RTP May 2018 New Gr1

PAPER – 1: ACCOUNTING
PART – I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY

FOR MAY, 2018 EXAMINATION
A. Applicable for May, 2018 examination
I. Companies Act, 2013
Relevant Sections of the Companies Act, 2013 notified up to 31st October, 2017 will
be applicable for May, 2018 Examination.
II. Notification dated 13th June, 2017 to exempt startup private companies from
preparation of Cash Flow Statement as per Section 462 of the Companies Act 2013
As per the Amendment, under Chapter I, clause (40) of section 2, new exemption has
been provided to a startup private company besides one person company, small
company and dormant company. Accordingly, a startup private company is not
required to include the cash flow statement in the financial statements.
Thus the financial statements, with respect to one person company, small company,
dormant company and private company (if such a private company is a start-up), may
not include the cash flow statement.
B. Not applicable for May, 2018 examination
Non-Applicability of Ind ASs for May, 2018 Examination
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards)
Rules, 2015 on 16 th February, 2015, for compliance by certain class of companies. These
Ind AS are not applicable for May, 2018 Examination.
PART – II: QUESTIONS AND ANSWERS
QUESTIONS
Financial Statements of Companies

Preparation of Profit and Loss Statement and Balance Sheet
1. Kapil Ltd. has authorized capital of ` 50 lakhs divided into 5,00,000 equity shares of ` 10
each. Their books show the following balances as on 31 st March, 2017:
` `
Inventory 1.4.2016 6,65,000 Bank Current Account 20,000
Discounts & Rebates 30,000 Cash in hand 8,000
allowed
Carriage Inwards 57,500 Interest (bank overdraft) 1,11,000
© The Institute of Chartered Accountants of India

2 INTERMEDIATE (NEW) EXAMINATION: MAY, 2018
Patterns 3,75,000 Calls in Arrear @ ` 2 per

share 10,000
Rate, Taxes and Insurance 55,000 Equity share capital 20,00,000
Furniture & Fixtures 1,50,000 (2,00,000 shares of ` 10
each)
Purchases 12,32,500 Bank Overdraft 12,67,000
Wages 13,68,000
Freehold Land 16,25,000 Trade Payables (for goods) 2,40,500
Plant & Machinery 7,50,000 Sales 36,17,000
Engineering Tools 1,50,000 Rent (Cr.) 30,000
Trade Receivables 4,00,500 Transfer fees received 6,500
Advertisement 15,000 Profit & Loss A/c (Cr.) 67,000
Commission & Brokerage 67,500 Repairs to Building 56,500
Business Expenses 56,000 Bad debts 25,500
The inventory (valued at cost or market value, which is lower) as on 31 st March, 2017 was
` 7,08,000. Outstanding liabilities for wages ` 25,000 and business expenses ` 36,000.
Dividend declared @ 12% on paid-up capital and it was decided to transfer to reserve @
2.5% of profits.
Charge depreciation on closing written down amount of Plant & Machinery @ 5%,
Engineering Tools @ 20%; Patterns @ 10%; and Furniture & Fixtures @10%. Provide
25,000 as doubtful debts after writing off `16,000 as bad debts. Provide for income tax @
30%. Corporate Dividend Tax Rate @ 17.304 (wherein Base Rate is 15%).
You are required to prepare Statement of Profit & Loss for the year ended 31 st March,
2017 and Balance Sheet as on that date.
Preparation of Cash flow statement
2. A company provides you the following information:
(i) Total sales for the year were ` 398 crores out of which cash sales amounted to
` 262 crores.
(ii) Receipts from credit customers during the year, aggregated ` 134 crores.
(iii) Purchases for the year amounted to ` 220 crores out of which credit purchase was
80%.
Balance in creditors as on
1.4.2016 ` 84 crores
31.3.2017 ` 92 crores

PAPER – 1 : ACCOUNTING 3
(iv) Suppliers of other consumables and services were paid ` 19 crores in cash.
(v) Employees of the enterprises were paid 20 crores in cash.
(vi) Fully paid preference shares of the face value of ` 32 crores were redeemed. Equity
shares of the face value of ` 20 crores were allotted as fully paid up at premium of
20%.
(vii) Debentures of ` 20 crores at a premium of 10% were redeemed. Debenture holders
were issued equity shares in lieu of their debentures.
(viii) ` 26 crores were paid by way of income tax.
(ix) A new machinery costing ` 25 crores was purchased in part exchange of an old
machinery. The book value of the old machinery was ` 13 crores. Through the
negotiations, the vendor agreed to take over the old machinery at a higher value of
` 15 crores. The balance was paid in cash to the vendor.
(x) Investment costing ` 18 cores were sold at a loss of ` 2 crores.
(xi) Dividends amounting ` 15 crores (including dividend distribution tax of ` 2.7 crores)
was also paid.
(xii) Debenture interest amounting ` 2 crore was paid.
(xiii) On 31st March 2016, Balance with Bank and Cash on hand was ` 2 crores.
On the basis of the above information, you are required to prepare a Cash Flow
Statement for the year ended 31 st March, 2017 (Using direct method).
Profit or Loss prior to Incorporation
3. The Business carried on by Kamal under the name "K" was taken over as a running
business with effect from 1 st April, 2016 by Sanjana Ltd., which was incorporated on 1 st
July, 2016. The same set of books was continued since there was no change in the type
of business and the following particulars of profits for the year ended 31 st March, 2017
were available.
` `
Sales: Company period 40,000
Prior period 10,000 50,000
Selling Expenses 3,500
Preliminary Expenses written off 1,200
Salaries 3,600
Directors' Fees 1,200
Interest on Capital (Upto 30.6.2016) 700
Depreciation 2,800
Rent 4,800

Purchases 25,000
Carriage Inwards 1,019 43,819
Net Profit 6,181
The purchase price (including carriage inwards) for the post-incorporation period had
increased by 10 percent as compared to pre-incorporation period. No stocks were carried
either at the beginning or at the end.
You are required to prepare a statement showing the amount of pre and post
incorporation period profits stating the basis of allocation of expenses.
Accounting for Bonus Issue
4. Following is the extract of the Balance Sheet of Manoj Ltd. as at 31 st March, 20X1
`
Authorized capital:
30,000 12% Preference shares of ` 10 each 3,00,000
4,00,000 Equity shares of ` 10 each 40,00,000
43,00,000
Issued and Subscribed capital:
24,000 12% Preference shares of ` 10 each fully paid 2,40,000
2,70,000 Equity shares of ` 10 each, ` 8 paid up 21,60,000
Reserves and surplus:
General Reserve 3,60,000
Capital Redemption Reserve 1,20,000
Securities premium (collected in cash) 75,000
Profit and Loss Account 6,00,000
On 1st April, 20X1, the Company has made final call @ ` 2 each on 2,70,000 equity shares.
The call money was received by 20 th April, 20X1. Thereafter, the company decided to
capitalize its reserves by way of bonus at the rate of one share for every four shares held.
You are required to prepare necessary journal entries in the books of the company and
prepare the relevant extract of the balance sheet as on 30 th April, 20X1 after bonus
issue.
Right Issue
5. 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

6. The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December,
20X1:
Share capital: 50,000 Equity shares of `10 each fully paid – `5,00,000; 1,500 10%
Redeemable preference shares of `100 each fully paid – ` 1,50,000.
Reserve & Surplus: Capital reserve – `1,00,000; General reserve –` 1,00,000; Profit and
Loss Account – `75,000.
On 1st January 20X2, 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
7. On 1st January, 2006 Raman Ltd. allotted 20,000 9% Debentures of `100 each at par, the
total amount having been received along with applications.
(i) On 1st January, 2008 the Company purchased in the open market 2,000 of its own
debentures @ ` 101 each and cancelled them immediately.
(ii) On 1st January, 2011 the company redeemed at par debentures for `6,00,000 by draw
of a lot.
(iii) On 1st January, 2012 the company purchased debentures of the face value of
`4,00,000 for 3,95,600 in the open market, held them as investments for one year
and then cancelled them.
(iv) Finally, as per resolution of the board of directors, the remaining debentures were
redeemed at a premium of 2% on 1 st January, 2016.
You are required to prepare required journal entries for the above-mentioned
transactions ignoring debenture redemption reserve, debenture interest and interest on
own debentures.
Investment Accounts
8. Alpha Ltd. purchased 5,000, 13.5% Debentures of Face Value of ` 100 each of Pergot Ltd.
on 1st May 2017 @ ` 105 on cum interest basis. The interest on these instruments is
payable on 31st & 30th of March & September respectively. On August 1 st 2017 the
company again purchased 2,500 of such debentures @ ` 102.50 each on cum interest
basis. On October 1 st, 2017 the company sold 2,000 Debentures @ ` 103 each on ex-
interest basis. The market value of the debentures as at the close of the year was ` 106.
You are required to prepare the Investment in Debentures Account in the books of
Alpha Ltd. for the year ended 31 st Dec. 2017 on Average Cost Basis.

Insurance Claim for loss of stock

9. The premises of Anmol Ltd. caught fire on 22 nd January 2017, and the stock was damaged.
The firm makes account up to 31st March each year. On 31 st March, 2016 the stock at cost
was ` 6,63,600 as against ` 4,81,100 on 31 st March, 2015.
Purchases from 1st April, 2016 to the date of fire were ` 17,41,350 as against ` 22,62,500
for the full year 2015-16 and the corresponding sales figures were ` 24,58,500 and
` 26,00,000 respectively. You are given the following further information:
(i) In July, 2016, goods costing ` 50,000 were given away for advertising purposes, no
entries being made in the books.
(ii) During 2016-17, a clerk had misappropriated unrecorded cash sales. It is estimated
that the defalcation averaged ` 1,000 per week from 1 st April, 2016 until the clerk was
dismissed on 18 th August, 2016.
(iii) The rate of gross profit is constant.
You are required to calculate the value of stock in hand on the date of fire with the help of
above information.
Hire Purchase Transactions
10. Srikumar bought 2 cars from ‘Fair Value Motors Pvt. Ltd. on 1.4.2014 on the following
terms (for both cars):
Down payment 6,00,000
1st Installment at the end of first year 4,20,000
2nd Installment at the end of 2 nd year 4,90,000
3rd Installment at the end of 3rd year 5,50,000
Interest is charged at 10% p.a.
Srikumar provides depreciation @ 25% on the diminishing balances.
On 31.3.2017 Srikumar failed to pay the 3 rd installment upon which ‘Fair Value Motors Pvt.
Ltd.’ repossessed 1 car. Srikumar agreed to leave one car with Fair Value Motors Pvt. Ltd.
and adjusted the value of the car against the amount due. The car taken over was valued
on the basis of 40% depreciation annually on written down basis. The balance amount
remaining in the vendor’s account after the above adjustment was paid by Srikumar after
3 months with interest @ 20% p.a.
You are required to:
(i) Calculate the cash price of the cars and the interest paid with each installment.
(ii) Prepare Cars Account in the books of Srikumar assuming books are closed on
March 31, every year.
Figures may be rounded off to the nearest rupee.

Departmental Accounts
11. Following is the Trial Balance of Mr. Mohan as on 31.03.2017:
Particulars Debit (`) Credit (` )
Capital Account 40,000
Drawing Account 1,500
Opening Stock Department A 8,500
Department B 5,700
Department C 1,200
Purchases Department A 22,000
Department B 17,000
Department C 8,000
Sales Department A 54,000
Department B 33,000
Department C 21,000
Sales Returns Department A 4,000
Department B 3,000
Department C 1,000
Freight and Carriage Department A 1,400
Department B 800
Department C 200
Furniture and fixtures 4,600
Plant and Machinery 20,000
Motor Vehicles 40,000
Sundry Debtors 12,200
Sundry Creditors 15,000
Salaries 4,500
Power and water 1,200
Telephone charges 2,100
Bad Debts 750
Rent and taxes 6,000
Insurance 1,500
Wages Department A 800
Department B 550

Department C 150
Printing and Stationeries 2,000
Advertising 3,500
Bank Overdraft 12,000
Cash in hand 850
1,75,000 1,75,000
You are required to prepare Department Trading, Profit and Loss Account and the Balance
Sheet taking into account the following adjustments:
(a) Outstanding Wages: Department B- ` 150, Department C – ` 50.
(b) Depreciate Plant and Machinery and Motor Vehicles at the rate of 10%.
(c) Each Department shall share all expenses in proportion to their sales.
(d) Closing Stock: Department A - ` 3,500, Department B - ` 2,000, Department
C - ` 1,500.
Branch Accounting
12. Alpha Ltd. has a retail shop under the supervision of a manager. The r atio of gross profit
at selling price is constant at 25 per cent throughout the year to 31 st March, 2017.
Branch manager is entitled to a commission of 10 per cent of the profit earned by his
branch, calculated before charging his commission but subject to a deduction from such
commission equal in 25 per cent of any ascertained deficiency of branch stock. All goods
were supplied to the branch in head office.
The following details for the year ended 31 st March, 2017 are given as follows:
` `
Opening Stock (at cost) 74,736 Chargeable expenses 49,120
Goods sent to branch (at cost) 2,89,680 Closing Stock (Selling Price) 1,23,328
Sales 3,61,280
Manager’s commission paid
on account 2,400
From the above details, you are required to calculate the commission due to manager
for the year ended 31 st March, 2017.
Accounts from Incomplete Records
13. The following is the Balance Sheet of Manish and Suresh as on 1 st April, 2016:
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) Creditors' Velocity  1.5 month & Debtors' Velocity* 2 months.
(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) Cost price will go up 15% as compared to last year and also sales in the current year
will increase by 25% in volume.
(v) Rate of gross profit remains the same.
(vi) Business Expenditures are ` 50,000 for the year. All expenditures are paid off in
cash.
(vii) Closing stock is to be valued on LIFO Basis.
(viii) All sales and purchases are on credit basis and there are no cash purchases and
sales.
You are required to prepare Trading, Profit and Loss Account, Trade Debtors Account
and Trade Creditors Account for the year ending 31.03.2017.
Conversion of Partnership Firm into a Company
14. (a) Aman, Baal and Chand share profits and losses of a business as to 3:2:1 respectively.
Their balance sheet as at 31 st March, 2017 was as follows:
Capital Accounts: Goodwill 10,000
Aman 70,000 Land 20,000
Baal 80,000 Buildings 1,10,000
Chand 10,000 Machinery 50,000
General Reserve 18,000 Motor Car 28,000
Investment Fluctuation 4,000 Furniture 12,000
Fund

Velocity indicates the no. of times the creditors and debtors are turned over a year.

Chand’s Loan 33,000 Investments 18,000

Mrs. Aman’s loan 15,000 Loose tools 7,000
Creditors 96,000 Stock 18,000
Bills Payable 14,000 Bills receivable 20,000
Bank overdraft 60,000 Debtors: 40,000
Less: Provision 2,000 38,000
Cash 1,000
Chand’s current A/c 56,000
Profit and Loss A/c 12,000
4,00,000 4,00,000
The partners decide to convert their firm into a Joint Stock Company. For this purpose
ABC Ltd. was formed with an authorized capital of ` 10,00,000 divided into ` 100
equity Shares. The business of the firm was sold to the company as at the date of
balance sheet given above on the following terms:
(i) Motor car, furniture, investments, loose tools, debtors and cash are not to be
taken over by the company.
(ii) Liabilities for bills payable and bank overdraft are to be taken over by the
company.
(iii) The purchase price is settled at ` 1,95,500 payable as to ` 75,500 in cash and
the balance in company’s fully paid shares of ` 100 each.
(iv) The remaining assets and liabilities of the firm are directly disposed of by the
firm as per details given below:
Investments are taken over by Aman for ` 13,000; debtors realize in all ` 20,000;
Motor Car, furniture and loose tools fetch ` 24,000, ` 4,000, and ` 1,000
respectively. Aman agrees to pay his wife’s loan. The creditors were paid
` 94,000 in final settlement of their claims. The realization expenses amount to
` 500.
(v) The equity share received from the vendor company are to be divided among
the partners in profit-sharing ratio.
You are required to prepare the necessary ledger accounts in the books of the
partnership firm.
Limited Liability Partnership
(b) Explain the Limitations of Liability of Limited Liability Partnership (LLP) and its
partners.
Framework for Preparation and Presentation of Financial statements
15. Explain main elements of Financial Statements.

Accounting Standards
AS 2 Valuation of Inventories
16. (a) A private limited company manufacturing fancy terry towels had valued its closing
inventory of inventories of finished goods at the realizable value, inclusive of profit
and the export cash incentives. Firm contracts had been received and goods were
packed for export, but the ownership in these goods had not been transferred to the
foreign buyers.
You are required to advise the company on the valuation of the inventories in line
with the provisions of AS 2.
AS 4 Contingencies and Events Occurring after the Balance Sheet Date
(b) With reference to AS 4 "Contingencies and events occurring after the balance sheet
date", identify whether the following events will be treated as contingencies,
adjusting events or non-adjusting events occurring after balance sheet date in case
of a company which follows April to March as its financial year.
(i) A major fire has damaged the assets in a factory on 5 th April, 5 days after the
year end. However, the assets are fully insured and the books have not been
approved by the Directors.
(ii) A suit against the company's advertisement was filed by a party on 10 th April, 10
days after the year end claiming damages of ` 20 lakhs.
AS 5 Net profit or Loss for the period, Prior Period Items and Changes in Accounting
Policies
17. (a) Bela Ltd. has a vacant land measuring 20,000 sq. mts, which it had no intention to
use in the future. The Company decided to sell the land to tide over its liquidity
problems and made a profit of `10 Lakhs by selling the said land. Moreover, there
was a fire in the factory and a part of the unused factory shed valued at ` 8 Lakhs
was destroyed. The loss from fire was set off against the profit from sale of land and
profit of ` 2 lakhs was disclosed as net profit from sale of assets.
You are required to examine the treatment and disclosure done by the company and
advise the company in line with AS 5.
Depreciation Accounting as per AS 10 Property, Plant and Equipment
(b) In the year 2016-17, an entity has acquired a new freehold building with a useful life
of 50 years for ` 90,00,000. The entity desires to calculate the depreciation charge
per annum using a straight-line method. It has identified the following components
(with no residual value of lifts & fixtures at the end of their useful life) as follows:
Component Useful life (Years) Cost
Land Infinite ` 20,00,000

Roof 25 ` 10,00,000
Lifts 20 ` 5,00,000
Fixtures 10 ` 5,00,000
Remainder of building 50 ` 50,00,000
` 90,00,000
You are required to calculate depreciation for the year 2016-17 as per
componentization method.
AS 11 The Effects of Changes in Foreign Exchange Rates
18. (a) Power Track Ltd. purchased a plant for US$ 50,000 on 31 st October, 2016 payable
after 6 months. The company entered into a forward contract for 6 months @ ` 64.25
per Dollar. On 31 st October, 2016, the exchange rate was ` 61.50 per Dollar.
You are required to calculate the amount of the profit or loss on forward contract
to be recognized in the books of the company for the year ended 31 st March, 2017.
AS 12 Government Grants
(b) D Ltd. acquired a machine on 01-04-2012 for ` 20,00,000. The useful life is 5 years.
The company had applied on 01-04-2012, for a subsidy to the tune of 80% of the cost.
The sanction letter for subsidy was received in November 2015. The Company’s Fixed
Assets Account for the financial year 2015-16 shows a credit balance as under:
Particulars `
Machine (Original Cost) 20,00,000
Less: Accumulated Depreciation (from 2012-13- to 2014-15 on
Straight Line Method) 12,00,000
8,00,000
Less: Grant received (16,00,000)
Balance (8,00,000)
You are required to explain how should the company deal with this asset in its
accounts for 2015-16?
AS 13 Accounting for Investments
19. (a) Paridhi Electronics Ltd. invested in the shares of another unlisted company on 1st May
2012 at a cost of ` 3,00,000 with the intention of holding more than a year. The
published accounts of unlisted company received in January, 2017 reveals that the
company has incurred cash losses with decline in market share and investment of
Paridhi Electronics Ltd. may not fetch more than ` 45,000.
You are required to explain how you will deal with the above in the financial
statements of the Paridhi Electronics Ltd. as on 31.3.17 with reference to AS 13?

AS 16 Borrowing costs
(b) In May, 2016, Capacity Ltd. took a bank loan to be used specifically for the
construction of a new factory building. The construction was completed in January,
2017 and the building was put to its use immediately thereafter. Interest on the actual
amount used for construction of the building till its completion was ` 18 lakhs,
whereas the total interest payable to the bank on the loan for the period till
31st March, 2017 amounted to ` 25 lakhs.
Can ` 25 lakhs be treated as part of the cost of factory building and thus be capitalized
on the plea that the loan was specifically taken for the construction of factory building?
Explain the treatment in line with the provisions of AS 16.
AS 17 Segment Reporting
20 (a) A Company has an inter-segment transfer pricing policy of charging at cost less 5%.
The market prices are generally 20% above cost.
You are required to examine whether the policy adopted by the company is correct
or not?
AS 22 Accounting for Taxes on Income
(b) Rama Ltd., has provided the following information:
`
Depreciation as per accounting records = 2,00,000
Depreciation as per income tax records = 5,00,000
Unamortized preliminary expenses as per tax record = 30,000
There is adequate evidence of future profit sufficiency.
You are required to calculate the amount of deferred tax asset/liability to be
recognized as transition adjustment assuming Tax rate as 50%.
ANSWERS
1. Kapil Ltd.
Balance Sheet
as at 31 st March, 2017
Note
Particulars (`)
No.
I Equity and Liabilities
(1) Shareholders' Funds
(a) Share Capital 1 19,90,000

(b) Reserves and Surplus 2 59,586

(2) Current Liabilities
(a) Trade Payables 2,40,500
(b) Other Current Liabilities 3 13,28,000
(c) Short-Term Provisions 4 4,07,414
Total 40,25,500
II ASSETS
(1) Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 5 29,30,000
(2) Current Assets
(a) Inventories 7,08,000
(b) Trade Receivables 6 3,59,500
(c) Cash and Cash Equivalents 7 28,000
Total 40,25,500
Kapil Ltd.
Statement of Profit and Loss for the year ended 31 st March, 2017
Particulars Note No. (`)
I Revenue from Operations 36,17,000
II Other Income 8 36,500
III Total Revenue [I + II] 36,53,500
IV Expenses:
Cost of purchases 12,32,500
Changes in Inventories [6,65,000-7,08,000] (43,000)
Employee Benefits Expenses 9 13,93,000
Finance Costs 10 1,11,000
Depreciation and Amortization Expenses 1,20,000
Other Expenses 11 4,40,000
Total Expenses 32,53,500
V Profit before Tax (III-IV) 4,00,000
VI Tax Expenses @ 30% (1,20,000)
VII Profit for the period 2,80,000

Notes to Accounts:
1. Share Capital
Authorized Capital
5,00,000 Equity Shares of ` 10 each 50,00,000
Issued Capital
2,00,000 Equity Shares of ` 10 each 20,00,000
Subscribed Capital and fully paid
1,95,000 Equity Shares of `10 each 19,50,000
Subscribed Capital but not fully paid
5,000 Equity Shares of `10 each ` 8 paid 40,000
(Call unpaid `10,000) 19,90,000
2. Reserves and Surplus

General Reserve 7,000
Surplus i.e. Balance in Statement of Profit & Loss:
Opening Balance 67,000
Add: Profit for the period 2,80,000
Less: Transfer to Reserve @ 2.5% (7,000)
Less: Equity Dividend [12% of (20,00,000-10,000)] (2,38,800)
Less: Corporate Dividend Tax (Working note) (48,614) 52,586
59,586
3. Other Current Liabilities
Bank Overdraft 12,67,000
Outstanding Expenses [25,000+36,000] 61,000
13,28,000
4. Short-term Provisions
Provision for Tax 1,20,000
Equity Dividend payable 2,38,800
Corporate Dividend Tax 48,614
4,07,414

5. Tangible Assets
Particulars Value given Depreciation Depreciation Written down
(`) rate Charged value at the end
(`) (`)
Land 16,25,000 - 16,25,000
Plant & Machinery 7,50,000 5% 37,500 7,12,500
Furniture & Fixtures 1,50,000 10% 15,000 1,35,000
Patterns 3,75,000 10% 37,500 3,37,500
Engineering Tools 1,50,000 20% 30,000 1,20,000
30,50,000 1,20,000 29,30,000
6. Trade Receivables
Trade receivables (4,00,500-16,000) 3,84,500
Less: Provision for doubtful debts (25,000)
3,59,500
7. Cash & Cash Equivalent
Cash Balance 8,000
Bank Balance in current A/c 20,000
28,000
8. Other Income
Miscellaneous Income (Transfer fees) 6,500
Rental Income 30,000
36,500
9. Employee benefits expenses
Wages 13,68,000
Add: Outstanding wages 25,000
13,93,000
10. Finance Cost
Interest on Bank overdraft 1,11,000
11. Other Expenses
Carriage Inward 57,500
Discount & Rebates 30,000
Advertisement 15,000

Rate, Taxes and Insurance 55,000

Repairs to Buildings 56,500
Commission & Brokerage 67,500
Miscellaneous Expenses [56,000+36,000] (Business Expenses) 92,000
Bad Debts [25,500+16,000] 41,500
Provision for Doubtful Debts 25,000
4,40,000
Working Note
Calculation of grossing-up of dividend:
Particulars `
Dividend distributed by Company 2,38,800
Add: Increase for the purpose of grossing up of dividend 42,141
2,38,800 x [15/(100-15)]
Gross dividend 2,80,941
Dividend distribution tax @ 17.304% 48,614
2. Cash flow statement (using direct method) for the year ended 31 st March, 2017
(` in crores) (` in crores)
Cash flow from operating activities
Cash sales 262
Cash collected from credit customers 134
Less: Cash paid to suppliers for goods & services
and to employees (Refer Working Note) (251)
Cash from operations 145
Less: Income tax paid (26)
Net cash generated from operating activities 119
Cash flow from investing activities
Net Payment for purchase of Machine (25 – 15) (10)
Proceeds from sale of investments 16
Net cash used in investing activities 6
Cash flow from financing activities
Redemption of Preference shares (32)
Proceeds from issue of Equity shares 24
Debenture interest paid (2)
Dividend Paid (15)

Net cash used in financing activities (25)

Net increase in cash and cash equivalents 100
Add: Cash and cash equivalents as on 1.04.2016 2
Cash and cash equivalents as on 31.3.2017 102
Working Note:
Calculation of cash paid to suppliers of goods and services and to employees
(` in crores)
Opening Balance in creditors Account 84
Add: Purchases (220x .8) 176
Total 260
Less: Closing balance in Creditors Account 92
Cash paid to suppliers of goods 168
Add: Cash purchases (220x .2) 44
Total cash paid for purchases to suppliers (a) 212
Add: Cash paid to suppliers of other consumables and services (b) 19
Add: Payment to employees (c) 20
Total cash paid to suppliers of goods & services and to employees [(a)+ 251
(b) + (c)]
3. Statement showing the calculation of profits/losses for pre incorporation
and Post incorporation period profits of Sanjana Ltd.
for the year ended 31 st March, 2017
Particulars Basis Pre Post
` `
Sales (given) 10,000 40,000
Less: Purchases 1:3.3 5,814 19,186
Carriage Inwards 1:3.3 237 782
Gross Profit (i) 3,949 20,032
Less: Selling Expenses 1:4 700 2,800
Preliminary Expenses 1,200
Salaries 1:3 900 2,700
Director Fees 1,200
Interest on capital 700

Depreciation 1:3 700 2,100

Rent 1:3 1,200 3,600
Total of Expenses(ii) 4,200 13,600
Capital Loss/Net Profit (i-ii) (251) 6,432
Working Notes:
1: Sales Ratio = 10,000 : 40,000 = 1 :4
2: Time Ratio = 3:9 = 1:3
3: Purchase Price Ratio
 Ratio is 3 : 9
But purchase price was 10% higher in the company period
 Ratio is 3 : 9 + 10%
3:9.9 = 1:3.3.
4. Journal Entries in the books of Manoj Ltd.
` `
1-4-20X1 Equity share final call A/c Dr. 5,40,000
To Equity share capital A/c 5,40,000
(For final calls of ` 2 per share on 2,70,000
equity shares due as per Board’s Resolution
dated….)
20-4-20X1 Bank A/c Dr. 5,40,000
To Equity share final call A/c 5,40,000
(For final call money on 2,70,000 equity
shares received)
Securities Premium A/c Dr. 75,000
Capital redemption reserve A/c Dr. 1,20,000
General Reserve A/c Dr. 3,60,000
Profit and Loss A/c (b.f.) Dr. 1,20,000
To Bonus to shareholders A/c 6,75,000
(For making provision for bonus issue of one
share for every four shares held)
Bonus to shareholders A/c Dr. 6,75,000
To Equity share capital A/c 6,75,000
(For issue of bonus shares)

Extract of Balance Sheet as at 30 th April, 20X1 (after bonus issue)

`
Authorised Capital
30,000 12% Preference shares of ` 10 each 3,00,000
4,00,000 Equity shares of ` 10 each 40,00,000
Issued and subscribed capital
24,000 12% Preference shares of ``10 each, fully paid 2,40,000
3,37,500 Equity shares of ` 10 each, fully paid 33,75,000
(Out of the above, 67,500 equity shares @ ` 10 each were issued by way
of bonus shares)
Reserves and surplus
Profit and Loss Account 4,80,000
5. 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.
6. In the books of ABC Limited
Journal Entries
Date Particulars Dr. (`) Cr. (`)
20X2
Jan 1 10% Redeemable Preference Share Capital Dr. 1,50,000
A/c
Premium on Redemption of Preference 15,000
Shares
To Preference Shareholders A/c 1,65,000
(Being the amount payable on redemption
transferred to Preference Shareholders
Account)
Preference Shareholders A/c Dr. 1,65,000
To Bank A/c 1,65,000

(Being the amount paid on redemption of

preference shares)
General Reserve A/c Dr. 1,00,000
Profit & Loss A/c Dr. 50,000
To Capital Redemption Reserve A/c 1,50,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
Profit & Loss A/c Dr. 15,000
To Premium on Redemption of 15,000
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.
7. Journal Entries
(`) Dr. (`) Cr.
2006 Jan 1 Bank Dr. 20,00,000
To 9% Debenture Applications& Allotment Account 20,00,000
(Being application money on 20,000 debentures @ ` 100
per debenture received)
9% Debentures Applications & Allotment Account Dr. 20,00,000
To 9% Debentures Account 20,00,000
(Being allotment of 20,000 9% Debentures of `100 each at
par)
(i) 9% Debenture Account Dr. 2,00,000
2008 Jan. 1 Loss on Redemption of Debentures Account Dr. 2,000
To Bank 2,02,000
(Being redemption of 2,000 9% Debentures of `100 each
by purchase in the open market @ `101 each)
” ” Profit & Loss Account Dr. 2,000
To Loss on Redemption of Debentures Account 2,000
(Being loss on redemption of debentures being written off
by transfer to Profit and Loss Account)
(ii) 9% Debentures Account Dr. 6,00,000
2011Jan. 1 To Sundry Debenture holders 6,00,000
(Being Amount payable to debenture holders on redemption
debentures for `6,00,000 at par by draw of a lot)

” ” Sundry Debenture holders Dr. 6,00,000

To Bank 6,00,000
(Being Payment made to sundry debenture holders for
redeeming debentures of `6,00,000 at par)
(iii) Own Debentures Dr. 3,95,600
2012 Jan. 1 To Bank 3,95,600
(Being purchase of own debentures of the face value of
`4,00,000 for `3,95,600)
2013 ” 9% Debentures Dr. 4,00,000
To Own Debentures 3,95,600
To Profit on Cancellation of Own Debentures 4,400
Account
(Being Cancellation of own debentures of the face value of
`4,00,000 purchased last year for `3,95,600)
” ” Profit on Cancellation of Own Debentures 4,400
Account Dr. 4,400
To Capital Reserve Account
(Being transfer of profit on cancellation of own debentures
to capital reserve)
(iv) 9% Debentures Account Dr. 8,00,000
2016Jan. 1 Premium on Redemption of Debentures Account Dr. 16,000
To Sundry Debenture holders 8,16,000
(Being amount payable to holders of debentures of the face
value of ` 8,00,000 on redemption at a premium of 2% as
per resolution of the board of directors)
” ” Sundry Debenture holders Dr. 8,16,000
To Bank Account
(Being payment to sundry debenture holders) 8,16,000
” ” Profit & Loss Account Dr. 16,000
To Premium on Redemption of Debentures Account 16,000
(Being utilization of a part of the balance in Securities
Premium Account to write off premium paid on redemption
of debentures)
8. Books of Alpha Ltd.

Investment in 13.5% Debentures in Pergot Ltd. Account
(Interest payable on 31st March & 30th September)
Date Particulars Nominal Interest Amount Date Particulars Nominal Interest Amount
2017 ` ` ` 2017 ` ` `
May 1 To Bank 5,00,000 5,625 5,19,375 Sept.30 By Bank 50,625

(6 months Int)
Aug.1 To Bank 2,50,000 11,250 2,45,000 Oct.1 By Bank 2,00,000 2,06,000
Oct.1 To P&L A/c 2,167
Dec.31 To P&L A/c 52,313
Dec.31 By Balance
c/d 5,50,000 18,563 5,60,542
7,50,000 69,188 7,66,542 7,50,000 69,188 7,66,542
Note: Cost being lower than Market Value the debentures are carried forward at Cost.
Working Notes:
1. Interest paid on ` 5,00,000 purchased on May 1 st, 2017 for the month of April 2017,
as part of purchase price: 5,00,000 x 13.5% x 1/12 = ` 5,625
2. Interest received on 30 th Sept. 2017
On ` 5,00,000 = 5,00,000 x 13.5% x ½ = 33,750
On ` 2,50,000 = 2,50,000 x 13.5% x ½ = 16,875
Total ` 50,625
3. Interest paid on ` 2,50,000 purchased on Aug. 1 st 2017 for April 2017 to July 2017
as part of purchase price:
2,50,000 x 13.5% x 4/12 = ` 11,250
4. Loss on Sale of Debentures
Cost of acquisition
(` 5,19,375 + ` 2,45,000) x ` 2,00,000/` 7,50,000 = 2,03,833
Less: Sale Price (2,000 x 103) = 2,06,000
Profit on sale = ` 2,167
5. Cost of Balance Debentures
(` 5,19,375 + ` 2,45,000) x ` 5,50,000/` 7,50,000 = ` 5,60,542
6. Interest on Closing Debentures for period Oct.-Dec. 2017 carried forward (accrued
interest)
` 5,50,000 x 13.5% x 3/12 = ` 18,563
9. Ascertainment of rate of gross profit for the year 2015-16
Trading A/c for the year ended 31-3-2016
` `
To Opening stock 4,81,100 By Sales 26,00,000
To Purchases 22,62,500 By Closing stock 6,63,600

To Gross profit 5,20,000

32,63,600 32,63,600
GP
Rate of gross profit = × 100
Sales
5,20,000
= ×100 = 20%
26,00,000
Memorandum Trading A/c for the period from 1-4-2016 to 22-01-2017

` ` ` `
To Opening stock 6,63,600 By Sales 24,58,500
To Purchases 17,41,350 Add: Unrecorded cash 20,000 24,78,500
Less: Goods used for sales (W.N.)
advertisement (50,000) 16,91,350 By Closing stock 3,72,150
To Gross profit (20% 4,95,700
of ` 24,78,500)
28,50,650 28,50,650
Estimated stock in hand on the date of fire was ` 3,72,150.

Working Note:
Cash sales defalcated by the Accountant:
Defalcation period = 1.4.2016 to 18.8.2016= 140 days
Since, 140 days / 7 weeks = 20 weeks
Therefore, amount of defalcation = 20 weeks × ` 1,000 = ` 20,000.
10. (i) Calculation of Interest and Cash Price
No. of Outstanding Amount Outstanding Interest Outstanding
installments balance at due at the balance at the balance at
the end after time of end before the the beginning
the payment installment payment of
of installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x [6]4-5
10/110
3rd - 5,50,000 5,50,000 50,000 5,00,000
2nd 5,00,000 4,90,000 9,90,000 90,000 9,00,000
1st 9,00,000 4,20,000 13,20,000 1,20,000 12,00,000
Total cash price = ` 12,00,000+ 6,00,000 (down payment) = ` 18,00,000.

(ii) In the books of Srikumar

Cars Account
Date Particulars ` Date Particulars `
1.4.2014 To Fair Value 18,00,000 31.3.2015 By Depreciation A/c 4,50,000
Motors A/c By Balance c/d 13,50,000
18,00,000 18,00,000
1.4.2015 To Balance b/d 13,50,000 31.3.2016 By Depreciation A/c 3,37,500
By Balance c/d 10,12,500
13,50,000 13,50,000
1.4.2016 To Balance b/d 10,12,500 31.3.2017 By Depreciation A/c 2,53,125
By Fair Value Motors A/c
(Value of 1 Car taken over
after depreciation for 3 years
@ 40% p.a.) [9,00,000 -
(3,60,000 + 2,16,000 + 1,94,400
1,29,600)]
By Loss transferred to
Profit and Loss A/c on
surrender (Bal. fig.) 1,85,288
By Balance c/d
½ (10,12,500-2,53,125) 3,79,687
10,12,500 10,12,500
11. Trading and Profit and Loss Account

for the year ended on 31 st Match, 2017
Particulars A ( `) B ( `) C (` ) Particulars A ( `) B ( `) C (` )
To Opening Stock 8,500 5,700 1,200 By Sales less 50,000 30,000 20,000
Sales returns
To Purchases 22,000 17,000 8,000 By Closing 3,500 2,000 1,500
Stock
To Freight & carriage 1,400 800 200
To Wages 800 700 200
To Gross profit 20,800 7,800 11,900
53,500 32,000 21,500 53,500 32,000 21,500
To Salaries 2,250 1,350 900 By Gross Profit 20,800 7,800 11,900
To Power & Water 600 360 240 By Net Loss - 465 -

To Telephone 1,050 630 420

Charges
To Bad Debts 375 225 150
To Rent & Taxes 3,000 1,800 1,200
To Insurance 750 450 300
To Printing & 1,000 600 400
Stationery
To Advertising 1,750 1,050 700
To Depreciation 3,000 1,800 1,200
(2,000 +4,000)
To Net Profit 7,025 6,390
20,800 8,265 11,900 20,800 8,265 11,900
Balance Sheet as at 31.03.2017

Capital A/c 40,000 Furniture & Fixtures 4,600
Add: Net Profit Plant & Machinery 20,000
(` 7,025 + ` 6,390) 13,415
53,415 Less: Depreciation 2,000 18,000
Less: Net loss in Dept B 465 Motor Vehicles 40,000
52,950 Less: Depreciation 4,000 36,000
Less: Drawings 1,500 51,450 Sundry Debtors 12,200
Sundry Creditors 15,000 Cash in hand 850
Bank Overdraft 12,000 Closing Stock 7,000
Wages Outstanding 200
78,650 78,650
Note: All expenses have been allocated among departments in proportion of their sales in
the solution as per the specific requirement of the question.
12. Step 1: Calculation of Deficiency
Branch stock account (at invoice price)
Particulars ` Particulars `
To Opening Stock (` 74,736 + 1/3 By Sales 3,61,280
of ` 74,736) 99,648
To Goods sent to Branch A/c By Closing Stock 1,23,328
(` 2,89,680 + 1/3 of ` 2,89,680) 3,86,240

By Deficiency at sale
price [Balancing figure] 1,280
4,85,888 4,85,888
Step 2: Calculation of Net Profit before Commission
Branch account
To Opening [`74,736 + 1/3 of 99,648 By Sales 3,61,280
` 74,736]
To Gross sent to Branch A/c 3,86,240 By Closing Stock 1,23,328
(` 2,89,680 + 1/3 of
` 2,89,680)
To Expenses 49,120 By Stock Reserve A/c 24,912
To Stock Reserve A/c 30,832 By goods sent to Branch 96,560
(` 1,23,328 x 25/100] A/c
To Net Profit – subject to
manager’s commission 40,240
6,06,080 6,06,080
Step 3: Calculation of Commission still due to manager
`
A Calculation at 10% profit before charging his commission
[` 40,240 x 10/100] 4,024
B Less: 25% of cost of deficiency in stock (25% of (75% of ` 1,280) (240)
C Commission for the year [A-B] 3,784
D Less: Paid on account (2,400)
E Balance due (C-D) 1,384
13. Trading and Profit and Loss account
for the year ending 31st March, 2017
To Opening Stock 40,000 By Sales 4,31,250
To Purchases (Working Note) 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
Trade Debtors Account
To Balance b/d 50,000 By Bank (bal.fig.) 4,09,375
To Sales 4,31,250 By Balance c/d (1/6 of 4,31,250) 71,875
4,81,250 4,81,250
Trade Creditors Account
To Bank (Balancing figure) 3,31,875 By Balancing b/d 30,000
To Balance c/d/ (1/8 of ` 3,45,000) 43,125 By Purchases 3,45,000
3,75,000 3,75,000
Working Note:
`
(i) Calculation of Rate of Gross Profit earned during previous year
A Sales during previous year (` 50,000 x 12/2) 3,00,000
B Purchases (` 30,000 x 12/1.5) 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 and Purchases during current year `
A Cost of goods sold during previous year 2,40,000
B Add: Increases in volume @ 25 % 60,000
3,00,000
C Add: Increase in cost @ 15% 45,000
D Cost of Goods Sold during Current Year 3,45,000
E Add: Gross profit @ 25% on cost (20% on sales) 86,250
F Sales for current year [D+E] 4,31,250

14. (a) Necessary Ledger Accounts in the books of Partnership Firm

Realization Account
Particulars ` ` Particulars ` `
To Goodwill 10,000 By provision to doubtful 2,000
Debts
To land 20,000 By Trade creditors 96,000
To Buildings 1,10,000 By Bills Payable 14,000
To Machinery 50,000 By Bank overdraft 60,000
To Motor Car 28,000 By Mrs. Aman’s loan 15,000
To Furniture 12,000 By ABC Ltd. (Purchase 1,95,500
price)
To Investments 18,000 By Aman’s Capital A/c 13,000
(Investments taken over)
To Loose tools 7,000 By Cash A/c:
To Stock 18,000 Debtors 20,000
To Bill receivable 20,000 Motor Car 24,000
To Debtors 40,000 Furniture 4,000
To Aman’s Capital A/c 15,000 Loose tools 1,000 49,000
(Mrs. Aman’s Loan)
To Cash A/c:
Creditors 94,000
Realization expenses 500 94,500
To Profit on Realization
t/f to:
Aman’s Capital A/c 1,000
Baal’s Capital A/c 667
Chand’s Capital A/c 333 2,000
4,44,500 4,44,500
ABC Ltd. Account

To Realization A/c 1,95,500 By Cash A/c 75,500
By Shares in ABC Ltd. 1,20,000
1,95,500 1,95,500
Partners’ Capital Accounts
Particulars Aman Baal Chand Particulars Aman Baal Chand
` ` ` ` ` `
To Profit and 6,000 4,000 2,000 By Balance b/d 70,000 80,000 10,000
Loss A/c

To Realization A/c 13,000 - - By Chand’s Loan - - 33,000

A/c
To Chand’s - - 56,000 By General
Current A/c reserve 9,000 6,000 3,000
To shares in By Investment
ABC Ltd. 60,000 40,000 20,000 Fluctuation Fund* 2,000 1,333 667
To Cash A/c 18,000 44,000 - By Realization A/c 1,000 667 333
By Realization A/c
(Mrs.
Aman’s loan A/c) 15,000 - -
By Cash A/c - 31,000
97,000 88,000 78,000 97,000 88,000 78,000
*Alternatively, Investment Fluctuation Fund Account may be transferred to Realization

Account.
Chand’s Current Account
To Balance b/d 56,000 By Chand’s Capital A/c-transfer 56,000
56,000 56,000
Shares in ABC Ltd. Account
To ABC Ltd. Account 1,20,000 By Aman’s Capital A/c 60,000
By Baal’s Capital A/c 40,000
By Chand’s Capital A/c 20,000
1,20,000 1,20,000
Cash Account
To Balance b/d 1,000 By Realization A/c (Liabilities 94,500
and expenses)
To ABC Ltd. 75,500 By Aman’s Capital A/c 18,000
To Realization A/c (sale of 49,000 By Baal’s Capital A/c 44,000
assets)
To Chand’s Capital A/c 31,000 -
1,56,500 1,56,500
(b) Under section 27 (3) of the LLP Act, 2008 an obligation of an LLP arising out of a
contract or otherwise, shall be solely the obligation of the LLP. The limitations of
liability of an LLP and its partners are as follows:

 The Liabilities of an LLP shall be met out of the properties of the LLP;
 A partner is not personally liable, directly or indirectly (for an obligation of an
LLP arising out of a contract or otherwise), solely by reason of being a partner
in the LLP;
 An LLP is not bound by anything done by a partner in dealing with a person, if:
 The partner does not have the authority to act on behalf of the LLP in doing
a particular act; and
 The other person knows that the partner has no authority or does not know
or believe him to be a partner in the LLP
 The liability of the LLP and the partners perpetrating fraudulent dealings shall
be unlimited for all or any of the debts or other liabilities of the LLP.
15. Elements of Financial Statements
The Framework for preparation and Presentation of financial statements classifies items
of financial statements can be classified in five broad groups depending on their economic
characteristics: Asset, Liability, Equity, Income/Gain and Expense/Loss.
Asset Resource controlled by the enterprise as a result of past events from
which future economic benefits are expected to flow to the
enterprise
Liability Present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an outflow of a resource
embodying economic benefits.
Equity Residual interest in the assets of an enterprise after deducting all its
liabilities.
Income/gain Increase in economic benefits during the accounting period in the
form of inflows or enhancement of assets or decreases in liabilities
that result in increase in equity other than those relating to
contributions from equity participants
Expense/loss Decrease in economic benefits during the accounting period in the
form of outflows or depletions of assets or incurrence of liabilities
that result in decrease in equity other than those relating to
distributions to equity participants.
16 (a) Accounting Standard 2 “Valuation of Inventories” states that inventories should be
valued at lower of historical cost and net realizable value. The standard states, “at
certain stages in specific industries, such as when agricultural crops have been
harvested or mineral ores have been extracted, performance may be substantially
complete prior to the execution of the transaction generating revenue. In such cases,
when sale is assured under forward contract or a government guarantee or when

market exists and there is a negligible risk of failure to sell, the goods are often valued
at net realizable value at certain stages of production.”
Terry Towels do not fall in the category of agricultural crops or mineral ores.
Accordingly, taking into account the facts stated, the closing inventory of finished
goods (Fancy terry towel) should have been valued at lower of cost and net realizable
value and not at net realizable value. Further, export incentives are recorded only in
the year the export sale takes place. Therefore, the policy adopted by the company
for valuing its closing inventory of inventories of finished goods is not correct.
(b) According to AS 4 on ‘Contingencies and Events Occurring after the Balance Sheet
Date’, adjustments to assets and liabilities are required for events occurring after the
balance sheet date that provide additional information materially affecting the
determination of the amounts relating to conditions existing at the balance sheet date.
However, adjustments to assets and liabilities are not appropriate for events occurring
after the balance sheet date, if such events do not relate to conditions existing at the
balance sheet date. “Contingencies” used in the Standard is restricted to conditions
or situations at the balance sheet date, the financial effect of which is to be
determined by future events which may or may not occur.
(i) Fire has occurred after the balance sheet date and also the loss is totally
insured. Therefore, the event becomes immaterial and the event is non-
adjusting in nature.
(ii) The contingency is restricted to conditions existing at the balance sheet date.
However, in the given case, suit was filed against the company’s advertisement
by a party on 10 th April for amount of ` 20 lakhs. Therefore, it does not fit into
the definition of a contingency and hence is a non-adjusting event.
17. (a) As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies” Extraordinary items should be disclosed in the statement of profit
and loss as a part of net profit or loss for the period. The nature and the amount of
each extraordinary item should be separately disclosed in the statement of profit and
loss in a manner that its impact on current profit or loss can be perceived.
In the given case the selling of land to tide over liquidation problems as well as fire in
the Factory does not constitute ordinary activities of the Company. These items are
distinct from the ordinary activities of the business. Both the events are material in
nature and expected not to recur frequently or regularly. Thus, these are
Extraordinary Items.
Therefore, in the given case, disclosing net profits by setting off fire losses against
profit from sale of land is not correct. The profit on sale of land, and loss due to fire
should be disclosed separately in the statement of profit and loss.

(b) Statement showing amount of depreciation as per Componentization

Method
Component Depreciation (Per annum)
(`)
Land Nil
Roof 40,000
Lifts 25,000
Fixtures 50,000
Remainder of Building 1,00,000
2,15,000
Note: When the roof requires replacement at the end of its useful life the carrying
amount will be nil. The cost of replacing the roof should be recognized as a new
component.
18. (a) Calculation of profit or loss to be recognized in the books of Power Track
Limited
`
Forward contract rate 64.25
Less: Spot rate (61.50)
Loss on forward contract 2.75
Forward Contract Amount $ 50,000
Total loss on entering into forward contract = ($ 50,000 × ` 2.75) `1,37,500
Contract period 6 months
Loss for the period 1 st November, 2016 to 31 st March, 2017 i.e. 5 months
5 months falling in the year 2016-2017
Hence, Loss for 5 months will be ` 1,37,500  5 = ` 1,14,583
6
Thus, the loss amounting to ` 1,14,583 for the period is to be recognized in the year
ended 31st March, 2017.
(b) From the above account, it is inferred that the Company follows Reduction Method
for accounting of Government Grants. Accordingly, out of the ` 16,00,000 that has
been received, ` 8,00,000 (being the balance in Machinery A/c) should be credited
to the machinery A/c.
The balance ` 8,00,000 may be credited to P&L A/c, since already the cost of the
asset to the tune of ` 12,00,000 had been debited to P&L A/c in the earlier years by
way of depreciation charge, and ` 8,00,000 transferred to P&L A/c now would be
partial recovery of that cost.

There is no need to provide depreciation for 2015-16 or 2016-17 as the depreciable

amount is now Nil.
19. (a) As per AS 13, “Accounting for Investments” Investments classified as long term
investments should be carried in the financial statements at cost. However, provision
for diminution shall be made to recognize a decline, other than temporary, in the value
of the investments, such reduction being determined and made for each investment
individually. The standard also states that indicators of the value of an investment
are obtained by reference to its market value, the investee's assets and results and
the expected cash flows from the investment.
On this basis, the facts of the case given in the question clearly sugges t that the
provision for diminution should be made to reduce the carrying amount of shares to
` 45,000 in the financial statements for the year ended 31st March, 2017 and charge
the difference of loss of ` 2,55,000 to profit and loss account.
(b) AS 16 clearly states that capitalization of borrowing costs should cease when
substantially all the activities necessary to prepare the qualifying asset for its intended
use are completed. Therefore, interest on the amount that has been used for the
construction of the building up to the date of completion (January, 2017) i.e. ` 18
lakhs alone can be capitalized. It cannot be extended to ` 25 lakhs.
20 (a) AS 17 ‘Segment Reporting’ requires that inter-segment transfers should be measured
on the basis that the enterprise actually used to price these transfers. The basis of
pricing inter-segment transfers and any change therein should be disclosed in the
financial statements. Hence, the enterprise can have its own policy for pricing inter -
segment transfers and hence, inter-segment transfers may be based on cost, below
cost or market price. However, whichever policy is followed, the same should be
disclosed and applied consistently. Therefore, in the given case inter -segment
transfer pricing policy adopted by the company is correct if followed consistently.
(b) Table showing calculation of deferred tax asset / liability
Particulars Amount Timing Deferred tax Amount
differences @ 50%
` `
Excess depreciation as per 3,00,000 Timing Deferred tax 1,50,000
tax records (` 5,00,000 – liability
` 2,00,000)
Unamortized preliminary 30,000 Timing Deferred tax
expenses as per tax records asset (15,000)
Net deferred tax liability 1,35,000

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

FOR MAY, 2018 EXAMINATIONS
Applicability for May, 2018 examinations
The Study Material (July 2017 edition) is applicable for May, 2018 Examinations. It is updated
for all relevant amendments/circulars/notifications/clarifications etc. till 30th April, 2017. Further,
all relevant amendments/ circulars/ notifications etc. in the Company law part for th e period 1 st
May 2017 to 31st October, 2017 are mentioned below:
Relevant Legislative amendments from 1 st of May 2017 to 31 st of October 2017
The Companies Act, 2013/ Corporate Laws
Sl. Amendments related Relevant Page no. of Earlier Law
No. to Amendments the Study
material
(New study
material)
with
reference
of relevant
provisions
1. Enforcement of the In the Companies Pg. 5.4 (xviii) any amount
Companies (Acceptance of received by a
(Acceptance of Deposits) Rules, company from
Deposits) Amendment 2014, Alternate Investment
Rules, 2017 Vide Funds, Domestic
Notification G.S.R. 454 In rule 2, in sub-rule Venture Capital
(E) dated 11 th May, (1), in clause (c), in Funds and Mutual
2017 in exercise of sub-clause (xviii), Funds registered
powers conferred by after the words with the Securities
section 73 and 73 read “Domestic Venture and Exchange Board
with 469(1) and 469(2). Capital Funds” the of India in
words “Infrastructure accordance with
Investment Trusts” regulations made by
shall be inserted. it.
2. Exemptions to The Central Pg 7.51 Such other place as
Government Government amends the Central
Companies Vide the Notification Government may
Notification G.S.R. G.S.R. 463(E), dated approve in this behalf.
5th June 2015,

582(E) Dated 13 th whereby Exceptions,

June, 2017 Modifications and
Adaptations were
provided in case of
Government
companies.
Following is the
amendments:
In sub-section (2) of
section 96, for the
words "such other
place as the Central
Government may
approve in this
behalf”, the words
“such other place
within the city, town
or village in which the
registered office of
the company is
situate or such other
place as the Central
Government may
approve in this
behalf” shall be
substituted.”.
Insertion of Paragraph 2A in the principal notification G.S.R.
463(E), dated 5 th June 2015:
The aforesaid exceptions, modifications and adaptations (i.e. as
given in Notification G.S.R. 463(E), dated 5th June 2015 and
Notification G.S.R. 582(E) Dated 13th June, 2017) shall be
applicable to a Government company which has not committed
a default in filing of its financial statements under section 137 of
the Companies Act or annual return under section 92 of the said
Act with the Registrar.
3. Exemptions to Private The Central
Companies Vide Government amends
Notification G.S.R. the Notification
583(E) Dated 13 TH G.S.R. 464(E), dated
June, 2017 5th June 2015

PAPER – 2: CORPORATE AND OTHER LAWS 37
whereby Exceptions,
Modifications and
Adaptations were
provided in case of
Private companies.
Following are the
amendments:
(1) In Chapter I, (1) Provided that the

Pg 1.9 financial statement,
Clause (40) of
section 2. with respect to One
Person Company,
small company and
For the proviso, the
dormant company,
following shall be
may not include the
substituted, namely:-
cash flow statement
Provided that the
financial statement,
with respect to one
person company,
small company,
dormant company
and private company
(if such private
company is a start-
up) may not include
the cash flow
statement;
Explanation. - For the

purposes of this Act,
the term „start-up‟ or
“start-up company”
means a private
company
incorporated under
the Companies Act,
2013 or the
Companies Act,
1956 and recognised
as start-up in
accordance with the
notification issued by
the Department of

Industrial Policy and

Promotion, Ministry
of Commerce and
Industry.
(2) In Chapter V, (2) Clause (a) to (e)

Pg 5.6
clauses (a) to (e) of of Section 73
sub-section (2) of provides conditions
section 73, shall not for acceptance of
apply to a private deposits from
company- members.
(A) which accepts Notification dated 5th

from its members June, 2015, provided
monies not that Clause (a) to (e)
exceeding one of Sub-section 2 of
hundred per cent. of Section 73 shall not
aggregate of the paid apply to private
up share capital, free Companies which
reserves and accepts from its
securities premium members monies not
account; or exceeding one
hundred per cent, of
aggregate of the paid
(B) which is a start-
up share capital and
up, for five years
free reserves, and
from the date of its
such company shall
incorporation; or
file the details of
monies so accepted
(C) which fulfils all of
to the Registrar in
the following
such manner as may
conditions, namely:-
be specified.
(a) which is not an
associate or a
subsidiary
company of any
other company;
(b)if the borrowings
of such a company
from banks or
financial
institutions or any

body corporate is
less than twice of
its paid up share
capital or fifty crore
rupees, whichever
is lower; and
(c) such a company
has not defaulted in
the repayment of
such borrowings
subsisting at the
time of accepting
deposits under this
section:
Provided that the

company referred to
in clauses (A), (B) or
(C) shall file the
details of monies
accepted to the
Registrar in such
manner as may be
specified.
(3) In Chapter VII, Pg 7.11 (3) clause (g) of sub-

clause (g) of sub- section (1) of section
section (1) of section 92 is read as
92, shall apply to “remuneration of
private companies directors and key
which are small managerial
companies, namely:- personnel”
“(g) aggregate
amount of
remuneration drawn
by directors;”
(4) In Chapter VII, Pg 7.12 (4) However, in

proviso to sub- relation to One
section (1) of section Person Company
92, and small company,

the annual return

For the proviso, the shall be signed by
following proviso the company
shall be substituted, secretary, or where
namely:- there is no company
secretary, by the
“Provided that in director of the
relation to One company.
Person Company,
small company and
private company (if
such private
company is a start-
up), the annual return
shall be signed by
the company
secretary, or where
there is no company
secretary, by the
director of the
company.”.
(5) Section 143(3)(i), (5) Section 143(3)(i)

Pg.10.24 provides- whether
shall not apply to a
private company:- the company has
adequate internal
financial controls
(i) which is a one
person company or a system in place and
small company; or the operating
(ii) which has effectiveness of such
turnover less than controls;
rupees fifty crores as
per latest audited
financial statement
or* which has
aggregate
borrowings from
banks or financial
institutions or
anybody corporate at
any point of time
during the financial
year less than rupees
twenty five crore."

Insertion of Paragraph 2A in the principal notification G.S.R.

464(E), dated 5 th June 2015:
The aforesaid exceptions, modifications and adaptations shall
be applicable to a Private company which has not committed a
default in filing of its financial statements under section 137 or
annual return under section 92 of the said Act with the Registrar.
*4. Corrigendum vide Ministry of Corporate Referred in In Section
Notification S.O. Affairs vide point no. 3 143(3)(i)(ii) there
2218(E) dated 13th July corrigendum stated above were the words
2017 with respect to that for the words “statement or” which
the Notification G.S.R. “statement or” to has been replaced
583(E) Dated 13 TH read as “statement with the word
June, 2017 and” under section “statement and”
143(3)(i). through this
notification.
5. Enforcement of the The Central Pg 10.6 Earlier Rule 5(b)
Companies (Audit and Government hereby stated that -all
Auditors) Second amends the private limited
Amendment Rules, Companies (Audit companies having
2017 Vide Notification and Auditors) Rules, paid up share capital
G.S.R. 621(E) dated 2014. of rupees 20 crore or
22nd June 2017 in more;
exercise of powers
conferred by section Through this
139. amendment rule, in
Rule 5(b), for the
word “twenty”, the
word “fifty” shall be
substituted.
6. Clarification regarding Notification No. - For the purposes of
applicability of G.S.R. 583(E) dated clause (i) of sub-
exemption given to 13th June, 2017 section (3) of sectlon
certain private stated that 143, for the financial
companies under requirements of years commencing on
section 143(3)(i) vide reporting under or after 1st April,
circular no. 08/2017 section 143(3)(i) 2015, the report of the
dated 25 th July 2017 read Rule 10 A of the auditor shall state
Companies (Audit about existence of
and Auditors) Rules, adequate internal
2014 of the financial controls
Companies Act 2013 system and its

shall not apply to operating

certain private effectiveness:
companies. Through
issue of this circular, Provided that auditor
it is hereby clarified of a company may
that the exemption voluntarily include the
shall be applicable statement referred to
for those audit in this rule for the
reports in respect of financial year
financial statements commencing on or
pertaining to financial after 1st April, 2014
year, commencing and ending on or
on or after 1st April, before 31st March,
2016, which are 2015.
made on or after the
date of the said
notification.
7. Enforcement of the In the Companies Pg 5.8 Provided that a
Companies (Acceptance of private company may
(Acceptance of Deposits) Rules, accept from its
Deposits) Second 2014, in rule 3, in members monies not
Amendment Rules, sub-rule (3), for the exceeding one
2017 Vide Notification proviso, the following hundred per cent of
G.S.R. 1172(E) dated shall be substituted, aggregate of the paid
19th September, 2017 namely:- up share capital, free
in exercise of powers reserves and
conferred by section 73 “Provided that a securities premium
and 73 read with Specified IFSC account and such
469(1) and 469(2). Public company and company shall file
a private company the details of monies
may accept from its so accepted to the
members monies not Registrar in such
exceeding one manner as may be
hundred per cent. of specified.
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 Form
DPT-3.
Explanation.—For
the purpose of this
rule, a Specified
IFSC Public
company means an
unlisted public
company which is
licensed to operate
by the Reserve Bank
of India or the
Securities and
Exchange Board of
India or the
Insurance
Regulatory and
Development
Authority of India
from the International
Financial Services
Centre located in an
approved multi
services Special
Economic Zone set-
up under the Special
Economic Zones Act,
2005 (28 of 2005)
read with the Special
Economic Zones
Rules, 2006:
Provided further that

the maximum limit in
respect of deposits to
be accepted from
members shall not
apply to following
classes of private
companies,
namely:—

(i) a private company

which is a start-up,
for five years from
the date of its
incorporation;
(ii) a private company

which fulfils all of the
following conditions,
namely:—
(a) which is not an
associate or a
subsidiary company
of any other
company;
(b) the borrowings of
such a company from
banks or financial
institutions or any
body corporate is
less than twice of its
paid up share capital
or fifty crore rupees,
whichever is less ;
and
(c) such a company
has not defaulted in
the repayment of
such borrowings
subsisting at the time
of accepting deposits
under section 73:
Provided also that all

the companies
accepting deposits
shall file the details of
monies so accepted
to the Registrar in
Form DPT-3.”.

8. Vide notification S.O. The Central Pg 1.20 Earlier not notified

3086(E) dated 20 th Government hereby
September 2017 appoints the 20 th
September, 2017 as
the date on which
proviso to clause (87)
of section 2 of the
said Act shall come
into force.
PART – II : QUESTIONS AND ANSWERS
QUESTIONS
COMPANY LAW
The Companies Act, 2013
1. The paid-up share capital of Saras Private Limited is ` 1 crore, consisting of 8 lacs Equity
Shares of ` 10 each, fully paid-up and 2 lacs Cumulative Preference Shares of `10 each,
fully paid-up. Jeevan (JVN) Private Limited and Sudhir Private Limited are holding 3 lacs
Equity Shares and 50,000 Equity Shares respectively in Saras Private Limited. Jeevan
Private Limited and Sudhir Private Limited are the subsidiaries of Piyush Private Limited.
With reference to the provisions of the Companies Act, 2013 examine whether Saras
Private Limited is a subsidiary of Piyush Private Limited? Would your answer be differe nt
if Piyush Private Limited has 8 out of 9 Directors on the Board of Saras Private Limited?
2. In a General Meeting of Amit Limited, the Chairman directed to exclude certain matters
detrimental to the interest of the company from the minutes. Manoj, a shareholder
contended that the minutes must contain fair and correct summary of the proceedings
thereat. Decide, whether the contention of Manoj is maintainable under the provisions of
the Companies Act, 2013?
3. Mr Nilesh has transferred 1000 shares of Perfect Ltd. to Ms. Mukta. The company has
refused to register transfer of shares and does not even send a notice of refusal to Mr.
Nilesh or Ms. Mukta respectively within the prescribed period. Discuss as per the
provisions of the Companies Act, 2013, whether aggrieved party has any right(s) against
the company for such refusal?
4. The Director of Happy Limited proposed dividend at 12% on equity shares for the financial
year 2016-17. The same was approved in the annual general meeting of the company held
on 20th September, 2017. The Directors declared the approved dividends. Analysing the
provisions of the Companies Act, 2013, give your opinion on the following matters:

(i) Mr. A, holding equity shares of face value of ` 10 lakhs has not paid an amount of `
1 lakh towards call money on shares. Can the same be adjusted against the dividend
amount payable to him?
(ii) Ms. N was the holder of 1,000 equity shares on 31st March, 2017, but she has
transferred the shares to Mr. R, whose name has been registered on 20th May, 2017.
Who will be entitled to the above dividend?
5. Tirupati Limited, a listed company has made the following profits, the profits reflect eligible
profits under the relevant section of the Companies Act, 2013.
Financial year Amount (` In crores)
2012-13 20
2013-14 40
2014-15 30
2015-16 70
2016-17 50
(i) Calculate the amount that the company has to spend towards CSR for the financial
year 2017-18.
(ii) State the composition of the CSR committee unlisted company and a private
company.
6. Kavish Ltd., desirous of buying back of all its equity shares from the existing shareholders
of the company, seeks your advice. Examining the provisions of the Companies Act, 2013
discuss whether the above buy back of equity shares by the company is possible. Also ,
state the sources out of which buy-back of shares can be financed?
7. Altar Limited has on its Board, four Directors viz. W, X, Y and Z. In addition, the company
has Mr. D as the Managing Director. The company also has a full time Company Secretary,
Mr. Wise, on its rolls. The financial statements of the company for the year ended 31st
March, 2017 were authenticated by two of the directors, Mr. X and Y under their signatures.
Referring to the provisions of the Companies Act, 2013:
(i) Examine the validity of the authentication of the Balance Sheet and Statement of
Profit & Loss and the Board’s Report.
(ii) What would be your answer in case the company is a One Person Company (OPC)
and has only one Director, who has authenticated the Balance Sheet and Statement
of Profit & Loss and the Board’s Report?
8. (a) A company issued a prospectus. All the statements contained therein were literally
true. It also stated that the company had paid dividends for a number of years, but
did not disclose the fact that the dividends were not paid out of trading profits, but out
of capital profits. An allottee of shares wants to avoid the contract on the ground that
the prospectus was false in material particulars. Discuss can he do so?

(b) Mr Akshat entered into an agreement for purchasing a commercial property in Delhi
belonging to NRT Ltd. At the time of registration, Mr Akshat comes to know that the
title deed of the company is not free and the company expresses its inability to get
the title deed transferred in the name of Mr Akshat saying that he ought to have had
the knowledge of charge created on the property of the company. Examine with the
help of ‘Notice of a charge’, whether the contention of NRT LTD. is correct?
9. Kapoor Builders Limited decides to pay 2.5 percent of the value of debentures as
underwriting commission to the underwriters but the Articles of the company authorize only
2.0 percent underwriting commission on debentures. The company further decides to pay
the underwriting commission in the form of flats. Examine the validity of the above
arrangements under the provisions of the Companies Act,2013.
10. Explain how the auditor will be appointed in the following cases:
(i) A Government Company within the meaning of section 394 of the Companies Act,
2013.
(ii) The Auditor of the company (other than government company) has resigned on 31 st
December, 2016, while the Financial year of the company ends on 31 st March, 2017.
OTHER LAWS
The Indian Contract Act, 1872
11. (a) R instructed S, a transporter, to send a consignment of apples to Chennai. After
covering half the distance, Suresh found that the apples will perish before reaching
Chennai. He sold the same at half the market price. R sued S. Decide will he
succeed?
(b) Ramesh hires a carriage of Suresh and agrees to pay ` 1500 as hire charges. The
carriage is unsafe, though Suresh is unaware of it. Ramesh is injured and claims
compensation for injuries suffered by him. Suresh refuses to pay. Discuss the liability
of Suresh.
12. Mr. A of Delhi engaged Mr. S as his agent to buy a house in Noida Extension area. Mr. S
bought a house for ` 50 lakhs in the name of a nominee and then purchased it himself for
` 60 lakhs. He then sold the same house to Mr. A for ` 80 lakhs. Mr. A later comes to
know the mischief of Mr. S and tries to recover the excess amount paid to Mr. S. Discuss
whether he is entitled to recover any amount from Mr. S? If so, how much?
The Negotiable Instruments Act, 1881
13. ‘E’ is the holder of a bill of exchange made payable to the order of ‘F’. The bill of exchange
contains the following endorsements in blank:
First endorsement ‘F’
Second endorsement ‘G’.
Third endorsement ‘H’ and

Fourth endorsement ‘I’

‘E’ strikes out, without I’s consent, the endorsements by ‘G’ and ‘H’. Decide with reasons
whether ‘E’ is entitled to recover anything from ‘I’ under the provisions of Negotiable
Instruments Act, 1881.
The General Clauses Act, 1897
14. A notice when required under the Statutory rules to be sent by “registered post
acknowledgment due” is instead sent by “registered post” only. Whether the protection of
presumption regarding serving of notice by “registered post” under the General Clauses
Act is tenable? Referring to the provisions of the General Clauses Act, 1897, examine the
validity of such notice in this case.
Interpretation of Statutes, Deeds and Documents
15. Explain the meaning of term ‘Proviso’. Give the distinction between proviso, exception and
Saving Clause.
SUGGESTED ANSWERS/HINTS
1. In terms of section 2 (87) of the Companies Act 2013 "subsidiary company" or "subsidiary",
in relation to any other company (that is to say the holding company), means a company
in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or
together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not
have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even
if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled
by another company if that other company by exercise of some power exercisable by
it at its discretion can appoint or remove all or a majority of the directors.
In the present case, Jeevan Pvt. Ltd. and Sudhir Pvt. Ltd. together hold less than one half
of the total share capital. Hence, Piyush Private Ltd. (holding of Jeevan Pvt. Ltd. and Sudhir
Pvt) will not be a holding company of Saras Pvt. Ltd.
However, if Piyush Pvt. Ltd. has 8 out of 9 Directors on the Board of Saras Pvt. Ltd. i.e.
controls the composition of the Board of Directors; it (Piyush Pvt. Ltd.) will be treated as
the holding company of Saras Pvt. Ltd.

2. Under Section 118 (5) of the Companies Act, 2013, there shall not be included in the
Minutes of a meeting, any matter which, in the opinion of the Chairman of the meeting:
(i) is or could reasonably be regarded as defamatory of any person;
(ii) is irrelevant or immaterial to the proceeding; or
(iii) is detrimental to the interests of the company;
Further, under section 118(6) the chairman shall exercise absolute discretion in regard to
the inclusion or non-inclusion of any matter in the Minutes on the grounds specified in sub-
section (5) above.
Hence, in view of the above, the contention of Manoj, a shareholder of Amit Limited is not
valid because the Chairman has absolute discretion on the inclusion or exclusion of any
matter in the minutes for aforesaid reasons.
3. The problem as asked in the question is governed by Section 58 of the Companies Act,
2013 dealing with the refusal to register transfer and appeal against refusal.
In the present case the company has committed the wrongful act of not sending the notice
of refusal of registering the transfer of shares.
Under section 58 (4), if a public company without sufficient cause refuses to register the
transfer of securities within a period of thirty days from the date on which the instrument of
transfer is delivered to the company, the transferee may, within a period of sixty days of
such refusal or where no intimation has been received from the company, within ninety
days of the delivery of the instrument of transfer, appeal to the Tribunal.
Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under
sub-section (4), may, after hearing the parties, either dismiss the appeal, or by order —
(a) direct that the transfer or transmission shall be registered by the company and the
company shall comply with such order within a period of ten days of the receipt of the
order; or
(b) direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved;
In the present case Ms. Mukta can make an appeal before the tribunal and claim damages.
4. (i) The given problem is based on the proviso provided in the section 127 (d) of the
Companies Act, 2013. As per the law where the dividend is declared by a company
and there remains calls in arrears and any other sum due from a member, in such
case no offence shall be deemed to have been committed where the dividend has
been lawfully adjusted by the company against any sum due to it from the
shareholder.
As per the facts given in the question, Mr. A is holding equity shares of face value of
` 10 Lakhs and has not paid an amount of ` 1 lakh towards call money on shares.
Referring to the above provision, Mr. A is eligible to get ` 1.20 lakh towards dividend,

out of which an amount of ` 1 lakh can be adjusted towards call money due on his
shares. ` 20,000 can be paid to him in cash or by cheque or in any electronic mode.
According to the above mentioned provision, company can adjust sum of ` 1 lakh due
towards call money on shares against the dividend amount payable to
Mr. A.
(ii) According to section 123(5), dividend shall be payable only to the registered
shareholder of the share or to his order or to his banker. Facts in the given case state
that Ms. N, the holder of equity shares transferred the shares to Mr. R whose name
has been registered on 20 th May 2017. Since, he became the registered shareholder
before the declaration of the dividend in the Annual general meeting of the company
held on 20 th September 2017, so, Mr. Raj will be entitled to the dividend.
5. Section 135 read with Companies (Corporate Social Responsibility Policy) Rules, 2014 of
the Companies Act, 2013 deals with the provisions related to the Corporate Social
Responsibility.
As per the given facts, following are the answers in the given situations -
(i) Amount that Company has to spend towards CSR: According to section 135 of
the Companies Act, 2013, the Board of every company shall ensure that the company
spends, in every financial year, at least two per cent of the average net profits of the
company made during the three immediately preceding financial years, in pursuance
of its CSR Policy.
Accordingly, net profits of Tirupati Ltd. for three immediately preceding financial years
is 150 crores (30+70+50) and 2% of the average net profits of the company made
during these three immediately preceding financial years will constitute 1 crore, can
be spent towards CSR in financial year 2017-2018.
(ii) Composition of CSR Committee: The CSR Committee shall be consisting of 3 or
more directors, out of which at least one director shall be an independent director.
(a) an unlisted public company or a private company covered under section
135(1) which is not required to appoint an independent director, shall have its
CSR Committee without such director;
(b) a private company having only two directors on its Board shall constitute its CSR
Committee with two such directors;
6. In terms of section 68 (2) (c) of the Companies Act, 2013 a company is allowed to buy back
a maximum of 25% of the aggregate of its paid- up capital and free reserves. Hence, the
company in the given case is not allowed to buy back its entire equity shares.
Section 68 (1) of the Companies Act, 2013 specifies the sources of funding buy back of its
shares and other specified securities as under:
(a) Free reserves or
(b) Security Premium account or

(c) Proceeds of the issue of any shares or other specified securities

However, under the proviso to section 68 (1) no buy back of shares or any specified
securities can be made out of the proceeds of an earlier issue of the same kind of shares
or same kind of specified securities.
7. In accordance with the provisions of the Companies Act, 2013, as contained under section
134 (1), the financial statements, including consolidated financial statem ent, if any, shall
be approved by the Board of Directors before they are signed on behalf of the Board by at
least:
(1) The Chairperson of the company where he is authorized by the Board; or
(2) Two directors out of which one shall be the managing director and other the Chief
Executive Officer, if he is a director in the company
(3) The Chief Financial Officer and the Company Secretary of the company, wherever
they are appointed.
In case of a One Person Company, the financial statements shall be signed by only one
director, for submission to the auditor for his report thereon.
The Board’s report and annexures thereto shall be signed by its Chairperson of the
company, if he is authorized by the Board and where he is not so authorized, shall be
signed by at least two directors one of whom shall be a managing director or by the director
where there is one director.
(i) In the given case, the Balance Sheet and Profit & Loss Account have been signed by
Mr. X and Mr. Y, the directors. In view of the provisions of Section 134 (1), the
Managing Director Mr. D should be one of the two signatories. Since, the company
has also employed a full time Secretary, he should also sign the Balance Sheet and
Profit & Loss Account. Therefore, authentication done by two direc tors is not valid.
(ii) In case of OPC, the financial statements should be signed by one director and hence,
the authentication is in order.
8. (a) The non disclosure of the fact that dividends were paid out of capital profits is a
concealment of material fact as a company is normally required to distribute dividend
only from trading or revenue profits and under exceptional circumstances can do so
out of capital profits. Hence, a material misrepresentation has been made. Hence, in
the given case the allottee can avoid the contract of allotment of shares.
(b) According to section 80 of the Companies Act, 2013, where any charge on any
property or assets of a company or any of its undertakings is registered under section
77 of the Companies Act, 2013, any person acquiring such property, assets,
undertakings or part thereof or any share or interest therein shall be deemed to have
notice of the charge from the date of such registration.

Thus, the section clarifies that if any person acquires a property, assets or
undertaking for which a charge is already registered, it would be deemed that he has
complete knowledge of charge from the date the charge is registered.
Thus, the contention of NRT Ltd. is correct
9. Section 40 (6) of the Companies Act 2013, provides that a company may pay commission
to any person in connection with the subscription or procurement of subscription to its
securities, whether absolute or conditional, subject to a number of conditions which are
prescribed under Companies (Prospectus and Allotment of Securities) Rules, 2014. In
relation to the case given, the conditions applicable under the above Rules are as under:
(a) The payment of such commission shall be authorized in the company’s articles of
association;
(b) The commission may be paid out of proceeds of the issue or the profit of the company
or both;
(c) The rate of commission paid or agreed to be paid shall not exceed, in case of shares,
five percent (5%) of the price at which the shares are issued or a rate authorised by
the articles, whichever is less, and in case of debentures, shall not exceed two and a
half per cent (2.5 %) of the price at which the debentures are issued, or as specified
in the company’s articles, whichever is less;
Thus, the Underwriting commission is limited to 5% of issue price in case of shares and
2.5% in case of debentures. The rates of commission given above are maximum rates.
In view of the above, the decision of Kapoor Builders Ltd. to pay underwriting commission
exceeding 2% as prescribed in the Articles is invalid.
The company may pay the underwriting commission in the form of flats as both the
Companies Act and the Rules do not impose any restriction on the mode of payment
though the source has been restricted to either the proceeds of the issue or profits of the
company.
10. (i) The appointment and re-appointment of auditor of a Government Company or a
government controlled company is governed by the provisions of section 139 of the
Companies Act, 2013 which are summarized as under:
The first auditor shall be appointed by the Comptroller and Auditor General of India
within 60 days from the date of incorporation and in case of failure to do so, the Board
shall appoint auditor within next 30 days and on failure to do so by Board of Directors,
it shall inform the members, who shall appoint the auditor within 60 days at an
extraordinary general meeting (EGM), such auditor shall hold office till conclusion of
first Annual General Meeting.
In case of subsequent auditor for existing government companies, the Comptroller &
Auditor General of India shall appoint the auditor within a period of 180 days from the
commencement of the financial year and the auditor so appointed shall hold his
position till the conclusion of the Annual General Meeting.

(ii) The situation as stated in the question relates to the creation of a casual vacancy in
the office of an auditor due to resignation of the auditor before the AGM in case of a
company other government company. Under section 139 (8)(i) any casual vacancy in
the office of an auditor arising as a result of his resignation, such vacancy can be
filled by the Board of Directors within thirty days thereof and in addition the
appointment of the new auditor shall also be approved by the company at a general
meeting convened within three months of the recommendation of the Board and he
shall hold the office till the conclusion of the next annual general meeting.
11. (a) An agent has the authority in an emergency to do all such acts as a man of ordinary
prudence would do for protecting his principal from losses which the principal would
have done under similar circumstances.
A typical case is where the ‘agent’ handling perishable goods like ‘apples’ can decide
the time, date and place of sale, not necessarily as per instructions of the principal,
with the intention of protecting the principal from losses. Here, the agent acts in an
emergency and acts as a man of ordinary prudence. In the given case S had acted in
an emergency situation and hence, R will not succeed against him.
(b) Problem asked in the question is based on the provisions of the Indian Contract Act,
1872 as contained in Section 150. The section provides that if the goods are bailed
for hire, the bailor is responsible for such damage, whether he was or was not aware
of the existence of such faults in the goods bailed. Accordingly, applying the abov e
provisions in the given case Suresh is responsible to compensate Ramesh for the
injuries sustained even if he was not aware of the defect in the carriage.
12. The problem in this case, is based on the provisions of the Indian Contract Act, 1872 as
contained in Section 215 read with Section 216. The two sections provide that where an
agent without the knowledge of the principal, deals in the business of agency on h is own
account, the principal may:
(1) repudiate the transaction, if the case shows, either that the agent has dishonestly
concealed any material fact from him, or that the dealings of the agent have been
disadvantageous to him.
(2) claim from the agent any benefit, which may have resulted to him from the transaction.
Therefore, based on the above provisions, Mr. A is entitled to recover ` 30 lakhs from Mr.
S being the amount of profit earned by Mr. S out of the transaction.
13. According to section 40 of the Negotiable Instruments Act, 1881, where the holder of a
negotiable instrument, without the consent of the endorser, destroys or impairs the
endorser’s remedy against a prior party, the endorser is discharged from liability to the
holder to the same extent as if the instrument had been paid at maturity. Any party liable
on the instrument may be discharged by the intentional cancellation of his signature by the
holder.

In the given question, E is the holder of a bill of exchange of which F is the paye e and it
contains the following endorsement in blank:
First endorsement, ‘F’
Second endorsement, ‘G’
Third endorsement, ‘H’
Fourth endorsement, ‘I’
‘E’, the holder, may intentionally strike out the endorsement by ‘G’ and ‘H’; in that case the
liability of ‘G’ and ‘H’ upon the bill will come to an end. But if the endorsements of ‘G’ and
‘H’ are struck out without the consent of ‘I’, ‘E’ will not be entitled to recover anything from
‘I’. The reason being that as between ‘H’ and ‘I’, ‘H’ is the principal debtor and ‘I’ is surety.
If ‘H’ is released by the holder under Section 39 of the Act, ‘I’, being surety, will be
discharged. Hence, when the holder without the consent of the endorser impairs the
endorser’s remedy against a prior party, the endorser is discharged from liability to the
holder.
Thus, if ‘E’ strikes out, without I’s consent, the endorsements by ‘G’ and ‘H’, ‘I’ will also be
discharged.
14. As per the provisions of Section 27 of the General Clauses Act, 1897, where any legislation
or regulation requires any document to be served by post, then unless a different intention
appears, the service shall be deemed to be effected by:
1. properly addressing,
2. pre-paying, and
3. posting by registered post.
A letter containing the document to have been effected at the time at which the letter would
be delivered in the ordinary course of post.
Therefore, in view of the above provision, since, the statutory rules itself provides about
the service of notice that a notice when required under said statutory rules to be sent by
‘registered post acknowledgement due’, then, if notice was sent by ‘registered post’ only it
will not be the compliance of said rules. However, if such provision was not provided by
such statutory rules, then service of notice if by registered post only shall be deemed to be
effected.
Furthermore, in similar case of In United Commercial Bank v. Bhim Sain Makhija, AIR 1994
Del 181: A notice when required under the statutory rules to be sent by ‘registered post
acknowledgement due’ is instead sent by ‘registered post’ only, the protection of
presumption regarding serving of notice under ‘registered post’ under this section of the
Act neither tenable not based upon sound exposition of law.
15. Proviso: The normal function of a proviso is to except something out of the enactment or
to qualify something stated in the enactment which would be within its purview if the proviso
were not there. The effect of the proviso is to qualify the preceding enactment which is

expressed in terms which are too general. As a general rule, a proviso is added to an
enactment to qualify or create an exception to what is in the enactment. Ordinarily a proviso
is not interpreted as stating a general rule.
It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only
embraces the field which is covered by the main provision. It carves out an exception to
the main provision to which it has been enacted as a proviso and to no other. (Ram Narain
Sons Ltd. vs. Assistant Commissioner of Sales Tax, AIR 1955 SC 765).
Distinction between Proviso, exception and saving Clause
There is said to exist difference between provisions worded as ‘Proviso’, ’Exception’, or
‘Saving Clause’.
Proviso Exception Saving Clause
Exception’ is intended to ‘Proviso’ is used to remove ‘Saving clause’ is used to
restrain the enacting special cases from general preserve from destruction
clause to particular enactment and provide for certain rights, remedies or
cases them specially privileges already existing

PAPER – 3: COST AND MANAGEMENT ACCOUNTING
QUESTIONS
Material Cost
1. Aditya Brothers supplies surgical gloves to nursing homes and polyclinics in the city. These
surgical gloves are sold in pack of 10 pairs at price of ` 250 per pack.
For the month of April 2018, it has been anticipated that a demand for 60,000 packs of
surgical gloves will arise. Aditya Brothers purchases these gloves from the manufacturer
at ` 228 per pack within a 4 to 6 days lead time. The ordering and related cost is ` 240
per order. The storage cost is 10% p.a. of average inventory investment.
Required:
(i) CALCULATE the Economic Order Quantity (EOQ)
(ii) CALCULATE the number of orders needed every year
(iii) CALCULATE the total cost of ordering and storage of the surgical gloves.
(iv) DETERMINE when should the next order to be placed. (Assuming that the company
does maintain a safety stock and that the present inventory level is 10,033 packs
with a year of 360 working days).
Employee Cost
2. Jyoti Ltd. wants to ascertain the profit lost during the year 2017-18 due to increased labour
turnover. For this purpose, it has given you the following information:
(1) Training period of the new recruits is 50,000 hours. During this period their
productivity is 60% of the experienced workers. Time required by an experi enced
worker is 10 hours per unit.
(2) 20% of the output during training period was defective. Cost of rectification of a
defective unit was ` 25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is ` 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was ` 1,83,480.
(6) Recruitment cost was ` 1,56,340
(7) Training cost was ` 1,13,180
Required:
CALCULATE the profit lost by the company due to increased labour turnover during the
year 2017-18.

PAPER – 3: COST AND MANAGEMENT ACCOUNTING 57
Overheads: Absorption Costing Method

3. PQR manufacturers – a small scale enterprise, produces a single product and has adopted
a policy to recover the production overheads of the factory by adopting a single blanket
rate based on machine hours. The annual budgeted production overheads for the year
2017-18 are ` 44,00,000 and budgeted annual machine hours are 2,20,000.
For a period of first six months of the financial year 2017-18, following information were
extracted from the books:
Actual production overheads ` 24,88,200
Amount included in the production overheads:
Paid as per court’s order ` 1,28,000
Expenses of previous year booked in current year ` 1,200
Paid to workers for strike period under an award ` 44,000
Obsolete stores written off ` 6,700
Production and sales data of the concern for the first six months are as under:
Production:
Finished goods 24,000 units
Works-in-progress
(50% complete in every respect) 18,000 units
Sale:
Finished goods 21,600 units
The actual machine hours worked during the period were 1,16,000 hours. It is revealed
from the analysis of information that ¼ of the under/ over absorption was due to defective
production policies and the balance was attributable to increase/decrease in costs.
Required:
(i) DETERMINE the amount of under/over absorption of production overheads for the
six-month period of 2017-18.
(ii) EXAMINE the accounting treatment of under/ over absorption of production overheads,
and
(iii) CALCULATE the apportionment of the under/ over absorbed overheads over the
items.
Activity Based Costing
4. G-2020 Ltd. is a manufacturer of a range of goods. The cost structure of its different
products is as follows:

Product Product Product

Particulars
A B C
Direct Materials 50 40 40 `/u
Direct Labour @ ` 10/ hour 30 40 50 `/u
Production Overheads 30 40 50 `/u
Total Cost 110 120 140 `/u
Quantity Produced 10,000 20,000 30,000 Units
G-2020 Ltd. was absorbing overheads on the basis of direct labour hours. A newly
appointed management accountant has suggested that the company should introduce ABC
system and has identified cost drivers and cost pools as follows:
Activity Cost Pool Cost Driver Associated Cost (`)
Stores Receiving Purchase Requisitions 2,96,000
Inspection Number of Production Runs 8,94,000
Dispatch Orders Executed 2,10,000
Machine Setup Number of Setups 12,00,000
The following information is also supplied:

Details Product A Product B Product C
No. of Setups 360 390 450
No. of Orders Executed 180 270 300
No. of Production Runs 750 1,050 1,200
No. of Purchase Requisitions 300 450 500
Required
CALCULATE activity based production cost of all the three products.
Cost Sheet
5. From the following figures, CALCULATE cost of production and profit for the month of
March 2018.
Amount (`) Amount (`)
1 st
Stock on March, 2018 Purchase of raw materials 28,57,000
- Raw materials 6,06,000 Sale of finished goods 1,34,00,000
- Finished goods 3,59,000 Direct wages 37,50,000

Stock on 31 st March, 2018 Factory expenses 21,25,000

- Raw materials 7,50,000 Office and administration 10,34,000
expenses
- Finished goods 3,09,000 Selling and distribution 7,50,000
expenses
Work-in-process: Sale of scrap 26,000
- On 1st March, 2018 12,56,000
- On 31st March, 2018 14,22,000
Cost Accounting System
6. As of 31st March, 2018, the following balances existed in a firm’s cost ledger, which is
maintained separately on a double entry basis:
Debit (`) Credit (`)
Stores Ledger Control A/c 3,20,000 
Work-in-process Control A/c 1,52,000 
Finished Goods Control A/c 2,56,000 
Manufacturing Overhead Control A/c  28,000
Cost Ledger Control A/c  7,00,000
7,28,000 7,28,000
During the next quarter, the following items arose:
(`)
Finished Product (at cost) 2,35,500
Manufacturing overhead incurred 91,000
Raw material purchased 1,36,000
Factory wages 48,000
Indirect labour 20,600
Cost of sales 1,68,000
Materials issued to production 1,26,000
Sales returned (at cost) 8,000
Materials returned to suppliers 11,000
Manufacturing overhead charged to production 86,000
Required:
PREPARE the Cost Ledger Control A/c, Stores Ledger Control A/c, Work-in-process
Control A/c, Finished Stock Ledger Control A/c, Manufacturing Overhead Control A/c,
Wages Control A/c, Cost of Sales A/c and the Trial Balance at the end of the quarter as
per costing records.

Batch Costing
7. Arnav Confectioners (AC) owns a bakery which is used to make bakery items like pastries,
cakes and muffins. AC use to bake at least 50 units of any item at a time. A customer has
given an order for 600 cakes. To process a batch, the following cost would be incurred:
Direct materials - ` 5,000
Direct wages - ` 500 (irrespective of units)
Oven set- up cost - `750 (irrespective of units)
AC absorbs production overheads at a rate of 20% of direct wages cost. 10% is added to
the total production cost of each batch to allow for selling, distribution and administration
overheads.
AC requires a profit margin of 25% of sales value.
Required:
(i) DETERMINE the price to be charged for 600 cakes.
(ii) CALCULATE cost and selling price per cake.
(iii) DETERMINE what would be selling price per unit If the order is for 605 cakes.
Job Costing
8. A factory uses job costing. The following data are obtained from its books for the year
ended 31st March, 2018:
Amount (`)
Direct materials 9,00,000
Direct wages 7,50,000
Selling and distribution overheads 5,25,000
Administration overheads 4,20,000
Factory overheads 4,50,000
Profit 6,09,000
Required:
(i) PREPARE a Job Cost sheet indicating the Prime cost, Cost of Production, Cost of
sales and the Sales value.
(ii) In 2018-19, the factory received an order for a job. It is estimated that direct materials
required will be ` 2,40,000 and direct labour will cost ` 1,50,000. DETERMINE what
should be the price for the job if factory intends to earn the same rate of profit on
sales assuming that the selling and distribution overheads have gone up by 15%. The
factory overheads is recovered as percentage of wages paid, whereas, other
overheads as a percentage of cost of production, based on cost rates prevailing in
the previous year.

Process Costing
9. Star Ltd. manufactures chemical solutions for the food processing industry. The
manufacturing takes place in a number of processes and the company uses FIFO method
to value work-in-process and finished goods. At the end of the last month, a fire occurred
in the factory and destroyed some of paper containing records of the process operations
for the month.
Star Ltd. needs your help to prepare the process accounts for the month during which the
fire occurred. You have been able to gather some information about the month’s operating
activities but some of the information could not be retrieved due to the damage. The
following information was salvaged:
 Opening work-in-process at the beginning of the month was 800 litres, 70% complete
for labour and 60% complete for overheads. Opening work-in-process was valued at
` 26,640.
 Closing work-in-process at the end of the month was 160 litres, 30% complete for
labour and 20% complete for overheads.
 Normal loss is 10% of input and total losses during the month were 1,800 litres partly
due to the fire damage.
 Output sent to finished goods warehouse was 4,200 litres.
 Losses have a scrap value of `15 per litre.
 All raw materials are added at the commencement of the process.
 The cost per equivalent unit (litre) is `39 for the month made up as follows:
(`)
Raw Material 23
Labour 7
Overheads 9
39
Required:
(i) CALCULATE the quantity (in litres) of raw material inputs during the month.
(ii) CALCULATE the quantity (in litres) of normal loss expected from the process and the
quantity (in litres) of abnormal loss / gain experienced in the month.
(iii) CALCULATE the values of raw material, labour and overheads added to the process
during the month.
(iv) PREPARE the process account for the month.

Joint Products & By Products

10. A company processes a raw material in its Department 1 to produce three products, viz.
A, B and X at the same split-off stage. During a period 1,80,000 kgs of raw materials were
processed in Department 1 at a total cost of ` 12,88,000 and the resultant output of A, B
and X were 18,000 kgs, 10,000 kgs and 54,000 kgs respectively. A and B were further
processed in Department 2 at a cost of ` 1,80,000 and ` 1,50,000 respectively.
X was further processed in Department 3 at a cost of `1,08,000. There is no waste in
further processing. The details of sales affected during the period were as under:
A B X
Quantity Sold (kgs.) 17,000 5,000 44,000
Sales Value (`) 12,24,000 2,50,000 7,92,000
There were no opening stocks. If these products were sold at split-off stage, the selling
prices of A, B and X would have been ` 50, ` 40 and ` 10 per kg respectively.
Required:
(i) PREPARE a statement showing the apportionment of joint costs to A, B and X.
(ii) PREPARE a statement showing the cost per kg of each product indicating joint cost
and further processing cost and total cost separately.
(iii) PREPARE a statement showing the product wise and total profit for the period.
(iv) DECIDE with supporting calculations as to whether any or all the products should be
further processed or not
Service Costing
11. AD Higher Secondary School (AHSS) offers courses for 11 th & 12th standard in three
streams i.e. Arts, Commerce and Science. AHSS runs higher secondary classes along with
primary and secondary classes but for accounting purpose it treats higher secondary as a
separate responsibility centre. The Managing committee of the school wants to revise its
fee structure for higher secondary students. The accountant of the school has provided the
following details for a year:
Amount (`)
Teachers’ salary (15 teachers × `35,000 × 12 months) 63,00,000
Principal’s salary 14,40,000
Lab attendants’ salary (2 attendants × `15,000 × 12 months) 3,60,000
Salary to library staff 1,44,000
Salary to peons (4 peons × `10,000 × 12 months) 4,80,000
Salary to other staffs 4,80,000

Examinations expenditure 10,80,000

Office & Administration cost 15,20,000
Annual day expenses 4,50,000
Sports expenses 1,20,000
Other information:
(i)
Standard 11 & 12 Primary &
Arts Commerce Science Secondary
No. of students 120 360 180 840

Lab classes in a year 0 0 144 156
No. of examinations in a year 2 2 2 2
Time spent at library per 180 hours 120 hours 240 hours 60 hours
student per year
Time spent by principal for 208 hours 312 hours 480 hours 1,400 hours
administration
Teachers for 11 & 12 standard 4 5 6 -
(ii) One teacher who teaches economics for Arts stream students also teaches
commerce stream students. The teacher takes 1,040 classes in a year, it includes
208 classes for commerce students.
(iii) There is another teacher who teaches mathematics for Science stream students also
teaches business mathematics to commerce stream students. She takes 1,100
classes a year, it includes 160 classes for commerce students.
(iv) One peon is fully dedicated for higher secondary section. Other peons dedicate their
15% time for higher secondary section.
(v) All school students irrespective of section and age participates in annual functions
and sports activities.
Required:
(i) CALCULATE cost per student per annum for all three streams.
(ii) If the management decides to take uniform fee of ` 1,000 per month from all higher
secondary students, CALCULATE stream wise profitability.
(iii) If management decides to take 10% profit on cost, COMPUTE fee to be charged from
the students of all three streams respectively.

Standard Costing
12. ABC Ltd. had prepared the following estimation for the month of April:
Quantity Rate (`) Amount (`)
Material-A 800 kg. 45.00 36,000
Material-B 600 kg. 30.00 18,000
Skilled labour 1,000 hours 37.50 37,500
Unskilled labour 800 hours 22.00 17,600
Normal loss was expected to be 10% of total input materials and an idle labour time of 5%
of expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost
accounting department:
The company has produced 1,480 kg. finished product by using the followings:
Quantity Rate (`) Amount (`)
Material-A 900 kg. 43.00 38,700
Material-B 650 kg. 32.50 21,125
Skilled labour 1,200 hours 35.50 42,600
Unskilled labour 860 hours 23.00 19,780
Required:
CALCULATE:
(i) Material Cost Variance;
(ii) Material Price Variance;
(iii) Material Mix Variance;
(iv) Material Yield Variance;
(v) Labour Cost Variance;
(vi) Labour Efficiency Variance and
(vii) Labour Yield Variance.
Marginal Costing
13. A company manufactures two types of herbal product, A and B. Its budget shows profit
figures after apportioning the fixed joint cost of `15 lacs in the proportion of the numbers
of units sold. The budget for 2018, indicates:

A B
Profit (`) 1,50,000 30,000
Selling Price / unit (`) 200 120
P/V Ratio (%) 40 50
Required:
COMPUTE the best option among the following, if the company expects that the number
of units to be sold would be equal.
(i) Due to exchange in a manufacturing process, the joint fixed cost would be reduced
by 15% and the variables would be increased by 7½ %.
(ii) Price of A could be increased by 20% as it is expected that the price elasticity of
demand would be unity over the range of price.
(iii) Simultaneous introduction of both the option, viz, (i) and (ii) above.
Budget and Budgetary Control
14. G Ltd. manufactures two products called ‘M’ and ‘N’. Both products use a common raw
material Z. The raw material Z is purchased @ ` 36 per kg from the market. The company
has decided to review inventory management policies for the forthcoming year.
The following information has been extracted from departmental estimates for the year
ended 31st March 2018 (the budget period):
Product M Product N
Sales (units) 28,000 13,000
Finished goods stock increase by year-end 320 160
Post-production rejection rate (%) 4 6
Material Z usage (per completed unit, net of wastage) 5 kg 6 kg
Material Z wastage (%) 10 5
Additional information:
- Usage of raw material Z is expected to be at a constant rate over the period.
- Annual cost of holding one unit of raw material in stock is 11% of the material cost.
- The cost of placing an orders is ` 320 per order.
- The management of G Ltd. has decided that there should not be more than 40 orders
in a year for the raw material Z.

Required:
(i) PREPARE functional budgets for the year ended 31st March 2018 under the following
headings:
(a) Production budget for Products M and N (in units).
(b) Purchases budget for Material Z (in kgs and value).
(ii) CALCULATE the Economic Order Quantity for Material Z (in kgs).
(iii) If there is a sole supplier for the raw material Z in the market and the supplier do not
sale more than 4,000 kg. of material Z at a time. Keeping the management purchase
policy and production quantity mix into consideration, CALCULATE the maximum
number of units of Product M and N that could be produced.
Miscellaneous
15. (i) DISCUSS on (a) Discretionary Cost Centre and (b) Investment Centre
(ii) DESCRIBE the three advantages of Cost-plus contract.
(iii) STATE the advantages of Zero-based budgeting.
(iv) DESCRIBE Operation costing with two examples of industries where operation
costing is applied.
SUGGESTED HINTS/ANSWERS
1. (i) Calculation of Economic Order Quantity:
2AO 2  (60,000 packs 12 months)  ` 240

EOQ  
Ci ` 228 10%
= 3,893.3 packs or 3,893 packs.

(ii) Number of orders per year
Annual requirements 7,20,000 packs
= =184.9or185orders a year
E.O.Q 3,893 packs
(iii) Ordering and storage costs
(`)
Ordering costs :– 185 orders  ` 240 44,400.00
Storage cost :– ½ (3,893 packs  10% of `228) 44,380.20
Total cost of ordering & storage 88,780.20

(iv) Timing of next order

(a) Day’s requirement served by each order.
No. of working days 360days
Number of days requirements  = = 1.94 days
No. of order in a year 185orders
supply.
This implies that each order of 3,893 packs supplies for requirements of 1.94
days only.
(b) Days requirement covered by inventory
Units in inventory
  (Day's requirement served by an order)
Economic order quantity
10,033 packs
  1.94 days 
5 days requirement
3,893 packs
(c) Time interval for placing next order
Inventory left for day’s requirement – Average lead time of delivery
5 days – 5 days = 0 days
This means that next order for the replenishment of supplies has to be placed
immediately.
50,000
2. Output by experienced workers in 50,000 hours = = 5,000 units
10
Output by new recruits = 60% of 5,000 = 3,000 units
Loss of output = 5,000 – 3,000 = 2,000 units
Total loss of output = Due to delay recruitment + Due to inexperience
= 10,000 + 2,000 = 12,000 units
Contribution per unit = 20% of `180 = ` 36
Total contribution lost = `36 × 12,000 units = ` 4,32,000
Cost of repairing defective units = 3,000 units × 0.2 × ` 25 = ` 15,000
Profit forgone due to labour turnover
(`)
Loss of Contribution 4,32,000
Cost of repairing defective units 15,000
Recruitment cost 1,56,340

Training cost 1,13,180

Settlement cost of workers leaving 1,83,480
Profit forgone in 2017-18 9,00,000
3. (i) Amount of under/ over absorption of production overheads during the period of first
six months of the year 2017-2018:
Amount Amount
(`) (`)
Total production overheads actually incurred 24,88,200
during the period
Less: Amount paid to worker as per court order 1,28,000
Expenses of previous year booked in the 1,200
current year
Wages paid for the strike period under an 44,000
award
Obsolete stores written off 6,700 (1,79,900)
23,08,300
Less: Production overheads absorbed as per
machine hour rate (1,16,000 hours × `20*) 23,20,000
Amount of over absorbed production 11,700
overheads
` 44,00,000
*Budgeted Machine hour rate (Blanket rate) =  ` 20 per hour
2,20,000 hours
(ii) Accounting treatment of over absorbed production overheads: As, one fourth of
the over absorbed overheads were due to defective production policies, this being
abnormal, hence should be transferred to Costing Profit and Loss Account.
Amount to be transferred to Costing Profit and Loss Account = (11,700 × ¼) = ` 2,925
Balance of over absorbed production overheads should be distributed over Works in
progress, finished goods and Cost of sales by applying supplementary rate*.
Amount to be distributed = (11,700 × ¾) =` 8,775
` 8,775
Supplementary rate =  ` 0.2659 per unit
33,000 units
(iii) Apportionment of under absorbed production overheads over WIP, Finished goods
and Cost of sales:

Equivalent Amount
completed units (`)
Work-in-Progress (18,000 units × 50% × 9,000 2,393
` 0.2659)
Finished goods (2,400 units × ` 0.2659) 2,400 638
Cost of sales (21,600 units × ` 0.2659) 21,600 5,744
Total 33,000 8,775
4. The total production overheads are `26,00,000:

Product A: 10,000 × ` 30 = ` 3,00,000
Product B: 20,000 × ` 40 = ` 8,00,000
Product C: 30,000 × ` 50 = ` 15,00,000
On the basis of ABC analysis this amount will be apportioned as follows:
Statement Showing “Activity Based Production Cost”
Activity Cost Driver Ratio Total A B C
Cost Pool Amount (`) (`) (`) (`)
Stores Purchase 6:9:10 2,96,000 71,040 1,06,560 1,18,400
Receiving Requisition
Inspection Production 5:7:8 8,94,000 2,23,500 3,12,900 3,57,600
Runs
Dispatch Orders 6:9:10 2,10,000 50,400 75,600 84,000
Executed
Machine Setups 12:13:15 12,00,000 3,60,000 3,90,000 4,50,000
Setups
Total Activity Cost 7,04,940 8,85,060 10,10,000
Quantity Produces 10,000 20,000 30,000
Unit Cost (Overheads) 70.49 44.25 33.67
Add: Conversion Cost (Material + Labour) 80 80 90
Total 150.49 124.25 123.67
5. Calculation of Cost of Production and Profit for the month ended April 2018:
Particulars Amount (`) Amount (`)
Materials consumed:
- Opening stock 6,06,000

- Add: Purchases 28,57,000

34,63,000
- Less: Closing stock (7,50,000) 27,13,000
Prime cost 64,63,000
Factory expenses 21,25,000
85,88,000
Add: Opening W-I-P 12,56,000
Less: Closing W-I-P (14,22,000)
Factory cost 84,22,000
Less: Sale of scrap (26,000)
Cost of Production 83,96,000
Add: Opening stock of finished goods 6,06,000
Less: Closing stock of finished goods (3,59,000)
Cost of Goods Sold 86,43,000
Office and administration expenses 10,34,000
Selling and distribution expenses 7,50,000
Cost of Sales 1,04,27,000
Profit (balancing figure) 29,73,000
Sales 1,34,00,000
6. Cost Ledger Control Account

Particulars (`) Particulars (`)
To Store Ledger Control A/c 11,000 By Opening Balance 7,00,000
To Balance c/d 9,84,600 By Store ledger control A/c 1,36,000
By Manufacturing Overhead
Control A/c 91,000
By Wages Control A/c 68,600
9,95,600 9,95,600
Stores Ledger Control Account
To Opening Balance 3,20,000 By WIP Control A/c 1,26,000

To Cost ledger control A/c 1,36,000 By Cost ledger control A/c 11,000
(Returns)
4,56,000 4,56,000
WIP Control Account
To Opening Balance 1,52,000 By Finished Stock Ledger 2,35,500
Control A/c
To Wages Control A/c 48,000 By Balance c/d 1,76,500
To Stores Ledger Control A/c 1,26,000
To Manufacturing Overhead 86,000
Control A/c
4,12,000 4,12,000
Finished Stock Ledger Control Account
To Opening Balance 2,56,000 By Cost of Sales 1,68,000
To WIP Control A/c 2,35,500 By Balance c/d 3,31,500
To Cost of Sales A/c (Sales Return) 8,000
4,99,500 4,99,500
Manufacturing Overhead Control Account
To Cost Ledger Control A/c 91,000 By Opening Balance 28,000
To Wages Control A/c 20,600 By WIP Control A/c 86,000
To Over recovery c/d 2,400
1,14,000 1,14,000
Wages Control Account
To Transfer to Cost Ledger 68,600 By WIP Control A/c 48,000
Control A/c
By Manufacturing Overhead 20,600
Control A/c
68,600 68,600

Cost of Sales Account

To Finished Stock Ledger 1,68,000 By Finished Stock Ledger 8,000
Control A/c Control A/c (Sales return)
1,68,000 1,68,000
Trial Balance
(`) (`)
Stores Ledger Control A/c 3,19,000
WIP Control A/c 1,76,500
Finished Stock Ledger Control A/c 3,31,500
Manufacturing Overhead Control A/c -- 2,400
Cost of Sales A/c 1,60,000
Cost ledger control A/c -- 9,84,600
9,87,000 9,87,000
7. Statement of cost per batch and per order
No. of batch = 600 units ÷ 50 units = 12 batches
Particulars Cost per batch Total Cost (`)
(`)
Direct Material Cost 5,000.00 60,000
Direct Wages 500.00 6,000
Oven set-up cost 750.00 9,000
Add: Production Overheads (20% of Direct 100.00 1,200
wages)
Total Production cost 6,350.00 76,200
Add: S&D and Administration overheads 635.00 7,620
(10% of Total production cost)
Total Cost 6,985.00 83,820
Add: Profit (1/3rd of total cost) 2,328.33 27,940
(i) Sales price 9,313.33 1,11,760
No. of units in batch 50 units
(ii) Cost per unit (`6,985 ÷ 50 units) 139.70
Selling price per unit (9,313.33 ÷ 50 units) 186.27

(iii) If the order is for 605 cakes, then selling price per cake would be as below:
Particulars Total Cost (`)
Direct Material Cost 60,500
Direct Wages (`500 × 13 batches) 6,500
Oven set-up cost (`750 × 13 batches) 9,750
Add: Production Overheads (20% of Direct wages) 1,300
Total Production cost 78,050
Add: S&D and Administration overheads 7,805
(10% of Total production cost)
Total Cost 85,855
Add: Profit (1/3rd of total cost) 28,618
Sales price 1,14,473
No. of units 605 units
Selling price per unit (`1,14,473 ÷ 605 units) 189.21
8. (i) Production Statement
For the year ended 31 st March, 2018
Amount (`)
Prime Cost 16,50,000
Factory overheads 4,50,000
Administration overheads 4,20,000
Selling and distribution overheads 5,25,000
Cost of Sales 30,45,000
Profit 6,09,000
Sales value 36,54,000
Calculation of Rates:
` 4,50,000
1. Percentage of factory overheads to direct wages =  100 = 60%
`7,50,000

2. Percentage of administration overheads to Cost of production

` 4,20,000
=  100 = 20%
`21,00,000
3. Selling and distribution overheads = ` 5,25,000 × 115% = ` 6,03,750
Selling and distribution overhead % to Cost of production
`6,03,750
=  100 = 28.75%
`21,00,000
`6,09,000
4. Percentage of profit to sales =  100 = 16.67%
`36,54,000
(ii) Calculation of price for the job received in 2018-19
Amount (`)
Prime Cost 3,90,000
Factory overheads (60% of `1,50,000) 90,000
Administration overheads (20% of `4,80,000) 96,000
Selling and distribution overheads (28.75% of `4,80,000) 1,38,000
Cost of Sales 7,14,000
Profit (20% of `7,14,000) 1,42,800
Sales value 8,56,800
9. (i) Calculation of Raw Material inputs during the month:
Quantities Entering Litres Quantities Leaving Process Litres
Process
Opening WIP 800 Transfer to Finished Goods 4,200
Raw material input 5,360 Process Losses 1,800
(balancing figure)
Closing WIP 160
6,160 6,160
(ii) Calculation of Normal Loss and Abnormal Loss/Gain
Litres
Total process losses for month 1,800

Normal Loss (10% input) 536

Abnormal Loss (balancing figure) 1,264
(iii) Calculation of values of Raw Material, Labour and Overheads added to the
process:
Material Labour Overheads
Cost per equivalent unit `23.00 `7.00 `9.00
Equivalent units (litre) 4,824 4,952 5,016
(refer the working note)
Cost of equivalent units `1,10,952 `34,664 `45,144
Add: Scrap value of normal loss `8,040 -- --
(536 units × ` 15)
Total value added `1,18,992 `34,664 `45,144
Workings:
Statement of Equivalent Units (litre):
Equivalent Production
Input Material Labour Overhead
Units Output details Units
Details s
Units (%) Units (%) Units (%)
Opening 800 Units completed:
WIP
Units 5,360 - Opening 800 -- -- 240 30 320 40
introduced WIP
- Fresh inputs 3,400 3,400 100 3,400 100 3,400 100
Normal loss 536 -- -- -- -- -- --
Abnormal loss 1,264 1,264 100 1,264 100 1,264 100
Closing WIP 160 160 100 48 30 32 20
6,160 6,160 4,824 4,952 5,016
(iv) Process Account for Month
Litres Amount Litres Amount
(`) (`)
To Opening WIP 800 26,640 By Finished 4,200 1,63,800
goods

To Raw Materials 5,360 1,18,992 By Normal loss 536 8,040

To Wages -- 34,664 By Abnormal loss 1,264 49,296
To Overheads -- 45,144 By Closing WIP 160 4,304
6,160 2,25,440 6,160 2,25,440
10. (i) Statement showing the apportionment of joint costs to A, B and X
Products A B X Total
Output (kg) 18,000 10,000 54,000
Sales value at 9,00,000 4,00,000 5,40,000 18,40,000
the point of (` 50 x 18,000) (` 40 x 10,000) (` 10 x 54,000)
split off (`)
Joint cost 6,30,000 2,80,000 3,78,000 12,88,000
apportionmen  ` 12,88,000   ` 12,88,000   ` 12,88,000 
t on the basis  ` 18,40,000 x ` 9,00,000   x ` 4,00,000   x ` 5,40,000 
of sales value  ` 18,40,000   ` 18,40,000 
at the point of
split off (`)
(ii) Statement showing the cost per kg. of each product

(indicating joint cost; further processing cost and total cost separately)
Products A B X
Joint costs apportioned (`) : (I) 6,30,000 2,80,000 3,78,000
Production (kg) : (II) 18,000 10,000 54,000
Joint cost per kg (`): (I ÷ II) 35 28 7
Further processing Cost per kg. (`) 10 15 2
 ` 1,80,000   ` 1,50,000   ` 1,08,000 
     
 18,000kg   10,000kg   54,000kg 
Total cost per kg (`) 45 43 9
(iii) Statement showing the product wise and total profit for the period
Sales value (`) 12,24,000 2,50,000 7,92,000
Add: Closing stock value (`)
(Refer to Working note 2) 45,000 2,15,000 90,000
Value of production (`) 12,69,000 4,65,000 8,82,000 26,16,000
Apportionment of joint cost (`) 6,30,000 2,80,000 3,78,000
Add: Further processing cost (`) 1,80,000 1,50,000 1,08,000

Total cost (`) 8,10,000 4,30,000 4,86,000 17,26,000

Profit (`) 4,59,000 35,000 3,96,000 8,90,000
Working Notes
1.
Products A B X
Sales value (`) 12,24,000 2,50,000 7,92,000
Quantity sold (Kgs.) 17,000 5,000 44,000
Selling price `/kg 72 50 18
 ` 12,24,000   ` 2,50,000   ` 7,92,000 
     
 17,000kg   5,000kg   44,000kg 
2. Valuation of closing stock:

Since the selling price per kg of products A, B and X is more than their total
costs, therefore closing stock will be valued at cost.
Closing stock (kgs.) 1,000 5,000 10,000
Cost per kg (`) 45 43 9
Closing stock value 45,000 2,15,000 90,000 3,50,000
(`) (` 45 x 1,000 kg) (` 43 x 5,000 kg) (`9x10,000 kg)
(iv) Calculations for processing decision

Products A B X
Selling price per kg at the point of split off (`) 50 40 10
Selling price per kg after further processing (`) 72 50 18
(Refer to working Note 1)
Incremental selling price per kg (`) 22 10 8
Less: Further processing cost per kg (`) (10) (15) (2)
Incremental profit (loss) per kg (`) 12 (5) 6
Product A and X has an incremental profit per unit after further processing, hence,
these two products may be further processed. However, further processing of product
B is not profitable hence, product B shall be sold at split off point.

11. Calculation of Cost per annum

Particulars Arts (`) Commerce Science Total (`)
(`) (`)
Teachers’ salary (W.N-1) 16,80,000 21,00,000 25,20,000 63,00,000
R-apportionment of Economics (84,000) 1,45,091 (61,091) -
& Mathematics teachers’ salary
(W.N- 2)
Principal’s salary (W.N-3) 1,24,800 1,87,200 2,88,000 6,00,000
Lab assistants’ salary (W.N-4) - - 1,72,800 1,72,800
Salary to library staff (W.N-5) 43,200 28,800 57,600 1,29,600
Salary to peons (W.N-6) 31,636 94,909 47,455 1,74,000
Salary to other staffs (W.N-7) 38,400 1,15,200 57,600 2,11,200
Examination expenses (W.N- 8) 86,400 2,59,200 1,29,600 4,75,200
Office & Administration 1,21,600 3,64,800 1,82,400 6,68,800
expenses (W.N- 7)
Annual Day expenses (W.N-7) 36,000 1,08,000 54,000 1,98,000
Sports expenses (W.N- 7) 9,600 28,800 14,400 52,800
Total Cost per annum 20,87,636 34,32,000 34,62,764 89,82,400
(i) Calculation of cost per student per annum
Particulars Arts (`) Commerce (`) Science (`) Total (`)
Total Cost per annum 20,87,636 34,32,000 34,62,764 89,82,400
No. of students 120 360 180 660
Cost per student per 17,397 9,533 19,238 13,610
annum
(ii) Calculation of profitability
Particulars Arts Commerce Science Total
(`) (`) (`) (`)
Total Fees per annum 12,000 12,000 12,000
Cost per student per annum 17,397 9,533 19,238
Profit/ (Loss) per student (5,397) 2,467 (7,238)
per annum
No. of students 120 360 180
Total Profit/ (Loss) (6,47,640) 8,88,120 (13,02,840) (10,62,360)

(iii) Computation of fees to be charged to earn a 10% profit on cost

Particulars Arts Commerce Science
(`) (`) (`)
Cost per student per annum 17,397 9,533 19,238
Add: Profit @10% 1,740 953 1,924
Fees per annum 19,137 10,486 21,162
Fees per month 1,595 874 1,764
Working Notes:
(1) Teachers’ salary
Particulars Arts Commerce Science
No. of teachers 4 5 6
Salary per annum (`) 4,20,000 4,20,000 4,20,000
Total salary 16,80,000 21,00,000 25,20,000
(2) Re-apportionment of Economics and Mathematics teachers’ salary

Economics Mathematics
Particulars Arts Commerce Science Commerce
No. of classes 832 208 940 160
Salary re-apportionment (84,000) 84,000 (61,091) 61,091
(`)
 `4,20,000   `4,20,000 
  208   1,100  160 
 1,040   
(3) Principal’s salary has been apportioned on the basis of time spent by him for
administration of classes.
(4) Lab attendants’ salary has been apportioned on the basis of lab classes attended by
the students.
(5) Salary of library staffs are apportioned on the basis of time spent by the students in
library.
(6) Salary of Peons are apportioned on the basis of number of students. The peons’
salary allocable to higher secondary classes is calculated as below:
Amount (`)
Peon dedicated for higher secondary 1,20,000

(1 peon × `10,000 × 12 months)

Add: 15% of other peons’ salary 54,000
{15% of (3 peons × `10,000 × 12 months)}
1,74,000
(7) Salary to other staffs, office & administration cost, Annual day expenses and sports
expenses are apportioned on the basis of number of students.
(8) Examination Expenses has been apportion taking number of students and number
examinations into account.
12. Material Variances:
Material SQ SP SQ × SP RSQ RSQ × SP AQ AQ × SP AP AQ × AP
(WN-1) (`) (`) (WN-2) (`) (`) (`) (`)
A 940 kg. 45.00 42,300 886 kg. 39,870 900 kg. 40,500 43.00 38,700
B 705 kg. 30.00 21,150 664 kg. 19,920 650 kg. 19,500 32.50 21,125
1645 kg 63,450 1550 kg 59,790 1550 kg 60,000 59,825
WN-1: Standard Quantity (SQ):

 800kg. 
Material A-  1,480kg.  = 939.68 or 940 kg.
 0.9 1,400kg. 
 600kg. 
Material B-  1,480kg.  = 704.76 or 705 kg.
 0.9 1,400kg. 
WN- 2: Revised Standard Quantity (RSQ):
 800kg. 
Material A-  1,550kg.  = 885.71 or 886 kg.
 1,400kg. 
 600kg. 
Material B-  1,550kg.  = 664.28 or 664 kg.
 1,400kg. 
(i) Material Cost Variance (A + B) = {(SQ × SP) – (AQ × AP)}
= {63,450 – 59,825} = 3,625 (F)
(ii) Material Price Variance (A + B) = {(AQ × SP) – (AQ × AP)
= {60,000 – 59,825} = 175 (F)
(iii) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}

= {59,790 – 60,000} = 210 (A)

(iv) Material Yield Variance (A + B) = {(SQ × SP) – (RSQ × SP)}
= {63,450 – 59,790} = 3,660 (F)
Labour Variances:
Labour SH SR SH × SR RSH RSH × SR AH AH × SR AR AH × AR
(WN-3) (`) (`) (WN-4) (`) (`) (`) (`)
Skilled 1,116 hrs 37.50 41,850 1144 42,900 1,200 45,000 35.50 42,600
Unskilled 893 hrs 22.00 19,646 916 20,152 860 18,920 23.00 19,780
2,009 hrs 61,496 2,060 63,052 2,060 63,920 62,380
WN- 3: Standard Hours (SH):

 0.95 1,000hr. 
Skilled labour-  1,480kg.  =1,115.87 or 1,116 hrs.
 0.90  1,400kg. 
 0.95  800hr. 
Unskilled labour-  1,480kg.  = 892.69 or 893 hrs.
 0.90  1,400kg. 
WN- 4: Revised Standard Hours (RSH):
 1,000hr. 
Skilled labour-   2,060hr.  = 1,144.44 or 1,144 hrs.
 1,800hr. 
 800hr. 
Unskilled labour-   2,060hr.  = 915.56 or 916 hrs.
 1,800hr. 
(v) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) – (AH × AR)}
= {61,496 – 62,380} = 884 (A)
(vi) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) – (AH × SR)}
= {61,496 – 63,920} = 2,424 (A)
(vii) Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH × SR)}
= {61,496 – 63,052} = 1,556 (A)
13. Option (i)
Increase in profit when due to change in a manufacturing process there is reduction in joint
fixed cost and increase in variable costs.

(`)
Revised Contribution from 12,000 units of A due to 7.5% increase in 8,52,000
Variable Cost {12,000 units × (`200 – `129)}
Revised Contribution from 12,000 units of B due to 7.5% increase in 6,66,000
Variable Cost {12,000 units × (`120 – `64.50)}
Total Revised Contribution 15,18,000
Less: Fixed Cost (`15,00,000 – 15% × `15,00,000) 12,75,000
Revised Profit 2,43,000
Less: Existing Profit 1,80,000
Increase in Profit 63,000
Option (ii)
Increase in profit when the price of product A increased by 20% and the price elasticity of
its demand would be unity over the range of price.
(`)
Budgeted Revenue from Product A (12,000 units × `200) 24,00,000
Revised Demand (in units) (`24,00,000 / `240) 10,000
Revised Contribution (in `) [10,000 units × (`240 – `120)] 12,00,000
Less: Existing Contribution (12,000 units × `80) 9,60,000
Increase in Profit (Contribution) 2,40,000
*Note: Since Price Elasticity of Demand is 1, therefore the Revenue in respect of Products
will remain same.
Option (iii)
Increase in profit on the simultaneous introduction of above two options.
(`)
Revised Contribution from Product A [10,000 units × (`240 – `129)] 11,10,000
Revised Contribution from Product B [12,000 units × (`120 – `64.50)] 6,66,000
Total Revised Contribution 17,76,000
Less: Revised Fixed Cost 12,75,000
Revised Profit 5,01,000
Less: Existing Profit 1,80,000
Increase in Profit 3,21,000

A comparison of increase in profit figures under above three options clearly indicates that
the option (iii) is the best as it increases the profit of the concern by `3,21,000.
Note: The budgeted profit / (loss) for 2018 in respect of products A and B should be
` 2,10,000 and (`30,000) respectively instead of ` 1,50,000 and ` 30,000.
Workings
1. Contribution per unit of each product:
Product
A (`) B (`)
Contribution per unit 80 60
(Sales × P/V Ratio) (`200 × 40%) (`120 × 50%)
2. Number of units to be sold:

Total Contribution – Fixed Cost = Profit
Let x be the number of units of each product sold, therefore:
(80x + 60x) – `15,00,000 = `1,50,000 + `30,000
Or x = 12,000 units
14. (i) (a) Production Budget (in units) for the year ended 31 st March 2016
Product M Product N
Budgeted sales (units) 28,000 13,000
Add: Increase in closing stock 320 160
No. good units to be produced 28,320 13,160
Post production rejection rate 4% 6%
No. of units to be produced 29,500 14,000
 28,320   13,160 
   
 0.96   0.94 
(b) Purchase budget (in kgs and value) for Material Z
Product M Product N
No. of units to be produced 29,500 14,000
Usage of Material Z per unit of production 5 kg. 6 kg.
Material needed for production 1,47,500 kg. 84,000 kg.
Materials to be purchased 1,63,889 kg. 88,421 kg.

 1,47,500   84,000 
   
 0.90   0.95 
Total quantity to be purchased 2,52,310 kg.
Rate per kg. of Material Z `36
Total purchase price `90,83,160
(ii) Calculation of Economic Order Quantity for Material Z
2  2,52,310kg. `320 16,14,78,400
EOQ = = = 6,385.72 kg.
`36 11% `3.96
(iii) Since, the maximum number of order per year can not be more than 40 orders and
the maximum quantity per order that can be purchased is 4,000 kg. Hence, the total
quantity of Material Z that can be available for production:
= 4,000 kg. × 40 orders = 1,60,000 kg.
Product M Product N
Material needed for 1,03,929 kg. 56,071 kg.
production to maintain the  1,63,889   88,421 
same production mix  1,60,000    1,60,000  
 2,52,310   2,52,310 
Less: Process wastage 10,393 kg. 2,804 kg.
Net Material available for 93,536 kg. 53,267 kg.
production
Units to be produced 18,707 units 8,878 units
 93,536kg.   53,267kg. 
   
 5kg.   6kg. 
15. (i) (a) 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.
(b) 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.

(ii) Cost plus contracts have the following advantages:

(a) The Contractor is assured of a fixed percentage of profit. There is no risk of
incurring any loss on the contract.
(b) It is useful specially when the work to be done is not definitely fixed at the time
of making the estimate.
(c) 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.
(iii) The advantages of zero-based budgeting are as follows:
 It provides a systematic approach for the evaluation of different activities and
rank 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.
(iv) 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. Which
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 example 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, 2017, including significant
notifications/circulars issued upto 31 st October, 2017 is applicable for May, 2018 examination.
The relevant assessment year for May, 2018 examination is A.Y.2018-19. The significant
notifications/circulars issued upto 31.10.2017, relevant for May, 2018 examination but not
covered in the July 2017 edition of the Study Material, are given hereunder.
CHAPTER 2: RESIDENCE AND SCOPE OF TOTAL INCOME
Clarification regarding liability to income-tax in India of a non-resident seafarer receiving
remuneration in NRE (Non-Resident External) account maintained with an Indian Bank
[Circular No.13/2017, dated 11.04.2017 and Circular No.17/2017, dated 26.04.2017]
Income by way of salary, received by non-resident seafarers, for services rendered outside India
on-board foreign ships, is being subjected to tax in India for the reason that the salary has been
received by the seafarer into the NRE bank account maintained in India by the seafarer. On
receiving representations in this regard, the CBDT has examined the matter. It noted that section
5(2)(a) of the Income-tax Act, 1961 provides that only such income of a non-resident shall be
subjected to tax in India that is either received or is deemed to be received in India.
Accordingly, the CBDT has, vide this circular, clarified that that salary accrued to a non-resident
seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign
flag) shall not be included in the total income merely because the said salary has been credited
in the NRE account maintained with an Indian bank by the seafarer.
CHAPTER 4: HEADS OF INCOME
UNIT 4: CAPITAL GAINS
Long-term specified asset notified for the purpose of claiming exemption under section
54EC [Notification No. 47/2017, dated 08.06.2017 and Notification No. 79/2017, dated
08.08.2017]
Section 54EC provides exemption from chargeability of capital gain from the transfer of a long-
term capital asset where the assessee has invested the whole or any part of the capital gain in
a long-term specified asset. As per clause (ba) of Explanation to section 54EC “long term
specified asset” means any bond redeemable after three years and issued on or after 01.04.07
by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation
Limited (RECL) or any other bond notified by the Central Government in this behalf.
Accordingly, the Central Government has, vide these notifications, notified any bond
redeemable after three years and issued by the Power Finance Corporation Limited on or

PAPER – 4: TAXATION 87
after 15.06.17 or by the Indian Railway Finance Corporation Limited on or after 08.08.17 as
‘long-term specified asset’.
CHAPTER 4: HEADS OF INCOME
UNIT 5: INCOME FROM OTHER SOURCES
Clarification regarding trade advance not to be treated as deemed dividend under section
2(22)(e) – [Circular No. 19/2017, dated 12.06.2017]
Section 2(22)(e) provides that "dividend" includes any payment by a company in which public
are not substantially interested, of any sum by way of advance or loan to a shareholder who is
the beneficial owner of shares holding not less than 10% of the voting power, or to any concern
in which such shareholder is a member or a partner and in which he has a substantial interest
or any payment by any such company on behalf, or for the individual benefit, of any such
shareholder, to the extent to which the company in either case possesses accumulated profits.
The CBDT observed that some Courts in the recent past have held that trade advances in the
nature of commercial transactions would not fall within the ambit of the provisions of section
2(22)(e) and such views have attained finality.
In view of the above, the CBDT has, vide this circular, clarified that it is a settled position that
trade advances, which are in the nature of commercial transactions, would not fall within the
ambit of the word 'advance' in section 2(22)(e) and therefore, the same would not to be treated
as deemed dividend.
CHAPTER 9: ADVANCE TAX, TAX DEDUCTION AT SOURCE, INTRODUCTION TO TAX
COLLECTION AT SOURCE
Deduction of tax at source on interest income accrued to minor child, where both the
parents have deceased [Notification No. 05/2017, dated 29.05.2017]
Under Rule 31A(5) of the Income-tax Rules, 1962, the Director General of Income-tax (Systems)
is authorized to specify the procedures, formats and standards for the purposes of furnishing and
verification of, inter alia, the statements and shall be responsible for the day-to-day administration
in relation to furnishing and verification of the statements in the manner so specified.
The Principal Director General of Income-tax (Systems) has, in exercise of the powers delegated
by the CBDT under Rule 31A(5), specified that in case of minors where both the parents have
deceased, TDS on the interest income accrued to the minor is required to be deducted and
reported against PAN of the minor child unless a declaration is filed under Rule 37BA(2) that
credit for tax deducted has to be given to another person.
Deduction of tax at source on interest on deposits made under Capital Gains Accounts
Scheme, 1988 where depositor has deceased - Notification No. 08/2017, dated 13.09.2017
The Principal Director General of Income-tax (Systems) has, in exercise of the powers delegated
by the CBDT under Rule 31A(5), vide this notification, specified that in case of deposits under
the Capital Gains Accounts Scheme, 1988 where the depositor has deceased:

(i) TDS on the interest income accrued for and upto the period of death of the depositor is required
to be deducted and reported against PAN of the depositor, and
(ii) TDS on the interest income accrued for the period after death of the depositor is required to be
deducted and reported against PAN of the legal heir,
unless a declaration is filed under Rule 37BA(2) that credit for tax deducted has to be given to
another person.
No requirement to deduct tax at source under section 194-I on remittance of Passenger
Service Fees (PSF) by an Airline to an Airport Operator [Circular No. 21/2017, dated
12.06.2017]
Section 194-I requires deduction of tax at source at specified percentage on any income payable
to a resident by way of rent. Explanation to this section defines the term “rent” as any payment,
by whatever name called, under any lease, sub-lease, tenancy or any other agreement or
arrangement for the use of any (a) land; or (b) building; or (c) land appurtenant to a building; or
(d) machinery; (e) plant; (f) equipment (g) furniture; or (h) fitting, whether or not any or all of
them are owned by the payee.
The primary requirement of any payment to qualify as rent is that the paym ent must be for the
use of land and building and mere incidental/minor/insignificant use of the same while providing
other facilities and service would not make it a payment for use of land and buildings so as to
attract section 194-I.
Accordingly, the CBDT has, vide this circular, clarified that the provisions of section 194-I shall
not be applicable on payment of PSF by an airline to Airport Operator.
Clarification regarding TDS on Goods and Services Tax (GST) component comprised in
payments made to residents [Circular No. 23/2017 dated 19.07.2017]
The CBDT had, vide Circular No. 1/2014 dated 13.01.2014, clarified that wherever in terms of
the agreement or contract between the payer and the payee, the service tax component
comprised in the amount payable to a resident is indicated separately, tax shall be deducted at
source on the amount paid or payable without including such service tax component.
In order to harmonize the same treatment with the new system for taxation of services under
the GST regime w.e.f. 01.07.2017, the CBDT has, vide this circular, clarified that wherever in
terms of the agreement or contract between the payer and the payee, the component of 'GST
on services' comprised in the amount payable to a resident is indicated separately, tax shall be
deducted at source on the amount paid or payable without including such 'GST on services'
component.
GST shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State
Goods and Services Tax and Union Territory Goods and Services Tax.
Further, for the purposes of this Circular, any reference to “service tax” in an existing agreement
or contract which was entered into prior to 01.07.2017 shall be treated as “GST on services”
with respect to the period from 01.07.2017 onward till the expiry of such agr eement or contract.

CHAPTER 10: PROVISIONS FOR FILING RETURN OF INCOME AND SELF ASSESSMENT
Scope of qualifications for e-Return Intermediary extended to include Company
Secretaries, Cost Accountants and Tax Return Preparer [Notification No 66/2016, dated
09.08.2016]
Section 139(1B) provides for an alternative method to furnish return of income. Vide Notification
No 210/2007, dated 27.07.2007, an Electronic Furnishing of Return of Income Scheme, 2007
was notified for the said purpose. The scheme, inter alia provides that an eligible person may,
at his option, furnish his return of income which he is required to furnish under various provisions
of the Act, to an e-Return Intermediary who shall digitize the data of such return and transmit
the same electronically to a server designated for this purpose by the e-Return Administrator,
on or before the due date.
Para 5 of the said Notification lays down the qualifications of an e-Return Intermediary. A firm
of Chartered Accountants or Advocates, which has been allotted a Permanent Account Number,
as well as a Chartered Accountant or an Advocate who has been allotted a Permanent Account
Number, inter alia, qualified to be an e-Return intermediary.
Vide this Notification, a firm of Company Secretaries or Cost Accountants, if the firm has been
allotted PAN as well as a Company Secretary or a Cost Accountant or Tax Return Preparer,
who has been allotted a Permanent Account Number, would also qualify to be an e -Return
intermediary.
Persons who are not required to quote Aadhar Number or Enrolment ID in application
form for allotment of PAN and in return of income [Notification No. 37/2017 dated
11.05.2017]
Section 139AA requires every person who is eligible to obtain Aadhar Number to mandatorily
quote Aadhar Number or Enrolment ID of Aadhar application form, on or after 1 st July, 2017 in
the application form for allotment of PAN and in the return of income. However, this provision
shall not applicable to such person or class or classes of persons or any State or part of any
State as may be notified by the Central Government.
Accordingly, the Central Government has, vide this notification effective from 01.07.2017,
notified that the provisions of section 139AA relating to quoting of Aadhar Number would not
apply to an individual who does not possess the Aadhar number or Enrolment ID and is:
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India.

PART II: QUESTIONS AND ANSWERS
QUESTIONS
1. Mr. Kavin, a non-resident, entered into the following transactions during the financial year
2017-18:
(a) Received ` 20 lakhs from a non-resident for use of patent for a business in India.
(b) Received foreign currency equivalent to ` 15 lakhs from a non-resident Indian for use
of know-how for a business in Sri Lanka and this amount was received in Korea.
(c) Received ` 7 lakhs from RR Ltd., an Indian company as fees for providing technical
services in India.
(d) Received ` 5 lakhs from R & Co., Mumbai, resident in India, for conducting the
feasibility study for a new project in Nepal and the payment was made in Nepal.
(e) Received ` 8 lakhs towards interest on moneys borrowed by a non-resident for the
purpose of business within India. Amount was received in Korea.
Examine briefly whether the above receipts are chargeable to tax in India.
2. Examine with reasons whether the following receipts are taxable or not under the
provisions of Income-tax Act, 1961.
(a) Mr. Akash received a sum of ` 3,00,000 as compensation from “Sahayata
Foundation” towards the loss of property on account of Flood Disaster at Chennai .
(b) Rent of ` 60,000 received for letting out agricultural land for a movie shooting.
(c) Dividend of ` 17 lakhs received by Mr. Yatin during P.Y. 2017-18 from A Ltd., a
domestic company.
(d) Agricultural income of ` 1,30,000 of Mr. Sunil from a land situated in Canada.
3. Mr. Kashyap retired from the services of M/s ABC Ltd. on 31.01.2018, after completing
service of 30 years and one month. He had joined the company on 1.1.1988 at the age of
30 years and received the following on his retirement:
(i) Gratuity ` 5,50,000. He was covered under the Payment of Gratuity Act, 1972.
(ii) Leave encashment of ` 3,30,000 for 330 days leave balance in his account. He was
credited 30 days leave for each completed year of service.
(iii) As per the scheme of the company, he was offered a car on 31.01.2018 which was
purchased on 01.03.2015 by the company for ` 5,00,000. Company has recovered
` 2,00,000 from him for the car. Company depreciates the vehicles at the rate of 15%
on Straight Line Method.
(iv) An amount of ` 3,00,000 as commutation of pension for 2/3 of his pension
commutation.

(v) Company presented him a gift voucher worth ` 8,000 on his retirement.
Following are the other particulars:
(i) He has drawn a basic salary of ` 20,000 and dearness allowance @50% of basic
salary for the period from 01.04.2017 to 31.01.2018. Dearness allowance does not
form part of pay for retirement benefits.
(ii) Received pension of ` 7,000 per month for the period 01.02.2018 to 31.03.2018 after
commutation of pension.
Compute his income taxable under the head “Salaries” for Assessment Year 2018-19.
4. In August 2016, Mr. Kailash, a first-time home buyer, borrowed a sum of ` 35 lakhs from
the National Housing Bank for construction of a residential house for ` 48 lakhs. The loan
was sanctioned on 12.5.2016. The loan amount was disbursed directly to the flat promoter
by the bank. The construction was completed in May, 2018 and repayments towards
principal and interest commenced immediately after disbursement of loan.
In the light of the above facts, examine:
(i) Whether Mr. Kailash can claim deduction under section 24 in respect of interest for
the A.Y. 2018-19?
(ii) Whether deduction under Section 80C and 80EE can be claimed by him for the A.Y.
2018-19?
5. Mr. Abhay has furnished the following particulars relating to payments made and
expenditure incurred towards scientific research for the year ended 31.3.2018:
Sl. No. Particulars ` (in lakhs)
(i) Payments made to an approved Agro Research 25
Association
(ii) Payment made to RR University, an approved University 15
(iii) Payment made to XY College 17
(iv) Payment made to IIT, Madras (under an approved 10
programme for scientific research)
(v) Machinery purchased for in-house scientific research 20
(vi) Salaries to research staff engaged in in-house scientific 14
research
Compute the deduction available under section 35 of the Income-tax Act, 1961 for A.Y.
2018-19, while determining his income under the head “Profits and gains of business or
profession”.

6. Mr. Arjun bought a vacant land for ` 80 lakhs in March 2005. Registration and other
expenses were 10% of the cost of land. He constructed a residential building on the said
land for ` 100 lakhs during the financial year 2006-07.
He entered into an agreement for sale of the above said residential house with Mr. Jerry
(not a relative) on 9th April 2017 and received ` 20 lakhs as advance in cash on that date.
The stamp duty value on that date was ` 740 lakhs. The actual sale consideration was,
however, fixed at ` 700 lakhs.
The sale deed was executed and registered on 10-6-2017 for the agreed consideration.
However, the State stamp valuation authority had revised the values, hence, the value of
property for stamp duty purposes was ` 770 lakhs. Mr. Arjun paid 1% as brokerage on sale
consideration received.
Subsequent to sale, Mr. Arjun made following investments:
(i) Acquired a residential house at Mumbai for ` 110 lakhs.
(ii) Acquired a residential house at London for ` 150 lakhs.
(iii) Subscribed to NHAI bond: ` 45 lakhs on 29-8-2017 and ` 50 lakhs on 12-10-2017.
Compute the income chargeable under the head “Capital Gains” for A.Y. 2018-19. The
choice of exemption must be in the manner most beneficial to the assessee.
Cost Inflation Index: F.Y. 2004-05 113
F.Y. 2006-07 122
F.Y. 2017-18 272
7. From the following transactions relating to Mrs. Sonu, determine the amount chargeable
to tax in her hands for the A.Y. 2018-19. Your answer should be supported by reasons:
(i) Received cash gifts on the occasion of her marriage on 19-11-2017 of ` 2,10,000. It
includes gift of ` 55,000 received from non-relatives.
(ii) On 1-1-2018, being her birthday, she received a gift of ` 45,000 by means of cheque
from her father's maternal uncle.
(iii) On 12-2-2018, she acquired a vacant site from her friend for ` 1,12,000. The State
stamp valuation authority fixed the value of site at ` 1,92,000 for stamp duty purpose.
(iv) She bought 50 equity shares of a private company from another friend for ` 75,000.
The fair market value of such shares on the date of purchase was ` 1,33,000.
8. Compute the income to be included in the hands of Mr. Sharma for the Assessment year
2018-19 with reasons from the following information:

A proprietary business was started by Mrs. Sharma in the year 2015. As on 1.4.2016 her
capital in business was ` 5,00,000. Her husband gifted ` 3,00,000 on 2.4.2016, which Mrs.
Sharma invested in her business on the same date. Mrs. Sharma earned profits from her
proprietory business for the financial year 2016-17, ` 2,00,000 and financial year 2017-18
` 4,20,000.
9. The following are the details relating to Mr. Gupta, a resident Indian, relating to the year
ended 31.3.2018:
Particulars `
Income from salaries 2,20,000
Long-term capital loss from sale of listed shares in recognized stock 1,50,000
exchange (STT paid at the time of sale and acquisition of shares)
Loss from cloth business 2,40,000
Income from speculation business 30,000
Loss from specified business covered by section 35AD 45,000
Long-term capital gains from sale of urban land 2,50,000
Loss from house property 2,50,000
Loss from card games 40,000
Income from betting (Gross) 35,000
Life Insurance Premium paid (Sum assured ` 5,00,000) 25,000
Compute his total income for A.Y. 2018-19 and show the items eligible for carry forward.
10. For the A.Y. 2018-19, the Gross Total Income of Mr. Raja, a resident in India, was
` 8,00,000 which includes long-term capital gain of ` 2,50,000 and Short-term capital gain
of ` 50,000. The Gross Total Income also includes interest income of ` 15,000 from
savings bank deposits with banks. Mr. Raja has invested in PPF ` 1,40,000 and also paid
a medical insurance premium ` 35,000 for self. Mr. Raja also contributed ` 50,000 to Public
Charitable Trust eligible for deduction under section 80G by way of an account payee
cheque. Compute the total income and tax thereon of Mr. Raja, who is 65 years old as on
31.3.2018.
11. Mr. Yusuf Khan, a resident individual aged 55, furnishes the following information
pertaining to the year ended 31.3.2018:
(i) He is a working partner in ABC & Co. He has received the following amounts from the
firm:
Interest on capital at 15% : ` 3,00,000
Salary as working partner (at 1% of firm's sales) (allowed fully to the firm): ` 90,000

(ii) He is engaged in a business of manufacturing. The Profit and Loss account pertaining
to this proprietary business (summarised form) is as under:
To Salaries 1,20,000 By Gross profit 12,50,000
To Bonus 48,000 By Interest on Bank FD 45,000
To Car expenses 50,000 (Net of TDS)
To Machinery repairs 2,34,000 By Agricultural income 60,000
To Advance tax 70,000 By Pension from LIC
To Depreciation on: Jeevan Dhara 24,000
- Car 3,00,000
- Machinery 1,25,000
To Net profit 4,32,000
13,79,000 13,79,000
Details of assets:
Particulars `
Opening WDV of assets are as under:
Car 3,00,000
Machinery (Used during the year for 179 days) 6,50,000
Additions to machinery:
Purchased on 23.9.2017 by cash in single payment 2,00,000
Purchased on 12.11.2017 by account payee cheque 3,00,000
Second hand machinery purchased on 12.4.2017 by bearer cheque in
single payment 1,25,000
(All assets added during the year were put to use immediately after purchase)
One-fifth of the car expenses are towards estimated personal use of the assessee.
Salary includes ` 15,000 paid by way of a single cash payment to manager.
(iii) In February, 2016, he had sold a house at Chennai. Arrears of rent relating to this
house amounting to ` 75,000 was received in March, 2018.
(iv) Details of his Savings and Investments are as under:
Particulars `
Life insurance premium for policy in the name of his major son
employed in a multinational company, at a salary of ` 10 lakhs p.a.

(Sum assured ` 2,00,000) (Policy taken on 1.07.2013) 30,000

Contribution to PPF 70,000
Medical Insurance premium for his father aged 79, who is not 32,000
dependent on him
You are required to compute the total income of Mr. Yusuf Khan for the assessment
year 2018-19.
12. Mr. Sachal, a resident individual aged 54, furnishes his income & other details for the P.Y.
2017-18:
(i) Income of ` 8,10,000 from wholesale cloth business, whose accounts are audited u/s
44AB.
(ii) Income from other sources ` 2,70,000.
(iii) Tax deducted at source ` 25,000.
(iv) Advance tax paid ` 1,03,000 during the P.Y. 2017-18.
Return of income filed on 11-12-2018. Calculate the interest payable under section 234B
of the income-tax Act, 1961. Assume that the return of income would be processed on the
same day of filing of return. What are the consequences for delay in furnishing return of
income under the Income-tax Act, 1961? Examine, making the required computations in
this case.
13. Mention the significant differences between TDS and TCS.
14. Ms. Geetha submits her return of income on 29-09-2018 for A.Y 2018-19 consisting of
income under the head “Salaries”, “Income from house property” and bank interest. On 01-
02-2019, she realized that she had not claimed deduction under section 80D in respect of
medical insurance premium of ` 15,000 paid for her mother. She wants to revise her return
of income. Can she do so? Examine.
Would your answer be different if she discovered this omission on 02-04-2019?
SUGGESTED ANSWERS
1. Taxability of certain receipts in the hands of Mr. Kavin, a non-resident, for A.Y. 2018-19
Taxability Reason
(a) Taxable Amount of ` 20 lakhs received from a non-resident is deemed
to accrue or arise in India by virtue of section 9(1)(vi)(c), since
the patent was used for a business in India. Therefore, the
amount is chargeable to tax in India.
(b) Not Taxable Foreign currency equivalent to ` 15 lakhs received in Korea
from a non-resident for use of know-how for a business in

Sri Lanka is not deemed to accrue or arise in India as per

section 9(1)(vi)(c), since it is in respect of a business carried
on outside India. Also, the amount was received outside India.
Therefore, the same is not chargeable to tax in India.
(c) Taxable Amount of ` 7 lakhs received from RR Ltd., an Indian
Company, is deemed to accrue or arise in India by virtue of
section 9(1)(vii)(b), since it is for providing technical services
in India. Therefore, the same is chargeable to tax in India.
(d) Not Taxable Amount of ` 5 lakhs received in Nepal from R & Co., a resident,
for conducting feasibility study for the new project in Nepal is
not deemed to accrue or arise in India as per section
9(1)(vii)(b), since such study was done for a project outside
India. The amount was also received outside India. Therefore,
the same is not chargeable to tax in India.
(e) Taxable Amount of ` 8 lakhs received in Korea towards interest on
moneys borrowed by a non-resident for the purpose of
business within India is deemed to accrue or arise in India by
virtue of section 9(v)(c), since money borrowed was used for
the purpose of business in India. Therefore, the same is
chargeable to tax in India.
2. Taxability of receipts under the provisions of Income-tax Act, 1961

Taxable/Not Reason
taxable
(a) Taxable As per section 10(10BC), any amount received or
receivable by an individual as compensation, on account of
any disaster, from the Central Government, State
Government or a local authority is exempt from tax, to the
extent the individual has not been allowed deduction under
any other provision of Income-tax Act, 1961 on account of
any loss or damage caused by such disaster.
However, in this case, since Mr., Akash has received a
compensation of ` 3,00,000 from Sahayata Foundation,
and not from the Central Government or State Government
or local authority, no exemption will be available under
section 10(10BC) and the same is chargeable to tax.
(b) Taxable Agricultural income is exempt from income-tax as per
section 10(1). Agriculture income means, inter alia, any rent
or revenue derived from land which is situated in India and
is used for agricultural purposes.
In this case, rent is being derived from letting out of

agricultural land for a movie shoot, which is not an

agricultural purpose. In effect, the land is not being put to
use for agricultural purposes. Therefore, ` 60,000, being
rent received from letting out agricultural land for movie
shooting, is not exempt under section 10(1) and the same
is chargeable to tax.
(c) Partly taxable Dividend received from a domestic company is subject to
dividend distribution tax in the hands of domestic company
under section 115-O.
Dividend income received from an Indian company, which
is subject to dividend distribution tax, is exempt under
section 10(34). However, dividend in excess of ` 10 lakhs
received, inter alia, by an individual is chargeable to tax
under section 115BBDA and not exempt under section
10(34).
Therefore, in this case, dividend received upto ` 10 lakh is
exempt in the hands of Mr. Yatin under section 10(34). ` 7
lakh, being dividend in excess of ` 10 lakh, is taxable in his
hands @10% as per section 115BBDA.
(d) Taxable Agricultural income from a land situated in any foreign
country is not exempt under section 10(1) and hence, is
chargeable to tax.
Therefore, in this case, agricultural income of ` 1,30,000 of
Mr. Sunil from land situated in Canada is taxable.
3. Computation of income chargeable under the head “Salaries” of Mr. Kashyap for
A.Y. 2018-19
Particulars `
Basic Salary = ` 20,000 x 10 2,00,000
Dearness Allowance = 50% of basic salary 1,00,000
Gift Voucher (See Note - 1) 8,000
Transfer of car (See Note - 2) 1,20,000
Gratuity (See Note - 3) 30,769
Leave encashment (See Note - 4) 1,30,000
Uncommuted pension (` 7000 x 2) 14,000
Commuted pension (See Note - 5) 1,50,000
Taxable Salary /Gross Total Income 7,52,769

Notes:
(1) As per Rule 3(7)(iv), the value of any gift or voucher or token in lieu of gift received
by the employee or by member of his household not exceeding ` 5,000 in aggregate
during the previous year is exempt. In this case, the amount was received on his
retirement and the sum exceeds the limit of ` 5,000.
Therefore, the entire amount of ` 8,000 is liable to tax as perquisite.
Note - An alternate view is possible 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. 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 ` 3,000 and gross total
income would be ` 7,47,769.
(2) Perquisite value of transfer of car: As per Rule 3(7)(viii), the value of benefit to the
employee arising from the transfer of an asset, being a motor car, by the employer is
the actual cost of the motor car to the employer as reduced by 20% on a written down
value basis for each completed year during which such motor car was put to use by
the employer. Therefore, the value of perquisite on transfer of motor car, in this case,
would be:
Particulars `
Purchase price (1.3.2015) 5,00,000
Less: Depreciation @ 20% 1,00,000
WDV on 29.2.2016 4,00,000
Less: Depreciation @ 20% 80,000
WDV on 28.2.2017 3,20,000
Less: Amount recovered 2,00,000
Value of perquisite 1,20,000
Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee
arising from the transfer of any movable asset, the normal wear and tear is to be
calculated in respect of each completed year during which the asset was put to use
by the employer. In the given case, the third year of use of car is completed on
28.2.2018 whereas the car was sold to the employee on 31.1.2018. Accordingly, wear
and tear has to be calculated @20% on reducing balance method for only two years.
The rate of 15% as well as the straight line method adopted by the company for
depreciation of vehicle is not relevant for calculation of perquisite value of car in the
hands of Mr. Kashyap.

(3) Taxable gratuity

Particulars `
Gratuity received 5,50,000
Less: Exempt under section 10(10) - Least of the following:
(i) Notified limit = ` 10,00,000
(ii) Actual gratuity received = ` 5,50,000
(iii) 15/26 x last drawn salary x no. of completed years or part in
excess of 6 months
15/26 x 30,000 x 30 = ` 5,19,231 5,19,231
Taxable Gratuity 30,769
Note – As per the Payment of Gratuity Act, 1972, dearness allowance is included in
the meaning of salary. Since, in this case, Mr. Kashyap is covered under the
Payment of Gratuity Act, 1972, dearness allowance has to be included within the
meaning of salary for computation of exemption under section 10(10).
(4) Taxable leave encashment
Particulars `
Leave Salary received 3,30,000
Less: Exempt under section 10(10AA) - Least of the following:
(i) Notified limit ` 3,00,000
(ii) Actual leave salary received ` 3,30,000
(iii) 10 months x ` 20,000 ` 2,00,000
(iv) Cash equivalent of leave to his credit ` 2,20,000
 330 
x  20,000 
 30  2,00,000
Taxable Leave encashment 1,30,000
Note - Salary, for the purpose of exemption under section 10(10AA), would include
dearness allowance only if it forms part of pay for retirement benefits. Therefore, i n
this case, since dearness allowance does not form part of pay for retirement benefits,
only basic salary has to be considered for computing exemption under section
10(10AA).
(5) Commuted Pension
Since Mr. Kashyap is a non-government employee in receipt of gratuity, exemption
under section 10(10A) would be available to the extent of 1/3 rd of the amount of the

commuted pension which he would have received had he commuted the whole of the
pension.
Particulars `
Amount received 3,00,000
1  3
Less: Exemption under section 10(10A) =  3,00,000   1,50,000
3  2
Taxable amount 1,50,000
4. (i) As per section 24(b), interest payable on loans borrowed for the purpose of
acquisition, construction, repairs, renewal or reconstruction of house property can be
claimed as deduction. Interest payable on borrowed capital for the period prior to the
previous year in which the property has been acquired or constructed, can be claimed
as deduction over a period of 5 years in equal annual installments commencing from
the year of acquisition or completion of construction.
It is stated that the construction is completed only in May, 2018. Hence, deduction
under section 24 in respect of interest on housing loan cannot be claimed in the
assessment year 2018-19.
(ii) Deduction under section 80C cannot be claimed
Clause (xviii) of section 80C is attracted where there is any payment for the purpose
of purchase or construction of a residential house property, the income from which is
chargeable to tax under the head ‘Income from house property’. Such payment covers
repayment of any amount borrowed from the National Housing Bank.
However, deduction is prima facie eligible only if the income from such property is
chargeable to tax under the head “Income from House Property”. During the
assessment year 2018-19, there is no such income chargeable under this head.
Hence, deduction under section 80C cannot be claimed for A.Y. 2018-19.
Deduction under section 80EE can be claimed
As per section 80EE, interest payable on loan taken for the purpose of acquisition of
a residential house from any financial institution qualifies for deduction, subject to a
maximum of ` 50,000, provided following conditions are satisfied –
(i) Such loan is sanctioned during the P.Y. 2016-17
(ii) The value of the house does not exceed ` 50 lakhs
(iii) The amount of loan sanctioned does not exceed ` 35 lakhs and
(iv) the assessee does not own any residential house on the date of sanction of loan
Section 80EE does not pose any restriction regarding the chargeability of the income
from such property under the head “Income from House Property. Therefore, in this

case, since Mr. Kailash satisfies all the conditions stipulated under section 80EE,
interest on such loan would qualify for deduction under section 80EE, subject to a
maximum of ` 50,000.
5. Computation of deduction allowable under section 35
Amount % of Amount
Particulars (` in Section weighted of
lakhs) deduction deduction
(` in
lakhs)
Payment for scientific research
Approved Agro Research Association 25 35(1)(ii) 150% 37.5
RR University, an approved University 15 35(1)(ii) 150% 22.5
XY College [See Note 1] 17 - NIL NIL
IIT Madras (under an approved 10 35(2AA) 150% 15
programme for scientific research)
In-house research [See Note 2]
Capital expenditure – Purchase of 20 35(1)(iv) 100% 20
Machinery r. w.
35(2)
Revenue expenditure - Salaries to 14 35(1)(i) 100% 14
research staff engaged in in-house
scientific research
Deduction allowable under section 35 109
Notes:-
1. Payment to XY College: Since the question clearly mentions that only Agro
Research Association and RR University (mentioned in item (i) and (ii), respectively)
are approved research institutions, it is logical to conclude that XY College mentioned
in item (iii) is not an approved research institution. Therefore, payment to XY College
would not qualify for deduction under section 35.
2. Deduction for in-house research and development: Only company assessees are
entitled to weighted deduction @150% under section 35(2AB) in respect of
expenditure on scientific research on in-house research and development facility.
However, in this case, the assessee is an individual. Therefore, he would be entitled
to deduction@100% of the revenue expenditure incurred under section 35(1)(i) and
100% of the capital expenditure incurred under section 35(1)(iv) read with section
35(2), assuming that such expenditure is laid out or expended on scientific research
related to his business.

6. Computation of income chargeable under the head “Capital Gains” for A.Y.2018-19
Particulars ` `
(in lakhs) (in lakhs)
Capital Gains on sale of residential building
Actual sale consideration ` 700 lakhs
Value adopted by Stamp Valuation Authority ` 770 lakhs
Gross Sale consideration 770.00
[In case the actual sale consideration declared by the
assessee is less than the value adopted by the Stamp
Valuation Authority for the purpose of charging stamp duty,
then, the value adopted by the Stamp Valuation Authority
shall be taken to be the full value of consideration as per
section 50C.
In a case where the date of agreement is different from the
date of registration, stamp duty value on the date of
agreement can be considered provided the whole or part of
the consideration is paid by way of account payee
cheque/bank draft or by way of ECS through bank account on
or before the date of agreement. In this case, since advance
of ` 20 lakh is paid by cash, stamp duty value of ` 740 lakhs
on the date of agreement cannot be adopted as the full value
of consideration. Stamp duty value on the date of registration
would be the full value of consideration]
Less: Brokerage@1% of sale consideration (1% of ` 700 7.00
lakhs)
Net Sale consideration 763.00
Less: Indexed cost of acquisition
- Cost of vacant land, ` 80 lakhs, plus registration
and other expenses i.e., ` 8 lakhs, being 10% of
cost of land [` 88 lakhs × 272/113] 211.82
- Construction cost of residential building (` 100 222.95
lakhs x 272/122) 434.77
Long-term capital gains before exemption 328.23
Less: Exemption under section 54 110.00
The capital gain arising on transfer of a long-term
residential property shall not be chargeable to tax to the
extent such capital gain is invested in the purchase of

one residential house property in India one year before

or two years after the date of transfer of original asset.
Therefore, in the present case, the exemption would be
available only in respect of the residential house
acquired at Mumbai and not in respect of the residential
house in London
Less: Exemption under section 54EC 50.00
Amount deposited in capital gains bonds of NHAI within
six months from the date of transfer (i.e., on or before
09.12.2017) would qualify for exemption, to the
maximum extent of ` 50 lakhs.
Therefore, in the present case, exemption can be availed
only to the extent of ` 50 lakh out of ` 95 lakhs, even if
the both the investments are made on or before
09.12.2017 (i.e., within six months from the date of
transfer).
Long term capital gains chargeable to tax 168.23
Note: Since the residential house property was held by Mr. Arjun for more than 24 months
immediately preceding the date of its transfer, the resultant gain is a long-term capital gain.
7. Computation of amount chargeable to tax in hands of Mrs. Sonu for A.Y. 2018-19
Particulars `
(i) Cash gift of ` 2,10,000 received on the occasion of her marriage is not Nil
taxable, since gifts received by an individual on the occasion of
marriage is excluded from tax under section 56(2)(x), even if the same
are from non-relatives.
(ii) Even though father’s maternal uncle does not fall within the definition Nil
of “relative” under section 56(2)(x), gift of ` 45,000 received from him
by cheque is not chargeable to tax since the aggregate sum of money
received by Mrs. Sonu without consideration from non-relatives (other
than on the occasion of marriage) during the previous year 2017-18
does not exceed ` 50,000.
(iii) Purchase of vacant site for inadequate consideration on 12.2.2018 80,000
would attract the provisions of section 56(2)(x). Where any immovable
property is received for a consideration which is less than the stamp
duty value of the property by an amount exceeding ` 50,000, the
difference between the stamp duty value and consideration is
chargeable to tax in the hands of Individual. Therefore, in the given
case ` 80,000 (` 1,92,000 - ` 1,12,000) is taxable in the hands of
Mrs. Sonu.

(iv) Since shares are included in the definition of “property” and difference
between the purchase value and fair market value of shares is ` 58,000
(` 1,33,000 - ` 75,000) i.e. it exceeds ` 50,000, the difference would
be taxable under section 56(2)(x). 58,000
Amount chargeable to tax 1,38,000
8. Section 64(1)(iv) provides for the clubbing of income in the hands of the individual, if the
income earned is from the assets transferred directly or indirectly to the spouse of the
individual, otherwise than for adequate consideration or in connection with an agreement
to live apart. In this case, Mrs. Sharma received a gift of ` 3,00,000 from her husband
which she invested in her business. In a case where gift from spouse has been invested in
business, as per Explanation 3 to section 64(1), the income or loss from such business for
any previous year has to be apportioned between the spouses on the basis of the rati o of
their capital employed as on 1 st April of the relevant previous year. Accordingly, the income
to be included in the hands of Mr. Sharma for A.Y.2018-19 has to be computed as under:
Particulars Mrs. Sharma’s Capital
Capital Contribution Total
Contribution Out of gift
from
husband
` ` `
Capital as on 1.4.2016 5,00,000 -- 5,00,000
Investment on 02.04.2016 out of gift
received from her husband 3,00,000 3,00,000
5,00,000 3,00,000 8,00,000
Profit for F.Y. 2016-17 to be apportioned
on the basis of capital employed on the
first day of the previous year i.e., on
1.4.2016 2,00,000 2,00,000
Capital employed as on 1.4.2017 7,00,000 3,00,000 10,00,000
Profit for F.Y. 2017-18 to be apportioned
on the basis of capital employed as on
1.4.2017 (i.e., 7:3) 2,94,000 1,26,000 4,20,000
Therefore, the income to be included in the hands of Mr. Sharma for A.Y.2018-19 is
` 1,26,000.

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

Particulars ` `
Salaries
Income from salaries 2,20,000
Less: Loss from house property [See Note (i)] 2,00,000 20,000
Profits and gains of business or profession
Income from speculation business 30,000
Less: Loss from cloth business set off [See Note (iv)] 30,000 Nil
Capital gains
Long-term capital gains from sale of urban land 2,50,000
Less: Loss from cloth business set off [See Note (iv)] 2,10,000 40,000
Income from other sources
Income from betting 35,000
Gross Total Income 95,000
Less: Deduction under section 80C (life insurance 20,000
premium paid) [See Note (vi)]
Total income 75,000
Losses to be carried forward:
Particulars `
(1) Loss from house property (` 2,50,000 - ` 2,00,000) 50,000
(2) Loss from cloth business (` 2,40,000 - ` 30,000 - ` 2,10,000) Nil
(3) Loss from specified business covered by section 35AD 45,000
Notes:
(i) As per section 71(3A), loss from house property can be set-off against income under
any other head to the extent of ` 2,00,000 only. As per section 71B, balance loss not
set-off can be carried forward to the next year for set-off against income from house
property of that year.
(ii) Long-term capital gains from sale of listed shares in a recognized stock exchange on
which STT is paid at the time of acquisition and sale is exempt under section 10(38).
Loss from an exempt source cannot be set off against profits from a taxable source.
Therefore, long-term capital loss on sale of listed shares on which STT is paid cannot
be set-off against long-term capital gains from sale of urban land. Such loss cannot
also be carried forward for set-off in the subsequent years.

(iii) Loss from specified business covered by section 35AD can be set-off only against
profits and gains of any other specified business. Therefore, such loss cannot be set
off against any other income. The unabsorbed loss has to be carried forward for set -
off against profits and gains of any specified business in the following year(s).
(iv) Since inter-source set-off of losses is permissible as per section 70(1), loss from cloth
business to the extent of ` 30,000 can be set-off against income from speculation
business. The remaining business loss cannot be set off against salary income due
to restriction contained in section 71(2A). However, the remaining business loss of
` 2,10,000 (` 2,40,000 – ` 30,000) can be set-off against long-term capital gains of
` 2,50,000 from sale of urban land. Consequently, the taxable long-term capital gains
would be ` 40,000.
(v) Loss from card games can neither be set off against any other income, nor can it be
carried forward.
(vi) For providing deduction under Chapter VI-A, gross total income has to be reduced by
the amount of long-term capital gains and casual income. Therefore, the deduction
under section 80C in respect of life insurance premium paid has to be restricted to
` 20,000 [i.e., Gross Total Income of ` 1,05,000 – ` 40,000 (LTCG) – ` 45,000
(Casual income)].
(vii) Income from betting is chargeable to tax at a flat rate of 30% under section 115BB
and no expenditure or allowance can be allowed as deduction from such income, nor
can any loss be set-off against such income.
10. Computation of total income and tax payable by Mr. Raja for the A.Y. 2018-19
Particulars ` `
Gross total income including long term capital gain 8,00,000
Less: Long term capital gain 2,50,000
5,50,000
Less: Deductions under Chapter VI-A:
Under section 80C in respect of PPF deposit 1,40,000
Under section 80D (it is assumed that premium of ` 35,000 30,000
is paid by otherwise than by cash. The deduction would be
restricted to ` 30,000, since Mr. Raja is a resident senior
citizen)
Under section 80G (See Notes 1 & 2 below) 18,500
Under section 80TTA (See Note 3 below) 10,000 1,98,500
Total income (excluding long term capital gains) 3,51,500

Total income (including long term capital gains) 6,01,500

Tax on total income (including long-term capital gains of
` 2,50,000)
LTCG ` 2,50,000 x 20% 50,000
Balance total income ` 3,51,500: Tax @5% on ` 51,500 2,575
(` 3,51,500 – ` 3,00,000, being the basic exemption limit for 52,575
senior citizen)
Add: Education cess @2% and Secondary and higher 1,577
education cess @1%
Total tax liability 54,152
Total tax liability (rounded off) 54,150
Notes:
1. Computation of deduction under section 80G:
Particulars `
Gross total income (excluding long term capital gains) 5,50,000
Less: Deduction under section 80C, 80D & 80TTA 1,80,000
3,70,000
10% of the above 37,000
Contribution made to Public Charitable Trust 50,000
Lower of the two eligible for deduction under section 80G 37,000
Deduction under section 80G – 50% of ` 37,000 18,500
2. Deduction under section 80G is allowed only if amount is paid by any mode other
than cash, in case of amount exceeding ` 2,000. Therefore, the contribution made
to public charitable trust is eligible for deduction since it is made by way of an account
payee cheque.
3. Deduction of upto ` 10,000 under section 80TTA is allowed, inter alia, to an individual
assessee if gross total income includes interest income from deposits in a saving
account with bank. Since Gross Total Income of Mr. Raja includes interest income of
` 15,000 on savings bank deposit, he is eligible for deduction of ` 10,000 under
section 80TTA.

11. Computation of total income of Mr. Yusuf Khan for the A.Y. 2018-19
Particulars ` `
Income from house property
Arrears of rent received in respect of the Chennai
house taxable under section 25A [Note 1] 75,000
Less: Deduction @ 30% 22,500 52,500
Profits and gains of business or profession
(a) Own business [Note 3] 6,37,000
(b) Income from partnership firm [Note 2]
Interest on capital 2,40,000
[As per section 28(v), chargeable in the
hands of the partner only to the extent
allowable as deduction in the firm’s hand i.e.
@12%]
Salary of working partner (Since the same
has been fully allowed as deduction in the 90,000 3,30,000
hands of the firm)
Income from other sources
(a) LIC Jeevan Dhara pension 24,000
(b) Interest from bank FD (gross) 50,000 74,000
Gross Total Income 10,93,500
Less: Deductions under Chapter VIA
Section 80C
Life insurance premium for policy in the name of
major son qualifies for deduction even though he is
not dependent on the assessee. However, the
same has to be restricted to 10% of sum assured 20,000
i.e. 10% of ` 2,00,000.
Contribution to PPF 70,000 90,000
Section 80D
Mediclaim premium for father, a senior citizen 32,000
(qualifies for deduction, even though the father is
not dependent on the assessee, subject to a 30,000 1,20,000
maximum of ` 30,000)
Total Income 9,73,500

Notes:
(1) As per section 25A, any arrears of rent received will be chargeable to tax, after
deducting a sum equal to 30% of such arrears, as income from house property in the
year of receipt, whether or not the assessee is the owner of the house property.
(2) The income by way of interest on capital and salary of Mr. Yusuf Khan from the firm,
ABC & Co., in which he is a working partner, to the extent allowed as deduction in the
hands of the firm under section 40(b), has to be included in the business income of
the partner as per section 28(v). Accordingly, ` 3,30,000 [i.e., ` 90,000 (salary) +
` 2,40,000 (interest@12%)] should be included in his business income.
(3) Computation of income from own business
Particulars ` `
Net profit as per profit and loss account 4,32,000
Less: Items credited to profit and loss account not treated
as business income
Interest on bank FD (Net of TDS) 45,000
Agricultural income 60,000
Pension from LIC Jeevan Dhara 24,000 1,29,000
3,03,000
Add: Items debited to profit and loss account to be
disallowed/considered separately
Advance tax 70,000
Depreciation:
- Car 3,00,000
- Machinery 1,25,000
Car expenses disallowed for personal use 10,000
(` 50,000 x 1/5)
Salary to manager disallowed under section 40A(3)
since it is paid in cash and the same exceeds
` 10,000 15,000 5,20,000
8,23,000
Less: Depreciation (See Working Note below) 1,86,000
Income from business 6,37,000

Working Note:
Computation of depreciation allowable under the income-tax Act, 1961
Particulars ` `
On Car:
Depreciation @15% on 3,00,000 45,000
Less: 1/5th for personal use 9,000
Depreciation on Car allowable as deduction 36,000
On Machinery:
Opening WDV 6,50,000
Additions during the year (used for more
than 180 days)
- New Machinery purchased on 23.9.17 2,00,000
- Second hand machinery purchased on
1,25,000
12.4.17
Additions during the year (used for less than
3,00,000
180 days)
Normal Depreciation
Depreciation @15% on ` 6,50,000 97,500
[As per second proviso to section 43(1), the expenditure
for acquisition of asset, in respect of which payment to
a person in a day exceeds `10,000 has to be ignored
for computing actual cost, if such payment is made
otherwise than by way of A/c payee cheque/ bank draft
or ECS. Accordingly, depreciation on second hand
machinery purchased on 12.4.2017 and on new
machinery purchased on 23.9.2017 is not allowable
since the payment is made otherwise than by A/c payee
cheque/A/c payee draft/ ECS to a person in a day]
Depreciation @ 7.5% on ` 3,00,000 22,500
Total normal depreciation on machinery (A) 1,20,000
Where an asset acquired during the year is put to use

for less than 180 days, 50% of the rate of depreciation
is allowable. This restriction does not apply to assets
acquired in an earlier year.
Additional depreciation (B)
New machinery
Used for less than 180 days = 10% of ` 3,00,000 30,000

Total permissible depreciation on machinery (A) + 1,50,000

(B)
Depreciation allowable under section 32 1,86,000
12. Computation of interest payable under section 234B by Mr. Sachal

Particulars `
Tax on total income of ` 10,80,000 [Business income of ` 8,10,000 + 1,36,500
Income from other sources of ` 2,70,000]
Add: Education cess and SHEC@3% 4,095
Tax on total income 1,40,595
Less: Tax deducted at source 25,000
Assessed Tax 1,15,595
90% of assessed tax 1,04,036
Advance tax paid 1,03,000
Interest under section 234B is leviable since advance tax of ` 1,03,000
paid is less than ` 1,04,036, being 90% of assessed tax
Number of months from 1 st April, 2018 to 11th December, 2018, being 9
the date of processing of return
Interest under section 234B@1% per month or part of a month for 9 1,125
months on ` 12,500 [i.e., difference between assessed tax of
` 1,15,595 and advance tax of ` 1,03,000 paid, being ` 12,595 which
is rounded off to ` 12,500 under Rule 119A of Income-tax Rules, 1962]
Consequences for delay in filing return of income on or before the due date
Interest under section 234A and fee under section 234F would be attracted for filing return
of income beyond the due date specified under section 139(1).
Interest under section 234A
Since Mr. Sachal’s accounts are audited under section 44AB, the due date for filing of
return for A.Y. 2018-19, in his case, is 30.09.2018. Mr. Sachal has filed his return on
11.12.2018 i.e., interest under section 234A will be payable for 3 months (from 1.10.2018
to 11.12.2018) @ 1% per month or part of month on the amount of tax payable on the total
income, as reduced by TDS and advance tax paid i.e., ` 12,595 rounded off to ` 12,500
under Rule 119A of Income-tax Rules, 1962
Interest u/s 234A = ` 12,500 x 1% x 3 = ` 375
Fee for late filing of return under section 234F
Since Mr. Sachal has furnished his return of income after the due date but before
31.12.2018 and his total income exceeds ` 5 lakhs, a fee of ` 5,000 will be payable by
him.

13. Significant Differences between TDS and TCS

TDS TCS
(1) TDS is tax deduction at source TCS is tax collection at source.
(2) Person responsible for paying is Seller of certain goods or provider of
required to deduct tax at source at services is responsible for collecting tax at
the prescribed rate. source at the prescribed rate from the
buyer.
Person who grants licence or lease (in
respect of any parking lot, toll plaza, mine
or quarry) is responsible for collecting tax
at source at the prescribed rate from the
licensee or lessee, as the case may be.
(3) Generally, tax is required to be Generally, tax is required to be collected at
deducted at the time of credit to source at the time of debiting of the amount
the account of the payee or at the payable by the buyer of certain goods to the
time of payment, whichever is account of the buyer or at the time of
earlier. receipt of such amount from the said buyer,
whichever is earlier.
However, in certain cases, tax is However, in case of sale of motor vehicle of
required to be deducted at the time the value exceeding ` 10 lakhs, tax
of payment. For e.g., in case of collection at source is required at the time
payment of salary, payment in of receipt of sale consideration.
respect of life insurance policy
14. Since Ms. Geetha has income only under the heads “Salaries”, “Income from house
property” and “Income from other sources”, she does not fall under the category of a person
whose accounts are required to be audited under the Income-tax Act, 1961. Therefore, the
due date of filing return for A.Y.2018-19 under section 139(1), in her case, is 31 st July,
2018. Since Ms. Geetha had submitted her return only on 29.9.2018, the said return is a
belated return under section 139(4).
As per section 139(5), a return furnished under section 139(1) or a belated return u/s
139(4) can be revised, if she discovers any omission or wrong statement therein. Thus, a
belated return under section 139(4) can also be revised. Therefore, Ms. Geetha can revise
the return of income filed by her under section 139(4) in February 2019, to claim deduction
under section 80D, since the time limit for filing a revised return is upto the end of the
relevant assessment year, which is 31.03.2019.
However, she cannot revise return had she discovered this omission only on 02-04-2019,
since it is beyond 31.03.2019, being the end of A.Y. 2018-19.

SECTION B : INDIRECT TAXES
QUESTIONS
(1) All questions should be answered on the basis of the position of GST law as
amended up to 31.10.2017.
(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. Raman Ltd., a registered supplier in Mumbai (Maharashtra), has supplied goods to Sahil
Traders and Jaggi Motors Ltd. located in Ahmedabad (Gujarat) and Pune (Maharashtra)
respectively. Raman Ltd. has furnished the following details for the current month:
S. Particulars Sahil Jaggi
No. Traders Motors
(`) Ltd. (`)
(i) Price of the goods (excluding GST) 20,000 15,000
(ii) Packing charges 600
(iii) Commission 400
(iv) Weighment charges 1,000
(v) Discount for prompt payment (recorded in the 500
invoice)
Items given in points (ii) to (v) have not been considered while arriving at price of the
goods given in point (i) above.
Compute the GST liability [CGST & SGST or IGST, as the case may be] of Raman Ltd.
for the given month. Assume the rates of taxes to be as under:
Particulars Rate of tax
Central tax (CGST) 9%
State Tax (SGST) 9%
Integrated tax (IGST) 18%
Make suitable assumptions, wherever necessary.
Note: The supply made to Sahil Traders is an inter-State supply.
2. (i) Tirupati Traders, a registered supplier of goods, pays GST [CGST & SGST or IGST,
as the case may be] under regular scheme. It has furnished the following particulars
for a tax period:-

Particulars `
Value of intra-State supply of goods 12,000
Value of intra-State purchase of goods 10,000
Note:
(i) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively.
(ii) Both inward and outward supplies are exclusive of taxes, wherever applicable.
(iii) All the conditions necessary for availing the input tax credit have been fulfilled.
Compute the net GST payable by Tirupati Traders during the given tax period
assuming that there is no opening balance of input tax credit (ITC). Make suitable
assumptions wherever required.
(ii) Govind, a registered supplier, is engaged in providing services in the neighbouring
States from his registered office located in Mumbai. He has furnished the following
details in respect of the inward and outward supplies made during a tax period:-
Particulars (`)
Inter-State supply of services 1,80,000
Receipt of goods and services within the State 1,00,000
Assume the rates of taxes to be as under:-
Particulars Rate
CGST 9%
SGST 9%
IGST 18%
Note:
(i) Both inward and outward supplies are exclusive of taxes, wherever applicable.
(ii) All the conditions necessary for availing the input tax credit have been fulfilled.
Compute the net GST payable by Govind during the given tax period. Make
suitable assumptions if required.
3. Shipra Traders is a registered supplier of goods in Assam. It purchased goods valued at
` 10,000 from Kartik Suppliers located within the same State. Kartik Suppliers charged
CGST & SGST separately in its invoice. Subsequently, Shipra Traders sold goods
valuing ` 9,500 to Rabina Manufacturers located in Assam. 20% of the inputs purchased
are still lying in stock and there was no opening stock of goods. Rate of CGST and SGST
on supply and purchase of goods is 9% each. Calculate the net GST payable by Shipra
Traders and input tax credit (ITC) to be carried forward, if any.

4. Granites Textiles Ltd. purchased a needle detecting machine on 8th July, 2017 from
Makhija Engineering Works Ltd. for ` 10,00,000 (excluding GST) paying GST @ 18% on
the same. It availed the ITC of the GST paid on the machine and started using it for
manufacture of goods. The machine was sold on 22nd October, 2018 for ` 7,50,000
(excluding GST), as second hand machine to LT. Pvt. Ltd. The GST rate on supply of
machine is 18%.
State the action which Granites Textiles Ltd. is required to take, if any, in accordance
with the statutory GST provisions on the sale of the second-hand machine.
5. Royal Sweet Co., Delhi, a registered supplier, has furnished the details of the following
few transactions which took place in November, 20XX:
S. Date Particulars Date of Amount
No. invoice (`)
(i) 11.11.20XX Payment made to an advocate in 07.07.20XX 1,25,000
Delhi
(ii) 20.11.20XX Paid sitting fee to Director from 15.10.20XX 75,000
Haryana for meeting held in Delhi on
15.10.20XX
[Inter-State supply]
Assume the rates of taxes to be as under:-
Particulars Rate
CGST 9%
SGST 9%
IGST 18%
You are required to compute GST [CGST & SGST/IGST, as the case may be] payable for
the month of November, 20XX along with time of supply of the aforementioned activities.
6. Sahab Sales, an air-conditioner dealer in Janakpuri, Delhi, needs 4 air-conditioners for
his newly constructed house in Safdarjung Enclave. Therefore, he transfers 4 air-
conditioners [on which ITC has already been availed by it] from its stock, for the said
purpose. Examine whether the said activity amounts to supply under section 7 of the
CGST Act, 2017.
Further, a Janakpuri resident, Aakash, approached Sahab Sales. He sold an air-
conditioner to Sahab Sales for ` 5,000. Aakash had bought the said air-conditioner six
months before, for his residence. Does sale of the air conditioner by Aakash to Sahab
Sales amount to supply under section 7 of the CGST Act, 2017?
7. Pure Oils, Delhi has started the supply of machine oils and high speed diesel in the
month of April, 20XX. The following details have been furnished by it for the said month: -

Sl. Particulars `*
No.
(i) Supply of machine oils in Delhi 2,00,000
(ii) Supply of high speed diesel in Delhi 4,00,000
(iii) Supply made through Fortis Lubricants - an agent of Pure Oils in 3,75,000
Delhi
(iv) Supply made by Pure Oils from its branch located in Punjab 1,80,000
*excluding GST
Determine whether Pure Oils is liable for registration. Will your answer change, if Pure
Oils supplies machine oils amounting to ` 2,50,000 from its branch located in Himachal
Pradesh in addition to the above-mentioned supplies?
8. Royal Fashions, a registered supplier of designer outfits in Delhi, decides to exhibit its
products in a Fashion Show being organised at Hotel Park Royal, Delhi on 4th January,
20XX. For the occasion, it gets the makeover of its models done by Aura Beauty
Services Ltd., Ashok Vihar, for which a consideration is ` 5,00,000 (excluding GST) has
been charged. Aura Beauty Services Ltd. issued a duly signed tax invoice on 10th
February, 20XX showing the lumpsum amount of ` 5,90,000 inclusive of CGST and
SGST @ 9% each. Royal Fashions made the payment the very next day. Answer the
following questions:
(i) Examine whether the tax invoice has been issued within the time limit prescribed
under law?
(ii) Tax consultant of Royal Fashions objected to the invoice raised suggesting that the
amount of tax charged in respect of the taxable supply should be shown separately
in the invoice raised by Aura Beauty Services Ltd. However, Aura Beauty Services
Ltd. contended that there is no mandatory requirement of showing tax component
separately in the invoice. You are required to examine the validity of the objection
raised by tax consultant of Royal Fashions?
SUGGESTED ANSWERS/HINTS
1. Computation of GST liability

S. Particulars Sahil Traders Jaggi Motors
No. (`) Ltd. (`)
(i) Price of goods 20,000 15,000
(ii) Add: Packing charges (Note-1) 600
(iii) Add: Commission (Note-1) 400
(iv) Add: Weighment charges (Note-1) - 1,000

(v) Less: Discount for prompt payment

(Note-2) - 500
Value of taxable supply 21,000 15,500
IGST payable @ 18% (Note-3) 3,780
CGST payable @ 9% (Note-4) 1,395
SGST payable @ 9% (Note-4) 1,395
Notes:
1. Incidental expenses, including commission and packing, charged by supplier to
recipient of supply is includible in the value of supply. Weighment charges are also
incidental expenses, hence includible in the value of supply [Section 15 of the
CGST Act, 2017].
2. Since discount is known at the time of supply, it is deductible from the value in
terms of section 15 of the CGST Act, 2017.
3. Since supply made to Sahil Traders is an inter-State supply, IGST is payable in
terms of section 5 of the IGST Act, 2017.
4. Since supply made to Jaggi Motors Ltd. is an intra-State supply, CGST & SGST is
payable on the same.
2. (i) Computation of net GST payable
Particulars CGST (`) SGST (`)
GST payable on intra-State supply of goods 1,080 1,080
[Being an intra-State supply, CGST and (`12,000 × 9%) (`12,000 × 9%)
SGST is payable on the same]
Less: Input tax credit (ITC) on intra-State 900 900
purchase of goods (`10,000 × 9%) (`10,000 × 9%)
[CGST and SGST paid on the intra-State
purchases of goods]
Net GST payable 180 180
(ii) Computation of net GST payable by Govind

Particulars `
IGST @ 18% payable on inter-State supply of services 32,400
[Being an inter-State supply, IGST is payable on the same [1,80,000 × 18%]
in terms of section 5 of the IGST Act, 2017]
Less: ITC of CGST @ 9% paid on intra-State receipt of 9,000
goods and services

[Cross utilisation of CGST towards IGST] [1,00,000 × 9%]

Less: ITC of SGST @ 9% paid on intra-State receipt of 9,000
goods and services [1,00,000 × 9%]
[Cross utilisation of SGST towards IGST]
Net GST payable in cash 14,400
Note:
1. CGST shall first be utilised towards payment of CGST and the amount
remaining, if any, be utilised towards the payment of IGST [Section 49 of the
CGST Act, 2017].
2. SGST shall first be utilised towards payment of SGST and the amount
remaining, if any, may be utilised towards the payment of IGST [Section 49 of
the CGST Act, 2017].
3. Computation of net GST payable by Shipra Traders
Particulars CGST @ 9% SGST @ 9%
(`) (`)
GST payable on intra-State supply of goods 855 855
[Being an intra-State supply, CGST and CGST is [9,500 × 9%] [9,500 × 9%]
payable on the same]
Less: ITC on intra-State purchase of goods 900 900
[ITC of CGST and SGST paid on intra-State [10,000 × 9%] [10,000 × 9%]
purchase is available in full, even if some inputs
are lying in stock]
Net GST payable Nil Nil
Input tax credit carried forward in Electronic
Credit Ledger 45 45
4. Section 18 of the CGST Act, 2017 read with the CGST Rules, 2017 provides that if
capital goods or plant and machinery on which input tax credit has been taken are
supplied outward by the registered person, he must pay an amount t hat is the higher of
the following:
(a) input tax credit taken on such goods reduced by 5% per quarter of a year or part
thereof from the date of issue of invoice for such goods (i.e., input tax credit
pertaining to remaining useful life of the capital goods), or
(b) tax on transaction value.
Accordingly, the amount payable on supply of needle detecting machine shall be
computed as follows:

Particulars ` `
Input tax credit taken on the machine (` 10,00,000 × 18%) 1,80,000
Less: Input tax credit to be reversed @ 5% per quarter for
the period of use of machine
(i) For the year 2017-18 = (` 1,80,000 × 5%) × 3 quarters 27,000
(ii) For the year 2018-19 = (` 1,80,000 × 5%) × 3 quarters 27,000 54,000
Amount required to be paid (A) 1,26,000
Duty leviable on transaction value (` 7,50,000 × 18%) (B) 1,35,000
Amount payable towards disposal of machine is higher of 1,35,000
(A) and (B)
5. Computation of GST payable for the month of November, 20XX
S. Particulars Time of CGST SGST IGST Interest
No. supply of (`) (`) (`) (`)
services
(i) Services from an 06.09.20XX 11,250 11,250 - 244
advocate in Delhi [Note-1 & 3] [Note-4]
(ii) Director’s Sitting 20.11.20XX - - 13,500
fee [Note-2 & 3]
Notes:-
1. Services supplied by an individual advocate to any business entity located in the
taxable territory is a notified service on which tax is payable on reverse charge
basis by the recipient of services.
2. Services supplied by a director of a company to the said company is a notified
service on which tax is payable on reverse charge basis by the recipient of services.
3. As per section 13 of the CGST Act, 2017, the time of supply of services in case of
reverse charge is earliest of the following:-
(a) Date of payment as entered in the books of account of the recipient or the date
on which the payment is debited to his bank account, whichever is earlier, or
(b) Date immediately following 60 days since the date of issue of invoice.
Provisions of time of supply as provided under section 13 of the CGST Act are also
applicable for inter-State supply vide section 20 of the IGST Act.
In view of the aforesaid provisions, the time of supply and due date for payment of
tax in the given cases would be determined as under:

(i) Time of supply of the services is the date immediately following 60 days since
the date of issue of invoice, i.e. 06.09.20XX. The due date for payment of tax
is 20.10.20XX with return of September, 20XX.
(ii) Time of supply of service is 20.11.20XX and due date for payment of tax is
20.12.20XX with return of December, 20XX.
4. The due date for payment of tax in case (i) is 20.10.20XX with return of September,
20XX. However, the payment of tax is actually made on 11.11.20XX. Thus,
payment of tax is delayed by 22 days.
In case of delayed payment of tax, interest @ 18% per annum is payable for the
period for which the tax remains unpaid starting from the day succeeding the day on
which such tax was due to be paid [Section 50 of the CGST Act, 2017 read with
Notification No. 13/2017 CT dated 28.06.2017]. In view of the same, in the given
case, interest payable would be as follows:
Amount of interest payable = ` 22,500 × 18% × 22/365 = ` 244 (rounded off)
6. Section 7 of the CGST Act, 2017 stipulates that in order to qualify as supply:
(a) Supply should be of goods and/or services.
(b) Supply should be made for a consideration.
(c) Supply should be made in the course or furtherance of business.
Further, Schedule I of the CGST Act, 2017 illustrates the activities to be treated as
supply even if made without consideration. One such activity is permanent transfer or
disposal of business assets where input tax credit has been availed on such assets , i.e.
said activity is to be treated as supply even if made without consideration. In view of said
provisions, permanent transfer of air conditioners by Sahab Sales from its stock for
personal use at its residence, though without consideration, would amount to supply.
However, sale of air-conditioner by Aakash to Sahab Sales will not qualify as supply
under section 7 of the CGST Act, 2017 as although it is made for a consideration, but its
not in the course or furtherance of business.
7. As per section 22 of the CGST Act, 2017, a supplier is liable to be registered in the
State/Union territory from where he makes a taxable supply of goods or services or both,
if his aggregate turnover in a financial year exceeds ` 20 lakh.
However, if such taxable supplies are made from any of the specified special category
States, namely, States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand, he shall be liable to be
registered if his aggregate turnover in a financial year exceeds ` 10 lakh.
As per section 2(6) of the CGST Act, 2017, aggregate turnover includes the aggregate
value of:
(i) all taxable supplies,

(ii) all exempt supplies,

(iii) exports of goods and/or services and
(iv) all inter-State supplies of persons having the same PAN.
The above is computed on all India basis. Further, the aggregate turnover excludes
central tax, State tax, Union territory tax, integrated tax and cess. Moreover, the value of
inward supplies on which tax is payable under reverse charge is not taken into account
for calculation of ‘aggregate turnover’.
Further, the explanation to section 22 provides that the expression “aggregate turnover”
shall include all supplies made by the taxable person, whether on his own account or
made on behalf of all his principals.
Section 9 of the CGST Act, 2017 provides that CGST is not leviable on five petroleum
products i.e. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and
aviation turbine fuel. As per section 2(47) of the CGST Act, 2017, exempt supply
includes non-taxable supply. Thus, supply of high speed diesel in Delhi, being a non-
taxable supply, is an exempt supply and is, therefore, includible while computing the
aggregate turnover.
In the backdrop of the above-mentioned discussion, the aggregate turnover for the month
of April, 20XX is computed as under:
S. Particulars Amount
No. (in `)
(i) Supply of machine oils in Delhi 2,00,000
(ii) Add: Supply of high speed diesel in Delhi 4,00,000
(iii) Add: Supply made through Fortis Lubricants - an agent of Pure -
Oils in Delhi
(iv) Add: Supply made by Pure Oils from its branch located in Punjab 1,80,000
Aggregate Turnover 7,80,000
Since the aggregate turnover does not exceed ` 20 lakh, Pure Oils is not liable to be
registered.
If Pure Oils made supply of machine oils amounting to ` 2,50,000 from its branch in
Himachal Pradesh in addition to the above supply, then threshold limit of registration will
be reduced to ` 10 lakh as Himachal Pradesh is one of the specified Special Category
States.
Aggregate Turnover in that case would be ` 7,80,000 + ` 2,50,000 = ` 10,30,000. So, if
Pure Oils supplies machine oils amounting to `2,50,000 from its branch in Himachal
Pradesh, then it is liable to be registered.

8. (i) As per section 31 of the CGST Act, 2017 read with the CGST Rules, 2017, in case of
taxable supply of services, invoices should be issued before or after the provision of
service, but within a period of 30 days [45 days in case of insurer/ banking company
or financial institutions including NBFCs] from the date of supply of service.
In view of said provisions, in the present case, the tax invoice should have been
issued in the prescribed time limit of 30 days from the date of supply of service i.e.
upto 03.02.20XX. However, the invoice has been issued on 10.02.20XX.
In such a case, the time of supply as per section 13 of the CGST Act, 2017 would
be 04.01.20XX i.e. earliest of the following:
(a) Date of provision of service (04.01.20XX)
(b) Date of receipt of payment (11.02.20XX)
(ii) Section 31 of the CGST Act, 2017 read with the CGST Rules, 2017, inter alia,
provides that tax invoice shall contain the following particulars-
(a) Total value of supply of goods or services or both;
(b) Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);
(c) Amount of tax charged in respect of taxable goods or services (central tax,
State tax, integrated tax, Union territory tax or cess);
The objection raised by the tax consultant of Royal Fashions suggesting that the
amount of tax charged in respect of the taxable supply should be shown separately
in the invoice raised by Aura Beauty Services Ltd., is valid in law. In the present
case, the tax amount has not been shown separately in the invoice.
Note: GST law is in its nascent stage and has been subject to frequent changes.
Although many clarifications have been issued in the last six months by way of
FAQs or otherwise, many issues continue to arise on account of varying
interpretations on several of its provisions. Therefore, alternate answers may be
possible for the above questions depending upon the view taken.

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PAPER – 1: ACCOUNTING

PART – I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY

PART – II: QUESTIONS AND ANSWERS

Financial Statements of Companies

© The Institute of Chartered Accountants of India

Patterns 3,75,000 Calls in Arrear @ ` 2 per

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Redemption of Preference Shares

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Insurance Claim for loss of stock

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Manish 1,50,000 Machinery 65,000

© The Institute of Chartered Accountants of India

Chand’s Loan 33,000 Investments 18,000

© 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

(b) Reserves and Surplus 2 59,586

© The Institute of Chartered Accountants of India

2. Reserves and Surplus

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Rate, Taxes and Insurance 55,000

© The Institute of Chartered Accountants of India

Net cash used in financing activities (25)

© The Institute of Chartered Accountants of India

Depreciation 1:3 700 2,100

© The Institute of Chartered Accountants of India

Extract of Balance Sheet as at 30 th April, 20X1 (after bonus issue)

© The Institute of Chartered Accountants of India

(Being the amount paid on redemption of

© The Institute of Chartered Accountants of India

” ” Sundry Debenture holders Dr. 6,00,000

8. Books of Alpha Ltd.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

To Gross profit 5,20,000

Memorandum Trading A/c for the period from 1-4-2016 to 22-01-2017

Estimated stock in hand on the date of fire was ` 3,72,150.

© The Institute of Chartered Accountants of India

(ii) In the books of Srikumar

11. Trading and Profit and Loss Account

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To Telephone 1,050 630 420

Balance Sheet as at 31.03.2017

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

14. (a) Necessary Ledger Accounts in the books of Partnership Firm

ABC Ltd. Account

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To Realization A/c 13,000 - - By Chand’s Loan - - 33,000

*Alternatively, Investment Fluctuation Fund Account may be transferred to Realization

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