09 RTP Binder1

PAPER – 1:
FINANCIAL REPORTING
QUESTIONS
Case Scenario I
D Ltd. prepares financial statements to 31st March each year. Following
information on revenue transactions are relevant to the year ended
31st March 20X7.
(i) On 1st October 20X6, D Ltd. sold a product to a customer for
` 1,21,000. This amount is payable on 31st December, 20X8. The
manufacturing cost of the product for D Ltd. was ` 80,000. The
customer had a right to return the product for a full refund at any time
up to and including 31st December 20X6. At 1st October 20X6, D Ltd.
had no reliable evidence regarding the likelihood of the return of the
product by the customer. The product was not returned by the
customer before 31st December 20X6 and so the right of return for the
customer expired. On both 1st October 20X6 and 31st December 20X6,
the cash selling price of the product was `1,00,000. A relevant annual
rate to use in any discounting calculations is 10%.
(ii) On 1st July 20X5 D Ltd. began an arrangement to sell goods to a third
party B Ltd. The price of the goods was set at `100 per unit for all
sales in the two-year period ending 30 th June 20X7. However, if sales of
the product to B Ltd. exceed 60,000 units in the two-year period
ending 30th June 20X7, then the selling price of all units is
retrospectively set at `90 per item.
REVISION TEST PAPER
FINAL EXAMINATION
Sales of the goods to B Ltd. in the nine-month period ending on

31st March, 20X6 totalled 20,000 units and this volume of sales per
month was not expected to change before 30 th June 20X7.
However, in the year ended 31st March, 20X7, total sales of the goods to
B Ltd. were 35,000 and based on current orders from B Ltd., the estimate
was revised. The directors of D Ltd. estimated that the total sales of the
goods to B Ltd. in the two-year period ending 30th June 20X7 would be
more than 60,000 units.
On the basis of the facts given above, chose the most appropriate
answer to Questions 1 to 5 below based on the relevant Indian
Accounting Standards (Ind AS).
1. When and by what amount the revenue be recognized with respect to
sales made on 1st October, 20X6?
(a) On 1st October, 20X6 by ` 1,21,000
(b) On 1st October, 20X6 by ` 1,00,000
(c) On 1st October, 20X6 by ` 80,000
(d) On 31st December, 20X6 by ` 1,00,000
2. What will be the amount of finance income to be recognized with
respect to sales in the year 20X6-20X7?
(a) ` 5,000
(b) ` 2,500
(c) ` 10,000
(d) ` 2,000
3. What will be the amount of Trade Receivable as on 31st March 20X7,
against the sale made on 1st October 20X6?
(a) ` 1,21,000
(b) ` 1,00,000
(c) ` 1,02,500
(d) ` 1,05,000
2 NOVEMBER 2024 EXAMINATION

REVISION TEST PAPER
FINANCIAL REPORTING
4. What will be the amount of revenue to be recognized in the year

20X5-20X6 with respect to sales arrangement with B Ltd.?
(a) ` 20,00,000
(b) ` 18,00,000
(c) ` 55,00,000
(d) ` 49,50,000
5. What will be the amount of revenue to be recognized in the year
20X6-20X7 with respect to sales arrangement with B Ltd.?
(a) ` 35,00,000
(b) ` 29,50,000
(c) ` 55,00,000
(d) ` 49,50,000
Case Scenario II
M/s XYZ & Co. is an auditing firm. During his audit, the firm is facing
difficulty in accounting of the following transaction for which, it seeks your
answer:
(i) A Ltd. has established a defined benefit pension plan for its eligible
employees. The balance sheet of A Ltd. at 31st March, 20X7 currently
includes the estimated net liability at 31st March, 20X6 amounting
`18.75 crore. The following matters relate to the plan for the year
ended 31st March, 20X7:
– The estimated current service cost was advised by the actuary to
be `6 crore.
– On 31st March, 20X7, A Ltd. paid contributions of ` 7 crore into
the plan and charged this amount as an operating expense.
– The annual market yield on high quality corporate bonds on
1 April, 20X6 was 8%.
– The estimated net liability at 31st March, 20X7 was advised by the
actuary to be `20.5 crore.
No benefits have been paid to date.

REVISION TEST PAPER
FINAL EXAMINATION
(ii) On 1st April 2XX0, E Ltd. completed the construction of a non-current

asset with an estimated useful life of 20 years. The costs of construction
were recognised in property, plant and equipment and depreciated
appropriately. E Ltd. has a legal obligation to restore the site on which
the non-current asset is located on 31st March 2X20. The estimated cost
of this restoration work, at 31st March 2X20 prices is `2.5 crore. The
directors of E Ltd. have made a provision of ` 0.125 crore (1/20 x ` 2.5
crore) in the draft balance sheet at 31st March, 2XX1. An appropriate
annual discount rate to use in any relevant calculations is 6% and at this
rate the present value of ` 1 payable in 20 years is 0.312.
On the basis of the facts given above, chose the most appropriate
answer to Questions 6 to 10 below based on the relevant Indian
Accounting Standards (Ind AS).
6. What is the amount of net adjustment to be made in the statement of
profit and loss for the year 20X6-20X7 with respect to defined benefit
pension plan?
(a) ` 7 crore added back to the profit of the year 20X6-20X7
(b) ` 6 crore deducted from the profit of the year 20X6-20X7
(c) ` 0.5 crore deducted from the profit of the year 20X6-20X7
(d) ` 1.5 crore deducted from the profit of the year 20X6-20X7
7. What is the amount of actuarial gain/(loss) on defined benefit pension
plan for the year 20X6-20X7?
(a) ` 1.5 crore
(b) ` 1.25 crore
(c) ` 1 crore
(d) ` 0.5 crore
8. What is the original provision required to be made on account of
restoration of non-current asset in the year 2XX0-2XX1?
(a) ` 0.78 crore
(b) ` 0.125 crore

REVISION TEST PAPER
FINANCIAL REPORTING
(c) ` 0.039 crore

(d) No provision was required in the year 2XX0-2XX1 as it is the
expense of the year 2X19-2X20
9. What will be the amount of adjustment to be made in the retained
earnings on account of restoration provision?
(a) ` 0.0468 crore
(b) ` 0.0390 crore
(c) ` 0.0392 crore
(d) ` 0.125 crore
10. What will be the amount of one year’s unwinding of discount on account
of restoration provision?
(a) ` 0.0468 crore
(b) ` 0.0390 crore
(c) ` 0.0392 crore
(d) ` 0.125 crore
Ind AS 12 ‘Income Taxes’
11. X Ltd., an Indian company owns a freehold land with carrying value of
`10,00,000 which is not depreciated for tax purposes but is indexed for
inflation. Indexed value and fair value of such land is ` 15,00,000 and
`22,00,000 respectively as of the reporting date. What will be the tax
base for such freehold land for measurement of deferred tax if:
(i) X Ltd. intends to sell it as a part of slump sale of business
eventually after using it for business purpose
(ii) X Ltd. intends to sell the land individually and not on a slump sale
basis
(iii) X Ltd. has classified such land as investment property and intends
to sell it individually and not on a slump sale basis
(iv) X Ltd. follows a revaluation model for freehold land and intends
to sell it individually and not on a slump sale

REVISION TEST PAPER
FINAL EXAMINATION
As per the applicable tax laws in the jurisdiction, indexation benefit is not
available if the freehold land is sold as a part of slump sale of business, but
indexation benefit is available if freehold land is sold individually.
Ind AS 116 ‘Leases’
12. Case I
Scenario 1: The ‘last mile’ is a dedicated cable that connects Entity Y’s
network with the end customer’s device. The use of this cable is at the
discretion of the customer. Entity Y decides the location of end points
and has right to replace the lines (dedicated cable), however it is not
practical to replace the lines, since replacement would require
additional costs to be incurred without any corresponding benefit.
Whether the arrangement would be within the scope of Ind AS 116?
Scenario 2: If it is practical for Entity Y to replace the lines and Entity Y
would benefit from this replacement, would the answer be different?
Case II
Customer X enters into a 10-year contract with a utility company, Entity
Y, for the right to use three specified, physically distinct fibers within a
larger cable connecting Mumbai to Delhi. Customer makes the
decisions about the use of the fibers by connecting each end of the
fibers to its electronic equipment. Entity Y owns extra fibers but can
substitute those for Customer’s fibers only for reasons of repairs,
maintenance or malfunction. The useful life of fiber is 15 years.
Whether this arrangement is covered under Ind AS 116?
Case III
Customer X enters into a 10-year contract with Entity Y for the right to
use a specified amount of capacity within a cable connecting Mumbai
to Delhi. The specified amount is equivalent to Customer X having the
use of the full capacity of three fiber strands within the cable (the cable
contains multiple fibers with similar capacities). Entity Y makes
decisions about the transmission of data (i.e., Entity Y lights the fibers,
makes decisions about which fibers are used to transmit Customer’s
traffic). The useful life of fiber is 15 years.
Whether this arrangement is covered under Ind AS 116?

REVISION TEST PAPER
FINANCIAL REPORTING
Ind AS 41 ‘Agriculture’
13. ABC Ltd. is in the business of manufacturing an apple beverage and
requires a large quantity of apples to manufacture such beverage. In
order to satisfy its requirement of apples, it enters into 3 years lease
contracts with owners of apple orchards. The lease contracts are mainly
of two types:
(1) Contract 1: The owner of the apple orchard (i.e. the lessor) raises
the apple trees to produce apples. ABC Ltd. (i.e. lessee) makes a
fixed annual payment to the owner of the apple orchard who is
required to cultivate the produce as per the specifications of ABC
Ltd. ABC Ltd. harvests the apples itself for fulfilling its
requirement of apples.
(2) Contract 2: ABC Ltd. obtains the apple orchard from owner (i.e.
the lessor) to raise the apple trees for subsequent harvest of the
apples to ensure that the apples are as per the requirements of
ABC Ltd. ABC Ltd. makes a fixed annual payment to the owner of
the apple orchards (i.e. the lessor).
Whether ABC Ltd. is engaged in agricultural activity as per Ind AS 41 in
both of the cases?
Ind AS 10 ‘Events After the Reporting Period’
14. H Ltd. constructed a warehouse at a cost of `10 lakhs in 20X1. It first
became available for use by H Ltd. on 1st April, 20X2. On
29th April, 20X6, H Ltd. discovered that its warehouse was damaged.
During early May 20X6, an investigation revealed that the damage was
due to a structural fault in the construction of the warehouse. The
fault became apparent when the warehouse building leaked severely
after heavy rainfall in the week ended 27th April 20X6. The discovery of
the fault is an indication of impairment. So, H Ltd. was required to
estimate the recoverable amount of its warehouse at 31st March 20X6.
This estimate was ` 6,00,000. Furthermore, H Ltd. reassessed the useful
life of its warehouse at 20 years from the date that it was ready for use.
Before discovering the fault, H Ltd. had depreciated the warehouse on
the straight-line method to a nil residual value over its estimated 30-
year useful life.

REVISION TEST PAPER
FINAL EXAMINATION
Seepage of rain-water through the crack in the warehouse caused

damage to inventory worth about ` 1,00,000 (cost price) and became
un-saleable. The entire damaged inventory was on hand as at
31st March, 20X6. H Ltd. has not insured against any of the losses.
It accounts for all its property, plant and equipment under the cost
model. H Ltd.’s annual financial statements for the year ended
31st March, 20X6 were approved for issue by the Board of Directors on
28th May, 20X6.
You are required to :
(i) Prepare accounting entries to record the effects of the events
after the end of the reporting period in the accounting records of
H Ltd. for the year ended 31 st March, 20X6. Kindly ignore tax
impact.
(ii) Discuss disclosure requirement in above case as per relevant
Ind AS.
(iii) Will your answer be different if there was no structural fault and
damage to the warehouse had been caused by an event that
occurred after 31st March, 20X6?
Ind AS 36 ‘Impairment of Assets’
15. At 31st March, 20X1, the assets of a CGU are being reviewed for
impairment. The carrying value of the CGU’s net assets is `65 lakhs
(excluding any restructuring provision), and remaining useful economic
life of recognised asset is eight years.
Management’s approved budgets at 31st March, 20X1 include
restructuring costs of ` 3,50,000 to be incurred in 20X2; the
restructuring is expected to generate cost savings of ` 1,00,000 per
annum from 20X3 onwards. Formal budgets have been prepared for
the three years to 31st March, 20X4. A zero-growth rate is assumed,
because market conditions are extremely competitive, and this is
expected to continue for the foreseeable future. The future cash flow
estimates are as follows:

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FINANCIAL REPORTING
Year With restructuring Without restructuring

consideration consideration
` `
20X1-20X2 5,20,000 8,70,000

20X2-20X3 10,00,000 9,00,000
20X3-20X4 10,50,000 9,50,000
20X4-20X5 10,50,000 9,50,000
20X5-20X6 10,50,000 9,50,000
20X6-20X7 10,50,000 9,50,000
20X7-20X8 10,50,000 9,50,000
20X8-20X9 10,50,000 9,50,000
In 20X2, the net cash flows without restructuring (` 8,70,000) exceed

the net cash flows with restructuring (` 5,20,000) by the amount of the
restructuring costs (` 3,50,000).
The future cash flows (which exclude inflation) have been discounted at
a rate of 4%. For simplicity, it has been assumed that the cash flows
arise at the end of each year.
Compute Impairment Loss at 31st March, 20X1 when-
(i) Restructuring costs is recognised in the financial statements at
31st March, 20X1
(ii) Restructuring costs is not recognised in the financial statements
at 31st March, 20X1
Ind AS 38 ‘Intangible Assets’
16. SS Limited had the following transactions during the Financial Year
20X1-20X2.
(i) On 1 st April 20X1, SS Limited purchased the net assets of
M Limited for ` 13,20,000. The fair value of M Limited's
identifiable net assets was ` 10,00,000. SS Limited is of the view

REVISION TEST PAPER
FINAL EXAMINATION
that due to popularity of M Limited's product, the life of goodwill

is 10 years.
(ii) On 4th May 20X1, SS Limited purchased a Franchisee to organize
musical shows from A TV for `80,00,000 and at an annual fee of
2% of musical shows revenue. The Franchisee expires after
5 years. Musical shows revenue were ` 10,00,000 for financial
year 20X1-20X2. The projected future revenues for financial year
20X2-20X3 is ` 25,00,000 and ` 30,00,000 p.a. for remaining 3
years thereafter.
(iii) On 4th July 20X1, SS Limited was granted a Copyright that had
been applied for by M Limited. During the financial year 20X1-
20X2, SS Limited incurred `2,50,000 on legal cost to register the
Patent and ` 7,00,000 additional cost to successfully prosecute a
copyright infringement suit against a competitor. The life of the
Copyright is for 10 years.
SS Limited follows an accounting policy to amortize all intangible on
SLM (Straight Line Method) basis or any appropriate basis over a
maximum period permitted by relevant Ind AS, taking a full year
amortization in the year of acquisition.
You are required to prepare:
(i) A Schedule showing the intangible section in SS Limited Balance
Sheet as on 31st March 20X2, and
(ii) A Schedule showing the related expenses that would appear in
the Statement of Profit and Loss of SS Limited for the year ended
20X1-20X2.
Ind AS 16 ‘Property, Plant and Equipment’
17. On 1st October, 20X1, XY Ltd. completed the construction of a power
generating facility. The total construction cost was ` 2 crore. The
facility was capable of being used from 1st October, 20X1 but XY Ltd.
did not bring the facility into use until 1st January, 20X2. The estimated
useful life of the facility at 1st October, 20X1 was 40 years.
Under legal regulations in the jurisdiction in which XY Ltd. operates,
there are no requirements to restore the land on which power

REVISION TEST PAPER
FINANCIAL REPORTING
generating facilities stand to its original state at the end of the useful
life of the facility. However, XY Ltd. has a reputation for conducting its
business in an environmentally friendly way and has previously chosen
to restore similar land even in the absence of such legal requirements.
The directors of XY Ltd. estimated that the cost of restoring the land in
40 years’ time (based on prices prevailing at that time) would be
` 1 crore. A relevant annual discount rate to use in any discounting
calculations is 5%. When the annual discount rate is 5%, the present
value of ` 1 receivable in 40 years’ time is approximately 0.142.
Explain and show how the above event would be reported in the
financial statements of XY Ltd. for the year ended 31st March, 20X1.
Ignore comments on potential future reclassification issues.
Ind AS 23 ‘Borrowing Costs’
18. X Ltd. commenced the construction of a plant (qualifying asset) on
1st September, 20X1, estimated to cost ` 10 crores. For this purpose, X
Ltd. has not raised any specific borrowings, rather it intends to use
general borrowings, which have a weighted average cost of 11%. Total
borrowing costs incurred during the period, viz., 1 st September, 20X1 to
31st March, 20X2 were ` 0.5 crore.
The other relevant details are as follows: (` in crore)
Month Cost of Cash outflows

construction (paid in advance
accrued at the start of
each month)
September 1.50 3.00
October 0.50 1.70
November 1.50 2.50
December 0.50 —
January 1.80 1.00
February 0.70 —
March 3.00 1.50

REVISION TEST PAPER
FINAL EXAMINATION
What is the amount of interest that should be capitalised to the cost of

the plant in the financial statements for the year ended
31st March, 20X2?
Ind AS 110 ‘Consolidated Financial Statements’
19. On 1 st April 20X1, A Limited acquired 80% of the share capital of
S Limited. On the acquisition date the share capital and reserves of
S Ltd. stood at ` 5,00,000 and ` 1,25,000 respectively. A Limited paid
initial cash consideration of ` 10,00,000. Additionally, A Limited issued
2,00,000 equity shares with a nominal value of ` 1 per share at current
market value of ` 1.80 per share.
It was also agreed that A Limited would pay a further sum of ` 5,00,000
after three years. A Limited's cost of capital is 10%. The appropriate
discount factor for ` 1 @ 10% receivable at the end of
1st year: 0.91
2nd year: 0.83
3rd year: 0.75
The shares and deferred consideration have not yet been recorded by
A limited.
Below are the Balance Sheet of A Limited and S Limited as at
31st March, 20X3:
A Limited S Limited
(` 000) (` 000)
Non-current assets:
Property, plant & equipment 5,500 1,500
Investment in S Limited at cost 1,000
Current assets:
Inventory 550 100
Receivables 400 200
Cash 200 50
7,650 1,850

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FINANCIAL REPORTING
Equity:
Share capital 2,000 500
Retained earnings 1,400 300
3,400 800
Non-current liabilities 3,000 400
Current liabilities 1,250 650
7,650 1,850
Further information:
(i) On the date of acquisition, the fair values of S Limited's plant
exceeded its book value by ` 2,00,000. The plant had a remaining
useful life of five years at this date;
(ii) The consolidated goodwill has been impaired by ` 2,58,000; and
(iii) The A Limited Group, values the non-controlling interest using
the fair value method. At the date of acquisition, the fair value of
the 20% non-controlling interest was ` 3,80,000.
You are required to prepare Consolidated Balance Sheet of A Limited
as at 31st March, 20X3. (Notes to Account on Consolidated Balance
Sheet is not required).
Ind AS 111 ‘Joint Arrangements’
20. P Limited and Q Limited enter into a contractual arrangement to buy a
building that has 12 floors, which they will lease to other parties.
P Limited and Q Limited are authorised to lease five floors each.
P Limited and Q Limited can unilaterally make all decisions related to
their respective floors and are entitled to all of the income from those
floors. The remaining two floors will be jointly managed – all decisions
concerning these two floors must be unanimously agreed to between
P Limited and Q Limited who will share net profits or net losses in
respect of these two floors equally, i.e. they both have the rights to the
net assets of the arrangement. The leasing of property is determined
to be the relevant activity.
Whether this arrangement is a joint operation or a joint venture?

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FINAL EXAMINATION
SUGGESTED ANSWERS
Answer to Case Scenario I

1. Option (d): On 31st December, 20X6 by ` 1,00,000
2. Option (b): ` 2,500
3. Option (c): ` 1,02,500
Reason for 1 -3: Under the principles of Ind AS 115, revenue cannot
be recognised on 1st October 20X6 because at that date the
consideration is variable and the amount of the variable consideration
cannot be reliably estimated.
However, on 1st October 20X6 ` 80,000 would be removed from
inventory and included as a ‘right to recover asset’.
Revenue of ` 1,00,000 (the present value of ` 121,000 receivable in two

years) is recognised on 31st December, 20X6 when the uncertainty
regarding potential returns is resolved.
On the same day, the ‘right to recover asset’ will be de-recognised and
transferred to cost of sales.
D Ltd. will also recognise finance income of ` 2,500 (` 1,00,000 x 10% x
3/12) in the year ended 31st March 20X7.
At 31st March, 20X7, D Ltd. will recognise a trade receivable of
` 1,02,500 (` 1,00,000 + ` 2,500).
4. Option (a): ` 20,00,000
5. Option (b): ` 29,50,000
Reason for 4 & 5

The consideration payable by the customer is variable as it depends on
the volume of sales in the two‑year period. However, D Ltd. can reliably
estimate the outcome and that the volume discount threshold will not

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FINANCIAL REPORTING
be exceeded (sales for 9 months: 20,000 x 24/9 = 53,333). The revenue

included for the year ended 31st March, 20X6 will be booked at ` 100 per
unit and will be ` 20,00,000 (20,000 x ` 100).
During the year ended 31st March, 20X7, actual sales volumes and
estimates change such that the cumulative revenue should now be
booked at ` 90 per unit. It is now expected that the volume discount
threshold will be exceeded. This means that the cumulative revenue
relating to these goods at 31st March, 20X7 will be ` 49,50,000 ((20,000
+ 35,000) x ` 90).
The revenue which will actually be booked by D Ltd. for the year ended
31st March, 20X7 will be ` 29,50,000 (` 49,50,000 – ` 20,00,000
recognised in 20X5-20X6).
Answer to Case Scenario II

6. Option (c): ` 0.5 crore deducted from the profit of the year 20X6-20X7
Reason
Computation of net adjustment for defined benefit pension plan in the
statement of profit and loss
` in crore
Current service cost 6
Interest cost (8% x 18.75) 1.5
Contributions incorrectly charged to profit or loss (7)
So adjustment equals 0.5
7. Option (b): ` 1.25 crore

Reason
Computation of actuarial gain/(loss) on defined benefit pension plan
` in crore
Opening liability 18.75
Current service cost 6

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FINAL EXAMINATION
Interest cost 1.5

Contributions paid into plan (7)
19.25
Actuarial loss on re-measurement (balancing figure) 1.25
Closing liability 20.5
8. Option (a) : ` 0.78 crore

9. Option (c): ` 0.0392 crore
10. Option (a): ` 0.0468 crore
Reason for 8-10
Adjustment for restoration provision
` in crore
Originally required provision (2.5 crore x 0·312) 0.7800
One year’s unwinding of discount (0.78 x 6%) (0.0468)
One year’s depreciation of capitalised cost (0.78 x 1/20) (0.0390)
Original provision incorrectly made 0.1250
So retained earnings adjustment equals 0.0392
11. Paragraphs 51 and 51A of Ind AS 12, state that the measurement of
deferred tax liabilities and deferred tax assets shall reflect the tax
consequences that would follow from the manner in which the entity
expects, at the end of the reporting period, to recover or settle the
carrying amount of its assets and liabilities.
In some jurisdictions, the manner in which an entity recovers (settles)
the carrying amount of an asset (liability) may affect either or both of:
(a) the tax rate applicable when the entity recovers (settles) the
carrying amount of the asset (liability); and
(b) the tax base of the asset (liability).

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FINANCIAL REPORTING
In such cases, an entity measures deferred tax liabilities and deferred

tax assets using the tax rate and the tax base that are consistent with
the expected manner of recovery or settlement.”
The expectation of the entity at the end of the reporting period with
regard to the manner of recovery or settlement of its assets and
liabilities will require exercise of judgement based on evaluation of
facts and circumstances in each case. It may be relevant to consider
that there is substance to management’s expectation of the entity
being able to recover the asset through slump sale or otherwise.
Depending on the facts and circumstances, it is generally assumed that
the Company will act in the most economically advantageous way.
If a non-depreciable asset is measured using the revaluation model,
then an entity is required to measure the DTA/DTL considering the tax
consequences of recovering the carrying amount through sale.
Accordingly, based on assumption around supporting facts and
circumstances to support management expectation around recovery or
settlement, following will be the tax base for computing the deferred
tax assets/ liability, in the given case:
(i) X Ltd. intends to sell it as slump sale eventually after using it for
business purpose
If it is concluded based on evaluation of facts that the freehold
land will be sold through slump sale, then the tax base of the
land will be the same as the carrying amount of the land, as
indexation benefit is not available in case of slump sale and
hence there will not be any temporary difference.
(ii) X Ltd. intends to sell the land individually and not on a slump sale
basis
In the given scenario, the company intends to sell the land
individually and not on a slump sale such that the company
would get indexation benefit.
Thus, book base of land, i.e. carrying amount of freehold land in
the balance sheet is ` 10,00,000. As per paragraph 51A of
Ind AS 12, the tax base (amount that will be deductible for tax

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FINAL EXAMINATION
purposes against any taxable economic benefits that will flow to

the entity when it recovers the carrying amount of the asset) is
the indexed valued of ` 15,00,000 since the company intends to
sell the land individually and not on slump sale and thus get
indexation benefit. Deferred tax assets will be set up, subject to
recoverability, on a deductible tax difference of ` 5,00,000.
(iii) X Ltd. has classified such land as investment property and intends
to sell it individually and not on a slump sale
Paragraph 56 of Ind AS 40, Investment property, requires that
after initial recognition, an entity shall measure all of its
investment properties in accordance with the requirement for
cost model as per Ind AS 16, other than those that meet the
criteria to be classified as held for sale in accordance with
Ind AS 105, Non-current Assets Held for Sale and Discontinued
Operations. Ind AS 40 does not allow fair value model.
Accordingly, freehold land classified as investment property will
be measured at cost.
Thus, book base of land, i.e. carrying amount of freehold land in
the balance sheet is ` 10,00,000. The Company intends to sell the
land individually and not on a slump sale and thus get indexation
benefit. Hence, as per paragraph 51A of Ind AS 12, the tax base
(amount that will be deductible for tax purposes against any
taxable economic benefits that will flow to the entity when it
recovers the carrying amount of the asset) is the indexed valued
of ` 15,00,000. Accordingly, deferred tax assets will be set up,
subject to recoverability, on deductible tax difference of
` 5,00,000.
(iv) X Ltd. follows a revaluation model for freehold land and intends
to sell it individually and not on a slump sale. If X Ltd. follows a
revaluation model, carrying amount of freehold land in the
balance sheet would be ` 22,00,000. Thus, book base of land is
` 22,00,000.
The Company intends to sell the land individually and not on a
slump sale and thus get indexation benefit. Hence, as per
paragraph 51A of Ind AS 12, the tax base (amount that will be

REVISION TEST PAPER
FINANCIAL REPORTING
deductible for tax purposes against any taxable economic

benefits that will flow to the entity when it recovers the carrying
amount of the asset) is the indexed valued of ` 15,00,000.
Accordingly, deferred tax liability will be set up on taxable
temporary difference of ` 7,00,000.
As per paragraph 39 of Ind AS 16, if an asset’s carrying amount is
increased as a result of a revaluation, the increase shall be
recognised in other comprehensive income and accumulated in
equity under the heading of revaluation surplus. Accordingly, the
effect of deferred tax liability should also be recognised in other
comprehensive income as per paragraph 57 and 61A of Ind AS
12.
12. Case I
Scenario 1:
(i) As per paragraph B13 of Ind AS 116, ‘Last mile’ which is a
dedicated cable is an identified asset since it is physically distinct.
(ii) There are no substantive substitution rights with Entity Y, as it
does not have the practical ability to substitute alternative assets
throughout the period of use.
Thus, this arrangement is within the scope of Ind AS 116.
Scenario 2:
If Entity Y has the practical ability to replace the lines and it would
benefit from such replacement, Entity Y has substantive substitution
rights. In such case, this arrangement for the ‘last mile cable’ will not
be within the scope of Ind AS 116.
Case II
The fibers are specified in the contract and are physically distinct.
Hence, in accordance with paragraph B13 and B20, the said three fibers
are identified asset.
Paragraph B18, inter alia, states that, “the supplier’s right or obligation
to substitute the asset for repairs and maintenance, if the asset is not
operating properly or if a technical upgrade becomes available does

REVISION TEST PAPER
FINAL EXAMINATION
not preclude the customer from having the right to use an identified
asset.”
Further, paragraph B27 provides that although rights such as those to
operate or maintain an asset are often essential to the efficient use of
an asset, they are not rights to direct how and for what purpose the
asset is used and can actually be dependent on the decisions about
how and for what purpose the asset is used.
In accordance with the above, as Entity Y can substitute these three
distinct fibers only for reasons of repairs, maintenance or malfunction,
it does not preclude them from being an identified asset.
Further, the Customer X has right to control the use of the identified
fibers for 10 year since it has -
(a) the right to obtain substantially all of the economic benefits from
use of the identified fibers throughout the period of use, i.e., 10
years; and
(b) the right to direct the use of the fibers as it makes the decisions
about the use of the fibers, i.e., it has right to direct how and for
what purpose the fibers are used throughout the period of use.
Hence, this arrangement is within the scope of Ind AS 116.
Case III
Paragraph B20 specifically provides that a capacity or other portion of
an asset that is not physically distinct (for example, a capacity portion
of a fiber optic cable) is not an identified asset, unless it represents
substantially all of the capacity of the asset and thereby provides the
customer with the right to obtain substantially all of the economic
benefits from use of the asset. In the given case, the capacity portion
that will be provided to Customer X is not physically distinct from the
remaining capacity of the cable and does not represent substantially all
of the capacity of the cable, thus, it is not an identified asset. Further,
Entity Y makes all decisions about the transmission of data, (i.e.,
supplier lights the fibers, makes decisions about which fibers are used
to transmit customer’s traffic).

REVISION TEST PAPER
FINANCIAL REPORTING
Thus, the contract does not contain a lease and is therefore not within
the scope of Ind AS 116.
13. Contract 1:
As per contract 1, during the 3 years of the contract, ABC Ltd. only
harvests apples from the apple orchards whereas biological
transformation is managed by the owners of the apple orchards (i.e.
the lessor). Since ABC Ltd. is not involved in the biological
transformation of the apple orchards and is only harvesting biological
assets, it cannot be said to be an agricultural activity as per Ind AS 41.
Hence, ABC Ltd. is not engaged in agricultural activity as per Ind AS 41.
Contract 2:
As per contract 2, ABC Ltd. obtains the apple orchards and is actively
involved in the raising of apple trees in order to ensure that the apples
are as per its requirements. Since, it is actively managing the
biological transformation and harvest of biological asset. Hence,
ABC Ltd. is engaged in agricultural activity as per Ind AS 41.
14. (i) Journal Entries on 31 st March, 20X6
` `
Depreciation expense A/c (W.N.1) Dr. 19,608
To Warehouse or Accumulated 19,608
depreciation A/c
(Being additional depreciation expense
recognised for the year ended 31 st March
20X6 arising from the reassessment of the
useful life of the warehouse)
Impairment loss A/c (W.N.2) Dr. 2,47,059
To Warehouse or Accumulated 2,47,059
depreciation A/c
(Being impairment loss recognised due to
discovery of structural fault in the
construction of warehouse at 31st March,
20X6)

REVISION TEST PAPER
FINAL EXAMINATION
(ii) (a) The damage to warehouse is an adjusting event

(occurred after the end of the year 20X6-20X6) for the
reporting period 20X5-20X6, since it provides evidence that
the structural fault existed at the end of the reporting
period. It is an adjusting event, in spite of the fact that fault
has been discovered after the reporting date.
The effects of the damage to the warehouse are
recognised in the year 20X5-20X6 reporting period.
Prior periods will not be adjusted because those financial
statements were prepared in good faith (eg. regarding
estimate of useful life, assessment of impairment indicators
etc.) and had not affected the financials of prior years.
(b) Damage of inventory due to seepage of rainwater
` 1,00,000 occurred during the year 20X5-20X6. It is a non-
adjusting event after the end of the 20X5-20X6 reporting
period since the inventory was in good condition at
31st March 20X6. Hence, no accounting has been done for
it in the year 20X5-20X6.
H Ltd. must disclose the nature of the event (i.e. rain-
damage to inventories) and an estimate of the financial
effect (i.e. ` 1,00,000 loss) in the notes to its 31st March
20X6 annual financial statements.
(iii) If the damage to the warehouse had been caused by an event
that occurred after 31st March 20X6 and was not due to structural
fault, then it would be considered as a non-adjusting event
after the end of the reporting period 20X5-20X6 as the
warehouse would have been in a good condition at
31st March 20X6.
Working Notes:
1. Calculation of additional depreciation to be charged in the
year 20X5-20X6
Original depreciation as per SLM already charged during the year
20X5-20X6 = ` 10,00,000/ 30 years = ` 33,333.

REVISION TEST PAPER
FINANCIAL REPORTING
Carrying value at the end of 20X4-20X5 = 10,00,000 – (` 33,333 x

3 years) = ` 9,00,000
Revised depreciation = 9,00,000 / 17 years = ` 52,941
Additional depreciation to be recognised in the books in the year
20X5-20X6 = ` 52,941 – ` 33,333 = ` 19,608
2. Calculation of impairment loss in the year 20X5-20X6
Carrying value after charging depreciation for the year 20X5-20X6
= ` 9,00,000 – ` 52,941 = ` 8,47,059
Recoverable value of the warehouse = ` 6,00,000
Impairment loss = Carrying value - Recoverable value
= ` 8,47,059 - ` 6,00,000 = ` 2,47,059
15. Computation of present value of cash flows under both the
following conditions: (Amount in `)
Year Discount With restructuring Without restructuring

factor consideration coordination
Future net Present Future net Present
cash flows value cash flows value
(a) (b) (c)=(a)x(b) (d) (e)=(a)x(d)
20X1-20X2 0.962 5,20,000 5,00,000 8,70,000 8,36,000

20X2-20X3 0.925 10,00,000 9,25,000 9,00,000 8,32,000
20X3-20X4 0.889 10,50,000 9,33,000 9,50,000 8,45,000
20X4-20X5 0.855 10,50,000 8,98,000 9,50,000 8,12,000
20X5-20X6 0.822 10,50,000 8,63,000 9,50,000 7,81,000
20X6-20X7 0.790 10,50,000 8,30,000 9,50,000 7,51,000
20X7-20X8 0.760 10,50,000 7,98,000 9,50,000 7,22,000
20X8-20X9 0.730 10,50,000 7,67,000 9,50,000 6,94,000
Value in use 65,14,000 62,73,000

REVISION TEST PAPER
FINAL EXAMINATION
The impairment calculations at 31st March, 20X1 differ according to

whether or not provision for the restructuring costs is recognised in
the financial statements. This will depend on whether the requirements
of Ind AS 37 have been met for recognition.
(i) Provision for restructuring costs recognised at 31st March, 20X1
If provision has been made for restructuring costs, the costs and
benefits of the restructuring are taken into account in
determining the CGU’s value in use. Here, the post –
restructuring value in use (` 6,514,000) exceeds the CGU’s
carrying value (` 6,500,000 less restructuring provision of
` 350,000). Hence, there is no impairment of the CGU’s assets.
In the year to 31st March, 20X1, the financial statements reflect
the following charges.
Restructuring provision ` 350,000
Impairment loss Nil
(ii) No provision for restructuring costs recognised at 31st March, 20X1
If no provision for restructuring costs is permitted by Ind AS 37,
the costs and benefits of the restructuring have to be stripped
out of the projections in determining the CGU’s value in use.
Here, the CGU’s carrying value (` 65,00,000) exceeds its pre-
restructuring value in use (` 62,73,000). Therefore, there is an
impairment loss of ` 2,27,000.
In the year to 31st March, 20X1, the financial statements reflect
the following charges:
Restructuring provisions Nil
Impairment loss ` 2,27,000

REVISION TEST PAPER
FINANCIAL REPORTING
16. (i) SS Limited

Balance Sheet (Extract relating to intangible asset)
as at 31st March 20X2
Note No. `
Assets
(1) Non- current asset
Intangible assets 1 69,45,000
(ii) SS Limited
Statement of Profit and Loss (Extract)
for the year ended 31st March 20X2
Note No. `
Revenue from Operations 10,00,000

Total Revenue
Expenses:
Amortization expenses 2 16,25,000
Other expenses 3 7,20,000
Total Expenses
Notes to Accounts (Extract)

1. Intangible Assets
Gross Block (Cost) Accumulated amortisation Net block
Opening Additions Closing Opening Additions Closing Opening Closing
balance Balance balance Balance balance Balance
` ` ` ` ` ` ` `
1. Goodwill* - 3,20,000 3,20,000 - - - - 3,20,000

(W.N.1)
2. Franchise** - 80,00,000 80,00,000 - 16,00,000 16,00,000 - 64,00,000
(W.N.2)
3. Copyright
(W.N.3) - 2,50,000 2,50,000 - 25,000 25,000 - 2,25,000
- 85,70,000 85,70,000 - 16,25,000 16,25,000 - 69,45,000

REVISION TEST PAPER
FINAL EXAMINATION
*As per Ind AS 36, irrespective of whether there is any indication of

impairment, an entity shall test goodwill acquired in a business
combination for impairment annually. This implies that goodwill is
not amortised annually but is subject to annual impairment, if any.
**As per the information in the question, the limiting factor in the
contract for the use is time i.e., 5 years and not the fixed total
amount of revenue to be generated. Therefore, an amortisation
method that is based on the revenue generated by an activity that
includes the use of an intangible asset is inappropriate and
amortisation based on time can only be applied.
2. Amortization expenses
Franchise (W.N.2) 16,00,000
Copyright (W.N.3) 25,000 16,25,000
3. Other expenses
Legal cost on copyright 7,00,000
Fee for Franchise (10,00,000 x 2%) 20,000 7,20,000
Working Notes:
`
(1) Goodwill on acquisition of business
Cash paid for acquiring the business 13,20,000
Less: Fair value of net assets acquired (10,00,000)
Goodwill 3,20,000
(2) Franchise 80,00,000
Less: Amortisation (over 5 years) (16,00,000)
Balance to be shown in the balance sheet 64,00,000
(3) Copyright 2,50,000
Less: Amortisation (over 10 years as per SLM) (25,000)
Balance to be shown in the balance sheet 2,25,000

REVISION TEST PAPER
FINANCIAL REPORTING
17. The facility is depreciated from the date it is ready for use, rather than
when it actually starts being used. In this case, then, the facility is
depreciated from 1st October, 20X1.
Although XY Ltd. has no legal obligation to restore the piece of land, it
does have a constructive obligation, based on its past practice and
policies.
The amount of the obligation will be ` 14,20,000 being the present
value of the anticipated future restoration expenditure (1,00,00,000 x
0.142).
This will be recognised as a provision under non-current liabilities in
the balance sheet of XY Ltd. at 31st March, 20X2.
As time passes the discounted amount unwinds. The unwinding of the
discount for the year ended 31 st March, 20X2 will be ` 35,500
(14,20,000 x 5% x 6/12).
The unwinding of the discount will be shown as a finance cost in the
statement of profit and loss and the closing provision will be
` 14,55,500 (14,20,000 + 35,500).
The initial amount of the provision is included in the carrying amount
of the non-current asset, which becomes ` 2,14,20,000 (2,00,00,000 +
14,20,000).
The depreciation charge in profit or loss for the year ended
31st March, 20X2 is ` 2,67,750 (2,14,20,000 x 1/40 x 6/12).
The closing balance included in non-current assets will be ` 2,11,52,250
(2,14,20,000 – 2,67,750).
18. Paragraph 14 of Ind AS 23, inter-alia, states that to the extent that an
entity borrows funds generally and uses them for the purpose of
obtaining a qualifying asset, the entity shall determine the amount of
borrowing costs eligible for capitalisation by applying a capitalisation
rate to the expenditures on that asset. The capitalisation rate shall be
the weighted average of the borrowing costs applicable to all
borrowings of the entity that are outstanding during the period.
However, an entity shall exclude from this calculation borrowing costs
applicable to borrowings made specifically for the purpose of

REVISION TEST PAPER
FINAL EXAMINATION
obtaining a qualifying asset until substantially all the activities

necessary to prepare that asset for its intended use or sale are
complete. The amount of borrowing costs that an entity capitalises
during a period shall not exceed the amount of borrowing costs it
incurred during that period.
In this context, a question arises whether such expenditure should be
based on costs accrued or actual cash outflows. To contrast these two
alternatives, presented below is the computation of borrowing costs
based on both the alternatives:
Month Costs Average capital Cash Average capital

accrued expenditure outflows expenditure
September 1.50 1.50x7/12 = 0.875 3.00 3.00x7/12=1.75
October 0.50 0.50x6/12 = 0.25 1.70 1.70x6/ 12 = 0.85
November 1.50 1.50x5/12 = 0.625 2.50 2.50x5/12 = 1.04
December 0.50 0.50x4/12 = 0.17 - -
January 1.80 1.80x3/12 = 0.45 1.00 1x3/12 = 0.25
February 0.70 0.70x2/12 = 0.12 - -
March 3.00 3.00x1/12 = 0.25 1.50 1.50x1/12 = 0.13
9.50 2.74 9.70 4.02
If the average capital expenditure on the basis of costs accrued is

taken, the borrowing costs eligible to be capitalised would be
` 2.74 crore x 11% = 0.30 crore. Whereas if average capital
expenditure on the basis of cash flows is taken, the borrowing costs
eligible to be capitalised would be ` 4.02 crore x 11% = 0.44 crore.
Thus, there is a wide variance in the amount of borrowing cost to be
capitalised, based on the accrual basis and on actual cash flows basis.
In this regard, paragraph 18 of Ind AS 23 states that expenditures on a
qualifying asset include only those expenditures that have resulted in
payments of cash, transfers of other assets or the assumption of
interest-bearing liabilities. Expenditures are reduced by any progress
payments received and grants received in connection with the asset
(see Ind AS 20, Accounting for Government Grants and Disclosure of
Government Assistance). The average carrying amount of the asset

REVISION TEST PAPER
FINANCIAL REPORTING
during a period, including borrowing costs previously capitalised, is

normally a reasonable approximation of the expenditures to which the
capitalisation rate is applied in that period.
Where cash has been paid but the corresponding cost has not yet
accrued interest becomes payable on payment of cash. Therefore, the
amount so paid should be considered for determining the amount of
interest eligible for capitalisation, subject to the fulfillment of other
conditions prescribed in paragraph 16 of Ind AS 23. Accordingly, in
the present case, interest should be computed on the basis of the cash
flows rather than on the basis of costs accrued. Therefore, the amount
of interest eligible for capitalisation would be ` 0.44 crore.
Another important factor to be noted is that paragraph 14 requires,
inter alia, that the amount of borrowing costs that an entity capitalises
during a period shall not exceed the amount of borrowing costs it
incurred during that period.
Thus, the amount of borrowing costs to be capitalised should not
exceed the total borrowing costs incurred during the period, that is
` 0.5 crore.
19. Consolidated Balance Sheet of A Ltd. and its subsidiary, S Ltd.
as at 31st March, 20X3
Particulars ` in 000s
I. Assets
(1) Non-current assets
(i) Property Plant & Equipment (W.N.4) 7,120.00
(ii) Intangible asset – Goodwill (W.N.3) 1,032.00
(2) Current Assets
(i) Inventories (550 + 100) 650.00
(ii) Financial Assets
(a) Trade Receivables (400 + 200) 600.00
(b) Cash & Cash equivalents (200 + 50) 250.00
Total Assets 9,652.00

REVISION TEST PAPER
FINAL EXAMINATION
II. Equity and Liabilities
(1) Equity
(i) Equity Share Capital (2,000 + 200) 2,200.00
(ii) Other Equity
(a) Retained Earnings (W.N.6) 1190.85
(b) Securities Premium 160.00
(2) Non-Controlling Interest (W.N.5) 347.40
(3) Non-Current Liabilities (3,000 + 400) 3,400.00
(4) Current Liabilities (W.N.8) 2,353.75
Total Equity & Liabilities 9,652.00
Notes:
1. Since the question required not to prepare Notes to Account, the
column of Note to Accounts had not been drawn.
2. It is assumed that shares were issued during the year 20X2-20X3
and entries are yet to be made.
Working Notes:
1. Calculation of purchase consideration at the acquisition date
i.e. 1 st April, 20X1
` in 000s
Payment made by A Ltd. to S Ltd.
Cash 1,000.00
Equity shares (2,00,000 shares x `1.80) 360.00
Present value of deferred consideration
(`5,00,000 x 0.75) 375.00
Total consideration 1,735.00

REVISION TEST PAPER
FINANCIAL REPORTING
2. Calculation of net assets i.e. net worth at the acquisition date

i.e. 1 st April, 20X1
` in 000s
Share capital of S Ltd. 500.00
Reserves of S Ltd. 125.00
Fair value increase on Property, Plant and
Equipment 200.00
Net worth on acquisition date 825.00
3. Calculation of Goodwill at the acquisition date i.e.

1st April, 20X1 and 31st March, 20X3
ìn 000s
Purchase consideration (W.N.1) 1,735.00
Non-controlling interest at fair value (as given in
the question) 380.00
2,115.00
Less: Net worth (W.N.2) (825.00)
Goodwill as on 1st April 20X1 1,290.00
Less: Impairment (as given in the question) (258.00)
Goodwill as on 31 March 20X3
st
1,032.00
4. Calculation of Property, Plant and Equipment as on

31 st March 20X3
ìn 000s
A Ltd. 5,500.00
S Ltd. 1,500.00
Add: Net fair value gain
not recorded yet 200.00
Less: Depreciation
[(200/5) x 2] (80.00) 120.00 1,620.00
7,120.00

REVISION TEST PAPER
FINAL EXAMINATION
5. Calculation of post-acquisition gain (after adjustment of

impairment on goodwill) and value of NCI as on
31st March 20X3
` `
in 000s in 000s
NCI A Ltd.
(20%) (80%)
Acquisition date balance 380.00 Nil
Closing balance of Retained Earnings 300.00
Less: Pre-acquisition balance (125.00)
Post-acquisition gain 175.00
Less: Additional Depreciation
on PPE [(200/5) x 2] (80.00)
Share in post-acquisition gain 95.00 19.00 76.00
Less: Impairment on goodwill 258.00 (51.60) (206.40)
347.40 (130.40)
6. Consolidated Retained Earnings as on 31st March 20X3
ìn 000s
A Ltd. 1,400.00
Add: Share of post-acquisition loss of S Ltd. (130.40)
(W.N.5)
Less: Finance cost on deferred consideration (37.5
+ 41.25) (W.N.7) (78.75)
Retained Earnings as on 31 March 20X3
st
1,190.85
7. Calculation of value of deferred consideration as on
31 st March 20X3
ìn 000s
Value of deferred consideration as on
1st April 20X1 (W.N.1) 375.00
Add: Finance cost for the year 20X1-20X2
(375 x 10%) 37.50
412.50

REVISION TEST PAPER
FINANCIAL REPORTING
Add: Finance cost for the year 20X2-20X3

(412.50 x 10%) 41.25
Deferred consideration as on 31st March 20X3 453.75
8. Calculation of current Liability as on 31st March 20X3
ìn 000s
A Ltd. 1,250.00
S Ltd. 650.00
Deferred consideration as on 31st March 20X3
(W.N.7) 453.75
Current Liability as on 31st March 20X3 2,353.75
20. Paragraphs 15-17 of Ind AS 111 state that a joint operation is a joint
arrangement whereby the parties that have joint control of the
arrangement have rights to the assets and obligations for the liabilities,
relating to the arrangement. Those parties are called joint operators.
Further, a joint venture is a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of
the arrangement. Those parties are called joint venturers.
Furthermore, an entity applies judgement when assessing whether a
joint arrangement is a joint operation or a joint venture. An entity shall
determine the type of joint arrangement in which it is involved by
considering its rights and obligations arising from the arrangement.
An entity assesses its rights and obligations by considering the
structure and legal form of the arrangement, the terms agreed by the
parties in the contractual arrangement and, when relevant, other facts
and circumstances.
In the given case, accounting by P Limited and Q Limited would be as
follows:
(i) Five floors that P Limited controls
Five floors that are controlled by P Limited shall be accounted for
by P Limited as investment property under Ind AS 40, Investment
Property, which defines the term ‘investment property’ as

REVISION TEST PAPER
FINAL EXAMINATION
property (land or a building—or part of a building—or both) held

(by the owner or by the lessee under a finance lease) to earn
rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for
administrative purposes; or
(b) sale in the ordinary course of business.
(ii) Five floors that Q Limited controls
Five floors that are controlled by Q Limited shall be accounted for
by Q Limited as investment property under Ind AS 40.
(iii) Two floors that P Limited and Q Limited jointly control
For the two floors that are jointly controlled by P Limited and
Q Limited, as per the contractual arrangement, both P Limited
and Q Limited will share net profits or net losses equally i.e. they
both have the rights to the net assets of the arrangement. Thus,
the arrangement in respect of these two floors is a joint venture
and shall be accounted for accordingly by P Limited and
Q Limited.

PAPER – 2
ADVANCED FINANCIAL
MANAGEMENT
QUESTIONS
Portfolio Management
1. Two friend Mr. A and Mr. N were discussing about the risks of market.
While Mr. A is sort of risk averse, Mr. N is an aggressive investor and
believes in taking risk.
Mr. N said we cannot diversify the market risk at all, and he quoted the
Modern Portfolio Approach. Both friends analyze the market data for the
few months and came out with expected returns on two stocks for a
particular market.
Market Return Aggressive Defensive

7% 4% 9%
25% 40% 18%
Based on above scenario, answer the following questions:

I. The Beta of Defensive stock is…………
(a) 2
(b) 0.5
(c) 4
(d) 1
II. If the market return is equally likely to be 7% or 25% then
expected return of Aggressive stock shall be……..
(a) 18%
REVISION TEST PAPER
FINAL EXAMINATION
(b) 13.50%
(c) 22%
(d) 11%
III. The Alpha of the Defensive stocks is……………….
(a) -10%
(b) 22%
(c) 5.50%
(d) 12%
IV. The Modern Portfolio Theory was propounded by …………………
(a) William Sharpe
(b) Black Scholes
(c) Stephen Ross
(d) Harry Markowitz
V. As per Capital Market Line (CML) Theory the Portfolios lying on the
CML over the market portfolio are called ……………….
(a) Lending Portfolios
(b) Borrowing Portfolios
(c) Diversified Portfolios
(d) Risk- Free Portfolios
Mutual Funds
2. Mr. X on 1.7.2021, during the initial offer of some Mutual Fund invested
in 10,000 units having face value of ` 10 for each unit. On 31.3.2022, the
dividend paid by the M.F. was 10% and Mr. X found that his annualized
yield was 153.33%. On 31.12.2023, 20% dividend was given. On
31.3.2024, Mr. X redeemed all his balance of 11,296.11 units when his
annualized yield was 73.52%.

REVISION TEST PAPER
ADVANCED FINANCIAL MANAGEMENT
Based on the above information answer the following questions:

I. NAV per unit of the Fund as on 31.03.2022 shall be
approximately………………
(a) ` 19.50
(b) ` 20.50
(c) ` 21.50
(d) ` 22.50
II. Total number of units as on 31.03.2022 shall be

approximately………….
(a) 10487.80 units
(b) 12585.65 units

(c) 9465.35 units
(d) 11575.40 units
III. Total Dividend received by Mr. X as on 31.03.2023 shall be
………………
(a) ` 20,625.50
(b) ` 20,870.45
(c) ` 20,975.60
(d) ` 21,565.75
IV. NAV per unit as on 31.03.2023 shall be approximately………………
(a) ` 24.65
(b) ` 24.85
(c) ` 25.95
(d) ` 26.45
V. NAV as on 31.03.2024 shall be approximately………………
(a) ` 20.50

REVISION TEST PAPER
FINAL EXAMINATION
(b) ` 25.95
(c) ` 26.75
(d) ` 27.20
Derivatives Analysis and Valuation

3. Mr. H is holding 100 equity shares of V Ltd. which is being quoted at
` 2,100 per share. He is interested in hedging downside risk of his
holding as he is going to sell them after 2 months. A 2-month Call
option is available at a premium of ` 60 per share and a 2-month put
option is available at a premium of ` 50 per share. The strike price in
both cases is ` 2,200. You are required to:
(i) Suggest the position Mr. H should take in the option market to
hedge his holding in the V Ltd.
(ii) Calculate his final position if after 2 months i.e., on the day of
exercise the actual market price of per share of V Ltd. happens to
be ` 2000, ` 2100, ` 2200, ` 2300 and ` 2400.
4. Mr. S has a portfolio of ` 50 lacs which he wants to invest in share
market with rebalancing target after every 15 days to start with for a
period of one month from now. The present NIFTY is 17025. The
minimum NIFTY within a month can at most be 15322.50. He wants to
know as to how he should rebalance his portfolio under the following
situations, according to the theory of Constant Proportion Portfolio
Insurance Policy, using "2" as the multiplier:
(a) Immediately to start with.
(b) 15 days later-being the 1st day of rebalancing if NIFTY falls to
16321.89.
(c) 15 days further from the above date if the NIFTY touches 17512.14.
Note: 1. Assume that the value of his equity component will change in
tandem with that of the NIFTY.
2. Round off calculations upto whole numbers.

REVISION TEST PAPER
Business Valuation
5. Compute EVA of X Ltd. with the help of following information:
Profit and Loss Statement ` lac Balance Sheet ` lac

Revenue 1500 PPE 1500
Direct Costs -585 Current Assets 450
Selling, General & Admin. -300 1950
Exp. (SGA)
EBIT 615 Equity 1050
Interest -15 Reserves 150
EBT 600 Non-Current
Borrowings 150
Tax Expense @30% -180 Current Liabilities &
Provisions 600
EAT 420 1950
Assume that Bad Debts provision of ` 30 Lac is included in the SGA, and
same amount is reduced from the trade receivables in current assets.
Also assume that the pre-tax Cost of Debt is 12% and Equity
shareholder’s expected return is 10%.
Note: Make calculation in ` lac and round off up to 2 decimal points.
Foreign Exchange Exposure and Risk Management
6. PKR Ltd. has made purchases worth USD 8,00,000 on 1st May 2020 for
which it has to make a payment on 1st November 2020. The present
exchange rate is INR/USD 75. The company can purchase forward dollars
at INR/USD 74. The company will have to make an upfront premium @ 1
per cent of the forward amount purchased.
The company can hedge its position with the following expected rate of
USD in foreign exchange market on 1st May 2020:
PKR Ltd. has made purchases worth USD 8,00,000 on 1st May 2020 for
which it has to make a payment on 1st November 2020. The present
exchange rate is INR/USD 75. The company can purchase forward dollars

REVISION TEST PAPER
FINAL EXAMINATION
at INR/USD 74. The company will have to make an upfront premium @ 1

per cent of the forward amount purchased.
The company can hedge its position with the following expected rate of
USD in foreign exchange market on 1st May 2020:
Exchange Rate Probability
(i) INR/USD 77 0.15
(ii) INR/USD 71 0.25
(iii) INR/USD 79 0.20
(iv) INR/USD 74 0.40
You are required to advise the company for a suitable cover for risk
assuming that the cost of funds to PKR Ltd. is 10 per cent per annum.
7. You as a dealer in foreign exchange have the following position in GBP
on 31st October, 2019:
GBP
Balance in the Nostro A/c Credit 2,00,000
Opening Position Overbought 1,00,000
Purchased a bill on London 1,60,000
Sold forward TT 1,20,000
Forward purchase contract cancelled 60,000
Remitted by TT 1,50,000
Draft on London cancelled 60,000
Decide the steps would you take, if you are required to maintain a credit
Balance of GBP 65,000 in the Nostro A/c and keep as oversold position
on GBP 20,000?
Advanced Capital Budgeting Decisions
8. JB Consultancy Group has determined relative utilities of cash flows of
two forthcoming projects of its client company as follows:
Cash Flow in ` -150000 -100000 -40000 150000 100000 50000 10000

Utilities -100 -60 -3 40 30 20 10

REVISION TEST PAPER
The distribution of cash flows of project X and Project Y are as follows:
Project X
Cash Flow (`) -150000 - 100000 150000 100000 50000
Probability 0.10 0.20 0.40 0.20 0.10
Project Y
Cash Flow (`) - 100000 -40000 150000 50000 100000
Probability 0.10 0.15 0.40 0.25 0.10
Which project should be selected and why?
Interest Rate Risk Management
9. B Bank Ltd. has entered into a plain vanilla swap through on Overnight
Index Swap (OIS) on a principal of ` 10 crore and agreed to receive
MIBOR overnight floating rate for a fixed payment on the principal. The
swap was entered into on Monday, 10th July 2017 and was to
commence on and from 11th July 2017 and run for a period of 7 days.
Respective MIBOR rates for Tuesday to Monday were:
8.75%, 9.15%, 9.12%, 8.95%, 8.98% and 9.15%.
If B Bank Ltd. received ` 4,170 net on settlement, calculate fixed rate and
interest under both legs.
Notes:
(i) Sunday is a holiday
(ii) Work in rounded rupees and avoid decimal working
(iii) Consider 365 days in a year.
Security Valuation
10. The Bank PK enters into a Repo for 9 days with Bank JJ in 6%
Government Bonds 2022 for an amount of ` 20 crore. The other relevant
details are as follows:
First Leg Payment (Start Proceed) ` 20,00,67,500

Second Leg Payment (Repayment Proceed) ` 20,03,17,590
Initial Margin 1.25%
Days of accrued interest 240

REVISION TEST PAPER
FINAL EXAMINATION
Assume 360 days in a year.

Calculate:
(a) Repo Rate
(b) Dirty Price and
(c) Clean Price
11. Mr. A is holding 10000 shares of face value of ` 100 each of M/s. XYZ
Ltd. He wants to hold these shares for long term and have no intention
to sell.
On 1st January 2020, M/s. ABC Ltd. has made short sales of M/s. XYZ
Ltd.’s shares and approached Mr. A to lend his shares under Stock
Lending Scheme with following terms:
(1) Shares to be borrowed for 3 months from 01-01-2020 to 31-03-
2020,
(2) Lending Charges/Fees of 1% to be paid every month on the
closing price of the stock quoted in Stock Exchange and
(3) Bank Guarantee will be provided as collateral for the value as on
01-01-2020.
Other Information:
(a) Cost of Bank Guarantee is 8% per annum,
(b) On 29-02-2020 M/s XYZ Ltd., declared dividend of 25%,
(c) Closing price of M/s. XYZ Ltd.’s share quoted in Stock Exchange on
various dates are as follows:
Date Share Price in Share Price in

Scenario -1 Bullish Scenario -2 Bullish
01-01-2020 1000 1000
31-01-2020 1020 980
29-02-2020 1040 960
31-03-2020 1050 940

REVISION TEST PAPER
You are required to find out:

(i) Earning of Mr. A through Stock Lending Scheme in both the
scenarios,
(ii) Total Earnings of Mr. A during 01-01-2020 to 31-03-2020 in both
the scenarios,
(iii) What is the Profit or loss to M/s. ABC by shorting the shares using
through Stock Lending Scheme in both the scenarios?
Mergers and Acquisitions
12. L Ltd., is planning to acquire T Ltd., with the following data available for
both the companies:
L Ltd. T Ltd.
Expected EPS ` 12 `5
Expected DPS ` 10 `3
No. of Shares 30,00,000 18,00,000
Current Market Price of Share ` 180 ` 50
As per an estimate T Ltd., is expected to have steady growth of earnings

and dividends to the tune of 6% per annum. However, under the new
management the growth rate is likely to be enhanced to 8% per annum
without additional investment.
You are required to:
(i) Calculate the net cost of acquisition by L Ltd., if ` 60 is paid for
each share of T Ltd.
(ii) If the agreed exchange ratio is one share of L Ltd., for every three
shares of T Ltd., in lieu of the cash acquisition as per (i) above,
what will be the net cost of acquisition?
(iii) Calculate Gain from acquisition.
International Financial management
13. The Management of a multinational company TL Ltd. is engaged in
construction of Infrastructure Project. A proposal to construct a Toll
Road in Nepal is under consideration of the Management.

REVISION TEST PAPER
FINAL EXAMINATION
The following information is available:

 The initial investment will be in purchase of equipment costing USD
250 lakhs. The economic life of the equipment is 10 years. The
depreciation on the equipment will be charged on straight line
method.
 EBIDTA to be collected from the Toll Road is projected to be USD 33
lakhs per annum for a period of 20 years.
 To encourage investment Nepalese government is offering a 15-year
term loan of USD 150 lakhs at an interest rate of 6 per cent per
annum. The interest is to be paid annually. The loan will be repaid at
the end of 15 year in one tranche.
 The required rate of return for the project under all equity financing is
12 per cent per annum.
 Post tax cost of debt is 5.6 per cent per annum.
 Corporate Tax Rate is 30 per cent.
 All cash Flows will be in USD.
You are required to advise the management of TL Ltd. on the viability of
the proposal by using Adjusted Net Present Value method. Ignore
inflation.
Given
PVIFA (12%, 10) = 5.650, PVIFA (12%, 20) = 7.469, PVIFA (8%,15) = 8.559,
PVIF (8%, 15) = 0.315.
Note: Make calculations in USD Lakhs and round off them upto 3
decimal points.
Theoretical Questions
14. Explain the types of tests that can be employed to empirically verify the
weak form of Efficient Market Theory.
15. Explain the concept of ‘Unicorn’. Also mention the name of the startup
became the India’s first Unicorn.

REVISION TEST PAPER
SUGGESTED ANSWERS/HINTS
1.
I (b)
II (c)
III (c)
IV (d)
V (c)
2.
I (b)
II (a)
III (c)
IV (c)
V (c)
3. (i) Since Mr. H holds 100 equity shares, he should buy equal no. of Put
option i.e. 100 put options in the same stock to hedge his position.
Total Premium amount to be paid = 50 x 100 Put = ` 5,000
(ii) Net Position after 2-months
(`)
Share price on 2,000 2,100 2,200 2,300 2,400
exercise day
Option Yes Yes No No No
exercise
Inflow (strike 2,200 2,200 Nil Nil Nil
price)
Inflow (in open - - 2,200 2,300 2,400
market)
Less outflow 50 50 50 50 50
(premium)

REVISION TEST PAPER
FINAL EXAMINATION
Position (per 2,150 2,150 2,150 2,250 2,350

share)
Total Position 2,15,000 2,15,000 2,15,000 2,25,000 2,35,000
Thus, from above table it can be observed in any case the value of
holding of Mr. H in V Ltd. shall not go below ` 2,150 per share.
17025-15322.50
4. Maximum decline in one month = ×100 = 10%
17025
(a) Immediately to start with
Investment in equity = Multiplier x (Portfolio value – Floor value)
= 2 (` 50,00,000 – ` 45,00,000) = ` 10,00,000
Mr. S may invest ` 10,00,000 in equity and balance in risk free
securities.
(b) After 15 days
Value of equity = 10,00,000 x 16321.89 / 17025 = ` 9,58,701
Value of risk free investment ` 40,00,000
Total value of portfolio = ` 49,58,701
= 2 (` 49,58,701 – ` 45,00,000) = ` 9,17,402
Revised Portfolio:
Equity = ` 9,17,402
Risk free Securities = ` 49,58,701 – ` 9,17,402 = ` 40,41,299
(3) After another 15 days
Value of equity = 9,17,402 x 17512.14 / 16321.89 = ` 9,84,302
Value of risk free investment = ` 40,41,299
Total value of portfolio = ` 50,25,601
= 2 (` 50,25,601 – ` 45,00,000) = ` 10,51,202

REVISION TEST PAPER
Revised Portfolio:
Equity = ` 10,51,202
Risk Free Securities = ` 50,25,601 – ` 10,51,202 = ` 39,74,399
Thus, Mr. S should off-load ` 66,900 of risk free securities and
divert to Equity.
5. Working Notes:
(a) Computation of NOPAT
` Lac
EBIT 615.00
Less: Taxes -184.50
Add: Non-Cash Expenses 30.00
NOPAT 460.50
(b) Computation of Invested Capital:
` Lac
Total Assets 1950
Less: Non Interest bearing liabilities -600
1350
Add: Non Cash adjustment 30
Invested Capital 1380
Note: It is assumed that the current liabilities also include the 180
of tax liability.
(c) Computation the WACC
WACC = Cost of equity + Cost of debt
= (1200/1350*10%) + [150/1350*12% (1 - 0.30)]
= 8.89% + 0.933% = 9.82%
(d) Capital Charge = Invested Capital * WACC
= ` 1380 lac * 9.82% = ` 135.52 lac

REVISION TEST PAPER
FINAL EXAMINATION
The formula for computing Economic Value Added:

EVA = Adjusted NOPAT – Capital Charge.
Accordingly, EVA of X Ltd. is
= ` 460.50 lac – ` 135.52 lac = ` 324.98 lac
6. (i) If PKR Ltd. does not take forward cover (Unhedged Position):
Expected Rate = ` 77 × 0.15 + ` 71 × 0.25 + ` 79 × 0.20 + ` 74 ×
0.40
= ` 11.55 + ` 17.75 + ` 15.80 + ` 29.60 = ` 74.70
Expected Amount Payable = USD 8,00,000 × ` 74.70 =
` 5,97,60,000
(ii) If the PKR Ltd. hedge its position in the forward market:
Particulars Amount (`)

If company purchases US$ 8,00,000 forward 5,92,000
premium is (800000 × 74 × 1%)
Interest on ` 5,92,000 for 6 months at 10% 29,600
Total hedging cost (a) 6,21,600
Amount to be paid for US$ 8,00,000 @ ` 74.00 (b) 5,92,00,000
Total Cost (a) + (b) 5,98,21,600
Advice: Since cash outflow is lesser in case of unhedged position

company should opt for the same.
7. (i) Exchange Position:
Particulars Purchases Sales

(GBP) (GBP)
Opening Balance Overbought 1,00,000
Bill on London 1,60,000
Forward Sales – TT 1,20,000
Cancellation of Forward Contract 60,000
TT Sales 1,50,000

REVISION TEST PAPER
Draft on London cancelled 60,000 —

3,20,000 3,30,000
Closing Balance Oversold 10,000 —
3,30,000 3,30,000
(ii) Cash Position (Nostro A/c)
Credit Debit
Opening balance credit 2,00,000 —
TT sales — 1,50,000
2,00,000 1,50,000
Closing balance (credit) — 50,000
2,00,000 2,00,000
The Bank has to buy spot TT GBP 15,000 to increase the balance in
Nostro account to GBP 65,000.
This would bring the overbought position on GBP to 5,000.
Since the bank requires an oversold position of GBP 20,000, it has to
sell forward GBP 25,000.
8. Evaluation of project utilizes of Project X and Project Y
Project X
Cash flow (in `) Probability Utility Utility value
-1,50,000 0.10 -100 -10
-1,00,000 0.20 -60 -12
1,50,000 0.40 40 16
1,00,000 0.20 30 6
50,000 0.10 20 2
2

REVISION TEST PAPER
FINAL EXAMINATION
Cash flow (in `) Project Y

Probability Utility Utility value
-1,00,000 0.10 -60 -6
-40,000 0.15 -3 -0.45
1,50,000 0.40 40 16
50,000 0.25 20 5
1,00,000 0.10 30 3
17.55
Project Y should be selected as its expected utility is more.

9.
Day Principal (`) MIBOR (%) Interest (`)

Tuesday 10,00,00,000 8.75 23,973
Wednesday 10,00,23,973 9.15 25,075
Thursday 10,00,49,048 9.12 24,999
Friday 10,00,74,047 8.95 24,539
Saturday & Sunday (*) 10,00,98,586 8.98 49,254
Monday 10,01,47,840 9.15 25,106
Total Interest @ Floating 1,72,946
Less: Net Received 4,170
Expected Interest @ fixed 1,68,776
Thus, Fixed Rate of Interest 0.0880046
Approx. 8.80%**
(*) i.e. interest for two days.

(**) ` 10 crore x ‘X’/100 x 7/365 = ` 1,68,776
1,68,776 x 365 x 100
Hence, X =
1 cr. × 7
= 8.80%

REVISION TEST PAPER
 No. of days 
10. (1) Second Leg = Start Proceed x 1+Repo Rate× 
 360 
 9 
` 20,03,17,590 = ` 20,00,67,500 x 1+Repo Rate× 
 360 
 9 
1.00125 = 1+Repo Rate×
 360 
Repo Rate = 0.05 = 5%

Dirty Price 100-Initial Margin
(2) First Leg (Start Proceed) = Nominal Value × ×
100 100
Dirty Price 100-1.25

` 20,00,67,500 = ` 20,00,00,000 x ×
100 100
10003.375 = 98.75 x Dirty Price
Dirty Price = ` 101.30
(3) Dirty Price = Clean Price + Interest Accrued
240
` 101.30 = Clean Price + 100× ×6%
360
Clean Price = ` 97.30
11. Earnings of Mr. A through stock lending scheme
Scenario 1 Scenario 2
(i) Lending fee
31-01-20 1020 x 1% and 980 x 1% 10.20 9.80
29-02-20 1040 x 1% and 960 x 1% 10.40 9.60
31-03-20 1050 x 1% and 940 x 1% 10.50 9.40
Earnings from lending per Share (A) 31.10 28.80
Total No. of Shares 10000 10000
Total Earning from Lending 3,11,000 2,88,000
(ii) Dividend income per Share (B) 25.00 25.00
Total earnings per share (A) + (B) 56.10 53.80

REVISION TEST PAPER
FINAL EXAMINATION
Total Earning 5,61,000 5,38,000

(iii) Gain on shortening the shares
(1,050 - 1,000) and (1,000 - 940) (50.00) 60.00
Lending fees paid per share (31.10) (28.80)
Bank guarantee charges @ 8% p.a. (20.00) (20.00)
Gain Per Share (101.10) 11.20
Total Gain on shortening the shares (10,11,000) 1,12,000
12. (i) Net cost of acquisition shall be computed as follows:
Cash Paid for the shares of T Ltd. (` 60 × ` 10,80,00,000

18,00,000)
Less: Value of T Ltd., as a separate entity ` 9,00,00,000
(18,00,000 × ` 50)
Net Cost of acquisition of Tall Ltd. ` 1,80,00,000
(ii) Net Cost of acquisition in case of exchange of shares:

Exchange ratio = 1 share of L Ltd for every 3 shares of T Ltd.
Number of shares to be issued in L Ltd. = 6,00,000 shares

(18,00,000/3) = 36,00,000
Total no. of shares in L Ltd. after merger
(30,00,000 + 6,00,000)
Calculation of cost of Equity of T Ltd. = D1/P0 +g
Growth rate under new management after = ` 3/50 + 0.06 = 12%
acquisition
Value of Merged company assuming = 8%
perpetual growth
Value of merged company
(` 180 x 30,00,000) + [` 3/ (0.12 - 0.08)] x
18,00,000 = ` 67,50,00,000
= ` 54,00,00,000 + [` 75 X 18,00,000]

REVISION TEST PAPER
Value per share of merged company = ` 187.50 per share

(` 67,50,00,000/36,00,000)
Net cost of acquisition
Gross cost of acquisition (6,00,000 x ` ` 11,25,00,000

187.50)
Less: CMP (18,00,000 x ` 50) ` 9,00,00,000
Net Cost of acquisition ` 2,25,00,000
Alternatively, Net Cost of Acquisition can also be computed as

follows:
No. of shares issued to shareholders of T Ltd. in 6,00,000

the ratio of 1:3
Existing price of one share of L Ltd. ` 180
Value of consideration paid for acquisition of T ` 10,80,00,000
Ltd.
Less: Existing Value of T Ltd., as a separate entity ` 9,00,00,000
Net Cost of acquisition of T Ltd. ` 1,80,00,000
(iii) Calculation of gain from acquisition:
Total Earnings of L Ltd. (` 12 x 30,00,000) ` 3,60,00,000

Total Earnings of T Ltd. (` 5 x 18,00,000) ` 90,00,000
Combined Earnings ` 4,50,00,000
PE Ratio of L Ltd. (180/12) 15
Value of L Ltd. after acquisition ` 67,50,00,000
Less: Value of two companies separately
L Ltd. (` 180 x 30,00,000) ` 54,00,00,000
T Ltd. (` 50 x 18,00,000) ` 9,00,00,000 ` 63,00,00,000
Gain from Acquisition ` 4,50,00,000

REVISION TEST PAPER
FINAL EXAMINATION
13. (i) Net Present Value (All Equity Financed) – Base NPV
Particulars Period USD Lakhs PVF PV

@ 12% (USD Lakhs)
Initial Investment 0 (250.00) 1.000 (250.000)
EBIDTA 1 to 20 33.00 7.469 246.477
Tax 1 to 20 (9.90) 7.469 (73.943)
Depreciation 1 to 10 (25.00)
Tax Saving on Dep 1 to 10 7.50 5.650 42.375
NPV (35.091)
(ii) Present Value of Impact of Financing by Debt
Particulars Period USD Lakhs PVF PV

@ 8% (USD Lakhs)
Tax Saving on Interest 1 to 15 2.70 8.559 23.109
Adjusted Present Value of the Project

Base NPV + PV of Tax Shield on Interest
= - US$ 35.091 + US $ 23.109 lakh
= - US$ 11.982 lakh
Advise: Since APV is negative, TL Ltd. should not accept the
project.
14. Following three types of tests can be employed to empirically verify the
weak form of Efficient Market Theory:
(a) Serial Correlation Test: To test for randomness in stock price
changes, one has to look at serial correlation. For this purpose,
price change in one period has to be correlated with price change
in some other period. Price changes are considered to be serially
independent. Serial correlation studies employing different stocks,
different time lags and different time period have been conducted
to detect serial correlation but no significant serial correlation
could be discovered. These studies were carried on short term
trends viz. daily, weekly, fortnightly and monthly and not in long

REVISION TEST PAPER
term trends in stock prices as in such cases. Stock prices tend to

move upwards.
(b) Run Test: Given a series of stock price changes each price change
is designated + if it represents an increase and – if it represents a
decrease. The resulting series may be -,+, - , -, - , +, +.
A run occurs when there is no difference between the sign of two
changes. When the sign of change differs, the run ends and new
run begins.
To test a series of price change for independence, the number of
runs in that series is compared with a number of runs in a purely
random series of the size and in the process determines whether it
is statistically different. By and large, the result of these studies
strongly supports the Random Walk Model.
(c) Filter Rules Test: If the price of stock increases by at least N%
buy and hold it until its price decreases by at least N% from a
subsequent high. When the price decreases at least N% or more,
sell it. If the behaviour of stock price changes is random, filter rules
should not apply in such a buy and hold strategy. By and large,
studies suggest that filter rules do not out perform a single buy
and hold strategy particular after considering commission on
transaction.
15. A Unicorn is a privately held start-up company which has achieved a
valuation US$ 1 billion. This term was coined by venture capitalist Aileen
Lee, first time in 2013. Unicorn, a mythical animal represents the
statistical rarity of successful ventures.
A start-up is referred as a Unicorn if it has following features:
(i) A privately held start-up.
(ii) Valuation of start-up reaches US$ 1 Billion.
(iii) Emphasis is on the rarity of success of such start-up.
(iv) Other common features are new ideas, disruptive innovation,
consumer focus, high on technology etc.

REVISION TEST PAPER
FINAL EXAMINATION
However, it is important to note that in case the valuation of any start-

up slips below US$ 1 billion it can lose its status of ‘Unicorn’. Hence a
start-up may be Unicorn at one point of time and may not be at another
point of time.
In September 2011, InMobi, an ad-tech startup, became the first Unicorn
of India. SoftBank invested US$ 200 million in InMobi valuing the mobile
advertising company at over US$ 1 billion, making it India’s first unicorn.

PAPER – 3:
ADVANCED AUDITING,
ASSURANCE AND
PROFESSIONAL ETHICS
QUESTIONS
PART A: Multiple Choice Questions

Integrated Case Scenario
ComTeK Limited, a top 1000 listed entity on the BSE by market capitalization
for the past two years, sells IT and related equipment directly to consumers
through its website.
One day, the CFO of the company received a video call from the Managing
Director (MD) instructing him to transfer ` 90 lakhs to the bank account of
NxT Limited. When questioned by the CFO, the Managing Director explained
NxT’s products are fast moving and contribute 30% of the company’s revenue.
Further, the amount of payment is within the approved limit and can easily be
remitted without any further approval. Satisfied with the explanations, the CFO
made the necessary transfer.
At the end of the month, while preparing the bank reconciliation statement,
the CFO realised that five incremental payments of ` 90 lakhs each had been
made to NxT Limited. These payments were unreconciled and does not have
any corresponding entry in the books of account. The CFO explained the
situation to the MD, reminding him about the video call that had instructed
him such payments. However, the MD denied making any such video call.
The CFO and Managing Director engaged a forensic expert, who observed
that the company had cyber-attack using sophisticated AI tools. Investigation
further revealed that the video call to the CFO was fake and made from the
laptop not owned by the company. The hackers had gained access to the
CFO’s laptop and have obtained bank details and its authorisation
REVISION TEST PAPER
FINAL EXAMINATION
information. The company filed a police complaint and reported the incident
to the appropriate authorities.
During the risk assessment process, the auditor of the company determined
that the IT environment poses a significant risk. The auditor assessed that the
principal financial systems used in the preparation of the financial statements
were compromised during the cyber-attack. The auditor also focused on the
judgements made by management related to the known security incidents.
The auditor made inquiries with Risk Management team and with the Chief
Information Officer to understand their assessment of the cybersecurity risk
and the measures in place to mitigate this risk, focusing on the principal
financial systems used in the preparation of the financial statements. The
auditor also communicated with those charged with governance about the
cyber incident. After completion of necessary procedures, the auditor felt that
it had incurred additional efforts to the tune of 20%. The auditor reviewed,
with the assistance of specialists, management’s assessment of the potential
impact on the principal financial systems used in the preparation of the
financial statements.
The management of the company was impressed about the level of detail and
diligence employed by the auditor while dealing with the cyber security
incident. They particularly appreciated the in-depth knowledge of the auditor,
timely involvement of IT specialist by the auditor and experience in dealing
with cyber-security incidents. The management felt that the auditor would be
the right fit for conducting a thorough audit of the IT systems of the company.
In order to leverage the auditor’s expertise, the management proposed to
engage the auditor to conduct a system audit.
The stakeholders of the company believe that Integrated Reporting, as
prescribed by the International Integrated Reporting Council, should be
prepared by the management. The primary purpose was to explain to
providers of financial capital how the company creates, preserves or erodes
value over time. The Integrated Report would provide relevant information,
both financial and other for the benefits all stakeholders interested in a
company’s ability to create value over time, including employees, customers,
suppliers, business partners, local communities, legislators, regulators and
policy-makers.

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On the basis of the above mentioned facts, you are required to answer
the following MCQs:
1. In the given case, cyber-attack encountered by the company is known
as:
(a) Spoofing
(b) Denial of Services Attack
(c) Malware
(d) Identity Based Attack
2. The engagement partner is confused as to whether the audit report
would be impacted by the cyber-attack instance. What is the appropriate
reporting implication:
(a) No implication in the audit report since the financial loss has
already been recognised in the financial statements.
(b) Qualify audit opinion as the amount of loss due to cyber-attack is
incremental and does not emanate from its operating activity.
(c) Include an Emphasis of Matter paragraph as cyber security
incidents are by default fundamental to the attention to the users
of the financial statements.
(d) Report as a Key Audit Matter since the cyber incidence was of
most significance in the audit of the financial statements of the
current period.
3. The company wants to prepare an Integrated Report as contained in the
International Integrated Reporting Council and endorsed by SEBI. The
Company Secretary is of the view that Integrated Report is mandatory
for a listed entity. Which of the following is correct in this regard?
(a) The view of Company Secretary is correct since the company meet
the qualifying threshold i.e. Top 1000 listed entity by market
capitalisation at the end of the previous year.
(b) The view of company Secretary is incorrect as Integrated Reporting
is voluntary for the top 500 listed entities.

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(c) The view of Company Secretary is correct as the company meet the
qualifying threshold i.e. Top 1000 listed entity by market
capitalisation at the end of the current year.
(d) The view of Company Secretary is incorrect since Integrated
Reporting is voluntary for the top 1000 listed entities.
4. Integrated Reporting comprises 6 categories of capital. The company
observed that it has capitalised intangible assets (patent) and roof top
solar equipment in the balance sheet. In the Integrated Report patents
and solar equipment should be disclosed respectively as:
(a) Financial Capital and Manufactured Capital.
(b) Natural Capital and Financial Capital.
(c) Intellectual Capital and Natural Capital.
(d) Human Capital and Intellectual Capital.
5. Can the auditor accept the system audit as offered by the ComTeK
Limited?
(a) Yes, the statutory auditor can accept the assignment of system
audit, provided it did not involve any scrutiny/review of financial
data and information.
(b) Yes, the statutory auditor can accept the assignment of system
audit, provided it involves any scrutiny/review of financial data and
information
(c) Yes, the statutory auditor can accept the assignment of system
audit, provided the fee for system audit is not more than the audit
fee.
(d) No, the statutory auditor cannot accept the assignment of system
audit since it did not involve any scrutiny/review of financial data
and information.
Independent MCQs
6. CA Vijay qualified as CA in November 2022 started his professional
practice in Delhi. Since he has enough time to devote on other activities,
he is considering the following four options:

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• Part-time tutorship under the coaching organisation of the

Institute.
• Editorship of journals other than professional journals.
• Acting as recovery consultant in the banking sector.
• Owning agricultural land and carrying out agriculture activity.
Do you think CA Vijay needs to take any specific and prior permission
from the Council for any or all of the above mentioned activities?
(a) Specific and prior permission is required for editorship of journals
other than professional journals.
(b) Specific and prior permission is required for part-time tutorship
and acting as recovery consultant.
(c) Specific and prior permission is required for acting as recovery
consultant and owning agricultural land and carrying out
agriculture activity.
(d) Specific and prior permission is required for editorship of journals
other than professional journals and carrying out agriculture activity.
7. CA RK, the auditor of Shipra Limited resigned from the post due to
personal reasons. CA SP was appointed as the subsequent auditor of the
company by the Board of Directors. During the conclusion of the audit
for the 2023-24, should CA SP mention CA RK ’s resignation in the
Companies (Auditor’s Report) Order 2020?
(a) No. CARO 2020 does not state any requirements to report
resignation of auditor. However, the same needs to be mentioned
by CA SP in the Audit Report under Other Matter Paragraph, as per
SA 706.
(b) Yes. As per clause (xviii) of para 3 of CARO, CA SP should report
the resignation of CA RK and state if he has taken into
consideration the issues or objections raised by CA RK.
(c) No. Since the resignation of CA RK is due to his own personal
reason, the same need not be reported under CARO.

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(d) Yes. As per clause (xxi) of para 3 of CARO, CA SP should report the
resignation of CA RK and state if he has taken into consideration
the issues or objections raised by CA RK.
8. SMN Limited is a management consultancy firm and in operation for the
last 15 years. The company’s financial reporting process is sound, and its
statutory auditors has issued clean report on the audit of the financial
statements of the company since inception. Due to mandatory audit
rotation under the Companies Act 2013, MNO & Associates was
appointed as the new auditor for the financial year ending 31 March
2024. During the audit, MNO & Associates performed procedures on
both the current year's financials and the opening balances. No
significant issues have been observed during the audit and the auditors
intended to issue a clean report, they included an "Other Matters"
paragraph in the draft report, noting that the previous year's financials
were audited by a different auditor. The management requested this
reference be removed since MNO & Associates audited the opening
balances also and such a reference is not required. However, the
auditors did not agree with the management. Please advise the auditor
or the management whoever is incorrect with the right guidance.
(a) The contention of the management is valid. After performing all
the audit procedures, an auditor should not pass on the
responsibility to another auditor by including such references in
his audit report.
(b) Any auditor has two options, either to perform audit procedures
on opening balances or given such reference of another auditor in
his report. An auditor cannot mix up the things like this auditor has
done. It is completely unprofessional.
(c) In the given situation even if the auditor wants to give such
reference, the management and the auditor should have taken
approval from the previous auditor at the time of appointment of
new auditor. In this case, it cannot be done.
(d) The report of the auditor is correct and is in line with the
Standards on Auditing. An auditor is required to include such

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reference in his report under Other Matter Paragraph which

require referencing the previous auditor when applicable.
PART B: DESCRIPTIVE QUESTIONS
Standards on Auditing, Statements and Guidance Notes
Auditing Planning, Strategy and Execution
9. RPS Ltd., at its annual general meeting, appointed Mr. R, Mr. P, and Mr. S
as joint auditors to conduct the audit for the financial year 2023-24. For
the valuation of the newly constructed infrastructure project of the
company, Mr. R, Mr. P, and Mr. S decided to consult their own known
engineers. Due to differences of opinion, each joint auditor sought
advice from their respective engineers. As a result, significant
discrepancies were found in the valuation reports provided by the
engineers. However, Mr. R agreed with the report provided by Mr. P's
engineer, while Mr. S did not. Mr. R argues that report of Mr. P's
engineer should be included in the audit report due to the majority of
votes. Now, Mr. S is in a dilemma.
What would be the responsibility of the auditors if the report provided
by Mr. P's engineer is later found to be faulty?
Materiality, Risk Assessment and Internal Control
10. AMRO Ltd. is a manufacturing and trading Company of leather goods
since last 10 years. You are the internal auditor of the company for the
year 2023-24. In order to review internal controls of the company, you
visited the departments and noticed:
(1) The head of procurement, Mr. Amit, has complete control over
purchasing, receiving goods, and approving payments to suppliers.
His actions are not reviewed by any other person in the company.
(2) The company's staff has been working in the same roles for over
five years without any rotation. The finance manager, Mr. Sachin, in
particular, has never had his duties rotated since joining the
company.
(3) The store manager, Mr. Gupta, who is responsible for maintaining
the inventory, also keeps the inventory records.

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(a) Briefly discuss the general conditions pertaining to the

internal check system to be ensure by you as an auditor.
(b) Do you think that general conditions pertaining to the
internal check system are violated in the given situation?
Completion and Review
11. Mudit & Associates is appointed as Statutory Auditors of GRF Private
Limited for the financial year 2023-24. The company is into the business
of Health Club, Fitness Centre and gym costumes. CA M is the
Engagement Partner for the audit assignment. CA M observed the
following points while auditing:
(i) Customer's base is reducing continuously due to tough
competition and discount war existing in the market.
(ii) Payments of creditors are delayed and made with overdue interest.
(iii) Company has not been able to pay the salaries of staff and trainers
on time.
(iv) Key financial ratios of the company, like current ratio, debt-service
coverage ratio, are in the red and have deteriorated considerably
as compared to last year.
(v) The company has requested its bankers to provide it with
additional working capital credit facilities of ` 1.5 Crores, but
bankers are not considering the company's proposal favorably.
What audit procedures should be followed by CA M considering the
above circumstances as per SA 570-"Going Concern"? How auditor
should deal if the use of going concern basis of accounting is
appropriate, but a material uncertainty exists, and adequate disclosure
of material uncertainty is made in the financial statements?
Reporting
12. The extract of the financial statements of Nex Limited for the financial
year 2023-24 is as follows:
Particulars Rupees (in Crores)

Trade Receivable - Unsecured considered Good 225.00

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Provision for Bad and Doubtful Debts 50.00

Stock of Raw Materials 180.00
Stock of Finished Goods 250.00
Total of Assets 950.00
CA Yash is the statutory auditor of Nex Ltd. for the FY 2023-24. During
the course of audit CA Yash noticed the following:
i. With respect to the debtors amounting to ` 175 crore, no balance
confirmation was received by the audit team. Further, there have
been defaults on the payment obligations by debtors on the due
dates during the year under audit. The company has created a
provision for doubtful debts to the tune of ` 50 crore during the
year under audit. The company has stated that the provision is
based on receivables which are older than 36 months, which
according to the audit team is inadequate and as such the audit
team is unable to ascertain the carrying value of trade receivables.
ii. Further, in respect of inventories (which constitutes 45% of the
total assets of the company), during the reporting period, the
management has not undertaken physical verification of
inventories at periodic intervals. Also, the company has not
maintained adequate inventory records at the factory. The audit
team was unable to undertake the physical inventory count as such
the value of inventory could not be verified.
What kind of opinion should be given by CA Yash in the given situation?
Draft a suitable Opinion and Basis of Opinion paragraph.
Prospective Financial Information and Other Assurance Services
13. Mr. Vineet, an auditor, has been approached by Qub Ltd. to examine the
prospective financial information of the company. What factors should
an auditor consider before accepting an engagement to examine
prospective financial information, and under what conditions should the
auditor decline or withdraw from such an engagement? Additionally,
what steps should be taken to formalize the terms of the engagement?

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Digital Auditing and Assurance

14. Mr. Karan is a consultant tasked with helping a mid-sized manufacturing
company modernize its operations by integrating Internet of Things
(IoT) technology. The company wants to connect various devices such as
manufacturing equipment, smart home security systems for their facility,
and inventory management systems. They aim to leverage IoT to
improve operational efficiency, predict equipment maintenance needs,
and enhance overall security. However, they are concerned about the
potential risks and the impact on their audit processes. Describe the key
components and benefits of IoT, the risks associated with IoT
implementation, and the implications for the company's audit processes.
How should the company address these concerns to ensure a smooth
transition?
Group Audits
15. You are appointed as an auditor of Imperial Industries Limited, a listed
company with a turnover of ` 3.5 billion, operating through 15 business
units and nearly 200 branches across the country. Imperial Industries
Limited is a key supplier to the American building and construction
market. As an auditor, how will you draft the report in case:
(a) When the Component(s) Auditor Reports on Financial Statements
under an Accounting Framework Different than that of the Parent?
(b) When the Component(s) Auditor Reports under an Auditing
Framework Different than that of the Parent?
(c) Where the financial statements of one or more components are
not audited?
Bank Audit
16. Your firm ABC Associates is appointed as Central Statutory Auditors of a
Nationalised Bank for the year 2023-24. The Bank follows the financial
year as accounting year. During the audit, CA Aadi, the Audit Manager
has noticed following issues and placed the same before the team.
Particulars
Consortium Cash Credit Facilities to Prime Ltd. ` 75 crores

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Bank's own Share in Cash Credit Facilities ` 15 crores

Debits towards Interest in the Last Two Quarters ` 2.25 crores
Credits in Prime Ltd.'s Account in the Last Two ` 1.75 crores
Quarters
Classification of Prime Ltd.'s Account (Based on Performing Account
Lead Bank's Certificate)
As an auditor, how will you deal with the above mentioned matter?
Internal Audit
17. Rishi is appointed as internal auditor for a SPOM Limited, a medium-
sized manufacturing company, while CA Nitin is the statutory auditor of
the SPOM Limited.
(a) During the review, Rishi notices several discrepancies in the
disbursement records and suspects there might be weaknesses in
the internal control system. Additionally, there have been recent
changes in the company's business policies that he was not
informed about. Rishi is concerned about maintaining his
independence and objectivity while ensuring that management is
aware of these issues. What are the responsibilities of Rishi as an
Internal Auditor with respect to the accounting function and
financial records of the organisation?
(b) CA Nitin asked Rishi to provide direct assistance to him regarding
evaluating the appropriateness of management’s use of the going
concern assumption. In view of Standards on Auditing, whether
Nitin can ask direct assistance from Rishi as stated above?
Due Diligence, Investigation & Forensic Accounting
18. CA. Rajul is designated as the Credit Manager at a branch of APP Bank
Limited. PQR Ltd has approached the branch with a request to sanction
credit facilities worth ` 12 crore for meeting its regular business needs.
This is a potential new client for the bank. She has reviewed the
company’s past history, the background of its promoters and directors,
the shareholding pattern, and the nature of its business. She also
conducted an assessment of the financial results of past years and future

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projections. Additionally, she carried out a SWOT analysis of the

company.
She also evaluates the net worth of the directors, checks the CIBIL score,
and verifies whether the names of the promoters or directors appear on
the RBI defaulters' list. Furthermore, she makes discreet inquiries with a
few clients of the branch who are engaged in a similar line of activity
regarding the creditworthiness of the company, its promoters, and
directors.
Based on the above:
(a) Identify the procedures followed by CA Rajul and discuss its
nature.
(b) Would your answer be different if this activity was to be performed
by a person not qualified as a Chartered Accountant? Can a non-
CA perform such activity? State reason.
(c) Name any three other areas where the identified activity can be
undertaken.
Sustainable Development Goals (SDG) & Environment, Social and
Governance (ESG) Assurance
19. Kapil is appointed as an external auditor to provide assurance on a
company’s Business Responsibility and Sustainability Report (BRSR). To
ensure the report's accuracy and reliability, he needs to follow a
comprehensive methodology that includes several key steps. What
methodology should Kapil follow to provide assurance on the BRSR?
Professional Ethics & Liabilities of Auditors
20. (a) CA Vaayu is the auditor of Viva Limited having a turnover of more
than ` 200 Crores. The audit fee for the year is fixed at ` 80 Lakhs.
During the year, the company offers CA Vaayu an assignment of
representation before Income Tax Appellate Tribunal for certain
matter for remuneration of ` 1.75 crores. CA Vaayu accepted the
assignment. Discuss action of CA Vaayu with reference to the
provisions of the Chartered Accountants (Amendment) Act, 2006 and
Schedules thereto.

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(b) Sanjeev & Associates, a firm of Chartered Accountants responded

to a tender from a PF Office, Chembur for filing quarterly e-TDS
returns. The terms of tender are as follows:
(i) Earnest Money Deposit of ` 7,500/-
(ii) It is open for all categories
(iii) Maximum fees of ` 7,500/- per quarter
Discuss whether Sanjeev and Associates can respond to the said
tender with reference to provisions of the Chartered Accountants
(Amendment) Act, 2006 and Schedules thereto.
SUGGESTED ANSWERS/HINTS
PART A: Answers to Multiple Choice Questions

1. (a)
2. (d)
3. (b)
4. (c)
5. (a)
6. (a)
7. (b)
8. (d)
PART B: Answers to Descriptive Questions
9. Using the work of an Auditor’s Expert: As per SA 620 “Using the Work
of an Auditor’s Expert”, the expertise of an expert may be required in the
valuation of complex financial instruments, land and buildings, plant and
machinery, jewelry, works of art, antiques, intangible assets, assets
acquired and liabilities assumed in business combinations and assets
that may have been impaired etc., however, the auditor has sole
responsibility for the audit opinion expressed, and that responsibility is
not reduced by the auditor’s use of the work of an auditor’s expert.

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The auditor shall evaluate the adequacy of the auditor’s expert’s work
for the auditor’s purposes, including the relevance and reasonableness
of that expert’s findings or conclusions, and their consistency with other
audit evidence as per SA 500.
Further, in view of SA 620, if the expert’s work involves use of significant
assumptions and methods, then the relevance and reasonableness of
those assumptions and methods must be ensured by the auditor and if
the expert’s work involves the use of source data that is significant to
that expert’s work, the relevance, completeness, and accuracy of that
source data in the circumstances must be verified by the auditor.
In the instant case, Mr. R, Mr. P and Mr. S, jointly appointed as auditors
of RPS Ltd., referred their own known engineer for valuation of the
newly constructed infrastructure project. Engineers are an auditor’s
expert as per SA 620. Mr. P’s referred Engineer has provided the
valuation report, which was later found faulty. Further, Mr. S is not in
agreement with this report, therefore, he submitted a separate audit
report specifically for such a valuation.
In such a situation, it was the duty of Mr. R, Mr. P and Mr. S, before
using the valuation report provided by engineer, to ensure the relevance
and reasonableness of assumptions and methods used. They were also
required to examine the relevance, completeness and accuracy of source
data used for such a report before expressing their opinion.
Mr. R and Mr. P will be held responsible for gross negligence and using
such faulty report without examining the adequacy of expert engineer’s
work whereas Mr. S will not be held liable for the same due to separate
opinion expressed by him.
10. (a) Internal Check System: The general condition pertaining to the
internal check system may be summarized as under:
(i) no single person should have complete control over any
important aspect of the business operation. Every employee’s
action should come under the review of another person.
(ii) Staff duties should be rotated from time to time so that
members do not perform the same function for a
considerable length of time.

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(iii) Every member of the staff should be encouraged to go on

leave at least once a year.
(iv) Persons having physical custody of assets must not be
permitted to have access to the books of accounts.
(v) There should exist an accounting control in respect of each
class of assets, in addition, there should be periodical
inspection so as to establish their physical condition.
(vi) Mechanical devices should be used, wherever practicable, to
prevent loss or misappropriation of cash.
(vii) Budgetary control should be exercised, and wide deviations
observed should be reconciled.
(viii) For inventory taking, at the close of the year, trading
activities should, if possible be suspended, and it should be
done by staff belonging to several sections of the
organization.
(ix) The financial and administrative powers should be
distributed very judiciously among different officers and the
manner in which those are actually exercised should be
reviewed periodically.
(x) Procedures should be laid down for periodical verification
and testing of different sections of accounting records to
ensure that they are accurate.
(b) Yes, in the given situation general conditions pertaining to the
internal check system are violated as follows:
(1) The head of procurement, Mr. Amit, having complete control
over the procurement process without oversight violates the
principle that no single person should control any important
aspect of the business operation.
(2) The lack of staff rotation for over five years violates the
principle that staff duties should be rotated periodically to
prevent any single person from performing the same
function for too long.

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(3) Allowing Mr. Gupta, the store manager, to maintain inventory

records while also having custody of the inventory violates
the principle that those with physical custody of assets
should not have access to accounting records.
11. As per SA 570, “Going Concern” if events or conditions have been
identified that may cast significant doubt on the entity’s ability to
continue as a going concern, the auditor shall obtain sufficient
appropriate audit evidence to determine whether or not a material
uncertainty exists related to events or conditions that may cast
significant doubt on the entity’s ability to continue as a going concern
through performing additional audit procedures, including consideration
of mitigating factors. These procedures shall include:
(a) Where management has not yet performed an assessment of the
entity’s ability to continue as a going concern, requesting
management to make its assessment.
(b) Evaluating management’s plans for future actions in relation to its
going concern assessment, whether the outcome of these plans is
likely to improve the situation and whether management’s plans
are feasible in the circumstances.
(c) Where the entity has prepared a cash flow forecast, and analysis of
the forecast is a significant factor in considering the future
outcome of events or conditions in the evaluation of
management’s plans for future actions:
(i) Evaluating the reliability of the underlying data generated to
prepare the forecast; and
(ii) Determining whether there is adequate support for the
assumptions underlying the forecast.
(d) Considering whether any additional facts or information have
become available since the date on which management made its
assessment.
(e) Requesting written representations from management and, where
appropriate, those charged with governance, regarding their plans
for future actions and the feasibility of these plans.

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In the given case, CA M has observed such points that may cast
significant doubt on the entity’s ability to continue as a going concern.
Therefore, CA M should follow audit procedures such as:
• Review of management’s assessment of the company's ability to
continue as a going concern.
• Examine and challenge the reasonableness of the company's cash
flow forecasts and key assumptions.
• Review events after the reporting period that might affect the
going concern assumption, such as further financial deterioration
or inability to secure financing.
• Analysis of the company's key financial ratios and compliance with
loan agreements to assess liquidity and solvency.
• Review of the company’s challenges and efforts to secure
additional financing and the reasons for the bank's reluctance to
provide further credit.
• Assess the impact of declining customer base, delayed payments,
and other operational challenges on the company’s ability to
continue as a going concern.
Further, as per SA 570 if adequate disclosure about the material
uncertainty is made in the financial statements, the auditor shall express
an unmodified opinion and the auditor’s report shall include a separate
section under the heading “Material Uncertainty Related to Going
Concern” to:
(a) Draw attention to the note in the financial statements that
discloses the matters set out in paragraph 19; and
(b) State that these events or conditions indicate that a material
uncertainty exists that may cast significant doubt on the entity’s
ability to continue as a going concern and that the auditor’s
opinion is not modified in respect of the matter.
12. In the present case, CA Yash is unable to obtain sufficient and
appropriate audit evidence with respect to the following:

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i. The balance confirmation with respect to debtors amounting to

` 175 crores are not available. Further there has been default in
payment by the debtors and the provision so made is not
adequate. The audit team is also unable to ascertain the carrying
value of trade receivables.
ii. With respect to 45% of the company’s inventory, neither the
physical verification has been done by the management nor
adequate inventory records are maintained. The audit team is also
unable to undertake the physical inventory count as such the value
of inventory could not be verified.
In the above two circumstances the auditor is unable to obtain sufficient
appropriate audit evidence on which to base the opinion, and the
possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive.
Thus, CA Yash should give a Disclaimer of Opinion.
The relevant extract of the Disclaimer of Opinion Paragraph and
Basis for Disclaimer of Opinion paragraph is as under:
Disclaimer of Opinion
We do not express an opinion on the accompanying financial statements
of Nex Ltd. Because of the significance of the matters described in the
Basis for Disclaimer of Opinion section of our report, we have not been
able to obtain sufficient appropriate audit evidence to provide a basis
for an audit opinion on these financial statements.
Basis for Disclaimer of Opinion
We are unable to obtain balance confirmation with respect to the
debtors amounting to ` 175 crore. Further, there have been defaults on
the payment obligations by debtors on the due dates during the year
under audit. The company has created a provision for doubtful debts of
` 50 crore during the year under audit which is inadequate in the
circumstances of the company. The carrying value of trade receivables
could not be ascertained.
Further, in respect of inventories (which constitute 45% of the total
assets of the company), during the reporting period, the management

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has not undertaken physical verification of inventories at periodic

intervals. Also, the company has not maintained adequate inventory
records at the factory. We were unable to undertake the physical
inventory count and as such the value of inventory could not be verified.
13. Before accepting an engagement to examine prospective financial
information, the auditor would consider, amongst other things:
• The intended use of the information;
• Whether the information will be for general or limited distribution;
• The nature of the assumptions, that is, whether they are best
estimates or hypothetical assumptions;
• The elements to be included in the information; and
• The period covered by the information.
The auditor should not accept, or should withdraw from, an engagement
when the assumptions are clearly unrealistic or when the auditor
believes that the prospective financial information will be inappropriate
for its intended use. The auditor should consider the extent to which
reliance on the entity’s historical financial information is justified.
To formalize the terms of the engagement, it is essential to agree on the
terms with the client by sending an engagement letter, like in other
engagements.
14. Internet of Things: IoT is the concept of connecting any device (cell
phones, coffee makers, washing machines, and so on) to the internet.
Key components of IoT are data collection, analytics, connectivity, and
people and process. IoT not only changes the business model, but also
affects the strategic objectives of the organisation. The risk profile of the
entity changes with exposure to new laws and regulations.
Example
(i) Connected Cars, connected manufacturing equipment’s, smart
home security, (The options for home security from doorbell
cameras or outdoor cameras - users can view video feeds when
they are away from home).

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(ii) Data from machines can be used to predict whether equipment

will break down, giving manufacturers advance warning to prevent
long stretches of downtime.
(iii) Refrigerator placing an order with a grocery store whenever the
supply of eggs falls below a certain number.
(iv) Smart oven works by scanning QR or bar codes and connecting to
Wi-Fi, which it then uses to determine the best temperature and
time to cook the food to avoid undercooking or burning.
(v) Researchers use IoT devices to gather data about customer
preferences and behavior, though that can have serious
implications for privacy and security.
Common risks of IoT:
The key risks associated with IoT including, device hijacking, data
siphoning, denial of service attacks, data breaches and device theft.
Audit Implications
A shift to connected devices and systems may result in auditors not
being able to rely only on manual controls. Instead, auditors may need
to scope new systems into their audit. Audit firms may need to train and
upskill auditors to evaluate the design and operating effectiveness of
automated controls.
Consumer-facing tools that connect to business environments in new
ways can impact the flow of transactions and introduce new risks for
management and auditors to consider. Consider payment processing
tools that allow users to pay via credit card at a retail location through a
mobile device. This could create a new path for incoming payments that
may rely, in part, on a new service provider supplying and routing
information correctly. Auditors would need to consider the volume of
those transactions, and the processes and controls related to it.
15. (a) When the Component(s) Auditor Reports on Financial
Statements under an Accounting Framework Different than that
of the Parent: The parent may have components located in multiple
geographies outside India applying an accounting framework (GAAP)
that is different than that of the parent in preparing its financial

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PROFESSIONAL ETHICS
statements. Foreign components prepare financial statements under

different financial reporting frameworks, which may be a well-known
framework (such as US GAAP or IFRS) or the local GAAP of the
jurisdiction of the component. Local component auditors may be
unable to report on financial statements prepared using the parent’s
GAAP because of their unfamiliarity with such GAAP.
When a component’s financial statements are prepared under an
accounting framework that is different than that of the framework
used by the parent in preparing group’s consolidated financial
statements, the parent’s management perform a conversion of the
components’ audited financial statements from the framework
used by the component to the framework under which the
consolidated financial statements are prepared. The conversion
adjustments are audited by the principal auditor to ensure that the
financial information of the component(s) is suitable and
appropriate for the purposes of consolidation.
A component may alternatively prepare financial statements on
the basis of the parent’s accounting policies, as outlined in the
group accounting manual, to facilitate the preparation of the
group’s consolidated financial statements. The group accounting
manual would normally contain all accounting policies, including
relevant disclosure requirements, which are consistent with the
requirements of the financial reporting framework under which the
group’s consolidated financial statements are prepared. The local
component auditor can then audit and issue an audit report on the
components financial statements prepared in accordance with
“group accounting policies”.
When applying the approach of using group accounting policies as
the financial accounting framework for components to report
under, the principal/parent auditors should perform procedures
necessary to determine compliance of the group accounting
policies with the GAAP applicable to the parent’s financial
statements. This ensures that the information prepared under the
requirements of the group accounting policies will be directly
usable and relevant for the preparation of consolidated financial

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FINAL EXAMINATION
statements by the parent entity, eliminating the need for auditing

by the auditor, the differences between the basis used for the
component’s financial statements and that of the consolidated
financial statements. The Principal auditor can then decide whether
or not to rely on the components’ audit report and make reference
to it in the auditor’s report on the consolidated financial
statements.
(b) When the Component(s) Auditor Reports under an Auditing
Framework Different than that of the Parent: Normally, audits
of financial statements, including consolidated financial
statements, are performed under auditing standards generally
accepted in India (“Indian GAAS”).
In order to maintain consistency of the auditing framework and to
enable the parent auditor to rely and refer to the other auditor’s
audit report in their audit report on the consolidated financial
statements, the components’ financial statements should also be
audited under a framework that corresponds to Indian GAAS.
(c) Where the financial statements of one or more components
are not audited: The financial statements of all components
included in consolidated financial statements should be audited or
subjected to audit procedures in the context of a multi-location
group audit. Such audits and audit procedures can be performed
by the auditor reporting on the consolidated financial statements
or by the components’ auditor.
Where the financial statements of one or more components
continue to remain unaudited, the auditor reporting on the
consolidated financial statements should consider unaudited
components in evaluating a possible modification to his report on
the consolidated financial statements. The evaluation is necessary
because the auditor (or other auditors, as the case may be) has not
been able to obtain sufficient appropriate audit evidence in
relation to such consolidated amounts/balances. In such cases, the
auditor should evaluate both qualitative and quantitative factors
on the possible effect of such amounts remaining unaudited when
reporting on the consolidated financial statements using the

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PROFESSIONAL ETHICS
guidance provided in SA 705, “Modifications to the Opinion in the

Independent Auditor’s Report”.
16. The bank is a consortium member of cash credit facilities of ` 75 crores
to Prime Ltd. Bank's own share is ` 15 crores only. During the last two
quarters against a debit of ` 2.75 crores towards interest, the credits in X
Ltd.’s account are to the tune of ` 1.75 crores only. Sometimes, several
banks form a group (the 'consortium') under the leadership of a 'lead
bank' to make advance to a large customer on same conditions and
security with proportionate rights. In such cases, each bank may classify
the advance given by it according to its own experience of recovery and
other factors. Since in the last two quarters, the amount remains
outstanding and, thus, interest amount should be reversed. This is
despite the certificate of lead bank to classify that the account as
performing. Accordingly, the amount should be shown as non-
performing asset (NPA).
17. (a) In the given case, Rishi notices several discrepancies in the
disbursement records and suspects there might be weaknesses in
the internal control system. He is concerned about maintaining his
independence and objectivity while ensuring that management is
aware of these issues.
Responsibilities of Rishi as an Internal Auditor with respect to the
accounting function and financial records of the organisation
include:
• to ascertain adequacy of system of internal control by a
continuous examination of accounting procedures, receipts
and disbursements, and to provide adequate safeguards
against misappropriation of assets.
• to operate independently of the accounting staff and must
not in any way divest any of the responsibilities placed upon
him.
• not to involve in the performance of executive functions in
order that the objective outlook does not get obscured by
the creation of the vested interest.

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FINAL EXAMINATION
• to observe facts and situations and bring them to notice of

authorities who would otherwise never know them; also,
critically appraise various policies of the management and
draw its attention to any deficiencies, wherever these require
to be corrected.
• to associate closely with management and keep knowledge
up to date by being informed about all important
occurrences and events affecting the business, as well as the
changes that are made in business policies.
• at all times, the internal auditor must enjoy an independent
status.
(b) As per SA 610 “Using the Work of Internal Auditor”, the external
auditor shall not use internal auditors to provide direct assistance
to perform procedures that involve making significant judgments
in the audit.
Since the external auditor has sole responsibility for the audit
opinion expressed, the external auditor needs to make significant
judgments in the audit engagement.
Significant judgments include the following:
• Assessing the risks of material misstatement;
• Evaluating the sufficiency of tests performed;
• Evaluating the appropriateness of management’s use of the
going concern assumption;
• Evaluating significant accounting estimates; and
• Evaluating the adequacy of disclosures in the financial
statements, and other matters affecting the auditor’s report.
In view of the above, CA. Nitin cannot ask direct assistance from
internal auditors regarding evaluating the appropriateness of
management’s use of the going concern assumption in accordance
with SA 610.

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PROFESSIONAL ETHICS
18. (a) The activity described in the situation is Due diligence. Due diligence
is a measure of prudence activity, or assiduity, as is properly to be
expected from, and ordinarily exercised by, a reasonable and prudent
person under the particular circumstance, not measured by any
absolute standard but depending upon the relative facts of the case.
It involves a careful study of financial and non-financial possibilities. It
implies a general duty to take care in any transaction.
Due diligence is a process of investigation, performed by investors,
into the details of a potential investment such as an examination
of operations and management and the verification of material
facts. It entails conducting inquiries for the purpose of timely,
sufficient and accurate disclosure of all material
statements/information or documents, which may influence the
outcome of the transaction. Due diligence involves a careful study
of the financial as well as non-financial possibilities for successful
implementation of restructuring plans.
Due diligence involves an analysis carried out before acquiring a
controlling interest in a company to determine that the conditions
of the business conform with what has been presented about the
target business. Also, due diligence can apply to recommendation
for an investment or advancing a loan/credit.
(b) There would be no difference in answer if above activity was to be
performed by a person who is not a Chartered Accountant. The
activity would remain due diligence. Due diligence can be
performed by any person. It is not necessary that due diligence can
only be carried out by a Chartered Accountant. As due diligence
involves exercise of prudence and general duty to take care in any
transaction, it can be undertaken by any person.
(c) The areas where due diligence may be undertaken are: -
(i) Corporate restructuring
(ii) Venture capital financing
(iii) Public offerings

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FINAL EXAMINATION
19. Methodology that should be followed by Kapil to provide assurance

on BRSR is:
• Preliminary Review of ESG report, parameters
• On-site Assessment / Verification of ESG Report
• Issuance of Assessment Report and Assessment Statement
• Review of the responses and clarifications on the findings
• Submission of findings of the on-site assessment and document
review
• Preparation of Assessment / Verification report including final
results of Assessment
20. (a) As per the Council General Guidelines 2008, under Chapter IX on
appointment as statutory auditor a member of the Institute in
practice shall not accepts the appointment as a statutory auditor of a
PSUs’/Govt company(ies)/Listed company(ies) and other public
company(ies) having a turnover of ` 50 crores or more in a year and
where he accepts any other work(s) or assignment(s) or service(s) in
regard to same undertaking(s) on a remuneration which in total
exceeds the fee payable for carrying out the statutory audit of the
same undertaking. For this purpose, the other work/services include
Management Consultancy and all other professional services
permitted by Council excluding audit under any other statute,
Certification work required to be done by the statutory auditor and
any representation before an authority.
In the given case, the company offers CA Vaayu, the statutory
auditor, an assignment of representation before Income Tax
Appellate Tribunal for remuneration of ` 1.75 Crores.
Conclusion: In view of the above provision, it would not be
misconduct on Vaayu’s part if he accepts the assignment of
representation before Income Tax Appellate Tribunal for
remuneration of ` 1.75 crore.
(b) As per Clause 6 of Part I of the First Schedule to the Chartered
Accountants Act, 1949, a Chartered Accountant in practice shall be

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PROFESSIONAL ETHICS
guilty of professional misconduct if he solicits clients or

professional work either directly or indirectly by circular,
advertisement, personal communication or interview or by any
other means.
Provided that nothing herein contained shall be construed as
preventing or prohibiting -
(i) Any Chartered Accountant from applying or requesting for or
inviting or securing professional work from another
chartered accountant in practice; or
(ii) A member from responding to tenders or enquiries issued by
various users of professional services or organisations from
time to time and securing professional work as a
consequence.
However, as per the Guidelines issued by the Council of the
Institute of Chartered Accountants of India, a member of the
Institute in practice shall not respond to any tender issued by an
organisation or user of professional services in areas of services
which are exclusively reserved for chartered accountants, such as
audit and attestation services. However, such a restriction shall not
be applicable where minimum fee of the assignment is prescribed
in the tender document itself or where the areas are open to other
professionals along with the Chartered Accountants.
In the given case, Sanjeev & Associates responded to a tender
from a PF Office, Chembur for filing quarterly e-TDS returns.
Conclusion: Sanjeev & Associates can respond to the said tender
as the tender is open for all the categories i.e. it is open to other
professionals along with the Chartered Accountants.

PAPER – 4:
DIRECT TAX LAWS &
INTERNATIONAL TAXATION
The provisions of direct tax laws, as amended by the Finance Act, 2023 and
the significant notifications and circulars issued upto 30.04.2024, are
relevant for November 2024 examination. The relevant assessment year is
A.Y.2024-25. The October, 2023 edition of the Study Material contains the
provisions of direct tax laws as amended by the Finance Act, 2023 and
notifications and circulars issued upto 31.7.2023. The said study material
has to be read along with the Statutory Update for November, 2024
Examination webhosted at https://resource.cdn.icai.org/80554bos64747.pdf
and Judicial Update for November, 2024 Examination webhosted at
https://resource.cdn.icai.org/80581bos64778.pdf.
QUESTIONS
Case Scenario I
Trio Inc., a company incorporated in Country T, is engaged in manufacturing
of computer hardware parts. It also owns an online social networking site,
Attire. Nice Ltd., an Indian Company, imports computer hardware parts from
Trio Inc. During the previous year 2023-24, Nice Ltd. did not import any
computer hardware parts from Trio Inc. but paid ` 5,50,000 on 24 th July, 2023
to Trio Inc. for advertising its business on the platform of Attire. However,
Nice Ltd. neither deducted tax at source nor equalisation levy on such
payment.
On 1-4-2023, Nice Ltd. advanced a loan of ` 2.5 crores to Xylo Inc., an
Australian company. As on the date of loan, the book value of total assets in
the books of Xylo Inc. was ` 4.52 crores. Out of the ten directors of Xylo Inc.,
REVISION TEST PAPER FINAL EXAMINATION
five are appointed by Nice Ltd. Xylo Inc. repaid the entire loan along with
interest thereon on 31 st March, 2024.
On 9.11.2023, Trio Inc. sold 3,500 equity shares held by it in an Indian
Company, XYZ Ltd. for ` 102 per share. These shares were bought by Trio Inc.
on 15th April, 2011 for ` 36.40 per share. Both the purchase and sale of shares
were effected through a recognized stock exchange in India and STT is paid
on purchase and sale. Fair Market Value of these shares on 31-01-2018 was
` 90 per share.
CII for F.Y.2011-12 – 182; F.Y.2023-24 – 348.
Nice Ltd. received the draft order from the Assessing Officer as per section
144C of the Income-tax Act, 1961 due to variations determined by the
Transfer Pricing Officer in the arm’s length price for the A.Y. 2023-24.
However, Nice Ltd. does not prefer to file the objection against the draft order
before the Dispute Resolution Panel; Instead, it wants to file an appeal before
the CIT (Appeals) under section 246A against the final order received from the
Assessing Officer.
From the information given above, choose the most appropriate answer of
MCQs 1 to 4:
1. In respect of payment made by Nice Ltd. for advertising services
provided by Trio Inc., which of the following statements are correct?
(a) Equalisation levy is not attracted and no penalty leviable for non-
deduction
(b) Tax is deductible at source u/s 195 by Nice Ltd. and hence, interest
is payable for non-deduction of TDS
(c) Equalization levy of ` 33,000 is deductible by Nice Ltd. and penalty
of `1,000 per day is attracted for non-deduction
(d) Equalization levy of ` 33,000 is deductible by Nice Ltd. and penalty
of ` 33,000 is attracted for non-deduction
2. Are Nice Ltd. and Trio Inc. associated enterprises? If so, why?
(a) Yes, since loan advanced by Nice Ltd. to Xylo Inc. is not less than
51% of the book value of total assets of Xylo Inc.

DIRECT TAX LAWS & INTERNATIONAL
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TAXATION
(b) Yes, since not less than 50% of the directors of Xylo Inc. are
appointed by Nice Ltd.
(c) Yes, due to either (a) or (b) above.
(d) No, Nice Ltd. and Xylo Inc. are not associated enterprises, since the
loan has been repaid before the end of the previous year i.e.,
before 31.3.2024.
3. Compute the amount of long-term capital gains arising to Trio Inc. on
transfer of listed shares of XYZ Ltd. What would be the tax treatment of
such capital gains under the Income-tax Act, 1961?
(a) ` 42,000. The same would be taxable@10% u/s 112A
(b) ` 42,000. However, the said amount would not be subject to any
tax.
(c) No capital gain would arise, since cost of acquisition would be
` 102.
(d) ` 1,13,400; The same would be taxable@20% u/s 112, since benefit
of concessional rate @10% u/s 112A will not be available to a
foreign company
4. Which of the following statements are correct, in relation to the
remedies available to Nice Ltd. under the Income-tax Act, 1961, if it is
not satisfied with the draft order passed by the Assessing Officer?
(a) It can file an objection before the Dispute Resolution Panel against
the draft assessment order
(b) It can file an appeal before CIT (Appeals) after getting the final
assessment order
(c) Either (a) or (b)
(d) Both (a) and (b)
Case Scenario II
Mr. Bhuvan places bulk order on ABC Marketplace Ltd., an e-commerce
operator for buying 100 toasters, a product listed by DEF Seller, a partnership
firm. ABC Marketplace acts as Buyer-side ECO for Mr. Bhuvan as well as Seller-

side ECO for DEF seller and charges a convenience fee of `10/toaster to DEF
Seller. DEF Seller processes the order and charges the buyer `1170/toaster,
including packaging, shipping and convenience fees. DEF Seller pays XYZ
Logistics ` 5/toaster for shipping, MNO retailer ` 15/toaster for packaging and
convenience fees of ` 10/toaster. DEF Seller raised invoice of ` 1170 per
toaster.
Mr. Sarthak placed an order for 500 decor wall clocks on Open Network for
Digital Commerce (ONDC). These clocks are listed and owned by ABC
marketplace Ltd. Mr. Sarthak made a payment of ` 665/ wall clock on ONDC
platform via Paytm. ONDC credited ` 655/ wall clock after deducting its
convenience fees to ABC Marketplace Ltd. The invoice of ` 665/ wall clock
include shipping charges of ` 10/ wall clock, packaging cost of ` 15/ wall clock
and convenience fees of ` 10/ wall clock.
From the information given above, choose the most appropriate answer of
MCQ 5 to 9:
5. Is there any tax required to be deducted in respect of order placed by
Mr. Bhuvan. If yes, by whom and what amount of tax needs to be
deducted?
(a) Yes, tax of ` 1140 is required to be deducted by ABC Marketplace
Ltd.
(b) Yes, tax of ` 1170 is required to be deducted by ABC Marketplace
Ltd.
(c) Yes, tax of ` 1170 is required to be deducted by DEF Seller
(d) No tax is required to be deducted as order value does not exceed
` 5,00,000.
6. Is there any tax required to be deducted in respect of order placed by
Mr. Sarthak. If yes, by whom and what amount of tax needs to be
deducted?
(a) Yes, tax of ` 3,325 is required to be deducted by ONDC
(b) Yes, tax of ` 3,275 is required to be deducted by ABC Marketplace
Ltd.
(c) Yes, tax of ` 3,325 is required to be deducted by Mr. Sarthak

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TAXATION
(d) No tax is required to be deducted as the order value does not

exceed ` 5,00,000.
7. Would your answer to MCQ 5 be different in respect of the order placed
by Mr. Bhuvan if it is assumed that DEF seller is an Individual and this is
the only sales order received on ABC Marketplace Ltd.?
(a) No, tax of ` 1140 is still required to be deducted by ABC
Marketplace Ltd.
(b) No, tax of ` 1170 is still required to be deducted by ABC
Marketplace Ltd.
(c) No, tax of ` 1170 is still required to be deducted by DEF Seller
(d) Yes, tax is not required to be deducted in this case.
8. Assume that Mr. Bhuvan replaced 5 toasters and returned 5 toasters out
of 100 toasters, what would be the adjustment of tax deduction in respect
of these 10 toasters?
(a) No adjustment is required for tax deducted in respect of replaced
toasters and the amount of tax deducted on returned toasters
would be refunded to DEF seller by ABC Marketplace Ltd.
(b) No adjustment is required for tax deducted in respect of replaced
and returned toasters.
(c) No adjustment is required for tax deducted in respect of replaced
toasters and the amount of tax deducted on returned toasters
would be adjusted against the next sale, if any.
(d) The amount of tax deducted on replaced and returned toasters
would be refunded to DEF seller.
9. Assume that ABC Marketplace Ltd. provides a discount of ` 10 each to
both Mr. Bhuvan and Mr. Sarthak on sale of toasters and wall clocks. Is
there any tax required to be deducted at source? If yes, on what amount
tax is deductible?
(a) Yes; on ` 1,17,000 for sale of toasters and on ` 3,32,500 for wall
clocks

(b) Yes; on ` 1,16,000 for sale of toasters and on ` 3,22,500 for wall
clocks
(c) Yes; on ` 1,17,000 for sale of toasters and on ` 3,27,500 for wall
clocks
(d) No tax is required to be deducted as the order value does not
exceed ` 5,00,000 in both cases.
10. Dynamic Ltd., an Indian company, took on lease a commercial premises
for its operations. After some years, the company decided to vacate the
premises and relocate to a new location. However, disputes arose with
the lessor regarding the terms of vacating the premises. To resolve the
dispute and avoid prolonged litigation, Dynamic Ltd. agreed not to claim
the security deposit of ` 3.4 crores it had initially paid to the lessor at
the start of the lease. Whether the amount of security deposit foregone
by Dynamic Ltd. allowable as deduction while computing business
income?
(a) Yes, allowable as deduction as such expenditure is of revenue
nature and incurred on account of dispute
(b) No, deduction would not be allowed as such expenditure is of
capital nature
(c) Yes, allowable as deduction over the five years period
(d) Yes, allowable as deduction since the amount of foregone security
deposit becomes the income of lessor.
11. Satya Trust, a public charitable trust registered u/s 12AB of the Income-
tax Act, 1961 runs a hospital for the treatment of various diseases. Mr.
Shaurya, son of Mr. Neeraj, who is the founder of this trust, was
admitted in the hospital for heart surgery. He was charged a total fee of
` 3.6 lakhs as against the amount of ` 7.4 lakhs charged by the hospital
for similar treatment to the general public. The Board of trustees are of
the opinion that on account of providing this benefit to Mr. Neeraj, the
registration of the trust can be cancelled, and exemption under section
11 would be denied to the trust in respect of entire income for the P.Y.
2023-24. Is the opinion of the Board of trustees’, correct?

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TAXATION
(a) No; registration cannot be cancelled, however, the exemption

under section 11 would be denied to the trust in respect of entire
income of the trust for the P.Y. 2023-24.
(b) Yes, registration can be cancelled, and trust would not be eligible
for exemption under section 11
(c) No; registration cannot be cancelled, and entire income is eligible
for exemption under section 11.
(d) No; registration cannot be cancelled, and the value of benefit
provided to Mr. Neeraj would be deemed as income of the trust.
12. Mr. Aviral opened a bank account in Country “R” on 1.7.2020. He has
made deposits of foreign currency equivalent to ` 5 lakhs on 1.7.2020,
` 7 lakhs on 1.10.2020, ` 12 lakhs on 1.9.2022 and ` 25 lakhs on
1.3.2024, in that bank, out of Indian income which has not been assessed
to tax in India. The deposit of ` 12 lakhs on 1.9.2022 is made out of the
withdrawal of earlier deposits made on 1.7.2020 and 1.10.2020 with the
said bank. Further, out of ` 25 lakhs deposited by him on 1.3.2024,
Mr. Arvind withdrew ` 2 lakhs on 31.3.2024. The value of an undisclosed
asset in form of bank account under the Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015 will be
taken as:
(a) ` 49 lakhs
(b) ` 47 lakhs
(c) ` 37 lakhs
(d) ` 35 lakhs
13. G Ltd., a resident Indian Company, on 01-04-2023 has borrowed ` 80
crores from M/s. M Inc, a Company incorporated in Country F, at an
interest rate of 8% p.a. The said loan is repayable over a period of 12
years. Further, loan is guaranteed by M/s A Inc incorporated in Country
F. M/s. C Inc, a non-resident, holds shares carrying 40% of voting power
both in M/s G Ltd. and M/s A Inc. M/s C Inc has also deposited
` 80 crores with M/s M Inc.

Interest payable by G Ltd. to M Inc. would be subject to limitation of

interest deduction because –
(i) M/s. C Inc. holds shares carrying 40% voting power in G Ltd.
(ii) M/s. C Inc. holds shares carrying 40% voting power both in G Ltd.
and M/s. A Inc.
(iii) M/s. A Inc. guarantees the loan taken by G Ltd. from M/s. M Inc.
(iv) M/s. C Inc. has deposited ` 80 crores with M/s. M Inc.
The most appropriate answer is -
(a) (i) and (iv) above
(b) (ii) and (iii) above
(c) (i) and (iii) above
(d) Either (a) or (b)
14. M/s Cure Ltd., an Indian company, is engaged in the manufacturing of
pharmaceutical products since 2020. Net profit as per statement of
Profit and Loss for the year ended 31 st March, 2024 was ` 95,45,000 after
debiting or crediting the following items:
(a) Paid ` 6,00,000 as expenses for public issue of shares. The public
issue could not materialize on account of non-clearance by SEBI.
(b) Goods purchased of ` 5 lakhs from M/s Sunny Traders (a micro
enterprise as per MSMED Act, 2006) was delivered on 25.02.2024.
Payment terms were agreed for 25 days from the date of delivery
as per the contract in writing with Sunny Traders. The payment was
actually made on 29.03.2024. However, no Interest or late payment
charges were agreed upon between the parties in case of delay in
payment.
(c) Expense of ` 7,25,000 incurred for providing freebies to medical
practitioners.
(d) Depreciation of ` 12,50,000 charged on the basis of useful life of
assets.
(e) One-time license fee of ` 10 lakhs paid to a foreign Company for
obtaining a franchise on 17 th September, 2023.

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(f) The profit from setting up a warehouse in rural area for storage of
sugar (before claiming deduction under section 35AD) is ` 17
lakhs. The warehouse commenced its operations on
24th November, 2023.
(g) Power subsidy of ` 5,30,500 was received on 12-09-2023 with a
stipulation that the same is to be adjusted in the electricity bills for
the financial year 2022-23. The subsidy received was not included
in the income for the year 2022-23.
(h) The company earned ` 4,80,000 of profit from the sale of 3,000
shares of M/s ABC Ltd., a listed company. The shares were sold on
08-09-2023 for ` 260 per share. The highest price of ABC Ltd.
quoted on stock exchange as on 31.01.2018 was ` 180 per share.
These shares were purchased for ` 100 per share on 16-08-2015.
STT paid both at the time of purchase and sale.
(i) PNB waived a loan of ` 8,00,000 in a one-time settlement which
includes ` 6,00,000 principal amount and ` 2,00,000 of arrear of
interest amount. The loan was taken on 12.9.2020 to meet working
capital requirement.
The Company furnished the following additional information relating to
it:
(i) Company has employed 50 new additional workers during the F.Y.
2023-24 on regular basis w.e.f. 01.07.2023 at the wages of 23,000
per month per employee. The regular employees participate in
recognized provident fund. Wages to Additional workers were paid
through an account payee cheque.
(ii) The company has invested ` 40 lakhs in the construction of a
warehouse (including land of ` 25 lakhs) in a rural area for the
storage of sugar as an additional line of business.
(iii) Depreciation as per the Income-tax Rules, 1962 without
considering any adjustments given above is ` 9,20,000.
(iv) The company's turnover for the financial year 2021-22 was ` 395
crores.
(v) Book Profit of the company for the A.Y. 2024-25 is ` 99.50 lakhs.

Compute the total income of the company and optimum income-tax

liability for the assessment year 2024-25. Your answer must give reasons
for treatment of each item given above and also for the tax liability.
15. XYZ & Co., a partnership firm consisting of three working partners A, B
and C and one non-working partner D, engaged in the business of
manufacturing and selling electric kettles.
Following information is furnished for receipts and payments of the
previous year 2023-24:
(i) Total turnover 2,80,00,000
(ii) Consideration for transfer of plot at New Delhi 57,00,000
[profits on sale is credited to P & L A/c]
(iii) Cash receipts [out of turnover in (i) above] 10,50,000
(iv) Receipts by way of cheque other than A/c payee 2,00,000
cheque [out of turnover in (i) above]
(v) Amount of sales consideration for plot received in 16,80,000
cash [out of (ii) above]
(vi) Total Payments 1,95,00,000
(vii) Cash payments [out of (vi) above] [each payment 4,50,000
does not exceed ` 10,000 except salary of
` 12,000 p.m. made to a clerk which is debited to
P & L A/c]
Net profit as per the Profit and Loss A/c is ` 8,65,000 after debiting or
crediting the following:
- Interest @ 15% is provided to partner B on his capital of ` 10 lakh
as authorized by the partnership deed.
- ` 60,000 p.m. paid as remuneration to each partner as authorised
by partnership deed.
Additional information
- The firm had brought forward business loss of ` 75,000 of
Assessment Year 2020-21. Till A.Y. 2023-24, the firm gets its books
of accounts audited every year.

REVISION TEST PAPER
TAXATION
- The firm acquired plot on 30.4.2019 for ` 12,00,000. Cost Inflation

Index for F.Y. 2019-20 :289; F.Y. 2023-24: 348.
(i) This year firm do not want to get its books of accounts audited.
Advise the firm on this and compute the total income of the firm
for the A.Y. 2024-25.
(ii) Compute the total income of the firm for the A.Y. 2024-25
assuming that instead of ` 2,00,000, firm received ` 4,00,000 by
cheque other than A/c payee cheque.
16. Beta, a Real Estate Investment Trust (REIT), registered under relevant
SEBI Regulations, holds 65% shares in H Ltd. Beta REIT provides the
following information about its income for the F.Y. 2023-24.
(i) Interest income from H Ltd. - ` 12 crores
(ii) Dividend income from H Ltd. - ` 2 crores
(iii) Short-term capital gains on sale of developmental properties -
` 1.2 crore
(iv) Interest received from investments in unlisted debentures of
companies - ` 12 lakhs
(v) Rental income from directly owned real estate assets - ` 2 crores
Mr. Arpan, a resident Indian, holds 70% of the units of the REIT. He
acquired units in the REIT at an issue price of ` 1.5 crores. He does not
have any other income during the year. During the P.Y. 2023-24, REIT
distributed ` 20 crores to its unit holders.
Compute the total income in the hands of Beta Ltd. and Mr. Arpan.
Note: H Ltd. has opted to pay tax under section 115BAA. Ignore TDS
implications.
17. ABC Telecom Ltd. has entered into agreements with various distributors
to sell its prepaid products. According to the agreement, the distributors
purchase prepaid products at a discounted price from ABC Telecom Ltd.
and are free to sell these products at any price below the printed price.
The distributors make a profit based on the margin between their
purchase price and the sale price to retailers or consumers. The
distributors pay for the products in advance, irrespective of when they

sell them. ABC Telecom Ltd. does not credit or pay any income to the
distributors and is not involved in the transactions between the
distributors and third-party buyers.
Examine whether ABC Telecom Ltd. is obligated to deduct tax at source
on the income/profit component earned by the distributors.
18. The Assessing Officer surveyed a popular Sports Complex by the name
"SDX" which is within his jurisdiction at 9:30 pm in the night for
collecting information which may be useful for the purpose of Income-
tax Act, 1961. The concerned Sports Complex is kept open for business
every day between 5 a.m. and 10 p.m. The owner of the Sports Complex
claims that the A.O. could not enter his business premises after sunset
and late in the night. The Assessing Officer wanted to take away with
him the books of account and cash kept at the premises of the Sports
Complex. Examine the validity of the claim made by the owner of Sports
Complex and the proposed action of the Assessing Officer.
19. State with reasons the penalty leviable on each of the three
independent instances:
(1) M/s ABC Trust, an eligible investment fund referred u/s 9A has
filed a statement of its activities for the year ended 31-3-2024 on
31-7-2024.
(2) Meena Caterers has received ` 1 lakh in cash and ` 9 lakh by
account payee cheque from Mr. Arvind for rendering catering
services on the occasion of his daughter's wedding.
(3) The premises of Tip Ltd. was searched and undisclosed income of
` 18 crores was determined. The Company did not admit the
undisclosed income in a statement under section 132(4) but
declared the same in a return furnished and paid the tax with
interest thereon.
20. Mr. Ram Prakash, a resident Indian aged 58 years, has business interest
in India and in some other foreign nations also. He has derived income
from two other nations X and Y, with which India does not have DTAA.
The particulars of income earned in the two nations X, Y and in India
during the P.Y. 2023-24 are as under:

REVISION TEST PAPER
TAXATION
Particulars of Income (`)

X Y India
Gross rental receipts from -
2,50,000 2,50,000
commercial property
Share income from Partnership
firm (loss) [The partnership deed -
(1,20,000) (1,30,000)
was not evidenced by an
instrument in writing]
Business income 2,80,000 3,40,000 1,80,000
STCG from sale of vacant site on -
10,80,000 Nil
11.11.2023
Long-term capital gains on sale of 37,00,000
residential house in Delhi on - -
1.3.2024
Agricultural Income 3,40,000 1,80,000 5,20,000
The following investments were made in India during the year ended
31.3.2024:
Particulars of Income (`)

Purchase of residential house at Delhi on 18.3.2024 in 25,00,000
joint name with spouse
Contribution to PPF 1,50,000
Income-tax rate structure:

Country X
(`) Tax rate

Upto ` 3 lakhs Nil
` 3 to ` 6 lakhs 15%
Above ` 6 lakhs 22%
Country Y
Flat 27% without any basic exemption limit.

Tax treatment/ concessions in other nations

(i) No statutory allowance/deduction in respect of house property
income in Country X as well as Country Y.
(ii) Loss from firm can be set off against other business income in
Country Y only (and not in Country X).
(iii) Agricultural income is exempt in Country X only (and not in
Country Y).
Compute the net tax liability of Mr. Ram Prakash for the assessment year
2024-25 assuming that he is paying tax under section 115BAC.
21. Peter Inc., is a company incorporated under the laws of USA. The value
of its global assets are ` 50 crores. The value of assets in India are ` 25
crores. Its turnover during the P.Y. 2023-24 is US $ equivalent to ` 90
crores. Out of 10 board meetings held during the F.Y.2023-24, only 4
meetings are held in India. The key management and commercial
decisions for conduct of the company’s business as a whole are,
however, made by the directors located in India at the meetings held in
India. Your client, Payal Ltd, an Indian company, wishes to remit an
amount towards professional fees to Peter Inc. on which tax is required
to be deducted in India.
Determine the residential status of Peter Inc. for A.Y.2024-25 under the
Income-tax Act, 1961. Advise Payal Ltd as to whether tax on fees for
professional services paid to Peter Inc. has to be deducted under section
194J or section 195.
22. B Ltd. is an Indian Company located in Special Economic Zone (SEZ) in
which TQR Inc., a Country C company is holding 30% shares and voting
power. Following transactions were entered between these two
companies during the year 2023-24:
(a) B Ltd. sold 90,000 pieces of LED sticks at $ 10 per LED stick to TQR
Inc. Identical LED sticks were sold by B Ltd. to an unrelated party,
namely, G Inc. in Country C at $ 12 per LED stick.
(b) B Ltd. borrowed loan of $ 3,50,000 from a Country C lender on the
strength of guarantee given by TQR Inc. and for the purpose of
giving guarantee, B Ltd. paid $ 15,000 as guarantee fee to TQR Inc.

REVISION TEST PAPER
TAXATION
However, for the same amount of loan taken by an unrelated party

in India, TQR Inc. had charged guarantee fees of $ 12,000.
(c) B Ltd. paid $ 18,000 to TQR Inc. for getting the details of various
potential customers to improve its business outside India in global
market. TQR Inc. provided the same services and details to an
unrelated party in India for $ 16,000.
Examine the relationship of B Ltd. and TQR Inc. of Country C and the
nature of various transactions entered into between them during the
year 2023-24.
(i) What are the adjustments, if any, required to be made to the total
income of B Ltd. under transfer pricing provisions. One Country C
dollar may be taken as ` 85.
(ii) If the said adjustments are made by the Assessing Officer, can B
Ltd. claim deduction under section 10AA in respect of the
enhanced income?
SUGGESTED ANSWERS
MCQ No. Most Appropriate MCQ No. Most Appropriate

Answer Answer
1. (d) 8. (c)
2. (a) 9. (c)
3. (b) 10. (b)
4. (c) 11. (d)
5. (b) 12. (c)
6. (a) 13. (d)
7. (d)

14. Computation of Total Income of M/s Cure Ltd. for the Assessment
Year 2024-25 under normal provisions of the Act
Particulars ` `
I Profits and gains from business or
profession
Net profit as per statement of profit 95,45,000
& loss
Add: Item debited but to be
considered separately or disallowed
(a) Expenditure for public issue of 6,00,000
shares
[Share issue expenses is a capital
expenditure, even though it could not
go in for public issue on account of
non-clearance by SEBI. Such
expenditure was incurred only for the
purpose of expansion of the capital
base of the company. Since the same
has been debited to statement of
profit and loss, it has to be added
back]
(b) Payment to micro enterprise -
for purchases
[As per section 43B(h), no deduction
shall be allowed for any sum payable
by an assessee to a micro or small
enterprise unless such sum is actually
paid, where a due date of payment is
agreed upon in writing, within such
due date, subject to a maximum of 45
days from the day of acceptance/
deemed acceptance. Deduction is
allowed in that previous year in which
such sum is actually paid.

REVISION TEST PAPER
TAXATION
In this case the actual date of

payment is 29.03.2024 i.e. before
31.03.2024. Hence, purchase of ` 5
lakhs shall be allowed as deduction
because the payment was made
before 31.03.2024]
(c) Expenses on freebies to 7,25,000
medical practitioners
[Expenses incurred for providing
freebies to medical practitioners are
an expense which is prohibited by the
law. Any expenditure incurred for any
purpose which is prohibited by law is
not deemed to have been incurred
for the purpose of business or
profession and hence, has to be
disallowed from business income]
(d) Depreciation on the basis of 12,50,000
useful life of assets
(e) One-time license fee 10,00,000 35,75,000
[Franchise is in the nature of an
intangible asset eligible for
depreciation @25%. Since one-time
license fees of ` 10 lakhs paid to a
foreign company for obtaining
franchise has been debited to
statement of profit and loss, the
same has to be added back]
1,31,20,000
Less: Items credited but to be
considered separately/ permissible
expenditures and allowances
(f) Profit from setting of warehouse 17,00,000
in rural area for storage of sugar

[Since it is a specified business, its

profits would be computed separately]
(g) Power subsidy received from -
the Central Government
[As per ICDS VII, Government grant
(subsidy) which is receivable as
compensation for expenses or losses
incurred in a previous financial year
shall be recognized as income of the
period in which it is received. It
would be taxable in P.Y. 2023-24 as
the subsidy is received in P.Y.
2023-24. Since such subsidy has been
credited to statement of profit and
loss, no further adjustment is
required]
(h) Profit from sale of shares of 4,80,000
M/s ABC Ltd.
[Capital gain on sale of shares of ABC
Ltd. is liable to tax under the head
“Capital Gains”. Since the profit on
sale of shares has been credited to
the statement of profit & loss, the
same has to be deducted while
computing business income]
(i) Waiver of principal on bank loan -
[Waiver of principal amount of loan
taken for working capital requirement
is a benefit in respect of a trading
liability by way of remission or
cessation thereof and is, hence,
taxable u/s 41(I). Since the principal
amount has already been credited to
statement of profit and loss, no
adjustment is required]

REVISION TEST PAPER
TAXATION
(i) Waiver of interest on bank 2,00,000

loan
[As per section 43B, since the interest
is allowable only on actual payment,
deduction in respect of interest due
loan would not have been allowed as
deduction in any previous year.
Therefore, waiver of such interest
cannot be brought to tax by invoking
section 41(1). Since such interest has
been credited to statement of profit
and loss, the same has to be
deducted while computing business
income].
AI(iii) Depreciation as per Income-
tax Rules, 1962
- On Franchise Fee 2,50,000
[` 10 lakhs x 25%]
- On other assets 9,20,000 11,70,000 35,50,000
Profits & Gains from manufacture 95,70,000
of pharmaceutical products
Profits & gains from setting of
warehouse in rural area for
storage of sugar
Net profit before deduction u/s 17,00,000
35AD
Less: Deduction u/s 35AD [100% 15,00,000 2,00,000
deduction u/s 35AD in respect of
cost of warehouse (` 40 lakhs – ` 25
lakhs, being cost of land, not
allowable)]
97,70,000

II Income from Capital Gains

Long-term capital gains on sale of
shares M/s ABC Ltd. [Since shares
were held for more than 12 months]
Full Value of consideration (3000 7,80,000
shares X ` 260)
Less: Cost of acquisitions [higher of 5,40,000 2,40,000
(i) and (ii)]
(i) Actual cost of acquisition
(3000 X ` 100) ` 3,00,000
(ii) Being lower of fair market
value as at 31.01.2018 (i.e.
` 5,40,000 being 3000 x
` 180) and sale consideration
(i.e. ` 7,80,000)
Gross Total Income 1,00,10,000
Less: Deduction under Chapter VI-A
Under Section 80JJAA (` 23,000 x 9 x 50) 31,05,000
x 30%
Total Income 69,05,000
Computation of tax liability for the A.Y. 2024-25 under normal

provisions of the Act
Particulars `
Tax on Long-term capital gains u/s 112A 14,000
= 10% of (` 2,40,000 – 1,00,000)
Tax on remaining income of ` 66,65,000 @25% [Since 16,66,250
turnover during F.Y. 2021-22 is less than ` 400 crores
16,80,250
Add: Health & education cess @4% 67,210
17,47,460

REVISION TEST PAPER
TAXATION
Computation of tax liability of M/s Cure Ltd. for the A.Y. 2024 -25
under section 115JB
Particulars `
Minimum Alternate Tax @15% on book profit of 14,92,500
` 99,50,000
Add: Health and Education cess@4% 59,700
Tax liability under section 115JB 15,52,200
Computation of Total Income of M/s Cure Ltd. for the Assessment

Year 2024-25 under section 115BAA
Particulars `
Total Income under regular provisions of the Act 69,05,000
Add: Deduction u/s 35AD 15,00,000
84,05,000
Less: Depreciation @10% on warehouse building 1,50,000
Total Income under section 115BAA 82,55,000
Tax liability
Tax on Long-term capital gains u/s 112A 14,000
= 10% of (` 2,40,000 – 1,00,000)
Tax on remaining income of ` 80,15,000 @22% 17,63,300
17,77,300
Add: Surcharge @10% 1,77,730
19,55,030
Add: Health & education cess @4% 78,201
Tax liability 20,33,231
Tax liability (Rounded off) 20,33,230
Suggestion to M/s Cure Ltd.

Since the tax liability under the regular provisions of the Act is
` 17,47,460, which is higher than MAT liability vis-à-vis tax liability of
` 20,33,230 computed under section 115BAA, it is not beneficial for Cure

Ltd. to opt for the special provisions under section 115BAA for A.Y.
2024-25.
15. (i) As per section 44AD, a resident individual, HUF or Partnership firm
(but not LLP) engaged in eligible business and who has not
claimed deduction under section 10AA or Chapter VIA under “C –
deductions in respect of certain incomes” is an eligible assessee.
Eligible business means whose total turnover/ gross receipts in the
P.Y. ≤ ` 200 lakhs or >` 200 lakhs but ≤ ` 300 lakhs, if its cash
receipts do not exceed 5% of total turnover/gross receipts. Such
eligible assessee can declare 8%/6%, as the case may be, of total
turnover/ sales/ gross receipts or a sum higher than the aforesaid
sum claimed to have been earned by the assessee, as its business
income.
In this case, XYZ & Co., a partnership firm, can declare profits as per
the presumptive provisions of section 44AD, since the percentage of
receipts in cash of ` 12.50 lakhs to the total turnover/gross receipts
of ` 280 lakhs is 4.46%. In such a case, it is not required to get its
books of account audited under section 44AB.
Computation of total income of XYZ & Co. for the A.Y. 2024-25
Particulars ` `
Profits and Gains of business or
profession
Presumptive income under section 17,05,000
44AD [` 16,05,000, being 6% of
` 2,67,50,000 (excluding cash receipts
and amount received by cheque other
than A/c payee cheque and ` 1,00,000,
being 8% of ` 12,50,000] [See Note 1]
Less: Brought forward business loss
under section 72 [See Note 2] 75,000
16,30,000

REVISION TEST PAPER
TAXATION
Capital Gains
Sale consideration 57,00,000
Less: Indexed cost of acquisition 14,44,983
[` 12,00,000 x 348/289]
Long-term capital gains, since plot is 42,55,017
held for more than 24 months
Gross Total Income/ Total Income 58,85,017
(Rounded off)
Notes:
(1) Interest on capital and working partner salary are not
deductible while computing the presumptive income of a
partnership firm under section 44AD.
(2) Brought forward business loss of assessment year 2020-21
can be set-off against current year business income as per
section 72.
(ii) In case, XYZ & Co. received ` 4,00,000 instead of ` 2,00,000 by
cheque other than A/c payee cheque it cannot declare profits as
per the presumptive provisions of section 44AD, since the
percentage of cash receipts of ` 14.50 lakhs to the total
turnover/gross receipts of ` 280 lakhs is 5.17%.
As per section 44AB, every person carrying on business or
profession is required to get his accounts audited before the
“specified date”, if the total sales, turnover or gross receipts in
business exceeds ` 1 crore in any previous year.
However, tax audit is not required in case of such person carrying
on business whose total sales, turnover or gross receipts in
business ≤ ` 10 crore in the relevant previous year (P.Y.), if -
- aggregate cash receipts including amount received for sales,
turnover, gross receipts in the relevant previous year ≤ 5% of
such receipts; and

- aggregate cash payments including amount incurred for

expenditure in the relevant P.Y. ≤ 5% of such payments or
In this case, the turnover of XYZ & Co. exceeds ` 1 crore but does
not exceed ` 10 crore. Accordingly, percentage of cash receipts to
aggregate receipts and percentage of cash payments to aggregate
payments need to be checked.
The percentage of cash receipts of ` 31.30 lakhs [` 16,80,000 +
` 10,50,000 + ` 4,00,000] to aggregate receipts of ` 337 lakhs is
9.287% and the percentage of cash payments of ` 4,50,000 to
aggregate payments of ` 1,95,00,000 is 2.308%.
Since the cash receipts made during the year exceed 5% of
aggregate receipts, the firm is required to get its accounts audited
under section 44AB.
Computation of total income of XYZ & Co. for the A.Y. 2024-25
Particulars ` `
Net profit as per profit & loss 8,65,000
account
Add: Interest paid to partner B 30,000
allowable to the extent of 12%.
Thus, excess interest of ` 30,000
[3% of ` 10 lakhs] would be
disallowed.
Salary paid to working partners 28,80,000
considered separately.
Salary to clerk would be 1,44,000
disallowed as per section 40A(3),
since payment exceeding ` 10,000
made in cash [` 12,000 x 12]
39,19,000
Less: Profit on sale of land [Taxable 45,00,000
under the head “Capital Gains”]
Book Profits/loss (5,81,000)

REVISION TEST PAPER
TAXATION
Less: Salary to working partners -

(i) As per section 1,50,000
40(b) in case of
loss, limit is
(ii) Salary actually 21,60,000
paid only to
working partners
Deduction 1,50,000
allowed being (i)
or (ii), whichever
is less
Business Loss (It can be set-off 7,31,000
against long-term capital gains
Brought forward business loss relating
to A.Y. 2020-21 of ` 75,000 will be
carried forward to the subsequent year
Capital Gains
Sale consideration 57,00,000
Less: Indexed cost of acquisition 14,44,983
[` 12,00,000 x 348/289]
Long-term capital gains, since plot is 42,55,017
held for more than 24 months
Less: Current year business loss (7,31,000) 35,24,017
(Rounded off)
16. Computation of total income in the hands of Beta, REIT and

Mr. Arpan (unit-holder)
Particulars Beta (REIT) Mr. Arpan

(Unit-holder)
(i) Interest income of ` 12 crores Nil 8,40,00,000
from H Ltd. (SPV)
Interest income from SPV would be

exempt in the hands of REIT by virtue

of section 10(23FC)(a).
The component of such interest
income distributed to unit holders
would be deemed as income of the
unit holders as per section 115UA(3).
Accordingly, ` 8.4 crores being 70%
of ` 12 crores is taxable in the hands
of the unitholder Mr. Arpan.
(ii) Dividend income of ` 2 crores Nil 1,40,00,000
from H Ltd. (SPV)
The dividend distributed by the SPV
to the REIT is exempt in the hands of
REIT by virtue of section 10(23FC)(b).
The component of such dividend
income distributed to unitholders is
taxable in the hands of unitholders by
virtue of the exception contained in
section 10(23FD), since H Ltd. (SPV)
has exercised the option u/s 115BAA.
Accordingly, ` 1.40 crore, being 70%
of ` 2 crores, would be taxable in the
hands of the unitholder Mr. Arpan.
(iii) Short-term capital gains of 1,20,00,000 Nil
` 1.2 crore on sale of
developmental properties
STCG on sale of development
properties is taxable at maximum
marginal rate in the hands of the REIT
as per section 115UA(2).
There would be no tax liability in the
hands of the unit holders on the
capital gain component of income
distributed to them by virtue of
exemption contained in section
10(23FD).

REVISION TEST PAPER
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(iv) Interest of ` 12 lakh received in 12,00,000 Nil

respect of investment in unlisted
debentures of companies
Such interest is taxable at maximum
marginal rate in the hands of the REIT
as per section 115UA(2).
There would be no tax liability in the
hands of the unit holders on the
interest component of income
distributed to them by virtue of
section 10(23FD).
(v) Rental income of ` 2 crores Nil 1,40,00,000
from directly owned real estate
assets
Income by way of renting or leasing
or letting out any real estate asset
owned directly by REIT is exempt in
the hands of the REIT as per section
10(23FCA).
However, the component of such
rental income distributed to
unitholders is deemed as income of
the unit holders as per section
115UA(3). Accordingly, ` 1.4 crores,
being 70% of ` 2 crores would be
taxable in the hands of Mr. Arpan.
(vi) Other income distributed to - 37,60,000
unitholders
As per section 115UA(3A), any sum
other than interest and dividend
received from SPV, rental income and
income which are chargeable to tax in
the hands of REIT, in the present case
it is STCG on sale of developmental
properties and interest on unlisted
debentures, would be chargeable to

tax under section 56(2)(xii) in the

hands of unitholders as income from
other sources. In the present case,
` 37,60,000 [` 1.876, being 70% of
` 2.68 [` 20 crores – ` 17.32 (` 12
crores + ` 2 crores + ` 1.2 crores +
` 12 lakhs + ` 2 crores)] Less ` 1.5
crores, being the issue price of units
held by Mr. Arpan} would be taxable
as Income from other sources.
Total income 1,32,00,000 11,57,60,000
16. The same issue came up before the Supreme Court in the case of Bharti
Cellular Ltd. vs. ACIT [2024] 462 ITR 247, wherein the Apex Court noted
that the obligation to deduct tax at source in terms of section 194H
arises when the legal relationship of principal and agent is established.
Agency is a triangular relationship between the principal, agent and the
third party. The legal position of a distributor is generally regarded as
different from that of an agent. Based on perusal of agreement between
assessee and distributors / franchisee, the franchisee/distributor paid the
discounted price regardless of, and even before, the pre-paid products
being sold and transferred to the retailers or the actual consumer. The
franchisee/distributor was free to sell the prepaid products at any price
below the price printed on the pack. The franchisee/distributor
determined his profits/income.
Section 194H fixes the liability to deduct tax at source on the 'person
responsible to pay' and the liability to deduct tax at source arises when
the income is credited or paid by the person responsible for paying. The
expression "direct or indirect" used in Explanation (i) to section 194H is
meant to ensure that "the person responsible for paying" does not
dodge the obligation to deduct tax at source, even when the payment is
indirectly made by the principal-payer to the agent-payee. However,
deduction of tax at source in terms of section 194H is not to be
extended and widened in ambit to apply to true/genuine business
transactions, where the assessee is not the person responsible for paying
or crediting income. In the present case, the ABC Telecom Ltd., being an

REVISION TEST PAPER
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assessee neither pays nor credit any income to the person with whom he
has contracted.
ABC Telecom Ltd. is not privy to the transactions between
distributors/franchisees and third parties. It is, therefore, impossible for
ABC Telecom Ltd. to deduct tax at source and comply with section 194H,
on the difference between the total/sum consideration received by the
distributors/franchisees from third parties and the amount paid by the
distributors/franchisees to them. In the present case, the contractual
obligations of the franchises or distributors did not reflect a fiduciary
character of the relationship, or the business being done on the
principal’s account.
Applying the rationale of the Apex Court ruling in the case on hand,
section 194H is not applicable in the hands of ABC Telecom Ltd. and it
would not be under a legal obligation to deduct tax at source on the
income/profit component in the payments received by the
distributors/franchisees from the third parties/customers.
17. The Assessing Officer can exercise his power of survey under section
133A only after obtaining the approval of the Principal Director General
or the Director General or the Principal Chief Commissioner or the Chief
Commissioner.
Assuming that he has obtained such approval in this case, he is
empowered under section 133A to enter any place of business of the
assessee within his jurisdiction only during the hours at which such place
is open for the conduct of business.
In the case given, the “SDX” a popular Sports Complex is open from 5.00
a.m. to 10.00 p.m. for the conduct of business. The Assessing Officer
entered the Sports Complex at 9:30 pm in the night which falls within
the working hours of the Sports Complex.
Therefore, the claim made by the owner to the effect that the Assessing
Officer could not enter the Sports Complex at night is not valid.
Further, as per section 133A(3)(ia), the Assessing Officer may, impound
and retain in his custody for such period as he thinks fit, any books of
account or other documents inspected by him after recording reasons
for doing so. However, the Assessing Officer cannot remove cash kept at

the sports complex. Moreover, he shall not retain any books of account
or other documents in his custody for a period exceeding 15 days
(excluding holidays) without obtaining the approval of the Principal
Chief Commissioner or Chief Commissioner or Principal Director General
or Director General or the Principal Commissioner or Commissioner or
Principal Director or Director, as the case may be.
19. (1) An eligible investment fund, in respect of its activities in a financial
year, is required to furnish within 90 days from the end of the
financial year (i.e., by 29th of June), a statement of its activities to
the prescribed Income-tax authority under section 9A(5).
In the present case, M/s ABC Trust, an eligible investment fund has
furnished its statement of its activities on 31.7.2024, i.e., after 29 th
June 2024, being the due date of furnishing such statement,
accordingly penalty of ` 5,00,000 would be attracted under section
271FAB.
(2) No penalty would be leviable on Meena caterers under section
271DA, since it received only ` 1 lakh in cash, (which is less than
the permissible threshold of ` 2 lakhs) in respect of transactions
relating to rendering of catering services on the occasion of
Mr. Arvind’s daughter marriage from Mr. Arvind. The balance ` 9
lakh was paid by way of account payee cheque which is a
permissible mode of payment.
(3) As per section 271AAB(1A), penalty @60% of undisclosed income
would be attracted, since Tip Ltd. had not admitted the
undisclosed income in a statement under section 132(4) though
declared the same in a return furnished and paid the tax with
interest thereon.
20. Computation of total income of Mr. Ram Prakash for the
A.Y. 2024-25
Particulars `
Income from house property
Rent received [` 2.5 lakhs +` 2.5 lakhs] 5,00,000
Less: Deduction u/s 24(a) at 30% of NAV 1,50,000 3,50,000

REVISION TEST PAPER
TAXATION
Profits and gains of business or

profession
Own business income [` 2,80,000 (Country 8,00,000
X) + ` 3,40,000 (Country Y) + ` 1,80,000
(India)]
Loss from partnership firm in Country X (2,50,000) 5,50,000
[` 1.2 lakh] and Country Y [` 1.3 lakhs]
[Share of profit from foreign firm is not
exempt, since the partnership is not
evidenced by an instrument. Hence, loss
can be set-off against business income]
Capital gains
Long-term capital gains on transfer of 37,00,000
residential house in Delhi
Less: Exemption u/s 54 – Purchase of
residential house in Delhi in joint 25,00,000
name with wife within two years
from the date of transfer
Net long-term capital gains 12,00,000
Short-term capital gains on transfer of 10,80,000 22,80,000
vacant site in Country X
Income from other sources
Agricultural income in Country X and 5,20,000
Country Y [` 3.4 lakhs + ` 1.8 lakhs]
Agricultural income from land situated in - 5,20,000
India [exempt u/s 10(1)]
Gross Total Income 37,00,000
Less: Deduction under Chapter VI-A: -
Section 80C – PPF [Not available as
per section 115BAC]
Total Income 37,00,000

Computation of net tax liability of Mr. Ram Prakash for A.Y.2024-25
Particulars `
Tax on ` 42.2 lakhs, being non-agricultural income

[` 37 lakhs] + agricultural income [` 5.2 lakhs]
Tax on LTCG of ` 12 lakhs@20% 2,40,000
Tax on other income of ` 30.2 lakhs
Upto ` 3,00,000 Nil
` 3,00,001 – ` 6,00,000 [i.e., ` 3,00,000 @5%] 15,000
` 6,00,001 – ` 9,00,000 [i.e., ` 3,00,000 @10%] 30,000
` 9,00,001 – ` 12,00,000 [i.e., ` 3,00,000 @15%] 45,000
` 12,00,001 – ` 15,00,000 [i.e., ` 3,00,000 @ 60,000
20%]
` 15,00,001 – ` 30,20,000 [i.e., ` 15,20,000 @ 4,56,000 6,06,000
30%]
8,46,000
(-) Tax on ` 8.2 lakhs, being agricultural Income [` 5.2 37,000
lakhs] + Basic Exemption Limit [` 3 lakhs]
8,09,000
Add: Health and education cess @4% 32,360
8,41,360
Indian rate of tax = 8,41,360 x 100/37,00,000 = 22.74%
Less: Rebate u/s 91 on income of Country X + Country Y 3,63,314
Net Tax liability 4,78,046
Net Tax liability (Rounded off) 4,78,050

REVISION TEST PAPER
TAXATION
Computation of average rate of tax in Country X
Particulars `
Gross rental receipts from commercial property [No 2,50,000
deduction is allowed from this in Country X]
Share income from partnership firm (loss) to be ignored -
Business income 2,80,000
STCG from sale of vacant site on 11-11-2023 10,80,000
Agricultural income [Exempt in Country X] -
Total income 16,10,000
Rates of tax in Country X
Upto 3 lakhs Nil -
3 to 6 lakhs 15% 45,000
Above 6 lakhs 22% 2,22,200
2,67,200
Average rate of tax in Country X = 2,67,200 x
100/16,10,000 = 16.596%
Computation of Rebate u/s 91
Particulars `
Country X
Gross rental receipts form commercial property (` 2.5 1,75,000
lakhs – ` 0.75 lakhs, being 30% of ` 2.5 lakhs)
Share of loss from partnership firm (1,20,000)
STCG from sale of vacant site on 11-11-2023 10,80,000
Agricultural income [Not included in doubly taxed -
income as it is exempt in Country X]
Doubly Taxed Income (in Country X) 14,15,000
Double Taxation Relief at Indian rate of tax (22.74%) or 16.596%
rate of tax in Country E (16.596%), whichever is lower
Double Taxation Relief = 16.596% of ` 14.15 lakhs
= ` 2,34,833

Country Y
Gross rental receipts from commercial property [` 2.5 1,75,000
lakhs (-) 30% of ` 2.5 lakhs]
Share of loss from partnership firm (1,30,000)
Agricultural income 1,80,000
Doubly Taxed Income (in Country Y) 5,65,000
Rate of tax in Country Y 27%
Double Taxation Relief at Indian rate of tax (22.74%) or 22.74%
rate of tax in Country Y (27%), whichever is lower
Double Taxation Relief = 22.74% of ` 5,65,000
= ` 1,28,481
Double Taxation Relief [Country X & Country Y] 3,63,314
= ` 2,34,833 + ` 1,28,481
21. In the given case, Peter Inc. is a company incorporated under the laws of
USA and hence, it is a foreign company under the Income-tax Act, 1961.
However, the said company shall be considered to be resident in India if
its place of effective management is in India. In this case, the company
does not satisfy the active business outside India test since 50% of its
assets are located in India. Since it has failed the active business test
outside India on account of 50% of its assets being located in India, the
persons who take key management and commercial decisions for
conduct of the company’s business as a whole and the place where the
decisions are made are the key factors in determining whether the
POEM of the company is in India. The facts of the case clearly state that
the key management decisions and commercial decisions for conduct of
the company’s business as a whole are made by the directors located in
India and at the meetings held in India. Therefore, the POEM of Peter
Inc. is in India in the P.Y.2023-24, irrespective of the fact that majority of
the board meetings are held outside India.
Section 194J applies when professional fees are being paid to a resident,
whereas section 195 applies when payments are made to a non-
corporate non-resident or a foreign company. Section 194J is income

REVISION TEST PAPER
TAXATION
specific and section 195 is payee specific. CBDT vide Notification No.
29/2018 dated 22 nd June 2018 has clarified that the foreign company
shall continue to be treated as a foreign company even if it is said to be
resident in India on account of its POEM being in India, and all the
provisions of the Act shall apply accordingly. Where more than one
provision of Chapter XVII-B of the Act applies to the foreign company as
resident as well as a foreign company, the provision applicable to the
foreign company alone shall apply. Further, in case of conflict between
the provision applicable to the foreign company as resident and the
provision applicable to it as foreign company, the latter shall generally
prevail. Hence, Payal Ltd shall deduct tax under section 195 while
making payment of fees for professional services to Peter Inc., a foreign
company resident in India.
22. B Ltd, the Indian company and TQR Inc., the Country C company are
deemed to be associated enterprises as per section 92A(2)(a), since TQR
Inc. holds shares carrying 30% of voting power (which is not less than
26% of the voting power) in B Ltd.
As per Explanation to section 92B, the transactions entered into between
two associated or deemed associated enterprises for sale of product,
lending or guarantee and provision of services relating to market
research are included within the meaning of “international transaction”.
Accordingly, transfer pricing provisions would be attracted and the
income arising from such international transactions have to be
computed having regard to the arm’s length price.
(i) In this case, from the information given, the arm’s length price has
to be determined by taking the comparable uncontrolled price
(CUP) method to be the most appropriate method.
Particulars ` in lakhs
Amount by which total income of B Ltd. is
enhanced on account of adjustment in the value of
international transactions:
(i) Difference in price of LED stick @ $ 2 each 153.00
for 90,000 pieces sold to TQR Inc. [$ 2 ($ 12 -
$ 10) x 90,000 x ` 85)

(ii) Difference for excess payment of guarantee 2.55

fee to TQR Inc. for loan borrowed from
foreign lender [$ 3,000 ($ 15,000 - $ 12,000) x
` 85]
(iii) Difference for excess payment for services to
TQR Inc. [$ 2,000 ($ 18,000 - $ 16,000) x ` 85] 1.70
157.25
(ii) B Ltd. cannot claim deduction under section 10AA in respect of

` 157.25 lakhs, being the amount of income by which the total
income is enhanced by virtue of the first proviso to section 92C(4),
since the adjustments are made by the Assessing Officer to
determine the arm’s length price.

PAPER – 5:
INDIRECT TAX LAWS
(1) All questions have been answered on the basis of position of (i) GST
law as amended by the Finance Act, 2023 including significant
notifications and circulars and other legislative amendments made,
up to 30th April, 2024 and (ii) customs law as amended by the
Finance Act, 2023 including significant notifications and circulars
and other legislative amendments made, up to 30th April, 2024.
(2) Unless otherwise specified, the section numbers and rules referred
in questions and answers relating to GST pertain to the Central
Goods and Services Tax Act, 2017 and the Central Goods and
Services Tax Rules, 2017 respectively.
(3) 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. The rates of customs
duty are also hypothetical and may not necessarily be the actual
rates. Further, GST compensation cess should be ignored in all the
questions, wherever applicable.
QUESTIONS
Case scenario - I
Shreyans Ltd. (hereinafter referred as “company”) is a conglomerate having
diversified businesses including hotels, FMCG (Fast-Moving Consumer Goods),
information technology etc. It has its corporate office in Delhi and operations
across multiple States in India. As an internal policy, the company has
obtained single GST registration in each State irrespective of the diversified
business operations being undertaken in the State. During the month of April,
the company undertook the following transactions:
(a) The FMCG division of the company in Jaipur, Rajasthan agreed to use
the vacant godown within the premises of Hotel Division in Udaipur,
Rajasthan for storage of its goods. The value of such an arrangement
was agreed at ` 5 lakh per month. Said amount was agreed to be
adjusted by way of intra-division book adjustment on a monthly basis.
(b) The Hotel Division of the company in Maharashtra used the IT platform
owned and managed by the IT Division of the company in Delhi. The
value of such services was determined as ` 12 lakh per month. The IT
division treated the same as deemed supply liable to GST as per
Schedule I of the CGST Act, 2017 and charged GST on such deemed
supply in the invoice issued to Hotel Division on 25th April. The Hotel
Division availed the input tax credit of such deemed supplies from its
Maharashtra Office in April itself. However, no payment was made for
such services by the Hotel Division to the IT Division.
(c) The Executive Director, as part of his salary and perquisites under the
employment agreement, was eligible for a voucher worth ` 5 lakh,
redeemable at any hotel property of the company in India. The voucher
was used by the Executive Director for the stay of his family in a
company owned hotel in Udaipur, Rajasthan. The total amount charged
from the Executive Director was ` 25 lakh. The voucher value of ` 5 lakh
was deducted from such amount at the time of payment.
(d) The Hotel Division provided accommodation services to a US citizen and
resident for a wedding ceremony organized at its hotel in Udaipur,
Rajasthan. The total amount of ` 2 crores for such services was paid by
an Indian individual residing in Delhi on behalf of the US resident in
Indian currency. The amount was received by the Mumbai, Maharashtra
Office of Hotel Division.
(e) The company received long term lease of an industrial plot from
Maharashtra Industrial Development Corporation (MIDC) in auction
against payment of an upfront amount as lease premium of ` 20 crores
for a period of 50 years. The company paid location charges of ` 5
crores in addition to the said premium.
The rate of GST in case of intra-State supplies, unless otherwise provided shall
be 9% CGST and 9% SGST) and for inter-State supplies shall be 18% IGST. All

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INDIRECT TAX LAWS
the divisions of the Company are eligible for 100% input tax credit unless
otherwise specified.
Based on the facts of the case scenario given above, choose the most
appropriate answer to Q. Nos. 1 to 5 below:-
1. Which of the following statements is correct in respect of the services
related to usage of vacant godown?
(a) The Hotel Division shall charge CGST and SGST amounting to
` 45,000 each in the tax invoice issued to FMCG Division.
(b) No GST is chargeable on usage of vacant godown of Hotel
Division.
(c) The Hotel Division shall charge IGST amounting to ` 90,000 in the
tax invoice issued to FMCG Division.
(d) The Hotel Division, Rajasthan shall charge IGST amounting to
` 90,000 in the tax invoice issued to Corporate Office in Delhi.
2. Assuming that the payment for utilization of IT platform has not been
made by the Hotel Division to the IT Division till the end of October
month of the current financial year, the Hotel Division:
(a) should reverse the input tax credit so availed while filing Form
GSTR-3B of the October month.
(b) need not reverse the input tax credit so availed in Form GSTR-3B
of the October month.
(c) should have availed the input tax credit only after the end of the
current financial year and not in April.
(d) should not have availed the input tax credit in respect of said
transaction as the same is deemed supply under Schedule I of the
CGST Act, 2017.
3. In relation to the stay of Executive Director’s family in the company owned
hotel in Udaipur, Rajasthan, value of supply of accommodation services
provided by the Hotel Division is:
(a) ` 25 lakh
(b) ` 20 lakh

(c) Supply of services by employer to employee is not a taxable supply

under GST.
(d) ` 5 lakh
4. For the accommodation services provided to the US resident and citizen,
the place of supply shall be:
(a) Udaipur
(b) Delhi
(c) Mumbai
(d) USA
5. In respect of the long-term lease of the industrial plot received from
Maharashtra Industrial Development Corporation (MIDC),
(a) upfront lease premium of ` 20 crores is exempt. However, the
location charges of ` 5 crore are liable to GST.
(b) GST is payable on the upfront lease premium of ` 20 crores. No
GST is payable on the location charges.
(c) GST is exempt on the entire premium of ` 25 crores including
location charges.
(d) GST is payable on the entire upfront premium of ` 25 crores
including location charges.
Vlook Smart Ltd. (hereinafter referred as “company”) is a leading retail chain
of India. It has retail stores in multiple States with its corporate office located
in Mumbai, Maharashtra. The company has GST registrations across all States
from where it operates its retail stores. The company undertook following
transactions during the month of April:
(a) Supplied goods worth ` 100 crores through its retail store in Jaipur,
Rajasthan and offered a cash discount of ` 2 crores to the customers in
the State of Rajasthan during the month.
(b) Ghanshyam Das, a retailer in Gujarat, purchased goods worth ` 5 lakh in
the month of January of the preceding financial year. Subsequently, the
company offered an incentive on such purchases to Ghanshyam Das by
issuing a commercial credit note of ` 50,000 in the month of April.

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INDIRECT TAX LAWS
(c) The company also charges slotting fee from the manufacturers of goods
to keep their products on the shelf for sale. The company received ` 5
crores from a manufacturer located in West Bengal for keeping its
products on shelf of its store for sale in the State of Haryana. The
payment for the same was received at Mumbai Head Office of the
company. The invoice for the same was issued by the Haryana
registration of the company.
(d) The company received an amount of ` 2 crores in April as penalty for
delayed receipt of consideration from its customers for sale of goods
made in the month of January of the preceding financial year in the
retail store of Jaipur, Rajasthan.
(e) The company entered into a rental agreement with a registered person
for an upcoming retail store (a commercial property) in Ahmedabad,
Gujarat. The said store location is outside the municipal limits of
Ahmedabad. The rental per month payable from April is ` 50 lakh which
is paid to the owner registered in Ahmedabad, Gujarat, by the Mumbai
Head Office of the company as the company follows a centralized rental
agreement policy for all stores. The invoice for the same is issued to the
respective registered office in Gujarat.
(f) The company incurred an expense of ` 50 lakh in transportation of
empty cargo containers to its centralized warehouse in Mumbai from all
the States through a Goods Transport Agency.
The rates of GST, unless otherwise specified, shall be 9% CGST, 9% SGST and
18% IGST. All the divisions of the company are eligible for 100% input tax
credit unless otherwise specified.
Based on the facts of the case scenario given above, choose the most
appropriate answer to Q. Nos. 6 to 11 below:-
6. The value of supply on which GST is payable for the month of April for
the Rajasthan State is:
(a) ` 96 crores
(b) ` 100 crores
(c) ` 98 crores
(d) ` 102 crores

7. In relation to the incentive paid to Ghanshyam Das in Gujarat,

(a) the company shall reverse proportionate input tax credit.
(b) there is no GST implication on the company and Ghanshyam Das.
(c) Ghanshyam Das shall reverse the input tax credit availed on the
purchase.
(d) the company shall reduce the tax liability and Ghanshyam Das shall
increase the tax liability for the month of April.
8. In relation to the slotting fee charged,
(a) tax is payable by the company in Haryana.
(b) tax is payable by the manufacturer in West Bengal.
(c) tax is payable by the company in Maharashtra.
(d) slotting fee is exempted from GST.
9. The tax on penalty received on account of delayed payment of
consideration is payable at the time of filing return of ___________.
(a) April
(b) January
(c) Either April or January at the option of the company
(d) No tax is payable on the penalty received on account of delayed
payment of consideration.
10. The GST on rental amount of upcoming store near Ahmedabad shall be:
(a) ` 4.5 lakh CGST and ` 4.5 lakh SGST, payable by owner in Gujarat.
(b) ` 9 lakh IGST, payable by owner in Gujarat.
(c) nil since store is located outside the municipal limits.
(d) ` 9 lakh IGST, payable under reverse charge mechanism by
Mumbai Head Office, Maharashtra.
11. For the empty cargo containers transported to Mumbai warehouse,:
(a) e-way bill shall be issued by respective dispatch locations of the
company.

REVISION TEST PAPER
INDIRECT TAX LAWS
(b) e-way bill shall be issued by the warehouse location in Mumbai.

(c) no e-way bill is required to be issued.
(d) e-way bill shall be issued by the Goods Transport Agency.
12. Mr. Mota Lal is engaged in the wholesale business of dry fruits. He
imported 5,150 kg of almonds from California. Post importation, he did
not clear them for home consumption but kept the imported almonds in
a customs warehouse due to the renovation work going on in his retail
store. Mr. Bansi Lal, the warehouse keeper, is of the view that titular
rights of the almonds vest with him and Mr. Mota Lal has no access to
them. However, Mr. Mota Lal wishes to inspect the goods and ensure
that goods do not deteriorate during storage in the warehouse and
thereafter, show them for sale to Mr. Manohar Lal.
Which of the following statement(s) is correct in the given case as per
the provisions of the Customs Act, 1962?
(a) The view taken by Mr. Bansi Lal is correct.
(b) The view taken by Mr. Bansi Lal is incorrect. However, Mr. Mota Lal
can only inspect the goods.
(c) The view taken by Mr. Bansi Lal is incorrect. However, Mr. Mota Lal
can only inspect the goods and ensure that goods do not
deteriorate during storage in the warehouse but thereafter he
cannot show them in warehouse for sale to Mr. Manohar Lal.
(d) The view taken by Mr. Bansi Lal is incorrect. Further, Mr. Mota Lal
can inspect the goods and ensure that goods do not deteriorate
during storage in the warehouse and also thereafter, he can show
them in warehouse for sale to Mr. Manohar Lal.
13. Mr. Dinkar is the owner of Dinkar Associates which is registered in
Ahmedabad, Gujarat. He is engaged in supply of various goods and
services in the domestic market and exporting the same outside India.
During the month of February, he has undertaken the following
transactions:

Outward Supplies
(i) Transferred the tenancy rights of a commercial complex (taken on
rent) located in Vadodra for a tenancy premium of ` 8,00,000 to
DB Morgan Ltd. of Ahmedabad, Gujarat. Stamp duty and
registration fee have already been paid on the tenancy premium.
(ii) Hired out excavators and dumpers alongwith operators to mining
lease holders of Kuchchh, Gujarat for extracting and transporting
minerals within the mining area for a period of 5 years. The
excavators/dumpers are invariably hired out along with operators.
Similarly, operators are supplied only when the
excavators/dumpers are hired out. Hire charges for excavators and
dumpers are ` 10,00,000 and service charges for supply of
manpower for operation of the excavators/dumpers - ` 2,00,000.
(iii) Supplied goods of value of ` 35,00,000 to Choksi Ltd. Jamnagar,
Gujarat (including goods worth `·10,00,000 supplied to SEZ unit of
Choksi Ltd. in Gujarat).
(iv) Agreed to provide consultancy services to Mr. Krishna of Surat,
Gujarat who is an unregistered person in connection with his newly
commenced business for a consideration of ` 6,80,000. An
advance of ` 1,50,000 has been received for the same on 10th
February.
(v) Exported the goods to George Inc. of the USA. FOB value of the
goods is ` 8,40,000.
(vi) Sold a heavy printing machinery purchased from Japan for `
5,10,000 in high sea to Dhoomketu Printers, Mumbai, Maharashtra
on 10th February.
(vii) Supplied goods to Timahi Corporation, China for ` 12,00,0000 on
15th February. These goods were purchased for ` 10,00,000 from
Jamsam Corporation, Japan on 5th February and were supplied in
China without bringing them to India.

REVISION TEST PAPER
INDIRECT TAX LAWS
Inward Supplies
(i) The goods exported to George Inc., USA, were purchased by Mr.
Dinkar as a merchant exporter for ` 7,00,000 from Shravan Ltd., a
manufacturer registered in Bengaluru, Karnataka.
(ii) The heavy printing machinery sold in high sea to Dhoomketu
Printers was originally imported by Mr. Dinkar from Japan on 2nd
February, with CIF value of ` 5,00,000 and FOB value of ` 4,50,000.
(iii) Mr. Dinkar paid a sales commission of ` 5,00,000 to Mr. Kenzo of
Japan, his agent in connection with all the imports from Japan.
(iv) Imported raw materials from Italy under a CIF contract. CIF value
of the goods for the purpose of customs included ` 2,00,000 as
ocean freight paid by the exporter on transport of goods through
vessel from port of shipment to port of import. The value for the
purpose of levy of IGST worked out by the customs was ` 9,00,000.
(v) Purchased raw cotton for manufacture of garments for ` 12,00,000
from Mr. Poonawala, an agriculturist of Kuchch, Gujarat.
(vi) Monthly rent of ` 35,00,000 payable to Dharam Ltd., Gujarat, for
the retail outlet (a commercial property) in Ahmedabad, Gujarat
(one third of total space available is used by Mr. Dinkar for
personal residential purposes).
Compute the net GST payable in cash [CGST and SGST or IGST, as the
case may be], by Mr. Dinkar for February.
Notes:
A. Rates of CGST, SGST and IGST for hiring out of excavators and
dumpers are 6%, 6% and 12%. As regards the supply received as a
merchant exporter, Mr. Dinkar paid GST at the concessional rates by
fulfilling all requisite conditions thereof. Rates of CGST, SGST and
IGST for all the other supplies of goods and services including supply
of manpower services are 9%, 9% and 18%. Ignore GST compensation
cess.
B. Mr. Dinkar had an opening balance of ITC of CGST of ` 35,000 and
SGST of ` 35,000 for the relevant period. In respect of all the
inward supplies, suppliers have uploaded their invoices in

respective Form GSTR-1 and the supplies are reflected in Form

GSTR 2B.
C. All the figures given above are exclusive of GST, wherever
applicable. The amounts given in respect of import and export
transactions in rupees have been arrived after conversion thereof,
though transactions were undertaken in convertible foreign
currency.
D. Mr. Dinkar always makes zero-rated supplies under a bond or
letter of undertaking (LUT).
Provide supporting explanatory notes for your conclusion wherever
required.
14. Mr. Jignesh of Delhi books accommodation, though an e-commerce
operator - Plan My Trip Ltd. (PMTL), registered under GST in
Uttarakhand, in a newly established budget hotel – Paras Resorts Ltd.
(PRL) located in Nainital, Uttarakhand. The turnover of PRL in the
current financial year is ` 18 lakh.
PRL raises an invoice for ` 1,00,000 to Mr. Jignesh. PMTL collects the
payment from Mr. Jignesh and after deducting its fees and other
charges from the same, remits the balance amount to PRL.
Advise PRL as to whether it is required to obtain GST registration. Also,
whether tax is required to be collected at source by PMTL under section 52
on the services provided by PRL to Mr. Jignesh through electronic
commerce operator – PMTL. If yes, determine the amount of tax to be
collected at source.
Suppose in the above case, other facts remaining same, if PRL, supplying
accommodation services, is also an e-commerce operator (registered in
Uttarakhand as TCS collector as well as a regular tax payer since its
aggregate turnover exceeds the threshold limit) and PMTL has an
agreement with PRL for booking the accommodation at the time when
Mr. Jignesh booked the accommodation, ascertain whether tax is required
to be collected at source under section 52 on the services provided by PRL
to Mr. Jignesh through electronic commerce operator – PMTL. If yes,
determine the amount of tax to be collected at source and since two e-

REVISION TEST PAPER
INDIRECT TAX LAWS
commerce operators are involved in the said transaction, who is

required to collect the tax at source under section 52?
Note – Amounts given above are exclusive of GST. Assume applicable
rate of CGST and SGST to be 9% each and IGST to be 18%.
15. A notice for audit under section 65 is served by the proper officer on the
basis of risk assessment to Ghoomghoom Pvt. Ltd. on 02.12.2023 for
audit of financial years 2021-22 and 2022-23. The tax authorities visited
its place of business on 20.12.2023 and requested for certain records,
documents and books of accounts, from the company. The required
records, documents and books of accounts are provided by
Ghoomghoom Pvt. Ltd. on 30.12.2023. After in-depth checking of
records, documents and books made available by Ghoomghoom Pvt.
Ltd. during audit, the audit was completed on 25.03.2024 and audit
findings were communicated to the taxpayer in prescribed form by said
date. However, the accountant of Ghoomghoom Pvt. Ltd. is of the view
that-
(i) the tax authorities have completed the audit of Ghoomghoom Pvt.
Ltd. after the lapse of the maximum time-period permitted by the
GST law and
(ii) the tax authorities cannot conduct the audit of two financial years
at a time.
Ghoomghoom Pvt. Ltd. has approached you to advise you on the said
issues. You are required to determine the technical veracity of the
above views of the accountant of Ghoomghoom Private Ltd. on the
same with reference to the relevant provisions of the GST law.
16. Agora Ltd. exported certain goods to its customer located in Germany
against which a refund of IGST amounting to ` 50 lakh was claimed and
received by Agora Ltd. The sale proceeds covering 50% of the value of
exports were immediately received by Agora Ltd. However, due to
financial constraints, the customer failed to pay the balance amount of
sale proceeds within the permissible time limits under regulatory
provisions prevailing in India.
In view of the aforesaid scenario:

(a) Determine the amount of refund, if any, which Agora Ltd. is

required to deposit back. Also, discuss the time limit which is
permissible under law within which the sale proceeds in respect of
exported goods should have been realized by Agora Ltd.
(b) Will your answer to sub-part (a) differ if the Reserve Bank of India
writes off the requirement of realisation of sale proceeds on
merits?
(c) Whether Agora Ltd. can claim the refund back in case sale
proceeds are realised at a later date?
17. Discuss the cases where a registered person is not allowed to furnish the
details of outward supplies under section 37 in Form GSTR-1 or using
invoice furnishing facility, as enumerated in rule 59.
18. Paramjit Ltd. imported a machine from Oliver Equipments, UK. The FOB
price of the machine was settled at 6,000 UK Pound. The machine was
shipped on 01.10.2023. Meanwhile, Paramjit Ltd. re-negotiated the price
of the machine with Oliver Equipments which agrees on the reduced
price of 5000 UK pound on 10.10.2023. The machine arrived in India on
18.10.2023. Other details pertaining to machine are as under:
(i) License fee that the buyer was required to pay in UK as a condition
of sale was 500 UK Pound
(ii) Buying commission paid in India was ` 20,000
(iii) Cost of transport from UK port to Indian port is ` 40,000. Apart
from this, due to deep draught at the port, machine was not taken
to the jetty in the port but was unloaded at the outer anchorage.
The additional charges incurred for such unloading and transport
of machine from outer anchorage to the jetty in barges (small
boats) were ` 10,000.
(iv) Date of presentation of bill of entry was 15.10.2023 and the rate of
exchange notified by CBIC on this date was ` 100 per pound. Rate
of basic customs duty was 10%.
(v) Date of entry inwards was 18.10.2023 and the rate of exchange
notified by CBIC on this date was ` 105 per pound. Rate of basic
customs duty was 15%.

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INDIRECT TAX LAWS
(vi) Insurance premium details were not ascertainable.

Compute the assessable value and basic customs duty payable (rounded
off to nearest one rupee) by Paramjit Ltd.
19. Aayaat Enterprises imported goods vide a bill of entry presented before
the proper officer on 15th April. The proper officer decided that the
goods should be subject to a chemical test and therefore, the same were
to be provisionally assessed. You are required to advise Aayaat
Enterprises regarding the conditions which are to be complied with
before payment of duty is made for the purpose of provisional
assessment.
Subsequently, the goods imported by Aayaat Enterprises were
provisionally assessed at a value of ` 24,00,000 on 16th April and Aayaat
Enterprises paid the provisional duty of ` 2,40,000 on the same date
after fulfilling the requirements for provisional assessment. Further, the
chemical test report was received on 5th May. Advise Aayaat Enterprises
regarding the maximum time limit upto which its provisional assessment
should be finalized.
Determine the amount of interest payable, if any, under section 18 of
the Customs Act, 1962 (considering a year of 365 days) assuming that
the provisional assessment was finalized on 30th June finally assessing
the customs duty at ` 2,80,000 and the differential duty was paid on the
same day.
20. With reference to the Foreign Trade Policy 2023, explain in brief the
objectives and salient features of Remission of Duties and Taxes on
Exported Products (RoDTEP) scheme.
SUGGESTED ANSWERS
Question Answer
No.
1 (b) No GST is chargeable on usage of vacant godown of Hotel
Division
2 (b) need not reverse the input tax credit so availed in GSTR-3B

of the October month.

3 (a) ` 25 lakh
4 (a) Udaipur
5 (c) GST is exempt on the entire premium of ` 25 crores
including location charges.
6 (b) ` 100 crores
7 (b) there is no GST implication on the company and Ghanshyam
Das.
8 (a) tax is payable by the company in Haryana.
9 (a) April
10 (a) ` 4.5 lakh CGST and ` 4.5 lakh SGST, payable by owner in
Gujarat
11 (c) no e-way bill is required to be issued.
12 (d) The view taken by Mr. Bansi Lal is incorrect. Further, Mr.
Mota Lal can inspect the goods and ensure that goods do
not deteriorate during storage in the warehouse and also
thereafter, he can show them for sale to Mr. Manohar Lal.
13. Computation of net GST payable in cash, by Mr. Dinkar
Particulars Value (`) CGST (`) SGST (`) IGST (`)

GST payable on outward supplies
Transfer of tenancy 8,00,000 72,000 72,000
rights (8,00,000 (8,00,000
[Transfer of tenancy x 9%) x 9%)
rights to a new tenant
against consideration in
the form of tenancy
premium is taxable even
though stamp duty and
registration fee have
been paid on the same
(Circular No. 44/2018 CT
dated 02.05.2018). It is

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INDIRECT TAX LAWS
an intra-State supply
since place of supply is
location of immovable
property being
Ahmedabad, Gujarat.]
Hiring out excavators 12,00,000 72,000 72,000
and dumpers including [10,00,000 (12,00,000 (12,00,000
operators + x 6%) x 6%)
[Taxable since renting 2,00,000]
of trucks and other
freight vehicles with
driver for a period of
time is a service of
renting of transport
vehicles (with operator)
and not service of
transportation of goods
by road. Further, since
the excavators and
dumpers are invariably
hired out along with
operators and the
operators are supplied
only when the
excavators/ dumpers
are hired out, it is a case
of composite supply
under section 2(30)
wherein the principal
supply is the hiring out
of the excavators and
dumpers.
As per section 8(a), the
composite supply is
treated as the supply of
the principal supply.

Therefore, the supply of

manpower for operation
of the excavators/
dumpers will also be
taxed at the rate
applicable for hiring out
of the excavator and
dumpers (principal
supply).
Further, it is a taxable
intra-State supply since
place of supply is
location of recipient
being Kuchchh, Gujarat.]
Goods supplied to SEZ 10,00,000 Nil
unit of Choksi Ltd.
[Supply to SEZ unit is a
zero-rated supply in
terms of section
16(1)(b) of the IGST Act,
2017. No IGST is
payable since Mr.
Dinkar makes all zero-
rated supplies under
LUT/bond.]
Supply of goods to 25,00,000 2,25,000 2,25,000
Choksi Ltd., Gujarat [35,00,000 [25,00,000 [25,00,000
[It is a taxable intra- - × 9%] × 9%]
State supply since place 10,00,000]
of supply is location of
goods when movement
of such goods
terminates, viz.,
Jamnagar, Gujarat.
Advance received for 1,50,000 13,500 13,500

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INDIRECT TAX LAWS
the consultancy services [1,50,000 [1,50,000

to be provided to × 9%] × 9%]
Mr. Krishna
[Tax on the services to
be provided is payable
at the time of receipt of
advance. Since the
place of supply is
location of recipient, i.e.
Gujarat, it is an intra-
State supply.]
Export of goods to USA 8,40,000 Nil
under LUT/bond
[Export of goods
outside India is a zero-
rated supply in terms of
section 16(1)(b) of the
IGST Act, 2017. No IGST
is payable since Mr.
Dinkar makes all zero-
rated supplies under
LUT/bond.]
High sea sales of heavy Nil -- -- --
printing machinery
imported from Japan
[High sea sales is
neither treated as
supply of goods nor as
supply of services in
terms of para 8(b) of
Schedule III of the CGST
Act, 2017.]
Goods purchased from Nil -- -- --
Japan sold in China
without bringing them

into India
[Third country shipments
or triangular trade is
neither treated as
supply for goods nor as
supply of services in
terms of para 7 of
Schedule III of the CGST
Act, 2017.]
Total output tax 3,82,500 3,82,500 Nil
Less: ITC [Refer working 81,350 81,350
note below] (IGST) (IGST)
[IGST credit has been 3,01,150
utilized for payment of
(CGST)
CGST and SGST liability
in equal proportion. 3,01,150
Thereafter, CGST credit (SGST)
and SGST credit have
been utilized to pay the
CGST liability and SGST
liability respectively.]
Net GST payable Nil Nil Nil
Add: GST payable on inward supplies
Imported raw material 9,00,000 1,62,000
from Italy [9,00,000
× 18%]
Raw material purchased 12,00,000 1,08,000 1,08,000
from Mr. Poonawala, [12,00,000 [12,00,000
Gujarat × 9%] × 9%]
[Tax on the raw cotton
purchased by any
registered person from
an agriculturist is
payable under reverse

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INDIRECT TAX LAWS
charge vide Notification

No. 4/2017 IT (R) dated
28.06.2017.]
Total net GST payable 1,08,000 1,08,000 1,62,000

in cash
(CGST and SGST of
` 1,08,000 each will be
paid in cash through
GSTN portal and IGST of
` 1,62,000 will be paid
in cash through
ICEGATE portal while
making customs
clearance.)
Working Note - Computation of admissible ITC for February
Particulars Value CGST SGST IGST

(`) (`) (`) (`)
Opening balance 35,000 35,000
Goods purchased as 7,00,000 -- -- 700
merchant exporter
[It is an inter-State
supply since the place of
supply is Gujarat, i.e.
location where the
movement of goods
terminates. Shravan Ltd.
would have supplied the
goods to merchant
exporter – Mr. Dinkar - at
concessional rate of IGST
of 0.1% prescribed under
Notification Nos. 41/2017
IT(R) dated 23.10.2017.
Further, the merchant

exporter is eligible to
take ITC of concessional
IGST so paid 1.]
Heavy printing machinery Nil -- -- --
imported from Japan
[No ITC is available since
tax is not payable by Mr.
Dinkar on the same since
in case of high sea sales,
IGST is paid by the last
high sea sales buyer who
clears the goods for home
consumption by filing the
bill of entry.]
Goods purchased from Nil -- -- --
Jamsam Corporation,
Japan
[No ITC is available since
tax is not payable by Mr.
Dinkar on the same as
goods do not become
part of the landmass of
the country.]
Sales commission paid to 5,00,000 -- -- --
agent - Mr. Kenzo
[Since service provider -
Mr. Kenzo - is an
intermediary in the given
transaction, place of
supply is location of
supplier - Mr. Kenzo, i.e.
outside India (Japan), in
terms of section 13(8)(b)
1
Circular No. 125/44/2019 GST dated 18.11.2019

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INDIRECT TAX LAWS
of the IGST Act, 2017.

Since location of supplier
and place of supply are
outside India, tax is not
payable on said
transaction under reverse
charge on said services.]
Imported raw material 9,00,000 1,62,000
from Italy [9,00,000
[Input tax, inter alia, × 18%]
includes IGST charged
on import of goods, in
terms of section 2(62).
No separate levy of IGST
will be there on the
component of ocean
freight paid by the
foreign exporter to the
foreign shipping line in
the CIF contract by
virtue of Union of India
vs. Mohit Minerals Pvt.
Ltd. 2022 (61) G.S.T.L.
257 (SC) since the Indian
importer is liable to pay
IGST on the ‘composite
supply’, comprising of
supply of goods and
supply of services of
transportation,
insurance, etc. in a CIF
contract.
Raw cotton purchased 12,00,000 1,08,000 1,08,000
from Mr. Poonawala, [12,00,000 [12,00,000
Gujarat × 9%] × 9%]
[It is an intra-State

supply since the place of

supply is location where
movement of goods
terminates, i.e. Gujarat,
in terms of section
10(1)(a) of the IGST Act,
2017. ITC on goods
used in course or
furtherance of business
is allowed in terms of
section 16.]
GST paid on monthly rent 35,00,000 2,10,000 2,10,000 --
[In case of services used [35,00,000 [35,00,000
partly for the business × ×
purpose and partly for 9%×2/3] 9%×2/3]
other purposes, ITC is
restricted to so much of
ITC as is attributable to
the purposes of
business. Thus, ITC for
GST paid on only 2/3rd of
monthly rent is available
since GST paid on
monthly rent
attributable to personal
purposes (one-third) is
not allowed. Further, it
is an intra-State supply
since the place of supply
of services provided in
relation to an immovable
property is location of
immovable property, i.e.
Gujarat in terms of
section 12(3) of the IGST
Act, 2017.]

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INDIRECT TAX LAWS
Total ITC available 3,53,000 3,53,000 1,62,700
Note – Since as per section 49(5) read with rule 88A, ITC of IGST can be
utilised towards payment of CGST and SGST in any proportion and in any
order, the ITC of IGST of ` 1,62,700 can be set off against the CGST and
SGST liability in any proportion and in any order. In above answer, ITC of
IGST has been set off in equal proportion against the payment of CGST
and SGST liability. However, multiple answers are possible to given
question owing to multiple ways of utilizing the ITC of IGST for payment
of CGST and SGST liability.
14. As per section 22, every supplier of goods or services or both is required
to obtain registration in the State/ Union territory from where he makes
the taxable supply if his aggregate turnover exceeds threshold limit in a
financial year. However, section 24, inter alia, provides that persons who
supply goods or services or both through an electronic commerce
operator (hereinafter referred as ECO), who is required to collect tax at
source under section 52, are required to obtain registration mandatorily.
However, said mandatory registration is not applicable, inter alia, to the
suppliers of the services which are notified under section 9(5) or section
5(5) of the IGST Act, 2017; such suppliers are entitled for threshold
exemption.
In case where services are notified under section 5(5) of the IGST Act,
2017, the ECO is liable to pay the entire tax on behalf of the suppliers of
services. Notification No. 14/2017 IT (R) dated 28.06.2017 issued under
said section notifies services by way of providing accommodation in
hotels, provided the person supplying such service through ECO is not
liable for registration under section 22(1), as one such service where the
ECO is liable to pay tax on behalf of the suppliers.
In the given case, PRL provides services by way of providing
accommodation in hotel through an ECO. Services by way of providing
accommodation in hotels provided by a supplier - PRL - which is not
liable for registration under section 22(1) as its turnover is less than the
threshold limit for registration, [viz. ` 20 lakh], is a service notified under
section 5(5). Thus, PRL will be entitled for threshold exemption for

registration and will not be required to obtain registration even though

it supplies services through ECO.
As per section 52, ECO is not required to collect tax at source (TCS) in
cases where the service is notified under section 9(5) of the CGST Act,
2017/section 5(5) of the IGST Act, 2017. The applicable tax on such
services is to be paid by the ECO as if he is the supplier liable to pay tax
on the supply of such services.
Thus, in the given case, no tax is required to be collected at source
under section 52. Further, the supply of accommodation services by PRL
to Mr. Jignesh is an intra-State supply liable to CGST and SGST since the
place of supply of services by way of lodging accommodation by a hotel
is the location at which the immovable property is located in terms of
section 12(3) of the IGST Act, 2017. Accordingly, in the given case, place
of supply is Uttarakhand and location of supplier – PRL - is also
Uttarakhand.
As discussed above, entire tax of ` 9,000 (each under CGST and SGST)
on ` 1,00,000 will be paid by the ECO – PMTL.
In case where PRL is registered under GST, service by way of providing
accommodation in hotels provided by it through ECO will no longer be a
service notified under section 5(5). The reason for the same is that
services by way of providing accommodation in hotels are notified
under section 5(5) only where the person supplying such service through
ECO is not liable for registration under section 22(1). Consequently, said
services shall be subject to the TCS provisions under section 52.
Further, in a situation where multiple ECOs are involved in a single
transaction of supply of goods or services or both through ECO platform
and the supplier-side ECO is himself the supplier of the said supply,
Circular No. 194/06/2023 GST dated 17.07.2023 clarifies that the buyer-
side ECO will be required to collect TCS, as applicable, pay the same to
the Government in accordance with section 52 and also make other
compliances under said section.
As discussed above, the supply of accommodation services by PRL to
Mr. Jignesh is an intra-State supply liable to CGST and SGST.

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INDIRECT TAX LAWS
Accordingly, in the given case, buyer side ECO – PMTL - is required to

collect TCS on ` 1,00,000 @ 0.5% each under CGST and SGST as follows:
= ` 1,00,000 × 0.5%
=` 500 each under CGST and SGST
15. As per section 65, audit of any registered person may be undertaken by:
 the Commissioner; or
 any officer authorized by him, by way of a general or a specific order.
The audit shall be completed within a period of 3 months from the date
of commencement of the audit. However, where the Commissioner is
satisfied that audit in respect of such registered person cannot be
completed within 3 months, he may, for the reasons to be recorded in
writing, extend the period by a further period not exceeding six months.
For the purposes of this sub-section, the expression "commencement of
audit" shall mean:
(a) the date on which the records and other documents, called for by
the tax authorities, are made available by the registered person
or
(b) the actual institution of audit at the place of business,
whichever is later.
In the given case, the date of commencement of audit shall be
determined as follows:
(a) The date on which requisite information is made available by
Ghoomghoom Private Ltd., i.e., on 30.12.2023.
(b) The date of the actual institution of audit at the place of business,
i.e., on 20.12.2023
whichever is later.
Therefore, the date of commencement of the audit shall be 30.12.2023
Accordingly, the audit has to be completed within 3 months from the
date of commencement of the audit, i.e., by 30.03.2024.

Thus, in the given case, the audit was completed by the tax authorities
within 3 months from the date of commencement of the audit, i.e.,
before 30.03.2024. Resultantly, the view of the accountant of
Ghoomghoom Pvt. Ltd. that the audit by the tax authorities was
completed after the maximum time period prescribed by law for the
same, is not correct.
Further, as per section 65 read with rule 101(1), the period of audit to be
conducted under said section shall be a financial year or part thereof or
multiples thereof. Thus, the view of the accountant that audit cannot be
conducted for two financial years is also not correct.
16. (a) As per proviso to section 16(3) of the IGST Act, 2017 read with rule
96B(1) of the CGST Rules, 2017, in the given case, Agora Ltd. shall
deposit the amount of refund proportionate to the sale proceeds
not realized i.e. 50% of the value of exports. The amount of such
refund is ` 25 lakh alongwith applicable interest under section 50.
Further, such amount is required to be deposited by Agora Ltd.
within 30 days of the expiry of the time period allowed under
Foreign Exchange Management Act, 1999, including any extension
of such time period permitted.
(b) As per proviso to rule 96B, where sale proceeds, or any part
thereof, in respect of such export goods are not realised by the
applicant within the time period allowed under the Foreign
Exchange Management Act, 1999, but the Reserve Bank of India
writes off the requirement of realisation of sale proceeds on
merits, the refund paid to the applicant shall not be recovered.
Thus, if the RBI writes off the requirement of realisation of sale
proceeds by Agora Ltd., the refund amount received by Agora Ltd.
is not liable to be recovered.
(c) As per rule 96B(2), where the sale proceeds are realised by the
applicant, in full or part, after the amount of refund has been
recovered from him under rule 96B(1) and the applicant produces
evidence about such realisation within a period of 3 months from
the date of realisation of sale proceeds, the amount so recovered
shall be refunded by the proper officer, to the applicant to the
extent of realisation of sale proceeds, provided the sale proceeds

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INDIRECT TAX LAWS
have been realised within such extended period as permitted by

the Reserve Bank of India.
In case the refund amount is deposited by Agora Ltd. alongwith
interest as per rule 96B(1) on account of non-realization of sale
proceeds from the customer, which is realized on a later date,
Agora Ltd. can claim the refund within 3 months from the date of
realization of sale proceeds in proportion of the sale proceeds
recovered. However, in order to claim such refund, the sale
proceeds should have been realized within such extended period
as may be permitted by the RBI.
17. Rule 59(6) provides that:
(i) a registered person shall not be allowed to furnish the details of
outward supplies in Form GSTR-1, if he has not furnished the
return in Form GSTR-3B for the preceding month.
(ii) a registered person, opting for QRMP scheme, shall not be allowed
to furnish the details of outward supplies in Form GSTR-1 or using
Invoice Furnishing Facility (IFF), if he has not furnished the return
in Form GSTR-3B for preceding tax period.
(iii) a registered person, to whom an intimation has been issued on the
common portal under the provisions of rule 88C(1) in respect of a
tax period, shall not be allowed to furnish the details of outward
supplies in Form GSTR-1 or using IFF for a subsequent tax period,
unless he has either deposited the amount specified in the said
intimation or has furnished a reply explaining the reasons for any
amount remaining unpaid, as required under the provisions of rule
88C(2).
(iv) a registered person, to whom an intimation has been issued on the
common portal under the provisions of rule 88D(1) in respect of a
tax period/periods, shall not be allowed to furnish Form GSTR-
1/IFF for a subsequent tax period, unless he has either paid the
amount equal to the excess ITC as specified in the said intimation
or has furnished a reply explaining the reasons in respect of the
amount of excess ITC that still remains to be paid, as required
under the provisions of rule 88D(2);

(v) a registered person shall not be allowed to furnish Form GSTR-

1/IFF, if he has not furnished the details of the bank account as per
the provisions of rule 10A.
18. As per section 14 of the Customs Act, 1962, the value of the imported
goods is the transaction value, which means the price actually paid or
payable for the goods at the time and place of importation. Further, the
Supreme Court in case of Garden Silk Mills v. UOI 1999 (113) E.L.T. 358
held that importation gets complete only when the goods become part
of mass of goods within the country.
Since in the instant case, the price of the goods was reduced when the
goods were in transit, i.e. before the goods arrived in India, the goods
should be valued as per the revised reduced price of 5,000 UK pound,
which was the price payable at the time of importation.
Computation of assessable value and basic customs duty
payable by Paramjit Ltd
Particulars Amount
FOB value of machine 5,000 UK Pound
Add: License fee required to pay in UK 500 UK Pound
(Licence fee relating to imported goods payable by
the buyer as a condition of sale is includible in the
assessable value)
Customs FOB 5,500 UK Pound
Amount (`)
Value in rupees (5500 x ` 100) 5,50,000
Rate of exchange as notified by CBIC on the date on
which bill of entry is presented under section 46 of
the Customs Act, 1962 is to be considered
[Explanation to section 14 of the Customs Act, 1962].
Add: Buying commission Nil
(Buying commission is not included in the assessable
value)
Add: Cost of transport including barge charges 50,000
(In case where the big mother vessels cannot enter

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INDIRECT TAX LAWS
the harbour for any reason and goods are brought to

the docks by smaller vessels like barges, small boats,
etc., the cost incurred by the importer for bringing
the goods to the landmass, such as lighterage
charges, barge charges will be included in the cost of
transportation. In other words, the cost of transport
of the imported goods includes ship demurrage
charges on chartered vessels, lighterage charges or
barge charges.)
Add: Insurance 6187.50
[If insurance cost is not ascertainable, the same
shall be added @ 1.125% of FOB value of the
goods.]
CIF value / Assessable value 6,06,187.50
Basic customs duty @ 15% (` 6,06,187.50X 15%) 90,928
(Rounded off)
[Section 15 of the Customs Act, 1962 provides that
rate of duty shall be the rate in force on the date of
presentation of bill of entry or on the date of entry
inwards, whichever is later.]
19. As per section 18 of the Customs Act, 1962 read alongwith Circular No.
38/2016 Cus. dated 22.08.2016, wherever, duty is to be assessed
provisionally, the importer shall:
(a) execute a bond in the prescribed form, for the purposes of
undertaking to pay on demand the deficiency, if any, between the
duty as may be finally assessed and the duty provisionally
assessed; and
(b) furnish prescribed amount of security for the payment of the duty
deficiency. The security to be obtained shall be in the form of a
bank guarantee or a cash deposit, as convenient to the importer.
As per the Customs (Finalisation of Provisional Assessment) Regulations,
2018, the proper officer has to finalise the provisional assessment within
2 months of receipt of a chemical or other test report, where the
provisional assessment was ordered for that reason.

The proper officer can finalize the provisional assessment within 2

months of receipt of a chemical or other test report, where the
provisional assessment is ordered for that reason. The Commissioner of
Customs may allow a further time period of 3 months in case the proper
officer is not able to finalize the provisional assessment within the
period of 2 months.
Thus, in the given case, provisional assessment will be finalized by 5th
July [within 2 months of receipt of test report (5th May)]. However, if the
proper officer is not able to finalize the provisional assessment by 5th
July, the Commissioner may allow a further period of 3 months, i.e., till
5th October to the proper officer to finalize the provisional assessment.
Had provisional assessment been finalized on 30th June and differential
duty been paid on same day, as per section 18(3) of the Customs Act,
1962, the importer would have been liable to pay interest, on any
amount payable consequent to the final assessment order @ 15% p.a.
from the first day of the month in which the duty is provisionally
assessed till the date of payment thereof.
Accordingly, amount of interest payable will be:
= ` 40,000 x 15% x 91/365
= ` 1,496 (rounded off)
20. Remission of Duties and Taxes on Exported Products (RoDTEP) scheme is
based on the globally accepted principle that taxes and duties should
not be exported, and taxes and levies borne on the exported products
should be either exempted or remitted to exporters. RoDTEP scheme
aims to refund such duties and taxes on exported products, as are
otherwise not being refunded under other provisions of law. The rebate
under the Scheme shall not be available in respect of duties and taxes
already exempted or remitted or credited.
The objective of the scheme is to refund, currently unrefunded:-
(i) Duties/taxes/levies, at the Central, State & local level, borne on the
exported product, including prior stage cumulative indirect taxes
on goods & services used in production of the exported product,
and

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INDIRECT TAX LAWS
(ii) Such indirect duties/taxes/levies in respect of distribution of

exported products.
Salient features of the scheme: -
(i) Rebate amount is issued in the form of a transferable duty
credit/electronic scrip (e-scrip), which will be maintained in an
electronic ledger by the CBIC.
(ii) Such duty credit shall be used only to pay basic customs duty on
imported goods.
(iii) The duty credit scrips are freely transferable, i.e. credits can be
transferred to other importers.
(iv) The rebate under the scheme shall not be available in respect of
duties and taxes already exempted or remitted or credited.

PAPER – 6
INTEGRATED BUSINESS
SOLUTIONS
QUESTIONS
CASE STUDY-1
ABOUT CASE STUDY

Logistics and Transportation
Industry
Financial Reporting, Direct Tax, Indirect Tax, Strategic
Subjects Cost & Performance Management
Ind AS 116, Reverse Charge/ GTA Section 2(98), Sec. 44AE
of Income Tax Act, Customer Relationship Management,
Topics Osterwelder’s Business Model Canvas, Mckinsey’s 7S,
Lynch and Cross’s Performance Pyramid, TPM & TQM
Company Background
FrontRunner Pvt. Ltd. (FPL) traces its origins back to its beginnings as a
proprietorship firm founded by Hansraj several decades ago. What started as a
modest venture has grown steadily over the years, evolving into a prominent
trucking company specializing in transporting commercial goods across various
destinations within the state of Gujarat. FPL is a registered Goods Transport
Agency (GTA). Recognizing the competitive landscape in which it operates, FPL
has consistently aimed at maintaining high-quality delivery standards to
establish its reputation in the market.
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FINAL EXAMINATION
Due to its sustained growth and expanding operations, FPL transitioned from a
proprietorship firm to a registered private limited company. This transformation
allowed the company to formalize its structure, enhance operational efficiency,
and position itself strategically within the logistics and transportation industry in
Gujarat. Today, FPL continues to uphold its commitment to excellence in service
delivery, leveraging its experience and infrastructure to meet the logistical needs
of its diverse clientele effectively. This historical evolution underscores FPL's
journey from humble beginnings to its current standing as a respected player in
the competitive transportation sector of Gujarat, driven by a dedication to quality
and customer satisfaction.
Overview of FPL’s Current Operations
FPL operates its fleet of 9 trucks from Ahmedabad (Refer Annexure for the
information about the 9 trucks it owns). The shipments are primarily focused on
B2B deliveries, that is one business enterprise to another business enterprise
within the state of Gujarat. The business enterprises are mid-size companies that
have to make frequent shipments to their clients. Once the goods are delivered
at the destination, the company uses the services of agents who can arrange to
have a shipment for the return journey back to Ahmedabad.
In trucking jargon, a truck on the road without carrying any load is called
“deadheading”. A trucking company will try to minimize the kilometres covered
in a deadhead because it is unproductive. Therefore, the company has agents on
the ground, who can find appropriate shipments within a few days’ time. This way
the utility of the truck and productivity of each shipment journey improves.
All shipments thus far have been “Full Truck Load” (FTL) shipments. This means
that the entire truck is booked for the shipment of goods of just one client. The
goods collected from the client are delivered directly to the destination.
Advantages of FTL shipments are→ minimum handling of goods, loading and
unloading will be from that single vehicle and fast delivery of goods with
minimum damage. Due to low fuel prices, the company has been enjoying
reasonable profits from this business. However, fuel prices have increased over
the last few months. Due to stiff competition, the number of shipments have been
stagnant for a while. Clients have different transporters to choose from, resulting
in a possibility downtrend in the number of shipments for FPL in the coming year.

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INTEGRATED BUSINESS SOLUTIONS
Introducing LTL Shipments for Competitive Advantage

To gain a competitive edge, FPL plans to offer “Less than Truck Load” (LTL)
shipments to many of its clients. Here, shipments by the clients will be larger than
a parcel carrier can handle, but not enough to require an FTL shipment. Shipment
loads from various clients will be collected at a common collection area in
Ahmedabad. Once the truck load is filled, shipments will be made to the
respective destinations of each of the clients. Given the piecemeal orders that are
aggregated to form a full truck load (FTL), typically an LTL client is willing to wait
for maximum 7 days from the time goods are handed over for delivery to the
actual delivery at the designated destination. Like the FTL model, the LTL model
also focuses on mid-sized companies that need to make small shipments to their
clients on a regular basis.
The advantage of LTL of shipment is that it facilitates smaller consignments to be
shipped at economical cost to the company. This brings flexibility in operations
to the business. At the same time smaller shipments provide an opportunity of
widening the clientele base. Presently, it typically takes 4 days to get an FTL order.
Due to the increase in volume of shipments on account of a wider clientele base
under the LTL model, the full truck load capacity is achieved in 3 days’ time
instead.
This decision to introduce LTL shipments in addition to FTL shipments has been
a strategic change for the business. At present, FPL handles about 15% of the
total consignments that are made from within Gujarat. It wants to maintain and
if possible, grow its market share using both the FTL as well as LTL models.
However, competition is stiff in this sector. To get a larger clientele base, it has
increased its advertising spend to make its presence known in the market.
Advertisement in specific trade publications, membership on trucking load
boards that help to find clientele online, participating in trade association events
etc. The company plans to target mid-sized companies as customers that can
give shipment loads at regular intervals. Where the client requires, FPL can
provide packing services to help the client manage its outbound shipments
efficiently. Also, where the client requires, FPL is also planning to offer transport
insurance advisory services that will help its clients choose an appropriate plan
as per its requirements. This will be done for a small fee payable to FPL along
with the invoice value for transportation.

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FINAL EXAMINATION
For both FTL and LTL shipments, the senior management has targeted:
♦ Cost-per-kilometre rate of ` 500.
♦ Revenue per kilometre rate of ` 800.
♦ Average accounts receivables collection period of 10 working days.
♦ Average customer lifetime value: ` 20 lakhs and above.
The senior management acknowledges the need to track non-financial metrics to
sustain and improve the business. Proposed operational metrics to be collated
separately for FTL and LTL include:
(a) Customer claims filed for damaged goods (absolute numbers and % of
shipments).
(b) Time taken to resolve the above claims (days from date of customer filing
claim).
(c) Delays in delivery beyond the agreed delivery time (% of shipments made).
(d) Number of days truck was not on the road (due to maintenance or
insufficient load).
(e) Average time taken to get exclusive FTL orders as well as full truck load
under LTL (days).
(f) Deadheads (kilometres): Kilometres during journeys when the truck had no
load to carry.
(g) Number of orders turned down due to non-availability of trucks.
(h) Ability to deliver within 7 days from the date of receiving client’s goods
under the LTL system (% of shipments under the LTL system).
Lease Agreement
To manage increasing rental costs, FPL had on April 1, 2020, entered into a 5-
year lease with Spaces Pvt. Limited (SPL) for 2,000 square meters of area to be
used as parking lot for its trucks. The lease payments of `10,00,000 is payable at
the end of each year. The interest rate implicit in the lease cannot be readily
determined. FPL’s incremental borrowing rate at the commencement date is 6%
p.a. At the beginning of Year 4, FPL and SPL agree to amend the original lease by
extending the contractual lease term by 3 years. The annual lease payments are

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unchanged (i.e. `10,00,000 payable at the end of each year from Year 4 to Year
8). FPL’s incremental borrowing rate at the beginning of Year 4 is 7% p.a. FPL
wants to reduce the administrative burden of maintaining books of account for
Income Tax purpose.
Operational Challenges
It has now been a few years since the implementation of FTL and LTL shipments,
and business volumes for FrontRunner have picked up. Two years ago, the
company hired R. Venkatesh to manage the truck operations. The operations
team, which consists of truck drivers, laborers for loading and unloading
deliveries, and maintenance personnel, currently has 20 members.
R. Venkatesh implemented Total Quality Management (TQM) within the
operations to meet internal performance benchmarks and service delivery quality
standards. However, adherence to these benchmarks for truck utilization and
delivery standards has left very little time for periodic truck maintenance and
repair. Minimizing downtime and deadheads requires the trucks to be constantly
on the road. Due to the small size of the operations team, there is only one person
available who can handle maintenance: Mr. Soni. Because of the lack of
appropriate training and tools, truck drivers are not equipped to handle
maintenance work themselves, creating a high dependence on Mr. Soni’s
availability.
It has also been observed that R. Venkatesh was not always available to oversee
the truck loading process. Consequently, truck drivers tended to overload the
trucks to expedite deliveries, which has led to some negative publicity and put
the company in a less favorable light. Refer to Annexure for the news article about
this issue.
The management has called an urgent meeting, and the Chairman has asked R.
Venkatesh to attend as well. During the meeting, the Chairman says, “I understand
that you have successfully implemented TQM in our operations. If that is the case,
why are we still facing breakdown problems despite having TQM in place?”
R. Venkatesh replies, “Since the operations have been running smoothly, there was
no perceived need for preventive maintenance. Such activities incur costs and result
in loss of time, which could otherwise be used to keep the trucks on the road.”

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FINAL EXAMINATION
ANNEXURE
AHMEDABAD DAILY
Motorway chaos disrupts travelers' plans
Beware! Travelers heading to Ahmedabad Airport
should prepare for potential delays caused by
oversized trucks blocking the motorway. These
moving obstacles belong to FrontRunner, the
logistics company, and are frequently seen on
National Highway 8, the crucial route connecting
the city to the airport.
Yesterday, passengers faced an excruciating two-
hour wait due to a major traffic jam caused by two FrontRunner trucks carrying
oversized loads. The delay occurred because the trucks, which were scheduled to
depart at 5:30 AM, experienced a mechanical issue that postponed their departure
by two hours. This unexpected breakdown not only delayed their journey but also
caused a significant ripple effect on the surrounding traffic. As a result, the trucks
and their escorts were on the road during the busy morning rush hour, exacerbating
traffic congestion near the airport. The situation was further compounded by the
fact that the oversized loads required special escort vehicles, which took additional
time to navigate through the already congested area. Consequently, the influx of
vehicles and the slow-moving convoys created a bottleneck that impacted travelers
and local businesses alike.
Strict regulations govern the transport of oversized loads on public roads. These
include requirements for drivers to be accompanied by attendants, trucks to be
equipped with marker boards and additional lighting, and the provision of escort
vehicles to ensure road users maintain a safe distance from the load. There are also
specific limits on the maximum size and weight of loads.
Ahmedabad Police confirmed they were aware of the situation and noted that
FrontRunner had complied with all relevant regulations. Despite no reported
accidents, there is growing public concern about frequent road congestion and
safety issues caused by these oversized trucks. A traveler remarked, when
“FrontRunner” runs in “front” we are left to lag behind!

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Fleet of Trucks
Truck Gross Vehicle Weight (in Number Date of

Kilograms) of trucks purchase
7,000 kilograms 3 April 1, 2020
The 20,000 kilogram truck needed some modifications to be done. It was put to
use on June 1, 2023.
Multiple Choice Questions
(Provide the correct option to the following questions)
1.1 Which of the following statements would be correct for the services that
FPL provides to its mid-sized companies, all of whom are registered under
the GST law?
(i) Where FPL exercises the option to pay GST itself and it pays the tax
under forward charge at the rate of 12%, there is no restriction on
availing ITC on the goods and services used in supplying the GTA
service.
(ii) Where FPL exercises the option to pay GST itself and it pays the tax
under forward charge at the rate of 5%, there is no restriction on
availing ITC on the goods and services used in supplying the GTA
service.

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FINAL EXAMINATION
(iii) Where FPL opts for the reverse charge mechanism, the recipient of
the service shall pay GST at 5% which can be availed as ITC by the
recipient.
(iv) Where FPL opts for the reverse charge mechanism, the recipient of
the service shall pay GST at 5% which can be availed as ITC by the
FPL.
Options
(a) (i) and (iii)
(b) (i) and (iv)
(c) (ii) and (iii)
(d) (ii) and (iv)
1.2 Calculate the presumptive income of FPL chargeable to tax for A.Y.
2024-25.
(a) ` 810,000
(b) ` 468,000
(c) ` 11,90,000
(d) ` 12,30,000
1.3 An example of value-added service by FPL would be:
(a) Maintenance of the goods for orders already accepted while waiting
the truck to be filled under LTL shipments
(b) Periodic inspection and maintenance of trucks
(c) Offering packing and insurance advisory services to clients for a fee
whenever required
(d) Goods delivery time to their final destination

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1.4 Based on the above scenario and using McKinsey's 7S Framework, which
element should Frontrunner Pvt. Ltd. focus on to ensure its strategic
change to introduce LTL shipments is successful and meets customer
expectations effectively?
(a) Modifying the organizational structure to support both FTL and LTL
operations efficiently
(b) Implementing robust systems to track operational metrics and
improve delivery times
(c) Enhancing the skills of agents to secure return shipments and
reduce deadheading
(d) Aligning the company's values towards customer satisfaction and
flexibility in service offerings
1.5 Match FPL’s decisions to various components of Customer Relationship
Management (CRM):
Sr. No. FPL’s decisions Sr. Component of CRM

No.
1 Target customers whose CLV is I Customer Acquisition

` 20 lakh and above
2 Advertising on trucking load II Customer Retention

boards, trade publications
3 On time delivery with nil to III Customer Selection

minimum damage
4 Packaging and Transport IV Customer Extension

insurance advisory services
Options
(a) 1-III, 2-I, 3-II and 4-IV
(b) 1-II, 2-I, 3-IV and 4-III

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FINAL EXAMINATION
(c) 1-II, 2-III, 3-IV and 4-I

(d) 1-III, 2-IV, 3-II and 4-II
Descriptive Questions
1.6 The management wishes to link business strategy with the day-to-day
operations of the business. As a management consultant for the company,
you plan to present the above information APPLYING the Performance
Pyramid model suggested by Lynch and Cross.
(i) Identify the Level 1 – Corporate Vision and Level 2 – Market and
Financial measures that the company plans to follow to sustain
business. Briefly explain the rationale of the decisions taken at the
Market and Financial business unit level.
(ii) Classify the operational level (measures a to f) into Quality, Delivery,
Cycle Time and Waste metrics. Also link them to the Level 3
measures of Customer Satisfaction and Productivity.
(iii) Briefly assess how measures (g) and (h) impact business.
1.7 How should the modification in the lease agreement with SPL be
accounted for?
1.8 (i) SUGGEST a few financial and non-financial considerations arising
due to frequent breakdown of trucks.
(ii) IDENTIFY the error in R. Venkatesh’s current management of
operations by implementing TQM.
(iii) ADVISE on the lean management philosophy that R. Venkatesh can
implement to address the issue of unexpected breakdown of trucks.
(iv) DISCUSS how the recommended lean management philosophy
aligns with and supports the objectives of TQM.

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CASE STUDY-2
ABOUT CASE STUDY

Pharmaceutical
Industry
Financial Reporting, Indirect Tax, Auditing, Corporate and
Economic Laws, Strategic Cost & Performance
Subjects
Management
Ind AS 8, Ind AS 20, Ind AS 38, Ind AS 103, SA 250, SA 706,
Ind AS 110, Competitive Advantage, Clause (c) of rule 28,
Pricing Strategy, Section 234 of the Companies Act, 2013,
Topics
Rule 25A of the Companies (Compromise, Arrangements
and Amalgamations) Rules, 2016
Suraj Pharma: A Leader in Global Pharmaceutical Innovation and Quality

Suraj Pharma stands tall as a leading player in the global pharmaceutical
landscape. Founded in the 1960s by Dr. Anand Srinivasan, a brilliant scientist
with a passion for affordable medicine, Suraj Pharma began as a small research
lab focused on developing generic alternatives to expensive, brand-name
drugs. Despite initial struggles with scarce funding and a nascent market for
generics, Dr. Srinivasan's unwavering commitment and the team's innovative
spirit fuelled their progress. The company has grown from humble beginnings
to become the fourth-largest pharmaceutical company worldwide. Suraj
Pharma focuses on developing and manufacturing complex, high-value
medications that address specific therapeutic needs. With a global presence in
over 100 countries and a diverse patient population, Suraj Pharma holds the top
spot in the Indian domestic market, demonstrating their dominance in the region.
Suraj Pharma's core strength lies in specialty drugs, which often involve
advanced technology and expertise for production. Their product basket caters

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to a vast array of therapeutic segments, including psychiatry, anti-bacterial,

neurology, and diabetes management. This ensures they can address a wide
range of medical needs. Furthermore, Suraj Pharma leverages a strong branded
presence in India, particularly in high-growth chronic therapy areas, allowing
them to cater to specific patient needs within the Indian market.
Understanding that quality is paramount in the pharmaceutical industry, Suraj
Pharma has established a robust manufacturing infrastructure with over 43
facilities spread across six continents. This global footprint allows them to
efficiently produce and distribute their medications. Maintaining high-quality
standards throughout the manufacturing process is a top priority, with stringent
quality control measures guaranteeing the safety and efficacy of their medicines
for patients worldwide.
Suraj Pharma actively invests in research and development (R&D) to stay at the
forefront of drug development. This commitment to innovation allows them to
explore new therapeutic areas and cater to evolving healthcare needs. Their
financial performance reflects their success, with global revenue exceeding US$
80 million. Suraj Pharma holds a leading position within the Indian dermatology
segment and ranks highly with several different doctor groups in India. This
market leadership, coupled with their focus on innovation, positions them for
continued growth and success in the global pharmaceutical industry.
Strategic Repositioning and Innovation in Pharmaceutical Development
In the drug development value chain, the ultimate valuable product is the drug
or vaccine administered to patients. Most promising molecules fail to pass the
testing phase. The value chain is defined by research, testing, and delivery, with
major pharmaceutical companies typically involved in these activities. They
engage either directly or, in the case of research, often through partnerships
with research organizations like academic institutions or universities. These
activities entail significant costs, ranging from drug discovery and testing to
clinical trials, submission of applications to regulatory agencies, and promotion
and education for stakeholders.
The incentive for bearing these costs is a grace period during which the original
manufacturers have exclusive market access through patents. This period allows
them to recoup their investments and potentially earn substantial profits. After

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the patent expires, other manufacturers can produce generic versions of the
original product. These generics are crucial for the healthcare system as they
ensure the availability of essential drugs at more affordable prices. Since the
generic manufacturers did not incur the initial development costs, their
manufacturing expenses are much lower, leading to reduced prices. The value
they bring lies in creating competition in the market, which can drive down
prices and improve accessibility. This competition ensures that price-sensitive
consumers have access to necessary medications, contributing to better public
health outcomes.
One of Suraj Pharma's drugs, Rifmn, is an antibiotic used to treat the contagious
disease “Tbis.” Rifmn is a patented medicine, but the patent is about to expire,
and several competitors are expected to enter the market with similar products.
In order to reposition itself, the company is reviewing its pricing policy
considering the market change and other threats. Market research for Rifmn
indicates that for every ` 4 decrease in price, demand would be expected to
increase by 8,000 batches, with maximum demand being one million batches.
Each batch of Rifmn is currently made using the following chemical salts:
 Salt X: 367.50 gm at ` 0.08 per gm
 Salt Y: 301.50 gm at ` 0.40 per gm
Each batch of Rifmn requires 30 minutes of machine time to make and the
variable running costs for machine time are ` 40 per hour. The fixed production
overhead cost is expected to be ` 35 per batch for the period, based on a
budgeted production level of 3,00,000 batches. The skilled workforce who has
been working on Rifmn until now is being shifted to the production of Suraj
Pharma’s new antiviral drug (injection) for Viral Disease-23. This new drug,
costing millions to develop, has been patented by Suraj Pharma and is expected
to save millions of lives worldwide. Its launch is eagerly anticipated, although its
demand is currently unknown, and no similar specific drug exists. The average
labor cost (outsourcing) per batch of Rifmn is ` 38.60. The management of Suraj
Pharma considers that the pricing decision of Rifmn should be based on each batch.
In addition to these developments, Suraj Pharma has received a government
grant of ` 80 crores for the research and development (R&D) of a low-cost CN1
vaccine. Existing vaccines are expensive, and the government aims to make them

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FINAL EXAMINATION
more affordable. The grant agreement stipulates that Suraj Pharma must develop a
manufacturing process within two years to reduce production costs by at least 40%.
Suraj Pharma also supplies a drug intermediate to its own unit located in
another state for the purpose of converting it into formulations. This drug
intermediate is unique to the company, and there is no market sale of this drug
intermediate in India. Additionally, there are no goods of like kind and quality
available in the market. After the conversion process, the finished product is
sold directly from the said unit by the company, completing the entire
manufacturing and sales cycle internally. This process ensures the company's
control over the quality and distribution of the final product.
Strategic Moves Amid Legal Setbacks and Acquisitions
Suraj Pharma had filed a petition with the National Company Law Tribunal
seeking sanction of scheme of arrangement in nature of demerger and transfer
of its 'Specified Investment Undertakings' to two overseas companies which
were directly and indirectly wholly owned subsidiary of petitioner company.
However, the NCLT rejected the said petition.
In parallel, Suraj Pharma recently acquired two pharmaceutical companies, Indu
Pharma Ltd. and Biraj Lifesciences Ltd. Indu Pharma Ltd. has been conducting
in-house research and development activities through its skilled workforce
since its inception and has recently obtained intellectual property rights (IPR) in
the form of patents over certain drugs. Additionally, Indu Pharma has a
production plant that has recently obtained regulatory approvals. However, the
company has not earned any revenue so far and does not have any customer
contracts for the sale of goods. On the other hand, Biraj Lifesciences Ltd. has
incurred significant research costs in connection with two new drugs that have
been undergoing clinical trials. Out of the two drugs, one has not been granted
the necessary regulatory approvals yet; however, Suraj Pharma expects that
approval will be given within two years. The other drug has recently received
regulatory approval. The revenue-earning potential of these drugs was one of the
principal reasons why Suraj Pharma decided to acquire Biraj Lifesciences Ltd.

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Compliances and Consolidation Challenges

Suraj Pharma has another subsidiary, MKS Ltd. (MKS), in UK. The Company had
outstanding trade receivables amounting to ` 14 crore from MKS. Suraj Pharma
observed that there have been some FEMA (Foreign Exchange Management
Act) non-compliances on the part of Suraj Pharma, but the management had
an action plan which they had initiated and on the basis of which management
was sure that the non-compliance would be done good and there would be no
penalty on the company. In case the penalty arises in future, the impact would
be significant for Suraj Pharma. The auditors of Suraj Pharma also evaluated this
matter by involving a regulatory matters expert and agreed with the
management’s view.
Suraj Pharma prepared its consolidated financial statements, but they do not
consolidate the financial statements of MKS. This is because the financial year
followed by MKS is January to December as against April to March followed by
Suraj Pharma.
2.1 Given Suraj Pharma’s strategic positioning and recent developments,
which of the following statements best describes the role of patent
protection in gaining and maintaining competitive advantage in the
pharmaceutical industry?
(a) Patent protection allows pharmaceutical companies to reduce
production costs and increase profit margins by avoiding
competition
(b) Patent protection enables pharmaceutical companies to exclusively
capture the benefits from their investment in new drug
development for several years
(c) Patent protection ensures that pharmaceutical companies can
outsource their drug production to low-cost countries without
losing intellectual property rights

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FINAL EXAMINATION
(d) Patent protection provides pharmaceutical companies with

perpetual rights to their inventions, ensuring a permanent
competitive advantage
2.2 How should Suraj Pharma account for this government grant assuming
reasonable assurance exists that they can meet the stipulated conditions?
(a) Recognize the entire grant amount (` 80 crores) as immediate
income in the statement of profit and loss
(b) Recognize the entire grant amount (` 80 crores) as deferred income
and recognize it in P/L over the two-year period
(c) Recognize the entire grant amount (` 80 crores) as a separate item
in the other comprehensive income section
(d) Recognize the grant amount upon successful development of the
low-cost manufacturing process
2.3 Can Indu Pharma Ltd. be considered a business for acquisition accounting
purposes?
(a) No, because the said company A lacks customer contracts and
hasn't generated revenue
(b) No, because the said company focuses solely on R&D and hasn't
started production
(c) Yes, because the said company possesses the necessary resources
(workforce, patents, plant, IPR, etc.) to produce drugs
(d) Yes, because Suraj Pharma's acquisition finalizes Indu Pharma Ltd.'s
business model
2.4 Do you agree with the way auditors have handled the matter related to
FEMA non-compliances? How would you deal with this matter?
(a) Auditors didn’t handle this matter appropriately. Auditors should
have informed about this matter to the RBI (Reserve Bank of India)

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within a period of 30 days from date this matter came to their

knowledge
(b) Auditors handled this matter appropriately. The management would
need to include this matter in the notes to accounts to the financial
statements
(c) Auditors handled this matter appropriately. But they would also
need to include modification in their report because the impact of
penalty, if levied, can be material
(d) Auditors could have handled this matter in a better manner by also
involving a tax expert because this might result in a penalty and that
may have some taxation impact for the Company
2.5 Suggest the auditor’s responsibility in respect of non-consolidation of
financial statements of MKS.
(a) Suraj Pharma needs to prepare consolidated financial statements by
also consolidating MKS. In case this is not done, the auditors need
to qualify their report on consolidated financial statements.
(b) Suraj Pharma needs to prepare consolidated financial statements by
also consolidating MKS. In case this is not done, the auditors need
to give emphasis of matter in their report on consolidated financial
statements.
(c) Suraj Pharma’s management’s view is right because MKS is a foreign
company and hence no consolidation may be done while preparing
consolidated financial statements in India.
(d) Auditors of Suraj Pharma should have done materiality assessment
in respect of non-consolidation of MKS in the consolidated financial
statements. The auditors should ask the management to include a
note in the consolidated financial statements and also take
management representation letter for the same.

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FINAL EXAMINATION
2.6 How will the value of the supply of this drug intermediate be determined
under GST law?
2.7 CALCULATE the optimum (profit-maximizing) selling price for Rifmn and the
resulting annual profit which Suraj Pharma will make from charging this price.
RECOMMEND the pricing strategy for launching of new antiviral drug.
2.8 Based on the case study and the cited Companies Act, 2013 provisions
cited, why was the demerger scheme disapproved by the NCLT?
2.9 Whether the research and development on either of the drugs be
recognized as an intangible asset in the books of Suraj Pharma?
CASE STUDY-3
ABOUT CASE STUDY
Travel
Industry
Financial Reporting, Indirect Tax, Auditing, Corporate and
Economic Laws, Strategic Cost & Performance
Subjects
Management
Section 143(12) of the Companies Act, 2013, SEBI Insider
Trading Regulations, CARO [Paragraph 3(xi)(a)], Section
Topics 14(b)(ii) of The Central Goods and Services Act, 2017, Ind
AS 38, TQM

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IndyaDekho: Pioneering Innovation and Customer Experience in the Digital

Travel Landscape
The travel industry has undergone a significant transformation in recent years,

driven by technological advancements and changing consumer preferences.
Today, the sector is characterized by a digital-first approach that emphasizes
convenience, customization, and customer experience. As more travelers turn
to online platforms to plan and book their trips, companies leveraging
technology effectively are gaining a competitive edge. This digital revolution
has led to the emergence of numerous travel tech companies offering a wide
array of services, from hotel and flight bookings to complete holiday packages,
all accessible with just a few clicks.
In this evolving landscape, IndyaDekho Limited has positioned itself as a
pioneering new-age tech company. Founded with the vision of simplifying the
travel planning and booking process, IndyaDekho has distinguished itself
through its innovative approach and comprehensive service offerings. Its
proprietary app, “IndyaDekho,” is central to this strategy, designed to cater to
the needs of the modern traveler by offering services like hotel bookings, flight
bookings, curated holiday deals, and other allied services. Incorporated in the
year 20X0, IndyaDekho was listed on recognized stock exchanges in India in
November 20X1 (more than twenty years ago).
Customer centricity is deeply embedded in IndyaDekho's culture and business
operations. Over the years, the company has tapped into existing market
potential and forged new growth avenues through a customer-focused
approach and commitment to operational excellence. This customer-centric
approach serves as a catalyst for innovation, driving the company to seek timely
solutions that cater to the evolving preferences of customers. By leveraging an
insight-driven and research-based framework, IndyaDekho enhances tech-
enabled growth and identifies areas for improvement, facilitating the
development of innovative packages and services that foster client satisfaction.
Brand Affinity and Omnichannel Strategy
IndyaDekho’s brand affinity, customer centricity, innovative packages, and
omnichannel approach have positioned it as the preferred partner for its

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discerning patrons. Building on its strengths, IndyaDekho continues to navigate

disruptions in the operating environment with agility, delivering innovative
offerings and embracing best-of-breed technologies. The first step to meet
these objectives was the recruitment of a sports celebrity as an employee. This
sports celebrity would help IndyaDekho in maintaining and further developing
its brand by participating in local sports events, select cultural events, and
advertising campaigns. As per the terms of the contract, the sports celebrity is
prohibited from playing for any other team and cannot leave the company
without mutual agreement. The amount paid by the company to acquire this
right is derived from the skills and fame of the sports celebrity.
IndyaDekho continues to invest heavily in maintaining and developing its brand,
sponsoring select cultural events, and advertising. This strong brand presence
allows the company to charge a premium from its customers. The company
believes that it will reap the benefits of this expenditure over a long period and
prefers to amortize the expenditure over future periods rather than charging it
to profit or loss in a single year.
As the industry evolves with the adoption of new technologies, so does
IndyaDekho’s product and service portfolio. Digitization has transformed how
the company extends its offerings to customers, empowering itself digitally to
enhance productivity and operational efficiency while serving clients through
both physical and digital channels.
Stakeholder Engagement and Total Quality Management
IndyaDekho appreciates the crucial role of stakeholders in ensuring long-term
success. Through effective stakeholder engagement, the company gains
valuable insights into their material concerns and expectations. By addressing
these concerns and developing mutually beneficial solutions, IndyaDekho
strives for inclusive progress that balances growth aspirations with a steadfast
commitment to stakeholder integrity. Stakeholder feedback led to the
assessment of a holistic quality improvement mechanism based on the
principles of Total Quality Management. Refer Extract of Minutes of the
59th Meeting of the Board held on 31st May 20X4 at New Delhi (Annexure).

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Pressing Matters Discussed by the Board of Directors

A few weeks later, an urgent meeting of the Board of Directors was called to
discuss the following pressing matters:
Matter 1: Unauthorized Payments
The company's services include bookings via its app/platform. To facilitate
customer service for travel business, the company had engaged a third-party
service provider, InstPay Technology Private Limited, to deploy its
employees/agents to perform services specifically for the company. Each
transaction generates a unique order ID, and all such order IDs and related
transaction details are stored on the company’s Seller ERP. Access to the
company’s Seller ERP was granted to InstPay and its employees solely to enable
them to provide services and discharge their obligations under the contract,
including processing refunds. On 25th May 20X3, a customer notified the
company that they hadn’t received a payout/settlement for 15 orders. The
operations team reviewed the matter and noted that InstPay’s nine employees
misused their access to fraudulently initiate cancellations of payouts in the
Seller ERP. Consequently, the airline/hotel received payment from the company,
and the amount was also refunded to the customer's account. The operations
team informed the management that these employees had initiated the
payment cancellation of 1,905 orders, aggregating to ` 5 crores, where
payments were made to respective airlines/hotels, in addition to crediting these
refunds to the customers.
Matter 2: Cancel Payment Functionality Abuse
The company also facilitates payments and other services for its users through
the IndyaDekho app, which includes a credit card bill payment facility. The
system is integrated with the credit card issuer bank via different payment rails
(e.g., IMPS, NEFT). The app provides a ‘cancel payment’ functionality intended
to cover technical glitches (e.g., where the payment is stuck in the bank’s online
system). This functionality allowed app users to cancel credit card payment
transactions after 4 hours of payment. Some app users repeatedly abused this
functionality by initiating multiple credit card payments and subsequently
cancelling those transactions after 4 hours. The company refunded the

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payments to fraudulent users’ credit card accounts and transferred cash to the
credit card issuer bank. It was discovered that 4,200 app users had abused the
“cancel payment” functionality, causing a loss of ` 33 crores to the company.
The company initiated a forensic investigation supported by a well-known law
firm. The investigation was supervised by the ex-head of the CBI, who had years
of experience dealing with financial crime. The forensic investigator reviewed
the change management process for configuring the ‘cancellation’
functionality, analyzed the transaction dump of orders refunded to identify any
patterns/trends, interviewed selected people, assessed the refunds and
evaluated for anomalies, and reviewed the HR data and relevant email
communications of select employees. The forensic team concluded that there
was no collusion with any of the company’s employees. The forensic report was
submitted to the Board for consideration.
Audit and Forensic Report
While auditing the company, the auditor performed relevant inquiries with the
management as required under the Standards on Auditing. The management
updated the auditor on the developments during the year, including the above
matters. The auditor requested the forensic report, as it summarizes the findings
and can be used as a reference for further action. The management explained
that the forensic report is comprehensive, identifies the perpetrators involved,
quantifies the financial loss suffered, and provides advice to prevent the
recurrence of similar instances.
The auditor deliberated internally on whether the unauthorized payment matter
would trigger reporting under CARO 2020, especially since the matter was
identified by the management. The fraud was not identified by the auditor while
performing the audit procedures. He considered whether reporting under CARO
would be duplicative since the matter is known to the management and key
stakeholders. However, he is also conscious of the reporting threshold under
section 143(12) of the Companies Act, 2013, i.e., fraud in excess of ` 1 crore.

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The management also informed the auditor that being a listed company, due
care should be taken while handling unpublished price-sensitive information.
The auditor reiterated that adequate care is exercised while handling such
information. He explained that a robust framework is in place to define
unpublished price-sensitive information, the manner of handling it, and the
names of recipients. Periodic certificates are obtained from team members
confirming that unpublished price-sensitive information acquired during the
audit is not misused.
GST Rate Revision and Impact
During the current year, the company moved to a new head office, entailing the
purchase of modular furniture from Office Living LLP.
The rates of GST on various dates of the transaction are as follows:
Date Particulars Rate of IGST
15th October, 20X3 Date of issue of invoice 18%
Date of delivery and installation of

18 October, 20X3
th
Modular Furniture upon the 18%
availability of the technician
19th October, 20X3 Payment is entered in the books of

18%
Office Living LLP
26th October, 20X3 Payment is credited to the bank

28%
account of Office Living LLP
(Note: The rate has been changed from 18% to 28% with effect from
20th October)

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Annexure
Extract of Minutes of the 59th Meeting of the Board held on 31st May
20X4 at New Delhi
Item: Discussion on Quality Improvement at IndyaDekho
Independent Director:
The concept of quality management has been acknowledged since ancient
times. Several manufacturing firms have focused on improving quality and
using tools explicitly aimed at quality control. The concept of quality
management has been widely accepted in various worldwide standards such
as ISO. Therefore, I propose to employ this in IndyaDekho.
Managing Director:
Quality management is generally understood to enhance the quality of
products as an integrated organizational tool. It aims to optimize an
organization’s competitiveness by improving the quality of its goods.
Moreover, TQM includes core team members in meeting consumer needs by
employing problem-solving methods to increase the quality of goods. This
relates to only manufacturing industry and hence I am not in favour of quality
management. In addition, it involves a lot of funds and hence waste of
resources in employing service industry like ours.
Independent Director: (heatedly)
I must disagree, Managing Director. The principles of quality management
are not confined to manufacturing alone. Service industries worldwide have
successfully adopted these standards to great benefit.

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Managing Director: (heatedly)

That’s easy to say, but the practicalities and financial implications for a service
industry like ours are vastly different. We cannot afford to invest heavily in a
system that might not yield proportional benefits.
Chief Management Accountant:
The key objective is to achieve a holistic alignment between organizational
personnel and their roles to achieve better development, improvement, and
protection of the standard of goods and also services to attain consumer
satisfaction. TQM philosophy focuses on enhancing business quality and
manage satisfaction by maximizing employee participation in decision-
making activities. Though the primary aim is to satisfy external customers,
TQM acknowledges the challenge of fulfilling external customers’
expectations without meeting the needs of internal customers. It aims to
surpass the needs of both.
CEO: (intervening to calm the discussion)
Let's take a step back. Adopting TQM entails a significant shift in
organizational culture and structure. Therefore, it is advisable to tailor the
application method to fit the company. An objective evaluation of the internal
and external environment in which the company functions is recommended
to assess the impact areas. We need a balanced approach that considers the
unique aspects of our service industry.

3.1 Considering both instances of fraud, the audit in-charge drafted Form
ADT-4, i.e. Form used to report frauds to the Central Government, as
prescribed under Section 143(12) Companies Act, 2013 read with related
Rules. The engagement partner believes that the Form need not be filed
with the Central Government. Do you agree?
(a) Yes. Each instance of fraud is less than the qualifying threshold of `
1 crore for individual frauds.
(b) Yes. Employees/ officers of the Company are not involved in the
frauds.

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(c) No. Auditor to report all frauds to the Central Government,

irrespective of materiality.
(d) No. Auditor to report frauds to the Central Government, since the
aggregate loss exceeds qualifying threshold of ` 1 crore.
3.2 The Company secretary is of the view that the auditors handle
unpublished price sensitive information. Accordingly, the auditor should
maintain a database containing relevant information including names of
the person with whom information is shared and PAN. Do you agree?
(a) Yes. SEBI (Prohibition of Insider Trading) Regulations, 2015 requires
auditors to maintain Structured Digital Database with prescribed
data and information.
(b) No. SEBI (Prohibition of Insider Trading) Regulations, 2015 do not
apply to auditors.
(c) No. Statutory auditor appointed have unrestricted access to all
information for the purpose of audit. Maintenance of database of
information would not align with the powers of the auditor.
(d) No. SEBI (Prohibition of Insider Trading) Regulations, 2015 does not
require any Structured Digital Database.
3.3 The auditor’s request for a copy of forensic audit report was denied by
the management citing client attorney privilege. This privilege safeguards
confidential communications between a client and their attorney. Is the
management correct?
(a) No. Auditor should be provided a copy of the forensic audit report
since the amount is material to the financial statements.
(b) Yes. Auditor should not be provided a copy of the forensic audit
report since the information is sensitive and susceptible to misuse
by the any member of the audit team.
(c) Yes. Auditor should be provided a copy of the forensic audit report
since the amount is material to the financial statements from
management’s perspective.

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(d) No. Companies Act, 2013 and Standard on Auditing provide

unrestricted access to any information to an auditor of the financial
statements.
3.4 Whether these unauthorised payments be reported by the auditor under
CARO 2020?
(a) Yes. CARO envisages comment by auditor on outcome of a forensic
audit.
(b) No. Since no fraud is reported to the Central Government under
section 143(12) of the Companies Act, 2013 and the amount is not
material.
(c) Yes. CARO envisages comment by auditor for frauds which came to
notice during audit.
(d) No. Since no fraud is reported to the Central Government under
section 143(12) of the Companies Act, 2013.
3.5 What is the ‘date of payment’ for modular furniture supplied by Office
Living LLP to Indya Dekho Travel Limited? Determine time of supply in
said case.
(a) 19th October; 15th October
(b) 26th October; 15th October
(c) 19th October; 18th October
(d) 26th October; 18th October
3.6 Whether the cost incurred to obtain the right regarding the sports
celebrity cum employee can be recognised as an intangible asset as per
Ind AS 38?
3.7 How can IndyaDekho effectively implement Total Quality Management
(TQM) to enhance service quality and ensure long-term business
sustainability, considering the 6Cs of TQM—Commitment, Culture,
Continuous Improvement, Cooperation, Customer Focus, and Control,

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especially in light of the diverse viewpoints expressed in the minutes of

the 59th Board Meeting held on 31st May 20X4, where the Independent
Director emphasized the widespread acceptance of quality management,
the Managing Director expressed concerns about its applicability and
financial impact on the service industry, and the CEO highlighted the need
for a tailored approach and objective evaluation of the company's internal
and external environment?
3.8 Can IndyaDekho defer and amortise the expenditure over brand building
incurred over future years?
SUGGESTED ANSWERS
1.1 The correct answer is (a) Statements (i) and (iii) are correct.
Reason: If FPL chooses to pay the GST itself, in order to avail ITC on the
goods and services used in supplying the GTA service, it has to pay the
GST at the rate of 12% and not 5% as forward charge. If FPL chooses to
pay GST under the reverse charge mechanism, the recipient of service who
pays the GST on behalf of the GTA can avail ITC on that amount. Reverse
charge means that the liability to pay the tax is on the recipient of service
and not on the GTA. Therefore, the ITC can accordingly be availed by the
recipient of service and not the GTA.
1.2 The correct answer is (d) ` 12,30,000.
Reason: Since FPL does not own more than 10 trucks during the P.Y. 2023-
24, it is eligible to pay tax under presumptive taxation scheme under
section 44AE.
As per section 44AE, any truck weighing above 12 tons (12,000 kgs) would
be considered a heavy goods vehicle. For each such heavy goods vehicle,
` 1,000 per ton of gross vehicle weight or unladen weight for every month
or part of a month during which such vehicle is owned by the assessee
would be the deemed profits.

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Any truck weighing 12 tons (12,000 kgs) or less would be other than heavy
goods vehicle. For each such vehicle, presumptive income would be
deemed to be ` 7,500 for every month or part of a month for which the
vehicle is owned by the assessee.
The relevant date here is the date of owning and not the date on which
the truck is put to use.
The calculations would be as under:
Goods vehicle other than heavy goods vehicle
No. of Date of No. of Months for No. of Months ×

Vehicles Purchase Which the Vehicle is No. of Vehicles
Owned
3 April 1, 2020 12 36
2 April 1, 2020 12 24
60
Heavy goods vehicle
No. of Date of No. of Months for No. of Months ×

Vehicles Purchase Which the Vehicle is No. of Vehicles
Owned
3 April 1, 2021 12 36
1 April 1, 2023 12 12
48
Presumptive Income
Sr. Particulars Presumptive

No. Income
1 Other than heavy vehicles 60 × ` 7,500 4,50,000
2 3 Heavy vehicles purchased on April 1, 2021 5,40,000
36 × ` 1,000 × 15 tons

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3 1 heavy vehicle purchased on April 1, 2023 2,40,000

12 × ` 1,000 × 20 tons
Total 12,30,000
1.3 The correct option is (c) Offering packing and insurance advisory
services to clients for a fee whenever required.
Reason: Offering packing and insurance advisory services to clients where
the client has such requirements adds value to the service that the
transporter is providing. If executed competently, the client would be
willing to avail these services for a fee. This adds value to FPL’s overall
services.
1.4 The correct answer is (b) Implementing robust systems to track
operational metrics and improve delivery times.
Reason: The success of introducing LTL shipments largely depends on
effective tracking and managing of operational metrics, which directly
impacts customer satisfaction and delivery performance. Robust systems
will ensure that FPL can meet the 7-day delivery expectation, efficiently
handle the increased volume of shipments, and minimize deadheading,
thereby enhancing overall productivity and flexibility in operations. This
aligns with McKinsey's 7S element of Systems, which is crucial for
operational effectiveness and strategic change implementation.
1.5 The correct answer is (a) 1-III, 2-I, 3-II and 4-IV.
Reason: Target customers whose CLV is `20 lakh and above - Customer
Selection.
Advertising on trucking load boards, trade publications - Customer
Acquisition.
On time delivery with nil to minimum damage - Customer Retention.
Packaging and Transport insurance advisory services - Customer
Extension.

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1.6 (i) Identification of Corporation Vision and Market and Financial

measures for company’s success
Level 1- Corporate Vision:

Corporation Vision of Road runner is that “The company aims at
maintaining good quality delivery standards to make its mark in the
competitive environment it operates*.”
*Alternative is also possible.
Level 2- Market related measures:
To increase its market growth and enlarge its clientele base, the
company plans to increase its advertising spend to make its
presence known in the market. It is resorting to off-line print media,
online media as well as by participating in relevant trade association
events. It has a target clientele of mid-sized companies that have
shipments to make at regular intervals. It has to track customer
satisfaction of its service with relation to the quality and delivery
of its service. Ancillary services like packaging services on outbound
shipments and transport insurance advisory services based on

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customer requirements are aimed at increasing the value

proposition of service offered to the clients. This can help maintain,
if not grow, FPL’s market share.
Level 2- Financial measures:
Within the specter of rising costs, to maintain financial sustenance,
the senior management has put in place metrics that will track
profitability. Difference between the revenue per kilometre and cost
per kilometre would be the profit earned per kilometre. The target
profit per kilometre = ` 800 - ` 500 = ` 300 per kilometre. Also, the
company is clear that it wants a quick turnover of its accounts
receivable. For getting credit worthy customers, it has targeted
clientele whose customer lifetime value is at least ` 20 lakh or more.
The presumption made is that these mid-sized companies are less
likely to default on their bills. For quick turnover of its accounts
receivable, it proposes to give a 10-day credit period to its client to
settle the bill. Quick conversion of accounts receivable into cash
helps maintain liquidity. This is especially important for FPL to maintain
since its costs of operations, especially fuel costs, are going up.
(ii) Operational level measures and their link to customer
satisfaction and productivity
The operations level measures can be classified as follows:
(a) Customer claims filed for damaged goods (absolute
numbers and % of shipments made) – Quality of service.
Incidents of such claims should be maintained at the very
minimum to have good customer satisfaction.
(b) Time taken to resolve the above claims (days from date of
customer filing claim) – Quality of service.
Quick resolution of claims leads to better customer
satisfaction.

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(c) Delays in delivery beyond the agreed delivery time (% of

shipments made) – Delivery of service.
Incidents of such delays in delivery should be maintained at
the very minimum to have good customer satisfaction.
(d) Number of days truck was not on the road (due to
maintenance or insufficient load) – Waste of resource.
Utilization of resources impacts productivity. Trucks have to
be used efficiently in order to improve productivity.
(e) Average time taken to get exclusive FTL orders as well as
full truck load under LTL (days) – Cycle time, time taken to
complete the task.
Currently, time taken is 4 days for FTL shipments and expected
to be 3 days for LTL shipments. This should be kept at a
minimum level to improve productivity. Faster the ability to fill
up the truck, improves the utilization of resource and
enhances productivity.
(f) Deadheads (kilometres): Kilometres the truck is on the
road with no load to carry– Waste of resource.
When a truck runs on the road without any load, it incurs a
cost but earns no revenue to recoup it. Therefore, the number
of kilometre deadheads is a waste and should be kept to a
minimum.
(iii) Impact of measures (g) and (h) on business
(g) Number of orders turned down due to non-availability of
trucks – Flexibility of service.
This metric has to be maintained at the very minimum. The
business must be able to cater to as many orders as possible.
Tracking this metric can indicate if the current capacity of
trucks is sufficient to cater to the demand from customers.

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(h) Ability to deliver within 7 days from the date of receiving

client’s goods under the LTL system (% of shipments under
the LTL system) – Flexibility of service.
It is given that under the LTL system, given the piecemeal
orders that are aggregated to form a full truck load, on an
average the client is willing to wait for maximum 7 days from
the date of handing over goods until delivery. It is expected
that it would take 3 days to fill up to full truck load capacity
under the LTL system. Hence, the company has only 4 days left
to ensure that the goods reach their destination. The ability to
meet this expectation of the customer is very important to
maintain and sustain business. Therefore, the company has to
have sufficient capacity to cater to customers’ expectations. It
must have enough flexibility (capacity) in its operations to
accommodate any exigencies to ensure that this expectation
is met.
1.7 Ind AS 116 on leases provides guidelines on accounting for lease
modifications. Lease modification includes change in scope of the lease
e.g. extending the contractual lease term. In this case, modification
increases the scope of the lease by extending the contractual lease term
from original term of 5 years to a total of 8 years. At the effective date of
the modification (at the beginning of Year 4), FPL would remeasure the
lease liability based on:
(a) A five-year remaining lease term
(b) Annual payments of `10,00,000 payable at the end of each year and
(c) FPL’s incremental borrowing rate of 7% p.a.
The modified lease liability equals `41,00,000 (refer working note 3). The
lease liability immediately before the modification (including the
recognition of interest expense until the end of Year 3) is `18,32,959.
FPL will account for the modification in the lease agreement with SPL as
follows:-

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At the beginning of Year 4, on the effective date of modification FPL will

recognize the difference between the carrying amount of lease liability
` 18,32,959 (immediately before the modification) and the carrying
amount of the modified lease liability ` 41,00,000.
Modified lease liability ` 41,00,000.
Less: Original lease liability as at the modification date ` 18,32,959
(beginning of Year 4)
This difference would result in an increase in lease ` 22,67,041
liability and carrying amount of ROU asset by
Working Note 1: Calculation of the Lease at the commencement of
the lease
Year Lease Payment PV Factor @6% Present Value of

Lease Payments
(A) (B) C=A×B
1 10,00,000 0.943 9,43,000
2 10,00,000 0.89 8,90,000
3 10,00,000 0.84 8,40,000
4 10,00,000 0.792 7,92,000
5 10,00,000 0.747 7,47,000
Total 50,00,000 42,12,000
Working Note 2: Calculation of Lease liability immediately before
modification date
Year Opening Lease Interest Lease Closing

Liability @ 6% Payments Liability
(A) B = (A) × 6% =A+B-C
1 42,12,000 2,52,720 10,00,000 34,64,720
2 34,64,720 2,07,883 10,00,000 26,72,603
3 26,72,603 1,60,356 10,00,000 18,32,959

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Working Note 3: Calculation of modified lease liability on date of

modification
Year Lease Payment PV Factor @7% Present Value of

Lease Payments
(A) (B) C = A ×B
4 10,00,000 0.935 9,35,000
5 10,00,000 0.873 8,73,000
6 10,00,000 0.816 8,16,000
7 10,00,000 0.763 7,63,000
8 10,00,000 0.713 7,13,000
Total 50,00,000 41,00,000
1.8 (i) Regularly flouting rules regarding maximum truck load size and weight
can lead to significant reputational damage if these breaches are
detected. There is also a risk of substantial financial loss if, for example,
a valuable load is damaged, and it is found that weight limits were
exceeded. The company’s insurers would almost certainly refuse to
accept liability, leaving FrontRunner to cover the compensation costs.
Additionally, FrontRunner’s ongoing operations could be impacted by
increased scrutiny from authorities, with frequent police stops causing
delays to convoys. This heightened attention could also result in
increased fines and legal fees, further straining the company’s finances.
Furthermore, the negative publicity could erode customer trust,
leading to a potential decline in business and loss of key contracts.
(ii) It appears that TQM at FrontRunner has high-quality delivery
standards, focusing on the end product being supplied to the
customer. The Chairman’s message indicates that business
operations are being conducted smoothly and to the satisfaction of
customers. Business volumes have also increased over the years.
However, the system implemented by R. Venkatesh overlooks the

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maintenance aspect of trucks, leading to breakdowns and

unplanned repairs that must be carried out.
(iii) Total Productive Maintenance (TPM) is a lean management
philosophy that helps maintain and improve the integrity of
production and quality systems. TPM keeps all equipment in top
working condition to avoid breakdowns and delays in operations.
The TPM focuses on eight pillars, with the 5S as the foundation.
Autonomous Maintenance is one of these eight pillars. The objective
of this pillar is to operate equipment (trucks, in this case) without
breakdowns and to eliminate defects at the source through active
employee participation. For example, at FrontRunner, the driver
might carry out maintenance activities like lubricating, tightening
bolts, and changing tires. The maintenance team would be involved
only for more sophisticated and highly technical maintenance. This
approach ensures that trucks are in good working order most of the
time. Truck drivers are trained to handle minor repairs and
maintenance, freeing up Mr. Soni's time to attend to more
complicated tasks that require his expertise.
(iv) Total Quality Management (TQM) and Total Productive

Maintenance (TPM) are often used interchangeably. However, TQM
and TPM are considered two different approaches. TQM aims to
increase the quality of goods, services, and customer satisfaction by
raising awareness of quality concerns across the organization. In
other words, TQM focuses on the quality of the product, while TPM
focuses on the equipment used to produce the products. By
preventing equipment breakdowns, improving the quality of the
equipment, and standardizing the equipment, the quality of the
products increases. TQM and TPM can both result in an increase in
quality; however, their approaches are different. TPM can be seen as
a way to help achieve the goals of TQM.

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Concept Insight Business Model Canvas*
Key Partners Key Activities Value Proposition Customer Customer Segments

Relationship
 Agents for  On Time delivery  Reliable and  Personalized  Mid-sized

sourcing of commercial efficient B2B customer service companies in
return goods (B2B) transportation and support for Gujarat requiring
shipments across Gujarat services within shipment needs regular and
 Suppliers of without damages Gujarat efficient shipment
packing within 7 days of  Flexibility with FTL services with
materials receiving order and LTL shipment average customer
Client order options lifetime value of `
 Insurance 
management to  20 lakh and above.
advisory firms Competitive
maximize truck  Businesses having
for transport pricing with target
insurance capacity cost-per-kilometer large shipments
services utilization (FTL and revenue-per- needing FTL
orders 4 days, kilometer rates option
 Spaces Pvt.
LTL orders 3   Businesses smaller
Limited (SPL) Additional services
days) shipments
for truck like packing and
Client order needing LTL
parking lease  transport insurance
management to option
 Fuel providers advisory
reduce
 Truck
deadheading
manufacturers
and leasing  Route planning
companies to minimize
order delivery
times
 Coordination of
FTL and new LTL
shipments
 Improve
flexibility in
operations to
reduce lost sales

REVISION TEST PAPER
due to non-
availability of
trucks
 Maintenance and
management of
truck fleet
 Offering packing
and transport
insurance
advisory services
 Participation in
trade association
events
 Advertising and
Marketing to
expand customer
base
Key Resources Channels
 Fleet of 9 trucks  Marketing

with varying outreach to
capacities (7,000 customer base
to 20,000 (through
kilograms) advertisements
 Skilled workforce in print and
for operations online media)
and customer  Direct
service interactions at
 Financial trade association
resources for events
operational  Partner channels
expenses and through agents
lease payments
Cost Structure Revenue Streams
 Operational costs (fuel, maintenance, lease  Revenue from transportation services (FTL and LTL).
payments)  Additional revenue from packing and transport
insurance advisory services

REVISION TEST PAPER
FINAL EXAMINATION
 Employee salaries and benefits

 Marketing and advertising expenses
 Agent commission charges
 Cost of goods sold (packing materials, insurance
premiums)
 Lease payments
 Insurance and permits
 Taxes – Direct and Indirect taxes like GST, Income Tax
 Claim settlements for damaged goods
This Business Model Canvas outlines how FrontRunner Pvt. Ltd. operates its trucking
business in Gujarat, focusing on both FTL and LTL shipments, along with additional
services to enhance customer value and operational efficiency.
* Alternative Views are also possible.
2.1 The correct answer is (b) Patent protection enables pharmaceutical

companies to exclusively capture the benefits from their investment in new
drug development for several years.
Reason: Suraj Pharma, as a leading player in the global pharmaceutical
market, exemplifies the critical role of patent protection. The company's
innovative approach and substantial investment in research and
development (R&D) to develop complex medications, like the new
antiviral drug for Viral Disease-23, highlight the importance of patents.
The patent for Rifmn, an antibiotic, is about to expire, leading to increased
competition from generic versions. Patent protection was essential for
Suraj Pharma to recoup the significant costs of developing Rifmn and to
maintain a competitive edge in the market during the patent period.
Without this protection, competitors would have been able to offer similar
products immediately, potentially eroding Suraj Pharma's market share
and financial returns. Thus, patent protection plays a crucial role in
allowing pharmaceutical companies to secure exclusive rights and capture
the benefits from their investments in drug development, crucial for
maintaining a competitive advantage in a rapidly evolving industry.

REVISION TEST PAPER
2.2 The correct answer is (b) Recognize the entire grant amount (` 80 crores)
as deferred income and recognize it in P/L over the two-year period.
Reason: As per Ind AS 20, since the grant is linked to achieving a specific
outcome (developing a cost-effective manufacturing process) over a defined
period (two years) and reasonable assurance exist, it meets the criteria for
deferred income recognition. Option (b) is the most appropriate approach as
it spreads the grant recognition over the two-year period, reflecting the
gradual fulfillment of the attached conditions.
2.3 The correct answer is (c) Yes, because the said company possesses the
necessary resources (workforce, patents, plant, IPR, etc.) to produce drugs.
Reason: Ind AS 103 defines a business as an integrated set of activities and
assets capable of being conducted and managed for the purpose of
providing a return. While the lack of revenue and customer contracts is a
factor, it's not the sole determinant.
In this case, Indu Pharma Ltd.possesses key elements of a business:
• Skilled workforce (input)
• Intellectual property (IPR) in the form of patents (input)
• Production plant with regulatory approvals (input)
• Processes for R&D and potentially future production (process)

These inputs and processes, when combined, are capable of producing
outputs (drugs). The absence of current revenue doesn't negate this
capability. As long as Indu Pharma Ltd. can potentially access customers,
it meets the definition of a business under Ind AS 103.
2.4 The correct answer is (b) Auditors handled this matter appropriately. The
management would need to include this matter in the notes to accounts to
the financial statements.

REVISION TEST PAPER
FINAL EXAMINATION
Reason: According to SA 250 (Consideration of Laws and Regulations in

an Audit of Financial Statements):
• Paragraph 12 of SA 250 states that the auditor should obtain an
understanding of the relevant laws and regulations applicable to the
entity's business. In this case, FEMA regulations are relevant.
• Paragraph 17 of SA 250 requires the auditor to consider the risk of
material misstatement due to non-compliance with laws and
regulations. The outstanding trade receivables from a subsidiary
with potential FEMA non-compliance could be a risk of material
misstatement.
• Paragraph 20 of SA 250 states that when the auditor identifies a
possible non-compliance, they should perform additional
procedures to assess the effect on the financial statements.
Involving a regulatory expert demonstrates such a procedure.
• Paragraph 25 of SA 250 requires the auditor to communicate
deficiencies in internal control to those charged with governance.
Based on these points, the auditors seem to have followed proper
procedures:
• They identified the potential non-compliance with FEMA
regulations.
• They involved a regulatory expert to assess the situation.
• They likely communicated the issue to Suraj Pharma's management.
However, SA 250 doesn't mandate informing regulatory bodies like the
RBI directly unless specifically required by law.
Management's Responsibility:
Under SA 250, management is responsible for ensuring compliance with
laws and regulations. In this case, it's their responsibility to:
• Take corrective action for the FEMA non-compliance.

REVISION TEST PAPER
• Disclose the potential impact (including any penalties) in the notes

to the financial statements.
Therefore, the auditors have appropriately handled the situation by
involving a regulatory expert and likely communicating the issue to
management. The final responsibility for disclosure and rectification lies
with Suraj Pharma's management.
2.5 The correct answer is (a) Suraj Pharma needs to prepare consolidated
financial statements by also consolidating MKS. In case this is not done, the
auditors need to qualify their report on consolidated financial statements.
Reason: Paragraph 4 of SA 706 states that the auditor's report should modify
the opinion on the financial statements if they are not prepared in accordance
with the applicable financial reporting framework (Ind AS in this case).
Ind AS 110 (Consolidated Financial Statements) requires a parent
company to consolidate the financial statements of its subsidiaries unless
control is temporary, or the subsidiary is insignificant.
In this case, there seems to be no mention of temporary control or
insignificance of MKS. The difference in financial year-ends doesn't
exempt consolidation.
Therefore, by not consolidating MKS, Suraj Pharma is not following the
proper accounting standards. This would likely result in an audit opinion
qualification by the auditors.
2.6 Since the supply is made to a distinct person, the same will be valued in
accordance with rule 28 of the CGST Rules, 2017 relating to valuation.
There is no open market value of the drug intermediate as also there are
no like goods.
Therefore, value of supply of such drug intermediate will be determined
in terms of clause (c) of rule 28 i.e., by using rule 30 of the CGST Rules,
2017. Thus, the value of supply of such drug intermediate will be 110% of
its cost of production or manufacture. However, if the recipient unit is
eligible for full ITC, the value declared in the invoice by the supplier will

REVISION TEST PAPER
FINAL EXAMINATION
be deemed to be the open market value of the drug intermediate and

thus, the invoice value will be the value of taxable supply.
2.7 Demand function
b = change in price/change in quantity b = `4/8,000 units = 0.0005
The maximum demand for Rifmn is 10,00,000 units, so where P = 0, Q
= 10,00,000, so ‘a’ is established by substituting these values for P and Q
into the demand function:
0 = a – (0.0005 × 10,00,000)
0 = a – 500
Therefore, a = 500
Demand function is therefore: P = 500 – 0.0005Q
Marginal cost
Total `
Salt X 367.50g × `0.08 29.40
Salt Y 301.50g × `0.40 120.60
Labour Given in ques 38.60
Machine running cost (30/60 × `40.00) 20
Total marginal cost per batch 208.60
Marginal Revenue Function: MR = a – 2bQ

Equate MC and MR and insert the values for 'a' and 'b' from the demand
function in step 1
⇒ 208.60 = 500 – (2 × 0.0005 × Q)
Solve the MR function (to determine optimum quantity, Q)
⇒ 208.60 = 500 – 0.001Q
⇒ 0.001Q = 291.4
⇒ Q = 291,400 batches

REVISION TEST PAPER
Calculate the optimum price

⇒ P = 500 – (0.0005 × 291,400)
⇒ P = `354.30
Calculate Profit
`
Revenue (2,91,400 batches × `354.3) 10,32,43,020
Less: Variable costs (2,91,400 batches × `208.60) 6,07,86,040
Less: Fixed costs (3,00,000 batches × `35) 1,05,00,000
Profit 3,19,56,980
Recommended Pring Strategy

Firms often use different pricing strategies when their products are first
launched into the market. The most two common approaches are price
skimming and penetration pricing.
In penetration pricing, low price is charged initially, thought behind this
is that low price will make the product accessible to large number of
buyers, so high sales will compensate the low price being charged getting
the benefits of economy of scale. This approach works best when
customers are price sensitive, R & D and marketing expenses are low, or
when competitors will quickly enter the market.
In this case, medicines are highly inelastic in nature so any reduction in
price will not increase the demand of the drug, which clearly indicates that
market penetration pricing will not help.
Skimming Pricing refers to charging high price initially than lower the
prices. High price in the early stage of the product’s life cycle is expected
to generate high initial cash flows, which will help the company to recover
high development cost. This would enable the company to take
advantage of unique nature of the product.
In present case, the unique nature of drug, entry barrier (since
company has taken patent) requires huge initial investment and

REVISION TEST PAPER
FINAL EXAMINATION
considering this market skimming pricing strategy would be more

favorable pricing strategy. However, this strategy only works as long
as drug is protected by patent.
In addition, a drug firm is required to consider the expected reactions
from national price controllers who in turn may be influenced by political
factors and public opinion.
Practical Insight
Most of the people in developing countries buy medicines through out-
of-pocket payments, high prices of medicines might force people to
forego treatment or go into debt. As a result, the price of the medicines
may be regulated by the health organizations/ agencies.
2.8 The NCLT rejected Suraj Pharmaceutical's demerger scheme due to

limitations within the legal framework. Here's a breakdown of the reasons:
Section 234 of the Companies Act, 2013: This section, as interpreted by
the NCLT, did not explicitly permit cross-border demergers involving
Indian companies and foreign companies (either as the transferring or
resulting company).
Rule 25A of the Companies (Compromise, Arrangements and
Amalgamations) Rules, 2016: This rule outlines the detailed procedures
and requirements for cross-border mergers. However, the NCLT noted a
crucial omission: the rule only mentioned "merger" and "amalgamation,"
not "demerger."
Therefore, due to the limitations within Section 234 and the specific
wording of Rule 25A, the NCLT concluded that the legal framework at the
time did not support Suraj Pharmaceutical's proposed cross-border
demerger scheme.
2.9 Ind AS 38, Intangible Assets provides explicit guidance on recognition of
acquired in-process research and development.

REVISION TEST PAPER
Paragraph 34 of Ind AS 38, provides that in accordance with this Standard

and Ind AS 103, an acquirer recognises at the acquisition date, separately
from goodwill, an intangible asset of the acquiree, irrespective of whether
the asset had been recognised by the acquiree before the business
combination. This means that the acquirer recognises as an asset
separately from goodwill an in-process research and development project
of the acquiree if the project meets the definition of an intangible asset.
An acquiree’s in-process research and development project meets the
definition of an intangible asset when it:
(a) meets the definition of an asset; and
(b) is identifiable, i.e. is separable or arises from contractual or other
legal rights.
In accordance with above,
(i) The fair value of the first drug reflects the probability and the timing
of the regulatory approval being obtained. As per the standard, the
recognition criterion of probable future economic benefits is
considered to be satisfied in respect of the asset acquired
accordingly an asset is recognised. Subsequent expenditure on an
in-process research or development project acquired separately is
to be dealt with in accordance with paragraph 43 of Ind AS 38.
(ii) The rights to the second drug also meet the recognition criteria in
Ind AS 8 and are recognised. The approval means it is probable that
future economic benefits will flow to Suraj Pharma. This will be
reflected in the fair value assigned to the intangible asset.
Thus, recognising in-process research and development as an asset on
acquisition applies different criteria to those that are required for internal
projects. The research costs of internal R&D projects may under no
circumstances be capitalised as an intangible asset. It may be pertinent to
note that entities will be required to recognize on acquisition some research
and development expenditure that they would not have been able to
recognize if it had been an internal project. Although the amount attributed
to the project is accounted for as an asset, Ind AS 38 requires that any

REVISION TEST PAPER
FINAL EXAMINATION
subsequent expenditure incurred after the acquisition of the project is to be

accounted for in accordance with Ind AS 38.
3.1 The correct answer is (b) Yes. Employees/ officers of the Company are
not involved in the frauds.
Reason: Section 143(12) of the Companies Act, 2013 require auditor to
report that an offence of fraud, which involves or is expected to involve
individually an amount of ` one crore or above, is being or has been
committed against the company by its officers or employees. Accordingly,
in both the instances, employees/ officers of the Company were not
involved and thus fraud reporting by auditor as prescribed under Section
143(12) Companies Act, 2013/ related Rules is not triggered.
3.2 The correct answer is (a) Yes. SEBI (Prohibition of Insider Trading)
Regulations, 2015 requires auditors to maintain Structured Digital
Database with prescribed data and information.
Reason: Fiduciaries are required to comply with SEBI (Prohibition of
Insider Trading) Regulations, 2015:
 Professional firms such as auditors, accountancy firms, law firms,
analysts, insolvency professional entities, consultants, banks etc.,
assisting or advising listed companies are considered as fiduciaries
[Chapter IV.9(2)]
 Contents of the database - [Chapter II.3.5]
- Nature of unpublished price sensitive information
- Names of such persons who have shared the information
- Names of such persons with whom information is shared
along with the PAN or any other identifier authorized by
(where PAN is not available)
3.3 The correct answer is (d) No. Companies Act, 2013 and Standard on
Auditing provide unrestricted access to any information to an auditor of
the financial statements.

REVISION TEST PAPER
Reason: Companies Act, 2013 and Standard on Auditing envisage

unrestricted access to relevant information while performing procedures
in an audit of financial statements. The assertion of attorney-client cannot
prevent necessary access to forensic report. If denied, would constitute a
scope limitation.
3.4 The correct answer is (c) Yes. CARO envisages comment by auditor for
frauds which came to notice during audit.
Reason: CARO [Paragraph 3(xi)(a)] requires the auditor to report whether
any fraud has been noticed or reported either on the company or by the
company during the year and is not limited to frauds by the officers or
employees of the company. If any fraud is noticed / reported, the auditor
is required to state the amount involved and the nature of fraud. The
concept of materiality is fundamental to auditing. Therefore, even in
reporting on frauds under the CARO, materiality of the fraud should be
given due consideration.
3.5 The correct answer is (b) 26th October; 15th October.
Reason: The Proviso to section 14 of the CGST Act, 2017 provides that the
date of receipt of payment shall be the date of credit in the bank account
if such credit in the bank account is after four working days from the date
of change in the rate of tax.
Hence, date of payment is date of credit in the bank account, 26th
October.
Section 14(a)(ii) of the CGST Act, 2017 provides that in case the goods or
services or both have been supplied before the change in rate of tax,
where the invoice has been issued prior to the change in rate of tax but
payment is received after the change in rate of tax, the time of supply
shall be the date of issue of invoice; i.e. 15th October.
3.6 As per Ind AS 38, for an item to be recognised as an intangible asset, it
must meet the definition of an intangible asset, i.e., identifiability, control

REVISION TEST PAPER
FINAL EXAMINATION
over a resource and existence of future economic benefits and also

recognition criteria.
Paragraph 15 of Ind AS 38 states that an entity may have a team of skilled
staff and may be able to identify incremental staff skills leading to future
economic benefits from training. The entity may also expect that the staff
will continue to make their skills available to the entity. However, an entity
usually has insufficient control over the expected future economic
benefits arising from a team of skilled staff and from their training. For a
similar reason, specific management or technical talent is unlikely to meet
the definition of an intangible asset, unless it is protected by legal rights
to use it and to obtain the future economic benefits expected from it, and
it also meets the other parts of the definition.
Based on the facts provided in the given case, the player is prohibited
from playing in other teams by the terms of the contract which legally
binds the player to stay with IndyaDekho for a number of years.
Accordingly, in the given case, the company would be able to
demonstrate control. Future economic benefits are expected to arise from
use of the player in matches. Further, cost of obtaining rights is also
reliably measurable. Hence, it can recognise the costs incurred to obtain
the right regarding the player as an intangible asset.
3.7 In light of the diverse viewpoints expressed in the minutes of the 59th
Board Meeting held on 31st May 20X4, it is critical for IndyaDekho Limited
to focus on quality in their operations to meet customer requirements,
minimize costs, and maximize profits. Enhancing service quality leads to
increased customer satisfaction, which in turn boosts profitability and
business sustainability. Quality is crucial not only in manufacturing but
also in the service sector, where customers do not receive tangible
products. In today's competitive and dynamic world, Total Quality
Management (TQM) is key for organizations to achieve overall success.
TQM's basic principles apply universally across both manufacturing and
service industries.
In the service sector, TQM is essential for improving overall service quality,
achieving desired customer satisfaction and loyalty, enhancing service

REVISION TEST PAPER
delivery systems, and ultimately improving financial performance.

Implementing TQM at IndyaDekho Limited can significantly enhance
service quality, ensure customer satisfaction, and secure long-term
business sustainability. TQM emphasizes continuous improvement,
customer-centricity, and employee involvement, making it as vital in the
service sector as in manufacturing.
A detailed overview of TQM implementation at IndyaDekho based on the
6Cs of TQM, considering the board's discussion, is as follows:
 The CEO and senior leadership at IndyaDekho must demonstrate a
strong Commitment to TQM by actively participating in quality
initiatives and setting a precedent for the entire organization. Top
management should initiate, create, spread, and execute a
comprehensive quality improvement program. The CEO needs to
ensure a quality presence that is strong, highly evident, and
widespread. This involves clear communication about the
importance of quality and ensuring that all employees are aligned
with this vision.
Additionally, the development and communication of a
comprehensive quality policy that aligns with IndyaDekho’s
mission to enhance customer satisfaction through innovative travel
solutions is essential. This policy should be embedded in all aspects
of the company's operations.
 The CEO stated that adopting TQM entails a significant shift in
organizational culture and structure. To achieve this, it is crucial to
instill a Culture of quality where every employee feels responsible
for maintaining and improving service standards. Encouraging a
mindset where quality is seen as everyone's responsibility, not just
that of a specific department, is essential. Implementing regular
training programs to educate employees about TQM principles and
practices will equip them with the necessary tools and knowledge to
contribute effectively to quality improvement initiatives.

REVISION TEST PAPER
FINAL EXAMINATION
 Adopt a Continuous improvement approach by encouraging

employees to suggest small, incremental changes that can lead to
significant improvements over time. Promote a culture where
feedback is valued and used constructively. Establish robust
systems to gather feedback from customers and employees. Use this
feedback to identify areas for improvement and make necessary
adjustments to enhance service quality.
 The Independent Director pointed out that TQM includes core team
members in meeting consumer needs by employing problem-
solving methods. However, the application of total employee
involvement principles is paramount. The Chief Management
Accountant emphasized the need for a holistic alignment between
organizational personnel and their roles. To achieve this, it is
essential to form cross-functional teams to address quality issues
and implement improvement initiatives. Encouraging Co-
operation and collaboration across departments will ensure a
comprehensive approach to quality management.
 The Chief Management Accountant informed the board that, while
the primary aim of TQM is to satisfy external customers, it also
acknowledges the challenge of fulfilling external customers’
expectations without meeting the needs of internal customers. In
practice, TQM implementations that focus exclusively on the
external customer will not survive unless they also foster the mutual
respect necessary to preserve employee morale and participation.
To maintain a strong Customer focus, regular market research and
customer surveys should be conducted to understand evolving
customer preferences. These insights should be used to tailor
services and enhance customer satisfaction. Mechanisms must be
implemented to collect, analyze, and act on customer feedback,
ensuring prompt and effective responses to customer concerns to
build trust and loyalty.
 The CEO recommended an objective evaluation of the internal and
external environment in which the company functions. As part of

REVISION TEST PAPER
this evaluation, the company must review its current policies,

documentation, and monitoring processes, and develop new
effective measures that incorporate customer feedback when
determining quality measures. Additionally, clear processes and
procedures for all aspects of service delivery should be developed,
using control charts and other quality control tools to monitor
performance and identify deviations from standards. Regular quality
audits should be conducted. The audit results should be used to
make informed decisions about areas needing improvement,
thereby maintaining effective Control over quality management
processes.
In conclusion, implementing Total Quality Management (TQM) at
IndyaDekho Limited is essential for enhancing service quality, achieving
customer satisfaction, and ensuring long-term business sustainability. By
focusing on the 6Cs of TQM—Commitment, Culture, Continuous
Improvement, Cooperation, Customer Focus, and Control—the company
can create a robust framework for quality management. This approach will
enable IndyaDekho to stay competitive in the dynamic travel industry,
foster a culture of excellence, and drive continuous improvement in all
aspects of its operations. Through dedicated leadership, employee
involvement, and customer-centric strategies, IndyaDekho can build a
strong reputation for quality, loyalty among customers, and sustained
financial performance.
3.8 Paragraph 69 of Ind AS 38 provides that, in some cases, expenditure is
incurred to provide future economic benefits to an entity, but no
intangible asset or other asset is acquired or created that can be
recognised. Paragraph 69 of Ind AS 38 provide that expenditure on
research, training, advertising and start up activities (unless start-up costs
are includible in the cost of an item of property, plant and equipment in
accordance with Ind AS 16) will not result in the creation of an intangible
asset that can be recognised in the financial statements. Further,
paragraphs 48 and 63 of Ind AS 38 also specifically prohibit recognition
of internally generated goodwill and brands as an intangible asset.

REVISION TEST PAPER
FINAL EXAMINATION
Advertising and promotional activities enhance or create brands or

customer relationships, which in turn generate revenues. In some cases,
such costs cannot be distinguished from the cost of maintaining or
enhancing the entity’s internally generated goodwill or developing the
business as a whole or running day to day operations. Further, it is also
difficult to determine whether there is an internally generated intangible
asset distinguishable from internally generated goodwill.
In the present case, the expenditure that IndyaDekho has incurred on
promotional and advertising activities is to develop or enhance branding,
goodwill building or customer relationship and, therefore, should not be
amortised over future years and should be charged off to the profit or
loss as incurred.

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PAPER – 1:

Sales of the goods to B Ltd. in the nine-month period ending on

2 NOVEMBER 2024 EXAMINATION

4. What will be the amount of revenue to be recognized in the year

3 NOVEMBER 2024 EXAMINATION

(ii) On 1st April 2XX0, E Ltd. completed the construction of a non-current

4 NOVEMBER 2024 EXAMINATION

(c) ` 0.039 crore

5 NOVEMBER 2024 EXAMINATION

6 NOVEMBER 2024 EXAMINATION

7 NOVEMBER 2024 EXAMINATION

Seepage of rain-water through the crack in the warehouse caused

8 NOVEMBER 2024 EXAMINATION

Year With restructuring Without restructuring

20X1-20X2 5,20,000 8,70,000

In 20X2, the net cash flows without restructuring (` 8,70,000) exceed

9 NOVEMBER 2024 EXAMINATION

that due to popularity of M Limited's product, the life of goodwill

10 NOVEMBER 2024 EXAMINATION

Month Cost of Cash outflows

11 NOVEMBER 2024 EXAMINATION

What is the amount of interest that should be capitalised to the cost of

12 NOVEMBER 2024 EXAMINATION

13 NOVEMBER 2024 EXAMINATION

Answer to Case Scenario I

3. Option (c): ` 1,02,500

Revenue of ` 1,00,000 (the present value of ` 121,000 receivable in two

4. Option (a): ` 20,00,000

5. Option (b): ` 29,50,000

Reason for 4 & 5

14 NOVEMBER 2024 EXAMINATION

be exceeded (sales for 9 months: 20,000 x 24/9 = 53,333). The revenue

Answer to Case Scenario II

7. Option (b): ` 1.25 crore

15 NOVEMBER 2024 EXAMINATION

Interest cost 1.5

8. Option (a) : ` 0.78 crore

16 NOVEMBER 2024 EXAMINATION

In such cases, an entity measures deferred tax liabilities and deferred

17 NOVEMBER 2024 EXAMINATION

purposes against any taxable economic benefits that will flow to

18 NOVEMBER 2024 EXAMINATION

deductible for tax purposes against any taxable economic

19 NOVEMBER 2024 EXAMINATION

20 NOVEMBER 2024 EXAMINATION

21 NOVEMBER 2024 EXAMINATION

(ii) (a) The damage to warehouse is an adjusting event

22 NOVEMBER 2024 EXAMINATION

Carrying value at the end of 20X4-20X5 = 10,00,000 – (` 33,333 x

Year Discount With restructuring Without restructuring

20X1-20X2 0.962 5,20,000 5,00,000 8,70,000 8,36,000

23 NOVEMBER 2024 EXAMINATION

The impairment calculations at 31st March, 20X1 differ according to

24 NOVEMBER 2024 EXAMINATION

16. (i) SS Limited

Revenue from Operations 10,00,000

Notes to Accounts (Extract)

1. Goodwill* - 3,20,000 3,20,000 - - - - 3,20,000

25 NOVEMBER 2024 EXAMINATION