GATA No. of Pages: 6 No. of Questions: 7
Total Marks: 100 Time allowed: 3 hrs
Question no 1 is compulsory Answer any five from the remaining six questions Wherever necessary, suitable assumptions should be made by the candidates. Working notes should form part of answer 1.
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a) M/s Highway Constructions undertook the construction of a highway on 01.04.2013. The contract was to be completed in 2 years The contract price was estimated at ` 150 crores. Up to 31.03.2014 the company incurred ` 120 crores on the construction. The engineers involved in the project estimated that a further ` 45 crores would be incurred for completing the work. What amount should be charged to revenue for the year 2013-14 as per the provisions of Accounting Standard 7 "Construction Contracts"? b) An item of machinery was purchased on 1-4-2012 for ` 2,00,000. The WDV depreciation rate applicable to the machinery was 15%. The written down value of the machinery as on 31-3-2014 was ` 1,44,500. On 1-4-2014, the enterprise decided to change the method from written down value (WDV) to straight line method (SLM). The enterprise decided to write off the book value of ` 1,44,500, over the remaining useful life of machinery i.e. 5 years Out of the total useful life 7 years, 2 years have already elapsed. Comment whether the accounting treatment is correct. If not, give the correct accounting treatment with reasons. c) A Ltd. entered into a contract with B Ltd. to despatch goods valuing ` 25,000 every month for 4 months upon receipt of entire payment. B Ltd. accordingly made the payment of ` 1,00,000 and A Ltd. started dispatching the goods. In third month, due to a natural calamity, B Ltd. requested A Ltd. not to dispatch goods until further notice though A Ltd. is holding the remaining goods worth ` 50,000 ready for despatch. A Ltd. accounted ` 50,000 as sales and transferred the balance to Advance Received against Sales. Comment upon the treatment of balance amount with reference to the provisions of Accounting Standard 9. d) The abstract of the Balance Sheet of the AXE Ltd. as at 31st March 2011, are as follows:
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Liabilities Equity share capital (` 100 each) 12% Preference share capital (` 100 each) 13% Debentures
INR 15,00,000 8,00,000
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3,00,000 On 31st March, 2011, BXE Ltd. agreed to take over AXE Ltd. on the following terms: (1) For each preference share in AXE Ltd., ` 10 in cash and one 9% preference share of ` 100 in BXE Ltd. (2) For each equity share AXE Ltd. ` 20 in cash and one equity share in BXE Ltd. of ` 100 each. It was decided that the share in BXE Ltd. will be issued at market price ` 140 per share. (3) Liquidation expenses of AXE Ltd. are to be reimbursed by BXE Ltd. to the extent of ` 10,000. Actual expenses amounted to ` 12,500.You are required to compute the amount of purchase consideration. (4 x 5= 20 Marks)
2. P Ltd. and Q Ltd. were carrying on the business of manufacturing of auto components. Both the companies decided to amalgamate and a new company PQ Ltd. is to be formed with an Authorized Capital of ` 10,00,000 divided into 1,00,000 equity shares of ` 10 each. The Balance Sheet of the companies as on 31.03.2014 were as under:
PRIME/41st ME/IPC
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P -Limited Balance Sheet as at 31.03.2014 Particulars I. Equity and liabilities 1. Shareholders fund (a) Share capital (b) Reserves and Surplus Profit & loss a/c. 2. Non current liabilities 8% secured debentures 3. Current liabilities Trade payables Total
Amount (INR)
1,40,000 30,000 110,000 54,000 334,000
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100,000 25,000
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II. Assets 1. Non – current assets (a) Fixed Assets Building at cost less Depreciation Plant & Machinery at cost less Depreciation 2. Current Assets (a) Inventories (b) Trade Receivables (c) Cash at Bank Total
135,000 44,000 30,000 334,000
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Q - Limited Balance Sheet as at 31.03.2014 Particulars I. Equity and liabilities 1. Shareholders fund (a) Share capital (b) Reserves and Surplus General Reserve Profit & loss a/c. 2. Current liabilities Trade payables Total
Amount (INR)
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120,000 35,000 140,000 545,000
II. Assets 1. Non – current assets (a) Fixed Assets Building at cost less Depreciation Plant & Machinery at cost less Depreciation Furniture & Fixture at cost less depreciation 2. Current Assets (a) Inventories (b) Trade Receivables (c) Cash at Bank Total
190,000 80,000 25,000 50,000 142,000 58,000 545,000
The assets and liabilities of the existing companies are to be transferred at book value with the exception of some items detailed below:
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(i) Goodwill of P Ltd. was worth ` 50,000 and of Q Ltd. was worth ` 1,50,000. (ii) Furniture & Fixture of Q Ltd. was valued at ` 35,000. (iii) The Trade receivables of P Ltd. are realized fully and bank balance of P Ltd. are to be retained by the liquidator and the trade payables are to be paid out of the proceeds thereof. (iv) The debentures of P Ltd. are to be discharged by issue of 8% 11,000 debentures of PQ Ltd. at a premium of 10%. You are required to: (i) Compute the basis on which shares in PQ Ltd. will be issued at par to the shareholders of the existing companies. (ii) Draw up a Balance Sheet of PQ Ltd. as at 1st April, 2014, the date of completion of amalgamation. (16 Marks) 3. M/s Ice Limited gives you the following information to find out Total Sales and Total Purchases: Particulars INR Debtors as on 01.04.2011 70,000 Creditors as on 01.04.2011 81,000 Bills receivable received during the year 47,000 Bills payable issued during the year 53,000 Cash received from customers 156,000 Cash paid to suppliers 172,000 Bad Debts recovered 16,000 Bills Receivables endorsed to creditors 27,000 Bills Receivables dishonored by customers 5,000 Discount allowed by suppliers 7,000 Discount allowed to customers 9,000 Endorsed Bills Receivables dishonored 3,000 Sales Return 11,000 Bills Receivable discounted 8,000 Discounted Bills Receivable dishonored 2,000 Cash Sales 1,68,500 Cash Purchases 197,800 Debtors as on 31.03.2012 82,000 Creditors as on 31.03.2012 95,000
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a)
(8 Marks)
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b) Mr. Brown has made following transactions during the financial year 2011-12: Date Particulars 01.05.2011 Purchased 24,000 12% bonds of INR 100 each at INR 84 cum interest. Interest is payable on 30th Sept and 31st March ever year. 15.06.2011 Purchased INR 150,000 equity shares of INR 10 each in Alpha Limited for INR 25 each through a broker, who charged @ 2%. 10.07.2011 Purchased 60,000 equity shares of INR 10 each in Beeta Limited for INR 44 each through a broker, who charged brokerage @ 2% 14.10.2011 Alpha Limited made a bonus issue of 2 shares for every 3 shares held 31.10.2011 Sold 80,000 shares in Alpha Limited for INR 22 each 15.01.2012 Beeta Limited made a right issue of one equity share for every four shares held at INR 5 per share. Mr. Brown exercised his option for 40% of his entitlements and sold the balance rights in the market at INR 2.25 per share. 01.02.2012 Sold 15,000 12% Bonds at INR 90 ex-interest. 15.03.2012 Received 18% interim dividend on equity shares of Beeta Limited. Interest on 12% Bonds was duly received on due dates.
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Prepare separate investment account for 12% Bonds, Equity Shares of Alpha Limited and Equity Shares of Beeta Limited in the books of Mr. Brown for the year ended on 31st March, 2012. (8 Marks) 4. Pathak, Quereshi and Ranjeet were partners sharing profits in the ratio of 7 : 5 : 3 respectively. On 31st March, 2013 Quereshi retired when the firm's Balance Sheet was as follows : Liabilities Capital Accounts Pathak Quershi Ranjeet
INR 850,000 620,000 370,000
General Reserve
225,000
Trade creditors
113,000
21,78,000 Total
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Assets Land and Building Plant and Machinery Furniture, Fixture and Fittings Stock Trade Debtors 200,000 Less : Provision for Bad Debts 6,000 Cash at bank
INR 10,00,000 4,65,000 2,30,100 1,82,200
1,94,000 1,06,700 21,78,000
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It was agreed that : (i) Land & Building be appreciated by 20%. (ii) Plant & Machinery be depreciated by 10%. (iii) Provision for Bad Debts be made equal to 4% of Trade Debtors (iv) Outstanding repairs bill amounting to ` 1500 be recorded in the books of account. (v) Goodwill of the firm be valued at ` 3,00,000 and Quereshi's capital account be credited with his share of goodwill without raising goodwill account. (vi) Half of the amount due to Quereshi be immediately paid to him by means of a cheque and the balance be treated as a loan bearing interest @ 12% per annum. After Quereshi's retirement, Pathak and Ranjeet admitted Swamy as a new partner with effect from 1st April, 2013. Pathak, Ranjeet and Swamy agreed to share profits in the ratio of 2 : 1 : 1 respectively. Swamy brought patents valued at ` 20,000 and ` 3,80,000 in cash including payment for his share of goodwill as valued by the old firm. The entire amount of ` 4,00,000 was credited to Swamy's Capital Account. Adjustments were made in the capital account for Swamy's share of goodwill. You are required to : (a) Pass journal entries for all the above transactions without any narration, and (b) Prepare the capital account of all the partners (16 Marks)
a) The premises of X Ltd. caught fire on 22nd January, 2015 and the stock was damaged. The value of goods salvaged was negligible. The firm made up accounts to 31st March each year. On 31st March, 2014 the stock at cost was `13,27,200 as against ` 9,62,200 on 31st March 2013. Purchases from 1st April, 2014 to the date of fire were 34,82,700 as against ` 45,25,000 for the full year 2013-2014 and the corresponding sales figures were ` 49,17,000 and ` 52,00,000 respectively. You are given the following further information: (i) In July, 2014, goods costing ` 1,00,000 were given away for advertising purposes, no entries being made in the books. (ii) The rate of gross profit is constant. X Ltd. had taken an insurance policy of ` 5,50,000 which was subject to the average clause. From the above information, you are required to make an estimate of the stock in hand on the date of fire and compute the amount of the claim to be lodged to the insurance company. (8 Marks)
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b) Surya Ltd. has provided you the following particulars Prepare Cash Flow from Operating Activities by Indirect Method in accordance with AS 3 : c) Profit & Loss Account of Surya Ltd. for the year ended 31st March, 2012 Particulars INR Particulars INR To Depreciation 86,700 By OperatingProfit before depreciation 11,01,600 To Patents written off 35,000 By Profit on Sale on Investments 10,000 To Provision for Tax 1,25,000 By Refund of Tax 3,000 To Proposed dividend 72,000 By Insurance Claim-Major Fire To Transfer to Reserve 87,000 Settlement 1,00,000 To Net Profit 8,08,900 Total 12,14,600 Total 12,14,600
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Profit & Loss Account of Surya Ltd. for the year ended 31st March, 2013 Particulars INR INR Stock 1,20,000 1,60,000 Trade Debtors 7,500 75,000 Trade Creditors 23,735 87,525 Provision for Tax 1,18,775 1,25,000 Prepaid Expenses 15,325 12,475 Marketable Securities 11,775 29,325 Cash Balance 25,325 35,340 (8 Marks)
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6. Following is the Receipts and Payments Account of Nanoo Club for the year ended 31st March, 2009: Particulars INR Particulars INR Opening balance: Salaries 1,20,000 Cash 10,000 Creditors 15,20,000 Bank 3,850 Printing and stationery 70,000 Subscription received 2,02,750 Postage 40,000 Entrance donation 1,00,000 Telephone and fax 52,000 Interest received 58,000 Repairs and maintenance 48,000 Sale of fixed assets 8,000 Glass and table linen 12,000 Miscellaneous 9,000 Crockery and cutlery 14,000 income Receipts at coffee Garden upkeep 8,000 room 10,70,000 Membership fees 4,000 Wines and spirits 5,10,000 Insurance 5,000 Swimming pool 80,000 Electricity 28,000 Tennis court 1,02,000 Closing balance: Cash 8,000 Bank 2,24,600 Total 21,53,600 Total 21,53,600
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Following additional information is provided to you: (i) Assets and liabilities as on 31.3.2008 were as follows: Particulars Fixed assets Stock Investment in 12% Government securities Outstanding subscription Gratuity fund Prepaid insurance Sundry creditors Subscription received in advance Entrance donation received pending membership
INR 5,00,000 3,80,000 5,00,000 12,000 1,50,000 1,000 1,12,000 15,000 1,00,000
Subscription received in advance as on 31.3.09 was ` 18,000. Outstanding subscription as on 31.3.09 was ` 7,000. Outstanding expenses as on 31.3.09 are: Salaries : ` 8,000 Electricity : ` 15,000 (v) 50% of the entrance donation was to be capitalized. There was no pending membership as on 31.3.09. (vi) The cost of assets sold as on 1.4.08 was ` 10,000. (vii) Depreciation was provided @ 10% p.a. on fixed assets on written down value basis. (viii) A sum of ` 20,000 received in October, 2008 as entrance donation from an applicant was to be refunded, as he has not fulfilled the requisite membership qualification. The refund was made on 3.6.09. (ix) Purchases made during the year 2008-09 amounted to ` 15,00,000. (x) The value of closing stock as on 31.3.09 was ` 2,10,000. (xi) The Club as a matter of policy charges off to Income and Expenditure account, all purchases made on account of crockery, cutlery, glass and linen in the year of purchase. You are required to prepare: (i) Income and Expenditure account for the year ended 31st March, 2009. (ii) Balance Sheet as on 31st March, 2009. (16 Marks)
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(ii) (iii) (iv)
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a) “In business today, the accounts which were earlier maintained in a manual form, are replaced with computerized accounts”. Explain the significance of computerized accounting system in modern time. b) Distinguish between (i) the pooling of interests method and (ii) the purchase method of recording transactions relating to amalgamation. c) A computer costing ` 60,000 is depreciated on straight line basis, assuming 10 years working life and Nil residual value, for three years The estimate of remaining useful life after third year was reassessed at 5 years Calculate depreciation as per the provisions of Accounting Standard 6 "Depreciation Accounting". d) M/s Stairs & Co. draw upon M/s Marble & Co. several bills of exchange due for payment on different dates as under: Date of Bill Amount (INR) Tenure of Bill 12th May 44,000 3 months th 10 June 45,000 4 months 1st July 14,000 1 month th 19 July 17,000 2 months Find out the average due date on which payment may be made in one single amount by M/s Marble & Co. to M/s Stairs & Co. 15th August, Independence Day, is national holiday and 22nd September declared emergency holiday, due to death of a national leader. (4 x4 = 16 Marks)
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PRIME ACADEMY 41st SESSION MODEL EXAM - IPC – ACCOUNTING SUGGESTED ANSWERS 1. a)
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Particulars ` (Crores) Cost of construction incurred up to 31.03.2014 120 Add: Estimated future cost 45 Total estimated cost of construction 165 Degree of completion (120/165 x 100) 72.73% Revenue recognized (72.73% of 150) 109(approx) Total Foreseeable loss (165 –150) 15 Less:Loss for current year (120 – 109) 11 Expense loss to be provided for 4 b) As per para 15 of Accounting Standard 6, ‘Depreciation Accounting’, when the method of depreciation is changed, depreciation is recalculated in accordance with the new method from the date of the assets coming into use. The deficiency or surplus arising from retrospective recomputation of depreciation in accordance with the new method is adjusted in the statement of profit & loss in the year in which the method of depreciation is changed. Calculation of Surplus/Deficiency due to change in method of depreciation Particulars Amount ` Purchase price of plant as on 01-04-2012 2,00,000 Less: Depreciation as per SLM, for the year 2012-13 (INR.2,00,000÷7 years) 28,571 Balance as on 31-3-2013 1,71,429 Less: Depreciation for the year 2013-14(INR.2,00,000÷7 years) 28,571 Balance as on 31-3-2014 1,42,858 Book value as per WDV method 1,44,500 Book value as per SLM 1,42,858 Deficiency 1,642
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Deficiency of INR. 1,642 should be charged to Profit & Loss account. Therefore, the accounting treatment done by the enterprises is wrong i.e. book value of INR.1,44,500 will not be written off over the remaining useful life of machinery i.e. 5 years Note: It is assumed that when the company changed method of depreciation from WDV to SLM, it re-calculated the depreciation amount on the basis of useful life and has not continued with rate of depreciation as applied in WDV method. c) As per para 11 of AS 9 “Revenue Recognition”, in a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions are fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have bee transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. In the given case, transfer of property in goods results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. Also, the sale price has been recovered by the seller. Hence, the sale is complete but delivery has been postponed at buyer’s request. A Ltd. should recognize the entire sale of INR.1,00,000 (INR.25,000 x 4) and no part of the same is to be treated as Advance Receipt against Sales.
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d) S.No I
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Particulars Payment made to shareholders of 8000 preference share of AXE Ltd: Cash @ 10 per share (8000 pref share of `10) 9% preference shares in BXE Ltd of `100 each Payment made to equity shareholders of 15000 equity shares of AXE Ltd Cash @ `20 per share (`15000*20) Equity shares in BXE Ltd issued at market price @ ` 140 each (15000*140) Total purchase consideration
80,000 8,00,000
8,80,000
3,00,000 21,00,000
24,00,000 32,80,000
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P Ltd.
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2. Calculation of Purchase Consideration Particulars Assets taken over: Good will Building Plant & Machinery Furniture & Fixtures Inventories Trade Receivables Cash at Bank
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50,000 1,00,000 25,000 _ 1,35,000 _ _ 3,10,000 (1,21,000) _ 1,89,000 18,900
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Less :Liabilities taken over 8%Debentures Trade Payables Net Assets taken over To be satisfied by issue of shares of PQ Ltd. Of INR.10 each at par PQ Limited Balance Sheet as at 1stApril, 2014 Particulars Note No. Amount ` I. Equity and Liabilities (1)Shareholder’s Funds (a) Share Capital 1 7,54,000 (b) Reserve & Surplus 2 11,000 (2)Non-current Liabilities (a) Long term borrowings 3 1,10,000 (3)Current Liabilities (a) Trade Payables 1,40,000 Total 10,15,000 II. Assets (1)Non-current assets Fixed Asset Tangible 4 4,30,000 Intangible 5 2,00,000 (2)Current Assets a)Inventories 1,85,000 b)Trade Receivables 1,42,000 c)Cash at Bank 58,000 Total 10,15,000 PRIME/41st ME/IPC
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Q Ltd. ` 1,50,000 1,90,000 80,000 35,000 50,000 1,42,000 58,000 7,05,000 _ (1,40,000) 5,65,000 56,500
Amount `
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Notes to Accounts: S. No. Particulars 1 Share Capital Authorized 1,00,000 shares of INR.10 each Issued, Subscribed and Paid up 75,400 shares of INR.10 each (All the above shares are allotted as fully paid up pursuant to scheme of amalgamation without payments being received in cash) 2 Reserve & Surplus Securities Premium Account 3 Long term borrowings 8 % Debentures 4 Tangible Fixed Assets Building P Ltd. 1,00,000 Q Ltd 1,90,000 Plant & Machinery P Ltd. 25,000 Q Ltd. 80,000 Furniture & Fixture Q Ltd. 5 Intangible Asset Goodwill P Ltd 50,000 Q. Ltd. 1,50,000
10,00,000 7,54,000
11,000 1,10,000
2,90,000
1,05,000 35,000 4,30,000
2,00,000
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Working Note: Computation of Securities Premium Debentures issued by PQ Ltd. to the existing debenture holders of P Ltd. At 10% premium. Securities Premium = INR.1,10,000 x 10% = INR.11,000. 3.
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a) 1. Total Sales = Cash sales + Credit sales = INR.1,68,500 + INR.2,25,000 (W.N.1) = INR.3,93,500 2. Purchases = Cash Purchases + Credit Purchases =INR.1,97,800 + INR.2,70,000 (W.N.2) = INR.4,67,800 Working Notes: 1. Debtors Account Particulars Amount ` To Balance b/d 70,000 To Bills receivable dishonoured 5,000 To Bills receivable dishonoured (endorsed) 3,000 To Bills receivable dishonoured (discounted) 2,000 To Credit sales (bal.fig.) 2,25,000 3,05,000
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Particulars By Bills receivable By Cash By Discount allowed By Sales return By Balance c/d
Amount ` 47,000 1,56,000 9,000 11,000 82,000 3,05,000
2. Creditors Account Particulars Amount ` Particulars ToBills payable 53,000 By Balance B/d ToCash 1,72,000 By Bills Receivable Dishonoured To Discount Received 7,000 (endorsed) To Bills Receivable endorsed 27,000 By Credit Purchases (bal.fig) To Balance B/d 95,000 3,54,000 Note: It is assumed that sales return is out of credit sales only.
3,54,000
In the books of Mr. Brown 12% Bonds for the year ended 31stMarch, 2012 No.
2011 May,1 2012 Mar,31
To Bank A/C To P&L A/C (W.N.1) To P& L A/C
24,000
Interest Income` 24,000
Amount ` 19,92,000
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1,05,000
2,49,000
2,50,000
2,55,000
Date
Particulars
2011 Sept.30 2012 Mar.1 2012 Mar.31
By Bank Interest By Bank A/C
No.
43,61,000
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Interest Income` 1,44,000
15,000
75,000
By Bank Interest By Balance c/d (W.N.2)
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b)
Amount ` 81,000 3,000 2,70,000
Amount `
13,50,000
54,000 9,000 2,50,000
_ 2,55,000
7,47,000 43,61,000
Dividend Income`
Amount ` 17,60,000
Investment in Equity shares of Alpha Ltd. for the year ended 31St March, 2012
2011 June 15 Oct 14
To Bank A/C
1,50,000
To Bonus issue (1,50,000/3*2) To P&L A/C (W.N.3) To P& L A/C
1,00,000
Dividend Income`
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2,50,000
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Amount ` 38,25,000
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2,55,000 2,55,000
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2012 Mar 31
No.
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Particulars
5,36,000
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Date
Date
Particulars
2011 Oct31 2012 Jan1 Mar 31
By Bank A/C
No. 80,000
By Bank A/C – divided By Balance c/d (W.N.4)
43,61,000
_ 2,55,000
1,70,000
_
26,01,000
2,50,000
2,55,000
43,61,000
Investment in Equity shares of Beeta Ltd. for the year ended 31stMarch, 2012 Date
Particulars
No.
60,000
Dividend income` _
Amount ` 26,92,800
2011 June 15 2012 Jan 15 Mach 31
To Bank A/C To Bank A/C (W.N.5) To P& L A/C
6,000
_
30,000
_
1,18,800
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66,000
1,18,800
27,22,800
Working Notes: PRIME/41st ME/IPC
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Date 2012 Jan15 2012 Mar 15 Mar 31
Particula rs By Bank A/c (W.N.6) By Bankdividend
No. _
Dividend Income` _
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Amount ` 20,250
1,18,800
66,000
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27,02,550
66,000
1,18,800
27,22,800
By Balance c/d (bal/fig)
Journal Entries 31stMarch, 2013
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Particulars Land and building To Revaluation A/C Revaluation A/c To Plants And Machinery Revaluation A/c To Provision for bad debts [(`2,00,000 x 4%) –`6000] To Provision for Outstanding repair bill Pathak’s Capital A/c Ranjeet’s Capital A/c To Quereshi’s Capital A/C Revaluation A/c To Pathak’s Capital A/c To Quereshi’s Capital A/c To Ranjeet’s Capital A/c General reserve A/c To Pathak’s Capital A/c To Quereshi’s Capital A/c To Ranjeet’s Capital A/c Quereshi’s Capital A/c To Bank A/c To Quereshi’s Loan A/c
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1. Profit on sale of 12% Bond Sales price INR.13,50,000 Less: Cost of bond sold = 19,92,000 x15,000 24,000 INR.12,45,000 Profit on sale INR.1,05,000 2. Closing balance as on 31.3.2012 of 12 % Bond = 19,92,000 x 9,000 = INR.7,47,000 24,000 3. Profit on sale of equity shares of Alpha Ltd. Sales price(80,000 shares x INR22) INR.17,60,000 Less: Cost of bond sold = 38,25,000 x 80,000 INR.12,24,000 2,50,000 Profit on sale INR.5,36,000 4. Closing balance as on 31.3.2012 of equity shares of Alpha Ltd. 38,25,000 x 1,70,000 INR.26,01,000 2,50,000 5. Calculation of right shares subscribed by Beeta Ltd. Right Shares = 60,000 shares x 1= 15,000 shares 4 Shares subscribed by Mr. Brown = 15,000 x 40%= 6,000 shares Value of right shares subscribed = 6,000 shares @ INR.5 per share = INR.30,000 6. Calculation of sale of right entitlement by Beeta Ltd. No. of right shares sold = 15,000 - 6,000 = 9,000 shares Sale value of right = 9,000 shares x INR.2.25 per share = INR.20,250 Note: Shares are assumed to be purchased on cum right basis, therefore, amount received from sale of rights is credited to Investment A/c.
Patents
PRIME/41st ME/IPC
` 2,00,000
Dr . Dr
` 2,00,000
46,500 46,500
Dr .
3,500
Dr Dr
70,000 30,000
Dr
1,50,000
2,000 1,500
1,00,000 70,000 50,000 30,000 Dr
2,25,000 1,05,000 75,000 45,000
Dr .
8,45,000
Dr
20,000
4,22,500 4,22,500
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31.3.13 To Quereshi By bank To loan A/c To bal c/d 1.4.13 To pathak To Ranjeet To bal c/d
Pathak `
Amount Quereshi `
Ranjeet `
70,000
3,80,000 4,00,000 75,000
Swamy `
Particulars
4,15,000 4,45000
8,45,000
10,15,000
4,,30,000
10,15,000
4,30,000
60,000 15,000 3,25,000
1.4.13 By bal b/d By Patents By cash By swamy
4,00,000
8,50,000 1,05,000 70,000 10,25,000
Amount Quereshi ` 6,20,000 75,000 1,00,000 50,000 8,45,000
9,55,000
Ranjeet `
30,000 4,45,000 4,15,000 20,000 3,80,000
60,000
15,000
10,15,000
4,30,000
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1. Calculation of Gaining ratio after retirement of Quereshi on 31st March,2013 Pathak : Quereshi : Ranjeet: Pathak: Ranjeet Old Ratio 7/15 : 5/15 : 3/15 New Ratio 7/10 : 3/10= Gain of Pathak New Ratio - Old Ratio 7/10 - 7 / 15 (105 – 70) / 150 35 / 150 Gain of Ranjeet 3/10 – 3/15 = (45 – 30)/150 = 15/150 Gaining Ratio = 35 : 15 =7:3 2 . Calculation of Sacrificing ratio of Pathak and Ranjeet at time of admission of Swamy 1stApril, 2013 7:3 (ratio between old partners) New ratio 2:1:1 2/7-7/10 ¼-3/10 10-14/20 5-6/20 4/20 1/20 Sacrificing ratio 4:1 5. a) Memorandum Trading Account from 1st April, 2014to 22nd January, 2015 Particulars Amount Amount Particulars ` ` To opening stock 13,27,200 By Sales To Purchases 34,82,700 By Stock on 22nd January, 2015 Less: Cost of Goods (1,00,000) 33,82,700 (bal.fig) Used for Advertising To Gross profit 9,83,400 20% of Sales (W.N) 56,93,300 Stock in hand on date of fire = INR.7,76,300. PRIME/41st ME/IPC
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Swamy `
3,70,000 45,000
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Working Notes:
Pathak `
31.3.13 By bal b/d By general reserve By pathak & Ranjeet By revaluation A/c
30,000 4,22,500 4,22,500
9,55,000 10,25,000
60,000 15,000
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Particulars
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Cash A/c To Swamy’s Capital A/c Swamy’s Capital A/c (`3,00,000/4) To Pathak’s Capital A/c To Ranjeet’s Capital A/c
Amount ` 49,17,000 7,76,300
56,93,300
4,00,000
Computation of claim for loss of stock Particulars Amount ` Stock on the date of fire i.e. on 22ndJanuary, 2015 7,76,300 As the value of goods salvaged was negligible, therefore Loss of Stock 7,76,300 Since policy amount is less than claim amount, claim will be restricted to policy amount only. Therefore, claim of INR.5,50,000 should be lodged by X Ltd. to the insurance company. Working Note: Trading Account for the year ended on 31stMarch, 2014 Particulars Amount ` Particulars Amount ` To Opening Stock 9,62,200 By Sales 52,00,000 To Purchases 45,25,000 By Closing 13,27,200 To Gross Profit 10,40,000 Stock 65,27,200 65,27,200 Rate of gross profit to sales = 10,40,000 /52,00,000 x 100 = 20%.
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b) Indirect Method Cash flow from Operating activities for the year ended 31stMarch, 2013 Particulars Amount ` Amount ` Net Profit as per Profit & Loss A/c 8,08,900 Add: Proposed dividend 72,000 Add: Transfer to reserve 87,000 Add: Provision for Tax made during the Current Year 1,25,000 Less: Refund of tax (3,000) Less: Extraordinary items (i.e. Insurance Claim Major Fire Settlement) (1,00,000) Net Profit before taxation, and extraordinary items 9,89,900 Add: Depreciation 86,700 Add: Patents written off 35,000 Less: Profit on sale of investments (10,000) Operating profit before working capital changes 11,01,600 Increase in stock (40,000) Increase in trade debtors (67,500) Increase in trade creditors 63,790 Decrease in prepaid expenses 2,850 (40,860) Cash generated from operations 10,60,740 Income taxes paid (net of refund) 1,15,775 Cash flow before extraordinary item 9,44,965 Insurance claim recovery (major fire settlement) 1,00,000 Net cash from operating activities 10,44,965 6. Income and Expenditure Account of Nanoo club for the year ended 31stMarch, 2009 Expenditure Amount Income To Salaries (W.N.8) 1,28,000 By Subscriptions (W.N.2) To Printing and stationery 70,000 By Entrance donation (W.N.3) To Postage 40,000 By Interest (W.N.4) To Telephone & Fax 52,000 By Miscellaneous income To Repairs and maintenance 48,000 BY Profit from operations (W.N.6) To Glass and table linen 12,000 By Excess of expenditure over Crockery and cutlery 14,000 income transferred to capital To Garden upkeep 8,000 fund (deficit) To Membership fees 4,000 To Insurance (W.N.5) 6,000 To Electricity charges (W.N.8) 43,000 PRIME/41st ME/IPC
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Amount 1,94,750 90,000 60,000 9,000 92,000 30,250
To Loss on sale of assets (10,000 – 8,000) To Depreciation (W.N.9)
2,000 49,000 4,76,000
4,76,000
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Assets Fixed assets Stock Investment in 12% Government securities Subscription outstanding Prepaid insurance Cash Bank
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Working Notes: (1) Opening Balance Sheet as on 1stApril, 2008 Liabilities Amount ` Capital fund (Bal.Fig.) 10,29,850 Sundry creditors 1,12,000 Subscription received in advance 15,000 Entrance donation received in advance (pending membership) 1,00,000 Gratuity fund 1,50,000
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(2) Subscription Particulars Subscription received during the year Add: Outstanding subscription on 31.3.2009 Add: Received in advance as on 1.4.2008 Less: Outstanding subscription as on 1.4.2008 Less: Received in advance as on 31.3.2009 (3) Entrance Donation Particulars Entrance Donation received during the year Add: Received in advance as on 1.4.2008 Less: Refundable to Ineligible Member Less: 50% Capitalized
Interest received
PRIME/41st ME/IPC
5,00,000 7,000 2,000 2,24,000 8,000 13,92,600
Amount ` 5,00,000 3,80,000 5,00,000 12,000 1,000 10,000 3,850 14,06,850
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14,06,850
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Amount ` 4,41,000 2,10,000
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Balance Sheet of Nanoo Club as on 31stMarch, 2009 Liabilities Amount ` Assets Capital fund(W.N.10) 10,89,600 Fixed assets (W.N.9) Gratuity fund 1,50,000 Stock Sundry creditors (W.N.7) 92,000 Investments in 12% Subscription received in advance 18,000 Government securities Entrance donation refundable 20,000 Subscription outstanding Outstanding salary 8,000 Interest accrued (W.N.4) Outstanding electricity charges 15,000 Bank Cash 13,92,600
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Amount ` 2,02,750 7,000 15,000 2,24,750 (12,000) (18,000) 1,94,750 Amount ` 1,00,000 1,00,000 2,00,000 20,000 1,80,000 90,000 90,000
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Particulars Amount ` Interest on INR.5,00,000 @ 12% p.a. 60,000 Less: Interest received during the year 58,000 Interest accrued as on 31.3.2009 2,000 Interest credited to Income and Expenditure A/c 60,000 (5) Insurance Particulars Amount ` Insurance paid During the year 5,000 Add: Prepaid Insurance as on 1.4.2008 1,000 6,000 (6) Profit from Operations Particulars Amount ` Cost of Goods sold Opening Stock as on 1.4.2008 3,80,000 Add: Purchases 15,00,000 18,80,000 Less: Closing Stock 2,10,000 Cost of Goods Sold (A) 16,70,000 Receipts from operations Receipts from Coffee Room 10,70,000 Receipts from Wines & Sprits 5,10,000 Receipts from Swimming Pool 80,000 Receipts from Tennis Court 1,02,000 Total of Receipts (B) 17,62,000 Profit from Operations (B-A) 92,000 (7) Sundry Creditor Particulars Amount ` Opening Balance as on 1.4.2008 1,12,000 Add: Purchases made during the year 15,00,000 16,12,000 Less: Payment made during the year 15,20,000 Closing Balance as on 31.3.2009 92,000 (8) (a) Salary Particulars Amount ` Salary paid as on 31.3.2009 1,20,000 Add: Outstanding Salary as on 31.3.2009 1,28,000 8,000 (b) Electricity charge Particulars Amount ` Electricity paid during the year 2008-09 28,000 Add: Outstanding Electricity charges as on 31.3.2009 43,000 15,000 (9) Fixed Asset Particulars Amount ` Fixed Assets as per Trial Balance 5,00,000 Less: W.D.V. of Assets sold 10,000 4,90,000 Less: Depreciation @ 10% on INR.4,90,000 Fixed Assets as on 31.3.2009 49,000 4,41,000 PRIME/41st ME/IPC
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(10) Capital fund Particulars Capital fund as on 31.3.2008 Add: Entrance donation capitalized
Amount ` 10,29,850 90,000 11,19,850 30,250 10,89,600
Less: Deficit
7.
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a) In modern time, computerized accounting systems are used in various areas. The significance of the computerized accounting system is as follows: 1) Increase speed, accuracy and security - In computerized accounting system, the speed with which accounts can be maintained is several fold higher. Besides speed, level of accuracy is also high in computerized accounting system. 2) Reduce errors - In computerized accounting, the possibilities of errors are also very less unless some mistake is made while recording the data. 3) Immediate information - In this system, with an entry of a transaction, corresponding ledger posting is done automatically. Hence, trial balance will also be automatically tallied and the user will get the information immediately. 4) Avoid duplication of work - Computerized accounting systems also remove the duplication of the work.
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b) The following are the points of distinction between (i) the pooling of interests method and (ii) the purchase method of recording transactions relating to amalgamation: 1) The pooling of interests method is applied in case of an amalgamation in the nature of merger whereas purchase method is applied in the case of an amalgamation in the nature of purchase. 2) In the pooling of interests method all the reserves of th transferor company are also recorded by the transferee company in its books of account while in the purchase method the transferee company records in its books of account only the assets and liabilities taken over, the reserves, except the statutory reserves, of the transferor company are not aggregated with those of the transferee company. 3) Under the pooling of interests method, the difference between the consideration paid and the share capital of the transferor company is adjusted in the general reserve or other reserves of the transferee company. Under the purchase method, the difference between the consideration and net assets taken over is treated by the transferee company as goodwill or capital reserve. 4) Under the pooling of interests method, the statutory reserves are recorded by the transferee company like all other reserves without opening amalgamation adjustment account. In the purchase method, while incorporating statutory reserves the transferee company has to open amalgamation adjustment account debiting it with the amount of the statutory reserves being incorporated. c) Depreciation per year = INR.60,000 / 10 = INR.6,000 Depreciation on SLM charged for three years= INR.6,000 x 3 years = INR.18,000 Book value of the Computer at the end of third year = INR.60,000 – INR.18,000= INR.42,000. Remaining useful life as per previous estimate = 7 years Remaining useful life as per revised estimate = 5 years Depreciation from the fourth year onwards = INR.42,000 / 5 = INR.8,400 per annum
d) Calculation of Average Due Date PRIME/41st ME/IPC
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(Taking 4thAugustas the base date) Date of Bill Term Due Date
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Amount No. of days from the ` base date i.e. 4th August 12thMay 3 months 14th August 44,000 10 10th June 4months 13th October 45,000 70 1st July 1 month 4th August 14,000 0 19th July 2 months 23th September 17,000 50 1,20,000 Average due date= Base date + Days equal to = Total of products Total amount = 4th August + ` 44,40,000 1,20,000 = 4th August + 37 days = 10thSeptember
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Product ` 4,40,000 31,50,000 0 8,50,000 44,40,000
SATA No. of Pages: 2 No of Questions: 7
Total Marks: 100 Time Allowed: 3 Hrs Qn. No. 1 is compulsory Attempt any five questions from the remaining six questions.
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a) X transferred his house to his daughter M by way of gift. The gift deed, executed by X, contained a direction that M shall pay a sum of ` 5,000 per month to N (the sister of the executants). Consequently M executed an instrument in favour of N agreeing to pay the said sum. Afterwards, M refused to pay the sum to N saying that she is not liable to N because no consideration had moved from her. Decide with reasons under the provisions of the Indian Contract Act, 1872 whether M is liable to pay the said sum to N. b) State the reasons for accepting the change in the present management set-up of the corporate culture in a business organization. c) State with reasons whether the following is true or false: (i) Employment discrimination is treating one person better than another (3 Marks) (ii) Under consensus, not everyone agrees to the proposal (2 Marks) d) Write a letter to bank requesting to provide statements of salary accounts of three months i.e. from 1st January 2015 to 31st March, 2015. (4 x 5 = 20 Marks) 2.
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a) Point out with reasons whether the following agreements are valid or void: (i) Kamala promises Ramesh to lend ` 50,000 in lieu of consideration that Ramesh gets Kamala's marriage dissolved and he himself marries her. (ii) Sohan agrees with Mohan to sell his black horse. Unknown to both the parties, the horse was dead at the time of agreement. (iii) Ram sells the goodwill of his shop to Shyam for ` 4,00,000 and promises not to carry on such business forever and anywhere in India. (iv) In an agreement between Prakash and Girish, there is a condition that they will not institute legal proceeding against each other without consent. (8 Marks) b) A retailer was purchasing goods regularly from XYZ Ltd. for the purpose of resale. There were defects in the goods in one of the purchase lot and as a result the retailer suffered loss of his share in competition. The retailer sued the said company for this reason. The company contended that the goods were purchased for the purpose of resale and therefore, not bound. Is it a valid contention? Explain clearly the provisions of the Competition Act, 2002 in this Regard (4 Marks) c) Groups are basic building block of organization. Can you explain the various characteristics of group personality? (4 Marks) a) Peter is working as a salesman in a company on salary basis. The following payments were made to him by the company during the previous financial year– (i) overtime allowance, (ii) dearness allowance (iii) commission on sales (iv) employer’s contribution towards pension fund (v) value of food. Examine as to which of the above payments form part of “salary” of Peter under the provisions of the Payment of Bonus Act, 1965. (4 Marks) b) Section 4 of the Payment of Gratuity Act, 1972 stipulates the manner in which the amount of gratuity payable to an employee will be calculated. Explain (4 Marks) c) Communication may be informal too. Rumour mill is also a form of communication. Explain (4 Marks)
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d) State with reasons whether the following is true or false: (i) Corporate citizenship means extent to which business meets legal, ethical and economic responsibilities (ii) A finance and accounting professional need not bother about conflict of interest (2 x 2 = 4 Marks) 4. a) An allottee of shares in a Company brought action against a Director in respect of false statements in prospectus. The director contended that the statements were prepared by the promoters and he has relied on them. Is the Director liable under the circumstances? Decide referring to the provisions of the Companies Act, 2013. (8 Marks) b) State in brief the guidelines for managing ethics and to prevent the need for whistle-blowing in the work place. (4 Marks) c) “Importance of communication is increasing day-by-day in the business organizations”. State the reasons for this increasing importance. (4 Marks) 5.
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a) Bal Bharti executed a promissory note in favour of Kulbhushan for ` 1 crore. The said amount was payable three days after sight. Kulbhushan, on maturity, presented the promissory note on 1st January, 2015 to Bal Bharti. Bal Bharti made the payments on 4 th January, 2015. Kulbhushan wants to recover interest for one day from Bal Bharti. Advise Bal Bharti, in the light of provisions of the Negotiable Instruments Act, 1881, whether he is liable to pay the interest for one day? (8 Marks) b) Two or more Hindu joint families decided to form partnership and carry out a non-banking business. Total number of members in the partnership is 25 and 4 are minors. Does it contravene provisions of the Companies Act, 2013? Comment. (4 Marks) c) Fairness and honesty are at the heart of business ethics and relate to the general values of decision makers. Discuss. (4 Marks)
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a) Asswin Ltd. is a public limited company, incorporated under the CompaniesAct, 1956. The Board of directors of the said company has recently decided to insert an article in its articles of association relating to expulsion of a member by the Board of directors of the company where the directors were of the view that the activities or conduct of such a member was detrimental to the interestsof the company. Is the Board’s decision valid in the eye of law? (8 Marks) b) Is the amount standing to the credit of a member of the Provident Fund attachable in the execution of decree or order of the Court? Examine the law, on this point, laid down in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. (4 Marks) c) Critical thinking means questioning every step of your thinking process. How do you develop these skills? (4 Marks) 7. Answer any four out of the following: a) The last General Meeting was conducted by the Chairman on 12th August, 2014. Thereafter, on 19th August, 2014, the Chairman died, before the minutes of the said meeting could be signed. In such an eventuality, how are the minutes book to be dated and signed? Discuss in terms of the provisions of the Companies Act, 2013. b) Which one of the following required ordinary resolution? Explain 1. to change the name of the company 2. to alter the articles of association 3. to reduce the share capital 4. to declare dividends. c) A company should file its annual return within six months of the closing of the financial year. Comment d) What are the ethical dilemmas in communication. e) what are the elements which create discrimination in employment in the business organizations. (4 x 4 = 16 Marks) PRIME/41st ME/IPC
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PRIME ACADEMY 41st SESSION MODEL EXAM - IPC – LAW ETHICS AND COMMUNICATION SUGGESTED ANSWERS 1. a) As per Section 2(d) of the Indian Contract Act, 1872, it is not necessary that consideration must be move from promisor only, thus it may be moved by any other person including a stranger to the transaction. The problem is based on a case of "Chinnava v Ramawa" is which the Court clearly observed that the consideration need not necessarily move from the party itself, it may move from any person. Thus M is liable to pay the said sum to N and cannot deny her liability on the ground that consideration did not move from N.
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b) Generally, people resist change in an organization. Even after there are some people who accept or welcome change due to the following reasons: (i) Personal Gain: People will be more likely to accept change when they see the possibility that they will gain in some of the following areas: Increased security Money More authority Status/Prestige Better Working Conditions Self-Satisfaction Better Personal Contracts Less time and efforts (ii) Other factors: Provide a new challenge Respects/like the source Likes the way change is being communicated Reduces boredom Provides opportunity for input Improve future Perception, that the change is necessary. c)
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(i) True. The root meaning of the term discriminate is “to distinguish one object from another “ Employment discrimination is treating one person better than another because of their age, gender, race, religion or other protected class of status. Discrimination in employment is wrong because it violates the basic principle of equality. Discrimination is to treat people differently. It is usually intended to refer to the wrongful act of making a difference in treatment or favour on a basis other than individual merit. (ii) False: Consensus means overwhelming agreement. Most consensus building efforts set out to achieve unanimity. The key indicator of whether or not a consensus has been reached is that everyone agrees with the final proposal and it is important that consensus be the product of a goodfaith effort to meet the interests of all stakeholders. Thus, consensus requires that someone frame a proposal after listening carefully to everyone's interests.
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d) Letter to bank requesting to provide statements of salary accounts for the three months (from 1st of January, 2015 to 31st of March, 2015) To, The Manager, Axis Bank, Delhi Reg: Statement of Salary A/C no ……… from 1st of January, 2015 to 31st of March, 2015 Dear Sir, As you aware that I, have been maintaining a salary account with your esteemed organization for the last ten years and also all our family deposits are with this branch. I, am in need of statement of my salary accounts of the above mentioned period.
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I, hereby request you to provide the statement at an earliest.
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Thanking you. Yours faithfully, (Mr. X) (Customer)
a)
Void Agreement: As per Section 23 of the Indian Contract Act, 1872 an agreement is void if the object or consideration is against the public policy. (ii) Void Agreement: As per Section 20 of the Indian Contract Act, 1872 the contract caused by mistake of fact are void. There is mistake of fact as to the existence of subject-matter. (iii) Void agreement: As per Section 27 of the Indian Contract Act, 1872 an agreement in restraint of trade is void. However, a buyer can put such a condition on the seller of good will, not to carry on same business. However, the conditions must be reasonable regarding the duration and the place of the business. (iv) Void agreement: An agreement in restraint of legal proceedings is void as per Section 28 of the Indian Contract Act, 1872.
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(i)
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b) The problem as asked in the question is based on the provisions of Section 2(f) of the Competition Act, 2002. The Section provides that “consumer” means any person who buys any goods for a consideration which has been paid or promised or partly paid or partly promised or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised or under any system of deferred payment when such use is made with the approval of such person whether such purchase of goods is for resale or for any commercial purpose or for personal use. Hence Section 2(f) of the Competition Act, 2002 provides that whether purchase of goods is for resale or for any commercial purpose or for personal use, the purchaser is a consumer. Thus consumer will also include a person who purchases goods for re-sale. Therefore the contention of XYZ Ltd. is not valid and not tenable. c) Following are the characteristics of group personality: (i) Spirit of Conformity: Individual members soon come to realize that in order to gain recognition, admiration and respect from others they have to achieve a spirit of conformity. Our beliefs, opinions, and actions are influenced more by group opinion than by an individual’s opinion, even if it is an expert’s opinion. (ii) Respect for group values: Any working group is likely to maintain certain values and ideals which make it different from others. In order to deal effectively with a group we must understand its values which will guide us in foreseeing its programmes and actions. PRIME/41st ME/IPC
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(iii) Resistance to change: It has been observed that a group generally does not take kindly to social changes. On the other hand the group may bring about its own changes, whether by dictation of its leader or by consensus. The degree to which a group resists change serves as an important index of its personality. It helps us in dealing with it efficiently. (iv) Group prejudice: Just as hardly any individual is free from prejudice, groups have their own clearly evident prejudices. It is a different matter that the individual members may not admit their prejudiced attitude to other’s race, religion, nationality etc. But the fact is that the individual’s prejudices get further intensified while coming in contact with other members of the group holding similar prejudices. (v) Collective power: It need not be said that groups are always more powerful than individuals, how so ever influential the individual may be. That is why individuals may find it difficult to speak out their minds in groups. There is always the risk of the one-against many situation cropping up. 3.
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a) Computation of Salary / Wages: According to Section 2(21) of the Payment of Bonus Act, 1965 salary and wages means all remuneration other than remuneration in respect of overtime work, capable of being expressed in terms of money, which would if the terms of employment, express or implied, were fulfilled, be payable to an employee in respect of his employment, or of work done in such employment and includes dearness allowance, i.e. all cash payment by whatever name called, paid to an employee on account of a rise in the cost of living. But the term excludes: (i) Any other allowance which the employee is for the time being entitled to; (ii) The value of any house accommodation or of supply of light, water, medical attendance or other amenities of any service or of any concessional supply of food grains or other articles; (iii) Any traveling concession; (iv) Any bonus including incentive, production or attendance bonus; (v) Any contribution paid or payable by the employer to any pension fund or for benefit of the employee under any law for the time being in force. (vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex-gratia payment made to him; and (vii) Any commission payable to the employee. It has been clarified in the explanation to the section that where an employee is given, in lieu of the whole or part of the salary or wage payable to him, free food allowance or free food by his employer, such food allowance or the value of such food shall be deemed to form part of the salary or wage for such employee. In view of the provisions of Section 2(21) explained above, the payment of dearness allowance and value of free food by the employer forms part of salary of Prakash Chandra while remaining three payments i.e. payment for overtime, commission on sales and employer’s contribution towards pension funds shall not form part of his salary.
(i)
In the establishments other than seasonal establishments- the employer shall pay the gratuity to an employee at the rate of 15 days wages based on the rate of wages last drawn by the employee concerned for every completed year of service or part thereof in excess of 6 months. In case of piece- rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account.
(ii) In case of an employee who is employed in a seasonal establishment can be classified into two groups Those who work throughout the year & Who work only during the season? PRIME/41st ME/IPC
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The former who are the monthly rated employee are entitled to get the gratuity at the rate of 15 days wages for every completed year of service or part thereof in excess of six months. The later are, however, entitled to receive gratuity at the rate of seven days’ wages for each season. In case of a monthly rated employee; the fifteen days’ wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen. Computation of Gratuity of disabled employee : [Section 4(4)] When an employee becomes disable due to any accident or disease and is not in a position to do the same work and re-employed on reduced wages on some other job, the gratuity will be calculated in two parts For the period preceding the disablement: on the basis of wages last drawn by the employee at the time of his disablement. For the period subsequent to the disablement: On the basis of the reduced wages as drawn by him at the time of the termination of services.
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c) Communication may be oral or written for direct contact. It may be informal also. The “Grapevine” is one of the recognized channels of informal communication. According to human psychology, a person likes to form and move in groups. They interact on serious and non- serious issues and they spread it fast whether the information is correct or not. This process is known as rumour mill. The larger the organization, the more active is the rumour mill. The phenomenon of grapevine is based on generally three factors, namely: (1) formation of favoured group (2) lack of self confidence and, (3) feeling of uncertainty due to lack of directions. Four kinds of the grapevine chains have been identified and they are: (i) Single Strand Chain, which is the least accurate in passing on the information or message. (ii) Gossip Chain, which is often used when information or a message regarding ‘not-on-job’ nature is being conveyed. (iii) Probability Chain is used when information is somewhat interesting but not really significant. (iv) Cluster Chain, which acts as liaison and spreads information with the greatest speed.
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(i) True. The term corporate citizenship denotes the extent to which businesses meet the legal, ethical, economic and voluntary responsibilities placed on them by their stakeholders. Companies can best benefit their stakeholders by fulfilling their economic, legal, ethical, and discretionary responsibilities. (ii) False. various accounting scandals witnessed during the past few years have put a serious question mark on the role of the finance and accounting professional in providing the right information for decision making both within and outside their respective organizations. As these finance and accounting professionals are in public practice, they should take reasonable steps to identify circumstances that could pose the conflict of interest and thus leading to follow unethical behavior. 4. a) Yes, the Director shall be held liable for the false statements in the prospectus under sections 34 and 35 of the Companies Act, 2013. Whereas section 34 imposes a criminal punishment on every person who authorizes the issue of such prospectus section 35 more particularly includes a director of the company in the imposition of liability for such mis statements. The only situations when a director will not incur any liability for mis statements in a prospectus are as under: (i) No criminal liability under section 34 shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary. (ii) No civil liability for any mis statement under section 35 shall apply to a person if he proves that:
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Having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or The prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent. Therefore, in the present case the director cannot hide behind the excuse that he had relied on the promoters for making correct statements in the prospectus. He will be liable for mis statements in the prospectus.
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b) Managing ethics and preventing whistle-blowing: The focus on core values and sound ethics, the hall mark of ethical management, is being recognized as an important way to ensure the long term effectiveness of governance structures and procedures and to avoid the need for whistle blowing. Employers, who understand the importance of work place ethics, provide their work force with an effective framework and guiding principles of identity and address ethical issues as they arise. These guidelines for managing ethics and to avoid the need for whistle-blowing in the work place may be summarized as follows:(i) Have a Code of Conduct and ethics. (ii) Establishment open communication. (iii) Make ethical decisions in group and make decision public whenever appropriate. (iv) Integrate ethics with other management practices. (v) Use of cross functional teams when developing and implementing the ethics management programme. (vi) Appointing an ombudsman. (vii) Creating an atmosphere of trust.
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c) The importance of communication in the industrial organization has increased immensely in these days. The following factors are responsible for the growing importance of communication: (i) Growth in the size and multiple locations of organizations: Most of the organizations are growing larger and larger in size. The people are working in the country and abroad, of these organizations. Keeping in touch, sending directions across and getting feedback is possible only when communication lines are kept working effectively. (ii) Growth of trade unions: Over the last so many decades, trade unions have been growing strong. No management can be successful without taking the trade unions into confidence. Effective communication will create relationship between the management and the workers. (iii) Growing importance of human relations: Workers in an organization are not like machines. They have their own hopes and aspirations. Management has to recognize them and should work with the spirit of integration so that human relations may be maintained. This may only be achieved though effective communication. (iv) Public relations: Every organization has a social responsibility towards customers, government, suppliers and the public at large. Communication is the only way an organization can project a positive image of itself. (v) Advances in behavioral sciences: Modern management is deeply influenced by exciting discoveries made in behavioral sciences like psychology, sociology, transactional analysis etc. All of them throw light on suitable aspects of human nature and help in developing a positive attitude towards life and building up meaningful relationship. This is possible only through communication. (vi) Technological advancement: The world is changing very fast, owing to scientific and technological advancements. These advancements deeply affect not only the methods of work but also the compositions of groups. In such a situation, proper communication between superiors and subordinates becomes very necessary.
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5. a) Claim of Interest: Section 24 of the Negotiable Instruments Act, 1881 states that where a bill or note is payable after date or after sight or after happening of a specified event, the time of payment is determined by excluding the day from which the time begins to run. Therefore, in the given case, Bal Bharti will succeed in objecting to Kulbhushan’s claim. As Bal Bharti paid rightly “three days after sight” which was 4th January. Since the bill was presented on 1st January, Bal Bharti was required to pay only on the 4th and not on 3rd January, 2015 as contended by Bal Bharti.
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b) As provided in section 464 of the Companies Act, 2013, no association or partnership consisting of more than such number of persons as may be prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in force. The number of persons shall not exceed 50, as per Rule 10 of Companies (Miscellaneous) Rules, 2014. This shall not apply to (a) a Hindu undivided family carrying on any business; or (b) an association or partnership, if it is formed by professionals who are governed by special Acts. Since the number of adults are below 50, hence it does not contravene the provisions of Companies Act, 2013.
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c) Mainly ethical issues can be categorized in the framework of their relation with business associates, conflicts of interest, fairness and honesty, and communications. Fairness and honesty are at the heart of business ethics and relate to the general values of decision makers. At a minimum, businesspersons are expected to follow all applicable laws and regulations. But beyond obeying the law, they are expected not to harm customers, employees, clients, or competitors knowingly through deception, misrepresentation, coercion, or discrimination. One aspect of fairness and honesty is related to disclosure of potential harm caused by product use. For example, Mitsubishi Motors, a Japanese automaker, faced criminal charges and negative publicity after executives admitted that the company had systematically covered up customer complaints about tens of thousands of defective automobiles over a 20-year period in order to avoid expensive and embarrassing product recalls. Another aspect of fairness relates to competition. Although numerous laws have been passed to foster competition and make monopolistic practices illegal, companies sometimes gain control over markets by using questionable practices that harm competition. Rivals of Microsoft, for example, accused the software giant of using unfair and monopolistic practices to maintain market dominance with its internet Explorer browser.
a) The Ministry of Corporate Affairs while clarifying as to whether a public limited company had powers to insert an article in its Articles of Association relating to expulsion of a member by the Board of Directors of the company had stated that an article for expulsion of a member is opposed to the fundamental principles of the Company Jurisprudence and is ultra vires the company. Such a provision is against the provisions of the Companies Act relating to the rights of a member in a company, the powers of the Central Government as an appellate authority under Section 111 of the Act and the powers of the Court under Sections 107, 395 and 397 of the Companies Act. According to Section 9 of the Companies Act, the Act overrides the Memorandum and Articles of Association and any provision contained in these documents repugnant to the provisions of the Companies Act, is void. The Ministry of Corporate Affairs has, therefore, clarified that any assumption of the powers by the Board of Directors to expel a member by alteration of Articles of Association shall be illegal and void. Considering the above-mentioned clarification, the Board’s decision of Asswin Ltd. is invalid in the eyes of law.
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b) As per Section 10 of the Employees’ Provident Funds and Miscellaneous Provisions Act,1952, the amount standing to the credit of any member in the fund or of any exempted employee in a provident fund shall not in any way be capable of being assigned or charged and shall not be liable to attachment under any decree or order of any court in respect of any debt or liability incurred by the member or exempted employee, and neither the official assignee appointed under the Presidency Town Insolvency Act,1909, nor any receiver appointed under the Provincial Insolvency Act,1920, shall be entitled to or have any claim on, any such amount. This protection also applies to provident fund, pension and insurance amount receivable by employee under the scheme. The amount standing to the credit of the person at the time of his death is payable to his nominees under the scheme or the rules under this Act. Further, the amount shall be free from any debt or other liability incurred by the deceased or the nominee before the death of the member or of the exempted employee and shall also not be liable to attachment under any decree or order of any Court. (Section 10, EPF & MP Act, 1952).
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c) Critical thinking is the discipline of rigorously and skillfully using information, experience, observation and reasoning to guide your decisions, actions and beliefs. Critical thinking means questioning every step of your thinking process: Have you considered all the facts? Have you tested your assumptions? Is your reasoning sound? Can you be sure your judgment is unbiased? Is your thinking process logical, rational and complete? This kind of rigorous, logical questioning is often known as Socratic questioning, after the Greek Socrates who is considered to be the founder of critical thinking. By developing the skills of critical thinking, and bringing rigour and discipline to your thinking processes, you stand a better chance of being “right” , likely to make good judgments, choices and decisions in all areas of your life. This is an important part of "success" and "wisdom". To do this effectively, you need to develop skills to: Analyze Cause and Effect: You must be able to separate the motive or reason for an action or event (the cause) from the result or outcome (the effect). Classify and Sequence: You must be able to group items or sort them according to similar characteristics. Compare and Contrast: You must be able to determine how things are similar and how they are different. Infer: You must be skilled in reasoning and extending logic to come up with plausible options or outcomes. Evaluate: You must be able to determine sound criteria for making choices and decisions. Observe: You must be skilled in attending to the details of what actually happened. Predict: You must be able to finding and analyze trends, and extend these to make sensible predictions about the future. Rationalize: You must be able to apply the laws of reason (induction, deduction, analogy) in to judge an argument and determine its merits. Prioritize: You must be able to determine the importance of an event or situation and put it in the correct perspective. Summarize: You must be able to distill a brief report of what happened or what you have learned. Synthesize: You must be able to identify new possible outcome by using pieces of information that you already know. 7. a) Section 118 of the Companies Act, 2013 provides that every company shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the requisitionists and all proceedings of meeting of any class of share holders or creditors or Board of Directors or committee of the Board and also resolution passed by postal ballot within thirty days of the conclusion of every such meeting concerned. Minutes kept shall be evidence of the proceedings recorded in a meeting. By virtue of Rule 25 of the Companies (Management and Administration ) Rules 2014 read with section 118 of the Companies Act, 2013 each page of every such book shall be initialed or signed and the last page of the record of proceedings of each meeting or each report in such books shall be dated and signed PRIME/41st ME/IPC
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by, in the case of minutes of proceedings of a general meeting, by the chairman of the same meeting within the aforesaid period of thirty days or in the event of the death or inability of that chairman within that period, by a director duly authorized by the Board for the purpose. Therefore, the minutes of the meeting referred to in the case given above can be signed in the absence of Mr V/ on death of the chairman, by any director who is authorized by the Board. b) To declare dividends; Declaration of dividend is one of the ordinary businesses transacted at every Annual General Meeting of the company Members may at an AGM declare dividend by ordinary resolution.
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c) Every company shall file a copy of the annual return with the Registrar. If AGM is heldFile AR within 60 days from the date on which the AGM is held or If no AGM is held in any yearFile AR within 60 days from the date on which the AGM should have been held together with the statement specifying the reasons for not holding the AGM with such fees or additional fees as may be prescribed, within the time as specified, under section 403.
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Maintain candour: Candour refers to truthfulness, honesty, frankness and one should stick to these elements while communicating with others. Keep message accurate: At the time of relaying information from one source to another, communicate the original message as accurately as possible. Secrecy: One has to maintain secrecy and confidence in communication. So one should not divulge such information to others Ensure timeliness of communication: The timing of messages can be critical. Delay in sending messages can be assumed unethical. Avoid deception: Ethical communicators are always vigilant in their quest to avoid deception, fabrication, intentional distortion or withholding of information in their communication. Confront unethical behaviour: One must confront an unethical behaviour in order to ensure a consistent ethical view point.
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e) Elements of Discrimination: Generally, the discrimination means to distinguish one object from another or treating people differently. It is usually intended to refer to the wrongful act of making a difference in treatment or favour on a basis other than individual merit. Such discrimination may also be related in employment in business organization. The elements which create discrimination may be summarized as follows: (i) If the decision against one or more employees is taken which is not based on individual merit, such as the ability to perform a given job, seniority or other morally legitimate qualification. (ii) If the decision has been derived solely from racial or sexual prejudice, false stereotypes other kind of morally unjustified attitude against members of which the employee belongs. (iii) If the decision has a harmful or negative impact on the interests of the employees, perhaps costing them jobs, promotions or better pay. Discrimination in employment is wrong because it violates the basic principle of justice by differentiating between people on the basis of characteristics (race or sex) that are not relevant to the tasks they must perform. Looking to these aspects law has also been changed to conform to these moral requirements and to minimize the discrimination in employment in this respect.
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MATA No. of Pages: 5 No of Questions: 7
Total Marks: 100 Times Allowed: 3 Hrs
Question No. 1 is compulsory Answer any five questions from the remaining six questions Wherever necessary suitable assumptions should be made by the candidates Working notes should form part of answer 1. a) In a certain week, the time allowed to a worker for Job X was 48 hours He took 30 hours for the job. If the hourly effective rate of earnings under the Rowan plan was ` 55, Find the normal hourly rate of wages. Using the same normal hourly wage rate, compute wages of the worker under Halsey plan.
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b) From the following particulars furnished by M/s. Starlight Co. Ltd. find out: (i) Material cost variance; (ii) Material usage variance and (iii) Material price variance. Value of Material purchased : ` 9,000 Quantity of Material purchased : 3,000 units Standard quantity of materials required per tonne of finished product : 25 units Standard rate of material : ` 2 per unit Opening Stock : Nil Closing Stock of material : 500 units Finished production during the period : 80 tonnes
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c) Mahalaxmi Limited is required to choose between two machines M1 and M2. The two machines are designed differently, but have identical capacity and do exactly the same job. Machine M1 costs `1,50,000 and will last for 3 years It costs `40,000 per year to run. Machine M2 costs ` 1,00,000, but will last only for 2 years, and costs `60,000 per year to run. Ignore tax. Opportunity cost of capital is 10 per cent. Which machine should Mahalaxmi Limited buy? Present value Of Re1 at 10% compounded annually : Years 1 2 3 Factor 0.909 0.826 0.751 d) A Beta Limited is into manufacturing. It has an expected usage of 50,000 units of certain product during the next year. The cost of processing an order is ` 20 and the carrying cost per unit is `0.50 for one year. Lead time on an order is five days and the company will keep a reserve supply of two days’ usage. You are required to calculate: (i) The economic order quantity and (ii) The re-order point. (Assume 360 days in a year). (4 x 5= 20 Marks) 2. a) Thara travels to work by train to her 5–day week job. Instead of buying daily tickets she finds it cheaper to buy a quarterly season ticket which costs ` 188 for 13 weeks. Deepa, an acquaintance, who also makes the same journey, suggests that they both travel in Thara’s car and offers to give her ` 120 each quarter towards her car expenses. Except for weekend travelling and using it for local college attendance near her home on three evening each week to study for her CA IPC , the car remains in Thara’s garage.
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Thara estimates that using her car for work would involve her, each quarter, in the following expenses: ` Depreciation (proportion of annual figure) 200 Petrol and oil 128 Tyres and miscellaneous 52 You are required to state whether Thara would accept Deepa’s offer and to draft a statement to show clearly the monetary effect of your conclusion.
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60,00,000 (53,80,000) 6,20,000 (20,000) 6,00,000 (2,03,940) 3,96,060
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Sales Less : Cost Profit before interest and tax (PBIT) Less : Interest Profit before tax (PBT) Less : Income-tax @ 33.99% Profit after tax (PAT)
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b) Upper India Ltd. is to decide between debt funding and equity funding for its expansion programme. Its current position is as under : ` 5% Debt 4,00,000 Equity capital (`10 per share) 10,00,000 Surplus 6,00,000 Total capitalisation 20,00,000
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The expansion programme is estimated to cost ` 10,00,000. If it is financed through debt, the rate of interest on new debt will be 7% and the price earnings (P/E) ratio will be 6 times. If the expansion programme is financed through fresh equity shares, the new shares can be sold netting ` 25 per share and the P/E ratio will be 7 times. The expansion will generate additional sales of ` 20,00,000 with after tax return of 5%. If the company is to follow a policy of maximizing the market value of its shares, which form of financing should it choose and why? (2 x 8= 16 Marks) 3. a) Richa Industries engaged in manufacturing Lunch Boxes is working to 50% capacity and produces 15,000 Lunch Boxes per annum. The present cost break up for one Lunch Box is as under: Material ` 25; Labour ` 20 and Overhead ` 15 (60% variable). The selling price is ` 75 per Lunch Box. If it is decided to work at 60% capacity, the selling price falls by 2%. At 80% capacity, the selling price falls by 10% accompanied by a similar fall in the price of material but labour rate increases by 10%. You are required to find out the most profitable capacity level amongst 50%, 60% and 80% capacity levels and also calculate the Break-even Point (in units) at above said levels.
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40% 25% 10% 10% 2.50% 12.50% 100%
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Break-up of Cost & Profit: Materials Labour 25% Manufacturing Expenses Depreciation on Plant Office & Selling Expenses Operating Profit Sales
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b) From the following information, prepare Trading and Profit and Loss Account: Debt-Equity Ratio (Long-term Debt/Shareholders’ Funds) 2:1 Capital Gearing Ratio (Funds bearing fixed payments to Equity 3:1 Shareholder’s Funds) 15% Long-term Debts ` 8,00,000 Return on Equity Shareholder’s Funds 25% Tax Rate 50% 15%Preference Share Capital ?
(2 x 8 = 16 Marks)
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a) From the following information relating to Process I of a factory for the month of April 2015, prepare the statement of equivalent production, statement of cost, statement of evaluation and Process Account, using average Cost method; ` (i) Opening work in progress : 500 units Materials 27,000 ` Labour 8,000 ` Overheads 12,500 47,500
(iv) (v)
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Cost incurred during April 2003: ` Input of materials: 14,000 units 5,74,750 ` Labour 1,19,300 ` Overheads 1,78,450 Process loss: Normal loss: 10% Value of scrapped unit: ` 10 each. Actual loss during April 2003: 1,500 units Degree of completion: Materials 100%, Labour and Overheads 60%. Closing work in progress: 1,000 units Degree of completion: Materials 100%, Labour and Overheads 70%. Processed units transferred to Process II: 12,000 units during April 2015.
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b) As on 1st April, 2014 and 31st March, 2015, the balance sheets of Vishnu were as follows : Liabilities 1.04.2014 (`) 31.03.2015 (`) Creditors 40,000 44,000 Mrs Vishnu’s loan 25,000 — Loan from Union Bank 40,000 50,000 Capital 1,25,000 1,53,000 TOTAL 2,30,000 2,47,000 PRIME/41st ME/IPC
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Assets Cash Debtors Stock Machinery Land Building TOTAL
10,000 30,000 35,000 80,000 40,000 35,000 2,30,000
7,000 50,000 25,000 55,000 50,000 60,000 2,47,000
During the year, a machine costing ` 10,000 (accumulated depreciation ` 3,000) was sold for ` 5,000. The balance of provision for depreciation against machinery as on 1st April, 2007 was ` 25,000, and on 31st March, 2008 it was ` 40,000. Net profit for the year 2007-08 amounted to ` 45,000. You are required to prepare the Funds flow Statement. (2 x 8= 16 Marks)
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5.
A Limited is engaged in the production of Sugar. While producing sugar, molasses is also produced. Molasses is identified as a by-product of sugar. Suggest 2 treatments of molasses in the cost accounts of A limited. b) Distinguish between cost allocation and absorption c) High Vision Ltd. has current sales of `20,00,000. The company is planning to introduce a cash discount policy of 2/10, net 30. As a result, the company expects the average collection period to go down by 10 days and 80% of the sales opt for the cash discount facility. If the company’s required return on investment in receivables is 20%, should it introduce the new discount policy. d) Write a short note on inter relationship between the investing, financing and dividend decisions. (4 x 4 =16 Marks)
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a) An amount of ` 19,80,000 was incurred on a contract work up to 31.3.2015. Certificates have been received to date to the value of ` 24,00,000 against which ` 21,60,000 has been received in cash. The cost of work done but not certified amounted to ` 45,000. It is estimated that by spending an additional amount of ` 1,20,000 (including provision for contingencies) the work can be completed in all respects in another two months. The agreed contract price of the work is ` 25 lakhs. Compute a conservative estimate of the profit to be taken to the profit and Loss Account and prepare the contract account. (6 Marks) b) Silver Coin Ltd. is a manufacturing company. It has received an export order of 1,80,000 units. The finance manager of the company is estimating working capital requirements for the production to meet export order. Following information is given for the year 2015-16 : Production in 2014-15 was 1,80,000 units and it is estimated that in 2015-16 the level will be maintained. Each unit will remain in process for one month. Raw material being channelized into the pipelines immediately and the labour and overhead costs accruing evenly during the month. Final production will be stored in warehouse awaiting despatch for 3 months. Credit allowed by creditors is 1.5 months from the date of delivery of raw materials. Credit permitted to debtors is 2.5 months from the date of despatch. Selling price per unit is ` 15. The expected ratios of cost to the selling price are raw material 50%, direct wages 15% and overheads 20%.
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Raw materials are expected to remain in store for an average of 1.5 months before issue to production. There is regular production and sales cycle. The company maintains ` 60,000 as cash in hand. Wages and overheads are paid on the first of each month for the previous month. (i) You are required to submit the working capital requirement to the finance manager of Silver Coin Ltd. (ii) From the above information calculate maximum permissible bank finance as per Tandon committee norms under all three methods assuming core current assets are 25% of current assets. (10 Marks)
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7. Write short notes on any four: a) Economic batch quantity b) Zero based budgeting c) Liquidity vs. Profitability in working capital management d) “Money in the future is worth less than similar money today.” Give the reasons and explain. e) Do the NPV and Profitability index criterion lead to the same acceptance rejection and ranking decisions? (4 x 4= 16 Marks)
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PRIME ACADEMY 41st SESSION MODEL EXAM - IPC - COST ACCOUNTING AND FINANCIAL MANAGEMENT SUGGESTED ANSWERS 1. a) S = 48hours T = 30 Hours Earnings per hour = ` s55 so Total earnings = 55 x 30=1,650Rs 𝑆−𝑇 Total earnings under Rowan = (𝑇 ∗ 𝑅) + ∗ (𝑇 ∗ 𝑅) 𝑠
48−30
= 30 𝑅 + (30𝑅). Solving for R, we get R = `40.(rate per hour) 48 Wages under Halsey = (𝑇 ∗ 𝑅) + 50%(𝑆 − 𝑇) ∗ 𝑅 = (30 ∗ 40) + 50%(48 − 30) ∗ 40 = ` 1560.
Material Usage Variance Material Price Variance Material Cost Variance
c)
4,000 – 5000 = 1000(A) 5000 – 7500 = 2500(A) 4000 -7500 = 3500(A)
Cash flow PVIF/AF Discounted cash flow M1 ` M2 ` M1 ` M2 ` 1,50,000 1,00,000 1 1,50,000 1,00,000 40,000 2.486 99,440 60,000 1.735 1,04,100 2,49,440 2,04,100 2.486 1.735 1,00,338 1,17,637
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Year Initial outflow Operating costs Operating costs Present value of outflows PVAF(10% Life) Equated Annual costs
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SPSQ- SPAQ SPAQ-APAQ SPSQ - APAQ
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b) AP = 9000/3000 = 3 AQ = Actual quantity consumed = Purchase +op. stock - closing stock = 3,000+0-500 = 2500Kg SP = Given ` 2 SQ = Standard quantity or actual production = 25 x 800 = 2000kg SP X SQ SP x AQ AP X AQ 2 x 2000 2 x 2500 3 x 2500 =4000 =5000 =7500
Since Equated Annual costs (EAC) of M1 is lower, Mahalaxmi Ltd should buy M1. d) Annual requirement (A)= 50,000 Ordering costs (O) = `20 Carrying cost (C) = `0.5 2
EOQ = √(
2𝐴𝑂 ) = 2000 𝐶
Safety stock = Two days usage = 277.78 i.e 278 units Reorder level = (Lead time x consumption per day) + Safety stock = 694.44 + 278 = 972units
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2. a) Quarterly expense for using car Depreciation# petrol and oil Tyres and miscellaneous Less: Share from Deepa Net cost
128 52 180 120 60
# Depreciation will be incurred even if the car is not used and hence is ignored. Decision: Since the cost of using own car (`60) is cheaper than expense of train travel (`188 per quarter), Thara should accept Deepa’s offer as it would result in net quarterly savings of `128. b) Option I ` Option II ` 4,00,000 4,00,000 10,00,000 14,00,000 6,00,000 12,00,000 10,00,000 30,00,000 30,00,000
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Capital structure after expansion: 5% Debt Equity share capital Surplus 7% Debt
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Capital structure after expansion: No: of shares issued 10L/25 = 40,000 Share capital =4L and Share Premium =`6L Sales 20 Lacs Additional Operating profit after tax 1,00,000 Therefore before tax(EBIT) 1,51,492
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EBIT (6,20,000 +1,51,492) Less: Interest EBT Less:Tax @33.99% PAT No: of shares EPS PER MPS
Option I ` Option II ` 7,51,492 7,51,492 90,000 20,000 6,61,492 7,31,492 2,24,841 2,48,634 4,36,651 4,82,858 1,00,000 1,40,000 4.37 3.45 6 7 26 24
Since debt option maximises value of shares, it should be prefered. 3. a) Particulars Selling price Less: Variable costs Materials Labour Overheads PRIME/41st /ME/IPC
50% 75
60% 73.5
80% 67.5
25 20 9
25 20 9
22.5 22 9 2
Total contribution No: of units Total contribution Fixed cost
54
54
53.5
21 15,000
19.5 18,000
14 24,000
3,15,000 90,000
3,51,000 90,000
3,36,000 90,000 #𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝. 𝑢
Break even point# i.e
4,285.71 4,286 units
4,615.38 4615 units
6,428.57 6,429 units
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b) 15% Long term debt=`8Lakhs Debt/(E +P)= 2:1 Equity+ Preference= `4 Lakhs Equity = 4L-P Capital gearing ratio =3:1 Debt +Pref / E = 3 8L + P = 3(4L –P) 4P =4 Lakhs or Preference capital is `1 Lakhs Equity share capital = `3 Lakhs Return on share holder’s funds = 25% Return to share holder = `75,000 ` Profit to Equity share holder 75,000 Add: preference dividend 15,000 (15% of 1L) PAT 90,000 PBT(PAT/50%) 1,80,000 Add: Interest 1,20,000 8L x15% EBIT : Operating profit 3,00,000 Sales (EBIT/12.50%) 24,00,000
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Fixed cost = 6 per unit x base 15,000 units = `90,000
Trading , Profit and loss a/c ` ` Materials :40% 9,60,000 By Sales 24,00,000 " Labour 25% 6,00,000 " Manufacturing Expenses 10% 2,40,000 " Depreciation on Plant 10% 2,40,000 " Gross Profit c/f 3,60,000 24,00,000 24,00,000 " Office & Selling Expenses 60,000 " Gross Profit b/f 3,60,000 " Interest 1,20,000 " Tax 90,000 " Preference dividend 15,000 " surplus to Equity shareholders 75,000 3,60,000 3,60,000
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4. a) `
Statement of input output Opening stock Input Less: closing stock Processed production Less: Normal loss 10% Expected output Actual output Abnormal loss
500 14,000 (1,000) 13,500 (1,400) 12,100 12,000 100
Labour & overheads ` 20,500 2,97,750
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Computation of cost per equivalent unit Particulars Materials ` Opening stock 27,000 Cost incurred this month 5,74,750 RP of Nloss -14,000 Total 5,87,750 Eq. Units 13,100 Cost per eq. units 44.87
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12,000 1,000 1,400 100 14,500
Labour & overheads % Eq.units 100 12,000 70 700 0 60 60 12,760
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Transfer Closing stock Normal loss Abnormal loss
% 100 100 0 100
materials Eq.units 12,000 1,000 100 13,100
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Statement of equivalent production Particulars units
3,18,250 12,760 24.94
Statement of evaluation Transfer 12000 x (44.87 +24.94) Closing stock (1000 x 44.87) + (700 x24.94) Abnormal loss (100 x 44.87) + (60 x24.94)
8,37,692 62,325 5,983
Process a/c To " " "
Opening stock Materials Labour overheads
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Units 500 14000
` 47,500 5,74,750 1,19,300 1,78,450
14,500
9,20,000
By " " "
normal loss abnormal loss Transfer Closing stock
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Units 1,400 100 12,000 1,000
` 14,000 5,983 8,37,692 62,325
14,500
9,20,000
b. Sources Funds from operation Machine sold loan taken
Funds flow statement ` 65,000 5,000 10,000
Application Land bought Building Loan repaid Drawings Wcap increase
80,000
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P&L (depn) Bank(S) P&L :Loss Bal c/d
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80,000
` 18,000 FFO
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Bal b/d
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Machinery ` 80,000 By
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Workings: (1) Statement of changes in Working capital Particulars Opening ` Closing ` Cash 10,000 7,000 Debtors 30,000 50,000 Stock 35,000 25,000 Total 75,000 82,000 Less: Creditors -40,000 -44,000 Working capital 35,000 38,000 Increase 3,000 (A)
Bal b/d P&L (b.f)
Accumulated depreciation ` 25,000 By sale 18,000 " Bal c/d
43,000 Building acquired: 60,000 - 35,000 = 25,000(A) (Depreciation no info given) Loan repaid : `25,000 (A) Increase in Bank loan : `10,000(S) Capital ` To Bank(A) 17,000 By Bal b/d (drawings) " Profit " Bal c/d 1,53,000 1,70,000
5,000 2,000 FFO 55,000 80,000
` 3,000 40,000
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To "
` 10,000 25,000 25,000 17,000 3,000 80,000
43,000
` 1,25,000 45,000 1,70,000
Funds from operation:= Profit + depreciation +loss on sale of asset = 45,000+18,000+2,000 =`65,000 (S)
PRIME/41st /ME/IPC
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5. a) Treatment of by product costs Credit the Costing P & L a/c with sales proceeds of the by product Reduce sale proceeds from total costs Compute cost attributable to by product using reverse cost method or NRV and reduce from costs. b) Cost allocation is allotting whole item of cost to cost centre and profit centre. Cost absorption is a process by which the overheads of the company are charged to the jobs on the basis of the resources which these jobs consume in the cost and profit centers c) Reduction in debtors :20L x80% x(10/360) = Rs44,444 Benefit: Interest saved on debtors reduced : `44,444 * 20% = `8,889 Cost: Cash discount: `20L x 80% x 2% = `32,000 Since cost exceeds benefit, company should not introduce discount policy. d) Investment decision is deciding whether a project should be accepted or not. Once viability is established the next decision is regarding how to finance the investment and at what cost. Once the finance is raised and investment done, it starts generating returns in due course. The next decision is whether to distribute dividends or retain and invest in the business. 6.
24,45,000 3,39,429 1,25,571 4,65,000
P & L a/c WIP Reserve
By "
work certified work uncertified
"
Notional profit b/f
AC
" "
Costs Notional profit c/f
AD
To "
EM
Contract a/c ` 19,80,000 4,65,000
Y
a) ` 24,00,000 45,000 24,45,000 4,65,000 4,65,000
PR IM
E
Estimated profits = 25Lakhs - (19.80L + 1.2L) = 4L DOC = WC/CP = 96%. CR/WC = 21.6/24=90% Since contract nearing completion: Estimated profit rule 𝐶𝑅 (1) 𝐸𝑃 ∗ 𝐷𝑂𝐶 ∗ ( )= 4L x 96% x 90% =`3,45,600 (2) 𝐸𝑃 ∗ (
𝐶𝑇𝐷 𝑇𝐶
𝑊𝐶 𝐶𝑅
)∗(
𝑊𝐶
)= 4L x (19.8/21) x 90% = `3,39,429√
b) Statement showing Working Capital requirement Particulars Basis of Calculation Raw material in store 13,50,000 x 1.5/12 Work in progress 15000 units of one month Raw Materials 15,000 x 7.50 = 1,12,500 Wages 15,000 x 2.25 x 50% = 16,875 Overheads 15,000 x 3.00 x 50% = 22,500 Stock of finished goods 15,000 x 3 x 12.75 = Inventory Debtors 2.5 x 15,000 x 15 = Cash in Hand Current Asset (A) Creditors 1.5/12 x 13,50,000 = Wages and Overheads 1/12 x 9,45,000 Current Liabilities (B) Working Capital requirement Current Assets– Current Liabilities (A-B) PRIME/41st /ME/IPC
6
Amount (` lakhs) 1,68,750
1,51,875 5,73,750 8,94,375 5,62,500 60,000 15,16,875 1,68,750 78,750 2,47,500 12,69,375
Y
Working Notes : (i) Production during 2009-10 is 1,80,000 units. Production and sales are regular so sales is 1,80,000 units i.e., 15,000 units per month (ii) Statement of Cost and Profit of Silver Coin Ltd. Particulars ` per unit Amount in a Year (` Lakhs) Raw material 50% of `15 7.50 13,50,000 Direct Wages 15% of `15 2.25 4,05,000 Overheads 20% of `15 3.00 5,40,000 Cost of Sales 12.75 22,95,000 Sales 15.00 27,00,000 Profit 2.25 4,05,000 Note: Wages and overheads for WIP has been charged 50% Calculation of Maximum Permissible Bank Finance Method Formula Results I 75%[CA – CL] 9,52,031 II 75% CA – 100% CL 8,90,156 III 75%[CA – CCA] – 100%CL 6,05,742 7.
EM
a) Economic batch quantity Is the quantity to be produced in a batch as a result of which the total cost represented by the sum of setting up cost , carrying cost and other cost of production is lowest. 1
AD
Can be calculated using the
2𝐴𝑆 2 formula( ) 𝐶
PR IM
E
AC
b) Zero based budgeting Budgets are made for the upcoming period , regardless of whether the budget is higher of lower than the previous one Budgets start from a zero base and every function within an organization is analyzed for its needs and costs. c) Liquidity vs. Profitability in working capital management Higher investment in working capital vs fixed assets means higher liquidity and thus lower risks. However returns from working capital is lower than from fixed assets and hence lower profitability A lower investment in working capital would lead to higher profitability but lower liquidity. d) “Money in the future is worth less than similar money today.” Give the reasons and explain. Money received today has more value than money received later because money has time value. Postponing consumption of money would require a compensation which would include opportunity cost of riskless investment and compensation for risk.(Rf + Rp) Thus future cash flows will be discounted at that rate and hence their worth is lesser. e) Do the NPV and Profitability index criterion lead to the same acceptance rejection and ranking decisions? NPV is Present value of Inflows (PVIF) less Present value of outflows(PVOF) while Profitability Index is PVIF/PVOF. Since both use the same parameters the decision regarding acceptance/ rejection is same for both. However while selecting mutually exclusive projects, they may differ when the size of the projects are unequal. Choice should be made on PI in such cases assuming projects are divisible and can be repeated,
PRIME/41st /ME/IPC
7
TATA No. of Pages: 5 No of Questions: 7
Total Marks: 100 Time Allowed: 3 Hrs
Question No. 1 is compulsory. Attempt any five questions from the remaining six questions. Wherever necessary, suitable assumptions should be made by the candidates. Working notes should form part of answer 1. a) Dr. Vijay, a resident individual at Chennai, aged 50 years is running a clinic. His Income and Expenditure Account for the year ending March 31st 2015 is as under: Expenditure Income ` ` To Medicine consumed 8,40,000 By Consultation and 21,00,000 4,25,000 Medical charges 1,55,000 By Income-tax refund 1,20,000 (principal ` 15,000, Interest ` 1,500) 3,00,000 1,00,000 By Dividend from Indian companies
16,500
EM
Y
To Staff salary To Clinic consumables To Rent paid
AD
To Administrative expenses To Donation to IIT Delhi for Research approved under section 35(2AA)
27,000
By Winning from lottery
2,92,500
Net of TDS By Rent
AC
To Net Profit
22,32,500
E
22,32,500
35,000 54,000
PR
IM
(i) Rent paid includes ` 36,000 paid by cheque towards rent for his residence. (ii) Clinic equipments are : 01.04.2014 Opening WDV ` 4,50,000 07.02.2015 Acquired (cost) ` 1,00,000 (iii) Rent received relates to property let out at Chennai. Gross Annual Value ` 54,000. The municipal tax of ` 9,000, paid in January 2015 has been included in “administrative expenses”. (iv) Dr. Vijay availed a loan of ` 5,50,000 from a bank for higher education of his daughter. He repaid principal of ` 50,000, and interest thereon ` 65,000 during the year 2014-15. (v) He paid ` 60,000 as tuition fee to the university for full time education of his son. From the above, compute the total income of Dr. Vijay for the A.Y.2015-16. (10 Marks) b)
Sarvesh Private Limited is engaged in providing taxable services. It received following amounts in the month of July, 2014. Compute the value of taxable service and the service tax payable by it:Receipts Amount (`) Advances received from clients for which no service has been rendered so Far 8,00,000 Demurrage charges recovered for use of the services beyond the agreed Period Security deposits forfeited for damages done by service receiver owing to his negligence in the course of receiving a service
PRIME/41st ME/IPC
1
50,000 5,00,000
Besides the above receipts, one of the clients-XYZ Ltd. made a payment of ` 1,50,000 (out of which `25,000 were paid extra by mistake). However, Sarvesh Private Limited refused to return the excess payment received. Note: Sarvesh Private Limited is not eligible for small service providers’ exemption under Notification No. 33/2012 – ST dated 20.06.2012. (5 Marks) c) Compute total customs duty along with EC and SHEC payable from the following details: (i) Transaction Value u/s 14(1) = ` 1,00,000 (ii) Basic Customs Duty is 10% (iii) Additional Customs Duty u/s 3(1) is 12% (iv) Additional Customs Duty u/s 3(5) is 4%
(5 Marks)
2.
AD
EM
Y
a) Mr. Raja furnishes you the following information for the year ended 31.03.2015 (i) Income from plying of vehicles (as per books) (He owned 7 Vehicles throughout the year) `6,94,400 (ii) Income from Retail Trade of Garments (computed as per books) (Sales Turnover ` 21,70,000) ` 75,000 (iii) He has brought forward depreciation relating to Assessment Year 2013–2014 ` 1,00,000 (iv) On 31.01.2015, he deposited `1,50,000 into his PPF A/c and purchased NSC for ` 1,00,000. Compute Taxable Total Income of Mr. A for AY 2 015–2016. (6 Marks)
IM
E
AC
b) Ms. Geetha was gifted a land by her father in December, 2001 at the occasion of her marriage. The land was allotted to her father in November, 1991 at cost of ` 6 lac by DDA for commercial purpose. She set up a nursery on land, earns profit of ` 4 lacs during the year 2014-15 from seedlings grown in nursery. She sold the nursery to her friend at ` 50 lacs in October, 2014. Her friend paid ` 20 lacs in cash and ` 30 lacs in the form of shares. Market value of land on date of sale was ` 90 lacs and shares ` 70 lacs. Geetha, with an intention to earn profit, invested `20 lacs in shares by purchasing shares for ` 15 lacs from National Stock Exchange and ` 5 lacs in subscription to equity shares forming part of eligible issue of capital by a public company. She spent `60,000 on purchase of computers, ` 20,000 on net connectivity and `2 lacs toward salary and other expenses. She paid monthly rent ` 2,500 for a shop which was taken in October 2014, for trading in shares. Depreciation rate on computers is 60%.
Sales
PR
The value of shares purchased and sold during the year are as follows: Purchases including received from friend ` 80,00,000 ` 1,00,00,000
The market value of shares remains unsold as on 31.03.2015 is ` 40 lakhs. Ms. Geetha (i) Made contribution of ` 20,000 to approved pension fund. (ii) Paid ` 25,000 to LIC for medical insurance premium of self and spouse. (iii) Repaid loan ` 1,00,000 and interest ` 20,000 to SBI taken in February, 2015 for her son’s admission in Sri Ram College of Commerce B.Com. (iv) Contributed ` 25,000 to a research association, which has as its object undertaking of scientific research. Geetha did not earn any short term capital gain during the year. Geetha has not celebrated her 40th birthday yet. Compute the total income of Ms. Geetha and tax thereon payable by her for the Assessment Year 2015-16. Cost inflation index for financial year 1991-92 is 199, 2001-02 is 426 and 201415 is 1024. (10 Marks)
PRIME/41st ME/IPC
2
3. a) Roshan Professionals Ltd., engaged in providing services which became taxable with effect from July 01, 2014, furnishes you the following information for the month of July, 2014: Particulars
Amount
Advance received for the services to be performed in October, 2014
(`) 9,00,000
Free services rendered to the friends (Value of similar services is 20,000) Services received from its associated enterprise located in UK (Books of accounts were debited on July 14, 2014, but payment has not yet been made)
5,00,000
Other services rendered during the month
8,00,000
Y
(Invoices raised for the same in July, 2014)
EM
Note: The amounts given above are inclusive of service tax wherever applicable. Compute the service tax liability of Roshan Professionals Ltd. for the month of July, 2014.
4.
PR
IM
E
AC
AD
(8 Marks) b) Shiva Ltd. of Delhi made a total purchases of input and capital goods of ` 55,00,000 during the month of January, 2015. The following further information is available: (i) Goods worth ` 9,00,000 were purchased from Orissa on which C.S.T. @ 2% was paid. (ii) The purchases made in January, 2015 include goods purchased from unregistered dealers amounting to ` 21,50,000. (iii) It purchased capital goods (not eligible for input credit) worth ` 9,50,000 and those eligible for input credit for ` 9,00,000. (iv) Sales made in Delhi during the month of January, 2015 is ` 10,00,000 on which VAT @ 12.5% is payable. Assuming that all purchases given are exclusive of tax and VAT @ 4% is paid on them, calculate (i) the amount of input tax credit available for the month of January, 2015 (ii) VAT payable for the month of January, 2015 and (iii) input tax credit carried forward. Note: The input VAT credit on eligible capital goods is available in 36 equal monthly installments. (8 Marks) a) State with reason whether the following statements are true or false: (i) An individual is not liable to file service tax return since he has not provided any service during the first half year period of April to September. (ii) The service tax return which is filed belatedly could not be revised. (iii) Multiple Service Provider can use a single challan for payment of Service Tax for various services rendered. (iv) Input tax credit will not be taken from the Purchase of non creditable goods (4 x 2=8 Marks)
PRIME/41st ME/IPC
3
b) State whether the following are chargeable to tax under the head “Income from other sources” and if so, what is the amount liable to tax: (i) Mr. Anand received a cash gift of ` 75,000 from Jeevan Charitable Trust (registered under section 12AA) in January 2015 for meeting his medical expenses. (ii) Prakash & Sons (HUF) received ` 60,000 in cash from elder son of Prakash. Prakash is the Karta of the HUF. (iii) (iv) (v)
Interest on enhanced compensation of ` 1,00,000 was received as per court decree in March, 2015 by Mr. Akash. Out of the said amount, a sum of ` 70,000 relates to preceding financial years (iv) Arun took a loan of `18,00,000 from Reliance Power Ltd. in which he is holding 15% of equity shares. On the date of granting the loan, the company had accumulated profit of ` 75,00,000. Interest of `5,000 on bank FDRs received by minor son of Sulochana (widow). These FDRs were made by the minor son out of his earnings from application of his painting skills. (8 Marks)
5.
E
AC
AD
EM
Y
a) Safe Kitchen is a leading manufacturer of pressure cookers Legal Metrology Act, 2009 requires declaration of retail sale price on the package of pressure cookers and pressure cookers are also notified under section 4A of Central Excise Act, 1944 [Retail Sale Price (RSP) based valuation] with notified rate of abatement of 25%. Calculate excise duty payable on 50 pieces cleared during October, 2014 using the following information furnished by Safe Kitchen assuming the rate of excise duty as 12% plus 2% education cess and 1% secondary and higher education cess: No. of Particulars Pieces sold 10 RSPs printed on the package of pressure cooker are ` 4,500 and ` 3,800. 20 RSP printed on the package of 15 pieces sold in Delhi is ` 3,000 per piece. RSP printed on the package of 5 pieces sold in Haryana is `2,800 per piece 20 RSP printed on the date of removal of package from factory is `3500 per unit. However, after removal from factory RSP is increased to `4,100 per Piece
IM
Would the provisions of section 4A of Central Excise Act, 1944 apply had the goods not been notified by Central Government and manufacturer voluntarily affixed RSP on the products? (8 Marks)
PR
b) What is Income received or deemed to be received in India and explain the taxability of the same. (4 Marks) c) what is the applicable TDS rate u/s 194 C, 194 I & 194 J (4 Marks) 6. a) Explain the consequence of filing the income tax after the due date A belated return cannot be revised and carried forward of loss other than depreciation loss is not allowed. (4 Marks) b) Explain the filing of tax returns by Universities, Colleges as per Section 139(4D) c) Calculate the excise duty payable for Mr. A from the following details? ` Total invoice price (exclusive of taxes) 40,000 VAT paid by Mr. A 5,000 Insurance charges 500 Packing charges 1,000 Outward freight beyond the place of removal 6,200
PRIME/41st ME/IPC
4
(4 Marks)
(8 Marks)
7. a) Compute net VAT liability of Rajesh from the following information:` Particulars Raw materials from foreign market (including duty paid on imports @ 20%) Raw material purchased from local market 2,50,000 Cost of raw material 30,000 Add: Excise duty @ 12% ---------2,80,000 11,200 Add: VAT @ 4% -----------
1,20,000
2,91,200 51,000
Y
10,000 21,000
EM
Raw material purchased from neighbouring State (including CST @ 2%) Storage and transportation cost Manufacturing expenses
`
AD
Rajesh sold goods to Kumar and earned profit @ 12% on the cost of production. VAT rate on sale of such goods is 4%. (5 Marks)
PR
IM
E
AC
b) Details of Mr. Nithesh is provided below for the preparation of his Income Tax Return for AY 2015– 2016 – ` (i) Loss under the head ‘Business’ 1,00,000 (ii) Capital Gains on sale of House Property – Long Term 2,00,000 (iii) Capital Loss on Sale of Shares – Short Term 50,000 (iv) Loss in respect of Property used for the purpose of residence 10,000 (v) Loss in respect of Property let out 25,000 Share of Loss from Firm brought forward from A.Y. (vi) 2009–2010 60,000 Compute the Net Income / Loss, and Determine the loss, if any to be carried forward along with reason. (5 Marks) (3 Marks)
c) Define service and input tax credit?
d) Mr. B is an employee of Y Ltd. and has substantial interest in the company. His salary is ` 20,000 p.m. Mr. B is also working in Y Ltd. at a salary of ` 12,000 p.m. without any qualifications. Mr. B also receives ` 30,000 as interest on securities. Mr. B owns a house property which she has let out. Rent received from tenants is ` 6000 p.m. compute the gross total income of Mr. B for the A.Y.2015-16. (3 Marks)
PRIME/41st ME/IPC
5
PRIME ACADEMY 41st SESSION MODEL EXAM – IPC -- TAXATION SUGGESTED ANSWERS 1. a) I
` 54,000 _9,000 45,000 13,500
Income from profession Net profit as per Income and Expenditure account Less: Items of income to be treated separately (i) Income tax refund (including interest) (ii) Dividend from Indian companies (iii) Winning from lottery (net of TDS) (iv) Rent received
`
31,500
2,92,500 16,500 27,000 35,000 54,000 1,32,500 1,60,000
AD
EM Y
II
`
Particulars Income from house property Gross Annual Value Less: Municipal taxes paid Net Annual Value Less: Deduction under section 24 @30%
AC
Add: Expenditure debited but not allowable (i) Rent for his residence (ii) Municipal tax paid relating to residential house at Chennai included in administrative Expenses
36,000 9,000
45,000 2,05,000
IM
E
Less: Expenditure allowable but not debited
PR
Depreciation on Clinic equipments u/s 32 on ` 4,50,000 @ 15% on ` 1,00,000 @7.5% (i.e.50% of 15%)
67,500 7,500 75,000
Additional deduction of 100% in respect of amount paid to IIT [since weighted deduction of 200% is available in respect of such payment under section 35(2AA)] 1,00,000
1,75,000 30,000
III. Income from other sources Interest on Income-tax refund
1,500
Dividend from Indian companies
27,000
Less: Exempt under section 10(34) Winnings from lottery (See Note 1)
27,000
Gross Total Income
PRIME/41st ME/IPC
Nil 50,000
51,500 1,13,000
1
Less: Deductions under Chapter VI A: Under section 80C Tuition fee paid to university for full timeeducation of his son
-
-
Under section 80E Interest on loan taken for higher education of daughter
`
`
60,000
65,000 1,25,000
but restricted to (See Note 2)
63,000
Total income
50,000
AD
EM Y
Notes: 1. Winnings from lottery should be grossed up for the chargeability under the head “Income from other sources”. The applicable rate of TDS is 30%. Gross income from lottery, would, therefore, be ` 35,000/70% = `50,000 2. Deduction under Chapter VI-A cannot exceed Gross Total Income. Further, no deduction is allowable from income by way of winning from lottery. Therefore, the maximum deduction allowable would be ` 63,000. ` Gross Total Income 1,13,000 Less: Winnings from lottery 50,000
IM
E
AC
Maximum deduction under Chapter VI-A 63,000 The total income of `50,000 would, therefore, represent winnings from lottery taxable at a flat rate of 30%, without any basic exemption limit. 3. Dr. Vijay is staying in a rented premises in Chennai itself. Hence, he would not be eligible for deduction under section 80GG, since he owns a house in Chennai which he has let out.
b)
PR
Particulars Amount (`) Advances received from clients for which no service has been rendered so far 8,00,000 (Note-1) Demurrage charges recovered for use of the services beyond the agreed 50,000 period (Note-2) Security deposits forfeited for damages done by service receiver owing to his negligence in the course of receiving a service (Note-2) 5,00,000 Payment received from ABC Ltd. (Note-3) 1,50,000 Total 15,00,000 Value of taxable service= 15,00,000 100 × 112.3 13,34,995 Service tax liability = 15,00,000 12.36 x 112.6
PRIME/41st ME/IPC
1,65,005
2
Notes 1. 2.
3.
Advances received in July, 2014 shall be taxable in the month of receipt of advance only [Rule 3 of the Point of Taxation Rules, 2011] As per rule 6 of the Service Tax Valuation (Determination of Value) Rules, 2006, (a) Demurrage charges recovered for use of the services beyond the period agreed upon are includible in the value of taxable service. (b) Accidental damages are excluded from the value of taxable services provided such damages are due to unforeseen actions and are not related to provision of services. However since in the given case, damages are due to negligence of the service receiver in the course of receiving the service, forfeited security deposits relating to such damages shall be includible in the value of taxable service. Excess payment made as a result of a mistake, if not returned, but retained by the service provider, becomes a part of the taxable value of services (entire `150000)
AC AD
EM
Y
c) When ACD u/s 3(1) & 3(5) is levied (assuming Excise Duty is 12%) 1. Transaction Value u/s 14(1) 2. Basic Customs Duty (BCD) at 10% 3. ACD u/s 3(1 ) at 12% = 12 % of (Transaction Value + B CD) = 12% of ` 1,10,000 4. BCD + ACD u/s 3(1) [(2) + (3)] 5. EC on Customs Duty = 2% on 23,200 6. SHEC on Customs Duty = 1% on 23,200 7. ACD u/s 3(5 ) at 4% = 4% on [A.V. + BC D + ACD u/s 3(1) + EC + S HEC thereon + Customs EC + SHEC] =4% on (1,00,0 00 + 10,000 + 13,200 + 464 + 232) 8. Total Customs Duty, EC & SHEC payable [(4) + (5) + (6) + (7)] 2.
E
a)
PR
IM
Computation of Taxable Income of Mr. Raja Profits and Gains of Business or Profession: Plying Goods Carriage Vehicle u/s 44AE (Note 1) – Higher of the 1. following Presumptive Income (7 Carriages × 7,500 p.m .× 12 Months) Actual 2. Retail Trade u/s 44 AD (21,70,000 x 8%)
`
6,30,000 6,94,400
` 1,00,000 10,000 13,200 23,200 464 232 4,956 28,852
`
6,94,400 1,73,600
Profits and Gains of Business or Profession Brought Forward Depreciation 32(2) can be off against any head of Less: set Income
( 1,00,000)
Gross Total Inco me Less: Deductions under Chapter VI A Sec.80C Total Income
7,68,000 ( 1,50,000) 6,18,000
PRIME/41st ME/IPC
(Investment in PPF, NSC)
3
8,68,000
b) Computation of total income of Ms. Geetha for A.Y. 2015-16 `
` 17,03,250
90,00,000 14,42,254
AC AD
75,57,746 92,60,996
Y
20,000 15,000
EM
Particulars Business Income (Refer Note - 2) Capital Gain on Sale of land Sale consideration (Refer Note- 1) Less: Indexed Cost of Acquisition (6,00,000 × 1024/426) (Refer Note – 3) Gross Total Income Less: Deduction under Chapter VI-A Section 80CCC Contribution to approved pension fund Section 80D Medical insurance premium paid for self and spouse 25,000, deduction limited to 15,000 Section 80E Interest paid on education loan for studies of son Total Income
20,000
PR
IM
E
Computation of tax liability of Ms. Geetha for the A.Y. 2015-16 Particulars ` ` Agricultural income (Profit from nursery business) 4,00,000 Non-agricultural income 92,05,996 96,05,996 Step 1 Tax on 96,05,996 (aggregate of agricultural and nonagricultural income) Long-term capital gain (75,57,746 x 20%) 15,11,549 Tax on balance income of 20,48,250 4,39,475 agricultura Step 2 Tax on 6,50,000 (aggregate of l income and basic exemption limit of 2,50,000) Step 3 Tax on non-agricultural income (Difference of step 1 & Step 2 ) Add: Education Cess @ 2% Add: Secondary and Higher Education Cess @1% Total Tax Liability Total tax liability (rounded off)
_ 55,000 92,05,996
PRIME/41st ME/IPC
4
19,51,024 (55,000) 18,96,024 37,920 __ 18,960 19,52,904 19,52,900
Notes: (1)
Computation of consideration on sale of land
Value of cash received
` 20,00,000
Market value of shares received
70,00,000
Total Sale consideration
90,00,000
Particulars
(2)
Computation of Business Income
Particulars ` 1,20,00,000 By Sales By Closing Stock (Assuming Market 20,00,000 value is less than cost
lacs -
` 1,00,00,000
EM
Particulars To Purchases (80 30 lacs + 70 lacs)
Y
Trading Account for the year ended 31.03.2015
AC AD
To Gross Profit
40,00,000
of shares)
1,40,00,000
`
IM
E
Particulars Gross Profit as per Trading Account
` 20,00,000
20,000 2,00,00 0
PR
Less: Expenses on net connectivity Salary
1,40,00,000
Rent (` 2,500 x 6) Depreciation on Computers (` 60,000 × 60% × 50%) (Assuming used for less than 180 days in the year)
15,000 18,000
2,53,000 17,47,000
Less: Contribution to Scientific Research Institution under section 35(1) (` 25,000 x 175%) Business Income
PRIME/41st ME/IPC
43,750 17,03,250
5
Y
(3) Since the property was acquired by Ms. Geetha by way of gift, the cost of acquisition will be cost to the previous owner. As per the definition of indexation cost of acquisition under clause (iii) of Explanation below section 48, indexation benefit will be available only from the previous year in which Geetha first held the asset i.e. P.Y. 2001-02. However, as per the view expressed by Bombay High Court, in the case of CIT v. Manjula J. Shah 16 Taxmann 42, in case the cost of acquisition of the capital asset in the hands of the assessee is taken to be cost of such asset in the hands of the previous owner, the indexation benefit would be available from the year in which the capital asset is acquired by the previous owner. If this view is taken, the indexed cost of acquisition would be 30,87,437 and long term capital gain would be 59,12,563. (4) Deduction under section 80C is not provided in respect of 5 lacs subscription to equity shares forming part of eligible issue of capital by a public company, assuming it has been sold in the current year. (5) Repayment of principal portion of education loan does not qualify for deduction under Section 80E. (6) Income from seedlings grown in nursery is exempt under section 10(1) as it is agricultural income. However, the same would be aggregated for rate purposes.
EM
3.
a) Computation of service tax liability of Roshan Professionals Ltd:-
AC AD
Particulars Service tax payable on taxable services provided:
Advance received for the services to be performed in October, 2014. (Note-1) Value of free services rendered to the friends (Note-2)
Amount (`)
9,00,000 Nil 8,00,000
Total
17,00,000
IM
E
Other services rendered during the month
Less: Exemption available to small service providers (Note-3) Value of taxable services
10,00,000 7,00,000
PR
77,002
Service tax payable = 12.36 7,00,000× 112.36 (A) Service tax payable on taxable services received: Services received from its associated enterprise located in UK (Note-4)
5,00,000
Service tax payable on services received =(5,00,000×12.36/112.36) (B)
55,002
Total service tax liability (A) + (B)
1,32,004
Notes:1. Advances received in July, 2014 is taxable in the month of receipt of advance only. [Rule 3 of POTR ] 2. Service is an activity carried out, inter alia, for a consideration. Therefore, since no consideration is involved in case of free services, service tax is not payable thereon. PRIME/41st ME/IPC
6
3. Since, services provided by Roshan Professional Ltd. became taxable on July 01, 2014, aggregate value of taxable services rendered in preceding financial year 2013-14 is Nil. Hence, Roshan Professional Ltd. is eligible for small service provider’s exemption. 4. In case where the taxable services are provided by any person which is located in a non taxable territory and received by any person located in the taxable territory, entire service tax is payable by service receiver. SSP exemption is not available in respect of services taxed under reverse charge mechanism. 5. Further, in case of “associated enterprises”, where the person providing the service is located outside India, POT is date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier. [Rule 7 of the POTR] b)
Y
` 55,00,000 9,00,000
40,00,000 15,00,000
24,000 1,000
25,000 1,00,000 Nil
PR
IM
E
AC AD
EM
Particulars ` À. Purchases made in January, 2015 Less: (i) Inter-State purchases (input credit not available) (ii) Purchase from unregistered dealer (input credit not available) 21,50,000 (iii) Capital goods (not eligible for input credit) 9,50,000 Total purchases eligible for tax credit B. Input tax credit available VAT credit on input @ 4% 4% of (`15,00,000 – `9,00,000) i.e. 4% of ` 6,00,000 VAT credit on eligible capital goods (4% of `9,00,000) x 1/36 Input credit available for January, 2015 25,000 C. VAT on sales @ 12.5% of `10,00,000 1,25,000 Less: Input tax credit Net VAT payable Input tax credit carried forward to February,2015 4. a)
1. False: Even if no s ervice has been provided during a half–year and no Service Tax is payable, the Asses see has to file a NIL Return wi thin the prescribed time limit 2. False: Belated service tax return can be revised within 90 days from the date of filing the Original Return, to rectify mistakes or omissions if any, in the Original Return. 3. True: Multiple Service Provider can either use single GAR 7 Challan for making payment in respect of all services or separate challans for each services 4. True: Purchase of non creditable goods is not eligible for input tax credit b) (i) Not Taxable -The provisions of section 56(2)(vi ) would not apply to any sum of money or any property received from any trust or institution registered under section 12AA. Therefore, the cash gift of ` 75,000 received from Jeevan Charitable Trust, being a trust registered under section 12AA, for meeting medical expenses would not be chargeable to tax under section 56(2)(vi ) in the hands of Mr. Anand. PRIME/41st ME/IPC
7
EM
Y
(ii) Not taxable - Any sum of money received without consideration by a HUF from its relative is not taxable under section 56(2)(vi ), even if the receipt exceeds `50,000. Since Prakash’s son is the member of the HUF, he is a relative of the HUF. Therefore, the cash received from him is not taxable in the hands of Prakash & Sons (HUF). (iii) Taxable – ` 50,000 - As per section 56(2)(vi i), interest on enhanced compensation is taxable in the year in which it is received. Deduction of 50% in respect of the said income is al owed under section 57(iv). Therefore, ` 50,000 (i.e., `1,00,000 – ` 50,000) is taxable in the hands of Mr. Akash in the F.Y.2014-15. (iv) Not Taxable - Since the loan is given by a company in which public are substantial y interested, the provisions of section 2(22)(e) would not get attracted and therefore, the loan would not be taxable as deemed dividend in the hands of Arun. (v) Taxable – `3,500 - Since interest of ` 5,000 on bank FDRs received (` 5,000- by minor son of Sulochana does not arise to him on `1,500) account of his manual work or on account of an activity involving his skill, talent or specialized knowledge or experience, therefore, such interest should be included in income of Sulochana under section 64(1A). However, exemption of `1,500 under section 10(32) would be available in respect of the interest so included in her hands. 5.
PR
IM
E
AC AD
(a) Since Legal Metrology Act, 2009 requires declaration of retail sale price on the package of pressure cooker and pressure cookers are also notified under section 4A of Central Excise Act, 1944 (RSP based valuation provisions), excise duty will be payable on the basis of RSP less abatement. Particulars ` ` RSP of 10 pieces (10 × `4,500) (Note-1) 45,000 Less: Abatement @ 25% 11,250 Assessable value (A) 33,750 RSP of 15 pieces sold in Delhi (15 ×`3,000) (Note-2) 45,000 Less: Abatement @ 25% 11,250 Assessable value (B) 33,750 RSP of 5 pieces sold in Haryana (5 × `2,800) (Note 2) 14,000 Less: Abatement @ 25% 3,500 Assessable value (C) 10,500 RSP of 20 pieces (20 ×` 4,100) (Note-3) 82,000 Less: Abatement @ 25% 20,500 Assessable value (D) 61,500 ---------Total assessable value (A) +(B)+(C)+(D) 1,39,500 Excise duty @ 12% [12% of `1,39,500] 16,740 Education cess @ 2% [2% of `16,740] 335 Secondary and Higher Education Cess @ 1% [1% of `16,740] 167 Total excise duty payable (rounded off) 17,242 Notes: 1. Where more than one RSP is declared on the package of excisable goods, the maximum of such price will be deemed to be the RSP. 2. If different RSPs on different packages are declared for different areas, each such RSP is deemed to be the RSP. 3. If RSP on the package is increased after removal from factory, increased RSP would be deemed to be the RSP. PRIME/41st ME/IPC
8
All goods on which RSP has been declared will not be covered under the provisions of section 4A. Only when the declaration of RSP on the goods is mandatory under the Legal Metrology Act, 2009 or under any other law and such goods have been notified by the Central Government for the purpose of section 4A, then the goods be valued under section 4A. Thus, provisions of section 4A of Central Excise Act, 1944 would not apply if the goods had not been notified by Central Government and manufacturer voluntarily affixed RSP on the products.
IM
E
AC AD
EM
Y
b) All assessees are liable to tax in respect of the income received or deemed to be received by them in India during the previous year irrespective of (i) their residential status, and (ii) the place of its accrual. Income is to be included in the total income of the assessee immediately on its actual or deemed receipt. The receipt of income refers to only the first occasion when the recipient gets the money under his control. Therefore, when once an amount is received as income, remittance or transmission of that amount from one place or person to another does not constitute receipt of income in the hands of the subsequent recipient or at the place of subsequent receipt. Income deemed to be received – Under section 7, the following shall be deemed to be received by the assessee during the previous year irrespective of whether he had actually received the same or not (i) The annual accretion in the previous year to the balance to the credit of an employee participating in a recognised provident fund (RPF). Thus, the contribution of the employer in excess of 12% of salary or interest credited in excess of 9.5% p.a. is deemed to be received by the assessee. (ii) The taxable transferred balance from unrecognized to recognized provident fund (being the employer’s contribution and interest thereon). (iii) The contribution made by the Central Government or any other employer in the previous year to the account of an employee under a pension scheme referred to under section 80CCD. c) 194 C for contract payments – 2% for companies & 1% for others 194 I for rent payments – 2% for rent of plant, machinery & equipment and 10% in respect of all other rent payments (threshold limit is `180,000) 194 J for professional charges – 10 % ((threshold limit is `30,000) 6.
PR
a) A belated return cannot be revised and carried forward of loss other than depreciation loss is not allowed. b) (1) It will be mandatory for every university, college or other institution referred to in clause (ii) and clause (iii) of section 35(1), which is not required to furnish its return of income or loss under any other provision of section 139, to furnish its return in respect of its income or loss in every previous year. (2) All the provisions of the Income-tax Act, 1961 shall apply to such return as if it were a return under section 139(1). c) Particulars ` Invoice price exclusive of taxes 40,000 Less: Insurance charges 500 Outward freight 6,200 Assessable value 33,300 Computation of Excise duty: 33,300 x 12.36% 4,116 PRIME/41st ME/IPC
9
Note: Packing charges are includible in assessable value, deduction for the same has not been provided. 7. a) Computation of VAT liability of Rajesh:`
Particulars
`
Raw materials purchased from foreign market (including duty paid on imports @ 20%) [Customs duty forms part of cost of production, input tax credit of customs duty paid is not available]
Storage and transportation cost Manufacturing expenses
Cost of production Add: Profit @ 12% of cost of production
Nil
IM
E
Nil
2,80,000
51,000
10,000 21,000 ---------4,82,000 57,840 ----------5,39,840 21,593.6 21,594
11,200 ---------
PR
Sale Price VAT @ 4% on `5,39,840 Net VAT liability of Raja:VAT on sale price (rounded off) Less: Input tax credit Duty paid on imports CST paid on inter-State purchases VAT paid on local purchases
11,200 -------10,394
Net VAT payable by Rajesh
PRIME/41st ME/IPC
Y
AC AD
Raw material purchased from neigh bouring State (including CST @ 2%) [Input tax credit of CST is not available]
2,50,000 30,000 -------------
EM
Raw material purchased from local market:Cost of raw material Add: Excise duty @ 12% [Input tax credit of excise duty is not available]
1,20,000
10
b) Computation of Total Income of Mr. Nithesh
Income from House Property: Loss from Self Occupied Property Loss from Let Out Property
` (10,000) (25,000)
Less: Set–o ff against Long Term Capital Gain
(35,000) 35,000
NIL
(1,00,000) 1,00,000
NIL
EM
Y
Profits and Gains of Business or Profession Loss under the head Business or Profession Less: Set–o ff against Long Term Capital Gain
AC AD
Capital Gains Long Term Capital Gain o n Sale of Residential House Property Set–off of Short Term Capital Loss on Sale of Shares Taxable L ong Term Capital Gain Less: Amount utilized to s et–off Business Loss Less: Amount utilized to s et–off Loss fro m House Property
`
2,00,000 (50,000) 1,50,000 (1,00,000) (35,000)
E
Total Income
15,000 15,000
PR
IM
Notes: Share Income from Partnership Firm is exempt from tax u/s 10( 2A). Therefore, Share of Loss in relation to 1. Exempt Income is not eligible for Set off and Carry Forward. As per Circular No. 58 7 of 11.12.1990, the order of set–off / carry–forward off losses, effect has to be firs t 2. given to the provisions of Sec.70 and then Sec .71 and then Sec. 72 to 74. Therefore, first, current year losses have been set–off against income under the same head, i.e. Short Term Capital Loss against Long Term Capital Gains. c) “Service” means (i) any activity for consideration (ii) carried out by a person for another and (iii) includes a declared service. 1. Input tax credit is an aggregate total amount of tax paid by a registered dealer on the total purchases made by him within the State from other registered dealers (for a particular period.); but not eligible in some cases. 2. The input tax credit includes the purchase tax paid under Section 12 of the VAT Act. 3. The input tax credit can be adjusted against the tax payable by the purchasing dealer on his sales. PRIME/41st ME/IPC
11
4. The dealers are not eligible for input tax credit on all inputs. There are certain restrictions and conditions on eligibility of input tax credit. They are given in detail under TNVAT Act, 2006.
d)
Since Mr B is not professionally qualified for the job, the clubbing provisions shall be applicable. Computation of Gross total income of Mr.B `
Particulars Income from Salary Salary received by Mr. B (` 20,000 × 12) Salary received by M` B (` 12,000 × 12)
2,40,000 1,44,000 3,84,000
Y
Income from other sources Interest on securities
EM
30,000
Particulars Income from Salary [clubbed in the hands of Mr. B]
IM
E
Income from house property Gross Annual Value [` 6,000 × 12] Less: Municipal taxes paid Net Annual Value (NAV)
AC AD
Computation of Gross total income of M` B
PR
Less: Deductions under section 24 30% of NAV i.e., 30% of ` 72,000 Interest on loan Gross total income
PRIME/41st ME/IPC
`
` Nil
72,000 72,000
21,600 -
12
4,14,000
50,400 50,400
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