RTP Nov 20

INTERMEDIATE COURSE
(UNDER REVISED SCHEME OF

EDUCATION AND TRAINING)
GROUP – I
REVISION TEST PAPERS

NOVEMBER, 2020
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India

©THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
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Edition : September, 2020
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Contents
Page Nos.
Objective & Approach ........................................................................................ i – ix
Objective of RTP ......................................................................................................... i
Planning & Preparing for Examination ........................................................................ ii
Subject-wise Guidance – An Overview ...................................................................... iii
Paper-wise RTPs
Paper 1: Accounting ....................................................................................... 1 – 33
Part – I : Announcements Stating Applicability & Non-Applicability ...... 1 – 7
Part – II : Questions and Answers .................................................... 7 – 33
Paper 2: Corporate and Other Laws ............................................................ 34 – 55
Part – I : Announcements Stating Applicability ................................ 34 – 40
Part – II : Questions and Answers .................................................. 41 – 55
Paper 3: Cost and Management Accounting ...................................................... 56 – 86
Paper 4 : Taxation ............................................................................................... 87 – 127
Section A: Income-tax Law .................................................................. 87 – 115
Part – I : Statutory Update .............................................................. 87 – 98
Part – II : Questions and Answers ................................................ 98 – 115
Section B: Indirect taxes .................................................................... 116 – 127
Applicability of Standards/Guidance Notes/Legislative Amendments etc.
for November, 2020 – Intermediate (New) Examination ...................................... 128 – 133

REVISION TEST PAPER , NOVEMBER, 2020 – OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to derive
maximum benefit out of this RTP)
I Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs provided by the Board
of Studies (BOS) to its students. Popularly referred to as RTP by the students, it is one of
the very old publications of the BOS whose significance and relevance from th e
examination perspective has stood the test of time.
RTPs provide glimpses of not only the desirable ways in which examination questions are
to be answered but also of the professional quality and standard of the answers expected
of students in the examination. Further, aspirants can assess their level of preparation for
the examination by answering various questions given in the RTP and can also update
themselves with the latest developments in the various subjects relevant from the
examination point of view.
The primary objectives of the RTP are:
 To help students get an insight of their preparedness for the forthcoming examination;
 To provide an opportunity for a student to find all the latest developments relevant for
the forthcoming examination at one place;
 To supplement earlier studies;
 To enhance the confidence level of the students adequately; and
 To leverage the preparation of the students by giving guidance on how to approach
the examinations.
RTPs contain the following:
(i) Planning and preparing for examination
(ii) Subject-wise guidance – An overview
(iii) Updates applicable for a particular exam in the relevant subjects
(iv) Topic-wise questions and detailed answers thereof in respect of each paper
(v) Relevant announcement applicable for the particular examination
Students must bear in mind that the RTP contains a variety of questions based on different
sections of the syllabi and thus a comprehensive study of the entire syllabus is a pre-
requisite before answering the questions of the RTP. In other words, in order to derive
maximum benefit out of the RTPs, it is advised that before proceeding to solve the
questions given in the RTP, students ought to have thoroughly read the Study Materials.
The topics on which the questions are set herein have been carefully selected and
meticulous attention has been paid in framing different types of questions. Detailed

REVISION TEST PAPER ii
answers are provided to enable the students to do a self-assessment and have a focused
approach for effective preparation.
Students are welcome to send their suggestions for fine tuning the RTP to the Director,
Board of Studies, The Institute of Chartered Accountants of India, A-29, Sector-62, Noida
201 309 (Uttar Pradesh). RTP is also available on the Institute’s website www.icai.org
under the BOS knowledge portal in students section for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading the relevant
Study Materials of all the subjects. Make sure that you have read the Study Materials
thoroughly as they cover the syllabus comprehensively. Get a good grasp of the concepts/
provisions discussed therein. Solve each and every question/illustration given therein to
understand the application of the concepts and provisions.
After reading the Study Materials thoroughly, you should go through the Updates provided
in the RTP and then proceed to solve the questions given in the RTP on your own. RTP
is in an effective tool to revise and refresh the concepts and provisions discussed in the
Study Material. RTPs are provided to you to help you assess your level of preparation.
Hence you must solve the questions given therein on your own and thereafter compare
your answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and depth of his
preparation. However, there are certain important points which can help a student better
his performance in the examination. These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and thoroughly. You are
given separate 15 minutes for reading the question paper.
 Plan your time so that appropriate time is awarded for each question. Keep sometime
for checking the answers as well.
 First impression is the last impression. The question which you can answer in the
best manner should be attempted first.
 Always attempt to do all questions. Therefore, it is important that you must finish
each question within allocated time.
 Read the question carefully more than once before starting the answer to understand
very clearly as to what is required.
 Answer all parts of a question one after the other; do not answer different parts of the
same question at different places.
 Write in a neat and legible hand-writing.

iii INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020
 Always be concise and write to the point and do not try to fill pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions and then answer the
question.
 Check your answers carefully and underline important points before leaving the
examination hall.
III. Subject-wise Guidance – An Overview
PAPER – 1 : ACCOUNTING
The Revisionary Test Paper (RTP) of Accounting is divided into two parts viz
Part I - Relevant announcement stating Applicability and Non-Applicability for November,
2020 examination and Part II –Questions and Answers.
It may be noted that the July, 2019 edition of the Study Material is relevant for November,
2020 Examination.
Part I of the Revisionary Test consists of the relevant notifications and information
applicable and not applicable for November, 2020 examination. It also contains the topics
excluded from the syllabus of this paper from November, 2020 Examination. The purpose
of this information in the RTP is to apprise the students with the latest developments
applicable for November, 2020 examination. The brief summary of the same has been
given as under:
A. Applicable for November, 2020 examination:
I. Amendments in Schedule III (Division I) to the Companies Act, 2013
II. Amendments in Schedule V to the Companies Act, 2013
III. Notification dated 13th June, 2017 to exempt startup private companies from
preparation of Cash Flow Statement as per Section 462 of the Companies Act,
2013
IV. Amendment in Higher Education Cess as per Finance Act, 2018
V. Amendment in AS 11 “The Effects of Changes in Foreign Exchange Rates”
VI. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (reg.
Issue of Bonus Shares)
VII. Companies (Share Capital and Debentures) Amendment Rules, 2019 – reg.
Debenture Redemption Reserve

Chapter 8 ‘Redemption of Debentures’ has been revised and uploaded on the BoS Knowledge portal.

REVISION TEST PAPER iv
B. Not applicable for November, 2020 examination:

I. Ind ASs issued by the Ministry of Corporate Affairs.
Exclusion of Accounting Standards and topics from the Curriculum of Accounting
with effect from May, 2020 Examination
The following topics/ sub-topics/ Accounting Standards have been excluded from the
Curriculum of Accounting w.e.f. May, 2020 Examination:
 Application of Accounting Standards: AS 4; AS 5; AS 17 and AS 22;
 Accounting for Tax: Concept of deferred tax asset and deferred tax liability in line with
AS 22 under Company Accounts;
 Dissolution of partnership firms including piecemeal distribution of assets;
Amalgamation of partnership firms; Conversion of partnership firm into a company
and Sale to a company; Issues related to accounting in Limited Liability Partnership.
Part II of the Revisionary Test Paper consists of twenty questions together with their
answers. First fifteen questions are based on different topics discussed in the study
material. Last five questions of this RTP are based on Accounting Standards. For easy
reference the topic / accounting standard name and number on which the question is based
has been quoted at the top of each question. The details of topics, on which questions in
the RTP are based, are as under:
Question Topic
No.
1. Financial Statements of Companies
2. Managerial Remuneration
3. Cash Flow Statement
4. Profit or Loss prior to Incorporation
5. Accounting for Bonus Issue
6. Right Issue
7. Redemption of Preference Shares
8. Redemption of Debentures
9. Investment Accounts
10. Insurance Claim for Loss of Stock
11. Hire purchase Transactions
12. Departmental Accounts
13. Branch Accounting
14. Accounts from Incomplete Records
15 Framework for Preparation and Presentation of Financial Statements and
Accounting Standards
16-20 Accounting Standards

v INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020
Answers to the questions have been given in detail along with the working notes for easy
understanding and comprehending the steps in solving the problems. The answers to the
questions have been presented in the manner which is expected from the students in the
examination. The students are expected to solve the questions under examination conditions
and then compare their solutions with the solutions given in the Revisionary Test Paper and
further strategize their preparation for scoring more marks in the examination.
PAPER – 2: CORPORATE AND OTHER LAWS

In the paper of Corporate and Other Laws, for the ‘Company Law’ portion, the objective is
‘To develop an understanding of the provisions of company law and acquire the ability to
address application-oriented issues’ and for ‘Other Laws’ the objective is ‘To develop an
understanding of the provisions of select legislations and acquire the ability to address
application-oriented issues, and to develop an understanding of the rules for interpretation
of statutes’. The students need to prepare on basis of the objective entrusted in the
syllabus for the subject. Students should also give importance to the terms/definitions for
proper conceptualization of the answers. Students have to focus their study based on the
major legal provisions, case laws, if any, and understand their practical implications. Also,
Language is an important point of concern. This problem among many of the candidates
can be overcome by way of practice writing and also undertaking self-examination by going
through Revisionary Test Papers (RTP).
RTP gives an idea to the student attempting law paper to give the answer of any practical
oriented questions by pinpointing the legal points or issues involved in any statement,
problem or situation given in the question, explaining the relevant legal provisions clearly,
co-relating the legal provisions to the given statement or problem or situation and cite the
relevant case law in support of their reasoning for reflecting on the quality of the answer.
For the theoretical question, the answer should be laid down by highlighting the main points
with brief description and explain the same with the help of an example.
Generally, the RTP is divided into two parts -
Part I: Containing the relevant legislative amendments which are applicable for
November, 2020 examinations.
It consists of the relevant Notifications and information applicable for November, 2020
examination. The purpose of this information in the RTP is to apprise the students with the
latest developments applicable for November, 2020 examinations.
Part II: Topic wise questions with detailed answers
RTP is broadly categorised into two divisions – Division A (Multiple Choice Question-
Integrated Case Scenario and Independent MCQs) and Division B (Detailed Questions)
with their answers. The sequencing of Division B is as follows:

REVISION TEST PAPER vi
QUESTION NO. ABOUT THE QUESTION

1–7 Based on the Companies Act, 2013
8-9 Deals with the Indian Contract Act, 1872.
10 Deals with the Negotiable Instruments Act,1881
11 Based on the General Clauses Act, 1897
12 Interpretation of Statutes, Deeds and Documents
Guidance on the citation of the Case Laws and Section
Students may kindly note that in view of various Acts covered under the subject, you may
find it difficult to remember various sections of the law and related case laws on the matter.
Case laws and citing of the Sections reflects on the quality of your preparation for the
examination and making yourself set to become a perfect professional. The answers that
are reflected here have reference to sections and case laws wherever applicable. It may
kindly be noted that these are given for knowledge and to mainly inculcate such a habit.
However, at this level it may not affect on the scoring of the marks.
PAPER – 3: COST AND MANAGEMENT ACCOUNTING

The Revision Test Paper (RTP) of Cost and Management Accounting comprises of fifteen
questions for full coverage of the syllabus. Theoretical questions alongwith computational
problems have also been incorporated so that you are able to give emphasis to the
theoretical portion of the syllabus as well. Since this paper’s inclination is more towards
numerical-oriented questions which involve mathematical calculations, therefore, it is very
important that you have thoroughly studied the theoretical aspects of the subject and are
also clear about the concepts and logic behind the mathematical workings and formulae.
A summary of the questions both theoretical and computational has been given for your
reference:
Qs No. Topic About the Problem
1. Material Cost Calculation of Level of Inventory.
2. Employee cost Calculation of Employee wages.
3. Overheads Computation of Machine hour rate.
4. Activity Based Costing Calculation cost driver rate and total & unit cost
(ABC) Method using ABC method.
5. Cost Sheet Preparation of Cost Sheet.
6. Cost Accounting System Preparation of Memorandum reconciliation
Account.
7. Batch Costing Application of Batch Costing.
8. Job Costing Preparation of Job Cost Sheet.

vii INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020
9. Process Costing Preparation of process account.

10. Joint product & By Product Net realizable method of Joint Cost Allocation
11. Service Costing Application of operating costing.
12. Standard Costing Calculation of Material, Labour and overhead
variances.
13. Marginal Costing Determination of BEP, Number of units, and
Profits.
14. Budget and Budgetary Preparation of product- wise profitability
Control statement on marginal costing and Preparation
of Budget.
15(a) Cost Concepts Discretionary Cost Centre and Investment
Centre
15(b) Contract Costing Cost Plus Contract.
15(c) Budget and Budgetary Zero-based budgeting.
Control
15(d) Operation costing Example of industries where operation costing
is applied. .
PAPER – 4: TAXATION
Section A: Income-tax Law (60 Marks)
The Income-tax law, as amended by the Finance Act, 2019, the Finance (No.2) Act, 2019
and significant notifications, circulars and other legislative amendments upto 30.4.2020
are relevant for November, 2020 Examination. The relevant assessment year for
November, 2020 examination is A.Y. 2020-21.
The August, 2019 edition of the Study Material, comprising of three modules
(Modules 1-3), is applicable for November, 2020 Examination.
Further, a list of topic-wise exclusions from the syllabus has been specified by way of
“Study Guidelines” in the above Study Material.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. The amendments made by the Finance Act, 2019, the Finance (No.2) Act, 201 9
and latest notifications and circulars have been given in italics/bold italics. Examples and
Illustrations given in the Study Material would help you understand the application of
concepts. Thereafter, work out the exercise questions at the end of each chapter to hone
your problem solving skills. Compare your answers with the answers given to test your
level of understanding.

REVISION TEST PAPER viii
Thereafter, solve the questions given in this RTP independently and compare the same with
the answers given to assess your level of preparedness for the examination. Before you work
out the questions in Part II of the RTP, do read the Statutory Update given in Part I.
Note – (1) Extension of dates/due dates and other relaxations vide PIB Press Release
dated 24.3.2020/Notification No. 35/2020 dated 24.6.2020 on account of COVID 19
pandemic are not applicable for November, 2020 examinations. Further, CBDT
Circular No.11/2020 dated 8.5.2020 providing relaxation of residency conditions for
P.Y.2019-20 for individuals stranded in India due to COVID-19 lockdown is not
applicable.
(2) Direct Tax Vivad se Vishwas Act, 2020 and Rules, 2020 are not applicable for
November, 2020 examination.
Section B: Indirect Taxes (40 Marks)

For Section B: Indirect Taxes of Paper 4: Taxation, provisions of the CGST Act, 2017 and
the IGST Act, 2017 as amended by the Finance (No. 2) Act, 2019, which have become
effective up to 30th April, 2020*, including significant notifications and circulars issued up to
30th April 2020, are applicable for November 2020 examination.
Further, a list of topic-wise exclusions from the syllabus has been specified by way of
“Study Guidelines for November, 2020 Examination”. The same is given as part of
“Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2020 - Intermediate (New) Examination” appended at the end of this
Revision Test Paper.
* The amendments made by the Finance (No. 2) Act, 2019 in the CGST Act and the IGST
Act have become effective from 01.01.2020. However, amendments made by the Finance
(No. 2) Act, 2019 - to the extent included in the syllabus read with the Study Guidelines -
in sections 39 and 50 of the CGST Act, 2017 have not become effective as on 30.04.2020.
Therefore, the same are not applicable for November 2020 examinations.
The August, 2019 edition of the Study Material** for New Intermediate Course Paper 4:
Taxation, Section B: Indirect Taxes is also applicable for IIPCC Paper 4: Taxation Section
B: Indirect Taxes. The Study Material has been divided into two modules for ease of
handling by students.
Study Material is based on the provisions of the CGST Act and IGST Act as amended upto
30.04.2019. The amendments made by the notifications and circulars issued between
01.05.2019 and 30.04.2020 in GST laws are given in the Statutory Update web-hosted at
the BoS Knowledge Portal on the ICAI’s website www.icai.org.

ix INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020
**It may be noted that in the August 2019 Edition of the Study Material, the erstwhile
provisions of the CGST Act have been compared with the provisions as amended vide the
Finance (No.2) Act, 2019, at the end of the relevant Chapters. Therefore, the same are
not included in the Statutory Update. Students should read the amended provisions given
at the end of the relevant Chapters in place of the erstwhile provisions discussed in the
main body of the Chapters.
However, the amendments which have not become effective till 30.04.2020, as mentioned
above, should not be referred to as the same are not applicable for November 2020
examinations. For ease of reference, the Chapters of the Study Material which cover the
said amendments (which have not become effective till 30.04.2020) are given below:
Chapter 9: Payment of Tax [Amendment in section 50 of the CGST Act]
Chapter 10: Returns
You have to read the Study Material alongwith the Statutory Update thoroughly to attain
conceptual clarity. Tables, diagrams and flow charts have been extensively used to
facilitate easy understanding of concepts. Examples and Illustrations given in the Study
Material would help you understand the application of concepts. Thereafter, work out the
questions at the end of each chapter to hone your problem-solving skills. Compare your
answers with the answers given to test your knowledge.
Thereafter, solve the questions given in this RTP independently and compare the same
with the answers given to assess your level of preparedness for the examination.

PAPER – 1: ACCOUNTING
ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY
FOR NOVEMBER 2020 EXAMINATION
A. Applicable for November, 2020 examination

I. Amendments in Schedule III (Division I) to the Companies Act, 2013
In exercise of the powers conferred by sub-section (1) of section 467 of the
Companies Act, 2013), the Central Government made the following amendments in
Division I of the Schedule III with effect from the date of publication of this notification
in the Official Gazette:
(A) under the heading “II Assets”, under sub-heading “Non-current assets”, for the
words “Fixed assets”, the words “Property, Plant and Equipment” shall be
substituted;
(B) in the “Notes”, under the heading “General Instructions for preparation of
Balance Sheet”, in paragraph 6,-
(I) under the heading “B. Reserves and Surplus”, in item (i), in sub- item (c),
the word “Reserve” shall be omitted;
(II) in clause W., for the words “fixed assets”, the words “Property, Plant and
Equipment” shall be substituted.
II. Amendments in Schedule V to the Companies Act, 2013
In exercise of the powers conferred by sub-sections (1) and (2) of section 467 of the
Companies Act, 2013, the Central Government hereby makes the following
amendments to amend Schedule V.
In PART II, under heading “REMUNERATION”, in Section II - ,
(a) in the heading, the words “without Central Government approval” shall be
omitted;
(b) in the first para, the words “without Central Government approval” shall be
omitted;
(c) in item (A), in the proviso, for the words “Provided that the above limits shall be
doubled” the words “Provided that the remuneration in excess of above limits
may be paid” shall be substituted;
(d) in item (B), for the words “no approval of Central Government is required” the
words “remuneration as per item (A) may be paid” shall be substituted;
(e) in Item (B), in second proviso, for clause (ii), the following shall be substituted,
namely:-
“(ii) the company has not committed any default in payment of dues to any bank

2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2020
or public financial institution or non-convertible debenture holders or any other

secured creditor, and in case of default, the prior approval of the bank or public
financial institution concerned or the non-convertible debenture holders or other
secured creditor, as the case may be, shall be obtained by the company before
obtaining the approval in the general meeting.";
(f) in item (B), in second proviso, in clause (iii), the words “the limits laid down in”
shall be omitted;
In PART II, under the heading “REMUNERATION”, in Section III, –
(a) in the heading, the words “without Central Government approval” shall be
omitted;
(b) in first para, the words “without the Central Government approval” shall be
omitted;
(c) in clause (b), in the long line, for the words “remuneration up to two times the
amount permissible under Section II” the words “any remuneration to its
managerial persons”, shall be substituted;
III. Notification dated 13th June, 2017 to exempt startup private companies from
preparation of Cash Flow Statement as per Section 462 of the Companies
Act 2013
As per the Amendment, under Chapter I, clause (40) of section 2, an exemption has
been provided to a startup private company besides one person company, small
company and dormant company. Accordingly, a startup private company is not
required to include the cash flow statement in the financial statements.
Thus the financial statements, with respect to one person company, small company,
dormant company and private company (if such a private company is a start-up), may
not include the cash flow statement.
IV. Amendment in Higher Education Cess as per Finance Act, 2018
The rate of DDT is 15% excluding surcharge of 12% plus secondary and higher
education cess is 4%* (revised as per Finance Act, 2018). This revised effective rate
17.472% (that is, 15% plus surcharge@12% plus health and education cess @4%)
will be considered for computation of corporate dividend tax in preparation of
Financial Statements of companies.
*Earlier this was 3%.
V. Amendment in AS 11 “The Effects of Changes in Foreign Exchange Rates”
In exercise of the powers conferred by clause (a) of sub-section (1) of section 642 of
the Companies Act, 1956, the Central Government, in consultation with National
Advisory Committee on Accounting Standards, hereby made the amendment in the
Companies (Accounting Standards) Rules, 2006, in the "ANNEXURE", under the

PAPER – 1 : ACCOUNTING 3
heading "ACCOUNTING STANDARDS" under "AS 11 on The Effects of Changes in

Foreign Exchange Rates", for the paragraph 32, the following paragraph shall be
substituted, namely :-
"32. An enterprise may dispose of its interest in a non-integral foreign operation
through sale, liquidation, repayment of share capital, or abandonment of all, or part
of, that operation. The payment of a dividend forms part of a disposal only when it
constitutes a return of the investment. Remittance from a non-integral foreign
operation by way of repatriation of accumulated profits does not form part of a
disposal unless it constitutes return of the investment. In the case of a partial disposal,
only the proportionate share of the related accumulated exchange differences is
included in the gain or loss. A write-down of the carrying amount of a non-integral
foreign operation does not constitute a partial disposal. Accordingly, no part of the
deferred foreign exchange gain or loss is recognized at the time of a write-down".
VI. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (reg.
Issue of Bonus Shares)
A listed company, while issuing bonus shares to its members, must comply with the
following requirements under the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018:
Regulation 293 - Conditions for Bonus Issue
Subject to the provisions of the Companies Act, 2013 or any other applicable law, a
listed issuer shall be eligible to issue bonus shares to its members if:
(a) it is authorized by its articles of association for issue of bonus shares,
capitalization of reserves, etc.: Provided that if there is no such provision in the
articles of association, the issuer shall pass a resolution at its general body
meeting making provisions in the articles of associations for capitalization of
reserve;
(b) it has not defaulted in payment of interest or principal in respect of fixed deposits
or debt securities issued by it;
(c) it has not defaulted in respect of the payment of statutory dues of the employees
such as contribution to provident fund, gratuity and bonus;
(d) any outstanding partly paid shares on the date of the allotment of the bonus
shares, are made fully paid-up;
(e) any of its promoters or directors is not a fugitive economic offender.
Regulation 294 - Restrictions on a bonus issue
(1) An issuer shall make a bonus issue of equity shares only if it has made
reservation of equity shares of the same class in favour of the holders of
outstanding compulsorily convertible debt instruments if any, in proportion to the

convertible part thereof.

(2) The equity shares so reserved for the holders of fully or partly compulsorily
convertible debt instruments, shall be issued to the holder of such convertible
debt instruments or warrants at the time of conversion of such convertible debt
instruments, optionally convertible instruments, warrants, as the case may be,
on the same terms or same proportion at which the bonus shares were issued.
(3) A bonus issue shall be made only out of free reserves, securities premium
account or capital redemption reserve account and built out of the genuine
profits or securities premium collected in cash and reserves created by
revaluation of fixed assets shall not be capitalized for this purpose.
(4) Without prejudice to the provisions of sub-regulation (3), bonus shares shall not
be issued in lieu of dividends.
(5) If an issuer has issued Superior Voting Right (SR) equity shares to its promoters
or founders, any bonus issue on the SR equity shares shall carry the same ratio
of voting rights compared to ordinary shares and the SR equity shares issued in
a bonus issue shall also be converted to equity shares having voting rights same
as that of ordinary equity shares along with existing SR equity shares.]
Regulation 295 - Completion of a bonus issue
(1) An issuer, announcing a bonus issue after approval by its board of directors and
not requiring shareholders’ approval for capitalization of profits or reserves for
making the bonus issue, shall implement the bonus issue within fifteen days
from the date of approval of the issue by its board of directors: Provided that
where the issuer is required to seek shareholders’ approval for capitalization of
profits or reserves for making the bonus issue, the bonus issue shall be
implemented within two months from the date of the meeting of its board of
directors wherein the decision to announce the bonus issue was taken subject
to shareholders’ approval.
Explanation:
For the purpose of a bonus issue to be considered as ‘implemented’ the date of
commencement of trading shall be considered.
(2) A bonus issue, once announced, shall not be withdrawn.
VII. Companies (Share Capital and Debentures) Amendment Rules, 2019 – reg.
Debenture Redemption Reserve
In exercise of the powers conferred by sub-sections (1) and (2) of section 469 of the
Companies Act, 2013 (18 of 2013), the Central Government made the Companies
(Share Capital and Debentures) Amendment Rules, 2019 dated 16th August, 2019 to
amend the Companies (Share Capital and Debentures) Rules, 2014. As per the

Companies (Share Capital and Debentures) Amendment Rules, under principal rules,
in rule 18, for sub-rule (7), the following sub-rule shall be substituted, namely: -
“(7) The company shall comply with the requirements with regard to Debenture
Redemption Reserve (DRR) and investment or deposit of sum in respect of
debentures maturing during the year ending on the 31st day of March of next year, in
accordance with the conditions given below:-
(a) Debenture Redemption Reserve shall be created out of profits of the company
available for payment of dividend;
(b) the limits with respect to adequacy of Debenture Redemption Reserve and
investment or deposits, as the case may be, shall be as under;-
(i) Debenture Redemption Reserve is not required for debentures issued by
All India Financial Institutions regulated by Reserve Bank of India and
Banking Companies for both public as well as privately placed debentures;
(ii) For other Financial Institutions within the meaning of clause (72) of section
2 of the Companies Act, 2013, Debenture Redemption Reserve shall be as
applicable to Non –Banking Finance Companies registered with Reserve
Bank of India.
(iii) For listed companies (other than All India Financial Institutions and Banking
Companies as specified in sub-clause (i)), Debenture Redemption Reserve
is not required in the following cases - (A) in case of public issue of
debentures – A. for NBFCs registered with Reserve Bank of India under
section 45-IA of the RBI Act, 1934 and for Housing Finance Companies
registered with National Housing Bank; B. for other listed companies; (B)
in case of privately placed debentures, for companies specified in sub-
items A and B.
(iv) for unlisted companies, (other than All India Financial Institutions and
Banking Companies as specified in sub-clause (i)) -
(A) for NBFCs registered with RBI under section 45-IA of the Reserve
Bank of India Act, 1934 and for Housing Finance Companies
registered with National Housing Bank, Debenture Redemption
Reserve is not required in case of privately placed debentures.
(B) for other unlisted companies, the adequacy of Debenture Redemption
Reserve shall be ten percent. of the value of the outstanding
debentures;
(v) In case a company is covered in item (A) or item (B) of sub-clause (iii) of
clause (b) or item (B) of sub-clause (iv) of clause (b), it shall on or before
the 30th day of April in each year, in respect of debentures issued by a
company covered in item (A) or item (B) of sub clause (iii) of clause (b) or

item (B) of sub-clause (iv) of clause (b), invest or deposit, as the case may
be, a sum which shall not be less than fifteen per cent., of the amount of
its debentures maturing during the year, ending on the 31st day of March
of the next year in any one or more methods of investments or deposits as
provided in sub-clause (vi):
Provided that the amount remaining invested or deposited, as the case may
be, shall not at any time fall below fifteen percent. of the amount of the
debentures maturing during the year ending on 31st day of March of that
year.
(vi) for the purpose of sub-clause (v), the methods of deposits or investments,
as the case may be, are as follows:— (A) in deposits with any scheduled
bank, free from any charge or lien; (B) in unencumbered securities of the
Central Government or any State Government; (C) in unencumbered
securities mentioned in sub-clause (a) to (d) and (ee) of section 20 of the
Indian Trusts Act, 1882; (D) in unencumbered bonds issued by any other
company which is notified under sub-clause (f) of section 20 of the Indian
Trusts Act, 1882:
Provided that the amount invested or deposited as above shall not be used
for any purpose other than for redemption of debentures maturing during
the year referred above.
(c) in case of partly convertible debentures, Debenture Redemption Reserve shall
be created in respect of non-convertible portion of debenture issue in
accordance with this sub-rule.
(d) the amount credited to Debenture Redemption Reserve shall not be utilized by
the company except for the purpose of redemption of debentures.”
NOTE: Chapter 8 “Redemption of Debentures” of the Intermediate Paper 1:
Accounting Study Material (Module II) has been revised and uploaded on the BoS
Knowledge Portal of the Institute’s website. It is advised to refer the updated chapter
uploaded on the BoS Knowledge Portal of the Institute’s website at the link:
https://resource.cdn.icai.org/55831bos45229cp8.pdf.
B. Not applicable for November, 2020 examination
Non-Applicability of Ind AS for November, 2020 Examination
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards)
Rules, 2015 on 16 th February, 2015, for compliance by certain class of companies. These
Ind AS are not applicable for November, 2020 Examination.

Exclusion of Accounting Standards and topics from the Curriculum of Accounting

w.e.f. May, 2020 Examination
The following topics/ sub-topics/ Accounting Standards have been excluded from the
Curriculum of Accounting:
 Application of Accounting Standards: AS 4; AS 5; AS 17 and AS 22;
 Accounting for Tax: Concept of deferred tax asset and deferred tax liability in line with
AS 22 under Company Accounts;
 Dissolution of partnership firms including piecemeal distribution of assets;
Amalgamation of partnership firms; Conversion of partnership firm into a company
and Sale to a company; Issues related to accounting in Limited Liability Partnership.
NOTE: July 2019 Edition of the Study Material on Paper 1 Accounting is applicable for Nov
2020 Examination.
PART – II: QUESTIONS AND ANSWERS
QUESTIONS
Preparation of Financial Statements of Companies

1. On 31st March, 2020, Om Ltd. provides to you the following ledger balances after preparing
its Profit and Loss Account for the year ended 31st March, 2020:
Credit Balances
`
Equity shares capital (fully paid shares of ` 10 each) 1,05,00,000
General Reserve 21,84,000
Loan from State Finance Corporation 15,75,000
(Secured by hypothecation of Plant & Machinery - Repayable
within one year ` 3,00,000)
Loans: Unsecured (Long term) 12,70,500
Sundry Creditors for goods & expenses
(Payable within 6 months) 21,00,000
Profit & Loss Account 10,50,000
Provision for Taxation 12,25,350
199,04,850

Debit Balances :
`
Calls in arrear 10,500
Land 21,00,000
Buildings 30,75,000
Plant and Machinery 55,12,500
Furniture & Fixture 5,25,000
Inventories : Finished goods 21,00,000
Raw Materials 5,25,000
Trade Receivables 21,00,000
Advances: Short-term 4,48,350
Cash in hand 3,15,000
Balances with banks 25,93,500
Patents & Trade marks 6,00,000
199,04,850
The following additional information is also provided in respect of the above balances:
(i) 6,30,000 fully paid equity shares were allotted as consideration for land & buildings.
(ii) Cost of Building ` 42,00,000
Cost of Plant & Machinery ` 73,50,000
Cost of Furniture & Fixture ` 6,56,250
(iii) Trade receivables for ` 5,70,000 are due for more than 6 months.
(iv) The amount of Balances with Bank includes ` 27,000 with a bank which is not a
scheduled Bank and the deposits of ` 7,50,000 are for a period of 9 months.
(v) Unsecured loan includes ` 3,00,000 from a Bank and ` 1,50,000 from related
parties.
You are not required to give previous year figures. You are required to prepare the Balance
Sheet of the Company as on 31st March, 2020 as required under Schedule III of the
Companies Act, 2013.
Managerial Remuneration
2. Kartik Ltd. is a non-investment company and has been incurring losses for the past few
years. The company provides the following information for the current year:
(` in lakhs)
Paid up equity share capital 270
Paid up Preference share capital 45

Reserves (including Revaluation reserve ` 22.5 lakhs) 337.5

Securities premium 90
Long term loans 90
Deposits repayable after one year 45
Application money pending allotment 1620
Accumulated losses not written off 45
Investments 405
Kartik Ltd. has only one whole-time director, Mr. Kumar. You are required to calculate the
amount of maximum remuneration that can be paid to him as per provisions of the
Companies Act, 2013, if no special resolution is passed at the general meeting of the
company in respect of payment of remuneration.
Cash Flow Statement
3 Prepare Cash Flow Statement of Light Ltd. for the year ended 31 st March, 2020, in
accordance with AS 3 (Revised) from the following Summary Cash Account:
Summary Cash Account
` in '000 ` in '000
Balance as on 01.04.2019 315
Receipts from Customers 24,894
Sale of Investments (Cost ` 1,35,000) 153
Issue of Shares 2,700
Sale of Fixed Assets 1,152
29,214
Payment to Suppliers 18,306
Purchase of Investments 117
Purchase of Fixed Assets 2,070 ,
Wages & Salaries 621
Selling & Administration Expenses 1,035
Payment of Income Tax 2,187
Payment of Dividends 720
Repayment of Bank Loan 2,250
Interest paid on Bank Loan 450 (27,756)
Balance as on 31.03.2020 1,458

Profit/Loss prior to Incorporation

4. Green Ltd. took over a running business with effect from 1 st April, 2019. The company was
incorporated on 1 st August, 2019. The following summarized Profit and Loss Account has
been prepared for the year ended 31.3.2020:
` `
To Salaries 72,000 By Gross profit 4,80,000
To Stationery 7,200
To Travelling expenses 25,200
To Advertisement 24,000
To Miscellaneous trade expenses 56,700
To Rent (office buildings) 39,600
To Electricity charges 6,300
To Director’s fee 16,800
To Bad debts 4,800
To Commission to selling agents 33,000
To Debenture interest 4,500
To Interest paid to vendor 6,300
To Selling expenses 37,800
To Depreciation on fixed assets 14,400
To Net profit 1,31,400
4,80,000 4,80,000
Additional information:
(a) Sales ratio between pre and post incorporation periods was 1:3.
(b) Rent of office building was paid @ ` 3,000 per month up to September, 2019 and
thereafter it was increased by ` 600 per month.
(c) Travelling expenses include ` 7,200 towards sales promotion. Travelling expenses
are to be allocated between pre and post incorporation periods on time basis.
(d) Depreciation include ` 900 for assets acquired in the post incorporation period.
(e) Purchase consideration was discharged by the company on 30 th September, 2019 by
issuing equity shares of ` 10 each.
You are required to prepare Statement showing calculation of profits and allocation of
expenses between pre and post incorporation periods.

Accounting for Bonus Issue

5. Following is the extract of the Balance Sheet of Madhu Ltd.as at 31 st March, 2020
`
Authorized capital:
45,000 12% Preference shares of ` 10 each 4,50,000
6,00,000 Equity shares of ` 10 each 60,00,000
64,50,000
Issued and Subscribed capital:
36,000 12% Preference shares of ` 10 each fully paid 3,60,000
4,05,000 Equity shares of ` 10 each, ` 8 paid up 32,40,000
Reserves and surplus:
Capital Redemption Reserve 1,80,000
Securities premium (collected in cash) 1,12,500
Profit and Loss Account 9,00,000
On 1st April, 2020, the Company has made final call @ ` 2 each on 4,05,000 equity shares.
The call money was received by 20 th April, 2020. Thereafter, the company decided to
capitalize its reserves by way of bonus at the rate of one share for every four shares held
by utilizing the balance of profit and loss account to the minimum extent.
You are required to prepare necessary journal entries in the books of the company and
prepare the relevant extract of the balance sheet as on 30 th April, 2020 after bonus issue.
Right Issue
6. Omega company offers new shares of ` 100 each at 25% premium to existing shareholders
on the basis one for five shares. The cum-right market price of a share is ` 200.
You are required to calculate the (i) Ex-right value of a share; (ii) Value of a right share?
Redemption of Preference Shares
7. The following are the extracts from the Balance Sheet of Hari Ltd. as on 31st March, 2020:
Share capital: 75,000 Equity shares of `10 each fully paid – `7,50,000; 2,250 10%
Redeemable preference shares of `100 each fully paid – ` 2,25,000.
Reserve & Surplus: Capital reserve – `1,50,000; General reserve –` 1,50,000; Profit and
Loss Account – `1,12,500.
On 1st April 2020, the Board of Directors decided to redeem the preference shares at
premium of 10% by utilization of reserves.
You are required to prepare necessary Journal Entries including cash transactions in the
books of the company.

Redemption of Debentures
8. XYZ Ltd. has issued 1,000, 12% convertible debentures of ` 100 each redeemable after a
period of five years. According to the terms & conditions of the issue, these debentures
were redeemable at a premium of 5%. The debenture holders also had the option at the
time of redemption to convert 20% of their holdings into equity shares of ` 10 each at a
price of ` 20 per share and balance in cash. Debenture holders amounting ` 20,000 opted
to get their debentures converted into equity shares as per terms of the issue. You are
required to calculate the number of shares issued and cash paid for redemption of ` 20,000
debenture holders.
Investment Accounts
9. (a) In 2018, Royal Ltd. issued 12% fully paid debentures of ` 100 each, interest being
payable half yearly on 30th September and 31 st March of every accounting year. On
1st December, 2019, M/s. Kumar purchased 10,000 of these debentures at ` 101
(cum-interest) price. On 1st March, 2020 the firm sold all of these debentures at
` 106 (cum-interest) price.
You are required to prepare Investment (Debentures) Account in the books of M/s.
Kumar for the period 1st December, 2019 to 1st March, 2020.
(b) Mr. X acquires 200 shares of a company on cum-right basis for ` 60,000. He
subsequently receives an offer of right to acquire fresh shares in the company in the
proportion of 1:1 at ` 105 each. He does not subscribe but sells all the rights for
` 15,000. The market value of the shares after their becoming ex-rights has also gone
down to ` 50,000. What should be the accounting treatment in this case?
Insurance Claim for loss of stock
10. Shyam’s godown caught fire on 29th August, 2020, and a large part of the stock of goods
was destroyed. However, goods costing ` 54,000 could be salvaged. The trader provides
you the following additional information:
`
Cost of stock on 1st April, 2019 3,55,250
Cost of stock on 31st March, 2020 3,95,050
Purchases during the year ended 31st March, 2020 28,39,800
Purchases from 1st April, 2020 to the date of fire 16,55,350
Cost of goods distributed as samples for advertising from 1st April, 2020 to
20,500
the date of fire
Cost of goods withdrawn by trader for personal use from 1st April, 2020
to the date of fire 1,000
Sales for the year ended 31st March, 2020 40,00,000

Sales from 1st April, 2020 to the date of fire 22,68,000

Shyam had taken the fire insurance policy for ` 2,50,000 with an average clause.
Calculate the amount of the claim that will be admitted by the insurance company. Consider
that the rate of gross profit up to date of fire is same as that of previous accounting year.
Hire Purchase Transactions
11. X purchased three cars from Y on hire purchase basis, the cash price of each car being `
2,00,000. The hire purchaser charged depreciation @ 20% on diminishing balance method.
Two cars were seized by on hire vendor when second installment was not paid at the end
of the second year. The hire vendor valued the two cars at cash price less 30%
depreciation charged under diminishing balance method. The hire vendor spent ` 10,000
on repairs of the cars and then sold them for a total amount of ` 1,70,000.
You are required to compute: (i) Agreed value of two cars taken back by the hire vendor
and book value of car left with the hire purchaser and (ii) Profit or loss to hire purchaser
on two cars taken back by the hire vendor.
Departmental Accounts
12. Department X sells goods to Department Y at a profit of 50% on cost and to Department Z
at 20% on cost. Department Y sells goods to Department X and Z at a profit of 25% and
15% respectively on sales. Department Z charges 30% profit on cost to Department X and
40% profit on sale to Y.
Stocks lying at different departments at the end of the year are as under:
Dept. X Dept. Y Dept. Z
` ` `
Transfer from Department X 75,000 48,000
Transfer from Department Y 50,000 82,000
Transfer from Department Z 52,000 56,000
Calculate the unrealized profit of each department and also total unrealized profit.
Accounting for Branches
13. M & S Co. of Lucknow has an integral foreign branch in Canberra, Australia. At the end of
31st March 2020, the following ledger balances have been extracted from the books of the
Lucknow office and the Canberra branch.
Lucknow office Canberra Branch
( ` In thousand) (Aust. Dollars in thousand)
Dr. Cr. Dr. Cr.
Capital 1,500

Reserves & Surplus 1,500

Land 500
Buildings (Cost) 1,000
Buildings - Accumulated Dep. 200
Plant and Machinery (Cost) 2,500 200
Plant and Machinery -
Accumulated Dep. 600 130
Debtors/Creditors 280 200 60 30
Stock as on 1- 4-2019 100 20
Branch Stock Reserve 4
Cash & Bank Balances 10 10
Purchases/Sales 240 520 20 123
Goods sent to Branch 100 5
Managing Partner's Salary 30
Wages and Salaries 75 45
Rent 12
Office Expenses 25 18
Commission Receipts 256 100
Branch/HO Current Account 120 7
4,880 4,880 390 390
You are required to convert the Branch Trial Balance given above into rupees by using the
following exchange rates:
Opening rate 1 A $ = ` 50
Closing rate 1 A $ = ` 53
Average rate 1 A $ = ` 51.00
for Fixed Assets 1 A $ = ` 46.00
Accounts from Incomplete Records
14. The following is the Balance Sheet of Manish and Suresh as on 1 st April, 2019:
Liabilities ` Assets `
Capital Accounts: Building 1,00,000
Manish 1,50,000 Machinery 65,000
Suresh 75,000 Stock 40,000

Creditors for goods 30,000 Debtors 50,000

Creditors for expenses 25,000 Bank 25,000
2,80,000 2,80,000
They give you the following additional information:
(i) Sales and purchases for the year ended 31 st March, 2019 were ` 3,00,000 and `
2,40,000 respectively. an and d
(ii) Stock level is maintained uniformly in value throughout all over the year.
(iii) Depreciation on machinery is charged @ 10%, Depreciation on building @ 5% in the
current year.
(iv) Sales in the current year will increase by 43.75% in volume.
(v) Rate of gross profit remains the same.
(vi) Business Expenditures are ` 50,000 for the year and all expenditures are paid in
cash.
(vii) All sales and purchases are on credit basis and there are no cash purchases and
sales.
You are required to prepare Trading and Profit and Loss Account for the year ended
31.03.2020.
Framework for Preparation and Presentation of Financial Statements
15. (a) With regard to financial statements name any four.
(i) Users
(ii) Qualitative characteristics
(iii) Elements
Accounting Standards
(b) What are the issues, with which Accounting Standards deal?
AS 1 Disclosure of Accounting Policies
16. (a) What are the three fundamental accounting assumptions recognized by Accounting
Standard (AS) 1? Briefly describe each one of them.
AS 2 Valuation of Inventories
(b) A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is
required. The company provides you following information for the year ended
31st March, 2020.

` Per unit
Raw Material X
Cost price 400
Freight Inward 40
Replacement cost 320
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80
Additional Information:
(i) Total fixed overhead for the year was ` 4,00,000 on normal capacity of 25,000
units.
(ii) Closing balance of Raw Material X was 1,000 units and Chemical Y was 2,400
units.
You are required to calculate the total value of closing stock of Raw Material X and
Chemical Y according to AS 2, when Net realizable value of Chemical Y is ` 600 per
unit.
AS 10 Property, Plant and Equipment
17. Omega Ltd. contracted with a supplier to purchase machinery which is to be installed in its
one department in three months' time. Special foundations were required for the machinery
which were to be prepared within this supply lead time. The cost of the site preparation
and laying foundations were ` 1,40,000. These activities were supervised by a technician
during the entire period, who is employed for this purpose at ` 45,000 per month.
The machine was purchased at ` 1,58,00,000 and ` 50,000 transportation charges were
incurred to bring the machine to the factory site. An Architect was appointed at a fee of
` 30,000 to supervise machinery installation at the factory site.
You are required to ascertain the amount at which the Machinery should be capitalized
under AS 10.
AS 11 The Effects of Changes in Foreign Exchange Rates
18. (a) Classify the following items as monetary or non-monetary item:
Share Capital
Trade Receivables
Investment in Equity shares

Fixed Assets.
(b)
Exchange Rate per $
Goods purchased on 1.1.2019 for US $ 15,000 ` 75
Exchange rate on 31.3.2019 ` 74
Date of actual payment 7.7.2019 ` 73
You are required to ascertain the loss/gain to be recognized for financial years 2018-
19 and 2019-20 as per AS 11.
AS 12 Accounting for Government Grants
19. (a) How would you treat the following in the accounts in accordance with AS 12
'Government Grants'?
(i) ` 35 Lakhs received from the Local Authority for providing Medical facilities to
the employees.
(ii) ` 100 Lakhs received as Subsidy from the Central Government for setting up a
unit in notified backward area.
AS 13 Accounting for Investments
(b) A Ltd. on 1-1-2020 had made an investment of ` 600 lakhs in the equity shares of B
Ltd. of which 50% is made in the long term category and the rest as temporary
investment. The realizable value of all such investment on 31-3-2020 became ` 200
lakhs as B Ltd. lost a case of copyright. How will you recognize the reduction in the
value of the investment in the financial statements for the year ended on 31-3-2020
as per AS 13 considering this downfall in the value of shares as non-temporary?
AS 16 Borrowing Costs
20. (a) Vital Limited borrowed an amount of `150 crores on 1.4.2019 for construction of boiler
plant @ 10% p.a. The plant is expected to be completed in 4 years. Since the
weighted average cost of capital is 13% p.a., the accountant of Vital Ltd. capitalized
` 19.50 crores for the accounting period ending on 31.3.2020. Due to surplus fund
out of `150 crores, an income of ` 1.50 crores was earned and credited to profit and
loss account. Comment on the above treatment of accountant with reference to
relevant accounting standard.
(b) When capitalization of borrowing cost should cease as per Accounting Standard 16?
Explain in brief.

SUGGESTED ANSWERS/HINTS
1.. Om Ltd.
Balance Sheet as on 31st March, 2020
Particulars Notes Figures at the end of
current reporting period
(`)
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 1,04,89,500
b Reserves and Surplus 2 32,34,000
2 Non-current liabilities
a Long-term borrowings 3 25,45,500
3 Current liabilities
a Trade Payables 21,00,000
b Other current liabilities 4 3,00,000
c Short-term provisions 5 12,25,350
Total 1,98,94,350
Assets
1 Non-current assets
a Property, Plant and Equipment 6 1,12,12,500
b Intangible assets (Patents & Trade
Marks) 6,00,000
2 Current assets
a Inventories 7 26,25,000
b Trade receivables 8 21,00,000
c Cash and cash equivalents 9 29,08,500
d Short-term loans and advances 4,48,350
Total 1,98,94,350
Notes to accounts
`
1 Share Capital
Equity share capital

Issued, subscribed and called up

10,50,000 Equity Shares of ` 10 each 1,05,00,000
(Out of the above 6,30,000 shares
have been issued for consideration
other than cash)
Less: Calls in arrears (10,500) 1,04,89,500
Total 1,04,89,500
2 Reserves and Surplus
Surplus (Profit & Loss A/c) 10,50,000
Total 32,34,000
3 Long-term borrowings
Secured
Term Loans
Loan from State Finance Corporation
(` 15,75,000 less ` 3,00,000)
(Secured by hypothecation of Plant
and Machinery) 12,75,000
Unsecured
Bank Loan 3,00,000
Loan from related parties 1,50,000
Others 8,20,500 12,70,500
Total 25,45,500
4 Other current liabilities
Loan Instalment repayable within one
year 3,00,000
5 Short-term provisions
Provision for taxation 12,25,350
6 Property, Plant and Equipment
Land 21,00,000
Buildings 42,00,000
Less: Depreciation (11,25,000) 30,75,000
Plant & Machinery 73,50,000

Furniture & Fittings 6,56,250

Total 1,12,12,500
7 Inventories
Raw Material 5,25,000
Finished goods 21,00,000
26,25,000
8 Trade receivables
Debts outstanding for a period
exceeding six months 5,70,000
Other Debts 15,30,000
Total 21,00,000
9 Cash and cash equivalents
Cash at bank with Scheduled Banks 25,66,500
including Bank deposits for period of 9
months amounting ` 7,50,000
with others 27,000 25,93,500
Cash in hand 3,15,000
Total 29,08,500
2. Calculation of effective capital and maximum amount of monthly remuneration
(` in lakhs)
Paid up equity share capital 270
Paid up Preference share capital 45
Reserve excluding Revaluation reserve (337.5- 22.5) 315
Securities premium 90
Long term loans 90
Deposits repayable after one year 45
855
Less: Accumulated losses not written off (45)
Investments (405)
Effective capital for the purpose of managerial remuneration 405
Kartik Ltd. is incurring losses and no special resolution has been passed by the company
for payment of remuneration. Effective capital of the company is less than 5 crores,

maximum remuneration payable to the Managing Director should be @

` 60,00,000 per annum. (Revaluation reserve and application money pending allotment
are not included while computing effective capital of Kartik Ltd.)
3. Cash Flow Statement of Light Ltd. for the year ended 31 st March, 2020
Cash flows from operating activities (` ’000) (` ’000)
Cash receipts from customers 24,894
Cash payments to suppliers (18,306)
Cash paid to employees (621)
Other cash payments (for Selling & Administrative expenses) (1,035)
Cash generated from operations 4,932
Income taxes paid (2,187)
Net cash from operating activities 2,745
Cash flows from investing activities
Payments for purchase of fixed asset (2,070)
Proceeds from sale of fixed assets 1,152
Purchase of investments (117)
Sale of investments 153
Net cash used in investing activities (882)
Cash flows from financing activities
Proceeds from issuance of share capital 2,700
Bank loan repaid (2,250)
Interest paid on bank loan (450)
Dividend paid (720)
Net cash used in financing activities (720)
Net increase in cash and cash equivalents 1,143
Cash and cash equivalents at beginning of period 315
Cash and cash equivalents at end of period 1,458
4. Statement showing calculation of profits for pre and post incorporation periods
for the year ended 31.3.2020
Particulars Pre-incorporation Post- incorporation
period period
` `
A. Gross profit (1:3) 1,20,000 3,60,000

Less: Salaries (1:2) 24,000 48,000

Stationery (1:2) 2,400 4,800
Advertisement (1:3) 6,000 18,000
Travelling expenses (W.N.3) 6,000 12,000
Sales promotion expenses (W.N.3) 1,800 5,400
Misc. trade expenses (1:2) 18,900 37,800
Rent (office building) (W.N.2) 12,000 27,600
Electricity charges (1:2) 2,100 4,200
Director’s fee 16,800
Bad debts (1:3) 1,200 3,600
Selling agents commission (1:3) 8,250 24,750
Debenture interest 4,500
Interest paid to vendor (2:1) (W.N.4) 4,200 2,100
Selling expenses (1:3) 9,450 28,350
Depreciation on fixed assets (W.N.5) 4,500 9,900
B. 1,00,800 2,47,800
Pre-incorporation profit (A less B) 19,200
Post-incorporation profit (A less B) 1,12,200
Working Notes:
1. Time Ratio
Pre incorporation period = 1 st April, 2019 to 31st July, 2019 i.e. 4 months
Post incorporation period is 8 months; Time ratio is 1: 2.
2. Rent
`
Rent for pre-incorporation period (` 3,000 x 4) 12,000 (pre)
Rent for post incorporation period
August,2019 & September, 2019 (` 3,000 x 2) 6,000
October,2019 to March,2020 (` 3,600 x 6) 21,600 27,600 (post)
3. Travelling expenses and sales promotion expenses
Pre Post
` `
Traveling expenses ` 18,000 (i.e. ` 25200 -
` 7200) distributed in 1:2 ratio 6,000 12,000

Sales promotion expenses ` 7,200 distributed in

1:3 ratio 1,800 5,400
4. Interest paid to vendor till 30 th September, 2019
Pre Post
` `
Interest for pre-incorporation period ` 6,300x 4/6 4,200
Interest for post incorporation period i.e. for

August, 2019 & September, 2019 = ` 6,300x 2/6 2,100
5. Depreciation
Pre Post
` `
Total depreciation 14,400
Less: Depreciation exclusively for post incorporation period 900 900
13,500
Depreciation for pre-incorporation period (13,500x4/12) 4,500
Depreciation for post incorporation period (13,500x8/12) ____ 9,000
4,500 9,900
5. Journal Entries in the books of Madhu Ltd.
` `
1-4-2020 Equity share final call A/c Dr. 8,10,000
To Equity share capital A/c 8,10,000
(For final calls of ` 2 per share on
4,05,000 equity shares due as per
Board’s Resolution dated….)
20-4-2020 Bank A/c Dr. 8,10,000
To Equity share final call A/c 8,10,000
(For final call money on 4,05,000
equity shares received)
Securities Premium A/c Dr. 1,12,500
Capital redemption reserve A/c Dr. 1,80,000
General Reserve A/c Dr. 5,40,000

Profit and Loss A/c (b.f.) Dr. 1,80,000

To Bonus to shareholders A/c 10,12,500
(For making provision for bonus issue
of one share for every four shares
held)
Bonus to shareholders A/c Dr. 10,12,500
To Equity share capital A/c 10,12,500
(For issue of bonus shares)
Extract of Balance Sheet as at 30 th April, 2020 (after bonus issue)
`
Authorized Capital
45,000 12% Preference shares of ` 10 each 4,50,000
6,00,000 Equity shares of ` 10 each 60,00,000
Issued and subscribed capital
36,000 12% Preference shares of ``10 each, fully paid 3,60,000
5,06,250 Equity shares of ` 10 each, fully paid 50,62,500
(Out of the above, 1,01,250 equity shares @ ` 10 each were issued by
way of bonus shares)
Reserves and surplus
Profit and Loss Account 7,20,000
6. Ex-right value of the shares
= (Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing
No. of shares + No. of right shares) = (` 200 X 5 Shares + ` 125 X 1 Share) /
(5 + 1) Shares = ` 1,125 / 6 shares = ` 187.50 per share.
Value of right = Cum-right value of the share – Ex-right value of the share
= ` 200 – ` 187.50 = ` 12.50 per share.
7. In the books of Hari Limited
Journal Entries
Date Particulars Dr. (`) Cr. (`)
2020
April 1 10% Redeemable Preference Share Capital Dr. 2,25,000
A/c
Premium on Redemption of Preference Dr. 22,500

Shares
To Preference Shareholders A/c 2,47,500
(Being the amount payable on redemption
transferred to Preference Shareholders
Account)
Preference Shareholders A/c Dr. 2,47,500
To Bank A/c 2,47,500
(Being the amount paid on redemption of
preference shares)
General Reserve A/c Dr. 1,50,000
Profit & Loss A/c Dr. 75,000
To Capital Redemption Reserve A/c 2,25,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)_________________
Profit & Loss A/c Dr. 22,500
To Premium on Redemption of 22,500
Preference Shares A/c
(Being premium on redemption charged to
Profit and Loss A/c)
Note: Capital reserve cannot be utilized for transfer to Capital Redemption Reserve.
8.
Number of debentures
Debenture holders opted for conversion (20,000 /100) 200
Option for conversion 20%
Number of debentures to be converted (20% of 200) 40
Redemption value of 40 debentures at a premium of 5%
[40 x (100+5)] ` 4,200
Equity shares of ` 10 each issued on conversion
[` 4,200/ ` 20 ] 210 shares
Calculation of cash to be paid : `
Number of debentures 200
Less: number of debentures to be converted into equity shares (40)
160

Redemption value of 160 debentures (160 × ` 105) ie. ` 16,800.

9. (a) Investment Account in the books of M/s Kumar
for the period from 1st December 2019 to 1st March, 2020
(Scrip: 12% Debentures of Royal Ltd.)
Date Particulars Nominal Interest Cost Date Particulars Nominal Interest Cost
Value (`) Value (`)
(`) (`)
1.12.2019 To Bank A/c 10,00,000 20,000 9,90,000 1.03.2020 By Bank A/c 10,00,000 50,000 10,10,000
(W.N.1) (W.N.2)
1.3.2020 To Profit &
loss A/c 30,000 20,000
10,00,000 50,000 10,10,000 10,00,000 50,000 10,10,000
Working Notes:
(i) Cost of 12% debentures purchased on 1.12.2019 `
Cost Value (10,000 `101) = 10,10,000
Less: Interest (10,000 x 100 x12% x 2/12) = (20,000)
Total = 9,90,000
(ii) Sale proceeds of 12% debentures sold on 1st March, 2020 `
Sales Price (10,000 `106) = 10,60,000
Less: Interest (10,000 x 100 x12% x 5/12) = (50,000)
Total = 10,10,000
(b) As per AS 13, where the investments are acquired on cum-right basis and the market value
of investments immediately after their becoming ex-right is lower than the cost for which
they were acquired, it may be appropriate to apply the sale proceeds of rights to reduce
the carrying amount of such investments to the market value. In this case, the amount of
the ex-right market value of 200 shares bought by X immediately after the declaration of
rights falls to `50,000. In this case, out of sale proceeds of ` 15,000, ` 10,000 may be
applied to reduce the carrying amount to bring it to the market value `50,000 and ` 5,000
would be credited to the profit and loss account.
10. Memorandum Trading Account for the period 1st April, 2020 to 29th August 2020
` `
To Opening Stock 3,95,050 By Sales 22,68,000
To Purchases 16,55,350 By Closing stock (Bal. fig.) 4,41,300

Less: Advertisement (20,500)

Drawings (1,000) 16,33,850
To Gross Profit [30% of
Sales] [W N] 6,80,400
27,09,300 27,09,300
Statement of Insurance Claim

`
Value of stock on date of fire 4,41,300
Less: Salvaged Stock (54,000)
stock destroyed 3,87,300
Application of Average Clause
Amount of Insurance claim= ` 3,87,300/ 4,41,300 X 2,50,000 = ` 2,19,409 (rounded off)
Working Note:
Trading Account for the year ended 31 st March, 2020
` `
To Opening Stock 3,55,250 By Sales 40,00,000
To Purchases 28,39,800 By Closing stock 3,95,050
To Gross Profit 12,00,000
43,95,050 43,95,050
Rate of Gross Profit in 2019-2020
Gross Pr ofit
100 = 12,00,000/40,00,000 x 100 = 30%
Sales
11.
`
(i) Price of two cars = ` 2,00,000 x 2 4,00,000
Less: Depreciation for the first year @ 30% 1,20,000
2,80,000
30
Less: Depreciation for the second year = ` 2, 80,000 x 84,000
100
Agreed value of two cars taken back by the hire vendor 1,96,000
Cash purchase price of one car 2,00,000

Less: Depreciation on ` 2,00,000 @20% for the first year 40,000

Written drown value at the end of first year 1,60,000
Less: Depreciation on ` 1,60,000 @ 20% for the second year 32,000
Book value of car left with the hire purchaser 1,28,000
(ii) Book value of one car as calculated above 1,28,000
Book value of Two cars = ` 1,28,000 x 2 2,56,000
Value at which the two cars were taken back, calculated in (i) 1,96,000
above
Hence, loss to hire purchaser on cars taken back by hire vendor
= ` 2,56,000 – ` 1,96,000 = ` 60,000
12. Calculation of unrealized profit of each department and total unrealized profit
Dept. X Dept. Y Dept. Z Total
` ` ` `
Unrealized Profit of:
Department X 75,000 x 50/150 48,000 x 20/120
= 25,000 = 8,000 33,000
Department Y 50,000 x .25 82,000 x .15
= 12,500 = 12,300 24,800
Department Z 52,000 x 30/130 56,000 x 40/100
= 12,000 = 22,400 34,400
92,200
13. M & S Co. Ltd.
Canberra, Australia Branch Trial Balance
As on 31st March 2020
($ ‘thousands) (` ‘thousands)
Dr. Cr. Conversion Dr. Cr.
rate per $
Plant & Machinery (cost) 200 ` 46 9,200
Plant & Machinery 130 ` 46 5,980
(Accumulated Dep. )
Debtors/Creditors 60 30 ` 53 3,180 1,590

Stock (1.4.2019) 20 ` 50 1,000

Cash & Bank Balances 10 ` 53 530
Purchase / Sales 20 123 ` 51 1,020 6,273
Goods received from H.O. 5 Actual 100
Wages & Salaries 45 ` 51 2,295
Rent 12 ` 51 612
Office expenses 18 ` 51 918
Commission Receipts 100 ` 51 5,100
H.O. Current A/c 7 Actual 120
18,855 19,063
Foreign Exchange Loss (bal.
fig.) 208
390 390 19,063 19,063
14. Trading and Profit and Loss account for the year ending 31st March, 2020
Particulars ` Particulars `
To Opening Stock 40,000 By Sales 4,31,250
To Purchases 3,45,000 By Closing Stock 40,000
To Gross Profit c/d (20% on
sales) 86,250
4,71,250 4,71,250
To Business Expenses 50,000 By Gross Profit b/d 86,250
To Depreciation on:
Machinery 6,500
Building 5,000 11,500
To Net profit 24,750
86,250 86,250
Working Note:
`
(i) Calculation of Rate of Gross Profit earned during previous year
A Sales during previous year 3,00,000
B Purchases 2,40,000

C Cost of Goods Sold (` 40,000 + ` 2,40,000 – ` 40,000) 2,40,000

D Gross Profit (A-C) 60,000
E ` 60,000 20%
Rate of Gross Profit x 100
` 3,00,000
(ii) Calculation of sales during current year `
A Cost of goods sold during previous year 2,40,000
B Add: Increases in volume @ 43.75 % 1,05,000
C Cost of goods sold during Current Year 3,45,000
D Add: Gross profit @ 25% on cost (20% on sales) 86,250
E Sales for current year [C+D] 4,31,250
15. (a) (i) Users of financial statements:
Investors, Employees, Lenders, Supplies/Creditors, Customers, Government &
Public
(ii) Qualitative Characteristics of Financial Statements:
Understandability, Relevance, Comparability, Reliability & Faithful Representation
(iii) Elements of Financial Statements:
Asset, Liability, Equity, Income/Gain and Expense/Loss
(b) Accounting Standards deal with the issues of (i) Recognition of events and
transactions in the financial statements, (ii) Measurement of these transactions and
events, (iii) Presentation of these transactions and events in the financial statements
in a manner that is meaningful and understandable to the reader, and (iv) Disclosure
requirements.
16. (a) Accounting Standard (AS) 1 recognizes three fundamental accounting assumptions.
These are as follows:
(i) Going Concern: The financial statements are normally prepared on the
assumption that an enterprise will continue its operations in the foreseeable
future and neither there is intention, nor there is need to materially curtail the
scale of operations.
(ii) Consistency: The principle of consistency refers to the practice of using same
accounting policies for similar transactions in all accounting periods unless the
change is required (i) by a statute, (ii) by an accounting standard or (iii) for more
appropriate presentation of financial statements.
(iii) Accrual basis of accounting: Under this basis of accounting, transactions are
recognised as soon as they occur, whether or not cash or cash equivalent is
actually received or paid.

(b) Net Realizable Value of the Chemical Y (Finished Goods) is ` 600 per unit which is
less than its cost ` 656 per unit. Hence, Raw Material is to be valued at replacement
cost and Finished Goods are to be valued at NRV since NRV is less than the cost.
Value of Closing Stock:
Qty. Rate (`) Amount (`)
Raw Material X 1,000 320 3,20,000
Finished Goods Y 2,400 600 14,40,000
Total Value of Closing Stock 17,60,000
Working Note:
Statement showing cost calculation of Raw material X and Chemical Y
Raw Material X `
Cost Price 400
Add: Freight Inward 40
Cost 440
Chemical Y `
Materials consumed 440
Direct Labour 120
Variable overheads 80
Fixed overheads (`4,00,000/25,000 units) 16
Cost 656
17. Calculation of Cost of Machinery
Particulars `
Purchase Price Given 1,58,00,000
Add: Site Preparation Cost Given 1,40,000
Technician’s Salary Specific/Attributable overheads for 3 1,35,000
months (45,000 x3)
Initial Delivery Cost Transportation 50,000
Professional Fees for Architect’s Fees 30,000
Installation
Total Cost of Asset 1,61,55,000
18. (a)
Share capital Non-monetary
Trade receivables Monetary
Investment in equity shares Non-monetary
Fixed assets Non-monetary

(b) As per AS 11 on ‘The Effects of Changes in Foreign Exchange Rates’, all foreign
currency transactions should be recorded by applying the exchange rate on the date
of transactions. Thus, goods purchased on 1.1.2019 and corresponding creditors
would be recorded at ` 11,25,000 (i.e. $15,000 × ` 75)
According to the standard, at the balance sheet date all monetary transactions should
be reported using the closing rate. Thus, creditors of US $15,000 on 31.3.201 9 will
be reported at ` 11,10,000 (i.e. $15,000 × ` 74) and exchange profit of ` 15,000 (i.e.
11,25,000 – 11,10,000) should be credited to Profit and Loss account in the year
2018-19.
On 7.7.2019, creditors of $15,000 is paid at the rate of ` 73. As per AS 11, exchange
difference on settlement of the account should also be transferred to Profit and Loss
account. Therefore, ` 15,000 (i.e. 11,10,000 – 10,95,000) will be credited to Profit
and Loss account in the year 2019-20.
19. (a) (i) ` 35 lakhs received from the local authority for providing medical facilities to the
employees is a grant received in the nature of revenue grant. Such grants are
generally presented as a credit in the profit and loss statement, either separately
or under a general heading such as ‘Other Income’. Alternatively, ` 35 lakhs
may be deducted in reporting the related expense i.e. employee benefit
expenses.
(ii ) As per AS 12 ‘Accounting for Government Grants’, where the government grants
are in the nature of promoters’ contribution, i.e. they are given with reference to
the total investment in an undertaking or by way of contribution towards its total
capital outlay and no repayment is ordinarily expected in respect thereof, the
grants are treated as capital reserve which can be neither distributed as dividend
nor considered as deferred income. In the given case, the subsidy
received from the Central Government for setting up a unit in notified backward
area is neither in relation to specific fixed asset nor in relation to revenue. Thus,
amount of ` 100 lakhs should be credited to capital reserve.
(b) A limited invested ` 600 lakhs in the equity shares of B Ltd. Out of the same, the
company intends to hold 50% shares for long term period i.e. ` 300 lakhs and remaining
as temporary (current) investment i.e. ` 300 lakhs. Irrespective of the fact that
investment has been held by A Limited only for 3 months (from 1.1.2020 to 31.3.2020),
AS 13 lays emphasis on intention of the investor to classify the investment as current
or long term even though the long-term investment may be readily marketable.
In the given situation, the realizable value of all such investments on 31.3.2020 became
` 200 lakhs i.e. ` 100 lakhs in respect of current investment and ` 100 lakhs in respect
of long-term investment.
As per AS 13, ‘Accounting for Investment’, the carrying amount for current investments
is the lower of cost and fair value. In respect of current investments for which an active
market exists, market value generally provides the best evidence of fair value.

Accordingly, the carrying value of investment held as temporary investment should be

shown at realizable value i.e. at ` 100 lakhs. The reduction of ` 200 lakhs in the
carrying value of current investment will be charged in the profit and loss account.
Standard further states that long-term investments are usually carried at cost. However,
when there is a decline, other than temporary, in the value of long-term investment, the
carrying amount is reduced to recognize the decline.
Here, B Limited has lost a case of copyright which drastically reduced the realizable
value of its shares to one third which is quiet a substantial figure. Losing the case of
copyright may affect the business and the performance of the company in long run.
Accordingly, it will be appropriate to reduce the carrying amount of long-term investment
by ` 200 lakhs and show the investments at ` 100 lakhs as the downfall in the value of
shares is not temporary. The reduction of ` 200 lakhs in the carrying value of long-term
investment will be charged to the profit and loss account.
20. (a) Para 10 of AS 16 ‘Borrowing Costs’ states that to the extent the funds are borrowed
specifically for the purpose of obtaining a qualifying asset, the amount of borrowing
costs eligible for capitalization on that asset should be determined as the actual
borrowing costs incurred on that borrowing during the period less any income on the
temporary investment of those borrowings. The capitalization rate should be the
weighted average of the borrowing costs applicable to the borrowings of the
enterprise that are outstanding during the period, other than borrowings made
specifically for the purpose of obtaining a qualifying asset. Hence, in the above case,
treatment of accountant of Vital Ltd. is incorrect. The amount of borrowing costs
capitalized for the financial year 2019-20 should be calculated as follows:
Actual interest for 2019-20 (10% of ` 150 crores) ` 15.00 crores
Less: Income on temporary investment from specific
borrowings (` 1.50 crores)
Borrowing costs to be capitalized during year 2019-2020 ` 13.50 crores
(b) Capitalization of borrowing costs should cease when substantially all the activities
necessary to prepare the qualifying asset for its intended use or sale are complete.
An asset is normally ready for its intended use or sale when its physical construction
or production is complete even though routine administrative work might still continue.
If minor modifications such as the decoration of a property to the user’s specification,
are all that are outstanding, this indicates that substantially all the activities are
complete. When the construction of a qualifying asset is completed in parts and a
completed part is capable of being used while construction continues for the other
parts, capitalization of borrowing costs in relation to a part should cease when
substantially all the activities necessary to prepare that part for its intended use or
sale are complete.

PAPER – 2: CORPORATE AND OTHER LAWS
PART I: ANNOUNCEMENTS STATING APPLICABILITY FOR NOVEMBER, 2020

EXAMINATIONS
Applicability for November, 2020 examinations
The Study Material (July 2019 edition) is applicable for November, 2020 examinations. This
study material is updated for all amendments till 30 th April, 2019. Further, all relevant
amendments/ circulars/ notifications etc. in the Company law part and the Other Laws portion,
for the period 1st May 2019 to 30 th April, 2020 are mentioned below:
PART I- COMPANY LAW
THE COMPANIES ACT, 2013
I. Chapter 2: Incorporation of Company and Matters Incidental thereto
Amendments related to - Notification G.S.R. 357(E) dated 10 th May, 2019
The Central Government has amended the Companies (Incorporation) Rules, 2014, by the
Companies (Incorporation) Fifth Amendment Rules, 2019.
In the Companies (Incorporation) Rules, 2014, Rule 8 has been fully substituted by Rule
8, Rule 8A and Rule 8B.
[Note: On page 2.19 of the Study Material, under the heading of Undesirable names, ‘the
words and combinations thereof which shall not be used in the name of a company
depicting the same meaning unless the previous approval of the Central Government has
been obtained for the use of any such word or expression’, were earlier covered under
Rule 8. As per the amendment now they are dealt in with Rule 8B.]
II. Chapter 3: Prospectus and Allotment of Securities
Amendments related to - Companies (Amendment) Act, 2019
Following sections of the Companies Act, 2013 have been amended by the Companies
(Amendment) Act, 2019 through Notification No. S.O. 2947(E) dated 14 th August, 2019 [the
sections contained therein shall deemed to have come into force on 15 th August, 2019]
1. In section 26-
(i) in sub-sections (4), (5) and (6), for the word “registration”, the word “filing” shall
be substituted;
(ii) sub-section (7) shall be omitted
[Amendment to be incorporated on Pg. 3.7 and 3.8 of SM]
2. In section 29-
(i) in sub-section (1), in clause (b), the word “public” shall be omitted;
(ii) after sub-section (1), the following sub-section shall be inserted, namely:-

PAPER – 2: CORPORATE AND OTHER LAWS 35
“(1A) In case of such class or classes of unlisted companies as may be prescribed,

the securities shall be held or transferred only in dematerialised form in the manner
laid down in the Depositories Act, 1996 and the regulations made thereunder.”.
[Amendment to be incorporated on Pg. 3.9 of SM]
3. In section 35, in sub-section (2), in clause (c), for the words “delivery of a copy of the
prospectus for registration”, the words “filing of a copy of the prospectus with the
Registrar” shall be substituted.
III. Chapter 4: Share Capital and Debentures
Amendments related to - Notification G.S.R. 574(E) dated 16 th August, 2019
The Central Government has amended the Companies (Share Capital and Debentures)
Rules, 2014, by the Companies (Share Capital and Debentures) Amendment Rules, 2019.
In the Companies (Share Capital and Debentures) Rules, 2014:
1. In Rule 4, in sub-rule (1),
(i) for clause (c), the following clause shall be substituted, namely:-
“(c) the voting power in respect of shares with differential rights of the company shall
not exceed seventy four per cent. of total voting power including voting power in
respect of equity shares with differential rights issued at any point of time;”;
(ii) clause (d) shall be omitted.
[Enforcement Date: 16 th August, 2019]
2. In the principal rules, in rule 18, for sub-rule (7), the following sub-rule shall be
substituted, namely:-
“(7) The company shall comply with the requirements with regard to Debenture
Redemption Reserve (DRR) and investment or deposit of sum in respect of
debentures maturing during the year ending on the 31st day of March of next year, in
accordance with the conditions given below:-
(a) Debenture Redemption Reserve shall be created out of profits of the company
available for payment of dividend;
(b) the limits with respect to adequacy of Debenture Redemption Reserve and
investment or deposits, as the case may be, shall be as under;-
(i) Debenture Redemption Reserve is not required for debentures issued by
All India Financial Institutions regulated by Reserve Bank of India and
Banking Companies for both public as well as privately placed debentures;
(ii) For other Financial Institutions within the meaning of clause (72) of section
2 of the Companies Act, 2013, Debenture Redemption Reserve shall be as

applicable to Non –Banking Finance Companies registered with Reserve

Bank of India.
(iii) For listed companies (other than All India Financial Institutions and
Banking Companies as specified in sub-clause (i)), Debenture Redemption
Reserve is not required in the following cases-
(A) in case of public issue of debentures –
A. for NBFCs registered with Reserve Bank of India under section
45-IA of the RBI Act, 1934 and for Housing Finance Companies
registered with National Housing Bank;
B. for other listed companies;
(B) in case of privately placed debentures, for companies specified in
sub-items A and B.
(iv) for unlisted companies, (other than All India Financial Institutions and
Banking Companies as specified in sub-clause (i)) –
(A) for NBFCs registered with RBI under section 45-IA of the Reserve
Bank of India Act, 1934 and for Housing Finance Companies
registered with National Housing Bank, Debenture Redemption
Reserve is not required in case of privately placed debentures.
(B) for other unlisted companies, the adequacy of Debenture Redemption
Reserve shall be ten percent. of the value of the outstanding debentures;
(v) In case a company is covered in item (A) or item (B) of sub-clause (iii) of
clause (b) or item (B) of sub-clause (iv) of clause (b), it shall on or before
the 30th day of April in each year, in respect of debentures issued by a
company covered in item (A) or item (B) of subclause (iii) of clause (b) or
item (B) of sub-clause (iv) of clause (b), invest or deposit, as the case may
be, a sum which shall not be less than fifteen per cent., of the amount of
its debentures maturing during the year, ending on the 31st day of March
of the next year in any one or more methods of investments or deposits as
provided in sub-clause (vi):
Provided that the amount remaining invested or deposited, as the case may
be, shall not at any time fall below fifteen percent. of the amount of the
debentures maturing during the year ending on 31st day of March of that year.
(vi) for the purpose of sub-clause (v), the methods of deposits or investments,
as the case may be, are as follows:—
(A) in deposits with any scheduled bank, free from any charge or lien;
(B) in unencumbered securities of the Central Government or any State
Government;

(C) in unencumbered securities mentioned in sub-clause (a) to (d) and

(ee) of section 20 of the Indian Trusts Act, 1882;
(D) in unencumbered bonds issued by any other company which is notified
under sub-clause (f) of section 20 of the Indian Trusts Act, 1882:
Provided that the amount invested or deposited as above shall not be used
for any purpose other than for redemption of debentures maturing during
the year referred above.
(c) in case of partly convertible debentures, Debenture Redemption Reserve shall
be created in respect of non-convertible portion of debenture issue in
accordance with this sub-rule.
(d) the amount credited to Debenture Redemption Reserve shall not be utilized by
the company except for the purpose of redemption of debentures.“
[Enforcement Date: 16 th August, 2019]
IV. Chapter 7: Management and Administration
Amendments related to - Companies (Amendment) Act, 2019
Following sections of the Companies Act, 2013 have been amended by the Companies
(Amendment) Act, 2019 through Notification No. S.O. 2947(E) dated 14 th August, 2019 [the
sections contained therein shall deemed to have come into force on 15 th August, 2019]
In section 90,
(i) after sub-section (4), the following sub-section shall be inserted, namely:-
“(4A) Every company shall take necessary steps to identify an individual who is a
significant beneficial owner in relation to the company and require him to comply with
the provisions of this section.”;
(ii) after sub-section (9), as so substituted, the following sub-section shall be inserted, namely:
“(9A) The Central Government may make rules for the purposes of this section.”
(iii) in sub-section (11), after the word, brackets and figure “sub-section (4)”, the words,
brackets, figure and letter “or required to take necessary steps under sub-section
(4A)” shall be inserted.
V. Chapter 9: Accounts of Companies
(A) Amendments related to - Notification G.S.R. 390(E) dated 30 th May, 2019
The Central Government has amended the Schedule VII of the Companies Act, 2013.

In the said Schedule VII, after item (xi) and the entries relating thereto, the following
item and entries shall be inserted, namely:
“(xii) disaster management, including relief, rehabilitation and reconstruction
activities.”
[Enforcement Date: 30 th May, 2019]
(B) Amendments related to - Notification G.S.R. 776(E) dated 11 th October, 2019
In the said Schedule VII, for item (ix) and the entries relating thereto, the following
item and entries shall be substituted, namely:
“(ix) Contribution to incubators funded by Central Government or State Government
or any agency or Public Sector Undertaking of Central Government or State
Government, and contributions to public funded Universities, Indian Institute of
Technology (IITs), National Laboratories and Autonomous Bodies (established under
the auspices of Indian Council of Agricultural Research (ICAR), Indian Council of
Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR),
Department of Atomic Energy (DAE), Defence Research and Development
Organisation (DRDO), Department of Biotechnology (DBT), Department of Science
and Technology (DST), Ministry of Electronics and Information Technology) engaged
in conducting research in science, technology, engineering and medicine aimed at
promoting Sustainable Development Goals (SDGs).”
[Enforcement Date: 11 th October, 2019]
(C) Amendments related to - Companies (Amendment) Act, 2019
Following sections of the Companies Act, 2013 have been amended by the
Companies (Amendment) Act, 2019 through Notification No. S.O. 2947(E) dated 14 th
August, 2019 [the sections contained therein shall deemed to have come into force
on 15th August, 2019]
In section 132—
(i) after sub-section (1), the following sub-section shall be inserted, namely:—
“(1A) The National Financial Reporting Authority shall perform its functions
through such divisions as may be prescribed.”
(ii) after sub-section (3), the following sub-sections shall be inserted, namely:—
“(3A) Each division of the National Financial Reporting Authority shall be
presided over by the Chairperson or a full-time Member authorised by the
Chairperson.

(3B) There shall be an executive body of the National Financial Reporting

Authority consisting of the Chairperson and full-time Members of such Authority
for efficient discharge of its functions under sub-section (2) [other than clause
(a)] and sub-section (4).”;
(iii) in sub-section (4), in clause (c), for sub-clause (B), the following sub-clause shall
be substituted, namely:—
“(B) debarring the member or the firm from—
I. being appointed as an auditor or internal auditor or undertaking any audit
in respect of financial statements or internal audit of the functions and
activities of any company or body corporate; or
II. performing any valuation as provided under section 247,
for a minimum period of six months or such higher period not exceeding ten
years as may be determined by the National Financial Reporting Authority.”.
(D) Amendments related to - Notification G.S.R. 636(E) 5 th September, 2019
The Central Government has amended the National Financial Reporting Authority
Rules, 2018, by the National Financial Reporting Authority (Amendment) Rules, 2019.
In the National Financial Reporting Authority Rules, 2018, after clause (c) of sub -rule
(1) of rule 3, the following explanation shall be inserted, namely:-
“Explanation.- For the purpose of this clause, “banking company” includes
‘corresponding new bank’ as defined in clause (d) of section 2 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and
clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980) and ‘subsidiary bank’ as defined in clause (k)
of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959).”.
[Enforcement Date: 5 th September, 2019]
(E) Amendments related to - Notification G.S.R. 803 (E) dated 22 nd October, 2019 w.e.f.
1st December , 2019
The Central Government has amended the Companies (Accounts) Rules, 2014, by
the Companies (Accounts) Amendment Rules, 2019.
In the Companies (Accounts) Rules, 2014, in rule 8, in sub-rule (5), after clause (iii),
the following clause shall be inserted namely:—
“(iiia) a statement regarding opinion of the Board with regard to integrity, expertise
and experience (including the proficiency) of the independent directors appointed
during the year”.

Explanation.—For the purposes of this clause, the expression “proficiency” means the
proficiency of the independent director as ascertained from the online proficiency self-
assessment test conducted by the institute notified under sub-section (1) of section 150.
(F) Amendments related to - Notification G.S.R. 313(E).—dated 26th May, 2020
In Schedule VII, item (viii), after the words “Prime Minister’s National Relief Fund”,
the words “or Prime Minister’s Citizen Assistance and Relief in Emergency Situations
Fund (PM CARES Fund)” shall be inserted.
[Enforcement Date: 28 th March, 2020]
PART II- OTHER LAWS
[I] THE INDIAN CONTRACT ACT, 1872
Amendment via the Jammu and Kashmir Reorganisation Act, 2019, dated 9 th August, 2019. The
amendment is effective with effect from 31 st October, 2019.
As per the Jammu and Kashmir Reorganisation Act, 2019, in the Indian Contract Act, 1872, in
sub-section (2) of section 1, words, "except the State of Jammu and Kashmir" shall be omitted.
Now, Section 1 will be read as under,
‘Short title- This Act may be called the Indian Contract Act, 1872.
Extent, Commencement- It extends to the whole of India and it shall come into force on the
first day of September, 1872.
Saving- Nothing herein contained shall affect the provisions of any Statute, Act or Regulation
not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any
contract, not inconsistent with the provisions of this Act.’
[II] THE GENERAL CLAUSES ACT, 1897
Amendment via the Jammu and Kashmir Reorganisation Act, 2019, dated 9 th August, 2019. The
amendment is effective with effect from 31st October, 2019.
As per the Jammu and Kashmir Reorganisation Act, 2019, the General Clauses Act, 1897 has
been extended as a whole.
# Here, SM means Study Material (i.e. Page number of the Study material in reference to
relevant provisions)

PART II: QUESTIONS AND ANSWERS
QUESTIONS
Division A: Case Scenario/ Multiple Choice Questions

1. Mr. B R Mohanty, around two-decade back; along with two of his elder brothers and few
friends, who are pharma and chemical engineers by profession promoted two companies;
first being Well-Mount Limited (WML) dealing in wellness products and pharmaceuticals;
whereas other is Tex-Mount Limited (TML) dealing in textile products. During these two
decades, both WML and TML has grown magnificently as both the sectors expanded
beyond imagination. Both companies went public and stock of same listed on leading stock
exchanges of countries.
TML did well in the past and emerged as a major export unit but in recent years the textile
sector witness stiff competition due to new entrants. The increased cost of the workforce
and other input materials is also made sector unprofitable and recent lockdown hit the
sector further adversely. TML’s bottom line for the current financial year is red. TML was
declaring dividends since the very first year of operation and willing to continue the tradition
considering dividend as signalling effect to an investor for valuation purpose. Rate of
dividend for the recent five years was 9%, 10%, 8%, 5% and 2% (9% being five years ago
and 2% being the previous year) respectively. The management at TML decided to declare
dividends out of the profit of previous years. TML deals in export hence came under the
scanner of enforcement authority, who seek financial statements and books of accounts of
TML for scrutiny for the last 10 preceding financial years. In response to notice , TML furnish
financial statements and books of accounts for last 8 immediately preceding financial years
only, stating as per its Article of Association; TML is required to maintain and keep the
books of accounts for 8 immediately preceding financial years only and that too w ithout
any record of vouchers pertaining to such accounts.
WML is doing well, it seizes outbreak of COVID-19 as a business opportunity and registers
significant growth in both top and bottom line. For the past many years, WML declare a
dividend at a constant rate of 20%. During the financial year 2019-20, WML earns a profit
of 580 Crores. Board of directors of WML declares 25% dividend without transferring any
% to reserve on 15th June, 2020. On 14 th July, 2020 some of the amount remaining unpaid,
due to operation of law; has been transferred to unpaid dividend account on 20 th July,
2020. CA. Dev was appointed as auditor under section 139 of Companies Act, 2013 of
WML in individual capacity during 17 th AGM for against the financial year 2018-19.
A. In case of TML, which of the following statements are correct regarding the
declaration of dividend?
(i) TML can’t declare the dividend because it earns a loss in the current financial
year.

(ii) TML can declare the dividend but only up to 9%

(iii) TML can declare the dividend but only up to 5%
(iv) TML can declare the dividend but only up to 6.8%
B. CA. Dev, who is the auditor of WML have to vacate the office of the auditor in and
can be reappointed again only in
(i) 22nd AGM and 27 th AGM
(ii) 27th AGM and 32 nd AGM
(iii) 22nd AGM and 23 rd AGM
(iv) 22nd AGM and can’t be re-appointed again.
C. In case of WML, which of the following statements is correct regarding the declaration
of dividend?
(i) WML can’t declare the dividend at a rate more than 20%
(ii) WML can declare the dividend out current year’s profit but it needs to transfer
sum equal to 20% to reserve first.
(iii) WML can declare the dividend out current year’s profit but it needs to transfer
sum equal to 10% of paid-up share capital to reserve first.
(iv) WML can declare the dividend out of current years’ profit without transferring
any % to reserve.
D. In case of TML, regarding maintenance and keeping the books of account; which of
the following statements hold truth?
(i) TML needs to maintain and keep the books of account for 10 preceding financial
years, hence TML violate the law.
(ii) TML doesn’t violate the provision of law because it keeps the books of account
for 8 immediate preceding financial years.
(iii) TML violate the provision of law because it keeps the books of account for 8
immediately preceding financial years without keeping relevant vouchers in the
record pertaining to such books of account.
(iv) TML doesn’t violate the provision of law because it is complying to its Article of
Association.
E. Regarding declaration and distribution of dividend by WML, which of the following
statements is correct from the view of the timeline?
(i) WML violates the law, because some of the dividend remain unpaid; irrespective
of reason for non-payment

(ii) WML violates the law, because unpaid dividend need to transfer to unpaid
dividend account by 19th July 2020.
(iii) WML doesn’t violate the law, because an unpaid dividend transferred to unpaid
dividend account prior to 21 st July 2020.
(iv) WML doesn’t violate the law, because an unpaid dividend can be transferred to
unpaid dividend account at any time within 90 days from the date of declaration.
2. Mr. Purshottam Prasad, a business graduate from leading B-School, running the chain of
restaurants; as sole proprietor concern; based in Chennai. Mr. Prasad being dynamic
businessman, in order to develop the business; decided to give corporate form to his
business; but concerned with dilution of the control over business decisions.
Mr. Prasad, during some journey met Mr. Chinmay Dass; who is school days friend of Mr.
Prasad and presently working in one of leading corporate advisory firm. Mr. Prasad seeks
advice from Mr. Dass, regarding conversion of sole proprietorship concern to company and
also explain his intention to keep the entire control in his hand. Mr. Dass told, about new
type of company; which can be formed under Companies Act, 2013; One Person Company
(OPC). Mr. Dass quoted section 2 (62), which define 'one person company' , a company
which has only one person as a member.
Mr. Prasad, felt OPC is correct form of business for him, hence promotes an OPC ‘Casa
Hangout Private Limited’ (One Person Company) on 14 th September 2019, to which he
sold his sole proprietor business and himself became sole member. Mr. Prasad, appointed
his younger son Mr. Vijay, who was 21 year old then; as Nominee to OPC. Mr. Anand who
is old friend of Mr. Prasad was appointed as director of OPC, Mr. Prasad himself also
become director of company.
Mr. Vijay is professional photographer, and for some certification course went to abroad
on 23rd October 2019. He came back on 1 st of March 2020. He established photo-studio in
form of OPC ‘Best Click (OPC) Private Limited’ on 20 th March 2020, in which Mr. Prasad
is nominee and he became sole member. In mean time, Mr. Vijay also gave his consent
as nominee to another OPC in which his elder brother Mr. Shankar is sole member.
Mr. Prasad met an accident on 25 th March, 2020, in which he lost his life. Nomination
clause invoked, resultantly Mr. Vijay has to take charge over ‘Casa Hangout (OPC) Private
Limited’ (One Person Company) as member with immediate effect. On 30 th March, 2020
Mr. Shankar was appointed as new nominee to ‘Casa Hangout (OPC) Private Limited’, who
gave written consent on 31 st March 2020. Mr. Shankar who is investment banker by
profession, is of opinion that ‘Casa Hangout (OPC) Private Limited’ need to amend its
object clause and add ‘carry out investment in securities of body corporate’ as one of
object.
Financial Period closed on 31 st March 2020. Financial statements of ‘Casa Hangout (OPC)
Private Limited’, which is not containing cash flow statement; signed by Mr. Anand (who
left as only director after death of Mr. Prasad).

A. With reference to appointment of Mr. Vijay and Mr. Shankar as nominee to ‘Casa
Hangout (OPC) Private Limited’, out of followings, who is eligible to be nominee of
OPC?
(i) Any natural person excluding minor
(ii) Any legal person excluding minor
(iii) Any natural person, who is resident of India; but excluding minor
(iv) Any natural person, who is resident as well as citizen of India; but excluding
minor
B. Mr. Shankar if wish to withdraw his consent as nominee, can do so; by giving written
notice to
(i) Director of OPC and to sole member of company
(ii) Director of OPC and to Registrar of companies
(iii) Sole member of company and to OPC
(iv) Sole member of company and to Registrar of companies
C. With reference to legal position of Mr. Vijay as member/s and nominee/s to various
OPCs, Which of the following statement is correct in reference to ceiling limit in
relation to membership and being nominee to OPC? A person, other than minor; at
specific point of time;
(i) Can be member in any number of OPCs but nominee in one OPC
(ii) Can be member in one OPC and nominee in any number of OPCs
(iii) Can be member in one OPC and nominee in another one OPCs
(iv) Can be member and nominee both in any number of OPCs
D. Which of following statement is correct, in reference to requirement for financial
Statements of ‘Casa Hangout (OPC) Private Limited’
(i) Must be signed by one director
(ii) Must be signed by at-least by two directors
(iii) Must contain cash flow statement as part of financial statements
(iv) None of the above
E. With reference to opinion of Mr. Shankar to add ‘carry out investment in securities of
body corporate’ object, ‘Casa Hangout (OPC) Private Limited’
(i) Can’t carry out non-banking financial investment activities & investment in
securities of body corporate
(ii) Can’t carry out non-banking financial investment, but can invest in securities of
body corporate’

(iii) Can carry-out non-banking financial investment & invest in securities of body
corporate’
(iv) None of the above
3. A is residing in Delhi and has a house in Mumbai. A appoints B by a power of attorney to
take care of his house. State the nature of agency created between A and B:
(a) Implied agency
(b) Agency by ratification
(c) Agency by necessity
(d) Express agency
4. One Person Company shall file a copy of the duly adopted financial statements to the
Registrar in:
(a) 30 days of the date of meeting in which it was adopted
(b) 90 days of the date of meeting in which it was adopted
(c) 90 days from the closure of the financial statement
(d) 180 days from the closure of the financial statement
5. A guarantee which extend to a series of transactions is called
(a) Special Guarantee
(b) Continuing Guarantee
(c) Specific Guarantee
(d) None of the above
6. An aid that expresses the scope, object and purpose of the Act—
(a) Title of the Act
(b) Heading of the Chapter
(c) Preamble
(d) Definitional sections
7. Roma along with her six friends has got incorporated Roma Trading Ltd. in May 2019. She
kept the paid-up share capital at ` 30 lacs. Further, in April 2020, she noticed that in the
last financial year, the turnover of the company was well below ` 2 crores. Advise whether
the company can be treated as a ‘small company’.
(a) Roma Trading Ltd. is definitely a ‘small company’ since its paid-up capital is much
below ` 50 lacs and also its turnover has not exceeded the threshold limit of ` 2
crores.

(b) The concept of ‘small company’ is applicable only in case of a private limited
company/OPC and therefore, despite meeting the criteria of ‘small company’ it being
a public limited company cannot enjoy benefits of ‘small company’.
(c) Unlike a private limited company/OPC which automatically becomes a ‘small
company’ as soon as it meets the criteria of ‘small company’, Roma Trading Ltd. being
a public limited company has to maintain the norms applicable to a ‘small company’
continuously for two years so that, thereafter, it is treated as a ‘small company’.
(d) If all the shareholders of Roma Trading Ltd. give an undertaking to th e ROC stating
that they will not let the paid share capital and also turnover exceed the limits
applicable to a ‘small company’ in the next two years, then it can be treated as a
‘small company’.
8. Red Flag Ltd., which has its registered office at Delhi and having 12500 members is holding
its Annual General Meeting in Ashoka Hotel. Despite swanky arrangements most of the
members did not turn up and quorum was not present within half an hour of the schedule
time of the meeting, as a result meeting was adjourned. However, due to heavy booking
schedule, hotel authorities could not make available, for adjourned meeting, sufficient
space in the same hall where meeting was originally called but allowed conduct of meeting
in a different hall on a different floor next week at same time. Please advise the option
available to board:
(a) The meeting stands adjourned automatically to the same place and time next week
as per provisions of law. There is no alternate but to hold meeting in the same hall,
(b) As same banquet hall is not available meeting can be held at different place as may
be decided appropriate by the Board,
(c) As the same hall is not available to conduct meeting after one week, a fresh notice of
21 days is needed for a different location,
(d) As the same hall is not available to conduct the meeting, the company needs to
conduct meeting electronically through internet and give sufficient notice to
shareholders,
9. Shreyas Mechanics Limited owns a plot of land which was purchased long before. As the
property rates are going up, it is decided to revalue the plot at fair value which is moderately
ten times the original price, thus resulting in a revaluation profit of ` 20,00,000. The Board
of Directors is keen to utilize ` 20,00,000 along with free reserves of ` 24,00,000 for
declaration of dividend at the forthcoming Annual General Meeting (AGM) to be held on
28th September, 2019. Advise the company.
(a) ` 20,00,000 are to be excluded from the distributable profits as the same cannot be
utilized towards declaration of dividend.
(b) Only 25% of ` 20,00,000 can be utilized as distributable profits towards declaration
of dividend.

(c) Up to 50% of ` 20,00,000 can be utilized as distributable profits towards declaration

of dividend.
(d) Up to 60% of ` 20,00,000 can be utilized as distributable profits towards declaration
of dividend.
Division B: Descriptive questions
The Companies Act, 2013
1. Vijay, a member of Mayur Electricals Ltd. gave in writing to the company that the notice for
any general meeting be sent to him only by registered post at his residential address at
Kanpur for which he deposited sufficient money. The company sent notice to him by
ordinary mail under certificate of posting. Vijay did not receive this notice and could not
attend the meeting and contended that the notice was improper.
Decide:
(i) Whether the contention of Vijay is valid.
(ii) Will your answer be the same if Vijay remains in London for two months during the
notice of the meeting and the meeting held?
2. Shekhar Limited appointed an individual firm, Suresh & Company, Chartered Accountants,
as Auditors of the company at the Annual General Meeting held on 30 th September, 2019.
Mrs. Kamala, wife of Mr. Suresh, invested in the equity shares having face value of ` 1
lakh of Shekhar Limited on 15 th October, 2019. But Suresh & Company continues to
function as statutory auditors of the company. Advice.
3. The Board of Directors of Ramesh Ltd. proposes to issue the prospectus inviting offers
from the public for subscribing the shares of the Company. State the reports which shall
be included in the prospectus for the purposes of providing financial information under t he
provisions of the Companies Act, 2013.
4. Surya Ltd. is engaged in the manufacture of consumer goods and has got a good brand
value. Over the years, it has built a good reputation and its Balance Sheet as at March 31,
2019 shows the following position:
Authorized Share Capital (25,00,000 equity shares of face value of ` 10/- each)
` 2,50,00,000
Issued, subscribed and paid-up capital (10,00,000 equity shares of face value of `10/-
each, fully paid-up) ` 1,00,00,000
Free Reserves ` 3,00,00,000
The Board of Directors are proposing to declare a bonus issue of 1 share for every 2 shares
held by the existing shareholders. The Board wants to know the conditions and the manner
of issuing bonus shares under the provisions of the Companies Act, 2013. Discuss.
5. State, with reasons, whether the following statements are true or false?

(i) XYZ Private Limited may accept the deposits from its members to the extent of `
60.00 Lakh, if the aggregate of its paid-up capital, free reserves and security premium
account is ` 60.00 Lakh.
(ii) A Government Company, which is eligible to accept deposits under Section 76 of the
Companies Act, 2013 cannot accept deposits from public exceeding 25% of the
aggregate of its paid- up capital, free reserves and security premium account.
6. What are the powers of Registrar to make entries of satisfaction and release of charges in
the absence of any intimation from the company. Discuss this matter in the light of
provisions of the Companies Act, 2013.
7. Chetan Ltd. issued a notice for holding its Annual general meeting on 7 th November 2019.
The notice was posted to the members on 16 th October 2019. Some members of the
company allege that the company had not complied with the provisions of the Companies
Act, 2013 with regard to the period of notice and as such the meeting was valid. Referring
to the provisions of the Act, decide:
(i) Whether the meeting has been validly called?
(ii) If there is a shortfall, state and explain by how many days does the notice fall short
of the statutory requirement?
(iii) Can the delay in giving notice be condoned?
Other Laws
8. Sandeep guarantees for Gaurav, a retail textile merchant, for an amount of ` 1,00,000, for
which Sharma, the supplier may from time to time supply goods on credit basis to Gaurav
during the next 3 months.
After 1 month, Sandeep revokes the guarantee, when Sharma had supplied goods on
credit for ` 40,000. Referring to the provisions of the Indian Contract Act, 1872, decide
whether Sandeep is discharged from all the liabilities to Sharma for any subsequent credit
supply. What would be your answer in case Gaurav makes default in paying back Sharma
for the goods already supplied on credit i.e. ` 40,000?
9. Raj gives his umbrella to Manoj during raining season to be used for two days during
Examinations. Manoj keeps the umbrella for a week. While going to Raj’s house to return
the umbrella, Manoj accidently slips and the umbrella is badly damaged. Taking into
account the provisions of the Indian Contract Act, 1872, who will bear the loss and why?
10. Rahul drew a cheque in favour of Aman. After having issued the cheque; Rahul requested
Aman not to present the cheque for payment and gave a stop payment request to the bank
in respect of the cheque issued to Aman. Decide, under the provisions of the Negotiable
Instruments Act, 1881 whether the said acts of Rahul constitute an offence?
11. Referring to the provisions of the General Clauses Act, 1897, find out the day/ date on
which the following Act/Regulation comes into force. Give reasons also.

(1) An Act of Parliament which has not specifically mentioned a particular date.
(2) The Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) (Fifth Amendment) Regulations, 2015 was issued by SEBI vide
Notification dated 14 th August, 2015 with effect from 1 st January, 2016.
12. ‘Preamble does not over-ride the plain provision of the Act.' Comment. Also give suitable
example.
SUGGESTED ANSWERS/HINTS
Division A –Answers to Case Scenario/ Multiple Choice Question

1. A. (iii)
B. (i)
C. (iv)
D. (iii)
E. (iii)
2. A. (iv)
B. (iii)
C. (iii)
D. (i)
E. (i)
3. (d)
4. (d)
5. (b)
6. (c)
7. (b)
8. (b)
9. (a)
Division B –Answers to Descriptive Type Questions
1. According to section 20(2) of the Companies Act, 2013, a document may be served on
Registrar or any member by sending it to him by post or by registered post or by speed
post or by courier or by delivering at his office or address, or by such electronic or other
mode as may be prescribed.

Provided that a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in its annual
general meeting.
Thus, if a member wants the notice to be served on him only by registered post at his
residential address at Kanpur for which he has deposited sufficient money, the notice must
be served accordingly, otherwise service will not be deemed to have been effected.
Accordingly, the questions as asked may be answered as under:
(i) The contention of Vijay shall be tenable, for the reason that the notice was not
properly served.
(ii) In the given circumstances, the company is bound to serve a valid notice to Vijay by
registered post at his residential address at Kanpur and not outside India.
2. Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act, 2013,
a person who, or his relative or partner holds any security of the company or its subsidiary
or of its holding or associate company a subsidiary of such holding company, which carries
voting rights, such person cannot be appointed as auditor of the company. Provided that
the relative of such person may hold security or interest in the company of face value not
exceeding 1 lakh rupees as prescribed under the Companies (Audit and Auditors) Rules,
2014.
In this case, Mr. Suresh, Chartered Accountants, did not hold any such security. But Mrs.
Kamala, his wife held equity shares of Shekhar Limited of face value ` 1 lakh, which is
within the specified limit.
Further Section 141(4) provides that if an auditor becomes subject, after his appointment,
to any of the disqualifications specified in sub-section 3 of section 141, he shall be deemed
to have vacated his office of auditor. Hence, Suresh & Company can continue to function
as auditors of the Company even after 15 th October, 2019 i.e. after the investment made
by his wife in the equity shares of Shekhar Limited.
3. As per section 26(1) of the Companies Act, 2013, every prospectus issued by or on behalf
of a public company either with reference to its formation or subsequently, or by or on
behalf of any person who is or has been engaged or interested in the formation of a public
company, shall be dated and signed and shall state such information and set out such
reports on financial information as may be specified by the Securities and Exchange Board
in consultation with the Central Government.
Provided that until the Securities and Exchange Board specifies the information and reports
on financial information under this sub-section, the regulations made by the Securities and
Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect
of such financial information or reports on financial information shall apply.
Prospectus issued make a declaration about the compliance of the provisions of this Act
and a statement to the effect that nothing in the prospectus is contrary to the provisions of

this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange
Board of India Act, 1992 and the rules and regulations made thereunder.
Accordingly, the Board of Directors of Ramesh Ltd. who proposes to issue the prospectus
shall provide such reports on financial information as may be specified by the Securities
and Exchange Board in consultation with the Central Government in compliance with the
above stated provision and make a declaration about the compliance of the above stated
provisions.
4. According to Section 63 of the Companies Act, 2013, a company may issue fully paid -up
bonus shares to its members, in any manner whatsoever, out of -
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account.
Provided that no issue of bonus shares shall be made by capitalising reserves created by
the revaluation of assets.
Conditions for issue of Bonus Shares: No company shall capitalise its profits or reserves
for the purpose of issuing fully paid-up bonus shares, unless—
(i) it is authorised by its Articles;
(ii) it has, on the recommendation of the Board, been authorised in the general meeting
of the company;
(iii) it has not defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it;
(iv) it has not defaulted in respect of payment of statutory dues of the employees, such
as, contribution to provident fund, gratuity and bonus;
(v) the partly paid-up shares, if any outstanding on the date of allotment, are made fully
paid-up;
(vi) it complies with such conditions as may be prescribed.
But the company has to ensure that the bonus shares shall not be issued in lieu of dividend.
To issue bonus shares, company will need reserves of ` 50,00,000 (half of `1,00,00,000),
which is available with the company. Hence, after following the above compliances on
issuing bonus shares under the Companies Act, 2013, Surya Ltd. may proceed for a bonus
issue of 1 share for every 2 shares held by the existing shareholders.
5. (i) As per the provisions of Section 73(2) of the Companies Act, 2013 read with Rule 3
of the Companies (Acceptance of Deposits) Rules, 2014, as amended by the
Companies (Acceptance of Deposits) Amendment Rules, 2016, a company shall
accept any deposit from its members, together with the amount of other deposits
outstanding as on the date of acceptance of such deposits not exceeding thirty five

per cent of the aggregate of the Paid-up share capital, free Reserves and securities
premium account of the company. Provided that a private company may accept from
its members monies not exceeding one hundred per cent of aggregate of the paid up
share capital, free reserves and securities premium account and such company shall
file the details of monies so accepted to the Registrar in such manner as may be
specified.
Therefore, the given statement of eligibility of XYZ Private Ltd. to a ccept deposits
from its members to the extent of ` 60.00 lakh is True.
(ii) A Government company is not eligible to accept or renew deposits under section 76,
if the amount of such deposits together with the amount of other deposits outstanding
as on the date of acceptance or renewal exceeds thirty five per cent of the aggregate
of its Paid-up share capital, free Reserves and securities premium account of the
company.
Therefore, the given statement prescribing the limit of 25% to accept deposits is
False.
6. Section 83 of the Companies Act, 2013 empowers the Registrar to make entries with
respect to the satisfaction and release of charges even if no intimation has been received
by him from the company.
Accordingly, with respect to any registered charge if an evidence is shown to the
satisfaction of Registrar that the debt secured by charge has been paid or satisfied in whole
or in part or that the part of the property or undertaking charged has been released from
the charge or has ceased to form part of the company’s property or undertaking, then he
may enter in the register of charges a memorandum of satisfaction that:
 the debt has been satisfied in whole or in part; or
 the part of the property or undertaking has been released from the charge or has
ceased to form part of the company’s property or undertaking.
This power can be exercised by the Registrar despite the fact that no intimation has been
received by him from the company.
Information to affected parties: The Registrar shall inform the affected parties within 30
days of making the entry in the register of charges.
Issue of Certificate: As per Rule 8 (2), in case the Registrar enters a memorandum of
satisfaction of charge in full, he shall issue a certificate of registration of satisfaction of
charge in Form No. CHG-5.
7. According to section 101(1) of the Companies Act, 2013, a general meeting of a company
may be called by giving not less than clear twenty-one days' notice either in writing or
through electronic mode in such manner as may be prescribed.

Also, it is to be noted that 21 clear days mean that the date on which notice is served and
the date of meeting are excluded for sending the notice.
Further, Rule 35(6) of the Companies (Incorporation) Rules, 2014, provides that in case of
delivery by post, such service shall be deemed to have been effected in the case of a
notice of a meeting, at the expiration of forty eight hours after the letter containing the
same is posted.
Hence, in the given question:
(i) A 21 days’ clear notice must be given. In the given question, only 19 clear days’ notice
is served (after excluding 48 hours from the time of its posting and the day of sending
and date of meeting). Therefore, the meeting was not validly called.
(ii) As explained in (i) above, notice falls short by 2 days.
(iii) The Companies Act, 2013 does not provide anything specific regarding the
condonation of delay in giving of notice. Hence, the delay in giving the notice calling
the meeting cannot be condoned.
8. Discharge of Surety by Revocation: As per section 130 of the Indian Contract Act, 1872
a specific guarantee cannot be revoked by the surety if the liability has already accrued. A
continuing guarantee may, at any time, be revoked by the surety, as to future transactions,
by notice to the creditor, but the surety remains liable for transactions already entered into.
As per the above provisions, liability of Sandeep is discharged with relation to all
subsequent credit supplies made by Sharma after revocation of guarantee, because it is a
case of continuing guarantee.
However, liability of Sandeep for previous transactions (before revocation) i.e. for
` 40,000 remains. He is liable for payment of ` 40,000 to Sharma because the transaction
was already entered into before revocation of guarantee.
9. It is the duty of bailee to return, or deliver according to the bailor’s directions, the goods
bailed without demand, as soon as the time for which they were bailed, has expired, or the
purpose for which they were bailed has been accomplished. [Section 160 of the Indian
Contract Act, 1872]
If, by the default of the bailee, the goods are not returned, delivered or tendered at the
proper time, he is responsible to the bailor for any loss, destruction or deterioration of the
goods from that time. [Section 161]
In the instant case, Manoj shall have to bear the loss since he failed to return the umbrella
within the stipulated time and Section 161 clearly says that where a bailee fails to retur n
the goods within the agreed time, he shall be responsible to the bailor for any loss,
destruction or deterioration of the goods from that time notwithstanding the exercise of
reasonable care on his part.

10. As per the facts stated in the question, Rahul (drawer) after having issued the cheque,
informs Aman (drawee) not to present the cheque for payment and as well as gave a stop
payment request to the bank in respect of the cheque issued to Aman.
Section 138 of the Negotiable Instruments Act, 1881, is a penal provision in the sense that
once a cheque is drawn on an account maintained by the drawer with his banker for
payment of any amount of money to another person out of that account for the discharge
in whole or in part of any debt or liability, is informed by the bank unpaid either because of
insufficiency of funds to honour the cheques or the amount exceeding the arrangement
made with the bank, such a person shall be deemed to have committed an offence.
Once a cheque is issued by the drawer, a presumption under Section 139 of the Negotiable
Instruments Act, 1881 follows and merely because the drawer issues a notice thereafter to
the drawee or to the bank for stoppage of payment, it will not preclude an act ion under
Section 138.
Also, Section 140 of the Negotiable Instruments Act, 1881, specifies absolute liability of
the drawer of the cheque for commission of an offence under the section 138 of the Act.
Section 140 states that it shall not be a defence in a prosecution for an offence under
section 138 that the drawer had no reason to believe when he issued the cheque that the
cheque may be dishonoured on presentment for the reasons stated in that section.
Accordingly, the act of Rahul, i.e., his request of stop payment constitutes an offence under
the provisions of the Negotiable Instruments Act, 1881.
11. (1) According to section 5 of the General Clauses Act, 1897, where any Central Act has
not specifically mentioned a particular date to come into force, it shall be implemented
on the day on which it receives the assent of the President in case of an Act of
Parliament.
(2) If any specific date of enforcement is prescribed in the Official Gazette, the Act shall
come into enforcement from such date.
Thus, in the given question, the SEBI (Issue of Capital and Disclosure Requirements)
(Fifth Amendment) Regulations, 2015 shall come into enforcement on 1 st January,
2016 rather than the date of its notification in the gazette.
12. Preamble: The Preamble expresses the scope, object and purpose of the Act more
comprehensively. The Preamble of a Statute is a part of the enactment and can legitimately
be used as an internal aid for construing it. However, the Preamble does not over-ride the
plain provision of the Act. But if the wording of the statute gives rise to doubts as to its
proper construction, for example, where the words or phrase has more than one meaning
and a doubt arises as to which of the two meanings is intended in the Act, the Pr eamble
can and ought to be referred to in order to arrive at the proper construction.
In short, the Preamble to an Act discloses the primary intention of the legislature but can
only be brought in as an aid to construction if the language of the statute is not clear.
However, it cannot override the provisions of the enactment.

Example: Use of the word ‘may’ in section 5 of the Hindu Marriage Act, 1955 provides that
“a marriage may be solemnized between two Hindus…..” has been construed to be
mandatory in the sense that both parties to the marriage must be Hindus as defined in
section 2 of the Act. It was held that a marriage between a Christian male and a Hindu
female solemnized under the Hindu Marriage Act was void. This result was reached also
having regard to the preamble of the Act which reads: ‘An Act to amend and codify the law
relating to marriage among Hindus” [Gullipoli Sowria Raj V. Bandaru Pavani, (2009)].

PAPER – 3: COST AND MANAGEMENT ACCOUNTING
QUESTIONS
Material Cost
1. A company uses four raw materials A, B, C and D for a particular product for which the
following data apply :–
Raw Usage Re-order Price Delivery period Re- Minimum
Material per unit Quantity per Kg. (in weeks) order level
of (Kg.) (`) Minimum Average Maximum level (Kg.)
product (Kg.)
(Kg.)
A 12 12,000 12 2 3 4 60,000 ?
B 8 8,000 22 5 6 7 70,000 ?
C 6 10,000 18 3 5 7 ? 25,500
D 5 9,000 20 1 2 3 ? ?
Weekly production varies from 550 to 1,250 units, averaging 900 units of the said
product. What would be the following quantities:–
(i) Minimum Stock of A?
(ii) Maximum Stock of B?
(iii) Re-order level of C?
(iv) Average stock level of A?
(v) Re-order level of D?
(vi) Minimum Stock level of D?
Employee Cost
2. GZ Ld. pays the following to a skilled worker engaged in production works. The following
are the employee benefits paid to the employee:
(a) Basic salary per day `1,000
(b) Dearness allowance (DA) 20% of basic salary
(c) House rent allowance 16% of basic salary
(d) Transport allowance `50 per day of actual work
(e) Overtime Twice the hourly rate (considers basic and DA),
only if works more than 9 hours a day otherwise no
overtime allowance. If works for more than 9 hours
a day then overtime is considered after 8 th hours.

PAPER – 3: COST AND MANAGEMENT ACCOUNTING 57
(f) Work of holiday and Double of per day basic rate provided works atleast
Sunday 4 hours. The holiday and Sunday basic is eligible
for all allowances and statutory deductions.
(h) Earned leave & Casual These are paid leave.
leave
(h) Employer’s contribution to 12% of basic and DA
Provident fund
(i) Employer’s contribution to 7% of basic and DA
Pension fund
The company normally works 8-hour a day and 26-day in a month. The company
provides 30 minutes lunch break in between.
During the month of August 2020, Mr.Z works for 23 days including 15 th August and a
Sunday and applied for 3 days of casual leave. On 15th August and Sunday he worked
for 5 and 6 hours respectively without lunch break.
On 5th and 13th August he worked for 10 and 9 hours respectively.
During the month Mr. Z worked for 100 hours on Job no.HT200.
You are required to CALCULATE:
(i) Earnings per day
(ii) Effective wages rate per hour of Mr. Z.
(iii) Wages to be charged to Job no.HT200.
Overheads: Absorption Costing Method
3. You are given the following information of the three machines of a manufacturing
department of X Ltd.:
Preliminary estimates of expenses (per annum)
Machines
Total (`)
A (`) B (`) C (`)
Depreciation 2,00,000 75,000 75,000 50,000
Spare parts 1,00,000 40,000 40,000 20,000
Power 4,00,000
Consumable stores 80,000 30,000 25,000 25,000
Insurance of machinery 80,000
Indirect labour 2,00,000
Building maintenance expenses 2,00,000

Annual interest on capital outlay 1,00,000 40,000 40,000 20,000

Monthly charge for rent and rates 20,000
Salary of foreman (per month) 42,000
Salary of Attendant (per month) 12,000
(The foreman and the attendant control all the three machines and spend equal time on
them.)
The following additional information is also available:
Machines
A B C
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 12 holidays besides Sundays in the year, of which two were on Saturdays.
The manufacturing department works 8 hours in a day but Saturdays are half days. All
machines work at 90% capacity throughout the year and 2% is reasonable for
breakdown.
You are required to :
CALCULATE predetermined machine hour rates for the above machines after taking into
consideration the following factors:
 An increase of 15% in the price of spare parts.
 An increase of 25% in the consumption of spare parts for machine ‘B’ & ‘C’ only.
 20% general increase in wages rates.
Activity Based Costing
4. KD Ltd. is following Activity based costing. Budgeted overheads, cost drivers and volume
are as follows:
Cost pool Budgeted Cost driver Budgeted
overheads (`) volume
Material procurement 18,42,000 No. or orders 1,200
Material handling 8,50,000 No. of movement 1,240
Maintenance 24,56,000 Maintenance hours 17,550
Set-up 9,12,000 No. of set-ups 1,450
Quality control 4,42,000 No. of inspection 1,820

The company has produced a batch of 7,600 units, its material cost was `24,62,000 and
wages `4,68,500. Usage activities of the said batch are as follows:
Material orders 56
Material movements 84
Maintenance hours 1,420 hours
Set-ups 60
No. of inspections 18
Required:
(i) CALCULATE cost driver rates.
(ii) CALCULATE the total and unit cost for the batch.
Cost Sheet
5. The following details are available from the books of R Ltd. for the year ending
31st March 2020:
Particulars Amount (`)
Purchase of raw materials 84,00,000
Consumable materials 4,80,000
Direct wages 60,00,000
Carriage inward 1,72,600
Wages to foreman and store keeper 8,40,000
Other indirect wages to factory staffs 1,35,000
Expenditure on research and development on new production 9,60,000
technology
Salary to accountants 7,20,000
Employer’s contribution to EPF & ESI 7,20,000
Cost of power & fuel 28,00,000
Production planning office expenses 12,60,000
Salary to delivery staffs 14,30,000
Income tax for the assessment year 2019-20 2,80,000
Fees to statutory auditor 1,80,000
Fees to cost auditor 80,000
Fees to independent directors 9,40,000
Donation to PM-national relief fund 1,10,000

Value of sales 2,82,60,000

Position of inventories as on 01-04-2019:
- Raw Material 6,20,000
- W-I-P 7,84,000
- Finished goods 14,40,000
Position of inventories as on 31-03-2020:
- Raw Material 4,60,000
- W-I-P 6,64,000
- Finished goods 9,80,000
From the above information PREPARE a cost sheet for the year ended 31 st March 2020.
Cost Accounting System
6. A manufacturing company disclosed a net loss of `6,94,000 as per their cost accounts
for the year ended March 31,2020. The financial accounts however disclosed a net loss
of `10,20,000 for the same period. The following information was revealed as a result of
scrutiny of the figures of both the sets of accounts.
(`)
(i) Factory Overheads under-absorbed 80,000
(ii) Administration Overheads over-absorbed 1,20,000
(iii) Depreciation charged in Financial Accounts 6,50,000
(iv) Depreciation charged in Cost Accounts 5,50,000
(v) Interest on investments not included in Cost Accounts 1,92,000
(vi) Income-tax provided 1,08,000
(vii) Interest on loan funds in Financial Accounts 4,90,000
(viii) Transfer fees (credit in financial books) 48,000
(ix) Stores adjustment (credit in financial books) 28,000
(x) Dividend received 64,000
PREPARE a memorandum Reconciliation Account.
Batch Costing
7. A Ltd. manufactures mother boards used in smart phones. A smart phone requires one
mother board. As per the study conducted by the Indian Cellular Association, there will
be a demand of 180 million smart phones in the coming year. A Ltd. is expected to have
a market share of 5.5% of the total market demand of the mother boards in the coming

year. It is estimated that it costs `6.25 as inventory holding cost per board per month
and that the set-up cost per run of board manufacture is `33,500.
(i) COMPUTE the optimum run size for board manufacturing?
(ii) Assuming that the company has a policy of manufacturing 80,000 boards per run,
CALCULATE how much extra costs the company would be incurring as compared to
the optimum run suggested in (i) above?
Job Costing
8. AP Ltd. received a job order for supply and fitting of plumbing materials. Following are
the details related with the job work:
Direct Materials
AP Ltd. uses a weighted average method for the pricing of materials issues.
Opening stock of materials as on 12 th August 2020:
- 15mm GI Pipe, 12 units of (15 feet size) @ `600 each
- 20mm GI Pipe, 10 units of (15 feet size) @ ` 660 each
- Other fitting materials, 60 units @ ` 26 each
- Stainless Steel Faucet, 6 units @ ` 204 each
- Valve, 8 units @ ` 404 each
Purchases:
On 16th August 2020:
- 10 units of Valve @ ` 402 each
- Other fitting materials, 150 units @ ` 28 each
- Stainless Steel Faucet, 15 units @ ` 209 each
- Valve, 14 units @ ` 424 each

Issues for the hostel job:

- 20mm GI Pipe, 2 units of (15 feet size)
- Other fitting materials, 18 units
- Valve, 6 units
- Stainless Steel Faucet, 15 units
Direct Labour:
Plumber: 180 hours @ `100 per hour (includes 12 hours overtime)
Helper: 192 hours @ `70 per hour (includes 24 hours overtime)
Overtimes are paid at 1.5 times of the normal wage rate.
Overheads:
Overheads are applied @ `26 per labour hour.
Pricing policy:
It is company’s policy to price all orders based on achieving a profit margin of 25% on
sales price.
You are required to
(a) CALCULATE the total cost of the job.
(b) CALCULATE the price to be charged from the customer.

Process Costing
9. M Ltd. produces a product-X, which passes through three processes, I, II and III. In
Process-III a by-product arises, which after further processing at a cost of `85 per unit,
product Z is produced. The information related for the month of August 2020 is as
follows:
Process-I Process-II Process-III
Normal loss 5% 10% 5%
Materials introduced (7,000 units) 1,40,000 - -
Other materials added 62,000 1,36,000 84,200
Direct wages 42,000 54,000 48,000
Direct expenses 14,000 16,000 14,000
Production overhead for the month is `2,88,000, which is absorbed as a percentage of
direct wages.
The scrapes are sold at `10 per unit
Product-Z can be sold at `135 per unit with a selling cost of `15 per unit
No. of units produced:
Process-I- 6,600; Process-II- 5,200, Process-III- 4,800 and Product-Z- 600
There is not stock at the beginning and end of the month.
You are required to PREPARE accounts for:
(i) Process-I, II and III
(ii) By-product process.
Joint Products & By Products
10. ABC Ltd. operates a simple chemical process to convert a single material into three
separate items, referred to here as X, Y and Z. All three end products are separated
simultaneously at a single split-off point.
Product X and Y are ready for sale immediately upon split off without further processing
or any other additional costs. Product Z, however, is processed further before being sold.
There is no available market price for Z at the split-off point.
The selling prices quoted here are expected to remain the same in the coming year.
During 2019-20, the selling prices of the items and the total amounts sold were:
X – 186 tons sold for `3,000 per ton
Y – 527 tons sold for `2,250 per ton

Z – 736 tons sold for `1,500 per ton

The total joint manufacturing costs for the year were `12,50,000. An additional
` 6,20,000 was spent to finish product Z.
There were no opening inventories of X, Y or Z at the end of the year. The following
inventories of complete units were on hand:
X 180 tons
Y 60 Tons
Z 25 tons
There was no opening or closing work-in-progress.
Required:
COMPUTE the cost of inventories of X, Y and Z and cost of goods sold for year ended
March 31, 2020, using Net realizable value (NRV) method of joint cost allocation.
Service Costing
11. A transport company has 20 vehicles, the capacities are as follows:
No. of Vehicles Capacity per vehicle
5 9 MT
6 12 MT
7 15 MT
2 20 MT
The company provides the goods transport service between stations ‘A’ to station ‘B’.
Distance between these stations is 100 kilometers. Each vehicle makes one round trip
per day on an average. Vehicles are loaded with an average of 90 per cent of capac ity
at the time of departure from station ‘A’ to station ‘B’ and at the time of return back
loaded with 70 per cent of capacity. 10 per cent of vehicles are laid up for repairs every
day. The following information is related to the month of August, 2020:
Salary of Transport Manager ` 60,000
Salary of 30 drivers ` 20,000 each driver
Wages of 25 Helpers ` 12,000 each helper
Loading and unloading charges ` 850 each trip
Consumable stores (depends on running of vehicles) ` 1,35,000
Insurance (Annual) ` 8,40,000
Road Licence (Annual) ` 6,00,000
Cost of Diesel per litre ` 78

Kilometres run per litre each vehicle 5 Km.

Lubricant, Oil etc. ` 1,15,000
Cost of replacement of Tyres, Tubes, other parts etc. (on ` 4,25,000
running basis)
Garage rent (Annual) ` 9,00,000
Routine mechanical services ` 3,00,000
Electricity charges (for office, garage and washing ` 55,000
station)
Depreciation of vehicles (on time basis) ` 6,00,000
There is a workshop attached to transport department which repairs these vehicles and
other vehicles also. 40 per cent of transport manager’s salary is debited to the workshop.
The transport department has been apportioned `88,000 by the workshop during the
month. During the month operation was for 25 days.
You are required:
(i) CALCULATE per ton-km operating cost.
(ii) DETERMINE the freight to be charged per ton-km, if the company earned a profit of
25 per cent on freight.
Standard Costing
12. Following are the standard cost for a product-X:
(`)
Direct materials 10 kg @ ` 90 per kg 900
Direct labour 8 hours @ `100 per hour 800
Variable Overhead 8 hours @ `15 per hour 120
Fixed Overhead 400
2,220
Budgeted output for the year was 2,000 units. Actual output is 1,800 units.
Actual cost for year is as follows:
(`)
Direct Materials 17,800 Kg @ ` 92 per Kg. 16,37,600
Direct Labour 14,000 hours @ ` 104 per hour 14,56,000
Variable Overhead incurred 2,17,500
Fixed Overhead incurred 7,68,000

You are required to CALCULATE:

(i) Material Usage Variance
(ii) Material Price Variance
(iii) Material Cost Variance
(iv) Labour Efficiency Variance
(v) Labour Rate Variance
(vi) Labour Cost Variance
(vii) Variable Overhead Cost Variance
(viii) Fixed Overhead Cost Variance.
Marginal Costing
13. J Ltd. manufactures a Product-Y. Analysis of income statement indicated a profit of
` 250 lakhs on a sales volume of 5,00,000 units. Fixed costs are `1,000 lakhs which
appears to be high. Existing selling price is `680 per unit. The company is considering
revising the profit target to ` 700 lakhs. You are required to COMPUTE –
(i) Break- even point at existing levels in units and in rupees.
(ii) The number of units required to be sold to earn the target profit.
(iii) Profit with 10% increase in selling price and drop in sales volume by 10%.
(iv) Volume to be achieved to earn target profit at the revised selling price as calculated
in (ii) above, if a reduction of 10% in the variable costs and ` 170 lakhs in the fixed
cost is envisaged.
Budget and Budgetary Control
14. The information of Z Ltd. for the year ended 31 st March 2020 is as below:
Amount (`)
Direct materials 17,50,000
Direct wages 12,50,000
Variable factory overhead 9,50,000
Fixed factory overhead 12,00,000
Other variable costs 6,00,000
Other fixed costs 4,00,000
Profit 8,50,000
Sales 70,00,000

During the year, the company manufactured two products, X and Y, and the output and
cost were:
X Y
Output (units) 8,000 4,000
Selling price per unit (`) 600 550
Direct material per unit (`) 140 157.50
Direct wages per unit (`) 90 132.50
Variable factory overheads are absorbed as a percentage of direct wages and other
variable costs are computed as:
Product X – `40 per unit and Product Y- `70 per unit.
For the FY 2020-21, due to a pandemic, it is expected that demand for product X and Y
will fall by 20% & 10% respectively. It is also expected that direct wages cost will raise by
20% and other fixed costs by 10%. Products will be required to be sold at a discount of
20%.
You are required to:
(i) PREPARE product- wise profitability statement on marginal costing method for the
FY 2019-20 and
(ii) PREPARE a budget for the FY 2020-21.
Miscellaneous
15. (a) DISCUSS short notes on (i) Discretionary Cost Centre and (ii) Investment Centre
(b) DESCRIBE the three advantages of Cost-plus contract.
(c) STATE the advantages of Zero-based budgeting.
(d) DESCRIBE Operation costing with two examples of industries where operation
costing is applied.
SUGGESTED HINTS/ANSWERS
1. (i) Minimum stock of A

Re-order level – (Average consumption × Average time required to obtain delivery)
= 60,000 kg. – (900units × 12 kg. × 3 weeks) = 27,600 kg.
(ii) Maximum stock of B
Re-order level + Re-order quantity– (Min. Consumption × Min. Re-order period)
= 70,000 kg.+ 8,000 kg– (550units ×8 kg.× 5 weeks).

=78,000–22,000 = 56,000 kg.

(iii) Re-order level of C
Maximum re-order period × Maximum Usage
= 7 weeks × (1,250units × 6 kg.) = 52,500 kg.
OR
= Minimum stock of C+(Average consumption × Average delivery time)
= 25,500 kg.+ [(900 units ×6 kg.)×5 weeks] =52,500 kg.
(iv) Average stock level of A
Minimum stock + Maximum stock
= (Refer to Working Note)
2
27,600 + 58,800
= = 43,200 kg.
2
Working note
Maximum stock of A = ROL + ROQ – (Minimum consumption × Minimum re-order period)
= 60,000 kg. + 12,000 kg. – [(550units × 12 kg.) × 2 weeks] = 58,800 kg.
(v) Re-order level of D
Maximum re-order period × Maximum Usage
= 3 weeks × (1,250 units × 5 kg.) = 18,750 kg
(vi) Minimum stock of D
Re-order level – (Average consumption × Average time required to obtain delivery)
= 18,750 kg. – (900units × 5 kg. × 2 weeks) = 9,750 kg.
2. Workings:
1. Normal working hours in a month = (Daily working hours – lunch break) × no. of
days
= (8 hours – 0.5 hours) × 26 days = 195 hours
2. Hours worked by Mr.Z = No. of normal days worked + Overtime + holiday/ Sunday
worked
= (21 days × 7.5 hours) + (9.5 hours + 8.5 hours) + (5 hours + 6 hours)
= 157.5 hours + 18 hours + 11 hours = 186.50 hours.

(i) Calculation of earnings per day

Basic salary (`1,000 × 26 days) 26,000
Dearness allowance (20% of basic salary) 5,200
31,200
House rent allowance (16% of basic salary) 4,160
Employer’s contribution to Provident fund (12% × `31,200) 3,744
Employer’s contribution to Pension fund (7% × `31,200) 2,184
41,288
No. of working days in a month (days) 26
Rate per day 1,588
Transport allowance per day 50
Earnings per day 1,638
(ii) Calculation of effective wage rate per hour of Mr. Z:
Basic salary (`1,000 × 26 days) 26,000
Additional basic salary for Sunday & holiday (`1,000 × 2 days) 2,000
Dearness allowance (20% of basic salary) 5,600
33,600
House rent allowance (16% of basic salary) 4,480
Transport allowance (`50 × 23 days) 1,150
Overtime allowance (`160 × 2 × 2 hours)* 640
Employer’s contribution to Provident fund (12% × `33,600) 4,032
Employer’s contribution to Pension fund (7% × `33,600) 2,352
Total monthly wages 46,254
Hours worked by Mr. Z (hours) 186.5
Effective wage rate per hour 248
*(Daily Basic + DA) ÷ 7.5 hours
= (1,000+200) ÷ 7.5 = `160 per hour
(iii) Calculation of wages to be charged to Job no. HT200
= ` 248 × 100 hours = ` 24,800

3. (a) Computation of Machine Hour Rate
Basis of Machines
apportionment Total (`) A (`) B (`) C (`)
(A) Standing Charges
Insurance Depreciation 80,000 30,000 30,000 20,000
Basis (3:3:2)
Indirect Labour Direct Labour 2,40,000 60,000 90,000 90,000
(2:3:3)
Building Floor Space 2,00,000 80,000 80,000 40,000
maintenance (2:2:1)
expenses
Rent and Rates Floor Space 2,40,000 96,000 96,000 48,000
(2:2:1)
Salary of foreman Equal 5,04,000 1,68,000 1,68,000 1,68,000
Salary of attendant Equal 1,44,000 48,000 48,000 48,000
Total standing charges 14,08,000 4,82,000 5,12,000 4,14,000
Hourly rate for standing charges 247.43 262.83 212.53
(B) Machine
Expenses:
Depreciation Direct 2,00,000 75,000 75,000 50,000
Spare parts Final estimates 1,32,250 46,000 57,500 28,750
Power K.W. rating 4,00,000 1,50,000 1,00,000 1,50,000
(3:2:3)
Consumable Direct 80,000 30,000 25,000 25,000
Stores
Total Machine expenses 8,12,250 3,01,000 2,57,500 2,53,750
Hourly Rate for Machine expenses 154.52 132.19 130.26
Total (A + B) 22,20,250 7,83,000 7,69,500 6,67,750
Machine Hour rate 401.95 395.02 342.79
Working Notes:
(i) Calculation of effective working hours:
No. of full off-days = No. of Sunday + No. of holidays
= 52 + 12 = 64 days
No. of half working days = 52 days – 2 holidays = 50 days

No. of full working days = 365 days – 64 days – 50 days = 251 days
Total working Hours = {(251 days × 8 hours) + (50 days × 4 hours)}
= 2,008 hours + 200 = 2,208 hours.
Total effective hours = Total working hours × 90% - 2% for break-
down
= 2,208 hours × 90% - 2% (2,208 hours × 90%)
= 1,987.2 hours – 39.74 hours
= 1947.46 or Rounded up to 1948 hours.
(ii) Amount of spare parts is calculated as under:
A (`) B (`) C (`)
Preliminary estimates 40,000 40,000 20,000
Add: Increase in price @ 15% 6,000 6,000 3,000
46,000 46,000 23,000
Add: Increase in consumption  11,500 5,750
@ 25%
Estimated cost 46,000 57,500 28,750
(iii) Amount of Indirect Labour is calculated as under:
(`)
Preliminary estimates 2,00,000
Add: Increase in wages @ 20% 40,000
2,40,000
(iv) Interest on capital outlay is a finance cost, therefore it has been excluded from
the cost accounts.
4. (i) Calculation of cost driver rate:
Cost pool Budgeted Cost driver Cost driver rate
overheads (`) (`)
Material procurement 18,42,000 1,200 1,535.00
Material handling 8,50,000 1,240 685.48
Maintenance 24,56,000 17,550 139.94
Set-up 9,12,000 1,450 628.97
Quality control 4,42,000 1,820 242.86

(ii) Calculation of cost for the batch:

Particulars Amount (`) Amount (`)
Material cost 24,62,000.00
Wages 4,68,500.00
Overheads:
- Material procurement (`1,535×56 orders) 85,960.00
- Material handling (`685.48×84 57,580.32
movements)
- Maintenance (`139.94×1,420 hours) 1,98,714.80
- Set-up (`628.97×60 set-ups) 37,738.20
- Quality control (`242.86×18 inspections) 4,371.48 3,84,364.80
Total Cost 33,14,864.80
No. of units 7,600
Cost per units 436.17
5. Statement of Cost of R Ltd. for the year ended 31 st March, 2020:
Sl. Particulars Amount (`) Amount (`)
No.
(i) Material Consumed:
- Raw materials purchased 84,00,000
- Carriage inward 1,72,600
Add: Opening stock of raw materials 6,20,000
Less: Closing stock of raw materials (4,60,000) 87,32,600
(ii) Direct employee (labour) cost:
- Direct wages 60,00,000
- Employer’s Contribution towards PF 7,20,000 67,20,000
& ESIS
(iii) Direct expenses:
- Consumable materials 4,80,000
- Cost of power & fuel 28,00,000 32,80,000
Prime Cost 1,87,32,600
(iv) Works/ Factory overheads:
- Wages to foreman and store keeper 8,40,000

- Other indirect wages to factory

staffs 1,35,000 9,75,000
Gross factory cost 1,97,07,600
Add: Opening value of W-I-P 7,84,000
Less: Closing value of W-I-P (6,64,000)
Factory Cost 1,98,27,600
(v) Research & development cost paid for 9,60,000
improvement in production process
(vi) Production planning office expenses 12,60,000
Cost of Production 2,20,47,600
Add: Opening stock of finished goods 14,40,000
Less: Closing stock of finished goods (9,80,000)
Cost of Goods Sold 2,25,07,600
(vii) Administrative overheads:
- Salary to accountants 7,20,000
- Fees to statutory auditor 1,80,000
- Fees to cost auditor 80,000
- Fee paid to independent directors 9,40,000 19,20,000
(viii) Selling overheads& Distribution overheads:
- Salary to delivery staffs 14,30,000
Cost of Sales 2,58,57,600
Profit (balancing figure) 24,02,400
Sales 2,82,60,000
Note: Income tax and Donation to PM National Relief Fund is avoided in the cost sheet.
6. Memorandum Reconciliation Accounts
Dr. Cr.
(`) (`)
To Net Loss as per Costing 6,94,000 By Administration 1,20,000
books overheads over
recovered in cost
accounts

To Factory overheads under 80,000 By Interest on investment 1,92,000

absorbed in Cost not included in Cost
Accounts Accounts
To Depreciation under 1,00,000 By Transfer fees in 48,000
charged in Cost Accounts Financial books
To Income-Tax not provided 1,08,000 By Stores adjustment 28,000
in Cost Accounts (Credit in financial
books)
To Interest on Loan Funds in 4,90,000 By Dividend received in 64,000
Financial Accounts financial books
By Net loss as per 10,20,000
Financial books
14,72,000 14,72,000
7. (i) Computation of optimum run size
2DS
Optimum run size or Economic Batch Quantity (EBQ) =
C
Where, D = Annual demand i.e. 5.5% of 18,00,00,000 = 99,00,000 units
S = Set-up cost per run = `33,500
C = Inventory holding cost per unit per annum
= `6.25 × 12 months = `75
2  99,00,000units `33,500
EBQ = = 94,042.5 units or 94,043 units
` 75
(ii) Calculation of Total Cost of set-up and inventory holding
Batch No. of set- Set-up Cost Inventory holding Total Cost
size ups (`) cost (`) (`)
30,00,000
124 41,54,000
80,000  80,000  `75 
A  99,00,000  (124 ×   71,54,000
units  80,000   2 
  `33,500)
106 35,51,000 35,26,612.5

94,043 (106 ×
B  99,00,000   94,043  `75  70,77,612.50
units   `33,500)  
 94,043   2 
Extra Cost (A – B) 76,387.50

8. (a) Calculation of Total Cost for the Job:

Particulars Amount (`) Amount (`)
Direct Material Cost:
- 15mm GI Pipe (Working Note- 1) 11,051.28
- 20mm GI Pipe (Working Note- 2) 2,588.28
- Other fitting materials (Working Note- 3) 3,866.07
- Stainless steel faucet
 6  ` 204  15  ` 209 
15 units ×  
 21units  3,113.57
- Valve
 8  ` 404  10  ` 402  14  ` 424 
6 units ×  
 32units  2,472.75 23,091.95
Direct Labour:
- Plumber [(180 hours × `100) + (12 hours × 18,600.00
`50)]
- Helper [(192 hours × `70) + (24 hours × `35)] 14,280.00 32,880.00
- Overheads [`26 × (180 + 192) hours] 9,672.00
Total Cost 65,643.95
(b) Price to be charged for the job work:
Amount (`)
Total Cost incurred on the job 65,643.95
 65,643.95  21,881.32
Add: 25% Profit on Job Price   25% 
 75% 
87,525.27
Working Note:
1. Cost of 15mm GI Pipe
Date Amount (`)
17-08-2020 8 units × ` 600 4,800.00
28-08-2020  4  ` 600  35  ` 628  6,251.28
10 units ×  
 39units 
11,051.28

2. Cost of 20mm GI Pipe

Date Amount (`)
12-08-2020 2 units × ` 660 1,320.00
28-08-2020  8  ` 660  30  ` 610  20  ` 660 
2 units ×   1,268.28
 58units 
2,588.28
3. Cost of Other fitting materials
Date Amount (`)
12-08-2020 18 units × ` 26 468.00
17-08-2020 30 units × ` 26 780.00
28-08-2020  12  ` 26  150  ` 28  946.96
34 units ×  
 162units 
30-08-2020  12  ` 26  150  ` 28 
60 units ×   1,671.11
 162units 
3,866.07
9. (i) Process-I A/c
Particulars Units Amt.(`) Particulars Units Amt.(`)
To Materials 7,000 1,40,000 By Normal loss 350 3,500
(5% of 7,000)
To Other materials - 62,000 By Process-II* 6,600 3,35,955
To Direct wages - 42,000 By Abnormal loss* 50 2,545
To Direct expenses - 14,000
To Production OH - 84,000
(200% of `42,000)
7,000 3,42,000 7,000 3,42,000
`(3,42,000  3,500)
* = `50.9022
(7,000  350)units
Process-II A/c
To Process-I A/c 6,600 3,35,955 By Normal loss 660 6,600
(10% of 6,600)

To Other - 1,36,000 By Process-III** 5,200 5,63,206

materials
To Direct wages - 54,000 By Abnormal loss** 740 80,149
To Direct - 16,000
expenses
To Production OH - 1,08,000
(200% of `54,000)
6,600 6,49,955 6,600 6,49,955
`(6,49,955  6,600)
** = `108.3089
(6,600  660)units
Process-III A/c
To Process-I A/c 5,200 5,63,206 By Normal loss 260 2,600
(5% of 5,200)
To Other - 84,200 By Product-X*** 4,800 8,64,670
materials
To Direct wages - 48,000
To Direct - 14,000 By Product-Z# 600 21,000
expenses (`35×600)
To Production OH - 96,000
(200% of `48,000)
To Abnormal 460 82,864

gain***
5,660 8,88,270 5,660 8,88,270
`(8, 05, 406  2,600  21,000)

*** = `180.1396
(5,200  260  600)units
# Realisable value = `135 – (85+15) = `35
(ii) By-Product Process A/c
To Process-III A/c 600 21,000 By Product-Z 600 81,000
To Processing cost - 51,000

To Selling expenses - 9,000

600 81,000 600 81,000
10. (i) (a) Statement of Joint Cost allocation of inventories of X, Y and Z

(By using Net Realisable Value Method)
Products
Total
X Y Z
(`) (`) (`) (`)
Final sales value of 10,98,000 13,20,750 11,41,500 35,60,250
total production (366 × (587 × `2,250) (761 × `1,500)
(Working Note 1) `3,000)
Less: Additional cost -- -- (6,20,000) (6,20,000)
Net realisable value 10,98,000 13,20,750 5,21,500 29,40,250
(at split-off point)
Joint cost allocated 4,66,797 5,61,496 2,21,707 12,50,000
(Working Note 2)
Cost of goods sold as on March 31, 2020

(By using Net Realisable Value Method)
Products
Total
X Y Z
(`) (`) (`) (`)
Allocated joint 4,66,797 5,61,496 2,21,707 12,50,000
cost
Additional costs -- -- 6,20,000 6,20,000
Cost of goods 4,66,797 5,61,496 8,41,707 18,70,000
available for sale
(CGAS)
Less: Cost of 2,29,571 57,385 27,692 3,14,648
ending inventory (CGAS×49.18%) (CGAS × 10.22%) (CGAS × 3.29%)
(Working Note 1)
Cost of goods 2,37,226 5,04,111 8,14,015 15,55,352
sold

Working Notes
1. Total production of three products for the year 2019-2020
Products Quantity Quantity of ending Total Ending inventory
sold in tones inventory in tons production percentage (%)
(1) (2) (3) (4) = [(2) + (3)} (5) = (3)/ (4)
X 186 180 366 49.18
Y 527 60 587 10.22
Z 736 25 761 3.29
2. Joint cost apportioned to each product:
Total Joint cost
Net Realisable Value of each product
TotalNet Realisable Value
` 12,50,000
Totalcos t of Product X   `10,98,000  ` 4,66,797
` 29,40,250
` 12,50,000
Totalcos t of Product Y   ` 13,20,750  ` 5,61,496
` 29,40,250
` 12,50,000
Totalcos t of Product Z   ` 5,21,500  ` 2,21,707
` 29,40,250
11. (i) Operating Cost Sheet for the month of August, 2020
A. Fixed Charges:
Manager’s salary (`60,000 × 60%) 36,000
Drivers’ Salary (`20,000  30 drivers) 6,00,000
Helpers’ wages (`12,000  25 helpers) 3,00,000
Insurance (`8,40,000 ÷ 12 months) 70,000
Road licence (`6,00,000 ÷ 12 months) 50,000
Garage rent (`9,00,000 ÷ 12 months) 75,000
Routine mechanical services 3,00,000
Electricity charges (for office, garage and washing 55,000
station)
Depreciation of vehicles 6,00,000
Apportioned workshop expenses 88,000
Total (A) 21,74,000

B. Variable Charges:
Loading and unloading charges (Working Note 1) 7,65,000
Consumable Stores 1,35,000
Cost of diesel (Working Note 2) 14,04,000
Lubricant, Oil etc. 1,15,000
Replacement of Tyres, Tubes & other parts 4,25,000
Total (B) 28,44,000
C. Total Cost (A + B) 50,18,000
D. Total Ton-Kms. (Working Note 3) 9,43,200
E. Cost per ton-km. (C ÷ D) 5.32
(ii) Calculation of Chargeable Freight
Cost per ton-km. ` 5.32
Add: Profit @ 25% on freight or 33⅓% on cost ` 1.77
Chargeable freight per ton-km. ` 7.09
Working Notes:
1. Wages paid to loading and unloading labours
Numbers of vehicles available per day × No. of days × trips × wages per trip
(20 vehicles × 90%) × 25 days × 2 trips × `850
18 × 25 × 2 × 850 = `7,65,000
2. Cost of Diesel:
Distance covered by each vehicle during August, 2020
= 100 k.m.  2  25 days  90% = 4,500 km.
4,500k.m.  20vehicles
Consumption of diesel =  18,000 litres.
5k.m.
Cost of diesel = 18,000 litres  ` 78 = `14,04,000.

3. Calculation of total ton-km:
Total Ton-Km. = Total Capacity  Distance covered by each vehicle  Average
Capacity Utilisation ratio.

=  5  9 MT   6  12MT   7  15 MT   2  20 MT

 90%  70%
 4,500k.m. 2
  45  72  105  40  4,500 k.m.  80%

= 262  4,500  80%.
= 9,43,200 ton-km.
12. (i) Material Usage Variance = Std. Price (Std. Quantity – Actual Quantity)
= ` 90 (18,000 kg. – 17,800 kg.)
= ` 18,000 (Favourable)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
= 17,800 kg. (` 90 – ` 92) = ` 35,600 (Adverse)
(iii) Material Cost Variance = Std. Material Cost – Actual Material Cost
= (SQ × SP) – (AQ × AP)
= (18,000 kg. × ` 90) – (17,800 kg. × ` 92)
= ` 16,20,000 – ` 16,37,600
= `17,600 (Adverse)
(iv) Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)
= ` 100 (1,800 units × 8 – 14,000 hrs.)
= ` 100 (14,400 hrs. – 14,000 hrs.)
= ` 40,000 (Favourable)
(v) Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)
= 14,000 hrs. (` 100 – `104)
= ` 56,000 (Adverse)
(vi) Labour Cost Variance = Std. Labour Cost – Actual Labour Cost
= (SH × SR) – (AH × AR)
= (14,400 hrs. × ` 100) – (14,000 hrs. × ` 104)
= ` 14,40,000 – ` 14,56,000
= `16,000 (Adverse)
(vii) Variable Cost Variance = Std. Variable Cost – Actual Variable Cost
= (14,400 hrs. × ` 15) – ` 2,17,500

= ` 1,500 (Adverse)
(viii) Fixed Overhead Cost Variance = Absorbed Fixed Overhead – Actual Fixed
Overhead
= (1,800 units × `400) - ` 7,68,000
= ` 7,20,000 – ` 7,68,000 = ` 48,000 (Adverse)
13. Sales Volume 5,00,000 Units
Computation of existing contribution
Particulars Per unit (`) Total (` In lakhs)
Sales 680 3,400
Fixed Cost 200 1,000
Profit 50 250
Contribution 250 1,250
Variable Cost (Sales – Contribution) 430 2,150
Fixed Cost `10,00,00,000

(i) Break even sales in units = = = 4,00,000 units
Contribution per unit `250
Break even sales in rupees = 4,00,000 units × ` 680 = ` 2,720 lakhs
OR
250
P/V Ratio =  100 = 36.76%
680
Fixed Cost 10,00,00,000
B.EP (Rupees) = = = ` 2,720 lakhs (approx.)
P / VRatio 36.76%
(ii) Number of units sold to achieve a target profit of `700 lakhs:
Desired Contribution = Fixed Cost + Target Profit
= 1,000 L + 700 L = 1,700 L
Desired Contribution 17,00,00,000
Number of units to be sold = = = 6,80,000 units
Contribution per unit 250
(iii) Profit if selling price is increased by 10% and sales volume drops by 10%:
Existing Selling Price per unit = ` 680
Revised selling price per unit = ` 680 × 110% = `748
Existing Sales Volume = 5,00,000 units

Revised sales volume = 5,00,000 units – 10% of 5,00,000 = 4,50,000 units.

Statement of profit at sales volume of 4,50,000 units @ ` 748 per unit
Particulars Per unit (`) Total (` In lakhs)
Sales 748 3,366
Less: Variable Costs 430 1,935
Contribution 318 1,431
Less: Fixed Cost 1,000
Profit 431
(iv) Volume to be achieved to earn target profit of `700 lakhs with revised selling price
and reduction of 10% in variable costs and `170 lakhs in fixed cost:
Revised selling price per unit = `748
Variable costs per unit existing = `430
Revised Variable Costs
Reduction of 10% in variable costs = ` 430 – 10% of 430
= ` 430 – `43
= `387
Total Fixed Cost (existing) = ` 1,000 lakhs
Reduction in fixed cost = ` 170 lakhs
Revised fixed cost = ` 1,000 lakhs – ` 170 lakhs = `830 lakhs
Revised Contribution (unit) = Revised selling price per unit – Revised
Variable Costs per units
Revised Contribution per unit = ` 748 – ` 387 = ` 361
Desired Contribution = Revised Fixed Cost + Target Profit
= ` 830 lakhs + `700 lakhs = `1,530 lakhs
Desired Contribution `15,30,00,000
No. of units to be sold = = =4,23,823 units
Contribution per unit `361
14. (i) Product-wise Profitability Statement for the FY 2019-20:
Particulars Product-X (`) Product-Y (`) Total (`)
Selling price per unit 600 550
Sales value 48,00,000 22,00,000 70,00,000

Direct material 11,20,000 6,30,000 17,50,000

(`140×8,000) ( `157.50×4,000)
Direct wages 7,20,000 5,30,000 12,50,000
(`90×8,000) (`132.5×4,000)
Variable factory overheads 5,47,200 4,02,800 9,50,000
(76%of 7,20,000) (76%of 5,30,000)
Other variable costs 3,20,000 2,80,000 6,00,000
(`40×8,000) (`70×4,000)
Contribution 20,92,800 3,57,200 24,50,000
Fixed factory overheads - - 12,00,000
Other fixed costs - - 4,00,000
Profit 8,50,000
(ii) Preparation of Budget for the FY 2020-21:
Particulars Product-X (`) Product-Y (`) Total (`)
(8,000×80%) (4,000×90%)
Selling price per unit 480 440
(600×80%) (550×80%)
Sales value 30,72,000 15,84,000 46,56,000
Direct material 8,96,000 5,67,000 14,63,000
(`140×6,400) ( `157.50×3,600)
Direct wages per unit 6,91,200 5,72,400 12,63,600
(`108×6,400) (`159×3,600)
Variable factory overheads 5,25,312 4,35,024 9,60,336
(76%of 6,91,200) (76%of 5,72,400)
Other variable costs 2,56,000 2,52,000 5,08,000
(`40×6,400) (`70×3,600)
Contribution 7,03,488 (2,42,424) 4,61,064
Fixed factory overheads - - 12,00,000
Other fixed costs (110%of - - 4,40,000
`4,00,000)
Profit/ (Loss) (11,78,936)

15. (a) (i) Discretionary Cost Centre: The cost centre whose output cannot be
measured in financial terms, thus input-output ratio cannot be defined. The
cost of input is compared with allocated budget for the activity. Example of
discretionary cost centres are Research & Development department,
Advertisement department where output of these department cannot be
measured with certainty and co-related with cost incurred on inputs.
(ii) Investment Centres: These are the responsibility centres which are not only
responsible for profitability but also has the authority to make capital
investment decisions. The performance of these responsibility centres are
measured on the basis of Return on Investment (ROI) besides profit. Examples
of investment centres are Maharatna, Navratna and Miniratna companies of
Public Sector Undertakings of Central Government.
(b) Advantages of Cost plus contracts are as follows:
(i) The Contractor is assured of a fixed percentage of profit. There is no risk of
incurring any loss on the contract.
(ii) It is useful specially when the work to be done is not definitely fixed at the time
of making the estimate.
(iii) Contractee can ensure himself about ‘the cost of the contract’, as he is
empowered to examine the books and documents of the contractor to
ascertain the veracity of the cost of the contract.
(c) The advantages of zero-based budgeting are as follows:
 It provides a systematic approach for the evaluation of different activities and
ranks them in order of preference for the allocation of scarce resources.
 It ensures that the various functions undertaken by the organization are critical
for the achievement of its objectives and are being performed in the best
possible way.
 It provides an opportunity to the management to allocate resources for various
activities only after having a thorough cost-benefit-analysis. The chances of
arbitrary cuts and enhancement are thus avoided.
 The areas of wasteful expenditure can be easily identified and eliminated.
 Departmental budgets are closely linked with corporation objectives.
 The technique can also be used for the introduction and implementation of the
system of ‘management by objective.’ Thus, it cannot only be used for
fulfillment of the objectives of traditional budgeting but it can also be used for a
variety of other purposes.

(d) This product costing system is used when an entity produces more than one variant
of final product using different materials but with similar conversion activities. This
means conversion activities are similar for all the product variants but materials
differ significantly. Operation Costing method is also known as Hybrid product
costing system as materials costs are accumulated by job order or batch wise but
conversion costs i.e. labour and overheads costs are accumulated by department,
and process costing methods are used to assign these costs to products. Moreover,
under operation costing, conversion costs are applied to products using a
predetermined application rate. This predetermined rate is based on budgeted
conversion costs.
The two examples of industries are Ready made garments and Jewellery making.

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

The Income-tax law, as amended by the Finance Act, 2019 and the Finance (No. 2) Act, 2019,
including significant notifications/circulars and legislative amendments made upto 30 th April,
2020, are applicable for November, 2020 examination. The relevant assessment year for
November, 2020 examination is A.Y.2020-21. The August 2019 edition of the Study Material is
based on the provisions of Income-tax law as amended by the Finance Act, 2019 and Finance
(No. 2) Act, 2019 and hence, the same is relevant for November 2020 examination.
The significant notifications/circulars and legislative amendments made upto 30.04.2020 which
are relevant for November, 2020 examination but not covered in the August 2019 edition of the
Study Material, are given hereunder:
Chapter 1: Basic Concepts
The August, 2019 edition of the Study Material contains the CBDT Press Release dated
24.8.2019, at Pg.4.362 of Module 2. According to this Press Release, the enhanced surcharge
of 25% and 37% on Income-tax, as the case may be, applicable where the total income of
Individuals/HUFs/AOPs/BoIs/Artificial Juridical Persons exceeds ` 2 crore and ` 5 crore,
respectively, has been withdrawn on income-tax payable at special rates on short-term capital
gain under section 111A and long-term capital gains under section 112A arising from the transfer
of equity share in a company or unit of an equity-oriented fund/ business trust, which has been
subject to securities transaction tax.
Consequently, the manner of computation of surcharge on income-tax, in case of Individuals/
HUFs/AOPs/BoIs/Artificial Juridical Persons for A.Y.2020-21 would be as follows:
Rate of Example
Particulars surcharge Components of total Applicable rate of
on income- income surcharge
tax
(i) Where the total 10%  STCG u/s 111A Surcharge would be
income (including ` 30 lakhs; levied @ 10% on
income under  LTCG u/s 112A income-tax computed
section 111A and ` 25 lakhs; and on total income of
112A) > ` 50 lakhs  Other income ` 40 ` 95 lakhs.
but ≤ ` 1 crore lakhs

(ii) Where total income 15%  STCG u/s 111A ` 60 Surcharge would be
(including income lakhs; levied@15% on
under section 111A  LTCG u/s 112A ` 65 income-tax computed
and 112A) exceeds lakhs; and on total income of
` 1 crore but does  Other income ` 50 ` 1.75 crores.
not exceed ` 2 crore lakhs
(iii) Where total income 25%  STCG u/s 111A ` 54 Surcharge would be
(excluding income lakh; levied @15% on
under section 111A  LTCG u/s 112A ` 55 income-tax on:
and 112A) exceeds lakh; and  STCG of ` 54
` 2 crore but does  Other income ` 3 lakhs chargeable
not exceed ` 5 crore crores to tax u/s 111A;
The rate of Not and
surcharge on the exceeding  LTCG of ` 55
income-tax payable 15% lakhs chargeable
on the portion of to tax u/s 112A.
income chargeable Surcharge@25%
to tax under section would be leviable on
111A and 112A income-tax computed
on other income of
` 3 crores included in
total income
(iv) Where total income 37%  STCG u/s 111A ` 50 Surcharge@15%
(excluding income lakhs; would be levied on
income-tax on:
under section 111A  LTCG u/s 112A ` 65  STCG of ` 50
and 112A) exceeds lakhs; and lakhs chargeable
` 5 crore  Other income ` 6 to tax u/s 111A;
Rate of surcharge on Not crore and
the income-tax exceeding  LTCG of ` 65
payable on the 15% lakhs chargeable
portion of income to tax u/s 112A.
Surcharge@37%
chargeable to tax
would be leviable on
under section 111A the income-tax
and 112A computed on other
income of ` 6 crores
included in total
income.

PAPER – 4: TAXATION 89
(v) Where total income 15%  STCG u/s 111A ` 60 Surcharge would be
(including income lakhs; levied@15% on
under section 111A  LTCG u/s 112A ` 55 income-tax computed
and 112A) exceeds lakhs; and on total income of
` 2 crore in cases  Other income ` 1.10 ` 2.25 crore.
not covered under crore
(iii) and (iv) above
Chapter 4 Unit 3: Profits and gains from Business and Profession

Increased rate of depreciation in respect of motor vehicles acquired and put to use during
the period from 23.8.2019 to 31.3.2020 [Notification 69/2019 dated 20.9.2019]
Depreciation
Particulars allowable as a % of
WDV
(i) Motor buses, motor lorries and motor taxis used in a 45%
business of running them on hire, acquired during the
period from 23.8.2019 to 31.3.2020 and put to use on or
before 31.3.2020
Note – For motor buses, motor lorries and motor taxis used
in a business of running them on hire, except those covered
in (i) above, the rate of depreciation would continue to be
30%.
(ii) Motor cars other than those used in a business of running 30%
them on hire, acquired during the period from 23.8.2019 to
31.3.2020 and put to use on or before 31.3.2020
Note – For motor cars, other than those used in a business
of running them on hire, acquired or put to use on or after
1.4.1990, except those covered in (ii) above, the rate of
depreciation would continue to be 15%
Chapter 4 Unit 4 : Capital Gains

Notification of Cost Inflation Index for Financial Year 2019-20 [Notification No. 63/2019,
dated 12.9.2019]
Clause (v) of Explanation to section 48 defines "Cost Inflation Index", in relation to a previous
year, to mean such Index as the Central Government may, by notification in the Official Gazette,

specify in this behalf, having regard to 75% of average rise in the Consumer Price Index (Urban)
for the immediately preceding previous year to such previous year.
Accordingly, the Central Government has, in exercise of the powers conferred by clause (v) of
Explanation to section 48, specified the Cost Inflation Index for the financial year 2019-20 as 289.
S.No. Financial Year Cost Inflation S.No. Financial Cost Inflation
Index Year Index
1 2001-02 100 11 2011-12 184
2 2002-03 105 12 2012-13 200
3 2003-04 109 13 2013-14 220
4 2004-05 113 14 2014-15 240
5 2005-06 117 15 2015-16 254
6 2006-07 122 16 2016-17 264
7 2007-08 129 17 2017-18 272
8 2008-09 137 18 2018-19 280
9 2009-10 148 19. 2019-20 289
10 2010-11 167
Chapter 4 Unit 5 : Income from Other Sources
Notification of class of persons, receipt of immovable property from whom would not attract
the provisions of section 56(2)(x) [Notification No. 96/2019 dated 11.11.2019]
Section 56(2)(x) brings to tax under the head “Income from Other Sources”, any sum of money
received without consideration, if the aggregate value exceeds ` 50,000 or value of immovable
property being land or building or both, received without consideration, if the stamp duty value
exceeds ` 50,000. It also brings to tax, in a case where immovable property is received for
inadequate consideration, the difference between the stamp duty value and actual sale
consideration, if the stamp duty value exceeds such consideration and such excess amount is more
than higher of ` 50,000 and 5% of sale consideration.
The proviso to section 56(2)(x), however, lists out the circumstances under which any sum of money
or value of property would not be chargeable to tax under the head “Income from other sources”.
The Finance (No.2) Act, 2019 has inserted clause (XI) to the proviso to provide that any sum of
money or value of property would not be chargeable to tax in the hands of the recipient if it is received
from such class of persons and subject to such conditions, as may be prescribed.
Accordingly, the Central Government has, vide this notification, inserted Rule 11UAC to provide that
the provisions of section 56(2)(x) shall not apply to any immovable property, being land or building
or both, received by a resident of an unauthorised colony in the National Capital Territory of Delhi,

where the Central Government by notification in the Official Gazette, regularised the transactions of
such immovable property based on the latest Power of Attorney, Agreement to Sale, Will, possession
letter and other documents including documents evidencing payment of consideration for conferring
or recognising right of ownership or transfer or mortgage in regard to such immovable property in
favour of such resident.
Meaning of the terms “Resident” and “Unauthorised colony”:

Term Meaning
Resident A person having physical possession of property on the basis of a registered
sale deed or latest set of Power of Attorney, Agreement to Sale, Will,
possession letter and other documents including documents evidencing
payment of consideration in respect of a property in unauthorised colonies
and includes their legal heirs but does not include tenant, licensee or
permissive user;
Unauthorised A colony or development comprising of a contiguous area, where no
colony permission has been obtained for approval of layout plan or building plans
and has been identified for regularisation of such colony in pursuance to the
notification number S.O. 683(E), dated the 24 th March, 2008, of the Delhi
Development Authority.
Permissible “Other electronic modes” prescribed for the purpose of certain sections
[Notification No. 8/2020, dated 29.01.2020]
The following sections have been amended by the Finance (No.2) Act, 2019 to permit payment/
receipt referred to therein by other electronic modes to be prescribed, in addition to account
payee cheque/bank draft and Electronic Clearing System (ECS) through bank account.
Section Description of payment/receipt Study Material
Page no.
35AD(8) Mode of payment of an amount exceeding ` 10,000 in a 4.231
day for capital expenditure in respect of specified
business
40A(3)/(3A) Mode of payment or aggregate of payments exceeding 4.277
` 10,000 in a day towards any expenditure (exceeding
` 35,000 in a day, in case of payment to transport
operator)
43(1) Mode of payment or aggregate of payments exceeding 4.201
` 10,000 in a day to a person for acquisition of asset (for
inclusion in actual cost for computing depreciation)

44AD(1) Receipts, included in “turnover/gross receipts”, 4.299

qualifying for computation of presumptive income
@ concessional rate of 6%
43CA Mode of payment of part or whole of consideration for 4.290
transfer of stock-in trade, being land or building or both,
on or before the date of agreement for considering
stamp duty value on the date of agreement for the
purpose of determining full value of consideration for
computing profits and gains from business or profession
50C Mode of payment of part or whole of consideration for 4.420
transfer of capital asset, being land or building or both,
on or before the date of agreement for considering
purpose of determining full value of consideration for
computing capital gains
56(2)(x) Mode of receipt of part or whole of consideration for 4.490
transfer of immovable property, being land or building or
both, on or before the date of agreement for considering
purpose of computing income under the head “Income
from other sources”.
80JJAA Mode of payment of emoluments to additional 7.56
employees employed during the previous year to qualify
for deduction
Accordingly, the CBDT has, vide this notification, inserted Rule 6ABBA to prescribe the following
electronic modes through which payment can be made or money can be received, for the
purposes of above sections cited in the above table -
(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhar Pay.

Note – Consequent to insertion of Rule 6ABBA, Rule 6DD which specifies the cases and
circumstances where disallowance under section 40A(3) would not be attracted, has been
amended w.e.f. 29.1.2020 to omit clause (j) thereof providing for exclusion of payment required
to be made on a day on which the banks were closed either on account of holiday or strike from
the purview of section 40A(3). Accordingly, w.e.f. 29.1.2020, payment in excess of the
prescribed limit made otherwise than by prescribed modes on a day on which the banks are
closed on account of holiday or strike would attract disallowance under section 40A(3).
Chapter 9: Advance Tax, Tax Deduction at Source and Introduction to Tax Collection at
Source
Tax deducted at source on cash withdrawals [Section 194N]
The Finance (No. 2) Act, 2019 has inserted section 194N, with effect from 1.9.2019 to require
every person, being a banking company, a co-operative society engaged in carrying on the
business of banking or a post office who is responsible for paying, in cash, any sum or aggregate
of sums exceeding ` 1 crore during the previous year to any person from one or more accounts
maintained by such recipient-person with it, to deduct tax at source @2% of sum exceeding
` 1 crore. The deduction is to be made at the time of payment of such sum.
 Clarification as to the applicability of section 194N and manner of computing the
threshold limit of ` 1 crore thereunder, where cash withdrawals have taken place
prior to 1.9.2019 [Press Release dated 30.8.2019]
The CBDT has, vide Press Release dated 30.8.2019, clarified that section 194N is to come
into effect from 1 st September, 2019. Hence, any cash withdrawal prior to 1 st September,
2019 will not be subjected to the TDS under section 194N. However, since the threshold
of ` 1 crore is with respect to the previous year 2019-20, calculation of amount of cash
withdrawal for triggering deduction under section 194N shall be counted from 1 st April,
2019. Hence, if a person has already withdrawn ` 1 crore or more in cash upto 31 st August,
2019 from one or more accounts maintained with a banking company or a cooperative
bank or a post office, TDS@2% shall apply on all subsequent cash withdrawals.
 No tax is required to be deducted at source under section 194N on cash withdrawals
by persons or class of persons as notified by the Central Government [Notification
No. 68/2019 dated 18.9.2019, Notification No. 70/2019 dated 20.09.2019 & Notification
No. 80/2019, dated 15.10.2019]
The proviso to section 194N provides that no tax is, however, required to be deducted at
source on payments made to inter alia such other person or class of persons as notified,
in consultation with the RBI, by the Central Government.
Accordingly, the Central Government has, vide these notifications, after consultation with
the Reserve Bank of India (RBI), specified –

I. Cash Replenishment Agencies (CRA’s) and franchise agents of White Label

Automated Teller Machine Operators (WLATMO’s) maintaining a separate bank
account from which withdrawal is made only for the purposes of replenishing cash in
the Automated Teller Machines (ATM’s) operated by such WLATMO’s and the
WLATMO have furnished a certificate every month to the bank certifying that the bank
account of the CRA’s and the franchise agents of the WLATMO’s have been
examined and the amounts being withdrawn from their bank accounts has been
reconciled with the amount of cash deposited in the ATM’s of the WLATMO’s.
II. Commission agent or trader, operating under Agriculture Produce Market
Committee (APMC), and registered under any Law relating to Agriculture
Produce Market of the concerned State, who has intimated to the banking company
or co-operative society or post office his account number through which he wishes to
withdraw cash in excess of ` 1 crore in the previous year along with his Permanent
Account Number (PAN) and the details of the previous year and has certified to the
banking company or co-operative society or post office that the withdrawal of cash
from the account in excess of ` 1 crore during the previous year is for the purpose of
making payments to the farmers on account of purchase of agriculture produce and
the banking company or co-operative society or post office has ensured that the PAN
quoted is correct and the commission agent or trader is registered with the APMC,
and for this purpose necessary evidences have been collected and placed on record.
III. (a) the authorised dealer and its franchise agent and sub-agent; and
(b) Full-Fledged Money Changer (FFMC) licensed by the RBI and its franchise
agent;
Such persons should maintain a separate bank account from which withdrawal is
made only for the purposes of -
(i) purchase of foreign currency from foreign tourists or non-residents visiting India
or from resident Indians on their return to India, in cash as per the directions or
guidelines issued by RBI; or
(ii) disbursement of inward remittances to the recipient beneficiaries in India in cash
under Money Transfer Service Scheme (MTSS) of the RBI;
The exemption from the requirement to deduct tax u/s 194N would be available only if
a certificate is furnished by the authorised dealers and their franchise agent and sub -
agent, and the Full-Fledged Money Changers (FFMC) and their franchise agent to the
bank that withdrawal is only for the purposes specified above and the directions or
guidelines issued by the RBI have been adhered to.
“Authorised dealer” means any person who is authorised by the RBI as an authorised
dealer to deal in foreign exchange [Section 10(1) of the Foreign Exchange Management
Act, 1999].

 Information to be furnished where tax is not deductible or deductible at lower rate

under section 194N [Notification No. 98/2019, dated 18.11.2019]
The proviso to section 194N provides that no tax is, however, required to be deducted at
source on any payment made to -
(i) the Government
(ii) any banking company or co-operative society engaged in carrying on the business
of banking or a post-office
(iii) any business correspondent of a banking company or co-operative society engaged
in carrying on the business of banking, in accordance with the RBI guidelines.
(iv) any white label ATM operator of a banking company or co-operative society engaged
in carrying on the business of banking, in accordance with the authorisation issued
by the RBI under the Payment and Settlement Systems Act, 2007.
(v) such other person or class of persons notified by the Central Government in
consultation with the RBI.
Accordingly, the CBDT has, vide this notification, inserted clause (ix) in Rule 31A(4) to
provide that the deductor, at the time of preparing statement of tax deducted at source,
shall furnish the particulars of amount paid or credited on which tax was not deducted in
view of the exemption provided in point no. (iii) or (iv) above or in view of the Notification
No. 80/2019, dated 15.10.2019 issued under point (v) above.
 Person to whom credit to be given for tax deduction at source and payment thereof
under section 194N [Notification No. 74/2019, dated 27.9.19]
Rule 37BA provides the manner of giving credit for tax deducted and remitted to the Central
Government i.e., it specifies the person to whom credit for tax deducted is to be given and
also the assessment year for which the credit may be given.
Accordingly, the CBDT has, vide this notification, inserted sub-rule (3A) in Rule 37BA, to
provide that, for the purposes of section 194N, credit for tax deducted at source shall be
given to the person from whose account tax is deducted and paid to the Central
Government account for the assessment year relevant to the previous year in which such
tax deduction is made.
Time limit, form and manner of depositing tax deducted at source under section 194M
prescribed [Notification No. 98/2019, dated 18.11.2019]
Section 194M, inserted with effect from 1.9.2019, provides for deduction of tax at source @5%
by an individual or a HUF responsible for paying any sum during the financial year to any
resident –

(i) for carrying out any work (including supply of labour for carrying out any work) in pursuance
of a contract; or
(ii) by way of commission (not being insurance commission referred to in section 194D) or
brokerage; or
(iii) by way of fees for professional services.
Only individuals and HUFs (other than those who are required to deduct income-tax as per the
provisions of section 194C or 194H or 194J) are required to deduct tax in respect of the above
sums payable during the financial year to a resident, if the aggregate of s uch sums, credited or
paid, exceed ` 50 lakhs.
Consequent to insertion of section 194M, the CBDT has, vide this notification, amended Rule 30, 31
and 31A in the following manner to specify the time limit for depositing the tax deducted at source,
challan-cum- statement, certificate for deduction of tax at source:
Rule No. Provision
Rule 30(2C) Time limit and prescribed form for remittance of TDS
Any sum deducted under section 194M shall be paid to the credit of the
Central Government within a period of thirty days from the end of the
month in which the deduction is made and shall be accompanied by a
challan-cum statement in Form No. 26QD.
Rule 30(6C) Manner of remittance of TDS
Where tax deducted is to be deposited accompanied by a challan-cum-
statement in Form No.26QD, the amount of tax so deducted shall be
deposited to the credit of the Central Government by remitting it
electronically within thirty days from the end of the month in which the
deduction is made into the Reserve Bank of India or the State Bank of India
or any authorised bank.
Rule 31(3C) Certificate for deduction of tax at source and time limit for
furnishing such certificate to the payee
Every person responsible for deduction of tax under section 194M shall
furnish the certificate of deduction of tax at source in Form No.16D to the
payee within fifteen days from the due date for furnishing the challan-
cum-statement in Form No.26QD under rule 31A after generating and
downloading the same from the web portal specified by the Principal
Director General of Income-tax (Systems) or the Director General of
Income-tax (Systems) or the person authorised by him.

Rule 31A(4C) Time limit and manner of submission of Challan-cum Statement

Every person responsible for deduction of tax at source under section
194M shall furnish to the Principal Director General of Income-tax
(Systems) or Director General of Income-tax (System) or the person
authorised by the Principal Director General of Income-tax (Systems) or
the Director General of Income-tax (Systems) a challan-cum statement in
Form No.26QD electronically in accordance with the procedures, formats
and standards specified under Rule 31A(5) within thirty days from the
end of the month in which the deduction is made.
Chapter 10: Provisions for filing return of income and self-assessment

Manner for allotment of PAN to a person who has not been allotted a PAN but possesses
Aadhaar number [Notification No. 59/2019, dated 30.8.2019]
The Finance (No.2) Act, 2019, has inserted sub-section (5E) to section 139A, w.e.f. 1.9.2019,
to provide inter alia that every person who is required to furnish or intimate or quote his PAN
and who has not been allotted a PAN but possesses the Aadhaar number, may furnish or
intimate or quote his Aadhaar Number in lieu of the PAN and such person would be allotted a
PAN in such manner as may be prescribed.
Rule 114(4) requires submission of application for allotment of PAN by the applicant in the
prescribed form accompanied by the prescribed documents as proof of identity, address and
date of birth of such applicant.
The CBDT has, vide this notification, inserted sub-rule (1A) to Rule 114 w.e.f. 1.9.2019 to
provide that any person, who has not been allotted a PAN but possesses the Aadhaar number
and has furnished or intimated or quoted his Aadhaar number in lieu of the PAN in accordance
with section 139A(5E), shall be deemed to have applied for allotment of PAN and he shall not
be required to apply or submit any documents under Rule 114.
Further, sub-rule (1B) has also been inserted in Rule 114 to provide that any person, who has
not been allotted a PAN but possesses the Aadhaar number may apply for allotment of the PAN
under section 139A(1)/(1A)/(3) by intimating his Aadhaar number and he shall not be required
to apply or submit any documents under Rule 114.
Date for intimation of Aadhaar number to the prescribed authority extended [Notification
No. 107/2019, dated 30.12.2019]
As per section 139AA(2), every person who has been allotted Permanent Account Number (PAN)
as on 1st July, 2017, and who is eligible to obtain Aadhaar Number, shall intimate his Aadhaar
Number to prescribed authority on or before a date as may be notified by the Central Government.
Accordingly, the Central Government has, vide Notification No. 31/2019, dated 31.03.2019, notified
that every person who has been allotted PAN as on 1 st July, 2017, and who is eligible to obtain

Aadhaar number, shall intimate his Aadhaar number to the Principal DGIT (Systems) or Principal
Director of Income-tax (Systems) on or before 30th September, 2019.
The Central Government has, vide Notification No. 75/2019, dated 28.9.2019 further extended the
date from 30th September 2019 to 31st December 2019.
This date has further been extended by the Central Government, vide this notification, from 31st
December 2019 to 31st March 2020.
Note – Subsequently, this date has been further extended to 31st March, 2021.
Notwithstanding the last date of intimating/linking of Aadhaar Number with PAN being 31.03.2021,
it is clarified that w.e.f. 01.04.2019, it is mandatory to quote and link Aadhaar number while filing
the return of income, either manually or electronically, unless specifically exempted.
Note – (1) Extension of dates/due dates and other relaxations vide PIB Press Release dated
24.3.2020/Notification No. 35/2020 dated 24.6.2020 on account of COVID 19 pandemic are not
applicable for November, 2020 examinations. Further, CBDT Circular No.11/2020 dated
8.5.2020 providing relaxation of residency conditions for P.Y.2019-20 for individuals stranded
in India due to COVID-19 lockdown is not applicable.
(2) Direct Tax Vivad se Vishwas Act, 2020 and Rules, 2020 are not applicable for November,
2020 examination.
PART II: QUESTIONS AND ANSWERS
OBJECTIVE TYPE QUESTIONS
1. Mr. A (aged 52 years), is a CEO of XYZ Enterprise Limited. During the previous year
2019-20, he earned salary of ` 1,65,00,000 and long-term capital gain on sale of listed
equity shares amounting to ` 1,06,500. He earned interest of ` 4,82,778 on saving
account.
Further, he has provided the following other information for filing his return of income:
He does not receive house rent allowance from his employer. Mr. A took a loan from State
Bank of India on 27th October 2017 for repairing his house (self-occupied) at Delhi and
paid interest on such borrowings of ` 80,000 and ` 1,50,000 towards principal amount
during the previous year 2019-20.
Mr. A has made the following payments towards medical insurance premium for health
policies taken for his family members:
Medical premium for his brother: ` 13,500 (by cheque)
Medical premium for his parents: ` 17,670 (by cheque)
Medical premium for self and his wife: ` 21,000 (by cheque).

He also incurred ` 6,400 towards preventive health check-up of his wife in cash. He
deposited ` 1,00,000 towards PPF. He also deposited ` 50,000 and 2,50,000 towards Tier
I and Tier II NPS A/c, respectively.
He has paid ` 5,30,000 as advance tax. His employer has deducted tax at source of
` 51,89,000. He is of the opinion the balance amount of tax, if any he will pay on 27 July
2020 (i.e. before the due date for filing of return of income).
From the details given above, choose the most appropriate option to the questions given
below:
(i) Compute the amount of deduction available to Mr. A under Chapter VI-A for the
assessment year 2020-21:
(a) ` 2,04,070
(b) ` 2,42,670
(c) ` 2,52,670
(d) ` 2,02,670
(ii) Assuming Mr. A pays rent of ` 65,000 per month for his rented house at Mumbai to
Mr. C, a resident individual, is Mr. A liable to deduct TDS on such rent. If so, what
would be the rate and amount of TDS?
(a) Yes, Mr. A is liable to deduct TDS @5% amounting to ` 3,250 every month i.e.,
at the time of payment of such rent
(b) Yes, Mr. A is liable to deduct TDS @10% amounting to ` 6,500 every month i.e.,
at the time of payment of such rent
(c) Yes, Mr. A is liable to deduct TDS @5% amounting to ` 39,000 in the month of
March 2020
(d) No, Mr. A is not liable to deduct TDS, since he is not required to get his books
of accounts audited under section 44AB
(iii) What would be the amount of net tax payable for the assessment year 2020-21 in the
hands of Mr. A?
(a) Tax payable of ` 78,230
(b) Tax payable of ` 60,290
(c) Tax payable of ` 49,530
(d) Tax payable of ` 67,470

(iv) Compute the amount of interest chargeable under section 234B on account of short
payment of advance tax:
(a) ` 1,980
(b) Nil
(c) ` 3,130
(d) ` 2,410
2. Ms. Chanchal, aged 45, provides the following data of her gross receipts for the financial
year 2018-19 and 2019-20. She is engaged in agency business along with providing
services as tarot card reader.
F.Y. Receipts from Receipts from Total Gross
business (`) profession (` ) Receipts (` )
2018-19 78,00,000 43,00,000 1,21,00,000
2019-20 85,00,000 47,00,000 1,32,00,000
During the F.Y. 2019-20, she paid an amount of ` 1,20,000 to a contractor for polishing
her old furniture. She has taken services from renowned interior designers for her self-
occupied residential house property for which she paid ` 2,50,000.
Further, on 28.05.2019 she sold one commercial property for ` 50,00,000. The value
adopted for stamp duty was ` 52,00,000. It was purchased for ` 40,00,000 on 28.04.2017.
(Cost Inflation Index for F.Y. 2019-20: 289, F.Y. 2017-18: 272).
The brought forward long-term capital loss from unlisted shares of F.Y. 2018-19 is
` 7,80,000.
During the year, Ms. Chanchal incurred a loss of ` 70,00,000 while trading in the
agricultural commodity derivatives (no CTT paid).
From the details given above, choose the most appropriate option to the questions given
below:
(i) Is Ms. Chanchal liable to tax audit under the Income-tax Act, 1961 for the P.Y. 2019-
20?
(a) Yes, as the total gross receipts exceeds ` 1,00,00,000
(b) No, as the gross receipts from business or profession are below the specified
threshold limits.
(c) Yes, as the gross receipts from business exceed ` 50,00,000
(d) Yes, as the gross receipts from profession exceed ` 25,00,000

(ii) What is the total amount of tax to be deducted by Ms. Chanchal for P.Y. 2019-20?
(a) ` 1,200
(b) ` 26,200
(c) Nil
(d) ` 27,400
(iii) What is the amount and nature of Capital gain chargeable to tax in the hands of
Ms. Chanchal?
(a) ` 10,00,000 and Short-term capital gain.
(b) ` 12,00,000 and Short-term capital gain.
(c) ` 7,50,000 and Long-term capital gain.
(d) ` 9,50,000 and Long-term capital gain.
(iv) What is the amount of losses which can be carried forward to A.Y. 2021-22, assuming
that business income is ` 45,00,000 and income from profession is
` 25,00,000 for the P.Y. 2019-20?
(a) ` 7,80,000 under section 74
(b) ` 70,00,000 under section 73
(c) ` 30,000 under section 74
(d) ` 30,000 under section 74 and ` 70,00,000 under section 73
3. Mr. A, aged 45 years sold an agricultural land for ` 52 lakhs on 04.10.2019 acquired at a
cost of ` 49.25 lakhs on 13.09.2018 situated at 7 kms from the jurisdiction of municipality
having population of 4,00,000 and also sold another agricultural land for
` 53 lakhs on 12.12.2019 acquired at a cost of ` 46 lakhs on 15.02.2018 situated at 1.5
kms from the jurisdiction of municipality having population of 12,000. What would be the
amount of capital gain chargeable to tax in the hands of Mr. A for the assessment year
2020-21? Cost inflation index for F.Y. 2017-18: 272; 2018-19: 280; 2019-20:289.
(a) Short-term capital gain of ` 9.75 lakhs
(b) Short-term capital gain of ` 7 lakhs
(c) Long-term capital gain of ` 4,12,500
(d) Long-term capital gain of ` 5,29,196
4. Mr. Arjun holding 1000 shares of X Ltd acquired on 01.07.2018 for ` 600 per share, sold
500 shares to Mr. Shaurya, on 01.05.2019 for ` 550 per share. X Ltd. declared dividend
@ ` 65 per share on 20.07.2019, being the record date for declaration of dividend.
Mr. Shaurya sold 300 equity shares at ` 475 per share on 28.09.2019 and the balance 200

equity shares at ` 450 per share on 28.10.2019. Apart from above mentioned information,
Mr. Shaurya was having only long-term capital gains from sale of unlisted shares of
` 50,000. Assuming that Mr. Shaurya has no other income, his total income for A.Y.
2020-21 is –
(a) ` 7,500
(b) ` 27,000
(c) ` 50,000
(d) ` 30,000
5. An amount of ` 40,000 was paid to Mr. X on 1.7.2019 towards fees for professional
services without deduction of tax at source. Subsequently, another payment of ` 50,000
was due to Mr. X on 28.2.2020, from which tax@10% (amounting to` 9,000) on the entire
amount of ` 90,000 was deducted. However, this tax of ` 9,000 was deposited only on
22.6.2020. The interest chargeable under section 201(1A) would be:
(a) ` 1,080
(b) ` 860
(c) ` 1,620
(d) ` 840
6. Mr. Nishant, a resident but not ordinarily resident for the previous year 2018-19 and
resident and ordinarily resident for the previous year 2019-20 has received rent from
property in Canada amounting to ` 1,00,000 during the P.Y.2018-19. He has deposited
the same in a bank in Canada. During the financial year 2019-20, he remitted this amount
to India through approved banking channels. Is such rent taxable in India, and if so, how
much and in which year?
(a) Yes; ` 70,000 was taxable in India during the previous year 2018-19.
(b) Yes; ` 1,00,000 was taxable in India during the previous year 2018-19.
(c) Yes; ` 70,000 was taxable in India during the previous year 2019-20.
(d) No; such rent is not taxable in India either during the previous year 2018-19 or during
the previous year 2019-20.
7. Mr. Dinesh, a resident in India, has gross total income of ` 2,30,000 comprising of interest
on saving A/c and rental income during the previous year 2019-20. He incurred expenditure
of ` 2,00,000 for his son for a study tour to Europe. Whether he is required to file return of
income for the assessment year 2020-21? If yes, what is the due date?
(a) Yes, 31st July of A.Y

(b) Yes, 30th September of A.Y

(c) Yes, 31st October of A.Y
(d) No, he is not required to file return of income
8. Mr. Nihar maintains a Savings A/c and a Current A/c in Mera Bank Ltd. The details of
withdrawals on various dates during the previous year 2019-20 are as follows:
Date of Cash withdrawal Saving Account Current account
05.04.2019 15,00,000 -
10.05.2019 - 22,00,000
25.06.2019 20,00,000 -
17.07.2019 - 5,00,000
28.10.2019 35,00,000 -
10.11.2019 - 38,00,000
12.12.2019 25,00,000 -
Is Mera Bank Limited required to deduct tax at source on the withdrawals made by
Mr. Nihar during the previous year 2019-20? If yes, what would the amount of tax deducted
at source?
(a) No, TDS is not required to be deducted as the aggregate cash withdrawal on or after
1.9.2019 does not exceed ` 1 crore
(b) No, TDS is not required to be deducted as the cash withdrawal does not exceed
` 1 crore neither in saving account nor in current account
(c) TDS of ` 60,000 is required to be deducted.
(d) TDS of ` 1,20,000 is required to be deducted.
DESCRIPTIVE QUESTIONS
9. You are required to determine the residential status of Mr. Dinesh, a citizen of India, for
the previous year 2019-20.
Mr. Dinesh is a member of crew of a Singapore bound Indian ship, carrying passengers in
the international waters, which left Kochi port in Kerala, on 16th August, 2019.
Following details are made available to you for the previous year 2019-20:
Particulars Date
Date entered into the Continuous Discharge Certificate in 16th August, 2019
respect of joining the ship by Mr. Dinesh

Date entered into the Continuous Discharge Certificate in 21st January, 2020
respect of signing off the ship by Mr. Dinesh
In June, 2019, he had gone out of India to Dubai on a private tour for a continuous period
of 27 days.
During the last four years preceding the previous year 2019-20, he was present in India
for 425 days. During the last seven previous years preceding the previous year 2019 -20,
he was present in India for 830 days.
10. Explain with brief reasons, whether the following income can be regarded as agricultural
income, as per the provisions of the Income-tax Act, 1961:
(i) Rent received for letting out agricultural land for a movie shooting .
(ii) Income from sale of seedlings in a nursery adjacent to the agricultural lands owned
by an assessee.
11. Mr. Neeraj, a salaried employee, furnishes the following details for the financial year
2019-20:
Particulars `
Basic salary 5,40,000
Dearness allowance 3,60,000
Commission 50,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 21,000
Profession tax (of this, 50% paid by employer) 4,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 12,000
Life insurance premium of Neeraj paid by employer 34,000
Laptop provided for use at home. Actual cost of Laptop to employer
30,000
Children of the assessee are also using the Laptop at home]
Employer company owns a Maruti Suzuki Swift car (Engine cubic capacity
more than 1.6 litres), which was provided to the assessee, both for official
and personal use. No driver was provided. All expenses are met by the
employer
Annual credit card fees paid by employer [Credit card is not exclusively
5,000
used for official purposes; details of usage are not available]
You are required to compute the income chargeable under the head Salaries for the
assessment year 2020-21.

12. Ms. Pihu has three houses, all of which are self-occupied. The particulars of these houses
are given below:
(Value in `)
Particulars House – I House – II House-III
Municipal Valuation per annum 1,30,000 1,20,000 1,20,000
Fair Rent per annum 1,10,000 1,85,000 1,45,000
Standard rent per annum 1,00,000 1,90,000 1,30,000
Date of completion 30-01-2005 31-07-2008 31.5.2011
Municipal taxes payable during the year 12% 9% 10%
(paid for House II & III only)
Interest on money borrowed for repair of - 75,000 -
property during current year
You are required to compute Pihu’s income from house property for the Assessment Year
2020-21 and suggest which houses should be opted by Pihu to be assessed as self-
occupied so that her tax liability is minimum.
13. Mr. Karan gifted a sum of ` 9 lakhs to his brother’s minor son on 1-5-2019. On
the same date, his brother gifted debentures worth ` 10 lakhs to Mrs. Karan. Son of
Mr. Karan’s brother invested the amount in fixed deposit with Canara Bank @ 9% p.a.
interest and Mrs. Karan received interest of ` 81,000 on these debentures during the
previous year 2019-20. Discuss the tax implications under the provisions of the Income-
tax Act, 1961.
14. Mr. Krishan, residing in Indore, provides the following information for the financial year
2019-20:
Particulars `
Income from textile business 4,60,000
Income from speculation business 25,000
Loss from gambling 12,000
Loss on maintenance of race horse 15,000
Current year depreciation of textile business not adjusted in the income given 5,000
above.
Unabsorbed depreciation of assessment year 2018-19 10,000
Speculation business loss of assessment year 2019-20 30,000
Compute the Gross Total Income of Mr. Krishan for the Assessment year 2020-21 and also
state the losses eligible for carry forward and period upto which such losses can be carried
forward.

15. Mr. Suraj aged 50 years, a resident individual, engaged in a wholesale business of health
products. He is also a partner in XYZ & Co., a partnership firm. The following details are
made available for the year ended 31.3.2020:
Sl. No. Particulars ` `
(i) Interest on capital received from XYZ & Co., at 15% [in 1,50,000
accordance with the partnership deed]
(ii) Share of profit from the firm 35,000
(iii) Salary as working partner (fully allowed in the hands of 1,00,000
the firm)
(iv) Interest from bank on fixed deposit (Net of TDS) 40,500
(v) Interest on saving bank account 12,300
(vi) Income-tax refund received relating to assessment 34,500
year 2019-20 including interest of ` 2,300
(vii) Net profit from wholesale business 5,60,000
Amounts debited include the following:
- Depreciation as per books 34,000
- Motor car expenses 40,000
- Municipal taxes for the shop 7,000
(For two half years; payment for one half year made
on 12.7.2020 and for the other on 31.12.2020)
Salary to manager by way of a single cash payment 21,000
(viii) The WDV of the assets (as on 1.4.2019) used in above
wholesale business is as under:
- Computers 2,40,000
- Computer printer 1,50,000
(ix) Motor car acquired on 31.12.2019 (20% used for 6,80,000
personal use)
(x) He owned a house property in Mumbai which was sold 1,15,000
in January, 2015. He received arrears of rent in
respect of the said property in October, 2019.
(x) LIP paid for independent son 60,000
(xi) PPF of his wife 70,000
(xii) Health insurance premium paid towards a policy 35,000
covering her mother aged 75 by way of cheque. She
is not dependant on him.

(xiii) Contribution toward Prime Minister National Relief 50,000

Fund
You are required to compute the total income of the Mr. Suraj for the assessment year
2020-21 and the closing WDV of each block of assets.
SUGGESTED ANSWERS
OBJECTIVE TYPE QUESTIONS
MCQ Sub- Most Appropriate MCQ Most Appropriate
No. part Answer No. Answer
1. (i) (d) 3. (b)
(ii) (c) 4. (b)
(iii) (c) 5. (b)
(iv) (b) 6. (d)
2. (i) (b) 7. (d)
(ii) (c) 8. (d)
(iii) (c)
(iv) (c)
DESCRIPTIVE QUESTIONS
9. Determination of residential status of Mr. Dinesh for the P.Y. 2019-20
As per Explanation 1 to section 6(1), where an Indian citizen leaves India as a member of
crew of an Indian ship, he will be resident in India only if he stayed in India for 182 days
during the relevant previous year.
As per Explanation 2 to section 6(1)1, in case of an individual, being a citizen of India and
a member of the crew of a foreign bound ship leaving India, the period or periods of stay
in India shall, in respect of an eligible voyage, not include the period commencing from the
date entered into the Continuous Discharge Certificate in respect of joining of ship by the
said individual for the eligible voyage and ending on the date entered into the Continuous
Discharge Certificate in respect of signing off by that individual from the ship in respect of
such voyage.
Eligible voyage includes a voyage undertaken by an Indian ship engaged in the carriage
of passengers in international traffic, originating from any port in India and having its
destination at a port outside India.
1
read with Rule 126 of Income-tax Rules, 1962

In this case, voyage is undertaken by a foreign bound Indian ship engaged in the carriage
of passengers in international traffic, originating from a port in India (i.e., the Kochi port)
and having its destination at a port outside India (i.e., the Singapore port). Hence, the
voyage is an eligible voyage.
Therefore, the period from 16th August, 2019 and ending on 21 st January, 2020 has to be
excluded for computing the period of stay of Mr. Dinesh in India. Accordingly, the period
of 159 days [16+30+31+30+31+21] has to be excluded for computing the period of his stay
in India during the P.Y.2019-20.
Further, since Mr. Dinesh had also gone out of India to Dubai on a private tour for a
continuous period of 27 days in June, 2019, such period has also to be excluded for
computing his period of stay in India during the P.Y.2019-20.
Consequently, the period of stay in India during the P.Y. 2019-20 would be 180 days [i.e.,
366 days – 159 days – 27 days], which is less than 182 days.
Thus, Mr. Dinesh would be a non-resident for A.Y. 2020-21.
Since the residential status of Mr. Dinesh is “non-resident” for A.Y. 2020-21 consequent to
his number of days of stay in India in P.Y. 2019-20, being less than 182 days, his period
of stay in India in the earlier previous years become irrelevant.
10. (1) Rent received for letting out agricultural land for a movie shooting:
As per section 2(1A), “agricultural income” means, inter alia,
 any rent or revenue derived from land
 which is situated in India and is used for agricultural purposes.
In the present case, rent is being derived from letting out of agricultural land for a
movie shoot, which is not an agricultural purpose and hence, it does not constitute
agricultural income.
(2) Income from sale of seedlings in a nursery:
As per Explanation 3 to section 2(1A), income derived from saplings or seedlings
grown in a nursery is deemed to be agricultural income, whether or not the basic
operations were carried out on land.
Therefore, the amount received from sale of seedlings in a nursery adjacent to the
agricultural lands owned by the assessee constitutes agricultural income.
11. Computation of income chargeable under the head “Salaries”
of Mr. Neeraj for A.Y.2020-21
Particulars `
Basic Salary 5,40,000

Dearness allowance 3,60,000

Commission 50,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer is fully taxable 21,000
Professional tax paid by the employer is a taxable perquisite as per 2,000
section 17(2)(iv), since it is an obligation of the employee which is paid
by the employer
Health insurance premium of ` 9,000 paid by the employer is an exempt Nil
perquisite [Clause (iii) of proviso to section 17(2)]
Gift voucher given by employer on Mr. Neeraj birthday [entire amount is 12,000
taxable since the perquisite value exceeds ` 5,000, as per Rule 3(7)(iv)]
Life insurance premium of Mr. Neeraj paid by employer is a taxable 34,000
perquisite as per section 17(2)(v)
Laptop provided for use at home is an exempt perquisite as per Rule Nil
3(7)(vii)
Provision of motor car (engine cubic capacity more than 1.6 litres) owned
by employer provided to employee, the perquisite value would be 28,800
` 28,800 [` 2,400 ×12] as per Rule 3(2)
Annual credit card fees paid by employer is a taxable perquisite as per
Rule 3(7)(v) since the credit card is not exclusively used for official
purposes and details of usage are not available 5,000
Gross Salary 10,60,300
Less: Deductions under section 16
- Standard Deduction as per section 16(ia), lower of gross salary 50,000
and ` 50,000
- Entertainment allowance (deduction not allowable since Nil
Mr. Neeraj is not a Government employee)
- Professional tax paid allowable as deduction as per section 4,000
16(iii)
Income chargeable under the head “Salaries” 10,06,300
Note: As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by
member of his household on ceremonial occasions or otherwise from the employer shall
be determined as the sum equal to the amount of such gift. However, the value of any gift
or voucher received by the employee or by member of his household below ` 5,000 in
aggregate during the previous year would be exempt as per the proviso to Rule 3(7)(iv). In
this case, the gift voucher of ` 12,000 was received by Mr. Neeraj from his employer on
the occasion of his birthday. Since the value of the gift voucher exceeds the limit of

` 5,000, the entire amount of ` 12,000 is liable to tax as perquisite. The above solution
has been worked out accordingly.
An alternate view possible is that only the sum in excess of ` 5,000 is taxable in view of the
language of Circular No.15/2001 dated 12.12.2001, which states that such gifts upto ` 5,000
in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite.
As per this view, the value of perquisite would be ` 7,000. Accordingly, the gross salary and
net salary would be 10,55,300 and 10,01,300, respectively.
12. In this case, Pihu has more than two house properties for self-occupation. As per section
23(4), Pihu can avail the benefit of self-occupation (i.e., benefit of “Nil” Annual Value) only
in respect of any two of the house properties, at her option. The other house property would
be treated as “deemed let-out” property, in respect of which the Expected rent would be
the gross annual value. Pihu should, therefore, consider the most beneficial option while
deciding which house properties should be treated by her as self-occupied.
OPTION 1 [House I & II – Self-occupied and House III- Deemed to be let out]
If House I and II are opted to be self-occupied, Pihu’s income from house property for
A.Y.2020-21 would be –
Particulars Amount in `
House I (Self-occupied) [Annual value is Nil] Nil
House II (Self-occupied) [Annual value is Nil, but interest deduction
would be available, subject to a maximum of ` 30,000. In case of
money borrowed for repair of self-occupied property, the interest (30,000)
deduction would be restricted to `30,000, irrespective of the date of
borrowal].
House III (Deemed to be let-out) [See Working Note below] 82,600
Income from house property 52,600
OPTION 2 [House I & III – Self-occupied and House II- Deemed to be let out]
If House I and III are opted to be self-occupied, Pihu’s income from house property for
House I (Self-occupied) [Annual value is Nil] Nil
House II (Deemed to be let-out) [See Working Note below] 46,940
House III (Self-occupied) [Annual value is Nil] Nil

OPTION 3 [House I – Deemed to be let out and House II & III – Self-occupied]
If House II and III are opted to be self-occupied, Pihu’s income from house property for
House I (Deemed to be let-out) [See Working Note below] 70,000
House II (Self-occupied) [Annual value is Nil, but interest deduction
would be available, subject to a maximum of ` 30,000. In case of
money borrowed for repair of self-occupied property, the interest (30,000)
deduction would be restricted to `30,000, irrespective of the date of
borrowal].
House III (Self-occupied) [Annual value is Nil] Nil
Since Option 3 is more beneficial, Pihu should opt to treat House – II & III as Self-
occupied and House I as Deemed to be let out, in which case, her income from house
property would be ` 40,000 for the A.Y. 2020-21.
Working Note:
Computation of income from House I, II and House III assuming that all are deemed
to be let out
Particulars Amount in Rupees
House I House II House III
Gross Annual Value (GAV)
Expected rent is the GAV of house property
Expected rent= Higher of Municipal Value and 1,00,000 1,85,000 1,30,000
Fair Rent but restricted to Standard Rent
Less: Municipal taxes (paid by the owner Nil 10,800 12,000
during the previous year)
Net Annual Value (NAV) 1,00,000 1,74,200 1,18,000
Less: Deductions under section 24
(a) 30% of NAV 30,000 52,260 35,400
(b) Interest on borrowed capital
(allowed in full in case of deemed - 75,000 -
let out property)
Income from deemed to be let-out house 70,000 46,940 82,600
property

13. In the given case, Mr. Karan gifted a sum of ` 9 lakhs to his brother’s minor son on 1.5.2019
and simultaneously, his brother gifted debentures worth ` 10 lakhs to Mr. Karan’s wife on
the same date. Mr. Karan’s brother’s minor son invested the gifted amount of ` 9 lakhs in
fixed deposit with Canara Bank.
These transfers are in the nature of cross transfers. Accordingly, the income from the
assets transferred would be assessed in the hands of the deemed transferor because the
transfers are so intimately connected to form part of a single transaction and each transfer
constitutes consideration for the other by being mutual or otherwise.
If two transactions are inter-connected and are part of the same transaction in such a way
that it can be said that the circuitous method was adopted as a device to evade tax, the
implication of clubbing provisions would be attracted2.
As per section 64(1A), all income of a minor child is includible in the hands of the parent,
whose total income, before including minor’s income is higher. Accordingly, the interest
income arising to Mr. Karan’s brother’s son from fixed deposits would be included in the
total income of Mr. Karan’s brother, assuming that Mr. Karan’s brother’s total income is
higher than his wife’s total income, before including minor’s income. Mr. Kar an’s brother
can claim exemption of ` 1,500 under section 10(32).
Interest on debentures arising in the hands of Mrs. Karan would be taxable in the hands of
Mr. Karan as per section 64(1)(iv).
This is because both Mr. Karan and his brother are the indirect transferors of the income to
their spouse and minor son, respectively, with an intention to reduce their burden of taxation.
In the hands of Mr. Karan, interest received by his spouse on debentures of ` 9 lakhs alone
would be included and not the entire interest income on the debentures of `10 lakhs, since
the cross transfer is only to the extent of ` 9 lakhs.
Hence, only proportional interest (i.e., 9/10 th of interest on debentures received)
` 72,900 would be includible in the hands of Mr. Karan.
The provisions of section 56(2)(x) are not attracted in respect of sum of money transferred
or value of debentures transferred, since in both the cases, the transfer is from a relative.
14. Computation of Gross Total Income of Mr. Krishan for A.Y. 2020-21
Particulars ` `
Profits and gains of business or profession
Income from Textile business 4,60,000
Less: Current year depreciation allowable under section
32(1) 5,000
4,55,000
2 It was so held by the Apex Court in CIT vs. Keshavji Morarji (1967) 66 ITR 142.

Less: Unabsorbed depreciation brought forward from

A.Y.2018-19 as per section 32(2) 10,000
4,45,000
Income from speculation business
Current year income from speculation business 25,000
Less: Speculation business loss for A.Y. 2019-20 set-off as
per the provisions of section 73(2) 30,000
Speculation business loss to be carried forward (5,000)
Nil
Gross Total Income 4,45,000
Losses eligible for carry forward to A.Y.2021-22
Particulars `
(1) Loss from speculation business to be carried forward as per section 5,000
73
Loss from speculation business can be set off only against income
from another speculation business. The remaining loss from
speculation business can be carried forward for a maximum of four
assessment years immediately succeeding the assessment year for
which the loss was first computed. Thus, such loss can be carried
forward upto A.Y.2023-24
(2) Loss on maintenance of race horses to be carried forward as per 15,000
section 74A(3)
Loss on maintenance of race horses can be set-off only against
income from the activity of owning and maintaining race horses. Such
loss can be carried forward for a maximum of four assessment years
immediately succeeding the assessment year for which the loss was
first computed. Thus, such loss can be carried forward upto A.Y.
2024-25
(3) Loss from gambling can neither be set-off nor be carried forward.
15. Computation of total income of Mr. Suraj for the A.Y.2020-21
Particulars ` `
Income from house property
Arrears of rent 1,15,000
(taxable under section 25A even if Mr. Suraj is not the owner
of the house property in the P.Y.2019-20)
Less: Deduction@30% 34,500 80,500

Income chargeable under this head

Profits and gains of business or profession
Income from wholesale business
Net profit as per books 5,60,000
Add: Amount debited to P & L A/c, not allowable as deduction
- Depreciation as per books 34,000
- Disallowance of municipal taxes paid for the second half-
year under section 43B, since the same was paid after the
due date of filing of return (` 7,000/2) 3,500
- Disallowance under section 40A(3) in respect of salary
paid in cash since the same exceeds ` 10,000 21,000
- 20% of car expenses for personal use 8,000
6,26,500
Less: Depreciation allowable (Note 1) 2,37,600
3,88,900
Income from firm
Share of profit from the firm is exempt under -
section 10(2A)
Interest on capital from partnership firm (Note 2) 1,20,000
Salary as working partner fully taxable 1,00,000 2,20,000 6,08,900
Income from other sources
Interest on bank fixed deposit (Gross) 45,000
Interest on saving bank account 12,300
Interest on income-tax refund 2,300 59,600
Gross total income 7,49,000
Less: Deduction under Chapter VIA (Note 3) 2,25,000
Total Income 5,24,000
Notes:
(1) Depreciation allowable under the Income-tax Rules, 1962
Opening Rate Depre- Closing
WDV ciation WDV
Block 1 Computers 2,40,000 40% 96,000 1,44,000
Computer 1,50,000 40% 60,000 90,000
printer

Block 2 Motor Car [since 6,80,000 30% 1,02,000 81,600 5,98,400

acquired during [50% of
the period 30% is
23.8.2019 to allowable,
31.3.2020, it is since it is
eligible for put to use
higher for less
depreciation of than 180
30%] days]
Less: 20% disallowance for 20,400
personal use
2,37,600 8,32,400
(2) Only to the extent the interest is allowed as deduction in the hands of the firm, the
same is includible as business income in the hands of the partner. Since interest is
paid in accordance with partnership deed, maximum interest allowable as deduction
in the hands of the firm is 12% p.a. Therefore, interest @12% p.a. amounting to
` 1,20,000 would be treated as the business income of Mr. Suraj.
(3) Deduction under Chapter VI-A
Particulars ` `
Under section 80C
LIP for independent son 60,000
PPF paid in wife’s name 70,000
1,30,000
Since the maximum deduction under section 80C and
80CCE is ` 1,50,000, the entire sum of ` 1,30,000
would be allowed as deduction 1,30,000
Under section 80D
Health insurance premium taken for mother is fully 35,000
allowable as deduction, even though she is not
dependant on him. Since she is senior citizen whole
of amount is allowable as deduction as it is within
overall limit of ` 50,000
Under section 80G
Contribution towards PM National Relief Fund eligible 50,000
for 100% deduction without any qualifying limit
Under section 80TTA
Interest on saving bank account, restricted to 10,000
Total deduction 2,25,000

SECTION B: INDIRECT TAXES
QUESTIONS
(1) All questions should be answered on the basis of the provisions of GST law as
amended by the Finance (No. 2) Act, 2019, which have become effective till
30.04.2020, and significant notifications and circulars issued upto 30.04.2020.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. Further, GST compensation cess should be ignored in all the
questions, wherever applicable.
1. PTL Pvt. Ltd. is a retail store of merchandise located in 25 States and/or UTs in the
country. For the purpose of clearance of stock of merchandise and to attract consumers,
PTL Pvt. Ltd. launched scheme of “Buy One Get One Free” for the same type of
merchandise, for instance, one shirt to be given free with purchase of one shirt. For
saving cost, PTL Pvt. Ltd. directly purchases merchandise from the manufacturers.
In the month of May, in order to save employee cost, PTL Pvt. Ltd. purchased a tempo
traveller worth ` 12,00,000 with seating capacity of 25 persons (including driver) for
transportation of its employees. Further, for ensuring the well-being of its employees,
PTL Pvt. Ltd. voluntarily obtained the health insurance cover of ` 2,00,000 for each
employee in the same month. The premium of ` 1,500 per employee has been paid by
the company for 100 employees.
In the month of July, Mr. Raghav, a customer of the company, filed a law suit in the
Court, against the company for not supplying goods of the value of ` 1,00,000. PTL Pvt.
Ltd. engaged Mr. Ram, an advocate, to represent it in Court for an agreed consideration
of ` 25,000. As per the terms of the contract, Mr. Ram issued an invoice on 5 th July.
However, consideration was not paid till February next year.
Note - All the amounts given above are excluding taxes and all transactions are intra-
State transactions. Rates of tax are CGST - 9% and SGST – 9%. However, for tempo
traveller, the rates of taxes are CGST - 14% and SGST – 14%.
In relation to the above, answer the following questions:
(i) With respect to “Buy One, Get One free” offer, which of the following statements is
true:
(a) It will not be considered as supply at all since no consideration is involved in
one of the items.

(b) Supply of item for which consideration is charged is a supply under section 7
of the CGST Act, 2017 while supply of the other item supplied free of cost is
not a supply.
(c) These are two individual supplies where a single price is charged for the entire
supply. Since a single price is charged, the same will always be taxed as a
mixed supply.
(d) These are two individual supplies where a single price is charged for the entire
supply. Their taxability will depend upon as to whether the supply is a
composite supply or a mixed supply.
(ii) Eligible input tax credit for the month of May (i) on the purchase of tempo traveller
and (ii) on health insurance premium paid (assuming that all other conditions, for
availing input tax credit have been complied with) is:
(a) (i) CGST - Nil, SGST - Nil and (ii) CGST - Nil, SGST - Nil
(b) (i) CGST - ` 1,68,000, SGST - ` 1,68,000 and (ii) CGST - Nil, SGST - Nil
(c) (i) CGST - Nil, SGST - Nil and (ii) CGST - ` 18,000, SGST - ` 18,000
(d) (i) CGST - ` 1,68,000, SGST - `1,68,000 and (ii) CGST - ` 18,000, SGST -
` 18,000
(iii) Which of the following statements is true in respect of the services of advocate
availed by the company?
(a) CGST-` 2,250 and SGST- ` 2,250 on advocate services are payable by PTL
Pvt Ltd. ITC availed thereon is to be added to its output tax liability with
interest as consideration along with tax is not paid within 180 days of the
issuance of invoice.
(b) CGST-` 2,250 and SGST- ` 2,250 on advocate services are payable by Mr.
Ram. ITC availed thereon is to be added to output tax liability of PTL Pvt Ltd.
with interest as consideration along with tax is not paid within 180 days of the
issuance of invoice.
(c) CGST-` 2,250 and SGST- ` 2,250 on advocate services are payable by PTL
Pvt. Ltd. The condition of payment of consideration along with tax within 180
days of the issuance of invoice does not apply in the given case.
(d) CGST-` 2,250 and SGST- ` 2,250 on advocate services are payable by Mr.
Ram. The condition of payment of consideration along with tax within 180
days of the issuance of invoice does not apply in the given case.

2. Mr. Kumar started interior designing practice from the month of January. His turnover up
to the month of March was ` 12,50,000. On 30 th June, his turnover exceeded
` 20,00,000 & reached to ` 20,05,000. Mr. Kumar applied for GST registration (as
regular taxpayer) on 15th July and registration was granted to him on 25 th July.
On 16th July, he entered into a contract for designing the flat of Mr. Shyam. The service
was completed on 22 nd July and Mr. Kumar issued invoice on the same day for
` 6,00,000. On 5 th July, Mr. Kumar purchased capital goods amounting to ` 4,50,000
and from 25 th July to 31 st July, he availed services amounting to
` 1,75,000 for the purpose of completing the service.
On 1st August, Mr. Kumar got another contract for interior designing from Mr. Ram, which
he accepted on 2 nd August. The service was completed on 6 th August and invoice was
issued on 7 th August for ` 5,00,000. Payment was received on 29 th August.
Note: All values are excluding taxes, unless specifically mentioned. Mr. Kumar mak es
only intra-State outward supplies and all purchases are also intra-State. Rates of tax are
CGST - 9% and SGST – 9%.
In relation to the above, answer the following questions:
(i) The effective date of registration for Mr. Kumar is-
(a) 30th June
(b) 15th July
(c) 25th July
(d) 16th July
(ii) Mr. Shyam can issue a revised tax invoice till-
(a) 23rd October
(b) 8th September
(c) 25th September
(d) 25th August
(iii) Eligible input tax credit available with Mr. Kumar for the month of July is-
(a) CGST ` 40,500 & SGST ` 40,500
(b) CGST ` 15,750 & SGST ` 15,750
(c) CGST ` 56,250 & SGST ` 56,250
(d) CGST ` 36,000 & SGST ` 36,000

(iv) The time of supply of services provided by Mr. Kumar to Mr. Ram is-
(a) 7th August
(b) 1st August
(c) 29th August
(d) 06th August
(v) If instead of opting for regular scheme, Mr. Kumar opts to pay tax under section
10(2A) of the CGST Act, 2017, the tax liability for the month of July will be -
(a) CGST Nil and SGST Nil
(b) CGST ` 54,000 & SGST ` 54,000
(c) CGST ` 18,000 & SGST ` 18,000
(d) CGST ` 78,150 & SGST ` 78,150
3. During the month of May, Z Ltd. sold goods to Y Ltd. for ` 2,55,000 and charged GST @
18%. However, owing to some defect in the goods, Y Ltd. returned th e goods by issuing
debit note of ` 40,000 in the same month. Z Ltd. records the return of goods by issuing a
credit note of ` 40,000 plus GST in the same month. In this situation, GST liability of
Z Ltd. for the month of May will be-
(a) ` 45,900
(b) ` 38,700
(c) ` 53,100
(d) ` 40,000
4. C & Co., a registered supplier in Delhi, opted for composition levy under sub-sections (1)
and (2) of section 10 of the CGST Act, 2017. It sold goods in the fourth quarter of a
financial year for ` 15,00,000 (exclusive of GST). The applicable GST rate on these
goods is 12%. C & Co. purchased goods from Ramesh & Co., registered in Delhi, for
` 9,55,000 on which Ramesh & Co. had charged CGST of ` 57,300 and SGST of
` 57,300. C & Co. had also purchased goods from E & Co., registered in Haryana, for
` 2,46,000 on which E & Co. had charged IGST of ` 29,520. GST liability of C & Co. for
the fourth quarter of the financial year is-
(a) CGST ` 7,500 & SGST ` 7,500
(b) CGST ` 3,180 & SGST ` 32,700
(c) CGST ` 32,700 & SGST ` 3,180
(d) CGST Nil and SGST Nil

5. Mr. Raghu avails services of Mr. Raja, a Chartered Accountant, as under -

(i) Audit of financial accounts ` 55,000
(ii) Tax audit and annual filing ` 10,000
(iii) Income-tax return filing of Mr. Raghu’s wife ` 5,000
All the above amounts are exclusive of taxes and the applicable rate of GST on these
services is 18%.
The accountant of Mr. Raghu has booked the entire expenses of ` 70,000 plus GST in
the books of account. Mr. Raghu is eligible to take input tax credit of -
(a) ` 13,500
(b) ` 11,700
(c) ` 9,900
(d) ` 1,800
6. TT Pvt. Ltd., registered in Rajasthan, furnished following information for the month of
June:
(i) Inter-State sale of goods for ` 1,25,000 to JJ Enterprises registered in Haryana
(ii) Inter-State purchases of goods from XYZ company, registered in Punjab, for
` 40,000
(iii) Intra-State purchases of goods from RR Traders, registered in Rajasthan, for
` 65,000
The applicable rate of GST is 18%. All the above amounts are exclusive of taxes . GST
liability payable in cash is-
(a) CGST ` 1,800 & SGST ` 1,800
(b) SGST ` 3,600
(c) IGST ` 3,600
(d) CGST ` 3,600
7. Pradeep Traders, registered in Haryana, sold goods for ` 2,05,000 to Balram Pvt. Ltd.
registered in Uttar Pradesh (GST is leviable @ 5% on said goods). As per the terms of
sales contract, Pradeep Traders has to deliver the goods at the factory of Balram Pvt.
Ltd. For this purpose, Pradeep Traders has charged freight of ` 2,400 from Balram Pvt.
Ltd. GST is leviable @ 12% on freight. What would be the net GST liability to be paid in
cash in this case assuming that the amounts given herein are exclusive of GST?

(a) IGST-` 37,332

(b) IGST-` 10,370
(c) CGST-` 18,666 and SGST-` 18,666
(d) CGST-` 5,185 and SGST-` 5,185
8. Prem & Sons had taken GST registration on 1 st January, but failed to furnish GST returns
for the next 6 months. Owing to this, the proper officer cancelled its registration on
25th July and served the order for cancellation of registration on 31 st July. Now, Prem &
Sons wants to revoke the cancellation of registration. Prem & Sons can file an
application for revocation of cancellation of registration on or before.
(a) 30th August
(b) 29th August
(c) 29th September
(d) 29th October
9. XX, registered in Delhi, purchased books from PC Traders, registered in Uttar Pradesh.
Books are exempt from GST. XX arranged the transport of these books from a goods
transport agency (GTA) which charged a freight of ` 9,000 for the same. GST is payable
@ 5% on such GTA services. Which of the following statement is correct in the given
context:
(a) GST of ` 450 is payable by XX on revere charge basis.
(b) Supply of goods and supply of GTA service is a composite supply wherein supply of
goods is the principal supply and since principal supply is an exempt supply, no tax
is payable on freight.
(c) Since exempt goods are being transported, service provided by GTA for
transporting the same is also exempt.
(d) GST of ` 450 is payable by the GTA.
10. Kalim & Associates made an application for cancellation of GST registration in the month
of March due to closure of its business. Its application for cancellation of GST
registration was approved on 14 th September. In the given case, Kalim & Associates is:
(a) required to file Final Return on or before 13 th December
(b) not required to file Final Return
(c) required to file Final Return on or before 30th September
(d) required to file Final Return on or before 14 th December

11. (a) Babla & Bros. is exclusively engaged in making exempt supply of goods and is thus,
not registered under GST. On 1 st October, the exemption available on its goods
gets withdrawn. On that day, the turnover of Babla & Bros. was ` 50 lakh. Examine
the eligibility of Babla & Bros. for availing ITC, if any.
(b) Mamta Sales trades in exempt goods and provides taxable services. It is registered
under GST. On 1 st October, the exemption available on its goods gets withdrawn.
Analyze the scenario and determine the eligibility of Mamta Sales for availing ITC, if
any, on inputs and/or capital goods used in the supply of exempt goods.
12. Suhasini is a registered software consultant. On account of her ill health, she could not
provide any services during the month of October. However, she had to incur all the
expenses relating to her office. She paid ` 75,000 to various vendors. Total GST
involved on the goods and services procured by her is ` 13,500. Out of the total bills
paid by her, one bill for ` 15,000 relates to security services availed for security of her
office, tax on which is payable under reverse charge. GST involved in such bill is
` 2,700.
Suhasini is of the opinion that for the month of October, no GST is payable from
electronic cash ledger as she has sufficient balance of ITC for payment of GST under
reverse charge on security services.
Do you think Suhasini is right? Explain with reasons.
13. ‘XY’ of Kolkata is engaged in supply of various goods and services. It pays GST under
regular scheme. The following information is provided by it for the month of July:
Payments Amount Receipts Amount
(`) (`)
Inter-State purchases of 1,40,000 Inter-State supply of office 2,00,000
office stationery stationery
Repairing of lorry used to 1,00,000 Intra-State supply of 500 4,00,000
transport goods from combi packs containing one
warehouse to clients’ calculator and one diary
location [Intra-State supply]
Intra-State supply of services 1,00,000
of business correspondent to
Shubhvidhi Bank with
respect to accounts in its
urban area branch
The following additional information is provided by ‘XY’ in relation to the above receipts
and payments:
(i) 10% of the inter-State supply of office stationery are made to unregistered persons.

(ii) Each combi pack (containing a calculator and a diary) is priced at ` 800. The
calculator and the diary are individually priced at ` 700 and ` 200 respectively.
(iii) An invoice of ` 40,000 towards purchase of office stationery is missing and no other
tax paying document is available in respect of such goods.
(iv) All the figures mentioned above are exclusive of taxes, wherever applicable.
(v) Rates of CGST, SGST and IGST for all services, office stationery and calculator are
9%, 9% and 18% respectively. Rates of CGST, SGST and IGST for diary are 14%,
14% and 28% respectively.
(vi) Subject to the information given above, all the necessary conditions for availing
input tax credit have been fulfilled.
Details of opening balances of input tax credit as on 1 st July is given hereunder:
Tax Amount (`)
CGST 5,000
SGST 5,000
IGST 80,000
Compute the minimum net GST [CGST, SGST or IGST, as the case may be] payable in
cash by ‘XY’ for the month of July.
14. Mutiservices Private Ltd., registered in Punjab, is engaged in supplying a variety of
services. Its turnover was ` 35 lakh in the preceding financial year. It has provided the
following information for the month of April:
Particulars Amount
(`)
Fee for the coaching provided to students for competitive exams. 6,24,000
The coaching centre is run by Mutiservices Private Ltd. in
Punjab (Intra-State transaction)
Receipts for services provided in relation to conduct of 19,200
examination in Pureit University, Delhi (providing education
recognized by Indian law), being an inter-State transaction
Amount received for transportation of students and faculty from 24,000
their residence to Lotus Public School - a higher secondary
school – and back (Intra-State transaction)
Amount received for providing the security and housekeeping 36,000
services in Dhaani Public School – a pre-school (Intra-State
transaction)

Note: Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively. All the
amounts given above are exclusive of taxes.
Compute the total GST liability of Multiservices Private Ltd. for the month of April.
15. The due date for payment of tax by a person paying tax under section 10 of the CGST
Act, 2017, i.e. a composition supplier is aligned with the due date of return to be filed by
the said person. Discuss the correctness or otherwise of the statement.
SUGGESTED ANSWERS
1. (i) (d)
(ii) (b)
(iii) (c)
2. (i) (a)
(ii) (d)
(iii) (c)
(iv) (a)
(v) (c)
3. (b)
4. (a)
5. (b)
6. (c)
7. (b)
8. (a)
9. (a)
10. (d)
11. (a) Since the exemption available on goods being supplied by Babla & Bros. is
withdrawn, it becomes liable to registration as its turnover has crossed the threshold
limit (for registration) on the day when the exemption is withdrawn.
Assuming that Babla & Bros. applies for registration within 30 days of 1 st October
and it obtains such registration, it will be entitled to take credit of input tax in respect
of inputs held in stock and inputs contained in semi-finished or finished goods held
in stock on the day immediately preceding the date from which it becomes liable to
pay tax, i.e. 30th September [Section 18(1)(a) of the CGST Act, 2017]. Input tax
paid on capital goods will not be available as input tax credit in this case.

(b) If the exempt supply made by a registered person becomes a taxable supply,
provisions of section 18(1)(d) of the CGST Act, 2017 become applicable. In the
given case, since Mamta Sales is a registered person, section 18(1)(d) will be
applicable.
As per section 18(1)(d), Mamta Sales will be entitled to take credit of input tax in respect of
inputs held in stock and inputs contained in semi-finished or finished goods held in stock
relatable to such exempt supply and on capital goods exclusively used for such exempt
supply on the day immediately preceding the date from which such supply becomes
taxable, i.e. 30th September. Input tax credit on capital goods will be reduced by 5% per
quarter or part thereof from the date of invoice.
12. The amount available in the electronic credit ledger, i.e. input tax credit may be used for
making any payment towards output tax. Output tax, in relation to a taxable person,
means the tax chargeable on taxable supply of goods or services or both made by him or
by his agent but excludes tax payable by him on reverse charge basis.
Therefore, input tax credit cannot be used to pay the tax liability under reverse charge.
The same is always required to be paid through electronic cash ledger and not electronic
credit ledger. Thus, Suhasini is wrong and she should pay GST of ` 2,700 on security
service through electronic cash ledger.
13. Computation of minimum net GST payable in cash by ‘XY’ for the month of July
Particulars Value (`) CGST (`) SGST (`) IGST (`)
Total tax liability
Inter-State supply of stationery [Note 1] 2,00,000 36,000
(2,00,000
x 18%)
Intra-State supply of 500 combi packs of 4,00,000 56,000 56,000
calculators and diaries [Note-2] (500 x 800) (4,00,000 (4,00,000
x 14%) x 14%)
Intra-State supply of services of 1,00,000 9,000 9,000
business correspondent to a Shubhvidhi (1,00,000 (1,00,000
Bank with respect to accounts in its x 9%) x 9%)
urban area branch [Note-3]
Total tax liability 65,000 65,000 36,000
Input tax credit (ITC)
Brought forward ITC 5,000 5,000 80,000
Inter-State purchase of office stationery 1,00,000 18,000
[Note-4]
Intra-State repairing of lorry used for 1,00,000 9,000 9,000
transportation of goods [Note-5]

Total ITC 14,000 14,000 98,000

Minimum net GST payable in cash
Total tax liability 65,000 65,000 36,000
IGST credit being set off against IGST (36,000)
liability
IGST credit being used to pay CGST (11,000) (51,000)
and SGST liability in any order and in
any proportion
CGST and SGST credit being used to (14,000) (14,000)
pay CGST and SGST liability CGST SGST
respectively
Minimum net GST payable in cash 40,000 Nil Nil
Notes:-
1. Taxable supplies made by a registered person are liable to tax irrespective of
whether they are made to a registered person or to an unregistered person.
2. Supply of calculator and diary as a combi pack with a single price of ` 800 is a
mixed supply. Being a mixed supply comprising of two supplies, it shall be treated
as supply of that particular supply which attracts highest rate of tax.
3. Services provided by a business facilitator/ business correspondent to a banking
company only with respect to accounts in its rural area branch are exempt and not
with respect to accounts in its urban area branch .
4. ITC can be taken only on the basis of a valid tax paying document. Thus, ITC will
not be available on goods for which the invoice is missing.
5. ITC on motor vehicles used for transportation of goods is allowed. Further, ITC is
allowed on repair and maintenance services relating to motor vehicles, ITC on
which is allowed.
Note: IGST credit, after being set off against IGST liability, can be utilised against CGST
and SGST liability in any order and in any proportion. Thus, there cannot be one answer
for the minimum net CGST and SGST payable in cash as the amount of CGST and SGST
liabilities are the same as also the amount of ITC for CGST and SGST is also the same.
14. Computation of net GST liability of Multiservices Private Ltd. for the month of
April:
Particulars Value of CGST SGST IGST
supply @ 9% @ 9% @ 18%
(`) (`) (`) (`)
Fee for the coaching provided to 6,24,000 56,160 56,160

students for competitive exams

[Note-1]
Services towards conduct of 19,200 -
examination in Pureit University,
Delhi [Note-2]
Services of transportation of 24,000 -
students and faculty from their
residence to Lotus Public School
and back [Note-3]
Security and housekeeping 36,000 - -
services in Dhaani Public School
[Note-4]
Total GST liability 56,160 56,160
Notes:-
1. Coaching centre run by Mutiservices Private Ltd. is not an educational institution
since competitive exam coaching does not lead to grant of a qualification
recognized by law. Therefore, fee received for coaching provided at such coaching
centre is taxable.
2. Since Pureit University provides qualification recognized by law, it is an educational
institution and services provided to an educational institution, in relation to conduct
of examination by such institution are exempt from GST.
3. Since Lotus Public School provides education up to higher secondary school, it is
an educational institution and services of transportation of students, faculty and staff
provided to an educational institution are exempt.
4. Since Dhaani Public School provides pre-school education, it is an educational
institution. Security and housekeeping services provided within the premises of an
educational institution are exempt.
15. The statement is not correct. Every registered person paying tax under section 10, i.e. a
composition supplier, is required to file a return annually in Form GSTR-4. Form GSTR-4
for a financial year should be furnished by 30 th April of the succeeding financial year.
However, a composition supplier is required to pay his tax on a quarterly basis. A
quarterly statement for payment of self-assessed tax in GST CMP-08 is required to be
furnished by 18 th day of the month succeeding such quarter.
Therefore, while the return is to be furnished annually, payment of tax needs to be made
on a quarterly basis, by a composition supplier.

Applicability of Standards/Guidance Notes/Legislative Amendments etc.
for November, 2020 Examination - Intermediate Level (New Course)
Paper 1: Accounting
List of Applicable Accounting Standards

AS 1: Disclosure of Accounting Policies
AS 2: Valuation of Inventories
AS 3: Cash Flow Statements
AS 10: Property, Plant and Equipment
AS 11: The Effects of Changes in Foreign Exchange Rates
AS 12: Accounting for Government Grants
AS 13: Accounting for Investments
AS 16: Borrowing Costs
Applicability of the Companies Act, 2013 and other Legislative Amendments for
November, 2020 Examination
The relevant notified Sections of the Companies Act, 2013 and legislative amendments including
relevant Notifications / Circulars / Rules / Guidelines issued by Regulating Authorities up to
30th April, 2020 will be applicable for November, 2020 Examination.
Non-Applicability of Ind AS
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards) Rules,
2015 on 16th February, 2015, for compliance by certain class of companies. These Ind AS do
not form part of the syllabus and hence are not applicable.
Paper 2: Corporate and Other Laws
The provisions of Companies Act, 2013 along with significant Rules/ Notifications/ Circulars/
Clarification/ Orders issued by the Ministry of Corporate Affairs and the laws covered under the
Economic Laws, as amended by concerned authority, including significant notifications and
circulars issued up to 30 th April 2020 are applicable for November, 2020 examination.

REVISION TEST PAPER 129
Inclusions /Exclusions from the syllabus
(1) (2) (3)

Chapters/Topics Inclusions Exclusions
of the syllabus (Provisions which are included (Provisions which are excluded
from the corresponding from the corresponding
chapter/topic of the syllabus) chapter/ topic of the syllabus)
Part I: Company Law
Companies Act, The entire content included in the (i) Sections 24, 30, 33, 38 & 41
2013 (Sections 1 July 2019 edition of the Study [from chapter 3- Prospectus
to 148) Material and the Legislative and Allotment of Securities]
amendments given in the RTP for (ii) Sections 44, 45, 60, 65 & 72
November, 2020, shall only be [from chapter 4 - Share
relevant for the said examinations. capital and Debentures]
(iii) Section 75 [from chapter 5 -
Acceptance of deposits by
companies]
(iv) Section 81 & 85 [from
chapter 6- Registration of
Charges]
Also, except the Relevant rules as
covered in the July 2019 edition of
the Study Material and the RTP for
November, 2020, all other Rules
of the Companies Act, 2013 are
excluded.
Part II: Other Laws
1. The Indian Content of this chapter of the Study Questions that involve the
Contract Act, Material covers the significant reference or questions entirely
1872 (Specific provisions of the said Act in a broad based on Sections 1 to 122 of the
contracts from manner (not in entirety). Indian Contract Act, 1872, may be
section 123 The entire content included in the avoided.
onwards) July 2019 edition of the Study
Material and the RTP for
November, 2020, shall only be
relevant for the said examinations.
2. The Negotiable Content of this chapter of the Study -
Instruments Act, Material covers the significant
1881 provisions of the said Act in a broad
manner (not in entirety).

The entire content included in the

July 2019 edition of the Study
Material and the Legislative
amendments given in the RTP for
3. The General Content of this chapter of the Study -
Clauses Act, Material covers the significant
1897 provisions of the said Act in a broad
manner (not in entirety).
The entire content included in the
July 2019 edition of the Study
Material and the RTP for
4. Interpretation Content of this chapter of the Study -
of Statutes Material covers the significant rules
and principles of interpretation in a
broad manner. Thus, the content of
the chapter as included in the study
material may be taken into
consideration.
Note: July 2019 edition of the Study Material is relevant for November, 2020 examinations. The
amendments - made after the issuance of this Study Material - to the extent covered in the RTP
for November, 2020 examinations shall also be relevant for the said exa minations.
Paper 4: Taxation
Section A: Income-tax Law
Applicability of the Finance Act, Assessment Year etc. for November, 2020 Examination
The provisions of income-tax law, as amended by the Finance Act, 2019 and the Finance (No.2)
Act, 2019 including significant circulars, notifications, press releases issued and other legislative
amendments made upto 30th April, 2020, are applicable for November, 2020 examination. The
relevant assessment year for income-tax is A.Y. 2020-21.
Note – The August, 2019 edition of the Study Material for Intermediate (New) Paper 4A is based
on the provisions of income-tax law, as amended by the Finance Act, 2019 and the Finance
(No.2) Act, 2019 and hence, the same is relevant for November, 2020 examination. The same
is available at https://www.icai.org/post.html?post_id=15923. The initial pages of the Study
Material available at https://resource.cdn.icai.org/56458bos45796mod1initpages.pdf
contains the Study Guidelines which specifies the list of topic-wise exclusions from the scope
of syllabus.

The significant notifications, circulars, press releases issued and legislative amendments made
upto 30th April, 2020, but not covered in the August, 2019 edition would be webhosted as
Statutory Update for November, 2020 examination at the BoS Knowledge Portal. This update
is relevant and important for November, 2020 examination.
Section B: Indirect Taxes
Applicability of the GST law
The provisions of CGST Act, 2017 and IGST Act, 2017 as amended by the Finance (No. 2) Act,
2019, which have become effective up to 30 th April, 2020, including significant circulars and
notifications issued up to 30 th April 2020, are applicable for November 2020 examination.
List of topic-wise exclusions from the syllabus
(1) (2) (3)

S. No. in Topics of the Exclusions
the syllabus (Provisions which are excluded from the corresponding
syllabus topic of the syllabus)
2(ii)(c) Charge of tax CGST Act, 2017
including (i) Rate of tax prescribed for supply of goods*
reverse charge (ii) Rate of tax prescribed for supply of services*
(iii) Categories of supply of goods, tax on which is payable
on reverse charge basis under section 9(3)
IGST Act, 2017
(iv) Rate of tax prescribed for supply of goods
(v) Rate of tax prescribed for supply of services
(vi) Categories of supply of goods, tax on which is payable
on reverse charge basis under section 5(3)
(vii) Determination of nature of supply – Inter-State supply;
Intra-State supply; Supplies in territorial waters
(viii) Special provision for payment of tax by a supplier of
online information and database access or retrieval
[OIDAR] services
2(ii)(d) Exemption from CGST Act, 2017 & IGST Act, 2017
tax Exemptions for supply of goods
2(iii) Basic concepts CGST Act, 2017 & CGST Rules, 2017
of time and value (i) Provisions relating to change in rate of tax in respect of
of supply supply of goods or services
(ii) Chapter IV: Determination of Value of Supply [Rules
27-35] of CGST Rules, 2017

2(iv) Input tax credit CGST Act, 2017 read with CGST Rules, 2017
(i) Input tax credit provisions in respect of inputs and
capital goods sent for job work
(ii) Input tax credit provisions relating to distribution of
credit by Input Service Distributor [ISD]
(iii) Manner of recovery of credit distributed in excess
(iv) Manner of determination of input tax credit in respect of
inputs, input services and capital goods and reversal
thereof in respect of real estate projects
(v) Manner of reversal of credit of additional duty of
customs in respect of Gold dore bar
2(viii) Returns CGST Act, 2017 read with CGST Rules, 2017
(i) Furnishing of GSTR-2, GSTR-1A, GSTR-3
(ii) Matching, reversal & reclaim of input tax credit
(iii) Matching, reversal & reclaim of reduction in output tax
liability
2(ix) Payment of tax CGST Act, 2017
(i) Tax deduction at source
(ii) Collection of tax at source
*Rates specified for computing the tax payable under composition levy are included in
the syllabus.
Notes:
(1) Applicability of the Finance (No. 2) Act, 2019
(i) The amendments made by the Finance (No. 2) Act, 2019 in the Central Goods and
Services Tax Act, 2017 [hereinafter referred to as CGST Act, 2017] and the Integrated
Goods and Services Tax, 2017 [hereinafter referred to as IGST Act, 2017] have
become effective from 01.01.2020. Therefore, the amendments made vide the
Finance (No. 2) Act, 2019, to the extent included in the syllabus read with the Study
Guidelines, are applicable for November 2020 examinations.
However, amendments made by the Finance (No. 2) Act, 2019 - to the extent included
in the syllabus read with the Study Guidelines - in sections 39 and 50 of the CGST
Act, 2017 have not become effective as on 30.04.2020. Therefore, the same are not
applicable for November 2020 examinations.
(ii) Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 introduced vide Chapter
V of the Finance (No. 2) Act, 2019 is not applicable for November 2020 examinations.
(2) The syllabus includes select provisions of the CGST Act, 2017 and IGST Act, 2017 and
not the entire CGST Act, 2017 and the IGST Act, 2017. The provisions covered in any

topic(s) of the syllabus which are related to or correspond to the topics not covered in the
syllabus shall also be excluded.
(3) In the above table, in respect of the topics of the syllabus specified in column (2) the related
exclusion is given in column (3). Where an exclusion has been so specified in any topic
of the syllabus, the provisions corresponding to such exclusions, covered in other topic(s)
forming part of the syllabus, shall also be excluded. For example, since provisions relating
to ISD and tax collection at source are excluded from the topics “Input tax credit” and
“Payment of tax including reverse charge” respectively, the provisions relating to (i)
registration of ISD and person required to collect tax at source and (ii) filing of returns by
an ISD and submission of TCS statement by an electronic commerce operator required to
collect tax at source are also excluded from the topics “Registration” and “Returns”
respectively.
(4) August 2019 edition of the Study Material is relevant for May 2020 an d November 2020
examinations. The amendments in the GST law - made after the issuance of this Study
Material - to the extent covered in the Statutory Update for November 2020 examination
alone shall be relevant for the said examination. The Statutory Update shall be hosted on
the BoS Knowledge Portal.
Though the Statutory Update for November 2020 examination shall provide the precise
scope and coverage of the amendments, for the sake of clarity, it may be noted that the
following amendments shall not be applicable for November 2020 examinations:
(i) The amendments made in the various provisions of the GST law namely, composition
scheme, input tax credit, returns, interest on delayed payment of tax, e -way bill etc.,
for providing relief to the taxpayers in view of spread of Novel Corona Virus
(COVID-19)
(ii) The amendments relating to transition plan with respect to Jammu and Kashmir
reorganization w.e.f. 31.10.2019
(iii) The amendments providing the special procedure for taxpayers in Dadra and Nagar
Haveli and Daman and Diu consequent to merger of the two UTs
(iv) The amendment specifying due dates for filing of GSTR-3B in a staggered manner
for taxpayers having annual turnover below ` 5 crore in previous financial year
(5) The provisions of CGST Act, 2017 and the rules issued thereunder and IGST Act, 2 017
and the rules issued thereunder, to the extent included in the August 2019 edition of the
Study Material (except the exclusions mentioned herein) and the Statutory Update for
November 2020 examination shall alone be relevant for the said examination.

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INTERMEDIATE COURSE

(UNDER REVISED SCHEME OF

REVISION TEST PAPERS

© The Institute of Chartered Accountants of India

Edition : September, 2020

Department/Committee : Board of Studies

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

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

B. Not applicable for November, 2020 examination:

© The Institute of Chartered Accountants of India

PAPER – 2: CORPORATE AND OTHER LAWS

© The Institute of Chartered Accountants of India

QUESTION NO. ABOUT THE QUESTION

PAPER – 3: COST AND MANAGEMENT ACCOUNTING

© The Institute of Chartered Accountants of India

9. Process Costing Preparation of process account.

© The Institute of Chartered Accountants of India

Section B: Indirect Taxes (40 Marks)

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

A. Applicable for November, 2020 examination

© The Institute of Chartered Accountants of India

or public financial institution or non-convertible debenture holders or any other

© The Institute of Chartered Accountants of India

heading "ACCOUNTING STANDARDS" under "AS 11 on The Effects of Changes in

© The Institute of Chartered Accountants of India

convertible part thereof.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Exclusion of Accounting Standards and topics from the Curriculum of Accounting

PART – II: QUESTIONS AND ANSWERS

Preparation of Financial Statements of Companies

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Reserves (including Revaluation reserve ` 22.5 lakhs) 337.5

© The Institute of Chartered Accountants of India

Profit/Loss prior to Incorporation

© The Institute of Chartered Accountants of India

Accounting for Bonus Issue

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Sales from 1st April, 2020 to the date of fire 22,68,000

© The Institute of Chartered Accountants of India

Reserves & Surplus 1,500

© The Institute of Chartered Accountants of India

Creditors for goods 30,000 Debtors 50,000

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Issued, subscribed and called up

© The Institute of Chartered Accountants of India

Furniture & Fittings 6,56,250

© The Institute of Chartered Accountants of India

maximum remuneration payable to the Managing Director should be @