test series: march, 2019 mock test paper -1 intermediate ... · building rs. 30,00,000, plant &...

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Test Series: March, 2019

MOCK TEST PAPER -1

INTERMEDIATE (NEW) : GROUP – I

PAPER – 1: ACCOUNTING

Question No. 1 is compulsory.

Answer any four questions from the remaining five questions.

Wherever necessary suitable assumptions may be made and disclosed by way of a note.

Working Notes should form part of the answer.

1. (a) Gamma Limited is working on different projects which are likely to be completed within 3 years period. It recognizes revenue from these contracts on percentage of completion method for financial statements during 2014-2015, 2015-2016 and 2016-2017 for Rs. 11,00,000,

Rs. 16,00,000 and Rs. 21,00,000 respectively. However, for Income-tax purpose, it has adopted the completed contract method under which it has recognized revenue of Rs. 7,00,000, Rs. 18,00,000 and Rs. 23,00,000 for the years 2014-2015, 2015-2016 and 2016-2017

respectively. Income-tax rate is 35%.

You are required to compute the amount of deferred tax asset/liability for the years 2014-2015,

2015-2016 and 2016-2017. Also describe how this amount of deferred tax asset/liability will be

disclosed in the balance sheet of Omega Limited as per provisions of AS 22.

(b) While preparing its final accounts for the year ended 31 st March, 2016, a company made

provision for bad debts @ 5% of its total debtors. In the last week of February, 2016 a debtor for

Rs. 20 lakhs had suffered heavy loss due to an earthquake; the loss was not covered by any

insurance policy. In April, 2016 the debtor became a bankrupt. Can the company provide for the

full loss arising out of insolvency of the debtor in the final accounts for the year ended 31 st March,

2016?

Comment with reference to relevant Accounting Standard.

(c) Examine whether the following will constitute a change in accounting policy or not as per AS 5.

(i) Introduction of a formal retirement gratuity scheme by an employer in place of ad hoc ex-

gratia payments to employees on retirement.

(ii) Management decided to pay pension to those employees who have retired after completing

5 years of service in the organisation. Such employees will get pension of Rs. 20,000 per

month. Earlier there was no such scheme of pension in the organisation.

(d) On the basis of information given below, find the value of inventory (by periodic inventory

method) as per AS 2, to be considered while preparing the Balance Sheet as on 31 st March, 2017

on weighted Average Basis.

Details of Purchases:

Date of purchase Unit (Nos.) Purchase cost per unit (Rs.)

01-03-2017 20 108

08-03-2017 15 107

17-03-2017 30 109

25-03-2017 15 107

© The Institute of Chartered Accountants of India

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Details of issue of Inventory:

Date of Issue Unit (Nos.)

03-03-2017 10

12-03-2017 20

18-03-2017 10

24-03-2017 20

Net realizable value of inventory as on 31st March, 2017 is Rs. 107.75 per unit.

You are required to compute the value of Inventory as per AS 2. (4 parts x 5 Marks = 20 Marks)

2. (a) In 2015, Royal Ltd. issued 12% fully paid debentures of Rs. 100 each, interest being payable half

yearly on 30th September and 31st March of every accounting year.

On 1st December, 2016, M/s. Kumar purchased 10,000 of these debentures at Rs.101 cum-interest price, also paying brokerage @ 1% of cum-interest amount of the purchase. On 1st

March, 2017 the firm sold all of these debentures at Rs.106 cum-interest price, again paying brokerage @ 1 % of cum-interest amount. Prepare Investment Account in the books of M/s.

Kumar for the period 1st December, 2016 to 1st March, 2017.

(b) A trader’s godown caught fire on 29th August, 2017, and a large part of the stock of goods was

destroyed. However, goods costing Rs. 54,000 could be salvaged incurring fire fighting

expenses amounting to Rs. 2,350.

The trader provides you the following additional information:

Rs.

Cost of stock on 1st April, 2016 3,55,250

Cost of stock on 31st March, 2017 3,95,050

Purchases during the year ended 31st March, 2017 28,39,800

Purchases from 1st April, 2017 to the date of fire 16,55,350

Cost of goods distributed as samples for advertising from 1st April, 2017 to the date of fire

20,500

Cost of goods withdrawn by trader for personal use from 1st April, 2017

to the date of fire 1,000

Sales for the year ended 31st March, 2017 40,00,000

Sales from 1st April, 2017 to the date of fire 22,68,000

The insurance company also admitted firefighting expenses. The trader had taken the fire

insurance policy for Rs. 4,50,000 with an average clause.

You are required to calculate the amount of the claim that will be admitted by the insurance

company.

(c) Krishan bought 2 cars from ‘Fair Value Motors Pvt. Ltd. on 1.4.2015 on the following terms (for

both cars): Rs.

Down payment 6,00,000

1st Installment at the end of first year 4,20,000

2nd Installment at the end of 2nd year 4,90,000

3rd Installment at the end of 3rd year 5,50,000

Interest is charged at 10% p.a.


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Krishan provides depreciation @ 25% on the diminishing balances.

On 31.3.2018 Krishan failed to pay the 3 rd installment upon which ‘Fair Value Motors Pvt. Ltd.’

repossessed 1 car. Krishan agreed to leave one car with Fair Value Motors Pvt. Ltd. and adjusted the value of the car against the amount due. The car taken over was valued on the basis of 40% depreciation annually on written down basis. The balance amount remaining in the

vendor’s account after the above adjustment was paid by Krishan after 3 months with interest @

20% p.a.

You are required to: Calculate the cash price of the cars and the interest paid with each

installment. and prepare Car Account in the books of Krishan for the year 2017-18 assuming

books are closed on March 31, every year. Figures may be rounded off to the nearest rupee.

(6+ 8+6 = 20 Marks)

3. (a) XYZ is having its Branch at Kolkata. Goods are invoiced to the branch at 20% profit on sale.

Branch has been instructed to send all cash daily to head office. All expenses are paid by head office except petty expenses which are met by the Branch Manager. From the following

particulars, you are required to prepare branch account in the books of Head Office.

(Rs.) (Rs.)

Stock on 1st April 2017 30,000 Discount allowed to

(invoice price) debtors 160

Sundry Debtors on 1st April, 2017 18,000 Expenses paid by head office:

Cash in hand as on 1st April, 2017 - Rent 1,800

Office furniture on 1st April, 2017 3,000 Salary 3,200

Goods invoiced from the head office

(invoice price)

1,60,000

Stationery & Printing 800

Goods returned to Head Office

(invoice price)

2,000 Petty expenses paid by the branch 600

Goods returned by debtors 960 Depreciation to be provided on

branch

Cash received from debtors 60,000 furniture at 10% p.a.

Cash Sales 1,00,000 Stock on 31st March, 2018

Credit sales 60,000 (at invoice price) 28,000

(b) Ram carried on business as retail merchant. He has not maintained regular account books.

However, he always maintained Rs. 10,000 in cash and deposited the balance into the bank

account. He informs you that he has sold goods at profit of 25% on sales.

Following information is given to you:

Assets and Liabilities As on 1.4.2016 As on 31.3.2017

Cash in Hand 10,000 10,000

Sundry Creditors 40,000 90,000

Cash at Bank 50,000 (Cr.) 80,000 (Dr.)

Sundry Debtors 1,00,000 3,50,000

Stock in Trade 2,80,000 ?

Ram’s capital 3,00,000

Analysis of his bank pass book reveals the following information:

(a) Payment to creditors Rs. 7,00,000


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(b) Payment for business expenses Rs. 1,20,000

(c) Receipts from debtors Rs. 7,50,000

(d) Loan from Laxman Rs. 1,00,000 taken on 1.10.2016 at 10% per annum

(e) Cash deposited in the bank Rs. 1,00,000

He informs you that he paid creditors for goods Rs. 20,000 in cash and salaries Rs. 40,000 in cash. He has drawn Rs. 80,000 in cash for personal expenses. During the year Ram had not

introduced any additional capital. Surplus cash if any, to be taken as cash sales.

You are required to prepare:

(i) T rading and Profit and Loss Account for the year ended 31.3.2017.

(ii) Balance Sheet as at 31s t March, 2017. (8 + 12 = 20 Marks)

4. (a) The partners P, Q & R have called you to assist them in winding up the affairs of their partnership

on 31.12.2016. Their balance sheet as on that date is given below:

Liabilities Amount Rs. Assets Amount Rs.

Capital Accounts: Land & Building 50,000

P 65,000 Plant & Machinery 46,000

Q 50,500 Furniture & Fixture 10,000

R 32,000 Stock 14,500

Creditors 16,000 Debtors 14,000

Cash at Bank 9,000

Loan P 13,000

Loan Q 7,000

Total 1,63,500 Total 1,63,500

(a) The partners share profit and losses in the ratio of 4:3:2.

(b) Cash is distributed to the partners at the end of each month.

(c) A summary of liquidation transactions are as follows:

January 2017

• Rs. 9,000 - collected from debtors; balance is uncollectable.

• Rs. 8,000 - received from the sale of entire furniture

• Rs. 1,000 - Liquidation expenses paid.

• Rs. 6,000 - Cash retained in the business at the end of month

February 2017


• As part payment of his capital, R accepted a machinery for Rs. 9,000 (book value

Rs. 3,500)

• Rs. 2,000 - Cash retained in the business at the end of month

March 2017

• Rs. 38,000 - received on the sale of remaining plant and machinery.

• Rs. 10,000 - received from the sale of entire stock.



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• Rs. 41,000 - Received on sale of land & building.

• No Cash is retained in the business.

You are required to prepare a schedule of cash payments amongst the partners by "Higher

Relative Capital Method".

(b) Explain the nature of Limited Liability Partnership. Who can be a designated partner in a Limited

Liability Partnership? (15 + 5 = 20 Marks)

5. From the following particulars furnished by Alpha Ltd., prepare the Balance Sheet as on

31st March 20X1 as required by Part I, Schedule III of the Companies Act, 2013.

Particulars Debit Rs. Credit Rs.

Equity Share Capital (Face value of Rs. 100 each) 50,00,000

Call in Arrears 5,000

Land & Building 27,50,000

Plant & Machinery 26,25,000

Furniture 2,50,000

General Reserve 10,50,000

Loan from State Financial Corporation 7,50,000

Inventory:

Raw Materials

Finished Goods

2,50,000

10,00,000

12,50,000

Provision for Taxation 6,40,000

Trade receivables 10,00,000

Short term Advances 2,13,500

Profit & Loss Account 4,33,500

Cash in Hand 1,50,000

Cash at Bank 12,35,000

Unsecured Loan 6,05,000

Trade payables (for Goods and Expenses) 8,00,000

Loans & advances from related parties 2,00,000

The following additional information is also provided:

(i) 10,000 Equity shares were issued for consideration other than cash.

(ii) T rade receivables of Rs. 2,60,000 are due for more than 6 months.

(iii) The cost of the Assets were:

Building Rs. 30,00,000, Plant & Machinery Rs. 35,00,000 and Furniture Rs. 3,12,500

(iv) The balance of Rs. 7,50,000 in the Loan Account with State Finance Corporation is inclusive of Rs. 37,500 for Interest Accrued but not Due. The loan is secured by hypothecation of

Plant & Machinery.

(v) Balance at Bank includes Rs. 10,000 with Omega Bank Ltd., which is not a Scheduled Bank.

(vi) T ransfer Rs. 20,000 to general reserve is proposed by Board of directors

(vii) Board of directors has declared dividend of 5% on the paid up capital. The dividend distribution tax liability is Corporate Dividend Tax Rate @ 17.304 (wherein Base Rate is 15%). (20 Marks)


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6. (a) Omega Limited has borrowed a sum of US $ 10,00,000 at the beginning of Financial Year 2016 -17 for its residential project at 4 %. The interest is payable at the end of the Financial Year. At

the time of availment exchange rate was Rs. 56 per US $ and the rate as on31st March, 2017 was Rs. 62 per US $. If Omega Limited borrowed the loan in India in Indian Rupee equivalent, the

pricing of loan would have been 10.50%.

You are required to compute Borrowing Cost and exchange difference for the year ending

31st March, 2017 as per applicable Accounting Standards.

(b) The following extract of Balance Sheet of X Ltd. (a non-investment company) was obtained:

Balance Sheet (Extract) as on 31st March, 2017

Liabilities Rs.

Issued and subscribed capital:

20,000, 14% preference shares of Rs. 100 each fully paid 20,00,000

1,20,000 Equity shares of Rs. 100 each, Rs. 80 paid-up 96,00,000

Capital reserves (Rs. 1,50,000 is revaluation reserve) 1,95,000

Securities premium 50,000

15% Debentures 65,00,000

Unsecured loans: Public deposits repayable after one year 3,70,000

Investment in shares, debentures, etc. 75,00,000

Profit and Loss account (debit balance) 15,00,000

You are required to compute Effective Capital as per the provisions of Schedule V to Companies

Act, 2013.

(c) The Board of Directors of a Company decide to issue minimum number of equity shares of Rs. 9 to redeem Rs. 5,00,000 preference shares. The maximum amount of divisible profits available for

redemption is Rs. 3,00,000.

You are required to compute the number of shares to be issued by the company to ensure that

provisions of Section 55 are not violated. Also determine the number of shares if the company

decides to issue shares in multiples of Rs. 50 only.

OR

Following items appear in the Trial Balance of Hello Ltd. as on 31st March, 2017:

Particulars Amount

9,000 Equity Shares of Rs.100 each 9,00,000

Securities Premium 80,000

Capital Redemption Reserve 1,40,000


Profit and Loss Account (Cr. Balance) 90,000

The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares held. Company decided that there should be the minimum reduction in free

reserves.

You are required to give the necessary Journal Entries in the books Hello Ltd.

(d) Explain in brief, the alternative measurement bases, for determining the value at which an

element can be recognized in the Balance Sheet or Statement of Profit and Loss.

(4 Parts x 5 Marks = 20 Marks)


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MOCK TEST PAPER

INTERMEDIATE (NEW) : GROUP – I

PAPER – 1: ACCOUNTING

SUGGESTED ANSWERS/HINTS

1. (a) Gamma Limited

Calculation of Deferred Tax Asset/Liability

Year Accounting

Income Taxable Income Timing Difference

(balance)

Deferred Tax

Liability (balance)

2014-2015 11,00,000 7,00,000 4,00,000 1,40,000

2015-2016 16,00,000 18,00,000 2,00,000 70,000

2016-2017 21,00,000 23,00,000 NIL NIL

48,00,000 48,00,000

As per AS 22, deferred tax assets and liabilities should be distinguished from assets and liabilities

representing current tax for the period. Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities. The break-up of deferred tax assets and deferred tax liabilities into major

components of the respective balances should be disclosed in the notes to accounts.

(b) As per AS 4 ‘Contingencies and Events Occurring After the Balance Sheet Date’, adjustment to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions

existing at the Balance Sheet date.

A debtor for Rs. 20,00,000 suffered heavy loss due to earthquake in the last week of February, 2016 which was not covered by insurance. This information with its implications was already known to the company. The fact that he became bankrupt in April, 2016 (after the balance sheet date) is

only an additional information related to the condition existing on the balance sheet date.

Accordingly, full provision for bad debts amounting Rs. 20,00,000 should be made, to cover the loss arising due to the insolvency of a debtor, in the final accounts for the year ended 31st March 2016. Since the company has already made 5% provision of its total debtors, additional provision

amounting Rs. 19,00,000 shall be made (20,00,000 x 95%).

(c) As per AS 5 ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’, the adoption of an accounting policy for events or transactions that differ in substance

from previously occurring events or transactions, will not be considered as a change in accounting

policy.

(i) Accordingly, introduction of a formal retirement gratuity scheme by an employer in place of

ad hoc ex-gratia payments to employees on retirement is not a change in an accounting policy.

(ii) Similarly, the adoption of a new accounting policy for events or transactions which did not

occur previously or that were immaterial will not be treated as a change in an accounting

policy.

(d) Net Realisable Value of Inventory as on 31st March, 2017

= Rs. 107.75 x 20 units = Rs. 2,155

Value of inventory as per Weighted Average basis


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Total units purchased and total cost:

01.03.2017 Rs. 108 x 20 units = Rs. 2160

08.3.2017 Rs. 107 x 15 units = Rs. 1605

17.03.2017 Rs. 109 x 30 units = Rs. 3270

25.03.2017 Rs. 107 x 15 units = Rs. 1605

Total 80 units = Rs. 8640

Weighted Average Cost = Rs. 8640/80 units = Rs.108

Total cost = Rs. 108 x 20 units = Rs. 2,160

Value of inventory to be considered while preparing Balance Sheet as on 31 st March, 2017 is, Cost

or Net Realisable value whichever is lower i.e. Rs. 2,155.

2. (a) In the books of M/s Kumar

Investment Account

for the period from 1st December 2016 to 1st March, 2017

(Scrip: 12% Debentures of Royal Ltd.)

Date Particular

s

Nominal

Value

(Rs.)

Interest Cost

(Rs.)

Date Particulars Nominal

Value

(Rs.)

Interest Cost

(Rs.)

1.12.2016

To Bank A/c (W.N.1)

10,00,000 20,000

10,00,100

1.03.2017 By Bank A/c

(W.N.2)

10,00,000 50,000

9,99,400

1.3.2017 To Profit &

loss A/c -

30,000 1.3.2017 By Profit & loss

A/c

700

10,00,000 50,000 10,00,100 10,00,000 50,000 10,00,100

Working Notes:

(i) Cost of 12% debentures purchased on 1.12.2016 Rs.

Cost Value (10,000 Rs.101) = 10,10,000

Add: Brokerage (1% of Rs.10,10,000) = 10,100

Less: Cum Interest (10,000 x 100 x12% x 2/12) = (20,000)

Total = 10,00,100

(ii) Sale proceeds of 12% debentures sold on 1st March, 2017 Rs.

Sales Price (10,000 Rs.106) = 10,60,000

Less: Brokerage (1% of Rs.10,60,000) = (10,600)

Less: Cum Interest (10,000 x 100 x12% x 5/12) = (50,000)

Total = 9,99,400

(b) Memorandum Trading Account for the period 1st April, 2017 to 29th August 2017

Rs. Rs.

To Opening Stock 3,95,050 By Sales 22,68,000

To Purchases 16,55,350 By Closing stock (Bal. fig.)

4,41,300

Less: Advertisement (20,500)


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Drawings (1,000) 16,33,850

To Gross Profit [30% of Sales] [W N]

6,80,400

27,09,300 27,09,300

Statement of Insurance Claim

Rs.

Value of stock destroyed by fire 4,41,300

Less: Salvaged Stock (54,000)

Add: Fire Fighting Expenses 2,350

Insurance Claim 3,89,650

Note: Since policy amount is more than claim amount, average clause will not apply. Therefore,

claim amount of Rs. 3,89,650 will be admitted by the Insurance Company.

Working Note:

Trading Account for the year ended 31st March, 2017

Rs. Rs.

To Opening Stock 3,55,250 By Sales 40,00,000

To Purchases 28,39,800 By Closing stock 3,95,050

To Gross Profit 12,00,000

43,95,050 43,95,050

Rate of Gross Profit in 2016-17

Gross Pr ofit

100Sales

= 12,00,000/40,00,000 x 100 = 30%

(c) Calculation of Interest and Cash Price

No. of installments

Outstanding balance at the end after the payment of installment

Amount due at the time of installment

Outstanding balance at the end before the payment of

installment

Interest Outstanding balance at the beginning

[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5

3rd - 5,50,000 5,50,000 50,000 5,00,000

2nd 5,00,000 4,90,000 9,90,000 90,000 9,00,000

1st 9,00,000 4,20,000 13,20,000 1,20,000 12,00,000

Total cash price = Rs. 12,00,000+ 6,00,000 (down payment) = Rs. 18,00,000.

Cars Account in the books of Krishan for the year ended 31st March, 18

1.4.2017 To Balance b/d

10,12,500

[18,00,000 less

depreciation (4,50,000 +

3,37,500)]

31.3.2018 By Depreciation A/c 2,53,125

By Fair Value Motors A/c (Value of 1 Car taken over after depreciation for 3 years @ 40% p.a.) [9,00,000 -

(3,60,000 + 2,16,000 +1,29,600)]

1,94,400


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By Loss transferred to Profit and Loss A/c on surrender (Bal. fig.)

1,85,288

By Balance c/d

½ (10,12,500-2,53,125)

3,79,687

10,12,500 10,12,500

3. (a) In the books of Head Office – XYZ

Kolkata Branch Account (at invoice)

Rs. Rs.

To Balance b/d By Stock reserve (opening) 6,000

Stock 30,000 By Remittances:

Debtors 18,000 Cash Sales 1,00,000

Furniture 3,000 Cash from Debtors 60,000

To Goods sent to Less: Petty expenses (600) 1,59,400

branch 1,60,000 By Goods sent to branch (loading) 32,000

To Goods returned by 400 By Goods returned by

branch (loading) branch (Return to H.O.) 2,000

To Bank (expenses By Balance c/d

paid by H.O.) Stock 28,000

Rent 1,800 Debtors 16,880

Salary 3,200 Furniture (3,000-300) 2,700

Stationary &

printing 800 5,800

To Stock reserve (closing) 5,600

To Profit transferred to

General Profit & Loss A/c 24,180

2,46,980 2,46,980

Working Note:

Debtors Account

Rs. Rs.

To Balance b/d 18,000 By Cash account 60,000

To Sales account (credit) 60,000 By Sales return account 960

By Discount allowed account 160

By Balance c/d 16,880

78,000 78,000

Note: In the absence of opening cash balance, remittance to Head Office has been made after

payment of petty expenses.

(b) Trading and Profit and Loss Account

for the year ended 31st March, 2017

Rs. Rs.

To Opening stock 2,80,000 By Sales

To Purchases 7,70,000 Cash 2,40,000


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To Gross Profit @ 25% 3,10,000 Credit 10,00,000 12,40,000

By Closing Stock (bal.fig.) 1,20,000

13,60,000 13,60,000

To Salaries 40,000 By Gross Profit 3,10,000

To Business expenses 1,20,000

To Interest on loan

(10% of 1,00,000*6/12)

5,000

To Net Profit 1,45,000

3,10,000 3,10,000

Balance Sheet as at 31st March, 2017

Liabilities Rs. Rs. Assets Rs.

Ram’s capital: Cash in hand 10,000

Opening 3,00,000 Cash at Bank 80,000

Add: Net Profit 1,45,000 Sundry Debtors 3,50,000

4,45,000 Stock in trade 1,20,000

Less: Drawings (80,000) 3,65,000

Loan from Laxman (including

interest due) 1,05,000

Sundry Creditors 90,000 _______

5,60,000 5,60,000

Working Notes:

1. Sundry Debtors Account

Rs. Rs.

To Balance b/d 1,00,000 By Bank A/c 7,50,000

To Credit sales (Bal. fig) 10,00,000 By Balance c/d 3,50,000

11,00,000 11,00,000

2. Sundry Creditors Account

Rs. Rs.

To Bank A/c 7,00,000 By Balance b/d 40,000

To Cash A/c 20,000 By Purchases (Bal. fig.) 7,70,000

To Balance c/d 90,000

8,10,000 8,10,000

3. Cash and Bank Account

Cash Bank Cash Bank

Rs. Rs. Rs. Rs.

To Balance b/d 10,000 By Balance b/d 50,000

To Sales (bal. fig) 2,40,000 By Bank A/c (C) 1,00,000

To Cash (C) 1,00,000 By Salaries 40,000

To Debtors 7,50,000 By Creditors 20,000 7,00,000

To Laxman’s loan 1,00,000 By

By

Drawings

Business

80,000


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expenses 1,20,000

By Balance c/d 10,000 80,000

2,50,000 9,50,000 2,50,000 9,50,000

4. (a)

Particulars Cash Creditors Capitals

Rs. Rs. P (Rs.) Q (Rs.) R (Rs.)

Balance due after loan 16,000 52,000 43,500 32,000

January

Balance available 9,000

Realization less expenses and cash retained

10,000

Amount available and paid 19,000 (16,000) - - (3,000)

Balance due - - 52,000 43,500 29,000

February

Opening Balance 6,000

Expenses paid and cash carried forward 3,000

Available for distribution 3,000

Cash paid to Q and Machinery given to R - 3,000 9,000

Balance due - 52,000 40,500 20,000

March

Opening Balance 2,000

Amount realized less expenses 87,300

Amount paid to partners 89,300 41,689 32,767 14,844

Loss 10,311 7,733 5,156

Working Note:

(i) Highest Relative Capital Basis

P (Rs.) Q (Rs.) R (Rs.)

Scheme of payment for January 2017

Balance of Capital Accounts 65,000 50,500 32,000

Less: Loans (13,000) (7,000) -

(A) 52,000 43,500 32,000

Profit Sharing Ratio 4 3 2

Capital / Profit sharing Ratio 13,000 14,500 16,000

Capital in profit sharing ratio, taking P’s capital as base (B)

52,000 39,000 26,000

Excess of R’s capital and Q’s Capital (A – B) (i) 4,500 6,000

Profit Sharing Ratio 3 2

Capital / Profit sharing Ratio 1,500 3,000

Capital in profit sharing ratio, taking Q’s capital as base (ii) 4,500 3,000

Excess of R’s Capital over Q’s capital (i – ii) 3,000


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(ii) Scheme of distribution of available cash for March:

P (Rs.) Q (Rs.) R (Rs.)

Balance of Capital Accounts at end of February (A) 52,000 40,500 20,000

Profit Sharing Ratio 4 3 2

Capital / Profit sharing Ratio 13,000 13,500 10,000

Capital in profit sharing ratio, taking R’s capital as base (B) (i) 40,000 30,000 20,000

Excess of P’s Capital and Q’s Capital (A – B) (i) 12,000 10,500

Profit Sharing Ratio 4 3

Capital / Profit sharing Ratio 3,000 3,500

Capital in profit sharing ratio taking P’s capital as base (ii) 12,000 9,000

Excess of Q’s Capital over P’s Capital (i – ii) - 1,500

Payment Rs. 1500 (C) (1,500)

Balance of Excess Capital (i –C) 12,000 9,000

Payment Rs. 21000 (D) (12,000) (9,000)

Balance due (A – C – D) 40,000 30,000 20,000

Balance cash Payment (Rs. 89,300 – Rs. 22,500) = Rs. 66,800 (E)

(29,689) (22,267) (14,844)

Total Payment (Rs. 89,000) (C + D +E) (iii) 41,689 32,767 14,844

Loss (A – iii) 10,311 7,733 5,156

(b) Nature of Limited Liability Partnership: A limited liability partnership is a body corporate formed

and incorporated under the LLP Act, 2008 and is a legal entity separate from that of its partners. A limited liability partnership shall have perpetual succession and any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability

partnership.

Designated partners: Every limited liability partnership shall have at least two designated partners

who are individuals and at least one of them shall be a resident in India.

In case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners

of such limited liability partnership or nominees of such bodies corporate shall act as designa ted

partners

5. Alpha Ltd.

Balance Sheet as on 31st March, 20X1

Particulars Notes Rs.

Equity and Liabilities

1 Shareholders' funds

a Share capital 1 49,95,000

b Reserves and Surplus 2 11,82,907

2 Non-current liabilities

Long-term borrowings 3 13,17,500

3 Current liabilities

a Trade Payables 8,00,000

b Other current liabilities 4 3,38,093


8

c Short-term provisions 5 6,40,000

d Short-term borrowings 2,00,000

Total 94,73,500

Assets

1 Non-current assets

Property, Plant & equipment

Tangible assets 6 56,25,000

2 Current assets

a Inventories 7 12,50,000

b Trade receivables 8 10,00,000

c Cash and bank balances 9 13,85,000

d Short-term loans and advances 2,13,500

Total 94,73,500

Notes to accounts

Rs.

1 Share Capital

Equity share capital

Issued & subscribed & called up

50,000 Equity Shares of Rs. 100 each

(of the above 10,000 shares have been issued for consideration other than cash)

50,00,000

Less: Calls in arrears (5,000) 49,95,000

Total 49,95,000

2 Reserves and Surplus


Add: current year transfer 20,000 10,70,000

Profit & Loss balance

Profit for the year 4,33,500

Less: Appropriations:

T ransfer to General reserve (20,000)

Dividend Payable (Refer W N) (2,49,750)

DDT on dividend (Refer W N) (50,843) 1,12,907

Total 11,82,907

3 Long-term borrowings

Secured Term Loan

State Financial Corporation Loan (7,50,000-37,500)

(Secured by hypothecation of Plant and Machinery)

7,12,500

Unsecured Loan 6,05,000

Total 13,17,500


9

4 Other current liabilities

Interest accrued but not due on loans (SFC) 37,500

Dividend (Refer W N) 2,49,750

DDT on dividend (Refer W N) 50,843 3,00,593

3,38,093

5 Short-term provisions

Provision for taxation

6,40,000

6 Tangible assets

Land and Building 30,00,000

Less: Depreciation (2,50,000) (b.f.) 27,50,000

Plant & Machinery 35,00,000

Less: Depreciation (8,75,000) (b.f.) 26,25,000

Furniture & Fittings 3,12,500

Less: Depreciation (62,500) (b.f.) 2,50,000

Total 56,25,000

7 Inventories

Raw Materials 2,50,000

Finished goods 10,00,000

Total 12,50,000

8 Trade receivables

Outstanding for a period exceeding six months 2,60,000

Other Amounts 7,40,000

Total 10,00,000

9 Cash and bank balances

Cash and cash equivalents

Cash at bank

with Scheduled Banks 12,25,000

with others (Omega Bank Ltd.) 10,000 12,35,000

Cash in hand

Other bank balances

1,50,000

Nil

Total 13,85,000

Working Note:

Calculation of grossing-up of dividend

Particulars Rs.

Dividend distributed by Alpha Ltd. (5% of 49,95,000) 2,49,750

Add: Increase for the purpose of grossing up of dividend

15×2,49,750

100 -15

44,074

Gross dividend 2,93,824


10

6. (a) (i) Interest for the period 2016-17

= US $ 10 lakhs x 4% × Rs. 62 per US$ = Rs. 24.80 lakhs

(ii) Increase in the liability towards the principal amount

= US $ 10 lakhs × Rs. (62 - 56) = Rs. 60 lakhs

(iii) Interest that would have resulted if the loan was taken in Indian currency

= US $ 10 lakhs × Rs. 56 x 10.5% = Rs. 58.80 lakhs

(iv) Difference between interest on local currency borrowing and foreign currency borrowing

= Rs. 58.80 lakhs - Rs. 24.80 lakhs = Rs. 34 lakhs.

Therefore, out of Rs. 60 lakhs increase in the liability towards principal amount, only Rs. 34 lakhs will be considered as the borrowing cost. Thus, total borrowing cost would be Rs. 58.80 lakhs being

the aggregate of interest of Rs. 24.80 lakhs on foreign currency borrowings plus the exchange difference to the extent of difference between interest on local currency borrowing and interest on

foreign currency borrowing of Rs. 34 lakhs.

Hence, Rs. 58.80 lakhs would be considered as the borrowing cost to be accounted for as per AS

16 and the remaining Rs. 26 lakhs (60 - 34) would be considered as the exchange difference to be

accounted for as per AS 11.

(b) Computation of effective capital:

Rs.

Paid-up share capital-

20,000, 14% Preference shares 20,00,000

1,20,000 Equity shares 96,00,000

Capital reserves (excluding revaluation reserve) 45,000

Securities premium 50,000

15% Debentures 65,00,000

Public Deposits 3,70,000

(A) 1,85,65,000

Investments 75,00,000

Profit and Loss account (Dr. balance) 15,00,000

(B) 90,00,000

Effective capital (A–B) 95,65,000

(c) Nominal value of preference shares Rs. 5,00,000

Maximum possible redemption out of profits Rs. 3,00,000

Minimum proceeds of fresh issue Rs. 5,00,000 - 3,00,000 = Rs. 2,00,000

Proceed of one share = Rs. 9

Minimum number of shares =2,00,000

9=22,222.22 shares

As fractional shares are not permitted, the minimum number of shares to be issued is 22,223

shares.

If shares are to be issued in multiples of 50, then the next higher figure which is a multiple of 50 is

22,250. Hence, minimum number of shares to be issued in such a case is 22,250 shares.


11

OR

Journal Entries in the books of Hello Ltd.

Capital Redemption Reserve A/c Dr. 1,40,000

Securities Premium A/c Dr. 80,000

General Reserve A/c (balancing figure) Dr. 80,000

To Bonus to Shareholders 3,00,000

(Being issue of bonus shares by utilization of various

Reserves, as per resolution dated …….)

Bonus to Shareholders A/c Dr. 3,00,000

To Equity Share Capital 3,00,000

(Being capitalization of Profit)

(d) The Framework for Recognition and Presentation of Financial statements recognises four alternative measurement bases for the purpose of determining the value at which an element can

be recognized in the balance sheet or statement of profit and loss. These bases are: (i)Historical

Cost; (ii)Current cost (iii) Realisable (Settlement) Value and (iv) Present Value.

A brief explanation of each measurement basis is as follows:

1. Historical Cost: Historical cost means acquisition price. According to this, assets are recorded at an amount of cash or cash equivalent paid or the fair value of the asset at the

time of acquisition. Liabilities are generally recorded at the amount of proceeds received in

exchange for the obligation.

2. Current Cost: Current cost gives an alternative measurement basis. Assets are carried out at the amount of cash or cash equivalent that would have to be paid if the same or an

equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of

cash or cash equivalents that would be required to settle the obligation currently.

3. Realisable (Settlement) Value: As per realisable value, assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the assets in an orderly

disposal. Liabilities are carried at their settlement values; i.e. the undiscounted amount of

cash or cash equivalents paid to satisfy the liabilities in the normal course of business.

4. Present Value: Under present value convention, assets are carried at present value of future net cash flows generated by the concerned assets in the normal course of business. Liabilities

under this convention are carried at present value of future net cash flows that are expected

to be required to settle the liability in the normal course of business.


1


MOCK TEST PAPER - 1

INTERMEDIATE (NEW): GROUP – I

PAPER – 2: CORPORATE AND OTHER LAWS

Division A is compulsory.

In Division B, Question No.1 is compulsory

Attempt any Three questions out of the remaining Four questions

Time Allowed – 3 Hours Maximum Marks – 100

DIVISION A

1. Annual general meeting need to be called by giving 21 days’ clear notice. However it can be called on

a shorter notice if members entitled to vote in that meeting give their consent in writing or by elect ronic

mode. In such case, how many members have to give their consents?

(a) 75% of members entitled;

(b) 90% of members entitled;

(c) 91% of members entitled;

(d) 95% of members entitled; (1 Mark)

2. 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 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. (1 Mark)

3. 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)


2

4. Corrupt Limited has received a request from Mr. Suresh for transfer of 100 partly paid equity shares, to

Mr. Ramesh. However, Mr. Ramesh expired in the meantime, but no intimation of the same has been

received by the company. In the given circumstances, advise as per the provisions of the Companies

Act, 2013:

(a) Corrupt Limited will not register the transfer the shares in the name of Mr. Ramesh, without

verification from Mr. Suresh

(b) Corrupt Limited can register the shares in the name of Mr. Ramesh as it is not aware of the

untoward incident.

(c) Corrupt Limited will not register the transfer the shares in the name of Mr. Ramesh, without

verification from Mr. Ramesh

(d) Corrupt Limited will give the shares back to Mr. Suresh (2 Marks)

5. 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 7 th July, 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 20th July, 2018

(b) Latest by 27th July, 2018

(c) Latest by 4th August, 2018

(d) Latest by 4th September, 2018 (2 Marks)

6. Amex limited is a public company having a net- worth of Rs. 950 crores, turnover of 200 crores (the

company is just 5 years since the date of its incorporation) during the immediately preceding financial

year, has to constitute a Corporate Social Responsibility (CSR) Committee. It has 9 Directors (A, B, C,

D, E, F, G, H and I). Further, Mr. F, G, H and I are independent directors. Out of the following statements

which statement is correct:

(a) CSR committee may constitute of A, B and C

(b) CSR committee may constitute of A, B and D

(c) CSR committee may constitute of A, F and G

(d) There is no need to constitute a CSR committee as the turnover is just 200 crores during the

immediately preceding financial year (2 Marks)

7. Excellent Art Private Limited, has a paid up capital of Rs.50 crore, Turnover of Rs.25 crore and borrowing

of Rs.25 crore and outstanding deposits of Rs.30 crore. Decide if the Company needs to comply with

internal audit requirements under the Act?

(a) No. The provisions of Internal audit are not applicable on private companies.

(b) Yes. Company is having Paid up capital of Rs.50 Crore and outstanding deposits more than Rs.25

crore.

(c) No. Because the borrowings are less than Rs.100 crore and Turnover is less than Rs.200 crore

(d) None of the above (2 Marks)

8. Advise whether the auditor appointed by a private limited company with paid up capital of Rs.30.00

Crore, in the following cases are valid for the financial year 2017-18:-

(a) Amanpreet (an Individual auditor) who has been the auditor since the Financial Year 2011-12

(b) Firm MGA & associates, was appointed as auditor in the Financial Year 2011 -12.


3

(c) Firm MGA & associates, who completed 10 years continously as auditor in company. Now company

wants to appoint VGA & associates wherein Mr. V is a partner who is also partner is MGA &

Associates.

(d) The provisions of rotation of auditor are not applicable on private companies (2 Marks)

9. Supertech Computers Pvt. Ltd has 120 members. It sends notice to all of them. 20 members did not

attend the meeting. Out of remaining 100 members, 20 members abstained from voting. Advice the

company, how many members should vote in favour of resolution, if it has to be passed as a Special

Resolution?

(a) 60 Votes

(b) 80 Votes

(c) 41 votes

(d) 20 votes (2 Marks)

10. From the following information in respect of BMR Consultants Pvt. Ltd., compute the amount company

is required to contribute on account of CSR:

Financial Year Net Profit (in Lacs)

2015-16 15

2016-17 50

2017-18 70

(a) Nil. If in any of the three financial years company has incurred losses, then company is not required to spend amount towards CSR but explain the reason for not spending the amount.

(b) Rs. 2.4 Lacs

(c) Rs. 80,000/-

(d) Rs. 2.1 Lacs (2 Marks)

11. When there is a conflict between two or more statute or two or more parts of a statute and both of them need to be honoured, then which rule of interpretation is to be applied

(a) Rule of Harmonious construction

(b) Rule of Literal construction

(c) Rule of Beneficial construction

(d) Rule of exceptional construction (1 Mark)

12. While drawing a bill of exchange, a person whose name is given in addition to the drawee who can be resorted in case of need, is called

(a) Acceptor

(b) Acceptor for honour

(c) Drawee in case of need

(d) Drawer (1 Mark)

13. Days of grace provided to the Instruments at maturity is (as per the provisions of the Negotiable Instruments Act, 1881)—

(a) 1 day

(b) 2 days

(c) 3 days

(d) 5 days (1 Mark)


4

14. Which of the following is not an Immovable Property (as per the provisions of the General Clauses Act,

1897):

(a) Land

(b) Building

(c) Timber

(d) Machinery permanently attached to the land (1 Mark)

15. Aman contracts to indemnify Megha against the consequences of any proceedings which Chandar may

take against Megha in respect of a sum of Rs. 15000/- advanced by Chandar to Megha. Now, Megha

who is called upon to pay the sum of money to Chandar but she fails to do so. Now, as per the provisions

of the Indian Contract Act, 1872, advise the future course of action to be taken by Chandar.

(a) Chandar can recover the amount only from Megha

(b) Chandar can recover the full amount from Aman

(c) Chandar cannot recover the amount from Aman

(d) Chandar can recover at least 10% of the total amount from Megha (2 Marks)

16. L made an offer to MD of a company. MD accepted the offer though he had no authority to do so.

Subsequently L withdrew the offer but the company rat ified the MD’s acceptance. State which of the

statement given hereunder is correct:

(a) L was bound with the offer

(b) An offer once accepted cannot be withdrawn

(c) Both option (a) & (b) is correct

(d) L is not bound to an offer. (2 Marks)

17. The date of maturity of a bill payable hundred days after sight and which is presented for sight on 4th

May, 2017, is (as per the provisions of the Negotiable Instruments Act, 1881) :

(a) 13 August, 2017

(b) 14 August, 2017

(c) 15 August, 2017

(d) 16 August, 2017 (2 Marks)

18. A draws a bill on B. B accepts the bill without any consideration. The bill is transferred to C without

consideration. C transferred it to D for value. Decide as per the provisions of the Negotiable Instruments

Act, 1881-

(a) D can sue only A

(b) D can sue A or B only

(c) D can sue any of the parties A, B or C

(d) D cannot sue any of the parties A, B or C (2 Marks)


5

DIVISION B

1. (a) Data Limited (listed on Stock Exchange) was incorporated on 1 st October, 2018 with a paid- up

share capital of Rs. 200 crores. Within this small time of 4 months it has earned huge profits and

has topped the charts for its high employee friendly environment. The company wants to issue

sweat equity to its employees. A friend of the CEO of the company has told him that they cannot

issue sweat equity shares as 2 years have not elapsed since the time company has commenced

its business. The CEO of the company has approached you to advise them about the essential

conditions to fulfilled before the issue of sweat equity shares especially since their company is just

a few months old.? (6 Marks)

(b) TAT Ltd. incurred loss in business upto current quarter of financial year 2017-18. The company

has declared dividend at the rate of 12%, 15% and 18% respectively in the immedia te preceding

three years. Inspite of the loss, the Board of Directors of the company have decided to declare

interim dividend @ 15% for the current financial year. Examine the decision of TAT Ltd. stating the

provisions of declaration of interim dividend under the Companies Act, 2013. (6 Marks)

(c) Explaining the provisions of the Indian Contract Act, 1872, answer the following:

(i) A contracts with B for a fixed price to construct a house for B within a stipulated time. B would

supply the necessary material to be used in the construction. C guarantees A’s performance

of the contract. B does not supply the material as per the agreement. Is C discharged from

his liability?

(ii) C, the holder of an over due bill of exchange drawn by A as surety for B, and a ccepted by B,

contracts with X to give time to B. Is A discharged from his liability? (4 Marks)

(d) Manoj owes money to Umesh. Therefore, he makes a promissory note for the amount in favour of

Umesh, for safety of transmission he cuts the note in half and posts one half to Umesh. He then

changes his mind and calls upon Umesh to return the half of the note which he had sent. Umesh

requires Manoj to send the other half of the promissory note. Decide how rights of the parties are

to be adjusted.

Give your answer in reference to the Provisions of Negotiable Instruments Act, 1881. (3 Marks)

2. (a) Referring to the provisions of the Companies Act, 2013, examine the validity of the following:

ABC Limited having a net worth of 120 crore rupees wants to accept deposit from its members. They

have approached you to advise them regarding that if they fall within the category of eligible company,

what special care has to be taken while accepting such deposit from members. (4 Marks)

(b) Explain how the auditor will be appointed in the following cases :

(i) A Government Company within the meaning of section 394 of the Companies Act,2013.

(ii) A Public Company whose shareholders include XYZ Bank (a nationalized bank) holding 18%

of the subscribed capital of the company. (6 Marks)

(c) A appoints M, a minor, as his agent to sell his watch for cash at a price not less than Rs. 700. M

sells it to D for Rs. 350. Is the sale valid? Explain the legal position of M and D, referring to the

provisions of the Indian Contract Act, 1872. (4 Marks)

(d) Explain the meaning of ‘Negotiation by delivery’ with the help of an example. Give your answer as

per the provisions of the Negotiable Instruments Act, 1881. (3 Marks)

3. (a) Alfa school 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


6

Companies Act, 2013. Describe what powers can be exercised by the Central Government

against the Alfa School, in such a case? (5 Marks)

(b) Examine the following situations in the light of the Companies Act, 2013

(i) Mr. Ayush, a Chartered accountant has been appointed as an auditor of X Ltd. in the Annual

General Meeting of the company held in September, 2018, in which he accepted the

assignment. Subsequently, in January, 2019 he joined B, as a partner for the consultancy firm

of Mr. B. Mr. B is working also working as a Finance Executive of X Ltd.

(ii) “Mr. Abhi”, a practicing Chartered Accountant, is holding securities of “Abhiman Ltd.” having

face value of Rs. 1000/-. Whether Mr. Abhi is qualified for appointment as an Auditor of

Abhiman Ltd.”? (5 Marks)

(c) On a Bill of Exchange for Rs. 1 lakh, X’s acceptance to the Bill is forged. ‘A’ takes the Bill from his

customer for value and in good faith before the Bill becomes payable. State with reasons whether

‘A’ can be considered as a ‘Holder in due course’ and whether he (A) can receive the amount of

the Bill from ‘X (4 Marks)

(d) How far is ‘preamble’ in an enactment helpful in interpreting any of the parts of an enactment?

(3 Marks)

4. (a) What is meant by “Abridged Prospectus”? Under what circumstances an abridged prospectus need

not accompany the detailed information regarding prospectus along with the application form?

What are the penalties in case of default in complying with the provisions related to issue of

abridged prospectus? (4 Marks)

(b) Examine the validity of the following with reference to the relevant provisions of the Companies

Act, 2013:

(i) The Board of Directors of Shrey Ltd. called an extraordinary general meeting upon the

requisition of members. However, the meeting was adjourned on the ground that the quorum

was not present at the meeting. Advise the company.

(ii) Mr. Bheem is holding 500 shares (of ZYZ Limited) of total worth Rs. 5000 only. Advise,

whether he has the right to inspect the Register of Members? (6 Marks)

(c) A notice was served on Mr. P for appearing in the court. However, the notice could not be served

on account of the fact that the house of the Mr. P was found locked. Thus, Mr. P. did not appear in

the court at the said date. Examine the situation as per the provisions of the General Clauses Act,

1897 and determine whether Mr. P. will be liable in the given situation. (4 Marks)

(d) Explain the principles of “Grammatical Interpretation” and “Logical Interpretation” of a Statute.

(3 Marks)

5. (a) Mr Nilesh has transferred 1000 shares of Perfect Ltd. to Ms. Mukta. The company has refused to

register transfer of shares and does not even send a notice of refusal to Mr. Nilesh or Ms. Mukta

respectively within the prescribed period. Discuss as per the provisions of the Companies Act,

2013, whether aggrieved party has any right(s) against the company for such refusal? (5 Marks)

(b) What are the powers of Registrar to make entries of satisfaction and release of charges in absence

of intimation from company. Discuss as per the provisions of the Companies Act, 2013. (5 Marks)

(c) What is agent’s authority in case of an emergency. What are the essential conditions to be satisfied

to constitute a valid emergency. Give your answer as per the provisions of the Indian Contract Act,

1872. (4 Marks)

(d) What do you understand by the term ‘Good Faith’. Explain as per the provisions of the General

Clauses Act, 1897. (4 Marks)


1


MOCK TEST PAPER - 1

INTERMEDIATE (NEW): GROUP – I

PAPER – 2: CORPORATE AND OTHER LAWS

SUGGESTED ANSWERS/HINTS

DIVISION A

1 2 3 4 5 6 7 8 9 10

(d) (d) (b) (b) (b) (c) (c) (b) (a) (c)

11 12 13 14 15 16 17 18 19 20

(a) (d) (c) (c) (b) (d) (b) (c)

DIVISION B

1. (a) Sweat equity shares of a class of shares already issued.

According to section 54 of the Companies Act, 2013, a company may issue sweat equity shares of

a class of shares already issued, if the following conditions are fulfilled, namely—

(i) the issue is authorised by a special resolution passed by the company;

(ii) the resolution specifies the number of shares, the current market price, consideration, if

any, and the class or classes of directors or employees to whom such equity shares are to be

issued;

(iii) where the equity shares of the company are listed on a recognised stock exchange, the

sweat equity shares are issued in accordance with the regulations made by the Securities

and Exchange Board in this behalf and if they are not so listed, the sweat equity shares are

issued in accordance with such rules as prescribed under Rule 8 of the Companies (Share

and Debentures) Rules, 2014,

The rights, limitations, restrictions and provisions as are for the time being applicable to equity

shares shall be applicable to the sweat equity shares issued under this section and the holders

of such shares shall rank pari passu with other equity shareholders.

Data Limited can issue Sweat equity shares by following the conditions as mentioned above. It

does not make a difference that the company is just a few months old.

(b) Interim Dividend: According to section 123(3) of the Companies Act, 2013, the Board of Directors of a company may declare interim dividend during any financial year or at any time during the

period from closure of financial year till holding of the annual general meeting out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared or out of profits generated in the financial year till the quarter preceding the

date of declaration of the interim dividend.

However, in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during

the immediately preceding three financial years.


2

In the instant case, Interim dividend by TAT Ltd. shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years

[i.e. (12+15+18)/3 = 45/3 =15%]. Therefore, decision of Board of Directors to declare 15% of the

interim dividend for the current financial year is tenable.

(c) (i) According to section 134 of the Indian Contract Act, 1872, the surety is discharged by any

contract between the creditor and the principal debtor, by which the princ ipal debtor is

released or by any act or omission of the creditor, the legal consequence of which is the

discharge of the principal debtor. In the given case, B does not supply the necessary material

as per the agreement. Hence, C is discharged from his liability.

(ii) According to Section 136 of the Indian Contract Act, 1872, where a contract to give time to

the principal debtor is made by the creditor with a third person and not with the principal

debtor, the surety is not discharged. In the given question the contract to give time to the

principal debtor is made by the creditor with X who is a third person. X is not the principal

debtor. Hence, A is not discharged.

(d) The question arising in this problem is whether the making of promissory note is complete when one half of the note was delivered to Umesh. Under Section 46 of the Negotiable Instruments Act, 1881, the making of a promissory note is completed by delivery, actual or constructive. Delivery

refers to the whole of the instrument and not merely a part of it. Delivery of half instrument cannot be treated as constructive delivery of the whole. So, the claim of Umesh to have the other half of the promissory note sent to him is not maintainable. Manoj is justified in demanding the return of

the first half sent by him. He can change his mind and refuse to send the other half of the promissory

note.

2. (a) “Eligible company” means a public company as referred to in sub-section (1) of section 76, having

a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred

crore rupees and which has obtained the prior consent of the company in general meeting by

means of a special resolution and also filed the said resolution with the Registrar of Companies

before making any invitation to the Public for acceptance of deposits:

However, an eligible company, which is accepting deposits within the limits specified under clause

(c) of sub-section (1) of section 180, may accept deposits by means of an ordinary resolution.

An eligible company shall accept or renew any deposit from its members, if the amount of such deposit together with the amount of deposits outstanding as on the date of acceptance or renewal of such deposits from members exceeds ten per cent. of the aggregate of the Paid-up share capital,

free Reserves and securities premium account of the company.

ABC Limited is having a net worth of 120 crore rupees. Hence, it can fall in the category of eligible

company.

Thus, ABC has to ensure that acceptance deposits from members should not exceed 10% of the aggregate of the Paid-up share capital, free Reserves and securities premium account of the

company.

(b) (i) The appointment and re-appointment of auditor of a Government Company or a government controlled company is governed by the provisions of section 139 of the Companies Act, 2013

which are summarized as under:

The first auditor shall be appointed by the Comptroller and Auditor General of India within 60

days from the date of incorporation and in case of failure to do so, the Board shall appoint

auditor within next 30 days and on failure to do so by Board of Directors, it shall inform the

members, who shall appoint the auditor within 60 days at an extraordinary general meeting

(EGM), such auditor shall hold office till conclusion of first Annual General Meeting.


3

In case of subsequent auditor for existing government companies, the Comptroller & Auditor

General of India shall appoint the auditor within a period of 180 days from the commencement

of the financial year and the auditor so appointed shall hold his position till the conclusion of

the Annual General Meeting.

(ii) In the given case as the total shareholding of the XYZ Bank is just 18% of the subscribed

capital of the company it is not a government company. Hence, the provisions applicable to

non-government companies in relation to the appointment of auditors shall apply.

The auditor shall be appointed as follows:

(1) The company shall, at the first annual general meeting, appoint an individual or a firm as

an auditor who shall hold office from the conclusion of that meeting till the conclusion of its

sixth annual general meeting and thereafter till the conclusion of every sixth meeting.

(2) Before such appointment of auditor is made, the written consent of the auditor to such

appointment, and a certificate from him or firm of auditors that the appointment, if made, shall

be obtained from the auditor:

Further, the company shall inform the auditor concerned of his or its appointment, and also file

a notice of such appointment with the Registrar within 15 days of the meeting in which the

auditor is appointed.

(c) According to the provisions of Section 184 of the Indian Contract Act, 1872, as between the

principal and a third person, any person, even a minor may become an agent. But no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal. Thus, if a person who is not competent to contract is appointed

as an agent, the principal is liable to the third party for the acts of the agent. Thus, in the given case, D gets a good title to the watch. M is not liable to A for his negligence in the performance

of his duties.

(d) Negotiation by delivery

According to section 47 of the Negotiable Instruments Act, 1881, subject to the provisions of section

58, a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery

thereof.

Exception: A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable (except in the hands of a holder for value

without notice of the condition) unless such event happens.

Example: A, the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to

keep for B. The instrument has been negotiated.

3. (a) Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to

promote the charitable objects of commerce, art, science, education, sports etc. Such company

intends to apply its profit in promoting its objects. Section 8 companies are registered by the

Registrar only when a license is issued by the Central Government to them. Since, Alfa School

was a Section 8 company and it had started violating the objects of its objective clause, hence in

such a situation the following powers can be exercised by the Central Government:

(i) The Central Government may by order revoke the licence of the company where the company

contravenes any of the requirements or the conditions of this sections subject to which a

licence is issued or where the affairs of the company are conducted fraudulently, or violative

of the objects of the company or prejudicial to public interest, and on revocation the Registrar

shall put ‘Limited’ or ‘Private Limited’ against the company’s name in the register. But before


http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=18068


4

such revocation, the Central Government must give it a written notice of its intention to revoke

the licence and opportunity to be heard in the matter.

(ii) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is

essential in the public interest, direct that the company be wound up under this Act or

amalgamated with another company registered under this section.

However, no such order shall be made unless the company is given a reasonable opportuni ty

of being heard.

(iii) Where a licence is revoked and where the Central Government is satisfied that it is essential

in the public interest that the company registered under this section should be amalgamated

with another company registered under this section and having similar objects, then,

notwithstanding anything to the contrary contained in this Act, the Central Government may,

by order, provide for such amalgamation to form a single company with such constitution,

properties, powers, rights, interest, authorities and privileges and with such liabilities, duties

and obligations as may be specified in the order.

(b) (i) Provisions and Explanation: Section 141(3) (c) of the Companies Act, 2013 prescribes that

any person who is a partner or in employment of an officer or employee of the company will

be disqualified to act as an auditor of a company. Sub-section (4) of Section 141 provides

that an auditor who becomes subject, after his appointment, to any of the disqualifications

specified in sub-sections (3) of Section 141, he shall be deemed to have vacated his office

as an auditor.

Conclusion: In the present case, Ayush, an auditor of X Ltd., joined as partner with B, who

is Finance executive of X Ltd., has attracted clause (3) (c) of Section 141 and, therefore, he

shall be deemed to have vacated office of the auditor of X Limited.

(ii) As per section 141 (3)(d) (i) an auditor is disqualified to be appointed as an auditor if he, or

his relative or partner holding any security of or interest in the company or its subsidiary, or

of its holding or associate company or a subsidiary of such holding company:

In the present case, Mr. Abhi. is holding security of ` 1000 in the Abhiman Ltd, therefore he is

not eligible for appointment as an Auditor of “Abhiman Ltd.”

(c) According to section 9 of the Negotiable Instruments Act, 1881 ‘holder in due course’ means any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to bearer or the payee or endorsee thereof, if payable to order, before the amount

in it became payable and without having sufficient cause to believe that any defect existed in the

title of the person from whom he derived his title.

As ‘A’ in this case prima facie became a possessor of the bill for value and in good faith before the

bill became payable, he can be considered as a holder in due course.

But where a signature on the negotiable instrument is forged, it becomes a nullity. The holder of a

forged instrument cannot enforce payment thereon. In the event of the holder being able to obtain payment in spite of forgery, he cannot retain the money. The true owner may sue on tort the person who had received. This principle is universal in character, by reason where of even a holder in due

course is not exempt from it. A holder in due course is protected when there is defect in the title. But he derives no title when there is entire absence of title as in the case of forgery. Hence ‘A’

cannot receive the amount on the bill.

(d) Preamble: It expresses the scope and object of the Act more comprehensively than the long title.

The preamble may recite the ground and the cause for making a statute and or the evil which is

sought to the remedied by it.


5

The preamble like the Long title can legitimately be used for construing it. However, the preamble cannot over- ride the provisions of the Act. Only if the wording of the Act gives rise to doubts as to

its proper construction (e.g., where the words or a phrase has more than the one meaning and doubts arise as to which of the two meanings is intended in the Act) the preamble can and ought

to be referred to arrive at the proper construction.

4. (a) (1) Meaning of Abridged Prospectus: - According to Section 2(1) of the Companies Act, 2013,

an abridged prospectus means a memorandum containing such salient features of a

prospectus as may be specified by the Securities and Exchange Board by making regulations

in this behalf.

(2) Circumstances under which the abridged prospectus need not accompany the

application forms: Section 33 (1) of the Companies Act, 2013 states that no application form

for the purchase of any of the securities of a company can be issued unless such form is

accompanied by an abridged prospectus. In terms of the Proviso to section 33 (1) an abridged

prospectus need not accompany the application form if it is shown that the form of application

was issued:

(i) In connection with a bona fide invitation to a person to enter into an underwriting

agreement with respect to such securities; or

(ii) Where the securities are not offered to the public.

(3) If a company makes any default in complying with the provisions of this section, it shall be

liable to a penalty of fifty thousand rupees for each default.

(b) (i) According to section 100 (2) of the Companies Act 2013, the Board of directors must convene

a general meeting upon requisition by the stipulated minimum number of members.

As per Section 103 (2) (b) of the Companies Act, 2013, if the quorum is not present within

half an hour from the appointed time for holding a meeting of the company, the meeting, if

called on the requisition of members, shall stand cancelled. Therefore, the meeting stands

cancelled and the stand taken by the Board of Directors to adjourn it, is not proper.

(ii) As per section 94(2) of the Companies Act, the registers and their indices, except when they

are closed under the provisions of this Act, and the copies of all the returns shall be open for

inspection by any member, debenture-holder, other security holder or beneficial owner,

during business hours without payment of any fees and by any other person on payment of

such fees as may be prescribed.

Accordingly, a director Mr. Bheem, who is a shareholder of the company, has a right to inspect

the Register of Members during business hours without payment of any fees, as per the

provisions of this section

(c) According to section 27 of the General Clauses Act, 1897, where any legislation or regulation requires any document to be served by post, then unless a different intention appears, the service

shall be deemed to be effected by:

(i) properly addressing

(ii) pre-paying, and

(iii) posting by registered post.

A letter containing the document to have been effected at the time at which the letter would be

delivered in the ordinary course of post.





6

Hence, where the where the notice could not be served on account of the fact that the house of Mr

P was found locked, it will be deemed that the notice was properly served as per the provisions of

Section 27 of the General Clauses Act, and it would be for Mr. P to prove that it was not really

served and that he was not responsible for such non- service.

(d) Principles of Grammatical Interpretation and Logical Interpretation: In order to ascertain the meaning of any law/ statute the principles of Grammatical and Logical Interpretation is applied to

conclude the real meaning of the law and the intention of the legislature behind enacting it.

Grammatical interpretation concerns itself exclusively with the verbal expression of law. It does not

go beyond the letter of the law, whereas Logical interpretation on the other hand, seeks more

satisfactory evidence of the true intention of the legislature.

5. (a) The problem as asked in the question is governed by Section 58 of the Companies Act, 2013

dealing with the refusal to register transfer and appeal against refusal.

In the present case the company has committed the wrongful act of not sending the notice of refusal

of registering the transfer of shares.

Under section 58 (4), if a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer is delivered to the company, the transferee may, within a period of sixty days of such refusal or where

no intimation has been received from the company, within ninety days of the delivery of the

instrument of transfer, appeal to the Tribunal.

Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under sub -

section (4), may, after hearing the parties, either dismiss the appeal, or by order—

(a) direct that the transfer or transmission shall be registered by the company and the company

shall comply with such order within a period of ten days of the receipt of the order; or

(b) direct rectification of the register and also direct the company to pay damages, if any,

sustained by any party aggrieved;

In the present case Ms. Mukta can make an appeal before the tribunal and claim damages.

(b) Section 83 of the Companies Act, 2013 provides powers to the registrar to make entries with respect to the satisfaction and release of charges where no intimation has been received by him

from the company.

(i) The Registrar may, on evidence being given to his satisfaction with respect to any registered

charge-

(a) that the debt for which the charge was given has been paid or satisfied in whole or in

part; or

(b) that part of the property or undertaking charged has been released from the charge or

has ceased to form part of the company’s property or undertaking,

- enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of the property or undertaking has been released from the charge or has ceased to form part of the company’s property or undertaking, as the case may be,

despite the fact that no intimation has been received by him from the company.

(ii) The Registrar shall inform the affected parties within thirty days of making the entry in the

register of charges kept under section 81(1).

According to the Companies (Registration of Charges) Rules, 2014 with respect to the

satisfaction of charge-

(1) A company shall within a period of thirty days from the date of the payment or satisfaction


7

in full of any charge registered, give intimation of the same to the Registrar along with

the fee.

(2) Where the Registrar enters a memorandum of satisfaction of charge in full in pursuance

of section 82 or 83, he shall issue a certificate of registration of satisfaction of charge.

(c) An agent has authority, in an emergency, to do all such acts for the purpose of protecti ng his principal from loss as would be done by a person of ordinary prudence, in his own case, under

similar circumstances.

To constitute a valid agency in an emergency, following conditions must be satisfied.

(i) Agent should not be a in a position or have any opportunity to communicate with his principal

within the time available.

(ii) There should have been actual and definite commercial necessity for the agent to act

promptly.

(iii) The agent should have acted bonafide and for the benefit of the principal.

(iv) The agent should have adopted the most reasonable and practicable course under the

circumstances, and

(v) The agent must have been in possession of the goods belonging to his principal and which

are the subject of contract.

(d) “Good Faith” [Section 3(22) of the General Clauses Act, 1897]: A thing shall be deemed to be

done in “good faith” where it is in fact done honestly, whether it is done negligently or not;

The question of good faith under the General Clauses Act is one of fact. It is to determine with

reference to the circumstances of each case. The term “Good faith” has been defined differently in different enactments. This definition of the good faith does not apply to that enactment which contains a special definition of the term “good faith” and there the definition given in that particular

enactment has to be followed. This definition may be applied only if there is nothing repugnant in

subject or context, and if that is so, the definition is not applicable.


1

Test Series: March 2019

MOCK TEST PAPER – I

INTERMEDIATE: GROUP – I

PAPER – 3: COST AND MANAGEMENT ACCOUNTING

Answers are to be given only in English except in the case of the candidates who have opted for Hindi medium. If a

candidate has not opted for Hindi medium his/ her answer in Hindi will not be valued.


Attempt any four questions from the remaining five questions.

Working notes should form part of the answer.


1. Answer the following:

(a) M Ltd. has an annual fixed cost of Rs. 98,50,000. In the year 20X8-X9, sales amounted to

Rs.7,80,60,000 as compared to Rs.5,93,10,000 in the preceding year 20X7-X8. Profit in the year

20X8-X9 is Rs.37,50,000 more than that in 20X7-X8.

Required:

(i) CALCULATE Break-even sales of the company;

(ii) DETERMINE profit/ loss on a forecasted sales volume of Rs.8,20,00,000.

(iii) If there is a reduction in selling price by 10% in the financial year 20X8-X9 and company desires to earn the same amount of profit as in 20X7-X8, COMPUTE the required sales

amount?

(b) Arnav Motors Ltd. manufactures pistons used in car engines. As per the study conducted by the Auto Parts Manufacturers Association, there will be a demand of 80 million pistons in the c oming year. Arnav Motors Ltd. is expected to have a market share of 1.15% of the total market demand

of the pistons in the coming year. It is estimated that it costs Rs.1.50 as inventory holding cost

per piston per month and that the set-up cost per run of piston manufacture is Rs. 3,500.

(i) DETERMINE the optimum run size for piston manufacturing?

(ii) Assuming that the company has a policy of manufacturing 40,000 pistons per run, CALCULATE how much extra costs the company would be incurring as compared to the

optimum run suggested in (i) above?

(c) From the following figures, CALCULATE cost of production and profit for the month of

March 20X9.

Amount (Rs.) Amount (Rs.)

Stock on 1st March,

20X9

Purchase of raw materials 28,57,000

- Raw materials 6,06,000 Sale of finished goods 1,34,00,000

- Finished goods 3,59,000 Direct wages 37,50,000

Stock on 31st March,

20X9

Factory expenses 21,25,000

- Raw materials 7,50,000 Office and administration

expenses

10,34,000


2

- Finished goods 3,09,000 Selling and distribution

expenses

7,50,000

Work-in-process: Sale of scrap 26,000

- On 1st March, 20X9 12,56,000

- On 31st March, 20X9 14,22,000

(d) A manufacturing company disclosed a net loss of Rs.3,47,000 as per their cost accounts for the

year ended March 31,20X8. The financial accounts however disclosed a net loss of Rs. 5,10,000 for the same period. The following information was revealed as a result of scrutiny of the figures

of both the sets of accounts.

(Rs.)

(i) Factory Overheads under-absorbed 40,000

(ii) Administration Overheads over-absorbed 60,000

(iii) Depreciation charged in Financial Accounts 3,25,000

(iv) Depreciation charged in Cost Accounts 2,75,000

(v) Interest on investments not included in Cost Accounts 96,000

(vi) Income-tax provided 54,000

(vii) Interest on loan funds in Financial Accounts 2,45,000

(viii) T ransfer fees (credit in financial books) 24,000

(ix) Stores adjustment (credit in financial books) 14,000

(x) Dividend received 32,000

PREPARE a memorandum Reconciliation Account. [4 × 5 Marks = 20 Marks]

2. (a) Aditya Agro Ltd. mixes powdered ingredients in two different processes to produce one product. The output of Process- I becomes the input of Process-II and the output of Process-II is

transferred to the Packing department.

From the information given below, you are required to PREPARE accounts for Process-I, Process-II and Abnormal loss/ gain A/c to record the transactions for the month of February

20X9.

Process-I

Input:

Material A 6,000 kilograms at Rs. 50 per kilogram

Material B 4,000 kilograms at Rs. 100 per kilogram

Labour 430 hours at Rs. 50 per hour

Normal loss 5% of inputs. Scrap are disposed off at Rs.16 per kilogram

Output 9,200 kilograms.

There is no work- in- process at the beginning or end of the month.

Process-II

Input:

Material C 6,600 kilograms at Rs. 125 per kilogram

Material D 4,200 kilograms at Rs. 75 per kilogram

Flavouring Essence Rs. 3,300


3

Labour 370 hours at Rs.50 per hour

Normal loss 5% of inputs with no disposal value

Output 18,000 kilograms.

There is no work-in-process at the beginning of the month but 1,000 kilograms in process at the end of the month and estimated to be only 50% complete so far as labour and overhead were

concerned.

Overhead of Rs. 92,000 incurred to be absorbed on the basis of labour hours. [10 Marks]

(b) A, B and C are three industrial workers working in Sports industry and are experts in making

cricket pads. A, B and C are working in Mahi Sports, Virat Sports and Sikhar Sports companies respectively. Workers are paid under different incentive schemes. Company wise incentive

schemes are as follows:

Company Incentive scheme

Mahi Sports Emerson’s efficiency system

Virat Sports Merrick differential piece rate system

Sikhar Sports Taylor’s differential piece work system

The relevant information for the industry is as under:

Standard working hours 8 hours a day

Standard output per hour (in units) 2

Daily wages rate Rs. 360

No. of working days in a week 6 days

Actual outputs for the week are as follows:

A B C

132 units 108 units 96 units

You are required to CALCULATE effective wages rate and weekly earnings of all the three

workers. [10 Marks]

3. (a) The following standards have been set to manufacture a product:

Direct Materials: (Rs.)

2 units of X at Rs.40 per unit 80.00

3 units of Y at Rs. 30 per unit 90.00

15 units of Z at Rs.10 per unit 150.00

320.00

Direct labour 3 hours @ Rs. 55 per hour 165.00

Total standard prime cost 485.00

The company manufactured and sold 6,000 units of the product during the year 20X8.

Direct material costs were as follows:

12,500 units of X at Rs. 44 per unit.

18,000 units of Y at Rs. 28 per unit.

88,500 units of Z at Rs.12 per unit.


4

The company worked 17,500 direct labour hours during the year 20X8. For 2,500 of these hours the company paid at Rs. 58 per hour while for the remaining hours the wages were paid at the

standard rate.

Required:

COMPUTE the following variances:

Material Price, Material Usage, Material Mix, Material Yield, Labour Rate and Labour Efficiency.

[10 Marks]

(b) Linex Limited manufactures three products P, Q and R which are similar in nature and are usually produced in production runs of 100 units. Product P and R require both machine hours and

assembly hours, whereas product Q requires only machine hours. The overheads incurred by the

company during the first quarter are as under:

`

Machine Department expenses…………………........................ 18,48,000

Assembly Department expenses…………………………………. 6,72,000

Setup costs…………………………………………………………. 90,000

Stores receiving cost………………………………………………. 1,20,000

Order processing and dispatch…………………………………… 1,80,000

Inspect and Quality control cost………………………………… 36,000

The date related to the three products during the period are as under:

P Q R

Units produced and sold 15,000 12,000 18,000

Machine hours worked 30,000 hrs. 48,000 hrs. 54,000 hrs.

Assembly hours worked (direct labour hours) 15,000 hrs. - 27,000 hrs.

Customers’ orders executed (in numbers) 1,250 1,000 1,500

Number of requisitions raised on the stores 40 30 50

Required

PREPARE a statement showing details of overhead costs allocated to each product type using activity

based costing. [10 Marks]

4. (a) From the details furnished below you are required to COMPUTE a comprehensive machine-hour

rate:

Original purchase price of the machine (subject to

depreciation at 10% per annum on original cost)

Rs. 6,48,000

Normal working hours for the month

(The machine works for only 75% of normal capacity)

200 hours

Wages to Machine-man Rs. 400 per day (of 8 hours)

Wages to Helper (machine attendant) Rs. 275 per day (of 8 hours)

Power cost for the month for the time worked Rs. 65,000

Supervision charges apportioned for the machine centre for the

month

Rs. 18,000

Electricity & Lighting for the month Rs. 9,500


5

Repairs & maintenance (machine) including Consumable stores per month

Rs. 17,500

Insurance of Plant & Building (apportioned) for the year Rs. 18,250

Other general expense per annum Rs. 17,500

The workers are paid a fixed Dearness allowance of Rs. 4,575 per month. Production bonus payable to workers in terms of an award is equal to 33.33% of basic wages and dearness

allowance. Add 10% of the basic wage and dearness allowance against leave wages and

holidays with pay to arrive at a comprehensive labour-wage for debit to production. [10 Marks]

(b) M/s. Bansals Construction Company Ltd. took a contract for Rs. 60,00,000 expected to be

completed in three years. The following particulars relating to the contract are available:

20X7 (Rs.) 20X8 (Rs.) 20X9 (Rs.)

Materials 6,75,000 10,50,000 9,00,000

Wages 6,20,000 9,00,000 7,50,000

Transportation cost 30,000 90,000 75,000

Other expenses 30,000 75,000 24,000

Cumulative work certified 13,50,000 45,00,000 60,00,000

Cumulative work uncertified 15,000 75,000 —

Plant costing Rs. 3,00,000 was bought at the commencement of the contract. Depreciation was to be charged at 25% per annum, on the written down value method. The contractee pays 75% of

the value of work certified as and when certified, and makes the final payment on completion of

the contract.

You are required to PREPARE a contract account for three years. [10 Marks]

5. (a) A transport company has a fleet of three trucks of 10 tonnes capacity each plying in different directions for transport of customer's goods. The trucks run loaded with goods and return empty.

The distance travelled, number of trips made and the load carried per day by each truck are as

under:

Truck No. One way Distance Km

No. of trips per day

Load carried per trip / day tonnes

1 16 4 6

2 40 2 9

3 30 3 12

The analysis of maintenance cost and the total distance travelled during the last two years is as

under

Year Total distance travelled Maintenance Cost (Rs.)

1 1,60,200 46,050

2 1,56,700 45,175

The following are the details of expenses for the year under review:

Diesel Rs. 65 per litre. Each litre gives 4 km per litre of diesel

on an average.

Driver's salary Rs. 24,000 per month

Licence and taxes Rs. 25,000 per annum per truck


6

Insurance Rs. 45,000 per annum for all the three vehicles

Purchase Price per

truck

Rs. 30,00,000, Life 10 years. Scrap value at the end

of life is Rs. 1,00,000.

Oil and sundries Rs. 250 per 100 km run.

General Overhead Rs. 1,15,600 per annum

The vehicles operate 24 days per month on an average.

On the basis of commercial tone-km, you are required to:

(i) PREPARE an Annual Cost Statement covering the fleet of three vehicles.

(ii) CALCULATE the cost per km. run.

(iii) DETERMINE the freight rate per tonne km. to yield a profi t of 10% on freight. [10 Marks]

(b) S Ltd. has prepared budget for the coming year for its two products A and B.

Product A (Rs.) Product B (Rs.)

Production & Sales unit 6,000 units 9,000 units

Raw material cost per unit 60.00 42.00

Direct labour cost per unit 30.00 18.00

Variable overhead per unit 12.00 6.00

Fixed overhead per unit 8.00 4.00

Selling price per unit 120.00 78.00

After some marketing efforts, the sales quantity of the Product A & B can be increased by 1,500 units and 500 units respectively but for this purpose the variable overhead and fixed overhead

will be increased by 10% and 5% respectively for the both products.

You are required to PREPARE flexible budget for both the products:

(a) Before marketing efforts

(b) After marketing efforts. [10 Marks]

6. (a) EXPLAIN the difference between controllable & uncontrollable costs?

(b) DEFINE cost plus contract? STATE its advantages.

(c) “Is reconciliation of cost accounts and financial accounts necessary in case of integrated

accounting system?” EXPLAIN.

(d) DISCUSS the impact of Information Technology in Cost Accounting. [4 × 5 =20 Marks]


1


MOCK TEST PAPER – 1

INTERMEDIATE (IPC): GROUP – I

PAPER – 3: COST MANAGEMENT ACCOUNTING

Suggested Answers/ Hints

1. (a) (i) Break-even sales = FixedCost

P / VRatio

P/V Ratio = ChangeinPr ofit

100ChangeinSales

or, Rs. 37,50,000

100Rs. 7,80,60,000 Rs. 5,93,10,000

Or, Rs.37,50,000

100Rs.1,87,50,000

or, 20%

Break-even sales = Rs.98,50,000

20%= Rs.4,92,50,000

(ii) Profit/ loss = Contribution – Fixed Cost

= Rs.8,20,00,000 × 20% - Rs.98,50,000

= Rs.1,64,00,000 – Rs.98,50,000 = Rs.65,50,000

(iii) To earn same amount of profit in 20X8-X9 as was in 20X7-X8, it has to earn the same

amount of contribution as in 20X7-X8.

Sales – Variable cost = Contribution equal to 20X7-X8 contribution

Contribution in 20X7-X8 = Sales in 20X7-X8 × P/V Ratio in 20X7-X8

= Rs.5,93,10,000 × 20% = Rs.1,18,62,000

Let the number of units to be sold in 20X8-X9 = X

Sales in 20X8-X9 – Variable cost in 20X8-X9 = Desired Contribution

90 X – 80 X = Rs.1,18,62,000

Or, 10 X = 1,18,62,000

Or, X = 11,86,200 units

Therefore, Sales amount required to earn a profit equals to 20X7-X8 profit

= Rs. 90 × 11,86,200 units = Rs. 10,67,58,000

(b) (i) Optimum run size or Economic Batch Quantity (EBQ) = 2 D S

C

Where, D = Annual demand i.e. 1.15% of 8,00,00,000 = 9,20,000 units

S = Set-up cost per run = Rs. 3,500

C = Inventory holding cost per unit per annum

= Rs. 1.5 × 12 months = Rs. 18

EBQ = 2 9,20,000units Rs.3,500

Rs.18 = 18,915 units


2

(ii) Calculation of Total Cost of set-up and inventory holding

Batch size No. of set-ups

Set-up Cost (Rs.)

Inventory holding cost (Rs.)

Total Cost (Rs.)

40,000 units

23

9,20,000

40,000

80,500

(23 × Rs. 3,500)

3,60,000

40,000 Rs.18

2

4,40,500

B

18,915 units

49

9,20,000

18,915

1,71,500 (49 × Rs.

3,500)

1,70,235

18,915 Rs.18

2

3,41,735

Extra Cost (A – B) 98,765

(c) Calculation of Cost of Production and Profit for the month ended March, 20X9:

Particulars Amount (Rs.) Amount (Rs.)

Materials consumed:

- Opening stock 6,06,000

- Add: Purchases 28,57,000

34,63,000

- Less: Closing stock (7,50,000) 27,13,000

Direct wages 37,50,000

Prime cost 64,63,000

Factory expenses 21,25,000

85,88,000

Add: Opening W-I-P 12,56,000

Less: Closing W-I-P (14,22,000)

Factory cost 84,22,000

Less: Sale of scrap (26,000)

Cost of Production 83,96,000

Add: Opening stock of finished goods 3,59,000

Less: Closing stock of finished goods (3,09,000)

Cost of Goods Sold 84,46,000

Office and administration expenses 10,34,000

Selling and distribution expenses 7,50,000

Cost of Sales 1,02,30,000

Profit (balancing figure) 31,70,000

Sales 1,34,00,000

(d) Memorandum Reconciliation Accounts

Dr. Cr.

(Rs.) (Rs.)

To Net Loss as per Costing books

3,47,000 By Administration overheads over recovered in cost accounts

60,000


3

To Factory overheads under absorbed in Cost Accounts

40,000 By Interest on investment not included in Cost Accounts

96,000

To Depreciation under charged in Cost Accounts

50,000 By Transfer fees in Financial books 24,000

To Income-Tax not provided in Cost Accounts

54,000 By Stores adjustment

(Credit in financial books)

14,000

To Interest on Loan Funds in Financial Accounts

2,45,000 By Dividend received in financial books

32,000

By Net loss as per Financial books 5,10,000

7,36,000 7,36,000

2. (a) Process-I A/c

Particulars Qty.

(kgs)

Amount ) Particulars Qty.

(kgs)

Amount

(Rs.)

To Material A 6,000 3,00,000 By Normal loss 500 8,000

To Material B 4,000 4,00,000 By Process-II A/c 9,200 7,38,857

To Labour -- 21,500 By Abnormal loss A/c 300 24,093

To Overhead

Rs.92,000 430hrs

800hrs

-- 49,450

10,000 7,70,950 10,000 7,70,950

*{( 3,00,000 4,00,000 21,500 49,450) 8,000}

(10,000 500)units

` ` ` ` ` =

7,70,950 8,000

9,500units

` `= Rs.80.3105

Process-II A/c

Particulars Qty.

(kgs)

Amount

(Rs.)

Particulars Qty. (kgs) Amount

(Rs.)

To Process-I A/c 9,200 7,38,857 By Normal loss 1,000 --

To Material C 6,600 8,25,000 By Packing

Dept. A/c

(See the working

notes)

18,000 18,42,496

To Material D 4,200 3,15,000 By WIP A/c

(See the working

notes)

1,000 1,00,711

To Flavouring essence -- 3,300

To Labour -- 18,500

To Overheads

Rs.92,000 370hrs

800hrs

-- 42,550

20,000 19,43,207 20,000 19,43,207


4

Abnormal loss A/c

Particulars Qty.

(kgs)

Amount

(Rs.)

Particulars Qty.

(kgs)

Amount

(Rs.)

To Process-I A/c 300 24,093 By Bank 300 4,800

By Costing

Profit & Loss A/c

-- 19,293

300 24,093 300 24,093

Working Notes:

Calculation of Equivalent Production units

Input Units Output Units Process-I Mat-C & D Labour & OH

(%) Units (%) Units (%) Units

9,200 Transferred to

Packing.

18,000 100 18,000 100 18,000

100

18,000

Mat-C 6,600 Closing WIP 1,000 100 1,000 100 1,000 50 500

Mat-D 4,200 Normal loss 1,000 -- -- -- -- -- --

20,000 20,000 19,000 19,000 18,500

Calculation of Unit cost

Cost component Amount (Rs.) Equivalent units Cost per unit

(Rs.)

Transferred-in 7,38,857 19,000 38.8872

Material-C 8,25,000 19,000 43.4211

Material-D 3,15,000 19,000 16.5789

Flavouring essence 3,300 19,000 0.1737

Total Material Cost 18,82,157 19,000 99.0609

Labour 18,500 18,500 1.0000

Overheads 42,550 18,500 2.3000

Total Cost 19,43,207 102.3609

Value of Materials transferred to Packing Department

= 18,000 unit × Rs.102.3609 = 18,42,496

Value of WIP : For Materials- 1,000 units × Rs.99.0609 = Rs.99,061

For Labour & Overheads 500 units × Rs.3.30 = Rs.1,650

Rs.1,00,711

(b) Calculation of effective wages rate and weekly earnings of the workers A, B and C

Workers A B C

Standard Output 96 units

(8 hrs. × 2 units × 6 days)

96 units


96 units


Actual Output 132 units 108 units 96 units


5

Efficiency (%) 132units×100= 137.5

96units

108units×100= 112.5

96units

96units×100= 100

96units

Daily wages

Rate Rs. 360 Rs. 360 Rs. 360

Incentive system Emerson’s Efficiency

System

Merrick differential

piece rate system

Taylor’s differential piece

work system

Rate of Bonus 57.5% of time rate

(20% + 37.5% )

20% of ordinary piece

rate 25% of ordinary piece rate

Effective Wage

Rate

Rs. 70.875 per hour

Rs. 360×157.5%

8hours

Rs. 27 per piece

Rs.360×120%

16units

Rs. 28.125 per piece

Rs.360×125%

16units

Total weekly

earnings

Rs. 3,402

(8 hours × 6 days × Rs.

70.875)

Rs. 2,916

(108 units × Rs. 27)

Rs. 2,700

(96 units × Rs. 28.125)

3. (a) Material Price Variance = Actual Quantity (Std. Price – Actual Price)

X = 12,500 units (Rs.40 – Rs.44) = 50,000 (A)

Y = 18,000 units (Rs.30 – Rs.28) = 36,000 (F)

Z = 88,500 units (Rs.10 – Rs.12) = 1,77,000 (A) 1,91,000 (A)

Material Usage Variance = Std. Price (Std. Qty – Actual Qty.)

X = Rs.40 (6,000 × 2 – 12,500) = 20,000 (A)

Y = Rs.30 (6,000 × 3 – 18,000) = Nil

Z = Rs.10 (6,000 × 15 – 88,500) = 15,000 (F) 5,000 (A)

Material Mix Variance = Std. Price (Revised Std. Qty. – Actual Qty.)

X = Rs.40 (1,19,000 2

20

– 12,500) = 24,000 (A)

Y = Rs.30 (1,19,000 3

20

– 18,000) = 4,500 (A)

Z = Rs.10 (1,19,000 15

20

– 88,500) = 7,500 (F) 21,000 (A)

Material Yield Variance = Std. Price (Std. Qty. – Revised Std. Qty.)

X = Rs.40 (6,000 × 2 - 1,19,000 2

20

) = 4,000 (F)

Y = Rs.30 (6,000 × 3 - 1,19,000 3

20

) = 4,500 (F)

Z = Rs.10 (6,000 × 15 - 1,19,000 15

20

) = 7,500 (F) 16,000 (F)

Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate)

= 2,500 hours (Rs.55 – Rs.58) = 7,500 (A)

Labour Efficiency Variance = Std. Rate (Std. Hours – Actual Hours)

= Rs.55 (6,000 × 3 – 17,500) = 27,500 (F)


6

(b) Calculation of “Activity Rate”

Cost Pool

Cost (Rs.)

[A]

Cost Driver

[B]

Cost Driver Rate

(Rs.)

[C] = [A]÷[B]

Machine Department

Expenses

18,48,000 Machine Hours

(1,32,000 hrs.)

14.00

Assembly Department

Expenses

6,72,000 Assembly Hours

(42,000 hrs.)

16.00

Setup Cost 90,000 No. of Production Runs (450*) 200.00

Stores Receiving Cost 1,20,000 No. of Requisitions Raised on

the Stores (120)

1,000.00

Order Processing and

Dispatch

1,80,000 No. of Customers Orders

Executed (3,750)

48.00

Inspection and Quality

Control Cost

36,000 No. of Production Runs (450*) 80.00

Total (Rs.) 29,46,000

*Number of Production Run is 450 (150 + 120 + 180)

Statement Showing “Overheads Allocation”

Particulars of Cost

Cost

Driver

P Q R Total

Machine Department Expenses

Machine Hours 4,20,000

(30,000 × Rs.14)

6,72,000

(48,000 × Rs.14)

7,56,000

(54,000 × Rs.14)

18,48,000

Assembly Department

Expenses

Assembly Hours 2,40,000

(15,000 × Rs.16)

--- 4,32,000

(27,000 × Rs.16)

6,72,000

Setup Cost No. of Production Runs

30,000

(150 × Rs.200)

24,000

(120 × Rs.200)

36,000

(180 × Rs.200)

90,000

Stores Receiving Cost

No. of Requisitions Raised on the Stores

40,000

(40 × Rs.1,000)

30,000

(30 × Rs.1,000)

50,000

(50 × Rs.1,000)

1,20,000

Order Processing and Dispatch

No. of Customers Orders Executed

60,000

(1,250 × Rs.48)

48,000

(1,000 × Rs.48)

72,000

(1,500 × Rs.48)

1,80,000

Inspection and Quality Control Cost

No. of Production Runs

12,000

(150 × Rs.80)

9,600

(120 × Rs.80)

14,400

(180 × Rs.80)

36,000

Overhead (Rs.)

8,02,000 7,83,600 13,60,400 29,46,000

4. (a) Effective machine hours = 200 hours × 75% = 150 hours

Computation of Comprehensive Machine Hour Rate

Per month (Rs.)

Per hour (Rs.)

Fixed cost

Supervision charges 18,000.00


7

Electricity and lighting 9,500.00

Insurance of Plant and building (Rs.18,250 ÷12) 1,520.83

Other General Expenses (Rs.17,500÷12) 1,458.33

Depreciation (Rs.64,800÷12) 5,400.00

35,879.16 239.19

Direct Cost

Repairs and maintenance 17,500.00 116.67

Power 65,000.00 433.33

Wages of machine man 139.27

Wages of Helper 109.41

Machine Hour rate (Comprehensive) 1,037.87

Wages per machine hour

Machine man Helper

Wages for 200 hours

Machine-man (Rs.400 × 25) Rs.10,000.00 ---

Helper (Rs.275 × 25) --- Rs.6,875.00

Dearness Allowance (DA) Rs.4,575.00 Rs.4,575.00

Rs.14,575.00 Rs.11,450.00

Production bonus (1/3 of Basic and DA) 4,858.33 3,816.67

Leave wages (10% of Basic and DA) 1,457.50 1,145.00

20,890.83 16,411.67

Effective wage rate per machine hour Rs.139.27 Rs.109.41

(b) Contract Account (For the year ended 20X7)

Particulars (Rs.) Particulars (Rs.)

To Materials 6,75,000 By Plant at site c/d

(75% of Rs.3,00,000)

2,25,000

” Wages 6,20,000 ” Work-in-progress c/d:

” T ransportation cost 30,000 - Work certified 13,50,000

” Other expenses 30,000 - Work uncertified 15,000 13,65,000

” Plant 3,00,000 ” Costing P&L A/c

(Loss for the year)

65,000

16,55,000 16,55,000

Contract Account (For the year ended 20X8)


To Plant at site b/d 2,25,000 By Plant at site c/d

(75% of Rs.2,25,000)

1,68,750

” Work-in-progress b/d: ” Work-in-progress c/d:

- Work certified 13,50,000 - Work certified 45,00,000

-Work uncertified 15,000 13,65,000 - Work uncertified 75,000 45,75,000


8

” Materials 10,50,000

” Wages 9,00,000

” T ransportation cost 90,000

” Other expenses 75,000

” Costing P&L A/c

(Notional Profit for the year)

10,38,750

47,43,750 47,43,750

Contract Account (For the year ended 20X9)


To Plant at site b/d 1,68,750 By Plant at site c/d

(75% of Rs.1,68,750)

1,26,563

” Work-in-progress b/d: ” Contractee A/c 60,00,000

- Work certified 45,00,000 ” Costing P&L A/c

(Notional Loss for the year)

3,66,187

-Work uncertified 75,000 45,75,000

” Materials 9,00,000

” Wages 7,50,000

” T ransportation cost 75,000

” Other expenses 24,000

64,92,750 64,92,750

5. (a) (i) Annual Cost Statement of three vehicles

(Rs.)

Diesel {(1,34,784 km. ÷ 4 km) × Rs. 65) (Refer to Working Note

1) 21,90,240

Oil & sundries {(1,34,784 km. ÷ 100 km.) × Rs. 250} 3,36,960

Maintenance {(1,34,784 km. × Rs. 0.25) + Rs. 6,000}

(Refer to Working Note 2)

39,696

Drivers' salary {(Rs.24,000 × 12 months) × 3 trucks} 8,64,000

Licence and taxes (Rs. 25,000 × 3 trucks) 75,000

Insurance 45,000

Depreciation {(Rs. 29,00,000 ÷ 10 years) × 3 trucks} 8,70,000

General overhead 1,15,600

Total annual cost 45,36,496

(ii) Cost per km. run

Cost per kilometer run =Totalannual cos t of vehicles

Totalkilometre travelled annually(Refer to Working Note 1)

= Rs.45,36,496

=Rs. 33.661,34,784 Kms


9

(iii) Freight rate per tonne km (to yield a profit of 10% on freight)

Cost per tonne km.=Total annual cos t of three vehicles

Total effective tonnes kms. per annum(Refer to Working Note 1)

= Rs.

Rs.7.486,06,528 kms

45,36,496

Rs

Freight rate per tonne km. Rs. 7.48

10.9

= Rs. 8.31

Working Notes:

1. Total kilometer travelled and Commercial tonnes kilometer (load carried) by three

trucks in one year

Truck One way distance in kms

No. of trips

Total distance

covered in km per day (with load)

Total distance

covered in km per day

(up & down)

Load carried

per trip / day in tonnes

Total effective

tonnes km

a b c = a × b d = c × 2 e f = 27/3 × c

1 16 4 64 128 6 576

2 40 2 80 160 9 720

3 30 3 90 180 12 810

Total 234 468 27 2,106

Total kilometre travelled by three trucks in one year

(468 km. × 24 days × 12 months) = 1,34,784

Total effective tonnes kilometre of load carried by three trucks during one year

(2,106 tonnes km. × 24 days × 12 months) = 6,06,528 tonne-km

2. Fixed and variable component of maintenance cost:

Variable maintenance cost per km. = Difference in maintenance cost

Difference in distance travelled

=Rs. 46,050 –Rs. 45,175

1,60,200 kms – 1,56,700 kms= Rs. 0.25

Fixed maintenance cost =Total maintenance cost–Variable maintenance cost

= Rs. 46,050 – 1,60,200 kms × Rs. 0.25= Rs. 6,000

(b) (a) Flexible Budget before marketing efforts:


6,000 units 9,000 units

Per unit Total Per unit Total

Sales 120.00 7,20,000 78.00 7,02,000

Raw material cost 60.00 3,60,000 42.00 3,78,000

Direct labour cost per unit 30.00 1,80,000 18.00 1,62,000


10

Variable overhead per unit 12.00 72,000 6.00 54,000

Fixed overhead per unit 8.00 48,000 4.00 36,000

Total cost 110.00 6,60,000 70.00 6,30,000

Profit 10.00 60,000 8.00 72,000

(b) Flexible Budget after marketing efforts:


7,500 units 9,500 units

Per unit Total Per unit Total

Sales 120.00 9,00,000 78.00 7,41,000

Raw material cost 60.00 4,50,000 42.00 3,99,000

Direct labour cost per unit 30.00 2,25,000 18.00 1,71,000

Variable overhead per unit 13.20 99,000 6.60 62,700

Fixed overhead per unit 6.72 50,400 3.98 37,800

Total cost 109.92 8,24,400 70.58 6,70,500

Profit 10.08 75,600 7.42 70,500

6. (a) Controllable costs and Uncontrollable costs: Cost that can be controlled, typically by a cost,

profit or investment centre manager is called controllable cost. Controllable costs incurred in a particular responsibility centre can be influenced by the action of the executive heading that

responsibility centre.

Costs which cannot be influenced by the action of a specified member of an undertaking are

known as uncontrollable costs.

(b) Cost plus contract: Under cost plus contract, the contract price is ascertained by adding a percentage of profit to the total cost of the work. Such types of contracts are entered into when it is not possible to estimate the contract cost with reasonable accuracy due to unstable condition

of material, labour services etc.

Following are the advantages of cost plus contract:

(i) The contractor is assured of a fixed percentage of profit. There is no risk of incurring any

loss on the contract.

(ii) It is useful specially when the work to be done is not definitely fixed at the time of making

the estimate.

(iii) Contractee can ensure himself about the ‘cost of contract’ as he is empowered to examine

the books and documents of the contractor to ascertain the veracity of the cost of contract.

(c) In integrated accounting system cost and financial accounts are kept in the same set of books. Such a system will have to afford full information required for Costing as well as for Financial Accounts. In other words, information and data should be recorded in such a way so as to enable

the firm to ascertain the cost (together with the necessary analysis) of each product, job, process, operation or any other identifiable activity. It also ensures the ascertainment of marginal cost, variances, abnormal losses and gains. In fact all information that management requires from a

system of Costing for doing its work properly is made available. The integrated accounts give full information in such a manner so that the profit and loss account and the balance sheet can be prepared according to the requirements of law and the management maintains full control over

the liabilities and assets of its business.


11

Since, only one set of books are kept for both cost accounting and financial accounting purpose

so there is no necessity of reconciliation of cost and financial accounts.

(d) The impact of IT in cost accounting may include the followings:

(i) After the introduction of ERPs, different functional activities get integrated and as a

consequence a single entry into the accounting system provides custom made reports for every purpose and saves an organisation from preparing different sets of documents. Reconciliation process of results of both cost and financial accounting systems become

simpler and less sophisticated.

(ii) A move towards paperless environment can be seen where documents like Bill of Material, Material Requisition Note, Goods Received Note, labour utilisation report etc. are no longer required to be prepared in multiple copies, the related department can get e-copy from the

system.

(iii) Information Technology with the help of internet (including intranet and extranet) helps in resource procurement and mobilisation. For example, production department can get materials from the stores without issuing material requisition note physically. Similarly,

purchase orders can be initiated to the suppliers with the help of extranet. This enables an

entity to shift towards Just-in-T ime (JIT) approach of inventory management and production.

(iv) Cost information for a cost centre or cost object is ascertained with accuracy in timely manner. Each cost centre and cost object is codified and all related costs are assigned to

the cost object or cost centre. This process automates the cost accumulation and ascertainment process. The cost information can be customised as per the requirement. For example, when an entity manufacture or provide services, it can know information job -wise,

batch-wise, process-wise, cost centre wise etc.

(v) Uniformity in preparation of report, budgets and standards can be achieved with the help of IT . ERP software plays an important role in bringing uniformity irrespective of location,

currency, language and regulations.

(vi) Cost and revenue variance reports are generated in real time basis which enables the

management to take control measures immediately.

(vii) IT enables an entity to monitor and analyse each process of manufacturing or service

activity closely to eliminate non value added activities.

The above are examples of few areas where Cost Accounting is done with the help of IT .


1


MOCK TEST PAPER - 1

INTERMEDIATE (NEW) COURSE

PAPER – 4: TAXATION


SECTION – A: INCOME TAX LAW (60 MARKS)

Working Notes should form part of the answer. Wherever necessary, suitable assumptions may be made by the

candidates and disclosed by way of a note. However, in answers to Question in Division A, working notes are

not required.

Your answers should be based on the provisions of Income-tax law as amended

by the Finance Act, 2018. The relevant assessment year is A.Y.2019-20.

Division A – Multiple Choice Questions

Write the most appropriate answer to each of the following multiple choice questions by choosing

one of the four options given. All questions are compulsory.

I. A, a resident individual, is engaged in the business of money lending. For the purpose of lending

money to various persons, A borrows money from other persons. As a part of his business, A to ok a

loan from B of an amount of Rs.10 lacs. B is a non-resident. On the said loan, A paid an amount of

Rs.1 lac as interest during the P.Y. 2018-19 to B in India. A did not deduct tax at source while

crediting/paying the interest amount to B. A is of the view that the amount of Rs.1 lac shall be allowed

to him as a deduction under the Income-tax Act, 1961. Whether A‟s view is correct?

(a) Correct, interest expenses incurred for business are allowed as deduction u/s 36(1)(iii).

(b) Incorrect, as tax at source has not been deducted by A on the interest amount, full amount of interest

of Rs.1 lac shall be disallowed in A.Y. 2019-20.

(c) Incorrect, as tax at source has not been deducted by A on the interest amount, amount of interest of

Rs.30,000 shall be disallowed in A.Y. 2019-20.

(d) Correct, interest expenses incurred for business are allowed as deduction u/s 37(1). (1 Mark)

II. Mrs. Gupta, resident in India, holds many equity shares of reputed domestic companies. During the

previous year 2018-19, total dividend earned by her is Rs.11,00,000. She is of the belief that dividend

income earned by her is tax free. She approaches you to assist her in filing her income tax return. As

her tax consultant, will you advise her that any dividend income earned by her is tax free?

(a) Yes, as dividend earned by her is fully exempt from tax u/s 10(34).

(b) No, as any dividend income earned by an individual is fully chargeable to tax.

(c) No, as dividend income earned above Rs.10,00,000 is chargeable to tax in her hands.

(d) Yes, as dividend income above Rs.10,00,000 is chargeable to tax only in the hands of the companies

and not in her hands. (1 Mark)

III. Mr. X receives the following gifts during the previous year 2018-19:

On 20.09.2018, he gets a gift of Rs.7,00,000 from his grandmother.

On 30.12.2018, he gets by way of gift a commercial flat from the elder brother of his father-in-law

(stamp duty value is Rs.25,00,000).

On 20.01.2019, he gets a wrist watch by gift from his friend B (Fair market value: Rs.1,00,000).

On 10.02.2019, he gets by way of gift a plot of land in Pune from a partnership firm. The partnership

firm has only two partners- father of Mr. X and Mrs. X. The stamp duty value of the plot of land is

Rs.19,00,000.


2

Compute the amount chargeable to tax in the hands of X under the head “Income from other sources” for

the A.Y. 2019-20.

(a) Rs.25,00,000

(b) Rs.44,00,000

(c) Rs.45,00,000

(d) Rs.52,00,000 (1 Mark)

IV. Which of the following statements is true for companies in the context of the Income-tax Act, 1961?

(a) Residential status of a company has an impact on the tax rate of company

(b) Tax Rate of a company depends upon the place of incorporation

(c) Residential status of a company helps to classify the company as domestic company and foreign

company

(d) Residential status of company helps classification of closely held company and widely held company.

(1 Mark)

V. Which of the following is not a consequence of late filing of return?

(a) Levy of interest under section 234A

(b) Loss (other than loss under the head “Income from house property”) cannot be carried forward

(c) No deduction under Chapter VI-A under the heading „B‟ – Deduction in respect of certain payments

(d) All of the above (1 Mark)

VI. 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)

VII. X is an employee of Z Ltd who receives Rs.1,25,000 as gratuity (he is covered under the Payment of

Gratuity Act, 1972). He retires on 31.01.2019 after service of 29 years and 8 months. At the time of

retirement, X drew monthly salary of Rs.5,200 and monthly bonus of Rs.2,000. Compute the amount

of gratuity exempt from tax in the instant case u/s 10(10) of the Income-tax Act, 1961.

(a) Rs.90,000

(b) Rs.1,25,000

(c) Rs.78,000

(d) Rs.87,000 (2 Marks)

VIII. Mr. Krishna is a philanthropic person. During the P.Y. 2018-19, out of his total receipts, he gave away

Rs.8,00,000 in cash to Prime Minister‟s National Relief Fund and was left with only Rs.2,00,000 which

is just enough money to meet his personal requirements. On these facts, Mr. Krishna is of the v iew

that as Rs.2,00,000 is below the maximum amount not chargeable to tax, no income of him is

chargeable to tax during the previous year. He approaches you to file his income tax return showing

Rs.2,00,000 as his gross total income. Do you agree with the view of Mr. Krishna? Also, compute the

amount of his total income.

(a) Yes, as income actually left in Mr. Krishna‟s hands is Rs.2,00,000 only. His total income shall be

Rs.2,00,000.


3

(b) No, as what is done after income is earned by Mr. Krishna will not give him any tax exemption. His

total income shall be Rs.10,00,000.

(c) His gross total income and total income are Rs.10 lakhs, since this is a case of application of income

and donation made in cash will not qualify for deduction under section 80G.

(e) Yes, as Rs.8,00,000 is exempt from tax, the gross total income as well as total income of Mr. Krishna

shall be Rs.2,00,000 only. (2 Marks)

IX. Ms. Jaya acquires 5,000 equity shares on 01.01.2016 at Rs.500. The Fair Market Value of the said

share on 31.01.2018 is Rs.250 and on 31.03.2018 is Rs.600. She sells the said shares on 30.04.2018

at Rs.700. Calculate the amount of long term capital gain in the hands of Ms. Jaya assuming that

Securities Transaction Tax has been paid by her on acquisition and transfer of the sai d equity share.

CII – F.Y. 2015-16: 254; F.Y. 2018-19: 280

(a) Rs.10 lakh, out of which Rs.9 lakh is taxable@10%

(b) Rs.22.50 lakh, out of which Rs.21.5 lakh is taxable@10%

(c) Rs.7.45 lakh, out of which Rs.6.45 lakh is taxable @10%

(d) Rs.5 lakh, out of which Rs.4 lakh is taxable@10% (2 Marks)

X. Which of the following persons are compulsorily required to get their accounts audited u/s 44AB of the

Income-tax Act, 1961?

(i) An assessee, who has not opted for presumptive taxation and his turnover during the P.Y. is

Rs.2 crore.

(ii) A professional whose gross receipts during the previous year amounts to Rs.50 lakh, who declares

his profits and gains from profession u/s 44ADA.

(iii) An assessee having turnover of Rs.1.5 crore, who declares his profits and gains from business u/s

44AD.

(iv) A lawyer having gross receipts of Rs.40 lakhs during the P.Y. who claims his profits and gains from

the legal profession to be 40% of the gross receipts.

(v) An individual who opts out of the presumptive taxation scheme u/s 44AD during the P.Y., however,

his total income for the said year is Rs.2,00,000.

(a) (i), (iv)

(b) (i), (iv), (v)

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

(d) (iv), (v) (2 Marks)

XI. The following information is available with respect to Tina:

Capital Asset acquired on 01.04.2001 for Rs.85,200

The capital asset was converted into stock-in-trade on 30.09.2017. On the said date, the fair market

value of the said asset was Rs.6,00,000.

The stock-in-trade so converted was sold on 15.07.2018 for Rs.8,50,000.

Determine the tax implications in the hands of Tina for A.Y. 2019-20.

Cost Inflation Index Financial year 2001-02: 100, 2017-18: 272, 2018-19: 280]

(a) Only business profits of Rs.2,50,000 shall be chargeable to tax in the hands of Tina in A.Y.

2019-20.

(b) Only long term capital gain of Rs.6,11,440 shall be chargeable to tax in the hands of Tina in A.Y.

2019-20.


4

(c) Business profits of Rs.2,50,000 and long term capital gain of Rs.3,61,440 shall be chargeable to tax

in the hands of Tina in A.Y. 2019-20.

(d) Business profits of Rs.2,50,000 and long term capital gain of Rs.3,68,256 shall be chargeable to tax

in the hands of Tina in A.Y. 2019-20. (2 Marks)

XII. 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 (2 Marks)

Division B – Descriptive Questions

Question No. 1 is compulsory

Attempt any two questions from the remaining three questions

1. Mr. Satish, aged 47 years, is serving in a public limited company as General Manager (Finance). His

total emoluments for the year ended 31st March, 2019 are as follows:

Basic Salary Rs.5,40,000

HRA (Computed) Rs.1,80,000

Transport allowance Rs.22,000

Apart from the above, his employer has sold the following assets to him on 1 st January, 2019:

(i) Laptop for Rs.20,000 (Acquired in September, 2017 for Rs.1,20,000)

(ii) Car 1800 cc for Rs.3,20,000 (purchased in April, 2016 for Rs.8,50,000)

He also owns a residential house, let out for a monthly rent of Rs.15,000. The fair rental value of

the property for the let out period is Rs.1,50,000. The house was self -occupied by him from 1st

January, 2019 to 31st March, 2019. He has taken a loan from bank of Rs.20 lacs for the

construction of the property, and has repaid Rs.1,05,000 (including interest Rs.40,000) during the

year.

(iii) Mr. Satish sold equity shares of different Indian companies on 14 th March, 2019:

Name Sale value (per share) Purchase price (per share) Acquired on No. of shares

A Ltd. Rs.150 Rs.120 (STT paid at acquisition)

2nd Feb, 2018 200

B Ltd. Rs.82 Rs.62 16th April, 2018

125

CII – F.Y. 2018-19: 280; F.Y. 2017-18: 272

Sale proceeds were subject to brokerage of 0.1% and securities transaction tax of 0.125% on the

gross consideration. He received income-tax refund of Rs.5,750 (including interest Rs.750)

relating to the assessment year 2017-18.

(iv) Mr. Satish made payment of Rs.80,000 vide cheque no. 245315 towards medical insurance as

lumpsum premium for himself and his wife for 4 years. He also made cash payment of Rs.8,000

towards preventive health checkup for himself and his wife.


5

(v) Mr. Satish deposited Rs.1,30,000 in Public Provident Fund and Rs.80,000 in 5 years term deposit

in the name of his minor son, Aryan.

Compute the total income and tax liability of Mr. Satish for the Assessment Year 2019 -20. (14 Marks)

2. (a) I. Explain with reasons whether the following transactions attract income-tax in India in the

hands of recipients :

(i) Salary paid to Mr. Dinesh, a citizen of India Rs.20,00,000 by the Central Government

for the services rendered in London.

(ii) Royalty paid to Raja, a non-resident by Ms. Mukta, a resident for a business carried on

in Sri Lanka. (4 Marks)

II. Ms. Anjali, a non-resident, residing in London since 1990, came back to India on

19-02-2017 for permanent settlement in India. Explain the residential status of Ms. Anjali for the

Assessment Year 2019-20 in accordance with the various provisions of Income-tax Act, 1961.

(3 Marks)

(b) I. Examine the applicability of tax deduction at source provisions, the rate and amount of tax

deduction in the following cases for the financial year 2018-19:

(i) Payment of Rs.33,000 made to John Smith, an Australian cricketer, by an Indian

newspaper agency on 22-08-2018 for contribution of articles in relation to the sport of

cricket.

(ii) Payment made by a company to sub-contractor, Mr. X, Rs.3,50,000 with outstanding

balance of Rs.1,35,000 shown in the books as on 31-03-2019. (4 Marks)

II. Examine with reasons, whether the following statements are true or false, with regard to the

provisions of the Income-tax Act, 1961:

(i) The Assessing Officer has the power, inter alia, to allot PAN to any person by whom no

tax is payable.

(ii) Where the Karta of a HUF is absent from India, the return of income can be verified by

any male member of the family. (3 Marks)

3. (a) Mr. Satinder is engaged in the business of plying goods carriages. On 1 st April, 2018, he owns 10

trucks (out of which 5 are heavy goods vehicles, the gross vehicle weight of such goods vehicle

is 17,000 kg each). On 5 th May, 2018, he sold one of the heavy goods vehicles and purchased a

light goods vehicle on 8th May, 2018. This new vehicle could however be put to use only on 15 th

July, 2018.

Compute the total income of Mr. Satinder for the assessment year 2019-20, taking note of the

following data:

Particulars Rs. Rs.

Freight charges collected 12,50,500

Less : Operational expenses 5,25,500

Depreciation as per section 32 1,85,000

Other office expenses 17,000 7,27,500

Net Profit 5,23,000

Other business and non- business income 70,000

(5 Marks)

(b) On 29.12.2018, Mr. Gaurav (a bank employee) received Rs.7,00,000 towards interest on

enhanced compensation from State Government in respect of compulsory acquisition of his land

effected during the financial year 2014-15.


6

Out of this interest, Rs.2,00,000 relates to the financial year 2015-16; Rs.3,45,000 to the financial

year 2016-17; and Rs.1,55,000 to the financial year 2017-18.

How much of interest on enhanced compensation would be chargeable to tax for the assessment

year 2019-20? (2 Marks)

(c) Mrs. Harsha purchased a land at a cost of Rs.45 lakhs in the financial year 2007-08 and held the

same as her capital asset till 31st March, 2017. She started her real estate business on

1st April, 2017 and converted the said land into stock-in-trade of her business on the said date,

when the fair market value of the land was Rs.225 lakhs.

She constructed 15 flats of equal size, quality and dimension. Cost of construction of each flat is

Rs.15 lakhs. Construction was completed in January, 2019. She sold 10 flats at Rs.40 lakhs per flat

in 20th March, 2019. The remaining 5 flats were held in stock as on 31st March, 2019.

She invested Rs.50 lakhs in bonds issued by National Highways Authority of India on 31 st March,

2019 and another Rs.50 lakhs in bonds of Rural Electrification Corporation Ltd. in April, 2019.

Compute the amount of chargeable capital gain and business income in the hands of Mrs.

Harsha arising from the above transactions for Assessment Year 2019 -20 indicating clearly the

reasons for treatment for each item.

[Cost Inflation Index: FY 2007-08: 129; FY 2017-18: 272; FY 2018-19: 280]. (7 Marks)

4. (a) Compute the total income of Mr. Sahil for the assessment year 2019-20 from the following particulars:

Particulars Amount (Rs.)

Income from business before adjusting the following items: 2,50,000

(a) Business loss brought forward from assessment year 2015-16 85,000

(b) Current year depreciation 30,000

(c) Unabsorbed depreciation of earlier year 2,00,000

Income from house property (Gross Annual Value) 5,10,000

Municipal taxes paid 50,000

Mr. Sahil sold a plot at Noida on 12 th September, 2018 for a consideration of Rs.7,90,000, which had been purchased by him on 20 th December, 2016 at a cost of Rs.6,10,000

Long-term capital loss on sale of shares sold through recognized stock exchange (STT paid at acquisition and sale)

90,000

Long-term capital gain on sale of debentures 1,35,000

Dividend on shares held as stock in trade 25,000

Dividend from a company carrying on agricultural business 15,000

(7 Marks)

(b) Akash gifted Rs.5 lakhs to his wife, Suman on her birthday on, 1st March, 2018. Suman lent such

amount of Rs.5,00,000 to Karuna on 1st April, 2018 for six months on which she received interest

of Rs.50,000. The said sum of Rs.50,000 was invested in shares of a listed company on 13th

October, 2018, which were sold for Rs.70,000 on 30 th March, 2019. Securities transactions tax

was paid on such sale.

In whose hands the above income and loss shall be included in Assessment Year 2019-20.

(3 Marks)

(c) Mr. Sameer, aged 52 years, provides you the following information and requests you to

determine his advance tax liability with due dates for the financial year 2018 -19.


7

Estimated tax liability for the financial year 2018-19 Rs.80,000

Tax deducted at source for this year Rs.12,000

Would your answer change if, Mr. Sameer is eligible for and has opted for presumptive tax

provisions under section 44AD and his tax liability is entirely on account of such income (ignore

TDS)? (4 Marks)


1


SECTION B - INDIRECT TAXES (40 MARKS)

QUESTIONS

(i) Working Notes should form part of the answers. However, in answers to Question in Division A, working

notes are not required.

(ii) Wherever necessary, suitable assumptions may be made by the candidates, and disclosed by way of note.

(iii) All questions should be answered on the basis of the position of GST law as amended up to 31st October,

2018.

(iv) The GST rates for goods and services mentioned in various questions are hypothetical and may not

necessarily be the actual rates leviable on those goods and services. Further, GST compensation cess

should be ignored in all the questions, wherever applicable.

Division A - Multiple Choice Questions

Write the most appropriate answer to each of the following multiple choice questions by choosing

one of the four options given. All questions are compulsory.

Total Marks: 12 Marks

Question Nos. 1 and 2 carries 2 Marks each

1. Rama Ltd. has provided following information for the month of September:

(i) Intra-State outward supply Rs. 8,00,000/-

(ii) Inter-State exempt outward supply Rs. 5,00,000/-

(iii) Turnover of exported goods Rs. 10,00,000/-

(iv) Payment made for availing GTA services Rs. 80,000/-

Calculate the aggregate turnover of Rama Ltd.

(a) Rs. 8,00,000/-

(b) Rs. 23,80,000/-

(c) Rs. 23,00,000/-

(d) Rs. 18,00,000/-

2. 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) (2 x 2 Marks = 4 Marks)

Question Nos. 3 to 10 are of 1 mark each.


2

3. Services by way of admission to ______________ are exempt from GST.

(a) Museum

(b) National park

(c) Tiger reserve

(d) All of the above

4. A supplier takes deduction of depreciation on the GST component of the cost of capital goods as per

Income- tax Act, 1961. The supplier can-

(a) avail only 50% of the said tax component as ITC

(b) not avail ITC on the said tax component

(c) avail 100% ITC of the said tax component

(d) avail only 25% of the said tax component as ITC

5. Which of the following persons is not eligible for composition scheme even though their aggregate

turnover does not exceed Rs. 1 crore in preceding FY, in Uttar Pradesh?

(a) A person supplying restaurant services

(b) A person supplying restaurant services and earning bank interest

(c) A person supplying restaurant services and warehousing of rice

(d) A person supplying restaurant services and warehousing of processed tea.

6. The time of supply of service in case of reverse charge mechanism is

(a) Date on which payment is made to the supplier

(b) Date immediately following 60 days from the date of issue of invoice

(c) Date of invoice

(d) Earlier of (a) and (b)

7. Which of the following services does not fall under reverse charge provisions as contained und er

section 9(3) of the CGST Act?

(a) Services supplied by arbitral tribunal to business entity

(b) Sponsorship provided to any partnership firm

(c) Sponsorship provided to any body corporate

(d) None of the above

8. Transport of ______________ by rail are exempt from GST:

(a) Milk

(b) Salt

(c) Defence equipments

(d) All of the above

9. Alcoholic liquor for human consumption is subjected to

(a) State excise duty

(b) Central Sales Tax/Value Added Tax


3

(c) Both (a) and (b) (d) GST

10. Taxes subsumed in GST are

(a) Service tax

(b) Luxury tax

(c) VAT

(d) All of the Above (8 x 1 Mark=8 Marks)

Division B - Descriptive Questions


Attempt any two questions out of remaining three questions.

Total Marks: 28 Marks

1. M/s. Comfortable (P) Ltd. is registered under GST in Chennai, Tamil Nadu. It is engaged in the

manufacture of iron and steel products. It has carried out following transactions in the financial year

20XX-XY:-

(a) Purchased 1,000 Metric Ton (MT) iron @ 1,000 per MT (excluding GST) from M/s. Hard Ltd. of

Chennai. M/s. Hard Ltd. has fulfilled the order as follows:

Date Quantity (MT) Taxable Value

28-Feb-20XY 200 2,00,000/-

10-Mar-20XY 250 2,50,000/-

25-Mar-20XY 250 2,50,000/-

28-Mar-20XY 200 2,00,000/-

Balance order requirement has been fulfilled by Hard Ltd. on 5-Apr-20XY. However, Hard Ltd.

has raised the invoice for full order at the time of dispatch of first lot , i.e. on 28-Feb-20XY. M/s.

Comfortable (P) Ltd. has made the full payment on 28-Feb-20XY for the order.

(b) Company has received IT engineering service from M/s. Dynamic Infotech (P) Ltd. of Chennai for

Rs. 11,00,000/- (excluding GST ) on 28-Oct-20XX. Invoice for service rendered was issued on 5-Nov-

20XX. M/s Comfortable (P) Ltd. made part-payment of Rs. 4,13,000/- on 31-Dec-20XX. Being

unhappy with service provided by M/s Dynamic Infotech (P) Ltd., it did not make the balance payment.

Deficiency in service rendered was made good by M/s Dynamic Infotech (P) Ltd. by 15-Feb-20XY.

M/s. Comfortable (P) Ltd. made payment of Rs. 2,95,000/- on 15-Feb-20XY towards full and final

settlement of the dues and did not pay the balance amount.

(c) Company has made the following intra State supplies (excluding GST) for the financial year 20XX-

XY:-

S.No. Particulars Amount (Rs.)

1. Value of intra-State supplies made to registered persons 10,00,000

2. Value of intra- State supplies made to unregistered persons 2,00,000

(i) Compute the GST liability (CGST, SGST or IGST, as the case may be) of M/s. Comfortable (P)

Ltd. for the financial year 20XX-XY:-


4

(ii) Compute the amount of input tax credit to be reversed in the FY 20XX-XY and/or in the next FY

20XY-YZ, if any.

Assume the rates of GST as under:

CGST 9%

SGST 9%

lGST 18%

Note

(i) All the conditions necessary for availing input tax credit have been fulfilled.

(ii) Ignore interest, if any (8 Marks)

2. (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.)

Amount charged for loading, unloading, packing and warehousing of potato

chips

25,000

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 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

6,00,000

Amount charged for service provided by way of right to admission to

circus where consideration for the same is Rs. 750 per person.

12,000

(6 Marks)

(b) Decide which person is liable to pay GST in the following independent cases, where the recipient

is located in the taxable territory. Ignore the Aggregate Turnover and Exemption available.

(i) Miss Shinu Ambani provided sponsorship services to Indian Love Cricket Academy, a

Limited Liability Partnership.

(ii) “Fast move”, a Goods Transport Agency, transported goods of Amba & Co., a partnership

firm which is not registered under GST. (4 Marks)

3. (a) Mr. Mayank provides Continuous Supply of Services (CSS) to M/s. Omega Limited. He furnishes

the following further information:

(i) Date of commencement of Providing CSS 01-10-20XX

(ii) Date of completion of Providing CSS 31-01-20XY

(iii) Date of receipt of payment by Mr. Mayank 30-03-20XY

Determine the time of issue of invoice as per provisions of CGST Act, 2017, in the following

circumstances:

(i) If no due date for payment is agreed upon by both under the contract of CSS.

(ii) If payment is linked to the completion of service.

(iii) If M/s. Omega Limited has to make payment on 25-03-20XY as per the contract between

them. (3 Marks)


5

(b) Draupad Fabrics has opted for composition levy scheme in the current financial year. It has

approached you for advice whether it is mandatory for it to issue a tax invoice. You are required

to advice him regarding same. (3 Marks)

(c) M/s Salty & Spicy Limited reduced the amount of Rs. 1,50,000 from the output tax liability in

contravention of provisions of section 42(10) of the CGST Act, 2017 for the month of April 20XX,

which is ineligible credit. A show cause notice was issued by the Tax Department to pay tax

along with interest. M/s Salty & Spicy Limited paid the tax and interest on 31 st July, 20XX.

Calculate Interest liability (Ignore Penalty). (4 Marks)

4. (a) Whether transfer of title and/or possession is necessary for a transaction to constitute supply of

goods? (5 Marks)

(b) If a return has been filed, how can it be revised if some changes are required to be made?

(5 Marks)


1


MOCK TEST PAPER - 1

INTERMEDIATE (NEW) COURSE

PAPER – 4: TAXATION

SECTION – A: INCOME TAX LAW

SOLUTIONS

Division A – Multiple Choice Questions

I. (b)

II. (c)

III. (b)

IV. (b)

V. (c)

VI. (c)

VII. (a)

VIII. (c)

IX. (a)

X. (a)

XI. (d)

XII. (a)

Division B – Descriptive Choice Questions

1. Computation of total income of Mr. Satish for the A.Y. 2019-20

Particulars Rs.

Income from salaries [Working Note (1)] 9,66,000

Income from house property [Working Note (2)] 1,00,000

Capital gain [(Working Note 3)]

Long-term capital gains 5,970

Short-term capital gains 2,490

Income from other sources: Interest on income-tax refund 750

Gross Total Income 10,75,210

Less: Deduction under Chapter VIA

Deduction under section 80C

- Public Provident Fund 1,30,000

- 5 years Term deposit (not allowed as deduction in the name of minor son)

-

- Repayment of housing loan (principal) 65,000

Restricted to 1,95,000 1,50,000

Deduction under section 80D [Working Note (4)] 25,000

Total Income 9,00,210


2

Computation of tax payable by Mr. Satish for the A.Y. 2019-20

Particulars Rs.

Tax on LTCG of Rs.5,970 [Exempt u/s 112A] -

Tax on STCG of Rs.2,490 u/s 111A @15% 374

Tax on balance income of Rs.8,91,750 90,850

91,224

Add: Health and Education cess@4% 3,649

Total tax payable 94,873

Tax liability (Rounded off) 94,870

Working Notes:

(1) Income from salaries

Particulars Rs. Rs.

Basic Salary 5,40,000

HRA (computed) 1,80,000

Transport allowance 22,000

Perquisites (relating to sale of movable assets by employer)

Laptop

Cost [September, 2017] 1,20,000

Less: Depreciation at 50% for one completed year 60,000

WDV [September, 2018] 60,000

Less: Amount paid to the employer 20,000

Perquisite value of laptop (A) 40,000

Car

Cost [April, 2016] 8,50,000

Less: Depreciation for the 1st year

(April,16 to March,17) @ 20% of WDV

1,70,000

WDV [April, 2017] 6,80,000

Less: Depreciation for the 2nd year

(April,17 to March,18) @ 20% of WDV

1,36,000

WDV [April, 2018] 5,44,000

Less: Amount paid to the employer 3,20,000

Perquisite value of car (B) 2,24,000

Perquisite value (A) + (B) 2,64,000

Gross Salary 10,06,000

Less: Standard Deduction under section 16(ia) 40,000

Income chargeable under the head “Salaries” 9,66,000

(2) Income from house property

Section 23(2) provides that the annual value of a self-occupied house shall be taken as Nil. However, section 23(3) provides that the benefit of self-occupation would not be available if the


3

house is actually let during the whole or part of the previous year. This implies that the benefit of taking the annual value as „Nil‟ would be available only if the house is self-occupied for the whole year.

In this case, therefore, the benefit of taking annual value as „Nil‟ is not available since the house is self-occupied only for 3 months. In such a case, the gross annual value has to be computed as per section 23(1). Accordingly, the fair rent for the whole year should be compared with the actual rent for the let-out period and whichever is higher shall be adopted as the Gross Annual Value.

Particulars Rs. Rs.

Gross Annual Value (higher of fair rent for the whole year and actual rent for the let-out period)

2,00,000

Fair rent for the whole year = Rs.1,50,000 12/9 2,00,000

Actual rent received = Rs.15,000 9 1,35,000

Less: Municipal taxes Nil

Net Annual Value (NAV) 2,00,000

Less: Deductions under section 24

30% of NAV 60,000

Interest on loan [See Note below] 40,000 1,00,000

Income from house property 1,00,000

Note: It is presumed that the interest of Rs.40,000 paid on housing loan represents the interest actually due for the year.

(3) Income chargeable as “Capital Gains”

Section 112A exempts long-term capital gain on sale of equity shares of a company upto Rs.1 lakh, if securities transaction tax is paid both at the time of sale and acquisition of such shares. Such long-term capital gain in excess of Rs.1 lakh is taxable @10%. Since Mr. Satish has held shares of A Ltd. for more than 12 months and securities transaction tax has been paid on such sale and at the time of acquisition of shares, the gains arising from sale of such shares is a long-term capital gain and the same would be taxable under section 112A. As per section 48, the benefit of indexation would not be applicable on such equity shares.

The long term capital gain arising from sale of shares of A Ltd.

Particulars Rs.

Sale consideration (Rs.150 x 200) 30,000

Less: Brokerage @ 0.1% 30

Net sale consideration 29,970

Less: Cost of acquisition (Rs.120 x 200) 24,000

long-term capital gains 5,970

Since, the long term capital gain do not exceed Rs.1 lakh, the same would be exempt under section 112A.

Shares in B Ltd. are held for less than 12 months and hence the capital gains arising on sale of such shares is a short-term capital gain chargeable to tax @15% as per section 111A, since the transaction is subject to securities transaction tax. It may be noted, however, that securities transaction tax is not a deductible expenditure.

Short-term capital gains arising from sale of shares of B Ltd.

Particulars Rs.

Sale consideration (Rs. 82 125) 10,250

Less: Brokerage @ 0.1% 10


4

Net sale consideration 10,240

Less: Cost of acquisition (Rs. 62 x 125) 7,750

Short-term capital gains 2,490

(4) Deduction under section 80D

As per section 80D, in a case where mediclaim premium is paid in lumpsum for more than one year by an individual, to effect or keep in force an insurance on his health or health of his spouse, then, the deduction allowable under this section for each of the relevant previous year would be equal to the appropriate fraction of such lump sum payment. Hence, deduction under section 80D would be Rs.20,000 i.e, Rs.80,000 x ¼ in respect of mediclaim and Rs.8,000 for preventive health check up, subject to maximum of Rs.5,000. Thus, overall deduction under section 80D would be Rs.25,000.

2. (a) I. Taxability of certain receipts under the Income-tax Act, 1961

Sl. No.

Taxable/ Not Taxable

Amount liable to tax (Rs.)

Reason

1 2 3 4

(i) Taxable 20,00,000 Salaries payable by the Government to a citizen of India for service rendered outside India shall be deemed to accrue or arise in India as per section 9(1)(iii). Mr. Dinesh is a citizen of India. Therefore, salary paid by the Central Government to him for services rendered in London would be deemed to accrue or arise in India in his hands.

(ii) Not Taxable

- Royalty paid by a resident to a non-resident in respect of a business carried on outside India would not be taxable in the hands of the non-resident, as the same would not be deemed to accrue or arise in India as per the exception mentioned in section 9(1)(vi)(b). Therefore, royalty paid by Mukta, a resident, to Raja, a non-resident, for a business carried on in Sri Lanka would not be deemed to accrue or arise in India.

Note - It is assumed that the royalty was not received in India.

II. Determination of residential status of Ms. Anjali for the A.Y. 2019-20

Ms. Anjali is a resident since she has stayed in India for 365 days during the P.Y.2018 -19.

Therefore, she satisfies the condition of stay in India for a period of 182 days or more in

the relevant previous year as per the requirement under section 6(1).

As per section 6(6), an individual is said to be “not ordinarily resident” in India in any

previous year, if he has:

(a) been a non-resident in India in nine out of ten previous years preceding the relevant

previous year; or

(b) during the seven previous years immediately preceding the relevant previous year,

been in India for a period of, or periods amount in all to, 729 days or less.

Ms. Anjali must, therefore, satisfy either of the conditions to qualify as a not -ordinarily

resident.

Ms. Anjali was a non-resident in India up to A.Y.2017-18.


5

She was resident in India only for P.Y. 2017-18 (A.Y.2018-19) out of the ten previous

years preceding P.Y. 2018-19 (A.Y.2019-20). This implies that she has been a non-

resident in India in nine out of ten previous years preceding P.Y. 2018 -19 (A.Y. 2019-20).

Further, she was in India only for a period of 406 days [i.e., 10 days in February, 2017 +

31 days in March 2017 + 365 days during the P.Y.2017-18] in the seven previous years

preceding P.Y. 2018-19 (A.Y.2019-20).

Therefore, since Ms. Anjali satisfies both the conditions for “not -ordinarily resident”, her

residential status for A.Y.2019-20 would be “Resident but not ordinarily resident”.

(b) I. (i) Section 194E provides that the person responsible for payment of any amount to a

non-resident sportsman for contribution of articles relating to any game or sport in India

in a newspaper has to deduct tax at source @ 20%. Further, since John Smith, an

Australian cricketer, is a non-resident, Health and education cess @4% on TDS should

also be added.

Therefore, tax to be deducted = Rs.33,000 x 20.80% = Rs. 6,864.

(ii) Provisions of tax deduction at source under section 194C are attracted in respect of

payment by a company to a sub-contractor. Under section 194C, tax is deductible at

the time of credit or payment, whichever is earlier @ 1% if the payment is made to an

individual or HUF.

The aggregate amount credited during the year is Rs.4,85,000, tax is deductible @ 1%

on Rs.4,85,000.

Tax to be deducted = Rs.4,85,000 x 1% = Rs.4,850

II. (i) True : Section 139A(2) provides that the Assessing Officer may, having regard to the

nature of transactions as may be prescribed, also allot a PAN to any other person,

whether any tax is payable by him or not, in the manner and in accordance with the

procedure as may be prescribed.

(ii) False: Section 140(b) provides that where the Karta of a HUF is absent from India, the

return of income can be verified by any other adult member of the family; such member

can be a male or female member.

3. (a) Section 44AE would apply in the case of Mr. Satinder since he is engaged in the business of

plying goods carriages and owns not more than ten goods carriages at any time during the

previous year.

Section 44AE provides for computation of business income of such assessees on a presumptive

basis. The income shall be deemed to be Rs.1,000 per ton of gross vehicle weight or unladen

weight, as the case may be, per month or part of the month for each heavy goods vehicle and

Rs.7,500 per month or part of month for each goods carriage other than heavy goods vehicle,

owned by the assessee in the previous year or such higher sum as declared by the assessee in

his return of income.

Mr. Satinder‟s business income calculated applying the provisions of section 44AE is

Rs.13,82,500 [See Notes (1) & (2) below] and his total income would be Rs.14,52,500.

However, as per section 44AE(7), Mr. Satinder may claim lower profits and gains if he keeps and

maintains proper books of account as per section 44AA and gets the same audited and furnishes

a report of such audit as required under section 44AB. If he does so, then his income for tax

purposes from goods carriages would be Rs.5,23,000 instead of Rs.13,82,500 and his total

income would be Rs.5,93,000.

Notes:

(1) Computation of total income of Mr. Satinder for A.Y. 2019-20


6

Particulars Presumptive

income

Rs.

Where books

are maintained

Rs.

Income from business of plying goods carriages

[See Note (2) Below]

13,82,500

5,23,000

Other business and non-business income 70,000 70,000

Total Income 14,52,500 5,93,000

(2) Calculation of presumptive income as per section 44AE

Type of carriage No. of months

Rate per ton per month/per month

Ton Amount

Rs.

(1) (2) (3) (1) x (2) x (3) = (4)

Heavy goods vehicle

1 goods carriage upto 5th May

2 1,000 17 (17,000/ 1,000) 34,000

4 goods carriage held throughout the year

12 1,000 17 (17,000/ 1,000) 8,16,000

Goods vehicle other than heavy goods vehicle

1 goods carriage from 8th May

11 7,500 - 82,500

5 goods carriage held throughout the year

12 7,500 - 4,50,000

Total 13,82,500

(b) Section 145B provides that interest received by the assessee on enhanced compensation shall

be deemed to be the income of the assessee of the year in which it is received, irrespective of

the method of accounting followed by the assessee and irrespective o f the financial year to which

it relates.

Section 56(2)(viii) states that such income shall be taxable as „Income from other sources‟.

50% of such income shall be allowed as deduction by virtue of section 57(iv) and no other

deduction shall be permissible from such Income.

Computation of interest on enhanced compensation taxable as “Income from other sources”

for the A.Y 2019-20:

Particulars Rs.

Interest on enhanced compensation taxable under section 56(2)(viii) 7,00,000

Less: Deduction under section 57(iv) (50% x Rs.7,00,000) 3,50,000

Taxable interest on enhanced compensation 3,50,000

(c) Computation of capital gains and business income of Harsha for A.Y. 2019-20

Particulars Rs.

Capital Gains

Fair market value of land on the date of conversion deemed as the full value

of consideration for the purposes of section 45(2)

2,25,00,000

Less: Indexed cost of acquisition [Rs.45,00,000 × 272/129] 94,88,372


7

1,30,11,628

Proportionate capital gains arising during A.Y.2019-20

[Rs.1,30,11,628 × 2/3]

86,74,419

Less: Exemption under section 54EC 50,00,000

Capital gains chargeable to tax for A.Y.2019-20 36,74,419

Business Income

Sale price of flats [10 × Rs.40 lakhs] 4,00,00,000

Less: Cost of flats

Fair market value of land on the date of conversion [Rs.225 lacs × 2/3] 1,50,00,000

Cost of construction of flats [10 × Rs.15 lakhs] 1,50,00,000

Business income chargeable to tax for A.Y.2019-20 1,00,00,000

Notes:

(1) The conversion of a capital asset into stock-in-trade is treated as a transfer under section

2(47). It would be treated as a transfer in the year in which the capital asset is converted into

stock-in-trade.

(2) However, as per section 45(2), the capital gains arising from the transfer by way of

conversion of capital assets into stock-in-trade will be chargeable to tax only in the year in

which the stock-in-trade is sold.

(3) The indexation benefit for computing indexed cost of acquisition would, however, be

available only up to the year of conversion of capital asset into stock -in-trade and not up to

the year of sale of stock-in-trade.

(4) For the purpose of computing capital gains in such cases, the fair market value of the capital

asset on the date on which it was converted into stock-in-trade shall be deemed to be the full

value of consideration received or accruing as a result of the transfer of the capital asset.

In this case, since only 2/3rd of the stock-in-trade (10 flats out of 15 flats) is sold in the

P.Y.2018-19, only proportionate capital gains (i.e., 2/3rd) would be chargeable to tax in the

A.Y.2019-20.

(5) On sale of such stock-in-trade, business income would arise. The business income

chargeable to tax would be the difference between the price at which the stock -in-trade is

sold and the fair market value on the date of conversion of the capital asset into stock -in-

trade.

(6) In case of conversion of capital asset into stock-in-trade and subsequent sale of stock-in-trade,

the period of 6 months is to be reckoned from the date of sale of stock-in-trade for the purpose

of exemption under section 54EC [CBDT Circular No.791 dated 2.6.2000]. In this case, since

the investment in bonds of NHAI has been made within 6 months of sale of flats, the same

qualifies for exemption under section 54EC. With respect to long-term capital gains arising on

land or building or both in any financial year, the maximum deduction under section 54EC

would be Rs.50 lakhs, whether the investment in bonds of NHAI or RECL are made in the

same financial year or next financial year or partly in the same financial year and partly in the

next financial year.

Therefore, even though investment of Rs.50 lakhs has been made in bonds o f NHAI during

the P.Y.2018-19 and investment of Rs.50 lakhs has been made in bonds of RECL during the

P.Y.2019-20, both within the stipulated six month period, the maximum deduction allowable

for A.Y.2019-20, in respect of long-term capital gain arising on sale of long-term capital

asset(s) during the P.Y. 2018-19, is only Rs.50 lakhs.


8

4. (a) Computation of total income of Mr. Sahil for the A.Y. 2019-20

Particulars Rs. Rs.

I. Income from house property

Gross Annual Value 5,10,000

Less: Municipal taxes paid 50,000

Net Annual Value (NAV) 4,60,000

Less: Deductions under section 24

30% of NAV 1,38,000

Interest on housing loan - 3,22,000

II Income from business

2,50,000

Less : Current year depreciation under section 32(1) 30,000

2,20,000

Less: Set-off of brought forward business loss of A.Y. 2015-16 under section 72

85,000

1,35,000

Less:Unabsorbed depreciation set-off [See Note 3] 1,35,000 Nil

III. Capital gains

Long-term capital gain on sale of debentures 1,35,000

Less: Long-term capital loss on sale of shares (STT is paid at acquisition and sale) [See Note 1]

90,000

45,000

Less: Unabsorbed depreciation set-off [See Note 3] 45,000 Nil

Short term capital gain on sale of land [See Note 2] 1,80,000

Less:Unabsorbed depreciation set-off [See Note 3] 20,000 1,60,000

IV. Income from other sources

Dividend on shares (whether held as stock-in-trade or from a company carrying on agricultural operations) – exempt under section 10(34)

-

Nil

Total income 4,82,000

Notes:

(1) Long-term capital loss on sale of listed equity shares through a recognized stock exchange

on which STT is paid at the time of acquisition and sale of such shares can be set-off

against long-term capital gains on sale of debentures applying the provisions of section

70(3).

(2) Since land is held for a period of less than 24 months, the gain of Rs.1,80,000 arising from

sale of such land is a short-term capital gain.

(3) Brought forward unabsorbed depreciation can be adjusted against any head of income.

However, it is more beneficial to set-off unabsorbed depreciation first against long-term

capital gains, since it is taxable at a higher rate of 20% (the other income of the assessee

falling in the 5% slab rate). Therefore, unabsorbed depreciation is first set -off against long-

term capital gains to the extent of Rs.45,000. The remaining unabsorbed depreciation is


9

adjusted against business income to the extent of Rs.1,35,000 and the balance of

Rs.20,000 is adjusted against short-term capital gains.

In the alternative, the balance of Rs.20,000 may also be set-off against income from house

property, in which case, the net income from house property would be Rs.3,02,000 and

short-term capital gains would be Rs.1,80,000. The gross total income and total income

would, however, remain unchanged.

(b) In computing the total income of any individual, there shall be included all such income as arises

directly or indirectly, to the spouse of such individual from assets transferred directly or indirectly,

to the spouse by such individual otherwise than for adequate consideration or in connection with

an agreement to live apart.

Interest on loan: Accordingly, Rs.50,000, being the amount of interest on loan received by

Mrs. Suman, wife of Mr. Akash, would be includible in the total income of Mr. Akash, since such

loan was given by her out of the sum of money received by her as gift from her husband.

Short-term capital gain: The short-term capital gain of Rs.20,000 (Rs.70,000, being the sale

consideration less Rs.50,000, being the cost of acquisition) arising in the hands of Ms. Suman

from sale of shares acquired by investing the interest income of Rs.50,000 earned by her (from

the loan given out of the sum gifted to her by her husband), would not be included in th e hands of

Mr. Akash. Since securities transaction tax has been paid, such short -term capital gain on sale of

listed shares is taxable@15%

Income from the accretion of the transferred asset is not liable to be included in the hands of the

transferor and, therefore, such income is taxable in the hands of Ms. Suman.

(c) Determination of Advance Tax Liability of Mr. Sameer

Particulars Rs.

Estimated tax liability for the financial year 2018-19

Less: Tax deducted at source

Tax payable

80,000

12,000

68,000

Due Date of

installment

Amount payable Rs.

On or before

15th June, 2018

Not less than 15% of

advance tax liability

10,200

On or before

15th September,

2018



less amount paid in

earlier installment

20,400

(Rs.30,600, being 45% of Rs.68,000 -

Rs.10,200)

On or before

15th December,

2018



less amount paid in

earlier installment(s)

20,400

(51,000, being 75% of Rs.68,000 -

Rs.30,600)

On or before

15th March,

2019

Whole of the advance

tax liability less amount

paid in earlier

installment(s)

17,000

(68,000, being 100% of Rs.68,000 -

Rs.51,000)

In case he is eligible for presumptive tax provisions under section 44AD and his entire tax liability

is on account of such income, he can pay his entire advance tax liability in one installment on or

before 15.3.2019, without attracting interest under section 243C.


1

SECTION B - INDIRECT TAXES (40 MARKS)

SUGGESTED ANSWERS

Division A - Multiple Choice Questions Answer

1. (c)

2. (a)

3. (d)

4. (b)

5. (d)

6. (d)

7. (d)

8. (d)

9. (c)

10. (d)

Division B - Descriptive Answer

1. (i) Computation of net GST payable for the financial year 20XX-XY

Particulars Value (Rs.) CGST (Rs.) SGST (Rs.)

Tax liability

Intra-State supplies made to registered persons 10,00,000 90,000 90,000

Intra State supplies made to unregistered persons 2,00,000 18,000 18,000

Total (A) 1,08,000 1,08,000

Input Tax credit

Supply of iron in lots by M/s Hard Limited [Note-1] 10,00,000 - -

Supply of IT engineering service [Note-2] 11,00,000 99,000 99,000

Total (B) 99,000 99,000

Net GST payable (A)-(B) 9,000 9,000

Notes:-

1. Section 16 of CGST Act, 2017 provides that where the goods against an invoice are received in

lots or installments, the registered person shall be entitled to take credit upon receipt of the last

lot or installment. Although 900 tonnes of iron are received in financial year 20XX-XY, the last lot

of iron has been received after FY 20XX-XY only, i.e. on 5, April 20XY, thus no input tax credit is

available in FY 20XX-XY.

In view of above provisions, full input tax credit in respect of transaction (a) will b e claimed in

financial year 20XY-20YZ i.e. on receipt of last installment.

2. Section 16 of CGST Act, 2017 inter alia provides that every registered person is entitled to take

credit of input tax charged on supply of services to him which are used in the course of business

on receipt of the said services.

Thus, in view of the above mentioned provisions full input tax credit of Rs. 1,98,000/ - can be

claimed in financial year 20XX-XY.

(ii) Section 16 of CGST Act, 2017 provides that where a recipient fails to pay to the supplier of goods

or services or both, other than the supplies on which tax is payable on reverse charge basis, the

amount towards the value of supply along with tax payable thereon within a period of 180 days


2

from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed

by the recipient shall be added to his output tax liability, along with interest thereon, in the

prescribed manner.

However, the recipient shall be entitled to avail of the credit of input tax on payment made by him

of the amount towards the value of supply of goods or services or both along with tax payable

thereon.

Since the full amount of value alongwith tax payable thereon has not been paid by M/s

Comfortable (P) Ltd. to M/s Dynamic Infotech (P) Ltd within a period of 180 days from the date of

issue of invoice, the proportionate amount of input tax credit availed needs to be reversed.

However, the reversal will be done in the financial year 20XY-YZ during when the time period of

180 days expire.

Input tax credit to be reversed in financial year 20XY-YZ

Particulars Amount (Rs.)

Total value of procurement of IT engineering service 11,00,000

Add: Total GST on the above value @ 18%[CGST + SGST] 1,98,000

Value including GST 12,98,000

Amount paid for the said service including GST

[Rs. 4,13,000 + Rs. 2,95,000]

7,08,000

Amount [value alongwith tax payable thereon] not paid for the said service 5,90,000

ITC to be reversed [Rs. 5,90,000 x 18/118] 90,000

2. (a) Computation of value of taxable supply

Particulars (Rs.)

Amount charged for loading, unloading, packing and warehousing of potato chips

[Note-1]

25,000

Fees charged for yoga camp conducted by a charitable trust registered under

section 12AA of the Income-tax Act, 1961 [Note-2]

Nil

Amount charged by business correspondent for the services provided to the

rural branch of a bank with respect to Savings Bank Accounts [Note-3]

Nil

Amount charged by cord blood bank for preservation of stem cells [Note-4] Nil

Service provided by commentator to a recognized sports body [Note-5] 6,00,000

Amount charged for service provided by way of right to admission to circus

where consideration for the same is Rs. 750 per person. [Note-6]

12,000

Notes:

1. Services by way of loading, unloading, packing, storage or warehousing of agricultural

produce are exempt from GST. Further, potato chips are manufactured through processes

which alter the essential characteristic of agricultural produce, thus is not covered under

definition of agricultural produce.

2. Services by an entity registered under section 12AA of the Income-tax Act, 1961 by way of

charitable activities are exempt from GST. The activities relating to advancement of yoga

are included in the definition of charitable activities. So, such activities are exempt from

GST.


3

3. Services by business facilitator or a business correspondent to a banking company with

respect to accounts in its rural area branch have been exempted from GST.

4. Services provided by cord blood banks by way of preservation of stem cells or any other

service in relation to such preservation are exempt from GST.

5. Services provided to a recognized sports body only by an individual as a player, referee,

umpire, coach or team manager for participation in a sporting event organized by a

recognized sports body are exempt from GST. Thus, services provided by commentators

are liable to GST.

6. Services provided by way of right to admission to circus where consideration for the same is

upto Rs. 500 per person are exempt from GST. Since in the present case, the consideration

is more than Rs. 500 per person, so the same is liable to GST.

(b) (i) In case of services provided by any person by way of sponsorship to any body corporate or

partnership firm / limited liability partnership (LLP), GST is liable to be paid under reverse

charge by such body corporate or partnership firm / LLP located in the taxable territory.

Therefore, in the given case, Indian Love Cricket Academy is liable to pay GST under

reverse charge.

(ii) In case of services provided by Goods Transport Agency (GTA) in respect of transportation

of goods by road to, inter alia, any partnership firm whether registered or not under any law;

GST is liable to be paid by such partnership firm. Therefore, in the given case, Amba & Co.

is liable to pay GST under reverse charge.

3. (a) (i) Where the due date of payment is not ascertainable from the contract , the invoice shall be

issued before or at the time when the supplier of service receives the payment.

Thus, in the given case, the invoice should be issued on or before 30.03.20XY (date of

receipt of payment by Mr. Mayank).

(ii) If payment is linked to the completion of an event, the invoice should be issued on or before

the date of completion of that event.

Since in the given case payment is linked to the completion of service, invoice should be

issued on or before 31.01.20XY (date of completion of service).

(iii) Where the due date of payment is ascertainable from the contract, the invoice should be

issued on or before the due date of payment.

If M/s. Omega Limited has to make payment on 25.03.20XY as per the contract between

them, the invoice should be issued on or before 25.03.20XY.

(b) A registered person paying tax under the provisions of section 10 [composition levy] shall issue,

instead of a tax invoice, a bill of supply containing such particulars and in such manner as may

be prescribed.

Therefore, in the given case, Draupad Fabrics cannot issue tax invoice. Instead, it shall issue a

Bill of Supply.

(c) A taxable person who makes an undue or excess claim of input tax credit shall pay interest

@ 24% p.a. on such undue or excess claim in terms of section 50 of CGST Act, 2017. The

period of interest will be from the date following the due date of payment to the actual date of

payment of tax.

Due date of payment is 20 th May, 20XX.

Period for which interest is due = 21st May, 20XX to 31st July, 20XX

=72 days

Thus, interest liability = Rs. 1,50,000 x 24% x 72/365


4

=Rs. 7,101 (approx.)

4. (a) Title as well as possession both have to be transferred for a transaction to be considered as a

supply of goods. In case title is not transferred, the transaction would be treated as supply of

service in terms of Schedule II(1)(b) of the CGST Act. In some cases, possession may be

transferred immediately but title may be transferred at a future date like in case of sale on

approval basis or hire purchase arrangement. Such transactions will also be termed as supply of

goods.

(b) In GST since the returns are built from details of individual transactions, there is no requirement

for having a revised return. Any need to revise a return may arise due to the need to change a

set of invoices or debit/ credit notes. Instead of revising the return already submitted, the system

allows changing the details of those transactions (invoices or debit/credit notes) that are required

to be amended. They can be amended in any of the future GSTR- 1 in the tables specifically

provided for the purposes of amending previously declared details.

As per section 39(9), omission or incorrect particulars discovered in the returns filed u/s 39 can

be rectified in the return to be filed for the month/quarter during which such omission or incorrect

particulars are noticed. Any tax payable as a result of such error or omission will be required to

be paid along with interest. The rectification of errors/omissions is carried out by entering

appropriate particulars in “Amendment Tables” contained in GSTR -1.


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