CMA Student E-Bulletin May 2024

CMA E-Bulletin
STUDENT
VOL 09 I NO. 05 I MAY 2024
An Initiative of Directorate of Studies

About the Institute
T
he Institute of Cost Accountants of India (ICMAI) is a statutory body set up under an Act of
Parliament in the year 1959. The Institute as a part of its obligation, regulates the profession of Cost
and Management Accountancy, enrols students for its courses, provides coaching facilities to the
students, organizes professional development programmes for the members and undertakes research
programmes in the eld of Cost and Management Accountancy. The Institute pursues the vision of cost
competitiveness, cost management, efcient use of resources and structured approach to cost accounting
as the key drivers of the profession. In today’s world, the profession of conventional accounting and
auditing has taken a back seat and cost and management accountants increasingly contributing towards
the management of scarce resources like funds, land and apply strategic decisions. This has opened up
further scope and tremendous opportunities for cost accountants in India and abroad.
The Institute is headquartered in Kolkata having four Regional Councils at Kolkata, Delhi, Mumbai and
Chennai, 117 Chapters in India and 11 Overseas Centres. The Institute is the largest Cost & Management
Accounting body in the world with about 1,00,000 qualied CMAs and over 5,00,000 students pursuing the
CMA Course. The Institute is a founder member of International Federation of Accountants (IFAC),
Confederation of Asian and Pacic Accountants (CAPA) and South Asian Federation of Accountants
(SAFA). The Institute is also an Associate Member of ASEAN Federation of Accountants (AFA) and member
in the Council of International Integrated Reporting Council (IIRC), UK.
Vision Statement
“The Institute of Cost Accountants of India would be the preferred source of resources
and professionals for the nancial leadership of enterprises globally.”
Mission Statement
“The CMA Professionals would ethically drive enterprises globally by creating value
to stakeholders in the socio-economic context through competencies drawn
from the integration of strategy, management and accounting.”
Institute Motto
From ignorance, lead me to truth
From darkness, lead me to light
From death, lead me to immortality
Peace, Peace, Peace
Disclaimer:
Copyright of this CMA Student E-Bulletin is reserved by the Institute of Cost Accountants of India and prior permission from the
Institute is necessary for reproduction of the whole or any part thereof. The write ups published in good faith on the basis of
declaration furnished by the authors.
Copyright © 2024 by The Institute of Cost Accountants of India
2 CMA Student E-Bulletin - April 2024 www.icmai.in

CMA E-Bulletin
STUDENT
VOL 09 I NO. 05 I MAY 2024
www.icmai.in CMA Student E-Bulletin - April 2024 3

CONTENTS
CMA E-Bulletin
STUDENT
VOL 09 I NO. 05 I MAY 2024
Chief Patron
CMA Ashwin G. Dalwadi, President, ICMAI CMA E-Bulletin
STUDENT
VOL 09 I NO. 05 I MAY 2024
Patron
CMA Bibhuti Bhusan Nayak, Vice President, ICMAI
Editorial Board Members

CMA Vinayaranjan P.
CMA Neeraj Dhananjay Joshi
CMA Manoj Kumar Anand
CMA Navneet Kumar Jain
CMA Avijit Goswami
CMA (Dr.) V. Murali
06 - Chairman’s Communique
CMA T.C.A. Srinivasa Prasad
(Training & Educational Facilities Committee)
CMA (Dr.) Ashish P. Thatte
07 - 24 - CMA Foundation Course

Chief Editor
Syllabus 2022
CMA (Dr.) Kaushik Banerjee, Secretary, ICMAI
(Paper 1 - 4)
Managing Editor
25 - 70 - CMA Intermediate Course
CMA (Dr.) Debaprosanna Nandy, Secretary
Syllabus 2022
Training & Educational Facilities Committee
Group I (Paper 5 - 8) & Group II (Paper 9 - 12)
Editorial Team
71 - 114 - CMA Final Course
CMA Avijit Mondal, Joint Director (Studies)
Syllabus 2022
CMA Samarpita Ghosal, Sr. Officer (Studies)
Group III (Paper 13-16) & Group IV (Paper 17-19)
CMA Susmita Ghosh, Sr. Officer (Studies)
Electives (Paper 20A - 20C)
Editorial Office
The Institute of Cost Accountants of India
CMA Bhawan
12, Sudder Street, KolKata - 700016
studies.ebulletin@icmai.in
www.icmai.in CMA Student E-Bulletin - April 2024 5

FROM THE DESK OF
CHAIRMAN
Training & Educational Facilities Committee
CMA Vinayaranjan P.
regularly in a new format with attractive
features to keep our students informed and
engaged.
8. Online Workshops: Various online workshops
such as Power BI, SAP S/4HANA, and Advanced
Excel have been organized to support Final
Level students in their studies and professional
ICMAI’s Latest Initiatives in development.
Education and Training 9. Webinar on ‘Success Mantra for CMA Exam’:
To assist students in preparing for CMA
Dear Students and Members,
I
examinations, a webinar on ‘Success Mantra
am pleased to share the latest updates and for CMA Exam’ was conducted by the Training
initiatives undertaken by the Training & & Educational Facilities Committee.
Educational Facilities Committee to enhance 10. CMA Faculty Lounge: We are excited to
the learning experience for our students under introduce the CMA Faculty Lounge, a vibrant
the Syllabus 2022: and dynamic space where faculty members,
1. Model Questions with Answers (MQPs): For educators, and industry experts can share
the June 2024 term of examinations, MQPs for insights, best practices, and resources related to
all levels (Foundation, Intermediate, and Final) management accounting and allied areas. This
have been uploaded on the Institute’s website. initiative aims to foster a culture of continuous
These resources are designed to aid students learning and innovation, empowering our
in their exam preparation. faculty members to stay abreast of the latest
2. MCQ-Based Online Portal: The Directorate trends, developments, and advancements in
of Studies has developed an exclusive MCQ- professional education.
based online portal for all levels. This portal 11. ICMAI & NPTEL Initiative: ICMAI has started a
is intended to help students perform smoothly new initiative with NPTEL (National Programme
in their examinations. on Technology Enhanced Learning), which is
3. Online Classes: Regular online classes for all a joint venture of the IITs and IISc, funded by
papers of Foundation, Intermediate, and Final the Ministry of Education (MoE), Government
levels are being conducted by the Directorate of India. NPTEL is the largest online repository
of Studies. Reputed subject matter experts have in the world of courses in engineering, basic
been engaged to deliver these classes. sciences, and selected humanities and social
4. Recorded Classes: Recorded sessions are sciences subjects. IIT Madras through NPTEL
available on our YouTube channel, with links will carry out this initiative with ICMAI to
provided on the Institute’s website to facilitate promote Cost & Management Accounting
student access. education across the Globe through skill
enhancement courses.
5. Updated Study Materials: Students have
been provided with updated study materials. We are committed to providing the best possible
Applicable amendments are uploaded as resources and support to our students, ensuring a
supplementary resources from time to time to robust and enriching educational journey.
ensure thorough exam preparation. Best wishes for June 2024 examinations.
6. New TV Channel: ICMAI has launched a Warm regards,
new TV channel exclusively for the students
of the Institute in association with JIO TV. The
Directorate of Studies has been regularly
providing selective online lecture sessions in
this platform to facilitate the students.
7. CMA Student E-Bulletin: Since January 2024, CMA Vinayaranjan P.
the CMA Student E-Bulletin has been published June 04, 2024

VOL 09 I NO. 05
FOUNDATION
CMA
FOUNDATION
COURSE
Syllabus 2022
www.icmai.in CMA Student E-Bulletin - May 2024 7

FOUNDATION VOL 09 I NO. 05
Topic
Fundamentals of
Business Laws -
Module 3: Sale of
Goods Act, 1930 FOUNDATION
Business Paper-1
Communication -
Fundamentals of
Module 5: Business Business Laws and
Communication Business
Communication
(FBLC)
8 CMA Student E-Bulletin - May 2024 www.icmai.in

VOL 09 I NO. 05
FOUNDATION
SECTION – A: FUNDAMENTALS OF BUSINESS LAWS
MULTIPLE CHOICE QUESTIONS (MCQ)
1. The terms ‘condition’ and ‘warranty’ are 7. Buyer can suit for non-delivery u/s___ of Sale of
respectively defined in section ___ and ____ of the Goods Act, 1930.
Sale of Goods Act, 1930.
(A) 57
(A) 12(1), 12(2)
(B) 59
(B) 12 (2), 12(3)
(C) 58
(C) 12 (3), 12(4)
(D) 60
(D) 7 and 8
8. The Sale of Goods Act, 1930 relates to—
2. The loss of destruction of goods falls on___ in case
of sale, and on___ in case of agreement to sell. (A) Movable goods only
(A) buyer, seller (B) immovable goods only
(B) seller, buyer (C) both A and B
(C) auctioner, agent (D) all goods except gold
(D) none of them 9. ‘Contract of sale’ is defined in Section 4(1) of the
3. The doctrine of caveat emptor is given in section Sale of Goods Act, and it includes—
___, and it implies ______. (A) Sale
(A) 15, let the seller beware (B) agreement to sell
(B) 16, let the buyer beware (C) barter
(C) 18, let seller take care of buyer’s interest
(D) both A and B
(D) 17, let the buyer claim damages
10. A contract for the sale of ‘future goods’ is—
4. The term ‘Buyer’ defined in section ___ of the Sale
(A) Sale
of Goods Act, 1930.
(A) 2(1) (B) agreement to sell
(B) 2 (2) (C) sale on approval
(C) 2 (3) (D) hire-purchase agreement
(D) 4 11. The term, ‘property’, as used in the Sale of Goods

Act, means—
5. A contract for the sale of ‘future goods’ is-
(A) Possession
(A) sale
(B) subject matter of sale
(B) agreement to sell
(C) ownership
(C) sale on approval
(D) hire purchase agreement (D) possession and ownership
6. Section _____ of the Sale of Goods Act defines 12. For the validity of a contract of sale, there must be
delivery. transfer of—
(A) 2(3) (A) custody of goods to the buyer.

(B) 2(2) (B) property in the goods to the buyer.
(C) 2(4) (C) possession of goods to the buyer.
(D) 2(5) (D) possession and custody of goods to the buyer.

13. Gourav agrees to sell his old laptop valued at Rs. (C) 7 & 8
20,000 to Santosh, a dealer, in exchange for a new
(D) 9 & 10
laptop and agrees to pay the difference is cash, it
is— 18. If the price of goods is not determined by the parties
(A) barter in any manner, then the contract of sale is and the
buyer shall pay the .
(B) exchange
(A) Voidable, token price
(C) contract of sale
(B) valid, reasonable price
(D) invalid contract
14. The modes of making a contract of sale are provided (C) void, no price
in section____ (D) unlawful, damages
(A) 5(1) 19. Which of the following statements is not true as per
(B) 6(1) Sale of Goods Act, 1930?
(C) 7(1) (A) ‘Earnest money’ is liable to be forfeited.
(D) 8(1) (B) ‘Part-payment’ cannot be forfeited.
15. Which of the following statements is false? (C) Were the third party fails to fix the price in a
(A) A contract of sale which provides for the contract of sale, the contract of sale becomes
payment of price and delivery of goods in void.
installment is a valid contract of sale.
(D) The Sale of Goods Act, 1930 is validly
(B) A contract of sale may be made partly in applicable to contract for work and skill.
writing and partly by words of mouth.
20. In Sale of Goods Act, 1930, ‘Goods’ defined under
(C) ‘Money’ and ‘actionable claims’ are included in
section—
the legal definition of goods.
(A) 2(7)
(D) A contract for the sale of ‘unascertained goods’,
is an agreement to sell. (B) 2(10)
16. Which of the following statements is not true? (C) 2(8)
(A) The goods identified at the time of contract of (D) 2(9)
sale are known as specific goods.
21. Essential elements for a valid contract of sale -
(B) The goods which are identified after the
formation of contract of sale, are known as (A) Property
ascertained goods. (B) Movable goods
(C) A contract of sale which provides that the buyer
(C) Parties
shall pay the price fixed by some third party, is
valid. (D) all of the above
(D) The things attached to or forming part of land 22. The term ‘Seller’ is defined in section___ of the
which cannot be severed from land are included Sale of Goods Act, 1930.
in the legal definition of goods.
(A) Section 2(1)
17. The effects of destruction of goods are given in
(B) Section 2(12)
section_____
(A) 6 & 7 (C) Section 2(3)
(B) 5 & 6 (D) Section 2(13)

VOL 09 I NO. 05
FOUNDATION
23. In case of breach of condition, the buyer can reject 24. ‘Sale’ defined in Sale of Goods Act, 1930 in Section
the goods, but in case of breach of warranty, the
(A) 4(1).
buyer—
(A) has no remedy (B) 2(2).
(B) can claim damages only (C) 2(4).
(C) can get the seller arrested
(D) 4(3).
(D) can either reject goods or claim damages
SECTION – B: BUSINESS COMMUNICATION

1. ______Communication originates at a lower level 4. Which business communication usage provides a
and flows to a higher level. bird’s eye view on a matter?
(A) Upward (A) Speech
(B) Diagonal (B) Group Discussion
(C) Downward (C) Debate
(D) Digital (D) Presentation
2. Communication among employees at the same
5. How many types of communication take place in
level in the organizational structure is called
an organisation?
_______ Communication
(A) 5
(A) Grapevine
(B) 1
(B) Diagonal
(C) 3
(C) Lateral
(D) Upward (D) 4
3. Which of the following should be avoided in the 6. In which business communication, a speaker has to
Group discussion? clearly speak for or against a topic?
(A) Positive body language (A) Presentation
(B) Leadership initiative (B) Debate
(C) False statements (C) Speech

(D) Confidence (D) Group discussion
ANSWER:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
B A B A B B A A D B C B C A C
16 17 18 19 20 21 22 23 24
D C B D A D D B D
1 2 3 4 5 6
A C C D A B

Topic
Fundamentals
of Financial
Accounting -
Module 3:
Preparation of
Final Accounts
Fundamentals of FOUNDATION
Cost Accounting -
Paper-2
Module 4:
Fundamentals of Fundamentals of
Cost Accounting Financial and Cost
Accounting (FFCA)

VOL 09 I NO. 05
FOUNDATION
Find out the correct answer from the alternatives given - 7. Which one of the following is not a Current Asset /
Liability
1. Trading Account is a
a. Nominal Account a. Furniture
b. Real Account b. Debtors
c. Personal Account c. Creditors
d. Debits are Nominal Account and Credits are d. Bank Balance

Personal Account 8. Goods drawn by proprietor for personal use , will
2. Capital Fund is actually the Capital of a be treated as
a. Non-profit seeking Organization a. Capital contribution
b. Non-trading Organization b. Drawings
c. Not related to Sole Proprietorship c. Sales

d. Related to body Corporate d. Stock
3. Rent paid equally to Plant and Office, will be 9. High expenditure on new product launching to be
debited to treated as
a. Equally to Manufacturing and Trading Account a. Capital Expenditure
b. Equally to Trading Account and Profit & Loss b. Deferred Revenue Expenditure
Account
c. Revenue Expenditure
c. Profit and Loss Account
d. Added with product cost
d. Equally to Manufacturing and Profit & Loss
Account 10. General Reserve is debited to
4. Amortization is related to a. Trading Account
a. Tangible Assets b. Profit & Loss Account
b. Intangible Assets c. Profit & Loss Appropriation Account
c. Both Tangible and Intangible Assets d. Balance Sheet
d. Fixed Assets 11. Only Provision Account to have a Debit Balance

with respect to
5. Closing Inventory is valued at
a. Assets
a. Cost or NRV whichever Lower
b. Liabilities
b. Cost minus abnormal loss
c. Expenses
c. Cost minus normal loss
d. Incomes
d. Cost and valuation price
6. Trading Account is debited/credited for 12. Accrued Income means
a. Interest Received a. Income earned but not received
b. Wages b. Income received in advance
c. Sales Commission c. Arrear Income
d. None of the above d. Arrear Income received

13. Interest on Drawings is 19. Interest worth `3,000 received @ 8% for the
calendar year. What is the value of Investment?
a. Expense for the Business
a. `37,500
b. Gain for the Business
b. `24,000
c. Loss for the Business
c. `40,500
d. Profit for the Business
d. `30,000
14. Gross Profit of a Firm `45,000, expenses debited
to Profit & Loss Account `23,000, Commission of 20. Nature of Income and Expenditure Account is
10% on Net Profit after charging such Commission
a. Real
is to be paid to the Manager. What will be the Net
Profit? b. Nominal
a. `19,700 c. Personal
b. `20,000 d. Quasi-nominal
c. `24,300 21. Subscription payable by each member of a Club @
`100/-. Subscription receivable from members on
d. `65,700
closing date `3,000/-. Subscription considered in
15. Opening Stock `20,000; Purchases `80,000; Sales ‘Income Expenditure Account’ is
`1,00,000; Gross Profit on Sales 20%. Ascertain
a. `53,000
the value of Closing Stock.
b. `47,000
a. `10,000
c. `50,000
b. `20,000
d. `3,000
c. `15,000
22. Stock is valued at …………….. in Cost Account
d. `25,000
a. Cost
16. Opening Stock `10,000; Closing Stock `20,000;
b. Transfer Price to Sales Dept.
Sales `47,500; Sales Returns `2,500. Gross Profit
`9,000. What will be the Gross Profit ratio? c. Work In Progress
a. 20% d. Net Value Realizable
b. 30% 23. Imputed Costs are …………
c. 40% a. Notional Cost
d. 50% b. Actual Cost
17. Accrued Income shown in Balance Sheet as c. Cash Cost
a. Asset d. Irrelevant Cost
b. Liabilities 24. Research Cost should not include
c. Loss a. New Product Development
d. Profit b. Quality Improvement drive
18. Find ‘opening Capital Fund’ from the following c. Improved Machinery Procurement
information:
d. Cost of Scientists
Assets `22,000; Liabilities `4,800 and Deficit
`1,800 25. Process Cost is applicable in
a. `15,400 a. Pharmaceutical Industry
b. `17,800 b. Printing Industry
c. `18,500 c. Projects
d. `19,000 d. Piling for Construction

VOL 09 I NO. 05
FOUNDATION
26. Carriage outward is associated with c. `16,000
a. Return of Goods d. `40,000
b. Sale of Goods 29. Direct Material cost is part of
c. Part of prime cost a. Prime Cost
d. None of the above b. Cost of Production
27. A Tourist Bus Company’s Cost Unit is- c. Cost of Sales
a. Per Mt. per Km. d. Overhead
b. Passenger per Km. 30. A Supervisor looks after 20 Machines on a shop-
floor. Salary of the Supervisor is `1,00,000 per
c. Trips made
month. What will be cost of Supervision per
d. Petrol consumption Machine annually.
28. Cost of Production of 1000 Units is `20,000, Units a. `5,000
sold 800 Units. What is the cost of closing Stock?
b. `60,000
a. `4,000
c. `12,00,000
b. `8,000
d. `12,000
ANSWER
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
a a d b a b a b b c b a b b b
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
a a d a b c a a c a b b a a b

Topic
Fundamentals
of Business
Mathematics -
Module 2:
Algebra
Fundamentals of FOUNDATION
Business Statistics
Paper-3
Module 8: Index
Numbers and Time Fundamentals
Series of Business
Mathematics and
Statistics (FBMS)

VOL 09 I NO. 05
FOUNDATION
In this issue we will carry out MCQs on Algebras and 7. For any sum of roots of quadratic equation, ‘a’
Index Number/Time Series Module 2 and Module 8 of represents -
Study guide.
(a) Coefficient of x
1. Find the value of (2+3+3)! – 7!-1!
(b) Coefficient of x2
(a) 35279
(c) Constant term
(b) 0
(d) None of the above
(c) 1
8. For what values of b and c, the sum of roots would
(d) 5039
be equal to product of roots?
2. In 3 bank accounts – SBI, ICICI and PNB, the
(a) a=1,b=1,c=1
available balances are `10 Lakhs, `9 Lakhs and
`24 Lakhs respectively. In how many ways can `1 (b) a=-1,b=-1,c=1
Lakh be withdrawn from each bank account?
(c) a=-1,b=-1,c=-1
(a) 2106
(d) a=1,b=-1,c=1
(b) 2160
9. For any product of roots of quadratic equation, ‘c’
(c) 1920
represents -
(d) 1902
(a) Constant term
3. Compute 18!
13!*2! (b) Coefficient of x
(a) 514080
(c) Coefficient of x2
(b) 1028160
(d) All of the above
(c) 2227680
(d) 171360 10. If a and b are considered to be 2 roots of quadratic
1 + 1 + 1 equation, how do they differ
4. Find the value of
6! 4! 5! (a) All signs are reversed
(a) 37 / 6!
(b) All signs other than discriminant are reversed
(b) 36 / 6!
(c) None of the signs are reversed
(c) 1 / 4!
(d) None of the signs other than discriminant are
(d) 1 / 5!
reversed
5. Find the number of permutations for 10 cars if 4 11. Find the sum and product of roots of 11x2 + 33x +
cars are to be selected at a time. 55 = 0
(a) 5040 (a) -3,-5
(b) 4050 (b) -3, 5
(c) 5010 (c) 33, 55
(d) 4030 (d) -33, 55
6. When are roots of quadratic equation considered to 12. Find the sum of difference of roots of 115 +5(x2 -
be Rational? 12x) = 0
(a) If Discriminant is negative (a) 24
(b) If Discriminant is equal to 0 (b) 48
(c) If Discriminant is less than equal to 0 (c) 26
(d) If Discriminant is perfect square (d) 52

13. Which one of the following is correct? 18. 4 year’s centered moving average corresponding to
year 7 is
(a) A Moving Average is used in smoothing a time
series to see its trend; (a) 28.675
(b) A Moving Average is used in smoothing a time (b) 30
series to see its fluctuations;
(c) 29.625
(c) A Moving Average is used in smoothing a time
(d) 30.625
series to see its irregular variations;
(d) A Moving Average is used in smoothing a time 19. 4 year’s moving average corresponding to sales
series to see its expected values; related to years 2,3,4,5, 6 are
14. We have time series data on sales of a company. (a) 30.75 & 30.5
Secular trend of this time series data we can find by (b) 30
using
(c) 29.25
(a) (n-1) years Moving Average;
(d) 29.25 & 30
(b) n years Moving Average:
20. In weighted moving average method of time series
(c) (n+1) years Moving Average; analysis, the sum of weights is equal to
(d) n/2 years Moving Average; (a) ∞
For Q15 – Q16 refer the following data: (b) -1
Production details of a company in MT are as follows: (c) 1
Year 1 2 3 4 5 6 7 8 (d) 0
Production 15 16 18 20 15 12 17 20 21. Sales for the year 2019, 2020, and 2021 of a
company are `1,000, `1,500 and `2,000. If weights
15. 3 year’s moving average corresponding to year 4 is
are 0.1, 0.3 and 0.6 then weighted moving average
(a) 15.67 of sales is
(b) 18.00 (a) ` 1,400
(c) 17.67 (b) `1,750
(d) 16.33 (c) `1,250
16. 5 year’s moving average corresponding to year 6 is (d) `1,650
(a) 16.2 22. If 5 year’s weighted moving total of production of a
(b) 16.4 company is 5000MT, then for the company 5 year’s
weighted moving average of production is
(c) 17.2
(a) 5000MT
(d) 16.8
(b) 5500MT
For Q17 – Q19 refer the following data:
Sales details of a company in (` ‘000) are as follows: (c) 4500MT
(d) 5850MT
Year 1 2 3 4 5 6 7 8 9
Sales 28 31 29 34 29 30 30 28 32 23. Weighted moving average is less smooth than
simple moving average because
17. 4 year’s centered moving average corresponding to
year 3 is (a) The farthest period is given the largest weight
(a) 28.675 (b) The most recent period is given the largest
weight
(b) 30
(c) The sum of weights used is equal to 1
(c) 29.625
(d) 30.625 (d) All the above

VOL 09 I NO. 05
FOUNDATION
24. Outstanding for a company for 5 years are as 27. Under additive model short term fluctuations
follows. corresponding to year 3 is
(a) -121
Years 1 2 3 4 5
(b) 115
Loan 1000 2000 5000 7000 8000
Outstanding (c) 225
(`)
(d) 100
If weights attached to years are 0.1, 0.2, 0.3, 0.4
respectively then, 4 year’s weighted moving 28. Which one of the following is not a weighted
average is method of finding Index number?
(a) Pearson’s method
(a) 4800, 6500
(b) Laspeyres’ method
(b) 2700, 4500
(c) Passchey’s method
(c) 4500, 6500
(d) Bowley’s method
(d) 2700, 4800
29. Price index formula using simple aggregative method:
For Q25 – Q27 consider the following table:
(a) P02 = ∑ p0* p2* 100
Year 1 2 3 4
Production 1000 1500 2000 2200 (b) P02 = ∑ p0 * ∑ p2 /100
∑ p0
25. 3 year’s moving average corresponding to year 3 is (c) P02 = *100
∑ p2
(a) 2000 ∑ p2
(d) P02 = *100
(b) 1800 ∑ p0
(c) 1900 30. Under Laspeyres’ method the influence of price

changes on quantity demanded would not get
(d)1500 reflected in index numbers because
26. Under multiplicative model short term fluctuations (a) The quantities of the base year are used as
corresponding to year 2 is weights,
(b) The quantities of the current year are used as
(a) 1
weights,
(b) 1.15 (c) The prices of the base year are used as weights,
(c) 2 (d) The prices of the current year are used as
(d) 0 weights,
Answer Keys:
1 a (2+3+3)!-7!-1! = 40320 – 5040-1= 35279

2 b 10C1 * 9C1 * 24C1 = 10*9*24 = 2160
3 a 18!/(13!*2!) = 18*17*16*15*14*13! / (13!*2*1)
or, 18*17*16*15*14 /2 or, 1028160/2 or, 514080
4 a 1/6!+6*5/6!+6/6! = (1+30+6)/6! = 37/6!
5 a
6 d When discriminant is perfect square, roots are rational
7 b Coefficient of x2 (ax2 + bx + c = 0)
8 d a = 1, b = -1,c = 1 ,
Sum of roots = - b/a = - (-1/1) = -(-1) =1
Product of roots = c/a = 1/1 =1!

Answer Keys:
9 a Constant term (ax2 + bx + c = 0)

10 d Only the discriminant sign is reversed.
11 b Sum of roots = - 33/11= - 3, Product of roots = 55/11 = 5
12 d 5x2 - 60x + 115 = 0 or, x2 - 12x + 23 = 0
Sum (α+β): 12, Product (α*β) : 23,
Square of Difference (α-β)2 = α2 + β2 - 2αβ
= (α+β)2 - 2αβ - 2αβ = (12)2 - 4*(32) = 52
13 a
14 b
15 c
16 d
17 d
18 c
19 a
20 c
21 b Weights to year 2019, 0.1, Weights to year 2020, 0.3 & so on
22 a
23 b
24 a
25 c
26 a
27 d
28 a
29 d
30 a
Suggestions:
The study guide needs to be read thoroughly. Supplementary readings could be made from other resources.
In this issue MCQs are based on basic concepts developed in the respective modules/sub modules of the study
guide. Students should try to solve individual questions with concepts developed from guide book to understand
the correct answer of each question. For development of clear concept brief explanations are given in algebra
portion. Formula used here are all covered in study guide.

VOL 09 I NO. 05
FOUNDATION
Topic
Fundamentals of
Business Economics -
Module 3: Money
and Banking
Fundamentals of
Management - FOUNDATION
Module 5: Paper-4
Fundamentals of
Management Fundamentals of
Business Economics
and Management
(FBEM)

TIPS ON
BUSINESS ECONOMICS AND MANAGEMENT
FOR THE MONTH OF MAY 2024
The first Prime Minister Pundit Jawaharlal Nehru 4. If the seller has to reduce the price to increase sales,
believed that the Govt. should drive industrialization then with an increase in sales
and control the economy. This approach culminated in A. Both AR & MR will rise
the infamous “License Raj” and created the basis for
an economy that grew at a snail’s pace. It also stifled B. AR falls & MR rises
innovation and the entrepreneurial spirit and kept C. Both AR & MR will fall
hundreds of millions of Indians in a state of abject
D. MR falls & AR rises
poverty.
5. Ceteris paribus means other things remaining
While his economic and agricultural policies were
an unmitigated disaster, Nehru was more successful A. Negatively changed
helping to create world-class institutes including the B. Positively changed
Indian Institute of Management and the Indian Institute
C. Constant
of technology. These have been instrumental in creating
a generation of talented professors, engineers and D. None of the above
entrepreneurs who have been front runners of Indian 6. If the quantity demanded for good X is given by:
economic revolution. Many of them have also played Qx = K/Px, where, K>0, Px = Price of good X,
leading roles in the United States in Silicon Valley.
Then the MR curve is
We will continue to take a closer look into the Indian
economic development. Now let us start our Mock test. A. Downward sloping
B. Indeterminate
Chose the correct answer: C. Flat (horizontal) and lies above the horizontal
axis
1. Who proposed the growth definition of economics? D. Coincides with the horizontal axis
7. For a normal demand curve the MR curve will
A. Keynes
A. Appear below the demand curve
B. Marshall
B. Appear above the demand curve
C. Samuelson
C. Parallel to the demand curve
D. Pigou
D. None of the above
2. What is the normal shape of the PPF curve? 8. When both AR and MR are downward sloping
A. Concave to the origin straight lines, then the absolute slope of the AR
curve will be
B. Convex to the origin
A. Twice that of the MR curve
C. Straight line rising upward to the right B. Half of that of the MR curve
D. None of the above C. Equal to that of the MR curve
3. If the seller sells at a fixed market price, then the D. None of the above
MR curve will be 9. The third phase of returns to a variable factor shows
A. Vertical A. Diminishing returns
B. Horizontal B. Increasing returns
C. Upward rising C. Negative returns
D. Downward falling D. None of the above

VOL 09 I NO. 05
FOUNDATION
10. When TP curve becomes an upward sloping straight 16. At the profit maximizing output level of a
line passing through the origin, then the MP=AP monopolist, the marginal cost curve has to be
curve becomes upward rising
A. True
A. Horizontal
B. False
B. Vertical
C. Not necessarily true
C. Upward sloping
D. Usually false
D. Downward sloping
17. A monopolist does not have a supply curve for its
11. In the long run, the possibility of greater technical product because
division of labour in any factory leads to A. It is a price taker in the product market
A. Decreasing returns to scale B. It can select both its output and its price
B. Constant returns to scale C. The price is always fixed by the Govt.
C. Increasing returns to scale D. None of the above
D. None of the above 18. Inflation means

A. High price situation
12. The MR curve of a competitive firm becomes
B. Stable price situation
A. Vertical
C. Rising price situation
B. Horizontal
D. None of these
C. Upward rising
19. Monetary policy means
D. None of the above A. Change in money supply of the economy
13. The long run equilibrium of a firm under perfect B. Change in the tax rate of the economy
competition indicates that the plant size will be
C. Change in the Govt. expenditure of the
A. Below optimum size economy
B. Over optimum size D. All of these
C. Optimum size 20. “Uber taxi service is user friendly” – which category
this statement belongs to, in a PESTEL analysis?
D. None of the above A. Political factor
14. If SAC=AR of a competitive firm at its short-run B. Economic factor
equilibrium point, then it is called
C. Social factor
A. Shut down point
D. Legal factor
B. Break-even point 21. The term “U” in VUCA stands for
C. Turning point A. Universe
D. None of the above B. Uncertainty
15. A monopoly firm sells equilibrium quantity C. Utopian
corresponding to which the price elasticity of D. None of the above
demand is
22. Leadership is a part of
A. Relatively inelastic A. Organization
B. Relatively elastic B. Management
C. Unit elastic C. Both A & B
D. Perfectly inelastic D. None of the above

23. Accountability is the liability created for the use of 27. Introduction of a person to the job and the
organization is called
A. Authority
A. Induction
B. Responsibility
B. Placement
C. Accountability
C. Orientation
D. All of the above
D. None of the above
24. The process of co-ordination must begin in the
early stages of 28. Which of the following are the methods of off-the-
job training?
A. Control
A. Role playing
B. Planning
B. Case studies
C. Organizing C. Lectures and classroom instruction
D. Staffing D. All of the above
25. The premises which can be controlled by the 29. Selection of language in which the message is to be
management are known as given is called
A. Internal premises A. Medium
B. External premises B. Decoding
C. Controllable premises C. Encoding
D. Tangible premises D. Feedback
26. Which of the following is not an agency cost? 30. Informal means of circulating the information is
called as
A. Residual loss
A. Grapevine
B. Bonding costs
B. Verbal
C. Concurrent loss
C. Horizontal
D. Monitoring costs
D. Written
ANSWER
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
C A B C C D A B C A C B C B B
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
C D C A C B B A B C C A D C A
So friends!!
Hope you have enjoyed this mock test. But please do not consult the key before you finish off solving all the
problems given in this mock test. Keep a record of the test result so that you can measure your progress yourself.
Best of luck for your exam !!!

VOL 09 I NO. 05
INTERMEDIATE
CMA
INTERMEDIATE
COURSE
Syllabus 2022

INTERMEDIATE VOL 09 I NO. 05
Topic
Module 12:
Companies Act,
2013
INTERMEDIATE
Group I - Paper-5
Business Laws and

Ethics (BLE)

VOL 09 I NO. 05
INTERMEDIATE
BUSINESS LAWS AND ETHICS
I
t is expected that you - the students prepare a time- undesirable name that cannot be adopted. Section 9
table with time allotted for each subject and read, provides for the reservation of name. An application for
write, revise and recapitulate all that you keep on the reservation of name shall be made in Form – INC1
reading. The first important point is that you must read along with the fee.
the Bare Act and the Sections and start asking questions
Where the articles contain entrenchment, the company
to yourself and find your own answers.
shall give notice to the Registrar of such provisions in
In this issue we shall deal with Companies Act, mainly Form No. INC- 2 or Form No. INC-7 along with the fee
formation and incorporation of a company as per at the time of incorporation of the company. In case of
Companies Act, 2013 with brief introduction of The existing company the same shall be filed in Form No.
Memorandum of Association. MGT – 14 within 30 days from the date of entrenchment
of the articles, along with the fee.
Formation of a company
Incorporation of company
Section 3 of the Act provides for the formation of a
company. This section provides that the company may Section 7 of the Companies Act, 2013 provides for
be formed for any lawful purpose. The company cannot the procedure to be followed for of a company. The
be formed for illegal purposes or unlawful purposes. promoter of the company shall submit the following
The section further provides the number of members documents to the registrar of companies, whose
required for the formation of a company. jurisdiction the registered office of the company is
proposed to be situated for registration.
The public limited company requires seven or more
persons. The minimum for the public limited company (a) Memorandum and articles of the company duly
is seven and there is no limit for the higher number of signed by all the subscribers to the memorandum in
persons. such manner as may be prescribed;
The private limited company requires two or more (b) A declaration in the prescribed form by an Advocate,
persons. The minimum for the private limited company a Chartered Accountant, Cost Accountant or
is two and the maximum number of members is 200. Company Secretary in practice, who is engaged
in the formation of the company and by a person
One Person Company requires one person. The One
named in the articles as a director, manager or
Person Company is treated as private company. The
secretary of the company;
proviso to this section requires that the memorandum of
One Person Company shall indicate the name of other (c) An affidavit from each of the subscribers to the
person, with his prior written consent. memorandum and from persons named as the first
directors, if any, in the articles stating that
The required persons for the formation of the above
category of companies shall subscribe their name or (1) he is not convicted of any offence in connection
his name to a memorandum and complying with the with the promotion, formation or management
requirements of the Act in respect of registration. of any company, or
Section 3(2) provides that a company so formed may (2) he has not been found guilty of any fraud
be either- or misfeasance or of any breach of duty to
any company under this Act or any previous
• A company limited by shares;
company law during the last five years.
• A company limited by guarantee; or
(3) and that all the documents filed with the
• An unlimited company. Registrar for registration of the company
Selection of name for the company contain information that is correct and
complete and true to the best of his knowledge
Before incorporation of a company, the promoter has and belief;
to select a name for the company. While selecting the
name of the company the promoter has to comply (d) The address for correspondence till registered
with the provisions of Rule 8 which gives the list of office is established;

(e) All particulars of every subscriber to the its being wound-up while he is a member or
memorandum along with the proof of identity; within one year after he ceases to be a member,
(f) The particulars of the persons mentioned in the for payment of the debts and liabilities of the
articles as the first directors of the company; company or of such debts and liabilities as may
have been contracted before he ceases to be a
(g) The consent to act as directors of company in such member, as the case may be; and
form as may be prescribed.
(B) to the costs, charges and expenses of winding-
The memorandum of association and articles of up and for adjustment of the rights of the
association are the basic essential documents of the contributories among themselves;
company.
(e) in the case of a company having a share capital,—
Memorandum of Association (Capital Clause)
The Memorandum of Association of company is in (i) the amount of share capital with which the
fact its charter; it defines its constitution and the scope company is to be registered and the division
of the powers of the company with which it has been thereof into shares of a fixed amount and the
established under the Act. It is the very foundation on number of shares which the subscribers to the
which the whole edifice of the company is built. memorandum agree to subscribe which shall
As per Section 4(1), the memorandum of a limited not be less than one share per subscriber; and
company must state the following: (ii) the number of shares each subscriber to
(a) the name of the company with “Limited” as its last the memorandum intends to take, indicated
word in the case of a public company; and “Private opposite his name;
Limited” as its last words in the case of a private (f) in the case of a One Person Company, the name
company; (Name Clause) of the person who, in the event of the death of
This shall not apply in case of companies registered the subscriber, shall become the member of the
under section 8. company.
Similarly, in case of government companies the According to section 4(7), any provision in the
name of the company shall end with the words memorandum or articles, in the case of a company
“Limited”. This is as per the exemptions to limited by guarantee and not having a share capital,
Government Companies under Section 462 of purporting to give any person a right to participate in
Companies Act, 2013 vide notification dated June the divisible profits of the company otherwise than as a
5, 2013. member, shall be void.
(b) the State in which the registered office of the Form of Memorandum
company is to be situated; (Situation Clause) Section 4(6) provides that the memorandum of a
(c) the objects for which the company is proposed to be company shall be in respective of forms specified
incorporated and any matter considered necessary in Tables A, B, C, D and E in Schedule I as may be
in furtherance thereof;(objects clause) applicable to the company.
Provided that nothing in this clause shall apply to a • Table A – Memorandum of Association of a
company registered under section 8; company limited by shares;
(d) the liability of members of the company, whether • Table B – Memorandum of Association of a
limited or unlimited, and also state,— (Liability company limited by guarantee and not having share
Clause) capital;
(i) in the case of a company limited by shares, that • Table C – Memorandum of Association of a
liability of its members is limited to the amount company limited by guarantee and having a share
unpaid, if any, on the shares held by them; and capital;
(ii) in the case of a company limited by guarantee, • Table D – Memorandum of Association of an
the amount up to which each member unlimited company and not having share capital;
undertakes to contribute— • Table E – Memorandum of Association of an
(A) to the assets of the company in the event of unlimited company and having share capital.

VOL 09 I NO. 05
INTERMEDIATE
Topic
Module 3:
Preparation of
Final Accounts
of Commercial
Organisations,
Not-for-Profit
Organisations and
from Incomplete
INTERMEDIATE
Records Group I - Paper-6
Financial
Accounting (FA)

VOL 09 I NO. 05
Preparation of Financial Statements of Commercial

INTERMEDIATE
Organisations and Preparation of Financial

Statements of Not-for-Profit Organisation
Preparation of Financial Statements of Commercial performance, and liquidity. Look for trends, ratios, and
Organisations other indicators to understand the company's strengths
P
and weaknesses.
reparation of financial statements for commercial
organizations is a vital aspect of financial Disclosure and Presentation: Ensure that the
reporting and provides a comprehensive view of financial statements comply with relevant accounting
a company's financial performance, position, and cash standards (e.g., GAAP, IFRS) and include all necessary
flows. disclosures and footnotes.
Preparing financial statements for commercial Review and Audit: Review the financial statements for
organizations involves several key steps and accuracy and completeness. In some cases, an external
considerations. audit may be required by regulatory authorities or
Gather Financial Data: Collect all relevant financial stakeholders.
information including transactions, receipts, invoices,
Distribution and Communication: Share the financial
bank statements, etc.
statements with stakeholders such as investors, creditors,
Organize Transactions: Categorize transactions into management, and regulatory bodies as required.
appropriate accounts such as assets, liabilities, equity,
revenue, and expenses. It's essential to follow accounting principles and
standards relevant to your jurisdiction and industry
Recording Transactions: Enter transactions into the
while preparing financial statements to ensure accuracy,
accounting system. This could be done manually or
transparency, and compliance. Additionally, seeking
using accounting software like QuickBooks or Xero.
assistance from accounting professionals or consultants
Adjusting Entries: Make any necessary adjusting can be beneficial, especially for complex accounting
entries to ensure that revenues and expenses are issues or regulatory requirements.
recorded in the correct accounting period and that assets
Preparation of Financial Statements of Not-for-
and liabilities are properly recognized.
Profit Organisation
Prepare Trial Balance: Create a trial balance to ensure
Preparing financial statements for a not-for-profit
that debits and credits are equal and the books are in
(NFP) organization involves similar steps to those for
balance.
commercial organizations, with some key differences
Prepare Financial Statements: due to the nature of NFP operations. Here's an overview
Income Statement (Profit and Loss Statement): tailored to NFPs:
Summarizes revenues and expenses over a period of Gather Financial Data: Collect all financial
time to determine the company's profitability. information including donations, grants, program
revenues, expenses, and other income sources.
Balance Sheet: Presents the company's financial
position at a specific point in time, showing assets, Organize Transactions: Categorize transactions into
liabilities, and equity. appropriate accounts such as contributions, program
expenses, administrative expenses, fundraising
Cash Flow Statement: Reports cash generated and expenses, and investment income.
used by operating, investing, and financing activities
Recording Transactions: Enter transactions into the
during a period.
accounting system, ensuring accurate recording of
Statement of Changes in Equity (if applicable): all income and expenses related to the organization's
Shows changes in equity during the reporting period, activities.
including shareholder transactions and changes in
Adjusting Entries: Make any necessary adjustments to
retained earnings.
ensure that revenues and expenses are recorded correctly
Analysis and Interpretation: Analyze the financial and in accordance with generally accepted accounting
statements to assess the company's financial health, principles (GAAP) for not-for-profit organizations.

VOL 09 I NO. 05
INTERMEDIATE
Prepare Trial Balance: Create a trial balance to verify Disclosure and Presentation: Ensure that the financial
that debits and credits are equal and that the accounting statements comply with applicable accounting standards
records are in balance. for not-for-profit organizations, such as the Financial
Accounting Standards Board (FASB) Accounting
Prepare Financial Statements:
Standards Codification (ASC) 958, and include all
Statement of Financial Position (Balance Sheet): required disclosures and footnotes.
Presents the organization's assets, liabilities, and net
Review and Audit: Review the financial statements for
assets (equity) at a specific point in time.
accuracy and completeness. Depending on regulatory
Statement of Activities (Income Statement): requirements and organizational policies, an external
Summarizes revenues and expenses for a period, audit may be conducted to provide assurance to
showing the organization's financial performance. stakeholders.
Statement of Cash Flows: Reports cash inflows and Distribution and Communication: Share the financial
outflows from operating, investing, and financing statements with stakeholders such as donors, grantors,
activities during the reporting period. board members, and regulatory bodies as required.
Statement of Functional Expenses: Breaks down Transparent communication of financial information is
expenses by function (e.g., program services, crucial for maintaining trust and accountability in the
management and general, fundraising) to provide organization.
transparency on how resources are utilized. It's essential for not-for-profit organizations to adhere
Analysis and Interpretation: Analyze the financial to accounting standards specific to their sector and to
statements to assess the organization's financial health, accurately report on the allocation of resources towards
efficiency in resource utilization, and sustainability. achieving their mission and objectives. Seeking
Evaluate key ratios and metrics relevant to not-for- guidance from accounting professionals with expertise
profit organizations, such as program expense ratios in not-for-profit accounting can ensure compliance and
and fundraising efficiency ratios. effective financial management.
Importance of preparation of Financial Statements for

Commercial Organisations and Not-for-Profit Organisations
The preparation of financial statements holds significant company's ability to repay loans, manage debt, and
importance for both commercial organizations and generate cash flows. Positive financial performance
not-for-profit (NFP) organizations, albeit with some enhances the company's borrowing capacity and access
differences in their objectives and stakeholders. Here's to favourable financing terms.
a comparison of their importance: Regulatory Compliance and Taxation: Commercial
organizations are required to prepare financial
Commercial Organizations:
statements in compliance with accounting standards
Decision Making and Investor Confidence: Financial and regulatory requirements, such as GAAP or IFRS.
statements provide crucial information for decision- Accurate financial reporting ensures compliance with
making by investors, creditors, suppliers, customers, tax laws and facilitates tax planning strategies. Financial
and management in commercial organizations. statements serve as the basis for tax assessment,
Investors rely on financial statements to assess auditing, and regulatory reporting.
profitability, growth potential, and risks before making Performance Evaluation and Benchmarking:
investment decisions. Transparent financial reporting Financial statements enable stakeholders to evaluate
enhances investor confidence and facilitates access to the company's financial performance, profitability,
capital markets. efficiency, and competitiveness over time. Comparative
Creditworthiness and Financing: Financial analysis with industry peers and benchmarks helps assess
statements play a vital role in determining a company's relative strengths and weaknesses and identify areas for
creditworthiness and ability to obtain financing from improvement. Financial ratios and metrics derived from
banks, financial institutions, and other creditors. financial statements facilitate performance evaluation
Lenders analyze financial statements to evaluate the and benchmarking against industry standards.

Transparency and Accountability: Transparent authorities, funding agencies, and oversight bodies.
financial reporting promotes accountability and Compliance with accounting standards and regulatory
integrity in commercial operations by providing requirements ensures transparency, credibility, and
stakeholders with clear, accurate, and timely eligibility for funding, grants, and tax-exempt status.
information about the company's financial position
Performance Evaluation and Impact Assessment:
and performance. Disclosure of significant accounting
Financial statements enable stakeholders to evaluate the
policies, assumptions, estimates, and risks enhances
NFP organization's financial performance, efficiency,
transparency and allows stakeholders to make informed
and effectiveness in delivering programs and services.
decisions based on reliable financial information.
Comparative analysis of financial data over time and
Not-for-Profit Organizations: benchmarking against industry standards help assess
progress toward mission objectives and identify areas
Stakeholder Trust and Accountability: Financial
for improvement.
statements for NFP organizations are crucial for
maintaining trust and accountability with donors, Mission fulfilment and Sustainability: Financial
grantors, members, volunteers, and other stakeholders. statements provide insights into the NFP organization's
Donors and grantors rely on financial statements to assess ability to achieve its mission, serve its beneficiaries,
the organization's financial health, governance, and and sustain operations over the long term. Donors and
stewardship of resources before making contributions. stakeholders expect financial sustainability, prudent
financial management, and accountability in the use of
Transparency and Donor Confidence: Transparent
resources to ensure the organization's continued impact
financial reporting demonstrates the NFP organization's
and relevance.
commitment to accountability, ethical stewardship, and
mission fulfillment. Donors and grantors expect clear In summary, while the preparation of financial statements
and detailed financial statements that provide insights is essential for both commercial organizations and NFP
into how their contributions are utilized and the impact organizations, the specific objectives, stakeholders,
achieved by the organization's programs and services. and regulatory environments may vary. Transparent
Regulatory Compliance and Funding: NFP financial reporting fosters trust, accountability, and
organizations are subject to regulatory requirements informed decision-making in both sectors, contributing
and reporting obligations imposed by governmental to organizational success and societal impact.
Questions:
1. Which financial statement summarizes a company's 3. What is the purpose of adjusting entries in the
revenues and expenses over a specific period? preparation of financial statements?
a) Balance Sheet a) To correct errors in the trial balance

b) To record transactions that were missed
b) Income Statement
initially
c) Cash Flow Statement c) To ensure revenues and expenses are recognized
d) Statement of Changes in Equity in the correct accounting period
d) To adjust the cash balance
2. Which financial statement reports the cash inflows
and outflows from operating, investing, and 4. Which financial statement reports changes in
financing activities? equity, including transactions with shareholders
and changes in retained earnings?
a) Balance Sheet
a) Income Statement
b) Income Statement b) Balance Sheet
c) Cash Flow Statement c) Cash Flow Statement
d) Statement of Changes in Equity d) Statement of Changes in Equity

VOL 09 I NO. 05
INTERMEDIATE
5. Which of the following is NOT a purpose of 8. Which financial statement reports the organization's
financial statements for commercial organizations? financial position, including its assets, liabilities,
and net assets at a specific point in time?
a) Decision-making
a) Income Statement
b) Regulatory compliance
b) Balance Sheet
c) Stakeholder trust
c) Cash Flow Statement
d) Identifying donors
d) Statement of Functional Expenses
6. What does the balance sheet of a not-for-profit
organization primarily represent? 9. What is the primary purpose of financial statements
for not-for-profit organizations?
a) Financial performance over a period
a) Decision-making
b) Cash inflows and outflows
b) Regulatory compliance
c) Financial position at a specific point in time
c) Stakeholder trust
d) Sources and uses of cash
d) Maximizing shareholder wealth
7. What is the purpose of the statement of changes in
net assets for a not-for-profit organization? 10. Which of the following is NOT a characteristic of
financial statements for not-for-profit organizations?
a) To disclose significant accounting policies
a) Emphasis on transparency and accountability
b) To summarize program expenses
b) Focus on profitability and return on investment
c) To report changes in equity, including
transactions with donors and changes in net c) Presentation of financial position and
assets performance
d) To present the organization's financial position d) Disclosure of significant accounting policies
at a specific point in time and estimates
ANSWER
1 2 3 4 5 6 7 8 9 10
b c c d d c c b c b

Topic
Module 2:
Heads of Income
INTERMEDIATE
Group I - Paper-7A
Direct Taxation (DT)

VOL 09 I NO. 05
INTERMEDIATE
Income From Other Sources
1. A receipt shall be taxable under this head if such d) If movable properties are received without
income does not specifically fall under any one of consideration and the aggregate fair market
the other four heads of income. value of such properties exceeds ₹ 50,000, the
whole of aggregate fair market value of such
2. Basis of chargeability: Income under this head
properties;
shall be chargeable on ‘accrual’ or ‘cash’ basis
depending on the method of accounting regularly e) If movable properties are received for
followed by the assessee. consideration which is less than the aggregate
fair market value of properties by an amount
3. Casual Income: Winning from lotteries, crossword
exceeding ₹ 50,000, the difference between
puzzles, etc. are taxable under this head. Tax is
the aggregate fair market value and the
charged on such income at a flat rate of 30% plus
consideration
surcharge (if any) plus cess.
Exceptions:
4. Income from letting of machinery, plant or
furniture is charged to tax under this head, if such (a) Gift received from any relative.
income is not chargeable under the head “Profits
(b) Gift received on the occasion of the marriage
and gains of business or profession”.
of the individual.
5. Composite rent: If letting of building is inseparable
(c) Any sum of money which is received under a
from letting of machinery, furniture, etc. then
will or by way of inheritance.
income from such letting is charged to tax under
the head “Income from other sources” otherwise (d) Any sum of money which is received in
Income from house property. contemplation of death of the payer
6. Family pension: It is taxable under the head (e) Any sum of money which is received from
“Income from other sources” after allowing - local authority, any fund or foundation or
standard deduction to the minimum of a) 1/3rd of university or other educational institutions or
such pension; or b) ₹ 15,000. hospital or other medical institutions or any
trust or institution referred u/s 10(23C) or a
7. Gift: Following receipts by any person shall be
registered trust or institution;
considered as his income:
(f) Receipts from an individual by a trust created
a) If any sum is received without consideration in
or established solely for the benefit of relative
excess of ₹ 50,000 during the previous year;
of the individual.
b) If an immovable property is received without
(g) Receipts by way of distribution at the time of
consideration and the stamp duty value
total or partial partition of HUF;
exceeds ₹ 50,000, the stamp duty value of such
property; (h) Shares received in a consequence of demerger
or amalgamation of a company or business
c) If an immovable property is received with
reorganization of a co-operative society
consideration and the stamp duty value of such
property exceeds such consideration by higher 8. Share premium received by a company, not
of the following: being a company in which public is substantially
interested, in excess of fair market value of issued
(i) ₹ 50,000; or
shares shall be considered as income of the issuing
(ii) An amount equal to 10% of the company.
consideration
9. Interest on securities is charged to tax u/s 56.
- the difference between the stamp duty value However, if such securities are held as stock, then
and the consideration; taxed u/s 28.

10. Interest on delayed receipt of compensation or Tax treatment: Dividend or income from units
enhanced compensation shall be taxable in the shall be taxable in the hands of shareholders or unit
year of receipt after deducting standard deduction holders at the applicable rate. No deduction shall be
@ 50% of such income. allowed from dividend income, or income in respect
11. Bonus Stripping: Where any person acquires any of units of mutual fund or specified company, other
unit (original unit) within a period of 3 months prior than deduction on account of interest expense and
to the record date and is allotted bonus unit on such in any previous year. Further, such deduction shall
date and such person transfers original unit within not exceed 20% of the dividend income or income
a period of 9 months after such date, then any loss from units included in the total income for that year
arising to him shall be ignored and the amount of without this deduction
loss so ignored shall be deemed to be the cost of
13. Specific disallowance: The following expenditures
acquisition of such bonus unit held by him on the
shall not be deducted from any income under this
date of such sale or transfer.
head
12. Dividend: As per sec. 2(22),
• Any personal expenses of the assessee.
(a) Any distribution of accumulated profits, which
results in the release of assets of the company. • Any interest which is payable outside India on
which tax has not been deducted at source.
(b) Any distribution of Debenture, debenture-
stock, deposit certificates in any form whether • Any salary payable outside India on which tax
with or without interest to its shareholders has not been deducted at source.
(equity as well as preference); and Shares to
• 30% of any payment made to a resident on
preference shareholders by way of bonus, to the
which TDS provision is applicable without
extent to which company possess accumulated
deducting TDS as referred u/s 40(a)(ia)
profit.
• Any amount paid as Wealth tax or Income tax.
(c) Distribution made on liquidation to the extent
to which company possess accumulated profit • Any amount specified u/s 40A e.g. payment
immediately before liquidation. to relative in excess of requirement; or cash
(d) Distribution made on reduction of capital of the payment in excess of ₹ 10,000.
company to the extent it possess accumulated • No deduction in respect of any expenditure
profit. shall be allowed in computing the income by
(e) Any loan or advance by a company (in which way of any winnings from lotteries, etc.
public are not substantially interested) to 14. Deemed Profits: Where an allowance or deduction
the extent of accumulated profit (excluding
has been allowed for any year in respect of loss,
capitalized profit) to its equity shareholder
expenditure or trading liability incurred by the
holding not less than 10% of voting power in
assessee; and subsequently, any amount is obtained,
the company or to a concern of which such
as revocation of such loss, expenditure or remission
shareholder is a member and has substantial
of liability, whether in cash or in any other manner,
interest in such concern or to any person on
during any previous year, then such amount
behalf of or for the benefit of such specified
shareholder. received or amount remitted shall be charged to tax.

VOL 09 I NO. 05
INTERMEDIATE
Topic
Module 5:
Goods and Services
Tax (GST) Laws
INTERMEDIATE
Group I - Paper-7B
Indirect Taxation
(IDT)

Tax Invoice
T
ax invoices are essential documents under Suffice it to say, that the tax invoice is the primary
the Goods and Services Tax (GST) system, document evidencing the supply and is vital for availing
serving as a legal record of transactions input tax credit.
between registered taxpayers. In this comprehensive
The GST Law requires that an invoice – tax invoice or
note, we will explore the concept of tax invoices under
bill of supply – is issued on the occurrence of a certain
GST, their significance, requirements, and implications
event, being a supply, within the prescribed timelines.
for businesses and taxpayers.
Therefore, an invoice, among other documents is
An invoice is a commercial instrument issued by a required to be issued for every form of supply such as
seller to a buyer. It identifies both the trading parties sale, transfer, barter, exchange, license, rental, lease or
and lists, describes, and quantifies the items sold, shows disposal. This chapter provides an understanding of the
the date of shipment and mode of transport, prices and various documents required to be issued under the GST
discounts, if any, and delivery and payment terms. law, timelines to issue such document and the contents
In certain cases, (especially when it is signed by the of every such document. It is to be noted that GST Law
seller or seller’s agent), an invoice serves as a demand does not prescribe any specific format of invoice but
for payment and becomes a document of title when mandates that certain field or information should be
paid in full. An invoice does not bring into existence incorporated in the invoice.
an agreement but merely records the terms of a pre-
Significance of Tax Invoices
existing agreement (oral or written). An invoice can
be understood as a document that is meant to serve a Tax invoices serve several important purposes in the
particular purpose. GST framework:
Introduction to Tax Invoices under GST • Legal Compliance: Tax invoices are mandated
by law under the GST regime, and failure to issue
Under GST a tax invoice is an important document.
proper invoices can lead to penalties and legal
• It not only evidences supply of goods or services,
consequences.
but is also an essential document for the recipient
to avail Input Tax Credit (ITC). A registered • Input Tax Credit (ITC): Tax invoices are necessary
person cannot avail input tax credit unless he is in for claiming ITC, as they provide evidence of tax
possession of a tax invoice or a debit note. paid on inputs and input services used in the course
of business.
• GST is chargeable at the time of supply. Invoice
is an important indicator of the time of supply. • Audit and Verification: Tax authorities rely on
tax invoices to audit and verify the accuracy of tax
Broadly speaking, the time of supply of goods or
returns filed by taxpayers, ensuring compliance
services is the date of issuance of invoice or receipt
with GST laws and regulations.
of payment whichever is earlier. However, a special
Key Components of a Tax Invoice
procedure for payment of tax has been prescribed
for registered persons (other than composition A tax invoice under GST must contain specific details
dealers) supplying goods. Such category of persons to be considered valid. These include:
(suppliers of goods other than composition dealers) • Supplier's Details: Name, address, GSTIN (Goods
need to pay GST only at the time of issue of invoice and Services Tax Identification Number), and State
irrespective of when they receive payment. code of the supplier.

VOL 09 I NO. 05
INTERMEDIATE
• Recipient's Details: Name, address, GSTIN (if Where the supply Removal of goods for
registered), and State code of the recipient. involves the movement supply to the recipient
• Invoice Number and Date: A consecutive serial of goods
number and date of issue of the invoice. Where the supply does not Delivery of goods or
involve the movement of making available thereof
• Description of Goods or Services: Details such as goods to the recipient
quantity, unit price, total value, and applicable GST
• Supply of Services: Invoice is required to be
rate for each item supplied.
issued within 30 days from the date of the supply
• Taxable Value and Tax Amount: Separate of service. However, in the case of an insurance/
disclosure of the taxable value, CGST (Central banking company or a financial institution,
Goods and Services Tax), SGST (State Goods including NBFC, the invoice is required to be
and Services Tax), IGST (Integrated Goods and issued within 45 days
Services Tax), and cess, if applicable.
Implications for Businesses and Taxpayers
• Place of Supply: Indicates whether the supply
For businesses and taxpayers, compliance with tax
is intra-state (within the same state) or inter-state
invoice requirements under GST is crucial for several
(between different states).
reasons:
• Shipping and Billing Address: If different from
• Input Tax Credit (ITC) Claim: Proper
the supplier's and recipient's addresses.
maintenance and issuance of tax invoices enable
• Payment Terms: Terms and conditions of payment, businesses to claim ITC, reducing the overall tax
including payment due date and mode of payment. liability.
Types of Tax Invoices • Audit and Assessment: Tax authorities may

conduct audits or assessments based on tax invoices
Under GST, there are different types of tax invoices
to verify the accuracy of tax returns and ensure
based on the nature of the transaction:
compliance with GST laws.
• Tax Invoice: Issued for taxable supplies of goods
• Legal Compliance: Failure to issue valid tax
or services.
invoices or maintain proper records can lead to
• Bill of Supply: Issued when GST is not applicable penalties, interest, and other legal consequences.
or when the supplier is registered under the
• Business Relationships: Clear and accurate tax
composition scheme.
invoices enhance transparency and trust in business
• Credit Note: Issued to reduce the taxable value or transactions, fostering better relationships with
tax amount in case of goods returned or services customers and suppliers.
cancelled.
Conclusion
• Debit Note: Issued to increase the taxable value
Tax invoices are fundamental documents under the
or tax amount due to additional goods supplied or
GST regime, serving as the backbone of the tax system
services provided.
by providing evidence of transactions and enabling the
Timeline for issuance of invoice claiming of input tax credit. Businesses must understand
the requirements and significance of tax invoices to
In general, time of issue of tax invoice for:
ensure compliance with GST laws and regulations. By
• Supply of Goods: A registered person supplying issuing proper tax invoices, businesses can streamline
taxable goods shall issue a tax invoice, before or at their operations, minimize tax risks, and contribute to
the time of: the overall efficiency and integrity of the GST system.

Topic
Module 6:
Cost Accounting
Techniques
INTERMEDIATE
Group I - Paper-8
Cost Accounting
(CA)

VOL 09 I NO. 05
COST ACCOUNTING
INTERMEDIATE
B
udget and Budgetary Control is an important 7) It provides a method of measurement of operational
chapter in Intermediate Examination and almost efficiency.
every year a question is set in the examination.
8) The system centralizes control and decentralizes
here student should first learn how to prepare financial
operational responsibilities.
budget like Cash Budget Sales Budget , Purchase
Budget , Production Budget Expenditure Budget etc., 9) It acts as an aid for better use of infrastructural
Again, Master Budget is to be prepared by considering facilities.
the results of Functional Budgets and Flexible Budget is 10) It reveals the variations of actual performance
prepared to show the expenditure appropriate to various from budgetary performance through a process of
levels of output in the same period. management by exception.
Budgetary Control and Standard Costing are the two Functional Budget is a budget of income and expenditure
different tools used widely for assisting management relates to any of the functions of an enterprise. There are
in planning and control. In practice budget is used in various types of Functional budgets depending on size
various fields viz. in our private life, in business and and policy of the organization. The functional budgets
also in the Government departments. which are prepared frequently are:-
Budget is a plan expressed in monitory terms. It is a) Sales Budget.
prepared and approved prior to the budget period
and may show income, expenditure and capital to be b) Selling and Distribution Cost Budget.
employed. May be drawn up showing incremental c) Purchase Budget
effects on formal budget or actual figures or be complied
by zero-based budgeting. d) Production Budget
Budgetary Control is designed to assist management in e) Production Cost Budget

carrying out its functions by allocating responsibility f) Personnel Budget
and authority , to aid in making plans and estimates
g) Plant Utilization Budget
for the future and to assist in the analysis of variation
between the actual and estimates in order to develop the h) Capital Expenditure Budget.
basis for measurement with the standard for the purpose i) Maintenance Cost Budget
of measuring efficiency of operations. Thus budgetary
control is a system of planning and controlling cost j) Material Cost Budget
through continuous comparison of actual with budgeted k) Administration Cost Budget
result. Thus, it is the establishment of budgets relating
to responsibilities of executives to the requirement of l) Research and Development Cost Budget.
a policy and the continuous comparison of actual with Irrespective of the functional budgets, there are some
budgeted results either to secure by individual action the budgets that are used for controlling operations, that
objective of the policy or to provide a basis for revision. are:-
Budgetary control have following objectives:- Cash Budget –
1) A budget forces a manager to plan ahead. It is the forecast of cash receipts and payments for a
2) It smoothen seasonal variations in production and given period. This budget is prepared after preparation
sale of functional budget. For efficient running of a business
the anticipated cash requirements should be known in
3) Budget assists to coordinate the activities of advance.
various divisions according to the policy of the
organization. Master Budget -
4) It establishes the divisional responsibilities. This is a budget which summarizes all functional
budgets of an organization. A master budget normally
5) It demands the most economic use of resources. includes:
6) It facilitates periodic comparison of activities. a) A Budgeted Profit and Loss Account.

b) A Budgeted Profit and Loss Appropriation Account. Flexible Budget -

c) Budgeted Balance Sheet. A flexible budget has been defined as a budget which
is designed to change in accordance with the activities
d) A Budgeted Cash Flow statement.
attained. Practically it is a series of fixed budgets for
After preparing Master Budget it is to be submitted by different level of activities. Here cost are analyzed
the Budget Committee to the top management for their behavior wise, viz. variable, fixed and semi-variable.
approval. Budgeted costs are classified and summarized
Now I am presenting an example of Cash Budget for
by types of expenses as well as by departments.
clearing the concept.
Problem:
Based on the following information, prepare a Cash Budget for Anindita Ltd.
Q1 Q2 Q3 Q4
Opening Balance Cash 10,000
Collection from customers Payments 1,25,000 1,50,000 1,60,000 2,21,000
Purchase of materials 20,000 35,000 35,000 54,200
Other Expenses 25,000 20,000 20,000 17,000
Salary and Wages 90,000 95,000 95,000 1,09,200
Income Tax 5,000 ----- ----- -----
Purchase of Machinery ----- ----- ----- 20,000
The Company desires to maintain a cash balance of ₹15,000 at the end of each Quarter. Cash can be borrowed or repaid
in multiple of ₹500at an interest of 10%p.a. Management does not want to borrow cash what is necessary and wants
to repay as early as possible. In any event loans cannot be extended beyond 4 Quarters. interest is computed and paid
when the principal is repaid assume that borrowings taken place at the beginning and repayments are made at the end
of the Quarter.
The Problem can be solved in the following manner---
CASH BUDGET
Q1 Q2 Q3 Q4
Opening Balance Cash 10,000 15,000 15,000 15,325
Collection 1,25,000 1,50,000 1,60,000 2,21,000
(A) Total Receipts 1,35,000 1,65,000 1,75,000 2,36,325
Payments :-
Purchase of materials 20,000 35,000 35,000 54,200
Other Expenses 25,000 20,000 20,000 17,000
Salary and Wages 90,000 95,000 95,000 1,09,200
Income Tax 5,000 ----- ----- -----
Purchase of Machinery ----- ----- ----- 20,000
(B) Total Payments 1,40,000 1,50,000 1,50,000 2,00,400
Minimum Balance 15,000 15,000 15,000 15,000
Total Cash Required 1,55,000 1,65,000 1,65,000 2,15,400
Excess/ (deficit) (20,000) Nil 10,000 20,925
Borrowings 20,000
Payments 9,000 11,000
Interest Payments (Note1) 675 1,100
(D) Total 9,675 12,100
Closing Cash Balance (A+B+C-D) 15,000 15,000 15,325 23,825

VOL 09 I NO. 05
INTERMEDIATE
Note :1
`20,000 borrowed at the beginning of first Quarter 1 There are some important Guidelines for Transferring
` 9,000 repayment made at the end of third year and Profit of an Incomplete Contract, that are as follows:--
the Interest is computed and paid when the principal is
A) When the Contract has just started :--
repaid.
In such case no profit should be taken into account,
Hence Interest on `9,000 for three Quarter 3 at 10% is
as it is impossible to locate future position clearly.
calculated as:-
Generally, up to 25% of completion of the contract,
9,000 x 9/12 x 10/100 = `675 this principle is followed.
`11,000 repaid at the end of Quarter 4. Hence Interest B) When the contract has sufficiently advanced (more
on `11,000 for Quarter 4 i.e. for one year at 10% will than 25% completed) :--
be `1,100.
A reasonable portion of the Notional Profit should
be credited to Profit and Loss Account and the
From Contract Costing one question may be expected balance is carried forward in same contract as a
in Intermediate Examination. Here distinction between profit in suspense as adequate re3serve for future
Job /Batch /Contract is an important factor. You losses and contingencies. The portion of notional
should be very careful in determining the profit of an profit to be taken will depend upon the progress of
incomplete Contract and for Escalation clause both the work.
changed quantity and price should be considered. 1) For completion less than 50% of contract ------
The term Contract Costing is used by Contractors, Profit
builders, and engineers, who under take definite = 1/3 of Notional Profit
Contracts such as building construction, ship building,
bridge construction and so on. the term Contract 2) For completion 50% or more ----------- Profit
Costing refers to the form of specific order costing = 2/3 of Notional Profit
which applies where work is undertaken to customer’s
Cash Received/value of Work Certified may be
special requirements and each order is of long duration.
multiplied with the above two equations, if cash
Escalation Clause is a clause, which safeguards the received is less.
interest of both the contractor and contractee against
C) When the Contract is almost complete :--
unfavorable price change in future. By virtue of this
clause, the contractee has to bear the additional cost Profit may be taken by adopting any one of the
arising out of such inflation. Such clause may also following formula:-
apply where material and labour utilization exceeds a
a) Estimated Profit x Value of work Certified /
particular limit, often there might be a De-escalation
Contract Price
or Reverse Clause, providing for reduction in Contract
price and passing on the benefit to the Contractee. b) Estimated Profit x Value of Work certified
/ Contract Price x Cash Received / Work
Cost-plus –contract is the reverse of fixed price contract.
Certified
Here contractor is paid the actual cost incurred plus a
certain percentage of profit over the cost of production. c) Estimated Profit x Cost of Work to date /
Generally, it is provided in the agreement as to items Estimated Total cost
of expenditure to be included in the actual cost and d) Estimated Profit x Cost of work to date /
the percentage of profit to be added to the actual cost. Estimated Total cost x Cash Received / Value
This type of contract is suitable in those cases where of work Certified.
probable cost of the contract cannot be estimated with
a reasonable degree of accuracy in advance due to In this way a reasonable portion of profit should be
various reasons. transferred to Profit and Loss Account year wise,
during the period of Contract.

Topic
Module 7:
Economics of
Maintenance
and Spares INTERMEDIATE
Management
Group II - Paper-9
Operations
Management
and Strategic
Management
(OMSM)

VOL 09 I NO. 05
INTERMEDIATE
Operations Management
This time we will discuss on Preventive Maintenance Policy (PMP) vs. Repair Policy (RP). Refer sub module 7.4 of
the guide book.
Preventive maintenance policy provides, after machines & equipment run for a fixed time, for inspections and
replacement of weak parts if required.
The fixed time interval is called Preventive maintenance cycle (PM cycle) like PM cycle for 1 month, PM cycle for 2
months, PM cycle for 1 year etc.
PM cycle for 2 months mean particular machine or equipment, after a run of 2 months, will be inspected and replacement
of weak parts if any.
PM cycle requires an average cost say CPM.
But breakdowns may occur on the particular machine or equipment before completion of the 2 months i.e. before
completion of PM cycle. That is situation may be like following:
PM Cycle PM Cycle PM Cycle
2 months 2 months 2 months

1st PM 2nd PM 3rd PM 4th PM
Breakdowns may occur here. For these cases immediate repair needs to be done at an average cost of say CR. This is
Repair cycle.
Therefore management has to take decision whether a Preventive Maintenance policy would be a better option than
simply repairing each machine when it breaks down.
To have this decision management needs probability distribution of the time between machine breakdown and the
length of the standard PM cycle.
Let us take following examples to understand how management takes decision on the issue.
Question: 1
Assume the following three breakdown probability distribution
Probability of Breakdown
Month following Maintenance
(1) (2) (3)
1 0.4 0.4 0.1
2 0.1 0.2 0.1
3 0.1 0.1 0.1
4 0.1 0.1 0.5
5 0.1 0.1 0.1
6 0.2 0.1 0.1
Which, if any, of these distributions lend themselves to a preventive maintenance program? Why?

VOL 09 I NO. 05
Answer:
INTERMEDIATE
Policy 1:
Month following Maintenance (i) Probability of Breakdown (p) Average free run time (i * p)
1 0.4 0.4
2 0.1 0.2
3 0.1 0.3
4 0.1 0.4
5 0.1 0.5
6 0.2 1.2
∑ 3 months/breakdown/machine
Therefore the average number of breakdowns for the pool of say 100 machines per month will be:
For 1 machine in 3 months 1 breakdown
So for 1 machine in 1 month (1/3) breakdown
So for 100 machines in 1 month (100/3) = 33.33 breakdowns
Policy 2:
1 0.4 0.4
2 0.2 0.4
3 0.1 0.3
4 0.1 0.4
5 0.1 0.5
6 0.1 0.6
∑ 2.6 months/breakdown/machine
For 1 machine in 2.6 months 1 breakdown
So for 1 machine in 1 month (1/2.6) breakdown
So for 100 machines in 1 month (100/2.6) = 38.46 breakdowns
Policy 3:
1 0.1 0.1
2 0.1 0.2
3 0.1 0.3
4 0.5 2.0
5 0.1 0.5
6 0.1 0.6
∑ 3.7 months/breakdown/machine

VOL 09 I NO. 05
Preventive maintenance programs are generally applicable to breakdown distributions with low variability. Policy 3
INTERMEDIATE
has the lowest variability as no of breakdowns in a month for a pool of say 100 machines are 27.03---the lowest among
three policies.
Therefore we may conclude that policy 3 could lead to a preventive maintenance program.
Question: 2
Assume the following breakdown probability distribution
Month following Maintenance Probability of Breakdown
1 0
2 0.1
3 0.1
4 0.2
5 0.1
6 0.5
Let us take Average Repair Cost on breakdown CR = `120 & Cost of Preventive maintenance CPM = `75, Cost of
Individual Replacement CI = `100, Cost of Group Replacement = `50/machine
For a pool of 100 machines, Could you recommend PM? When you will go for Replacement?
Answer:
1 0.0 0.0
2 0.1 0.2
3 0.1 0.3
4 0.2 0.8
5 0.1 0.5
6 0.5 3.0
∑4.8 months/breakdown/machine
Repair Policy Cost = Average number of repairs per month × Average repair cost on breakdown = 20.83×120 = `2499.6
Preventive Maintenance Costs for the Six Preventive Maintenance Cycles: Table-I
Preventive Expected Average No of Expected Monthly Expected Expected

Maintenance Breakdowns Breakdowns Breakdown Cost Monthly PM Cost Monthly Cost of
Cycle (n), in PM Cycle per month (Col.3 x R120) (R75 x 100)/ Col.1 each PM cycle
months (Col.2/Col.1) (Col.4 + Col.5)
1 0 0 0 7500 7500
2 10 5 600.00 3750 4350
3 20 6.667 800.04 2500 3300.04
4 41 10.25 1230 1875 3105
5 53 10.6 1272 1500 2772
6 108.1 18.017 2162.04 1250 3412.04

VOL 09 I NO. 05
Computation of Col. 2:
INTERMEDIATE
Month 1: 100*0.0 =0
Month 2: 100*(0.0+0.1) +0*0.0 = 10
Month 3: 100*(0.0+0.1+0.1) + 0*0.1 +10*0.0 = 20
Month 4: 100*(0.0+0.1+0.1+0.2) + 0*0.1+10*0.1+20*0.0 = 41
Month 5: 100*(0.0+0.1+0.1+0.2+0.1) +0*0.2+10*0.1+20*0.1+41*0.0 = 53
Month 6: 100*(0.0+0.1+0.1+0.2+0.1+0.5) +0*0.1+10*0.2+20*0.1+41*0.1+53*0.0 = 108.1

Graphical Representation Policy 1:
So from the above it is clearly observed that PM policy is inferior to Repair policy. But will repair policy sustainable?
Answer is NO. After continuing for some time with repair policy cost effectiveness of the policy will be lost and at this
stage we have to replace ---either individual machines or in blocks.
To do this analysis we will follow the steps below mentioned:
Step-I: Determination of Number of failures in different weeks. Table-II
Preventive Maintenance Cycle (n) , months Probability of Breakdown (p) Expected Breakdowns in PM Cycle
1 0.0 0
2 0.1 10
3 0.1 20
4 0.2 41
5 0.1 53
6 0.5 108.1
Column 2 of Table 1

VOL 09 I NO. 05
Step-2: Determination of Average Cost of Different Policies Table-III
INTERMEDIATE
Cost of Replacements
No of Individual Individual Group Total Average Cost
Months
Replacements
(Col2 × 100) (100 × 50) (Col3 + Col4) (Col5/Col1)
1 0 0 5000 5000 5000
2 10 1000 5000 6000 3000
3 20 2000 5000 7000 2333
4 41 4100 5000 9100 2275
5 53 5300 5000 10300 2060
6 108.1 10810 5000 15810 2635
From the table it is observed that the minimum cost per month is obtained by replacing all the machines (whether failed
or not) after every 5 months. Thus optimal replacement time interval = 5 months.
But we can go for a policy “Replace as and when a machine fail” and in that case there will not be any group replacement.
To check the feasibility of “Replace as and when a machine fails” the computation will be as following:
Life (months) Mean value (Xi) Probability (pi) pi x Xi

0-1 0.5 0.0 0
1-2 1.5 0.1 0.15
2-3 2.5 0.1 0.25
3-4 3.5 0.2 0.7
4-5 4.5 0.1 0.45
5-6 5.5 0.5 2.75
4.4
Mean life of a machine is = 4.4
Expected no of failures of a machine during a week = No of Machines/ Mean life of a machine
= 100/4.4 = 22.727
Weekly replacement cost = Expected no of replacements X cost of replacements
= 22.727 X 100 = 2272.7
Since the cost of the policy of individual replacement i.e. “Replace as and when a machine fail” is greater than that of
the group replacement, it is advisable to go for group replacement.
Question: 3
Refer Q1. Let us take Average Repair Cost on breakdown CR = `100 & Cost of Preventive maintenance CPM = `35
Could you prove your conclusion given in A1 for a pool of 100 machines?
Answer:
Repair Policy Cost of Policy 1 = Average number of repairs per month X Average repair cost on breakdown = 33.33
X 100 = `3333
Data taken from Answer 1.

VOL 09 I NO. 05
Preventive Maintenance Costs for the Six Preventive Maintenance Cycles: Table-I
INTERMEDIATE
Preventive Expected Average No of Expected Expected Expected

Maintenance Breakdowns in Breakdowns Monthly Monthly PM Cost Monthly Cost of
Cycle (n), PM Cycle per month Breakdown Cost (R35 x 100)/ Col.1 each PM cycle
months (Col.2/Col.1) (Col.3 x R100) (Col.4 + Col.5)
1 40 40 4000 3500 7500
2 66 33 3300 1750 5050
3 90.4 30.13 3013 1167 4180
4 116.76 29.19 2919 875 3794
5 146.34 29.27 2927 700 3627
6 189.85 31.64 3164 583 3747
Month 1: 100*0.4 = 40
Month 2: 100*(0.4+0.1) +40*0.4 = 66
Month 3: 100*(0.4+0.1+0.1) + 40*0.1 +66*0.4 = 90.4
Month 4: 100*(0.4+0.1+0.1+0.1) + 40*0.1+66*0.1+90.4*0.4 = 116.76
Month 5: 100*(0.4+0.1+0.1+0.1+0.1) +40*0.1+66*0.1+90.4*0.1+116.76*0.4 = 146.344
Month 6: 100*(0.4+0.1+0.1+0.1+0.1+0.2) +40*0.1+66*0.1+90.4*0.1+116.76*0.1+146.344*0.4 = 189.8536
Fig -I
Repair Policy Cost of Policy 2 = Average number of repairs per month X Average repair cost on breakdown = 38.46
×100 = `3,846 (Data taken from Ans 1).
Preventive Maintenance Costs for the Six Preventive Maintenance Cycles

VOL 09 I NO. 05
INTERMEDIATE
Maintenance Breakdowns in Breakdowns Monthly Monthly PM Cost Monthly Cost of
Cycle (n) , PM Cycle per month Breakdown Cost (R35 x 100)/ Col.1 each PM cycle
1 40 40 4000 3500 7500
2 76 38 3800 1750 5550
3 108.4 36.13 3613 1167 4780
4 142.56 35.64 3564 875 4439
5 180.28 36.06 3606 700 4306
6 223.06 37.18 3718 583 4301
Month 1: 100*0.4=40
Month 2: 100*(0.4+0.2) +40*0.4 = 76
Month 3: 100*(0.4+0.2+0.1) + 40*0.2 +76*0.4 = 108.4
Month 4: 100*(0.4+0.2+0.1+0.1)+ 40*0.1+76*0.2+108.4*0.4 = 142.56
Month 5: 100*(0.4+0.2+0.1+0.1+0.1) +40*0.1+76*0.1+108.4*0.2+142.56*0.4 = 180.28
Month6:100*(0.4+0.2+0.1+0.1+0.1+0.1)+40*0.1+76*0.1+108.4*0.1+142.56*0.2+180.28*0.4= 223.06
Fig -II
Repair Policy Cost of Policy 3 = Average number of repairs per month X Average repair cost on breakdown = 27.03 X
100 = `2,703 (Data taken from Ans 1)
Preventive Maintenance Costs for the Six Preventive Maintenance Cycles


Maintenance Breakdowns Breakdowns Monthly Monthly PM Cost Monthly Cost of
Cycle (n), in PM Cycle per month Breakdown Cost (R35 x 100)/ Col.1 each PM cycle
1 10 10 1000 3500 4500
2 21 10.5 1050 1750 2800
3 33.1 11.03 1103 1167 2270
4 86.41 21.60 2160 875 3035
5 109.05 21.81 2181 700 2881
6 134.36 22.39 2239 583 2822
Month 1: 100*0.1=10
Month 2: 100*(0.1+0.1) +10*0.1 = 21
Month 3: 100*(0.1+0.1+0.1) + 10*0.1 +21*0.1 = 33.1
Month 4: 100*(0.1+0.1+0.1+0.5) + 10*0.1+21*0.1+33.1*0.1 = 86.41
Month 5: 100*(0.1+0.1+0.1+0.5+0.1) +10*0.5+21*0.1+33.1*0.1+86.41*0.1 = 109.051
Month 6:100*(0.1+0.1+0.1+0.5+0.1+0.1)+10*0.1+21*0.5+33.1*0.1+86.41*0.1+109.051*0.1= 134.3561
Fig-III

VOL 09 I NO. 05
INTERMEDIATE
If we refer three graphs it is clear that –
Under Policy 1 (Fig –I) Repair cost `3,333 is always less than cost of all PM cycles -Refer Col.6 of Table-I. Therefore
if breakdown probability distribution is like under Policy 1, management will opt for policy of repairing machine when
it breaks down.
Under Policy 1 (Fig –II) Repair cost `3,846 is always less than cost of all PM cycles -Refer Col.6 of Table-I. Therefore
if breakdown probability distribution is like under Policy 1, management will opt for policy of repairing machine when
it breaks down.
Under Policy 3 (Fig –III) PM cycle of 3 months with the cost of `2,270 - Refer Col.6, Row 4 of Table-II, is less than
Repair cost `2,703. Therefore if breakdown probability distribution is like under Policy 3, management will opt for
PM policy of 3 months instead of going for policy of repairing machine when it breaks down. This way management
can save `433
The decision concerning preventive maintenance versus Repair depends on i) factor costs CR and CPM ii) the
breakdown probability distribution; besides other sensitivities.
Suggestions:
This lesson could be used as an aid to teaching on Maintenance in study notes. Concept of Preventive maintenance,
Breakdown maintenance & replacement is vital in studying Operations Management. These discussions are
in addition to knowledge imparted by study guide. For Proper understanding read supplementary readings by
referring Operations Management by R.S. Russell & B.W. Taylor, Operations Management by J Stevenson.

Topic
Module 5:
Accounting Standards
Module 8:
Auditing of Different INTERMEDIATE
Types of Undertakings
Group II - Paper-10
Corporate
Accounting and
Auditing (CAA)

VOL 09 I NO. 05
Section A: Corporate Accounting
INTERMEDIATE
Topic: Accounting Standards
• Comprehensive Problems on Ind AS Actual wastage : 600 MT; Abnormal wastage 600
MT -- 500 MT = 100 MT.
• Ind AS 2 – Valuation of Inventories
As per Ind AS 2, in determining the cost of
Problem:
inventories, it is appropriate to exclude abnormal
State with reference to Ind AS 2, how will you value the amounts of wasted materials or expenses in the
inventories in the following cases: period in which they are incurred.
(i) Raw materials were purchased at ` 200 per kilo. Therefore, in this case, the entire cost of abnormal
Price of the raw material is on decline. Finished wastage, i.e., 100 x `1,000 = ` 1,00,000 should be
goods in which raw materials were incorporated are charged to the Profit and Loss Account.
expected to be sold at below cost. 5,000 kg of raw
(iii) As per Ind AS 2, the allocation of fixed production
materials are on stock at the year end. Replacement
overheads for the purpose of their inclusion in the
cost is ` 160 per kg.
costs of conversion is based on the normal capacity
(ii) In a production process, normal wastage is 5% of the production facilities.
of input. 10,000 MT of input were put in process Therefore, in this case, the cost per kg. of finished goods
resulting in a wastage of 600 MT. Cost per MT of will be calculated as under:
input is ` 1,000. The entire quantity of waste is on
Materials `200
stock at the year end.
Direct labour `40
(iii) Per kg. of finished goods consisted of:
Direct variable production overheads `20
Material cost ` 200 per kg.
Fixed production overheads `20*
Direct labour cost ` 40 per kg.
`280
Direct variable production overhead ` 20 per kg.
*Fixed production overheads per kg. = `20,00,000/
Fixed production charges for the year on normal
1,00,000 = `20 per kg.
capacity of one lakh kg. is ` 20 lakhs. 4,000 kg. of
finished goods are in stock at the year end. Therefor e, the value of 4,000 kg. of finished goods =
4,000 x `280 = ` 11,20,000.
Solution:
(i) As per Ind AS 2, when there has been a decline • Ind AS 19 – Employee Benefits
in the prices of materials and it is estimated that
the cost of the finished products will exceed net Problem:
realisable value, the materials are written down From the following information, calculate the actual
to net realisable value. In such circumstances, the return on pension plan assets:
replacement cost of the materials may be the best
Fair market value of plan assets on `45,00,000
available measure of their net realisable value.
1st April, 2023
Therefore, in this case, the materials will be valued Fair market value of plan assets on `51,20,000
at ` 160 per kg. Total value ` 8,00,000 (i.e., 5000 x 31st March, 2024
180). Employee’s contribution `6,65,000
(ii) Input : 10,000 MT; Normal wastage : 5%, i.e., 5% Benefit paid to retirees `7,60,000
of 10,000 MT = 500 MT. Fair market value of plan assets on 1st April, 2023

VOL 09 I NO. 05
Solution: Solution:
INTERMEDIATE
1. Calculation of Theoretical Ex-Right Price

Computation of actual return on pension plan assets: (Fair value of all outstanding shares
Particulars immediately prior to exercise of right + Total
` `
amount received from exercise of rights)
Fair value of plan assets on 51,20,000 =
No. of shares outstanding prior to exercise of
31.3.2014 right + No. of shares issued in the exercise
Less: Fair value of plan 45,00,000 (5,00,000 × 90)+(250000×50)
assets on 1.4.2013 = = `76.67
500000+250000
Change in fair value of plan 6,20,000 2. Calculation for Adjustment Factor.
assets Fair value per share immediately prior to exercise of
Adjustments: rights ÷ Theoretical Ex-right fair value per share
Employer’s Contribution 6,65,000 = ` 90 / ` 76.67 = ` 1.1739
Less: Benefit paid to retirees 7,60,000 95,000 3. Computation of EPS
Actual return on plan assets 7,15,000 2022-23 2023-24
Particulars
(`) (`)
Profit before tax 1100000 1350000
• Ind AS 33 – Earnings Per Share
Less: Corporate tax @ 30% 330000 405000
Problem: Neel Limited issued 5,00,000 equity shares Profit after tax (profit 770000 945000
of `10 each, fully paid amounting to `50,00,000. attributable to equity
shareholders)
It issued right shares among the existing shareholders,
EPS for 2022-23 1.54 ---
on 31st July, 2023 in the proportion of one new share (770000/500000)
for two outstanding shares at `50 each. Market price EPS restated for 2022-23 for 1.31 ---
of the company’s share prior to right issue was `90. right issue
Net profit before tax for the year ending on 31st March, = 770000/500000 ×1.1739
2023 and 31st March, 2024 was `11,00,000 and EPS for 2023-24 including
right issue 1.36
`13,50,000 respectively. Corporate tax rate is 30%. You
= 945000/[(500000 ×1.1739 ×
are required to compute the basic earnings per share for 4/12)+(750000 × 8/12)]
the financial years 2022-23 and 2023-24 and restated = 945000/(195650 + 500000)
EPS for 2022-23. = 945000/695650

VOL 09 I NO. 05
INTERMEDIATE
Section B: Auditing
Topic: Auditing of Different Types of Undertakings
• Multiple Choice Questions I. Audit of Income

1. The rural self-governance in India is structured in 1. Tuition fees received: The auditor should check the
_________ layers. fees received by comparing counterfoils of receipts
A. Two granted against entries in the cash book. He must
ensure that the revenue from this source has been
B. Three duly accounted for.
C. Four 2. Admission fees received: The auditor should check
D. Five admission fees based on admission slips signed by the
concerned authority of the institution. He must ensure
2. Which of the following is a part of urban self-
governance system in India? that the amount has been appropriately credited to a
capital fund,. If the managing committee has decided
A. Gram Panchayat any other treatment, he must enquire into the same
B. Municipal Corporation and see that the policy has been carried out.
C. Zilla Parishad 3. Government grants: He should verify the grant from
the government or any local authority with the memo
D. Panchayat Samiti of grant. He must see that the accounting entry for
3. Out of the profit remaining after compulsory transfer the same has been done appropriately and the same
to Reserve Fund, the maximum amount of profit has been utilized for the stated purpose only.
that can be transferred by a co-operative society for 4. Fine for late payments, etc.: The auditor should
charitable purpose is restricted to __________.
check all the late fines have been appropriately
A. 8% calculated, waiver, if any, has been properly
B. 10% authorised and all the collections have been duly
accounted for under the proper authority.
C. 12%
5. Income from other sources: The auditor should
D. 15% check income from other sources such as, rental
4. The audit of the balance sheet and proﬁt and loss income from landed property, interest and dividends
account of a banking company is mandatory under from investments, etc. with reference to documentary
____________ . evidence available.
A. RBI Act II. Audit of Expenditure
B. Payment and Settlement Act, 2007
1. Distinction between capital and revenue
C. Banking Regulation Act, 1949 expenditure: The auditor must ensure that proper
D. Companies Act, 2013 distinction has been made between capital expenditure
and revenue expenditure in the books of accounts.
Answer: 2. Vouching of expenses: The auditor needs to check
all expenses with reference to the entries in the cash
1 2 3 4 book with the help of bills, etc.
B B B C 3. Purchase of fixed assets: Purchase of fixed
assets should be verified with the help of relevant
• Comprehensive Questions documents. The auditor should assure himself about
their existence through physical verification at a
Question: particular interval of time. He must also see that the
How will an auditor conduct the audit of income and purchase has been properly authorised by appropriate
expenditure of an educational institution? authority.
Solution: 4. Depreciation of fixed assets: The auditor should
In order to audit the income and expenditure of an examine whether proper depreciation has been
education institution, the following steps must be charged on the fixed assets of the institute including
undertaken. furniture and buildings.

Topic
Module 6:
Working Capital
Management
Module 9:
Data Processing, INTERMEDIATE
Organisation, Cleaning
and Validation Group II - Paper-11
Financial
Management and
Business Data
Analytics (FMDA)

VOL 09 I NO. 05
INTERMEDIATE
Subject: Financial Management and Business Data Analytics
Financial Management
Working Capital Management (a) Raw material cost ₹ 150
Working capital has two concepts: (b) Direct labour cost ₹ 40
(i) Gross working capital and (c) Overhead cost ₹ 60
(ii) Net working capital. (d) Total Cost ₹ 250
(e) Profit ₹ 50
Gross working capital refers to the total of the current
assets. Net working capital refers to the excess of the (f) Selling Price ₹ 300
current assets over current liabilities. Net working Other information:
capital (NWC) can alternatively define as the part of
(i) The company keeps raw material in stock on an
the current assets which are financed with the long-term
average for 2 months; work in progress on an
funds. Since, current liabilities represent sources of average for 3 months and finished goods in stock
short-term funds, as long as the current assets exceeds on an average 1 month.
the current liabilities, the excess must be financed with
(ii) Credit allowed by suppliers is 1.5 months;
the long-term funds.
(iii) Company allows 2 months credit to its debtors.
Determinants of Working Capital:
(iv) The lag in payment of wages is 1 month and lag in
(i) Nature and size of the Business; (ii) Production payment of overhead expenses is 1.5 months.
Policies; (iii) Process of Manufacture; (iv) Growth and
(v) The company sells 25% of the output against cash
Expansion of Business; (v) Fluctuations in the Trade and maintain cash in hand at bank put together at ₹
Cycle; (vi) Terms and conditions of Purchases and 1,50,000.
Sales; (vii) Dividend Policy; (viii) Price Level Changes;
Production is carried on evenly throughout the year and
(ix) Operating Efficiency; (x) Percentage of Profits and
wages and overheads also similarly. Work in progress
Appropriation out of Profits stock is 75% complete in all respects.
Example 1 Prepare statement showing estimate of working capital
PQR Ltd. has furnished information of a product requirements to finance an activity level of 15,000 units
(per unit): of production.
Solution:
(Receivables (Debtors) are calculated based on Cost of goods sold)
(₹ ) (₹ )
A. Current Assets
(i) Inventories:
15,000 units×₹150 3,75,000
Raw material (2 months) = 12 Months
×2 Months
15,000 units×₹250 7,03,125
WIP Inventory (3 months) = ( 12 Months
×3 Months) × 0.75
15,000 units×₹250 3,12,500 13,90,625

Finished goods inventory (1 month) = 12 Months
× 1 Month

(ii) 15,000 units×₹250 4,68,750

Receivables (Debtors) (2 months) = ( 12 Months
×3 Months) × 0.75
(iii) Cash and bank balance 1,50,000
Total Current Assets 20,09,375
B. Current Liabilities:
(i) 15,000 units×₹150 2,81,250
Payables (Creditors) for materials (1.5 months) = 12 Months
×1.5 Months
(ii) 15,000 units×₹40 50,000
Outstanding wages (1 month) = 12 Months
× 1 Month
(iii) 15,000 units×₹150 1,12,500
Outstanding overheads (1.5 months) = 12 Months
× 1.5 Months
Total Current Liabilities 4,43,750
Net Working Capital Needs (A – B) 15,65,625
Example 2
In order to increase sales from the normal level of ` 2.4 lakh per annum, the marketing manager of X Ltd. submits a
proposal for liberalising credit policy as under:
Normal sales: ` 2.4 lakh
Normal credit period: 30 days.
Proposed increase in credit period beyond normal 30 days Increase in normal sales (`)
15 12,000
30 18,000
45 21,000
60 24,000
The contribution to volume/profit-volume ratio is 33.33 per cent. The company expects a pre-tax return of 20 per cent
on investment. Evaluate the above 4 alternatives and advise the management (assume 360 days a year).
Solution:
Effect of extending credit period to customers (Amount in lakh of rupees)
Particulars Credit period (days)

Days 30 45 60 75 90
Sales 2.4 2.52 2.58 2.61 2.64
Variable costs (2/3) 1.6 1.68 1.72 1.74 1.76
Contribution (1/3) 0.8 0.84 0.86 0.87 0.88
Less: Cost of investment in debtors at variable costs (as data related to 0.027 0.042 0.057 0.0725 0.088
fixed cost is not given)
(Total VC/Debtors turnover) × 0.20
Profit 0.773 0.798 0.803 0.7975 0.792
Comment: The company is advised to extend credit for 60 days.

VOL 09 I NO. 05
INTERMEDIATE
Multiple Choice Questions (b) Only lower limit and return point are decided
1. The basic objectives of Working Capital (c) Only upper limit and return point are decided
Management are:
(d) None of the above are decided.
(a) Optimum utilization of resources for
Answer (a)
profitability
4. Conversation of marketable securities into cash
(b) Ensuring marginal return on current assets is
entails a fixed cost of ₹1,000 per transaction. What
always more than cost of capital
will be the optimal conversation size as per Baumol
(c) To meet day-to-day current obligations model of cash management?
(d) Select any one of the above statements (a) ₹315,628
Answer (c) (b) ₹316,228
2. Trade credit is a (c) ₹317,678
(a) Negotiated source of finance (d) ₹318,426
(b) Spontaneous source of finance Answer: (b)
(c) Hybrid source of finance 5. The term Float is used in
(d) None of the above (a) Receivable Management
Answer (b) (b) Cash Management
3. In Miller - ORR Model of Cash Management is: (c) Marketable Management
(a) The lower, upper limit, and return point of Cash (d) Inventory Management
Balances are set out
Answer (b)
Data Analytics
(Data Processing, Organisation, Cleaning and Validation)
Data Processing
Data processing is the method of collecting raw data and translating it into usable information. It is usually performed in
a step-by-step process by a team of data scientists and data engineers in an organization. The stages of data processing
cycle are mentioned below:
Stages of data processing cycle
Source: https://peda.net/kenya/ass/subjects2/computer-studies/form-3/data-processing

VOL 09 I NO. 05
Significant areas of data processing where data Data Cleaning

INTERMEDIATE
science play important role

Data cleansing is the process of correcting or deleting
Risk analytics Real time Customer data inaccurate, corrupted, improperly formatted, duplicate,
analytics management:
or insufficient data from a dataset.
Consumer Customer Personalized
Analytics segmentation services How to Clean Data
Advanced Predictive Fraud detection
customer Analytics (a) Identify data discrepancies using data observability
service tools.
Anomaly Algorithmic
(b) Remove unnecessary values.
detection trading
Data Organization (c) Remove duplicate data.
Data organisation is the classification of unstructured (d) Fix structural errors.

data into distinct groups. This raw data comprises
(e) Address any missing values.
variables’ observations. As an illustration of data
organisation, the arrangement of students’ grades in (f) Standardize data entry and formatting.
different topics is one example.
(g) Validate and correct values against a known list of
Good data organization strategies are important entities.
because your data contains the keys to managing your
company’s most valuable assets. Getting insights (h) Develop a data quality strategy.
out of this data could help you obtain better business
Data validation
intelligence and play a major role in your company’s
success. Data validation is a crucial component of any data
Data distribution management process, whether it is about collecting

information in the field, evaluating data, or preparing
Data distribution is a function that identifies and
to deliver data to stakeholders. If the initial data is not
quantifies all potential values for a variable, as well
as their relative frequency (probability of how often valid, the outcomes will not be accurate either. It is
they occur). Any population with dispersed data is therefore vital to check and validate data before using it.
categorised as a distribution. It is necessary to establish
Data validation steps
the population’s distribution type in order to analyse it
using the appropriate statistical procedures. • Gather program requirements from technical and
Types of data distribution business stakeholders.
Discrete Distributions Continuous Distributions • Define validation rules and criteria.

1. Binomial 1. Normal • Collect and organize datasets.
2. Poisson 2. Lognormal
3. Hypergeometric 3. F Distribution • Verify data against defined rules and criteria.
4. Geometric 4. Chi Square
• Identify errors or inconsistencies and determine
5. Exponential
6. T Student
how to handle them.
Type of data distribution

VOL 09 I NO. 05
INTERMEDIATE
Topic
Module 5:
Transfer Pricing
Module 8:
Divisional
Performance
Measurement
INTERMEDIATE
Group II - Paper-12
Management
Accounting (MA)

Module 5: Transfer Pricing
I
n the domain of cost and management accounting, transfer prices that facilitate efficient resource allocation
transfer pricing serves as a crucial mechanism for and promote coordination among various units. These
allocating costs and assessing performance within transfer prices should reflect the true costs of the goods
multinational corporations. It involves determining the or services exchanged, taking into account factors such
prices at which goods, services, or intangible assets are as production costs, overhead expenses, and market
transferred between different segments or subsidiaries conditions. By establishing transparent and equitable
of the organization. The objective is to accurately transfer pricing mechanisms, cost and management
reflect the costs associated with these transactions accountants can ensure that resources are allocated
and ensure that they are fairly allocated among the effectively and that the organization operates efficiently
various entities involved. By adhering to the principles as a whole.
of cost and management accounting, companies can
International Transfer Pricing
make informed decisions regarding pricing strategies,
resource allocation, and performance evaluation. In the context of cost and management accounting,
international transfer pricing poses unique challenges
Methods and Techniques
due to differences in tax regulations, currency
Cost and management accountants employ various fluctuations, and regulatory requirements across
methods and techniques to determine transfer prices jurisdictions. Cost and management accountants must
that align with the organization’s strategic objectives navigate these complexities to develop transfer pricing
and regulatory requirements. These methods include strategies that optimize tax efficiency while ensuring
traditional approaches such as the Cost-Plus Method, compliance with regulatory standards. By leveraging
which adds a markup to the cost of production, as their expertise in cost analysis and performance
well as more advanced techniques like Activity-Based evaluation, cost and management accountants can help
Costing (ABC), which allocates costs based on the multinational corporations navigate the complexities of
activities that drive them. By utilizing these methods, international transfer pricing and achieve their strategic
companies can derive transfer prices that accurately objectives.
reflect the underlying costs and provide meaningful
Transfer pricing is a critical aspect of multinational
insights for decision-making purposes.
business operations, encompassing various concepts
Divisional Performance and Problem of Goal and techniques. At its core, it involves pricing
Congruence transactions within a company to ensure fairness and
compliance with the arm’s length principle. Methods
Transfer pricing has a significant impact on divisional
such as Comparable Uncontrolled Price (CUP), Resale
performance evaluation within organizations. Cost
Price Method, Cost-Plus Method, and Profit Split
and management accountants play a crucial role in
Method are utilized to determine appropriate transfer
ensuring that transfer prices align with the company’s
prices. However, these methods must be applied
performance metrics and promote goal congruence
carefully to address divisional performance metrics and
across different segments. However, challenges may
promote goal congruence across the organization. Inter-
arise when divisional managers prioritize their own
departmental or inter-company transfer pricing further
performance objectives over the broader goals of
complicates the issue, requiring careful consideration
the organization. Cost and management accountants
to balance divisional profitability with overall company
must address these issues by designing performance
objectives. Moreover, international transfer pricing
measures that incentivize collaboration and alignment
introduces additional complexities due to differing
with overall corporate objectives.
tax regulations and compliance requirements across
Determination of Inter-departmental or Inter- jurisdictions. Navigating these challenges effectively
company Transfer Price is essential to ensure efficient resource allocation,
Cost and management accountants are responsible compliance with tax laws, and alignment with corporate
for determining inter-departmental or inter-company goals.

VOL 09 I NO. 05
INTERMEDIATE
MCQ d) Analyzing financial statements
1. What is the primary objective of transfer pricing in 6. What is the primary challenge associated with
cost and management accounting? international transfer pricing?
a) Maximizing shareholder wealth a) Allocating overhead costs
b) Ensuring fairness and accuracy in cost b) Navigating differences in tax regulations

allocation
c) Determining divisional performance metrics
c) Minimizing tax liabilities
d) Setting transfer prices based on market
d) Increasing market share conditions
2. In cost and management accounting, transfer 7. Which of the following situation is considered
pricing is most closely associated with: under negotiated transfer pricing?
a) Allocating indirect costs a) Divisions are not forced to purchase internally
b) Assessing divisional performance b) When external market does not exist and
market prices are not available
c) Budgeting and forecasting
c) Increase sales revenue
d) Financial statement analysis
d) Existence of export market
3. What challenge does transfer pricing pose in
relation to divisional performance evaluation? 8. The problem of goal congruence in transfer pricing
refers to:
a) Incentivizing collaboration
a) Ensuring compliance with tax regulations
b) Ensuring compliance with tax regulations
b) Maximizing shareholder wealth
c) Addressing goal congruence issues
c) Minimizing production costs
d) Minimizing production costs
d) Aligning divisional goals with corporate
4. What issue arises when divisional managers
objectives
prioritize their own performance objectives over
the broader goals of the organization? 9. In which of the following situation ‘Market Based
Transfer Prices’ method will be used?
a) Goal congruence
a) When a competitive external market for the
b) Transfer pricing compliance
product exists.
c) Tax optimization
b) When managers have the autonomy to purchase
d) Resource allocation externally or internally.
5. What role do cost and management accountants c) When transferring and receiving divisions
play in determining transfer prices? are treated as a profit or investment centre
a) Implementing tax strategies and, therefore, are evaluated on profit based
measures, such as ROI or residual income.
b) Evaluating market share
d) When the transferring division is treated
c) Allocating production costs
as a cost centre. In this case, a profit is not

necessary, as performance evaluation is based 3. The creation of foreign subsidiaries and bases of
on cost control. operation for cross-border flow of products is
having a significant impact on the issue of transfer
10. What is the key consideration when determining
pricing.
inter-departmental or inter-company transfer
prices? 4. The decision-making and the performance
evaluation objectives for establishing a transfer
a) Maximizing divisional profits
pricing system does not conflict with each other.
b) Ensuring compliance with tax regulations
5. Divisional profits are a reasonable measure of the
c) Promoting collaboration and efficiency managerial performance of the division.
d) Reducing market competition Answer
11. Which of the following is not the objective of 1. False
international transfer pricing?
2. True
a) Repatriation of profits in kind
3. True
b) Maximization of import duties
4. False
c) Management of direct and indirect taxation
5. True
d) To disguise profitability of a subsidiary
Fill in the blanks
12. Division R transfers its output to Division S at
1. Division under transfer pricing system is treated as
variable cost. Once a year R charges a fixed fee to
_____________.
S, representing an allowance for R’s fixed costs.
This type of transfer pricing system is commonly 2. _________________ is the most popular method
known as: of transfer pricing.
a) Dual pricing 3. ____________ can be helpful in proper utilization

of work force.
b) Negotiated transfer pricing
4. Domestic transfer pricing is concerned with fairly
c) Opportunity cost-based transfer pricing
compensating an _________ for products.
d) Two-part tariff transfer pricing
5. A company can choose a __________ to locate
Answer: profit in a division in a country with a low corporate
1 2 3 4 5 6 7 8 9 10 11 12 tax rate.
b b c a c b b d d d b a
Answer
True and False 1. Profit Centre
1. Opportunity Cost Based Transfer Pricing is not 2. Market based pricing

considered as a method of Transfer Pricing.
3. Cross training
2. Dual pricing is the method of transfer pricing used
4. internal division
to price transfer of products from one subunit to
another. 5. transfer price

VOL 09 I NO. 05
INTERMEDIATE
Module 8: Divisional Performance Measurement
Organizations transition from centralized to on Equity (ROE) into its components. This allows
decentralized structures as they grow, aiming to adapt to for a deeper understanding of financial performance
dynamic needs effectively. Decentralization empowers and helps investors identify strengths and weaknesses
lower levels with decision-making authority, fostering accurately.
agility in response to local conditions. Responsibility
Components of DuPont Analysis:
centers, including cost, revenue, profit, and investment
centers, are established to evaluate performance. The 1. Operating Performance: This measures
extent of decentralization is determined by managerial profitability by dividing net profit by total revenues.
traits, growth demands, and organizational activities. Maintaining healthy profit margins is essential for
Despite decentralization, top management maintains improving ROE.
overall accountability, facilitated by sophisticated 2. Asset Usage Performance: Assessed through
accounting systems for oversight. Centralizing the Total Asset Turnover ratio, indicating how
functions such as treasury management enhances cash efficiently assets are being utilised. Higher asset
control and cost efficiency. Ultimately, decentralization turnover positively impacts ROE.
seeks to strike a balance between decision-making
efficiency and organizational accountability across the 3. Financial Leverage: This involves using debt to
continuum of growth and change. finance assets. While leverage can enhance ROE,
excessive debt can pose risks to the company’s
Disadvantages of Decentralization: financial health.
• Risk of goal incongruence or sub-optimization by Significance of DuPont Analysis:
sub-unit managers.
• A high Net Profit Margin, effective asset usage, and
• Increased need for effective communication due appropriate financial leverage can increase ROE.
to decision-making being distant from the home
office. • It helps divisional managers understand their
segment’s contribution to overall ROE and aids top
• Potential personnel challenges upon management in capital allocation decisions.
implementation, especially if managers struggle to
delegate effectively. • Increasing ROE solely through leverage is not
advisable, as it can elevate risk levels.
• Can be costly, including expenses for training and
potential poor decision-making. Performance Measurement and ROI:
Divisionalization and Decentralization: Successful performance measurement aligns with an

organisation’s objectives, typically centred around
• Many large organizations adopt divisional shareholder wealth maximisation. Profit-based
structures, with a focus on measuring divisional measures are common but overlook the cost of equity
and managerial performance. capital, leading to incomplete wealth assessment.
• Decentralization involves decision-making Divisional Structure:
at divisional and departmental levels, while
centralization sees decisions made by top In divisional structures, divisions operate autonomously,
management and implemented by subordinates. necessitating clear strategy communication for goal
congruence. Performance data must flow freely to all
• Decentralization aids in recognising and developing levels for effective budgeting and monitoring.
managerial talent, addressing local problems,
and reducing stress for senior management. It ROI as a Performance Measure:
also fosters job satisfaction and facilitates the
Return on Investment (ROI) is crucial, expressing
achievement of organisational goals.
divisional profit as a percentage of assets employed.
DuPont Methodology Overview: The DuPont It aids comparison across divisions and facilitates
methodology, developed by the DuPont Corporation, planning for profit improvement by focusing on margin,
analyses fundamental results by breaking down Return turnover, or both.

VOL 09 I NO. 05
Use of ROI: Economic Value Added (EVA)

INTERMEDIATE
ROI serves financial reporting and aggregation purposes, EVA is a value-based financial performance measure
allowing comparisons between units. However, it may that assesses a company’s ability to generate returns
encourage short-termism due to non-current asset exceeding its cost of capital.
measurement complexities and target return policies.
Calculation: EVA = Net Operating Profit After Tax
Challenges with ROI Policies: (NOPAT) - (Weighted Average Cost of Capital (WACC)
Policies setting minimum ROI thresholds for × Economic Capital Employed)
investments may overlook risk variations and impose Significance:
uniform standards on diverse businesses within a
conglomerate, potentially incentivising short-term • Performance Measurement: EVA measures a
decisions. company’s economic profit, indicating whether it
surpasses shareholder expectations.
Residual Income (RI)
• Incentive Compensation: Used to set and assess
Definition: Residual income is the profit left over
incentive compensation payments, encouraging a
after deducting a cost of capital charge from the
balance between short-term results and long-term
divisional profit, providing a more accurate measure of
performance.
performance than ROI.
• Decision Making: Provides managers with
Calculation: RI = Divisional profit - (Percent capital
charge × Divisional investment) valuable information for making decisions and
formulating strategies that enhance EVA.
Advantages:
Components:
1. Avoids Suboptimal Decisions: Investments
are accepted if they exceed the cost of capital, • Cost of Equity: Determined using the Capital
preventing ROI-centric rejections. Asset Pricing Model (CAPM), representing the
return investors seek when buying common shares.
2. Maximises Growth: Accepts opportunities
exceeding the cost of capital, enhancing shareholder • Cost of Debt: Rate of return debt-holders require,
wealth. typically calculated using discounted cash flow
analysis.
3. Awareness of Opportunity Cost: Capital charge
ensures managers consider the opportunity cost of • Cost of Tax: Adjusted after-tax cost of debt.
funds.
Advantages:
4. Alignment with Organisational Interests: Charging
• Wealth Creation Focus: Emphasizes creating
each division with the company’s cost of capital
wealth exceeding the cost of capital, essential for
ensures decisions align with organisational goals.
economic survival and shareholder value.
Managerial Impact:
• Performance Comparison: Enables comparison
• ROI Method: Managers accept investments only if of companies’ performance by removing accounting
returns exceed divisional ROI to avoid decreasing anomalies.
it.
• Encourages Correct Decisions: Encourages
• RI Method: Accepts investments exceeding the managers to make decisions and strategies that
minimum required rate of return, increasing the enhance EVA by considering incremental wealth
division’s overall RI.
creation.
Disadvantage:
Limitations:
• Absolute Measure: Difficult to compare divisions
• Absolute Measure: Difficulty in comparing
of different sizes; setting targeted RI levels can
divisions or companies of different sizes.
mitigate this issue.
• Short-Term Focus: Like ROI, may encourage
• Short-term Orientation: Like ROI, can encourage
short-term focus, potentially overlooking long-term a short-term orientation, potentially overlooking
benefits. long-term benefits.

VOL 09 I NO. 05
MCQ 6. A company has Net profit Margine is 0.25, total
INTERMEDIATE
1. In a centralized organizational structure, the asset turnover is 1.6 times and equity multiplier is
majority of decision-making authority lies in the 2.5 Calculate ROE as per Du Pont analysis.
hands of ____________. a) 0.625
a) Top level management b) 4
b) Middle level management
c) 1
c) Low level management
d) 1.5
d) None of the above
7. Return on investment (ROI) is calculated as
2. Which one is not a benefits of decentralized
organization structure? a) (Profit before interest and tax ÷ Operations
management capital employed) × 100
a) Helps top management recognizes and develop
managerial talent b) (Profit after tax ÷ Operations management
capital employed) × 100
b) Greater awareness of local problems
c) (Profit before interest and tax ÷ Operating
c) Requires more effective communication
profit) × 100
abilities
d) Develops skill level of junior managers d) (Profit after interest and before tax ÷ Operating
profit) × 100
3. Which one is not the formula of ROE under DuPont
analysis? 8. Residual Income (RI) can be calculated as
a) Net Profit Margin × Asset Turnover Ratio × a) (Profit before interest and tax ÷ Operations
Financial Leverage management capital employed) × 100
b) (Net Income ÷Sales) × Asset Turnover Ratio × b) Divisional profit - (Percent capital charge ×
Financial Leverage Divisional investment)
c) Net Profit Margin × Asset Turnover Ratio × c) Divisional profit + (Percent capital charge ×
(Total Assets ÷ Total Equity) Divisional investment)
d) Gross Profit Margin × (Sales ÷Total Assets) × d) (Profit after interest and before tax ÷ Operating
Financial Leverage
profit) × 100
4. In DuPont analysis Net profit margin measures the
9. Which one of the following is not the advantage of
_____________.
Residual Income (RI)
a) Operating performance
a) It maximizes growth of the company and
b) Asset usage performance increases shareholders’ wealth
c) Amount of debt used to acquire assets or fund b) The cost of capital charge on divisional
project
investments ensures that divisional managers
d) Efficiency of the company in using its assets are aware of the opportunity cost of funds.
5. Which one is not the importance of Du Pont c) Charging each division with the company’s
analysis cost of capital ensures that decisions taken
a) Generates a high Net Profit Margin by different divisions are compatible with the
interests of the organization as a whole
b) Effectively uses its assets so as to generate
d) Residual income is an absolute measure which
more sales
helps to compare the performance of a division
c) Has a high Financial Leverage with that of other divisions or companies of a
d) Relies on accounting equations different size

VOL 09 I NO. 05
10. A company has gross margin of ₹ 258,000, Selling Fill in the blanks
INTERMEDIATE
and administrative expense ₹ 210,000, January 1

1. The process of delegating decision authority and
net book value of operating assets Rs. ₹2,77,000,
responsibility in an organization is known as
December 31 net book value of operating assets
₹3,23,000 and Minimum rate of return 12%. __________.
Calculate Residual Income from the above details. 2. Economic Value Added = NOPAT – (WACC x
a) 12,000 ____________)
b) 15,000 3. The main disadvantage of the DuPont analysis is

that it still relies on __________equations.
c) 16,000
4. The essence of decentralization is ____________
d) 2,19,240
freedom.
11. Acme, a division of Ace Manufacturing, has assets
of ₹2,25,000 and an operating income of ₹55,000. 5. Total Assets Turnover ratio depicts the efficiency
What is the division’s ROI and RI? of the company in using its_______.
a) 24.44% and 24000 Answer
b) 24.44% and 28,000 1. decentralization

c) 20.11% and 28000 2. capital employed
d) 20.11% and 24000 3. accounting
12. An investment center has net assets of ₹8,00,000, 4. decision-making
and made profits before interest and tax of
₹1,60,000. The notional cost of capital is 12%. 5. assets
Calculate RI (Residual Income). True & False
a) 54,000 1. To increase overall efficiency, many companies
b) 64,000 choose to decentralize.
c) 80,000 2. Companies only generate wealth when they

generate a return in excess of the return required
d) 19,200
by providers of capital.
Answer
3. In calculation of EVA the cost of debt should be
1. a
considered as before tax.
2. c
4. Decentralization can be extremely cheap,
3. d including costs of training and of making poor
4. a decisions.
5. d 5. Negative EVA indicates that a company surpassed

the expectations of its shareholders
6. c
Answer
7. a
8. b 1. True
9. d 2. True
10. a 3. False
11. b 4. False
12. b 5. False

VOL 09 I NO. 05
FINAL
CMA
FINAL
COURSE
Syllabus 2022

FINAL VOL 09 I NO. 05
Topic
Module 8:
Laws and
Regulations related
to Insurance Sector
FINAL
Group III - Paper-13
Corporate and
Economic Laws
(CEL)

VOL 09 I NO. 05
LAW RELATED TO INSURANCE SECTOR

Constitution of IRDA loss assessors (e) Promoting efficiency in insurance
FINAL
business
Chairman and Members of Authority
(f) Levying fees and other charges for carrying out the
As per the section 4 of IRDAI Act 1999, Insurance
purposes of the Act
Regulatory and Development Authority of India
(IRDAI, specify the composition of Authority with 10 (g) manner of keeping books of account shall
members all appointed by Central Govt. be maintained by insurance companies and
intermediaries
MISSION STATEMENT OF THE AUTHORITY
(h) Calling for information from or undertaking
• To protect the interest of and secure fair treatment
inspection of insurance companies, intermediaries
to policyholders .
and other oganisations connected with insurance
• To bring about speedy and orderly growth of business
the insurance industry (including annuity and
(i) Control and regulation of rates, advantages, terms
superannuation payments), for the benefit of the
and conditions that may be offered by general
common man, and to provide long term funds for
insurance companies
accelerating growth of the economy;
Insurance Regulatory and Development Authority
• To set, promote, monitor and enforce high standards
Fund:
of integrity, financial soundness, fair dealing and
competence of those it regulates; According to Section 16(1) of Insurance Regulatory
and Development Authority Act, 1999, there shall be
• To ensure speedy settlement of genuine claims, to
constituted a fund to be called the Insurance Regulatory
prevent insurance frauds and other malpractices
and Development Authority Fund where following
and put in place effective grievance redressal
funds shall be credited.
machinery;
(a) all Government grants, fees and charges received;
• To promote fairness, transparency and orderly
conduct in financial markets dealing with insurance (b) all sums received from such other source as may be
and build a reliable management information decided upon by the Central Government;
system to enforce high standards of financial
(c) the percentage of prescribed premium income
soundness amongst market players;
received from the insurer.
• To take action where such standards are inadequate
The Fund shall be applied for incurring expenses for
or ineffectively enforced;
(a) remuneration of the members, and employees of
• To bring about optimum amount of self-regulation the Authority; (b) the other expenses of the Authority.
in day-to-day working of the industry consistent
The Authority shall furnish to the Central Government
with the requirements of prudential regulation.
at such time and in such form and manner as may be
Regulation of Insurance Business prescribed, as the Central Government may, from time
to time, require.
Under Section 14 of the IRDA Act, IRDA is the
Authority to regulate, promote and ensure orderly (2) The Authority shall, within nine months after the
growth of the insurance business and re-insurance close of each financial year, submit to the Central
business, with following powers. Government a report giving a true and full account
of its activities including the activities for promotion
(a) Issue of Certificate of Registration to insurance
and development of the insurance business during the
companies, renew, modify, withdraw, suspend or
previous financial year.
cancel the certificate of registration
(3) Copies of the reports received, shall be laid, as soon
(b) Protection of interests of policyholders
as may be after they are received, before each House of
(c) Specification of requisite qualifications, practical Parliament.
training and code of conduct for insurance agents
Investment of assets of insurance companies.
and intermediaries
Investment of Assets is stipulated under Section 27 of
(d) Specification of code of conduct for surveyors and

VOL 09 I NO. 05
the Insurance Act. Every insurer shall invest and at all MCQ
times keep invested assets equivalent to not less than
1. IRDA shall, within _____________ after the
FINAL
the sum of the amount of his liabilities to holders of

close of each financial year, submit to the Central
life insurance policies in India on account of matured
claims, and the amount required to meet the liability Government a report giving a true and full account
on policies of life insurance maturing for payment in of its activities.
India, less the amount of premiums which have fallen (a) nine months
due to the insurer on such policies but have not been
paid and the days of grace for payment of which have (b) three months
not expired, and any amount due to the insurer for loans (c) one month
granted on and within the surrender values of policies
of life insurance maturing for payment in India issued (d) six months
by him or by an insurer whose business he has acquired Answer: (a)
and in respect of which he has assumed liability in
the following manner namely: (a) 25% of the said 2. The principle of _____________ ensures that an
sum in Government securities, a further sum equal to insured does not profit by insuring with multiple
not less than twenty-five per cent of the said sum in insurers.
Government securities or other approved securities,
(a) Subrogation
and (b) the balance in any of the approved investments
as may be specified by the regulations subject to the (b) Contribution
limitations, conditions and restrictions specified therein.
(c) Co-insurance
In the case of an insurer carrying on general insurance
business, 25% of the assets in Government Securities, (d) Indemnity
a further sum equal to not less than ten per cent of the
Answer: (b)
assets in Government Securities or other approved
securities and the balance in any other investment in 3. An actuary is expected to:
accordance with the regulations of the Authority and
(a) Make an exact forecast of the future liabilities
subject to such limitations, conditions and restrictions
of policies
as may be specified by the Authority in this regard. No
insurer carrying on life insurance business shall invest (b) Make a reasonable forecast of the future
or keep invested any part of his controlled fund and liabilities of policies
no insurer carrying on general business shall invest or
keep invested any part of his assets otherwise than in (c) Calculate the premium required to cover a risk
any of the approved investments as may be specified by on a long-term basis
the regulations subject to such limitations, conditions (d) Find the probability of an insured event to
and restrictions therein. (Section 27A). All assets of happen in non-life policies
an insurer carrying on general insurance business shall
subject to such conditions, if any, as may be prescribed, Answer: (b)
be deemed to be assets invested or kept invested in 4. The amount credited to The Insurance Regulatory
approved investments specified in section 27. (Section and Development Authority Fund shall consist of:
27B).
(a) all Government grants, fees and charges
An insurer may invest not more than five per cent
received by the Authority;
in aggregate of his controlled fund or assets in the
companies belonging to the promoters, subject to such (b) all sums received by the Authority from such
conditions as may be specified by the regulations. other source as may be decided upon by the
(Section 27C) (f) Prohibition of loans (Section 29). Central Government;
No insurer shall grant loans or temporary advances (c) the percentage of prescribed premium income
either on hypothecation of property or on personal received from the insurer;
security or otherwise, except loans on life insurance
policies issued by him within their surrender value, to (d) all of the above
any director, manager, actuary, auditor or officer. Answer: (d)

VOL 09 I NO. 05
FINAL
Topic
Module 6 :
Equity and Bond
Valuation and
Evaluation of
Performance
FINAL
Strategic Financial
Management (SFM)

VOL 09 I NO. 05
Section: International Financial Management

FINAL
Topic: Equity and Bond Valuation and Evaluation of Performance

• Multiple Choice Questions:
1. The equity share of C Limited is currently selling D1 = 4.00 (1.18) = 4.72

for `30 per share. The dividend expected next year
D2 = 4.00 (1.18)2 = 5.56
is `2.00. The investors’ required rate of return on
this stock is 15 percent. If the constant growth D3 = 4.00 (1.18)3 = 6.58
model applies to Rax Limited, what is the expected D4 = 4.00 (1.18)4 = 7.76
growth rate ?
D5 = 4.00 (1.18)4 (1.12) = 8.68
(A) 7.5%
D6 = 4.00 (1.18)4 (1.12)2 = 9.72
(B) 8.1%
D7 = 4.00 (1.18)4 (1.12)3 = 10.90
(C) 8.3%
D8 = 4.00 (1.18)4 (1.12)4 = 12.20
(D) 9.2%
The present value of this dividend stream is:
Answer: (C)
D 4.72 (PVIF15%, 1 yrs) + 5.56 (PVIF15%, 2 yrs)
Since P0 = r - 1g
+ 6.58 (PVIF15%, 3 yrs) + 7.76 (PVIF15%, 4 yrs)
So, g = r – D1/P0
Or, g = 0.15 – 2.00/30.00 = 0.0833 or 8.33% + 8.68 (PVIF15%, 5 yrs) + 9.72 (PVIF15%, 6 yrs)
Comprehensive Problems + 10.90 (PVIF15%, 7 yrs) + 12.20 (PVIF15%, 8 yrs)
Problem = 4.72 (0.870) + 5.56 (0.756) + 6.58 (0.658)
A Ltd.’s earnings and dividends have been growing + 7.76 (0.572) + 8.68 (0.497) + 9.72 (0.432)
at a rate of 18 per cent per annum. This growth rate + 10.90 (0.376) + 12.20 (0.327)
is expected to continue for 4 years. After that the
= 4.10 + 4.20 + 4.32 + 4.44 + 4.32 + 4.20 + 4.10 + 3.98
growth rate will fall to 12 per cent for the next 4 years.
Thereafter, the growth rate is expected to be 6 per cent = ` 33.66
forever. If the last dividend per share was `4.00 and the
Step 2: The price of the share at the end of 8 years,
investors’ required rate of return on A Ltd.’s equity is 15
applying the constant growth model at that point of
per cent, what is the intrinsic value per share ?
time, will be:
Solution: D D (1+g ) 12.20 (1.06)
P8 = r - 9g = 8r - g n = = `143.69
0.15 - .006
The intrinsic value per share of A Ltd. may be computed n n
The present value of this price is = 143.69/ (1.15)8

using a 3-step procedure.
= ` 46.98
Step 1: The dividend stream during the first eight
Step 3 : The sum of the above components is :
years when A Ltd. would enjoy a relatively high rate of
P0 = `33.66 + `46.98 = `80.64.
growth will be:

VOL 09 I NO. 05
Topic: Mutual Funds
FINAL
• Multiple Choice Questions: (A) 12.5%
1. The following information is extracted from MF, a (B) 4%

mutual fund scheme. NAV on 01-11-2023 is Rs.65.78,
(C) 3%
annualized return is 15%. Distributions of income
(D) 7.5%
and capital gains were `0.50 and `0.30 per unit in
the month. What is the NAV on 30-11-2023? Answer: (C)
(A) `67.50 Sharpe ratio = (RP – Rf)/σP = 4
(B) `66.14 Or, (0.17 – Rf)/0.035 = 4
(C) `65.80 Or, 0.17 – Rf = 0.14
(D) `66.96 Or, Rf = 0.03 = 3%
Answer: (C) 65.80 Comprehensive Problems
Monthly return = 1.25% Problem 1
So, 0.0125 = (NAV – 65.78 + 0.5 + 0.3)/65.78 Mr. NK has categorized stock in the market into four
types, viz. Small cap growth stocks, Small cap value
Or, 0.82225 = NAV – 64.98
stocks, Large cap growth stocks and Large cap value
NAV = 65.80225 = 65.80
stocks.
2. An investor has invested in a mutual fund when the
Mr. NK also estimated the weights of the above categories
NAV was ` 15.50 per unit. After 90 days the NAV
of stocks in the market index. Further, the sensitivity of
was ` 14.45 per unit. During the period the investor
returns on these categories of stocks to three important
got a cash dividend of `1.35 per unit and capital gain
factors are estimated to be:
distribution of ` 0.20. The annualized return based
Weight Factor
on 360 days year count will be ____________. Factor
Category of in the II Factor III
I
(A) 3.23% Stocks Market (Book (Inflation)
(Beta)
Index Price)
(B) 12.92% Small cap growth 25% 0.80 1.39 1.35
Small cap value 10% 0.90 0.75 1.25
(C) 0.8075%
Large cap growth 50% 1.165 2.75 8.65
(D) 16.45% Large cap value 15% 0.85 2.05 6.75
Risk Premium 6.85% – 3.5% 0.65%
Answer: (B)
The rate of return on treasury bonds is 4.5%.
Return = (14.45-15.50) +1.35 + 0.20 = +0.50
(i) Using Arbitrage Pricing Theory, determine the
Annualized return = 0.50/15.5 x (360/90) =12.92% expected return on the market index.
(ii) Mr. NK wants to construct a portfolio constituting
3. A certain mutual fund has a return of 17% with only the ‘small cap value’ and ‘large cap growth’
standard deviation of 3.5% and the Sharpe ratio is stocks. If the target beta for the desired portfolio is
1, determine the composition of his portfolio.
4. The risk-free rate is ___________.

VOL 09 I NO. 05
Solution:
(i) Calculation for expected return on the market index
FINAL
Category Wts Factor I Factor II Factor III Wts x FI Wts x FII Wts x FIII
S Cap Gr 0.25 0.80 1.39 1.35 0.2 0.3475 0.3375
S Cap V 0.10 0.90 0.75 1.25 0.09 0.075 0.125
L Cap Gr 0.50 1.165 2.75 8.65 0.5825 1.375 4.325
L Cap Va 0.15 0.85 2.05 6.75 0.1275 0.3075 1.0125
Total 1 2.105 5.8
Risk Premium 6.85 -3.5 0.65
Product 6.85 -7.3675 3.77
Total 3.2525
Expected Return on market index under APT = 4.5 + 3.2525 = 7.7525%

Let S be the investment in small cap value and L in large cap growth Thus,
(0.9S + 1.165L)/(S+L) = 1
S (0.9-1) = L (1-1.165)
0.1S = 0.I 65L, or S = 1.65L, i.e. 1/1 + 1.65 = 1/2.65 = 37.74% in Land 62.26 or 62.3% in S.
Problem 2
The following are the data on five mutual funds:
Mutual Fund Return Standard Deviation Beta

A 15 7 1.25
B 18 10 0.75
C 14 5 1.40
D 12 6 0.98
E 16 9 1.50
(i) Compute the Sharpe Ratio and Treynor’s Ratio and rank these funds assuming the risk-free rate as 6% .
(ii) Compute the unsystematic risk of these funds.
(iii) Which of the two measures in (i) is more appropriate? Why ?
(iv) Assuming that the risk-free rate is not known, would you still be able to rank the funds using the Sharpe’s and
Treynor’s ratios ? Why?
Solution:
(i) and (ii) Calculation of Sharpe and Treynor Ratio and Ranks
Return Rf R- Rf Std. dev. Sharpe ratio Sharpe rank Beta Treynor ratio Rank Treynor Unsystematic risk
A 15 6 9 7 1.285714 2 1.25 7.2 2 5.75
B 18 6 12 10 1.2 3 0.75 16 1 9.25
C 14 6 8 5 1.6 1 1.4 5.714286 5 3.6
D 12 6 6 6 1 5 0.98 6.122449 4 5.02
E 16 6 10 9 1.111111 4 1.5 6.666667 3 7.5
(iii) Treynor’s method assumes that there is no unsystematic risk and that there is full diversification, whereas Sharpe’s
method does not assume this. Moreover, as is seen, standard deviation represents the total risk consisting of systematic
and unsystematic risk. Unsystematic risk is high and hence, Treynor’s assumption is not satisfied. Hence Sharpe’s
method results in a more appropriate ranking.
(iv) In practical application, the mean return and the standard deviation are estimated.

VOL 09 I NO. 05
FINAL
Topic
Module 12:
Double Taxation
and Avoidance
Agreements FINAL
(DTAA)/ GAAR
Direct Tax Laws

and International
Taxation (DIT)

VOL 09 I NO. 05
Double Taxation Avoidance Agreement

FINAL
In home country, tax is an obligation, while in the host • Promoting Investment: By providing certainty and
country, tax is a cost. clarity on tax matters, DTAA encourages foreign
Generally, income is taxable on two basis viz. i) Source investment by reducing the tax burden on investors
of income basis and ii) Residential Status basis. Double and businesses operating across borders.
Taxation Avoidance Agreements (DTAA) play a crucial • Facilitating Exchange of Information: DTAA
role in the realm of international taxation, facilitating facilitates the exchange of information between
smoother transactions between countries and preventing tax authorities of different countries, promoting
individuals and businesses from being taxed twice on transparency and combating tax evasion and
the same income. avoidance.
What is Double Taxation? Key Components of DTAA

DTAA typically includes the following key components:
Double taxation occurs when an individual or a business
is taxed twice on the same income in two or more • Residency Rules: Defines the criteria for determining
countries. This can happen due to conflicting tax laws an individual's tax residency status, which is essential
and regulations between nations. For instance, if a person for determining the country's right to tax.
earns income in one country but is also considered a tax • Permanent Establishment (PE): Establishes the
resident in another, they may be subject to taxation on threshold for determining when a business activities
the same income by both countries. For instance, Mr. X, in one country constitute a permanent establishment,
an ordinarily resident in India, earned bank interest of subject to taxation in that country.
₹ 1,00,000 on his money deposited into a bank located • Taxation of Various Income Sources: Specifies
in US. In that case, such income is taxable in US on the the rules for taxing different types of income, such
Source of income basis and again in India as he is an as dividends, interest, royalties, and capital gains,
ordinarily resident India. ensuring that each country has the right to tax certain
types of income.
In times when economies are going global and borders
fading, double taxation is still one of the major obstacles • Tax Rates and Tax Credits: Prescribes the
to the development of inter-country economic relations. applicable tax rates for various types of income
In order to prevent this hardship or to avoid double and provides mechanisms for granting tax credits
taxation, relief is provided to the tax-payer. or exemptions to prevent double taxation.
Introduction to Double Taxation Avoidance Agreements • Mutual Agreement Procedure (MAP): Sets out
procedures for resolving disputes between tax
(DTAA)
authorities of the treaty countries and ensuring the
DTAA, also known as tax treaties, are bilateral
consistent application of the treaty provisions.
agreements between two countries aimed at preventing
Mode of providing relief
double taxation and promoting cooperation in tax matters.
These agreements delineate the taxing rights of each As per Article 2 of the Vienna Convention on Laws
of Treaties, 1969, “Treaty” means an international
country concerning various types of income, such as
agreement concluded between States in written form
dividends, interest, royalties, and capital gains.
and governed by international law, whether embodied in
Significance of DTAA
a single instrument or in two or more related instruments
DTAA serves several significant purposes: and whatever its particular designation. The two
• Preventing Double Taxation: The primary purpose countries' government agrees to provide relief against
of DTAA is to eliminate or mitigate double taxation, double taxation of the same income. The relief is granted
thereby promoting cross-border trade, investment, based on the terms of such agreement. Generally, such an
and economic activities. agreement provides relief through the following methods:

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Exemption Method Impact on Taxpayers and Businesses

In this method, one country provides an exemption to DTAA has a profound impact on taxpayers and businesses
FINAL
such type of income. Generally, the residence country
engaged in cross-border transactions:
gave up its right and the country of source is then given
the exclusive right to tax such incomes. • Reduced Tax Liability: Taxpayers benefit from
a. Full Exemption Method: Under this method, income reduced tax liability on income derived from foreign
earned in the State of Source is fully exempt in the sources, as DTAA often lowers the withholding
State of Residence. tax rates on dividends, interest, royalties, and other
b. Exemption with Progression: Under this method, income.
income from the State of Source is considered by
the State of Residence only for the rate purpose. • Certainty and Predictability: Businesses enjoy
Credit Method greater certainty and predictability regarding their
In this method, the resident remains liable in the country tax obligations in foreign jurisdictions, enabling
of residence on its global income, however as far as the better tax planning and investment decisions.
quantum of tax liabilities is concerned credit or deduction • Enhanced Compliance: DTAA promotes
for tax paid in the source country is given by the residence
compliance with tax laws by providing clear rules
country against its domestic tax as if the foreign tax were
and procedures for determining tax liability, reducing
paid to the country of the residence itself.
the risk of unintentional non-compliance.
a. Full Credit: Total tax paid in the State of Source is
allowed as a credit against tax payable in the State • Dispute Resolution: The inclusion of a Mutual
of Residence. Agreement Procedure (MAP) in DTAA provides a
b. Ordinary Credit: The state of Residence allows mechanism for resolving disputes between taxpayers
credit of tax paid in the state of Source restricted to and tax authorities, ensuring fair and impartial
that part of income tax which is attributable to the resolution of tax disputes.
income taxable in the state of Residence.
Conclusion
c. Tax Sparing: The state of Residence allows credit
for deemed tax paid on income which is otherwise In conclusion, Double Taxation Avoidance Agreements
exempt from tax in the State of Source. (DTAA) play a pivotal role in facilitating cross-border
d. Underlying Tax Credit: In this method attempts to trade and investment by preventing double taxation and
mitigate the economic double taxation. Economic promoting cooperation between countries in tax matters.
double taxation occurs when the same income is
These agreements provide taxpayers and businesses with
taxed more than once in the hands of different
certainty, predictability, and transparency regarding their
persons in the same tax jurisdiction.
tax obligations, thereby fostering economic growth and
DTAA can be of two types, limited or comprehensive.
international cooperation. As globalization continues to
Limited DTAA are those which are limited to certain
types of incomes only e.g. DTAA between India and drive interconnectedness between economies, DTAA
Pakistan is limited to shipping and aircraft profits only. will remain a cornerstone of international tax policy,
Comprehensive DTAAs are those which cover almost ensuring fair and equitable taxation in an increasingly
all types of incomes covered by any model convention. globalized world.

Topic
Module 4:
Activity Based
Management and
Just in Time (JIT)
FINAL
Strategic Cost
Management (SCM)

VOL 09 I NO. 05
Activity Based Cost Management

01.00 Concept as activity cost pool.
FINAL
Activity Based Costing (ABC) system assumes that (iv) Cost Object: Cost Object refers to an item for
products consume activities and activities consume which cost measurement is required. e.g., a product,
costs. ABC emphasises direct tracing of costs to the a service, or a customer.
maximum extent and, (v) Cost Pool: A cost pool is a term used to indicate
thus, enables to more grouping of costs incurred on a particular activity
precise apportionment which drives them.
of overheads amongst
(vi) Cost Driver: Any element that would cause a
the products. It facilitates collection of indirect costs
change in the cost of an activity is cost driver.
in multiple categories and then applies the results
Cost drivers are the basis of charging cost of an
individually to the products and services.
activity to a cost object. Cost drivers are used to
The focus of ABC is on accurate information about the trace the costs to a product or service by using them
true cost of products, services, processes, activities, as a measure of the resources consumed by each
distribution channels, customer segments, contracts, activity. For example, frequency of orders, number
projects, and so on. ABC helps managers to make of orders, etc. may be the cost drivers of customer
better decisions about what they offer and at what order processing activity. A Cost Driver may be a
price. This process also encourages continual operating Resource Cost Driver or an Activity Cost Driver. A
improvements. Once business process costs are known resource cost driver is a measure of the quantity of
with reasonable accuracy, activity-based budgeting can resources consumed by an activity. An activity cost
set realistic goals for improving the processes and for driver is a measure of the frequency and intensity of
identifying those processes that are no longer needed or the demand placed on activities by cost objects.
are unprofitable.
03.00 Process of Implementation
02.00 Important Terms
There are seven vital steps to the implementation of
The operation of the ABC system involves the use of ABC.
the following terms:
1. Identification of Cost Objects: The process to
(i) Activity: An activity means an aggregate of closely ABC starts with the identification of the cost objects.
related tasks having some specific functions which The cost
are used for completion of a goal or objective. For objects of any
example; customer order processing is an activity. o rg a n i z a t i o n
It includes receiving an order from customer, are the products
interacting with production department regarding or services.
capacity to produce and giving commitment to the
2. Identification
customer regarding delivery time. Other activities
of Activities:
may be assembling, packaging, advertising, etc.
Identification
(ii) Resource: Resources are elements that are used for of the activities
performing the activities or factors helping in the is the next step.
activities. For example; order receiver, telephone, Identification
computers, etc., are resources in customer order of the main
processing activity. It may include material, labour, activities can
equipment, office supplies, etc. be done by
(iii) Cost: Cost is the amount paid for the resources carrying out
consumed by the activity. For example; salaries, an in-depth
telephone bill, printing stationary, etc. are cost of analysis of the
customer order processing activity. It is also known operating processes of each responsibility segment.

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Usually, the number of activities in ABC will be accounting system as an offline system or it can be fully
much more as compared to traditional overhead integrated with the decision support systems such as
FINAL
system. The exact number will depend on how ERP. Management practices and methods have changed
the management subdivides the organization’s a lot over the last decades and will continue to change.
activities. Organisations are moving from managing vertically
to managing horizontally. It is a move from a function
3. Tracing the Direct Costs: The third step relates to
orientation to a process orientation. Total quality
identification of Direct Costs. The direct costs of
management (TQM), just-in-time (JIT), benchmarking
products or objects may comprise direct material
and business process reengineering (BPR) are all
cost, direct labour cost and direct expenses.
examples of horizontal management improvement
Classification of as many of the total costs as direct
initiatives. These initiatives are designed to improve
costs as is economically feasible should be made.
an organisation’s work processes and activities to
Classification as direct costs reduces the amount of
effectively and efficiently meet or exceed changing
costs to be classified as indirect costs.
customer requirements. ABC continues to maintain the
4. Relating the Indirect Costs to the Activities: The momentum of change.
fourth step is relating the indirect costs to activities.
04.00 Illustrative Example
Here, various items of indirect costs are related to
activities, viz. both support and primary, which 04.01 Problem
caused them. As a result of relating the items of A company produces four products, viz. P, Q, R and S.
indirect costs to various activities, cost pools or The data relating to production activity are as under
cost buckets are created. Direct
Material Direct
Quantity Machine Labour
5. Determining the Activity Cost Drivers: The cost- labour
Product of Hours / cost-
determination of the activity cost drivers is done in Rs. per hours
production unit Rs. per
order to relate the overheads collected in cost pools unit / unit unit
to the cost objects of products. It is done on the P 4,500 12 0.2 1.50 8
basis of the factor that drives the consumption of Q 13,640 15 0.2 0.75 9
the activities. R 2,340 25 0.5 2.50 27
S 18,350 21 0.4 4.00 25
6. Calculating the Activity Cost Driver Rates:
The activity cost driver rates for each activity are Production overheads are as under:
calculated in the way in which overhead absorption
(i) Overheads applicable to machine- 1,65,900
rates would be calculated under the traditional
oriented activity:
system. It can be formulated as: Activity Cost
Driver Rate = (Total Cost of Activity ÷ Activity (ii) Overheads relating to ordering 8,760
Driver). These activity cost driver rates are to be materials
used for ascertaining the amount of overhead (iii) Set up costs 21,400
chargeable to various cost objects or products. (iv) Administration overheads for spare 44,690
parts
7. Computing the Total Cost: The last step is
(v) Material handling costs 25,545
computing the total cost. The total costs of the
products shall be computed by adding all direct The following further information have been compiled:
and indirect costs assigned to them. The amount of
No. of No. of times No. of
overhead chargeable to a product or cost object shall No. of set
Product Material- materials spare
be calculated by multiplying the respective activity up
Orders handled parts
cost driver rate by the quantum of the activity that P 3 3 6 6
the product or other cost object consumes. Q 18 12 30 15
The introduction of ABC system in an organization R 5 3 9 3
S 24 12 36 12
can be either supplementary to the traditional cost

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Required: (c) Set up costs

(i) Select a suitable cost driver for each item of Cost driver: No. of set ups
FINAL
overhead expense and calculate the cost per unit of
Set Up Overheads = ` 21,400
cost driver.
(ii) Using the concept of activity-based costing, No. of set ups = (3+18+5+24) = 50
compute the factory cost per unit of each product. Cost Driver Rate = (Set Up Overheads ÷ No. of set
04.02 Solution ups)
(i) Computation of Cost Driver Rates = (21,400÷50) = ` 428 per set up
(a) Overheads relating to Machinery oriented activity (d) Administrative Overheads for spare parts
Cost Driver: Machine Hour Rate Cost driver: No. of spare parts
Machine Oriented Overheads = ` 1,65,900
Administrative Overheads = 44,690
Total Machine hours = {(4500 x 1.5) + (13640 x
No. of spare parts = (6+15+3+12) = 36
0.75) + (2340 x 2.5) + (18350 x 4)}
= 6750 + 10230 + 5850 + 73400 = 96230 Cost Driver Rate = (Administrative Overheads ÷
No. of spare parts)
Cost Driver Rate = (Machinery Overheads ÷ Total
Machine Hours) = (44690 ÷ 36) = ` 1,241.39 per spare part
= (1,65,900÷96,230) = ` 1.724 per machine hour (e) Material Handling costs
(b) Overheads relating to ordering materials Cost driver: No. of times materials are handled
Cost driver: No. of Material-Orders
Material Handling Overheads = 25,545
Material Ordering Overheads = ` 8,760
No. of times materials are handled = (6+30+9+36)
No. of Material orders = (3+12+3+12) = 30
= 81
Cost Driver Rate = (Material Ordering Overheads ÷
No. of Material Orders) Cost Driver Rate = (25545÷81) = `315.37 per
= (8760÷30) = ` 292 per order material handling
(ii) Computation of factory cost for each product

(a) Apportionment of Overheads on the basis of Cost Driver Rate
Activity P Q R S
Number of Units of Production 4,500 13,640 2,340 18,350
Machinery oriented activity
Number of Machine Hours 6750 10230 5850 73400
Total Cost @ ` 1.724 per hour 11,637 17,637 10,085 1,26,542
Cost per Unit (`) 2.586 1.293 4.31 6.896

Material Ordering
Number of Material Orders 3 12 3 12
Total Cost @ ` 292/- per order 876 3,504 876 3,504
Cost per Unit (`) 0.195 0.257 0.374 0.191

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Set Up Cost
Number of Set Ups 3 18 5 24
FINAL
Total Cost @ ` 428/- per set up 1,284 7,704 2,140 10,272

Cost per Unit (`) 0.285 0.565 0.915 0.56
Admn. Costs for Spare Parts
No. of spare parts 6 15 3 12
Total Cost @ `1,241.39 per spare part 7,449 18,621 3,724 14,897
Cost per Unit (`) 1.655 1.365 1.591 0.812
Material Handling Costs
No. of times materials are handled 6 30 9 36
Total Cost @ `315.37 per handling 1,892 9,461 2,838 11,353
Cost per Unit (`) 0.42 0.694 1.213 0.619
Total Overheads 23,138 56,927 19,663 1,66,568
Overhead Cost per Unit (`) 5.142 4.174 8.403 9.078
Note:
Cost per Unit under each of the activities has been derived by the formula:
Cost per Unit = (Total Cost ÷ No. of Units of Production)
Check
Total Overheads = (1,65,900 + 8,760 + 21,400 + 44,690 + 25,545) = 2,66,295
Overheads Apportioned = (23,138 + 56,927 + 19,663 + 1,66,568) = 2,66,296
Overheads Apportioned are equal to Total Overheads but for a difference of `1/- which is on account of rounding off.
(b) Cost per Unit (`)
Particulars P Q R S
Materials 12.00 15.00 25.00 21.00
Labour 8.00 9.00 27.00 25.00
Overheads
Machine oriented activity 2.586 1.293 4.310 6.896
Ordering of Materials 0.195 0.257 0.374 0.191
Set up costs 0.285 0.565 0.915 0.560
Administrative Spare Parts 1.655 1.365 1.591 0.812
Material handling 0.420 5.14 0.694 4.17 1.213 8.40 0.619 9.08
Factory Cost (`) 25.14 28.17 60.40 55.08
05.00 Activity Based Management
Activity Based Management is a tool of management that involves analysing
and costing activities with the goal of improving efficiency and effectiveness.
Activity Based Management is a set of actions that management can take, based
on information from an Activity Based Costing system, to improve profitability.
Towards a continuous improvement, Activity Based Management keeps on
carrying out three vital functions comprising:
(i) Cost Driver Analysis,
(ii) Activity Analysis, and
(iii) Performance Analysis.

VOL 09 I NO. 05
Cost Driver Analysis: The factors that cause activities overhead (i.e., indirect) expenses are necessary and,
to be performed need to be identified in order to manage therefore, appear to be free — they are not free.
FINAL
activity costs. Cost driver analysis identifies these
The costs of an output, product, or service (i.e., a final
casual factors. For example, in a stores department, it
cost object) can be reduced by:
may be observed that slow moving and obsolete stock
is not disposed of in time, the reason being the staff in ► Reducing the quantity, frequency, and/or intensity
the stores is not trained properly in this area. Managers of the activity driver (e.g., fewer inspections reduce
have to address this cost driver to correct the root cause the “inspect product” activity cost);
of this problem and take proper action. ► Lowering the activity driver cost rate by
Activity Analysis: Activity Analysis identifies value productivity improvements (e.g., shorten the time
added and non-value-added activities and efforts are for each “inspect product” event); and
made to eliminate the non-value adding activities. ► Understanding the sources and causes of waste
Performance Analysis: Performance analysis involves leading to nonvalue-adding activities to reduce
the identification of appropriate measures to report the or eliminate them (e.g., solve the problem that
performance of activity centers or other organizational requires an inspection in the first place).
units consistent with each unit’s goals and objectives. These three are examples of how ABCM data leads to
Performance Analysis aims to identify the best ways to cost management for productivity improvement. The
measure the performance of factors that are important idea is to do more with less (or at least with the same).
to organizations in order to stimulate continuous That is, produce more outputs with the same amount
improvement. of resources or the same amount of outputs with fewer
06.00 Assimilation resources. Noteworthy is the fact that these actions

support the continuous improvement principles of the
Managers and employee teams are seeking more
Six Sigma quality and lean management initiatives
transparency and visibility of their costs. Just reliably
that are embraced by the operations and quality
knowing ABCM’s per-each-unit costs of their outputs
communities.
of work is useful for benchmarking to search for best
practices or monitor trends to measure performance 07.00 Quick Take
improvement. ABCM removes the illusion that support ABC enables better accuracy in cost computations.

Topic
Module 6:
Cost Audit
Programme
FINAL
Group IV - Paper-17
Cost and
Management Audit
(CMAD)

VOL 09 I NO. 05
Cost Audit Program for Cost Elements
FINAL
1. Production –Product-wise ► Whether receipting process is in place and
inventory updation carried out on real time
o Whether appropriate cut-offs are observed
to identify calendar dates with stages of basis?
production? ► Whether storage is made appropriately without
o Whether organizational guideline is in place any possibility of mix-up, spilling over and
to identity percentage completion in different losses due to airborne?
product stages? ► Whether inventory movements are made
o Whether Finished products, Work In Progress against approvals of appropriate authority?
-WIP (SFG Semi Finished Goods) are
► Whether raw materials including bulks are
segregated and considered Accordingly?
issued for consumption/kept in storage against
o Whether products manufactured and capacity
a proper method of measurement?
available are compared to find out utilization?
► Whether perpetual and/or quarterly physical
o Whether only Quality approved products are
verification process is in place?
declared as ‘production’ and considered for
further analysis? ► Whether the difference between Book Stock
o Whether any incremental capacity reckoned and physical stock adjusted in the relevant
for actual product-wise higher output? period of accounting?
o Whether technological improvement caused ► Whether the Ordering process considers , (a)
higher product-wise output? EOQ (b) Lead Time (c) effective life of RM
etc.
o Whether efficiency enhancement of labour
force resulted in higher output? ► Whether the entity having a policy to identify
slow and non-moving raw materials and fixing
o Whether production tracking over a period
level for provision against such items?
of time (say 5-years) captured for further
analysis? ► Whether a material codification logic is
followed for identification of imported and
2. Raw Material (RM)Cost
local raw materials (having similar look but
► Whether BOM (Bill Of Materials) includes difference in price and effectiveness)?
every element/item required to carry out
► Whether abnormal loss of material is
Production with Product-wise details.
appropriately treated?
► Whether a Budget with expected price is made
for all key raw material? 3. Key RM Inventory Status
► Whether any subsequent changes in BOM are ► Whether by value or volume the list of materials
updated for considering consumption? qualified as ‘key’ Raw Material ?
► Whether a variance analysis is carried out at ► Whether the entity having a stocking /
periodical intervals to assess actual cost is holding policy for such items for continuity of
within a reason level? production?
► Whether high difference is analysed to pre- ► Whether the prevalent consumption pattern
empt any possibility to avoid/reduce such justifies the pre-determined inventory holding
implications? policy?

VOL 09 I NO. 05
► Whether any improvement in lead time , 5. Electricity Cost ‘DG’

delivery conditions etc. explored to reduce the
► Whether fuel ( diesel) , repair and maintenance
FINAL
volume at hand /yard? and other running expenses are captured and
► Whether low inventory ever caused production monitored properly?
stoppages? ► Whether DG run Hours and purpose are
► Whether comparison made for holding cost recorded ?
over a period of time ( say 3-years)? ► Whether record for units generated and purpose
4. Electricity Cost of usage are maintained ?
► Whether all Cost Centres (Production and ► Whether meter readings are recorded at
Utility) are mapped for electricity consumption, specified periods?
e.g Kiln, Grinding , Packer (Production) and ► Whether fuel consumption vs. units generated
Air Compressor, Chilling Plant etc.(Utilities) are maintained over a period to measure (a)fuel
► Whether Electricity consumption standard and efficiency (b) DG efficiency
required heat is mapped against each of the ► Whether appropriate consumption points
facilities. are mapped and DG distributes electricity
accordingly?
► Whether actual electricity consumption
is in tandem with output/Production from ► Whether consumables are properly allocated
each of the facility e.g Packing Volume vs. and certified as usage to run DG Facility.
electricity consumption, Kiln consumption vs.
► Whether depreciation and other overheads
Clicker produced , Grinding Mill electricity are charged to appropriate Machine (where
consumption vs. Cement manufactured. multiple DGs are used)
► Whether difference between actual ► Whether calibration of meters and reading
consumption and Standard mapped and reason accuracy is ensured?
for such differences are validated.
► Whether DG Cost and other source-wise cost
► Whether self generation of electricity for is captured , compared to assess alternate
captive consumption and buying are appropriate possibilities?
metered and allocated to cost centres.
6. Demineralized Water (DM)cost
► Whether calibration and certification there of
o Whether allotment of ‘Cost Centre’ and
obtained for entire metering process.
capturing of cost is carried out properly?
► Whether appropriate allocation methodology is
o Whether element-wise cost with volume of
followed for common area of consumption.
consumption is maintained ?
► Whether source-wise electricity cost is
- Volume of filtered water
analysed for appropriate cost allocation and
product-wise absorption purposes. - Volume of chemicals
► Whether cost trend over a period (say 5-years) - Electricity used in TP (Treatment Plant)
is analysed planning power cost scenario and o Whether volume of DM Water generated are
possible requirement of Capex in the area. captured correctly?

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o Whether use points are mapped and ► Whether there exists any organizational
consumption of DM Water captured Guideline to differentiate between Slow, Non-
FINAL
appropriately? moving spares based yearly consumption
o Whether a proper cost structure is in place and history?
DM Water consumption data ensures accuracy? ► Whether appropriate valuation methodology
o Whether all relevant cost including deprecation exists for Stores and Spares falling under Slow,
captured in DM Water Cost Centre? Non-moving category?
7. Steam cost ► Whether Product-wise, Plant-wise, Cost
o Whether running hours of Boiler and Stem Centre-wise Spares issues and consumption
generated are (Mt.) are recorded ? are tracked ?
o Whether all relevant Boiler running expenses/ ► Whether accounting guidance for recording
consumptions like DM Water ( Ltr.), Electricity Stores and Spares to appropriate ‘cost centres’
(KWH), Fuel (Light Diesel Oil , Coal (Mt.) / ’Plants’ in place?
, Steam consumption etc. are recorded and
► Whether the ‘Spares Control Account’ is
maintained.
reflected in Trial Balance and tallied.
o Whether line losses are measured for future
9. Repairs and Maintenance Cost
corrective actions.
► Whether Repair and Maintenance Costs
o Whether standard requirement (Mt.)of Product
are attached/tied against each of the ‘Cost
(Mt.) are compared for any probable variance.
Centres’?
o Whether high consumption areas are covered
► Whether age of plant along-with ‘Repair
by Meters and meter readings obtained at fixed
Maintenance expenditure ‘(R&M spent
intervals.
trending higher) compared to ‘Plant Value and
o Whether consumption variance, if any, is remaining life’ decide on replacement of the
analysed for understanding the reason (e.g asset.
leakage in pipe lines, erroneous reading of
► Whether all ‘R & M Expenditure’ booked to
meters, inactive meters etc.)
appropriate ‘cost centres’?
o Whether manpower cost, consumables and
► Whether ‘Repair and Maintenance cost’ per
other Boiler House related cost (e.g repair,
Mt. of Product indicating a ‘rising , falling or
maintenance etc.) are booked timely and
constant’ trend?
correctly.
► Whether a ‘R & M Budget’ is prepared to keep
8. Stores and Spares cost
the expenses within the limit?
► Whether Cost Centre-wise Requisition
for Spares are maintained to arrive at total ► Whether ‘R&M Cost’ is bifurcated into
requirement of Spares at Unit/Entity level. “Normal, Special, Shut-down, Break-down”
etc. to have ( R & M) better visibility on normal
► Whether to support the above and to avail
and abnormal Cost hike.
‘price advantage’, appropriate codification
logic is in place? 10. Employee Cost
► Whether Spares are classified under A, B, C ► Whether employees whose names are
Category to exercise proper supervision and appearing in the ‘pay roll ‘ only considered for
control. ‘employee cost’?

VOL 09 I NO. 05
► Whether permanent deployment with ► Whether impact of changed output considered

contractual pay, also clubbed as ‘employee to measure movement of ‘product-wise
FINAL
cost’? insurance’ cost?
► Whether employees are tagged against each of 12. Depreciation Cost

the ‘cost centre’ whereby cost centre-wise ‘pay ► Whether ‘Cost Centre-wise’ Assets are
roll’ cost can be validated? identified and depreciation against those are
► Whether any employee movement, A-D-C captured for the period under review?
(Addition–Deletion-Change) tracked ► Whether new installations are mapped and
immediately against relevant ‘cost centre’? considered on the depreciation schedule?
► Whether ‘product cost build up’ considers ‘cost ► Whether ‘product cost’ includes depreciation
centre-wise’ employee cost? as per aforesaid calculation?
► Whether trend analysis is carried out for ► Whether individual asset performance and
employee cost captured over a period? remaining life considered for depreciation
► Whether such trend indicated employee assessed?
performance improvement overriding ► Whether reason for sudden increase or decrease
‘inflationary / statutory increases?’ in depreciation cost w.r.t ‘cost centre’/s
analysed for the ‘root cause’?
► Whether industry-wide bench marking applied
for ‘employee cost’ of the relevant industry? 13. Administrative overhead Cost
► Whether ‘employee cost’ as percentage of ► Whether specific guideline is available for

the heads of expenditure to be considered as
product cost analysed for cost reduction/
‘Administrative Overhead’?
minimization purposes?
► Whether Year-wise administrative cost break-
11. Insurance Cost
up is available w.r.t Product, Cost Centre ?
► Whether ‘cost centre-wise’ Assets are identified ► Whether allocation/apportionment of
and tagged? administrative expenses are carried out
► Whether abovesaid Assets are covered against logically and consistently the same followed?
insurable perils obtaining appropriate policy ► Whether any abnormal increase/decrease
cover under individual policy or ‘umbrella noticed in administrative overhead cost and
policy’ ? also in the Product?
► Whether Premia cost against each of the Asset/ 14. Selling & Distribution O/H Cost
Cost Centre are identifiable and captured? ► Whether categorization of Selling and
Distribution (S & D)cost available at the
► Whether new assets are also covered
organizational level and Product, cost centre-
immediately and premia cost allocated to
wise also?
appropriate asset cost centre?
► Whether Selling and Distribution cost at
► Whether ‘cost centre-wise’ insurance cost
product level as a percentage of COGS is
allocation being checked and any Y-O-Y fixed?
variance can be validated with proper
► Whether Y-O-Y (year on year) S & D Cost
reasoning?
trend over a period is analyzed to get a
► Whether monetary impact of insurance cost feedback on the responsible account head,
with product-wise absorption compared for where expenditure trend is much higher/lower
product cost movement purposes? than anticipated?

VOL 09 I NO. 05
► Whether sound logic based allocation / ► Whether Inventory records are maintained for
apportionment principle is followed for above ‘self produced’ items w.r.t generation,
FINAL
overhead cost division? Issue and Consumption.
► Whether the principle followed for allocation/ ► Whether change in procurement cost of packing
apportionment is consistently followed year items are accumulated for impact analysis and
after year? examine the possibility of pass on to consumer.
► Whether per Unit increase/decrease in S & D ► Whether any abnormal cost is identified for
Cost at each of the Product level considered for appropriate treatment?
‘price fixation’ ?
16. Sales value
► Whether infrastructural improvement and/or
► Whether Product portfolio/Product Basket
change in sales policy evaluated for increase/
considered entirely to arrive at sales value?
decrease of S & D Expenditure.
► Whether increase/decrease in volume of the
15. Packing Material Cost
Product portfolio impacting sales value?
► Whether Primary and Secondary Packing
► Whether market price movement, discount
Materials are identified based on usage
structure etc. attributing to sales revenue
purpose?
fluctuation?
► Whether special packing opted by bulk buyers
► Whether product-wise contribution is analysed
are recovered via Invoice Price?
to improve sales performance?
► Whether proper consumption record is
► Whether new launches, change in product
maintained and the same compared with
portfolio results in higher sales volume/value?
standard set for Packing Materials?
► Whether higher sales value achievement is
► Whether any abnormality being noticed in
at the cost of higher Sales and Distribution
the Packer , which resulted in high abnormal
expenses/expenditure?
consumption of packing materials.
► Whether appropriate cut-off being observed to
► Whether quality of packing materials
determine sales value for the relevant period?
ensured before they issued to ‘shop floor’ for
consumption. ► Whether sales return and defective supplies
are netted off for the purpose of sales value
► Whether consumption trend is examined for
declaration?
the Products which are ‘key products’ at least
for last five years. ► Whether sales value trend is considered for
equivalent periods of different accounting
► Whether packing material rates , examined
periods?
for last few years ( say five) and how packing
materials can be replaced to withstand price ► Whether sales budget is realistically set for
pressure. comparison with actual achieved?
► Whether separate codification logic is followed ► Whether analysis along-with root cause carried
for ‘self produced’ packing materials and cost out to observe sale value variance on Y-O-Y
for the same. basis?

Topic
Module 2:
Valuation of Shares
Module 6 :
Consolidated
Financial
Statements and FINAL
Separate Financial Group IV - Paper-18
Statements
Corporate Financial
Reporting (CFR)

VOL 09 I NO. 05
FINAL
The major three approaches to valuation of shares are: based on different base values.
A. Income Approach 5. To divide average value of equity by the no. of

shares in order to find value per share.
B. Net Assets Approach
Market capitalisation (MC) is the product of market price
C. Market Approach
of shares and the number of shares outstanding. Thus,
In this issue I would discuss about market-based share it represents market value of equity. In computation of
valuation approach. relative we may find some popular ratios also such as
Under market-based valuation approach, market value Price Earnings ratio where base value is Earnings and
of shares is related to any of the accounting measures Market to Book Value ratio where base value is Net
(like Profits, Cash Flows, Sales or Net Asset Value) Assets. But in all circumstances, the different base values
and a relative or multiple is computed for each of the are related to market value of equity only. Relatives or
companies in peer group. Thus, relative or multiple is multiples are the ratios where market capitalisation is
the ratio of market price of equity to some accounting the numerator and any of the alternative fundamental
variable of the company taken as the base value. Most accounting variables is the denominator.
common multiples are price-earnings (P/E) ratio, price- Relative or multiple = Market Capitalisation/Base
sales (P/S) ratio, price-cash flow from operations (P/ value. [where, alternative base values are EAT, EBIT,
CFO) ratio etc. The average relative of all the companies NOPAT, CF, FCFF, FCFE, Net Assets, Enterprise Value,
in peer group is computed and named as Comparator. Sales, or any other fundamental variable]
The company going for market based valuation applies
Illustration 1
the Comparator to its base accounting value (for
instance, Profits, Cash Flows, Sales or Net Asset Value). X Ltd. has EPS ` 16 and number of equity shares is 2000.
Its Cash Flow ` 24,000 and Sales ` 1,00,000. Find value
Thus, the steps involved to find value per share based on
per share of X Ltd. under Market approach based on the
market approach:
data of similar other companies as provided below:
1. Market capitalisation of each of the peer group of
Companies PAT CF Sales MC
companies is related to any fundamental element
` ` ` `
of that company (called base value such as Profits,
A Ltd. 40,000 32,000 1,20,000 1,60,000
Cash Flows, Net assets, Sales). The ratio obtained
B Ltd. 48,000 60,000 2,00,000 2,40,000
is called relative or multiple.
C Ltd. 32,000 64,000 1,60,000 1,92,000
2. For each of the companies in peer group there may D Ltd. 36,000 45,000 1,20,000 1,80,000
be different values of relative or multiple based on
Solution:
different fundamental accounting variables. More
than one multiple is usually considered in practice. For the 4 companies in the peer group Relatives (or
Multiples) are computed as MC/ Base Value
3. To compute the average of the multiples of the
peer group of companies (we call it as Comparator) For PAT as base value M1 is the multiple.
separately for each base value.
For CF as base value M2 is the multiple.
4. To apply the average multiple (Comparator) based
For Sales as base value M3 is the multiple.
on a particular base value to the same base value
of the required company for valuation of its equity. Comparator is the average value of the multiples for the
Then to find average of the different equity values 4 companies.

VOL 09 I NO. 05
Companies PAT (`) CF (`) Sales (`) MC (`) M1=MC/PAT M2=MC/CF M3=MC/S
FINAL
A 40,000 32,000 1,20,000 1,60,000 4 5 1.3333

B 48,000 60,000 2,00,000 2,40,000 5 4 1.2
C 32,000 64,000 1,60,000 1,92,000 6 3 1.2
D 36,000 45,000 1,20,000 1,80,000 5 4 1.5
Comparator 5 4 1.308325
Value of equity share of X Ltd. for each base = Base Value of X * Comparator
X Ltd. M1=MC/PAT M2=MC/CF M3-MC/S

Base Value of X Ltd. (`) EPS = 16 CF = 24000 Sales = 100000
Value of equity share for each Base (`) EPS*Comparator CF*Comparator/2000 = 48 Sales*Comparator/2000
= 16*5 = 80 = 65.41625
Average value of equity shares of X Ltd. (`) (80 +48 + 65.4)/3 = 64.47
Consolidated financial statements are prepared for If consolidated balance sheet is prepared on a subsequent
complying with the requirements of: reporting date as per Ind AS 28, Investment account,
• Ind AS 110 when control of the subsidiary is profit and loss and other comprehensive income in the
acquired by the parent and books of the investor company will be adjusted for the
post-acquisition profits of the joint venture or associate
• Ind AS 28 when joint control of the joint venture or
under Equity Method.
significant influence on the associate is obtained by
Whenever a company prepares consolidated financial
the investor company.
statements, separate financial statements have to be
Separate financial statements are prepared for complying
prepared by it as per Ind AS 27.
with the requirements of Ind AS 27.
With this brief introduction, let me directly go for
Further, for the transaction of acquiring control of the illustrative examples.
acquiree (subsidiary), the acquirer (parent) is required
Ex 1. X Ltd. acquires 40% of equity share capital of Y
to recognise and measure identified assets, assumed
Ltd. on 01-04-2023 by issue of 4 lakh equity shares of
liabilities, goodwill and non-controlling interest for
` 10, market price ` 25. X Ltd. had previously acquired
complying with the requirements of Ind AS 103.
30% of equity share capital of Y Ltd. carried in balance
Thus, if consolidated balance sheet is prepared on the sheet at a value of 56 lakhs. Other relevant data are
date of acquisition as per Ind AS 110, the identified presented below.
assets and assumed liabilities of the acquiree, goodwill (Before acquisition)
and non-controlling interest as recognised and measured
Items X Ltd. Y Ltd.
under Ind AS 103 will be taken into consideration. For
Book Fair Value Book Fair
preparing consolidated balance sheet on a subsequent Value Value Value
reporting date, goodwill as measured on acquisition date Assets 400 500 200 280
shall remain unchanged, but assets, liabilities and non- Liabilities 100 90 80 70
controlling interest will be adjusted for post-acquisition Pass journal entries in the books of X Ltd. and prepare
changes and parent’s equity will also be adjusted for its separate and consolidated balance sheets as at 01-04-
share in post-acquisition profits of the subsidiary. 2023.

VOL 09 I NO. 05
Solution: Total Assets 500 664
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Rupees in lakhs Equity 300+100 400 419
Purchase consideration (for 40%) = 4* 25 = 100 NCI 75
Equity Share Capital = 100*(10/25) = 40 Liability 100+70 100 170
Security premium = 100*(15/25) = 60 Total Equity 500 664
and Liability
X Ltd. balance sheet Book
Value Ex-2. The parent and the subsidiary of Ex-1 have
Assets 400 balances as at 31-03-2024 as presented below.
Liabilities 100 Items X Ltd. Y Ltd.
Equity before acquisition (400 – 100) 300 Book Fair Book Fair
Purchase consideration paid by new issue 100 Value Value Value Value
Equity after acquisition (300 + 100) 400 Assets 550 640 260 350
Liabilities 120 115 90 85
NCI (30%) at Fair Value = (30/40)*100 = 75
Prepare separate and consolidated balance sheets as at
Fair Value (FV) of previously held shares (30%) = 75
31-03-2024.
Goodwill = Purchase Consideration + Liabilities + NCI Solution:
+ FV of previously held investment - Assets =100 + 70
Items X Ltd. Y Ltd.
+ 75 + 75 – 280 = 40
Book Value Change in Book Value
Revaluation Profit of previously held Investment
Assets 550 260 – 200 = 60
= 75 – 56 = 19
Liabilities 120 90 – 80 = 10
Consolidated Equity = 300 + 19 = 319
Equity 430
For consolidated financial statements:
Change in 430 – 400 = 30 60 – 10 = 50
Investment A/C Dr. 19 equity
To, P&L A/C 19
Consolidated equity = Opening consolidated Equity +
Assets Dr. 280 change in equity of X + share of post-acquisition profits
Goodwill Dr. 40 of Y (0.7*50) = 419 + 30 + 35 = 484
To, Liabilities 70 NCI = 75 + 0.3*50 = 90
To, Non-Controlling Interest 75
Balance sheet as at 31-03-2024 (Rupees in lakh)
To, Investment A/C 75
To, Purchase Consideration 100 Items Workings Separate Consolidated
Purchase Consideration 100 Assets 394+280 394 734
To, Equity Share Capital 40 (excluding +60 =734
To, Security Premium 60 Investment,
550 – 156)
For separate financial statements:
Investment 56 + 100 = 156
Investment A/C Dr. 100 156
To, Equity Share Capital 40 Goodwill 40
To, Security Premium 60 Total Assets 550 774
Balance sheet as at 01-04-2023 (Rupees in lakh) Equity 419+30 430 484
+35 = 484
Items Workings Separate Consolidated
NCI 75 + 15 = 90
Assets 344+280 344 624 90
(excluding
Liability 120+70 + 120 200
Investment,
10 = 200
400 – 56)
Total 550 774
Investment 56 + 100 156 Equity and
Goodwill 40 Liability

Topic
Module 15:
Inspection, Search,
Seizure, Arrest and
Prosecution
FINAL
Group IV - Paper-19
Indirect Tax Laws

and Practice (ITLP)

VOL 09 I NO. 05
ARREST AND PROSECUTION

Section 69 of CGST Act, 2017 Power to arrest: Prosecution is the conducting of legal proceedings
FINAL
A
against someone in respect of a criminal change.
s per Section 69(1) of CGST Act, 2017, where
the Commissioner has reasons to believe that Any person committing the following offences (i.e.,
a person has committed any offence specified deliberate intention of fraud) becomes liable to
in clause (a) or clause (b) or clause (c) or clause (d) prosecution, i.e., face criminal charges Section 132(1)
of sub-section (1) of section 132 which is punishable of the CGST Act, 2017;
under clause (i) or (ii) of sub-section (1), or sub-section
The following are cognizable offences if the tax evaded
(2) of the said section, he may, by order, authorise any
officer of central tax to arrest such person. > `500 lakh (Section 132(5) of the following offences),
namely (Section 132(1) of the CGST Act, 2017):-
As per section 69(2) of CGST Act, 2017, where a
person is arrested under sub-section (1) for an offence ► supplies any goods or services or both without issue
specified under sub-section (5) of section 132, the of any invoice, in violation of the provisions of this
officer authorised to arrest the person shall inform such Act or the rules made thereunder, with the intention
person of the grounds of arrest and produce him before to evade tax;
a Magistrate within twenty-four hours. ► issues any invoice or bill without supply of goods
As per Section 69(3) of CGST Act, 2017, Subject to the or services or both in violation of the provisions of
provisions of the Code of Criminal Procedure, 1973, -- this Act, or the rules made thereunder leading to
wrongful availment or utilisation of input tax credit
► Where a person is arrested under sub-section (1)
or refund of tax;
for any offence specified under sub-section (4) of
section 132, he shall be admitted to bail or in default ► avails input tax credit using such invoice or bill
of bail, forwarded to the custody of the Magistrate; referred to in clause (b), (this clause shall be
► In the case of a non-cognizable and bailable substituted from the Finance Act, 2020 dated
offence, the Deputy Commissioner or the Assistant 27-2-2020 namely – avails input tax credit using
Commissioner shall, for the purpose of releasing an the invoice or bill referred to in clause (b) or
arrested person on bail or otherwise, have the same fraudulently avails input tax credit without any
powers and be subject to the same provisions as an invoice or bill;
officer-in-charge of a police station. ► collects any amount as tax but fails to pay the same
Section 70 of CGST Act 2017 – Power to summon to the Government beyond a period of three months
persons to give evidence and produce documents: from the date of which such payment becomes due;
As per Section 70(1), The proper officer under this Note: all the above offences shall be non-cognizable
Act shall have power to summon any person whose and bailable where tax evaded ≤ `500 lakh (Section
attendance he considers necessary either to give 132(4) of the CGST Act, 2017).
evidence or to produce a document or any other thing in
The following are non-cognizable and bailable offences
any inquiry in the same manner, as provided in the case
irrespective of the tax amount evaded (Section 132(4)
of a civil court under the provisions of the Code of Civil
of the CGSG Act, 2017):
Procedure, 1908.
Whoever commits any of the following offences,
As per Section 70(2) Every such inquiry referred to
in sub-section (1) shall be deemed to be a “judicial namely (Section 132(1) of the CGST Act, 2017):--
proceedings” within the meaning of section 193 and ► evades tax, (fraudulently avails input tax credit
section 228 of the Indian Penal Code. omitted from the Finance Act, 2020, dated 27-3-
The person committing the offence will be punishable 2020) or fraudulently obtains refund and where
depending on the amount involved which is as follows: such offence is not covered under clauses (a) to (d);

VOL 09 I NO. 05
► falsifies or substitutes financial records or produces services which he knows or has reasons to believe
fake accounts or documents or furnishes any false are in contravention of any provisions of this Act or
FINAL
information with an intention to evade payment of the rules made thereunder;

tax due under this Act;
► tampers with or destroys any material evidence or
► obstructs or prevents any officer in the discharge of documents;
his duties under this Act;
► fails to supply any information which he is
► acquires possession of, or in any way concerns
requird to supply under this Act or the rules made
himself in transporting, removing, depositing,
thereunder or (unless with a reasonable belief, the
keeping, concealing, supplying, or purchasing or
burden of proving which shall be upon him, that the
in any other manner deals with, any goods which
information supplied by him is true) supplies false
he knows or has reasons to believe are liable to
confiscation under this Act or the rules made information; or
thereunder; ► attempts to commit, or abets the commission of any
► receives or is in any way concerned with the supply of the offences mentioned to clauses (a) to (k) of
of, or in any other manner deals with any supply of this section,
Cognizable or non-cognizable:
Section Tax amount involved Quantum of punishment Cognizable or Bailable or

by imprisonment non-cognizable non-bailable
132(1)(I) > `500 lakhs Upto 5 years with fine Cognizable Non-bailable
132(1)(ii) > `200 lakhs ≤ `500 lakhs Upto 3 years with fine Non-cognisable Bailable
132(1)(iii) > `100 lakhs ≤ `200 lakhs Upto 1 years with fine Non-cognisable Bailable
132(1)(iv) Offfence specified in clauses (f), (g) or i) Upto 6 months or with Non-cognisable Bailable
of section 132(1) of the CGST Act, 2017 fine or with both
Second and subsequent offence

Section 132(2) of the CGST Act, 2017 where any person convicted of an offence under this section is again convicted
of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with
imprisonment for a term which may extend to five years and with fine.
Minimum imprisonment is 6 months
Section 132(3) of the CGST Act, 2017 the imprisonment referred to in clauses (i), (ii) and (iii) of sub-section (1) and
sub-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of
the Court, be for a term not less than six months.
Prior permission from the Commissioner
Section 132(6) of the CGST Act, 2017 a person shall not be prosecute4d for any offence under this section except with
the previous sanction of the Commissioner.

VOL 09 I NO. 05
FINAL
Topic
Module 4:
Enterprise Risk
Management
ELECTIVES
Module 7:
Business Paper-20A
Valuation
Methods and Strategic
Approaches Performance
Management and
Business
Valuation (SPMBV)

VOL 09 I NO. 05
Module 4: Enterprise Risk Management
L
ANVINNER Corporation, established in cyber security threats. The company invested heavily
FINAL
the 1980s, is a leading manufacturer of in upgrading its IT infrastructure and employee

electronic components used in various training programs to prevent data breaches and ensure
industries, including automotive, telecommunications, compliance with international data protection standards.
and consumer electronics. With operations in over 30
Continuous monitoring and reporting are critical
countries, LANVINNER Corporation faces a complex
components of an effective ERM framework.
risk landscape encompassing operational, financial,
LANVINNER Corporation established a risk
strategic, and compliance risks. Recognizing the need
management committee responsible for overseeing
for a structured approach to risk management, the
the ERM process. This committee, comprising senior
company’s board of directors decided to implement an
executives and risk managers, met quarterly to review
ERM framework in 2017.
risk reports, assess the effectiveness of mitigation
The first step in implementing ERM at LANVINNER strategies, and update the risk register. Additionally, the
Corporation involved identifying potential risks. The company developed a risk dashboard to provide real-
company employed a bottom-up approach, engaging time risk information to decision-makers. A notable
employees at all levels to report risks within their areas scenario here was the implementation of a predictive
of responsibility. Additionally, a top-down perspective analytics tool, which enabled the company to anticipate
was adopted, where senior management identified and mitigate risks more effectively.
strategic and emerging risks. The risk identification
One of the significant challenges faced by LANVINNER
process included workshops, interviews, and surveys
Corporation was fostering a risk-aware culture.
to gather comprehensive risk data. A significant
Initially, there was resistance from employees who
scenario arose when a key supplier faced bankruptcy,
perceived ERM as an additional bureaucratic process.
threatening to disrupt the supply chain. This highlighted
To address this, the company invested in training and
the importance of robust supplier risk assessments.
awareness programs to educate employees about the
Once risks were identified, the next phase involved
importance of risk management and their role in the
assessing their potential impact and likelihood.
ERM process. Another challenge was ensuring that risk
LANVINNER Corporation used a risk matrix to
management practices were consistently applied across
categorise risks based on their severity and probability.
all international operations, which required tailored
This matrix helped prioritise risks, focusing on those
training sessions and localized risk management
with the highest potential to affect the company’s
policies.
objectives. Each risk was evaluated in terms of financial
impact, operational disruption, reputational damage, Integrating ERM with existing processes and systems
and regulatory implications. An interesting scenario posed another challenge. LANVINNER Corporation
occurred during this phase when an emerging technology had to align its ERM framework with other management
presented both an opportunity and a risk. The company systems, such as quality management, internal audit,
needed to balance the potential market gains against the and strategic planning. This required significant
technological and operational challenges it posed. coordination and process re-engineering to ensure
seamless integration. A specific scenario involved
After assessing the risks, the company developed
aligning ERM with the company’s sustainability
mitigation strategies. This involved identifying existing
initiatives. The integration ensured that environmental
controls and determining their effectiveness. For
risks, such as those related to climate change and
significant risks, new controls were introduced, and
resource scarcity, were adequately addressed in the
contingency plans were developed. For example, to
overall risk management strategy.
address supply chain risks, LANVINNER Corporation
diversified its supplier base and implemented robust Effective ERM relies on accurate and timely risk
supplier risk assessments. Another scenario involved data. LANVINNER Corporation faced challenges

VOL 09 I NO. 05
in consolidating risk data from various sources and mitigating risks early, LANVINNER Corporation was
FINAL
ensuring its quality. To overcome this, the company able to avoid significant financial losses. For instance,
implemented a centralised risk management information the diversification of suppliers reduced the impact of
system (RMIS) to capture, store, and analyse risk data. supply chain disruptions, ensuring steady production
This system facilitated better data management and and delivery of products. Additionally, the enhanced
reporting. During this phase, the company encountered risk management practices contributed to improved
a scenario where discrepancies in data quality across credit ratings, reducing the cost of capital. A specific
different regions necessitated the development of a scenario involved a natural disaster affecting one of
standardized data collection protocol. the major manufacturing plants. Due to pre-established
contingency plans, the company could swiftly relocate
The implementation of ERM at LANVINNER
production and mitigate financial losses.
Corporation led to heightened risk awareness across
the organization. Employees at all levels became more The success of ERM at LANVINNER Corporation was
proactive in identifying and reporting risks, contributing largely due to strong leadership commitment. The board
to a more resilient organizational culture. The training of directors and senior management played an active
programs and continuous communication efforts played role in driving the ERM initiative, demonstrating its
a crucial role in embedding risk awareness into the importance to the entire organization. Their involvement
corporate ethos. An illustrative scenario involved a was crucial in overcoming resistance and ensuring the
new market entry where local teams identified specific necessary resources were allocated to the ERM process.
regulatory risks early on, allowing the company to This commitment was evident in a scenario where the
adapt its strategy accordingly. CEO personally led a series of workshops to emphasize
the strategic importance of ERM.
ERM provided LANVINNER Corporation with a
ERM is not a one-time project but an ongoing process.
structured approach to risk assessment and management,
LANVINNER Corporation recognised the need for
leading to more informed decision-making. The risk
continuous improvement and regularly updated its
matrix and dashboard enabled management to prioritise
risk management practices to adapt to changing risk
risks and allocate resources effectively. As a result, the
landscapes. The company conducted annual reviews
company was better equipped to navigate uncertainties
of its ERM framework, incorporating feedback from
and capitalize on opportunities. For instance, a strategic
stakeholders and benchmarking against industry best
decision to enter the renewable energy market was
practices. A key scenario involved responding to the
guided by thorough risk assessments, ensuring a
COVID-19 pandemic, where the company had to
balanced approach to innovation and risk.
rapidly adapt its risk management practices to address
With operations in multiple jurisdictions, LANVINNER new health and safety risks, supply chain disruptions,
Corporation faced a complex regulatory environment. and changing market dynamics.
The ERM framework helped ensure compliance with
Effective ERM requires collaboration and
various regulations by systematically identifying
communication across all levels of the organization.
compliance risks and implementing appropriate
LANVINNER Corporation fostered a culture of open
controls. This proactive approach to regulatory
communication, encouraging employees to share risk-
compliance reduced the likelihood of legal penalties
related information without fear of retribution. This
and reputational damage. A relevant scenario involved
collaborative approach enhanced the quality of risk
changes in international trade policies, where the
data and the effectiveness of risk mitigation strategies.
company’s proactive risk assessments allowed it to
A noteworthy scenario was the establishment of cross-
swiftly adapt to new regulatory requirements.
functional risk teams that brought together experts
One of the tangible benefits of ERM was its positive from different departments to address complex, multi-
impact on financial performance. By identifying and dimensional risks.

VOL 09 I NO. 05
What approach did LANVINNER Corporation use C) Risk Management Information System (RMIS)
FINAL
to identify potential risks? D) Business Intelligence (BI) system

A) Top-down approach only Answer:
B) Bottom-up approach only C) Risk Management Information System (RMIS)
C) Combination of top-down and bottom-up approaches What major benefit did the ERM framework
provide to LANVINNER Corporation in terms of
D) External consultant review financial performance?
Answer: A) Increased revenue
C) Combination of top-down and bottom-up approaches B) Improved credit ratings and reduced cost of capital
How did LANVINNER Corporation prioritize the C) Higher stock prices

risks identified? D) Increased employee salaries
A) By financial impact only Answer:
B) By probability and severity using a risk matrix B) Improved credit ratings and reduced cost of capital
C) By senior management decision Which scenario demonstrated the importance of
strong leadership commitment in the success of
D) By random selection ERM at LANVINNER Corporation?
Answer: A) Implementation of predictive analytics tool
B) By probability and severity using a risk matrix B) CEO leading a series of workshops
What system did LANVINNER Corporation C) Investment in new technology
implement to manage and analyze risk data? D) Supplier bankruptcy issue
A) Enterprise Resource Planning (ERP) system Answer:
B) Customer Relationship Management (CRM) system B) CEO leading a series of workshops
Module 7 : Business Valuation Methods and Approaches

Risks in Valuation Using Modern Valuation Assumptions and Inputs
Techniques One of the most significant risks in modern valuation
Valuation is a critical component of financial decision- techniques is the reliance on assumptions and inputs.
making, impacting investment choices, corporate Valuations often require forecasts of future cash flows,
strategies, and regulatory compliance. Modern discount rates, and growth rates, among other variables.
valuation techniques, such as discounted cash flow The accuracy of these forecasts is crucial, yet they are
(DCF) analysis, comparable company analysis, and inherently uncertain and subject to change.
precedent transactions, aim to provide accurate and For instance, the DCF method relies heavily on
reliable estimates of an asset’s worth. However, projected future cash flows and the discount rate. If the
these methods are not without their risks. This essay assumptions about future revenue growth, operating
explores the various risks inherent in using modern margins, or capital expenditures are overly optimistic
valuation techniques, including assumptions and inputs, or pessimistic, the resulting valuation will be skewed.
model risk, market risk, and behavioral biases, while Similarly, the choice of discount rate, which reflects
highlighting the importance of vigilance and rigorous the time value of money and the risk associated with
analysis in mitigating these risks. the investment, can dramatically alter the valuation

VOL 09 I NO. 05
outcome. A small change in the discount rate can lead Market Risk
to significant differences in the present value of future
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Market risk, or systematic risk, refers to the risk
cash flows, thereby affecting the overall valuation.
of valuation inaccuracies due to changes in market
Moreover, inputs such as market multiples in conditions. Factors such as interest rates, inflation,
comparable company analysis or historical transaction economic cycles, and geopolitical events can
prices in precedent transactions can be influenced by significantly impact valuations. For instance, an
market conditions and investor sentiment. These inputs unexpected rise in interest rates can increase the
may not always reflect the true value of the company discount rate used in DCF models, thereby reducing
or asset being valued, especially during periods of the present value of future cash flows and lowering the
market volatility or economic uncertainty. The reliance valuation.
on historical data also poses a risk, as past performance Market risk also affects the availability and reliability of
may not necessarily predict future results, leading to market data used in comparable company analysis and
potential inaccuracies in the valuation. precedent transactions. During times of market turmoil,
Model Risk valuation multiples can fluctuate widely, making
it difficult to derive accurate and stable valuations.
Model risk arises from the possibility that the valuation
The timing of the valuation is crucial, as valuations
model itself may be flawed or inappropriate for the
conducted during bull markets may overestimate
specific context. Each valuation technique has its
value, while those conducted during bear markets may
strengths and limitations, and applying the wrong
underestimate it.
model can lead to erroneous valuations. For example,
the DCF model is highly sensitive to the assumptions Moreover, market risk is often beyond the control
of individual investors or analysts, making it a
of future cash flows and discount rates, making it less
pervasive and persistent challenge in valuation. While
suitable for companies with unstable or unpredictable
diversification and hedging strategies can mitigate some
cash flows.
aspects of market risk, they cannot eliminate it entirely.
Comparable company analysis and precedent
Behavioral Biases
transactions, while useful in providing market-based
valuations, assume that the selected comparables are Behavioral biases represent another significant risk
truly comparable to the subject company. In practice, in valuation. These biases can distort judgment and
finding exact comparables can be challenging, and lead to systematic errors in valuation. Common biases
even minor differences in business models, market include overconfidence, anchoring, herd behavior, and
positioning, or growth prospects can render the analysis confirmation bias.
less reliable.
Overconfidence can lead analysts to overestimate their
Additionally, model risk can be exacerbated by the ability to forecast future cash flows and undervalue
use of overly complex or sophisticated models that the uncertainties involved. This can result in overly
are not well understood by the user. Financial models optimistic valuations that do not adequately account
often incorporate numerous variables and assumptions, for risk. Anchoring refers to the tendency to rely too
and if the user lacks a thorough understanding of how heavily on initial information or previous valuations,
these elements interact, there is a higher risk of errors which can skew subsequent analyses. For instance, if
and misinterpretations. Over-reliance on quantitative an analyst becomes anchored to a high initial valuation,
models without sufficient qualitative analysis can also they may insufficiently adjust their estimates even when
lead to misleading conclusions. new information suggests a lower value.

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Herd behavior occurs when analysts and investors a range of scenarios. Sensitivity analysis can help assess
follow the actions of others rather than relying on how changes in key variables impact the valuation,
FINAL
their own analysis. This can lead to valuation bubbles, providing insights into the robustness of the estimates.
where assets are priced well above their intrinsic value Using multiple valuation methods can also enhance
due to collective optimism or speculation. Conversely, reliability. By triangulating valuations from different
it can also result in undervaluation during periods of approaches, analysts can cross-validate results and
widespread pessimism. identify discrepancies. This helps ensure that the final
Confirmation bias involves the tendency to search for, valuation is not overly dependent on a single method or
interpret, and remember information that confirms set of assumptions.
pre-existing beliefs while disregarding information Continuous updating and revision of assumptions
that contradicts them. This bias can lead analysts to are crucial in a dynamic and uncertain environment.
selectively use data and assumptions that support their Regularly revisiting and adjusting forecasts, discount
desired valuation outcome, rather than conducting an rates, and market data can help maintain the relevance
objective and balanced analysis. and accuracy of the valuation. Staying informed about
Mitigating Valuation Risks market trends, economic indicators, and industry

developments is essential for making timely and
To mitigate the risks associated with modern valuation informed adjustments.
techniques, it is essential to adopt a rigorous and
Additionally, fostering a culture of critical thinking
disciplined approach. This includes conducting thorough
and objectivity can help mitigate behavioral biases.
due diligence, using multiple valuation methods, and
Encouraging analysts to question assumptions,
continuously updating and revising assumptions based
seek diverse perspectives, and challenge their own
on new information.
conclusions can lead to more balanced and accurate
Thorough due diligence involves scrutinizing the valuations. Training programs and awareness initiatives
assumptions and inputs used in the valuation, cross- can also enhance understanding of behavioral biases
checking them against multiple sources, and considering and their impact on valuation.

VOL 09 I NO. 05
FINAL
Topic
Module 5:
Operational Risk
and Off-Balance
Sheet Risk
ELECTIVES
Module 8:
Managing Risk in Paper-20B
Insurance Business
Risk Management
In Banking and
Insurance (RMBI)

VOL 09 I NO. 05
Guidelines of RBI to Conduct of Guarantee Business of Banks
(Off-Balance Sheet Exposure Risks-RBI Directions)
T
FINAL
he ‘Off-balance sheet’ description denotes that All exemptions allowed for computation of unsecured
the activities involve contingent commitments advances stand withdrawn.
or contracts which generate income to a bank,
Precautions for Issuing Guarantees:
but are normally not captured as Assets or Liabilities
under conventional accounting procedure. Contingent Banks should adopt the following precautions while
items may be recorded in a bank’s accounts as ‘Notes issuing guarantees on behalf of their customers.
to Balance Sheet’, ‘Contingent Commitment Banking’, (i) As a rule, banks should avoid giving unsecured
‘Assetless Banking’ or even ‘Invisible Banking’. guarantees in large amounts and for medium and
Norms for Unsecured Advances & Guarantees: long-term periods. They should avoid undue
concentration of such unsecured guarantee
Until June 17, 2004, banks were required to limit
commitments to particular groups of customers
their commitments by way of unsecured guarantees in
and/or trades.
such a manner that 20 percent of a bank’s outstanding
(ii) Unsecured guarantees on account of any individual
unsecured guarantees plus the total of its outstanding
constituent should be limited to a reasonable
unsecured advances should not exceed 15 percent of its
proportion of the bank’s total unsecured guarantees.
total outstanding advances. In order to provide further
Guarantees on behalf of an individual should also
flexibility to banks on their loan policies, the above
bear a reasonable proportion to the constituent’s
limit on unsecured exposure of banks was withdrawn
equity.
and banks’ Boards have been given the freedom to
fix their own policies on their unsecured exposures. (iii) In exceptional cases, banks may give deferred
“Unsecured Exposure” is defined as an exposure where payment guarantees on an unsecured basis for
the realisable value of the security, as assessed by the modest amounts to first class customers who have
bank/ approved valuers / Reserve Bank’s inspecting entered into deferred payment arrangements in
officers, is not more than 10 per cent, ab-initio, of the consonance with Government policy.
outstanding exposure. Exposure shall include all funded (iv) Guarantees executed on behalf of any individual
and non-funded exposures (including underwriting and constituent, or a group of constituents, should be
similar commitments). ‘Security’ will mean tangible subject to the prescribed exposure norms.
security properly charged to the bank and will not
(v) It is essential to realise that guarantees contain
include intangible securities like guarantees (including
inherent risks and that it would not be in the bank’s
State government guarantees), letter of comfort, etc.
interest or in the public interest, generally, to
For determining the amount of unsecured advances encourage parties to over-extend their commitments
for reflecting in schedule 9 of the published balance and embark upon enterprises solely relying on the
sheet of Banks, the rights, licenses, authorisations, etc., easy availability of guarantee facilities.
charged to the banks as collateral in respect of projects
Precautions for Averting Frauds:
(including infrastructure projects) financed by them,
should not be reckoned as tangible security. Banks, may While issuing guarantees on behalf of customers, the
however, treat annuities under build-operate –transfer following safeguards should be observed by Banks:
(BOT) model in respect of road/highway projects and
(i) At the time of issuing financial guarantees, banks
toll collection rights where there are provisions to
should be satisfied that the customer would be in a
compensate the project sponsor if a certain level of
position to reimburse the bank in case the bank is
traffic is not achieved, as tangible securities, subject
required to make payment under the guarantee.
to the condition that banks’ right to receive annuities
and toll collection rights is legally enforceable and (ii) In the case of performance guarantee, banks should
irrevocable. exercise due caution and have sufficient experience
with the customer to satisfy themselves that the

VOL 09 I NO. 05
customer has the necessary experience, capacity auditors or inspectors at the time of internal inspection
and means to perform the obligations under the of branches.
FINAL
contract, and is not likely to commit any default. Precautions to be taken in the case of Letter of
Credit:
Bank guarantees issued for ₹ 50,000/- and above should
be signed by two officials jointly. A lower cut-off point, In the case of LCs for import of goods, banks should
depending upon the size and category of branches, may be very vigilant while making payment to the overseas
be prescribed by banks, where considered necessary. suppliers on the basis of shipping documents. They
Such a system will reduce the scope for malpractices / should exercise precaution and care in comparing the
losses arising from the wrong perception / judgement or clients. The payments should be released to the foreign
lack of honesty / integrity on the part of a single signatory. parties only after ensuing that the documents are strictly
Banks should evolve suitable systems and procedures, in conformity with the terms of the LCs. There have been
keeping in view the spirit of these instructions and many irregularities in the conduct of LC business, such
allow deviation from the two signatures discipline only as the LC transactions not being recorded in the books
in exceptional circumstances. The responsibility for of the branch by officials issuing them, the amount of
ensuring the adequacy and effectiveness of the systems LCs being much in excess of the powers vested in the
and procedures for preventing perpetration of frauds officials, fraudulent issue of LCs involving a conspiracy/
and malpractices by their officials would, in such cases, collusion between the beneficiary and the constituent.
rest on the top managements of the banks. In case, In such cases, the banks should take action against the
exceptions are made for affixing of only one signature concerned officials as well as the constituent on whose
on the instruments, banks should devise a system for behalf the LCs were opened and the beneficiary of LCs,
subjecting such instruments to special scrutiny by the if a criminal conspiracy is involved.
Goal of Risk Management

(Insurance is only a Portion of What Risk Management is all About)
The Goal of Risk Management is to “Protect not only Once the exposures have been identified by department,
the assets and income of an organization from the the department must evaluate how these services are
potential of accidental loss, but also other stake holder’s managed or provided and how a loss in their department
dependent upon the organization”. The steps of Risk will effect not only their operations, but also the overall
Management are the same whether in the private sector organization, including other departments.
or public sector. Risk management is a management tool, which can be
Insurance is only a portion of what Risk Management used by any organization or department, regardless of
is all about. Whether a loss is insured or uninsured, a size, for the purpose of minimizing the adverse financial
loss is a loss. The financial consequences of a loss will effects of accidental loss.
impact the organization and it may result in further In its most basic application, risk management is an
significant costs such as repair, loss of income and ongoing systematic effort to identify and control the
additional expense. risk of losses to which an organization is exposed and to
finance those losses, which do occur, in a cost-effective
Identifying the risks of potential loss requires an
manner.
assessment of not only the services provided, but also,
Benefits of Risk Management
the assets owned. In addition, the organization needs
to identify where they have legal obligations and what Improved Risk Assessment:
level of funding is required to operate the various One of the most significant reasons why risk management
services and facilities. is a must for insurance companies is its enhanced risk

VOL 09 I NO. 05
assessment techniques. Risk Management comes with of the insurer to map the policyholder obligations, the
FINAL
a series of steps with the first one being rigorous risk company needs to take certain steps to curb the same.
assessment. When company opts for the inception of
There are Risk Maturity Models developed by the
the risk management strategy, we will have a frequent
Insurance Companies, which determines how well the
and extensive assessment of the entire system within
company is managing risks. These models generate
the organization. The tests performed are done with the
report’s highlighting what are the weak areas that are
core idea of detecting gaps and finding peaks within
prone to thefts so that the managers could then optimize
data.
it for better infrastructure.
This information is vital considering the fact that
Prioritize Risks:
having knowledge about what’s going wrong helps risk
management managers to proactively employ measures In simple terms, risk management is nothing but
to deal with them and mitigate the effects of the risk. assessing and identifying areas within the organization
In fact, risk assessment helps keep the organizational that might be vulnerable to hacks. A well-drafted risk
system free from theft and threats. management strategy uses standardizes risk assessment
programs. These programs are designed to highlight the
Ensures Compliance:
top potential areas of risk and further sort them based
The inability to comply with the rules and regulations on their relevancy.
posed by the government with respect to security is This helps risk managers know which of the risks have
one reason why insurance companies fail to grab user the most destructive impact on the business and then
attention. When opting for risk management strategies, take certain steps to deal with the same.
their infrastructure is then modified to be under intense For instance, be it insurance or any other company,
scrutiny. customer service is of paramount importance. In the
Also, all of the companies are expected to be totally absence of risk management methodology, it might so
aware of changes occurring at the Central and State happen that certain customer complaints go unnoticed.
This is fatal for the organization as customers can make
level that might have a direct or indirect impact on the
or break a brand.
organization. The risk managers then need to align their
business operations in terms of the rules, turning 100% When organizations use risk management strategies, the
programs detect all possible areas of risk and surface the
compliant.
ones that are most important at the top. Here, customer
Certain organizations mandate risk managers to assess complaints would lead to the charts. So, the managers
their system and find all possible risks that might occur can identify them and take measures to deal with the
in the foreseeable future. In case, these affect the ability issue at the earliest.

VOL 09 I NO. 05
FINAL
Topic
Module 5:
Scalability, Scaling
up and Stabilisation
of Sustainable
Business
ELECTIVES
Paper-20C
Entrepreneurship
and Start Up (ENTS)

VOL 09 I NO. 05
Paper 20C : Entrepreneurship and Startup

Stabilisation of Sustainable Business and Risk Management Strategies
FINAL
Exit Strategies of Fund Houses in Starups liquidate his stake in a business and, if the business is
E
successful, make a substantial profit.
xit strategies are plans executed by business An exit occurs when an investor sells part or all of his
owners, investors, traders, or venture capitalists or her ownership. In a healthy or growing company,
to liquidate their position in a financial asset an investor may exit to gain a return on investment.
upon meeting certain criteria. An exit plan is how an In other cases, the investor may simply want to access
investor plans to get out of an investment. An exit cash to invest elsewhere. Investors can exit by: Selling
strategy gives a business owner a way to reduce or shares to another investor (or investors).
Source: https://www.smergers.com/blog/exit-from-startup-investment/
1) Mergers and Acquisitions (M&A) A public offering is a rare form of exit that requires a
One of the most common exit strategies for startups lot of work and time. Due to the high liability concerns,
with venture capital or angel investor funding is through shareholder demands and high costs, a public offering
M&A. In an M&A, a startup is bought or merged into may not be feasible for most startups.
a larger peer or competitor. It is a common occurrence 3) Management Buyout (MBO)
and can take the form of large corporate buyouts such In an MBO, the management of the company buys
as in the case of Walmart’s acquisition of a 77% stake in purchases the assets and operations of the business they
Flipkart for USD 16 billion. manage. This type of exit strategy is favoured by large
2) Initial Public Offering (IPO) corporations looking to sell individual divisions that are
An initial public offering (IPO) refers to the process of not part of their core business or by private businesses
offering shares of a private corporation to the public in whose owners wish to retire. An MBO allows a company
a new stock issuance. Public share issuance allows a to go private in an effort to streamline its operations
company to raise capital from public investors. An IPO and improve profitability. one of the more well-known
is often considered one of the most prestigious forms cases of a management buyout in India would be in the
of exit as it is associated with high payoffs and status. instance of Capital First. In 2012, the MD of the NBFC,

VOL 09 I NO. 05
Future Capital effected a takeover of the company with company has since merged with IDFC Bank to form
an equity backing of USD 159 million from Warburg IDFC First which has the distinction of being the first
FINAL
Pincus and renamed the company Capital First. The management buyout converted into a bank.
Other Alternative Exit Strategies
Source: https://www.smergers.com/blog/exit-from-startup-investment/
1) Private Offerings or Secondary Sales distressed situations where the business can no longer
Private offerings allow shares to be offered to individuals continue to function.
or a select group of investors to raise funds. These types Case Study:
of offerings do not need to be registered with SEBI and Reliance Industries’ Green Energy Innovation
are exempt from reporting arrangements. Reliance Industries, one of India’s largest private sector
2) Cash Cow companies, has significantly contributed to sustainable
Cash cows are firms that can generate a steady cash energy and green innovation. The company has been
flow for investors and pay an appropriate dividend collaborating with Indian startups to drive innovation
through the years. This is typical with firms which for sustainability. Reliance Industries has collaborated
command a high market share in an industry dominated with some organisations, including Indian Oil, NTPC,
by low growth. They can sustain enough capital to stay Adani Enterprises, JSW Energy, ReNew Power, and
afloat for the foreseeable future as they promise years Acme Solar. Reliance Industries aims to build one
of increased profits. of the world’s leading new energy and new materials
businesses to bridge India’s global green energy divide.
3) Asset Liquidation or Write-Offs
The company has been investing heavily in renewable
It is widely believed that more than 99% of startups fail energy. In January 2022, Reliance Industries announced
and, in such cases, the only recourse for investors is to it would invest roughly $80 billion in renewable energy
write off such investments, liquidate any assets held by push, including new power manufacturing-integrated
the startup and recoup its salvage value. In this method, renewable manufacturing. The company has also signed
the assets of the business are liquidated, and the funds an MoU with the government of Gujarat state to invest
acquired are used to cash out investors. This is not 5.9 trillion rupees ($80 billion) to help make Gujarat
usually a recommended strategy as it used mainly in net-zero carbon by 2035.

VOL 09 I NO. 05
MCQs:
1. Which of the following is not a renewable energy
FINAL
source?
(a) Solar
(b) Natural Gas
(c) Wind
(d) Biomass
Answer: (b) Natural Gas
RIL’s investments toward the green energy initiative. 2. Which of the following statements are true of
Reliance Industries has been collaborating with various innovations?
startups for its green energy initiatives — A. Innovations are a must to survive.
1. Integrated Solar Photovoltaic Factory: With B. Discontinuous innovations lead to failures.
plans to construct an integrated solar photovoltaic
factory to produce ingots and wafers, Reliance C. Continuous innovations do not disrupt
Industries will be able to make low-cost solar cells established usage and behaviour patterns.
and modules D. Line extensions are discontinuous innovations.
2. Green Hydrogen and Carbon Dioxide: The Choose the correct answer from the options given
company plans to use green hydrogen and carbon below:
dioxide as raw materials to produce green fertilisers (a) A, B, C only (b) B, C, D only
and e-fuels. (c) B and D only (d) A and C only
3. Rooftop Solar and Decentralized Solar
Installations: Reliance Industries aims to build Answer (d)
solar capacity of at least 100 gigawatts (GW) by 3. Which one of the following statements is not correct?
2030, accounting for over a fifth of India’s target (a) Reliance Industries has been collaborating
of installing 450 GW by the end of this decade. with integrated solar photovoltaic factory to
Most of this will come from rooftop solar and produce ingots and wafers.
decentralised solar installations. (b) Reliance Industries aims to build solar capacity
4. Energy Storage and Green Hydrogen of at least 10 gigawatts (GW) by 2040.
Production: Reliance Industries will leverage its (c) Reliance Industries will leverage its ecosystem
ecosystem for manufacturing integrated solar and
for manufacturing integrated solar and wind
wind energy storage. It will also create a fully
energy storage.
integrated, automated giga-scale electrolyser
manufacturing facility for large-scale and cost- (d) Reliance Industries plans to use green hydrogen
competitive green hydrogen production. and carbon dioxide as raw materials to produce
5. Collaboration with Danish Stiesdal A/S: Reliance green fertilisers and e-fuels.
Industries has collaborated with Denmark’s Stiesdal Answer (b)
A/S on technology development and manufacturing 4. Atal Innovation Mission is set up under the (2019)-
of hydrogen, which can produce hydrogen at a
(a) Department of Science and Technology
significantly lower cost compared to current levels
Reliance Industries’ contributions to sustainable (b) Ministry of Labour and Employment
energy and green innovation have been significant, (c) NITI Aayog
and the company’s investments in renewable energy (d) Ministry of Skill Development and
and collaborations with startups have been driving Entrepreneurship
innovation for sustainability. The company’s efforts
also contribute to the United Nations’ Sustainable Answer: (c)
Development Goal 7, which aims to ensure access to 5. Which term refers to startups that aim to disrupt
affordable, reliable, sustainable, and modern energy for traditional industries or business models?
all. (a) Conservative startups
(Source: Driving Sustainability through Indian (b) Established startups
Innovation: A Confluence of Entrepreneurship and
(c) Legacy startups
Corporate Action, The Nexus of Entrepreneurship and
Innovation: Susan Joseph) (d) Disruptive startups
https://medium.com/@susj98) Answer: (d)

VOL 09 I NO. 05
INDUSTRY INSIGHTS
INDUSTRY INSIGHTS| |NOVEMBER 2023
JANUARY 2024 GAAR
FINAL
NOTES
The Institute of Cost Accountants of India 623

32
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CMA E-Bulletin

VOL 09 I NO. 05 I MAY 2024

An Initiative of Directorate of Studies

Copyright © 2024 by The Institute of Cost Accountants of India

2 CMA Student E-Bulletin - April 2024 www.icmai.in

VOL 09 I NO. 05 I MAY 2024

An Initiative of Directorate of Studies

www.icmai.in CMA Student E-Bulletin - April 2024 3

VOL 09 I NO. 05 I MAY 2024

VOL 09 I NO. 05 I MAY 2024

An Initiative of Directorate of Studies

Editorial Board Members

07 - 24 - CMA Foundation Course

www.icmai.in CMA Student E-Bulletin - April 2024 5

6 CMA Student E-Bulletin - April 2024 www.icmai.in

www.icmai.in CMA Student E-Bulletin - May 2024 7

8 CMA Student E-Bulletin - May 2024 www.icmai.in

(B) 2 (2) (C) sale on approval

(C) 2 (3) (D) hire-purchase agreement

(D) 4 11. The term, ‘property’, as used in the Sale of Goods

(A) 2(3) (A) custody of goods to the buyer.

(D) 2(5) (D) possession and custody of goods to the buyer.

www.icmai.in CMA Student E-Bulletin - May 2024 9

(B) 5 & 6 (D) Section 2(13)

10 CMA Student E-Bulletin - May 2024 www.icmai.in

SECTION – B: BUSINESS COMMUNICATION

(D) Upward (D) 4

(A) Positive body language (A) Presentation

(B) Leadership initiative (B) Debate

(C) False statements (C) Speech

www.icmai.in CMA Student E-Bulletin - May 2024 11

12 CMA Student E-Bulletin - May 2024 www.icmai.in

b. Real Account b. Debtors

c. Personal Account c. Creditors

d. Debits are Nominal Account and Credits are d. Bank Balance

a. Non-profit seeking Organization a. Capital contribution

b. Non-trading Organization b. Drawings

c. Not related to Sole Proprietorship c. Sales

4. Amortization is related to a. Trading Account

a. Tangible Assets b. Profit & Loss Account

b. Intangible Assets c. Profit & Loss Appropriation Account

c. Both Tangible and Intangible Assets d. Balance Sheet

d. Fixed Assets 11. Only Provision Account to have a Debit Balance

a. Interest Received a. Income earned but not received

b. Wages b. Income received in advance

c. Sales Commission c. Arrear Income

d. None of the above d. Arrear Income received

www.icmai.in CMA Student E-Bulletin - May 2024 13

14 CMA Student E-Bulletin - May 2024 www.icmai.in

www.icmai.in CMA Student E-Bulletin - May 2024 15

16 CMA Student E-Bulletin - May 2024 www.icmai.in

(d) If Discriminant is perfect square (d) 52

www.icmai.in CMA Student E-Bulletin - May 2024 17

18 CMA Student E-Bulletin - May 2024 www.icmai.in

(c) 1900 30. Under Laspeyres’ method the influence of price

1 a (2+3+3)!-7!-1! = 40320 – 5040-1= 35279

www.icmai.in CMA Student E-Bulletin - May 2024 19

9 a Constant term (ax2 + bx + c = 0)

20 CMA Student E-Bulletin - May 2024 www.icmai.in

Month 2: 100(0.0+0.1) +00.0 = 10

Month 3: 100(0.0+0.1+0.1) + 00.1 +10*0.0 = 20

Month 4: 100(0.0+0.1+0.1+0.2) + 00.1+100.1+200.0 = 41

Month 5: 100(0.0+0.1+0.1+0.2+0.1) +00.2+100.1+200.1+41*0.0 = 53

Month 6: 100(0.0+0.1+0.1+0.2+0.1+0.5) +00.1+100.2+200.1+410.1+530.0 = 108.1

Month 2: 100(0.4+0.2) +400.4 = 76

Month 3: 100(0.4+0.2+0.1) + 400.2 +76*0.4 = 108.4

Month 4: 100(0.4+0.2+0.1+0.1)+ 400.1+760.2+108.40.4 = 142.56

Month 5: 100(0.4+0.2+0.1+0.1+0.1) +400.1+760.1+108.40.2+142.56*0.4 = 180.28

Month 2: 100(0.1+0.1) +100.1 = 21

Month 3: 100(0.1+0.1+0.1) + 100.1 +21*0.1 = 33.1