ks academy sap 1 ² 09.02.20 sap 1 …ks academy sap 1 ² 09.02.20 5 (v) professional tax paid rs....

KS ACADEMY SAP 1 – 09.02.20

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SAP 1 – 09.02.2020

INTERMEDIATE (NEW) GROUP –I

PAPER-4: TAXATION

(Time Allowed – 135 Minutes) Maximum Marks - 75

Division A Multiple Choice Questions - 22 Marks

Part A – Income Tax Laws: - 13 Marks

1. For the purposes of computing exemption under section 10(10), in case of Mr. Anand, an employee of ABC Ltd., who is covered by the Payment of Gratuity Act, 1972, "salary" includes –

(a) only basic pay (b) basic pay and dearness allowance, if provided in the terms of employment (c) basic pay and dearness allowance

(d) basic pay, dearness allowance and commission as a fixed percentage of turnover. (1 mark)

2. Mr. Devansh has agricultural income of Rs.2,30,000 and business income of Rs.2,45,000. Which of the following statements are correct?

(a) Agricultural income has to be aggregated with business income for tax rate purposes.

(b) No aggregation is required since agricultural income is less than basic exemption limit.

(c) No aggregation is required since business income is less than basic exemption limit.

(d) Agricultural income is exempt under section 10(1) but the same has to be aggregated with business income, since it exceeds Rs. 5,000.

(1 mark) 3. Jenny has invested in debt securities of Haryali Pvt. Ltd., a company deriving its main

source of income from business of growing and processing organic vegetables and fruits. Thus, the company has 80% of income exempt as agricultural income and 20% is taxable as business income. During the P.Y. 2018-19, Jenny derived Rs.5,000 as interest income from the above investments. Which of the following statements are correct on taxability:

(a) Interest will be exempt from tax to the extent of 80%, since Hariyali Pvt. Ltd has 80% exempted income.

(b) Interest will be exempt from tax to the extent of 20%, since Hariyali Pvt. Ltd has claimed 80% of income as exempt.

(c) Interest will be fully taxable (d) Interest will be fully exempt.

(1 mark) 4. Ashok took possession of property on 31st August 2018 booked by him three years

back at Rs.25lakhs, The Stamp Duty Value (SDV) of the property as on 31st August 2018 was Rs.31 lakh and on date of booking it was Rs.29 lakh. He had paid Rs.2 lakh by A/c payee cheque as down payment on date of booking. Which of the following will be considered as income, if any, and in which previous year

(a) Rs.4 lakhs in P.Y. 2018-19 (b) Rs.4 lakhs in P.Y. 2015-16 (c) Rs.6 lakhs in P.Y. 2018-19 (d) No income shall be taxable, since down payment was paid by A/c cheque

while booking the property.


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(1 mark) 5. Under the provisions of the Income-tax Act, 1961, the term “Person” would not

include: (a) A body corporate incorporated in a country outside India (b) A Limited Liability Partnership (LLP) (c) Indian branch of a foreign company (d) A co-operative society.

(1 mark) 6. Which of the following incomes is not deemed to accrue or arise in India under section

9(1)(i) of the Income-tax Act, 1961? (a) Income from any business connection in India (b) Income through or from any property in India (c) Income arising from transfer of a capital asset situate in India (d) Income relating to operations which are confined to purchase of goods in

India for the purpose of export. (1 mark)

7. Mr. Happy, a US citizen, came to India for an assignment from 11.01.2015 to 09.10.2015 and went back to his home country on completion of the same. He thereafter, visited India on 05.07.2017 again for an assignment, which ended on 26.05.2018. What is the latest date by which Mr. Happy should depart from India after completing the assignment so as to qualify as non-resident for P.Y. 2018-19? (Assume that he shall not be visiting India again during the year)

(a) 29-05-2018 (b) 30-05-2018 (c) 31-05-2018 (d) 28-09-2018

(1 mark) 8. Mr. Agarwalmoved to Mumbai. He took a property on rent for his residential

purpose. However, the property was not fully occupied by him. He let out the property to his friend at Rs.15,000 p.m. from 01.04.2018 to 31.03.2019. Mr. Agarwal is of the view that income from subletting of property is taxable as Income from House Property. As tax advisor of Mr. Agarwal, find out whether his view is correct?

(a) Correct, as any income from a house property is taxable under the head Income from House Property.

(b) Incorrect, as Mr. Agarwal is not the owner of the property let out by him. The income from subletting shall be taxable under the head Profits and Gains of Business or Profession.

(c) Incorrect, as Mr. Agarwal is not the owner of the property let out by him. The income from subletting shall be taxable under the head Income from other sources.

(d) Correct, as income from subletting of a property is directly attributable to the property itself and hence, chargeable to tax as income from house property.

(2 marks) 9. Mr. Warner, an Indian citizen and a Government employee, left India for the first time

on 31.01.2018 on account of his transfer to High Commission in United Kingdom. During P.Y. 2018-19, he visited India only for a week on occasion of his brother marriage. During F.Y. 2018-19, his income composition includes salary, foreign allowances, rent from property in Singapore and interest earned from fixed deposits maintained with SBI. His taxable income for P.Y. 2018-19 will include:

(a) All of them, since Mr. Warner is a resident in India, hence his global income will be taxable


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(b) Only interest earned from fixed deposits maintained in India (c) No income shall be taxable since Mr. Warner is a non-resident in India for P.Y.

2018-19 (d) Salary and interest income of fixed deposits with SBI

(2 marks) 10. Mr.Aarav gifted a house property valued at Rs.50 lakhs to his wife, Geetha, who in

turn has gifted the same to her daughter-in-law Deepa. The house was let out at Rs.25,000 per month throughout the P.Y.2018-19. Compute income from house property for A.Y.2019-20. In whose hands is the income from house property chargeable to tax?

(a) Rs.3,00,000 in the hands of Mr. Aarav (b) Rs.2,10,000 in the hands of Mr. Aarav (c) Rs.2,10,000 in the hands of Geetha (d) Rs.2,10,000 in the hands of Deepa

(2 marks)

Part B – Indirect Tax Laws – 9 Marks

11. Mr. Narayan Goel has booked a room on rent in Sunshine Hotel for the purpose of lodging on 10.08.20XX. GST is not payable by Mr.Narayan Goel in case value of supplyfor the same is ____

(a) Rs.800 (b) Rs.6000 (c) Rs.11000 (d) Rs.1500

(1 mark) 12. Which of the following services received without consideration amount to supply?

1) Import of services by a person in India from his son well-settled in USA 2) Import of services by a person in India from his brother well-settled in

Germany 3) Import of services by a person in India from his brother (wholly dependent on

such person in India) in France 4) Import of services by a person in India from his daughter (wholly dependent

on such person in India) in Russia a) 1), 3) and 4) b) 2), 3) and 4) c) 2) and 3) d) 1) and 2)

(1 mark) 13. Can a registered person opting for composition scheme collect GST on his outward

supplies? (a) Yes, in all cases (b) Yes, only on such goods as may be notified by the Central Government (c) Yes, only on such services as may be notified by the Central Government (d) No.

(1 mark) 14. GST is payable by recipient of services in the following cases:-

(i) Services provided by way of sponsorship to ABC Ltd. (ii) Services supplied by a director of Galaxy Ltd. to Mr. Krishna. (iii) Services by Department of Posts by way of speed post to MNO Ltd. (iv) Services supplied by a recovering agent to SNSP Bank

(a) (i) & (iii)


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(b) (i) & (iv) (c) (ii) & (iii) (d) (ii) & (iv)

(2 marks) 15. Mr. Sham is receiving legal services from a lawyer Mr. Gyan. The information

regarding date of payment, invoice etc. is as follows- 1. Invoice issued by Mr. Gyan on 15-Apr-20XX 2. Payment received by Mr. Gyan on 5-May-20XX 3. Date of payment entered in books of accounts of Sham: 1-May-20XX.

What is time of supply of goods? a) 1-May-20XX b) 5-May-20XX c) 14-Jun-20XX d) 15-Apr-20XX.

(2 marks) 16. Which is not considered as supply under GST Law?

(a) Stock transferred from one establishment in Delhi to another establishment in Gurgaon, Haryana registered under same PAN.

(b) CA Ram supplies accounting services to CA Radha in lieu of taxation services received from CA Radha.

(c) A Health club supplies lunch to its members at its annual meeting against a nominal charge.

(d) Mr. A sells a flat to Mr. B (i) Date of completion certificate - 31/01/20XX (ii) Date of agreement with buyer - 01/02/20XX (iii) Consideration received - 05/02/20XX.

(2 marks)

1 C 2 C 3 C 4 A

5 C 6 D 7 A 8 C

9 D 10 B 11 A 12 A

13 A 14 B 15 A 16 D

Division B: Descriptive Questions - 53 Marks

Answer all the questions.

Part A – Income-Tax Laws – 32 Marks

1) (a) Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you the

following information for the year ended 31.03.2020: (i) Basic salary up to 31.10.2019 Rs.50,000 p.m. Basic salary from 01.11.2019 Rs.60,000 p.m. Note: Salary is due and paid on the last day of every month. (ii) Dearness allowance @ 40% of basic salary. (iii) Bonus equal to one month salary. Paid in October 2019 on basic salary plus

dearness allowance applicable for that month. (iv) Contribution of employer to recognized provident fund account of the

employee@16% of basic salary.


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(v) Professional tax paid Rs. 2,500 of which Rs. 2,000 was paid by the employer.

(vi) Facility of laptop and computer was provided to Balaji for both official and personal use. Cost of laptop Rs. 45,000 and computer Rs. 35,000 were acquired by the company on 01.12.2019.

(vii) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to the employee from 01.11.2019 meant for both official and personal use. Repair and running expenses of Rs. 45,000 from 01.11.2019 to 31.03.2020, were fully met by the employer. The motor car was self-driven by the employee.

(viii) Leave travel concession given to employee, his wife and three children (one daughter aged 7 and twin sons aged 3). Cost of air tickets (economy class) reimbursed by the employer Rs. 30,000 for adults and Rs. 45,000 for three children. Balaji is eligible for availing exemption this year to the extent it is permissible in law.

Compute the salary income chargeable to tax in the hands of Mr. Balaji for the assessment year 2020-21. (6 marks)


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(b) Mr. X, a resident, has provided the following particulars of his income for the P.Y. 2019-20.

i. Income from salary (computed) -Rs. 2,80,000 ii. Income from house property (computed) -Rs. 2,50,000

iii. Agricultural income from a land in Jaipur -Rs. 4,80,000 iv. Expenses incurred for earning agricultural income -Rs. 1,70,000

Compute his tax liability assuming his age is – 70 years.

(3marks)


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2) (a) Prem owns a house in Madras. During the previous year 2019- 20, 2/3rd portion

of the house was self-occupied and 1/3rd portion was let out for residential purposes at a rent of Rs. 8,000 p.m. Municipal value of the property is Rs. 3,00,000 p.a., fair rent is Rs. 2,70,000 p.a. and standard rent is Rs. 3,30,000 p.a. He paid municipal taxes @10% of municipal value during the year. A loan of Rs. 25,00,000 was taken by him during the year 2015 for acquiring the property. Interest on loan paid during the previous year 2019-20 was Rs. 1,20,000. Compute Prem’s income from house property for the A.Y. 2020-21.

(5marks)


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(b) Examine the following transactions in the context of Income-tax Act, 1961:

(i) Mr. B transferred 500 shares of R (P) Ltd. to M/s. B Co. (P) Ltd. on 10.10.2019 for Rs.3,00,000 when the market price was Rs.5,00,000. The indexed cost of acquisition of shares for Mr. B was computed at Rs.4,45,000. The transfer was not subjected to securities transaction tax. Determine the income chargeable to tax in the hands of Mr.B and M/s. B Co.(P) Ltd. because of the above said transaction.

(ii) Mr.Chezian is employed in a company with taxable salary income of Rs. 5,00,000. He received a cash gift of Rs. 1,00,000 from Atma Charitable Trust(registered under section 12AA) in December 2019 for meeting his medical expenses. Is the cash gift so received from the trust chargeable to tax in the hands of Mr.Chezian?


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(3marks)

3) Mrs. Yuvika bought a vacant land for Rs.80 lakhs in May 2004. Registration and other expenses were 10% of the cost of land. She constructed a residential building on the said land for Rs.100 lakhs during the financial year 2006-07. She entered into an agreement for sale of the above said residential house with Mr. Johar (not a relative) in April 2015. The sale consideration was fixed at Rs.700 lakhs and on 23-4-2015, Mrs. Yuvika received Rs.20 lakhs as advance in cash by executing an agreement. However, due to failure on part of Mr. Johar, the said negotiation could not materialise and hence, the said amount of advance was forfeited by Mrs.Yuvika. Mrs.Yuvika, again entered into an agreement on 01.08.2019 for sale of this house at Rs.810 lakhs. She received Rs.80 lakhs as advance by cash payment. The stamp duty value on the date of agreement was Rs.835 lakhs. The sale deed was executed and registered on 14-1-2020 for the agreed consideration. However, the State stamp valuation authority had revised the values, hence, the value of property for stamp duty purposes was Rs.870 lakhs. Mrs.Yuvika paid 1% as brokerage on sale consideration received. Subsequent to sale, Mrs.Yuvika made following investments: (i) Acquired a residential house at Delhi for Rs.130 lakhs on 31.5.2020. (ii) Acquired a residential house at UK for Rs.290 lakhs on 23.3.2020. (iii) Subscribed to NHAI capital gains bond (approved under section 54EC) for

Rs.47 lakhs on 29-3-2020 and for Rs.50 lakhs on 12-5-2020.

Compute the income chargeable under the head 'Capital Gains'. The choice of exemption must be in the manner most beneficial to the assessee.

Cost Inflation Index: F.Y. 2004-05 –113; F.Y. 2006-07 –122; F.Y. 2019-20 -289.

(7marks)


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Answer

Computation of income chargeable under the head “Capital Gains” for A.Y.2020-21

Particulars Rs. (in lakhs)

Rs. (in lakhs)

Capital Gains on sale of residential building

870.00

Actual sale consideration Rs. 810 lakhs

Value adopted by Stamp Valuation Authority Rs. 870 lakhs

Gross Sale consideration

[Where the actual sale consideration declared by the assessee on the date is less than the value adopted by the Stamp Valuation Authority for the purpose of charging stamp duty, and such stamp duty value exceeds 105% of the actual sale consideration then, the value adopted by the Stamp Valuation Authority shall be taken to be the full value of consideration as per section 50C.

However, where the date of agreement is different from the date of registration, stamp duty value on the date of agreement can be considered provided the whole or part of the consideration is received by way of account payee cheque/bank draft or by way of ECS through bank account on or before the date of agreement.

In this case, since advance of Rs. 80 lakh is received by cash, stamp duty value on the date of agreement cannot be adopted as the full value of consideration. Stamp duty value on the date of registration would be considered for determining the full value of consideration, since such value exceeds 105% of

Rs. 810 lakhs]

Less: Brokerage@1% of sale consideration (1% of Rs. 810 lakhs)

8.10

Net Sale consideration 861.90


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Less: Indexed cost of acquisition

- Cost of vacant land, Rs. 80 lakhs, plus registration and other expenses i.e., Rs. 8 lakhs, being 10% of cost of land [Rs. 88 lakhs × 289/113]

225.06

- Construction cost of residential building (Rs. 100 lakhs x 280/122)

236.89

461.95

Long-term capital gains3 before exemption 399.95

Less: Exemption under section 54 130.00

The capital gain arising on transfer of a long-term residential property shall not be chargeable to tax to the extent such capital gain is invested in the purchase of one residential house property in India one year before or two years after the date of transfer of original asset. Therefore, in the present case, the exemption would be available only in respect of the residential house

acquired at Delhi and not in respect of the residential house in UK

Less: Exemption under section 54EC 50.00

Amount deposited in capital gains bonds of NHAI within six months after the date of transfer (i.e., on or before 13.7.2019), of long-term capital asset, being land or

building or both, would qualify for exemption, to the

maximum extent of Rs. 50 lakhs, whether such investment is made in the current financial year or subsequent financial year.

Therefore, in the present case, exemption can be availed only to the extent of Rs. 50 lakh out of Rs. 97 lakhs, even if the both the investments are made on or before 13.7.2019 (i.e., within six months after the date of transfer).

Long term capital gains chargeable to tax 219.95

Note: Advance of Rs. 20 lakhs received from Mr. Johar, would have been chargeable to tax

under the head “Income from other sources”, in the A.Y. 2016-17, as per section 56(2)(ix),

since the same was forfeited on or after 01.4.2014 as a result of failure of negotiation.

Hence, the same should not be deducted while computing indexed cost of acquisition.

KS ACADEMY SAP1 – 09.02.2020

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4) (a) Mr.Ramesh & Mr.Suresh are brothers and they earned the following incomes during the financial year 2019- 20. Mr.Ramesh settled in Canada in the year 1996 and Mr.Suresh settled in Delhi. Compute the Gross total income for the A.Y. 2020-21.

Sr.No. Particulars

Mr.Ramesh (Rs.)

Mr.Suresh (Rs.)

1 Interest on Canada Development Bonds (only 50% of interest received in India) 35,000 45,000

2 Dividend from British company received in London 28,000 20,000

3 Profits from a business in Nagpur, but managed directly from London 1,00,000 1,40,000

4 Short term capital gain on sale of shares of an Indian company received in India 60,000 90,000

5 Income from a business in Chennai 80,000 70,000

6 Fees for technical services rendered in India, but received in Canada 1,00,000 ---

7 Interest on savings bank deposit in UCO Bank, Delhi 7,000 12,000

8 Agricultural income from a land situated in Andhra Pradesh 55,000 45,000

9 Rent received in respect of house property at Bhopal 1,00,000 60,000

10 Life insurance premium paid --- 30,000

(5Marks)


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(b) State any three instances where the income of the previous year is assessable in the

previous year itself instead of the assessment year. (3 Marks)


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Part B – Indirect Taxes – 21 Marks

5) (a) Examine whether the following activities would amount to supply under section 7 read with Schedule I of the CGST Act: (a) Sulekha Manufacturers have a factory in Delhi and a depot in Mumbai. Both these

establishments are registered in respective States. Finished goods are sent from factory in Delhi to the Mumbai depot without consideration so that the same can be sold.

(b) Raman is an architect in Chennai. His brother who is settled in London is a well-known lawyer. Raman has taken legal advice from him free of cost with regard to his family dispute.

(c) Would your answer be different if in the above case, Raman has taken advice in respect of his business unit in Chennai?

(3 Marks)


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(b) Mr. Ajay has a registered repair centre where electronic goods are repaired/serviced. His repair centre is located in State of Rajasthan and he is not engaged in making any inter-State supply of services. His aggregate turnover in the preceding financial year (FY) is Rs.45 lakh. With reference to the provisions of the CGST Act, 2017, examine whether Mr. Ajay can opt for the composition scheme in the current financial year (FY)? Is he eligible to avail benefit of concessional payment of tax under Notification No. 2/2019 CT (R) dated 07.03.2019? Considering the option of payment of tax available to Mr. Ajay, compute the amount of tax payable by him assuming that his aggregate turnover in the current financial year is Rs.35 lakh. Will your answer be different if Mr.Ajay procures few items required for providing repair services from neighbouring State of Madhya Pradesh?

(4Marks)


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6) (a) Determine taxable value of supply under GST law with respect to each of the following

independent services provided by the registered persons:

Particulars

Gross amount charged (Rs.)

Fees charged for yoga camp conducted by a charitable trust registered under section 12AA of the Income-tax Act, 1961 50,000

Amount charged by business correspondent from banking company for the services provided to the rural branch of a bank with respect to Savings Bank Accounts 1,00,000

Amount charged by cord blood bank for preservation of stem cells 5,00,000

Amount charged for service provided by commentator to a recognized sports body 5,20,000

(4Marks)


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(b) Determine the time of supply in the following cases assuming that GST is payable

under reverse charge:

S. No. Date of payment by the recipient for supply of services

Date of issue of invoice by the supplier of services

1 2

1 Part payment made on June 30 and balance amount paid on September 1 June-29

2 Payment is entered in the books of account on June 28 and debited in recipient’s bank account on June 30 June-01

3 Payment is entered in the books of account on June 30 and debited in recipient’s bank account on June 26 June-29

(3Marks)


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7) (a) State person liable to pay GST in the following independent cases provided recipient

is located in the taxable territory: (a) Services provided by an arbitral tribunal to any business entity. (b) Sponsorship services provided by a company to an individual. (c) Renting of immovable property service provided by the Central Government to a

registered business entity. (3Marks)


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(b) Mahak Sons is a registered supplier of electronic items and pays GST under regular

scheme. On 15thJuly 20XX, Mahak Sons received an order from Sunder Trader for supply of a consignment of electronic items. Mahak Sons gets the consignment ready by 20thJuly 20XX. The invoice for the consignment was issued the next day, 21stJuly 20XX. Sunder Trader could not collect the consignment immediately. Sunder Trader collects the consignment from the premises of Mahak Sons on 30thJuly 20XX and hands over the cheque towards payment on the same date. The said payment is entered in the books of accounts of Mahak Sons on 31stJuly,20XXand amount is credited in their bank account on 1stAugust 20XX. You are required to determine the time of supply of the electronic items for the purpose of payment of tax.

(2 Marks)

(c) Samriddhi Advertisers conceptualised and designed the advertising campaign for a new product launched by New Moon Pvt Ltd. for a consideration of Rs.5,00,000. Samriddhi Advertisers owed Rs.20,000 to one of its vendors in relation to the advertising service provided by it to New Moon Pvt Ltd. Such liability of Samriddhi Advertisers was discharged by New Moon Pvt Ltd. New Moon Pvt Ltd. delayed the payment of consideration and thus, paid Rs.15,000 as interest. Assume the rate of GST to be 18%. Determine the value of taxable supply made by Samriddhi Advertisers.

(2 Marks)


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1

SAP 1 – 09.02.2020

INTERMEDIATE (NEW) GROUP –I

PAPER-2: CORPORATE AND OTHER LAWS


Division A: Multiple Choice Questions - 8 Marks

1. Rajesh has formed a ‘One Person Company (OPC)’ with his wife Roopali as nominee. For

the last two years his wife Roopali is suffering from terminal illness and due to this hard

fact he wants to change her as nominee. He has a trusted and experienced friend

Ramnivas who could be made nominee or his (Rajesh) son Rakshak who is of seventeen

years of age. Whom should he nominate as nominee in place of his wife?

(a) Since blood relation can only be appointed as nominee in case of OPC, Rajesh

needs to appoint his son Rakshak.

(b) Rajesh can appoint his friend Ramnivas as nominee in his OPC

(c) Roopali is not agreeable to the proposal of Rajesh and hence, Rajesh cannot

change her as the nominee.

(d) Either Rakshak or Mr. Ramnivas can be appointed as nominee.

(2 Marks)

2. A Ltd. is the holding company of B Ltd. Another company C Ltd. is the subsidiary

company of B Ltd. Is there any relationship between A Ltd. and C Ltd.

(a) There is no relationship between A Ltd. and C Ltd.

(b) C Ltd. is deemed to be the subsidiary of A Ltd.

(c) A Ltd. shall be deemed to be the holding company of C Ltd. provided A Ltd.

acquires at least 10% stake in C Ltd.

(d) C Ltd. shall be deemed to be the subsidiary of A Ltd. if the latter company

acquires minimum 10% stake in the former company within six months after C

Ltd. becomes subsidiary of B Ltd.

(1 Mark)

3. Shruti, a common friend of Suchitra and Sukanya, got incorporated OPC sometime before

and during a chit-chat with her friends informed them that there is some limit on the

maximum capital which her OPC can have and she would have to convert her OPC either


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into a private or public limited company if such limit exceeded. Suchitra and Sukanya

who are desirous of forming a private limited company for carrying on textile trading

business, are unsure about the maximum capital which a private limited company can

have. Advise.

(a) A private limited company can have maximum of Rs.One crore as share capital.

(b) A private limited company can have maximum of Rs.Two crores as share capital.

(c) A private limited company can have maximum of Rs.Five crores as share capital.

(d) A private limited company can have unlimited share capital.

(2 Marks)

4. Vinay and Sanjay made a name reservation application accompanied by requisite fee to

the Registrar for forming a new private company. The Registrar accorded its approval for

reservation of most preferred name Vinanjay Softwares Private Ltd. on 7thJuly, 2018. By

which date necessary documents for incorporation of the company must be submitted to

the Registrar so that the reserved name does not get lapsed.

(a) Latest by 20thJuly, 2018

(b) Latest by 27thJuly, 2018

(c) Latest by 4thAugust, 2018

(d) Latest by 4thSeptember, 2018.

(2 Marks)

5. In Roopali Marketing Company Private Limited (Authorised capital 50,000 shares of Rs.

10 each and paid-up share capital of Rs. 4,50,000), 1000 shares are jointly held by Abeer

and Abheek; another 800 shares are jointly held by Seema and Srividya; and another 1200

are jointly held by Ramesh, Raksha and Rajneesh. Further, 42,000 shares are held by 193

individual persons in their individual capacity. Is it possible for the company to induct

more persons?

(a) The company is unable to induct more persons since it already has two hundred

individual members.

(b) The company can induct four more persons as members.

(c) The company can induct another 20 persons (i.e. 10% of two hundred individual

members) after seeking permission from the concerned ROC.

(d) If the company does not want to seek permission of the concerned ROC, it can

induct only 10 more persons (i.e. 5% of two hundred individual members).

(2 Marks)


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1 B 2 B 3 D 4 B 5 B



1. Explain in the light of the provisions of the Companies Act, 2013, the circumstances

under which a subsidiary company can become a member of its holding company.

(4 Marks)

2. Alfa schools started imparting education on 1.4.2010, with the sole objective of providing

education to children of weaker society either free of cost or at a very nominal fee

depending upon the financial condition of their parents. However, on 30th March 2018, it

came to the knowledge of the Central Government that the said school was operating by

violating the objects of its objective clause due to which it was granted the status of a

section 8 company under the Companies Act, 2013. Describe what powers can be

exercised by the Central Government against the Alfa School, in such a case?

(6 Marks)


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3. XY Ltd. has its registered office at Mumbai in the State of Maharashtra. For better

administrative conveniences the company wants to shift its registered office from

Mumbai to Pune (within the State of Maharashtra). What formalities the company has to

comply with under the provisions of the Companies Act, 2013 for shifting its registered

office as stated above? Explain.

(3 Marks)

4. What does the term Financial Statements include in relation to a company under the

Companies Act, 2013? Which companies need not prepare a cash flow statement?

(3 Marks)


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1

SAP 1 – 09.02.2020

INTERMEDIATE (NEW) GROUP – II

PAPER-6: AUDITING AND ASSURANCE


Division A: Multiple Choice Questions (20 Marks)

1. Determining a percentage to be applied to a chosen benchmark (in relation to

materiality) involves the exercise of ___________

(a) Independence

(b) Professional Judgement

(c) Professional scepticism

(d) All of the above.

(1 Mark)

2. All the inventory units held by the audit entity and that should have been recorded, has

been recognised in the financial statements. The assertion involved is:

(a) Existence

(b) Completeness

(c) Rights and Obligations

(d) Valuation

(1 Mark)

3. The remuneration of Cost auditor can be ratified by,

(a) Board

(b) Members

(c) CAG

(d) None of the above

(1 Mark)

4. Which of the following are not included in the definition of ‘relatives’ as per companies act.

(a) Step Son’s wife

(b) Step Father

(c) Daughter’s Husband


(1 Mark)

5. If law or regulation prescribes in sufficient detail the terms of the audit engagement,

(a) the auditor need not record them in a written agreement, except for the fact

that such law or regulation applies and that management acknowledges and

understands its responsibilities.

(b) the auditor need not record them in a written agreement

(c) the auditor needs to record them in a written agreement


(1 Mark)

6. A request from the client for the auditor to change the engagement may result from-


2

(a) a change in circumstances affecting the need for the service,

(b) a misunderstanding as to the nature of an audit or related service originally

requested.

(c) a restriction on the scope of the engagement, whether imposed by

management or caused by circumstances.


(1 Mark)

7. The purpose of monitoring compliance with quality control policies and procedures is to

provide an evaluation of:

(a) Adherence to professional standards and regulatory and legal requirements;

(b) Whether the quality control system has been appropriately designed and

effectively implemented; and

(c) Whether the firm’s quality control policies and procedures have been appropriately applied, so that reports that are issued by the firm or

engagement partners are appropriate in the circumstances.

(d) All of the above

(1 Mark)

8. The firm’s system of quality control should include policies and procedures addressing

which of the following element:

(a) Leadership responsibilities for quality within the firm.

(b) Ethical requirements.

(c) Acceptance and continuance of client relationships and specific

engagements.

(d) All of the above

(1 Mark)

9. Once the overall audit strategy has been established, _______can be developed to

address the various matters identified in the overall audit strategy, taking into account

the need to achieve the audit objectives through the efficient use of the auditor’s resources.

(a) audit strategy

(b) audit plan

(c) audit plan and audit strategy

(d) audit note book.

(1 Mark)

10. Components of risk of material misstatement at the assertion level are:

(a) Inherent risk and detection risk

(b) inherent risk and control risk

(c) control risk and detection risk

(d) inherent risk, control risk and detection risk.

(1 Mark)


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11. If the auditor is unable to agree to a change of the terms of the audit engagement and is

not permitted by management to continue the original audit engagement, the auditor

shall:

(a) Withdraw from the audit engagement where possible under applicable law

or regulation;

(b) Determine whether there is any obligation, either contractual or otherwise, to

report the circumstances to other parties, such as those charged with

governance, owners or regulators.

(c) Withdraw from the audit engagement where possible under applicable law

or regulation and determine whether there is any obligation, either

contractual or otherwise, to report the circumstances to other parties, such as

those charged with governance, owners or regulators.

(d) Withdraw from the audit engagement where possible under applicable law

or regulation or determine whether there is any obligation, either contractual

or otherwise, to report the circumstances to other parties, such as those

charged with governance, owners or regulators.

(1 Mark)

12. The susceptibility of an assertion about a class of transaction, account balance or

disclosure to a misstatement that could be material, either individually or when

aggregated with other misstatements, before consideration of any related controls is-

(a) Control Risk

(b) Inherent Risk

(c) Detection Risk

(d) Audit Risk

(1 Mark)

13. As explained in SA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing”, _________is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk

(i.e., the risk that the auditor expresses an inappropriate opinion when the financial

statements are materially misstated) to an acceptably low level.

(a) absolute assurance

(b) limited assurance

(c) reasonable assurance

(d) reasonable or absolute assurance.

(1 Mark)

14. While auditing the books of accounts of QHMP Ltd., CA. Ranker, the statutory auditor

of the company, came to know that the management of the company has recognized

internally generated goodwill as a fixed asset. CA. Ranker discussed with the

management that according to accounting standards, internally generated goodwill is

not recognized as an asset because it is not an identifiable resource controlled by the

enterprise that can be measured reliably at cost. However, the management is quite rigid

to the accounting treatment followed for internally generated goodwill and not paying


4

attention to the auditor. Thus, through an example, CA. Ranker explained which type of

goodwill may be recognized as a fixed asset for which the management got justified.

State which of the following examples the auditor must have given to the management?

(a) If an item meeting the definition of an intangible asset is acquired in a

business combination, it forms part of the goodwill to be recognized at the

date of the amalgamation.

(b) Only those goodwill needs to be recognized as a fixed asset which can be

touched like physical assets, for example, land and buildings.

(c) Goodwill is recognised only when there is a contractual or other legal rights

for a physical asset which shall not be amortized over the period.


(1 Mark)

15. Eeyore Pvt. Ltd. is incorporated on 1st July, 2017. During the Financial Year ending on

31stMarch, 2018, the company did not opt for any borrowing at any point of time and

have a total revenue of Rs.60 Lakh. At the year end, it provides the following

information regarding its paid-up capital and reserve & surplus-

Particulars Amount (in Rs.)

Paid-up Capital

-Consideration received in cashfor equity shares 40,00,00

(including unpaid calls of Rs. 5,00,000)

-Consideration received in cashfor preference shares 25,00,000

Bonus shares allotted 7,00,000

-Share application money receivedpending allotment 10,00,000

Sub-Total 82,00,000

Reserve & Surplus

-Balance in Statement of Profit and Loss 15,00,000

-Capital Reserves 10,00,000

Sub-Total 25,00,000

GRAND TOTAL 1,07,00,000

You are provided with the provisions regarding applicability of Companies (Auditor’s Report) Order, 2016, (CARO, 2016)issued under section 143(11) of the Companies Act,

2013to a private limited company that it specifically exempts a private limited company

having a paid up capital and reserves and surplus not more than Rs.1crore as on the Balance

Sheet date and which does not have total borrowings exceeding Rs.1crore from any bank at

any point of time during the financial year and which does not have a total revenue as

disclosed in Scheduled III to the Companies Act, 2013 exceeding Rs. 10 crore during the

financial year.

Considering the information given above, which of the following shall be considered as a

reason regarding applicability or non-applicability of CARO, 2016?

(a) Reporting under CARO, 2016 shall be applicable as the company is having a

paid up capital and reserves and surplus of Rs.1.07crore i.e. more than

Rs.1crore as on the Balance Sheet date.


5

(b) Reporting under CARO, 2016 shall be applicable as the company is having a

paid up capital and reserves and surplus of Rs.1.02crore i.e. more than

Rs.1crore as on the Balance Sheet date.

(c) Reporting under CARO, 2016 shall not be applicable as the company is

having a paid up capital and reserves and surplus of Rs.0.92crore i.e. not

more than Rs.1crore as on the Balance Sheet date.

(d) Reporting under CARO, 2016 shall not be applicable as the company is

having a paid up capital and reserves and surplus of Rs.0.82crore i.e. not

more than Rs.1crore as on the Balance Sheet date.

(1 Mark)

16. CA. Daffy is the auditor of x Bose Ltd. for the previous 2 years. However, due to certain

unavoidable circumstances, no Annual General Meeting (AGM) was held for the current

Financial Year ending on 31stMarch, 2018 within every possible time limit and thus, the

ratification procedure for her appointment in the AGM could not be performed. Whether

she may continue to hold the office of the auditor?

(a) CA. Daffy may continue to hold the office of the auditor for the current

Financial Year only and thereafter shall resign herself as the ratification

procedure could not be completed.

(b) CA. Daffy shall continue to hold the office of the auditor and ask the Board to

re-appoint her in a private meeting.

(c) CA. Daffy shall continue to hold the office of the auditor as no such

ratification provisions for appointment by members at every AGM exist.

(d) CA. Daffy shall not continue to hold office of the auditor as the ratification

procedure could not be completed as per proviso to section 139(1) of the

Companies Act, 2013.

(1 Mark)

17. The notes to the account statement of ASD Ltd. shows the break-up of accounts payable

for the Financial Year2016-17as follows:

Accounts Payable Amount (in Rs.)

Mr. Kraby 1,20,000

Mr. Runny 40,000

Mr. Bluffy 14,56,000

Total 16,16,000

CA. Sandy, the auditor of ASD Ltd., wants to investigate the valuation of accounts

payable of Mr.Bluffy amounting to Rs.14,56,000. Which of the following procedures

is best fitted & more reliable to be followed by CA. Sandy to get more reliable

evidence for the existence of such balance as on 31stMarch, 2017?

(a) Inspect each and every journal entry passed in the books of ASD Ltd.

(b) Ask ASD Ltd. to provide the details of payment made during the year 2017-

18.

(c) Inspect the invoices issued by Mr. Bluffy and the payments made.

(d) Interrogate the cash manager of ASD Ltd.

(1 Mark)


6

18. In case of a company that is required to constitute an Audit Committee under section

177, the committee, and, in cases where such a committee is not required to be

constituted, __________, shall take into consideration the qualifications and experience of

the individual or the firm proposed to be considered for appointment as auditor and

whether such qualifications and experience are commensurate with the size and

requirements of the company.

(a) the board

(b) any director

(c) Managing Director

(d) Whole time director

(1 Mark)

19. The management of Magoo Ltd. has developed a strong internal control in its accounting

system in such a way that the work of one person is reviewed by another. Since no

individual employee is allowed to handle a task alone from the beginning to the end, the

chances of early detection of frauds and errors are high. CA. Olive has been appointed as

an auditor of the company for current Financial Year 2017-18. Before starting the audit,

she wants to evaluate the internal control system of Magoo Ltd. To facilitate the

accumulation of the information necessary for the proper review and evaluation of

internal controls, CA. Olive decided to use internal control questionnaire to know and

assimilate the system and evaluate the same. Which of the following questions need not

be framed under internal control questionnaire relating to purchases?

(a) Are authorized signatories for purchases limited to elected officials?

(b) Are payments approved only on original invoices?

(c) Does authorized officials thoroughly review the documents before signing

cheques?

(d) Are monthly bank reconciliations implemented for each and every bank

accounts of the company?

(1 Mark)

20. Control can be _________ related to an Assertion.

(a) Directly

(b) Indirectly

(c) Directly or Indirectly

(d) none of the above

(1 Mark)

1 B 2 B 3 B 4 D

5 A 6 D 7 D 8 D

9 B 10 B 11 C 12 B

13 C 14 A 15 C 16 C

17 C 18 A 19 D 20 C




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1) (a) Define Performance Materiality.

(2 Marks)

1) (b) R & Co, a firm of Chartered Accountants have not revised the terms of engagements

and obtained confirmation from the clients for last 5 years despite changes in business

and professional environment. Required Elucidate the circumstances that may

warrant the revision in terms of engagement.

(3Marks)


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2) (a) M/s RM & Co. is an audit firm having partners CA. R and CA. M. The firm has been

offered the appointment as an auditor of Enn Ltd. for the Financial Year 2016-17.

Mr.Bee, the relative of CA. R, is holding 5,000 shares (face value of Rs.10 each) in Enn

Ltd. having market value of Rs.1,50,000. Whether M/s RM & Co. is disqualified to be

appointed as auditors of Enn Ltd.? Advise.

(5Marks)

2) (b) Illustrate the provisions relating to submission of Cost Audit Report to Board of

Directors and Central Government.

(5Marks)


9

3) (a) How do you vouch for Reduction of Share capital?

(6 Marks)


10

3) (b) How do you vouch for Goods sent on consignment?

(4 Marks)


11

4) (a) In establishing overall audit strategy, the auditors shall ascertain the reporting

objectives of the engagement to plan the timing of the audit and the nature of the

Communications required. Elucidate those cases by which auditor can ascertain the

reporting objectives of the engagement.

(4 Marks)

4) (b) What is Audit Programme? Briefly explain the points to be considered in developing

an Audit Programme.

(6Marks)


12


13

5) (a) Explain the CARO clauses with respect to related party transactions

(5Marks)

5) (b) Discuss the following:

Principal aspects to be considered by an auditor while conducting an audit of

financial statement of accounts.

(5Marks)


14

6) (a) IT poses specific risks to an entity’s internal control. Explain.

(5 Marks)

6) (b) The SAs do not ordinarily refer to inherent risk and control risk separately, but rather

to a combined assessment of the “risks of material misstatement”. Explain. (5 Marks)


1

SAP 1 – 09.02.2020

INTERMEDIATE (NEW) GROUP – II

PAPER-7: ENTERPRISE INFORMATION SYSTEMS & STRATEGIC MANAGEMENT


Part A – ENTERPRISE INFRMATION SYSTEMS – 12 MARKS

Division A: Multiple Choice Questions (4 Marks)

1) (A) Which of the following is not a component of Enterprise Risk Management

Framework?

(a) Internal environment

(b) Organization chart

(c) Objective setting

(d) Event identification.

(1 Mark)

1)(B) To enhance automation, a company defines re-order levels for regular consumption of

raw material items in their ERP system. Once an item hits Re-order Level, the system

creates a purchase requisition for Economic Order Quantity(EOQ) / Re-Order

Quantity (ROQ) and emails the same to selected vendors asking them to send

quotations. This method of doing business can be best defined as-----------------------.

(a) Business Process Automation

(b) Business Process Integration

(c) Business Process Upgrade

(d) Business Process Module

(1 Mark)

1) (C)A huge oil spill from an oil well run by British Petroleum, one of largest oil companies

in world, resulted in an assessed environmental damage of about USD 20 Billion. The

company expanded an amount of USD 2 Billion on promotional ads informing the

world that it is an environmentally friendly company. The promotional ads were done

to prevent company from which damage?

(a) Strategic

(b) Operational

(c) Financial

(d) Reputational.

(2 Marks)

1(A) B 1(B) A 1(C) D


2) Give five examples of computer related offences that can be prosecuted under the IT

Act 2000 (amended via 2008).

(3 Marks)


2


3

3) (A) Explain ‘Data Flow Diagram’. (2 Marks)

(B) Discuss all the stages of Human Resource (HR) Life Cycle. (3 Marks)


4

PART B – STRATEGIC MANAGEMENT – 13 MARKS

Division A: Multiple Choice Questions - 4 Marks

4) (A)Strategic management can be effectively used by NGOs to-

(a) Use resource effectively

(b) Raise funds

(c) Achieve goals

(d) All the above.

(1 Mark)

4) (B) Which of the following is correct?

(a) Strategy is always pragmatic and not flexible

(b) Strategy is not always perfect, flawless and optimal


5

(c) Strategy is always perfect, flawless and optimal

(d) Strategy is always flexible but not pragmatic.

(1 Mark)

4) (C) In the questions given below select the best answer out of options (A), (B), (C), or (D):

Which of the following statements correctly explain strategic management?

I. Strategic management provides framework for major decisions.

II. Strategic management helps to enhance the longevity of the business.

III. Strategic management is an inexpensive process.

IV. Strategic management helps organisation to be more reactive than proactive.

(a) (i) and (ii)

(b) (i), (ii) and (iii)

(c) (i), (ii) and (iv)

(d) (i), (iii) and (iv)

(2 Marks)

4(A) D 4(B) B 4(C) A


5) The presence of strategic management cannot counter all hindrances and always

achieve success for an organisation. What are the limitations attached to strategic

management?

(4Marks)


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6) Yummy Foods and Tasty Foods are successfully competing in the business of ready

to eat snacks in Patna. Yummy has been pioneer in introducing innovative products.

These products will give them good sale. However, Tasty Foods will introduce

similar products in reaction to the products introduced by the Yummy Foods taking

away the advantage gained by the former.

Discuss the strategic approach of the two companies. Which is superior?

(3Marks)

7) “Strategy is partly proactive and partly reactive.” Discuss. (2 Marks)

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