Mock Test Paper - Series II: April, 2024

Date of Paper: 13 April, 2024

Time of Paper: 2 P.M. to 6 P.M.
FINAL COURSE: GROUP – II
PAPER – 6: INTEGRATED BUSINESS SOLUTIONS
Attempt any four out of five case study based questions.
Each Case Study carries 25 Marks.
Time Allowed – 4 Hours Maximum Marks – 100

CASE STUDY 1

Non-governmental organizations (NGOs) are non-profit entities working

independent of government. UN Department of Global Communications defines an
NGO as “a not-for profit voluntary citizen’s group that is organized on a local,
national or international level to address issues in support of the public good. Task-
oriented and made up of people with a common interest, NGOs perform a variety
of services and humanitarian functions, bring citizen’s concerns to governments,
monitor policy and program implementation, and encourage participation of civil
society stakeholders at the community level.” A paper released by World Bank
states that NGOs are typically value-based organizations which depend, in whole
or in part, on charitable donations and voluntary service.
NGOs have become very influential and prominent in world affairs and a substantial
chunk of overseas development aid is routed through NGOs. Our country also has
a long history of civil society movements with organizations working in diverse fields
such as health, education, community services, environment protection, sanitation,
drinking water and poverty eradication. With passage of time, foreign fund s began
flowing to domestic NGOs in India. Although work being done by NGOs has been
commendable in diverse areas, it is not without criticism. One of such criticisms
relates to issue of foreign donations. It has been argued that foreign funding makes
NGOs accountable to fund-providing donors and can pose risk to sovereignty of a
country.
Foreign contributions in India are regulated under the Foreign Contribution
(Regulation) Act, 2010 (FCRA). The objective of such a law is to regulate the
acceptance and utilization of foreign contribution or foreign hospitality by certain
individuals or associations or companies and to prohibit acceptance and utilization
of foreign contribution or foreign hospitality for any activities detrimental to national
interest and for matters connected therewith or incidental thereto.
DSB Trust is one such organization working in field of preserving ecology and
environment. It has been working on environmental issues since last few years and
is very vocal and prominent in raising issues. However, the trust is over-zealous in
its approach and has sometimes been accused of stalling crucial development
projects in guise of protecting environment. It also receives substantial foreign
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donations from overseas agencies, trusts and its well-wishers and such donations
are main source of funding for carrying out activities of trust.
The office-bearers of trust met on 25 th March, 2023 to take stock of situation arising
from amendments to FCRA law and rules in recent past. One of the office bearers
Mr. X lamented about increased compliance burden and changes in manner about
receiving foreign contributions. He was also worried that FCRA registration of their
trust is going to expire in this year and modalities for renewing FCRA registration
may have undergone change due to change in laws and rules. On closer perusal,
he finds that FCRA registration of trust is going to expire on 31st December, 2023.
Another office bearer, Mrs. C who is herself an activist, pointed out that legislation
has tightened noose around NGOs receiving foreign contributions making it difficult
for them to undertake certain types of works and incur certain expenses due to
restrictions being made more stringent in respect of utilization of foreign
contributions. She is of the view that expenditure relating to writing and filing
reports is directly related to trust’s activity of preserving ecology and env ironment
and may be out of purview of regulatory restrictions. However, she is unsure about
her stand and its legal implications.
Mr. Y also agreed with both of them and opined that field programmes cannot be
run without systems and procedures in place for supervision, management, policy
design and strategy. He had heard about changes in rules relating to transfer of
foreign contributions to other NGOs. About 5 years ago, the trust had transferred
foreign contributions to smaller NGOs having better reach to the intended
beneficiaries of program run by the trust. The office-bearers were in a fix whether
foreign contributions received can be transferred to another NGO for running
programmes of trust now.
During meeting, Mr. Z also chipped in. He also reminisces that there had been
changes in rules pertaining to registration of charitable trusts under income tax law
in recent past and new procedure of registration was complied with by trust in 2021
by filing application in Form 10A. However, he wants to be clear about modalities
of renewal of registration under income tax law whenever it falls due for renewal
next time. Besides, the trust is planning to sell during financial year 2023 -24 an
immovable property held under trust wholly for charitable purposes since last 5
years and whole of proposed net consideration is to be invested in acquiring
another capital asset to be held wholly for charitable purposes.
The trust has recently appointed their new auditor and tax consultant
CA Madhusudan. Mr. Z is of the view that they should consult their tax consultant
in respect of these matters for necessary guidance.
CA Madhusudan has also to audit account of foreign contribution for year 2023 -24
and has to certify various figures pertaining to brought forward contribut ion at
beginning of financial year, foreign contribution received during the year, interest
accrued on foreign contribution, balance of unutilized foreign contribution at end of
financial year. Further, utilisation of foreign contribution received for the purpose
for which trust was registered is also required to be certified.
Besides, he is also required to express an opinion on the financial statements of
trust for financial year 2023-24.

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Based on above case study, answer the following questions: -
I. Multiple Choice Questions
1. Mr. X is worried that FCRA registration of trust is going to expire in year 2023
itself. Which of the following statements is most appropriate regarding renewal
of registration of trust and receipt of foreign contributions under FCRA?
(a) An application for renewal of certificate of registration may be made by trust
in month of September 2023 electronically to online portal of FCRA services
under Ministry of Home Affairs. Foreign contribution can only be received
in an account designated as “FCRA account” to be opened in designated
branch of State Bank of India at New Delhi.
(b) An application for renewal of certificate of registration may be made by trust
in month of June 2023 electronically to online portal of FCRA services
under Ministry of Home Affairs. Foreign contribution can only be received
in an account designated as “FCRA account” to be opened in designated
branch of State Bank of India at New Delhi.
(c) An application for renewal of certificate of registration may be made by trust
in month of June,2023 electronically to online portal of FCRA services
under Ministry of Finance. Foreign contribution can only be received in an
account designated as “FCRA account” to be opened in any designated
branch of any scheduled Bank.
(d) An application for renewal of certificate of registration may be made by trust
in month of September 2023 electronically to online portal of FCRA services
under Ministry of Finance. Foreign contribution can only be received in an
account designated as “FCRA account” to be opened in any designated
branch of any scheduled Bank.
2. Mrs. C has put forth her view on certain expenditures. However, she is unsure
about legal footing of her view and related matters described in case study.
Which of following statements is correct in this regard?
(a) Expenditure of type referred to by Mrs. C is in nature of administrative
expenses. The trust cannot defray an amount in excess of 50% of such
foreign contribution received in a financial year to meet administrative
expenses. However, expenses above stipulated limit may be defrayed with
prior approval of Central Government.
(b) Expenditure of type referred to by Mrs. C is not in nature of administrative
expenses. The trust cannot defray an amount in excess of 50% of such
foreign contribution received in a financial year to meet such expenses.
However, expenses above stipulated limit may be defrayed with prior
approval of Central Government.
(c) Expenditure of type referred to by Mrs. C is in nature of administrative
expenses. The trust cannot defray an amount in excess of 20% of such
foreign contribution received in a financial year to meet administrative
expenses. However, expenses above stipulated limit may be defrayed with
prior approval of Central Government.

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 (d) Expenditure of type referred to by Mrs. C is not in nature of administrative
expenses. The trust cannot defray an amount in excess of 20% of such
foreign contribution received in a financial year to meet such expenses.
However, expenses above stipulated limit may be defrayed with prior
approval of Central Government.
3. Which of the following statements is likely to be correct regarding discussion
among trust members for proposed transfer of contribution for carrying out its
programme described in case study?
(a) Foreign contribution received can be transferred to another FCRA
registered trust for carrying out programme of DBS Trust.
(b) Foreign contribution received can be transferred to another FCRA
registered trust for carrying out programme of DBS Trust with permission
of Central Government.
(c) Foreign contribution received cannot be transferred to any other person. It
is immaterial whether such person is FCRA registered or not.
(d) Whole of foreign contribution received cannot be transferred to any other
person. A certain percentage can be transferred to any other person. It is
immaterial whether such person is FCRA registered or not.
4. Mr. Z, office bearer of trust, has approached CA Madhusudan to seek his advice
regarding modalities of renewal of registration of trust under income tax law.
Which of following advice rendered by CA Madhusudan is in accordance with
provisions of law?
(a) The registration application is to be made in Form no.10B at least six
months prior to expiry date of registration of trust. Further, copy of
registration under the FCRA, 2010 is mandatory with application as DBS
Trust is registered under the FCRA.
(b) The registration application is to be made in Form no.10AB at least six
months prior to expiry date of registration of trust. Further, copy of
registration under the FCRA, 2010 is mandatory with application as DBS
Trust is registered under the FCRA.
(c) The registration application is to be made in Form no.10AB at least six
months prior to expiry date of registration of trust. However, copy of
registration under the FCRA, 2010 is not mandatory while filing application
for registration under income tax law as it is a separate independent
registration under a different law.
(d) The registration application is to be made in Form no.10B at least six
months prior to expiry date of registration of trust. However, copy of
registration under the FCRA, 2010 is not mandatory while filing application
for registration under income tax law as it is a separate independent
registration under a different law.
5. Certification from Chartered Accountant is required by DBS Trust in respect of
certain matters under the FCRA described in case study. Which of following
statements is true in this context?

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 (a) Such certification forms part of FC-4, which is prescribed annual return. It
has to be uploaded duly accompanied by a balance sheet and statement
of receipt and payment certified by a Chartered Accountant. If there is no
receipt/utilization of foreign contribution during the year, certificate of
Chartered Accountant and audited statements of account are not required
to uploaded. However, submission of a NIL return even in such a case, is
mandatory.
(b) Such certification is required in FC-4, which is not an annual return. It has
to be uploaded duly accompanied by a balance sheet and statement of
receipt and payment certified by a Chartered Accountant. If there is no
receipt/utilization of foreign contribution during the year, certificate of
Chartered Accountant and audited statements of account and FC-4 are not
required to uploaded.
(c) Such certification is required in FC-2, which is not an annual return. It has
to be uploaded duly accompanied by a balance sheet and statement of
receipt and payment certified by a Chartered Accountant. If there is no
receipt/utilization of foreign contribution during the year, certificate of
Chartered Accountant and audited statements of account and FC-2 are not
required to uploaded.
(d) Such certification forms part of FC-2, which is prescribed annual return. It
has to be uploaded duly accompanied by a balance sheet and statement
of receipt and payment certified by a Chartered Accountant. If there is no
receipt/utilization of foreign contribution during the year, certificate of
Chartered Accountant and audited statements of account are not required
to uploaded. However, submission of a NIL return even in such a case, is
mandatory. (5 x 2 = 10 Marks)
II. Descriptive Questions
6. Certain matters have been highlighted in case study which may have
ramifications for renewal of registration of trust under the FCRA. At the time of
applying for renewal of registration of a person under the FCRA, 2010, Central
Government is empowered to make inquiry in respect of wide range of matters.
Discuss those matters. Do matters highlighted in case study fall among such
matters? (4 Marks)
7. (a) On the basis of overall description of case study, what factors should be
considered by CA Madhusudan while assessing audit risk of DBS Trust
during course of audit for financial year 2023-24? (4 Marks)
(b) Assume that during course of audit, CA Madhusudan suspects that there
may be non-compliance by NGO in relation to some aspects of FCRA,
2010. How he should proceed in such a situation? (3 Marks)
8. What should be proper advice of CA Madhusudan to Mr. Z regarding implications
of proposed sale of a capital asset and acquisition of another capital asset as
described in case study? (4 Marks)

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CASE STUDY 2

Fresh Foods is a popular fast food joint in Bangalore. It was formed by the partnership
of 3 friends Ajay, Biren and Chand. Ajay and Biren are working partners, while Chand
is a non-working partner. For the previous year 2023-24, Fresh Foods reported a net
profit of ` 30,00,000 before the following deductions:
(1) Salary of ` 50,000 each per month payable to Ajay and Biren. Salary of ` 10,000
per month payable to Chand. These payments have been authorized by the
partnership deed.
(2) Depreciation on plant and machinery under Section 32 (computed) ` 5,00,000.
(3) Interest on capital at 15% per annum on the capital of Ajay, Biren and Chand.
The capital on which interest is to be calculated is Ajay: `10,00,000; Biren:
` 10,00,000 and Chand: ` 50,00,000.
A general survey published in a food trade magazine highlighted people’s perception
about the food served by food joints across the city. Current food platter was found to
be predominantly unhealthy. People want healthier choices in the menu when they
dine out. At the same time, they do not want to compromise on taste or presentation
of the food item.
The partners have decided to use this as an opportunity to entirely revamp Fresh
Foods as a speciality restaurant that offers healthier variety of food choices catering
to the health-conscious customers. Ajay, Biren and Chand are having a meeting to
discuss this venture in further detail.
The partners would restate their mission as: “Spread health and happiness through
the craft of cooking, catering to the discerning palette that forge long lasting
bonds with our loyal customers.”
“A menu focussed on vegan and vegetarian food options emphasizing the natural,
organic and high quality of ingredients would give us a niche segment of loyal
customers.”
- Chand
“How would we be able to assess the market size? The food industry is largely
unorganized and within that there is no data available for ventures like ours that
catering to health-conscious customers.”
- Ajay
“You are correct! There is no easy way to measure the market size. So let us set to
conquer this unchartered territory. At this nascent stage, let us first begin serving this
menu at our restaurant only for lunch and dinner. Our restaurant has a capacity to seat
50 customers at a time. Our restaurant should be filled at least 90%, if not more during
the peak hours when it is open. If we are overbooked regularly, we can even consider
expanding our operations.”
- Chand
“Catering to the health-conscious customer is not a novel idea. Many have tried it out
before and failed. Investment in kitchen infrastructure, redoing ambience and décor to
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match the product offering would costs us at least ` 5 crores as initial investment. We
would need to raise a term loan from the bank for this. We need to generate sufficient
profits to repay the loan. Due to overall uncertain business conditions after the
pandemic, the bank may in turn expect us to maintain certain levels of debt service
ratio or interest coverage ratio. In addition, our benchmark has been to earn at least
18% ROI. Since our menu offerings are going to be unique and healthy, we have some
leverage to charge higher price to our customers. At the same time, industry margins
are under pressure due to inflationary conditions as our input costs of material, labour
and overheads are continuously rising. How do we achieve financial stability?”
- Biren
“Yes, we are in this business to make money! So let us reengineer our menu. Let us
segregate items based on their popularity and profitability. Class A items will be highly
popular and profitable. Class B items on the list would be highly popular but not that
profitable. Class C items on the menu would be profitable but not very popular. Class
D items are the ones over time show that they are neither popular nor profitable! This
segregation will give us ample information on which items should be our focus areas
while knowing how much margins they would generate! I expect to generate turnover
of about ` 60 lakh in the first year of operations, with an increase of at least 3% each
year. While this gives us a first mover advantage, we need to constantly re-engineer
our menu to beat our competitors who may also start replicating our model and menu.
For this, let us take constant feedback from our customers.”
- Chand
“This would be possible only if we have expert chefs and a team that can handle
speciality dishes, catering to different customer preferences, in a cost-effective
manner. Popularity is also driven by the quality of food that we serve. High quality
standards drive growth. Periodic weekly quality checks would be required. External
certifications from government food inspectors and other recognized agencies would
also be required to be met. We need to keep a formal record of quality issues identified
by either the customer or team.”
- Ajay
“Yes, quality has to be matched with service. Ours is a customer centric business.
Hence, personnel interacting with the customers should have good people
management skills. Complaints should be handled in a professional yet personable
manner, for which our customer facing staff have to be trained. Service also means
that orders given by the customer should be delivered correctly as per their
expectations. Errors in order taking process, stock outs due to unavailability of material
should be avoided at all costs. It should be our aim to deliver the food within 15 minutes
after placing the order and the food should be both warm and fresh. Rejected raw
material, customer rejections of food delivered also need to be tracked. Again, our
formal record also needs to capture these errors, inability to deliver orders, delays in
delivery of food.”
- Biren
“COVID pandemic taught us an important lesson on maintain a robust supply chain
that can deal with disruptions. For critical resources such as raw material, labour etc.

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our firm should have multiple partners who can provide for the requirements reliably.
This will also be helpful when we scale up operations in future.”
- Chand
“Not just that, our internal processes should make efficient use of resources. The order
taking system and food delivery system should work in sync and support each other
to avoid errors and stock outs. Our core team of chefs should be adept at minimizing
waste and preparing unique dishes in an economical way! We need build a kitchen
infrastructure that can support this providing them with appropriate space, machines
and tools for cooking and storage. As regards our marketing process, we may need to
use technological solutions like social media platforms to reach out to potential
customers.”
- Ajay
“High staff attrition is a perennial problem in our industry. Expert chefs are our key to
success. Should we explore the possibility of taking out Keyman Insurance policy on
key employees, including us partners. This would not only boost their morale but also
help in retaining them. The Speciality chefs may also enjoy working with us if we give
them sufficient scope for innovation to satisfy customers, cost permitting of course!”
- Biren
“Wonderful! I am excited at the range of possibilities this venture can offer. Let us get
started by putting in place a system for performance measurement of various
parameters.”
- Chand
It was decided that Ajay would be in charge of restaurant operations (supply chain
management activities like material / labour procurement, kitchen operations, supply
chai and quality control and any other daily business operations), Biren would be in
charge of finance, administration and marketing. He vegetarian will be in charge of
activities like negotiating settlement dates with vendors, procuring loans at effective
rates, promotional campaigns to build the firm’s visibility. Chand would continue to be
a non-working partner giving strategic insights and if needed additional capital infusion
for any business needs. There will be separate departments created to form a proper
organization structure with clearly defined authority and responsibility. The periodic
management of the menu which will define the food choices based on their profitability
and popularity among customers will be decided jointly by all three partners. The
partnership deed is being modified accordingly to reflect the new roles and
responsibilities.
Based on above case study, answer the following questions: -
I. Multiple Choice Questions
1. Which of the following is true regarding Keyman Insurance Policy?
(i) Any sum received under Keyman Insurance Policy is taxable in the hands
of Fresh Foods.
(ii) Insurance paid under Keyman Insurance Policy pertaining to life of partners
of Fresh Foods is a deductible expenditure

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 (iii) Bonus received under Keyman Insurance Policy is taxable in the hands of
Fresh Foods
(a) (i) and (iii)
(b) (i) and (ii)
(c) (i), (ii) and (iii)
(d) Only (ii)
2. Fresh Foods has approached Indi Bank Ltd. for a term loan of ` 5 crores. For this
they need to submit prospective financial statements. Fresh Foods has
approached CA Anil for examination of the prospective financial statements that
it has prepared. Which of the following statements is not true regarding
examination of prospective financial statements by CA Anil?
(i) CA Anil need not be the statutory auditor of Fresh Foods to accept the
engagement to examine the prospective financial statements.
(ii) CA Anil can express an opinion on whether the results shown in the
prospective financial information can be achieved or not.
(iii) CA Anil can vouch for the accuracy of projections while examining the
prospective financial statements.
(iv) CA Anil should consider the sources of information considered by the
partners for the purpose of preparing prospective financial statements, their
adequacy, reliability of underlying data including data derived from third
parties such as industry statistics, to support the assumptions.
(a) (i) and (iii)
(b) (ii) and (iiii)
(c) (iii) and (iv)
(d) (i) and (iv)
3. Which of the following statements would not be true as regards product pricing
for the individual food items?
(a) Standard costing techniques may be used to compute the costs of
individual food items.
(b) Target costing techniques may be used for managing profitability of food
items having popular close substitutes (even if they are not as healthy) that
are offered by competitors.
(c) Product pricing to be used to determine expected revenue for yearly
budgetary planning which can be determined based on relevant costing
techniques.
(d) If the price quality perception or the unique value perception for certain food
items is high, customers will be less price sensitive for those items.
4. Which of the following will not be value added activity?
(i) Inspection of food items on a regular weekly basis to ensure quality
standards are met
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 (ii) Using Kaizen costing methodologies to reduce the turnaround time in
delivering the order to the customer.
(iii) Redoing the food items as they did not match the customer specifications
that were given while placing the order.
(iv) Wait time of batch of food item for baking process as the ovens in the
kitchen are occupied in baking other batches of food items.
(a) (i), (iii) and (iv)
(b) (ii), (iii) and (iv)
(c) (i), (ii) and (iii)
(d) (ii), (iii) and (iv)
5. The partners have identified certain critical success factors (CSFs) for Fresh
Foods like tracking menu offerings that maximize customer satisfaction,
customer service related parameters like complaints, customer response time
etc. Which of the following is true about CSFs?
(a) These factors contribute towards reducing costs
(b) These factors are fundamental to strategic success
(c) These factors need to be only financial factors
(d) These factors concentrate on achieving short term goals
(5 x 2 = 10 Marks)
II. Descriptive Questions

6. (i) Calculate the book profit of the partnership for the purpose of calculation
of allowable deduction for salary paid to partners as per the Income Tax
Act, 1961 (4 Marks)
(ii) Allowable deduction for salary paid to partners the assessment year
2024-25. (4 Marks)
7. Fresh Foods is in the service industry, where it is essential to link strategy to the
management of human resources. The partners would like to have a framework
based on the Building Block model to assess performance management. Using
performance management system as proposed by the model EVALUATE the
following questions:
(I) What dimensions of performance should Fresh Food measure?
Dimensions are the goals that the firm wants to achieve based on its overall
strategy, those goals that define its success.
(II) How to set the standards (benchmarks) for the dimensions determined for
Fresh Foods?
(III) What are the characteristics of rewards system needed to motivate
employees to achieve the standards determined for Fresh Foods?
(7 Marks)

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CASE STUDY 3

Para 1
Established in 2003, RP Ltd. (RPL), based in Tirupur, Tamil Nadu, India, has
established a foothold for itself as a prominent manufacturer, wholesaler and
exporter of high-quality T-shirts. Recognised as a prestigious export house, RPL
takes pride in its brand, "RK," known for its commitment to style, comfort, and
ethical manufacturing practices.
RPL boasts a state-of-the-art manufacturing facility equipped with advanced
technology and machinery. Their production process adheres to stringent quality
control measures, ensuring every "RK" T-shirt is crafted using premium materials
and delivers exceptional durability, comfort, and style. The company's dedication
to quality has not only earned them the trust and loyalty of their domestic clientele
but has also established them as a reliable and sought-after supplier in the
international market.
Understanding the evolving preferences of their customers, RPL offers a diverse
range of T-shirts. Their product portfolio encompasses a wide variety of styles,
colours, and designs, catering to diverse demographics and fashion trends. They
prioritise innovation and constantly update their collections, ensuring their brand
stays ahead of the curve and caters to the ever-changing needs of the T-shirt
market.
Looking ahead, RPL is committed to sustainable growth and expanding its global
footprint. They are actively exploring new markets and forging strategic
partnerships to broaden their international reach. Additionally, they are
implementing eco-friendly practices throughout their operations, prioritising
responsible sourcing and sustainable manufacturing processes. With a focus on
continuous improvement, innovation, and ethical practices, RPL strives to solidify
its position as a leading player in the global T-shirt industry.
Para 2
On 23rd April, 2023, RPL enters into a contract with JM Ltd. (JML) to sell T-shirts
for ` 600 per T-shirt. As per the terms of the contract, if JML purchases more than
2,000 T-shirts till March 2024, the price per T-shirt will be retrospectively reduced
to ` 540 per unit. Till September 2023, RPL sold 190 T-shirts to JML. RPL estimates
that JML's purchases by March 2024 will not exceed the required threshold of 2,000
T-shirts.
In October 2023, JML acquires DC Ltd. (DCL) and from October 2023 to December
2023, RPL sells an additional 1,200 T-shirts to JML. Due to these developments,
RPL estimates that purchases of JML will exceed the 2,000 T-shirts threshold for
the period and therefore, it will be required to retrospectively reduce the price per
T-shirt to ` 540.
Para 3
RPL is analyzing a strategic move – the potential acquisition of JML through a
merger. This decision is driven by the potential for significant synergy benefits that
could propel RPL's growth and market position.
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The synergy between the two companies can be multifaceted. Firstly, combining
their manufacturing capabilities could lead to economies of scale. Sharing
resources and expertise could optimize production processes, potentially reducing
costs and increasing overall efficiency. Additionally, a larger production capacity
could allow RPL to cater to a broader range of customer demands and potentially
enter new markets.
The following data are available:
Company After-tax earnings No. of equity shares Market price per share
RPL ` 10 crores 10,00,000 ` 75
JML ` 3 crores 2,50,000 ` 60
It is proposed that certain changes in the shareholding of JML would be made in
case of consolidation with RPL, as per the discussion between the management of
the two companies, RPL & JML.
Para 4
During the course of the audit of RPL, CA Devanshi Bisht is verifying export
revenues of the company for the F.Y. 2023-24, with her engagement team.
She has verified transactions entered in “Export Sales” account maintained in
accounting software from relevant export invoices. The export sales are being
made on payment of IGST, for which a refund is automatically credited in the
account of the company after the goods are shipped.
On enquiring from internal audit staff regarding the recognition of export revenues,
she is told that export sales are recognised for the year on the basis of “Bills of
Lading”. However, she is not convinced with such a response and feels that the
same does not appear to be proper. She finds that four export invoices bearing
dates in the month of March 2024 having a total value of ` 125 lakhs have not been
recognized in export revenue on the ground that bills of lading for these invoices
were issued in the month of April 2024.
Further, during audit of current year, CA Devanshi had identified that there was a
misstatement also in last year pertaining to export revenues of the company and
the same is still not corrected. She had issued unmodified audit report in last year.
Para 5
In respect of its Japanese exports, on 31 st March, 2024, RPL has an export
exposure of JPY 10,00,000 receivables. Japanese Yen (JPY) is not directly quoted
against Indian Rupee.
The current spot rates are:
INR/US $ ` 62.22
JPY/US$ JPY 102.34
It is estimated that Japanese Yen will depreciate to 124 level and Indian Rupee to
depreciate against US $ to ` 65.
Forward rates for March 2024 are:

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 INR/US $ ` 66.50
JPY/US$ JPY 110.35
CA Devanshi recommended that taking a forward cover in such a situation would
be beneficial.
Para 6
On 31st March, 2024, RPL has an outstanding interest liability of ` 1 crore towards
loan payable to BFCI Ltd., a public financial institution. On the same date, it issued
debentures to BFCI Ltd. in lieu of the outstanding interest and deducted the said
interest while computing profits and gains of business of A.Y.2024-25. The
Assessing Officer, however, rejected the deduction of interest on loan claimed by
RPL.
After the issue of such debentures, the company has a total debt of ` 3 crores and
surplus funds to the tune of ` 5 crores. Further, it has made a gross profit of ` 18
crores and incurred indirect expenses of ` 4 crores for the financial year.
Based on above case study, answer the following questions: -
I. Multiple Choice Questions
1. With respect to information given in Para 3, if the merger goes through by
exchange of equity shares between RPL and JML and the exchange ratio is set
according to the current market prices, what is the post merger earnings per
share of RPL?
(a) ` 104
(b) ` 108.33
(c) ` 83.33
(d) ` 130
2. With respect to information given in Para 3, certain adjustments would be
required to be made to account for the change in the shareholding of JML in case
of consolidation. These adjustments are known as:
(a) Memorandum adjustments.
(b) Current period consolidation adjustments.
(c) Permanent consolidation adjustments.
(d) Temporary period consolidation adjustments.
3. With respect to information given in Para 4, guide CA Devanshi on the audit
opinion considering the fact that the last year’s misstatement pertaining to export
revenues has been identified in the current year and unmodified opinion was
issued in the last year.
(a) CA Devanshi should give unmodified opinion, but include other matters
paragraph in the audit report as last year’s profit is being reflected in
reserve and surplus.
(b) CA Devanshi should seek legal opinion.
13
 (c) CA Devanshi should express a qualified opinion or adverse opinion in
auditor’s report of current period financial statements, modified with respect
to corresponding figures included therein.
(d) CA Devanshi should give unmodified opinion, but last period’s unmodified
opinion should be highlighted in Emphasis of matter paragraph.
4. With respect to information given in Para 6, comment upon the validity of the
action of the Assessing Officer on rejecting the deduction of interest on loan
claimed by RPL.
(a) The interest so converted into debentures and not actually paid shall not be
deemed as actual payment, and hence, would not be allowed as deduction
while computing its profits and gains of business for A.Y.2024-25. The
action of Assessing Officer is correct.
(b) The interest so converted into debentures shall be deemed as actual
payment but would not be allowed as deduction while computing its profits
and gains of business for A.Y.2024-25. The action of Assessing Officer is
correct.
(c) The interest so converted into debentures shall be deemed as actual
payment, and hence, would be allowed as deduction but while computing
‘Income from other sources’ for A.Y.2024-25 even though the liability to pay
is deferred to a future date. Thus, the action of Assessing Officer is partially
correct, as the said interest though not allowed while computing profits and
gains of business but would be allowed as deduction while computing
‘Income from other sources’.
(d) The interest so converted into debentures shall be deemed as actual
payment as in the given case loan is provided by a public financial
institution and hence, would be allowed as deduction while computing its
profits and gains of business for A.Y.2024-25. The action of Assessing
Officer is not correct.
5. With respect to information given in Para 6, calculate the Equity Value of RPL if
the applicable EBITDA multiple is 4:
(a) ` 53 crores
(b) ` 58 crores
(c) ` 64 crores
(d) ` 74 crores (5 x 2 = 10 Marks)
II. Descriptive Questions
6. With respect to information given in Para 2, analyse and state how the revenue
should be recognised in respect of sale of T-shirts by RPL to JML. (5 Marks)
7. With reference to information given in Para 4, discuss from what sources
CA Devanshi can obtain reliable audit evidence in respect of the export revenues
particularly for the four export invoices of current year. How can she challenge
management’s assertion regarding the completeness of export revenues for the
F.Y. 2023-24? (5 Marks)
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8. With respect to information given in Para 5,
(i) Calculate the expected loss, if the hedging is not done. How the position
will change, if the firm takes forward cover?
(ii) If the spot rates on March 31, 2024 are:
INR/US $ = ` 66.25
JPY/US $ = JPY 110.85
Is the decision to take forward cover justified?
Note: For cross rate of `/¥ round off up to 4 decimal points. (5 Marks)

CASE STUDY 4

Para A
In the bustling heart of Kolkata, West Bengal, lies Mantrupti Ltd. (MTL), a listed
public company established in 1994. They have secured a position for themselves
as a distinguished manufacturer and retailer of a diverse selection of coffee and
tea powders, catering to a discerning clientele across India.
MTL takes immense pride in its modern processing and packaging facility. They
source the finest coffee beans and tea leaves from around the world, meticulously
selecting them for quality and freshness. Their rigorous production process adheres
to thorough quality management processes, ensuring that every cup of coffee or
tea brewed from their powders delivers an exceptional taste experience. This
unwavering obsession with has not only earned them the faith of their customers
but has also established them as a leading brand in the Indian coffee and tea
industry.
Keeping in view market desires, MTL offers a comprehensive range of coffee and
tea products. Their portfolio encompasses classic instant coffee blends, aromatic
loose leaf teas, and a delightful selection of flavored varieties, catering to diverse
palates and brewing preferences. They are constantly pioneering and growing their
product offerings, keeping pace with current trends and consumer demands.
With a vision to establish a strong national presence, MTL is actively expanding its
distribution network. They are forging partnerships with leading retailers and
supermarkets, making their products accessible to a wider customer base across
the country. Additionally, they are exploring strategic collaborations and
international trade opportunities to broaden their market reach and solidify their
position as a prominent player in the global coffee and tea market.
Para B
On July 1st, MTL imported a consignment of coffee beans from Brazil, through
establishing contact with such coffee bean supplier situated in Brazil and
negotiating the purchase agreement, including price, quality specifications, and
delivery terms. Both parties prepared necessary documents, such as a commercial
invoice, packing list, bill of lading (ocean freight), and certificate of origin.

15
MTL has a customs broker, Mr. Deval Kali, to handle the clearance process in India,
ensuring compliance with import regulations and duties. The bill of entry for
warehousing of goods was presented on 5th July and the goods were duly
warehoused. The goods were subject to duty @ 50% ad valorem.
In the meanwhile, on 1st August, an exemption notification was issued reducing the
effecting customs duty @ 30%, ad valorem. Mr. Deval on behalf of MTL filed bill of
entry for home consumption on 1st September claiming duty @ 30% ad valorem.
However, Customs Department charged duty @ 50% ad valorem being the rate on
the date of clearance into the warehouse. Also the proper officer raised some
queries on the accuracy of the declared value.
Further, the cost of insurance was not ascertainable from the documents submitted
before the customs authorities by Mr. Deval on behalf of MTL relevant for
determining the CIF price of the imported goods which is obtained by making
certain additions to the value of imported goods as prescribed.
Para C
The shareholding base of the company is quite wide and therefore, the number of
small shareholders having stake in the company is substantial. It so happened that
some of them wished to appoint Mr. Tapan Dubey, a seasoned finance
professional, as small shareholders’ director on the Board of the company. After
due process, Mr. Tapan was appointed by the company as Director to represent
small shareholders.
MTL is an Ind AS compliant company. It has a paid-up capital of ` 50 crores and
turnover of ` 500 crores. It presents financial results for three years (i.e., one for
current year and two comparative years) internally for the purpose of management
information every year in addition to the general-purpose financial statements. The
aforesaid financial results are presented without furnishing the related notes
because these are not required by the management for internal purposes.
During the current year, management thought why not they should present third
year statement of profit and loss also in the general-purpose financial statements.
It will save time and will be available easily whenever management needs this in
future.
MTL is required to file its financial statements through XBRL which enables
producers and consumers of financial data to switch resources away from costly
manual processes, typically involving time-consuming comparison, assembly and
re-entry of data, making the data readable, with the help of two documents:
Taxonomy & Instance Document.
The management of MTL on analysis of such additional information, inter-alia,
observed that there were variances which arise because of inaccurate or faulty
standards, not in control of management, and they should not be held responsible
for it.

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Para D
DRT & Co., are the Auditors of MTL, for the year ended on 31/03/2024. The Audit
Report for that year was signed by the Auditors on 04/05/2024. The Annual General
Meeting was decided to be held during the month of August 2024. On 06/05/2024,
the Company had received a communication from the Central Government that an
amount of ` 20 crore kept pending on account of incentives pertaining to Financial
Year 2023-24 had been approved and the amount would be paid to the Company
before the end of May 2024.
To a query to Chief Financial officer of the Company, Mr. Rajeev Dutt, by the
management, it was informed that this amount had not been recognised in the
Audited Financial Statements in view of the same not being released before the
close of the Financial Year and due to uncertainty of receipt. Now, having received
the amount, the management wished to include this amount in the Financial
Statements of the Company for the Financial Year ended on 31/03/2024.
On 08/05/2024, the management amended the accounts and approved the same.
During the intervening period between 4/5/24 and 8/5/24, the audit financial
statements and audit report were not issued to anybody. The management
requested the auditor to consider the situation and issue a fresh Audit Report on
the Financial Statements for the year ended on 31/03/2024.
Para E
Further, DRT & Co. observed that MTL had issued debentures in the P.Y. 2023-24,
which were to be matured at the end of 5 years. The debenture holder was given
an option of one time upfront payment of ` 50 per debenture on account of interest
which was to be immediately paid by the company. As per the option exercised by
the debenture holders, company paid interest upfront to them in the first year itself
and the same was claimed as deduction in the return of the company.
But in the accounts, the interest expenditure was shown as deferred expenditure
to be written off over a period of 5 years. During the course of assessment, the
Assessing Officer spread the upfront interest paid over a period of five year term of
debentures and allowed only one-fifth of the amount in the previous year 2023-24.
Based on above case study, answer the following questions: -
I. Multiple Choice Questions
1. With reference to information given in Para B, in the case of MTL, amount of
cost of insurance would be determined as:
(i) 20% of free on board value of imported goods
(ii) 1.125% of free on board value of imported goods
(iii) Where free on board value is not ascertainable, but sum of free on
board value and cost of transport, loading, unloading and handling
charges up to place of importation is ascertainable; then 1.125% of
such sum

17
 (iv) Where free on board value is not ascertainable, but sum of free on
board value and cost of transport, loading, unloading and handling
charges up to place of importation is ascertainable; then 20% of such
sum.
(a) (i) or (iii)
(b) (i) or (iv)
(c) (ii) or (iii)
(d) (ii) or (iv)
2. With reference to information given in Para C, to hold such position of
director, what is the nominal value of shares which Mr. Tapan is required to
own?
(a) He is required to own shares of the nominal value of ` 20,000 in the
company prior to his appointment as small shareholders’ director.
(b) He is required to own shares of the nominal value of at least ` 10,000
in the company prior to his appointment as small shareholders’ director.
(c) He is required to own shares of the nominal value of at least ` 5,000
prior to his appointment as small shareholders’ director.
(d) He is not required to own shares of any nominal value in the company
prior to his appointment as small shareholders’ director.
3. With reference to information given in Para C, can management of MTL
present the third statement of profit and loss as an additional comparative in
the general-purpose financial statements?
(a) Yes, an entity may present comparative information in addition to the
minimum comparative financial statements required by Ind AS, as long
as that information is prepared in accordance with Ind AS. However, the
entity shall present related note information for those additional
statements.
(b) Yes, but an entity shall present comparative information as at the
beginning of the preceding period in addition to the minimum
comparative financial statements.
(c) No, an entity cannot present comparative information in addition to the
minimum comparative financial statements required by Ind AS.
(d) Yes, an entity may present comparative information in addition to the
minimum comparative financial statements required by Ind AS, as long
as that information is prepared in accordance with Ind AS. The entity
does not need to present related note information for those additional
statements.
4. With reference to information given in Para C, can management of MTL
present such third statement of profit and loss only as additional comparative
in the general-purpose financial statements without furnishing other
components (like balance sheet, statement of cash flows, statement of change
in equity) of financial statements?
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 (a) No, in such case a complete set of financial statements need to be
presented with respect to such third statement of profit and loss in
addition to the minimum comparative financial statements required by
Ind AS, as long as that information is prepared in accordance with
Ind AS.
(b) Yes, such comparative information may consist of one or more
statements as specified but need not comprise a complete set of
financial statements.
(c) No, an entity cannot present only such comparative information at the
first place in addition to the minimum comparative financial statements
required by Ind AS. So, the question of furnishing other components (like
balance sheet, statement of cash flows, statement of change in equity)
of financial statements does not arise at all.
(d) No, in such case a complete set of financial statements need to be
presented with respect to such third statement of profit and loss in
addition to the minimum comparative financial statements required by
Ind AS, as long as that information is prepared in accordance with Ind
AS. However, the entity may present related note information only for
such third statement of profit and loss.
5. With reference to information given in Para C, MTL is required to file financial
statements through XBRL as________ and XBRL stands for ________
(a) Its paid-up capital and turnover exceeds the prescribed limit, is listed and
also is an Ind-AS compliant company and XBRL stands for eXtensible
Business Reporting Language.
(b) Its paid-up capital and turnover exceeds the prescribed limit and also is
an Ind-AS compliant company and XBRL stands for eXtension Business
Reporting Language.
(c) Its paid-up capital exceeds the prescribed limit, is listed and also is an
Ind-AS compliant company and XBRL stands for eXtensible Business
Reporting Language.
(d) Its turnover exceeds the prescribed limit and, is listed and also is an Ind-
AS compliant company and XBRL stands for eXtension Business
Reporting Language. (5 x 2 = 10 Marks)
II. Descriptive Questions
6. With reference to information given in Para B,
(i) Explain the rate of duty applicable for clearance for home consumption.
(ii) Whether the rate of exchange on 1st September could be adopted for
purpose of conversion of foreign currency into local currency?
(iii) Explain briefly the chief reasons on the basis of which the proper officer
can raise doubts on the truth or accuracy of the declared value as
happened in the case of MTL. (5 Marks)

19
7. With reference to information given in Para D, analyse the issues involved and
give your views as to whether or not the auditor, DRT & Co., could accede to
the request of the management. (5 Marks)
8. With reference to information given in Para E, examine the correctness of the
action of Assessing Officer in respect of the interest expenditure claimed by
MTL. (5 Marks)

CASE STUDY 5

Subham Ltd., incorporated in 1999, is a public unlisted company headquartered in

Surat, Gujarat, India. It has carved a niche for itself in the production of high-quality
industrial spare parts catering to a diverse clientele across the manufacturing,
construction, and allied industries.
Subham Ltd. boasts a cutting-edge manufacturing facility equipped with advanced
machinery and technology. Their production process prioritizes rigorous quality
checks, ensuring their spare parts meet the highest standards of durability,
functionality, and efficiency. The company's passion for excellence has earned
them the devotion of their customers, establishing them as a reliable and
dependable supplier in the industry.
Driven by a customer-centric approach, Subham Ltd. maintains a wide inventory of
spare parts to cater to the diverse needs of their clients. Their product portfolio
encompasses a comprehensive range of parts, including bearings, gears, seals,
and various other components critical for the smooth operation of machinery and
equipment. Additionally, they offer custom-made solutions to cater to specific client
requirements, ensuring their parts seamlessly integrate into existing machinery.
Looking ahead, Subham Ltd. is committed to continuous innovation and expansion.
They actively invest in research and development to stay abreast of the latest
advancements in materials and manufacturing techniques. The company also plans
to broaden its geographic reach by establishing alliances and linkages,
strengthening its position as a leading player in the industrial spare parts industry.
Issue 1
The company desires to upgrade its production process since the directors believe
that technology-led production is the only way the company can remain
competitive. On 1 April 2023, the company entered into a property lease
arrangement in order to obtain tax benefits. However, the draft financial statements
do not show a lease asset or a lease liability as on date.
A new finance manager, CA Manoj Desai, joined Subham Ltd. before the financial
year ending 31st March, 2024 and was engaged in the review of financial statements
to prepare for the upcoming audit and to begin making a loan application to finance
the new technology.
CA Manoj believes that the lease arrangement should be recognized in the
Balance Sheet. However, the Managing Director, Ms. Disha Devan, an MBA,

20
strongly disagrees. She wishes to charge the lease rentals to the Statement of
Profit or Loss.
Her opinion is based on the understanding that the lease arrangement is merely
a monthly rental payment, without any corresponding asset or obligation, since
there is no ‘invoice’ for transfer of asset to Subham Ltd.
Her disagreement also stems from the fact that showing a lease obligation in the
Financial Statements would impact the gearing ratio of the company, which could
have an adverse impact on the upcoming loan application. Ms. Disha has made it
clear to CA Manoj Desai that at stake is not only the loan application but also his
future prospects at Subham Ltd.
Issue 2
Ms. Disha believed that no matter how much authority and autonomy are given to
responsibility managers, performance reports are needed to evaluate the
performance of the managers at all operating levels of the organization.
At bottom levels, it helps in determining what corrective measures are required in
their segments. At top management level, these reports keep them top managers
informed on the performance of all segments.
In the said context, to assess the performance of CA Manoj’s finance department,
she wanted internal performance reporting to be done, at regular intervals, also
due to the fact that CA Manoj was newly appointed.
Issue 3
CA Manoj kindly requested Ms. Disha to call for a meeting of the Board of the
company to consider for the investment of surplus funds amounting to ` 10 crores
of the company. Out of the total strength of six Directors of the company, five
attended the said Board Meeting called by Ms. Disha.
The investment of the said amount was to be made in a project of associate
company of Subham Ltd. The risk-free rate of return is 7%. Risk premium
expected by CA Manoj is 7%. The life of the project is 5 years.
Following are the cash flows that are estimated over the life of the project:
Year Cash flows (` in lakhs)
1 250
2 600
3 750
4 800
5 650

Issue 4
Looking at the financial and taxation knowledge of CA Manoj, Ms. Disha asked a
favour from him to help her to calculate deduction available to her under appropriate
21
provisions of the Income-tax Act, 1961 for A.Y. 2024-25, considering the following
particulars for the year ending 31.03.2024:
(a) Life Insurance Premium paid – ` 20,000, actual capital sum of the policy
assured for ` 2,60,000. The insurance policy was taken on 31.03.2012;
(b) Contribution to Public Provident Fund – ` 30,000 in the name of father;
(c) Tuition fee payment – ` 8,000 each for 2 sons pursuing full time graduation
course in Surat; Tuition fee for daughter pursuing PHD in Stanford University,
USA – ` 2.50 lakhs;
(d) Housing loan principal repayment – ` 23,000 to Axis Bank. This property is
under construction at Surat as on 31.03.2024;
(e) Principal repayment of housing loan taken from a relative – ` 80,000. The
property is self-occupied situated at Surat;
(f) Five-year time deposit in an account under Post Office Time Deposit Scheme
– ` 60,000;
(g) Investment in National Savings Certificate – ` 60,000
The company credited the salary due for the month of March 2024 to the account
of Ms. Disha in its books of account on 31.3.2024. She has not intimated her
intended tax regime to the company. However, she has decided to shift out of the
default tax regime under section 115BAC and because of which got her eligible
deductions computed from CA Manoj.
Further, in the current F.Y. 2023-24, a chance scrutiny of accounts revealed that
during the last financial year, by oversight, Mrs. Disha, had drawn remuneration in
excess of the limit provided by the relevant statutory provisions.
Issue 5
Further, Mr. Suarabh Dev, a new joinee, in the finance department of the company
as junior accountant, requested CA Manoj to advice whether he would be required
to file return of income for A.Y.2024-25 based on the following data:
He has a gross total income of ` 2,50,000 for A.Y.2024-25 comprising of his salary
income since he joined Subham Ltd. from January, 2024 only. He does not have
any deduction under Chapter VI-A.
He pays electricity bills of ` 10,000 per month. He made a visit to Melbourne along
with his wife for a month in May, 2023 for which he incurred to and fro flight charges
of ` 1.10 lakhs. The remaining expenditure for his visa, stay and sightseeing
amounting to ` 90,000 was met by his brother residing in Melbourne.
Based on above case study, answer the following questions: -
I. Multiple Choice Questions
1. With respect to information given in Issue 3, the resolution relating to
investment shall be taken as passed by the Board in which of the following
cases:
22
 (a) When all the five Directors of Subham Ltd. attending the meeting consent
to such investment of funds.
(b) When any four Directors of Subham Ltd. out of five attending the meeting
consent to such investment of funds.
(c) When any three Directors of Subham Ltd. out of five attending the
meeting consent to such investment of funds.
(d) Investment proposal must be consented to by the total strength of six
Directors of Subham Ltd.
2. With respect to information given in Issue 3, approximately the Net Present
Value of the project proposed for making investment based on Risk free rate
is:
(a) ` 2443.50 lakhs
(b) ` 1443.50 lakhs
(c) ` 997.85 lakhs
(d) ` 1997.85 lakhs
3. With respect to information given in Issue 3, approximately the Net Present
Value of the project proposed for making investment on the basis of Risks
adjusted discount rate is:
(a) ` 2443.50 lakhs
(b) ` 1443.50 lakhs
(c) ` 997.85 lakhs
(d) ` 1997.85 lakhs
4. With respect to information given in Issue 4, as regards recovery of the excess
remuneration drawn by Mrs. Disha, which of the following options is
applicable:
(a) The company shall not waive recovery of excess remuneration paid
unless approved by a special resolution within one year from the date
the sum becomes refundable.
(b) The company shall not waive recovery of excess remuneration paid
unless approved by a special resolution within two years from the date
the sum becomes refundable.
(c) The company shall not waive recovery of excess remuneration paid
unless approved by the Central Government.
(d) The company shall not waive recovery of excess remuneration paid
unless approved by a special resolution within three years from the date
the sum becomes refundable.
5. With respect to information given in Issue 5, is Mr. Suarabh required to file his
return of income for A.Y.2024-25, and if so, why?
(a) No, Mr. Suarabh is not required to file his return of income

23
 (b) Yes, Mr. Suarabh is required to file his return of income, since his gross
total income/total income is not less than the basic exemption limit
(c) Yes, Mr. Suarabh is required to file his return of income since he pays
electricity bills of ` 10,000 per month, which exceeds the prescribed
annual threshold
(d) Yes, Mr. Suarabh is required to file his return of income since he has
incurred foreign travel expenditure exceeding ` 1 lakh
(5 x 2 = 10 Marks)
II. Descriptive Questions
6. With respect to information given in Issue 1, discuss the potential ethical
conflicts which may arise in respect of the lease arrangement and the ethical
principles which would guide how the finance manager, CA Manoj, should
respond to the situation. (6 Marks)
7. With respect to information given in Issue 4, compute the deduction available
to Ms. Disha under appropriate provisions of the Income-tax, 1961 for A.Y.
2024-25. (5 Marks)
8. With respect to information given in Issue 4, examine the obligation of Subham
Ltd. to deduct tax at source while paying/ crediting salary to Ms. Disha.
(4 Marks)

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