to the provisions of this Act, be valid as if it were originally contained in
the articles.
(4) Alteration noted in every copy: Every alteration made in articles of a company shall
be noted in every copy of the articles, as the case may be. If a company makes any
default in complying with the stated provisions, the company and every officer who is

in default shall be liable to a penalty of one thousand rupees for every copy of the
articles issued without such alteration. [Section 15]
10. (1) Preparation of revised financial statement or revised report on the approval of
Tribunal: If it appears to the directors of a company that—
(a) the financial statement of the company; or
(b) the report of the Board,
do not comply with the provisions of section 129 or section 134, they may prepare
revised financial statement or a revised report in respect of any of the three prec eding
financial years after obtaining approval of the Tribunal on an application made by the
company in such form and manner as may be prescribed and a copy of the order
passed by the Tribunal shall be filed with the Registrar:
Tribunal to serve the notice: Provided that the Tribunal shall give notice to the
Central Government and the Income tax authorities and shall take into consideration
the representations, if any, made by that Government or the authorities before
passing any order under this section:
Number of times of revision and recast: Provided further that such revised
financial statement or report shall not be prepared or filed more than once in a
financial year:
Reason for revision to be disclosed: Provided also that the detailed reasons for
revision of such financial statement or report shall also be disclosed in the Board's
report in the relevant financial year in which such revision is being made.
(2) Limits of revisions: Where copies of the previous financial statement or report have
been sent out to members or delivered to the Registrar or laid before the company in
general meeting, the revisions must be confined to—
(a) the correction in respect of which the previous financial statement or report do
not comply with the provisions of section 129 or section 134; and
(b) the making of any necessary consequential alternation.
(3) Framing of rules by the Central Government in relation to revised financial
statement or director's report: The Central Government may make rules as to the
application of the provisions of this Act in relation to revised financial statement or a
revised director's report and such rules may, in particular—
(a) make different provisions according to which the previous financial statement
or report are replaced or are supplemented by a document indicating the
corrections to be made;
(b) make provisions with respect to the functions of the company's auditor in relation
to the revised financial statement or report;
(c) require the directors to take such steps as may be prescribed.

11. (i) According to Section 134 of the Indian Contract Act, 1872, the surety is discharged
by any contract between the creditor and the principal debtor, by which the principal
debtor is released or by any act or omission of the creditor, the legal consequence of
which is the discharge of the principal debtor.
In the given case, B does not supply the necessary material as per the agreement.
Hence, C is discharged from his liability.
(ii) According to Section 136 of the Indian Contract Act, 1872, where a contract to give
time to the principal debtor is made by the creditor with a third person and not with
the principal debtor, the surety is not discharged.
In the given question the contract to give time to the principal debtor is made by the
creditor with X who is a third person. X is not the principal debtor. Hence , A is not
discharged.
12. According to section 173 of the Indian Contract Act, 1872, the pawnee may retain the
goods pledged, not only for payment of the debt or the performance of the promise, but for
the interest, of the debt, and all necessary expenses incurred by him in respect of the
possession or for the preservation of the goods pledged.
Hence, ABC Bank can retain the stock of business of Mr. Avinash, not only for adjustment
of the loan but also for payment of interest.
13. Protest: According to section 100 of the Negotiable Instruments Act,1881, when a
promissory note or bill of exchange has been dishonored by non-acceptance or non-
payment, the holder may, within a reasonable time, cause such dishonor 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.
Thus, Mr. Sandip can get the certificate of protest by following the above provisions.
14. “Provision as to offence punishable under two or more enactments” [Section 26]:
Where an act or omission constitutes an offence under two or more enactments, then the
offender shall be liable to be prosecuted and punished under either or any of those
enactments, but shall not be punished twice for the same offence.
Thus, Mr. Ram shall be liable to punished under the Advocates Act, 1961 or the Income
Tax Act, 1961, but shall not be punished twice for the same offence.

15. ‘Read the Statute as a Whole’: It is the elementary principle that construction of a statute
is to be made of all its parts taken together and not of one part only. The deed / statute
must be read as a whole in order to ascertain the true meaning of its several clauses, and
the words of each clause should be so interpreted as to bring them into harmony with other
provisions – if that interpretation does no violence to the meaning of which they are
naturally susceptible. And the same approach would apply with equal force with regard to
Acts and Rules passed by the legislature.
One of the safest guides to the construction of sweeping general words is to examine other
words of like import in the same enactment or instrument to see what limitations must be
imposed on them. If we find that a number of such expressions have to be subjected to
limitations and qualifications and that such limitations and qualifications are of the same
nature, that circumstance forms a strong argument for subjecting the expression in dispute
to a similar limitation and qualification.

PAPER – 3: COST AND MANAGEMENT ACCOUNTING
QUESTIONS
Material Cost
1. Rounak Ltd. is the manufacturer of monitors for PCs. A monitor requires 4 units of Part-M.
The following are the details of its operation during 20X8:
Average monthly market demand 2,000 Monitors
Ordering cost ` 1,000 per order
Inventory carrying cost 20% per annum
Cost of Part ` 350 per part
Normal usage 425 parts per week
Minimum usage 140 parts per week
Maximum usage 710 parts per week
Lead time to supply 3-5 weeks
COMPUTE from the above:
(i) Economic Order Quantity (EOQ). If the supplier is willing to supply quarterly 30,000
units of Part-M at a discount of 5%, is it worth accepting?
(ii) Reorder level
(iii) Maximum level of stock
(iv) Minimum level of stock.
Employee Cost
2. A job can be executed either through workman A or B. A takes 32 hours to complete the
job while B finishes it in 30 hours. The standard time to finish the job is 40 hour s.
The hourly wage rate is same for both the workers. In addition workman A is entitled to
receive bonus according to Halsey plan (50%) sharing while B is paid bonus as per Rowan
plan. The works overheads are absorbed on the job at ` 7.50 per labour hour worked. The
factory cost of the job comes to ` 2,600 irrespective of the workman engaged.
INTERPRET the hourly wage rate and cost of raw materials input. Also show cost against
each element of cost included in factory cost.
Overheads: Absorption Costing Method
3. Sree Ajeet Ltd. having fifteen different types of automatic machines furnishes information
as under for 20X8-20X9
(i) Overhead expenses: Factory rent ` 1,80,000 (Floor area 1,00,000 sq. ft.), Heat and
gas ` 60,000 and supervision ` 1,50,000.

PAPER – 3: COST AND MANAGEMENT ACCOUNTING 85
(ii) Wages of the operator are ` 200 per day of 8 hours. Operator attends to one machine
when it is under set up and two machines while they are under operation.
In respect of machine B (one of the above machines) the following particulars are
furnished:
(i) Cost of machine `1,80,000, Life of machine- 10 years and scrap value at the end of
its life ` 10,000
(ii) Annual expenses on special equipment attached to the machine are estimated as
` 12,000
(iii) Estimated operation time of the machine is 3,600 hours while set up time is 400 hours
per annum
(iv) The machine occupies 5,000 sq. ft. of floor area.
(v) Power costs ` 5 per hour while machine is in operation.
ESTIMATE the comprehensive machine hour rate of machine B. Also find out machine
costs to be absorbed in respect of use of machine B on the following two work orders
Work order- 1 Work order-2
Machine set up time (Hours) 15 30
Machine operation time (Hours) 100 190
Activity Based Costing
4. Family Store wants information about the profitability of individual product lines: Soft
drinks, Fresh produce and Packaged food. Family store provides the following data for the
year 20X7-X8 for each product line:
Soft drinks Fresh produce Packaged food
Revenues ` 39,67,500 ` 1,05,03,000 ` 60,49,500
Cost of goods sold ` 30,00,000 ` 75,00,000 ` 45,00,000
Cost of bottles returned ` 60,000 `0 `0
Number of purchase orders 360 840 360
placed
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000
Family store also provides the following information for the year 20X7-X8:
Activity Description of activity Total Cost Cost-allocation base
Bottles returns Returning of empty ` 60,000 Direct tracing to soft
bottles drink line

Ordering Placing of orders for ` 7,80,000 1,560 purchase orders

purchases
Delivery Physical delivery and ` 12,60,000 3,150 deliveries
receipt of goods
Shelf stocking Stocking of goods on ` 8,64,000 8,640 hours of shelf-
store shelves and on- stocking time
going restocking
Customer Assistance provided to ` 15,36,000 15,36,000 items sold
Support customers including
check-out
Required:
(i) Family store currently allocates support cost (all cost other than cost of goods sold)
to product lines on the basis of cost of goods sold of each product line. CALCULATE
the operating income and operating income as a % of revenues for each product line.
(ii) If Family Store allocates support costs (all costs other than cost of goods sold) to
product lines using and activity based costing system, CALCULATE the operating
income and operating income as a % of revenues for each product line.
Cost Sheet
5. From the following data of Arnav Metallic Ltd., CALCULATE Cost of production:
Amount (`)
(i) Repair & maintenance paid for plant & machinery 9,80,500
(ii) Insurance premium paid for inventories 26,000
(iii) Insurance premium paid for plant & machinery 96,000
(iv) Raw materials purchased 64,00,000
(v) Opening stock of raw materials 2,88,000
(vi) Closing stock of raw materials 4,46,000
(vii) Wages paid 23,20,000
(viii) Value of opening Work-in-process 4,06,000
(ix) Value of closing Work-in-process 6,02,100
(x) Quality control cost for the products in manufacturing process 86,000
(xi) Research & development cost for improvement in production 92,600
process
(xii) Administrative cost for:
- Factory & production 9,00,000

- Others 11,60,000
(xiii) Amount realised by selling scrap generated during the 9,200
manufacturing process
(xiv) Packing cost necessary to preserve the goods for further 10,200
processing
(xv) Salary paid to Director (Technical) 8,90,000
Cost Accounting System
6. The financial books of a company reveal the following data for the year ended 31 st March,
20X8:
Opening Stock: (`)
Finished goods 625 units 53,125
Work-in-process 46,000
01.04.20X7 to 31.03.20X8
Raw materials consumed 8,40,000
Direct Labour 6,10,000
Factory overheads 4,22,000
Administration overheads (Production related) 1,98,000
Dividend paid 1,22,000
Bad Debts 18,000
Selling and Distribution Overheads 72,000
Interest received 38,000
Rent received 46,000
Sales 12,615 units 22,80,000
Closing Stock: Finished goods 415 units 45,650
Work-in-process 41,200
The cost records provide as under:
➢ Factory overheads are absorbed at 70% of direct wages.
➢ Administration overheads are recovered at 15% of factory cost.
➢ Selling and distribution overheads are charged at ` 3 per unit sold.
➢ Opening Stock of finished goods is valued at ` 120 per unit.
➢ The company values work-in-process at factory cost for both Financial and Cost Profit
Reporting.

Required:
(i) PREPARE a statements for the year ended 31 st March, 20X8. Show
➢ the profit as per financial records
➢ the profit as per costing records.
(ii) PREPARE a statement reconciling the profit as per costing records with the profit as
per Financial Records.
Contract Costing
7. A construction company undertook a contract at an estimated price of ` 108 lakhs, which
includes a budgeted profit of ` 18 lakhs. The relevant data for the year ended 31.03.20X8
are as under:
(` ‘000)
Materials issued to site 5,000
Direct wages paid 3,800
Plant hired 700
Site office costs 270
Materials returned from site 100
Direct expenses 500
Work certified 10,000
Work not certified 230
Progress payment received 7,200
A special plant was purchased specifically for this contract at ` 8,00,000 and after use on
this contract till the end of 31.02.20X8, it was valued at ` 5,00,000. This cost of materials at
site at the end of the year was estimated at ` 18,00,000 Direct wages accrued as on
31.03.20X8 was ` 1,10,000.
Required
PREPARE the Contract Account for the year ended 31 st March, 20X8.
Job Costing
8. A company has been asked to quote for a job. The company aims to make a net profit of
30% on sales. The estimated cost for the job is as follows:
Direct materials 10 kg @`10 per kg
Direct labour 20 hours @ `5 per hour
Variable production overheads are recovered at the rate of ` 2 per labour hour.

Fixed production overheads for the company are budgeted to be `1,00,000 each
year and are recovered on the basis of labour hours.
There are 10,000 budgeted labour hours each year. Other costs in relation to
selling, distribution and administration are recovered at the rate of `50 per job.
DETERMINE quote for the job by the Company.
Process Costing
9. From the following information for the month of January, 20X9, PREPARE Process-III cost
accounts.
Opening WIP in Process-III 1,600 units at ` 24,000
Transfer from Process-II 55,400 units at ` 6,23,250
Transferred to warehouse 52,200 units
Closing WIP of Process-III 4,200 units
Units Scrapped 600 units
Direct material added in Process-III ` 2,12,400
Direct wages ` 96,420
Production overheads ` 56,400
Degree of completion:
Opening Stock Closing Stock Scrap
Material 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of the production and scrap was sold @ ` 5 per
unit.
(Students may treat material transferred from Process – II as Material – A and fresh
material used in Process – III as Material B)
Joint Products & By Products
10. In an Oil Mill four products emerge from a refining process. The total cost of input duri ng
the quarter ending March 20X8 is `1,48,000. The output, sales and additional processing
costs are as under:
Products Output in Litres Additional processing Sales value
cost after split off
(`) (`)
ACH 8,000 43,000 1,72,500

BCH 4,000 9,000 15,000

CSH 2,000  6,000
DSH 4,000 1,500 45,000
In case these products were disposed-off at the split off point that is before further
processing, the selling price per litre would have been:
ACH (`) BCH (`) CSH (`) DSH (`)
15.00 6.00 3.00 7.50
PRODUCE a statement of profitability based on:
(i) If the products are sold after further processing is carried out in the mill.
(ii) If they are sold at the split off point.
Service Costing
11. Sanziet Lifecare Ltd. operates in life insurance business. Last year it has launched a new
term insurance policy for practicing professionals ‘Professionals Protection Plus’. The
company has incurred the following expenditures during the last year for the policy:
Policy development cost `11,25,000
Cost of marketing of the policy `45,20,000
Sales support expenses `11,45,000
Policy issuance cost `10,05,900
Policy servicing cost `35,20,700
Claims management cost `1,25,600
IT cost `74,32,000
Postage and logistics `10,25,000
Facilities cost `15,24,000
Employees cost ` 5,60,000
Office administration cost `16,20,400
Number of policy sold- 528
Total insured value of policies- `1,320 crore
Required:
(i) CALCULATE total cost for Professionals Protection Plus’ policy segregating the costs
into four main activities namely (a) Marketing and Sales support, (b) Operations, (c)
IT and (d) Support functions.
(ii) CALCULATE cost per policy.
(iii) CACULATE cost per rupee of insured value.

Standard Costing
12. Aaradhya Ltd.manufactures a commercial product for which the standard cost per unit is
as follows:
(`)
Material:
5 kg. @ ` 4 per kg. 20.00
Labour:
3 hours @ `10 per hour 30.00
Overhead
Variable: 3 hours @ `1 3.00
Fixed: 3 hours @ `0.50 1.50
Total 54.50
During Jan. 20X8, 600 units of the product were manufactured at the cost shown below:
(`)
Materials purchased:
5,000 kg. @ `4.10 per kg. 20,500
Materials used:
3,500 kg.
Direct Labour:
1,700 hours @ ` 9 15,300
Variable overhead 1,900
Fixed overhead 900
Total 38,600
The flexible budget required 1,800 direct labour hours for operation at the monthly activity
level used to set the fixed overhead rate.
COMPUTE:
(a) Material price variance, (b) Material Usage variance; (c) Labour rate variance; (d)
Labour efficiency variance; (e) Variable overhead expenditure variance; (f) Variable
overhead efficiency variance; (g) Fixed overhead expenditure variance; (h) Fixed overhead
volume variance; (i) Fixed overhead capacity variance; and (j) Fixed overhead efficiency
variance.
Also RECONCILE the standard and actual cost of production.

Marginal Costing
13. A company sells its product at ` 15 per unit. In a period, if it produces and sells 8,000
units, it incurs a loss of ` 5 per unit. If the volume is raised to 20,000 units, it earns a profit
of ` 4 per unit. CALCULATE break-even point both in terms of rupees as well as in units.
Budget and Budgetary Control
14. Gaurav Ltd. is drawing a production plan for its two products Minimax (MM) and Heavyhigh
(HH) for the year 20X8-X9. The company’s policy is to hold closing stock of finished goods
at 25% of the anticipated volume of sales of the succeeding month. The following a re the
estimated data for two products:
Minimax (MM) Heavyhigh (HH)

Budgeted Production units 1,80,000 1,20,000
(`) (`)
Direct material cost per unit 220 280

Direct labour cost per unit 130 120
Manufacturing overhead 4,00,000 5,00,000
The estimated units to be sold in the first four months of the year 20X8-X9 are as under
April May June July
Minimax 8,000 10,000 12,000 16,000

Heavyhigh 6,000 8,000 9,000 14,000
PREPARE production budget for the first quarter in month-wise

Miscellaneous
15. (a) DISCUSS the essential features of a good cost accounting system.
(b) EXPLAIN the difference between Cost Control and Control Reduction.
(c) DEFINE Controllable Cost and Uncontrollable Cost.
(d) DISTIGUISH between job and batch costing.

SUGGESTED HINTS/ANSWERS
1. (1) A = Annual usage of parts = Monthly demand for monitors × 4 parts × 12 months
= 2,000monitors × 4 parts × 12 months = 96,000units
O = Ordering cost per order = ` 1,000/- per order
C1 = Cost per part =` 350/-
i C1 = Inventory carrying cost per unit per annum
= 20% × ` 350 = ` 70/- per unit, per annum
Economic order quantity (EOQ):
2AO 2  96,000 units `1,000
E.O.Q = =
iC1 `70
= 1,656 parts (approx.)
The supplier is willing to supply 30,000 units at a discount of 5%, therefore cost of
each part shall be `350 – 5% of 350 = `332.5
Total cost (when order size is 30,000 units):
= Cost of 96,000 units + Ordering cost + Carrying cost.
 96,000 units  1
= (96,000 units × ` 332.50) +  × ` 1,000  + (30,000 units × 20% ×
 30,000 units  2
` 332.50)
= `3,19,20,000 + `3,200* + `9,97,500= `3,29,20,700
Total cost (when order size is 1,656 units):
 96,000 units  1
= (96,000 units × `350) +  × ` 1,000  + (1,656 units × 20% × `350)
 1,656 units  2
= `3,36,00,000 + `57,970* + `57,960 = `3,37,15,930
Since, the total cost under the supply of 30,000 units with 5% discount is lower than
that when order size is 1,656 units, therefore the offer should be accepted.
Note: While accepting this offer consideration of capital blocked on order size of
30,000 units has been ignored.
*Order size can also be taken in absolute figure.
(2) Reorder level
= Maximum consumption × Maximum re-order period

= 710 units × 5 weeks = 3,550 units

(3) Maximum level of stock
= Re-order level + Reorder quantity – (Min. usage × Min. reorder period)
= 3,550 units + 1,656 units – (140 units × 3 weeks) = 4,786 units.
(4) Minimum level of stock
= Re-order level – Normal usage × Average reorder period
= 3,550 units – (425 units × 4 weeks) = 1,850 units.
2. Calculation of :
1. Time saved and wages:
Workmen A B
Standard time (hrs.) 40 40
Actual time taken (hrs.) 32 30
Time saved (hrs.) 8 10
Wages paid @ ` x per hr. (`) 32x 30x
2. Bonus Plan:
Halsey Rowan
Time saved (hrs.) 8 10
Bonus (`) 4x 7.5x
 8 hrs  ` x   10 hrs 
 2   40 hrs  30hrs  ` x
   
3. Total wages:
Workman A: 32x + 4x = ` 36x
Workman B: 30x + 7.5x = ` 37.5x
Statement of factory cost of the job
Workmen A (`) B (`)
Material cost (assumed) y y
Wages (shown above) 36x 37.5x
Works overhead 240 225
Factory cost (given) 2,600 2,600
The above relations can be written as follows:
36x + y + 240 = 2,600 (i)

37.5x+ y+ 225 = 2,600 (ii)

Subtracting (i) from (ii) we get
1.5x – 15 = 0
Or, 1.5 x = 15
Or, x = ` 10 per hour
On substituting the value of x in (i) we get y = ` 2,000
Hence the wage rate per hour is ` 10 and the cost of raw material is ` 2,000 on the job.
3. Sree Ajeet Ltd.
Statement showing comprehensive machine hour rate of Machine B
(`)
Standing Charges:
Factory rent {(` 1,80,000/1,00,000 sq. ft.) × 5,000 Sq. ft.} 9,000
Heat and Gas (` 60,000/15 machines) 4,000
Supervision (` 1,50,000/ 15 machines) 10,000
Depreciation [(` 1,80,000 – ` 10,000)/ 10 years] 17,000
Annual expenses on special equipment 12,000
52,000
Fixed cost per hour (` 52,000/ 4,000 hrs.) 13/-
Set up rate Operational rate

Per hour (`) Per hour (`)
Fixed cost 13.00 13.00
Power -- 5.00
Wages 25.00 12.50
Comprehensive machine hour rate per hr. 38.00 30.50
Statement of ‘B’ machine costs
to be absorbed on the two work orders
Work order-1 Work order-2
Hours Rate Amount Hours Rate Amount
` ` ` ` `
Set up time cost 15 38 570 30 38 1,140
Operation time cost 100 30.5 3,050 190 30.5 5,795
Total cost 3,620 6,935

4. (i) Statement of Operating income and Operating income as a percentage of

revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods sold
of each product)
Soft Fresh Packaged Total
Drinks Produce Foods
(`) (`) (`) (`)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost of Goods sold (COGS): (B) 30,00,000 75,00,000 45,00,000 1,50,00,000
Support cost (30% of COGS): (C) 9,00,000 22,50,000 13,50,000 45,00,000
(Refer working notes)
Total cost: (D) = {(B) + (C)} 39,00,000 97,50,000 58,50,000 1,95,00,000
Operating income: E= {(A)-(D)} 67,500 7,53,000 1,99,500 10,20,000
Operating income as a percentage 1.70% 7.17% 3.30% 4.97%
of revenues: (E/A) × 100)
Working notes:
1. Total support cost:
(`)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000
2. Percentage of support cost to cost of goods sold (COGS):
Total support cost
= 100
Total cost of goods sold
` 45,00,000
  100 = 30%
`1,50,00,000
3. Cost for each activity cost driver:
Activity Total cost Cost allocation base Cost driver rate
(`)
(1) (2) (3) (4) = [(2) ÷ (3)]
Ordering 7,80,000 1,560 purchase orders `500 per purchase order

Delivery 12,60,000 3,150 deliveries `400 per delivery

Shelf-stocking 8,64,000 8,640 hours `100 per stocking hour
Customer support 15,36,000 15,36,000 items sold `1 per item sold
(ii) Statement of Operating income and Operating income as a percentage of

revenues for each product line
(When support costs are allocated to product lines using an activity-based costing
system)
Soft Fresh Packaged Total
drinks Produce Food
(`) (`) (`) (`)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Bottle return costs 60,000 0 0 60,000
Ordering cost* 1,80,000 4,20,000 1,80,000 7,80,000
(360:840:360)
Delivery cost* 1,20,000 8,76,000 2,64,000 12,60,000
(300:2190:660)
Shelf stocking cost* 54,000 5,40,000 2,70,000 8,64,000
(540:5400:2700)
Customer Support cost* 1,26,000 11,04,000 3,06,000 15,36,000
(1,26,000:11,04,000:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income C: {(A)- (B)} 4,27,500 63,000 5,29,500 10,20,000
Operating income as a % of 10.78% 0.60% 8.75% 4.97%
revenues
* Refer to working note 3

5. Calculation of Cost of Production of Arnav Metallic for the period…..
Particulars Amount (`)
Raw materials purchased 64,00,000
Add: Opening stock 2,88,000
Less: Closing stock (4,46,000)
Material consumed 62,42,000
Wages paid 23,20,000

Prime cost 85,62,000

Repair and maintenance cost of plant & machinery 9,80,500
Insurance premium paid for inventories 26,000
Insurance premium paid for plant & machinery 96,000
Quality control cost 86,000
Research & development cost 92,600
Administrative overheads related with factory and production 9,00,000
1,07,43,100
Add: Opening value of W-I-P 4,06,000
Less: Closing value of W-I-P (6,02,100)
1,05,47,000
Less: Amount realised by selling scrap (9,200)
Add: Primary packing cost 10,200
Cost of Production 1,05,48,000
Notes:
(i) Other administrative overhead does not form part of cost of production.
(ii) Salary paid to Director (Technical) is an administrative cost.
6. (i) Statement of Profit as per Financial records
(for the year ended March 31, 20X8)
(`) (`)
To Opening stock of 53,125 By Sales 22,80,000
Finished Goods
To Work-in-process 46,000 By Closing stock of 45,650
finished Goods
To Raw materials consumed 8,40,000 By Work-in-Process 41,200
To Direct labour 6,10,000 By Rent received 46,000
To Factory overheads 4,22,000 By Interest received 38,000
To Administration overheads 1,98,000
To Selling & distribution 72,000
overheads
To Dividend paid 1,22,000

To Bad debts 18,000

To Profit 69,725
24,50,850 24,50,850
Statement of Profit as per Costing records

(for the year ended March 31,20X8)
(`)
Sales revenue (A) 22,80,000
(12,615 units)
Cost of sales:
Opening stock 75,000
(625 units ×` 120)
Add: Cost of production of 12,405 units 21,63,350
(Refer to working note 2)
Less: Closing stock (`174.39 × 415 units) (72,372)
Cost of goods sold (12,615 units) 21,65,978
Selling & distribution overheads
(12,615 units ×` 3) 37,845
Cost of sales: (B) 22,03,823
Profit: {(A) – (B)} 76,177
(ii) Statement of Reconciliation
(Reconciling the profit as per costing records with the profit
as per financial records)
(`) (`)
Profit as per Cost Accounts 76,177
Add: Administration overheads over absorbed 83,550
(` 2,81,550 – ` 1,98,000)
Opening stock overvalued 21,875
(` 75,000 – ` 53,125)
Interest received 38,000
Rent received 46,000

Factory overheads over recovered

(` 4,27,000 – ` 4,22,000) 5,000 1,94,425
2,70,602
Less: Selling & distribution overheads under recovery 34,155
(` 72,000 – ` 37,845)
Closing stock overvalued ( ` 72,372 – ` 45,650) 26,722
Dividend 1,22,000
Bad debts 18,000 (2,00,877)
Profit as per financial accounts 69,725
Working notes:
1. Number of units produced
Units
Sales 12,615
Add: Closing stock 415
Total 13,030
Less: Opening stock (625)
Number of units produced 12,405
2. Cost Sheet
(` )
Raw materials consumed 8,40,000
Direct labour 6,10,000
Prime cost 14,50,000
Factory overheads 4,27,000
(70% of direct wages)
Factory cost 18,77,000
Add: Opening work-in-process 46,000
Less: Closing work-in-process 41,200
Factory cost of goods produced 18,81,800
Administration overheads
(15% of factory cost) 2,81,550
Cost of production of 12,405 units 21,63,350
(Refer to working note 1)

Cost of production per unit:

TotalCost of Pr oduction ` 21,63,350
   `174.39
No.of unitsproduced 12,405 units
7. Contract Account for the year ended 31 st March, 20X8

(`’000) (`’ 000)
To Material issued to site 5,000 By Material at site 1,800
To Direct wages 3,800 By Material returned 100
Add: Outstanding wages 110 3,910 By Work-in-progress:
To Plant hire 700 - Value of work 10,000
certified
To Site office cost 270 - Work uncertified 230
To Direct expenses 500
To Depreciation (special plant) 300
To Notional profit c/d 1,450
12,130 12,130
8. Determination of quotation price for the job

Cost (`)
Direct Material (10kg × `10) 100
Direct Labour (20hrs × `5) 100
Variable production overhead (20hrs × `2) 40
 `1,00,000  200
Fixed Overhead   20 hours 
 10,000 budgeted hours 
Other costs 50
Total costs 490
Net profit is 30% of sales, therefore total costs represent 70% (` 490 × 100) ÷ 70 = ` 700
price to quote for job.
To check answer is correct; profit achieved will be ` 210 (` 700 - ` 490)
= ` 210 ÷ ` 700 = 30%

9. Statement of Equivalent Production

Process III
Equivalent Production
Input Output Material-A Material-B Labour &
Units Units
Details Particulars Overhead
% Units % Units % Units
Opening 1,600 Work on Op. WIP 1,600 - - 20 320 40 640
WIP
Process-II 55,400 Introduced & 50,600 100 50,600 100 50,600 100 50,600
Transfer completed during
the month
Normal loss (5% 2,640 - - - - - -
of 52,800 units)
Closing WIP 4,200 100 4,200 70 2,940 50 2,100
Abnormal Gain (2,040) 100 (2,040) 100 (2,040) 100 (2,040)
57,000 57,000 52,760 51,820 51,300
Working note:
Production units = Opening units + Units transferred from Process -II – Closing Units
= 1,600 units + 55,400 units – 4,200 units
= 52,800 units
Statement of Cost
Cost (`) Equivalent Cost per
units equivalent
units (`)
Material A (Transferred from previous process) 6,23,250
Less: Scrap value of normal loss (2,640 units × ` 5) (13,200)
6,10,050 52,760 11.5627
Material B 2,12,400 51,820 4.0988
Labour 96,420 51,300 1.8795
Overheads 56,400 51,300 1.0994
9,75,270 18.6404

Statement of apportionment of Process Cost

Amount Amount
(`) (`)
Opening WIP Material A 24,000
Completed opening Material B (320 units × ` 4.0988) 1311.62
WIP units-1600
Wages (640 units × ` 1.8795) 1202.88
Overheads (640 units × ` 1.0994) 703.62 3,218.12
Introduced & 50,600 units × ` 18.6404 9,43,204.24
Completed- 50,600
units
Total cost of 52,200 9,70,422.36
finished goods units
Closing WIP units- Material A (4,200 units × 48,563.34
4,200 ` 11.5627)
Material B (2,940 units × ` 4.0988) 12,050.47
Wages (2,100 units × ` 1.8795) 3,946.95
Overheads (2,100 units × 2,308.74
` 1.0994)
66,869.50
Abnormal gain units - (2,040 units × ` 18.6404) 38026.42
2,040
Process III A/c
Particulars Units Amount (`) Particulars Units Amount (`)
To Balance b/d 1,600 24,000 By Normal loss 2,640 13,200
To Process II A/c 55,400 6,23,250 By Finished 52,200 9,70,422.36
goods
To Direct material 2,12,400 By Closing WIP 4,200 66,874.06*
To Direct wages 96,420
To Production 56,400
overheads
To Abnormal gain 2,040 38,026.42
59,040 10,50,496.42 59,040 10,50,496.42
* Difference in figure due to rounding off has been adjusted with closing WIP

10. (i) Statement of profitability of the Oil Mill (after carrying out further processing)
for the quarter ending 31st March 20X8.
Products Sales Value Share of Additional Total cost Profit
after further Joint cost processing after (loss)
processing cost processing
ACH 1,72,500 98,667 43,000 1,41,667 30,833
BCH 15,000 19,733 9,000 28,733 (13,733)
CSH 6,000 4,933 -- 4,933 1,067
DSH 45,000 24,667 1,500 26,167 18,833
2,38,500 1,48,000 53,500 2,01,500 37,000
(ii) Statement of profitability at the split off point
Products Selling Output in Sales value share of joint profit at split
price of units at split off cost off point
split off point
ACH 15.00 8,000 1,20,000 98,667 21,333
BCH 6.00 4,000 24,000 19,733 4,267
CSH 3.00 2,000 6,000 4,933 1,067
DSH 7.50 4,000 30,000 24,667 5,333
1,80,000 1,48,000 32,000
Note: Share of Joint Cost has been arrived at by considering the sales value at split
off point.
11. (i) Calculation of total cost for ‘Professionals Protect Plus’ policy
Particulars Amount (`) Amount (`)
1. Marketing and Sales support:
- Policy development cost 11,25,000
- Cost of marketing 45,20,000
- Sales support expenses 11,45,000 67,90,000
2. Operations:
- Policy issuance cost 10,05,900
- Policy servicing cost 35,20,700
- Claims management cost 1,25,600 46,52,200
3. IT Cost 74,32,000
4. Support functions
- Postage and logistics 10,25,000
- Facilities cost 15,24,000

- Employees cost 5,60,000

- Office administration cost 16,20,400 47,29,400
Total Cost 2,36,03,600
Total cost `2,36,03,600
(ii) Calculation of cost per policy = = = `44,703.79
No.of policies 528
Total cost ` 2.36 crore

(iii) Cost per rupee of insured value = = = ` 0.0018
Total insured value ` 1,320 crore
12. (a) Material price variance:
= (Standard price – Actual Price) × Actual quantity
= (` 4 – ` 4.10) × 5,000 = ` 500 Adv.
(b) Material usage variance:
= (Std. quantity for actual output – Actual qtty.) × Std. price
= (600 × 5 – 3,500) × 4 = ` 2,000 Adv.
(c) Labour Rate Variance:
= (Standard rate – Actual rate) × Actual hours
= (`10 – `9) × 1,700 = ` 1,700 Fav.
(d) Labour Efficiency Variance:
= (Standard hours for actual output – Actual hours) × Standard rate
= (600 × 3 – 1,700) × `10
= ` 1,000 Fav.
(e) Variable Overhead Expenditure Variance
= (Actual Hours × Standard Rate) – Actual Overhead
= (1,700 ×` 1) – ` 1,900
= ` 200 Adv.
(f) Variable Overhead Efficiency Variance:
= Std. hours for actual output – Actual hours) × Std. rate
= (600 × 3 – 1,700) × `1 = `100 Fav.
(g) Fixed Overhead Expenditure Variance:
= (Budgeted overhead – Actual overhead)
= (1,800 × 0.50 – 900) = Nil

(h) Fixed Overhead Volume Variance:

= (Std. hours for actual output – Budgeted hours) × Std. rate
= (600 × 3 – 1,800) × ` 0.50 = Nil
(i) Fixed Overhead Capacity Variance:
= (Budgeted hours – Actual Hours) × Standard rate
= (1,800 – 1,700) × ` 0.50 = ` 50 Adv.
(j) Fixed Overhead Efficiency Variance:
= (Std. hours for actual output – Actual hours) × Standard rate
= (600 × 3 – 1,700) × ` 0.50 = ` 50 Fav.
Verification: (`) (`)
Overhead recovered: 600 units @ `4.50 2,700
Actual Overhead:
Variable 1,900
Fixed 900 2,800
100 Adv.
Variable expenditure variance 200 Adv
Variable Efficiency variance 100 Fav.
Fixed expenditure variance Nil
Fixed overhead volume variance Nil
100 Adv.
Reconciliation Statement
Standard Cost: 600 units @ `54.50 32,700
Actual Cost: 38,600
Less: Material Stock at standard cost: 6,000 (32,600) 100 Fav.
(1,500 × `4)
Variances: Adv. (`) Fav. (`)
Material price 500
Material usage 2,000
Labour rate 1,700
Labour efficiency 1,000
Variable expenditure 200

Variable efficiency 100

Total 2,700 2,800 100 Fav.
13. We know that S – V = F + P (S - Sales, V - Variable cost, F - Fixed cost and P - Profit/loss)
 Suppose variable cost = x per unit
Fixed Cost = y
When sales is 8,000 units, then
15  8,000 - 8,000 x = y - 40,000.................... (1)
When sales volume raised to 20,000 units, then
15  20,000 - 20,000 x = y + 80,000.............. (2)
Or, 1,20,000 – 8,000 x = y – 40,000.............. (3)
And 3,00,000 – 20,000 x = y + 80,000.............. (4)
From (3) & (4) we get x = ` 5.
Variable cost per unit = ` 5
Putting this value in 3rd equation:
1,20,000 – (8,000  5) = y 40,000
or y = ` 1,20,000
Fixed Cost = ` 1,20,000
S  V 15  5 200 2
P/V ratio =   100   66 % .
S 15 3 3
Suppose break-even sales = x
15x – 5x = 1,20,000 (at BEP, contribution will be equal to fixed cost)
x = 12,000 units.
Or Break-even sales in units = 12,000
Break-even sales in rupees = 12,000 ` 15 = ` 1,80,000
14. Production budget of Product Minimax and Heavyhigh (in units)
April May June Total
MM HH MM HH MM HH MM HH
Sales 8,000 6,000 10,000 8,000 12,000 9,000 30,000 23,000

Add: Closing 2,500 2,000 3,000 2,250 4,000 3,500 9,500 7,750
Stock (25% of
next month’s
sale
Less: Opening 2,000* 1,500* 2,500 2,000 3,000 2,250 7,500 5,750
Stock
Production units 8,500 6,500 10,500 8,250 13,000 10,250 32,000 25,000
*Opening stock of April is the closing stock of March, which is as per company’s policy
25% of next months sale.
Production Cost Budget
Rate (`) Amount (`)
Element of cost MM HH MM HH
(32,000 (25,000
units) units)
Direct Material 220 280 70,40,000 70,00,000
Direct Labour 130 120 41,60,000 30,00,000
Manufacturing Overhead
(4,00,000/ 1,80,000 × 32,000) 71,111
(5,00,000/ 1,20,000 × 25,000) 1,04,167
1,12,71,111 1,01,04,167
15. (a) The essential features, which a good cost and management accounting system
should possess, are as follows:
(i) Informative and simple: Cost and management accounting system should be
tailor-made, practical, simple and capable of meeting the requirements of a
business concern. The system of costing should not sacrifice the utility by
introducing meticulous and unnecessary details.
(ii) Accurate and authentic: The data to be used by the cost and management
accounting system should be accurate and authenticated; otherwise it may
distort the output of the system and a wrong decision may be taken.
(iii) Uniformity and consistency: There should be uniformity and consistency in
classification, treatment and reporting of cost data and related information. This
is required for benchmarking and comparability of the results of the system for
both horizontal and vertical analysis.
(iv) Integrated and inclusive: The cost and management accounting system
should be integrated with other systems like financial accounting, taxation,

statistics and operational research etc. to have a complete overview and clarity
in results.
(v) Flexible and adaptive: The cost and management accounting system should
be flexible enough to make necessary amendments and modification in the
system to incorporate changes in technological, reporting, regulatory and other
requirements.
(vi) Trust on the system: Management should have trust on the system and its
output. For this, an active role of management is required for the development
of such a system that reflect a strong conviction in using information for decision
making
(b)
Cost Control Cost Reduction
1. Cost control aims at 1. Cost reduction is concerned with
maintaining the costs in reducing costs. It challenges all
accordance with the standards and endeavours to better
established standards. them continuously
2. Cost control seeks to attain 2. Cost reduction recognises no
lowest possible cost under condition as permanent, since a
existing conditions. change will 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.
(c) (i) Controllable Costs: - Cost that can be controlled, typically by a cost, profit or
investment centre manager is called controllable cost. Controllable costs
incurred in a particular responsibility centre can be influenced by the action of
the executive heading that responsibility centre. For example, direct costs
comprising direct labour, direct material, direct expenses and some of the
overheads are generally controllable by the shop level management.
(ii) Uncontrollable Costs - Costs which cannot be influenced by the action of a
specified member of an undertaking are known as uncontrollable costs. For
example, expenditure incurred by, say, the tool room is controllable by the foreman
in-charge of that section but the share of the tool-room expenditure which is
apportioned to a machine shop is not to be controlled by the machine shop foreman.

(d) Distinction between Job and Batch Costing:

Sr. Job Costing Batch Costing
No
1 Method of costing used for non- Homogeneous products produced
standard and non- repetitive in a continuous production flow in
products produced as per customer lots.
specifications and against specific
orders.
2 Cost determined for each Job Cost determined in aggregate for
the entire Batch and then arrived at
on per unit basis.
3 Jobs are different from each other Products produced in a batch are
and independent of each other. Each homogeneous and lack of
Job is unique. individuality

PAPER 4: TAXATION
SECTION A: INCOME TAX LAW
PART I: STATUTORY UPDATE

The Income-tax law, as amended by the Finance Act, 2017, including significant notifications/
circulars issued upto 30th April, 2018, are applicable for November, 2018 examination. The
relevant assessment year for November, 2018 examination is A.Y.2018-19. The significant
notifications/circulars issued upto 30.04.2018, relevant for November, 2018 examination, but
not covered in the July 2017 edition of the Study Material, are given hereunder:
CHAPTER 2: RESIDENCE AND SCOPE OF TOTAL INCOME
Clarification regarding liability to income-tax in India of a non-resident seafarer receiving
remuneration in NRE (Non-Resident External) account maintained with an Indian Bank
[Circular No.13/2017, dated 11.04.2017 and Circular No.17/2017, dated 26.04.2017]
Income by way of salary, received by non-resident seafarers, for services rendered outside
India on-board foreign ships, is being subjected to tax in India for the reason tha t the salary
has been received by the seafarer into the NRE bank account maintained in India by the
seafarer. On receiving representations in this regard, the CBDT has examined the matter. It
noted that section 5(2)(a) of the Income-tax Act, 1961 provides that only such income of a non-
resident shall be subjected to tax in India that is either received or is deemed to be received in
India.
Accordingly, the CBDT has, vide this circular, clarified that that salary accrued to a non-resident
seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign
flag) shall not be included in the total income merely because the said salary has been credited
in the NRE account maintained with an Indian bank by the seafarer.
CHAPTER 4: HEADS OF INCOME
UNIT IV: CAPITAL GAINS
Long-term specified asset notified for the purpose of claiming exemption under section
54EC [Notification No. 47/2017, dated 08.06.2017 and Notification No. 79/2017, dated
08.08.2017]
Section 54EC provides exemption from chargeability of capital gain from the transfer of a long -
term capital asset where the assessee has invested the whole or any part of the capital gain in
a long-term specified asset. As per clause (ba) of Explanation to section 54EC “long term
specified asset” means any bond redeemable after three years and issued on or after 01.04.07
by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation
Limited (RECL) or any other bond notified by the Central Government in this behalf.
Accordingly, the Central Government has, vide these notifications, notified any bond
redeemable after three years and issued by the Power Finance Corporation Limited on or

after 15.06.17 or by the Indian Railway Finance Corporation Limited on or after 08.08.17 as
‘long-term specified asset’.
CHAPTER 4: HEADS OF INCOME
UNIT V: INCOME FROM OTHER SOURCES
Clarification regarding trade advance not to be treated as deemed dividend under section
2(22)(e) – [Circular No. 19/2017, dated 12.06.2017]
Section 2(22)(e) provides that "dividend" includes any payment by a company in which public
are not substantially interested, of any sum by way of advance or loan to a shareholder who
is the beneficial owner of shares holding not less than 10% of the voting power, or to any
concern in which such shareholder is a member or a partner and in which he has a substantial
interest or any payment by any such company on behalf, or for the individual benefit, of any
such shareholder, to the extent to which the company in either case possesses accumulated
profits.
The CBDT observed that some Courts in the recent past have held that trade advances in the
nature of commercial transactions would not fall within the ambit of the provisions of section
2(22)(e) and such views have attained finality.
In view of the above, the CBDT has, vide this circular, clarified that it is a settled position that
trade advances, which are in the nature of commercial transactions, would not fall within the
ambit of the word 'advance' in section 2(22)(e) and therefore, the same would not to be treated
as deemed dividend.
CHAPTER 7: DEDUCTIONS FROM GROSS TOTAL INCOME
Contributory Health Service Scheme notified for the purpose of section 80D [Notification
No. 9 /2018 dated 16-2-2018]
Under section 80D, a deduction to the extent of ` 25,000 (` 30,000, in case of resident senior
citizens) is allowed in respect of premium paid to effect or keep in force an insurance on the health
of self, spouse and dependent children or any contribution made to the Central Government Health
Scheme or such other health scheme as may be notified by the Central Government.
Accordingly, the Central Government has, vide this notification, notified the Contributory Health
Service Scheme of the Department of Atomic Energy, contribution to which would qualify for
deduction under section 80D.
CHAPTER 9: ADVANCE TAX, TAX DEDUCTION AT SOURCE AND INTRODUCTION
TO TAX COLLECTION AT SOURCE
Deduction of tax at source on interest income accrued to minor child, where both the
parents have deceased [Notification No. 05/2017, dated 29.05.2017]
Under Rule 31A(5) of the Income-tax Rules, 1962, the Director General of Income-tax (Systems)
is authorized to specify the procedures, formats and standards for the purposes of furnishing and

PAPER – 4: TAXATION 113
verification of, inter alia, the statements and shall be responsible for the day-to-day administration
in relation to furnishing and verification of the statements in the manner so specified.
The Principal Director General of Income-tax (Systems) has, in exercise of the powers delegated
by the CBDT under Rule 31A(5), specified that in case of minors where both the parents have
deceased, TDS on the interest income accrued to the minor is required to be deducted and
reported against PAN of the minor child unless a declaration is filed under Rule 37BA(2) that
credit for tax deducted has to be given to another person.
Deduction of tax at source on interest on deposits made under Capital Gains Accounts
Scheme, 1988 where depositor has deceased - Notification No. 08/2017, dated 13.09.2017
The Principal Director General of Income-tax (Systems) has, in exercise of the powers delegated by
the CBDT under Rule 31A(5), vide this notification, specified that in case of deposits under the
Capital Gains Accounts Scheme, 1988 where the depositor has deceased:
(i) TDS on the interest income accrued for and upto the period of death of the depositor is required
to be deducted and reported against PAN of the depositor, and
(ii) TDS on the interest income accrued for the period after death of the depositor is required to be
deducted and reported against PAN of the legal heir,
unless a declaration is filed under Rule 37BA(2) that credit for tax deducted has to be given to
another person.
No requirement to deduct tax at source under section 194-I on remittance of Passenger
Service Fees (PSF) by an Airline to an Airport Operator [Circular No. 21/2017, dated
12.06.2017]
Section 194-I requires deduction of tax at source at specified percentage on any income payable
to a resident by way of rent. Explanation to this section defines the term “rent” as any payment,
by whatever name called, under any lease, sub-lease, tenancy or any other agreement or
arrangement for the use of any (a) land; or (b) building; or (c) land appurtenant to a building; or
(d) machinery; (e) plant; (f) equipment (g) furniture; or (h) fitting, whether or not any or all of
them are owned by the payee.
The primary requirement of any payment to qualify as rent is that the payment must be for the
use of land and building and mere incidental/minor/insignificant use of the same while providing
other facilities and service would not make it a payment for use of land and buildings so as to
attract section 194-I.
Accordingly, the CBDT has, vide this circular, clarified that the provisions of section 194-I shall
not be applicable on payment of PSF by an airline to Airport Operator.
Clarification regarding TDS on Goods and Services Tax (GST) component comprised in
payments made to residents [Circular No. 23/2017 dated 19.07.2017]
The CBDT had, vide Circular No. 1/2014 dated 13.01.2014, clarified that wherever in terms of
the agreement or contract between the payer and the payee, the service tax component

comprised in the amount payable to a resident is indicated separately, tax shall be deducted at
source on the amount paid or payable without including such service tax component.
In order to harmonize the same treatment with the new system for taxation of services under the
GST regime w.e.f. 01.07.2017, the CBDT has, vide this circular, clarified that wherever in terms of
the agreement or contract between the payer and the payee, the component of 'GST on services'
comprised in the amount payable to a resident is indicated separately, tax shall be deducted at
source on the amount paid or payable without including such 'GST on services' component.
GST shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State
Goods and Services Tax and Union Territory Goods and Services Tax.
Further, for the purposes of this Circular, any reference to “service tax” in an existing agreement
or contract which was entered into prior to 01.07.2017 shall be treated as “GST on services”
with respect to the period from 01.07.2017 onward till the expiry of such agreement or contract.
Guidance on income-tax deduction from salaries under section 192 during the financial
year 2017-18 [Circular No. 29/2017, dated 05-12-2017]
This CBDT Circular contains the rates for deduction of income-tax from the payment of income
chargeable under the head “Salaries” during the financial year 2017-18 and explains certain
provisions of the Income-tax Act, 1961 and Income-tax Rules, 1962, including the broad scheme of
TDS from Salaries, persons responsible for deducting tax at source from Salaries and their duties,
computation of income under the head “Salaries” etc.
Students may read/download this circular by using the following link -
https://www.incometaxindia.gov.in/communications/circular/circular29_2017.pdf
CHAPTER 10: PROVISIONS FOR FILING RETURN OF INCOME AND SELF ASSESSMENT
Persons who are not required to quote Aadhar Number or Enrolment ID in application
form for allotment of PAN and in return of income [Notification No. 37/2017 dated
11.05.2017]
Section 139AA requires every person who is eligible to obtain Aadhar Number to mandatorily
quote Aadhar Number or Enrolment ID of Aadhar application form, on or after 1st July, 2017 in
the application form for allotment of PAN and in the return of income. However, this provision
shall not applicable to such person or class or classes of persons or any State or part of any
State as may be notified by the Central Government.
Accordingly, the Central Government has, vide this notification effective from 01.07.2017,
notified that the provisions of section 139AA relating to quoting of Aadhar Number would not
apply to an individual who does not possess the Aadhar number or En rolment 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.

Income Tax Return Forms notified for Assessment Year 2018-19 [Notification No. 16/2018,
dated 3-4-2018]
The CBDT has notified Income-tax Return Forms (ITR Forms) for the Assessment Year
2018-19 vide this Notification. The ITR Forms and its applicability have been detailed below:
ITR Applicability
Form
No
1 A one page simplified ITR 1 (SAHAJ) can be filed by an individual who is resident
other than not ordinarily resident, having income from salaries, one house
property, income from other sources (interest etc.). and having total income upto
` 50 lakh.
2 Individuals and HUFs having not having income from business or profession shall be
eligible to file ITR 2.
3 Individuals and HUFs having income under the head “Profits and gains of
business or profession” have to file ITR 3.
4 ITR 4 (SUGAM) can be used by eligible assessees having presumptive income
from business or profession. Thus, eligible assessees having only presumptive
income under section 44AD, 44ADA or 44AE, under the head “Profits and gains
of business or profession” have to file return in ITR 4. In addition, they may have
salary income, income from house property and income from other sources
(excluding winnings from lottery and income from race horses, income taxable
under section 115BBDA and income of the nature referred to in section 115BBE).
Any person having agricultural income in excess of ` 5,000 cannot use ITR 4.
Further, a person claiming relief of foreign tax paid under section 90, 90A or 91
cannot use this form. Also, this form cannot be used by a resident having any
asset (including financial interest in any entity) located outside India or signing
authority in any account located outside India and by a resident having income
from any source outside India.
5 ITR 5 can be used by persons other than individual, HUF, company and person
filing Form ITR 7.
6 ITR 6 can be used by companies other than companies claiming exemption under
section 11.
7 ITR 7 can be used by persons including companies required to furnish return
under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F).
All these ITR Forms are to be filed electronically. However, where return is furnished in ITR Form-1
(SAHAJ) or ITR-4 (SUGAM), the following persons have an option to file return in paper form:
(i) an Individual of the age of 80 years or more at any time during the previous year; or

(ii) an Individual or HUF whose income does not exceed five lakh rupees and who has not
claimed any refund in the Return of Income.
Amendments to the Tax Return Preparer Scheme, 2006 as notified u/s 139B [Notification
No. 4/2018, dated 19-01-2018]
Section 139B provides that for the purpose of enabling any specified class or classes of persons
in preparing and furnishing returns of income, the CBDT may, without prejudice to the provisions
of section 139, frame a Scheme, by notification in the Official Gazette, providing that such
persons may furnish their returns of income through a Tax Return Preparer (TRP) authorised to
act as such under the Scheme.
Accordingly, vide Notification No 358/2006 dated 28.11.2006, the CBDT had notified the “Tax
Return Preparer Scheme, 2006”. Later on, the said scheme was amended vide Notification No
84/2010 dated 22.11.2010. Vide this notification, the said scheme is further amended so as to
widen the scope of the Scheme. The amended portion is given in bold italics in the second
column below:
Particulars Contents
Applicability of the The scheme is applicable to all eligible persons.
scheme
Eligible person Any person being an individual or a Hindu undivided family.
Tax Return Preparer Any individual who has been issued a "Tax Return Preparer
Certificate" and a "unique identification number" under this
Scheme by the Partner Organisation to carry on the profession of
preparing the returns of income in accordance with the Scheme.
However, the following person are not entitled to act as TRP:
(i) any officer of a scheduled bank with which the assessee
maintains a current account or has other regular dealings.
(ii) any legal practitioner who is entitled to practice in any civil
court in India.
(iii) an accountant.
Educational An individual, who holds a bachelor degree from a
qualification for Tax recognised Indian University or institution, or has passed the
Return Preparers intermediate level examination conducted by the Institute of
Chartered Accountants of India or the Institute of Company
Secretaries of India or the Institute of Cost Accountants of
India, shall be eligible to act as TRP.
Preparation of and An eligible person may, at his option, furnish his return of income
furnishing the u/s 139 for any assessment year after getting it prepared through
Return of Income by a TRP:
the TRP

However, the following eligible persons (an individual or a HUF)

cannot furnish a return of income for an assessment year through
a TRP:
(i) who is carrying out business or profession during the
previous year and accounts of the business or profession for
that previous year are required to be audited under section
44AB or under any other law for the time being in force; or
(ii) who is not a resident in India during the previous year.
An eligible person cannot furnish a revised return of income for any
assessment year through a TRP unless he has furnished the
original return of income for that assessment year through such or
any other TRP.
Further, a return of income which is required to be furnished in
response to a notice under section 142(1)(i) or under section 148
or under section 153A cannot be prepared or furnished through
a TRP.
Note - The limit for gratuity notified under the Payment of Gratuity Act, 1972 has been
increased from ` 10 lakh to ` 20 lakh with effect from 29.3.2018.
PART II: QUESTIONS AND ANSWERS
QUESTIONS
1. Mr. Sahil, a citizen of India, serving in the Ministry of Human Resources in India, was transferred
to Indian Embassy in Germany on 15th March 2017. His income during the financial year 2017-
18 is given here under:
Particulars `
Rent from a house situated at Australia, received in Australia. Thereafter, 4,80,000
remitted to Indian bank account.
Interest accrued on National Saving Certificate 25,600
Interest on Post office savings bank account 3,200
Salary from Government of India 8,15,000
Foreign Allowances from Government of India 9,00,000
Mr. Sahil did not come to India during the financial year 2017-18. Compute his Gross Total
Income for the Assessment year 2018-19.

2. Mr. Charan grows paddy and uses the same for the purpose of manufacturing of rice in his
own Rice Mill. He furnished the following details for the financial year 2017-18:
- Cost of cultivation of 40% of paddy produce is ` 9,00,000 which is sold for ` 18,50,000.
- Cost of cultivation of balance 60% of paddy is ` 14,40,000 and the market value of
such paddy is ` 28,60,000.
- Incurred ` 3,60,000 in the manufacturing process of rice on the balance (60%) paddy.
The rice was sold for ` 38,00,000.
Compute the Business income and Agricultural Income of Mr. Charan for A.Y. 2018-19.
3. You are required to compute the income chargeable under the head Salaries in the hands
of Mr. Narayan for the assessment year 2018-19 from the following details pertaining to
the financial year 2017-18:
Particulars `
Basic salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 25,000
Profession tax (of this, 50% paid by employer) 3,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 15,000
Life insurance premium of Narayan paid by employer 42,000
Laptop provided for use at home. Actual cost of Laptop to employer
45,000
[Children of the assessee are also using the Laptop at home]
Employer company owns a motor car, which was provided to the
assessee, both for official and personal use. All repair and
maintenance expenses are fully reimbursed by the employer. No driver
was provided. (Engine cubic capacity less than 1.6 litres).
Annual credit card fees paid by employer [Credit card is not exclusively
5,000
used for official purposes]
4. Mr. Ranjan owns a shop whose construction got completed in August 2016. He took a loan
of ` 22 lakhs from Bank of Baroda on 1-8-2015 and had been paying interest calculated at
9% per annum.
During the financial year 2017-18, the shop was let out at a monthly rent of ` 45,000. He
paid municipal tax of ` 18,000 each for the financial year 2016-17 and 2017-18 on
25-5-2017 and 15-4-2018, respectively.

Compute income under the head 'House Property' of Mr. Ranjan for the Assessment year
2018-19, assuming that the entire amount of loan is outstanding on the last day of the
current previous year.
5. Mr. Chauhan is having a trading business and his Trading and Profit & Loss Account for
the financial year 2017-18 is as under:
Particulars Amount Particulars Amount
(`) (`)
To Opening stock 1,50,000 By Sales 2,70,00,000
To Purchase 2,49,00,000 By Closing stock 1,00,000
To Gross profit 20,50,000
Total 2,71,00,000 Total 2,71,00,000
Salary to employees (Including 5,00,000 By Gross Profit 20,50,000
Contribution to PF) b/d
Donation to Prime Minister Relief 1,00,000
Fund
Provision for bad debts 50,000
Bonus to employees 50,000
Interest on bank loan 50,000
Family planning expenditure 20,000
incurred on employees
Depreciation 30,000
Income-tax 1,00,000
To Net profit 11,50,000
Total 20,50,000 Total 20,50,000
Other information:
(i) He incurred expenditure on furniture & fixtures of ` 35,000, which is paid in cash on
25.7.2017 to M/s Décor World.
(ii) Depreciation allowable ` 40,000 [excluding depreciation on furniture & fixtures refer
in (i) above] as per Income-tax Rules, 1962.
(iii) No deduction of tax at source on payment of interest on bank loan has been made.
(iv) Out of salary, ` 25,000 pertains to his contributions to recognized provident fund which
was deposited after the due date of filing return of income. Further, employees
contribution of ` 25,000 was also deposited after the due date of filing return of income.
Compute business income of Mr. Chauhan for the Assessment Year 2018-19.

6. Mr. Sahu entered into an agreement with Mr. Devansh to sell his residential house located
at New Delhi on 27.07.2017 for ` 82,00,000. Mr. Devansh was handed over the possession
of the property on 16.12.2017 and the registration process was completed on 24.02.2018.
Mr. Devansh had paid the sale proceeds in the following manner;
(i) 25% through account payee bank draft on the date of agreement.
(ii) 50% on the date of the possession of the property.
(iii) Balance after the completion of the registration of the title of the property.
The value determined by the Stamp Duty Authority on 27.07.2017 was ` 92,00,000
whereas on 24.02.2018 it was ` 94,50,000.
Mr. Sahu had acquired the property on 01.04.2002 for ` 21,00,000. After recovering the
sale proceeds from Devansh, he purchased another residential house property in Navi
Mumbai for ` 35,00,000.
Cost Inflation Index for Financial Year(s)
2001-02 - 100
2002-03 - 105
2017-18 - 272
Compute the total income of Mr. Sahu for the Assessment Year 2018-19 and his net tax
liability/refund due for that year, assuming that he has earned income of ` 12,000 from
Savings Bank A/c and received income of ` 84,000 (Net of TDS) from lotteries. Assume
that the tax deductible at source, if any, on consideration for sale of residential house has
been deducted.
7. (a) Mr. Pranav has 15% shareholding in TRP(P) Ltd. (engaged in trading business of toys)
and has also 50% share in Pranav & Sons, a partnership firm. The accumulated profit of
TRP(P) Ltd. is ` 30 lakh. Pranav & Sons had taken a loan of ` 35 lakh from TRP(P) Ltd.
Examine whether the above loan can be treated as dividend as per the provisions of
the Income-tax Act, 1961.
(b) Discuss the taxability or otherwise in the hands of the recipients, as per the provisions
of the Income-tax Act, 1961:
(i) MNS Private Limited, a closely held company, issued 12,000 shares at ` 125
per share. (The face value of the share is ` 80 per share and the fair market
value of the share is ` 110 per share).
(ii) Mr. Arun received an advance of ` 56,000 on 11-09-2017 against the sale of his
house. However, due to non-payment of instalment in time, the contract has
cancelled and the amount of ` 56,000 was forfeited.
(iii) Mr. Nitin, transferred a house property to his son Mr. Raj without consideration.
The value of the house is ` 12 lacs as per the Registrar of stamp duty.

(iv) Mr. Tanmay gifted a refrigerator to his sister’s daughter Tannu on her marriage.
The fair market value of the refrigerator is ` 75,000.
8. Saharsh gifted ` 12 lakhs to his wife, Sandhya on her birthday on, 1st February, 2017.
Sandhya lent ` 6,00,000 out of the gifted amount to Karuna on 1st April, 2017 for six months
on which she received interest of ` 60,000. The said sum of ` 60,000 was invested in
shares of a listed company on 3rd October, 2017, which were sold for ` 85,000 on 30 th
March, 2018. Securities transactions tax was paid on such sale. The balance amount of
gift was invested on 1st April 2017, as capital by Sandhya in her new business. She suffered
loss of ` 25,000 in the business in Financial Year 2017-18.
In whose hands the above income and loss shall be included in Assessment Year
2018-19, assume that capital invested in the business was entirely out of the funds gifted
by her husband. Support your answer with brief reasons.
9. From following information furnished for the year ended 31-03-2018, compute the total
income of Mr. Arihant for A.Y. 2018-19 and show the items eligible for carry forward and
upto which assessment year:
Particulars Amount (`)
Long-term capital gain from sale of urban land 2,30,000
Long-term capital loss on sale of shares (STT not paid) 85,000
Long-term capital loss on sale of listed shares in recognized stock 1,02,000
exchange (STT paid both at the time of acquisition and sale)
Loss from speculative business X 25,000
Income from speculative business Y 15,000
Loss from specified business covered under section 35AD 40,000
Income from salary 3,50,000
Loss from house property 2,20,000
Income from trading business 75,000
Following are details of unabsorbed depreciation and the brought forward losses:
(1) Unabsorbed depreciation of ` 11,000 pertaining to A.Y 2017-18.
(2) Losses from owning and maintaining of race horses pertaining to A.Y. 201 7-18
` 5,000.
(3) Brought forward loss from trading business ` 8,000 relating to A.Y.2014-15.
10. Mr. Anay manufactures toys in a factory located in Noida. His profit from the manufacture
of toys for Assessment year 2018-19 is ` 1.85 crore and total turnover is ` 18.70 crore.

On 1st April 2017, there were 100 employees engaged in his factory. Due to increase in
demand of his products, he employed 140 additional employees during the previous year
2017-18 comprises of:
(a) 15 casual employees employed on 15 th April 2017 till 31 st January 2018 on monthly
emolument of ` 22,000 per month
(b) 40 regular employees employed on 1 st May, 2017 on monthly emolument of ` 22,000
per month
(c) 25 contractual employees employed on 1 st July 2017 for 2 years on monthly
emolument of ` 15,000 per month
(d) 35 regular employees employed on 1st August, 2017 on monthly emolument of
` 30,000 per month
(e) 25 regular employees employed on 1st October, 2017 on monthly emolument of
` 22,000 per month
Compute the deduction under Section 80JJAA, if available to Mr. Anay for Assessment
year 2018-19, assuming that monthly emoluments were paid by use of ECS. The regular
and contractual employees participate in the recognised provident fund while casual
employees do not.
Would your answer be different if Mr. Anay is engaged in the manufacture of apparel? Examine.
[Note - Ignore the amount of deduction available under section 80JJAA to Mr. Anay, for
the employees employed in preceding previous years, while computing the deduction
under 80JJAA for the assessment year 2018-19]
11. You are required to compute the total income and tax liability of Mr. Anoop, a resident
individual aged 55 years, for the Assessment Year 2018-19 from the following information
shown in his Profit and Loss Account for the year ended 31 st March 2018:
(i) The net profit was ` 8,40,000.
(ii) Depreciation debited in the books of account was ` 1,05,000.
(iii) The following incomes were credited in the Profit & Loss Account:
(a) Interest on notified government securities ` 32,000
(b) Dividend from a foreign company ` 28,000.
(c) Gold chain worth ` 78,000 received as gift from his mother.
(iv) Interest on loan amounting to ` 82,000 was paid in respect of capital of ` 8,20,000
borrowed for the purchase of new plant & machinery which has been put to use on
12th April, 2018.
(v) General expenses included:
(a) An expenditure of ` 18,500 which was paid by a bearer cheque.

(b) Compensation of ` 4,500 paid to an employee while terminating his services in

business unit.
Additional Information:
(1) Depreciation allowable as per Income-tax Act, 1961 was ` 1,16,000 [without
considering depreciation on new plant & machinery referred to in (iv) above] .
(2) He contributed the following amounts by cheque:
(a) ` 48,000 in Sukanya Samridhi Scheme in the name of his minor daughter Anya.
(b) ` 23,000 to the Clean Ganga Fund set up by the Central Government.
(c) ` 28,000 towards premium for health insurance and ` 2,500 on account of
preventive health check up for self and his wife.
(d) ` 35,000 on account of medical expenses of his father aged 82 years (no
insurance scheme had been availed on the health of his father).
12. Shurya Bank Ltd., a banking company to which the Banking Regulations Act, 1949 applies,
has paid interest of ` 7,000 to Mr. Bhuwan, a resident Indian, from its Lucknow branch and
` 8,000 from Kanpur branch. If the bank has not adopted core banking solutions, is tax
required to be deducted at source from such interest payments made on 31 -3-2018?
Examine the provisions of the Income-tax Act, 1961 in this regard.
Will your answer be different if the bank has adopted core banking solutions?
13. Mr. Shikhar, aged 52 years, provides you the following information and requests you to
determine his advance tax liability with due dates for the financial year 2017-18.
Estimated tax liability for the financial year 2017-18 ` 85,000
Tax deducted at source for this year ` 15,000
(i) Would your answer change if Mr. Shikhar is eligible for and has opted for presumptive
tax provisions under section 44AD and his tax liability is entirely on account of such
income (ignore TDS)?
(ii) What would be your answer if, instead of section 44AD, he is eligible for and has
opted for presumptive tax provisions under section 44AE?
14. When and at what rate, a seller is required to collect tax source on sale of motor vehicle.
Also, discuss whether tax is required to be collected at source on sale of motor vehicle by
manufacturers to dealers.
15. Mr. Atharv filed his return of income on 30th September, 2018 related to Assessment Year
2018-19. In the month of October 2018, his tax consultant found that the interest on fixed
deposit was omitted in the tax return. Can Mr. Atharv file a revised return?
Assume that the due date for furnishing return of income in his case, was 31st July, 2018
and the assessment was not completed till the month of October 2018.

SUGGESTED ANSWERS
1. Mr. Sahil is a non-resident for the A.Y.2018-19, since he was not present in India at any
time during the previous year 2017-18 [Section 6(1)].
As per section 5(2), a non-resident is chargeable to tax in India only in respect of following
incomes:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or income deemed to accrue or arise in India.
Computation of Gross Total Income of Mr. Sahil for A.Y. 2018-19
Particulars `
Salaries
Salary from Government of India 8,15,000
(Income chargeable under the head ‘Salaries’ payable by the
Government to a citizen of India for services rendered outside India is
deemed to accrue or arise in India under section 9(1)(iii). Hence, such
income is taxable in the hands of Mr. Sahil, a citizen of India, even
though he is a non-resident and rendering services outside India)
Foreign Allowances from Government of India Nil
[Any allowances or perquisites paid or allowed as such outside India by
the Government of India to a citizen of India for rendering service
outside India is exempt under section 10(7)].
Income from House Property
Rent from a house situated at Australia, received in Australia Nil
(Income from property situated outside India would not be taxable in India
in the hands of a non-resident, since it is neither accruing or arising in
India nor is it deeming to accrue or arise in India nor is it received in India)
Income from Other Sources
Interest accrued on National Savings Certificate is taxable 1 25,600
Interest on Post office savings bank account – exempt upto ` 3,500 Nil
Gross Total Income 8,40,600
1
It is assumed that Mr. Sahil follows mercantile system of accounting.

2. Computation of Business Income and Agriculture Income of

Mr. Charan for A.Y. 2018-19
Particulars Business Agricultural Income
Income
` ` `
Sale of Rice
Business income
Sale Proceeds of Rice 38,00,000
Less: Market Value of paddy (60%) 28,60,000
Less: Manufacturing expenses 3,60,000
5,80,000
Agricultural Income
Market value of paddy (60%) 28,60,000
Less: Cost of cultivation 14,40,000
14,20,000
Sale of Paddy
Agricultural Income
Sale proceeds of paddy produce (40%) 18,50,000
Less: Cost of cultivation 9,00,000
9,50,000
23,70,000
3. Computation of income chargeable under the head “Salaries” of Mr. Narayan for
A.Y. 2018-19
Particulars `
Basic Salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer is an exempt perquisite to
the extent of ` 15,000 [Clause (v) of proviso to section 17(2)]. Therefore, 10,000
` 10,000, being the reimbursement in excess of ` 15,000 is a taxable
perquisite.

Professional tax paid by the employer is a taxable perquisite as per 1,500

section 17(2)(iv), since it is an obligation of the employee which is paid
by the employer
Health insurance premium of ` 9,000 paid by the employer is an exempt Nil
perquisite [Clause (iii) of proviso to section 17(2)]
Gift voucher given by employer on Mr. Narayan’s birthday (entire amount 15,000
is taxable since the perquisite value exceeds ` 5,000) as per Rule 3(7)(iv)
[See Note below]
Life insurance premium of Mr. Narayan paid by employer is a taxable 42,000
perquisite as per section 17(2)(v)
Laptop provided for use at home is an exempt perquisite as per Rule Nil
3(7)(vii)
Provision of motor car (engine cubic capacity less than 1.6 litres) owned
by employer to employee for both official and personal purposes – 21,600
perquisite value would be ` 21,600 [`1,800 ×12] as per Rule 3(2)
Annual credit card fees paid by employer is a taxable perquisite as per
Rule 3(7)(v) since the credit card is not exclusively used for official 5,000
purposes.
Gross Salary 12,42,600
Less: Deductions under section 16
Entertainment allowance (deduction under section 16(ii) not Nil
allowable since Mr. Narayan is not a Government employee)
Professional tax paid allowable as deduction as per section 16(iii) 3,000
Income chargeable under the head “Salaries” 12,39,600
Note: As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by
member of his household on ceremonial occasions or otherwise from the employer shall
be determined as the sum equal to the amount of such gift. However, the value of any gift
or voucher received by the employee or by member of his household below ` 5,000 in
aggregate during the previous year would be exempt as per the proviso to Rule 3(7)(iv). In
this case, the gift voucher of ` 15,000 was received by Mr. Narayan from his employer on
the occasion of his birthday.
Since the value of the gift voucher exceeds the limit of ` 5,000, the entire amount of
` 15,000 is liable to tax as perquisite.
An alternate view possible is that only the sum in excess of ` 5,000 is taxable in view of
the language of Circular No.15/2001 dated 12.12.2001, which states that such gifts upto
` 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as
a perquisite. As per this view, the value of perquisite would be ` 10,000.

In such case, the gross salary and net salary would be, ` 12,37,600 and ` 12,34,600,
respectively.
4. Computation of income under the head “House Property” of Mr. Ranjan for A.Y.2018-19
Particulars ` `
2Gross Annual Value (` 45,000 x 12) 5,40,000
Less: Municipal taxes (See Working Note 1) 18,000
Net Annual Value (NAV) 5,22,000
Less: Deductions under section 24
(i) 30% of NAV 1,56,600
(ii) Interest on housing loan (See Working Note 2) 2,24,400
3,81,000
Income chargeable under the head “House Property” 1,41,000
Working Notes:
(1) Municipal taxes deductible from Gross Annual Value
As per proviso to section 23(1), municipal taxes actually paid by the owner
during the previous year is allowed to be deducted from Gross Annual Value.
Accordingly, only ` 18,000 paid on 25.05.2017 is allowed to be deducted from
Gross Annual Value, while computing income from house property of the
previous year 2017-18.3
(2) Interest on housing loan allowable as deduction under section 24
As per section 24(b), interest for the current year (` 22,00,000 x ` 1,98,000
9%)
Pre-construction interest
For the period 01.08.2015 to 31.03.2016
(` 22,00,000 x 9% x 8/12) = ` 1,32,000
` 1,32,000 allowed in 5 equal installments (` 1,32,000/5) from
P.Y. 2016-17 to P.Y. 2020-21 ` 26,400
` 2,24,400
3. Deduction under section 24(b), in respect of interest on housing loan for let out
property, fully allowed without any limit.
2
In the absence of information related to municipal value, fair rent and standard rent, the rent receivable has
been taken as the Gross Annual Value
3
The municipal tax of ` 18,000 paid on 15.4.2018 would be allowed as deduction while computing income
from house property of the previous year 2018-19.

5. Computation of Business Income of Mr. Chauhan for the A.Y. 2018-19

Particulars ` `
Net profit as per Profit and Loss Account 11,50,000
Add: Expenses not deductible
Donation to Prime Minister Relief Fund (Refer Note 1) 1,00,000
Provision for bad debts (Refer Note 2) 50,000
Family planning expenditure incurred on employees (Refer 20,000
Note 3)
Depreciation as per Profit and Loss Account 30,000
Income-tax (Refer Note 4) 1,00,000
Employer’s contribution to recognized provident fund 25,000 3,25,000
(Refer Note 5)
14,75,000
Less: Expense allowed
Depreciation as per Income-tax Rules, 1962 (Refer Note 6) 40,000
14,35,000
Add: Employee’s contribution included in income as per Section
2(24)(x) (Refer Note 7) 25,000
Business Income 14,60,000
Notes:-
(1) Donation to Prime Minister Relief Fund is not allowed as deduction from the business
income, since it is not incurred wholly and exclusively for business. It is allowed as
deduction under section 80G from the gross total income.
(2) Provisions for bad debts is allowable as deduction under section 36(1)(viia) (subject
to the limits specified therein) only in case of banks, public financial institutions, State
Financial Corporation and State Industrial Investment Corporation. Therefore, it is not
allowable as deduction in the case of Mr. Chauhan.
(3) Expenditure on family planning is allowed as deduction under section 36(1)(ix) only
to a company assessee. Therefore, such expenditure is not allowable as deduction
in the hands of Mr. Chauhan.
(4) Income-tax paid is not allowable as deduction as per the provisions of section
40(a)(ii).

(5) Since Mr. Chauhan’s contribution (Employer’s Contribution) to recognized provident

fund is deposited after the due date of filing return of income, the same is disallowed
as per provisions of section 43B, in computing business income of A.Y. 2018-19.
(6) As per second proviso to section 43(1), the expenditure for acquisition of asset, in
respect of which payment to a person in a day exceeds ` 10,000 has to be ignored
for computing actual cost, if such payment is made otherwise than by way of A/c
payee cheque/ bank draft or ECS. Accordingly, depreciation on furniture & fixtures
would not be allowed, since payment exceeding ` 10,000 (` 35,000 in this case) is
made in cash. Therefore, no adjustment is required to be made in the amount of
depreciation computed as per Income-tax Rules, 1962, since such amount does not
include depreciation on furniture & fixtures.
(7) Employee’s contribution is includible in the income of the employer by virtue of
Section 2(24)(x). The deduction for the same is not provided for as it was deposited
after the due date under the Provident Fund Act.
(8) TDS provisions under section 194A are not attracted in respect of payment of interest
on bank loan. Therefore, disallowance under section 40(a)(ia) is not attracted in this
case.
6. Computation of income chargeable under the head “Capital Gains” for A.Y. 2018-19
Particulars `
Capital Gains on sale of residential house
Actual sale consideration ` 82 lakhs
Value adopted by Stamp Valuation Authority ` 92 lakhs
Full value of sale consideration [Higher of the above] 92,00,000
[As per section 50C, in case the actual sale consideration declared by
the assessee is less than the value adopted by the Stamp Valuation
Authority for the purpose of charging stamp duty, then, the value
adopted by the Stamp Valuation Authority shall be taken to be the full
value of consideration.
In a case where the date of agreement is different from the date of
registration, stamp duty value on the date of agreement can be
considered provided the whole or part of the consideration is paid by
way of account payee cheque/bank draft or by way of ECS through bank
account on or before the date of agreement. In this case, since 25% of
` 82 lakhs was paid through account payee bank draft on the date of
agreement, stamp duty value on the date of agreement can be adopted
as the full value of consideration]
Less: Indexed cost of acquisition of residential house
[` 21 lakhs x 272/105] 54,40,000

Long-term capital gains [Since the residential house property was held
by Mr. Sahu for more than 24 months immediately preceding the date of its
transfer] 37,60,000
Less: Exemption under section 54 35,00,000
The capital gain arising on transfer of a long-term residential property shall
not be chargeable to tax to the extent such capital gain is invested in the
purchase of one residential house property in India within one year before
or two years after the date of transfer of original asset. ________
Long-term capital gains chargeable to tax 2,60,000
- Interest on Savings Bank A/c 12,000
- Income from lotteries [` 84,000 x 100/70] 1,20,000
[Under section 194B, tax @ 30% is required to be
deducted at source on lottery income at the time of
payment, if the amount exceeds ` 10,000] 1,32,000
Less: Deduction under Chapter VI-A: Under section 80TTA, in respect
of interest on Savings bank a/c, restricted to 10,000
Total Income 3,82,000
Tax Liability
Tax on total income of ` 2,000 i.e., excluding LTCG & lotteries income Nil
Tax on long-term capital gains @ 20% ` 12,000 (` 2,60,000 less
unexhausted basic exemption limit of ` 2,48,000 [` 2,50,000 - ` 2,000,
being total income excluding LTCG & income from lotteries] 2,400
Tax on income from lotteries @ 30% 36,000
38,400
Add: Education cess @ 2% 768
Add: Secondary and higher education cess @ 1% 384
Tax liability 39,552
Less: Tax deducted at source
- under section 194B on income from lotteries 36,000
- under section 194-IA on transfer of residential house (1% of
` 82,00,000) 82,000
Tax refundable 78,448

7. (a) Section 2(22)(e) provides that any payment by a company, not being a company in
which public are substantially interested, of any sum by way of advance or loan
- to a shareholder, being a person who is the beneficial owner of shares holding
not less than 10% of voting power, or
- to any concern in which such shareholder is a partner and in which he has a
substantial interest (i.e., he is beneficially entitled to not less than 20% of the
income of such concern)
is deemed as dividend, to the extent the company possesses accumulated profits.
In the present case, the loan given by TRP(P) Ltd. to Pranav & Sons, a partnership
firm would be deemed as dividend, since Mr. Pranav is the beneficial owner of 15%
shareholding in TRP(P) Ltd. and also has substantial interest in Pranav & Sons (as
he is beneficially entitled to 50% of the income of the firm).
However, the amount of loan would be deemed as dividend only to the extent TRP(P)
Ltd. possesses accumulated profits. Therefore, out of the loan of ` 35 lakhs given to
Pranav & Sons, only ` 30 lakhs, i.e., to the extent of accumulated profit of TRP(P)
Ltd., would be deemed as dividend.
(b)
S. Taxable / Reason
No. Not Taxable
(i) Taxable Since MNS Private Limited, a closely held company, issued
12,000 shares at a premium (i.e., issue price exceeds the face
value of shares), the excess of the issue price of the shares
over the fair market value would be taxable under section
56(2)(viib) in its hands under the head “Income from other
sources”.
Therefore, ` 1,80,000 [12,000 × ` 15 (` 125 – ` 110)] shall
be taxable as income in the hands of MNS Private Limited
under the head “Income from other sources”.
(ii) Taxable Any sum of money received as an advance or otherwise in the
course of negotiations for transfer of a capital asset would be
chargeable to tax under the head “Income from other
sources”, if such amount is forfeited and the negotiations do
not result in transfer of such capital asset [Section 56(2)(ix)].
Therefore, the amount of ` 56,000 received as advance would
be chargeable to tax in the hands of Mr. Arun under the head
“Income from other sources”, since it is forfeited on account of
cancellation of contract for transfer of house, being a capital
asset, due to non-payment of installment in time.

(iii) Not Taxable As per section 56(2)(x), immovable property received

without consideration by any person from his relative is not
taxable.
In the present case, since Mr. Nitin is the father of Mr. Raj,
` 12 lakhs, being the stamp duty value of house property
received, without consideration, would not be chargeable
to tax in the hands of Mr. Raj.
(iv) Not Taxable Refrigerator is not included in the definition of “property”, for
the purpose of taxability under section 56(2)(x) in the hands
of the recipient under the head “Income from other sources”.
Further, the same has been received by Tannu on occasion
of her marriage from her maternal uncle, being a relative.
Hence, ` 75,000, being the fair market value of refrigerator
received without consideration from a relative on the occasion
of a her marriage is not taxable in the hands of Tannu, even
though its value exceeds ` 50,000.
8. In computing the total income of any individual, there shall be included all such income as
arises directly or indirectly, to the spouse of such individual from assets transferred directly
or indirectly, to the spouse by such individual otherwise than for adequate consideration
or in connection with an agreement to live apart.
Interest on loan: Accordingly, ` 60,000, being the amount of interest on loan received by
Mrs. Sandhya, wife of Mr. Saharsh, would be includible in the total income of Mr. Saharsh,
since such loan was given by her out of the sum of money received as gift from her
husband.
Loss from business: As per Explanation 2 to section 64, income includes loss. Thus,
clubbing provisions would be attracted even if there is loss and not income.
Thus, the entire loss of ` 25,000 from the business carried on by Mrs. Sandhya would be
includible in the total income of Mr. Saharsh, since as on 1st April 2017, the capital invested
was entirely out of the funds gifted by her husband.
Short-term capital gain: The short-term capital gain of ` 25,000 (` 85,000, being the sale
consideration less ` 60,000, being the cost of acquisition) arising in the hands of
Mrs. Sandhya from sale of shares acquired by investing the interest income of ` 60,000
earned by her (from the loan given out of the sum gifted to her by her husband), would not
be included in the hands of Mr. Saharsh. Since securities transaction tax has been paid, such
short-term capital gain on sale of listed shares is taxable@15%
Income from the accretion of the transferred asset is not liable to be included in the hands
of the transferor and, therefore, such income is taxable in the hands of Mrs. Sandhya.

9. Computation of total income of Mr. Arihant for the A.Y. 2018-19

Particulars ` `
Salaries
Income from Salary 3,50,000
Less: Loss from house property set-off against salary
income as per section 71(3A), restricted to 2,00,000 1,50,000
Profits and gains of business or profession

Income from trading business 75,000
Less: Brought forward loss from trading business of A.Y.
2014-15 can be set off against current year income from
trading business, as per section 72(1), since the eight-year
time limit as specified under section 72(3), within which set- 8,000
off is permitted has not expired.
67,000
Less: Unabsorbed depreciation 11,000 56,000
Income from speculative business Y 15,000

Less: Loss from speculative business X to be set-off as per 15,000
section 73(1)
Loss from speculative business X to be carried forward to 10,000
A.Y.2019-20 as per section 73(2)
Capital Gains
Long term capital gain on sale of urban land 2,30,000
Less: Long term capital loss on sale of shares (STT not paid)
set-off as per section 70(3)] 85,000 1,45,000
Long-term capital loss of ` 1,02,000 on sale of listed shares
on which STT is paid both at the time of acquisition and sale
cannot be set-off against long-term capital gain on sale of
urban land since loss from an exempt source cannot be set-
off against profit from a taxable source.
Items eligible for carried forward to A.Y.2019-20
Particulars `
Loss from House Property 20,000
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. It can be carried forward for a maximum of eight assessment
years i.e., upto A.Y. 2026-27, in this case.
Loss from speculative business X 10,000
Loss from speculative business can be set-off only against profits from
any other speculation business. As per section 73(2), balance loss
not set-off can be carried forward to the next year for set-off against
speculative business income of that year. Such loss can be carried
forward for a maximum of four assessment years i.e., upto A.Y.
2022-23, in this case, as specified under section 73(4).
Loss from specified business under section 35AD 40,000
Loss from specified business under section 35AD can be set-off only
against profits of any other specified business. If loss cannot be so
set-off, the same has to be carried forward to the subsequent year for
set off against income from specified business, if any, in that year. As
per section 73A(2), such loss can be carried forward indefinitely for
set-off against profits of any specified business .
Loss from the activity of owning and maintaining race horses 5,000
Losses from the activity of owning and maintaining race horses
(current year or brought forward) can be set-off only against income
from the activity of owning and maintaining race horses. If it cannot
be so set-off, it has to be carried forward to the next year for set-off
against income from the activity of owning and maintaining race
horses, if any, in that year. It can be carried forward for a maximum of
four assessment years, i.e., upto A.Y.2021-22, in this case as
specified under section 74A(3).
10.
Computation of deduction under section 80JJAA
Mr. Anay is eligible for deduction under section 80JJAA since he is subject to tax audit
under section 44AB for A.Y.2018-19, as his total turnover from business exceeds ` 1
crore and he has employed “additional employees” during the P.Y.2017 -18.
Additional employee cost = [` 22,000 × 40 new regular employees × 11 months] +
[` 15,000 per month × 9 months × 25 new contractual employees]
= ` 96,80,000 + ` 33,75,000 = ` 1,30,55,000
Deduction under section 80JJAA = 30% of ` 1,30,55,000 = ` 39,16,500.

Working Note: Number of Additional employees employed during the P.Y.2017 -18
Particulars No. of additional
employees
Total number of additional employees employed during the 140
year
Less: Casual workmen employed on 15 th April 2017, who do 15
not participate in the recognised provident fund
Regular employees employed on 1 st August 2017, 35
since their total monthly emoluments exceed ` 25,000
Regular employees employed on 1st October 2017, for
a period of less than 240 days during the P.Y.2017-18 25 75
Total number of additional employees employed during the 65
P.Y.2017-18
Yes, the answer would be different, if Mr. Anay is engaged in the business of manufacture
of apparel. Since the number of days of employment in a year has been relaxed from 240
days to 150 days in case of apparel industry, wages paid to regular employees employed
on 1.10.2017 would also qualify for deduction under section 80JJAA for A.Y. 2018-19.
Additional employee cost = ` 1,30,55,000 + ` 33,00,000 (` 22,000 x 6 x 25)
= ` 1,63,55,000
Deduction under section 80JJAA = 30% of ` 1,63,55,000 = ` 49,06,500
11. Computation of total income of Mr. Anoop for the Assessment Year 2018-19
Particulars ` ` `
Profits and gains from business or
profession
Net profit as per profit and loss account 8,40,000
Less: Income credited to profit and loss
account but not taxable under this
head
Interest on notified government 32,000
securities
Dividend from foreign company 28,000
Gift of gold chain received from his
mother 78,000 1,38,000
7,02,000
Add: Depreciation debited in the books of
account 1,05,000
8,07,000

Add: Expenses debited to profit and loss

account but not allowable as
deduction
Interest on capital borrowed for
purchase of plant & machinery 82,000
[As per the proviso to section 36(1)(iii),
the interest on loan borrowed for
purchase of new asset which is not put
to use upto 31.3.2018 not allowable as
deduction. The said amount has to be
added to the cost of the asset 4. Since
the amount has been debited to profit
and loss account, it has to be added
back].
Expenditure in excess of ` 10,000 paid
by bearer cheque to be disallowed as
per section 40A(3) 18,500
Compensation paid to an employee on
termination of his services in the
business unit is allowable on the
grounds of commercial expediency.
Hence, no disallowance is attracted - 1,00,500
9,07,500
Less: Depreciation allowable under the 7,91,500
Income-tax Act, 1961 1,16,000
[Depreciation on new plant &
machinery would not be allowed, since
it was not put to use during the previous
year 2017-18]
Interest on notified Government Securities, -
exempt under section 10(15)
Dividend from foreign company [(not exempt 28,000
under section 10(34)]
Gift of gold chain received from his mother is
not taxable, since mother is a relative [clause
(I) of proviso to section 56(2)(x)] - 28,000
4 No depreciation is allowable on such amount since the asset was not put to use during the P.Y. 2017-18.

Less: Deductions under Chapter VI-A

Under section 80C
Deposit in Sukanya Samridhi Scheme 48,000
Under section 80D
Medical insurance premium
Self and wife ` 28,000 + ` 2,500
preventive health check up, subject to a
maximum of 25,000
Medical expenses of father, being a
very senior citizen, ` 35,000, since
there is no insurance policy in his name,
restricted to 30,000 55,000
Under section 80G
Donation to Clean Ganga Fund
(qualifies for 100% deduction) 23,000 1,26,000
Tax on total income @ 5% on ` 2,50,000
(` 5,00,000 less ` 2,50,000, being the basic
exemption limit) plus @20% on ` 1,93,500 (in 51,200
excess of ` 5,00,000)
Add: Education cess @2% 1024
Add: Secondary and higher education cess @1% 512
Tax Payable 52,736
Tax Payable (rounded off) 52,740
12. Tax is deductible @10% under section 194A in respect of interest credited or paid by a
banking company, if the same exceeds ` 10,000.
This threshold is with reference to interest credited or paid by a branch of the bank, where
the bank has not adopted core banking solutions.
On the other hand, if the bank has adopted core banking solutions, then, the threshold of
` 10,000 would apply in respect of the aggregate interest credited or paid by all the
branches of the bank.
Therefore, if Shurya Bank Ltd. has not adopted core banking solutions, it need not deduct
tax on interest of ` 7,000 and ` 8,000 paid by its Lucknow Branch and Kanpur Branch,
respectively, to Mr. Bhuwan, since the interest paid by each branch does not exceed
` 10,000.
However, if Shurya Bank Ltd. has adopted core banking solutions, it has to deduct tax at
source@10% on ` 15,000 (` 7,000 + ` 8,000) under section 194A, since the aggregate interest
paid by its Lucknow and Kanpur branches exceed ` 10,000.

13. Determination of Advance Tax Liability of Mr. Shikhar

Particulars `
Estimated tax liability for the financial year 2017-18 85,000
Less: Tax deducted at source 15,000
Tax payable 70,000
Due Date of Amount payable `
installment
On or before 15 th Not less than 15% of
June, 2017 advance tax liability 10,500
On or before 15 Not less than 45% of
th 21,000
September, 2017 advance tax liability less (` 31,500, being 45% of
amount paid in earlier ` 70,000 - ` 10,500)
installment
On or before 15 th Not less than 75% of 21,000
December, 2017 advance tax liability less (52,500, being 60% of
amount paid in earlier ` 70,000
installment(s) - ` 31,500)
On or before 15 Whole of the advance tax
th 17,500
March, 2018 liability less amount paid in (70,000, being 100% of
earlier installment(s) ` 70,000 - ` 52,500)
In case he is eligible for presumptive tax provisions under section 44AD and his entire tax
liability is on account of such income, he can pay his entire advance tax liability in one
installment on or before 15.3.2018, without attracting interest under sec tion 243C.
This benefit would, however, not be available if he is eligible for and has opted for
presumptive tax provisions under section 44AE, in which case he has to pay his advance
tax in four installments as indicated above, failing which interest under section 234C would
be attracted.
14. As per section 206(1F), every person, being a seller, who receives any amount as
consideration for sale of a motor vehicle of the value exceeding ` 10 lakhs, shall collect
tax from the buyer@1% of the sale consideration.
In case of sale of a motor vehicle, tax shall be collected at the time of receipt of such
amount.
The CBDT has, vide Circular No. 22/2016 dated 8.6.2016 and Circular No.23/2016 dated
24.6.2016, clarified that tax is required to be collected at source on all transactions of retail
sales and accordingly, it will not apply on sale of motor vehicles by manufacturers to
dealers/distributors.

15. As per section 139(5), if any person, having furnished a return under section 139(1), within
the due date or a belated return under section 139(4), discovers any omission or any wrong
statement therein, he may furnish a revised return at any time –
(a) before the end of the relevant assessment year or
(b) before the completion of assessment,
whichever is earlier.
For assessment year 2018-19, the belated return has to be furnished before 31 st March
2019 or before completion of assessment, whichever is earlier.
Since Mr. Atharv has filed his return after 31.7.2018, being the due date of filing return of
income under section 139(1) in his case, but before 31.3.2019/completion of
assessment, the said return is a belated return.
Thus, in the present case, Mr. Atharv can file a revised return, since he has found an
omission in the belated return filed by him for A.Y.2018-19 and assessment is yet to be
completed5 and 31.3.2019, being the end of A.Y.2018-19 has not elapsed.
5
As of October 2018

SECTION B: INDIRECT TAXES
QUESTIONS
(1) All questions should be answered on the basis of the position of GST law as
amended up to 30.04.2018.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. Further, GST compensation cess should be ignored in all the
questions, wherever applicable.
1. M/s. Shri Durga Corporation Pvt. Ltd. is a supplier of goods and services at Kolkata. It
has furnished the following information for the month of February, 20XX:
Particulars Amount
(`)
(i) Intra-State sale of taxable goods including ` 1,00,000 received as 4,00,000
advance in January, 20XX, the invoice for the entire sale value is
issued on 15 th February, 20XX
(ii) Goods purchased from unregistered dealer on 20th February, 20XX 1,00,000
(Inter-State purchases are worth ` 30,000 and balance purchases
are intra-State)
(iii) Services provided by way of labour contracts for repairing a single 1,00,000
residential unit otherwise than as a part of residential complex (It is
an intra-State transaction)
(iv) Goods transport services received from a GTA. GTA is paying tax 2,00,000
@12% (It is an inter-State transaction)
Compute net GST liability (CGST, SGST or IGST, as the case may be) of M/s Shri Durga
Corporation Pvt. Ltd. for the month of February, 20XX.
Assume the rates of GST, unless otherwise specified, as under:
CGST 9%
SGST 9%
lGST 18%
Note:-
(i) The turnover of M/s. Shri Durga Corporation Pvt. Ltd. was ` 2.5 crore in the previous
financial year.
(ii) All the amounts given above are exclusive of taxes.

2. Cloud Seven Private Limited, a registered supplier, is engaged in the manufacture of

taxable goods. The company provides the following information pertaining to GST paid
on the purchases made/input services availed by it during the month of February, 20XX :
Particulars GST paid (`)
(i) Trucks used for the transport of raw material 1,20,000
(ii) Foods and beverages for consumption of employees
40,000
working in the factory
(iii) Inputs are to be received in five lots, out of which third
80,000
lot was received during the month
(iv) Membership of a club availed for employees working in
1,50,000
the factory
(v) Capital goods (out of five items, invoice for one item was
4,00,000
missing and GST paid on that item was ` 50,000)
(vi) Raw material (to be received in March, 20XX) 1,50,000
Determine the amount of input tax credit available with Cloud Seven Private Limited for the
month of February, 20XX by giving necessary explanations for treatment of various
items. All the conditions necessary for availing the input tax credit have been fulfilled.
3. M/s. Handsome and Likemi Company, a partnership firm at Mumbai is running a mobile
phone showroom. Along with mobile phone showroom, it is also engaged in providing
health and fitness services.
Turnover of the mobile phone showroom was ` 78 lakh and receipts of the health and
fitness service was ` 26 lakh in the preceding financial year.
(i) With reference to the provisions of the CGST Act, 2017, examine whether the firm
can opt for the composition scheme,
(ii) Will your answer change, if the turnover of the mobile phone showroom was ` 74
lakh and receipts of the health and fitness service was ` 18 lakh in the preceding
financial year?
(iii) If M/s. Handsome and Likemi Company obtain separate registration for their mobile
phone showroom & for health fitness centre, can it opt for composition scheme only
for mobile phone showroom?
4. Luv & Kush Pvt. Ltd. of Srinagar, Jammu & Kashmir engaged in the supply of gifts items
provides you the following details:-
S.No. Particulars Date
1. Commencement of the business of supplying goods 01.08.20XX
2. Turnover exceeds ` 10,00,000 on 15.08.20XX

3. Turnover exceeds ` 20,00,000 on 05.09.20XX

4. Application for registration made on 28.09.20XX
5. Registration certificate granted on 06.10.20XX
The company seeks your advice as to how it should raise revised tax invoices for
supplies made. Is there any specific provision for issuance of revised tax invoices to
unregistered customers? Explain.
5. Red Pepper Ltd., Delhi, a registered supplier, is manufacturing taxable goods. It provides
the following details of taxable inter-State supply made by it for the month of March,
20XX.
Particulars Amount in
(`)
List price of goods supplied inter-state (exclusive of taxes) 15,00,000
Subsidy received from Central Government for supply of taxable goods 2,10,000
to Government School.
Subsidy received from a NGO for supply of taxable goods to an old age 50,000
home
Tax levied by Municipal Authority 20,000
Packing charges 15,000
Late fee paid by the recipient of supply for delayed payment of invoice 6,000
The list price of the goods takes into account the two subsidies received. However, the
other charges/taxes/fee are charged to the customers over and above the list price.
Calculate the value of taxable supply made by M/s Red Pepper Ltd. for the month of
March, 20XX. Rate of IGST is 18%.
6. (i) Explain the meaning of the term “date of receipt of payment” as per section 13 of
the CGST Act, 2017.
(ii) List any four activities which shall be neither treated as supply of goods nor a
supply of services under the GST law.
7. Examine whether GST is payable in the following independent supply of services:
(i) Indiana Engineering College, a recognised educational institution, has conducted an
entrance test examination for various courses run by it and charged entrance fees
from the applicants.
(ii) Ramfal Lalaji, an agriculturist, has stored sugarcane in a warehouse. He has taken
fumigation services in the said warehouse from Gupta Pest Control Co. for which he
paid the consideration of ` 6,000.
8. (i) With reference to the provisions of GST law, briefly answer the following questions:-

(a) Income is received by Maharashtra Government from renting of immovable

property to Ganpati Morya Pvt. Ltd., registered in Maharashtra (Turnover of the
company was ` 18 lakh in the preceding financial year). Is GST payable in the
present case? If yes, who is liable to pay the same?
(b) Mr. Vivek Goyal, director of A2Z Pvt. Ltd. Company has received sitting fee
amounting to ` 1 lakh from A2Z Pvt. Ltd for attending the Board meetings.
(ii) Explain the meaning of the term “input tax” under section 2(62) of CGST Act, 2017.
9. (i) Discuss the circumstances where registration is liable to be cancelled.
(ii) Explain the order in which liability of taxable person has to be discharged under
GST laws.
10. Examine whether the activity of import of service in the following independent cases
would amount to supply under section 7 of the CGST Act, 2017?
(i) Miss Shriniti Kaushik received vaastu consultancy services for her residence
located at Bandra, Mumbai from Mr. Racheal of Sydney (Australia). The amount
paid for the said service is 5,000 Australian dollar.
(ii) Miss Shriniti Kaushik received vaastu consultancy services for her residence located at
Bandra, Mumbai from her brother, Mr. Varun residing in Sydney (Australia). Further,
Miss Shriniti did not pay any consideration for the said service.
(iii) Miss Shriniti Kaushik received vaastu consultancy services for her business
premises located at Bandra, Mumbai from her brother, Mr. Varun residing in Sydney
(Australia). Further, Miss Shriniti did not pay any consideration for the said service.
SUGGESTED ANSWERS/HINTS
1. Computation of GST liability of M/s. Shri Durga Corporation Pvt. Ltd. for the month of
February, 20XX
Particulars Value of CGST SGST IGST
Supply (`) (`) (`)
Intra -State sale of taxable goods [Note-1] 4,00,000 36,000 36,000
Goods purchased from unregistered dealer on Nil Nil Nil
20th February, 20XX [Note-2]
Services rendered by way of labour contracts 1,00,000 9,000 9,000
for repairing a single residential unit otherwise
than as a part of residential complex [Note-3]
Goods transport services received from GTA 2,00,000 Nil
[Note-4]

Total GST liability for the month of February, 20XX 45,000 45,000 Nil
Less: Input tax credit available [Note-5] (` 2,00,000 x 12%) 24,000
Net GST liability for the month of February, 20XX 21,000 45,000 Nil
Notes:
1. Section 12 of CGST Act, 2017 read with Notification No. 66/2017 CT dated
15.11.2017 provides that the time of supply for all suppliers of goods (excluding
composition suppliers) is the time of issue of invoice, without any turnover limit.
Thus, liability to pay tax on the advance received in January, 20XX will also arise in
the month of February, when the invoice for the supply is issued.
2. All intra-State and inter-State procurements made by a registered person from
unregistered person have been exempted from reverse charge liability, without any
upper limit for daily procurements upto 30.06.2018*1. [Notification No. 8/2017 CT
(R) dated 28.06.2017 as amended and Notification No. 32/2017 IT(R) dated
13.10.2017 as amended]
3. Services by way of pure labour contracts of construction, erection, commissioning,
or installation of original works pertaining to a single residential unit otherwise than
as a part of a residential complex are exempt vide Notification No. 12/2017 CT(R)
dated 28.06.2017. Labour contracts for repairing are thus, taxable.
4. As per Notification No. 13/2017 CT(R) dated 28.06.2017, GST is payable by the
recipient on reverse charge basis on the receipt of services of transportation of
goods by road from a goods transport agency (GTA) provided such GTA has not
paid GST @ 12%. Since in the given case, services have been received from a GTA
who has paid GST @ 12%, reverse charge provisions will not be applicable.
5. Input tax credit is available for the services received from GTA. The input tax credit
of IGST can be used against IGST, CGST and SGST in the respective order vide
section 49(5) of CGST Act, 2017.
2. Computation of input tax credit (ITC) available with Cloud Seven Private Limited for
the month of February, 20XX
Particulars `
Trucks used for the transport of raw material [Note-1] 1,20,000
Foods and beverages for consumption of employees working in the factory Nil
[Note-2]
Inputs are to be received in five lots, out of which third lot was received Nil
during the month [Note-3]
*The above exemptions have been extended till 30.09.2018 vide Notification No. 12/2018 CT(R) dated
29.06.2018 and Notification No. 13/2018 IT(R) dated 29.06.2018.

Membership of a club availed for employees working in the factory [Note-4] Nil
Capital goods (out of five items, invoice for one item was missing and GST 3,50,000
paid on that item was ` 50,000) [Note-5]
Raw material to be received in March, 20XX [Note-6] Nil
Total ITC 4,70,000
Notes:-
1. ITC on motor vehicles is disallowed in terms of section 17(5) of the CGST Act, 2017,
except when they are used inter alia, for transportation of goods.
2. ITC on food or beverages is specifically disallowed unless the same is used for making
outward taxable supply of the same category or as an element of the taxable composite
or mixed supply- [Section 17(5)].
3. When inputs are received in instalments, ITC can be availed only on receipt of last
instalment- [Section 16(2)].
4. Membership of a club is specifically disallowed under section 17(5) of the CGST Act,
2017.
5. ITC cannot be taken on missing invoice. The registered person should have the
invoice in its possession to claim ITC [Section 16(2) of CGST Act, 2017] .
6. Input tax credit is available only upon the receipt of goods in terms of section 16(2)
of CGST Act, 2017.
3. A registered person, whose aggregate turnover in the preceding fina ncial year did not
exceed ` 1 crore [` 75 lakh in case of special category States except Jammu and
Kashmir and Uttarakhand], may opt for composition scheme vide section 10 of CGST
Act, 2017.
However, he shall not be eligible to opt for composition scheme if, inter alia, he is
engaged in the supply of services other than restaurant services.
(i) In the given case, since M/s Handsome and Likemi Company is engaged in supply
of health and fitness service, it is not eligible to opt for composition scheme
irrespective of its turnover in the preceding financial year.
(ii) The answer will remain the same i.e., M/s. Handsome & Likemi Company will not be
eligible to opt for composition scheme even with the change in the turnovers.
(iii) Where more than one registered persons are having the same Permanent Account
Number, the registered person shall not be eligible to opt for composition scheme
unless all such registered persons opt to pay tax under composition scheme.
Therefore, M/s. Handsome and Likemi Company will not be able to opt for
composition scheme only for mobile phone showroom as all the registrations under

the same PAN have to opt for composition scheme and since the supply of health
and fitness service is ineligible for composition scheme, supply of mobile phones
too becomes ineligible for composition scheme.
4. A supplier whose aggregate turnover in a financial year exceeds ` 20 lakh in a State/UT
[ ` 10 lakh in special category states except Jammu & Kashmir and Uttarakhand] is liable
to apply for registration within 30 days from the date of becoming liable to registration
(i.e., the date of crossing the threshold limit of ` 20 lakh/ ` 10 lakh) vide section 22 of
CGST Act, 2017.
Where the application is submitted within said period, the effective date of registration is
the date on which the person becomes liable to registration; otherwise it is the date of
grant of registration.
Every registered person who has been granted registration with effect from a date earlier
than the date of issuance of registration certificate to him, may issue revised tax invoices
in respect of taxable supplies effected during this period within 1 month from the date of
issuance of registration certificate.
In the given case, Luv & Kush Pvt. Ltd is located in Jammu & Kashmir, a special category
state. Though the turnover limit for special category states is ` 10 lakh, Jammu &
Kashmir has opted for turnover limit of ` 20 lakh for the purpose of registration. Thus,
since Luv & Kush Pvt. Ltd. has made the application for registration within 30 days of
becoming liable for registration, the effective date of registration becomes the date on
which the company becomes liable to registration i.e. 05.09.20XX.
Thus, Luv & Kush Pvt. Ltd. may issue revised tax invoices against the invoices already
issued during the period between effective date of registration (05.09.20XX) and the date
of issuance of registration certificate (06.10.20XX), within 1 month from 06.10.20XX.
Further, Luv & Kush Pvt. Ltd may issue a consolidated revised tax invoice in respect of
all taxable supplies made to unregistered dealers during such period. However, in case
of inter-State supplies made to unregistered dealers, a consolidated revised tax invoice
cannot be issued if the value of a supply exceeds ` 2,50,000.
5. Computation of value of taxable supply made by Red Pepper Ltd. for the month of
March, 20XX
Particulars `
List price of the goods 15,00,000
Add: Subsidy amounting to ` 2,10,000 received from Central NIL
Government
[Since subsidy is received from Government, the same is not
includible in the value in terms of section 15 of the CGST Act,
2017]
Subsidy received from NGO 50,000

[Since subsidy is received from a non-Government body, the

same is includible in the value in terms of section 15 of the CGST
Act, 2017]
Tax levied by the Municipal Authority 20,000
[Includible in the value as per section 15 of the CGST Act, 2017]
Packing charges 15,000
[Being incidental expenses, the same are includible in the value
as per section 15 of the CGST Act, 2017]
Late fees paid by recipient of supply for delayed payment
[Includible in the value as per section 15 of the CGST Act, 2017] 5,085
(assumed to be inclusive of taxes) [` 6,000 x 100/118] rounded
off
Value of taxable supply 15,90,085
6. (i) “Date of receipt of payment” in terms of section 13 of CGST Act, 2017 refers to the
(a) date on which the payment is recorded in the books of account of the entity
(supplier of service) that receives the payment, or
(b) the date on which the payment is credited to the entity’s bank account,
whichever is earlier.
(ii) Section 7(2)(a) of CGST Act, 2017 read with Schedule III specifies the activities or
transactions which shall be treated neither as a supply of goods nor a supply of
services:
1. Services by an employee to the employer in the course of or in relation to his
employment.
2. Services by any court or Tribunal established under any law for the time being
in force.
3. (a) Functions performed by the Members of Parliament, Members of State
Legislature, Members of Panchayats, Members of Municipalities and
Members of other local authorities;
(b) Duties performed by any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or
(c) Duties performed by any person as a Chairperson or a Member or a
Director in a body established by the Central Government or a State
Government or local authority and who is not deemed as an employee
before the commencement of this clause.
4. Services of funeral, burial, crematorium or mortuary including transportation of
the deceased.

5. Sale of land and, subject to paragraph 5(b) of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
[Note:- Any four points may be mentioned.]
7. (i) Services provided by an educational institution by way of conduct of entrance
examination against consideration in the form of entrance fee are exempt from GST
vide Notification No. 12/2017 CT (R) dated 28.06.2017 as amended.
Since in the given case, services provided by Indiana Engineering College, an
educational institution are by way of conduct of entrance examination against
entrance fee, the same is exempt and thus, GST is not payable in this case.
(ii) Services by way of fumigation in a warehouse of agricultural produce are exempt
from GST vide Notification No. 12/2017 CT (R) dated 28.06.2017 as amended. In the
present case, since Gupta Pest Control Co. provides services by way of fumigation
in the warehouse of sugarcane [being an agricultural produce], said services are
exempt and GST is not payable on the same.
8. (i) (a) Notification No. 12/2017 CT (R) dated 28.06.2017 has inter alia exempted the
services provided by the State Government to a business entity with an
aggregate turnover of up to ` 20 lakh (` 10 lakh in case of a Special Category
States) in the preceding FY. However, the same shall not apply to services by
way of renting of immovable property.
In the given case, services by way of renting of immovable property is provided
by Maharashtra Government to Ganpati Morya Pvt. Ltd, registered in
Maharashtra. Therefore, the above exemption will not apply in this case even
though the turnover of the company was less than ` 20 lakh in the preceding
financial year. Thus, GST is payable in the given case.
Notification No. 13/2017 CT (R) dated 28.06.2017 as amended inter alia
provides that reverse charge is applicable in case of services supplied by the
State Government by way of renting of immovable property to a person
registered under the Central Goods and Services Tax Act, 2017. Thus, GST is
payable by Ganpati Morya Pvt. Ltd., being a registered person in the present
case.
(b) Notification No. 13/2017 CT (R) dated 28.06.2017 inter alia provides that GST
on supply of services by director of a company to the said company located in
the taxable territory is payable on reverse charge basis.
Therefore, in the given case, person liable to pay GST is the recipient of
services, i.e., A2Z Pvt. Ltd. Company.

(ii) As per section 2(62) of CGST Act, 2017, “input tax” in relation to a registered
person, means the central tax, State tax, integrated tax or Union territory tax
charged on any supply of goods or services or both made to him and includes —
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-section (3) and (4) of section 5 of
the IGST Act;
(d) the tax payable under the provisions of sub-section (3) and sub-section (4) of
section 9 of the respective SGST Act; or
(e) the tax payable under the provisions of sub-section (3) and sub-section (4) of
section 7 of the UTGST Act,
but does not include the tax paid under the composition levy.
9. (i) Section 29(1) of the CGST Act, 2017 provides that the proper officer may, either on
his own motion or on an application filed by the registered person or by his legal
heirs, in case of death of such person, cancel the registration, in such manner and
within such period as may be prescribed, having regard to the circumstances where:
(a) the business has been discontinued, transferred fully for any reason including
death of the proprietor, amalgamated with other legal entity, demerged or
otherwise disposed of; or
(b) there is any change in the constitution of the business; or
(c) the taxable person, other than the person registered under sub-section (3) of
section 25, is no longer liable to be registered under section 22 or section 24
Further, section 29(2) of the CGST Act, 2017 provides that the proper officer may
cancel the registration of a person from such date, including any retrospective date,
as he may deem fit, where,––
(a) a registered person has contravened such provisions of the Act or the rules
made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished returns for three
consecutive tax periods; or
(c) any registered person, other than a person specified in clause (b), has not
furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section
25 has not commenced business within six months from the date of registration;

or
(e) registration has been obtained by means of fraud, wilful misstatement or
suppression of facts
Further, the proper officer shall not cancel the registration without giving the person
an opportunity of being heard.
(ii) Section 49(8) of CGST Act, 2017 prescribes the chronological order in which the
liability of a taxable person has to be discharged:
(a) self -assessed tax and other dues for the previous tax periods have to be
discharged first.
(b) self -assessed tax and other dues for the current tax period have to be
discharged next.
(c) Once these two steps are exhausted, thereafter any other amount payable
including demand determined under section 73 or section 74 is to be discharged.
In other words, the liability if any, arising out of demand notice and adjudication
proceedings comes last. This sequence has to be mandatorily followed.
The expression “other dues” referred above mean interest, penalty, fee or any
other amount payable under the Act or the rules made thereunder.
10. (i) Supply, under section 7 of the CGST Act, 2017, inter alia,
• includes import of services for a consideration
• even if it is not in the course or furtherance of business.
Thus, although the import of service for consideration by Miss. Shriniti Kaushik is
not in course or furtherance of business, as the vaastu consultancy service has
been availed in respect of residence, it would amount to supply.
(ii) Section 7 of the CGST Act, 2017 read with Schedule I provides that import of
services by a taxable person from a related person located outside India, without
consideration is treated as supply if it is provided in the course or furtherance of
business.
In the given case, import of service without consideration by Miss Shriniti from her
brother – Mr. Varun [brother, being member of the same family, is a related person]
will not be treated as supply as it is not in course or furtherance of business.
(iii) Section 7 of the CGST Act, 2017 read with Schedule I provides that import of
services by a taxable person from a related person located outside India, without

consideration is treated as supply if it is provided in the course or furtherance of

business.
Thus, import of service without consideration by Miss Shriniti from her brother –
Mr. Varun (brother, being member of the same family, is a related person) will be
treated as supply as she receives vaastu consultancy service for her business
premises, i.e. in course or furtherance of business.
Note: GST law has been subject to frequent changes since its inception.
Although many clarifications have been issued by way of FAQs or otherwise,
many issues continue to arise on account of varying interpretations on
several of its provisions. Therefore, alternate answers may be possible for
the above questions depending upon the view taken.

Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November 2018 Examination
Intermediate Level (New Course)
Paper 1: Accounting
List of Applicable Accounting Standards
AS 1 : Disclosure of Accounting Policies
AS 2 : Valuation of Inventories
AS 3 : Cash Flow Statements
AS 4 : Contingencies and Events occurring after the Balance Sheet Date
AS 5 : Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies
AS 10 : Property, Plant and Equipment
AS 11 : The Effects of Changes in Foreign Exchange Rates
AS 12 : Accounting for Government Grants
AS 13 : Accounting for Investments
AS 16 : Borrowing Costs
AS 17 : Segment Reporting
AS 22 : Accounting for Taxes on Income
Applicability of the Companies Act, 2013 and other Legislative Amendments for
November 2018 Examination
The relevant notified Sections of the Companies Act, 2013 and legislative amendments including
relevant Notifications / Circulars / Rules / Guidelines issued by Regulating Authorities up to
30th April, 2018 will be applicable for November, 2018 Examination.
Non-Applicability of Ind AS
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards) Rules,
2015 on 16 th February, 2015, for compliance by certain class of companies. These Ind AS do
not form part of the syllabus and hence are not applicable.
Paper 2: Corporate and Other Laws
The provisions of Companies Act, 2013 along with significant Rules/ Notifications/ Circulars/
Clarification/ Orders issued by the Ministry of Corporate Affairs and the other laws, as amended
by concerned authority, including significant notifications and circulars issued up to 30th April
2018, are applicable for November, 2018 examination.

REVISION TEST PAPER 153
Paper 4: Taxation
Section A: Income-tax Law
Applicability of the Finance Act, Assessment Year etc. for November, 2018 Examination
The provisions of income-tax law, as amended by the Finance Act, 2017, including significant
circulars and notifications issued and other legislative amendments made upto 30th April, 2018,
are applicable for November, 2018 examination. The relevant assessment year for income-tax
is A.Y. 2018-19. The Study Guidelines containing the list of topic-wise exclusions from the
syllabus is attached as Annexure I.
Section B: Indirect Taxes
Applicability of the provisions of GST law for November, 2018 Examination
The provisions of CGST Act, 2017 and IGST Act, 2017, including significant circulars and
notifications issued and other legislative amendments made upto 30th April, 2018, are
applicable for November, 2018 examination. The Study Guidelines containing the list of topic-
wise exclusions from the syllabus is attached as Annexure II.
Annexure I
Study Guidelines
Intermediate Paper 4: Taxation Section A: Income-tax Law
List of topic-wise exclusions from the syllabus
Topics of the Syllabus Exclusions
(Provisions which are excluded from the corresponding
topic of the Syllabus)
1. Basic Concepts -
2. Residential status Section 9A - Certain activities not to constitute business
and scope of total connection in India
income
3. Incomes which do not Clause of Particulars
form part of total section
income (other than 10
charitable trusts and 6A Tax on royalty or fees for technical services
institutions, political derived by foreign companies
parties and electoral
trusts) 6B Tax paid on behalf of non-resident deriving
income from Government or an Indian concern
in pursuance of an agreement entered into
with the Government of a foreign State or an
international organization

6BB Tax paid on behalf of foreign state or foreign

enterprise on amount paid as consideration of
acquiring aircraft, etc. on lease
6C Income from projects connected with the
security of India arising to a notified foreign
company
8&9 Remuneration and certain income of
individuals who are assigned duties in India in
connection with any co-operative technical
assistance programmes and income of any
member of the family of such individual
accompanying them to India.
8A & 8B Any remuneration or fee received by a
consultant, directly or indirectly, out of the
funds made available to an international
organisation (agency) under a technical
assistance grant agreement with the agency
and Government of a foreign State
Any remuneration received by an individual
who is assigned to duties in India in
connection with any technical assistance
program from such consultant
15A Any payment made by an Indian company
engaged in the business of operation of
aircraft to acquire an aircraft on lease from the
government of a foreign State or a foreign
enterprise
19A Annual value of palaces of former rulers
20 to 25A • Income of local authorities [Section
10(20)]
• Income of research associations
approved under section 35(1)(ii)/(iii)
[Section 10(21)]
• Income of news agency [Section
10(22B)]
• Income of professional associations
[Section 10(23A)]
• Income received on behalf of any
Regimental Fund or Non-Public Fund

established by armed forces [Section

10(23AA)]
• Income of Funds established for welfare
of employees of which such employees
are members [Section 10(23AAA)]
• Income of Fund set up by Life Insurance
Corporation or any other insurer under
pension scheme [Section 10(23AAB)]
• Income of institution established for
development of Khadi and Village
Industries [Section 10(23B)]
• Income of authorities set up under State
or Provincial Act for promotion of Khadi
and Village Industries [Section
10(23BB)]
• Income of any body or authority set up
to administer religious or charitable
trusts [Section 10(23BBA)
• Income of European Economic
Community (EEC) [Section 10(23BBB)]
• Income derived by the SAARC Fund for
Regional Projects [Section 10(23BBC)]
• Income of the IRDA [Section 10(23BBE)]
• Income of Central Electricity Regulatory
Commission [Section 10(23BBG)]
• Income of Prasar Bharati (Broadcasting
Corporation of India) [Section
10(23BBH)]
• Income of certain funds or institutions
[Section 10(23C)]
• Income of Mutual Fund [Section
10(23D)]
• Income of a securitization trust from the
activity of securitization [Section
10(23DA)]
• Income of Investor Protection Funds
[Section 10(23EA)]
• Specified income of Investor Protection
Fund set up by commodity exchanges
[Section 10(23EC)]

• Income of Investor Protection Fund set

up by depositories [Section 10(23ED)]
• Specified income of Core Settlement
Guarantee Fund (SGF) set up by a
recognized Clearing Corporation
[Section 10(23EE)]
• Income of Investment Fund [Section
10(23FBA)]
• Income of unit holder of an Investment
Fund [Section 10(23FBB)]
• Certain incomes of Business trust
[Section 10(23FC)/(23FCA)]
• Distributed income of unit holder of a
business trust [Section 10(23FD)]
• Income of trade unions [Section 10(24)]
• Income of provident funds,
superannuation funds, gratuity funds etc.
[Section 10(25)]
• Income of Employees State Insurance
(ESI) Fund [Section 10(25A)]
26AAB to • Income of an Agricultural Produce
29A Market Committee or Board [Section
10(26AAB)]
• Income of a corporation etc. for the
promotion of interests of members of
Scheduled Castes or Scheduled Tribes
or both [Section 10(26B)]
• Income of corporations established to
protect interests of minority community
[Section 10(26BB)]
• Income of corporation established by a
Central, State or Provincial Act for
welfare of ex-servicemen [Section
10(26BBB)]
• Income of a co-operative society formed
for promoting the interests of Scheduled
Castes or Schedules Tribes or both
[Section 10(27)]

• Incomes of certain bodies like Coffee

Board, Rubber Board etc. [Section
10(29A)]
36 Long term capital gains on transfer of listed
equity shares purchased on or after 1.3.2003
but before 1.3.2004, and held for a period of
12 months or more
37A Any income chargeable under the head capital
gains in respect of transfer of specified capital
asset to an asseesee, being an individual or
HUF under Land Pooling Scheme
39 to 42 • Specified income arising from any
international sporting event in India
[Section 10(39)]
• Certain grants etc. received by a
subsidiary from its Indian holding
company engaged in the business of
generation or transmission or distribution
of power [Section 10(40)]
• Specified income of certain notified
bodies or authorities which have been
established under a treaty or an
agreement [Section 10(42)]
44 Income received by any person on behalf of
NPS Trust [Section 10(44)]
46 to 50 • Specified income of notified entities not
engaged in commercial activity [Section
10(46)]
• Income of notified infrastructure debt
funds [Section 10(47)]
• Income received by certain foreign
companies in India in Indian currency
from sale of crude oil to any person in
India [Section 10(48)]
• Income arising to a foreign company on
account of storage of crude oil [Section
10(48A)]
• Income arising to a foreign company
on account of sale of leftover stock of
crude oil [Section 10(48B)]

• Income of the National Financial

Holdings company Limited [Section
10(49)]
• Income arising from any specified
service chargeable to equalization levy
[Section 10(50)].
4. Heads of income and
the provisions
governing
computation of
income under
different heads
Salaries -
Income from house -
property
Profits and gains of 1. Income computation and disclosure standards (ICDSs)
business or notified under section 145;
profession 2. The provisions contained in the following sections given
hereunder:
Section Particulars
33AB Tea Development Account/Coffee Development
Account/Rubber Development Account
33ABA Site Restoration Fund
35ABA Expenditure for obtaining right to use spectrum
for telecommunication services
35ABB Expenditure for obtaining licence to operate
telecommunication services
35DD Amortisation of expenditure in case of
amalgamation or demerger
35E Deduction of expenditure on prospecting and
development of certain minerals
36(1)/ • Special provision for bad and doubtful debts
(viia)/ made by Banks, Public Financial Institution,
(viii)/ State Financial Corporation, State Industrial
(xii) / Investment Corporation [Section 36(1)(viia)]
(xiii)/ • Deduction for Special Reserve created and
(xiv)/ maintained by Specified Entities engaged in
(xvii) eligible business [Section 36(1)(viii)]

• Deduction for expenditure incurred by

entities established under any Central,
State or Provincial Act [Section 36(1)(xii)]
• Deduction in respect of banking cash
transaction tax [Section 36(1)(xiii)]
• Deduction of contribution by a public
financial institution to Credit guarantee fund
trust for small industries [Section 36(1)(xiv)]
• Deduction of expenditure incurred by a co-
operative society for purchase of sugarcane
at price fixed by the Government [Section
36(1)(xvii)]
40(a)(ib) Consideration paid or payable to a non-resident
for specified service on which equalization levy is
deductible under Chapter VIII of the Finance Act,
2016 and such levy has not deducted or after
deduction has not been paid on or before the due
date of filing return of Income.
42 Special provisions for deduction in case of
business for prospecting etc. for mineral oil
43C Special Provision for Computation of Cost of
Acquisition of Certain Assets
43D Special Provision in case of income of Public
Financial Institutions, public companies etc.
44 Insurance Business
44A Special provision for deduction in the case of
trade, professional or similar association
44B to • Special provision for computing the profits
44DB and gains of shipping business in case of
non-residents [Section 44B]
• Special provision for computing profits and
gains in connection with the business of
exploration etc., of mineral oils [Section
44BB]
gains of the business of operation of aircraft
in the case of non-residents [Section
44BBA]


gains of foreign companies engaged in the
business of civil construction etc. in certain
turnkey power projects [Section 44BBB]
• Deduction of head office expenditure in the
case of non-residents [Section 44C]
• Special provisions for computing income by
way of royalties etc. in case of non-
residents [Section 44DA]
• Special provision for computing deductions
in the case of business reorganisation of co-
operative banks [Section 44DB]
Capital gains Section Particulars

47(via)/ • Any transfer of a capital asset in a
(viaa)/ scheme of amalgamation by
(viab)/ amalgamating foreign company to the
(vic)/(vica)/ amalgamated foreign company [Section
(vicb)/ 47(via)]
(vicc)/(viia)/ • Any transfer of a capital asset, in a
(xa)/(xii)/ scheme of amalgamation of a banking
(xiii)/(xiiia)/ company with a banking institution
(xiiib)/(xiv)/ [Section 47(viaa)]
(xv)/(xvii)
• any transfer, in a scheme of
amalgamation, of a capital asset, being
a share of a foreign company [Section
47(viab)]
• Any transfer in a demerger, of a capital
asset, being a share or shares held in
an Indian company, by the demerger
foreign company to the resulting foreign
company [Section 47(vic)]
• any transfer in a business
reorganisation, of a capital asset by the
predecessor co-operative bank to the
successor co-operative bank [Section
47(vica)]
• any transfer by a shareholder, in a
business reorganisation, of a capital
asset being a share or shares held by

him in the predecessor co-operative

bank if the transfer is made in
consideration of the allotment to him of
any share or shares in the successor
co-operative bank [Section 47(vicb)]
• any transfer in case of a demerger of a
capital asset, being a share of a foreign
company [Section 47(vicc)]
• Any transfer of bonds of an Indian
company or Global Depository Receipts
purchased in foreign currency [referred
to in section 115AC(1)] [Section
47(viia)]
• Any transfer by way of conversion of
Foreign Currency Exchangeable Bonds
into shares or debentures of a company
[Section 47(xa)].
• Any transfer of land under a scheme
prepared and sanctioned under section
18 of the Sick Industrial Companies
(Special Provisions) Act, 1985, by a sick
industrial company which is managed
by its workers’ co-operative [Section
47(xii)]
• Any transfer of a capital asset or
intangible asset by a firm to a company,
where a firm is succeeded by a
company, or any transfer of a capital
asset where an AOP or BOI is
succeeded by a company consequent
to demutualisation or corporatisation of
a recognised stock exchange in India
[Section 47(xiii)]
• any transfer of a membership right by a
member of recognised stock exchange
in India for acquisition of shares and
trading or clearing rights in accordance
with a scheme for demutualization or
corporatisation approved by SEBI
[Section 47(xiiia)]
• any transfer of a capital asset or
intangible asset by a private company

or unlisted public company to a LLP

[Section 47(xiiib)]
• Any transfer of a capital asset or
intangible asset where a sole
proprietary concern is succeeded by a
company [Section 47(xiv)]
• Any transfer in a scheme for lending of
any securities under an agreement or
arrangement which is subject to SEBI
guidelines [Section 47(xv)].
• Any transfer of a capital asset being
share of a SPV to a business trust in
exchange of units allotted by the trust to
the transferor [Section 47(xvii)]
47A Withdrawal of exemption in certain cases
49 Sub-sections consequent to excluded
clauses of section 47 and sub-section (2ABB)
cost of acquisition of share/s of a company on
redemption of GDRs referred under section
115AC(1)(b)
Sub-section (5) of section 49, cost of
acquisition of an asset declared under the
Income Declaration Scheme, 2016.
54G Exemption of Capital gains on transfer of
assets in cases of shifting of industrial
undertaking from urban area
54GA Exemption of capital gains on transfer of
certain capital assets in case of shifting of
an industrial undertaking from an urban
area to any SEZ
54GB Exemption of capital gains on transfer of
residential property if the sale
consideration is used for subscription in
equity of an eligible start-up to be used for
purchase of new plant and machinery
55(2)(ab) Cost of acquisition in respect of capital
asset, being equity share or shares allotted
to a shareholder of a recognised stock
exchange of India under a scheme for
demutualization or corporatization.

Income from Other -

Sources
5. Income of other Section 65 : Liability of person in respect of income included
persons included in in the income of another person
assessee's total
income
6. Aggregation of Section Particulars
income; Set-off, or 67A Method of computing a member’s share in
carry forward and set- income of association of persons or body of
off of losses individuals
72A Carry forward and set-off of accumulated
business losses and unabsorbed depreciation
in certain cases of Amalgamation/ Demerger,
etc.
72AA Provisions relating to carry forward and set-off
of accumulated losses and unabsorbed
depreciation of a banking company against the
profit of a banking institution under a scheme
of amalgamation
72AB Provisions relating to carry forward and set off of
accumulated loss and unabsorbed depreciation
in business reorganisation of co-operative banks
75 Losses of Firms
78 Carry forward and set-off of losses in case of
change in constitution of firm or succession
79 Carry forward and set-off of losses in case of
certain companies
7. Deductions from Deductions in respect of certain income:
gross total income Section Particulars
80-IA to Profit-linked deductions under Chapter VI-A
80-IE
80JJA Deduction in respect of profits and gains from
business of collecting and processing of bio-
degradable waste.
80LA Deduction in respect of certain incomes of
Offshore Banking units and International
Financial Services Centers

80P Deduction in respect of income of co-operative

societies
8. Computation of total Section 5A – Apportionment of income between spouses
income and tax governed by Portuguese Civil Code
liability of Individuals Provisions relating to Alternate Minimum Tax
9. Advance tax, tax Section Particulars
deduction at source
and introduction to 194LB • Income from Infrastructure Debt Fund
tax collection at to [Section 194LB]
source 194LD
• Income from units of business trust
[Section 194LBA]
• Income in respect of units of investment
fund [Section 194LBB]
• Income in respect of investment in
securitization trust [Section 194LBC]
• Income by way of interest payable to non-
residents by Indian company [Section
194LC]
• Income by way of interest on certain
bonds and government securities payable
to a Foreign Institutional Investor or a
Qualified Foreign Investor [Section
194LD]
195 Other sums (payable to non-residents)
196A to • Income in respect of units of non-residents
196D [Section 196A]
• Income from units referred to in section
115AB [Section 196B]
• Income from foreign currency bonds or
shares of Indian company [Section 196C]
• Income of Foreign Institutional Investors
from securities [Section 196D]
10. Provisions for filing Sections 139(4A) to 139(4F) dealing with provisions for filing
return of income and of return of charitable or religious trusts, research institutions,
self-assessment political party, university, college or other institution,
business trust, investment fund.

Annexure II
Study Guidelines
Intermediate New Course Paper 4: Taxation Section B: Indirect Taxes
List of topic-wise exclusions from the syllabus
(1) (2) (3)

S.No. in Topics of the syllabus Exclusions
the (Provisions which are excluded from the
syllabus corresponding topic of the syllabus)
2(ii)(c) Charge of tax CGST Act, 2017
(i) Rate of tax prescribed for supply of goods*
(ii) Rate of tax prescribed for supply of
services*
IGST Act, 2017
(iii) Rate of tax prescribed for supply of goods
(iv) Rate of tax prescribed for supply of
services
(v) Determination of nature of supply – Inter-
State supply; Intra-State supply; Supplies
in territorial waters
(vi) Special provision for payment of tax by a
supplier of online information and
database access or retrieval [OIDAR]
services
2(ii)(d) Exemption from tax CGST Act, 2017 & IGST Act, 2017
(i) Exemptions for supply of goods
2(iii) Basic concepts of time and CGST Act, 2017 & CGST Rules, 2017
value of supply (i) Provisions relating to change in rate of tax
in respect of supply of goods or services
(ii) Chapter IV: Determination of Value of
Supply [Rules 27-35] of CGST Rules, 2017
2(iv) Input tax credit CGST Act, 2017 read with CGST Rules, 2017
(i) Input tax credit provisions in respect of
inputs and capital goods sent for job work
(ii) Input tax credit provisions relating to
distribution of credit by Input Service
Distributor [ISD]

(iii) Manner of recovery of credit distributed in

excess
(iv) Manner of reversal of credit of additional
duty of customs in respect of Gold dore bar
2(viii) Returns CGST Act, 2017 read with CGST Rules, 2017
(i) Furnishing of GSTR-2, GSTR-1A, GSTR-3
(ii) Claim of input tax credit and provisional
acceptance thereof
(iii) Matching, reversal & reclaim of input tax
credit
(iv) Matching, reversal & reclaim of reduction
in output tax liability
2(ix) Payment of tax including CGST Act, 2017
reverse charge (i) Tax deduction at source
(ii) Collection of tax at source
(iii) Categories of supply of goods, tax on
which is payable on reverse charge basis
under section 9(3)
IGST Act, 2017
(iv) Categories of supply of goods, tax on
which is payable on reverse charge basis
under section 5(3)
*Rates specified for computing the amount payable under composition levy are included
in the syllabus.
Notes:
(1) The syllabus includes select provisions of the CGST Act, 2017 and IGST Act, 2017 and
not the entire CGST Act, 2017 and the IGST Act, 2017. The provisions covered in any
topic(s) of the syllabus which are related to or correspond to the topics not covered in the
syllabus shall also be excluded.
(2) In the above table, in respect of the topics of the syllabus specified in column (2) the related
exclusion is given in column (3). Where an exclusion has been so specified in any topic
of the syllabus, the provisions corresponding to such exclusions, covered in other topic(s)
forming part of the syllabus, shall also be excluded. For example, since provisions relating
to ISD and tax collection at source are excluded from the topics “Input tax credit ” and
“Payment of tax including reverse charge” respectively, the provisions relating to (i)
registration of ISD and person required to collect tax at source and (ii) filing of returns by
an ISD and submission of TCS statement by an electronic commerce ope rator required to
collect tax at source are also excluded from the topics “Registration” and “Returns”
respectively.

(3) July 2017 edition of the Study Material is relevant for May, 2018 and November, 2018
examinations. The amendments - made after the issuance of this Study Material - to the
extent covered in the Statutory Updates for November, 2018 examination alone shall be
relevant for the said examination. The Statutory Updates shall be hosted on the
BoS Knowledge Portal.
(4) The provisions of CGST Act, 2017 and the rules issued thereunder and IGST Act, 2017
and the rules issued thereunder, to the extent included in the July 2017 edition of the Study
Material, except the exclusions mentioned in the table above, and the Statutory Updates
for November, 2018 examination shall alone be relevant for the said examination.

November, 2018: Revision Test Papers

Uploaded by

Copyright:

Available Formats

November, 2018: Revision Test Papers

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

November, 2018: Revision Test Papers

Uploaded by

Copyright:

Available Formats

INTERMEDIATE COURSE

(UNDER REVISED SCHEME OF

REVISION TEST PAPERS

© The Institute of Chartered Accountants of India

Edition : August, 2018

Department/Committee : Board of Studies

Published by : The Publication Department on behalf of The Institute of Chartered

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

I Objective of Revision Test Paper

© The Institute of Chartered Accountants of India

II. Planning and preparing for examination

© The Institute of Chartered Accountants of India

III. Subject-wise Guidance – An Overview

© The Institute of Chartered Accountants of India

Question No. Topic

PAPER – 2: CORPORATE AND OTHER LAWS

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

PAPER – 3: COST AND MANAGEMENT ACCOUNTING

© The Institute of Chartered Accountants of India

15.(b) Difference between Cost Control and Control

Section A: Income-tax Law (60 Marks)

© The Institute of Chartered Accountants of India

Section B: Indirect Taxes (40 Marks)

© The Institute of Chartered Accountants of India

PART – II: QUESTIONS AND ANSWERS

Financial Statements of Companies

© The Institute of Chartered Accountants of India

Other advances 14,88,000 Trade receivables 49,00,000

© The Institute of Chartered Accountants of India

Cash flow statement

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Accounting for Bonus Issue

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

` 40,000. No approval has been received in respect of 1/4 th of the

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(a) Assets and Liabilities as on:

© The Institute of Chartered Accountants of India

Partnership Accounts: Dissolution of Partnership

Dissolution expenses were provided for estimated amount of ` 24,000

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

1. (a) Balance Sheet of Mehar Ltd. as at 31 st March, 2018

© The Institute of Chartered Accountants of India

40,000 10% Redeemable Preference

© The Institute of Chartered Accountants of India

(ii) Dividend distribution tax @ 17.304% 2,03,576

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Interest on Debentures  36,000