ca ipcc exam paperscaclubindia.s3.amazonaws.com/cdn/forum/files/536246...liabilities amount assets...

CA IPCC Exam papers

Santhosh Kumar GelliDate: 12 12 – 2011

[email protected]

May 2011

Ans.1.(a) Calculation of purchase consideration preference shareholders of AXE Ltd. Will get (a) 9% Psc of BXE Ltd. 8000 shares @ 100/- each (b) Cash 8000 shares @ 10/- each (A)=

8,00,000

80,000 8,80,000

Equity shareholders of AXE Ltd. will get (c) ESC of BXE Ltd. 15000 shares @ 140/- each = (d) Cash 1500 shares @ 20/- each = (B) = P.C. (A + B)

21,00,000

3,00,000 24,00,000 32,80,000

Ans. (b) Memorandum Trading account of M/s suraj Brothers for the period 1.1.2011 to 30.3.2011 Particulars Rs. Particulars Rs.To Opening Stock To Purchases 170000 Less: Machinery Purchased 30000 To Wages 50000 Less: Wages for installation 3000 To Gross Profit (242000 x 20%)

95,600

1,40,000

47,00048,400

3,31,000

By Sales 2,75,000 Less: Goods not yet Sold (49500 x 2/3) 33,000 By Closing Stock (Balancing figure)

2,42,00089,000

3,31,000

Loss of stock Closing Stock Less: Goods with customer on approval (49500 x 1/3 x 80%) Less: Value of salvaged goods

89000 13200 12300 63,500

Application of Average clause – Since our policy amount (Rs. 60000) is less than value of closing stock (Rs. 89,000) ∴ Avg. clause will apply. Loss of stock x Policy Amount Insurance claim = -------------------------------------- Value of closing stock 63500 x 60000 = ------------------- = 42809/- 89000 Ans. (c) Capital Employed of the firm Shiv Capital 3,00,000 Mohan Capital 2,00,000 5,00,000 Normal Profit = 5,00,000 x 20% = 100000/- Calculation of Goodwill (1) Super Profit Method Super Profit = Avg. Profit – Normal Profit = 1,36,000 – 1,00,000 = 36,000 Goodwill = 36,000 x 5 = 1,80,000/- (2) Capitalization Method Goodwill = Value of firm – Capital Employed 1,36,000 = ------------ x 100 – 5,00,000 20 = 1,80,000/- (3) Avg. Profit Method Goodwill = Avg. Profit x No. of years of purchase = 1,36,000 x 3 = 4,08,000/-

Ans. (d) Investment a/c of Rajat for the year ended on 31.3.2011 Date Particulars No. Amount Date Particulars No. Amount 1.4.2010 20.6.2010 1.08.2010 5.11.2010

To balance b/d To Bank A/c To Bonus Issue To Bank

50000 10000 10000 20000 90000

7,50,0001,60,000

-3,00,000

12,10,000

31.3.2011 By Balance c/d 90,000

90000

12,10,000

12,10,000 Note: As per AS 13 if right are not subscribed and renounced than, profit on renunciation of such rights is treated as income. Ans. 2 Calculation of Profit sharing ratio & Sacrifying ratio. 3 1 1

Sacrifice by Amit = --- x --- = ---- 5 3 5 3 1 2 Amit New share = --- - ---- = --- 5 5 5 2 1 1 Sacrifice by sumit = --- x --- = --- 5 4 10 2 1 4 – 1 3 Sumit New share = ---- - ---- = ------- = ---- 5 10 10 10 4 3 3 New ratio = ---- : --- : --- 10 10 10 i.e. 4:3:3

Revaluation A/c

To Stock A/c To Pro. for Bad debts (15000 – 10000) To Capital A/c Amit 24000 Sumit 16000

60,0005000

60,0001,05,000

By L & B A/c By Investment A/c

1,00,0005000

1,05,000

Partner’s Capital A/c Particulars Amit Sumit Punit Particulars Amit Sumit Punit

To Amit Capital To Sumit Capital To Cash A/c To balance c/d

- -

60000 400000

4,60,000

- -

30000 300000

3,30,000

60000 30000

300000

3,90,000

By bal. b/d By Punit loan A/c By Reserve A/c By Revaluation By Cash A/c By Punit Capital By Cash A/c

1,76,000 -

18,000 24,000

- 60,000

1,82,000 4,60,000

2,54,000 -

12,000 16,000

- 30,000 18,000

3,30,000

- 3,00,000

- -

90,000 - -

3,90,000

Balance Sheet of firm as on 1.4.2011

after Punit Admission Liabilities Amount Assets Amount

Capital A/c Amit 4,00,000 Sumit 3,00,000 Punit 3,00,000 Employers PF Creditors

10,00,00010,00050,000

10,60,000

L&B Investments Debtors 3,00,000 Less: Pro. for B/D 15,000 Stock Cash at Bank

4,20,00055,000

2,85,00050,000

2,50,00010,60,000

Ans. (3) Calculation of number of equity shares & preference shares to be allotted by Jupiter Ltd. Calculation of Purchase Consideration

L&B 10,80,000 Stock 7,70,000 B/R 30,000 18,80,000 Discharge of purchase consideration 10% Preference share capital 4100 shares x 100/- = 4,10,000 Equity share Capital (B/F) = 14,70,000 18,80,000 No. of Equity shares to be issued (1470000/8) = 1,83,750 No. of Preference Shares to be issued = 4,100

In the books of Mass Ltd. Realisation A/c

Particulars Rs. Particulars Rs.To L & B To Stock To Sundry Debtors To Bills receivable To Bank A/c Bills Payable Income Tax Liquidations Exps. Creditors To Equity Shareholders A/c

7,64,0007,75,0001,60,000

30,000

38,0002,22,000

8,0002,16,0003,16,000

25,29,000

By Pro. for Bad debts By Bills Payable By Sundry Creditors By Provision for Income Tax By Jupiter Ltd. (Purchase Consideration) By Bank A/c Debtors 1,50,000 Liquidations Exps. 5,000

8,00040,000

2,26,0002,20,000

18,80,000

1,55,000

25,29,000

Bank A/c Particulars Amount Particulars Amount To balance b/d To Realisation A/c Debtors Liquidation Exps.

3,29,000

1,50,0005,000

4,84,000

By Realisation A/c Bills Payable Income tax Liquidation Exps. By Realisation A/c Creditors (B/F)

38,0002,22,000

8,000

2,16,0004,84,000

Equity Shareholders A/c

Particulars Amount Particulars Amount To 10% Pref. shares of Jupiter Ltd. To Equity shares of Jupiter Ltd.

4,10,00014,70,000

18,80,000

By ESC A/c By Capital Reserve By Contingency Reserve By P & L A/c By Realisation A/c

10,00,00042,000

2,70,0002,52,0003,16,000

18,80,000

Jupiter Ltd. Particulars Amount Particulars Amount To Realisation A/c 18,80,000

18,80,000

By 10% Pref. shares of Jupiter Ltd. By Equity shares of Jupiter Ltd.

4,10,00014,70,00018,80,000

Ans. 4 Cash flow statement of Lotus Ltd. for the year ended on 31.3.2011

Particulars Amount Cash flow from operating activities Increase in P & L a/c Add: Provision for taxation Add: Depreciation on L&B Add: Depreciation on P&M Operating Profit before working capital changes Add: Decrease in stock Less: Increase in Sundry Debtors Less: Decrease in Sundry Creditors Cash generated from operations Less: Income tax paid Cashflow from Investing activities Machinery Purchased Investments Sold Cashflow from Financing activities Issue of Equity share capital Repayment of long term loan Net increase in cash & cash Equivalents Add: Opening cash & cash Equivalents Closing cash & cash Equivalents

80,00055,00020,00055,000

2,10,000

20,00020,000

1,00,0001,10,000

45,000

(12,5000)60000

1,50,000(1,00,000)

65,000

(65,000)

50,00050,000

5,00,000

5,50,000

Land & Building A/c Particulars Amount Particulars Amount To balance b/d 4,00,000

4,00,000

By Depreciation A/c By Balance c/d

200003,80,0004,00,000

Machinery A/c

Particulars Amount Particulars Amount To balance b/d To Cash a/c To Equity share capital a/c

7,50,0001,25,0001,00,0009,75,000

By Depreciation a/c (B/f) By Balance c/d

55,0009,20,000

9,75,000

Investment A/c Particulars Amount Particulars Amount To balance b/d To Capital Reserve a/c

10000010000

1,10,000

By Cash A/c (B/F) By balance c/d

6000050000

1,10,000

Provision for taxation a/c Particulars Amount Particulars Amount To Cash a/c (B/F) To balance c/d

45,00060,000

1,05,000

By Balance b/d 50,00055,000

1,05,000 Ans. 5 Income & Expenditure account of park view club for the year ended on 31.3.2011

Expenditure Amount Income Amount To Salaries To Stationery 40,000

2,08,000 By Subscriptions Received 2,23,000

+ Opening Stock 5,000 - Closing Stock 9,000 By Rent By Telephone Exps. 10,000 + Closing o/s 3500 By Sundry Exps. 92,500 - Opening o/s 7000 By Depreciation on Building (Rs. 10,00,000 x 5%) By Surplus W.N. (1)

36,00060,000

13,500

85,50050,000

30,750

4,83,750

+Closing o/s 14,500 -opening o/s 5000 -closing advance 7500 By Profit on sports meet By Income From Investments 1,00,000 + Intt. accrued 3,750

2,20,0001,55,000

1,03,750

4,83,750

W.N. (1)

Mem. Balance Sheet of Park View club as on 31.3.2010 Liabilities Amount Assets Amount

Capital Fund (B/F) o/s Sundry Expenses

31,05,500

7000

31,12,500

Building Investments Stock of Stationery O/S Subscriptions Cash & Bank balance

10,00,0002,00,000

5,0005,000

1,02,50031,12,500

Balance Sheet of Park view club as on 31.3.2011

Liabilities Amount Assets Amount Capital Fund Opening balance Add: Surplus Advance subscription o/s Telephone Bills

31,05,50030,750

31,36,25075003500

31,47,250

Fixed Assets Building 10,00,000 Less: Depreciation 50,000 Investments 20,00,000 + Addition 1,25,000 Current Assets Stock of Stationery O/S Subscriptions 2010-11 14,000 2009-10 500 Cash & Bank balance Intt accrued on Investments

9,50,000

21,25,000

9,000

14,50045,000

375031,47,250

Note: There was a clerical error in the receipt side of Qu. In Subscription received Rs. 4500 should belongs to year 2009-10, Rs. 2,11,000 belongs to year 2010-11 & Rs. 7500 should belongs to 2011-12. Ans. 6 W.N. 1 Calculation of current year sales Last year total sales – 5,00,000/- Trend = +20% ∴ Current year Total sales = 6,00,000/- (5,00,000 x 1.20) Cash Sales = .120000/- (6,00,000 x 20 %) Credit Sales = 4,80,000/- W.N. (2) Cash Book Particulars Cash Bank Particulars Cash Bank To balance b/d To Bank A/c To Sales

28,000 -

1,20,000

38,00080,000

-

By Creditors By Rent A/c By Cash A/c

--

80,000

3,00,00016,000

-

To Debtors -

1,48,000

4,60,000

5,78,000

By Salary A/c By Office Exps. By Drawings By Cash Stolen A/c By balance c/d

24,00014,4006,000

23,600-

1,48,000

----

2,62,0005,78,000

W.N (3) Debtors A/c

Particulars Rs. Particulars Rs.To balance b/d To Sales

1,00,0004,80,0005,80,000

By Bank A/c (B/F) By balance c/d

4,60,0001,20,0005,80,000

W.N (4) Creditors A/c

Particulars Rs. Particulars Rs.To Bank A/c To balance c/d

3,00,0001,46,0004,46,000

By Balance b/d By Purchases (B/F)

82,0003,64,0004,46,000

Trading & Profit & Loss a/c of Mr. A for the year ended on 31.3.2011

Particulars Rs. Particulars Rs.To Opening Stock To Purchases To Gross Profit To Salary To Office Expenses To Rent A/c To Cash Stolen A/c To Depreciation A/c To Net Profit

2,80,0003,64,0001,16,0007,60,000

24,00014,40016,00023,6004,000

34,0001,16,000

By Sales By Closing Stock By Gross Profit

6,00,0001,60,000

7,60,0001,16,000

1,16,000

Balance Sheet of Mr. A as on 31.3.2011

Liabilities Rs. Assets Rs.Capital A/c Opening balance 404000 Add: Net Profit 34000 438000 Less: Drawings 6000 Creditors

432000

1,46,0005,78,000

Fixed Assets Furniture 40,000 Less: Depreciation @ 10% 4,000 Current Assets Stock Debtors Cash at Bank

36,000

2,60,0001,20,0002,62,0005,78,000

Ans. 7(a) Let base date is Jan 15.

Due Date Amount No. of days Product (Amt. x No. of days )

Jan 15 Feb10 April 5 May 20 June 18

5000 4000 8000

10000 9000

ΣAmt = 36,000

0 26 80 125 154

0104000640000

12500001386000

33,80,000 Product 3380000 Average No. of Days = ------------- = ------------- = 93.88 or 94 days

ΣAmount 36000 Average Due Date = Base Date + Avg. No of days = Jan 15 + 94 days = April 19th Interest on drawings will be calculated from Add to 30th June 2010. ;. Period of Interest = 72 days Interest Amount = ΣAmount x Date of Interest x Period of Intt. 72 = 36000 x 10% x ------ = 710/- 365 Ans. 7(b) As per AS-2 on Valuation of Inventories, inventories should be valued at the lower of cost and net realizable value. Inventories should be written down to net realizable value on an item-by-item basis in the given case.

(Rupees in lakhs) Items Historical Cost Net realisable value Valuation of closing stock

P 5,70,000 4,75,000 4,75,000

Q 9,80,000 10,32,000 9,80,000

R 3,16,000 2,89,000 2,89,000

S 4,25,000 4,25,000 4,25,000

T 1,60,000 2,15,000 1,60,000

24,51,000 24,36,000 23,29,000 Hence, closing stock will be valued at Rs. 23,29,000. Ans. 7(c) W.N.(1) Calculation of New Profit Sharing ratio X Y Z W Old Profit sharing ratio New Profit Sharing Ratio after retirement of Y Adjustment on admission of W

-

- -

- 25 – 8 15 - 4 40 40 New Profit Sharing Ratio after 17 11 12 W’s admission = --- ---- ----- 40 40 40 W.N (2) Adjustment of Goodwill on retirement of Y Particulars X Y Z Goodwill raised in old Profit sharing ratio Goodwill w/o in new P.S. ratio

96000 Cr. 1,35,000 Dr.

39,000 Dr.

72000 Cr. ____-___ 72000 cr.

48000 Cr. 81000 Dr. 33000 Dr.

W.N (3) Adjustment of Goodwill on admission of W Particulars X Y Z Goodwill raised in old Profit sharing ratio Goodwill w/o in new P.S. ratio

135000 Cr. 91800 Dr.

43,200 Cr.

81000 Cr. 59400 Dr.

21600 Cr.

- 64800 Dr. 64800 Dr.

Journal Entries in the books of Firm

4 9

3 9

2 9

5 8

3 8

3_ 10

2_ 3

x 3_ 10

x 1_ 3

3 10

5 8

- 2 10

3 8

- 1_ 10

3 10

x 4_ 4

(a) On retirement of y X’s Capital a/c Dr. 39,000 Z’s Capital a/c Dr. 33,000 To Y’s Capital a/c 72,000

(Being adjustment of goodwill on retirement of y without opening Goodwill a/c in the books) (b) On admission of W W/s capital A/c Dr. 64800 To X’s Capital a/c 43200 To Z’s Capital a/c 21600 (Being adjustment of G/w on admission of W without opening G/w a/c in the books) Ans.7(d) SIGNIFICANCE OF COMPUTERISED ACCOUNTING SYSTEM With computers becoming extensively used in business today, it is obvious that accounts which were earlier maintained in a manual form will be gradually replaced with computerised accounts. The speed with which accounts can be maintained is several fold higher. Basic difficulties faced like balancing of trial balance, correct posting into the general ledger and subsidiary ledger is a thing of the past. Today any person maintaining accounts in the computer does not have to consider that while making say a cash expense entry through the cash payment screen that the corresponding ledger posting of the expense has been done properly or not. Similarly the trial balance should automatically tally unless some mistake is made while recording the opening balances. The only concerns that has increased today are concerns for controls, security and integrity of the computer system as more and more information is stored not in the hard print but as soft copies inside the computer. Issues like unauthorised access to the data either through the local area network or through the internet by hacking into the company server are becoming potential threat to the computer usage. Ans. 7(e) In the General Ledger of M/s Zee Ltd.

Debtors A/c Particulars Rs. Particulars Rs.

To balance b/d To Sales (Credit) 70000 Less: Rejection 2550 To Interest a/c To B/R dishonored To Cash a/c (Noting charges)

77,500

67,45012508500250

_________154950

By Cash a/c By B/R a/c By Discount allowed a/c By balance c/d

38000260001000

89950

_______154950

Free of Cost ISBN : 978-81-7666-962-7

Appendix IPCC Gr. I (New Course)

(Solution upto Nov - 2010 & Questions of May - 2011 included)

Paper - 2 : Business Laws, Ethics & Communication

Part - 2A : Business Laws

Chapter - 1 : Basics of a Contract2010 - Nov [1] {C} (b) (II) Choose the correct answer from the following and give reasons.

(iii) Cash is withdrawn by the customer of a bank from the automatic teller machine is anexample of: (a) express contract (b) void contract (c) tacit contract (d) illegal contract. (1mark)

Answer :(c) Tacit contract.Reason : Tacit Contracts are those that are inferred through the conduct of parties. Hence, thisis a tacit contract.

Chapter - 3 : Other Essential Elements of Contract2010 - Nov [1] {C} (b) (II) Choose the correct answer from the following and give reasons.

(i) Where both the parties to an agreement are under mistake as to a matter of fact, whichis essential to the agreement, the agreement is :(a) valid (b) voidable (c) void (d) illegal. (1 mark)

Answer :(c) Void.Reason : In case of bilateral mistake as to fact-i.e. if both the parties to an agreement are undera mistake regarding a matter of fact, which is essential to the agreement, the agreement is void.2011 - May [1] {C} (b) (I) State whether the following statements are correct or incorrect :

Appendix IPCC Gr. I Paper - 2 I-2

(i) An agreement with a minor may be ratified on his attaining majority. (1 mark)2011 - May [1] {C} (b) (II) Choose the correct answer from the following :

(i) Which one of the following statements is not true about minor's position in the firm :(a) He can not become partner in the firm.(b) A minor and a major can enter into an agreement of partnership.(c) He can be admitted to the benefits in the firm.(d) He can become a partner on becoming a major. (1 mark)

Chapter - 4 : Performance of Contract2010 - Nov [1] {C} (a) X sent a consignment of mobile phones worth ̀ 60,000 to Y and obtaineda railway receipt therefor. Later, he borrowed a loan of ` 40,000 from Star Bank and endorsedthe railway receipt in favour of the Bank as security. In transit the consignment of mobile phoneswas lost. The Bank files a suit against the railway for a claim of ` 60,000, the value of theconsignment. The railway contended that the Bank is entitled to recover the amount of loan i.e.` 40,000 only. Examining the provisions of the Indian Contract Act, 1872, decide whether thecontention of the railway is valid. (5 marks)Answer :As per Sections 178 and 178A of the Indian Contract Act,1872 the deposit of title deeds with theBank as a security against advance constitutes a pledge.

The given problem is based on the case of Morvi Mercantile Ltd. Vs. Union of India. Asstated by the Court, the deposit of title deed with the Bank as security against an advanceconstitutes a Pledge.

As a Pledgee, a banker’s rights are not limited to his interest in the goods pledged. In thecase of injury to the goods or their deprivation by a third party, the Pledgee would have all suchremedies that the owner of the goods would have against them.

In this case the Supreme Court also held that the Bank (Pledgee) was entitled to recover notonly the amount of the advance due to it, but also the full value of the consignment.However,the amount over and above his interest is to be held by him in trust for the Pledger.Thus, the Star Bank will succeed in recovering the claim of ` 60,000 against the railway.

Chapter - 5 : Breach of Contract2011 - May [1] {C} (a) What is the law relating to determination of compensation, on breach ofcontract, contained in Section 73 of the Indian Contract Act, 1872 ? (5 marks)

Chapter - 8 : Contract of Indemnity and Guarantee2010 - Nov [1] {C} (b) (II) Choose the correct answer from the following and give reasons.

(ii) In a contract of guarantee there are :(a) one contract (b) two contracts (c) three contracts (d) four contracts. (1 mark)


Answer :(c) three contractsReason : As per Section 126 of the Indian Contract Act, 1872, ‘Contract of Guarantee’ is acontract to perform the promise, or discharge the liability, of a third person in case of his default.In a Contract of Guarantee there are three contracts arising between

(i) the Creditor & Principal debtor, (ii) Creditor and Surety, and

(iii) Principal debtor and Surety. While the contract between Principal debtor & Creditor isprimary the other two contracts are secondary.

Chapter - 9 : Bailment and Pledge2011 - May [1] {C} (b) (II) Choose the correct answer from the following :

(ii) The delivery of goods by one person to another for some specific purpose and time isknown as :(a) Mortgage(b) Pledge(c) Bailment(d) Charge (1 mark)

Chapter - 10 : Agency2010 - Nov [1] {C} (b) (I) State, with reasons whether the following statements are correct orincorrect.

(ii) No consideration is necessary to create an agency. (1 mark)Answer :Correct : No consideration is necessary to create an agency. Unlike other regular contract, aContract of Agency does not need consideration. As per Section 185 of the Indian Contract Act,1872, the relationship between the Principal and Agent need not be supported by consideration.2011 - May [1] {C} (b) (II) Choose the correct answer from the following :

(iii) An agency in which the agent himself has interest in the subject matter of agency iscalled :(a) Agency by estoppel(b) Agency by holding out(c) Agency by necessity(d) Agency coupled with interest (1 mark)

Chapter - 11 : The Negotiable Instruments Act, 18812010 - Nov [1] {C} (b) (I) State, with reasons whether the following statements are correct orincorrect.


(i) A promissory note duly executed in favour of minor is void. (1 mark)Answer :Incorrect : Promissory Note duly executed in favour of minor is not void. As per the IndianContract Act,1872, minor is not competent to contract, but he can be a beneficiary. In this case,the minor is a beneficiary. Hence the Promissory Note is not void and the minor at his option canenforce it as a beneficiary.2010 - Nov [5] (a) P draws a bill on Q for ` 10,000. Q accepts the bill. On maturity the bill wasdishonoured by non-payment. P files a suit against Q for payment of ̀ 10,000. Q proved that thebill was accepted for value of ` 7,000 and as an accommodation to the plaintiff for the balanceamount i.e. ̀ 3,000. Referring to the provisions of the Negotiable Instruments Act, 1881 decidewhether P would succeed in recovering the whole amount of the bill. (8 marks)Answer :According to Section 44 of the Negotiable Instruments Act, 1881, when the consideration forwhich a person signed a promissory note, bill of exchange or cheque consisted of money, andwas originally absent in part or has subsequently failed in part, the sum which a holder standingin immediate relation with such signer is entitled to receive from him is proportionally reduced.

On the basis of above provision, P would succeed to recover ` 7,000 only from Q and notthe whole amount of the bill because it was accepted for value as to ` 7,000 only and anaccommodation to P for ` 3,000.2011 - May [1] {C} (b) (I) State whether the following statements are correct or incorrect :

(ii) A cheque marked "Not-Negotiable" is not transferable. (1 mark)2011 - May [5] (a) Point out the differences between a "Cheque" and a "Bill of Exchange" underthe Negotiable Instruments Act, 1881. (8 marks)

Chapter - 12 : The Payment of Bonus Act, 19652010 - Nov [2] (a) X was an employee of Universal Limited. He retired from the company on31st March, 2010 and died after few months. Y, the heir of X, applied within the prescribed timeto the company for payment of due bonus of X. The company refused to pay the bonus. Examinethe validity of the company's refusal and also state the procedure to recover the bonus under theprovisions of the Payment of Bonus Act, 1965. (8 marks)Answer :According to Section 21 of the Payment of Bonus Act, 1965 if an amount of bonus is due to anemployee from his employer under a settlement or an award or agreement and it is not paid, thenthe employee or his nominee or heir (on his death) is to make an application for the recovery ofthe amount to the Appropriate Government. The application is to be made within one year fromthe date on which the bonus becomes due or after the expiry of the said period of one year, asextended by Appropriate Government.

Thus, in the given problem, the Universal Limited’s action is not valid. Y is entitled torecieving bonus. Y should apply for the payment of bonus to the Appropriate Government withinone year from the date on which bonus becomes due. On being thus satisfied, Appropriate Govt.


must issue a certificate for that amount to the Collector. There upon, Collector shall proceed torecover the same in the same manner as an arrear of land revenue.2011 - May [2] (a) During the financial year 2010-2011 Mr. Ram was a temporary employee inAyurved Products Limited and drawing a salary of ̀ 6,000/- per month. On the basis of chargeof violent behaviour within the premises of the company, he was prevented from working in thecompany for 60 days pending inquiry. Since there was no adverse conclusion against him, hewas reinstated in the service with back salary. He worked for the remaining ten months in thatfinancial year and thereafter resigned from the service. Afterwards, when bonus was paid to otheremployees, the company refused to pay bonus to Mr. Ram. Decide, whether Mr. Ram will beentitled to bonus under the provisions of the Payment of Bonus Act, 1965 ? (8 marks)

Chapter - 13 : The Employees’ Provident Funds and Miscellaneous Provisions Act, 19522010 - Nov [7] (a) S retired from the services of PQR Limited on 31st March, 2009. He had a sumof ` 5 lac in his Provident Fund Account. It has become due for payment to S on 30th April,2009 but the company made the payment of the said amount after one year. S claimed for thepayment of interest on due amount at the rate of 15 percent per-annum for one year. Decidewhether the claim of S is tenable under the provisions of the Employee's Provident Funds andMiscellaneous Provisions Act, 1952. (4 marks)Answer :Claim of S for interest rate of 15% is not tenable.

According to Section 7Q of the Employees' Provident Funds and Miscellaneous ProvisionsAct, 1952 the employer shall be liable to pay simple interest @ of 12% per annum or at suchhigher rate as may be specified in the Scheme on any amount due from him under this Act fromthe date on which the amount has become so due till the date of its actual payment.

As per above provision, S can claim for the payment of interest on due amount @ 12percent per annum or at the rate specified in the Scheme, whichever is higher, for one year. Herein the absence of specified rate he(S) can claim only 12 percent per annum interest on the dueamount.2011 - May [7] (a) Write a short note on the composition and functions of the Central Board ofTrustees under the Employees Provident Fund and Miscellaneous Provisions Act, 1952.

(4 marks)Chapter - 14 : The Payment of Gratuity Act, 19722010 - Nov [3] (a) K is an employee of RST Limited, a software company which works live daysin a week. K was not in continuous service during the financial year 2009-10. However, sheworked only for 150 days because she was on maternity leave with full pay for 50 days.Referring to the provisions of the Payment of Gratuity Act, 1972 decide whether K is entitledto gratuity payable under the Act. Would your answer remain the same in case RST Limitedworks six days in a week ? (8 marks)Answer :


As per Section 2 A of the Payment of Gratuity Act, 1972 an employee shall be said to be incontinuous service for a period if he has, for that period, been in uninterrupted service, includingservice which may be interrupted on account of sickness, accident, leave, lay-off, strike or alockout or cessation of work not due to any fault of an employee.

An employee (not being an employee employed in a seasonal establishment) not incontinuous service, for any period of one year shall be deemed to be in continuous service underthe employer, if the employee during the period of twelve calendar months preceding the datewith reference to which calculation is to be made, has actually worked under the employer fornot less than (i) one hundred and ninety days, in the case of any employee employed below theground in a mine or in an establishment which works for less than six days in a week, and (ii)two hundred and forty days, in any other case. Thus, as per the above provisions :Case-1 : 5 days a week : K is entitled for gratuity because she was in continuous service (150+50days) more then 190 days in 2009-10.Case-2 : 6 days a week : K is not entitled for gratuity because RST Limited works for 6 days ina week and she worked only for 200 days less then prescribed limits (240 days).2011 - May [3] (a) How is the amount of gratuity, payable to employees in a seasonal as wellas other establishments, calculated under the provisions of the Payment of Gratuity Act, 1972? What is the maximum amount of gratuity payable under the said Act ? (8 marks)

Chapter - 15 : Company : Basic Concepts2011 - May [1] {C} (c) Explain clearly the concept of "perpetual-succession" and "common-seal" in relation to a company incorporated under the Companies Act, 1956. (5 marks)(d) What is the law and procedure relating to registration of a non-profit organisation as a

company under the Companies Act, 1956 ? (5 marks)2011 - May [6] (a) Describe the procedure for converting a private company into a publiccompany under the provisions of the Companies Act, 1956. (8 marks)2011 - May [7] (b) Which documents are required to be filed with the Registrar of Companiesat the time of registration of a company under the provisions of the Companies Act, 1956 ?

(4 marks)Chapter - 16 : Memorandum of Association & Articles of Association2010 - Nov [7] (b) RSP Limited is a Public Limited Company with a limited liability of itsmembers by guarantee of ` 10 lac to each member. The company increases the liability of themembers from ` 10 to 15 lac by an alteration made in the liability clause of the Memorandumof Association. Referring to the provisions of the Companies Act, 1956 decide whether themembers of the company are liable for the increased liability. (4 marks)Answer :According to Section 38 of the Companies Act, 1956, no member of a company shall be boundby an alteration made in the Memorandum or Articles after the date on which he become amember, if such an alteration requires him to take or subscribe for more shares should then the


number held by him as the date of alteration or in any way increase his liability. But the sectionwill not apply where the member agrees in writing either before or after a particular alterationis made, so as to bind by the alteration.

Hence, the members of RSP Limited are not bound by any alteration made in the liabilityclause without obtaining their written permission.

Chapter - 19 : Prospectus 2011 - May [7] Or (b) State the conditions whereunder the issuing of prospectus is not necessaryunder the provisions of the Companies Act, 1956. (4 marks)

Chapter - 20 : Allotment of Shares2010 - Nov [1] {C} (d) (I) State with reasons whether the following statements are correct orincorrect.

(ii) If a company does not receive the minimum subscription, it should refund moneyreceived from applicants within 120 days of issue of prospectus. (1 mark)

Answer :Correct : As per Section 69 of the Companies Act, 1956 if the applications are not received bythe company for such quantum of shares for making the minimum subscription, within 120 daysof the issue of prospectus, all moneys received from the applicants for shares shall be repaidwithout interest. If any such money is not repaid within 130 days after the issue of prospectus,moneys will be repaid with interest at the rate of 6% p.a. from the expiry of 130 days.

(II) Choose the correct answer from the following and give reasons:(iii) Sources of funds for buy back of shares are :

(a) free reserves or securities premium account(b) the proceeds of any shares or other specified securities(c) (a) and (b) both(d) none of the above. (1 mark)

Answer :(c) (a) and (b) bothReason : According to Section 77A of the Companies (Amendment) Act, 1999 a company canpurchase its own shares or other specified securities. The purchase should be out of:

(i) its free reserves; or(ii) the securities premium account; or

(iii) the proceeds of any shares or other specified securities.2010 - Nov [4] (a) Unique Builders Limited decides to pay 2.5 percent of the value of debenturesas underwriting commission to the underwriters but the Articles of the company authorize only2.0 percent underwriting commission on debentures. The company further decides to pay the


underwriting commission in the form of flats. Examine the validity of the above arrangementsunder the provisions of the Companies Act, 1956. (8 marks)Answer :According to Section 76 of the Companies Act, 1956 the amount of underwriting commissionshould not exceed, C In the cases of shares, 5 percent of the price at which the shares have been issued.C In the case of debentures it should not exceed 2 1/2 percent or the amount or rate authorized

by the Articles.C whichever is less.

(i) The decision of Unique Builders Limited, to pay underwriting commission exceeding thepercentage prescribed under Articles is Thus not valid.

(ii) The company may pay the underwriting commission in the form of flats underwritingcommission may be paid in cash or kind or as lump sum or by way of percentage but inno case can it go beyond the statutory limits of 5% or 2 ½ % as the case may be. (Boothvs New Afrikander Gold Mining Co.)

2010 - Nov [7] (b) (Or) The Board of Directors of XYZ Private Limited, a subsidiary of SRNLimited, decides to grant a loan of ` 2.00 lac to P, the Finance Manager of the company gettingsalary of ` 30,000 per month, to buy 400 partly paid-up equity share of ` 1,000 each of XYZLimited. Examine the validity of Board's decision with reference to the provisions of theCompanies Act, 1956. (4 marks)Answer :According to Section 77 of the Companies Act, 1956 no public company and no private company(being subsidiary of a public company) can give financial aid to any person (either directly orindirectly) and whether by way of loan, guarantee or surety or otherwise, for, or in connectionwith, purchase or subscription made or to be made of any shares of its own or of its holdingcompany. But there are few exceptions of the Section 77 of the above Act, out of them oneexception is as under.

The company may advance a loan to a person bonafide in its employment (other thandirectors, or managers) to enable them to purchase or subscribe for fully paid shares for anamount not exceeding their salary or wages for a period of six months.

On the basis of above provisions, the proposals of the Board of Directors of XYZ Limitedis not valid because P is a Finance Manager and he wants to purchase partly paid up shares ofthe company. The amount of loan is also higher than the six months salary of P.

Chapter - 21 : Membership, Contracts, Investments & Service of Documents2010 - Nov [1] {C} (c) RSP Limited allotted 500 fully paid-up shares of ` 100 each to Z, aminor, in response to his application without knowing that he was a minor and entered his namein the Register of members. Later on, the company came to know of this fact. The companycancelled the allotment and struck-off his name from the Register of members and also forfeited


his entire share money. He filed a suit against the action of the company. Decide whether Zwould be given any relief by the court under the provisions of the Companies Act, 1956.(5 marks)Answer :The Companies Act, 1956 prescribes no qualification for membership but membership entailsan agreement and this agreement can be enforced in the Court. Therefore, the contractualcapacity as envisaged by the Indian Contract Act, 1872 should be taken into consideration. It hasbeen held in Mohri Bibi vs. Dharmadas Ghose (1930) that since a minor has no contractualcapacity, the agreement with a minor is void. Therefore, a minor or a lunatic cannot enter intoan agreement to become a member of a company.

The situation in the question is similar to that of Palaniappa vs Official Liquidator AIR(1942). In this case it was observed that if the directors allot share to a minor in response to hisapplication, without knowing that he was a minor and enter his name in the Register of MemberIt can cancel the allotment and strike the name of the minor off the Register of Members as soonas it comes to know the fact of minority. But the company must refund the entire money to theminor, which it obtained in relation to the shares allotted.

On the basis of above decision, the company is empowered to cancel the allotment andstrike off the name of Z from the Register of Member. But the company must refund the moneyto the Z.2010 - Nov [1] {C} (d) (II) Choose the correct answer from the following and give reasons:(i) An index of members must be maintained by a company when its membership exceeds:

(a) 20(b) 50(c) 70(d) 80. (1 mark)

Answer :(b) 50Reason : According to Section 151 of the Indian Companies Act, 1956, every company havingmore than 50 members must maintain an index of members except where the Register ofMembers in itself constitutes an index.

Chapter - 22 : Share Capital2011 - May [4] (a) Whether shares at premium can be issued by a company ? What are thepurposes for which the share premium account can be used under the provisions of theCompanies Act, 1956 ? (8 marks)

Chapter - 28 : Meetings2010 - Nov [1] {C} (d) (I) State with reasons whether the following statements are correct orincorrect.

(i) A company should file its annual return within six months of the closing of the financialyear. (1 mark)


Answer :Incorrect : Section 159 of the Companies Act, 1956 states that a company should file its annualreturn within sixty days from the date of holding the Annual General Meeting and not within sixmonths of the closing of the financial year.

(II) Choose the correct answer from the following and give reasons:(ii) Unless the Articles provide for a large number, the quorum for a general meeting for

a public limited company is :(a) 1 /3rd of the members(b) 5 members personally present(c) 2 members(d) 7 member (1 mark)

Answer :(b) 5 members personally presentReason : According to Section 174 of the Indian Companies Act, 1956 unless the Articlesprovide for a large number, the quorum for a General Meeting of a public company is 5 memberspersonally present.2010 - Nov [6] (a) In a General Meeting of PQR Limited the Chairman directed to excludecertain matters detrimental to the interest of the company from the minutes. M, a shareholdercontended that the minutes of the meeting must contain fair and correct summary of theproceedings thereat. Decide whether the contention of M is maintainable under the provisionsof the Companies Act, 1956. (8 marks)Answer :Under Section 193 (5) of the Companies Act, 1956, the chairman shall have the discretion inregard to the non inclusion of any matter in the minutes on the grounds specified below.

(i) is or could reasonably be regarded as defamatory of any person;(ii) is irrelevant or immaterial to the proceeding; or

(iii) is detrimental to the interests of the company;

The Chairman enjoys an absolute discretion in the regard.Hence, the contention of M, a shareholder of PQR Limited is not valid because the

Chairman has discretion on the inclusion or exclusion of any matter in the minutes for aforesaidreasons.

Part - 2B : Ethics

Chapter - 1 : Principles of Business Ethics2010 - Nov [2] (b) Explain the Social Sins listed by Mahatma Gandhi. (4 marks)Answer :


The social sins as listed by Mahatma Gandhi are as follows :(i) Politics without Principles

(ii) Wealth without Work(iii) Commerce without Morality(iv) Knowledge without Character(v) Pleasure without Conscience

(vi) Science without Humanity(vii) Worship without Sacrifice.

(i) Politics without principles : The first deals with the political field. The Kings inIndian tradition were only the guardian executors and servants of 'Dharma'. ForGandhi, Rama was the symbol of a king dedicated to principles.

(ii) Wealth without work : The second dictum deals with the sphere of Economics.Tolstoy and Ruskin inspired Gandhi on the idea of bread-labour.

(iii) Commerce without work : Gandhiji developed the third maxim into the idea oftrusteeship. A businessman has to act only as a trustee of the society for whateverhe has gained from the society. Everything, finally, belongs to the society.

(iv) Knowledge without character : The fourth dictum deals with knowledge.Education stands for the all round development of the individual and his character.Gandhi's system of basic education was the system for development of one'scharacter.

(v) Pleasure without concience : In 5th maxim, Gandhi emphasized on conscience.He said that pleasure without conscience is a sin.

(vi) Science without Humanity : In sixth maxim, Gandhi held that science without thethought of the welfare of humanity is a sin. Science and humanity together pave theway for welfare of all.

(vii) Worship without Sacrifice : In religion, we worship, but if we are not ready tosacrifice for social service, worship has no value, it is a sin to worship withoutsacrifice.

2010 - Nov [5] (b) State with reasons whether the following statements are correct or incorrect.(ii) Trusteeship provides a means of transforming the present capitalist order of society into

an egalitarian one. (2 marks)Answer :Correct : "Trusteeship provides a means of transforming the present capitalist order of societyinto an egalitarian one." Commerce without morality was developed into the idea of Trusteeshipby Gandhiji. A businessman has to act only as a trustee of the society for whatever he has gainedfrom the society. Everything, finally, belongs to the society.Chapter - 2 : Corporate Governance and Corporate Social Responsibility2010 - Nov [7] (c) Explain briefly the key strategies which can be used at the time ofimplementation of Corporate Social Responsibility policies and practices in a company.


(4 marks)Answer : A company uses variety of formal mechanism & processes to raise CSR issues with their Boardsfor the purpose of incorporating them into business strategies and decision - making. Companiesimplement CSR by putting in place internal management systems that promote -

(i) Adherence to labour standards by corporations and their business partners;(ii) Respect for human rights;

(iii) Protection of the local & global environment; (iv) Avoiding bribery & corruption ;(v) Consumer protection; and

(vi) Reducing the negative impacts of corporations operating in conflict zones.Some key strategies that can be used by companies while implementing CSR policies andpractices are as follows:1. Mission, vision and values statements : CSR is regarded as a prominent place in a

Company’s core mission, vision and values documents which state a Company’s goals andaspirations It provides insight into the Company’s values, culture and strategies forachieving its aims. The mission or vision of a socially responsible business refers to apurpose beyond “making a profit” and specifies that it will engage in ethical andresponsible business practices. It seeks to balance the interests of all the key shareholderswhile making decisions.

2. Cultural values : CSR requires an environment where innovation and independent thinkingare welcomed. There must also be a commitment to close the gap between “what thecompany says” and “reality of its actual performance”. Care should be exercised so thatthe company says what it means and means what it says.

3. Management structures : CSR management system aims to integrate corporateresponsibility concerns into a company’s values culture, operations and business decisionsat all levels of the organization. Such a system can be created by assigning responsibilityto a Board committee, an executive level committee or a single executive or a group ofexecutives who can identify key CSR issues and evaluate and develop a structure for long -term integration of social values throughout the organizations. There is no singleuniversally accepted method for designing a CSR management structure. The designedstructure should aligns the company’s mission, size, sector, culture, business structure,geographic locations, risk areas & level of CSR commitment.

4. Strategic planning : Companies begun to incorporate CSR into their long-term planningprocesses. Specific goals and measures of progress are identified for this purpose. Theimpact of any major company proposals on society is assessed before it is approved.

5. General accountability : Social responsibility goals may be prescribed for differentdivisions, departments and job positions. Job descriptions are designed so that each


employee can understand how he/she can contribute to the company’s overall effects to besocially responsible.

6. Employee recognition and rewards : Employees tend to engage in such behaviour thatis recognized and rewarded and avoid behaviour that is penalized. To promote CSR, thesystem of recruiting, hiring, promoting, compensating and publicly honouring employeesshould be designed.

7. Communication, education and training : Employees cannot be held accountable forresponsible behaviour if they are not aware of its importance. Therefore, they should beprovided with the information and tools they need to act appropriately in carrying out theirjob requirements. Companies should publicize the need of CSR internally, include it as asubject in management training programs, establish a code of conduct, and providemanagers and employees with decision - making processes that help them to achieveresponsible outcomes.

8. CSR reporting : Annual CSR report build trust with stakeholders and encourage internalefforts to comply with a company’s CSR goals. the best report demonstrate -

(i) CEO and senior leadership support (ii) Provide verified performance data for social, environmental and economic

performance indicators (iii) Share “good” and “bad” news (iv) Set goals for improvement (v) Include stakeholders feedback.

9. Leadership role : A few socially responsible companies take the lead and persuade othersto behave in more responsible manner. It is in everyone’s best interest to have as manycompanies as possible honouring the requirements and expectations of CSR.

10. Increased productivity and quality of work life : Efforts to improve working conditions,lessen environmental impacts or increase employee involvement in decision-making oftenlead to increased productivity and reduced error rate in a company.

2011 - May [5] (b) State with reasons whether the following statements are correct or incorrect :(i) The responsibility of the corporate management lies towards shareholders only.

(2 marks)Chapter - 3 : Ethics in Workplace2010 - Nov [4] (b) State some examples of ethical issues faced by an individual at the workplace.

(4 marks)Answer :The main factors influencing the level of workplace ethics are as follows :1. The individual moral standards : The moral standards and sound personal values of a

person exercise a significant impact on ethics in the workplace. An employee has to makea choice between right and wrong in different situations. His ethical behaviour affects hisreputation within the company as well as the reputation of his company. His choices and


actions depends upon his personal beliefs and values as well as reflects the understandingof his ethical responsibility as an employee.

2. Influence of managers and co-workers : Managers and co-workers exert significantcontrol on one’s choices at workplace through authority. For gaining consistent ethicalcompliance in the companies workplace, activities and examples should be set by co-workers along with the rules and policies established by the company.

3. Opportunity to engage in misconduct : In case the company fails to provide goodexamples and direction for appropriate workplace conduct, confusion and conflict willdevelop and will result in the opportunity for unethical behavior. If punishments forundesirable behavior are not implemented, each individual may misuse the opportunitiesavailable, to him since there is no system of punishment. Example : If the boss or co-workers leave work early or make personal long-distancephone calls at work and charge them to the company or uses company's assets for privatepurposes, every individual may be tempted to do so.

Ethical/Unethical

choices in workplace

=Individual

standards andvalues

+Managers' and

co-worker'sinfluence

+Opportunity to

engage inmisconduct

2010 - Nov [7] (c) (Or) Write a note on harassment at workplace. (4 marks)Answer :Harassment is tormenting by subjecting to constant interference or intimidation.'' Its acts andconduct creates an ''intimidating, hostile or offensive working environment.'' which could be-1. Adverse or unreasonable terms and conditions of an individuals employment either

explicitly or implicitly. 2. Conduct which has the purpose or effect of unreasonably interfering with an individual's

work performance or creating an offensive work environment. Another type of harassment is sexual harassment - a situation in which an employee is

coerced into giving into another employees sexual demands by the treat of losing somesignificant job benefit e.g. promotion, salary increment or even the job. Effect of harassment - 1. Great psychological harm on the employee,2. Violates the employees most basic right of freedom and dignity, 3. Unjust misuse of the unequal power that an employer can exercise over the employee.4. Degrading coercion on employees.2011 - May [2] (b) State the elements which create discrimination in employment in the businessorganisations. (8 marks)2011 - May [6] (b) State in brief the guidelines for managing ethics and to prevent the need forwhistle-blowing in the work place. (4 marks)


Chapter - 4 : Environment Issues2010 - Nov [5] (b) State with reasons whether the following statements are correct or incorrect.

(i) Business and industry are closely linked with environment and resource utilization.(2 marks)

Answer :Correct : Business and industry are closely linked with environment and resource utilization.Production process and strategy for eco-friendly technologies throughout the product life cycleand minimization of waste play a major role in the protection of the environment andconservation of resources. Business, industry and multinational corporations have to recognizeenvironmental management as the priority area and a key determinant to sustainabledevelopment.2011 - Nov [7] Or (c) Write a note on ecological ethics. (4 marks)

Chapter - 5 : Ethics in Marketing and Consumer Protection2010 - Nov [6] (b) State the objectives of the Central Consumer Protection Council in India.

(4 marks)Answer :The objectives of the Central Consumer Protection Council in India are to promote and protectthe rights of the consumers which are:-

(i) the right to consumer education.(ii) the right to seek redressal against unfair trade practices;

(iii) the right to be heard and to be assured that consumers interest will receive dueconsideration at appropriate terms;

(iv) the right to be assured, whichever possible, access to a variety of goods and services atcompetitive prices;

(v) the right to be informed about the quality, quantity, potency, purity, standard and priceof goods/services so as to protect the consumer against unfair trade practices;

(vi) the right to be protected against the marketing of goods and services which are hazardousto life and property.

Chapter - 6 : Ethics in Accounting and Finance2010 - Nov [3] (b) Explain the fundamental principles relating to ethics. (4 marks)Answer :The fundamental principles relating to ethics may be are as follows:1. The Principle of Integrity : This principle requires all accounting and finance

professionals to be honest and straightforward while discharging their respectiveprofessional duties related to accounting and finance.

2. The Principle of Objectivity : This principle calls upon all accounting and financeprofessionals to stick to their professional and financial judgment.


3. The Principle of Confidentiality : This principle calls upon all practitioners of accountingand financial management not to disclose confidential information related to their work toothers.

4. The Principle of Professional Competence and due care : This principle calls upon thefinance and accounting professionals to update their professional skills from time to timein order to provide competent professional services to their clients.

5. The Principle of Professional Behaviour : This principle calls upon accounting andfinance professionals to comply with relevant laws and regulations and avoid such actionswhich may result in discrediting thus profession.

2011 - May [4] (b) What are the fundamental principles of ethics applicable to the persons offinance and accounting profession ? (4 marks)2011 - May [5] (b) State with reasons whether the following statements are correct or incorrect :

(ii) Creation of proper ethical environment requires a proper understanding of the reasonswhich lead to an unethical behaviour. (2 marks)

2011 - May [7] (c) State the pressures which are faced by the finance and accountingprofessionals in an organisation in the compliance of fundamental principles of ethics.

(4 marks)

Part - 2C : Communication

Chapter - 1 : Essentials of Communication2010 - Nov [4] (c) Explain the various forms of formal communication. (4 marks)

Answer :A formal channel of communication is the officially prescribed route for the flow ofcommunication. It is that route of communication which is institutionally determined and isassociated with status or position of the receiver and sender. The formal channels are deliberatelyrelated to ensure that accurate information flows smoothly and timely.Human beings in an organisation are inter related to each other. They are related both formallyas well as informally. These relationships are maintained by means of communication. Thereforethere exists in an organisation two channels of communication :–1. Formal channel of communication. 2. Informal channel communication.


1. Downward Communication : Communication that flows from the top level of theorganisation to the bottom level along with the scalar chain are known as downwardcommunication. Example for such type of communication are orders, instructions, rules,policies, programmes and directives etc. It specifies the extent of the subordinates authorityand their responsibility.

2. Upward Communication : Upward communication is just the opposite of downwardcommunication. In this communication system, the message is transmitted from the bottomof the organisation upwards to the top of the organisation through the middle managersalong with the line. Usually this includes workers grievances, suggestions and reactions.This communication system was not appreciated by the superior But it has assuredimportance in modern times and is considered to be a main source of motivating employees.

3. Horizontal Communication : The flow of information between departments or people ofequal level in an organisational structure may be termed as horizontal or lateralcommunication. The two departments may be under the same superior or may havedifferent heads. Such communication may be written or oral. The main object of lateralcommunication is to co-ordinate the efforts of different departments or persons.

4. Diagonal Communication : Diagonal Communication is between people who are neitherin the same department nor on the same level of organisational structure. It cuts acrossdepartmental lines. It generally takes place when members cannot communicate effectivelythrough other channels.


These upward, downward, horizontal or diagonal communication may be oral, written,formal, informal or even gestural.

2010 - Nov [7] (d) State reasons for selecting the oral mode of communication instead of thewritten mode of communication. (4 marks)Answer :Oral communication means communication through words spoken i.e. by speech :–In oral communication, both the parties to the process, i.e. sender and receiver, exchange theirideas through oral words either in face to face communication or through any mechanical orelectrical device, such as telephone etc. In this system person can exchange their feelings fullyand clarification regarding any doubt or ambiguity may be sought. Oral communication ispreferred by rank and file employees as well as supervisors and managers, as they enjoy theopportunity to ask questions and to participate.Advantages :1. Economical : Oral communication is relatively less expensive. It saves the money spent

on stationery in an organisation. 2. Time saver : Oral communication is fast. It saves the time involved in writing the message.3. Flexible : Oral communication is very flexible in sense it provides an opportunity to the

speaker to correct himself and make himself clear by changing his voice, pitch, tone etc.4. Quick response : Oral communication is also helpful in getting quicker response from the

receiver. The speaker gets immediate response from the receiver. It thus providesimmediate feedback to both sender and receiver.

5. Personal touch : Oral communication is personal in nature. It is this nature that bringssuperiors and subordinates closer. It is also an effective tool of persuasion.

6. Maintains secrecy : Oral communication has an added advantage of maintaining secrecy.Oral messages can be more easily kept confidential than written messages.

7. Group communication : Oral communication is an effective tool for communicating withthe groups at large. Group reactions can also be interpreted immediately to arrive atreasonable conclusions.

2011 - May [4] (c) Explain the merits and limitations of oral communication. (4 marks)2011 - May [5] (c) "Importance of communication is increasing day-by-day in the businessorganisations." State the reasons for this increasing importance. (4 marks)2011 - May [7] (d) How is "noise" a barrier to effective communication ? (4 marks)

Chapter - 2 : Interpersonal Communication Skills2010 - Nov [6] (c) Explain the basic principles of interpersonal communication. (4 marks)Answer :The principles of inter-personal communications are as follows :1. Inescapable : A Person continuously communicates with one another knowingly and even

unknowingly. This is because a person communicates not only through words but also


through tone of voice, gesture posture and facial expression. Thus communication can notbe avoided. It is inescapable.

2. Irreversible : Words once spoken can never be taken back. It's impact is permanent. Thuscommunication is irreversible just like bullets shot out of a gun.

3. Complicated : A simple word spoken or a gesture may be wrongly interpreted by another.The involvement of various factors make communication a complex matter.

4. Contextual: Communication cannot take place in isolation. It is always to the context. Thevarious contexts are:

(i) Relational context : It is concerned with the reaction of speakers and listeners toeach other .

(ii) Situational context : It is concerned with the psycho-social aspect ofcommunication.

(iii) Environmental context : It is concerned with the physical aspects such as location,season, time etc.

(iv) Cultural context : It is concerned with the learned behaviour and rules such asattitudes beliefs and values of speaker and listener.

2011 - May [3] (b) What are the tips for improving inter-personal skills in a businessorganisation ? (8 marks)

Chapter - 3 : Group Dynamics2011 - May [6] (c) What are the characteristics of group personality ? (4 marks)2011 - May [7] Or (d) Explain the concept of "Negotiation". What are its techniques ?

(4 marks)Chapter - 5 : Communicating Corporate Culture, Change and Innovative Spirits2010 - Nov [5] (c) State the reasons for acceptance of change in an organisation. (4 marks)Answer :Employees readily accept change when they are convinced that change will yeild them personalgain and other benefits.

Personal Gain(i) Increment in wage and perks.

(ii) Enhanced job security(iii) More responsibility and authority(iv) Increase/higher status(v) Better working environment

(vi) Better interpersonal relation(vii) Self satisfaction

(viii) Reduced time and effect.Other Benefits

(i) Respect for the source of change(ii) Reduced boredom.


(iii) Creation of new challenge(iv) Opportunity to grow(v) Opportunity to innovate

Chapter - 6 : Communication in Business Environment2010 - Nov [2] (c) MNP Limited was incorporated in September 2010. Now the company wantsto hold its first meeting of the Broad of Director Draft a notice of the said meeting along withagenda. (4 marks)Answer :

Notice of the First meeting of the Board of DirectorsMNP Limited

DateNotice is hereby given to all the Directors that the first meeting of the Board of Directors willbe held at the Registered Office of the company at 15, Rashbihari Road, Kolkata on 20thSeptember, 2010 at 4 p.m. to transact the business as per the agenda enclosed.You are requested to please attend the meeting. and grace the occasionsAgenda of the meeting :

(i) To elect the Chairman of the Meeting.(ii) To elect of the Chairman of the Company.

(iii) To produce the Certificate of Incorporation, the Memorandum and the Articles ofAssociation.

(iv) To appoint Managing Director of the Company.(v) To appoint of Secretary of the Company.

(vi) To appoint Auditors of the Company.(vii) To appoint Bankers of the Co.

(viii) To get approval of the opening of a Bank Account and its operation.(ix) To adopt the Company's seal.(x) To get approval of the statement of preliminary expenses by the promoters.

(xi) To adopt the preliminary contracts and underwriting contracts.(xii) Any other business with the due permission of the chairman.

For and on behalf of Board of directorsK.K. TalwarSecretaryKolkataDate :

Chapter - 7 : Legal Deeds and Documents2010 - Nov [7] (d) (Or) X desires to gift his flat to Y. Draft a gift deed. (4 marks)Answer :Deed of gift of Property. Gift Deed :


This 'Deed of gift' is made at Mumbai on 2nd day of November, 2007 between J an Indianresident of 23B/4 Juhu Road Mumbai, here in after called 'The Donor' of the 'One part' and 'A'also an Indian inhabitant of Pune, residing at Mac Tower, 2nd floor, MG Marg Pune. herein aftercalled 'The Donee' of the 'Other Part'. WHEREAS the Donee is the brother of the Donor. AndWHEREAS the Donor is the member of City Co- operative Society which is duly registeredunder the Maharashtra Co-operative Societies Act 1960. The donor has 10 fully paid up sharesof the said society. The Donor has acquired a flat No.16 on the 4th floor measuring 1200 s.q. feetsin the building known as PARIVARTAN. (herein after referred to as said building') which issituated at in Mumbai.

WHEREAS the Donor has full right title and interest in the said shares/flat moreparticularly described.AND WHEREAS the Donor desires to gift her rights, title and interest in the said share/flat tothe Donee, her brother. NOW THIS DEED OF GIFTWITNESSETH AS FOLLOWS

The Donor out of natural love and affection for the Donee, hereby transfers by way of gifther right, title and interest in the said shares and the said flat more particularly described in theschedule here under written to the Donee absolutely for ever.

The Donee accepts the gift and agrees to hold the right title and interest of the Donor in thesaid shares/flat of the said building.SCHEDULE OF PROPERTY ABOVE REFERRED TO

IN WITNESS WHERE OF the parties here to have here under set and subscribed theirrespective hands on the 2nd day of November 2007.SIGNED AND DELIVERED

J (The Donor)in presence of

(i) Mr. X (Sign) (ii) Mr. Y (Sign)

SIGNED AND DELIVERED A (The Donee) in presence of

(i) Mr. B (Sign)(ii) Mr. D (Sign)

2010 - Nov [3] (c) A, B and C are partners of a firm. A retires from the firm by mutual consentdue to sickness. Remaining partners (B and C) decide to admit D as a new partner in their firm.Draft a deed for reconstitution of partnership. (4 marks)Answer :Deed for Reconstitution of Partnership :


This Deed of Reconstitution of Partnership executed on this ----- day of -----, 2010 Between B,S/o-------,Aged------------- residing at ---------(hereinafter called the first party), C, S/o----,Aged------------- residing at-----------, (hereinafter called the second party), and D, S/o-----,Aged------------- residing at---------, (hereinafter called the third party).Whereas the parties B and C were working in partnership along with another partner A, abusiness under the name and style of A B C constituted under an instrument of partnership thelast of which is dated ------------ ; and whereas the said partner A retired from the old partnershipby mutual consent due to sickness allowing the other partners to continue the partnershipbusiness in the same name with all its assets and liabilities, and whereas the parties B and Cinvited D to join them in the partnership to carry on the said business for which he has assented,the terms and conditions of the reconstituted partnership are hereby agreed to as follows:1 The business under the name and style of A B C carried on by the erstwhile partnership will

continue with all its assets and liabilities as the business of this reconstituted partnership.2. The name on which the partnership business shall continue to be A B C and such other

name as the parties may from time to time determine. Other clauses as in the partnershipdeed.

Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,

Allahabad - 211002Visit us : www.shuchita.com

FOR NOTES


FOR NOTES

Solutions Cost & FM May 2011 1

Qn.1 (a) Working Note – 1 Calculation of EBIT under different situations Particulars Situation

A Situation

B Sales (Qty) Sales Value (Rs.) Less: Variable Cost (Rs.) Contribution (Rs.) Less: Fixed Cost (Rs.) EBIT (Rs.)

6000 Units ====== 1,80,000 1,20,000 60,000 20,000 40,000

6000 Units ====== 1,80,000 1,20,000 60,000 25,000 35,000

Working Note – 2 Calculation of EBT under different financial Plans Financial Plan

XY Financial Plan

XM Particulars Situation

A Situation

B Situation

A Situation

B EBIT Less: Interest on Debt (12%) EBT

40000 _4800 35200

35000 _4800 30200

40000 _1200 38800

35000 _1200 33800

Solution : Operating Leverage Contribution 60000 60000 60000 60000 = -------------- -------- -------- --------- ------- EBIT 40000 35000 40000 35000 = 1.50 = 1.714 = 1.50 = 1.714 Financial Leverage EBIT 40000 35000 40000 35000 = -------- ------- -------- --------- ------- EBT 35200 30200 38800 33800 = 1.136 = 1.159 = 1.031 = 1.714 2000 units Qn.1(b) Time allowed = --------------- = 50 hours 40 units Time worked 1.4.11 = 9 hours 2.4.11 = 9 hours 3.4.11 = 9 hours 4.4.11 = 9 hours 5.4.11 = 4 hours 40 hours

Time Saved = 10 hours Remuneration of worker x under (a) Halsey plan = Time wages rate + Bonus

= (40 bonus x 25/-) + (10 hrs x 50% x 25/-) = 1000/- + 125/- = 1125/-

(b) Rowan plan = Time wages rate + Bonus 40 = (40 hrs x 25/-) +( --- x 10 x 25/- )

50 = 1000/- + 200/- = 1200/-


Qn.1(c) Store Ledger Account of xy Company Ltd. Date Particulars Receipt Issue Balance

April 2011 Qty Rate Amt. Qty Rate Amt. Qty Rate Amt.

1 Opening balance 200 10 2000 5

Receipt

250

8/-

2000

-

-

-

200 250

10 8

2000 2000

8

Receipt

150

8.5/-

1275 -

-

-

200 250 150

10 8

8.5

2000 2000 1275

10

Issue -

-

-

100

8.5

850 200 250 50

10 8

8.5

2000 2000 425

15

Receipt

50

10/-

500

-

-

-

200 250 50 50

10 8

8.50 10

2000 2000 425 500

20

Shortage

-

-

-

10

10

100

190 250 50 50

10 8

8.50 10

1900 2000 425 500

21 Receipt 60 9/-

540 - - - 190 250 50 50 60

10 8

8.50 10 9

1900 2000 425 500 540

23 Issue - - -

____ 4315

190 210

10 8

1900 1680

_____ 4530

40 50 50 60

8 8.50 10 9

320 425 500 _540

1785/- Qn. 1(d) FACTORING : Factoring is a new financial service that is presently being developed in India. It is not just a single service, rather a portfolio of complementary financial service available to clients i.e. sellers. The sellers are free to avail of any of the combination of services offered by the factoring organisations according to their individual requirements . Generally, Factoring involves provision of specialised services relating to credit investigation, sales ledger management, purchase and collection of debts, credit protection as well as provision of finance against receivables and risk bearing. In factoring, accounting receivables are generally sold to a financial institution ( a subsidiary of commercial bank- called “ Factor”) who charges commission and bears the credit risks associated with the accounts receivables purchased by it. Its operation is very simple. Clients enter into an agreement with “Factor” working out a factoring arrangement according to his requirements. The factor then takes the responsibility of monitoring, follow up, collection and risk taking and provision of advance. The factor generally fixed up a limit customer-wise for the client (seller). In factoring as soon as the seller receives an order from a buyer a credit approval slip is written and immediately sent to factoring company for a credit check. If the factor do not approve the sale, the seller generally refuses to fulfill the order. Benefits of Factoring: Following are the benefits of factoring:- (a) Factoring eliminates the need for cash discounts. (b) Suppliers of goods and services can concentrate on their marketing activities without worry for collection of

receivables. (c) Due to specialisation, a factor can effect prompt and timely payments. (d) The dealer is saved of the cost of carrying debtors and maintaining collection department. It increases his return. (e) Factoring improves the liquidity of a firm.


Qn. 2(a) Machines

A B C

Depreciation Spare parts Power (To be dividend in the ratio of K.W. Rating) Consumable Stores Insurance of Machine (In the ratio of Depreciation) Indirect Labour (20000 x 1.20) (In the ratio of D. Labour hrs.) Building Maintt. Expenses Seg. (In the ratio of Floor space) Annual Interest on capital outlay Rent & Rates (10000 x 12) (In the ratio of Floor Space) Foreman Salary (20000 x 12 x 1.20)(1:1:1) Attendant Salary (5000 x 12 x 1.20) (1:1:1) Total overhead Productive Machine Hours W.N. 1 Machine Hour rate

7500 4600

(4000 x 1.15) 15000 3000 3000

6000

8000

20000 48000

96000 24000 235100 1947

120.75/-

7500 5750

(4000 x 1.15 x 1.25) 10000 2500 3000

9000

8000

20000 48000

96000 24000 233750 1947

120.06/-

5000 2875

(2000 x 1.15 x 1.25) 15000 2500 2000

9000

4000

10000 24000

96000 24000 194375 1947

99.83/- W.N. 1 Calculation of Productive machine hours worked during the year Total No. of days in one year Less: Sundays Less: Holidays Working days

(a) Normal working days (b) Saturdays (c) Normal working hours per day (d) Working hours on Saturdays (e) Total Machine Hours available (a x c) + (b x d) (f) 10% idle time (g) Productive Hours (h) Breakdown time (2% of g) (i) Actual Productive time per machine p.a.

3655212

30125150

8 hrs

4 hrs

2208 hrs

221 hrs

1987 hrs

40 hrs1947 hrs

Qn. 2(b) Statement Showing net Profit under the two different credit policy Particulars Present Policy Proposed PolicyCredit Period Sales value @ 21/- p.u. Less: Variable cost @ 14/- p.u. Contribution Less: Fixed Cost Less: Interest on blocked capital

Net Profit

One months (Rs.)

18,90,000 (90000 x 21/-)

1260000 (90000 x 14/-)

630000/- 360000/-

(90000 x 4/-) 54000/-

1620000 x x _________________

216000/-

Two months (Rs.)

23,62,500 (90000 x 1.25 x 21/-)

1575000 (112500 x 14/-)

787500/- 360000/-

129000/-

1935000 x x __________________

298500/-

Since the profit is higher in case of proposed policy, therefore the board may adopt the new credit policy.

40_ 100

1_ 12

40_ 100

2_ 12


Qn. 3 Calculation of Estimated working capital of MNP Company Ltd. for the next year Particulars Rs.Stock Raw Material (90000 x 1/12) Finished Goods (2940000 x 1/12) Debtors Domestic 2400000 x 80% x 1/12 = 160000 Export 1080000 x x 80% x = 240000 Prepaid Expenses Sales Promotion Exps. 150000 x = Advance Income tax (22500 x ) = Cash in hand Current Assets Less: Current Liabilities Creditors for Raw Material (900000 x 2/12) 150000 Creditors for Expenses Wages 720000 x 30000 Manufacturing Expenses 1080000 x 90000 Administration Expenses 240000 x 20000 Overdrawn limit 75000 Working Capital Add: Margin for contingencies @ 12% Estimated W.C. desired =

7500024500

400000

37500168750250000

1176250

36500081125097350

908600 Qn. 4 CASH FLOW STATEMENT OF XYZ LTD. FOR THE YEAR ENDED ON 31.3.2011 Cash flow from operating activities Net Increase in P&L a/c Less: Transfer from General reserve Add: Depreciation on P & M Add: Transfer to CRR Add: Proposed dividend Add: Preliminery Exps. W/o Operating Profit before working capital changes Less: Increase in Current Assets Add: Increase in Current Liabilities Cash generated from operations Less: Income tax paid Cashflow from Investing activities PQM Purchased Investment Purchased Cashflow from Financing activities Redemption of Pref. Share Capital Issue of Equity share Capital Dividend Paid Net Increase in cash & Cash Equivalent Add: Opening Cash & Cash Equivalent Closing Cash & Cash Equivalent

Rs.450008000080000

100000170000210000_20000545000206000260000599000140000

(95000)(80000)

(2,20,000)1,10,000

(1,60,000)

459000

(175000)

(270000)14000

150000164000

W.N.1 Proposed dividend A/c Particulars Rs. Particulars Rs.To Cash A/c 160000 By balance b/d 160000

100 90

1 12

1 4

3 4

.5 12

1 12 1 12


To balance c/d 210000370000

By P & L a/c 210000370000

W.N.2 Provision for taxation Particulars Rs. Particulars Rs.To Cash A/c To balance c/d

140000180000320000

By balance b/d By P & L a/c (B/F)

150000170000320000

W.N.3 Share Premium A/c Particulars Rs. Particulars Rs.To Premium on redemption of pref. shares To balance c/d

20000

3000050000

By balance b/d By Bank a/c

4000010000

50000 W.N.4 P & M a/c Particulars Rs. Particulars Rs.To balance b/d To Cash a/c To Business Purchase A/c

70000095000

105000900000

By Depreciation a/c By balance c/d

80000820000

900000 W.N. 5 Business Purchase A/c Particulars Rs. Particulars Rs.To ESC A/c 160000

160000

By Stock By P & M By Goodwill A/c

2500010500030000

160000 w.n. 6 ESC A/c Particulars Rs. Particulars Rs.To balance c/d 660000

______660000

By balance b/d By Business Purchases By Cash A/c

400000160000100000660000

Qn. 5(a) SLC A/c Particulars Rs. Particulars Rs.To balance b/d To CLC a/c To Wip control a/c

126000067200003360000

________11340000

By WIP Control A/c By Overhead Control A/c (R & M) By Overhead Control A/c (Shortage) By balance c/d

672000840000252000

3528000_________11340000

WIP Control A/c

Particulars Rs. Particulars Rs.To balance b/d To SLC a/c To Wages control a/c To Overhead Control a/c

2520000672000025200009008000

20768000

By SLC a/c By Costing P&L A/c [COGS] By balance c/d

3360000158880001520000

__________20768000


Costing P & L a/c Particulars Rs. Particulars Rs.To WIP Control a/c To Overhead control a/c

15888000__205400017942000

By CLC a/c [Sales] By CLC a/c (Net Loss)

17794560__14744017942000

Overhead Control a/c

Particulars Rs. Particulars Rs.To CLC a/c To SLC a/c To SLC a/c To Wages control a/c

9550000840000252000

___42000011062000

By WIP Control a/c By Costing P & L a/c (B/F)

90080002054000

__________

11062000

P & L a/c Particulars Rs. Particulars Rs.To Opening Stock Raw Material W/P To Wages incurred To Overhead incurred To Loss on Sale of F.A. To Purchased of RM

1260000252000029400009550000840000

672000023830000

By Sales By Closing Stock Raw Material WIP By Income from Investments By Net Loss (B/F)

17794560

35280001520000400000587440

__________23830000

Reconciliation Statement between Costing Profit and Financial Profit Loss as per cost records Add: Loss on sale of F.A. Less: Income From Investments Loss as per Financial records

147440840000400000587440

Qn. 5(b) Debt securitization is a method of recycling of funds. It is a process whereby loans and other receivables are under written and sold in form of asset. It is thus a process of transforming the assets of a lending institution into negotiable instrument for generation of funds. Process of debt securitisation : The process of debt securitisation is as follows:- 1. The loans are segregated into relatively homogeneous pools. 2. The basis of pool is the type of credit, maturity pattern, interest rate, risk etc. 3. The asset pools are then transferred to a trustee. 4. The trustee the issues securities which are purchased by investors. 5. Such securities (asset pool) are sold on the undertaking without recourse to seller. Qn. 6(a) Capital Employed Proposal Particulars P Q R Equity Share Capital Retained Earnings Debt Preference Share Capital

20000002000000

--

____________4000000

1000000 1000000 2000000

- __________

4000000

10000001000000

-2000000

___________4000000

Calculation of EPS Particulars P Q R Expected EBIT Less: Interest @ 10% on Debt EBT

1800000 ____-_____

1800000

1800000 _200000 1600000

1800000 ___-___ 1800000


Less: Tax @ 5% EAT Less: Preference dividend @ 10% Earnings available for Equity shareholders No. of Equity shares EPS

900000 900000

____-___ 900000 200000 4.5/-

800000 800000 ___-___ 800000 100000

8/-

900000 900000 200000 700000 100000

7/- Financial Break Even Point : It is that level of EBIT at which earning available for Equity shareholders will be Zero. Particulars P Q R Earnings available to Equity shareholders Add: Preference dividend Add: Tax @ 50% on EBT Add: Interest EBIT

NIL __-__

- __-__

- __-__ NIL

NIL __-__

- __-__

- 200000 200000

NIL 200000 200000 200000 400000 ___-___ 400000

Indifference Point Between Plan P & Q (EBIT – I 1) (1 – t) – Preference dividend (EBIT – I2) (1 – t) – Preference dividend ------------------------------------------------- = -------------------------------------------------- N1 N2 (EBIT – NIL) (1 - .50) – NIL (EBIT – 200000) (1 - .50) – NIL) ---------------------------------- = --------------------------------------- 200000 100000 .50 EBIT .50 EBIT - 100000 ----------- = ----------------------- 2 1 .50 EBIT = EBIT – 200000 200000 EBIT = ---------- = 400000/- 0.50 Between P & R (EBIT – NIL) (1 - .50) – NIL (EBIT – NIL) (1 - .50) – 200000 ---------------------------------- = -------------------------------------- 200000 100000 0.50 EBIT .50 EBIT - 200000 ------------ = ----------------------- 2 1 .50 EBIT = EBIT – 400000 400000 EBIT = ---------- = 800000/- 0.50 Between Q & R (EBIT – 200000) (1 - .50) – NIL (EBIT – NIL) (1 - .50) – 200000 -------------------------------------- = -------------------------------------- 100000 100000 0.50 EBIT – 100000 = .50 EBIT - 200000 ;. Indifference point is not possible in this plan. Plan Q is best among others because EPS is maximum in this case. Qn. 6. (b) Distinction between Cost Unit and Cost Centre: The terms cost unit is defined as a unit of quantity of product, service or time (or a combination of these ) in relation to which costs may be ascertained or expressed. The term cost centre is defined as a location, person or an item of equipment or a group of these for which costs may be ascertained and used for the purposes of cost control. Cost centres can be personal cost centres, impersonal cost centres, operation cost centres and process cost centres.


Thus each sub-unit of an organisation is known as a cost centre, if cost can be ascertained for it. In order to recover the cost incurred by a cost centre, it is necessary to express it as the cost of output. The unit of output in which cost incurred by cost tenure is expressed is known as cost unit. Qn. 7(a) (i) Packing Cost: Qn 7. (a) (ii) Fringe Benefits: If any fringe benefits are incurred for factory workers, it should be treated as factory OH or production OH and apportioned among all the production or service departments on the basis of no. of workers in each deptt. Fringe benefits relating to office, selling and distribution staff should be treated as office and administration OH and selling and distribution OH and recovered accordingly. Qn. 7. (b) (i) Operating Ratio : A ratio that shows the efficiency of a company's management by comparing operating expense to net sales is classed Operating Ratio. It is calculated as follows : Operating expenses Net Sales The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account. Qn. 7. (b) (ii) Price Earnings ratio : The price earnings ratio indicates the expectation of equity investors about the

earnings of the firm. It relates earnings to market price and is generally taken as a summary measure of growth potential of an investment, risk characteristics, shareholders orientation, corporate image and degree of liquidity. It is calculated as : Market price per shares P.E. Ratio = --------------------------------- Earnings per share

Qn. 7. (c) Causes of labour turnover: The main causes of labour turnover in an organisation/industry can be broadly classified under the following three heads: (a) Personal Causes (b) Unavoidable causes and (c) Avoidable causes.

Primary Packing (Without Such packing product can not be sold)

Add with direct material or direct expenses

In case of returnable container (at a certain price)

Then the difference figure

Treated as product

Secondary Packing (incurred for promotion of sales)

If such expenses are incurred for advertisement or promotion of sales.

Charged to selling oh.

If such expenses are incurred for transportation Charged to distribution OH.


Personal causes are those which induce or compel workers to leave their jobs. Such causes includes the following : (i) change of jobs for betterment (ii) Premature retirement due to ill health or old age (iii) Domestic problems and family responsibilities (iv) discontentment over the jobs and working environment. In all the above cases the employee leaves the organisation at his will and, therefore it is difficult to suggest any possible remedy in the first three cases. But the last one can be overcome by creating conditions leading to a healthy working environment. For this, officers should play a positive role and make sure that their subordinates work under healthy working conditions. Unavoidable causes are those under which it becomes obligatory on the part of management to ask some or more their employees to leave the organisation. Such causes are summed up as listed below : (i) Seasonal nature of the business (ii) Shortage of raw material , Power, Slack market for the product etc. (iii) Change in the plant location (iv) Disability, making a worker unfit for work; (v) disciplinary measures (vi) Marriage [generally in the case of women] Avoidable causes are those which require the attention of management and a continuous basis so as to keep the labour turnover ratio as low as possible. The main causes under this case are indicated below: 1) Dissatisfaction with job, remuneration, hours of work, working conditions, etc. 2) Bad relationship with management, supervisor's or fellow workers; 3) Lack of training facilities and promotional avenues; 4) Lack of recreational and medical facilities; 5) Low wages and allowances. Qn. 7. (d) CASH MANAGEMENT MODELS: This help’s in deciding optimum cash balance. This models can be put in two categories : (i) Inventory type models (William J. Baumal’s EOQ model) and (ii) Stochastic model (Miller Orr Management Model) (i) J Baumal’s EOQ Model: The EOQ model for optimum cash balance was suggested by William J. Baumol in the year 1952 : Aim of the model : This model tries to balance the income foregone on cash held by the firm against the transaction cost of converting cash into marketable securities or vice-versa. The Model: The optimum cash level is that level of cash where the carrying cost and the transaction cost are the minimum. Where; Carrying cost denotes -cost of holding cash i.e. the interest foregone on marketable securities. Transaction cost denotes -cost involved in converting marketable securities into cash. Explanation of the Model: Every firms has to deal with holding cost and transaction cost. A firm tries to keep its cash balance to a minimum. As the cash depletes, it replenishes it by selling the marketable securities, but this increases the transaction cost. Therefore the optimum cash balance is found by controlling the holding cost and transaction cost so as to minimise the total cost. This is done in the following way : The cash is recovered by selling the marketable securities in such a way that the transaction cost is optimally balanced with holding cost of cash. The optimum cash balance according to this model is the point where the holding cost and transaction cost are equal. Optimum cash Balance Cash Balance

Total Cost

Holding Cost

Transaction Cost

Cost


Formula : According to this model the formula for determining optimum cash balance i.e. 2 u x P C = --------- S

Where C = Optimum cash balance u = Annual or monthly cash disbursement P = Fixed cost per transaction S = Opportunity cost of one rupee p.a. or p.m. Assumptions : The model assumes that the firm uses cash at a known rate per period and that this rate of use is constant. Limitations : 1. The cash out flows in a firm is not constant and hence the basic assumption of constant rate of use of cash is wrong. 2. The transaction cost is very difficult to be measured. (ii) Miller Orr Management Model: H UPPER CONTROL LIMIT Z RETURNING POINT LOWER CONTROL LIMIT O Time Merton miller and daniel orr’s management model helps to determine the optimum level of cash balance when the demand for cash is stochastic and not known in advance. The model is designed to determine the time and size of transfers between an investment account and cash account “ Upper limit(h) “ returning point(z) ; and lower limit (o), is drafted. When cash balance reaches the upper limit, a transfer of cash equal to h-z is effected to marketable securities; When it touch the lower limit a transfer from marketable securities to cash is made. During the period when cash balance stays between these high and low limits, no transaction between cash and marketable securities is made. The high and low limit of cash balances are set on the basis of fixed costs associated with securities transaction, the opportunity cost of holding cash and the degree of likely fluctuation in cash balances. Qn. 7. (e) Process of estimating profit/loss on incomplete contracts : In case of completed contracts all the profit that arise from the contract can be transferred to Profit and Loss Account. But in case of incomplete contracts, only a portion of the profit is taken to the Profit and Loss Account depending on the extent of work completed on the contract because some provision is to be made for meeting contingencies and unforeseen loss. There are no hard and fast rules in calculation of profit to be taken to Profit and Loss Account. But in general, the following principles are followed :

(a) If loss is arrived on incomplete contracts, the entire loss is debited to Profit and Loss Account. (b) Profit should be considered only in respect of work certified. The uncertified work should be valued at cost. (c) If the amount of work certified is less than 25% of the contract price, then no profit should be taken to Profit

and Loss Account, and the entire amount is kept as ‘reserve’ for meeting contingencies. (d) If the amount of work certified is more than 25% but less than 50% of the contract price, then following

amount should be taken to the Profit and Loss Account : 1 Cash received Notional profit X ---- X ----------------- 3 Work certified The balance will remain as ‘reserve’ for meeting contingencies.

(e) If the amount of work certified is 50% or more but less then 90% of the contract price, then the formula will be as follows :

2 Cash received Notional profit X --- X ----------------- 3 Work certified The balance will remain as ‘reserve’ for meeting contingencies.


Qn. (f) Profit on Contracts Nearing Completion : If the contract is nearing completion, the total cost of completing the contract may be estimated if possible and then ascertain the estimated total profit. The amount of profit to be transferred to the Profit and Loss Account is calculated by applying the following formula : Cash received Work certified Estimated profit X ----------------- X ------------------ Work certified Contract price The balance amount of profit not transferred to Profit and Loss Account but kept as ‘reserve’ for meeting contingencies is shown in the Balance sheet ‘assets side’ by deducting from the amount of ‘work-in-progress’. It is carried down as a credit balance in the Contract Account itself, the work-in-progress being represented by the debit balance in the Contract Account.

Free of Cost ISBN : 978-81-7666-964-1

Appendix IPCC Gr. I (New Course)


Paper - 4 : Taxation

Chapter - 2 : Basic Concepts2011 - May [2] (a) (i) Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a managementconsultant practising in Colombo, specializing in project financing. The payment was made inColombo. Mr. Kulasekhara is a non-resident. The consultancy related to a project in India withpossible Ceylonese collaboration. Is this payment chargeable to tax in India in the hands ofMr. Kulasekhara, since the services were used in India ? (4 marks)

Chapter - 3 : Income which do not form part of Total Income2010 - Nov [2] (a) (i) Which income of Sikkimese individual is exempted from tax under section10 (26 AAA) ? (4 marks)Answer :Income of Sikkimese see 10 (26 AAA) :Following income of an individual; being a sikkimese is exempt –

(i) From any source in the state of sikkim; or(ii) by way of dividend or interest on securities.

Note : The exemption is not available to a sikkimese women who, on or after 1/4/2008, marrieson individual who is not a sikkimese.

2010 - Nov [4] (a) (ii) Can a political party claim exemption of its income under Section 13A ofthe Income tax Act, 1961 ? (4 marks)Answer :Yes, Under Section 13 A the following incomes derived by a political party are exempt incomputing its total income :

(i) Income which is chargeable under head 'Income from House Property; or(ii) Income chargeable under the head 'Income from other sources;

(iii) Any income by way of capital gains;(iv) Any income by way of voluntary contribution from any person.

The above exemption is available when the following conditions are satisfied :


(i) maintenance of such books of accounts and other documents as will enable the AssessingOfficer to compute the income there from;

(ii) a record of name and address of persons contributing in excess of ` 20,000;(iii) accounts are audited by a Chartered Accountant ;(iv) the treasurer of such political partly or any person authorised by the political party in this

behalf must submit a report under Section 29C(3) of the Representation of People Act,1951 for the relevant financial year.

2011 - May [1] {C} (b) Nathan Aviation Ltd. is running two industrial undertakings, one in aSEZ (Unit S) and another in a normal area (Unit N). The brief summarized details for the yearended 31-3-2011 are as under :

(` in lacs)S N

Domestic turnover 10 100Export turnover 120 NilGross profit 20 10Less : Expenses and depreciation 7 6Profits derived from the unit 13 4

The brought forward business loss pertaining to Unit N is ̀ 2 lacs. Briefly compute the businessincome of the assessee. (5 marks)

Chapter - 4 : Income from Salaries2010 - Nov [5] (a) From the following details find out the salary chargeable to tax for theassessment year 2011-12.

Mr. X is a regular employee of Rama & Co. in Gurgaon. He was appointed on 01.01.10 inthe scale of 20000-1000-30000. He is paid 10% D.A. & Bonus equivalent to one month pay. Hecontributes 15% of his pay and D.A. towards his recognized provident fund and the companycontributes the same amount.

He is provided free housing facility which has been taken on rent by the company at` 10,000 per month. He is also provided with following facilities :

(i) Facility of laptop costing ` 50,000.(ii) Company reimbursed the medical treatment bill of his brother of ` 25,000, who is

dependent on him.(iii) The monthly salary of ` 1,000 of a house keeper is reimbursed by the company.(iv) A gift voucher of ` 10,000 on the occasion of his marriage anniversary.(v) Conveyance allowance of ` 1,000 per month is given by the company towards actual

reimbursement.(vi) He is provided personal accident policy for which premium of ` 5,000 is paid by the

company.

(vii) He is getting telephone allowance @ ` 500 per month.


(viii) Company pays medical insurance premium of his family of ` 10,000. (8 marks)Answer :

Computation of taxable salary of Mr.X for A.Y. 2011-12Particulars `

Basic pay [(20,000×9) + (21,000×3)] = 1,80,000 +63,000Dearness allowance [10% of basic pay]Bonus [Note 2]

Employer’s contribution to RPF in excess of 12% (15%-12% =3% of` 2,67,300) [Note 1]Taxable allowancesTelephone allowanceTaxable perquisitesRent-free accommodation [Note 1 & 4]Medical reimbursement (25,000 - 15,000) [Note 5]Reimbursement of salary of housekeeperGift voucherSalary income chargeable to tax

2,43,00024,30021,000

8,019

6,000

44,14510,00012,000

10,000 3,78,464

Notes:1. It has been assumed that DA forms part of salary for retirement benefits and accordingly,

the perquisite value of rent-free accommodation and employer’s contribution to RPF havebeen worked out.

2. Bonus has been determined as one month’s basic pay as at the end of the year i.e. ̀ 21,000.In the alternative, the problem can also be worked out by taking bonus as ` 20,000, beingone month’s basic pay upto 31.12.2010.

3. Facility of laptop is not a taxable perquisite.4. When the accommodation is taken on lease or rent by the employer, the value of rent-free

accommodation provided to employee would be actual amount of lease rental paid orpayable by the employer or 15% of salary, whichever is lower.Valuation of rent free house, for the purpose of salary includes: (i) Basic salary i.e., ` 2,43,000 (ii) Dearness allowance (assuming that it is included for calculating retirement benefits)

i.e. ` 24,300(iii) Bonus i.e., ` 21,000(iv) Telephone allowance i.e., ` 6,000

Thus salary is :2,43,000 + 24,300 + 21,000 +6,000 = 2,94,300.


15% of salary = 2,94,300 × 15/100 = 44,145Value of rent-free house = Lower of rent paid by the employer (i.e. ` 1,20,000) or 15% ofsalary (i.e., ` 44,145).ˆ The perquisite value is ` 44,145.

5. According to section 17(2) Clause (v) exempts any sum paid by the employer in respect ofany expenditure actually incurred by the employee on his medical treatment or treatmentof any member of his family to the extent of ` 15,000.

Therefore, in this case, the balance of ̀ 10,000 (i.e., ̀ 25,000 – ̀ 15,000) is a taxableperquisite. Medical insurance premium paid by employer is exempt.

6. Premium of ` 5,000 paid by the employer for personal accident policy is not liable to tax.7. Conveyance allowance is exempt because it is based on actual reimbursement for official

purposes.2010 - Nov [7] (a) Answer the question.

(i) Mr. Shah, an Accounts Manager, has retired from JK Ltd. on 15.1.2011 after renderingservices for 30 years 7 months. His salary is ` 25,000/- p.m. upto 30.9.2010 and` 27,000/- thereafter. He also gets ` 2,000/- p.m. as dearness allowance (55% of it is apart of salary for computing retirement benefits). He is not covered by the Payments ofGratuity Act, 1972. He has received ` 8 Lacs as gratuity from the employer company.

(4 marks)Answer :

Calculation of Gratuity taxable in the hand, of Mr. Shah :As Mr. Shah is not covered by the payments of Gratuity Act, 1972. The least of the followingis exempt:(a) ` 3,50,000(b) Gratuity Actually received

(c) × Last 10 months Average Salary × Completed years of service rendered by employee

Where :

Last 10 months Avg. Salary = = ` 26,700/-

Completed years of service = 30 year 7 months i.e. = 30 yearsHence exemption :(a) ` 3,50,000(b) ` 8,00,000 (Actual gratuity received)

(c) × 26,700 × 30 = 4,00,500

Hence exemption in respect of gratuity = ` 3,50,000 (Being least of above)Chapter - 5 : Income from House Property2010 - Nov [7] (a) Answer the question.


(iii) Explain briefly the applicability of Section 22 for chargeability of income tax for : (i) House property situated in foreign country and(ii) House property with disputed ownership. (4 marks)

Answer :Applicability of section 22 for chargeability of income-tax for –

(i) House property situated in foreign country : A resident assessee is taxable undersection 22 in respect of annual value of a house property situated in foreign country. Aresident but not ordinarily resident or a non resident is taxable in respect of income fromsuch property if the income is received in India during the previous year. Once incidenceof tax is attracted under section 22, the annual value will be computed as if the propertyis situated in India.

(ii) House property with disputed ownership : U/s 27 of Income Tax Act, 1961 in case ofHolder of importable estate the holder of importable estate is deemed to be owner of allproperties comprised in the estate, therefore in the present case the holder of the disputedhouse property will be deemed as owner of that property & annual value of the aboveproperty will be chargeable in his hands u/s 22.

Chapter - 6 : Profits & Gains of Business2010 - Nov [6] (a) Sai Ltd. has a block of assets carrying 15% rate of depreciation, whose writtendown value on 01.04.2010 was ` 40 lacs. It purchased another asset of the same block on01.11.2010 for ` 14.40 lacs and put to use on the same day. Sai Ltd. was amalgamated withShirdi Ltd. with effect from 01.01.2011.You are required to compute the depreciation allowable to Sai Ltd. & Shirdi Ltd. for the previousyear ended on 31.03.2011 assuming the assets transferred to Shirdi Ltd. at ` 60 lacs.(8 marks)Answer :Statement showing computation of depreciation allowable to Sai Ltd. & Shirdi Ltd. for P.Y.2010-11

Particulars Amount`

Written down value (WDV) as on 1.4.2009Addition during the year (used for less than 180 days)

Total Depreciation on `40,00,000 @ 15%Depreciation on `14,40,000 @ 7.5%Total depreciation for the year

40,00,00014,40,000

54,40,0006,00,0001,08,0007,08,000


Apportionment between two companies:(a) Amalgamating company, Sai Ltd.

`6,00,000 × 275/365`1,08,000 × 61/151

(b) Amalgamated company, Shirdi Ltd.`6,00,000 × 90/365`1,08,000 × 90/151

4,52,055 43,6294,95,684

1,47,945 64,3712,12,316

Notes:1. The aggregate deduction, in respect of depreciation allowable to the amalgamating

company and amalgamated company in the case of amalgamation shall not exceed in anycase, the deduction calculated at the prescribed rates as if the amalgamation had not takenplace. Such deduction shall be apportioned between the amalgamating company and theamalgamated company in the ratio of the number of days for which the assets were used bythem.

2. The price at which the assets were transferred, i.e., ` 60 lacs, has no implication in thecalculation of eligible depreciation.

2011 - May [2] (a) (ii) Mr. Praveen Kumar has furnished the following particulars relating topayments made towards scientific research for the year ended 31-3-2011 :

(` in lacs)(i) Payments made to K Research Ltd. 20

(ii) Payment made to LMN College 15(iii) Payment made to OPQ College 10

Note : K Research Ltd. and LMN College are approved research institutions and thesepayments are to be used for the purposes of scientific research.

(iv) Payment made to National Laboratory 8(v) Machinery purchased for in-house scientific research 25

(vi) Salaries to research staff engaged in in-house scientific research 12Compute the amount of deduction available under section 35 of the Income-tax Act, 1961

while arriving at the business income of the assessee. (4 marks)2011 - May [6] (a) Harish Jayaraj Pvt. Ltd. is converted into Harish Jayaraj LLP on 1-1-2011.The following particulars are available to you :

(`)(i) WDV of land as on 1-4-2010 5,00,000

(ii) WDV of machinery as on 1-4-2010 3,30,000(iii) Patents acquired on 1-6-2010 3,00,000

(iv) Building acquired on 12-3-2009 for which deduction was 7,00,000


allowed under section 35 AD. (v) Above building was revalued as on the date of conversion into LLP as 12,00,000

(vi) Unabsorbed business loss as on 1-4-2010 (A.Y. 2007-08) 9,00,000Though the conversion into LLP took place on 1-1-2011, there was disruption of business

and the assets were put into use by the LLP only from 1st March, 2011 onwards. The company earned profits of ̀ 8 lacs, prior to computation of depreciation. Assuming that

the necessary conditions laid down in section 47 (xiiib) of the Income-tax Act, 1961 have beencomplied with, explain the tax treatment of the above in the hands of the LLP. (8 marks)

Chapter - 7 : Capital Gains2010 - Nov [1] (b) Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on1.4.2010 his unit 1 by way of slump sale for a total consideration of ` 25 Lacs. The expensesincurred for this transfer were ` 28,000/-. His Balance Sheet as on 31.3.2010 is as under :

Liabilities Total Assets Unit 1 Unit 2 Total` ` ` `

Own Capital 15,00,000 Building 12,00,000 2,00,000 14,00,000Revaluation Reserve 3,00,000 Machinery 3,00,000 1,00,000 4,00,000(for building of unit 1)

Debtors 1,00,000 40,000 1,40,000Bank loan 2,00,000 Other assets 1,50,000 60,000 2,10,000(70% for unit 1)Trade creditors 1,50,000(25% for unit 1)

Total 21,50,000 Total 17,50,000 4,00,000 21,50,000Other information :

(i) Revaluation reserve is created by revising upward the value of the building of unit 1.(ii) No individual value of any asset is considered in the transfer deed.

(iii) Other assets of unit 1 include patents acquired on 1.7.2008 for ` 50,000/- on which nodepreciation has been charged.

Compute the capital gain for the assessment year 2011-12. (5 marks)Answer :

Capital gain on transferee of unit 1 by way of slump sale u/s 50 B Amount

(`)Sale proceeds 25,00,000Less : Expenses of transfer 28,000

Net consideration proceeds 24,72,000

Less : Cost of acquisition or improvement (See Note 1) 12,50,625Long term Capital Gain 12,21,375


Note 1:Cost of acquisition or improvement = Net worth of the undertakingNet worth of the undertaking(a) Aggregate value of total assets

Depreciable AssetsBuilding excluding revaluation reserve 9,00,000Machinery 3,00,000Patents [Note 2] 28,125 12,28,125

Other AssetsDebtors 1,00,000Other assets except patent 1,00,000 2,00,000

14,28,125(b) Value of Liabilities

Bank loan (2,00,000 × 70%) = 1,40,000Trade creditors (1,50,000 × 25%) = 37,500 1,77,500

1,77,500Net worth (a – b) = ` 12,50,625

Note 2 : Since patent have been acquired 1.7.2008 therefore depreciation @25% p.a. will becharged for two years on WDV basis . Therefore book values as on 31.3.2010 = 50,000 × .75 ×.75 = ` 28,125Note 3 : For the purpose of computation of net worth, the WDV determined as per section 43(6)has to be considered in the case of depreciable assest,. The said problem has been solvedassuming that B/S value of ` 3 lakhs and ` 9 lakhs (` 12 lakhs - 3 lakhs)represents the writtendown value of machinery & building respectively, of unit 1.

2010 - Nov [2] (a)(ii) How will you calculate the period of holding in case of the following assets ?

(1) Shares held in a company in liquidation(2) Bonus shares(3) Flat in a co-operative society(4) Transfer of a security by a depository (i.e., demat account) (4 marks)

Answer :Period of Holding Sec 2(42 A) of the following asset:1. Shares held in a company in liquidation : Period of holding will be taken from the date

of acquisition of shares to the date on which the company goes into liquidation :2. Bonus Shares : The period of holding shall be taken from the date of allotment of shares

till the date preceding the date of transfer of shares.3. Flat in a co-operative society : The period of holding shall be taken from the date of

allotment of the flat from the society to the date preceding the date of transfer of the flat.


4. Transfer of a security by a depository : Period of holding shall be calculated on FIFObasis. For deciding FIFO technique the date of entry in ‘Demat Account’ is significant andthe date of purchase of security is irrelevant.

2011 - May [1] {C} (a) On 21-3-2010, Mr. Janak gifted to his wife Mrs. Thilagam 200 listedshares, which had been bought by him on 19-4-2009 at ` 2,000 per share. On 1-6-2010, bonusshares were allotted in the ratio of 1 :1. All these shares were sold by Mrs. Thilagam as under:Date of Sale Manner of sale No. of shares Net sales value (`)21-5-2010 Sold in recognized stock exchange, 100 2,20,000

STT paid21-7-2010 Private sale, to an outsider All bonus shares 1,25,00028-2-2011 Private sale, to her friend Mrs. Hema 100 1,70,000

(Market value on this date was ` 2,10,000)Briefly state the income-tax consequences in respect of the sale of the shares by Mrs.

Thilagam, showing clearly the person in whose hands the same is chargeable, the quantum andthe head of income in respect of the above transactions. Detailed computation of total incomeis NOT required.

Net sales value represents the amount credited after all taxes, levies, brokerage, etc., and thesame may be adopted for computing the capital gains.

Cost inflation index for the FY 2010-11 is 711 and for the FY 2009-10 is 632. (5 marks)2011 - May [5] (a) Mr. Rakesh purchased a house property on 14th April, 1979 for ` 1,05,000.He entered into an agreement with Mr. B for the sale of house on 15th September, 1982 andreceived an advance of ` 25,000. However, since Mr. B did not remit the balance amount, Mr.Rakesh forfeited the advance. Later on, he gifted the house property to his friend Mr. A on 15th June, 1986. Following renovations were carried out by Mr. Rakesh and Mr. A to the house property :

Amount (`)By Mr. Rakesh during FY 1979-80 10,000By Mr. Rakesh during FY 1983-84 50,000By Mr. A during FY 1993-94 1,90,000

The fair market value of the property as on 1-4-1981 is ` 1,50,000/- Mr. A entered into an agreement with Mr. C for sale of the house on 1st June, 1995 and

received an advance of ̀ 80,000. The said amount was forfeited by Mr. A, since Mr. C could notfulfil the terms of the agreement.

Finally, the house was sold by Mr. A to Mr. Sanjay on 2nd January, 2011 for a considerationof ` 12,00,000.

Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment year2011-12. Cost inflation indices are as under :

Financial Year Cost inflation index1981-82 100


1983-84 1161986-87 1401993-94 2442010-11 711 (8 marks)

Chapter - 8 : Income from other Sources2011 - May [7] (a) Answer the following :2. The following details have been furnished by Mrs. Hemali, pertaining to the year ended 31-

3-2011 : (i) Cash gift of ` 51,000 received from her friend on the occasion of her "Shastiaptha

Poorthi", a wedding function celebrated on her husband completing 60 years of age.This was also her 25th wedding anniversary.

(ii) On the above occasion, a diamond necklace worth ` 2 lacs was presented by hersister living in Dubai.

(iii) When she celebrated her daughter's wedding on 21-2-2011, her friend assigned inMrs. Hemali's favour, a fixed deposit held by the said friend in a scheduled bank;the value of the fixed deposit and the accrued interest on the said date was ̀ 51,000.

Compute the income, if any assessable as income from other sources. (4 marks)

Chapter - 10 : Aggregation of Income, Set-off and Carry Forward of Losses2010 - Nov [1] {C} (a) Mr. Soohan submits the following details of his income for theassessment year 2011-12.Income from salary 3,00,000.00Loss from let out house property 40,000.00Income from sugar business 50,000.00Loss from iron ore business b/f (discontinued in 2003!04) 1,20,000.00Short term capital loss 60,000.00Long term capital gain 40,000.00Dividend 5,000.00Income received from lottery winning (Gross) 50,000.00Winning in card games 6,000.00Agricultural income 20,000.00Long term capital gain from shares (STT paid) 10,000.00Short term capital loss under section 111 10,000.00Bank interest 5,000.00Calculate gross total income and losses to be carried forward. (5 marks)Answer :

Computation of Gross Total Income of Mr. Sohan for the Assessment year 2011-12

Particulars Details Amount


Income from salaryLess : Loss from let out house property set off against salaryincome u/s 71.Profit and Gains of Business or ProfessionIncome from sugar BusinessLess : B/f loss from iron ore business set-off on per Section 72(1)Capital GainLong term capital gainLess : Short term capital loss Set-offLong term capital gain from shares on which STT is paidexempt u/s 10(38), ! Balance short term capital loss of ` 20,000 to be carried

forwarded.! Short term capital loss of ` 10,000 u/s 111A to be carried

forward. Income from other sourcesDividend [Assumed that it is exempt u/s 10 (34)]Income from lottery winningWinning in card gamesBank interestGross Total Income

3,00,000

40,000

50,00050,000

40,00040,000

2,60,000

NIL

NIL

--

--50,000

6,0005,000

3,21,000Note 1 : B/f business loss can only be set off from current year business income and inter headset off is not possible.Note 2 : For set off of b/f business loss continuance of business is not necessary.Note 3 : Agriculture income is exempt u/s 10(1), however it shall be considered only for ratepurposes.Note 4 : It is presumed that loss from iron - ore business relates to P.Y. 2003 - 04, the year inwith the business was discontinued.Losses to be carry forward Amount1. B/f business loss of iron ore business to the extent not set off during current p.y. 70,0002. Short term capital loss 20,0003. Short term capital loss u/s 111 10,000

1,00,0002011 - May [4] (a) The following are the details relating to Mr. Srivatsan, a resident Indian, aged57, relating to the year ended 31-3-2011.

(`)Income from salaries 2,20,000Loss from house property 1,90,000Loss from cloth business 2,40,000


Income from speculation business 30,000Loss from specified business covered by section 35AD 20,000Long-term capital gains from sale of urban land 2,50,000Long-term capital loss from sale of listed shares in recognized stock exchange (STT paid) 1,10,000Loss from card games 32,000Income from betting 45,000Life Insurance Premium paid 1,20,000Compute the total income and show the items eligible for carry forward. (8 marks)

Chapter - 12 : Computation of Total Income, Tax Payable, Rebate and Relief2010 - Nov [3] (a) Dr. Shuba is medical practitioner. Her age is 64 as on 1 Jan 2011. The receiptsand payments account of 2010-11 of her is as under :To ByBalance B/f : 10,000 Purchase of commercial vehicle before

30 Sep. 2009. 4,00,000Receipts from sale of Drawing 2,50,000Medicine 2,50,000 Deposit in bank for 5 years 1,50,000Consultation fee 50,000 Surgical instrument purchased beforeVisiting fee 2,00,000 30 Sep. 2009 50,000Lecturers 5,000 Instalment of loan paid 1,21,000

(including interest ` 22,333)Family pension 2,80,000Saving bank interest 1,000 Medical insurance premium 32,000Loan from bank 3,00,000 Instalment of housing loan 1,08,000Share from HUF 50,000 (Principal component ` 48,000)Agriculture income 1,00,000 Advance tax paid 20,000Income from lottery 35,000 Purchase of medicine 47,000(net after deduction of Payment for medical journal 5,000TDS @ 30%) Vehicle expenses 50,000

Balance C/f : 48,000Total 12,81,000 Total 12,81,000

Other relevant information is as under :(i) She resides in her own house which way constructed in 1999 with a loan from LIC

Housing of ` 10,00,000 out of which 6,00,000 was still due. She got it refinanced fromSBI on 01.04.10 at the rate of 10%. One fourth portion of the house is used for clinicpurposes.

(ii) She invested in term deposit ` 1,50,000 in Bank of Baroda on 01.07.10 for a period of5 years in the name of her minor daughter at 9% interest p.a.


(iii) She purchased a commercial vehicle on 1 July 2010 at ` 4,00,000. A loan of ` 3,00,000was taken to buy the van at 8% interest. One fourth use of vehicle is estimated to bepersonal.

(iv) She paid medical insurance premium for herself of ` 16,000 and for mother ` 16,000.Her mother is dependent on her.

(v) She got her share from HUF’s income of ` 50,000. (8 marks)Answer :

Computation of total income of Dr. Shuba for A.Y. 2011-12Particulars ` ` ` `

Income from house property:Annual value of self-occupied houseLess: Interest on loan

[` 45,000, being 3/4th of ` 60,000](Restricted to ` 30,000)

Income from profession:Sale of medicineConsultation feesVisiting feeTotal incomeLess: ExpensesMedicine purchasesMedical journalDepreciationSurgical instrument(15% of ` 50,000)Vehicle (3/4th of 50% of ` 4,00,000)Vehicle expenses (3/4th)Interest on loan (3/4th)Interest on housing loan (1/4th)

2,50,00050,000

2,00,000

47,0005,000

7,5001,50,000

37,50016,75015,000

Nil

(30,,000)

5,00,000

(30,000)


Total expensesIncome from other sourcesFamily PensionLess : 33?% or `15,000, whichever is lowerLecture feesSavings bank interestInterest on bank FD in the name ofminor daughter [1,50,000 × 9% × 9/12]Less : Exempt u/s 10(32)Winnings from lotteryGross Total Income

2,80,00015,000

10,125

1,500

2,78,750

2,65,0005,0001,000

8,62550,000

2,21,000

3,29,6255,20,875

Less: Deductions under Chapter VI-AUnder section 80CRepayment of housing loan (48,000 × ¾)Under section 80DMedical Insurance PremiumOwn (`16,000 restricted to `15,000)Mother (Senior Citizen, hence fully allowedsince premium is less than `20,000)Total deduction

15,000

16,000

36,000

31,000 67,000

Total income 4,53,875Notes:1. Because the residential house was constructed before 01.04.1999, the deduction for interest

is restricted to ` 30,000. 2. One forth portion of house is used for business purposes, so, ¼th share of interest paid is

deductible while computing business income.3. Term deposit of ` 1,50,000 in the name of minor daughter does not qualify for deduction

under section 80C. However, principal repayment of housing loan (i.e 3/4th) would qualifyfor deduction under section 80C. Therefore, the deduction under section 80C would be` 36,000 (i.e. 3/4th of ` 48,000).

4. Agricultural income is exempt under section 10(1) and share of income from HUF isexempt under section 10(2).

5. Depreciation@15% has been provided on surgical instruments. It is also possible to assumethat the surgical instruments mentioned in the question are life-saving medical equipment(for example, surgical laser) and therefore, eligible for depreciation@40%.PS – Since the requirement of the question has not been specified, having regard to theinformation given in the question and the marks it carries, the computation has beenrestricted to the total income of Dr. Shuba and the tax liability has not been calculated.


2010 - Nov [7] (a) Answer the question.(ii) State under which heads the following incomes are taxable :

(i) Rental income in case of dealer in property(ii) Dividend on shares in case of a dealer in shares

(iii) Salary by a partner from his partnership firm(iv) Rental income of machinery(v) Winnings from lotteries by a person having the same as business activity

(vi) Salaries payable to a Member of Parliament(vii) Receipts without consideration

(viii) In case of retirement, interest on employee’s contribution if provident fund isunrecognized. (4 marks)

Answer :Particulars Head of Income

(i) Rental income in case of dealer in property Income from house property

(ii) Dividend on shares in case of a dealer in shares Income from other sources

(iii) Salary by partner from his partnership firm Profit and gains of business orprofession

(iv) Rental income of machinery Income from other sources/profits and gains of business orprofession

(v) Winnings from lotteries by a person having thesame as business activity

Income from other sources

(vi) Salaries payable to a Member of Parliament Income from other sources

(vii) Receipts without consideration Income from other sources

(vii) In case of retirement, interest on employee’scontribution if provident fund is unrecognized

Income from other sources

Note - According section 56(2)(ii), rental income of machinery would be chargeable to tax underthe head “Income from Other Sources”, if the same is not chargeable to income-tax under thehead “Profits and gains of business or profession”.

2011 - May [3] (a) Mr. Vidyasagar, resident individual aged 64, is a partner in Oscar Musicals& Co., a partnership firm. He also runs a wholesale business in medical products. The following details are made available for the year ended 31-3-2011 :

` (i) Interest on capital received from Oscar Musicals & Co., at 15% 1,50,000


(ii) Interest from bank on fixed deposit (Net of TDS ` 1,500) 13,500(iii) I.T. refund received relating to asst. year 2009-10

including interest of ` 2,300 34,500` `

(iv) Net profit from wholesale business 5,60,000Amounts debited include the following :

Depreciation as per books 34,000Motor car expenses 40,000Municipal taxes for the shop 7,000(For two half years; payment for one half year made on 12-6-2011 and for the other, on 14-11-2011)Salary to manager for whom single cash 21,000Payment was made for

(v) The WDV of the assets (as on 1-4-2010) used inabove wholesale business is as under :

Computers 1,20,000Motor car 3,20,000

(20% used for personal use)(vi) LIP paid for major son 60,000

PPF of his wife 70,000Long-term infrastructure bonds (Approved) 30,000

Compute the total income of the assessee for the assessment year 2011-12. The computationshould show the proper heads of income. Also compute the WDV of the different blocks ofassets as on 31-3-2011. (8 marks)

Chapter - 13 : Advance Tax & TDS2010 - Nov [4] (a) (i) Explain the consequences of not deducting tax and paying to Govt. accountunder section 201 of the Income Tax Act, 1961. (4 marks) Answer :Consequences of failure to deduct tax at source or pay such tax deducted to the credit ofthe Central Government [Section 201]1. The following persons shall be deemed to be an assessee in default, if they do not deduct

the whole or any part of the tax or after deducting, fail to pay the tax - (i) any person including the principal officer of a Company, who is required to deduct

any sum in accordance with the provisions of the Act, and(ii) an employer paying tax on non-monetary perquisites u/s 192(1A).

2. However, no penalty shall be charged under section 221 from such person, principal officeror company unless the Assessing Officer is satisfied that such failure to deduct or pay thetax deducted, was without good and sufficient reasons.


3. Such person, principal officer or company shall also be liable to pay simple interest at 1%per month or part of a month on the amount of such tax from the date on which such taxwas deductible to the date on which such tax is actually paid.

4. Such interest should be paid before furnishing the statement in accordance with section200(3).

5. Where the tax has not been paid after it is deducted, the amount of the tax together with theamount of simple interest thereon shall be a charge upon all the assets of the person or thecompany, as the case may be.

2011 - May [7] (a) Answer the following :3. During the financial year 2010-11, the following payments/expenditure were made/incurred

by Mr. Yuvan Raja, a resident individual (whose turnover during the year ended 31-3-2010was ` 39 lacs) :

(i) Interest of ̀ 12,000 was paid to Rehman & Co., a resident partnership firm, withoutdeduction of tax at source;

(ii) Interest of ̀ 4,000 was paid as interest to Mr. R.D. Burman, a non-resident, withoutdeduction of tax at source;

(iii) ` 3,00,000 was paid as salary to a resident individual without deduction of tax atsource;

(iv) He had sold goods worth ` 5 lacs to Mr. Deva. He gave Mr. Deva a cash discountof ` 12,000 later. Commission of ` 15,000 was paid to Mr. Vidyasagar on 2-7-2010. In none of these transactions, tax was deducted at source.

Briefly discuss whether any disallowance arises under the provisions of section40(a)(i)/40(a)(ia) of the Income-tax Act, 1961. (4 marks)

Chapter - 15 : Assessment Procedure2011 - May [7] (a) Answer the following :1. Specify the persons who are authorized to sign and verify under section 140, the return of

income filed under section 139 of the Income-tax Act, 1961 in the case of : (i) Political party;

(ii) Local authority; (iii) Association of persons, and (iv) Limited Liability Partnership (LLP). (4 marks)

Chapter - 17 : Value Added Tax (VAT)2010 - Nov [1] {C} (d) Mr. Rajesh is a registered dealer and gives the following information.You are required to compute the net tax liability and total sales value under Value Added Tax.Rajesh sells his products to dealers in his State and in other States. The profit margin is 15% of cost of production and VAT rate is 12.5% of sales.

(i) Intra State purchases of raw material ` 2,50,000/- (excluding VAT @ 4%)


(ii) Purchases of raw material from an unregistered dealer ` 80,000/- (including VAT @12.5%)

(iii) High seas purchases of raw material are ` 1,85,000/- (excluding custom duty @ 10% of` 18,500)

(iv) Purchases of raw materials from other States (excluding CST @ 2%) ` 50,000/-(v) Transportation charges, wages and other manufacturing expenses excluding tax

` 1,45,000/-(vi) Interest paid on bank loan ` 70,000/-. (5 marks)

Answer :(d) Calculation of net VAT liability and total sales value

Particulars `

Intra-State purchases of raw material (excluding VAT ` 10,000)Purchases of raw materials from unregistered dealer [Note 1]High seas purchases of raw materials [Note 2]Purchase of raw materials from other States [Note 3]Transportation charges, wages and manufacturing expenses

Cost of production Add : Profit margin 15%

Add: VAT @ 12.5%

2,50,00080,000

2,03,00051,000

1,45,0007,29,5001,09,4258,38,9251,04,866

Total sales value 9,43,791Computation of VAT liability:- `VAT on above sales price @ 12.5% 1,04,866Less:Set off of VAT on purchases:

From high seas NilFrom intra-State [Refer Note 4] 10,000From inter-State NilFrom unregistered dealer Nil 10,000

Net VAT payable 94,866

Notes:1. Input tax credit is not available on the purchases of raw materials from unregistered dealer.

Hence, VAT paid thereon is a part of cost of production.2. Duty paid on high seas purchases i.e., imports is not a State VAT, so the input tax credit is

not available in respect of the same and it is a part of cost of production.3. Set-off of tax paid on inter-state purchases is not allowed.4. It has been assumed that the entire production is sold.


5. Interest on loan has been excluded for calculating the cost of production on the presumptionthat the loan is availed for purposes other than working capital.

6. Tax on intra-State purchases is `10,000. As credit of the same will be available, it is notincluded in the cost of production.

2010 - Nov [2] (c)What record should be maintained under VAT system by a registered dealer?(4 marks)

Answer :Records to be maintained : Every dealer liable to pay tax under the VAT-law should maintainthe following records-(a) Value and Quantity of Purchases;(b) Value and Quantity of Goods manufactured;(c) Value and Quantity of Sales;(d) Value and Quantity of goods disposed of otherwise than by way of sale;(e) Value and Quantity of Inventory/Stock;(f) Separate record of any exempt sale;(g) Copies of all invoices, credit and debit notes, etc. issued, in serial number;(h) All purchase invoices, copies of customs entries, receipts evidencing payment of customs

duty or tax, and credit and debit notes received, filed in a chronological order either by dateof receipt or under each supplier’s name;

(i) Details of the amount of tax charged on each sale or purchase;(j) VAT Account and total of the output tax and the input tax in each period and a net total of

the tax payable or the excess carried forward, as the case may be, at the end of each month;(k) details of each supply of goods from the business premises, unless such details are available

at the time of supply in invoices issued at, or before, that time.

2010 - Nov [3] (c) State the Variants of VAT. Present them in schematic diagram and explaineach one briefly. (4 marks)Answer :There are 3 variants of VAT - (i) Gross product variant, (ii) Income variant, and (iii)Consumption variant.


(a) Gross product variant : The gross product variant of VAT allows deductions for taxes onall purchases of raw materials and components, but no deduction is allowed for taxes oncapital inputs. That is, taxes on capital goods such as plant and machinery are notdeductible from the tax base in the year of purchase and tax on the depreciated part of theplant and machinery is not deductible in the subsequent years.

(b) Income variant : The income variant of VAT on the other hand allows for deductions onpurchases of raw materials and components as well as depreciation on capital goods. Thismethod provides incentives to classify purchases as current expenditure to claim set-off.However, in practice there are many difficulties connected with the specification of anymethod of measuring depreciation, which basically depends on the life of an asset as wellas on the rate of inflation.

(c) Consumption variant : Consumption variant of VAT allows for deduction on all businesspurchases including capital assets. Therefore, gross investment is deductible in calculatingvalue added. It neither distinguishes between capital and current expenditures nor specifiesthe life of assets or depreciation allowances for different assets.

2010 - Nov [4] (c) State with reasons in brief whether the following statements are correct orincorrect with reference to the provision of Value Added Tax.


(i) It is permitted to issue ‘tax invoice’ inclusive of VAT i.e. aggregate of sales price &VAT.

(ii) A registered dealer is compulsorily required to get its books of accounts audited underVAT Laws of different states irrespective of limit of turnover. (2 × 2 = 4 marks)

Answer :(i) The statement is incorrect, Because as per the VAT-laws of the respective states, a

VAT-invoice should contain the rate and amount of tax charged in respect of taxablegoods separately in the invoice hence it is not open to the dealer to issue 'tax invoice'inclusive of VAT i.e. aggregate of sales price & VAT.However in case of small dealers or in case the sale is to an end consumer (i.e. in caseswhere VAT invoices are not required to be issued), the invoice may not contain detailsof tax (i.e. rate and amount of tax).

(ii) The Statement is incorrect. Because Most of the State VAT laws in India provide foraudit of accounts of a registered dealer, if his turnover exceeds an amount specified inthe law itself. Hence every registered dealer is not compulsorily required to get its booksof accounts audited under VAT Laws of different states irrespective of limit of turnover.

2010 - Nov [5] (c) What are the conditions to be fulfilled by the dealer accepting the compositionscheme under the Value Added Tax ? (4 marks)Answer :Every registered dealer who is liable to pay tax under the concerned State-VAT law and whoseturnover didn't exceed ` 50 lakhs in the last financial year is eligible to opt for the compositionscheme.However, the dealer opting for composition scheme has to fulfill the following condition:-(a) He cannot make sells of goods in the course of inter-state trade or commerce (i.e. "dealers

effecting interstate sales only"); and(b) He cannot make sells of goods in the course of import into or export out of the territory of

India (i.e. "importers" and "exporters"); and(c) He cannot transfer the goods outside the State otherwise than by way of sale or for

execution of works contract (i.e. "branch transfers viz. Consignor, etc." or "workscontractors")

(d) He cannot make inter-State purchases; and(e) He cannot issue vatable invoices.

2010 - Nov [6] (c) Mention the purchases which are not eligible for input tax credit (any eightitems) under Value Added Tax. (4 marks)Answer :Input tax credit is not allowed in the following circumstances:

(i) Purchases from unregistered dealers;(ii) Imported goods;

(iii) Inter state purchases


(iv) Purchases from registered dealer who opt for composition scheme;(v) Purchase of goods as may be notified by the State Government;

(vi) Purchase of goods where the purchase invoice is not available;(vii) Purchase of goods where invoice does not show the amount of tax separately;

(viii) Purchase of goods, which are utilized in exempted goods;(ix) Purchase of goods for personal use or for gifts

2010 - Nov [7] (c) Compute the VAT amount payable by Mr. Shyam, who purchased goods froma manufacturer on payment of ` 4,16,000 (including VAT) and earned 20% profit on purchaseprice. VAT rate on both purchases and sales is 4%. (4 marks)Answer :

Calculation of VAT payable by Mr. Shyam

Particulars `

Payment made to manufacturerLess: VAT paid [(4,16,000/104) x 4]

Purchase priceAdd: Profit margin @ 20% on purchase price

Sale price before VATAdd: VAT @ 4% on `4,80,000Less: Input credit

VAT payable by Mr. Shyam

4,16,00016,000

4,00,00080,000

4,80,00019,20016,000

3,2002011 - May [1] {C} (d) The following are details of purchases, sales, etc. effected byVasudha & Co., a registered dealer, for the year ended 31-3-2011 :

Particulars Amount `Purchase of raw materials within State. 1000 units, inclusive of VAT levy at 6% 5,30,000Inter-State purchases of raw materials, inclusive of CST at 2% 2,04,000Import of raw materials, inclusive of customs duty of ` 35,000 4,35,000Capital goods purchased on 1-5-2010, inclusive of VAT levy at 10% (input credit to be spread over 2 financial years) 3,30,000Other manufacturing expenses 1,50,000Sale of taxable goods within State, inclusive of VAT levy at 4% 7,28,000Sale of goods within State, exempt from levy of VAT (Goods weremanufactured from the Inter-State purchase of raw materials) 1,20,000Closing stock as on 31-3-2011 was 100 units of raw materials purchased within the StateInput credit is allowed only on raw materials used in manufacture of the taxable goods.Compute the VAT liability of the dealer for the year ended 31-3-2011. (5 marks)


2011 - May [2] (c) Which variant of VAT is most widely used in the world and why ? Are someservices also included in the VAT net by such countries ? (4 marks)2011 - May [3] (c) M/s. Staruss & Co., a registered dealer under the local VAT law, having stockof goods purchased from outside the State, wishes to opt for the Composition Scheme. Advisehim whether the same is possible. Will the VAT chain be broken if the dealer opts for the saidscheme ? (4 marks)2011 - May [4] (c) What is meant by input tax credit in the context of VAT provisions ? Howdoes input tax credit help in achieving the essence of VAT ? (4 marks)2011 - May [5] (c) What are the major deficiencies of VAT system in India ? (4 marks)2011 - May [6] (c) How can a Chartered Accountant help a client in the handling of VAT auditcalled for by the Department and in conducting external audit of VAT records ? (4 marks)2011 - May [7] (a) Answer the following :(c) Briefly list out the contents of VAT invoice. (4 marks)

Chapter - 18 : Service Tax2010 - Nov [1] {C} (c) Smart & Express Co., is providing taxable information technologysoftware services. The firm furnishes the following information relating to the services rendered,bills raised, amount received pertaining to this service, for the financial year ended on 31st

March, 2011 as under :`

(i) Amount received being 10% of the assignment fees on 31st March, 2011 6,00,000for the upgradation and enhancement of software services to be renderedduring the financial year 2011-12.

(ii) Services provided to UNICEF, an International Organisation in Gandhi- 5,00,000nagar, for analysis, design and programming of latest informationtechnology software.

(iii) Services billed to clients (In one of the bill amounting to ` 3,00,000 3,00,00,000service tax was not charged due to conflicting nature and in another billthe firm failed to recorver the service tax from the client, which was chargedseparately, due to insolvency of the client, the bill details are as under :

`Being the charges for right to use IT software 8,00,000Service tax @ 10% 80,000Education cess @ 2% 1,600Secondary & Higher education cess @ 1% 800

8,82,400

(iv) Amount received for services rendered during current financial year 1,04,78,500(excluding payment for 2 bills in item (iii) above for which paymentreceived during current financial year)


Service tax and education cess have been charged separately in all the bills except wherever mentioned when it is not so charged separately.Compute the value of total taxable services and service tax payable thereon for the year ended 31-3-2011, assigning reason in brief to the treatment of all items. (5 marks)

Answer :Calculation of value of taxable services and service tax payable by Smart & Express Co.

Particulars ` (i) Amount received in advance for upgradation and enhancement of 6,00,000

software services is also liable though the services were renderedduring the financial year 2010-11 [Note 1]

(ii) Services rendered to UNICEF–not liable to service tax [Note 21 Nil(iii) The actual amount realized is liable for service tax [ Note 3] 3,00,000(iv) The actual amount realized is liable for service tax [Note 3] 8,00,000 (v) Amount realized for services rendered (excluding items (ii) and (iii)

above) . 1,04,78,500Total 1,21,78,500

Less: Service tax (`1,21,78,500 x 10.3) / 110.3 11,37,249 Total value of taxable services 1,10,41,251

Service tax payable thereon @10% 11,04,125 Education cess @ 2% 22,083

Secondary and higher education cess @ 1% 11,041Total service tax payable including education cesses 11,37,249

Notes:1. The scope of taxable service covers service provided towards upgradation, enhancement,

implementation and other similar services related to information technology software.2. According Notification No.16/2002 ST dated 02.08.2002, the Central Government has

exempted all the taxable services specified in section 65 of the Finance Act, 1994 providedby any person to the International organizations like UNICEF, from whole of the servicetax leviable thereon under section 66 of the Act.

3. The statutory liability of paying service tax does not get extinguished if the service providerfails to realize or charge the service tax from the service receiver. In such cases, the amountrealized is liable for service tax by deeming the same as inclusive of service tax.

4. Figures in point (i) and (v) are taken to be inclusive of service tax as they represent totalamount received.

2010 - Nov [2](b) How can an assessee adjust the excess payment of service tax against hisliability of service tax for subsequent periods ? What is the basic condition for it ? (4 marks)Answer :


Where an assessee has paid to the credit of Central Government any amount in excess of theamount required to be paid towards service tax liability for a month/quarter, the assessee mayadjust such excess amount paid by him against his Service tax liability for the succeedingmonth/quarter, subject to the following conditions -(a) excess amount paid is on account of reasons not involving interpretation of law, taxability,

classification, valuation or applicability of any exemption notification,(b) excess amount paid by an assessee having Centralised Registration, on account of delayed

receipt of details' of payments towards taxable services may be adjusted without monetarylimit,

(c) in cases other than specified in (b) above, the excess amount paid may be adjusted with amonetary limit of `1 lakh for a relevant month,/quarter,

(d) the details and reasons for such adjustment shall be intimated to jurisdictionalSuperintendent of Central Excise within a period of 15 days from the date of suchadjustment.

2010 - Nov [3] (b) Write a note in brief on provisional payment of service tax (4 marks)Answer :Provisional payment of taxApplicabilityIn case the assessee is unable to correctly estimate, at the time of deposit, actual amount ofservice tax for any month or quarter.ProcedureHe may make a written request to Assistant /Deputy Commissioner of Central Excise for makingpayment of service tax on provisional basis. Assessee need to state the reason why he is unableto decided his tax liability correctly.On receipt of such a request, the concerned officer may allow payment of service tax onprovisional basis on such value of taxable services as may be specified by him.In case assessee makes provisional payment of service tax he shall furnish return in Form - 3A.The Assistant/Deputy Commissioner of Central Excise, on the basis of memorandum in form ST-3A may complete the assessment after calling for necessary documents or records, if need be.

2010 - Nov [4] (b) How will a taxable service be valued when the consideration thereof is notwholly or partly in terms of money ? (4 marks)

Answer :


Determination of Value when consideration is wholly or partly not in money: Where theconsideration received is not wholly or partly consisting of money, the value shall be determinedby the service provider in the following manner:(a) the value of such taxable service shall be equivalent to the gross amount charged by the

service provider to provide similar service to any other person in the ordinary course oftrade and the gross amount charged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a), the service providershall determine the equivalent money value of such consideration which shall, in no case,be less than the cost of provision of such taxable service.

2010 - Nov [5] (b) What do you mean by e-filing of returns ? Is there any facility of e-filing ofservice tax returns ? If yes, then which of the services are eligible for this facility ? (4 marks)Answer :E-filing of service tax returns : E-filing is a facility for electronic filing of service tax returnsby the assessee from his office, residence or any other place of choice, through the internet, byusing a computer. It is a facilitation, simplification and modernization initiative by theDepartment. It is an alternative to the manual filing of return. This facility is available to allservice providers.Facility of e-filing of service tax return : For this purpose, the assessees has to obtain a username and password from the Department. Eligibility of services for e-filing : In the Act there is no specific provision about list of serviceswhich are eligible for e-filing, therefore all types of services can be covered under e-filing. ButIn case of an assessee, who has paid service tax of ` 10 lakhs or above in preceding financialyear or has already paid service tax of ̀ 10 lakhs in current financial year, he has to mandatorilyfile his return electronically.With effect from 01.04.2010, e-filing of service tax returns has been made mandatory for theassessees who have paid total service tax of `10 lakh or more including the amount of servicetax paid by utilization of CENVAT credit in the preceding financial year. The facility of e-filingof returns on the website (http://excise and service tax.nic.in) has been withdrawn and theassessees are now required to file their returns online or by uploading the downloadable off-linereturn utilities to the new ACES website (http://www.aces.gov.in).This facility is available to all service providers.2010 - Nov [6] (b) State with reasons in brief whether the following statements are correct orincorrect with reference to the provisions of Service Tax.

(i) The scope of taxable service shall include any service provided or to be provided tobusiness entity, by any other business entity, in relation to advice, consultancy orassistance in any branch of law including service provided by way of appearance beforeany court, tribunal or authority.

(ii) Service tax provisions are not applicable in Jammu and Kashmir because StateGovernment concurrence was not obtained in respect of Finance Act, 1944.


(2 × 2 = 4 marks)Answer :

(i) The statement is incorrect. Scope of taxable service shall include service provided or tobe provided to a business entity, by any other business entity, in relation to advice,consultancy or assistance in any branch of law, in any manner. However, any serviceprovided by way of appearance before any court, tribunal or authority shall not amountto taxable service.Thus, the legal consultancy services shall not be liable to service tax in the followingcases,:(a) where such service is provided by way of appearance before any court, tribunal or

authority;(b) where the service provider and/or service recipient is an individual.)

(ii) The statement is correct. The Finance Act, 1994 came into force from 1.7.1994. Bysection 64(1), the Act extends to the whole of India except the state of Jammu andKashmir, and by section 64(3), the levy applies to "taxable services provided". Thus,services provided in the State of Jammu and Kashmir are not liable to service tax.As per Article 370 of the Constitution, any Act of Parliament applies to Jammu &Kashmir only with concurrence of State Government. Since, no such concurrence hasbeen obtained in respect of Finance Act, 1994, service tax provisions are not applicablein Jammu and Kashmir.

2010 - Nov [7] (b) Shashwat Hotels Pvt. Ltd. has given the following information for F.Y. 2010-11. You are required to compute the taxable services under Service Tax Act and the tax thereonfor FY 2010-11 without assigning any reason for the treatment.

(i) Reception room and vehicle parking space were let out for a film shooting for 3 months.The charges received for this ` 5 Lacs.

(ii) The conference hall was let out to a Gujarati Samaj Trust for a week for a musiccompetition for ` 50,000/-

(iii) The hotel was booked by a customer for 3 days for a marriage function. The roombooking charges were received in advance (excluding service tax) in the same year of` 50,000/-. The electricity charges separately billed ` 20,000/-, hire charges includingcatering charges for 3 days billed of ` 3,25,000/- after deducting the advance.

(iv) During the year, the conference hall was let out to MNO Ltd. The charges received wereas under :

Hall rent ` 4 Lacs, computer & projector systems charges ` 25,000/-, electricitycharges ` 30,000/-. Hall rent includes charges for snacks and cold drinks ` 50,000/-

(v) The hotel garden was let out to a political party for 2 days for a meeting. The chargesreceived ` 25,000/-The hotel charges 10% service charges which are later distributes as tips to employees.


The above charges are excluding service tax. All the charges have been received in FY2010-11.The hotel has already been registered under Service Tax Act in F.Y. 2009-10.

(4 marks)Answer :

Computation of Gross Taxable Services for the Financial Year 2010-11`

(i) Taxable Mandap Keeper Services1. Charges received for reception room and vehicle parking

space let out for film shooting [Note 1]2. Charges received for music competition [Note 2]3. Charges received for marriage function (excluding room

booking charges) [ Note 3]Add: Catering & hire charges

Electricity charges

Less: Abatement @ 40% As per Notification No. 1/2006 STdated 01.03.2006

4. Charges received for letting out the hotel garden for ameeting of the political party [Note 4]Total Taxable Mandap Keeper Services

Nil

50,000

3,25,000 20,000

3,45,000 1,38,000 2,07,000

Nil

2,57,000

II. Taxable Convention ServicesCharges received from MNO Ltd. [Note 5]Add: Hall rent (excluding charges for snacks and cold

drinks)Computer and projector SystemsElectricity Charges

Total Taxable Convention ServicesGross Taxable ServicesService tax @ 10%Add: Education Cess @ 2% 1324

Secondary and Higher Education Cess @ 1% 662

3,50,000

25,00030,000

66,200

1986

4,05,000 6,62,000

68,186

Note :1. Activity of shooting of films/T.V. serials cannot be considered as official, social or business

function. Similar view expressed in Secretary, Town Hall.


2. Music competition is a social function and allowing temporary occupation of a hall for aconsideration for organizing such function is liable to service tax under mandap keeperservice.

3. (i) Halls, rooms etc. let out by a hotel for a consideration for organizing social functionlike marriage is liable to service tax under mandap keeper service.

(ii) Room booking charges are not liable to service tax under mandap keeper services[Merwara Estates v. CCE

4. Meeting of a political party is not a social function and thus not liable to service tax undermandap keeper service [Secretary, Town Hall Committee, Mysore City Corporation v. CCE(2007).Otherwise it is possible to take a view that the meeting of a political party is an officialfunction and thus allowing temporary occupation of the hotel garden for a consideration fororganizing such meeting would be liable to service tax under mandap keeper services.

5. (i) It has been assumed that the conference hall let out to MNO Ltd. is for the purposeof organizing a seminar/conference and thus, the said activity falls under conventionservices.

(ii) Because snacks and cold drinks cannot be termed as “satisfying meal”, benefit ofabatement of 40% of the gross amount charged available under Notification No.1/2006 ST dated 01.03.2006 cannot be taken.

Whereas charges for snacks and cold drinks can be excluded by virtue of Notification No.12/2003 ST dated 20.06.2003 as these are goods sold during the provision of service on thefollowing assumptions:• No credit of duty paid on such goods and materials sold, has been taken under the

provisions of the CENVAT Credit Rules, 2004; or• Where such credit has been taken by the service provider on such goods and materials,

such service provider has paid the amount equal to such credit availed before the sale ofsuch goods and materials.

• There is documentary proof specifically indicating the value of the said goods andmaterials;

2011 - May [1] {C} (c) Pareesh & Co., is a partnership firm engaged in the business ofrecruitment and supply of labourers. The firm which had rendered taxable services to the tuneof ̀ 20.2 lacs in the financial year 2009-10, furnishes the following details pertaining to the halfyear ended on 30-9-2010 :

(`)(i) Amounts collected from companies for pre-recruitment screening 2,50,000

(ii) Amounts collected from companies for recruitment of Permanent staff 3,00,000


Temporary staff 4,00,000(iii) Advances received from prospective employers for

conducting campus interviews in colleges 1,00,000Wherever applicable, service tax has been charged separately and received from clients.Compute the value of taxable services rendered and the service tax payable by the assessee forthe relevant half year. (5 marks)2011 - May [2] (b) During the year ended 31-3-2010, Kohli & Co., running a coaching centre,has collected a sum of ̀ 10.2 lacs as service tax. ̀ 70,000 was met through Cenvat credit and thebalance was paid by cheque on various dates. The details pertaining to the quarter ended 30-6-2010 are as under :

Particulars Amount (`)Value of free coaching rendered 20,000Coaching fees collected from students 14,50,000

(Service tax collected separately)Advance received from a college for coaching their students, on 30--6-2010. However, no coaching was conducted and the money was returned on 12-4-2011. 3,00,000Determine the service tax liability for the quarter and indicate the date by which the service taxhas to be remitted by the assessee. (4 marks)2011 - May [3] (b) (i) Where any transaction of taxable service is entered into with an associatedenterprise, receipt of service tax is not material for levy of service tax. Explain with reasons,whether you agree or disagree with this statement. (2 marks)

(ii) Briefly discuss about the adjustment of excess amount of service tax paid in case ofrenting of immovable property service, owing to property tax payment. (2 marks)

2011 - May [4] (b) State the provisions which enable the Central Government to make rules foradministering service tax. For what purposes are such rules made ? Name any four such rulesissued by the Central Government so far. (4 marks)2011 - May [5] (b) Briefly explain the provisions relating to advance payment of service tax.

(4 marks)2011 - May [6] (b) Nigamanth Cargo Handlers P.Ltd. is a cargo handling agency, in existencesince 2003. For the quarter ended 31-3-2011, total collections for handling cargo (excludingservice tax) was ` 32,00,000. The same included the following receipts also :

(`)(i) Handling of cargo containing life saving drugs 2,00,000

(ii) Handling of export cargo 3,00,000(iii) Handling of cargo for storage in cold storage 1,00,000(iv) Towards providing service of packing together with 4,00,000


transportation of cargo Ascertain the quantum of taxable cargo handling services for the quarter ended

31-3-2011. Wherever applicable, service tax was charged separately and received in full. (4 marks)

2011 - May [7] Answer the following :(b) State the due dates for filing of service tax returns. Will the delayed filling of service

tax return result in payment of any late fee? If so, show much ? (4 marks)



FOR NOTES

Free of Cost ISBN : 978-81-7666-965-8

Appendix IPCC Gr. II (New Syllabus)


Paper - 5 : Advanced Accounting

Chapter - 2 : Accounting Standards2010 - Nov [1] {C} Answer the following questions :

(iii) While preparing its final accounts for the year ended 31st March 2010, a company madea provision for bad-debts @ 4% of its total debtors (as per trend follows from theprevious years). In the first week of March 2010 a debtor for ` 3,00,000 had sufferedheavy loss due to an earthquake; the loss was not covered by any insurance policy. InApril 2010 the debtor become a bankrupt. Can the company provide for the full lossarising out of insolvency of the debtor in the final accounts for the year ended 31st March2010. (5 marks)

(iv) “Recognizing the need to harmonize the diverse accounting policies and practices,accounting standards are framed.” Give examples of areas in which different accountingpolicies may be adopted by enterprise. (5 marks)

Answer :(iii) According to para 8 of AS 4 ‘Contingencies and Events Occurring After the Balance

Sheet Date’, adjustment to assets and liabilities are required for events occurring afterthe balance sheet date that provide additional information materially affecting thedetermination of the amounts relating to conditions existing at the Balance Sheet date.

A debtor for ` 3,00,000 suffered heavy loss due to earthquake in the first week ofMarch, 2010 and he became bankrupt in April, 2010 (after the balance sheet date). Theloss was also not covered by any insurance policy. Accordingly, full provision for baddebts amounting ` 3,00,000 should be made, to cover the loss arising due to theinsolvency of a debtor, in the final accounts for the year ended 31st March 2010.

(iv) Examples of the areas in which different accounting policies may be adopted by differententerprise are as follows :1. Methods of depreciation.2. Methods of depletion.3. Valuation of inventories.4. Methods of amortization.

Appendix IPCC Gr. II Paper - 5 II-2

5. Recognition of profit on long-term contracts.6. Valuation of fixed assets.

2010 - Nov [7] Answer the followings :(b) Ram Ltd. had 12,00,000 equity shares on April, 1, 2009. The company earned a profit of

` 30,00,000 during the year 2009-10. The average fair value per share during 2009-10 was` 25. The company has given share option to its employees of 2,00,000 equity shares atoption price of ` 15. Calculate basic E.P.S. and diluted E.P.S. (4 marks)

(c) On 1st April 2009 Amazing Construction Ltd. obtained a loan of ` 32 crores to be utilizedas under :

(i) Construction of sealink across two cities :(work was held up totally for a month during the yeardue to high water levels) : ` 25 crores

(ii) Purchase of equipments and machineries : ` 3 crores(iii) Working capital : ` 2 crores(iv) Purchase of vehicles : ` 50,00,000(v) Advance for tools/cranes etc. : ` 50,00,000

(vi) Purchase of technical know-how : ` 1 crores(vii) Total interest charged by the bank for the year ending

31st March 2010 : ` 80,00,000Show the treatment of interest by Amazing Construction Ltd. (4 marks)

(e) M Ltd. launched a project for producing product A in Nov. 2008. The company incurred` 30 lakhs towards Research and Development expenses upto 31st March 2010. Due tounfavourable market conditions the management feels that it is not possible to manufactureand sold the product in the market for next so many years.

The management hence wants to defer the expenditure write off to future years.Advise the company as per the applicable Accounting Standard. (4 marks)

Answer :(b) Computation of Earnings Per Share

Earnings Share EarningsPer Share

Net Profit for the year 2009-10Weighted average number of shares outstandingduring the year 2009-10

Basic Earning Per Share =

Number of shares under option

30,00,000

12,00,000

2,00,000

2.50


Number of shares that would have been issued atfair value (As indicated in Working Note)

2,00,000 ×

Diluted Earnings Per Share [ ] 30,00,000

(1,20,000)

12,80,000

2.34

Working Note:The earnings have not been increased as the total number of shares has been increased only bythe number of shares (80,000) deemed for the purpose of the computation to have been issuedfor no consideration.(c) ‘Borrowing costs’, qualifying asset is an asset that necessarily takes substantial period of

time to get ready for its intended use. (AS 16 para 3)Borrowing costs that are directly attributable to the acquisition, construction or productionof a qualifying asset should be capitalised as part of the cost of that asset. Other borrowingcosts should be recognised as an expense in the period in which they are incurred. (AS 16para 6)

The treatment of interest by Amazing Construction Ltd. can be shown as:Qualifying

Asset

Construction of sea-link YesPurchase of equipments and machineries NoWorking capital NoPurchase of vehicles NoAdvance for tools, cranes etc NoPurchase of technical know-how NoTotal

Interest tobe

capitalized

62,50,000

62,50,000

Interest tobe charged to Profit & Loss A/c

7,50,000 5,00,000 1,25,000 1,25,000 2,50,000

17,50,000

(80,00,000*(25/32) (80,00,000*(3/32) (80,00,000*(2/32) (80,00,000*(.5/32) (80,00,000*(.5/32) (80,00,000*(1/32)

(e) Expenditure on research should be recognised as an expense when it is incurred. (AS.26Para 41)

An intangible asset arising from development (or from the development phase of aninternal project) should be recognized if and only if, an enterprise can demonstrate all ofthe conditions specified in para 44 of the standard.

An intangible asset (arising from development) should be derecognised when nofuture economic benefits are expected from its use according to the provisions of AS 26.


Therefore, the management can not defer the expenditure write off to future years andthe company is required to expense the entire amount of 30 lakhs in the Profit and Lossaccount of the year ended 31 st March, 2010.

2011 - May [1] {C} Answer the following questions :(a) The following information is available for Raja Ltd. for the accounting year 2009-10 and2010-11.Net Profit : Year 2009 -10 ` 25,00,000

Year 2010 -11 ` 40,00,000No. of shares outstanding prior to right issue 12,00,000 shares.Right issue : One new share for each three outstanding i.e. 4,00,000 shares

: Right issue Price ` 22: Last date of exercise rights 30-6-2010

Fair rate of one equity share immediately prior to exercise of rights on 30-6-2010 = ` 28(5 marks)

2011 - May [6] (a) Lessee Ltd. took a machine on lease from Lessor Ltd., the fair value being` 7,00,000. The economic life of machine as well as the lease term is 3 years. At the end of eachyear Lessee Ltd. pays ` 3,00,000. The Lessee has guaranteed a residual value of ` 22,000 onexpiry of the lease to the Lessor. However Lessor Ltd., estimates that the residual value of themachinery will be only ̀ 15,000. The implicit rate of return is 15% p.a. and present value factorsat 15% are 0.869, 0.756 and 0.657 at the end of first, second and third years respectively.

Calculate the value of machinery to be considered by Lessee Ltd. and the finance chargesin each year. (8 marks)2011 - May [7] Answer the following : (b) Siva Limited received a grant of ` 1,500 lakhs during the last accounting year (2009-10)

from Government for welfare activities to be carried on by the company for its employees.The grant prescribed conditions for its utilization. However during the year 2010-11, it wasfound that the conditions of the grant were not compiled with and the grant had to berefunded to the Government in full. Elucidate the current accounting treatment withreference to the provisions of AS-12. (4 marks)

(c) Carrying amount of a machine is ` 1,00,000 (Historical cost less depreciation). Themachine is expected to generate ̀ 25,000 net cash flow for 5 years. The net realizable value(or net selling price) of the machine on current date is ` 85,000. The enterprises requiredrate of earning is 10% p.a. State the value at which the enterprise should carry its machine.The present value factors at 10% are 0.909, 0.826, 0.751, 0.683 and 0.621 at the end of first,second, third, fourth and fifth year respectively. (4 marks)

(d) A company signed an agreement with the employee's union on 01-09-2010 for revision ofwages with retrospective effect from 01-04-2009. This would cost the company an


additional liability of ` 10 lakhs per annum. Is a disclosure necessary for the amount paidin 2010-11. (4 marks)

Chapter - 3 : Company Accounts2010 - Nov [3] Extra Ltd. furnishes you with the following Balance Sheet as on 31st March,2010 :Liabilities Amount Assets AmountShare Capital Fixed assets less depreciation 50Equity Shares of ` 10 each fully paid 100 Investments at cost 1209% Redeemable Preference Shares Current assets 142of ` 100 each fully paid 20Capital Reserves 8Revenue Reserves 50Share Premium 6010% Debentures 4Current Liabilities 70

312 312(i) The company redeemed the preference shares at a premium of 10% on 1st April 2010.

(ii) It also bought back 3 lakhs equity shares of ` 10 each at ` 30 per share.The payment for the above were made out of huge bank balances, which appeared

as a part of the current assets.(iii) Included in it’s investment were “investments in own debentures” costing ̀ 2 lakhs (face

value ` 2.20 lakhs). These debentures were cancelled on 1st April 2010.(iv) The company had 1,00,000 equity stock options outstanding on the above mentioned

date, to the employees at ̀ 20 when the market price was ̀ 30. (This was included underCurrent liabilities). On 1.04.2010 employees exercised their options for 50,000 shares.

(v) Pass the Journal Entries to record the above.(vi) Prepare Balance Sheet as at 01.04.2010. (16 marks)

Answer :(` in lakhs)

Date Particulars Debit Credit

01.04.2010 9% Redeemable preference share capital A/c Dr.Premium on redemption of preference shares A/c Dr.

To Preference shareholders A/c(Being preference share capital transferred toshareholders account)

20.002.00

22.00


01.04.2010 Preference shareholders A/c Dr. To Bank A/c(Being payment made to shareholders)

22.0022.00

01.04.2010 Equity shares buy back A/c Dr. To Bank A/c(Being 3 lakhs equity shares of ` 10 eachbought back @ ` 30 per share)

90.0090.00

01.04.2010 Equity share capital A/c Dr.Securities premium A/c Dr. To Equity Shares buy back A/c(Being cancellation of shares bought back)

30.0060.00

90.00

01.04.2010 Revenue reserve A/c (20 + 30) Dr. To Capital redemption reserve A/c(Being creation of capital redemption reserveaccount to the extent of the face value ofpreference shares redeemed and equity sharesbought back as per the law)

50.0050.00

01.04.2010 10% Debentures A/c Dr.To Investment (own debentures) A/cTo Profit on cancellation of own debentures A/c

(Being cancellation of own debentures costing` 2 lakhs, face value being ` 2.20 lakhs and thebalance being profit on cancellation ofdebentures)

2.202.000.20

01.04.2010 0 Profit on cancellation of debentures A/c Dr.To Capital reserve A/c

(Being profit on cancellation of debenturestransferred to capital reserve account)

0.200.20

01.04.2010 Bank A/c Dr.Employees stock option outstanding (Currentliabilities) A/c Dr.

To Equity share capital A/cTo Securities premium A/c

(Being the allotment to employees, of 50,000shares of ` 10 each at a premium of 20 pershare in exercise of stock options by employees)

10.00

5.005.00

10.00


01.04.2010 Securities premium A/c Dr.To Premium on redemption of preference shares A/c

(Being premium on redemption of preferenceshares adjusted through securities premium)

2.002.00

Balance Sheet of Extra Ltd. as on 01.04.2010

(` in lakhs)Liabilities Amount Assets Amount

Share capitalEquity shares of `10 each fully paidCapital reserve (W.N. 2)Securities premium (W.N. 4)Capital redemption reserve10% Debentures (W.N. 5)Current liabilities (W.N. 6)

75.008.208.00

50.001.80

65.00208.00

Fixed assets less depreciationInvestments at cost (W.N. 7)Current assets (W.N.8)

50.00118.00

40.00

208.00

Working Notes:1. Equity share capital (` in lakhs)

Opening balance 100.00Less : Cancellation of bought back shares (30.00)Add : Shares issued against ESOP 5.00

75.002. Capital Reserve

Opening balance 8.00Add: Profit on cancellation of debentures 0.20

8.203. Revenue reserves

Opening balance 50.00Less: Creation of Capital Redemption Reserve (50.00)

04. Securities Premium

Opening balance 60.00Less : Adjustment for cancellation of equity shares (60.00)Less: Adjustment for premium on redemption of preference shares (2.00)Add: Shares issued against ESOP shares at premium 10.00

8.005. 10% Debentures


Opening balance 4.00Less: Cancellation of own debentures (2.20)

1.806. Current liabilities

Opening balance 70.00Less: Adjustment for ESOP outstanding (5.00)

65.007. Investments at cost

Opening balance 120.00Less: Investment in own debentures (2.00)

118.008. Current assets

Opening balance 142.00Less : Payment to preference shareholders (22.00)Less : Payment to equity shareholders (90.00)Add : Share price received against ESOP 10.00

40.002011 - May [1] {C} Answer the following questions :(d) A Company has its share capital divided into shares of ` 10 each. On 1st April 2010 it

granted 20,000 employees' stock options at ` 40, when the market price was ` 130. Theoptions were to be exercised between 1st January 2011 to 15th March 2011. The employeesexercised their options for 18,000 shares only; the remaining options lapsed. The companycloses its books on 31st March every year. Pass Journal entries with regard to employees'stock option. (5 marks)

Chapter - 4 : Underwriting of Shares and Debentures2011 - May [1] {C} Answer the following questions :(b) Delta Ltd. issue 25,00,000 equity shares of ` 10 each at par. 7,00,000 shares were issued

to the promoters and the balance offered to the public was underwritten by threeunderwriters P, Q & R in the ratio of 2 : 3 : 4 with firm underwriting of 50,000, 60,000 and70,000 shares each respectively. Total subscription received 13,88,000 shares includingmarked application and excluding firm underwriting were as

P 3,00,000Q 3,50,000R 4,50,000

Unmarked and surplus applications to be distributed in Gross liability ratio. Ascertain theliability of each underwriter. (5 marks)

Chapter - 5 : Amalgamation and Reconstruction2010 - Nov [5] Following is the Balance Sheet of Y Ltd., as at 31st March 2010 :


Liabilities ` Assets `Share Capital Fixed AssetsIssued & paid up : Goodwill 8,00,0002,50,000 equity share of ` 10 Building 7,00,000each ` 8 per share paid up 20,00,000 Plant and machinery 13,00,0001,00,000 (10%) pref. shares Current Assetsof ` 10 each fully paid up 10,00,000 Stock 7,00,000Reserves & Surplus Sundry debtors 9,00,000General reserve 6,00,000 Bank Balance 6,60,000Profit & Loss A/c 8,00,000Current Liabilities Misc. Exp.Creditros 4,00,000 Preliminary Expense 40,000Workmen’s profit sharing fund 3,00,000

51,00,000 51,00,000X Ltd. decided to absorb the business of Y Ltd., at the respective book value of assets and tradeliabilities except Building which was valued at ` 12,00,000 and Plant & Machinery at` 10,00,000.The purchase consideration was payable as follows :

(i) Payment of liquidation expenses ` 5,000 and workmen’s profit sharing fund at 10%premium;

(ii) Issue of equity share of ` 10 each fully paid at ` 11 per share for every pref. share andevery equity share of Y Ltd., and a payment of ` 4 per equity share in cash.

Calculate the purchase consideration, show the necessary ledger accounts in the books of Y Ltd.,and opening Journal Entries in the books of X Ltd. (16 marks)Answer :(i) Calculation of purchase consideration (` In lakhs) (` in lakhs)

Cash payment for: Liquidation expenses 5,000 Workmen’s profit sharing fund 3,30,000 Cash to equity shareholders (2,50,000 x 4) 10,00,000 13,35,000

Payment by Equity shares to Preference shareholders (1,00,000 x 11) 11,00,000

Equity shareholders (2,50,000 x 11) 27,50,000 38,50,000Purchase consideration 51,85,000

(ii) In the books of Y Ltd.Realisation A/c


Particulars Amountin (`)

Particulars Amount in ( ` )

To GoodwillTo BuildingTo Plant & machineryTo StockTo Sundry debtorsTo BankTo Workmen’s profit sharing fundTo Preference shareholdersTo Bank (Expenses)To Profit

8,00,0007,00,000

13,00,000 7,00,0009,00,0006,60,000

30,0001,00,000

5,0003,90,000

55,85,000

By CreditorsBy X Ltd.

4,00,00051,85,000

55,85,000

X Ltd. A/c



To Realisation A/c 51,85,000 51,85,000

By BankBy Equity shares in X Ltd.

13,35,00038,50,00051,85,000

Bank A/c



To X Ltd. 13,35,000

13,35,000

By Realisation (Expenses)By Workmen’s profit

sharing fundBy Equity shareholders

5,000

3,30,00010,00,00013,35,000

Preference Shareholders A/c




To Equity Shares in X Ltd. 11,00,000 11,00,000

By Preference shares capitalBy Realisation A/c (Bal. fig.)

10,00,000 1,00,00011,00,000

Equity Shareholders A/c



To Preliminary expensesTo BankTo Equity shares in Y Ltd.

40,00010,00,00027,50,000

37,90,000

By Equity share capitalBy General reserveBy Profit & Loss A/cBy Profit on realisation (Bal.fig.)

20,00,0006,00,0008,00,0003,90,000

37,90,000

Equity Shares in X Ltd. A/c



To X Ltd. 38,50,000 38,50,000

By Preference shareholdersBy Equity shareholders

11,00,00027,50,00038,50,000

Workmen’s Profit Sharing Fund A/c



To Bank 3,30,000 3,30,000

By Balance b/dBy Realisation (Bal. Fig.)

3,00,000 30,0003,30,000

(iii) In the books of X Ltd.


Journal EntriesS. No. Particulars Dr. (`) Cr. (`)

1. Business purchase A/c Dr. To Liquidators of Y Ltd.(Being business purchased of Y Ltd.)

51,85,00051,85,000

2. Building A/c Dr.Plant & machinery A/c Dr.Stock A/c Dr.Debtors A/c Dr.Bank A/c Dr.Goodwill A/c (Bal. fig.) Dr.

To CreditorsTo Business purchase A/c

(Being assets and liabilities taken over andpurchase consideration due)

12,00,00010,00,000

7,00,0009,00,0006,60,000

11,25,0004,00,000

51,85,000

3. Liquidators of Y Ltd. Dr.To BankTo Equity share capitalTo Securities premium

(Being payment of purchase consideration)

51,85,00013,35,00035,00,000

3,50,000

2011 - May [3] The Balance Sheet of X Limited as on 31st March 2011, was as follows:Liabilities Amount ` Assets Amount `

Authorised and Subscribed Capital : 10,00,000 Fixed Assets:10,000 Equity Shares of ` 100 each Machineries 3,50,000fully paid Current Assets :Unsecured Loans : Stock 2,53,00015% Debentures 3,00,000 Debtors 2,30,000Accrued interest 45,000 Bank 20,000Current Liabilities : Profit & Loss A/c. 5,80,000Creditors 52,000Provision for Income Tax 36,000

14,33,000 14,33,000It was decided to reconstruct the company for which necessary resolution was passed andsanctions were obtained from the appropriate authorities. Accordingly, it was decided that :

(i) Each share be sub-divided into 10 fully paid up equity share of ` 10 each,


(ii) After sub-division, each shareholder shall surrender to the company 50% of his holdingfor the purpose of reissue to debentureholders and creditors as necessary.

(iii) Out of shares surrendered, 1000 shares of ` 10 each shall be converted into 10%Preference Shares of ` 10 each fully paid up.

(iv) The claims of the debenture holders shall be reduced by 50%. In consideration of thereduction, the debenture holder shall receive Preference Shares of ̀ 1,00,000 which areconverted out of shares surrendered.

(v) Creditors claim shall be reduced by 25%, it is to be settled by the issue of equity sharesof ` 10 each out of shares surrendered.

(vi) Balance of Profit and Loss Account to be written off.(vii) The shares surrendered and not re-issued shall be cancelled.

Pass Journal Entries giving effect to the above and the resultant Balance Sheet. (16 marks)

Chapter - 6 : Redemption of Debentures2010 - Nov [1] {C} Answer the following questions :

(i) Rama Limited issued 8% Debentures of ` 3,00,000 in earlier year on which interest ispayable half yearly on 31st March and 30th September. The company has power topurchase its own debentures in the open market for cancellation thereof. The followingpurchases were made during the financial year 2009-10 and cancellation made on 31st

March 2010 :(a) On 1st April ` 50,000 nominal value purchased for ` 49,450, ex-interest.(b) On 1st September ` 30,000 nominal value purchased for ` 30, 250 cum interest.

Show the Journal Entries (without narrations) for the transactions held in the year2009-10. (5 marks)

Answer :In the books of Rama Limited

Journal EntriesDate Particulars Dr. (`) Cr. (`)

1st April 2009 Own debentures A/c Dr.To Bank A/c

49,45049,450

1st Sept. 2009 Own debentures A/c Dr.Interest on own debentures A/c Dr.

[30,000 x 8% x ]

To Bank A/c

29,2501,000

30,250

30st Sept., 2010 Interest on debentures A/c Dr.To Bank A/cTo Interest on own debentures A/c

12,0008,8003,200


31st March, 2010 Interest on debentures A/c Dr.To Bank A/cTo Interest on own debentures A/c

12,0008,8003,200

31st March, 2010 8% Debentures A/c Dr.To Own debentures A/cTo Profit on cancellation of Debentures A/c

80,00078,700

1,300

31st March, 2010 Interest on own debentures A/c Dr.To Profit and Loss A/c (3,200+32,000- 1000)

5,400

5,400

31st March, 2010 Profit and Loss A/c (1,000+12,000) Dr.To Interest on debentures A/c

24,00024,000

31st March, 2010 Profit on cancellation of debentures A/c Dr.To Capital reserve A/c

1,3001,300

2011 - May [7] Answer the following : (a) XYZ Ltd. had issued 30,000, 15% convertible debenture of ` 100 each on 1st April 2008.

The debentures are due for redemption on 1st March, 2011. The terms of issue of debenturesprovided that they were redeemable at a premium of 5% and also conferred option to thedebentureholders to convert 20% of their holding into equity shares (Nominal Value ̀ 10)at a price of ̀ 15 per share. Debentureholders holding 2500 debentures did not exercise theoption. Calculate the number of equity shares to be allotted to the Debenture holdersexercising the option to the maximum. (4 marks)

Chapter - 7 : Liquidation of Companies2010 - Nov [7] Answer the followings :(d) A company went into liquidation whose creditors are ̀ 36,000 includes ̀ 6,000 on account

of wages of 15 men at 100 per month for 4 months immediately before the date of windingup; ̀ 9,000 being the salaries of 5 employees at ̀ 300 per month for the previous 6 months,Rent for godown for the last six months amounting to ̀ 3,000; Income-tax deducted out ofsalaries of employees ` 1,000 and Directors fees ` 500; in addition it is estimated that thecompany would have to pay ` 5,000 as compensation to an employee for injuries sufferedby him, which was contingent liability not accepted by the company and not included inabove said creditors figure.

Find the amount of Preferential Creditors. (4 marks)Answer :

Calculation of Preferential Creditors


Particulars Amount in (`)

Tax deducted at source on salariesWages (15 men for 4 months at ` 100 each)Salaries ( 5 men for 4 months at ` 300 each) (Refer Note 1)Workmen’s compensation

1,0006,0006,000

5,000

Total 18,000

Note : (i) Salaries payable to any employee due for the period not exceeding 4 months within the

twelve months next before commencement of winding up subject to maximum 20,000per person.

(ii) Directors fees, rent for godown are not included in preferential creditors.2011 - May [4] (a) The summarized Balance Sheet of Full Stop Limited as on 31st March 2011,being the date of voluntary winding up is as under :

Liabilities ` Assets `Share Capital : Land & Building 5,20,0005000, 10% Cumulative Plant & Machinery 7,80,000Preference Shares of ` 100 Stock in Trade 3,25,000each fully paid up 5,00,000 Book Debts 10,25,000Equity Share Capital : Profit & Loss Account 5,50,0005000 Equity shares of ` 100 each` 60 per share called and paid up 3,00,0005000 Equity shares of ` 100 each` 50 per share called up and paid up 2,50,000Securities premium 7,50,00010% Debentures 2,10,000Preferential Creditors 1,05,000Bank Overdraft 4,85,000Trade Creditors 6,00,000

32,00,000 32,00,000Preference Dividend is in arrears for three years. By 31-03-2011 the assets realized were asfollows :

` Land & Building 6,20,000Stock in Trade 3,10,000


Plant & Machinery 7,10,000Book Debts 6,60,000Expenses of liquidation are ̀ 86,000. The remuneration of the liquidator is 2% of the realizationof assets. Income Tax payable on liquidation is ̀ 67,000. Assuming that the final payments weremade on 31-03-2011, prepare the Liquidator's Statement of Account. (8 marks)

Chapter - 8 : Financial Statements of Banking Companies2010 - Nov [1] {C} Answer the following questions : (ii) From the following information of details of advances of Zenith Bank Ltd., calculate the

amount of provisions to be made in Profit and Loss Account for the year ended on 31-3-2010 :

`Assets Classification (in Lakh)Standard 10,000Sub-Standard 6,400Doubtful :

for one year 3,200for two years 1,800for three years 900for more than three years 1,100

Loss Assets 3,000 (5 marks)Answer :(ii) Statement showing provisions on various performing and non performing assets of

Zenith Bank Ltd.

Particulars

Assets classificationAmount

( in lakhs)Provision

(%)Amount of

provision(` in lakhs)

StandardSub-standardDoubtful:

for one yearfor two yearsfor three years

10,0006,400

3,2001,800

900

0.4010

203030

40640

640540270

for more than 3 yearsLoss assets

1,100 3,000

100 100

Total

1,100 3,000

6,230


Note: It is assumed that sub-standard assets and all doubtful assets are fully secured.2010 - Nov [6] (a) A Commercial Bank has the following capital funds and assets. Segregate thecapital funds into Tier I and Tier II capitals. Find out the risk adjusted asset and risk weightedassets ratio. `

(in crores)Equity Share Capital 500.00Statutory Reserve 270.000Capital Reserve (of which ` 16 crores were due to revaluationof assets and the balance due to sale of capital asset) 78.00Assets :Cash balance with RBI 10.00Balance with other banks 18.00Other investments 36.00Loans and advances :

(i) Guaranteed by the Government 16.50(ii) Others 5,675.00

Premises, furniture and fixtures 78.00Off-Balance Sheet items :

(i) Guarantee and other obligations 800.00(ii) Acceptances, endorsements and letter of credit 4,800.00 (8 marks)

Answer :(i)

Amount(`) in Crores (`) in Crores

Capital funds – Tier IEquity share capitalStatutory reserveCapital reserve (arising out of sale assets) (78-16)

Capital funds – Tier IICapital reserve (arising out of revaluation of assets)Less: Discount to the extent of 55% 16

(8.8)

500270

62832

7.2824.8

(ii)in crores % of weight in crores


Risk Adjusted AssetsFunded Risk AssetsCash balance with RBIBalance with other banksOther investmentsLoans and advances: (i) Guaranteed by the government(ii) OthersPremises, furniture and fixtures

101836

16.55,675

78

0 20

100

0100100

03.60 36

05,675

785,792.60

in crores Creditconversion factor

Off-Balance Sheet items:Guarantees and other obligationsAcceptances, endorsements andletters of credit

800

4,800

100

100

800

4,80011,392.60

Risk Weighted Assets Ratio:

(824.8/11,392.60) x 100 = 7.24%2011 - May [5] From the following information prepare the Profit & Loss Account of JawaharBank Limited for the year ended 31st March, 2011. Also give necessary Schedules.

Figures are in ` ThousandsInterest earned on Term Loans 17.26Interest earned on Term Loans classified as NPA 4.52Interest Received on Term Loans classified as NPA 2.04Interest on Cash credits and Overdrafts 38.54Interest earned but not received on Cash credit and overdraft treated as NPA 8.39Interest on Deposits 27.20Commission 1.97Profit on sale of Investments 11.76Profit on revaluation of Investments 2.76Income from Investments 15.53Salaries Bonus and Allowances 18.75Rent, Taxes and Lighting 1.70


Printing and Stationary 0.75Director's fees, allowances expenses 1.33Law charges 0.22Repairs and Maintenance 0.18Insurance 0.30Other Information : Mark necessary provision on risk assets :

(i) Sub-standard 15.00(ii) Doubtful for one year 7.00(iii) Doubtful for two years 2.40(iv) Loss assets 0.65

Investments 3700Bank should not keep more than 25% of its investments as 'held-for-maturity' investment. Themarket value of its best 75% investments is ` 9,00,000 as on 31st March, 2011. (16 marks)

Chapter - 9 : Financial Statements of Insurance Companies2010 - Nov [4] (b) From the following information of Reliable Marine Insurance Ltd. for the yearending 31st March 2010 find out the

(i) Net premiums earned(ii) Net claims incurred

(`) (`)Direct Re!

Business insurancePremium :Received 88,00,000 7,52,000Receivable ! 01.04.2009 4,39,000 36,000Receivable ! 31.03.2010 3,77,000 32,000Paid 6,09,000Payable ! 01.04.2009 27,000Payable ! 31.03.2010 18,000Claims : Paid 69,00,000 5,54,000Payable ! 01.04.2009 89,000 15,000Payable ! 31.03.2010 95,000 12,000

Received 2,01,000Receivable ! 01.04.2009 40,000Receivable ! 31.03.2010 38,000 (8 marks)Answer :


(b) (i) Net Premium earned Premium from direct business received 88,00,000

Add : Receivable as 31.03.2010 3,77,000Less : Receivable as on 01.04.2009 (4,39,000) 87,38,000

Add : Premium on re-insurance accepted 7,52,000Add : Receivable as on 31.03.2010 32,000Less : Receivable as on 01.04.2009 (36,000) 7,48,000

94,86,000Less : Premium on re-insurance ceded 6,09,000

Add : Payable as on 31.03.2010 18,000Less : Payable as on 01.04.2009 (27,000) (6,00,000)Net Premium earned 88,86,000

(ii) Net Claims incurredClaims paid on direct business 69,00,000Add: Re-insurance 5,54,000

Add: Outstanding as on 31.3.2010 12,000Less: Outstanding as on 1.4.2009 (15,000) 5,51,000

74,51,000Less : Claims received from re-insurance 2,01,000

Add: Outstanding as on 31.3.2010 38,000Less: Outstanding as on 1.4.2009 (40,000) (1,99,000)

72,52,000Add : Outstanding direct claims at the end of the year 95,000

73,47,000Less : Outstanding claims at the beginning of the year (89,000)Net claims incurred 72,58,000

2011 - May [6] (b) Modern Insurance Company's Fire Insurance division provide the followinginformation, show the amount of claim at it would appear in the Revenue Account for the yearended 31st March, 2011.

Direct Business Re-insurance` `

Claim paid during the year 35,30,000 8,20,000Claim received 3,20,000

Claim payable 1st April, 2010 8,23,000 58,00031st March, 2011 8,75,000 87,000

Claim Receivable : 1st April, 2010 ! 85,000


31st March, 2011 ! 1,42,000Expenses of Management 3,45,000(Includes ` 38,000 Surveyor's fee and ` 42,000 Legal expenses for settlement of claims) (8 marks)

Chapter - 10 : Financial Statements of Electricity Companies2010 - Nov [6] (b) The Super Electricity Company maintains accounts under the DoubleAccounts System. It decides to replace one of its old plant with a technologically advanced plantwith a larger capacity. The plant when installed in 2000 cost the company ` 90,00,000, thecomponents of materials, labour and overheads being in the ratio 5 : 3 : 2.

It is ascertained that the costs of materials has gone up by 200% and the cost of labour hasgone up by 300%. The proportion of material, labour and overheads has changed to 10 : 9 : 6.

The cost of the new plant is ` 2,80,00,000 and in addition, goods worth ` 12,60,000 havebeen used in the construction of the new plant. The old plant was scrapped and sold for` 19,00,000.

Find out the amount to be capitalised and also the amount to be charged to revenue. Drawthe necessary Ledger Accounts. (8 marks)Answer :

Table showing calculation of current cost of old plantOld

ratioCost of

existing plant% increase Current cost New Ratio

MaterialLabourOverheadTotal

532

45,00,00027,00,00018,00,00090,00,000

200300

90,00,000 81,00,000

54,00,000*2,25,00,000

10 9 6

25

Amount to be capitalizedParticulars Amount

in (`)


Cost of new plant (cash)Add: Cost of old material used

Less: Estimated current cost of replacing old plantAmount to be capitalized

2,80,00,000 12,60,000

2,92,60,000(2,25,00,000) 67,60,000

Note : Current cost of overhead =

Amount to be charged to Revenue A/c

Estimated current cost of replacementLess : Cash on sale of scrapLess : Old material reusedAmount to be charged to revenue

19,00,00012,60,000

2,25,00,000

(31,60,000)1,93,40,000

Super Electricity CompanyPlant Account

Particulars Amount(`)


To Balance b/dTo Bank A/cTo Replacement A/c

90,00,00055,00,000

12,60,0001,57,60,000

By Balance c/d 1,57,60,000

1,57,60,000

Replacement Account



By Bank A/c 2,25,00,000

2,25,00,000

By Bank A/cBy Plant A/cBy Revenue A/c

19,00,000 12,60,000

1,93,40,0002,25,00,000

Chapter - 11 : Departmental Accounts2010 - Nov [4] (a) Department R sells goods to Department S at a profit of 25% on cost andDepartment T at 10% profit on cost. Department S sells goods to R and T at a profit of 15% and


20% on sales respectively. Department T charges 20% and 25% profit on cost to Department Rand S respectively.

Department Managers are entitled to 10% commission on net profit subject to unrealisedprofit on departmental sales being eliminated. Departmental profits after charging Manager’scommission, but before adjustment of unrealised profit are as under :

`Department R 54,000Department S 40,500Department T 27,000Stock lying at different departments at the end of the year are as under :

Deptt. R Deptt. S Deptt. T` ` `

Transfer from Department R ! 22,500 16,500Transfer from Department S 21,000 ! 18,000Transfer from Department T 9,000 7,500 !Find out the correct departmental profits after charging Manager’s commission. (8 marks)Answer :

Particulars Departments

R( `)

S(` )

T( `)

ProfitAdd : Managerial commission (1/9)

Less: Unrealised profit on stock (Refer W.N.)

Less: Managers’ commission @ 10%

54,000 6,00060,000 6,00054,000 5,40048,600

40,500 4,50045,000 6,75038,250

3,82534,425

27,000 3,00030,000

3,00027,000 2,70024,300

Working Notes:Value of unrealised profitTransfer by department R to

S department (22,500 ×25/125) = 4,500T department (16,500 ×10/110) = 1,500 6,000

Transfer by department S toR department (21,000 × 15/100) = 3,150T department (18,000 × 20/100) = 3,600 6,750


Transfer by department T toR department (9,000 × 20/120) = 1,500S department (7,500 × 25/125) = 1,500 3,000

2011 - May [1] {C} Answer the following questions :(c) Brahma Limited has three departments and submits the following information for the year

ending on 31st March, 2011.Particulars A B C Total (`)Purchases (units) 5,000 10,000 15,000Purchases (Amount) 8,40,000Sales (units) 5,200 9,800 15,300Selling price (` per unit) 40 45 50Closing Stock (Units) 400 600 700You are required to prepare departmental trading account of Brahma Limited assuming that therate of profit on sales is uniform in each case. (5 marks)

Chapter - 12 : Branch Accounts & Foreign Branches2010 - Nov [7] Answer the followings :(a) Following is the information of the Jammu branch of Best Ltd., New Delhi for the year

ending 31st March 2010 from the following :(1) Goods are invoiced to the branch at cost plus 20%.(2) The sale price is cost plus 50%.(3) Other informations :

`Stock as on 01-04-2009 2,20,000Goods sent during the year 11,00,000Sales during the year 12,00,000Expenses incurred at the branch 45,000

Ascertain (i) the profit earned by the branch during the year (ii) branch stock reserve inrespect of unrealized profit. (4 marks)

Answer :(i) Calculation of profit earned by the branch

In the books of Jammu Branch Trading Account


Particulars Amount Particulars Amount

To Opening stockTo Goods received by Head officeTo ExpensesTo Gross profit

2,20,00011,00,00

45,000 1,95,00015,60,000

By SalesBy Closing stock (Refer W.N.)

12,00,0003,60,000

15,60,000

(ii) Stock reserve in respect of unrealised profit= ` 3,60,000 x (20/120) = ` 60,000Working Note:Cost Price 100Invoice Price 120Sale Price 150Calculation of closing stock at invoice priceOpening stock at invoice price 2,20,000Goods received during the year at invoice price 11,00,000

13,20,000Less : Cost of goods sold at invoice price (9,60,000) [12,00,000 × (120/150)]Closing stock 3,60,000Note : It is assumed that all figures is at invoice price.

2011 - May [4] (b) XYZ Company is having it's Branch at Kolkata. Goods are invoiced to thebranch at 20% profit on sale. Branch has been instructed to send all cash daily to head office. Allexpenses are paid by head office except petty expenses which are met by the Branch Manager.From the following particulars prepare branch account in the books of Head Office.

` `Stock on 1st April 2010 (invoice price) 30,000 Discount allowed to debtors 160Sundry Debtors on 1st April, 2010 18,000 Expenses paid by head office :Cash in hand as on 1st April, 2010 800 Rent 1,800

Salary 3,200Office furniture on 1st April, 2010 3,000 Stationery & Printing 800Goods invoiced from the Petty exp. Paid by the branch 600head office (invoice price) 1,60,000 Depreciation to be Goods return to Head office 2,000 provided on branchGoods return by debtors 960 furniture at 10% p.a.Cash received from debtors 60,000Cash Sales 1,00,000 Stock on 31st March, Credit sales 60,000 2011 (at invoice price) 28,000

(8 marks)


2011 - May [7] Answer the following : (e) Why goods are marked on invoice price by the head office while sending goods to the

branch ? (4 marks)Chapter - 13 : Dissolution of Partnership Firms2010 - Nov [2] A, B, C and D are sharing profits and losses in the ratio 5 : 5 : 4 : 2. Fraudscommitted by C during the year were found out and it was decided to dissolve the partnershipon 31st March 2010 when their Balance Sheet was as under :Liabilities Amount Assets Amount

` `Capital Building 1,20,000

A 90,000 Stock 85,500B 90,000 Investments 29,000C ! Debtors 42,000D 35,000 Cash 14,500

General reserve 24,000 C 15,000Trade creditors 47,000Bills payable 20,000

3,06,000 3,06,000Following information is given to you :

(i) A cheque for ` 4,300 received from debtor was not recorded in the books and wasmisappropriated by C.

(ii) Investments costing ` 5,400 were sold by C at ` 7,900 and the funds transferred to hispersonal account. This sale was omitted from the firm’s books.

(iii) A creditor agreed to take over investments of the book value of ̀ 5,400 at ̀ 8,400. Therest of the creditors were paid off at a discount of 2%.

(iv) The other assets realised as follows :Building 105% of book valueStock ` 78,000Investments The rest of investments were sold at a profit of ` 4,800Debtors The rest of the debtors were realised at a discount of 12%

(v) The bills payable were settled at a discount of ` 400.

(vi) The expenses of dissolution amounted to ` 4,900.(vii) It was found out that realisation from C’s private assets would only be ` 4,000.

Prepare the necessary Ledger Accounts. (16 marks)Answer :Dr. Realisation Account Cr.


Particulars Amount in (`)

Particulars Amount in(`)

To BuildingTo StockTo InvestmentTo DebtorsTo Cash-creditors paid (W. N. 1)To Cash-expensesTo Cash-bills payable (20,000-400)To Partners’ Capital A/cs A 171

B 171C 137D 69

1,20,00085,50029,00042,00037,828

4,90019,600

5483,39,376

By Trade creditorsBy Bills payableBy CashBuilding 1,26,000 Stock 78,000Investments (W.N.2) 23,000Debtors (W.N. 3) 33,176By Debtors-unrecordedBy Investments-unrecorded

47,00020,000

2,60,1764,3007,900

3,39,376

Cash AccountParticulars Amount in

(`)Particulars Amount in

(`)

To Balance b/dTo Realisation Assets realisedBuilding 1,26,000Stock 78,000Investments 23,000Debtors 33,176To C’s capital A/c

14,500

2,60,176 4,000 2,78,676

By Realisation-creditors paidBy Realisation-bills payableBy Realisation-expensesBy Capital account

A 90,528B 90,528D 35,292

37,82819,600

4,900

2,16,348 2,78,676

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : NOV., 2010Partners’ Capital Accounts

Dr. Cr.A B C D A B C D


To Balance b/dTo Debtors-misappropriationTo Investment-misappropriationTo C’s capitalA/c (W.N. 4)To Cash A/c

7,14390,52897,671

7,14390,52897,671

15,000

4,300

7,900

27,200

2,77735,29238,069

By Balance b/dBy General reserveBy Realisation profitBy Cash A/cBy A’s capital A/cBy B’s capital A/cBy D’s capital A/c

90,0007,500

171

97,671

90,0007,500

171

97,671

-6,000

137

4,0007,1437,143

2,77727,200

35,0003,000

69

38,069

Working Notes:1. Amount paid to creditors

Book value 47,000Less: Creditors taking over investments (8,400)

38,600Less: Discount @ 2% (772)

37,8282. Amount received from sale of investments

Book value 29,000Less: Misappropriated by C (5,400)

23,600Less: Taken over by a creditor (5,400)

18,200Add: Profit on sale of investments 4,800

23,0003. Amount received from debtors

Book value 42,000Less: Unrecorded receipt (4,300)

37,700Less: Discount @ 12% (4,524)

33,1764. Deficiency of C

Balance of capital as on 31st March, 2010 15,000Debtors-misappropriation 4,300Investment-misappropriation 7,900

27,200

Less: Realisation Profit (137) General reserve (6,000) Contribution from private assets (4,000) Net deficiency of capital 17,063


This deficiency of ` 17,063 in C’s capital account will be shared by other partners A, B and D in their capital ratio of 90 : 90 : 35 byAccordingly,A’s share of deficiency = [17,063 x (90/215)] = ` 7,143B’s share of deficiency = [17,063 x (90/215)] = ` 7,143D’s share of deficiency = [17,063 x (35/215)] = ` 2,777

Chapter - 14 : Amalgamation, Conversion and Sale of Partnership Firms2011 - May [2] A and B are partners of AB & Co sharing Profits and Losses in the ratio of 2:1and C and D are partners of CD & Co sharing Profits and Losses in the ratio of 3 : 2. On 1stApril 2011 they decided to amalgamate and form a new firm M/s. AD & Co wherein all thepartners of the both the firm would be partners sharing profits and losses in the ratio of 2 : 1 :3 : 2 respectively to A, B, C and D.Their balance sheets on that date were as under :Liabilities AB & Co CD & Co Assets AB & Co CD & CoCapitals ` ` ` `A 1,50,000 Building 75,000 90,000B 1,00,000 Machinery 1,20,000 1,00,000C 1,20,000 Furniture 15,000 12,000D 80,000 Stock 24,000 36,000Reserve 66,000 54,000 Debtors 65,000 78,000Creditors 52,000 35,000 Due from CD & Co. 47,000Due to AB & Co. 47,000 Cash at Bank 18,000 15,000

Cash in hand 4,000 5,0003,68,000 3,36,000 3,68,000 3,36,000

The amalgamated firm took over the business on the following terms :(a) Building was taken over at ` 1,00,000 and ` 1,25,000 of AB & Co. and CD & Co.

respectively. And Machinery was taken over at ̀ 1,25,000 and ̀ 1,10,000 of AB & Co andCD & Co. respectively.

(b) Goodwill of AB & Co was worth ` 75,000 and that of CD & Co was worth ` 50,000.Goodwill account was not to be opened in the books of the new firm, the adjustments beingrecorded through capital accounts of the partners.

(c) Provision for doubtful debts has to be carried forward at ̀ 5,000 in respect of debtors of AB& Co and ` 8,000 in respect of CD & Co.

You are required to :(i) Compute the adjustments necessary for goodwill.


(ii) Pass the Journal Entries in the books of AD & Co assuming that excess/deficit capital(taking D's Capital as base) with reference to share in profits are to be transferred tocurrent accounts. (16 marks)



FOR NOTES


FOR NOTES

Free of Cost ISBN : 978-81-7666-966-5

AppendixIPCC Gr. II (New Syllabus)


Paper - 6 : Auditing & Assurance

Chapter - 1 : Nature of Auditing2010 - Nov [4] Write short notes on the following : (d) Factors governing modes of communication of auditor with those charged with governance.

(4 marks)Answer :Factors governing modes of communication of auditor with those charges withgovernance : According to SA 260, “Communication with Those Charge with Governance” theauditor may decide whether to communicate orally or in writing, the extent of detail orsummarisation in the communication, and whether to communicate in a structured orunstructured manner may be affected by such factors as:• The size, operating structure, control environment, and legal structure of the entity.• Legal requirements. In some jurisdictions, a written communication with those charged

with governance is required in a prescribed form by local law.• In the case of an audit of special purpose financial statements, whether the auditor also

audits the entity’s general purpose financial statements.• The amount of ongoing contact and dialogue the auditor has with those charged with

governance.• The expectations of those charged with governance, including arrangements made for

periodic meetings or communications with the auditor.• Whether there have been significant changes in the membership of a governing body.2011 - May [3] (a) Discuss limitations of audit. (8 marks)(b) Discuss prerequisites and fundamental principles to be possessed by an auditor. (8 marks)

Chapter - 2 : Basic Concepts in Auditing2010 - Nov [2] (c) What do you mean by the term 'Sufficient Appropriate Audit Evidence' ? Statevarious factors that help the auditor to ascertain as to what is sufficient appropriate auditevidence. (6 marks)Answer :

Appendix IPCC Gr. II Paper - 6 II -2

Sufficient appropriate audit evidence :Meaning : As per SA 200 on ‘Basic Principles Governing an Audit’ “the auditor should obtainsufficient appropriate audit evidence through performance of compliance and substantiveprocedures to enable him to draw reasonable conclusions therefrom on which to base his opinionon the financial information”.

SA 500 on ‘Audit Evidence’ again elaborate this concept. As per this standard sufficiencyand appropriateness are interrelated and apply to evidence obtained from both compliance andsubstantive procedures. Sufficiency means the quantum of audit evidence obtained whereasappropriateness is related to its relevance and reliability.

Generally, the auditor finds it necessary to rely on audit evidence which is persuasive ratherthan conclusive. Auditor may often seek evidence from different sources or of different natureto support the same assertions. Various factors which helps the auditor to ascertain sufficient and appropriate auditevidence : These are the factors which influence the auditor’s judgment as to what is sufficientand appropriate audit evidence :

(i) The materiality of the item.(ii) The type of information available.

(iii) The trend indicated by accounting ratios and analysis.(iv) The experience gained during previous audits.(v) The results of auditing procedures, including fraud and errors which may have

been found.(vi) Degree of risk of misstatements which may be affected by factors such as the nature

of items, adequacy of internal control, nature and size of businesses carried out by theentity, situations which an unusual influence on management and the financialposition of the entity.

The auditor obtains the evidence through compliance procedures and substantiveprocedures to satisfy assertions contained in the financial statements.2011 - May [2] (a) Explain various methods to obtain audit evidence. (8 marks)

Chapter - 3 : Preparation for an Audit2010 - Nov [6] (c) R.K. & Company are the auditors of PQR Company Ltd. The ManagingDirector of the Company demands copies of the working papers from the auditors. Are theauditors bound to oblige the Managing Director ? (4 marks)Answer :Working papers : Ownership and Custody Facts : According to SA-230 “Audit Documentation”, the working papers are the property ofthe auditor, the auditor may, at his discretion make portion of or extracts from his working papersavailable to the client.Analysis : In the given case the managing director of the company has demanded copies of theworking papers from the auditor. He has no right to obtain copies of the working papers from the


auditor because they are the property of the auditor. But the auditor may at his discretion makeportions of or extracts from the working paper to the managing director of R K & Company.Inference : The auditor is not bound to oblige the managing director by supplying copies of theaudit working papers.2010 - Nov [7] (c) R & M Company, a firm of Chartered Accountants, was appointed as statutoryauditors of XYZ Company Ltd. Draft an engagement letter accepting the appointment asauditors. (8 marks)Answer :Engagement Letter for accepting the appointment as an Auditor : As per the SA 210,“Agreeing the Terms of Audit Engagements”. Draft of Engagement Letter :To the Board of Directors of ABC LimitedYou have requested that we audit the financial statements of ABC Company Limited, whichcomprise the Balance Sheet as at March 31, 2011, and the Statement of Profit & Loss, and CashFlow Statement for the year then ended, and a summary of significant accounting policies andother explanatory information.

We are pleased to confirm our acceptance and our understanding of this audit engagementby means of this letter. Our audit will be conducted with the objective of our expressing anopinion on the financial statements.

We will conduct our audit in accordance with Standards on Auditing (SAs), issued by theInstitute of Chartered Accountants of India (ICAI). Those Standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free from material misstatement. An audit involvesperforming procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraudor error. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the financial statements.

Because of the inherent limitations of an audit, together with the inherent limitations ofinternal control, there is an unavoidable risk that some material misstatements may not bedetected, even though the audit is properly planned and performed in accordance with SAs.

In making our risk assessments, we consider internal control relevant to the entity’spreparation of the financial statements in order to design audit procedures that are appropriatein the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. However, we will communicate to you in writing concerning anysignificant deficiencies in internal control relevant to the audit of the financial statements thatwe have identified during the audit.


Our audit will be conducted on the basis acknowledgment provided by management orappropriate governance body.

(i) For the preparation of financial statements that give a true and fair view in accordancewith the Financial Reporting Standards.1 This includes:• the responsibility for the preparation of financial statements on a going concern

basis.• the responsible for selection and consistent application of appropriate accounting

policies, including implementation of applicable accounting standards along withproper explanation relating to any material departures from those accountingstandards.

• the responsible for selection and consistent application of appropriate accountingpolicies, including implementation of applicable accounting standards along withproper explanation relating to any material departures from those accountingstandards. The responsibility for making judgements and estimates that arereasonable and prudent so as to give a true and fair view of the state of affairs ofthe entity at the end of the financial year and of the profit or loss of the entity forthat period.

(ii) For such internal control as [management] determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whetherdue to fraud or error; and

(iii) To provide us with :(a) Access, at all times, to all information, including the books, account, vouchers

and other records and documentation, of the Company, whether kept at the headoffice of the company or elsewhere, of which [management] is aware that isrelevant to the preparation of the financial statements such as records,documentation and other matters;

(b) Additional information that we may request from [management] for the purposeof the audit; and

(c) Unrestricted access to persons within the entity from whom we determine itnecessary to obtain audit evidence. This includes our entitlement to require fromthe officers of the Company such information and explanations as we may thinknecessary for the performance of our duties as auditor.

As part of our audit process, we will request from [management and, whereappropriate, those charged with governance], written confirmation concerningrepresentations made to us in connection with the audit.

We also wish to invite your attention to the fact that our audit process is subject to'peer review' under the Chartered Accountants Act, 1949 to be conducted by an Independentreviewer. The reviewer may inspect, examine or take abstract of our working papers duringthe course of the peer review.


We look forward to full cooperation from your staff during our audit. The form and content of our report may need to be amended in the light of our audit

findings.Please sign and return the attached copy of this letter to indicate your acknowledgment

of, and agreement with, the arrangements for our audit of the financial statements includingour respective responsibilities.

XYZ & Co.Chartered Accountants

Firm’s Registration No.…………………………

(Signature)Date : (Name of the Member)Place :Acknowledged on behalf of ABC Ltd. by (Partner or Proprietor)(Signature)Name and DesignationDate2011 - May [7] Write short notes on the following :(c) Stratified Sampling (4 marks)

Chapter - 4 : Internal Control (Including EDP Environment)2010 - Nov [2] (a) Explain briefly the technique of "Internal Control Questionnaire" to facilitatethe accumulation of information necessary for proper evaluation of internal control. (4 marks)(b) State clearly the circumstances where “Auditing through the computer” approach must

be used. (6 marks)Answer :(a) Internal Control Questionnaire : It is a comprehensive series of questions designed to

provide a thorough view of internal control system prevailing in an organisation. Thequestionnaire is usually issued to the client, the client is requested to get it filled up by theconcerned executives and employees. Content of ICQ : In the questionnaire, the questions are generally prepared in sections ofdistinct control areas such as -

(i) Sales and Purchases;(ii) Debtors and Creditors;

(iii) Stocks;(iv) Fixed Assets;(v) Cash and Bank receipts and payments.

These questions are so framed that a 'yes' answer denotes satisfactory position and a'No' answer suggest weakness. If the questions are not relevant to the business 'NotApplicable' reply is given.


Advantages :(i) In this method, there is less chance of oversight or omission of significant internal

control review procedures(ii) It enable to complete all internal control evaluation at one time. Weakness in the

internal control system can easily be identified by examining answers to thequestion in the ICQ.

(iii) ICQ also helps in testing whether the controls or procedures stated to be operatingare actually in operation. On the basis of ICQ analysis the auditor can decide theextent and depth of checking required in accounting areas.

(iv) ICQ analysis helps the auditor to adopt more detailed checking in weak controlareas.

(b) Auditing through the computer :(i) The auditor takes the computer as a target of audit. It is treated as a live and dynamic

device, which has added value to the process of auditing.(ii) He can use the computer to test :

(a) the program logics and program controls existing within the system, and(b) the records produced by them.

(iii) Methods : There are three methods of auditing through the computer [i.e. testing thesystems, can be done in three ways,]:(a) Test data : This is a special set of input data, prepared specifically to test a

programme or set programs of the entity under audit.(b) Controlled processing : This means that a processing run is undertaken using

a already tested programme under the control of the auditor.(c) Computer audit programme : The auditor uses computer programmes for (i)

testing and evaluating the system if internal control and (ii) validity oftransactions processed by an electronic data processing system.Once, the auditor is satisfied with the computer system & its controls, he need

not have to spend much time on detailed verification.(iv) Situations where it must be used :

It is used if :(a) The computer processes a large volume of output and resultantly produces a

large volume of output (because in that situation, it is difficult to make extensivedirect examination of the validity of the input & output.)

(b) The significant parts of the internal control system are embodied in the computersystem itself, (e.g. on line banking,)

(c) The logic of the system is complex.(d) Because of cost – benefit considerations, there are substantial gaps in the visible

audit trail.(v) Advantages :


(a) Auditor has increased power to effectively test a computer system.(b) The range & capability of rests to be performed increases.(c) He acquires greater confidence that the data processing is correct.

(vi) Disadvantage :(a) Highly expensive,(b) Need for extensive technical expertise when the logics within the system are

complex.When, auditing through computer is the only viable mode of auditing, then there

is no meaning to look at its disadvantage. That is to say, it should be ignored.2011 - May [7] Write short notes on the following :(b) Internal control in Small Business (4 marks)

Chapter - 9 : Audit of Trading Transactions and Purchases2011 - May [2](b) List out some examples of fraud that can be done by ledger keeper in Boughtledger and Sales ledger. (8 marks)2011 - May [4] (a) Give various factors which result in increase in gross profit. (8 marks)

Chapter - 10 : Audit of Sales2010 - Nov [4] Write short notes on the following : (c) Verification of credit sales. (4 marks)Answer :Verification of the credit sales : The credit sales should be verified by reference to copies ofinvoices issued to customers and, in the process.The Auditor should consider the following points:1. The credit sales should be verified by reference to copies of invoices issued to customers

and in the process, attention should be paid to the following matters:(i) that each item of sales relates to the period of account under audit.

(ii) that the goods are those that are normally dealt in by the concern.(iii) that the sale price has been correctly arrived at and the copy of the requisition slip

issued by the Sales Department and the copy of the Despatch Notes showing the dateand mode of despatch of goods are attached with the invoice.

(iv) that the amount of the invoice has been adjusted in an appropriate account; and(v) that the sale has been authorised by a responsible official and in token thereof he has

initialed the invoice also that any alteration in the invoice has been arrested by thesame person.

2. If any additional charges recovered along with the sale price, it should be credited toseparate accounts, appropriately headed, and not to the sales account.

3. When a trade discount is allowed, the amount thereof should be deducted from the saleprice. When any special trade discount has been allowed, the reason thereof should beascertained.


4. Small concerns generally do not have well organised sales and despatch departments. Insuch cases, for verifying sales the auditor should trace a small preparation of sales invoiceinto the stock book, specially of goods sold at the beginning and at the close of the year.

5. The sale of goods on hire-purchase basis or goods sent out on sale or return basis or onconsignment basis should be separately recorded.

6. When credit sales are not adjusted in the account at the time they are made but at the timesale proceeds are collected, there can be no guarantee that any amount collected in suchsales has not been misappropriated. The auditor should, therefore, draw the attention of themanagement to the risk involved in adopting such practice.

Chapter - 11 : Audit of Ledgers and other Transactions2010 - Nov [7] (a) What points shall an auditor keep in mind while auditing an account ofBought Ledger having a debit balance ? (4 marks)Answer :Auditing an account of Bought Ledger : The basic structure of every account in the BoughtLedger is: opening balance, credits on account of goods purchased and debits raised in respectof returns, allowances and discount receivable, advances paid against goods, payments andtransfers.• An account in the Bought Ledger may be in debit. The balance may represent the amount

receivable on account of goods returned, rebate allowed by the supplier or advance paidagainst an order.

• The auditor should confirm that the advance against the order had been paid in pursuanceof a recognised trade practice, also that subsequently goods have been received against theadvance or will be received, for such an advance may represent a disguised loan toaccommodate a business associate.

• The book balance also may represent the cost of goods purchased wrongly debited to theaccount of the supplier, instead of the Purchase Account.

For the above case, auditor should be ascertained :(i) That the book balance is good and recoverable and if it is not considered recoverable, a

provision against the same has been made. The book balances should be appropriatelyclassified for purposes of disclosure in the Balance Sheet.

(ii) If the debit balance represents a loan to a director or officer of the company, either jointlyor severally with another person or it is a debit due by a firm or a private company inwhich the director is a partner or a member, the same should be separately disclosed inthe Balance Sheet in accordance with the provisions contained in Schedule VI to the Act.The maximum account due from the directors or other officers of the company at anytime during the year and debts due from companies under the same management shouldalso be disclosed alongwith the names of companies (Part I, Schedule VI to theCompanies Act, 1956).

2011 - May [7] Write short notes on the following :


(e) Cut-off procedure. (4 marks)

Chapter - 13 : Depreciation and Reserves2011 - May [4] (b) Define depreciation and discuss various purposes of providing depreciation.

(8 marks)Chapter - 14 : Verification of Assets2010 - Nov [4] Write short notes on the following : (b) Physical verification of fixed assets "at reasonable intervals". (4 marks)Answer :Reasonable Intervals for verification of fixed assets :• CARO 2003 requires that the auditor should comment about the fixed assets of the

company have been physically verified by the management at reasonable interval or not.• “Reasonable Intervals” depends upon the circumstances of each case. • The factors to be considered in regarding this are, number of assets, nature of assets,

relative value of assets, difficulty in verifications, situation and spread of the assets etc.• The management may decide about the periodicity of physical verification of fixed assets

considering the above factors while an annually verification may be reasonable.• It may impracticable to carry out the same in some cases. Even in such cases the

verification program should be such that all assets are verified at least once in every threeyears where verification of all assets is not made during the year.

• It will be necessary for the auditor to report the fact, but if he is satisfied regarding thefrequency of verification, he should also make a suitable comment on this regard.

• The auditor is required to comment, if any material discrepancies were noticed onverification and, if so, whether the same have been properly dealt with in the books ofaccount.

• It would be appropriate for the auditor to obtain a management representation letterconfirming that the fixed assets are physically verified by the company in accordance withthe policy of the company.

• The management representation letter should also mention the periodicity of the physicalverification of fixed assets.

• The letter should also include the details of the material discrepancies noticed during thephysical verification of the fixed assets.

• If no discrepancies were noticed during the physical verification, the managementrepresentation letter should also mention this fact clearly.

2010 - Nov [6] (b) A partnership firm revalued its fixed assets like land and building. The firmadequately disclosed the revalued amounts in the Balance Sheet.

Do you, as an auditor, approve the disclosure given by the partnership firm ? (4 marks)Answer :Disclosure of revalued fixed assets of a partnership form :


Facts : According to AS 10 “Accounting for fixed assets”, revalued amounts substituted forhistorical costs of fixed assets, method adopted to compute the revalued amounts, nature ofindices used, year of any appraisal made, and whether an external valuer was involved, in casewhere fixed assets are stated at revalued amounts should be disclosed in the financial statements.Analysis : In the given case, the partnership firm revalued its fixed assets like building and landand adequately disclosed the revalued amounts in the Balance sheet. The firm did not disclosethe method adopted by it for arriving at the revalued figures. Inference : The firm had disclosed the revalued amounts in the balance sheet but the method andnature of indices used etc. are not disclosed. So, this act of the firm is in contravention with theAS 10 for “Accounting for Fixed Assets’.

Therefore, the auditor cannot approve the disclosure given by the partnership firm and shallhave to qualify the report.2010 - Nov [6] (d) "Responsibility for properly determining the quantity and value of inventoryrests with the management." Comment on this statement. (4 marks)Answer :According to “Guidance note on Audit of Inventory”, ‘‘the responsibility for properlydetermining the quantity and volume of inventories rests with the management of the entity.Therefore it is the responsibility of the management of the entity to ensure that inventoriesincluded in financial statements are physically in existence and represent all owned by theentity’’. • Therefore, the management can satisfy this responsibility by carrying out appropriate

procedures such as verification of all items of inventory at least once in every financialyear.

• The auditor is expected to examine the compliance of “Accounting Standard 2: Valuationof Inventory” and adequacy of the method and procedures of physical verification followedby the entity.

• Auditor is also required to determine whether the procedure for identifying defective,damaged, obsolete and slow moving items are well designed and operate properly. thatproper books of accounts should be made following the accounting standards.

• The responsibility of management is not reduced even where the auditor attends anyphysical count of inventories in order to obtain audit evidence.

• The entities usually maintain detailed stock records in the form of stores/stock ledgersshowing in respect of each major item, the receipts issues and balances.

• The extent of examination of these records by an auditor with reference to the relevant basicdocuments depends on the facts and circumstances of each case.

• CARO 2003 also requires specific comment by auditor as to the adequacy andreasonableness of the physical verification of inventory by the management.

• It also requires auditor to comment whether discrepancy, if any, observed in such a physicalverification had been duly accounted for.

Chapter - 17 : Company Auditor2010 - Nov [1] {C} Comment as a auditor on the following situations :


(d) Sri & Company, a firm of Chartered Accountants was appointed as statutory auditors ofAaradhana Company Ltd.. Aaradhana Company Ltd. holds 51% shares in Sarang CompanyLtd.. Mr. Sri, one of the partners of Sri & Company, owed Rs. 1,500 as on the date ofappointment to Sarang Company Ltd. for goods purchased in normal course of business.

(5 marks)Answer :Appointment of the auditorFacts :• According to Section 226(3) of the Companies Act, 1956 a person shall be disqualified to

act as an auditor if he is indebted to the company for an amount exceeding one thousandrupees.

• Objective of this provision is to ensure that the auditor is independent and under nofinancial obligation to the company.

• When an auditor purchases goods or services from a company audited by him on credit, heis definitely indebted to the company and if the amount outstanding exceeds rupees onethousand, he is disqualified for appointment as an auditor of the company.

• Sub-section (4) of the Section 226 again lays down that a person is not eligible forappointment as auditor of any company if he is disqualified from acting as auditor of thatcompany’s subsidiary or holding company or of any other subsidiary of the same holdingcompany.

• Similarly a firm of auditors acts through its partners hence no partner should be indebtedeven in his personal capacity to the entity being audited the debt arising from normal courseof business of the entity should also be record for indebtedness.

Analysis & inference : Mr. Sri is disqualified to be appointed as auditor of the company as heis indebted to the company for an amount exceeding Rs. 1000. Such disqualification is attractedeven if it exists on any date during the relevant accounting year.

As the disqualification of Mr. Sri, Sri & Co., is also disqualified for appointed as an auditorof Aaradhana Company Ltd.2010 - Nov [7] (b) PQR Company Ltd. removed their first auditor by passing a resolution in themeeting of the Board of Directors for his removal without obtaining prior approval from theCentral Government.

Offer your comments in this regard. (4 marks)Answer :Removal of first Auditor :Facts : As per Section 224, an auditor may be removed before the expiry of his term by thecompany in general meeting, after obtaining the prior approval of the Central Government in thatbehalf, except that such approval is not required for the removal of the first auditor appointedby the Board of Directors. Under the proviso to sub section (5) of section 224, the first auditorappointed by the Board of Directors may be removed by merely passing an ordinary resolutionin the general meeting.


Analysis & Inference : In the instant case the first auditor appointed by the Board of Directorswas removed by a resolution in the meeting of the Board of Directors inspite of the GeneralMeeting as per the requirement of section 224 (5). There is of course no need for approval of theCentral government.

Due to contravention of the proviso of sub section (5) of Section 224., the auditor shouldqualify the audit report.

Chapter - 18 : Powers & Duties of Auditors, Audit Report and various Audit 2010 - Nov [1] {C} Comment as a auditor on the following situations : (a) Mr. X, a partner in X & Co., a firm of a Chartered Accountants, died on 31-3-2010 after

completing routine audit work of XYZ Company Ltd.. Mr. Y another partner of the firmof Chartered Accountants signed the financial statements of XYZ Company Ltd., withoutreviewing the finalization work done by the assistants. (5 marks)

(b) Government of India has appointed Mr. M, a retired Finance Director and a non-practisingmember of the Institute of Chartered Accountants of India, as an auditor to conduct specialaudit of ABC Ltd. on the ground that the company was not being managed on soundbusiness principles. The Managing Director of the company contends that the appointmentof Mr. M is not valid because he does not hold a certificate of practice. (5 marks)

Answer :(a) Relying on work performed by others :

Facts : • According to SA-200 on “Basic Principles Governing an Audit”, when an auditor

delegates work to assistants or uses work performed by other auditors/experts he/shewill continue to be responsible for forming and expressing his opinion on the financialstatements.

• However, Auditor will be entitled to rely on the work performed by others, providedhe exercises adequate skill and care and is not aware of any reason to believe that heshould not have so relied.

• The auditor should carefully direct supervise and review work delegated to assistants.• He should obtain reasonable assurance that work performed by other auditors/experts

and assistants is adequate for his purpose.Analysis & inference : In the given problem, Mr. X is a partner of the firm had completedroutine audit work and died on 31 March, 2010. Mr. Y another partner of the firm hassigned the financial statement of XYZ Company Ltd, without reviewing the work done bythe assistants. Mr. Y will be fully responsible for negligence he cannot take any shelter thatMr. X had done the work.Therefore, Mr. Y has negligently performed his duties.

(b) Appointment of Special Auditor :Facts :


• Section 233A of the Companies Act, 1956, empowers the Central Government that itmay issue directions to the effect that a special audit of the company’s accounts forthe specified period shall be conducted.

• Along with others, one of the circumstances specified is, in case, a company is notbeing managed in accordance with sound business principles or prudent commercialpractices.

Such an audit aims at providing the government with a critical appreciation ofthe company and its financial position.

• The audit may be conducted either by the company’s auditor or another CharteredAccountant who may or may not be engaged in a practice, appointed by the CentralGovernment.

• The auditor appointed has the same power and duties in the matter of special audit asthe statutory auditor of a company has, except for the fact that he must report to theCentral Government in place of member of the company.

Analysis & inference : As per the provisions of the Companies Act, 1956, the appointmentof Mr. M, a non-practicing member of Institute of Chartered Accountants of India is withinthe provisions of law and, accordingly, the contention of Managing Director is void.

2010 - Nov [5] (c) State briefly the circumstances when an auditor issues a disclaimer ofopinion. (4 marks)Answer :Disclaimer of opinion : The auditor can express a disclaimer of opinion when the possible effectof a limitation on scope of the auditor’s work is so material and pervasive that he has not beenable to obtain sufficient and appropriate evidence and is accordingly unable to express anopinion on the financial statements. e.g. :• When the books of account of the auditee company have been seized by any investigating

authority, the auditor will be unable to express his opinion on the financial statements.• In the same way when the terms of engagement specify that the auditor will not carry out

an audit procedure that the auditor believes necessary ,the auditor may express disclaimerof opinion.

• A scope of limitation may be imposed by circumstances, e.g., when the timing of theauditor’s appointment is such that he is unable to observe the counting of physicalinventories.

• Disclaimer report may also arise when in the opinion of the auditor the entity’s accountingrecords are inadequate or when the auditor is unable to carry out an audit procedurebelieved to be desirable.

The resolution on certain matters dependent upon future events, may also cause theauditor to make a disclaimer of opinion.

• If there is a limitation on the scope of the auditor’s work that requires disclaimer ofopinion, the auditor’s report should describe the limitation and indicate the possibleadjustments to the financial statements that might have been determined to be necessary hadthe limitation not existed.


2011 - May [6] (a) Explain the concept of Joint Audit. Discuss its advantages and disadvantages.(8 marks)

Chapter - 19 : The Company Audit2010 - Nov [6] (a) Comment on the following :X Ltd. has its Registered Office at Mumbai. During the current accounting year it shifted itsCorporate Office to Delhi. The Managing Director of the Company wants to shift company'sbooks of account to Delhi because he holds the view that there is no legal bar in doing so.

(4 marks)Answer :Facts :• Books of Account should be kept by every company at its registered office, as per the

requirement of section 209(1) of The Companies Act 1956, • It is permissible, however, for all or any of the books of accounts to be kept at such place

in India as the Board of Directors may decide but, when a decision in this regard is taken,the company must file within seven days of such decision with the Registrar of Companiesa notice in writing giving full address of the other place.

Assertion :• On the basis the above provisions, X Ltd should maintain its books of account at its

registered office at Mumbai. The Managing Director is not allowed to shift its books ofaccount to Delhi unless decision in this behalf is taken by the Board of Directors and anotice is also given to the Registrar of Companies.

2011 - May [6] (b) Explain the powers of company to purchase its own securities. (8 marks)2011 - May [7] Write short notes on the following :(a) Reissue of redeemed debentures. (4 marks)

Chapter - 21 : Audit of NGOs2010 - Nov [5] (b) What important points should an auditor keep in mind while checking receiptof income of a Non-Governmental Organization (N.G.O) ? (4 marks)Answer :An auditor shall keep in mind the following points while conducting/checking receipt of incomeof a Non-Governmental Organization (NGO) :

(i) Contributions and grants for projects and programmes :Check :(a) agreement with donor and grant letter! to ensure that money received has been

accounted for.(b) that all foreign contribution receipts!are deposited in Foreign Contribution

(regulation) Act 1976.(ii) Receipt from fund raising programme :

Verify :(a) the internal control system,(b) who is the person responsible for the collection of funds,


(c) mode of payment,(d) collections are counted and deposited in the bank daily.

(iii) Membership fees :(a) Check

• the fees received with the membership register,• that proper classification is made between,• entrance fees,• annual fees,• life membership fees.

(b) Reconcile the fees received and fees to be received during the year.(iv) Subscriptions :

(i) Check or compare (a) subscription register with receipt issued,(b) receipt issued with subscription rate schedule.

(ii) Reconcile!subscription received with printing and despatch of correspondingmagazines circulars periodicals.

(v) Interests and Dividends :Check interest received and receivable with investments held during the year.

Chapter - 22 : Miscellaneous Audits2010 - Nov [5] (a) Mention briefly important points which an auditor will consider whileconducting the audit of a club? (8 marks)Answer :

S.No.

Areas to beCovered

Auditor's Duty

1. Formation (i) Investigate the formation of club and powers of thegoverning body. Study the relevant rules or bye-lawspertaining to preparation and finalisation of accounts.

(ii) Inspect the minutes book of the Governing Body and ensurewhether the powers have been appropriately exercised.

(iii) A club is usually constituted as a company limited byguarantee. Therefore, various provisions of the CompaniesAct, 1956 relating to the audit of accounts of companies arealso applicable to its audit.

2. Members EntranceFees

(i) Affirm strongly the receipts on account of entrance fees withthe application of members, counterfoils issued and minutesof the Managing Committee.

3. Subscription ofMembers

(i) Affirm strongly the sbscription of members with thecounterfoils of receipts issued to members.

(ii) Mark out the receipts of selected periods to the MembersRegister.


(iii) Reconcile the total amount of subscription due with theamount collected and outstanding.

(iv) Check the total of various columns of Members Register andtally them across.

(v) Check the Members Register to determine the dues areasand examine whether necessary steps have been taken fortheir recovery. The amount considered irrecoverable, if any,must be written off.

(vi) Confirm that areas of subscription for the previous year arebrought over correctly and arrears for the year under auditand advance subscription received is correctly adjusted.

4. Services Chargesfrom Members

(i) Verify the internal check system with regards to membersbeing charged for!

(a) Foodstuffs and drinks provided,(b) Fees chargeable for specific services rendered eg. billiards,

tennis, etc.(ii) Mark out the debits for a selected period from subsidiary

register maintained with respect to supplies and services tomembers to ensure that the account of members have beendebited by the amounts recoverable from them.

5. Purchases (i) Affirm strongly the purchase of sports items, furniture,crockery, etc. and mark out their entries into particular stockregisters.

(ii) Also affirm strongly the purchase of foodstuff and drinks,etc. and test their sale price in order to ensure that normalrates of profit have been earned on their sale.

(iii) Carry physical verification of closing stock on unsoldprovision and stores and check the valuation of that.

(iv) Check the stock of furniture, sports material and other assetsphysically with particular, stock registers or inventoriesprepared at the year-end.

6. Investment (i) Investigate the share scrips and bonds with respect toinvestments. Check their current value for disclosure in finalaccounts and also determine the arrangement for their safecustody are satisfactory.

(ii) Check the accrual of income therefrom and provision ofincome tax thereon.


7. General (i) Verify the fixed assets and confirm that sufficientdepreciation is provided. Examine in detail the accounts ofSundry Creditors for goods, Creditors for services andanalyse if there are any abnormal movements.

(ii) Verify whether the form and way of presenting the financialinformation comply with Accounting Standards andapplicable statutory requirements.

(iii) Get proper management representation and certificates withrespect to various aspects covered during audit course.

2011 - May [5] Mention any 8 special points which you as an auditor would look into whileauditing the books of accounts of : (a) Hospital (8 marks)(b) Cinema (8 marks)2011 - May [7] Write short notes on the following :(d) Audit of expenditure in Government audit. (4 marks)

Chapter - 23 : AAS, AS and Guidance Notes2010 - Nov [1] {C} Comment as a auditor on the following situations : (c) M.N.P. Company Ltd. purchased a machinery for Rs. 1.00 crore. The State Government

granted the company a subsidy of Rs. 40 lakhs to meet partial cost of machinery. Thecompany credited the subsidy received from the State Government to its Profit and LossAccount for the year ended March 31, 2010. (5 marks)

Answer :Accounting treatment for Government Grants : Facts :• According to AS 12 “Accounting for Government Grants”, accounting treatment of any

grants or subsidy depends on nature of grants or receipts. • Grants related to specific fixed assets are government grants whose primary condition is

that an enterprise qualifying for them should purchase, construct or otherwise acquire suchassets.

• Following are two methods of presentation of grants related to specific fixed assets infinancial statements as acceptable alternatives.(a) Under the first method the grant is shown in the balance sheet as a deduction from the

gross value of the machinery. The grant is recognized in profit and loss accounts overthe useful life of the depreciable life of asset by way of a reduced depreciation charge.

(b) Under second method, it is treated as a deferred income which should be recognizedin profit and loss account over useful life of asset in proportion in which depreciationwill be changed on machinery. Deferred income pending its apportionment to profitand loss A/c should be disclosed in the balance sheet as Deferred Government Grant.


Analysis & inference : In the given case, MNP Company Ltd received a subsidy fromgovernment worth ̀ 40 lakhs towards meeting partial cost of machinery. The company creditedthe same to its profit & loss account.

Grant received towards partial cost of machinery is not correctly enter in accounts.Therefore, auditor should advise company to correct the above accounting treatments of grant;otherwise it is the duty of the auditor to qualify his report and describe the causes ofqualification.2010 - Nov [3] (a) "The auditor is faced with sampling risk in both tests of control andsubstantive procedures."Comment on this statement with reference to SA 530 on "Audit Sampling". (8 marks)(b) What are the factors that determine the extent of reliance that the auditor places on results

of analytical procedures ? Explain with reference to SA-520 on "Analytical procedures".(8 marks)

Answer :(a) As per SA 530 ‘Sampling Risk’

• Audit sampling helps the auditor to obtain and evaluate audit evidence about somecharacteristic of the items selected in order to form or conclusion concerning thepopulation from which the sample is drawn.

• Audit sampling can be applied using either non-statistical or statistical samplingapproaches.

• At the time of designing a sample, the auditor determines tolerable misstatement inorder to address the risk that the aggregate of individually immaterial misstatementsmay cause the financial statements to be materially misstated and provide a margin forpossible undetected misstatements.

• The risk that the auditor’s conclusion based on a sample may be different from theconclusion if the entire population were subjected to the same audit procedure.

• Sampling risk can lead to two types of incorrect conclusions :(i) ' In the case of a test of controls, that controls are more effective than they

actually are, or in the case of a substantive procedure, that a materialmisstatement does not exist when in fact it does.

' The auditor is primarily concerned with this type of incorrect conclusionbecause it affects audit effectiveness and is more likely to lead to aninappropriate audit opinion.

(ii) ' In the case of a test of controls, that controls are less effective than theyactually are, or in the case of a substantive procedure, that a materialmisstatement exists when in fact it does.

' This type of incorrect conclusion affects audit efficiency as it would usuallylead to additional work to establish that initial conclusions were incorrect.

(b) As per SA - 520, ‘Extent of reliance on analytical procedures’ : The application ofanalytical procedures is based on the expectation that relationships among data exist andcontinue in the absence of known conditions to the contrary :


• The presence of these relationships provides audit evidence as to the completeness,accuracy and validity of the data produced by the accounting system.

• Whereas, reliance on the results of analytical procedures will depend on the auditor'sassessment of the risk that the analytical procedures may identify relationships asexpected when, in fact, a material misstatement exists.

• The degree of reliance that the auditor places on the results of analytical proceduresdepends on the following factors :(i) Accuracy with which the expected results of analytical procedures can be

predicted, e.g., auditor will ordinarily expect greater consistency in comparinggross profit margins from one period to another than in comparing discretionaryexpenses, such as research or advertising.

(ii) Materiality of the items involved, e.g., when inventory balances are material, theauditor does not rely only on analytical procedures in forming conclusions. • Whereas, the auditor may rely solely on analytical procedures for certain in

come and expense items when they are not individually material.(iii) Assessments of inherent and control risks, for example, if internal control over

sales order processing is weak and, therefore, control risk is high, more relianceon tests of details of transactions and balances than on analytical procedures indrawing conclusions on receivables may be required.

(iv) The auditor will need to consider testing the controls, if any, over the preparationof information used in applying analytical procedures. When such controls areeffective, the auditor will have greater confidence in the reliability of theinformation and, therefore, in the results of analytical procedures.

(v) Other audit procedures directed toward the same audit objectives, for example,other procedures performed by the auditor in reviewing the collectibility ofaccounts receivable, such as the review of subsequent cash receipts, mightconfirm or dispel questions raised from the application of analytical proceduresto an ageing schedule of customers' accounts.

2010 - Nov [4] Write short notes on the following : (a) Reliability of external confirmations. (4 marks)(e) Procedures to be performed by the auditor in expressing opinion on 'going concern'

assumption. (4 marks)Answer(a) As per SA 505 “External Confirmation”, the reliability of external confirmations depends

among other factors, upon the application of appropriate procedures by the auditor indesigning the external confirmation request, performing the external confirmationprocedures, and evaluating the results of the external confirmation procedures.

The factors that affect the reliability of confirmations include:(i) The character of respondents,(ii) Any restrictions included in the response or imposed by the management, and(iii) The control which the auditor exercises over confirmation request and responses.


(e) Procedures to be performed by the auditor in expressing opinion on 'going concern'assumption : According to SA 570, “Going Concern”, the auditor should follow thefollowing procedure while expressing an opinion on going concern assumption :• Analyse and discuss cash flow, profit and other relevant forecasts with management.• Analyse and discuss the entity's latest available interim financial statements.• Review events after the balance sheet date for items affecting the entity's ability to

continue as a going concern.• Review the terms of debentures and loan agreements and determine whether any have

been breached. • Review the status of matters under litigation and claims.• Consider the entity's position concerning unfilled customer orders.• Read minutes of the meetings of shareholders, the board of directors and important

committees for reference to financing difficulties.• Confirm the existence, legality and enforceability of arrangements to provide or

maintain financial support with related and third parties and assess the financial abilityof such parties to provide additional funds.

2011 - May [1] {C} Comment on the following in relation to SAs :(a) "The work performed by each assistant needs to be reviewed by personnel of at least equalcompetence." (5 marks)(b) "Audit documentation serves a number of additional purposes." (5 marks)(c) "Management is responsible for compliance with laws and regulations." (5 marks)(d) "Auditor shall establish an overall strategy that sets the scope, timing and directions of the

audit, and that guides the development of the audit plan." (5 marks)

Free of Cost ISBN : 978-81-7666-967-2

Appendix IPCC Gr. II (New Course)


Paper - 7 : Information Technology & Strategic Management

Part : 7AInformation Technology

Chapter - 1 : Introduction to Computers2010 - Nov [1] {C} Answer all following questions in brief :(a) What is importance of Address bus on a mother board? (2 marks)(b) Explain the difference between ‘Static RAM’ and ‘Dynamic RAM’. (2 marks)Answer :(a) Address Bus : The address bus is a set of wires on the mother board similar to data bus that

connects the CPU and RAM and carries the addresses of the memory locations where datacan be retrieved or stored. It determines maximum number of memory and address.Number of parallel wires in the address bus determines the maximum number of memorylocations the CPU can address.

(b)S. No. Basis Dynamic RAM Static RAM

1 Meaning It is the most common type ofmain memory. It is dynamicbecause each memory cell losesits charge, so it must berefreshed hundreds of timeseach second to prevent datafrom being lost.

It is a lot faster, expensive andlarger memory and commonlyused in cache memory. Since itis static, it need not becontinually refreshed.

2 Data Storage Data remains stored as long asthe refreshing process iscontinued each second.

Data remains stored as long asthe power is on.


3 PowerConsumption

Power consumption of dynamicRAM is less.

Power consumption of staticRAM is more.

4 Speed and Cost Speed of dynamic RAM isslower than that of static RAMbut cost wise it is cheaper ascompared to static RAM.

Speed of static RAM is morethan dynamic RAM but costwise is expensive and larger ascompared to dynamic RAM

2011 - May [1] {C} Answer all the following questions in brief:(a) Why a virtual memory in computer is required ? (2 marks)(b) What is the importance of the clock speed in computers ? (2 marks)(d) Explain the function of "Arithmetic Logic Unit". (2 marks)2011 - May [2] (a) Describe any four limitations of the Computer system. (4 marks)2011 - May [7] Answer the questions :(a) What are the functions of a "Control Unit" ? (2 marks)

Chapter - 2 : Input & Output Devices2010 - Nov [2] (b) What do you mean by OMR? Explain its working principle. (4 marks)Answer :Optical Mark Recognition (OMR) is a technique, which is generaly used for scoring test marks.This technology can also be used for such applications as order writing, Payroll, inventorycontrol, insurance, questionnaires, etc.Working Principle of OMR :• In all Optical Mark Readers (OMR), the printed marks and/or characters are scanned by

some type of photo-electric device, which recognises characters by absorption orreflectance of light on the document (characters to be read are non-reflective).

• Reflected light patterns are converted into electrical impulses which are transmitted to therecognition logic circuit.

• These logic circuits are compared with the characters the machine has been programmedto recognise, and if found valid, are then recorded for input to the CPU.

• Where no suitable comparison is possible, then the document may be rejected.

Chapter - 3 : Software2010 - Nov [2] (a) Describe any four important functions of an Operating System. (4 marks)Answer :The operating system can be defined as an “integrated system of programs which supervises theoperation of the CPU, controls the input/output functions of the computer system, translates theprogramming languages into the machine languages and provides various support services.”These are the four important function of an operating system :


(i) Schedule Jobs : Operating systems can determine the sequence in which jobs areexecuted, using priorities established by the organization.

(ii) Manage Hardware and Software Resources : Operating systems cause the user’sapplication program to be executed by loading it into primary storage and then cause thevarious hardware units to perform as specified by the application.

(iii) Maintain System Security : They may require users to enter a password - a group ofcharacters that identifies users as being authorized to have access to the system.

(iv) Enable Multiple User Resource Sharing : They can handle the scheduling andexecution of the application programs for many users at the same time, a feature calledmultiprogramming.

(v) Maintain Usage Records : Operating systems can keep track of the amount of time usedby each user for each system unit - the CPU, secondary storage, and input and outputdevices.

2010 - Nov [7] Answer the questions :(e) Explain the concept of Object Oriented Programming. (2 marks)Answer :Object oriented programming is a technique for creating common building blocks of programcalled objects and assembling different sets of objects to solve specific problems. ObjectOriented Programming Languages use a structure that defines the objects in a program alongwith their properties and action e.g. C++ or JAVA.

An object is a pre-defined set of program code that, after having been written and tested,will always behave the same way, so that it can be used for other applications. Therefore, insteadof writing a program line by line, programmers select objects by pointing to a representative iconand then linking these objects together. Objects can be modified, reused, copied or created. Theprogrammer combines the objects and writes small amount of codes to finish the program.2011 - May [3] (a) Explain the significance of utility programs. List the various tasks that areperformed by the utility programs. (4 marks)

Chapter - 5 : Data Storage, Retrieval & DBMS2010 - Nov [1] {C} Answer all following questions in brief :(c) What do you mean by ‘Partitioned Database’? (2 marks)(e) What is the difference between Off-line and Real time Data warehouse? (2 marks)Answer :(c) Partitioned Database : It is a type of distributed database where processing of application

programs and data can be performed at more than one site. In a partitioned data base, thedata base is divided into parts or segments that are appropriate for respective sites so thatonly those segments are distributed without costly replication of the entire data. It may behorizontal partition or vertical partition.


(e) Offline Data Warehouse : is the data warehouses in which updation of data from theoperational systems are done on a regular interval of time such as daily, weekly or monthly.The data in such a warehouse are stored in an integrated reporting-oriented data structure.Real time Data Warehouse : is the data warehouse, in which data are updated on atransaction Whereas, or event basis, every time an operational system performs atransaction such as an order, delivery or a booking etc.

2010 - Nov [3] (a) Discuss the important features of Index sequential file organisation method.(4 marks)

(b) What are the functions of Data Manipulation language used in DBMS? (4 marks)Answer :(a) • Indexed sequential file organisation or indexed sequential access method (ISAM), is

a hybrid between sequential and direct access file organisations. • The records within the file are stored sequentially but direct access to individual

records is possible through an index. • It is a method of storing data for fast retrieval. In an ISAM system, data is organized

into records which are composed of fixed length fields. Records are storedsequentially, originally to speed access on a tape system.

• A secondary set of hash tables known as indexes contain "pointers" into the tables,allowing individual records to be retrieved without having to search the entire data set.

• The key improvement in ISAM is that the indexes are small and can be searchedquickly; allowing the database to then access only the records it needs.

• To locate a record, the cylinder index is searched to find the cylinder address, andthen the track index for the cylinder is searched to locate the track address of thedesired record.

Features : • It allows direct access of records in a relatively efficient way when the activity ratio

is low.• It permits the efficient and economical use of sequential processing technique when

the activity ratio is high.• Access to the records is slower than direct file.• Relatively expensive hardware and software may be required.• Less efficient in the use of storage space than other alternatives.

(b) Data Manipulation Language is a Database Language used by database users to retrieve,insert, delete and update data in a database.Functions :• It facilitate use of relationships between records.• It provide for independence of programming languages by supporting several

high level procedural languages like COBOL, PL/1 and C++.


• It provide the data manipulation techniques like deletion, modification, insertion,replacement, retrieval, sorting and display of data or records.

• It enable the user and application program to be independent of the physical datastructure and database structure maintenance by allowing to process data on a logicaland symbolic basis rather than on a physical location basis.

2011 - May [1] {C} Answer the questions in brief:(e) Differentiate between the "File Volatility" and the "File Activity". (2 marks)2011 - May [2] (b) What do you understand by "Data Definition Language" (DDL) ? Write thevarious functions of the DDL. (4 marks)2011 - May [6] (a) "The efficiency and effectiveness for end user applications is limited due tosome problems which are associated with File Processing System." Explain these problems.

(4 marks)2011 - May [7] Answer the questions :(d) What are the advantages of using a data warehouse ? (2 marks)(e) How does the "Random Access Method" which is a part of the direct access file

organization method perform ? (2 marks)

Chapter - 6 : Computer Networks & Network Security2010 - Nov [1] {C} Answer all following questions in brief :(d) Describe the functions of layers in TCP/IP protocol. (2 marks)Answer :The protocols used on the internet is called TCP/IP (Transmission Control Protocol /InternetProtocol). A TCP/IP protocol has two parts i.e TCP & IP TCP deals with exchange of sequentialdata and IP handless packet forwarding and is used on the internet. TCP/IP creates a packet-switching network. When a message, whether a file or just e-mail, is ready to be sent over theinternet, the TCP breaks it up into small packets and each packet is then given a header, whichcontains the destination address. The packets are then sent individually over the internet. The IPprotocols guides the packets so that they arrive at the proper destination.TCP/IP has four layers :

(i) Application Layer : This layer provides services directly to the users such as e-mail.(ii) Transport Layer : This layer provides end-to-end communication between applications

and verifies correct packet arrival.(iii) Internet Layer : It provides packet routing for error checking, addressing and integrity.(iv) Network Interface Layer: It provides an interface to the network hardware and device

drivers. It is also called as Data Link Layer.

2010 - Nov [4] Write the important characteristics of a Client-Server technology. (8 marks)


Answer :Characteristics of Client/Server technology :1. Client/server architecture consists of a client process and a server process that can be

distinguished from each other.2. The client portion and the server portions can operate on separate computer platforms.3. Either the client platform or the server platform can be upgraded without having to upgrade

the other platform. 4. The server is able to service multiple clients concurrently.5. In some client/server systems clients can access multiple servers. 6. The client server system includes some sort of networking capability.7. A vital portion of the application logic resides at the client end.8. The action is usually initiated at the client end, not the server end.9. GUI (Graphical user Interface) generally resides at the client end.10. SQL (structural Query Language) capability is characteristic of majority of the client/server

systems.11. The database server should provide protection & security.

2010 - Nov [6] (a) Explain the functions of a Communication Software. (4 marks)Answer :Management of flow of data across a network is done by communication software. This softwareis written in a wide variety of protocols which are rules and procedures of exchanging data.Functions performed by a communication software are : -1. Access Control :

This function establishes the connection between terminal and computers in a network. Thesoftware works with a communication processor to connect and disconnect differentdevices and establish parameters like speed mode & direction of transmission. This functioninvolves linking and disconnecting a connection by automatic dialing, answeringtelephones, redialing etc. This function also restricts access to authorized users only.

2. Network Management :It helps in polling devices to see whether they are ready to send and receive data. Thecommunication software determines system priorities, route messages, queing input andoutput. A longer transmission may be broken into smaller blocks for transmission over themost efficient path which is found by routing algorithm.

3. Data and File Transmission Control :This function allows computers and terminals to send & receive messages, commands, datafiles etc. Mechanism of error checking and correction of data transmission is also provided.

4. Error detection and Control :


Error control involves detection and correction of transmission error caused by distortionsin the communications channel such as noise, power surge etc.Communication software & processors control transmission error by several methodsincluding parity checking.

5. Data security :It protects data during transmission from unauthorized access. Automatic disconnection andcall back procedures may be used. Data transmissions can also be protected by encryptingthe data.

2010 - Nov [7] Answer the questions :(d) Write the features of Synchronous transmission. (2 marks)Answer :Synchronous Transmission:Bytes are sent over a communication link in a continuous bit stream in this mode and datatransfer is controlled by a timing signal initiated by the sending device. The sender and receivermust be in perfect synchronization to avoid the loss or gain of bits. Therefore, data blocks arepreceded by character called sync bits that are encoded into the information being transmittedand the remaining device recognizes and synchronies itself with a stream of these characters.This type of transmission is generally used for transmitting large volumes of data at high speeds.

SYNCHRONOUS TRANSMISSIONFeatures of Synchronous transmission are :• The bits are transmitted at fixed rate.• It is faster but more expensive transmission.• It allows data to be sent as multi-word block. • The transmitter and receiver both use the same clock signals for synchronisation.• It allows characters to be sent without start-stop bit.• Synchronisation bit is placed at the beginning and end of each block.• Timing is determined by MODEM.

2011 - May [1] {C} Answer the questions in brief:(c) What do you understand by "Message Switching" ? (2 marks)2011 - May [4] (a) Discuss various advantages and disadvantages of Star Network Topology.

(4 marks)2011 - May [7] Answer the questions :(b) Explain briefly "Asynchronous Transmission". (2 marks)


Chapter - 7 : Internet and Other Technologies2010 - Nov [6] (b) Explain, how a Electronic Data Interchange works? (4 marks)Answer :Electronic Data Interchange : EDI is computer-to-computer communication using a standarddata format to exchange business information electronically between independent organizations.To make EDI works, the following steps are required :• Select communication software;• Select standards for each document that are to be exchanged with trading partner;• Import an application file that defines the fields and records in the application;• Define a map that shows how the fields in the application correspond to the elements in the

standards;• Define partner profile that tells the system how transactions will be addressed, what they

will contain and how to respond to error; and• Finally, test the system with sample documents.

2010 - Nov [7] Answer the questions :(a) What is URL? Explain its format with suitable example. (2 marks)(b) Explain the meaning of Web casting. (2 marks)Answer :(a) URL stands for Uniform Resource Locator which is used to address and access individual

web pages and internet resources. The format of a URL is Protocol/Internet address/Webpage address. For example - http://www.tsainfo.com

(b) Web casting or push technology is a web based technology, which allows users to passivelyreceive broadcast information rather than actively search the web for information. It allowsusers to choose from a menu of sources, specifying what kind of information is needed.Once selected, the information is automatically forwarded to the user, e.g. Internet NewsServices.

2011 - May [3] (b) Discuss the various tools that are available for the protection of informationand system against compromise, intrusion or misuse. (4 marks)2011 - May [4] (b) "Supply Chain Management should focus on certain problems." Discuss theseproblems in detail. (4 marks)2011 - May [6] (b) How does Customer Relationship Management (CRM) improve customerrelationship ? (4 marks)2011 - May [7] Answer the questions :(c) Write short note on "Mobile Commerce". (2 marks)

Chapter - 8 : Flowcharting


2010 - Nov [5] What do you mean by the term flowchart? Draw a program flowchart to find thesum of first 50 odd numbers. (2 + 6 = 8 marks)Answer :Flowchart is a diagram that shows sequence of steps required to solve a particular problem.Flowchart is a logical flow of steps which shows sequence of operations of a program by usingsymbols and inter-connectivity lines. It is like a blueprint that shows the general plan andessential details of the proposed structure. Flowchart allows the programmer to compare differentapproaches and alternatives on paper and often shows inter-relationships that are not immediatelyapparent. The required flowchart to find the sum of first 50 odd numbers is drawn below :

Where CAWLmeans Clear All

Working Locations


2010 - Nov [7] Answer the questions :(c) What is Program debugging ? Explain it briefly. (2 marks)Answer :Program Debugging : is a process of finding errors in program and rectifying them by usingdiagnostic routine before putting the program into use. There is a real necessity to debug aprogram, i.e. to cleanse it from errors. For this purpose, the programmers device a set of test datatransactions to test the various alternative branches in the program. The results got from thecomputer are compared with one derived manually prior to computer processing. When theresults do not match for any reasons, the programmer then verifies the flowchart and codingsheet to hunt for the bugs. This process is called program debugging.

2011 - May [5] (a) For computing custom duty, the imported items are classified into 4categories. The rate of duty to be levied on each category of items is given below :

Category Class of goods % custom duty on the value(K) of goods (V)1 Food and beverages 102 Textile and leather goods 153 Heavy machinery 204 Luxury items 40

Draw a flowchart to compute the custom duty. (4 marks)

Chapter - 9 : Decision Table2011 - May [5] (b) Explain the necessity of the decision table. Discuss the different parts of thedecision table. (4 marks)

Part : 7BStrategic Management

Chapter - 1 : Business Environment2011 - May [9] (a) State with reasons which of the following statements is correct or incorrect.

(i) The term PESTLE analysis is used to describe a framework for analyzing the micro-environmental factors. (2 marks)

Chapter - 2 : Business Policy and Strategic Management2010 - Nov [9] (a) State with reasons which of the following statements is correct or incorrect.

(i) Not-for-profit organizations are not required to have a strategy. (2 marks)(ii) Control systems run parallel with strategic levels. (2 marks)

(b) Fill in the blanks in the following statements with the most appropriate word:(iii) Vision is always _______ oriented. (1 mark)

Answer :


(a) (i) Incorrect : Similar to commercial organizations, ‘not-for-profit’ organizations mustalso have a strategy. It is required to give it direction, focus and efficient utilization ofresources. In many ‘not-for-profit’ organizations surpluses are important for theirsurvival and growth.

(ii) Correct : There are three strategic levels – corporate, business and functional. Controlsystems are required at all the three levels. At the top level, strategic controls are builtto check whether the strategy is being implemented as planned and the results producedby the strategy are those intended. Down the hierarchy management controls andoperational controls are built in the systems. Operational controls are required forday-to-day management of business.

(b) Future.

2011 - May [9] (b) Fill in the blanks in the following statements with the most appropriate word :(ii) The corporate mission is an expression of the _________ of the firm. (1 mark)

2011 - May [10] Explain the meaning of the following concepts :(vii) Combination Strategies (1 mark)

2011 - May [14] Write short note on the following :(a) Importance of Strategic Management. (4 marks)

Chapter - 3 : Strategic Analysis2010 - Nov [8] {C} Read the following case and answer the questions given at the end : Godrej, still managed by a family board, is a 113-year-old brand and has a great brand value. Butyounger generation's reaction has been - "it's my parents' or my grandparents' brand. Hence theGroup launched a rebranding exercise in 2008, the most visible part being a new logo, uniformacross all group companies. It has well diversified businesses - cyclical (property : owning 3000acres in Mumbai's Vikhroli alone, Ahmedabad, Pune and Kalyan), stable (fast moving consumergoods), rural (Agrovat stores) and urban (organised retail stores-Nature's Basket, domesticappliances and furniture). The group sells fatty acids to tyre manufacturers; animal feed to1,00,000 farmers; and premium wine in Mumbai and Delhi. Its customers range from five-yearolds (nutrine), ageing man (hair dye), to housewives (soaps & locks), IT companies (rentingsprawling spaces), to Government of India (like rockets for Chandrayan), and to 50,000 barbers(Godrej dye). But it abstains in new-age, sunrise industries like health care and informationtechnology.

Godrej Consumer Products Limited (GCPL) has adopted a '3 by 3' strategy, sticking toemerging markets in three regions - Asia, Africa and Latin America as their culture, tastes andeven skin colours are quite similar to India and in three categories-personal care, hair-care andinsecticides. Since 2005, GCPL has made seven acquisitions, including its biggest acquisitionof Indonesia's Megasari Group for Rs. 1200 crore, in 2010. "Acquisitions overseas add status andpedigree to brand-owners in the domestic market" says an expert. Prashant Goenka (Emami)questions "When Indian companies such as Dabur, Godrej and Marico can make it big in


international markets, why can't Emami ?" Anil Chug (Wipro) says, "by having a presence inmultiple markets our risk assessment is neutralized". Marico's Harish opines- "the global playhas helped Marico expand its footprint and given it another avenue for growth."

Recently Godrej's top honchos toured the hinterlands, an indicator of the renewed focus onconsumer. To reach out to new customers, especially in rural India, it has gone in for destructiveinnovation. The group has been manufacturing refrigerators for more than 50 years, but itspenetration has been only 18%. It found out that people do not need a 180 litre fridge due tospace and cost constraints. It came out with 'Chotukool' - a square 45 litre minifridge priced atjust Rs. 3,250. Another example of destructive innovation is the launch of 'U & Us’ - a 'byappointment' design studio where customers co-design their furniture as customers see furnitureas an extension of their personality. Thus Godrej group is transiting from manufacturing-orientedto consumer oriented. Questions :

(i) What are the strengths of Group Godrej ? (3 marks)(ii) What are the weaknesses of Group Godrej ? (3 marks)(iii) What is the Group Godrej's perception with regard to innovation and consumers

now ? (3 marks)(iv) Why do firms go global ? (6 marks)

Answer :(i) Strengths of the Godrej group are :

a. The group is into well diversified businesses. The businesses are both cyclical andstable in nature. The group also has presence in both rural and urban markets withdifferent product offerings.

b. Godrej is more than 113 year old brand.c. Godrej enjoys trust and goodwill and has great brand value.d. Godrej have 3000 acres of own land in Vikhroli, a developing suburb in Mumbai.e. Godrej is growing internationally and is concentrating on emerging markets of three

regions – Asia, Africa, & Latin America.(ii) Weaknesses of the group are :

a. Godrej is managed by a family members. Unlike professional management thefamily considerations may play important role in the decisions of the company.

b. Godrej has made some aggressive acquisitions in recent times. How these areassimilated will be crucial for its business.

c. Lacks a significance presence in new-age, sun-rise industries like health care,information technology and automobile industry.

(iii) Godrej group is shifting from being manufacturing oriented to consumer oriented. Thecompany is focusing on customers and innovation. A business must understand what itscustomers want and keep innovating new products to satisfy the identified wants. If acompany fails to do this, it will get extinct. For innovation Godrej has adopted


destructive innovation. The capacity to innovate is a fundamental source of competitiveadvantage.

(iv) There are many reasons the companies go global :a. To increase the returns through higher margins or lower costs through large scale of

operations.b. Firms having surplus resources or capabilities developed at home may deploy them

abroad for expansion.c. Due to imposition of trade barriers by an importing state, the exporters from abroad

decide to build manufacturing plants in the importing country.d. Firms facing stiff domestic competition often decide to go international in search of

new market.e. International presence dilute local risk f. Development of Institutions to support and facilitate international business.g. Availing advantages of the liberalization initiatives of various governments across

the world.h. Attractive opportunities may exist in form of businesses in managerial or financial

difficulty.2010 - Nov [11] (a) Aurobindo, the pharmaceutical company wants to grow its business. DrawAnsoff’s Product Market Growth Matrix to advise them of the available options. (4 marks)(b) To which industries the following development offers opportunities and threats ?'The number of nuclear families, where husband and wife both are working, is fast increasing’.

(3 marks)Answer : (a) This tool was first introduced by Igor Ansoff and is useful tool that help businessmen

decide their product and market growth strategy. This two dimensional matrix gives us fourstrategic options.

Market Penetration : Under this alternative, one uses the to!do!nothing strategy, that isto continue with the original strategy.


Product Development : With some changes in the product the firm remains with the samecustomer. In R&D, product development may be the main direction of strategy becauseproduct life cycles are short and because new product may be a natural spin off from R&Dprocess.Market Development : The strategy involves entering markets in new geographical areas,promoting new uses of existing product.Diversification : Here the strategy involves developing new products in new market.

Based on the matrix, Aurobindo may segregate its different products. Being inpharmaceuticals, development of new products is result of extensive research and involveshuge costs. There are also social dimensions that may influence the decision of thecompany. It can adopt penetration, product development, market development ordiversification simultaneously for its different products.

(b) Different developments in the environment can offer different opportunities and threats tobusinesses. An opportunity is a favourable condition in the organisation’s environmentwhich enables it to strengthen its position with respect to its competitors. A threat is anunfavourable condition in the which causes a risk for, or damage to, the organisation’sposition.

The situation in the question relates to threats and opportunities of social environment.In the present social environment, there is growth of nuclear families. This is away from thejoint family system, when both husband & wife are working it increases their spendingcapacity. Such developments bring direct opportunities to different businesses such asReady to eat food, fast to cook items, dish washers, washing machines, crèches for childrenand so on. Indirect opportunities exists for other lifestyle products. At the same time, suchdevelopment also acts as threat to traditional raw food suppliers, kitty party organizers andso on.

2011 - May [8] {C} Read the following case and answer the questions given at the end :Sharp Corporation is a worldwide developer of innovative products and core technologies thatplay a key role in shaping the future of electronics. As a leader in liquid crystal displays (LCDs)and digital technologies, Sharp offers one of the broadest and most advanced lines of consumerelectronics, information products and electronic components, while also creating new networkbusinesses. Sharp Corporation has travelled a long way from an assembler of televisions to aleading TV manufacturer. In its early days as business enterprise, the company was making lowquality and low price TVs and was, thus overshadowed by the giants like Sony, Samsung andMatsushita. It was a technology follower in the beginning and was using secondary technology,The brand image, too, was not very high. Sharp, under the leadership of Machida, went for abrand image makeover by using innovation. The new leader has concentrated on R & D, inaddition to enhancing its market coverage.


Its innovation in liquid crystal display (LCD) technology and developing products featuringLCD's made at the reputed electronics company in Japan. Sharp is now the world's largestmanufacturer of LCD TVs. The company has very well succeeded and sustaining its success isa major critical factor : its focus on innovation. Unfortunately, the global economic downturnhas hit Sharp worse than the most American Companies. The industry as a whole, and Sharp inparticular, realised the fact that only innovation in terms of quality, cost and competitive strengthis the main survival factor. At the same time the industry is not unaware of the fact that everynew technology will obsolete faster. Average life of every new technology is becoming shorterand shorter.

The ever changing competitive scenario with the global competitors waging to dethroneSharp and the entry of low cost manufacturers from Asia, have created some of the biggestchallenges for Sharp. Newer display technologies with superior quality at a lesser price areemerging in the international market. Sharp has taken the first mover advantage, but is facingcompetition form the late entrants.Questions :

(i) What are the strengths of Sharp Corporation ? (3 marks)(ii) What are the weaknesses of Sharp Corporation ? (3 marks)

(iii) What should be the next move of Sharp Corporation ? (3 marks)(iv) Analyse the key success factors for LCD TV Industry. (6 marks)

2011 - May [10] Explain the meaning of the following concepts :(ii) Strategic Group Mapping (1 mark)

Chapter - 4 : Strategic Planning2010 - Nov [13] Distinguish between the following :(a) Top-Down and Bottom-Up Strategic Planning. (4 marks)(b) The Three Levels of Strategy Formulation. (3 marks)Answer :(a) Top-Down and Bottom-Up Strategic Planning : Strategic Planning, plans where an

organization is going over the next year or more and the ways for going there. The processis organization-wide, or focused on a major function such as a division or other majorfunction. So, strategic planning is a top level management function. The flow of planningcan be from corporate to divisional level or vice-versa. There are two approaches forstrategic planning - top down or bottom up.

(i) Top down strategic planning describes a centralized approach to strategyformulation inwhich the corporate centre or head office determines mission,strategic intent, objectives and strategies for the organization as a whole and for allparts. Unit managers are seen as implementers of pre-specified corporate strategieswhere as :


(ii) Bottom up strategic planning is a upward characteristic of autonomous orsemi-autonomous divisions or subsidiary companies in which the corporate centredoes not conceptualize its strategic role as being directly responsible fordetermining the mission, objectives, or strategies of its operational activities.Bottom-up strategic planning may prefer to act as a catalyst and facilitator, keepingthings reasonably simple and confining itself to perspective and broader strategicintent.

(b) In case of multidivisional & multilocational organisation that competes in several differentbusinesses. It has separate self-contained divisions to manage each of these. There are threelevels of strategy in management of business - corporate, business, and functional.Corporate level of management :• It consists of the chief executive officer and other top level executives. • These individuals occupy the apex of decision making within the organization. • The role of corporate-level managers is to oversee the development of strategies for

the whole organization. • This role includes defining the mission and goals of the organization, determining

what businesses it should be in, allocating resources among the different businessesand so on rests at the Corporate Level.

Development of strategies :• Development of strategies for an individual business areas is the responsibility of the

general managers in these different businesses or business level managers. • A business unit is a self-contained division with its own functions - e.g. finance,

production, and marketing. • The strategic role of business-level manager, head of the division, is to translate the

general statements of direction and intent that come from the corporate level intoconcrete strategies for individual businesses.

Functional - level : • Managers are responsible for the specific functions or operations such as human

resources, purchasing, product development, customer service, and so on. • Therefore a functional manager's sphere of responsibility is generally confined to one

organizational activity, whereas general managers oversee the operation of a wholecompany or division.

2010 - Nov [10] Explain the meaning of the following strategies and also give suitable examples(one each) :

(i) Forward Integration(ii) Backward Integration

(iii) Horizontal Integration (iv) Conglomerate Diversification (v) Divestment


(vi) Liquidation (vii) Concentric Diversification (7 marks)

Answer :

Strategy Meaning Example

(i) Forward Integration

Gaining ownership or increasedcontrol over the next level in thevalue chain (Manufacturing orintermediaries)

Reliance Industries (owningrefineries) diversified intopetrol pumps

(ii) Backward Integration

Gaining ownership or increasedcontrol over the previous level inthe value chain (Manufacturingor suppliers)

An automobile manufacturesd i v e r s i f y i n g in to t y r eproduction.

(iii) Horizontal Integration

Seeking ownership or increasedcontrol of a firm’s competitors

ICICI Bank taking over Bank ofRajasthan

(iv) ConglomerateDiversification

Adding new, unrelated products orservices

Yash Birla Group (auto &engineering) decides to enterwellness, solar power andschools.

(v) Divestment Divestment strategy involves thesale or liquidation of a portion ofbusiness, or a major division, profitcentre or SBU.

Godrej Group’s withdrawalfrom the JV with Sara Lee fromAfrica

(vi) Liquidation Liquidation strategy is an extremeand unattractive strategy as itinvolves closing down a firm andselling its assets. It is considered asthe last resort when all otheroptions fail.

Those companies whoseproducts are no more in demandsell all their assets.

(vii) C o n c e n t r i cDiversification

In concentric diversification, thenew business are added that arelinked to the existing businessesmanagement businesses. throughprocess, technology or marketing.

Kotak Mahindra Bank gets intoinsurance and asset


2011 - May [9] (b) Fill in the blanks in the following statements with the most appropriate word :(iii) Michael Porter's Generic strategies allow organizations to gain competitive advantages

by cost leadership,_________and focus. (1 mark)2011 - May [10] Explain the meaning of the following concepts :

(i) Corporate Strategy (1 mark)2011 - May [11] (b) ABC Ltd. plans to introduce changes in its structure, technology and people.Explain how Kurt Lewin's change process can help this firm. (3 marks)

Chapter - 5 : Formulation of Functional Strategy2010 - Nov [9] (b) (i)(b) Fill in the blanks in the following statements with the most appropriate word:

(i) "In the factory, we make cosmetics. In the drugstore, we sell ________.Answer :Hopes.

2010 - Nov [14] Write short notes on the following :(b) Elements of Marketing Mix. (3 marks)Answer :Marketing mix forms an important part of overall competitive marketing strategy. The marketingmix is the set of controllable marketing variables that the firm blends to produce the responseit wants in the target market. The marketing mix consists of everything that the firm can do toinfluence the demand for its product. These are usually referred to as 4Ps - product, price, placeand promotion.• Product stands for the “goods-and-service” combination the company offers to the target

Market. • Price stands for the amount of money customers have to pay to obtain the product. • Place stands for company activities that make the product available to target consumers.

One of the most basic marketing decision is choosing the most appropriate channel to reachtarget customer.

• Promotion stands for activities that communicate the merits of the product and persuadetarget consumers to buy it. It includes - Personal Selling, Advertising, Publicity and Salespromotion.

The traditional concept of 4Ps is also expanded further with more Ps such as, people,physical evidence and process. Under the dynamics of market all the Ps are extremelyimportant so as to build and sustain a competitive advantage over the rivals.The 4p’s and their relation with customer i.e. 4c’s are :

4p’s 4c’sProduct ÷ Relates with customer solution.Price ÷ Relates with Customer CostPlace ÷ Relates with Convenience


Promotion ÷ Relates with Communication with customers

2011 - May [9] (a) State with reasons which of the following statements is correct or incorrect.(ii) Marketers alone can deliver superior value to customers. (2 marks)

2011 - May [10] Explain the meaning of the following concepts :(iii) Relationship Marketing (1 mark)(iv) Supply Chain Management (1 mark)(v) Out bound Logistics (1 mark)

2011 - May [11] (a) "Evaluating the worth of a business is central to strategy implementation."In the light of this statement, explain the methods that can be used for determining the worth ofa business. (4 marks)

Chapter - 6 : Strategy Implementation & Control2010 - Nov [14] Write short notes on the following :(a) Network structure (4 marks)Answer :The increasing volatility of the environment, coupled with the emergence of knowledge-basedindustries, has led to the creation of a network structure. C It is also known as the 'spider's web structure' or the 'virtual organisation'. C The network structure is "composed of a series of project groups or collaborations linked

by constantly changing non-hierarchical cobweb-like networks". This structure is highlydecentralised and organised around customer groups or geographical regions. Rather thanbeing located in one place, the business functions are scattered far and wide.

C The core organisation is only a shell with a small headquarter acting as a 'broker' connectedto the suppliers and the specialised functions performed by autonomous teams andworkforce.

C The network structure is most suited to organisations that face a continually changingenvironment requiring quick response, high level of adaptability, and strong innovationsskills.

C This structure makes extensive use of the outsourcing of support services required toproduce and market products or services. There are few internal resources and a network structure, firm relies heavily on outsiders

who are specialised in their respective areas.


Advantages :1. High level of flexibility to change structural arrangements in line with business

requirements 2. Permits concentration on core competencies of the firm 3. Adaptability to cope with rapid environmental changeDisadvantages :1. Loss of control and lack of coordination as there are several partners2. Risks of overspecialisation as most tasks are performed by others 3. High costs as a duplication of resources could be there2011 - May [12] (b) How a corporate culture can be both strength and weakness of anorganisation ? (3 marks)2011 - May [13] Distinguish between the following :(a) Strategy Formulation and Strategy Implementation. (4 marks)2011 - May [14] Write short note on the following :(b) Advantages of SBU Structure. (3 marks)

Chapter - 7 : Reaching Strategic Edge2010 - Nov [12] "The growing use of the internet by businesses and consumers is changing thecompetitive scenario." Identify the characteristics of the E-commerce environment doing so.

(7 marks)Answer :The impact of the Internet and the rapidly emerging e-commerce environment is substantial andwidespread. The advent of the Internet and online networks is changing everything. Growing useof the Internet by businesses and consumers reshapes the economic landscape and alterstraditional industry boundaries. Characteristics of E-commerce environment changingcompetitive scenario are as under :


(a) The Internet makes it feasible for companies everywhere to compete in global markets. Thisis true especially for companies whose products are of good quality and can be shippedeconomically.

(b) There are new e-Commerce strategic initiatives of existing rivals and new entrants in formof e-commerce rivals. The innovative use of the Internet adds a valuable weapon to thecompetitive arsenal of rival sellers, giving them yet another way to jockey for marketposition and manoeuvre for competitive advantage.

(c) Entry barriers into the e-commerce world are relatively low. Relatively low entry barriersexplain why there are already hundreds of thousands of newly formed e-commerce firms,with perhaps millions more to spring up around the world in years to come. In manymarkets and industries, entry barriers are low enough to make additional entry both credibleand likely.

(d) Increased bargaining power of customers to compare the products, prices and other termsand conditions of rival vendors. Online buyers gain bargaining power because they confrontfar fewer obstacles to comparing the products, prices, and shipping times of rival vendors.

(e) Possibility for business organizations to locate the best suppliers across the world to gaincost advantage. The Internet makes it feasible for companies to reach beyond their bordersto find the best suppliers and, further, to collaborate closely with them to achieve efficiencygains and cost savings. Organisations can extend their geographic search for suppliers andcan collaborate electronically with chosen suppliers to systemise ordering and shipping ofparts and components, improve deliveries and communicate speedily and efficiently.

(f) Internet and PC technologies are advancing rapidly, often in uncertain and unexpecteddirections. Such changes are often bringing in new opportunities and challenges.

(g) Faster diffusion of new technology and new idea across the world. Organisations inemerging countries and elsewhere can use the internet to monitor the latest technologicaldevelopments and to stay abreast of what is transpiring in the developed markets.

(h) The e-commerce environment demands that companies move swiftly. In the explodinge-commerce world, speed is a condition of survival. New developments occur on one frontand then on another occur regularly.

(i) E-commerce technology opens up a host of opportunities for reconfiguring industry andcompany value chains. Using the internet to link the orders of customers with the suppliersof components enables just-in-time delivery to manufacturers, slicing inventory costs andallowing production to match demand.

(j) The Internet can be an economical means of delivering customer service. Organisations arediscovering ways to deliver service in a centralised manner – online or through telephone.


Thus curtailing the need to keep company personnel at different locations or at the facilitiesof major customers.

(k) The capital for funding potentially profitable e-commerce businesses is readily available.In the Internet age, e-commerce businesses have found it relatively easy to raise capital.Venture capitalists are quite willing to fund start-up enterprises provided they have apromising technology or idea, an attractive business model, and a well thoughtout strategicplan.

(l) The needed e-commerce resource in short supply is human talent-in the form of bothtechnological expertise and managerial know-how. While some e-commerce companieshave their competitive advantage lodged in patented technology or unique physical assetsor brand-name awareness, many are pursuing competitive advantage based on the expertiseand intellectual capital of their personnel and on their organizational competencies andcapabilities.

E-commerce refers to the use of Internet for business-to-business and business-to-consumertransactions. It is the process of doing business electronically. It automates business-to-businessand business-to-consumer transactions through reliable and secure connections.

E-commerce is a composite of technologies, processes and business strategies that fosterthe instant exchange of information within and between organizations. It is application of varioustechnologies of communication to provide the automated exchange of business information withinternal and external customers, suppliers and financial institutions.Characteristics of E-Commerce :

(i) Universality : Business-to-business interactions are possible using internet. Anybusiness can interact with any other business.

(ii) Reach : Internet has global reach i.e. to cities and towns throughout the modern anddeveloping world.

(iii) Performance : The Internet provides its users with a high-function window to the world,in addition to handling everyday networking tasks such as electronic mail, visual images,audio clips, video clips and other large electronic objects.

(iv) Reliability : Internet technology is highly robust, reliable and secure way ofcommunication.

(v) Cost : Internet costs are lower than other alternative electronic networking technologies.(vi) Momentum : Millions of people are already connected to the Internet and business of

it is increasing at a dramatic rate.

(vii) Reduced Costs : Due to increased competition between suppliers who compete in anelectronically open market place, the costs to buyers have reduced. Even suppliers canelectronically access on-line databases of bid opportunities, on-line abilities to submitbids, and on-line review of rewards, thereby reducing their costs.


(viii) Reduced Time for Business Transactions : There is a reduction in time to completea business transaction, particularly from delivery to payment.

(ix) New Markets : It creates new markets through the ability to easily and cheaply reach thepotential customers.

(x) Errors and Overhead Costs: Reduced errors, time and overhead costs in informationprocessing by eliminating requirements for re-entering data.

(xi) Entry to New Markets : There is a easier entry to new markets especiallygeographically remote markets, for companies of all sizes and locations.

(xii) Inventory Control : There is reduced inventories and reduction of risk of obsoleteinventories as the demand for goods are electronically linked through just-in-timeinventory and integrated manufacturing techniques, hence providing better control overinventory.

(xiii) Overhead Costs : Reduction in overhead costs through uniform automation andlarge-scale integration of management process. There is also a reduction in advertisingcosts.

(xiv) Delivery, Design and Manufacturing Costs : Reduction in delivery cost especially ofgoods that can be electronically delivered and also a reduction in design andmanufacturing costs.

(xv) Global Programs : Companies are able to undertake major global programs in whichthe cost and personnel needed to manage a non-automated system would be unreasonableor prohibitive.

(xvi) Access : Use of public network-based infrastructure can level the playing field for bothsmall and large companies. This allows companies of all sizes to extend their reactionto a broad customer sector.

The benefits of corporate-wide implementation of E-commerce are many but withbenefits also becomes risks. Therefore the companies should not leap blindly intoE-commerce, but rather first develop an E-commerce strategy, and then organize acorporate wide team to implement such strategy to gain the best of results.

2011 - May [9] (b) Fill in the blanks in the following statements with the most appropriate word :(i) The orientation of the redesign effort refers to a total ________and rethinking of entire

business process. (1 mark)2011 - May [10] Explain the meaning of the following concepts :

(vi) Business Process Re-engineering (1 mark)2011 - May [12] (a) What is Benchmarking ? What are the elements involved in Benchmarkingprocess ? (4 marks)2011 - May [13] Distinguish between the following :(b) TQM and Traditional Management Practices. (3 marks)